Equitable Insurance Corporation vs. Transmodal International, Inc.

An insurer's right of subrogation accrues upon payment of the insurance claim, and presentation of the marine insurance policy is not indispensable before the insurer may recover from the common carrier the insured value of the lost or damaged cargo, provided the marine open policy was offered in evidence, the subrogation receipt establishes the insurer-insured relationship and the amount paid, and the loss occurred while the cargo was in the carrier's custody.

Sytengco Enterprises Corporation engaged respondent Transmodal International, Inc. as a common carrier to clear, withdraw, transport, and deliver imported cargo from the Bureau of Customs to Sytengco's warehouse. Petitioner Equitable Insurance Corporation insured the cargo under a Marine Open Policy. When the cargo arrived damaged, Sytengco filed an insurance claim, which petitioner paid, thereafter stepping into Sytengco's shoes as subrogee to seek reimbursement from the carrier.

Sytengco Enterprises Corporation hired respondent Transmodal International, Inc. to clear from the customs authorities and withdraw, transport, and deliver to its warehouse 200 cartons of gum Arabic with a total weight of 5,000 kilograms valued at US$21,750.00. The cargoes arrived in Manila on August 14, 2004 and were brought to Ocean Links Container Terminal Center, Inc. pending release by the Bureau of Customs. On September 2, 2004, Transmodal withdrew the cargoes and delivered them to Sytengco's warehouse, with the delivery receipt noting that all containers were wet.

A preliminary survey conducted by Elite Adjusters and Surveyors, Inc. found that 187 cartons had water marks and the contents of 13 wet cartons were partly hardened. A re-inspection on October 13, 2004 revealed that the contents of 20 randomly opened cartons were about 40% to 60% hardened, while 8 cartons had marks of previous wetting. Elite Surveyors' final report dated October 27, 2004 fixed the computed loss payable at ₱728,712.00 after adjustment of 50% loss allowance.

On November 2, 2004, Sytengco demanded from Transmodal payment of ₱1,457,424.00 as compensation for total loss of shipment. On that same date, petitioner Equitable Insurance Corporation, as insurer of the cargoes per Marine Open Policy No. MN-MRN-HO-000549, paid Sytengco's claim for ₱728,712.00. Sytengco had earlier signed a subrogation receipt and loss receipt in favor of petitioner on October 4, 2004. Petitioner thereafter demanded reimbursement from Transmodal, which refused.

Petitioner filed a complaint for damages invoking its right as subrogee, averring that Transmodal's fault and gross negligence caused the damage to Sytengco's shipment. Transmodal denied knowledge of any insurance policy and claimed that the cargoes arrived at Sytengco's warehouse around 11:30 in the morning of September 1, 2004, but Sytengco did not immediately receive them, causing the cargoes to get wet due to rain that evening. Transmodal also questioned the timeliness of Sytengco's formal claim, alleging it was made more than 14 days from the time the cargoes were placed at its disposal, in contravention of stipulations in the delivery receipts. The RTC found in favor of petitioner, crediting its proof of subrogation and noting that the insurance contract had in fact been submitted. The CA reversed, ruling that no proof of insurance existed at the time of loss and that only a marine risk note—not the insurance policy—was presented.

• Inapplicability of Malayan Insurance: Petitioner argued that the CA erred in applying Malayan Insurance Co., Inc. vs. Regis Brokerage Corp., because in that case the plaintiff did not present the marine insurance policy, whereas in the present case petitioner presented not only the marine risk note but also Marine Open Policy No. MN-MOP-HO-0000099, which were all admitted in evidence.
• Nature of the Suit: Petitioner contended that the present case is not a suit between the insured and the insurer but one between the consignee Sytengco and the common carrier Transmodal, with petitioner merely stepping into the shoes of the insured who has a direct cause of action against the carrier; thus, the carrier cannot set up as defense any defect in the insurance policy because it cannot avoid its liability to the consignee under the contract of carriage.
• Applicable Jurisprudence: Petitioner maintained that the CA erred in not applying Tison vs. Court of Appeals, Compaña Maritima vs. Insurance Company of North America, and Delsan Transport Lines, Inc. vs. Court of Appeals.
• Statutory Presumption of Negligence: Petitioner argued that the CA erred in not applying the statutory presumption of fault and negligence against the common carrier.

• No Cause of Action: Respondent countered that petitioner has no cause of action against it because the damages to the cargoes were not due to its fault or gross negligence.
• Insured's Delay in Receiving Cargo: Respondent claimed that the cargoes arrived at Sytengco's warehouse around 11:30 in the morning of September 1, 2004, but Sytengco did not immediately receive them, and the cargoes got wet due to rain that occurred on the night of September 1, 2004.
• Untimely Claim: Respondent questioned the timeliness of Sytengco's formal claim for payment, alleging it was made more than 14 days from the time the cargoes were placed at its disposal, in contravention of stipulations in the delivery receipts.
• No Error by CA: Respondent averred that the CA did not err in declining to apply the jurisprudence cited by petitioner.

• Subrogation Right: Whether the CA erred in ruling that petitioner's right of subrogation was improper due to the alleged non-presentation of the insurance policy.
• Presentation of Insurance Policy: Whether the marine open policy was in fact offered and admitted in evidence before the RTC.
• Indispensability of the Insurance Policy: Whether presentation of the marine insurance policy is indispensable before an insurer may recover from a common carrier in the exercise of its subrogatory right.
• Applicability of Jurisprudence: Whether the cases of Malayan Insurance, Tison, Compaña Maritima, and Delsan are applicable to the present case.
• Statutory Presumption of Negligence: Whether the statutory presumption of fault and negligence against common carriers applies.

• Subrogation Right: Yes. The CA erred in ruling that subrogation was improper, because the marine open policy was in fact offered in evidence and admitted, and the right of subrogation accrues upon payment of the insurance claim.
• Presentation of Insurance Policy: Yes. The records show that Marine Open Policy No. MN-MOP-HO-0000099 was offered in evidence and admitted, and respondent had the opportunity to examine the documents and cross-examine petitioner's witness regarding them.
• Indispensability of the Insurance Policy: No. Presentation of the marine insurance policy is not indispensable where the subrogation receipt establishes the insurer-insured relationship and the amount paid, and the loss undoubtedly occurred while the cargo was in the carrier's custody.
• Applicability of Jurisprudence: Malayan Insurance was distinguished; Delsan and related cases were applied as exceptions to the general rule requiring presentation of the insurance policy.
• Statutory Presumption of Negligence: Yes. The statutory presumption of fault and negligence against common carriers applies, as the cargo was damaged while in the carrier's custody.

• Subrogation Right: The CA ruled that subrogation was improper because it found no proof of insurance at the time of loss, noting that only a marine risk note was presented and not the insurance contract. However, a perusal of the records showed that petitioner was correct in claiming that the marine insurance policy was offered as evidence. The CA's own decision acknowledged that Marine Open Policy No. MN-MOP-HO-0000099 was offered in evidence, even though it deemed it immaterial because it could not be linked to Policy No. MN-MRN-HO-005479. The Court found that respondent had the opportunity to examine the documents and cross-examine petitioner's witness, and that petitioner's right to step into the shoes of the insured was well established. Subrogation, defined as the substitution of one person in the place of another with reference to a lawful claim or right, springs from Article 2207 of the Civil Code, which provides that the insurance company is subrogated to the rights of the insured against the wrongdoer upon payment of indemnity.

• Presentation of Insurance Policy: The records confirmed that petitioner presented not only the marine risk note but also Marine Open Policy No. MN-MOP-HO-0000099, which were all admitted in evidence. The CA itself mentioned this policy in its decision. Respondent was able to cross-examine petitioner's witness regarding the documents. The RTC likewise found that petitioner submitted a copy of the insurance contract and that the issue of non-compliance with Section 7, Rule 8 of the Rules of Court was raised for the first time in respondent's memorandum, not during pre-trial. The determination of issues during pre-trial bars the consideration of other questions on appeal.

• Indispensability of the Insurance Policy: As a general rule, the marine insurance policy must be presented in evidence before the insurer may recover in the exercise of its subrogatory right, because it is the legal basis of the right to subrogation. However, the rule is not inflexible. In Delsan Transport Lines, Inc. vs. CA, the Court held that the right of subrogation accrues simply upon payment of the insurance claim, and the subrogation receipt by itself was held sufficient to establish the insurer-insured relationship and the amount paid. Presentation of the insurance contract was deemed not fatal where the loss undoubtedly occurred while the cargo was on board the carrier's vessel. The same rationale applied in International Container Terminal Services, Inc. vs. FGU Insurance Corporation, where the arrastre operator was held liable despite the insurer's failure to offer the insurance policy, because it was certain the loss occurred while the cargo was in the petitioner's custody. In the present case, petitioner was able to present the marine open policy, and the payment of the insurance claim was evidenced by the Subrogation Receipt, Loss Receipt, Check Voucher, and Equitable PCI Bank Check No. 0000013925. The payment by the insurer operates as an equitable assignment of all remedies the insured may have against the third party whose negligence caused the loss.

• Applicability of Jurisprudence: Malayan Insurance Co., Inc. vs. Regis Brokerage Corp. was distinguished because in that case the plaintiff did not present the insurance contract or policy at all, whereas here petitioner submitted the insurance contract. Delsan and International Container Terminal Services were applied as exceptions to the general rule, supporting the conclusion that presentation of the insurance policy is dispensable where the loss occurred while the cargo was in the carrier's custody. Asian Terminals, Inc. vs. First Lepanto-Taisho Insurance Corporation was cited as instructive on both the general rule and its exceptions.

• Statutory Presumption of Negligence: The cargo was damaged while in Transmodal's custody as common carrier. Under the statutory presumption of fault and negligence, a common carrier is presumed to have been at fault or negligent when the goods it transports are lost or damaged, unless it proves that it exercised extraordinary diligence. Respondent did not present any evidence or witness to bolster its defense or contradict petitioner's allegations.

• Right of Subrogation — 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 rights of the other in relation to a debt or claim, including its remedies or securities. It springs from Article 2207 of the Civil Code. The right accrues simply upon payment by the insurance company of the insurance claim; it is not dependent upon, nor does it grow out of, any privity of contract. The payment by the insurer to the insured operates as an equitable assignment to the insurer of all remedies the insured may have against the third party whose negligence or wrongful act caused the loss.

• Presentation of Marine Insurance Policy in Subrogation Claims — As a general rule, the marine insurance policy must be presented in evidence before the insurer may recover the insured value of the lost or damaged cargo in the exercise of its subrogatory right, because it is the legal basis of the right to subrogation. However, the rule is not inflexible. Exceptions exist where: (a) the right of subrogation accrues simply upon payment of the insurance claim and the subrogation receipt by itself suffices to establish the insurer-insured relationship and the amount paid; and (b) the loss of the cargo undoubtedly occurred while in the carrier's custody, making presentation of the insurance contract not fatal to the insurer's cause of action.

• Pre-Trial Delimitation of Issues — The determination of issues during the pre-trial conference bars the consideration of other questions, whether during trial or on appeal. Parties are bound by the delimitation of issues during pre-trial because they themselves agreed to the same. A party cannot raise for the first time on appeal or in a memorandum a ground not raised during pre-trial.

• Exceptions to Conclusiveness of CA Findings of Fact — The findings of fact of the CA are generally conclusive and binding in a Rule 45 petition, but exceptions exist, including when the findings of the CA are contrary to those of the trial court. Where the RTC and CA findings are glaringly in contrast, the Supreme Court may review the case.

• "The right of subrogation is not dependent upon, nor does it grow out of any privity of contract or upon payment by the insurance company of the insurance claim. It accrues simply upon payment by the insurance company of the insurance claim." — This passage articulates the foundational principle that subrogation arises upon payment, independent of privity of contract, establishing the insurer's standing to sue the wrongdoer.

• "Nevertheless, the rule is not inflexible. In certain instances, the Court has admitted exceptions by declaring that a marine insurance policy is dispensable evidence in reimbursement claims instituted by the insurer." — This formulation, drawn from Asian Terminals, Inc. vs. First Lepanto-Taisho Insurance Corporation, defines the exception to the general rule requiring presentation of the insurance policy and is frequently cited in subsequent subrogation jurisprudence.

• "Subrogation is designed to promote and to accomplish justice and is the mode which equity adopts to compel the ultimate payment of a debt by one who injustice, equity and good conscience ought to pay." — This passage states the equitable rationale underlying the doctrine of subrogation, explaining why the insurer steps into the shoes of the insured against the party responsible for the loss.

• Malayan Insurance Co., Inc. vs. Regis Brokerage Corp., 563 Phil. 1003 (2007) — Held that a marine policy is constitutive of the insurer-insured relationship and should be attached to the complaint under Section 7, Rule 8 of the Rules of Court. Distinguished in the present case because there the plaintiff did not present the insurance policy at all, whereas here the marine open policy was offered in evidence.

• Delsan Transport Lines, Inc. vs. Court of Appeals, 273 SCRA 262 — Held that the right of subrogation accrues simply upon payment of the insurance claim and that presentation of the marine insurance policy is not indispensable; the subrogation receipt alone suffices. Applied as controlling exception in the present case.

• Asian Terminals, Inc. vs. First Lepanto-Taisho Insurance Corporation, 736 Phil. 373 (2014) — Discussed both the general rule requiring presentation of the marine insurance policy and the exceptions where it is dispensable. Cited as highly instructive on the interplay between the rule and its exceptions.

• Eastern Shipping Lines, Inc. vs. Prudential Guarantee and Assurance, Inc., 615 Phil. 627 (2009) — Held that a marine risk note is not an insurance policy. Cited by the CA but found by the Supreme Court to be insufficient basis for dismissing the complaint, given that the marine open policy was also presented.

• International Container Terminal Services, Inc. vs. FGU Insurance Corporation — Held the arrastre operator liable for lost shipment despite the insurer's failure to offer the insurance policy, because it was certain the loss occurred while the cargo was in the petitioner's custody. Applied as supporting the exception.

• Aboitiz Shipping Corporation vs. Insurance Company of North America, 583 Phil. 257 (2008) — Cited for the principle that payment by the insurer operates as an equitable assignment of all remedies the insured may have against the third party whose negligence caused the loss.

• Article 2207, Civil Code — Provides that if the plaintiff's property has been insured and indemnity has been received from the insurance company for the injury or loss arising out of a wrong or breach of contract, the insurance company is subrogated to the rights of the insured against the wrongdoer. Applied as the statutory basis for petitioner's right of subrogation upon payment of Sytengco's insurance claim.

• Section 7, Rule 8, Rules of Court — Requires that whenever an action or defense is based on a written instrument, the substance thereof shall be set forth in the pleading and the original or a copy attached as an exhibit. The CA invoked this provision to require attachment of the insurance policy; the Supreme Court found the issue was raised for the first time in respondent's memorandum and not during pre-trial, and that the policy was in fact submitted.

Carpio (Chairperson), Mendoza, Leonen, and Martires, JJ., concurred.