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G.R. No.

132607 May 5, 1999: CEBU SHIPYARD AND ENGINEERING On June 10, 1994, the trial court a quo came out with a judgment against
WORKS, INC., petitioner, vs. WILLIAM LINES, INC. and PRUDENTIAL CSEW. CSEW appealed the aforesaid decision to the Court of Appeals.
GUARANTEE and ASSURANCE COMPANY, INC., respondents. During the pendency of the appeal, CSEW and William Lines presented a
"Joint Motion for Partial Dismissal" with prejudice, on the basis of the
William Lines, Inc. is the owner of M/V Manila City which was insured with amicable settlement inked between Cebu Shipyard and William Lines only.
Prudential for P45,000,000.00 for hull and machinery. The Hull Policy
included an "Additional Perils (INCHMAREE)" Clause covering loss of or On July 31, 1996, the Court of Appeals ordered the partial dismissal of the
damage to the vessel through the negligence of, among others, ship case insofar as CSEW and William Lines were concerned, while the rest of
repairmen. the appealed decision was affirmed.

Petitioner CSEW was also insured by Prudential for third party liability ISSUE:
under a Shiprepairer's Legal Liability Insurance Policy. The policy was for
P10 million. WON Prudential Life has a righht of subrogation against CSEW.

On February 5, 1991, William Lines, Inc. brought M/V Manila City, to the HELD:
Cebu Shipyard for annual dry-docking and repair. On February 16, 1991,
It is CSEW's submission that the loss of M/V Manila City is expressly
however, after subject vessel was transferred to the docking quay, it
excluded from the coverage of the insurance because the same resulted
caught fire and sank, resulting to its eventual total loss.
from "want of due diligence by the Assured, Owners or Managers" which is
On February 21, 1991, William Lines, Inc. filed a complaint for damages not included in the risks insured against. This theory is incorrect. The issue
against CSEW, alleging that the fire which broke out in M/V Manila City of who between the parties was negligent has already been resolved
was caused by CSEW's negligence and lack of care. against CSEW. Upon proof of payment by Prudential to William Lines, Inc.
the former was subrogated to the right of the latter to indemnification
On July 15, 1991 was filed an Amended Complaint impleading Prudential as from CSEW.
co-plaintiff, after the latter had paid William Lines, Inc. the value of the hull
and machinery insurance on the M/V Manila City. As a result of such Petitioner theorizes further that there can be no right of subrogation as it
payment, Prudential was subrogated to the claim of P45 million, is deemed a co-assured under the subject insurance policy. To buttress its
representing the value of the said insurance it paid. stance that it is a co-assured, petitioner placed reliance on Clause 20 of the
Work Order which states:
CSEW then contended that Prudential is not entitled to be subrogated to
the rights of William Lines, Inc., theorizing that (1) the fire which gutted 20 The insurance on the vessel should be maintained by the
M/V Manila City was an excluded risk and (2) it is a co-assured under the customer and/or owner of the vessel during the period the contract is in
Marine Hull Insurance Policy. effect.

Thus. However. repair and to such extent. and The intention of the parties to make each other a co-assured under an Prudential a mere subrogee of William Lines. upheld as valid per se. Inc. CSEW argues that even assuming that it was negligent and ship repairer.According to petitioner.00) Pesos only. Inc. Inc. the claim of CSEW that it is a co-assured is unfounded." as the assured. There recognizes instances when reliance on such contracts cannot be favored was no manifestation of any intention of William Lines.00) Pesos.000. Then too. Inc. co-assured under the policy. The hull and machinery insurance procured by William Lines. no shipowner would agree to make a shiprepairer a co-assured under such insurance policy. should only be entitled insurance policy is to be gleaned principally from the insurance contract or to collect the sum stipulated in the said contract. under the aforecited clause. as binding as an ordinary contract. Inc.000.. was then found to be Negligence of Charterers and/or Repairers. The evaluation of the average adjuster also reported a constructive total loss. Concededly.. Inc. Prudential damage to vessel directly caused by the following: conducted its own inquiry. 18 The said claim of William Lines. for a total loss. provided such Charterers valid and compensable such that Prudential paid the latter the total value and/or Repairers are not an Assured hereunder 15 (emphasis supplied). in the Additional Perils Clause of the same Marine Insurance Policy.. any claim for loss or damage under This theory of petitioner is devoid of sustainable merit. as the assured to One Million (P1. it is provided that: It is worthy to note that M/V Manila City was insured with Prudential for Forty Five Million (P45. by stipulation in the Contract or Work stipulation does not automatically make it as a co-assured of William Lines. such a stipulation works to the benefit of CSEW as the Finally. Furthermore.000.00) Pesos only. from Prudential named only "William Lines. the Court Inc. Upon thorough investigation by its hull surveyor. a-vis the nature of the provision sought to be enforced should be considered. otherwise. in ruling on the validity and terms of a contract are clear its stipulations control. it was ascertained that the . 16 Thus. policy itself and not from any other contract or agreement because the insurance policy denominates the assured and the beneficiaries of the Although in this jurisdiction. it is benefited and effectively constituted as a from Prudential for any loss or damage caused by the negligence of CSEW. To determine the validity and Subject to the conditions of this Policy. to constitute especially where the facts and circumstances warrant that subject CSEW as a co-assured under subject policy. if CSEW were deemed a agreed to assume the risk of loss of the vessel while under dry-dock or co-assured under the policy. Order its liability is limited to One Million (P1. it would nullify any claim of William Lines. Such result could not have been intended Work Order in question is clear in the sense that it requires William Lines by William Lines. Certainly. when the applicability of the stipulation limiting the liability of CSEW for negligence insurance policy involved named only William Lines. M/V Manila City was found to be beyond economical salvage and xxx xxx xxx repair. bearing in mind the principles of equity and fair play. Clause 20 of the the policy would be invalidated.000. of its insurance claim. the facts and circumstances vis- thereunder. As correctly pointed out by respondent Prudential. William Lines. Inc. Inc. the fact that CSEW benefits from the said therefore liable to William Lines Inc. this insurance also covers loss of or sustainability of the claim of William Lines. Inc. It is axiomatic that when the stipulations be disregarded.. contracts of adhesion have been consistently insurance..000. to maintain insurance on the vessel during the period of dry-docking or repair.000.

18. Sec. let alone the fact that Cha spouses. the latter filed a complaint against Million Pesos only. vs. It is basic in the law on contracts that the stipulations contained in a contract cannot be contrary to law.000. entered into a property insured. morals. respondents. Inc. amounts to Fifty Million (P 50. it would indeed be unfair and inequitable to limit the liability of petitioner to One 6.000. public order or Spouses NILO CHA and STELLA UY CHA. City).00) Pesos would sanction the exercise of a degree of spouses is valid diligence short of what is ordinarily required because. public policy. The basis of such to the lessor (CKS) if said policy is obtained without the prior written of the requirement of insurable interest in property insured is based on sound latter.. When CKS learned of the insurance earlier procured by the Cha spouses. fire broke out inside the leased premises. negligence on the part of petitioner has been sufficiently proven." To allow CSEW to limit its liability to One Million Pesos notwithstanding the fact that the total loss suffered by ISSUE: the assured and paid for by Prudential amounted to Forty Five Million Whether or not the aforequoted paragraph 18 of the lease contract (P45. and UNITED INSURANCE CO. 4. the Cha spouses insured against loss by fire their proceeds of said policy in case of loss of the property. then. Insurance Code.000. On the day that the lease contract was to expire. on 5 October 1988. A non-life insurance policy such as the fire insurance policy taken by 2.00) with United contract of insurance is a mere wager which is void under Section 25 of the Insurance without the written consent of private respondents CKS. INC. good customs. as lessor. it would not be difficult for petitioner to escape liability by the simple expedient of paying HELD: an amount very much lower than the actual damage or loss suffered by William Lines. as lessees.000. unconscionable if not overstrained. . it wrote the insurer a demand letter asking that the proceeds of the insurance contract be paid directly to CKS. United refused to pay CKS. No contract or policy of insurance on property shall be enforceable except for the benefit of some person having an insurable interest in the 1. petitioners.replacement cost of the vessel (the price of a vessel similar to M/V Manila 5. COURT OF APPEALS and CKS DEVELOPMENT CORPORATION. the merchandise inside the leased premises for (P500. lease contract with CKS.000. As aptly held by the trial court.. public policy: to prevent a person from taking out an insurance policy on property upon which he has no insurable interest and collecting the 3. Insurable interest in the property insured must exist at the time merchandise inside the leased premises is deemed assigned or transferred the insurance takes effect and at the time the loss occurs. based on its lease contract with Considering the aforestated circumstances. Notwithstanding. Petitioner-spouses Nilo Cha and Stella Uy-Cha. Hence. One of the stipulations of the lease contract states that any fire petitioner-spouses over their merchandise is primarily a contract of insurance policy obtained by the lessee (Cha spouses) over their indemnity. "it is rather the Cha spouses and United.00) Pesos. In such a case.

During the trial. it cannot be denied that CKS has no insurable interest Answer: [ x ] Yes [ ] No. Are you now. DBP wherein Grepalife agreed to insure the lives of eligible housing loan Leuterio was not autopsied. COURT OF APPEALS Mejia. Leuterio died due to massive cerebral hemorrhage. 1984. The inference was not conclusive because Dr. Grepalife denied to law and/or public policy. applied for membership in the group life insurance plan. Leuterio answered (“yes” in the question “Are you now. Grepalife alleges that the widow of Dr. hence. Leuterio is not the real concerning his health condition as follows: party in interest. On February 22. Grepalife issued insurance coverage of Dr. Mejias AND MEDARDA V. Dr. lung. of the fire insurance policy taken by the petitioner-spouses over their Leuterio. 113899. The proceeds of the fire insurance policy thus the claim alleging that Dr. mortgagors of DBP. in the goods and merchandise inside the leased premises. This insurable interest over said merchandise remains with P86. Grepalife was held liable to pay the proceeds of blood pressure. was called to testify. 8. which caused his death. a physician and a housing respondent widow. stated that Dr. On May 17. 1988. It argues further that when the Court of Appeals affirmed the trial 7. to the extent of his DBP mortgage indebtedness amounting to merchandise. the Court of Appeals sustained the debtor of DBP. Dr.In the present case. On October 20. under the Insurance Code. 1983. In trial courts decision. the indispensable party who was not other physical impairment? joined in the suit. filed a complaint against Grepalife.R. provision of the lease contract previously quoted is void for being contrary Consequently. be validly a beneficiary On November 15. in the property insured. Leuterio was not physically healthy when he rightfully belong to the spouses Nilo Cha and Stella Uy-Cha (herein co- applied for an insurance coverage. 1999] Leuterio. The insurer (United) cannot be compelled to pay the proceeds committed concealment when he did not disclose he had been suffering of the fire insurance policy to a person (CKS) who has no insurable interest from hypertension. No. or consulted. October 13. to the best of your knowledge. Wilfredo Leuterio. respondents. 1986. Therefore. LEUTERIO.200. 1993. Dr. to the best of your knowledge. high courts judgment. the widow of the late Dr. Leuterio complained of headaches presumably due A contract of group life insurance was executed between Grepalife and to high blood pressure. kidney or stomach disorder or any insurance contract in favor of DBP. Dr. cancer. 1983. based partly from the information given by the respondent widow. the trial court rendered a decision in favor of On November 11. an application form. in good health? ISSUES: . [G. diabetes. hence the trial court acquired no jurisdiction over the case. a physician for a heart condition. Medarda V. Hernando GREAT PACIFIC LIFE ASSURANCE CORP. Have you ever had. in good health?”) questions On its part. DBP submitted a death claim to Grepalife. If so give details ___________. the present petition. Answer: No. petitioner vs. Leuterio. Hence. other causes were not ruled out.00. Leuterio petitioners). respondent CKS cannot. the insured. findings. The automatic assignment of the policy to CKS under the On August 6. who issued the death certificate. Grepalife insisted that Dr.. Dr.

and any act of his.1.[12] we held: mortgage obligation will be extinguished by the application of the insurance proceeds to the mortgage indebtedness. mortgagor under such a concept so that in the event of death. Whether Dr. although he has is deemed to be upon the interest of the mortgagor. where a mortgagor of property effects And in volume 33. the Co. Insured. thereby relieving the heirs of the mortgagor from paying took the necessary action of foreclosure on the residential lot of private the obligation. the mortgagee is simply an made payable to another as his interest may appear or otherwise.[8] Consequently.[9] mortgagee and is made payable to him. especially where the mortgagees interest is less Section 8 of the Insurance Code provides: than the full amount recoverable under the policy. is primarily where the mortgagor pays the insurance premium under the group the proper person to bring suit thereon.[7] In a similar vein. vitiate the insurance contract? NO The insured private respondent did not cede to the mortgagee all his rights 3. Whether petitioner is liable to DBP as beneficiary in a group life which would otherwise avoid the insurance. Whether Grepalife liable in the amount of (P86. prior to the loss. is to be performed by the mortgagor. such loss-payable clause does not make Although a policy issued to a mortgagor is taken out for the benefit of the the mortgagee a party to the contract. with the same effect as if 2. DBP collected the debt from the mortgagor and mortgage debt. On the part of the mortgagee. * * *. or assigns a policy of insurance to a mortgagee. the insurance Insured may be regarded as the real party in interest. shall the mortgagee and the mortgagor.00) without proof of or interests in the insurance. if there is any. which would it had been performed by the mortgagor. the latter denied demise of the mortgagor during the subsistence of the mortgage contract. yet the mortgagor may sue thereon in his own name. who does not cease assigned the policy for the purpose of collection. page 82. Unless the policy provides. being the person with whom the contract was made. an amount to pay the outstanding indebtedness shall first 1. payment thereof. will have the same effect. * * * Subject to some exceptions. we read the following: insurance in his own name providing that the loss shall be payable to the mortgagee.200. Leuterio concealed that he had hypertension. it has to then be paid to the beneficiary/ies designated by the debtor. or has assigned as to be a party to the original contract. although the policy is taken wholly or in part for the is on the mortgagors interest. insurance contract from a complaint filed by the widow of the although the property is in the hands of the mortgagee.[10] When enter into such form of contract so that in the event of the unexpected DBP submitted the insurance claim against petitioner. making the loss payable to the mortgagee.[11] In Gonzales La O vs. insurance policy. interposing the defense of concealment committed by the proceeds from such insurance will be applied to the payment of the the insured. the policy stating that: In the event of the the actual outstanding mortgage payable by the mortgagor to DBP? yes debtors death before his indebtedness with the Creditor [DBP] shall have been fully paid. the insurance insured may thus sue. In this type of policy insurance. decedent/mortgagor? YES under the contract of insurance. Thereafter. * * * appointee of the insurance fund. A mortgage redemption insurance is a device for the protection of both be paid to the creditor and the balance of sum assured. Yek Tong Lin Fire & Marine Ins. but any act which. collateral security any judgment he may obtain.[13] . and the mortgagor continues to be a party benefit of another person named or unnamed. may be performed by the mortgagee therein named. ample protection is given to the respondent. of the same work. and although it is expressly to the contract.

Appellant alleged that the insured had concealed the fact that he will or succession to any person. Petitioner merely relied on the testimony of the attending physician. it cannot refuse payment of the gestae. Hence. which states that: he was in good health and that he had not consulted a doctor or any of the The policy states that upon receipt of due proof of the Debtors death enumerated ailments.200.[20] Unless the interest of a person insured is susceptible of exact pecuniary measurement. but as part of res concealment made by the insured. rests upon the insurer. Mejias technical diagnosis of the cause of death of Dr.. and such person may recover it whatever the insured might have recovered. insured had suffered from hypertension. the decedent. the petitioner failed to The private respondents statement. when he died the attending during the terms of this insurance. as to the medical history of her clearly and satisfactorily establish its defense.. 2. whether he has an insurable interest or had hypertension. From this report. Aside from the statement of the insureds widow who was not even sure if the medicines taken by Dr.[16] Dr. As the entitle the insurer to rescind the contract. The fraudulent intent on the part of the insured must be established to Mejia did not conduct an autopsy on the body of the decedent. and xxx that the widows declaration that her husband had possible hypertension Appellant insurance company had failed to establish that there was several years ago should not be considered as hearsay. Leuterio. claim. Leuterios death duty to establish such defense by satisfactory and convincing evidence certificate stated that hypertension was only the possible cause of death.[19] In the case at bar. Leuterio were for hypertension.And since a policy of insurance upon life or health may pass by transfer.[18] Misrepresentation as a attending physician. hence. A life insurance policy is a valued policy. statement of the physician was properly considered by the trial court as hearsay. Leuterio may file the suit Contrary to appellants allegations. Grepalife. Leuterio was a duly documented hospital record. the appellant had not proven nor Hernando Mejia. the The question of whether there was concealment was aptly answered by measure of indemnity under a policy of insurance upon life or health is the the appellate court. Grepalife asserts that Dr. was due to her unreliable recollection of events. had answered in his insurance application that the coverage of his insurance. Leuterios medical history. the the proceeds of the insurance. thus: sum fixed in the policy. probably secondary to hypertension. and is therefore liable to pay husband. not. cerebral hemorrhage. as supported by the information given by the widow of produced any witness who could attest to Dr. Mejia stated that he had no knowledge of Dr. the appellant insurance company refused to pay the insurance In the event of the debtors death before his indebtedness with the creditor shall have been fully paid.[14] the widow of the decedent Dr.[17] On the contrary the medical findings were not conclusive because Dr. including hypertension. there was no sufficient proof that the against the insurer.00 shall be paid. 3. a death benefit in the amount of physician had certified in the death certificate that the former died of P86. Dr.[21] The mortgagor paid the premium according to The insured. Dr. claim. an amount to pay the outstanding indebtedness . defense of the insurer to avoid liability is an affirmative defense and the Leuterios any previous hospital confinement. Dr.

In private respondents memorandum. the insurance proceeds shall inure to the benefit of the heirs of the deceased person or his beneficiaries.shall first be paid to the Creditor and the balance of the Sum Assured. if there is any shall then be paid to the beneficiary/ies designated by the debtor. Leuterios heirs represented by his widow. after it already foreclosed on the mortgage. However. 1993. she states that DBP foreclosed in 1995 their residential lot. Equity dictates that DBP should not unjustly enrich itself at the expense of another (Nemo cum alterius detrimenio protest). Considering this supervening event. we noted that the Court of Appeals decision was promulgated on May 17. it cannot collect the insurance proceeds. . The proceeds now rightly belong to Dr. Hence. in satisfaction of mortgagors outstanding loan. herein private respondent Medarda Leuterio.