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PRUDENTIAL GUARANTEE v. TRANS-ASIA SHIPPING LINES

FACTS:

The consolidated petitions in this case were filed by petitioner Prudential Guarantee and Assurance, Inc. (PRUDENTIAL) and Trans-Asia Shipping Lines, Inc. (TRANS-ASIA) against the Decision of the Court of Appeals, which reversed the Judgment of the Regional Trial Court (RTC) in Civil Case No. CEB-20709. The case arose from an insurance policy taken out by TRANS-ASIA on its vessel M/V Asia Korea. On October 25, 1993, a fire broke out while the vessel was undergoing repairs in Cebu City. TRANS-ASIA filed a notice of claim for damage sustained by the vessel. Eventually, PRUDENTIAL denied TRANS-ASIA's claim, alleging that TRANS-ASIA breached the policy conditions. TRANS-ASIA then filed a lawsuit against PRUDENTIAL seeking the amount of P8,395,072.26, which represents the balance of the indemnity due under the insurance policy. The trial court ruled in favor of PRUDENTIAL, finding that TRANS-ASIA violated the policy conditions on "WARRANTED VESSEL CLASSED AND CLASS MAINTAINED." The trial court also held that TRANS-ASIA's concealment of the inadequate maintenance of the vessel was a material concealment that justified the rescission of the policy.

Prudential Guarantee Assurance Inc. filed a complaint against Trans-Asia Shipping Lines Inc. seeking payment for a marine loss under an insurance policy. Prudential alleged that Trans-Asia breached a warranty condition of the policy. Prudential also claimed that Trans-Asia owed them the amount of P3,000,000.00, which was advanced as payment for the claim.

The Regional Trial Court (RTC) dismissed Prudential's complaint for failure to prove a cause of action. However, the RTC granted Trans-Asia's counterclaim and directed Prudential to return the amount of P3,000,000.00 within ten days.

On appeal, the Court of Appeals reversed the RTC's judgment. The Court of Appeals ruled that Prudential failed to prove that Trans-Asia breached the warranty condition. The lack of certification did not necessarily mean a breach of warranty. The Court of Appeals also viewed the transaction between Prudential and Trans-Asia as one of subrogation and not a loan. Thus, Trans-Asia had no obligation to pay back the amount of P3,000,000.00. The Court of Appeals ordered Prudential to pay Trans-Asia the balance of the loss suffered, plus double interest.

Prudential and Trans-Asia filed motions for reconsideration, which were denied by the Court of Appeals.

Prudential appealed to the Supreme Court, presenting several grounds for review.

The case involves a dispute between Prudential Guarantee and Assurance, Inc. ("Prudential") and Trans-Asia Shipping Lines, Inc. ("Trans-Asia") regarding an insurance claim for the loss of the vessel "M/V Asia Korea" due to fire. Prudential denied the claim, alleging that Trans-Asia violated a warranty condition in the insurance contract that required the vessel to be "Classed and Class Maintained." Prudential argued that at the time of the fire, the vessel was not in compliance with this warranty condition. The trial court ruled in favor of Trans-Asia, finding that Prudential failed to prove the violation of the warranty condition. However, the Court of Appeals reversed the trial court's decision and ordered Prudential to pay Trans-Asia the claimed amount plus double interest. On appeal, the Supreme Court emphasized that it can only resolve questions of law and not questions of fact, unless the findings of fact of the Court of Appeals are contrary to the trial court's findings or unsupported by evidence. The Court found an inconsistency between the findings of the Court of Appeals and the trial court and proceeded to assess the evidence presented. The primary issue is whether Trans-Asia violated the warranty condition on "Classed and Class Maintained." Prudential's Senior Manager of the Marine and Aviation Division testified that there was a breach of the warranty, but the Court scrutinized this cl

ISSUES:

  1. Liability of Prudential to Trans-Asia under the Insurance Contract

    • Did Trans-Asia violate Warranty Clause No. 5 in the insurance policy?

    • Is there a valid waiver of the alleged breach by Prudential?

  2. Nature of the “Loan and Trust Receipt”

    • Did the P3,000,000.00 given by Prudential to Trans-Asia constitute a loan or a partial payment on the insurance policy?

  3. Amount of Interest Imposed

    • What should be the amount of interest imposed on the liability of Prudential to Trans-Asia?

RULING:

  1. Liability of Prudential to Trans-Asia under the Insurance Contract

    • The Court ruled that Prudential failed to establish that Trans-Asia violated and breached the policy condition on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED. Consequently, Trans-Asia must be allowed to recover its claims on the policy.

    • The Court held that Prudential made a valid waiver of the alleged breach by renewing the insurance policy for two consecutive years after the loss.

  2. Nature of the “Loan and Trust Receipt”

    • The Court ruled that the P3,000,000.00 given by Prudential to Trans-Asia, as evidenced by the “Loan and Trust Receipt,” constituted partial payment under the policy, not a loan.

  3. Amount of Interest Imposed

    • The Court interpreted the term "double interest" used in the Decision of the Court of Appeals to mean 24% per annum. This interest rate will be applied from 13 September 1996 until the claim is fully satisfied.

    • Additionally, an interest of 12% per annum is imposed on the total amount of liability adjudged, computed from the time of finality of judgment until fully satisfied.

PRINCIPLES:

  1. Burden of Proof

    • The party that alleges a breach has the burden of proving it.

  2. Prima Facie Case in Civil Trials

    • Once a plaintiff establishes a prima facie case, the burden of evidence shifts to the defendant to controvert it.

  3. Waiver of Breach

    • Renewals of an insurance policy after a loss can be deemed as a waiver of any breach of warranty by the insured.

  4. Interpretation of "Loan and Trust Receipt"

    • The real nature of transactions, regardless of their designation, determines their character. In this case, the nature of the "Loan and Trust Receipt" was considered an advance payment on the insurance claim rather than a loan.

  5. Sections 243 and 244 of the Insurance Code

    • Unreasonable delay in paying insurance claims warrants the imposition of double interest—interpreted as 24% per annum—from the date when the insurer is in delay.

  6. Interest on Final Judgments

  • An interest rate of 12% per annum applies from the time of finality of judgment until the full satisfaction thereof, as per the ruling in Eastern Shipping Lines, Inc. v. Court of Appeals.

SO ORDERED.