G.R. No. L-24377 - Far Eastern Surety and Insurance Co. vs. Vda. de Misa

On September 3, 1957, respondents Socorro Dancel Vda. de Misa and Araceli Maria Pinto hired a taxicab operated by respondent La Mallorca in Quezon City.
While proceeding south toward the Archbishop’s Palace along Shaw Boulevard, the taxicab was involved in a collision with a gravel and sand truck operated by Faustino Nabor, who was driving in the opposite direction.
As a result of the collision, the passengers of the taxicab sustained injuries.

The injured passengers filed a suit for damages against the taxicab operator (La Mallorca) in the Court of First Instance.
Although the taxicab company denied liability, it filed a third party complaint against the petitioner insurer, Far Eastern Surety & Insurance Company, seeking reimbursement for any damages that might eventually be awarded to the passengers under its Common Carrier’s Accident Insurance policy (No. CCA 106).
The insurer, in turn, denied any responsibility for the alleged damages.

The trial court of Quezon City found in favor of the injured passengers by awarding them actual, moral, and exemplary damages, alongside attorney’s fees, and held the taxicab operator liable.
In addition, the trial court sentenced La Mallorca to secure from Far Eastern Surety an amount for its third party liability under the insurance contract.
On appeal, the Court of Appeals noted that the collision was primarily caused by the negligence of the sand and gravel truck driver.
Notwithstanding, the appellate court held the taxicab operator liable on the grounds of its representation (indicated by a sticker on the taxi) that its passengers were insured against accidents.
The appellate decision overruled the insurance company's defense that it was only liable for damages up to the extent the insured might be legally liable, thereby ordering the insurer to indemnify La Mallorca up to specified amounts.

The insurance contract, particularly under its Third Party Liability Insurance Rider, stipulated that:

The insurer would indemnify the insured against “all sums including claimant’s costs and expenses which the Insured shall become legally liable to pay in respect of death or bodily injury to any person and damage to property.”
The insurer’s liability was expressly limited to actual physical injuries and did not extend to moral, compensatory, or exemplary damages, nor did it cover attorney’s fees.

The appellate court construed the representation made by the taxicab operator as having induced the passengers to believe they were insured, thereby binding La Mallorca by way of estoppel.
The Court of Appeals maintained that if La Mallorca were held “legally liable,” then the insurer’s obligation would be to indemnify up to a maximum liability of P5,000.00 per passenger, but only for damages pertaining to actual bodily injury.

The insurance company, unable to secure reconsideration of the appellate ruling, appealed to the Supreme Court.
The primary issue before the Supreme Court was whether the insurer was liable to indemnify the insured (La Mallorca) under the policy, given that the damages that led to the taxicab operator’s liability were based solely on its representation that the passengers were insured.
The court had to consider the implications of contractual interpretation, particularly the meaning and scope of “all sums … which the Insured shall become legally liable” in connection with the actual cause of the accident versus the representation made by the taxicab operator.

Whether or not the insurer, Far Eastern Surety & Insurance Company, is liable to indemnify the insured, La Mallorca, on the basis of its policy of Accident Insurance, given that:

The taxicab operator’s representation (via the insured sticker) created an impression of insurance coverage for the passengers.
The insurer’s liability under the policy is limited strictly to indemnifying the insured for damages arising out of actual bodily injury and does not extend to moral, compensatory, exemplary damages, or attorney’s fees.

Whether the fact that the taxicab operator was found legally liable (by virtue of its representations and the doctrine of estoppel) should automatically render the insurer answerable for the full spectrum of damages awarded, even when the recovery of such damages was not predicated on the actual cause of the accident (i.e., negligence of the sand truck driver).

Whether the scope and interpretation of the insurance policy’s liability limitation ("all sums including claimant’s costs and expense which the Insured shall become legally liable") extend to cover the damages awarded due solely to the misleading representation to the passengers that they were insured.