FACTS: Loadstar International Shipping, Inc. (Loadstar Shipping) and Philippine Associated Smelting and Refining Corporation (PASAR) entered into a Contract of Affreightment for domestic bulk transport of the latter’s copper concentrates for a period of one year from November 1, 1998 to October 31, 1999. The contract was extended up to the end of October 2000.

On September 10, 2000, 5,065.47 wet metric tons (WMT) of copper concentrates were loaded in Cargo Hold. Nos. 1 and 2 of MV “Bobcat”, a marine vessel owned by Loadstar International Shipping Co., Inc. (Loadstar International) and operated by Loadstar Shipping under a charter party agreement. The shipper and consignee under the Bill of Lading are Philex Mining Corporation (Philex) and PASAR, respectively. The cargo was insured with Malayan Insurance Company, Inc. (Malayan) under Open Policy No. M/OP/2000/001-582. P & I Association is the third party liability insurer of Loadstar Shipping.

On said date (September 10, 2000), MV “Bobcat” sailed from Poro Point, San Fernando, La Union bound for Isabel, Leyte. On September 12, 2000, while in the vicinity of Cresta de Gallo, the vessel’s chief officer on routine inspection found a crack on starboard side of the main deck which caused seawater to enter and wet the cargo inside Cargo Hold No. 2 forward/aft. The cracks at the top deck starboard side of Cargo Hold No. 2, measuring 1.21 meters long x 0.39 meters wide, and at top deck aft section starboard side on other point, measuring 0.82 meters long x 0.32 meters wide, were welded.

Immediately after the vessel arrived at Isabel, Leyte anchorage area, on September 13, 2000, PASAR and Philex’s representatives boarded and inspected the vessel and undertook sampling of the copper concentrates. In its preliminary report dated September 15, 2000, the Elite Adjusters and Surveyor, Inc. (Elite Surveyor) confirmed that samples of copper concentrates from Cargo Hold No. 2 were contaminated by seawater. Consequently, PASAR rejected 750 MT of the 2,300 MT cargo discharged from Cargo Hold No. 2.

On November 6, 2000, PASAR sent a formal notice of claim in the amount of [P]37,477,361.31 to Loadstar Shipping. In its final report dated November 16, 2000, Elite Surveyor recommended payment to the assured the amount of [P]32,351,102.32 as adjusted. On the basis of such recommendation, Malayan paid PASAR the amount of [P]32,351,102.32.

Meanwhile, on November 24, 2000, Malayan wrote Loadstar Shipping informing the latter of a prospective buyer for the damaged copper concentrates and the opportunity to nominate/refer other salvage buyers to PASAR. On November 29, 2000, Malayan wrote Loadstar Shipping informing the latter of the acceptance of PASAR’s proposal to take the damaged copper concentrates at a residual value of US$90,000.00. On December 9, 2000, Loadstar Shipping wrote Malayan requesting for the reversal of its decision to accept PASAR’s proposal and the conduct of a public bidding to allow Loadstar Shipping to match or top PASAR’s bid by 10%.

On January 23, 2001, PASAR signed a subrogation receipt in favor of Malayan. To recover the amount paid and in the exercise of its right of subrogation, Malayan demanded reimbursement from Loadstar Shipping, which refused to comply. Consequently, on September 19, 2001, Malayan instituted with the RTC a complaint for damages. The complaint was later amended to include Loadstar International as party defendant.

ISSUE: WON THE INSURER IS VALIDLY SUBROGATED TO THE RIGHTS OF THE CONSIGNEE.

HELD: NO. Malayan’s claim against the petitioners is based on subrogation to the rights possessed by PASAR as consignee of the allegedly damaged goods. The right of subrogation stems from Article 2207 of the New Civil Code which states:

Art. 2207. If the plaintiff’s property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.

“The right of subrogation 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 of the insurance claim by the insurer.” The right of subrogation is however, not absolute. “There are a few recognized exceptions to this rule. For instance, if the assured by his own act releases the wrongdoer or third party liable for the loss or damage, from liability, the insurer’s right of subrogation is defeated. . . . Similarly, where the insurer pays the assured the value of the lost goods without notifying the carrier who has in good faith settled the assured’s claim for loss, the settlement is binding on both the assured and the insurer, and the latter cannot bring an action against the carrier on his right of subrogation. . . . And where the insurer pays the assured for a loss which is not a risk covered by the policy, thereby effecting ‘voluntary payment,’ the former has no right of subrogation against the third party liable for the loss . . . .”

The rights of a subrogee cannot be superior to the rights possessed by a subrogor. “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. The rights to which the subrogee succeeds are the same as, but not greater than, those of the person for whom he is substituted, that is, he cannot acquire any claim, security or remedy the subrogor did not have. In other words, a subrogee cannot succeed to a right not possessed by the subrogor. A subrogee in effect steps into the shoes of the insured and can recover only if the insured likewise could have recovered.”

Consequently, an insurer indemnifies the insured based on the loss or injury the latter actually suffered from. If there is no loss or injury, then there is no obligation on the part of the insurer to indemnify the insured. Should the insurer pay the insured and it turns out that indemnification is not due, or if due, the amount paid is excessive, the insurer takes the risk of not being able to seek recompense from the alleged wrongdoer. This is because the supposed subrogor did not possess the right to be indemnified and therefore, no right to collect is passed on to the subrogee.

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