G.R. No.

L-36413 Sept26, 1988 - 165 SCRA 536

Malayan Insurance Co., Inc. vs. CA
Padilla, J.

Facts:
Malayan Insurance Co., Inc. (petitioner) issued a private car comprehensive policy to Sio Choy, covering a
Willys jeep driven by Juan P. Campollo, an employee of San Leon Rice Mill, Inc. The jeep collided with a bus
owned by Pangasinan Transportation Co., Inc. (PANTRANCO) causing injuries and damages. Martin C.
Vallejos, a passenger in the jeep, filed an action for damages against Sio Choy, Malayan Insurance, and
PANTRANCO. Sio Choy and Malayan Insurance denied liability, attributing fault to PANTRANCO. Sio Choy
also filed a cross-claim against Malayan Insurance for reimbursement under the insurance policy. Malayan
Insurance filed a third-party complaint against San Leon Rice Mill, Inc., claiming it should be liable for the
actions of its employee, Campollo.

RTC Ruling:
The Court of First Instance of Pangasinan found Sio Choy, Malayan Insurance, and San Leon Rice Mill, Inc.
jointly and severally liable to Vallejos, awarding a total of P29,103.00 in damages, with Malayan Insurance's
liability limited to P20,000.00. PANTRANCO was absolved from liability due to lack of evidence for damages
to its bus and attorney's fees.

Court of Appeals Ruling:

Affirmed the RTC's decision but clarified that San Leon Rice Mill, Inc. had no obligation to reimburse Malayan
Insurance because it was not a party to the insurance contract between Sio Choy and Malayan Insurance.

Issue:
Whether the Court of Appeals erred in holding petitioner and respondents "solidarily liable" to Vallejos and
whether petitioner is entitled to be reimbursed by San Leon Rice Mill, Inc.

Supreme Court Ruling:

The Supreme Court held that only Sio Choy and San Leon Rice Mill, Inc. are solidarily liable to Vallejos, not
including Malayan Insurance. The Court reasoned that Malayan Insurance's liability arises from its contract
with Sio Choy and not from a tort, making the concept of solidary liability inappropriate. The Court also
disagreed with the Court of Appeals on the reimbursement issue, invoking the principle of subrogation in
insurance contracts. Upon payment, Malayan Insurance is entitled to reimbursement from San Leon Rice Mill,
Inc., as it stands in the shoes of Sio Choy to the extent of the payment made. The decision of the lower courts
was affirmed with modification, granting Malayan Insurance's petition.

Conclusion:
The Supreme Court modified the lower courts' decisions by removing Malayan Insurance from the solidary
liability with Sio Choy and San Leon Rice Mill, Inc. and ruled that Malayan Insurance is entitled to
reimbursement from San Leon Rice Mill, Inc. after payment to Vallejos.

*************
NOTES:

RECAP:

The case under review originates from the judgment of the Court of Appeals in CA-G.R. No. 47319-R, dated
February 22, 1973, which mostly upheld the decision made on April 27, 1970, by the Court of First Instance of
Pangasinan in Civil Case No. U-2021, albeit with certain adjustments.

The case's background is as follows:

On March 29, 1967, the petitioner, Malayan Insurance Co., Inc., issued a comprehensive insurance policy for a
private car owned by the private respondent Sio Choy. This policy, numbered MRO/PV-15753, was valid from
April 18, 1967, to April 18, 1968, and covered a Willys jeep. It provided "own damage" coverage up to P600.00
and "third-party liability" coverage up to P20,000.00.

During the policy's validity, on December 19, 1967, the insured jeep, driven by Juan P. Campollo, an employee
of the respondent San Leon Rice Mill, Inc., collided with a passenger bus owned by the respondent Pangasinan
Transportation Co., Inc. (PANTRANCO) in Barrio San Pedro, Rosales, Pangasinan. The accident resulted in
damages to the jeep and injuries to the driver, Campollo, and Martin C. Vallejos, a passenger in the jeep.

Subsequently, Martin C. Vallejos filed a lawsuit for damages against Sio Choy, Malayan Insurance Co., Inc.,
and PANTRANCO in the Court of First Instance of Pangasinan, seeking a total of P77,000 in damages and
attorney's fees.

PANTRANCO contended that the accident was caused by the excessive speed of Sio Choy's jeep, which
crashed into the bus as it had moved to the roadside to avoid the collision, and claimed it had exercised due
diligence in vehicle maintenance and employee supervision, requesting dismissal of the claims against it.

Sio Choy and the insurance company denied liability, attributing the accident's cause to PANTRANCO.
However, Sio Choy later submitted a separate answer with a cross-claim against the insurance company,
seeking reimbursement for any damages paid, based on the insurance policy.

The insurance company also filed a third-party complaint against San Leon Rice Mill, Inc., arguing that since
the jeep's driver was performing his duties for the mill at the accident time, the mill should bear any
compensation liability.

The trial court's decision held Sio Choy, Malayan Insurance Co., Inc., and San Leon Rice Mill, Inc., jointly and
severally liable for a total of P29,103 in damages to Vallejos, but limited the insurance company's liability to
P20,000. PANTRANCO's claims were dismissed due to lack of evidence.

Upon appeal, the Court of Appeals agreed with the joint and several liabilities of Sio Choy, the insurance
company, and the rice mill towards Vallejos but decided that the rice mill was not obligated to reimburse the
insurance company, as it was not a party to the insurance contract.
The insurance company has now sought a review of the appellate court's decision, specifically contesting its
responsibility to pay without compensation from San Leon Rice Mill, Inc., and requesting that, if found liable,
the rice mill be ordered to reimburse any damages paid beyond half of the total damages awarded.

The Supreme Court has agreed to review the case, focusing solely on the potential reimbursement responsibility
of San Leon Rice Mill, Inc. to the insurance company, allowing for the execution of the judgment in favor of
Vallejos against the respondents, pending the outcome of this specific issue.

The key issues for determination are whether the initial ruling of solidary liability among the petitioner, Sio
Choy, and San Leon Rice Mill, Inc. was correct and if the insurance company is entitled to reimbursement from
San Leon Rice Mill, Inc. for any damages paid under its policy.

RULING:

The Supreme Court, in reviewing the case originating from the decision of the Court of Appeals in CA-G.R.
No. 47319-R, which had largely endorsed the initial judgment by the Court of First Instance of Pangasinan,
contested the ruling that the petitioner, Malayan Insurance Co., Inc., along with respondents Sio Choy and San
Leon Rice Mill, Inc., were collectively responsible for compensating respondent Vallejos.

Contrary to the lower courts' findings, the Supreme Court determined that only Sio Choy and San Leon Rice
Mill, Inc., excluding the petitioner, bear joint responsibility towards Vallejos for the damages awarded.

The Supreme Court noted that Sio Choy's liability stemmed from owning the vehicle involved in the accident,
as outlined in Article 2184 of the Civil Code, which holds vehicle owners jointly liable with their drivers under
certain conditions. Meanwhile, San Leon Rice Mill, Inc.'s liability to Vallejos arises from its status as the
employer of the driver at the accident's time, according to Article 2180 of the Civil Code, which attributes
employers' liability for their employees' actions within their professional duties.

The distinction was made between the tort-based liability of Sio Choy and San Leon Rice Mill, Inc., and the
contractual liability of the petitioner, stemming from its insurance agreement with Sio Choy. The Supreme
Court clarified that while the insurer can be directly sued by third parties, it does not equate to solidary liability
with the insured or others found at fault. This is because the insurer's obligation is contractual, whereas the
insured's is based on tort.

Referencing a previous case, Guingon vs. Del Monte, the Court highlighted that the insurance company's
liability is up to the amount specified in the insurance contract and does not extend to solidary liability with the
vehicle owner and driver at fault. This principle respects the nature of solidary obligations and insurance
contracts, which are inherently distinct.

The Supreme Court also addressed the appellate court's rejection of the petitioner's claim for reimbursement
from San Leon Rice Mill, Inc., critiquing its disregard for the principle of subrogation in insurance. This
principle entitles the insurer, upon compensating the loss, to step into the shoes of the insured and exercise their
rights against third parties responsible for the loss.

In conclusion, the Supreme Court modified the lower courts' rulings by specifying that only Sio Choy and San
Leon Rice Mill, Inc. are jointly liable to Vallejos. It also recognized the petitioner's right to seek reimbursement
from San Leon Rice Mill, Inc., as a subrogee, for any payments made up to the insurance policy's limits. This
decision underscores the legal distinctions between tort and contractual liabilities, and the implications of
insurance and subrogation principles in such contexts.

SEPARATE OPINION