BERMUDA v. Sulpicio Lines
Steamship Mutual Underwriting Association (Bermuda) Limited v. Sulpicio Lines, Inc., G.R. No. 196072, September 20, 2017
- Commercial Law
- Procedural (Remedial Law)
- protection and indemnity club
- arbitration
- incorporation by reference
- steamship club rules
- compulsory arbitration
- multiple parties
- indirect contempt
- petition for review
- international maritime insurance
I. Facts of the Case
Steamship Mutual Underwriting Association (Bermuda) Limited insured Sulpicio Lines, Inc.’s fleet of inter-island vessels for protection and indemnity risks, including claims arising from death or injury to passengers, loss or damage to cargoes, and loss or damage from collisions. Coverage was evidenced by Steamship’s Certificate of Entry and Acceptance, such as for the M/V Princess of the World, which provided the vessel’s class coverage for a defined period. The dispute arose because Sulpicio invoked the local court process instead of enforcing the arbitration mechanism tied to the Protection and Indemnity Club Rules that were incorporated into the insurance arrangement. The Court had to address whether Steamship, as an insured member, could be compelled to arbitrate under those incorporated rules and, in a situation involving multiple parties, how the court should treat those covered by the arbitration agreement versus those not bound.
Steamship, a Bermuda-based protection and indemnity club managed outside London, England, provided coverage to its members/shipowners for specified third-party risks and liabilities, and Sulpicio obtained Steamship coverage for its inter-island vessels through local insurance agents.
February 20, 2005
Steamship issued a Certificate of Entry and Acceptance for the M/V Princess of the World, stating Class 1 PROTECTION AND INDEMNITY coverage from Noon 20 February 2005 to Noon 20 February 2006.
Sulpicio filed a petition for indirect contempt against Steamship (G.R. No. 208603), seeking findings of indirect contempt, a fine, and restitution plus interest.
Steamship filed a Petition for Review (G.R. No. 196072) to set aside the Court of Appeals’ November 26, 2010 Decision and March 10, 2011 Resolution in CA-G.R. SP No. 106103.
The Supreme Court consolidated the resolution of the petitions and decided on the enforceability of the club rules’ arbitration provision incorporated by reference into the insurance coverage and the proper disposition where multiple parties are involved.
II. Issues
Whether an insured member may be compelled to arbitration pursuant to the Rules of the Protection and Indemnity Club incorporated by reference in the insurance policy.
Whether, where there are multiple parties, the court must refer to arbitration the parties covered by the agreement while proceeding with the civil action against those who were not bound by the arbitration agreement.
III. Ruling
Whether an insured member may be compelled to arbitration pursuant to the Rules of the Protection and Indemnity Club incorporated by reference in the insurance policy.
An insured member may be compelled to arbitrate based on the Protection and Indemnity Club Rules when those rules are incorporated into the insurance coverage by reference.
How the Court reasoned
- The Court treated the Protection and Indemnity Club Rules as binding contractual terms because they were incorporated into the insurance policy by reference.
- The insurance coverage for the vessel (evidenced by the Certificate of Entry and Acceptance) and the parties’ arrangement placed the club rules within the contractual framework governing disputes.
- Since the arbitration mechanism arises from the incorporated club rules, a party within the insurance arrangement may be compelled to arbitrate the disputes falling within the rules.
- Compelling arbitration is consistent with enforcing the parties’ agreed dispute resolution process rather than allowing circumvention through court litigation.
“An insured member may be compelled to arbitration pursuant to the Rules of the Protection and Indemnity Club, which were incorporated in the insurance policy by reference.”
Rule applied
Contract incorporation by reference doctrine as applied to the Protection and Indemnity Club Rules incorporated into the insurance policy.
Whether, where there are multiple parties, the court must refer to arbitration the parties covered by the agreement while proceeding with the civil action against those who were not bound by the arbitration agreement.
When multiple parties are involved, the court should refer to arbitration only the parties that are covered by the arbitration agreement, while allowing the civil action to proceed as to parties not bound by that agreement.
How the Court reasoned
- The Court recognized that an arbitration agreement binds only those parties that are covered by it.
- Where some parties are bound and others are not, the court must prevent the non-bound parties from being forced into arbitration.
- Accordingly, the appropriate course is to refer the bound parties to arbitration while continuing with the civil action against the non-bound parties.
- This approach preserves the contractual arbitration rights of bound parties and respects the absence of consent of non-bound parties.
“Where there are multiple parties, the court must refer to arbitration the parties covered by the agreement while proceeding with the civil action against those who were not bound by the arbitration agreement.”
Rule applied
Procedural doctrine on arbitration with multiple parties; partial referral to arbitration for parties bound by the arbitration agreement.
Doctrines
An insured member may be compelled to arbitration pursuant to the Rules of the Protection and Indemnity Club, which were incorporated in the insurance policy by reference.
Where there are multiple parties, the court must refer to arbitration the parties covered by the agreement while proceeding with the civil action against those who were not bound by the arbitration agreement.
Final Disposition
SO ORDERED.
Notes
The case involves two related Supreme Court proceedings between the same parties: (1) a Petition for Review by Steamship (G.R. No. 196072) seeking to set aside the Court of Appeals rulings in CA-G.R. SP No. 106103, and (2) a Petition for Indirect Contempt by Sulpicio (G.R. No. 208603) seeking contempt relief against Steamship.