CHOA TIEK SENG, doing business under the name and style of SENG'S COMMERCIAL

ENTERPRISES vs. HON. COURT OF APPEALS, FILIPINO MERCHANTS' INSURANCE

COMPANY, INC., BEN LINES CONTAINER, LTD. AND E. RAZON, INC, G.R. No. 84507,
[March 15, 1990]

FACTS: On November 4, 1976 petitioner imported some lactose crystals from Holland. The
importation involved 600 6-ply paper bags with polyethylene inner bags, each bag at 25 kilos
net. The goods were loaded at the port at Rotterdam in sea vans on board the vessel "MS
Benalder” as the mother vessel, and thereafter aboard the feeder vessel "Wesser Broker V-25"
of respondent Ben Lines Container, Ltd. The goods were insured by the respondent Filipino
Merchants' Insurance Co., Inc. for P98,882.35, the equivalent of US$8,765.00 plus 50% mark-
up against all risks under the terms of the insurance cargo policy. Upon arrival at the port of
Manila, the cargo was discharged into the custody of the arrastre operator/broker respondent E.
Razon, Inc., prior to the delivery to petitioner. Of the 600 bags delivered to petitioner, 403 were
in bad order. The surveys showed that the bad order bags suffered spillage and loss later
valued at P33,117.63.

Petitioner filed a claim against respondent insurance company, which was rejected, alleging that
assuming that spillage took place while the goods were in transit, petitioner and his agent failed
to avert or minimize the loss by failing to recover spillage from the sea van, thus violating the
terms of the insurance policy sued upon; and that assuming that the spillage did not occur while
the cargo was in transit, the said 400 bags were loaded in bad order, and that in any case, the
van did not carry any evidence of spillage. Choa filed complaint in RTC. RTC dismissed case.
CA affirmed dismissal.
CA: The cargo in question was insured in an "against all risk policy." Insurance "against all risk"
has a technical meaning in marine insurance. Under an "all risk" marine policy, there must be a
general rule be a fortuitous event in order to impose liability on the insurer; losses occasioned
by ordinary circumstances or wear and tear are not covered, thus, while an "all risk" marine
policy purports to cover losses from casualties at sea, it does not cover losses occasioned by
the ordinary circumstances of a voyage, but only those resulting from extra and fortuitous
events.

ISSUE: Whether or not an "all risks" coverage covers only losses occasioned by or resulting
from "extra and fortuitous events" despite the clear and unequivocal definition of the term made
and contained in the policy sued upon.

HELD: No. CA erred. An all risk insurance policy insures against all causes of conceivable loss
or damage, except as otherwise excluded in the policy or due to fraud or intentional misconduct
on the part of the insured. It covers all losses during the voyage whether arising from a marine
peril or not, including pilferage losses during the war.
In the present case, the "all risks" clause of the policy sued upon reads as follows:
This insurance is against all risks of loss or damage to the subject matter insured but shall in no
case be deemed to extend to cover loss, damage, or expense proximately caused by delay or
inherent vice or nature of the subject matter insured. Claims recoverable hereunder shall be
payable irrespective of percentage.

The insurance policy covers all loss or damage to the cargo except those caused by delay or
inherent vice or nature of the cargo insured. It is the duty of the respondent insurance company
to establish that said loss or damage falls within the exceptions provided for by law, otherwise it
is liable therefor. In this case, the damage caused to the cargo has not been attributed to any of
the exceptions provided for nor is there any pretension to this effect. Thus, respondent
insurance company must pay.

ORIENTAL ASSURANCE CORPORATION VS COURT OF APPEALS AND PANAMA

SAWMILL,
G.R. NO. 94052, AUGUST 9, 1991

Facts: Panama Sawmill bought 1,208 pieces of apitong log which it transported by sea to
Manila through Transpacific towage and insured it against loss with Oriental Assurance
corporation. Oriental assurance issued a marine insurance policy which stated, among others,
that the insurance warranted against total loss only.

The 2 barges were towed by 1 tug-boat but during the voyage, rough seas and strong winds
caused damage to the barge resulting in the total loss of 497 pieces of logs out of the 598
pieces loaded thereon. Panama demanded payment for the loss but Oriental assurance refused
on the ground that its contracted liability was for “total loss only.” The rejection was upon the
recommendation of the Tan Gatue Adjustment Company.

Panama filed a Complaint for Damages against Oriental Assurance et al. with RTC.

Issue: WON Oriental Assurance can be held liable under its marine insurance policy based on
the theory of a divisible contract of insurance and, consequently, a constructive total loss.

Held: No, as no liability attaches. In the absence of either actual or constructive total loss, there
can be no recovery by the insured Panama against the insurer, Oriental Assurance.

The terms of the contract constitute the measure of the insurer’s liability and compliance
therewith is a condition precedent to the insured's right to recovery from the insurer. Whether a
contract is entire or severable is a question of intention to be determined by the language
employed by the parties. The policy in question shows that the subject matter insured was the
entire shipment of 2,000 cubic meters of apitong logs. Only one premium was paid for the entire
shipment, making for only one cause or consideration. The insurance contract must, therefore,
be considered indivisible.
More importantly, the insurer's liability was for "total loss only." A total loss may be either actual
or constructive. An actual total loss is caused by:
A total destruction of the thing insured;
The irretrievable loss of the thing by sinking, or by being broken up;
Any damage to the thing which renders it valueless to the owner for the purpose for which he
held it; or
Any other event which effectively deprives the owner of the possession, at the port of
destination, of the thing insured.

A constructive total loss is one which gives to a person insured a right to abandon, under
Section 139 of the Insurance Code. This provision reads:
A person insured by a contract of marine insurance may abandon the thing insured, or any
particular portion thereof separately valued by the policy, or otherwise separately insured, and
recover for a total loss thereof, when the cause of the loss is a peril injured against, (a) If more
than three-fourths thereof in value is actually lost, or would have to be expended to recover it
from the peril; (b) If it is injured to such an extent as to reduce its value more than three-fourths
xxx
The CA treated the loss as a constructive total loss, and for the purpose of computing the more
than three-fourths value of the logs actually lost, considered the cargo in one barge as separate
from the logs in the other. Thus, it concluded that the loss of 497 pieces of logs from barge
TPAC-1000, mathematically speaking, is more than three-fourths (¾) of the 598 pieces of logs
loaded in that barge and may, therefore, be considered as constructive total loss. Erroneous.
The requirements for the application of Section 139 of the Insurance Code, have not been met.
The logs involved, although placed in two barges, were not separately valued by the policy, nor
separately insured. Resultantly, the logs lost in barge TPAC-1000 in relation to the total number
of logs loaded therein on the same barge cannot be made the basis for determining constructive
total loss. The logs having been insured as one inseparable unit, the correct basis for
determining the constructive total loss is the totality of the shipment of logs. So, out of the 1,208,
pieces of logs, only 497 pieces were lost or 41.45% of the entire shipment. Since it is less than
75% of the value of all 1,208 pieces of logs, the shipment cannot be said to have sustained a
constructive total loss.

ISABELA ROQUE AND ONG CHIONG VS HON. INTERMEDIATE APPELLATE COURT AND
PIONEER INSURANCE AND SURETY CORPORATION, G.R. NO. L-66935, NOVEMBER 11,
1985

Facts: Manila Bay Lighterage Corporation, a common carrier, entered into a contract with the
petitioners whereby the former would load and carry on board logs in its barge Marble 10. The
petitioners insured the logs against loss with Pioneer Insurance and Surety Corporation.
However, the shipment of pieces of logs never reached its destination because the barge sank.
As found by both the trial court 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 petitioners wrote to Manila Bay a letter demanding payment for the loss and another letter
was sent to Pioneer claiming the amount under the insurance policy but latter refused on the
ground that its ability depended upon the “Total loss by Total loss of vessel only.” Hence,
petitioner commenced the civil case.
Petitioners: The implied warranty of seaworthiness provided for in the Insurance Code refers
only to the responsibility of the shipowner who must see to it that his ship is reasonably fit to
make in safety the contemplated voyage. A mere shipper of cargo, having no control over the
ship, has nothing to do with its seaworthiness. A cargo owner has no control over the structure
of the ship, its cables, anchors, fuel and provisions, the manner of loading his cargo and the
cargo of other shippers, and the hiring of a sufficient number of competent officers and seamen.

SC: Unmeritorious. There is no dispute over the liability of the common carrier Manila Bay. In
fact, it did not bother to appeal the questioned decision. However, the petitioners state that
Manila Bay has ceased operating as a firm and nothing may be recovered from it. They are,
therefore, trying to recover their losses from the insurer.

The liability of the insurance company is governed by law. Section 113 of the Insurance Code
provides:
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.
Section 99 of the same Code also provides in part:
Marine insurance includes: (1) Insurance against loss of or damage to: (a) Vessels, craft,
aircraft, vehicles, goods, freights, cargoes, merchandise x x x
The term "cargo" can be the subject of marine insurance and that once it is so made, the
implied warranty of seaworthiness immediately attaches to whoever is insuring the cargo
whether he be the shipowner or not. In every contract of insurance upon anything which is the
subject of marine insurance, a warranty is implied that the ship shall be seaworthy at the time of
the inception of the voyage. Moreover, the fact that the unseaworthiness of the ship was
unknown to the insured is immaterial in ordinary marine insurance and may not be used by him
as a defense in order to recover on the marine insurance policy.

Since the law provides for an implied 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. Or the cargo owner may enter into a contract of insurance which
specifically provides that the insurer answers not only for the perils of the sea but also provides
for coverage of perils of the ship.
We are constrained to apply Section 113 of the Insurance Code to the facts of this case. In
marine cases, the risks insured against are "perils of the sea." The purpose of such insurance is
protection against contingencies and against possible damages and such a policy does not
cover a loss or injury which must inevitably take place in the ordinary course of things.

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
losses from extraordinary occurrences only, such as stress of weather, winds and waves,
lightning, tempests, rocks and the like
include only such losses as are of extraordinary nature, or arise from some overwhelming
power, which cannot be guarded against by the ordinary exertion of human skill and prudence
damage done to a vessel by perils of the sea includes every species of damages done to a
vessel at sea, as distinguished from the ordinary wear and tear of the voyage, and distinct from
injuries suffered by the vessel in consequence of her not being seaworthy at the outset of her
voyage (as in this case)
everything which happens thru the inherent vice of the thing, or by the act of the owners, master
or shipper, shall NOT be reputed a peril, if not otherwise borne in the policy
Petitioners: The loss of the cargo was caused by the perils of the sea, not by the perils of the
ship. As found by the trial court, the barge was turned loose from the tugboat east of Cabuli
Point "where it was buffeted by storm and waves." Moreover, barratry (any willful misconduct on
the part of the master or crew, in pursuance of an unlawful or fraudulent purpose, without
consent of the owner and to the prejudice of the owner’s interest; still covered under perils of
the sea) against which the cargo was also insured, existed when the personnel of the tugboat
and the barge committed a mistake by turning loose the barge from the tugboat east of Cabuli
Point.

SC: Unmeritorious. The facts clearly negate the petitioners' claim under the insurance policy.
The loss of the cargo was due to the perils of the ship rather than the perils of the sea. The
entrance of the sea water into the ship's hold through the defective pipe was not due to any
accident which happened during the voyage, but to the failure of the ship's owner properly to
repair a defect of the existence of which he was apprised. The loss was therefore more
analogous to that which directly results from simple unseaworthiness than to that which result
from the perils of the sea.

Perils of the ship:

loss 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

GR: The insurer does not undertake to insure against perils of the ship.
EXN: To make insurer liable, there must 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.
Therefore, the insurer is not liable. The shipowner excepts the perils of the sea from his
engagement under the bill of lading, while this is the very perils against which the insurer
intends to give protection. The owners of the lost logs must look to the shipowner for redress
and not to the insurer.

FILIPINO MERCHANTS INSURANCE CO., INC VS COURT OF APPEALS AND CHOA TIEK
SENG,
G.R. NO. 85141, NOVEMBER 28, 1989

Facts: Choa Tiek Seng insured with Filipino Merchants Insurance the shipment of 600 metric
tons (but actually was only 59.94 m. tons) of fishmeal in new gunny bags of 90 kilos each
against all risks under warehouse to warehouse terms. The fishmeal were unloaded from the
ship unto the arrastre contractor. The condition of the bad order was reflected in the turn over
survey report. The cargo was also surveyed by the arrastre contractor before delivery of the
cargo to the consignee and the condition in such delivery was reflected covering a total of 227
bags in bad order condition. Choa Tiek Sieng filed a formal claim statement against the vessel
but the Filipino Merchants Insurance refused to pay the claim. Choa filed an action with RTC.

RTC rendered decision in favor of Choa. The CA affirmed decision.

Petitioners: An "all risks" marine policy has a technical meaning in insurance in that before a
claim can be compensable it is essential that there must be "some fortuity, " "casualty" or
"accidental cause" to which the alleged loss is attributable and the failure of herein private
respondent, upon whom lay the burden, to adduce evidence showing that the alleged loss to the
cargo in question was due to a fortuitous event precludes his right to recover from the insurance
policy.

SC: Untenable. The "all risks clause" of the Institute Cargo Clauses read as follows:
5. This insurance is against all risks of loss or damage to the subject-matter insured but shall in
no case be deemed to extend to cover loss, damage, or expense proximately caused by delay
or inherent vice or nature of the subject-matter insured. Claims recoverable hereunder shall be
payable irrespective of percentage.

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.
The very nature of the term "all risks" must be given a broad and comprehensive meaning as
covering any loss other than a willful and fraudulent act of the insured. This is pursuant to the
very purpose of an "all risks" insurance to give protection to the insured in those cases where
difficulties of logical explanation or some mystery surround the loss or damage to property. An
"all asks" policy has been evolved to grant greater protection than that afforded by the "perils
clause," in order to assure that no loss can happen through the incidence of a cause neither
insured against nor creating liability in the ship; it is written against all losses, that is, attributable
to external causes.

Generally, the burden of proof is upon the insured to show that a loss arose from a covered
peril, but under an "all risks" policy the initial burden is on the insured to prove that the cargo
was in good condition when the policy attached and that the cargo was lost, destroyed or
deteriorated when unloaded from the vessel; thereafter, the burden then shifts to the insurer to
prove that the loss was due to excepted perils.

There being no showing that the loss was caused by any of the excepted perils, the insurer is
liable under the policy. There is no evidence presented to show that the condition of the gunny
bags in which the fishmeal was packed was such that they could not hold their contents in the
course of the necessary transit, much less any evidence that the bags of cargo had burst as the
result of the weakness of the bags themselves. Had there been such a showing that spillage
would have been a certainty, there may have been good reason to plead that there was no risk
covered by the policy. Under an 'all risks' policy, it was sufficient to show that there was damage
occasioned by some accidental cause of any kind, and there is no necessity to point to any
particular cause.
Filipino Merchants is to pay Choa P51,568.62 with interest at legal rate from the date of the
filing of the complaint.