THIRD DIVISION KEPPEL CEBU SHIPYARD, INC., Petitioner, - versus PIONEER INSURANCE AND SURETY CORPORATION, Respondent.

X----------------------------X PIONEER INSURANCE AND SURETY CORPORATION, Petitioner, - versus KEPPEL CEBU SHIPYARD, INC., Respondent. G.R. Nos. 180880-81 G.R. Nos. 180896-97 Present: YNARES-SANTIAGO, J.,* Chairperson, CHICO-NAZARIO, VELASCO, JR., NACHURA, and PERALTA, JJ. Promulgated: September 25, 2009

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DECISION NACHURA, J.:

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

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

SHIPREPAIR AGREEMENT[6]

Company: Address:

WG & A JEBSENS SHIPMANAGEMENT INC. Harbour Center II, Railroad & Chicago Sts. Port Area, City of Manila

We, WG & A JEBSENS SHIPMGMT. Owner/Operator of M/V “SUPERFERRY 3” and KEPPEL CEBU SHIPYARD, INC. (KCSI) enter into an agreement that the Drydocking and Repair of the above-named vessel ordered by the Owner’s Authorized Representative shall be carried out under the Keppel Cebu Shipyard Standard Conditions of Contract for Shiprepair, guidelines and regulations on safety and security issued by Keppel Cebu Shipyard. In addition, the following are mutually agreed upon by the parties:

1. The Owner shall inform its insurer of Clause 20[7] and 22 (a)[8] (refer at the back hereof) and shall include Keppel Cebu Shipyard as a co-assured in its insurance policy.

2. The Owner shall waive its right to claim for any loss of profit or loss of use or damages consequential on such loss of use resulting from the delay in the redelivery of the above vessel.

3. Owner’s sub-contractors or workers are not permitted to work in the yard without the written approval of the Vice President – Operations.

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

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

6. An adequate number of officers and crew must remain on board at all times to ensure the safety of the vessel and compliance of safety regulations by crew and owner employed workmen.

7. The ship’s officers/crew or owner appointed security personnel shall maintain watch against pilferage and acts of sabotage.

8. The yard must be informed and instructed to provide the necessary security arrangement coverage should there be inadequate or no crew on board to provide the expressed safety and security enforcement.

9. The Owner shall be liable to Keppel Cebu Shipyard for any death and/or bodily injuries for the [K]eppel Cebu Shipyard’s employees and/or contract workers; theft and/or damages to Keppel Cebu Shipyard’s properties and other liabilities which are caused by the workers of the Owner.

10. The invoice shall be based on quotation reference 99-KCSI-211 dated December 20, 1999 tariff dated March 15, 1998.

581. Authorized Representative for and in behalf of: WG & A Jebsens Shipmgmt.472. the disputes shall be submitted for arbitration in Metro Manila in accordance with provisions of Executive Order No. executed a Loss and Subrogation Receipt[9] in favor of Pioneer. filed an insurance claim with Pioneer. Claiming that the extent of the damage was pervasive. WG&A. in the course of its repair. to wit: . Inc.78. The Owner and Keppel Cebu Shipyard shall endeavor to settle amicably any dispute that may arise under this Agreement. (Signed) BARRY CHIA SOO HOCK _________(Signed)__________ (Printed Name/Signature Above Name) (Printed Name/Signature Above Name) Vice President – Operations Keppel Cebu Shipyard. hence. in turn. ________________________ Date On February 8. WG&A declared the vessel’s damage as a “total constructive loss” and.11. 1008 under the auspices of the Philippine Arbitration Commission. M/V “Superferry 3” was gutted by fire. 2000 Date . On June 16. 26. Should all efforts for an amicable settlement fail. 2000. Payment term shall be as follows: 12. Pioneer paid the insurance claim of WG&A in the amount of US$8. 2000. JAN.

GOTHONG & ABOITIZ.472. INC. DOLLARS EIGHT MILLION FOUR HUNDRED SEVENTY-TWO THOUSAND FIVE HUNDRED EIGHTY-ONE & 78/100 (US$ 8. corporation or property in the premises to the extent of the amount above-mentioned.) by reason as follows: Fire on board at Keppel Cebu Shipyard on 08 February 2000 and in consideration of which the undersigned hereby assigns and transfers to the said company each and all claims and demands against any person. MH-H0-99-0000168-00-D (H&M) and MH-H0-99-0000169 (I. compromise and discharge of all claims for loss and expenses sustained to the vessel “SUPERFERRY 3” insured under Policy Nos.472.581. persons.V.000.LOSS AND SUBROGATION RECEIPT 16 June 2000 Our Claim Ref: MH-NIL-H0-99-00018 US$8. persons. corporation or property arising from or connected with such loss or damage and the said company is subrogated in the place of and to the claims and demands of the undersigned against said person.78 ------------------------------------------------ RECEIVED from PIONEER INSURANCE & SURETY CORPORATION the sum of U.581. By: (Signed) ______________________________________ Witnesses: (Signed) .00).000. WILLIAM.S. &/OR ABOITIZ SHIPPING CORP. in full satisfaction.78) equivalent to PESOS THREE HUNDRED SIXTY MILLION & 00/100 (Php 360.

21-2000.$8. filed a Request for Arbitration before the Construction Industry Arbitration Commission (CIAC) docketed as CIAC Case No. on August 7. the sum of P500. The CIAC granted the withdrawal on October 22.00 plus interest thereon from the date of filing [of the] “Request for Arbitration” or date of the arbitral award. plus other damages as may be established during the proceedings. 2.000. and/or Aboitiz Shipping Corporation and WG&A Jebsens Shipmanagement. plus interest thereon computed from the date of the “Loss and Subrogation Receipt” on 16 June 2000 or from the date of filing of [the] “Request for Arbitration. 3. To pay to the claimant Pioneer Insurance and Surety Corporation the sum of U.000. including arbitration fees and other litigation expenses. Pioneer. To pay to the claimants herein the sum of P3. It is likewise further prayed that Clauses 1 and 2 on the unsigned page 1 of the “Shiprepair Agreement” (Annex “A”) as well as the hardly legible Clauses 20 and 22 (a) and other similar clauses printed in very fine print on the unsigned dorsal page thereof.472. INC. Pioneer tried to collect from KCSI.S. be all declared illegal and void ab initio and without any legal effect whatsoever. 2001. As KCSI continuously refused to pay despite repeated demands.______________________________________ (Signed) ______________________________________ Armed with the subrogation receipt.00 for and as attorney’s fees.78 or its equivalent amount in Philippine Currency. 2001 with the CIAC. seeking the following reliefs: 1.000.581. Inc. and the costs of suit. leading the latter to file a Notice of Withdrawal of Claim on April 17. thereby .000.[10] KCSI and WG&A reached an amicable settlement. To pay to claimant WG&A. as may be found proper. 2000. but the latter denied any responsibility for the loss of the subject vessel.” as may be found proper.

that: (1) on January 26. In the course of the proceedings. while still dry docked in KCSI’s shipyard. below are the respective positions of the parties. Claimant cited documentary references on the Statutory Source of the Principle of Subrogation. viz. for dry docking and repairs. The Claimant claims that it has the preponderance of evidence over that of the Respondent.[11] As regards the disputed facts. In its Draft Decision. The evidence presented during the hearings indubitably proves that respondent not only took custody but assumed responsibility and control over M/V Superferry 3 in carrying out the drydocking and repair of the vessel. Pioneer and KCSI stipulated. M/V “Superferry 3” arrived at KCSI in Lapu-Lapu City. Cebu.dismissing the claim of WG&A against KCSI. among others. (2) on the same date. Respondent Keppel had custody of and control over the M/V “Superferry 3” while said vessel was in Respondent Keppel’s premises. Second. Hence. . WG&A signed a ship repair agreement with KCSI. Claimant then argued that Payment Operates as Equitable Assignment of Rights to Insurer and that the Right of Subrogation Entitles Insurer to Recover from the Liable Party. Pioneer (as Claimant) is the real party in interest in this case and that Pioneer has been subrogated to the claim of its assured. 2000. and (3) a fire broke out on board M/V “Superferry 3” on February 8.: Pioneer’s Theory of the Case: First. Claimant stated: A. the arbitration proceeded with Pioneer as the remaining claimant. Claimant then proceeded to explain that the Right of Subrogation: Is by Operation of Law exists in Property Insurance is not Dependent Upon Privity of Contract. 2000.

the Respondent Yard is liable under the Doctrine of Res Ipsa Loquitur. Third. D. being his employer. The “Control Test” – The yard exercised control over Sevillejo. Fifth. Fourth. Claimant proceeded to enumerate its reasons: A. In contemplation of law. According to Claimant. The power of control is not diminished by the failure to exercise control. but from its negligence in this case. the Vessel’s Safety Manual cannot be relied upon as proof of the Master’s continuing control over the vessel. The presence on board the M/V Superferry 3 of its officers and crew does not relieve the respondent of its responsibility for said vessel. is solely and exclusively liable for his negligent acts. According to Claimant. . the Yard is liable under the ruling laid down by the Supreme Court in the “Manila City” case. The yard. From the preceding statements. Sixth. the liability of Respondent does not arise merely from the application of the Doctrine of Res Ipsa Loquitur. C. The practice of allowing a shipowner and its sub-contractors to perform maintenance works while the vessel was within respondent’s premises does not detract from the fact that control and custody over M/V Superferry 3 was transferred to the yard. Claimant claims that Keppel is clearly liable for the loss of M/V Superferry 3.B. Claimant asserts that said ruling is applicable hereto as The Law of the Case. Respondent Keppel assumed responsibility over M/V Superferry 3 when it brought the vessel inside its graving dock and applied its own safety rules to the dry-docking and repairs of the vessel. Sevillejo was not a loaned servant/employee. the Respondent Yard was the employer responsible for the negligent acts of the welder.

Dr. Seventh. Claimant argued that: A. as Sevillejo remained an employee of the yard at the time the loss occurred. C. The Claimant then disputed the statements of Manuel Amagsila by claiming that Amagsila was a disgruntled employee. Claimant proffers that Dr. Claimant claims that Amagsila affirmed that the five yard welders never became employees of the owner so as to obligate the latter to be responsible for their conduct and performance. Joniga requested Sevillejo to perform some of the Owner’s hot works under the 26 January 2000 work order did not make Dr. There was no independent work contract between Joniga and Sevillejo – Joniga was not the employer of Sevillejo. Nevertheless. and acted as a Less Than Prudent Ship Repairer. not Dr. gave the welders their marching orders. and the owner’s hotworks were conducted by welders who remained employees of the yard. Claimant enumerated further badges of yard negligence. Eight[h]. the shipowner had no legal duty to apply for a hotworks permit since it was not required by the yard. Joniga the employer of Sevillejo. if any. . in supplying welders and equipment as per The Work Order Dated 26 January 2000. The mere fact that Dr. Joniga’s authority to request the execution of owner’s hot works in the passenger areas was expressly recognized by the Yard Project Superintendent Orcullo. Joniga was not a Contractor of the Hot Work Done on Deck A. Claimant contends that the need. The yard. for an owner’s application for a hot work permit was canceled out by the yard’s actual knowledge of Sevillejo’s whereabouts and the fact that he was in deck A doing owner’s hotworks. the Yard did so at its own risk. and B.B. Joniga.

Yard Safety Assistants and Firewatch-Men were Overworked. Claimant disputed the theories propounded by the Respondent (The Yard). KCSI’s Theory of the Case 1. Claimant presented its case against: (i) (ii) (iii) (iv) (v) Non-removal of the life jackets theory. Mr. B. The Claimant called the attention of the Tribunal (CIAC) on the non-appearance of the welder involved in the cause of the fire. The Marina report theory. Hole-in-the[-]floor theory. The unauthorized hot works theory.According to Claimant: A. Yard Safety Practices and Procedures Were Unsafe or Inadequate. Yard’s water supply was inadequate. Finally. The Claimant has no standing to file the Request for Arbitration and the Tribunal has no jurisdiction over the case: . Severino Sevillejo. Yard Fire Fighting Efforts and Equipment Were Inadequate. Need for a plan theory. C. D. Claimant claims that this is suppression of evidence by Respondent.

The Claimant had no legally demandable obligation to pay under the policies and did so only voluntarily. it had no authority to do so. For the reason stated above. since the Yard is not liable for the fire and the resulting damage to the Vessel. the Claimant has not been subrogated to any rights which the Vessel may have against the Yard because: i. Consequently. authorized WG&A Jebsens to manage the MV Superferry 3. it has also not proved payment to the Vessel Owner. if the Claimant asserts a right of payment only by virtue of Article 1236. The Ship [R]epair Agreement was not imposed upon the Vessel. then it derived no benefit from the Claimant’s payment to the Vessel Owner. WG&A. and there was no resulting subrogation to the Vessel. On January 26. The Claimant has not proved payment of the proceeds of the policies to any specific party. First. As a consequence. Second. There is. . (b) The Claimant is not a real party in interest and has no standing because it has not been subrogated to the Vessel Owner. there are no signing or other formal defects that can invalidate the agreement. then there is no legal subrogation under Article 2207 and it does not succeed to the Vessel’s rights under the Ship [R]epair Agreement and the arbitration agreement. Under the policies. 2. the Claimant and the Vessel agreed that there is no Constructive Total Loss “unless the expense of recovering and repairing the vessel would exceed the Agreed Value” of P360 million assigned by the parties to the Vessel. the same was still owned by Aboitiz Shipping. a threshold which the actual repair cost for the Vessel did not reach. as a result.(a) There is no valid arbitration agreement between the Yard and the Vessel Owner. the insurance policies on which the Claimant bases its right of subrogation were not validly obtained. It does not have a right to demand arbitration and will have only a purely civil law claim for reimbursement to the extent that its payment benefited the Yard which should be filed in court. Moreover. iii. in any event. ii. its payment was voluntary. In any event. when the ship repair agreement (which includes the arbitration agreement) was signed by WG&A Jebsens on behalf of the Vessel. when another firm. There was also no subrogation under Article 1236 of the Civil Code. no binding arbitration agreement between the Vessel Owner and the Yard to which the Claimant can claim to be subrogated and which can support CIAC jurisdiction. Third. the Claimant has not proved payment of the proceeds to the Vessel Owner. Since the Claimant opted to pay contrary to the provisions of the policies. The Vessel knowingly and voluntarily accepted that agreement. 2000.

was the proximate cause of the fire. the shipyard is presumed at fault. Dr. however. the Manila City pronouncements regarding the res ipsa loquitur doctrine are obiter dicta without value as binding precedent. rather than the positioning of the door’s bottom edge. The fire was a direct and logical consequence of the Vessel’s decisions to: (1) take Angelino Sevillejo away from his welding work at the Promenade Deck restaurant and instead to require him to do unauthorized cutting work in Deck A. (c) The Yard’s expert witness. He established that: i) the fire started when the cutting of the bulkhead door resulted in sparks or hot molten slag which fell through pre-existing holes on the deck floor and came into contact with and ignited the flammable lifejackets stored in the ceiling void directly below. On the contrary. (b) Uncontroverted evidence proved that Dr. Joniga. Consequently.3. Furthermore. Apart from the differences in the factual setting of the two cases. Eric Mullen gave the only credible account of the cause and the mechanics of ignition of the fire. Joniga neglected or decided not to obtain a hot work permit for the bulkhead cutting and also neglected or refused to have the ceiling and the flammable lifejackets removed from underneath the area where he instructed Angelino Sevillejo to cut the bulkhead door. even if the principle were applied to create a presumption of negligence by the Yard. (e) The Vessel’s deliberate acts and its negligence created the inherently hazardous conditions in which the cutting work that could otherwise be done safely ended up causing a fire and the damage to the Vessel. and (2) to have him do that without satisfying the requirements for and obtaining a hot work permit in violation of the Yard’s Safety Rules and without . Joniga’s and the Vessel’s deliberate decision to have Angelino Sevillejo undertake cutting work in inherently dangerous conditions created by them. The proximate cause of the fire and damage to the Vessel was not any negligence committed by Angelino Sevillejo in cutting the bulkhead door or any other shortcoming by the Yard. (d) The Manila City case is irrelevant to this dispute and in any case. These decisions or oversights guaranteed that the cutting would be done in extremely hazardous conditions and were the proximate cause of the fire and the resulting damage to the Vessel. (a) The Claimant’s material witnesses lied on the record and the Claimant presented no credible proof of any negligence by Angelino Sevillejo. the cutting itself of the bulkhead door under the hazardous conditions created by Dr. does not establish governing precedent to the effect that when a ship is damaged in dry dock. the proximate cause of the fire was Dr. that presumption is conclusively rebutted by the evidence on record. because the sparks and slag could have come from the cutting of any of the sides of the door. and ii) the bottom level of the bulkhead door was immaterial.

the Yard may nevertheless not be held liable under Article 2180 because Angelino Sevillejo was acting beyond the scope of his tasks assigned by the Yard (which was only to do welding for the Promenade Deck restaurant) when he cut the bulkhead door pursuant to instructions given by the Vessel. Joniga and the Vessel for that activity caused the fire. its obligation to the Vessel was fully discharged and no claim for contractual breach.” Consequently. Even assuming that the Yard was Angelino Sevillejo’s employer. contrary to the requirements not only of the Yard’s Safety Rules but also of the demands of standard safe practice and the Vessel’s own explicit safety and hot work policies. (a) The Yard’s only contractual obligation to the Vessel in respect of the 26 January 2000 Work Order was to supply welders for the Promenade Deck restaurant who would then perform welding work “per owner[‘s] instruction. (f) The vessel has not presented any proof to show that the Yard was remiss in its fire fighting preparations or in the actual conduct of fighting the 8 February 2000 fire. the Yard may still not be held liable for the resulting damage. Joniga to cut the bulkhead door. Consequently. i. . may be raised against the Yard. Even assuming that Angelino Sevillejo cut the bulkhead door close to the deck floor.removing the flammable ceiling and life jackets below. (b) The Yard is also not liable to the Vessel/Claimant on the basis of quasi-delict. 4. and that this circumstance rather than the extremely hazardous conditions created by Dr. the Vessel was the party with actual control over his tasks and is deemed his true and effective employer for purposes of establishing Article 2180 employer liability. ii. The Vessel exercised supervision and control over Angelino Sevillejo when he was doing work at the Promenade Deck restaurant and especially when he was instructed by Dr. including Angelino Sevillejo. or for damages on account thereof. The Yard had the necessary equipment and trained personnel and employed all those resources immediately and fully to putting out the 8 February 2000 fire. once it had provided those welders.

The Yard is nonetheless not liable under Article 2180 because it exercised due diligence in the selection and supervision of Angelino Sevillejo. the yard project superintendent. Respondent enumerated and disputed these as follows: 1. Gerry Orcullo. that they could easily be detected because Mr. The Respondent listed what it believes the Claimant wanted to impress upon the Tribunal. it cannot be compelled to pay the full amount of P360 million paid by the Claimant. Claimant’s counsel also contends. In turn. (a) Under the law. under the law and decisions of the Supreme Court. 2.iii. Assuming that the Yard is liable. the right of the Vessel to recover is limited to actual damage to the MV Superferry 3. the Yard Safety . for an amount greater than that which the Vessel could have recovered. This liability should in turn be set-off against the Claimant’s claim for damages. is valid. Avelino Aves. Claimant’s counsel contends that “[t]he second reason why there was no job spec or job order for this cutting work. as subrogee. (c) The Vessel breached its obligation under Clause 22 (a) of the Yard’s Standard Terms to name the Yard as co-assured under the policies – a breach which makes the Vessel liable for damages. 5. Claimant’s counsel contends that Dr. Joniga told Gerry Orcullo about his intention to have Angelino Sevillejo do cutting work at the Deck A bulkhead on the morning of 8 February 2000. the liability of the Yard is limited to P50 million – a stipulation which. at the time of the fire. the Yard may not be held liable to the Claimant. binding and enforceable.” 4. Claimant’s counsel contends that the cutting of the bulkhead door was covered by the 26 January 2000 Work Order. “The contractor is responsible for the work done by persons employed by him. [is] the cutting work was known to the yard and coordinated with Mr. (b) Under the Ship [R]epair Agreement. to make the Vessel’s unauthorized hot works activities seem less likely. even if the Claimant may have paid a higher amount under its policies. Claimant’s counsel contends that under Article 1727 of the Civil Code. 3.” 5.

according to its own regulations. the CIAC rendered its Decision[13] declaring both WG&A and KCSI guilty of negligence. The CIAC further ordered that the arbitration costs be imposed on both parties on a pro rata basis. Joniga as both contributory to the cause of the fire that damaged the vessel.[12] On October 28. However. by requiring. As discussed earlier by the Tribunal. your Honors. discussing the work in a production meeting. admitted that “No hot works could really be hidden from the Yard. The act of Sevillejo is however mitigated in that he was not even a foreman. By the requirement that all hotworks are to be done by the Yard. or any balance thereof. and complying with the conditions of the hotwork permit prior to implementation.00. after it becomes final and executory.000. and that the instructions to him was (sic) by an authorized person. it follows that there are certain qualifications of Yard welders that would be requisite of yard welders against those of the vessel welders. because the welding cables and the gas hoses emanating from the dock will give these hotworks away apart from the assertion and the fact that there were also safety assistants supposedly going around the vessel. The fact that no foreman was included in the five welders issued to the Vessel was never raised in this dispute. the CIAC ordered KCSI to pay Pioneer the amount of P25.000.Superintendent.” Respondent disputed the above by presenting its own argument in its Final Memorandum. this means that yard welders are aware of the Yard safety rules and regulations on hotworks such as applying for a hotwork permit. that only Yard welders are to undertake hotworks.000. 2002. with the fact that what was ask (sic) of Sevillejo was outside the work order. This Tribunal finds the concurrent negligence of the Yard through Sevillejo and the Vessel through Dr.000. with the following findings and conclusions— The Tribunal agrees that the contractual obligation of the Yard is to provide the welders and equipment to the promenade deck. and 12% interest per annum added to the award.[15] .00. the Tribunal finds that Sevillejo remains a yard employee. The Tribunal notes that the hotworks permit require[s] a request by at least a foreman.[14] Holding that the liability for damages was limited to P50. [The] Tribunal agrees that the cutting of the bulkhead door was not a contractual obligation of the Yard. the Vessel is considered equally negligent. To the Tribunal. with interest at 6% per annum from the time of the filing of the case up to the time the decision is promulgated.

R. SO ORDERED. disposing as follows: WHEREFORE. ordering The Yard to pay Pioneer P25 Million. insisting that it suffered from serious errors in the appreciation of the evidence and from gross misapplication of the law and jurisprudence on negligence. 2007. an Amended Decision was promulgated by the Special Division of Five – Former Fifteenth Division of the CA – in light of the dissent of Associate Justice Lucas P. the Former Fifteenth Division of the CA rendered its Decision.R.[16] Aggrieved. On December 20. 2004 Decision. premises considered. Dimaampao. Pioneer’s Motion for Reconsideration is PARTIALLY GRANTED. 74018) is DISMISSED while the Petition of the Yard (CA-G. within 15 days from the finality of this Amended Decision. 2004. 73934. On December 17. SP No. the Petition of Pioneer (CA-G. KCSI likewise filed its own appeal and the same was docketed as CA-G. dismissing petitioner’s claims in its entirety. 74018. The cases were consolidated. The fallo of the Amended Decision reads— WHEREFORE. for its part. the Court hereby decrees that: 1. KCSI.Pioneer appealed to the CA and its petition was docketed as CA-G. Pioneer sought reconsideration of the December 17. premises considered. subject to the following modifications: . The Yard and The WG&A are hereby ordered to pay the arbitration costs pro-rata. 73934) is GRANTED. without legal interest.[17] joined by Associate Justice Japar B. No costs. SP No. SP No. SP No.R. filed a motion for partial reconsideration of the same Decision. Bersamin.R.

1 – Pioneer’s Petition (CA-G. the total GRANTING of its Petition (CA-G. The rest of the disposition in the original Decision remains the same.00. 2.000. and 3. thus. without legal interest. II THE COURT OF APPEALS ERRED IN LIMITING THE LEGAL LIABILITY OF THE YARD TO THE SUM OF P50. The Yard is hereby declared as equally negligent. SP No. ARTICLE VIII OF THE CONSTITUTION.000. these petitions. within 15 days from the finality of this Amended Decision.R. 74018) is PARTIALLY GRANTED as the Yard is hereby ordered to pay Pioneer P25 Million without legal interest. SP No. THIS ALSO VIOLATES SECTION 14.R. NON-FACTS REMAIN TO INVALIDATE THE AMENDED DECISION. STARE DECISIS RENDERS INAPPLICABLE ANY INVOCATION OF LIMITED LIABILITY BY THE YARD. IN THAT: A. Pioneer bases its petition on the following grounds: I THE COURT OF APPEALS ERRED IN BASING ITS ORIGINAL DECISION ON NON-FACTS LEADING IT TO MAKE FALSE LEGAL CONCLUSIONS.[18] Hence. SO ORDERED. in so far as it is ordered to pay Pioneer P25 Million. 73934) is now reduced to PARTIALLY GRANTED. .1.

JONIGA.B.00 ONLY. DR. C. THE LIMITATION CLAUSE IS CONTRARY TO PUBLIC POLICY.000. THE VESSEL OWNER DID NOT AGREE THAT THE YARD’S LIABILITY FOR LOSS OR DAMAGE TO THE VESSEL ARISING FROM YARD’S NEGLIGENCE IS LIMITED TO THE SUM OF P50. D. IN THAT: (i) THE YARD HAD CUSTODY AND CONTROL OVER THE VESSEL (M/V “SUPERFERRY 3”) ON 08 FEBRUARY 2000 WHEN IT WAS GUTTED BY FIRE. THE VESSEL’S PASSAGE TEAM LEADER. IT IS INIQUITOUS TO ALLOW THE YARD TO LIMIT LIABILITY. CONSIDERING THAT: A. III THE COURT OF APPEALS ERRED IN ITS RULING THAT WG&A WAS CONCURRENTLY NEGLIGENT. C. B. . SINCE ONLY YARD WELDERS COULD PERFORM HOT WORKS IT FOLLOWS THAT THEY ALONE COULD BE GUILTY OF NEGLIGENCE IN DOING THE SAME. DID NOT SUPERVISE OR CONTROL THE REPAIRS. IT WAS THE YARD THROUGH ITS PROJECT SUPERINTENDENT GERMINIANO ORCULLO THAT SUPERVISED AND CONTROLLED THE REPAIR WORKS. (ii) THE DAMAGING FIRE INCIDENT HAPPENED IN THE COURSE OF THE REPAIRS EXCLUSIVELY PERFORMED BY YARD WORKERS.000.

E. BE IT DIRECT OR CONTRIBUTORY TO THE LOSS. IV THE COURT OF APPEALS CORRECTLY RULED THAT WG&A SUFFERED A CONSTRUCTIVE TOTAL LOSS OF ITS VESSEL BUT ERRED BY NOT HOLDING THAT THE YARD WAS LIABLE FOR THE VALUE OF THE FULL CONSTRUCTIVE TOTAL LOSS. THE NEGLIGENCE OF ANGELINO SEVILLEJO WAS THE PROXIMATE CAUSE OF THE LOSS. V THE COURT OF APPEALS ERRED IN NOT HOLDING THE YARD LIABLE FOR INTEREST. ABSENCE OF YARD RESPONSIBILITY .[19] On the other hand.D. WG&A WAS NOT GUILTY OF NEGLIGENCE. to wit: 1. F. KCSI cites the following grounds for the allowance of its petition. VI THE COURT OF APPEALS ERRED IN NOT HOLDING THE YARD SOLELY LIABLE FOR ARBITRATION COSTS. THE YARD AUTHORIZED THE HOT WORK OF YARD WELDER ANGELINO SEVILLEJO.

AFTER THE COURT OF APPEALS ITSELF HAD SHOWN THAT RULING TO BE COMPLETELY WRONG AND BASELESS. WITHOUT EXPLANATION. THE CIAC’S RULING THAT THE YARD WAS EQUALLY NEGLIGENT BECAUSE OF ITS FAILURE TO REQUIRE A HOT WORKS PERMIT FOR THE CUTTING WORK DONE BY ANGELINO SEVILLEJO. THE COURT OF APPEALS STILL ERRED IN NOT DEDUCTING THE SALVAGE VALUE OF THE VESSEL RECOVERED AND RECEIVED BY THE INSURER. WITHOUT EXPLANATION.IT WAS GRIEVOUS ERROR FOR THE COURT OF APPEALS TO ADOPT. KEPPEL’S PARTIAL MOTION FOR RECONSIDERATION OF THE ORIGINAL DECISION WHICH SHOWED: 1) WHY PIONEER WAS NOT SUBROGATED TO THE RIGHTS OF THE VESSEL OWNER AND SO HAD NO STANDING TO SUE THE YARD. THAT THE VESSEL WAS A CONSTRUCTIVE TOTAL LOSS AFTER HAVING ITSELF EXPLAINED WHY THE VESSEL COULD NOT BE A CONSTRUCTIVE TOTAL LOSS. IT WAS ALSO GRIEVOUS ERROR FOR THE COURT OF APPEALS TO HAVE EFFECTIVELY DENIED.874 MILLION. PIONEER. TO REDUCE ANY LIABILITY ON THE PART OF THE YARD TO P9. 2) WHY KEPPEL MAY NOT BE REQUIRED TO REIMBURSE PIONEER’S PAYMENTS TO THE VESSEL OWNER IN VIEW OF THE CO-INSURANCE CLAUSE IN THE SHIPREPAIR AGREEMENT. NO CONSTRUCTIVE TOTAL LOSS IT WAS EQUALLY GRIEVOUS ERROR FOR THE COURT OF APPEALS TO RULE. 2. FAILURE OR REFUSAL TO ADDRESS KEPPEL’S MOTION FOR RECONSIDERATION FINALLY. AND 3) WHY PIONEER ALONE SHOULD BEAR THE COSTS OF ARBITRATION. FAILURE TO CREDIT FOR SALVAGE RECOVERY EVEN IF THE COURT OF APPEAL’S RULINGS ON ALL OF THE FOREGOING ISSUES WERE CORRECT AND THE YARD MAY PROPERLY BE HELD EQUALLY LIABLE FOR THE DAMAGE TO THE VESSEL AND REQUIRED TO PAY HALF OF THE DAMAGES AWARDED (P25 MILLION).[20] . WITHOUT ADDRESSING IT AND ALSO WITHOUT EXPLANATION. 4. 3.

these errors assigned by both Pioneer and KCSI may be summed up in the following core issues: A. the immediate cause of the fire was the hot work done by Angelino Sevillejo (Sevillejo) on the accommodation area of the vessel. Considering the disparate findings of fact of the CIAC and the CA which led them to different conclusions. Is subrogation proper? If proper. To whom may negligence over the fire that broke out on board M/V “Superferry 3” be imputed? B. it is imperative that we digress from the general rule that in petitions for review under Rule 45 of the Rules of Court. other workers in the immediate vicinity tried to fight the fire by using fire extinguishers and buckets of water. Aini Ling. 1-Ms. As established before the CIAC – The fire broke out shortly after 10:25 and an alarm was raised (Exh. how much? D. 20). He got another container of water which he also poured whence the smoke was coming. The issue of negligence Undeniably. But because the fire was inside the . specifically on Deck A. to what extent can subrogation be made? C. only questions of law shall be entertained. Angelino Sevillejo tried to put out the fire by pouring the contents of a five-liter drinking water container on it and as he did so.[21] The Court’s Ruling A.[22] p. we are constrained to revisit the factual circumstances surrounding this controversy. Who should bear the cost of the arbitration? To resolve these issues. In the meantime. smoke came up from under Deck A.To our minds. Should interest be imposed on the award of damages? If so.

and fuel oil tanks to be carried out only by shipyard workers x x x. was doing his assigned task. for failing to remove the life jackets from the ceiling void. the fire dropped into the Deck B accommodation areas at various locations. 1997.[24] Pioneer contends that KCSI should be held liable because Sevillejo was its employee who. The Shiprepair Agreement is clear that WG&A. Pursuant to KCSI’s rules and regulations on safety and security. Second. 11-12). particularly Dr. viz. First. and it spread rapidly because it was not possible to direct water jets or the fire extinguishers into the space at the source. Exh. pp. From there. and its guidelines and regulations on safety and security. 2-Mullen.” entered into a contract for the dry docking and repair of the vessel under KCSI’s Standard Conditions of Contract for Shiprepair. This is supported by Clause 3 of the Shiprepair Agreement requiring the prior written approval of KCSI’s Vice President for Operations before WG&A could effect any work performed by its own workers or subcontractors. stating that the hot work done was beyond the scope of Sevillejo’s assigned tasks. Fighting the fire was extremely difficult because the life jackets and the construction materials of the Deck B ceiling were combustible and permitted the fire to spread within the ceiling void. in addition to the plywood partitions and foam mattresses on deck B (Exh. where there were combustible materials. 18. banned any hot works from being done except by KCSI’s workers. as owner of M/V “Superferry 3. KCSI’s Vice-President for Operations. in the letter dated January 2. Joniga).ceiling void. the CA erred when it said that WG&A would renovate and reconstruct its own vessel merely using the dry docking facilities of KCSI. only employees of KCSI may undertake hot works on the vessel while it was in the graving dock in Lapu-Lapu City. KCSI claims otherwise. In the exercise of this authority. the same not having been authorized under the Work Order[25] dated January 26. accommodation cabin. 1-Mullen. at the time the fire broke out. KCSI further posits that WG&A was itself negligent. 7-8.[23] pp.: The Yard will restrict all hot works in the engine room. Respondent points to cans of paint and thinner. through its crew. and that KCSI was solely responsible for all the hot works done on board the vessel. Cebu.[26] . 2000 or under the Shiprepair Agreement. Thus. We rule in favor of Pioneer. causing the immediate spread of the fire to the other areas of the ship. it was extremely difficult to contain or extinguish. Raymundo Joniga (Dr.

Joniga. admitted that “as early as February 3. At the time of the fire.[29] KCSI knew of the unfinished hot works in the passenger accommodation areas. during the arrival conference on January 26. Joniga had authority only to request the performance of hot works by KCSI’s welders as needed in the repair of the vessel while on dry dock. therefore. Sevillejo was an employee of KCSI and was subject to the latter’s direct control and supervision. 2000. 2000 Work Order that KCSI would supply welders for the promenade deck of the ship. it was not restricted to the promenade deck only. This was a recognition of Dr. giving him and the other welders marching orders to work on the vessel. providing him and the other welders with its equipment. KCSI welders covered by the Work Order performed hot works on various areas of the M/V “Superferry 3. in view of the delicate nature of their . Third. specifically requested KCSI to finish the hot works started by the vessel’s contractors on the passenger accommodation decks. and monitoring and keeping track of his and the other welders’ activities on board.”[30] This shows that Dr. retaining the power and the right to discharge or substitute him with another welder.”[33] It is evident. 2000. it was adequately shown that between February 4 and 6.[32] In fact.[31] at a rate of P150.” and that no hot work permits could thereafter be issued to WG&A’s own workers because “this was not allowed for the Superferry 3.WG&A recognized and complied with this restrictive directive such that. that although the January 26.” aside from its promenade deck. At the CIAC proceedings. Joniga’s authority to order such works or additional jobs. The Work Order was only a special arrangement between KCSI and WG&A that meant additional cost to the latter. Fourth. Dr. the welders of KCSI: (a) did the welding works on the ceiling hangers in the lobby of Deck A. Indeed. KCSI was the employer of Sevillejo—paying his salaries. Joniga’s authority to request the conduct of hot works even on the passenger accommodation decks.00/welder/hour.[27] This was corroborated by the statements of the vessel’s hotel manager Marcelo Rabe[28] and the vessel’s quality control officer Joselito Esteban. and (c) did the cutting and welding works on the protection bars at the tourist dining salon of Deck B. the vessel’s passage team leader in charge of its hotel department. Orcullo. subject to the provision of the January 26. 2000 (five days before the fire) [the Yard] had acknowledged Dr. 2000 Work Order was a special order for the supply of KCSI welders to the promenade deck. Its safety supervisor Esteban Cabalhug confirmed that KCSI was aware “that the owners of this vessel (M/V ‘Superferry 3’) had undertaken their own (hot) works prior to arrival alongside (sic) on 26th January. Project Superintendent of KCSI. (b) did the welding and cutting works on the deck beam to access aircon ducts.

after purportedly scolding Sevillejo for working without a permit and telling him to stop until the permit was acquired and the other safety measures were observed. There was a lapse in KCSI’s supervision of Sevillejo’s work at the time the fire broke out. KCSI contends that it did its duty when it prohibited Sevillejo from continuing the hot work. as such employee. aware of KCSI’s Safety Regulations on Vessels Afloat/Dry. a fire watchman. doing his cutting work without a hot work permit.H. The foregoing would be compounded by Angelino Sevillejo being an electric arc welder. which specifically provides that “(n)o hotwork (welding/cutting works) shall be done on board [the] vessel without [a] Safety Permit from KCSI Safety Section. Hence. it is noteworthy that. Rebaca left without pulling Sevillejo out of the work area or making sure that the latter did as he was told. It was established that no hot works could be hidden from or remain undetected by KCSI because the welding cables and the gas hoses emanating from the dock would give the hot works away.. and it may well be that Angelino Sevillejo would not have a full appreciation of the dangers involved. J.[37] . Unfortunately for KCSI.3. the quantity and incendivity of the spray from the hot cutting are much greater than those of sparks from electric arc welding. Singapore. ensured that the appropriate safety precautions were carried out.[36] This was confirmed by Restituto Rebaca (Rebaca). including that done on Deck A where the fire started. This conclusion on the failure of supervision by KCSI was absolutely supported by Dr. However. KCSI’s Safety Supervisor. KCSI’s own fire expert. Fifth.[34] Thus. or a fire extinguisher. who should have had such an appreciation. until the fire broke out. Sevillejo reluctantly proceeded with his cutting of the bulkhead door at Deck A after Rebaca left. Eric Mullen of the Dr. Moreover.work. even disregarding the 4-inch marking set. The dangers of ignition occurring as a result of the two processes are similar in that both electric arc welding and hot cutting produce heat at the work area and sparks and incendive material that can travel some distance from the work area. two hours before the fire. thus cutting the door level with the deck. However. the safety precautions that are expected to be applied by the supervisor are the same for both types of work.”[35] it was incumbent upon Sevillejo to obtain the required hot work safety permit before starting the work he did. Burgoyne & Partners (International) Ltd. who actually spotted Sevillejo on Deck A. KCSI had roving fire watchmen and safety assistants who were moving around the vessel. This made it all the more important that the supervisor. not a cutter. who observed that— 4.

and (2) it was not incumbent . KCSI failed to exercise the necessary degree of caution and foresight called for by the circumstances. the more imminent the danger. Extraordinary risk demands extraordinary care. not only because he worked without the required permit. Joniga asked Sevillejo to do the cutting of the bulkhead door near the staircase of Deck A. the degree of care required is graduated according to the danger a person or property may be subjected to. Conjunctively. fire buckets. and covered any holes where the sparks may enter. under ordinary circumstances of the case. ensured that whatever combustible material may have been in the vicinity would be protected from the sparks caused by the welding torch. 2000 Work Order and the Shiprepair Agreement. he should have taken all possible precautionary measures. We cannot subscribe to KCSI’s position that WG&A. therefore. inasmuch as KCSI had the power to substitute Sevillejo with another electric arc welder. and extinguishers. at the very least. Neither can Dr. Generally.In this light. failed to comply with the strict safety standards of KCSI. since Rebaca was already aware of the hazard. arising from the activity that the actor pursues or the instrumentality that he uses. On the one hand. KCSI was aware of what Sevillejo was doing.[39] In this aspect. The omission of that care constitutes negligence. There is negligence when an act is done without exercising the competence that a reasonable person in the position of the actor would recognize as necessary to prevent an unreasonable risk of harm to another. but also because he failed to undertake other precautionary measures for preventing the fire. including those above mentioned. In the exercise of this authority. fire watch. the higher degree of care warranted. through Dr. there is an obligation all persons have – to take due care which. Similarly. Nothing more. Those who undertake any work calling for special skills are required to exercise reasonable care in what they do. He could have easily removed the life jackets from the ceiling void. the greater the degree of care required. In addition to scolding Sevillejo. These hot works were deemed included in the January 26. The greater the danger. Rebaca merely checked that no fire had started yet. Dr. but failed to supervise him with the degree of care warranted by the attendant circumstances. For instance. Joniga be faulted for not removing the life jackets from the ceiling void for two reasons – (1) the life jackets were not even contributory to the occurrence of the fire. was negligent. as well as the foam mattresses. Sevillejo. Rebaca should have replaced him.[38] Verily. Joniga. as discussed above. before allowing Sevillejo to continue with his hot work on Deck A. Joniga had authority to request the performance of hot works in the other areas of the vessel. a reasonable and prudent man would take. being one of the specially trained welders specifically authorized by KCSI to do the hot works on M/V “Superferry 3” to the exclusion of other workers. Also. he could have. Dr.

making their removal from storage unnecessary. xxxx Employers shall be liable for the damages caused by their employees and household helpers acting within the scope of their assigned tasks. which provides— Art. even though the former are not engaged in any business or industry. It was also proven during the CIAC proceedings that KCSI did not see the life jackets as being in the way of the hot works.[42] These circumstances. and its liability is primary and solidary. by his negligence. 2180. his negligence gave rise to the vicarious liability of his employer[43] under Article 2180 of the Civil Code. His negligence was the proximate cause of the fire on board M/V “Superferry 3. The fire would still have occurred due to the presence of other combustible materials in the area. it is responsible for the damages caused by the negligent act of its employee.[44] Consequently. xxxx The responsibility treated of in this article shall cease when the persons herein mentioned prove that they observed all the diligence of a good father of a family to prevent damage. caused damage to another in order to make .” As he was then definitely engaged in the performance of his assigned tasks as an employee of KCSI. yield the inevitable conclusion that Sevillejo was negligent in the performance of his assigned task. The obligation imposed by article 2176 is demandable not only for one’s own act or omission. KCSI failed to prove that it exercised the necessary diligence incumbent upon it to rebut the legal presumption of its negligence in supervising Sevillejo. All that is needed is proof that the employee has. thus. It was shown during the hearings before the CIAC that the removal of the life jackets would not have made much of a difference. but also for those of persons for whom one is responsible. taken collectively.upon him to remove the same. This was the uniform conclusion of both WG&A’s[40] and KCSI’s[41] fire experts.

a constructive total loss occurs under any of the conditions set forth in Section 139 of the Insurance Code. . KCSI counters that a total constructive loss was not adequately proven by Pioneer. or would have to be expended to recover it from the peril.[45] From the foregoing disquisition. A person insured by a contract of marine insurance may abandon the thing insured. or any particular portion hereof separately valued by the policy. because WG&A acceded to the provision when it executed the Shiprepair Agreement. x x x. it was entitled to be subrogated to the rights of WG&A to claim the amount of the loss.000. subject to the claim of KCSI as to the salvage value of M/V “Superferry 3.000. by operation of law. (b) If it is injured to such an extent as to reduce its value more than three-fourths. B. and recover for a total loss thereof. KCSI also claims that the salvage value of the vessel should be deducted from whatever amount it will be made to pay to Pioneer.00.” In marine insurance. when the cause of the loss is a peril insured against: (a) If more than three-fourths thereof in value is actually lost. and that there is no proof of payment of the insurance proceeds. 139. We find in favor of Pioneer. It further argues that the limitation of liability clause found in the Shiprepair Agreement is null and void for being iniquitous and against public policy. which provides— Sec.the employer responsible for the tortuous act of the former. or otherwise separately insured. there is ample proof of the employee’s negligence. The right of subrogation Pioneer asseverates that there existed a total constructive loss so that it had to pay WG&A the full amount of the insurance coverage and. KCSI insists on the validity of the limited-liability clause up to P50.

000.00. . aside from its claim that it cannot be held culpable for negligence resulting in the destructive fire. Singapore. Pioneer paid WG&A’s claim. however.384. by virtue of subrogation.000. the Total Loss Provision of which reads— Total Loss In ascertaining whether the Vessel is a constructive Total Loss the Agreed Value shall be taken as the repaired value and nothing in respect of the damaged or break-up value of the Vessel or wreck shall be taken into account. In making this determination. and (c) P301.611.It appears. (b) P309.15. x x x.780. Thus. there was no constructive total loss. based on the Philippine currency equivalent of the quotation dated April 17.00.000.256. based on the Philippine currency equivalent of the quotation of Sembawang Shipyard Pte..839.000.260. Pioneer adduced in evidence the estimates made by three (3) disinterested and qualified shipyards for the cost of the repair of the vessel.00. only expenses incurred or to be incurred by reason of a single accident or a sequence of damages arising from the same accident shall be taken into account.000. All the estimates showed that the repair expense would exceed P270. as the amount of damage was only US$3.00 or P170.00.000. KCSI denies the liability because.974. Ltd. that in the execution of the insurance policies over M/V “Superferry 3.. the amount equivalent to ¾ of the vessel’s insured value of P360.00. 2000 turned in by Tsuneishi Heavy Industries (Cebu) Inc. In the course of the arbitration proceedings. the amount of repair expense quoted by Simpson. specifically: (a) P296.000.” WG&A and Pioneer incorporated by reference the American Institute Hull Clauses 2/6/77.717. but expenses incurred prior to tender of abandonment shall not be considered if such are to be claimed separately under the Sue and Labor clause. based on the Philippine currency equivalent of the quotation of Singapore Technologies Marine Ltd. There shall be no recovery for a constructive Total Loss hereunder unless the expense of recovering and repairing the Vessel would exceed the Agreed Value in policies on Hull and Machinery.00.800. and now demands from KCSI the full amount of P360. WG&A opted to abandon M/V “Superferry 3” and claimed from Pioneer the full amount of the policies. Spence & Young.

00 under the policies was compensable.[46] It is also noteworthy that KCSI did not . This option or discretion is expressed as a right in Section 131 of the same Code. Inc. the word “may” in the provision is intended to grant the insured (WG&A) the option or discretion to choose the abandonment of the thing insured (M/V “Superferry 3”).000. It is significant that these estimates were confirmed by the Adjustment Report dated June 5. then the laws of the Republic of the Philippines shall govern.) The CA held that Section 139 of the Insurance Code is merely permissive on account of the word “may” in the provision. The estimates given by the three disinterested and qualified shipyards show that the damage to the ship would exceed P270.000. except in the event that loss or losses are payable in the Philippines. the average adjuster that Pioneer had enlisted to verify and confirm the extent of the damage. to wit: Sec.000.000. 131. a covered peril under the marine insurance policies obtained by WG&A from Pioneer. A constructive total loss is one which gives to a person insured a right to abandon under Section one hundred thirty-nine. 2000 submitted by Richards Hogg Lindley (Phils.00. or otherwise separately insured.). or any particular portion thereof separately valued by the policy. in which case if the said laws and customs of England shall be in conflict with the laws of the Republic of the Philippines. and (2) the marine insurance policies in question expressly provided the following: IMPORTANT This insurance is subject to English jurisdiction. This is incorrect.In the face of this apparent conflict.000. we hold that Section 139 of the Insurance Code should govern. 2000. The Adjustment Report verified and confirmed that the damage to the vessel amounted to a constructive total loss and that the claim for P360. or ¾ of the total value of the policies – P360. because (1) Philippine law is deemed incorporated in every locally executed contract.000. Properly considered. These estimates constituted credible and acceptable proof of the extent of the damage sustained by the vessel.00. (Underscoring supplied.. and recover for a total loss when the cause of the loss is a peril insured against. It cannot be denied that M/V “Superferry 3” suffered widespread damage from the fire that occurred on February 8.

On the matter of subrogation.cross-examine Henson Lim. so that he who is substituted succeeds to the rights of the other in relation to a debt or claim. 2207. we find as unacceptable the claim of KCSI that there was no ample proof of payment simply because the person who signed the Receipt appeared to be an employee of Aboitiz Shipping Corporation. with WG&A issuing a Loss and Subrogation Receipt evidencing receipt of the payment of the insurance proceeds from Pioneer. The doctrine of subrogation has its roots in equity. The principle covers a situation wherein an insurer has paid a loss under an insurance policy is entitled to all the rights and remedies belonging to the insured against a third party with respect to any loss covered by the policy. Considering the extent of the damage. paid the claim. the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. and he may use all means that the creditor could employ to enforce payment.[47] The Loss and Subrogation Receipt issued by WG&A to Pioneer is the best evidence of payment of the insurance proceeds to the former. WG&A opted to abandon the ship and claimed the value of its policies. Subrogation is the substitution of one person by another with reference to a lawful claim or right. Pioneer. If the amount paid by the insurance company does not fully cover the injury or loss. any privity of contract. the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury. whose affidavit-direct testimony submitted to the CIAC confirmed that the vessel was a constructive total loss. On this note. It accrues simply upon payment by the insurance company of the insurance claim. Article 2207 of the Civil Code provides— Art. Director of Richards Hogg. finding the claim compensable. It contemplates full substitution such that it places the party subrogated in the shoes of the creditor.[48] We have held that payment by the insurer to the insured operates as an equitable assignment to the insurer of all the remedies that the insured may have against the third party whose negligence or wrongful act caused the loss. nor does it grow out of. It is designed to promote and to accomplish . and no controverting evidence was presented by KCSI to rebut the presumed authority of the signatory to receive such payment. The right of subrogation is not dependent upon. 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. including its remedies or securities.

Bello. considering that it was only KCSI that had shipyard facilities large enough to accommodate the dry docking and repair of big vessels owned by WG&A. However. that KCSI stands as a co-assured in the insurance policies.000. intelligently. Engr. It would not be difficult for a negligent party to escape liability by the simple expedient of paying an amount very much lower than the actual damage or loss sustained by the other. in justice.[49] We cannot accept KCSI’s insistence on upholding the validity Clause 20. Clause 20 is a stipulation that may be considered contrary to public policy.[50] Indeed. the vessel would not be accepted for dry docking. There was clearly no intention on the part of WG&A to relinquish such right. the assailed clauses amount to a contract of adhesion imposed on WG&A on a “take-it-or-leaveit” basis. ought to pay. WG&A’s fleet manager. as found in the Shiprepair Agreement. and its option is reduced to the alternative of “taking it or leaving it. would sanction the exercise of a degree of diligence short of what is ordinarily required.000.000.” completely depriving such party of the opportunity to bargain on equal footing. Clauses 20 and 22(a) of the Shiprepair Agreement are without factual and legal foundation. Although not invalid. There must be persuasive evidence to show an actual intention to relinquish the right. which provides that the limit of its liability is only up to P50.00. It is an elementary rule that a waiver must be positively proved. at the very least. They are unfair and inequitable under the premises. equity. testified that he did not sign the fine-print portion of the Shiprepair Agreement where Clauses 20 and 22(a) were found.[52] This has not been demonstrated in this case.000.00. notwithstanding the fact that there was a constructive total loss in the amount of P360. otherwise.[53] .00. because he did not want WG&A to be bound by them. such as M/V “Superferry 3.[51] Clause 20 is also a void and ineffectual waiver of the right of WG&A to be compensated for the full insured value of the vessel or. The norm is that a waiver must not only be voluntary. a contract of adhesion is void when the weaker party is imposed upon in dealing with the dominant bargaining party.000. and good conscience. Elvin F. but must have been made knowingly. for its actual market value. per se. A contract of adhesion is so-called because its terms are prepared by only one party. nor of Clause 22(a). To allow KCSI to limit its liability to only P50. Likewise. he had to sign the front portion of the Shiprepair Agreement. while the other party merely affixes his signature signifying his adhesion thereto. It was established during arbitration that WG&A did not voluntarily and expressly agree to these provisions. and with sufficient awareness of the relevant circumstances and likely consequences.000. and is the mode that equity adopts to compel the ultimate payment of a debt by one who.justice. since a waiver by implication is not normally countenanced.” in Cebu.

respectively. the hull and machinery insurance procured by WG&A from Pioneer named only the former as the assured.96).000.[54] Nevertheless. WG&A could not have intended such a result.333. v. Not considering this salvage value in the award would amount to unjust enrichment on the part of Pioneer. D. The intention of the parties to make each other a co-assured under an insurance policy is to be gleaned principally from the insurance contract or policy itself and not from any other contract or agreement. There was no manifest intention on the part of WG&A to constitute KCSI as a co-assured under the policies.[55] the award in favor of Pioneer in the amount of P350.87.786.521.33) and US$363.8977/$1. On the payment for the cost of arbitration It is only fitting that both parties should share in the burden of the cost of arbitration. Thereafter. Court of Appeals. C. at P44.146. . we concur with the position of KCSI that the salvage value of the damaged M/V “Superferry 3” should be taken into account in the grant of any award.737.290. On the imposition of interest Pursuant to our ruling in Eastern Shipping Lines. the rate of interest shall be 12% per annum from the date the award becomes final and executory until its full satisfaction.812. However.809.50.89 should earn interest at 6% per annum from the filing of the case until the award becomes final and executory. KCSI cannot be faulted for defending itself for perceived wrongful acts and conditions.252. Inc. Undeniably. for a net recovery of US$673. the prevailing exchange rate when the Request for Arbitration was filed.289. any claim for loss or damage under the policy would be rendered nugatory. on a pro rata basis. or equivalent to P30.09. WG&A’s claim for the upkeep of the wreck until the same were sold amounts to P8.75 (or US$157. as it believed that it was entitled to claim reimbursement of the amount it paid to WG&A. we disagree with Pioneer that only KCSI should shoulder the arbitration costs. because the insurance policy denominates the assured and the beneficiaries of the insurance contract.Along the same vein. It was proven before the CIAC that the machinery and the hull of the vessel were separately sold for P25. No ship owner would agree to make a ship repairer a co-assured under such insurance policy. Clause 22(a) cannot be upheld. We find that Pioneer had a valid reason to institute a suit against KCSI. we would be putting a price on the right to litigate on the part of Pioneer. Otherwise. Otherwise. To have deemed KCSI as a co-assured under the policies would have had the effect of nullifying any claim of WG&A from Pioneer for any loss or damage caused by the negligence of KCSI. to be deducted from the proceeds of the sale of the machinery and the hull.00 (or US$468.648.

No. The arbitration costs shall be borne by both parties on a pro rata basis. KCSI is ordered to pay Pioneer the amount of P360. Costs against KCSI. 180880-81 are PARTIALLY GRANTED and the Amended Decision dated December 20.” or the net total amount of P329.000.R. with six percent (6%) interest per annum reckoned from the time the Request for Arbitration was filed until this Decision becomes final and executory.747.91. 2007 of the Court of Appeals is MODIFIED.00 less P30.WHEREFORE. the Petition of Pioneer Insurance and Surety Corporation in G. in G. .09. Accordingly.648. equivalent to the salvage value recovered by Pioneer from M/V “Superferry 3.R.351. SO ORDERED.252. 180896-97 and the Petition of Keppel Cebu Shipyard. No.000. Inc. plus twelve percent (12%) interest per annum on the said amount or any balance thereof from the finality of the Decision until the same will have been fully paid.