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February 25, 1982 | De Castro, J.

Policies, Parties Thereto, Rights Thereon > Coverage Notes

DOCTRINE: If a loss occurs during the period covered by a cover note and an insurance policy is later on
given accounting for loss during the cover notes, the insurance company is still liable by virtue of the of the
cover note.
CASE SUMMARY: Pacific obtained marine insurance from Workmen’s Insurance for the importation of logs.
The latter issued a Cover Note for the said insurance. However, before the issuance of the policy, the logs
were loss during loading.

 (March 19, 1963) Pacific Timber obtained temporary insurance from Workmen’s Insurance for the
exportation of 1,250,000 board feet of Philippine Lauan and Apitong logs from Diapitan, Quezon to
Okinawa and Tokyo. Workmen’s Insurance issued a Cover Note insuring the said cargo subject to the
Terms and Conditions to be printed in the policy.
 (March 29, 1963 [i.e., after issuance of Cover Note, before issuance of Policy]) Some of the logs
intended to be exported were lost during loading operations in the Diapitan Bay.
 (April 2, 1963) Workmen’s Insurance issued 2 marine policies for the above transaction.
 Pacific Timber informed Workmen’s Insurance about the loss in a letter. But, Workmen’s Insurance
denied the claim on the following grounds: 1. investigation revealed that the entire shipment of logs
were received in good order at point of destination; and 2. the said Note had become ‘null and void by
virtue of the issuance of marine policies.
 [CFI] Ordered Workmen’s Insurance to pay Pacific Timber of the assessed amount of loss plus
 [CA] Set aside CFI’s decision. There was no valuable consideration because there was no payment of

ISSUE: W/N Pacific Timber can claim from Workmen’s Insurance the amount of the lost logs despite the fact
that the loss occurred after the issuance of the cover note but before the issuance of the policies? YES!

 The Court found that Cover Note 1010 was issued with consideration when, by express stipulation, the
cover note was made subject to the terms and condition of the marine policies, and the payment of
premiums is one of the terms of the policies. Nevertheless, it is undisputed that Pacific Timber paid all
the premiums on the two marine insurance policies, thereby leaving no account unpaid due on the
insurance coverage, which must be deemed to include the Cover Note.
 The fact that no separate premium was paid on the Cover Note before the loss insured against
occurred, does not militate against the validity of petitioner’s contention, for no such premium could
have been paid, since all Cover Notes do not contain particulars of the shipment that would serve as
basis for the computation of the premiums.
 If the Note is to be treated as a separate policy instead of integrating it to the regular policies
subsequently issued, the purpose and function of the Cover Note would be set at naught or rendered
meaningless, for it is in a real sense a contract, not a mere application for insurance which is a mere
 For obvious reasons, it was not necessary to ask petitioner to pay premium on the Cover Note, for the
loss insured against having already occurred, the more practical procedure is simply to deduct the
premium from the amount due the petitioner on the Cover Note.
 The non-payment of premium on the Cover Note is, therefore, no cause for the petitioner to lose what is
due it as if there had been payment of premium, for non-payment by it was not chargeable against its
 It is true that the issued marine insurance policies covered only logs lost during transit and not logs lost
during loading. However, this makes no difference insofar as the liability on the Cover Note is
concerned because the number of logs lost can be determined independently and in fact it had been
determined at the instance of Workmen’s Insurance itself when it sent its own adjuster. The adjuster
even went as far as computing the liability on the basis of the Cover Note.

DISPOSITION: ACCORDINGLY, the appealed decision is set aside and the decision of the Court of First
Instance is reinstated in toto with the affirmance of this Court. No special pronouncement as to costs.

RELEVANT PROVISIONS CITED: (Sec. 52 is not cited in the case, but is cited in the course outline)
Sec. 52, IC: “Cover notes may be issued to bind insurance temporarily pending the issuance of the
policy. Within sixty (60) days after issue of a cover note, a policy shall be issued in lieu thereof, including
within its terms the identical insurance bound under the cover note and the premium therefor. xxx”