G.R. No. L-23276 November 29, 1968
MELECIO COQUIA, MARIA ESPANUEVA and MANILA YELLOW TAXICAB CO., INC., plaintiffs-appellees, vs. FIELDMEN’S INSURANCE CO., INC., defendant-appellant.

FACTS

On December 1, 1961, defendant-appellant Fieldmen’s Insurance Company, Inc. issued a common carrier accident insurance policy in favor of plaintiff-appellee Manila Yellow Taxicab Co., Inc., covering the period from December 1, 1961 to December 1, 1962. The policy stipulated the company would indemnify the insured for sums it became legally liable to pay in respect of death or bodily injury to any fare-paying passenger, including the driver, riding in the insured vehicle at the time of an accident. While the policy was in force, on February 10, 1962, a taxicab of the insured, driven by Carlito Coquia, met an accident in Pangasinan, resulting in Carlito’s death. The insured filed a claim for P5,000. The company offered P2,000 as a compromise, which the insured rejected, counter-offering P4,000. The company did not accept this counter-offer. Consequently, the insured and Carlito’s parents, Melecio Coquia and Maria Espanueva (the Coquias), filed a complaint to collect the policy proceeds. The company admitted the policy’s existence but pleaded lack of cause of action, arguing that the Coquias had no contractual relation with it and that the insured had not complied with the policy’s arbitration provisions.

ISSUE

1. Whether the Coquias, as heirs of the deceased driver, have a direct cause of action against the insurance company despite not being parties to the insurance contract.
2. Whether the right to demand arbitration under the policy was waived by the parties.

RULING

1. Yes, the Coquias have a direct cause of action. The insurance policy is a contract pour autrui (stipulation pour autrui) under Article 1311 of the Civil Code. The policy provisions clearly stipulate benefits for third parties. Specifically, it indemnifies any authorized driver and, in the event of the driver’s death, indemnifies his personal representatives. Furthermore, the policy states the company may, at its option, pay indemnity directly to the claimants or heirs, indicating the true intention is to protect the insured’s liabilities towards third parties like passengers and the public. This character is reinforced by the fact that the deceased driver paid fifty percent (50%) of the premiums through deductions from his commissions. Therefore, the Coquias, as the sole heirs, could demand fulfillment of the stipulation in their favor.
2. Yes, the arbitration provision was waived. Section 17 of the policy made an arbitration award a condition precedent to any right of action. However, the record shows neither party invoked this section or referred to arbitration during their negotiations prior to the lawsuit. Counsel for both parties stipulated that at no time during these negotiations did either suggest settling the issue by arbitration. These acts or omissions constituted a mutual waiver of the right to demand arbitration. The court cited jurisprudence establishing that when both parties proceed in entire disregard of an arbitration clause and neither demands arbitration, they effectively waive it. Conduct inconsistent with treating the provision as in effect amounts to a waiver.