Civil Law, Mercantile Law

KEPPEL CEBU SHIPYARD, INC. vs. PIONEER INSURANCE AND SURETY CORPORATION, PIONEER INSURANCE AND SURETY CORPORATION vs. KEPPEL CEBU SHIPYARD, INC. G.R. Nos. 180880-81 G.R. Nos. 180896-97 September 25, 2009 Article 2180 of the Civil Code, Marine Insurance, Negligence, Damages


WG & A JEBSENS SHIPMGMT. Owner/Operator of M/V “SUPERFERRY 3” and KEPPEL CEBU SHIPYARD, INC. (KCSI) enter into an agreement that the Drydocking and Repair of the above-named vessel ordered by the Owner’s Authorized Representative shall be carried out under the Keppel Cebu Shipyard Standard Conditions of Contract for Ship repair, guidelines and regulations on safety and security issued by Keppel Cebu Shipyard.

In the course of its repair, M/V “Superferry 3” was gutted by fire. Claiming that the extent of the damage was pervasive, WG&A declared the vessel’s damage as a “total constructive loss” and, hence, filed an insurance claim with Pioneer.

Pioneer paid the insurance claim of WG&A, which in turn, executed a Loss and Subrogation Receipt in favor of Pioneer.

Pioneer tried to collect from KCSI, but the latter denied any responsibility for the loss of the subject vessel. As KCSI continuously refused to pay despite repeated demands, Pioneer, filed a Request for Arbitration before the Construction Industry Arbitration Commission CIAC seeking for payment of U.S.$8,472,581.78 plus interest, among others.

The CIAC rendered its Decision declaring both WG&A and KCSI guilty of negligence, the CIAC ordered KCSI to pay Pioneer the amount of P25,000,000.00, with interest at 6% per annum. Both Keppel and Pioneer appealed to the CA.

The cases were consolidated in the CA. the CA rendered a decision dismissing petitioner’s claims in its entirety. Keppel was declared as equally negligent.


To whom may negligence over the fire that broke out on board M/V “Superferry 3” be imputed? What is the extent of the damage, if any?


1. The issue of negligence
Undeniably, the immediate cause of the fire was the hot work done by Angelino Sevillejo (Sevillejo) on the accommodation area of the vessel, specifically on Deck A. As established before the CIAC –
Pioneer contends that KCSI should be held liable because Sevillejo was its employee who, at the time the fire broke out, was doing his assigned task, and that KCSI was solely responsible for all the hot works done on board the vessel. We rule in favor of Pioneer.
At the time of the fire, Sevillejo was an employee of KCSI and was subject to the latter’s direct control and supervision.There was a lapse in KCSI’s supervision of Sevillejo’s work at the time the fire broke out.

KCSI failed to exercise the necessary degree of caution and foresight called for by the circumstances.
The circumstances, taken collectively, yield the inevitable conclusion that Sevillejo was negligent in the performance of his assigned task. His negligence was the proximate cause of the fire on board M/V “Superferry 3.” As he was then definitely engaged in the performance of his assigned tasks as an employee of KCSI, his negligence gave rise to the vicarious liability of his employer43 under Article 2180 of the Civil Code.

KCSI failed to prove that it exercised the necessary diligence incumbent upon it to rebut the legal presumption of its negligence in supervising Sevillejo.44 Consequently, it is responsible for the damages caused by the negligent act of its employee, and its liability is primary and solidary.

2. Damages

In marine insurance, a constructive total loss occurs under any of the conditions set forth in Section 139 of the Insurance Code, which provides—
Sec. 139. A person insured by a contract of marine insurance may abandon the thing insured, or any particular portion hereof separately valued by the policy, or otherwise separately insured, and recover for a total loss thereof, when the cause of the loss is a peril insured against:
(a) If more than three-fourths thereof in value is actually lost, or would have to be expended to recover it from the peril;
(b) If it is injured to such an extent as to reduce its value more than three-fourths; x x x.

It cannot be denied that M/V “Superferry 3” suffered widespread damage from the fire that occurred on February 8, 2000, a covered peril under the marine insurance policies obtained by WG&A from Pioneer. The estimates given by the three disinterested and qualified shipyards show that the damage to the ship would exceed P270,000,000.00, or ¾ of the total value of the policies – P360,000,000.00. These estimates constituted credible and acceptable proof of the extent of the damage sustained by the vessel.

Considering the extent of the damage, WG&A opted to abandon the ship and claimed the value of its policies. Pioneer, finding the claim compensable, paid the claim, with WG&A issuing a Loss and Subrogation Receipt evidencing receipt of the payment of the insurance proceeds from Pioneer.
The Loss and Subrogation Receipt issued by WG&A to Pioneer is the best evidence of payment of the insurance proceeds to the former, and no controverting evidence was presented by KCSI to rebut the presumed authority of the signatory to receive such payment.

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