Digests Marine Onwards

30 Roque vs. Intermediate Appellate Court [GR L-66935, 11 November 1985] First Division, Gutierrez (J): 5 concur, 1 on leave Facts: On 19 February 1972, the Manila Bay Lighterage Corporation (MBLC) a 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 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. After hearing, the trial court found in favor of Roque and Ong, condemning MBLC and Pioneer to pay Roque and Ong, jointly and severally, the sum of P100,000.00; sentencing MBLC to pay Roque and Ong, in addition, the sum of P50,000.00, plus P12,500.00, that the latter advanced to the former as down payment for transporting the logs in 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 may pay Roque and Ong as such surety; ordering the counterclaim of MBLC against Roque and Ong, dismissed for lack of merit; dismissing Roque's and Ong's claim of not less than P100,000.00 and P75,000.00 as exemplary damages, for lack of merit; granting Roque's and Ong's claim for attorney's fees in the sum of P10,000.00; ordering MBLC and Pioneer to pay the costs; and holding that the sum of P150,000.00 award to Roque and Ong, shall bear interest of 6% from 25 March 1975, until amount is fully paid. 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. On 30 January 1984, the appellate court modified the trial court's decision and absolved Pioneer from liability after finding that there was a breach of implied warranty of seaworthiness on the part of Roque and Ong and that the loss of the insured cargo was caused by the "perils of the 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 for certiorari. Issue [1]: Whether there is a warranty of seaworthiness by the cargo owner in cases of marine cargo insurance. Held [1]: YES. There is no dispute over the liability of the common carrier MBLC. In fact, it did not bother to appeal the questioned decision. However, Roque and Ong state that MBLC has ceased operating as a firm and nothing may be recovered from it. They are, therefore, trying to recover their losses from the insurer. The liability of the insurance company is governed by law. Section 113 of the Insurance Code provides that "In every marine insurance upon a ship or freight, or freightage, or upon any thing which is the subject of marine insurance, a warranty is implied that the ship is seaworthy." Section 99 of the same Code also provides in part that "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, the implied warranty of seaworthiness immediately attaches to whoever is insuring the cargo whether he be the shipowner or not. As ruled in the case of Go Tiaoco y Hermanos v. Union Insurance Society of Canton (40 Phil. 40), "it is universally accepted that in every contract of insurance upon anything which is the subject of marine insurance, a warranty is implied that the ship shall be seaworthy at the time of the inception of the voyage. This rule is accepted in our own Insurance Law (Act No. 2427, sec. 106)." 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. As was held in Richelieu and Ontario Nav. Co. v. Boston Marine, Inc., Co. (136 U.S. 406), "the exception of losses occasioned by unseaworthiness was in effect a warranty that a loss should not be so occasioned, and whether the fact of unseaworthiness were known or unknown would be immaterial." Since the law provides for an implied warranty of seaworthiness in every contract of ordinary marine insurance, it becomes the obligation of a cargo owner to look for a reliable common carrier which keeps its vessels in seaworthy condition. 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. Or the cargo owner may enter into a contract of insurance which specifically provides that 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 marine cases, the risks insured against are 'perils of the sea' (Chute v. North River Ins. Co., Minn. 214 NW 472, 55 ALR 933). The purpose of such insurance is protection against contingencies and against possible damages and such a policy does not cover a loss or injury which must inevitably take place in the ordinary course of things. There is no doubt that the term 'perils of the sea' extends only to losses caused by sea damage, or by the 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, rocks and the like. These are understood to be the 'perils of the sea' referred in the policy, and not those ordinary perils which every vessel must encounter. 'Perils of the sea' has been said to include only such losses as are of extraordinary nature, or arise from some overwhelming power, which cannot be guarded against by the ordinary exertion of human skill and prudence. Damage done to a vessel by perils of the sea includes every species 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 her voyage (as in this case). It is also the general rule that everything which happens thru the inherent vice of the thing, or by the act of the owners, master or shipper, shall not be reputed a peril, if not otherwise borne in the policy. (14 RCL on 'Insurance', Sec. 384, pp. 1203-1204; Cia. de Navegacion v. Firemen's Fund Ins. Co., 277 US 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 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. In fact, in Roque's and Ong's complaint, it is alleged that the barge Mable 10 of MBLC developed a leak which allowed water to come in and that one of the hatches of said barge was negligently left open by the person 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 quite unmistakable that the loss of the cargo was due to the perils of the ship rather than the perils of the sea. The facts clearly negate Roque's and Ong's claim under the insurance policy. In the case of Go Tiaoco y Hermanos v. Union Ins. Society of Canton, the Court had occasion to elaborate on 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.' The insurer undertakes to insure against perils of the sea and similar perils, not against perils of the ship. As was well said by Lord Herschell in Wilson, Sons & Co. v. Owners of Cargo per the Xantho ([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 the policy is to secure an indemnity against accidents which may happen, not against events which must happen.” 31 La Razon Social "Go Tiaoco y Hermanos" vs. Union Insurance Society of Canton Ltd. [GR 13983, 1 September 1919] First Division, Street (J): 6 concur, 1 dissents Facts: A cargo of rice belonging to the Go Tiaoco Brothers, was transported in the early days of May, 1915, on the steamship Hondagua from the port of Saigon to Cebu. On discharging the rice from one of the compartments in the after hold, upon arrival at Cebu, it was discovered that 1,473 sacks had been damaged by sea water. The loss so resulting to the owners of rice, after proper deduction had been made for the portion saved, was P3,875. The policy of insurance, covering the shipment, was signed upon a form long in use among companies engaged in maritime insurance. It purports to insure the cargo from the following among other risks: "Perils . . . of the seas, men, of war, fire, enemies, pirates, rovers, thieves, .jettisons, . . . barratry of the master and mariners, and of all other perils, losses, and misfortunes that have or shall come to the hurt, detriment, or damage of the said goods and merchandise or any part thereof." It was found out that the drain pipe which served as a discharge from the water closet passed down through the compartment where the rice in question was stowed and thence out to sea through the wall of the compartment, which was a part of the wall of the ship. The joint or elbow where the pipe changed its direction was of cast iron; and in course of time it had become corroded and abraded until a longitudinal opening had appeared in the pipe about one inch in length. This hole had been in existence before the voyage was begun, and an attempt had been made to repair it by filling with cement and bolting over it a strip of iron. The effect of loading the boat was to submerge the vent, or orifice, of the pipe until it was about 18 inches or 2 feet below the level of the sea. As a consequence the sea water rose in the pipe. Navigation under these conditions resulted in the washing out of the cement-filling from the action of the sea water, thus permitting the continued flow of the salt water into the compartment of rice. An action on a policy of marine insurance issued by the Union Insurance Society of Canton, Ltd., upon the cargo of rice belonging to the Go Tiaoco Brothers was filed. The trial court found that the inflow of the sea water during the voyage was due to a defect in one of the drain pipes of the ship and concluded that the loss was not covered by the policy of insurance. Judgment was accordingly entered in favor of Union Insurance and Go Tiaoco Brothers appealed. Issue [1]: Whether perils of the sea includes “entrance of water into the ship’s hold through a defective pipe.” Held [1]: NO. It is determined that the words "all other perils, losses, and misfortunes" are to be interpreted as covering risks which are of like kind (ejusdem generis) with the particular risks which are enumerated in the preceding part of the same clause of the contract. According to the ordinary rules of construction these words must be interpreted with reference to the words which immediately precede them. They were no doubt inserted in order to prevent disputes founded on nice distinctions. Their office is to cover in terms whatever may be within the spirit of the cases previously enumerated, and so they have a greater or less effect as a narrower or broader view is taken of those cases. For example, if the expression "perils of the seas" is given its widest sense the general words have little or no effect as applied to that case. If on the other hand that expression is to receive a limited construction and loss by perils of the seas is to be confined to loss ex marine tempestatis discrimine, the general words become most important. But still, when they first became the subject of judicial construction, they have always been held or assumed to be restricted to cases "akin to" or "resembling" or "of the same kind as" those specially mentioned. I see no reason for departing from this settled rule. In marine insurance it is above all things necessary to abide by settled rules and to avoid anything like novel refinements or a new departure. It must be considered to be settled, furthermore, that a loss which, in the ordinary course of events, results from the natural and inevitable action of the sea, from the ordinary wear and tear of the ship, or from the negligent failure of the ship's owner to provide the vessel with proper equipment to convey the cargo under ordinary conditions, is not a peril of the sea. Such a loss is rather due 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 against perils of the ship. There must, in order to make the insurer liable, be "some casualty, something which could not be foreseen as one of the necessary incidents of the adventure. The purpose of the policy is to secure an indemnity against accidents which may happen, not against events which must happen." Herein, the entrance of the sea water into the ship's hold through the defective pipe already described was not due to any accident which happened during the voyage, but to the failure of the ship's owner properly to repair a defect of the existence of which he was apprised. The loss was therefore more analogous to that which directly results from simple unseaworthiness than to that which results from perils of the sea. Issue [2]: Whether there is an implied warranty on the seaworthy of the vessel in every marine insurance contract. Held [2]: YES. It is universally accepted that in every contract of insurance upon anything which is the subject of marine insurance, a warranty is implied that the ship shall be seaworthy at the time of the inception of the voyage. This rule is accepted in our own Insurance Law (Act No. 2427, sec. 106). It is also well settled that a ship which is seaworthy for the purpose of insurance upon the ship may yet be unseaworthy for the purpose of insurance upon the cargo (Act No. 2427, sec. 106).

32 Cathay Insurance Co. vs. Court of Appeals [GR 76145, 30 June 1987]Second Division, Paras (J): 3 concur, 2 took no part 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 a shipment of seamless steel pipes under an insurance contract in favor of Remington as the insured, consignee or 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 a dollar in June and July 1984, when the shipment was made. The trial court decided in favor of Remington by ordering 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 the aforecited amount at the rate of 34% or double the ceiling prescribed by the Monetary Board per annum from 3 February 1982 or 90 days from Remington's submission of proof of loss to Cathay Insurance until paid as provided in the settlement of claim provision of the policy; and ordering Cathay Insurance to pay Remington certain amounts for marine surveyor's fee, attorney's fees and costs of the suit. On appeal, the Court of Appeals 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 the insurance 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 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 Cathay Insurance 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 Cathay Insurance's answer to Remington'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 Cathay Insurance was more than clarified by no less than 2 witnesses; (7) The placing of notation "rusty" in the way bills is not only Remington's right but a natural and spontaneous reaction of whoever received the seamless steel pipes in a rusty condition at Remington'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; and (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. Cathay Insurance however maintains that (1) Remington does not dispute the fact that, contrary to the finding of the respondent Court (that Cathay Insurance has failed "to present any evidence of any viable exception to the application of the policy") there is in fact an express exception to the application of the policy; (2) As adverted to in the Petition for Review, Remington has admitted that the questioned shipment is not 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 that rusting is a peril of the sea is erroneous; (4) Remington 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) Remington 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 7 day voyage. Besides, Cathay Insurance had introduced the clear cargo receipts or tally sheets indicating that there was no damage on the steel pipes during the voyage; and (8) The evidence of Remington 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. Issue: Whether the rusting of steel pipes in the course of a voyage is a "peril of the sea," and whether rusting is 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 held accountable 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. 33 Filipino Merchants Insurance Co. Inc. vs. Court of Appeals [GR 85141, 28 November 1989 Second Division, Regalado (J): 3 concur, 1 on leave Facts: In December 1976, Choa Tiek Seng insured said shipment with Filipino Merchants Insurance Company (FMICI) under cargo Policy M2678 for the sum of P267,653.59 for the goods described as 600 metric tons of fishmeal in new gunny bags of 90 kilos each from Bangkok, Thailand to Manila against all risks under warehouse to warehouse terms. Actually, what was imported was 59.940 metric tons not 600 tons at $395.42 a ton CNF Manila. The fishmeal in 666 new gunny bags were unloaded from the ship on 11 December 1976 at Manila unto the arrastre contractor E. Razon, Inc. and FMICI's surveyor ascertained and certified that in such discharge 105 bags were in bad order condition as jointly surveyed by the ship's agent and the arrastre contractor. The condition of the bad order was reflected in the turn over survey report of Bad Order cargoes 120320 to 120322, consisting of 3 pages. The cargo was also surveyed by the arrastre contractor before delivery of the cargo to the consignee and the condition of the cargo on such delivery was reflected in E. Razon's Bad Order Certificates 14859, 14863 and 14869 covering a total of 227 bags in bad order condition. FMICI's surveyor has conducted a final and detailed survey of the cargo in the warehouse for which he prepared a survey report with the findings on the extent of shortage or loss on the bad order bags totalling 227 bags amounting to 12,148 kilos. Based on said computation, Choa made a formal claim against FMICI for P51,568.62 the computation of which claim is contained therein. A formal claim statement was also presented by the Choa against the vessel dated 21 December 1976, but FMICI refused to pay the claim. Consequently, an action was brought by the consignee (Choa Tiek Seng) of the shipment of fishmeal loaded on board the vessel SS Bougainville and unloaded at the Port of Manila on or about 11 December 1976 and seeks to recover from FMICI the amount of P51,568.62 representing damages to said shipment which has been insured by FMICI under Policy M-2678. FMICI brought a third party complaint against third party defendants Compagnie Maritime Des Chargeurs Reunis and/or E. Razon, Inc. seeking judgment against the third party defendants in case judgment is rendered against FMICI. The court below, after trial on the merits, rendered judgment in favor of Choa, ordering FMICI to pay Choa the sum of P51,568.62 with interest at legal rate from the date of the filing of the complaint; and, on the third party complaint, the third party defendant Compagnie Maritime Des Chargeurs Reunis and third party defendant E. Razon, Inc. are ordered to pay FMICI jointly and severally reimbursement of the amounts paid by FMICI with legal interest from the date of such payment until the date of such reimbursement; without pronouncement as to costs. On

appeal, and on 18 July 1988, the Court of Appeals affirmed the decision of the lower court insofar as the award on the complaint is concerned and modified the same with regard to the adjudication of the third-party complaint. A motion for reconsideration of the aforesaid decision was denied, hence FMICI filed the petition for review. Issue [1]: Whether an "all risks" marine policy has a technical meaning in insurance in that before a claim can be compensable it is essential that there must be "some fortuity," "casualty" or "accidental cause" to which the alleged loss is attributable. Held [1]: NO. The "all risks clause" of the Institute Cargo Clauses read as follows "5. This insurance is against all risks of logs or damage to the subject-matter insured but shall in no case be deemed to extend to cover loss, damage, or expense proximately caused by delay or inherent vice or nature of the subject-matter insured. Claims recoverable hereunder shall be payable irrespective of percentage." An "all risks policy" should be read literally as meaning all risks whatsoever and covering all losses by an accidental cause of any kind. The terms "accident" and "accidental", as used in insurance contracts, have not acquired any technical meaning. They are construed by the courts in their ordinary and common acceptance. Thus, the terms have been taken to mean that which happens by chance or fortuitously, without intention and design, and which is unexpected, unusual and unforeseen. An accident is an event that takes place without one's foresight or expectation; an event that proceeds from an unknown cause, or is an unusual effect of a known cause and, therefore, not expected. The very nature of the term "all risks" must be given a broad and comprehensive meaning as covering any loss other than a wilful and fraudulent act of the insured. This is pursuant to the very purpose of an "all risks" insurance to give protection to the insured in those cases where difficulties of logical explanation or some mystery surround the loss or damage to property. An "all risks" policy has been evolved to grant greater protection than that afforded by the "perils clause," in order to assure that no loss can happen through the incidence of a cause neither insured against nor creating liability in the ship; it is written against all losses, that is, attributable to external causes. The term "all risks" cannot be given a strained technical meaning, the language of the clause under the Institute Cargo Clauses being unequivocal and clear, to the effect that it extends to all damages/losses suffered by the insured cargo except (a) loss or damage or expense proximately caused by delay, and (b) loss or damage or expense proximately caused by the inherent vice or nature of the subject matter insured. Issue [2]: Whether the failure of Choa to adduce evidence, showing that the alleged loss to the cargo in question was due to a fortuitous event, precludes his right to recover from the insurance policy. Held [2]: NO. Although generally, the burden of proof is upon the insured to show that a loss arose from a covered peril, under an "all risks" policy the burden is not on the insured to prove the precise cause of loss or damage for which it seeks compensation. The insured under an "all risks insurance policy" has the initial burden of proving that the cargo was in good condition when the policy attached and that the cargo was damaged when unloaded from the vessel; thereafter, the burden then shifts to the insurer to show the exception to the coverage. As held in Paris-Manila Perfumery Co. vs. Phoenix Assurance Co., Ltd. the basic rule is that the insurance company has the burden of proving that the loss is caused by the risks excepted and for want of such proof, the company is liable. Coverage under an "all risks" provision of a marine insurance policy creates a special type of insurance which extends coverage to risks not usually contemplated and avoids putting upon the insured the burden of establishing that the loss was due to the peril falling within the policy's coverage; the insurer can avoid coverage upon demonstrating that a specific provision expressly excludes the loss from coverage. A marine insurance policy providing that the insurance was to be "against all risks" must be construed as creating a special insurance and extending to other risks than are usually contemplated, and covers all losses except such as arise from the fraud of the insured. The burden of the insured, therefore, is to prove merely that the goods he transported have been lost, destroyed or deteriorated. Thereafter, the burden is shifted to the insurer to prove that the loss was due to excepted perils. To impose on the insured the burden of proving the precise cause of the loss or damage would be inconsistent with the broad protective purpose of "all risks" insurance. Issue [3]: Whether the insurer is liable Issue [4]: There being no showing that the loss was caused by any of the excepted perils, the insurer is liable under the policy. It is believed that in the absence of any showing that the losses/damages were caused by an excepted peril, i.e. delay or the inherent vice or nature of the subject matter insured, and there is no such showing, the loss was covered by the policy. Herein, there is no evidence presented to show that the condition of the gunny bags in which the fishmeal was packed was such that they could not hold their contents in the course of the necessary transit, much less any evidence that the bags of cargo had burst as the result of the weakness of the bags themselves. Had there been such a showing that spillage would have been a certainty, there may have been good reason to plead that there was no risk covered by the policy (See Berk vs. Style [1956] cited in Marine Insurance Claims, p. 125). Under an “all risks” policy, it was sufficient to show that there was damage occasioned by some accidental cause of any kind, and there is no necessity to point to any particular cause. Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the policy. The agreement has the force of law between the parties. The terms of the policy constitute the measure of the insurer's liability. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense. Issue [4]: Whether the consignee (Choa) has an insurable interest in said goods. Held [4]: Choa, as consignee of the goods in transit under an invoice containing the terms under "C & F Manila," has insurable interest in said goods. Section 13 of the Insurance Code defines insurable interest in property as every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured. In principle, anyone has an insurable interest in property who derives a benefit from its existence or would suffer loss from its destruction whether he has or has not any title in, or lien upon or possession of the property. Insurable interest in property may consist in (a) an existing interest; (b) an inchoate interest founded on an existing interest; or (c) an expectancy, coupled with an existing interest in that out of which the expectancy arises. As vendee/consignee of the goods in transit has such existing interest therein as may be the subject of a valid contract of insurance. His interest over the goods is based on the perfected contract of sale. The perfected contract of sale between him and the shipper of the goods operates to vest in him an equitable title even before delivery or before he performed the conditions of the sale. The contract of shipment, whether under F.O.B., C.I.F., or C. & F. as in the present case, is immaterial in the determination of whether the vendee has an insurable interest or not in the goods in transit. The perfected contract of sale even without delivery vests in the vendee an equitable title, an existing interest over the goods sufficient to be the subject of insurance. Further, Article 1523 of the Civil Code provides

that where, in pursuance of a contract of sale, the seller is authorized or required to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for, the purpose of transmission to the buyer is deemed to be a delivery of the goods to the buyer, the exceptions to said rule not obtaining in the present case. The Court has heretofore ruled that the delivery of the goods on board the carrying vessels partake of the nature of actual delivery since, from that time, the foreign buyers assumed the risks of loss of the goods and paid the insurance premium covering them. C & F contracts are shipment contracts. The term means that the price fixed includes in a lump sum the cost of the goods and freight to the named destination. It simply means that the seller must pay the costs and freight necessary to bring the goods to the named destination but the risk of loss or damage to the goods is transferred from the seller to the buyer when the goods pass the ship's rail in the port of shipment. 34 Oriental Assurance Corporation vs. Court of Appeals [GR 94052, 9 August 1991]Second Division, Melencio-Herrera (J): 4 concur Facts: Sometime in January 1986, Panama Sawmill Co., Inc. (Panama) bought, in Palawan, 1,208 pieces of apitong logs, with a total volume of 2,000 cubic meters. It hired Transpacific Towage, Inc., to transport the logs by sea to Manila and insured it against loss for PIM with Oriental Assurance Corporation (Oriental Assurance). There is a claim by Panama, however, that the insurance coverage should have been for P3M were it not for the fraudulent act of one Benito Sy Yee Long to whom it had entrusted the amount of P6,000.00 for the payment of the premium for a P3M policy. Oriental Assurance issued Marine Insurance Policy OACM-86/002. The logs were loaded on 2 barges: (1) on barge PCT7000,610 pieces of logs with a volume f 1,000 cubic meters; and (2) on Barge TPAC-1000, 598 pieces of logs, also with a volume of 1,000 cubic meters. On 28 January 1986, the two barges were towed by one tugboat, the MT "Seminole." But, as fate would have it, during the voyage, rough seas and strong winds caused damage to Barge TPAC-1000 resulting in the loss of 497 pieces of logs out of the 598 pieces loaded thereon. Panama demanded payment for the loss but Oriental Assurance refuse on the ground that its contracted liability was for "TOTAL LOSS ONLY." The rejection was upon the recommendation of the Tan Gatue Adjustment Company. Unable to convince Oriental Assurance to pay its claim, Panama filed a Complaint for Damages against Ever Insurance Agency (allegedly, also liable), Benito Sy Lee Yong and Oriental Assurance, before the Regional Trial Court, Kalookan, Branch 123 (Civil Case C12601). After trial on the merit, the RTC rendered its Decision, ordering Oriental Assurance to pay Panama the amount of P415,000.00 as insurance indemnity with interest at the rate of 12% per annum computed from the date of the filing of the complaint; ordering Panama to pay Ever Insurance Agency or Antonio Sy Lee Yong, owner thereof (Ever being a single proprietorship) for the amount of P20,000.00 as attorney's fee and another amount of P20,000.00 as moral damages; and dismissing the complaint against Benito Sy Lee Yong. On appeal by both parties, the Appellate Court affirmed the lower Court 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 of a 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 and compliance therewith is a condition precedent to the insured's right to recovery from the insurer (Perla Compania de Seguros, Inc. v. Court of Appeals, G.R. No. 78860, May 28, 1990, 185 SCRA 741). Whether a contract is entire or severable is a question of intention to be determined by the language employed by the parties. The policy in question shows that the subject matter insured was the entire shipment of 2,000 cubic meters of apitong logs. The fact that the logs were loaded on two different barges did not make the contract several and divisible as to the items insured. The logs on the two barges were not separately valued or separately insured. Only one premium was paid for the entire shipment, making for only one cause or consideration. The insurance contract must, therefore, be considered indivisible. More importantly, the insurer'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) The irretrievable loss of the thing by sinking, or by being broken up; (c) Any damage to the thing which renders it valueless to the owner for the purpose for which he held it; or (d) Any other event which effectively deprives the owner of the possession, at the port of destination, of the thing insured." (Section 130, Insurance Code). A constructive total loss is one which gives to a person insured a right to abandon, under Section 139 of the Insurance Code, which reads "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 insured against. (a) If more than threefourths 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; xxx" The requirements for the application 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 barge TPAC-1000 in relation to the total number of logs loaded on the same barge can not be made the basis for determining constructive total loss. The logs having been insured as one inseparable unit, the correct basis for determining the existence of constructive total loss is the totality of the shipment of logs. 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. In the absence of either actual or constructive total loss, there can be no recovery by the insured Panama against the insurer, Oriental Assurance. 35 Finman General Assurance Corporation vs. Court of Appeals [GR 100970, 2 September 1992]Second Division, Nocon (J): 4 concur Facts: On 22 October 1986, deceased Carlie Surposa was insured with Finman General Assurance Corporation under Finman General Teachers Protection Plan Master Policy 2005 and Individual Policy 08924 with his parents, spouses Julia and Carlos Surposa, and brothers Christopher, Charles, Chester and Clifton, all surnamed Surposa, as beneficiaries. While said insurance policy was in full force and effect, the insured, Carlie Surposa, died on 18 October 1988 as a result of a stab wound inflicted by one of 3 unidentified men without provocation and warning on the part of the former as he and his cousin, Winston Surposa, were waiting for a ride on their way home along Rizal-Locsin Streets, Bacolod City after attending the celebration of the "Maskarra Annual Festival." Thereafter, Julia Surposa and the other beneficiaries of said insurance policy filed a written notice of claim with Finman which denied said claim contending that murder and assault are not within the scope of the coverage of the insurance policy. On 24 February 1989, Surposa filed a complaint with the Insurance Commission which subsequently rendered a decision, ordering Finman liable to pay Surposa the sum of P15,000.00 representing the proceeds of the policy with interest from the date of the filing of the complaint until fully satisfied. As no evidence was submitted to prove the claim for mortuary aid in the sum of P1,000.00, the same was not entertained. On 11 July 1991, the appellate court affirmed said decision. Finman filed the petition for certiorari.

Issue: Whether the death was committed with deliberate intent which, by the very nature of a personal accident insurance policy, cannot be indemnified. Held: NO. The terms "accident" and "accidental," as used in insurance contracts have not acquired any technical meaning, and are construed by the courts in their ordinary and common acceptation. Thus, the terms have been taken to mean that which happen by chance or fortuitously, without intention and design, and which is unexpected, unusual, and unforeseen. An accident is an event that takes place without one's foresight or expectation — an event that proceeds from an unknown cause, or is an unusual effect of a known cause and, therefore, not expected. The generally accepted rule is that, death or injury does not result from accident or accidental means within the terms of an accident-policy if it is, the natural result of the insured's voluntary act, unaccompanied by anything unforeseen except the death or injury. There is no accident when a deliberate act is performed unless some additional, unexpected, independent, and unforeseen happening occurs which produces or brings about the result of injury or death. In other words, where the death or injury is not the natural or probable result of the insured's voluntary act, or if something unforeseen occurs in the doing of the act which produces the injury, the resulting death is within the protection of the policies insuring against death or injury from accident. Herein, it cannot be pretended that Carlie Surposa died in the course of an assault or murder as a result of his voluntary act considering the very nature of these crimes. In the first place, the insured and his companion were on their way home from attending a festival. They were confronted by unidentified persons. The record is barren of any circumstance showing how the stab wound was inflicted. Nor can it be pretended that the malefactor aimed at the insured precisely because the killer wanted to take his life. In any event, while the act may not exempt the unknown perpetrator from criminal liability, the fact remains that the happening was a pure accident on the part of the victim. The insured died from an event that took place without his foresight or expectation, an event that proceeded from an unusual effect of a known cause and, therefore, not expected. Neither can it be said that there was a capricious desire on the part of the accused to expose his life to danger considering that he was just going home after attending a festival. Furthermore, the personal accident insurance policy involved specifically enumerated only 10 circumstances wherein no liability attaches to Finamn for any injury, disability or loss suffered by the insured as a result of any of the stipulated causes. The principle of "expresso unius exclusio alterius" — the mention of one thing implies the exclusion of another thing — is therefore applicable in the present case since murder and assault, not having been expressly included in the enumeration of the circumstances that would negate liability in said insurance policy cannot be considered by implication to discharge Finman from liability for any injury, disability or loss suffered by the insured. Thus, the failure of Finman to include death resulting from murder or assault among the prohibited risks leads inevitably to the conclusion that it did not intend to limit or exempt itself from liability for such death. 36 Sun Insurance Office Ltd. vs. Court of Appeals [GR 92383, 17 July 1992]First Division, Cruz (J): 3 concur Facts: Sun Insurance Office Ltd. issued Personal Accident Policy 05687 to Felix Lim, Jr. with a face value of P200,000.00. Two months later, he was dead with a bullet wound in his head. As beneficiary, his wife Nerissa Lim sought payment on the policy but her claim was rejected. Sun Insurance agreed that there was no suicide. It argued, however, that there was no accident either. Pilar Nalagon, Lim's secretary, was the only eyewitness to his death. It happened on 6 October 1982, at about 10 p.m., after his mother's birthday party. According to Nalagon, Lim was in a happy mood (but not drunk) and was playing with his handgun, from which he had previously removed the magazine. As she watched the television, he stood in front of her and pointed the gun at her. She pushed it aside and said it might be loaded. He assured her it was not and then pointed it to his temple. The next moment there was an explosion and Lim slumped to the floor. He was dead before he fell. The widow sued Sun Insurance in the Regional Trial Court of Zamboanga City and was sustained. Sun Insurance was sentenced to pay her P200,000.00, representing the face value of the policy, with interest at the legal rate; P10,000.00 as moral damages; P5,000.00 as exemplary damages; P50,000.00 as actual and compensatory damages; and P5,000.00 as attorney's fees, plus the cost of the suit. This decision was affirmed on appeal, and the motion for reconsideration was denied. Sun Insurance then came to the Supreme Court. Issue: Whether the insured willfully exposed himself to needless peril and thus removed himself from the coverage of the insurance policy. Held: NO. An accident is an event which happens without any human agency or, if happening through human agency, an event which, under the circumstances, is unusual to and not expected by the person to whom it happens. It has also been defined as an injury which happens by reason of some violence or casualty to the insured without his design, consent, or voluntary co-operation. Herein, the incident that resulted in Lim's death was indeed an accident. On the other hand, the parties agree that Lim did not commit suicide. Nevertheless, Sun Insurance contends that the insured willfully exposed himself to needless peril and thus removed himself from the coverage of the insurance policy. It should be noted at the outset that suicide and willful exposure to needless peril are in pari materia because they both signify a disregard for one's life. The only difference is in degree, as suicide imports a positive act of ending such life whereas the second act indicates a reckless risking of it that is almost suicidal in intent. The posture -- that by the mere act of pointing the gun to his temple, Lim had willfully exposed himself to needless peril and so came under the exception -- is arguable. But what is not is that Lim had removed the magazine from the gun and believed it was no longer dangerous. He expressed assured her that the gun was not loaded. It is submitted that Lim did not willfully expose himself to needless peril when he pointed the gun to his temple because the fact is that he thought it was not unsafe to do so. The act was precisely intended to assure Nalagon that the gun was indeed harmless. Lim was unquestionably negligent and that negligence cost him his own life. But it should not prevent his widow from recovering from the insurance policy he obtained precisely against accident. There is nothing in the policy that relieves the insurer of the responsibility to pay the indemnity agreed upon if the insured is shown to have contributed to his own accident. Indeed, most accidents are caused by negligence. There are only four exceptions expressly made in the contract to relieve the insurer from liability, and none of these exceptions is applicable in the present case. It bears noting that insurance contracts are as a rule supposed to be interpreted liberally in favor of the assured. There is no reason to deviate from this rule, especially in view of the circumstances of the case. BIAGTAN VS. THE INSULAR LIFE ASSURANCE COMPANY LTD 44 SCRA 58 (G.R. NO. L-25579)MARCH 29, 1972 Petitioner/Appellant: The Insular Life Assurance Company Ltd.

Respondent/Appellee: Emilia T. Biagtan, Juan T. Biagtan, Jr., Miguel T. Biagtan, Gil T. Biagtan and Gracia T. Biagtan

J. Makalintal: FACT: Juan S. Biagtan was insured with defendant Insular Life Assurance Company Ltd. for the sum of ₱ 5,000.00 and under a supplementary contract denominated “Accidental Death Benefit Clause, for an additional sum of ₱ 5,000.00 if the death of the insured resulted directly from bodily injury effected solely through external and violent means sustained in an accident… and independently of all other causes.” The clause, however, expressly provided that it would not apply where death resulted from an injury “intentionally inflicted by another party.” On the night of May 20, 1964 or during the first hours of the following day a band of robbers entered the house of the insured Juan Biagtan, and that in committing the robbery, the robbers, on reaching the staircase landing on the second floor, rushed towards the door of the second floor room, where they suddenly met a person… who turned to be insured who received nine wounds (five mortal wounds and four non-mortal wounds) from their sharp pointed instruments resulting in Mr. Biagtan’s death. Beneficiaries of the insured then filed a claim under the policy the insurance company paid the basic amount of ₱ 5,000.00 but refused to pay additional sum of ₱ 5,000.00 under the accidental benefit clause, on the ground that the insured’s death resulted from injuries intentionally inflicted by third parties and therefore was not covered. (Respondent) Beneficiaries then filed suit to recover in the CFI of Pangasinan who rendered a decision in their favor. Hence the present appeal by the petitioner. ISSUE: Whether under the facts stipulated and found by the trial court the wounds received by the insured at the hands of the robbers were inflicted intentionally, hence the benefit clause cannot apply. HELD: Under an “Accidental Death Benefit Clause” providing for an additional sum of P5,000.00 if “the death of the Insured resulted directly from bodily injury effected solely through external and violent means sustained in an accident and independently of all other causes” but expressly excepting therefrom a case where death resulted from an injury “intentionally inflicted by a third party”, the insured who died under the following circumstances is not entitled to the said additional sum, to wit: That on the night… while the said life policy and supplementary contract were in full force and effect the house of the insured . . . was robbed by a band of robbers who-were charged in and convicted by the Court of First Instance of Pangasinan for robbery with homicide; that in committing the robbery, the robbers, on reaching the staircase landing of the second floor, rushed towards the doors of the second floor room, where they suddenly met a person near the door of one of the rooms who turned out to be the insured . . . who received thrusts from their sharp-pointed instruments, causing wounds on the body . . . resulting in his death…” 37 Vda. de Gabriel vs. Court of Appeals [GR 103883, 14 November 1996]First Division, Vitug (J): 4 concur Facts: Marcelino Gabriel, the insured, was employed by Emerald Construction & Development Corporation (ECDC) at its construction project in Iraq. He was covered by a personal accident insurance in the amount of P100,000.00 under a group policy procured from Fortune Insurance & Surety Company Inc. by ECDC for its overseas workers. The insured risk was for "bodily injury caused by violent accidental external and visible means which injury would solely and independently of any other cause" result in death or disability. On 22 May 1982, within the life of the policy, Gabriel died in Iraq. A year later, or on 12 July 1983, ECDC reported Gabriel's death to Fortune by telephone. Among the documents thereafter submitted to Fortune were a copy of the death certificate 5 issued by the Ministry of Health of the Republic of Iraq — which stated "REASON OF DEATH: UNDER EXAMINATION NOW — NOT YET KNOWN " and an autopsy report of the National Bureau of Investigation (NBI) to the effect that "due to advanced state of postmortem decomposition, cause of death could not be determined." Fortune referred the insurance claim to Mission Adjustment Service, Inc. Following a series of communications between Jacqueline Jimenez vda. de Gabriel and Fortune, the latter, on 22 September 1983, ultimately denied the claim of ECDC on the ground of prescription. Vda. De Gabriel went to the Regional Trial Court of Manila. In her complaint against ECDC and Fortune, she averred that her husband died of electrocution while in the performance of his work and prayed for the recovery of P100,000.00 for insurance indemnification and of various other sums by way of actual, moral, and exemplary damages, plus attorney's fees and costs of suit. Fortune filed its answer, which was not verified, admitting the genuineness and due execution of the insurance policy; it alleged, however, that since both the death certificate issued by the Iraqi Ministry of Health and the autopsy report of the NBI failed to disclose the cause of Gabriel's death, it denied liability under the policy. In addition, Fortune raised the defense of "prescription," invoking Section 384 10 of the Insurance Code. Later, Fortune filed an amended answer, still unverified, reiterating its original defenses but, this time, additionally putting up a counterclaim and a crossclaim. The trial court dismissed the case against ECDC for the failure of Vda. de Gabriel to take steps to cause the service of the fourth alias summons on ECDC. The dismissal was without prejudice. The case proceeded against Fortune alone. On 28 May 1987, the trial court rendered its decision in favor (partly) of Vda. de Gabriel's claim. In arriving at its conclusion, the trial court held that Fortune was deemed to have waived the defense, i.e., that the cause of Gabriel's death was not covered by the policy, when the latter failed to impugn by evidence Vda. de Gabriel's averment on the matter. With regard to the defense of prescription, the court considered the complaint to have been timely filed or within 1 year from Fortune's denial of the claim. Vda. de Gabriel and Fortune both appealed to the Court of Appeals. The Court of Appeals, on 18 September 1991, reversed the decision of the lower court. The appellate court held that Vda. de Gabriel had failed to substantiate her allegation that her husband's death was caused by a risk insured against. The motion for reconsideration was denied. Vda. de Gabriel filed the petition for review on certiorari. Issue [1]: Whether prescription was properly invoked by Fortune in this case.

Held [1]: YES. On the issue of "prescription," Fortune correctly invoked Section 384 of the Insurance Code which provides that "Any person having any claim upon the policy issued pursuant to this chapter shall, without any unnecessary delay, present to the insurance company concerned a written notice of claim setting forth the nature, extent and duration of the injuries sustained as certified by a duly licensed physician. Notice of claim must be filed within six months from date of the accident, otherwise, the claim shall be deemed waived. Action or suit for recovery of damage due to loss or injury must be brought, in proper cases, with the Commissioner or the Courts within one year from denial of the claim, otherwise, the claimant's right of action shall prescribe." The notice of death was given to Fortune, concededly, more than a year after the death of Vda. de Gabriel's husband. Fortune, in invoking prescription, was not referring to the one-year period from the denial of the claim within which to file an action against an insurer but obviously to the written notice of claim that had to be submitted within six months from the time of the accident. On the other hand, there is absolutely no basis in fact and in law to hold that the insurance company was deemed to have waived -- by failing to have its answers (to the Request for Admission) duly verified -- the defense, that the death of Vda. de Gabriel's husband was not caused by violent accidental external and visible means' as contemplated in the insurance policy. The Death Certificate and the Autopsy Report, more than controverted the allegation of Vda. de Gabriel as to the cause of death of her husband. Issue [2]: Whether Vda. De Gabriel is required to present proof that the insured’s demise was from an accidental death, unlike in ordinary life insurance where the insured's death, regardless of the cause thereof, would normally be compensable. Held [2]: YES. The insurance policy expressly provided that to be compensable, the injury or death should be caused by "violent accidental external and visible means." In attempting to prove the cause of her husband's death, all that Vda. de Gabriel could submit were a letter sent to her by her husband's coworker, stating that Gabriel died when he tried to haul water out of a tank while its submerged motor was still functioning, and Vda. de Gabriel's sinumpaang salaysay which merely confirmed the receipt and stated contents of the letter. Said the appellate court in this regard: "It must be noted that the only evidence presented by her to prove the circumstances surrounding her husband's death were her purported affidavit and the letter allegedly written by the deceased co-worker in Iraq. The said affidavit however suffers from procedural infirmity as it was not even testified to or identified by the affiant (Vda. De Gabriel) herself. This self-serving affidavit therefore is a mere hearsay under the rules. In like manner, the letter allegedly written by the deceased's coworker which was never identified to in court by the supposed author, suffers from the same defect as the affidavit of the plaintiff-appellant." Not one of the other documents submitted, to wit, the POEA decision, dated 06 June 1984, the death certificate issued by the Ministry of Health of Iraq and the NBI autopsy report, could give any probative value to Vda. de Gabriel's claim. The POEA decision did not make any categorical holding on the specific cause of Gabriel's death. Neither did the death certificate issued by the health authorities in Iraq nor the NBI autopsy report provide any clue on the cause of death. All that appeared to be clear was the fact of Gabriel's demise on 22 May 1982 in Iraq. Evidence, in fine, is utterly wanting to establish that the insured suffered from an accidental death, the risk covered by the policy. In an accident insurance, the insured "s beneficiary has the burden of proof in demonstrating that the cause of death is due to the covered peril. Once the fact is established, the burden then shifts to the insurer to show any excepted peril that may have been stipulated by the parties. An "accident insurance" is not thus to be likened to an ordinary life insurance where the insured's death, regardless of the cause thereof, would normally be compensable. The latter is akin in property insurance to an "all risk" coverage where the insured, on the aspect of burden of proof, has merely to show the condition of the property insured when the policy attaches and the fact of loss or damage during the period of the policy and where, thereafter, the burden would be on the insurer to show any "excluded peril." When, however, the insured risk is specified, it lies with the claimant of the insurance proceeds to initially prove that the loss is caused by the covered peril. 38 Vda. de Maglana vs. Consolacion [GR 60506, 6 August 1992]Third Division, Romero (J): 3 concur Facts: Lope Maglana was an employee of the Bureau of Customs whose work station was at Lasa, in Davao City. On 20 December 1978, early morning, Lope Maglana was on his way to his work station, driving a motorcycle owned by the Bureau of Customs. At Km. 7, Lanang, he met an accident that resulted in his death. He died on the spot. The PUJ jeep that bumped the deceased was driven by Pepito Into, operated and owned by Destrajo. From the investigation conducted by the traffic investigator, the PUJ jeep was overtaking another passenger jeep that was going towards the city poblacion. While overtaking, the PUJ jeep of Destrajo running abreast with the overtaken jeep, bumped the motorcycle driven by the deceased who was going towards the direction of Lasa, Davao City. The point of impact was on the lane of the motorcycle and the deceased was thrown from the road and met his untimely death. Consequently, the heirs of Lope Maglana, Sr., filed an action for damages and attorney's fees against operator Patricio Destrajo and the Afisco Insurance Corporation (AFISCO) before the then Court of First Instance of Davao, Branch II. An information for homicide thru reckless imprudence was also filed against Pepito Into. During the pendency of the civil case, Into was sentenced to suffer an indeterminate penalty of 1 year, 8 months and 1 day of prision correccional, as minimum, to 4 years, 9 months and 11 days of prision correcional, as maximum, with all the accessory penalties provided by law, and to indemnify the heirs of Lope Maglana, Sr. in the amount of P12,000.00 with subsidiary imprisonment in case of insolvency, plus P5,000.00 in the concept of moral and exemplary damages with costs. No appeal was interposed by the accused who later applied for probation. On 14 December 1981, the lower court rendered a decision finding that Destrajo had not exercised sufficient diligence as the operator of the jeepney. The court ordered Destrajo to pay the heirs of Maglana the sum of P28,000.00 for loss of income; the sum of P12,000.00 which amount shall be deducted in the event judgment in Criminal Case 3527-D against the driver, accused Into, shall have been enforced; the sum of P5,901.70 representing funeral and burial expenses of the deceased; the sum of P5,000.00 as moral damages which shall be deducted in the event judgment (sic) in Criminal Case 3527-D against the driver, accused Into; the sum of P3,000.00 as attorney's fees and to pay the costs of suit. The court ordered the insurance company is ordered to reimburse Destrajo whatever amounts the latter shall have paid only up to the extent of its insurance coverage. The heirs of Maglana filed a motion for the reconsideration of the second paragraph of the dispositive portion of the decision contending that AFISCO should not merely be held secondarily liable because the Insurance Code provides that the insurer's liability is "direct and primary and/or jointly and severally with the operator of the vehicle, although only up to the extent of the insurance coverage." In its Order of February 9, 1982, the lower court denied the motion for reconsideration ruling that since the insurance contract "is in the nature of suretyship, then the liability of the insurer is secondary only up to the extent of the insurance coverage." The heirs filed a second motion for reconsideration reiterating that the liability of the insurer is direct, primary and solidary with the jeepney operator because the petitioners became direct beneficiaries under the provision of the policy which, in effect, is a stipulation pour autrui. This motion was likewise denied for lack of merit. The heirs filed the petition for certiorari. Issue [1]: Whether AFISCO is primarily liable, not secondarily liable, on the insurance policy.

Held [1]: The particular provision of the insurance policy on which the heirs base their claim provides "SECTION 1 — LIABILITY TO THE PUBLIC 1. The Company will, subject to the Limits of Liability, pay all sums necessary to discharge liability of the insured in respect of. (a) death of or bodily injury to any THIRD PARTY; xxx 3. In the event of the death of any person entitled to indemnity under this Policy, the Company will, in respect of the liability incurred to such person indemnify his personal representatives in terms of, and subject to the terms and conditions hereof." The above-quoted provision leads to no other conclusion but that AFISCO can be held directly liable by the heirs. As the Court ruled in Shafer vs. Judge, RTC of Olongapo City, Br. 75, "[w]here an insurance policy insures directly against liability, the insurer's liability accrues immediately upon the occurrence of the injury or event upon which the liability depends, and does not depend on the recovery of judgment by the injured party against the insured." The underlying reason behind the third party liability (TPL) of the Compulsory Motor Vehicle Liability Insurance is "to protect injured persons against the insolvency of the insured who causes such injury, and to give such injured person a certain beneficial interest in the proceeds of the policy." Since the heirs had received from AFISCO the sum of P5,000.00 under the no-fault clause, AFISCO's liability is now limited to P15,000.00. Issue [2]: Whether AFISCO is solidarily liable with Destrajo. Held [2]: NO. In Malayan Insurance Co., Inc. v. Court of Appeals, the Court had the opportunity to resolve the issue as to the nature of the liability of the insurer and the insured vis-a-vis the third party injured in an accident, where it ruled that "While it is true that where the insurance contract provides for indemnity against liability to third persons, such third persons can directly sue the insurer, however, the direct liability of the insurer under indemnity contracts against third party liability does not mean that the insurer can be held solidarily liable with the insured and/or the other parties found at fault. The liability of the insurer is based on contract; that of the insured is based on tort." The Court then proceeded to distinguish the extent of the liability and manner of enforcing the same in ordinary contracts from that of insurance contracts. While in solidary obligations, the creditor may enforce the entire obligation against one of the solidary debtors, in an insurance contract, the insurer undertakes for a consideration to indemnify the insured against loss, damage or liability arising from an unknown or contingent event." Herein, the heirs cannot validly claim that AFISCO, whose liability under the insurance policy is also P20,000.00, can be held solidarily liable with Destrajo for the total amount of P53,901.70 in accordance with the decision of the lower court. Since under both the law and the insurance policy, AFISCO's liability is only up to P20,000.00, the second paragraph of the dispositive portion of the decision in question may have unwittingly sown confusion among the heirs and their counsel. What should have been clearly stressed as to leave no room for doubt was the liability of AFISCO under the explicit terms of the insurance contract. The liability of AFISCO based on the insurance contract is direct, but not solidary with that of Destrajo which is based on Article 2180 of the Civil Code. As such, the heirs have the option either to claim the P15,000 from AFISCO and the balance from Destrajo or enforce the entire judgment from Destrajo subject to reimbursement from AFISCO to the extent of the insurance coverage. Tiu vs. Arriesgado Facts: A passenger bus had an accident wherein respondent PedroArriesgado suffered injury and his wife died. The bus, owned bWilliam Tiu is covered by common carrier liability insurance with Certificate of Cover No. 05490 issued by Philippine Phoenix Suretand Insurance, Inc.,(PPSII) Cebu City Branch, in favor of third-party plaintiff William Tiu which covers the period from July 22,1986 to July 22, 1987 and that the said insurance coverage wasvalid, binding and subsisting during the time of the said accident.Tiu informed said insurance company of the alleged incident but tono avail.The respondent PPSII admitted it had existing contract withTiu but averred that it already attended to and settled the claimsof those who were injured during the incident. It couldnot accedeto the claim of the respondent Arriesgado as such claim was waybeyond the scheduled `indemnity as contained in the contract ofinsurance.The trial court in this case did not rule on the liabilityof respondent PPSII, while appellate court ruled that, as noevidence was presented against it, the insurance company is notliable. Issue: WON Philippine Phoenix Surety Insurance, Inc. is liable to Arriesgado or William Tiu? Held:Yes, PPSII and petitioner William Tiu are ordered to pay,jointly and severally, respondent Pedro A. Arriesgado the totalamount of P13, 113.80. As provided in Insurance Memorandum Circular, the maximumindemnity for death was twelve thousand pesos per victim plusmedical expenses for injured.While it is true that where the insurance contract provides forindemnity against liability to third persons, and such persons candirectly sue the insurer, the direct liability of the insurer underindemnity contracts against third party does not mean that theinsurer be held in solidum with the insured and or theother partiesfound at fault. For the liability of the insurer is based oncontract; that of the insured carrier or vehicle owner is based ontort. Tiu vs. Arriesgado G.R. No. 138060, September 1, 2004 Facts: At about 10:00 p.m. of March 15, 1987, the cargo truck marked "Condor Hollow Blocks and General Merchandise" bearing plate number GBP-675 was loaded with firewood in Bogo, Cebu and left for Cebu City. Upon reaching Sitio Aggies, Poblacion, Compostela, Cebu, just as the truck passed over a bridge, one of its rear tires exploded. The driver, Sergio Pedrano, then parked along the right side of the national highway and removed the damaged tire to have it vulcanized at a nearby shop, about 700 meters away. Pedrano left his helper, Jose Mitante, Jr. to keep watch over the stalled vehicle, and instructed the latter to place a spare tire six fathoms away behind the stalled truck to serve as a warning for oncoming vehicles. The trucks tail lights were also left on. It was about 12:00 a.m., March 16, 1987. At about 4:45 a.m., D Rough Riders passenger bus with plate number PBP-724 driven by Virgilio Te Laspiñas was cruising along the national highway of Sitio Aggies, Poblacion, Compostela, Cebu. The passenger bus was also bound for Cebu City, and had come from Maya, Daanbantayan, Cebu. Among its passengers were the Spouses Pedro A. Arriesgado and Felisa Pepito Arriesgado, who were seated at the right side of the bus, about three (3) or four (4) places from the front seat. As the bus was approaching the bridge, Laspiñas saw the stalled truck, which was then about 25 meters away. He applied the breaks and tried to swerve to the left to avoid hitting the truck. But it was too late; the bus rammed into the trucks left rear. The impact damaged the right side of the bus and left several

passengers injured. Pedro Arriesgado lost consciousness and suffered a fracture in his right colles. His wife, Felisa, was brought to the Danao City Hospital. She was later transferred to the Southern Island Medical Center where she died shortly thereafter. Respondent Pedro A. Arriesgado then filed a complaint for breach of contract of carriage, damages and attorneys fees before the Regional Trial Court of Cebu City, Branch 20, against the petitioners, D Rough Riders bus operator William Tiu and his driver, Virgilio Te Laspiñas on May 27, 1987. The respondent alleged that the passenger bus in question was cruising at a fast and high speed along the national road, and that petitioner Laspiñas did not take precautionary measures to avoid the accident. The petitioners, for their part, filed a Third-Party Complaint against the following: respondent Philippine Phoenix Surety and Insurance, Inc. (PPSII), petitioner Tiu’s insurer; respondent Benjamin Condor, the registered owner of the cargo truck; and respondent Sergio Pedrano, the driver of the truck. They alleged that petitioner Laspiñas was negotiating the uphill climb along the national highway of Sitio Aggies, Poblacion, Compostela, in a moderate and normal speed. It was further alleged that the truck was parked in a slanted manner, its rear portion almost in the middle of the highway, and that no early warning device was displayed. Petitioner Laspiñas promptly applied the brakes and swerved to the left to avoid hitting the truck head-on, but despite his efforts to avoid damage to property and physical injuries on the passengers, the right side portion of the bus hit the cargo truck’s left rear. HELD: The rules which common carriers should observe as to the safety of their passengers are set forth in the Civil Code, Articles 1733, 1755and 1756. It is undisputed that the respondent and his wife were not safely transported to the destination agreed upon. In actions for breach of contract, only the existence of such contract, and the fact that the obligor, in this case the common carrier, failed to transport his passenger safely to his destination are the matters that need to be proved. This is because under the said contract of carriage, the petitioners assumed the express obligation to transport the respondent and his wife to their destination safely and to observe extraordinary diligence with due regard for all circumstances. Any injury suffered by the passengers in the course thereof is immediately attributable to the negligence of the carrier. Upon the happening of the accident, the presumption of negligence at once arises, and it becomes the duty of a common carrier to prove that he observed extraordinary diligence in the care of his passengers. It must be stressed that in requiring the highest possible degree of diligence from common carriers and in creating a presumption of negligence against them, the law compels them to curb the recklessness of their drivers. While evidence may be submitted to overcome such presumption of negligence, it must be shown that the carrier observed the required extraordinary diligence, which means that the carrier must show the utmost diligence of very cautious persons as far as human care and foresight can provide, or that the accident was caused by fortuitous event. As correctly found by the trial court, petitioner Tiu failed to conclusively rebut such presumption. The negligence of petitioner Laspiñas as driver of the passenger bus is, thus, binding against petitioner Tiu, as the owner of the passenger bus engaged as a common carrier. 39 Tio Khe Chio vs. Court of Appeals [GR 76101-02, 30 September 1991]Third Division, Fernan (J): 4 concur Facts: On 18 December 1978, Tio Khe Chio imported 1,000 bags of fishmeal valued at $36,000.30 from Agro Impex, S.A. Dallas, Texas, U.S.A. The goods were insured with Eastern Assurance and Surety Corporation (EASCO) and shipped on board the M/V Peskov, a vessel owned by Far Eastern Shipping Company. When the goods reached Manila on 28 January 1979, they were found to have been damaged by sea water which rendered the fishmeal useless. Tio filed a claim with EASCO and Far Eastern Shipping. Both refused to pay. Whereupon, Tio sued them before the then Court of First Instance of Cebu, Branch II for damages. EASCO, as the insurer, filed a counterclaim against the Tio for the recovery of P18,387.86 representing the unpaid insurance premiums. On 30 June 1982, the trial court rendered judgment ordering EASCO and Far Eastern Shipping to pay Tio solidarily the sum of P105,986.68 less the amount of P18,387.86 for unpaid premiums with interest at the legal rate from the filing of the complaint, the sum of P15,000.00 as attorney's fees and the costs. The judgment became final as to EASCO but the shipping company appealed to the Court of Appeals and was absolved from liability by the said court in AC-GR 00161, entitled "Tio Khe Chio vs. Eastern Assurance and Surety Corporation." The trial court, upon motion by Tio, issued a writ of execution against EASCO. The sheriff enforcing the writ reportedly fixed the legal rate of interest at 12%. EASCO moved to quash the writ alleging that the legal interest to be computed should be 6% per annum in accordance with Article 2209 of the Civil Code and not 12% as insisted upon by Tio's counsel. In its order of 30 July 1986, the trial court denied EASCO's motion. EASCO then filed a petition for certiorari and prohibition before the Court of Appeals. On 30 July 1986, the Appellate Court rendered judgment, setting aside the order dated 30 July 1986 in so far as it fixes the interest at 12% on the principal amount of P87,598.82 from the date of filing of the complaint until the full payment of the amount, and the interest that Tio was entitled to collect from EASCO was reduced to 6% per annum; without pronouncement as to costs. Tio filed the petition for certiorari and prohibition. Issue [1]: Whether Sections 243 and 244, as to interest, apply in the present case. Held [1]: NO. Section 243 of the Insurance Code provides that "the amount of any loss or damage for which an insurer may be liable, under any policy other than life insurance policy, shall be paid within thirty days after proof of loss is received by the insurer and ascertainment of the loss or damage is made either by agreement between the insured and the insurer or by arbitration; but if such ascertainment is not had or made within sixty days after such receipt by the insurer of the proof of loss, then the loss or damage shell be paid within ninety days after such receipt. Refusal or failure to pay the loss or damage within the time prescribed herein will entitle the assured to collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is based on the ground that the claim is fraudulent." Section 244 of the aforementioned Code also provides that "In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the duty of the Commissioner or the Court, as the case may be, to make a finding as to whether the payment of the claim of the insured has been unreasonably denied or withheld; and in the affirmative case, the insurance company shall be adjudged to pay damages which shall consist of attorney's fees and other expenses incurred by the insured person by reason of such undeniable denial or withholding of payment plus interest of twice the ceiling prescribed by the Monetary Board of the amount of the claim due the insured, from the date following the time prescribed in section two hundred forty-two or in section two hundred forty-three, as the case may be, until the claim is fully satisfied; Provided, That the failure to pay any such claim within the time prescribed in said sections shall be considered prima facie evidence of unreasonable delay in payment." Herein, there was no unjustified refusal or withholding of payment on Tio's claim. The aforecited sections of the Insurance Code are not pertinent to the case, as they apply only when the court finds an unreasonable delay or refusal in the payment of the claims.

Issue [2]: Whether the interest to be imposed on claims based on an insurance contract is 6% or 12%. Held [2]: 6%. The legal rate of interest is 6% per annum. Circular 416 of the Central Bank which took effect on 29 July 1974 pursuant to Presidential Decree 116 (Usury Law) which raised the legal rate of interest from 6% to 12% cannot apply as the adjusted rate mentioned in the circular refers only to loans or forbearances of money, goods or credits and court judgments thereon but not to court judgments for damages arising from injury to persons and loss of property which does not involve a loan. On the other hand, in the case of Philippine Rabbit Bus Lines, Inc. vs. Cruz, G.R. No. 71017, July 28, 1986, 143 SCRA 158, the Court declared that the legal rate of interest is 6% per annum, and not 12%, where a judgment award is based on an action for damages for personal injury, not use or forbearance of money, goods or credit. In the same vein, the Court held in GSIS vs. Court of Appeals, GR 52478, 30 October 1986, 145 SCRA 311, that the rates under the Usury Law (amended by PD 116) are applicable only to interest by way of compensation for the use or forbearance of money, interest by way of damages is governed by Article 2209 of the Civil Code. Clearly, the applicable law is Article 2209 of the Civil Code which reads "If the obligation consists in the payment of a sum of money and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of interest agreed upon, and in the absence of stipulation, the legal interest which is six per cent per annum." And in the light of the fact that the contending parties did not allege the rate of interest stipulated in the insurance contract, the legal interest was properly pegged at 6%. 40 Finman General Assurance Corporation vs. Court of Appeals [GR 138737, 12 July 2001]First Division, Kapunan (J): 4 concur Facts: On 15 September 1981, Usiphil Incorporated obtained a fire insurance policy from Finman General Assurance Corporation (then doing business under the name Summa Insurance Corporation) covering certain properties, e.g., office, furniture, fixtures, shop machinery and other trade equipment. Under Policy F3100 issued to Usiphil, Finman undertook to indemnify Usiphil for any damage to or loss of said properties arising from fire. Sometime in 1982, Usiphil filed with Finman an insurance claim amounting to P987,126.11 for the loss of the insured properties due to fire. Acting thereon, Finman appointed Adjuster H.H. Bayne to undertake the valuation and adjustment of the loss. H.H. Bayne then required Usiphil to file a formal claim and submit proof of loss. In compliance therewith, Usiphil submitted its Sworn Statement of Loss and Formal Claim, dated 22 July 1982, signed by Reynaldo Cayetano, Usiphil's Manager. Usiphil likewise submitted Proof of Loss signed by its Accounting Manager Pedro Palallos and countersigned by H.H. Bayne's Adjuster F.C. Medina. Palallos personally followed-up Usiphil's claim with Finman's President Joaquin Ortega. During their meeting, Ortega instructed their Finance Manager, Rosauro Maghirang, to reconcile the records. Thereafter, Maghirang and Palallos signed a Statement/Agreement, dated 28 February 1985, which indicated that the amount due Usiphil was P842,683.40. Despite repeated demands by Usiphil, Finman refused to pay the insurance claim. Thus, Usiphil was constrained to file a complaint against Finman for the unpaid insurance claim. In its Answer, Finman maintained that the claim of Usiphil could not be allowed because it failed to comply with Policy Condition 13 regarding the submission of certain documents to prove the loss. Trial ensued. On 6 July 1994, the trial court rendered judgment in favor of Usiphil. It ordered Finman to pay Usiphil the sum of P842,683.40 and to pay 24% interest per annum from 28 February 1985 until fully paid; the sum equivalent to 10% of the principal obligation as and for attorney's fees, plus P1,500.00 per court appearance of counsel; the amount of P30,000.00 as exemplary damages in addition to the actual and compensatory damages awarded. The court also dismissed the claim of P30,000.00 for actual damages under par. 4 of the prayer, since the actual damages. has been awarded under par. 1 of the decision's dispositive portion; dismissed the claim of interest under par. 2 of the prayer, there being no agreement to such effect; dismissed the counter-claim for lack of merit; and ordered Finman to pay the cost of suit. On appeal, the CA substantially affirmed the decision of the trial court. The appellate court modified the decision by ordering Finman to pay Usiphil the sum of P842,683.40 and to pay 24% interest per annum from 3 May 1985 until fully paid. Finman filed the petition for review on certiorari. Issue [1]: Whether Usiphil has complied with Policy Condition 13 in notifying Finman of the loss. Held [1]: YES. Usiphil had substantially complied with Policy Condition 13 which reads "The insured shall give immediate written notice to the Company of any loss, protect the property from further damage, forthwith separate the damaged and undamaged personal property, put it in the best possible order, furnish a complete inventory of the destroyed, damaged, and undamaged property, showing in detail quantities, costs, actual cash value and the amount of loss claimed; AND WITHIN SIXTY DAYS AFTER THE LOSS, UNLESS SUCH TIME IS EXTENDED IN WRITING BY THE COMPANY, THE INSURED SHALL RENDER TO THE COMPANY A PROOF OF LOSS, signed and sworn to by the insured, stating the knowledge and belief of the insured as to the following: the time and origin of the loss, the interest of the insured and of all others in the property, the actual cash value of each item thereof and the amount of loss thereto, all encumbrances thereon, all other contracts of insurance, whether valid or not, covering any of said property, any changes in the title, use, occupation, location, possession or exposures of said property since the issuing of this policy by whom and for what purpose any buildings herein described and the several parts thereof were occupied at the time of loss and whether or not it then stood on leased ground, and shall furnish a copy of all the descriptions and schedules in all policies, and if required verified plans and specifications of any building, fixtures, or machinery destroyed or damaged. The insured, as often as may be reasonably required, shall exhibit to any person designated by the company all that remains of any property herein described, and submit to examination under oath by any person named by the Company, and subscribe the same; and, as often as may be reasonably required, shall produce for examination all books of account, bills, invoices, and other vouchers or certified copies thereof if originals be lost, at such reasonable time and place as may be designated by the Company or its representative and shall permit extracts and copies thereof to be made. No claim under this policy shall be payable unless the terms of this condition have been complied with." A perusal of the records shows that Usiphil, after the occurrence of the fire, immediately notified Finman thereof. Thereafter, Usiphil submitted the following documents: (1) Sworn Statement of Loss and Formal Claim and; (2) Proof of Loss. The submission of these documents constitutes substantial compliance with the above provision. Indeed, as regards the submission of documents to prove loss, substantial, not strict as urged by Finman, compliance with the requirements will always be deemed sufficient. In any case, Finman itself acknowledged its liability when through its Finance Manager, Rosauro Maghirang, it signed the document indicating that the amount due Usiphil is P842,683.40. Issue [2]: Whether the payment of 24% interest per annum is authorized by Sections 243 and 244 of the Insurance Code. Held [2]: YES. Anent the payment of 24% interest per annum computed from 3 May 1985 until fully paid, the same is authorized by Sections 243 and 244 of the Insurance Code. Notably, under Section 244, a prima facie evidence of unreasonable delay in payment of the claim is created by the failure of the insurer to pay the claim within the time fixed in both Sections 243 and 244. Further, Section 29 of the policy itself provides for the payment of such interest:

"Settlement of claim clause. The amount of any .loss or damage for which the company may be liable, under this policy shall be paid within thirty days after proof of loss is received by the company and ascertainment of the loss or damage is made either in an agreement between the insured and the company or by arbitration; but if such ascertainment is not had or made within sixty days after such receipt by the company of the proof of loss, then the loss or damage shall be paid within ninety days after such receipt. Refusal or failure to pay the loss or damage within the time prescribed herein will entitle the assured to collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board. unless such failure or refusal to pay is based on the grounds (sic) that the claim is fraudulent." The policy itself obliges Finman to pay the insurance claim within 30 days after proof of loss and ascertainment of the loss made in an agreement between Usiphil and Finman. Finman and Usiphil signed the agreement indicating that the amount due Usiphil was P842,683.40 on 2 April 1985. Finman thus had until 2 May 1985 to pay Usiphil's insurance. For its failure to do so, the Court of Appeals and the trial court rightfully directed Finman to pay, inter alia, 24% interest per annum in accordance with the above quoted

PRUDENTIAL GUARANTEE and ASSURANCE INC., petitioner, vs. TRANS-ASIA SHIPPING LINES, INC., Respondent. x- - - - - - - - - - - - - - - - - - - - - - - - - x G.R. No. 151991 June 20, 2006

TRANS-ASIA SHIPPING LINES, INC., petitioner, vs. PRUDENTIAL GUARANTEE and ASSURANCE INC., Respondent. DECISION CHICO-NAZARIO, J: This is a consolidation of two separate Petitions for Review on Certiorari filed by petitioner Prudential Guarantee and Assurance, Inc. (PRUDENTIAL) in G.R. No. 151890 and Trans-Asia Shipping Lines, Inc. (TRANS-ASIA) in G.R. No. 151991, assailing the Decision1 dated 6 November 2001 of the Court of Appeals in CA G.R. CV No. 68278, which reversed the Judgment2 dated 6 June 2000 of the Regional Trial Court (RTC), Branch 13, Cebu City in Civil Case No. CEB-20709. The 29 January 2002 Resolution3 of the Court of Appeals, denying PRUDENTIAL’s Motion for Reconsideration and TRANS-ASIA’s Partial Motion for Reconsideration of the 6 November 2001 Decision, is likewise sought to be annulled and set aside. The Facts The material antecedents as found by the court a quo and adopted by the appellate court are as follows: Plaintiff [TRANS-ASIA] is the owner of the vessel M/V Asia Korea. In consideration of payment of premiums, defendant [PRUDENTIAL] insured M/V Asia Korea for loss/damage of the hull and machinery arising from perils, inter alia, of fire and explosion for the sum of P40 Million, beginning [from] the period [of] July 1, 1993 up to July 1, 1994. This is evidenced by Marine Policy No. MH93/1363 (Exhibits "A" to "A-11"). On October 25, 1993, while the policy was in force, a fire broke out while [M/V Asia Korea was] undergoing repairs at the port of Cebu. On October 26, 1993 plaintiff [TRANS-ASIA] filed its notice of claim for damage sustained by the vessel. This is evidenced by a letter/formal claim of even date (Exhibit "B"). 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"). On May 29, 1995[,] plaintiff [TRANS-ASIA] executed a document denominated "Loan and Trust receipt", a portion of which read (sic): "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." (Exhibit "4") In a letter dated 21 April 1997 defendant *PRUDENTIAL+ denied plaintiff’s claim (Exhibit "5"). The letter reads: "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." This was followed by defendant’s letter dated 21 July 1997 requesting the return or payment of the P3,000,000.00 within a period of ten (10) days from receipt of the letter (Exhibit "6").4 Following this development, on 13 August 1997, TRANS-ASIA filed a Complaint5 for Sum of Money against PRUDENTIAL with the RTC of Cebu City, docketed as Civil Case No. CEB-20709, wherein TRANS-ASIA sought the amount of P8,395,072.26 from PRUDENTIAL, alleging that the same represents the balance of the indemnity due upon the insurance policy in the total amount of P11,395,072.26. TRANS-ASIA similarly sought interest at 42% per annum citing Section 2436 of Presidential Decreee No. 1460, otherwise known as the "Insurance Code," as amended.

In its Answer,7 PRUDENTIAL denied the material allegations of the Complaint and interposed the defense that TRANS-ASIA breached insurance policy conditions, in particular: "WARRANTED VESSEL CLASSED AND CLASS MAINTAINED." PRUDENTIAL further alleged that it acted as facts and law require and incurred no liability to TRANS-ASIA; that TRANS-ASIA has no cause of action; and, that its claim has been effectively waived and/or abandoned, or it is estopped from pursuing the same. By way of a counterclaim, PRUDENTIAL sought a refund of P3,000,000.00, which it allegedly advanced to TRANS-ASIA by way of a loan without interest and without prejudice to the final evaluation of the claim, including the amounts of P500,000.00, for survey fees and P200,000.00, representing attorney’s fees. The Ruling of the Trial Court On 6 June 2000, the court a quo rendered Judgment8 finding for (therein defendant) PRUDENTIAL. It ruled that a determination of the parties’ liabilities hinged on whether TRANS-ASIA violated and breached the policy conditions on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED. It interpreted the provision to mean that TRANS-ASIA is required to maintain the vessel at a certain class at all times pertinent during the life of the policy. According to the court a quo, TRANS-ASIA failed to prove compliance of the terms of the warranty, the violation thereof entitled PRUDENTIAL, the insured party, to rescind the contract.9 Further, citing Section 10710 of the Insurance Code, the court a quo ratiocinated that the concealment made by TRANS-ASIA that the vessel was not adequately maintained to preserve its class was a material concealment sufficient to avoid the policy and, thus, entitled the injured party to rescind the contract. The court a quo found merit in PRUDENTIAL’s contention that there was nothing in the adjustment of the particular average submitted by the adjuster that would show that TRANSASIA was not in breach of the policy. Ruling on the denominated loan and trust receipt, the court a quo said that in substance and in form, the same is a receipt for a loan. It held that if TRANS-ASIA intended to receive the amount of P3,000,000.00 as advance payment, it should have so clearly stated as such. The court a quo did not award PRUDENTIAL’s claim for P500,000.00, representing expert survey fees on the ground of lack of sufficient basis in support thereof. Neither did it award attorney’s fees on the rationalization that the instant case does not fall under the exceptions stated in Article 220811 of the Civil Code. However, the court a quo granted PRUDENTIAL’s counterclaim stating that there is factual and legal basis for TRANS-ASIA to return the amount of P3,000,000.00 by way of loan without interest. The decretal portion of the Judgment of the RTC reads: WHEREFORE, judgment is hereby rendered DISMISSING the complaint for its failure to prove a cause of action. On defendant’s counterclaim, plaintiff is directed to return the sum of P3,000,000.00 representing the loan extended to it by the defendant, within a period of ten (10) days from and after this judgment shall have become final and executory.12 The Ruling of the Court of Appeals On appeal by TRANS-ASIA, the Court of Appeals, in its assailed Decision of 6 November 2001, reversed the 6 June 2000 Judgment of the RTC. On the issue of TRANS-ASIA’s alleged breach of warranty of the policy condition CLASSED AND CLASS MAINTAINED, the Court of Appeals ruled that PRUDENTIAL, as the party asserting the non-compensability of the loss had the burden of proof to show that TRANS-ASIA breached the warranty, which burden it failed to discharge. PRUDENTIAL cannot rely on the lack of certification to the effect that TRANS-ASIA was CLASSED AND CLASS MAINTAINED as its sole basis for reaching the conclusion that the warranty was breached. The Court of Appeals opined that the lack of a certification does not necessarily mean that the warranty was breached by TRANSASIA. Instead, the Court of Appeals 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. The Court of Appeals 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. In the same token, the Court of Appeals found the subject warranty allegedly breached by TRANS-ASIA to be a rider which, while contained in the policy, was inserted by PRUDENTIAL without the intervention of TRANS-ASIA. As such, it partakes of a nature of a contract d’adhesion which should be construed against PRUDENTIAL, the party which drafted the contract. Likewise, according to the Court of Appeals, PRUDENTIAL’s renewal of the insurance policy from noon of 1 July 1994 to noon of 1 July 1995, and then again, until noon of 1 July 1996 must be deemed a waiver by PRUDENTIAL of any breach of warranty committed by TRANS-ASIA. Further, the Court of Appeals, contrary to the ruling of the court a quo, interpreted the transaction between PRUDENTIAL and TRANS-ASIA as one of subrogation, instead of a loan. The Court of Appeals concluded that TRANS-ASIA has no obligation to pay back the amount of P3,000.000.00 to PRUDENTIAL based on its finding that the aforesaid amount was PRUDENTIAL’s partial payment to TRANS-ASIA’s claim under the policy. Finally, the Court of Appeals denied TRANS-ASIA’s prayer for attorney’s fees, but held TRANS-ASIA entitled to double interest on the policy for the duration of the delay of payment of the unpaid balance, citing Section 24413 of the Insurance Code. Finding for therein appellant TRANS-ASIA, the Court of Appeals ruled in this wise: WHEREFORE, the foregoing consideration, We find for Appellant. The instant appeal is ALLOWED and the Judgment appealed from REVERSED. The P3,000,000.00 initially paid by appellee Prudential Guarantee Assurance Incorporated to appellant Trans-Asia and covered by a "Loan and Trust Receipt" dated 29 May 1995 is HELD to be in partial settlement of the loss suffered by appellant and covered by Marine Policy No. MH93/1363 issued by appellee. Further, appellee is hereby ORDERED to pay appellant the additional amount of P8,395,072.26 representing the balance of the loss suffered by the latter as recommended by the average adjuster Richard Hogg International (Philippines) in its Report, with double interest starting from the time Richard Hogg’s Survey Report was completed, or on 13 August 1996, until the same is fully paid. All other claims and counterclaims are hereby DISMISSED.

All costs against appellee.14 Not satisfied with the judgment, PRUDENTIAL and TRANS-ASIA filed a Motion for Reconsideration and Partial Motion for Reconsideration thereon, respectively, which motions were denied by the Court of Appeals in the Resolution dated 29 January 2002. The Issues Aggrieved, PRUDENTIAL filed before this Court a Petition for Review, docketed as G.R. No. 151890, relying on the following grounds, viz: I. THE AWARD IS GROSSLY UNCONSCIONABLE. II. THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO VIOLATION BY TRANS-ASIA OF A MATERIAL WARRANTY, NAMELY, WARRANTY CLAUSE NO. 5, OF THE INSURANCE POLICY. III. THE COURT OF APPEALS ERRED IN HOLDING THAT PRUDENTIAL, AS INSURER HAD THE BURDEN OF PROVING THAT THE ASSURED, TRANS-ASIA, VIOLATED A MATERIAL WARRANTY. IV. THE COURT OF APPEALS ERRED IN HOLDING THAT THE WARRANTY CLAUSE EMBODIED IN THE INSURANCE POLICY CONTRACT WAS A MERE RIDER. V. THE COURT OF APPEALS ERRED IN HOLDING THAT THE ALLEGED RENEWALS OF THE POLICY CONSTITUTED A WAIVER ON THE PART OF PRUDENTIAL OF THE BREACH OF THE WARRANTY BY TRANS-ASIA. VI. THE COURT OF APPEALS ERRED IN HOLDING THAT THE "LOAN AND TRUST RECEIPT" EXECUTED BY TRANS-ASIA IS AN ADVANCE ON THE POLICY, THUS CONSTITUTING PARTIAL PAYMENT THEREOF. VII. THE COURT OF APPEALS ERRED IN HOLDING THAT THE ACCEPTANCE BY PRUDENTIAL OF THE FINDINGS OF RICHARDS HOGG IS INDICATIVE OF A WAIVER ON THE PART OF PRUDENTIAL OF ANY VIOLATION BY TRANS-ASIA OF THE WARRANTY. VIII. THE COURT OF APPEALS ERRRED (sic) IN REVERSING THE TRIAL COURT, IN FINDING THAT PRUDENTIAL "UNJUSTIFIABLY REFUSED" TO PAY THE CLAIM AND IN ORDERING PRUDENTIAL TO PAY TRANS-ASIA P8,395,072.26 PLUS DOUBLE INTEREST FROM 13 AUGUST 1996, UNTIL [THE] SAME IS FULLY PAID.15 Similarly, TRANS-ASIA, disagreeing in the ruling of the Court of Appeals filed a Petition for Review docketed as G.R. No. 151991, raising the following grounds for the allowance of the petition, to wit: I. THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING ATTORNEY’S FEES TO PETITIONER TRANS-ASIA ON THE GROUND THAT SUCH CAN ONLY BE AWARDED IN THE CASES ENUMERATED IN ARTICLE 2208 OF THE CIVIL CODE, AND THERE BEING NO BAD FAITH ON THE PART OF RESPONDENT PRUDENTIAL IN DENYING HEREIN PETITIONER TRANS-ASIA’S INSURANCE CLAIM. II. THE "DOUBLE INTEREST" REFERRED TO IN THE DECISION DATED 06 NOVEMBER 2001 SHOULD BE CONSTRUED TO MEAN DOUBLE INTEREST BASED ON THE LEGAL INTEREST OF 12%, OR INTEREST AT THE RATE OF 24% PER ANNUM.16

In our Resolution of 2 December 2002, we granted TRANS-ASIA’s Motion for Consolidation17 of G.R. Nos. 151890 and 151991;18 hence, the instant consolidated petitions. In sum, for our main resolution are: (1) the liability, if any, of PRUDENTIAL to TRANS-ASIA arising from the subject insurance contract; (2) the liability, if any, of TRANSASIA to PRUDENTIAL arising from the transaction between the parties as evidenced by a document denominated as "Loan and Trust Receipt," dated 29 May 1995; and (3) the amount of interest to be imposed on the liability, if any, of either or both parties. Ruling of the Court Prefatorily, it must be emphasized that in a petition for review, only questions of law, and not questions of fact, may be raised.19 This rule may be disregarded only when the findings of fact of the Court of Appeals are contrary to the findings and conclusions of the trial court, or are not supported by the evidence on record.20 In the case at bar, we find an incongruence between the findings of fact of the Court of Appeals and the court a quo, thus, in our determination of the issues, we are constrained to assess the evidence adduced by the parties to make appropriate findings of facts as are necessary. I. A. PRUDENTIAL failed to establish that TRANS-ASIA violated and breached the policy condition on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED, as contained in the subject insurance contract. In resisting the claim of TRANS-ASIA, PRUDENTIAL posits that TRANS-ASIA violated an express and material warranty in the subject insurance contract, i.e., Marine Insurance Policy No. MH93/1363, specifically Warranty Clause No. 5 thereof, which stipulates that the insured vessel, "M/V ASIA KOREA" is required to be CLASSED AND CLASS MAINTAINED. According to PRUDENTIAL, on 25 October 1993, or at the time of the occurrence of the fire, "M/V ASIA KOREA" was in violation of the warranty as it was not CLASSED AND CLASS MAINTAINED. PRUDENTIAL submits that Warranty Clause No. 5 was a condition precedent to the recovery of TRANS-ASIA under the policy, the violation of which entitled PRUDENTIAL to rescind the contract under Sec. 7421 of the Insurance Code. The warranty condition CLASSED AND CLASS MAINTAINED was explained by PRUDENTIAL’s Senior Manager of the Marine and Aviation Division, Lucio Fernandez. The pertinent portions of his testimony on direct examination is reproduced hereunder, viz: ATTY. LIM Q Please tell the court, Mr. Witness, the result of the evaluation of this claim, what final action was taken? A It was eventually determined that there was a breach of the policy condition, and basically there is a breach of policy warranty condition and on that basis the claim was denied. Q To refer you (sic) the "policy warranty condition," I am showing to you a policy here marked as Exhibits "1", "1-A" series, please point to the warranty in the policy which you said was breached or violated by the plaintiff which constituted your basis for denying the claim as you testified. A Warranted Vessel Classed and Class Maintained. ATTY. LIM Witness pointing, Your Honor, to that portion in Exhibit "1-A" which is the second page of the policy below the printed words: "Clauses, Endorsements, Special Conditions and Warranties," below this are several typewritten clauses and the witness pointed out in particular the clause reading: "Warranted Vessel Classed and Class Maintained." COURT Q Will you explain that particular phrase? A Yes, a warranty is a condition that has to be complied with by the insured. When we say a class warranty, it must be entered in the classification society. COURT Slowly. WITNESS (continued) A A classification society is an organization which sets certain standards for a vessel to maintain in order to maintain their membership in the classification society. So, if they failed to meet that standard, they are considered not members of that class, and thus breaching the warranty, that requires them to maintain membership or to maintain their class on that classification society. And it is not sufficient that the member of this classification society at the time of a loss, their membership must be continuous for the whole length of the policy such that during the effectivity of the policy, their classification is suspended, and then thereafter, they get

reinstated, that again still a breach of the warranty that they maintained their class (sic). Our maintaining team membership in the classification society thereby maintaining the standards of the vessel (sic). ATTY. LIM Q Can you mention some classification societies that you know? A Well we have the Bureau Veritas, American Bureau of Shipping, D&V Local Classification Society, The Philippine Registration of Ships Society, China Classification, NKK and Company Classification Society, and many others, we have among others, there are over 20 worldwide. 22 At the outset, it must be emphasized that the party which alleges a fact as a matter of defense has the burden of proving it. PRUDENTIAL, as the party which asserted the claim that TRANS-ASIA breached the warranty in the policy, has the burden of evidence to establish the same. Hence, on the part of PRUDENTIAL lies the initiative to show proof in support of its defense; otherwise, failing to establish the same, it remains self-serving. Clearly, if no evidence on the alleged breach of TRANS-ASIA of the subject warranty is shown, a fortiori, TRANS-ASIA would be successful in claiming on the policy. It follows that PRUDENTIAL bears the burden of evidence to establish the fact of breach. In our rule on evidence, TRANS-ASIA, as the plaintiff below, necessarily has the burden of proof to show proof of loss, and the coverage thereof, in the subject insurance policy. However, in the course of trial in a civil case, once plaintiff makes out a prima facie case in his favor, the duty or the burden of evidence shifts to defendant to controvert plaintiff’s prima facie case, otherwise, a verdict must be returned in favor of plaintiff.23 TRANS-ASIA was able to establish proof of loss and the coverage of the loss, i.e., 25 October 1993: Fire on Board. Thereafter, the burden of evidence shifted to PRUDENTIAL to counter TRANS-ASIA’s case, and to prove its special and affirmative defense that TRANS-ASIA was in violation of the particular condition on CLASSED AND CLASS MAINTAINED. We sustain the findings of the Court of Appeals that PRUDENTIAL was not successful in discharging the burden of evidence that TRANS-ASIA breached the subject policy condition on CLASSED AND CLASS MAINTAINED. Foremost, PRUDENTIAL, through the Senior Manager of its Marine and Aviation Division, Lucio Fernandez, made a categorical admission that at the time of the procurement of the insurance contract in July 1993, TRANS-ASIA’s vessel, "M/V Asia Korea" was properly classed by Bureau Veritas, thus: Q Kindly examine the records particularly the policy, please tell us if you know whether M/V Asia Korea was classed at the time (sic) policy was procured perthe (sic) insurance was procured that Exhibit "1" on 1st July 1993 (sic). WITNESS A I recall that they were classed. ATTY. LIM Q With what classification society? A I believe with Bureau Veritas.24 As found by the Court of Appeals and as supported by the records, Bureau Veritas is a classification society recognized in the marine industry. As it is undisputed that TRANS-ASIA was properly classed at the time the contract of insurance was entered into, thus, it becomes incumbent upon PRUDENTIAL to show evidence that the status of TRANS-ASIA as being properly CLASSED by Bureau Veritas had shifted in violation of the warranty. Unfortunately, PRUDENTIAL failed to support the allegation. We are in accord with the ruling of the Court of Appeals that the lack of a certification in PRUDENTIAL’s records to the effect that TRANS-ASIA’s "M/V Asia Korea" was CLASSED AND CLASS MAINTAINED at the time of the occurrence of the fire cannot be tantamount to the conclusion that TRANS-ASIA in fact breached the warranty contained in the policy. With more reason must we sustain the findings of the Court of Appeals on the ground that as admitted by PRUDENTIAL, it was likewise the responsibility of the average adjuster, Richards Hogg International (Phils.), Inc., to secure a copy of such certification, and the alleged breach of TRANS-ASIA cannot be gleaned from the average adjuster’s survey report, or adjustment of particular average per "M/V Asia Korea" of the 25 October 1993 fire on board. We are not unmindful of the clear language of Sec. 74 of the Insurance Code which provides that, "the violation of a material warranty, or other material provision of a policy on the part of either party thereto, entitles the other to rescind." It is generally accepted that "[a] warranty is a statement or promise set forth in the policy, or by reference incorporated therein, the untruth or non-fulfillment of which in any respect, and without reference to whether the insurer was in fact prejudiced by such untruth or non-fulfillment, renders the policy voidable by the insurer."25However, it is similarly indubitable that for the breach of a warranty to avoid a policy, the same must be duly shown by the party alleging the same. We cannot sustain an allegation that is unfounded. Consequently, PRUDENTIAL, not having shown that TRANS-ASIA breached the warranty condition, CLASSED AND CLASS MAINTAINED, it remains that TRANS-ASIA must be allowed to recover its rightful claims on the policy. B. Assuming arguendo that TRANS-ASIA violated the policy condition on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED, PRUDENTIAL made a valid waiver of the same. The Court of Appeals, in reversing the Judgment of the RTC which held that TRANS-ASIA breached the warranty provision on CLASSED AND CLASS MAINTAINED, underscored that PRUDENTIAL can be deemed to have made a valid waiver of TRANS-ASIA’s breach of warranty as alleged, ratiocinating, thus:

Third, after the loss, Prudential renewed the insurance policy of Trans-Asia for two (2) consecutive years, from noon of 01 July 1994 to noon of 01 July 1995, and then again until noon of 01 July 1996. This renewal is deemed a waiver of any breach of warranty.26 PRUDENTIAL finds fault with the ruling of the appellate court when it ruled that the renewal policies are deemed a waiver of TRANS-ASIA’s alleged breach, averring herein that the subsequent policies, designated as MH94/1595 and MH95/1788 show that they were issued only on 1 July 1994 and 3 July 1995, respectively, prior to the time it made a request to TRANS-ASIA that it be furnished a copy of the certification specifying that the insured vessel "M/V Asia Korea" was CLASSED AND CLASS MAINTAINED. PRUDENTIAL posits that it came to know of the breach by TRANS-ASIA of the subject warranty clause only on 21 April 1997. On even date, PRUDENTIAL sent TRANS-ASIA a letter of denial, advising the latter that their claim is not compensable. In fine, PRUDENTIAL would have this Court believe that the issuance of the renewal policies cannot be a waiver because they were issued without knowledge of the alleged breach of warranty committed by TRANS-ASIA.27 We are not impressed. We do not find that the Court of Appeals was in error when it held that PRUDENTIAL, in renewing TRANS-ASIA’s insurance policy for two consecutive years after the loss covered by Policy No. MH93/1363, was considered to have waived TRANS-ASIA’s breach of the subject warranty, if any. Breach of a warranty or of a condition renders the contract defeasible at the option of the insurer; but if he so elects, he may waive his privilege and power to rescind by the mere expression of an intention so to do. In that event his liability under the policy continues as before.28 There can be no clearer intention of the waiver of the alleged breach than the renewal of the policy insurance granted by PRUDENTIAL to TRANS-ASIA in MH94/1595 and MH95/1788, issued in the years 1994 and 1995, respectively. To our mind, the argument is made even more credulous by PRUDENTIAL’s lack of proof to support its allegation that the renewals of the policies were taken only after a request was made to TRANS-ASIA to furnish them a copy of the certificate attesting that "M/V Asia Korea" was CLASSED AND CLASS MAINTAINED. Notwithstanding PRUDENTIAL’s claim that no certification was issued to that effect, it renewed the policy, thereby, evidencing an intention to waive TRANS-ASIA’s alleged breach. Clearly, by granting the renewal policies twice and successively after the loss, the intent was to benefit the insured, TRANS-ASIA, as well as to waive compliance of the warranty. The foregoing finding renders a determination of whether the subject warranty is a rider, moot, as raised by the PRUDENTIAL in its assignment of errors. Whether it is a rider will not effectively alter the result for the reasons that: (1) PRUDENTIAL was not able to discharge the burden of evidence to show that TRANS-ASIA committed a breach, thereof; and (2) assuming arguendo the commission of a breach by TRANS-ASIA, the same was shown to have been waived by PRUDENTIAL. II. A. The amount of P3,000,000.00 granted by PRUDENTIAL to TRANS- ASIA via a transaction between the parties evidenced by a document denominated as "Loan and Trust Receipt," dated 29 May 1995 constituted partial payment on the policy. It is undisputed that TRANS-ASIA received from PRUDENTIAL the amount of P3,000,000.00. The same was evidenced by a transaction receipt denominated as a "Loan and Trust Receipt," dated 29 May 1995, reproduced hereunder: LOAN AND TRUST RECEIPT Claim File No. MH-93-025 P3,000,000.00 Check No. PCIB066755 May 29, 1995

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. MH93/1353, repayable only in the event and to the extent that any net recovery is made by TRANS ASIA SHIPPING CORP., 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. As security for such repayment, we hereby pledge to PRUDENTIAL GUARANTEE AND ASSURANCE INC. whatever recovery we may make and deliver to it all documents necessary to prove our interest in said property. We also hereby agree to promptly prosecute suit against such persons, corporation or corporations through whose negligence the aforesaid loss was caused or who may otherwise be responsible therefore, with all due diligence, in our own name, but at the expense of and under the exclusive direction and control of PRUDENTIAL GUARANTEE AND ASSURANCE INC. TRANS-ASIA SHIPPING CORPORATION29 PRUDENTIAL largely contends that the "Loan and Trust Receipt" executed by the parties evidenced a loan of P3,000,000.00 which it granted to TRANS-ASIA, and not an advance payment on the policy or a partial payment for the loss. It further submits that it is a customary practice for insurance companies in this country to extend loans gratuitously as part of good business dealing with their assured, in order to afford their assured the chance to continue business without embarrassment while awaiting outcome of the settlement of their claims.30 According to PRUDENTIAL, the "Trust and Loan Agreement" did not subrogate to it whatever rights and/or actions TRANS-ASIA may have against third persons, and it cannot by no means be taken that by virtue thereof, PRUDENTIAL was granted irrevocable power of attorney by TRANS-ASIA, as the sole power to prosecute lies solely with the latter. The Court of Appeals held that the real character of the transaction between the parties as evidenced by the "Loan and Trust Receipt" is that of an advance payment by PRUDENTIAL of TRANS-ASIA’s claim on the insurance, thus: The Philippine Insurance Code (PD 1460 as amended) was derived from the old Insurance Law Act No. 2427 of the Philippine Legislature during the American Regime. The Insurance Act was lifted verbatim from the law of California, except Chapter V thereof, which was taken largely from the insurance law of New York. Therefore, ruling case law in that jurisdiction is to Us persuasive in interpreting provisions of our own Insurance Code. In addition, the application of the adopted statute should correspond in fundamental points with the application in its country of origin x x x.

xxxx Likewise, it is settled in that jurisdiction that the (sic) notwithstanding recitals in the Loan Receipt that the money was intended as a loan does not detract from its real character as payment of claim, thus: "The receipt of money by the insured employers from a surety company for losses on account of forgery of drafts by an employee where no provision or repayment of the money was made except upon condition that it be recovered from other parties and neither interest nor security for the asserted debts was provided for, the money constituted the payment of a liability and not a mere loan, notwithstanding recitals in the written receipt that the money was intended as a mere loan." What is clear from the wordings of the so-called "Loan and Trust Receipt Agreement" is that appellant is obligated to hand over to appellee "whatever recovery (Trans Asia) may make and deliver to (Prudential) all documents necessary to prove its interest in the said property." For all intents and purposes therefore, the money receipted is payment under the policy, with Prudential having the right of subrogation to whatever net recovery Trans-Asia may obtain from third parties resulting from the fire. In the law on insurance, subrogation is an equitable assignment to the insurer of all remedies which the insured may have against third person whose negligence or wrongful act caused the loss covered by the insurance policy, which is created as the legal effect of payment by the insurer as an assignee in equity. The loss in the first instance is that of the insured but after reimbursement or compensation, it becomes the loss of the insurer. It has been referred to as the doctrine of substitution and rests on the principle that substantial justice should be attained regardless of form, that is, its basis is the doing of complete, essential, and perfect justice between all the parties without regard to form.31 We agree. Notwithstanding its designation, the tenor of the "Loan and Trust Receipt" evidences that the real nature of the transaction between the parties was that the amount of P3,000,000.00 was not intended as a loan whereby TRANS-ASIA is obligated to pay PRUDENTIAL, but rather, the same was a partial payment or an advance on the policy of the claims due to TRANS-ASIA. First, the amount of P3,000,000.00 constitutes an advance payment to TRANS-ASIA by PRUDENTIAL, subrogating the former to the extent of "any net recovery made by TRANS ASIA SHIPPING CORP., 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."32 Second, we find that per the "Loan and Trust Receipt," even as TRANS-ASIA agreed to "promptly prosecute suit against such persons, corporation or corporations through whose negligence the aforesaid loss was caused or who may otherwise be responsible therefore, with all due diligence" in its name, the prosecution of the claims against such third persons are to be carried on "at the expense of and under the exclusive direction and control of PRUDENTIAL GUARANTEE AND ASSURANCE INC."33 The clear import of the phrase "at the expense of and under the exclusive direction and control" as used in the "Loan and Trust Receipt" grants solely to PRUDENTIAL the power to prosecute, even as the same is carried in the name of TRANS-ASIA, thereby making TRANS-ASIA merely an agent of PRUDENTIAL, the principal, in the prosecution of the suit against parties who may have occasioned the loss. Third, per the subject "Loan and Trust Receipt," the obligation of TRANS-ASIA to repay PRUDENTIAL is highly speculative and contingent, i.e., only in the event and to the extent that any net recovery is made by TRANS-ASIA from any person on account of loss occasioned by the fire of 25 October 1993. The transaction, therefore, was made to benefit TRANS-ASIA, such that, if no recovery from third parties is made, PRUDENTIAL cannot be repaid the amount. Verily, we do not think that this is constitutive of a loan.34 The liberality in the tenor of the "Loan and Trust Receipt" in favor of TRANS-ASIA leads to the conclusion that the amount of P3,000,000.00 was a form of an advance payment on TRANS-ASIA’s claim on MH93/1353. III. A. PRUDENTIAL is directed to pay TRANS-ASIA the amount of P8,395,072.26, representing the balance of the loss suffered by TRANS-ASIA and covered by Marine Policy No. MH93/1363. Our foregoing discussion supports the conclusion that TRANS-ASIA is entitled to the unpaid claims covered by Marine Policy No. MH93/1363, or a total amount of P8,395,072.26. B. Likewise, PRUDENTIAL is directed to pay TRANS-ASIA, damages in the form of attorney’s fees equivalent to 10% of P8,395,072.26. The Court of Appeals denied the grant of attorney’s fees. It held that attorney’s fees cannot be awarded absent a showing of bad faith on the part of PRUDENTIAL in rejecting TRANS-ASIA’s claim, notwithstanding that the rejection was erroneous. According to the Court of Appeals, attorney’s fees can be awarded only in the cases enumerated in Article 2208 of the Civil Code which finds no application in the instant case. We disagree. Sec. 244 of the Insurance Code grants damages consisting of attorney’s fees and other expenses incurred by the insured after a finding by the Insurance Commissioner or the Court, as the case may be, of an unreasonable denial or withholding of the payment of the claims due. Moreover, the law imposes an interest of twice the ceiling prescribed by the Monetary Board on the amount of the claim due the insured from the date following the time prescribed in Section 24235 or in Section 243,36 as the case may be, until the claim is fully satisfied. Finally, Section 244 considers the failure to pay the claims within the time prescribed in Sections 242 or 243, when applicable, as prima facie evidence of unreasonable delay in payment. To the mind of this Court, Section 244 does not require a showing of bad faith in order that attorney’s fees be granted. As earlier stated, under Section 244, a prima facie evidence of unreasonable delay in payment of the claim is created by failure of the insurer to pay the claim within the time fixed in both Sections 242 and 243 of the Insurance Code. As established in Section 244, by reason of the delay and the consequent filing of the suit by the insured, the insurers shall be adjudged to pay damages which shall consist of attorney’s fees and other expenses incurred by the insured.37 Section 244 reads:

In case of any litigation for the enforcement of any policy or contract of insurance, it shall be the duty of the Commissioner or the Court, as the case may be, to make a finding as to whether the payment of the claim of the insured has been unreasonably denied or withheld; and in the affirmative case, the insurance company shall be adjudged to pay damages which shall consist of attorney’s fees and other expenses incurred by the insured person by reason of such unreasonable denial or withholding of payment plus interest of twice the ceiling prescribed by the Monetary Board of the amount of the claim due the insured, from the date following the time prescribed in section two hundred forty-two or in section two hundred forty-three, as the case may be, until the claim is fully satisfied; Provided, That the failure to pay any such claim within the time prescribed in said sections shall be considered prima facie evidence of unreasonable delay in payment. Sections 243 and 244 of the Insurance Code apply when the court finds an unreasonable delay or refusal in the payment of the insurance claims. In the case at bar, the facts as found by the Court of Appeals, and confirmed by the records show that there was an unreasonable delay by PRUDENTIAL in the payment of the unpaid balance of P8,395,072.26 to TRANS-ASIA. On 26 October 1993, a day after the occurrence of the fire in "M/V Asia Korea", TRANS-ASIA filed its notice of claim. On 13 August 1996, the adjuster, Richards Hogg International (Phils.), Inc., completed its survey report recommending the amount of P11,395,072.26 as the total indemnity due to TRANS-ASIA.38 On 21 April 1997, PRUDENTIAL, in a letter39 addressed to TRANS-ASIA denied the latter’s claim for the amount of P8,395,072.26 representing the balance of the total indemnity. On 21 July 1997, PRUDENTIAL sent a second letter40 to TRANS-ASIA seeking a return of the amount of P3,000,000.00. On 13 August 1997, TRANS-ASIA was constrained to file a complaint for sum of money against PRUDENTIAL praying, inter alia, for the sum of P8,395,072.26 representing the balance of the proceeds of the insurance claim. As can be gleaned from the foregoing, there was an unreasonable delay on the part of PRUDENTIAL to pay TRANS-ASIA, as in fact, it refuted the latter’s right to the insurance claims, from the time proof of loss was shown and the ascertainment of the loss was made by the insurance adjuster. Evidently, PRUDENTIAL’s unreasonable delay in satisfying TRANS-ASIA’s unpaid claims compelled the latter to file a suit for collection. Succinctly, an award equivalent to ten percent (10%) of the unpaid proceeds of the policy as attorney’s fees to TRANS-ASIA is reasonable under the circumstances, or otherwise stated, ten percent (10%) of P8,395,072.26. In the case of Cathay Insurance, Co., Inc. v. Court of Appeals,41 where a finding of an unreasonable delay under Section 244 of the Insurance Code was made by this Court, we grant an award of attorney’s fees equivalent to ten percent (10%) of the total proceeds. We find no reason to deviate from this judicial precedent in the case at bar. C. Further, the aggregate amount (P8,395,072.26 plus 10% thereof as attorney’s fees) shall be imposed double interest in accordance with Section 244 of the Insurance Code. Section 244 of the Insurance Code is categorical in imposing an interest twice the ceiling prescribed by the Monetary Board due the insured, from the date following the time prescribed in Section 242 or in Section 243, as the case may be, until the claim is fully satisfied. In the case at bar, we find Section 243 to be applicable as what is involved herein is a marine insurance, clearly, a policy other than life insurance. Section 243 is hereunder reproduced: SEC. 243. The amount of any loss or damage for which an insurer may be liable, under any policy other than life insurance policy, shall be paid within thirty days after proof of loss is received by the insurer and ascertainment of the loss or damage is made either by agreement between the insured and the insurer or by arbitration; but if such ascertainment is not had or made within sixty days after such receipt by the insurer of the proof of loss, then the loss or damage shall be paid within ninety days after such receipt. Refusal or failure to pay the loss or damage within the time prescribed herein will entitle the assured to collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is based on the ground that the claim is fraudulent. As specified, the assured is entitled to interest on the proceeds for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board except when the failure or refusal of the insurer to pay was founded on the ground that the claim is fraudulent. D. The term "double interest" as used in the Decision of the Court of Appeals must be interpreted to mean 24% per annum. PRUDENTIAL assails the award of interest, granted by the Court of Appeals, in favor of TRANS-ASIA in the assailed Decision of 6 November 2001. It is PRUDENTIAL’s stance that the award is extortionate and grossly unsconscionable. In support thereto, PRUDENTIAL makes a reference to TRANS-ASIA’s prayer in the Complaint filed with the court a quo wherein the latter sought, "interest double the prevailing rate of interest of 21% per annum now obtaining in the banking business or plus 42% per annum pursuant to Article 243 of the Insurance Code x x x."42 The contention fails to persuade. It is settled that an award of double interest is lawful and justified under Sections 243 and 244 of the Insurance Code.43 In Finman General Assurance Corporation v. Court of Appeals,44 this Court held that the payment of 24% interest per annum is authorized by the Insurance Code.45 There is no gainsaying that the term "double interest" as used in Sections 243 and 244 can only be interpreted to mean twice 12% per annum or 24% per annum interest, thus: The term "ceiling prescribed by the Monetary Board" means the legal rate of interest of twelve per centum per annum (12%) as prescribed by the Monetary Board in C.B. Circular No. 416, pursuant to P.D. No. 116, amending the Usury Law; so that when Sections 242, 243 and 244 of the Insurance Code provide that the insurer shall be liable to pay interest "twice the ceiling prescribed by the Monetary Board", it means twice 12% per annum or 24% per annum interest on the proceeds of the insurance.46 E. The payment of double interest should be counted from 13 September 1996. The Court of Appeals, in imposing double interest for the duration of the delay of the payment of the unpaid balance due TRANS-ASIA, computed the same from 13 August 1996 until such time when the amount is fully paid. Although not raised by the parties, we find the computation of the duration of the delay made by the appellate court to be patently erroneous.

To be sure, Section 243 imposes interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board. Significantly, Section 243 mandates the payment of any loss or damage for which an insurer may be liable, under any policy other than life insurance policy, within thirty days after proof of loss is received by the insurer and ascertainment of the loss or damage is made either by agreement between the insured and the insurer or by arbitration. It is clear that under Section 243, the insurer has until the 30th day after proof of loss and ascertainment of the loss or damage to pay its liability under the insurance, and only after such time can the insurer be held to be in delay, thereby necessitating the imposition of double interest. In the case at bar, it was not disputed that the survey report on the ascertainment of the loss was completed by the adjuster, Richard Hoggs International (Phils.), Inc. on 13 August 1996. PRUDENTIAL had thirty days from 13 August 1996 within which to pay its liability to TRANS-ASIA under the insurance policy, or until 13 September 1996. Therefore, the double interest can begin to run from 13 September 1996 only. IV. A. An interest of 12% per annum is similarly imposed on the TOTAL amount of liability adjudged in section III herein, computed from the time of finality of judgment until the full satisfaction thereof in conformity with this Court’s ruling in Eastern Shipping Lines, Inc. v. Court of Appeals. This Court in Eastern Shipping Lines, Inc. v. Court of Appeals,47 inscribed the rule of thumb48 in the application of interest to be imposed on obligations, regardless of their source. Eastern emphasized beyond cavil that when the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, regardless of whether the obligation involves a loan or forbearance of money, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance49 of credit. We find application of the rule in the case at bar proper, thus, a rate of 12% per annum from the finality of judgment until the full satisfaction thereof must be imposed on the total amount of liability adjudged to PRUDENTIAL. It is clear that the interim period from the finality of judgment until the satisfaction of the same is deemed equivalent to a forbearance of credit, hence, the imposition of the aforesaid interest. Fallo WHEREFORE, the Petition in G.R. No. 151890 is DENIED. However, the Petition in G.R. No. 151991 is GRANTED, thus, we award the grant of attorney’s fees and make a clarification that the term "double interest" as used in the 6 November 2001 Decision of the Court of Appeals in CA GR CV No. 68278 should be construed to mean interest at the rate of 24% per annum, with a further clarification, that the same should be computed from 13 September 1996 until fully paid. The Decision and Resolution of the Court of Appeals, in CA-G.R. CV No. 68278, dated 6 November 2001 and 29 January 2002, respectively, are, thus, MODIFIED in the following manner, to wit: 1. PRUDENTIAL is DIRECTED to PAY TRANS-ASIA the amount of P8,395,072.26, representing the balance of the loss suffered by TRANS-ASIA and covered by Marine Policy No. MH93/1363; 2. PRUDENTIAL is DIRECTED further to PAY TRANS-ASIA damages in the form of attorney’s fees equivalent to 10% of the amount of P8,395,072.26; 3. The aggregate amount (P8,395,072.26 plus 10% thereof as attorney’s fees) shall be imposed double interest at the rate of 24% per annum to be computed from 13 September 1996 until fully paid; and 4. An interest of 12% per annum is similarly imposed on the TOTAL amount of liability adjudged as abovestated in paragraphs (1), (2), and (3) herein, computed from the time of finality of judgment until the full satisfaction thereof. No costs. SO ORDERED.