Roque vs. Intermediate Appellate Court [GR L-66935, 11 November 1985]

Facts: On 19 February 1972, the Manila Bay Lighterage Corporation (MBLC) a common carrier, entered intoa 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 cubicmeters of logs from Malampaya Sound, Palawan to North Harbor, Manila. Roque and Ong insured the logsagainst loss for P100,000.00 with the Pioneer Insurance and Surety Corporation (Pioneer). On 29 February1972, Roque and Ong loaded on the barge, 811 pieces of logs at Malampaya Sound, Palawan for carriage anddelivery to North Harbor, Port of Manila, but the shipment never reached its destination because Mable 10sank with the 811 pieces of logs somewhere off Cabuli Point in Palawan on its way to Manila. The bargewhere the logs were loaded was apparently not seaworthy such that it developed a leak. One of the hatcheswas left open causing water to enter the barge and because the barge was not provided with the necessarycover 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 plusP100,000.00 as unrealized profits but the latter ignored the demand. Another letter was sent to Pioneerclaiming the full amount of P100,000.00 under the insurance policy but Pioneer refused to pay on the groundthat its liability depended upon the "Total loss by Total Loss of Vessel only". Hence, Roque and Ongcommenced 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 thehighest bidder with the funds to be deposited in a bank in the name of Civil Case 86599. After hearing, thetrial court found in favor of Roque and Ong, condemning MBLC and Pioneer to pay Roque and Ong, jointlyand severally, the sum of P100,000.00; sentencing MBLC to pay Roque and Ong, in addition, the sum ofP50,000.00, plus P12,500.00, that the latter advanced to the former as down payment for transporting the logsin question; ordering the counterclaim of Pioneer against Roque and Ong, dismissed, for lack of merit, but as

to its cross-claim against its MBLC, the latter is ordered to reimburse the former for whatever amount it maypay Roque and Ong as such surety; ordering the counterclaim of MBLC against Roque and Ong, dismissedfor lack of merit; dismissing Roque's and Ong's claim of not less than P100,000.00 and P75,000.00 asexemplary damages, for lack of merit; granting Roque's and Ong's claim for attorney's fees in the sum ofP10,000.00; ordering MBLC and Pioneer to pay the costs; and holding that the sum of P150,000.00 award toRoque and Ong, shall bear interest of 6% from 25 March 1975, until amount is fully paid. Pioneer appealed tothe Intermediate Appellate Court. MBLC did not appeal, as allegedly, the transportation company is no longerdoing business and is without funds. On 30 January 1984, the appellate court modified the trial court'sdecision and absolved Pioneer from liability after finding that there was a breach of implied warranty ofseaworthiness on the part of Roque and Ong and that the loss of the insured cargo was caused by the "perils ofthe ship" and not by the "perils of the sea". It ruled that the loss is not covered by the marine insurance policy.After the appellate court denied their motion for reconsideration, Roque and Ong filed the petition forcertiorari.

Issue [1]:Whether there is a warranty of seaworthiness by the cargo owner in cases of marine cargoinsurance.

Held [1]:YES. There is no dispute over the liability of the common carrier MBLC. In fact, it did not bother toappeal the questioned decision. However, Roque and Ong state that MBLC has ceased operating as a firm andnothing may be recovered from it. They are, therefore, trying to recover their losses from the insurer. Theliability of the insurance company is governed by law. Section 113 of the Insurance Code provides that "Inevery marine insurance upon a ship or freight, or freightage, or upon any thing which is the subject of marineinsurance, a warranty is implied that the ship is seaworthy." Section 99 of the same Code also provides in partthat "Marine insurance includes: (1) Insurance against loss 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, theimplied warranty of seaworthiness immediately attaches to whoever is insuring the cargo whether he be theshipowner or not. As ruled in the case of Go Tiaoco y Hermanos v. Union Insurance Society of Canton (40Phil. 40), "it is universally accepted that in every contract of insurance upon anything which is the subject ofmarine insurance, a warranty is implied that the ship shall be seaworthy at the time of the inception of thevoyage. This rule is accepted in our own Insurance Law (Act No. 2427, sec. 106)." Moreover, the fact that theunseaworthiness of the ship was unknown to the insured is immaterial in ordinary marine insurance and maynot be used by him as a defense in order to recover on the marine insurance policy. As was held in Richelieuand Ontario Nav. Co. v. Boston Marine, Inc., Co. (136 U.S. 406), "the exception of losses occasioned byunseaworthiness was in effect a warranty that a loss should not be so occasioned, and whether the fact ofunseaworthiness were known or unknown would be immaterial." Since the law provides for an impliedwarranty of seaworthiness in every contract of ordinary marine insurance, it becomes the obligation of a cargoowner to look for a reliable common carrier which keeps its vessels in seaworthy condition. The shipper ofcargo may have no control over the vessel but he has full control in the choice of the common carrier that willtransport his goods. Or the cargo owner may enter into a contract of insurance which specifically providesthat the insurer answers not only for the perils of the sea but also provides for coverage of perils of the ship.The Court was constrained to apply Section 113 of the Insurance Code to the facts of this case. "In marinecases, the risks insured against are 'perils of the sea' (Chute v. North River Ins. Co., Minn. 214 NW 472, 55ALR 933). The purpose of such insurance is protection against contingencies and against possible damagesand such a policy does not cover a loss or injury which must inevitably take place in the ordinary course ofthings. There is no doubt that the term 'perils of the sea' extends only to losses caused by sea damage, or bythe violence of the elements, and does not embrace all losses happening at sea. They insure against losses

from extraordinary occurrences only, such as stress of weather, winds and waves, lightning, tempests, rocksand the like. These are understood to be the 'perils of the sea' referred in the policy, and not those ordinaryperils which every vessel must encounter. 'Perils of the sea' has been said to include only such losses as are ofextraordinary nature, or arise from some overwhelming power, which cannot be guarded against by theordinary exertion of human skill and prudence. Damage done to a vessel by perils of the sea includes everyspecies of damages done to a vessel at sea, as distinguished from the ordinary wear and tear of the voyage,and distinct from injuries suffered by the vessel in consequence of her not being seaworthy at the outset of hervoyage (as in this case). It is also the general rule that everything which happens thru the inherent vice of thething, or by the act of the owners, master or shipper, shall not be reputed a peril, if not otherwise borne in thepolicy. (14 RCL on 'Insurance', Sec. 384, pp. 1203-1204; Cia. de Navegacion v. Firemen's Fund Ins. Co., 277US 66, 72 L. ed. 787, 48 S. Ct. 459)."

Issue [2]: Whether the loss of the cargo was due to the perils of the ship rather than the perils of the sea.

Held [2]: PERILS OF THE SHIP. At the time Mable 10 sank, there was no typhoon but ordinary strong windand waves, a condition which is natural and normal in the open sea. The evidence shows that the sinking ofMable 10 was due to improper loading of the logs on one side so that the barge was tilting on one side and forthat it did not navigate on even keel; that it was no longer seaworthy that was why it developed leak; that thepersonnel of the tugboat and the barge committed a mistake when it turned loose the barge from the tugboateast of Cabuli point where it was buffeted by storm and waves, while the tugboat proceeded to west of Cabulipoint where it was protected by the mountain side from the storm and waves coming from the east direction.In fact, in Roque's and Ong's complaint, it is alleged that the barge Mable 10 of MBLC developed a leakwhich allowed water to come in and that one of the hatches of said barge was negligently left open by theperson in charge thereof causing more water to come in", and that "he loss of their cargo was due to the fault,

negligence, and/or lack of skill of MBLC and/or MBLC's representatives on barge Mable 10. It is quiteunmistakable that the loss of the cargo was due to the perils of the ship rather than the perils of the sea. Thefacts clearly negate Roque's and Ong's claim under the insurance policy. In the case of Go Tiaoco y Hermanosv. Union Ins. Society of Canton, the Court had occasion to elaborate on the term "perils of the ship" when itruled 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 fromthe negligent failure of the ship's owner to provide the vessel with proper equipment to convey the cargounder ordinary conditions, is not a peril of the sea. Such a loss is rather due to what has been aptly called the'peril of the ship.' The insurer undertakes to insure against perils of the sea and similar perils, not againstperils of the ship. As was well said by Lord Herschell in Wilson, Sons & Co. v. Owners of Cargo per theXantho ([1887], 12 A. C., 503, 509), 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 thepolicy is to secure an indemnity against accidents which may happen, not against events which must happen.”

La Razon Social "Go Tiaoco y Hermanos" vs. Union Insurance Society of Canton Ltd. [GR 13983,1 September 1919]

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 thecompartments in the after hold, upon arrival at Cebu, it was discovered that 1,473 sacks had been damaged bysea water. The loss so resulting to the owners of rice, after proper deduction had been made for the portionsaved, was P3,875. The policy of insurance, covering the shipment, was signed upon a form long in useamong companies engaged in maritime insurance. It purports to insure the cargo from the following amongother 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 drainpipe which served as a discharge from the water closet passed down through the compartment where the ricein question was stowed and thence out to sea through the wall of the compartment, which was a part of thewall of the ship. The joint or elbow where the pipe changed its direction was of cast iron; and in course oftime it had become corroded and abraded until a longitudinal opening had appeared in the pipe about one inchin length. This hole had been in existence before the voyage was begun, and an attempt had been made torepair it by filling with cement and bolting over it a strip of iron. The effect of loading the boat was tosubmerge the vent, or orifice, of the pipe until it was about 18 inches or 2 feet below the level of the sea. As aconsequence the sea water rose in the pipe. Navigation under these conditions resulted in the washing out ofthe cement-filling from the action of the sea water, thus permitting the continued flow of the salt water intothe compartment of rice. An action on a policy of marine insurance issued by the Union Insurance Society ofCanton, Ltd., upon the cargo of rice belonging to the Go Tiaoco Brothers was filed. The trial court found thatthe inflow of the sea water during the voyage was due to a defect in one of the drain pipes of the ship andconcluded that the loss was not covered by the policy of insurance. Judgment was accordingly entered infavor 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 interpretedas covering risks which are of like kind (ejusdem generis) with the particular risks which are enumerated inthe preceding part of the same clause of the contract. According to the ordinary rules of construction thesewords must be interpreted with reference to the words which immediately precede them. They were no doubtinserted 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 anarrower or broader view is taken of those cases. For example, if the expression "perils of the seas" is givenits widest sense the general words have little or no effect as applied to that case. If on the other hand thatexpression is to receive a limited construction and loss by perils of the seas is to be confined to loss ex marinetempestatis discrimine, the general words become most important. But still, when they first became thesubject 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 thissettled rule. In marine insurance it is above all things necessary to abide by settled rules and to avoid anythinglike 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 ordinarywear and tear of the ship, or from the negligent failure of the ship's owner to provide the vessel with properequipment 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 andsimilar 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 thepolicy 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 notdue to any accident which happened during the voyage, but to the failure of the ship's owner properly to repaira defect of the existence of which he was apprised. The loss was therefore more analogous to that whichdirectly 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 insurancecontract.

Held [2]:

YES. It is universally accepted that in every contract of insurance upon anything which is thesubject of marine insurance, a warranty is implied that the ship shall be seaworthy at the time of the inceptionof the voyage. This rule is accepted in our own Insurance Law (Act No. 2427, sec. 106). It is also well settledthat a ship which is seaworthy for the purpose of insurance upon the ship may yet be unseaworthy for thepurpose of insurance upon the cargo (Act No. 2427, sec. 106).

Cathay Insurance Co. vs. Court of Appeals [GR 76145, 30 June 1987]

Facts: A complaint was filed by Remington Industrial Sales Corporation against Cathay Insurance Co.seeking collection of the sum of P868,339.15 representing Remington's losses and damages incurred in ashipment of seamless steel pipes under an insurance contract in favor of Remington as the insured, consigneeor importer of aforesaid merchandise while in transit from Japan to the Philippines on board vessel SS"Eastern Mariner." The total value of the shipment was P2,894,463.83 at the prevailing rate of P7.95 to adollar in June and July 1984, when the shipment was made. The trial court decided in favor of Remington byordering Cathay Insurance 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 Cathay Insurance to pay Remington interest on theaforecited amount at the rate of 34% or double the ceiling prescribed by the Monetary Board per annum from3 February 1982 or 90 days from Remington's submission of proof of loss to Cathay Insurance until paid asprovided in the settlement of claim provision of the policy; and ordering Cathay Insurance to pay Remingtoncertain amounts for marine surveyor's fee, attorney's fees and costs of the suit. On appeal, the Court ofAppeals affirmed the decision of the Regional Trial Court National Capital Region (NCR) Manila, Branch 38.Cathay Insurance moved for reconsideration, but was denied. It thus filed the petition for review.Remington, in its comment on the petition, contends that (1) Coverage of Remington's loss under theinsurance policy issued by Cathay Insurance is unmistakable; (2) Alleged contractual limitations contained in

insurance policies are regarded with extreme caution by courts and are to be strictly construed against theinsurer; obscure phrases and exceptions should not be allowed to defeat the very purpose for which the policywas procured; (3) Rust is not an inherent vice of the seamless steel pipes without interference of externalfactors; (4) No matter how Cathay Insurance might want it otherwise, the 15-day clause of the policy hadbeen foreclosed in the pre-trial order and it was not even raised in Cathay Insurance's answer to Remington'scomplaint; (5) The decision was correct in not holding that the heavy rusting of the seamless steel pipes didnot occur during the voyage of 7 days from July 1 to July 7, 1981; (6) The alleged lack of supposed bad ordersurvey from the arrastre capitalized on by Cathay Insurance was more than clarified by no less than 2witnesses; (7) The placing of notation "rusty" in the way bills is not only Remington's right but a natural andspontaneous reaction of whoever received the seamless steel pipes in a rusty condition at Remington'sbodega; (8) The Court of Appeals did not engage in any guesswork or speculation in concluding a lossallowance of 30% in the amount of P868,339.15; and (9) The rate of 34% per annum double the ceilingprescribed by the Monetary Board is the rate of interest fixed by the Insurance Policy itself and the InsuranceCode. Cathay Insurance however maintains that (1) Remington does not dispute the fact that, contrary to thefinding of the respondent Court (that Cathay Insurance has failed "to present any evidence of any viableexception to the application of the policy") there is in fact an express exception to the application of thepolicy; (2) As adverted to in the Petition for Review, Remington has admitted that the questioned shipment isnot covered by a "square provision of the contract," but Remington claims implied coverage from the phrase"perils of the sea" mentioned in the opening sentence of the policy; (3) The insistence of Remington thatrusting is a peril of the sea is erroneous; (4) Remington inaccurately invokes the rule of strict constructionagainst insurer under the guise of construction in order to impart a non-existing ambiguity or doubt into thepolicy so as to resolve it against the insurer; (5) Remington while impliedly admitting that a loss occasionedby an inherent defect or vice in the insured article is not within the terms of the policy, erroneously insists thatrusting 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 asone of the necessary incidents of adventure; (7) A fact capable of unquestionable demonstration or of publicknowledge needs no evidence. This fact of unquestionable demonstration or of public knowledge is thatheavy rusting of steel or iron pipes cannot occur within a period of a 7 day voyage. Besides, Cathay Insurancehad introduced the clear cargo receipts or tally sheets indicating that there was no damage on the steel pipesduring the voyage; and (8) The evidence of Remington betrays the fact that the account of P868,339.15awarded by the respondent Court is founded on speculation, surmises or conjectures and the amount of lesshas not been proven by competent, satisfactory and clear evidence.

Issue: Whether the rusting of steel pipes in the course of a voyage is a "peril of the sea," and whether rustingis a risk insured against.

Held:YES. There is no question that the rusting of steel pipes in the course of a voyage is a "peril of the sea"in view of the toll on the cargo of wind, water, and salt conditions. At any rate if the insurer cannot be heldaccountable therefor, the Court 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.

Filipino Merchants Insurance Co. Inc. vs. Court of Appeals [GR 85141, 28 November 1989]

Facts:In December 1976, Choa Tiek Seng insured said shipment with Filipino Merchants InsuranceCompany (FMICI) under cargo Policy M-2678 for the sum of P267,653.59 for the goods described as 600metric tons of fishmeal in new gunny bags of 90 kilos each from Bangkok, Thailand to Manila against allrisks under warehouse to warehouse terms. Actually, what was imported was 59.940 metric tons not 600 tonsat $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 andcertified that in such discharge 105 bags were in bad order condition as jointly surveyed by the ship's agentand the arrastre contractor. The condition of the bad order was reflected in the turn over survey report of BadOrder cargoes 120320 to 120322, consisting of 3 pages. The cargo was also surveyed by the arrastrecontractor before delivery of the cargo to the consignee and the condition of the cargo on such delivery wasreflected in E. Razon's Bad Order Certificates 14859, 14863 and 14869 covering a total of 227 bags in badorder condition. FMICI's surveyor has conducted a final and detailed survey of the cargo in the warehouse forwhich he prepared a survey report with the findings on the extent of shortage or loss on the bad order bagstotalling 227 bags amounting to 12,148 kilos. Based on said computation, Choa made a formal claim againstFMICI for P51,568.62 the computation of which claim is contained therein. A formal claim statement wasalso 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 loadedon board the vessel SS Bougainville and unloaded at the Port of Manila on or about 11 December 1976 andseeks to recover from FMICI the amount of P51,568.62 representing damages to said shipment which hasbeen insured by FMICI under Policy M-2678. FMICI brought a third party complaint against third partydefendants Compagnie Maritime Des Chargeurs Reunis and/or E. Razon, Inc. seeking judgment against thethird 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 legalrate from the date of the filing of the complaint; and, on the third party complaint, the third party defendantCompagnie Maritime Des Chargeurs Reunis and third party defendant E. Razon, Inc. are ordered to payFMICI jointly and severally reimbursement of the amounts paid by FMICI with legal interest from the date ofsuch payment until the date of such reimbursement; without pronouncement as to costs. On appeal, and on 18July 1988, the Court of Appeals affirmed the decision of the lower court insofar as the award on the complaintis 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 canbe compensable it is essential that there must be "some fortuity," "casualty" or "accidental cause" to which thealleged loss is attributable.

Held [1]: NO. The "all risks clause" of the Institute Cargo Clauses read as follows "5. This insurance isagainst all risks of logs or damage to the subject-matter insured but shall in no case be deemed to extend tocover loss, damage, or expense proximately caused by delay or inherent vice or nature of the subject-matterinsured. 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 anykind. The terms "accident" and "accidental", as used in insurance contracts, have not acquired any technicalmeaning. They are construed by the courts in their ordinary and common acceptance. Thus, the terms haveNarratives (Berne Guerrero)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 orexpectation; 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 comprehensivemeaning as covering any loss other than a wilful and fraudulent act of the insured. This is pursuant to the verypurpose of an "all risks" insurance to give protection to the insured in those cases where difficulties of logicalexplanation or some mystery surround the loss or damage to property. An "all risks" policy has been evolvedto grant greater protection than that afforded by the "perils clause," in order to assure that no loss can happenthrough the incidence of a cause neither insured against nor creating liability in the ship; it is written againstall losses, that is, attributable to external causes. The term "all risks" cannot be given a strained technicalmeaning, 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 expenseproximately caused by delay, and (b) loss or damage or expense proximately caused by the inherent vice ornature of the subject matter insured.

Issue [2]: Whether the failure of Choa to adduce evidence, showing that the alleged loss to the cargo inquestion 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 acovered peril, under an "all risks" policy the burden is not on the insured to prove the precise cause of loss ordamage for which it seeks compensation. The insured under an "all risks insurance policy" has the initialburden of proving that the cargo was in good condition when the policy attached and that the cargo wasdamaged when unloaded from the vessel; thereafter, the burden then shifts to the insurer to show theexception to the coverage. As held in Paris-Manila Perfumery Co. vs. Phoenix Assurance Co., Ltd. the basicrule is that the insurance company has the burden of proving that the loss is caused by the risks excepted andfor want of such proof, the company is liable. Coverage under an "all risks" provision of a marine insurancepolicy creates a special type of insurance which extends coverage to risks not usually contemplated andavoids putting upon the insured the burden of establishing that the loss was due to the peril falling within thepolicy's coverage; the insurer can avoid coverage upon demonstrating that a specific provision expresslyexcludes the loss from coverage. A marine insurance policy providing that the insurance was to be "against allrisks" must be construed as creating a special insurance and extending to other risks than are usuallycontemplated, and covers all losses except such as arise from the fraud of the insured. The burden of theinsured, 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 onthe insured the burden of proving the precise cause of the loss or damage would be inconsistent with thebroad protective purpose of "all risks" insurance.

Issue [3]: Whether the insurer is liable

Issue [4]:There being no showing that the loss was caused by any of the excepted perils, the insurer is liableunder the policy. It is believed that in the absence of any showing that the losses/damages were caused by anexcepted peril, i.e. delay or the inherent vice or nature of the subject matter insured, and there is no suchshowing, the loss was covered by the policy. Herein, there is no evidence presented to show that the conditionof the gunny bags in which the fishmeal was packed was such that they could not hold their contents in thecourse of the necessary transit, much less any evidence that the bags of cargo had burst as the result of theweakness 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 thatthere was damage occasioned by some accidental cause of any kind, and there is no necessity to point to anyparticular cause. Contracts of insurance are contracts of indemnity upon the terms and conditions specified inthe policy. The agreement has the force of law between the parties. The terms of the policy constitute theNarratives (Berne Guerrero)measure of the insurer's liability. If such terms are clear and unambiguous, they must be taken and understoodin 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 & FManila," has insurable interest in said goods. Section 13 of the Insurance Code defines insurable interest inproperty as every interest in property, whether real or personal, or any relation thereto, or liability in respectthereof, 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 itsdestruction whether he has or has not any title in, or lien upon or possession of the property. Insurable interestin 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. Asvendee/consignee of the goods in transit has such existing interest therein as may be the subject of a validcontract of insurance. His interest over the goods is based on the perfected contract of sale. The perfectedcontract of sale between him and the shipper of the goods operates to vest in him an equitable title evenbefore delivery or before he performed the conditions of the sale. The contract of shipment, whether underF.O.B., C.I.F., or C. & F. as in the present case, is immaterial in the determination of whether the vendee hasan insurable interest or not in the goods in transit. The perfected contract of sale even without delivery vestsin 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 isauthorized 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 thebuyer, the exceptions to said rule not obtaining in the present case. The Court has heretofore ruled that thedelivery of the goods on board the carrying vessels partake of the nature of actual delivery since, from thattime, the foreign buyers assumed the risks of loss of the goods and paid the insurance premium coveringthem. C & F contracts are shipment contracts. The term means that the price fixed includes in a lump sum thecost of the goods and freight to the named destination. It simply means that the seller must pay the costs andfreight necessary to bring the goods to the named destination but the risk of loss or damage to the goods istransferred from the seller to the buyer when the goods pass the ship's rail in the port of shipment.

Oriental Assurance Corporation vs. Court of Appeals [GR 94052, 9 August 1991]

Facts: Sometime in January 1986, Panama Sawmill Co., Inc. (Panama) bought, in Palawan, 1,208 pieces ofapitong logs, with a total volume of 2,000 cubic meters. It hired Transpacific Towage, Inc., to transport thelogs by sea to Manila and insured it against loss for PIM with Oriental Assurance Corporation (OrientalAssurance). There is a claim by Panama, however, that the insurance coverage should have been for P3Mwere it not for the fraudulent act of one Benito Sy Yee Long to whom it had entrusted the amount ofP6,000.00 for the payment of the premium for a P3M policy. Oriental Assurance issued Marine InsurancePolicy OACM-86/002. The logs were loaded on 2 barges: (1) on barge PCT7000,610 pieces of logs with avolume f 1,000 cubic meters; and (2) on Barge TPAC-1000, 598 pieces of logs, also with a volume of 1,000cubic meters. On 28 January 1986, the two barges were towed by one tugboat, the MT "Seminole." But, asfate would have it, during the voyage, rough seas and strong winds caused damage to Barge TPAC-1000resulting in the loss of 497 pieces of logs out of the 598 pieces loaded thereon. Panama demanded paymentfor the loss but Oriental Assurance refuse on the ground that its contracted liability was for "TOTAL LOSSONLY." The rejection was upon the recommendation of the Tan Gatue Adjustment Company. Unable toconvince Oriental Assurance to pay its claim, Panama filed a Complaint for Damages against Ever InsuranceAgency (allegedly, also liable), Benito Sy Lee Yong and Oriental Assurance, before the Regional Trial Court,Kalookan, Branch 123 (Civil Case C-12601). After trial on the merit, the RTC rendered its Decision, orderingOriental Assurance to pay Panama the amount of P415,000.00 as insurance indemnity with interest at the rateof 12% per annum computed from the date of the filing of the complaint; ordering Panama to pay EverInsurance Agency or Antonio Sy Lee Yong, owner thereof (Ever being a single proprietorship) for the amountof P20,000.00 as attorney's fee and another amount of P20,000.00 as moral damages; and dismissing thecomplaint against Benito Sy Lee Yong. On appeal by both parties, the Appellate Court affirmed the lowerCourt judgment in all respects except for the rate of interest, which was reduced from 12% to 6% per annum.Oriental Assurance filed the petition for review on certiorari.

Issue:

Whether Oriental Assurance can be held liable under its marine insurance policy based on the theory ofa divisible contract of insurance and, consequently, a constructive total loss.

Held: NO. No liability attaches. The terms of the contract constitute the measure of the insurer's liability andcompliance therewith is a condition precedent to the insured's right to recovery from the insurer (PerlaCompania de Seguros, Inc. v. Court of Appeals, G.R. No. 78860, May 28, 1990, 185 SCRA 741). Whether acontract is entire or severable is a question of intention to be determined by the language employed by theparties. The policy in question shows that the subject matter insured was the entire shipment of 2,000 cubicmeters of apitong logs. The fact that the logs were loaded on two different barges did not make the contractseveral and divisible as to the items insured. The logs on the two barges were not separately valued orseparately insured. Only one premium was paid for the entire shipment, making for only one cause orconsideration. The insurance contract must, therefore, be considered indivisible. More importantly, theinsurer's liability was for "total loss only." A total loss may be either actual or constructive (Sec. 129,Insurance Code). An actual total loss is caused by: (a) A total destruction of the thing insured; (b) Theirretrievable loss of the thing by sinking, or by being broken up; (c) Any damage to the thing which renders itvalueless to the owner for the purpose for which he held it; or (d) Any other event which effectively deprivesthe owner of the possession, at the port of destination, of the thing insured." (Section 130, Insurance Code). Aconstructive total loss is one which gives to a person insured a right to abandon, under Section 139 of theInsurance Code, which reads "A person insured by a contract of marine insurance may abandon the thinginsured, or any particular portion thereof separately valued by the policy, or otherwise separately insured, andrecover for a total loss thereof, when the cause of the loss is a peril insured against. (a) If more than three-fourths thereof in value is actually lost, or would have to be expended to recover it from the peril; (b) If it isinjured to such an extent as to reduce its value more than three-fourths; xxx" The requirements for theapplication of Section 139 of the Insurance Code, have not been met. The logs involved, although placed in

two barges, were not separately valued by the policy, nor separately insured. Resultantly, the logs lost in bargeTPAC-1000 in relation to the total number of logs loaded on the same barge can not be made the basis fordetermining constructive total loss. The logs having been insured as one inseparable unit, the correct basis fordetermining the existence of constructive total loss is the totality of the shipment of logs. Of the entirety of1,208, pieces of logs, only 497 pieces thereof were lost or 41.45% of the entire shipment. Since the cost ofthose 497 pieces does not exceed 75% of the value of all 1,208 pieces of logs, the shipment can not be said tohave sustained a constructive total loss under Section 139(a) of the Insurance Code. In the absence of eitheractual or constructive total loss, there can be no recovery by the insured Panama against the insurer, OrientalAssurance.

April 18, 1958, G.R. No. L-6106-07MADRIGAL, TIANGCO and CO., plaintiff-appellant,vs. HANSON, ORTH and STEVENSON, INC., defendant-appellee.

On 6 January 1948, for and in consideration of the sum of P1,750 to be paid monthly as rental, a motor launch named “Isla Verde” owned by the plaintiffs was chartered by the defendant for six months from the date of actual delivery and acceptance, under and by virtue of a contract which, among other terms, required delivery thereof on 20 January 1948, in seaworthy condition together with the necessary documents to enable her to navigate. Delivery of the motor launch was not made as agreed upon, because it was on 12 January 1948 only that the motor launch was dry docked at Malabon to undergo repairs; and on 28 January 1948 she was transferred to the dock of the defendant near the Hospicio de San Jose of the Isla Convalesencia and there some additional improvements were made on the motor launch. On the 29th, manned by a complement engaged by the defendant, the motor launch was put to sea and at 5:00 o’clock a.m. of the following day she sank off the coast of Limay, province of Bataan, becoming a total loss. To recover P50,000, the estimated value of the motor launch with all equipment and tackle and a monthly rental of P1,750, the plaintiffs brought this action. The Rehabilitation Finance Corporation, successor to the Agricultural and Industrial Bank, was allowed to intervene to recover P10,745.06, together with a daily interest thereon of P1.77 from 18

January 1950 until the (late of payment thereof, from the plaintiffs, should they be successful in their claim against either the defendant or the insurance company, against which an action was also brought by the plaintiff to recover the amount for which the motor launch was insured under a policy issued by the insurance company. As the intervenor has not appealed from the judgment dismissing its complaint, the same is no longer involved in these appeals.The defendant in his answer denies liability for the sinking of the motor launch and claims in a counterclaim P5,000 for unrealized profits; P2,500 for equipment and fishing tackle; P1,086.16 for the cost of repairs of four sets of nets and the value of the new ropes; and P1,485.28 for the value of 5 blocks of ice, 2,754 gallons of crude oil, 3 drums of motor oil and 300 fish boxes.After hearing the Court rendered judgment dismissing the complaint without pronouncement as to costs, on the ground that although it found that there had been delivery of the motor launch to the defendant, yet she was unseaworthy. For the same reason the action against Hanson, Orth and Stevenson, Inc. to recover the amount for which the motor launch was insured under a policy issued by it was dismissed with costs against the plaintiff. From the judgment rendered in civil case No. 4616 of the Court of First Instance of Manila, both the plaintiffs and the defendant have appealed (G.R. No. L-6107); and from that rendered in civil case No. 5756 of the same Court the plaintiff also has appealed (G.R. No. L-6106).The plaintiffs contend that, as found by the trial court, there was delivery of the motor launch to the defendant and that this finding not having been appealed by the defendant is now final. On the other hand, the defendant claims that the sinking of the motor launch off the coast of Limay, Bataan, was due to her unseaworthiness and not to the incompetence or negligence of the complement engaged by him (defendant) to man her.The preponderance of evidence leans towards the conclusion that there was no delivery of the motor launch in accordance with the terms of the contract, because there was no license issued by the Bureau of Customs, the license of the motor launch having expired on 6 June 1947 (Exhibit E) and the special permit, on 15 December 1947 (Exhibits F and 12); there was no license issued by the Bureau Fisheries authorizing the motor launch to engage in deep sea fishing; and the defendant refused to sign a document, dated 28 January 1948 purporting to acknowledge receipt or acceptance of the motor launch and to waive the delivery thereof on 20 January 1948 ( Exhibit 3) in accordance with

the terms of the contract (Exhibit A). Nevertheless, even if the motor launch was not delivered on the date agreed upon, the fact that the defendant took possession thereof when she was put to on 29 January 1948; and that if on that trip the motor launch sank due to the negligence or incompetence of the patron, engineer, or crew engaged by the defendant to manger, provided that she was seaworthy, the defendant would still be responsible for the sinking of the motor launch, because he has to answer for the negligent acts of his agents. Hence whether there was actual delivery or it was merely a trial run becomes unimportant if the motor launch was unseaworthy. Again the preponderance of evidence leans toward the conclusion that the motor launch was unseaworthy. And this conclusion is supported by the fact that there was no typhoon; that the waves were those that were caused by the monsoon winds of the season (Exhibit 13-E) ; and that the or hit anything during her cruise in the bay (Exhibit 13-C). The claim of the plaintiffs that the big waves of the sea filled the engine room with water, one and one-half or two feet high, as a result of which the engine stopped, and that the water could not be pumped out by the bilge pump, cannot be believed, because according to Pedro Ala and Eugenio Maraginot they saw the water bubbling in the engine room (pp. 738, 808, t.s.n.) and this testimony is corroborated by Zoilo Belale, the patron, who said that he thought the water entered the engine room through the tail shaft but that he was wondering why it was filled with water so soon (Exhibit 13-B, p. 3). This was also found by the board of inquiry of the Bureau of Customs that investigated the sinking of the motor launch with a view to finding the responsibility of the patron. For, that reason the board exonerated the patron from any negligence arising from the sinking of the motor launch (Exhibit 13-C). The plaintiffs argue and contend that the board did not have jurisdiction to make such finding and that it was a mere conjecture. The cause of the sinking of the motor launch was connected with the responsibility of the patron for the sinking thereof. It is true that nobody saw the underneath plankings give way; but this fact may be inferred from the established facts that there was no typhoon; that there were no big waves; that the motor launch did not touch bottom or hit anything before she sank; and that the water was bubbling in the engine room.The plaintiff s further contend that the motor launch was put to sea on 29 January 1948 an uneven keel; that she was not properly loaded, because the oil weighing 11 tons and water weighing 1 or 2 tons were placed at the astern, whereas only a few blocks of ice weighing 1,500 pounds were at the prow

of the motor launch; that this unbalanced loading became worse because of the fishing nets attached to the rear of the motor launch, of the weight of the chain which was 140 kilos, of the stones which was 40 kilos and of the aldake which could be carried only by four persons if not wet and by six if wet. They conclude that the uneven keel of the motor launch constitutes negligence on the part of the complement and the direct cause of the sinking thereof. The fact that the motor launch was run and operated for 17 hours in the bay without mishap is strong proof that the cause of the sinking was not the uneven keel. It was a different cause which as above stated is inferred from established facts which need not be restated.Another contention is that the motor launch was thoroughly repaired and overhauled. But such repair did not include the hull. If only water entered the engine room through the tail shaft, it would not have been bubbling and could have been pumped out easily.As to the claim of the defendant in his counterclaim, the trial court made the following pronouncements.With respect to the counterclaim of the defendant, the Court agrees with the plaintiffs that the amount of P5,000 cannot be recovered. As to the amount of P2,500, the represents the purchase price of the by the plaintiffs to the defendant. Under the defendant is not entitled to the refund of said amount. As to the repairs made on old equipment and the acquisition of new ones, the charter party being silent about the same, the defendant cannot recover their cost from the plaintiffs.We agree to this pronouncement of the trial court.The finding that the motor launch was unseaworthy at the time she sank precludes recovery by the plaintiffs of the amount for which the motor launch was insured under the policy issued by the insurance company (paragraph 7 of the Marine Hull Policy, Annex A to the complaint filed in civil case No. 5756).The judgments appealed from are affirmed, without pronouncement as to costs.