Marine Insurance Cases

FEDEX vs. AHAC and PHILAM INSURANCE COMPANY, INC FACTS: shipper SMITHKLINE USA delivered to carrier Burlington Air Express (BURLINGTON), an agent of [Petitioner] Federal Express Corporation, a shipment of 109 cartons of veterinary biologicals for delivery to consignee SMITHKLINE and French Overseas Company in Makati City. The shipment was covered by Burlington Airway Bill No. 11263825 with the words, ‘REFRIGERATE WHEN NOT IN TRANSIT’ and ‘PERISHABLE’ stamp marked on its face. That same day, Burlington insured the cargoes with American Home Assurance Company (AHAC). The following day, Burlington turned over the custody of said cargoes to FEDEX which transported the same to Manila. The shipments arrived in Manila and were immediately stored at [Cargohaus Inc.’s] warehouse. Prior to the arrival of the cargoes, FEDEX informed GETC Cargo International Corporation, the customs broker hired by the consignee to facilitate the release of its cargoes from the Bureau of Customs, of the impending arrival of its client’s cargoes. 12 days after the cargoes arrived in Manila, DIONEDA, a non-licensed custom’s broker who was assigned by GETC, found out, while he was about to cause the release of the said cargoes, that the same [were] stored only in a room with 2 air conditioners running, to cool the place instead of a refrigerator. DIONEDA, upon instructions from GETC, did not proceed with the withdrawal of the vaccines and instead, samples of the same were taken and brought to the Bureau of Animal Industry of the Department of Agriculture in the Philippines by SMITHKLINE for examination wherein it was discovered that the ‘ELISA reading of vaccinates sera are below the positive reference serum.’ As a consequence of the foregoing result of the veterinary biologics test, SMITHKLINE abandoned the shipment and, declaring ‘total loss’ for the unusable shipment, filed a claim with AHAC through its representative in the Philippines, the Philam Insurance Co., Inc. (PHILAM) which recompensed SMITHKLINE for the whole insured amount. Thereafter, PHILAM filed an action for damages against the FEDEX imputing negligence on either or both of them in the handling of the cargo. Trial ensued and ultimately concluded with the FEDEX being held solidarily liable for the loss. Aggrieved, petitioner appealed to the CA. The appellate court ruled in favor of PHILAM and held that the shipping Receipts were a prima facie proof that the goods had indeed been delivered to the carrier in good condition. ISSUE: Is FEDEX liable for damage to or loss of the insured goods HELD: petition granted. Assailed decision reversed insofar as it pertains to FEDEX Prescription of Claim From the initial proceedings in the trial court up to the present, petitioner has tirelessly pointed out that respondents’ claim and right of action are already barred. Indeed, this fact has never been denied by respondents and is plainly evident from the records. Airway Bill No. 11263825, issued by Burlington as agent of petitioner, states: “6. No action shall be maintained in the case of damage to or partial loss of the shipment unless a written notice, sufficiently describing the goods concerned, the approximate date of the damage or loss, and the details of the claim, is presented by shipper or consignee to an office of Burlington within (14) days from the date the goods are placed at the disposal of the person entitled to delivery, or in the case of total loss (including non-delivery) unless presented within (120) days from the date of issue of the [Airway Bill]. xxx Relevantly, petitioner’s airway bill states: “12./12.1 The person entitled to delivery must make a complaint to the carrier in writing in the case: 12.1.1 of visible damage to the goods, immediately after discovery of the damage and at the latest within fourteen (14) days from receipt of the goods; xxx Article 26 of the Warsaw Convention, on the other hand, provides: Xxx (2) In case of damage, the person entitled to delivery must complain to the carrier forthwith after the discovery of the damage, and, at the latest, within 3 days from the date of receipt in the case of baggage and 7 days from the date of receipt in the case of goods. xx

(3) Every complaint must be made in writing upon the document of transportation or by separate notice in writing dispatched within the times aforesaid. (4)

Failing complaint within the times aforesaid, no action shall lie against the carrier, save in the case of fraud on his part.” xxx

Condition Precedent In this jurisdiction, the filing of a claim with the carrier within the time limitation therefor actually constitutes a condition precedent to the accrual of a right of action against a carrier for loss of or damage to the goods. The shipper or consignee must allege and prove the fulfillment of the condition. If it fails to do so, no right of action against the carrier can accrue in favor of the former. The aforementioned requirement is a reasonable condition precedent; it does not constitute a limitation of action. The requirement of giving notice of loss of or injury to the goods is not an empty formalism. The fundamental reasons for such a stipulation are (1) to inform the carrier that the cargo has been damaged, and that it is being charged with liability therefor; and (2) to give it an opportunity to examine the nature and extent of the injury. “This protects the carrier by affording it an opportunity to make an investigation of a claim while the matter is fresh and easily investigated so as to safeguard itself from false and fraudulent claims. NOTES: as to proper payee: The Certificate specifies that loss of or damage to the insured cargo is “payable to order x x x upon surrender of this Certificate.” Such wording conveys the right of collecting on any such damage or loss, as fully as if the property were covered by a special policy in the name of the holder itself. At the back of the Certificate appears the signature of the representative of Burlington. This document has thus been duly indorsed in blank and is deemed a bearer instrument. Since the Certificate was in the possession of Smithkline, the latter had the right of collecting or of being indemnified for loss of or damage to the insured shipment, as fully as if the property were covered by a special policy in the name of the holder. Hence, being the holder of the Certificate and having an insurable interest in the goods, Smithkline was the proper payee of the insurance proceeds. Subrogation Upon receipt of the insurance proceeds, the consignee (Smithkline) executed a subrogation Receipt in favor of respondents. The latter were thus authorized “to file claims and begin suit against any such carrier, vessel, person, corporation or government.” Undeniably, the consignee had a legal right to receive the goods in the same condition it was delivered for transport to petitioner. If that right was violated, the consignee would have a cause of action against the person responsible therefor.

SULPICIO LINES, INC vs. FIRST LEPANTO-TAISHO INSURANCE CORPORATION

FACTS: Taiyo Yuden Philippines, Inc. (owner of the goods) and Delbros, Inc. (shipper) entered into a contract, evidenced by Bill of Lading issued by the latter in favor of the owner of the goods, for Delbros, Inc. to transport a shipment of goods consisting of 3 wooden crates containing 136 cartons of inductors and LC compound on board the V Singapore V20 from Cebu City to Singapore in favor of the consignee, Taiyo Yuden Singapore Pte, Ltd. For the carriage of said shipment from Cebu City to Manila, Delbros, Inc. engaged the services of the vessel M/V Philippine Princess, owned and operated by petitioner Sulpicio Lines, Inc. (carrier). During the unloading of the shipment, one crate containing 42 cartons dropped from the cargo hatch to the pier apron. The owner of the goods examined the dropped cargo, and upon an alleged finding that the contents of the crate were no longer usable for their intended purpose, they were rejected as a total loss and returned to Cebu City. The owner of the goods filed a claim with herein SULPICIO for the recovery of the value of the rejected cargo which was refused by the latter. Thereafter, the owner of the goods sought payment from respondent FIRST LEPANTO under a marine insurance policy issued to the former. FIRST LEPANTO paid the claim less thirty-five percent (35%) salvage value or P194, 220.31. The payment of the insurance claim of the owner of the goods by FIRST LEPANTO subrogated the latter to whatever right or legal action the owner of the goods may have against Delbros, Inc. and petitioner-carrier, Sulpicio Lines, Inc. Thus, FIRST LEPANTO then filed claims for reimbursement from Delbros, Inc. and petitioner-carrier Sulpicio Lines, Inc. which were subsequently denied. In 1992, FIRST LEPANTO filed a suit for damages with the trial court against Delbros, Inc. and SULPICIO Delbros, Inc. filed on 15 April 1993 its Answer with Counterclaim and Cross-claim, alleging that assuming the contents of the crate in question were truly in bad order, fault is with herein SULPICIO which was responsible for the unloading of the crates. SULPICIO filed its Answer to Delbros, Inc.’s cross-claim asserting that it observed extraordinary diligence in the handling, storage and general care of the shipment and that subsequent inspection of the shipment by the Manila Adjusters and Surveyors Company showed that the contents of the third crate that had fallen were found to be in apparent sound condition, except that “2 cello bags each of 50 pieces ferri inductors No. LC FL 112270K-60 (c) were unaccounted for and missing as per packaging list.” After hearing, the trial court dismissed the complaint for damages as well as the counterclaim filed by therein defendant Sulpicio Lines, Inc. and the cross-claim filed by Delbros, Inc on the grounds that plaintiff has failed to prove its case. The CA reversed the RTC decision and ordered Delbros and Sulpicio Lines to pay, jointly and severally, FIRST LEPANTO the sum of P194,220.31 representing actual damages, plus legal interest counted from the filing of the complaint until fully paid. ISSUE: whether or not, based on the evidence presented during the trial, the owner of the goods, FIRST LEPANTO’S predecessor-in-interest, did incur damages, and if so, whether or not SULPICIO is liable for the same RULING: It cannot be denied that the shipment sustained damage while in the custody of SULPICIO It is not disputed that one of the 3 crates did fall from the cargo hatch to the pier apron while SULPICIO was unloading the cargo from its vessel. Neither is it impugned that upon inspection, it was found that 2 cartons were torn on the side and the top flaps were open and that 2 cello bags, each of 50 pieces ferri inductors, were missing from the cargo. SULPICIO contends that its liability, if any, is only to the extent of the cargo damage or loss and should not include the lack of fitness of the shipment for transport to Singapore due to the damaged packing. This is erroneous. Petitioner-carrier seems to belabor under the misapprehension that a distinction must be made between the cargo packaging and the contents of the cargo. According to it, damage to the packaging is not tantamount to damage to the cargo. It must be stressed that in the case at bar, the damage sustained by the packaging of the cargo while in petitioner-carrier’s custody resulted in its unfitness to be transported to its consignee in Singapore. Such failure to ship the cargo to its final destination because of the ruined packaging, indeed, resulted in damages on the part of the owner of the goods.

The falling of the crate during the unloading is evidence of petitioner-carrier’s negligence in handling the cargo. As a common carrier, it is expected to observe extraordinary diligence in the handling of goods placed in its possession for transport. The standard of extraordinary diligence imposed upon common carriers is considerably more demanding than the standard of ordinary diligence, i.e., the diligence of a good paterfamilias established in respect of the ordinary relations between members of society. A common carrier is

bound to transport its cargo and its passengers safely "as far as human care and foresight can provide, using the utmost diligence of a very cautious person, with due regard to all circumstances.” The extraordinary diligence in the vigilance over the goods tendered for shipment requires the common carrier to know and to follow the required precaution for avoiding the damage to, or destruction of, the goods entrusted to it for safe carriage and delivery. It requires common carriers to render service with the greatest skill and foresight and “to use all reasonable means to ascertain the nature and characteristic of goods tendered for shipment, and to exercise due care in the handling and stowage, including such methods as their nature requires.” Thus, when the shipment suffered damages as it was being unloaded, petitioner-carrier is presumed to have been negligent in the handling of the damaged cargo. Under Articles 1735 and 1752 of the Civil Code, common carriers are presumed to have been at fault or to have acted negligently in case the goods transported by them are lost, destroyed or had deteriorated. To overcome the presumption of liability for loss, destruction or deterioration of goods under Article 1735, the common carrier must prove that they observed extraordinary diligence as required in Article 1733 of the Civil Code. SULPICIO miserably failed to adduce any shred of evidence of the required extraordinary diligence to overcome the presumption that it was negligent in transporting the cargo. Coming now to the issue of the extent of SULPICIO’S liability, it is undisputed that FIRST LEPANTO paid the owner of the goods under the insurance policy the amount of P194,220.31 for the alleged damages the latter has incurred. Neither is there dispute as to the fact that DELBROS. paid P194,220.31 to FIRST LEPANTO in satisfaction of the whole amount of the judgment rendered by the Court of Appeals. The question then is: To what extent is SULPICIO as common carrier, liable for the damages suffered by the owner of the goods? Upon FRIST LEPANTO’S payment of the alleged amount of loss suffered by the insured (the owner of the goods), FIRST LEPANTO is entitled to be subrogated pro tanto to any right of action which the insured may have against the common carrier whose negligence or wrongful act caused the loss. Subrogation is the substitution of one person in the place of another with reference to a lawful claim or right, so that he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or securities.The rights to which the subrogee succeeds are the same as, but not greater than, those of the person for whom he is substituted, that is, he cannot acquire any claim, security or remedy the subrogor did not have. In other words, a subrogee cannot succeed to a right not possessed by the subrogor. A subrogee in effect steps into the shoes of the insured and can recover only if the insured likewise could have recovered. As found by the Court of Appeals, there was damage suffered by the goods which consisted in the destruction of one wooden crate and the tearing of two (2) cardboard boxes therein which rendered them unfit to be sent to Singapore. The falling of the crate was negligence on the part of Sulpicio Lines, Inc. for which it cannot exculpate itself from liability because it failed to prove that it exercised extraordinary diligence. Hence, we uphold the ruling of the appellate court that herein SULPICIO is liable to pay the amount paid by FIRST LEPANTO for the damages sustained by the owner of the goods. As stated in the manifestation filed by Delbros, Inc., however, FIRST LEPANTO had already been paid the full amount granted by the Court of Appeals, hence, it will be tantamount to unjust enrichment for FIRST LEPANTO to again recover damages from herein SULPICIO With respect to Delbros, Inc.’s prayer contained in its manifestation that, in case the decision in the instant case be adverse to SULPICIO, a pronouncement as to the matter of reimbursement, indemnification or contribution in favor of Delbros, Inc. be included in the decision, this Court will not pass upon said issue since Delbros, Inc. has no personality before this Court, it not being a party to the instant case. Notwithstanding, this shall not bar any action Delbros, Inc. may institute against petitioner-carrier Sulpicio Lines, Inc. with respect to the damages the latter is liable to pay. WHEREFORE, premises considered, the assailed Decision of the Court of Appeals dated 26 May 1999 and its Resolution dated 13 October 1999 are hereby AFFIRMED. No costs.

AMERICAN HOME ASSURANCE V TANTUCO

INSURANCE LAW: Liberality is the rule of construction in insurance contracts. Tantuco Enterprises, Inc. is a coconut oil milling and refining company. It owned two mills (the first oil mill and a new one), both located at its factory compound at Iyam, Lucena City. The two oil mills are separately covered by fire insurance policies issued by American Home Assurance Co. On Sept. 30, 1991, a fire broke out and gutted and consumed the new oil mill. American Home rejected the claim for the insurance proceeds on the ground that no policy was issued by it covering the burned oil mill. It stated that the new oil mill was under Building No. 15 while the insurance coverage extended only to the oil mill under Building No. 5. ISSUE: Whether or not the new oil mill is covered by the fire insurance policy HELD: In construing the words used descriptive of a building insured, the greatest liberality is shown by the courts in giving effect to the insurance. In view of the custom of insurance agents to examine buildings before writing policies upon them, and since a mistake as to the identity and character of the building is extremely unlikely, the courts are inclined to consider the policy of insurance covers any building which the parties manifestly intended to insure, however inaccurate the description may be. Notwithstanding, therefore, the misdescription in the policy, it is beyond dispute, to our mind, that what the parties manifestly intended to insure was the new oil mill. If the parties really intended to protect the first oil mill, then there is no need to specify it as new. Indeed, it would be absurd to assume that the respondent would protect its first oil mill for different amounts and leave uncovered its second one.

DELSAN TRANSPORT LINES, INC. VS. CA ET.AL. Facts: Caltex Phil. entered into a contract of affreightment with the petitioner, Delsan Transport Lines, Inc. for a period of one year whereby the DELSAN agreed to transport Caltex industrial fuel oil from Batangas refinery to different parts of the country. On August 14, 1986, MT Maysun set sail for Zamboanga City but unfortunately the vessel sank in the early morning of August 16, 1986 near Panay Gulf. The shipment was insured with the private respondent, American Home Assurance Corporation (AHAC). Subsequently, AHAC paid Caltex the sum of Php.5,096,635.57. Exercising its right of subrogation under Art. 2207, NCC, AHAC demanded from the DELSAN the same amount paid to CALTEX. Due to its failure to collect from the DELSAN, AHAC filed a complaint with the RTC of Makati City TC: (RULED AGAINST AHAC) dismissed the complaint, finding the vessel to be seaworthy and that the incident was due to a force majeure, thus exempting the petitioner from liability. It held that the vessel, MT Maysun, was seaworthy to

undertake the voyage as determined by the Philippine Coast Guard per Survey Certificate Report CA: Reversed TC. (RULED IN FAVOR OF AHAC) giving credence to the report of PAGASA that the weather was normal and that it was impossible for the vessel to sink. DELSAN avers that the provision of Section 113 of the Insurance Code of the Philippines, which states

that in every marine insurance upon a ship or freight, or freightage, or upon any thing which is the subject of marine insurance there is an implied warranty by the shipper that the ship is seaworthy. Consequently, the insurer will not be liable to the assured for any loss under the policy in case the vessel would later on be found as not seaworthy at the inception of the insurance. It theorized that when private respondent paid Caltex the value of its lost cargo, the act of the private respondent is equivalent to a tacit recognition that the ill-fated vessel was seaworthy; otherwise, private respondent was not legally liable to Caltex due to the latter’s breach of implied warranty under the marine insurance policy that the vessel was seaworthy.

DELSAN also avers that Under Section 116 of the Insurance Code of the Philippines, the implied warranty of seaworthiness of the vessel, which the private respondent admitted as having been fulfilled by its payment of the insurance proceeds to Caltex of its lost cargo, extends to the vessel’s complement. Besides, petitioner avers that although Berina had merely a 2 nd officer’s license, he was qualified to act as the vessel’s chief officer under Chapter IV(403), Category III(a) (3)(ii)(aa) of the Philippine Merchant Marine Rules and Regulations.

Issue: Whether or not the payment made by AHAC 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 DELSAN NO

The payment made by AHAC for the insured value of the lost cargo operates as waiver of its (AHAC) 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.[8] Article 2207 of the New Civil Code provides that: Held:

Art. 2207. If the plaintiff’s property has been insured, and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury. Subrogation accrues simply upon payment by the insurance company of the insurance claim.[10]Consequently, the payment made by the AHAC to Caltex operates as an equitable assignment to the former of all the remedies which the latter may have against DELSAN. DELSAN’S contention that the accident was brought about by force majeure was rebutted by PAG-ASA who held that there was no squall or bad weather or extremely poor sea condition in the vicinity when the said vessel sank.

Seaworthiness relates to a vessel’s actual condition. Neither the granting of classification or the issuance of certificates establishes seaworthiness. The presentation in evidence of the marine insurance policy is not indispensable in this case. The subrogation receipt, by itself, is sufficient to establish not only the relationship of herein private respondent as insurer and Caltex, as the assured shipper of the lost cargo of industrial fuel oil, but also the amount paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the insurance company of the insurance claim

PRUDENTIAL GUARANTEE and ASSURANCE INC., vs. TRANS-ASIA SHIPPING LINES, INC Principle found in the case: a warranty is a statement or promise set forth in the policy, or by reference incorporated therein, the untruth or non-fulfillment of which in any respect, and without reference to whether the insurer was in fact prejudiced by such untruth or non-fulfillment, renders the policy voidable by the insurer. However it must be first duly proven by the one who alleges that there was a breach of warranty. Facts: TRANS-ASIA is the owner of the vessel M/V Asia Korea. In consideration of payment of premiums, PRUDENTIAL insured M/V Asia Korea for loss/damage of the hull and machinery arising from perils, inter alia, of fire and explosion for the sum of P40 Million, beginning from the period of July 1, 1993 up to July 1, 1994. On October 25, 1993, while the policy was in force, a fire broke out while [M/V Asia Korea was] undergoing repairs at the port of Cebu. On October 26, 1993 TRANS-ASIA filed its notice of claim for damage sustained by the vessel evidenced by a letter/formal claim. TRANS-ASIA reserved its right to subsequently notify PRUDENTIAL as to the full amount of the claim upon final survey and determination by average adjuster Richard Hogg International (Phil.) of the damage sustained by reason of fire. TRANS-ASIA executed a document denominated "Loan and Trust receipt", a portion of which states that “Received from Prudential Guarantee and Assurance, Inc., the sum of PESOS THREE MILLION ONLY (P3,000,000.00) as a loan without interest under Policy No. MH 93/1353 [sic], repayable only in the event and to the extent that any net recovery is made by Trans-Asia Shipping Corporation, from any person or persons, corporation or corporations, or other parties, on account of loss by any casualty for which they may be liable occasioned by the 25 October 1993: Fire on Board." PRUDENTIAL later on denied Trans-Asia’s claim in stated in a letter that "After a careful review and evaluation of your claim arising from the above-captioned incident, it has been ascertained that you are in breach of policy conditions, among them "WARRANTED VESSEL CLASSED AND CLASS MAINTAINED". Accordingly, we regret to advise that your claim is not compensable and hereby DENIED." and asked for the return of the 3,000,000. TRANS-ASIA filed a Complaint for Sum of Money against PRUDENTIAL with the RTC of Cebu City, wherein TRANS-ASIA sought the amount of P8,395,072.26 from PRUDENTIAL, alleging that the same represents the balance of the indemnity due upon the insurance policy in the total amount of P11,395,072.26. TRANS-ASIA similarly sought interest at 42% per annum citing Section 243 of Presidential Decreee No. 1460, otherwise known as the "Insurance Code," as amended. PRUDENTIAL denied the material allegations of the Complaint and interposed the defense that TRANS-ASIA breached insurance policy conditions, in particular: PRUDENTIAL posits that TRANS-ASIA violated an express and material warranty in the subject insurance contract, i.e., Marine Insurance Policy No. MH93/1363, specifically Warranty Clause No. 5 thereof, which stipulates that the insured vessel, "M/V ASIA KOREA" is required to be CLASSED AND CLASS MAINTAINED. According to PRUDENTIAL, on 25 October 1993, or at the time of the occurrence of the fire, "M/V ASIA KOREA" was in violation of the warranty as it was not CLASSED AND CLASS MAINTAINED. PRUDENTIAL submits that Warranty Clause No. 5 was a condition precedent to the recovery of TRANS-ASIA under the policy, the violation of which entitled PRUDENTIAL to rescind the contract under Sec. 74 of the Insurance Code. By way of a counterclaim, PRUDENTIAL sought a refund of P3,000,000.00, which it allegedly advanced to TRANS-ASIA by way of a loan without interest and without prejudice to the final evaluation of the claim, including the amounts of P500,000.00, for survey fees and P200,000.00, representing attorney’s fees. Trial court ruled in favor of Prudential. It ruled that a determination of the parties’ liabilities hinged on whether TRANS-ASIA violated and breached the policy conditions on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED. It interpreted the provision to mean that TRANS-ASIA is required to maintain the vessel at a certain class at all times pertinent during the life of the policy. According to the court a quo, TRANS-ASIA failed to prove compliance of the terms of the warranty, the violation thereof entitled PRUDENTIAL to rescind the contract. The court of appeals reversed the decision. It ruled that PRUDENTIAL, as the party asserting the non-compensability of the loss had the burden of proof to show that TRANS-ASIA breached the warranty, which burden it failed to discharge. PRUDENTIAL cannot rely

on the lack of certification to the effect that TRANS-ASIA was CLASSED AND CLASS MAINTAINED as its sole basis for reaching the conclusion that the warranty was breached. It opined that the lack of a certification does not necessarily mean that the warranty was breached by TRANS-ASIA. Instead, it considered PRUDENTIAL’s admission that at the time the insurance contract was entered into between the parties, the vessel was properly classed by Bureau Veritas, a classification society recognized by the industry. It similarly gave weight to the fact that it was the responsibility of Richards Hogg International (Phils.) Inc., the average adjuster hired by PRUDENTIAL, to secure a copy of such certification to support its conclusion that mere absence of a certification does not warrant denial of TRANS-ASIA’s claim under the insurance policy. Issue: WON Trans-Asia breached the warranty stated in the insurance policy, thus absolving Prudential from paying TransAsia. Ruling: No. As found by the Court of Appeals and as supported by the records, Bureau Veritas is a classification society recognized in the marine industry. As it is undisputed that TRANS-ASIA was properly classed at the time the contract of insurance was entered into, thus, it becomes incumbent upon PRUDENTIAL to show evidence that the status of TRANS-ASIA as being properly CLASSED by Bureau Veritas had shifted in violation of the warranty. Unfortunately, PRUDENTIAL failed to support the allegation. The lack of a certification in PRUDENTIAL’s records to the effect that TRANS-ASIA’s "M/V Asia Korea" was CLASSED AND CLASS MAINTAINED at the time of the occurrence of the fire cannot be tantamount to the conclusion that TRANS-ASIA in fact breached the warranty contained in the policy. It was likewise the responsibility of the average adjuster, Richards Hogg International (Phils.), Inc., to secure a copy of such certification, and the alleged breach of TRANS-ASIA cannot be gleaned from the average adjuster’s survey report, or adjustment of particular average per "M/V Asia Korea" of the 25 October 1993 fire on board. The Supreme Court is not unmindful of the clear language of Sec. 74 of the Insurance Code which provides that, "the violation of a material warranty, or other material provision of a policy on the part of either party thereto, entitles the other to rescind." It is generally accepted that "a warranty is a statement or promise set forth in the policy, or by reference incorporated therein, the untruth or nonfulfillment of which in any respect, and without reference to whether the insurer was in fact prejudiced by such untruth or nonfulfillment, renders the policy voidable by the insurer." However, it is similarly indubitable that for the breach of a warranty to avoid a policy, the same must be duly shown by the party alleging the same. We cannot sustain an allegation that is unfounded. Consequently, PRUDENTIAL, not having shown that TRANSASIA breached the warranty condition, CLASSED AND CLASS MAINTAINED, it remains that TRANS-ASIA must be allowed to recover its rightful claims on the policy. Assuming arguendo that TRANS-ASIA violated the policy condition on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED, PRUDENTIAL made a valid waiver of the same. PRUDENTIAL can be deemed to have made a valid waiver of TRANS-ASIA’s breach of warranty as alleged. Because after the loss, Prudential renewed the insurance policy of Trans-Asia for two (2) consecutive years, from noon of 01 July 1994 to noon of 01 July 1995, and then again until noon of 01 July 1996. This renewal is deemed a waiver of any breach of warranty. PRUDENTIAL, in renewing TRANS-ASIA’s insurance policy for two consecutive years after the loss covered by Policy No. MH93/1363, was considered to have waived TRANS-ASIA’s breach of the subject warranty, if any. Breach of a warranty or of a condition renders the contract defeasible at the option of the insurer; but if he so elects, he may waive his privilege and power to rescind by the mere expression of an intention so to do. In that event his liability under the policy continues as before. There can be no clearer intention of the waiver of the alleged breach than the renewal of the policy insurance granted by PRUDENTIAL to TRANSASIA in MH94/1595 and MH95/1788, issued in the years 1994 and 1995, respectively.

La Razon Social "Go Tiaoco y Hermanos" vs. Union Insurance Society of Canton Ltd. Facts: A cargo of rice belonging to the Go Tiaoco Brothers, was transported in the early days of May, 1915, on the steamship Hondagua from the port of Saigon to Cebu. On discharging the rice from one of the compartments in the after hold, upon arrival at Cebu, it was discovered that 1,473 sacks had been damaged by sea water. The loss so resulting to the owners of rice, after proper deduction had been made for the portion saved, was P3,875. The policy of insurance, covering the shipment, was signed upon a form long in use among companies engaged in maritime insurance. It purports to insure the cargo from the following among other risks: "Perils . . . of the seas, men, of war, fire, enemies, pirates, rovers, thieves, .jettisons, . . . barratry of the master and mariners, and of all other perils, losses, and misfortunes that have or shall come to the hurt, detriment, or damage of the said goods and merchandise or any part thereof." It was found out that the drain pipe which served as a discharge from the water closet passed down through the compartment where the rice in question was stowed and thence out to sea through the wall of the compartment, which was a part of the wall of the ship. The joint or elbow where the pipe changed its direction was of cast iron; and in course of time it had become corroded and abraded until a longitudinal opening had appeared in the pipe about one inch in length. This hole had been in existence before the voyage was begun, and an attempt had been made to repair it by filling with cement and bolting over it a strip of iron. The effect of loading the boat was to submerge the vent, or orifice, of the pipe until it was about 18 inches or 2 feet below the level of the sea. As a consequence the sea water rose in the pipe. Navigation under these conditions resulted in the washing out of the cementfilling from the action of the sea water, thus permitting the continued flow of the salt water into the compartment of rice. An action on a policy of marine insurance issued by the Union Insurance Society of Canton, Ltd., upon the cargo of rice belonging to the Go Tiaoco Brothers was filed. The trial court found that the inflow of the sea water during the voyage was due to a defect in one of the drain pipes of the ship and concluded that the loss was not covered by the policy of insurance. Judgment was accordingly entered in favor of Union Insurance and Go Tiaoco Brothers appealed. Issue [1]: Whether perils of the sea includes “entrance of water into the ship’s hold through a defective pipe.” Held [1]: NO. It is determined that the words "all other perils, losses, and misfortunes" are to be interpreted as covering risks which are of like kind (ejusdem generis) with the particular risks which are enumerated in the preceding part of the same clause of the contract. According to the ordinary rules of construction these words must be interpreted with reference to the words which immediately precede them. They were no doubt inserted in order to prevent disputes founded on nice distinctions. Their office is to cover in terms whatever may be within the spirit of the cases previously enumerated, and so they have a greater or less effect as a narrower or broader view is taken of those cases. For example, if the expression "perils of the seas" is given its widest sense the general words have little or no effect as applied to that case. If on the other hand that expression is to receive a limited construction and loss by perils of the seas is to be confined to loss ex marine tempestatis discrimine, the general words become most important. But still, when they first became the subject of judicial construction, they have always been held or assumed to be restricted to cases "akin to" or "resembling" or "of the same kind as" those specially mentioned. I see no reason for departing from this settled rule. In marine insurance it is above all things necessary to abide by settled rules and to avoid anything like novel refinements or a new departure. 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 towhat 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. There must, in order to make the insurer liable, be "some casualty, something which could not be foreseen as one of the necessary incidents of the adventure. The purpose of the policy is to secure an indemnity against accidents which may happen, not against events which must happen." Herein, 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 perils of the sea.

Issue [2]: Whether there is an implied warranty on the seaworthy of the vessel in every marine insurance contract. Held [2]: YES. It is universally accepted that in every contract of insurance upon anything which is the subject of marine insurance, a warranty is implied that the ship shall be seaworthy at the time of the inception of the voyage. This rule is accepted in our own Insurance Law (Act No. 2427, sec. 106). It is also well settled that a ship which is seaworthy for the purpose of insurance upon the ship may yet be unseaworthy for the purpose of insurance upon the cargo (Act No. 2427, sec. 106).

Malayan Insurance Corp vs CA 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. Issues: 1. WON the arrest of the vessel was a risk covered under the subject insurance policies. - YES 2. WON the insurance policies must strictly construed against the insurer. - YES Held: Yes. Yes. Petition dismissed. 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.” 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.”

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.

Filipino Merchants Insurance Co. Inc. vs. Court of Appeals Facts: In December 1976, Choa Tiek Seng insured said shipment with Filipino Merchants Insurance Company (FMICI) under cargo Policy M-2678 for the sum of P267,653.59 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. Actually, what was imported was 59.940 metric tons not 600 tons at $395.42 a ton CNF Manila. The fishmeal in 666 new gunny bags were unloaded from the ship on 11 December 1976 at Manila unto the arrastre contractor E. Razon, Inc. and FMICI'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 condition of the bad order was reflected in the turn over survey report of Bad Order cargoes 120320 to 120322, consisting of 3 pages. 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 Certificates 14859, 14863 and 14869 covering a total of 227 bags in bad order condition. FMICI'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, Choa made a formal claim against FMICI for P51,568.62 the computation of which claim is contained therein. A formal claim statement was also presented by the Choa against the vessel dated 21 December 1976, but FMICI refused to pay the claim. Consequently, an action was brought by the consignee (Choa Tiek Seng) of the shipment of fishmeal loaded on board the vessel SS Bougainville and unloaded at the Port of Manila on or about 11 December 1976 and seeks to recover from FMICI the amount of P51,568.62 representing damages to said shipment which has been insured by FMICI under Policy M-2678. FMICI brought a third party complaint against third party defendants Compagnie Maritime Des Chargeurs Reunis and/or E. Razon, Inc. seeking judgment against the third party defendants in case judgment is rendered against FMICI. The court below, after trial on the merits, rendered judgment in favor of Choa, ordering FMICI to pay Choa the sum of P51,568.62 with interest at legal rate from the date of the filing of the complaint; and, on the third party complaint, the third party defendant Compagnie Maritime Des Chargeurs Reunis and third party defendant E. Razon, Inc. are ordered to pay FMICI jointly and severally reimbursement of the amounts paid by FMICI with legal interest from the date of such payment until the date of such reimbursement; without pronouncement as to costs. On appeal, and on 18 July 1988, the Court of Appeals 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 FMICI filed the petition for review. Issue [1]: Whether 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. Held [1]: NO. The "all risks clause" of the Institute Cargo Clauses read as follows "5. This insurance is against all risks of logs or damage to the subject-matter insured but shall in no case be deemed to extend to cover loss, damage, or expense proximately caused by delay or inherent vice or nature of the subject-matter insured. Claims recoverable hereunder shall be payable irrespective of percentage." An "all risks policy" should be read literally as meaning all risks whatsoever and covering all losses by an accidental cause of any kind. The terms "accident" and "accidental", as used in insurance contracts, have not acquired any technical meaning. They are construed by the courts in their ordinary and common acceptance. Thus, the terms have been taken to mean that which happens by chance or fortuitously, without intention and design, and which isunexpected, unusual and unforeseen. An accident is an event that takes place without one's foresight or expectation; an event that proceeds from an unknown cause, or is an unusual effect of a known cause and, therefore, not expected. The very nature of the term "all risks" must be given a broad and comprehensive meaning as covering any loss other than a wilful and fraudulent act of the insured. This is pursuant to the very purpose of an "all risks" insurance to give protection to the insured in those cases where difficulties of logical explanation or some mystery surround the loss or damage to property. An "all risks" policy has been evolved to grant greater protection than that afforded by the "perils clause," in order to assure that no loss can happen through the incidence of a cause neither insured against nor

creating liability in the ship; it is written against all losses, that is, attributable to external causes. The term "all risks" cannot be given a strained technical meaning, the language of the clause under the Institute Cargo Clauses being unequivocal and clear, to the effect that it extends to all damages/losses suffered by the insured cargo except (a) loss or damage or expense proximately caused by delay, and (b) loss or damage or expense proximately caused by the inherent vice or nature of the subject matter insured. Issue [2]: Whether the failure of Choa 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. Held [2]: NO. Although generally, the burden of proof is upon the insured to show that a loss arose from a covered peril, under an "all risks" policy the burden is not on the insured to prove the precise cause of loss or damage for which it seeks compensation. The insured under an "all risks insurance policy" has the initial burden of proving that the cargo was in good condition when the policy attached and that the cargo was damaged when unloaded from the vessel; thereafter, the burden then shifts to the insurer to show the exception to the coverage. As held in Paris-Manila Perfumery Co. vs. Phoenix Assurance Co., Ltd. the basic rule is that the insurance company has the burden of proving that the loss is caused by the risks excepted and for want of such proof, the company is liable. 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. Issue [3]: Whether the insurer is liable Held [3]: There being no showing that the loss was caused by any of the excepted perils, the insurer is liable under the policy. It is believed that in the absence of any showing that the losses/damages were caused by an excepted peril, i.e. delay or the inherent vice or nature of the subject matter insured, and there is no such showing, the loss was covered by the policy. Herein, 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 (See Berk vs. Style [1956] cited in Marine Insurance Claims, p. 125). 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. Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the policy. The agreement has the force of law between the parties. The terms of the policy constitute the measure of the insurer's liability. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense. Issue [4]: Whether the consignee (Choa) has an insurable interest in said goods. Held [4]: Choa, 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. 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 the present 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 thebuyer 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.