Subrogation
Art. 2207, Civil Code
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.
Right of subrogation of insurer to rights of insured against wrongdoer
1. Basis of right
The doctrine of subrogation is a process of legal substitution. The insurer, after
paying the amount covered by the insurance policy, steps into the shoes of the
insured and avails himself of the latters rights that exist against the wrongdoer at
the time of the loss. It has its roots in equity. It is designed to promote and
accomplish justice and is the mode which equity adopts to compel the ultimate
payment of the debt by one who in justice and good conscience ought to pay. (Phil.
American General Insurance v CA; Delsan Transport v CA)
2. Purposes of subrogation condition in policy
Its principal purpose is to make the person who caused the loss, legally
responsible for it and at the same time prevent the insured from receiving a double
recovery from the wrongdoer and the insurer. The insurer is entitled to recover
directly in a suit against the wrongdoer (third party) or as the real party in interest
in a suit brought by the insured and thereby fully recover or at least lessen the
amount of loss it may have paid the insured. The rule likewise prevents tortfeasors
from being free from liabilities and is thus founded on considerations of public
policy.
There exists a wealth of US jurisprudence that whenever the wrongdoer
settles with the insured without the consent of the insurer and with knowledge of
the insurers payment and right of subrogation, such right is not defeated by the
settlement. (Danzas Corp v Abrogar)
3. Right of subrogation applicable only to property insurance
The right of subrogation under Art. 2207 applies only to property, and not to life
insurance. The value of human life is regarded as unlimited, and, therefore, no
recovery from a third party can be deemed adequate to compensate the insured's
beneficiary. The pecuniary value of a human life to the beneficiary of a life
insurance can seldom be determined with accuracy (except where the insurance
is taken by a creditor on the life of a debtor to secure a debt). Life insurance
contracts are not ordinarily contracts of indemnity.
4. Privity of contract or assignment by insured of claim not essential
Payment by the insurer to the insured operates as an equitable assignment to the
former of all the remedies which the latter may have against the third party whose
negligence or wrongful act caused the loss. The right of subrogation is not
dependent upon, nor does it grow out of, any privity of contract or upon written
assignment of claim. It accrue simply upon payment of the insurance claim by the
insurer. (Pan Malayan Insurance v CA; Phil. American General Insurance v CA;
Aboitiz Shipping v Insurance Company of South America)
The presentation in evidence of the insurance policy is not indispensable before
the insurer may recover. The subrogation receipt, by itself, is sufficient to establish
not only the relationship of the insurer and the insured, but also the amount paid
to settle the insurance (Delsan Transport v CA; FedEx v American Home
Assurance)
5. Loss or injury for risk must be covered by the policy
Under Art. 2207, the cause of the loss or injury must be a risk covered by the policy
to entitle the insurer to 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 agains 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 Art. 1236 of the Civil Code. (Sveriges
Anfartygs v Qua Chee Gan; St. Paul Fire v Macondray; Firemans Fund v Jamila
Inc)
Art. 1236, Civil Code
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.
6. Right of insured to recover from both insurer and third party
The right of subrogation given to the insurer prevents the insured prevents the
insured from obtaining more than the amount of his loss. It is a method of
implementing the principle of indemnity that is the heard of all insurance (Sec. 18,
Insurance Code). The right exist after indemnity has been paid by the insurer to
the insured who can no longer go after the third party. He can only recover once.
Note, however, that if the amount paid by the insurance company does not fully
cover the injury or loss, it is the aggrieved party, i.e., the insured, not the insurer,
who is entitled to recover the deficiency from the person responsible for the loss
or injury. (F.F. Cruz v CA) This is true in case of under-insurance.
7. Right of insured to recover from insurer instead of the third party
The insurer cannot defeat the insureds claim for indemnity on the ground that the
insured has a right to be indemnified by a third person. Having been paid a
premium to make good the insureds loss, the insurer cannot compel him to seek
indemnity elsewhere.
8. Right of insurer against third party limited to amount recoverable from
latter by the insured
The literal language of Art. 2207 makes it cleat that the insurance company that
has paid indemnity shall be surrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract. As the insurer is
surbogated merely to the rights of the insured, it can necessarily recover only the
amount recoverable by the insured from the party responsible for the loss. It cannot
recover in full the amount it paid to the insured if it is greater than that to which the
insured could lawfully lay claim against the person causing the loss* (Rizal Surety
v Manila Railroad)
(*See, however, Cebu Shipyard v William Lines; Sec. 243)

By way of illustration, if what the insured can recover under the law from the party
who is guilty of breach of contract is P5,000.00, the it is only said amount that is
recoverable by the insurer from said party, notwithstanding that it paid the insured
more than P5,000.00. Neither can the insurer can recover more than it paid the
insured although the latter is able to recover the deficiency from the wrongdoer
because of under-insurance. (See No. 5: Loss or injury for risk must be covered
by the policy)

9. Exercise of right of subrogation by insurer discretionary

Whether or not the insurer should exercise the rights of the insured to which it had
been subrogated lies solely within the former's sound discretion. Since its identity
is not of record, it has to claim its right to reimbursement of the amount paid to the
insured. (F.F. Cruz v CA)

10 Loss of right of subrogation by act of insured or insurer The right of

subrogation has its limitations to wit: (a) both the insurer (of goods covered by a a
bill of lading), and the consignee are bound by the contractual stipulations under
the bill of lading; and (b) the insurer can be subrogated only to the rights as the
insured may have against the wrongdoer.

Should the insured, after receiving payment from the insurer, release by his own
act the wrongdoer or third party responsible for the loss or damage from liability,
the insurer loses his rights against the wrongdoer since the insurer can be
subrogated to only such rights as the insured may have. For defeating the insurer's
right of subrogation, the insured is under obligation to return to the insurer the
amount paid thereby entitling the latter to recover the same. Under Article 2207,
the insurer is the real party-in-interest with regard to the portion of the indemnity
paid for he is deemed subrogated to the rights of the insured with respect
thereto.(Manila Mahogany v CA; Pioneer Insurance v CA; Aboitiz Shipping v.
Insurance Company of South America)

Similarly, where the insurer pays the insured the value of the lost goods without
notifying the carrier who has in good faith settled the claim for loss of the insured,
the settlement is binding on both the insured and the insurer, and the latter cannot
bring an action against the carrier on his right of subrogation. (Pan Malayan
Insurance v CA)

11 Effect of assignment by insured of its rights against third party to insurer

Where the (shipper/ consignee of goods) has rights against defendant (carrier
insured assigned its of goods) for
damages caused to the cargo shipped to the insurer which paid the amount
represented by the loss, the case is not between the insured and the insurer but
one between the shipper and the carrier because the insurance company merely
stepped into the shoes of the shipper. And if the shipper has a direct cause of
action against the carrier on account of the damage to cargo, such action can be
asserted or availed of by the insurer as a subrogee of the insured and the carrier
cannot set up as a defense any defect in the insurance policy because it is not a
privy to it. (Compania Maritima v Insurance Co. of North America)
Cases
21 Philippine American General Insurance v CA, GR 116940, 11 June 1997
On 6 July 1983 Coca-Cola loaded on board MV Asilda, owned and operated by
Felman, 7,500 cases of 1-liter Coca-Cola soft drink bottles to be transported to
Zamboanga City to Cebu. The shipment was insured with Philamgen.
On July 7, the vessel sank in Zamboanga del Norte. On July 15, Coca-Cola filed a
claim with respondent Felman for recovery of damages. Felman denied, prompting
Coca-Cola to file an insurance claim with Philamgen. Philamgen later on claimed
its right of subrogation against Felman which denied any liability for the loss.
Philamgen alleged that the sinking and loss were due to the vessel's
unseaworthiness, that the vessel was improperly manned and its officers were
grossly negligent. Felman filed a motion to dismiss saying that there is no right of
subrogation in favor of Philamgen was transmitted by the shipper.
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.
Pan Malayan Insurance v CA: The right of subrogation is not dependent upon, nor
does it grow out of any privity of contract or upon payment by the insurance
company of the insurance claim. It accrues simply upon payment by the insurance
company of the insurance claim.
Therefore, the payment made by Philamgen to Coca-Cola Bottlers Philippines,
Inc., gave the former the right to bring an action as subrogee against Felman.
Having failed to rebut the presumption of fault, the liability of Felman for the loss
of the 7,500 cases of 1-liter Coca-Cola soft drink bottles is inevitable.

RTC dismissed the complaint of Philamgen. CA set aside the dismissal and
remanded the case to the lower court for trial on the merits. Felman filed a petition
for certiorari but was denied.

RTC rendered judgment in favor of Felman. It ruled that the vessel was seaworthy
when it left the port of Zamboanga as evidenced by the certificate issued by the
Coast Guard and the ship owners surveyor. Thus, the loss is due to a fortuitous
event, in which, no liability should attach unless there is stipulation or negligence.

On appeal, CA rendered judgment finding the vessel unseaworthy for the cargo
for being top-heavy and the Coca-Cola bottles were also improperly stored on
deck. Nonetheless, the CA denied the claim of Philamgen, saying that Philamgen
was not properly subrogated to the rights and interests of the shipper plus the filing
of notice of abandonment had absolved the ship owner from liability under the
limited liability rule.
Issue: Whether Philamgen was properly subrogated to the rights against Felman

Ruling: YES! Generally, in marine insurance policy, the assured impliedly warrants
to the assurer that the vessel is seaworthy and such warranty is as much a term
of the contract as if expressly written on the face of the policy. However, the implied
warranty of seaworthiness can be excluded by terms in writing in the policy of the
clearest language. The marine policy issued by Philamgen to Coca-Cola has
dispensed that the "seaworthiness of the vessel as between the assured and the
underwriters in hereby admitted."

The result of the admission of seaworthiness by Philamgen may mean two things:
(1) the warranty of seaworthiness is fulfilled and (2) the risk of unseaworthiness is
assumed by the insurance company. This waiver clause would mean that
Philamgen has accepted the risk of unseaworthiness, therefore Philamgen is
liable.

On the matter of subrogation, it is provided that:

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
22 Delsan Transport v CA, GR 127897, 15 November 2001 23 Fireman's Fund et al v Jamila et al., GR 27427, 7 April 1976

Caltex entered into a contract of affreightment with Delsan Transport Lines, Inc.,
for a period of one year whereby the said common carrier agreed to transport
Caltexs industrial fuel oil from the Batangas-Bataan Refinery to different parts of
the country. Under the contract, petitioner took on board its vessel, MT Maysun,
2,277.314 kiloliters of industrial fuel oil of Caltex to be delivered to the Caltex Oil
Terminal in Zamboanga City. The shipment was insured with the private
respondent, American Home Assurance Corporation.
On August 14, 1986, MT Maysun set sail from Batangas for Zamboanga
City. Unfortunately, the vessel sank in the early morning of August 16, 1986 near
Panay Gulf in the Visayas taking with it the entire cargo of fuel oil.
Jamila supplies security guards to Firestone. Jamila assumes responsibility over
the acts of the security guards. 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, Firemans Fund argue that their cause of
action is on the basis of legal subrogation.
Issue: Whether Firemans Fund, as subrogee, has a cause of action against Jamila

Respondent American Home Assurance paid Caltex the amount of P5,096,635.57
representing the amount of the value of the lost cargo.
Issue:
1. Whether or not the payment made by the private respondent to Caltex for the
insured value of the lost cargo amounted to an admission that the vessel was
seaworthy, thus precluding any action for recovery against the petitioner.
2. Whether or not the non-presentation of the marine insurance policy bars the
complaint for recovery of sum of money for lack of cause of action
Ruling:
1. NO! under the law, extraordinary diligence is required by the common carrier in
taking good care of the goods. The common carrier is presumed negligent unless
the contrary provides otherwise. The right of subrogation has its roots in equity. It
is designed to promote and to accomplish justice and is the mode which equity
adopts to compel the ultimate payment of a debt by one who in justice and good
conscience ought to pay. It is not dependent upon, nor does it grow out of, any
privity of contract or upon written assignment of claim. It accrues simply upon
payment by the insurance company of the insurance claim.
Ruling: YES! 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.
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.

2. NO! The presentation in evidence of the marine insurance policy is not

indispensable in this case before the insurer may recover from the common carrier
the insured value of the lost cargo in the exercise of its subrogatory right. The
subrogation receipt, by itself, is sufficient to establish not only the relationship of
herein private respondent as insurer and Caltex, as the assured shipper of the lost
cargo of industrial fuel oil, but also the amount paid to settle the insurance
claim. The right of subrogation accrues simply upon payment by the insurance
company of the insurance claim.
24 Pan Malayan Insurance v CA, GR 81026, 3 April 1990 None of the exceptions are availing in the present case.

On December 10, 1985, Pan Malayan filed a complaint for damages with the RTC Also, even if under the above circumstances Pan Malayan could not be deemed
of Makati against private respondents Erlinda Fabie and her driver. Pan Malayan subrogated to the rights of its assured under Article 2207 of the Civil Code, it would
averred the following: that it insured a Mitsubishi Colt Lancer car with plate No. still have a cause of action against private respondents. In the pertinent case of
DDZ-431 and registered in the name of Canlubang Automotive Resources Sveriges Angfartygs Assurans Forening v. Qua Chee Gan, supra., the Court ruled
Corporation; that on May 26, 1985, due to the "carelessness, recklessness, and that the insurer who may have no rights of subrogation due to "voluntary" payment
imprudence" of the unknown driver of a pick-up with plate no. PCR-220, the may nevertheless recover from the third party responsible for the damage to the
insured car was hit and suffered damages in the amount of P42,052.00; that Pan insured property under Article 1236 of the Civil Code.
Malayan defrayed the cost of repair of the insured car and, therefore, was
subrogated to the rights of Canlubang against the driver of the pick-up and his Petition granted. Petitioner's complaint for damages against private respondents
employer, Erlinda Fabie; and that, despite repeated demands, defendants, failed reinstated and remanded.
and refused to pay the claim of Pan Malayan. Private respondents filed a Motion
to Dismiss alleging that Pan Malayan had no cause of action against them. They
argued that payment under the "own damage" clause of the insurance policy
precluded subrogation under Article 2207 of the Civil Code, since indemnification
thereunder was made on the assumption that there was no wrongdoer or no third
party at fault.

(1) Trial Court: dismissed for no cause of action Pan Malayan's complaint for
damages against private respondents Erlinda Fabie and her driver
(2) CA: affirmed trial court.

Issue: Whether Pan Malayan may, as subrogee, has a cause of action against the
private respondents

Ruling: YES! Article 2207 of the Civil Code is founded on the well-settled principle
of subrogation. If the insured property is destroyed or damaged through the fault
or negligence of a party other than the assured, then the insurer, upon payment to
the assured, will be subrogated to the rights of the assured to recover from the
wrongdoer to the extent that the insurer has been obligated to pay. Payment by
the insurer to the assured operates as an equitable that the insurer has been
obligated to pay. Payment by the insurer to the assured operates as an equitable
or negligence of a third party.

Canlubang is apparently of the same understanding. Based on a police report

assignment to the former of all remedies that the latter may have against the third
party whose negligence or wrongful act caused the loss. The right of subrogation
is not dependent upon, nor does it grow out of, any privity of contract or upon
written assignment of claim. It accrues simply upon payment of the insurance claim
by the insurer.

The exceptions are:

(1) If the assured by his own act releases the wrongdoer or third party liable for the
loss or damage, from liability, the insurer's right of subrogation is defeated;
(2) Where the insurer pays the assured the value of the lost goods without notifying
the carrier who has in good faith settled the assured's claim for loss, the settlement
is binding on both the assured and the insurer, and the latter cannot bring an action
against the carrier on his right of subrogation;
(3) Where the insurer pays the assured for a loss which is not a risk covered by
the policy, thereby effecting "voluntary payment", the former has no right of
subrogation against the third party liable for the loss.
25 Sveriges Anfartygs Assurance v Qua Chee Gan, L-22146, 5 Sept 1966 attorneys fees as damages to defendant under par. 4, Art. 2208 of the Civil Code.
The facts do not show that
In August 1947, Qua Chee Gan shipeed on board the SS Nagara 2,032,000 kilos plaintiffs cause of action was so frivolous or untenable as to amount to gross and
of bulk copra at Siain, Quezon, consigned to DAL International Trading in Gdynia, evident bad faith.
Poland.
CFI decision was affirmed except for the award of attorneys fees.
The vessel unloaded 969,419 kilos of bulk copra at the port of Karlshamn, Sweden.
It then proceeded to Gdynia where it unloaded the remaining copra shipment. It
turned out that only 1,569,429 kilos of copra was discharged in total.

Because of the alleged cargo shortage, the Polish cargo insurers had to indemnify
the consignee for the value thereof. The Polish cargo insurers then sued the ship
owner, the Swedish East Asia Company in Gothenburg Sweden.

The latter, in turn, sued Defendant Qua Chee Gan and had it summoned to
Gothenburg. Defendant refused to submit to the Swedish court's jurisdiction and
its objection was sustained.

In March 1951, a settlement was effected between the Polish cargo insurers and
the shipowner. Plaintiff Sveriges, as the indemnity insurer for the latter, paid
approximately $60,733.53 to the Polish insurers.

On 16 August 1954, claiming to have been subrogated to the rights of the carrier,
plaintiff Sveriges sued defendant before the CFI Manila to recover the amount it
paid to the Polish insurer plus 17% exchange tax, with legal interest, and P10,000
as attorney's fees. Defendant filed a counterclaim for P15,000.

On 1 August 1955, defendant filed an MTD on the ground of prescription under the
COGSA. CFI granted the MTD, plaintiff appealed to the SC. SC reversed the order
of dismissal and remanded the case for further proceedings.

After trial, the CFI rendered its decision dismissing the complaint and awarding
P10,000 as attorney's fees to the defendant. It ruled (a) that there was no short
shipment on defendant's part; (b) that plaintiff's insurance policy did not cover the
short shipment, and (c) defendant was merely acting as an agent of Louis Dreyfus
& Co., who was the real shipper.

Issue: Whether plaintiff is subrogated to the rights of the carrier

Ruling: NO! The rule is that an insurer who pays the insured for loss or liability not
covered by the policy is not subrogated to the latter.

However, even assuming that there was unwarranted or volunteer payment,

plaintiff could still recover what it paidin effectto the carrier from defendant
shipper under Art. 1236 of the Civil Code which allows a third person who pays on
behalf of another to recover from the latter, although there is no subrogation. But
since the payment here was without the knowledge and consent of defendant,
plaintiff's right of recovery is defeasible by the former's defenses since the Code is
clear that the recovery is only up to the amount by which the defendant was
benefited.

Plaintiffs action against defendant cannot, however, be considered as clearly

unfounded as to warrant an award of
26 Rizal Surety v Manila Railroad, GR L-24043, 25 April 1968

On Nov 29, 1960, a vessel named SS Flying Trader, loaded on board a cargo
which is an offset press machine, from Italy to Manila. Upon reaching the port of
destination and upon unloading it, it was dropped by the crane which resulted to
damages to the cargo. The plaintiff as the insurer had paid the consignee, Suter,
Inc. the amount of P16.5k for the machine and P180.70 for the International
Adjustment Bureau as adjusters fee. However, the arrastre charges in this
particular shipment was paid on the weight or measurement basis whichever is
higher, and not on the value thereof.

Issue: Can the insurance get an amount greater than what was declared?

Ruling: NO! Plaintiff Insurance Company cannot recover from defendants an

amount greater than that to which the consignee could lawfully lay claim. The
management contract is clear, the amount is limited to P500.

Insurer is subrogated only to the rights of the insured. Insurer after paying the claim
of the insured for damages under the insurance is subrogated merely to the rights
of the insured and therefore can necessarily recover only that to what was
recoverable by the insured.

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 right of
the insured against the wrong-doer or the person who has violated the contract. If
the amount paid by the insurance company doer 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.

The insurance have no greater right than the party in interest thereof.
27 St. Paul Fire v Macondray, GR L-27796, 25 March 1976 paid to the consignee

Winthrop Products, Inc., of U.S.A., shipped aboard the SS "Tai Ping", owned and
operated by Wilhelm Wilhelmsen, 218 cartons and drums of drugs and medicine,
with the freight prepaid, which were consigned to Winthrop-Stearns Inc., Manila,
Philippines. The shipment was insured by the shipper against loss and/or damage
with the St. Paul Fire & Marine Insurance Company.
The SS "Tai Ping" arrived at the Port of Manila and discharged its shipment into
the custody of Manila Port Service, the arrastre contractor for the Port of Manila.
The said shipment was discharged complete and in good order with the exception
of one (1) drum and several cartons which were in bad order condition. Hence, the
consignee filed a claim in the amount of P1,109.67 representing the C.I.F. value
of the damaged drum and cartons of medicine with the carrier, herein defendants-
appellees and the Manila Port Service.
Both refused to pay the claim. Consequently, the consignee filed its claim with
the insurer, St. Paul Fire & Marine Insurance Co., and the insurance company, on
the basis of such claim, paid to the consignee the insured value of the lost and
damaged goods, including other expenses in connection therewith, in the total
amount of $1,134.46.
Ruling: NO! The plaintiff-appellant, as insurer, after paying the claim of the insured
for damages under the insurance, is subrogated merely to the rights of the
assured. As subrogee, it can recover only the amount that is recoverable by the
latter. Since the right of the assured, in case of loss or damage to the goods, is
limited or restricted by the provisions in the bill of lading, a suit by the insurer as
subrogee necessarily is subject to like limitations and restrictions.
The stipulation in the bill of lading limiting the common carriers liability to the value
of the goods appearing in the bill, unless the shipper or owner declares a greater
value, is valid and binding. This limitation of the carriers liability is sanctioned by
the freedom of the contracting parties to establish such stipulations, clauses,
terms, or conditions as they may deem convenient, provided they are not contrary
to law, morals, good customs and public policy.

As subrogee of the rights of the shipper and/or consignee, the insurer, St. Paul
Fire & Marine Insurance Co., instituted with the CFI the present action against the
defendants for the recovery of said amount plus costs. Defendants resisted the
action, contending that the whole cargo was delivered to the consignee in the same
condition in which it was received from the carrying vessel; that their rights, duties
and obligations as arrastre contractor at the Port of Manila are governed by and
subject to the terms, conditions and limitations contained in the Management
Contract between the Bureau of Customs and Manila Port Service, and their
liability is limited to the invoice value of the goods, but in no case more than
P500.00 per package, pursuant to the said Management Contract; and that they
are not the agents of the carrying vessel in the receipt and delivery of cargoes in
the Port of Manila.

The defendants Macondray & Co., Inc., Barber Steamship Lines, Inc. and Wilhelm
Wilhelmsen also contested the claim alleging that if any damage was sustained by
the shipment while it was under the control of the vessel, such damage was caused
by insufficiency of packing, force majeure and/or perils of the sea, and that they,
in good faith and for the purpose only of avoiding litigation without admitting liability
to the consignee, offered to settle the latter's claim in full by paying the
corresponding C.I.F. value, but their offer was declined by the consignee and/or
the plaintiff.

The lower court rendered judgment ordering the defendants to pay to the plaintiff,
jointly and severally. Plaintiff-appellant argues that, as subrogee of the consignee,
it should be entitled to recover from the defendants appellees the amount of
$1,134.46 which it actually paid to the consignee and which represents the value
of the lost and damaged shipment as well as other legitimate expenses.
Defendants appellees are not insurers of the goods, and as such they should not
be made to pay the insured value.

Issue: Whether the plaintiff, as subrogee of the consignee, should be entitled to

recover from the defendants-appellees the amount of $1,134.46 which it actually
28 National Union Fire Insurance v. Stolt Nielsen, GR 87958, 26 April 1990

United Coconut Chemicals, Inc. shipped 404.774 metric tons of distilled C6-C18
fatty acid on board MT "Stolt Sceptre," a tanker owned by Stolt-Nielsen Philippines
Inc. , from Bauan, Batangas, Philippines, consigned to "Nieuwe Matex" at
Rotterdam, Netherlands, covered by Tanker Bill of Lading BL No. BAT-1.

The shipment was insured under a marine cargo policy with Petitioner National
Union Fire Insurance Company of Pittsburg, a non-life American insurance
corporation, through its settling agent in the Philippines, the American International
Underwriters (Philippines), Inc. A Bill of Lading was present , containing a general
statement of incorporation of the terms of a Charter Party between the Shipper,
namely, United Coconut Chemicals Inc., and Parcel Tankers, Inc., entered into in
Greenwich, Connecticut, U.S.A.

Upon receipt of the goods in Netherlands, they were found to be discolored. The
insurer indemnified the shipper because of this. As a subrogee of the shipper, the
insurer filed suit against the carrier, Stolt-Nielsen. The latter moved to dismiss the
case, as they claim it is an arbitrable one, the Bill of Lading being its basis which
contained provisions relating to a Charter Party. The RTC deferred the motion, and
the appellate court reversed the RTC, and ordered the case for arbitration.

Issue: Is the charter party, particularly the provision on arbitration, binding on the
insurer?

Ruling: YES! The INSURER cannot avoid the binding effect of the arbitration
clause. By subrogation, it became privy to the Charter Party as fully as the
SHIPPER before the latter was indemnified, because as subrogee it stepped into
the shoes of the SHIPPER-ASSURED and is subrogated merely to the latter's
rights. It can recover only the amount that is recoverable by the assured. And since
the right of action of the SHIPPER-ASSURED is governed by the provisions of the
Bill of Lading, which includes by reference the terms of the Charter Party,
necessarily, a suit by the INSURER is
subject to the same agreements.
29 Cebu Shipyard v William Lines, GR 132607, 5 May 1999
Cebu Shipyard and Engineering Works, Inc. repaired marine vessels while the
Prudential is in the non-life insurance business. William Lines, Inc., the owner of
M/V Manila City, a luxury passenger-cargo vessel, which caught fire and sank. At
the time of the incident, subject vessel was insured with Prudential for P45M for
hull and machinery. CSEW was insured for only Php 10 million for the
shiprepairers liability policy. They entered into a contract where negligence was
the only factor that could make CSEW liable for damages. Moreover, liability of
CSEW was limited to only Php 1million for damages. The Hull Policy included an
Additional Perils (INCHMAREE) Clause covering loss of or damage to the vessel
through the negligence of, among others, ship repairmen.
William brought Manila City to the dry dock of CSEW for repairs. The officers and
cabin crew stayed at the ship while it was being repaired. After the vessel was
transferred to the docking quay, it caught fire and sank, resulting to its total loss.
William brought suit against CSEW alleging that it was through the latters
negligence that the ship caught fire and sank. Prudential was impleaded as co-
plaintiff after it had paid the value of insured items. It was subrogated to 45 million,
or the value it claimed to indemnify.
The trial court brought judgment against CSEW 45 million for the ship indemnity,
65 million for loss of income, and more than 13 million in other damages. The CA
affirmed the TC decision.
CSEW contended that the cause of the fire was due to Williams hotworks on the
said portion of the ship which they didnt ask CSEW permission for. Prudential, on
the other hand, blamed the negligence of the CSEW workers in the instance when
they didnt mind rubber insulation wire coming out of the air-conditioning unit that
was already burning.
Petitioner theorizes further that there can be no right of subrogation as it is deemed
a co-assured under the subject insurance policy with reliance on Clause 20 of the
Work Order which states:
20. The insurance on the vessel should be maintained by the customer and/or
owner of the vessel during the period the contract is in effect.
Clause 20 of the Work Order in question is clear in the sense that it requires William
Lines to maintain insurance on the vessel during the period of dry-docking or
repair. However, the fact that CSEW benefits from the said stipulation does not
automatically make it as a co-assured of William Lines. The intention of the parties
to make each other a co-assured under an insurance policy is to be read from the
insurance contract or policy itself and not from any other contract or agreement
because the insurance policy denominates the beneficiaries of the insurance. The
hull and machinery insurance procured by William Lines, Inc. from Prudential
named only William Lines, Inc. as the assured. There was no manifestation of
any intention of William Lines, Inc. to constitute CSEW as a co-assured under
subject policy. The claim of CSEW that it is a co-assured is unfounded.
Then too, in the Additional Perils Clause of the same Marine Insurance Policy, it is
provided that this insurance also covers loss of or damage to vessel directly
caused by the negligence of charterers and repairers who are not assured.
As correctly pointed out by respondent Prudential, if CSEW were deemed a co-
assured under the policy, it would nullify any claim of William Lines, Inc. from
Prudential for any loss or damage caused by the negligence of CSEW. Certainly,
no shipowner would agree to make a shiprepairer a co-assured under such
insurance policy; otherwise, any claim for loss or damage under the policy would
be invalidated.

Issue: Whether Prudential has the right of subrogation against its own insured

Ruling: YES! Petitioner contends that Prudential is not entitled to be subrogated to

the rights of William Lines, Inc., theorizing that (1) the fire which gutted M/V Manila
City was an excluded risk and (2) it is a co-assured under the Marine Hull
Insurance Policy. This was wrong. The one who caused the fire has already been
adjudicated by the courts as CSEW.
Upon proof of payment by Prudential to William Lines, Inc., the former was
subrogated to the right of the latter to indemnification from CSEW.

As aptly ruled by the Court of Appeals, the law says:

Art. 2207. If the 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 loss or injury.

When Prudential paid the latter the total amount covered by its insurance policy, it
was subrogated to the right of the latter to recover the insured loss from the liable
party, CSEW.
30 Manila Mahogany v CA, GR L-52756, 12 October 1987
Petitioner Manila Mahogany insured its Mercedes Benz 4-door sedan with
respondent Zenith Insurance, which was bumped and damaged by a truck owned
by San Miguel Corporation. For the damage caused, respondent company paid
petitioner five thousand pesos (P5,000.00) in amicable settlement. Petitioner's
general manager executed a Release of Claim, subrogating respondent company
to all its right to action against San Miguel Corporation. Respondent company
wrote Insurance Adjusters, Inc. to demand reimbursement from San Miguel
Corporation of the amount it had paid petitioner. Insurance Adjusters, Inc. refused
reimbursement, alleging that San Miguel Corporation had already paid petitioner
P4,500.00 for the damages to petitioner's motor vehicle, as evidenced by a cash
voucher and a Release of Claim. Respondent insurance company thus demanded
from petitioner reimbursement of the sum of
paid by San Miguel Corporation. Petitioner refused. Hence, respondent company
filed suit in the City Court of Manila for the recovery of said money.
Issue: Whether petitioner Manila Mahogany should reimburse private respondent
Zenith Insurance on the ground that San Miguel Corporation already paid the
former
Ruling: YES! When Manila Mahogany executed Release of Claim discharging San
Miguel Corporation from "all actions, claims, demands and rights of action that now
exist or hereafter arising out of or as a consequence of the accident" after the
insurer had paid the proceeds of the policy- the compromise agreement of
P5,000.00 being based on the insurance policy-the insurer is entitled to recover
from the insured the amount of insurance money paid. Since petitioner by its own
acts released San Miguel Corporation, thereby defeating private respondents, the
right of subrogation, the right of action of petitioner against the insurer was also
nullified.
31 Danzas Corporation v Abrogar, G.R. No. 141462, 15 December 2005
Danzas took a shipment of nine packages of ICS watches for transport to Manila.
The consignee, International Freeport Traders, Inc. (IFTI) secured Marine Risk
Note Seaboard.
The Korean Airlines (KAL) plane carrying the goods arrived in Manila and
discharged the goods to the custody of Philippine Skylanders, Inc. for safekeeping.
On withdrawal of the shipment from Skylanders warehouse, IFTI noted that one
package containing 475 watches was shortlanded while the remaining eight were
found to have sustained tears on sides and the retape of flaps. On further
examination and inventory of the cartons, it was discovered that 176 Guess
watches were missing. Seaboard, as insurer, paid the losses to IFTI.
Seaboard, invoking its right of subrogation, filed a complaint against Skylanders,
Danzas and its authorized representative, All Transport Network, Inc. (ATN),
praying for actual damages. Korean Airlines (KAL) was impleaded as third-party
defendant.
IFTI accepted the proposal of KAL to settle consignees claim. IFTIs representative
received a check from KAL and correspondingly signed a release form. A motion
to dismiss the case was filed on the ground that Seaboards demand had been paid
or otherwise extinguished by KAL.
Issue: Whether the tortfeasor (KAL), by settling with the insured (IFTI), defeats the
right to subrogation by the insurer (Seaboard)
Ruling: NO! According to Manila Mahogany vs Court of Appeals:
Since the insurer can be subrogated to only such rights as the insured may have,
should the insured, after receiving payment from the insurer, release the
wrongdoer who caused the loss, the insurer loses his rights against the latter. But
in such a case, the insurer will be entitled to recover from the insured whatever it
has paid to the latter, unless the release was made with the consent of the insurer.
This is buttressed by a later decision, Pan Malayan Insurance Corporation v. Court
of Appeals, which held that , if the assured by his own act releases the wrongdoer
or third party liable for the loss or damage from liability, the insurers right of
subrogation is defeated.
This doctrine is inapplicable. KAL was fully aware of the prior payment made by
the insurer to the consignee.
While Manila Mahogany is silent on whether the existence of good faith or bad faith
on the tortfeasors part affects the insurers right of subrogation, there exists a
wealth of U.S. jurisprudence holding that whenever the wrongdoer settles with the
insured without the consent of the insurer and with knowledge of the insurers
payment and right of subrogation, such right of subrogation is not defeated by the
settlement.
32 F.F. Cruz v CA, GR L-52732, 29 August 1988
The furniture manufacturing shop of FF Cruz was situated adjacent to the
residence of the. Mable requested that a firewall be constructed between the shop
and his residence but such fell on deaf ears. In Fire broke out in the shop. The fire
spread to Mables house. Both the shop and the house were razed to the ground.
Mables collected P35,000.00 on the insurance on their house and the contents
thereof.
Issue: Whether Mable is entitled to recover from FF Cruz after having been paid
by the insurer
failed to construct a firewall between its shop and the residence of Mable as
required by a city ordinance; that the fire could have been caused by a heated
motor or a lit cigarette; that gasoline and alcohol were used and stored in the shop;
and that workers sometimes smoked inside the shop [CA Decision, p. 5; Rollo, p.
33.]
Even without applying the doctrine of res ipsa loquitur, FF Cruz's failure to
construct a firewall in accordance with city ordinances would suffice to support a
finding of negligence.

Ruling: YES, but only as to the deficiency.

The value of Mable's furniture and fixtures and personal effects lost in the fire was
P50,000.00. With regard to the house, the award was of P70,000.00.The Mables
have been indemnified by their insurer in the amount of P35,000.00 for the
damages caused. Having been indemnified by their insurer, the Mables are only
entitled to recover the deficiency from FF Cruz.

The Court holds that in accordance with Article 2207 of the Civil Code the amount
of P35,000.00 should be deducted from the amount awarded as damages. Said
article provides:

Art. 2207. If the plaintiffs property has been insured, and he has received indemnity
from the insurance company for the injury or loss arising out of the wrong or breach
of contract complained of, the insurance company is subrogated to the rights of
the insured against the wrongdoer or the person who violated the contract. If the
amount paid by the insurance company does not fully cover the injury or loss, the
aggrieved party shall be entitled to recover the deficiency from the person causing
the loss or injury. (Emphasis supplied.]

On the other hand, the insurer, if it is so minded, may seek reimbursement of the
amount it indemnified Mables from FF Cruz This is the essence of its right to be
subrogated to the rights of the insured, as expressly provided in Article 2207. Upon
payment of the loss incurred by the insured, the insurer is entitled to be
subrogated pro tanto to any right of action which the insured may have against the
third person whose negligence or wrongful act caused the loss.

The doctrine of res ipsa loquitur

Where the thing which caused the injury complained of is shown to be under the
management of the defendant or his servants and the accident is such as in the
ordinary course of things does not happen if those who have its management or
control use proper care, it affords reasonable evidence, in the absence of
explanation by the defendant, that the accident arose from want of care. [Africa v.
Caltex (Phil.), Inc., G.R. No. L-12986, March 31, 1966, 16 SCRA 448.]
The facts of the case likewise call for the application of the doctrine, considering
that in the normal course of operations of a furniture manufacturing shop,
combustible material such as wood chips, sawdust, paint, varnish and fuel and
lubricants for machinery may be found thereon.

It must also be noted that negligence or want of care on the part of FF Cruz or its
employees was not merely presumed. The Court of Appeals found that FF Cruz