GR 78860; (May, 1990) (Digest)
G.R. No. 78860 May 28, 1990
PERLA COMPANIA DE SEGUROS, INC., petitioner, vs. HONORABLE COURT OF APPEALS and MILAGROS CAYAS, respondents.
FACTS
Private respondent Milagros Cayas owned a Mazda bus insured with petitioner Perla Compania de Seguros, Inc. (PCSI). The bus met an accident in 1978, injuring several passengers. One passenger, Edgardo Perea, sued Cayas for damages. Cayas was declared in default for failure to appear at pre-trial, and a judgment was rendered against her. To satisfy this judgment, her property was levied and sold. She also settled with three other injured passengers for P4,000.00 each. Cayas then filed a complaint against PCSI, seeking indemnity under the insurance policy for these losses.
The Regional Trial Court ruled in favor of Cayas, ordering PCSI to pay her P50,000.00, the policy’s maximum liability per accident, plus attorney’s fees. The Court of Appeals affirmed this decision. PCSI appealed, arguing that the insurance policy required a final court judgment against the insured as a condition for indemnity, a condition not met for the three settled claims.
ISSUE
Whether the insurer, PCSI, is liable to indemnify the insured, Cayas, for the amounts she paid to settle claims with injured third parties without a prior final court judgment establishing her liability.
RULING
The Supreme Court modified the decision. It held that PCSI is liable only for the amount corresponding to the final judgment in the Perea case (P32,000.00), not for the settlements. The insurance policy explicitly stipulated that the insurer’s liability would attach only upon a “final judgment” against the insured. This is a valid and binding condition that defines the insurer’s contractual obligation.
The legal logic is rooted in the principle of autonomy of contracts under Article 1306 of the Civil Code. Contracts, including insurance policies, constitute the law between the parties. Courts cannot disregard clear and unambiguous stipulations to substitute their own interpretation. Since Cayas voluntarily settled the three other claims without a final court adjudication of her liability, those payments did not trigger PCSI’s indemnity obligation under the specific terms of the policy. The award was thus reduced to the amount of the final judgment (Pereas case) that Cayas actually satisfied, plus legal interest. The award of attorney’s fees was upheld as Cayas was compelled to litigate to enforce her claim.