Sunday, March 11, 2012

Equitable Insurance and Casualty Insurance Co. vs. Rural Insurance and Surety Co.

Facts: Equitable reinsured with Rural the stock covered by the fire insurance policy issued by Equitable to Messrs. Jaen Bermer’s Cooperative Marketing Association, Inc. The stocks were burned. A statement of account covering the share of the loss assumed by Rural was sent by Equitable. Despite repeated demands Rural refused to pay. 

Equitable likewise reinsured with Rural the stocks of Electric and Lamp Supplies covered by fire insurance policies. The stocks were burned. Rural refused to pay its share of loss. Hence this complaint for recovery was filed. Rural moved for its dismissal alleging that there is no cause of action. Invoking Article VIII of the Reinsurance Agreement, it alleged that the matter should be brought to the board of arbitrators before the court action could take place. Motion to dismiss denied. The RTC ruled in favor of Equitable. The appeal to CA was brought to the SC. 

Issue: Whether or not Equitable has a cause of action against Rural. 

Held: Yes. It is true that paragraph (Article VIII) of said Reciprocal Facultative Reinsurance Agreement required that 'in the event of any question arising as to the meaning of, or any way connected with or relating to this Agreement, whether before or after its termination, the parties shall endeavor to arrive at a satisfactory compromise by amicable settlement rather than by court action'; and that the dispute should be referred to the decision of two arbitrators and umpire, as provided, therein. However, in this particular case, there is absolutely no dispute between the two parties, because in the stipulation of facts, the defendant has admitted that plaintiff has paid its liability to the insured as per its fire insurance policies specified in the two causes of action of the complaint. Defendant has, likewise, admitted its liability as reinsurer under the Reciprocal Facultative Reinsurance Agreement to pay to the plaintiff its proportional shares, the amounts of which are not disputed. Indeed, according to the complaint as admitted by the defendant, statements of account as to the amounts of its share as reinsurer and, for all that appears, said defendant has never questioned the correctness of said amounts. 

The appellant’s claim that the court erred in failing to rule that in a facultative obligation the right to choose an alternative remedy lies only with the debtor, who in this case is Rural was held untenable. The term "facultative" is so used in reinsurance contracts merely to define the right of the reinsurer to accept or not to accept participation in the risk insured. But once the share is accepted, as it was in the case at bar, the obligation is absolute and the liability assumed thereunder can be discharged by payment of the share of the losses. There is no alternative nor substitute prestation.

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