GR 29508; (June, 1973) (Digest)
G.R. No. L-29508. June 27, 1973
ARTEX DEVELOPMENT CO., INC., plaintiff-appellee, vs. WELLINGTON INSURANCE CO., INC., defendant-appellant.
FACTS
Artex Development Co., Inc. obtained fire insurance and business interruption insurance from Wellington Insurance Co., Inc. A fire subsequently destroyed Artex’s insured properties. Adjusters determined the total property loss at P10,106,554.40 and business interruption loss at P3,000,000.00. Wellington made partial payments, leaving balances of P3,624,683.43 and P1,748,460.00, respectively. Artex sued Wellington for these balances. The trial court ruled in favor of Artex. During the appeal, the parties executed agreements wherein Wellington, through its reinsurance intermediary, paid Artex a substantial sum, leaving only P397,813.00 in dispute, representing a portion of the loss reinsured with Alexander and Alexander, Inc. of New York. Wellington, now under liquidation by the Insurance Commissioner, appealed, raising a solitary legal issue.
ISSUE
Whether the insured, Artex, can directly sue Wellington’s reinsurers for the unpaid balance of its insurance claim.
RULING
No. The Supreme Court affirmed the trial court’s decision, as modified. The Court held that an insured has no direct cause of action against its insurer’s reinsurers. The relationship of reinsurance is exclusively between the original insurer and the reinsurer; there is no privity of contract between the original insured and the reinsurer. This principle is codified in Section 91 of the Insurance Act, which states that “the original insured has no interest in a contract of reinsurance.” Consequently, Artex’s right of action lies solely against its direct insurer, Wellington. Wellington’s defense that Artex should have sued the reinsurers was therefore untenable. The Court clarified that any benefit from the reinsurance contract can only accrue to the insured if there is a stipulation pour autrui (for the benefit of a third party) or an assignment in its favor, which were absent here. The remaining liability of Wellington to Artex was fixed at P397,813.00, plus interest and attorney’s fees as per their collateral agreement. The Court noted that this judicially determined claim must be settled in accordance with the priorities and procedures governing the liquidation of insurance companies under the Insurance Commissioner’s authority.