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Keppel Cebu Shipyard vs.

Pioneer Insurance and Surety

September 25, 2009
Facts: KCSI and WG&A Jebsens Shipmanagement, Inc. (WG&A) executed a
Shiprepair Agreement wherein
KCSI would renovate and reconstruct WG&As M/V Superferry 3 using its
dry docking facilities pursuant to
its restrictive safety and security rules and regulations. Prior to the execution
of the Shiprepair Agreement,
Superferry 3 was already insured by WG&A with Pioneer for
US$8,472,581.78. The Shiprepair Agreement
provides, among others, for the following terms:
(1) that the owner shall inform its insurer and shall include Keppel Cebu
Shipyard as a co-assured in
its insurance policy;
(2) that 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) that the owner shall indemnify and hold Keppel Cebu Shipyard harmless
from any or all claims,
damages, or liabilities arising from death or bodily injuries to Owners
workers, or damages to the
vessel or other property however caused.
In the course of its repair, M/V Superferry 3 was gutted by fire. Claiming
that the extent of the
damage was pervasive, WG&A declared the vessels damage as a total
constructive loss and, hence, filed an
insurance claim with Pioneer. Pioneer paid the insurance claim in the amount
of US$8,472,581.78. WG&A, in
turn, executed a Loss and Subrogation Receipt in favor of Pioneer. Pioneer
then tried to collect from KCSI, but
the latter denied any responsibility for the loss of the subject vessel despite
repeated demands. Hence, Pioneer,
filed a Request for Arbitration before the Construction Industry Arbitration
Commission (CIAC) praying for the
payment of the amount paid to WG&A, the expenses of the arbitration (P500
million), and damages. It further
prayed that Clauses 1 and 2 on the unsigned page 1 of the Shiprepair
Agreement as well as the hardly legible
Clauses 20 and 22 (a) and other similar clauses printed in very fine print on
the unsigned dorsal page thereof, be
all declared illegal and void ab initio.
KCSI and WG&A reached an amicable settlement, leading to the dismissal of
the claim of WG&A
against KCSI and the arbitration to proceed with Pioneer as the remaining
claimant. Pioneer alleges that it is the

real party in interest and that Keppel had custody of and control over the M/V
Superferry 3 while said vessel
was in Respondent Keppels premises. It likewise alleged that the Vessels
Safety Manual cannot be relied
upon as proof of the Masters continuing control over the vessel ; Yard is
liable under the Doctrine of Res Ipsa
Loquitur. Moreover , the liability of Respondent does not arise merely from
the application of the Doctrine
of Res Ipsa Loquitur, but from its negligence in this case. It futher allged that
the shipowner had no legal duty to
apply for a hotworks permit since it was not required by the yard, and the
owners hotworks were conducted by
welders who remained employees of the yard. In supplying welders and
equipment as per The Work Order
Dated 26 January 2000, the Yard did so at its own risk, and acted as a Less
Than Prudent Ship Repairer.
KCI on the other hand allged:
1. that pioneer as claimant has no standing to file the Request for Arbitration
and the Tribunal
has no jurisdiction over the case.
2. The Ship [R]epair Agreement was not imposed upon the Vessel. The Vessel
knowingly and
voluntarily accepted that agreement. Moreover, there are no signing or other
formal defects
that can invalidate the agreement.
3. The proximate cause of the fire and damage to the Vessel was not any
negligence committed
by Angelino Sevillejo in cutting the bulkhead door or any other shortcoming
by the Yard. On
the contrary, the proximate cause of the fire was Dr. Jonigas and the Vessels
decision to have Angelino Sevillejo undertake cutting work in inherently
conditions created by them.
4. Even assuming that Angelino Sevillejo cut the bulkhead door close to the
deck floor, and
that this circumstance rather than the extremely hazardous conditions
created by Dr. Joniga
and the Vessel for that activity caused the fire, the Yard may still not be held
liable for the
resulting damage.
5. Assuming that the Yard is liable, it cannot be compelled to pay the full
amount of P360
million paid by the Claimant as subrogee, for an amount greater than that
which the Vessel

could have recovered, even if the Claimant may have paid a higher amount
under its
policies. In turn, the right of the Vessel to recover is limited to actual damage
to the MV
Superferry 3, at the time of the fire.
CIA declared both WG&A and KCSI guilty of negligence. The Court of appeals,
in its amended
decision ordered the Yard to pay Pioneer P25 Million, without legal interest,
within 15 days from the finality of
the decision.
1. To whom may negligence over the fire that broke out on board M/V
Superferry 3 be imputed?
2. Is subrogation proper? If proper, to what extent can subrogation be made?
1. KCI should be liable. Undeniably, the immediate cause of the fire was the
hot work done by Angelino
Sevillejo (Sevillejo) on the accommodation area of the vessel, specifically on
Deck A. The fire broke
out shortly after 10:25 and an alarm was raised (Exh. 1-Ms. Aini Ling,
p. 20). Angelino Sevillejo
tried to put out the fire by pouring the contents of a five-liter drinking water
container on it and as he
did so, smoke came up from under Deck A. He got another container of water
which he also poured
whence the smoke was coming. In the meantime, other workers in the
immediate vicinity tried to fight
the fire by using fire extinguishers and buckets of water. But because the fire
was inside the ceiling
void, it was extremely difficult to contain or extinguish; and it spread rapidly
because it was not
possible to direct water jets or the fire extinguishers into the space at the
source. Fighting the fire was
extremely difficult because the life jackets and the construction materials of
the Deck B ceiling were
combustible and permitted the fire to spread within the ceiling void. From
there, the fire dropped into
the Deck B accommodation areas at various locations, where there were
materials. Respondent points to cans of paint and thinner, in addition to the
plywood partitions and
foam mattresses on deck B.
Indeed, KCSI was the employer of Sevillejopaying his salaries; retaining the
power and the right to

discharge or substitute him with another welder; providing him and the other
welders with its equipment; giving
him and the other welders marching orders to work on the vessel; and
monitoring and keeping track of his and
the other welders activities on board, in view of the delicate nature of their
work. Thus, as such employee,
aware of KCSIs Safety Regulations on Vessels Afloat/Dry, which specifically
provides that (n)o hotwork
(welding/cutting works) shall be done on board [the] vessel without [a]
Safety Permit from KCSI Safety
it was incumbent upon Sevillejo to obtain the required hot work safety permit
before starting the
work he did, including that done on Deck A where the fire started. In this
light, therefore, Sevillejo, being one of
the specially trained welders specifically authorized by KCSI to do the hot
works on M/V Superferry 3 to the
exclusion of other workers, failed to comply with the strict safety standards
of KCSI, not only because he
worked without the required permit, fire watch, fire buckets, and
extinguishers, but also because he failed to
undertake other precautionary measures for preventing the fire. For instance,
he could have, at the very least,
ensured that whatever combustible material may have been in the vicinity
would be protected from the sparks
caused by the welding torch. He could have easily removed the life jackets
from the ceiling void, as well as the
foam mattresses, and covered any holes where the sparks may enter.