WEEK 2
INSURANCE
E. Essential Elements
GULF RESORTS INC vs PHILIPPINE CHARTER INSURANCE CORPORATION
(2005)
FACTS: Gulf Resorts, Inc at Agoo, La Union was insured with American Home Assurance
Company which includes loss or damage to shock to any of the property insured by this
Policy occasioned by or through or in consequence of earthquake
July 16, 1990: an earthquake struck Central Luzon and Northern Luzon so the
properties and 2 swimming pools in its Agoo Playa Resort were damaged
August 23, 1990: Gulf's claim was denied on the ground that its insurance policy only
afforded earthquake shock coverage to the two swimming pools of the resort
Petitioner insists that the parties have intended to extend the coverage through the
attachment of the phrase "Subject to: Other Insurance Clause, Typhoon Endorsement,
Earthquake Shock Endorsement, Extended Coverage Endorsement, FEA Warranty &
Annual Payment Agreement on Long Term Policies" to the insurance policy.
ISSUE: Whether or not the insurance policy earthquake shock coverage extends to
other property aside from the two swimming pools.
HELD: NO. Petitioner cannot focus on the earthquake shock endorsement to the
exclusion of the other provisions. All the provisions and riders, taken and interpreted
together, indubitably show the intention of the parties to extend earthquake shock
coverage to the two swimming pools only.
A careful examination of the premium recapitulation will show that it is the clear intent
of the parties to extend earthquake shock coverage only to the two swimming pools.
In the subject policy, no premium payments were made with regard to earthquake
shock coverage, except on the two swimming pools. There is no mention of any
premium payable for the other resort properties with regard to earthquake shock. This
is consistent with the history of petitioner’s previous insurance policies from AHAC-AIU.
In sum, there is no ambiguity in the terms of the contract and its riders. Petitioner
cannot rely on the general rule that insurance contracts are contracts of adhesion which
should be liberally construed in favor of the insured and strictly against the insurer
company which usually prepares it. A contract of adhesion is xxx
We cannot apply the general rule on contracts of adhesion to the case at bar. Petitioner
cannot claim it did not know the provisions of the policy. From the inception of the
policy, petitioner had required the respondent to copy verbatim the provisions and
terms of its latest insurance policy from AHAC-AIU.
DOCTRINE:
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It is basic that all the provisions of the insurance policy should be examined and
interpreted in consonance with each other. All its parts are reflective of the true intent
of the parties. The policy cannot be construed piecemeal. Certain stipulations cannot be
segregated and then made to control; neither do particular words or phrases
necessarily determine its character.
Section 2(1) of the Insurance Code defines a contract of insurance as an agreement
whereby one undertakes for a consideration to indemnify another against loss, damage
or liability arising from an unknown or contingent event. Thus, an insurance contract
exists where the following elements concur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a general scheme to distribute actual losses among
a large group of persons bearing a similar risk; and
5. In consideration of the insurer's promise, the insured pays a premium.
An insurance premium is the consideration paid an insurer for undertaking to indemnify
the insured against a specified peril. In fire, casualty, and marine insurance, the
premium payable becomes a debt as soon as the risk attaches.
A contract of adhesion is one wherein a party, usually a corporation, prepares the
stipulations in the contract, while the other party merely affixes his signature or his
"adhesion" thereto. Consequently, any ambiguity therein is resolved against the insurer,
or construed liberally in favor of the insured.
PHILAMCARE HEALTH SYSTEMS, INC., vs. COURT OF APPEALS and JULITA
TRINOS
G.R. No. 125678 March 18, 2002
YNARES-SANTIAGO, J.:
Facts:ErnaniTrinos, deceased husband of JulitaTrinos, applied for a health care
coverage withPhilamcare Health Systems, Inc. In the standard application form, he
answered “NO” to the following question:
Have you or any of your family members ever consulted or been treated for high blood
pressure, heart trouble, diabetes, cancer, liver disease, asthma or peptic ulcer? (If Yes,
give details).
Coverage of the health care agreement (HCA):
approved for a period of one year, Renewed 3 times yearly: March 1, 1988 - March 1,
1990; March 1, 1990 – June 1, 1990. The amount of coverage was increased to a
maximum sum of P75,000.00 per disability.
Ernani’s entitlement under HCA:
hospitalization benefits, whether ordinary or emergency, listed therein
out-patient benefits" such as annual physical examinations, preventive health care and
other out-patient services.
Ernaniwas subsequently confined. HISTORY (everything happened within the period of
coverage):
Ernani suffered a heart attack and was confined at the Manila Medical Center (MMC) for
one month beginning March 9, 1990.
Julita tried to claim the benefits under the health care agreement.
Philamdenied her claim saying that the Health Care Agreement was void. there was a
concealment regarding Ernani’s medical history. Doctors at the MMC allegedly
discovered at the time of Ernani’s confinement that he was hypertensive, diabetic and
asthmatic, contrary to his answer in the application form.
Julita paid the hospitalization expenses herself, amounting to about P76,000.00
Ernani was discharged at MMC
He was attended by a physical therapist at home.
Again he was admitted at the Chinese General Hospital.
Julita brought her husband home again due to financial difficulties.
In the morning of April 13, 1990, Ernani had fever and was feeling very weak.
Julita was constrained to bring him back to the Chinese General Hospital where he died
on the same day.
On July 24, 1990, respondent instituted with the Regional Trial Court of Manila, Branch
44, an action for damages against Philam and its president, Dr. Benito Reverente, She
asked for reimbursement of her expenses plus moral damages and attorney’s fees.
After trial, the lower court ruled against Philam, ordered:
1. Defendants to pay and reimburse the medical and hospital coverage of the late
ErnaniTrinos in the amount of P76,000.00 plus interest, until the amount is fully paid to
plaintiff who paid the same;
2. Defendants to pay the reduced amount of moral damages of P10,000.00 to plaintiff;
3. Defendants to pay the reduced amount ofP10,000.00 as exemplary damages to
plaintiff;
4. Defendants to pay attorney’s fees of P20,000.00, plus costs of suit.
CA: affirmed the decision of the trial court but deleted all awards for damages and
absolved petitioner Reverente.Denied MR.
Issues:
Whether health care agreements are considered insurance contracts.
Whether there was concealment of material facts on the part of Ernani that rendered
the HCA void by virtue of the "Invalidation of agreement" contained in the contract.
Suppose there was concealment, what are the steps Philam should have done?
Ruling:
YES, it is an insurance contract.
Section 2 (1) of the Insurance Code defines a contract of insurance as an agreement
whereby one undertakes for a consideration to indemnify another against loss, damage
or liability arising from an unknown or contingent event. An insurance contract exists
where the following elements concur:
(1) The insured has an insurable interest;
(2) The insured is subject to a risk of loss by the happening of the designated peril;
(3) The insurer assumes the risk;
(4) Such assumption of risk is part of a general scheme to distribute actual losses
among a large group of persons bearing a similar risk; and
(5) In consideration of the insurer’s promise, the insured pays a premium.
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Section 3 of the Insurance Code states that any contingent or unknown event, whether
past or future, which may damnify a person having an insurable interest against him,
may be insured against. Every person has an insurable interest in the life and health of
himself. Section 10 provides:
Every person has an insurable interest in the life and health:
(1) of himself, of his spouse and of his children;
(2) of any person on whom he depends wholly or in part for education or support, or in
whom he has a pecuniary interest;
(3) of any person under a legal obligation to him for the payment of money, respecting
property or service, of which death or illness might delay or prevent the performance;
and
(4) of any person upon whose life any estate or interest vested in him depends.
In the case at bar, the insurable interest of respondent’s husband in obtaining the
health care agreement was his own health. The health care agreement was in the
nature of non-life insurance, which is primarily a contract of indemnity. Once the
member incurs hospital, medical or any other expense arising from sickness, injury or
other stipulated contingent, the health care provider must pay for the same to the
extent agreed upon under the contract.
NONE, there was no concealment of material facts.
Petitioner cannot rely on the stipulation regarding "Invalidation of agreement" which
reads:
Failure to disclose or misrepresentation of any material information by the member in
the application or medical examination, whether intentional or unintentional, shall
automatically invalidate the Agreement from the very beginning and liability of
Philamcare shall be limited to return of all Membership Fees paid. An undisclosed or
misrepresented information is deemed material if its revelation would have resulted in
the declination of the applicant by Philamcare or the assessment of a higher
Membership Fee for the benefit or benefits applied for.
The answer assailed by petitioner was in response to the question relating to the
medical history of the applicant. This largely depends on opinion rather than fact,
especially coming from respondent’s husband who was not a medical doctor. Where
matters of opinion or judgment are called for, answers made in good faith and without
intent to deceive will not avoid a policy even though they are untrue. Thus,
(A)lthough false, a representation of the expectation, intention, belief, opinion, or
judgment of the insured will not avoid the policy if there is no actual fraud in inducing
the acceptance of the risk, or its acceptance at a lower rate of premium, and this is
likewise the rule although the statement is material to the risk, if the statement is
obviously of the foregoing character, since in such case the insurer is not justified in
relying upon such statement, but is obligated to make further inquiry. There is a clear
distinction between such a case and one in which the insured is fraudulently and
intentionally states to be true, as a matter of expectation or belief, that which he then
knows, to be actually untrue, or the impossibility of which is shown by the facts within
his knowledge, since in such case the intent to deceive the insurer is obvious and
amounts to actual fraud. (Underscoring ours)
The fraudulent intent on the part of the insured must be established to warrant
rescission of the insurance contract. Concealment as a defense for the health care
provider or insurer to avoid liability is an affirmative defense and the duty to establish
such defense by satisfactory and convincing evidence rests upon the provider or
insurer. In any case, with or without the authority to investigate, petitioner is liable for
claims made under the contract. Having assumed a responsibility under the agreement,
petitioner is bound to answer the same to the extent agreed upon. In the end, the
liability of the health care provider attaches once the member is hospitalized for the
disease or injury covered by the agreement or whenever he avails of the covered
benefits which he has prepaid.
Philamshloud have followed Section 27 of the Insurance Code:
"a concealment entitles the injured party to rescind a contract of insurance." The right
to rescind should be exercised previous to the commencement of an action on the
contract.In this case, no rescission was made. Besides, the cancellation of health care
agreements as in insurance policies require the concurrence of the following conditions:
Prior notice of cancellation to insured;
Notice must be based on the occurrence after effective date of the policy of one or
more of the grounds mentioned;
Must be in writing, mailed or delivered to the insured at the address shown in the
policy;
Must state the grounds relied upon provided in Section 64 of the Insurance Code and
upon request of insured, to furnish facts on which cancellation is based.
None of the above pre-conditions was fulfilled in this case.
Anent the incontestability of the membership of respondent’s husband, we quote with
approval the following findings of the trial court:
(U)nder the title Claim procedures of expenses, the defendant Philamcare Health
Systems Inc. had twelve months from the date of issuance of the Agreement within
which to contest the membership of the patient if he had previous ailment of asthma,
and six months from the issuance of the agreement if the patient was sick of diabetes
or hypertension. The periods having expired, the defense of concealment or
misrepresentation no longer lie.
F. Applicability of Civil Code
Art. 2011. The contract of insurance is governed by special laws. Matters not expressly
provided for in such special laws shall be regulated by this Code. (n)
Art. 2012. Any person who is forbidden from receiving any donation under Article 739
cannot be named beneficiary of a life insurance policy by the person who cannot make
any donation to him, according to said article. (n)
Art. 739. The following donations shall be void:
(1) Those made between persons who were guilty of adultery or concubinage at the
time of the donation;
(2) Those made between persons found guilty of the same criminal offense, in
consideration thereof;
(3) Those made to a public officer or his wife, descedants and ascendants, by reason of
his office.
Page 3 of 11
In the case referred to in No. 1, the action for declaration of nullity may be brought by
the spouse of the donor or donee; and the guilt of the donor and donee may be proved
by preponderance of evidence in the same action. (n)
INSULAR V EBRADO G.R. NO. L-44059 OCTOBER 28, 1977
Facts:
J. Martin:
Cristor Ebrado was issued by The Life Assurance Co., Ltd., a policy for P5,882.00 with a
rider for Accidental Death. He designated Carponia T. Ebrado as the
revocable beneficiary in his policy. He referred to her as his wife.
Cristor was killed when he was hit by a failing branch of a tree. Insular Life was made
liable to pay the coverage in the total amount of P11,745.73, representing the face
value of the policy in the amount of P5,882.00 plus the additional benefits for accidental
death.
Carponia T. Ebrado filed with the insurer a claim for the proceeds as the
designated beneficiary therein, although she admited that she and the insured were
merely living as husband and wife without the benefit of marriage.
Pascuala Vda. de Ebrado also filed her claim as the widow of the deceased insured. She
asserts that she is the one entitled to the insurance proceeds.
Insular commenced an action for Interpleader before the trial court as to who should be
given the proceeds. The court declared Carponia as disqualified.
Issue: WON a common-law wife named as beneficiary in the life insurance policy of a
legally married man can claim the proceeds in case of death of the latter?
Held: No. Petition
Ratio:
Section 50 of the Insurance Act which provides that "the insurance shall be applied
exclusively to the proper interest of the person in whose name it is made"
The word "interest" highly suggests that the provision refers only to the "insured" and
not to the beneficiary, since a contract of insurance is personal in character. Otherwise,
the prohibitory laws against illicit relationships especially on property and descent will
be rendered nugatory, as the same could easily be circumvented by modes of
insurance.
When not otherwise specifically provided for by the Insurance Law, the contract of life
insurance is governed by the general rules of the civil law regulating contracts. And
under Article 2012 of the same Code, any person who is forbidden from receiving any
donation under Article 739 cannot be named beneficiary of a fife insurance policy by the
person who cannot make a donation to him. Common-law spouses are barred from
receiving donations from each other.
Article 739 provides that void donations are those made between persons who were
guilty of adultery or concubinage at the time of donation.
There is every reason to hold that the bar in donations between legitimate spouses and
those between illegitimate ones should be enforced in life insurance policies since the
same are based on similar consideration. So long as marriage remains the threshold of
family laws, reason and morality dictate that the impediments imposed upon married
couple should likewise be imposed upon extra-marital relationship.
A conviction for adultery or concubinage isn’t required exacted before
the disabilities mentioned in Article 739 may effectuate. The article says that in the case
referred to in No. 1, the action for declaration of nullity may be brought by the spouse
of the donor or donee; and the guilty of the donee may be proved by preponderance of
evidence in the same action.
The underscored clause neatly conveys that no criminal conviction for the offense is a
condition precedent. The law plainly states that the guilt of the party may be proved “in
the same acting for declaration of nullity of donation.” And, it would be sufficient if
evidence preponderates.
The insured was married to Pascuala Ebrado with whom she has six legitimate children.
He was also living in with his common-law wife with whom he has two children.
ZENITH INSURANCE CORPORATION V. THE INSURANCE COMMISSION-
INSURABLE INTEREST
Facts:
> Zenith entered into an insurance contract, denominated as Equipment Floater Policy
covering a Kato Bachoe including its accessories and appurtenances thereof, from loss
of damage. Complainant paid the stipulated premiums therefore.
> Within the period of effectivity of the policy, the two pieces of hydraulic wheel gear
pumps, which are considered appurtenances and/or parts attached to and/or installed
in the Kato BAchoe were lost, stolen and/or illegally detached by unknown thieves or
malefactors
> Despite repeated assurances by Zenith’s soliciting agent, it refused and failed to
settle and pay complainant’s insurance claim.
> Complainant seeks not only the payment of said insurance claim of 70T plus legal
interest, atty’s fees, and litigation expenses, but also the revocation or cancellation of
the license of Zenith to do insurance business.
> Zenith on the other hand contends that:
o Complainant is not the real party in interest since the policy carries with it a
designated loss payee, the BA Finance Corp
o The policy insures against loss or damage caused by fire and lightning, etc, while
theft or robbery is NOT insured against in the policy, it not having been expressly
mentioned
o Loss nevertheless is excluded under the exception of “infidelity exclusion” by the
operator who left it unguarded, unattended and deserted while entrusted to him, and
for failure to give timely notice of loss
o Complainant and/or BA Finance is guilty of concealment and misrepresentation at
the time they secured the policy, because at the time it became operative, the
complainant was NOT yet the owner of the property insured, the property still hot
having been delivered to him, and BA finance had no insurable interest yet, henceforth,
the contract of insurance was VOID AB INITIO for lack of insurable interest at the time
the insurance took effect.
Issues and Resolutions:
(1) Whether or not the loss through theft or robbery claimed is within the coverage of
the policy.
The Insurance Commissioner, as reiterated by the SC, found for the complainant in this
wise: While the policy enumerated the risks covered, it does NOT, however, in its
express terms, limit compensability to that stated in the enumeration. The enumerated
Page 4 of 11
risks excluded did not include theft or robbery committed or perpetrated by an
unidentified culprit, hence the complainant’s claim for damages is compensable.
The foregoing policy is supported by the long time honored doctrine of “contra
proferentem: which provides that: “any ambiguity in the policy shall be resolved in
favor of the insured and against the insurer”. This is true because insurance contracts
are essentially contracts of adhesion and applicants for insurance have no choice but to
accept the terms and conditions in the policy even if they are not in full accord
therewith.
(2) Whether or not the complainant was with insurable interest therein when the said
policy contract was procured.
The complainant has insurable interest in the insured property at the time of the
procurement of the insurance policy. As the CC provides, “the contract of sale is
perfected at the moment there is a meeting of minds upon the thing which is the object
of the contract and upon the price,” and Sec. 15 of the IC allows the insurance of a
mere contingent or expectant interest in anything if the same is founded on an actual
right to the thing, or upon any valid contract.
As this is the case, mere possession of an equitable title, like that pertaining to the
buyer, gives rise to insurable interest in the property in which such title
inheres. Furthermore, considering that Zenith’s agent had been fully apprised of the
circumstances prior to the actual issuance of the policy and the endorsement, it cannot
now allege that complainant has no insurable interest on the property insured. Zenith
is now precluded by the equitable principle of estoppel from impugning and dishonoring
the very insurance policy contract it issued and the endorsement and increase in the
coverage made through its duly authorized agent.
G. Subrogation
Art. 2027. No annuity shall be claimed without first proving the existence of the person
upon whose life the annuity is constituted.
FIREMAN’S FUND INSURANCE COMPANY and FIRESTONE TIRE AND RUBBER
COMPANY OF THE PHILIPPINES vs. JAMILA & COMPANY, INC. and FIRST
QUEZON CITY INSURANCE CO., INC
SUMMARY: Jamila supplies security guards to Firestone and assumes their
responsibility. When some properties of Firestone were lost due to connivance of some
security guards, Fireman’s Fund as insurer paid Firestone the value of such and is now
subrogated to Firestone’s right to reimbursement. They filed complaint to recover
money when Jamila failed to pay. CFI dismissed complaint as to Jamila citing that there
is no cause of action as the latter did not consent to subrogation and there are no
allegations in the complaint that Firestone investigated the loss. Subsequent MRs, F&F
argue that their cause of action is on the basis of legal subrogation.
SC: There was cause of action on the part of Fireman’s Fund pursuant to Art. 2207.
Payment by the assurer to the assured operates as an equitable assignment to the
assurer of all the remedies which the assured may have against the third party whose
negligence or wrongful act caused the loss.
DOCTRINE: Loss or injury for risk must be covered by the policy – Under Article 2207,
the cause of the loss or injury must be a risk covered by the policy to entitle the insurer
to the subrogation. Thus, where the insurer pays the insured for a loss which is not a
risk covered by the policy, thereby effecting “voluntary payment,” the insurer has no
right of subrogation against the third party liable for the loss. Nevertheless, the insurer
may recover from the third party responsible for the damage to the insured property
under Article 1236 of the Civil Code.
FACTS:
Jamila or the Veterans Philippine Scouts Security Agency contracted to supply security
guards to Firestone. Jamila assumed responsibility for the acts of its security guards
First Quezon City Insurance Co., Inc. executed a bond in the sum of P20k to guarantee
Jamila’s obligations under that contract
May 18, 1963: Properties of Firestone valued at Php 11,925 were lost allegedly due to
the acts of its employees who connived with Jamila’s security guard
Fireman’s Fund, as insurer, paid to Firestone the amount of the loss and is
now subrogated to Firestone’s right to get reimbursement from Jamila
Jamila and its surety, First Quezon City Insurance Co., Inc., failed to pay the amount
of the loss in spite of repeated demands.
Fireman’s Fund and Firestone Tire and Rubber Co instituted this complaint against
Jamila for the recovery of the sum of Php 11,925.00 plus interest, damages and
attorney’s fees
Jamila moved to dismiss the complaint on the ground of lack of cause of action
(1) complaint did not allege that Firestone, pursuant to the contractual
stipulation quoted in the complaint, had investigated the loss and that Jamila was
represented in the investigation and
(2) Jamila did not consent to the subrogation of Fireman’s Fund to Firestone’s right
to get reimbursement from Jamilaand its surety.
CFI: Dismissed the complaint as to Jamila on the second ground that there wasno
allegation that it had consented to the subrogation and, therefore, Fireman’s
Fund had no cause of action against it.
Also dismissed the complaint as to First Quezon City Insurance Co., Inc. on the ground
of res judicata as the same action was previously filed in a civil case which was
dismissed because of the failure of the same plaintiffs and their counsel to appear at
the pre-trial.
Firestone and Fireman’s Fund filed MR
CFI on F&F’s MR: Set aside its order of dismissal.
No res judicata as to First Quezon City Insurance Co., because civil case was
dismissed without prejudice
However, due to inadvertence, the lower court did not state in its order of September 3,
1966 why it set aside its prior order dismissing the complaint with respect to
Jamila.
First Quezon City Insurance Co., Inc. filed its answer to the complaint.
Jamila, upon noticing that the order had obliterated its victory without any reason
therefor, filed MR reconsideration
Invoked the first ground in its original motion to dismiss which had never been passed
upon by the lower court that complaint did not allege that Firestone, pursuant to the
contractual stipulation quoted in the complaint, had investigated the loss and that
Jamila was represented in the investigation
CFI on Jamila’s MR: Granted Jamila’s MR. However, it completely ignored the 1st
ground but reverted to the second ground (no consent to subrogation thus no cause of
action).
It did not mention Firestone, the co-plaintiff of Fireman’s Fund.
Page 5 of 11
Firestone and Fireman’s Fund filed MR on the ground that Fireman’s Fund Insurance
Company was suing on the basis of legal subrogation whereas CFI erroneously
predicated its dismissal order on the theory that there was no conventional subrogation
because the debtor’s consent was lacking.
Cited NCC 2207 which provides that “if the plaintiff’s property has been insured, and he
has received indemnity from the insurance company for the injury or loss arising out of
the wrong or breach of contract complained of, the insurance company shall be
subrogated to the rights of the insured against the wrongdoer or the person
who has violated the contract”.
CFI on F&F MR: Denied motion
F&F filed 2nd MR and called CFI’s attention to the fact that the issue of subrogation was
of no moment because Firestone, the subrogor (??), is a party-plaintiff and could sue
directly Jamila in its own right.
CFI on F&F’S 2nd MR:Denied 2nd MR without resolving contention
Appeal to SC
F&F: CFI’s dismissal of their complaint is contrary to Article 2207 which provides
for legal subrogation.
JAMILA: Legal subrogation under Art. 2207 requires the debtor’s consent
o Legal subrogation takes place in the cases mentioned in NCC 1302 and the instant
case is not among the 3 cases enumerated in that article
o There could be no subrogation in this case because according to F&F, the contract
between Jamila and Firestone was entered into on June 1, 1965 but the loss
complained of occurred on May 18, 1963.
ISSUES:
1) Whether the complaint of Firestone as subrogor (???) states a cause of action
against Jamila? (Not really)
2) Whether the complaint of Fireman’s Fund as subrogee states a cause of action
against Jamila? (YES)
3) Whether Jamila should reimburse Fireman’s Fund? (Not decided here)
HELD:
CFI Decision’s order of dismissal is legally untenable so SET ASIDE with costs against
Jamila & Co., Inc.
RATIO:
[F&F’s counsel gratuitously alleged in their brief that Firestone and Jamila entered into a
“contract of guard services” on June 1, ‘65.That allegation was uncalled for because it is
not found in the complaint and so created confusion which did not exist. No copy of the
contract was annexed to the complaint. That confusing statement was an obvious error
since it was expressly alleged in the complaint that the loss occurred on May 18, ‘63.
The fact that such an error was committed is another instance substantiating the
observation that F&F’s counsel had not exercised due care in the presentation of
his case.]
1) Firestone is really a nominal party in this case as it had already been indemnified for
the loss which it had sustained. It joined as a party-plaintiff in order to help Fireman’s
Fund to recover the amount of the loss from Jamila and First Quezon City Insurance
Co., Inc. Firestone had tacitly assigned to Fireman’s Fund its cause of action against
Jamila for breach of contract. Sufficient ultimate facts are alleged in the complaint
to sustain that cause of action.
2) Fireman’s Fund’s action against Jamila is squarely sanctioned by article 2207. As the
insurer, Fireman’s Fund is entitled to go after the person or entity that violated its
contractual commitment to answer for the loss insured against (PAL vs. Heald Lumber
Co).
CFI erred in applying to this case the rules on novation. F&F in alleging in their
complaint that Fireman’s Fund “became a party ininterest in this case by virtue of a
subrogation right given in its favor by” Firestone, were not relying on the
novation by changeof creditors as contemplated in NCC 1291 and 1300 to 1303
but rather on NCC 2207.
Article 2207 is a restatement of a settled principle of American jurisprudence.
Subrogation has been referred to as the doctrine of substitution. It “is an arm of
EQUITY that may guide or even force one to pay a debt for which an obligation was
incurred but whichwas in whole or in part paid by another” (83 C.J.S. 576).
“Subrogation is founded on principles of JUSTICE AND EQUITY, and its operation is
governed by principles of equity. It rests onthe principle that substantial justice should
be attained regardless of form, that is, its basis is the doing of complete, essential,
andperfect justice between all the parties without regard to form”(83 C.J.S. 579- 80)
Subrogation is a normal incident of indemnity insurance (Aetna L. Ins. Co. vs
Moses). Upon payment of the loss, the insurer is entitled to be
subrogate pro tanto to any right of action which the insured may have
against the third person whosenegligence or wrongful act caused the loss (44
Am. Jur. 2nd 745).
The right of subrogation is of the highest EQUITY. The LOSS IN THE FIRST INSTANCE
is that of the INSURED but AFTERreimbursement or compensation, it becomes the
LOSS OF THE INSURER (44 Am. Jur. 2d 746).
“Although many policies including policies in the standard form, now provide for
subrogation, and thus determine the rights of theinsurer in this respect, the equitable
right of subrogation as the legal effect of payment inures to the insurer without
any formalassignment or any express stipulation to that effect in the policy” (44
Am. Jur. 2nd 746).
Stated otherwise, when the insurance company pays for the loss, such payment
operates as an equitable assignment to the insurer of the property and all
remedies which the insured may have for the recovery thereof. That right is not
dependent upon, nor does it grow out of, any privity of contract, or upon written
assignment of claim, and payment to the insured makes the insurer an assignee
in equity (Shambley v. Jobe-Blackley Plumbing and Heating Co).3) Whether the
plaintiffs would be able to prove their cause of action against Jamila is another
question.
PAN MALAYAN INSURANCE CORPORATION, petitioner, vs. COURT OF
APPEALS, ERLINDA FABIE AND HER UNKNOWN DRIVER,
FACTS:
1. Petitioner Panmalay was an insurer of the car of CANLUBANG AUTOMOTIVE
RESOURCE CORP. which was bumpt and damaged by the private respondent through
its negligent driver.
2. Petitioner PANMALAy paid the amount of insurance to the insured.
3. Subrogated on the rights of the insured, petitioner demand payment from the private
Page 6 of 11
respondent who refused to pay the claim of the petitioner.
4. Petitioner filed a complaint against private respondent before the RTC.
5. Private respondent filed a motion to dismiss arguing that payment under the “own
damage” clause of the insurance policy precluded subrogation under Article 2207 of the
Civil Code, since indemnification thereunder was made on the assumption that there
was no wrongdoer or no third party at fault.
6. The RTC dismissed the complaint aswell as the motion for reconsideration and this
was affirmed by the CA.
ISSUE:
WHETHER OR NOT, THE PETITIONER IS ALLOWED TO RECOVERED THE AMOUNT OF
INSURANCE IT HAD PAID TO THE INSURED FROM PRIVATE RESPONDENT.
RULING:
According to the Supreme Court, Art. 2207 of the Civil Code states that, “If the plaintiffs
property has been insured, and he has received indemnity from the insurance company
for the injury or loss arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract.”
This was founded on the well-settled principle of subrogation. If the insured property is
destroyed or damaged through the fault or negligence of a party other than the
assured, the insurer, upon payment to the assured, will be subrogated to the rights of
the assured to recover from the wrongdoer to the extent that the insurer has been
obligated to pay. Payment by the insurer to the assured operates as an equitable
assignment to the former of all remedies which the latter may have against the third
party whose negligence or wrongful act caused the loss.
WHEREFORE, in view of the foregoing, the present petition is GRANTED. Petitioner’s
complaint for damages against private respondents is reinstated. So the case was
remanded to the Trial Court for the trial of the merit.
In the pertinent case of Sveriges Angfartygs Assurans Forening v. Qua Chee Gan,
supra.,the Court ruled that the insurer who may have no rights of subrogation due to
“voluntary” payment may nevertheless recover from the third party responsible for the
damage to the insured property under Article 1236 of the Civil Code.
In the pertinent case of Sveriges Angfartygs Assurans Forening v. Qua Chee
Gan, supra., the Court ruled that the insurer who may have no rights of
subrogation due to “voluntary” payment may nevertheless recover from the
third party responsible for the damage to the insured property under Article
1236 of the Civil Code.
SVERIGES ANFARTYGS ASSURANCE VS QUA CHEE GAN (full case)
On August 23 and 24, 1947, defendant Qua Chee Gan, a sole proprietorship, shipped
on board the S.S. NAGARA as per bills of lading Exhs. A and B 2,032,000 kilos of bulk
copra at Siain, Quezon, consigned to DAL International Trading Co., in Gdynia,
Poland. The vessel first called at the port of Karlshamn, Sweden, where it unloaded
696,419 kilos of bulk copra. Then, it proceeded to Gdynia where it unloaded the
remaining copra shipment. The actual outturn weights in the latter port showed that
only 1,569,429 kilos were discharged.
Because of the alleged confirmed cargo shortage, the Polish cargo insurers had to
indemnify the consignee for the value thereof. Thereafter, the former sued the ship-
owner, the Swedish East Asia Company, in Gothenburg, Sweden. The latter, in turn,
sued defendant and had it summoned to Gothenburg. Defendant However refused to
submit to that court's jurisdiction and its objection was sustained.
In March, 1951, a settlement was effected between the Polish cargo insurers
and the ship owner. Plaintiff, as the indemnity insurer for the latter, paid approximate-
ly $60,733.53 to the Polish insurers. On August 16, 1954, claiming to have been
subrogated to the rights of the carrier, plaintiff sued defendant before the Court of First
Instance of Manila to recover U.S. $60,733.53 plus 17% exchange tax, with legal
interest, as the value of the alleged cargo short shipment and P10,000 as attorney's
fees. Defendant answered in due time and countered with a P15,000 counterclaim for
attorney's fees.
On August 1, 1955, defendant filed a motion to dismiss on the ground of prescription
under the Carriage of Goods by Sea Act. The lowercourt sustained the motion and
plaintiff appealed here. We reversed the order of dismissals and remanded the case for
further proceedings.[1]
After trial the lower court September 28, 1963, rendered its decisions dismissing the
complaint and awarding P10,000 as attorney's fees to defendant. It ruled (a) that there
was no shortshipment on defendant's part (b) that plaintiff's insurance policy did not
cover the shortshipment and (c) defendant was merely acting as an agent of
Louis Dreyfus & Co., who was the real shipper.
Taking issue with all the foregoing, plaintiff has interposed the present appeal to Us on
questions of fact and law, the amount involved exceeding P200,000.00.
Issue:
Was the non-presentation of the insurance policy fatal to plaintiff's case? The lower
court ruled so, reasoning that unless the same as the best evidence were presented, it
could not be conclusively determined if "liability for short shipment" was a covered
risk. And the rule is that an insurer who pays the insured for loss or liability not
covered by the policy is not subrogated to the latter.[2] However, even assuming that
there was unwarranted - or "volunteer" - payment, plaintiff could still recover what it
paid - in effect - to the carrier from defendants shipper under Art. 1236 of the Civil
Code which allows a third person who pays on behalf of another to recover from the
latter, although there is no subrogation. But since the payment here was without the
knowledge and consent of defendant, plaintiff's right of recovery is defeasible by
the former's defenses since the Code is clear that the recovery only up to the amount
by which the defendant was benefited.
This brings Us to the crux of them case: Was there a shortshipment? To support its
case, plaintiff theorizes that defendant had two
shipments at Siain, Quezon province: (1) 812,800 kilos for Karlshamn and (2)
2,032,000 kilos for Gdynia. The Karlshamn shipment was asserted to have been
covered by a separate bill of lading which however was allegedly lost
subsequently. Thus, the 696,419 kilos of copra unloaded in Karlshamn was not part of
the Gdynia shipment and cannot explain the confirmed shortage at the latter port.
Page 7 of 11
Plaintiff's cause of action suffers from several fatal defects and inconsistencies. The
alleged shipment of 812,800 kilos for Karlshamn is contradicted by plaintiff's admission
in paragraphs 2 and 3 of its complaint that defendant shipped only 2,032,000 kilos
copra at Siain, purportedly for both Gdynia and Karlshamn.[3] Needless to state, plaintiff
is bound by such judicial admission.[4] Moreover, the alleged existence of
the Karlshamn bills of lading is negative by the fact that Exhibits A and B - the bills of
lading presented by plaintiff - show that the 2,032,000 kilos of copra loaded
in Siain were for Gdynia only. Further destroying its case is the testimony
of plaintiff's own witness, Mr. Claro Pasicolan, who on direct examination
affirmed[5] that these two exhibits constituted the complete set of documents which
them shipping agent in charge of the vessel S.S. NAGARA issued covering the copra
cargo loaded at Slain. In view of this admission and for want of evidentiary support,
plaintiff's belated claim that there is another complete set of documents can not be
seriously taken.
Lastly, if there really was a separate bill of lading for the Karlshamn shipment, plaintiff
could not have failed to present a copy thereof. Mr. Pasicolan testified[6] that the
shipping agent makes 20 copies of the documents of which three signed ones are given
to the shipper and the rest, marked as non-negotiable bills of lading - like Exhibits A
and B - are kept on its file. For the three signed copies to be lost,We may believe, but
not for all the remaining 17 other copies. Under the circumstances, it his
more reasonable to hold that there was no separate shipment intended for Karlshamn,
Sweden.
As a corollary to the foregoing conclusion, it stands to reason that the copra unloaded
in Karlshamn formed part of the same - and only - shipment of defendant intended
for Gdynia. Now the fact that the sum total of the cargo unloaded
at Karlshamn and Gdynia would exceed what appears to have been loaded at Sian by
as much as 233,848 kilos can only show that defendant really overshipped,
not shortshipped. And while this would not tally with defendant's claim of having
weighed the copra cargo 100% at Siain, thus exposing a flaw in defendant's case, yet it
is elementary that plaintiff must rely on the strength of it own case to recover, and not
bank on the weakness of the defense. Plaintiff here failed to establish its case by
preponderance on evidence.
On the question whether defendant is the real shipped or merely an agent of Louis
Dreyfus & Co., suffice it to say that although on Exhibit A and B his name appears as
the shipper, yet the very loading certificate, Exhibit 3 [5-Deposition of Horle], issued
and signed by the Chief Mate, and Master of the S.S. NAGARA shows that defendant
was acting merely for account of Louis Dreyfus & Co. The other documentary
exhibits[7] confirm this. Anyway, in whatever capacity defendant is considered, it
cannot be liable since no shortshipment was shown.
Plaintiff's action against defendant cannot, however, be considered as clearly
unfounded as to warrant an award of attorney's fees as damages to defendant under
par. 4, Art. 2208 of the Civil Code. The facts do not show that plaintiff's cause of action
was so frivolous or untenably as to amount to gross and evident bad faith.[8]
WHEREFORE, but for the award of attorney's fees to defendant which is eliminated,
the decision appealed from is, in all other respects, hereby affirmed. Costs against
plaintiff-appellant.
RIZAL SURETY AND INSURANCE CO. vs. MANILA RAILROAD CO. AND
MANILA PORT SERVICE
Facts:
On Nov 29, 1960, a vessel named SS Flying Trader, loaded on board a cargo which is
an offset press machine, from Italy to Manila. Upon reaching the port of destination and
upon unloading it, it was dropped b the crane which resulted to damages of the
machine. The plaintiff as the insurer had paid the consignee, Suter, Inc. the amount of
P16.5k for the machine and P180.70 for the International Adjustment Bureau as
adjuster’s fee. However, the arrastre charges in this particular shipment was paid on
the weight or measurement basis whichever is higher, and not on the value thereof.
Issue:
Can the insurance get an amount greater than what was declared?
Held:
Plaintiff Insurance Company cannot recover from defendants an amount greater than
that to which the consignee could lawfully lay claim. The management contract is clear,
the amount is limited to P500.
If the plaintiff’s property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the right of the insured
against the wrong-doer or the person who has violated the contract. If the amount paid
by the insurance company doer not fully cover the injury or loss, the aggrieved party
shall be entitled to recover the deficiency from the person causing the loss or injury.
The insurance have no greater right than the party in interest thereof.
PAUL FIRE & MARINE INSURANCE v MACONDRAY & CO
Facts:
-Winthrop Products, Inc., of New York shipped aboard the SS “Tai Ping”, owned and
operated by Wilhelm Wilhelmsen218 cartons and drums of drugs and medicine with
Winthrop-Stearns Inc., Manila, Philippines as consingee. BarberSteamship Lines, Inc.,
agent of Wilhelm Wilhelmsen issued Bill of Lading No. 34, in the name of Winthrop
Products.
-The shipment was insured by the shipper against loss and/or damage with the St. Paul
Fire & Marine InsuranceCompany.
-“Tai Ping” arrived at the Port of Manila.
-The said shipment was discharged complete and in good order with the exception of
one (1) drum and several cartonswhich were in bad condition.
-Because consignee failed to receive the whole shipment and as several cartons of
medicine were received in badorder condition, Winthrop-Sterns Philippines filed the
corresponding claim in the amount of Pl,109.67 representingthe C.I.F. value of the
damaged drum and cartons of medicine with the carrier and the arrestre.
-However, both refused to pay.
Page 8 of 11
-Winthrop-Sterns Philippines filed its claim with the insurer, St. Paul Fire & Marine
insurance.
-The insurance company, on the basis of such claim, paid to the consignee the insured
value of the lost and damagedgoods, including other expenses in connection therewith,
in the total amount of $1,134.46.
-As subrogee of the rights of the shipper and/or consignee, the insurer, St. Paul Fire &
Marine Insurance Co., instituted with the Court of First Instance the present action
against the defendants for the recovery of said amount of $1,134.46, plus costs.
-The Lower court rendered judgment ordering defendants Macondray & Co., Inc.,
Barber Steamship Lines, Inc. andWilhelm Wilhelmsen to pay to the plaintiff P300.00. It
also held defendants Manila Railroad Company and Manila PortService to pay to
plaintiff, jointly and severally, the sum of P809.67.
-The Insurer, , contending that it should recover the amount of $1,134.46 or its
equivalent in pesos (the rate of P3.90,instead of P2.00, for every US$1.00), filed
a motion for reconsideration, but this was denied.
-The Insurer argues that, as subrogee of the consignee, it should be entitled to recover
from the defendants-appelleesthe amount of $1,134.46 which it actually paid to the
consignee and which represents the value of the lost anddamaged shipment as well as
other legitimate expenses such as the duties and cost of survey of said shipment,
andthat the exchange rate on the date of the judgment, which was P3.90 for every
US$1.00.
-Defendants-appellees countered that:
o Their liability is limited to the C.I.F. value of the goods, pursuant to contract of sea
carriage embodied in the bill of lading that the consignee’s (Winthrop-Stearns Inc.)
claim against the carrier (Macondray & Co., Inc.,Barber Steamship Lines, Inc., Wilhelm
Wilhelmsen and the arrastre operators (Manila Port Service and Manila Railroad
Company) was only for the sum of Pl,109.67
ISSUE(S):
1.Whether or not, in case of loss or damage, the liability of the carrier to the consignee
is limited to the C.I.F value of the goods which were lost or damaged
2.Whether the insurer who has paid the claim in dollars to the consignee should be
reimbursed in its peso equivalent on the date of discharge of the cargo or on the date
of the decision.
HELD:
The appeal is without merit and the judgement of the lower court is affirmed.
-The purpose of the bill of lading is to provide for the rights and liabilities of the parties
in reference to the contract tocarry.
-The stipulation in the bill of lading limiting the common carrier’s liability to the value of
the goods appearing in thebill, unless the shipper or owner declares a greater value, is
valid and binding.
-This limitation of the carrier’s liability is sanctioned by the freedom of the contracting
parties to establish suchstipulations, clauses, terms, or conditions as they may deem
convenient, provided they are not contrary to law,morals, good customs and public
policy.
-A stipulation fixing or limiting the sum that may be recovered from the carrier on the
loss or deterioration of the goods is valid, provided it is:
(a) reasonable and just under the circumstances, and
(b) has been fairly and freely agreed upon.
-In the case at bar, the liabilities of the defendants- appellees with respect to the lost or
damaged shipments areexpressly limited to the C.I.F. value of the goods as per contract
of sea carriage embodied in the bill of lading, whichreads:
o Whenever the value of the goods is less than $500 per package or other freight unit,
their value in the calculation and adjustment of claims for which the Carrier may be
liable shall for the purpose of avoiding uncertainties and difficulties in fixing value be
deemed to be the invoice value, plus freight and insurance if paid, irrespective of
whether any other value is greater or less.
NATIONAL UNION FIRE INSURANCE VS. STOLT NIELSEN
EMERGENCY RECIT: United Coconut Chemicals (SHIPPER) shipped distilled fatty acid
on board MT “StoltSceptre” (CARRIER). The shipment was insured under a marine cargo
policy with National Union Fire Insurance Co (INSURER). Upon receipt of the cargo by
the consignee in Netherlands, it was totally contaminated. Hence, claim was made on the
INSURER of the cargo. The INSURER as subrogee filed a claim for damages against the
CARRIER with RTC Manila. The CARRIER invoked that arbitration must be done pursuant
to the Charter. The INSURER opposed, arguing that the provision on arbitration was not
included in the Bill of Lading. SC: The INSURER cannot avoid the binding effect of the
arbitration clause. By subrogation, it became privy to the Charter Party as fully as the
SHIPPER before the latter was indemnified, because as subrogee it stepped into the shoes
of the SHIPPER and is subrogated merely to the latter's rights.
FACTS:
 On 9 January 1985, United Coconut Chemicals, Inc. shipped 404.774 metric
tons of distilled C6-C18 fatty acid on board MT "Stolt Sceptre," a tanker owned
by Stolt-Nielsen Philippines Inc., from Bauan, Batangas, Philippines, consigned
to "Nieuwe Matex" at Rotterdam, Netherlands, covered by Tanker Bill of Lading
BL No. BAT-1.
 The shipment was insured under a marine cargo policy with Petitioner National
Union Fire Insurance Company of Pittsburg (hereinafter referred to as
INSURER), a non-life American insurance corporation, through its settling agent
in the Philippines, the American International Underwriters (Philippines), Inc.,
the other petitioner herein.
 Upon receipt of the cargo by the consignee in the Netherlands, it was found to
be discoloured and totally contaminated. Hence, a claim was made on the
Insurer of the cargo. The insurer as subrogee filed a claim for damages against
the carrier with the RTC of Manila.
 The carrier filed a motion to dismiss on the ground that the case was arbritrable
and pursuant to the charter party as embodied in the bill of lading, arbitration
must be done. The insurer opposed the motion by arguing that the provision
on arbitration was not included in the bill of lading and even if it was included,
it was nevertheless unjust and unreasonable.
 The RTC denied the motion but upon reconsideration, the resolution on the
motion to dismiss was suspended or deferred.
 The carrier then filed a petition for review on certiorari with preliminary
injunction/TRO which was granted by the CA.
Page 9 of 11
ISSUE: Are the terms of the Charter Party, particularly the provision on arbitration,
binding on the INSURER?
HELD: Yes. The pertinent portion of the Bill of Lading in issue provides in part:
xxx [A]ll the terms whatsoever of the said Charter except the rate and payment
of freight specified therein apply to and govern the rights of the parties
concerned in this shipment.xxx
The provision on arbitration in the Charter Party reads:
4. Arbitration. Any dispute arising from the making, performance or termination
of this Charter Party shall be settled in New York, Owner and Charterer each
appointing an arbitrator, who shall be a merchant, broker or individual
experienced in the shipping business; the two thus chosen, if they cannot agree,
shall nominate a third arbitrator who shall be an admiralty lawyer. Such
arbitration shall be conducted in conformity with the provisions and procedure
of the United States arbitration act, and a judgment of the court shall be entered
upon any award made by said arbitrator. Nothing in this clause shall be deemed
to waive Owner's right to lien on the cargo for freight, deed of freight, or
demurrage.
Clearly, the Bill of Lading incorporates by reference the terms of the Charter Party. It is
settled law that the charter may be made part of the contract under which the goods are
carried by an appropriate reference in the Bill of Lading. As the respondent Appellate
Court found, the INSURER "cannot feign ignorance of the arbitration clause since it was
already charged with notice of the existence of the charter party due to an appropriate
reference thereof in the bill of lading and, by the exercise of ordinary diligence, it could
have easily obtained a copy thereof either from the shipper or the charterer.
We hold, therefore, that the INSURER cannot avoid the binding effect of the arbitration
clause. By subrogation, it became privy to the Charter Party as fully as the SHIPPER
before the latter was indemnified, because as subrogee it stepped into the shoes of the
SHIPPER-ASSURED and is subrogated merely to the latter's rights. It can recover only the
amount that is recoverable by the assured. And since the right of action of the SHIPPER-
ASSURED is governed by the provisions of the Bill of Lading, which includes by reference
the terms of the Charter Party, necessarily, a suit by the INSURER is subject to the same
agreements. It has not been shown that the arbitral clause in question is null and void,
inoperative, or incapable of being performed. Nor has any conflict been pointed out
between the Charter Party and the Bill of Lading.
CEBU SHIPYARD V WILLIAM LINES
Nature of Case: Petition for Review on Certiorari
Digest maker: Erika Potian
 SUMMARY: William Lines insured its M/V Manila City under Prudential Guarantee for
hull and machinery. Policy contained clause providing that loss/damage caused by
negligence of charterers or repairers are excluded from coverage. William Lines
brought the vessel to Cebu Shipyard for annual dry-docking and repair. The two
executed contracts stipulating the liabilities of both parties, including that the
insurance on the vessel should be maintained by the owner during period of the
contract. After the vessel was transferred to the docking quay, it caught fire and sank,
resulting to its eventual total loss. Cebu Shipyard claims that it is a co-assured under
the Marine Hull Insurance Policy by virtue of Clause 20, and therefore no subrogation
can be made by Prudential. SC held that it is not and the petition was denied.
DOCTRINE: Intention of parties to make each other co-assured is to be gleaned from
the insurance policy itself and not from any other contract because the policy
denominates the assured and the beneficiaries.
FACTS:
 Cebu Shipyard and Engineering Works, Inc. (CSEW) is engaged in the business
of dry-docking and repairing of marine vessels while the Prudential Guarantee
and Assurance, Inc. (Prudential) is in the non-life insurance business.
 William Lines, Inc. is in the shipping business. It was the owner of M/V Manila
City, a luxury passenger-cargo vessel, which caught fire and sank.
 At the time of the unfortunate occurrence sued upon, subject vessel was insured
with Prudential for P45M for hull and machinery. The Hull Policy included an
“Additional Perils (INCHMAREE)” Clause covering loss of or damage to the
vessel through the negligence of, among others, ship repairmen
 Petitioner CSEW was also insured by Prudential for third party liability under a
Shiprepairer’s Legal Liability Insurance Policy. The policy was for P10 million
only, under the limited liability clause
 On Feb. 5, 1991, William Lines, Inc. brought its vessel, M/V Manila City, to the
Cebu Shipyard in Lapulapu City for annual dry-docking and repair.
 On Feb. 6, 1991, an arrival conference was held between representatives of
William Lines, Inc. and CSEW to discuss the work to be undertaken on the M/V
Manila City. The contracts, denominated as Work Orders, were signed
thereafter., with the following stipulations:
o 10. The Contractor shall replace at its own work and at its own cost
any work or material which can be shown to be defective and which
is communicated in writing
o 20. The insurance on the vessel should be maintained by the customer
and/or owner of the vessel during the period the contract is in effect.
o The total liability of the Contractor to the Customer or of any sub-
contractor shall be limited in respect of any defect or event to the sum
of 1M.
 While the M/V Manila City was undergoing dry-docking and repairs within the
premises of CSEW, the master, officers and crew of M/V Manila City stayed in
the vessel, using their cabins as living quarters. Other employees hired by
William Lines to do repairs and maintenance work on the vessel were also
present during the dry-docking.
 On February 16, 1991, after subject vessel was transferred to the docking quay,
it caught fire and sank, resulting to its eventual total loss
Page 10 of 11
 On February 21, 1991, William Lines, Inc. filed a complaint for damages against
CSEW, alleging that the fire which broke out in M/V Manila City was caused by
CSEWs negligence and lack of care.
 Prudential was impleaded as co-plaintiff, after it paid William Lines, Inc. the
value of the hull and machinery insurance on the M/V Manila City. As a result
of such payment Prudential was subrogated to the claim of P45 million,
representing the value of the said insurance it paid.
 Trial Court: CSEW to pay William Lines and Prudential (45M)
 CA: Affirmed TC. Ordered the partial dismissal of the case insofar as CSEW and
William Lines were concerned.
 CSEW claims that the insurance policy does not cover loss resulting from the
fault of negligent charterers that are assured in the same policy and by virtue
of clause 20, it is deemed a co-assured.
ISSUE/S & RATIO:
1. WON CSEW is co-assured, thus losses caused by it are not covered by
the policy- NO
a. The fact that clause 20 benefited petitioner, does not automatically
make it a co-assured of William Lines.
b. Intention of parties to make each other co-assured is to be gleaned
from the insurance policy itself and not from any other contract
because the policy denominates the assured and the beneficiaries.
c. Prudential named only William Lines, Inc. as the assured. There was
no manifestation of any intention of William Lines Inc to make CSEW
a co-assured. When the terms of a contract are clear, its stipulations
control.
d. If CSEW were deemed co-assured, it would nullify any claim of William
Lines Inc. No shipowner would agree to make shiprepairer a co-
assured because any claim it has under the policy would be
invalidated. Such result could not have been intended by William Lines
Inc.
2. WON CSEW had “management and supervisory control“ of the ship at the time
the fire broke out- YES
a. The factual findings by the CA are conclusive on the parties and are
not reviewable by this Court.
3. WON the doctrine of res ipsa loquitur applies against the crew- YES
a. For the doctrine of res ipsa loquitur to apply to a given situation, the
following conditions must concur: (1) the accident was of a kind which
does not ordinarily occur unless someone is negligent; and (2) that
the instrumentality or agency which caused the injury was under the
exclusive control of the person charged with negligence.
b. The facts and evidence reveal the presence of these conditions. First,
the fire would not have happened in the ordinary course of things if
reasonable care and diligence had been exercised.
4. WON the provisions limiting CSEW’s liability for negligence to a maximum of
Php 1 million are valid- NO
a. Although contracts of adhesion have been consistently upheld as
valid, reliance on such contracts cannot be favored especially where
the facts and circumstances warrant that subject stipulations be
disregarded. Tthe facts and circumstances vis-a-vis the nature of the
 provision sought to be enforced should be considered, bearing in mind
the principles of equity and fair play.
RULING: Petition denied.
MANILA MAHOGANY V CA
FACTS:
Petitioner insured its Mercedes Benz 4-door sedan with respondent insurance company .
The insured vehicle was bumped and damaged by a truck owned by San Miguel
Corporation (SMC). For the damage caused, respondent company paid petitioner ₱
5,000.00 in amicable settlement. Petitioner’s general manager executed a Release of
Claim, subrogating respondent company to all its right to action against San Miguel Corp.
Respondent company wrote the Insurer Adjusters, Inc. to demand reimbursements from
San Miguel Corporation of the amount it had paid petitioner. Insurer Adjusters, Inc.
refused reimbursement alleging that SMC had already paid petitioner ₱ 4,500.00 for the
damages to petitioner’s motor vehicle, as evidenced by a cash voucher and Release of
Claim executed by the General Manager of petitioner discharging SMC from “ all actions,
claims, demands the right of action that now exist or hereafter develop arising out of or
as a consequence of the accident.
Respondent demanded the ₱ 4,500.00 amount from petitioner. Petitioner refused. Suit
was filed for recovery. City Court ordered petitioner to pay respondent. CFI affirmed. CA
affirmed with modification that petitioner was to pay respondent the total amount of ₱
5,000.00 it had received from respondent.
Petitioner’s argument: Since the total damages were valued at P9,486.43 and only ₱
5,000.00 was received by petitioner from respondent, petitioner argues that it was
entitled to go after SMC to claim the additional which was eventually paid to it.
Respondent’s argument: No qualification to its right of subrogation.
ISSUE:
Whether or not the insured should pay the insurer despite that the subrogation in the
Release of Claim was conditioned on recovery of the total amount of damages that the
insured has sustained.
RULING:
NO. Supreme Court said there being no other evidence to support its allegation that a
gentleman’s agreement existed between the parties, not embodied in the Release of
Claim, such Release of Claim must be taken as the best evidence of the intent and purpose
of the parties. CA was correct in holding petitioner should reimburse respondent ₱
5,000.00.
Page 11 of 11
When Manila Mahogany executed another release claim discharging SMC from all rights
of action after the insurer had paid the proceeds of the policy – the compromise
agreement of ₱ 5,000.00– the insurer is entitled to recover from the insured the amount
of insurance money paid. Petitioner by its own acts released SMC, thereby defeating
respondent’s right of subrogation, the right of action against the insurer was also nullified.
Since the insurer can be subrogated to only such rights as the insured may have, should
the insured, after receiving payment from the insurer, release the wrongdoer who caused
the loss, the insurer losses his rights against the latter. But in such a case, the insurer
will be entitled to recover from the insured whatever it has paid to the latter, unless the
release was made with the consent of the insurer.
FF CRUZ AND CO vs. CA
Facts:
A fire broke up from the furniture shop of the petitioner in Caloocan city early
September 6, 1974. Prior to that, neighbor of the said shop requested that the
petitioner should build a firewall but failed to do so. The cause of the fire was never
discovered. Private respondent got P35k from the insurance on their house and
contents thereof.
Issue:
Whether or not the 35k be deducted from the damages thereof
Ruling:
Since P35k had already been claimed by the respondents, the court held that such
amount should be deducted from the award of damages in accordance with Art 2207
NCC
Art. 2207. If the plaintiff’s property has been insured, and he has received indemnity
from the insurance company for the injury or loss arising out of the wrong or breach of
contract complained of, the insurance company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has violated the contract. If the
amount paid by the insurance company does not fully cover the injury or loss, the
aggrieved party shall be entitled to recover the deficiency from the person causing the
loss or injury.
Having been indemnified by their insurer, private respondents are entitled only to
recover the deficiency from the petitioner.
Whether or not the insurer should exercise the rights of the insured to which it had
been subrogated lies solely within the former’s sound discretion. Since the insurer is not
a party to the case, its identity is not of record and no claim is made on its behalf, the
private respondent’s insurer has to claim his right to reimbursement of the P35,000.00
paid to the insured.