G.R. No. 195728 and G.R. No. 211329, April 19, 2016
Paramount Life & General Insurance Corporation vs. Cherry T. Castro and Glenn Anthony T. Castro; and Cherry T. Castro and Glenn Anthony T. Castro vs. Paramount Life & General Insurance Corporation

FACTS

Paramount Life issued a Group Master Policy to Philippine Postal Savings Bank, Inc. (PPSBI). Virgilio Castro obtained a housing loan from PPSBI and was required to secure Mortgage Redemption Insurance (MRI) under this group policy from Paramount. He named his wife Cherry and son Glenn as beneficiaries. Upon Virgilio’s death in 2009, Paramount denied the claim, alleging material concealment as Virgilio failed to disclose a 2005 medical consultation in his 2008 application. Paramount filed a complaint for declaration of nullity of the individual insurance certificate. The Castros, in their answer, contested the allegation of concealment and filed a counterclaim.
In G.R. No. 195728, the Castros sought to file a third-party complaint against PPSBI, arguing the bank, as the creditor-beneficiary under the master policy, was an indispensable party. The RTC denied this. The CA reversed, ordering the remand of the case to admit the third-party complaint, ruling PPSBI’s participation was necessary for a complete resolution. In G.R. No. 211329, the Castros, who had earlier been declared in default for failure to attend pre-trial, later moved to dismiss Paramount’s complaint for failure to prosecute. The RTC denied the motion to dismiss, ruling the earlier order of default remained, but limited Paramount to only two settings to present its evidence ex parte.

ISSUE

The consolidated petitions raised the following issues: (1) Whether the Court of Appeals erred in ordering the remand of the case to admit the third-party complaint against PPSBI; and (2) Whether the RTC erred in denying the Castros’ Motion to Dismiss the complaint for failure to prosecute.

RULING

The Supreme Court denied both petitions and affirmed the assailed rulings. On the first issue, the Court upheld the CA’s decision to allow the third-party complaint. The Group Master Policy designated PPSBI as the beneficiary to whom “all death benefits shall be payable.” Therefore, PPSBI had a clear legal interest in the outcome of the case concerning the validity of the insurance certificate. Its participation was necessary to grant complete relief and prevent multiplicity of suits, as any ruling on the policy’s validity would directly affect the bank’s right to collect the loan proceeds. The Castros’ claim of being freed from the loan obligation via the insurer’s subrogation to the bank further necessitated PPSBI’s inclusion.
On the second issue, the Court found no grave abuse of discretion in the RTC’s denial of the Motion to Dismiss. The Castros, having been previously declared in default, lost their standing to file such a motion. A party in default is not entitled to notice of future proceedings and forfeits the right to present evidence and object to the plaintiff’s presentation. The RTC correctly deemed the motion expunged from the records. However, the Court noted that the RTC’s limitation of Paramount to only two settings for ex parte presentation, while within its discretion, must be exercised with due regard for the plaintiff’s right to a full opportunity to prove its case, ensuring the order does not amount to a dismissal in disguise.