Prudential Guarantee and Assurance, Inc. vs. Trans-Asia Shipping Lines Inc. (Insurance Law)

 

Prudential Guarantee and Assurance, Inc. vs.

Trans-Asia Shipping Lines Inc.

(Insurance Law)

491 SCRA 411 (G.R. No. 151890 and 151991)

June 20, 2006

 

Petitioners:	Prudential Guarantee and Assurance, Inc. (G.R. No. 151890) / Trans-Asia Shipping Lines, Inc. (G.R. No. 151991)
Respondents:	Prudential Guarantee and Assurance, Inc. (G.R. No. 151991) / Trans-Asia Shipping Lines, Inc. (G.R. No. 151890)

 

J. Chico-Nazario:

 

FACTS:

 

Trans-Asia is the owner of the vessel M/V Asia Korea. In consideration of payment of premiums, PRUDENTIAL Guarantee, insured M/V Asia Korea for loss/damage of the hull and machinery arising from perils inter alia of fire and explosion for the sum of ₱ 40 million, beginning from the period of July 1, 1993 up to July 1, 1994.

 

On October 25, 1993, while the policy was in force, a fire broke out while [M/V Asia-Korea was] undergoing repairs at the port of Cebu. On October 26, 1993 Trans-Asia filed its notice of claim for damaged sustained by the vessel evidenced by a letter/formal claim. TRANS-ASIA reserved its right to subsequently notify PRUDENTIAL to the full amount of the claim upon final survey and determination by Adjuster Richard Hogg (Phil.) of the damaged sustained by reason of fire.

 

TRANS-ASIA executed a document denominated “Loan and Trust Receipt”, a portion of which states that “Received from Prudential Guarantee and Assurance, Inc., the sum of ₱ 3,000,000.00, as a loan without internet under Policy No. MH 93/1353, repayable only in the event and to the extent that any net recovery is made by TRANS-ASIA Shipping Corporation, from any person or persons, corporation or corporation, or other parties, on account of loss by any casualty for which they may be liable occasioned by the 25 October 1993 Fire on Board:

 

PRUDENTIAL later on denied Trans-Asia’s claim in stated in a letter that “After a careful review and evaluation of your claim arising from the above-captioned incident, it has been ascertained that you are in a breach of policy conditions among them “WARRANTED VESSEL CLASSED AND CLASS MAINTAINED.” Accordingly, we regret to advise that your claim is not compensable and hereby DENIED” and asked for the return of the ₱ 3,000,000.00.

 

TRANS-ASIA filed a complaint for sum of money against PRUDENTIAL with the RTC of Cebu worth ₱ 8,395,072.26 balance of the indemnity due the insurance and similarly sought interest.

 

PRUDENTIAL denial the material allegation of the complaint and interposed the defense that TRANS-ASIA breached insurance policy conditions, CLASS AND CLASSED MAINTAINED.

 

Trial Court ruled in favor of Prudential. According to the court, TRANS-ASIA failed to prove compliance of the terms of the warranty the violation thereof entitled PRUDENTIAL to rescind the contract.

 

The Court of Appeals reversed the decision. It ruled PRUDENTIAL, as the party asserting the non-compensability of loss had the burden to prove that TRANS-ASIA breached warranty. It opined that the lack of a certification does not necessarily mean that the warranty was breached by TRANS-ASIA.

 

ISSUE:

 

Whether or not TRANS-ASIA breached the warranty stated in the insurance policy, thus absolving PRUDENTIAL from paying TRANS-ASIA.

 

HELD:

 

No. As found by the Court of Appeals and as supported by the records, Bureau Veritas is a classification society recognized in the marine industry. As it is undisputed that TRANS-ASIA was properly classed at the time the contract of insurance was entered into, thus, it becomes incumbent upon PRUDENTIAL to show evidence that the status of TRANS-ASIA as being properly CLASSED by Bureau Veritas had shifted in violation of the warranty. Unfortunately, PRUDENTIAL failed to support the allegation.

 

It is generally accepted that a warranty is a statement or promise set forth in the policy, or by reference incorporated therein, the untruth or non-fulfillment of which in any respect, and without reference to whether the insurer was in fact prejudiced by such untruth or non-fulfillment, renders the policy voidable by the insurer; For the breach of warranty to avoid a policy, the same must be duly shown by the party alleging the same.—We are not unmindful of the clear language of Sec. 74 of the Insurance Code which provides that, “the violation of a material warranty, or other material provision of a policy on the part of either party thereto, entitles the other to rescind.” It is generally accepted that “[a] warranty is a statement or promise set forth in the policy, or by reference incorporated therein, the untruth or non-fulfillment of which in any respect, and without reference to whether the insurer was in fact prejudiced by such untruth or non-fulfillment, renders the policy voidable by the insurer.” However, it is similarly indubitable that for the breach of a warranty to avoid a policy, the same must be duly shown by the party alleging the same. We cannot sustain an allegation that is unfounded. Consequently, PRUDENTIAL, not having shown that TRANS-ASIA breached the warranty condition, CLASSED AND CLASS MAINTAINED, it remains that TRANSASIA must be allowed to recover its rightful claims on the policy.

 

It was likewise the responsibility of the average adjuster, Richards Hogg International (Phils.), Inc., to secure a copy of such certification, and the alleged breach of TRANS-ASIA cannot be gleaned from the average adjuster’s survey report, or adjustment of particular average per “M/V Asia Korea” of the 25 October 1993 fire on board

 

The Supreme Court is not unmindful of the clear language of Sec. 74 of the Insurance Code which provides that, “the violation of a material warranty, or other material provision of a policy on the part of either party thereto, entitles the other to rescind.” It is generally accepted that “[a] warranty is a statement or promise set forth in the policy, or by reference incorporated therein, the untruth or non-fulfillment of which in any respect, and without reference to whether the insurer was in fact prejudiced by such untruth or non-fulfillment, renders the policy voidable by the insurer.” However, it is similarly indubitable that for the breach of a warranty to avoid a policy, the same must be duly shown by the party alleging the same. We cannot sustain an allegation that is unfounded. Consequently, PRUDENTIAL, not having shown that TRANS-ASIA breached the warranty condition, CLASSED AND CLASS MAINTAINED, it remains that TRANSASIA must be allowed to recover its rightful claims on the policy.

 

Assuming arguendo that TRANS-ASIA violated the policy condition on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED, PRUDENTIAL made a valid waiver of the same.

PRUDENTIAL can be deemed to have made a valid waiver of TRANS-ASIA’s breach of warranty as alleged, ratiocinating, thus: Third, after the loss, Prudential renewed the insurance policy of Trans-Asia for two (2) consecutive years, from noon of 01 July 1994 to noon of 01 July 1995, and then again until noon of 01 July 1996. This renewal is deemed a waiver of any breach of warranty.

 

PRUDENTIAL, in renewing TRANS-ASIA’s insurance policy for two consecutive years after the loss covered by Policy No. MH93/1363, was considered to have waived TRANS-ASIA’s breach of the subject warranty, if any. Breach of a warranty or of a condition renders the contract defeasible at the option of the insurer; but if he so elects, he may waive his privilege and power to rescind by the mere expression of an intention so to do. In that event his liability under the policy continues as before. There can be no clearer intention of the waiver of the alleged breach than the renewal of the policy insurance granted by PRUDENTIAL to TRANS-ASIA in MH94/1595 and MH95/1788, issued in the years 1994 and 1995, respectively.