Measure of Indemnity

Keppel Cebu Shipyard vs. Pioneer Insurane and Surety Corp.

G.R. Nos. 180880-81 G.R. Nos. 180896-97 , September 18, 2012

FACTS:

WG & A JEBSENS SHIPMGMT. Owner/Operator of M/V “SUPERFERRY 3” and

KEPPEL CEBU SHIPYARD, INC. (KCSI) enter into an agreement that the Drydocking
and Repair of the above-named vessel ordered by the Owner’s Authorized
Representative shall be carried out under the Keppel Cebu Shipyard Standard Conditions
of Contract for Ship repair, guidelines and regulations on safety and security issued by
Keppel Cebu Shipyard.

In the course of its repair, M/V “Superferry 3” was gutted by fire. Claiming that the
extent of the damage was pervasive, WG&A declared the vessel’s damage as a “total
constructive loss” and, hence, filed an insurance claim with Pioneer.

Pioneer paid the insurance claim of WG&A, which in turn, executed a Loss and
Subrogation Receipt in favor of Pioneer.

Pioneer tried to collect from KCSI, but the latter denied any responsibility for the
loss of the subject vessel. As KCSI continuously refused to pay despite repeated
demands, Pioneer, filed a Request for Arbitration before the Construction Industry
Arbitration Commission CIAC seeking for payment of U.S.$8,472,581.78 plus interest,
among others.

The CIAC rendered its Decision declaring both WG&A and KCSI guilty of
negligence, the CIAC ordered KCSI to pay Pioneer the amount of P25,000,000.00, with
interest at 6% per annum. Both Keppel and Pioneer appealed to the CA.

The cases were consolidated in the CA. the CA rendered a decision dismissing
petitioner’s claims in its entirety. Keppel was declared as equally negligent.

ISSUE:

To whom may negligence over the fire that broke out on board M/V “Superferry 3”
be imputed? What is the extent of the damage, if any?

RULING:
 Undeniably, the immediate cause of the fire was the hot work done by Angelino
Sevillejo (Sevillejo) on the accommodation area of the vessel, specifically on Deck A. As
established before the CIAC. Pioneer contends that KCSI should be held liable because
Sevillejo was its employee who, at the time the fire broke out, was doing his assigned
task, and that KCSI was solely responsible for all the hot works done on board the vessel.
We rule in favor of Pioneer. At the time of the fire, Sevillejo was an employee of KCSI and
was subject to the latter’s direct control and supervision. There was a lapse in KCSI’s
supervision of Sevillejo’s work at the time the fire broke out.

KCSI failed to exercise the necessary degree of caution and foresight called for by
the circumstances. The circumstances, taken collectively, yield the inevitable conclusion
that Sevillejo was negligent in the performance of his assigned task. His negligence was
the proximate cause of the fire on board M/V “Superferry 3.” As he was then definitely
engaged in the performance of his assigned tasks as an employee of KCSI, his
negligence gave rise to the vicarious liability of his employer under Article 2180 of the
Civil Code.

KCSI failed to prove that it exercised the necessary diligence incumbent upon it to
rebut the legal presumption of its negligence in supervising Sevillejo. Consequently, it is
responsible for the damages caused by the negligent act of its employee, and its liability
is primary and solidary.

In marine insurance, a constructive total loss occurs under any of the conditions
set forth in Section 139 of the Insurance Code, which provides Sec. 139. A person insured
by a contract of marine insurance may abandon the thing insured, or any particular portion
hereof separately valued by the policy, or otherwise separately insured, and recover for
a total loss thereof, when the cause of the loss is a peril insured against:

(a) If more than three-fourths thereof in value is actually lost, or would have to be
expended to recover it from the peril;

(b) If it is injured to such an extent as to reduce its value more than three-fourths;
x x x.

It cannot be denied that M/V “Superferry 3” suffered widespread damage from the
fire that occurred on February 8, 2000, a covered peril under the marine insurance policies
obtained by WG&A from Pioneer. The estimates given by the three disinterested and
qualified shipyards show that the damage to the ship would exceed P270,000,000.00, or
¾ of the total value of the policies – P360,000,000.00. These estimates constituted
credible and acceptable proof of the extent of the damage sustained by the vessel.

Considering the extent of the damage, WG&A opted to abandon the ship and
claimed the value of its policies. Pioneer, finding the claim compensable, paid the claim,
with WG&A issuing a Loss and Subrogation Receipt evidencing receipt of the payment of
the insurance proceeds from Pioneer. The Loss and Subrogation Receipt issued by
WG&A to Pioneer is the best evidence of payment of the insurance proceeds to the
former, and no controverting evidence was presented by KCSI to rebut the presumed
authority of the signatory to receive such payment.