Published — June 1, 2022
The following post does not create a lawyer-client relationship between Alburo Alburo and Associates Law Offices (or any of its lawyers) and the reader. It is still best for you to engage the services of your own lawyer to address your legal concerns, if any.
Also, the matters contained in the following were written in accordance with the law, rules, and jurisprudence prevailing at the time of writing and posting, and do not include any future developments on the subject matter under discussion.
Related article: Matters Involving Enforceability of Insurance Policies
A Contract of Insurance is defined as an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event (Section 2 of Republic Act No. 10607). However, with regard to Life Insurance Contracts, the definition mentioned is unlikely to be applied. The reason for this is that, there is no indemnity to speak of in life insurance contracts. Thus, a broader definition of a contract of insurance could be, a contract whereby one party is called the insurer undertakes for a consideration to pay another called the insured, or his beneficiary, upon the happening of the peril insured against, whereby the party insured or his beneficiary suffer loss or damage or is exposed to liability.
When it comes to claims of payment for the damage or loss done to the insured, the insurer is subrogated with the rights to claim payment for the said damages or loss to the wrong-doer or third (3rd) party. This process is called legal substitution defined under Article 2207 of the New Civil Code as, the substitution of one person in place of another with reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim including its remedies and securities.
To illustrate, the process of substitution starts upon happening of the event insured against, the insurer will initially pay for the amount covered by the insurance policy which is in the amount equivalent to the loss and/or damage done to the insured. Subsequently, the Insurer, while stepping into the shoes of the insured, as it were, avails himself of the insured’s rights that exist against the wrongdoer at the time of loss or damage. However, this illustration of the right to substitution is applicable only to property insurance. It cannot apply to life insurance because no recovery from a third party (wrongdoer) can be deemed adequate to compensate life.
All of these are supported by the decision of the Supreme Court in the 2009 case of Keppel Cebu Shipyard, Inc. vs. Pioneer Insurance and Surety Corporation (601 SCRA 96) where the highest court explained that, subrogation is the substitution of one person by another with reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or securities. The principle covers a situation wherein an insurer has paid a loss under an insurance policy is entitled to all the rights and remedies belonging to the insured against a third party with respect to any loss covered by the policy. It contemplates full substitution such that it places the party subrogated in the shoes of the creditor, and he may use all means that the creditor could employ to enforce payment. Furthermore, the Supreme Court also have held that, payment by the insurer to the insured operates as an equitable assignment to the insurer of all the remedies that the insured may have against the third party whose negligence or wrongful act caused the loss.
The wrong-doer or thirty party who have caused loss or damage on the insured cannot assail the standing of the Insurer to claim payment since the right of subrogation is not dependent upon, nor does it grow out of, any privity of contract. It accrues simply upon payment by the insurance company of the insurance claim. The doctrine of subrogation has its roots in equity. It is designed to promote and to accomplish justice and is the mode that equity adopts to compel the ultimate payment of a debt by one who, in justice, equity, and good conscience, ought to pay (Malayan Insurance Co., vs. Alberto 664 SCRA 791, February 01, 2012).
Alburo Alburo and Associates Law Offices specializes in business law and labor law consulting. For inquiries, you may reach us at info@alburolaw.com, or dial us at (02)7745-4391/0917-5772207.
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