G.R. Nos. 180880-81 – KEPPEL CEBU SHIPYARD, INC., petitioner, vs. PIONEER INSURANCE AND SURETY CORPORATION, respondent.
G.R. Nos. 180896-97 – PIONEER INSURANCE AND SURETY CORPORATION, petitioner, vs. KEPPEL CEBU SHIPYARD, INC., respondent.
NACHURA, J.
Rule Synopsis
On Torts and Damages. Failure to exercise the competence of a reasonable person under the the same circumstances to prevent a damage constitutes negligence.
On Insurance Law. In case of “total constructive loss,” the insured may opt to abandon the thing and recover a total loss upon happening of the peril insured against; the insurer is subrogated to the rights of the insured against third parties causing the damage upon the former’s payment of the loss, as evidenced by a Loss and Subrogation receipt.
Facts
Keppel Cebu Shipyard, Inc. (KCSI) and WG&A Jebsens Shipmanagement, Inc. (WG&A) executed a Shiprepair Agreement wherein KCSI would renovate and reconstruct WG&A’s M/V “Superferry 3” using its dry docking facilities pursuant to its restrictive safety and security rules and regulations. Prior to this, the vessel was also insured with Pioneer for $8.47M. In the course of its repair, the vessel was gutted by fire. WG&A declared its “total constructive loss” and filed an insurance claim with Pioneer. Pioneer paid P8.47M for which WG&A issued a Loss and Subrogation Receipt. Pioneer then tried to collect from KCSI but the latter disclaimed responsibility refused to pay despite repeated demands.
Thus, Pioneer filed a Request for Arbitration before the Construction Industry Arbitration Commission (CIAC).
Pioneer avers that it has been subrogated to the claims of WG&A, and the KCSI was liable given that, among others, the proximate cause of the accident was the negligence of its employee, Sevillejo (welder) in cutting the bulkhead door. On the other hand, KCSI disclaimed liability, imputing negligence on “Dr. Joniga’s and the Vessel’s deliberate decision to have Sevillejo undertake cutting work in inherently dangerous conditions created by them.” KCSI also claimed that there was no proper subrogation and that there was no “total constructive loss.”
The CIAC ruled that both WG&A and KCSI were negligent, ordering them to pay Pioneer pro-rata. The tribunal also held that the parties’ liability was limited to P50M, and that the arbitration costs be shouldered proportionately both parties. Both parties appealed: Pioneer on the amount of damage, and KCSI on its liability. CA held KCSI liable for P25M without interest.
Issues
- To whom may negligence over the fire that broke out on board M/V “Superferry 3” be imputed?
- Is subrogation proper? If proper, to what extent can subrogation be made?
- Should interest be imposed on the award of damages? If so, how much?
- Who should bear the cost of the arbitration?
Ruling and Discussion
Procedural note: SC here digressed from the general rule and resolved to review factual findings of lower tribunals in light of the difference in conclusions arrived at by the CIAC and the CA.
- The hot work done by Sevillejo on the accommodation area of the vessel, specifically on Deck A. KCSI is vicariously liable as the former’s employer.
a. Under the Ship Repair Agreement, KCSI undertook perform the dry docking and repair of WG&A’s vessel.
b. Only employees of KCSI may undertake hot works on the vessel while it was in the graving dock.
Clause 3 of the Shiprepair Agreement requires the prior written approval of KCSI’s VP for Operations before WG&A could effect any work by its workers or subcontractors. In exercise of this power, KCSI’s VP banned any hot works from being done except by KCSI’s workers. WG&A complied. Dr. Joniga (of WG&A) had authority only to request the performance of hot works by KCSI’s welders as needed in the repair of the vessel while on dry dock.
c. KCSI welders covered by the Work Order performed hot works on various areas of the M/V “Superferry 3”, aside from its promenade deck.
This was a recognition of Dr. Joniga’s authority to request the conduct of hot works even on the passenger accommodation decks, subject to the provision of the Work Order that KCSI would supply welders for the promenade deck of the ship.
Thus, although the Work Order was a special order for the supply of KCSI welders to the promenade deck, it was not restricted to the promenade deck only.
d. At the time of fire, Sevillejo was KCSI’s employee, subject to its control and supervision
KCSI paid Sevillejo’s salaries, it retained the power and right to discharge or substitute him, provided him with equipment, gave him orders and monitored his activities.
Thus, it can be assumed that Sevillejo was aware of KCSI’s Safety Regulations on Vessels, specifically that which provides that no hotwork (welding/cutting) shall be done on board the vessel without a safety permit from KCSI Safety Section. It was incumbent upon Sevillejo to obtain such safety permits before commencing related work.
e. KCSI failed to provide due supervision of Sevillejo’s work.
It is not enough that KCSI, through its safety supervisor, Rebaca, prohibited Sevillejo from continuing hotwork without a safety permit, a fore watchman or a fire extinguisher. Rebaca left without pulling Sevillejo out of the work area or making sure that the latter did as he was told. Unfortunately, Sevillejo proceeded with his cutting.
KCSI’s own fire expert corroborated this finding, saying that, as Sevillejo (an electric arc welder, not a cutter) would not have a full appreciation of the dangers involved, it is incumbent upon the supervisor to ensure that safety precautions were carried out.
Clearly, Sevillejo was negligent on account of his failure to comply with the strict safety standards of KCSI, and also upon his failure to undertake other precautionary measures for preventing the fire. He could have, at the very least, ensured that whatever combustible material may have been in the vicinity would be protected from the sparks caused by the welding torch.
Rebaca was also negligent for failure to take all possible precautionary measures before allowing Sevilleja to continue with his work. Rebaca may have even replaced Sevilleja.
Meanwhile, Dr. Juniga was not negligent, as contented by KCSI: 1) it is within Dr. Juniga’s authority to ask Sevillejo to do the cutting of the bulkhead door; regardless, KCSI was aware of what Sevillejo was doing and should have properly supervised him; 2) Dr. Juniga cannot be faulted for the non-removal of the life jackets in the ceiling as — a) it was not even contributory to the accident, i.e. the fire would have occurred even in the absence of said jackets, and b) it wasn’t incumbent upon Dr. Juniga to do so.
Being under the employ of KCSI, the latter was vicariously liable under Art. 2180 of the CC. KCSI failed to rebut the presumption of negligence in supervising Sevillejo. Its liability was direct, primary and solidary. - Yes. The subrogation was proper. Pioneer may claim the amount of the loss, subject to the claim of KCSI as to the salvage value of the vessel.
The Loss and Subrogation Receipt issued by WG&A to Pioneer is the best evidence of payment of the insurance proceeds to the former, and no controverting evidence was presented by KCSI to rebut the presumed authority of the signatory to receive such payment.
Furthermore, there was “total constructive loss,” thus, Pioneer may recover the amount of loss paid to WG&A.
In the determination of whether there was “total constructive loss,” Section 139 of the Insurance Code should governs because a) Philippine laws were deemed written in every contract; b) the subject marine insurance policies expressly provided for such applicability. Section 139 of the IC provides:
“Sec. 139. A person insured by a contract of marine insurance
may abandon the thing insured, or any particular portion hereof separately valued by the policy, or otherwise separately insured, and recover for a total loss thereof, when the cause of the loss is a peril insured against:
(a) If more than three-fourths thereof in value is actually lost,
or would have to be expended to recover it from the peril;
(b) If it is injured to such an extent as to reduce its value more than three-fourths; x x x.”
In the arbitration proceedings, Pioneer adduced in evidence the estimates made by 3 disinterested and qualified shipyards for the cost of the repair of the vessel — all of which exceeded P270M, or more than 3/4 of the vessel’s insured value of P360M. The amount of loss was also confirmed by the Adjuster Report.
Given such, WG&A had the option to abandon the thing and recover for a total loss. This right is provided under Sec. 131 of the IC which provides:
“Sec. 131. A constructive total loss is one which gives to a person insured a right to abandon under Section one hundred thirty-nine.”
Pioneer’s payment to WG&A operates as an equitable assignment to the insurer of all the remedies that the insured may have against the third party whose negligence or wrongful act caused the loss. The right of subrogation is not dependent, nor does it grow out of, any privity of contract. It accrues simply upon payment by the insurance company of the insurance claim. It is based on equity.
Clause 20 of the Ship Repair Agreement, limiting KCSI’s liability to P50M, and Clause 22 making KCSI a co-assured in the policies are without factual and legal foundation, unfair and inequitable.
The Agreement was a contract of adhesion, and must be strictly construed against the party who prepared the same, KCSI in this case. WG&A’s fleet manager testified that he did not sign the fine-print portion of the Agreement where Clauses 20 and 22(a) were found, because he did not want WG&A to be bound by them.
Clause 20 was a void and ineffectual waiver of WG&A’s right to be compensated for the full insured value of the vessel. There was clearly no intention to relinquish such right and no proof was shown to establish the same. Furthermore, the clause may be considered as one being against public policy, as it would sanction the exercise of a degree of diligence short of what is ordinarily required since KCSI may just P50M, rather than the P360M value of the vessel.
Clause 22 was likewise void, the intention of the parties to make each other a co-assured under an insurance policy is to be gleaned principally from the insurance contract or policy itself and not from any other contract or agreement.
Nevertheless, the salvage value of the damaged M/V “Superferry 3” should be taken into account in the grant of any award, as duly contended by KCSI. Otherwise, it would amount to unjust enrichment on the part of Pioneer. In this case, it was sold that the hull and vessel were sold. The proceeds, net of costs the upkeep of the wreck up to the time of sale must be deducted from the award to Pioneer. The net proceeds amounted to about P30.25M. - Yes, at 6% p.a. (Eastern Shipping Lines, Inc. v. CA)
- Both parties, pro rata, should bear the cost of the arbitration.
Pioneer had a valid reason to institute a suit against KCSI. Nevertheless, KCSI cannot be faulted for defending itself for perceived wrongful acts and conditions.
Dispositive
Petitions partially granted, amended decision dated December 20, 2007 modified.
See: Court En Banc Resolution 2012 here.