Double/Over-insurance

Geagonia vs. COURT OF APPEALS and COUNTRY BANKERS INSURANCE CORPORATION, respondents.
(241 SCRA 152 (1995))

DAVIDE, JR., J.:

Facts:

 The petitioner is the owner of Norman's Mart located in the public market of San Francisco,
Agusan Del Sur.
 On 22 December 1989, he obtained from the private respondent fire insurance policy for P100,
000.00.
 The period of the policy was from 22 December 1989 to 22 December 1990 and covered the
“Stock-in-trade consisting principally of dry goods such as RTW's for men and women wear and
other usual to assured's business."
 The petitioner declared in the policy under the subheading entitled CO-INSURANCE that
Mercantile Insurance Co., Inc. was the co-insurer for P50,000.00
 The policy noted the requirement that
“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 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.
 A fire of accidental origin broke out at around 7:30 p.m. at the public market of San Francisco,
Agusan Del Sur.
 The petitioner's insured stock-in-trade was completely destroyed prompting him to file with the
private respondent a claim under the policy.
 The private respondent denied the claim because it found that at the time of the loss the
petitioner's stocks-in-trade were likewise covered by fire insurance policies for P100, 000.00
each, issued by the Cebu Branch of the Philippines First Insurance Co., Inc.
 The basis of the private respondent's denial was the petitioner's alleged violation of Condition 3
of the policy.
 The petitioner then filed a complaint against the private respondent with the Insurance
Commission for the recovery of P100, 000.00 under fire insurance policy, attorney's fees and
costs of litigation. He attached his letter which asked for the reconsideration of the denial.
 He admitted in the said letter that at the time he obtained the private respondent's fire
insurance policy he knew that the two policies issued by the Philippines First Insurance Co., Inc.
 were already in existence; however, he had no knowledge of the provision in the private
respondent's policy requiring him to inform it of the prior policies; this requirement was not
mentioned to him by the private respondent's agent; and had it been mentioned, he would not
have withheld such information.
 In its answer, the private respondent specifically denied the allegations in the complaint and set
up as its principal defense the violation of Condition 3 of the policy.
 The Insurance Commission found that the petitioner did not violate Condition 3 as he had no
knowledge of the existence of the two fire insurance policies obtained from the PFIC; that it was
Cebu Tesing Textiles which procured the PFIC policies without informing him or securing his
consent; and that Cebu Tesing Textile, as his creditor, had insurable interest on the stocks.
 These findings were based on the petitioner's testimony that he came to know of the PFIC
policies only when he filed his claim with the private respondent and that Cebu Tesing Textile
obtained them and paid for their premiums without informing him thereof.
 Its motion for the reconsideration of the decision having been denied by the Insurance
Commission in its resolution, the private respondent appealed to the Court of Appeals by way of
a petition for review.
 The Court of Appeals reversed the decision of the Insurance Commission because it found that
the petitioner knew of the existence of the two other policies issued by the PFIC.

Issue:

Whether or not the petitioner violated the prohibition of double insurance /over-insurance in the
respondent’s Condition 3 of the policy and thereby precluded the petitioner from recovering therefrom

Ruling:

The court held no and explained that Condition 3 of the private respondent's policy is a condition which
is not proscribed by law.

Such a condition is a provision which invariably appears in fire insurance policies and is intended to
prevent an increase in the moral hazard. It is commonly known as the additional or "other insurance"
clause and has been upheld as valid and as a warranty that no other insurance exists. Its violation would
thus avoid the policy. However, in order to constitute a violation, the other insurance must be upon
same subject matter, the same interest therein, and the same risk.

As to a mortgaged property, the mortgagor and the mortgagee have each an independent insurable
interest therein and both interests may be covered by one policy, or each may take out a separate policy
covering his interest, either at the same or at separate times.

The mortgagor's insurable interest covers the full value of the mortgaged property, even though the
mortgage debt is equivalent to the full value of the property. The mortgagee's insurable interest is to
the extent of the debt, since the property is relied upon as security thereof, and in insuring he is not
insuring the property but his interest or lien thereon. His insurable interest is prima facie the value
mortgaged and extends only to the amount of the debt, not exceeding the value of the mortgaged
property.

Thus, separate insurances covering different insurable interests may be obtained by the mortgagor and
the mortgagee. In the policy obtained by the mortgagor with loss payable clause in favor of the
mortgagee as his interest may appear, the mortgagee is only a beneficiary under the contract, and
recognized as such by the insurer but not made a party to the contract itself. Hence, any act of the
mortgagor which defeats his right will also defeat the right of the mortgagee. This kind of policy covers
only such interest as the mortgagee has at the issuing of the policy.

On the other hand, a mortgagee may also procure a policy as a contracting party in accordance with the
terms of an agreement by which the mortgagor is to pay the premiums upon such insurance.

It has been noted, however, that although the mortgagee is himself the insured, the policy is in fact in
the form used to insure a mortgagor with loss payable clause.

The fire insurance policies issued by the PFIC name the petitioner as the assured and contain a simple
loss payable clause, not a standard mortgage clause.

It must, however, be underscored that unlike the "other insurance" clauses Condition 3 concluded 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.

A double insurance exists where the same person is insured by several insurers separately in respect of
the same subject and interest. As earlier stated, the insurable interests of a mortgagor and a mortgagee
on the mortgaged property are distinct and separate. Since the two policies of the PFIC do not cover the
same interest as that covered by the policy of the private respondent, no double insurance exists. The
non-disclosure then of the former policies was not fatal to the petitioner's right to recover on the
private respondent's policy.

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.

Pioneer Insurance vs. Yap, (61 SCRA 426 (1974))

FERNANDEZ, J.:
Facts:

 Respondent Oliva Yap was the owner of a store in a two-storey building located at No. 856 Juan
Luna Street, Manila, where in 1962 she sold shopping bags and footwear, such as shoes, sandals
and step-ins. Chua Soon Poon Oliva Yap's son-in-law, was in charge of the store.
 Then, respondent Yap took out Fire Insurance Policy from petitioner Pioneer Insurance & Surety
Corporation with a face value of P25, 000.00 covering her stocks, office furniture, fixtures and
fittings of every kind and description.
 Among the conditions in the policy executed by the parties is that 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 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 benefits under the
Policy shall be forfeited. It is understood that, except as may be stated on the face of the policy
there is no other insurance on the property hereby covered and no other insurance is allowed
except by the consent of the Company endorsed hereon. Any false declaration or breach of this
condition will render the policy null and void.
 At the time of the insurance on April 19, 1962 of Policy No. 4219 in favor of respondent Yap, an
insurance policy for P20, 000.00 issued by the Great American Insurance Company covering the
same properties was noted on said policy as co-insurance.
 Still later respondent Oliva Yap took out another fire insurance policy for P20, 000.00 covering
the same properties, this time from the Federal Insurance Company, Inc., which new policy was,
however, procured without notice to and the written consent of petitioner Pioneer Insurance &
Surety Corporation and, therefore, was not noted as a co-insurance in the Policy.
 At dawn on December 19, 1962, a fire broke out in the building housing respondent Yap's
insured store, and the said store was burned. Respondent Yap filed an insurance claim, but the
same was denied in petitioner's letter on the ground of "breach and/or violation of any and/or
all terms and conditions" of the policy.
 Oliva Yap filed with the Court of First Instance of Manila a complaint, asking, among others, for
payment of the face value of her fire insurance policy.
 In its answer, petitioner alleged that no property belonging to plaintiff Yap and covered by the
insurance policy was destroyed by the fire; that Yap's claim was filed out of time; and that Yap
took out an insurance policy from another insurance company without petitioner's knowledge
and/or endorsement, in violation of the express stipulations in the policy, hence, all benefits
accruing from the policy were deemed forfeited.
 The trial court decided for plaintiff Olivia Yap; and its judgment was affirmed in full by the Court
of Appeals. The Court of Appeals held that the respondent has not violated the other insurance
clause of the insurance Policy that would justify the insurer, to avoid its liability thereunder.
 Based on the findings of the CA, it appears on the face of said policy that a co-insurance in the
amount of P20, 000.00 was secured from the Great American Insurance and was declared by the
plaintiff-appellee and recognized by the defendant-appellant.
  This was later on substituted for the same amount and secured by the Federal Insurance
Company. Chua Soon Poon on being cross-examined by counsel for the defendant-appellant,
declared that the Great American Insurance policy was cancelled because of the difference in
the premium and the same was changed for that of the Federal. Contrary to the assertion of the
defendant-appellant, the Great American Insurance policy was not substituted by the Northwest
Insurance policy.

Issue:

Whether or not petitioner should be absolved from liability on fire insurance policy on account of any
violation by respondent Yap of the co-insurance clause therein

Ruling:

Yes. The Supreme Court did not agree with the Court of Appeals. It stated that there was a violation by
respondent Oliva Yap of the co-insurance clause contained in the policy that resulted in the avoidance of
petitioner's liability. The insurance policy for P20, 000.00 issued by the Great American Insurance
Company covering the same properties of respondent Yap and duly noted on the policy ceased, by
agreement of the parties, to be recognized by them as a co-insurance policy.

The Court of Appeals says that the Great American Insurance policy was substituted by the Federal
Insurance policy for the same amount, and because it was a mere case of substitution, there was no
necessity for its endorsement on the policy.

This finding, as well as reasoning, suffers from several flaws according to the Supreme Court.

There is no evidence to establish and prove such a substitution. If anything was substituted for the Great
American Insurance policy, it could only be the Northwest Insurance policy for the same amount of
P20,000.00. The endorsement quoted above shows the clear intention of the parties to recognize on the
date the endorsement was made (August 29, 1962), the existence of only one co-insurance, and that is
the Northwest Insurance policy, which according to the stipulation of the parties during the hearing, was
issued on August 20, 1962 and endorsed only on August 20, 1962. The finding of the Court of Appeals
that the Great American Insurance policy was substituted by the Federal Insurance policy is
unsubstantiated by the evidence of record and indeed contrary to said stipulation and admission of
respondent, and is grounded entirely on speculation, surmises or conjectures, hence, not binding on the
Supreme Court.
The Court of Appeals would consider petitioner to have waived the formal requirement of endorsing the
policy of co-insurance "since there was absolutely no showing that it was not aware of said substitution
and preferred to continue the policy." The fallacy of this argument is that, contrary to Section 1, Rule
131 of the Revised Rules of Court, which requires each party to prove his own allegations, it would shift
to petitioner, respondent's burden of proving her proposition that petitioner was aware of the alleged
substitution, and with such knowledge preferred to continue the policy

By the plain terms of the policy, other insurance without the consent of petitioner would ipso facto
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 ipso facto the policy void is well-settled:

Where a policy contains a clause providing that the policy shall be void if insured has or shall procure
any other insurance on the property, the procurement of additional insurance without the consent of
the insurer avoids the policy.

The policy provided that it should be void in case of other insurance "without notice and consent of this
company." It also authorized the company to terminate the contract at any time, at its option, by giving
notice and refunding a ratable proportion of the premium. Held, that additional insurance, unless
consented to, or unless a waiver was shown, ipso facto avoided the contract, and the fact that the
company had not, after notice of such insurance, cancelled the policy, did not justify the legal conclusion
that it had elected to allow it to continue in force."

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 the policy of respondent. And as stipulated in the above-quoted provisions of such
policy "all benefit under this policy shall be forfeited.

Finally, the Court said that the obvious purpose of the aforesaid requirement in the policy is to prevent
over-insurance and thus avert the perpetration of fraud. The public, as well as the insurer, is interested
in preventing the situation in which a fire would be profitable to the insured.

WHEREFORE, the appealed judgment of the Court of Appeals is reversed and set aside, and the
petitioner absolved from all liability under the policy.
Malayan Insurance Co., Inc. vs. Phil. First Insurance Co., Inc., and REPUTABLE FORWARDER SERVICES,
INC., Respondents (676 SCRA 268 (2012))

REYES, J.:

Facts:

FACTS: Since 1989, Wyeth Philippines, Inc. (Wyeth) and respondent Reputable Forwarder Services,
Inc. (Reputable) had been annually executing a contract of carriage, whereby the latter undertook to
transport and deliver the former’s products to its customers, dealers or salesmen.

On November 18, 1993, Wyeth procured Marine Policy No. MAR 13797 (Marine Policy) from
respondent Philippines First Insurance Co., Inc. (Philippines First) to secure its interest over its own
products. Philippines First thereby insured Wyeth’s nutritional, pharmaceutical and other products
usual or incidental to the insured’s business while the same were being transported or shipped in the
Philippines. The policy covers all risks of direct physical loss or damage from any external cause, if by
land, and provides a limit of P6,000,000.00 per any one land vehicle.

On December 1, 1993, Wyeth executed its annual contract of carriage with Reputable. It turned out,
however, that the contract was not signed by Wyeth’s representative/s. Nevertheless, it was
admittedly signed by Reputable’s representatives, the terms thereof faithfully observed by the parties
and, as previously stated, the same contract of carriage had been annually executed by the parties
every year since 1989. DST

Under the contract, Reputable undertook to answer for “all risks with respect to the goods and shall
be liable to the COMPANY (Wyeth), for the loss, destruction, or damage of the goods/products due to
any and all causes whatsoever, including theft, robbery, flood, storm, earthquakes, lightning, and
other force majeure while the goods/products are in transit and until actual delivery to the
customers, salesmen, and dealers of the COMPANY”. The contract also required Reputable to secure
an insurance policy on Wyeth’s goods. Thus, on February 11, 1994, Reputable signed a Special Risk
Insurance Policy (SR Policy) with petitioner Malayan for the amount of P1,000,000.00.

On October 6, 1994, during the effectivity of the Marine Policy and SR Policy, Reputable received from
Wyeth 1,000 boxes of Promil infant formula worth P2,357,582.70 to be delivered by Reputable to
Mercury Drug Corporation in Libis, Quezon City. Unfortunately, on the same date, the truck carrying
Wyeth’s products was hijacked by about 10 armed men. They threatened to kill the truck driver and
two of his helpers should they refuse to turn over the truck and its contents to the said highway
robbers. The hijacked truck was recovered two weeks later without its cargo.

On March 8, 1995, Philippines First, after due investigation and adjustment, and pursuant to the
Marine Policy, paid Wyeth P2,133,257.00 as indemnity. Philippines First then demanded
reimbursement from Reputable, having been subrogated to the rights of Wyeth by virtue of the
payment. The latter, however, ignored the demand.

Consequently, Philippines First instituted an action for sum of money against Reputable on August 12,
1996. In its complaint, Philippines First stated that Reputable is a “private corporation engaged in the
business of a common carrier.” In its answer, Reputable claimed that it is a private carrier. It also
claimed that it cannot be made liable under the contract of carriage with Wyeth since the contract
was not signed by Wyeth’s representative and that the cause of the loss wasforce majeure, i.e., the
hijacking incident.

Subsequently, Reputable impleaded Malayan as third-party defendant in an effort to collect the

amount covered in the SR Policy. According to Reputable, “it was validly insured with [Malayan] for
P1,000,000.00 with respect to the lost products under the latter’s Insurance Policy No. SR-0001-02577
effective February 1, 1994 to February 1, 1995” and that the SR Policy covered the risk of robbery or
hijacking.

Disclaiming any liability, Malayan argued, among others, that under Section 5 of the SR Policy, the
insurance does not cover any loss or damage to property which at the time of the happening of such
loss or damage is insured by any marine policy and that the SR Policy expressly excluded third-party
liability.

ISSUE: WON THERE IS DOUBLE INSURANCE.

HELD: NONE. Section 5 is actually the other insurance clause (also called “additional insurance” and
“double insurance”), one akin to Condition No. 3 in issue in Geagonia v. CA, which validity was upheld
by the Court as a warranty that no other insurance exists. The Court ruled that Condition No. 3 is a
condition which is not proscribed by law as its incorporation in the policy is allowed by Section 75 of
the Insurance Code. It was also the Court’s finding that unlike the other insurance clauses, Condition
No. 3 does not absolutely declare void any violation thereof but expressly provides that the 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.”

In this case, similar to Condition No. 3 in Geagonia, Section 5 does not provide for the nullity of the SR
Policy but simply limits the liability of Malayan only up to the excess of the amount that was not
covered by the other insurance policy. In interpreting the “other insurance clause” in Geagonia, the
Court ruled that the prohibition applies only in case of double insurance. The Court ruled that in order
to constitute a violation of the clause, the other insurance must be upon same subject matter, the
same interest therein, and the same risk. Thus, even though the multiple insurance policies involved
were all issued in the name of the same assured, over the same subject matter and covering the same
risk, it was ruled that there was no violation of the “other insurance clause” since there was no double
insurance.

Section 12 of the SR Policy, on the other hand, is the over insurance clause. More particularly, it
covers the situation where there is over insurance due to double insurance. In such case, Section 15
provides that Malayan shall “not be liable to pay or contribute more than its ratable proportion of
such loss or damage.” This is in accord with the principle of contribution provided under Section 94 (e)
of the Insurance Code, which states that “where the insured is over insured by double insurance, each
insurer is bound, as between himself and the other insurers, to contribute ratably to the loss in
proportion to the amount for which he is liable under his contract.” HEDaTA

Clearly, both Sections 5 and 12 presuppose the existence of a double insurance. The pivotal question
that now arises is whether there is double insurance in this case such that either Section 5 or Section
12 of the SR Policy may be applied.

By the express provision of Section 93 of the Insurance Code, double insurance exists where the same
person is insured by several insurers separately in respect to the same subject and interest. The
requisites in order for double insurance to arise are as follows:

1.  The person insured is the same;

2.  Two or more insurers insuring separately;

3.  There is identity of subject matter;

4.  There is identity of interest insured; and

5.  There is identity of the risk or peril insured against.

In the present case, while it is true that the Marine Policy and the SR Policy were both issued over the
same subject matter, i.e., goods belonging to Wyeth, and both covered the same peril insured against,
it is, however, beyond cavil that the said policies were issued to two different persons or entities. It is
undisputed that Wyeth is the recognized insured of Philippines First under its Marine Policy, while
Reputable is the recognized insured of Malayan under the SR Policy. The fact that Reputable procured
Malayan’s SR Policy over the goods of Wyeth pursuant merely to the stipulated requirement under its
contract of carriage with the latter does not make Reputable a mere agent of Wyeth in obtaining the
said SR Policy. aCHcIE

The interest of Wyeth over the property subject matter of both insurance contracts is also different
and distinct from that of Reputable’s. The policy issued by Philippines First was in consideration of the
legal and/or equitable interest of Wyeth over its own goods. On the other hand, what was issued by
Malayan to Reputable was over the latter’s insurable interest over the safety of the goods, which may
become the basis of the latter’s liability in case of loss or damage to the property and falls within the
contemplation of Section 15 of the Insurance Code.

Therefore, even though the two concerned insurance policies were issued over the same goods and
cover the same risk, there arises no double insurance since they were issued to two different
persons/entities having distinct insurable interests. Necessarily, over insurance by double insurance
cannot likewise exist. Hence, as correctly ruled by the RTC and CA, neither Section 5 nor Section 12 of
the SR Policy can be applied.

Apart from the foregoing, the Court is also wont to strictly construe the controversial provisions of the
SR Policy against Malayan. This is in keeping with the rule that: ACTEHI

“Indemnity and liability insurance policies are construed in accordance with the general rule of
resolving any ambiguity therein in favor of the insured, where the contract or policy is prepared by
the insurer. A contract of insurance, being a contract of adhesion, par excellence, any ambiguity
therein should be resolved against the insurer; in other words, it should be construed liberally in favor
of the insured and strictly against the insurer. Limitations of liability should be regarded with extreme
jealousy and must be construed in such a way as to preclude the insurer from noncompliance with its
obligations.”

Moreover, the CA correctly ruled that:

To rule that Sec. 12 operates even in the absence of double insurance would work injustice to
Reputable which, despite paying premiums for a [P]1,000,000.00 insurance coverage, would not be
entitled to recover said amount for the simple reason that the same property is covered by another
insurance policy, a policy to which it was not a party to and much less, from which it did not stand to
benefit. . . .

 Wyeth Philippines, Inc. and one of the respondents, Reputable Forwarder Services, Inc. had
been annually executing a contract of carriage, whereby the latter undertook to transport and
deliver the former s products to its customers, dealers or salesmen.
 Wyeth procured Marine Policy from respondent Philippines First Insurance Co., Inc. to secure
its interest over its own products.
 Philippines First thereby insured Wyeth’s nutritional, pharmaceutical and other products usual
or incidental to the insured’s business while the same were being transported or shipped in the
Philippines. The policy covers all risks of direct physical loss or damage from any external cause,
if by land, and provides a limit of P6, 000,000.00 per any one land vehicle.
 Wyeth executed its annual contract of carriage with Reputable. It turned out, however, that the
contract was not signed by Wyeth s representative/s. Nevertheless, it was admittedly signed by
Reputable s representatives, the terms thereof faithfully observed by the parties and, as
previously stated, the same contract of carriage had been annually executed by the parties
every year since 1989.
 Under the contract, Reputable undertook to answer for "all risks with respect to the goods and
shall be liable to Wyeth, for the loss, destruction, or damage of the goods/products due to any
and all causes whatsoever, including theft, robbery, flood, storm, earthquakes, lightning, and
other force majeure while the goods/products are in transit and until actual delivery to the
customers, salesmen, and dealers of the COMPANY".
 The contract also required Reputable to secure an insurance policy on Wyeth’s goods. Thus, on
February 11, 1994, Reputable signed a Special Risk Insurance Policy (SR Policy) with petitioner
Malayan for the amount of P1,000,000.00.
  On October 6, 1994, during the effectivity of the Marine Policy and SR Policy, Reputable received
from Wyeth 1,000 boxes of Promil infant formula worth P2,357,582.70 to be delivered by
Reputable to Mercury Drug Corporation in Libis, Quezon City.
 Unfortunately, on the same date, the truck carrying Wyeth’s products was hijacked by about 10
armed men. They threatened to kill the truck driver and two of his helpers should they refuse to
turn over the truck and its contents to the said highway robbers. The hijacked truck was
recovered two weeks later without its cargo.
 Philippines First, after due investigation and adjustment, and pursuant to the Marine Policy,
paid Wyeth P2,133,257.00 as indemnity. Philippines First then demanded reimbursement from
Reputable, having been subrogated to the rights of Wyeth by virtue of the payment. The latter,
however, ignored the demand.
 Consequently, Philippines First instituted an action for sum of money against Reputable .
 In its complaint, Philippines First stated that Reputable is a "private corporation engaged in the
business of a common carrier." In its answer, Reputable claimed that it is a private carrier. It also
claimed that it cannot be made liable under the contract of carriage with Wyeth since the
contract was not signed by Wyeth s representative and that the cause of the loss was force
majeure, i.e., the hijacking incident.
 Subsequently, Reputable impleaded Malayan as third-party defendant in an effort to collect the
amount covered in the SR Policy. According to Reputable, "it was validly insured with Malayan
for P1, 000,000.00 with respect to the lost products under the latter s Insurance Policy effective
February 1, 1994 to February 1, 1995" and that the SR Policy covered the risk of robbery or
hijacking.
 Disclaiming any liability, Malayan argued, among others, that under Section 5 of the SR Policy,
the insurance does not cover any loss or damage to property which at the time of the happening
of such loss or damage is insured by any marine policy and that the SR Policy expressly excluded
third-party liability.
 After trial, the RTC rendered its Decision finding Reputable liable to Philippines First for the
amount of indemnity it paid to Wyeth, among others. In turn, Malayan was found by the RTC to
be liable to Reputable to the extent of the policy coverage.
 Dissatisfied, both Reputable and Malayan filed their respective appeals from the RTC decision.
 Reputable asserted that the RTC erred in holding that its contract of carriage with Wyeth was
binding despite Wyeth’s failure to sign the same. Reputable further contended that the
provisions of the contract are unreasonable, unjust, and contrary to law and public policy.
 For its part, Malayan invoked Section 5 of its SR Policy, which provides:

Section 5. INSURANCE WITH OTHER COMPANIES. The insurance does not cover any loss or damage to
property which at the time of the happening of such loss or damage is insured by or would but for the
existence of this policy, be insured by any Fire or Marine policy or policies except in respect of any
excess beyond the amount which would have been payable under the Fire or Marine policy or policies
had this insurance not been effected.
  Malayan argued that inasmuch as there was already a marine policy issued by Philippines First
securing the same subject matter against loss and that since the monetary coverage/value of
the Marine Policy is more than enough to indemnify the hijacked cargo, Philippines First alone
must bear the loss.
 Malayan sought the dismissal of the third-party complaint against it. In the alternative, it prayed
that it be held liable for no more than P468,766.70, its alleged pro-rata share of the loss based
on the amount covered by the policy, subject to the provision of Section 12 of the SR Policy,
which states:

12. OTHER INSURANCE CLAUSE. If at the time of any loss or damage happening to any property hereby
insured, there be any other subsisting insurance or insurances, whether effected by the insured or by
any other person or persons, covering the same property, the company shall not be liable to pay or
contribute more than its ratable proportion of such loss or damage.

 On February 29, 2008, the CA rendered the assailed decision sustaining the ruling of the RTC.
 The CA ruled, among others, that: (1) Reputable is estopped from assailing the validity of the
contract of carriage on the ground of lack of signature of Wyeth s representative/s; (2)
Reputable is liable under the contract for the value of the goods even if the same was lost due
to fortuitous event; and (3) Section 12 of the SR Policy prevails over Section 5, it being the latter
provision; however, since the ratable proportion provision of Section 12 applies only in case of
double insurance, which is not present, then it should not be applied and Malayan should be
held liable for the full amount of the policy coverage, that is, P1,000,000.00.
 On March 14, 2008, Malayan moved for reconsideration of the assailed decision but it was
denied by the CA in its Resolution dated August 28, 2008.
 Hence, this petition.

Issue:

1) Whether Reputable is a private carrier;

2) Whether Reputable is strictly bound by the stipulations in its contract of carriage with Wyeth, such
that it should be liable for any risk of loss or damage, for any cause whatsoever, including that due to
theft or robbery and other force majeure;

3) Whether the RTC and CA erred in rendering "nugatory" Sections 5 and Section 12 of the SR Policy;
4) Whether Reputable should be held solidarily liable with Malayan for the amount of P998, 000.00 due
to Philippines First.

Ruling:

On the first issue the Court held that Reputable is a private carrier.

The Court agrees with the RTC and CA that Reputable is a private carrier. Well-entrenched in
jurisprudence is the rule that factual findings of the trial court, especially when affirmed by the
appellate court, are accorded the highest degree of respect and considered conclusive between the
parties, save for certain exceptional and meritorious circumstances, none of which are present in this
case.

Malayan relies on the alleged judicial admission of Philippines First in its complaint that Reputable is a
common carrier. Invoking Section 4, Rule 129 of the Rules on Evidence that "an admission verbal or
written, made by a party in the course of the proceeding in the same case, does not require proof," it
is Malayan s position that the RTC and CA should have ruled that

Reputable is a common carrier. Consequently, pursuant to Article 1745(6) of the Civil Code, the
liability of Reputable for the loss of Wyeth s goods should be dispensed with, or at least diminished.

It is true that judicial admissions, such as matters alleged in the pleadings do not require proof, and
need not be offered to be considered by the court. "The court, for the proper decision of the case, may
and should consider, without the introduction of evidence, the facts admitted by the parties." The rule
on judicial admission, however, also states that such allegation, statement, or admission is conclusive as
against the pleader, and that the facts alleged in the complaint are deemed admissions of the plaintiff
and binding upon him. In this case, the pleader or the plaintiff who alleged that Reputable is a common
carrier was Philippines First. It cannot, by any stretch of imagination, be made conclusive as against
Reputable whose nature of business is in question.

It should be stressed that Philippines First is not privy to the SR Policy between Wyeth and Reputable;
rather, it is a mere subrogee to the right of Wyeth to collect from Reputable under the terms of the
contract of carriage. Philippines First is not in any position to make any admission, much more a
definitive pronouncement, as to the nature of Reputable s business and there appears no other
connection between Philippines First and Reputable which suggests mutual familiarity between them.
Moreover, records show that the alleged judicial admission of Philippines First was essentially disputed
by Reputable when it stated in paragraphs 2, 4, and 11 of its answer that it is actually a private or special
carrier. In addition, Reputable stated in paragraph 2 of its third-party complaint that it is "a private
carrier engaged in the carriage of goods." Such allegation was, in turn, admitted by Malayan in
paragraph 2 of its answer to the third-party complaint. There is also nothing in the records which show
that Philippines First persistently maintained its stance that Reputable is a common carrier or that it
even contested or proved otherwise Reputable s position that it is a private or special carrier.

Hence, in the face of Reputable’s contrary admission as to the nature of its own business, what was
stated by Philippines First in its complaint is reduced to nothing more than mere allegation, which must
be proved for it to be given any weight or value. The settled rule is that mere allegation is not proof.

More importantly, the finding of the RTC and CA that Reputable is a special or private carrier is
warranted by the evidence on record, primarily, the unrebutted testimony of Reputable ‘s Vice President
and General Manager, Mr. William Ang Lian Suan, who expressly stated in open court that Reputable
serves only one customer, Wyeth.

Under Article 1732 of the Civil Code, common carriers are persons, corporations, firms, or associations
engaged in the business of carrying or transporting passenger or goods, or both by land, water or air for
compensation, offering their services to the public. On the other hand, a private carrier is one wherein
the carriage is generally undertaken by special agreement and it does not hold itself out to carry goods
for the general public. A common carrier becomes a private carrier when it undertakes to carry a special
cargo or chartered to a special person only. For all intents and purposes, therefore, Reputable operated
as a private/special carrier with regard to its contract of carriage with Wyeth.

On the second issue Reputable is bound by the terms of the contract of carriage.

The extent of a private carrier s obligation is dictated by the stipulations of a contract it entered into,
provided its stipulations, clauses, terms and conditions are not contrary to law, morals, good customs,
public order, or public policy. "The Civil Code provisions on common carriers should not be applied
where the carrier is not acting as such but as a private carrier. Public policy governing common carriers
has no force where the public at large is not involved.

Thus, being a private carrier, the extent of Reputabl’ s liability is fully governed by the stipulations of the
contract of carriage, one of which is that it shall be liable to Wyeth for the loss of the goods/products
due to any and all causes whatsoever, including theft, robbery and other force majeure while the
goods/products are in transit and until actual delivery to Wyeth s customers, salesmen and dealers.
On the third issue other insurance vis-Ã -vis over insurance.

Malayan refers to Section 5 of its SR Policy as an "over insurance clause" and to Section 12 as a
"modified other insurance clause". In rendering inapplicable said provisions in the SR Policy, the CA
ruled in this wise:

Since Sec. 5 calls for Malayan s complete absolution in case the other insurance would be sufficient to
cover the entire amount of the loss, it is in direct conflict with Sec. 12 which provides only for a pro-
rated contribution between the two insurers. Being the later provision, and pursuant to the rules on
interpretation of contracts, Sec. 12 should therefore prevail.

The intention of both Reputable and Malayan should be given effect as against the wordings of Sec. 12
of their contract, as it was intended by the parties to operate only in case of double insurance, or where
the benefits of the policies of both plaintiff-appellee and Malayan should pertain to Reputable alone.
But since the court a quo correctly ruled that there is no double insurance in this case inasmuch as
Reputable was not privy thereto, and therefore did not stand to benefit from the policy issued by
plaintiff-appellee in favor of Wyeth, then Malayan s stand should be rejected.

To rule that Sec. 12 operates even in the absence of double insurance would work injustice to Reputable
which, despite paying premiums for a P1,000,000.00 insurance coverage, would not be entitled to
recover said amount for the simple reason that the same property is covered by another insurance
policy, a policy to which it was not a party to and much less, from which it did not stand to benefit.
Plainly, this unfair situation could not have been the intention of both Reputable and Malayan in signing
the insurance contract in question.

In questioning said ruling, Malayan posits that Sections 5 and 12 are separate provisions applicable
under distinct circumstances. Malayan argues that "it will not be completely absolved under Section 5 of
its policy if it were the assured itself who obtained additional insurance coverage on the same property
and the loss incurred by Wyeth s cargo was more than that insured by Philippines First s marine policy.
On the other hand, Section 12 will not completely absolve Malayan if additional insurance coverage on
the same cargo were obtained by someone besides Reputable, in which case Malayan s SR policy will
contribute or share ratable proportion of a covered cargo loss.

Malayan s position cannot be countenanced.

Section 5 is actually the other insurance clause (also called "additional insurance" and "double
insurance"), one akin to Condition No. 3 in issue in Geagonia v. CA,35 which validity was upheld by the
Court as a warranty that no other insurance exists. The Court ruled that Condition No. 336 is a condition
which is not proscribed by law as its incorporation in the policy is allowed by Section 75 of the Insurance
Code. It was also the Court’s finding that unlike the other insurance clauses, Condition No. 3 does not
absolutely declare void any violation thereof but expressly provides that the 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."

In this case, similar to Condition No. 3 in Geagonia, Section 5 does not provide for the nullity of the SR
Policy but simply limits the liability of Malayan only up to the excess of the amount that was not covered
by the other insurance policy. In interpreting the "other insurance clause" in Geagonia, the Court ruled
that the prohibition applies only in case of double insurance. The Court ruled that in order to constitute
a violation of the clause, the other insurance must be upon same subject matter, the same interest
therein, and the same risk. Thus, even though the multiple insurance policies involved were all issued in
the name of the same assured, over the same subject matter and covering the same risk, it was ruled
that there was no violation of the "other insurance clause" since there was no double insurance.

Section 12 of the SR Policy, on the other hand, is the over insurance clause. More particularly, it covers
the situation where there is over insurance due to double insurance. In such case, Section 15 provides
that Malayan shall "not be liable to pay or contribute more than its ratable proportion of such loss or
damage." This is in accord with the principle of contribution provided under Section 94(e) of the
Insurance Code, which states that "where the insured is over insured by double insurance, each insurer
is bound, as between himself and the other insurers, to contribute ratably to the loss in proportion to
the amount for which he is liable under his contract."

Clearly, both Sections 5 and 12 presuppose the existence of a double insurance. The pivotal question
that now arises is whether there is double insurance in this case such that either Section 5 or Section 12
of the SR Policy may be applied.

By the express provision of Section 93 of the Insurance Code, double insurance exists where the same
person is insured by several insurers separately in respect to the same subject and interest. The
requisites in order for double insurance to arise are as follows:

1. The person insured is the same;

2. Two or more insurers insuring separately;

3. There is identity of subject matter;

4. There is identity of interest insured; and

5. There is identity of the risk or peril insured against.

In the present case, while it is true that the Marine Policy and the SR Policy were both issued over the
same subject matter, i.e. goods belonging to Wyeth, and both covered the same peril insured against, it
is, however, beyond cavil that the said policies were issued to two different persons or entities. It is
undisputed that Wyeth is the recognized insured of Philippines First under its Marine Policy, while
Reputable is the recognized insured of Malayan under the SR Policy. The fact that Reputable procured
Malayan’s SR Policy over the goods of Wyeth pursuant merely to the stipulated requirement under its
contract of carriage with the latter does not make Reputable a mere agent of Wyeth in obtaining the
said SR Policy.

The interest of Wyeth over the property subject matter of both insurance contracts is also different and
distinct from that of Reputable’s. The policy issued by Philippines First was in consideration of the legal
and/or equitable interest of Wyeth over its own goods. On the other hand, what was issued by Malayan
to Reputable was over the latte’ s insurable interest over the safety of the goods, which may become
the basis of the latter’s liability in case of loss or damage to the property and falls within the
contemplation of Section 15 of the Insurance Code.

Therefore, even though the two concerned insurance policies were issued over the same goods and
cover the same risk, there arises no double insurance since they were issued to two different
persons/entities having distinct insurable interests. Necessarily, over insurance by double insurance
cannot likewise exist. Hence, as correctly ruled by the RTC and CA, neither Section 5 nor Section 12 of
the SR Policy can be applied.

Apart from the foregoing, the Court is also wont to strictly construe the controversial provisions of the
SR Policy against Malayan. This is in keeping with the rule that:

"Indemnity and liability insurance policies are construed in accordance with the general rule of resolving
any ambiguity therein in favor of the insured, where the contract or policy is prepared by the insurer. A
contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein should be
resolved against the insurer; in other words, it should be construed liberally in favor of the insured and
strictly against the insurer. Limitations of liability should be regarded with extreme jealousy and must be
construed in such a way as to preclude the insurer from noncompliance with its obligations.

Moreover, the CA correctly ruled that:

To rule that Sec. 12 operates even in the absence of double insurance would work injustice to Reputable
which, despite paying premiums for a P1,000,000.00 insurance coverage, would not be entitled to
recover said amount for the simple reason that the same property is covered by another insurance
policy, a policy to which it was not a party to and much less, from which it did not stand to benefit.
On the fourth issue Reputable is not solidarily liable with Malayan.

There is solidary liability only when the obligation expressly so states, when the law so provides or when
the nature of the obligation so requires.

In Heirs of George Y. Poe v. Malayan lnsurance Company., lnc.,42 the Court ruled that:

Where the insurance contract provides for indemnity against liability to third persons, the liability of the
insurer is direct and such third persons can directly sue the insurer. The direct liability of the insurer
under indemnity contracts against third party liability does not mean, however, that the insurer can be
held solidarily liable with the insured and/or the other parties found at fault, since they are being held
liable under different obligations. The liability of the insured carrier or vehicle owner is based on tort, in
accordance with the provisions of the Civil Code; while that of the insurer arises from contract,
particularly, the insurance policy.

Suffice it to say that Malayan's and Reputable's respective liabilities arose from different obligations-
Malayan's is based on the SR Policy while Reputable's is based on the contract of carriage.

All told, the Court finds no reversible error in the judgment sought to be reviewed.

WHEREFORE, premises considered, the petition is DENIED. The Decision dated February 29, 2008 and
Resolution dated August 28, 2008 of the Court of Appeals in CA-G.R. CV No. 71204 are hereby
AFFIRMED.
Reinsurance

• PHILAM v. Auditor General, (22 SCRA 135)

SANCHEZ, J.:

Facts:

 Philippine American Life Insurance Company [Philamlife], a domestic life insurance corporation,
and American International Reinsurance Company [Airco] of Pembroke, Bermuda, a corporation
organized under the laws of the Republic of Panama, entered into an agreement-reinsurance —
treaty.
 It is conceded that no question ever arose without respect to the remittances made by
Philamlife to Airco before July 16, 1959, the date of approval of the Margin Law.
 The Central Bank of the Philippines collected the sum of P268,747.48 as foreign exchange
margin on Philamlife remittances to Airco purportedly totalling $610,998.63 and made
subsequent to July 16, 1959.
 Philamlife subsequently filed with the Central Bank a claim for the refund of the above sum of
P268,747.48. The ground therefor was that the reinsurance premiums so remitted were paid
pursuant to the January 1, 1950 reinsurance treaty, and, therefore, were pre-existing obligations
expressly exempt from the margin fee.
 On June 7, 1960, the Monetary Board — in line with the opinion of its Acting Legal Counsel
resolved that "reinsurance contracts entered into and approved by the Central Bank before July
17, 1959 are exempt from the payment of the 25% foreign exchange margin, even if remittances
thereof are made after July 17, 1959," because such remittances "are only made in the
implementation of a mother contract, a continuing contract which is the reinsurance treaty."
 The foregoing resolution notwithstanding, the Auditor of the Central Bank refused to pass in
audit Philamlife’s claim for refund.
 Philamlife sought reconsideration with the Auditor General.
 The request for reconsideration was denied. The Auditor General in effect expressed the view
that the existence of the reinsurance treaty of January 1, 1950 did not place reinsurance premia
— on reinsurance effected on or after the approval of the Margin Law on July 17, 1959 — out of
the reach of said statute.

Hence, the present petition for review.

Issue:

Whether or not Philam is entitled to a refund of the forex margin it remitted in pursuance of its
reinsurance treaty with Airco antedating the Margin Law

Ruling:

The court held no because even though the reinsurance treaty precedes the Margin Law by over nine
years, nothing in that treaty, however, obligates Philamlife to remit to Airco a fixed, certain, and
obligatory sum by way of reinsurance premiums. All that the reinsurance treaty provides on this point is
that Philamlife "agrees to reinsure." The treaty speaks of a probability; not a reality. For, without
reinsurance, no premium is due. Of course the reinsurance treaty lays down the duty to remit premiums
— if any reinsurance is effected upon the covenants in that treaty written. So, it is that the reinsurance
treaty per se cannot give rise to a contractual obligation calling for the payment of foreign exchange
"issued, approved and outstanding as of the date this Act [Republic Act 2609] takes effect.

For an exemption to come into play, there must be a reinsurance policy or, as in the reinsurance treaty
provided, a "reinsurance cession" which may be automatic or facultative.

To distinguish, a reinsurance policy is a contract of indemnity one insurer makes with another to protect
the first insurer from a risk it has already assumed. On the other hand, a reinsurance treaty is merely an
agreement between two insurance companies whereby one agrees to surrender and the other to accept
reinsurance business pursuant to provisions specified in the treaty. Treaties are contracts for insurance;
reinsurance policies or cessions are contracts of insurance.

Philamlife’s obligation to remit reinsurance premiums becomes fixed and definite upon the execution of
the reinsurance cession. Because, for every life insurance policy ceded to Airco, Philamlife agrees to pay
premium. It is only after a reinsurance cession is made that payment of reinsurance premium may be
exacted, as it is only after Philamlife seeks to remit that reinsurance premium that the obligation to pay
the margin fee arises.

Upon the premise that the margin fee of P268,747.48 was collected on remittances made on
reinsurance effected on or after the Margin Law took effect, refund thereof does not come within the
coverage of the exemption circumscribed in Section 3 of the said law.

For the reasons given, the petition for review is hereby denied, and the ruling of the Auditor General of
October 24, 1961 denying refund is hereby affirmed.

Marine Insurance

• PhilamGen vs. CA, (273 SCRA 262)

BELLOSILLO, J.:

Facts:

 Coca-Cola Bottlers Philippines, Inc., loaded on board "MV Asilda," a vessel owned and operated
by respondent Felman Shipping Lines, 7,500 cases of 1-liter Coca-Cola softdrink bottles to be
transported from Zamboanga City to Cebu City for consignee Coca-Cola Bottlers Philippines, Inc.,
Cebu.
 The shipment was insured with petitioner Philippine American General Insurance Co., under
Marine Open Policy.
 "MV Asilda" left the port of Zamboanga in fine weather at eight o'clock in the evening of the
same day. At around eight forty-five the following morning, 7 July 1983, the vessel sank in the
 waters of Zamboanga del Norte bringing down her entire cargo with her including the subject
7,500 cases of 1-liter Coca-Cola softdrink bottles.
 On 15 July 1983 the consignee Coca-Cola Bottlers Philippines, Inc., Cebu plant, filed a claim with
respondent FELMAN for recovery of damages it sustained as a result of the loss of its softdrink
bottles that sank with "MV Asilda." Respondent denied the claim thus prompting the consignee
to file an insurance claim with PHILAMGEN which paid its claim of P755,250.00.
 Claiming its right of subrogation PHILAMGEN sought recourse against respondent FELMAN
which disclaimed any liability for the loss.
 Consequently, on 29 November 1983 PHILAMGEN sued the shipowner for sum of money and
damages.
 In its complaint PHILAMGEN alleged that the sinking and total loss of "MV Asilda" and its cargo
were due to the vessel's unseaworthiness as she was put to sea in an unstable condition. It
further alleged that the vessel was improperly manned and that its officers were grossly
negligent in failing to take appropriate measures to proceed to a nearby port or beach after the
vessel started to list.
 FELMAN filed a motion to dismiss based on the affirmative defense that no right of subrogation
in favor of PHILAMGEN was transmitted by the shipper, and that, in any event, FELMAN had
abandoned all its rights, interests and ownership over "MV Asilda" together with her freight and
appurtenances for the purpose of limiting and extinguishing its liability under Art. 587 of the
Code of Commerce.

 The trial court dismissed the complaint of PHILAMGEN. On appeal the Court of Appeals set aside
the dismissal and remanded the case to the lower court for trial on the merits. FELMAN filed a
petition for certiorari with this Court but it was subsequently denied.

 The trial court rendered judgment in favor of FELMAN. It ruled that "MV Asilda" was seaworthy
when it left the port of Zamboanga as confirmed by certificates issued by the Philippine Coast
Guard and the ship owner’s surveyor attesting to its seaworthiness. Thus the loss of the vessel
and its entire shipment could only be attributed to either a fortuitous event, in which case, no
liability should attach unless there was a stipulation to the contrary, or to the negligence of the
captain and his crew, in which case, Art. 587 of the Code of Commerce should apply.

 The lower court further ruled that assuming "MV Asilda" was unseaworthy, still PHILAMGEN
could not recover from FELMAN since the assured, Coca-Cola Bottlers Philippines, Inc., had
breached its implied warranty on the vessel's seaworthiness. Resultantly, the payment made by
PHILAMGEN to the assured was an undue, wrong and mistaken payment. Since it was not legally
owing, it did not give PHILAMGEN the right of subrogation so as to permit it to bring an action in
court as a subrogee.
 PHILAMGEN appealed the decision to the Court of Appeals.
 Respondent appellate court rendered judgment finding "MV Asilda" unseaworthy for being top-
heavy as 2,500 cases of Coca-Cola softdrink bottles were improperly stowed on deck.
 Nonetheless, the appellate court denied the claim of PHILAMGEN on the ground that the
assured's implied warranty of seaworthiness was not complied with. Perfunctorily, PHILAMGEN
was not properly subrogated to the rights and interests of the shipper. Furthermore, respondent
court held that the filing of notice of abandonment had absolved the shipowner/agent from
liability under the limited liability rule.

Issues:

(a) Whether "MV Asilda" was seaworthy when it left the port of Zamboanga;

(b) Whether the limited liability under Art. 587 of the Code of Commerce should apply; and,

(c) whether PHILAMGEN was properly subrogated to the rights and legal actions which the shipper had
against FELMAN, the shipowner.

Ruling:

a. "MV Asilda" was unseaworthy when it left the port of Zamboanga. The Elite Adjusters, Inc.,
submitted a report regarding the sinking of "MV Asilda." The report, which was adopted by the
Court of Appeals revealed that a reasonable explanation for the series of lists experienced by
the vessel that eventually led to her capsizing and sinking, was that the vessel was top-heavy
which is to say that while the vessel may not have been overloaded, yet the distribution or
stowage of the cargo on board was done in such a manner that the vessel was in top-heavy
condition at the time of her departure and which condition rendered her unstable and
unseaworthy for that particular voyage. The vessel was designed as a fishing vessel and it was
not designed to carry a substantial amount or quantity of cargo on deck. Therefore, had her
cargo been confined to those that could have been accommodated under deck, her stability
would not have been affected and the vessel would not have been in any danger of capsizing,
even given the prevailing weather r conditions at that time of sinking. But from the moment that
the vessel was utilized to load heavy cargo on its deck, the vessel was rendered unseaworthy for
the purpose of carrying the type of cargo because the weight of the deck cargo so decreased the
vessel's metacentric height as to cause it to become unstable.
Therefore, the proximate cause of the sinking of the M/V "Asilda" was her condition of
unseaworthiness arising from her having been top-heavy when she departed from the Port of
Zamboanga. Her having capsized and eventually sunk was bound to happen and was therefore
in the category of an inevitable occurrence

b. On the second issue, Art. 587 of the Code of Commerce is not applicable to the case at bar.
Simply put, the ship agent is liable for the negligent acts of the captain in the care of goods
loaded on the vessel. This liability however can be limited through abandonment of the vessel,
its equipment and freightage as provided in Art. 587. Nonetheless, there are exceptional
 circumstances 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 to the effect that the right of abandonment of vessels, as a legal limitation
of a ship owner’s liability, does not apply to cases where the injury or average was occasioned
by the ship owner’s own fault. It must be stressed at this point that Art. 587 speak only of
situations where the fault or negligence is committed solely by the captain. Where the ship-
owner is likewise to be blamed, Art. 587 will not apply, and such situation will be covered by the
provisions of the Civil Code on common carrier.

It was already established at the outset that the sinking of "MV Asilda" was due to its unseaworthiness
even at the time of its departure from the port of Zamboanga. It was top-heavy as an excessive amount
of cargo was loaded on deck. Closer supervision on the part of the shipowner could have prevented this
fatal miscalculation. As such, FELMAN was equally negligent. It cannot therefore escape liability through
the expedient of filing a notice of abandonment of the vessel by virtue of Art. 587 of the Code of
Commerce.

Under Art 1733 of the Civil Code, "(c)ommon carriers, from the nature of their business and for reasons
of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the
safety of the passengers transported by them, according to all the circumstances of each case . . ." In the
event of loss of goods, common carriers are presumed to have acted negligently. FELMAN, the
shipowner, was not able to rebut this presumption.

c. It is generally held that in every 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. Thus Sec. 113 of the Insurance Code provides that
"(i)n 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." Under Sec. 114, a
ship is "seaworthy when reasonably fit to perform the service, and to encounter the ordinary
perils of the voyage, contemplated by the parties to the policy." Thus it becomes the obligation
of the cargo owner to look for a reliable common carrier which keeps its vessels in seaworthy
condition. He may have no control over the vessel but he has full control in the selection of the
common carrier that will transport his goods. He also has full discretion in the choice of assurer
that will underwrite a particular venture. The marine policy issued by PHILAMGEN to the Coca-
Cola bottling firm in at least two (2) instances has dispensed with the usual warranty of
worthiness. Paragraph 15 of the Marine Open Policy reads that "(t)he liberties as per Contract
of Affreightment the presence of the Negligence Clause and/or Latent Defect Clause in the Bill of
Lading and/or Charter Party and/or Contract of Affreightment as between the Assured and the
Company shall not prejudice the insurance. The seaworthiness of the vessel as between the
Assured and the Assurers is hereby admitted."
The same clause is present in par. 8 of the Institute Cargo Clauses (F.P.A.) of the policy which states
"(t)he seaworthiness of the vessel as between the Assured and Underwriters in hereby admitted . . . ."

The result of the admission of seaworthiness by the assurer PHILAMGEN may mean one or two things:
(a) that the warranty of the seaworthiness is to be taken as fulfilled; or, (b) that the risk of
unseaworthiness is assumed by the insurance company. The insertion of such waiver clauses in cargo
policies is in recognition of the realistic fact that cargo owners cannot control the state of the vessel.
Thus it can be said that with such categorical waiver, PHILAMGEN has accepted the risk of
unseaworthiness so that if the ship should sink by unseaworthiness, as what occurred in this case,
PHILAMGEN is liable.

The doctrine 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,
equity and good conscience ought to pay. 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 softdrink bottles is inevitable.

Perils of the sea or ship / Risks

• South Sea Surety v. Court of Appeals, (244 SCRA 744)

VITUG, J.:

Facts:

 Plaintiff [Valenzuela Hardwood and Industrial Supply, Inc.] entered into an agreement with the
defendant Seven Brothers whereby the latter undertook to load on board its vessel M/V Seven
Ambassador the former's lauan round logs numbering 940 at the port of Maconacon, Isabela for
shipment to Manila.
 On 20 January 1984, plaintiff insured the logs, against loss and/or, damage with defendant
South Sea Surety and Insurance Co., Inc. for P2,000,000.00; the latter issued its Marine Cargo
Insurance Policy P2,000,000.00 on said date.
 On 24 January 1984, the plaintiff gave the check in payment of the premium on the insurance
policy to Mr. Victorio Chua.
 In the meantime, the said vessel M/V Seven Ambassador sank on 25 January 1984 resulting in
the loss of the plaintiffs insured logs.
 On 30 January 1984, a check for P5,625.00 to cover payment of the premium and documentary
stamps due on the policy was tendered to the insurer but was not accepted. Instead, the South
Sea Surety and Insurance Co., Inc. cancelled the insurance policy it issued as of the date of
 inception for non-payment of the premium due in accordance with Section 77 of the Insurance
Code.
 On 2 February 1984, plaintiff demanded from defendant South Sea Surety and Insurance Co.,
Inc. the payment of the proceeds of the policy but the latter denied liability under the policy.
Plaintiff likewise filed a formal claim with defendant Seven Brothers Shipping Corporation for
the value of the lost logs but the latter denied the claim.
 In its decision, the trial court rendered judgment in favor of plaintiff Hardwood.
 On appeal perfected by both the shipping firm and the insurance company, the Court of Appeals
affirmed the judgment of the court a quo only against the insurance corporation; in absolving
the shipping entity from liability.

Issue:

Whether defendants shipping corporation and the surety company are liable to the plaintiff for the
latter's lost logs.

Ruling:

No. It appears that there is a stipulation in the charter party that the ship owner would be exempted
from liability in case of loss. The court a quo erred in applying the provisions of the Civil Code on
common carriers to establish the liability of the shipping corporation. The provisions on common
carriers should not be applied where the carrier is not acting as such but as a private carrier.

Under American jurisprudence, a common carrier undertaking to carry a special or chartered to a special
person only, becomes a private carrier.

As a private carrier, a stipulation exempting the owner from liability even for the negligence of its agent
is valid (Home Insurance Company, Inc. vs. American Steamship Agencies, Inc., 23 SCRA 24).

The shipping corporation should not therefore be held liable for the loss of the logs.

In this petition for review on certiorari brought by South Sea Surety and Insurance Co., Inc., petitioner
argues that it likewise should have been freed from any liability to Hardwood. It faults the appellate
court (a) for having Supposedly disregarded Section 77 of the insurance Code and (b) for holding Victorio
Chua to have been an authorized representative of the insurer.

Section 77 of the Insurance Code provides:

Sec. 77. An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the
peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance
issued by an insurance company is valid and binding unless and until the premium thereof has been
paid, except in the case of a life or an industrial life policy whenever the grace period provision applies.
Undoubtedly, the payment of the premium is a condition precedent to, and essential for, the
efficaciousness of the contract. The only two statutorily provided exceptions are (a) in case the
insurance coverage relates to life or industrial life (health) insurance when a grace period applies and (b)
when the insurer makes a written acknowledgment of the receipt of premium, this acknowledgment
being declared by law to be then conclusive evidence of the premium payment (Secs. 77-78, Insurance
Code). The appellate court, contrary to what the petition suggests, did not make any pronouncement to
the contrary. Indeed, it has said:

Concerning the issue as to whether there is a valid contract of insurance between plaintiff-appellee and
defendant-appellant South Sea Surety and Insurance Co., Inc., Section 77 of the Insurance Code explicitly
provides that notwithstanding any agreement to the contrary, no policy issued by an insurance company
is valid and binding unless and until premium thereof has been paid. It is therefore important to
determine whether at the time of the loss, the premium was already paid.

No attempt becloud the issues can disguise the fact that the sole question raised in the instant petition
is really evidentiary in nature, i.e., whether or not Victorio Chua, in receiving the check for the insurance
premium prior to the occurrence of the risk insured against has so acted as an agent of petitioner. The
appellate court, like the trial court, has found in the affirmative. Said the appellate court:

In the instant case, the Marine Cargo Insurance Policy No. 84/24229 was issued by defendant insurance
company on 20 January 1984. At the time the vessel sank on 25 January 1984 resulting in the loss of the
insured logs, the insured had already delivered to Victorio Chua the check in payment of premium. But,
as Victorio Chua testified, it was only in the morning of 30 January 1984 or 5 days after the vessel sank
when his messenger tendered the check to defendant South Sea Surety and Insurance Co., Inc.

The pivotal issue to be resolved to determine the liability, of the surety corporation is whether Mr. Chua
acted as an agent of the surety company or of the insured when he received the check for insurance
premiums.

Appellant surety company insists that Mr. Chua is an administrative assistant for the past ten years and
an agent for less than ten years of the Columbia Insurance Brokers, Ltd. He is paid a salary as an
administrative assistant and a commission as agent based on the premiums he turns over to the broker.
Appellant therefore argues that Mr. Chua, having received the insurance premiums as an agent of the
Columbia Insurance Broker, acted as an agent of the insured under Section 301 of the Insurance Code

Sec. 301. Any person who for any compensation, commission or other thing of value, acts, or aids in
soliciting, negotiating or procuring the making of any insurance contract or in placing risk or taking out
insurance, on behalf of an insured other than himself, shall be an insurance broker within the intent of
this Code, and shall thereby become liable to all the duties requirements, liabilities and penalties to
which an insurance broker is subject.
On cross-examination in behalf of South Sea Surety and Insurance Co., Inc. Mr. Chua testified that the
marine cargo insurance policy for the plaintiff's logs was delivered to him on 21 January 1984 at his
office to be delivered to the plaintiff.

When the appellant South Sea Surety and Insurance Co., Inc. delivered to Mr. Chua the marine cargo
insurance policy for the plaintiffs logs, he is deemed to have been authorized by the South Sea Surety
and Insurance Co., Inc. to receive the premium which is due on its behalf.

When therefore the insured logs were lost, the insured had already paid the premium to an agent of the
South Sea Surety and Insurance Co., Inc., which is consequently liable to pay the insurance proceeds
under the policy it issued to the insured.

• Malayan Insurance v. Court of Appeals and TKC Marketing, (270 SCRA 242)

ROMERO, J.:

Facts:

 Private respondent TKC Marketing Corp. was the owner/consignee of some 3,189.171 metric
tons of soya bean meal which was loaded on board the ship MV Al Kaziemah on or about
September 8, 1989 for carriage from the port of Rio del Grande, Brazil, to the port of Manila
 Said cargo was insured against the risk of loss by petitioner Malayan Insurance Corporation for
which it issued two (2) Marine Cargo policy amounting to P18,986,902.45 and another policy
amounting to P1,195,005.45, both dated September 1989.
 While the vessel was docked in Durban, South Africa on September 11, 1989 enroute to Manila,
the civil authorities arrested and detained it because of a lawsuit on a question of ownership
and possession. As a result, private respondent notified petitioner on October 4, 1989 of the
arrest of the vessel and made a formal claim for the amount of US$916,886.66, representing the
dollar equivalent on the policies, for non-delivery of the cargo. Private respondent likewise
sought the assistance of petitioner on what to do with the cargo.
 Petitioner replied that the arrest of the vessel by civil authority was not a peril covered by the
policies. Private respondent, accordingly, advised petitioner that it might tranship the cargo and
requested an extension of the insurance coverage until actual transhipment, which extension
was approved upon payment of additional premium. The insurance coverage was extended
under the same terms and conditions embodied in the original policies while in the process of
making arrangements for the transhipment of the cargo from Durban to Manila, covering the
period October 4 - December 19, 1989.
 However, on December 11, 1989, the cargo was sold in Durban, South Africa, for US$154.40 per
metric ton or a total of P10,304,231.75 due to its perishable nature which could no longer stand
a voyage of twenty days to Manila and another twenty days for the discharge thereof. On
January 5, 1990, private respondent forthwith reduced its claim to US$448,806.09 (or its peso
equivalent of P9,879,928.89 at the exchange rate of P22.0138 per $1.00) representing private
respondent's loss after the proceeds of the sale were deducted from the original claim of
$916,886.66 or P20,184,159.55.
  Petitioner maintained its position that the arrest of the vessel by civil authorities on a question
of ownership was an excepted risk under the marine insurance policies. This prompted private
respondent to file a complaint for damages praying that aside from its claim, it be reimbursed
the amount of P128,770.88 as legal expenses and the interest it paid for the loan it obtained to
finance the shipment totalling P942,269.30. In addition, private respondent asked for moral
damages amounting to P200,000.00, exemplary damages amounting to P200,000.00 and
attorney's fees equivalent to 30% of what will be awarded by the court.
 The lower court decided in favor of private respondent and required petitioner to pay, aside
from the insurance claim, consequential and liquidated damages amounting to P1,024,233.88,
exemplary damages amounting to P100,000.00, reimbursement in the amount equivalent to
10% of whatever is recovered as attorney's fees as well as the costs of the suit. On private
respondent's motion for reconsideration, petitioner was also required to further pay interest at
the rate of 12% per annum on all amounts due and owing to the private respondent by virtue of
the lower court decision counted from the inception of this case until the same is paid.
 On appeal, the Court of Appeals affirmed the decision of the lower court stating that with the
deletion of Clause 12 of the policies issued to private respondent, the same became
automatically covered under subsection 1.1 of Section 1 of the Institute War Clauses. The
arrests, restraints or detainments contemplated in the former clause were those effected by
political or executive acts. Losses occasioned by riot or ordinary judicial processes were not
covered therein. In other words, arrest, restraint or detainment within the meaning of Clause 12
(or F.C. & S. Clause) rules out detention by ordinary legal processes. Hence, arrests by civil
authorities, such as what happened in the instant case, is an excepted risk under Clause 12 of
the Institute Cargo Clause or the F.C. & S. Clause. However, with the deletion of Clause 12 of the
Institute Cargo Clause and the consequent adoption or institution of the Institute War Clauses
(Cargo), the arrest and seizure by judicial processes which were excluded under the former
policy became one of the covered risks.
 The appellate court added that the failure to deliver the consigned goods in the port of
destination is a loss compensable, not only under the Institute War Clause but also under the
Theft, Pilferage, and Non-delivery Clause (TNPD) of the insurance policies, as read in relation to
Section 130 of the Insurance Code and as held in Williams v. Cole.
 Furthermore, the appellate court contended that since the vessel was prevented at an
intermediate port from completing the voyage due to its seizure by civil authorities, a peril
insured against, the liability of petitioner continued until the goods could have been
transhipped. But due to the perishable nature of the goods, it had to be promptly sold to
minimize loss. Accordingly, the sale of the goods being reasonable and justified, it should not
operate to discharge petitioner from its contractual liability.
 Hence this petition.

Issue:
1. Whether or not the arrest of the vessel was a risk covered under the subject insurance policies.

2. Whether or not the insurance policies must strictly construed against the insurer

Ruling:

1. Yes. Section 12 or the "Free from Capture & Seizure Clause" states that "Warranted free of capture,
seizure, arrest, restraint or detainment, and the consequences thereof or of any attempt thereat…
Should Clause 12 be deleted, the relevant current institute war clauses shall be deemed to form part of
this insurance.”

This was really replaced by the subsection 1.1 of section 1 of Institute War Clauses (Cargo) which
included “the risks excluded from the standard form of English Marine Policy by the clause warranted
free of capture, seizure, arrest, restraint or detainment, and the consequences thereof of hostilities or
warlike operations, whether there be a declaration of war or not.”

The petitioner’s claim that the Institute War Clauses can be operative in case of hostilities or warlike
operations on account of its heading "Institute War Clauses" is not tenable. It reiterated the CA’s stand
that “its interpretation in recent years to include seizure or detention by civil authorities seems
consistent with the general purposes of the clause.” This interpretation was regardless of the fact
whether the arrest was in war or by civil authorities.

The petitioner was said to have confused the Institute War clauses and the F.C.S. in English law.

“It stated that "the F.C. & S. Clause was "originally incorporated in insurance policies to eliminate the
risks of warlike operations". It also averred that the F.C. & S. Clause applies even if there be no war or
warlike operations. In the same vein, it contended that subsection 1.1 of Section 1 of the Institute War
Clauses (Cargo) "pertained exclusively to warlike operations" and yet it also stated that "the deletion of
the F.C. & S. Clause and the consequent incorporation of subsection 1.1 of Section 1 of the Institute War
Clauses (Cargo) was to include "arrest, etc. even if it were not a result of hostilities or warlike
operations."

The court found that the insurance agency tried to interpret executive and political acts as those not
including ordinary arrests in the exceptions of the FCS clause , and claims that the War Clauses now
included executive and political acts without including ordinary arrests in the new stipulation.

“A strained interpretation which is unnatural and forced, as to lead to an absurd conclusion or to render
the policy nonsensical, should, by all means, be avoided.”

With the incorporation of subsection 1.1 of Section 1 of the Institute War Clauses, however, the SC
agrees with the Court of Appeals and the private respondent that "arrest" caused by ordinary judicial
process is deemed included among the covered risks. This interpretation becomes inevitable when
subsection 1.1 of Section 1 of the Institute War Clauses provided that "this insurance covers the risks
excluded from the Standard Form of English Marine Policy by the clause "Warranted free of capture,
seizure, arrest, etc. . . ." or the F.C. & S. Clause. Jurisprudentially, "arrests" caused by ordinary judicial
process is also a risk excluded from the Standard Form of English Marine Policy by the F.C. & S. Clause.

Petitioner cannot adopt the argument that the "arrest" caused by ordinary judicial process is not
included in the covered risk simply because the F.C. & S. Clause under the Institute War Clauses can
only be operative in case of hostilities or warlike operations on account of its heading "Institute War
Clauses." This Court agrees with the Court of Appeals when it held that ". . . . Although the F.C. & S.
Clause may have originally been inserted in marine policies to protect against risks of war, its
interpretation in recent years to include seizure or detention by civil authorities seems consistent with
the general purposes of the clause, " In fact, petitioner itself averred that subsection 1.1 of Section 1
of the Institute War Clauses included "arrest" even if it were not a result of hostilities or warlike
operations. In this regard, since what was also excluded in the deleted F.C. & S. Clause was "arrest"
occasioned by ordinary judicial process, logically, such "arrest" would now become a covered risk
under subsection 1.1 of Section 1 of the Institute War Clauses, regardless of whether or not said
"arrest" by civil authorities occurred in a state of war. This Court cannot help the impression that
petitioner is overly straining its interpretation of the provisions of the policy in order to avoid being
liable for private respondent's claim. This Court finds it pointless for petitioner to maintain its position
that it only insures risks of "arrest" occasioned by executive or political acts of government which is
interpreted as not referring to those caused by ordinary legal processes as contained in the "Perils"
Clause; deletes the F.C. & S. Clause which excludes risks of arrest occasioned by executive or political
acts of the government and naturally, also those caused by ordinary legal processes; and, thereafter
incorporates subsection 1.1 of Section 1 of the Institute War Clauses which now includes in the
coverage risks of arrest due to executive or political acts of a government but then still excludes
"arrests" occasioned by ordinary legal processes when subsection 1.1 of Section 1 of said Clauses
should also have included "arrests" previously excluded from the coverage of the F.C. & S. Clause.

WHEREFORE, the petition for review is DENIED and the decision of the Court of Appeals is AFFIRMED.

2. Indemnity and liability insurance policies are construed in accordance with the general rule of
resolving any ambiguity therein in favor of the insured, where the contract or policy is prepared by the
insurer. 18 A contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein
should be resolved against the insurer; in other words, it should be construed liberally in favor of the
insured and strictly against the insurer. Limitations of liability should be regarded with extreme jealousy
and must be construed in such a way as to preclude the insurer from noncompliance with its obligations.

Insurable Interest
• Filipino Merchants Insurance Co. vs. CA and CHOA TIEK SENG, respondents., (179 SCRA 638)

REGALADO, J.:

Facts:

 This is an action brought by the consignee of the shipment of fishmeal loaded on board the
vessel SS Bougainville and unloaded at the Port of Manila and seeks to recover from the
defendant insurance company the amount of P51,568.62 representing damages to said
shipment which has been insured by the defendant insurance company .
 The defendant brought a third party complaint against third party defendants Compagnie
Maritime Des Chargeurs Reunis and/or E. Razon, Inc. seeking judgment against the third
defendants in case Judgment is rendered against the third party plaintiff.
 It appears from the evidence presented that plaintiff insured said shipment with defendant
insurance company for the goods described as 600 metric tons of fishmeal in new gunny bags of
90 kilos each from Bangkok, Thailand to Manila against all risks under warehouse to warehouse
terms.
 The fishmeal new gunny bags were unloaded from the ship at Manila unto the arrastre
contractor E. Razon, Inc. and defendant'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.
 The cargo was also surveyed by the arrastre contractor before delivery of the cargo to the
consignee and the condition of the cargo on such delivery was reflected in E. Razon's Bad Order
Certificate covering a total of 227 bags in bad order condition.
 Defendant's surveyor has conducted a final and detailed survey of the cargo in the warehouse
for which he prepared a survey report with the findings on the extent of shortage or loss on the
bad order bags totalling 227 bags amounting to 12,148 kilos.
 Based on said computation the plaintiff made a formal claim against the defendant Filipino
Merchants Insurance Company for P51,568.62 the computation of which claim is contained
therein. A formal claim statement was also presented by the plaintiff against the vessel dated
December 21, 1976, but the defendant Filipino Merchants Insurance Company refused to pay
the claim.
 Consequently, the plaintiff brought an action against said defendant as adverted to above and
defendant presented a third party complaint against the vessel and the arrastre contractor.
 The court after trial on the merits, rendered judgment in favor of private respondent.
 On appeal, the respondent court affirmed the decision of the lower court insofar as the award
on the complaint is concerned and modified the same with regard to the adjudication of the
third-party complaint. A motion for reconsideration of the aforesaid decision was denied.
 Hence this petition.

Issue:
 1. Whether or not the Court of Appeals erred in its interpretation and application of the "all risks"
clause of the marine insurance policy when it held the petitioner liable to the private
respondent for the partial loss of the cargo, notwithstanding the clear absence of proof of some
fortuitous event, casualty, or accidental cause to which the loss is attributable
2. Whether or not the private respondent had no insurable interest in the subject cargo, hence,
the marine insurance policy taken out by private respondent is null and void;
3. Whether or not the private respondent was guilty of fraud in not disclosing the fact, it being
bound out of utmost good faith to do so, that it had no insurable interest in the subject cargo,
which bars its recovery on the policy

he 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.

Ruling:
 1. Filipino contends that 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 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. 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.

2. Yes, the Court upholds the ruling of the respondent court that private respondent, as consignee of the
goods in transit under an invoice containing the terms under "C & F Manila," has insurable interest in
said 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.

Herein private respondent, 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.

Further, Article 1523 of the Civil Code provides that where, in pursuance of a contract of sale, the seller
is authorized or required to send the goods to the buyer, delivery of the goods to a carrier, whether
named by the buyer or not, for, the purpose of transmission to the buyer is deemed to be a delivery of
the goods to the buyer, the exceptions to said rule not obtaining in the present case. The Court has
heretofore ruled that the delivery of the goods on board the carrying vessels partake of the nature of
actual delivery since, from that time, the foreign buyers assumed the risks of loss of the goods and paid
the insurance premium covering them.

C & F contracts are shipment contracts. The term means that the price fixed includes in a lump sum the
cost of the goods and freight to the named destination. It simply means that the seller must pay the
costs and freight necessary to bring the goods to the named destination but the risk of loss or damage to
the goods is transferred from the seller to the buyer when the goods pass the ship's rail in the port of
shipment.
Implied Warranties

• Cathay Insurance v. Court of Appeals, and REMINGTON INDUSTRIAL SALES CORPORATION,

respondents (151 SCRA 710)

PARAS, J.:

Facts:

 Private respondent corporation against petitioner (then defendant) company seeking collection
of the sum of P868,339.15 representing private respondent's losses and damages incurred in a
shipment of seamless steel pipes under an insurance contract in favor of the said private
respondent as the insured, consignee or importer of aforesaid merchandise while in transit from
Japan to the Philippines on board vessel SS "Eastern Mariner." The total value of the shipment
was P2,894,463.83 at the prevailing rate of P7.95 to a dollar in June and July 1984, when the
shipment was made.
 The trial court decided in favor of private respondent corporation by ordering petitioner to pay
it the sum of P866,339. as its recoverable insured loss equivalent to 30% of the value of the
seamless steel pipes; ordering petitioner to pay private respondent interest on the said amount
at the rate of 34% or double the ceiling prescribed by the Monetary Board per annum from
February 3, 1982 or 90 days from private respondent's submission of proof of loss to petitioner
until paid as provided in the settlement of claim provision of the policy; and ordering petitioner
to pay private respondent certain amounts for marine surveyor's fee, attorney's fees and costs
of the suit.

Issue:

1. Whether or not the rusting of the steel pipes while on sea voyage under ordinary condition
would constitute perils of the sea and for which loss, the insurer is liable

Ruling:

Yes. There is no question that the rusting of steel pipes in the course of a voyage is a "peril of the sea" in
view of the toll on the cargo of wind, water, and salt conditions. At any rate if the insurer cannot be held
accountable therefor, the court said that it would fail to observe a cardinal rule in the interpretation of
contracts, namely, that any ambiguity therein should be construed against the maker/issuer/drafter
thereof, namely, the insurer. Besides the precise purpose of insuring cargo during a voyage would be
rendered fruitless. Be it noted that any attack of the 15-day clause in the policy was foreclosed right in
the pre-trial conference.

Finally, it is a cardinal rule that save for certain exceptions, findings of facts of the appellate tribunal are
binding on Us. Not one of said exceptions can apply to this case.
WHEREFORE, this petition is hereby DENIED, and the assailed decision of the Court of Appeals is hereby
AFFIRMED.

SO ORDERED.

• PhilamGen vs. CA, (273 SCRA 262)

BELLOSILLO, J.:

Facts:

• Coca-Cola Bottlers Philippines, Inc., loaded on board "MV Asilda," a vessel owned and operated
by respondent Felman Shipping Lines, 7,500 cases of 1-liter Coca-Cola softdrink bottles to be
transported from Zamboanga City to Cebu City for consignee Coca-Cola Bottlers Philippines, Inc., Cebu.

• The shipment was insured with petitioner Philippine American General Insurance Co., under
Marine Open Policy.

• "MV Asilda" left the port of Zamboanga in fine weather at eight o'clock in the evening of the
same day. At around eight forty-five the following morning, 7 July 1983, the vessel sank in the waters of
Zamboanga del Norte bringing down her entire cargo with her including the subject 7,500 cases of 1-liter
Coca-Cola softdrink bottles.

• On 15 July 1983 the consignee Coca-Cola Bottlers Philippines, Inc., Cebu plant, filed a claim with
respondent FELMAN for recovery of damages it sustained as a result of the loss of its softdrink bottles
that sank with "MV Asilda." Respondent denied the claim thus prompting the consignee to file an
insurance claim with PHILAMGEN which paid its claim of P755,250.00.

• Claiming its right of subrogation PHILAMGEN sought recourse against respondent FELMAN
which disclaimed any liability for the loss.

• Consequently, on 29 November 1983 PHILAMGEN sued the shipowner for sum of money and
damages.

• In its complaint PHILAMGEN alleged that the sinking and total loss of "MV Asilda" and its cargo
were due to the vessel's unseaworthiness as she was put to sea in an unstable condition. It further
alleged that the vessel was improperly manned and that its officers were grossly negligent in failing to
take appropriate measures to proceed to a nearby port or beach after the vessel started to list.

• FELMAN filed a motion to dismiss based on the affirmative defense that no right of subrogation
in favor of PHILAMGEN was transmitted by the shipper, and that, in any event, FELMAN had abandoned
all its rights, interests and ownership over "MV Asilda" together with her freight and appurtenances for
the purpose of limiting and extinguishing its liability under Art. 587 of the Code of Commerce.
• The trial court dismissed the complaint of PHILAMGEN. On appeal the Court of Appeals set aside
the dismissal and remanded the case to the lower court for trial on the merits. FELMAN filed a petition
for certiorari with this Court but it was subsequently denied.

• The trial court rendered judgment in favor of FELMAN. It ruled that "MV Asilda" was seaworthy
when it left the port of Zamboanga as confirmed by certificates issued by the Philippine Coast Guard and
the ship owner’s surveyor attesting to its seaworthiness. Thus the loss of the vessel and its entire
shipment could only be attributed to either a fortuitous event, in which case, no liability should attach
unless there was a stipulation to the contrary, or to the negligence of the captain and his crew, in which
case, Art. 587 of the Code of Commerce should apply.

• The lower court further ruled that assuming "MV Asilda" was unseaworthy, still PHILAMGEN
could not recover from FELMAN since the assured, Coca-Cola Bottlers Philippines, Inc., had breached its
implied warranty on the vessel's seaworthiness. Resultantly, the payment made by PHILAMGEN to the
assured was an undue, wrong and mistaken payment. Since it was not legally owing, it did not give
PHILAMGEN the right of subrogation so as to permit it to bring an action in court as a subrogee.

• PHILAMGEN appealed the decision to the Court of Appeals.

• Respondent appellate court rendered judgment finding "MV Asilda" unseaworthy for being top-
heavy as 2,500 cases of Coca-Cola softdrink bottles were improperly stowed on deck. Nonetheless, the
appellate court denied the claim of PHILAMGEN on the ground that the assured's implied warranty of
seaworthiness was not complied with. Perfunctorily, PHILAMGEN was not properly subrogated to the
rights and interests of the shipper. Furthermore, respondent court held that the filing of notice of
abandonment had absolved the shipowner/agent from liability under the limited liability rule.

Issues:

(a) Whether "MV Asilda" was seaworthy when it left the port of Zamboanga;

(b) Whether the limited liability under Art. 587 of the Code of Commerce should apply; and,

(c) whether PHILAMGEN was properly subrogated to the rights and legal actions which the shipper had
against FELMAN, the shipowner.

Ruling:

a. "MV Asilda" was unseaworthy when it left the port of Zamboanga. The Elite Adjusters, Inc.,
submitted a report regarding the sinking of "MV Asilda." The report, which was adopted by the Court of
Appeals revealed that a reasonable explanation for the series of lists experienced by the vessel that
eventually led to her capsizing and sinking, was that the vessel was top-heavy which is to say that while
the vessel may not have been overloaded, yet the distribution or stowage of the cargo on board was
done in such a manner that the vessel was in top-heavy condition at the time of her departure and
which condition rendered her unstable and unseaworthy for that particular voyage. The vessel was
designed as a fishing vessel and it was not designed to carry a substantial amount or quantity of cargo
on deck. Therefore, had her cargo been confined to those that could have been accommodated under
deck, her stability would not have been affected and the vessel would not have been in any danger of
capsizing, even given the prevailing weather r conditions at that time of sinking. But from the moment
that the vessel was utilized to load heavy cargo on its deck, the vessel was rendered unseaworthy for
the purpose of carrying the type of cargo because the weight of the deck cargo so decreased the vessel's
metacentric height as to cause it to become unstable.

Therefore, the proximate cause of the sinking of the M/V "Asilda" was her condition of unseaworthiness
arising from her having been top-heavy when she departed from the Port of Zamboanga. Her having
capsized and eventually sunk was bound to happen and was therefore in the category of an inevitable
occurrence

b. On the second issue, Art. 587 of the Code of Commerce is not applicable to the case at bar.
Simply put, the ship agent is liable for the negligent acts of the captain in the care of goods loaded on
the vessel. This liability however can be limited through abandonment of the vessel, its equipment and
freightage as provided in Art. 587. Nonetheless, there are exceptional circumstances 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 to the effect that the right of
abandonment of vessels, as a legal limitation of a ship owner’s liability, does not apply to cases where
the injury or average was occasioned by the ship owner’s own fault. It must be stressed at this point that
Art. 587 speak only of situations where the fault or negligence is committed solely by the captain. Where
the ship-owner is likewise to be blamed, Art. 587 will not apply, and such situation will be covered by
the provisions of the Civil Code on common carrier.

It was already established at the outset that the sinking of "MV Asilda" was due to its unseaworthiness
even at the time of its departure from the port of Zamboanga. It was top-heavy as an excessive amount
of cargo was loaded on deck. Closer supervision on the part of the shipowner could have prevented this
fatal miscalculation. As such, FELMAN was equally negligent. It cannot therefore escape liability through
the expedient of filing a notice of abandonment of the vessel by virtue of Art. 587 of the Code of
Commerce.

Under Art 1733 of the Civil Code, "(c)ommon carriers, from the nature of their business and for reasons
of public policy, are bound to observe extraordinary diligence in the vigilance over the goods and for the
safety of the passengers transported by them, according to all the circumstances of each case . . ." In the
event of loss of goods, common carriers are presumed to have acted negligently. FELMAN, the
shipowner, was not able to rebut this presumption.

c. It is generally held that in every 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. Thus Sec. 113 of the Insurance Code provides that "(i)n 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." Under Sec. 114, a ship is "seaworthy when
reasonably fit to perform the service, and to encounter the ordinary perils of the voyage, contemplated
by the parties to the policy." Thus it becomes the obligation of the cargo owner to look for a reliable
common carrier which keeps its vessels in seaworthy condition. He may have no control over the vessel
but he has full control in the selection of the common carrier that will transport his goods. He also has
full discretion in the choice of assurer that will underwrite a particular venture. The marine policy issued
by PHILAMGEN to the Coca-Cola bottling firm in at least two (2) instances has dispensed with the usual
warranty of worthiness. Paragraph 15 of the Marine Open Policy reads that "(t)he liberties as per
Contract of Affreightment the presence of the Negligence Clause and/or Latent Defect Clause in the Bill
of Lading and/or Charter Party and/or Contract of Affreightment as between the Assured and the
Company shall not prejudice the insurance. The seaworthiness of the vessel as between the Assured and
the Assurers is hereby admitted."

The same clause is present in par. 8 of the Institute Cargo Clauses (F.P.A.) of the policy which states
"(t)he seaworthiness of the vessel as between the Assured and Underwriters in hereby admitted . . . ."

The result of the admission of seaworthiness by the assurer PHILAMGEN may mean one or two things:
(a) that the warranty of the seaworthiness is to be taken as fulfilled; or, (b) that the risk of
unseaworthiness is assumed by the insurance company. The insertion of such waiver clauses in cargo
policies is in recognition of the realistic fact that cargo owners cannot control the state of the vessel.
Thus it can be said that with such categorical waiver, PHILAMGEN has accepted the risk of
unseaworthiness so that if the ship should sink by unseaworthiness, as what occurred in this case,
PHILAMGEN is liable.

The doctrine 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,
equity and good conscience ought to pay. 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 softdrink bottles is inevitable.
• Delsan Transport Lines, Inc. vs. CA, (369 SCRA 24 (2001))

DE LEON, JR., J.:

FACTS:

Caltex Philippines entered into a contract of affreightment with the petitioner, Delsan Transport Lines,
Inc., for a period of 1 year whereby the said common carrier agreed to transport Caltex’s industrial fuel
oil from the Batangas-Bataan Refinery to different parts of the country. Under the contract, petitioner
took on board its vessel, MT Maysun, 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.• The
vessel sank taking with it the entire cargo of fuel oil.• Private respondent paid Caltex the sum of
P5,096,635.57 representing the insured value of the lost cargo. Exercising its right of subrogation the
private respondent demanded of the petitioner the same amount it paid to Caltex.

Due to its failure to collect from the petitioner despite prior demand, private respondent filed a
complaint with the RTC for collection of a sum of money.

The trial court dismissed the complaint against herein petitioner. The trial court found that 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.

The decision of the trial court was reversed by the Court of Appeals. In the absence of any explanation
as to what may have caused the sinking of the vessel coupled with the finding that the same was
improperly manned, the appellate court ruled that the petitioner is liable on its obligation as common
carrier to herein private respondent insurance company as subrogee of Caltex

ISSUE:

Whether the payment made by the private respondent to Caltex 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.

RULING:
 No. The payment made by the private respondent for the insured value of the lost cargo operates as
waiver of its (private respondent) 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 a common carrier. The fact of payment
grants the private respondent subrogatory right which enables it to exercise legal remedies that would
otherwise be available to Caltex as owner of the lost cargo against the petitioner common carrier.

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.

Neither may petitioner escape liability by presenting in evidence certificates that tend to show that at
the time of dry-docking and inspection by the Philippine Coast Guard, the vessel MT Maysun, was fit for
voyage. These pieces of evidence do not necessarily take into account the actual condition of the vessel
at the time of the commencement of the voyage. As correctly observed by the Court of appeals:

At the time of dry-docking and inspection, the ship may have appeared fit. The certificates issued,
however, do not negate the presumption of unseaworthiness triggered by an unexplained sinking. Of
certificates issued in this regard, authorities are likewise clear as to their probative value, (thus):

Seaworthiness relates to a vessel’s actual condition. Neither the granting of classification or the issuance
of certificates establishes seaworthiness.

Loss/Abandonment

• Oriental Assurance Corp. vs. CA, (200 SCRA 459 (1991))

MELENCIO-HERRERA, J:

Facts:

 Private respondent Panama Sawmill Co., Inc. bought, in Palawan, 1,208 pieces of apitong logs,
with a total volume of 2,000 cubic meters.
 It hired Transpacific Towage, Inc., to transport the logs by sea to Manila and insured it against
loss for P1-M with petitioner Oriental Assurance Corporation. There is a claim by Panama,
 however, that the insurance coverage should have been for P3-M were it not for the fraudulent
act of one Benito Sy Yee Long to whom it had entrusted the amount of P6,000.00 for the
payment of the premium for a P3-M policy.
 The logs were loaded on two (2) barges: (1) on barge PCT-7000,610 pieces of logs with a volume
of 1,000 cubicmeters; and (2) on Barge TPAC-1000, 598 pieces of logs, also with a volume of
1,000 cubic meters.
 On 28 January 1986, the two barges were towed by one tug-boat, the MT 'Seminole' But, as fate
would have it, during the voyage, rough seas and strong winds caused damage to Barge TPAC-
1000 resulting in the loss of 497 pieces of logs out of the 598 pieces loaded thereon.
 Panama demanded payment for the loss but Oriental Assurance refuse on the ground that its
contracted liability was for "TOTAL LOSS ONLY." The rejection was upon the recommendation of
the Tan Gatue Adjustment Company.
 Unable to convince Oriental Assurance to pay its claim, Panama filed a Complaint for Damages
against Ever Insurance Agency (allegedly, also liable), Benito Sy Lee Yong and Oriental
Assurance, before the Regional Trial Court, Kalookan, Branch 123.
 After trial on the merit, the RTC rendered its Decision in favor of the petitioner
 On appeal by both parties, respondent Appellate Court affirmed the lower Court judgment in all
respects except for the rate of interest, which was reduce from twelve (12%) to six (6%) per
annum.

Issue:

Whether or not 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

Ruling:.

No.

Perla v CA- The terms of the contract constitute the measure of the insurer 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. The fact that the logs were loaded on two different
barges did not make the contract several and divisible as to the items insured. The logs on the two
barges were not separately valued or separately insured. Only one premium was paid for the entire
shipment, making for only one cause or consideration. The insurance contract must, therefore, be
considered indivisible.”

Also, the insurer's liability was for "total loss only" as stipulated. A total loss may be either actual or
constructive. An actual total loss under Sec 130 of the Insurance Code is caused by:

(a) A total destruction of the thing insured;

(b) The irretrievable loss of the thing by sinking, or by being broken up;

(c) Any damage to the thing which renders it valueless to the owner for the purpose for which he held it;
or

(d) Any other event which effectively deprives the owner of the possession, at the port of destination, of
the thing insured.

A constructive total loss, gives to a person insured a right to abandon and it means:

SECTION 139. 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

The appellate court considered the cargo in one barge as separate from the other and ruled that 497 of
598 was more than ¾ of the amount lost, showing a constructive total loss. The SC, however, said that
although the logs were placed in two barges, they were not separately valued by the policy, nor
separately insured. Of the entirety of 1,208, pieces of logs, only 497 pieces thereof were lost or 41.45%
of the entire shipment. Since the cost of those 497 pieces does not exceed 75% of the value of all 1,208
pieces of logs, the shipment cannot be said to have sustained a constructive total loss under Section
139(a) of the Insurance Code. In the absence of either actual or constructive total loss, there can be no
recovery by the insured Panama against the insurer, Oriental Assurance.

• Keppel Cebu Shipyard, Inc. vs. Pioneer Insurance & Surety Corp., (601 SCRA 96 (2009))

NACHURA, J.

Facts:

 On January 26, 2000, KCSI and WG&A Jebsens Shipmanagement, Inc. executed a Shiprepair
Agreement wherein KCSI would renovate and reconstruct WG&A’s M/V "Superferry 3" using its
dry docking facilities pursuant to its restrictive safety and security rules and regulations.
 Prior to the execution of the Shiprepair Agreement, "Superferry 3" was already insured by
WG&A with Pioneer
  On February 8, 2000, in the course of its repair, M/V "Superferry 3" was gutted by fire. Claiming
that the extent of the damage was pervasive, WG&A declared the vessel’s damage as a "total
constructive loss" and, hence, filed an insurance claim with Pioneer.
 On June 16, 2000, Pioneer paid the insurance claim of WG&A in the amount. WG&A, in turn,
executed a Loss and Subrogation Receipt in favor of Pioneer.
 Armed with the subrogation receipt, Pioneer tried to collect from KCSI, but the latter denied any
responsibility for the loss of the subject vessel.
 As KCSI continuously refused to pay despite repeated demands, Pioneer, filed a Request for
Arbitration before the Construction Industry Arbitration Commission (CIAC)
 KCSI and WG&A reached an amicable settlement, leading the latter to file a Notice of
Withdrawal of Claim on April 17, 2001 with the CIAC. The CIAC granted the withdrawal thereby
dismissing the claim of WG&A against KCSI. Hence, the arbitration proceeded with Pioneer as
the remaining claimant.
 On October 28, 2002, the CIAC rendered its Decision declaring both WG&A and KCSI guilty of
negligence.
 Pioneer appealed to the CA and KCSI likewise filed its own appeal.
 The petition of Pioneer is dismissed while the petition of the Yard is granted.
 Aggrieved, Pioneer sought reconsideration insisting that it suffered from serious errors in the
appreciation of the evidence and from gross misapplication of the law and jurisprudence on
negligence. KCSI, for its part, filed a motion for partial reconsideration of the same Decision.

Issue:

1. Whether or not KCSI is negligent over the fire that broke out on board M/V “Superferry 3”
2. Whether or not there was total constructive loss

Ruling:

RULING:

1. Yes. Undeniably, the immediate cause of the fire was the hot work done by Angelino Sevillejo
(Sevillejo) on the accommodation area of the vessel, specifically on Deck A. As established
before the CIAC –

Pioneer contends that KCSI should be held liable because Sevillejo was its employee who, at the
time the fire broke out, was doing his assigned task, and that KCSI was solely responsible for all the
hot works done on board the vessel. We rule in favor of Pioneer.

At the time of the fire, Sevillejo was an employee of KCSI and was subject to the latter’s direct
control and supervision.There was a lapse in KCSI’s supervision of Sevillejo’s work at the time the
fire broke out.
 KCSI failed to exercise the necessary degree of caution and foresight called for by the circumstances.

The circumstances, taken collectively, yield the inevitable conclusion that Sevillejo was negligent in
the performance of his assigned task. His negligence was the proximate cause of the fire on board
M/V “Superferry 3.” As he was then definitely engaged in the performance of his assigned tasks as
an employee of KCSI, his negligence gave rise to the vicarious liability of his employer43 under
Article 2180 of the Civil Code.

KCSI failed to prove that it exercised the necessary diligence incumbent upon it to rebut the legal
presumption of its negligence in supervising Sevillejo.44 Consequently, it is responsible for the
damages caused by the negligent act of its employee, and its liability is primary and solidary.

2. Yes, there was total constructive loss. In marine insurance, a constructive total loss occurs under
any of the conditions set forth in Section 139 of the Insurance Code, which provides: “a person
insured by a contract of marine insurance may abandon the thing insured, or any particular
portion hereof 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 insured 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;
It cannot be denied that M/V “Superferry 3” suffered widespread damage from the fire that
occurred on February 8, 2000, a covered peril under the marine insurance policies obtained by
WG&A from Pioneer. The estimates given by the three disinterested and qualified shipyards
show that the damage to the ship would exceed P270,000,000.00, or ¾ of the total value of the
policies – P360,000,000.00. These estimates constituted credible and acceptable proof of the
extent of the damage sustained by the vessel.

Considering the extent of the damage, WG&A opted to abandon the ship and claimed the value
of its policies. Pioneer, finding the claim compensable, paid the claim, with WG&A issuing a Loss
and Subrogation Receipt evidencing receipt of the payment of the insurance proceeds from
Pioneer.
The Loss and Subrogation Receipt issued by WG&A to Pioneer is the best evidence of payment
of the insurance proceeds to the former, and no controverting evidence was presented by KCSI
to rebut the presumed authority of the signatory to receive such payment

• Pan Malayan Insurance v. Court of Appeals, (201 SCRA 382)

REGALADO, J.:

Facts:

 On May 22, 1980, FAO ( Food Agricultural Organization) received a formal offer from the Luzon
Stevedoring Corporation (LUZTEVECO) whereby the latter offered to ship the former's aforesaid
 cargo, consisting of 3,000 metric petitions in two lots of rice seeds, to Vietnam Ocean Shipping
Industry in Vaung Tau, Vietnam subject to the terms and conditions indicated in the
corresponding communication.
 On May 28, 1980, FAO wrote LUZTEVECO formally confirming its acceptance of the foregoing
offer in respect of one lot of 1,500 metric petitions winch is the subject of the present action
 The cargo was loaded on board LUZTEVECO Barge and consisted of 34,122 bags of IR-36
certified rice seeds purchased by FAO from the Bureau of Plant Industry .
 On June 12, 1980, the loading was completed and LUZTEVECO issued its Bill of Lading in favor of
FAO.
 The latter then secured insurance coverage in the amount of P5,250,000.00 from petitioner,
Pan Malayan Insurance Corporation.
 On June 16, 1980, FAO gave instructions to LUZTEVECO to leave for Vaung Tau, Vietnam to
deliver the cargo which, by its nature, could not withstand delay because of the inherent risks of
termination and/or spoilage. On the same date, the insurance premium on the shipment was
paid by FAO petitioner.
 On June 23, 1980, FAO was informed by LUZTEVECO that the tugboat and barge carrying FAO's
shipment returned to Manila after leaving on June 16, 1980 and that the shipment again left
Manila for Vaung Tau Vietnam on June 21, 1980 with the barge being towed by a different
tugboat. Since this was an unauthorized deviation, FAO demanded an explanation.
 On June 26, 1980, FAO was advised of the sinking of the barge in the China Sea, hence it
informed petitioner thereof and, later, formally filed its claim under the marine insurance policy.
On July 29, 1980, FAO was informed by LUSTEVECO of the recovery of the lost shipment, for
which reason FAO formally filed its claim with LUZTEVECO for compensation of damage to its
cargo.
 Thereafter, despite repeated demands to replace the same or to pay for the total insured value
in the sum of P5,250,000.00, LUSTEVECO failed and refused to do so. Petitioner likewise failed to
pay for the losses and damages sustained by FAO by reason of its inability to recover the value
of the shipment from LUZTEVECO.

 Petitioner claims that on July 31, 1980 it supposedly engaged the services of Pan Asiatic
Adjustment and Marine Surveying Corporation to investigate and examine the shipment. On
August 4, 1980, J.A. Barroso, Jr. of said corporation reportedly conducted a survey on the
shipment and found that 9,629 bags of rice seeds were in good order, 23,510 bags sustained
wattage of 10% to 15%, and 983 bags were shorthanded or missing.

 After the alleged survey, Barroso, Jr. made a report recommending to petitioner the denial of
FAO's claim because the partial damage suffered by the shipment is not compensable under the
policy. On the basis of said recommendation, petitioner denied FAO's claim.
  Petitioner further avers that upon the request of counsel of FAO, a survey of the shipment was
conducted on September 26, 27 and 29, 1980 by Conrado Catalan, Jr. of Manila Adjusters &
Surveyors Company and he found 6,200 bags in good order condition. At the time of his survey,
23,510 bags of the shipment had allegedly already been sold by LUZTEVECO. Petitioner further
asserts that on September 29, 1980, FAO wrote a letter to petitioner signifying its willingness to
abandon the proceeds of the sale of the 23,510 bags and the remaining good order bags, but
that on October 6, 1980 petitioner rejected FAO's proposed abandonment.

 FAO then instituted a Civil Case against LUZTEVECO and/or herein petitioner, as defendants,
with the Regional Trial Court of Pasig, Metro Manila which, on December 14, 1987, rendered
judgment in favor of FAO.

 Petitioner alone appealed the said decision to respondent Court of Appeals which affirmed the
decision of the trial court except for the award of attorney's fees which was reduced to
P25,000.00.12 Petitioner's motion for reconsideration was denied in respondent court's
resolution of September 3, 1990.

Issue:

(1) Whether or not there is a total loss of the shipment.

Ruling:

Yes. There was actual loss of the goods insured in this case.

The law classifies loss into either total or partial. Total loss may be actual or absolute, or it may
otherwise be constructive or technical. As found by the court below and reproduced with approval by
respondent court, FAO "has never been compensated for this total loss or damage, a fact which is not
denied nor controverted. If there were some cargoes saved, by LUZTEVECO, private respondent
abandoned it and the same was sold or used for the benefit of LUZTEVECO or Pan Malayan Corporation.
Under Sections 129 and 130 of the New Insurance Code, a total loss may either be actual or
constructive. In case of total loss in Marine Insurance, the assured is entitled to recover from the
underwriter the whole amount of his subscription. It will be recalled that said rice seeds were treated
and would germinate upon mere contact with water. The rule is that where the cargo by the process of
decomposition or other chemical agency no longer remains the same kind of thing as before, an actual
total loss has been suffered.

However, the complete physical destruction of the subject matter is not essential to constitute an actual
total loss. Such a loss may exist where the form and specie of the thing is destroyed, although the
materials of which it consisted still exist (Great Western Ins. Co. vs. Fogarty, N.Y., 19 Wall 640, 22 L. Ed.
216), as where the cargo by the process of decomposition or other chemical agency no longer remains
the same kind of thing as before (Williams vs. Cole, 16 Me. 207).23
Moreover, it is undisputed that no replacement whatsoever or any payment, for that matter, of the
value of said lost cargo was made to FAO by petitioner or LUZTEVECO. It is thus clear that FAO suffered
actual total loss under Section 130 of the Insurance Code, specifically under paragraphs (c) and (d)
thereof, recompense for which it has been denied up to the present.

In view of our aforestated holding that there was actual total loss of the goods insured in this case, it is
no longer necessary to pass upon the issue of the validity of the abandonment made by FAO. Section
135 of the Insurance Code explicitly provides that “upon an actual total loss, a person insured is entitled
to payment without notice of abandonment." This is a statutory adoption of a long standing doctrine in
maritime insurance law that in case of actual total loss, the right of the insured to claim the whole
insurance is absolute, without need of a notice of abandonment.

WHEREFORE, the assailed judgment and resolution of respondent Court of Appeals are hereby
AFFIRMED in toto.

• Roque v. IAC, (139 SCRA 596 (1985))

GUTIERREZ, JR., J.:

Facts:

 On February 19, 1972, the Manila Bay Lighterage Corporation , a common carrier, entered into a
contract with the petitioners whereby the former would load and carry on board its barge
Mable 10 about 422.18 cubic meters of logs from Malampaya Sound, Palawan to North Harbor,
Manila. The petitioners insured the logs against loss for P100,000.00 with respondent Pioneer
Insurance and Surety Corporation.
 On February 29, 1972, the petitioners loaded on the barge, 811 pieces of logs at Malampaya
Sound, Palawan for carriage and delivery to North Harbor, Port of Manila, but the shipment
never reached its destination because Mable 10 sank with the 811 pieces of logs somewhere off
Cabuli Point in Palawan on its way to Manila.
 As alleged by the petitioners in their complaint and as found by both the trial and appellate
courts, the barge where the logs were loaded was not seaworthy such that it developed a leak.
The appellate court further found that one of the hatches was left open causing water to enter
the barge and because the barge was not provided with the necessary cover or tarpaulin, the
ordinary splash of sea waves brought more water inside the barge.
 On March 8, 1972, the petitioners wrote a letter to Manila Bay demanding payment of
P150,000.00 for the loss of the shipment plus P100,000.00 as unrealized profits but the latter
ignored the demand.
  Another letter was sent to respondent Pioneer claiming the full amount of P100,000.00 under
the insurance policy but respondent refused to pay on the ground that its hability depended
upon the "Total loss by Total Loss of Vessel only". Hence, petitioners commenced a civil case
against Manila Bay and respondent Pioneer.
 After hearing, the trial court found in favor of the petitioners
 Respondent Pioneer appealed to the Intermediate Appellate Court. Manila Bay did not appeal.
According to the petitioners, the transportation company is no longer doing business and is
without funds.
 During the initial stages of the hearing, Manila Bay informed the trial court that it had salvaged
part of the logs. The court ordered them to be sold to the highest bidder with the funds to be
deposited in a bank.
 On January 30, 1984, the appellate court modified the trial court's decision and absolved
Pioneer from liability after finding that there was a breach of implied warranty of seaworthiness
on the part of the petitioners and that the loss of the insured cargo was caused by the "perils of
the ship" and not by the "perils of the sea". It ruled that the loss is not covered by the marine
insurance policy.

Issue:

1. WON in cases of marine insurance, there is a warranty of seaworthiness by the cargo owner

2. WON the loss of the cargo was due to perils of the sea, not perils of the ship.

Ruling:

Held:

1. Yes, there is. The liability of the insurance company is governed by law. Section 113 of the
Insurance Code provides that “In every marine insurance upon a ship or freight, or freightage, or
upon anything which is the subject of marine insurance, a warranty is implied that the ship is
seaworthy.” Hence, there can be no mistaking the fact that 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.
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.
2. No. By applying Sec. 113 of the Insurance Code, there is no doubt that the term 'perils of the
sea' extends only to losses caused by sea damage, or by the violence of the elements, and does
not embrace all losses happening at sea; it is said to 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. It is also the general rule that
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. 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. In the present case 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 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 results
from the perils of the sea. Suffice it to say that upon the authority of those cases there is no
room to doubt the liability of the ship-owner for such a loss as occurred in this case. By parity of
reasoning the insurer is not liable; for generally speaking, the ship-owner 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. As applied to the present case it results that the owners
of the damaged rice must look to the ship-owner for redress and not to the insurer.
Neither barratry can be used as a ground by Roque. Barratry as defined in American Insurance
Law is "any willful misconduct on the part of master or crew in pursuance of some unlawful or
fraudulent purpose without the consent of the owners, and to the prejudice of the owner's
interest." Barratry necessarily requires a willful and intentional act in its commission. No honest
error of judgment or mere negligence, unless criminally gross, can be barratry. In the case at
bar, there is no finding that the loss was occasioned by the willful or fraudulent acts of the
vessel's crew. There was only simple negligence or lack of skill.

Measure of Indemnity

• PhilHome Ass. Corp. vs. CA, (257 SCRA 468 (1996))