Subrogation
SUBROGATION Coca-Cola then filed a claim against the carrier Felman for the cost of the
Discuss the effect of payment made by the IR to the ID. (The subrogation
of the former into the rights of the latter)
The right of subrogation is provided not in the Insurance Code but in the
Civil Code.
Article 2207, Civil Code: After a claim settlement, the right of
subrogation, if proper, accrues in favor of the insurance company upon its
payment to the ID.
Subrogation applies according to Article 2207 of NCC.
Art. 2207. If the plaintiff's property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of
the wrong or breach of contract complained of, the insurance company
shall be subrogated to the rights of the insured against the wrongdoer or
the person who has violated the contract. If the amount paid by the
insurance company does not fully cover the injury or loss, the aggrieved
party shall be entitled to recover the deficiency from the person causing the
loss or injury.
The right of subrogation does not arise out of a contract but out of
law.
It has its roots on equity. And is designed to promote and to accomplish
justice and is the mode which equity adopts to compel the ultimate
payment of a debt by one who in justice, equity and good conscience ought
to pay.
A. R I G H T O F SU B R O G A T I O N
In subrogation, the IR steps into the shoes of the ID and becomes entitled
to whatever the latter may claim from the third party responsible for the
loss or damage to the extent of what the IR has paid. The provision
expressly reserves to the ID the right to claim from the party responsible
for the deficiency when the proceeds do not cover the entirety of the loss.
Payment by the IR to the assured operates as an equitable assignment to
the former of all remedies which the latter may have against the third
party whose negligence or wrongful act caused the loss.
In each of the following cases, the SC decided that there had been
subrogation in favor of the IR, allowing them to exercise and claim such
rights as the ID had against third parties responsible for the loss.
M a l a y a n I n s u r a n ce vs CA
165 SCRA 536 (1988)
A bus had collided with the jeep insured by Malayan Insurance. The ID
jeep, while being driven by an employee of San Leon Rice Mill, collided
with a Pantranco passenger bus causing damage and/or injury to the
vehicle, its driver and its passenger.
The passenger filed an action for damages against the owner of the jeep,
Malayan and Pantranco. Owner of the jeep paid passenger P5,000 for
which he filed a counterclaim against Malayan. Malayan in turn filed a
third party complaint against San Leon Rice Mill claiming that it was the
latter’s employee who caused the accident and prayed that San Leon
reimburse Malayan for any sum that it may pay.
Trial court rendered judgment in favor of the passenger. On appeal, the
CA modified the judgment and ruled that San Leon Rice Mill need not
reimburse Malayan as there was no privity with the driver of the jeep.
SC reversed this pronouncement of the lower court, saying that the rights
of Malayan against San Leon Rice Mill would not stem from having privity
of contract but would arise from having been subrogated into the rights of
the owner of the jeep when they assumed the liability of the latter.
P H I L A M G E N vs CA
273 SCRA 262 (1997)
The right of subrogation does not arise out of a contract but out of
law.
The Court reiterated that the doctrine of subrogation has its roots in
equity. It is designed to promote and to accomplish justice and is the mode
which equity adopts to compel the ultimate payment of a debt by one who
in justice, equity and good conscience ought to pay.
FACTS: Coca-Cola loaded on board a vessel owned and operated by
Felman 7,500 cases of 1-Liter Coca-Coca bottles for shipping from
Zamboanga to Cebu. Said shipment was insured down the entire cargo,
including said 7,500 cases of CocaCola bottles.
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KAMM | 2018
bottles but Felman denied the claim. As a result, Coca-Cola filed the claim
against Philamgen, who paid the claim.
Philamgen, claiming its right of subrogation, sued Felman for sum of
money and damages. Felman, who disclaimed liability for any loss, alleged
that no right of subrogation in favor of Philamgen was transmitted by the
shipper.
The Court ruled in favor of Philamgen. It held that Philamgen’s action
against Felman is sanctioned by Art. 2207 of the Civil Code. The Court
reiterated the well-known doctrine of legal subrogation that payment by
the IR to the ID operates as an equitable assignment to the IR of all the
remedies which the ID may have against the third party whose negligence
or wrongful act caused the loss. The right is not dependent upon, nor does
it grow out of privity of contract. It accrues simply upon payment by the
insurance company of the insurance claim. Therefore, when Philamgen
paid Coca-Cola, such act gave the former the right to bring an action as
subrogee against Felman. Having failed to rebut the presumption of fault,
the liability of Felman for the loss of 7,500 cases of Coca-Cola soft drink
bottles was inevitable.
P an M al a ya n I n s . V s CA
G.R. No. 81026 (1990)
Pan Malayan was the IR of a car belonging to Canlubang Automobile
Resources Corp. Said car figured in a collision and was damaged. Pan
Malayan paid the assured the costs of the repair of the car, and was
therefore subrogated to the rights of Canlubang against the driver and
owner of the pick0up who hit the insured car. Pan Malayan demanded
reimbursement from Fabie, the owner of the pick-up but the latter refused
to pay the claim despite repeated demands, prompting Pan Malayan to file
a case against her and the driver.
Fabie filed a motion to dismiss, alleging that Pan Malayan had no cause of
action since the “own damage” clause in their policy precluded
subrogation under Art. 2207 of the Civil Code. It was argued that
indemnification under said article is on the assumption that there was no
fault on the part of third parties.
The Court overruled the defendants’ contention ruling that Pan Malayan
was indeed subrogated to the rights of Canlubang against Fabie and her
driver. The Court stated that Art. 2207 of the CC, is founded on the well-
settled principle of subrogation.
The general rule reiterated by the Court is that if the ID property is
destroyed or damaged through the fault or negligence of a party other
than assured, then the IR, upon payment to the insured, will be subrogated
to the rights of the assured to recover from the wrongdoer to the extent
that the IR has been obligated to pay.
Payment by the IR to the assured operates as an equitable assignment to
the former of all remedies which the latter may have against the third
party whose negligence or wrongful act caused the loss.
The right of subrogation is not dependent upon, nor does it grow out of,
any privity of contract or upon written assignment of claim. It accrues
simply upon payment of the insurance claim by the IR.
In deciding the case, the ponente pointed to three exceptions to this
general rule on subrogation namely:
1) Where the assured by his own act releases the wrongdoer or
third party liable for the loss or damage;
2) Where the IR pays the assured the value of the lost goods
without notifying the carrier who has in good faith settled the
assured’s claim for loss; and,
3) Where the IR pays the assured for a loss which is not a risk
covered by the policy, thereby effecting “voluntary payment”.
None of these exceptions are present in this case.
F i r e m a n ’ s F u n d I n s u r an c e vs J am i l l a & Co .
70 SCRA 323 (1976)
Some properties of Firestone Tire and Rubber Company were lost due to
the connivance of some of its employees with the security guards of Jamila
& Company (which provided Firestone with the security guard),
prompting Fireman’s Fund as IR to pay Firestone the value of said
property. With Fireman’s Fund subrogated to Firestone’s right to
indemnification, the former filed a complaint to recover money against
Jamila and its surety First QC Insurance.
Subrogation
CFI dismissed the complaint citing that there is no cause of action as Jamila
did not consent to subrogation and there are no allegations in the
compliant that Firestone investigated the loss.
SC reversed the lower court, and held that there was a cause of action on
the part of Fireman’s Fund pursuant to Art. 2207 of the CC.
Payment by the assurer to the assured operated as an equitable
assignment to the assurer of all the remedies which the assured may have
against the third party whose negligence or wrongful act caused the loss.
Payment to the ID makes the IR an assignee in equity.
W a l l e n P h i l i p p i n e S h i p p i n g , I n c . vs P r u d e n t i al
G u a r a n t e e A s s u r a n ce , I n c.
G.R. No. 152158, Feb. 7, 2003
Evidentiary Requirements for Subrogation
When insurance policy is fatal to right of subrogation? When not fatal?
DOCTRINE: The insurer must present the policy as evidence to
determine the extent of its coverage.
The IR had paid the proceeds of a marine insurance policy for soybean
meal for alleged shortage incurred during the voyage. In suing the
shipping company, the IR produced only the subrogation receipt and the
Marine Cargo Risk Note. The trial court ruled against the IR, finding that
they had not been able to prove that there was a shortage, but the CA had
reversed and awarded damages to the IR.
The SC ruled, however, that while the subrogation receipt may prove the
relationship of IR-ID between the company and the consignee as well as
the amount paid to the latter, it does not establish the claim of the IR
against third parties. As a subrogee of the ID, the IR can only exercise
those rights granted the latter under the insurance contract. The policy
must be produced in order to determine the extent of its coverage.
NOTE: When there is no issue as to the provisions of the policy and its
existence had been admitted by the petitioner defendants in open court,
there is no need to present the policy. (Delsan Transport Lines v CA, 1997)
B. W H E R E N O R I G H T O F SU B R O G A T I O N
Requisites of Subrogation
1. The insurance involved is property insurance.
2. There is a loss arising from the risk insured against.
3. The insured received indemnity from the insurer for the loss.
4. The indemnity is covered by the face value of the policy.
There is no subrogation when:
1. The assured by his own act releases the wrongdoer or third
party liable for the loss or damage from liability, the insurers
right of subrogation is defeated.
2. Where the insurer pays the assured the value of the lost goods
without notifying the carrier who has in good faith settled the
assured’s claim for loss, the settlement is binding on both the
assured and the insurer, and the latter cannot bring an action
against the carrier on his right of subrogation.
3. Where the insurer pays the assured for a loss which is not a risk
covered by the policy, thereby effecting “voluntary payment”
the former has no right of subrogation against the third party
liable for the loss.
4. When life insurance is involved (of course for there is no
contract of indemnity in life insurance).
COMMENT: When else is subrogation not available?
LIMITATIONS
When the rights of the insured are limited, the rights of the insurer are also
limited, since it is only subrogation.
ex. If insurance company gets the whole value of the amount loss from the
negligent party, then the insured may claim the balance from the
insurance company, if the insurance company only pays for the value of
the indemnity stipulated.
The insurance company is also bound by the laws wherein the insured is
also bound by, such as the COGSA, in international carriage. In terms of
prescriptive periods, etc.
Discretion to use the right of subrogation
It lies with the insurer who may opt not to use the said right.
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INSURANCE COMMISSIONER
Under the Insurance Code, the Insurance Commissioner (IC) is an
administrative agency vested with two-fold powers, regulatory (non
quasi-judicial) and adjudicatory (quasi-judicial) powers.
Section 437 of the Amended Insurance Code specifies the authority to
which a decision of the IC, in the exercise of its regulatory function, may be
appealed.
A dispute on unfair claims settlement is exclusively in the exercise of
administrative and regulatory (non-quasi-judicial duty) duties and
functions of the Insurance Commission, i.e., the authority to revoke or
suspend an insurer’s certificate of authority, and thus, should be appealed
to the Office of the Secretary of Finance.
Should a party dispute the decision of the IC on this matter, the case is
properly appealable to the Secretary of Finance after a denial of a motion
of reconsideration. A party would have no direct recourse through a
petition for certiorari to the Supreme Court, and thus, would have no
jurisdiction over the case
- A l m e n d r as M i n i n g Co r p . v O f f i c e o f t h e I n s u r an c e
Co m m i s s i o n e r , e t a l . , G R 7 2 8 7 8 , A p r i l 1 5 , 1 9 8 8
However, under Section 439 of the Amended Insurance Code, appeals
from a final decision of the insurance commissioner rendered in the
exercise of his adjudicatory authority falls within the exclusive appellate
jurisdiction of the Court of Appeals.
Jurisdiction and adjudicatory powers
✓ The Insurance Commissioner has the power to adjudicate disputes
relating to an insurance company’s liability to an insured under a
policy. A complaint or claim filed with such official is considered an
“action” or “suit” the filing of which would have the effect of tolling
the suspending the running of the prescriptive period.
(1) Concurrent jurisdiction (with regular civil courts) over cases where
any single claim does not exceed P5,000,000 involving liability arising
from:
a. Insurance contract;
b. Contract of suretyship;
c. Reinsurance contract;
d. Membership certificate issued by members of mutual benefit
association [Section 439];
(2) Primary and exclusive jurisdiction over claims for benefits
involving pre-need plans where the amount of benefits does not exceed
P100,000 [Sec. 55, Pre-Need Code].
NOTE:
Through Insurance Memorandum Circular No. 2016-01 (effectivity: Sept.
1, 2016), the regulator adopted and promulgated the rules of procedure
for small claims, pursuant to the provisions of the Insurance Code and the
PreNeed Code of the Philippines, which will cover claims and complaints
amounting to up to P200,000 presented before the Insurance
Commission in any single claim, exclusive of interest, costs, and attorney’s
fees.
Under the regulation, action on small claims will begin by either “filing
with the Commission an accomplished and verified statement of claim,
accompanied by a certification of non-forum shopping, and two
photocopies of the actionable documents subject of the claim, written
notice of claim to the respondent, written denial of the claim, as well as the
affidavits of witnesses and other evidence to support the claim” or “by
filing a verified complaint with a certificate of non-forum shopping
prepared by a lawyer” containing other attachments as outlined in the
circular.
Under the previous procedure, the Commission required the submission
of documents, appearance and a hearing for claims up to P5 million. Now,
under the new rules, for claims up to P200,000, small claimants are
assured that their claims will be prioritized in a way because their claims
will no longer undergo the formal process of hearing, just submission of
position paper.
Complainant may join in a single statement of claim one or more separate
small claims against a respondent provided that the total amount claimed,
exclusive of interest and costs, does not exceed P200,000. A claim filed
with a Motion to Sue as Indigent shall be referred to the Division Manager
of the Claims Adjudication Division or the District Offices for immediate
action. If the motion is granted, the case shall be assigned to the Hearing
Officer designated to hear small claims cases and the filing fees shall be
Subrogation
alien on any judgment rendered in the case favorably to the indigent
litigant, unless the Commission otherwise provides.
If the motion is denied, the complainant shall be given five days within
which to pay the docket fees, otherwise, the case shall be dismissed
without prejudice.
After the Hearing Officer or Division Manager determines that the case
falls under this rule, the Commission may motu proprio, or of his own
accord, order the dismissal of the case at any time based on the allegations
of the Statement of
Claim and evidence attached thereto for any of the grounds for the
dismissal of a complaint.
If no ground for dismissal is found, upon payment of the Filing Fee and
Summons Fee, the Commission shall forthwith issue a Summons on the
day of receipt of the Statement of Claim, directing the respondent to
submit a verified Response. The Commission shall also issue a Notice to
both parties, directing them to appear before it on a specific date and time
for hearing, with a warning that no unjustified postponement shall be
allowed. The Summons and Notice to be served on the respondent shall
be accompanied by a copy of the Statement of Claim and documents
submitted by the complainant, and a copy of the Response to be
accomplished by the respondent.
KAMM | 2018
 The Commissioner is authorized to suspend or revoke all certificates
of authority granted to such insurance company, its officers and
agents, and no new business shall thereafter be done by such
company or for such company by its agents in the Philippines while
such suspension, revocation, or disability continues or until its
authority to do business is restored by the Commissioner.
 Before restoring such authority, the Commissioner shall require the
company concerned to submit to him a business plan showing the
company’s estimated receipts and disbursements, as well as the
basis therefor, for the next succeeding three years.
LIQUIDATION OF INSURANCE COMPANY
 If the company is determined by the Commissioner to be insolvent
or cannot resume business, he shall, if public interest requires, order
its liquidation [Section 256].
 This should be distinguished from a situation where a conservator is
appointed when the Commissioner finds that a company is in a state
of continuing inability or unwillingness to maintain a condition of
solvency or liquidity adequate to protect the policyholders and
creditors. The conservator will take charge of the management of the
insurance company [Section 255].

The respondent shall file with the Commission and serve on the
complainant within a non-extendible period of ten days from receipt of
summons.

The objective of the memorandum circular is to expedite the decision of

small claims cases.
If efforts at settlement fail, the hearing shall proceed in an informal and
expeditious manner and shall be terminated within five hearing days. The
Commission shall render its decision within 30 days from the last
scheduled hearing based on evidence presented. The decision shall be
final and unappealable.

Read: ANGELITA AMPARO GO vs. OFFICE OF THE OMBUDSMAN,

INSURANCECOMMISSIONER, EDUARDO T. MALINIS and
NORBERTO F. CASTRO [G.R. No. 131399; October 17, 2003]

Concurrence of proceedings

Oftentimes a claimant would file both a claims case and an

administrative case against a company at the same time. In such
instances, as stated in Go v Office of the Ombudsman, Commissioner
Eduardo Malinis, et al., both proceedings may continue at the same time
independently, and apparently conflicting decisions would be of no
moment. The claims case may be filed in either the Insurance
Commission or the regular courts, depending on the amount of the
claim.
 For the purpose of proceeding under its adjudicatory powers under
the Insurance Code, the Commissioner or any officer thereof
designated by him, is empowered to administer oaths and
affirmation, subpoena witnesses, compel their attendance, take
evidence and require the production of any books, papers,
documents or contracts or other records which are relevant or
material to the inquiry [Section 439].

 NOTE: However, the Insurance Commission has no jurisdiction to

decide the legality of a contract of agency entered into between an
insurance company and its agent (Philamlife vs Ansaldo, 234 S 509).
The same is not covered by the term “doing or transacting insurance
business” under Section 2, neither is it covered by Section 439, which
grants the Commissioner adjudicatory powers [Sundiang and
Aquino (2013)].

REVOCATION OF CERTIFICATE OF AUTHORITY

 The Certificate of Authority issued to the domestic or foreign
company by the Commission may be revoked or suspended by the
Insurance Commissioner for any of the following grounds [Section
254]:
1. The company is in an unsound condition;
2. That it has failed to comply with the provisions of law or
regulations obligatory upon it;
3. That its condition or method of business is such as to render its
proceedings hazardous to the public or its policyholders;
4. That its paid-up capital stock, in the case of a domestic stock
corporation, or its available cash assets, in the case of a
domestic mutual company, or its security deposits, in the case
of a foreign company, is impaired or deficient;
5. That the margin of solvency required of such company is
deficient.
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