MEASURE OF LIABILITY

The amount of indemnity in a marine insurance is affected by the type of policy involved. A policy may
be valued policy where the value of the property is fixed therein. It may also be an open policy where no
value of property is fixed in the policy.

a. Valued Policy. In a valued policy, the valuation is conclusive upon the parties except when there
is fraud when the valuation was fixed

Sec 158. A valuation in a policy of marine insurance is conclusive between the parties thereto in he
adjustment of either a partial or total loss, if the insured has some interest at risk, and there is no fraud
on his part; except that a thing has been hypothecated by bottomry or respondentia, before its
insurance, and without knowledge of the person actually procuring the insurance, he may show the real
value. But a valuation fraudulent in fact, entitles the insurer to rescind the contract.

b. Open Policy. In an open policy, there is no conclusive value that is fixed therein. The
determination of the value of the thing insured is governed by the following provisions:

Sec 163. In estimating a loss under an open policy of marine insurance the following rules are to be
observed:

a. The value of a ship is its value at the beginning of the risk, including all article or charges which
add to its present value or which are necessary to prepare it for the voyage;
b. The value of the cargo is its actual cost to the insured, when laden on board, or where the cost
cannot be ascertained, its market value at the time and place of lading, adding the charges
incurred in purchasing and placing it on board, but without reference to any loss incurred on its
exportation, or to the fluctuation of the market at the port of destination, or to expenses
incurred on the way or on arrival;
c. The value of freightage is the gross freightage exclusive of primage, without referene to the cost
of earning it; and
d. The cost of insurance is in each case to be added to the value thus estimated.

CO-INSURANCE CLAUSE

There is always co-insurance in marine insurance in accordance with Section 159 which
provides:

Sec 159. A marine insurer is liable upon a partial loss, only for such proportion of the amount insured by
him as the loss bears to the value of the whole interest of the insured in the property insured.

1. The requisites for the application of co-insurance in marine insurance are as follows: a. There
must be partial loss and b. There is under-insurance meaning the insurance coverage is less than
the value of the property insured
2. Based on Section 159, the amount that the insurer is required to pay in case of partial loss is the
proportion between the amount insured and the value of the whole interest in the property.
Thus, the share of the insurer is determined on the basis of the following:
 Amount of Partial Loss/ Value of the Interest in Property x Amount of Insurance = Share of the
Insurer
3. Value of the Vessel = 10M ; Amount of Insurance = 8M ; Amount of Partial Loss = P400,000.00

400,000.00/10M x 8M = 320,000

4. The co-insurance clause is not applicable if there is total loss.

5. Section 159 applies only to marine insurance

FREIGTAGE OR CARGO

In case of a valued policy of amrine insurance on freightage or cargo, if a part only of the subject
is exposed to the risk, the valuation applies only in proportion to such part.

PROFITS

Marine insurance over profits may be a valued policy. Thus, Section 162 of the Insurance Code
provides that:

Sec 162. When profits are valued and insured by a contarct of marine insurance, a loss of them is
conclusively presumed from a loss of the property out of which they are expected to arise, and the
valuation fixes their amount.

1. For example, the shipowner insured the profits that he expects from the sale of the goods the
he is transporting in his ship for a particular voyage. If the profits are fixed at P1M in the policy,
the insurer is liable for such amount upon the total loss of the goods in transit. The amount fixed
in the policy as profits is conclusively presumed to be the amount of the profits which were lost.
2. However, where the profits are separately insured in a contract of marine insurance, the insured
is entitled to recover, in case of loss, a proportion of such profits equivalent to the proportion
which the value of the property lost bears to the value of the whole. Thus, the amount payable
shall be determined on the basis of the following formula:

Value of the Lost Property / Total Value of Property x Expected Profits = Liability

3. EP = 50,000 Value of the Goods = 100,000 Value of the lost goods = 60,000

60,000.00 / 100,00.00 x 50,000 = 30,000

PARTIAL LOSS OF CARGO

Section 164 of the Insurance Code provides that if cargo insured against partial loss arrives at
the port of destination in a damaged condition, the loss of the insured is deemed to be the same
proportion of the value which the market at that port, of the thing so damaged, bears to the market
price it would have brought if sound.
SUE AND LABOR CLAUSE

Sue and Labor Clause requires the insured and his representatives to take all reasonable steps
that are necessary to limit or reduce an imminent loss. Indemnity will be given by the insurer for such
effort. On the other hand, it might likewise be provided that the insured may exert effort in recovering
the property and the consequences thereof are provided for as follows:

Sec 165. A marine insurer is liable for all the expenses attendant upon a loss which forces the
ship into port to be repaired; and where it Is stipulated in the policy that the insured shall labor for the
recovery of the property, the insurer is liable for the expense incurred thereby, such expense, in either
case, being in addition to a total loss, if that afterwards occurs.

APPLICATION OF THE OLD MATERIALS

In the case of a partial loss of the ship or its equipment, the old materials are to be applied
towards payment for the new. Unless otherwise stipulated in the policy, a marine insurer is liable for
only two-thirds (2/3) of the remaining cost of repairs after such deduction, except that anchors must be
paid in full.

AVERAGES

Article 806 of the Code of Commerce that averages are all extraordinary or accidental expenses
which may be incurred during the voyage in order to preserve the vessel, the cargo or both and any
damage or deterioration which the vessel may suffer from the time it puts to sea from port of departure
until it casts anchor in the port of destination as well as those suffered by the merchandise form the
time they are loaded in the port of shipment until they are loaded of consignment.

FPA CLAUSE

Open Cargo Policies may contain what is known as FPA (Free from Particular Average) clause
which limits liability in case of partial loss. Particular average is also known as simple average under the
Code of Commerce. The rule in this jurisdiction is provided for in Section 138 of the Insurance Code
which provide:

Sec 138. Where it has been agreed that an insurance upon a particular thing, or class of things, shall be
free from particular average, a marine insurer is not liable for any particular average loss not depriving
the insured of the possession, at the port of destination, of the whole of such thing, or class of things,
even though it becomes entirely worthless; but such insurer is liable for his proportion of all general
average loss assessed upon the things insured.

a. Two types of FPA clause:

1. FPA-American Conditions (FPAAC) – When provided for, a particular average is not payable
unless the loss is caused by the vessel’s being stranded, sunk, burnt on fire or in collision;
2. FRA-English Condition (FPAEC) – The particular average is not payable unless the carrying
vessel has been stranded, sunk, burnt, or in collision. If any of those perils occurs, the FPAEC
is breached and the particular average caused by a peril of the sea or any other insured peril
during the voyage will be covered even if there is no causal connection between the
stranding, sinking, burning, or collision ad the particular average loss.
SIMPLE OR PARTICULAR AVERAGE

-all the expenses and damages caused to the vessel or to her cargo which have not inured to the
common benefit and profit of all the persons interested in the vessel and her cargo.

-if not a general average, the same can be considered particular average

- “the owner pf the goods which gave rise to the expense or suffered the damage shall bear the
simple or particular averages.

1. The losses suffered by the cargo from the time of its embarkation until it is unloaded, either on
account of inherent defect of the goods or by reason of an accident of the sea or force majeure, and the
expenses incurred to avoid and repair the same.

2. The losses and expenses suffered by the vessel in its hull, rigging, arms and equipment, for the same
causes and reasons, from the time it puts to sea from the port of departure until it anchors and lands in
the port of destination.

3. The losses suffered by the merchandise loaded on deck, except in coastwise navigation, id the marine
ordinances allow it.

4. The wages and victuals of the crew when the vessel is detained or embargoed by legitimate order or
force majeure, if the charter has been contracted for a fixed sum for the voyage.

5. The necessary expenses on arrival at a port, in order to make repairs or secure provisions.

6. The lowest value of the goods sold by the captain in arrivals under stress for the payment of
provisions and in order to save the crew, or to meet any other need of the vessel, against which the
proper amount shall be charged.

7. The victuals and wages of the crew while the vessel is in quarantine.

8. The loss inflicted upon the vessel or cargo by reason of an impact or collision with another, if it is
accidental and unavoidable. If the accident should occur through the fault or negligence of the captain,
the latter shall be liable for all the losses caused.

9. Any loss suffered by the cargo through the fault, negligence, or barratry of the captain or the crew,
without prejudice to the right of the owner to recover the corresponding indemnity from the captain,
the vessel, and the freightage.

GENERAL AVERAGE

A general or gross average shall include all the damages and expenses which are deliberately
caused in order to save the vessel, its cargo or both at the same time, from real and known risk.

a. Requisites:
1. There must be a common danger;
2. For the common safety part of the vessel or of the cargo or both is sacrificed deliberately;
3. From the expenses or damages caused follows the successful saving of the vessel and cargo;
and
 4. The expenses or damages should have been incurred or inflicted after taking proper legal
steps and authority.

b. Rationale:

Such claims have their foundation in equity, and rest upon the doctrine that whatever is
sacrificed for the common benefit of the associated interests shall be made good by all the interests
which are exposed to the common peril and which were saved from the common danger by the
sacrifice.

c. Common Danger
The requirements that there must be common danger means that both the ship and the cargo,
after has been loaded, are subject to the same danger whether during the voyage or in the port of
loading or unloading, that the danger arises from the accidents of the sea, dispositions of the authority,
or faults of men, provided that the circumstances producing the peril should be ascertained and
imminent or may rationally be said to be certain and imminent.

d. Voluntary Sacrifice
There must be voluntary sacrifice of a part for the benefit of the whole in order to justify general
average contribution.

e. Successful Saving

The general average contribution cannot be demanded if the vessel and other cargo that are
sought to be saved were in fact not saved.

f. Mandatory Legal Steps

It is also indispensable that the expenses or damages should have been incurred or inflicted
after taking proper legal steps and authority.

e. Examples Article 811 of Code of Commerce:

1. The goods or cash invested in the redemption of the vessel or pf the cargo captured by enemies,
privateers or pirates and the provisions, wages, and expenses of the vessel.

WHO WILL PAY THE GENERAL AVERAGE

-shall be borne by those who benefited from the sacrifice.

-Art 812. In order to satisfy the amount of the gross or general averages, all the persons having
an interest in the vessel and cargo therein at the time of the occurrence of the average shall contribute

-Art 859. The insurers of the vessels, of the freigthtage and of the cargo shall be obliged to pay
for the indemnification of the gross average, insofar as is required of each one of the objects
respectively.
The computation of general average contribution of the insurer is governed by Section 166.

Sec 166. A marine insurer is liable for a loss falling upon the insured, through a contribution in respect to
the thing insured, required to be made by him towards a general average loss called for by a peril
insured against; provided that the liability of the insurer shall be limited to the proportion of
contribution attaching to his policy value where this is less than the contributing vakue of the thing
insured.

Sec. 167. When a person insured by a contract of marine insurance has a demand against others for
contribution, he may claim the whole loss from the insurer, subrogating him to his own right to
contribution. But no such claim can be made upon the insurer after the separation of the interests liable
to contribution, nor when the insured, having the right and opportunity to enforce contribution from
others, has neglected or waived the exercise of that right.

Sec. 168. In the case of a partial loss of ship or its equipment, the old materials are to be applied
towards payment for the new. Unless otherwise stipulated in the policy, a marine insurer is liable for
only two-thirds of the remaining cost of repairs after such deduction, except that anchors must be paid
in full.

Amount of the Insurance/Value of the Property Insured x GA Contribution of the Insurer =

Amount to be paid

1. For example, the insurer insured the goods of Mr. X that is being carried in the vessel. The value
of the goods is P20,000 while the insurance thereon is only P15,000. If the general average
contribution pertaining to Mr. X is P4,000, the liability of the insurer for the general average is
P3,000

Amount of Insurance = P15,000 Value of the Property Insured= P20,000

GA Contribution of the Insurer = P4,000

(15,000/20,000x4,000) = P3,000

The liability of the insurer may however be reduced if there are materials that are left because
Sec 168 provides that old material shall be applied for the acquisition of the new materials.

SUBROGATION.

The person whose property was sacrificed is entitled to general average payments.

Example: The goods of Mr. X amounting to P30,000 were jettisoned to save the ship. The goods are
insured by Y Insurer for its full value.

a. Insurer cannot claim from the insurer the amount of his loss if the said insurer cannot be
subrogated to the rights of the insured:
1. If there is already separation of interest liable to the contribution
2. If the insured neglects to claim contribution although he has opportunity to enforce
the same
3. If the insured waives the right to claim contribution.