Malayan Insurance Corp. v.

Court of Appeals
G.R. No. 119599, [March 20, 1997], 336 PHIL 977-989
Doctrine:
The victim of a vehicle accident may hold liable both the offending party
(driver) and owner of the vehicle which is insured, in cases where the offending
party (driver) is not the owner of the vehicle. In which case, they will both be
held solidarily liable, subject to the right of the insured party to demand
reimbursement from the insurer.
Facts:
Sio Choy insured his jeep with Malayan Insurance Co., Inc. The insurance
coverage was for “own damage” and “third-party liability.”
The jeep then collided with a bus while being driven by an employee of San
Leon Rice Mill, Inc. (SLRMI) which this resulted to damages to the jeep, death of
the driver, and injuries to Martin Vallejos, a passenger of the jeep.
Vallejos filed a complaint for damages against Sio Choy, Malayan Insurance,
and the bus company. Sio Choy then filed a cross-claim against the insurer
Malayan on ground that he had actually paid the injured passenger.
The insurer also filed a third-party complaint against SLRMI, as the
employer of the negligent driver.
The lower courts held the Sio Choy, Malayan Insurance Co., and driver’s
employer jointly and severally liable.
Issue:
Whether the insured Sio Choy, SLRMI, or the insurer Malayan Insurance is
liable for the third-party liability insurance.
Ruling:
The SC held that only Sio Choy and SLRMI were solidarily liable to the
victim, but upon payment by the insurer of the insured’s liability, it has a right to
demand reimbursement from SLRMI by virtue of subrogation.
 The basis of Malayan liability is its insurance contract with Sio Choy. While
it is true that where the insurance contract provides for indemnity against liability
to third persons, such third persons can directly sue the insurer, however, the
direct liability of the insurer under indemnity contracts against third party liability
does not mean that the insurer can be held solidarity liable with the insured
and/or the other parties found at fault. The liability of the insurer is based on
contract that of the insured is based on toil.
Malayan as insurer of Sio Coy, is liable to Vallejos, but it cannot, as
incorrectly held by the trial court, be made solidarily liable with the two principal
tortfeasors, Sio Choy and SLRMI. For if petitioner-insurer were solidarily liable
with the 2 respondents by reason of the indemnity contract against third party
liability, under which an insurer can be directly sued by a third party, this will
result in a violation of the principles underlying solidary obligation and insurance
contracts.
In solidary obligation, the creditor may enforce the entire obligation against
one of the solidary debtors. On the other hand, insurance is defined as 'a contract
whereby one undertakes for a consideration to indemnify another against loss,
damage, or liability arising from an unknown contingent event.'
In this case, the trial court held Malayan solidarily liable with Sio Choy and
SLRMI for the total amount of Php 29,000 with a qualification that Malayan's
liability is only up to Php 20,000. In the context of a solidary obligation, Malayan
may be compelled by Vallejos to pay the entire obligation notwithstanding the
qualification made by the trial court. This would constitute an error, to allow such
would be a breach of the concept of a solidary obligation.

Regarding the subrogation right of Malayan Insurance, the Court said:

“Subrogation is a normal incident of indemnity insurance. Upon payment of
the loss, the insurer is entitled to be subrogated pro tanto to any right of
action which the insured may have against the third person whose
negligence or wrongful act caused the loss.”
 In the present case, the insurer Malayan Insurance, upon paying the injured
passenger, shall become the subrogee of the insured; it is subrogated to whatever
rights the latter has against SLRMI.