SUBROGATION
(8) SULPICIO LINES, INC
v.
Ruling/s:
FIRST LEPANTO-TAISHO INSURANCE CORPORATION
Facts: Taiyo Yuden Philippines, Inc. (owner of the goods) and Delbros, Inc. (shipper) entered into a
contract, evidenced by Bill of Lading No. CEB/SIN-008/92 issued by the latter in favor of the owner of
the goods, for Delbros, Inc. to transport a shipment of goods consisting of three (3) wooden crates
containing one hundred thirty-six (136) cartons of inductors and LC compound on board the V
Singapore V20 from Cebu City to Singapore in favor of the consignee, Taiyo Yuden Singapore Pte, Ltd.
For the carriage of said shipment from Cebu City to Manila, Delbros, Inc. engaged the services of the
vessel M/V Philippine Princess, owned and operated by petitioner Sulpicio Lines, Inc. (carrier). The
vessel arrived at the North Harbor, Manila, on 24 February 1992.
During the unloading of the shipment, one crate containing forty-two (42) cartons dropped from the
cargo hatch to the pier apron. The owner of the goods examined the dropped cargo, and upon an
alleged finding that the contents of the crate were no longer usable for their intended purpose, they
were rejected as a total loss and returned to Cebu City.
The owner of the goods filed a claim with herein petitioner-carrier for the recovery of the value of the
rejected cargo which was refused by the latter. Thereafter, the owner of the goods sought payment
from respondent First Lepanto-Taisho Insurance Corporation (insurer) under a marine insurance
policy issued to the former. Respondent-insurer paid the claim less thirty-five percent (35%) salvage
value or P194, 220.31. The payment of the insurance claim of the owner of the goods by the
respondent-insurer subrogated the latter to whatever right or legal action the owner of the goods
may have against Delbros, Inc. and petitioner-carrier, Sulpicio Lines, Inc. Thus, respondent-insurer
then filed claims for reimbursement from Delbros, Inc. and petitioner-carrier Sulpicio Lines, Inc. which
were subsequently denied.
The respondent-insurer filed a suit for damages with the trial court against Delbros, Inc and Sulpicio
Lines. The trial court dismissed the complaint, and upon appeal, the CA reversed and set aside the
decision of the former. Hence this petition.
Issue/s:
1. Whether or not Sulpicio Lines is liable.
2. Up to what extent is Sulpicio Lines liable to respondent-insurer?
1. Yes, Sulpicio Lines is liable. The court held that it cannot be denied that the shipment
sustained damage while in the custody of the carriage. It is also undisputed that one of the 3
crates did fall from the cargo, and upon inspection found out that the two cartons were torn
on the side and on the top. The falling of the crate during the unloading is evidence of Sulpicio
Lines negligence in handling the cargo. As a common carrier, it is required to observe extra
diligence in handling the goods they carried. Under Articles 1735 and 1752 of the Civil Code,
common carriers are presumed to have been at fault or to have acted negligently in case the
goods transported by them are lost, destroyed or had deteriorated. To overcome the
presumption of liability for loss, destruction or deterioration of goods under Article 1735, the
common carrier must prove that they observed extraordinary diligence as required in Article
1733 of the Civil Code.
2. The court uphold the ruling of the appellate court that herein petitioner-carrier is liable to
pay the amount paid by respondent-insurer for the damages sustained by the owner of the
goods. Upon respondent-insurers payment of the alleged amount of loss suffered by the
insured (the owner of the goods), the insurer is entitled to be subrogated pro tanto to any
right of action which the insured may have against the common carrier whose negligence or
wrongful act caused the loss. 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
rights to which the subrogee succeeds are the same as, but not greater than, those of the
person for whom he is substituted, that is, he cannot acquire any claim, security or remedy
the subrogor did not have. In other words, a subrogee cannot succeed to a right not possessed
by the subrogor. A subrogee in effect steps into the shoes of the insured and can recover only
if the insured likewise could have recovered.
However, as stated in the manifestation filed by Delbros, Inc., however, respondent-insurer
had already been paid the full amount granted by the Court of Appeals, hence, it will be
tantamount to unjust enrichment for respondent-insurer to again recover damages from
herein petitioner-carrier.
(9) LOADSTAR SHIPPING COMPANY INCOARPORATED
v.
MALAYAN INSURANCE COMPANY INCORPORATED
Facts: Loadstar International Shipping, Inc. (Loadstar Shipping) and Philippine Associated Smelting
and Refining Corporation (PASAR) entered into a Contract of Affreightment for domestic bulk
transport of the latter's copper concentrates for a period of one year from November 1, 1998 to
October 31, 1999. The contract was extended up to the end of October 2000. On September 10,
2000, 5,065.47 wet metric tons (WMT) of copper concentrates were loaded in Cargo Hold Nos. 1
and 2 of MV "Bobcat", a marine vessel owned by Loadstar International Shipping Co., Inc.
(Loadstar International) and operated by Loadstar Shipping under a charter party agreement. The
shipper and consignee under the Bill of Lading are Philex Mining Corporation (Philex) and PASAR,
respectively. The cargo was insured with Malayan Insurance Company, Inc. (Malayan) under Open
Policy No. M/OP/2000/001-582. P & I Association is the third party liability insurer of Loadstar
Shipping. September 13, 2000, PASAR and Philex's representatives boarded and inspected the
vessel and undertook sampling of the copper concentrates. In its preliminary report dated
September 15, 2000, the Elite Adjusters and Surveyor, Inc. (Elite Surveyor) confirmed that samples
of copper concentrates from Cargo Hold No. 2 were contaminated by seawater. Consequently,
PASAR rejected 750 MT of the 2,300 MT cargo discharged from Cargo Hold No. 2.
PASAR sent a formal notice of claim in the amount of [P]37,477,361.31 to Loadstar Shipping. In
its final report dated November 16, 2000, Elite Surveyor recommended payment to the assured
the amount of [P]32,351,102.32 as adjusted. On the basis of such recommendation, Malayan paid
PASAR the amount of [P]32,351,102.32. Malayan wrote Loadstar Shipping informing the latter of
a prospective buyer for the damaged copper concentrates and the opportunity to nominate/refer
other salvage buyers to PASAR. Malayan wrote to Loadstar Shipping informing the latter the
acceptance of PASARs proposal, however Loadstar Shipping wrote to Malayan requesting the
reversal of its decision to accept the proposal of PASAR.
PASAR signed a subrogation receipt in favor of Malayan. To recover the amount paid and in the
exercise of its right of subrogation, Malayan demanded reimbursement from Loadstar Shipping,
which refused to comply. Consequently, on September 19, 2001, Malayan instituted with the RTC
a complaint for damages. It amended its complaint and it alleged that as a direct and natural
consequence of the unseaworthiness of the vessel, PASAR suffered loss of the cargo.
RTCdismissed the complaint
CAreversed and set aside the decision of the trial court
Hence this petition.
Issue: Whether or not respondent is entitled to automatic right of recovery by virtue of
subrogation.
Ruling:
NO, Malayan Insurance is not entitled to recover from Loadstar Shipping by virtue of
Subrogation.
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 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.
"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 right of subrogation is however, not absolute. For instance, 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.
If there is no loss or injury, then there is no obligation on the part of the insurer to indemnify the
insured. Should the insurer pay the insured and it turns out that indemnification is not due, or if
due, the amount paid is excessive, the insurer takes the risk of not being able to seek recompense
from the alleged wrongdoer. This is because the supposed subrogor did not possess the right to
be indemnified and therefore, no right to collect is passed on to the subrogee.
Malayan fails to refute the testimony of Engineer Esguerra who testified as regards the lack of
adverse effect of seawater on copper concentrates. The former never presented evidence that
would refute the testimony of Esguerra. Having ruled that Malayan did not adduce proof of
pecuniary loss to PASAR for which the latter was questionably indemnified, there is no necessity
to expound further on the other issues raised by the petitioners and Malayan in this case.
 INTERPRETATION OF INSURANCE CONTRACTS ambiguity. Any ambiguity in a contract whose terms are susceptible of different interpretations must
be read against the party who drafted it. Furthermore, it affirmed the CAs finding that Fortune Cares
(10) FORTUNE MEDICARE, INC
liability to Amorin under the subject Health Care Contract should be based on the expenses for
v.
hospital and professional fees which he actually incurred, and should not be limited by the amount
DAVID ROBERT AMORIN
that he would have incurred had his emergency treatment been performed in an accredited hospital
in the Philippines.
Facts: David Amorin is a cardholder/member of Fortune Medicare. While having a vacation in
Honalulu, Hawaii he underwent an emergency surgery, specifically appendectomy, causing him
to incur professional and hospitalization expenses of US$7,242.35 and US$1,777.79, respectively.
(11) THE INSURANCE LIFE COMPANY, INC
Being a cardholder/member of Fortune Medicare, Inc. (Fortune Care), a corporation engaged in
v.
providing health maintenance services to its members, he attempted to recover the full amount
PAZ KHU, ET AL.
upon his return to Manila. However, the company merely approved a reimbursement of
P12,151.36, an amount that was based on the average cost of appendectomy, net of medicare
Facts: Felipe N. Khu, Sr. (Felipe) applied for a life insurance policy with Insular Life under the latter's
deduction, if the procedure were performed in an accredited hospital in Metro Manila. Amorin
Diamond Jubilee Insurance Plan. Felipe accomplished the required medical questionnaire wherein he
received under protest the approved amount, but asked for its adjustment to cover the total
did not declare any illness or adverse medical condition. On June 1999, Felipe's policy lapsed due to
amount of professional fees which he had paid, and eighty percent (80%) of the approved
non-payment of the premium covering the period of June 1999 to June 2000. Thereafter he applied
standard charges based on American standard, considering that the emergency procedure
for reinstatement on Sept 1999. Except for the change in his occupation from self-employed to
occurred in the U.S.A., citing provisions of the contract.
Municipal Mayor, all other information in his application was virtually identical to his former
He then filed a complaint for breach of contract with damages but this was dismissed by the RTC. application. Insular Life advised Felipe that his application for reinstatement may only be considered
It said that the parties intended to use the Philippine standard as basis. However, this was if he agreed to certain conditions such as payment of additional premium and the cancellation of the
reversed by the CA. The appellate court pointed out that, first, health care agreements such as riders pertaining to premium waiver and accidental death benefits, and Felipe agreed to these.
the subject Health Care Contract, being like insurance contracts, must be liberally construed in
On September 2001 Felipe died, and his Death certificate enumerated the causes of his death. Paz Y.
favor of the subscriber. In case its provisions are doubtful or reasonably susceptible of two
Khu, Felipe Y. Khu, Jr. .and Frederick Y. Khu (collectively, Felipe's beneficiaries or respondents) filed
interpretations, the construction conferring coverage is to be adopted and exclusionary clauses
with Insular Life a claim for benefit under the reinstated policy. This claim was denied. Instead, Insular
of doubtful import should be strictly construed against the provider. Second, the CA explained
Life advised Felipe's beneficiaries that it had decided to rescind the reinstated policy on the grounds
that there was nothing under the Health Care Contract which provided that the Philippine
of concealment and misrepresentation by Felipe. Hence, respondents instituted a complaint for
standard should be used even in the event of an emergency confinement in a foreign territory.
specific performance with damages. Respondents prayed that the reinstated life insurance policy be
Hence this petition.
declared valid, enforceable and binding on Insular Life; and that the latter be ordered to pay unto
Felipe's beneficiaries the proceeeds of this policy, among others.

Issue: Whether or not ambiguities should be taken in favor of the member. RTC- in favor Felipes beneficiaries

CA-Dismissed the Appeal

Ruling: Hence this petition.

Yes, the court held that is should be taken against the insurer. With regard the ambiguities in the
contract, settled is the rule that they should be interpreted against the party that caused the
Issue: Whether Felipe's reinstated life insurance policy is already incontestable at the time of his
death.
Ruling:
Yes, the life insurance policy is already incontestable at the time of Felipes death. The Court
discerns a genuine ambiguity or obscurity in the language of the two documents.
In the Letter of Acceptance, Khu declared that he was accepting "the imposition of an extra/additional
x x x premium of P5.00 a year per thousand of insurance; effective June 22, 1999". It is true that the
phrase as used in this particular paragraph does not refer explicitly to the effectivity of the
reinstatement. But the Court notes that the reinstatement was conditioned upon the payment of
additional premium not only prospectively, that is, to cover the remainder of the annual period of
coverage, but also retroactively, that is for the period starting June 22, 1999. Hence, by paying the
amount of P3,054.50 on December 27, 1999 in addition to the P25,020.00 he had earlier paid on
September 7, 1999, Khu had paid for the insurance coverage starting June 22, 1999. At the very least,
this circumstance has engendered a true lacuna.
In the Endorsement, the obscurity is patent. In the first sentence of the Endorsement, it is not entirely
clear whether the phrase "effective June 22, 1999" refers to the subject of the sentence, namely "the
reinstatement of this policy," or to the subsequent phrase "changes are made on the policy."
The court below is correct. Given the obscurity of the language, the construction favorable to the
insured will be adopted by the courts. Accordingly, the subject policy is deemed reinstated as of June
22, 1999. Thus, the period of contestability has lapsed.
THE BUSINESS OF INSURANCE
(12) WHITE GOLD MARINE SERVICES, INC.
v.
PIONEER INSURANCE AND SURETY CORPORATION
Facts: White Gold procured a protection and indemnity coverage for its vessels from The Steamship
Mutual through Pioneer Insurance and Surety Corporation. White Gold was issued a Certificate of
Entry and Acceptance. Pioneer also issued receipts. 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 unpaid balance. White Gold on the other hand, filed a complaint before the Insurance
Commission claiming that Steamship Mutual and Pioneer violated provisions of the Insurance Code.
The Insurance Commission 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 and that it was a P &
I club. Pioneer was not required to obtain another license as insurance agent because Steamship
Mutual was not engaged in the insurance business.
The Court of Appeals affirmed the decision of the Insurance Commissioner. In its decision, the
appellate court distinguished between P & I Clubs vis--vis conventional insurance. The appellate
court also held that Pioneer merely acted as a collection agent of Steamship Mutual.
Hence this petition by White Gold.
Issue: Is Steamship Mutual, a P & I Club, engaged in the insurance business in the Philippines
Ruling:
Yes, they are engaged in the insurance business. White Gold insists that Steamship Mutual as a P &
I Club is engaged in the insurance business. To buttress its assertion, it cites the definition as an
association composed of shipowners in general who band together for the specific purpose of
providing insurance cover on a mutual basis against liabilities incidental to shipowning that the
members incur in favor of third parties. They argued that Steamship Mutuals primary purpose is to
solicit and provide protection and indemnity coverage and for this purpose, it has engaged the
services of Pioneer to act as its agent.
Respondents contended that although Steamship Mutual is a P & I Club, it is not engaged in the
insurance business in the Philippines. It is merely an association of vessel owners who have come
together to provide mutual protection against liabilities incidental to shipowning.
Is Steamship Mutual engaged in the insurance business?
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.
The records reveal Steamship Mutual is doing business in the country albeit without the requisite
certificate of authority mandated by Section 187 of the Insurance Code. It maintains a resident agent
in the Philippines to solicit insurance and to collect payments in its behalf. Steamship Mutual even
renewed its P & I Club cover until it was cancelled due to non-payment of the calls. Thus, to continue
doing business here, Steamship Mutual or through its agent Pioneer, must secure a license from the
Insurance Commission. Since a contract of insurance involves public interest, regulation by the State
is necessary. Thus, no insurer or insurance company is allowed to engage in the insurance business
without a license or a certificate of authority from the Insurance Commission.
(13) REPUBLIC OF THE PHILIPPINES
v.
DEL MONTE MOTORS, INC.
Facts: Vilfran Liner lost in a case against Del Monte Motors. They were made to pay 11 million pesos
for service contracts with Del Monte, and such was sourced from the counterbond posted by Vilfran.
CISCO issued the counterbond. CISCO opposed but was rebuffed. The RTC released a motion for
execution commanding the sheriff to levy the amount on the property of CISCO. To completely satisfy
the amount, the Insurance Commissioner was also commanded to withdraw the security deposit filed
by CISCO with the Commission according to Sec 203 of the Insurance Code.
Insurance Commissioner Malinis was ordered by the RTC to withdraw the security bond of CISCO for
the payment of the insurance indemnity won by Del Monte Motor against Vilfran Liner, the insured.
Malinis didnt obey the order, so the respondent moved to cite him in contempt of Court. The RTC
ruled against Malinis because he didnt have legal basis for his refusal to allow the withdrawal of
CISCOs security deposit. Hence, this petition.
Issue: Whether or not the security deposit held by the Insurance Commissioner pursuant to Section
203 of the Insurance Code may be levied or garnished in favor of only one insured
Ruling. No.
Section 203 of the Insurance Code provides as follows:
Sec. 203. Every domestic insurance company shall, to the extent of an amount equal in value
to twenty-five per centum of the minimum paid-up capital required under section one
hundred eighty-eight, invest its funds only in securities, satisfactory to the Commissioner,
consisting of bonds or other evidences of debt of the Government of the Philippines or its
political subdivisions or instrumentalities, or of government-owned or controlled
corporations and entities, including the Central Bank of the Philippines: Provided, That such
investments shall at all times be maintained free from any lien or encumbrance; and Provided,
further, That such securities shall be deposited with and held by the Commissioner for the
faithful performance by the depositing insurer of all its obligations under its insurance
contracts. The provisions of section one hundred ninety-two shall, so far as practicable, apply
to the securities deposited under this section.
Except as otherwise provided in this Code, no judgment creditor or other claimant shall have the right
to levy upon any of the securities of the insurer held on deposit pursuant to the requirement of the
Commissioner.
Our Insurance Code is patterned after that of California. Thus, the ruling of the states Supreme Court
on a similar concept as that of the security deposit is instructive. Engwicht v. Pacific States Life
Assurance Co. held that the money required to be deposited by a mutual assessment insurance
company with the state treasurer was a trust fund to be ratably distributed amongst all the claimants
entitled to share in it. Such a distribution cannot be had except in an action in the nature of a creditors
bill, upon the hearing of which, and with all the parties interested in the fund before it, the court may
make equitable distribution of the fund, and appoint a receiver to carry that distribution into effect.
Basic is the statutory construction rule that provisions of a statute should be construed in accordance
with the purpose for which it was enacted. That is, the securities are held as a contingency fund to
answer for the claims against the insurance company by all its policy holders and their beneficiaries.
This step is taken in the event that the company becomes insolvent or otherwise unable to satisfy the
claims against it. Thus, a single claimant may not lay stake on the securities to the exclusion of all
others. The other parties may have their own claims against the insurance company under other
insurance contracts it has entered into.
The Insurance Code has vested the Office of the Insurance Commission with both regulatory and
adjudicatory authority over insurance matters. The general regulatory authority of the insurance
commissioner is described in Section 414 of the Code.
Pursuant to these regulatory powers, the commissioner is authorized to (1) issue (or to refuse to issue)
certificates of authority to persons or entities desiring to engage in insurance business in the
Philippines; (2) revoke or suspend these certificates of authority upon finding grounds for the
revocation or suspension; (3) impose upon insurance companies, their directors and/or officers
and/or agents appropriate penalties fines, suspension or removal from office for failing to
comply with the Code or with any of the commissioners orders, instructions, regulations or rulings, or
for otherwise conducting business in an unsafe or unsound manner.
As the officer vested with custody of the security deposit, the insurance commissioner is in the best
position to determine if and when it may be released without prejudicing the rights of other policy
holders. Before allowing the withdrawal or the release of the deposit, the commissioner must be
satisfied that the conditions contemplated by the law are met and all policy holders protected.