Cebu Shipyard v William G.R. No. 132607.

May 5, 1999

Facts:
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 coplaintiff 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 airconditioning unit that was already burning.
Hence this MFR.
Issue:
1. WON CSEW had management and supervisory control of the ship at the time
the fire broke out
2. WON the doctrine of res ipsa loquitur applies against the crew

3. WON Prudential has the right of subrogation against its own insured
4. WON the provisions limiting CSEWs liability for negligence to a maximum of Php
1 million are valid
Held: Yes. Yes. Yes. No. Petition denied.
Ratio:
1. The that factual findings by the CA are conclusive on the parties and are not
reviewable by this Court. They are entitled to great weight and respect when the CA
affirmed the factual findings arrived at by the trial court.
The CA and the Cebu RTC are agreed that the fire which caused the total loss of
subject M/V Manila City was due to the negligence of the employees and workers of
CSEW.
Furthermore, in petitions for review on certiorari, only questions of law may be put
into issue. Questions of fact cannot be entertained.
2. For the doctrine of res ipsa loquitur to apply to a given situation, the following
conditions must concur: (1) the accident was of a kind which does not ordinarily
occur unless someone is negligent; and (2) that the instrumentality or agency which
caused the injury was under the exclusive control of the person charged with
negligence.
The facts and evidence reveal the presence of these conditions. First, the fire would
not have happened in the ordinary course of things if reasonable care and diligence
had been exercised.
Second, the agency charged with negligence, as found by the trial court and the CA
and as shown by the records, is CSEW, which had control over subject vessel when
it was docked for annual repairs.
What is more, in the present case the trial court found direct evidence to prove that
the workers didnt exercise due diligence in the care of subject vessel. The direct
evidence substantiates the conclusion that CSEW was really negligent even without
applying such doctrine.
3. 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.
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 coassured 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.
4. Although in this jurisdiction, contracts of adhesion have been consistently upheld
as valid per se; as binding as an ordinary contract, the Court recognizes instances
when reliance on such contracts cannot be favored especially where the facts and
circumstances warrant that subject stipulations be disregarded. Thus, in ruling on
the validity and applicability of the stipulation limiting the liability of CSEW for
negligence to P1M only, the facts and circumstances vis-a-vis the nature of the
provision sought to be enforced should be considered, bearing in mind the
principles of equity and fair play.
It is worthy to note that M/V Manila City was insured with Prudential for P45M. Upon
thorough investigation by its hull surveyor, M/V Manila City was found to be beyond
economical salvage and repair. The evaluation of the average adjuster also reported
a constructive total loss. The said claim of William Lines, Inc., was then found to be
valid and compensable such that Prudential paid the latter the total value of its
insurance claim. Furthermore, it was ascertained that the replacement cost of the
vessel, amounts to P55M.
Considering the circumstances, it would unfair to limit the liability of petitioner to
One Million Pesos only. To allow CSEW to limit its liability to P1M notwithstanding the
fact that the total loss suffered by the assured and paid for by Prudential amounted
to P45M would sanction the exercise of a degree of diligence short of what is
ordinarily required because, then, it would not be difficult for petitioner to escape
liability by the simple expedient of paying an amount very much lower than the
actual damage suffered by William.