Malayan

Insurance Corp
vs CA G.R.
119599 March
20, 1997

Report by: Regina

Asejo
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Facts:
 TKC Marketing imported 3,000 metric tons of soya from Brazil to Manila. It
was insured by Malayan at the value of almost 20 million pesos. The vessel,
however, was stranded on South Africa because of a lawsuit regarding the
possession of the soya. TKC consulted Malayan on recovery of the amount,
but the latter claimed that it wasn’t covered by the policy. The soya was sold
in Africa for Php 10 million, but TKC wanted Malayan to shoulder the
remaining value of 10 million as well.
 Petitioner filed suit due to Malayan’s reticence to pay. Malayan claimed that
arrest by civil authorities wasn’t covered by the policy. The trial court ruled in
TKC’s favor with damages to boot. The appellate court affirmed the decision
under the reason that clause 12 of the policy regarding an excepted risk due
to arrest by civil authorities was deleted by Section 1.1 of the Institute War
Clauses which covered ordinary arrests by civil authorities. Failure of the
cargo to arrive was also covered by the Theft, Pilferage, and Non-delivery
Clause of the contract. Hence this petition.
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Issues:
1. WON the arrest of the vessel was a risk covered under the subject
insurance policies.
2. WON the insurance policies must strictly construed against the insurer.

Held: Yes. Yes. Petition dismissed.

Ratio:
1. Section 12 or the "Free from Capture & Seizure Clause" states: "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.”
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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.
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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."
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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.”
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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. A contract of insurance, being a contract
of adhesion, means that any ambiguity should be resolved
against the insurer.
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Sec. 130. An actual total loss is caused by:

(a) A total destruction of the thing
(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.