FIRST DIVISION
[G.R. No. 248094. November 11, 2021.]
THE SOLID GUARANTY, INC., petitioner, vs.FLT PRIME INSURANCE CORPORATION, respondent.
NOTICE
Sirs/Mesdames :
Please take notice that the Court, First Division, issued a Resolution datedNovember 11, 2021, which reads as follows: HTcADC
"G.R. No. 248094 (The Solid Guaranty, Inc., petitioner, v. FLT Prime Insurance Corporation, respondent).
This is a Petition for Review on Certiorari1 assailing the April 16, 2019 Decision 2 and July 3, 2019 Resolution 3 of the Court of Appeals (CA) in CA-G.R. CV No. 110458, which affirmed the July 26, 2017 Resolution 4 and December 8, 2017 Order 5 of the Regional Trial Court of Makati City, Branch 59 (RTC) in Civil Case No. 14-381.
Antecedents
On November 11, 2008, FLT Prime Insurance Corporation (respondent) issued to Top Forest Developers Corp. (Top Forest) a fire insurance policy in the amount of P70,000,000.00, covering "stocks of raw materials for wood manufacturing, goods in process, finished/unfinished products and other items of every kind and description usual to the Assured's business. 6
In January 2009, respondent through KRM Reinsurance Brokers Phil., Inc. (KRM) reinsured with The Solid Guaranty, Inc. (petitioner) 45% of the policy amount or a share of P31,500,000.00. Two other insurance contracts were secured from Philfirst and Corporate Guaranty covering another 45% of the policy sum insured. 7
On September 18, 2009, a fire razed the premises of Top Forest's sawmill, warehouse and kiln dryer in Tagaloan, Misamis Oriental, which totally destroyed all four (4) kiln dryer chambers including stocks of timber in drying process. Subsequently, Top Forest filed a formal claim amounting to P37,865,106.10. 8 Respondent referred the claim to an independent adjuster, BA Insight International, Inc. (BA Insight), while petitioner hired Cunningham and Lindsay Philippines, Inc. (Cunningham) as its independent adjuster "to collaborate with the handling adjuster of FLT Prime, BA Insight International, in the evaluation of the claim." 9
After several meetings and consultations, 10 BA Insight recommended the sum of P23,826,529.99 which was accepted by respondent and Top Forest. 11 On December 8, 2010, respondent sent to petitioner the Advance Facultative Cash Call 12 for the amount of P10,721,938.49 representing petitioner's 45% share.
Respondent paid P23,826,529.99 to Top Forest which then executed a Release of Claim. 13 Philfirst and Corporate Guaranty likewise paid their corresponding shares in the final settlement. A final cash call was sent to petitioner. In a letter dated July 7, 2011, petitioner proposed to pay only the amount of P5,123,482.00 as its share, or 45% of P10,541,060.34, which was allegedly computed based on Top Forest's audited financial statement for the year 2009. 14 Subsequent demands for payment by respondent went unheeded. 15
On April 2, 2014, respondent filed a Complaint 16 for Recovery of Sum of Money and Damages against petitioner, docketed as Civil Case No. 14-381, in the RTC. Respondent alleged that petitioner's refusal to pay its share in the claim settlement was unjustified and violated the "follow the fortunes" clause of their reinsurance contract.
In its Answer with Counterclaim, 17 petitioner admitted its undertaking pursuant to the reinsurance contract with respondent but insists that the sum paid to Top Forest included "inflated, unverified, illegal and unlawful amounts." It stressed that the doctrine of "follow the fortunes" is subject to the condition that the payment of the claim must be in good faith and covered by the policy. Petitioner also raised the defenses of prescription/waiver and double insurance.
In its Reply, 18 respondent asserted that its claims handling was done in good faith and in a very transparent manner, as in fact, Top Forest's original claim of P37,865,106.10 was reduced to P23,826,529.99 after adjustment and valuation of goods. It also denied the existence of double insurance and provision on prescription, and contended that the matters raised in petitioner's answer were meant to second-guess respondent's claim which is precisely what the "follow the fortunes doctrine" aims to prevent.
On June 27, 2017, petitioner filed a Motion to Dismiss 19 on the ground of forum shopping committed by respondent when it filed with the Insurance Commission (IC) a letter-complaint based on the same claim. Respondent filed its opposition and argued that there is no forum shopping since the IC does not even exercise quasi-judicial or judicial powers over the matters raised in its letter. 20
On the other hand, respondent filed a Motion for Summary Judgment. 21 It contended that petitioner's answer and admissions of documents and facts during the pre-trial, including the settlement offer of petitioner, show that said answer fails to tender an issue and basically admits the material allegations of the complaint, and that even as to the amount of damages, there is no genuine issues as to any material fact. 22
Petitioner opposed the motion for summary judgment and asserted that it raised factual questions in its answer and there was no admission on its part as to the contents of most of respondent's documentary exhibits. 23
The RTC Ruling
On July 26, 2017, the trial court issued a Resolution 24 denying petitioner's motion to dismiss and granting respondent's motion for summary judgment. It ruled that the issues raised by petitioner can be resolved without resorting to trial on the basis of the admissions in the answer and those made during the pre-trial conference, the aborted settlement which was not denied by petitioner, the supporting affidavits of respondent, and the "follow the fortunes" doctrine. 25
The dispositive portion of the trial court's decision states:
WHEREFORE, premises considered, the "Motion to Dismiss" [filed by the defendant] is hereby DENIED and judgment is hereby rendered in favor of the plaintiff, ordering defendant to pay plaintiff:
1. The amount of P10,721,938.50 representing the defendant's 45% share in the Final Settlement Amount paid to Top Forest under the terms of the defendant's Reinsurance Policy with interest for the duration of the delay at the rate of twice the ceiling of 6.885% per annum or a total of 13.71% per annum prescribed by the Monetary Board per the said Section 243 of the Insurance Code commencing from January 7, 2011, or thirty (30) days after the Advance Facultative Cash Call was made on the defendant on December 8, 2013, until fully paid;
2. Attorney's Fees in the amount of Five Hundred Thousand (P500,000.00) Pesos, taking into account the nature of this case, and the time spent to litigate this case and the stature of counsel[;]
3. To pay the cost of suit.
SO ORDERED.26
Petitioner filed a Motion for Partial Reconsideration, 27 as well as a Motion for Recusal. 28 The trial court denied both motions via its Order dated December 8, 2017. 29
Not in conformity, petitioner appealed the July 26, 2017 Resolution and the December 8, 2017 Order of the RTC before the CA.
The CA Ruling
The CA affirmed the trial court's summary judgment for the respondent. It noted that there is no prohibition under Sec. 1, Rule 35 of the Revised Rules of Court on the filing of a motion for summary judgment during or after the pre-trial stage, or even during the trial. On the propriety of summary judgment, the CA said:
Notably, there was actually no genuine issue raised in defendant-appellant's answer with counterclaim, because defendant-appellant itself alleged that it was bound to its proportionate share in the loss settled by plaintiff-appellee and even offered the amount of P5,123,482.00 as full settlement of its share based on the reinsurance contract it executed with plaintiff-appellee. Thus, the factual issues raised in defendant-appellant's answer with counterclaim are sham, as the case could be resolved judiciously by plain resort to the pleadings, affidavits, depositions, and other papers on file.
Moreover, after the pre-trial and before trial, plaintiff-appellee and defendant-appellant entered into a compromise whereby defendant-appellant agreed to pay P6,000,000.00 to [plaintiff-appellee] in settlement of the latter's claim. In fact, the terms of the compromise had been reduced into writing and defendant-appellant had delivered twelve (12) checks in the amount of P500,000.00 each to plaintiff-appellee. However, defendant-appellant later informed plaintiff-appellee that its [stockholders] advised it not to go through with the compromise and subsequently denied liability to plaintiff-appellee. 30
Petitioner filed a motion for reconsideration which the CA also denied. 31 Hence, petitioner filed the present petition.
Issues
Petitioner assigns the following errors allegedly committed by the CA:
I.
The Court of Appeals erred in ruling that a motion for summary judgment may be filed anytime even during the trial;
II.
The Court of Appeals erred in ruling that there was actually no genuine issue raised in SOLID's answer with counterclaim and that FLT had submitted affidavits, depositions, admissions or other documents in support of its motion for summary judgment;
III.
The Court of Appeals erred in ruling that the parties have entered into a compromise agreement;
IV.
The Court of Appeals erred in ruling that there was a proper award of attorney's fees as plaintiff-appellee was forced to litigate;
V.
The Court of Appeals erred in not ruling that FLT waived or abandoned the presentation of its evidence-in-chief when it filed its Motion for Summary Judgment. 32
Petitioner's Arguments
Petitioner argues that the CA erred in ruling that the trial court correctly granted the motion for summary judgment despite being filed when respondent was already presenting its evidence-in-chief. It points out that the holding of a trial implies that the trial court had found petitioner to have interposed valid factual controversies and genuine issues. 33
Petitioner reiterates that it raised genuine issues of fact in its answer and that its admissions during the pre-trial are confined to the fact of existence of the fire insurance policy, the acceptance of reinsurance cession, the occurrence of loss, the payment of loss and the text provision of the Insurance Code. As to the other admissions of the material allegations in the complaint, petitioner asserts that these were qualified with statements expressing its position that the payment of the claim by petitioner is excessive and not made in good faith, for which reason respondent alone must bear the excess amount. On its offer of settlement, petitioner clarifies that respondent's manifestation and submission itself stated that the compromise agreement was not executed and the checks were not delivered. 34
Respondent's Arguments
Respondent maintains that the CA did not err in affirming the trial court's summary judgment even if it filed the motion during the trial. Citing Sec. 1, Rule 35 of the Revised Rules of Court, respondent contends that a party may move for rendition of summary judgment "at any time" after the filing of the answer. More important, summary judgment is proper considering that on the basis of the answer and pre-trial admissions, no genuine issue of fact exists in this case. 35
The Court's Ruling
The petition is meritorious.
Under Sec. 3, Rule 35 of the 1997 Rules of Civil Procedure, a trial court may dispense with trial and proceed to decide a case if from the pleadings, affidavits, depositions, and other papers on file, there is no genuine issue as to any material fact. In such case, the judgment rendered is called a summary judgment.
SEC. 3. Motion and proceedings thereon. — The motion shall be served at least ten (10) days before the time specified for the hearing. The adverse party may serve opposing affidavits, depositions, or admission at least three (3) days before the hearing. After the hearing, the judgment sought shall be rendered forthwith if the pleadings, supporting affidavits, depositions, and admissions on file, show that, except as to the amount of damages, there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. (emphasis supplied)
Petitioner argues that the summary judgment was rendered in violation of procedural rules because respondent filed the motion when trial was already ongoing, in the middle of presentation of respondent's evidence-in-chief. The CA, however, found no irregularity since there is no prohibition on the filing of said motion after pre-trial or during trial.
Sec. 2, Rule 18 of the 1997 Rules of Civil Procedure provides:
SEC. 2. Nature and Purpose. — The pre-trial is mandatory. The Court shall consider:
(a) The possibility of an amicable settlement or of a submission to alternative modes of dispute resolution;
(b) The simplification of issues;
(c) The necessity or desirability of amendments to the pleadings;
(d) The possibility of obtaining stipulations or admissions of facts and of documents to avoid unnecessary proof;
(e) The limitation of the number of witnesses;
(f) The advisability of a preliminary reference of issues to a commissioner;
(g) The propriety of rendering judgment on the pleadings or summary judgment, or of dismissing the action should a valid ground therefor be found to exist;
(h) The advisability or necessity of suspending the proceedings; and
(i) Such other matters as may aid in the prompt disposition of the action. (emphasis supplied)
Relatedly, Secs. 1 and 2, Rule 35 provides:
SECTION 1. Summary Judgment for Claimant. — A party seeking to recover upon a claim, counterclaim, or cross-claim or to obtain a declaratory relief, at any time after a pleading in answer thereto has been served, move with supporting affidavits, depositions or admissions for a summary judgment in his favor upon all or any part thereof.
SECTION 2. Summary Judgment for Defending Party. — A party against whom a claim, counterclaim, or cross-claim is asserted or a declaratory relief is sought may, at any time, move with supporting affidavits, depositions or admissions for a summary judgment in favor upon all or any part thereof. (emphases supplied)
In Sps. Pascual v. First Consolidated Rural Bank (BOHOL), Inc.36(Pascual), the petitioners filed in the CA a petition for annulment of judgment under Rule 47. After the filing of responsive pleadings, the case was set for pre-trial and the parties were ordered to submit their pre-trial briefs. However, instead of filing a pre-trial brief, the petitioners filed a motion for summary judgment and a motion to hold pre-trial in abeyance. At the scheduled preliminary conference, the petitioners and their counsel failed to appear. The CA dismissed the petition and declared that "it is only at the pre-trial that the rules allow the courts to render judgment on the pleadings and summary judgment, as provided by Sec. 2 (g) of Rule 18 of the Rules of Court."
While affirming the CA, this Court held:
We consider it erroneous on the part of the CA to declare that "it is only at the pre-trial that the rules allow the courts to render judgment on the pleadings and summary judgment, as provided by Section 2(g) of Rule 18 of the Rules of Court." The filing of the motion for summary judgment may be done prior to the pre-trial. Section 1, Rule 35 of the Rules of Court permits a party seeking to recover upon a claim, counterclaim, or cross-claim or seeking declaratory relief to file the motion for a summary judgment upon all or any part thereof in his favor (and its supporting affidavits, depositions or admissions) "at any time after the pleading in answer thereto has been served"; while Section 2 of Rule 35 instructs that a party against whom a claim, counterclaim, or cross-claim is asserted or a declaratory relief is sought may file the motion for summary judgment (and its supporting affidavits, depositions or admissions) upon all or any part thereof "at any time." As such, the petitioners properly filed their motion for summary judgment prior to the pre-trial (assuming that they thereby complied with the requirement of supporting affidavits, depositions or admissions).
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The CA could have misconceived the text of Section 2(g), Rule 18 of the Rules of Court, to wit:
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To be clear, the rule only spells out that unless the motion for such judgment has earlier been filed the pre-trial may be the occasion in which the court considers the propriety of rendering judgment on the pleadings or summary judgment. If no such motion was earlier filed, the pre-trial judge may then indicate to the proper party to initiate the rendition of such judgment by filing the necessary motion. Indeed, such motion is required by either Rule 34 (Judgment on the Pleadings) or Rule 35 (Summary Judgment) of the Rules of Court. The pre-trial judge cannot motu proprio render the judgment on the pleadings or summary judgment. In the case of the motion for summary judgment, the adverse party is entitled to counter the motion.
Even so, the petitioners cannot validly insist that the CA should have first resolved their Motion for Summary Judgment before holding the pre-trial. They could not use the inaction on their motion to justify their non-appearance with their counsel at the pre-trial, as well as their inability to file their pre-trial brief. In that regard, their appearance at the pre-trial with their counsel was mandatory. 37 (emphases supplied)
Unlike in Pascual, the motion for summary judgment in this case was filed after the pre-trial, during the presentation of respondent's evidence. Indeed there is no prohibition under the Rules on the filing of such motion during trial. The Court notes that the case herein proceeded to trial after two (2) unsuccessful Judicial Dispute Resolution (JDR) conferences and no admissions on the issues identified were obtained from the parties during the pre-trial. 38
Significantly, pursuant to A.M. No. 19-10-20-SC 39 dated October 15, 2019, which took effect on May 1, 2020, a court may now render motu proprio a summary judgment or judgment on the pleadings and such submission shall be included in the pre-trial order. 40 This is clearly provided under a new provision, Sec. 10, Rule 18, of the Rules of Court:
Section 10. Judgment after Pre-Trial. — Should there be no more controverted facts, or no more genuine issue as to any material fact, or an absence of any issue, or should the answer fail to tender an issue, the court shall, without prejudice to a party moving for judgment on the pleadings under Rule 34 or summary judgment under Rule 35, motu proprio include the pre-trial order that the case be submitted for summary judgment or judgment on the pleadings, without need of position papers or memoranda. In such cases, judgment shall be rendered within ninety (90) calendar days from termination of the pre-trial. The order of the court to submit the case for judgment pursuant to this Rule shall not be subject to appeal or certiorari. (emphasis and underscoring supplied)
Under the previous Rule, the court was tasked to "consider the propriety of rendering judgment on the pleadings or summary judgment, or of dismissing the action should a valid ground therefor be found to exist." 41 However, the filing of a motion for summary judgment by either the plaintiff or defendant and the conduct of a hearing thereon have been held as essential requisites, the non-observance of which warrants the setting aside of the summary judgment. 42
A.M. No. 03-1-09-SC dated July 13, 2004, which took effect on August 16, 2004, further highlighted the vital function of pre-trial in "abbreviat[ing] court proceedings" to "ensure prompt disposition of cases," and further implemented the pre-trial guidelines laid down in Administrative Circular No. 3-99 dated January 15, 1999. Thus, if all efforts to settle the case have failed, the trial judge is directed to undertake the necessary steps to ensure an orderly trial and at the same time "[d]etermine the propriety of rendering a summary judgment dismissing the case based on the disclosures made at the pre-trial or a judgment based on the pleadings, evidence identified and admissions made during the pre-trial." 43 A motion filed by either party and hearing conducted thereon remained as procedural requirements for rendition of summary judgment.
Under the amended Rule 44 on pre-trial, a court is now required to state motu proprio in the pre-trial order the submission for summary judgment or judgment on the pleadings, without prejudice to the filing of a motion by either party. To aid the court in this determination, Sec. 1 of Rule 8 45 has added the requirement of including in every pleading a statement of "the evidence on which the party pleading relies on for his [or her] claim or defense, as the case may be."
These recent amendments demonstrate that pre-trial not only enables the court and the parties to avail of legal avenues for settlement, but also prepare for an orderly, effective and just resolution of every controversy. Toward this end, the court may conduct a full-blown trial, or resort to procedural techniques allowed under the Rules of Court like summary judgment or judgment on the pleadings.
Summary judgments are intended "to expedite or promptly dispose of cases where the facts appear undisputed and certain from the pleadings, depositions, admissions and affidavits," 46 thus dispensing with the conduct of trial. In Wood Technology Corporation v. Equitable Banking Corporation, 47 We declared that summary judgment may be granted if no genuine issue for trial is presented:
Summary judgment is a procedure aimed at weeding out sham claims or defenses at an early stage of the litigation. The proper inquiry in this regard would be whether the affirmative defenses offered by petitioners constitute genuine issues of fact requiring a full-blown trial. In a summary judgment, the crucial question is: are the issues raised by petitioners not genuine so as to justify a summary judgment? A "genuine issue" means an issue of fact which calls for the presentation of evidence, as distinguished from an issue which is fictitious or contrived, an issue that does not constitute a genuine issue for trial. 48 (emphases supplied)
The party moving for the summary judgment has the burden of clearly demonstrating the absence of any genuine issue of fact, 49 or that the issue posed in the complaint is so patently unsubstantial as not to constitute a genuine issue for trial, and any doubt as to the existence of such an issue is resolved against the movant. 50 When the facts as pleaded by the parties are disputed or contested, proceedings for summary judgment cannot take the place of trial. 51 The rendition of summary judgment is not justified when the defending party tenders vital issues which call for the presentation of evidence. 52
In determining the genuineness of the issue and the propriety of summary judgments, the court is obliged to carefully study and appraise, not only the tenor or contents of the pleadings, but also the facts alleged and admitted by the parties, their affidavits and the corresponding opposition. 53
In its answer with counterclaim, petitioner made the following admissions and specific denials:
b. QUALIFIED ADMISSIONS
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2.6 In par. 13.1, defendant admits offering, on the ground of business consideration, the amount of P5,123,482.00 as full settlement of its share on the ground that the amount alleged to be paid by plaintiff to Top Forest included inflated, unverified, illegal and unlawful amounts which made the payment excessive for which reason plaintiff must alone bear the excess amount.
2.7 In par. 14, defendant admits that it was informed of its approved settlement amount although after plaintiff had already paid the same. However, plaintiff ignored the queries and suggestions of the defendant prior to making any payment despite the fact that defendant had a 45% share on the risk. The rest of the paragraph is denied for lack of knowledge.
2.8 In pars. 14.2, 14.3, 14.4 and 15.3, the defendant admits, the principle of "follow the fortunes" subject to the condition that the payment of claim must be in good faith and covered by the policy but adds that repetitious citations are not allegations of ultimate facts and hence, has no place in the complaint.
c. DENIALS
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c.2 Specific Denial
4.0 The common allegations in pars. 14.1, 15.4, 17, 17.2, 18.1, 18.1.1 and 18.2 are iterations of the same complaint and all are specifically denied by the defendants the truth being that:
4.1 In par. 14.1, the settlement by the plaintiff to be binding on defendant must be in good faith and covered by the policy. However, for reasons known only to it, plaintiff decided to pay Top Forest the amount of P23,829,529.99 despite the following factors which prevent or may affect indemnity. DETACa
4.1.1 Top Forest did not submit, and plaintiff did not require, the prices set by Vicmar Development Corp. for logs it delivered to Top Forest pursuant to the Log Supply Agreement (hereto as Annexes "2" to "2-A") between the two (2) entities which agreement is well known to the plaintiff. In fact, in plaintiff's letter to the defendant dated July 30, 2010 dated July 7, 2010 (hereto as Annexes "3" to "3-B") and plaintiff's letter to BAI expressed its apprehensions on the claim due to non-observance of the provisions in Annexes "2" to "2-A." Nevertheless, the plaintiff puzzlingly set aside its own apprehensions and unduly relied on the prices submitted by Top Forest.
4.1.2 The prices submitted by Top Forest and then admitted by the plaintiff are inflated and included illegal expenses. In fact, in BAI's evaluation report dated May 11, 2010 (hereto as Annexes "5" to "5-H") submitted to the plaintiff, Top Forest claimed for each type of logs burned the following costs:
a. Forest charges/log
b. Overhead
c. Payroll
d. Hauling
e. Miscellaneous constituting allowance, SOP for ARMM/DENR, PNP, Cafgu representation
f. Labor cost
g. Manufacturing overhead
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4.1.3 There is an existing other insurance (hereto attached as Annex "6") with BPI/MS Insurance Corporation that the plaintiff merely set aside. Under the policy and existing jurisprudence, the non-declaration of other insurances on the same interest insured is a valid ground for denial of claim. However, in plaintiff's letter to defendant on July 23, 2010 (hereto as Annex "7"), plaintiff conveniently concluded that co-insurance (or other insurance) "will not exist because FLT Prime is not insuring 'Finished Plywood' as that insured with BPI/MS. Further, the business operations of Top Forest FLT insured is kiln drying operations while that of VICMAR (BPI/MS Insured) is manufacturing of plywood. x x x"
However, this conclusion by the plaintiff is contrary to the actual business of Top Forest as stated in its Articles of Incorporation (hereto as Annexes "8" to "8-H") and which plaintiff provided to the defendant. x x x
Furthermore, at the time of the loss, Top Forest was sharing the industrial compound it was occupying with two (2) other entities, Vicmar Development Corp. and Greenwood International Industries, Inc. There was no efficient method to segregate with certainty the stocks of Top Forest from that of Vicmar Development Corp. and Greenwood International Industries, Inc.
4.1.4 Plaintiff itself is confused on what and how much to pay and for this reason, it cannot insist that the amount [of] it arbitrarily paid to Top Forest should be binding on the defendant. In Annexes "3" to "3-B," it asserted based on its computation that the indemnity due to Top Forest is P18,586,760.22 only to backtrack later and pay P23,829,529.99 to Top Forest.
4.2 Due to the above reasons, defendant is not liable to the plaintiff for the amount claimed, even if it previously offered to the plaintiff for business considerations the amount of P5,123,482.00. Based on its computation and assuming the non-existence of other insurance, the total amount for the raw materials consisting of 749,529.82 board feet of logs is P1,364,125.34 or a 45% share of P613,856.40.
4.3 In pars. 18.1 and 18.2, the same are denied for lack of factual basis and assuming plaintiff incurred attorney's fees and other expense, it was for the purpose of asserting an invalid claim. Furthermore, attorney's fee is not due as there is no premium to litigate.
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As gleaned from the foregoing, petitioner specifically denied the material allegations in the complaint that: a) it bound itself and confirms the final settlement made by respondent pursuant to the "follow the fortunes" clause in their reinsurance contract; b) it is liable to pay respondent the amount of P10,721,938.50 representing its 45% share in the aforesaid settlement; c) it unjustifiably refused and continues to so refuse, despite previous demands by respondent, to fully pay the aforesaid 45% share; d) it should be adjudged to pay the said 45% share with interest for the duration of the delay at the rate twice the ceiling prescribed by the Monetary Board pursuant to Sec. 243 of the Insurance Code; and e) it is liable to pay attorney's fees and exemplary damages to the respondent.
The Branch Clerk of Court's Reports dated July 26, 2016 55 (Marking of Exhibits) and August 5, 2016 56 (Stipulation of Facts and Issues), and the Pre-Trial Order 57 dated August 11, 2016 n indicate that most of the documentary exhibits submitted by respondent were admitted by petitioner "as to existence and due execution" but not to their contents although some of these were adopted by petitioner and marked as common exhibits. The parties likewise set forth the following proposed issues for trial:
Stipulation of issues:
[a.] As to the plaintiff x x x
1.] Whether or not the defendant is liable to pay plaintiff the amount of Php10,721,938.50 representing the defendant's 45% share in the Final Settlement Amount paid to Top Forest under the terms of the Solid Reinsurance Policy;
2.] Whether or not defendant should be held liable to the plaintiff for interest, attorney's fees, exemplary damages and costs of suit, as prayed for in the complaint.
[b.] As to the defendant, the following are its proposed issues:
1.] Whether or not the complaint should be dismissed based on affirmative defenses raised in the answer;
2.] Whether or not plaintiff has a cause of action against the defendants;
3.] Whether or not plaintiff's claim had been waived, abandoned, or otherwise extinguished or that a condition precedent before this complaint can be filed is not met; and
4.] Whether the plaintiff is liable to the defendant on the latter's counterclaim. 58
Based on the pleadings and documentary exhibits, petitioner raised three (3) principal issues: 1) whether the amount of claim settlement is inflated and include illegal expenses, hence not covered by the fire insurance policy; 2) whether there exists double insurance on the same materials/products insured; and 3) whether the evaluation of Top Forest's claim and settlement made by respondent were in good faith. These are factual questions that require the presentation of evidence.
As to the other existing insurance obtained by Vicmar and Top Forest from BPI/MS Insurance Corporation, this was admitted by respondent as the matter was brought up by petitioner during the claims evaluation process. The representatives and adjusters of both parties concluded that the other existing insurance does not cover the same products/items. 59 The matter was included in the Evaluation Report 60 dated May 11, 2010 which petitioner admitted as to its existence and due execution. 61Nevertheless, it is not for respondent and adjusters to settle the issue of double insurance, the alleged existence of which was raised by petitioner as an affirmative defense in its answer.
We note the emphasis placed by the trial court and the CA on petitioner's Letter 62 dated July 7, 2011 addressed to KRM and forwarded by the latter to respondent. In the said letter, petitioner stated that based on its evaluation of the loss "as approved by [our] reinsurers" the total loss payable to Top Forest [is] only P11,835,516.17, and petitioner's 45% share as P5,123,482.00. In the letter's closing paragraphs, petitioner unequivocally declared its readiness to pay the reduced amount of P5,123,482.00. This supposedly constitutes unqualified admission of liability on the part of petitioner.
Not so. It must be noted that the offer was made amid unsettled issues in the final evaluation of the claim. Thus, it was erroneous for the trial court to state that petitioner fully admitted its liability simply because there was no mention of bad faith in the claims handling of respondent, or excessive amount of final settlement payment made to Top Forest. Precisely the reason petitioner offered a much lower amount than the final settlement paid by respondent is its position that respondent's valuation is inflated, excessive and includes illegal expenses.
According to the trial court, petitioner should be adjudged liable for the final settlement of P10,721,938.50 because of its "wanton disregard of its very clear obligations under the defendant's Reinsurance Policy, to [sic] follow the fortunes doctrine and the pertinent provisions of law." 63
We disagree.
The confirmation clause of the facultative reinsurance advice reads:
CONFIRMATION
"TO: KRM REINSURANCE BROKERS PHILS., INC.
We hereby confirm that this Binder serves as our Reinsurance Policy/Endorsement and that this reinsuring company by this acceptance, is bound under the terms and conditions of the original Policy/Endorsement.
We further confirm that settlement by the Ceding Company shall be binding on the Undersigned, to our proportionate share of all losses and expenses incurred in connection with any claim under the original policy." 64 (emphasis supplied)
A contract of reinsurance is defined as one by which an insurer procures a third person (reinsurer) to insure him against loss or liability by reason of such original insurance. 65 A separate and distinct arrangement from the original contract of insurance, a reinsurance agreement insures the contracted risk in the original insurance contract. 66 The reinsurer's contractual relationship is with the direct insurer, not the original insured, and the latter has no interest in and is generally not privy to the contract of reinsurance. 67 Plainly, reinsurance is the "insurance of an insurance." 68
The "follow the fortunes" or "follow the settlements" doctrine is a principle applicable in insurance law. Many reinsurance contracts contain a "follow the fortunes" provision. According to this rule, a reinsurer is bound by the reinsured's decisions regarding payment of settled claims so long as the decision was made reasonably and in good faith. 69 The purpose of the doctrine is "to prevent the reinsurer from second guessing the settlement decisions of the ceding company." 70 A reinsurer thus bears the heavy burden of proving bad faith or fraud on the part of the reinsured.
In Republic v. Pilipinas Shell Petroleum Corp., 71 this Court reiterated that good faith and bad faith are questions of fact that must be established by evidence.
"In ascertaining good faith, or the lack of it, which is a question of intention, courts are necessarily controlled by the evidence as to the conduct and outward acts by which alone the inward motive may, with safety, be determined. Good faith connotes an honest intention to abstain from taking undue advantage of another, even though the forms and technicalities of law, together with the absence of all information or belief of facts, would render the transaction unconscientious. The ascertainment of good faith, or lack of it, and the determination of whether due diligence and prudence were exercised or not, are questions of fact.
Trial courts have limited authority to render summary judgments and may do so only when there is clearly no genuine issues as to any material fact. When the facts as pleaded by the parties are disputed or contested, proceedings for summary judgment cannot take the place of trial. As certain facts pleaded are contested by the parties in this case, rendition of summary judgment is not proper." 72 (emphasis supplied)
Since the application of the "follow the fortunes" doctrine involves judicial determination of good faith in the claims handling decision of the ceding company (reinsured), summary judgment cannot be premised solely on the admission by the reinsurer of such provision in the reinsurance contract. A summary judgment is not proper where, as in this case, the reinsurer consistently disputed the data and records used in the valuation of the assured's claim.
Notably, petitioner's answer put in issue the reasonableness and good faith of the claims handling decision by respondent, citing the parties' disagreement on certain matters considered in the claims settlement, as reflected in the evaluation reports and exchange of letters submitted as documentary exhibits during the pre-trial. The CA clearly erred in sustaining the trial court's summary judgment that automatically applied the follow the fortunes clause despite serious allegations of inflated and excessive valuation of loss or damage.
WHEREFORE, the petition is GRANTED. The April 16, 2019 Decision and the July 3, 2019 Resolution of the Court of Appeals in CA-G.R. CV No. 110458 are REVERSED and SET ASIDE. The case is hereby REMANDED to the Regional Trial Court of Makati City for continuation of trial and proper disposition with dispatch.
SO ORDERED."
By authority of the Court:
(SGD.) LIBRADA C. BUENADivision Clerk of Court
By:
MARIA TERESA B. SIBULODeputy Division Clerk of Court
Footnotes
1.Rollo, pp. 7-37.
2.Id. at 43-67; penned by Associate Justice Fernanda Lampas Peralta with Associate Justices Rodil V. Zalameda and Henri Jean Paul B. Inting (now Members of this Court), concurring.
3.Id. at 69-70; penned by Associate Justice Fernanda Lampas Peralta with Associate Justices Rodil V. Zalameda (now a Member of this Court) and Danton Q. Bueser, concurring.
4.Id. at 1182-1202; penned by Judge Winlove M. Dumayas.
5.Id. at 1238-1240.
6.Id. at 44.
7.Id. at 72.
8.Id. at 485.
9.Id. at 45.
10.Id.
11.Id. at 505-512.
12.Id. at 533.
13.Id. at 529-530.
14.Id. at 535-536.
15.Id. at 541-548.
16.Id. at 71-82.
17.Id. at 96-102.
18.Id. at 137-146.
19.Id. at 1121-1123.
20.Id. at 1183.
21.Id. at 1140-1175.
22.Id. at 1174.
23.Id. at 1177-1181.
24.Id. at 1182-1202.
25.Id. at 1191.
26.Id. at 1202.
27.Id. at 1203-1207.
28.Id. at 1225-1228.
29.Id. at 1238-1240.
30.Id. at 60-61.
31.Id. at 69-70.
32.Id. at 16.
33.Id. at 20-24.
34.Id. at 28-34.
35.Id. at 1388-1395.
36. 805 Phil. 488 (2017).
37.Id. at 496-499.
38. See Branch Clerk of Court's Report [re: Stipulation of facts and issues], Records, Vol. 2, pp. 261-262.
39. Approving the 2019 Proposed Amendment to the 1997 Rules of Civil Procedure, effective May 1, 2020.
40. Section 7, Rule 18.
41. Section 2 (g), Rule 18.
42. See Calubaquib v. Republic, 667 Phil. 653, 663 (2011), citing Cadirao v. Hon. Estenzo, 217 Phil. 93, 101-102 (1984).
43. A.M. No. 03-1-09-SC, A (5) (h).
44. A.M. No. 19-10-20-SC.
45. Section 1. In general. — Every pleading shall contain in a methodical and logical form, a plain, concise and direct statement of the ultimate facts, including the evidence on which the party pleading relies for his [or her] claim or defense, as the case may be.
If a cause of action [or] defense relied on is based on law, the pertinent provisions thereof and their applicability to him or her shall be clearly and concisely stated.
46.Heirs of Ernesto Morales v. Agustin, 832 Phil. 795, 807 (2018), citing Viajar v. Hon. Estenzo, 178 Phil. 561, 572-573 (1979), as cited in Cadirao v. Hon. Estenzo, supra note 42, at 100.
47. 492 Phil. 106 (2005).
48.Id. at 115-116.
49.Sps. Pascual v. First Consolidated Bank (BOHOL), Inc., supra note 36, at 497-498; see Republic v. Pilipinas Shell Petroleum Corp., 775 Phil. 361, 378 (2015).
50.Viajar v. Judge Estenzo, supra note 46, at 573.
51.Evadel Realty and Development Corporation v. Spouses Soriano, 409 Phil. 450, 461 (2001).
52.Cotabato Timberland Co., Inc. v. C. Alcantara and Sons, Inc., 474 Phil. 259, 269 (2004), citing R and B Surety & Insurance Co., Inc. v. Savellano, 221 Phil. 38, 48 (1985).
53.Mortel v. Brundige, 759 Phil. 391, 398 (2015).
54.Rollo, pp. 97-100.
55. Records, Vol. II, pp. 231-236.
56.Id. at 261-262.
57.Id. at 264-265.
58.Id. at 262.
59.Id.
60.Id. at 283-291 (Exhibit "C-4-A" for Plaintiff and Exhibit "5" for Defendant).
61.Id. at 264.
62.Id. at 138-139 (Exhibits "M" and "M-1" for Plaintiff and Exhibit "10" for Defendant).
63.Rollo, p. 1199.
64. Records, Vol. I, p. 17.
65. The Insurance Code (Republic Act No. 10607), Section 97.
66. See Communication and Information Systems Corp. v. Mark Sensing Austria, Pty., Ltd., 804 Phil. 233, 247 (2017).
67.Id.; The Insurance Code, Section 100.
68.Id., citing De Leon & De Leon, Jr., The Insurance Code of the Philippines, 2014 ed., p. 315.
69. Source: https://definitions.uslegal.com/f/follow-the-fortunes-doctrine.
70.Aetna Cas. & Sur. Co. v. Home Ins Co., 882 F. Supp. 1346 (S.D.N.Y. 1995).
71. 775 Phil. 361 (2015).
72.Id. at 383-384.
n Note from the Publisher: Written as "206" in the official document.