Professional Documents
Culture Documents
Insurance Law Case Digests
Insurance Law Case Digests
Geagonia, owner of a store, obtained from Country Bankers fire insurance policy for
P100,000.00. The 1 year policy and covered thestock trading of dry goods.
The policy noted the requirement that
"3. The insured shall give notice to the Company of any insurance or insurances
already effected, 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, and unless notice be given and the particulars of such insurance or
insurances be stated therein or endorsed in this policy pursuant to Section 50 of the
Insurance Code, by or on behalf of the Company before the occurrence of any loss or
damage, all benefits under this policy shall be deemed forfeited, provided however, that
this condition shall not apply when the total insurance or insurances in force at the time
of the loss or damage is not more than P200,000.00."
The petitioners’ stocks were destroyed by fire. He then filed a claim which was
subsequently denied because the petitioner’s stocks were covered by two other fire
insurance policies for Php 200,000 issued by PFIC. The basis of the private
respondent's denial was the petitioner's alleged violation of Condition 3 of the policy.
Geagonia then filed a complaint against the private respondent in the Insurance
Commission for the recovery of P100,000.00 under fire insurance policy and damages.
He claimed that he knew the existence of the other two policies. But, he said that he
had no knowledge of the provision in the private respondent's policy requiring him to
inform it of the prior policies and this requirement was not mentioned to him by the
private respondent's agent.
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 w/c procured the PFIC policies w/o informing him
or securing his consent; and that Cebu Tesing Textile, as his creditor, had insurable
interest on the stocks.
The Insurance Commission then ordered the respondent company to pay complainant
the sum of P100,000.00 with interest and attorney’s fees.
CA 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.
Issues:
1. WON the petitioner had not disclosed the two insurance policies when he obtained
the fire insurance and thereby violated Condition 3 of the policy.
2. WON he is prohibited from recovering
Ratio:
1. The court agreed with the CA that the petitioner knew of the prior policies issued by
the PFIC. His letter of 18 January 1991 to the private respondent conclusively proves
this knowledge. His testimony to the contrary before the Insurance Commissioner and
which the latter relied upon cannot prevail over a written admission made ante litem
motam. It was, indeed, incredible that he did not know about the prior policies since
these policies were not new or original.
2. Stated differently, provisions, conditions or exceptions in policies which tend to work a
forfeiture of insurance policies should be construed most strictly against those for whose
benefits they are inserted, and most favorably toward those against whom they are
intended to operate.
With these principles in mind, Condition 3 of the subject policy is not totally free from
ambiguity and must be meticulously analyzed. Such analysis leads us to conclude that
(a) the prohibition applies only to double insurance, and (b) the nullity of the policy shall
only be to the extent exceeding P200,000.00 of the total policies obtained.
Furthermore, by stating within Condition 3 itself that such condition shall not apply if the
total insurance in force at the time of loss does not exceed P200,000.00, the private
respondent was amenable to assume a co-insurer's liability up to a loss not exceeding
P200,000.00. What it had in mind was to discourage over-insurance. Indeed, the
rationale behind the incorporation of "other insurance" clause in fire policies is to
prevent over-insurance and thus avert the perpetration of fraud. When a property owner
obtains insurance policies from two or more insurers in a total amount that exceeds the
property's value, the insured may have an inducement to destroy the property for the
purpose of collecting the insurance. The public as well as the insurer is interested in
preventing a situation in which a fire would be profitable to the insured.
Facts:
An open fire insurance policy, was issued to Paramount Shirt Manufacturing by Oriental
Assurance Corporation to indemnify P61,000.00, caused by fire to the factory’s stocks,
materials and supplies.
The insured was a debtor of Pacific Banking in the amount of (P800,000.00) and the
goods described in the policy were held in trust by the insured for Pacific Banking under
trust receipts.
The policy was endorsed to Pacific Banking as mortgagee/ trustor of the properties
insured, with the knowledge and consent of private respondent to the effect that "loss if
any under this policy is payable to the Pacific Banking Corporation".
A fire broke out on the premises destroying the goods contained in the building.
The bank sent a letter of demand to Oriental for indemnity.
The company wasn’t ready to give since it was awaiting the adjuster’s report.
The company then made an excuse that the insured had not filed any claim with it, nor
submitted proof of loss which is a clear violation of Policy Condition No.11, as a result,
determination of the liability of private respondent could not be made.
Pacific Banking filed in the trial court an action for a sum of money for P61,000.00
against Oriental Assurance.
At the trial, petitioner presented communications of the insurance adjuster to Asian
Surety revealing undeclared co-insurances with the following: P30,000 with Wellington
Insurance; P25,000 with Empire Surety and P250,000 with Asian Surety undertaken by
insured Paramount on the same property covered by its policy with Oriental whereas
the only co-insurances declared in the subject policy are those of P30,000.00 with
Malayan P50,000.00 with South Sea and P25.000.00 with Victory.
The defense of fraud, in the form of non-declaration of co-insurances which was not
pleaded in the answer, was also not pleaded in the Motion to Dismiss.
The trial court denied the respondent’s motion. Oriental filed another motion to include
additional evidence of the co-insurance which could amount to fraud.
The trial court still made Oriental liable for P 61,000. The CA reversed the trial court
decision. Pacific Banking filed a motion for reconsideration of the said decision of the
respondent Court of Appeals, but this was denied for lack of merit.
Issues:
1. WON unrevealed co-insurances Violated policy conditions No. 3
2. WON the insured failed to file the required proof of loss prior to court action.
Ratio:
1. Policy Condition No. 3 explicitly provides:
3. The Insured shall give notice to the Company of any insurance already effected, or
which may subsequently be effected, covering any of the property hereby insured, and
unless such notice be given and the particulars of such insurance or insurances be
stated in or endorsed on this Policy by or on behalf of the Company before the
occurrence of any loss or damage, all benefit under this policy shall be forfeited.
The insured failed to reveal before the loss three other insurances. Had the insurer
known that there were many co-insurances, it could have hesitated or plainly desisted
from entering into such contract. Hence, the insured was guilty of clear fraud.
Concrete evidence of fraud or false declaration by the insured was furnished by the
petitioner itself when the facts alleged in the policy under clauses "Co-Insurances
Declared" and "Other Insurance Clause" are materially different from the actual number
of co-insurances taken over the subject property.
As the insurance policy against fire expressly required that notice should be given by
the insured of other insurance upon the same property, the total absence of such notice
nullifies the policy.
Petitioner points out that Condition No. 3 in the policy in relation to the "other insurance
clause" supposedly to have been violated, cannot certainly defeat the right of the
petitioner to recover the insurance as mortgagee/assignee. Hence, they claimed that
the purpose for which the endorsement or assignment was made was to protect the
mortgagee/assignee against any untoward act or omission of the insured. It would be
absurd to hold that petitioner is barred from recovering the insurance on account of the
alleged violation committed by the insured.
It is obvious that petitioner has missed all together the import of subject mortgage
clause which specifically provides:
“Loss, if any, under this policy, shall be payable to the PACIFIC BANKING
CORPORATION Manila mortgagee/trustor as its interest may appear, it being hereby
understood and agreed that this insurance as to the interest of the mortgagee/trustor
only herein, shall not be invalidated by any act or neglect—except fraud or
misrepresentation, or arson—of the mortgagor or owner/trustee of the property insured;
provided, that in case the mortgagor or owner/ trustee neglects or refuses to pay any
premium, the mortgagee/ trustor shall, on demand pay the same.”
The paragraph clearly states the exceptions to the general rule that insurance as to the
interest of the mortgagee, cannot be invalidated; namely: fraud, or misrepresentation or
arson. Concealment of the aforecited co-insurances can easily be fraud, or in the very
HELD:
NO. · Without deciding whether notice of other insurance upon the same property must
be given in writing, or whether a verbal notice is sufficient to render an insurance valid
which requires such notice, whether oral or written, the SC held that in the absolute
absence of such notice when it is one of the conditions specified in the fire insurance
policy, the policy is null and void. Since the policy is null and void, plaintiff cannot
recover from the defendants’ insurance companies. · The SC upheld the finding of the
trial court that the policies provide that no other insurance should be admitted upon the
property thereby assured without the consent of said companies duly given by
endorsement
4. Pioneer v Yap G.R. No. L-36232 December 19, 1974
J. Fernandez
Facts:
Issue:
Whether or not petitioner should be absolved from liability on the Pioneeer policy on
account of any violation of the co-insurance clause
Ratio:
There was a violation. The insurance policy for P20,000.00 issued by the Great
American, ceased to be recognized by them as a co-insurance policy.
The endorsement shows the clear intention of the parties to recognize on the date the
endorsement was made, the existence of only one co-insurance, the Northwest one.
The finding of the Court of Appeals that the Great American Insurance policy was
substituted by the Federal Insurance policy is indeed contrary to said stipulation.
Other insurance without the consent of Pioneer would avoid the contract. It required no
affirmative act of election on the part of the company to make operative the clause
avoiding the contract, wherever the specified conditions should occur. Its obligations
ceased, unless, being informed of the fact, it consented to the additional insurance.
The validity of a clause in a fire insurance policy to the effect that the procurement of
additional insurance without the consent of the insurer renders the policy void is in
American jurisprudence.
Milwaukee Mechanids' Lumber Co., vs. Gibson- "The rule in this state and practically all
of the states is to the effect that a clause in a policy to the effect that the procurement of
additional insurance without the consent of the insurer renders the policy void is a valid
provision.”
In this jurisdiction, General Insurance & Surety Corporation vs. Ng Hua- “The annotation
then, must be deemed to be a warranty that the property was not insured by any other
policy. Violation thereof entitled the insurer to rescind. Furthermore, even if the
annotations were overlooked the defendant insurer would still be free from liability
because there is no question that the policy issued by General Indemnity has not been
stated in nor endorsed on Policy No. 471 of defendant. The obvious purpose of the
aforesaid requirement in the policy is to prevent over-insurance and thus avert the
perpetration of fraud where a fire would be profitable to the insured.“
Facts:
Julian Sy, owner of New Life, insured his building in 3 different insurance agencies for
350,000, 1,000,000, and 200,000. When his building and the goods inside burned
down, he claimed for insurance indemnities, but these were rejected by the three
companies for violation of policy conditions.
Sy filed for 3 different suits in the trial court, where he won all suits against the
insurance companies. The court of appeals reversed the decision of the trial court.
Issue: Did the petitioner violate conditions 3 and 27 of the three insurance policies,
thereby foreiting collection of indemnities?
Held: Yes.
Ratio:
Condition 3. The insured shall give notice to the Company of any insurance or
insurances already effected, 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, and unless such notice be given and the
particulars of such insurance or insurances be stated therein or endorsed on this
policy pursuant to Section 50 of the Insurance Code, by or on behalf of the Company
before the occurrence of any loss or damage, all benefits under this policy shall be
6. Gonzalez Lao v. Yek Tong Lin Fire & Marine Insurance - Insurance Premiums
Facts:
> Gonzales was issued 2 fire insurance policies by Yek for 100T covering his leaf
tobacco prducts.
> They were stored in Gonzales’ building on Soler St., which on Jan. 11, 1928, burned
down.
> Art. 3 of the Insurance policies provided that: “Any insurance in force upon all or part
of the things unsured must be declared in writing by the insured and he (insured) should
cause the company to insert or mention it in the policy. Without such requisite, such
policy will be regarded as null and void and the insured will be deprived of all rights of
indemnity in case of loss.”
> Notwithstanding said provision, Gonzales entered into other insurance contracts.
When he sought to claim from Yek after the fire, the latter denied any liability on the
ground of violation of Art. 3 of the said policies.
> Gonzales however proved that the insurer knew of the other insurance policies
obtained by him long efore the fire, and the insurer did NOT rescind the insurance
polices in question but demanded and collected from the insured the premiums.
Issue:
Whether or not Yek is still entitled to annul the contract.
Held:
NO.
The action by the insurance company of taking the premiums of the insured
notwithstanding knowledge of violations of the provisions of the policies amounted to
waiver of the right to annul the contract of insurance.
Facts:
> In 1952, General issued a fire policy to Ng Hua to cover the contents of the Central
Pomade Factory owned by him.
> There was a provision in the policy that should there be any insurance already
effected or to be subsequently procured, the insured shall give notice to the insurer.
> Ng Hua declared that there was non. The very next day, the building and the goods
stored therein burned.
> Subsequently, the claim of Ng Hua for the proceeds was denied by General since it
discovered that Ng Hua had obtained an insurance from General Indemnity for the
same goods and for the same period of time.
Held:
Yes.
Violation of the statement which is to be considered a warranty entitles the insurer to
rescind the contract of insurance. Such misrepresentation is fatal
REINSURANCE
1. FIELDMEN'S INSURANCE CO., INC.,vs. ASIAN SURETY & INSURANCE, CO.,
INC. and CA (1970)
MAKALINTAL, J.:
• On various dates the Asian Surety & Insurance and the Fieldmen's insurance entered into 7
reinsurance agreements or treaties under the general terms of which ASIAN, as the ceding
company undertook to cede to FIELDMEN’S, as the reinsuring company, a specified portion of
the amount of insurance underwritten by ASIAN upon payment to FIELDMEN'S of a
proportionate share of the gross rate of the premium applicable with respect to each cession after
deducting a commission.
o agreements were take effect from certain specific dates and were to be in force until cancelled by
either party upon previous notice of at least 3 months by registered mail to the other party, the
cancellation to take effect as of the 31st of December of the year in which notice was given.
• Sept and Dec 1961 FIELDMEN’S sent letters to ASIAN expressing its desire to cancel all
agreements between them as of DEC 31, 1961 alleging that ASIAN had already incurred
numerous violations ASIAN received but did not reply
• Feb 1962 FIELDMEN’S sent another letter to ASIAn repeating the fact of cancellation and
now requesting ASIAN to submit its final accounting of all cessions made to the former for the
preceding months when the reinsurance agreements were in force.
ISSUE: WON cancellation had the effect of terminating also the liability of FIELDMEN'S as
reinsurer with respect to policies or cessions issued prior to the termination of the principal
reinsurance contracts or treaties?
• Only the cancelled agreements are being considered here 2 of which contain provisions,
which clearly and expressly recognize the continuing effectivity of policies ceded under them for
reinsurance notwithstanding the cancellation of the contracts themselves.
o Article 10 of the Facultative Obligatory Reinsurance Treaty Fire provides "that in the event of
termination of this Agreement ..., the liability of the Fieldmen's under current cessions
shall continue in full force and effect until their natural expiry ...;" and the 4th paragraph of
Article VI of the Personal Accident Reinsurance Treaty states:
o 4. On the termination of this Agreement from any cause whatever, the liability of the
REINSURER (Fieldmen's) under any current cession including any amounts due to be ceded
under the terms of this Agreement and which are not cancelled in the ordinary course of
business shall continue in full force until their expiry unless the COMPANY (Asian) shall, prior
to the thirty-first December next following such notice, elect to withdraw the existing cessions
....
• It is therefore clear that FIELDMEN’S is still liable despite the cancellation Such cessions
continued to be in force until their respective dates of expiration GSIS policy still valid and
subsisting at time of loss FIELDMEN’S IS LIABLE
• No need to go into other arguments (did not mention what they are) because the cancellation
of the agreements made them moot
• SC NOTES ASIAN only claims continued liability of FIELDMEN’s as to the 2 agreements
that had the provision cited above (as compared to the other 4 cancelled agreements wherein
FIELDMEN’S liability had terminated with the contracts)
• FIELDMEN'S insists on its alternative prayer that all cessions under the six reinsurance
agreements be declared rescinded by reason of certain violations thereof, as stated by
FIELDMEN'S in its letter of December 7, 1961 Court reminds them that this action is for
declaratory relief and not one for rescission and no grounds found by lower courts that can
justify rescission anyway.
2. Pioneer Insurance & Surety Corporation vs Court of Appeal
FACTS
Jacob Lim was the owner of Southern Air Lines, a single proprietorship. In 1965, Lim convinced
Constancio Maglana, Modesto Cervantes, Francisco Cervantes, and Border Machinery and
Heavy Equipment Company (BORMAHECO) to contribute funds and to buy two aircrafts which
would form part a corporation which will be the expansion of Southern Air Lines. Maglana et al
then contributed and delivered money to Lim.
But instead of using the money given to him to pay in full the aircrafts, Lim, without the
knowledge of Maglana et al, made an agreement with Pioneer Insurance for the latter to insure
the two aircrafts which were brought in installment from Japan Domestic Airlines (JDA) using
said aircrafts as security. So when Lim defaulted from paying JDA, the two aircrafts were
foreclosed by Pioneer Insurance.
It was established that no corporation was formally formed between Lim and Maglana et al.
ISSUE: Whether or not Maglana et al must share in the loss as general partners.
HELD: No. There was no de facto partnership. Ordinarily, when co-investors agreed to do
business through a corporation but failed to incorporate, a de facto partnership would have been
formed, and as such, all must share in the losses and/or gains of the venture in proportion to
their contribution. But in this case, it was shown that Lim did not have the intent to form a
corporation with Maglana et al. This can be inferred from acts of unilaterally taking out a surety
from Pioneer Insurance and not using the funds he got from Maglana et al. The record shows
that Lim was acting on his own and not in behalf of his other would-be incorporators in
transacting the sale of the airplanes and spare parts.
3. IVOR ROBERT DAYTON GIBSON, petitioner, vs. HON. PEDRO A. REVILLA, in
his official capacity as Presiding Judge of Branch XIII, Court of First
Instance of Rizal, and LEPANTO CONSOLIDATED MINING COMPANY,
respondents. G.R. No. L-41432 July 30, 1979
FACTS:
MARINE INSURANCE
1. La Razon Social v Union Insurance Society of Canton
GR No. 13983, Sept. 1, 1919 Topic: Marine Insurance
FACTS:
1. The Go Tiaoco Brothers owned a shipment of rice from Saigon to Cebu.
2. During the transit, it was discovered that 1,473 sacks of rice was damaged by sea
water.
3. It was later found out that the damage was caused b y a corroded pipe, the
purpose of which was to drain from the water closet.
3.1 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.
(Bear with me, since this is an old case, the procedure we have come to learn may
be different form the one effective during the pendency of this case.)
4. Trial Court: ruled in favor of Union Insurance. The cause of the loss was due to
the defect in one of the drain pipes thus, the loss is not covered.
5. The case was brought up to the SC.
ISSUE:
Whether or not the reason for the loss of the cargo is covered by the insurance?
HELD:
No. What is covered is "peril of the sea" and not "peril of the ship".
RATIO:
1. Peril of the sea vs. peril of the ship
1.1 It must be considered to be settled, furthermore, that 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.
1.2 Wilson, Sons, and Co. v. Owners of the Cargo per the Xantho: 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."
2. Implied warranty as to seaworthiness of the ship.
2.1 It is universally accepted that in every contract of insurance upon anything which
Facts:
A cargo of rice belonging to the Go Tiaoco Brothers, was transported in the early daysof May,
1915, on the steamship Hondagua from the port of Saigon to Cebu. On dischargingthe rice from
one of the compartments in the after hold, upon arrival at Cebu, it wasdiscovered that 1,473
sacks had been damaged by sea water. The loss so resulting to theowners of rice, after proper
deduction had been made for the portion saved, was P3,875. Thepolicy of insurance, covering
the shipment, was signed upon a form long in use amongcompanies engaged in maritime
insurance. It purports to insure the cargo from the followingamong 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, andmisfortunes that have or shall come to the hurt,
detriment, or damage of the said goods andmerchandise or any part thereof." It was found out
that the drain pipe which served as adischarge from the water closet passed down through the
compartment where the rice inquestion was stowed and thence out to sea through the wall of
the compartment, which wasa part of the wall of the ship. The joint or elbow where the pipe
changed its direction was ofcast iron; and in course of time it had become corroded and
abraded until a longitudinalopening had appeared in the pipe about one inch in length. This hole
had been in existencebefore the voyage was begun, and an attempt had been made to repair it
by filling withcement 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. An action on a policy of marine
insurance issued by the Union Insurance Society of Canton, Ltd., upon the cargo of rice
belonging to the Go Tiaoco Brothers was filed. The trial court found that the inflow of the
seawater 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. Judgment was accordingly
entered in favor of Union Insurance and Go Tiaoco Brothers appealed
Issue 1: Whether perils of the sea includes “entrance of water into the ship’s hold through a
defective pipe.
Held 1:
NO. It is determined that 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.
Their office is to cover in terms whatever may be within the spirit of the
cases previously enumerated, and so they have greater or less effect as a
narrower or broader view is taken of those cases. 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 limitedconstruction and loss by perils of the
seas is to be confined to loss ex marine tempestatisdiscrimine, the
general words become most important. But still, when they first became
the subject of judicial construction, they have always been held or
assumed to be restricted to cases "akin to" or "resembling" or "of the same
kind as" those specially mentioned. I see no reason for departing from this
settled rule. In marine insurance it is above all things necessary to abide
by settled rules and to avoid anything like novel refinements or a new
departure. It must be considered to be settled, furthermore, that 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." Theinsurer 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."
Herein, 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 ship's owner
Facts:
> The Chao Tiek Seng a consignee of the shipment of fishmeal loaded on board the
vessel SS Bougainville and unloaded at the Port of Manila on or about December 11,
1976 and seeks to recover from Filipino the amount of P51,568.62 representing
damages to said shipment which has been insured by Filipino.
> Filipino brought a third party complaint against Compagnie Maritime Des Chargeurs
Reunis and/or E. Razon, Inc. seeking judgment against the third party defendants in
case judgment is rendered against it.
> It appears from the evidence presented that Chao insured said shipment with Filipino
for the sum of P267,653.59 for the goods described as 600 metric tons of fishmeal in
gunny bags of 90 kilos each from Bangkok, Thailand to Manila against all risks under
warehouse to warehouse terms.
> Actually, what was imported was 59.940 metric tons not 600 tons at $395.42 a ton.
> The fishmeal in 666 gunny bags were unloaded from the ship on December 11, 1976
at Manila unto the arrastre contractor E. Razon, Inc. and Filipino’s surveyor ascertained
and certified that in such discharge 105 bags were in bad order condition as jointly
surveyed by the ship's agent and the arrastre contractor.
> Based on said computation the Chao made a formal claim against the Filipino for
P51,568.62. A formal claim statement was also presented by the plaintiff against the
vessel, but the Filipino refused to pay the claim.
SC did not uphold this contention. An "all risks policy" should be read literally as
meaning all risks whatsoever and covering all losses by an accidental cause of any
kind. The terms "accident" and "accidental", as used in insurance contracts, have not
acquired any technical meaning. They are construed by the courts in their ordinary and
common acceptance. Thus, the terms have been taken to mean that which happens by
chance or fortuitously, without intention and design, and which is unexpected, unusual
and unforeseen. An accident is an event that takes place without one's foresight or
expectation; an event that proceeds from an unknown cause, or is an unusual effect of
a known cause and, therefore, not expected.
Coverage under an "all risks" provision of a marine insurance policy creates a special
type of insurance which extends coverage to risks not usually contemplated and avoids
putting upon the insured the burden of establishing that the loss was due to the peril
falling within the policy's coverage; the insurer can avoid coverage upon demonstrating
that a specific provision expressly excludes the loss from coverage. A marine
insurance policy providing that the insurance was to be "against all risks" must be
construed as creating a special insurance and extending to other risks than are usually
contemplated, and covers all losses except such as arise from the fraud of the insured.
The burden of the insured, therefore, is to prove merely that the goods he transported
have been lost, destroyed or deteriorated. Thereafter, the burden is shifted to the
insurer to prove that the loss was due to excepted perils. To impose on the insured the
burden of proving the precise cause of the loss or damage would be inconsistent with
the broad protective purpose of "all risks" insurance.
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
Filipino contends that Chao does not have insurable interest, being only a consignee of
the goods.
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.
Chao, as vendee/consignee of the goods in transit has such existing interest therein as
may be the subject of a valid contract of insurance. His 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 he performed the conditions of the sale. The contract of shipment, whether
under F.O.B., C.I.F., or C. & F. as in this case, is immaterial in the determination of
whether the vendee has an insurable interest or not in the goods in transit. The
perfected contract of sale even without delivery vests in the vendee an equitable title, an
existing interest over the goods sufficient to be the subject of insurance
Filipino Merchants filed a 3rd party complaint against Ben Lines and the broker,
E. Razon.
E. Razon denied liability and argued that Choa Tiek Seng had no valid cause of action
against it. Ben Lines denied liability and argued that Filipino Merchants has no
connection with Ben Lineswhatsoever, thus not a proper party in interest, and that
3rd party complaint has prescribed under theapplicable provisions of Carriage of Goods
by Sea Act.March 31, 1986 – trial court dismissed the complaint, the counterclaim and
the 3rd party complaint with costsagainst Choa Tiek Seng.Petitioner appealed to the
Court of Appeals; CA affirmed the judgment of the trial court
.ISSUE(S):Whether or not Choa Tiek Seng can recover from the insurance company
HELD: (YES/NO, and a short explanation)The decision of the CA is reversed and set aside.
Filipinas Merchants is ordered to pay the sum of P33117.63 asdamages to the petitioner with
legal interest from filing of t
he complaint, plus attorney’s fees and expenses of
litigation in the amount of P10000 as well as the costs of the suit.RATIO:CA concluded that
there was no damage suffered by the cargo at the time of devanning:
Appellant argued that the cargo in question sustained damages while still in the possession of the
The passenger ship MV Doña Paz left the port of Tacloban headed for Manila with a complement of 59
crew members including the master and his officers, and passengers totaling 1,493 as indicated in the
Coast Guard Clearance. The MV Doña Paz is a passenger and cargo vessel owned and operated by
The two vessels collided in the open sea within the vicinity of Dumali Point between Marinduque and
Oriental Mindoro. All the crewmembers of MV Doña Paz died, while the two survivors from MT Vector
claimed that they were sleeping at the time of the incident.
The MV Doña Paz carried an estimated 4,000 passengers; many indeed, were not in the passenger
manifest. Only 24 survived the tragedy after having been rescued from the burning waters by vessels
that responded to distress calls. Among those who perished were public school teacher Sebastian
Cañezal (47 years old) and his daughter Corazon Cañezal (11 years old), both unmanifested
passengers but proved to be on board the vessel.
The board of marine inquiry in BMI Case No. 653-87 after investigation found that the MT Vector, its
registered operator Francisco Soriano, and its owner and actual operator Vector Shipping Corporation,
were at fault and responsible for its collision with MV Doña Paz.
Teresita Cañezal and Sotera E. Cañezal, Sebastian Cañezal’s wife and mother respectively, filed with
the Regional Trial Court, Branch 8, Manila, a complaint for “Damages Arising from Breach of Contract
of Carriage” against Sulpicio Lines, Inc. (hereafter Sulpicio). Sulpicio, in turn, filed a third party
complaint against Francisco Soriano, Vector Shipping Corporation and Caltex (Philippines), Inc.
Sulpicio alleged that Caltex chartered MT Vector with gross and evident bad faith knowing fully well
that MT Vector was improperly manned, ill-equipped, unseaworthy and a hazard to safe navigation; as
a result, it rammed against MV Doña Paz in the open sea setting MT Vector’s highly flammable cargo
ablaze.
rd
The trial court dismissed the 3 party complaint and held Sulpicio lines liable.
The Court of Appeal modified the trial court’s ruling and included petitioner Caltex as one of those
liable for damages:
“Third party defendants Vector Shipping Co. and Caltex (Phils.), Inc. are held equally liable
under the third party complaint to reimburse/indemnify defendant Sulpicio Lines, Inc. of the above-
mentioned damages, attorney’s fees and costs which the latter is adjudged to pay plaintiffs, the same
to be shared half by Vector Shipping Co. (being the vessel at fault for the collision) and the other half
by Caltex (Phils.), Inc. (being the charterer that negligently caused the shipping of combustible cargo
aboard an unseaworthy vessel).”
ISSUE
1) Should Caltex (charterer) be held liable? NO
2) Is MT Vector a common carrier and therefore liable? YES
3) Should Caltex be held liable for damages? NO
RULING
1) The charterer has no liability for damages under Philippine Maritime laws.
Petitioner CALTEX and Vector entered into a contract of affreightment, also known as a voyage charter.
A charter party is a contract by which an entire ship, or some principal part thereof, is let by the owner
to another person for a specified time or use; a contract of affreightment is one by which the owner of
a ship or other vessel lets the whole or part of her to a merchant or other person for the conveyance
of goods, on a particular voyage, in consideration of the payment of freight.
A contract of affreightment may be either time charter, wherein the leased vessel is leased to the
charterer for a fixed period of time, or voyage charter, wherein the ship is leased for a single
voyage. In both cases, the charter-party provides for the hire of the vessel only, either for a
determinate period of time or for a single or consecutive voyage, the ship owner to supply the ship’s
store, pay for the wages of the master of the crew, and defray the expenses for the maintenance of
the ship.
Under a demise or bareboat charter on the other hand, the charterer mans the vessel with his own
people and becomes, in effect, the owner for the voyage or service stipulated, subject to liability for
damages caused by negligence.
If the charter is a contract of affreightment, which leaves the general owner in possession of the ship
as owner for the voyage, the rights and the responsibilities of ownership rest on the owner. The
charterer is free from liability to third persons in respect of the ship.
In this case, the charter party agreement did not convert the common carrier into a private carrier.
The parties entered into a voyage charter, which retains the character of the vessel as a common
carrier.
“It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter
of the whole or portion of a vessel by one or more persons, provided the charter is limited to the ship
only, as in the case of a time-charter or voyage charter. It is only when the charter includes both the
vessel and its crew, as in a bareboat or demise that a common carrier becomes private, at least
A common carrier is a person or corporation whose regular business is to carry passengers or property
for all persons who may choose to employ and to remunerate him. MT Vector fits the definition of a
common carrier under Article 1732 of the Civil Code.
Article 1732 also carefully avoids making any distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering such services on a an
occasional, episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier
offering its services to the “general public,” i.e., the general community or population, and one who
offers services or solicits business only from a narrow segment of the general population.
Sec. 3. (1) The carrier shall be bound before and at the beginning of the voyage to
exercise due diligence to -
(a) Make the ship seaworthy;
(b) Properly man, equip, and supply the ship;
Thus, the carriers are deemed to warrant impliedly the seaworthiness of the ship. For a vessel to be
seaworthy, it must be adequately equipped for the voyage and manned with a sufficient
number of competent officers and crew. The failure of a common carrier to maintain in
seaworthy condition the vessel involved in its contract of carriage is a clear breach of its duty
prescribed in Article 1755 of the Civil Code.
The provisions owed their conception to the nature of the business of common carriers. This business
is impressed with a special public duty. The public must of necessity rely on the care and skill of
common carriers in the vigilance over the goods and safety of the passengers, especially because with
the modern development of science and invention, transportation has become more rapid, more
complicated and somehow more hazardous.
1) Sulpicio argues that Caltex negligently shipped its highly combustible fuel cargo aboard an
unseaworthy vessel such as the MT Vector when Caltex:
Did not take steps to have M/T Vector’s certificate of inspection and coastwise license renewed;
Proceeded to ship its cargo despite defects found by Mr. Carlos Tan of Bataan Refinery Corporation;
Witnessed M/T Vector submitting fake documents and certificates to the Philippine Coast Guard.
Sulpicio further argues that Caltex chose MT Vector to transport its cargo despite these deficiencies:
The master of M/T Vector did not posses the required Chief Mate license to command and
navigate the vessel;The second mate, Ronaldo Tarife, had the license of a Minor Patron,
authorized to navigate only in bays and rivers when the subject collision occurred in the open
sea; The Chief Engineer, Filoteo Aguas, had no license to operate the engine of the vessel; The
vessel did not have a Third Mate, a radio operator and a lookout; and The vessel had a defective
main engine.
As basis for the liability of Caltex, the Court of Appeals relied on Articles 20 and 2176 of the Civil
Code.
In Southeastern College, Inc. vs. Court of Appeals, we said that negligence, as commonly understood,
is conduct which naturally or reasonably creates undue risk or harm to others. It may be the failure to
observe that degree of care, precaution, and vigilance, which the circumstances justly demand, or the
omission to do something which ordinarily regulate the conduct of human affairs, would do.
The charterer of a vessel has no obligation before transporting its cargo to ensure that the vessel it
chartered complied with all legal requirements. The duty rests upon the common carrier simply for
being engaged in “public service.” The Civil Code demands diligence which is required by the nature of
the obligation and that which corresponds with the circumstances of the persons, the time and the
place. Hence, considering the nature of the obligation between Caltex and MT Vector, the liability as
found by the Court of Appeals is without basis.
The relationship between the parties in this case is governed by special laws. Because of the implied
warranty of seaworthiness, shippers of goods, when transacting with common carriers, are not
expected to inquire into the vessel’s seaworthiness, genuineness of its licenses and compliance with all
maritime laws. To demand more from shippers and hold them liable in case of failure exhibits nothing
but the futility of our maritime laws insofar as the protection of the public in general is concerned. By
the same token, we cannot expect passengers to inquire every time they board a common carrier,
whether the carrier possesses the necessary papers or that all the carrier’s employees are qualified.
Such a practice would be an absurdity in a business where time is always of the essence. Considering
the nature of transportation business, passengers and shippers alike customarily presume that
common carriers possess all the legal requisites in its operation.
Thus, the nature of the obligation of Caltex demands ordinary diligence like any other shipper in
shipping his cargoes.
Caltex and Vector Shipping Corporation had been doing business since 1985, or for about two years
before the tragic incident occurred in 1987. Past services rendered showed no reason for Caltex to
observe a higher degree of diligence.
Clearly, as a mere voyage charterer, Caltex had the right to presume that the ship was seaworthy as
even the Philippine Coast Guard itself was convinced of its seaworthiness.
IMPLIED WARRANTIES
1.DELSAN TRANSPORT LINES, INC. VS. CA ET.AL.
G.R. No.127897, November 15, 2001
Facts: Caltex Phil. entered into a contract of affreightment with the petitioner, Delsan Transport Lines,
Inc. for a period of one year whereby the petitioner agreed to transport Caltex industrial fuel oil from
Batangas refinery to different parts of the country. On August 14, 1986, MT Maysun set sail for
Zamboanga City but unfortunately the vessel in the early morning of August 16, 1986 near Panay Gulf.
The shipment was insured with the private respondent, American Home Assurance Corporation.
Subsequently, private respondent paid Caltex the sum of Php.5,096,635.57. Exercising its right of
subrogation under Art. 2207, NCC, the private respondent demanded from the petitioner the same
amount paid to Caltex. Due to its failure to collect from the petitioner, private respondent filed a
complaint with the RTC of Makati City but the trial court dismissed the complaint, finding the vessel to be
seaworthy and that the incident was due to a force majeure, thus exempting the petitioner from liability.
However, the decision of the trial court was reversed by the CA, giving credence to the report of PAGASA
that the weather was normal and that it was impossible for the vessel to sink.
Issue: Whether or not the payment made by private respondent 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.
Held: The payment by the private respondent for the insured value of the lost cargo operates as waiver of
its right to enforce the term of the implied warranty against Caltex under the marine insurance policy.
However, the same cannot be validly interpreted as an automatic admission of the vessel’s seaworthiness
by the private respondent as to foreclose recourse against the petitioner for any liability under its
contractual obligation as common carrier. The fact of payment grants the private respondent subrogatory
right which enables it to exercise legal remedies that otherwise be available to Caltex as owner of the lost
cargo against the petitioner common carrier.
Issues:
1. WON the arrest of the vessel was a risk covered under the subject insurance policies.
2. WON the insurance policies must strictly construed against the insurer.
Facts:
July 6, 1983 Coca-cola loaded on board MV Asilda, owned and operated by Felman, 7,500 cases of 1-liter
Coca-Cola soft drink bottles to be transported to Zamboanga City to Cebu. The shipment was insured with
Philamgen.
July 7, the vessel sank in Zamboanga del Norte. July 15, cocacola filed a claim with respondent Felman for
recovery of damages. Felman denied thus prompted cocacola to file an insurance claim with Philamgen.
Philamgen later on claimed its right of subrogation against Felman which disclaimed any liability for the
loss.
RTC dismissed the complaint of Philamgen. CA set aside the dismissal and remanded the case to the
lower court for trial on the merits. Felman filed a petition for certiorari but was denied.
RTC rendered judgment in favor of Felman. it ruled that the vessel was seaworthy when it left the port of
Zamboanga as evidenced by the certificate issued by the Phil. Coast Guard and the ship owner’s surveyor.
Thus, the loss is due to a fortuitous event, in which, no liability should attach unless there is stipulation or
negligence.
On appeal, CA rendered judgment finding the vessel unseaworthy for the cargo for being top-heavy and
the cocacola bottles were also improperly stored on deck. Nonetheless, the CA denied the claim of
Philamgen, saying that Philamgen was not properly subrogated to the rights and interests of the shipper
plus the filing of notice of abandonment had absolved the ship owner from liability under the limited
liability rule.
Issues: (a) Whether the vessel was seaworthy, (b) whether limited liability rule should apply and (c)
whether Philamgen was properly subrogated to the rights against Felman.
Ruling:
(a) The vessel was unseaworthy. The proximate cause thru the findings of the Elite Adjusters, Inc., is the
vessel's being top-heavy. Evidence shows that days after the sinking coca-cola bottles were found near the
vicinity of the sinking which would mean that the bottles were in fact stowed on deck which the vessel was
not designed to carry substantial amount of cargo on deck. The inordinate loading of cargo deck resulted
in the decrease of the vessel's metacentric height thus making it unstable.
(b) Art. 587 of the Code of Commerce is not applicable, the agent is liable for the negligent acts of the
captain in the care of the goods. This liability however can be limited through abandonment of the vessel,
its equipment and freightage. Nonetheless, there are exceptions 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 ship owner
and the captain. The international rule is that the right of abandonment of vessels, as legal limitation of
liability, does not apply to cases where the injury was occasioned by the fault of the ship owner. Felman
was negligent, it cannot therefore escape liability.
(c) Generally, in marine insurance policy, the assured impliedly warrants to the assurer that the vessel is
seaworthy and such warranty is as much a term of the contract as if expressly written on the face of the
policy. However, the implied warranty of seaworthiness can be excluded by terms in writing in the policy
of the clearest language. The marine policy issued by Philamgen to cocacola has dispensed that the
"seaworthiness of the vessel as between the assured and the underwriters in hereby admitted."
The result of the admission of seaworthiness by Philamgen may mean two things: (1) the warranty of
seaworthiness is fulfilled and (2) the risk of unseaworthiness is assumed by the insurance company. This
waiver clause would mean that Philamgen has accepted the risk of unseaworthiness, therefore Philamgen
is liable.
On the matter of subrogation, it is provided that;
Art. 2207. If the plaintiff's 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.
Pan Malayan Insurance Corp. vs CA: The right of subrogation is not dependent upon, nor does it grow out
of any privity of contract or upon payment by the insurance company of the insurance claim. It accrues
simply upon payment by the insurance company of the insurance claim.
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 soft drink bottles is inevitable.
WHEREFORE, the petition is GRANTED. Respondent FELMAN SHIPPING LINES is ordered to pay
petitioner PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC.
FIRE INSURANCE
1.E. M. BACHRACH vs. BRITISH AMERICAN ASSURANCE COMPANYG.R. No. L-5715
December 20, 1910JOHNSON, J.:
FACTS:
1. E. M. Bachrach insured against loss or damage by fire, goods, belonging to its general furniture store,
such as iron and brass bedsteads, toilet tables, chairs, ice boxes, bureaus, washstands, mirrors,and sea-
grass furniture from British American Assurance Company through it's agent.
2. In the policy, Co insurance was allowed which should be declared in the event of loss or claim. Also,
such policy provided Permission granted for the use of gasoline not to exceed 10 gallons for the "Calalac"
automobile, but only whilst contained in the reservoir of the car.
3. Fire broke out. British American Assurance Company denied the claim of Bachrach alleging the ff:
a. That the plaintiff maintained a paint and varnish shop in the said building where the goods
which were insured were stored.
b. That the plaintiff transferred his interest in and to the property covered by the policy to H. W.
Peabody & Co. to secure certain indebtedness due and owing to said company, and also that the plaintiff
had transferred his interest in certain of the goods covered by the said policy to one Macke, to secure
certain obligations assumed by the said Macke for and on behalf of the insured. That the sanction of the
said defendant had not been obtained by the plaintiff, as required by the said policy.
c. That the plaintiff, immediately preceding the outbreak of the alleged fire, willfully placed a
gasoline can containing 10 gallons of gasoline in the upper story of said buildingin close proximity to a
portion of said goods, wares, and merchandise, which can was so placed by the plaintiff as to permit the
gasoline to run on the floor of said second story, and after so placing said gasoline, he, the plaintiff, placed
in close proximity to said escaping gasoline a lighted lamp containing alcohol, thereby greatly increasing
the risk of fire.
Ong Guan Can v. The Century Insurance Co. (46 PHIL. 592), December 2, 1924
FACTS PLAINTIFFS-‐APPELLEES: Ong Guan Can and the Bank of the Philippine Islands
DEFENDANT-‐APPELLANT: The Century Insurance Co., LTD. PONENTE: Villamor, J. The
plaintiff owned a building that was insured against fire by the defendant in the sum of Php
30,000, including the merchandise therein contained in the sum of Php 15,000. Both the house
and merchandise insured were burned in February 28, 1923 while the policies issued by the
defendant in favor of the plaintiff were still in force. The CFI of Iloilo granted the case in favor
of the plaintiff that The Century Insurance Co. should pay Ong Guan Can the sum of Php
45,000 as the total value of the insured house and merchandise. The Insurance Company
appealed that the judgment be modified to permit it to rebuild the house and that they be
relieved from the payment of the sum in which the building was insured.
ISSUE/S Whether the defendant-‐appellant can rebuild the house burnt as a sufficient idemnity
to the inured for the actual loss suffered by him. LAWS Article 1199. A person alternatively
bound by different prestations shall completely perform one of them. The creditor cannot be
compelled to receive part of one and part of the other undertaking. (1131)
HOLDINGS Yes. The defendant may build the house as an alternative prestation, freeing him
from the payment of the sum in which the building was insured. This conclusion is in line with
The Civil Code’s Article 1131. Paying the sum in which the building was insured is one of the
2 prestations provided in one of the clauses stipulating the conditions of the policies. Based on the
same Article of the Civil Code, the complete performance of one of them is sufficient to
extinguish the obligation. While there are several prestations, only one is due.