In a maritime dispute concerning the sinking of a vessel and the subsequent death of seafarers, the Supreme Court clarified the interplay between a shipowner’s liability, insurance policies, and solidary obligations under the Philippine Overseas Employment Administration Standard Employment Contract (POEA-SEC). The Court ruled that the doctrine of limited liability does not apply to claims for death benefits under the POEA-SEC. However, a settlement reached with some of the parties who share responsibility for the obligation can reduce the overall amount owed. This means that while shipowners cannot escape their obligations to seafarers through the limited liability rule, settlements with other responsible parties can decrease their financial burden.

Sinking Ships and Shifting Liabilities: Who Pays When Seafarers Perish at Sea?

This case arose from the tragic sinking of the MV Mahlia in 2003, resulting in the death of several crewmembers. The heirs of the deceased seafarers filed claims for death benefits against Phil-Nippon Kyoei, Corp. (the shipowner), Top Ever Marine Management Maritime Co., Ltd. (TMCL, the foreign principal), Top Ever Marine Management Philippine Corporation (TEMMPC, the local manning agency), Capt. Oscar Orbeta, and South Sea Surety & Insurance Co., Inc. (SSSICI, the insurer). The central legal question revolved around determining the extent of each party’s liability, considering the shipowner’s insurance coverage and the principle of limited liability in maritime law.

The Labor Arbiter (LA) initially found all parties solidarily liable, including SSSICI for the proceeds of the Personal Accident Policies. The National Labor Relations Commission (NLRC) later absolved the shipowner, TMCL, TEMMPC and Capt. Orbeta, citing the limited liability rule. However, the Court of Appeals (CA) reinstated the LA’s decision, finding the shipowner and manning agency liable. The CA further ruled that the shipowner’s liability would be extinguished only upon SSSICI’s payment of the insurance proceeds. This ruling prompted the shipowner to file a petition with the Supreme Court, challenging the CA’s decision.

The Supreme Court addressed two key issues. First, whether the doctrine of real and hypothecary nature of maritime law (the limited liability rule) applies in favor of the shipowner. Second, whether the CA erred in ruling that the shipowner’s liability is extinguished only upon SSSICI’s payment of insurance proceeds. The Court clarified that the shipowner was a local principal and as such, it is solidarily liable with TEMMPC and TMCL for the benefits under the POEA-SEC. The Court emphasized that the limited liability rule, which generally limits a shipowner’s liability to the value of the vessel and freightage, does not apply to claims arising from the POEA-SEC.

Art. 587. The ship agent shall also be civilly liable for the indemnities in favor of third persons which arise from the conduct of the captain in the care of the goods which the vessel carried; but he may exempt himself therefrom by abandoning the vessel with all her equipment and the freightage he may have earned during the voyage.

Art. 590. The co-owners of a vessel shall be civilly liable, in the proportion of their contribution to the common fund, for the results of the acts of the captain, referred to in Art. 587.

Each part-owner may exempt himself from this liability by the abandonment before a notary of the part of the vessel belonging to him.

Art. 837. The civil liability incurred by the shipowners in the cases prescribed in this section, shall be understood as limited to the value of the vessel with all its appurtenances and freightage earned during the voyage.

The Court explained that this rule, derived from Articles 587, 590, and 837 of the Code of Commerce, aims to encourage maritime commerce by limiting the financial exposure of shipowners. However, it is not absolute. The Supreme Court has consistently held that the limited liability rule does not apply to workmen’s compensation claims or, by extension, to claims for death benefits under the POEA-SEC.

The real and hypothecary nature of the liability of the shipowner or agent embodied in the provisions of the Maritime Law, Book III, Code of Commerce, had its origin in the prevailing conditions of the maritime trade and sea voyages during the medieval ages, attended by innumerable hazards and perils. To offset against these adverse conditions and to encourage shipbuilding and maritime commerce, it was deemed necessary to confine the liability of the owner or agent arising from the operation of a ship to the vessel, equipment, and freight, or insurance, if any, so that if the shipowner or agent abandoned the ship, equipment, and freight, his liability was extinguished.

But the provisions of the Code of Commerce invoked by appellant have no room in the application of the Workmen’s Compensation Act which seeks to improve, and aims at the amelioration of, the condition of laborers and employees. It is not the liability for the damage or loss of the cargo or injury to, or death of, a passenger by or through the misconduct of the captain or master of the ship; nor the liability for the loss of the ship as a result of collision; nor the responsibility for wages of the crew, but a liability created by a statute to compensate employees and laborers in cases of injury received by or inflicted upon them, while engaged in the performance of their work or employment, or the heirs and dependents of such laborers and employees in the event of death caused by their employment. Such compensation has nothing to do with the provisions of the Code of Commerce regarding maritime commerce. It is an item in the cost of production which must be included in the budget of any well-managed industry.

The Court reasoned that death benefits under the POEA-SEC are akin to workmen’s compensation claims, designed to protect seafarers and their families in the event of work-related death or injury. These benefits are separate and distinct from those under the Maritime Law.

However, the Court also considered the impact of the Release and Quitclaim executed between the respondents and TEMMPC, TMCL, and Capt. Oscar Orbeta. Since the shipowner was solidarily liable with these parties, the Court held that the settlement redounded to the shipowner’s benefit, effectively reducing its liability. The Court emphasized that the basis of the solidary liability of the principal with the local manning agent is found in the second paragraph of Section 10 of the Migrant Workers and Overseas Filipino Act of 1995, which, in part, provides: “[t]he liability of the principal/employer and the recruitment/placement agency for any and all claims under this section shall be joint and several.”

Art. 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to accept. xxx

Art. 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all defenses which are derived from the nature of the obligation and of those which are personal to him, or pertain to his own share. With respect to those which personally belong to the others, he may avail himself thereof only as regards that part of the debt for which the latter are responsible.

Regarding the insurance policies, the Court affirmed the NLRC’s jurisdiction over the claim, stating that it arose from an employer-employee relationship and involved Filipino workers for overseas deployment. However, the Court clarified that the Personal Accident Policies were indemnity insurance procured by the shipowner for the benefit of the seafarers, not liability insurance to protect the shipowner from its own liabilities.

The Court found the insurer’s liability direct. SSSICI, as insurer, undertook to indemnify the crewmembers’ beneficiaries from an unknown or contingent event. Therefore, the CA erred in making the shipowner’s liability conditional on SSSICI’s payment of the insurance proceeds. In a liability insurance, the insurer assumes the obligation to pay third party in whose favor the liability of the insured arises. On the other hand, personal accident insurance refers to insurance against death or injury by accident or accidental means.

FAQs

What was the key issue in this case?	The key issue was determining the extent of the shipowner’s liability for the death of seafarers, considering the limited liability rule, the POEA-SEC, and the existence of insurance policies.
Does the limited liability rule apply to claims for death benefits under the POEA-SEC?	No, the Supreme Court held that the limited liability rule does not apply to claims arising from the POEA-SEC, which provides for death benefits for seafarers.
What is solidary liability?	Solidary liability means that each debtor is responsible for the entire debt. The creditor can demand payment of the entire obligation from any one of the solidary debtors.
How did the settlement with the manning agency affect the shipowner’s liability?	Since the shipowner was solidarily liable with the manning agency, the settlement redounded to the shipowner’s benefit, reducing its overall liability.
What type of insurance policies were involved in this case?	The case involved a marine insurance policy on the vessel and personal accident policies for the crewmembers.
Who is directly liable under the personal accident policies?	The insurer, SSSICI, is directly liable to the beneficiaries of the seafarers under the personal accident policies.
Was the shipowner directly liable under the personal accident policies?	No, the shipowner was the policyholder, not the insurer, and therefore not directly liable for the proceeds of the personal accident policies.
What is the POEA-SEC?	The POEA-SEC refers to the Philippine Overseas Employment Administration Standard Employment Contract, setting minimum terms and conditions for Filipino seafarers’ employment.

In conclusion, the Supreme Court’s decision clarifies the responsibilities of shipowners, manning agencies, and insurers in cases involving the death of seafarers. This ruling emphasizes the importance of understanding the interplay between maritime law, labor contracts, and insurance policies to ensure that seafarers and their families receive the compensation and benefits they are entitled to under the law.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: PHIL-NIPPON KYOEI, CORP. VS. ROSALIA T. GUDELOSAO, G.R. No. 181375, July 13, 2016