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Thursday, July 12, 2012

Cebu Shipyard v William G.R. No. 132607. May 5, 1999

J. Purisima

Facts:
Cebu Shipyard and Engineering Works, Inc. repaired marine vessels while the Prudential is in the non-life insurance
business. William Lines, Inc., the owner of M/V Manila City, a luxury passenger-cargo vessel, which caught fire and sank. At
the time of the incident, subject vessel was insured with Prudential for P45M for hull and machinery. CSEW was insured for
only Php 10 million for the shiprepairer’s liability policy. They entered into a contract where negligence was the only factor
that could make CSEW liable for damages. Moreover, liability of CSEW was limited to only Php 1million for damages. The
Hull Policy included an “Additional Perils (INCHMAREE)” Clause covering loss of or damage to the vessel through the
negligence of, among others, ship repairmen.
William brought Manila City to the dry dock of CSEW for repairs. The officers and cabin crew stayed at the ship while it was
being repaired. After the vessel was transferred to the docking quay, it caught fire and sank, resulting to its total loss.
William brought suit against CSEW alleging that it was through the latter’s negligence that the ship caught fire and sank.
Prudential was impleaded as co-plaintiff after it had paid the value of insured items. It was subrogated to 45 million, or the
value it claimed to indemnify.
The trial court brought judgment against CSEW 45 million for the ship indemnity, 65 million for loss of income, and more than
13 million in other damages. The CA affirmed the TC decision.
CSEW contended that the cause of the fire was due to William’s hotworks on the said portion of the ship which they didn’t
ask CSEW permission for.
Prudential, on the other hand, blamed the negligence of the CSEW workers in the instance when they didn’t mind rubber
insulation wire coming out of the air-conditioning unit that was already burning.
Hence this MFR.

Issue:
1. WON CSEW had “management and supervisory control“ of the ship at the time the fire broke out
2. WON the doctrine of res ipsa loquitur applies against the crew
3. WON Prudential has the right of subrogation against its own insured
4. WON the provisions limiting CSEW’s liability for negligence to a maximum of Php 1 million are valid

Held: Yes. Yes. Yes. No. Petition denied.

Ratio:
1. The that factual findings by the CA are conclusive on the parties and are not reviewable by this Court. They are entitled to
great weight and respect when the CA affirmed the factual findings arrived at by the trial court.
The CA and the Cebu RTC are agreed that the fire which caused the total loss of subject M/V Manila City was due to the
negligence of the employees and workers of CSEW.
Furthermore, in petitions for review on certiorari, only questions of law may be put into issue. Questions of fact cannot be
entertained.
2. For the doctrine of res ipsa loquitur to apply to a given situation, the following conditions must concur: (1) the accident was
of a kind which does not ordinarily occur unless someone is negligent; and (2) that the instrumentality or agency which
caused the injury was under the exclusive control of the person charged with negligence.
The facts and evidence reveal the presence of these conditions. First, the fire would not have happened in the ordinary
course of things if reasonable care and diligence had been exercised.
Second, the agency charged with negligence, as found by the trial court and the CA and as shown by the records, is CSEW,
which had control over subject vessel when it was docked for annual repairs.
What is more, in the present case the trial court found direct evidence to prove that the workers didn’t exercise due diligence
in the care of subject vessel. The direct evidence substantiates the conclusion that CSEW was really negligent even without
applying such doctrine.
3. Petitioner contends that Prudential is not entitled to be subrogated to the rights of William Lines, Inc., theorizing that (1) the
fire which gutted M/V Manila City was an excluded risk and (2) it is a co-assured under the Marine Hull Insurance Policy. This
was wrong. The one who caused the fire has already been adjudicated by the courts as CSEW.
Upon proof of payment by Prudential to William Lines, Inc., the former was subrogated to the right of the latter to
indemnification from CSEW. As aptly ruled by the Court of Appeals, the law says:
Art. 2207. If the plaintiff’s property has been insured, and he has received indemnity from the insurance company for the
injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the
rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance
company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person
causing the loss or injury.
When Prudential paid the latter the total amount covered by its insurance policy, it was subrogated to the right of the latter to
recover the insured loss from the liable party, CSEW.
Petitioner theorizes further that there can be no right of subrogation as it is deemed a co-assured under the subject insurance
policy with reliance on Clause 20 of the Work Order which states:
20. The insurance on the vessel should be maintained by the customer and/or owner of the vessel during the period the
contract is in effect.
Clause 20 of the Work Order in question is clear in the sense that it requires William Lines to maintain insurance on the
vessel during the period of dry-docking or repair. However, the fact that CSEW benefits from the said stipulation does not
automatically make it as a co-assured of William Lines. The intention of the parties to make each other a co-assured under
an insurance policy is to be read from the insurance contract or policy itself and not from any other contract or agreement
because the insurance policy denominates the beneficiaries of the insurance. The hull and machinery insurance procured by
William Lines, Inc. from Prudential named only “William Lines, Inc.” as the assured. There was no manifestation of any
intention of William Lines, Inc. to constitute CSEW as a co-assured under subject policy. The claim of CSEW that it is a co-
assured is unfounded.
Then too, in the Additional Perils Clause of the same Marine Insurance Policy, it is provided that this insurance also covers
loss of or damage to vessel directly caused by the negligence of charterers and repairers who are not assured.
As correctly pointed out by respondent Prudential, if CSEW were deemed a co-assured under the policy, it would nullify any
claim of William Lines, Inc. from Prudential for any loss or damage caused by the negligence of CSEW. Certainly, no
shipowner would agree to make a shiprepairer a co-assured under such insurance policy; otherwise, any claim for loss or
damage under the policy would be invalidated.
4. Although in this jurisdiction, contracts of adhesion have been consistently upheld as valid per se; as binding as an ordinary
contract, the Court recognizes instances when reliance on such contracts cannot be favored especially where the facts and
circumstances warrant that subject stipulations be disregarded. Thus, in ruling on the validity and applicability of the
stipulation limiting the liability of CSEW for negligence to P1M only, the facts and circumstances vis-a-vis the nature of the
provision sought to be enforced should be considered, bearing in mind the principles of equity and fair play.
It is worthy to note that M/V Manila City was insured with Prudential for P45M. Upon thorough investigation by its hull
surveyor, M/V Manila City was found to be beyond economical salvage and repair. The evaluation of the average adjuster
also reported a constructive total loss. The said claim of William Lines, Inc., was then found to be valid and compensable
such that Prudential paid the latter the total value of its insurance claim. Furthermore, it was ascertained that the replacement
cost of the vessel, amounts to P55M.
Considering the circumstances, it would unfair to limit the liability of petitioner to One Million Pesos only. To allow CSEW to
limit its liability to P1M notwithstanding the fact that the total loss suffered by the assured and paid for by Prudential
amounted to P45M would sanction the exercise of a degree of diligence short of what is ordinarily required because, then, it
would not be difficult for petitioner to escape liability by the simple expedient of paying an amount very much lower than the The Digester (www.th…
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actual damage suffered by William.

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