G.R. No. L-24377 October 26, 1968
FAR EASTERN SURETY & INSURANCE COMPANY, INC., petitioner, vs. SOCORRO DANCEL VDA. DE MISA, ARACELI MARIA PINTO and LA MALLORCA, respondents.

FACTS

On September 3, 1957, respondents Socorro Dancel Vda. de Misa and Araceli Pinto hired a taxicab operated by respondent La Mallorca in Quezon City. The taxicab collided with a gravel and sand truck driven by Faustino Nabor. The passengers were injured and filed a damages suit against La Mallorca. La Mallorca denied liability but filed a third-party complaint against petitioner Far Eastern Surety & Insurance Company, Inc., seeking indemnity under its Common Carrier’s Accident Insurance Policy No. CCA 106. The insurer also denied responsibility. The Court of First Instance of Quezon City awarded damages to the passengers payable by La Mallorca and ordered the insurance company to pay La Mallorca P10,000 on its third-party liability insurance. On appeal, the Court of Appeals modified the judgment but affirmed La Mallorca’s liability to the passengers and the insurer’s liability to La Mallorca. The Court of Appeals held that the collision was due to the fault of the truck driver but found La Mallorca liable based on its representation (via a sticker on the taxicab) that passengers were insured against accidents. The insurance company appealed to the Supreme Court, while La Mallorca did not.

ISSUE

Whether the petitioner, Far Eastern Surety & Insurance Company, Inc., is liable to indemnify La Mallorca under the insurance policy for the damages awarded to the passengers.

RULING

No. The Supreme Court modified the decision of the Court of Appeals by eliminating the award against the insurance company. The Court held that the insurance policy limited indemnity to “all sums… which the Insured shall become legally liable” in the “event of accident caused by or arising out of the use of the Motor Vehicle.” The appealed decision itself established that La Mallorca’s liability to the passengers arose not from the accident per se but exclusively from its representation (via the sticker) that passengers were insured, which created an estoppel against La Mallorca. Since the Court of Appeals found that only the negligence of the truck driver caused the mishap and the taxicab driver did not contribute, La Mallorca would not have been liable absent its representation. The insurer did not authorize, consent to, or know of this representation. Therefore, the source of the damages awarded was beyond the contemplation of the insurance contract, and the insurer could not be held liable for such damages. The decision of the Court of Appeals became final as to La Mallorca since it did not appeal.