Title
Smith, Bell and Co., Inc. vs. Court of Appeals
Case
G.R. No. 110668
Decision Date
Feb 6, 1997
A claim agent, acting for a disclosed foreign insurer, cannot be held jointly liable for insurance claims under a marine cargo policy, as liability rests solely with the principal.
local claim agent
solidary liability
settling agent
A

Case Summary (G.R. No. 110668)

Factual Background

In July 1982 Chin Gact Co., Ltd. of Taipei sold to Tic Hin Chiong fifty metric tons of dicalcium phosphate, feed grade F‑15%, valued at US$13,000 CIF Manila. The goods were shipped from Kaohsiung aboard S.S. "GOLDEN WEALTH." On July 27, 1982 the shipment was insured "against all risks" by First Insurance Co. Ltd. under Marine Policy No. 1000M82070033219 for US$19,500, with a stamped notation "Claim Agent" bearing the name Smith, Bell & Co., Inc.. The cargo arrived at Manila on September 1, 1982 and was discharged to Metroport Services Inc., the local arrastre contractor. A cargo survey on September 27, 1982 found six hundred of the 1,250 bags damaged and a shortage of 18,546.0 kg. On October 16, 1982 the importer filed a formal statement of claim with Smith, Bell & Co., Inc. for US$7,357.78 with proof of loss. By letter dated February 15, 1983 the local agent advised that its principal offered fifty percent of the claim, which the importer rejected, and suit followed.

Trial Court Proceedings

The First Insurance Company, Ltd. failed to file an answer and was declared in default by the Regional Trial Court. The trial court found that the importer had proven liability under the insurance contract through the survey report and other evidence of loss. The trial court further held that Smith, Bell & Co., Inc., as claim or settling agent of the foreign insurer, should be made liable without prejudice to its right of recourse against the principal. The trial court rendered judgment jointly and severally against the defendants for US$7,359.78, plus interest at twenty‑four percent per annum, ten percent attorney’s fees, and costs.

Court of Appeals Decision

The Court of Appeals affirmed the trial court’s judgment in a decision promulgated January 20, 1993. The appellate court relied in part upon its own earlier decision in Choa Tiek Seng vs. The First Insurance Company, Ltd. and/or Smith, Bell & Company, Inc. (April 6, 1987), wherein it had held that petitioner, as resident agent, was authorized to settle claims and that its defense excluding personal liability required satisfactory proof. The appellate court endorsed the proposition that "the interest of justice is better served by holding the settling or claim agent jointly and severally liable with its principal."

Issue

The sole issue presented was whether a local settling or claim agent of a disclosed foreign principal may be held personally and/or solidarily liable with the principal under the latter’s marine cargo insurance policy, when the agent was not a party to the insurance contract.

Petitioner’s Contentions

Smith, Bell & Co., Inc. contended that it was merely an agent and thus not personally liable to the insured; that it had no participation in the negotiation or execution of the insurance contract; and that the action was not prosecuted against the real party‑in‑interest. Petitioner argued that stamping its name as "Claim Agent" on the policy did not create privity or assume personal liability.

Respondent’s Contentions

Private respondent relied upon the Court of Appeals’ prior jurisprudence involving the petitioner and urged that the settling agent could be held jointly and severally liable, while preserving the agent’s recourse against its foreign principal. Private respondent also disputed the applicability of earlier cases such as E. Macias & Co. vs. Warner, Barnes & Co. and Salonga vs. Warner, Barnes & Co., Ltd., arguing that those cases impleaded only an "insurance agent" and not the principal. Private respondent further invoked the rule that insurance contracts, as contracts of adhesion, are to be strictly construed against the insurer.

The Court’s Ruling

The Supreme Court granted the petition for certiorari, reversed and set aside the decision of the Court of Appeals, and ordered that no costs be imposed. Justice Panganiban authored the opinion. Justices Narvasa, C.J., Davide, Jr., Melo, and Francisco concurred.

First Reason: Existing Jurisprudence

The Court held that settled jurisprudence foreclosed imposing personal liability upon a settlement and adjustment agent acting within the scope of its authority. Relying on Salonga vs. Warner, Barnes & Co., Ltd., the Court reiterated that an adjuster or settlement agent acts in a representative capacity and that his acts bind the principal, not himself, when done within the scope of employment. The Court observed that the mere stamping of petitioner’s name as "Claim Agent" did not establish participation in the making of the insurance contract and therefore did not create privity sufficient to impose contractual liability under Article 1311 of the Civil Code.

Second Reason: Absence of Solidary Liability

The Court emphasized that a solidary obligation exists only when it is expressly stipulated or when law or the nature of the obligation requires solidarity, as provided in Article 1207 of the Civil Code. The Court rejected the notion that expediency or equitable considerations could be invoked to create solidarity where none existed in law or in the contract. The Court also examined Section 190 of the Insurance Code and held that the statutory role of a resident agent is limited to receiving notices, proofs of loss, summonses, and other legal processes on behalf of the foreign insurer, and not to serving as a party answerable for insurance claims. The Court further noted the factual distinction from the 1987 appellate decision: there was no basis in the record to find petitioner to be the resident agent of First Insurance Co., Ltd., as evidenced by the fact that the trial court ordered personal service upon First Insurance.

Third Reason: Not the Real Party‑in‑Interest

The Court held that petitioner was not the real party‑in‑interest within the meaning of Section 2, Rule 3, Rules of Court. An action in contract must be prosecuted against the party who is bound by the contract. Because petitioner did not execute, sign, or otherwise assume obligations under the insurance policy, it could not properly be held liable in an action founded upon that contract. The Court observed that any judgment against a

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