TOPIC: CONTRACT OF INSURANCE

TITLE: MAYER STEEL PIPE CORPORATION and HONGKONG GOVERNMENT SUPPLIES

DEPARTMENT, petitioners, vs. COURT OF APPEALS, SOUTH SEA SURETY AND
INSURANCE CO., INC. and the CHARTER INSURANCE CORPORATION, respondents.

G.R. No. 124050 June 19, 1997

FACTS:

In 1983, Hongkong Government Supplies Department (HGSD) contracted Mayer Steel

Pipe Corporation for the latter to manufacture and deliver various steel pipes and fittings. Before
Mayer Steel shipped the said pipes, it insured them with two insurance companies namely, South
Sea Surety and Insurance Co., Inc. and Charter Insurance Corporation – each insurer covering
different portions of the shipment. The insurance policies cover “all risks” which include all causes
of conceivable loss or damage.
When the pipes reached Hongkong, the pipes were discovered to have been damaged.
The insurance companies refused to make payment. On April 17 1986, Mayer Steel sued the
insurance companies. The case reached the Court of Appeals. The CA ruled that the case filed
by Mayer Steel should be dismissed. It held that the action is barred under Section 3(6) of the
Carriage of Goods by Sea Act since it was filed only on April 17, 1986, more than two years from
the time the goods were unloaded from the vessel. Section 3(6) of the Carriage of Goods by Sea
Act provides that “the carrier and the ship shall be discharged from all liability in respect of loss
or damage unless suit is brought within one year after delivery of the goods or the date when the
goods should have been delivered.” The CA ruled that this provision applies not only to the carrier
but also to the insurer, citing the case of Filipino Merchants Insurance Co., Inc. vs Alejandro.
ISSUE:
Whether or not the Court of Appeals is correct.
HELD:
No. Section 3(6) of the Carriage of Goods by Sea Act states that the carrier and the ship
shall be discharged from all liability for loss or damage to the goods if no suit is filed within one
year after delivery of the goods or the date when they should have been delivered. Under this
provision, only the carrier’s liability is extinguished if no suit is brought within one year. But the
liability of the insurer is not extinguished because the insurer’s liability is based not on the contract
of carriage but on the contract of insurance. A close reading of the law reveals that the Carriage
of Goods by Sea Act governs the relationship between the carrier on the one hand and the
shipper, the consignee and/or the insurer on the other hand. It defines the obligations of the carrier
under the contract of carriage. It does not, however, affect the relationship between the shipper
and the insurer. The latter case is governed by the Insurance Code.
The Filipino Merchants case is different from the case at bar. In Filipino Merchants, it was
the insurer which filed a claim against the carrier for reimbursement of the amount it paid to the
shipper. In the case at bar, it was the shipper which filed a claim against the insurer. The basis of
the shipper’s claim is the “all risks” insurance policies issued by the insurers to Mayer Steel.
The ruling in Filipino Merchants should apply only to suits against the carrier filed either
by the shipper, the consignee or the insurer.