COMMERCIAL LAW REVIEW
TOPIC Loss
CASE TITLE Prudential Guarantee ad Assurance Inc. v Trans-Asia Shipping Lines, Inc.
GR. NO. GR 151890 DATE Jun 20, 2006
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.
RULING 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 boardThe 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.
