ELP Insurance, Inc. issued Marine Policy No. 888 in favor of FCL Corp. to insure the shipment of 132 bundles of electric copper cathodes against all risks. Subsequently, the cargoes were shipped on board the vessel “M/V Menchu” from Leyte to Pier 10, North Harbor, Manila.
Upon arrival, FCL Corp. engaged the services of CGM, Inc. for the release and withdrawal of the cargoes from the pier and the subsequent delivery to its warehouses/plants in Valenzuela City. The goods were loaded on board twelve (12) trucks owned by CGM, Inc., driven by its employed drivers and accompanied by its employed truck helpers. Of the twelve (12) trucks en routeto Valenzuela City, only eleven (11) reached the destination. One (1) truck, loaded with eleven (11) bundles of copper cathodes, failed to deliver its cargo.
Because of this incident, FCL Corp. filed with ELP Insurance, Inc. a claim for insurance indemnity in the amount of P1,500,000.00. After the requisite investigation and adjustment, ELP Insurance, Inc. paid FCL Corp. the amount of P1,350,000.00 as insurance indemnity.
ELP Insurance, Inc., thereafter, filed a complaint for damages against CGM, Inc. before the Regional Trial Court (RTC), seeking reimbursement of the amount it had paid to FCL Corp. for the loss of the subject cargo. CGM, Inc. denied the claim on the basis that it is not privy to the contract entered into by and between FCL Corp. and ELP Insurance, Inc., and hence, it is not liable therefor. If you are the judge, how will you decide the case? (4%)
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I will decide the case in favor of ELP Insurance, Inc.. Under Article 2207 of the Civil Code, if the insured property is lost or damaged and the insured receives indemnity from the insurance company, the insurer is subrogated to
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Quick check
Does an insurer who pays an insurance indemnity acquire the right to sue the wrongdoer despite lack of privity of contract?
Under Article 2207, payment of insurance indemnity automatically subrogates the insurer to the insured's rights by operation of law.
What is the source of an insurer's right of subrogation against a negligent third party under Article 2207 of the Civil Code?
Legal subrogation under Article 2207 arises automatically by operation of law upon payment of indemnity.
Can a common carrier defeat an insurer's subrogation claim by raising the defense of lack of contractual privity?
Lack of privity is immaterial because legal subrogation transfers the insured's cause of action to the insurer.
What presumption applies to a common carrier when cargo loaded on its truck fails to reach its destination?
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Which primary statute governs legal subrogation, common carrier liability, and civil obligations in the Philippines?
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Learn more about these topics
1. Insurance Legal Subrogation
Under Article 2207 of the Civil Code of the Philippines (Republic Act Number 386), upon payment of an insurance indemnity to the insured for lost or damaged property, the insurer is legally subrogated to the rights of the insured against the wrongdoer or liable party. Subrogation operates by force of law without requiring a formal assignment of claim or contract between the insurer and the third-party wrongdoer. The insurer steps directly into the shoes of the insured to recover the actual monetary indemnity paid.
2. Privity of Contract
Under Philippine civil and insurance law, the defense of lack of privity of contract cannot be invoked by a wrongdoer or negligent carrier against a subrogated insurance company. Although the insurer and the third-party carrier entered into no direct agreement, legal subrogation transfers the insured's contractual rights and tort causes of action to the insurer. Consequently, the third-party carrier remains fully accountable to the subrogated insurer for breach of carriage obligations or tortious loss of cargo.
3. Common Carrier Liability
Under Article 1735 of the Civil Code of the Philippines, common carriers are presumed at fault or negligent whenever goods placed in their care are lost, destroyed, or non-delivered, unless they prove extraordinary diligence. Where a truck loaded with cargo fails to deliver the goods to the designated destination, the common carrier incurs strict contractual liability for the loss. This liability extends to the subrogated insurer who paid the owner for the lost property.