1.MISAMIS LUMBER VS CAPITAL INSURANCE ISSUE(s): W/N the lower court erred in declaring defendant Capital’s liability.

G.R. No. L-21380 ; May 20, 1966

By: Nunez HELD/RATIO: YES
Topic: Construction of Insurance Contracts
Petitioners: MISAMIS LUMBER CORPORATION The lower court’s reasoning is beside the point, because the insurance policy stipulated in
Respondents: CAPITAL INSURANCE and SURETY CO., INC. paragraph 4 that if the insured authorizes the repair the liability of the insurer, per its sub-
Ponente: REYES, J.B.L., J. paragraph (a), is limited to P150.00. The literal meaning of this stipulation must control, it being
the actual contract, expressly and plainly provided for in the policy.
DOCTRINE: The insurance contract may be rather onerous, but that in itself does not justify the
abrogation of its express terms, terms which the insured accepted or adhered to and which is
the law between the contracting parties.

The lower court's recourse to legal hermeneutics is not called for because paragraph 4 of the
FACTS:
policy is clear and specific and leaves no room for interpretation. The interpretation given is even
unjustified because it opposes what was specifically stipulated. Thus, it will be observed that the
l Plaintiff Misamis Lumber Corporation (Misamis) insured its Ford Falcon car for the policy drew out not only the limits of the insurer's liability but also the mechanics that the insured
amount of P14,000 with the defendant Capital Insurance & Surety Company, Inc. had to follow to be entitled to full indemnity of repairs. The option to undertake the repairs is
(Capital). The pertinent policy provisions are as follows: accorded to the insurance company per paragraph 2. The said company was deprived of the
option because the insured took it upon itself to have the repairs made, and only notified the
- 1. The Company will subject to the Limits of Liability indemnify the Insured against insurer when the repairs were done. As a consequence, paragraph 4, which limits the
loss or damage to the Motor Vehicle and its accessories and spare parts whilst thereon. company's liability to P150.00, applies.

- 2. (a) by accidental collision or overturning or collision or overturning consequent The insurance contract may be rather onerous ("one-sided", as the lower court put it), but that in
when mechanical breakdown or consequent upon wear and tear. itself does not justify the abrogation of its express terms, terms which the insured accepted or
adhered to and which is the law between the contracting parties.To require the insurer to prove
that the cost of the repairs ordered by the insured is unreasonable, as the appealed decision
- 3. At its option, the Company may pay in cash the amount of the loss or damage or
does, when the insurer was not given an opportunity to inspect and assess the damage before
may repair, reinstate or replace the Motor Vehicle or any part thereof or its accessories or
the repairs were made, strikes Us as contrary to elementary justice and equity.
spare parts. The liability of the Company shall not exceed the value of the parts lost or
damaged and the reasonable cost of fitting such parts or the value of the Motor Vehicle at
the time of the loss or damage whichever is the loss. The Insured's estimate of value DISPOSITIVE PORTION: For the foregoing reasons, the appealed decision is hereby modified
stated in the schedule shall be the maximum amount payable by the Company in respect by ordering the defendant-appellant Capital Insurance & Surety Company, Inc. to pay not more
of any claim for loss or damage. than P150.00 to the plaintiff-appellee Misamis Lumber Corporation. Each party shall bear its own
costs and attorney's fees
- 4. The Insured may authorize the repair of the Motor Vehicle necessitated by damage
for which the Company may be liable under this policy provided that:
2. NEW LIFE ENTERPRISES V. CA, EQUITABLE INSURANCE
GR NO. 94071 / MAR 31 1992
(a) the estimated cost of such repair does not exceed the authorized Repair
By: Claire
Limit. (b) a detailed estimate of the cost is forwarded to the Company without
delay. Topic: CONSTRUCTION OF INSURANCE CONTRACTS
Petitioners: NEW LIFE ENTERPRISES & JULIAN SY
Respondents: CA, EQUITABLE INSURANCE CORPORATION, RELIANCE SURETY AND
- and providing also that the authorized repair limit is P150.00
INSURANCE CO., INC. & WESTERN GUARANTY CORPORATION
Ponente: REGALADO
l November 25, 1961, the car passed over a water hole, causing the crankcase and
flywheel housing of the car to break as the car hit a hollow block lying alongside said
FACTS:
water hole. The driver couldn’t see because of an oncoming car which did not dim its
- Julian Sy and Jose Sy Bang have formed a business partnership in Lucena City
light.
under the name of New Life Enterprises. It is engaged in the sale of construction materials
at its business place w/c is a 2 storey bldg
l The car was towed and repaired at the instance of Misamis. Misamis made a report of - Julian Sy insured the stocks in trade of New Life w/ Western Guaranty, Reliance
the accident to Capital, but the latter refused to pay for the total cost of the wage and Surety, and Equitable Insurance
repairs. Thus, a case was instituted by Misamis. Capital admits liability in the amount - On May 15 1981, Western Guaranty issued Fire Insurance in the amt of P350k w/c
of P150, but not for any excess thereof. The lower court said that Capital was liable was renewed on May 13 1982.
to pay since the latter was not able to show that the costs were unreasonable and - On July 30 1981, Reliance Surety issued Fire Insurance in the amt of P300k
that their refusal would render the policy one-sided. (renewed under renewal cert no. 41997). An additional insurance was issued by the same
company on Nov 2 1981 in the amt of P700k
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 - On Feb 8 1982, Equitable Insurance issued fire insurance in the amt of P200k § While it is a cardinal principle of insurance law that a policy or contract of insurance is to
- When the building of New Life was gutted by fire at 2am Oct 19 1982, the stocks in be construed liberally in favor of the insured and strictly against the insurer company, yet
trade of said bldg. were insured against fire in the total amt of P1.550M. the cause of the contracts of insurance, like other contracts, are to be construed according to the sense and
fire was electrical in nature. meaning of the terms which the parties themselves have used. If such terms are clear and
- The 3 companies (Sy claimed they are sister companies) denied Sy’s claim for unambiguous, they must be taken and understood in their plain, ordinary and popular
payment. The Claims Manager told him to go first to Reliance Insurance and if said sense.
company pays, they would also pay. The same treatment was given by the other insurance § The conformity of the insured to the terms of the policy is implied from his failure to
companies. express any disagreement with what is provided for. It may be true that the majority rule, as
- Western Guaranty & Reliance Insurance denied his claim for breach of policy cited by petitioners, is that insured persons may accept policies without reading them, and
conditions. Equitable Insurance said “we find that certain policy conditions were violated, that this is not negligence per se. But, this is not without any exception. It is and was
therefore, we regret, we have to deny your claim, as it is hereby denied in its entirety.” incumbent upon petitioner Sy to read the insurance contracts, and this can be reasonably
Reliance Insurance said that this was violated - Policy Condition No. 3 w/c requires the expected of him considering that he has been a businessman since 1965 and the contract
insured to give notice of any insurance or insurances already effected covering the stocks concerns indemnity in case of loss in his money-making trade of which important
in trade. consideration he could not have been unaware as it was precisely the reason for his
- RTC: in favor of Julian Sy/New Life procuring the same.
- CA: reversed RTC § Also, Newlife/Sy filed a complaint for recover after more than 1 yr had elapsed from his
receipt of the insurers’ letters of denial. Policy condition no. 27 provides that it should be
ISSUE: WON conditions nos 3 and 27 were violated resulting in forfeiture of all the benefits within 12 mos after due notice of the award made by the arbitrators, then the claim shall for
thereunder - NO all purposes be deemed to have been abandoned and shall not thereafter be recoverable.

HELD: WHEREFORE, finding no cogent reason to disturb the judgment of respondent Court of
§ The policy issued by respondent Western Guaranty Corporation (Western) did not Appeals, the same is hereby AFFIRMED. SO ORDERED.
declare respondent Reliance Surety and Insurance Co., Inc. (Reliance) and respondent
Equitable Insurance Corporation (Equitable) as co-insurers on the same stocks, while NOTES: Provisions of policy condition
Reliance's policies covering the same stocks did not likewise declare Western and "3. The insured shall give notice to the Company of any insurance or insurances already
Equitable as such co-insurers. It is further admitted by petitioners that Equitable's policy effected, or which may subsequently be effected, covering any of the property or properties
stated "nil" in the space thereon requiring indication of any co-insurance although there consisting of stocks in trade, goods in process and/or inventories only hereby insured, and
were three (3) policies subsisting on the same stocks in trade at the time of the loss, unless such notice be given and the particulars of such insurance or insurances be stated
namely, that of Western in the amount of P350,000.00 and two (2) policies of Reliance in therein or endorsed on this policy pursuant to Section 50 of the Insurance Code, by or on behalf
the total amount of P1,000,000.00. of the Company before the occurrence of any loss or damage, all benefits under this policy shall
§ In other words, the coverage by other insurance or co-insurance effected or be deemed forfeited, provided however, that this condition shall not apply when the total
subsequently arranged by Newlife/Sy were neither stated nor endorsed in the policies of insurance or insurances in force at the time of loss or damage is not more than P200,000.00."
the three (3) private respondents, warranting forfeiture of all benefits thereunder if we are to
follow the express stipulation in the aforequoted Policy Condition No. 3. "15. . . . if any false declaration be made or used in support thereof, . . . all benefits under this
§ Newlife/Sy contend that they are not to be blamed for the omissions, alleging that Policy shall be forfeited . . ."
insurance agent Leon Alvarez (for Western) and Yap Kam Chuan (for Reliance and
Equitable) knew about the existence of the additional insurance coverage and that they
were not informed about the requirement that such other or additional insurance should be "27. Action or suit clause. — If a claim be made and rejected and an action or suit be not
stated in the policy, as they have not even read said policies. 8 These contentions cannot commenced either in the Insurance Commission or any court of competent jurisdiction of notice
pass judicial muster. of such rejection, or in case of arbitration taking place as provided herein, within twelve (12)
§ The terms of the contract are clear and unambiguous. The insured is specifically months after due notice of the award made by the arbitrator or abitrators or umpire, then the
required to disclose to the insurer any other insurance and its particulars which he claim shall for all purposes be deemed to have been abandoned and shall not thereafter be
may have effected on the same subject matter. The knowledge of such insurance by recoverable hereunder."
the insurer's agents, even assuming the acquisition thereof by the former, is not the
"notice" that would stop the insurers from denying the claim. Besides, the so-called
theory of imputed knowledge, that is, knowledge of the agent is knowledge of the
principal, aside from being of dubious applicability here has likewise been roundly 3. Ty v. Filipinas Compañia De Seguros et al.
refuted by respondent court whose factual findings we find acceptable. G.R. No. L-21821-22 and L-21824-27
§ Furthermore, when the words and language of documents are clear and plain or readily May 31, 1966
understandable by an ordinary reader thereof, there is absolutely no room for interpretation By: Jon
or construction anymore. Courts are not allowed to make contracts for the parties; rather, Topic: Construction of Insurance Contracts
they will intervene only when the terms of the policy are ambiguous, equivocal, or Petitioners: DIOSDADO C. TY
uncertain. The parties must abide by the terms of the contract because such terms Respondents: FILIPINAS COMPAÑIA DE SEGUROS, et al.
constitute the measure of the insurer's liability and compliance therewith is a condition Ponente: BARRERA, J.
precedent to the insured's right of recovery from the insurer.

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DOCTRINE: As the terms of the policies are clear, express and specific that only amputation of We might add that the agreement contained in the insurance policies is the law between the
the left hand should be considered as a loss thereof, an interpretation that would include the parties. As the terms of the policies are clear, express and specific that only amputation of the
mere fracture or other temporary disability not covered by the policies would certainly be left hand should be considered as a loss thereof, an interpretation that would include the mere
unwarranted. fracture or other temporary disability not covered by the policies would certainly be unwarranted.

Facts: The provision is clear enough to inform the party entering into that contract that the loss to be
Plaintiff-appellant was an employee of Broadway Cotton Factory at Grace Park, Caloocan City, considered a disability entitled to indemnity, must be severance or amputation of that affected
working as mechanic operator, with monthly salary of P185.00. In the latter part of 1953, he took member from the body of the insured.
Personal Accident Policies from several insurance companies, among which are herein
defendants-appellees, on different dates, effective for 12 months. During the effectivity of these Dispositive Portion:
policies, or on December 24, 1953, a fire broke out in the factory where plaintiff was working. As Wherefore, finding no error in the decision appealed from, the same is hereby affirmed, without
he was trying to put out said fire with the help of a fire extinguisher, a heavy object fell upon his costs. So ordered.
left hand. Plaintiff received treatment at the National Orthopedic Hospital from December 26,
1953 to February 8, 1954, for the following injuries, to wit:
(1) Fracture, simple, oraximal phalanx, index finger, left; 4. GAISANO v INSURANCE CO. OF NORTH AMERICA
(2) Fracture, compound, communite proximal phalanx, middle finger, left and 2nd G.R. No. 147839 June 8, 2006
phalanx simple; By: CarLord
(3) Fracture, compound, communite phalanx, 4th finger, left; Topic: CONSTRUCTION OF INSURANCE CONTRACTS
(4) Fracture, simple, middle phalanx, middle finger, left; Petitioners: GAISANO CAGAYAN, INC.
(5) Lacerated wound, sutured, volar aspect, small finger, left; Respondents: INSURANCE COMPANY OF NORTH AMERICA,
(6) Fracture, simple, chip, head, 1st phalanx 5th digit, left. Ponente: J. AUSTRIA-MARTINEZ
which injuries, the attending surgeon certified, would cause temporary total disability of
DOCTRINE: When the words of a contract are plain and readily understood, there is no room
appellant's left hand.
for construction.
As the insurance companies refused to pay his claim for compensation under the policies by
reason of the said disability of his left hand, Ty filed motions in the Municipal Court of Manila, FACTS: Intercapitol Marketing Corporation (IMC) is the maker of Wrangler Blue Jeans. While
which rendered favorable decision. Levi Strauss (Phils.) Inc. (LSPI) is the local distributor of products bearing trademarks owned by
Levi Strauss & Co. IMC and LSPI separately obtained from respondent Insurance Company of
On appeal to the Court of First Instance by the insurance companies, the cases were dismissed North America (ICNA) fire insurance policies for their book debt endorsements related to their
on the ground that under the uniform terms of the insurance policies, partial disability of the ready-made clothing materials which have been sold or delivered to various customers and
insured caused by loss of either hand to be compensable, the loss must result in the amputation dealers of the Insured anywhere in the Philippines which are unpaid45 days after the time of the
of that hand. Hence, these appeals by the insured. loss.
Plaintiff-appellant is basing his claim for indemnity under the provision of the insurance contract:
If the Insured sustains any Bodily Injury which is effected solely through violent, The policies defined book debts as the "unpaid account still appearing in the Book of Account of
external, visible and accidental means, and which shall not prove fatal but shall result, the Insured 45 days after the time of the loss covered under this Policy." The policies also
independently of all other causes and within sixty (60) days from the occurrence, provide for the following conditions:
thereof, in Total or Partial Disability of the Insured, the Company shall pay, subject to
the exceptions as provided for hereinafter, the amount set opposite such injury. - 1. Warranted that the Company shall not be liable for any unpaid account in respect of the
PARTIAL DISABILITY LOSS OF: Either Hand P650.00 merchandise sold and delivered by the Insured which are outstanding at the date of loss for a
period in excess of six (6) months from the date of the covering invoice or actual delivery of the
It is argued that what is compensable is the disability and not the amputation of the hand. The merchandise whichever shall first occur.
definition of what constitutes loss of hand, placed in the contract, according to appellant,
consequently, makes the provision ambiguous and calls for the interpretation thereof by this 2. Warranted that the Insured shall submit to the Company within twelve (12) days after the
Court. close of every calendar month all amount shown in their books of accounts as unpaid and thus
become receivable item from their customers and dealers.
Issue: W/N petitioner is entitled to his insurance claim
Petitioner Gaisano Cagayan, Inc. is a customer and dealer of IMC and LSPI products. It owns
Held: No the Gaisano Superstore Complex which was consumed by fire in 1991. Included in the items
We can not go beyond the clear and express conditions of the insurance policies, all of which destroyed in the fire were stocks of ready-made clothing materials sold and delivered by IMC
definite partial disability as loss of either hand by amputation through the bones of the wrist. and LSPI.

There was no such amputation in the case at bar. All that was found by the trial court, which is Insurance Co. filed a complaint for damages against Gaisano Cagayan, Inc. alleging that IMC
not disputed on appeal, was that the physical injuries "caused temporary total disability of and LSPI filed their claims under their respective fire insurance policies which it paid, thus it was
plaintiff's left hand." Note that the disability of plaintiff's hand was merely temporary, having been subrogated to their rights. Petitioner averred it not be held liable because the items were
caused by fractures of the index, the middle and the fourth fingers of the left hand. destroyed due to fortuitous event or force majeure.

3
The RTC ruled that IMC and LSPI retained ownership of the delivered goods until fully paid, it An insurance contract is a contract of indemnity upon the terms and conditions specified therein.
must bear the loss (res perit domino). The CA ruled otherwise and ordered petitioner to pay It is settled that the terms of the policy constitute the measure of the insurer's liability. In the
respondent Php 2,119,205.60 and Php 535,613.00 the amount paid by the latter to IMC and absence of statutory prohibition to the contrary, insurance companies have the same rights as
LSPI, respectively. individuals to limit their liability and to impose whatever conditions they deem best upon their
obligations not inconsistent with public policy.
ISSUE: WON the CA erred in construing a fire insurance policy on book debts as one covering
the unpaid accounts of IMC and LSPI since such insurance applies to loss of the ready-made FACTS
clothing materials sold and delivered to petitioner - Producers Bank filed a complaint for the recovery of the sum of P725,000 against
Fortune Insurance and Surety in RTC Makati, under a policy issued by Fortune.
HELD: Petitioner claims that the CA erred in construing a fire insurance policy on book debts as - A robbery took place while Producer’s armored vehicle was traveling along Taft
one covering the unpaid accounts of IMC and LSPI since such insurance applies to loss of the Avenue while in the process of transferring cash in the sum of P725,000.00 under the
ready-made clothing materials sold and delivered to petitioner. custody of its teller, Maribeth Alampay, from the bank’s Pasay branch to its head office
in Makati.
o It was driven by Benjamin Magalong, escorted by Security Guard Saturnino
The Court disagreed. It is well-settled that when the words of a contract are plain and readily
Atiga. They were then charged with violation of the Anti-Highway Robbery
understood, there is no room for construction. In this case, the questioned insurance
Law.
policies provide coverage for "book debts in connection with ready-made clothing materials
▪ Magalong was assigned by PRC Management Systems
which have been sold or delivered to various customers and dealers of the Insured anywhere in
▪ Atiga was assigned by Unicorns Security Services
the Philippines." and defined book debts as the "unpaid account still appearing in the Book of
- Fortune refused to pay the amount of loss since the incident is exluded from the
Account of the Insured 45 days after the time of the loss covered under this Policy."
coverage of the insurance policy:
o The company shall not be liable under this policy in report of
Nowhere is it provided in the questioned insurance policies that the subject of the insurance is (b) any loss caused by any dishonest, fraudulent or criminal act of the
the goods sold and delivered to the customers and dealers of the insured. Indeed, when the insured or any officer, employee, partner, director, trustee or authorized
terms of the agreement are clear and explicit that they do not justify an attempt to read into it representative of the Insured whether acting alone or in conjunction with
any alleged intention of the parties, the terms are to be understood literally just as they appear others.
on the face of the contract. Thus, what were insured against were the accounts of IMC and LSPI - Producers contended that Atiga and Magalong are not its officer, employee or
with petitioner which remained unpaid 45 days after the loss through fire, and not the loss or authorized representatives at the time of the robbery.
destruction of the goods delivered. - RTC: in favor of Producers
o Their services as armored car driver and as security guard are merely
DISPOSITIVE PORTION: offered by PRC Management and by Unicorn Security to Producers. The
WHEREFORE, the petition is partly GRANTED. The assailed Decision dated October 11, 2000 wages and salaries of both Magalong and Atiga are presumably paid by
and Resolution dated April 11, 2001 of the Court of Appeals in CA-G.R. CV No. 61848 are their respective firms.
AFFIRMED with the MODIFICATION that the order to pay the amount of P535,613.00 to o Neither are they authorized representatives. They were merely an assigned
respondent is DELETED for lack of factual basis. armored car driver and security guard, respectively, for the June 29, 1987
money transfer from plaintiff's Pasay Branch to its Makati Head Office.
▪ It is the teller, Alampay, who had custody of the P725,000.
- CA: affirmed RTC. The language used by Fortune in the stipulation is plain, ordinary
5. Fortune Insurance v. CA and simple. No other interpretation is necessary. The word "employee" must be taken
GR NO. 115278 to mean in the ordinary sense.
May 23, 1995 o Atiga and Magalong cannot be considered as employees of the Bank
SPV because it has no power to hire or to dismiss said driver and security guard
Topic: Construction of Insurance Contracts under the contracts except only to ask for their replacements from the
Petitioners: Fortune Insurance and Surety Co., Inc. contractors.
Respondents: Court of Appeals and Producers Bank of the Philippines
Ponente: Davide Jr. ISSUE: W/N Fortune is liable under the Money, Security and Payroll Robbery Policy it issued to
Producers Bank of the Philippines - NO
DOCTRINE HELD:
A contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolved - The insurance policy entered into by the parties is a theft or robbery insurance policy
against the insurer, or it should be construed liberally in favor of the insured and strictly against which is a form of casualty insurance. Section 174 of the Insurance Code provides:
the insurer. Limitations of liability should be regarded with extreme jealousy and must be o Sec. 174. Casualty insurance is insurance covering loss or liability arising
construed in such a way, as to preclude the insurer from non-compliance with its obligation. It
from accident or mishap, excluding certain types of loss which by law or
goes without saying then that if the terms of the contract are clear and unambiguous, there is no
custom are considered as falling exclusively within the scope of insurance
room for construction and such terms cannot be enlarged or diminished by judicial construction.
such as fire or marine. It includes, but is not limited to, employer's liability
insurance, public liability insurance, motor vehicle liability insurance, plate
glass insurance, burglary and theft insurance, personal accident and health

4
 insurance as written by non-life insurance companies, and other
substantially similar kinds of insurance.  ISSUE: W/N Law Union is liable under the insurance policy – YES.
-
- Insofar as Fortune is concerned, it was its intention to exclude and exempt from
protection and coverage losses arising from dishonest, fraudulent, or criminal acts of HELD/RATIO:
persons granted or having unrestricted access to Producers' money or payroll. 1. The insurer is barred by estoppel to claim violation of the so-called fire hydrant
o The term "employee”, to Fortune, is any person who qualifies as warranty where, knowing fully well that the number of hydrants demanded in the warranty
never existed from the very beginning, it nevertheless issued the policies subject to such
employees of the party employing them and not of the party who
warranty, and received the corresponding premiums.
supplied them to the employer.
· Where the insurer, at the time of the issuance of a policy of insurance,
- Magalong and Atiga were, in respect of the transfer of Producer's money from its
has knowledge of existing facts which, if insisted on, would invalidate
Pasay City branch to its head office in Makati, its "authorized representatives" who
the contract from its very inception, each knowledge constitutes a
served as such with its teller Maribeth Alampay.
waiver of conditions in the contract inconsistent with the known facts,
o Howsoever viewed, Producers entrusted the three with the specific duty to
and the insurer is stopped thereafter from asserting the breach of such
safely transfer the money to its head office, conditions.
o Alampay to be responsible for its custody in transit; Magalong to drive the · Wilson v. Commercial Union: To allow a company to accept one's
armored vehicle which would carry the money; and Atiga to provide the money for a policy of insurance which it then knows to be void and of
needed security for the money, the vehicle, and his two other companions. no effect, though it knows as it must, that the assured believes it to be
In short, for these particular tasks, the three acted as agents of Producers. valid and binding, is so contrary to the dictates of honesty and fair
- Hence, Fortune is exempt from liability under the general exceptions clause of the dealing, and so closely related to positive fraud, as to be abhorrent to
insurance policy. fairminded men. It would be to allow the company to treat the policy as
valid long enough to get the premium on it, and leave it at liberty to
Dispositive repudiate it the next moment.
WHEREFORE, the instant petition is hereby GRANTED. The decision of the Court of Appeals in 2. As to the alleged violation of the Hemp Warranty, gasoline is not specifically
CA-G.R. CV No. 32946 dated 3 May 1994 as well as that of Branch 146 of the Regional Trial mentioned among the prohibited articles listed. The cause relied upon by the insurer
Court of Makati in Civil Case No. 1817 are REVERSED and SET ASIDE. The complaint in Civil speaks of "oils (animal and/or vegetable and/or mineral and/or their liquid products having a
Case No. 1817 is DISMISSED. flash point below 300° Fahrenheit", and is decidedly ambiguous and uncertain; for in
ordinary parlance, "Oils" mean "lubricants" and not gasoline or kerosene.
· How many insured are in a position to understand or determine "flash point below
6. Qua Chee Gan v. Law Union and Rock Insurance 003° Fahrenheit. Here, again, by reason of the exclusive control of the insurance
G.R NO. L-4611. December 17, 1955. company over the terms and phraseology of the contract, the ambiguity must be held
By: RMS strictly against the insurer and liberally in favor of the insured, specially to avoid a
Topic: Construction; uberrimae fidei forfeiture.
Petitioners: QUA CHEE GAN · This rigid application of the rule on ambiguities has become necessary in view of
Respondents: LAW UNION AND ROCK INSURANCE CO., LTD., represented by its agent, current business practices. The courts cannot ignore that nowadays monopolies,
WARNER, BARNES AND CO., LTD. cartels and concentrations of capital, endowed with overwhelming economic power,
FACTS: manage to impose upon parties dealing with them cunningly prepared "agreements"
· Qua Chee Gan owned 4 bodegas (Bodegas Nos. 1, 2, 3, 4) used for the storage of that the weaker party may not change one whit, his participation in the "agreement"
stocks of copra and of hemp. being reduced to the alternative to take it or leave it" known as "contracts by
o The bodegas were insured with Law Union Insurance. adherence,” in contrast to these entered into by parties bargaining on an equal
· A fire brokeout which lasted for a week, and gutted and completely destroyed footing, such contracts obviously call for greater strictness and vigilance on the part of
Bodegas Nos. 1, 3 and 4 with the merchandise therein. courts of justice with a view to protecting the weaker party from abuses and
o Qua Chee Gan filed a claim totaling P398,562.81 (reduced to P370k) imposition, and prevent their becoming traps for the unwarry .
but Law Union refused payment, claiming violation of warranties and · DOCTRINE: The contract of insurance is one of perfect good faith (uberrimae
conditions, filing of fraudulent claims, and that the fire had been fidei) not for the insured alone, but equally so for the insurer; in fact, it is mere
deliberately caused by Que Chee Gan or by other persons in so for the latter, since its dominant bargaining position carries with it stricter
connivance with him. responsibility.
· Qua Chee Gan and others were indicted and tried for arson, but were acquitted. The · Besides, the gasoline kept in Bodega No. 2 was only incidental to his business, being
civil suit to collect the insurance money proceeded. no more than a customary 2 day's supply for the five or six motor vehicles used for
· Law Union alleges breach of warranty: transporting of the stored merchandise
o since the bodegas insured had an external wall perimeter of 500 meters o Bachrach v. British American Ass. Co.: the keeping of inflammable oils on the
or 1,640 feet, the appellee should have 11 fire hydrants in the premises, though prohibited by the policy, does not void it if such keeping is
compound, and that he actually had only 2 with a further pair nearby, incidental to the business.
belonging to the municipality of Tabaco. · It should also be noted that the "Hemp Warranty" forbade storage only "in the building
o Qua Chee Gan violated the “Hemp Warranty” against the storage of to which this insurance applies and/or in any building communicating therewith", and it
gasoline since he admitted that there were 36 cans of gasoline in is undisputed that no gasoline was stored in the burned bodegas, and that "Bodega
Bodega No. 2.
5
 No. 2" which was not burned and where the gasoline was found, stood isolated from ● The controversy arose under the OLD insurance law (Act No. 2427). The accident
the other insured bodegas. occurred on November 27, 1973 while the complaint was filed on July 20, 1974, both
before effectivity on December 18, 1974 of PD No. 612, the subsequent insurance law
DISPOSITIVE: which repealed its predecessor.
We find no reversible error in the judgment appealed from, wherefore the same is hereby ● The former insurance law, which applies to the case under consideration, provided
affirmed. Costs against the appellant. So ordered. that:
o "An insurer is entitled to the payment of premium as soon as the thing
insured is exposed to the peril insured against, unless there is clear
agreement to grant the insured credit extension of the premium due. No
7 VELASCO v APOSTOL & MAHARLIKA INSURANCE CO. INC. policy issued by an insurance company is valid and binding unless and until
GR No. L-44588, 9 May 1989 the premium thereof has been paid."
TS ● Consequently, the insurance policy in question would be valid and binding
notwithstanding the non-payment of the premium if there was a clear agreement to
Topic: CONTRACT “UBERIMAE FIDAE”: PERFECT GOOD FAITH grant to the insured credit extension. Such agreement may be express or implied.
Petitioners: LAURA VELASCO and GRETA ACOSTA ● As earlier stated, the accident for which Maharlika is sought to be held liable occurred
Respondents: HON. SERGIO A. F. APOSTOL and MAHARLIKA INSURANCE CO., INC. on November 27, 1973 while the initial premium was paid only on December 11, 1973.
Ponente: REGALADO , J. ● Velasco & Acosta maintain that in spite of this late payment, the policy is nevertheless
DOCTRINE: insurance contracts are uberrimae fidae and demand the most abundant good binding because there was an implied agreement to grant a credit extension so as to
faith. make the policy effective.
o To them, the subsequent acceptance of the premium and delivery of the
FACTS: policy estops the respondent company from asserting that the policy is
● Velasco and Acosta were plaintiffs in another civil case, while respondent Apostol was ineffective.
the presiding judge in the said case. ● There is no proof of any such implied agreement. The purported nexus between the
● The complaint alleged that Velasco and Acosta were riding their car when a taxi delivery of the policy and the grant of credit extension is too tenuous to support the
(driven by Dominador Santos/registered in Alice Artuz’ name) crossed the center conclusion that Velasco & Acosta contend.
island & collided with their car. The taxi tried to return to its original lane but was ● The delivery of the policy was made on March 28, 1974 and only because the
unable to climb the island. It backtracked instead and hit Velasco & Acosta’s car premium had been paid, in fact, more than 3 months before such delivery.
again, causing the said car’s back portion to turn toward the center, hitting a jeepney ● The said payment was accepted by Maharlika without any knowledge that the risk
on its right, which was travelling along their side going toward Manila. insured against had already occurred since such fact was concealed by the insured
○ Original defendants in the case were Dominador Santos, Alice Artuz and and was not revealed to the insurer.
Norberto Santos. Velasco & Acosta claimed actual, moral and exemplary o Thus, the delivery of the policy was far from being unconditional. Had there
damages plus attorney's fees. really been a credit extension, the insured would not have had any
● Maharlika Insurance Co., Inc. (Maharlika) was impleaded as a defendant in an apprehension or hesitation to inform Maharlika at the time of or before the
amended complaint, with an allegation that the N/S taxicab involved was insured payment of the premium that an accident for which it may be held liable had
against third party liability for Php20K with Maharlika at the time of the accident. already happened.
● Maharlika claimed that there was no cause of action against it bec at the time of the o There is authority to hold that under such circumstances notice alone is
accident, the alleged insurance policy was not in force due to non-payment of the necessary and the insured need not pay the premium because whatever
premium. premium may have been due may already be deducted upon the
○ Additionally, even if the taxicab had been insured, the complaint would still satisfaction of the loss under the policy.
be premature since the policy provides that the insurer would be liable only ● Aside from the supposed unconditional delivery of the policy, which has been
when the insured becomes legally liable. demonstrated to be baseless, Velasco & Acosta failed to point out "any other
● The trial court ruled in favor of Velasco and Acosta, but exonerated Maharlika on the circumstances showing that prepayment of premium was not intended to be insisted
ground that the policy was not in force for failure of Artuz & Santos to pay the initial upon."
premium and for their concealment of a material fact. ● They have thus failed to discharge the burden of proving their allegation of the
● Velasco & Acosta fault Judge Apostol for considering the defense of late payment of existence of the purported credit extension agreement. Indubitably, their insurance
premium when, according to them, "the same was waived at the pre-trial," hence claim must fail.
evidence of late payment should be disregarded supposedly because, Maharlika had ● In the present law, Section 77 of the Insurance Code of 1978 19 has deleted the
admitted that such fact was not in issue. clause "unless there is clear agreement to grant the insured credit extension of the
○ They theorize that what was stipulated in the pretrial order "does not include premium due" which was then involved in this controversy.
the issue on whether Maharlika is liable under the insurance policy, even as ● There was concealment by Artuz & Santos (defendants in 1 st case) of a material fact,
the premium was paid after the accident in question." although legal effects of pertinence to this case could be drawn therefrom.
o The fact withheld could not in any event have influenced Maharlika in
ISSUE: W/N Maharlika Insurance is liable under the insurance policy. – NO.
entering into the supposed contract or in estimating the character of the risk
or in fixing the rate premium, for the simple reason that no such contract
RULING:
existed between the defendants and the company at the time of the
● Velasco & Acosta assert that Maharlika had agreed to grant the then prospective
accident.Accordingly, there was nothing to rescind at that point in time.
insured a credit extension for the premium due.
6
 o What should be apparent from such actuations of therein defendants, W/N the contract of lease submitted by Verendia to support his claim on the fire insurance policy
however, is the presence of bad faith on their part, a reprehensible constitutes a false declaration which would forfeit his benefits under Section 13 of the policy –
disregard of the principle that insurance contracts are uberrimae fidae and YES.
demand the most abundant good faith.
RULING:
DISPOSITIVE PORTION: WHEREFORE, finding no reversible error, the judgment appealed Verendia, having presented a false declaration to support his claim for benefits in the form of a
from is hereby AFFIRMED. fraudulent lease contract, he forfeited all benefits therein by virtue of Section 13 of the policy in
the absence of proof that Fidelity waived such provision. Worse yet, by presenting a false lease
8. Verendia v. CA contract, Verendia reprehensibly disregarded the principle that insurance contracts are
GR No. 75605 January 22, 1993 uberrimae fidae and demand the most abundant good faith.
By: Kath ● Verendia failed to live by the terms of the policy, specifically Section 13 thereof which
Topic: CONTRACT “UBERIMAE FIDAE”: PERFECT GOOD FAITH is expressed in terms that are clear and unambiguous, that all benefits under the
Petitioners: RAFAEL (REX) VERENDIA policy shall be forfeited "if the claim be in any respect fraudulent, or if any false
Respondents: COURT OF APPEALS and FIDELITY & SURETY CO. OF THE PHILIPPINES declaration be made or used in support thereof, or if any fraudulent means or devises
Ponente: MELO, J. are used by the Insured or anyone acting in his behalf to obtain any benefit under the
policy."
DOCTRINE: Insurance contracts are uberrimae fidae and demand the most abundant good o Verendia concocted the lease contract to deflect responsibility for the fire
faith.
towards an alleged "lessee." Garcia was not the real lessee and his
signature on the contract of lease was a complete forgery.
FACTS:
o Verendia inflated the value of the property by the alleged monthly rental of
● Fidelity issued Fire Insurance Policy No. F-18876 effective between June 23, 1980
P6,500 when in fact, the Provincial Assessor of Rizal had assessed the
and June 23, 1981, covering Verendia's residential building located at Tulip Drive,
property's fair market value to be only P40,300.00,
Beverly Hills, Antipolo, Rizal in the amount of P385,000.00.
o Verendia insured the same property with two other insurance companies for
o Designated as beneficiary was the Monte de Piedad & Savings Bank.
a total coverage of around P900,000
● Verendia also insured the same building with two other companies
● As it is also a contract of adhesion, an insurance contract should be liberally construed
o The Country Bankers Insurance for P56,000.00 under Policy No. PDB-80-
in favor of the insured and strictly against the insurer company which usually prepares
1913 expiring on May 12, 1981
it. However, considering the foregoing discussion, the terms of the policy should be
o The Development Insurance for P400,000.00 under Policy No. F-48867
strictly construed against the insured.
expiring on June 30, 1981. DISPOSITIVE PORTION:
● The insured property was completely destroyed by fire on the early morning of WHEREFORE, the petition in G.R. No. 75605 is DISMISSED. The petition in G.R. No. 76399 is
December 28, 1980. GRANTED and the decision of the then Intermediate Appellate Court under review is
● Fidelity was informed of the loss and despite demands, refused payment REVERSED and SET ASIDE and that of the trial court is hereby REINSTATED and UPHELD.
● Verendia filed a complaint with the CFI of Quezon City SO ORDERED.
o praying for payment of P385,000.00, legal interest thereon, plus attorney's
fees and litigation expenses 9. Fireman's Fund et al. V. Jamila et al.
● Fidelity averred that Verendia maliciously represented that the building at the time of [G.R. No. 27427. April 7, 1976.]
the fire was leased under a contract executed on June 25, 1980 to a certain Roberto By: Hung
Garcia, when actually it was a Marcelo Garcia who was the lessee.
o also averred over-insurance Topic: Subrogation (Conventional Vs. Legal)
● CFI ruled in favor of Fidelity Plaintiff-appellants: FIREMAN'S FUND INSURANCE COMPANY and FIRESTONE TIRE
o Paragraph 3 of the policy was also violated as Verendia failed to inform and RUBBER COMPANY OF THE PHILIPPINES
Fidelity of his other insurance coverages Defendant-appellee: JAMILA & COMPANY, INC. and FIRST QUEZON CITY INSURANCE
● Verendia appealed to the Intermediate Appellate Court CO., INC
● IAC court reversed CFI’s ruling Ponente: AQUINO, J
o there was no misrepresentation concerning the lease for the contract was
DOCTRINE: ART. 2207 “if the plaintiff's property has been insured, and he has received
signed by Marcelo Garcia in the name of Roberto Garcia indemnity from the insurance company for the injury or loss arising out of the wrong or breach of
● Fidelity filed its motion for reconsideration contract complained of, the insurance company shall be subrogated to the rights of the
o denied insured against the wrongdoer or the person who has violated the contract".
o filed petition for review on certiorari
● Verendia filed a motion to expunge from the record Fidelity's motion for FACTS:
reconsideration ● Jamila or the Veterans Philippine Scouts Security Agency contracted to supply
o denied security guards to Firestone.
o initiated herein petition ● First Quezon City Insurance Co., Inc. executed a bond in the sum of P20,000 to
● The two petitions were consolidated. guarantee Jamila's obligations under that contract;
● May 18, 1963 - properties of Firestone valued at P11,925 were lost allegedly due to
ISSUE: the acts of its employees who connived with Jamila's security guard;

7
● Fireman's Fund, as insurer, paid to Firestone the amount of the loss ○ that legal subrogation takes place in the cases mentioned in
○ Fireman's Fund was subrogated to Firestone's right to get reimbursement article 13021 of the Civil Code and the instant case is not among
from Jamila, and the three cases enumerated in that article, and
○ Jamila and its surety, First Quezon City Insurance Co., Inc., failed to pay the ○ that there could be no subrogation in this case because according
amount of the loss in spite of repeated demands. to the plaintiffs the contract between Jamila and Firestone was
● Firestone and Fireman insurance filed a complaint for recovery of the sum of P11,925 entered into on June 1, 1965 but the loss complained of occurred
plus interest, damages and attorney's fees on May 18, 1963 .
● RTC
1. DISMISSED THE COMPLAINT (July 22, 1966) ISSUE(s): W/N the complaint of Firestone and Fireman's Fund, as subrogee, states a
○ JAMILA - Fireman's Fund had no cause of action against it because there cause of action against Jamila.
was no allegation that it had consented to the subrogation.
○ First Quezon City Insurance Co., Inc - dismissed. on the ground of res HELD/RATIO: YES.
judicata. Same action was previously filed in Civil Case No. 56311 which
was dismissed because of the failure of the same plaintiffs and their counsel Fireman's Fund's action against Jamila is squarely sanctioned by article 2207. As the
to appear at the pre-trial. insurer, Fireman's Fund is entitled to go after the person or entity that violated its contractual
2. MR by Firestone; order of dismissal was set aside (Sept 3, 1966) commitment to answer for the loss insured against
● It sustained plaintiff's contention that there was no res judicata as to First
Quezon City Insurance Co., Inc. because Civil Case No. 56311 was The trial court erred in applying to this case the rules on novation. The plaintiffs in alleging in
dismissed without prejudice. their complaint that Fireman's Fund "became a party in interest in this case by
● lower court did not state in its order of September 3, 1966 why it set virtue of a subrogation right given in its favor by" Firestone, were not relying on the novation by
aside its prior order dismissing the complaint with respect to Jamila. change of creditors as contemplated in articles 1291 and 1300 to 1303 of the Civil Code but
3. MR by Jamila; moved for dismissal. (Oct. 18, 1966) rather on article 2207.
● that the complaint did not allege that Firestone, pursuant to the contractual
stipulation quoted in the complaint, had investigated the loss and that Article 2207 is a restatement of a settled principle of American jurisprudence. Subrogation has
Jamila was represented in the investigation and been referred to as the doctrine of substitution.
● Jamila did not consent to the subrogation of Fireman's Fund to ● It "is an arm of equity that may guide or even force one to pay a debt for which
Firestone's right to get reimbursement from Jamila and its surety. an obligation was incurred but which was in whole or in part paid by another"
● The lower court reiterated its order of July 22, 1966 that Fireman's (83 C.J.S. 576, 578, note 16, citing Fireman's Fund Indemnity Co. vs. State
Fund had no cause of action against Jamila because Jamila did not Compensation Insurance Fund, 209 Pac. 2d 55).
consent to the subrogation. The court did not mention Firestone, the co- ● "Subrogation is founded on principles of justice and equity, and its operation is
plaintiff of Fireman's Fund. governed by principles of equity. It rests on the principle that substantial justice
4. Firestone and Fireman's Fund filed a MR of the lower court's order of October should be attained regardless of form, that is, its basis is the doing of complete,
18, 1966 on the ground that Fireman's Fund Insurance Company was suing on the essential, and perfect justice between all the parties without regard to form" (83
basis of legal subrogation C.J.S. 579-80)
● The plaintiffs cited article 2207 of the Civil Code which provides that "if the ● Subrogation is a normal incident of indemnity insurance (Aetna L. Ins. Co. vs.
plaintiff's property has been insured, and he has received indemnity Moses, 287 U. S. 530, 77 L. ed. 477). Upon payment of the loss, the insurer is
from the insurance company for the injury or loss arising out of the entitled to be subrogated pro tanto to any right of action which the insured may
wrong or breach of contract complained of, the insurance company have against the third person whose negligence or wrongful act caused the loss
shall be subrogated to the rights of the insured against the wrongdoer (44 Am. Jur. 2nd 745, citing Standard Marine Ins. Co. vs. Scottish Metropolitan
or the person who has violated the contract". Assurance Co.; 283 U.S. 284, 75 L. ed. 1037). The right of subrogation is of the
● Lower court dismissed such on the theory that there was no conventional highest equity.
subrogation because the debtor's consent was lacking. ● The loss in the first instance is that of the insured but after reimbursement or
● They filed a second motion for reconsideration. In that motion they sensibly compensation, it becomes the loss of the insurer.
called the lower court's attention to the fact that the issue of subrogation
was of no moment because Firestone, the subrogor, is a party-plaintiff DISPOSITIVE PORTION: Whether the plaintiffs would be able to prove their cause of action
and could sue directly Jamila in its own right. Without resolving that against Jamila is another question. 2 Finding the trial court's order of dismissal to be legally
contention, the lower court denied plaintiffs' second motion for untenable, the same is set aside with costs against defendant-appellee Jamila & Co., Inc.
reconsideration. SO ORDERED.
● Jamila’s contention under article 2207:
○ requires the debtor's consent; 1 Art. 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even without the debtor's
knowledge;
(2) When a third person, not interested in the obligation, pays with the express or tacit
approval of the debtor;
(3) When, even without the knowledge of the debtor, a person interested in the fulfillment of
the obligation pays, without prejudice to the effects of confusion as to the latter's share.
8
 ○ Coca Cola Cebu to file an insurance claim with PHILAMGEN -- paid its
NOTE: claim of P755,250.00
● Subrogation - The substitution of one person in the place of another with reference to ● Claiming its right of subrogation, PHILAMGEN sought recourse against FELMAN
a lawful claim, demand, or right, so that he or she who is substituted succeeds to the which disclaimed any liability for the loss and for sum of money and damages.
rights of the other in relation to the debt or claim, and its rights, remedies, or ● PHILAMGEN alleged: the sinking and total loss of "MV Asilda" and its cargo were
Securities. due to the vessel's unseaworthiness = put to sea in an unstable condition.
● Purpose of subrogation is to compel the ultimate payment of a debt by the party ● FELMAN: filed M2D claiming that no right of subrogation in favor of PHILAMGEN was
who, in Equity and good conscience,should pay for it. This subrogation is an transmitted by Coca Cola, and that, in any event, FELMAN had abandoned all its
equitable device used to avoid injustice. rights, interests and ownership over "MV Asilda" together with her freight and
appurtenances for the purpose of limiting and extinguishing its liability under Art. 587
of the Code of Commerce.
LEGAL SUBROGATION CONVENTIONAL SUBROGATION ● RTC: dismissed PHILAMGEN’s complaint.
● CA: set aside the dismissal and remanded the case for trial on the merits.
Arises from operation of law Result of a contract ● FELMAN: filed petition for certiorari with this Court -- denied
○ "MV Asilda" was seaworthy when it left the port of Zamboanga as
confirmed by certificates issued by the Philippine Coast Guard and the
shipowner's surveyor attesting to its seaworthiness.
takes place as a matter of equity, with arises when one individual satisfies the
○ Thus the loss of the vessel and its entire shipment could only be attributed
or without an agreement. debt of another as a result of a
to either a fortuitous event, in which case, no liability should attach unless
contractual agreement
there was a stipulation to the contrary, or to the negligence of the captain
and his crew, in which case, Art. 587 of the Code of Commerce should
apply.
● PHILAMGEN appealed
○ CA: "MV Asilda" unseaworthy for being top-heavy as 2,500 cases of Coca-
10 Philippine American General Insurance v CA Cola softdrink bottles were improperly stowed on deck.
GR 116940 11 June 1997 ○ Denied the claim of PHILAMGEN: the assured's implied warranty of
By: Zurita seaworthiness was not complied with. Perfunctorily, PHILAMGEN was not
Topic: Subrogation properly subrogated to the rights and interests of the shipper.
Petitioners: THE PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC.
Respondents: COURT OF APPEALS and FELMAN SHIPPING LINES ISSUE: W/N PHILAMGEN was properly subrogated to the rights and legal actions which
Ponente: Bellosillo the shipper had against FELMAN, the shipowner? YES
● In every marine insurance policy the assured impliedly warrants to the assurer that the
FACTS: vessel is seaworthy and such warranty is as much a term of the contract as if
● Coca-Cola Bottlers Philippines, Inc. loaded 7,500 cases of 1-liter Coca-Cola softdrink expressly written on the face of the policy.
bottles to be transported from Zamboanga City to consignee Coca-Cola Cebu City on ○ Sec. 113 IC: "(i)n every marine insurance upon a ship or freight, or
board "MV Asilda," a vessel owned and operated by FELMAN. The shipment was freightage, or upon anything which is the subject of marine insurance, a
insured with petitioner Philippine American General Insurance Co., Inc. warranty is implied that the ship is seaworthy."
(PHILAMGEN), under Marine Open Policy No. 100367-PAG. ○ Sec. 114 IC: a ship is "seaworthy when reasonably fit to perform the
● 8:00 PM: "MV Asilda" left Zamboanga in fine weather service, and to encounter the ordinary perils of the voyage, contemplated by
● 8:45 AM: the vessel sank in the waters of Zamboanga del Norte bringing down her the parties to the policy."
entire cargo including the subject 7,500 cases of 1-liter Coca-Cola softdrink bottles. ○ Thus it becomes the obligation of the cargo owner to look for a reliable
○ 4 AM: The ship captain was awakened by the officer to inform him that the common carrier which keeps its vessels in seaworthy condition. He may
vessel had hit a floating log. have no control over the vessel but he has full control in the selection of the
○ He ascribed the sinking to the entry of seawater through a hole in the hull common carrier that will transport his goods. He also has full discretion in
caused by the vessel's collision with a partially submerged log. the choice of assurer that will underwrite a particular venture.
● 8 days after: Coca-Cola Cebu filed a claim with FELMAN for recovery of damages it ● We need not belabor the alleged breach of warranty of seaworthiness by the assured
sustained as a result of the loss of its softdrink bottles that sank. as painstakingly pointed out by FELMAN to stress that subrogation will not work in this
○ FELMAN denied the claim. case.
○ In policies where the law will generally imply a warranty of seaworthiness, it
2 Firestone is really a nominal party in this case. It had already been indemnified for the can only be excluded by terms in writing in the policy in the clearest
loss which it had sustained. Obviously, it joined as a party-plaintiff in order to help Fireman's language. And where the policy stipulates that the seaworthiness of the
Fund to recover the amount of the loss from Jamila and First Quezon City Insurance Co., Inc. vessel as between the assured and the assurer is admitted, the question of
seaworthiness cannot be raised by the assurer without showing
Firestone had tacitly assigned to Fireman's Fund its cause of action against Jamila for breach
concealment or misrepresentation by the assured.
of contract. Sufficient ultimate facts are alleged in the complaint to sustain that cause of ● BUT!!!! PHILAMGEN's action against FELMAN is sanctioned by Art. 2207 NCC:
action. ○ 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
9
 breach of contract complained of, the insurance company shall be · Sec. 113 of the Insurance Code states that there is an implied warranty by the
subrogated to the rights of the insured against the wrongdoer or the person shipper that the ship is seaworthy. Consequently, the insurer will not be liable to the
who has violated the contract. If the amount paid by the insurance company assured for any loss under the policy in case the vessel would later on be found as not
does not fully cover the injury or loss, the aggrieved party shall be entitled to seaworthy at the inception of the insurance.
recover the deficiency from the person causing the loss or injury. · Delsan Transport theorized that when American Home Assurance paid Caltex the
● Payment by the assurer to the assured operates as an equitable assignment to the value of lost cargo, there is a tacit recognition that the vessel was seaworthy. Thus,
assurer of all the remedies which the assured may have against the third party whose precluding any action of recovery against Delsan.
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 or upon payment by the insurance ISSUE: W/N the payment made by American Home Assurance to Caltex amounted to an
company of the insurance claim. It accrues simply upon payment by the insurance admission that the vessel was seaworthy
company of the insurance claim.
● DOCTRINE: The doctrine of subrogation has its roots in equity. It is designed to
promote and to accomplish justice and is the mode which equity adopts to compel the RULING:
ultimate payment of a debt by one who in justice, equity and good conscience ought to No.
pay. Therefore, the payment made by PHILAMGEN to Coca-Cola Bottlers Philippines, The payment made by American Home Assurance for the insured value of the lost cargo
Inc., gave the former the right to bring an action as subrogee against FELMAN. operates as waiver of its right to enforce the term of the implied warranty only against Caltex
Having failed to rebut the presumption of fault, the liability of FELMAN for the loss of under the marine insurance policy. The fact of payment granted American Home Assurance
the 7,500 cases of 1-liter Coca-Cola softdrink bottles is inevitable. subrogatory right which enables it to exercise legal remedies against Delsan Transport Lines.

DISPOSITIVE PORTION: WHEREFORE, the petition is GRANTED. Respondent FELMAN The CA correctly ruled that MY Maysun sank with its entire cargo. The vessel was not seaworthy
SHIPPING LINES is ordered to pay petitioner PHILIPPINE AMERICAN GENERAL INSURANCE as there was no bad weather in the vicinity when the vessel sank.
CO., INC., Seven Hundred Fifty-five Thousand Two Hundred and Fifty Pesos (P755,250.00)
plus legal interest thereon counted from 29 November 1983, the date of judicial demand,
At the time of dry-docking and inspection, the ship may have appeared fit. The certificates
pursuant to Arts. 2212 and 2213 of the Civil Code.
issued do not negate the presumption of unseaworthiness triggered by an unexplained sinking.
It does not absolve the petitioner common carrier from its civil liability arising from its failure to
11. Delsan Transport v. CA
observe extraordinary diligence in the vigilance over the goods it was transporting.
G.R. No. 127897 November 15, 2001
By: Vin Ching
Petitioners: Delsan Transport Lines, Inc., petitioner Petitioner Delsan Transport Lines is liable for the insured value of the lost cargo of industrial fuel
Respondents: CA and American Home Assurance Corp., respondents oil belonging to Caltex for its failure to rebut the presumption of fault or negligence as common
Ponente: De Leon, Jr., J. carrier.

DISPOSITIVE PORTION:
DOCTRINE: In all other cases, if the goods are lost, destroyed or deteriorated, common carriers WHEREFORE, the instant petition is DENIED. The Decision dated June 17, 1996 of the Court of
are presumed to have been at fault or to have acted negligently, unless they prove that they Appeals in CA-G.R. CV No. 39836 is AFFIRMED. Costs against the petitioner.
observed extraordinary diligence.

FACTS: 12. Pan Malayan v CA

· Caltex entered into a contract of affreightment with petitioner Delsan Transport Lines, GR No. 81026
for a period of one year whereby the common carrier agreed to transport Caltex’s industrial April 3, 1990
fuel oil from the Batangas-Bataan Refinery to different parts of the country. By: Kate
· Petitioner took 2,277.314 kiloliters of industrial fuel of Caltex aboard its vessel MT
Maysum to be delivered to Caltex Oil Terminal in Zamboanga City. Topic: Subrogation
· Shipment was insured by respondent American Home Assurance Corporation. Petitioners: Pan Malayan Insurance Corp.
· On August 14, 1986, MT Maysum set sail from Batangas for Zamboanga City. Respondents: Court of Appeals, Erlinda Fabie, and her Unkown Driver
· On August 16, the vessel sank near Panay Gulf in the Visayas taking with it the Ponente: J. Cortes
entire cargo if fuel oil. DOCTRINE: If the insured property is destroyed or damaged through the fault or negligence of a
· American Home Assurance paid Caltex P5,096,635.67 representing the insured party OTHER THAN the assured, then the insurer, upon payment to the assured, will be
value of the lost cargo. subrogated to the rights of the assured to recover from the wrongdoer to the extent that the
· Delsan Transport Lines did not pay and American Home Assurance filed a complaint insurer has been obligated to pay. (Insurer has right to claim for reimbursement of what he paid
for collection of money. from the wrongdoer).
· RTC Makati dismissed the complaint. It found that MT Maysum was seaworthy to
undertake the voyage and the incident was caused by unexpected inclement weather FACTS:
condition. Thus, exempting the common carrier from liability. - A Mitsubishi Colt Lancer car, registered in the name of Canlubang Automotive Resources
· CA reversed as there was a weather report issued by PAGASA showing that the Corporation (CANLUBANG) was insured under Pan Malayan Insurance Corp. (PANMALAY)
waves measured from .7-2 meters, in contrast to petitioner’s allegation that the waves were
20 ft high.
10
- Due to the "carelessness, recklessness, and imprudence" of the unknown driver (Respondent) WHEREFORE, in view of the foregoing, the present petition is GRANTED. Petitioner’s complaint
of a pick-up owned by Erlinda Fabie, the insured car was hit and suffered damages. for damages against private respondents is hereby REINSTATED. Let the case be remanded to
- PANMALAY defrayed the cost of repair of the insured car which cost P42,052.00 the lower court for trial on the merits.
- PANMALAY filed a complaint for damages with the RTC of Makati against private respondents
Erlinda Fabie and her unknown driver.
- PANMALAY clarified that the damage caused to the insured car was settled under the "own 13 Rizal Surety v Manila Railroad
damage" coverage of the insurance policy GR # L-24043 25 April 1968
- Fabie and her filed a Motion to Dismiss alleging that PANMALAY had no cause of action By: RRV
against them. They argued that payment under the "own damage" clause of the insurance policy
precluded subrogation under Article 2207 of the Civil Code, since indemnification thereunder Topic: General; Subrogation
was made on the assumption that there was no wrongdoer or no third party at fault. Petitioners: RIZAL SURETY & INSURANCE COMPANY
-RTC dismissed PANMALAY’s claim for damages. CA affirmed RTC. Respondents: MANILA RAILROAD COMPANY and MANILA PORT SERVICE
Ponente: Fernando
FACTS:
ISSUE: WON PANMALAY may institute an action to recover the amount it had paid
● A ship transported 6 cases OMH, Special Single Colour Offset Press Machine from
its assured in settlement of an insurance claim against Fabie and her driver allegedly
Genoa, Italy to Manila. The cargo was consigned to Suter, Inc (insured).
responsible for the damage caused to the vehicle
● When the cargo arrived at the Manila Port, the crane that lifted it mishandled one of
the six cases containing the OMH, Special Single Colour Offset Press. This container
RULING: YES was heavily damaged.
● PANMALAY alleged in its complaint that, pursuant to a motor vehicle insurance policy, it had ● As a result, the insurance company (Rizal Surety) paid to Suter Inc a total of 16,
indemnified CANLUBANG for the damage to the insured car resulting from a traffic accident 680.70 representing the damage, repairs, and other fees.
allegedly caused by the negligence of the driver of private respondent, Erlinda Fabie. ● Clause 15 of the Management Contract between Suter and the Port limited the
PANMALAY contended, therefore, that its cause of action against private respondents was company liability to 500 pesos per case.
anchored upon Article 2207 of the Civil Code. ● The lower court ordered the Manila Port to pay Rizal Surety 500 pesos plus interest.
● Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the ● Rizal Surety appealed the lower court’s decision, arguing that it (Rizal) must recover
insured property is destroyed or damaged through the fault or negligence of a party other than the full amount of 16, 680.70.
the assured, then the insurer, upon payment to the assured, will be subrogated to the rights of ISSUE: W/N Rizal Surety can fully recover the 16, 680.70 it paid to Suter - NO
the assured to recover from the wrongdoer to the extent that the insurer has been obligated to RULING:
pay. Payment by the insurer to the assured operates as an equitable assignment to the former ● Article 2207 of the Civil Code clearly states that, in the event that the property has
of all remedies which the latter may have against the third party whose negligence or wrongful been insured and the Insurance Company has paid the indemnity for the injury or loss
act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of, any sustained, it "shall be subrogated to the rights of the insured against the wrong-doer or
privity of contract or upon written assignment of claim. the person who has violated the contract. "
● There are a few recognized exceptions to this rule. 1. If the assured by his own act releases ● Rizal Surety, therefore, cannot recover from defendants an amount greater than that
the wrongdoer or third party liable for the loss or damage, from liability, the insurer's right of to which the consignee (Suter) could lawfully lay claim. The management contract is
subrogation is defeated, 2. Where the insurer pays the assured the value of the lost goods clear. The amount is limited to Five Hundred Pesos (P500.00).
without notifying the carrier who has in good faith settled the assured’s claim for loss, the ● The Supreme Court has approved of such a stipulation in many cases.
settlement is binding on both the assured and the insurer, and the latter cannot bring an action ● (Doctrine: Plaintiff-appellant Rizal Surety and Insurance Company, having been
against the carrier on his right of subrogation, and 3. Where the insurer pays the assured for a subrogated merely to the rights of the consignee, its recovery necessarily
loss which is not a risk covered by the policy, thereby effecting "voluntary payment", the former should be limited to what the insured could recover from the Defendant Port
has no right of subrogation against the third party liable for the loss. None of the exceptions are Service. The lower court therefore did not err when in the decision appealed from, it
availing in the present case. limited the amount which defendants were jointly and severally to pay plaintiff-
● It cannot be said that the meaning given by PANMALAY and CANLUBANG to the phrase "by appellant to "Five Hundred Pesos (P500.00) with legal interest thereon
accidental collision or overturning" found in the first part of sub-paragraph (a) is untenable. DISPOSITIVE PORTION: WHEREFORE, the decision appealed from is affirmed. With costs
Although the terms "accident" or "accidental" as used in insurance contracts have not acquired a against Rizal Surety and Insurance Company.
technical meaning, the Court has on several occasions defined these terms to mean that which
takes place "without one’s foresight or expectation, an event that proceeds from an unknown
cause, or is an unusual effect of a known cause and, therefore, not expected"
● Certainly, it cannot be inferred from jurisprudence that these terms, without qualification, 14. ST. PAUL V MACONDRAY
exclude events resulting in damage or loss due to the fault, recklessness or negligence of third G.R. No. L-27796; March 25, 1976
parties. The concept "accident" is not necessarily synonymous with the concept of "no fault." It By: Nunez
may be utilized simply to distinguish intentional or malicious acts from negligent or careless acts
Topic: Subrogation
of man.
Petitioners: ST. PAUL FIRE & MARINE INSURANCE CO.
Respondents: MACONDRAY & CO., INC., BARBER STEAMSHIP LINES, INC., WILHELM
DISPOSITIVE PORTION: WILHELMSEN MANILA PORT SERVICE and/or MANILA RAILROAD COMPANY
Ponente: ANTONIO, J.

11
DOCTRINE: …, as insurer, after paying the claim of the insured for damages under the only for the sum of Pl,109.67, representing the C.I.F. value of the loss and damage
insurance, is subrogated merely to the rights of the assured. As subrogee, it can recover only sustained by the shipment which was the amount awarded by the lower court to the
the amount that is recoverable by the latter. Since the right of the assured, in case of loss or plaintiff-appellant. Also, defendants claim that they are not insurers of the goods and
damage to the goods, is limited or restricted by the provisions in the bill of lading, a suit by the as such they should not be made to pay the insured value therefor; the obligation of
insurer as subrogee necessarily is subject to like limitations and restrictions. the defendants was established as of the date of discharge, hence the rate of
exchange should be based on the rate existing on that date, i.e., August 7, 1960, 5
FACTS: and not the value of the currency at the time the lower court rendered its decision on
March 10, 1965.
l Winthrop Products, New York, shipped aboard SS “Tai Ping” 218 cartons and drums of
drugs and medicine which were consigned to Winthrop-Stearns, Manila. The ship
was owned and operated by Wilhelm Wilhelmsen. Barber Steamship Lines, agent of
Wilhelm Wilhelmsen, issued a bill of lading in the name of Winthrop Products. The ISSUE(s): W/N the insurer who has paid the claim in dollars to the consignee should be
shipment was insured by the shipper with St. Paul Fire & Marine Insurance reimbursed in its peso equivalent on the date of discharge of the cargo or on the date of
Company (St. Paul). the decision.

l SS “Tai Ping” arrived in Manila and discharged the shipment into the custody of Manila
HELD/RATIO: NO
Port Service. All of the shipment discharged in good condition except for one drum
and several cartons which were declared to be in bad condition. For the failure to
receive the full shipment, the consignee filed a claim with carrier Wilhelm and Manila
Port, but both refused to pay. Thus, the consignee filed its claim with St. Paul. St. The purpose of the bill of lading is to provide for the rights and liabilities of the parties in
Paul paid on the basis of the claim. reference to the contract to carry. The stipulation in the bill of lading limiting the common
carrier's liability to the value of the goods appearing in the bill, unless the shipper or owner
l As subrogee of the rights of the shipper/consignee, St. Paul instituted an action against declares a greater value, is valid and binding. This limitation of the carrier's liability is sanctioned
all the respondents in the case. The defendants Macondray & Co., Inc., Barber by the freedom of the contracting parties to establish such stipulations, clauses, terms, or
Steamship Lines, Inc. and Wilhelm Wilhelmsen averred that the carrier's liability for conditions as they may deem convenient, provided they are not contrary to law, morals, good
the shipment ceased upon discharge thereof from the ship's tackle; that they and customs and public policy. A stipulation fixing or limiting the sum that may be recovered from the
their co-defendant Manila Port Service are not the agents of the vessel; that the said carrier on the loss or deterioration of the goods is valid, provided it is (a) reasonable and just
218 packages were discharged from the vessel SS "Tai Ping" into the custody of under the circumstances, and (b) has been fairly and freely agreed upon. In the case at bar, the
defendant Manila Port Service as operator of the arrastre service for the Port of liabilities of the defendants- appellees with respect to the lost or damaged shipments are
Manila; that if any damage was sustained by the shipment while it was under the expressly limited to the C.I.F. value of the goods as per contract of sea carriage embodied in the
control of the vessel, such damage was caused by insufficiency of packing, force bill of lading.
majeure and/or perils of the sea; and that they, in good faith and for the purpose only
of avoiding litigation without admitting liability to the consignee, offered to settle the
latter's claim in full by paying the value of the shipment which was denied by the
consignee.
It is not pretended that those conditions are unreasonable or were not freely and fairly agreed
upon. The shipper and consignee are, therefore, bound by such stipulations since it is expressly
l The trial court ordered the defendants to pay St.Paul the sum of P.809.67 plus P300
stated in the bill of lading that in "accepting this Bill of Lading, the shipper, owner and consignee
(PESOS), the amounts of the goods to be borne by all defendants. St, Paul,
of the goods, and the holder of the Bill of Lading agree to be bound by all its stipulations,
however, filed an MR contending that the proper amount to be recovered is
exceptions and conditions, whether written, stamped or printed, as fully as if they were all signed
$1,134.46 (DOLLARS), or its equivalent in pesos at the rate of P3.90, instead of
by such shipper, owner, consignee or holder. It is obviously for this reason that the consignee
P2.00, for every US$1.00, filed a motion for reconsideration, but this was denied by
filed its claim against the defendants-appellees on the basis of the C.I.F. value of the lost or
the lower court on May 5, 1965. Hence, the present appeal.
damaged goods in the aggregate amount of Pl,109.67.

l St. Paul argues that, as subrogee of the consignee, it should be entitled to recover from
St. Paul, as insurer, after paying the claim of the insured for damages under the insurance, is
the defendants the amount of $1,134.46 which it actually paid to the consignee and
subrogated merely to the rights of the assured. As subrogee, it can recover only the amount that
which represents the value of the lost and damaged shipment as well as other
is recoverable by the latter. Since the right of the assured, in case of loss or damage to the
legitimate expenses such as the duties and cost of survey of said shipment, and that
goods, is limited or restricted by the provisions in the bill of lading, a suit by the insurer as
the exchange rate on the date of the judgment, which was P3.90 for every US$1.00,
subrogee necessarily is subject to like limitations and restrictions.
should have been applied by the lower court.

Equally untenable is the contention of the St. Paul that because of extraordinary inflation, it
l Defendants-appellees countered that their liability is limited to the Cost Insurance
should be reimbursed for its dollar payments at the rate of — exchange on the date of the
Freight (CIF) value of the goods, pursuant to contract of sea carriage embodied in
judgment and not on the date of the loss or damage. The obligation of the carrier to pay for the
the bill of lading that the consignee's (Winthrop-Stearns Inc.) claim against the
damage commenced on the date it failed to deliver the shipment in good condition to the
carrier (Macondray & Co., Inc., Barber Steamship Lines, Inc., Wilhelm Wilhelmsen)
and the arrastre operators (Manila Port Service and Manila Railroad Company) was
12
consignee. We find, therefore, that the trial court committed no error in adopting the aforesaid the Charter may be obtained from the Shipper or Charterer." & the provision on arbitration
rate of exchange. in the Charter Party reads “Arbitration. Any dispute arising from the making, performance
or termination of this Charter Party shall be settled in New York, Owner and Charterer each
appointing an arbitrator, who shall be a merchant, broker or individual experienced in the
shipping business; the two thus chosen, if they cannot agree, shall nominate a third
arbitrator who shall be an admiralty lawyer. Such arbitration shall be conducted in
DISPOSITIVE PORTION: WHEREFORE, the appealed decision is hereby affirmed, with costs conformity with the provisions and procedure of the United States arbitration act, and a
against the plaintiff-appellant. judgment of the court shall be entered upon any award made by said arbitrator. Nothing in
this clause shall be deemed to waive Owner's right to lien on the cargo for freight, deed of
15. NATIONAL UNION FIRE INSURANCE V. STOLT NIELSEN freight, or demurrage."
GR NO. 87958 / APR 26 1990 § Clearly, the BoL incorporates by reference the terms of the Chapter Party. It is settled
By: Claire law that the charter may be made part of the contract under w/c the goods are carried by
an appropriate reference in the BoL. This should include the provision on arbitration even
Topic: SUBROGATION without a specific stipulation to that effect. The entire contract must be read together and its
Petitioners: NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURG, clauses interpreted in relation to one another and not by parts.
PA/AMERICAN INTERNATIONAL UNDERWRITER (PHIL.) INC § Moreover, in cases where a Bill of Lading has been issued by a carrier covering goods
Respondents: STOLT-NIELSEN PHILIPPINES, INC & CA shipped aboard a vessel under a charter party, and the charterer is also the holder of the
Ponente: MELENCIO-HERRERA bill of lading, "the bill of lading operates as the receipt for the goods, and as document of
title passing the property of the goods, but not as varying the contract between the
FACTS: charterer and the shipowner". The BoL becomes only a receipt and not the contract of
- On Jan 9 1985, United Coconut Chemicals (Shipper) shipped 404.774 metric tons of carriage in a charter of the entire vessel, for the contract is the Charter Party and is the law
distilled C6-C18 fatty acid on board MT Stolt Sceptre, a tanker owned by Stolt-Nielsen between the parties who are bound by its terms and condition.
(Carrier), from Batangas, consigned to Nieuwe Matex at Netherlans, covered by Tanker Bill § CA: The Insurer "cannot feign ignorance of the arbitration clause since it was already
of Lading (BoL) charged with notice of the existence of the charter party due to an appropriate reference
- The shipment was insured under a marine cargo policy w/ National Union Fire, thru thereof in the bill of lading and, by the exercise of ordinary diligence, it could have easily
its settling agent in the PH, the American International Underwriters obtained a copy thereof either from the shipper or the charterer."
- It appears that the BoL issued by the Carrier contained a general statement of § We hold, therefore, that the INSURER cannot avoid the binding effect of the
incorporation of the terms of a Charter Party between Shipper and Parcel Tankers Inc, arbitration clause. By subrogation, it became privy to the Charter Party as fully as
entered into in Greenwich, Connecticut, USA the SHIPPER before the latter was indemnified, because as subrogee, it stepped into
- Upon receipt of the cargo by the consignee in Netherlands, it was found to be the shoes of the SHIPPER-ASSURED and is subrogated merely to the latter's rights.
discolored and contaminated. The claim filed by Shipper-Assured w/ the Carrier having It can recover only the amount that is recoverable by the assured. And since the
been denied, the Insurer indemnified the Shipper pursuant to the stipulation in the marine right of action of the SHIPPERASSURED is governed by the provisions of the Bill of
cargo policy. Lading, which includes by reference the terms of the Charter Party, necessarily, a
- On Apr 21 1986, as subrogee of Shipper-Assured, the Insurer filed suit against the suit by the INSURER is subject to the same agreements.
Carrier for the recovery of P1.6M, the amt the Insurer had paid the Shipper-Assured.
- The Carrier moved to dismiss/suspend the proceedings on the ground that RTC has
WHEREFORE, finding no reversible error in respondent Appellate Court's 12 April 1989
no jurisdiction on the claim being an arbitrable one; that as subrogee of the Shipper-
Decision, the instant Petition for Review on Certiorari is DENIED and the said judgment is
Assured, the Insurer is subject to the provisions of BoL, w/c includes a provision that the
hereby AFFIRMED. Costs against petitioners.
shipment is carried under and pursuant to the terms of the Charter Party between the
SO ORDERED.
Shipper-Assured and Parcel Tankers.
- Insurer opposed on the ground that it was not legally bound to submit the claim for
arbitration since it was not incorporated into the BoL 16. Cebu Shipyard v. William Lines
G.R. No. 132607
ISSUE: WON the terms of the Charter Party, particularly the provision on arbitration, is binding May 5, 1999
on the Insurer - YES By: Jon

HELD: Topic: Subrogation

§ The Insurer postulates that it cannot be bound by the Charter Party because, as insurer, Petitioners: CEBU SHIPYARD AND ENGINEERING WORKS, INC.
it is subrogee only with respect to the Bill of Lading; that only the Bill of Lading should Respondents: WILLIAM LINES, INC. and PRUDENTIAL GUARANTEE and ASSURANCE
regulate the relation among the INSURER, the holder of the Bill of Lading, and the COMPANY, INC.
CARRIER; and that in order to bind it, the arbitral clause in the Charter Party should have Ponente: PURISIMA, J.
been incorporated into the Bill of Lading. – The Court rules against this.
§ The portion of the BoL provides that "This shipment is carried under and pursuant to the
terms of the Charter dated December 21st 1984 at Greenwich, Connecticut, U.S.A. DOCTRINE: If the plaintiffs property has been insured, and he has received indemnity from the
between Parcel Tankers, Inc. and United Coconut Chemicals, Ind. as Charterer and all the insurance company for the injury or loss arising out of the wrong or breach of contract
terms whatsoever of the said Charter except the rate and payment of freight specified complained of the insurance company shall be subrogated to the rights of the insured against
therein apply to and govern the rights of the parties concerned in this shipment. Copy of the wrongdoer or the person who has violated the contract. If the amount paid by the insurance

13
company does not fully cover the injury or loss the aggrieved party shall be entitled to recover negligence and such liability shall itself be subject to the following overriding
the deficiency from the person causing the loss or injury limitations and exceptions, namely:

Facts: o (a) The total liability of the Contractor to the Customer (over and above the
liability to replace under Clause 10) or of any sub-contractor shall be limited
Cebu Shipyard and Engineering Works, Inc. (CSEW) is a domestic corporation engaged in the in respect of any defect or event (and a series of accidents arising out of the
business of dry-docking and repairing of marine vessels while the private respondent, Prudential same defect or event shall constitute one defect or event) to the sum of
Guarantee and Assurance, Inc. (Prudential), also a domestic corporation is in the non-life Pesos Philippine Currency One Million only.
insurance business.
o (b) In no circumstance whatsoever shall the liability of the Contractor or any
William Lines, Inc. (plaintiff below) is in the shipping business. It the owner of M/V Manila City, a Sub-Contractor include any sum in respect of loss of profit or loss of use of
luxury passenger-cargo vessel, which caught fire and sank on February 16, 1991. The vessel the vessel or damages consequential on such loss of use
was insured with Prudential for P45,000,000.00 pesos for hull and machinery. The Hull Policy
included an "Additional Perils (INCHMAREE)" Clause covering loss of or damage to the vessel · 20. The insurance on the vessel should be maintained by the customer and/or owner
through the negligence of, among others, ship repairmen. The Policy provided as follows: of the vessel during the period the contract is in effect.

Subject to the conditions of this Policy, this insurance also covers loss of or damage to Vessel On February 16, 1991, after subject vessel was transferred to the docking quay, it caught fire
directly caused by the following: and sank, resulting to its eventual total loss.

· Negligence of Charterers and/or Repairers, provided such Charterers and/or Repairers are On February 21, 1991, William Lines, Inc. filed a complaint for damages against CSEW, alleging
not an Assured hereunder. that the fire which broke out in M/V Manila City was caused by CSEW's negligence and lack of
care.
· provided such loss or damage has not resulted from want of due diligence by the Assured,
the Owners or Managers of the Vessel, of any of them Masters, Officers, Crew or Pilots are On July 15, 1991 was filed an Amended Complaint impleading Prudential as co-plaintiff, after the
not to be considered Owners within the meaning of this Clause should they hold shares in latter had paid William Lines, Inc. the value of the hull and machinery insurance on the M/V
the Vessel. Manila City. As a result of such payment Prudential was subrogated to the claim of P45 million,
representing the value of the said insurance it paid.
Petitioner CSEW was also insured by Prudential for third party liability under a Shiprepairer's
Legal Liability Insurance Policy. The policy was for P10 million only, under the limited liability The trial court came out with a judgment against CSEW. On September 3, 1997, the Court of
clause, to wit: Appeals affirmed the appealed decision of the trial court

· The limit of liability under this insurance, in respect of any one accident or series Issue: W/N Prudential has the right of subrogation against CSEW
of accidents, arising out of one occurrence, shall be [P10 million], including
liability for costs and expense which are either: Held: Yes

· incurred with the written consent of the underwriters hereon, or 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
· awarded against the Assured. co-assured under the Marine Hull Insurance Policy.

On February 5, 1991, William Lines, Inc. brought its vessel, M/V Manila City, to the Cebu As aptly ruled by the Court of Appeals, the law on the manner is succinct and clear, to wit:
Shipyard in Lapulapu City for annual dry-docking and repair. The contracts, denominated as
Work Orders, were signed thereafter, with the following stipulations: 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
· 10. The Contractor shall replace at its own work and at its own cost any work or contract complained of the insurance company shall be subrogated to the rights of the
material which can be shown to be defective and which is communicated in writing insured against the wrongdoer or the person who has violated the contract. If the
within one (1) month of redelivery of the vessel or if the vessel was not in the amount paid by the insurance company does not fully cover the injury or loss the
Contractor's Possession, the withdrawal of the Contractor's workmen, or at its option aggrieved party shall be entitled to recover the deficiency from the person causing the
to pay a sum equal to the cost of such replacement at its own works. These conditions loss or injury.
shall apply to any such replacements.
When Prudential, after due verification of the merit and validity of the insurance claim of William
· 11. Save as provided in Clause 10, the Contractor shall not be under any liability to Lines, Inc., paid the latter the total amount covered by its insurance policy, it was subrogated to
the Customer either in contract or for delict or quasi-delict or otherwise except for the right of the latter to recover the insured loss from the liable party, CSEW.

14
Petitioner theorizes further that there can be no right of subrogation as it is deemed a co- contract complained of, the insurance company shall be subrogated to the rights of the insured
assured under the subject insurance policy. To buttress its stance that it is a co-assured, against the wrongdoer or the person who has violated the contract. If the amount paid by the
petitioner placed reliance on Clause 20 of the Work Order which states: 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.
o 20 The insurance on the vessel should be maintained by the customer
and/or owner of the vessel during the period the contract is in effect. FACTS:
Keppel Cebu Shipyard, Inc. (KCSI) and WG&A Jebsens Ship management, Inc. (WG&A)
According to petitioner, under the aforecited clause, William Lines, Inc., agreed to assume the executed a Shiprepair Agreement wherein KCSI would renovate and reconstruct WG&A’s M/V
risk of loss of the vessel while under dry-dock or repair and to such extent, it is benefited and "Superferry 3" using its dry docking facilities pursuant to the Keppel Cebu Shipyard Standard
effectively constituted as a co-assured under the policy. Conditions of Contract for Ship repair, guidelines and regulations on safety and security issued
by Keppel Cebu Shipyard.
This theory of petitioner is devoid of sustainable merit. 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 Prior to the execution of the Shiprepair Agreement, "Superferry 3" was already insured by
period of dry-docking or repair. Concededly, such a stipulation works to the benefit of CSEW as WG&A with Pioneer Insurance and Surety Corp. (Pioneer) for US$8,472,581.78.
the ship repairer.
In the course of its repair, M/V "Superferry 3" was gutted by fire. Claiming that the extent of the
However, the fact that CSEW benefits from the said stipulation does not automatically make it as damage was pervasive, WG&A declared the vessel’s damage as a "total constructive loss" and,
a co-assured of William Lines. The intention of the parties to make each other a co-assured hence, filed an insurance claim with Pioneer. Pioneer paid the insurance claim of WG&A in the
under an insurance policy is to be gleaned principally from the insurance contract or policy itself amount of US$8,472,581.78. WG&A, in turn, executed a Loss and Subrogation Receipt in favor
and not from any other contract or agreement because the insurance policy denominates the of Pioneer. Armed with the subrogation receipt, Pioneer tried to collect from KCSI, but the latter
assured and the beneficiaries of the insurance. 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 hull and machinery insurance procured by William Lines, Inc. from Prudential named only the Construction Industry Arbitration Commission (CIAC).
"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. It is axiomatic that when Pioneer claims that they are the real party in interest since it has been subrogated to the claim of
the terms of a contract are clear its stipulations control. Thus, when the insurance policy its assured. Also they claim that Keppel is clearly liable for the loss of M/V Superferry 3, since
involved named only William Lines, Inc. as the assured thereunder, the claim of CSEW that it is the immediate cause of the fire was the hot work done by Keppel's employee. Keppel averred
a co-assured is unfounded. that the Claimant is not a real party in interest and has no standing because it has not been
subrogated to the Vessel Owner and the insurance policies on which the Claimant bases its right
As correctly pointed out by respondent Prudential, if CSEW were deemed a co-assured under of subrogation were not validly obtained.
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 The CIAC rendered its Decision declaring both WG&A and KCSI guilty of negligence, the CIAC
a co-assured under such insurance policy; otherwise, any claim for loss or damage under the ordered KCSI to pay Pioneer the amount of P25,000,000.00, with interest at 6% per annum.
policy would be invalidated. Both Keppel and Pioneer appealed to the CA.

Dispositive Portion: The cases were consolidated in the CA. the CA rendered a decision dismissing petitioner’s
claims in its entirety. Keppel was declared as equally negligent.
WHEREFORE, for want of merit, the petition is hereby DENIED and the decision, dated
September 3, 1997, and Resolution, dated February 13, 1998, of the Court of Appeals ISSUES:
AFFIRMED. No pronouncement as to costs. Whether or not subrogation is proper. YES

SO ORDERED. HELD:
Art. 2207. If the plaintiff’s property has been insured and he has received indemnity from
17. KEPPEL CEBU SHIPYARD v PIONEER INS the insurance company for the injury or loss arising out of the wrong or breach of
GR 180880-81, 25 SEPTEMBER 2009 contract complained of, the insurance company shall be subrogated to the rights of the
By: CarLord insured against the wrongdoer or the person who has violated the contract. If the amount
TOPIC: SUBROGATION paid by the insurance company does not fully cover the injury or loss, the aggrieved
PETITIONER: KEPPEL CEBU SHIPYARD, INC. party shall be entitled to recover the deficiency from the person causing the loss or
RESPONDENT: PIONEER INSURANCE AND SURETY CORP. injury.
PONENTE: J. NACHURA
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,
DOCTRINE: Art. 2207. If the plaintiff’s property has been insured and he has received including its remedies or securities. The principle covers a situation wherein an insurer has paid
indemnity from the insurance company for the injury or loss arising out of the wrong or breach of
15
a loss under an insurance policy is entitled to all the rights and remedies belonging to the o Malayan Insurance claimed in its Complaint dated October 18, 1999 that it
insured against a third party with respect to any loss covered by the policy. It contemplates full paid the damages sustained by the assured amounting to PhP 700,000.
substitution such that it places the party subrogated in the shoes of the creditor, and he may use o Malayan stated that it has been subrogated to the rights and interests of the
all means that the creditor could employ to enforce payment. assured by operation of law upon its payment to the latter so it sent several
demand letters to Alberto and Reyes, the registered owner and the driver,
The SC held that payment by the insurer to the insured operates as an equitable assignment to respectively, of the Fuzo Cargo Truck, requiring them to pay the amount it
the insurer of all the remedies that the insured may have against the third party whose had paid to the assured.
negligence or wrongful act caused the loss. The right of subrogation is not dependent upon, nor - When Alberto and Reyes refused to settle their liability, Malayan Insurance was
does it grow out of, any privity of contract. It accrues simply upon payment by the insurance constrained to file a complaint for damages for gross negligence against them.
company of the insurance claim. - Alberto and Reyes argued that they cannot be held liable because the proximate
cause was the reckless driving of the Nissan bus driver.
o The speeding bus, coming from the service road of EDSA, maneuvered its
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, way towards the middle lane without due regard to Reyes’ right of way.
in justice, equity, and good conscience, ought to pay. o When the Nissan Bus abruptly stopped, Reyes stepped hard on the brakes
but the braking action could not cope with the inertia and failed to gain
sufficient traction.
DISPOSITIVE PORTION: - RTC ruled in favor of Malayan. Ordered Alberto and Reyes to jointly and severally pay
WHEREFORE, the Petition of Pioneer Insurance and Surety Corporation in G.R. No. 180896-97 Malayan
and the Petition of Keppel Cebu Shipyard, Inc. in G.R. No. 180880-81 are PARTIALLY - CA reversed; evidence on record has failed to establish not only negligence on the
GRANTED and the Amended Decision dated December 20, 2007 of the Court of Appeals is part of respondents, but also compliance with the other requisites and the consequent
MODIFIED. Accordingly, KCSI is ordered to pay Pioneer the amount of ₱360,000,000.00 less right of Malayan Insurance to subrogation.
₱30,252,648.09, equivalent to the salvage value recovered by Pioneer from M/V "Superferry 3," o The police report, which has been made part of the records of the trial court,
or the net total amount of ₱329,747,351.91, with six percent (6%) interest per annum reckoned
was not properly identified by the police officer who conducted the on-the-
from the time the Request for Arbitration was filed until this Decision becomes final and
spot investigation of the subject collision
executory, plus twelve percent (12%) interest per annum on the said amount or any balance
- Malayan Insurance now contends that there was a valid subrogation as evidenced by
thereof from the finality of the Decision until the same will have been fully paid. The arbitration
the claim check voucher and the release of claim and subrogation receipt
costs shall be borne by both parties on a pro rata basis. Costs against KCSI.
o Alberto and Reyes had all the opportunity to object to the presentation of its
evidence but failed to do so
SO ORDERED.
ISSUE: W/N the subrogation of Malayan Insurance is valid - YES

18. Malayan Insurance v. Alberto and Reyes HELD:

GR NO. 194320 - Failure to object to the offered evidence renders it admissible, and the court
February 1, 2012 cannot, on its own, disregard such evidence. 
SPV o We note that ASIAKONSTRUCT’s counsel of record before the trial court,
Topic: Subrogation Atty. Bernard Dy, who actively participated in the initial stages of the case
Petitioners: Malayan Insurance Co., Inc stopped attending the hearings when COMFAC was about to end its
Respondents: Rodelio Alberto and Enrico Alberto Reyes presentation.
Ponente: Velasco, Jr o Thus, ASIAKONSTRUCT could not object to COMFAC’s offer of evidence
nor present evidence in its defense; ASIAKONSTRUCT was deemed by the
trial court to have waived its chance to do so.
FACTS
- When a party desires the court to reject the evidence offered, it must so state in the
- Around 5AM of Dec 17, 1995, an accident occurred at the corner of EDSA and Ayala
form of a timely objection and it cannot raise the objection to the evidence for the first
Avenue, Makati City, involving four (4) vehicles, to wit: (1) a Nissan Bus operated by
time on appeal.
Aladdin Transit; (2) an Isuzu Tanker; (3) a Fuzo Cargo Truck; and (4) a Mitsubishi
o Because of a party’s failure to timely object, the evidence becomes part of
Galant.
o The Isuzu Tanker was in front of the Mitsubishi Galant with the Nissan Bus the evidence in the case.
on their right side shortly before the vehicular incident. - The claim check voucher and the Release of Claim and Subrogation Receipt
o The Fuzo Cargo Truck simultaneously bumped the rear portion of the presented by Malayan Insurance are already part of the evidence on record, and since
it is not disputed that the insurance company, indeed, paid PhP 700,000 to the
Mitsubishi Galant and the rear left portion of the Nissan Bus.
assured, then there is a valid subrogation in the case at bar.
o Due to the strong impact, these two vehicles were shoved forward and the
- Subrogation is the substitution of one person by another with reference to a lawful
front left portion of the Mitsubishi Galant rammed into the rear right portion
claim or right, so that he who is substituted succeeds to the rights of the other in
of the Isuzu Tanker
relation to a debt or claim, including its remedies or securities.
- Malayan Insurance issued a Car Insurance Policy, insuring the Mitsubishi Galant
o The principle covers a situation wherein an insurer has paid a loss under an
against third party liability, own damage and theft, among others.
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.
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 o 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 HELD/RATIO:
employ to enforce payment. · In the absence of any other evidence to support its allegation that a gentlemen's
- Payment by the insurer to the insured operates as an equitable assignment to the agreement existed between it and respondent, not embodied in the Release of Claim, such
insurer of all the remedies that the insured may have against the third party whose Release of Claim must be taken as the best evidence of the intent and purpose of the
negligence or wrongful act caused the loss. parties.
o The right of subrogation is not dependent upon, nor does it grow out of, any o Since petitioner by its own acts released San Miguel Corporation,
privity of contract. thereby defeating private respondent's right of subrogation, the right of
o It accrues simply upon payment by the insurance company of the insurance action of petitioner against the insurer was also nullified.
claim. · petitioner is entitled to keep the sum of P4,500 paid by San Miguel Corporation under
o The doctrine of subrogation has its roots in equity. It is designed to promote its clear right to file a deficiency claim for damages incurred, against the wrongdoer, should
and to accomplish justice; and is the mode that equity adopts to compel the the insurance company not fully pay for the injury caused (Article 2207, New Civil Code).
ultimate payment of a debt by one who, in justice, equity, and good However, when petitioner's right to retain the sum of P5,000.00 no longer existed,
conscience, ought to pay. thereby entitling private respondent to recover the same.
o The right of subrogation can only exist after the insurer has paid the
insured, otherwise the insured will be deprived of his right to full
Dispositive indemnity. If the insurance proceeds are not sufficient to cover the
WHEREFORE, the petition is hereby GRANTED. The CA’s July 28, 2010 Decision and October damages suffered by the insured, then he may sue the party
29, 2010 Resolution in CA-G.R. CV No. 93112 are hereby REVERSED and SET ASIDE. The responsible for the damage for the remainder. To the extent of the
Decision dated February 2, 2009 issued by the trial court in Civil Case No. 99-95885 is hereby amount he has already received from the insurer, the insurer enjoys
REINSTATED. the right of subrogation.
o DOCTRINE: Since the insurer can be subrogated to only such rights as
the insured may have, should the insured, after receiving payment
19. Manila Mahogany v. CA from the insurer, release the wrongdoer who caused the loss, the
G.R NO. 52576. October 12, 1987. insurer loses his rights against the latter. But in such a case, the
By: RMS insurer will be entitled to recover from the insured whatever it has
Topic: Subrogation paid to the latter, unless the release was made with the consent of
Petitioners: MANILA MAHOGANY MANUFACTURING CORPORATION the insurer.
Respondents: COURT OF APPEALS AND ZENITH INSURANCE CORPORATION
DISPOSITIVE:
FACTS: WHEREFORE, premises considered, the petition is DENIED. The judgment appealed from is
· When Manila Mahogany’s Mercedes Benz sedan bumped and damaged by a San hereby AFFIRMED with costs against petitioner.
Miguel Corp. truck, Zenith Insurance paid the former P5k in amicable settlement. SO ORDERED.
· Manila Mahogany executed a Release of Claim subrogating Zenith to all its right to
action against SMC. NOTES:
· Zenith wrote to Insurance Adjusters, Inc. demanding reimbursement from SMC of the ART. 2207. If the plaintiff's property has been insured, and he has received indemnity from the
amount it had paid to Manila Mahogany. insurance company for the injury or loss arising out of the wrong or breach of contract
o Insurance adjusters refused, alleging that SMC had already paid Manila complained of the insurance company shall be subrogated to the rights of the insured against
Mahogany P4.5k for damages of the car, as evidenced by a cash the wrongdoer or the person who has violated the contract. If the amount paid by the insurance
voucher and a Release of Claim executed by the General Manager of company does not fully cover the injury or loss the aggrieved party shall be entitled to recover
MM discharging SMC from "all actions, claims, demands the rights of the deficiency from the person causing the loss or injury.
action that now exist or hereafter develop arising out of or as a
consequence of the accident."
· Zenith thereafter demanded reimbursement from Manila Mahogany of the P4.5k paid ART. 1304. A creditor, to whom partial payment has been made, may exercise his right for the
by SMC, but MM refused. Hence, Zenith filed a suit. remainder, and he shall be preferred to the person who has been subrogated in his place in
· RTC: ordered MM to pay Zenith P4.5k; CA: modified amount to P5k as the amount virtue of the partial payment of the same credit.
paid by Zenith to MM.
· MM: it is not bound to pay P4,500.00, and much more, P5,000.00 to Zenith as the
subrogation in the Release of Claim it executed in favor of the latter was conditioned on 20 DANZAS CORPORATION v ABROGAR
recovery of the total amount of damages petitioner had sustained, and since total damages GR No. 141462, 15 December 2005
were valued by MM at P9,486.43 and only P5,000.00 was received by Zenith, MM argues TS
that it was entitled to go after San Miguel Corporation to claim the additional P4,500.00 Topic: SUBROGATION
eventually paid to it by the latter, without having to turn over said amount to respondent. Petitioners: DANZAS CORPORATION and ALL TRANSPORT NETWORK, INC.
MM invoked Civil Code provisions (see notes). Respondents: HON. ZEUS C. ABROGAR, Presiding Judge of Br. 150 of Makati City,
SEABOARD EASTERN INSURANCE CO., INC. and PHILIPPINE SKYLANDERS, INC.
Ponente: CORONA, J.
ISSUE: W/N
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DOCTRINE: Whenever the wrongdoer settles with the insured without the consent of the insurer ● While Manila Mahogany is silent on whether the existence of good faith or bad faith on
and with knowledge of the insurer’s payment and right of subrogation, such right is not defeated the tortfeasor’s part affects the insurer’s right of subrogation, there exists a wealth of
by the settlement. U.S. jurisprudence holding that whenever the wrongdoer settles with the insured
without the consent of the insurer and with knowledge of the insurer’s payment and
FACTS: right of subrogation, such right is not defeated by the settlement.
● Danzas took a shipment of 9 packages of ICS watches for transport to Manila.
● The consignee, International Freeport Traders, Inc. (IFTI) secured a Marine Risk Note DISPOSITIVE PORTION: WHEREFORE, in view of the foregoing, the petition is hereby
from private respondent Seaboard. DENIED. The decision and resolution of the Court of Appeals are AFFIRMED.
● The Korean Airlines (KAL) plane carrying the goods arrived in Manila and discharged
the goods to the custody of private respondent Philippine Skylanders, Inc. (PSI) for
safekeeping. 21. F.F. Cruz v CA
● On withdrawal of the shipment from PSI’s warehouse, IFTI noted that one package GR No. L-52732 August 29, 1988
containing 475 watches was shortlanded while the remaining eight were found to have By: Kath
sustained tears on sides and the retape of flaps. Topic: SUBROGATION; ART. 2007, CIVIL CODE
○ On further examination and inventory of the cartons, it was discovered that Petitioners: F.F. CRUZ and CO., INC.
176 Guess watches were missing. Respondents: THE COURT OF APPEALS, GREGORIO MABLE as substituted by his wife LUZ
● Seaboard, as insurer, paid the losses to IFTI. ALMONTE MABLE and children DOMING, LEONIDAS, LIGAYA, ELENA, GREGORIO, JR.,
● Seaboard, invoking its right of subrogation, filed a complaint against PSI, Danzas, and SALOME, ANTONIO, and BERNARDO all surnamed MABLE
Danzas’ authorized representative All Transport Network, Inc. (ATN), praying for Ponente: CORTES, J.
actual damages in the amount of P612,904.97 plus legal interest, attorney’s fees and
FACTS:
cost of suit.
● F.F. Cruz’s furniture manufacturing shop in Caloocan City was adjacent to Mable’s
● Danzas and ATN impleaded KAL as third-party defendant.
residence.
● While the case was pending, IFTI’s treasurer Mary Eileen Gozon accepted the
● in 1971, Mable approached Cruz, F.F. Cruz’s plant manager, to request that a firewall
proposal of KAL to settle consignee’s claim by paying the amount of US $522.20.
be constructed between the shop and the residence
Felipe Acebedo, IFTI’s representative received a check from KAL and correspondingly
o request fell on deaf ears
signed a release form.
● Danzas and ATN filed a motion to dismiss the case on the ground that Seaboard’s ● In 1974, fire broke out in F.F. Cruz’s shop. The fire spread to Mable’s house.
demand had been paid or otherwise extinguished by KAL. o Both were razed to the ground.
● The trial court issued an order denying the motion to dismiss. Danzas, ATN, PSI and ● Mable collected P35,000.00 on the insurance on their house and the contents thereof.
KAL filed separate MRs. ● Mable filed an action for damages against F.F. Cruz
o praying for P150,000.00 as actual damages, P50,000.00 as moral
ISSUE: W/N Seaboard’s right to subrogation was extinguished when IFTI received payment damages, P25,000.00 as exemplary damages, P20,000.00 as attorney's
from KAL in settlement of its obligation.- NO. fees and costs
● CFI held for private respondents
RULING: o Ordered F.F. Cruz to pay P80,000.00 for the loss of Mable’s house;
● It is true that the doctrine in Manila Mahogany Manufacturing Corporation v. CA P50,000.00 for the loss of their furnitures and other valuables; P5,000.00 as
remains the controlling doctrine on the issue of whether the tortfeasor, by settling with moral damages, P2,000.00 as exemplary damages, and P5,000.00 as
the insured, defeats the right to subrogation of the insurer. attorney's fees
o “Since the insurer can be subrogated to only such rights as the insured may ● On appeal, CA affirmed CFI’s decision, but reduced the award of damages.
have, should the insured, after receiving payment from the insurer, release o damages to be awarded to Mable should be reduced to P70,000.00 for the
the wrongdoer who caused the loss, the insurer loses his rights against the house and P50,000.00 for the furniture and other fixtures
latter. But in such a case, the insurer will be entitled to recover from the ● F.F. Cruz filed a motion for reconsideration
insured whatever it has paid to the latter, unless the release was made with o denied
the consent of the insurer.” ● Hence, F.F. Cruz filed the instant petition for review
● This is reinforced by Pan Malayan Insurance Corporation v. CA, in which the court o contends that the CA erred in not deducting the sum of P35,000.00, which
cited a number of exceptions to the rule laid down in Article 2207 of the Civil Code. Mable recovered on the insurance on their house, from the award of
o Under the first of these exceptions, “if the assured by his own act releases damages
the wrongdoer or third party liable for the loss or damage from liability, the
insurer’s right of subrogation is defeated.” ISSUE:
● However, certain factual differences pointed out by Seaboard render this doctrine W/N CA erred in not deducting the sum of P35,000.00, which Mable recovered on the insurance
inapplicable. In Manila Mahogany, the tortfeasor San Miguel Corporation paid the on their house, from the award of damages – YES.
insured without knowing that the insurer had already made such payment.
o KAL was not similarly situated, being fully aware of the prior payment made RULING:
by the insurer to the consignee. The fact that Mable have been indemnified by their insurer in the amount of P35,000.00 for the
o Seaboard asserts that, being in bad faith, KAL should bear the damage caused to their house and its contents has not escaped the attention of the Court.
consequences of its actions. Hence, the Court holds that in accordance with Article 2207 of the Civil Code, the amount of
P35,000.00 should be deducted from the amount awarded as damages.
18
 ● 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 is subrogated to the rights of the
insured against the wrongdoer or the person who 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.
o The law is clear and needs no interpretation. Having been indemnified by
their insurer, Mable are only entitled to recover the deficiency from F.F.
Cruz.
o On the other hand, the insurer may seek reimbursement of the amount it
indemnified Mable from F.F. Cruz.
● DOCTRINE: Upon payment of the loss incurred by the insured, the insurer is entitled to be
subrogated pro tanto to any right of action which the insured may have against the third
person whose negligence or wrongful act caused the loss.
o Since the insurer is not a party to the case, its identity is not of record and no
claim is made on its behalf, Mable’s insurer has to claim his right to
reimbursement of the P35,000.00 paid to the insured.

DISPOSITIVE PORTION:
WHEREFORE, in view of the foregoing, the decision of the Court of Appeals is hereby
AFFIRMED with the following modifications as to the damages awarded for the loss of private
respondents' house, considering their receipt of P35,000.00 from their insurer: (1) the damages
awarded for the loss of the house is reduced to P35,000.00; and (2) the right of the insurer to
subrogation and thus seek reimbursement from petitioner for the P35,000.00 it had paid private
respondents is recognized.

19