Marine Insurance Case Digests

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PHILIPPINE AMERICAN GENERAL INSURANCE vs COURT OF APPEALS
FACTS: On 6 July 1983 Coca-Cola Bottlers Philippines, Inc., loaded on board MV Asilda, a vessel owned and
operated by respondent Felman Shipping Lines (FELMAN for brevity), 7,500 cases of 1-liter Coca-Cola softdrink
bottles to be transported from Zamboanga City to Cebu City for consignee Coca-Cola Bottlers Philippines, Inc.,
Cebu. The shipment was insured with petitioner Philippine American General Insurance Co., Inc. (PHILAMGEN for
brevity), under Marine Open Policy No. 100367-PAG.
MV Asilda left the port of Zamboanga in fine weather at eight oclock in the evening of the same day. At around
eight forty-five the following morning, 7 July 1983, the vessel sank in the waters of Zamboanga del Norte bringing
down her entire cargo with her including the subject 7,500 cases of 1-liter Coca-Cola softdrink bottles.
On 15 July 1983 the consignee Coca-Cola Bottlers Philippines, Inc., Cebu plant, filed a claim with respondent
FELMAN for recovery of damages it sustained as a result of the loss of its softdrink bottles that sank with MV
Asilda. Respondent denied the claim thus prompting the consignee to file an insurance claim with PHILAMGEN
which paid its claim of P755,250.00. Claiming its right of subrogation PHILAMGEN sought recourse against
respondent FELMAN which disclaimed any liability for the loss. Consequently, on 29 November 1983 PHILAMGEN
sued the shipowner for sum of money and damages.
In its complaint PHILAMGEN alleged that the sinking and total loss of MV Asilda and its cargo were due to the
vessels unseaworthiness as she was put to sea in an unstable condition. It further alleged that the vessel was
improperly manned and that its officers were grossly negligent in failing to take appropriate measures to proceed to
a nearby port or beach after the vessel started to list.
On 15 February 1985 FELMAN filed a motion to dismiss based on the affirmative defense that no right of
subrogation in favor of PHILAMGEN was transmitted by the shipper, and that, in any event, FELMAN had
abandoned all its rights, interests and ownership over MV Asilda together with her freight and appurtenances for
the purpose of limiting and extinguishing its liability under Art. 587 of the Code of Commerce.
On 17 February 1986 the trial court dismissed the complaint of PHILAMGEN. On appeal the Court of Appeals set
aside the dismissal and remanded the case to the lower court for trial on the merits. FELMAN filed a petition
for certiorari with this Court but it was subsequently denied on 13 February 1989.
On 28 February 1992 the trial court rendered judgment in favor of FELMAN It ruled that MV Asilda was seaworthy
when it left the port of Zamboanga as confirmed by certificates issued by the Philippine Coast Guard and the
shipowners surveyor attesting to its seaworthiness. Thus the loss of the vessel and its entire shipment could only
be attributed to either a fortuitous event, in which case, no liability should attach unless there was a stipulation to
the contrary, or to the negligence of the captain and his crew, in which case, Art. 587 of the Code of Commerce
should apply.
The lower court further ruled that assuming MV Asilda was unseaworthy, still PHILAMGEN could not recover from
FELMAN since the assured (Coca-Cola Bottlers Philippines, Inc.) had breached its implied warranty on the vessels
seaworthiness. Resultantly, the payment made by PHILAMGEN to the assured was an undue, wrong and mistaken
payment. Since it was not legally owing, it did not give PHILAMGEN the right of subrogation so as to permit it to
bring an action in court as a subrogee.
On 18 March 1992 PHILAMGEN appealed the decision to the Court of Appeals. On 29 August 1994 respondent
appellate court rendered judgment finding MV Asilda unseaworthy for being top- heavy as 2,500 cases of CocaCola softdrink bottles were improperly stowed on deck. In other words, while the vessel possessed the necessary
Coast Guard certification indicating its seaworthiness with respect to the structure of the ship itself, it was not
seaworthy with respect to the cargo. Nonetheless, the appellate court denied the claim of PHILAMGEN on the
ground that the assureds implied warranty of seaworthiness was not complied with. Perfunctorily, PHILAMGEN
was not properly subrogated to the rights and interests of the shipper.Furthermore, respondent court held that the
filing of notice of abandonment had absolved the shipowner/agent from liability under the limited liability rule.
ISSUE: WON PHILAMGEN was properly subrogated to the rights and legal actions which the shipper had against
FELMAN, the shipowner.
HELD: Respondent appellate court found MV Asilda unseaworthy with reference to the cargo and therefore ruled
that there was breach of warranty of seaworthiness that rendered the assured not entitled to the payment of is
claim under the policy. Hence, when PHILAMGEN paid the claim of the bottling firm there was in effect a voluntary
payment and no right of subrogation accrued in its favor. In other words, when PHILAMGEN paid it did so at its
own risk.
It is generally held that in every marine insurance policy the assured impliedly warrants to the assurer that the
vessel is seaworthy and such warranty is as much a term of the contract as if expressly written on the face of the
policy. Thus Sec. 113 of the Insurance Code provides that (i)n every marine insurance upon a ship or freight, or
freightage, or upon anything which is the subject of marine insurance, a warranty is implied that the ship is
seaworthy. Under Sec. 114, a ship is seaworthy when reasonably fit to perform the service, and to
encounterthe ordinary perils of the voyage, contemplated by the parties to the policy. Thus it becomes the
obligation of the cargo owner to look for a reliable common carrier which keeps its vesselsin seaworthy

1 | Rodriguez, Lila B.

condition. He may have no control over the vessel but he has full control in the selection of the common carrier that
will transport his goods. He also has full discretion in the choice of assurer that will underwrite a particular venture.
We need not belabor the alleged breach of warranty of seaworthiness by the assured as painstakingly pointed out
by FELMAN to stress that subrogation will not work in this case. In policies where the law will generally imply a
warranty of seaworthiness, it can only be excluded by terms in writing in the policy in the clearest language. And
where the policy stipulates that the seaworthiness of the vessel as between the assured and the assurer is
admitted, the question of seaworthiness cannot be raised by the assurer without showing concealment or
misrepresentation by the assured.
The marine policy issued by PHILAMGEN to the Coca-Cola bottling firm in at least two (2) instances has
dispensed with the usual warranty of worthiness. Paragraph 15 of the Marine Open Policy No. 100367-PAG reads
(t)he liberties as per Contract of Affreightment the presence of the Negligence Clause and/or Latent Defect Clause
in the Bill of Lading and/or Charter Party and/or Contract of Affreightment as between the Assured and
the Company shall not prejudice the insurance. The seaworthiness of the vessel as between the Assured and the
Assurers is hereby admitted.
The same clause is present in par. 8 of the Institute Cargo Clauses (F.P.A.) of the policy which states (t)he
seaworthiness of the vessel as between the Assured and Underwriters in hereby admitted x x x x" [
The result of the admission of seaworthiness by the assurer PHILAMGEN may mean one or two things: (a) that the
warranty of the seaworthiness is to be taken as fulfilled; or, (b) that the risk of unseaworthiness is assumed by the
insurance company. The insertion of such waiver clauses in cargo policies is in recognition of the realistic fact that
cargo owners cannot control the state of the vessel. Thus it can be said that with such categorical
waiver, PHILAMGEN has accepted the risk of unseaworthiness so that if the ship should sink by unseaworthiness,
as what occurred in this case, PHILAMGEN is liable.
Having disposed of this matter, we move on to the legal basis for subrogation. PHILAMGENs action against
FELMAN is squarely sanctioned by Art. 2207 of the Civil Code which provides:
Art. 2207. If the plaintiffs property has been insured, and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong or breach of contract complained of, the insurance
company shall be subrogated to the rights of the insured against the wrongdoer or the person who has
violated the contract. If the amount paid by the insurance company does not fully cover the injury or loss, the
aggrieved party shall be entitled to recover the deficiency from the person causing the loss or injury.
In Pan Malayan Insurance Corporation v. Court of Appeals, we said that payment by the assurer to the assured
operates as an equitable assignment to the assurer of all the remedies which the assured may have against the
third party whose negligence or wrongful act caused the loss. The right of subrogation is not dependent upon, nor
does it grow out of any privity of contract or upon payment by the insurance company of the insurance claim. It
accrues simply upon payment by the insurance company of the insurance claim.
The doctrine of subrogation has its roots in equity. It is designed to promote and to accomplish justice and is the
mode which equity adopts to compel the ultimate payment of a debt by one who in justice, equity and good
conscience ought to pay. Therefore, the payment made by PHILAMGEN to Coca-Cola Bottlers Philippines, Inc.,
gave the former the right to bring an action as subrogee against FELMAN. Having failed to rebut the presumption
of fault, the liability of FELMAN for the loss of the 7,500 cases of 1-liter Coca-Cola softdrink bottles is inevitable.
PAN MALAYAN vs COURT OF APPEALS
FACTS: v On May 22, 1980, FAO received a formal offer from the Luzon Stevedoring Corporation (LUZTEVECO,
for brevity) whereby the latter offered to ship the former's aforesaid cargo, consisting of 3,000 metric petitions in
two lots of rice seeds, to Vietnam Ocean Shipping Industry in Vaung Tau, Vietnam for freight fees of $55.50/MT,
subject to the terms and conditions indicated in the corresponding communication.
On May 28, 1980, FAO wrote LUZTEVECO formally confirming its acceptance of the foregoing offer amounting to
US$83,325.92 in respect of one lot of 1,500 metric petitions winch is the subject of the present action. The cargo
was loaded on board LUZTEVECO Barge No. LC-3000 and consisted of 34,122 bags of IR-36 certified rice seeds
purchased by FAO from the Bureau of Plant Industry for P4,602,270.00.
On June 12, 1980, the loading was completed and LUZTEVECO issued its Bill of Lading No. 01 in favor of
FAO. The latter then secured insurance coverage in the amount of P5,250,000.00 from petitioner, Pan Malayan
Insurance Corporation, as evidenced by the latter's Marine Cargo Policy No. B-11474A and Premium Invoice No.
78615, dated June 16, 1980.
On June 16, 1980, FAO gave instructions to LUZTEVECO to leave for Vaung Tau, Vietnam to deliver the cargo
which, by its nature, could not withstand delay because of the inherent risks of termination and/or spoilage. On the
same date, the insurance premiums on the shipment was paid by FAO petitioner.
On June 23, 1980, FAO was informed by LUZTEVECO that the tugboat and barge carrying FAO's shipment
returned to Manila after leaving on June 16, 1980 and that the shipment again left Manila for Vaung Tau Vietnam
on June 21, 1980 with the barge being towed by a different tugboat. Since this was an unauthorized deviation, FAO
demanded an explanation on June 25, 1980.

2 | Rodriguez, Lila B.

On June 26, 1980, FAO was advised of the sinking of the barge in the China Sea, hence it informed petitioner
thereof and, later, formally filed its claim under the marine insurance policy. 7 On July 29, 1980, FAO was informed
by LUSTEVECO of the recovery of the lost shipment, for which reason FAO formally filed its claim with
LUZTEVECO for compensation of damage to its cargo.
Thereafter, despite repeated demands to replace the same or to pay for the total insured value in the sum of
P5,250,000.00, LUSTEVECO failed and refused to do so. Petitioner likewise failed to pay for the losses and
damages sustained by FAO by reason of its inability to recover the value of the shipment from LUZTEVECO.
Petitioner claims that on July 31, 1980 it supposedly engaged the services of Pan Asiatic Adjustment and Marine
Surveying Corporation to investigate and examine the shipment. On August 4, 1980, J.A. Barroso, Jr. of said
corporation reportedly conducted a survey on the shipment and found that 9,629 bags of rice seeds were in good
order, 23,510 bags sustained wattage of 10% to 15%, and 983 bags were shorthanded or missing. After the
alleged survey, Barroso, Jr. made a report recommending to petitioner the denial of FAO's claim because the
partial damage suffered by the shipment is not compensable under the policy. On the basis of said
recommendation, petitioner denied FAO's claim.
Petitioner further avers that upon the request of counsel of FAO, a survey of the shipment was conducted on
September 26, 27 and 29, 1980 by Conrado Catalan, Jr. of Manila Adjusters & Surveyors Company and he found
6,200 bags in good order condition. At the time of his survey, 23,510 bags of the shipment had allegedly already
been sold by LUZTEVECO. Petitioner further asserts that on September 29, 1980, FAO wrote a letter to petitioner
signifying its willingness to abandon the proceeds of the sale of the 23,510 bags and the remaining good order
bags, but that on October 6, 1980 petitioner rejected FAO's proposed abandonment.
FAO then instituted civil case against LUZTEVECO and/or herein petitioner, as defendants, with the Regional Trial
Court of Pasig, Metro Manila which rendered judgment in favor of FAO. CA affirmed Trial Court’s decision.
Reconsideration denied.
ISSUES: 1) Whether or not respondent court committed a reversible error in holding that the trial court is correct in
holding that there is a total loss of the shipment;
2) Whether or not respondent court committed a reversible error in affirming the decision of the trial court ordering
petitioner to pay private respondent the amount of P5,250,000.00 representing the full insured value of the rice
seeds.
HELD: The assailed judgment and resolution of CA are affirmed.
The law classifies loss into either total or partial. Total loss may be actual or absolute, or it may otherwise be
constructive or technical. Petitioner submits that respondent court erred in ruling that there was total loss of the
shipment despite the fact that only 27,922 bags of rice seeds out of 34,122 bags were rendered valueless to FAO
and the shipment sustained only a loss of 78%. FAO, however, claims that, for all intents and purposes, it has
practically lost its total orentire shipment in this case, inclusive of expenses, premium fees, and so forth, despite
the alleged recovery by defendant LUZTEVECO.
As found by the court below and reproduced with approval by respondent court, FAO "has never been
compensated for this total loss or damage, a fact which is not denied nor controverted. If there were some cargoes
saved, by LUZTEVECO, private respondent abandoned it and the same was sold or used for the benefit of
LUZTEVECO or Pan Malayan Corporation. Under Sections 129 and 130 of the New Insurance Code, a total loss
may either be actual or constructive. In case of total loss in Marine Insurance, the assured is entitled to recover
from the underwriter the whole amount of his subscription.
It is a fact that on July 9, 1980, FAO formally filed its claim under the marine insurance policy issued by
petitioner.18 FAO thus claims actual loss under paragraphs (c) and (d) of Section 130 of the Insurance Code which
provides:
SEC. 130. 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.
Respondent court affirmed the ruling of the trial court to the effect that there was indeed actual total loss,
painstakingly explaining therein the following grounds for holding petitioner liable for the entire amount of the
insurance coverage.
Petitioner, on the other hand, claims that respondent court gravely erred in sustaining the ruling of the trial court
that there was total loss of the shipment since from the evidence on record and the findings of respondent court
itself, only 27,922 bags of rice seeds out of 34,122 bags were rendered valueless to FAO and the shipment
sustained only a loss of 78%. 20 Thus, petitioner concludes that the findings of the court a quo, as affirmed by the
Court of Appeals, are contrary to the evidence. Upon an examination, however, of the records presented before
this Court, it is quite clear that there was indeed actual total loss.

3 | Rodriguez, Lila B.

While this Court is not a trier of facts, yet, when the findings of the Court of Appeals are alleged to be without
citation of specific evidence on which they are based, there is sufficient reason for us to review the appellate
court's decision. 21 Under the factual milieu of this case, we find that there is abundant evidence to support the
conclusion of respondent court.
It will be recalled that said rice seeds were treated and would germinate upon mere contact with water. The rule is
that where the cargo by the process of decomposition or other chemical agency no longer remains the same kind
of thing as before, an actual total loss has been suffered.
... However, the complete physical destruction of the subject matter is not essential to constitute an actual
total loss. Such a loss may exist where the form and specie of the thing is destroyed, although the materials
of which it consisted still exist (Great Western Ins. Co. vs. Fogarty, N.Y., 19 Wall 640, 22 L. Ed. 216), as where
the cargo by the process of decomposition or other chemical agency no longer remains the same kind of thing
as before (Williams vs. Cole, 16 Me. 207).
Moreover, it is undisputed that no replacement whatsoever or any payment, for that matter, of the value of said lost
cargo was made to FAO by petitioner or LUZTEVECO. It is thus clear that FAO suffered actual total loss under
Section 130 of the Insurance Code, specifically under paragraphs (c) and (d) thereof, recompense for which it has
been denied up to the present.
In view of our aforestated holding that there was actual total loss of the goods insured in this case, it is no longer
necessary to pass upon the issue of the validity of the abandonment made by FAO. Section 135 of the Insurance
Code explicitly provides that "upon an actual total loss, a person insured is entitled to payment without notice of
abandonment." This is a statutory adoption of a long standing doctrine in maritime insurance law that in case of
actual total loss, the right of the insured to claim the whole insurance is absolute, without need of a notice of
abandonment.
ORIENTAL ASSURANCE vs COURT OF APPEALS
FACTS: Panama Sawmill shipped 1208 pieces of apitog logs to Manila and insured the logs with Oriental for the
value of Php 1 million. Two barges were loaded with 610 and 598 logs. At sea, typhoons ravaged one of
the barges, resulting in the loss of 497 of 598 of the logs.
The Insurance contract provided for indemnity under the following conditions:
Warranted that this Insurance is against TOTAL LOSS ONLY. Subject to the following clauses:
— Civil Code Article 1250 Waiver clause
— Typhoon warranty clause
— Omnibus clause.
Oriental didn’t give an indemnity because there wasn’t total loss of the shipment. The sawmill filed a civil case
against Oriental and the court ordered it to pay 410,000 as value for the missing logs. The CA affirmed the lower
court judgment but reduced the legal interest. Hence this appeal by Oriental.
ISSUE: Whether or not 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. Petition granted.
Ratio: Perla v CA: The terms of the contract constitute the measure of the insurer liability and compliance therewith
is a condition precedent to the insured's right to recovery from the insurer.
“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 divisibleas 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.”
Also, the insurer's liability was for "total loss only" as stipulated. A total loss may be either actual or constructive. An
actual total loss under Sec 130 of the Insurance Code 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.
A constructive total loss, gives to a person insured a right to abandon and it means:
SECTION 139. A person insured by a contract of marine insurance may abandon the thing insured, or any
particular portion thereof separately valued by the policy, or otherwise separately insured, and recover for a
total loss thereof, when the cause of the loss is a peril injured against,
(a) If more than three-fourths thereof in value is actually lost, or would have to be expended to recover it from
the peril;
(b) If it is injured to such an extent as to reduce its value more than three-fourths

4 | Rodriguez, Lila B.

The appellate court considered the cargo in one barge as separate from the other and ruled that 497 of 598 was
more than ¾ of the amount lost, showing a constructive total loss.
The SC, however, said that although the logs were placed in two barges, they were not separately valued by the
policy, nor separately insured. Of the entirety of 1,208, pieces of logs, only 497 pieces thereof were lost or 41.45%
of the entire shipment. Since the cost of those 497 pieces does not exceed 75% of the value of all 1,208 pieces of
logs, the shipment cannot be said to have sustained a constructive total loss under Section 139(a) of the Insurance
Code.
FEDERAL EXPRESS CORPORATION vs AMERICAN HOME ASSURANCE COMPANY
FACTS: Shipper SMITHKLINE USA delivered to carrier BurlingtonAir Express (BURLINGTON), an agent of
[Petitioner] Federal Express Corporation, a shipment of 109 cartons of veterinary biologicals for delivery
to consignee SMITHKLINE and French Overseas Company in Makati City. The shipment was covered by
Burlington Airway Bill No. 11263825 with the words, ‘REFRIGERATE WHEN NOT IN TRANSIT’ and
‘PERISHABLE’ stamp marked on its face. That same day, Burlington insured the cargoes with American Home
Assurance Company (AHAC). The following day, Burlington turned over the custody of said cargoes to FEDEX
which transported the same to Manila.
The shipments arrived in Manila and was immediately stored at [Cargohaus Inc.’s] warehouse. Prior to the arrival
of the cargoes, FEDEX informed GETC Cargo International Corporation, the customs broker hired by the
consignee to facilitate the release of its cargoes from the Bureau of Customs, of the impending arrival of its client’s
cargoes.
12 days after the cargoes arrived in Manila, DIONEDA, a non-licensed custom’s broker who was assigned by
GETC, found out, while he was about to cause the release of the said cargoes, that the same [were] stored only in
a room with 2 air conditioners running, to cool the place instead of a refrigerator. DIONEDA, upon instructions from
GETC, did not proceed with the withdrawal of the vaccines and instead, samples of the same were taken and
brought to the Bureau of Animal Industry of the Department of Agriculture in the Philippines by SMITHKLINE for
examination wherein it was discovered that the ‘ELISA reading of vaccinates sera are below the positive reference
serum.’
As a consequence of the foregoing result of the veterinary biologics test, SMITHKLINE abandoned the shipment
and, declaring ‘total loss’ for the unusable shipment, filed a claim with AHAC through its representative in the
Philippines, the Philam Insurance Co., Inc. (PHILAM) which recompensed SMITHKLINE for the whole insured
amount. Thereafter, PHILAM filed an action for damages against the FEDEX imputing negligence on either or both
of them in the handling of the cargo.
Trial ensued and ultimately concluded with the FEDEX being held solidarily liable for the loss. Aggrieved, petitioner
appealed to the CA. The appellate court ruled in favor of PHILAM and held that the shipping Receipts were a prima
facie proof that the goods had indeed been delivered to the carrier in good condition.
ISSUE: WON FEDEX liable for damage to or loss of the insured goods
HELD: Petition granted. Assailed decision reversed insofar as it pertains to FEDEX.
Prescription of Claim
From the initial proceedings in the trial court up to the present, petitioner has tirelessly pointed out that
respondents’ claim and right of action are already barred. Indeed, this fact has never been denied by respondents
and is plainly evident from the records.
Airway Bill No. 11263825, issued by Burlington as agent of petitioner, states:
“6. No action shall be maintained in the case of damage to or partial loss of the shipment unless a written
notice, sufficiently describing the goods concerned, the approximate date of the damage or loss, and the
details of the claim, is presented by shipper or consignee to an office of Burlington within (14) days from the
date the goods are placed at the disposal of the person entitled to delivery, or in the case of total loss
(including non-delivery) unless presented within (120) days from the date of issue of the [Airway Bill]. xxx
Relevantly, petitioner’s airway bill states:
“12./12.1 The person entitled to delivery must make a complaint to the carrier in writing in the case:
12.1.1 of visible damage to the goods, immediately after discovery of the damage and at the latest within
fourteen (14) days from receipt of the goods; xxx
Article 26 of the Warsaw Convention, on the other hand, provides:
xxx (2) In case of damage, the person entitled to delivery must complain to the carrier forthwith after the
discovery of the damage, and, at the latest, within 3 days from the date of receipt in the case of baggage and
7 days from the date of receipt in the case of goods. xx
(3) Every complaint must be made in writing upon the document of transportation or by separate notice in
writing dispatched within the times aforesaid.
(4) Failing complaint within the times aforesaid, no action shall lie against the carrier, save in the case of
fraud on his part.” xxx

5 | Rodriguez, Lila B.

Condition Precedent
In this jurisdiction, the filing of a claim with the carrier within the time limitation therefore actually constitutes a
condition precedent to the accrual of a right of action against a carrier for loss of or damage to the goods. The
shipper or consignee must allege and prove the fulfillment of the condition. If it fails to do so, no right of action
against the carrier can accrue in favor of the former. The aforementioned requirement is a reasonable condition
precedent; it does not constitute a limitation of action.
The requirement of giving notice of loss of or injury to the goods is not an empty formalism. The fundamental
reasons for such a stipulation are (1) to inform the carrier that the cargo has been damaged, and that it is being
charged with liability therefor; and (2) to give it an opportunity to examine the nature and extent of the injury. “This
protects the carrier by affording it an opportunity to make an investigation of a claim while the matter is fresh and
easily investigated so as to safeguard itself from false and fraudulent claims.
NOTES: As to Proper Payee:
The Certificate specifies that loss of or damage to the insured cargo is “payable to order x x x upon surrender of
this Certificate.” Such wording conveys the right of collecting on any such damage or loss, as fully as if the property
were covered by a special policy in the name of the holder itself. At the back of the Certificate appears the
signature of the representative of Burlington. This document has thus been duly indorsed in blank and is deemed
a bearer instrument.
Since the Certificate was in the possession of Smithkline, the latter had the right of collecting or of being
indemnified for loss of or damage to the insured shipment, as fully as if the property were covered by a special
policy in the name of the holder. Hence, being the holder of the Certificate and having an insurable interest in the
goods, Smithkline was the proper payee of the insurance proceeds.
Subrogation
Upon receipt of the insurance proceeds, the consignee (Smithkline) executed a subrogation Receipt in favor of
respondents. The latter were thus authorized “to file claims and begin suit against any such carrier, vessel, person,
corporation or government.” Undeniably, the consignee had a legal right to receive the goods in the same condition
it was delivered for transport to petitioner. If that right was violated, the consignee would have a cause of action
against the person responsible therefor.
SULPICIO LINES vs FIRST LEPANTO
FACTS: Taiyo Yuden Philippines, Inc. (owner of the goods) and Delbros, Inc.(shipper) entered into a contract,
evidenced by Bill of Lading issued by thelatter in favor of the owner of the goods, for Delbros, Inc. to transport a
shipment of goods consisting of 3 wooden crates co ntaining 136 cartons of inductors and LC compound on board
the V Singapore V20 from Cebu City to Singapore in favor of the consignee, Taiyo Yuden Singapore Pte, Ltd. For
the
carriage
of
said
shipment
from
Cebu
City
to
Manila,
Delbros,
Inc.engaged the services of the vessel M/V Philippine Princess, owned andoperated by petitioner Sulpicio Lines,
Inc. (carrier). During the unloading of the shipment, one crate containing 42 cartons dropped from the cargo hatch
to the pier apron. The owner of the goods examined the dropped cargo, and upon an alleged finding that the
contents of the crate were no longer usable for their intended purpose, they were rejected as a total loss and
returned to Cebu City.
The owner of the goods filed a claim with herein petitioner-carrier for therecovery of the value of the rejected cargo
which was refused by the latter. Thereafter, the owner of the goods sought payment from respondent First
Lepanto-Taisho Insurance Corporation (insurer) under a marine insurance policy issued to the former. Respondentinsurer paid the claim less thirty-five percent (35%) salvage value or P194, 220.31.
The payment of the insurance claim of the owner of the goods by therespondent-insurer subrogated the latter to
whatever right or legal action the owner of the goods may have against Delbros, Inc. and petitioner-carrier,
Sulpicio Lines, Inc. Thus, respondent-insurer then filed claims for eimbursement from Delbros, Inc. and petitionercarrier Sulpicio Lines, Inc. which were subsequently denied.
In 1992, respondent-insurer filed a suit for damages with the trial courtagainst Delbros, Inc. and herein petitionercarrier. Delbros, Inc. filed on 15 April 1993 its Answer with Counterclaim and Cross-claim, alleging that assuming
the contents of the crate in question were truly in bad order, fault is with herein petitioner-carrier which was
responsible for the unloading of the crates. Petitioner-carrier filed its Answer to Delbros, Inc.’s cross-claim
asserting that it observed extraordinary diligence in the handling, storage and general care of the shipment and
that subsequent inspection of the shipment by the Manila Adjusters and Surveyors Company showed that the
contents of thethird crate that had fallen were found to be in apparent sound condition,
except that “2 cello bags each of 50 pieces ferri inductors No. LC FL112270K-60 (c) were unaccounted for
and missing as per packaging list.”
After hearing, the trial court dismissed the complaint for damages as well asthe counterclaim filed by therein
defendant Sulpicio Lines, Inc. and the cross-claim filed by Delbros, Inc on the grounds that plaintiff has failed to
prove its case. The CA reversed the RTC decision and ordered Delbros and Sulpicio Lines to pay, jointly
and severally, plaintiff-appellant the sum of P194,220.31 representing actual damages, plus legal interest counted
from the filing of the complaint until fully paid.

6 | Rodriguez, Lila B.

ISSUE: Whether or not, based on the evidence presented during the trial, the owner of the goods, respondentinsurer’s predecessor-in-interest, did incur damages, and if so, whether or not petitioner-carrier is liable for the
same
HELD: It cannot be denied that the shipment sustained damage while in the custody of petitioner-carrier. It is not
disputed that one of the 3 crates did fall from the cargo hatch to the pier apron while petitioner-carrier
was unloading the cargo from its vessel. Neither is it impugned that upon inspection, it was found that 2 cartons
were torn on the side and the top flaps were open and that 2 cello bags, each of 50 pieces ferri inductors, were
missing from the cargo. Petitioner-carrier contends that its liability, if any, is only to the extent of
thecargo damage or loss and should not include the lack of fitness of theshipment for transport to Singapore due to
the
damaged
packing. This
is
erroneous. Petitioner-carrier
seems
to belabor under
the
misapprehensionthat a distinction must be made between the cargo packaging and thecontents
of the
cargo. According to it, damage to the packaging is not tantamount to damage to the cargo. It must be stressed that
in the case at bar, the damage sustained by the packaging of the cargo while in petitioner-carrier’s custody
resulted
in
its
unfitness
to
be transported
to
its
consignee
in
Singapore.
Such failure to ship the cargo to its final destination because of the ruined packaging, indeed, resulted in
damages on the part of the owner of the goods.
The falling of the crate during the unloading is evidence of petitioner-carrier’s negligence in handling the cargo. As
a common carrier, it is expected to observe extraordinary diligence in the handling of goods placed
in its possession for transport. The standard of extraordinary diligence imposed upon common carriers is
considerably more demanding than the standard of ordinary diligence, i.e. the diligence of a good
paterfamilias established in respect of the ordinary relations between members of society. A common
carrier is bound to transport its cargo and its passengers safely "as far as
human care and foresight can provide, using the
utmost diligence
of a very cautious person,
with due regard to all circumstances.” The extraordinary diligence in the vigilance over the goods
tendered for shipment requires the common carrier to know and to follow the required precaution for
avoiding the damage to, or destruction of, the goods entrusted to it for safe carriage and delivery. It
requires common carriers to render service with the greatest skill and foresight and “to use all reasonable
means to ascertain the nature and characteristic of goods tendered for shipment, and to exercise due care
in the handling and stowage, including such methods as their nature requires.”
Thus, when the shipment suffered damages as it was beingunloaded, petitioner-carrier is presumed to
have been negligent in the handling of the damaged cargo. Under Articles 1735 and 1752 of the Civil Code,
common
carriers
are
presumed
to
havebeen at fault or to have acted negligently in case the goodstransported by them are lost, destroyed or
had deteriorated. To overcome the presumption of liability for loss, destruction ordeterioration of goods
under
Article
1735,
the
common
carrier
mustprove that they observed extraordinary diligence as required in Article 1733 of the Civil Code.
Petitioner-carrier miserably failed to adduce any shred of evidence of the required extraordinary diligence to
overcome the presumption that it was negligent in transporting the cargo. Coming now to the issue of the extent of
petitioner-carrier’s liability, it is undisputed that respondent-insurer paid the owner of the goods under the insurance
policy the amount of P194,220.31 for the alleged damages the latter has incurred. Neither is there dispute as to the
fact that Delbros, Inc. paid P194,220.31 to respondent-insurer in satisfaction of the whole amount of the
judgment rendered by the Court of Appeals. The question then is:
To what extent is Sulpicio Lines, Inc., as common carrier, liable for the damages suffered by the owner
of the goods?
Upon respondent-insurer’s payment of the alleged amount of loss suffered by the insured (the owner of the goods),
the insurer is entitled to be subrogated pro tanto to any right of action which the insured may have against
the common carrier whose negligence or wrongful act caused the loss. Subrogation is the substitution of one
person in the place of another with reference to a lawful claim or right, so that he who is substituted succeeds to
the rights of the other in relation to a debt or claim, including its remedies or securities.
The rights to which the subrogee succeeds are the same as, but not greater than, those of the person for whom he
is substituted, that is, he cannot acquire any claim, security or remedy the subrogor did not have.
In other words, a subrogee cannot succeed to a right not possessed by the subrogor. A subrogee in
effectsteps into the shoes of the insured and can recover only if the insuredlikewise could have recovered.
As found by the Court of Appeals, there was damage suffered by the goods which consisted in the destruction of
one wooden crate and the tearing of two (2) cardboard boxes therein which rendered them unfit to be sent to
Singapore. The falling of the crate was negligence on the part of Sulpicio Lines, Inc. for which it cannot
exculpate itself from liability because it failed to prove that it exercised extraordinary diligence.
Hence, we uphold the ruling of the appellate court that hereinpetitioner-carrier is liable to pay the amount
paid by respondent-insurer for the damages sustained by the owner of the goods.
As stated in the manifestation filed by Delbros, Inc., however, respondent-insurer had already been paid the full
amount granted by the Court of Appeals, hence, it will be tantamount to unjust enrichment for respondent
insurer to again recover damages from herein petitioner-carrier.

7 | Rodriguez, Lila B.

With respect to Delbros, Inc.’s prayer contained in its manifestation that, in case the decision in the instant case be
adverse to petitioner-carrier, a pronouncement as to the matter of reimbursement, indemnification orcontribution in
favor of Delbros, Inc. be included in the decision, this Court will not pass upon said issue since Delbros, Inc. has no
personality before this Court, it not being a party to the instant case. Notwithstanding, this shall not bar any action
Delbros, Inc. may institute against petitioner-carrier Sulpicio Lines, Inc. with respect to the damages the latter is
liable to pay.
WHEREFORE, premises considered, the assailed Decision of the Court of Appeals dated 26 May 1999 and its
Resolution dated 13 October 1999 are hereby AFFIRMED. No costs
AMERICAN HOME INSURANCE CO vs TANTUCO ENTERPRISES
FACTS: Tantuco Enterprises, Inc. is a coconut oil milling and refining company. It owned two mills (the first oil mill
and a new one), both located at its factory compound at Iyam, Lucena City. The two oil mills are separately
covered by fire insurance policies issued by American Home Assurance Co.
On Sept. 30, 1991, a fire broke out and gutted and consumed the new oil mill. American Home rejected the claim
for the insurance proceeds on the ground that no policy was issued by it covering the burned oil mill. It stated that
the new oil mill was under Building No. 15 while the insurance coverage extended only to the oil mill under Building
No. 5.
ISSUE: Whether or not the new oil mill is covered by the fire insurance policy
HELD: In construing the words used descriptive of a building insured, the greatest liberality is shown by the courts
in giving effect to the insurance. In view of the custom of insurance agents to examine buildings before writing
policies upon them, and since a mistake as to the identity and character of the building is extremely unlikely, the
courts are inclined to consider the policy of insurance covers any building which the parties manifestly intended to
insure,
however
inaccurate
the
description
may
be.
Notwithstanding, therefore, the misdescription in the policy, it is beyond dispute, to our mind, that what the parties
manifestly intended to insure was the new oil mill.
If the parties really intended to protect the first oil mill, then there is no need to specify it as new. Indeed, it would
be absurd to assume that the respondent would protect its first oil mill for different amounts and leave uncovered
its second one.
PRUDENTIAL GUARANTEE AND ASSURANCE INC vs TRANS-ASIA SHIPPING
FACTS: TRANS-ASIA is the owner of the vessel M/V Asia Korea. In consideration of payment of premiums,
PRUDENTIAL insured M/V Asia Korea for loss/damage of the hull and machinery arising from perils, inter alia, of
fire and explosion for the sum of P40 Million, beginning from the period of July 1, 1993 up to July 1, 1994.
On October 25, 1993, while the policy was in force, a fire broke out while [M/V Asia Korea was] undergoing repairs
at the port of Cebu. On October 26, 1993 TRANS-ASIA filed its notice of claim for damage sustained by the vessel
evidenced by a letter/formal claim. TRANS-ASIA reserved its right to subsequently notify PRUDENTIAL as to the
full amount of the claim upon final survey and determination by average adjuster Richard Hogg International (Phil.)
of the damage sustained by reason of fire.
TRANS-ASIA executed a document denominated "Loan and Trust receipt", a portion of which states that “Received
from Prudential Guarantee and Assurance, Inc., the sum of PESOS THREE MILLION ONLY (P3,000,000.00) as a
loan without interest under Policy No. MH 93/1353 [sic], repayable only in the event and to the extent that any net
recovery is made by Trans-Asia Shipping Corporation, from any person or persons, corporation or corporations, or
other parties, on account of loss by any casualty for which they may be liable occasioned by the 25 October 1993:
Fire on Board."
PRUDENTIAL later on denied Trans-Asia’s claim in stated in a letter that "After a careful review and evaluation of
your claim arising from the above-captioned incident, it has been ascertained that you are in breach of policy
conditions, among them "WARRANTED VESSEL CLASSED AND CLASS MAINTAINED". Accordingly, we regret to
advise that your claim is not compensable and hereby DENIED." and asked for the return of the 3,000,000.
TRANS-ASIA filed a Complaint for Sum of Money against PRUDENTIAL with the RTC of Cebu City, wherein
TRANS-ASIA sought the amount of P8,395,072.26 from PRUDENTIAL, alleging that the same represents the
balance of the indemnity due upon the insurance policy in the total amount of P11,395,072.26. TRANS-ASIA
similarly sought interest at 42% per annum citing Section 243 of Presidential Decree No. 1460, otherwise known as
the "Insurance Code," as amended.
PRUDENTIAL denied the material allegations of the Complaint and interposed the defense that TRANSASIA breached insurance policy conditions, in particular: PRUDENTIAL posits that TRANS-ASIA violated an
express and material warranty in the subject insurance contract, i.e., Marine Insurance Policy No. MH93/1363,
specifically Warranty Clause No. 5 thereof, which stipulates that the insured vessel, "M/V ASIA KOREA" is required
to be CLASSED AND CLASS MAINTAINED. According to PRUDENTIAL, on 25 October 1993, or at the time of the
occurrence of the fire, "M/V ASIA KOREA" was in violation of the warranty as it was not CLASSED AND CLASS
MAINTAINED. PRUDENTIAL submits that Warranty Clause No. 5 was a condition precedent to the recovery of

8 | Rodriguez, Lila B.

TRANS-ASIA under the policy, the violation of which entitled PRUDENTIAL to rescind the contract under Sec. 74 of
the Insurance Code. By way of a counterclaim, PRUDENTIAL sought a refund of P3,000,000.00, which it allegedly
advanced to TRANS-ASIA by way of a loan without interest and without prejudice to the final evaluation of the
claim, including the amounts of P500,000.00, for survey fees and P200,000.00, representing attorney’s fees.
Trial court ruled in favor of Prudential. It ruled that a determination of the parties’ liabilities hinged on whether
TRANS-ASIA violated and breached the policy conditions on WARRANTED VESSEL CLASSED AND CLASS
MAINTAINED. It interpreted the provision to mean that TRANS-ASIA is required to maintain the vessel at a certain
class at all times pertinent during the life of the policy. According to the court a quo, TRANS-ASIA failed to prove
compliance of the terms of the warranty, the violation thereof entitled PRUDENTIAL to rescind the contract.
The court of appeals reversed the decision. It ruled that PRUDENTIAL, as the party asserting the noncompensability of the loss had the burden of proof to show that TRANS-ASIA breached the warranty, which burden
it failed to discharge. PRUDENTIAL cannot rely on the lack of certification to the effect that TRANS-ASIA was
CLASSED AND CLASS MAINTAINED as its sole basis for reaching the conclusion that the warranty was
breached. It opined that the lack of a certification does not necessarily mean that the warranty was breached by
TRANS-ASIA. Instead, it considered PRUDENTIAL’s admission that at the time the insurance contract was entered
into between the parties, the vessel was properly classed by Bureau Veritas, a classification society recognized by
the industry. It similarly gave weight to the fact that it was the responsibility of Richards Hogg International (Phils.)
Inc., the average adjuster hired by PRUDENTIAL, to secure a copy of such certification to support its conclusion
that mere absence of a certification does not warrant denial of TRANS-ASIA’s claim under the insurance policy.
ISSUE: WON Trans-Asia breached the warranty stated in the insurance policy, thus absolving Prudential from
paying Trans-Asia.
HELD: No. As found by the Court of Appeals and as supported by the records, Bureau Veritas is a classification
society recognized in the marine industry. As it is undisputed that TRANS-ASIA was properly classed at the time
the contract of insurance was entered into, thus, it becomes incumbent upon PRUDENTIAL to show evidence that
the status of TRANS-ASIA as being properly CLASSED by Bureau Veritas had shifted in violation of the warranty.
Unfortunately, PRUDENTIAL failed to support the allegation.
The lack of a certification in PRUDENTIAL’s records to the effect that TRANS-ASIA’s "M/V Asia Korea" was
CLASSED AND CLASS MAINTAINED at the time of the occurrence of the fire cannot be tantamount to the
conclusion that TRANS-ASIA in fact breached the warranty contained in the policy.
It was likewise the responsibility of the average adjuster, Richards Hogg International (Phils.), Inc., to secure a
copy of such certification, and the alleged breach of TRANS-ASIA cannot be gleaned from the average adjuster’s
survey report, or adjustment of particular average per "M/V Asia Korea" of the 25 October 1993 fire on board.
The Supreme Court is not unmindful of the clear language of Sec. 74 of the Insurance Code which provides that,
"the violation of a material warranty, or other material provision of a policy on the part of either party thereto,
entitles the other to rescind." It is generally accepted that "a warranty is a statement or promise set forth in the
policy, or by reference incorporated therein, the untruth or non-fulfillment of which in any respect, and without
reference to whether the insurer was in fact prejudiced by such untruth or non-fulfillment, renders the policy
voidable by the insurer."
However, it 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.
Assuming arguendo that TRANS-ASIA violated the policy condition on WARRANTED VESSEL CLASSED AND
CLASS MAINTAINED, PRUDENTIAL made a valid waiver of the same. PRUDENTIAL can be deemed to have
made a valid waiver of TRANS-ASIA’s breach of warranty as alleged. Because after the loss, Prudential renewed
the insurance policy of Trans-Asia for two (2) consecutive years, from noon of 01 July 1994 to noon of 01 July
1995, and then again until noon of 01 July 1996. This renewal is deemed a waiver of any breach of warranty.
PRUDENTIAL, in renewing TRANS-ASIA’s insurance policy for two consecutive years after the loss covered by
Policy No. MH93/1363, was considered to have waived TRANS-ASIA’s breach of the subject warranty, if any.
Breach of a warranty or of a condition renders the contract defeasible at the option of the insurer; but if he so
elects, he may waive his privilege and power to rescind by the mere expression of an intention so to do. In that
event his liability under the policy continues as before. There can be no clearer intention of the waiver of the
alleged breach than the renewal of the policy insurance granted by PRUDENTIAL to TRANS-ASIA in MH94/1595
and MH95/1788, issued in the years 1994 and 1995, respectively
FILIPINO MERCHANTS INSIURANCE vs COURT OF APPEALS
FACTS: In 1976, Choa Tiek Seng insured 600 tons of fishmeal for the sum of P267,653.59 from Bangkok, Thailand
to Manila against all risks under warehouse to warehouse terms. What was imported in the SS Bougainville was
59.940 metric tons at $395.42 a ton. The cargo was unloaded from the ship and 227 bags were found to be in bad
condition by the arrastre.

9 | Rodriguez, Lila B.

Choa made a formal claim against the defendant Filipino Merchants Insurance Company for P51,568.62 He also
presented a claim against the ship, but the defendant Filipino Merchants Insurance Company refused to pay the
claim. The plaintiff brought an action against the company and presented a third party complaint against the vessel
and the arrastre contractor.
The court below, after trial on the merits, rendered judgment in favor of private respondent, for the sum of
P51,568.62 with interest at legal rate.
The common carrier, Compagnie, was ordered to pay as a joint debtor. On appeal, the respondent court 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. The AC made Filipino Merchants pay but absolved the common carrier, Compagnie. Hence this petition.
ISSUES: 1. WON the "all risks" clause of the marine insurance policy held the petitioner liable to the private
respondent for the partial loss of the cargo, notwithstanding the clear absence of proof of some fortuitous
event, casualty, or accidental cause to which the loss is attributable.
2. WON the Court of Appeals erred in not holding that the private respondent had no insurable interest in the
subject cargo, hence, the marine insurance policy taken out by private respondent is null and void.
HELD: No. No. Petition denied.
1. The "all risks clause" of the Institute Cargo Clauses read as follows:
“5. This insurance is against all risks of loss 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. “Accident” is construed by the courts in their ordinary and common acceptance.
The very nature of the term "all risks" must be given a broad and comprehensive meaning as covering any loss
other than a willful 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.
Institute Cargo Clauses extends to all damages/losses suffered by the insured cargo except (a) loss or damage or
expense proximately caused by delay, and (b) loss or damage or expense proximately caused by the inherent vice
or nature of the subject matter insured.
Generally, the burden of proof is upon the insured to show that a loss arose from a covered peril, but under an "all
risks" policy the burden is not on the insured to prove the precise cause of loss or damage for which it seeks
compensation. The insured under an "all risks insurance policy" has the initial burden of proving that the cargo was
in good condition when the policy attached and that the cargo was damaged when unloaded from the vessel. The
burden then shifts to the insurer to show the exception to the coverage. This 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.
Under an 'all risks' policy, it was sufficient to show that there was damage occasioned by some accidental cause of
any kind, and there is no necessity to point to any particular cause.
2. Section 13 of the Insurance Code- anyone has an insurable interest in property who derives a benefit from its
existence or would suffer loss from its destruction
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.
Choa, as vendee/consignee of the goods in transit, has such existing interest as may be the subject of a valid
contract of insurance. His interest over the goods is based on the perfected contract of sale. The perfected contract
of sale between him and the shipper of the goods operates to vest in him an equitable title even before delivery or
before conditions have been performed.
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, for the purpose of
transmission to the buyer is deemed to be a delivery of the goods to the buyer. 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.

10 | R o d r i g u e z , L i l a B .

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