Artex Development Co. vs. Wellington Ins. Co.; No. L-29508. June 27, 1973

FACTS

The defendant, Wellington Insurance Co., Inc. insured for P24,346,509.00 the buildings, stocks and machinery of plaintiff Artex Development Co., Inc., against loss or damage by fire or lighting upon payment by plaintiff of the corresponding premiums. On August 2, 1963, said properties were insured for an additional sum of P883,034.00. On May 12, 1963 defendant insured plaintiff against business interruption (use and occupancy) for P5,200,000.00.

On September 22, 1963, the buildings, stocks and machineries of plaintiff’s spinning department were burned. The notice of the loss and damage was given the defendant, and the loss was referred to the H. H. Bayne Adjustment Co. and the Allied Adjustment Co. 

As per report of the adjusters, the total property loss of the plaintiff was the sum of P10,106,554.40 and the total business interruption loss was P3,000,000.00; that defendant has paid to the plaintiff the sum of P6,481,870.07 of the property loss suffered by plaintiff and P1,864,134.08 on its business interruption loss, leaving a balance of P3,624,683.43 and P1,748,460.00, respectively.

The lower court ordered defendant-insurer to pay plaintiff-insured the balance of the insured’s property loss of P3,624,683.43 and its ascertained business interruption loss of P1,748,460.00 with interest and 15% attorney’s fees. Defendant-appellant contends that the lower court should have ruled instead “that plaintiff-appellee’s cause of action (as insured) should have been directed against the reinsurers and not against defendant-appellant.

ISSUE

Whether or not the third party may sue for the enforcement of the contract.

HELD

NO. Plaintiff-insured, not being a party or privy to defendant insurer’s reinsurance contracts, therefore, could not directly demand enforcement of such reinsurance contracts. Defendant-appellant’s contention that the insured should be deemed to have agreed to look solely to the reinsurers for indemnity in case of loss, since it was evident that with its mere P500,000-paid-up capital stock, it had to secure reinsurance coverage for the over P24-million fire insurance coverage of the policy issued by it to plaintiff-insured, is manifestly untenable.

Unless there is a specific grant in, or assignment of, the reinsurance contract in favor of the insured or a manifest intention of the contracting parties to the reinsurance contract to grant such benefit or favor to the insured, the insured, not being privy to the reinsurance contract, has no cause of action against the reinsurer. It is expressly provided in section 91 of the Insurance Act that “(T)he original insured has no interest in a contract of reinsurance.”

NOTES

Contracts effective only between the parties, their assigns and heirs; Stipulations pour autrui as exception thereto. The intent of the contracting parties to benefit a third party by means of such stipulations pour autrui must be clearly expressed.

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