Equitable Insurance Corporation v. Transmodal International, Inc.

G. R. No. 223592, 7 August 2017

Doctrine: The payment by the insurer to the insured operates as an equitable assignment to the insurer of
all the remedies which the insured may have against the third party whose negligence or wrongful act caused
the loss.

Facts: Sytengco Enterprises Corporation (Sytengco) hired respondent Transmodal International, Inc.
(Transmodal) to clear from the customs authorities and withdraw, transport, and deliver to its warehouse,
cargoes consisting of 200 cartons of gum Arabic with a total weight of 5,000 kilograms valued at
US21,750.00.

The said cargoes arrived in Manila on August 14, 2004 and was subsequently withdrawn on September 2,
2004 by respondent Transmodal and delivered them to Sytengco's warehouse. It was noted in the delivery
receipt that all the containers were wet.

Based on the survey of the cargoes, it was found that 187 cartons had water marks and the contents of the
13 wet cartons were partly hardened. A re-inspection was conducted and it was found that the contents of
the randomly opened 20 cartons were about 40% to 60% hardened, while 8 cartons had marks of previous
wetting. In its final report dated October 27, 2004, Elite Surveyor fixed the computed loss payable at
P728,712.00 after adjustment of 50% loss allowance.

Thus, on November 2, 2004, Sytengco demanded from respondent Transmodal the payment of
P1,457,424.00 as compensation for total loss of shipment.

On that same date, petitioner Equitable Insurance, as insurer of the cargoes per Marine Open Policy No.
MN-MRN-HO-000549 paid Sytengco's claim for P728,712.00. On October 4, 2004, Sytengco then signed
a subrogation receipt and loss receipt in favor of petitioner Equitable Insurance. As such, petitioner
Equitable Insurance demanded from respondent Transmodal reimbursement of the payment given to
Sytengco.

Thereafter, petitioner Equitable Insurance filed a complaint for damages invoking its right as subrogee after
paying Sytengco's insurance claim and averred that respondent Transmodal's fault and gross negligence
were the causes of the damages sustained by Sytengco's shipment. Petitioner Equitable Insurance prayed
for the payment of P728,712.00 actual damages with 6% interest from the date of the filing of the complaint
until full payment, plus attorney's fees and cost of suit.

Defenses of Transmodal:

1. It denied knowledge of an insurance policy; and

2. It claimed that petitioner Equitable Insurance has no cause of action against it because the damages to
the cargoes were not due to its fault or gross negligence.
3. Respondent Transmodal also questioned the timeliness of Sytengco's formal claim for payment
which was allegedly made more than 14 days from the time the cargoes were placed at its disposal in
contravention of the stipulations in the delivery receipts.

RTC: Ruled in favor of petitioner Equitable Insurance, thus, it ordered Transmodal to pay actual damages
in the amount of Php728,712.00 plus 6% interest from judicial demand until full payment; attorney's fees
and costs of suit.
 According to the RTC, petitioner Equitable Insurance was able to prove by substantial evidence
its right to institute an action as subrogee of Sytengco.

Respondent Transmodal appealed the RTC's decision to the CA.

CA: Reversed and set aside the RTC decision. It dismissed Equitable Insurance Corp.'s complaint for
failure to prove cause of action.

The CA ruled that there was no proof of insurance of the cargoes at the time of the loss and that the
subrogation was improper. According to the CA, the insurance contract was neither attached in the
complaint nor offered in evidence for the perusal and appreciation of the RTC, and what was
presented was just the marine risk note.

Issue: Whether or not Equitable Insurance has a cause of action against Transmodal.

Ruling: Yes, Equitable Insurance has a cause of action against Transmodal.

Subrogation is the substitution of one person in the place of another with reference to a lawful claim or
right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including
its remedies or securities." The right of subrogation springs from Article 2207 of the Civil Code which
states:

Art. 2207. If the plaintiff's property has been insured, and he has received indemnity from the
insurance company for the injury or loss arising out of the wrong or breach of contract complained
of, the insurance company shall be subrogated to the rights of the insured against the wrong-doer
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.

Here, a perusal of the records would show that petitioner is correct in its claim that the marine insurance
policy was offered as evidence. In fact, in the questioned decision of the CA, the latter, mentioned such
policy, thus:

Contrary to the ruling of the RTC, the marine policy was not at all presented. As borne by the
records, only the marine risk note and EQUITABLE INSURANCE CORPORATION
Marine Policy No. MN-MOP-HO-0000099 were offered in evidence. xxx xxx

As such, respondent had the opportunity to examine the said documents or to object to its presentation as
pieces of evidence. The records also show that respondent was able to cross-examine petitioner's witness
regarding the said documents. Thus, it was well established that petitioner has the right to step into the
shoes of the insured who has a direct cause of action against herein respondent on account of the
damages sustained by the cargoes.

The records further show that petitioner was able to accomplish its obligation under the insurance policy as
it has paid the assured of its insurance claim in the amount of P728,712.00 as evidenced by, among others,
the Subrogation Receipt, Loss Receipt, Check Voucher, and Equitable PCI Bank Check No. 0000013925.
The payment by the insurer to the insured operates as an equitable assignment to the insurer of all
the remedies which the insured 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 payment by the insurance company of the insurance claim. It accrues simply upon payment
by the insurance company of the insurance claim.

To reiterate, in this case, petitioner was able to present as evidence the marine open policy that vested upon
it, its rights as a subrogee.
 Oriental Assurance Corporation, v. Manuel Ong, doing business under the business name of
Western Pacific Transport Services And/Or Asian Terminals, Inc.
G. R. No. 189524, 11 October 2017

Doctrine: The provisions of a gate pass or of an arrastre management contract are binding on an insurer-
subrogee even if the latter is not a party to it

Facts: The consignee's claim letter that was received by the arrastre operator two (2) days after complete
delivery of the cargo constitutes substantial compliance with the time limitation for filing claims under the
Gate Pass and the Management Contract. However, the arrastre operator's liability for damage to the cargo
is limited to P5,000.00 per package in accordance with the Management Contract.

JEA Steel Industries, Inc. (JEA Steel) imported from South Korea 72 aluminum-zinc-alloy-coated steel
sheets in coils. These steel sheets were transported to Manila on board the vessel M/V Dooyang Glory as
evidenced by Bill of Lading No. HDMUBSOML-214s011.

Upon arrival of the vessel at the Manila South Harbor on June 10, 2002, the 72 coils were discharged and
stored in Pier 9 under the custody of the arrastre contractor, Asian Terminals, Inc. (Asian Terminals).

From the storage compound of Asian Terminals, the coils were loaded on the trucks of Manuel Ong (Ong)
and delivered to JEA Steel's plant in Barangay Lapidario, Trece Martirez, Cavite on June 14, 2002 and June
17, 2002. Eleven of these coils "were found to be in damaged condition, dented or their normal round shape
deformed."

JEA Steel filed a claim with Oriental Assurance Corporation (Assurance) for the value of the 11
damaged coils, pursuant to Marine Insurance Policy No. OAC/M-12292.

Oriental paid JEA Steel the sum of P521,530.16 and subsequently demanded indemnity from Ong and
Asian Terminals (respondents), but they refused to pay.

On May 19, 2003, Oriental filed a Complaint before the Regional Trial Court of Manila for sum of money
against respondents.

Defenses: Ong countered that the 11 coils were already damaged when they were loaded on board his trucks
and transported to the consignee.

Asian Terminals argued that Oriental's claim was barred for the latter's failure to file a notice of claim within
the 15-day period provided in the Gate Pass and in Article VII, Section 7.01 of the Contract for Cargo
Handling Services (Management Contract) between the Philippine Ports Authority and Asian Terminals.
The Gate Pass was signed by the consignee's representative to acknowledge the delivery and receipt of the
shipment. The dorsal side of this Gate Pass stated:

PROVISIONS

Issuance of this Gate Pass constitutes delivery to and receipt by the consignee of the goods as
described above in good order and condition unless an accompanying B.O. certificate duly signed
and noted on the fact (sic) of this Gate Pass appears.
 This Gate Pass is subject to all terms and conditions defined in the Management Contract between
the Philippine Ports Authority and Asian Terminals, Inc. and amendment and alterations thereof
particularly but not limited to the Article VI thereof, limiting the contractor's liability to P5,000 per
package unless the transportation is otherwise specified or manifested or communicated in writing
together with the invoice value and supported by a certified packing list to the contractor by the
interested party or parties before the discharge of the goods and corresponding arrastre charges
have been paid providing exception or restriction from liability among others, unless a formal claim
with the required annexes shall have been filed with the contractor within fifteen (15) days from
date of issuance by the contractor's certificate of loss, damage, injury or certificate of non-delivery.

Asian Terminals added that its liability, if any, should not exceed P5,000.00, pursuant to said Section 7.01.

RTC: After Trial, it dismissed the complaint on the ground that the claim of petitioner Oriental had already
prescribed.

CA: Affirmed RTC. It found that 11 of the coils were already damaged before they were loaded in Ong's
trucks. Hence, the legal presumption of negligence applies against Asian Terminals unless it is able to prove
that it exercised extraordinary diligence in the handling of the cargo. It ruled that while Asian Terminals
failed to rebut the presumption of negligence against it, it cannot be held liable to pay the value of the
damaged coils because Oriental's claim was filed beyond the 15-day prescriptive period stated in the Gate
Pass.

Issue: Whether or not petitioner Oriental, who was not a party to the Gate Pass or Management Contract,
is bound by the 15-day prescriptive period fixed in them to file a claim against the arrastre operator is not
new

Ruling: Yes.

Oriental contends that it was not aware of the provisions of the Gate Pass or the Management Contract,
neither of which it was a party to. Consequently, it cannot be bound by the stipulation limiting the liability
of Asian Terminals.

Asian Terminals counters that "[t]he provisions of the Management Contract and the Gate Pass are binding
on Oriental as insurer-subrogee and successor-in-interest of the consignee."

This Court finds for Asian Terminals.

In Government Service Insurance System v. Manila Railroad Company, this Court held that the provisions
of a gate pass or of an arrastre management contract are binding on an insurer-subrogee even if the latter is
not a party to it. This doctrine was reiterated in the later case of Summa Insurance Corporation v. Court of
Appeals:

In the performance of its job, an arrastre operator is bound by the management contract it had
executed with the Bureau of Customs. However, a management contract, which is a sort of a
stipulation pour autrui within the meaning of Article 1311 of the Civil Code, is also binding on a
consignee because it is incorporated in the gate pass and delivery receipt which must be presented
by the consignee before delivery can be effected to it. The insurer, as successor-in-interest of the
consignee, is likewise bound by the management contract. Indeed, upon taking delivery of the
cargo, a consignee (and necessarily its successor-in-interest) tacitly accepts the provisions of the
 management contract, including those which are intended to limit the liability of one of the
contracting parties, the arrastre operator.

The fact that Oriental is not a party to the Gate Pass and the Management Contract does not mean
that it cannot be bound by their provisions. Oriental is subrogated to the rights of the consignee
simply upon its payment of the insurance claim.

As subrogee, petitioner Oriental merely stepped into the shoes of the consignee and may only exercise those
rights that the consignee may have against the wrongdoer who caused the damage. "It can recover only the
amount that is recoverable by the assured." And since the right of action of the consignee is subject to a
precedent condition stipulated in the Gate Pass, which includes by reference the terms of the
Management Contract, necessarily a suit by the insurer is subject to the same precedent condition.

Petitioner's assertion that the 15-day prescriptive period could not be enforced upon it to defeat its claim
since the Gate Pass was pro forma and it was not given notice of the Management Contract is untenable.

As stated earlier, the dorsal side of the Gate Pass signed by the consignee's representative upon receipt of
the cargo expressly refers to the Management Contract between the Philippine Ports Authority and Asian
Terminals. Hence, the consignee and its subrogee, petitioner insurance company, are deemed to have notice
of this Management Contract.

Note: The Court also discussed the issue of prescription. It held that the claim of Oriental was not yet time-
barred. Thus, it was able to recover from the Arrastre operator.
 White Gold Marine Services, Inc. v. Pioneer Insurance and Surety Corp. and the Steamship
Mutual Underwriting Association (Bermuda) Ltd.
G. R. No. 154514, 28 July 2005

Doctrine: A P & I Club is a form of insurance against third party liability, where the third party is anyone
other than the P & I Club and the members.

Facts: White Gold Marine Services, Inc. (White Gold) procured a protection and indemnity coverage for
its vessels from The Steamship Mutual Underwriting Association (Bermuda) Limited (Steamship Mutual)
through Pioneer Insurance and Surety Corporation (Pioneer). Subsequently, White Gold was issued a
Certificate of Entry and Acceptance. Pioneer also issued receipts evidencing payments for the coverage.
When White Gold failed to fully pay its accounts, Steamship Mutual refused to renew the coverage.

Steamship Mutual thereafter filed a case against White Gold for collection of sum of money to recover the
latter’s unpaid balance. White Gold on the other hand, filed a complaint before the Insurance Commission
claiming that Steamship Mutual violated Sections 186 and 187 of the Insurance Code, while Pioneer
violated Sections 299, 300 and 301 in relation to Sections 302 and 303, thereof.

Insurance Commission: It dismissed the complaint. It said that there was no need for Steamship Mutual
to secure a license because it was not engaged in the insurance business. It explained that Steamship Mutual
was a Protection and Indemnity Club (P & I Club). Likewise, Pioneer need not obtain another license as
insurance agent and/or a broker for Steamship Mutual because Steamship Mutual was not engaged in the
insurance business. Moreover, Pioneer was already licensed, hence, a separate license solely as
agent/broker of Steamship Mutual was already superfluous.

CA: The Court of Appeals affirmed the decision of the Insurance Commissioner. It held that Pioneer merely
acted as a collection agent of Steamship Mutual.

Issues:

(1) Is Steamship Mutual, a P & I Club, engaged in the insurance business in the Philippines?

(2) Does Pioneer need a license as an insurance agent/broker for Steamship Mutual?

Ruling:

(1) Yes.

The parties admit that Steamship Mutual is a P & I Club. Steamship Mutual admits it does not have a license
to do business in the Philippines although Pioneer is its resident agent. This relationship is reflected in the
certifications issued by the Insurance Commission.

Section 2(2) of the Insurance Code enumerates what constitutes "doing an insurance business" or
"transacting an insurance business". These are:

(a) making or proposing to make, as insurer, any insurance contract;

(b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not as merely
incidental to any other legitimate business or activity of the surety;
 (c) doing any kind of business, including a reinsurance business, specifically recognized as constituting
the doing of an insurance business within the meaning of this Code;

(d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner
designed to evade the provisions of this Code. . . .

The same provision also provides, the fact that no profit is derived from the making of insurance contracts,
agreements or transactions, or that no separate or direct consideration is received therefor, shall not preclude
the existence of an insurance business.

Basically, an insurance contract is a contract of indemnity. In it, one undertakes for a consideration to
indemnify another against loss, damage or liability arising from an unknown or contingent event.

In particular, a marine insurance undertakes to indemnify the assured against marine losses, such as the
losses incident to a marine adventure. Section 99 of the Insurance Code enumerates the coverage of marine
insurance.

Relatedly, a mutual insurance company is a cooperative enterprise where the members are both the insurer
and insured. In it, the members all contribute, by a system of premiums or assessments, to the creation of a
fund from which all losses and liabilities are paid, and where the profits are divided among themselves, in
proportion to their interest. Additionally, mutual insurance associations, or clubs, provide three types of
coverage, namely, protection and indemnity, war risks, and defense costs.

A P & I Club is "a form of insurance against third party liability, where the third party is anyone other
than the P & I Club and the members." By definition then, Steamship Mutual as a P & I Club is a mutual
insurance association engaged in the marine insurance business.

(2) Yes.

Pioneer is the resident agent of Steamship Mutual as evidenced by the certificate of registration issued by
the Insurance Commission. It has been licensed to do or transact insurance business by virtue of the
certificate of authority23 issued by the same agency. However, a Certification from the Commission states
that Pioneer does not have a separate license to be an agent/broker of Steamship Mutual.

Although Pioneer is already licensed as an insurance company, it needs a separate license to act as
insurance agent for Steamship Mutual. Section 299 of the Insurance Code clearly states: No person shall
act as an insurance agent or as an insurance broker in the solicitation or procurement of applications for
insurance, or receive for services in obtaining insurance, any commission or other compensation from any
insurance company doing business in the Philippines or any agent thereof, without first procuring a license
so to act from the Commissioner, which must be renewed annually on the first day of January, or within six
months thereafter. . .

Thus, the Steamship Mutual Underwriting Association (Bermuda) Ltd., and Pioneer Insurance and Surety
Corporation are ORDERED to obtain licenses and to secure proper authorizations to do business as insurer
and insurance agent, respectively.
 Gulf Resorts, Inc. v. Philippine Charter Insurance Corp.
G.R. No. 156167, 16 May 2005

Facts: Gulf Resorts is the owner of the Plaza Resort situated at Agoo, La Union and had its properties in
said resort insured originally with the American Home Assurance Company (AHAC-AIU). In the first four
insurance policies issued by AHAC-AIU, the risk of loss from earthquake shock was extended only to
plaintiff’s two swimming pools.

Gulf Resorts agreed to insure with Philippine Charter Insurance Corp. the properties covered by AHAC
(AIU) Policy provided that the policy wording and rates in said policy be copied in the policy to be issued
Philippine Charter. In Policy No. 31944 issued by defendant, the shock endorsement provides:

In consideration of the payment by the insured to the company of the sum included additional
premium the Company agrees, notwithstanding what is stated in the printed conditions of this policy
due to the contrary, that this insurance covers loss or damage to shock to any of the property insured
by this Policy occasioned by or through or in consequence of earthquake.

On July 16, 1990 an earthquake struck Central Luzon and Northern Luzon and plaintiff’s properties covered
by Policy No. 31944 issued by defendant, including the two swimming pools in its Agoo Playa Resort were
damaged.

After the earthquake, petitioner advised respondent that it would be making a claim under its Insurance
Policy No. 31944 for damages on its properties. On August 23, 1990, respondent denied petitioner’s claim
on the ground that its insurance policy only afforded earthquake shock coverage to the two swimming pools
of the resort. Petitioner and respondent failed to arrive at a settlement. Thus, on January 24, 1991, petitioner
filed a complaint with RTC.

RTC: Ruled in favor of Philippine Charter Insurance Corp. It held that the schedule clearly shows that Gulf
Resorts paid only a premium of P393.00 against the peril of earthquake shock, the same premium it paid
against earthquake shock only on the two swimming pools in all the policies issued by AHAC(AIU). From
this fact the Court must consequently agree with the position of defendant that the endorsement rider means
that only the two swimming pools were insured against earthquake shock.

CA: Affirmed the RTC. It ruled: “However, after carefully perusing the documentary evidence of both
parties, We are not convinced that the last two (2) insurance contracts, which the plaintiff-appellant had
with AHAC (AIU) and upon which the subject insurance contract with Philippine Charter Insurance
Corporation is said to have been based and copied covered an extended earthquake shock insurance on all
the insured properties.

Issue: Whether or not the Court of Appeals correctly held that under Insurance Policy No. 31944 only the
two swimming pools, rather than all the properties covered thereunder, are insured against the risk of
earthquake shock.

Ruling: Yes.

It is basic that all the provisions of the insurance policy should be examined and interpreted in consonance
with each other. All its parts are reflective of the true intent of the parties. The policy cannot be construed
piecemeal. Certain stipulations cannot be segregated and then made to control; neither do particular words
or phrases necessarily determine its character. Petitioner cannot focus on the earthquake shock endorsement
to the exclusion of the other provisions.
Here, all the provisions and riders, taken and interpreted together, indubitably show the intention of the
parties to extend earthquake shock coverage to the two swimming pools only.

In Insurance Policy No. 31944, four key items are important in the resolution of the case at bar.

First, in the designation of location of risk, only the two swimming pools were specified as included, viz:

ITEM 3 – 393,000.00 – On the two (2) swimming pools only (against the peril of earthquake shock
only)

Second, under the breakdown for premium payments, it was stated that:

PREMIUM RECAPITULATION
ITEM NOS. AMOUNT RATES PREMIUM
xxx
3 393,000.00 0.100%-E/S 393.0022]

Third, Policy Condition No. 6 stated:

6. This insurance does not cover any loss or damage occasioned by or through or in consequence,
directly or indirectly of any of the following occurrences, namely:--

(a) Earthquake, volcanic eruption or other convulsion of nature. 23

Fourth, the rider attached to the policy, titled "Extended Coverage Endorsement (To Include the Perils of
Explosion, Aircraft, Vehicle and Smoke)," stated, viz:

ANNUAL PAYMENT AGREEMENT ON LONG TERM POLICIES

THE INSURED UNDER THIS POLICY HAVING ESTABLISHED AGGREGATE SUMS

INSURED IN EXCESS OF FIVE MILLION PESOS, IN CONSIDERATION OF A DISCOUNT OF
5% OR 7 ½ % OF THE NET PREMIUM x x x POLICY HEREBY UNDERTAKES TO CONTINUE
THE INSURANCE UNDER THE ABOVE NAMED x x x AND TO PAY THE PREMIUM.

Earthquake Endorsement

In consideration of the payment by the Insured to the Company of the sum of P. . . . . . . . . . . . . . . . .

additional premium the Company agrees, notwithstanding what is stated in the printed conditions of
this Policy to the contrary, that this insurance covers loss or damage (including loss or damage by fire)
to any of the property insured by this Policy occasioned by or through or in consequence of Earthquake.

Provided always that all the conditions of this Policy shall apply (except in so far as they may be hereby
expressly varied) and that any reference therein to loss or damage by fire should be deemed to apply
also to loss or damage occasioned by or through or in consequence of Earthquake.

Petitioner contends that pursuant to this rider, no qualifications were placed on the scope of the
earthquake shock coverage. Thus, the policy extended earthquake shock coverage to all of the insured
properties.
A careful examination of the premium recapitulation will show that it is the clear intent of the parties to
extend earthquake shock coverage only to the two swimming pools. Section 2(1) of the Insurance Code
defines a contract of insurance as an agreement whereby one undertakes for a consideration to indemnify
another against loss, damage or liability arising from an unknown or contingent event. Thus, an insurance
contract exists where the following elements concur:

1. The insured has an insurable interest;

2. The insured is subject to a risk of loss by the happening of the designated peril;

3. The insurer assumes the risk;

4. Such assumption of risk is part of a general scheme to distribute actual losses among a large
group of persons bearing a similar risk; and

5. In consideration of the insurer's promise, the insured pays a premium.

An insurance premium is the consideration paid an insurer for undertaking to indemnify the insured against
a specified peril. In fire, casualty, and marine insurance, the premium payable becomes a debt as soon as
the risk attaches. In the subject policy, no premium payments were made with regard to earthquake
shock coverage, except on the two swimming pools. There is no mention of any premium payable for the
other resort properties with regard to earthquake shock. This is consistent with the history of petitioner’s
previous insurance policies from AHAC-AIU.

Petitioner also cited and relies on the attachment of the phrase "Subject to: Other Insurance Clause,
Typhoon Endorsement, Earthquake Shock Endorsement, Extended Coverage Endorsement, FEA
Warranty & Annual Payment Agreement on Long Term Policies" to the insurance policy as proof of
the intent of the parties to extend the coverage for earthquake shock. However, this phrase is merely an
enumeration of the descriptive titles of the riders, clauses, warranties or endorsements to which the policy
is subject, as required under Section 50, paragraph 2 of the Insurance Code.

In sum, there is no ambiguity in the terms of the contract and its riders. Petitioner cannot rely on the general
rule that insurance contracts are contracts of adhesion which should be liberally construed in favor of the
insured and strictly against the insurer company which usually prepares it.