XI.
LOSS AND CLAIMS SETTLEMENTS The RTC, in the Order dated November 22, 2005, pegged the interest rate at
1 STRONGHOLD INSURANCE CO. v. PAMANA ISLAND RESORT HOTEL
Facts:
The case stems from an action for sum of money filed by Pamana Island
Resort Hotel and Marina Club, Inc. (Pamana) and Flowtech Construction
Corporation (Flowtech) against Stronghold on the basis of a Contractor's All
Risk Bond of ?9,047,960.14 obtained by Flowtech in relation to the
construction of Pamana's project in Pamana Island, Subic Bay. On January
27, 1992, a fire in the project burned down cottages being built by Flowtech,
resulting in losses to Pamana.
In a Decision dated October 14, 1999, the Regional Trial Court (RTC) of
Makati City, Branch 135 declared Stronghold liable for the claim. Besides the
award of insurance proceeds, exemplary damages and attorney's fees, the
trial court ordered the payment of interest at double the applicable rate,
following Section 243 of the Insurance Code which Stronghold was declared
to have violated.
Stronghold filed an Urgent Motion to Suspend Execution and to Rationalize
Enforcement of the Decision, contending that the interest penalty being
demanded from it through the Sheriff was unconscionable and iniquitous.
The RTC rendered its Order granting Stronghold's motion. Interest was
substantially reduced following the court's pronouncement that its
computation should be reckoned from the date of promulgation of judgment
until its finality and not from the date of demand until full payment as
enunciated in the Decision.
RTC: The claim of [Pamana and Flowtech] for the interest of the principal
amount in the sum of P7,528,774.05, does not appear to be accurate. The
principal amount of P4,728,297.82 demanded x x x was ascertained only
after the trial of the case on its merits. The obligation of [Stronghold] is not a
loan or [forbearance] of money. The interest on the obligation shall begin to
run from the time the claim is made judicially and extrajudicially when the
demand was established with certainty. But when such certainty cannot be
so reasonably established at the time of the demand, the interest shall begin
only from the date of judgment of the court.
A disagreement, however, concerns the question of whether an interest rate
of 6 percent or 12% per annum should apply in the computation, as this
subject was not specifically defined in the RTC judgment in the main case.
6% per annum by explaining that Stronghold's obligation did not equate to a
loan or forbearance of money. On the other hand, the CA explained that the
double rate should be based on 12% per annum, as the Insurance Code
pertained to a rate "twice the ceiling prescribed by the Monetary Board" and
thus could only refer to the rate applicable to obligations constituting a loan
or forbearance of money.
Issue:
Whether or not the RTC was correct in its ruling about the interest. (No)
Ruling:
No, The Court agrees with the CA that given the provisions of the Insurance
Code, which is a special law, the applicable rate of interest shall be that
imposed in a loan or forbearance of money as imposed by the Bangko
Sentral ng Pilipinas (BSP), even irrespective of the nature of Stronghold's
liability. In the past years, this rate was at 12% per annum. However, in light
of Circular No. 799 issued by the BSP on June 21, 2013 decreasing interest
on loans or forbearance of money, the CA's declared rate of 12% per annum
shall be reduced to 6% per annum from the time of the circular's effectivity on
July 1, 2013. The Court explained in Nacar v. Gallery Frames that the new
rate imposed under the circular could only be applied prospectively, and not
retroactively.
As regards the issue of estoppel raised by Stronghold in view of Pamanas' s
receipt of checks issued by the former pursuant to the R TC' s order to
implement, the Court rejects the argument in view of a failure to sufficiently
establish that Pamana accepted the sums in full satisfaction of their claims.
2 PIONEER INSURANCE and SURETY CORPORATION vs. APL CO.
PTE. LTD.
The present case involves lost or damaged cargo. It has long been settled
that in case of loss or damage of cargoes, the one-year prescriptive period
under the COOSA applies.
FACTS:
On January 13, 2012, the shipper, Chillies Export House Limited,
turned over to respondent APL Co. Pte. Ltd. {APL) 250 bags of chili pepper
for transport from the port of Chennai, India, to Manila. The shipment, with a
total declared value of $12,272.50, was loaded on board MN Wan Hai 262. In
tum, BSFIL Technologies, Inc. (BSFIL), as consignee, insured the cargo with
petitioner Pioneer Insurance and Surety Corporation. On February 2, 2012,
the shipment arrived at the port of Manila and was temporarily stored at
North Harbor, Manila. On February 6, 2012, the bags of chili were withdrawn
and delivered to BSFIL. Upon receipt thereof, it discovered that 76 bags were
wet and heavily infested with molds. The shipment was declared unfit for
human consumption and was eventually declared as a total loss. As a result,
BSFIL made a formal claim against APL and Pioneer Insurance. The latter
hired an independent insurance adjuster, which found that the shipment was
wet because of the water which seeped inside the container van APL
provided. Pioneer Insurance paid BSFIL Pl 95,505.65. Having been
subrogated to all the rights and cause of action of BSFIL, Pioneer Insurance
sought payment from APL, but the latter refused. This prompted Pioneer
Insurance to file a complaint for sum of money against APL.
Pioneer Insurance insists the action, which was filed on February 1,
2013, was within the one year prescriptive period under the COGSA after
BSFIL received the goods on February 6, 2012. It argues that the ninemonth
period provided under the Bill of Lading was inapplicable because the Bill of
Lading itself states that in the event that such time period is found to be
contrary to any law compulsorily applicable, then the period prescribed by
such law shall then apply. Pioneer Insurance is of the view that the
stipulation in the Bill of Lading is subordinate to the COOSA. It asserts that
while parties are free to stipulate the terms and conditions of their contract,
the same should not be contrary to law, morals, good customs, public order,
or public policy. APL countered that Pioneer Insurance erred in claiming that
the nine-month period under the Bill of Lading applies only in the absence of
an applicable law. It stressed that the nine-month period under the Bill of
Lading applies, unless there is a law to the contrary. APL explained that
"absence" differs from "contrary." It, thus, argued that the nine-month period
was applicable because it is not contrary to any applicable law.
MTC granted the complaint and ordered APL to pay Pioneer
Insurance the amount claimed plus six percent ( 6%) interest per annum from
the filing of the complaint until fully paid. the RTC concurred with the MTC.
CA reversed the decisions of the trial courts and ruled that the present action
was barred by prescription.
ISSUE:
WHETHER THE HONORABLE COURT OF APPEALS SERIOSULY ERRED
IN HOLDING THAT THE ONE YEAR PRESCRIPTIVE PERIOD PROVIDED
UNDER THE CARRIAGE OF GOODS BY SEA ACT (COGSA) IS NOT
APPLICABLE IN THE INSTANT CASE
RULING:
YES. After a closer persual of the the Bill of Lading, the Court finds that its
provisions are clear and unequivocal leaving no room for interpretation. In
the Bill of Lading, it was categorically stated that the carrier shall in any event
be discharged from all liability whatsoever in respect of the goods, unless suit
is brought in the proper forum within nine (9) months after delivery of the
goods or the date when they should have been delivered. The same,
however, is qualified in that when the said nine-month period is contrary to
any law compulsory applicable, the period prescribed by the said law shall
apply. The present case involves lost or damaged cargo. It has long been
settled that in case of loss or damage of cargoes, the one-year prescriptive
period under the COOSA applies. It is at this juncture where the parties are
at odds, with Pioneer Insurance claiming that the one-year prescriptive
period under the COOSA governs; whereas APL insists that the nine-month
prescriptive period under the Bill of Lading applies. A reading of the Bill of
Lading between the parties reveals that the nine-month prescriptive period is
not applicable in all actions or claims. As an exception, the nine-month period
is inapplicable when there is a different period provided by a law for a
particular claim or action-unlike in Philippine American where the Bill of
Lading stipulated a prescriptive period for actions without exceptions. Thus, it
is readily apparent that the exception under the Bill of Lading became
operative because there was a compulsory law applicable which provides for
a different prescriptive period. Hence, strictly applying the terms of the Bill of
Lading, the one-year prescriptive period under the COOSA should govern
because the present case involves loss of goods or cargo. In finding so, the
Court does not construe the Bill of Lading any further but merely applies its
terms according to its plain and literal meaning.
3 ALPHA INSURANCE AND SURETY CO., VS. ARSENIA SONIA
CASTOR
Facts:
Castor entered into a contract of insurance (Motor Car Policy) with
Alpha Insurance (company), involving her motor vehicle (Toyota Revo). Sec
III - Loss or Damage - Of the Insurance policy provides that the company will
pay Castor the amount of P630K in case of loss or damage to said vehicle
during the period covered, which is from Feb 26, 2007-Feb 26 2008.
Castor instructed her driver, Jose, to bring the said vehicle to a
nearby auto-shop for a tune-up but Jose no longer returned the vehicle.
Castor immediately reported the incident to the police and later notified
Company of said loss and demanded payment of the insurance proceeds.
The company denied the claim of Castor, because according to the
former, the incident in this case falls within the exceptions provided to Sec III
which provides that The Company shall not be liable for Any malicious
damage caused by the Insured, any member of his family or by “A PERSON
IN THE INSURED’S SERVICE.”

Arguments:
Castor - the exception refers to damage of the motor vehicle and not to its
loss
Company - the word "damage" under paragraph 4 of "exceptions to Section
III" means loss due to injury or harm to person, property, or reputation and
should be construed to cover malicious loss as in theft.
RTC and CA ruled in favor of Castor, hence this petition.
Issue:
Whether or not Alpha Insurance is liable to Castor for the loss of the latter's
motor vehicle due to theft committed by her driver.
Ruling:
Yes. Theft perpetrated by a driver of the insured is not an exception
to the coverage from the insurance policy subject of this case. This is evident
from the very provision of Section III – “Loss or Damage.” The insurance
company, subject to the limits of liability, is obligated to indemnify the insured
against theft. Said provision does not qualify as to who would commit the
theft. Thus, even if the same is committed by the driver of the insured, there
being no categorical declaration of exception, the same must be covered.
As correctly pointed out by the plaintiff, “(A)n insurance contract
should be 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.
The Company would argue that if the person employed by the
insured would commit the theft and the insurer would be held liable, then this
would result to an absurd situation where the insurer would also be held
liable if the insured would commit the theft. This argument is certainly flawed.
Of course, if the theft would be committed by the insured himself, the same
would be an exception to the coverage since in that case there would be
fraud on the part of the insured or breach of material warranty under Section
69 of the Insurance Code.
Moreover, contracts of insurance, like other contracts, are to be
construed according to the sense and meaning of the terms which the parties
themselves have used. Adverse to petitioner’s claim, the words “loss” and
“damage” mean different things in common ordinary usage. The word “loss”
refers to the act or fact of losing, or failure to keep possession, while the
word “damage” means deterioration or injury to property.
Therefore, petitioner cannot exclude the loss of respondent’s vehicle
under the insurance policy under paragraph 4 of “Exceptions to Section III,”
since the same refers only to “malicious damage,” or more specifically,
“injury” to the motor vehicle caused by a person under the insured’s service.
Paragraph 4 clearly does not contemplate “loss of property,” as what
happened in the instant case. "malicious damage,” as provided for in the
subject policy as one of the exceptions from coverage, is the damage that is
the direct result from the deliberate or willful act
If the intention of the defendant-appellant was to include the term
“loss” within the term “damage” then logic dictates that it should have used
the term “damage” alone in the entire policy or otherwise included a clear
definition of the said term as part of the provisions of the said insurance
contract
Lastly, a contract of insurance is a contract of adhesion. So, when
the terms of the insurance contract contain limitations on liability, courts
should construe them in such a way as to preclude the insurer from non-
compliance with his obligation.
PETITION DENIED.
4 PRUDENTIAL GUARANTEE and ASSURANCE INC., petitioner, vs.
TRANS-ASIA SHIPPING LINES, INC., Respondent. (G.R. No.
151890 June 20, 2006)
FACTS:
Trans Asia is the owner of M/V Asia Korea. Prudential Guarantee and
Assurance Inc. insured the vessel for loss and damage of the hull and
machinery arising from perils of fire and explosion beginning July 1,1993 until
July 1,1994. October 25,1993 a fire broke out. Trans Asia filed its notice of
claim for damages sustained by the vessel. It also reserved its right to
subsequently notify Prudential as to the full amount of the claim upon final
survey and determination by the average adjuster Richard Hogg International
of the damage sustained by reason of the fire.
Trans Asia executed a document denominated “Loan and Trust Receipt”
amounting to P3,000. Prudential Guarantee denied the claim and requested
for the return of the said amount, they contend that there was a breach in the
policy condition ; specifically the Warranted Vessel Classed and Class
Maintained.
Trial Court held that Trans Asia failed to prove its compliance with the terms
of the warranty and that the concealment made by Trans Asia is sufficient to
avoid the policy. Prudential Guarantee is entitled to rescind the contract.
Court of Appeals reversed the decision as it contended that Prudential had
the burden to show that there was a breach in the warranty and it had failed
to do so. The appellate court considered Prudential’s admission that at the
time the insurance contract was entered into, the vessel was classed by the
Bureau Veritas, a classification society recognized by the industry. It further
contended that the then subject warranty was in a form of a rider, hence such
contract should be construed against Prudential Guarantee. It also construed
the transaction between both parties as one of subrogation instead of a loan.
ISSUE:
WON there was a breach in the warranty
RULING:
NO.
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 PRUDENTIAL’s records to the effect that
TRANS-ASIA’s "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
adjuster’s survey report, or adjustment of particular average per "M/V Asia
Korea" of the 25 October 1993 fire on board.
The Supreme Court are 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 non-fulfillment 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 Asia’s
breach of warranty, because after the loss it had renewed the insurance
policy for two consecutive years. Such renewal is deemed a waiver of any
breach of warranty. 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
5 New World Int'l Development Phils., Inc. vs. NYK-FILJAPAN Shipping
Corp (GR No. 171468, August 24, 2011)
Facts:
New World International Development (Phils.) Inc. (New World) bought 3
emergency generator sets worth $721,500.00 from DMT Corporation (DMT)
through its agent, Advatech Industries Inc. (Advatech). New world Insured
the same with Seaboard-Eastern Insurance Company (Seaboard).
The generator sets were shipped from United States to Hongkong and
supposedly be delivered by NYK Fil-Japan Shipping Corporation (NYK) (the
common carrier) to Philippines. However, during its transit, it encountered
typhoon Kadiang so the captain filed a sea protest on arrival at the Manila
South Harbor on Oct 5, 1993 respecting the loss and damage that the goods
on board his vessel suffered.
The shipment was found to be irreparable because of the extensive damage
it suffered, so New World filed a claim against DMT, Advatech, NYK and
Seaboard, etc.

NYK denied its liability by claiming that the loss was due to a fortuitous event.
Seaboard on the other hand required New world an itemized list of the
damage units and their corresponding value. But New World did not submit
what was required of it, insisting that the insurance policy did not include the
submission of such a list in connection with an insurance claim. Reacting to
this, Seaboard refused to process the claim. Thus, on October 11, 1994,
New World filed an action for specific performance against Seaboard.
RTC ruled that Seaboard cannot be faulted for denying the claim against it
since New World refused to submit the itemized list that Seaboard needed
for assessing the damage to the shipment. Likewise, the belated filing of the
complaint prejudiced Seaboard’s right to pursue a claim against NYK in the
event of subrogation. It absolved NYK from liability since the claim was not
filed the 1 year prescriptive period as provided by Carriage of Goods by Sea
Act.
CA affirmed RTC's ruling except with respect to Seaboard's liability. It ruled
that the submission of the itemized list is an unreasonable imposition and
that that the one-year prescriptive period under the COGSA did not affect
New World’s right under the insurance policy since it was the Insurance
Code that governed the relation between the insurer and the insured.
However, CA completely changed its mind upon the MR of Seaboard, ruling
that the submission of the said list is reasonable and that the one-year
prescriptive period for maritime claims applied to Seaboard, as insurer and
subrogee of New World’s right against the vessel owner.
Hence, this petition by New world.
Issue:
1)Whether or not NYK (Common Carrier) should be held liable for the loss
2)Whether or not Seaboard is liable for the loss in this case
Ruling:
1) No. while it true that the generator sets were totally damaged during the
typhoon which beset the vessel’s voyage from Hong Kong to Manila and that
it was her negligence in continuing with that journey despite the adverse
condition which caused petitioner New World’s loss, the claim was not filed
within the prescriptive period provided by COGSA thereby completely
releasing and absolving NYK from liability
2) Yes. The marine open policy that Seaboard issued to New World was an
all-risk policy. Such a policy insured against all causes of conceivable loss or
damage except when otherwise excluded or when the loss or damage was
due to fraud or intentional misconduct committed by the insured. The policy
covered all losses during the voyage whether or not arising from a marine
peril. Here, the policy enumerated certain exceptions like unsuitable
packaging, inherent vice, delay in voyage, or vessels unseaworthiness,
among others. But Seaboard had been unable to show that petitioner New
World’s loss or damage fell within some or one of the enumerated
exceptions.
Moreover, Seaboard caused an inspection of the goods and should have
determined whether the claim of New World is genuine. It should have
examined the same, found it unsubstantiated by documents if that were the
case, and formally rejected it but it failed to do so prejudicing New World.
The record shows that petitioner New World filed its formal claim for its loss
with Seaboard, its insurer, a remedy it had the right to take, as early as
November 16, 1993 or about 11 months before the suit against NYK would
have fallen due. The Court also ruled that the submission of itemized list is
an unreasonable demand because the policy does not require for it.
Ultimately, the fault for the delayed court suit could be brought to Seaboard’s
doorstep.
Section 241 of the Insurance Code provides that no insurance company
doing business in the Philippines shall refuse without just cause to pay or
settle claims arising under coverages provided by its policies. And, under
Section 243, the insurer has 30 days after proof of loss is received and
ascertainment of the loss or damage within which to pay the claim. If such
ascertainment is not had within 60 days from receipt of evidence of loss, the
insurer has 90 days to pay or settle the claim. And, in case the insurer
refuses or fails to pay within the prescribed time, the insured shall be entitled
to interest on the proceeds of the policy for the duration of delay at the rate of
twice the ceiling prescribed by the Monetary Board.
Notably, Seaboard already incurred delay when it failed to settle petitioner
New World’s claim as Section 243 required. Under Section 244, a prima facie
evidence of unreasonable delay in payment of the claim is created by the
failure of the insurer to pay the claim within the time fixed in Section 243.
Consequently, Seaboard should pay interest on the proceeds of the policy for
the duration of the delay until the claim is fully satisfied at the rate of twice
the ceiling prescribed by the Monetary Board. The term “ceiling prescribed by
the Monetary Board” means the legal rate of interest of 12% per annum
provided in Central Bank Circular 416, pursuant to Presidential Decree 116.
Section 244 of the Insurance Code also provides for an award of attorney’s
fees and other expenses incurred by the assured due to the unreasonable
withholding of payment of his claim.
6 SUN INSURANCE OFFICE, LTD. vs. COURT OF APPEALS and EMILIO
TAN
The right of the insured to the payment of his loss accrues from the
happening of the loss. However, the cause of action in an insurance contract
does not accrue until the insured's claim is finally rejected by the insurer.
This is because before such final rejection there is no real necessity for
bringing suit.
FACTS:
Private respondent Emilio Tan took from herein petitioner a
P300,000.00 property insurance policy to cover his interest in the electrical
supply store of his brother housed in a building in Iloilo City. Four (4) days
after the issuance of the policy, the building was burned including the insured
store. On August 20, 1983, Tan filed his claim for fire loss with petitioner, but
on February 29, 1984, petitioner wrote Tan denying the latter's claim. April 3,
1984, Tan wrote petitioner, seeking reconsideration of the denial of his claim.
On September 3, 1985, Tan's counsel wrote the Insurer inquiring about the
status of his April 3, 1984 request for reconsideration. Petitioner answered
the letter on October 11, 1985, advising Tan's counsel that the Insurer's
denial of Tan's claim remained unchanged. November 20, 1985, Tan filed
Civil RTC of Iloilo but petitioner filed a motion to dismiss on the alleged
ground that the action had already prescribed. The MD was denied. Said
motion was denied in an order dated November 3, 1987; and petitioner's
motion for reconsideration was also denied in an order dated January 14,
1988. Petitioner went to the Court of Appeals and sought the nullification of
the said Nov. 3, 1987 and January 14, 1988 orders, but the Court of Appeals,
in its June 20, 1989 decision denied the petition and held that the court a
quo may continue until its final termination.
ISSUE:
WHETHER OR NOT THE FILING OF A MOTION FOR
RECONSIDERATION INTERRUPTS THE TWELVE (12) MONTHS
PRESCRIPTIVE PERIOD TO CONTEST THE DENIAL OF THE
INSURANCE CLAIM
RULING:
No. Condition 27 of the Insurance Policy, which is the subject of the
conflicting contentions of the parties, reads:
27. Action or suit clause — If a claim be made and rejected and an action or
suit be not commenced either in the Insurance Commission or in any
court of competent jurisdiction within twelve (12) months from receipt
of notice of such rejection, or in case of arbitration taking place as
provided herein, within twelve (12) months after due notice of the
award made by the arbitrator or arbitrators or umpire, then the claim
shall for all purposes be deemed to have been abandoned and shall
not thereafter be recoverable hereunder.
As the terms are very clear and free from any doubt or ambiguity
whatsoever, it must be taken and understood in its plain, ordinary and
popular sense pursuant to the above-cited principle laid down by this
Court. Respondent Tan admitted that he received a copy of the letter of
rejection on April 2, 1984. Thus, the 12-month prescriptive period started to
run from the said date of April 2, 1984.
Also, Sec 63 of IC, states Section 63 of the Insurance Code, which
states that a condition, stipulation or agreement in any policy of insurance,
limiting the time for commencing an action thereunder to a period of less than
one year from the time when the cause of action accrues, is void.
The contention of the respondents that the one-year prescriptive period does
not start to run until the petition for reconsideration had been resolved by the
insurer, runs counter to the declared purpose for requiting that an action or
suit be filed in the Insurance Commission or in a court of competent
jurisdiction from the denial of the claim. it can easily be used by insured
persons as a scheme or device to waste time until any evidence which may
be considered against them is destroyed.
The right of the insured to the payment of his loss accrues from the
happening of the loss. However, the cause of action in an insurance contract
does not accrue until the insured's claim is finally rejected by the insurer.
This is because before such final rejection there is no real necessity for
bringing suit. The insured's cause of action or his right to file a claim either in
the Insurance Commission or in a court of competent jurisdiction commences
from the time of the denial of his claim by the Insurer, either expressly or
impliedly.
Thus, to allow the filing of a motion for reconsideration to suspend
the running of the prescriptive period of twelve months, a whole new body of
rules on the matter should be promulgated so as to avoid any conflict that
may be brought by it, such as:
a) whether the mere filing of a plea for reconsideration of a denial is
sufficient or must it be supported by arguments/affidavits/material
evidence;
b) how many petitions for reconsideration should be permitted?
 7 CHERIE PALILEO, plaintiff-appellee, vs. BEATRIZ COSIO, defendant-
appellant.
(G.R. No. L-7667. November 28, 1955 Bautista Angelo, J.)
FACTS:
On December 18, 1951, Palileo obtained from Cosio a loan in the
sum of P12,000 subject to the following conditions: (a) Palileo shall pay to
defendant an interest in the amount of P250 a month; (b) that Cosio shall
deduct from the loan certain obligations of Palileo to third persons amounting
to P4,550, plus the sum of P250 as interest for the first month; and (c) that
after making the above deductions, defendant shall deliver to Palileo only the
balance of the loan of P12,000.
Pursuant to their agreement, Palileo paid to Cosio as interest on the
loan a total of P2,250.00 corresponding to nine months from December 18,
1951, on the basis of P250.00 a month, which is more than the maximum
interest authorized by law. To secure the payment of the aforesaid loan,
Cosio required Palileo to sign a document known as "Conditional Sale of
Residential Building", purporting to convey to Cosio, with right to repurchase,
a two-story building of strong materials belonging to plaintiff. This document
did not express the true intention of the parties which was merely to place
said property as security for the payment of the loan.
After execution, Cosio insured the building against fire for P15,000.
The building was then partly destroyed and thus, Cosio collected P13,107.00
from AISCO
Cherie Palileo filed a complaint against Beatriz Cosio praying that
their transaction be declared as loan and the document executed covering it
to be as equitable mortgage. Palileo also prayed that Cosio be ordered to
credit to Palileo the amount received by Cosio to Associated Insurance &
Surety Co., Inc. as payment of the alleged loan.
In Cosio’s defense, she contended that the transaction is a sale with
option to repurchase but Palileo failed to exercise it. Thus, ownership was
consolidated in Cosio’s name
On 7 April1953, the case was set for trial, but was postponed and was finally
set on 12 January 1954. The defendant and her counsel did not appear on
the said date despite notice sent a month before the trial. Thus, on January
18, the court rendered judgment holding that the insurance proceeds
collected by Cosio be applied to Palileo’s debt to Cosio and the excess
thereof to be refunded to Palileo.
On 2 February 1954, the counsel for defendant was substituted and
the new counsel immediately moved for the judgment to be set aside due to
mistake and excusable negligence resulting in Cosio’s failure to present
evidence. The motion was denied. Hence, the present appeal.
ISSUE:
Whether or not the lower court erred in considering the obligation of Palileo
fully compensated by the insurance amount and in ordering Cosio to refund
to Palileo the excess of the insurance amount less the loan owed by Palileo
(YES)
RULING:
YES. Lower court’s ruling runs counter to the rule governing an
insurance taken by a mortgagee independently of the mortgagor.
The rule is that "where a mortgagee, independently of the mortgagor,
insures the mortgaged property in his own name and for his own interest, he
is entitled to the insurance proceeds in case of loss, but in such case, he is
not allowed to retain his claim against the mortgagor, but is passed by
subrogation to the insurer to the extent of the money paid."
"If a mortgagee procures insurance on his separate interest at his
own expense and for his own benefit, without any agreement with the
mortgagor with respect thereto, the mortgagor has no interest in the policy,
and is not entitled to have the insurance proceeds applied in reduction of the
mortgage debt". Further, the mortgagee "has still a right to recover his whole
debt of the mortgagor."
Considering the foregoing rules, it would appear that the lower court
erred in declaring that the proceeds of the insurance taken out by the
defendant on the property mortgaged inured to the benefit of the plaintiff and
in ordering said defendant to deliver to the plaintiff the difference between
her indebtedness and the amount of insurance received by the defendant,
for, in the light of the majority rule we have above enunciated, the correct
solution should be that the proceeds of the insurance should be delivered to
the defendant but that her claim against the plaintiff should be considered
assigned to the insurance company who is deemed subrogated to the rights
of the defendant to the extent of the money paid as indemnity.
8 LOADMASTERS CUSTOMS SERVICES, INC., v GLODEL BROKERAGE
CORPORATION and R&B INSURANCE CORPORATION
FACTS:
On August 28, 2001, R&B Insurance issued a Marine Policy in favor of
Columbia to insure the shipment of 132 bundles of electric copper cathodes
against All Risks. On August 28, 2001, the cargoes were shipped on board
the vessel Richard Rey from Isabela, Leyte, to Pier 10, North Harbor, Manila.
They arrived on the same date.
Columbia engaged the services of Glodel for the release and withdrawal of
the cargoes from the pier and the subsequent delivery to its
warehouses/plants. Glodel, in turn, engaged the services of Loadmasters for
the use of its delivery trucks to transport the cargoes to Columbias
warehouses/plants in Bulacan and Valenzuela City.
The goods were loaded on board twelve (12) trucks owned by Loadmasters,
driven by its employed drivers and accompanied by its employed truck
helpers. Six (6) truckloads of copper cathodes were to be delivered to
Balagtas, Bulacan, while the other six (6) truckloads were destined for
Lawang Bato, Valenzuela City. The cargoes in six truckloads for Lawang
Bato were duly delivered in Columbias warehouses there. Of the six (6)
trucks en route to Balagtas, Bulacan, however, only five (5) reached the
destination. One (1) truck, loaded with 11 bundles or 232 pieces of copper
cathodes, failed to deliver its cargo.
Later on, the said truck was recovered but without the copper cathodes.
Because of this incident, Columbia filed with R&B Insurance a claim for
insurance indemnity in the amount of P1,903,335.39. After the requisite
investigation and adjustment, R&B Insurance paid Columbia the amount of
P1,896,789.62 as insurance indemnity.
R&B Insurance, thereafter, filed a complaint for damages against both
Loadmasters and Glodel before the Regional Trial Court of Manila (RTC). It
sought reimbursement of the amount it had paid to Columbia for the loss of
the subject cargo. It claimed that it had been subrogated to the right of the
consignee to recover from the party/parties who may be held legally liable for
the loss. RTC rendered a decision holding Glodel liable for damages for the
loss of the subject cargo and dismissing Loadmasters counterclaim for
damages and attorneys fees against R&B Insurance.
Both R&B Insurance and Glodel appealed the RTC decision to the CA. The
CA rendered the appeal is PARTLY GRANTED in that the appellee
Loadmasters is likewise held liable to appellant Glodel in the amount of
P1,896,789.62 representing the insurance indemnity appellant Glodel has
been held liable to appellant R&B Insurance Corporation.
ISSUES:
1. Does R&B Insurance has the right to seek reimbursement from either
Loadmasters or Glodel or both for breach of contract and/or tort?
2. Under the set of facts established and undisputed in the case, can
petitioner Loadmasters be legally considered as an Agent of respondent
Glodel?
3. What then is the extent of the respective liabilities of Loadmasters and
Glodel?
4. Can Petitioner Loadmasters be held liable to Respondent Glodel in spite of
the fact that the latter respondent Glodel did not file a cross-claim against it
(Loadmasters)?
ARGUMENTS
Loadmasters argues that it cannot be considered an agent of Glodel
because it never represented the latter in its dealings with the consignee. At
any rate, it further contends that Glodel has no recourse against it for its
(Glodels) failure to file a cross-claim pursuant to Section 2, Rule 9 of the
1997 Rules of Civil Procedure.
Glodel counters that Loadmasters is liable to it under its cross-claim
because the latter was grossly negligent in the transportation of the subject
cargo. With respect to Loadmasters claim that it is already estopped from
filing a cross-claim, Glodel insists that it can still do so even for the first time
on appeal because there is no rule that provides otherwise. Finally, Glodel
argues that its relationship with Loadmasters is that of Charter wherein the
transporter (Loadmasters) is only hired for the specific job of delivering the
merchandise. Thus, the diligence required in this case is merely ordinary
diligence or that of a good father of the family, not the extraordinary diligence
required of common carriers.
R&B Insurance claims that Glodel is deemed to have interposed a cross-
claim against Loadmasters because it was not prevented from presenting
evidence to prove its position even without amending its Answer. As to the
relationship between Loadmasters and Glodel, it contends that a contract of
agency existed between the two corporations.
HELD:
1. YES. As subrogee of the rights and interest of the consignee, R&B
Insurance has the right to seek reimbursement from either
Loadmasters or Glodel or both for breach of contract and/or tort.
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. Doubtless, R&B Insurance is subrogated to the rights of the
insured to the extent of the amount it paid the consignee under the
marine insurance.
The issue now is who, between Glodel and Loadmasters, is liable to
pay R&B Insurance for the amount of the indemnity it paid Columbia.
At the outset, it is well to resolve the issue of whether Loadmasters and
Glodel are common carriers to determine their liability for the loss of the
subject cargo. Under Article 1732 of the Civil Code, common carriers are
persons, corporations, firms, or associations engaged in the business of
carrying or transporting passenger or goods, or both by land, water or air for
compensation, offering their services to the public.
Loadmasters is a common carrier because it is engaged in the business of
transporting goods by land, through its trucking service. It is a common
carrier as distinguished from a private carrier wherein the carriage is
generally undertaken by special agreement and it does not hold itself out to
carry goods for the general public. The distinction is significant in the sense
that the rights and obligations of the parties to a contract of private carriage
are governed principally by their stipulations, not by the law on common
carriers. In the present case, there is no indication that the undertaking in the
contract between Loadmasters and Glodel was private in character. There is
no showing that Loadmasters solely and exclusively rendered services to
Glodel. In fact, Loadmasters admitted that it is a common carrier.
Glodel is also considered a common carrier .In its Memorandum, it states
that it is a corporation duly organized and existing under the laws of the
Republic of the Philippines and is engaged in the business of customs
brokering. It cannot be considered otherwise because as held by this Court in
Schmitz Transport & Brokerage Corporation v. Transport Venture, Inc., a
customs broker is also regarded as a common carrier, the
transportation of goods being an integral part of its business.
Loadmasters and Glodel, being both common carriers, are mandated
from the nature of their business and for reasons of public policy, to
observe the extraordinary diligence in the vigilance over the goods
transported by them.
When the Court speaks of extraordinary diligence, it is that extreme
measure of care and caution which persons of unusual prudence
and circumspection observe for securing and preserving their own
property or rights. This exacting standard imposed on common
carriers in a contract of carriage of goods is intended to tilt the scales
in favor of the shipper who is at the mercy of the common carrier
once the goods have been lodged for shipment.Thus, in case of loss
of the goods, the common carrier is presumed to have been at fault
or to have acted negligently.This presumption of fault or negligence,
however, may be rebutted by proof that the common carrier has
observed extraordinary diligence over the goods.
With respect to the time frame of this extraordinary responsibility,
the Civil Code provides that the exercise of extraordinary diligence
lasts from the time the goods are unconditionally placed in the
possession of, and received by, the carrier for transportation until the
same are delivered, actually or constructively, by the carrier to the
consignee, or to the person who has a right to receive them.
Premises considered, the Court is of the view that both Loadmasters and
Glodel are jointly and severally liable to R & B Insurance for the loss of
the subject cargo. Under Article 2194 of the New Civil Code, the
responsibility of two or more persons who are liable for a quasi-delict is
solidary.
Loadmasters claim that it was never privy to the contract entered into by
Glodel with the consignee Columbia or R&B Insurance as subrogee, is not a
valid defense. It may not have a direct contractual relation with Columbia, but
it is liable for tort under the provisions of Article 2176 of the Civil Code on
quasi-delicts which expressly provide that whoever by act or omission
causes damage to another, there being fault or negligence, is obliged to pay
for the damage done. Such fault or negligence, if there is no pre-existing
contractual relation between the parties, is called a quasi-delict and is
governed by the provisions of this Chapter.
A tort may arise despite the absence of a contractual relationship
Even assuming that both Phoenix and McGee have only been subrogated in
the rights of Del Monte Produce, who is not a party to the contract of
service between Mindanao Terminal and Del Monte, still the
insurance carriers may have a cause of action in light of the Courts
consistent ruling that the act that breaks the contract may be also a
tort. In fine, a liability for tort may arise even under a contract, where
tort is that which breaches the contract. In the present case, Phoenix
and McGee are not suing for damages for injuries arising from
the breach of the contract of service but from the alleged
negligent manner by which Mindanao Terminal handled the
cargoes belonging to Del Monte Produce. Despite the absence of
contractual relationship between Del Monte Produce and Mindanao
Terminal, the allegation of negligence on the part of the defendant
should be sufficient to establish a cause of action arising from quasi-
delict. (Mindanao Terminal and Brokerage Service, Inc. v. Phoenix
Assurance Company of New York,/McGee & Co., Inc)
ART. 2180. The obligation imposed by Article 2176 is demandable
not only for one’s own acts or omissions, but also for those of
persons for whom one is responsible.

Employers shall be liable for the damages caused by their employees and
household helpers acting within the scope of their assigned tasks, even
though the former are not engaged in any business or industry. It is not
disputed that the subject cargo was lost while in the custody of Loadmasters
whose employees (truck driver and helper) were instrumental in the hijacking
or robbery of the shipment. As employer, Loadmasters should be made
answerable for the damages caused by its employees who acted within the
scope of their assigned task of delivering the goods safely to the warehouse.
Glodel is also liable because of its failure to exercise extraordinary diligence.
It failed to ensure that Loadmasters would fully comply with the undertaking
to safely transport the subject cargo to the designated destination. It should
have been more prudent in entrusting the goods to Loadmasters by taking
precautionary measures, such as providing escorts to accompany the trucks
in delivering the cargoes. Glodel should, therefore, be held liable with
Loadmasters. Its defense of force majeure is unavailing.
2. NO. There exists no principal-agent relationship between Glodel and
Loadmasters, as erroneously found by the CA. Article 1868 of the Civil
Code provides: By the contract of agency a person binds himself to render
some service or to do something in representation or on behalf of another,
with the consent or authority of the latter.
The elements of a contract of agency are:
(1) consent, express or implied, of the parties to establish the relationship;
(2) the object is the execution of a juridical act in relation to a third person;
(3) the agent acts as a representative and not for himself;\
(4) he agent acts within the scope of his authority.
Accordingly, there can be no contract of agency between the parties.
Loadmasters never represented Glodel. Neither was it ever authorized to
make such representation. It is a settled rule that the basis for agency is
representation, that is, the agent acts for and on behalf of the principal
on matters within the scope of his authority and said acts have the
same legal effect as if they were personally executed by the principal.
On the part of the principal, there must be an actual intention to appoint or an
intention naturally inferable from his words or actions, while on the part of the
agent, there must be an intention to accept the appointment and act on it
Such mutual intent is not obtaining in this case.
3. Each wrongdoer is liable for the total damage suffered by R&B Insurance.
Where there are several causes for the resulting damages, a party is not
relieved from liability, even partially. It is sufficient that the negligence of a
party is an efficient cause without which the damage would not have
resulted. It is no defense to one of the concurrent tortfeasors that the
damage would not have resulted from his negligence alone, without the
negligence or wrongful acts of the other concurrent tortfeasor.
There is no contribution between joint tortfeasors whose liability is solidary
since both of them are liable for the total damage. Where the concurrent or
successive negligent acts or omissions of two or more persons, although
acting independently, are in combination the direct and proximate cause of a
single injury to a third person, it is impossible to determine in what proportion
each contributed to the injury and either of them is responsible for the
whole injury. Where their concurring negligence resulted in injury or
damage to a third party, they become joint tortfeasors and are solidarily liable
for the resulting damage under Article 2194 of the Civil Code. (Far Eastern
Shipping v . CA)
4. NO. Glodel has a definite cause of action against Loadmasters for breach
of contract of service as the latter is primarily liable for the loss of the subject
cargo. In this case, however, it cannot succeed in seeking judicial sanction
against Loadmasters because the records disclose that it did not properly
interpose a cross-claim against the latter. Glodel did not even pray that
Loadmasters be liable for any and all claims that it may be adjudged liable in
favor of R&B Insurance. Under the Rules, a compulsory counterclaim, or a
cross-claim, not set up shall be barred.Thus, a cross-claim cannot be set up
for the first time on appeal. For the consequence, Glodel has no one to
blame but itself. The Court cannot come to its aid on equitable grounds.
Equity, which has been aptly described as a justice outside legality, is
applied only in the absence of, and never against, statutory law or judicial
rules of procedure. The Court cannot be a lawyer and take the cudgels for a
party who has been at fault or negligent.
9 MALAYAN INSURANCE vs. ALBERTO
FACTS:
At around 5am of December 17, 1995, an accident occurred at the
corner of EDSA and Ayala Avenue involving four (4) vehicles:
(1) a Nissan Bus operated by Aladdin Transit with plate number NYS
381;
(2) an Isuzu Tanker with plate number PLR 684;
(3) a Fuzo Cargo Truck with plate number PDL 297
(4) a Mitsubishi Galant with plate number TLM 732
Based on the Police Report issued by SPO1 Dungga, the Isuzu
Tanker was in front of the Mitsubishi Galant with the Nissan Bus on their right
side shortly before the vehicular incident. All three (3) vehicles were at a halt
along EDSA facing the south direction when the Fuzo Cargo Truck
simultaneously bumped the rear portion of the Mitsubishi Galant and the rear
left portion of the Nissan Bus. Due to the strong impact, these two vehicles
were shoved forward and the front left portion of the Mitsubishi Galant
rammed into the rear right portion of the Isuzu Tanker.
On December 15, 1994, Malayan Insurance issued Car Insurance
Policy in favor of First Malayan Leasing and Finance Corporation (the
assured), insuring the Mitsubishi Galant against third party liability, own
damage and theft, among others. Having insured the vehicle against such
risks, Malayan Insurance claimed that it paid the damages sustained by the
assured amounting to PhP 700,000.
Maintaining that it has been subrogated to the rights and interests
of the assured by operation of law upon its payment to the latter, Malayan
Insurance sent several demand letters to Rodelio Alberto (Alberto) and
Enrico Alberto Reyes (Reyes), the registered owner and the driver,
respectively, of the Fuzo Cargo Truck, requiring them to pay the amount it
had paid to the assured. When respondents refused to settle their liability,
Malayan Insurance was constrained to file a complaint for damages.
Respondents asserted that they cannot be held liable for the
vehicular accident, since its proximate cause was the reckless driving of the
Nissan Bus driver. They alleged that the speeding bus, coming from the
service road of EDSA, maneuvered its way towards the middle lane without
due regard to Reyes right of way. When the Nissan Bus abruptly stopped,
Reyes stepped hard on the brakes but the braking action could not cope with
the inertia and failed to gain sufficient traction. As a consequence, the Fuzo
Cargo Truck hit the rear end of the Mitsubishi Galant, which, in turn, hit the
rear end of the vehicle in front of it. The Nissan Bus, on the other hand,
sideswiped the Fuzo Cargo Truck, causing damage to the latter.
The trial court ruled in favor of Malayan Insurance and declared
respondents liable for damages. CA reversed. It held that the evidence on
record has failed to establish not only negligence on the part of respondents,
but also compliance with the other requisites and the consequent right of
Malayan Insurance to subrogation.
ISSUE:
WHETHER THE SUBROGATION OF MALAYAN INSURANCE
HAS PASSED COMPLIANCE AND REQUISITES AS PROVIDED
UNDER PERTINENT LAWS.
RULING: YES
Malayan Insurance contends that there was a valid subrogation in
the instant case, as evidenced by the claim check voucher and the Release
of Claim and Subrogation Receipt presented by it before the trial court.
Respondents, however, claim that the documents presented by Malayan
Insurance do not indicate certain important details that would show proper
subrogation.
As noted by Malayan Insurance, respondents had all the
opportunity, but failed to object to the presentation of its evidence. Thus,
respondents are deemed to have waived their right to make an objection. As
this Court held in Asian Construction and Development Corporation v.
COMFAC Corporation: The rule is that failure to object to the offered
evidence renders it admissible, and the court cannot, on its own,
disregard such evidence.
Bearing in mind that the claim check voucher and the Release of
Claim and Subrogation Receipt presented by Malayan Insurance are already
part of the evidence on record, and since it is not disputed that the insurance
company, indeed, paid PhP 700,000 to the assured, then there is a valid
subrogation in the case at bar. As explained in Keppel Cebu Shipyard, Inc. v.
Pioneer Insurance and Surety Corporation:
Subrogation is the substitution of one person by another with
reference to a lawful claim or right, so that he who is substituted
succeeds to the rights of the other in relation to a debt or claim,
including its remedies or securities. The principle covers a
situation wherein an insurer has paid a loss under an insurance
policy is entitled to all the rights and remedies belonging to the
insured against a third party with respect to any loss covered by
the policy. It contemplates full substitution such that it places the
party subrogated in the shoes of the creditor, and he may use
all means that the creditor could employ to enforce payment.
XII. DOUBLE INSURANCE AND REINSURANCE
ARMANDO GEAGONIA, petitioner, vs. COURT OF APPEALS and
COUNTRY BANKERS INSURANCE CORPORATION, respondents.
In order to constitute a violation, the other insurance must be upon
same subject matter, the same interest therein, and the same risk.
FACTS:
The petitioner is the owner of Norman's Mart located in the public market of
San Francisco, Agusan del Sur. On 22 December 1989, he obtained from the
private respondent fire insurance policy for P100,000.00. The period of the
policy was from 22 December 1989 to 22 December 1990 and covered the
following: "Stock-in-trade consisting principally of dry goods such as RTW's
for men and women wear and other usual to assured's business."
The petitioner declared in the policy under the subheading entitled CO-
INSURANCE that Mercantile Insurance Co., Inc. was the co-insurer for
P50,000.00. From 1989 to 1990, the petitioner had in his inventory stocks
amounting to P392,130.50
On 27 May 1990, fire of accidental origin broke out at around 7:30 p.m. at the
public market of San Francisco, Agusan del Sur. The petitioner's insured
stock-in-trade were completely destroyed prompting him to file with the
private respondent a claim under the policy. On 28 December 1990, the
private respondent denied the claim because it found that at the time of the
loss the petitioner's stocks-in-trade were likewise covered by fire insurance
policies issued by the Cebu Branch of the Philippines First Insurance Co.,
Inc. These policies indicate that the insured was "Messrs. Discount Mart (Mr.
Armando Geagonia, Prop.)" with a mortgage clause. The basis of the private
respondent's denial was the petitioner's alleged violation of Condition 3 of the
policy. (insured shall give notice to the Company of any insurance or
insurances already affected, or which may subsequently be effected,
covering any of the property or properties consisting of stocks in trade, goods
in process and/or inventories only hereby insured)
The Insurance Commission found that the petitioner did not violate Condition
3 as he had no knowledge of the existence of the two fire insurance policies
obtained from the PFIC; that it was Cebu Tesing Textiles which procured the
PFIC policies without informing him or securing his consent; and that Cebu
Tesing Textile, as his creditor, had insurable interest on the stocks. The
Court of Appeals reversed the decision of the Insurance Commission
because it found that the petitioner knew of the existence of the two other
policies issued by the PFIC.
ISSUE:
Whether or not the petitioner violated the insurance policy tha would render
him not entitled to claim insurance proceeds from the respondent insurer. NO
RULING:
Condition 3 of the private respondent's Policy No. F-14622 is a condition
which is not proscribed by law. Its incorporation in the policy is allowed by
Section 75 of the Insurance Code which provides that "[a] policy may declare
that a violation of specified provisions thereof shall avoid it, otherwise the
breach of an immaterial provision does not avoid the policy." Such a
condition is a provision which invariably appears in fire insurance policies
and is intended to prevent an increase in the moral hazard. It is commonly
known as the additional or "other insurance" clause and has been upheld as
valid and as a warranty that no other insurance exists. Its violation would
thus avoid the policy. However, in order to constitute a violation, the other
insurance must be upon same subject matter, the same interest therein, and
the same risk.
As to a mortgaged property, the mortgagor and the mortgagee have each an
independent insurable interest therein and both interests may be one policy,
or each may take out a separate policy covering his interest, either at the
same or at separate times. The mortgagor's insurable interest covers the full
value of the mortgaged property, even though the mortgage debt is
equivalent to the full value of the property. The mortgagee's insurable
interest is to the extent of the debt, since the property is relied upon as
security thereof, and in insuring he is not insuring the property but his interest
or lien thereon. His insurable interest is prima facie the value mortgaged and
extends only to the amount of the debt, not exceeding the value of the
mortgaged property. Thus, separate insurances covering different insurable
interests may be obtained by the mortgagor and the mortgagee.
A mortgagor may, however, take out insurance for the benefit of the
mortgagee, which is the usual practice. The mortgagee may be made the
beneficial payee in several ways. He may become the assignee of the policy
with the consent of the insurer; or the mere pledgee without such consent; or
the original policy may contain a mortgage clause; or a rider making the
policy payable to the mortgagee "as his interest may appear" may be
attached; or a "standard mortgage clause," containing a collateral
independent contract between the mortgagee and insurer, may be attached;
or the policy, though by its terms payable absolutely to the mortgagor, may
have been procured by a mortgagor under a contract duty to insure for the
mortgagee's benefit, in which case the mortgagee acquires an equitable lien
upon the proceeds.
MARINE INSURANCE
1 CATHAY INSURANCE CO. vs. HON. COURT OF APPEALS, and
REMINGTON INDUSTRIAL SALES CORPORATION
Facts:
Private respondent filed against petitioner (then defendant) seeking collection
of the sum of P868,339.15 representing losses and damages incurred in a
shipment of seamless steel pipes under an insurance contract in favor of the
said private respondent as the insured, consignee or importer of the pipes
while in transit from Japan to the Philippines on board vessel SS "Eastern
Mariner." The total value of the shipment was P2,894,463.83.
The trial court decided in favor of private respondent corporation and ordered
the petitioner to pay.
Respondent contends that:
• 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.
• Rust is not an inherent vice of the seamless steel pipes without
interference of external factors.
The petitioner however maintains that:
• The insistence of private respondent that rusting is a peril of the sea and
that rusting is not an inherent vice or in the nature of steel pipes is
erroneous.
• Private respondent inaccurately invokes the rule of strict construction
against insurer under the guise of construction in order to impart a non-
existing ambiguity or doubt into the policy so as to resolve it against the
insurer.
• 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.
Issue:
WON Cathay Insurance is liable
Ruling:
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. If the insurer cannot be held accountable therefor, we
would fail to observe a cardinal rule in the interpretation of contracts that any
ambiguity therein should be construed against the insurer. Besides the
precise purpose of insuring cargo during a voyage would be rendered
fruitless.
Finally, it is a cardinal rule that save for certain exceptions, findings of facts
of the appellate tribunal are binding on Us. Not one of said exceptions can
apply to this case.
2 ISABELA ROQUE vs HON. INTERMEDIATE APPELATE COURT and
PIONEER INSURANCE AND SURETY CORPORATION
Perils of the sea extends only to losses caused by sea damage, or by the
violence of the elements, and does not embrace all losses happening at sea.
They insure against losses from extraordinary occurrences only, such as
stress of weather, winds and waves, lightning, tempests, rocks and the like.
FACTS:
February 19, 1972, the Manila Bay Lighterage Corporation (Manila
Bay), a common carrier, entered into a contract with the petitioners whereby
the former would load and carry on board its barge Mable 10 cubic meters of
logs from Palawan to Manila. Petitioners insured the logs against loss for
P100,000.00 with respondent Pioneer Insurance and Surety Corporation
(Pioneer). On February 29, 1972, the petitioners loaded on the barge, 811
pieces of logs at Palawan for carriage and delivery to North Harbor, Port of
Manila, but the shipment never reached its destination because Mable 10
sank with the 811 pieces of logs somewhere off Cabuli Point in Palawan on
its way to Manila. By which it was also insured by Pioneer. As found by both
the trial and appellate courts, the barge where the logs were loaded was not
seaworthy such that it developed a leak. The appellate court further found
that one of the hatches was left open causing water to enter the barge and
because the barge was not provided with the necessary cover or tarpaulin,
the ordinary splash of sea waves brought more water inside the barge. The
trial cout decided in favour of petitioners. appellate court modified the trial
court's decision and absolved Pioneer from liability after finding that there
was a breach of implied warranty of seaworthiness on the part of the
petitioners and that the loss of the insured cargo was caused by the "perils of
the ship" and not by the "perils of the sea". It ruled that the loss is not
covered by the marine insurance policy.
ISSUES:
1.Whether or not the insurance company is liable?
2. Whether or not the loss of the cargo is caused by perils of the sea?
RULING:
1. NO. Section 113 of the Insurance Code provides that in 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.
In relation to this Sec 99 of IC states that Marine insurance includes
insurance against loss of or damage to vessels, craft, aircraft, vehicles,
goods, freights, cargoes, merchandises. There can be no mistaking the fact
that the term "cargo" can be the subject of marine insurance and that once it Nota Bene:
is so made, the implied warranty of seaworthiness immediately attaches to Barratry is any willful misconduct on the part of master or crew in pursuance
whoever is insuring the cargo whether he be the shipowner or not. The of some unlawful or fraudulent purpose without the consent of the owners,
unseaworthiness of the ship was unknown to the insured is immaterial in and to the prejudice of the owner's interest. In the case at bar, there is no
ordinary marine insurance and may not be used by him as a defense in order finding that the loss was occasioned by the willful or fraudulent acts of the
to recover on the marine insurance policy. The law provides for an implied vessel's crew. There was only simple negligence or lack of skill
warranty of seaworthiness in every contract of ordinary marine insurance, it
becomes the obligation of a cargo owner to look for a reliable common
carrier which keeps its vessels in seaworthy condition. The shipper of cargo
may have no control over the vessel but he has full control in the choice of
the common carrier that will transport his goods.

Petitioners should have exerted diligence in choosing the vessels

which are shipworthy as she has an implied warranty. Thus, the fact the
hatches were left open during the voyage should be used as a violation of
petitioners warranty.

2. YES. 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. The term 'perils of
the sea' extends only to losses caused by sea damage, or by the violence of
the elements, and does not embrace all losses happening at sea. They
insure against losses from extraordinary occurrences only, such as stress of
weather, winds and waves, lightning, tempests, rocks and the like. These are
understood to be the "perils of the sea" referred in the policy, and not those
ordinary perils which every vessel must encounter.

However, as evidence by the trial court at the time Mable 10 sank, there was
no typhoon but ordinary strong wind and waves, a condition which is natural
and normal in the open sea. The evidence shows that the sinking of Mable
10 was due to improper loading of the logs on one side so that the barge was
tilting on one side and for that it did not navigate on even keel; that it was no
longer seaworthy that was why it developed leak; that the personnel of the
tugboat and the barge committed a mistake when it turned loose the barge
from the tugboat east of Cabuli point where it was buffeted by storm and
waves, while the tugboat proceeded to west of Cabuli point where it was
protected by the mountain side from the storm and waves coming from the
east direction. Thus, because the loss was caused by perils of the ship, it
cannot be insured by the insurer.