CASE FACTS
1.MALAYAN Private respondent TKC Marketing Corp. was the owner/consignee of
INSURANCE some 3,189.171 metric tons of soya bean meal which was loaded on board
CORPORATION, the ship MV Al Kaziemah on or about September 8, 1989 for carriage from
petitioner, the port of Rio del Grande, Brazil, to the port of Manila.
vs.
THE HON. Said cargo was insured against the risk of loss by petitioner Malayan
COURT OF Insurance Corporation for which it issued two (2) Marine Cargo policy
APPEALS and Nos. M/LP 97800305 amounting to P18,986,902.45 and M/LP 97800306
TKC
amounting to P1,195,005.45, both dated September 1989.
MARKETING
CORPORATION, r
While the vessel was docked in Durban, South Africa on September 11,
espondents.
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.
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.
RTC: ruled in TKC’s favor with damages to boot.
CA: 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.
1. 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.
2. 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.
3. 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.
ISSUE
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.
RULING
This Court cannot agree with petitioner's assertions particularly
when it alleges that in the "Perils" Clause, it assumed the risk of
arrest caused solely by executive or political acts of the
government of the seizing state and thereby excludes "arrests"
caused by ordinary legal processes, such as in the instant case.
1. With the incorporation of subsection 1.1 of Section 1 of
the Institute War Clauses, however, this Court 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.
2. 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."
. 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. 6 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.
3. If a marine insurance company desires to limit or
restrict the operation of the general provisions of its
contract by special proviso, exception, or exemption, it
should express such limitation in clear and
unmistakable language. 13 Obviously, the deletion of
 4. 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.
5. 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,
6. 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.
2.La Razon Social This is an action on a policy of marine insurance issued by the Union
Go Taioco Y Insurance Society of Canton, Ltd., upon a cargo of rice belonging to the
Hermanos vs plaintiffs, Go Tiaoco Brothers, which was transported in the early days of
Union Insurance May, 1915, on the steamshipHondagua from the port of Saigon to Cebu.
Society of Canton
Ltd G.R. No. 13983
On discharging the rice from one of the compartments in the after hold,
September 1, 1919
upon arrival at Cebu, it was discovered that one thousand four hundred
seventy-three(1473) sacks and been damages by sea water.
RTC: 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.
1. court found in effect that the opening above described had
resulted in course of time from ordinary wear and tear and not
from the straining of the ship in rough weather on that voyage
2. repairs that had been made on the pipe were slovenly and
defective and that, by reason of the condition of this pipe, the
ship was not properly equipped to receive the rice at the time the
voyage was begun. For this reason the court held that the ship
was unseaworthy.
WON was due to the “perils of
the sea”
WON the vessel is seaworthy
the F.C. & S. Clause and the consequent incorporation
of subsection 1.1 of Section 1 of the Institute War
Clauses (Cargo) gave rise to ambiguity. If the risk of
arrest occasioned by ordinary judicial process was
expressly indicated as an exception in the subject
policies, there would have been no controversy with
respect to the interpretation of the subject clauses.
trial court committed no error in absolving the defendant from
the complaint.
In the first place 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
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."

3. CATHAY a complaint filed by private respondent corporation against petitioner
INSURANCE (then defendant) company seeking collection of the sum of P868,339.15
CO., petitioner, representing private respondent's losses and damages incurred in a
vs. shipment of seamless steel pipes under an insurance contract in favor of
HON. COURT OF the said private respondent as the insured, consignee or importer of
APPEALS, and aforesaid merchandise while in transit from Japan to the Philippines on
REMINGTON board vessel SS "Eastern Mariner." The total value of the shipment was
INDUSTRIAL P2,894,463.83 at the prevailing rate of P7.95 to a dollar in June and July
SALES 1984, when the shipment was made.
CORPORATION, r
espondents. TRIAL COURT:
trial court decided in favor of private respondent corporation by:
 ordering petitioner to pay it the sum of P866,339.15 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
aforecited 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.
WON the rusting of the 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
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 perils of the sea.
NO MERIT IN THE PETITION
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, We 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.

RESPONDENT(REMINGTON):

1. Coverage of private respondent's loss under the insurance policy issued

by petitioner is unmistakable.

2. Alleged contractual limitations contained in insurance policies are

regarded with extreme caution by courts and are to be strictly construed
against the insurer; obscure phrases and exceptions should not be
allowed to defeat the very purpose for which the policy was procured.

3. Rust is not an inherent vice of the seamless steel pipes without

interference of external factors.

4. No matter how petitioner might want it otherwise, the 15-day clause of

the policy had been foreclosed in the pre-trial order and it was not even
raised in petitioner's answer to private respondent's complaint.

5. The decision was correct in not holding that the heavy rusting of the
seamless steel pipes did not occur during the voyage of 7 days from July 1
to July 7, 1981.

6. The alleged lack of supposed bad order survey from the arrastre
capitalized on by petitioner was more than clarified by no less than 2
witnesses.

7. The placing of notation "rusty" in the way bills is not only private
respondent's right but a natural and spontaneous reaction of whoever
received the seamless steel pipes in a rusty condition at private
respondent's bodega.

8. The Court of Appeals did not engage in any guesswork or speculation

in concluding a loss allowance of 30% in the amount of P868,339.15.

9. The rate of 34% per annum double the ceiling prescribed by the
Monetary Board is the rate of interest fixed by the Insurance Policy itself
and the Insurance Code.

PETITIONER(CATHAY):

(1) Private respondent does not dispute the fact that, contrary to the
finding of the respondent Court (the petitioner has failed "to present any
evidence of any viable exeption to the application of the policy") there is
in fact an express exeption to the application of the policy.

(2) As adverted to in the Petition for Review, private respondent has

admitted that the question shipment in not covered bya " square
provision of the contract," but private respondent claims implied
coverage from the phrase " perils of the sea" mentioned in the opening
sentenced of the policy.

(3) The insistence of private respondent that rusting is a peril of the sea is
erroneous.

(4) Private respondent inaccurately invokes the rule of strict construction

against insurer under the guise of construction in order to impart a non-
existing ambiguity or doubt into the policy so as to resolve it against the
insurer.

(5) Private respondent while impliedly admitting that a loss occasioned

by an inherent defect or vice in the insured article is not within the terms
 of the policy, erroneously insists that rusting is not an inherent vice or in
the nature of steel pipes.

(6) Rusting is not a risk insured against, since a risk to be insured against
should be a casualty or some casualty, something which could not be
foreseen as one of the necessary incidents of adventure.

(7) A fact capable of unquestionable demonstration or of public

knowledge needs no evidence. This fact of unquestionable demonstration
or of public knowledge is that heavy rusting of steel or iron pipes cannot
occur within a period of a seven (7) day voyage. Besides, petitioner had
introduced the clear cargo receipts or tally sheets indicating that there
was no damage on the steel pipes during the voyage.

(8) The evidence of private respondent betrays the fact that the account of
P868,339.15 awarded by the respondent Court is founded on speculation,
surmises or conjectures and the amount of less has not been proven by
competent, satisfactory and clear evidence

4.DELSAN The facts show that Caltex Philippines (Caltex for brevity) entered into a Whether or not the payment We rule in the negative on both issues.
TRANSPORT contract of affreightment with the petitioner, Delsan Transport Lines, Inc., made by the private respondent 1. The payment made by the private respondent for the
LINES, for a period of one year whereby the said common carrier agreed to to Caltex for the insured value of insured value of the lost cargo operates as waiver of its
INC., petitioner, transport Caltex’s industrial fuel oil from the Batangas-Bataan Refinery to the lost cargo amounted to an (private respondent) right to enforce the term of the
vs. different parts of the country. admission that the vessel was implied warranty against Caltex under the marine
THE HON. seaworthy, thus precluding any insurance policy. However, the same cannot be validly
COURT OF Under the contract, petitioner took on board its vessel, MT Maysun action for recovery against the interpreted as an automatic admission of the vessel’s
APPEALS and petitioner. seaworthiness by the private respondent as to foreclose
2,277.314 kiloliters of industrial fuel oil of Caltex to be delivered to the
AMERICAN recourse against the petitioner for any liability under its
Caltex Oil Terminal in Zamboanga City.
HOME contractual obligation as a common carrier. The fact of
Whether or not the non-
ASSURANCE payment grants the private respondent subrogatory
The shipment was insured with the private respondent, American Home presentation of the marine
CORPORATION, r right which enables it to exercise legal remedies that
Assurance Corporation. insurance policy bars the
espondents. would otherwise be available to Caltex as owner of the
complaint for recovery of sum of
money for lack of cause of action. lost cargo against the petitioner common carrier.
CONTRACT OF On August 14, 1986, MT Maysum set sail from Batangas for Zamboanga * Consequently, the payment made by the private
AFFREIGHTMEN City. Unfortunately, the vessel sank in the early morning of August 16, respondent (insurer) to Caltex (assured) operates as an
T- a contract 1986 near Panay Gulf in the Visayas taking with it the entire cargo of fuel equitable assignment to the former of all the remedies which
between a ship- oil. the latter may have against the petitioner.
owner and another
person (charterer) Subsequently, private respondent paid Caltex the sum of Five Million 2. as the appellate court correctly ruled, petitioner’s
in which the ship- Ninety-Six Thousand Six Hundred Thirty-Five Pesos and Fifty-Seven vessel, MT Maysun, sank with its entire cargo for the
owner agrees to Centavos (P5,096,635.67) representing the insured value of the lost cargo. reason that it was not seaworthy. -- testimonies of Jaime
carry goods for the Exercising its right of subrogation under Article 2207 of the New Civil Jarabe and Francisco Berina, captain and chief mate,
charterer in the Code, the private respondent demanded of the petitioner the same respectively of the ill-fated vessel, it appears that a
ship or to give the amount it paid to Caltex. sudden and unexpected change of weather condition
charterer the use og occurred in the early morning of August 16, 1986; was
the whole part of effectively rebutted and belied by the weather
the ship’s cargo Due to its failure to collect from the petitioner despite prior demand,
carrying space for private respondent filed a complaint with the Regional Trial Court of
the carriage of good Makati City, Branch 137, for collection of a sum of money.
on a specified
voyage. TRIAL COURT:
Dismissed the complaint
1. trial court found that the vessel, MT Maysum, 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
2. 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. 3
CA: reversed TC
1. The appellate court gave credence to the weather report issued
by the Philippine Atmospheric, Geophysical and Astronomical
Services Administration (PAGASA for brevity) which showed
that from 2:00 o’clock to 8:oo o’clock in the morning on August
16, 1986, the wind speed remained at 10 to 20 knots per hour
while the waves measured from .7 to two (2) meters in height
only in the vicinity of the Panay Gulf where the subject vessel
sank, in contrast to herein petitioner’s allegation that the waves
were twenty (20) feet high.
2. 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 4 to herein
private respondent insurance company as subrogee of Caltex
MR: DENIED
Petitioner (Delsan Transport Lines, Inc. )
1. invokes 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.
2. 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.
3. It theorized that when private respondent paid Caltex the value
report15 from the Philippine Atmospheric, Geophysical
and Astronomical Services Administration (PAGASA),-
- There was no squall or bad weather or extremely poor
sea condition in the vicinity when the said vessel sank.
3. Neither may petitioner escape liability by presenting in
evidence certificates16 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.-- Seaworthiness
relates to a vessel’s actual condition. Neither the
granting of classification or the issuance of certificates
established seaworthiness.
2nd issue:
1. presentation in evidence of the marine insurance policy
is not indispensable in this case before the insurer may
recover from the common carrier the insured value of
the lost cargo in the exercise of its subrogatory right.
2. 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
3. The presentation of the insurance policy was necessary
in the case of Home Insurance Corporation v. CA21 (a case
cited by petitioner) because the shipment therein
(hydraulic engines) passed through several stages with
different parties involved in each stage
We emphasized in that case that in the absence of proof of
stipulations to the contrary, the hauler can be liable only for any
damage that occurred from the time it received the cargo until it
finally delivered it to the consignee. Ordinarily, it cannot be held
responsible for the handling of the cargo before it actually
received it. The insurance contract, which was not presented in
evidence in that case would have indicated the scope of the
insurer’s liability, if any, since no evidence was adduced
indicating at what stage in the handling process the damage to
the cargo was sustained.
Hence, our ruling on the presentation of the insurance policy in
the said case of Home Insurance Corporation is not applicable to
the case at bar. In contrast, there is no doubt that the cargo of
 of its lost cargo, the act of the private respondent is equivalent to industrial fuel oil belonging to Caltex, in the case at bar, was lost
a tacit recognition that the ill-fated vessel was seaworthy; while on board petitioner’s vessel, MT Maysun, which sank
otherwise, private respondent was not legally liable to Caltex while in transit
due to the latter’s breach of implied warranty under the marine
insurance policy that the vessel was seaworthy.
4. petitioner also alleges that the Court of Appeals erred in ruling
that MT Maysun was not seaworthy on the ground that the
marine officer who served as the chief mate of the vessel,
Francisco Berina, was allegedly not qualified.-- 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
5. although Berina had merely a 2nd 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. In fact, all the crew and officers
of MT Maysun were exonerated in the administrative
investigation conducted by the Board of Marine Inquiry after the
subject accident.6
6. private respondent failed, for unknown reason, to present in
evidence during the trial of the instant case the subject marine
cargo insurance policy it entered into with Caltex.-- failure of the
private respondent to present the insurance policy in evidence is
allegedly fatal to its claim inasmuch as there is no way to
determine the rights of the parties thereto.( Home Insurance
Corporation vs. CA)

5.The Philippine On 6 July 1983 Coca-Cola Bottlers Philippines, Inc., loaded on board "MV (a) whether "MV Asilda" was 1. "MV Asilda" was unseaworthy when it left the port of
American General Asilda," a vessel owned and operated by respondent Felman Shipping seaworthy when it left the port of Zamboanga.
Insurance Co. Inc. Lines (FELMAN for brevity), 7,500 cases of 1-liter Coca-Cola softdrink Zamboanga;
vs. CA, G.R. No bottles to be transported from Zamboanga City to Cebu City for The Elite Adjusters, Inc., submitted a report regarding the
116940, June 11, consignee Coca-Cola Bottlers Philippines, Inc., Cebu.1 The shipment was (b) whether the limited liability sinking of "MV Asilda." The report, which was adopted by the
1997 insured with petitioner Philippine American General Insurance Co., Inc. under Art. 587 of the Code of Court of Appeals
(PHILAMGEN for brevity), under Marine Open Policy No. 100367-PAG. Commerce should apply; and,
A. vessel was top-heavy which is to say that while the
"MV Asilda" left the port of Zamboanga in fine weather at eight o'clock in (c) whether PHILAMGEN was vessel may not have been overloaded, yet the
the evening of the same day. At around eight forty-five the following properly subrogated to the rights distribution or stowage of the cargo on board was done
morning, 7 July 1983, the vessel sank in the waters of Zamboanga del and legal actions which the in such a manner that the vessel was in top-heavy
Norte bringing down her entire cargo with her including the subject 7,500 shipper had against FELMAN, condition at the time of her departure and which
cases of 1-liter Coca-Cola softdrink bottles. the shipowner. condition rendered her unstable and unseaworthy for
that particular voyage.
consignee Coca-Cola Bottlers Philippines, Inc., Cebu plant, filed a claim B. vessel was designed as a fishing vessel . . . and it was
with respondent FELMAN for recovery of damages it sustained not designed to carry a substantial amount or quantity
of cargo on deck.
C. from the moment that the vessel was utilized to load
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. --
PHILAMGEN sued the shipowner for sum of money and damages.
PETITIONER(PHILAMGEN):
1. 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.
2. 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.
RESPONDENT(FELMAN):
1. 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.2
TRIAL COURT: dismissed the complaint of PHILAMGEN.
CA: set aside the dismissal and remanded the case to the lower court for
trial on the merits.
FELMAN filed a petition for certiorari with this Court but it was
subsequently denied
REMANDED IN TRIAL COURT: the trial court rendered judgment in
favor of FELMAN
1. MV Asilda" was seaworthy when it left the port of Zamboanga as
confirmed by certificates issued by the Philippine Coast Guard
and the shipowner's surveyor attesting to its seaworthiness
2. 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.
3. lower court further ruled that assuming "MV Asilda" was
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.
D. with regard to the allegation that the vessel
encountered big waves, it must be pointed out that
ships are precisely designed to be able to navigate
safely even during heavy weather and frequently we
hear of ships safely and successfully weathering
encounters with typhoons and although they may
sustain some amount of damage, the sinking of ship
during heavy weather is not a frequent occurrence and
is not likely to occur unless they are inherently unstable
and unseaworthy . . . .
so hold that 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
In relation to the question of subrogation, respondent appellate
court found "MV Asilda" unseaworthy with reference to the
cargo and therefore ruled that there was breach of warranty of
seaworthiness that rendered the assured not entitled to the
payment of is claim under the policy. Hence, when
PHILAMGEN paid the claim of the bottling firm there was in
effect a "voluntary payment" and no right of subrogation
accrued in its favor. In other words, when PHILAMGEN paid it
did so at its own risk.
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.
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
 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.
-- 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
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.

CA: MV Asilda" unseaworthy for being top-heavy as 2,500 cases of Coca-

Cola softdrink bottles were improperly stowed on deck.

1. while the vessel possessed the necessary Coast Guard

certification indicating its seaworthiness with respect to the
structure of the ship itself, it was not seaworthy with respect to
the cargo.
2. Nonetheless, the appellate court denied the claim of
PHILAMGEN on the ground that the assured's implied
warranty of seaworthiness was not complied with.

6. Pan Malayan On May 22, 1980, FAO (Food and Agricultural Organization of the United (1) Whether or not respondent CONTENTIONS:
Insurance Co. vs. Nations) received a formal offer from the Luzon Stevedoring Corporation court committed a reversible PAN MALAYAN: Petitioner submits that respondent court
CA, G.R. No. (LUZTEVECO, for brevity) whereby the latter offered to ship the former's error in holding that the trial erred in ruling that there was total loss of the shipment despite
95070, September aforesaid cargo, consisting of 3,000 metric petitions in two lots of rice court is correct in holding that the fact that only 27,922 bags of rice seeds out of 34,122 bags
5, 1991 seeds, to Vietnam Ocean Shipping Industry in Vaung Tau, Vietnam for there is a total loss of the were rendered valueless to FAO and the shipment sustained
freight fees of $55.50/MT, subject to the terms and conditions indicated in shipment; and only a loss of 78%.
the corresponding communication.1
(2) Whether or not respondent FAO: claims that, for all intents and purposes, it has practically
FAO wrote LUZTEVECO formally confirming its acceptance of the court committed a reversible lost its total orentire shipment in this case, inclusive of expenses,
foregoing offer amounting to US$83,325.92 in respect of one lot of 1,500 error in affirming the decision of premium fees, and so forth, despite the alleged recovery by
metric petitions winch is the subject of the present action. the trial court ordering petitioner defendant LUZTEVECO.
to pay private respondent the
amount of P5,250,000.00
The cargo was loaded on board LUZTEVECO Barge No. LC-3000 and FAO thus claims actual loss under paragraphs (c) and (d) of
representing the full insured
consisted of 34,122 bags of IR-36 certified rice seeds purchased by FAO Section 130 of the Insurance Code which provides:
value of the rice seeds
from the Bureau of Plant Industry for P4,602,270.00.3
SEC. 130. An actual total loss is caused by:
The latter(luzteveco) then secured insurance coverage in the amount of
P5,250,000.00 from petitioner, Pan Malayan Insurance Corporation, as (a) A total destruction of the thing insured;
evidenced by the latter's Marine Cargo Policy No. B-11474A and Premium
Invoice No. 78615, dated June 16, 1980.
(b) The irretrievable loss of the thing by sinking, or by
being broken up;
FAO was informed by LUZTEVECO that the tugboat and barge carrying
FAO's shipment returned to Manila after leaving on June 16, 1980 and
(c) Any damage to the thing which renders it valueless
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 25,
1980.6
FAO was advised of the sinking of the barge in the China Sea, hence it
informed petitioner (PAN MALAYAN) thereof and, later, formally filed
its claim under the marine insurance policy.
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.8
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(PAN MALAYAN) 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.9
PETITIONER(PAN MALAYAN)
1. 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.
2. 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.10
3. 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.
4. At the time of his survey, 23,510 bags of the shipment had
allegedly already been sold by LUZTEVECO
5. 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 filed civil case in RTC Metro Manila
RTC: judgment in favor of the plaintiff against the defendant Luzon
Stevedoring Corporation and defendant Pan Malayan Insurance
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.
. 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
Petitioner, on the other hand, claims that respondent court
gravely erred in sustaining the ruling of the trial court that there
was total loss of the shipment since from the evidence on record
and the findings of respondent court itself, only 27,922 bags of
rice seeds out of 34,122 bags were rendered valueless to FAO
and the shipment sustained only a loss of 78%.20Thus, petitioner
concludes that the findings of the court a quo, as affirmed by the
Court of Appeals, are contrary to the evidence. Upon an
examination, however, of the records presented before this
Court, it is quite clear that there was indeed actual total loss.
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.
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
"(u)pon 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.24
 Corporation- ACTUAL TOTAL LOSS

CA by Pan Malayan only: affirmed the decision of the trial court except
for the award of attorney's fees which was reduced to P25,000.00.

MR denied
7. Oriental Panama Sawmill shipped 1208 pieces of apitog logs to Manila and Whether or not Oriental No. Petition granted.
Assurance Corp vs. insured the logs with Oriental for the value of Php 1 million. Assurance can be held liable
CA, G.R. No. under its marine insurance “Whether a contract is entire or severable is a question of
94052, August 9, Two barges were loaded with 610 and 598 logs. At sea, typhoons ravaged policy based on the theory of a intention to be determined by the language employed by the
1991 one of the barges, resulting in the loss of 497 of 598 of the logs. divisible contract of insurance parties. The policy in question shows that the subject matter
and, consequently, a constructive insured was the entire shipment of 2,000 cubic meters of apitong
The Insurance contract provided for indemnity under the following total loss. logs. The fact that the logs were loaded on two different barges
conditions: did not make the contract several and divisible as to the items
Warranted that this Insurance is against TOTAL LOSS ONLY. Subject to insured. The logs on the two barges were not separately valued
the following clauses: or separately insured. Only one premium was paid for the entire
— Civil Code Article 1250 Waiver clause shipment, making for only one cause or consideration. The
— Typhoon warranty clause insurance contract must, therefore, be considered indivisible.”
— Omnibus clause.
Also, the insurer's liability was for "total loss only" as stipulated.
Oriental didn’t give an indemnity because there wasn’t total loss of the A total loss may be either actual or constructive.
shipment.
An actual total loss under Sec 130 of the Insurance Code is
sawmill filed a civil case against Oriental caused by:
(a) A total destruction of the thing insured;
RTC: ordered it to pay 410,000 as value for the missing logs (b) The irretrievable loss of the thing by sinking, or by being
CA: affirmed the lower court judgment but reduced the legal interest 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 can not be said to
have sustained a constructive total loss under Section 139(a) of
the Insurance Code.

8. Federal express Shipper SMITHKLINE USA delivered to carrier Burlington Air Express Is FEDEX liable for damage to or petition granted. Assailed decision reversed insofar as it pertains
corporation vs. (BURLINGTON), an agent of [Petitioner] Federal Express Corporation, a loss of the insured goods to FEDEX
American Home shipment of 109 cartons of veterinary biologicals for delivery
Assurance to consignee SMITHKLINE and French Overseas Company in Makati
Company, G.R. No. City. Condition Precedent
150094 August 18,
2004 The shipment was covered by Burlington Airway Bill No. 11263825 with
In this jurisdiction, the filing of a claim with the carrier within
the words, ‘REFRIGERATE WHEN NOT IN TRANSIT’ and
the time limitation therefor actually constitutes a condition
‘PERISHABLE’ stamp marked on its face.
precedent to the accrual of a right of action against a carrier for
loss of or damage to the goods.19 The shipper or consignee must
That same day, Burlington insured the cargoes with American Home
allege and prove the fulfillment of the condition. If it fails to do
Assurance Company (AHAC).
so, no right of action against the carrier can accrue in favor of the
former. The aforementioned requirement is a reasonable
The following day, Burlington turned over the custody of said cargoes to
condition precedent; it does not constitute a limitation of
FEDEX which transported the same to Manila.
action.20
The shipments arrived in Manila and was immediately stored at
[Cargohaus Inc.’s] warehouse. 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
Prior to the arrival of the cargoes, FEDEX informed GETC Cargo
(2) to give it an opportunity to examine the nature and extent of
International Corporation, the customs broker hired by the consignee to
the injury. "This protects the carrier by affording it an
facilitate the release of its cargoes from the Bureau of Customs, of the
opportunity to make an investigation of a claim while the matter
impending arrival of its client’s cargoes.
is fresh and easily investigated so as to safeguard itself from
false and fraudulent claims."21

12 days after the cargoes arrived in Manila, DIONEDA, a non-licensed

When an airway bill -- or any contract of carriage for that matter
custom’s broker who was assigned by GETC, found out, while he was
-- has a stipulation that requires a notice of claim for loss of or
about to cause the release of the said cargoes, that the same [were] stored
damage to goods shipped and the stipulation is not complied
only in a room with 2 air conditioners running, to cool the place instead of
with, its enforcement can be prevented and the liability cannot
a refrigerator.
be imposed on the carrier. To stress, notice is a condition
precedent, and the carrier is not liable if notice is not given in
accordance with the stipulation.22 Failure to comply with such a
DIONEDA, upon instructions from GETC, did not proceed with the stipulation bars recovery for the loss or damage suffered.23
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.
RTC: FEDEX being held solidarily liable for the loss.
CA: 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.
9. Sulpicio Lines On 25 February 1992, Taiyo Yuden Philippines, Inc. (owner of the goods)
vs. First Lepanto and Delbros, Inc. (shipper) entered into a contract, evidenced by Bill of
Taisho Insurance Lading No. CEB/SIN-008/92 issued by the latter in favor of the owner of
Corporation G.R. the goods, for Delbros, Inc. to transport a shipment of goods consisting of
No. 140349 June 29, three (3) wooden crates containing one hundred thirty-six (136) cartons
2005 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 forty-two (42)
whether or not, based on the
evidence presented during the
trial, the owner of the goods,
respondent-insurer’s
predecessor-in-interest, did incur
damages, and if so, whether or
not petitioner-carrier is liable for
the same.
Being a condition precedent, the notice must precede a suit for
enforcement.24 In the present case, there is neither an allegation
nor a showing of respondents' compliance with this requirement
within the prescribed period. While respondents may have had a
cause of action then, they cannot now enforce it for their failure
to comply with the aforesaid condition precedent.
It is not disputed that one of the three (3) crates did fall from
the cargo hatch to the pier apron while petitioner-carrier was
unloading the cargo from its vessel. Neither is it impugned that
upon inspection, it was found that two (2) cartons were torn on
the side and the top flaps were open and that two (2) cello
bags, each of 50 pieces ferri inductors, were missing from the
cargo.
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.
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 Petitioner-carrier miserably failed to adduce any shred of
contents of the crate were no longer usable for their intended purpose, evidence of the required extraordinary diligence to overcome the
they were rejected as a total loss and returned to Cebu City presumption that it was negligent in transporting the cargo.

The owner of the goods filed a claim with herein petitioner-carrier for the
recovery of the value of the rejected cargo which was refused by the
latter.
Thereafter, the owner of the goods sought payment from respondent First
Lepanto-Taisho Insurance Corporation (insurer) under a marine
insurance policy issued to the former. Respondent-insurer paid the claim
less thirty-five percent (35%) salvage value or P194, 220.31.
The payment of the insurance claim of the owner of the goods by the
respondent-insurer 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, respondent-insurer then filed claims for
reimbursement from Delbros, Inc. and petitioner-carrier Sulpicio Lines,
Inc. which were subsequently denied.
respondent-insurer filed a suit for damages with the trial court against
Delbros, Inc. and herein petitioner-carrier(SULPICIO).
DELBROS. INC: alleging that assuming the contents of the crate in
question were truly in bad order, fault is with herein petitioner-carrier
which was responsible for the unloading of the crates.
SULPICIO: 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."
Extent of petitioner-carrier’s liability
Upon respondent-insurer’s payment of the alleged amount of
loss suffered by the insured (the owner of the goods), the insurer
is entitled to be subrogated pro tanto to any right of action which
the insured may have against the common carrier whose
negligence or wrongful act caused the loss.
We uphold the ruling of the appellate court that herein
petitioner-carrier is liable to pay the amount paid by respondent-
insurer for the damages sustained by the owner of the goods.
As stated in the manifestation filed by Delbros, Inc., however,
respondent-insurer had already been paid the full amount
granted by the Court of Appeals, hence, it will be tantamount to
unjust enrichment for respondent-insurer to again recover
damages from herein petitioner-carrier.
With respect to Delbros
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.

RTC: 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. -- the plaintiff had failed to prove its case with a
preponderance of evidence.

CA: reversed the dismissal of the complaint by the lower court

1. there is damage suffered by the goods of the shipper

2. This consists in the destruction of one wooden crate and the
 tearing of two of the cardboard boxes therein rendering then
unfit to be sent to SingaporE.
3. Falling of the crate was negligence on the part of defendant-
appellee Sulpicio Lines under the doctrine of res ipsa
loquitur. Defendant-appellee Sulpicio Lines cannot exculpate
itself from liability because it failed to prove that it exercised due
diligence in the selection and supervision of its employees to
prevent the damage.6
MR BY SULPICIO: DENIED
10. American Tantuco Enterprises, Inc. is a coconut oil milling and refining company. It
Home Assurance owned two mills (the first oil mill and a new one), both located at its
Co vs. tantuco factory compound at Iyam, Lucena City. The two oil mills are separately
enterprises G.R. covered by fire insurance policies issued by American Home Assurance
No. 138941 October Co.
8, 2001
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.
petitioner contends that respondent violated the express terms of the Fire
Extinguishing Appliances Warranty.
Petitioner argues that the warranty clearly obligates the insured to
maintain all the appliances specified therein. The breach occurred when
the respondent failed to install internal fire hydrants inside the burned
building as warranted.
The petition is devoid of merit.
In construing the words used descriptive of a building insured,
the greatest liberality is shown by the courts in giving effect to
the insurance.11 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 that the
policy of insurance covers any building which the parties
manifestly intended to insure, however inaccurate the
description may be.12
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. This is obvious from the
categorical statement embodied in the policy, extending its
protection:
"On machineries and equipment with complete
accessories usual to a coconut oil mill including stocks
of copra, copra cake and copra mills whilst contained in
the new oil mill building, situate (sic) at UNNO. ALONG
NATIONAL HIGH WAY, BO. IYAM, LUCENA CITY
UNBLOCKED.''13 (emphasis supplied.)
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 respondent would
protect its first oil mill for different amounts and leave
uncovered its second one. As mentioned earlier, the first oil mill
is already covered under Policy No. 306-7432324-4 issued by the
petitioner. It is unthinkable for respondent to obtain the other
policy from the very same company. The latter ought to know
that a second agreement over that same realty results in its over
insurance.

VIOLATION OF FIRE EXTINGUISHING WARRANTY:

argument lacks merit

"WARRANTED that during the currency of this Policy, Fire

Extinguishing Appliances as mentioned below shall be
maintained in efficient working order on the premises to which
insurance applies:

- PORTABLE EXTINGUISHERS

- INTERNAL HYDRANTS

- EXTERNAL HYDRANTS

- FIRE PUMP

- 24-HOUR SECURITY SERVICES

BREACH of this warranty shall render this policy null and void
and the Company shall no longer be liable for any loss which
may occur."20

. We agree with the appellate court's conclusion that the

aforementioned warranty did not require respondent to provide
for all the fire extinguishing appliances enumerated therein.
Additionally, we find that neither did it require that the
appliances are restricted to those mentioned in the warranty. In
other words, what the warranty mandates is that respondent
should maintain in efficient working condition within the
premises of the insured property, fire fighting equipments
such as, but not limited to, those identified in the list, which
will serve as the oil mill's first line of defense in case any part of
it bursts into flame.

To be sure, respondent was able to comply with the warranty.

Within the vicinity of the new oil mill can be found the following
devices: numerous portable fire extinguishers, two fire
hoses,21 fire hydrant,22 and an emergency fire engine.23All of
these equipments were in efficient working order when the fire
 occurred.

It ought to be remembered that not only are warranties strictly

construed against the insurer, but they should, likewise, by
themselves be reasonably interpreted.24 That reasonableness is to
be ascertained in light of the factual conditions prevailing in
each case.

Here, we find that there is no more need for an internal hydrant

considering that inside the burned building were: (1) numerous
portable fire extinguishers, (2) an emergency fire engine, and (3)
a fire hose which has a connection to one of the external
hydrants
11. Prudential Plaintiff [TRANS-ASIA] is the owner of the vessel M/V Asia Korea. In We sustain the findings of the Court of Appeals that
Guarantee and consideration of payment of premiums, defendant [PRUDENTIAL] PRUDENTIAL was not successful in discharging the burden of
Assurance Inc. vs. insured M/V Asia Korea for loss/damage of the hull and machinery evidence that TRANS-ASIA breached the subject policy
Trans-Asia arising from perils, inter alia, of fire and explosion for the sum of P40 condition on CLASSED AND CLASS MAINTAINED.
Shipping Lines GR Million
No. 151890 June 20, PRUDENTIAL, through the Senior Manager of its Marine and
2006 On October 25, 1993, while the policy was in force, a fire broke out while Aviation Division, Lucio Fernandez, made a categorical
[M/V Asia Korea was] undergoing repairs at the port of Cebu. admission that at the time of the procurement of the insurance
contract in July 1993, TRANS-ASIA’s vessel, "M/V Asia Korea"
On October 26, 1993 plaintiff [TRANS-ASIA] filed its notice of claim for was properly classed by Bureau Veritas,
damage sustained by the vessel.

Plaintiff [TRANS-ASIA] reserved its right to subsequently notify

defendant [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. An
adjuster’s report on the fire in question was submitted by Richard Hogg
International together with the U-Marine Surveyor Report (Exhibits "4" to
"4-115").

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.

. PRUDENTIAL denied the material allegations of the Complaint and

interposed the defense that TRANS-ASIA breached
insurance policy conditions, in particular: PRUDENTIAL posits that TRA
NS-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.

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.

RTC: Trial court ruled in favor of Prudential.

1. 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.
2. 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.
3. TRANS-ASIA failed to prove compliance of the terms of the
warranty, the violation thereof entitled PRUDENTIAL to rescind
the contract.

CA: reversed the decision

1. 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.
2. 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.
3. 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.

12. Filipino Choa insured 600 tons of fishmeal for the sum of P267,653.59 from WON the "all risks" clause of the No. No. Petition denied.
Merchants Bangkok, Thailand to Manila against all risks under warehouse to marine insurance policy held the
Insurance Co vs. warehouse terms. What was imported in the SS Bougainville was 59.940 petitioner liable to the private 1. The "all risks clause" of the Institute Cargo Clauses read
CA, G.R. No. 85141 metric tons at $395.42 a ton. respondent for the partial loss of as follows:
November 28, 1989 the cargo, notwithstanding the “5. This insurance is against all risks of loss or damage to the
The cargo was unloaded from the ship and 227 bags were found to be in clear absence of proof of some subject-matter insured but shall in no case be deemed to extend
bad condition by the arrastre. fortuitous event, casualty, or to cover loss, damage, or expense proximately caused by delay
accidental cause to which the or inherent vice or nature of the subject-matter insured. Claims
Choa made a formal claim against the defendant Filipino Merchants loss is attributable. recoverable hereunder shall be payable irrespective of
Insurance Company for P51,568.62 He also presented a claim against the 2. WON The Court of percentage.“
ship, but the defendant Filipino Merchants Insurance Company refused Appeals erred in not holding
to pay the claim. that the private respondent had An "all risks policy" should be read literally as meaning all risks
no insurable interest in the whatsoever and covering all losses by an accidental cause of any
The plaintiff brought an action against the company and presented a third subject cargo, hence, the marine kind. “Accident” is construed by the courts in their ordinary and
party complaint against the vessel and the arrastre contractor. insurance policy taken out by common acceptance.
private respondent is null and
RTC: rendered judgment in favor of private respondent, for the sum of void. The very nature of the term "all risks" must be given a broad and
P51,568.62 with interest at legal rate. comprehensive meaning as covering any loss other than a willful
CA: affirmed the decision of the lower court insofar as the award on the and fraudulent act of the insured. This is pursuant to the very
complaint is concerned and modified the same with regard to the purpose of an "all risks" insurance to give protection to the
adjudication of the third-party complaint. insured in those cases where difficulties of logical explanation or
some mystery surround the loss or damage to property.

Institute Cargo Clauses 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.

Generally, the burden of proof is upon the insured to show that

a loss arose from a covered peril, but 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. The burden then shifts to the insurer to show the
exception to the coverage.

13. Roque v. IAC On 19 February 1972, the Manila Bay Lighterage Corporation (MBLC) a
139 SCRA 596 common carrier, entered into a contract with Isabela Roque (doing
business under the name and style of Isabela Roque Timber Enterprises)
and Ong Chiong 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.
Roque and Ong insured the logs against loss for P100,000.00 with the
Pioneer Insurance and Surety Corporation (Pioneer).
On 29 February 1972, Roque and Ong 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.
The barge where the logs were loaded was apparently not seaworthy
such that it developed a leak. 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 8 March 1972, Roque and Ong wrote a letter to MBLC 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 Pioneer claiming the full amount of P100,000.00
.
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. Choa, as vendee/consignee of the goods in transit, has
such existing interest 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 conditions have been
performed.
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.
(1)Whether there is a warranty of 1. YES. Section 113 of the Insurance Code provides that
seaworthiness by the cargo "In every marine insurance upon a ship or freight, or
owner in cases of marine cargo freightage, or upon any thing which is the subject of
insurance. marine insurance, a warranty is implied that the ship is
seaworthy."
(2) Whether the loss of the cargo Section 99 of the same Code also provides in part that
was due to the perils of the ship "Marine insurance includes: (1) Insurance against loss
rather than the perils of the sea of or damage to: (a) Vessels, craft, aircraft, vehicles,
goods, freights, cargoes, merchandise..."
From the above-quoted provisions, 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.
The shipper of cargo may have no control over the vessel but
he has full control in the choice of the common carrier that will
transport his goods.
2. PERILS OF THE SHIP.
 under the insurance policy but Pioneer refused to pay on the ground that
its liability depended upon the "Total loss by Total Loss of Vessel
only".
Hence, Roque and Ong commenced Civil Case 86599 against MBLC and
Pioneer Pioneer. During the initial stages of the hearing, MBLC 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 in the name of Civil Case 86599.
RTC: in favor of Roque and Ong,
Pioneer appealed to the Intermediate Appellate Court. MBLC did not
appeal, as allegedly, the transportation company is no longer doing
business and is without funds
CA: modified the trial court's decision and absolved Pioneer from liability
1. there was a breach of implied warranty of seaworthiness on the
part of Roque and Ong
2. loss of the insured cargo was caused by the "perils of the ship"
and not by the "perils of the sea".
3. loss is not covered by the marine insurance policy.
14. Choa Tiek Seng On November 4, 1976 petitioner imported some lactose crystals from
v. Court of Appeals Holland. The importation involved fifteen (15) metric tons packed in 600
183 SCRA 223 6-ply paper bags with polythelene inner bags, each bag at 25 kilos net.
The goods were loaded at the port at Rotterdam in sea vans on board the
vessel "MS Benalder' as the mother vessel, and thereafter aboard the
feeder vessel "Wesser Broker V-25" of respondent Ben Lines Container,
Ltd. (Ben Lines for short).
The goods were insured by the respondent Filipino Merchants' Insurance
Co., Inc. (insurance company for short) for the sum of P98,882.35, the
equivalent of US$8,765.00 plus 50% mark-up or US$13,147.50, against all
At the time Mable 10 sank, there was no typhoon but ordinary
strong wind and waves, a condition which is natural and normal
in the open sea.
The evidence shows that the sinking of Mable 10 was due to
improper loading of the logs on one side so that the barge was
tilting on one side and for that it did not navigate on even keel;
that it was no longer seaworthy that was why it developed leak;
that the personnel of the tugboat and the barge committed a
mistake when it turned loose the barge from the tugboat east of
Cabuli point where it was buffeted by storm and waves, while
the tugboat proceeded to west of Cabuli point where it was
protected by the mountain side from the storm and waves
coming from the east direction.
Go Tiaoco y Hermanos v. Union Ins. Society of Canton, the
term "perils of the ship" when it ruled that "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.'
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.”
petition is impressed with merit.
Gloren Inc. vs. Filipinas Cia. de Seguros : an all risk insurance
policy insures against all causes of conceivable loss or damage,
except as otherwise excluded in the policy or due to fraud or
intentional misconduct on the part of the insured. It covers all
losses during the voyage whether arising from a marine peril or
not, including pilferage losses during the war.
In the present case, the "all risks" clause of the policy sued upon
reads as follows:
5. This insurance is against all risks of loss or
risks under the terms of the insurance cargo policy.
Upon arrival at the port of Manila, the cargo was discharged into the
custody of the arrastre operator respondent E. Razon, Inc. (broker for
short), prior to the delivery to petitioner through his broker. Of the 600
bags delivered to petitioner, 403 were in bad order. The surveys showed
that the bad order bags suffered spillage and loss later valued at
P33,117.63.
Petitioner filed a claim for said loss.
Respondent insurance company rejected the claim
1. alleging that assuming that spillage took place while the goods
were in transit, petitioner and his agent failed to avert or
minimize the loss by failing to recover spillage from the sea van,
thus violating the terms of the insurance policy sued upon; and
2. that assuming that the spillage did not occur while the cargo was
in transit, the said 400 bags were loaded in bad order, and that in
any case, the van did not carry any evidence of spillage.
petitioner filed the complaint dated August 2, 1977 in the Regional Trial
Court of Manila against respondent insurance
RTC: DISMISSED THE COMPLAINT
CA: affirmed the judgment of the trial court
damage to the subject matter insured but
shall in no case be deemed to extend to cover
loss, damage, or expense proximately caused
by delay or inherent vice or nature of the
subject matter insured. Claims recoverable
hereunder shall be payable irrespective of
percentage.
The terms of the policy are so clear and require no interpretation.
The insurance policy covers all loss or damage to the cargo
except those caused by delay or inherent vice or nature of the
cargo insured. It is the duty of the respondent insurance
company to establish that said loss or damage falls within the
exceptions provided for by law, otherwise it is liable therefor.
An "all risks" provision of a marine policy creates a special type
of insurance which extends coverage to risks not usually
contemplated and avoids putting upon the insured the burden
of establishing that the loss was due to peril falling within the
policy's coverage. The insurer can avoid coverage upon
demonstrating that a specific provision expressly excludes the
loss from coverage. 14
In this case, the damage caused to the cargo has not been
attributed to any of the exceptions provided for nor is there any
pretension to this effect. Thus, the liability of respondent
insurance company is clear.