Cebu Shipyard and Engineering Works, Inc. vs. William Lines, Inc.; G.R. No. 132607. May 5, 1999


In 1992, William Lines, Inc. brought its vessel, M/V Manila City, to the Cebu Shipyard for annual dry-docking and repair. M/V Manila after subject vessel was transferred to the docking quay, it caught fire and sank, resulting to its eventual total loss. At the time of the unfortunate occurrence, the vessel was insured with Prudential for P45,000,000.00 pesos for hull and machinery.

William Lines, Inc. filed a complaint for damages against Cebu Shipyard, alleging that the fire which broke out in M/V Manila City was caused by CSEW’s negligence and lack of care. Prudential Insurance was impleaded in the complaint after it paid William Lines, Inc. the value of the hull and machinery insurance on the M/V Manila City.

The Trial Court rendered a decision ordering Cebu Shipyard to pay Prudential Life of the amount it paid as part of insurance and William Lines for loss of income and to fully cover the injury or loss etc. The Court of Appeals affirmed the appealed decision of the trial court.

Cebu Shipyard argued that the loss of M/V Manila City or damage thereto is expressly excluded from the coverage of the insurance because the same resulted from “want of due diligence by the Assured, Owners or Managers” which is not included in the risks insured against. 

It also theorizes further that there can be no right of subrogation as it is deemed a co-assured under the subject insurance policy under 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.

ISSUE: WON 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.


(1)NO. When Prudential paid William Lines 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.

(2) NO. 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. 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 because the insurance policy denominates the assured and 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. It is axiomatic that when the terms of a contract are clear its stipulations control. Thus, when the insurance policy involved named only William Lines, Inc. as the assured thereunder, the claim of CSEW that it is a co-assured is unfounded.

The Courts 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. Under the circumstances of the case, the doctrine of res ipsa loquitur applies. 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.  

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