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CEBU SHIPYARD v WILLIAM LINES

GR No. 132607; 5 May 1999


CEBU SHIPYARD AND ENGINEERING WORKS INC v PRUDENTIAL GUARANTEE and ASSURANCE COMPANY INC
Petitioner Respondents
Purisima., J.
Petition for Review on Certiorari
Cebu Shipyard and Engineering Works Inc (CSEW) domestic corp in business of dry-docking and
repairing of marine vessels
Prudential Guarantee and Assurance Inc - domestic corp in the non-life insurance business
William Lines Inc shipping company. Owner of M/V Manila City, luxury passenger-cargo vessel caught
fire and sank.
William Lines was insured with Prudential for P45M for hull and machinery. The Hull Policy included an
Additional Perils clause covering loss or damage to the vessel through negligence of, among others,
ship repairmen.
Petitioner was also insured by Prudential for third party liability under a Shiprepairers Legal Liability
FACTS:

limiting the insurance to P10M.


William Lines brought M/V Manila City to Cebu Shipyard for annual dry-docking and repair, covered by a
Work Order contract between CSEW and William
After vessel was transferred to docking quay, it caught fire and sank, resulting to eventual total loss.
William Lines filed a complaint for damages against CSEW alleging that the fire was caused by CSEWs
negligence and lack of care. Thereafter William impleaded Prudential after latter paid William.
Prudential was subrogated to the claim of P45M representing value of insurance paid.
Court rendered judgment in favor of Prudential P45 and William damages and losses.
CSEW appealed. CSEW and Williams presented a Joint Motion for Partial Dismissal on the basis of
amicable settlement between CSEW and William Lines only. Court granted partial dismissal and denied
appeal in relation to Prudential.
ISSUE: W/N Prudential has the right of subrogation against its own insured
HELD: Yes
Art 2207 provides that when the plaintiffs property has been insured and he has received indemnity
from insurance company for the injury or loss arising out of the wrong or breach of contract, the
insurance company shall be subrogated to the rights of the insured against the wrongdoer.
When Prudential, after due verification of the merit and validity of the insurance claim of William Lines,
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.
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
RULING:

because the insurance policy denominates the assured and the beneficiaries of the insurance. Thus when
the insurance policy names only one party as the assured thereunder, the claim of another that it is a co-
assured is unfounded.
Although 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.
To allow a repair entity to limit its liability to P1M notwithstanding the fact that the total loss suffered by
assued 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 the former to escape liability by the simple expedient
of paying an amount very much lower than the actual damages or loss suffered by the latter.

CSEWs Defenses:
1. We are not negligent because we did not have management and control over M/V Manila City. Although brought to CSEW for repair, William Lines
retained control over vessel as ship captain and crew were still present.
2. 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.
SC:
1. the fire that occurred and consumed M/V Manila City would not have happened in the ordinary course of thing, hence negligence must have
occurred. The agency charged with negligence as found by trial court and CA is CSEW which had control over subject vessel when it was docked for
annual repairs.
2. Upon proof of payment by Prudential to William Lines, Inc., the former was subrogated to the right of the latter to indemnification from CSEW.

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