Digests Marine Onwards

7/29/2019 Digests Marine Onwards

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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 businessunder the name and style of Isabela Roque Timber Enterprises) and Ong Chiong whereby the former would load and carry on board its barge Mable 10about 422.18 cubic meters of logs from Malampaya Sound, Palawan to North Harbor, Manila. Roque and Ong insured the logs against loss foP100,000.00 with the Pioneer Insurance and Surety Corporation (Pioneer). On 29 February 1972, Roque and Ong loaded on the barge, 811 pieces of logsat Malampaya Sound, Palawan for carriage and delivery to North Harbor, Port of Manila, but the shipment never reached its destination because Mable10 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 wasapparently 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 andOng 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 latteignored the demand. Another letter was sent to Pioneer claiming the full amount of P100,000.00 under the insurance policy but Pioneer refused to payon the ground that its liability depended upon the "Total loss by Total Loss of Vessel only". Hence, Roque and Ong commenced Civil Case86599 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. Thecourt 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 courfound 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 MBLCto 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 thelogs 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, thelatter is ordered to reimburse the former for whatever amount it may pay Roque and Ong as such surety; ordering the counterclaim of MBLC against Roqueand 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 damagesfor 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; andholding 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 tothe 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 breachof 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 bythe "perils of the sea". It ruled that the loss is not covered by the marine insurance policy. After the appellate court denied their motion foreconsideration, 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, Roqueand 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 fromthe insurer. The liability of the insurance company is governed by law. Section 113 of the Insurance Code provides that "In every marine insuranceupon 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 othe same Code also provides in part that "Marine insurance includes: (1) Insurance against loss of or damage to: (a) Vessels, craft, aircraftvehicles, goods, freights, cargoes, merchandise..." From the above-quoted provisions, there can be no mistaking the fact that the term "cargocan 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 isuniversally accepted that in every contract of insurance upon anything which is the subject of marine insurance, a warranty is implied that the ship shall beseaworthy 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 theunseaworthiness 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 torecover 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 olosses occasioned by unseaworthiness was in effect a warranty that a loss should not be so occasioned, and whether the fact of unseaworthinesswere known or unknown would be immaterial." Since the law provides for an implied warranty of seaworthiness in every contract of ordinarymarine insurance, it becomes the obligation of a cargo owner to look for a reliable common carrier which keeps its vessels in seaworthy condition. Theshipper 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 cargoowner 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 focoverage 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, therisks 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 protectionagainst contingencies and against possible damages and such a policy does not cover a loss or injury which must inevitably take place in the ordinarycourse 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 andwaves, lightning, tempests, rocks and the like. These are understood to be the 'perils of the sea' referred in the policy, and not those ordinary perilswhich every vessel must encounter. 'Perils of the sea' has been said to include only such losses as are of extraordinary nature, or arise from someoverwhelming power, which cannot be guarded against by the ordinary exertion of human skill and prudence. Damage done to a vessel by perils of thesea 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 injuriessuffered 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 whichhappens 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. (14RCL 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 andnormal 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 onone 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


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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 tugboaproceeded 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'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 osaid 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 faultnegligence, 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 wasdue 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 GoTiaoco 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 beconsidered 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 theordinary 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 cargounder ordinary conditions, is not a peril of the sea. Such a loss is rather due to what has been aptly called the 'peril of the ship.' The insurer undertakes to

insure against perils of the sea and similar perils, not against perils of the ship. As was well said by Lord Herschell in Wilson, Sons & Co. vOwners of Cargo per the Xantho ([1887], 12 A. C., 503, 509), there must, in order to make the insurer liable, be 'some casualty, somethingwhich 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 whichmay 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 theport 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 1,473sacks 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, wasP3,875. The policy of insurance, covering the shipment, was signed upon a form long in use among companies engaged in maritime insurance. Ipurports 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 thecompartment 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 shipThe 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 longitudinaopening 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 madeto 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 pipeuntil 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 resultedin 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 riceAn 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 Brotherwas 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 concludedthat the loss was not covered by the policy of insurance. Judgment was accordingly entered in favor of Union Insurance and Go Tiaoco Brothersappealed.

Issue [1]: Whether perils ofthe sea includes entrance of water into the ships 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 (ejusdemgeneris) with the particular risks which are enumerated in the preceding part of the same clause of the contract. According to the ordinary rules oconstruction these words must be interpreted with reference to the words which immediately precede them. They were no doubt inserted in order to prevendisputes founded on nice distinctions. Their office is to cover in terms whatever may be within the spirit of the cases previously enumerated, and sothey 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 itswidest 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 constructionand loss by perils of the seas is to be confined to loss ex marine tempestatis discrimine, the general words become most important. But still, whenthey 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 thesame kind as" those specially mentioned. I see no reason for departing from this settled rule. In marine insurance it is above all things necessary toabide 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, inthe 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 negligenfailure 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 israther 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 perilof 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 o

the adventure. The purpose of the policy is to secure an indemnity against accidents which may happen, not against events which must happen." Herein, theentrance 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, buto 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 thawhich 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 isimplied 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 isalso 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 uponthe cargo (Act No. 2427, sec. 106).


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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 oP868,339.15 representing Remington's losses and damages incurred in a shipment of seamless steel pipes under an insurance contract in favor oRemington 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 theshipment 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 insuredloss equivalent to 30% of the value of the seamless steel pipes; ordering Cathay Insurance to pay Remington interest on the aforecitedamount 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 submissionof 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 theRegional Trial Court National Capital Region (NCR) Manila, Branch 38. Cathay Insurance moved for reconsideration, but was denied. It thus filed the petitionfor review.Remington, in its comment on the petition, contends that (1) Coverage of Remington's loss under the insurance policy issued byCathay Insurance is unmistakable; (2) Alleged contractual limitations contained in insurance policies are regarded with extreme caution by courts and areto be strictly construed against the insurer; obscure phrases and exceptions should not be allowed to defeat the very purpose for which the policy waprocured; (3) Rust is not an inherent vice of the seamless steel pipes without interference of external factors; (4) No matter how Cathay Insurancemight 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 answeto 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 7days 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 morethan 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 spontaneousreaction of whoever received the seamless steel pipes in a rusty condition at Remington's bodega; (8) The Court of Appeals did not engagein 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 annumdouble the ceiling prescribed by the Monetary Board is the rate of interest fixed by the Insurance Policy itself and the Insurance Code. Cathay Insurancehowever 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 thepolicy; (2) As adverted to in the Petition for Review, Remington has admitted that the questioned shipment is not covered by a "square provision of thecontract," but Remington claims implied coverage from the phrase "perils of the sea" mentioned in the opening sentence of the policy; (3) Theinsistence of Remington that rusting is a peril of the sea is erroneous; (4) Remington inaccurately invokes the rule of strict construction against insurerunder 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 whileimpliedly 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 tharusting 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 acasualty or some casualty, something which could not be foreseen as one of the necessary incidents of adventure; (7) A fact capable of unquestionabledemonstration or of public knowledge needs no evidence. This fact of unquestionable demonstration or of public knowledge is that heavy rustingof 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 sheetsindicating that there was no damage on the steel pipes during the voyage; and (8) The evidence of Remington betrays the fact that the account oP868,339.15 awarded by the respondent Court is founded on speculation, surmises or conjectures and the amount of less has not been proven by competentsatisfactory 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, waterand 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 ocontracts, namely, that any ambiguity therein should be construed against the maker/issuer/drafter thereof, namely, the insurer. Besides the precisepurpose 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, Thailandto 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 CNFManila. The fishmeal in 666 new gunny bags were unloaded from the ship on 11 December 1976 at Manila unto the arrastre contractor E. RazonInc. 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, consistingof 3 pages. The cargo was also surveyed by the arrastre contractor before delivery of the cargo to the consignee and the condition of the cargoon 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'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 oshortage 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 FMICfor 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 21December 1976, but FMICI refused to pay the claim. Consequently, an action was brought by the consignee (Choa Tiek Seng) of the shipment of fishmealoaded 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 theamount of P51,568.62 representing damages to said shipment which has been insured by FMICI under Policy M-2678. FMICI brought a third partycomplaint against third party defendants Compagnie Maritime Des Chargeurs Reunis and/or E. Razon, Inc. seeking judgment against the third partydefendants in case judgment is rendered against FMICI. The court below, after trial on the merits, rendered judgment in favor of Choa, ordering FMICI to payChoa 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 defendanCompagnie Maritime Des Chargeurs Reunis and third party defendant E. Razon, Inc. are ordered to pay FMICI jointly and severally reimbursemenof 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


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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 thesame with regard to the adjudication of the third-party complaint. A motion for reconsideration of the aforesaid decision was denied, hence FMICI filed thepetition 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 musbe "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 thesubject-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 natureof the subject-matter insured. Claims recoverable hereunder shall be payable irrespective of percentage." An "all risks policy" should be read literall

as meaning all risks whatsoever and covering all losses by an accidental cause of any kind. The terms "accident" and "accidental", as used in insurancecontracts, have not acquired any technical meaning. They are construed by the courts in their ordinary and common acceptance. Thus, the terms havbeen taken to mean that which happens by chance or fortuitously, without intention and design, and which is unexpected, unusual and unforeseen. Anaccident is an event that takes place without one's foresight or expectation; an event that proceeds from an unknown cause, or is an unusuaeffect of a known cause and, therefore, not expected. The very nature of the term "all r isks" must be given a broad and comprehensive meaning ascovering 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 theinsured in those cases where difficulties of logical explanation or some mystery surround the loss or damage to property. An "all risks" policy has been evolvedto grant greater protection than that afforded by the "perils clause," in order to assure that no loss can happen through the incidence of a cause neitheinsured 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 astrained technical meaning, the language of the clause under the Institute Cargo Clauses being unequivocal and clear, to the effect that it extends toall damages/losses suffered by the insured cargo except (a) loss or damage or expense proximately caused by delay, and (b) loss or damage or expenseproximately 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 theburden 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 insurancepolicy" has the initial burden of proving that the cargo was in good condition when the policy attached and that the cargo was damaged whenunloaded from the vessel; thereafter, the burden then shifts to the insurer to show the exception to the coverage. As held in Paris-ManilaPerfumery 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 risksexcepted 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 oinsurance which extends coverage to risks not usually contemplated and avoids putting upon the insured the burden of establishing that the loss wasdue to the peril falling within the policy's coverage; the insurer can avoid coverage upon demonstrating that a specific provision expresslexcludes the loss from coverage. A marine insurance policy providing that the insurance was to be "against all risks" must be construed as creating aspecial insurance and extending to other risks than are usually contemplated, and covers all losses except such as arise from the fraud of theinsured. The burden of the insured, therefore, is to prove merely that the goods he transported have been lost, destroyed or deteriorated. Thereafter, theburden 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 o

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 theabsence 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 matteinsured, 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 gunnybags 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 thathe 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 certaintythere 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, p125). Under an allrisks policy, it was sufficient to show that there was damage occasioned by some accidental cause of any kind, and there is no necessityto point to any particular cause. Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the policy. The agreement hathe 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 unambiguousthey 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 goodsSection 13 of the Insurance Code defines insurable interest in property as every interest in property, whether real or personal, or any relation thereto, oliability in respect thereof, of such nature that a contemplated peril might directly damnify the insured. In principle, anyone has an insurable interest inproperty 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 opossession of the property. Insurable interest in property may consist in (a) an existing interest; (b) an inchoate interest founded on an existing interest; or (can expectancy, coupled with an existing interest in that out of which the expectancy arises. As vendee/consignee of the goods in transihas 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 contracof 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 obefore 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 inthe 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 ithe 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


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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, whethenamed 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 tosaid 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 thenature of actual delivery since, from that time, the foreign buyers assumed the risks of loss of the goods and paid the insurance premium coveringthem. C & F contracts are shipment contracts. The term means that the price fixed includes in a lump sum the cost of the goods and freight to the nameddestination. 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 odamage 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 2,000cubic meters. It hired Transpacific Towage, Inc., to transport the logs by sea to Manila and insured it against loss for PIM with Oriental AssuranceCorporation (Oriental Assurance). There is a claim by Panama, however, that the insurance coverage should have been for P3M were it not fothe 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 aP3M policy. Oriental Assurance issued Marine Insurance Policy OACM-86/002. The logs were loaded on 2 barges: (1) on barge PCT7000,610 pieces ologs 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 1986the two barges were towed by one tugboat, the MT "Seminole." But, as fate would have it, during the voyage, rough seas and strong winds causeddamage 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 buOriental Assurance refuse on the ground that its contracted liability was for "TOTAL LOSS ONLY." The rejection was upon the recommendation othe Tan Gatue Adjustment Company. Unable to convince Oriental Assurance to pay its claim, Panama filed a Complaint for Damages against EveInsurance 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 indemnitywith interest at the rate of 12% per annum computed from the date of the filing of the complaint; ordering Panama to pay Ever Insurance Agencyor 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 o

P20,000.00 as moral damages; and dismissing the complaint against Benito Sy Lee Yong. On appeal by both parties, the Appellate Court affirmedthe 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 petitionfor 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 andconsequently, 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 conditionprecedent 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, 1990185 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 policyin 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 twodifferent barges did not make the contract several and divisible as to the items insured. The logs on the two barges were not separately valuedor separately insured. Only one premium was paid for the entire shipment, making for only one cause or consideration. The insurancecontract 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; (bThe 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 fowhich 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 130Insurance Code). A constructive total loss is one which gives to a person insured a right to abandon, under Section 139 of the Insurance Code, whichreads "A person insured by a contract of marine insurance may abandon the thing insured, or any particular portion thereof separately valued by thepolicy, 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 itsvalue more than three-fourths; xxx" The requirements for the application of Section 139 of the Insurance Code, have not been met. The l ogsinvolved, although placed in two barges, were not separately valued by the policy, nor separately insured. Resultantly, the logs lost in barge TPAC-1000 inrelation 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 beeninsured as one inseparable unit, the correct basis for determining the existence of constructive total loss is the totality of the shipment of logs. Of theentirety 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 exceed75% 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 InsuranceCode. 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 GeneraTeachers Protection Plan Master Policy 2005 and Individual Policy 08924 with his parents, spouses Julia and Carlos Surposa, and brothers ChristopherCharles, Chester and Clifton, all surnamed Surposa, as beneficiaries. While said insurance policy was in full force and effect, the insured, CarlieSurposa, 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 theformer as he and his cousin, Winston Surposa, were waiting for a ride on their way home along Rizal-Locsin Streets, Bacolod City after attending thecelebration of the "Maskarra Annual Festival." Thereafter, Julia Surposa and the other beneficiaries of said insurance policy filed a written notice oclaim with Finman which denied said claim contending that murder and assault are not within the scope of the coverage of the insurance policy. On24 February 1989, Surposa filed a complaint with the Insurance Commission which subsequently rendered a decision, ordering Finman liable to paySurposa 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 noevidence 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 couraffirmed said decision. Finman filed the petition for certiorari.


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Issue: Whether the death was committed with deliberate intent which, by the very nature of a personal accident insurance policy, cannot beindemnified.

Held: NO. The terms "accident" and "accidental," as used in insurance contracts have not acquired any technical meaning, and are construed bythe courts in their ordinary and common acceptation. Thus, the terms have been taken to mean that which happen by chance or fortuitously, withouintention 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 thadeath 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 additionaunexpected, 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 producethe injury, the resulting death is within the protection of the policies insuring against death or injury from accident. Herein, it cannot be pretended that CarlieSurposa 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, theinsured and his companion were on their way home from attending a festival. They were confronted by unidentified persons. The record is barrenof any circumstance showing how the stab wound was inflicted. Nor can it be pretended that the malefactor aimed at the insured precisely because thekiller wanted to take his life. In any event, while the act may not exempt the unknown perpetrator from criminal liability, the fact remains that thehappening 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 thaproceeded 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 othe accused to expose his life to danger considering that he was just going home after attending a festival. Furthermore, the personal accideninsurance policy involved specifically enumerated only 10 circumstances wherein no liability attaches to Finamn for any injury, disability or loss suffered by theinsured as a result of any of the stipulated causes. The principle of "expresso unius exclusio alterius" the mention of one thing implies the exclusion oanother thing is therefore applicable in the present case since murder and assault, not having been expressly included in the enumeration of thcircumstances that would negate liability in said insurance policy cannot be considered by implication to discharge Finman from liability for anyinjury, 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 deadwith 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 therewas no suicide. It argued, however, that there was no accident either. Pilar Nalagon, Lim's secretary, was the only eyewitnessto 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 nodrunk) 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 andpointed 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 momenthere 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 oZamboanga City and was sustained. Sun Insurance was sentenced to pay her P200,000.00, representing the face value of the policy, with interest at thelegal rate; P10,000.00 as moral damages; P5,000.00 as exemplary damages; P50,000.00 as actual and compensatory damages; and P5,000.0as 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 thecircumstances, 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 someviolence or casualty to the insured without his design, consent, or voluntary co-operation. Herein, the incident that resulted in Lim's death wasindeed an accident. On the other hand, the parties agree that Lim did not commit suicide. Nevertheless, Sun Insurance contends that theinsured willfully exposed himself to needless peril and thus removed himself from the coverage of the insurance policy. It should be noted at the outset thasuicide 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, assuicide imports a positive act of ending such life whereas the second act indicates a reckless risking of it that is almost suicidal in intent. Theposture -- that by the mere act of pointing the gun to his temple, Lim had willfully exposed himself to needless peril and so came under theexception -- 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 assuredher 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 wasunquestionably negligent and that negligence cost him his own life. But it should not prevent his widow from recovering from the insurance policy heobtained precisely against accident. There is nothing in the policy that relieves the insurer of the responsibility to pay the indemnity agreed upon if theinsured is shown to have contributed to his own accident. Indeed, most accidents are caused by negligence. There are only four exceptions expresslymade in the contract to relieve the insurer from liability, and none of these exceptions is applicable in the present case. It bears noting thainsurance contracts are as a rule supposed to be interpreted liberally in favor of the assured. There is no reason to deviate from this ruleespecially 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


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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 contractdenominated Accidental Death Benefit Clause, for an additional sum of 5,000.00 if the death of the insured resulted directly from bodily injury effectedsolely through external and violent means sustained in an accident and independently of all other causes. The clause, however, expressly provided that itwould not apply where death resulted from an injury intentionally inflicted by another party.

On the night of May 20, 1964 or dur ing the first hours of the following day a band of robbers entered the house of the insured Juan Biagtan, and that incommitting the robbery, the robbers, on reaching the staircase landing on the second floor, rushed towards the door of the second floor room, where theysuddenly met a person who turned to be insured who received nine wounds (five mortal wounds and four non-mortal wounds) from their sharp pointedinstruments resulting in Mr. Biagtans 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 sumof5,000.00 under the accidental benefit clause, on the ground that the insureds death resulted from injuries intentionally inflicted by third parties andtherefore was not covered. (Respondent) Beneficiaries then filed suit to recover in the CFI of Pangasinan who rendered a decision in their favor. Hence thepresent 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 injuryeffected solely through external and violent means sustained in an accident and independently of all other causes but expressly excep ting therefrom a casewhere death resulted from an injury intentionally inflicted by a third party, the insured who died under the following circumstances is not entitled to the saidadditional 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 . . . wasrobbed 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 committingthe robbery, the robbers, on reaching the staircase landing of the second floor, rushed towards the doors of the second floor room, where they suddenly meta 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 woundson 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 wacovered by a personal accident insurance in the amount of P100,000.00 under a group policy procured from Fortune Insurance & Surety Company Inc. byECDC for its overseas workers. The insured risk was for "bodily injury caused by violent accidental external and visible means which injury would soleland 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 12July 1983, ECDC reported Gabriel's death to Fortune by telephone. Among the documents thereafter submitted to Fortune were a copy of the death certificate5 issued by the Ministry of Health of the Republic of Iraq which stated "REASON OF DEATH: UNDER EXAMINATION NOW NOT YET KNOWN " andan autopsy report of the National Bureau of Investigation (NBI) to the effect that "due to advanced state of postmortem decomposition, cause of death couldnot be determined." Fortune referred the insurance claim to Mission Adjustment Service, Inc. Following a series of communications between JacquelineJimenez vda. de Gabriel and Fortune, the latter, on 22 September 1983, ultimately denied the claim of ECDC on the ground of prescription. Vda. DeGabriel went to the Regional Trial Court of Manila. In her complaint against ECDC and Fortune, she averred that her husband died of electrocution whilein the performance of his work and prayed for the recovery of P100,000.00 for insurance indemnification and of various other sums by way oactual, moral, and exemplary damages, plus attorney's fees and costs of suit. Fortune filed its answer, which was not verified, admitting the genuineness anddue execution of the insurance policy; it alleged, however, that since both the death certificate issued by the Iraqi Ministry of Health and theautopsy 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 o"prescription," invoking Section 384 10 of the Insurance Code. Later, Fortune filed an amended answer, still unverified, reiterating its original defensesbut, this time, additionally putting up a counterclaim and a crossclaim. The trial court dismissed the case against ECDC for the failure of Vda. deGabriel to take steps to cause the service of the fourth alias summons on ECDC. The dismissal was without prejudice. The case proceededagainst 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 conclusionthe 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 lattefailed to impugn by evidence Vda. de Gabriel's averment on the matter. With regard to the defense of prescription, the court considered the complaint tohave 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 oAppeals, on 18 September 1991, reversed the decision of the lower court. The appellate court held that Vda. de Gabriel had failed tosubstantiate her allegation that her husband's death was caused by a risk insured against. The motion for r econsideration was denied. Vda. deGabriel filed the petition for review on certiorari.

Issue [1]: Whether prescription was properly invoked by Fortune in this case.


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Held [1]: YES. On the issue of "prescription," Fortune correctly invoked Section 384 of the Insurance Code which provides that "Any person having anyclaim upon the policy issued pursuant to this chapter shall, without any unnecessary delay, present to the insurance company concerned a written noticeof 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 withinsix 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 bebrought, in proper cases, with the Commissioner or the Courts within one year from denial of the claim, otherwise, the claimant's right of action shaprescribe." The notice of death was given to Fortune, concededly, more than a year after the death of Vda. de Gabriel's husband. Fortune, in invokingprescription, 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 writtennotice 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 lawto hold that the insurance company was deemed to have waived -- by failing to have its answers (to the Request for Admission) duly verified -- the defensethat 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 insureds demise was from an accidental death, unlike in ordinary lifeinsurance 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 andvisible 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'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 theonly evidence presented by her to prove the circumstances surrounding her husband's death were her purported affidavit and the letter allegedly written by thedeceased 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. DeGabriel) 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 othe 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 causeof 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 odeath. 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 theinsured suffered from an accidental death, the risk covered by the policy. In an accident insurance, the insured "s beneficiary has the burden of prooin 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 anyexcepted peril that may have been stipulated by the parties. An "accident insurance" is not thus to be likened to an ordinary life insurance where theinsured's death, regardless of the cause thereof, would normally be compensable. The latter is akin in property insurance to an "all risk" coveragewhere 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 odamage during the period of the policy and where, thereafter, the burden would be on the insurer to show any "excluded peril." When, however, theinsured 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 tharesulted 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 theinvestigation conducted by the traffic investigator, the PUJ jeep was overtaking another passenger jeep that was going towards the city poblacion. Whileovertaking, the PUJ jeep of Destrajo running abreast with the overtaken jeep, bumped the motorcycle driven by the deceased who was going towards thedirection 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 untimelydeath. Consequently, the heirs of Lope Maglana, Sr., filed an action for damages and attorney's fees against operator Patricio Destrajo and the AfiscoInsurance Corporation (AFISCO) before the then Court of First Instance of Davao, Branch II. An information for homicide thru reckless imprudencewas also filed against Pepito Into. During the pendency of the civil case, Into was sentenced to suffer an indeterminate penalty of 1 year8 months and 1 day of prision correccional, as minimum, to 4 years, 9 months and 11 days of prision correcional, as maximum, with all theaccessory penalties provided by law, and to indemnify the heirs of Lope Maglana, Sr. in the amount of P12,000.00 with subsidiary imprisonment in caseof insolvency, plus P5,000.00 in the concept of moral and exemplary damages with costs. No appeal was interposed by the accusedwho later applied for probation. On 14 December 1981, the lower court rendered a decision finding that Destrajo had not exercisedsufficient 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; thesum 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 bededucted 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 osuit. The court ordered the insurance company is ordered to reimburse Destrajo whatever amounts the latter shall have paid only up to the extent oits insurance coverage. The heirs of Maglana filed a motion for the reconsideration of the second paragraph of the dispositive portion ofthe decision contending that AFISCO should not merely be held secondarily liable because the Insurance Code provides that the insurer'sliability 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 thenature 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 foreconsideration reiterating that the liability of the insurer is direct, primary and solidary with the jeepney operator because the petitioners became direcbeneficiaries 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 thepetition for certiorari.

Issue [1]: Whether AFISCO is primarily liable, not secondarily liable, on the insurance policy.


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Held [1]: The particular provision of the insurance policy on which the heirs base their claim provides "SECTION 1 LIABILITY TO THEPUBLIC 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 obodily 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 respecof the liability incurred to such person indemnify his personal representatives in terms of, and subject to the terms and conditions hereof." Theabove-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. JudgeRTC of Olongapo City, Br. 75, "[w]here an insurance policy insures directly against liability, the insurer's liability accrues immediately upon theoccurrence 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 Liabili ty Insurance is "to protect injured personsagainst 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." Sincethe 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 theinsurer 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 foindemnity against liability to third persons, such third persons can directly sue the insurer, however, the direct liability of the insurer under indemnitycontracts 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 faultThe 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 theliability and manner of enforcing the same in ordinary contracts from that of insurance contracts. While in solidary obligations, the creditor may enforcethe entire obligation against one of the solidary debtors, in an insurance contract, the insurer undertakes for a consideration to indemnify the insured againsloss, damage or liability arising from an unknown or contingent event." Herein, the heirs cannot validly claim that AFISCO, whose liability under the insurancepolicy 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 courtSince 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 decisioin question may have unwittingly sown confusion among the heirs and their counsel. What should have been clearly stressed as to leave no room for doub

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 nosolidary 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 fromAFISCO and the balance from Destrajo or enforce the entire judgment from Destrajo subject to reimbursement from AFISCO to the extent of theinsurance 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 bycommon carrier liability insurance with Certificate of Cover No. 05490 issued by Philippine Phoenix Suretand Insurance, Inc.,(PPSII) Cebu City Branch, infavor 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, bindingand subsisting during the time of the said accident.Tiu informed said insurance company of the alleged incident but tono avail.The respondent PPSIIadmitted it had existing contract withTiu but averred that it already attended to and settled the claimsof those who were injured during the incident. Itcouldnot accedeto the claim of the respondent Arriesgado as such claim was waybeyond the scheduled `indemnity as contained in the contractofinsurance.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 forinjured.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 ortheother 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. ArriesgadoG.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 abridge, 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 tohave 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 instructedthe latter to place a spare tire six fathoms away behind the stalled truck to serve as a warning for oncoming vehicles. The t rucks tail lights were also left on. Iwas 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 Laspias was cruising along the national highway oSitio Aggies, Poblacion, Compostela, Cebu. The passenger bus was also bound for Cebu City, and had come from Maya, Daanbantayan, Cebu. Among itspassengers 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, Laspias saw the stalled truck, which was then about 25 meters away. He applied the breaks and tried to swerve tothe 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 severa


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passengers injured. Pedro Arriesgado lost consciousness and suffered a fracture in his right colles. His wife, Felisa, was brought to the Danao City HospitalShe 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 oCebu City, Branch 20, against the petitioners, D Rough Riders bus operator William Tiu and his driver, Virgilio Te Laspias on May 27, 1987. Therespondent alleged that the passenger bus in question was cruising at a fast and high speed along the national road, and that petitioner Laspias did nottake 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 Tius insurer; respondent Benjamin Condor, the registered owner of the cargo truck; and respondent Sergio Pedrano, the driver of the truck. They

alleged that petitioner Laspias was negotiating the uphill climb along the national highway of Sitio Aggies, Poblacion, Compostela, in a moderate andnormal 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 earlywarning device was displayed. Petitioner Laspias promptly applied the brakes and swerved to the left to avoid hitting the truck head-on, but despite hisefforts to avoid damage to property and physical injuries on the passengers, the right side portion of the bus hit the cargo trucks 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. Iis undisputed that the respondent and his wife were not safely transported to the destination agreed upon. In actions for breach of contract, only theexistence 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 thematters that need to be proved. This is because under the said contract of carriage, the petitioners assumed the express obligation to transport therespondent and his wife to their destination safely and to observe extraordinary diligence with due regard for all circumstances. Any injury suffered by thepassengers in the course thereof is immediately attributable to the negligence of the carrier. Upon the happening of the accident, the presumption ofnegligence 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. Itmust be stressed that in requiring the highest possible degree of diligence from common carriers and in creating a presumption of negligence against themthe 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 personsas 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 failedto conclusively rebut such presumption. The negligence of petitioner Laspias as driver of the passenger bus is, thus, binding against petitioner Tiu, as theowner 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.AThe goods were insured with Eastern Assurance and Surety Corporation (EASCO) and shipped on board the M/V Peskov, a vesseowned by Far Eastern Shipping Company. When the goods reached Manila on 28 January 1979, they were found to have been damaged by sea watewhich rendered the fishmeal useless. Tio filed a claim with EASCO and Far Eastern Shipping. Both refused to pay. Whereupon, Tio sued them before thethen Court of First Instance of Cebu, Branch II for damages. EASCO, as the insurer, filed a countercla im against the Tio for the recoveryof P18,387.86 representing the unpaid insurance premiums. On 30 June 1982, the trial court rendered judgment ordering EASCO and Far EasterShipping 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 Courof Appeals and was absolved from liability by the said court in AC-GR 00161, entitled "Tio Khe Chio vs. Eastern Assurance and Surety Corporation." Thetrial court, upon motion by Tio, issued a writ of execution against EASCO. The sheriff enforcing the writ reportedly fixed the legal rate of interest at12%. 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 CivCode 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 apetition for certiorari and prohibition before the Court of Appeals. On 30 July 1986, the Appellate Court rendered judgment, setting aside the ordedated 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 thefull 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 costsTio 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 policyother than life insurance policy, shall be paid within thirty days after proof of loss is received by the insurer and ascertainment of the loss o

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 daysafter 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 theloss 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 rateof 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 244of 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 othe 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 unreasonabldenied or withheld; and in the affirmative case, the insurance company shall be adjudged to pay damages which shall consist of attorney's fees andother expenses incurred by the insured person by reason of such undeniable denial or withholding of payment plus interest of twice the ceilingprescribed 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 insection two hundred forty-three, as the case may be, until the claim is fully satisfied; Provided, That the failure to pay any such claim withinthe time prescribed in said sections shall be considered prima facie evidence of unreasonable delay in payment." Herein, there was nounjustified refusal or withholding of payment on Tio's claim. The aforecited sections of the Insurance Code are not pertinent to the case, as they applyonly when the court finds an unreasonable delay or refusal in the payment of the claims.


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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 Decree116 (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 orforbearances of money, goods or credits and court judgments thereon but not to court judgments for damages arising from injury to persons and lossof 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 281986, 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 fodamages 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, GR52478, 30 October 1986, 145 SCRA 311, that the rates under the Usury Law (amended by PD 116) are applicable only to interest by way ocompensation 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 i

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 fodamages, there being no stipulation to the contrary, shall be the payment of interest agreed upon, and in the absence of stipulation, the legainterest 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 insurancecontract, 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 businessunder the name Summa Insurance Corporation) covering certain properties, e.g., office, furniture, fixtures, shop machinery and other trade equipmentUnder Policy F3100 issued to Usiphil, Finman undertook to indemnify Usiphil for any damage to or loss of said properties arising from fire. Sometime in 1982Usiphil filed with Finman an insurance claim amounting to P987,126.11 for the loss of the insured properties due to fire. Acting thereon, Finman appointedAdjuster 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 lossIn compliance therewith, Usiphil submitted its Sworn Statement of Loss and Formal Claim, dated 22 July 1982, signed by Reynaldo Cayetano, Usiphil'sManager. Usiphil likewise submitted Proof of Loss signed by its Accounting Manager Pedro Palallos and countersigned by H.H. Bayne's Adjuste

F.C. Medina. Palallos personally followed-up Usiphil's claim with Finman's President Joaquin Ortega. During their meeting, Ortega instructed their FinanceManager, Rosauro Maghirang, to reconcile the records. Thereafter, Maghirang and Palallos signed a Statement/Agreement, dated 28 February 1985which indicated that the amount due Usiphil was P842,683.40. Despite repeated demands by Usiphil, Finman refused to pay the insurance claimThus, Usiphil was constrained to file a complaint against Finman for the unpaid insurance claim. In its Answer, Finman maintained that the claim of Usiphcould not be allowed because it failed to comply with Policy Condition 13 regarding the submission of certain documents to prove the loss. Triaensued. 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 24interest per annum from 28 February 1985 until fully paid; the sum equivalent to 10% of the principal obligation as and for attorney's fees, plusP1,500.00 per court appearance of counsel; the amount of P30,000.00 as exemplary damages in addition to the actual and compensatordamages awarded. The court also dismissed the claim of P30,000.00 for actual damages under par. 4 of the prayer, since the actual damages. hasbeen 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 tosuch 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 othe 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 annumfrom 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 theCompany of any loss, protect the property from further damage, forthwith separate the damaged and undamaged personal property, put it in thebest possible order, furnish a complete inventory of the destroyed, damaged, and undamaged property, showing in detail quantities, costs, actual cashvalue and the amount of loss claimed; AND WITHIN SIXTY DAYS AFTER THE LOSS, UNLESS SUCH TIME IS EXTENDED INWRITING BY THE COMPANY, THE INSURED SHALL RENDER TO THE COMPANY A PROOF OF LOSS, signed and sworn to by theinsured, stating the knowledge and belief of the insured as to the following: the t ime and origin of the loss, the interest of the insured and of aothers in the property, the actual cash value of each item thereof and the amount of loss thereto, all encumbrances thereon, all other contracts of insurancewhether valid or not, covering any of said property, any changes in the title, use, occupation, location, possession or exposures of said property since theissuing 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 andwhether 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 andspecifications of any building, fixtures, or machinery destroyed or damaged. The insured, as often as may be reasonably required, shall exhibto 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 accounbills, 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 oits representative and shall permit extracts and copies thereof to be made. No claim under this policy shall be payable unless the terms of thiscondition have been complied with." A perusal of the records shows that Usiphil, after the occurrence of the fire, immediately notified Finmanthereof. Thereafter, Usiphil submitted the following documents: (1) Sworn Statement of Loss and Formal Claim and; (2) Proof of Loss. The submissionof these documents constitutes substantial compliance with the above provision. Indeed, as regards the submission of documents to prove loss, substantialnot strict as urged by Finman, compliance with the requirements will always be deemed sufficient. In any case, Finman itself acknowledged its liabilitwhen 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

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