MARINE INSURANCE

MALAYAN INSURANCE CORP. V CA (TKC

MARKETING CORP.)270 SCRA 242
ROMERO; March 20, 1997
NATURE
Petition for review on certiorari
FACTS
- TKC Marketing Corp. was the
owner/consignee of some 3,189.171 metric
tons of soya bean meal which was loaded on
board the ship MV Al Kaziemah for carriage
from the port of Rio del Grande, Brazil, to the
port of Manila. Said cargo was insured against
the risk of loss by petitioner Malayan
Insurance Corporation for which it issued two
(2) Marine Cargo Policies.
- While the vessel was docked in Durban,
South Africa the civil authorities arrested and
detained it because of a lawsuit on a question
of ownership and possession. TKC Marketing
notified Malayan of the arrest of the vessel
and made a formal claim for the dollar
equivalent on the policies (US$916,886.66) for
non-delivery of the cargo. It likewise sought
the assistance of Malayan on what to do with
the cargo.
- Malayan replied that the arrest of the vessel
by civil authority was not a peril covered by the
policies. TKC advised Malayan that it might
tranship the cargo and requested an extension
of the insurance coverage until actual
transhipment, which extension was approved
upon payment of additional premium. The
insurance coverage was extended under the
same terms and conditions embodied in the
original policies while in the process of making
arrangements for the transhipment of the
cargo from Durban to Manila. However the
cargo was sold in Durban, South Africa, for
US$154.40 per metric ton or a total of
P10,304,231.75 due to its perishable nature
which could no longer stand a voyage of
twenty days to Manila and another twenty
days for the discharge thereof. It reduced its
claim to US$448,806.09 (or its peso

equivalent of P9,879,928.89 at the exchange

rate of P22.0138 per $1.00) representing its
loss after the proceeds of the sale were
deducted from the original claim.Malayan
maintained its position that the arrest of the
vessel by civil authorities on a question of
ownership was an excepted risk under the
marine insurance policies.
Petitioners Claim
- an arrest by civil authority is not
compensable since the term "arrest" refers to
"political or executive acts" and does not
include a loss caused by riot or by ordinary
judicial process as in this case - the deletion of
the Free from Capture or Seizure Clause
would leave the assured covered solely for the
perils specified by the wording of the policy
itself - the rationale for the exclusion of an
arrest pursuant to judicial authorities is to
eliminate collusion between unscrupulous
assured and civil authorities.
- any loss which private respondent may have
incurred was in the nature and form of
unrecovered
acquisition value brought about by a voluntary
sacrifice sale and not by arrest, detention or
seizure of the ship.- its act of rejecting the
claim was a result of its honest belief that the
arrest of the vessel was not a compensable
risk under the policies issued Respondents
Comments
- petitioner, being the sole author of the
policies, "arrests" should be strictly interpreted
against it because the rule is that any
ambiguity is to be taken contra proferentum.
Risk policies should be construed reasonably
and in a manner as to make effective the
intentions and expectations of the parties.
- the policies clearly stipulate that they cover
the risks of non-delivery of an entire package
and that it was petitioner itself that invited and
granted the extensions and collected
premiums thereon.
ISSUES

1. WON the arrest of the vessel was a risk

covered under the subject insurance policies2.
WON insurance policies should be strictly
construed against the insurer

liability should be regarded with extreme

jealousy and must be construed in such a way
as to preclude the insurer from noncompliance
with its obligations

HELD

- It must be borne in mind that such contracts

are invariably prepared by the companies and
must be accepted by the insured in the form in
which they are written. Any construction of a
marine policy rendering it void should be
avoided. Such policies will, therefore, be
construed strictly against the company in order
to avoid a forfeiture, unless no other result is
possible from the language used.

1.YES- With the incorporation of subsection

1.1 of Section 1 of the Institute War Clauses,
"arrest" caused by ordinary judicial process is
deemed included among the covered risks.
This interpretation becomes inevitable when
subsection 1.1 of Section 1 of the Institute War
Clauses provided that "this insurance covers
the risks excluded from the Standard Form of
English Marine Policy by the clause
'Warranted free of capture, seizure, arrest, etc.
x x x'" or the F.C. & S. Clause.
Jurisprudentially, "arrests" caused by ordinary
judicial process is also a risk excluded from
the Standard Form of English Marine Policy by
the F.C. & S. Clause.- Petitioner cannot adopt
the argument that the "arrest" caused by
ordinary judicial process is not included in the
covered risk simply because the F.C. & S.
Clause under the Institute War Clauses can
only be operative in case of hostilities or
warlike operations on account of its heading
"Institute War Clauses."2. YESRatio
Insurance Policies should be construed
liberally in favor of the insured and strictly
against the insurer.
Reasoning - An insurance contract should be
so interpreted as to carry out the purpose for
which the parties entered into the contract
which is, to insure against risks of loss or
damage to the goods. Such interpretation
should result from the natural and reasonable
meaning of language in the policy. Where
restrictive provisions are open to two
interpretations, that which is most favorable to
the insured is adopted.
Indemnity and liability insurance policies are
construed in accordance with the general rule
of resolving any ambiguity therein in favor of
the insured, where the contract or policy is
prepared by the insurer. A contract of
insurance, being a contract of adhesion, par
excellence, any ambiguity therein should be
resolved against the insurer.Limitations of

- If a marine insurance company desires to

limit or restrict the operation of the general
provisions of its contract by special proviso,
exception, or exemption, it should express
such limitation in clear and unmistakable
language.
Be that as it may, exceptions to the general
coverage are construed most strongly against
the company. Even an express exception in a
policy is to be construed against the
underwriters by whom the policy is framed,
and for whose benefit the exception is
introduced.

LA RAZON SOCIAL GO TIACO v. UNION

INSURANCE
40 PHIL 40STREET; September 1, 1919
FACTS
- Union Insurance Society of Canton, Ltd.,
issued a marine insurance policy upon a cargo
of rice belonging to the Go Tiaoco Brothers,
which was transported in the early days of
May, 1915, on the steamship Hondagua from
the port of Saigon to Cebu.
- On discharging the rice from one of the
compartments in the after hold, upon arrival at
Cebu, it was discovered that 1473 sacks had
been damaged by sea water. The loss was
P3,875.25.

- The trial court found that the inflow of the sea

water during the voyage was due to a defect in
one of the drain pipes of the ship and
concluded that the loss was not covered by
the policy of insurance. The trial court made
the ff findings:

ISSUE

The drain pipe which served as a discharge

from the water closet passed down through
the compartment where the rice in question
was stowed and thence out to sea through the
wall of the compartment, which was a part of
the wall of the ship. The joint or elbow where
the pipe changed its direction was of cast iron;
and in course of time it had become corroded
and abraded until a longitudinal opening had
appeared in the pipe about one inch in length.
This hole had been in existence before the
voyage was begun, and an attempt had been
made to repair it by filling with cement and
bolting over it a strip of iron. The effect of
loading the boat was to submerge the vent, or
orifice, of the pipe until it was about 18 inches
or 2 feet below the level of the sea. As a
consequence the sea water rose in the pipe.
Navigation under these conditions resulted in
the washing out of the cement- filling from the
action of the sea water, thus permitting the
continued flow of the salt water into the
compartment of rice.

NO- the words "all other perils, losses, and

misfortunes" are to be interpreted as covering
risks which are of like kind (ejusdem generis)
with the particular risks which are enumerated
in the preceding part of the same clause of the
contract. ''According to the ordinary rules of
construction, these words must be interpreted
with reference to the words which immediately
precede them. They were no doubt inserted in
order to prevent disputes founded on nice
distinctions. X x x For example, if the
expression 'perils of the seas' is given its
widest sense the general words have little or
no effect as applied to that case. If on the
other hand that expression is to receive a
limited construction, as apparently it did in
Cullen vs. Butler (5 M. & S., 461), and loss by
perils of the seas is to be confined to loss ex
marine tempestatis discrimine, the general
words become most important. X x x"
(Thames and Mersey Marine Insurance Co.
vs. Hamilton, Fraser & Co.)- a loss which, in
the ordinary course of events, results from the
natural and inevitable action of the sea, from
the ordinary wear and tear of the ship, or from
the negligent failure of the ship's owner to
provide the vessel with proper equipment to
convey the cargo under ordinary conditions, is
not a peril of the sea. Such a loss is rather
due to what has been aptly called the "peril of
the ship." The insurer undertakes to insure
against perils of the sea and similar perils, not
against perils of the ship. There must, in order
to make the insurer liable, be "some casualty,
something which could not be foreseen as one
of the necessary incidents of the adventure.
The purpose of the policy is to secure an
indemnity against accidents which may
happen, not against events which must
happen." (Wilson, Sons & Co. vs. Owners of
Cargo per the Xantho)- In the present case the
entrance of the sea water into the ship's hold
through the defective pipe already described
was not due to any accident which happened
during the voyage, but to the failure of the

- The court found in effect that the opening

above described had resulted in course of
time from ordinary wear and tear and not from
the straining of the ship in rough weather on
that voyage. The court also found that the
repairs that had been made on the pipe were
slovenly and defective and that, by reason of
the condition of this pipe, the ship was not
properly equipped to receive the rice at the
time the voyage was begun. For this reason
the court held that the ship was unseaworthy.
- The policy purports to insure the cargo from
the following among other risks: "Perils . . . of
the seas, men, of war, fire, enemies, pirates,
rovers, thieves, .jettisons, . . . barratry of the
master and mariners, and of all other perils,
losses, and misfortunes that have or shall
come to the hurt, detriment, or damage of the
said goods and merchandise or any part
thereof."

WON Union Insurance is liable for the loss of

the Go Tiaco Brothers
HELD

ship's owner properly to repair a defect of the

existence of which he was apprised. The loss
was therefore more analogous to that which
directly results from simple unseaworthiness
than to that which results from perils of the
sea.
- there is no room to doubt the liability of the
shipowner for such a loss as occurred in this
case. By parity of reasoning the insurer is not
liable; for, generally speaking, the shipowner
excepts the perils of the sea from his
engagement under the bill of lading, while this
is the very peril against which the insurer
intends to give protection. As applied to the
present case it results that the owners of the
damaged rice must look to the shipowner for
redress and not to the insurer.
The same conclusion must be reached if the
question be discussed with reference to the
seaworthiness of the ship. It is universally
accepted that in every contract of insurance
upon anything which is the subject of marine
insurance, a warranty is implied that the ship
shall be seaworthy at the time of the inception
of the voyage. This rule is accepted in our own
Insurance Law (Act No. 2427, sec. 106). It is
also well settled that a ship which is seaworthy
for the purpose of insurance upon the ship
may yet be unseaworthy for the purpose of
insurance upon the cargo (Act No. 2427, sec.
106).
Disposition Decision of trial court is affirmed
CATHAY INSURANCE CO. v. CA
(REMINGTON INDUSTRIAL SALES CORP.)
151 SCRA 710PARAS; June 30 1987
FACTS
- Remington Industrial Sales Corp insured its
shipment of seamless steel pipes. It incurred
losses and damages (I gather the steel pipes
rusted during the voyage from Japan to the
Phils. on board vessel SS "Eastern Mariner)
and filed complaint against Cathay Insurance
Co seeking collection of the sum of
P868,339.15
- TC decided for Remington. Cathay filed MR,

which was denied. CA affirmed.- CA said

(among other things): 1. Coverage of private
respondent's loss under the insurance policy
issued by petitioner is unmistakable;
2. Alleged contractual limitations contained in
insurance policies are regarded with extreme
caution by courts and are to be strictly
construed against the insurer; obscure
phrases and exceptions should not be allowed
to defeat the very purpose for which the policy
was procured;
3. Rust is not an inherent vice of the seamless
steel pipes without interference of external
factors- Cathay contend (among other things):
1. private respondent has admitted that the
questioned
shipment is not covered by a "square
provision of the contract," but private
respondent claims implied coverage from the
phrase "perils of the sea" mentioned in the
opening sentence of the policy; 2. The
insistence of private respondent that rusting is
a peril of the sea is erroneous; 3. Rusting is
not a risk insured against, since a risk to be
insured against should be a casualty or some
casualty, something which could not be
foreseen as one of the necessary incidents of
adventure; 4. A fact capable of unquestionable
demonstration or of public knowledge needs
no evidence. This fact of unquestionable
demonstration or of public knowledge is that
heavy rusting of steel or iron pipes cannot
occur within a period of a seven (7) day
voyage. Besides, petitioner had introduced the
clear cargo receipts or tally sheets indicating
that there was no damage on the steel pipes
during the voyage.
ISSUE
WON rusting is a peril of the sea
HELD
YES- There is no question that the rusting of
steel pipes in the course of a voyage is a "peril
of the sea" in view of the toll on the cargo of
wind, water, and salt conditions. At any rate if
the insurer cannot be held accountable

therefor, We would fail to observe a cardinal

rule in the interpretation of contracts, namely,
that any ambiguity therein should be
construed against the maker/issuer/drafter
thereof, namely, the insurer. Besides the
precise purpose of insuring cargo during a
voyage would be rendered fruitless.
Disposition WHEREFORE, this petition is
hereby DENIED, and the assailed decision of
the Court of Appeals is hereby AFFIRMED.
DELSAN TRANSPORT, INC. v. CA
(AMERICAN HOME ASSURANCE)369 SCRA
24DE LEON, JR; November 15, 2001
NATURE
A petition for review on certiorari of the
decision of CA.
FACTS

the incident was caused by an unexpected

inclement weather condition or force majeure,
thus exempting the common carrier from
liability for the loss of its cargo.
- CA reversed RTC decision on the basis of
evidence from PAG-ASA that there were no 20
ft. waves in the area. CA ruled that the
petitioner is liable on its obligation as common
carrier to respondent insurance company as
subrogee of Caltex. Petitioners Claim
> In every marine insurance upon a ship or
freight, or freightage, or upon any thing which
is the subject of marine insurance there is an
implied warranty by the shipper that the ship is
seaworthy.10 When private respondent paid
Caltex the value of its lost cargo, the act of the
private respondent is equivalent to a tacit
recognition that the ill-fated vessel was
seaworthy.

- Caltex entered into a contract of

affreightment with the petitioner, Delsan
Transport Lines, Inc. (petitioner), for a period
of one year whereby the said common carrier
agreed to transport Caltexs industrial fuel oil
from the Batangas-Bataan Refinery to different
parts of the country. Delsan took on board its
vessel, MT Maysun, 2,277.314 kiloliters of
industrial fuel oil of Caltex to be delivered to
the Caltex Oil Terminal in Zamboanga City.
The shipment was insured by American Home
Assurance Corporation (respondent).

Respondents Comment

- August 14, 1986: MT Maysun set sail from

Batangas for Zamboanga City. The vessel
sank in the early morning of August 16, 1986
near Panay Gulf in the Visayas taking with it
the entire cargo of fuel oil.

2. WON MT Maysun was seaworthy at the

time of the voyage (outline topic)3. WON nonpresentation of the marine insurance policy
bars the complaint for recovery of sum of
money for lack of cause of action

- Respondent paid Caltex P5,096,635.57

representing the insured value of the lost
cargo. Exercising its right of subrogation under
Article 2207 of the New Civil Code, the private
respondent demanded of the petitioner the
same amount it paid to Caltex. Delsan refused
to pay, forcing American home to file a case
for collection in the RTC.

HELD

- RTC found that the vessel, MT Maysun, was

seaworthy to undertake the voyage, and that

> American Home Assurance is entitled to

payment by its right of subrogation.
ISSUES
1. WON payment made by American Home to
Caltex for the insured value of the lost cargo
amounted to an admission that the vessel was
seaworthy, thus precluding any action for
recovery against the petitioner

1. NORatio The fact of payment grants

American Home the subrogatory right which
enables it to exercise legal remedies that
would otherwise be available to Caltex as
owner of the lost cargo against the petitioner
common carrier.ReasoningArt. 2207. (Civil
Code)
If the plaintiffs 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.

issued, however, do not negate the

presumption of unseaworthiness triggered by
an unexplained sinking.- Authorities are clear
that diligence in securing certificates of
seaworthiness does not satisfy the vessel
owners obligation. Also securing the approval
of the shipper of the cargo, or his surveyor, of
the condition of the vessel or her stowage
does not establish due diligence if the vessel
was in fact unseaworthy, for the cargo owner
has no obligation in relation to seaworthiness.

- The right of subrogation is designed to

promote and to accomplish justice and is the
mode which equity adopts to compel the
ultimate payment of a debt by one who in
justice and good conscience ought to pay. It 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 by the insurance company of the
insurance claim.

3. NORatio The presentation in evidence of

the marine insurance policy is not
indispensable in this case before the insurer
may recover from the common carrier the
insured value of the lost cargo in the exercise
of its subrogatory right. The subrogation
receipt, by itself, is sufficient to establish not
only the relationship of respondent as insurer
and Caltex, as the assured shipper of the lost
cargo of industrial fuel oil, but also the amount
paid to settle the insurance claim. The right of
subrogation accrues simply upon payment by
the insurance company of the insurance claim.

2. NORatio Seaworthiness relates to a

vessels actual condition. Neither the granting
of classification or the issuance of certificates
establishes seaworthiness.ReasoningCommon carriers are bound to observe
extraordinary diligence in the vigilance over
the goods and for the safety of passengers
transported by them, according to all the
circumstances of each case. There is no
liability if the loss, destruction or deterioration
is by force majeure.- The tale of strong winds
and big waves by the said officers of the
petitioner however, was effectively rebutted
and belied by the weather report from PAGASA. MT Maysun sank with its entire cargo for
the reason that it was not seaworthy. There
was no squall or bad weather or extremely
poor sea condition in the vicinity when the said
vessel sank.- Petitioner may not escape
liability by presenting in evidence certificates
that tend to show that at the time of drydocking and inspection by the Philippine Coast
Guard MT Maysun, was fit for voyage. These
pieces of evidence do not necessarily take into
account the actual condition of the vessel at
the time of the commencement of the voyage.
At the time of dry-docking and inspection, the
ship may have appeared fit. The certificates

Disposition Petition is denied, and the

decision of the CA is affirmed.
THE PHILIPPINE AMERICAN GENERAL
INSURANCE COMPANY INC v. CA
(FELMAN SHIPPING LINES)273 SCRA 226
BELLOSILLO; June 11, 1997
FACTS
- Coca-Cola Bottlers Philippines, Inc., loaded
on board MV Asilda, a vessel owned and
operated by Felman 7,500 cases of 1-liter
Coca-Cola softdrink bottles to be transported
from Zamboanga City to Cebu for consignee
Coca-Cola Bottlers Philippines, Inc., Cebu.
The shipment was insured with petitioner
Philippine American General under Marine
Open Policy.
- The vessel sank in the waters of Zamboanga
del Norte bringing down her entire cargo with
her including the subject 7,500 cases of 1-liter
Coca-Cola softdrink bottles.

- The consignee filed a claim with respondent

FELMAN for recovery of damages it sustained
as a result of the loss of its softdrink bottles
that sank with MV Asilda. Respondent
denied the claim thus prompting the consignee
to file an insurance claim with PHILAMGEN
which paid its claim of P755,250.00.

Zamboanga as confirmed by
certificates issued by the Philippine
Coast Guard and the shipowners
surveyor attesting to its seaworthiness.
Thus the loss of the vessel and its
entire shipment could only be attributed
to either a fortuitous event, in which
case, no liability should attach unless
there was a stipulation to the contrary,
or to the negligence of the captain and
his crew, in which case, Art. 587 of the
Code of Commerce should apply.

- Claiming its right of subrogation

PHILAMGEN sought recourse against
respondent FELMAN which disclaimed any
liability for the loss. Consequently,
PHILAMGEN sued the shipowner for sum of
money and damages.
-

PHILAMGEN alleged that the sinking

and total loss of MV Asilda and its
cargo were due to the vessels
unseaworthiness as she was put to sea
in an unstable condition. It further
alleged that the vessel was improperly
manned and that its officers were
grossly negligent in failing to take
appropriate measures to proceed to a
nearby port or beach after the vessel
started to list.

- FELMAN filed a motion to dismiss

based on the affirmative defense that
no right of subrogation in favor of
PHILAMGEN was transmitted by the
shipper, and that, in any event,
FELMAN had abandoned all its rights,
interests and ownership over MV
Asilda together with her freight and
appurtenances for the purpose of
limiting and extinguishing its liability
under Art. 587 of the Code of
Commerce.

- Trial court dismissed the complaint of

PHILAMGEN. On appeal the Court of
Appeals set aside the dismissal and
remanded the case to the lower court
for trial on the merits. FELMAN filed a
petition for certiorari with this Court but
it was subsequently denied on 13
February 1989.
- Trial court rendered judgment in favor
of FELMAN. It ruled that MV Asilda
was seaworthy when it left the port of

- CA ruled that MV Asilda was

unseaworthy for being top- heavy as
2,500 cases of Coca-Cola softdrink
bottles were improperly stowed on
deck. Nonetheless, the appellate court
denied the claim of PHILAMGEN on the
ground that the assureds implied
warranty of seaworthiness was not
complied with. Perfunctorily,
PHILAMGEN was not properly
subrogated to the rights and interests of
the shipper. Furthermore, respondent
court held that the filing of notice of
abandonment had absolved the
shipowner/agent from liability under the
limited liability rule.
ISSUES
1. WON MV Asilda was seaworthy when it
left the port of Zamboanga2. WON the limited
liability under Art. 587 of the Code of
Commerce should apply
3. WON PHILAMGEN was properly
subrogated to the rights and legal actions
which the shipper had against FELMAN, the
shipowner
HELD
1. YES- MV Asilda was unseaworthy when it
left the port of Zamboanga. We subscribe to
the findings of the Elite Adjusters, Inc., and the
Court of Appeals that the proximate cause of
the sinking of MV Asilda was its being topheavy. Contrary to the ship captains
allegations, evidence shows that
approximately 2,500 cases of softdrink bottles

were stowed on deck. Several days after MV

Asilda sank, an estimated 2,500 empty CocaCola plastic cases were recovered near the
vicinity of the sinking. Considering that the
ships hatches were properly secured, the
empty Coca-Cola cases recovered could have
come only from the vessels deck cargo. It is
settled that carrying a deck cargo raises the
presumption of unseaworthiness unless it can
be shown that the deck cargo will not interfere
with the proper management of the ship.
However, in this case it was established that
MV Asilda was not designed to carry
substantial amount of cargo on deck. The
inordinate loading of cargo deck resulted in
the decrease of the vessels metacentric
height thus making it unstable. The strong
winds and waves encountered by the vessel
are but the ordinary vicissitudes of a sea
voyage and as such merely contributed to its
already unstable and unseaworthy condition.
2. NO- The ship agent is liable for the
negligent acts of the captain in the care of
goods loaded on the vessel. This liability
however can be limited through abandonment
of the vessel, its equipment and freightage as
provided in Art. 587. Nonetheless, there are
exceptional circumstances wherein the ship
agent could still be held answerable despite
the abandonment, as where the loss or injury
was due to the fault of the shipowner and the
captain. The international rule is to the effect
that the right of abandonment of vessels, as a
legal limitation of a shipowners liability, does
not apply to cases where the injury or average
was occasioned by the shipowners own fault.
3. YES- The doctrine of subrogation has its
roots in equity. It is designed to promote and
to accomplish justice and is the mode which
equity adopts to compel the ultimate payment
of a debt by one who in justice, equity and
good conscience ought to pay. Therefore, the
payment made by PHILAMGEN to Coca-Cola
Bottlers Philippines, Inc., gave the former the
right to bring an action as subrogee against
FELMAN.
Having failed to rebut the presumption of fault,
the liability of FELMAN for the loss of the
7,500 cases of 1-liter Coca-Cola softdrink

bottles is inevitable.- Sec. 113 of the Insurance

Code provides that (i)n every marine
insurance upon a ship or freight, or freightage,
or upon anything which is the subject of
marine insurance, a warranty is implied that
the ship is seaworthy. Under Sec. 114, a ship
is seaworthy when reasonably fit to perform
the service, and to encounter the ordinary
perils of the voyage, contemplated by the
parties to the policy.
Thus it becomes the obligation of the cargo
owner to look for a reliable common carrier
which keeps its vessels in seaworthy
condition. He may have no control over the
vessel but he has full control in the selection of
the common carrier that will transport his
goods. He also has full discretion in the choice
of assurer that will underwrite a particular
venture.
- In policies where the law will generally imply
a warranty of seaworthiness, it can only be
excluded by terms in writing in the policy in the
clearest language. And where the policy
stipulates that the seaworthiness of the vessel
as between the assured and the assurer is
admitted, the question of seaworthiness
cannot be raised by the assurer without
showing concealment or misrepresentation by
the assured.
- PHILAMGENs action against FELMAN is
squarely sanctioned by Art. 2207 of the Civil
Code which provides:
Art. 2207. If the plaintiffs 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.
Disposition Petition is GRANTED.
Respondent FELMAN SHIPPING LINES is

ordered to pay petitioner PHILIPPINE

AMERICAN GENERAL INSURANCE CO.,
INC., Seven Hundred Fifty-five Thousand Two
Hundred and Fifty Pesos (P755,250.00) plus
legal interest thereon counted from 29
November 1983, the date of judicial demand,
pursuant to Arts. 2212 and 2213 of the Civil
Code.

its claim with LUZTEVECO for compensation

of damage to its cargo

PAN MALAYAN INSURANCE v. CA (THE

FOOD AND AGRICULTURAL
ORGANIZATION OF THE UNITED NATIONS)
201 SCRA 382

- Pan Malayan claims that part of the cargo

was recovered and thus the claim by FAO was
unwarranted. This is evidenced by two
surveys upon the cargo wherein it was found
that only around 78% was lost.

REGALADO; September 5, 1991

FACTS
- The Food and Agricultural Organization of
the United Nations (hereinafter referred to as
FAO), ntended and made arrangements to
send to Kampuchea 1,500 metric petitions of
IR-36 certified rice seeds to be distributed to
the people for seedling purposes
- LUZTEVECO was to ship the cargo
amounting to US$83,325.92 in respect of one
lot of 1,500 metric petitions winch is the
subject of the present action. The cargo was
loaded on board LUZTEVECO Barge No. LC3000 and consisted of 34,122 bags of IR-36
certified rice seeds purchased by FAO from
the Bureau of Plant Industry for P4,602,270.00
- FAO secured insurance coverage in the
amount of P5,250,000.00 from petitioner, Pan
Malayan Insurance Corporation- On June 16,
1980, FAO gave instructions to LUZTEVECO
to leave for Vaung Tau, Vietnam to deliver the
cargo which, by its nature, could not withstand
delay because of the inherent risks of
termination and/or spoilage. On the same
date, the insurance premiums on the shipment
was paid by FAO petitioner
- On June 26, 1980, FAO was advised of the
sinking of the barge in the China Sea, hence it
informed petitioner thereof and, later, formally
filed its claim under the marine insurance
policy. On July 29, 1980, FAO was informed
by LUSTEVECO of the recovery of the lost
shipment, for which reason FAO formally filed

- LUZTEVECO failed and refused to pay. Pan

Malayan likewise failed to pay for the losses
and damages sustained by FAO by reason of
its inability to recover the value of the
shipment from LUZTEVECO

- FAO filed a civil case against both

LUZTEVECO and Pan Malayan. Trial court
found in favor of FAO and ordered both to pay
jointly and severally the full amount of the
claim. This was affirmed by CA
ISSUE
1. WON respondent court committed a
reversible error in holding that the trial court is
correct in holding that there is a total loss of
the shipment
HELD
1. NO- The law classifies loss into either
total or partial. Total loss may be actual
or absolute, or it may otherwise be
constructive or technical. Petitioner
submits that respondent court erred in
ruling that there was total loss of the
shipment despite the fact that only
27,922 bags of rice seeds out of 34,122
bags were rendered valueless to FAO
and the shipment sustained only a loss
of 78%. - FAO, however, claims that, for
all intents and purposes, it has
practically lost its total or entire
shipment in this case, inclusive of
expenses, premium fees, and so forth,
despite the alleged recovery by
defendant LUZTEVECO.
As found by the court below and
reproduced with approval by
respondent court, FAO "has never been
compensated for this total loss or

damage, a fact which is not denied nor

controverted - If there were some
cargoes saved, by LUZTEVECO,
private respondent abandoned it and
the same was sold or used for the
benefit of LUZTEVECO or Pan Malayan
Corporation. Under Sections 129 and
130 of the New Insurance Code, a total
loss may either be actual or
constructive. In case of total loss in
Marine Insurance, the assured is
entitled to recover from the underwriter
the whole amount of his subscription SEC. 130.

denied up to the present -Section 135 of the

Insurance Code explicitly provides that "(u)pon
an actual total loss, a person insured is
entitled to payment without notice of
abandonment." This is a statutory adoption of
a long standing doctrine in maritime insurance
law that in case of actual total loss, the right of
the insured to claim the whole insurance is
absolute, without need of a notice of
abandonment

An actual total loss is caused by: (c)

Any damage to the thing which renders
it valueless to the owner for the
purpose for which he held it; or(d) Any
other event which effectively deprives
the owner of the possession, at the port
of destination of the thing insured.-as
said and proven, the seeds were of
fragile nature. And the wetting of said
seeds affected the state of seeds.

NATURE

Thus rendering them useless for FAO.

Although there were bags which were
recovered, these were stained and not
in the same condition it was brought in.
in addition to this, FAO did not receive
any compensation for said recovered
bags as the same were distributed by
LUZVETECO without authorization of
FAO- the complete physical destruction
of the subject matter is not essential to
constitute an actual total loss. Such a
loss may exist where the form and
specie of the thing is destroyed,
although the materials of which it
consisted still exist (Great Western Ins.
Co. vs. Fogarty, N.Y., 19 Wall 640, 22 L.
Ed. 216), as where the cargo by the process
of decomposition or other chemical agency no
longer remains the same kind of thing as
before (Williams vs. Cole, 16 Me. 207).
- It is thus clear that FAO suffered actual total
loss under Section 130 of the Insurance Code,
specifically under paragraphs (c) and (d)
thereof, recompense for which it has been

ORIENTAL ASSURANCE v. CA (PANAMA

SAW MILL)200 SCRA 459MELENCIOHERRERA; August 9, 1991

Petition for review on certiorari

FACTS- Sometime in January 1986, private
respondent Panama Sawmill Co., Inc.
(Panama) bought, in Palawan, 1,208 pieces of
apitong logs, with a total volume of 2,000
cubic meters. It hired Transpacific Towage,
Inc., to transport the logs by sea to Manila and
insured it against loss for P1-M with petitioner
Oriental Assurance Corporation (Oriental
Assurance).
- While the logs were being transported, rough
seas and strong winds caused damage to one
of the two barges resulting in the loss of 497
pieces of logs out of the 598 pieces loaded
thereon.
- Panama demanded payment for the loss but
Oriental Assurance refuse on the ground that
its contracted liability was for "TOTAL LOSS
ONLY."
- Unable to convince Oriental Assurance to
pay its claim, Panama filed a Complaint for
Damages against Oriental Assurance before
the Regional Trial Court.
- RTC ordered Oriental Assurance to pay
Panama with the view that the insurance
contract should be liberally construed in order
to avoid a denial of substantial justice; and
that the logs loaded in the two barges should
be treated separately such that the loss
sustained by the shipment in one of them may

be considered as "constructive total loss" and

correspondingly compensable. CA affirmed in
toto.
ISSUE
WON Oriental Assurance can be held liable
under its marine insurance policy based on the
theory of a divisible contract of insurance and,
consequently, a constructive total loss
HELD
NO- The terms of the contract constitute the
measure of the insurer liability and compliance
therewith is a condition precedent to the
insured's right to recovery from the insurer.
Whether a contract is entire or severable is a
question of intention to be determined by the
language employed by the parties. The policy
in question shows that the subject matter
insured was the entire shipment of 2,000 cubic
meters of apitong logs.
The fact that the logs were loaded on two
different barges did not make the contract
several and divisible as to the items insured.
The logs on the two barges were not
separately valued or separately insured. Only
one premium was paid for the entire shipment,
making for only one cause or consideration.
The insurance contract must, therefore, be
considered indivisible.- More importantly, the
insurer's liability was for "total loss only." A
total loss may be either actual or constructive
(Sec. 129, Insurance Code). An actual total
loss is caused by:
(a) A total destruction of the thing insured;(b)
The irretrievable loss of the thing by sinking, or
by being broken up;(c) Any damage to the
thing which renders it valueless to the owner
for the purpose for which he held it; or(d) Any
other event which effectively deprives the
owner of the possession, at the port of
destination, of the thing insured. (Section 130,
Insurance Code).
- A constructive total loss is one which gives to
a person insured a right to abandon, under
Section 139 of the Insurance Code. This
provision reads:

SECTION 139. A person insured by a contract

of marine insurance may abandon the thing
insured, or any particular portion thereof
separately valued by the policy, or otherwise
separately insured, and recover for a total loss
thereof, when the cause of the loss is a peril
injured against,
(a) If more than three-fourths thereof in value
is actually lost, or would have to be expended
to recover it from the peril;(b) If it is injured to
such an extent as to reduce its value more
than three-fourths;
xxx xxx xxx- The requirements for the
application of Section 139 of the Insurance
Code, quoted above, have not been met. The
logs involved, although placed in two barges,
were not separately valued by the policy, nor
separately insured. Resultantly, the logs lost in
the damaged barge in relation to the total
number of logs loaded on the same barge
cannot be made the basis for determining
constructive total loss. The logs having been
insured as one inseparable unit, the correct
basis for determining the existence of
constructive total loss is the totality of the
shipment of logs. Of the entirety of 1,208,
pieces of logs, only 497 pieces thereof were
lost or 41.45% of the entire shipment. Since
the cost of those 497 pieces does not exceed
75% of the value of all 1,208 pieces of logs,
the shipment cannot be said to have sustained
a constructive total loss under Section 139(a)
of the Insurance Code.Disposition judgment
under review is SET ASIDE
Federal Express Corporation vs American
Home Insurance Corp and Philam
Insurance Company
(GR No 150094, Aug 18, 2004)
Facts:
Smithklein caused the transportation of 109
cartons of veterinary biologicals. The
Shipment was initially loaded to Burlington Air
Express and then later on forwarded to the
petitioner for delivery to the consignee. When
the consignee received the same it was found
out that goods was damaged and decided to
abandon the shipment and declared a total
loss and then claimed against the insurance

company. The insurance company paid the

loss.
Issue:
Is there legal subrogation on the part of the
Insurance Company?
Held:Yes. Upon payment, the insurers
entitlement to subrogation pro tanto equips the
insurance company with a cause of action in
case of a contractual breach or negligence.
The insurance company stands in the same
footing or in substitution of the insured party.
FACTS: Shipper SMITHKLINE USA
delivered to carrier Burlington Air Express
(BURLINGTON), an agent of [Petitioner]
Federal Express Corporation, a shipment of
109 cartons of veterinary biologicals for
delivery to consignee SMITHKLINE and
French Overseas Company in Makati City.
The shipment was covered by Burlington
Airway Bill No. 11263825 with the words,
REFRIGERATE WHEN NOT IN TRANSIT
and PERISHABLE stamp marked on its face.
That same day, Burlington insured the cargoes
with American Home Assurance Company
(AHAC). The following day, Burlington turned
over the custody of said cargoes to FEDEX
which transported the same to Manila.
The shipments arrived in Manila and was
immediately stored at [Cargohaus Inc.s]
warehouse. Prior to the arrival of the cargoes,
FEDEX informed GETC Cargo International
Corporation, the customs broker hired by the
consignee to facilitate the release of its
cargoes from the Bureau of Customs, of the
impending arrival of its clients cargoes.
12 days after the cargoes arrived in Manila,
DIONEDA, a non-licensed customs broker
who was assigned by GETC, found out, while
he was about to cause the release of the said
cargoes, that the same [were] stored only in a
room with 2 air conditioners running, to cool
the place instead of a refrigerator. DIONEDA,

upon instructions from GETC, did not proceed

with the withdrawal of the vaccines and
instead, samples of the same were taken and
brought to the Bureau of Animal Industry of the
Department of Agriculture in the Philippines by
SMITHKLINE for examination wherein it was
discovered that the ELISA reading of
vaccinates sera are below the positive
reference serum.
As a consequence of the foregoing result of
the veterinary biologics test, SMITHKLINE
abandoned the shipment and, declaring total
loss for the unusable shipment, filed a claim
with AHAC through its representative in the
Philippines, the Philam Insurance Co., Inc.
(PHILAM) which recompensed SMITHKLINE
for the whole insured amount. Thereafter,
PHILAM filed an action for damages against
the FEDEX imputing negligence on either or
both of them in the handling of the cargo.
Trial ensued and ultimately concluded with the
FEDEX being held solidarily liable for the loss.
Aggrieved, petitioner appealed to the CA. The
appellate court ruled in favor of PHILAM and
held that the shipping Receipts were a prima
facie proof that the goods had indeed been
delivered to the carrier in good condition.
ISSUE: Is FEDEX liable for damage to or loss
of the insured goods
HELD: petition granted. Assailed decision
reversed insofar as it pertains to FEDEX
Prescription of Claim
From the initial proceedings in the trial court
up to the present, petitioner has tirelessly
pointed out that respondents claim and right
of action are already barred. Indeed, this fact
has never been denied by respondents and is
plainly evident from the records.

Airway Bill No. 11263825, issued by Burlington

as agent of petitioner, states:

carrier, save in the case of fraud on his part.

xxx

6. No action shall be maintained in the

case of damage to or partial loss of the
shipment unless a written notice, sufficiently
describing the goods concerned, the
approximate date of the damage or loss, and
the details of the claim, is presented by
shipper or consignee to an office of Burlington
within (14) days from the date the goods are
placed at the disposal of the person entitled to
delivery, or in the case of total loss (including
non-delivery) unless presented within (120)
days from the date of issue of the [Airway Bill].
Xxx Relevantly, petitioners airway bill states:

Condition Precedent

12./12.1 The person entitled to delivery must

make a complaint to the carrier in writing in
the case:
12.1.1 of visible damage to the goods,
immediately after discovery of the damage
and at the latest within fourteen (14) days from
receipt of the goods; xxx
Article 26 of the Warsaw Convention, on the
other hand, provides:
Xxx (2) In case of damage, the person
entitled to delivery must complain to the carrier
forthwith after the discovery of the damage,
and, at the latest, within 3 days from the date
of receipt in the case of baggage and 7 days
from the date of receipt in the case of goods.
xx
(3) Every complaint must be made in writing
upon the document of transportation or by
separate notice in writing dispatched within the
times aforesaid.
(4) Failing complaint within the times
aforesaid, no action shall lie against the

In this jurisdiction, the filing of a claim with the

carrier within the time limitation therefor
actually constitutes a condition precedent to
the accrual of a right of action against a carrier
for loss of or damage to the goods. The
shipper or consignee must allege and prove
the fulfillment of the condition. If it fails to do
so, no right of action against the carrier can
accrue in favor of the former. The
aforementioned requirement is a reasonable
condition precedent; it does not constitute a
limitation of action.
The requirement of giving notice of loss of or
injury to the goods is not an empty formalism.
The fundamental reasons for such a
stipulation are (1) to inform the carrier that the
cargo has been damaged, and that it is being
charged with liability therefor; and (2) to give it
an opportunity to examine the nature and
extent of the injury. This protects the carrier
by affording it an opportunity to make an
investigation of a claim while the matter is
fresh and easily investigated so as to
safeguard itself from false and fraudulent
claims.
NOTES: as to proper payee:
The Certificate specifies that loss of or
damage to the insured cargo is payable to
order x x x upon surrender of this Certificate.
Such wording conveys the right of collecting
on any such damage or loss, as fully as if the
property were covered by a special policy in
the name of the holder itself. At the back of
the Certificate appears the signature of the
representative of Burlington. This document
has thus been duly indorsed in blank and is
deemed a bearer instrument.

Since the Certificate was in the possession of

Smithkline, the latter had the right of collecting
or of being indemnified for loss of or damage
to the insured shipment, as fully as if the
property were covered by a special policy in
the name of the holder. Hence, being the
holder of the Certificate and having an
insurable interest in the goods, Smithkline was
the proper payee of the insurance proceeds.
Subrogation
Upon receipt of the insurance proceeds, the
consignee (Smithkline) executed a
subrogation Receipt in favor of respondents.
The latter were thus authorized to file claims
and begin suit against any such carrier,
vessel, person, corporation or government.
Undeniably, the consignee had a legal right to
receive the goods in the same condition it was
delivered for transport to petitioner. If that
right was violated, the consignee would have a
cause of action against the person responsible
therefor.

dropped from the cargo hatch to the pier

apron. The owner of the goods examined the
dropped cargo, and upon an alleged finding
that the contents of the crate were no longer
usable for their intended purpose, they were
rejected as a total loss and returned to Cebu
City.
The owner of the goods filed a claim with
herein petitioner-carrier for the recovery of the
value of the rejected cargo which was refused
by the latter. Thereafter, the owner of the
goods sought payment from respondent First
Lepanto-Taisho
Insurance
Corporation
(insurer) under a marine insurance policy
issued to the former. Respondent-insurer paid
the claim less thirty-five percent (35%) salvage
value or P194, 220.31.

Topic: Extraordinary diligence

The payment of the insurance claim of the

owner of the goods by the respondent-insurer
subrogated the latter to whatever right or legal
action the owner of the goods may have
against Delbros, Inc. and petitioner-carrier,
Sulpicio Lines, Inc. Thus, respondent-insurer
then filed claims for reimbursement from
Delbros, Inc. and petitioner-carrier Sulpicio
Lines, Inc. which were subsequently denied.

SULPICIO LINES, INC., petitioner, vs. FIRST

LEPANTO-TAISHO
INSURANCE
CORPORATION, respondent.

In 1992, respondent-insurer filed a suit for

damages with the trial court against Delbros,
Inc. and herein petitioner-carrier.

G.R. No. 140349. June 29, 2005

Delbros, Inc. filed on 15 April 1993 its Answer

with Counterclaim and Cross-claim, alleging
that assuming the contents of the crate in
question were truly in bad order, fault is with
herein petitioner-carrier which was responsible
for the unloading of the crates.

FACTS: Taiyo Yuden Philippines, Inc. (owner

of the goods) and Delbros, Inc. (shipper)
entered into a contract, evidenced by Bill of
Lading issued by the latter in favor of the
owner of the goods, for Delbros, Inc. to
transport a shipment of goods consisting of 3
wooden crates containing 136 cartons of
inductors and LC compound on board the V
Singapore V20 from Cebu City to Singapore in
favor of the consignee, Taiyo Yuden Singapore
Pte, Ltd.
For the carriage of said shipment from Cebu
City to Manila, Delbros, Inc. engaged the
services of the vessel M/V Philippine Princess,
owned and operated by petitioner Sulpicio
Lines, Inc. (carrier). During the unloading of
the shipment, one crate containing 42 cartons

Petitioner-carrier filed its Answer to Delbros,

Inc.s cross-claim asserting that it observed
extraordinary diligence in the handling,
storage and general care of the shipment and
that subsequent inspection of the shipment by
the Manila Adjusters and Surveyors Company
showed that the contents of the third crate that
had fallen were found to be in apparent sound
condition, except that 2 cello bags each of 50
pieces ferri inductors No. LC FL 112270K-60

(c) were unaccounted for and missing as per

packaging list.
After hearing, the trial court dismissed the
complaint for damages as well as the
counterclaim filed by therein defendant
Sulpicio Lines, Inc. and the cross-claim filed
by Delbros, Inc on the grounds that plaintiff
has failed to prove its case.
The CA reversed the RTC decision and
ordered Delbros and Sulpicio Lines to pay,
jointly and severally, plaintiff-appellant the sum
of P194,220.31 representing actual damages,
plus legal interest counted from the filing of the
complaint until fully paid.
ISSUE: whether or not, based on the evidence
presented during the trial, the owner of the
goods, respondent-insurers predecessor-ininterest, did incur damages, and if so, whether
or not petitioner-carrier is liable for the same
RULING:
It cannot be denied that the shipment
sustained damage while in the custody of
petitioner-carrier. It is not disputed that one of
the 3 crates did fall from the cargo hatch to the
pier apron while petitioner-carrier was
unloading the cargo from its vessel. Neither is
it impugned that upon inspection, it was found
that 2 cartons were torn on the side and the
top flaps were open and that 2 cello bags,
each of 50 pieces ferri inductors, were missing
from the cargo.
Petitioner-carrier contends that its liability, if
any, is only to the extent of the cargo damage
or loss and should not include the lack of
fitness of the shipment for transport to
Singapore due to the damaged packing. This
is erroneous. Petitioner-carrier seems to
belabor under the misapprehension that a
distinction must be made between the cargo
packaging and the contents of the cargo.
According to it, damage to the packaging is
not tantamount to damage to the cargo. It
must be stressed that in the case at bar, the
damage sustained by the packaging of the
cargo while in petitioner-carriers custody

resulted in its unfitness to be transported to its

consignee in Singapore. Such failure to ship
the cargo to its final destination because of
the ruined packaging, indeed, resulted in
damages on the part of the owner of the
goods.
The falling of the crate during the unloading is
evidence of petitioner-carriers negligence in
handling the cargo. As a common carrier, it is
expected to observe extraordinary diligence in
the handling of goods placed in its possession
for
transport.[12] The
standard
of
extraordinary diligence imposed upon
common carriers is considerably more
demanding than the standard of ordinary
diligence, i.e.,
the
diligence
of
a
good paterfamilias established in respect
of the ordinary relations between members
of society.[13] A common carrier is bound to
transport its cargo and its passengers
safely "as far as human care and foresight
can
provide,
using
the utmost
diligence of a very cautious person, with
due regard to all circumstances. [14] The
extraordinary diligence in the vigilance
over the goods tendered for shipment
requires the common carrier to know and
to follow the required precaution for
avoiding the damage to, or destruction of,
the goods entrusted to it for safe carriage
and delivery.[15] It requires common carriers
to render service with the greatest skill and
foresight and to use all reasonable means
to ascertain the nature and characteristic
of goods tendered for shipment, and to
exercise due care in the handling and
stowage, including such methods as their
nature requires.[16]
Thus, when the shipment suffered
damages as it was being unloaded,
petitioner-carrier is presumed to have been
negligent in the handling of the damaged
cargo.
Under
Articles
1735[17] and
[18]
1752 of the Civil Code, common carriers
are presumed to have been at fault or to
have acted negligently in case the goods
transported by them are lost, destroyed or
had deteriorated.
To overcome the
presumption
of
liability
for
loss,

destruction or deterioration of goods under

Article 1735, the common carrier must
prove that they observed extraordinary
diligence as required in Article 1733[19] of
the Civil Code.[20]
Petitioner-carrier miserably failed to adduce
any shred of evidence of the required
extraordinary diligence to overcome the
presumption that it was negligent in
transporting the cargo.
Coming now to the issue of the extent of
petitioner-carriers liability, it is undisputed that
respondent-insurer paid the owner of the
goods under the insurance policy the amount
of P194,220.31 for the alleged damages the
latter has incurred. Neither is there dispute as
to the fact that Delbros, Inc. paid P194,220.31
to respondent-insurer in satisfaction of the
whole amount of the judgment rendered by the
Court of Appeals. The question then is: To
what extent is Sulpicio Lines, Inc., as
common carrier, liable for the damages
suffered by the owner of the goods?
Upon respondent-insurers payment of the
alleged amount of loss suffered by the insured
(the owner of the goods), the insurer is
entitled to be subrogated pro tanto to any
right of action which the insured may have
against the common carrier whose
negligence or wrongful act caused the
loss.[21] 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.[22]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.[23] In other words, a subrogee cannot
succeed to a right not possessed by the
subrogor.[24] A subrogee in effect steps into the
shoes of the insured and can recover only if
the insured likewise could have recovered. [25]
As found by the Court of Appeals, there was
damage suffered by the goods which
consisted in the destruction of one wooden

crate and the tearing of two (2) cardboard

boxes therein which rendered them unfit to be
sent to Singapore.[26] The falling of the crate
was negligence on the part of Sulpicio
Lines, Inc. for which it cannot exculpate
itself from liability because it failed to
prove that it exercised extraordinary
diligence.[27]
Hence, we uphold the ruling of the
appellate court that herein petitionercarrier is liable to pay the amount paid by
respondent-insurer for the damages
sustained by the owner of the goods.
As stated in the manifestation filed by Delbros,
Inc., however, respondent-insurer had
already been paid the full amount granted
by the Court of Appeals, hence, it will be
tantamount to unjust enrichment for
respondent-insurer to again recover
damages from herein petitioner-carrier.
With respect to Delbros, Inc.s prayer
contained in its manifestation that, in case the
decision in the instant case be adverse to
petitioner-carrier, a pronouncement as to the
matter of reimbursement, indemnification or
contribution in favor of Delbros, Inc. be
included in the decision, this Court will not
pass upon said issue since Delbros, Inc. has
no personality before this Court, it not being a
party to the instant case. Notwithstanding, this
shall not bar any action Delbros, Inc. may
institute against petitioner-carrier Sulpicio
Lines, Inc. with respect to the damages the
latter is liable to pay.
WHEREFORE, premises considered, the
assailed Decision of the Court of Appeals
dated 26 May 1999 and its Resolution dated
13 October 1999 are hereby AFFIRMED. No
costs.

American Home Assurance v. Tantuco

INSURANCE LAW: Liberality is the rule of
construction in insurance contracts.
FACTS:

G.R. No. 151890 June 20, 2006

Tantuco Enterprises, Inc. is a coconut oil
milling and refining company. It owned two
mills (the first oil mill and a new one), both
located at its factory compound at Iyam,
Lucena City. The two oil mills are separately
covered by fire insurance policies issued by
American Home Assurance Co.
On Sept. 30, 1991, a fire broke out and gutted
and consumed the new oil mill. American
Home rejected the claim for the insurance
proceeds on the ground that no policy was
issued by it covering the burned oil mill. It
stated that the new oil mill was under Building
No. 15 while the insurance coverage extended
only to the oil mill under Building No. 5.
ISSUE:
Whether or not the new oil mill is
covered by the fire insurance policy
HELD:
In construing the words used descriptive of a
building insured, the greatest liberality is
shown by the courts in giving effect to the
insurance. In view of the custom of insurance
agents to examine buildings before writing
policies upon them, and since a mistake as to
the identity and character of the building is
extremely unlikely, the courts are inclined to
consider the policy of insurance covers any
building which the parties manifestly intended
to insure, however inaccurate the description
may be.
Notwithstanding, therefore, the misdescription
in the policy, it is beyond dispute, to our mind,
that what the parties manifestly intended to
insure was the new oil mill.
If the parties really intended to protect the first
oil mill, then there is no need to specify it as
new. Indeed, it would be absurd to assume
that the respondent would protect its first oil
mill for different amounts and leave uncovered
its second one.
PRUDENTIAL
GUARANTEE
and
ASSURANCE
INC.,
vs.
TRANS-ASIA
SHIPPING LINES, INC

Facts:
TRANS-ASIA is the owner of the vessel M/V
Asia Korea. In consideration of payment of
premiums, PRUDENTIAL 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 P40 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 damage sustained by the
vessel evidenced by a letter/formal claim.
TRANS-ASIA
reserved
its
right
to
subsequently notify PRUDENTIAL as to the
full amount of the claim upon final survey and
determination by average adjuster Richard
Hogg International (Phil.) of the damage
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 PESOS THREE MILLION ONLY
(P3,000,000.00) as a loan without interest
under Policy No. MH 93/1353 [sic], 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 corporations, 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-Asias
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 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.

TRANS-ASIA filed a Complaint for Sum of

Money against PRUDENTIAL with the RTC of
Cebu City, wherein TRANS-ASIA sought the
amount
of
P8,395,072.26
from
PRUDENTIAL, alleging that the same
represents the balance of the indemnity
due upon the insurance policy in the total
amount of P11,395,072.26. TRANS-ASIA
similarly sought interest at 42% per annum
citing Section 243 of Presidential Decree No.
1460, otherwise known as the "Insurance
Code," asamended.
PRUDENTIAL denied the material allegations
of the Complaint and interposed the defense
that TRANS-ASIA breached insurance policy
conditions, in particular: PRUDENTIAL
posits that TRANS-ASIA violated an
express and material warranty in the subject
insurance contract, i.e., Marine Insurance
Policy No. MH93/1363, specifically Warranty
Clause No. 5 thereof, which stipulates that the
insured vessel, "M/V ASIA KOREA" is required
to be CLASSED AND CLASS MAINTAINED.
According to PRUDENTIAL, on 25 October
1993, or at the time of the occurrence of the
fire, "M/V ASIA KOREA" was in violation of the
warranty as it was not CLASSED AND CLASS
MAINTAINED. PRUDENTIAL submits that
Warranty Clause No. 5 was a condition
precedent to the recovery of TRANS-ASIA
under the policy, the violation of which entitled
PRUDENTIAL to rescind the contract under
Sec. 74 of the Insurance Code. By way of a
counterclaim, PRUDENTIAL sought a refund
of P3,000,000.00, which it allegedly advanced
to TRANS-ASIA by way of a loan without
interest and without prejudice to the final
evaluation of the claim, including the amounts
of P500,000.00, for survey fees and
P200,000.00, representing attorneys fees.
Trial court ruled in favor of Prudential. It ruled
that a determination of the parties liabilities
hinged on whether TRANS- ASIA violated
and breached
the policy conditions
on
WARRANTED VESSEL CLASSED AND
CLASS MAINTAINED.
It interpreted the
provision to mean that TRANS-ASIA is
required to maintain the vessel at a certain
class at all times pertinent during the life of the
policy. According to the court a quo, 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 that PRUDENTIAL, as the party
asserting the non-compensability of the loss
had the burden of proof to show that TRANSASIA breached the warranty, which burden it
failed to discharge. PRUDENTIAL
cannot
rely on the lack of certification to the
effect that TRANS-ASIA was CLASSED
AND CLASS MAINTAINED as its sole basis
for reaching the conclusion that the warranty
was breached. It opined that the lack of a
certification does not necessarily mean
that the warranty was breached by
TRANS-ASIA.
Instead,
it
considered
PRUDENTIALs admission that at the time the
insurance contract was entered into between
the parties, the vessel was properly classed by
Bureau Veritas, a classification society
recognized by the industry. It similarly gave
weight to the fact
that
it
was
the
responsibility
of
Richards
Hogg
International (Phils.) Inc., the average
adjuster hired by PRUDENTIAL, to secure a
copy of such certification to support its
conclusion that mere absence of a certification
does not warrant denial of TRANS-ASIAs
claim under the insurance policy.
Issue: WON Trans-Asia breached the warranty
stated in the insurance policy, thus absolving
Prudential from paying Trans-Asia.
Ruling: No.
Rationale:
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.

The lack of a certification in PRUDENTIALs

records to the effect that TRANS-ASIAs "M/V
Asia Korea" was CLASSED AND CLASS
MAINTAINED at the time of the occurrence of
the fire cannot be tantamount to the
conclusion that TRANS-ASIA in fact breached
the warranty contained in 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
adjusters
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 nonfulfillment 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 TRANS-ASIA
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-ASIAs breach of
warranty as alleged. Because 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-ASIAs
insurance policy for two consecutive years
after the loss covered by Policy No.
MH93/1363, was considered to have waived
TRANS-ASIAs 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.
FILIPINO MERCHANTS INS. v. CA (CHOA
TIEK SENG)179 SCRA 638REGALADO;
November 28, 1989
NATURE
Review of the decision of the CA
FACTS- Plaintiff insured said shipment with
defendant insurance company under said
cargo for the goods described as 600 metric
tons of fishmeal in new gunny bags of 90 kilos
each from Bangkok, Thailand to Manila
against all risks under warehouse to
warehouse terms.
- Some of the goods arrived in bad condition.
Plaintiff made a claim against Filipino
Merchants Insurance Company. The latter
refused to pay. Plaintiff brought an action
against them. The defendant insurance
company presented a third party complaint
against the vessel and the arrastre contractor.
- Judgment was rendered against the
insurance company. On the third party
complaint, the third party defendants were
ordered to pay the third party plaintiffs. The CA

affirmed, but modified the same with regard to

the adjudication of the third-party complaint
ISSUES
1. WON some fortuity, casualty or
accidental cause is needed to be
proved despite the all risks policy (as
asserted by the insurance company)2.
WON the respondent has an insurable
interest
2. HELD
1. NO- The very nature of the term "all risks"
must be given a broad and comprehensive
meaning as covering any loss other than a
willful and fraudulent act of the insured. This is
pursuant to the very purpose of an "all risks"
insurance to give protection to the insured in
those cases where difficulties of logical
explanation or some mystery surround the
loss or damage to property.
- Generally, the burden of proof is upon the
insured to show that a loss arose from a
covered peril, but under an "all risks" policy
the burden is not on the insured to prove the
precise cause of loss or damage for which it
seeks compensation. The insured under an
"all risks insurance policy" has the initial
burden of proving that the cargo was in good
condition when the policy attached and that
the cargo was damaged when unloaded from
the vessel; thereafter, the burden then shifts to
the insurer to show the exception to the
coverage. As we held in Paris-Manila
Perfumery Co. vs. Phoenix Assurance Co.,
Ltd. the basic rule is that the insurance
company has the burden of proving that the
loss is caused by the risk excepted and for
want of such proof, the company is liable. In
the present case, there being no showing that
the loss was caused by any of the excepted
perils, the insurer is liable under the policy.
2. YES- Section 13 of the Insurance Code
defines insurable interest in property as every
interest in property, whether real or personal,
or any relation thereto, or liability in respect
thereof, of such nature that a contemplated
peril might directly damnify the insured. In

principle, anyone has an insurable interest in

property who derives a benefit from its
existence or would suffer loss from its
destruction whether he has or has not any title
in, or lien upon or possession of the property.
Insurable interest in property may consist in
(a) an existing interest; (b) an inchoate interest
founded on an existing interest; or (c) an
expectancy, coupled with an existing interest
in that out of which the expectancy arises.
- Respondents interest over the goods is
based on the perfected contract of sale. The
perfected contract of sale between him and
the shipper of the goods operates to vest in
him an equitable title even before delivery or
before be performed the conditions of the sale.
- Further, Article 1523 of the Civil Code
provides that where, in pursuance of a
contract of sale, the seller is authorized or
required to send the goods to the buyer,
delivery of the goods to a carrier, whether
named by the buyer or not, for, the purpose of
transmission to the buyer is deemed to be a
delivery of the goods to the buyer, the
exceptions to said rule not obtaining in the
present case. The Court has heretofore ruled
that the delivery of the goods on board the
carrying vessels partake of the nature of
actual delivery since, from that time, the
foreign buyers assumed the risks of loss of the
goods and paid the insurance premium
covering themMoreover, the issue of lack of
insurable interest was not raised in petitioners
answer.Disposition Petition denied.