Keppel Cebu Shipyard, Inc. vs. Pioneer Insurance and Surety Corporation

G.R. Nos. 180880-81. September 18, 2012.

FACTS

In 2000, KCSI and WG&A Jebsens entered into Shiprepair Agreement wherein KCSI to carry out renovation and reconstruction of M/V Superferry 3. Prior to the execution of the Shiprepair Agreement, Superferry 3 was already insured by WG&A with Pioneer for US$8,472,581.78. While undergoing repair, Superferry 3 was gutted by fire. WG&A declared the vessel’s damage as a “total constructive loss” and filed an insurance claim with Pioneer. Pioneer paid the insurance claim of WG&A, and in exchange, WG&A executed a Loss and Subrogation Receipt in favor of Pioneer. Pioneer tried to collect the amount of US$8,472,581.78 from KCSI but it was frustrated. Thus, Pioneer sought arbitration with the CIAC, which found that both WG&A and KCSI were equally guilty of negligence which resulted in the fire and loss of Superferry 3. The Court of Appeals affirmed the decision of CIAC. 

ISSUE

Whether or not the subrogation was proper.

HELD

Yes. In this case, both WG&A and KCSI were equally negligent in causing the loss of the Superferry 3. Well-settled is the rule that the insurer can be subrogated only to the rights as the insured may have against the wrongdoer.

APPLICABLE ARTICLES

Art. 1300. Subrogation of a third person in the rights of the creditor is either legal or conventional. The former is not presumed, except in cases expressly mentioned in this Code; the latter must be clearly established in order that it may take effect.

Article 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.

DISCUSSION AND APPLICATION

Novation By Subrogation. — The second method whereby personal novation may be effected is by subrogating a third person in the rights of the creditor.

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 right of the other in relation to a debt or claim, including its remedies and securities.

Both KCSI and WG&A should be held responsible for the loss of Superferry 3. Upon the claim of WG&A of the indemnity for the injury or loss arising out of the wrong or breach of contract complained of, Pioneer  Insurance shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract which is WG&A and KCSI.