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PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY v. CA

FACTS:

On July 6, 1983, Coca-Cola Bottlers Philippines, Inc. loaded 7,500 cases of 1-liter Coca-Cola softdrink bottles on board "MV Asilda," a vessel owned and operated by Felman Shipping Lines (FELMAN). The shipment was insured by Philippine American General Insurance Co., Inc. (PHILAMGEN). On July 7, 1983, the vessel sank in the waters of Zamboanga del Norte, causing the loss of its entire cargo. The consignee filed a claim with FELMAN, which denied liability. The consignee then filed an insurance claim with PHILAMGEN, which was paid. PHILAMGEN sought subrogation rights and filed a lawsuit against FELMAN for sum of money and damages. FELMAN filed a motion to dismiss based on the affirmative defense that no right of subrogation was transmitted and it had already abandoned its rights over the vessel. The trial court dismissed PHILAMGEN's complaint, but the Court of Appeals reversed the decision and remanded the case for trial on the merits. The trial court eventually ruled in favor of FELMAN, finding that the vessel was seaworthy when it left the port of Zamboanga. The Court of Appeals, on the other hand, found the vessel unseaworthy due to the improper stowage of cargo on deck. The issues in this case are (a) whether the vessel was seaworthy, (b) whether the limited liability rule applies, and (c) whether PHILAMGEN was properly subrogated to the rights and legal actions against FELMAN.

ISSUES:

  1. Whether "MV Asilda" was seaworthy when it left the port of Zamboanga.

  2. Whether the limited liability under Art. 587 of the Code of Commerce should apply.

  3. Whether PHILAMGEN was properly subrogated to the rights and legal actions which the shipper had against FELMAN, the shipowner.

RULING:

  1. Unseaworthiness of "MV Asilda": The vessel was unseaworthy when it left the port of Zamboanga because it was top-heavy due to improper loading, rendering it unstable and ultimately leading to its sinking.

  2. Limited Liability Rule: Art. 587 of the Code of Commerce does not apply because the shipowner was equally negligent. The shipowner's fault contributed to the loss, precluding the application of the limited liability rule.

  3. Subrogation Rights: PHILAMGEN was properly subrogated to the rights of the shipper despite the assured's alleged breach of warranty of seaworthiness, due to explicit waivers in the insurance policy. The insurer's right of subrogation accrues upon payment of the insurance claim.

PRINCIPLES:

  1. Extraordinary Diligence: Under Article 1733 of the Civil Code, common carriers are bound to observe extraordinary diligence in the vigilance over the goods transported.

  2. Unseaworthiness Presumption: Carrying deck cargo raises a presumption of unseaworthiness unless shown not to interfere with the ship's management.

  3. Abandonment Limitation: The limited liability under Art. 587 of the Code of Commerce does not apply when the shipowner is at fault.

  4. Implied Warranty of Seaworthiness: The assured warrants to the assurer that the vessel is seaworthy, as per Section 113 and 114 of the Insurance Code.

  5. Subrogation: Art. 2207 of the Civil Code provides that payment by the insurer subrogates it to the rights of the insured against the wrongdoer.

  6. Equitable Assignment: Payment by the assurer operates as an equitable assignment to the assurer of all the remedies against the third party causing the loss.