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Delsan Transport Lines

American Homes Assurance Corporation paid Caltex for a cargo of fuel oil that was lost when Delsan Transport Lines' vessel sank. American Homes then sought reimbursement from Delsan using subrogation rights. Delsan argued the payment meant American Homes admitted the vessel was seaworthy, relieving Delsan of liability. The court ruled that while the payment waived rights against Caltex, it did not constitute an admission of seaworthiness against Delsan. The payment gave American Homes subrogation rights to pursue legal remedies against Delsan that would normally be available to Caltex. Subrogation aims to ensure the ultimate payment of a debt by the party who should be responsible

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150 views2 pages

Delsan Transport Lines

American Homes Assurance Corporation paid Caltex for a cargo of fuel oil that was lost when Delsan Transport Lines' vessel sank. American Homes then sought reimbursement from Delsan using subrogation rights. Delsan argued the payment meant American Homes admitted the vessel was seaworthy, relieving Delsan of liability. The court ruled that while the payment waived rights against Caltex, it did not constitute an admission of seaworthiness against Delsan. The payment gave American Homes subrogation rights to pursue legal remedies against Delsan that would normally be available to Caltex. Subrogation aims to ensure the ultimate payment of a debt by the party who should be responsible

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DELSAN TRANSPORT LINES, INC., petitioner, v. THE HON.

COURT OF APPEALS and AMERICAN

HOME ASSURANCE CORPORATION, respondents.

G.R. No. 127897, November 15, 2001, DE LEON, JR., J.

The right of subrogation accrues simply upon payment by the insurance company of the insurance claim.

OLD

Sec. 113. In every marine insurance upon a ship or freight, or freightage, or upon any thing which is the
subject of marine insurance, a warranty is implied that the ship is seaworthy.

Sec. 114. A ship is seaworthy when reasonably fit to perform the service and to encounter the ordinary
perils of the voyage contemplated by the parties to the policy.

Subrogation is one of the ways wherein civil obligations are modified, particularly when the rights of a
creditor is transferred to a third person

NEW/repealed

SEC. 113. If a representation by a person insured by a contract of marine insurance, is intentionally false
in any material respect, or in respect of any fact on which the character and nature of the risk depends,
the insurer may rescind the entire contract.

SEC. 114. The eventual falsity of a representation as to expectation does not, in the absence of fraud,
avoid a contract of marine insurance.

FACTS

Caltex entered into a contract of affreightment with Delsan Transport Lines whereby the latter agreed to
transport Caltex’s oils from Batangas to different parts of the country. Caltex’s shipment was insured
with American Homes Assurance Corporation. Delsan’s vessel set sail, but unfortunately it sank along
with the entire cargo of fuel oil. American Homes paid Caltex the amount representing the insured value
of the lost cargo.

Exercising its right of subrogation, American Homes demanded reimbursement from Delsan but failed,
hence it filed a collection suit against the latter. In its defense, Delsan invoked Sec. 113 of the Insurance
Code, which states that in every marine insurance upon a ship or freight, or freightage, or upon any
thing which is the subject of marine insurance there is an implied warranty by the shipper that the ship
is seaworthy. Consequently, the insurer will not be liable to the assured for any loss under the policy in
case the vessel would later on be found as not seaworthy at the inception of the insurance. Delsan
theorized that American Homes’ payment to Caltex of the value of its lost cargo is tantamount to a tacit
recognition that the vessel was seaworthy, which would mean that Delsan is not liable.

ISSUE
Whether or not the payment made by the American Homes to Caltex for the insured value of the lost
cargo amounted to an admission that the vessel was seaworthy, thus precluding any action for recovery
against Delsan.

RULING

No. The payment made by American Homes for the insured value of the lost cargo operates as waiver of
its right to enforce the term of the implied warranty against Caltex under the marine insurance policy.
However, the same cannot be validly interpreted as an automatic admission of the vessel’s
seaworthiness by American Homes as to foreclose recourse against Delsan for any liability under its
contractual obligation as a common carrier. The fact of payment grants American Homes subrogatory
right which enables it to exercise legal remedies that would otherwise be available to Caltex as owner of
the lost cargo against Delsan, the common carrier.

The right of subrogation has its roots in equity. It 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 in justice and good
conscience ought to pay. It is not dependent upon, nor does it grow out of, any privity of contract or
upon written assignment of claim. It accrues simply upon payment by the insurance company of the
insurance claim. Consequently, the payment made by American Homes (insurer) to Caltex (assured)
operates as an equitable assignment to the former of all the remedies which the latter may have against
Delsan.

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