GREAT PACIFIC LIFE ASSURANCE CORP. VS.

COURT OF APPEALS

FACTS:

1. A contract of group life insurance was executed between Great Pacific Life Assurance
Corporation (Grepalife) and Development Bank of the Philippines (DBP). Grepalife agreed to
insure the lives of eligible housing loan mortgagors of DBP.
2. On 11 November 1983, Dr. Wilfredo Leuterio, a physician and a housing debtor of DBP applied
for membership in the group life insurance plan. In an application form, Dr. Leuterio answered
questions concerning his health condition as follows:
a. Have you ever had, or consulted, a physician for a heart condition, high blood pressure,
cancer, diabetes, lung, kidney or stomach disorder or any other physical impairment? NO
b. Are you now, to the best of your knowledge, in good health? YES
3. Grepalife issued Certificate B-18558, as insurance coverage of Dr. Leuterio, to the extent of his
DBP mortgage indebtedness amounting to P86,200.00.
4. On 6 August 1984, Dr. Leuterio died due to "massive cerebral hemorrhage." Consequently, DBP
submitted a death claim to Grepalife. Grepalife denied the claim alleging that:
a. Dr. Leuterio was not physically healthy when he applied for an insurance coverage on
15 November 1983.
b. Dr. Leuterio did not disclose he had been suffering from hypertension, which caused his
death. (such nondisclosure constituted concealment that justified the denial of the
claim.)
5. The widow, Medarda V. Leuterio, filed a complaint with the Regional Trial Court of Misamis
Oriental, Branch 18, against Grepalife for "Specific Performance with Damages." During the
trial, Dr. Hernando Mejia, who issued the death certificate, was called to testify. Dr. Mejia’s
findings, based partly from the information given by the widow, stated that Dr. Leuterio
complained of headaches presumably due to high blood pressure. The inference was not
conclusive because Dr. Leuterio was not autopsied, hence, other causes were not ruled out. On
22 February 1988, the
6. Trial court: rendered a decision in favor of the widow and against Grepalife.
7. Court of Appeals: sustained the trial court’s decision.
8. Grepalife filed the petition for review. It alleges that:
a. the complaint was instituted by the widow of Dr. Leuterio, not the real party in
interest, hence the trial court acquired no jurisdiction over the case.
b. when the Court of Appeals affirmed the trial court’s judgment, Grepalife was
held liable to pay the proceeds of insurance contract in favor of DBP, the
indispensable party who was not joined in the suit.
ISSUES:

1. WON the widow is a real-party –in-interest. YES, policy of insurance upon life or health
may pass by transfer, will or succession to any person, whether he has an insurable
 interest or not, and such person may recover it whatever the insured might have
recovered.
2. WON there was concealment. NO, fraudulent intent on the part of the insured must be
established to entitle the insurer to avoid liability.
RULING:

1. WIDOW IS A REAL-PARTY –IN-INTEREST

The insured private respondent did not cede to the mortgagee all his rights or inter ests in
the insurance, the policy stating that: “In the event of the debtor’s death before his
indebtedness with the Creditor [DBP] shall have been fully paid, an amount to pay the
outstanding indebtedness shall first be paid to the creditor and the balance of sum assured,
if there is any, shall then be paid to the beneficiary/ies designated by the debtor.” When
DBP submitted the insurance claim against petitioner, the latter denied payment thereof,
interposing the defense of concealment committed by the insured. Thereafter, DBP collected
the debt from the mortgagor and took the necessary action of foreclosure on the residential
lot of private respondent. In Gonzales La O vs. Yek Tong Lin Fire & Marine Ins. Co. we
held: “Insured, being the person with whom the contract was made, is primarily the proper
person to bring suit thereon. * * * Subject to some exceptions, insured may thus sue,
although the policy is taken wholly or in part for the benefit of another person named or
unnamed, and although it is expressly made payable to another as his interest may appear
or otherwise. * * * Although a policy issued to a mortgagor is taken out for the benefit of the
mortgagee and is made payable to him, yet the mortgagor may sue thereon in his own
name, especially where the mortgagee’s interest is less than the full amount recoverable
under the policy, * * *.’ And in volume 33, page 82, of the same work, we read the following:
‘Insured may be regarded as the real party in interest, although he has assigned the policy
for the purpose of collection, or has assigned as collateral security any judgment he may
obtain.
2. NO CONCEALMENT

Concealment exists where the assured had knowledge of a fact material to the risk, and
honesty, good faith, and fair dealing requires that he should communicate it to the assured,
but he designedly and intentionally withholds the same.

The fraudulent intent on the part of the insured must be established to entitle the insurer
to rescind the contract. Misrepresentation as a defense of the insurer to avoid liability is an
affirmative defense and the duty to establish such defense by satisfactory and convincing
evidence rests upon the insurer. In the case at bar, the petitioner failed to clearly and
satisfactorily establish its defense, and is therefore liable to pay the proceeds of the
insurance.

DOCTRINES:

Mortgage Redemption Insurance

The rationale of a group insurance policy of mortgagors, otherwise known as the “mortgage
redemption insurance,” is a device for the protection of both the mortgagee and the
mortgagor

On the part of the mortgagee, it has to enter into such form of contract so that in the event
of the unexpected demise of the mortgagor during the subsistence of the mortgage contract,
the proceeds from such insurance will be applied to the payment of the mortgage debt,
thereby relieving the heirs of the mortgagor from paying the obligation.

In a similar vein, ample protection is given to the mortgagor under such a concept so that in
the event of death; the mortgage obligation will be extinguished by the application of the
insurance proceeds to the mortgage indebtedness.

Where the mortgagor pays the insurance premium under the group insurance policy, making
the loss payable to the mortgagee, the insurance is on the mortgagor’s interest, and the
mortgagor continues to be a party to the contract.

In this type of policy insurance, the mortgagee is simply an appointee of the insurance fund,
such loss-payable clause does not make the mortgagee a party to the contract.

Life Insurance

Petitioner claims that there was no evidence as to the amount of Dr. Leuterio’s outstanding
indebtedness to DBP at the time of the mortgagor’s death. Hence, for private respondent’s
failure to establish the same, the action for specific performance should be dismissed.
Petitioner’s claim is without merit. A life insurance policy is a valued policy. Unless the
interest of a person insured is susceptible of exact pecuniary measurement, the measure of
indemnity under a policy of insurance upon life or health is the sum fixed in the policy.

Mortgage Redemption Insurance

Where the mortgagee under a mortgage redemption insurance has already foreclosed on the
mortgage, it cannot collect the insurance proceeds—the proceeds then rightly belong to the
heirs of the mortgagor.

We noted that the Court of Appeals’ decision was promulgated on May 17, 1993. In private
respondent’s memorandum, she states that DBP foreclosed in 1995 their residential lot, in
satisfaction of mortgagor’s outstanding loan. Considering this supervening event, the
insurance proceeds shall inure to the benefit of the heirs of the deceased person or his
beneficiaries. Equity dictates that DBP should not unjustly enrich itself at the expense of
another (Nemo cum alterius detrimenio protest). Hence, it cannot collect the insurance
proceeds, after it already foreclosed on the mortgage. The proceeds now rightly belong to
Dr. Leuterio’s heirs represented by his widow, herein private respondent Medarda Leuterio.

ROQUE VS. INTERMEDIATE APPELLATE COURT

FACTS:
On February 19, 1972, the Manila Bay Lighterage Corporation (Manila Bay), a common
carrier, entered into a contract with the petitioners whereby the former would load and carry on
board its barge Mable 10 about 422.18 cubic meters of logs from Malampaya Sound, Palawan to
North Harbor, Manila. The petitioners insured the logs against loss for P100,000.00 with
respondent Pioneer Insurance and Surety Corporation (Pioneer).
On February 29, 1972, the petitioners loaded on the barge, 811 pieces of logs at
Malampaya Sound, Palawan for carriage and delivery to North Harbor, Port of Manila, but the
shipment never reached its destination because Mable 10 sank with the 811 pieces of logs
somewhere off Cabuli Point in Palawan on its way to Manila.
Hence, petitioners commenced Civil Case No. 86599 against Manila Bay and respondent
Pioneer.

DECISION OF LOWER COURTS:

(1) Trial Court: found in favor of petitioners.
(2) Intermediate Appellate Court: absolved the respondent insurance company from liability
on the grounds that the vessel carrying the insured cargo was unseaworthy and the loss of said
cargo was caused not by the perils of the sea but by the perils of the ship

ISSUES:
I. The intermediate appellate court erred in holding that in cases of marine cargo insurance, there
is a warranty of seaworthiness by the cargo owner.
II. The intermediate appellate court erred in holding that the loss of the cargo in this case was
caused by "perils of the ship" and not by "perils of the sea.”

RULING:
I. No. The IAC is correct.
The liability of the insurance company is governed by law. Section 113 of the Insurance
Code provides:
In every marine insurance upon a ship or freight, or freightage, or upon any thing that is the
subject of marine
insurance, a warranty is implied that the ship is seaworthy.
Section 99 of the same Code also provides in part. Marine insurance includes:
(1) Insurance against loss of or damage to:
(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, ...

The term "cargo" can be the subject of marine insurance and that once it is so made, the
implied warranty of seaworthiness immediately attaches to whoever is insuring the cargo
whether he be the shipowner or not.

II. No, the IAC is correct.

In the present case the entrance of the sea water into the ship's hold through the defective
pipe already described was not due to any accident which happened during the voyage, but to the
failure of the ship's owner properly to repair a defect of the existence of which he was apprised.
The loss was therefore more analogous to that which directly results from simple
unseaworthiness than to that which result from the perils of the sea.
Marine Insurance; Obligations and Contracts; Delivery; Delivery of goods on board the
carrying vessels partake of the nature of actual delivery.—Further, Article 1523 of the Civil
Code provides that where, in pursuance of a contract of sale, the seller is authorized or required
to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or
not, for, the purpose of transmission to the buyer is deemed to be a delivery of the goods to the
buyer, the exceptions to said rule not obtaining in the present case. The Court has heretofore
ruled that the delivery of the goods on board the carrying vessels partake of the nature of actual
delivery since, from that time, the foreign buyers assumed the risks of loss of the goods and paid
the insurance premium covering them.

FILIPINO MERCHANTS INSURANCE CO., INC., petitioner, vs. COURT OF APPEALS

and CHOA TIEK SENG

FACTS:

This is a case about a consignee/buyer (CHOA) who bought fishmeal products from
Bangkok and had it delivered to the port of Manila. He entered into an insurance contract with
defendant insurance company (FilMerchant) under policy no. M-2678 for P267,653.59 and for
goods described as 600 metric tons of fishmeal in new gunny bags of 90 kilos each. What was
actually imported was 59.940mtons in 666 gunny bags. Upon arrival at Manila, arrastre and
defendant’s surveyor found 227 bags in bad order condition. Because of this loss, buyer formally
claimed from FilMerchant but the said insurance company refused to pay. He brought suit. Trial
court ruled for him and against FilMerchant, CA affirmed trial court hence this petition.

FilMerchant argues:

(1) CA erred in the interpretation and application of the “all risk” clause of maritime insurance
policy. It says it should not be held liable for partial loss notwithstanding the clear absence of
proof of some fortuitous event, casualty, or accidental cause to which the loss is attributable.

(2) Respondent had no insurable interest in the subject cargo. The shipment reveals that it is a “C
& F” contract of shipment. The seller, not the consignee, paid for the shipment. As there was yet
no delivery to the consignee, ownership (and interest) does not yet pass to him.

ISSUES:

W/N CA was correct in its interpretation of the “all risk” clause in the maritime insurance
contract.

W/N the insured had insurable interest over the property insured.

RULING:

1. “All risks policy” has no technical meaning.

The clause in question reproduced:

“5. This insurance is against all risks of loss or damage to the subject-
matter insured but shall in no case be deemed to extend to cover loss,
damage, or expense proximately caused by delay or inherent vice or nature
 of the subject-matter insured. Claims recoverable hereunder shall be
payable irrespective of percentage “

An "all risks policy" should be read literally as meaning all risks whatsoever and covering all
losses by an accidental cause of any kind. The very nature of the term "all risks" must be given a
broad and comprehensive meaning as covering any loss other than a willful and fraudulent act of
the insured. 7 This is pursuant to the very purpose of an "all risks" insurance to give protection to
the insured in those cases where difficulties of logical explanation or some mystery surround the
loss or damage to property.

Burden of proof shifts to the insurer.

Generally, the burden of proof is upon the insured to show that a loss arose from a covered peril,
but under an "all risks" policy the burden is not on the insured to prove the precise cause of loss
or damage for which it seeks compensation. The insured under an "all risks insurance policy" has
the initial burden of proving that the cargo was in good condition when the policy attached and
that the cargo was damaged when unloaded from the vessel; thereafter, the burden then shifts
to the insurer to show the exception to the coverage.

2. Vendee/Consignee has insurable interest

SC: The shipment contract being that of cost and freight (C&F) is immaterial in the
determination of insurable interest. The perfected contract of sale vests in the vendee an
equitable title, an interest sufficient enough to be insurable. Further, Art. 1523 NCC provides that
where, in pursuance of a contract of sale, the seller is authorized or required to send the goods to
the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for, the purpose
of transmission to the buyer is deemed to be a delivery of the goods to the buyer, the exceptions
to said rule not obtaining in the present case. The Court has heretofore ruled that the delivery of
the goods on board the carrying vessels partake of the nature of actual delivery since, from
that time, the foreign buyers assumed the risks of loss of the goods and paid the insurance
premium covering them.

WHEREFORE, the instant petition is DENIED and the assailed decision of the respondent Court
of Appeals is AFFIRMED in toto.

DOCTRINES:

“ALL RISKS” POLICY

An “all risks” policy has been evolved to grant greater protection than that afforded by the
“perils clause,” in order to assure that no loss can happen through the incidence of a cause
neither insured against nor creating liability in the ship; it is written against all losses, that is,
attributable to external causes.
As we held in Paris-Manila Perfumery Co. vs. Phoenix Assurance Co., Ltd. the basic rule is
that the insurance company has the burden of proving that the loss is caused by the risks
excepted and for want of such proof, the company is liable.
 Herein private respondent, as vendee/consignee of the goods in transit has such existing
interest therein as may be the subject of a valid contract of insurance. His interest over the goods
is based on the perfected contract of sale. The perfected contract of sale between him and the
shipper of the goods operates to vest in him an equitable title even before delivery or before he
performed the conditions of the sale. The contract of shipment, whether under F.O.B., C.I.F., or
C. & F. as in this case, is immaterial in the determination of whether the vendee has an insurable
interest or not in the goods in transit. The perfected contract of sale even without delivery
vests in the vendee an equitable title, an existing interest over the goods sufficient to be the
subject of insurance.

CHOA TIEK SENG, doing business under the name and style of SENG’S COMMERCIAL
ENTERPRISES, petitioner, vs. HON. COURT OF APPEALS, FILIPINO MERCHANTS’
INSURANCE COMPANY, INC., BEN LINES CONTAINER, LTD. AND E. RAZON,
INC., respondents.

FACTS:
Petitioner imported some lactose crystals from Holland. The goods were loaded at the
port at Rotterdam in sea vans on board the vessel "MS Benalder' and thereafter another vessel
"Wesser Broker V-25" of respondent Ben Lines Container, Ltd.
The goods were insured by the respondent Filipino Merchants' Insurance Co., Inc.,
against all risks under the terms of the insurance cargo policy. Upon arrival at the port of Manila,
the cargo was discharged only to find out that of the 600 bags delivered to petitioner, 403 were in
bad order. The surveys showed that the bad order bags suffered spillage.(take not of the
cause of damage)
Petitioner filed a claim for the loss against respondent insurance company.
Both RTC and CA favor the respondent insurance on the following ground:
In the case at bar, appellant failed to prove that the alleged damage was due to risks
connected with navigation.
A distinction should be made between "perils of the sea" which render the insurer
liable on account of the loss and/or damage brought about thereof and "perils of the ship"
which do not render the insurer liable for any loss or damage. Perils of the sea or perils of
navigation embrace all kinds of marine casualties, such as shipwreck, foundering, stranding,
collision and every specie of damage done to the ship or goods at sea by the violent action of the
winds or waves. They do not embrace all loses happening on the sea. A peril whose only
connection with the sea is that it arises aboard ship is not necessarily a peril of the sea; the peril
must be of the sea and not merely one accruing on the sea. (so since the spillage is not cause by
perils of sea, then respondent Insurance is not liable)

ISSUE:
 Respondent Court erred in holding That An "All Risks" Coverage covers only losses
occasioned by or Resulting From "Extra And Fortuitous Events".
(meaning only perils by the sea are covered, which spillage is not one)
RULING: All risk insurance policy
In Gloren Inc. vs. Filipinas Cia. deSeguros, it was held that an all risk insurance policy
insures against all causes of conceivable loss or damage, except as otherwise excluded in the
policy or due to fraud or intentional misconduct on the part of the insured. It covers all losses
during the voyage whether arising from a marine peril or not, including pilferage losses during
the war.
In the present case, the "all risks" clause of the policy sued upon reads as follows:
5. This insurance is against all risks of loss or damage to the subject matter insured but shall in
no case be deemed to extend to cover loss, damage, or expense proximately caused by delay or
inherent vice or nature of the subject matter insured. Claims recoverable hereunder shall be
payable irrespective of percentage.
The terms of the policy are so clear and require no interpretation. The insurance policy covers all
loss or damage to the cargo except those caused by delay or inherent vice or nature of the cargo
insured. It is the duty of the respondent insurance company to establish that said loss or damage
falls within the exceptions provided for by law, otherwise it is liable therefor.
An "all risks" provision of a marine policy creates a special type of insurance which extends
coverage to risks not usually contemplated and avoids putting upon the insured the burden of
establishing that the loss was due to peril falling within the policy's coverage. The insurer can
avoid coverage upon demonstrating that a specific provision expressly excludes the loss from
coverage.
In this case, the damage caused to the cargo has not been attributed to any of the exceptions
provided for nor is there any pretension to this effect. Thus, the liability of respondent insurance
company is clear.

KEPPEL CEBU SHIPYARD, INC. VS. PIONEER INSURANCE AND SURETY

CORPORATION

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:

1. The issue of negligence

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 employer43 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.

2. Damages

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.

DOCTRINES:
NEGLIGENCE
There is negligence when an act is done without exercising the competence that a
reasonable person in the position of the actor would recognize as necessary to prevent an
unreasonable risk of harm to another. Those who undertake any work calling for special skills
are required to exercise reasonable care in what they do. Verily, there is an obligation all persons
have—to take due care which, under ordinary circumstances of the case, a reasonable and
prudent man would take. The omission of that care constitutes negligence. Generally, the degree
of care required is graduated according to the danger a person or property may be subjected to,
arising from the activity that the actor pursues or the instrumentality that he uses. The greater the
danger, the greater the degree of care required. Extraordinary risk demands extraordinary care.
Similarly, the more imminent the danger, the higher degree of care warranted. In this aspect,
KCSI failed to exercise the
necessary degree of caution and foresight called for by the circumstances.

VICARIOUS LIABILITY- The negligence of an employee who is engaged in the performance

of his assigned tasks gives rise to the vicarious liability of his employer under Article 2180 of the
Civil Code; The employer has the burden of proving that it exercised the necessary diligience to
rebut the legal presumption of its negligence in supervising its employees.— 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, which provides—Art. 2180. The obligation
imposed by article 2176 is demandable not only for one’s own act or omission, but also for those
of persons for whom one is responsible. x x x x Employers shall be liable for the damages caused
by their employees and household helpers acting within the scope of their assigned tasks, even
though the former are not engaged in any business or industry. x x x x The responsibility treated
of in this article shall cease when the persons herein mentioned prove that they observed all the
diligence of a good father of a family to prevent damage. 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. All that is needed is proof that the
employee has, by his negligence, caused damage to another in order to make the employer
responsible for the tortuous act of the former. From the foregoing disquisition, there is ample
proof of the employee’s negligence.

STATUTORY CONSTRUCTION
Properly considered, the word “may” in the provision is intended to grant the insured
(WG&A) the option or discretion to choose the abandonment of the thing insured (M/V
“Superferry 3”), or any particular portion thereof separately valued by the policy, or otherwise
separately insured, and recover for a total loss when the cause of the loss is a peril insured
against. This option or discretion is expressed as a right in Section 131 of the same Code, to wit:
Sec. 131. A constructive total loss is one which gives to a person insured a right to abandon
under Section one hundred thirty-nine.

SUBROGATION
Subrogation is the substitution of one person by another with reference to a lawful claim or
right, so that he who is substituted succeeds to the rights of the other in relation to a debt or
claim, including its remedies or securities. The principle covers a situation wherein an insurer
has paid a loss under an insurance policy is entitled to all the rights and remedies belonging to
the insured against a third party with respect to any loss covered by the policy. It contemplates
full substitution such that it places the party subrogated in the shoes of the creditor, and he may
use all means that the creditor could employ to enforce payment.
We have held that payment by the insurer to the insured operates as an equitable assignment
to the insurer of all the remedies that the insured may have against the third party whose
negligence or wrongful act caused the loss. The right of subrogation is not dependent upon, nor
does it grow out of, any privity of contract. It accrues simply upon payment by the insurance
company of the insurance claim. The doctrine of subrogation has its roots in equity. It is
designed to promote and to accomplish justice; and is the mode that equity adopts to compel the
ultimate payment of a debt by one who, in justice, equity, and good conscience, ought to pay.

Contracts of Adhesion
Clauses 20 and 22(a) of the Shiprepair Agreement are without factual and legal foundation.
They are unfair and inequitable under the premises. It was established during arbitration that
WG&A did not voluntarily and expressly agree to these provisions. Engr. Elvin F. Bello,
WG&A’s fleet manager, testified that he did not sign the fine-print portion of the Shiprepair
Agreement where Clauses 20 and 22(a) were found, because he did not wan WG&A to be bound
by them. However, considering that it was only KCSI that had shipyard facilities large enough to
accommodate the dry docking and repair of big vessels owned by WG&A, such as M/V
“Superferry 3,” in Cebu, he had to sign the front portion of the Shiprepair Agreement; otherwise,
the vessel would not be accepted for dry docking. Indeed, the assailed clauses amount to a
contract of adhesion imposed on WG&A on a “take-it-or-leave-it” basis. A contract of adhesion
is so-called because its terms are prepared by only one party, while the other party merely affixes
his signature signifying his adhesion thereto. Although not invalid, per se, a contract of adhesion
is void when the weaker party is imposed upon in dealing with the dominant bargaining party,
and its option is reduced to the alternative of “taking it or leaving it,” completely depriving such
party of the opportunity to bargain on equal footing.
Clause 20 is also a void and ineffectual waiver of the right of WG&A to be compensated for
the full insured value of the vessel or, at the very least, for its actual market value. There was
clearly no intention on the part of WG&A to relinquish such right. It is an elementary rule that a
waiver must be positively proved, since a waiver by implication is not normally countenanced.
The norm is that a waiver must not only be voluntary, but must have been made knowingly,
intelligently, and with sufficient awareness of the relevant circumstances and likely
consequences. There must be persuasive evidence to show an actual intention to relinquish the
right. This has not been demonstrated in this case.
Clause 20 is a stipulation that may be considered contrary to public policy. To allow KCSI
to limit its liability to only P50,000,000.00, notwithstanding the fact that there was a constructive
total loss in the amount of P360,000,000.00, would sanction the exercise of a degree of diligence
short of what is ordinarily required. It would not be difficult for a negligent party to escape
liability by the simple expedient of paying an amount very much lower than the actual damage or
loss sustained by the other.
Along the same vein, Clause 22(a) cannot be upheld. The intention of the parties to make
each other a co-assured under an insurance policy is to be gleaned principally from the insurance
contract or policy itself and not from any other contract or agreement, because the insurance
policy denominates the assured and the beneficiaries of the insurance contract. Undeniably, the
hull and machinery insurance procured by WG&A from Pioneer named only the former as the
assured. There was no manifest intention on the part of WG&A to constitute KCSI as a co-
assured under the policies. To have deemed KCSI as a co-assured under the policies would have
had the effect of nullifying any claim of WG&A from Pioneer for any loss or damage caused by
the negligence of KCSI. No ship owner would agree to make a ship repairer a co-assured under
such insurance policy. Otherwise, any claim for loss or damage under the policy would be
rendered nugatory. WG&A could not have intended such a result.

DAMAGES
We concur with the position of KCSI that the salvage value of the damaged M/V
“Superferry 3” should be taken into account in the grant of any award. It was proven before the
CIAC that the machinery and the hull of the vessel were separately sold for P25,290,000.00 (or
US$468,333.33) and US$363,289.50, respectively. WG&A’s claim for the upkeep of the wreck
until the same were sold amounts to P8,521,737.75 (or US$157,809.96), to be deducted from the
proceeds of the sale of the machinery and the hull, for a net recovery of US$673,812.87, or
equivalent to P30,252,648.09, at P44.8977/$1, the prevailing exchange rate when the Request for
Arbitration was filed. Not considering this salvage value in the award would amount to unjust
enrichment on the part of Pioneer.
It is only fitting that both parties should share in the burden of the cost of arbitration, on
a pro rata basis. We find that Pioneer had a valid reason to institute a suit against KCSI, as it
believed that it was entitled to claim reimbursement of the amount it paid to WG&A. However,
we disagree with Pioneer that only KCSI should shoulder the arbitration costs. KCSI cannot be
faulted for defending itself for perceived wrongful acts and conditions. Otherwise, we would be
putting a price on the right to litigate on the part of Pioneer.

MAYER STEEL PIPE CORPORATION and HONGKONG GOVERNMENT SUPPLIES

DEPARTMENT, petitioners, vs. COURT OF APPEALS, SOUTH SEA SURETY AND
INSURANCE CO., INC. and the CHARTER INSURANCE CORPORATION,
respondents.
FACTS:

 1983: Hongkong Government Supplies Department (Hongkong) contracted Mayer Steel

Pipe Corporation (Mayer) to manufacture and supply various steel pipes and fittings
 August to October, 1983: Mayer shipped the pipes and fittings to Hongkong as evidenced
by Invoice Nos. MSPC-1014, MSPC-1015, MSPC-1025, MSPC-1020, MSPC-1017 and
MSPC-1022
 Prior to the shipping, Mayer insured the pipes and fittings against all risks with South Sea
Surety and Insurance Co., Inc. (South Sea) and Charter Insurance Corp. (Charter)
 South Sea:Invoice Nos. MSPC-1014, 1015 and 1025 for US$212,772.09
 Charter: Invoice Nos. 1020, 1017 and 1022 for US$149,470.00
 Mayer and Hongkong jointly appointed Industrial Inspection (International) Inc. as third-
party inspector to examine whether the pipes and fittings are manufactured in accordance
with the specifications in the contract
 Industrial Inspection certified all the pipes and fittings to be in good order condition
before they were loaded in the vessel
 When the goods reached Hongkong, it was discovered that a substantial portion thereof
was damaged
 Mayer and Hongkong a claim against private respondents for indemnity under the
insurance contract
 Charter paid petitioner Hongkong the amount of HK$64,904.75
 demanded payment of the balance of HK$299,345.30 which was refused
 April 17, 1986: filed an action to recover HK$299,345.30
Defense: insurance surveyor's report allegedly showed that the damage is a factory defect
Trial Court: in favor of Mayer and Hongkong
1. the damage to the goods is not due to manufacturing defects.
2. the insurance contracts executed by petitioner Mayer and private respondents are "all
risks" policies which insure against all causes of conceivable loss or damage. The only
exceptions are those excluded in the policy, or those sustained due to fraud or intentional
misconduct on the part of the insured.
CA: reversed
1. affirmed the finding of the trial court that the damage is not due to factory defect and that
it was covered by the "all risks" insurance policies
2. dismissed the complaint on the ground of prescription
ISSUE:
The respondent Court of Appeals erred in holding that petitioners' cause of action had already
prescribed on the mistaken application of the Carriage of Goods by Sea Act and the doctrine of
Filipino Merchants Co., Inc. v. Alejandro (145 SCRA 42)
RULING: NO. Petition is granted. CA reversed. RTC reinstated
Section 3(6) of the Carriage of Goods by Sea Act states that the carrier and the ship shall be
discharged from all liability for loss or damage to the goods if no suit is filed within one year
after delivery of the goods or the date when they should have been delivered. Under this
provision, only the carrier’s liability is extinguished if no suit is brought within one year.
But the liability of the insurer is not extinguished because the insurer’s liability is based not on
the contract of carriage but on the contract of insurance. A close reading of the law reveals that
the Carriage of Goods by Sea Act governs the relationship between the carrier on the one hand
and the shipper, the consignee and/or the insurer on the other hand. It defines the obligations of
the carrier under the contract of carriage. It does not, however, affect the relationship between
the shipper and the insurer. The latter case is governed by the Insurance Code.
The ruling in Filipino Merchants should apply only to suits against the carrier filed either
by the shipper, the consignee or the insurer. When the court said in Filipino Merchants that
Section 3(6) of the Carriage of Goods by Sea Act applies to the insurer, it meant that the insurer,
like the shipper, may no longer file a claim against the carrier beyond the one-year period
provided in the law. But it does not mean that the shipper may no longer file a claim against the
insurer because the basis of the insurer’s liability is the insurance contract.

The Filipino Merchants case is different from the case at bar. In Filipino Merchants, it was
the insurer which filed a claim against the carrier for reimbursement of the amount it paid to the
shipper. In the case at bar, it was the shipper which filed a claim against the insurer. The basis of
the shipper's claim is the "all risks" insurance policies issued by private respondents to petitioner
Mayer.

“All risks” insurance policy

An insurance contract is a contract whereby one party, for a consideration known as the
premium, agrees to indemnify another for loss or damage which he may suffer from a specified
peril. An “all risks” insurance policy covers all kinds of loss other than those due to willful and
fraudulent act of the insured. Thus, when private respondents issued the “all risks” policies to
petitioner Mayer, they bound themselves to indemnify the latter in case of loss or damage to the
goods insured. Such obligation prescribes in ten years, in accordance with Article 1144 of the
New Civil Code.

DEVELOPMENT INSURANCE CORPORATION, petitioner, vs, INTERMEDIATE

APPELLATE COURT, and PHILIPPINE UNION REALTY DEVELOPMENT
CORPORATION, respondents.
FACTS:
 Philippine Union Realty Development Corp. (PURDC) insured its building against fire
with Development Insurance Corp. (DIC). The policy contained the following provision: “This is
an open policy as defined in Section 57 of the Insurance Act. In the event of loss, whether total
or partial, it is understood that the amount of the loss shall be subject to the applicable terms,
conditions, warranties, and clauses of this Policy, and in no case shall exceed the amount of the
policy.” After a fire consumed a part of the building, with PURDC suffering an appraised value
of loss of P508,8677 (later adopted by the trial court and the appellate court), PURDC filed its
claim with DIC, but the latter refused. DIC argued that since the building was worth more than
the sum insured, PURDC must be considered its own insurer for the difference of the amount
and the face value of the policy and should share pro rata on the loss sustained.

ISSUE:

Whether or not DIC is liable for the appraised value of actual loss sustained by PURDC.

RULING:

Yes, it is. As defined in the afore stated provision, which is now Section 60 of the
Insurance Code, an open policy is one in which the value of the thing insured is not agreed
upon but is left to be ascertained in case of loss.” This means that the actual loss, as
determined, will represent the total indemnity due the insured from the insurer except only that
the total indemnity shall not exceed the face value of the policy. The actual loss having been
ascertained in this case, the Court will respect such factual determination in the absence of proof
that it was arrived at arbitrarily. There is no such showing. Hence, applying the open policy
clause as expressly agreed upon by the parties in their contract, PURDC is entitled to the
payment of indemnity under the said contract in the full amount of the appraised value of actual
loss- P508,867.00.

PACIFIC BANKING CORPORATION, petitioner, vs. COURT OF APPEALS and

ORIENTAL ASSURANCE CORPORATION, respondents.

FACTS:

An open Fire Policy issued to Paramount Shirt Manufacturing for Php61,000 on the
following: stocks, materils, supplies, furniture, fixture, machinery, equipment contained on the
1st to 3rd floors. Insurance is for a year starting 21 OCTOBER 1964.

Paramount Shirt is debtor of Pacific Banking amounting to Php800,000. Goods in policy

were held in trust by Paramount for Pacific under thrust receipts. Fire broke out on 4 January
1964.

Pacific sent letter of demand to Oriental. Insurance Adjuster of Oriental notified Pacific
to submit proof of loss pursuant to Policy Condition 11. Pacific did not accede but asked
Insurance Adjuster to verify records form Bureau of Customs.
 Pacific filed for sum of money against Oriental. Oriental alleged that Pacific prematurely
filed a suit, for neither filing a formal claim over loss pursuant to policy nor submitting any proof
of loss.

Trial court: decided in favor of Pacific. Decision based on technicality. The defense of lack of
proof of loss and defects were raised for the 1st time. (On presentation of evidences by Pacific, it
was revealed there was violation of Condition No.3, there were undeclared co-insurances under
same property –Wellington, Empire, Asian. The only declared co-insurances were Malayan,
South Sea, and Victory)

CA: reversed decision. Concealment of other co-insurances is a misrepresentation and can

easily be fraud.

ISSUES:

(1) Whether or not unrevealed con-insurances is a violation of Policy Condition No.3. Insured
was guilty of clear fraud for failure to reveal three other insurances.

(2) Whether or not there was premature filing of action

RULING:

(1) Yes. Policy Condition 3 provides that the insured must give notice of any insurance already
in effect or subsequently be in effect covering same property being insured. Failure to do so, the
policy shall be forfeited.

Failure to reveal before the loss of the 3 other insurances is a clear misrepresentation or a false
declaration. The material fact was asked for but was not revealed. Representations of facts are
the foundations of the contract. Pacific itself provided for the evidences in trial court that proved
existence of misrepresentation.

(2) Yes. Generally, the cause of action on the policy accrues when the loss occurs. But when the
policy provides that no action shall be brought unless the claim is first presented extrajudicially
in the manner provided in the policy, the cause of action will accrue from the time the insurer
finally rejects the claim for payment. Inthe case at bar, Policy Condition 11 is a sine qua non
requirement for maintaining action. It requires that documents necessary to prove and estimate
the loss should be included with notice of loss. Pacific failed to submit formal claim of loss with
supporting documents but shifted the burden to the insurance company. Failing to submit claim
is failure for insurance company to reject claim. Thus, a lack of cause of action to file suit.

Furthermore, the mortgage clause in the policy specifically provides that the policy is invalidated
by reasons of FRAUD, MISREPRESENTATION and FRAUD. Concealment can easily be fraud
or misrepresentation.
The insured – PARAMOUNT is not entitled to proceeds. Moreso, Pacific as indorsee of policy is
not entitled.