Sec. 90.

All defects in a notice of loss, or in preliminary proof

thereof, which the insured might remedy, and which the insurer
omits to specify to him, without unnecessary delay, as grounds
of objection, are waived.
Sec. 91. Delay in the presentation to an insurer of notice or proof
of loss is waived if caused by any act of him, or if he omits to
take objection promptly and specifically upon that ground.
Sec. 92. If the policy requires, by way of preliminary proof of
loss, the certificate or testimony of a person other than the
insured, it is sufficient for the insured to use reasonable
diligence to procure it, and in case of the refusal of such person
to give it, then to furnish reasonable evidence to the insurer that
such refusal was not induced by any just grounds of disbelief in
the facts necessary to be certified or testified.
Title
DOUBLE INSURANCE

11

Sec. 93. A double insurance exists where the same person is

insured by several insurers separately in respect to the same
subject and interest.
Sec. 94. Where the insured is overinsured by double insurance:
(a) The insured, unless the policy otherwise provides, may
claim payment from the insurers in such order as he may
select, up to the amount for which the insurers are
severally liable under their respective contracts;
(b) Where the policy under which the insured claims is a
valued policy, the insured must give credit as against the
valuation for any sum received by him under any other
policy without regard to the actual value of the subject
matter insured;
(c) Where the policy under which the insured claims is an
unvalued policy he must give credit, as against the full
insurable value, for any sum received by him under any
policy;
(d) Where the insured receives any sum in excess of the
valuation in the case of valued policies, or of the insurable
value in the case of unvalued policies, he must hold such
sum in trust for the insurers, according to their right of
contribution among themselves;
(e) Each insurer is bound, as between himself and the
other insurers, to contribute ratably to the loss in
proportion to the amount for which he is liable under his
contract.

64- United Merchants v Country Bankers

Facts:
United Merchants was a manufacturer and retailer of Christmas
lights. It insured (fire policy) its Christmas lights stored in the
warehouse with Country Bankers.
The warehouse was burned down hence United sought indemnity
from Country. Country rejected the claim on the ground of
Condition 15 of the policy which states that
If the claim be in any respect fraudulent, or if any false declaration
be made or used in support thereof, or if any fraudulent means or
devices are used by the Insured or anyone acting in his behalf to
obtain any benefit under this Policy; or if the loss or damage be
occasioned by the willful act, or with the connivance of the Insured,
all the benefits under this Policy shall be forfeited.
CBIC alleged that UMCs claim was fraudulent because UMCs
Statement of Inventory showed that it had no stocks in trade as
of 31 December 1995, and that UMCs suspicious purchases for the
year 1996 did not even amount to P25,000,000.00. UMCs GIS and
Financial Reports further revealed that it had insufficient capital,
which meant UMC could not afford the allegedP50,000,000.00
worth of stocks in trade.
United answered back saying that they have a certificate from the
Bureau of Fire Protection which states that : The Bureau further
certifies that no evidence was gathered to prove that the
establishment was willfully, feloniously and intentionally set on
fire.
Issue: Whether UMC is entitled to claim from CBIC the full
coverage of its fire insurance policy.
Held: No! If loss is proved apparently within a contract
of insurance, the burden is upon the insurer to establish that the
loss arose from a cause of loss which is excepted or for which it is
not liable, or from a cause which limits its liability. In the present

case, CBIC failed to discharge its primordial burden of establishing

that the damage or loss was caused by arson, a limitation in the
policy.

disbursements, as well as the basis therefor, for the next

succeeding three years. (As amended by Presidential
Decree No. 1455).

Nevertheless just because the defense failed to prove arson does

not mean that fraud does not exist. In fact, fraud exists in this case.
The Court ruled that the submission of false invoices to the
adjusters establishes a clear case of fraud and misrepresentation
which voids the insurers liability as per condition of the policy.

Title
APPOINTMENT OF CONSERVATOR

A fraudulent discrepancy between the actual loss and that claimed

in the proof of loss voids the insurance policy. Mere filing of such a
claim will exonerate the insurer. Considering that all the
circumstances point to the inevitable conclusion that UMC padded
its claim and was guilty of fraud, UMC violated Condition No. 15 of
the Insurance Policy. Thus, UMC forfeited whatever benefits it may
be entitled under the Insurance Policy, including its insurance
claim.
3. Sec. 247. If the Commissioner is of the opinion upon
examination of other evidence that any domestic or foreign
insurance company is in an unsound condition, or that it
has failed to comply with the provisions of law or
regulations obligatory upon it, or that its condition or
method of business is such as to render its proceedings
hazardous to the public or to its policyholders, or that its
paid-up capital stock, in the case of a domestic stock
company, or its available cash assets, in the case of a
domestic mutual company, or its security deposits, in the
case of a foreign company, is impaired or deficient, or that
the margin of solvency required of such company is
deficient, the Commissioner is authorized to suspend or
revoke all certificates of authority granted to such
insurance company, its officers and agents, and no new
business shall thereafter be done by such company or for
such company by its agent in the Philippines while such
suspension, revocation or disability continues or until its
authority to do business is restored by the Commissioner.
Before restoring such authority, the Commissioner shall
require the company concerned to submit to him a business
plan showing the company's estimated receipts and

14

Sec. 248. If at any time before, or after, the suspension or

revocation of the certificate of authority of an insurance
company as provided in the preceding title, the
Commissioner finds that such company is in a state of
continuing inability or unwillingness to maintain a condition
of solvency or liquidity deemed adequate to protect the
interest of policy holders and creditors, he may appoint a
conservator to take charge the assets, liabilities, and the
management of such company, collect all moneys and debts
due said company and exercise all powers necessary to
preserve the assets of said company, reorganize the
management thereof, and restore its viability. The said
conservator shall have the power to overrule or revoke the
actions of the previous management and board of directors
of the said company, any provision of law, or of the articles
of incorporation or by-laws of the company, to the contrary
notwithstanding,
and
such
other
powers
as
the
Commissioner shall deem necessary.
The conservator may be another insurance company doing
business in the Philippines, by officer or officers of such
company, or any other competent and qualified person, firm
or corporation. The remuneration of the conservator and
other expenses attendant to the conservation shall be
borne by the insurance company concerned.
The conservator shall not be subject to any action, claim or
demand by, or liability to, any person in respect of anything
done or omitted to be done in good faith in the exercise, or
in connection with the exercise, of the powers conferred on
the conservator.
The conservator appointed shall report and be responsible
to the Commissioner until such time as the Commissioner is

satisfied that the insurance company can continue to

operate on its own and the conservatorship shall likewise
be terminated should be Commissioner, on the basis of the
report of the conservator or of his own findings, determine
that the continuance in business of the insurance company
would be hazardous to policy holders and creditors, in
which case the provisions of Title 15 shall apply.
Title
PROCEEDINGS UPON INSOLVENCY

15

Sec. 249. Whenever, upon examination or other evidence, it

shall be disclosed that the condition of any insurance
company doing business in the Philippines is one of
insolvency, or that its continuance in business would be
hazardous to its policyholders and creditors, the
Commissioner shall forthwith order the company to cease
and desist from transacting business in the Philippines and
shall designate a receiver to immediately take charge of its
assets and liabilities, as expeditiously as possible collect
and gather all the assets and administer the same for the
benefit of its policyholders and creditors, and exercise all
the powers necessary for these purposes including, but not
limited to, bringing suits and foreclosing mortgages in the
name of the insurance company.
The Commissioner shall thereupon determine within thirty
days whether the insurance company may be reorganized
or otherwise placed in such condition so that it may be
permitted to resume business with safety to its
policyholders and creditors and shall prescribe the
conditions under which such resumption of business shall
take place as well as the time for fulfillment of such
conditions. In such case, the expenses and fees in the
collection and administration of the insurance company
shall be determined by the Commissioner and shall be paid
out of the assets of such company.
If the Commissioner shall determine and confirm within the
said period that the insurance company is solvent, as
defined hereunder, or cannot resume business with safety

to its policyholders and creditors, he shall, if the public

interest requires, order its liquidation, indicate the manner
of its liquidation and approve a liquidation plan and
implement it immediately. The Commissioner shall
designate a competent and qualified person as liquidator
who shall take over the functions of the receiver previously
designated and, with all convenient speed, reinsure all its
outstanding policies, convert the assets of the insurance
company to cash, or sell, assign or otherwise dispose of the
same to the policyholders, creditors and other parties for
the purpose of settling the liabilities or paying the debts of
such company and he may, in the name of the company,
institute such actions as may be necessary in the
appropriate Court to collect and recover accounts and
assets of the insurance company, and to do such other acts
as may be necessary to complete the liquidation as ordered
by the Commissioner.
The provisions of any law to the contrary notwithstanding,
the actions of the Commissioner under this Section shall be
final and executory, and can be set aside by the Court upon
petition by the company and only if there is convincing
proof that the action is plainly arbitrary and made in bad
faith. The Commissioner, through the Solicitor General,
shall then file the corresponding answer reciting the
proceeding taken and praying the assistance of the Court in
the liquidation of the company. No restraining order or
injunction shall be issued by the Court enjoining the
Commissioner from implementing his actions under this
Section, unless there is convincing proof that the action of
the Commissioner is plainly arbitrary and made in bad faith
and the petitioner or plaintiff files with the Clerk or Judge of
the Court in which the action is pending a bond executed in
favor of the Commissioner in an amount to be fixed by the
Court. The restraining order or injunction shall be refused
or, if granted, shall be dissolved upon filing by the
Commissioner, if he so desires, of a bond in an amount
twice the amount of the bond of the petitioner or plaintiff
conditioned that it will pay the damages which the petition
or plaintiff may suffer by the refusal or the dissolution of

the injunction. The provisions of Rule 58 of the New Rules

of Court insofar as they are applicable shall govern the
issuance and dissolution of the restraining order or
injunction contemplated in this Section.
All proceedings under this Title shall be given preference in
the Courts. The Commissioner shall not be required to pay
any fee to any public officer for filing, recording, or in any
manner authenticating any paper or instrument relating to
the proceedings.
As used in this Title, the term "Insolvency" shall mean the
inability of an insurance company to pay its lawful
obligations as they fall due in the usual and ordinary course
of business as may be shown by its failure to maintain the
margin of solvency required under Section 194 of this
Code. (As amended by Presidential Decree No. 1141 and
further amended by Presidential Decree No. 1455).
Sec. 250. In case of liquidation of an insurance company,
after payment of the cost of the proceedings, including
reasonable expenses and fees incurred in the liquidation to
be allowed by the Court, the Commissioner shall pay all
allowed claims against such company, under order of the
Court, in accordance with their legal priority.
Sec. 251. The receiver or the liquidator, as the case may be,
designated under the provisions of this title shall not be
subject to any action, claim or demand by, or liability to,
any person in respect of anything done or omitted to be
done in good faith in the exercise, or in connection with the
exercise, of the powers conferred on such receiver or
liquidator.
Sec. 397. Every mutual benefit association must accumulate
and maintain, out of the periodic dues collected from its
members, sufficient reserves for the payment of claims or
obligations for which it shall hold funds in securities
satisfactory to the Commissioner consisting of bonds of the
Government of the Philippines, or any of its political

subdivisions and instrumentalities, or in such other good

securities as may be approved by the Commissioner.
The reserve liability shall be established in accordance with
actuarial procedures and shall be approved by the
Commissioner.
The articles of incorporation or the constitution and by-laws
of a mutual benefit association must provide that if its
reserve as to all or any class of certificates becomes
impaired, its board of directors or trustees may require that
there shall be paid by the members to the association the
amount of the members' equitable proportion of such
deficiency as ascertained by said board and that if the
payment be not made it shall stand as an indebtedness
against the membership certificates of the defaulting
members and draw interest not to exceed five per centum
per annum compounded annually.
Title V. PRESCRIPTION
CHAPTER 3 > PRESCRIPTION OF ACTIONS
Art. 1139. Actions prescribe by the mere lapse of time fixed by law.
(1961)
Art. 1140. Actions to recover movables shall prescribe eight years
from the time the possession thereof is lost, unless the possessor
has acquired the ownership by prescription for a less period,
according to Articles 1132, and without prejudice to the provisions
of Articles 559, 1505, and 1133. (1962a)
Art. 1141. Real actions over immovables prescribe after thirty
years.
This provision is without prejudice to what is established for the
acquisition of ownership and other real rights by prescription.
(1963)
Art. 1142. A mortgage action prescribes after ten years. (1964a)
Art. 1143. The following rights, among others specified elsewhere
in this Code, are not extinguished by prescription:
(1) To demand a right of way, regulated in Article 649;

(2) To bring an action to abate a public or private nuisance. (n)

Art. 1144. The following actions must be brought within ten years
from the time the right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment. (n)
Art. 1145. The following actions must be commenced within six
years:
(1) Upon an oral contract;
(2) Upon a quasi-contract. (n)
Art. 1146. The following actions must be instituted within four
years:
(1) Upon an injury to the rights of the plaintiff;

Art. 1150. The time for prescription for all kinds of actions, when
there is no special provision which ordains otherwise, shall be
counted from the day they may be brought. (1969)
Art. 1151. The time for the prescription of actions which have for
their object the enforcement of obligations to pay principal with
interest or annuity runs from the last payment of the annuity or of
the interest. (1970a)
Art. 1152. The period for prescription of actions to demand the
fulfillment of obligation declared by a judgment commences from
the time the judgment became final. (1971)
Art. 1153. The period for prescription of actions to demand
accounting runs from the day the persons who should render the
same cease in their functions.
The period for the action arising from the result of the accounting
runs from the date when said result was recognized by agreement
of the interested parties. (1972)

(2) Upon a quasi-delict;

Art. 1154. The period during which the obligee was prevented by a
fortuitous event from enforcing his right is not reckoned against
him. (n)

However, when the action arises from or out of any act, activity, or
conduct of any public officer involving the exercise of powers or
authority arising from Martial Law including the arrest, detention
and/or trial of the plaintiff, the same must be brought within one (1)
year. (As amended by PD No. 1755, Dec. 24, 1980.)

Art. 1155. The prescription of actions is interrupted when they are

filed before the court, when there is a written extrajudicial demand
by the creditors, and when there is any written acknowledgment of
the debt by the debtor. (1973a)

Art. 1147. The following actions must be filed within one year:
(1) For forcible entry and detainer;
(2) For defamation. (n)
Art. 1148. The limitations of action mentioned in Articles 1140 to
1142, and 1144 to 1147 are without prejudice to those specified in
other parts of this Code, in the Code of Commerce, and in special
laws. (n)
Art. 1149. All other actions whose periods are not fixed in this Code
or in other laws must be brought within five years from the time the
right of action accrues. (n)

Sec. 397. Every mutual benefit association must accumulate

and maintain, out of the periodic dues collected from its
members, sufficient reserves for the payment of claims or
obligations for which it shall hold funds in securities
satisfactory to the Commissioner consisting of bonds of the
Government of the Philippines, or any of its political
subdivisions and instrumentalities, or in such other good
securities as may be approved by the Commissioner.
The reserve liability shall be established in accordance with
actuarial procedures and shall be approved by the
Commissioner.
The articles of incorporation or the constitution and by-laws
of a mutual benefit association must provide that if its
reserve as to all or any class of certificates becomes
impaired, its board of directors or trustees may require that

there shall be paid by the members to the association the

amount of the members' equitable proportion of such
deficiency as ascertained by said board and that if the
payment be not made it shall stand as an indebtedness
against the membership certificates of the defaulting
members and draw interest not to exceed five per centum
per annum compounded annually.

indemnity against liability to third persons, then third persons to

whom the insured is liable can sue the insurer. Where the contract
is for indemnity against actual loss or payment, then third persons
cannot proceed against the insurer, the contract being solely to
reimburse the insured for liability actually discharged by him thru
payment to third persons, said third persons recourse being thus
limited to the insured alone.

Travellers Insurance & Surety Corporation vs. Hon. Court of

Appeals & Vicente Mendoza

The trial court did not distinguish between the private respondents
cause of action against the owner and the driver of the Lady Love
taxicab and his cause of action against petitioner. The former is
based on torts and quasi-delicts while the latter is based on
contract. Confusing these two sources of obligations as they arise
from the same act of the taxicab fatally hitting private respondents
mother, and in the face of overwhelming evidence of the reckless
imprudence of the driver of the Lady Love taxicab, the trial court
brushed aside its ignorance of the terms and conditions of the
insurance contract and forthwith found all three - the driver of the
taxicab, the owner of the taxicab, and the alleged insurer of the
taxicab - jointly and severally liable for actual, moral and exemplary
damages as well as attorneys fees and litigation expenses. This is
clearly a misapplication of the law by the trial court, and
respondent appellate court grievously erred in not having reversed
the trial court on this ground.

Facts:
Vicente Mendoza, Jr. as heir of his mother (Feliza Vineza de
Mendoza) who was killed in a vehicular accident, filed an action for
damages against the erring taxicab driver (Rodrigo Dumlao), the
owner (Armando Abellon) of the taxicab (Lady Love Taxi with Plate
No. 438-HA Pilipinas Taxi 1980) and the alleged insurer of the
vehicle which featured in the vehicular accident. The erring taxicab
was allegedly covered by a third-party liability insurance policy
issued by petitioner Travellers Insurance & Surety Corporation.
Petitioner was included in the complaint as the compulsory insurer
of the said taxicab under Certificate of Cover No. 1447785-3.
The trial court rendered judgment in favor of private respondent
and ordered Rodrigo Dumlao, Armando Abellon and petitioner to
pay private respondent death indemnity, moral damages,
exemplary damages, attorneys fees and other litigation expenses,
jointly and severally.
The decision was affirmed by the CA and the subsequent MR was
denied.
Hence this petition.

ISSUE: Whether petitioner is liable to private respondent?

HELD: NO.
I. The right of the person injured to sue the insurer of the party at
fault (insured), depends on whether the contract of insurance is
intended to benefit third persons also or on the insured. And the
test applied has been this: Where the contract provides for

While it is true that where the insurance contract provides for

indemnity against liability to third persons, such third persons can
directly sue the insurer, however, the direct liability of the insurer
under indemnity contracts against third-party liability does not
mean that the insurer can be held solidarily liable with the insured
and/or the other parties found at fault. The liability of the insurer is
based on contract; that of the insured is based on tort.
II. At the time of the vehicular incident which resulted in the death
of private respondents mother, during which time the Insurance
Code had not yet been amended by Batas Pambansa (B.P.) Blg.
874, Section 384 provided as follows:
Any person having any claim upon the policy issued pursuant to
this chapter shall, without any unnecessary delay, present to the
insurance company concerned a written notice of claim setting
forth the amount of his loss, and/or the nature, extent and duration
of the injuries sustained as certified by a duly licensed
physician. Notice of claim must be filed within six months from date
of the accident, otherwise, the claim shall be deemed
waived. Action or suit for recovery of damage due to loss or injury

must be brought in proper cases, with the Commission or the

Courts within one year from date of accident, otherwise the
claimants right of action shall prescribe [emphasis and
underscoring supplied].
It is significant to note that the aforecited Section 384 was
amended by B.P. Blg. 874 to categorically provide that action or
suit for recovery of damage due to loss or injury must be brought in
proper cases, with the Commissioner or the Courts within one
year from denial of the claim, otherwise the claimants right of
action shall prescribe [emphasis ours].
We have certainly ruled with consistency that the prescriptive
period to bring suit in court under an insurance policy, begins to
run from the date of the insurers rejection of the claim filed by the
insured, the beneficiary or any person claiming under an insurance
contract. This ruling is premised upon the compliance by the
persons suing under an insurance contract, with the indispensable
requirement of having filed the written claim mandated by
Section 384 of the Insurance Code before and after its
amendment. Absent such written claim filed by the person suing
under an insurance contract, no cause of action accrues under such
insurance contract, considering that it is the rejection of that claim
that triggers the running of the one-year prescriptive period to
bring suit in court, and there can be no opportunity for the insurer
to even reject a claim if none has been filed in the first place, as in
the instant case.
Sun Insurance Office, Ltd. v. CA and Emilio Tan
G.R. No. 89741 March 13, 1991
Paras, J.
FACTS:
Emilio Tan took from Sun Insurance Office a P300,000.00 property
insurance policy tocover his interest in the electrical supply store of
his brother. Four days after the issuance of t h e p o l i c y , t h e
b u i l d i n g w a s b u rn e d i n c l u d i n g t h e i n s u re d s t o re . O n
August
20,
1983,
Ta n
fi l e d h i s
claim for
fi r e l o s s w i t h S u n
I n s u r a n c e O ffi c e , b u t o n F e b r u a r y 2 9 , 1 9 8 4 , S u n
I n s u r a n c e O ffi ce w ro t e Ta n d e n y i n g t h e l a t t e r s cl a i m .
O n A p r i l 3 , 1 9 8 4 , Ta n w ro t e S u n I n s u r a n c e O ffi c e ,
s e e k i n g re c o n s i d e r a t i o n o f t h e d e n i a l o f h i s cl a i m . S u n
I n s u r a n c e O ffi ce answered the letter, advising Tans counsel
that the Insurers denial of Tans claim remained unchanged.
ISSUES:

( 1 ) W O N t h e fi l i n g o f a m o t i o n f o r r e c o n s i
d e r a t i o n i n t e r r u p t s t h e 1 2 m o n t h s prescriptive
period to contest the denial of the insurance claim; and(2 ) W O N
t h e re j e c t i o n o f t h e c l a i m s h a l l b e d e e m e d fi n a l o n l y
o f i t c o n t a i n s w o rd s t o the effect that the denial is final;
HELD:
(1) No. In this case, Condition 27 of the Insurance Policy of the
parties reads:27.
Ac t i o n o r s u i t c l a u s e
- I f a c l a i m b e m a d e a n d r e j e c t e d a n d a n action or
suit be not commenced either in the Insurance Commission orin
any court of competent jurisdiction within twelve (12) months
fromreceipt of notice of such rejection, or in case of arbitration
taking placeas provided herein, within twelve (12) months after due
notice of theaward made by the arbitrator or arbitrators or umpire,
then the claims h a l l f o r a l l p u r p o s e s b e d e e m e d t o h a v e
b e e n a b a n d o n e d a n d s h a l l not thereafter be recoverable hereunder.As
the terms are very clear and free from any doubt or ambiguity
whatsoever, it mustbe taken and understood in its plain, ordinary
and popular sense. Tan, in his letter addressed to Sun Insurance
Office
dated
April
3,
1984,
admitted
thath e r e c e i v e d a c o p y o f t h e l e t t e r o f r e j e
ction on April 2, 1984. Thus, the 12m o n t h p re s c r i p t i v e p e r i o d s t a r t e d t o r u n f ro m t h e s a i d
d a t e o f A p r i l 2 , 1 9 8 4 , f o r s u c h i s t h e p l a i n meaning and
intention of Section 27 of the insurance policy. The condition
contained in an insurance policy that claims must be presented
withino n e ye a r a ft e r re j e c t i o n i s n o t m e re l y a p ro c e d u r a l
re q u i re m e n t b u t a n i m p o r t a n t m a t t e r essential to a prompt
settlement of claims against insurance companies as it demands
thatinsurance suits be brought by the insured while the evidence as
to the origin and cause of destruction have not yet disappeared.I t
i s a p p a re n t t h a t S e c t i o n 2 7 o f t h e i n s u r a n c e p o l i c y w a s
s t i p u l a t e d p u r s u a n t t o Section 63 of the Insurance Code, which
states
that:S e c . 6 3 . A c o n d i t i o n , s t i p u l a t i o n o r a g
r e e m e n t i n a n y p o l i c y o f insurance, limiting the
time for commencing an action there under to a
p e r i o d o f l e s s t h a n o n e y e a r f ro m t h e t i m e w h e n t h e
c a u s e o f a c t i o n accrues, is void. I t a l s o b e g s t o a s k , w he n
d o e s t h e c a u s e o f a c t i o n a c c r u e ? T h e i n s u re d s c a u s e
of a c t i o n o r h i s
right to
fi l e a c l a i m e i t h e r
in the
Insurance Commission or in
a court
o f competent jurisdiction commences from the time of the denial
of his claim by the Insurer ,e i t h e r ex p re s s l y o r i m p l i e d l y. B u t
t h e re j e c t i o n re f e rre d
to should be construed as
the

re j e c t i o n i n t h e fi r s t i n s t a n c e ( i . e . a t t h e fi r s t o c c a s i o n
o r f o r t h e fi r s t t i me ) , n o t re j e c t i o n c o n v e y e d i n a
resolution of a petition for reconsideration.
Thus,
to
allow
the
fi l i n g
of
a
motion for
re c o n s i d e r a t i o n
to suspend
the running of the
p re s c r i p t i v e p e r i o d o f t w e l ve months, a whole new body of
rules on the matter should be promulgated so as to avoid any
conflict that may be brought by it, such as:a . w h e t h e r t h e m e re
fi l i n g o f a p l e a f o r re c o n s i d e r a t i o n o f a d e n i a l i s
s u ffi c i e n t
o r must
it be
supported
by arguments/affidavits/material
evidence;b .
how
many
p e t i t i o n s f o r re c o n s i d e r a t i o n s h o u l d b e p e rm i t t e d ? (2) No.
The Eagle Star case cited by Tan to defend his theory that the
rejection of the claim shall be deemed final only of it contains
words
to
the
effect
that
the
denial
is
final
is
inapplicable in the
i n s t a n t c a s e . Fi n a l r e j e c t i o n o r d e n i a l c a n n o t b
e t a k e n t o m e a n t h e re j e c t i o n
of a petition
f o r re c o n s i d e r a t i o n . T h e I n s u r a n c e p o l i c y i n t h e
E a g l e S t a r case p ro v i d e s t h a t t h e i n s u re d s h o u l d fi l e h i s
c l a i m , fi r s t , w i t h t h e c a rr i e r a n d t h e n w i t h t h e insurer.
The final rejection being referred to in said case is the rejection by
the insurancecompany.
Art. 1236. The creditor is not bound to accept payment or
performance by a third person who has no interest in the
fulfillment of the obligation, unless there is a stipulation to
the contrary.
Whoever pays for another may demand from the debtor
what he has paid, except that if he paid without the
knowledge or against the will of the debtor, he can recover
only insofar as the payment has been beneficial to the
debtor. (1158a)
Art. 2207. If the plaintiff's property has been insured, and
he has received indemnity from the insurance company for
the injury or loss arising out of the wrong or breach of
contract complained of, the insurance company shall be
subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract. If
the amount paid by the insurance company does not fully
cover the injury or loss, the aggrieved party shall be

entitled to recover the deficiency from the person causing

the loss or injury.
D. Subrogation
Article 2207. If the plaintiffs property has been insured, and he has received
indemnity from the insurance company for the injury or loss arising out of the wrong
or breach of contract complained of, the insurance company shall be subrogated to
the rights of the insured against the wrongdoer or the person who has violated the
contract. If the amount paid by the insurance company does not fully cover the injury
or loss, the aggrieved party shall be entitled to recover the deficiency from the person
causing the injury or loss.
Article 1236. The creditor is not bound to accept payment or performance by a third
person who has no interest in the fulfillment of the obligation, unless there is a
stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid, except that
if he paid without the knowledge or against the will of the debtor. He can recover only
insofar as the payment has been beneficial to the debtor.

Fireman v Jamila
April 7, 1976
FIREMAN'S FUND INSURANCE COMPANY and FIRESTONE TIRE AND RUBBER
COMPANY
OF
THE
PHILIPPINES
vs.
JAMILA & COMPANY, INC. and FIRST QUEZON CITY INSURANCE CO., INC
AQUINO, J.:
SUMMARY: Jamila supplies security guards to Firestone and assumes their
responsibility. When some properties of Firestone were lost due to connivance of
some security guards, Firemans Fund as insurer paid Firestone the value of such
and is now subrogated to Firestones right to reimbursement. They filed complaint to
recover money when Jamila failed to pay. CFI dismissed complaint as to Jamila citing
that there is no cause of action as the latter did not consent to subrogation and there
are no allegations in the complaint that Firestone investigated the loss. Subsequent

MRs, F&F argue that their cause of action is on the basis of legal subrogation. SC:
There was cause of action on the part of Firemans Fund pursuant to Art. 2207.
Payment by the assurer to the assured operates as an equitable assignment to the
assurer of all the remedies which the assured may have against the third party whose
negligence or wrongful act caused the loss.
DOCTRINE: Loss or injury for risk must be covered by the policy Under Article
2207, the cause of the loss or injury must be a risk covered by the policy to entitle the
insurer to the subrogation. Thus, where the insurer pays the insured for a loss which
is not a risk covered by the policy, thereby effecting voluntary payment, the insurer
has no right of subrogation against the third party liable for the loss. Nevertheless, the
insurer may recover from the third party responsible for the damage to the insured
property under Article 1236 of the Civil Code.
FACTS:

First Quezon City Insurance Co., Inc. executed a bond in the sum of P20k to
guarantee Jamila's obligations under that contract

May 18, 1963: Properties of Firestone valued at P11,925 were lost allegedly due
to the acts of its employees who connived with Jamila's security guard

Jamila and its surety, First Quezon City Insurance Co., Inc., failed to pay the
amount of the loss in spite of repeated demands.

Fireman's Fund and Firestone Tire and Rubber Co instituted this complaint
against Jamila for the recovery of the sum of P11,925.00 plus interest, damages
and attorney's fees

(1) complaint did not allege that Firestone, pursuant to the contractual
stipulation quoted in the complaint, had investigated the loss and that
Jamila was represented in the investigation and

Also dismissed the complaint as to First Quezon City Insurance Co.,

Inc. on the ground of res judicata as the same action was previously
filed in a civil case which was dismissed because of the failure of the
same plaintiffs and their counsel to appear at the pre trial.

Firestone and Fireman's Fund filed MR

CFI on F&Fs MR: Set aside its order of dismissal. No res judicata as to First
Quezon City Insurance Co., Inc. because civil case was dismissed without
prejudice
o

However, due to inadvertence, the lower court did not state in its order
of September 3, 1966 why it set aside its prior order dismissing the
complaint with respect to Jamila.

First Quezon City Insurance Co., Inc. filed its answer to the complaint.

Jamila, upon noticing that the order had obliterated its victory without any reason
therefor, filed MR reconsideration
o

Jamila moved to dismiss the complaint on the ground of lack of cause of action
o

(2) Jamila did not consent to the subrogation of Fireman's Fund to

Firestone's right to get reimbursement from Jamila and its surety.

CFI: Dismissed the complaint as to Jamila on the second ground that there was
no allegation that it had consented to the subrogation and, therefore,
Fireman's Fund had no cause of action against it.
o

Fireman's Fund, as insurer, paid to Firestone the amount of the loss and is now
subrogated to Firestone's right to get reimbursement from Jamila

Jamila or the Veterans Philippine Scouts Security Agency contracted to supply

security guards to Firestone. Jamila assumed responsibility for the acts of its
security guards

CFI on Jamilas MR: Granted Jamila's MR. However, it completely ignored the
1st ground but reverted to the second ground (no consent to subrogation thus no
cause of action).
o

Invoked the first ground in its original motion to dismiss which had never
been passed upon by the lower court that complaint did not allege
that Firestone, pursuant to the contractual stipulation quoted in the
complaint, had investigated the loss and that Jamila was represented
in the investigation

It did not mention Firestone, the co-plaintiff of Fireman's Fund.

Firestone and Fireman's Fund filed MR on the ground that Fireman's Fund
Insurance Company was suing on the basis of legal subrogation whereas CFI

erroneously predicated its dismissal order on the theory that there was no
conventional subrogation because the debtor's consent was lacking.
o

Cited NCC 2207 which provides that "if the plaintiff's property has been
insured, and he has received indemnity from the insurance company for
the injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated to the
rights of the insured against the wrongdoer or the person who has
violated the contract".

CFI on F&F MR: Denied motion.

F&F filed 2nd MR and called CFI's attention to the fact that the issue of
subrogation was of no moment because Firestone, the subrogor (??), is a partyplaintiff and could sue directly Jamila in its own right.

CFI on F&FS 2nd MR: Denied 2nd MR without resolving contention

Appeal to SC

F&F: CFIs dismissal of their complaint is contrary to Article 2207 which provides
for legal subrogation.

JAMILA: Legal subrogation under Art. 2207 requires the debtor's consent
o

Legal subrogation takes place in the cases mentioned in NCC 1302 and
the instant case is not among the 3 cases enumerated in that article
There could be no subrogation in this case because according to F&F,
the contract between Jamila and Firestone was entered into on June
1, 1965 but the loss complained of occurred on May 18, 1963.

HELD: CFI Decision's order of dismissal is legally untenable so SET ASIDE with
costs against Jamila & Co., Inc.

RATIO:
[F&Fs counsel gratuitously alleged in their brief that Firestone and Jamila entered
into a "contract of guard services" on June 1, 65. That allegationwas uncalled for
because it is not found in the complaint and so created confusion which did not exist.
No copy of the contract was annexed to the complaint. That confusing statement was
an obvious error since it was expressly alleged in the complaint that the loss occurred
on May 18, 63. The fact that such an error was committed is another instance
substantiating the observation that F&F's counsel had not exercised due care in the
presentation of his case.]

1) Firestone is really a nominal party in this case as it had already been indemnified
for the loss which it had sustained. It joined as a party-plaintiff in order to help
Fireman's Fund to recover the amount of the loss from Jamila and First Quezon City
Insurance Co., Inc. Firestone had tacitly assigned to Fireman's Fund its cause of
action against Jamila for breach of contract. Sufficient ultimate facts are alleged in the
complaint to sustain that cause of action.

2) Fireman's Fund's action against Jamila is squarely sanctioned by article 2207. As

the insurer, Fireman's Fund is entitled to go after the person or entity that violated its
contractual commitment to answer for the loss insured against (PAL vs. Heald Lumber
Co).

CFI erred in applying to this case the rules on novation. F&F in alleging in their
complaint that Fireman's Fund "became a party in interest in this case by virtue
of a subrogation right given in its favor by" Firestone, were not relying on the
novation by change of creditors as contemplated in NCC 1291 and 1300 to
1303 but rather on NCC 2207.

Article 2207 is a restatement of a settled principle of American jurisprudence.

Subrogation has been referred to as the doctrine of substitution. It "is an arm of
EQUITY that may guide or even force one to pay a debt for which an obligation
was incurred but which was in whole or in part paid by another" (83 C.J.S. 576).

ISSUES:
1) Whether the complaint of Firestone as subrogor (???) states a cause of action
against Jamila? (Not really)
2) Whether the complaint of Fireman's Fund as subrogee states a cause of action
against Jamila? (YES)
3) Whether Jamila should reimburse Firemans Fund? (Not decided here)

"Subrogation is founded on principles of JUSTICE AND EQUITY, and its

operation is governed by principles of equity. It rests on the principle that
substantial justice should be attained regardless of form, that is, its basis is the
doing of complete, essential, and perfect justice between all the parties without
regard to form"(83 C.J.S. 579- 80)

Subrogation is a normal incident of indemnity insurance (Aetna L. Ins. Co. vs

Moses). Upon payment of the loss, 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 (44 Am. Jur.
2nd 745).

The right of subrogation is of the highest EQUITY. The LOSS IN THE FIRST
INSTANCE is that of the INSURED but AFTER reimbursement or compensation,
it becomes the LOSS OF THE INSURER (44 Am. Jur. 2d 746).

"Although many policies including policies in the standard form, now provide for
subrogation, and thus determine the rights of the insurer in this respect, the
equitable right of subrogation as the legal effect of payment inures to the
insurer without any formal assignment or any express stipulation to that
effect in the policy" (44 Am. Jur. 2nd 746).

Stated otherwise, when the insurance company pays for the loss, such payment
operates as an equitable assignment to the insurer of the property and all
remedies which the insured may have for the recovery thereof. That right is
not dependent upon, nor does it grow out of, any privity of contract, or upon
written assignment of claim, and payment to the insured makes the insurer an
assignee in equity (Shambley v. Jobe-Blackley Plumbing and Heating Co).

3) Whether the plaintiffs would be able to prove their cause of action against Jamila is
another question.

Malayan Insurance Co., Inc. vs. CA [G.R. No. L-36413, 26 September

1988]
Facts: Malayan Insurance Co. Inc. (MALAYAN) issued a Private Car
Comprehensive Policy covering a Willys jeep. The insurance
coverage was for "own damage" not to exceed P600.00 and "thirdparty liability" in the amount of P20,000.00. During the effectivity
of the insurance policy, , the insured jeep, while being driven by
one Juan P. Campollo an employee of the respondent San Leon Rice

Mill, Inc., (SAN LEON) collided with a passenger bus belonging to

the respondent Pangasinan Transportation Co., Inc. (PANTRANCO) at
the national highway in Barrio San Pedro, Rosales, Pangasinan,
causing damage to the insured vehicle and injuries to the driver,
Juan P. Campollo, and the respondent Martin C. Vallejos, who was
riding in the ill-fated jeep. Martin C. Vallejos filed an action for
damages against Sio Choy, Malayan Insurance Co., Inc. and the
PANTRANCO before the Court of First Instance of Pangasinan. The
trial court rendered judgment holding Sio Choy, SAN LEON, and
MALAYAN jointly and severally liable. However, MALAYANs
liability will only be up to P20,000. On appeal, CA affirmed the
decision of the trial court. However, it ruled that SAN LEON has no
obligation to indemnify or reimburse the petitioner insurance
company for whatever amount it has been ordered to pay on its
policy, since the San Leon Rice Mill, Inc. is not a privy to the
contract of insurance between Sio Choy and the insurance
company. MALAYAN appealed to the SC by way of review on
certiorari.
Issues: (1) Whether or not MALAYAN is solidarily liable to Vallejos,
along with Sio Choy and SAN LEON (2) Whether or not MALAYAN
is entitled to be reimbursed by SAN LEON for whatever amount
petitioner has been adjudged to pay respondent Vallejos on its
insurance policy.
Held: (1) Only Sio Choy and SAN LEON are solidarily liable to
Vallejos for the award of damages. Sio Choy is liable as owner of
the jeep pursuant to Article 2184, while SAN LEON is liable as the
employer of the driver of the jeep at the time of the accident
pursuant to Art 2180. MALAYANs liability, however, arose only
out of the insurance policy with Sio Choy. Petitioner as insurer of Sio
Choy, is liable to respondent Vallejos, but it cannot, as incorrectly
held by the trial court, be made "solidarily" liable with the two
principal tortfeasors namely respondents Sio Choy and SAN
LEON. (2) MALAYAN is entitled to be reimbursed. Upon payment
of the loss, 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. When the
insurance company pays for the loss, such payment operates as an
equitable assignment to the insurer of the property and all
remedies which the insured may have for the recovery thereof. That
right is not dependent upon , nor does it grow out of any privity of
contract or upon written assignment of claim, and payment to the
insured makes the insurer assignee in equity.

SULPICIO
LINES,
INC., petitioner,
vs. FIRST
LEPANTO-TAISHO
INSURANCE
CORPORATION, respondent.

G.R. No. 140349. June 29, 2005

FACTS: Taiyo Yuden Philippines, Inc. (owner of the

goods) and Delbros, Inc. (shipper) entered into a
contract, evidenced by Bill of Lading issued by the latter
in favor of the owner of the goods, for Delbros, Inc. to
transport a shipment of goods consisting of 3 wooden
crates containing 136 cartons of inductors and LC
compound on board the V Singapore V20 from Cebu City
to Singapore in favor of the consignee, Taiyo Yuden
Singapore Pte, Ltd.
For the carriage of said shipment from Cebu City to
Manila, Delbros, Inc. engaged the services of the vessel
M/V Philippine Princess, owned and operated by
petitioner Sulpicio Lines, Inc. (carrier). During the
unloading of the shipment, one crate containing 42
cartons dropped from the cargo hatch to the pier apron.
The owner of the goods examined the dropped cargo,
and upon an alleged finding that the contents of the
crate were no longer usable for their intended purpose,
they were rejected as a total loss and returned to Cebu
City.

The owner of the goods filed a claim with herein

petitioner-carrier for the recovery of the value of the
rejected cargo which was refused by the latter.
Thereafter, the owner of the goods sought payment
from
respondent
First
Lepanto-Taisho
Insurance
Corporation (insurer) under a marine insurance policy
issued to the former. Respondent-insurer paid the claim
less thirty-five percent (35%) salvage value or P194,
220.31.

The payment of the insurance claim of the owner of the

goods by the respondent-insurer subrogated the latter
to whatever right or legal action the owner of the goods
may have against Delbros, Inc. and petitioner-carrier,
Sulpicio Lines, Inc. Thus, respondent-insurer then filed
claims for reimbursement from Delbros, Inc. and
petitioner-carrier Sulpicio Lines, Inc. which were
subsequently denied.

In 1992, respondent-insurer filed a suit for damages

with the trial court against Delbros, Inc. and herein
petitioner-carrier.

Delbros, Inc. filed on 15 April 1993 its Answer with

Counterclaim and Cross-claim, alleging that assuming
the contents of the crate in question were truly in bad
order, fault is with herein petitioner-carrier which was
responsible for the unloading of the crates.

damages, and if so, whether or not petitioner-carrier is

liable for the same
Petitioner-carrier filed its Answer to Delbros, Inc.s crossclaim asserting that it observed extraordinary diligence
in the handling, storage and general care of the
shipment and that subsequent inspection of the
shipment by the Manila Adjusters and Surveyors
Company showed that the contents of the third crate
that had fallen were found to be in apparent sound
condition, except that 2 cello bags each of 50 pieces
ferri inductors No. LC FL 112270K-60 (c) were
unaccounted for and missing as per packaging list.

After hearing, the trial court dismissed the complaint for

damages as well as the counterclaim filed by therein
defendant Sulpicio Lines, Inc. and the cross-claim filed
by Delbros, Inc on the grounds that plaintiff has failed to
prove its case.

The CA reversed the RTC decision and ordered Delbros

and Sulpicio Lines to pay, jointly and severally, plaintiffappellant the sum of P194,220.31 representing actual
damages, plus legal interest counted from the filing of
the complaint until fully paid.

ISSUE: whether or not, based on the evidence

presented during the trial, the owner of the goods,
respondent-insurers predecessor-in-interest, did incur

RULING:
It cannot be denied that the shipment
sustained damage while in the custody of petitionercarrier. It is not disputed that one of the 3 crates did fall
from the cargo hatch to the pier apron while petitionercarrier was unloading the cargo from its vessel. Neither
is it impugned that upon inspection, it was found that 2
cartons were torn on the side and the top flaps were
open and that 2 cello bags, each of 50 pieces ferri
inductors, were missing from the cargo.

Petitioner-carrier contends that its liability, if any, is only

to the extent of the cargo damage or loss and should
not include the lack of fitness of the shipment for
transport to Singapore due to the damaged packing.
This is erroneous. Petitioner-carrier seems to belabor
under the misapprehension that a distinction must be
made between the cargo packaging and the contents of
the cargo. According to it, damage to the packaging is
not tantamount to damage to the cargo. It must be
stressed that in the case at bar, the damage sustained
by the packaging of the cargo while in petitionercarriers custody resulted in its unfitness to be
transported to its consignee in Singapore. Such failure
to ship the cargo to its final destination because
of the ruined packaging, indeed, resulted in
damages on the part of the owner of the goods.

The falling of the crate during the unloading is evidence

of petitioner-carriers negligence in handling the cargo.
As a common carrier, it is expected to observe
extraordinary diligence in the handling of goods placed
in its possession for transport.[12] The standard of
extraordinary diligence imposed upon common
carriers is considerably more demanding than the
standard of ordinary diligence, i.e., the diligence
of a good paterfamilias established in respect of
the ordinary relations between members of
society.[13] A common carrier is bound to transport
its cargo and its passengers safely "as far as
human care and foresight can provide, using
the utmost
diligence of a
very
cautious
person, with
due
regard
to
all
[14]
circumstances.
The extraordinary diligence in
the vigilance over the goods tendered for
shipment requires the common carrier to know
and to follow the required precaution for avoiding
the damage to, or destruction of, the goods
entrusted to it for safe carriage and delivery. [15] It
requires common carriers to render service with
the greatest skill and foresight and to use all
reasonable means to ascertain the nature and
characteristic of goods tendered for shipment,
and to exercise due care in the handling and
stowage, including such methods as their nature
requires.[16]

Thus, when the shipment suffered damages as it

was
being
unloaded,
petitioner-carrier
is

presumed to have been negligent in the handling

of the damaged cargo. Under Articles 1735[17] and
1752[18] of the Civil Code, common carriers are
presumed to have been at fault or to have acted
negligently in case the goods transported by
them are lost, destroyed or had deteriorated. To
overcome the presumption of liability for loss,
destruction or deterioration of goods under
Article 1735, the common carrier must prove that
they observed extraordinary diligence as required
in Article 1733[19] of the Civil Code.[20]

Petitioner-carrier miserably failed to adduce any shred

of evidence of the required extraordinary diligence to
overcome the presumption that it was negligent in
transporting the cargo.
Coming now to the issue of the extent of petitionercarriers liability, it is undisputed that respondentinsurer paid the owner of the goods under the insurance
policy the amount of P194,220.31 for the alleged
damages the latter has incurred. Neither is there
dispute as to the fact that Delbros, Inc. paid
P194,220.31 to respondent-insurer in satisfaction of the
whole amount of the judgment rendered by the Court of
Appeals. The question then is: To what extent is
Sulpicio Lines, Inc., as common carrier, liable for
the damages suffered by the owner of the goods?

Upon respondent-insurers payment of the alleged

amount of loss suffered by the insured (the owner of the
goods), the insurer is entitled to be subrogated pro
tanto to any right of action which the insured may
have
against
the
common
carrier
whose
negligence or wrongful act caused the loss.
[21]
Subrogation is the substitution of one person in the
place of another with reference to a lawful claim or
right, so that he who is substituted succeeds to the
rights of the other in relation to a debt or claim,
including its remedies or securities.[22]The rights to
which the subrogee succeeds are the same as, but not
greater than, those of the person for whom he is
substituted, that is, he cannot acquire any claim,
security or remedy the subrogor did not have. [23] In
other words, a subrogee cannot succeed to a right not
possessed by the subrogor.[24] A subrogee in effect steps
into the shoes of the insured and can recover only if the
insured likewise could have recovered.[25]

As found by the Court of Appeals, there was damage

suffered by the goods which consisted in the destruction
of one wooden crate and the tearing of two (2)
cardboard boxes therein which rendered them unfit to
be sent to Singapore.[26] The falling of the crate was
negligence on the part of Sulpicio Lines, Inc. for
which it cannot exculpate itself from liability
because it failed to prove that it exercised
extraordinary diligence.[27]

Hence, we uphold the ruling of the appellate

court that herein petitioner-carrier is liable to pay
the amount paid by respondent-insurer for the
damages sustained by the owner of the goods.

As stated in the manifestation filed by Delbros, Inc.,

however, respondent-insurer had already been
paid the full amount granted by the Court of
Appeals, hence, it will be tantamount to unjust
enrichment for respondent-insurer to again
recover damages from herein petitioner-carrier.

With respect to Delbros, Inc.s prayer contained in its

manifestation that, in case the decision in the instant
case be adverse to petitioner-carrier, a pronouncement
as to the matter of reimbursement, indemnification or
contribution in favor of Delbros, Inc. be included in the
decision, this Court will not pass upon said issue since
Delbros, Inc. has no personality before this Court, it not
being a party to the instant case. Notwithstanding, this
shall not bar any action Delbros, Inc. may institute
against petitioner-carrier Sulpicio Lines, Inc. with respect
to the damages the latter is liable to pay.

WHEREFORE, premises considered, the assailed

Decision of the Court of Appeals dated 26 May 1999 and
its Resolution dated 13 October 1999 are hereby
AFFIRMED. No costs.

GR 180880-81(PIONEER INSURANCEAND SURETY

CORPORATION vs. KEPPEL CEBU SHIPYARD,INC)
FACTS: WG&AJEBSENSSHIPMGMT.Owner/Operator ofM/V"SUPERFERRY
3" and KEPPEL CEBUSHIPYARD, INC.(KCSI) enter into an agreement that the Dry
docking and Repair of the above-named vessel ordered by theOwnersAuthorized
Representativeshallbecarriedoutunderthe Keppel CebuShipyardStandardConditionsof
Contractfor Ship repair, guidelines and regulations on safety and
security issued by Keppel Cebu Shipyard. In thecourseof itsrepair,M/V
"Superferry 3"wasguttedbyfire.Claimingthattheextentof the
damage was pervasive, WG&Adeclared the vessels damage as a "total
constructive loss" and, hence, filed an insurance claim with Pioneer.
Pioneer paid the insurance claim of WG&A, which in turn, executed
a Loss and Subrogation Receipt in favor of Pioneer. Pioneer tried to
collect from KCSI, but the latter denied any responsibility for the
loss of the subject vessel. As KCSI continuously refused to pay
despite repeated demands, Pioneer, filed a
Requestfor Arbitration before the Construction Industry Arbitration
Commission CIAC seeking for paymentofU.S.$8,472,581.78plusinterest,among
others.TheCIACrendereditsDecisiondeclaringboth
WG&Aand KCSI guilty of negligence, the CIAC ordered KCSIto pay Pioneertheamountof
P25,000,000.00,withinterestat6%per annum. Both Keppel and
Pioneer appealed to the CA. The cases were consolidated in the CA. the CAren
dered a decision dismissing petitioners claims in its
entirety. Keppel was declared as equally negligent.ISSUE: To whom
may negligence over the fire that broke out on board M/V
"Superferry 3" be imputed? Whatis the extent of the damage, if
any?RULING: 1.The issue of negligence.Undeniably, the immediate
cause of the fire was the hot work done by Angelino Sevillejo
(Sevillejo) on theaccommodation area of the vessel, specifically on
Deck A. As established before the CIAC Pioneer contendsthat KCSI
should be held liable because Sevillejo was its employee who, at
the time the fire broke out, wasdoing his assigned task, and that
KCSI was solely responsible for all the hot works done on board
thevessel.WeruleinfavorofPioneer.Atthetimeofthefire,SevillejowasanemployeeofKCSIand
wassubjecttothe
latters
direct control and supervision. There was a lapse in KCSIs supervision of Sevillejos
work at the time the firebroke out. KCSI failed to exercise the necessary

degree of caution and foresight called for by thecircumstances. The

circumstances, taken collectively, yield the inevitable
conclusion that Sevillejowas negligent in the performance of his
assigned task. His negligence was the proximate cause of the fire
onboard M/V"Superferry 3." As he was then definitely engaged in
the performance of his assigned tasks as anemployee of KCSI, his
negligence gave rise to the vicarious liability of his employer43
under Article 2180of the Civil Code. KCSI failed to prove that it
exercised the necessary diligence incumbent upon it to rebut
thelegal presumption of its negligence in supervising Sevillejo.44 C
onsequently, it is responsible for thedamages caused by the
negligent act of its employee, and its liability is primary and
solidary.2. DamagesIn marine insurance, a constructive total loss
occurs under any of the conditions set forth in Section 139of the
Insurance Code, which provides Sec. 139. A person insured by a
contract of marine insurance mayabandon the thing insured, or any
particular portion hereof separately valued by the policy, or
otherwiseseparately insured, and recover for a total loss thereof,
when the cause of the loss is a peril insuredagainst:(a) If more than
three-fourths thereof in value is actually lost, or would have to be
expended torecover it from the peril;(b) If it is injured to such an
extent as to reduce its value more than three-fourths; x xx. It
cannot bedeniedthat M/V"Superferry 3"sufferedwidespread damage fromthe fire
that occurred onFebruary 8, 2000, acovered peril under the marine
insurance policies obtained by WG&A from Pioneer. The estimates
given bythethreedisinterestedandqualifiedshipyardsshowthatthedamagetotheship
wouldexceed
P270,000,000.00,or of the total value of the policies P360,000,000.00. These estimat
es constituted credible and acceptable proof of the extent of the damage
sustained by the vessel. Considering the extent of the damage,
WG&A opted toabandon the ship and claimed the value of its
policies. Pioneer, finding the claim compensable, paid theclaim,
with WG&A issuing a Loss and Subrogation Receipt evidencing
receipt of the payment of theinsurance proceeds from Pioneer. The
Loss and Subrogation Receipt issued by WG&A to Pioneer is thebest
evidence of payment of the insurance proceeds to the former,
and no controverting evidence waspresented by KCSI to rebut the
presumed authority of the signatory to receive such payment.