Cebu Shipyard Engineering Works, Inc. V William Lines, Inc.

And Prudential Guarantee And Assurance Company, Inc.

PURISIMA; May 5, 1999

NATURE
Petition for review on certiorari

FACTS:
- William Lines insured its M/v Manila City under Prudential
Guarantee for hull and machinery.
- Policy contained clause providing that loss/damage
caused by negligence of charterers or repairers are
excluded from coverage.
- William Lines brought the vessel to Cebu Shipyard for
annual dry-docking and repair.
- The two executed contracts stipulating the liabilities of
both parties, including that the insurance on the vessel
should be maintained by the owner during period of the
contract.

- Cebu Shipyard and Engineering Works, Inc. (CSEW) is
engaged in the business of dry-docking and repairing of
marine vessels while the Prudential Guarantee and Assurance,
Inc. (Prudential) is in the non-life insurance business.
- William Lines, Inc. is in the shipping business. It was the
owner of M/V Manila City, a luxury passenger-cargo vessel,
which caught fire and sank.
- At the time of the unfortunate occurrence sued upon, subject
vessel was insured with Prudential for P45M for hull and
machinery. The Hull Policy included an Additional Perils
(INCHMAREE) Clause covering loss of or damage to the
vessel through the negligence of, among others, ship
repairmen
- Petitioner CSEW was also insured by Prudential for third
party liability under a Shiprepairers Legal Liability Insurance
Policy. The policy was for P10 million only, under the limited
liability clause
- On Feb. 5, 1991, William Lines, Inc. brought its vessel, M/V
Manila City, to the Cebu Shipyard in Lapulapu City for annual
dry-docking and repair.
- On Feb. 6, 1991, an arrival conference was held between
representatives of William Lines, Inc. and CSEW to discuss the
work to be undertaken on the M/V Manila City. The contracts,
denominated as Work Orders, were signed thereafter., with the
following stipulations:
(a) The total liability of the Contractor to the Customer (over
and above the liability to replace under Clause 10) or of any
sub-contractor shall be limited in respect of any defect or event
(and a series of accidents arising out of the same defect or
event shall constitute one defect or event) to the sum of Pesos
Philippine Currency One Million only.
x x x
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.
- After subject vessel was transferred to the docking quay, it
caught fire and sank, resulting to its eventual total loss.
- Loss of P45M paid by Prudential to William Lines,
subrogating it into the rights of the latter
- CSEW claims that the insurance policy does not cover loss
resulting from the fault of negligent charterers that are assured
in the same policy. By virtue of clause 20, it is deemed a co-
assured.

ISSUES:
WON CSEW is co-assured, thus losses caused by it not
covered by the policy

HELD: No
- The fact that clause 20 benefited petitioner, does not
automatically make it a co-assured of William Lines.
- Intention of parties to make each other co-assured is to be
gleaned from the insurance policy itself and not from any other
contract because the policy denominates the assured and the
beneficiaries.
- Prudential named only William Lines, Inc. as the assured.
There was no manifestation of any intention of William Lines
Inc to make CSEW a co-assured. When the terms of a contract
are clear, its stipulations control.
- If CSEW were deemed co-assured, it would nullify any claim
of William Lines Inc. No shipowner would agree to make
shiprepairer a co-assured because any claim it has under the
policy would be invalidated. Such result could not have been
intended by William Lines Inc.


New Life Enterprises v. CA (1992)
FACTS
- New life acquired insurance for their stock in trade (construction materials) from three
companies.
- A fire, electrical in nature, destroyed the building and stocks in trade.
- New Life claimed insurance proceeds, but all three denied for breach of policy
condition, which required insured to give notice if any other insurance policies are
effected or will be effected on the covered properties.
- New Life contends that they are not to be blamed for the omissions, alleging that
insurance agent Leon Alvarez (for Western) and Yap Kam Chuan (for Reliance and
Equitable) knew about the existence of the additional insurance coverage and that
they were not informed about the requirement that such other or additional insurance
should be stated in the policy, as they have not even read said policies.

ISSUE
WON New Life Enterprises claim for payment be denied

HELD
YES
Ratio
- Furthermore, when the words and language of documents are clear and plain or
readily understandable by an ordinary reader thereof, there is absolutely no room for
interpretation or construction anymore.
- Courts are not allowed to make contracts for the parties; rather, they will intervene
only when the terms of the policy are ambiguous, equivocal, or uncertain.
- The parties must abide by the terms of the contract because such terms constitute
the measure of the insurer's liability and compliance therewith is a condition precedent
to the insured's right of recovery from the insurer.
- While it is a cardinal principle of insurance law that a policy or contract of insurance is
to be construed liberally in favor of the insured and strictly against the insurer
company, yet contracts of insurance, like other contracts, are to be construed
according to the sense and meaning of the terms which the parties themselves have
used.
- If such terms are clear and unambiguous, they must be taken and understood in their
plain, ordinary and popular sense. Moreover, obligations arising from contracts have
the force of law between the contracting parties and should be complied with in good
faith.
Reasoning
a. The terms of the contract are clear and unambiguous. The insured is specifically
required to disclose to the insurer any other insurance and its particulars which he may
have effected on the same subject matter. The knowledge of such insurance by the
insurer's agents, even assuming the acquisition thereof by the former, is not the
"notice" that would stop the insurers from denying the claim. Besides, the so-called
theory of imputed knowledge, that is, knowledge of the agent is knowledge of the
principal, aside from being of dubious applicability here has likewise been roundly
refuted by respondent court whose factual findings we find acceptable.
b. Petitioners should be aware of the fact that a party is not relieved of the duty to
exercise the ordinary care and prudence that would be exacted in relation to other
contracts. The conformity of the insured to the terms of the policy is implied from his
failure to express any disagreement with what is provided for.

First Quezon City Insurance v. CA
Facts:
- Jose was waiting at the bus stop. A bus slowed down with all doors open; a few men
managed to board the bus, Jose being the last one.
- He was still on the bus with his hand on the bus door, the slowly moving bus sped
forward at a high speed, as a result of which, the plaintiff lost balance and fell from the
bus. As plaintiff clung instinctively to the handle bar, he was dragged by the bus along
the asphalted road. The bus driver, Gil Agpalo, abruptly stopped the bus. Then fled
from the scene, leaving the bus and the injured plaintiff behind.
- Jose was brought to the hospital, , underwent surgeries, and was confined for more
than a month
- He filed complaint against bus company, which then filed third party complaint
against First QC Insurance Co.
- Insurance policy had a limit of P12k per passenger or P50k pesos per accident
- The Insurance company was adjudged to indemnify Jose the sum of P50k despite
the P12k limit

ISSUE
WON the CA erred in the interpretation of the insurance contract on the limit of the
insurers liability

HELD
YES
- The insurance policy clearly placed the maximum limit of the petitioner's liability for
damages arising from death or bodily injury at P12,000.00 per passenger and its
maximum liability per accident at (P50,000.00. Since only one passenger was injured
in the accident, the insurer's liability for the damages suffered by said passenger is
pegged to the amount of P12,000.00 only.
- The limit of P50,000.00 per accident means that the insurer's maximum liability for
any single accident will not exceed P50,000.00 regardless of the number of
passengers killed or injured therein.
- The bus company may not recover from the insurance company more than
P12,000.00 per passenger killed or injured, or (P50,000.00) per accident even if under
the judgment of the court, the erring bus operator will have to pay more than
P12,000.00 to each injured passenger. The trial court's interpretation of the insurance
contract was the correct interpretation.
Disposition petition for review is GRANTED. The decision promulgated by the CA,
ordering the third party defendent, First Quezon City Insurance Co., Inc. to indemnify
theI private respondent, (DMTC), the sum of P50,000.00 for the damages of the
passenger, Jose V. Del Rosario, is hereby modified by reducing the award to
12,000.00 only. Costs against the private respondent De Dios Marikina Transportation
Co., Inc.


Ty v. First National (1961)

- At different times within a period of two months prior to 24 December 1953, Diosdado
C. Ty, employed as operator mechanic foreman in the Broadway Cotton Factory
insured himself in 18 local insurance companies, among which being the 8 above-
named defendants, which issued to him personal accident policies. Plaintiffs
beneficiary was his employer, Broadway Cotton Factory, which paid the insurance
premiums. On 24 December 1953, a fire broke out which totally destroyed the
Broadway Cotton Factory. Fighting his way out of the factory, plaintiff was injured on
the left hand by a heavy object. He was brought to the Manila Central University
hospital, and after receiving first-aid, he went to the National Orthopedic Hospital for
treatment of his injuries (fractures in index, middle, fourth, and fifth fingers of left
hand). From 26 December 1953 to 8 February 1954, he underwent medical treatment
in the hospital. The above-described physical injuries have caused temporary total
disability of plaintiffs left hand. Plaintiff filed the corresponding notice of accident and
notice of claim with all of the above-named defendants to recover indemnity.
Defendants rejected plaintiffs claim for indemnity for the reason that there being no
severance of amputation of the left hand, the disability suffered by him was not
covered by his policy.
- Plaintiff sued the defendants in the Municipality Court of this City, which dismissed
his complaints. Thereafter, the plaintiff appealed to the Court of First Instance Manila,
presided by Judge Gregorio S. Narvasa, which absolved the defendants from the
complaints. Hence, the appeal.

ISSUE
WON Diosdado Ty is entitled to indemnity under the insurance policy for the disability
of his left hand

HELD
- The agreement contained in the insurance policies is the law between the parties. As
the terms of the policies are clear, express and specific that only amputation of the left
hand should be considered as a loss thereof, an interpretation that would include the
mere fracture or other temporary disability not covered by the policies would certainly
be unwarranted. In the case at bar, due to the clarity of the stipulation, distinction
between temporary disability and total disability need not be made in relation to
ones occupation means that the condition of the insurance is such that common
prudence requires him to desist from transacting his business or renders him
incapable of working. While the Court sympathizes with the plaintiff or his employer, for
whose benefit the policies were issued, it can not go beyond the clear and express
conditions of the insurance policies, all of which define partial disability as loss of
either hand by a amputation through the bones of the wrist. There was no such
amputation in the case at bar.
- The Supreme Court affirmed the appealed decision, with costs against the plaintiff-
appellant.