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GAISANO CAGAYAN v. INSURANCE COMPANY OF NORTH AMERICA

FACTS:

Intercapitol Marketing Corporation (IMC) and Levi Strauss (Phils.) Inc. (LSPI) obtained fire insurance policies with book debt endorsements from Insurance Company of North America (respondent). The policies covered book debts arising from the sale and delivery of ready-made clothing materials. Gaisano Cagayan, Inc. (petitioner) was a customer and dealer of IMC and LSPI's products. A fire occurred on February 25, 1991, which destroyed the Gaisano Superstore Complex owned by petitioner. The fire also resulted in the loss of stocks of ready-made clothing materials sold and delivered by IMC and LSPI. Respondent, as the insurer, paid the claims of IMC and LSPI and filed a complaint for damages against petitioner, seeking reimbursement for the amount paid under the insurance policies. The Regional Trial Court (RTC) ruled in favor of petitioner, holding that the fire was accidental and not caused by petitioner's negligence. However, the Court of Appeals (CA) reversed the RTC's decision and ordered petitioner to pay respondent the amounts paid under the insurance policies. Petitioner filed a petition for review on certiorari before the Supreme Court.

ISSUES:

  1. Whether the insurance in the case is one over credit.

  2. Whether all risk over the subject goods had transferred to the petitioner upon delivery thereof.

  3. Whether there was automatic subrogation under Art. 2207 of the Civil Code in favor of the respondent.

RULING:

  1. Insurance Over Credit The Supreme Court ruled that the insurance policy in question covered "book debts" and not the loss or destruction of the goods delivered. Therefore, it is insurance over credit.

  2. Transfer of Risk The Court found that IMC and LSPI retained ownership only to secure payment, thus, the risk of loss is borne by the buyer (petitioner) from the time of delivery.

  3. Subrogation For IMC, the Court held that respondent has the right of subrogation upon payment of the insurance claim. However, there was insufficient evidence to establish respondent’s subrogation rights in relation to LSPI, thereby disallowing the claim for P535,613.00.

PRINCIPLES:

  • Insurance Over Credit Insurance policies with book debt endorsements cover accounts receivable, not the physical goods.

  • Risk of Loss When ownership is retained by the seller only to secure payment, the risk of loss is borne by the buyer upon delivery (Art. 1504(1) of the Civil Code).

  • Insurable Interest Insurable interest does not require property title; an economic interest suffices (Section 13 and 14 of the Insurance Code).

  • Subrogation Insurers are subrogated to the rights of the insured upon payment under Art. 2207 of the Civil Code.

  • Fortuitous Events in Pecuniary Obligations Fortuitous events do not excuse obligations to pay money (Art. 1263 of the Civil Code).