1. KEPPEL CEBU SHIPYARD, INC., vs.

PIONEER INSURANCE AND

SURETY CORPORATION G.R. Nos. 180880-81

Before us are the consolidated petitions filed by the partiesPioneer Insurance and
Surety Corporation[1] (Pioneer) and Keppel Cebu Shipyard, Inc.[2] (KCSI)to review
on certiorari the Decision[3]dated December 17, 2004 and the Amended
Decision[4] dated December 20, 2007 of the Court of Appeals (CA) in CA-G.R. SP
Nos. 74018 and 73934.

On January 26, 2000, KCSI and WG&A Jebsens Shipmanagement, Inc. (WG&A)
executed a Shiprepair Agreement[5] wherein KCSI would renovate and reconstruct
WG&As M/V Superferry 3 using its dry docking facilities pursuant to its restrictive
safety and security rules and regulations. Prior to the execution of the Shiprepair
Agreement, Superferry 3 was already insured by WG&A with Pioneer for
US$8,472,581.78. The Shiprepair Agreement reads

SHIPREPAIR AGREEMENT[6]

Company: WG & A JEBSENS SHIPMANAGEMENT INC.

Address: Harbour Center II, Railroad & Chicago Sts.
Port Area, City of Manila

We, 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 Owners Authorized Representative
shall be carried out under the Keppel Cebu Shipyard Standard Conditions
of Contract for Shiprepair, guidelines and regulations on safety and
security issued by Keppel Cebu Shipyard. In addition, the following are
mutually agreed upon by the parties:

1. The Owner shall inform its insurer of Clause 20[7] and

22 (a)[8] (refer at the back hereof) and shall include
Keppel Cebu Shipyard as a co-assured in its insurance
policy.
2. The Owner shall waive its right to claim for any loss of
profit or loss of use or damages consequential on such
 loss of use resulting from the delay in the redelivery of
the above vessel.

3. Owners sub-contractors or workers are not permitted to

work in the yard without the written approval of the Vice
President Operations.

4. In consideration of Keppel Cebu Shipyard allowing

Owner to carry out own repairs onboard the vessel, the
Owner shall indemnify and hold Keppel Cebu Shipyard
harmless from any or all claims, damages, or liabilities
arising from death or bodily injuries to Owners workers,
or damages to the vessel or other property however
caused.

5. On arrival, the Owner Representative, Captain, Chief

Officer and Chief Engineer will be invited to attend a
conference with our Production, Safety and Security
personnel whereby they will be briefed on, and given
copies of Shipyard safety regulations.

6. An adequate number of officers and crew must remain

on board at all times to ensure the safety of the vessel
and compliance of safety regulations by crew and owner
employed workmen.

7. The ships officers/crew or owner appointed security

personnel shall maintain watch against pilferage and acts
of sabotage.

8. The yard must be informed and instructed to provide the

necessary security arrangement coverage should there be
inadequate or no crew on board to provide the expressed
safety and security enforcement.

9. The Owner shall be liable to Keppel Cebu Shipyard for

any death and/or bodily injuries for the [K]eppel Cebu
Shipyards employees and/or contract workers; theft
and/or damages to Keppel Cebu Shipyards properties
and other liabilities which are caused by the workers of
the Owner.
 10. The invoice shall be based on quotation reference 99-
KCSI-211 dated December 20, 1999 tariff dated March
15, 1998.

11. Payment term shall be as follows:

12. The Owner and Keppel Cebu Shipyard shall endeavor

to settle amicably any dispute that may arise under this
Agreement. Should all efforts for an amicable settlement
fail, the disputes shall be submitted for arbitration in
Metro Manila in accordance with provisions of
Executive Order No. 1008 under the auspices of the
Philippine Arbitration Commission.

(Signed)
BARRY CHIA SOO HOCK _________(Signed)__________
(Printed Name/Signature Above Name) (Printed Name/Signature Above Name)

Vice President Operations Authorized Representative

Keppel Cebu Shipyard, Inc. for and in behalf of:
WG & A Jebsens Shipmgmt.

JAN. 26, 2000 . ________________________

Date Date

On February 8, 2000, 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
vessels damage as a total constructive loss and, hence, filed an insurance claim with
Pioneer.

On June 16, 2000, Pioneer paid the insurance claim of WG&A in the amount of
US$8,472,581.78. WG&A, in turn, executed a Loss and Subrogation Receipt[9] in
favor of Pioneer, to wit:

LOSS AND SUBROGATION RECEIPT

16 June 2000
 Our Claim Ref: MH-NIL-H0-99-00018
US$8,472,581.78
------------------------------------------------

RECEIVED from PIONEER INSURANCE & SURETY

CORPORATION the sum of U.S. DOLLARS EIGHT MILLION
FOUR HUNDRED SEVENTY-TWO THOUSAND FIVE
HUNDRED EIGHTY-ONE & 78/100 (US$ 8,472,581.78) equivalent
to PESOS THREE HUNDRED SIXTY MILLION & 00/100 (Php
360,000,000.00), in full satisfaction, compromise and discharge of all
claims for loss and expenses sustained to the vessel SUPERFERRY
3 insured under Policy Nos. MH-H0-99-0000168-00-D (H&M) and MH-
H0-99-0000169 (I.V.) by reason as follows:

Fire on board at Keppel Cebu Shipyard

on 08 February 2000

and in consideration of which the undersigned hereby assigns and

transfers to the said company each and all claims and demands against any
person, persons, corporation or property arising from or connected with
such loss or damage and the said company is subrogated in the place of
and to the claims and demands of the undersigned against said person,
persons, corporation or property in the premises to the extent of the
amount above-mentioned.

WILLIAM, GOTHONG & ABOITIZ, INC.

&/OR ABOITIZ SHIPPING CORP.
By: (Signed)
______________________________________
Witnesses: (Signed)
______________________________________
(Signed)
______________________________________

Armed with the subrogation receipt, 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, on August 7, 2000,
filed a Request for Arbitration before the Construction Industry Arbitration
Commission (CIAC) docketed as CIAC Case No. 21-2000, seeking the following
reliefs:

1. To pay to the claimant Pioneer Insurance and Surety

Corporation the sum of U.S.$8,472,581.78 or its equivalent amount in
Philippine Currency, plus interest thereon computed from the date of the
Loss and Subrogation Receipt on 16 June 2000 or from the date of filing
of [the] Request for Arbitration, as may be found proper;
2. To pay to claimant WG&A, INC. and/or Aboitiz Shipping
Corporation and WG&A Jebsens Shipmanagement, Inc. the sum
of P500,000,000.00 plus interest thereon from the date of filing [of the]
Request for Arbitration or date of the arbitral award, as may be found
proper;

3. To pay to the claimants herein the sum of P3,000,000.00 for

and as attorneys fees; plus other damages as may be established during the
proceedings, including arbitration fees and other litigation expenses, and
the costs of suit.

It is likewise further prayed that Clauses 1 and 2 on the unsigned page 1

of the Shiprepair Agreement (Annex A) as well as the hardly legible
Clauses 20 and 22 (a) and other similar clauses printed in very fine print
on the unsigned dorsal page thereof, be all declared illegal and void ab
initio and without any legal effect whatsoever.[10]

KCSI and WG&A reached an amicable settlement, leading the latter to file a
Notice of Withdrawal of Claim on April 17, 2001 with the CIAC. The CIAC granted
the withdrawal on October 22, 2001, thereby dismissing the claim of WG&A against
KCSI. Hence, the arbitration proceeded with Pioneer as the remaining claimant.

In the course of the proceedings, Pioneer and KCSI stipulated, among others,
that: (1) on January 26, 2000, M/V Superferry 3 arrived at KCSI in Lapu-Lapu City,
Cebu, for dry docking and repairs; (2) on the same date, WG&A signed a ship repair
agreement with KCSI; and (3) a fire broke out on board M/V Superferry 3 on
February 8, 2000, while still dry docked in KCSIs shipyard.[11]

As regards the disputed facts, below are the respective positions of the
parties, viz.:
Pioneers Theory of the Case:

First, Pioneer (as Claimant) is the real party in interest in this case and that
Pioneer has been subrogated to the claim of its assured. The Claimant
claims that it has the preponderance of evidence over that of the
Respondent. Claimant cited documentary references on the Statutory
Source of the Principle of Subrogation. Claimant then proceeded to
explain that the Right of Subrogation:

Is by Operation of Law
exists in Property Insurance
is not Dependent Upon Privity of Contract.

Claimant then argued that Payment Operates as Equitable Assignment of

Rights to Insurer and that the Right of Subrogation Entitles Insurer to
Recover from the Liable Party.

Second, Respondent Keppel had custody of and control over the M/V
Superferry 3 while said vessel was in Respondent Keppels premises. In its
Draft Decision, Claimant stated:

A. The evidence presented during the hearings

indubitably proves that respondent not only took
custody but assumed responsibility and control over
M/V Superferry 3 in carrying out the dry-docking and
repair of the vessel.
B. The presence on board the M/V Superferry 3 of its
officers and crew does not relieve the respondent of
its responsibility for said vessel.
C. Respondent Keppel assumed responsibility over
M/V Superferry 3 when it brought the vessel inside its
graving dock and applied its own safety rules to the
dry-docking and repairs of the vessel.
D. The practice of allowing a shipowner and its sub-
contractors to perform maintenance works while the
vessel was within respondents premises does not
detract from the fact that control and custody over
M/V Superferry 3 was transferred to the yard.
 From the preceding statements, Claimant claims that Keppel is
clearly liable for the loss of M/V Superferry 3.

Third, the Vessels Safety Manual cannot be relied upon as proof of the
Masters continuing control over the vessel.

Fourth, the Respondent Yard is liable under the Doctrine of Res Ipsa
Loquitur. According to Claimant, the Yard is liable under the ruling laid
down by the Supreme Court in the Manila City case. Claimant asserts that
said ruling is applicable hereto as The Law of the Case.

Fifth, the liability of Respondent does not arise merely from the
application of the Doctrine of Res Ipsa Loquitur, but from
its negligence in this case.

Sixth, the Respondent Yard was the employer responsible for the
negligent acts of the welder. According to Claimant;

In contemplation of law, Sevillejo was not a loaned

servant/employee. The yard, being his employer, is solely and
exclusively liable for his negligent acts. Claimant proceeded to
enumerate its reasons:

A. The Control Test The yard exercised control over

Sevillejo. The power of control is not diminished by
the failure to exercise control.

B. There was no independent work contract between

Joniga and Sevillejo Joniga was not the employer of
Sevillejo, as Sevillejo remained an employee of the
yard at the time the loss occurred.

C. The mere fact that Dr. Joniga requested Sevillejo to

perform some of the Owners hot works under the 26
January 2000 work order did not make Dr. Joniga the
employer of Sevillejo.

Claimant proffers that Dr. Joniga was not a Contractor of the Hot
Work Done on Deck A. Claimant argued that:
 A. The yard, not Dr. Joniga, gave the welders their
marching orders, and

B. Dr. Jonigas authority to request the execution of

owners hot works in the passenger areas was
expressly recognized by the Yard Project
Superintendent Orcullo.

Seventh, the shipowner had no legal duty to apply for a hotworks permit
since it was not required by the yard, and the owners hotworks were
conducted by welders who remained employees of the yard. Claimant
contends that the need, if any, for an owners application for a hot work
permit was canceled out by the yards actual knowledge of Sevillejos
whereabouts and the fact that he was in deck A doing owners hotworks.

Eight[h], in supplying welders and equipment as per The Work Order

Dated 26 January 2000, the Yard did so at its own risk, and acted as a Less
Than Prudent Ship Repairer.

The Claimant then disputed the statements of Manuel Amagsila by

claiming that Amagsila was a disgruntled employee. Nevertheless,
Claimant claims that Amagsila affirmed that the five yard welders never
became employees of the owner so as to obligate the latter to be
responsible for their conduct and performance.

Claimant enumerated further badges of yard negligence.

According to Claimant:

A. Yards water supply was inadequate.

B. Yard Fire Fighting Efforts and Equipment Were Inadequate.
C. Yard Safety Practices and Procedures Were Unsafe or
Inadequate.
D. Yard Safety Assistants and Firewatch-Men were Overworked.

Finally, Claimant disputed the theories propounded by the Respondent

(The Yard). Claimant presented its case against:

(i) Non-removal of the life jackets theory.

(ii) Hole-in-the[-]floor theory.
(iii) Need for a plan theory.
 (iv) The unauthorized hot works theory.
(v) The Marina report theory.

The Claimant called the attention of the Tribunal (CIAC) on the non-
appearance of the welder involved in the cause of the fire, Mr. Severino
Sevillejo. Claimant claims that this is suppression of evidence by
Respondent.

KCSIs Theory of the Case

1. The Claimant has no standing to file the Request for Arbitration and
the Tribunal has no jurisdiction over the case:
(a) There is no valid arbitration agreement between the Yard
and the Vessel Owner. On January 26, 2000, when the ship
repair agreement (which includes the arbitration agreement)
was signed by WG&A Jebsens on behalf of the Vessel, the
same was still owned by Aboitiz Shipping. Consequently,
when another firm, WG&A, authorized WG&A Jebsens to
manage the MV Superferry 3, it had no authority to do
so. There is, as a result, no binding arbitration agreement
between the Vessel Owner and the Yard to which the
Claimant can claim to be subrogated and which can support
CIAC jurisdiction.
(b) The Claimant is not a real party in interest and has no
standing because it has not been subrogated to the Vessel
Owner. For the reason stated above, the insurance policies
on which the Claimant bases its right of subrogation were
not validly obtained. In any event, the Claimant has not been
subrogated to any rights which the Vessel may have against
the Yard because:

i. The Claimant has not proved payment of the

proceeds of the policies to any specific party. As a
consequence, it has also not proved payment to the
Vessel Owner.

ii. The Claimant had no legally demandable obligation

to pay under the policies and did so only
voluntarily. Under the policies, the Claimant and the
Vessel agreed that there is no Constructive Total Loss
 unless the expense of recovering and repairing the
vessel would exceed the Agreed Value of P360
million assigned by the parties to the Vessel, a
threshold which the actual repair cost for the Vessel
did not reach. Since the Claimant opted to pay
contrary to the provisions of the policies, its payment
was voluntary, and there was no resulting subrogation
to the Vessel.

iii. There was also no subrogation under Article 1236 of

the Civil Code. First, if the Claimant asserts a right of
payment only by virtue of Article 1236, then there is
no legal subrogation under Article 2207 and it
does not succeed to the Vessels rights under the Ship
[R]epair Agreement and the arbitration agreement. It
does not have a right to demand arbitration and will
have only a purely civil law claim for reimbursement
to the extent that its payment benefited the Yard
which should be filed in court. Second, since the Yard
is not liable for the fire and the resulting damage to
the Vessel, then it derived no benefit from the
Claimants payment to the Vessel Owner. Third, in
any event, the Claimant has not proved payment of
the proceeds to the Vessel Owner.
2. The Ship [R]epair Agreement was not imposed upon the Vessel. The
Vessel knowingly and voluntarily accepted that agreement. Moreover,
there are no signing or other formal defects that can invalidate the
agreement.
3. The proximate cause of the fire and damage to the Vessel was not any
negligence committed by Angelino Sevillejo in cutting the bulkhead
door or any other shortcoming by the Yard. On the contrary, the
proximate cause of the fire was Dr. Jonigas and the Vessels deliberate
decision to have Angelino Sevillejo undertake cutting work in
inherently dangerous conditions created by them.

(a) The Claimants material witnesses lied on the record and the
Claimant presented no credible proof of any negligence by
Angelino Sevillejo.
(b) Uncontroverted evidence proved that Dr. Joniga neglected
or decided not to obtain a hot work permit for the bulkhead
cutting and also neglected or refused to have the ceiling and
 the flammable lifejackets removed from underneath the area
where he instructed Angelino Sevillejo to cut the bulkhead
door. These decisions or oversights guaranteed that the
cutting would be done in extremely hazardous conditions
and were the proximate cause of the fire and the resulting
damage to the Vessel.

(c) The Yards expert witness, Dr. Eric Mullen gave the only
credible account of the cause and the mechanics of ignition
of the fire. He established that: i) the fire started when the
cutting of the bulkhead door resulted in sparks or hot molten
slag which fell through pre-existing holes on the deck floor
and came into contact with and ignited the flammable
lifejackets stored in the ceiling void directly below; and ii)
the bottom level of the bulkhead door was immaterial,
because the sparks and slag could have come from the
cutting of any of the sides of the door. Consequently, the
cutting itself of the bulkhead door under the hazardous
conditions created by Dr. Joniga, rather than the positioning
of the doors bottom edge, was the proximate cause of the
fire.

(d) The Manila City case is irrelevant to this dispute and in any
case, does not establish governing precedent to the effect that
when a ship is damaged in dry dock, the shipyard is
presumed at fault.Apart from the differences in the factual
setting of the two cases, the Manila City pronouncements
regarding the res ipsa loquitur doctrine are obiter
dicta without value as binding precedent.Furthermore, even
if the principle were applied to create a presumption of
negligence by the Yard, however, that presumption is
conclusively rebutted by the evidence on record.

(e) The Vessels deliberate acts and its negligence created the
inherently hazardous conditions in which the cutting work
that could otherwise be done safely ended up causing a fire
and the damage to the Vessel. The fire was a direct and
logical consequence of the Vessels decisions to: (1) take
Angelino Sevillejo away from his welding work at the
Promenade Deck restaurant and instead to require him to do
unauthorized cutting work in Deck A; and (2) to have him
 do that without satisfying the requirements for and obtaining
a hot work permit in violation of the Yards Safety Rules and
without removing the flammable ceiling and life jackets
below, contrary to the requirements not only of the Yards
Safety Rules but also of the demands of standard safe
practice and the Vessels own explicit safety and hot work
policies.

(f) The vessel has not presented any proof to show that the
Yard was remiss in its fire fighting preparations or in the
actual conduct of fighting the 8 February 2000 fire. The
Yard had the necessary equipment and trained personnel and
employed all those resources immediately and fully to
putting out the 8 February 2000 fire.

4. Even assuming that Angelino Sevillejo cut the bulkhead door close to
the deck floor, and that this circumstance rather than the extremely
hazardous conditions created by Dr. Joniga and the Vessel for that
activity caused the fire, the Yard may still not be held liable for the
resulting damage.

(a) The Yards only contractual obligation to the Vessel in

respect of the 26 January 2000 Work Order was to supply
welders for the Promenade Deck restaurant who would then
perform welding work per owner[s]
instruction. Consequently, once it had provided those
welders, including Angelino Sevillejo, its obligation to the
Vessel was fully discharged and no claim for contractual
breach, or for damages on account thereof, may be raised
against the Yard.
(b) The Yard is also not liable to the Vessel/Claimant on the
basis of quasi-delict.

i. The Vessel exercised supervision and control

over Angelino Sevillejo when he was doing work at
the Promenade Deck restaurant and especially when
he was instructed by Dr. Joniga to cut the bulkhead
door. Consequently, the Vessel was the party with
actual control over his tasks and is deemed his true
and effective employer for purposes of establishing
Article 2180 employer liability.
 ii. Even assuming that the Yard was Angelino
Sevillejos employer, the Yard may nevertheless not
be held liable under Article 2180 because Angelino
Sevillejo was acting beyond the scope of his tasks
assigned by the Yard (which was only to do welding
for the Promenade Deck restaurant) when he cut the
bulkhead door pursuant to instructions given by the
Vessel.

iii. The Yard is nonetheless not liable under Article

2180 because it exercised due diligence in the
selection and supervision of Angelino Sevillejo.

5. Assuming that the Yard is liable, it cannot be compelled to pay the

full amount of P360 million paid by the Claimant.

(a) Under the law, the Yard may not be held liable to the
Claimant, as subrogee, for an amount greater than that which
the Vessel could have recovered, even if the Claimant may
have paid a higher amount under its policies. In turn, the
right of the Vessel to recover is limited to actual damage to
the MV Superferry 3, at the time of the fire.
(b) Under the Ship [R]epair Agreement, the liability of the
Yard is limited to P50 million a stipulation which, under the
law and decisions of the Supreme Court, is valid, binding
and enforceable.

(c) The Vessel breached its obligation under Clause 22 (a) of

the Yards Standard Terms to name the Yard as co-assured
under the policies a breach which makes the Vessel liable for
damages. This liability should in turn be set-off against the
Claimants claim for damages.

The Respondent listed what it believes the Claimant wanted to impress

upon the Tribunal. Respondent enumerated and disputed these as follows:

1. Claimants counsel contends that the cutting of the bulkhead

door was covered by the 26 January 2000 Work Order.
2. Claimants counsel contends that Dr. Joniga told Gerry
Orcullo about his intention to have Angelino Sevillejo do
 cutting work at the Deck A bulkhead on the morning of 8
February 2000.
3. Claimants counsel contends that under Article 1727 of the
Civil Code, The contractor is responsible for the work done
by persons employed by him.
4. Claimants counsel contends that [t]he second reason why
there was no job spec or job order for this cutting work, [is]
the cutting work was known to the yard and coordinated with
Mr. Gerry Orcullo, the yard project superintendent.
5. Claimants counsel also contends, to make the Vessels
unauthorized hot works activities seem less likely, that they
could easily be detected because Mr. Avelino Aves, the Yard
Safety Superintendent, admitted that No hot works could
really be hidden from the Yard, your Honors, because the
welding cables and the gas hoses emanating from the dock
will give these hotworks away apart from the assertion and
the fact that there were also safety assistants supposedly
going around the vessel.

Respondent disputed the above by presenting its own argument in its Final
Memorandum.[12]

On October 28, 2002, the CIAC rendered its Decision[13] declaring both
WG&A and KCSI guilty of negligence, with the following findings and conclusions

The Tribunal agrees that the contractual obligation of the Yard is to

provide the welders and equipment to the promenade deck. [The] Tribunal
agrees that the cutting of the bulkhead door was not a contractual
obligation of the Yard. However, by requiring, according to its own
regulations, that only Yard welders are to undertake hotworks, it follows
that there are certain qualifications of Yard welders that would be requisite
of yard welders against those of the vessel welders. To the Tribunal, this
means that yard welders are aware of the Yard safety rules and regulations
on hotworks such as applying for a hotwork permit, discussing the work
in a production meeting, and complying with the conditions of the
hotwork permit prior to implementation. By the requirement that all
hotworks are to be done by the Yard, the Tribunal finds that Sevillejo
remains a yard employee. The act of Sevillejo is however mitigated in that
he was not even a foreman, and that the instructions to him was (sic) by
an authorized person. The Tribunal notes that the hotworks permit
 require[s] a request by at least a foreman. The fact that no foreman was
included in the five welders issued to the Vessel was never raised in this
dispute. As discussed earlier by the Tribunal, with the fact that what was
ask (sic) of Sevillejo was outside the work order, the Vessel is considered
equally negligent. This Tribunal finds the concurrent negligence of the
Yard through Sevillejo and the Vessel through Dr. Joniga as both
contributory to the cause of the fire that damaged the vessel.[14]

Holding that the liability for damages was limited to P50,000,000.00, the CIAC
ordered KCSI to pay Pioneer the amount of P25,000,000.00, with interest at 6% per
annum from the time of the filing of the case up to the time the decision is
promulgated, and 12% interest per annum added to the award, or any balance
thereof, after it becomes final and executory. The CIAC further ordered that the
arbitration costs be imposed on both parties on a pro rata basis.[15]

Pioneer appealed to the CA and its petition was docketed as CA-G.R. SP No.
74018. KCSI likewise filed its own appeal and the same was docketed as CA-G.R.
SP No. 73934. The cases were consolidated.

On December 17, 2004, the Former Fifteenth Division of the CA rendered its
Decision, disposing as follows:

WHEREFORE, premises considered, the Petition of Pioneer (CA-G.R.

SP No. 74018) is DISMISSED while the Petition of the Yard (CA-G.R.
SP No. 73934) is GRANTED, dismissing petitioners claims in its
entirety. No costs.

The Yard and The WG&A are hereby ordered to pay the arbitration costs
pro-rata.

SO ORDERED.[16]

Aggrieved, Pioneer sought reconsideration of the December 17, 2004

Decision, insisting that it suffered from serious errors in the appreciation of the
evidence and from gross misapplication of the law and jurisprudence on
negligence. KCSI, for its part, filed a motion for partial reconsideration of the same
Decision.

On December 20, 2007, an Amended Decision was promulgated by the

Special Division of Five Former Fifteenth Division of the CA in light of the dissent
of Associate Justice Lucas P. Bersamin,[17] joined by Associate Justice Japar B.
Dimaampao. The fallo of the Amended Decision reads

WHEREFORE, premises considered, the Court hereby decrees

that:

1. Pioneers Motion for Reconsideration is PARTIALLY

GRANTED, ordering The Yard to pay Pioneer P25 Million, without legal
interest, within 15 days from the finality of this Amended Decision,
subject to the following modifications:

1.1 Pioneers Petition (CA-G.R. SP No. 74018) is PARTIALLY

GRANTED as the Yard is hereby ordered to pay Pioneer P25 Million
without legal interest;

2. The Yard is hereby declared as equally negligent, thus, the total

GRANTING of its Petition (CA-G.R. SP No. 73934) is now reduced
to PARTIALLY GRANTED, in so far as it is ordered to pay PioneerP25
Million, without legal interest, within 15 days from the finality of
this Amended Decision; and

3. The rest of the disposition in the original Decision remains the

same.

SO ORDERED.[18]

Hence, these petitions. Pioneer bases its petition on the following grounds:

THE COURT OF APPEALS ERRED IN BASING ITS

ORIGINAL DECISION ON NON-FACTS LEADING IT TO MAKE
FALSE LEGAL CONCLUSIONS; NON-FACTS REMAIN TO
INVALIDATE THE AMENDED DECISION. THIS ALSO VIOLATES
SECTION 14, ARTICLE VIII OF THE CONSTITUTION.

II

THE COURT OF APPEALS ERRED IN LIMITING THE LEGAL

LIABILITY OF THE YARD TO THE SUM OF P50,000,000.00, IN
THAT:

A. STARE DECISIS RENDERS INAPPLICABLE ANY

INVOCATION OF LIMITED LIABILITY BY THE YARD.

B. THE LIMITATION CLAUSE IS CONTRARY TO

PUBLIC POLICY.

C. THE VESSEL OWNER DID NOT AGREE THAT THE

YARDS LIABILITY FOR LOSS OR DAMAGE TO THE
VESSEL ARISING FROM YARDS NEGLIGENCE IS LIMITED
TO THE SUM OFP50,000,000.00 ONLY.

D. IT IS INIQUITOUS TO ALLOW THE YARD TO

LIMIT LIABILITY, IN THAT:

(i) THE YARD HAD CUSTODY AND CONTROL

OVER THE VESSEL (M/V SUPERFERRY 3) ON 08
FEBRUARY 2000 WHEN IT WAS GUTTED BY FIRE;

(ii) THE DAMAGING FIRE INCIDENT

HAPPENED IN THE COURSE OF THE REPAIRS
EXCLUSIVELY PERFORMED BY YARD WORKERS.

III

THE COURT OF APPEALS ERRED IN ITS RULING THAT WG&A

WAS CONCURRENTLY NEGLIGENT, CONSIDERING THAT:

A. DR. JONIGA, THE VESSELS PASSAGE TEAM

LEADER, DID NOT SUPERVISE OR CONTROL THE
REPAIRS.
 B. IT WAS THE YARD THROUGH ITS PROJECT
SUPERINTENDENT GERMINIANO ORCULLO THAT
SUPERVISED AND CONTROLLED THE REPAIR WORKS.

C. SINCE ONLY YARD WELDERS COULD PERFORM

HOT WORKS IT FOLLOWS THAT THEY ALONE COULD BE
GUILTY OF NEGLIGENCE IN DOING THE SAME.

D. THE YARD AUTHORIZED THE HOT WORK OF

YARD WELDER ANGELINO SEVILLEJO.

E. THE NEGLIGENCE OF ANGELINO SEVILLEJO

WAS THE PROXIMATE CAUSE OF THE LOSS.

F. WG&A WAS NOT GUILTY OF NEGLIGENCE, BE IT

DIRECT OR CONTRIBUTORY TO THE LOSS.

IV

THE COURT OF APPEALS CORRECTLY RULED THAT WG&A

SUFFERED A CONSTRUCTIVE TOTAL LOSS OF ITS VESSEL BUT
ERRED BY NOT HOLDING THAT THE YARD WAS LIABLE FOR
THE VALUE OF THE FULL CONSTRUCTIVE TOTAL LOSS.

THE COURT OF APPEALS ERRED IN NOT HOLDING THE YARD

LIABLE FOR INTEREST.

VI

THE COURT OF APPEALS ERRED IN NOT HOLDING THE YARD

SOLELY LIABLE FOR ARBITRATION COSTS.[19]

On the other hand, KCSI cites the following grounds for the allowance of its petition,
to wit:

1. ABSENCE OF YARD RESPONSIBILITY

IT WAS GRIEVOUS ERROR FOR THE COURT OF APPEALS TO
ADOPT, WITHOUT EXPLANATION, THE CIACS RULING THAT
THE YARD WAS EQUALLY NEGLIGENT BECAUSE OF ITS
FAILURE TO REQUIRE A HOT WORKS PERMIT FOR THE
CUTTING WORK DONE BY ANGELINO SEVILLEJO, AFTER THE
COURT OF APPEALS ITSELF HAD SHOWN THAT RULING TO BE
COMPLETELY WRONG AND BASELESS.

2. NO CONSTRUCTIVE TOTAL LOSS

IT WAS EQUALLY GRIEVOUS ERROR FOR THE COURT OF

APPEALS TO RULE, WITHOUT EXPLANATION, THAT THE
VESSEL WAS A CONSTRUCTIVE TOTAL LOSS AFTER HAVING
ITSELF EXPLAINED WHY THE VESSEL COULD NOT BE A
CONSTRUCTIVE TOTAL LOSS.

3. FAILURE OR REFUSAL TO ADDRESS

KEPPELS MOTION FOR RECONSIDERATION

FINALLY, IT WAS ALSO GRIEVOUS ERROR FOR THE COURT OF

APPEALS TO HAVE EFFECTIVELY DENIED, WITHOUT
ADDRESSING IT AND ALSO WITHOUT EXPLANATION,
KEPPELS PARTIAL MOTION FOR RECONSIDERATION OF THE
ORIGINAL DECISION WHICH SHOWED: 1) WHY PIONEER WAS
NOT SUBROGATED TO THE RIGHTS OF THE VESSEL OWNER
AND SO HAD NO STANDING TO SUE THE YARD; 2) WHY
KEPPEL MAY NOT BE REQUIRED TO REIMBURSE PIONEERS
PAYMENTS TO THE VESSEL OWNER IN VIEW OF THE CO-
INSURANCE CLAUSE IN THE SHIPREPAIR AGREEMENT; AND 3)
WHY PIONEER ALONE SHOULD BEAR THE COSTS OF
ARBITRATION.

4. FAILURE TO CREDIT FOR SALVAGE RECOVERY

EVEN IF THE COURT OF APPEALS RULINGS ON ALL OF THE

FOREGOING ISSUES WERE CORRECT AND THE YARD MAY
PROPERLY BE HELD EQUALLY LIABLE FOR THE DAMAGE TO
THE VESSEL AND REQUIRED TO PAY HALF OF THE DAMAGES
AWARDED (P25 MILLION), THE COURT OF APPEALS STILL
ERRED IN NOT DEDUCTING THE SALVAGE VALUE OF THE
 VESSEL RECOVERED AND RECEIVED BY THE INSURER,
PIONEER, TO REDUCE ANY LIABILITY ON THE PART OF THE
YARD TO P9.874 MILLION.[20]

To our minds, these errors assigned by both Pioneer and KCSI may be summed up
in the following core issues:

A. To whom may negligence over the fire that broke out on board M/V
Superferry 3 be imputed?

B. Is subrogation proper? If proper, to what extent can subrogation be

made?

C. Should interest be imposed on the award of damages? If so, how much?

D. Who should bear the cost of the arbitration?

To resolve these issues, it is imperative that we digress from the general rule
that in petitions for review under Rule 45 of the Rules of Court, only questions of
law shall be entertained.Considering the disparate findings of fact of the CIAC and
the CA which led them to different conclusions, we are constrained to revisit the
factual circumstances surrounding this controversy.[21]

The Courts Ruling

A. The issue of negligence

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

The fire broke out shortly after 10:25 and an alarm was raised (Exh. 1-Ms.
Aini Ling,[22] p. 20). Angelino Sevillejo tried to put out the fire by pouring
the contents of a five-liter drinking water container on it and as he did so,
smoke came up from under Deck A. He got another container of water
 which he also poured whence the smoke was coming. In the meantime,
other workers in the immediate vicinity tried to fight the fire by using fire
extinguishers and buckets of water. But because the fire was inside the
ceiling void, it was extremely difficult to contain or extinguish; and it
spread rapidly because it was not possible to direct water jets or the fire
extinguishers into the space at the source. Fighting the fire was extremely
difficult because the life jackets and the construction materials of the Deck
B ceiling were combustible and permitted the fire to spread within the
ceiling void. From there, the fire dropped into the Deck B accommodation
areas at various locations, where there were combustible
materials. Respondent points to cans of paint and thinner, in addition to
the plywood partitions and foam mattresses on deck B (Exh. 1-
Mullen,[23] pp. 7-8, 18; Exh. 2-Mullen, pp. 11-12).[24]

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. KCSI claims
otherwise, stating that the hot work done was beyond the scope of Sevillejos
assigned tasks, the same not having been authorized under the Work Order[25] dated
January 26, 2000 or under the Shiprepair Agreement. KCSI further posits that
WG&A was itself negligent, through its crew, particularly Dr. Raymundo Joniga
(Dr. Joniga), for failing to remove the life jackets from the ceiling void, causing the
immediate spread of the fire to the other areas of the ship.

We rule in favor of Pioneer.

First. The Shiprepair Agreement is clear that WG&A, as owner of M/V Superferry
3, entered into a contract for the dry docking and repair of the vessel under KCSIs
Standard Conditions of Contract for Shiprepair, and its guidelines and regulations
on safety and security. Thus, the CA erred when it said that WG&A would renovate
and reconstruct its own vessel merely using the dry docking facilities of KCSI.

Second. Pursuant to KCSIs rules and regulations on safety and security, only
employees of KCSI may undertake hot works on the vessel while it was in the
graving dock in Lapu-Lapu City, Cebu.This is supported by Clause 3 of the
Shiprepair Agreement requiring the prior written approval of KCSIs Vice President
for Operations before WG&A could effect any work performed by its own workers
or sub-contractors. In the exercise of this authority, KCSIs Vice-President for
Operations, in the letter dated January 2, 1997, banned any hot works from being
done except by KCSIs workers, viz.:

The Yard will restrict all hot works in the engine room, accommodation
cabin, and fuel oil tanks to be carried out only by shipyard workers x x
x.[26]

WG&A recognized and complied with this restrictive directive such that,
during the arrival conference on January 26, 2000, Dr. Joniga, the vessels passage
team leader in charge of its hotel department, specifically requested KCSI to finish
the hot works started by the vessels contractors on the passenger accommodation
decks.[27] This was corroborated by the statements of the vessels hotel manager
Marcelo Rabe[28] and the vessels quality control officer Joselito Esteban.[29] KCSI
knew of the unfinished hot works in the passenger accommodation areas. Its safety
supervisor Esteban Cabalhug confirmed that KCSI was aware that the owners of this
vessel (M/V Superferry 3) had undertaken their own (hot) works prior to arrival
alongside (sic) on 26th January, and that no hot work permits could thereafter be
issued to WG&As own workers because this was not allowed for the Superferry
3.[30] This shows that Dr. Joniga had authority only to request the performance of hot
works by KCSIs welders as needed in the repair of the vessel while on dry dock.

Third. KCSI welders covered by the Work Order performed hot works on various
areas of the M/V Superferry 3, aside from its promenade deck. This was a
recognition of Dr. Jonigas authority to request the conduct of hot works even on the
passenger accommodation decks, subject to the provision of the January 26, 2000
Work Order that KCSI would supply welders for the promenade deck of the ship.

At the CIAC proceedings, it was adequately shown that between February 4

and 6, 2000, the welders of KCSI: (a) did the welding works on the ceiling hangers
in the lobby of Deck A; (b) did the welding and cutting works on the deck beam to
access aircon ducts; and (c) did the cutting and welding works on the protection bars
at the tourist dining salon of Deck B,[31] at a rate ofP150.00/welder/hour.[32] In fact,
Orcullo, Project Superintendent of KCSI, admitted that as early as February 3, 2000
(five days before the fire) [the Yard] had acknowledged Dr. Jonigas authority to
order such works or additional jobs.[33]

It is evident, therefore, that although the January 26, 2000 Work Order was a
special order for the supply of KCSI welders to the promenade deck, it was not
restricted to the promenade deck only. The Work Order was only a special
arrangement between KCSI and WG&A that meant additional cost to the latter.

Fourth. At the time of the fire, Sevillejo was an employee of KCSI and was subject
to the latters direct control and supervision.

Indeed, KCSI was the employer of Sevillejopaying his salaries; retaining the
power and the right to discharge or substitute him with another welder; providing
him and the other welders with its equipment; giving him and the other welders
marching orders to work on the vessel; and monitoring and keeping track of his and
the other welders activities on board, in view of the delicate nature of their
work.[34] Thus, as such employee, aware of KCSIs Safety Regulations on Vessels
Afloat/Dry, which specifically provides that (n)o hotwork (welding/cutting works)
shall be done on board [the] vessel without [a] Safety Permit from KCSI Safety
Section,[35] it was incumbent upon Sevillejo to obtain the required hot work safety
permit before starting the work he did, including that done on Deck A where the fire
started.

Fifth. There was a lapse in KCSIs supervision of Sevillejos work at the time the fire
broke out.

It was established that no hot works could be hidden from or remain undetected by
KCSI because the welding cables and the gas hoses emanating from the dock would
give the hot works away.Moreover, KCSI had roving fire watchmen and safety
assistants who were moving around the vessel.[36] This was confirmed by Restituto
Rebaca (Rebaca), KCSIs Safety Supervisor, who actually spotted Sevillejo on Deck
A, two hours before the fire, doing his cutting work without a hot work permit, a fire
watchman, or a fire extinguisher. KCSI contends that it did its duty when it
prohibited Sevillejo from continuing the hot work. However, it is noteworthy that,
after purportedly scolding Sevillejo for working without a permit and telling him to
stop until the permit was acquired and the other safety measures were observed,
Rebaca left without pulling Sevillejo out of the work area or making sure that the
latter did as he was told. Unfortunately for KCSI, Sevillejo reluctantly proceeded
with his cutting of the bulkhead door at Deck A after Rebaca left, even disregarding
the 4-inch marking set, thus cutting the door level with the deck, until the fire broke
out.

This conclusion on the failure of supervision by KCSI was absolutely supported by

Dr. Eric Mullen of the Dr. J.H. Burgoyne & Partners (International) Ltd., Singapore,
KCSIs own fire expert, who observed that

4.3. The foregoing would be compounded by Angelino Sevillejo being an

electric arc welder, not a cutter. The dangers of ignition occurring as a
result of the two processes are similar in that both electric arc welding and
hot cutting produce heat at the work area and sparks and incendive
material that can travel some distance from the work area. Hence, the
safety precautions that are expected to be applied by the supervisor are the
same for both types of work. However, the quantity and incendivity of the
spray from the hot cutting are much greater than those of sparks from
electric arc welding, and it may well be that Angelino Sevillejo would
not have a full appreciation of the dangers involved. This made it all
the more important that the supervisor, who should have had such an
appreciation, ensured that the appropriate safety precautions were
carried out.[37]

In this light, therefore, Sevillejo, being one of the specially trained welders
specifically authorized by KCSI to do the hot works on M/V Superferry 3 to the
exclusion of other workers, failed to comply with the strict safety standards of KCSI,
not only because he worked without the required permit, fire watch, fire buckets,
and extinguishers, but also because he failed to undertake other precautionary
measures for preventing the fire. For instance, he could have, at the very least,
ensured that whatever combustible material may have been in the vicinity would be
protected from the sparks caused by the welding torch. He could have easily
removed the life jackets from the ceiling void, as well as the foam mattresses, and
covered any holes where the sparks may enter.

Conjunctively, since Rebaca was already aware of the hazard, he should have
taken all possible precautionary measures, including those above mentioned, before
allowing Sevillejo to continue with his hot work on Deck A. In addition to scolding
Sevillejo, Rebaca merely checked that no fire had started yet. Nothing more. Also,
inasmuch as KCSI had the power to substitute Sevillejo with another electric arc
welder, Rebaca should have replaced him.

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.[38] 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.[39] In this aspect,

KCSI failed to exercise the necessary degree of caution and foresight called for by
the circumstances.

We cannot subscribe to KCSIs position that WG&A, through Dr. Joniga, was
negligent.

On the one hand, as discussed above, Dr. Joniga had authority to request the
performance of hot works in the other areas of the vessel. These hot works were
deemed included in the January 26, 2000 Work Order and the Shiprepair
Agreement. In the exercise of this authority, Dr. Joniga asked Sevillejo to do the
cutting of the bulkhead door near the staircase of Deck A. KCSI was aware of what
Sevillejo was doing, but failed to supervise him with the degree of care warranted
by the attendant circumstances.

Neither can Dr. Joniga be faulted for not removing the life jackets from the
ceiling void for two reasons (1) the life jackets were not even contributory to the
occurrence of the fire; and (2) it was not incumbent upon him to remove the same. It
was shown during the hearings before the CIAC that the removal of the life jackets
would not have made much of a difference. The fire would still have occurred due
to the presence of other combustible materials in the area. This was the uniform
conclusion of both WG&As[40] and KCSIs[41] fire experts. It was also proven during
the CIAC proceedings that KCSI did not see the life jackets as being in the way of
the hot works, thus, making their removal from storage unnecessary.[42]

These 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[43] under Article 2180
of the Civil Code, which provides

Art. 2180. The obligation imposed by article 2176 is demandable not only
for ones own act or omission, but also for those of persons for whom one
is responsible.

xxxx

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.

xxxx

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.[44] 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. [45] From the
foregoing disquisition, there is ample proof of the employees negligence.
B. The right of subrogation

Pioneer asseverates that there existed a total constructive loss so that it had to pay
WG&A the full amount of the insurance coverage and, by operation of law, it was
entitled to be subrogated to the rights of WG&A to claim the amount of the loss. It
further argues that the limitation of liability clause found in the Shiprepair
Agreement is null and void for being iniquitous and against public policy.

KCSI counters that a total constructive loss was not adequately proven by Pioneer,
and that there is no proof of payment of the insurance proceeds. KCSI insists on the
validity of the limited-liability clause up to P50,000,000.00, because WG&A
acceded to the provision when it executed the Shiprepair Agreement. KCSI also
claims that the salvage value of the vessel should be deducted from whatever amount
it will be made to pay to Pioneer.

We find in favor of Pioneer, subject to the claim of KCSI as to the salvage value of
M/V Superferry 3.

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 appears, however, that in the execution of the insurance policies over M/V
Superferry 3, WG&A and Pioneer incorporated by reference the American Institute
Hull Clauses 2/6/77, the Total Loss Provision of which reads
 Total Loss

In ascertaining whether the Vessel is a constructive Total Loss the Agreed

Value shall be taken as the repaired value and nothing in respect of the
damaged or break-up value of the Vessel or wreck shall be taken into
account.

There shall be no recovery for a constructive Total Loss hereunder unless

the expense of recovering and repairing the Vessel would exceed the
Agreed Value in policies on Hull and Machinery. In making this
determination, only expenses incurred or to be incurred by reason of a
single accident or a sequence of damages arising from the same accident
shall be taken into account, but expenses incurred prior to tender of
abandonment shall not be considered if such are to be claimed separately
under the Sue and Labor clause. x x x.

In the course of the arbitration proceedings, Pioneer adduced in evidence the

estimates made by three (3) disinterested and qualified shipyards for the cost of the
repair of the vessel, specifically: (a) P296,256,717.00, based on the Philippine
currency equivalent of the quotation dated April 17, 2000 turned in by Tsuneishi
Heavy Industries (Cebu) Inc.; (b) P309,780,384.15, based on the Philippine currency
equivalent of the quotation of Sembawang Shipyard Pte. Ltd., Singapore; and
(c) P301,839,974.00, based on the Philippine currency equivalent of the quotation
of Singapore Technologies Marine Ltd. All the estimates showed that the repair
expense would exceed P270,000,000.00, the amount equivalent to of the vessels
insured value of P360,000,000.00.Thus, WG&A opted to abandon M/V Superferry
3 and claimed from Pioneer the full amount of the policies. Pioneer paid WG&As
claim, and now demands from KCSI the full amount ofP360,000,000.00, by virtue
of subrogation.

KCSI denies the liability because, aside from its claim that it cannot be held
culpable for negligence resulting in the destructive fire, there was no constructive
total loss, as the amount of damage was only US$3,800,000.00 or P170,611,260.00,
the amount of repair expense quoted by Simpson, Spence & Young.

In the face of this apparent conflict, we hold that Section 139 of the Insurance
Code should govern, because (1) Philippine law is deemed incorporated in every
locally executed contract; and (2) the marine insurance policies in question expressly
provided the following:

IMPORTANT

This insurance is subject to English jurisdiction, except in the event that

loss or losses are payable in the Philippines, in which case if the said laws
and customs of England shall be in conflict with the laws of the Republic
of the Philippines, then the laws of the Republic of the Philippines shall
govern. (Underscoring supplied.)

The CA held that Section 139 of the Insurance Code is merely permissive on account
of the word may in the provision. This is incorrect. 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.

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 of the total value of the policiesP360,000,000.00. These
estimates constituted credible and acceptable proof of the extent of the damage
sustained by the vessel. It is significant that these estimates were confirmed by the
Adjustment Report dated June 5, 2000 submitted by Richards Hogg Lindley (Phils.),
Inc., the average adjuster that Pioneer had enlisted to verify and confirm the extent
of the damage. The Adjustment Report verified and confirmed that the damage to
the vessel amounted to a constructive total loss and that the claim
for P360,000,000.00 under the policies was compensable.[46] It is also noteworthy
that KCSI did not cross-examine Henson Lim, Director of Richards Hogg, whose
affidavit-direct testimony submitted to the CIAC confirmed that the vessel was a
constructive total loss.

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. On this note, we find as
unacceptable the claim of KCSI that there was no ample proof of payment simply
because the person who signed the Receipt appeared to be an employee of Aboitiz
Shipping Corporation.[47] 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.

On the matter of subrogation, Article 2207 of the Civil Code provides

Art. 2207. 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. 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.

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.[48]
 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.[49]

We cannot accept KCSIs insistence on upholding the validity Clause 20,

which provides that the limit of its liability is only up to P50,000,000.00; nor of
Clause 22(a), that KCSI stands as a co-assured in the insurance policies, as found in
the Shiprepair Agreement.

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&As 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 want 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.[50]

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.[51]
 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.[52] This has not been demonstrated in this case.

Likewise, 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.[53]

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.[54]

Nevertheless, 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&As 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.

C. On the imposition of interest

Pursuant to our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals,[55] the
award in favor of Pioneer in the amount of P350,146,786.89 should earn interest at
6% per annum from the filing of the case until the award becomes final and
executory. Thereafter, the rate of interest shall be 12% per annum from the date the
award becomes final and executory until its full satisfaction.
D. On the payment for the cost of arbitration

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.

WHEREFORE, the Petition of Pioneer Insurance and Surety Corporation in

G.R. No. 180896-97 and the Petition of Keppel Cebu Shipyard, Inc. in G.R. No.
180880-81 are PARTIALLY GRANTED and the Amended Decision dated
December 20, 2007 of the Court of Appeals is MODIFIED. Accordingly, KCSI is
ordered to pay Pioneer the amount of P360,000,000.00 lessP30,252,648.09,
equivalent to the salvage value recovered by Pioneer from M/V Superferry 3, or the
net total amount of P329,747,351.91, with six percent (6%) interest per annum
reckoned from the time the Request for Arbitration was filed until this Decision
becomes final and executory, plus twelve percent (12%) interest per annum on the
said amount or any balance thereof from the finality of the Decision until the same
will have been fully paid. The arbitration costs shall be borne by both parties on
a pro rata basis. Costs against KCSI.
 SO ORDERED.

2. ETERNAL VS. PHILAMLIFE

G.R. No. 166245

April 09, 2008
FACTS: Respondent Philamlife entered into an agreement denominated as
Creditor Group Life Policy with petitioner Eternal Gardens Memorial Park
Corporation (Eternal). Under the policy, the clients of Eternal who purchased
burial lots from it on installment basis would be insured by Philamlife. The
amount of insurance coverage depended upon the existing balance of the
purchased burial lots.
The relevant provisions of the policy are:

ELIGIBILITY.

xx
EVIDENCE OF INSURABILITY.
xx
LIFE INSURANCE BENEFIT.
xx

EFFECTIVE DATE OF BENEFIT.

The insurance of any eligible Lot Purchaser shall be effective on the date he
contracts a loan with the Assured. However, there shall be no insurance if the
application of the Lot Purchaser is not approved by the Company.

xx

Eternal was required under the policy to submit to Philamlife a list of all new
lot purchasers, together with a copy of the application of each purchaser, and
the amounts of the respective unpaid balances of all insured lot purchasers.
Eternal complied by submitting a letter dated December 29, 1982, containing
a list of insurable balances of its lot buyers for October 1982. One of those
included in the list as “new business” was a certain John Chuang. His balance
of payments was 100K. on August 2, 1984, Chuang died.

Eternal sent a letter dated to Philamlife, which served as an insurance claim

for Chuang’s death. Attached to the claim were certain documents. In reply,
Philamlife wrote Eternal a letter requiring Eternal to submit the additional
documents relative to its insurance claim for Chuang’s death. Eternal
transmitted the required documents through a letter which was received by
Philamlife.

After more than a year, Philamlife had not furnished Eternal with any reply to
the latter’s insurance claim. This prompted Eternal to demand from Philamlife
the payment of the claim for PhP 100,000.
In response to Eternal’s demand, Philamlife denied Eternal’s insurance claim
in a letter a portion of which reads:
The deceased was 59 years old when he entered into Contract #9558 and 9529
with Eternal Gardens Memorial Park in October 1982 for the total maximum
insurable amount of P100,000.00 each. No application for Group Insurance
was submitted in our office prior to his death on August 2, 1984

Eternal filed a case with the RTC for a sum of money against Philamlife, which
decided in favor of Eternal, ordering Philamlife to pay the former 100K
representing the proceeds of the policy.

CA reversed. Hence this petition.

ISSUE: WON Philamlife should pay the 100K insurance proceeds

HELD: petition granted.

YES

An examination of the provision of the POLICY under effective date of benefit,

would show ambiguity between its two sentences. The first sentence appears
to state that the insurance coverage of the clients of Eternal already became
effective upon contracting a loan with Eternal while the second sentence
appears to require Philamlife to approve the insurance contract before the
same can become effective.
It must be remembered that an insurance contract is a contract of adhesion
which must be construed liberally in favor of the insured and strictly against
the insurer in order to safeguard the latter’s interest

On the other hand, the seemingly conflicting provisions must be harmonized

to mean that upon a party’s purchase of a memorial lot on installment from
Eternal, an insurance contract covering the lot purchaser is created and the
same is effective, valid, and binding until terminated by Philamlife by
disapproving the insurance application. The second sentence of the Creditor
Group Life Policy on the Effective Date of Benefit is in the nature of a
resolutory condition which would lead to the cessation of the insurance
contract. Moreover, the mere inaction of the insurer on the insurance
application must not work to prejudice the insured; it cannot be interpreted as
a termination of the insurance contract. The termination of the insurance
contract by the insurer must be explicit and unambiguous.

3.PHIL. HEALTH CARE PROVIDERS, INC vs.

COMMISSIONER OF INTERNAL REVENUE

GR. NO. 1677330 September 18, 2009, SPECIAL FIRST DIVISION (CORONA, J.)

FACTS:

Petitioner is a domestic corporation whose primary purpose is to establish, maintain, conduct and operate
a prepaid group practice health care delivery system or a health maintenance organization to take care of
the sick and disabled persons enrolled in the health care plan and to provide for the administrative, legal,
and financial responsibilities of the organization. On January 27, 2000, respondent CIR sent petitioner a
formal deman letter and the corresponding assessment notices demanding the payment of deficiency
taxes, including surcharges and interest, for the taxable years 1996 and 1997 in the total amount of
P224,702,641.18. The deficiency assessment was imposed on petitioner’s health care agreement with the
members of its health care program pursuant to Section 185 of the 1997 Tax Code. Petitioner protested
the assessment in a letter dated February 23, 2000. As respondent did not act on the protest, petitioner
filed a petition for review in the Court of Tax Appeals (CTA) seeking the cancellation of the deficiency VAT
and DST assessments. On April 5, 2002, the CTA rendered a decision, ordering the petitioner to PAY the
deficiency VAT amounting to P22,054,831.75 inclusive of 25% surcharge plus 20% interest from January
20, 1997 until fully paid for the 1996 VAT deficiency and P31,094,163.87 inclusive of 25% surcharge plus
20% interest from January 20, 1998 until fully paid for the 1997 VAT deficiency. Accordingly, VAT Ruling
No. [231]-88 is declared void and without force and effect. The 1996 and 1997 deficiency DST assessment
against petitioner is hereby CANCELLED AND SET ASIDE. Respondent is ORDERED to DESIST from collecting
the said DST deficiency tax. Respondent appealed the CTA decision to the (CA) insofar as it cancelled the
DST assessment. He claimed that petitioner’s health care agreement was a contract of insurance subject to
DST under Section 185 of the 1997 Tax Code.
On August 16, 2004, the CA rendered its decision which held that petitioner’s health care agreement was
in the nature of a non-life insurance contract subject to DST. Respondent is ordered to pay the deficiency
Documentary Stamp Tax. Petitioner moved for reconsideration but the CA denied it.

ISSUES:

(1) Whether or not Philippine Health Care Providers, Inc. engaged in insurance business.

(2) Whether or not the agreements between petitioner and its members possess all elements necessary in
the insurance contract.

HELD:

NO. Health Maintenance Organizations are not engaged in the insurance business. The SC said in June 12,
2008 decision that it is irrelevant that petitioner is an HMO and not an insurer because its agreements are
treated as insurance contracts and the DST is not a tax on the business but an excise on the privilege,
opportunity or facility used in the transaction of the business. Petitioner, however, submits that it is of
critical importance to characterize the business it is engaged in, that is, to determine whether it is an HMO
or an insurance company, as this distinction is indispensable in turn to the issue of whether or not it is
liable for DST on its health care agreements. Petitioner is admittedly an HMO. Under RA 7878 an HMO is
“an entity that provides, offers or arranges for coverage of designated health services needed by plan
members for a fixed prepaid premium. The payments do not vary with the extent, frequency or type of
services provided. Section 2 (2) of PD 1460 enumerates what constitutes “doing an insurance business” or
“transacting an insurance business”which are making or proposing to make, as insurer, any insurance
contract; making or proposing to make, as surety, any contract of suretyship as a vocation and not as
merely incidental to any other legitimate business or activity of the surety; doing any kind of business,
including a reinsurance business, specifically recognized as constituting the doing of an insurance
business within the meaning of this Code; doing or proposing to do any business in substance equivalent
to any of the foregoing in a manner designed to evade the provisions of this Code.

Overall, petitioner appears to provide insurance-type benefits to its members (with respect to its curative
medical services), but these are incidental to the principal activity of providing them medical care. The
“insurance-like” aspect of petitioner’s business is miniscule compared to its noninsurance activities.
Therefore, since it substantially provides health care services rather than insurance services, it cannot be
considered as being in the insurance business.

4. 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.
 5. heirs of loreto maramag vs maramag

FACTS:
 Loreto Maramag designated as beneficiary his concubine Eva de Guzman Maramag
 Vicenta Maramag and Odessa, Karl Brian, and Trisha Angelie (heirs of Loreto
Maramag) and his concubine Eva de Guzman Maramag, also suspected in the killing
of Loreto and his illegitimate children are claiming for his insurance.
 Vicenta alleges that Eva is disqualified from claiming
 RTC: Granted - civil code does NOT apply
 CA: dismissed the case for lack of jurisdiction for filing beyond reglementary period
ISSUE: W/N Eva can claim even though prohibited under the civil code against donation

HELD: YES. Petition is DENIED.

 Any person who is forbidden from receiving any donation under Article 739 cannot
be named beneficiary of a life insurance policy of the person who cannot make any
donation to him
 If a concubine is made the beneficiary, it is believed that the insurance contract will
still remain valid, but the indemnity must go to the legal heirs and not to the
concubine, for evidently, what is prohibited under Art. 2012 is the naming of the
improper beneficiary.
 SECTION 53. The insurance proceeds shall be applied exclusively to the proper
interest of the person in whose name or for whose benefit it is made unless
otherwise specified in the policy.
 GR: only persons entitled to claim the insurance proceeds are either the insured, if
still alive; or the beneficiary, if the insured is already deceased, upon the maturation
of the policy.
 EX: situation where the insurance contract was intended to benefit third persons
who are not parties to the same in the form of favorable stipulations or indemnity.
In such a case, third parties may directly sue and claim from the insurer
 It is only in cases where the insured has not designated any beneficiary, or when
the designated beneficiary is disqualified by law to receive the proceeds, that the
insurance policy proceeds shall redound to the benefit of the estate of the insured.
 Gaisano Cagayan, Inc. V. Insurance
6.

Company Of North America (2006)

Facts:-

Intercapitol Marketing Corporation (IMC) is a maker of Wrangler Blue Jeans. Levi

Strauss (Phils.) Inc.(LSPI) is the local distributor of products bearing trademarks
owned by Levi Strauss and Co. IMC and LSPIboth obtained from respondent fire
insurance policies with book debt endorsements. It provides forcoverage on book
debts in connection with ready-made clothing materials which have been sold
ordelivered to various customers and dealers of the insured everywhere in the
Philippines. The policiesdefined book debts as the unpaid account still appearing in
the Book of Account of the Insured 45 daysafter the time of the loss covered under
the said policy.- Petitioner is a customer and dealer of the products of IMC and
LSPI. Feb 25, 1991, The GaisanoSuperstore Complex in Cagayan de Oro City,
owned by petitioner, burned down. Included in the itemslost in the fire were the
ready-made clothing materials sold and delivered by IMC and LSPI.- Feb 1992,
Respondent filed a complaint for damages against petitioner, alleging that IMC and
LSPI filedwith respondent their claims, that as of Feb 25, 1991, the unpaid accounts
of petitioner on the sale anddelivery of the clothing materials with IMC was
P2,119,205.00 while with LSPI was P535,613.020, thatrespondent paid the claims of
IMC and LSPI, that respondent made several demands for payment uponpetitioner
but were ignored.- They failed to reach an amicable settlement. RTC rendered their
decision dismissing respondent'scomplaint stating that the fire was accidental and
was not attributable to the negligence of thepetitioner, that it has not established that
petitioner is the debtor of IMC and LSPI, that since the invoicestates that IMC and
LSPI retain ownership over the clothing materials until the purchase price is
fullypaid.- CA reversed the RTC decision.

Issue:

1. Whether the petitioner is liable for the unpaid accountsHeld:1. Yes. Petitioner
ordered to pay P2,119.205.60 for IMC's claims, but not P535,613 for LSPI's claims
forlack of factual basis.- The insurance in this case is not for loss of goods by fire but
for petitioner's accounts with IMC and LSPIthat remained unpaid 45 days after
the fire. Petitioner's obligation is for the payment of money. Wherethe obligation
consists in the payment of money, the failure of the debtor to make the payment
even byreason of a fortuitous event shall not relieve him of his liability. The rule that
 the obligor should be heldexempt from liability when the loss occurs thru a fortuitous
event only holds true when the obligationconsists in the delivery of a determinate
thing and there is no stipulation holding him liable even in caseof fortuitous event. It
does not apply when the obligation is pecuniary in nature.- Under Art 1263, if the
obligation is generic in the sense that the object thereof is designated merely byits
class or genus without any particular designation or physical segregation from all
others of the sameclass, the loss or destruction of anything of the same kind even
without the debtor's fault and before hehas incurred in delay will not have the
effect of extinguishing the obligation. An obligation to pay moneyis generic;
therefore, it is not excused by fortuitous loss of any specific property of the
debtor.***There are other issues but focused on that which involved Article 1263

Rizal Commercial Banking Corporation V. CA

7.

(1998)
FACTS:

 RCBC Binondo Branch initially granted a credit facility of P30M to Goyu & Sons,
Inc. GOYU’s applied again and through Binondo Branch key officer's Uy’s and Lao’s
recommendation, RCBC’s executive committee increased its credit facility to P50M
to P90M and finally to P117M.
 As security, GOYU executed 2 real estate mortgages and 2 chattel mortgages in
favor of RCBC.
 GOYU obtained in its name 10 insurance policy on the mortgaged properties
from Malayan Insurance Company, Inc. (MICO). In February 1992, he was issued 8
insurance policies in favor of RCBC.
 April 27, 1992: One of GOYU’s factory buildings was burned so he claimed against
MICO for the loss who denied contending that the insurance policies were
either attached pursuant to writs of attachments/garnishments or that creditors are
claiming to have a better right
 GOYU filed a complaint for specific performance and damages at the RTC
 RCBC, one of GOYU’s creditors, also filed with MICO its formal claim over the
proceeds of the insurance policies, but said claims were also denied for the same
reasons that MICO denied GOYU’s claims
 RTC: Confirmed GOYU’s other creditors (Urban Bank, Alfredo Sebastian, and
Philippine Trust Company) obtained their writs of attachment covering an aggregate
amount of P14,938,080.23 and ordered that 10 insurance policies be deposited with
the court minus the said amount so MICO deposited P50,505,594.60.
 Another Garnishment of P8,696,838.75 was handed down
 RTC: favored GOYU against MICO for the claim, RCBC for damages and to pay RCBC
its loan
 CA: Modified by increasing the damages in favor of GOYU
 In G.R. No. 128834, RCBC seeks right to intervene in the action between Alfredo C.
Sebastian (the creditor) and GOYU (the debtor), where the subject insurance
policies were attached in favor of Sebastian
 RTC and CA: endorsements do not bear the signature of any officer of GOYU concluded that the
endorsements favoring RCBC as defective.

ISSUE: W/N RCBC as mortgagee, has any right over the insurance policies taken by
GOYU, the mortgagor, in case of the occurrence of loss

HELD: YES.
 mortgagor and a mortgagee have separate and distinct insurable interests in the
same mortgaged property, such that each one of them may insure the same
property for his own sole benefit
 although it appears that GOYU obtained the subject insurance policies naming itself
as the sole payee, the intentions of the parties as shown by their contemporaneous
acts, must be given due consideration in order to better serve the interest of justice
and equity
 8 endorsement documents were prepared by Alchester in favor of RCBC
 MICO, a sister company of RCBC
 GOYU continued to enjoy the benefits of the credit facilities extended to it by RCBC.
 GOYU is at the very least estopped from assailing their operative effects.
 The two courts below erred in failing to see that the promissory notes which they
ruled should be excluded for bearing dates which are after that of the fire, are mere
renewals of previous ones
 RCBC has the right to claim the insurance proceeds, in substitution of the property lost in the
fire. Having assigned its rights, GOYU lost its standing as the beneficiary of
the said insurance policies
 insurance company to be held liable for unreasonably delaying and withholding payment of
insurance proceeds, the delay must be wanton, oppressive, or malevolent - not shown
 Sebastian’s right as attaching creditor must yield to the preferential rights of RCBC over the
Malayan insurance policies as first mortgagee.

8. Geagonia v CA G.R. No. 114427 February 6, 1995

Facts:
Geagonia, owner of a store, obtained from Country Bankers fire insurance policy for P100,000.00.
The 1 year policy and covered thestock trading of dry goods.
The policy noted the requirement that
"3. The insured shall give notice to the Company of any insurance or insurances already effected, or
which may subsequently be effected, covering any of the property or properties consisting of stocks
in trade, goods in process and/or inventories only hereby insured, and unless notice be given and
the particulars of such insurance or insurances be stated therein or endorsed in this policy pursuant
to Section 50 of the Insurance Code, by or on behalf of the Company before the occurrence of any
loss or damage, all benefits under this policy shall be deemed forfeited, provided however, that this
condition shall not apply when the total insurance or insurances in force at the time of the loss or
damage is not more than P200,000.00."
The petitioners’ stocks were destroyed by fire. He then filed a claim which was subsequently denied
because the petitioner’s stocks were covered by two other fire insurance policies for Php 200,000
issued by PFIC. The basis of the private respondent's denial was the petitioner's alleged violation of
Condition 3 of the policy.
Geagonia then filed a complaint against the private respondent in the Insurance Commission for the
recovery of P100,000.00 under fire insurance policy and damages. He claimed that he knew the
existence of the other two policies. But, he said that he had no knowledge of the provision in the
private respondent's policy requiring him to inform it of the prior policies and this requirement was
not mentioned to him by the private respondent's agent.
The Insurance Commission found that the petitioner did not violate Condition 3 as he had no
knowledge of the existence of the two fire insurance policiesobtained from the PFIC; that it was
Cebu Tesing Textiles w/c procured the PFIC policies w/o informing him or securing his consent; and
that Cebu Tesing Textile, as his creditor, had insurable interest on the stocks.
The Insurance Commission then ordered the respondent company to pay complainant the sum of
P100,000.00 with interest and attorney’s fees.
CA reversed the decision of the Insurance Commission because it found that the petitioner knew of
the existence of the two other policies issued by the PFIC.

Issues:
1. WON the petitioner had not disclosed the two insurance policies when he obtained the fire
insurance and thereby violated Condition 3 of the policy.
2. WON he is prohibited from recovering

Held: Yes. No. Petition Granted

Ratio:
1. The court agreed with the CA that the petitioner knew of the prior policies issued by the PFIC. His
letter of 18 January 1991 to the private respondent conclusively proves this knowledge. His
testimony to the contrary before the Insurance Commissioner and which the latter relied upon cannot
prevail over a written admission made ante litem motam. It was, indeed, incredible that he did not
know about the prior policies since these policies were not new or original.
2. Stated differently, provisions, conditions or exceptions in policies which tend to work a forfeiture
of insurance policies should be construed most strictly against those for whose benefits they are
inserted, and most favorably toward those against whom they are intended to operate.
With these principles in mind, Condition 3 of the subject policy is not totally free from ambiguity and
must be meticulously analyzed. Such analysis leads us to conclude that (a) the prohibition applies
only to double insurance, and (b) the nullity of the policy shall only be to the extent exceeding
P200,000.00 of the total policies obtained.
Furthermore, by stating within Condition 3 itself that such condition shall not apply if the total
insurance in force at the time of loss does not exceed P200,000.00, the private respondent was
amenable to assume a co-insurer's liability up to a loss not exceeding P200,000.00. What it had in
mind was to discourage over-insurance. Indeed, the rationale behind the incorporation of "other
insurance" clause in fire policies is to prevent over-insurance and thus avert the perpetration of
fraud. When a property owner obtains insurance policies from two or more insurers in a total amount
that exceeds the property's value, the insured may have an inducement to destroy the property for
the purpose of collecting the insurance. The public as well as the insurer is interested in preventing a
situation in which a fire would be profitable to the insured.

9. South Sea v CA G.R. No. 102253 June 2, 1995

Facts:
Valenzuela Hardwood entered into an agreement with the defendant Seven Brothers whereby the
latter undertook to load the former's 940 lauan logs for shipment to Manila.
South Sea insured the logs for P2,000,000.00 in its marine policy. Valenzuela then gave the check in
payment of the premium on the insurance policy to Mr. Victorio Chua.
Seven Brothers’ ship sank resulting in the loss of the logs.
A check for P5,625.00 to cover payment of the premium tendered to the insurer but was not accepted.
Instead, the South Sea Surety and Insurance Co., Inc. cancelled the insurance policy it issued as of
the date of inception for non-payment of the premium due in accordance with Section 77 of the
Insurance Code.
Valenzuela demanded from South Sea the payment of the proceeds of the policy but the latter denied
liability under the policy. Plaintiff likewise filed a formal claim with defendant Seven Brothers Shipping
Corporation for the value of the lost logs but the latter denied the claim.
Valenzuela filed a complaint a complaint for the recovery of the value of lost logs and
freight charges from Seven Brothers Shipping Corporation or from South Sea Surety and Insurance
Company, the insurer.
The trial court rendered judgment in favor of plaintiff Valenzuela. The Court of Appeals affirmed the
judgment only against the insurance corporation and absolved the shipping entity from liability. The
court held that there was a stipulation in the charter party exempted the ship owner from liability in
case of loss.
In the SC petition, petitioner argues that it should have been freed from any liability to Hardwood. It
faults the appellate court (a) for having disregarded Section 77 of the insurance Code and (b) for
holding Victorio Chua to have been an authorized representative of the insurer.

Issue:
WON Mr. Chua acted as an agent of the surety company or of the insured when he received
the check for insurance premiums.

Held: Agent of the surety. Petition denied.

Ratio:
To determine if there was a valid contract of insurance, it must be determine if the premium was validly
paid to the company or its agents at the time of the loss.
The appellate and trial courts have found that Chua acted as an agent.
South Sea insisted that Chua has been an agent for less than ten years of the Columbia Insurance
Brokers, a different company. Appellant argued that Mr.Chua, having received the premiums, acted
as an agent under Section 301 of the Insurance Code which provides:
Sec. 301. Any person who for any compensation, commission or other thing of value, acts, or aids in
soliciting, negotiating or procuring the making of any insurance contract or in placing risk or taking out
insurance, on behalf of an insured other than himself, shall be an insurance broker within the intent of
this Code, and shall thereby become liable to all the duties requirements, liabilities and penalties to
which an insurance broker is subject.
Valenzuela claimed that the second paragraph of Section 306 of the Insurance Code provided:
Sec. 306 Any insurance company which delivers to an insurance agent or insurance broker a policy
or contract of insurance shall be deemed to haveauthorized such agent or broker to receive on its
behalf payment of any premium which is due on such policy of contract of insurance at the time of its
issuance or delivery or which becomes due thereon.
Mr. Chua testified that the marine cargo insurance policy logs was by South Sea to be given to the
wood company.
When South Sea delivered to Mr. Chua the marine cargo insurance policy for Valenzuela’s logs, he is
deemed to have been authorized by former to receive the premium which is due on its behalf.
When the logs were lost, the insured had already paid the premium to an agent of the South Sea
Surety and Insurance Co., Inc., which is consequently liable to pay the insurance proceeds under the
policy it issued to the insured.
The court followed the factual evidence of the lower courts and held that they didn’t try questions of
fact.
10. Makati Tuscany v CA G.R. No. 95546 November 6,
1992

Facts:

American International Underwriters issued a policy in favor of Makati Tuscany Condominium

Corporation with a total premium of P466,103.05. The company issued a replacement policy. Premium
was again paid. In 1984, the policy was again renewed and private respondent issued to petitioner
another policy. The petitioner paid 152,000 pesos then refused to furnish the balance.
The company filed an action to recover the unpaid balance of P314,103.05.
The condominium administration explained that it discontinued the payment of premiums because the
policy did not contain a credit clause in its favor and that the acceptance of premiums didn’t waive any
of the company rights to deny liability on any claim under the policy arising before such payments or
after the expiration of the credit clause of the policy and prior to premium payment, loss wasn’t covered.
Petitioner sought for a refund. The trial court dismissed the complaint and counterclaim owing to the
argument that payment of the premiums of the policies were made during the lifetime or term of said
policies, so risk attached under the policies.
The Court of Appeals ordered petitioner to pay the balance of the premiums owing to the reason that
it was part of an indivisible obligation.
Petitioner now asserts that its payment by installment of the premiums for the insurance
policies invalidated them because of the provisions of Sec. 77 of theInsurance Code disclaiming
liability for loss for occurring before payment of premiums.

Issue: Whether payment by installment of the premiums due on an insurance policy invalidates the
contract of insurance, in view of Sec. 77 of P.D. 612

Held: Judgment affirmed.

Ratio:
Sec. 77. An insurer is entitled to the payment of the premium as soon as the thing is exposed to the
peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of
insurance issued by an insurance company is valid and binding unless and until the premium thereof
has been paid, except in the case of a life or an industrial life policy whenever the grace period
provision applies.
Petitioner concluded that there cannot be a perfected contract of insurance upon mere partial payment
of the premiums because under Sec. 77 of theInsurance Code, no contract of insurance is valid and
binding unless the premium thereof has been paid, notwithstanding any agreement to the contrary. As
a consequence, petitioner seeks a refund of all premium payments made on the alleged
invalid insurance policies.
We hold that the subject policies are valid even if the premiums were paid on installments. The records
clearly show that petitioner and private respondent intended subject insurance policies to be binding
and effective notwithstanding the staggered payment of the premiums. The initial insurance contract
entered into in 1982 was renewed in 1983, then in 1984. In those three (3) years, the insurer accepted
all the installment payments. Such acceptance of payments speaks loudly of the insurer's intention to
honor the policies it issued to petitioner.
Quoting the CA decision:
“While the import of Section 77 is that prepayment of premiums is strictly required as a condition to
the validity of the contract, we are not prepared to rule that the request to make installment payments
duly approved by the insurer, would prevent the entire contract of insurance from going into effect
despite payment and acceptance of the initial premium or first installment. Section 78 of the Insurance
Code in effect allows waiver by the insurer of the condition of prepayment by making an
acknowledgment in the insurance policy of receipt of premium as conclusive evidence of
payment so far as to make the policy binding despite the fact that premium is actually
unpaid. Section 77 merely precludes the parties from stipulating that the policy is valid even if
premiums are not paid, but does not expressly prohibit an agreement granting credit extension. So is
an understanding to allow insured to pay premiums in installments not so proscribed.
The reliance by petitioner on Arce vs. Capital Surety and Insurance Co. is unavailing because the
facts therein are substantially different from those in the case at bar. In Arce, no payment was made
by the insured at all despite the grace period given. Here, petitioner paid the initial installment and
thereafter made staggered payments resulting in full payment of the 1982 and 1983 insurance policies.
For the 1984 policy, petitioner paid two (2) installments although it refused to pay the balance.
It appearing from the peculiar circumstances that the parties actually intended to make three (3)
insurance contracts valid, effective and binding, petitioner may not be allowed to renege on its
obligation to pay the balance of the premium after the expiration of the whole term. Moreover,
as correctly observed by the appellate court, where the risk is entire and the contract is indivisible,
the insured is not entitled to a refund of the premiums paid if the insurer was exposed to the
risk insured for any period, however brief or momentary.

American Home Assurance Co. V. Chua

11.

(1999)
FACTS:

 April 5, 1990: Antonio Chua renewed the fire insurance for its stock-in-trade of his business,
Moonlight Enterprises with American Home Assurance Companyby issuing a check
of P2,983.50 to its agent James Uy who delivered the Renewal Certificate to
him.
 April 6, 1990: Moonlight Enterprises was completely razed by fire with an est.
loss of P4,000,000 to P5,000,000
 April 10, 1990: An official receipt was issued and subsequently, a policy was issued
covering March 25 1990 to March 25 1991
 Antonio Chua filed an insurance claim with American Home and 4 other
co-insurers (Pioneer Insurance and Surety Corporation, Prudential
Guarantee and Assurance, Inc. and Filipino Merchants Insurance Co)
 American Home refused alleging the no premium was paid
 RTC: favored Antonio Chua for paying by way of check a day before the fire
occurred
 CA: Affirmed
ISSUE:
1. W/N there was a valid payment of premium considering that the check was
cashed after the occurrence of the fire since the renewal certificate issued
containing the acknowledgement receipt
2. W/N Chua violated the policy by his submission of fraudulent documents
and non-disclosure of the other existing insurance contracts or “other
insurance clause"

HELD:petition is partly GRANTED modified by deleting the awards of

P200,000 for loss of profit, P200,000 as moral damages and P100,000 as
exemplary damages, and reducing the award of attorney’s fees from
P50,000 to P10,000

1. YES.

 Section 77 of the Insurance Code

 An insurer is entitled to payment of the premium as soon as the thing insured is exposed to
the peril insured against. Notwithstanding any agreement to the contrary, no policy or
contract of insurance issued by an insurance company is valid and binding unless and until
the premium thereof has been paid, except in the case of life or an industrial life policy
whenever the grace period provision applies
 Section 66 of the Insurance Code - not applicable since not termination but renewal
 renewal certificate issued contained the acknowledgment that premium had been paid
 Section 306 of the Insurance Code provides that any insurance company which delivers a
policy or contract of insurance to an insurance agent or insurance broker shall be deemed to
have authorized such agent or broker to receive on its behalf payment of any premium which
is due on such policy or contract of insurance at the time of its issuance or delivery or which
becomes due thereon
 best evidence of such authority is the fact that petitioner accepted the check and issued the
official receipt for the payment. It is, as well, bound by its agent’s acknowledgment of
receipt of payment
 Section 78 of the Insurance Code
 An acknowledgment in a policy or contract of insurance of the receipt of premium is
conclusive evidence of its payment, so far as to make the policy binding, notwithstanding
any stipulation therein that it shall not be binding until the premium is actually paid.
 This Section establishes a legal fiction of payment and should be interpreted as an exception
to Section 77
2. NO.
 purpose for the “other insurance clause” is to prevent an increase in the moral hazard
 failure to disclose was not intentional and fraudulent
 Section 75
 A policy may declare that a violation of specified provisions thereof shall
avoid it, otherwise the breach of an immaterial provision does not avoid
the policy.
 American Home is estopped because its loss adjusters had previous
knowledge of the co-insurers
 The loss adjuster, being an employee of petitioner, is deemed a representative of the latter
whose awareness of the other insurance contracts binds petitioner
 no legal and factual basis for the award of P200,000 for loss of profit
 no such fraud or bad faith = no moral damages
 grant of attorney’s fees as part of damages is the exception rather than the rule
 award attorney’s fees where it deems just and equitable that it be so granted
 reduced to P10,000

12. Malayan Insurance Co., Inc vs Philippines First Insurance Co., Inc
G.R. No. 184300 July 11, 2012
Facts: Since 1989, Wyeth Philippines, Inc. (Wyeth) and respondent Reputable
Forwarder Services, Inc. (Reputable) had been annually executing a contract of
carriage, whereby the latter undertook to transport and deliver the former’s products to
its customers, dealers or salesmen. On November 18, 1993, Wyeth procured Marine
Policy No. MAR 13797 (Marine Policy) from respondent Philippines First Insurance
Co., Inc. (Philippines First) to secure its interest over its own products. Philippines First
thereby insured Wyeth’s nutritional, pharmaceutical and other products usual or
incidental to the insured’s business while the same were being transported or shipped
in the Philippines. The policy covers all risks of direct physical loss or damage from
any external cause, if by land, and provides a limit of P6,000,000.00 per any one land
vehicle. On December 1, 1993, Wyeth executed its annual contract of carriage with
Reputable. It turned out, however, that the contract was not signed by Wyeth’s
representative/s. Nevertheless, it was admittedly signed by Reputable’s representatives,
the terms thereof faithfully observed by the parties and, as previously stated, the same
contract of carriage had been annually executed by the parties every year since 1989.
Under the contract, Reputable undertook to answer for “all risks with respect to the
goods and shall be liable to the COMPANY (Wyeth), for the loss, destruction, or
damage of the goods/products due to any and all causes whatsoever, including theft,
robbery, flood, storm, earthquakes, lightning, and other force majeure while the
goods/products are in transit and until actual delivery to the customers, salesmen, and
dealers of the COMPANY”. The contract also required Reputable to secure an
insurance policy on Wyeth’s goods. Thus, on February 11, 1994, Reputable signed a
Special Risk Insurance Policy (SR Policy) with petitioner Malayan for the amount of
P1,000,000.00. On October 6, 1994, during the effectivity of the Marine Policy and SR
Policy, Reputable received from Wyeth 1,000 boxes of Promil infant formula worth
P2,357,582.70 to be delivered by Reputable to Mercury Drug Corporation in Libis,
Quezon City. Unfortunately, on the same date, the truck carrying Wyeth’s products was
hijacked by about 10 armed men. They threatened to kill the truck driver and two of his
helpers should they refuse to turn over the truck and its contents to the said highway
robbers. The hijacked truck was recovered two weeks later without its cargo. Malayan
questions its liability based on sections 5 and 12 of the SR Policy.
Issue: Whether or not there is double insurance in this case such that either Section 5
or Section 12 of the SR Policy may be applied.
Held: No. By the express provision of Section 93 of the Insurance Code, double
insurance exists where the same person is insured by several insurers separately in
respect to the same subject and interest. The requisites in order for double insurance to
arise are as follows:
1. The person insured is the same;
2. Two or more insurers insuring separately;
3. There is identity of subject matter;
4. There is identity of interest insured; and
5. There is identity of the risk or peril insured against.

In the present case, while it is true that the Marine Policy and the SR Policy were both
issued over the same subject matter, i.e. goods belonging to Wyeth, and both covered
the same peril insured against, it is, however, beyond cavil that the said policies were
issued to two different persons or entities. It is undisputed that Wyeth is the recognized
insured of Philippines First under its Marine Policy, while Reputable is the recognized
insured of Malayan under the SR Policy. The fact that Reputable procured Malayan’s
SR Policy over the goods of Wyeth pursuant merely to the stipulated requirement under
its contract of carriage with the latter does not make Reputable a mere agent of Wyeth
in obtaining the said SR Policy.

The interest of Wyeth over the property subject matter of both insurance contracts is
also different and distinct from that of Reputable’s. The policy issued by Philippines
First was in consideration of the legal and/or equitable interest of Wyeth over its own
goods. On the other hand, what was issued by Malayan to Reputable was over the
latter’s insurable interest over the safety of the goods, which may become the basis of
the latter’s liability in case of loss or damage to the property and falls within the
contemplation of Section 15 of the Insurance Code.
Therefore, even though the two concerned insurance policies were issued over the same
goods and cover the same risk, there arises no double insurance since they were issued
to two different persons/entities having distinct insurable interests. Necessarily, over
insurance by double insurance cannot likewise exist. Hence, as correctly ruled by the
RTC and CA, neither Section 5 nor Section 12 of the SR Policy can be applied.

13. pacific timber vs ca (1982)

FACTS:

 March 19, l963: Pacific Timber secured temporary insurance from Workmen's
Insurance Company, Inc. for its exportation of 1,250,000 board feet of
 Philippine Lauan and Apitong logs to be shipped from the Diapitan
Bay, Quezon Province to Tokyo, Japan.
 Workmen's issued Cover Note insuring the cargo "Subject to the Terms and
Conditions of the Workmen's Insurance Company, Inc."
 April 2, 1963: regular marine cargo policies were issued for a total
of 1,195.498 bd. ft. Due to the bad weather some of the logs were lost
during loading operations. 45 pieces of logs were salvaged, but 30 pieces
were lost. Pacific informed Workmen's who refused stating that the logs
covered in the 2 marine policies were received in good order at the point
of destination and that the cover note was null and void upon the
issuance of the Marine Policies
 CFI: cover note is valid
 CA: reversed
ISSUE: W/N the cover note is valid despite the absence of premium payment upon it

HELD: YES. CA set aside. CFI reinstated

 it was not necessary to ask for payment of the premium on the Cover Note , for the loss
insured against having already occurred, the more practical procedure is
simply to deduct the premium from the amount due on the Cover Note
 Had all the logs been lost during the loading operations, but after the issuance of the Cover
Note, liability on the note would have already arisen even before payment of premium
 cover note as a "binder"
 supported by the doctrine that where a policy is delivered without requiring payment of the
premium, the presumption is that a credit was intended and policy is valid
 it sent its adjuster to investigate and assess the loss to determine if petitioner was guilty of
delay in communicating the loss but there was none
 Section 84
 Delay in the presentation to an insurer of notice or proof of loss is waived if caused by any
act of his or if he omits to take objection promptly and specifically upon that ground
14.
15. NgGan Zee vs Asian Crusader
Life Assurance Corporation
In May 1962, Kwong Nam applied for a 20-year endowment policy with Asian Crusader Life
Assurance Corporation. Asian Crusader asked the following question:
Has any life insurance company ever refused your application for insurance or for
reinstatement of a lapsed policy or offered you a policy different from that applied for? If, so,
name company and date.
Kwong Nam answered “No” to the above question.
Kwong Nam was also examined by Asian Crusader’s medical examiner to whom he disclosed
that he was once operated and a tumor was removed from his stomach and such was
“associated with ulcer of the stomach.”
Kwong Nam’s application was approved. In May 1963, he died. His widow, Ng Gan Zee, filed
an insurance claim but Asian Crusader refused her claim as it insisted that Kwong Nam
concealed material facts from them when he was applying for the insurance; that he
misrepresented the fact that he was actually denied application by Insular Life when he was
renewing his application with them; that Kwong Nam was actually operated for peptic ulcer.
ISSUE: Whether or not Ng Gan Zee can collect the insurance claim.
HELD: Yes. Asian Crusader was not able to prove that Kwong Nam’s statement that Insular
Life did not deny his insurance renewal with them is untrue. In fact, evidence showed that in
April 1962, Insular Life approved Kwong Nam’s request of reinstatement only with the
condition that Kwong Nam’s plan will be lowered from P50,000.00 to P20,000.00 considering
his medical history.
Kwong Nam did not conceal anything from Asian Crusader. His statement that his operation,
in which a tumor the size of a hen’s egg was removed from his stomach, was only “associated
with ulcer of the stomach” and not peptic ulcer can be considered as an expression made in
good faith of his belief as to the nature of his ailment and operation. Indeed, such statement
must be presumed to have been made by him without knowledge of its incorrectness and
without any deliberate intent on his part to mislead Asian Crusader.
While it may be conceded that, from the viewpoint of a medical expert, the information
communicated was imperfect, the same was nevertheless sufficient to have induced Asian
Crusader to make further inquiries about the ailment and operation of Kwong Nam. It has
been held that where, upon the face of the application, a question appears to be not answered
at all or to be imperfectly answered, and the insurers issue a policy without any further inquiry,
they waive the imperfection of the answer and render the omission to answer more fully
immaterial.

Vda. De Canilang v. CA -
16.
Concealment
223 SCRA 443 (1993)

Facts:
> Canilang consulted Dr. Claudio and was diagnosed as suffering from "sinus tachycardia." Mr.
Canilang consulted the same doctor again on 3 August 1982 and this time was found to have "acute
bronchitis."

> On the next day, 4 August 1982, Canilang applied for a "non-medical" insurance policy with
Grepalife naming his wife, as his beneficiary. Canilang was issued ordinary life insurance with the
face value of P19,700.

> On 5 August 1983, Canilang died of "congestive heart failure," "anemia," and "chronic
anemia." The wife as beneficiary, filed a claim with Grepalife which the insurer denied on the ground
that the insured had concealed material information from it.

> Vda Canilang filed a complaint with the Insurance Commissioner against Grepalife contending
that as far as she knows her husband was not suffering from any disorder and that he died of kidney
disorder.

> Grepalife was ordered to pay the widow by the Insurance Commissioner holding that there was no
intentional concealment on the Part of Canilang and that Grepalife had waived its right to inquire into
the health condition of the applicant by the issuance of the policy despite the lack of answers to
"some of the pertinent questions" in the insurance application. CA reversed.

Issue:
Whether or not Grepalife is liable.

Held:
SC took note of the fact that Canilang failed to disclose that hat he had twice consulted Dr. Wilfredo
B. Claudio who had found him to be suffering from "sinus tachycardia" and "acute bronchitis. Under
the relevant provisions of the Insurance Code, the information concealed must be information which
the concealing party knew and "ought to [have] communicate[d]," that is to say, information which
was "material to the contract.

The information which Canilang failed to disclose was material to the ability of Grepalife to estimate
the probable risk he presented as a subject of life insurance. Had Canilang disclosed his visits to his
doctor, the diagnosis made and the medicines prescribed by such doctor, in the insurance
application, it may be reasonably assumed that Grepalife would have made further inquiries and
would have probably refused to issue a non-medical insurance policy or, at the very least, required a
higher premium for the same coverage.

The materiality of the information withheld by Canilang from Grepalife did not depend upon the state
of mind of Jaime Canilang. A man's state of mind or subjective belief is not capable of proof in our
judicial process, except through proof of external acts or failure to act from which inferences as to his
subjective belief may be reasonably drawn. Neither does materiality depend upon the actual or
physical events which ensue. Materiality relates rather to the "probable and reasonable influence of
the facts" upon the party to whom the communication should have been made, in assessing the risk
involved in making or omitting to make further inquiries and in accepting the application for
insurance; that "probable and reasonable influence of the facts" concealed must, of course, be
determined objectively, by the judge ultimately.

SC found it difficult to take seriously the argument that Grepalife had waived inquiry into the
concealment by issuing the insurance policy notwithstanding Canilang's failure to set out answers to
some of the questions in the insurance application. Such failure precisely constituted concealment
on the part of Canilang. Petitioner's argument, if accepted, would obviously erase Section 27 from
the Insurance Code of 1978.
17. Tanv. CA - Rescission of the
contract of insurance
174 SCRA 403
Facts:
> Tan Lee Siong was issued a policy by Philamlife on Nov. 6, 1973.

> On Aprl 26, 1975, Tan died of hepatoma. His beneficiaries then filed a claim with Philamlife for
the proceeds of the insurance.

> Philamlife wrote the beneficiaries in Sep. 1975 denying their claim and rescinding the contract on
the ground of misrepresentation. The beneficiaries contend that Philamlife can no longer rescind the
contract on the ground of misrepresentation as rescission must allegedly be done “during the lifetime
of the insured” within two years and prior to the commencement of the action following the wording
of Sec. 48, par. 2.

Issue:
Whether or not Philamlife can rescind the contract.

Held:
YES.

The phrase “during the lifetime” found in Sec. 48 simply means that the policy is no longer in force
after the insured has died. The key phrase in the second paragraph is “for a period of two years”.

What is a simpler illustration of the ruling in Tan v. CA?

The period to consider in a life insurance poiicy is “two years” from the date of issue or of the last
reinstatement. So if for example the policy was issued/reinstated on Jan 1, 2000, the insurer can
still exercise his right to rescind up to Jan. 1, 2003 or two years from the date of issue/reinstatement,
REGARDLESS of whether the insured died before or after Jan. 1, 2003.
18.
 19. LOADMASTERS CUSTOMS SERVICES, INC., vs. GLODEL BROKERAGE
CORPORATION and R&B INSURANCE CORPORATION, / G.R. No. 179446 / January 10,
2011

FACTS:

The case is a petition for review on certiorari under Rule 45 of the Revised Rules of
Court assailing the August 24, 2007 Decision of the Court of Appeals (CA) in CA-G.R. CV No.
82822.
On August 28, 2001, R&B Insurance issued Marine Policy No. MN-00105/2001 in favor
of Columbiato insure the shipment of 132 bundles of electric copper cathodes against All Risks.
On August 28, 2001, the cargoes were shipped on board the vessel "Richard Rey" from Isabela,
Leyte, to Pier 10, North Harbor,Manila. They arrived on the same date.
Columbia engaged the services of Glodel for the release and withdrawal of the cargoes
from the pier and the subsequent delivery to its warehouses/plants. Glodel, in turn, engaged the
services of Loadmasters for the use of its delivery trucks to transport the cargoes to Columbia’s
warehouses/plants in Bulacan and Valenzuela City.
The goods were loaded on board twelve (12) trucks owned by Loadmasters, driven by
its employed drivers and accompanied by its employed truck helpers. Of the six (6) trucks route
to Balagtas, Bulacan, only five (5) reached the destination. One (1) truck, loaded with 11
bundles or 232 pieces of copper cathodes, failed to deliver its cargo.
Later on, the said truck, was recovered but without the copper cathodes. Because of this
incident,Columbia filed with R&B Insurance a claim for insurance indemnity in the amount
ofP1,903,335.39. After the investigation, R&B Insurance paid Columbia the amount
ofP1,896,789.62 as insurance indemnity.
R&B Insurance, thereafter, filed a complaint for damages against both Loadmasters and
Glodel before the Regional Trial Court, Branch 14, Manila (RTC), It sought reimbursement of
the amount it had paid to Columbia for the loss of the subject cargo. It claimed that it had been
subrogated "to the right of the consignee to recover from the party/parties who may be held
legally liable for the loss."
On November 19, 2003, the RTC rendered a decision holding Glodel liable for damages
for the loss of the subject cargo and dismissing Loadmasters’ counterclaim for damages and
attorney’s fees against R&B Insurance.
 Both R&B Insurance and Glodel appealed the RTC decision to the CA.
On August 24, 2007, the CA rendered that the appellee is an agent of appellant Glodel,
whatever liability the latter owes to appellant R&B Insurance Corporation as insurance
indemnity must likewise be the amount it shall be paid by appellee Loadmasters. Hence,
Loadmasters filed the present petition for review on certiorari.

ISSUE:
Whether or not Loadmasters and Glodel are common carriers to determine their liability for the
loss of the subject cargo.
RULING:

The petition is PARTIALLY GRANTED. Judgment is rendered declaring petitioner Loadmasters

Customs Services, Inc. and respondent Glodel Brokerage Corporation jointly and severally
liable to respondent
Under Article 1732 of the Civil Code, common carriers are persons, corporations, firms, or
associations engaged in the business of carrying or transporting passenger or goods, or both by
land, water or air for compensation, offering their services to the public. Loadmasters is a
common carrier because it is engaged in the business of transporting goods by land, through its
trucking service. It is a common carrier as distinguished from a private carrier wherein the
carriage is generally undertaken by special agreement and it does not hold itself out to carry
goods for the general public. Glodel is also considered a common carrier within the context of
Article 1732. For as stated and well provided in the case of Schmitz Transport & Brokerage
Corporation v. Transport Venture, Inc., a customs broker is also regarded as a common carrier,
the transportation of goods being an integral part of its business.
Loadmasters and Glodel, being both common carriers, are mandated from the nature of their
business and for reasons of public policy, to observe the extraordinary diligence in the vigilance
over the goods transported by them according to all the circumstances of such case, as
required by Article 1733 of the Civil Code. When the Court speaks of extraordinary diligence, it
is that extreme measure of care and caution which persons of unusual prudence and
circumspection observe for securing and preserving their own property or rights. With respect to
the time frame of this extraordinary responsibility, the Civil Code provides that the exercise of
extraordinary diligence lasts from the time the goods are unconditionally placed in the
possession of, and received by, the carrier for transportation until the same are delivered,
actually or constructively, by the carrier to the consignee, or to the person who has a right to
receive them.
The Court is of the view that both Loadmasters and Glodel are jointly and severally liable to R &
B Insurance for the loss of the subject cargo. Loadmasters’ claim that it was never privy to the
contract entered into by Glodel with the consignee Columbia or R&B Insurance as subrogee, is
not a valid defense.
For under ART. 2180. The obligation imposed by Article 2176 is demandable not only for one’s
own acts or omissions, but also for those of persons for whom one is responsible.
xxxx
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.
It is not disputed that the subject cargo was lost while in the custody of Loadmasters whose
employees (truck driver and helper) were instrumental in the hijacking or robbery of the
shipment. As employer, Loadmasters should be made answerable for the damages caused by
its employees who acted within the scope of their assigned task of delivering the goods safely to
the warehouse.
Glodel is also liable because of its failure to exercise extraordinary diligence. It failed to ensure
that Loadmasters would fully comply with the undertaking to safely transport the subject cargo
to the designated destination. Glodel should, therefore, be held liable with Loadmasters. Its
defense of force majeure is unavailing.
For the consequence, Glodel has no one to blame but itself. The Court cannot come to its aid
on equitable grounds. "Equity, which has been aptly described as ‘a justice outside legality,’ is
applied only in the absence of, and never against, statutory law or judicial rules of
procedure." The Court cannot be a lawyer and take the cudgels for a party who has been at
fault or negligent.

20. Insurance Case Digest: Aboitiz Shipping

Corp. V. Insurance Co. Of North America
(2008)
FACTS:
 June 20, 1993: MSAS Cargo International Limited and/or Associated and/or
Subsidiary Companies (MSAS) procured an "all-risk" marine insurance policy from
ICNA UK Limited of London for wooden work tools and workbenches purchased by
consignee Science Teaching Improvement Project (STIP), Ecotech Center, Sudlon
Lahug, Cebu City.
 July 26, 1993: the cargo was received by Aboitiz Shipping Corporation (Aboitiz)
through its duly authorized booking representative, Aboitiz Transport System
 August 1, 1993: container van was loaded on board MV Super Concarrier I
 The vessel left Manila en route to Cebu City
 August 3, 1993: shipment arrived in Cebu City
 August 5, 1993: Stripping Report, checker noted that the crates were slightly
broken or cracked at the bottom
 August 11, 1993: cargo was withdrawn by the representative of the consignee,
Science Teaching Improvement Project (STIP) and delivered to Don Bosco Technical
High School, Punta Princesa, Cebu City
 August 13, 1993: Mayo B. Perez, Head of Aboiti received a call from the receiver Mr.
Bernhard Willig that the cargo sustained water damage so he checked the other
cargo but they were dry
 In a letter dated August 15, 1993, Willig informed Aboitiz that the damage was
caused by water entering through the broken bottom parts of the crate
 Consignee filed a claim against ICNA
 CAC reported to ICNA that the shipment was placed outside the warehouse when it
was delivered on July 26, 1993 and it was only on July 31, 1993 when the shipment
was stuffed inside another container van for shipment to Cebu. Weather report
shows that the heavy rains on July 28 and 29, 1993 caused the damages.
 Aboitiz refused to settle the claim
 ICNA paid the amount of P280,176.92 to consignee and a subrogation receipt was
duly signed by Willig.
 ICNA then advised Aboitiz of the receipt signed in its favor but received no
reply so it filed for collection at the RTC.
 RTC: against ICNA - subrogation Form is self-serving and has no probative value
since Wellig was not presented to the witness stand
 CA: reversed RTC ruling - right of subrogation accrues simply upon payment by the
insurance company of the insurance claim even assuming that it is an unlicensed
foreign corporation
ISSUE: W/N ICNA can claim under the right of subrogation

HELD: YES. CA affirmed.

 Only when that foreign corporation is "transacting" or "doing business" in the
country will a license be necessary before it can institute suits. It may, however,
bring suits on isolated business transactions, which is not prohibited under
Philippine law
 The policy benefits any subsequent assignee, or holder, including the consignee,
who may file claims on behalf of the assured.