Delsan Transport Lines, Inc.

vs.
Hon. Court of Appeals and American Home Assurance Corporation
G.R. No. 127897, November 15, 2001

FACTS:
Caltex Philippines entered into a one-year contract of affreightment with the
petitioner, Delsan Transport Lines, Inc. to transport Caltex’s industrial fuel oil
from the Batangas-Bataan Refinery to different parts of the country. Petitioner took
on board its vessel, MT Maysun, 2,277.314 kiloliters of industrial fuel oil of Caltex to be
delivered to the Caltex Oil Terminal in Zamboanga City. The shipment was insured
with the private respondent, American Home Assurance Corporation.

Unfortunately, the vessel sank in the early morning of August 16, 1986 near
Panay Gulf in the Visayas taking with it the entire cargo of fuel oil.

Petitioner attributes the sinking of MT Maysun to fortuitous event or force majeure.

The insurance company paid Caltex the insured value of the lost cargo and was
subrogated of the rights of Caltex. However, despite repeated demands, it failed
to collect from petitioner carrier.

RTC’s decision:

The vessel, MT Maysun, was seaworthy to undertake the voyage as determined by the
Philippine Coast Guard per Survey Certificate Report No. M5-016-MH upon inspection
during its annual dry-docking and that the incident was caused by unexpected inclement
weather condition or force majeure, thus exempting the common carrier (herein
petitioner) from liability for the loss of its cargo.

CA’s decision:

Reversed RTC’s decision. PAGASA weather report showed that the waves were not
big. There was no explanation as to what may have caused the sinking and found that
the vessel was improperly manned. Hence, common carrier is liable.

ISSUE:
Is petitioner exempt from liability due to fortuitous event?

RULING:
No. Petitioner is liable for the insured value of the lost cargo of industrial fuel oil
belonging to Caltex for its failure to rebut the presumption of fault or negligence as
common carrier occasioned by the unexplained sinking of its vessel, MT Maysun,
while in transit. From the testimonies of Jaime Jarabe and Francisco Berina, captain
and chief mate, respectively of the ill-fated vessel, it appears that a sudden and
unexpected change of weather condition occurred in the early morning of August 16,
1986; that at around 3:15 o’clock in the morning a squall (“unos”) carrying strong winds
with an approximate velocity of 30 knots per hour and big waves averaging eighteen
(18) to twenty (20) feet high, repeatedly buffeted MT Maysun causing it to tilt, take in
water and eventually sink with its cargo. This tale of strong winds and big waves by the
said officers of the petitioner however, was effectively rebutted and belied by the
weather report from the Philippine Atmospheric, Geophysical and Astronomical
Services Administration (PAGASA), the independent government agency charged with
monitoring weather and sea conditions, showing that from 2:00 o’clock to 8:00 o’clock in
the morning on August 16, 1986, the wind speed remained at ten (10) to twenty (20)
knots per hour while the height of the waves ranged from .7 to two (2) meters in the
vicinity of Cuyo East Pass and Panay Gulf where the subject vessel sank. Thus,
petitioner’s vessel, MT Maysun, sank with its entire cargo for the reason that it was
not seaworthy. There was no squall or bad weather or extremely poor sea
condition in the vicinity when the said vessel sank.

NOTES:
 Seaworthiness relates to a vessel’s actual condition. Neither the granting of
classification or the issuance of certificates establishes seaworthiness.
Authorities are clear that diligence in securing certificates of seaworthiness does
not satisfy the vessel owner’s obligation. Also securing the approval of the
shipper of the cargo, or his surveyor, of the condition of the vessel or her
stowage does not establish due diligence if the vessel was in fact unseaworthy,
for the cargo owner has no obligation in relation to seaworthiness.
 The right of subrogation has its roots in equity. It is designed to promote and to
accomplish justice and is the mode which equity adopts to compel the ultimate
payment of a debt by one who in justice and good conscience ought to pay. It is
not dependent upon, nor does it grow out of, any privity of contract or upon
written assignment of claim. It accrues simply upon payment by the
insurance company of the insurance claim. Consequently, the payment made
by the private respondent (insurer) to Caltex (assured) operates as an equitable
assignment to the former of all the remedies which the latter may have against
the petitioner.
 The Phil. American Gen. Insurance Co., Inc.
vs
Court of Appeals and Felman Shipping Lines

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.
Philamgen alleged that the sinking and loss were due to the vessel's
unseaworthiness, that the vessel was improperly manned and its officers were
grossly negligent. Felman filed a motion to dismiss saying that there is no right of
subrogation in favor of Philamgen was transmitted by the shipper.
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, - NO- UNSEAWORTHY
(b) whether limited liability rule should apply and - NO
(c) whether Philamgen was properly subrogated to the rights against Felman. - YES

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.
 FEDEX 
vs. 
AHAC and PHILAM INSURANCE COMPANY, INC
G.R. No. 150094
August 18, 2004
 FACTS:
SMITHKLINE – Shipper of items
BURLINGTON – carrier, agent of FEDEX
AHAC – insurance company, (represented by PHILAM) insured cargoes of
BURLINGTON
Shipper SMITHKLINE USA delivered to carrier Burlington Air Express
(BURLINGTON), an agent of [Petitioner] Federal Express Corporation, a shipment
of 109 cartons of veterinary biologicals for delivery to consignee SMITHKLINE and
French Overseas Company in Makati City. The shipment was covered by Burlington
Airway Bill No. 11263825 with the words, ‘REFRIGERATE WHEN NOT IN TRANSIT’
and ‘PERISHABLE’ stamp marked on its face.  That same day, Burlington insured the
cargoes with American Home Assurance Company (AHAC).  The following day,
Burlington turned over the custody of said cargoes to FEDEX which transported the
same to Manila.
The  shipments arrived in Manila and was immediately stored at [Cargohaus
Inc.’s] warehouse.  Prior to the arrival of the cargoes, FEDEX informed GETC Cargo
International Corporation, the customs broker hired by the consignee to facilitate the
release of its cargoes from the Bureau of Customs, of the impending arrival of its client’s
cargoes.
12 days after the cargoes arrived in Manila, DIONEDA,  a non-licensed custom’s broker
who was assigned by GETC, found out, while he was about to cause the release of
the said cargoes, that the same [were] stored only in a room with 2 air
conditioners running, to cool the place instead of a refrigerator.  DIONEDA, upon
instructions from GETC, did not proceed with the withdrawal of the vaccines and
instead, samples of the same were taken and brought to the Bureau of Animal Industry
of the Department of Agriculture in the Philippines by SMITHKLINE for examination
wherein it was discovered that the ‘ELISA reading of vaccinates sera are below the
positive reference serum.’
As a consequence of the foregoing result of the veterinary biologics test, SMITHKLINE
abandoned the shipment and, declaring ‘total loss’ for the unusable shipment,
filed a claim with AHAC through its representative in the Philippines, the Philam
Insurance Co., Inc. (PHILAM) which recompensed SMITHKLINE for the whole
insured amount. Thereafter, PHILAM filed an action for damages against the
FEDEX imputing negligence on either or both of them in the handling of the
cargo.
Trial ensued and ultimately concluded with the FEDEX being held solidarily liable for
the loss. Aggrieved, petitioner appealed to the CA. The appellate court ruled in
favor of PHILAM and held that the shipping Receipts were a prima facie proof that
the goods had indeed been delivered to the carrier in good condition.
ISSUE: 
Is FEDEX liable for damage to or loss of the insured goods
HELD: 
PETITION GRANTED. Assailed decision reversed insofar as it pertains to FEDEX
(FEDEX ABSOLVED FROM LIABILITY- NO NOTICE GIVEN)
Prescription of Claim
From the initial proceedings in the trial court up to the present, petitioner has tirelessly
pointed out that respondents’ claim and right of action are already barred.   Indeed, this
fact has never been denied by respondents and is plainly evident from the records.
Airway Bill No. 11263825, issued by Burlington as agent of petitioner, states:
“6.     No action shall be maintained in the case of damage to or partial loss of the
shipment unless a written notice, sufficiently describing the goods concerned, the
approximate date of the damage or loss, and the details of the claim, is presented by
shipper or consignee to an office of Burlington within (14) days from the date the goods
are placed at the disposal of the person entitled to delivery, or in the   case of total loss
(including non-delivery) unless presented within (120) days from the date of issue of the
[Airway Bill].  xxx
Relevantly, petitioner’s airway bill states:
“12./12.1 The person entitled to delivery must make a complaint to the carrier
in writing in the case:
12.1.1 of visible damage to the goods, immediately after discovery of the damage
and at the latest within fourteen (14) days from receipt of the goods;   xxx
Article 26 of the Warsaw Convention, on the other hand, provides:
Xxx (2)     In case of damage, the person entitled to delivery must complain to the
carrier forthwith after the discovery of the damage, and, at the latest, within 3 days from
the date of receipt in the case of baggage and 7 days from the date of receipt in the
case of goods.  xx
(3)     Every complaint must be made in writing upon the document of transportation or
by separate notice in writing dispatched within the times aforesaid.
(4)     Failing complaint within the times aforesaid, no action shall lie against the
carrier, save in the case of fraud on his part.” xxx
Condition Precedent
In this jurisdiction, the filing of a claim with the carrier within the time limitation
therefor actually constitutes a condition precedent to the accrual of a right of
action against a carrier for loss of or damage to the goods. The shipper or
consignee must allege and prove the fulfillment of the condition.  If it fails to do so, no
right of action against the carrier can accrue in favor of the former.  The aforementioned
requirement is a reasonable condition precedent; it does not constitute a limitation of
action.
The requirement of giving notice of loss of or injury to the goods is not an empty
formalism.  The fundamental reasons for such a stipulation are
(1) to inform the carrier that the cargo has been damaged, and that it is being
charged with liability therefor; and
(2) to give it an opportunity to examine the nature and extent of the injury.
“This protects the carrier by affording it an opportunity to make an investigation of a
claim while the matter is fresh and easily investigated so as to safeguard itself from
false and fraudulent claims.
NOTES: as to proper payee:
The Certificate specifies that loss of or damage to the insured cargo is “payable to order
x x x upon surrender of this Certificate.” Such wording conveys the right of collecting on
any such damage or loss, as fully as if the property were covered by a special policy in
the name of the holder itself.  At the back of the Certificate appears the signature of the
representative of Burlington.  This document has thus been duly indorsed in blank and
is deemed a bearer instrument.
Since the Certificate was in the possession of Smithkline, the latter had the right of
collecting or of being indemnified for loss of or damage to the insured shipment, as fully
as if the property were covered by a special policy in the name of the holder.  Hence,
being the holder of the Certificate and having an insurable interest in the goods,
Smithkline was the proper payee of the insurance proceeds.
Subrogation
Upon receipt of the insurance proceeds, the consignee (Smithkline) executed a
subrogation Receipt in favor of respondents.  The latter were thus authorized “to
file claims and begin suit against any such carrier, vessel, person, corporation or
government.” Undeniably, the consignee had a legal right to receive the goods in the
same condition it was delivered for transport to petitioner.  If that right was violated, the
consignee would have a cause of action against the person responsible therefor.

SULPICIO LINES, INC.,

vs.
FIRST LEPANTO-TAISHO INSURANCE CORPORATION,
FACTS:
Taiyo Yuden Philippines, Inc. (owner of the goods) and Delbros, Inc.(shipper)
entered into a contract, evidenced by Bill of Lading issued by thelatter in favor of the
owner of the goods, for Delbros, Inc. to transport shipment of goods consisting of 3
wooden crates containing 136 cartons of inductors and LC compound on board the V
Singapore V20 from Cebu City to Singapore in favor of the consignee, Taiyo
Yuden Singapore Pte, Ltd.
For the carriage of said shipment from Cebu City to Manila, Delbros, Inc. engaged
the services of the vessel M/V Philippine Princess, owned and operated by
petitioner SULPICIO LINES, INC. (CARRIER). During the unloading of the shipment,
one crate containing 42 cartons dropped from the cargo hatch to the pier apron. The
owner of the goods examined the dropped cargo, and upon an alleged finding that the
contents of the crate were no longer usable for their intended purpose, they were
rejected as a total loss and returned toCebu City. The owner of the goods TAIYO
YUDEN filed a claim with herein petitioner-carrier SULPICIO LINES for the
recovery of the value of the rejected cargo which was refused by the latter.
Thereafter, the owner of the goods sought payment from respondent First
Lepanto-Taisho Insurance Corporation (insurer) under a marine insurance policy
issued to the former. Respondent-insurer paid the claim less thirty-five percent (35%)
salvage value or P194, 220.31. The payment of the insurance claim of the owner of the
goods by therespondent-insurer subrogated the latter to whatever right or legal
actionthe owner of the goods may have against Delbros, Inc. and petitioner-
carrier,Sulpicio Lines, Inc.
Thus, respondent-insurer then filed claims forreimbursement from Delbros, Inc. and
petitioner-carrier Sulpicio Lines, Inc.which were subsequently denied. In 1992,
respondent-insurer filed a suit for damages with the trial court against Delbros, Inc. and
herein petitioner-carrier. Delbros, Inc. filed on 15 April 1993 its Answer with
Counterclaim and Cross-claim, alleging that assuming the contents of the crate in
question were truly in bad order, fault is with herein petitioner-carrier which was
responsible for the unloading of the crates. Petitioner-carrier filed its Answer to Delbros,
Inc.’s cross-claim asserting that it observed extraordinary diligence in the handling,
storage and general care of the shipment and that subsequent inspection of the
shipment by theManila Adjusters and Surveyors Company showed that the contents of
the third crate that had fallen were found to be in apparent sound condition, except that
“2 cello bags each of 50 pieces ferri inductors No. LC FL112270K-60 (c) were
unaccounted for and missing as per packaging list.”
After hearing, the TRIAL COURT DISMISSED THE COMPLAINT for damages as well
asthe counterclaim filed by therein defendant Sulpicio Lines, Inc. and the cross-
claim filed by Delbros, Inc on the grounds that plaintiff has failed to prove its
case.
The CA reversed the RTC decision and ordered Delbros and Sulpicio Lines to pay,
jointly and severally, plaintiff-appellant the sum of P194,220.31 representing actual
damages, plus legal interest counted from the filing of the complaint until fully paid.
ISSUE:
whether or not, based on the evidence presented during the trial, the owner of the
goods, respondent-insurer’s predecessor-in-interest, did incur damages, and if so,
whether or not petitioner-carrier is liable for the same
RULING:
It cannot be denied that the shipment sustained damage while in the custody of
petitioner-carrier. It is not disputed that one of the 3 crates did fall from the cargo hatch
to the pier apron while petitioner-carrier was unloading the cargo from its vessel. Neither
is it impugned that upon inspection, it was found that 2 cartons were torn on the side
and the top flaps were open and that 2 cello bags, each of 50 pieces ferri inductors,
were missing from the cargo. Petitioner-carrier contends that its liability, if any, is only to
the extent of the cargo damage or loss and should not include the lack of fitness of the
shipment for transport to Singapore due to the damaged packing. This is erroneous.
Petitioner-carrier seems to belabor under the misapprehension that a distinction must
be made between the cargo packaging and the contents of the cargo. According to it,
damage to the packaging is not tantamount to damage to the cargo. It must be stressed
that in the case at bar, the damage sustained by the packaging of the cargo while
in petitioner-carrier’s custody resulted in its unfitness to be transported to its
consignee in Singapore.
Such failure to ship the cargo to its final destination because of the ruined packaging,
indeed, resulted in damages on the part of the owner of the goods.
 The falling of the crate during the unloading is evidence of petitioner-carrier’s
negligence in handling the cargo. As a common carrier, it is expected to observe
extraordinary diligence in the handling of goods placed in its possession for transport.
The standard of extraordinary diligence imposed upon common carriers is considerably
more demanding than the standard of ordinary diligence, i.e., the diligence of a good
Paterfamilias established in respect of the ordinary relations between members of
society. A common carrier is bound to transport its cargo and its passengers
safely "as far as human care and foresight can provide, using the utmost
diligence of a very cautious person, with due regard to all circumstances.”
The extraordinary diligence in the vigilance over the goods tendered for shipment
requires the common carrier to know and to follow the required precaution for avoiding
the damage to, or destruction of, the goods entrusted to it for safe carriage and delivery.
It requires common carriers to render service with the greatest skill and foresight and “to
use all reasonable means to ascertain the nature and characteristic of goods tendered
for shipment, and to exercise due care in the handling and stowage, including such
methods as their nature requires.
Thus, when the shipment suffered damages as it was being unloaded, petitioner-
carrier is presumed to have been negligent in the handling of the damaged cargo.
Under Articles 1735 and 1752 of the Civil Code, common carriers are presumed to have
been at fault or to have acted negligently in case the goods transported by them are
lost, destroyed or had deteriorated.
To overcome the presumption of liability for loss, destruction or deterioration of
goods under Article 1735, the common carrier must prove that they observed
extraordinary diligence as required in Article 1733 of the Civil Code.
Petitioner-carrier miserably failed to adduce any shred of evidence of the required
extraordinary diligence to overcome the presumption that it was negligent in
transporting the cargo. Coming now to the issue of the extent of petitioner-carrier’s
liability, it is undisputed that respondent-insurer paid the owner of the goods under the
insurance policy the amount of P194,220.31 for the alleged damages the latter has
incurred. Neither is there dispute as to the fact that Delbros, Inc. paid P194,220.31 to
respondent-insurer in satisfaction of the whole amount of the judgment rendered by the
Court of Appeals. The question then is:
To what extent is Sulpicio Lines, Inc., as common carrier, liable for the damages
suffered by the owner of the goods?
Upon respondent-insurer’s payment of the alleged amount of loss suffered by the
insured (the owner of the goods), the insurer is entitled to be subrogated pro tanto to
any right of action which the insured may have against the common carrier whose
negligence or wrongful act caused the loss.
Subrogation is the substitution of one person in the place of another with
reference to a lawful claim or right, so that he who is substituted succeeds to the
rights of the other in relation to a debt or claim, including its remedies or
securities.
The rights to which the subrogee succeeds are the same as, but not greater than,
those of the person forwhom he is substituted, that is, he cannot acquire any claim,
security or remedy the subrogor did not have.
In other words, a subrogee cannot succeed to a right not possessed by the
subrogor.
A subrogee in effect steps into the shoes of the insured and can recover only if the
insured likewise could have recovered.
As found by the Court of Appeals, there was damage suffered by the goods which
consisted in the destruction of one wooden crate and the tearing of two (2) cardboard
boxes therein which rendered them unfit to be sent to Singapore.
The falling of the crate was negligence on the part of Sulpicio Lines, Inc. for which it
cannot exculpate itself from liability because it failed to prove that it exercised
extraordinary diligence
Hence, we uphold the ruling of the appellate court that herein petitioner-carrier is
liable to pay the amount paid by respondent-insurer for the damages sustained
by the owner of the goods.
As stated in the manifestation filed by Delbros, Inc., however,
respondent-insurer had already been paid the full amount granted by the Courtof
Appeals, hence, it will be tantamount to unjust enrichment forrespondent-insurer to
again recover damages from hereinpetitioner-carrier.
With respect to Delbros, Inc.’s prayer contained in its manifestation that, incase the
decision in the instant case be adverse to petitioner-carrier, apronouncement as to the
matter of reimbursement, indemnification orcontribution in favor of Delbros, Inc. be
included in the decision, this Courtwill not pass upon said issue since Delbros, Inc. has
no personality beforethis Court, it not being a party to the instant case. Notwithstanding,
thisshall not bar any action Delbros, Inc. may institute against petitioner-carrierSulpicio
Lines, Inc. with respect to the damages the latter is liable to pay.
WHEREFORE, premises considered, the assailed Decision of the Court of Appeals
dated 26 May 1999 and its Resolution dated 13 October 1999 arehereby AFFIRMED.
No costs.
 PRUDENTIAL GUARANTEE VS. TRANS-ASIA SHIPPING LINES, INC.
G.R. NO. 151890
FACTS:
Trans-Asia is the owner of the vessel M/V Asia Korea. In consideration of payment
of premiums, defendant Prudential insured M/V Asia Korea for loss/damageof the
hull and machinery arising from perils, inter alia, of fire and explosion for the sum
of P40 Million. While the policy was in force, a fire broke out while M/V Asia Korea
was undergoing repairs at the port of Cebu.
Trans-Asia then filed its notice of claim for damage sustained by the vessel.
Trans-Asia reserved its right to subsequently notify Prudential as to the full
amount of the claim upon final survey and determination by average adjuster Richard
Hogg International (Phil.) of the damage sustained by reason of fire.
Trans-Asia executed a Loan and Trust Receipt a portion of which states that it received
from Prudential P3 Million as a loan and without interest, repayable only in the event
and to the extent that it recovers from any person or persons, corporation or
corporations, or other parties, on account of loss by any casualty for which they may be
liable occasioned by the fire on board. Prudential, in a letter, denied Trans-Asia’s
claim from the fire incident due to the latter’s breach of policy conditions one of
which is “WARRANTED VESSEL CLASSED AND CLASS MAINTAINED”.
This was followed by another letter, requesting the return or payment of the P3 Million
within a period of ten 10 days from receipt of said letter. Trans-Asia filed a complaint
for sum of money against Prudential which sought the amount of P8,395,072.26 from
the latter, alleging that the same represents thebalance of the indemnity due upon the
insurance policy in the total amount ofP11,395,072.26. It similarly sought interest at
42% per annum citing Section 243 ofthe Insurance Code.
The RTC dismissed the complaint for failure to state a cause of action. It interpreted
the provision to mean that Trans-Asia is required to maintain the vessel at a certain
class at all times pertinent during the life of the policy. According to the court a
quo,Trans-Asia failed to prove compliance of the terms of the warranty, the violation
thereof entitled Prudential, the insured party, to rescind the contract.
On appeal,said decision was reversed by the CA.
ISSUES:
Whether or not Trans-Asia breached a material warranty that the vessel is classed and
class maintained. (NO)

RULING:
In ruling in the negative, the Supreme Court held that Trans-Asia did not breach a
material warranty that the vessel is classed and class maintained. Prudential
Guaranty was not successful in discharging the burden of evidence that Trans-Asia
breached the subject policy condition on CLASSED AND
CLASSMAINTAINED. Foremost, Prudential, through the Senior Manager of its Marine
and Aviation Division, Lucio Fernandez, made a categorical admission that at the time
of the procurement of the insurance, Trans-Asia’s vessel, “M/V Asia
Korea” was properly classed by Bureau Veritas, a classification society
recognized in the marine industry. As it is undisputed that Trans-Asia was properly
classed at the time the contract of insurance was entered into, thus, it becomes
incumbent upon Prudential to show evidence that the status of Trans-Asia being
properly CLASSED by Bureau VERITAS had shifted in violation of the warranty.
Unfortunately, Prudential failed to support the allegation.
 CHOA TIEK SENG, doing business under the name and style of SENG'S
COMMERCIAL ENTERPRISES, Petitioner,
-versus-
HON. COURT OF APPEALS, FILIPINO MERCHANTS' INSURANCE COMPANY,
INC., BEN LINES CONTAINER, LTD. AND E. RAZON, INC., Respondents.
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.
FACTS
Petitioner CHOA TIEK SENG imported some lactose crystals from Holland which
involved 15 metric tons packed in 600 6-ply paper bags. The goods were loaded at
the port at Rotterdam in sea vans on board the vessel "MS Benalder" as the mother
vessel and aboard the feeder vessel "wesser Broker V-25" of respondent Ben Lines
Container. Such goods were insured by the respondent Filipino Merchants'
Insurance Co. against all risks (ALL RISK POLICY) under the terms of the insurance
cargo policy. Upon arrival in the Manila port, the cargo was discharged into the
custody of the arrastre operator respondent E.Razon, Inc. (broker) prior to the delivery
to petitioner through his broker. Out of 600 bags delivered, 403 were in bad order
which suffered spillage and loss valued at P33,117.63 .
Petitioner CHOA TIEK SENG filed a claim for the loss against respondent
insurance company. The Insurance company rejected such claim alleging that
"assuming that spillage took place while the goods were in transit, petitioner and
his agent failed to minimize the loss by failing to recover spillage from the sea
van which violates the terms of the insurance policy; assuming that spillage did not
occur while the cargo was in transit, the 400 bags were loaded in bad order since the
van did not carry any evidence of spillage". The Insurance company then filed a
third-party complaint against respondents Ben Lines and broker.
ISSUE
Whether or not Filipino Merchant's is liable to indemnify the petitioner for the loss he
encountered due to the spillage of the goods? (YES)
RULING
YES. An "All risk" insurance policy insures against all causes of conceivable loss
or damage, except when excluded in the policy due to fraud or intentional
misconduct on the part of the insured. It covers all losses during voyage whether
arising from a marine peril or not, including pilferage losses during the war. The "all
risks" clause of the policy sued in this case upon reads 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.”
The terms of the policy are so clear and require no interpretation. 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. An "all risks" provision of a marine
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 peril falling within the policy's coverage. The
insurer can avoid coverage upon demonstrating that a specific provision expressly
excludes the loss from coverage.