DOUBLE INSURANCE

Geagonia v CA G.R. No. 114427 February 6, 1995

Facts:

Geagonia, owner of a store, obtained from Country Bankers fire insurance policy for
P100,000.00. The 1 year policy and covered thestock trading of dry goods.
The policy noted the requirement that
"3. The insured shall give notice to the Company of any insurance or insurances already
effected, or which may subsequently be effected, covering any of the property or
properties consisting of stocks in trade, goods in process and/or inventories only hereby
insured, and unless notice be given and the particulars of such insurance or insurances
be stated therein or endorsed in this policy pursuant to Section 50 of the Insurance Code,
by or on behalf of the Company before the occurrence of any loss or damage, all benefits
under this policy shall be deemed forfeited, provided however, that this condition shall not
apply when the total insurance or insurances in force at the time of the loss or damage is
not more than P200,000.00."
The petitioners’ stocks were destroyed by fire. He then filed a claim which was
subsequently denied because the petitioner’s stocks were covered by two other fire
insurance policies for Php 200,000 issued by PFIC. The basis of the private respondent's
denial was the petitioner's alleged violation of Condition 3 of the policy.
Geagonia then filed a complaint against the private respondent in the Insurance
Commission for the recovery of P100,000.00 under fire insurance policy and damages.
He claimed that he knew the existence of the other two policies. But, he said that he had
no knowledge of the provision in the private respondent's policy requiring him to inform it
of the prior policies and this requirement was not mentioned to him by the private
respondent's agent.
The Insurance Commission found that the petitioner did not violate Condition 3 as he had
no knowledge of the existence of the two fire insurance policies obtained from the PFIC;
that it was Cebu Tesing Textiles w/c procured the PFIC policies w/o informing him or
securing his consent; and that Cebu Tesing Textile, as his creditor, had insurable interest
on the stocks.
The Insurance Commission then ordered the respondent company to pay complainant
the sum of P100,000.00 with interest and attorney’s fees.
CA reversed the decision of the Insurance Commission because it found that the
petitioner knew of the existence of the two other policies issued by the PFIC.

Issues:
1. WON the petitioner had not disclosed the two insurance policies when he obtained the
fire insurance and thereby violated Condition 3 of the policy.
2. WON he is prohibited from recovering
Held: Yes. No. Petition Granted

Ratio:
1. The court agreed with the CA that the petitioner knew of the prior policies issued by the
PFIC. His letter of 18 January 1991 to the private respondent conclusively proves this
knowledge. His testimony to the contrary before the Insurance Commissioner and which
the latter relied upon cannot prevail over a written admission made ante litem motam. It
was, indeed, incredible that he did not know about the prior policies since these policies
were not new or original.
2. Stated differently, provisions, conditions or exceptions in policies which tend to work a
forfeiture of insurance policies should be construed most strictly against those for whose
benefits they are inserted, and most favorably toward those against whom they are
intended to operate.
With these principles in mind, Condition 3 of the subject policy is not totally free from
ambiguity and must be meticulously analyzed. Such analysis leads us to conclude that
(a) the prohibition applies only to double insurance, and (b) the nullity of the policy shall
only be to the extent exceeding P200,000.00 of the total policies obtained.
Furthermore, by stating within Condition 3 itself that such condition shall not apply if the
total insurance in force at the time of loss does not exceed P200,000.00, the private
respondent was amenable to assume a co-insurer's liability up to a loss not exceeding
P200,000.00. What it had in mind was to discourage over-insurance. Indeed, the rationale
behind the incorporation of "other insurance" clause in fire policies is to prevent over-
insurance and thus avert the perpetration of fraud. When a property owner obtains
insurance policies from two or more insurers in a total amount that exceeds the property's
value, the insured may have an inducement to destroy the property for the purpose of
collecting the insurance. The public as well as the insurer is interested in preventing a
situation in which a fire would be profitable to the insured .

2. Pacific v CA G.R. No. L-41014 November 28, 1988

J. Paras

Facts:

An open fire insurance policy, was issued to Paramount Shirt Manufacturing by Oriental
Assurance Corporation to indemnify P61,000.00, caused by fire to the factory’s stocks,
materials and supplies.
The insured was a debtor of Pacific Banking in the amount of (P800,000.00) and the
goods described in the policy were held in trust by the insured for Pacific Banking under
trust receipts.
The policy was endorsed to Pacific Banking as mortgagee/ trustor of the properties
insured, with the knowledge and consent of private respondent to the effect that "loss if
any under this policy is payable to the Pacific Banking Corporation".
A fire broke out on the premises destroying the goods contained in the building.
The bank sent a letter of demand to Oriental for indemnity.
The company wasn’t ready to give since it was awaiting the adjuster’s report.
The company then made an excuse that the insured had not filed any claim with it, nor
submitted proof of loss which is a clear violation of Policy Condition No.11, as a result,
determination of the liability of private respondent could not be made.
Pacific Banking filed in the trial court an action for a sum of money for P61,000.00 against
Oriental Assurance.
At the trial, petitioner presented communications of the insurance adjuster to Asian Surety
revealing undeclared co-insurances with the following: P30,000 with Wellington
Insurance; P25,000 with Empire Surety and P250,000 with Asian Surety undertaken by
insured Paramount on the same property covered by its policy with Oriental whereas the
only co-insurances declared in the subject policy are those of P30,000.00 with Malayan
P50,000.00 with South Sea and P25.000.00 with Victory.
The defense of fraud, in the form of non-declaration of co-insurances which was not
pleaded in the answer, was also not pleaded in the Motion to Dismiss.
The trial court denied the respondent’s motion. Oriental filed another motion to include
additional evidence of the co-insurance which could amount to fraud.
The trial court still made Oriental liable for P 61,000. The CA reversed the trial court
decision. Pacific Banking filed a motion for reconsideration of the said decision of the
respondent Court of Appeals, but this was denied for lack of merit.

Issues:
1. WON unrevealed co-insurances Violated policy conditions No. 3
2. WON the insured failed to file the required proof of loss prior to court action.

Held: Yes. Petition dismissed.

Ratio:
1. Policy Condition No. 3 explicitly provides:
3. The Insured shall give notice to the Company of any insurance already effected, or
which may subsequently be effected, covering any of the property hereby insured, and
unless such notice be given and the particulars of such insurance or insurances be stated
in or endorsed on this Policy by or on behalf of the Company before the occurrence of
any loss or damage, all benefit under this policy shall be forfeited.
The insured failed to reveal before the loss three other insurances. Had the insurer known
that there were many co-insurances, it could have hesitated or plainly desisted from
entering into such contract. Hence, the insured was guilty of clear fraud.
Concrete evidence of fraud or false declaration by the insured was furnished by the
petitioner itself when the facts alleged in the policy under clauses "Co-Insurances
Declared" and "Other Insurance Clause" are materially different from the actual number
of co-insurances taken over the subject property.
As the insurance policy against fire expressly required that notice should be given by the
insured of other insurance upon the same property, the total absence of such notice
nullifies the policy.
Petitioner points out that Condition No. 3 in the policy in relation to the "other insurance
clause" supposedly to have been violated, cannot certainly defeat the right of the
petitioner to recover the insurance as mortgagee/assignee. Hence, they claimed that the
purpose for which the endorsement or assignment was made was to protect the
mortgagee/assignee against any untoward act or omission of the insured. It would be
absurd to hold that petitioner is barred from recovering the insurance on account of the
alleged violation committed by the insured.
It is obvious that petitioner has missed all together the import of subject mortgage clause
which specifically provides:
“Loss, if any, under this policy, shall be payable to the PACIFIC BANKING
CORPORATION Manila mortgagee/trustor as its interest may appear, it being hereby
understood and agreed that this insurance as to the interest of the mortgagee/trustor only
herein, shall not be invalidated by any act or neglect—except fraud or misrepresentation,
or arson—of the mortgagor or owner/trustee of the property insured; provided, that in
case the mortgagor or owner/ trustee neglects or refuses to pay any premium, the
mortgagee/ trustor shall, on demand pay the same.”
The paragraph clearly states the exceptions to the general rule that insurance as to the
interest of the mortgagee, cannot be invalidated; namely: fraud, or misrepresentation or
arson. Concealment of the aforecited co-insurances can easily be fraud, or in the very
least, misrepresentation.
Undoubtedly, it is but fair and just that where the insured who is primarily entitled to
receive the proceeds of the policy has by its fraud and/or misrepresentation, forfeited said
right.
Petitioner further stressed that fraud which was not pleaded as a defense in private
respondent's answer or motion to dismiss, should be deemed to have been waived. It will
be noted that the fact of fraud was tried by express or at least implied consent of the
parties. Petitioner did not only object to the introduction of evidence but on the contrary,
presented the very evidence that proved its existence.
2. Generally, the cause of action on the policy accrues when the loss occurs, But when
the policy provides that no action shall be brought unless the claim is first presented
extrajudicially in the manner provided in the policy, the cause of action will accrue from
the time the insurer finally rejects the claim for payment
In the case at bar, policy condition No. 11 specifically provides that the insured shall on
the happening of any loss or damage give notice to the company and shall within fifteen
(15) days after such loss or damage deliver to the private respondent (a) a claim in writing
giving particular account as to the articles or goods destroyed and the amount of the loss
or damage and (b) particulars of all other insurances, if any.
Twenty-four days after the fire did petitioner merely wrote letters to private respondent to
serve as a notice of loss. It didn’t even furnish other documents. Instead, petitioner shifted
upon private respondent the burden of fishing out the necessary information to ascertain
the particular account of the articles destroyed by fire as well as the amount of loss. Since
the required claim by insured, together with the preliminary submittal of relevant
documents had not been complied with, it follows that private respondent could not be
deemed to have finally rejected petitioner's claim and therefore there was no cause of
action.
It appearing that insured has violated or failed to perform the conditions under No. 3 and
11 of the contract, and such violation or want of performance has not been waived by the
insurer, the insured cannot recover, much less the herein petitioner.
3. Santa Ana vs. Commercial Union (1930)
Facts:
1. In 1923, Sta. Ana built his house in Pasig and insured it against fire for (1) P3,000 to
Phoenix Assurance Company and
(2) P6,000 to Guardian Assurance Company, Limited, for a period of one year. 2. In
November 1925, Santa Ana mortgaged this house to Garcia for P5,000, for a period
of two years, the contract being drawn up as a retro sale for the sum of P5,000. The 2
policies were endorsed to Garcia.
3. In December 1925, Santa Ana reinsured said house with the defendant companies,
the Globe and Rutgers Fire Insurance Company of New York,
and the Commercial Union Assurance Company Limited of London, through their comm
on agent duly authorized to represent them in the Philippine Islands, the Pacific
Commercial Company which was to be effective for one year.
4. On September 20, 1926, Santa Ana took out another insurance policy on the house in
question for P6,000 in the "Filipinas, Compania de Seguros, which issued the one-year
policy upon receiving from Sta. Ana premium thereon.
5. Twelve hours before the expiration of the policies issued by the Phoenix Assurance
Company and the Guardian Assurance Company, Limited for P3,000 and P6,000
respectively, the entire house was burned.
6. Santa Ana gave notice in due time of the loss to each and every one
of the companies in which he had insured the house and demanded payment of the
respective policies.
7. The insurance companies refused payment on the ground that the claim of P21,000
filed by him was fraudulent, being in excess of the real value of the insured property; that
none of said companies had been informed of the existence of the other policies in the
other companies, and that the fire was intentional.
8. Sta. Ana filed civil cases in RTC against The Commercial Union Assurance Company,
Limited in case No. 31263; the Globe and Rutgers Fire Insurance Company of New York
in case No. 31264; and the Phoenix Assurance Company, Limited, the Guardian
Assurance Company, Limited, and the "Filipinas, Compania de Seguros", incase No.
31322. All the defendants are absolved in their alleged liabilities by the RTC. Hence this
petition.
ISSUE:
Can the insured claim against the insurance companies?

HELD:
 NO. · Without deciding whether notice of other insurance upon the same property must
be given in writing, or whether a verbal notice is sufficient to render an insurance valid
which requires such notice, whether oral or written, the SC held that in the absolute
absence of such notice when it is one of the conditions specified in the fire insurance
policy, the policy is null and void. Since the policy is null and void, plaintiff cannot
recover from the defendants’ insurance companies. · The SC upheld the finding of the
trial court that the policies provide that no other insurance should be admitted upon the
property thereby assured without the consent of said companies duly given by
endorsement

4. Pioneer v Yap G.R. No. L-36232 December 19, 1974

J. Fernandez

Facts:
Respondent Oliva Yap was the owner of a store in a two-storey building where she sold
shopping bags and footwear. Chua Soon Poon, her son-in-law, was in charge of the store.
Yap took out a Fire Insurance Policy No. 4216 from Pioneer Insurance with a value of
P25,000.00 covering her stocks, office furniture, fixtures and fittings.
Among the conditions in the policy executed by the parties are the following:
unless such notice be given and the particulars of such insurance or insurances be stated
in, or endorsed on this Policy by or on behalf of the Company before the occurrence of
any loss or damage, all benefits under this Policy shall be forfeited… Any false declaration
or breach or this condition will render this policy null and void.
Another insurance policy for P20,000.00 issued by Great American covering the same
properties. The endorsement recognized co-insurance by Northwest for the same value.
Oliva Yap took out another fire insurance policy for P20,000.00 covering the same
properties from the Federal Insurance Company, Inc., which was procured without notice
to and the written consent of Pioneer.
A fire broke out in the building, and the store was burned. Yap filed an insurance claim,
but the same was denied for a breach.
Oliva Yap filed a case for payment of the face value of her fire insurance policy. The
insurance company refused to pay because she never informed Pioneer of another
insurer. The trial court decided in favor of Yap. The CA affirmed.

Issue:
Whether or not petitioner should be absolved from liability on the Pioneeer policy on
account of any violation of the co-insurance clause

Held: No. Petition dismissed.

Ratio:
There was a violation. The insurance policy for P20,000.00 issued by the Great American,
ceased to be recognized by them as a co-insurance policy.
The endorsement shows the clear intention of the parties to recognize on the date the
endorsement was made, the existence of only one co-insurance, the Northwest one. The
finding of the Court of Appeals that the Great American Insurance policy was substituted
by the Federal Insurance policy is indeed contrary to said stipulation.
Other insurance without the consent of Pioneer would avoid the contract. It required no
affirmative act of election on the part of the company to make operative the clause
avoiding the contract, wherever the specified conditions should occur. Its obligations
ceased, unless, being informed of the fact, it consented to the additional insurance.
The validity of a clause in a fire insurance policy to the effect that the procurement of
additional insurance without the consent of the insurer renders the policy void is in
American jurisprudence.
Milwaukee Mechanids' Lumber Co., vs. Gibson- "The rule in this state and practically all
of the states is to the effect that a clause in a policy to the effect that the procurement of
additional insurance without the consent of the insurer renders the policy void is a valid
provision.”
In this jurisdiction, General Insurance & Surety Corporation vs. Ng Hua- “The annotation
then, must be deemed to be a warranty that the property was not insured by any other
policy. Violation thereof entitled the insurer to rescind. Furthermore, even if the
annotations were overlooked the defendant insurer would still be free from liability
because there is no question that the policy issued by General Indemnity has not been
stated in nor endorsed on Policy No. 471 of defendant. The obvious purpose of the
aforesaid requirement in the policy is to prevent over-insurance and thus avert the
perpetration of fraud where a fire would be profitable to the insured.“

5. New Life v CA G.R. No. 94071 March 31, 1992

J. Regalado

Facts:
Julian Sy, owner of New Life, insured his building in 3 different insurance agencies for
350,000, 1,000,000, and 200,000. When his building and the goods inside burned down,
he claimed for insurance indemnities, but these were rejected by the three companies for
violation of policy conditions.
Sy filed for 3 different suits in the trial court, where he won all suits against the insurance
companies. The court of appeals reversed the decision of the trial court.

Issue: Did the petitioner violate conditions 3 and 27 of the three insurance policies,
thereby foreiting collection of indemnities?

Held: Yes.

Ratio:
Condition 3. The insured shall give notice to the Company of any insurance or insurances
already effected, or which may subsequently be effected, covering any of the property or
properties consisting of stocks in trade, goods in process and/or inventories only hereby
insured, and unless such notice be given and the particulars of such insurance or
insurances be stated therein or endorsed on this policy pursuant to Section 50 of the
Insurance Code, by or on behalf of the Company before the occurrence of any loss or
damage, all benefits under this policy shall be deemed forfeited, provided however, that
this condition shall not apply when the total insurance or insurances in force at the time
of loss or damage not more than P200,000.00.
Sy never disclosed co-insurance in the contracts he entered into with the three
corporations. The insured is specifically required to disclose the insurance that he had
contracted with other companies. Sy also contended that the insurance agents knew of
the co-insurance. However, the theory of imputed knowledge, that the knowledge of the
agent is presumed to be known by the principal, is not enough.
When the words of the document are readily understandable by an ordinary reader, there
is no need for construction anymore.
The conformity of the insured to the terms of the policy is implied with his failure to
disagree with the terms of the contract.
Since Sy, was a businessman, it was incumbent upon him to read the contracts.
Pioneer Insurance and Surety Corporation vs. Yap- The obvious purpose of the aforesaid
requirement in the policy is to prevent over-insurance and thus avert the perpetration of
fraud. The public, as well as the insurer, is interested in preventing the situation in which
a fire would be profitable to the insured.
“Also, policy condition 15 was used. It stated: 15.. . . if any false declaration be made or
used in support thereof, . . . all benefits under this Policy shall be forfeited . . .”
As for condition number 27, the stipulation read:
27. Action or suit clause. — If a claim be made and rejected and an action or suit be not
commenced either in the Insurance Commission or any court of competent jurisdiction of
notice of such rejection, or in case of arbitration taking place as provided herein, within
twelve (12) months after due notice of the award made by the arbitrator or arbitrators or
umpire, then the claim shall for all purposes be deemed to have been abandoned and
shall not thereafter be recoverable hereunder.
This is regarding Sy’s claim for one of the companies. Recovery was filed in court by
petitioners only on January 31, 1984, or after more than one (1) year had elapsed from
petitioners' receipt of the insurers' letter of denial on November 29, 1982. This made it
void.

6. Gonzalez Lao v. Yek Tong Lin Fire & Marine Insurance - Insurance Premiums

Facts:
> Gonzales was issued 2 fire insurance policies by Yek for 100T covering his leaf tobacco
prducts.
> They were stored in Gonzales’ building on Soler St., which on Jan. 11, 1928, burned
down.
> Art. 3 of the Insurance policies provided that: “Any insurance in force upon all or part
of the things unsured must be declared in writing by the insured and he (insured) should
cause the company to insert or mention it in the policy. Without such requisite, such policy
will be regarded as null and void and the insured will be deprived of all rights of indemnity
in case of loss.”
> Notwithstanding said provision, Gonzales entered into other insurance
contracts. When he sought to claim from Yek after the fire, the latter denied any liability
on the ground of violation of Art. 3 of the said policies.
> Gonzales however proved that the insurer knew of the other insurance policies
obtained by him long efore the fire, and the insurer did NOT rescind the insurance polices
in question but demanded and collected from the insured the premiums.

Issue:
Whether or not Yek is still entitled to annul the contract.

Held:
NO.
The action by the insurance company of taking the premiums of the insured
notwithstanding knowledge of violations of the provisions of the policies amounted to
waiver of the right to annul the contract of insurance.

7. Gen. Insurance & Surety Corp v. NG Hua - Misrepresentation

106 PHIL 1117

Facts:
> In 1952, General issued a fire policy to Ng Hua to cover the contents of the Central
Pomade Factory owned by him.
> There was a provision in the policy that should there be any insurance already effected
or to be subsequently procured, the insured shall give notice to the insurer.
> Ng Hua declared that there was non. The very next day, the building and the goods
stored therein burned.
> Subsequently, the claim of Ng Hua for the proceeds was denied by General since it
discovered that Ng Hua had obtained an insurance from General Indemnity for the same
goods and for the same period of time.

Issue:
Whether or not General Insurance can refuse to pay the proceeds.

Held:
Yes.
Violation of the statement which is to be considered a warranty entitles the insurer to
rescind the contract of insurance. Such misrepresentation is fatal
8. UNION MANUFACTURING CO., INC. VS. PHILIPPINE GUARANTY CO., INC.47
SCRA 271 (G.R. NO. L-27932)OCTOBER 30, 1972Petitioner: Republic
BankRespondent: Philippine Guaranty Co.. Inc.
FACTS:
On January 12, 1962, the Union Manufacturing Co., Inc. obtained certain loans from
the Republic Bank in the total sum of ₱ 415,000.00. To secure the payment
thereof, UMC executed real and chattel mortgage on certain properties. The Republic
Bank procured from the defendant Philippine Guaranty Co., Inc. an insurance
coverage on loss against fire for ₱ 500,000.00over the properties of the UMC, as
described in defendant’s cover note dated September 25, 1962, with the annotation that
loss or damage, if any, under said cover note is payable to Republic Bank as its interest
may appear, subject however to the printed conditions of said defendant’s Fire
Insurance Policy Form. On September 6, 1964, a fire occurred in the premises of UMC
and on October 6, 1964, UMC filed its fire claim with the PGC Inc., thru its adjuster,
H.H. Bayne Adjustment Co., which was denied by said defendant in its letter
dated November 26, 1964 on the following ground :“Policy Condition No. 3 and/or the
‘Other Insurance Clause’ of the policy was violated because you did not give notice to us
of the other insurance which you had taken from New India for ₱ 80,000.00. Sincere
Insurance for ₱ 25,000.00 and Manila Insurance for ₱ 200,000.00 with the result that
these insurances of which we became aware of only after the fire, were not endorsed on
our policy
SSUE:
Whether Republic Bank can recover.
HELD:
Without deciding- whether notice of other insurance upon the same property
must be given in writing, or whether a verbal notice is sufficient to render an insurance
valid which requires such notice, whether oral or written, we hold that in the absolute
absence of such notice when it is one of the conditions specified in the fire insurance
policy, the policy is null and void. (Santa Ana vs. Commercial Union Ass. Co., 55 Phil.
128).If the insured has violated or failed to perform the conditions of the contract,
and such a violation or want of performance has not been waived by the insurer,
then the insured cannot recover. Courts are not permitted to make contracts for the
parties. The functions and duty of the courts consist simply in enforcing and carrying out
the contracts actually made. While it is true, as a general rule, that contracts
of insurance are construed most favorably to the insured, yet contracts of insurance,
like other contracts, are to be construed according to the sense and meaning of the terms
which the parties themselves have used. If such terms are clear and unambiguous they
must be taken and understood in their plain, ordinary and popular sense. The annotation
then, must be deemed to be a warranty that the property was not insured by any other
policy. Violation thereof entitles the insurer to rescind. The materiality of non-disclosure
of other insurance policies is not open to doubt. The insurance contract may be rather
onerous, but that in itself does not justify the abrogation of its express terms,
 terms which the insured ccepted or adhered to and which is the law between the
contracting parties.

REINSURANCE
1. FIELDMEN'S INSURANCE CO., INC.,vs. ASIAN SURETY & INSURANCE, CO., INC. and CA
(1970)
MAKALINTAL, J.:

 On various dates the Asian Surety & Insurance and the Fieldmen's insurance entered into 7 reinsurance
agreements or treaties under the general terms of which ASIAN, as the ceding company undertook to cede
to FIELDMEN’S, as the reinsuring company, a specified portion of the amount of insurance underwritten by
ASIAN upon payment to FIELDMEN'S of a proportionate share of the gross rate of the premium applicable
with respect to each cession after deducting a commission.
o agreements were take effect from certain specific dates and were to be in force until cancelled by either party
upon previous notice of at least 3 months by registered mail to the other party, the cancellation to take effect
as of the 31st of December of the year in which notice was given.
 Sept and Dec 1961  FIELDMEN’S sent letters to ASIAN expressing its desire to cancel all agreements
between them as of DEC 31, 1961 alleging that ASIAN had already incurred numerous violations ASIAN
received but did not reply
 Feb 1962  FIELDMEN’S sent another letter to ASIAn repeating the fact of cancellation and now
requesting ASIAN to submit its final accounting of all cessions made to the former for the preceding months
when the reinsurance agreements were in force.

 Meanwhile one of the risks reinsured by FIELDMENS issued in favor of the GSIS became a liability when
the insured property was burned on Feb 1962  The next day ASIAN sent letter to FIELDMEN’S notifiying
them of the loss and stating…
o ... we beg to reiterate that your letter of December 7, 1961, terminating said treaties by December 31, 1961,
is not in accordance with the terms thereof, since there was no prior three months' notice. However,
considering the attitude express (sic) in your aforesaid letter of December 7, 1961, we are willing to waive
provision that said treaties may be cancelled on December 31st of any year, and will consider them cancelled
at the end of three (3) months from December 7, 1961, by which time we shall be able to render the final
accounting you desire.
 FIELDMEN’S filed a petition for declaratory relief with CFI Manila alleging its first letter of notification on
SEPT 19, 1961 was sufficient to meet the 3 month period before cancellation and to obtain an order directing
ASIAN to render final accounting of the transactions between them with respect to said reinsurance treaties
as of the cut-off date.
 CFI DECISION  6 of 7 agreements are cancelled as of DEC 1961 but agreed with ASIAN that
FIELDMEN’S is still liable for as long the previously contracted policies are still valid. It also ordered
FIELDMEN'S to make an accounting with ASIAN within 30 days.
 CA  Affirmed with modification  the order for accounting was eliminated

ISSUE: WON cancellation had the effect of terminating also the liability of FIELDMEN'S as reinsurer with
respect to policies or cessions issued prior to the termination of the principal reinsurance contracts or
treaties?
 Only the cancelled agreements are being considered here  2 of which contain provisions, which clearly
and expressly recognize the continuing effectivity of policies ceded under them for reinsurance
notwithstanding the cancellation of the contracts themselves.
o Article 10 of the Facultative Obligatory Reinsurance Treaty Fire provides "that in the event of termination of
this Agreement ..., the liability of the Fieldmen's under current cessions shall continue in full force and effect
until their natural expiry ...;" and the 4th paragraph of Article VI of the Personal Accident Reinsurance
Treaty states:
o 4. On the termination of this Agreement from any cause whatever, the liability of the REINSURER
(Fieldmen's) under any current cession including any amounts due to be ceded under the terms of this
Agreement and which are not cancelled in the ordinary course of business shall continue in full force until
their expiry unless the COMPANY (Asian) shall, prior to the thirty-first December next following such notice,
elect to withdraw the existing cessions ....
 It is therefore clear that FIELDMEN’S is still liable despite the cancellation Such cessions continued to
be in force until their respective dates of expiration  GSIS policy still valid and subsisting at time of
loss  FIELDMEN’S IS LIABLE

 No need to go into other arguments (did not mention what they are) because the cancellation of the
agreements made them moot
 SC NOTES  ASIAN only claims continued liability of FIELDMEN’s as to the 2 agreements that had the
provision cited above (as compared to the other 4 cancelled agreements wherein FIELDMEN’S liability had
terminated with the contracts)
 FIELDMEN'S insists on its alternative prayer that all cessions under the six reinsurance agreements be
declared rescinded by reason of certain violations thereof, as stated by FIELDMEN'S in its letter of December
7, 1961  Court reminds them that this action is for declaratory relief and not one for rescission and no
grounds found by lower courts that can justify rescission anyway.
2. Pioneer Insurance & Surety Corporation vs Court of Appeal

FACTS

Jacob Lim was the owner of Southern Air Lines, a single proprietorship. In 1965, Lim
convinced Constancio Maglana, Modesto Cervantes, Francisco Cervantes, and Border
Machinery and Heavy Equipment Company (BORMAHECO) to contribute funds and to buy
two aircrafts which would form part a corporation which will be the expansion of Southern Air
Lines. Maglana et al then contributed and delivered money to Lim.

But instead of using the money given to him to pay in full the aircrafts, Lim, without the
knowledge of Maglana et al, made an agreement with Pioneer Insurance for the latter to
insure the two aircrafts which were brought in installment from Japan Domestic Airlines (JDA)
using said aircrafts as security. So when Lim defaulted from paying JDA, the two aircrafts
were foreclosed by Pioneer Insurance.

It was established that no corporation was formally formed between Lim and Maglana et al.

ISSUE: Whether or not Maglana et al must share in the loss as general partners.
HELD: No. There was no de facto partnership. Ordinarily, when co-investors agreed to do
business through a corporation but failed to incorporate, a de facto partnership would have
been formed, and as such, all must share in the losses and/or gains of the venture in
proportion to their contribution. But in this case, it was shown that Lim did not have the intent
to form a corporation with Maglana et al. This can be inferred from acts of unilaterally taking
out a surety from Pioneer Insurance and not using the funds he got from Maglana et al. The
record shows that Lim was acting on his own and not in behalf of his other would-be
incorporators in transacting the sale of the airplanes and spare parts.

3. IVOR ROBERT DAYTON GIBSON, petitioner, vs. HON. PEDRO A. REVILLA,

in his official capacity as Presiding Judge of Branch XIII, Court of First
Instance of Rizal, and LEPANTO CONSOLIDATED MINING COMPANY,
respondents. G.R. No. L-41432 July 30, 1979

FACTS:

Lepanto Consolidated Mining Company filed a complaint against Malayan Insurance

Company, Inc. The civil suit thus instituted by Lepanto against Malayan was founded on
the fact that Malayan issued a Marine Open Policy covering all shipments of copper, gold,
and silver concentrates in bulk from Poro, San Fernando, La Union to Tacoma,
Washington or to other places in the United States. Thereafter, Malayan obtained
reinsurance abroad through Sedgwick, Collins & Co., Limited, a London insurance
brokerage. The Memorandum of Insurance issued by Sedgwick to Malayan listed three
groups of underwriters or reinsurers – Lloyds 62.808%, Companies (I.L.U.) 34.705%,
Other companies 2.487%. At the top of the list of underwriting members of Lloyds is
Syndicate No. 448, assuming 2.48% of the risk assumed by the reinsurer, which
syndicate number petitioner Ivor Robert Dayton Gibson claims to be himself. Petitioner
then filed a motion to intervene as defendant, which motion was denied by the lower court.

ISSUE: WON THE LOWER COURT COMMITTED, REVERSIBLE ERROR IN

REFUSING THE INTERVENTION OF THE PETITIONER IN THE SUIT BETWEEN
LEPANTO AND MALAYAN COMPANIES.

HELD:

No. The respondent Judge committed no error of law in denying petitioner’s Motion to
Intervene and neither has he abused his discretion in his denial of petitioner’s Motion for
Intervention. We agree with the holding of the respondent court that since movant Ivor
Robert Dayton Gibson appears to be only one of several re-insurers of the risks and
liabilities assumed by Malayan Insurance Company, Inc., it is highly probable that other
re-insurers may likewise intervene. If petitioner is allowed to intervene, We hold that there
is good and sufficient basis for the Court a quo to declare that the trial between Lepanto
and Malayan would be definitely disrupted and would certainly unduly delay the
proceedings between the parties especially at the stage where Lepanto had already
rested its case and that the issue would also be compounded as more parties and more
matters will have to be litigated. In other words, the Court’s discretion is justified and
reasonable. We also hold that respondent Judge committed no reversible error in further
sustaining the fourth ground of Lepanto’s Opposition to the Motion to Intervene that the
rights, if any, of petitioner are not prejudiced by the present suit and will be fully protected
in a separate action against him and his co-insurers by Malayan. Petitioner’s contention
that he has to pay once Malayan is finally adjudged to pay Lepanto because of the very
nature of a contract of reinsurance and considering that the re-insurer is obliged to pay
as may be paid thereon (referring to the original policies), although this is subject to other
stipulations and conditions of the reinsurance contract, is without merit. The general rule
in the law of reinsurance is that the re-insurer is entitled to avail itself of every defense
which the re-insured (which is Malayan) might urge in an action by the person originally
insured (which is Lepanto). As to the effect of the clause “to pay as may be paid thereon”
contained in petitioner’s re-insurance contract, Arnould, on the Law of Marine Insurance
and Average, 13th Ed., Vol. 1, Section 327, p. 315, states the rule, this: “It has been
decided that this clause does not preclude the reinsurer from insisting upon proper proof
that a loss strictly within the terms of the original policy has taken place. “This clause does
not enable the original underwriter to recover from his reinsurer to an extent beyond the
subscription of the latter. “Wherefore, in view of the foregoing, the petition is hereby
dismissed. No costs.” Pacific Timber Export Corporation vs Court of Appeals In 1963,
Pacific Timber Export Corporation (PTEC) applied for a temporary marine insurance from
Workmen’s Insurance Company (WIC) in order for the latter to insure 1,250,000 board
feet of logs to be exported to Japan. In March 1963, WIC issued a cover note to PTEC
for the said logs. On April 2, 1963, WIC issued two policies for the logs. However, the
total board feet covered this time is only 1,195,498. On April 4, 1963, while the logs were
in transit to Japan, bad weather prevailed and this caused the loss of 32 pieces of logs.
WIC then asked an adjuster to investigate the loss. The adjuster submitted that the logs
lost were not covered by the two policies issued on April 2, 1963 but said logs were
included in the cover note earlier issued. WIC however denied the insurance claim of
PTEC as it averred that the cover note became null and void when the two policies were
subsequently issued. The Court of Appeals ruled that the cover note is void for lack of
valuable consideration as it appeared that no premium payment therefor was made by
PTEC. ISSUE: Whether or not a separate premium is needed for cover notes. HELD: No.
The Cover Note was not without consideration for which the Court of Appeals held the
Cover Note as null and void, and denied recovery therefrom. The fact that no separate
premium was paid on the Cover Note before the loss insured against occurred, does not
militate against the validity of PTEC’s contention, for no such premium could have been
paid, since by the nature of the Cover Note, it did not contain, as all Cover Notes do not
contain particulars of the shipment that would serve as basis for the computation of the
premiums. As a logical consequence, no separate premiums are intended or required to
be paid on a Cover Note. At any rate, it is not disputed that PTEC paid in full all the
premiums as called for by the statement issued by WIC after the issuance of the two
regular marine insurance policies, thereby leaving no account unpaid by PTEC due on
the insurance coverage, which must be deemed to include the Cover Note. If the Note is
to be treated as a separate policy instead of integrating it to the regular policies
subsequently issued, the purpose and function of the Cover Note would be set at naught
or rendered meaningless, for it is in a real sense a contract, not a mere application for
insurance which is a mere offer.
4. Artex Development Co VS Wellington Insurance
Topic: Reinsurance

FACTS:

Wellington insurance insured for P24,346,509 the building stocks and machinery of
plaintiff Artex against loss or damage by fire or lightning upon august 2, 1963 with an
additional sum of P833,034.· Another insurance against business interruption (use
and occupancy)for P5,200,000.· On September 22, 1963 the building, and
machineries were burned and a notice of loss and damage was given to Wellington. ·
Insurance adjusters computed the loss for the fire as P10,106,544.40 and Wellington
paid only 6,481,870.07, leaving a balance of 3,624,683.43 · The computed business
interruption loss was P3M but Wellington paid only P1,864,134.08 leaving a balance
of P1,748,460 (computation based on case)· Artex through counsel Norberto
Quisumbing made a manifestation that only about P397,ooo is the remaining balance
and liability which was the subject of reinsurance with Alexander and Alexander Inc,
of New York, Artex acknowledging here the receipt of P3,600,000 as FINAL and FULL
SETTLEMENT of all claims against Welllington· Artex further prays to the court to
affirm the lower court’s decision of liquidation and prayed for modification of the
amount of liability to be fixed to P397,813.00 plus 12% interest per annum thereof for
the late payment until april 10, 1969 and attorneyâs fees of 15% of the recovery,
expenses of litigation, no writ of execution however to be made within 3years from july
10, 1969 per collateral agreement of the parties.· Wellington in its brief raises the issue
that Artex deemed to have agreed to look SOLELY to the reinsurers for indemnity in
case of loss since their paid up capital stock is only P500,000 and that they have to
secure such reinsurance coverage the over P24M fire insurance coverage of the
policy issued by Wellington to Artex.

Issue: WON reinsurance contract of the parties makes the insured to look SOLELY
to the reinsurers for indemnity in case of loss

Ruling: NO, the insured who is not directly a party or privy to the reinsurance contract
between Wellington and Alexander and Alexander Inc., cannot demand enforcement
of such insurance contracts. The Contracts take effect only between the parties, their
assigns and heirs as provide by Art 1311 of our civil code. Further it provides that a
contract with stipulations pour autrui or in favor of a third person not a party to the
contract, the parties must have CLEARLY and DELIBERATELY conferred favor upon
a third person· The SC also stated that assuming that Artex directly sue the reinsurers
for payment this does not in any way affect or cancel out Wellingtons direct contractual
liability to Artex. The SC dispose the case by affirming the prayer of Artex..
 MARINE INSURANCE

1. La Razon Social v Union Insurance Society of Canton

GR No. 13983, Sept. 1, 1919 Topic: Marine Insurance

FACTS:

1. The Go Tiaoco Brothers owned a shipment of rice from Saigon to Cebu.

2. During the transit, it was discovered that 1,473 sacks of rice was damaged by sea
water.

3. It was later found out that the damage was caused b y a corroded pipe, the purpose
of which was to drain from the water closet.

3.1 The court found in effect that the opening above described had resulted in course
of time from ordinary wear and tear and not from the straining of the ship in rough
weather on that voyage.

(Bear with me, since this is an old case, the procedure we have come to learn may be
different form the one effective during the pendency of this case.)

4. Trial Court: ruled in favor of Union Insurance. The cause of the loss was due to the
defect in one of the drain pipes thus, the loss is not covered.

5. The case was brought up to the SC.

ISSUE:

Whether or not the reason for the loss of the cargo is covered by the insurance?

HELD:

No. What is covered is "peril of the sea" and not "peril of the ship".

RATIO:

1. Peril of the sea vs. peril of the ship

1.1 It must be considered to be settled, furthermore, that a loss which, in the ordinary
course of events, results from the natural and inevitable action of the sea, from the
ordinary wear and tear of the ship, or from the negligent failure of the ship's owner to
provide the vessel with proper equipment to convey the cargo under ordinary
conditions, is not a peril of the sea. Such a loss is rather due to what has been aptly
 called the "peril of the ship." The insurer undertakes to insure against perils of the sea
and similar perils, not against perils of the ship.

1.2 Wilson, Sons, and Co. v. Owners of the Cargo per the Xantho: in order to make
the insurer liable, be "some casualty, something which could not be foreseen as one
of the necessary incidents of the adventure. The purpose of the policy is to secure an
indemnity against accidents which may happen, not against events which must
happen."

2. Implied warranty as to seaworthiness of the ship.

2.1 It is universally accepted that in every contract of insurance upon anything which
is the subject of marine insurance, a warranty is implied that the ship shall be
seaworthy at the time of the inception of the voyage.

2.2 It is also well settled that a ship which is seaworthy for the purpose of insurance
upon the ship may yet be unseaworthy for the purpose of insurance upon the cargo.

DOCTRINE

In order to make the insurer liable, it must be "some casualty, something which could
not be foreseen as one of the necessary incidents of the adventure.

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

Facts:

A cargo of rice belonging to the Go Tiaoco Brothers, was transported in the early daysof May,
1915, on the steamship Hondagua from the port of Saigon to Cebu. On dischargingthe rice
from one of the compartments in the after hold, upon arrival at Cebu, it wasdiscovered that
1,473 sacks had been damaged by sea water. The loss so resulting to theowners of rice, after
proper deduction had been made for the portion saved, was P3,875. Thepolicy of insurance,
covering the shipment, was signed upon a form long in use amongcompanies engaged in
maritime insurance. It purports to insure the cargo from the followingamong 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, andmisfortunes that have or shall
come to the hurt, detriment, or damage of the said goods andmerchandise or any part
thereof." It was found out that the drain pipe which served as adischarge from the water closet
passed down through the compartment where the rice inquestion was stowed and thence out
to sea through the wall of the compartment, which wasa part of the wall of the ship. The joint
or elbow where the pipe changed its direction was ofcast iron; and in course of time it had
become corroded and abraded until a longitudinalopening had appeared in the pipe about
one inch in length. This hole had been in existencebefore the voyage was begun, and an
attempt had been made to repair it by filling withcement and bolting over it a strip of iron. The
effect of loading the boat was to submerge the vent, or orifice, of the pipe until it was about
18 inches or 2 feet below the level of the sea. As a consequence the sea water rose in the
pipe. Navigation under these conditions resulted in the washing out of the cement-filling from
the action of the sea water, thus permitting the continued flow of the salt water into the
compartment of rice. An action on a policy of marine insurance issued by the Union Insurance
Society of Canton, Ltd., upon the cargo of rice belonging to the Go Tiaoco Brothers was filed.
The trial court found that the inflow of the seawater during the voyage was due to a defect in
one of the drain pipes of the ship and concluded that the loss was not covered by the policy
of insurance. Judgment was accordingly entered in favor of Union Insurance and Go Tiaoco
Brothers appealed

Issue 1: Whether perils of the sea includes “entrance of water into the ship’s hold through a
defective pipe.

Held 1:
NO. It is determined that the words "all other perils, losses, and
misfortunes" are to be interpreted as covering risks which are of like kind
(ejusdem generis) with the particular risks which are enumerated in the
preceding part of the same clause of the contract. According to the
ordinary rules of construction these words must be interpreted with
reference to the words which immediately precede them. They were no
doubt inserted in order to prevent disputes founded on nice distinctions.
Their office is to cover in terms whatever may be within the spirit of the
cases previously enumerated, and so they have greater or less effect as a
narrower or broader view is taken of those cases. For example, if the
expression "perils of the seas" is given its widest sense the general words
have little or no effect as applied to that case. If on the other hand that
expression is to receive a limitedconstruction and loss by perils of the seas
is to be confined to loss ex marine tempestatisdiscrimine, the general
words become most important. But still, when they first became the
subject of judicial construction, they have always been held or assumed to
be restricted to cases "akin to" or "resembling" or "of the same kind as"
those specially mentioned. I see no reason for departing from this settled
rule. In marine insurance it is above all things necessary to abide by settled
rules and to avoid anything like novel refinements or a new departure. It
must be considered to be settled, furthermore, that a loss which, in the
ordinary course of events, results from the natural and inevitable action of
the sea, from the ordinary wear and tear of the ship, or from the negligent
failure of the ship's owner to provide the vessel with proper equipment to
convey the cargo under ordinary conditions, is not a peril of the sea. Such
a loss is rather due to what has been aptly called the "peril of the ship."
Theinsurer undertakes to insure against perils of the sea and similar perils,
not against perils of the ship. There must, in order to make the insurer
liable, be "some casualty, something which could not be foreseen as one of
the necessary incidents of the adventure. The purpose of the policy is to
secure an indemnity against accidents which may happen, not against
events which must happen." Herein, the entrance of the sea water into the
ship's hold through the defective pipe already described was not due to any
accident which happened during the voyage, but to the failure of the ship's
owner properly to repair a defect of the existence of which he was
apprised. The loss was therefore more analogous to that which directly
results from simple unseaworthiness than to that which results from perils
of the sea.
Issue 2:
Whether there is an implied warranty on the seaworthy of the vessel in
every marine insurance contract.
Held 2:
YES. It is universally accepted that in every contract of insurance upon
anything which is the subject of marine insurance, a warranty is implied
that the ship shall be seaworthy at the time of the inception of the voyage.
This rule is accepted in our own Insurance Law (Act No. 2427, sec. 106). It
is also well settled that a ship which is seaworthy for the purpose of
insurance upon the ship may yet be unseaworthy for the purpose of
insurance upon the cargo (Act No. 2427, sec. 106

3 .Filipino Merchants v. CA- Insurable Interest

179 SCRA 638

Facts:
> The Chao Tiek Seng a consignee of the shipment of fishmeal loaded on board the
vessel SS Bougainville and unloaded at the Port of Manila on or about December 11,
1976 and seeks to recover from Filipino the amount of P51,568.62 representing damages
to said shipment which has been insured by Filipino.
> Filipino brought a third party complaint against Compagnie Maritime Des Chargeurs
Reunis and/or E. Razon, Inc. seeking judgment against the third party defendants in case
judgment is rendered against it.
> It appears from the evidence presented that Chao insured said shipment with Filipino
for the sum of P267,653.59 for the goods described as 600 metric tons of fishmeal in
gunny bags of 90 kilos each from Bangkok, Thailand to Manila against all risks under
warehouse to warehouse terms.
> Actually, what was imported was 59.940 metric tons not 600 tons at $395.42 a ton.
> The fishmeal in 666 gunny bags were unloaded from the ship on December 11, 1976
at Manila unto the arrastre contractor E. Razon, Inc. and Filipino’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.
> Based on said computation the Chao made a formal claim against the Filipino for
P51,568.62. A formal claim statement was also presented by the plaintiff against the
vessel, but the Filipino refused to pay the claim.

Issues & Resolutions:

Filipino contends that an "all risks" marine policy has a technical meaning in insurance in
that before a claim can be compensable it is essential that there must be "some fortuity,"
"casualty" or "accidental cause" to which the alleged loss is attributable and the failure of
herein private respondent, upon whom lay the burden, 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.

SC did not uphold this contention. An "all risks policy" should be read literally as meaning
all risks whatsoever and covering all losses by an accidental cause of any kind. The terms
"accident" and "accidental", as used in insurance contracts, have not acquired any
technical meaning. They are construed by the courts in their ordinary and common
acceptance. Thus, the terms have been taken to mean that which happens by chance or
fortuitously, without intention and design, and which is unexpected, unusual and
unforeseen. An accident is an event that takes place without one's foresight or
expectation; an event that proceeds from an unknown cause, or is an unusual effect of a
known cause and, therefore, not expected.

Coverage under an "all risks" provision of a marine insurance policy creates a special
type of insurance which extends coverage to risks not usually contemplated and avoids
putting upon the insured the burden of establishing that the loss was due to the peril falling
within the policy's coverage; the insurer can avoid coverage upon demonstrating that a
specific provision expressly excludes the loss from coverage. A marine insurance policy
providing that the insurance was to be "against all risks" must be construed as creating a
special insurance and extending to other risks than are usually contemplated, and covers
all losses except such as arise from the fraud of the insured. The burden of the insured,
therefore, is to prove merely that the goods he transported have been lost, destroyed or
deteriorated. Thereafter, the burden is shifted to the insurer to prove that the loss was
due to excepted perils. To impose on the insured the burden of proving the precise cause
of the loss or damage would be inconsistent with the broad protective purpose of "all
risks" insurance.

In the present case, there being no showing that the loss was caused by any of the
excepted perils, the insurer is liable under the policy

Filipino contends that Chao does not have insurable interest, being only a consignee of
the goods.
Anent the issue of insurable interest, SC upheld the ruling of the CA that Chao, as
consignee of the goods in transit under an invoice containing the terms under "C & F
Manila," has insurable interest in said goods.

Section 13 of the Insurance Code defines insurable interest in property as every interest
in property, whether real or personal, or any relation thereto, or liability in respect thereof,
of such nature that a contemplated peril might directly damnify the insured. In principle,
anyone has an insurable interest in property who derives a benefit from its existence or
would suffer loss from its destruction whether he has or has not any title in, or lien upon
or possession of the property. Insurable interest in property may consist in (a) an existing
interest; (b) an inchoate interest founded on an existing interest; or (c) an expectancy,
coupled with an existing interest in that out of which the expectancy arises.

Chao, as vendee/consignee of the goods in transit has such existing interest therein as
may be the subject of a valid contract of insurance. His interest over the goods is based
on the perfected contract of sale. The perfected contract of sale between him and the
shipper of the goods operates to vest in him an equitable title even before delivery or
before he performed the conditions of the sale. The contract of shipment, whether under
F.O.B., C.I.F., or C. & F. as in this case, is immaterial in the determination of whether the
vendee has an insurable interest or not in the goods in transit. The perfected contract of
sale even without delivery vests in the vendee an equitable title, an existing interest over
the goods sufficient to be the subject of insurance

4. Choa Tiek Seng vs. CA

G.R. No. 84507 March 15, 1990TOPIC:PONENTE: GANCAYCO, J.AUTHOR: Jade
NOTES: (if applicable)
FACTS:
Nature: Appeal from a decision of the CA dated Feb 18, 1988, affirming the decision of
the RTC of ManilaNovember 4, 1976
–
Choa Tiek Seng imported some lactose crystals from Holland. The importation involved
15metric tons packed in 600 6-ply paper bags with polythelene inner bags, each bag at
25 kilos net. The goods were loaded at the Rotterdam Port in sea vans on board the
vessel MS Benalder as the mother vessel, then aboard the feeder vessel Wesse
Broker V-25 of respondent Ben Lines Container, Ltd.
The goods were insured by Filipino Merchants’ Insurance Co, Inc. for the sum of
P98,882.35 (equivalent ofUS$8,765.00) + 50% mark-up US$13,147.50, against all
risks under the terms of the insurance cargo policy.Upon arrival at the port of Manila, the
cargo was discharged into the custody of the arrastre operator, E.Razon, Inc. (broker),
prior to delivery to Choa Tiek Seng through his broker.Of the 600 bags delivered to Choa
Tiek Seng, 403 were in bad order – suffered spillage and loss valued atP33,117.63.
Choa Tiek Seng filed a claim for said loss on February 16, 1977 against Filipino
Merchants’ Insurance Co, Inc. inthe amount of P33,117.63 as the insured value of
the loss.Filipino Merchants’ Insurance Co, Inc. rejected the claim alleging that
1) assuming that spillage took place whilethe goods were in transit, Choa Tiek Seng and
his agent failed to avert or minimize the loss by failing to recoverspillage from the sea van
– violation of the terms of the insurance policy sued upon, and 2) assuming that
thespillage did not occur while the cargo was in transit, said 400 bags were loaded in bad
order, and in any case,the van did not carry any evidence of spillage.August 2, 1977
–Petitioner filed in the RTC of Manila an action seeking payment of the sum of
P33,117.63 asdamages plus attorney's fees and expenses of litigation.

Filipino Merchants denied all material allegations of the complaint

Filipino Merchants filed a 3rd party complaint against Ben Lines and the broker,
E. Razon.
E. Razon denied liability and argued that Choa Tiek Seng had no valid cause of action
against it. Ben Lines denied liability and argued that Filipino Merchants has no connection
with Ben Lineswhatsoever, thus not a proper party in interest, and that 3rd party complaint
has prescribed under theapplicable provisions of Carriage of Goods by Sea Act.March
31, 1986 – trial court dismissed the complaint, the counterclaim and the 3rd party
complaint with costsagainst Choa Tiek Seng.Petitioner appealed to the Court of Appeals;
CA affirmed the judgment of the trial court
.ISSUE(S):Whether or not Choa Tiek Seng can recover from the insurance company

HELD: (YES/NO, and a short explanation)The decision of the CA is reversed and set aside.
Filipinas Merchants is ordered to pay the sum of P33117.63 asdamages to the petitioner with
legal interest from filing of t
he complaint, plus attorney’s fees and expenses of
litigation in the amount of P10000 as well as the costs of the suit.RATIO:CA concluded that there
was no damage suffered by the cargo at the time of devanning:

Appellant argued that the cargo in question sustained damages while still in the possession of
the carrying vessel, because according to the report of its surveyor and its sole witness Jose See,
403 bags were already in bad order and condition at the time of devanning at the pier witness
was incompetent to identify the 2 survey reports because he was not actually present during the
actual devanning of the cargo. Appellee submitted evidence that would establish the fact that
there was no damage suffered by the cargo at the time of the devanning upon discharge of the
cargo from the vessel, delivered to the custody of E. Razon under clean tally sheet; the container
van containing the cargo was found with both its seal and lock intact; the same cargo was in turn
delivered to Choa Tiek Seng by E. Razon at the pier in good order and condition as shown by the
clean gate passes and delivery permit. Clean gate passes are important and vital pieces of
evidence they bind the shipping company and the arrastre operator whenever a cargo sustains
damage while in their respective custody. Note that in this case, there was no turn over survey
executed between the vessel and the arrastre operator, indicating any damage to the cargo upon
discharge from the custody of the vessel; no bad ordercertificates issued by E. Razon, indicating
that there was no damage to the cargo while in its custody. Ifthere was indeed a damage
affecting 403 bags out of 600 (240% spillage), recovery of the spillage couldhave been easily done
considering that the shipment was in a container van which was found to besealed and
intact.However, petitioner also presented these evidence:
The 600 bags which the srcinal carrier received in apparent good order condition and certified to
bythe vessel's agent to be weighing 15,300 kg gross were unloaded from the transhipment vessel
WesserBroker and turned over to E. Razon.
A shipboard surveyor, the Worldwide Marine Cargo Surveyor, a representative of Wesser Broker
and arepresentative of E. Razon attended the devanning of the shipment and the surveryor
certified that 403bags were in bad order condition (an aggregate of 5,173 kilos were missing
therefrom)The assertion of the CA that authenticity of the survey reports and the competence of
Jose See as witnesscould not be well taken.
It was respondent insurance company which undertook the protective survey relating to the
goodsfrom the time of discharge up to the time of delivery to the consignee’s warehouse.
Insurance company is bound to the report of its surveyor; authenticity of said survey report need
not be established as it is binding on the respondent who caused said protective survey.
Record showed that Jose See was present when the cargo was unloaded and received in the
warehouseof the consignee. He saw 403 bags to be in bad order, thus competent to identify the
said survey report.
The clean tally sheet referred to by the CA covers the van container and not the cargo stuffed in
it. not an evidence of the condition of the cargo contained therein, as even stated by Sergio
Icasiano, awitness of the respondent insurance company.Also, respondent insurance company
admitted in its letter to petitioner dated May 26, 1977 that they do notquestion the fact that 403
out of 600 bags appeared to be in bad order or in damaged condition as indicated in the survey
report of the vessel surveyor.
Admission is sufficient proof of loss or damage to the cargoStill, CA ruled that even assuming that
the cargo sustained damage, insurance company cannot be held liableon the insurance policy
because Choa Tiek Seng failed to prove that the alleged damage was due to risksconnected with
navigation. A distinction should be made between "perils of the sea" which render the
insurerliable on account of the loss and/or damage brought about thereof and "perils of the ship"
which do not renderthe insurer liable for any loss or damage. Perils of the sea or perils of
navigation embrace all kinds of marinecasualties, such as shipwreck, foundering, stranding,
collision and every specie of damage done to the ship orgoods at sea by the violent action of the
winds or waves. They do not embrace all loses happening on the sea.A peril whose only
connection with the sea is that it arises aboard ship is not necessarily a peril of the sea; theperil
must be of the sea and not merely one accruing on the sea (The Phil. Insurance Law, by Guevarra,
4th ed.,1961, p. 143).Insurance of the cargo was an “against all risk policy” purports to cover
losses from casualties at sea, it doesnot cover losses occasioned by the ordinary circumstances
of a voyage, but only those resulting from extra andfortuitous events.The Supreme Court held
that:
An all risk insurance policy insures against all causes of conceivable loss or damage, except as
otherwiseexcluded in the policy or due to fraud or intentional misconduct on the part of the
insured. It covers alllosses during the voyage whether arising from a marine peril or not, including
pilferage losses duringthe war (Gloren Inc. vs. Filipinas Cia. de Seguros).
This insurance is against all risks of loss or damage to the subject matter insured but shall in no
case bedeemed to extend to cover loss, damage, or expense proximately caused by delay or
inherent vice ornature of the subject matter insured. Claims recoverable hereunder shall be
payable irrespective ofpercentage.
The insurance policy covers all loss or damage to the cargo except those caused by delay or
inherentvice or nature of the cargo insured. It is the duty of the respondent insurance company
to establish that said loss or damage falls within the exceptions provided for by law, otherwise it
is liable therefor.
An "all risks" provision of a marine policy creates a special type of insurance which extends
coverage torisks not usually contemplated and avoids putting upon the insured the burden of
establishing that theloss was due to peril falling within the policy's coverage. The insurer can
avoid coverage upondemonstrating that a specific provision expressly excludes the loss from
coverage.In this case, the damage caused to the cargo has not been attributed to any of the
exceptions provided for noris there any pretension to this effect. Thus, the liability of respondent
insurance company is clear
6. CALTEX vs. SULPICIO LINES

FACTS
MT Vector left Limay, Bataan, at about 8:00 p.m., enroute to Masbate, loaded with 8,800 barrels of
petroleum products shipped by petitioner Caltex. MT Vector is a tramping motor tanker owned and
operated by Vector Shipping Corporation, engaged in the business of transporting fuel products such as
gasoline, kerosene, diesel and crude oil.

The passenger ship MV Doña Paz left the port of Tacloban headed for Manila with a complement of 59
crew members including the master and his officers, and passengers totaling 1,493 as indicated in the
Coast Guard Clearance. The MV Doña Paz is a passenger and cargo vessel owned and operated by
Sulpicio Lines.

The two vessels collided in the open sea within the vicinity of Dumali Point between Marinduque and
Oriental Mindoro. All the crewmembers of MV Doña Paz died, while the two survivors from MT Vector
claimed that they were sleeping at the time of the incident.

The MV Doña Paz carried an estimated 4,000 passengers; many indeed, were not in the passenger
manifest. Only 24 survived the tragedy after having been rescued from the burning waters by vessels
that responded to distress calls. Among those who perished were public school teacher Sebastian
Cañezal (47 years old) and his daughter Corazon Cañezal (11 years old), both unmanifested passengers
but proved to be on board the vessel.

The board of marine inquiry in BMI Case No. 653-87 after investigation found that the MT Vector, its
registered operator Francisco Soriano, and its owner and actual operator Vector Shipping Corporation,
were at fault and responsible for its collision with MV Doña Paz.

Teresita Cañezal and Sotera E. Cañezal, Sebastian Cañezal’s wife and mother respectively, filed with
the Regional Trial Court, Branch 8, Manila, a complaint for “Damages Arising from Breach of Contract of
Carriage” against Sulpicio Lines, Inc. (hereafter Sulpicio). Sulpicio, in turn, filed a third party complaint
against Francisco Soriano, Vector Shipping Corporation and Caltex (Philippines), Inc. Sulpicio alleged
that Caltex chartered MT Vector with gross and evident bad faith knowing fully well that MT Vector was
improperly manned, ill-equipped, unseaworthy and a hazard to safe navigation; as a result, it rammed
against MV Doña Paz in the open sea setting MT Vector’s highly flammable cargo ablaze.

The trial court dismissed the 3rd party complaint and held Sulpicio lines liable.

The Court of Appeal modified the trial court’s ruling and included petitioner Caltex as one of those liable
for damages:

“Third party defendants Vector Shipping Co. and Caltex (Phils.), Inc. are held equally liable
under the third party complaint to reimburse/indemnify defendant Sulpicio Lines, Inc. of the above-
mentioned damages, attorney’s fees and costs which the latter is adjudged to pay plaintiffs, the same
to be shared half by Vector Shipping Co. (being the vessel at fault for the collision) and the other half
by Caltex (Phils.), Inc. (being the charterer that negligently caused the shipping of combustible cargo
aboard an unseaworthy vessel).”

Hence the appeal.

ISSUE
1) Should Caltex (charterer) be held liable? NO
2) Is MT Vector a common carrier and therefore liable? YES
3) Should Caltex be held liable for damages? NO

RULING
1) The charterer has no liability for damages under Philippine Maritime laws.

Petitioner CALTEX and Vector entered into a contract of affreightment, also known as a voyage charter.

A charter party is a contract by which an entire ship, or some principal part thereof, is let by the owner
to another person for a specified time or use; a contract of affreightment is one by which the owner of
a ship or other vessel lets the whole or part of her to a merchant or other person for the conveyance of
goods, on a particular voyage, in consideration of the payment of freight.

A contract of affreightment may be either time charter, wherein the leased vessel is leased to the
charterer for a fixed period of time, or voyage charter, wherein the ship is leased for a single voyage.
In both cases, the charter-party provides for the hire of the vessel only, either for a determinate period
of time or for a single or consecutive voyage, the ship owner to supply the ship’s store, pay for the
wages of the master of the crew, and defray the expenses for the maintenance of the ship.

Under a demise or bareboat charter on the other hand, the charterer mans the vessel with his own
people and becomes, in effect, the owner for the voyage or service stipulated, subject to liability for
damages caused by negligence.

If the charter is a contract of affreightment, which leaves the general owner in possession of the ship
as owner for the voyage, the rights and the responsibilities of ownership rest on the owner. The
charterer is free from liability to third persons in respect of the ship.
 1) MT Vector is a common carrier.

Charter parties fall into three main categories: (1) Demise or bareboat, (2) time charter, (3) voyage
charter. Does a charter party agreement turn the common carrier into a private one?

In this case, the charter party agreement did not convert the common carrier into a private carrier. The
parties entered into a voyage charter, which retains the character of the vessel as a common carrier.

In Planters Products, Inc. vs. Court of Appeals, we said:

“It is therefore imperative that a public carrier shall remain as such, notwithstanding the charter of
the whole or portion of a vessel by one or more persons, provided the charter is limited to the ship only,
as in the case of a time-charter or voyage charter. It is only when the charter includes both the vessel
and its crew, as in a bareboat or demise that a common carrier becomes private, at least insofar as the
particular voyage covering the charter-party is concerned. Indubitably, a ship-owner in a time or voyage
charter retains possession and control of the ship, although her holds may, for the moment, be the
property of the charterer.”
Later, we ruled in Coastwise Lighterage Corporation vs. Court of Appeals:
“Although a charter party may transform a common carrier into a private one, the same however
is not true in a contract of affreightment xxx”

A common carrier is a person or corporation whose regular business is to carry passengers or property
for all persons who may choose to employ and to remunerate him. MT Vector fits the definition of a
common carrier under Article 17321 of the Civil Code.

Article 1732 also carefully avoids making any distinction between a person or enterprise offering
transportation service on a regular or scheduled basis and one offering such services on a an occasional,
episodic or unscheduled basis. Neither does Article 1732 distinguish between a carrier offering its
services to the “general public,” i.e., the general community or population, and one who offers services
or solicits business only from a narrow segment of the general population.

Under the Carriage of Goods by Sea Act :

Sec. 3. (1) The carrier shall be bound before and at the beginning of the voyage to
exercise due diligence to -
(a) Make the ship seaworthy;
(b) Properly man, equip, and supply the ship;

Thus, the carriers are deemed to warrant impliedly the seaworthiness of the ship. For a vessel to be
seaworthy, it must be adequately equipped for the voyage and manned with a sufficient
number of competent officers and crew. The failure of a common carrier to maintain in seaworthy
condition the vessel involved in its contract of carriage is a clear breach of its duty prescribed in Article
1755 of the Civil Code.
The provisions owed their conception to the nature of the business of common carriers. This business
is impressed with a special public duty. The public must of necessity rely on the care and skill of common
carriers in the vigilance over the goods and safety of the passengers, especially because with the modern
development of science and invention, transportation has become more rapid, more complicated and
somehow more hazardous.

1) Sulpicio argues that Caltex negligently shipped its highly combustible fuel cargo aboard an
unseaworthy vessel such as the MT Vector when Caltex:

Did not take steps to have M/T Vector’s certificate of inspection and coastwise license renewed;
Proceeded to ship its cargo despite defects found by Mr. Carlos Tan of Bataan Refinery Corporation;
Witnessed M/T Vector submitting fake documents and certificates to the Philippine Coast Guard.

Sulpicio further argues that Caltex chose MT Vector to transport its cargo despite these deficiencies:

The master of M/T Vector did not posses the required Chief Mate license to command and navigate
the vessel;The second mate, Ronaldo Tarife, had the license of a Minor Patron, authorized to
navigate only in bays and rivers when the subject collision occurred in the open sea; The Chief
Engineer, Filoteo Aguas, had no license to operate the engine of the vessel; The vessel did not
have a Third Mate, a radio operator and a lookout; and The vessel had a defective main engine.

As basis for the liability of Caltex, the Court of Appeals relied on Articles 202 and 21763 of the Civil Code.
In Southeastern College, Inc. vs. Court of Appeals, we said that negligence, as commonly understood,
is conduct which naturally or reasonably creates undue risk or harm to others. It may be the failure to
observe that degree of care, precaution, and vigilance, which the circumstances justly demand, or the
omission to do something which ordinarily regulate the conduct of human affairs, would do.

The charterer of a vessel has no obligation before transporting its cargo to ensure that the vessel it
chartered complied with all legal requirements. The duty rests upon the common carrier simply for
being engaged in “public service.” The Civil Code demands diligence which is required by the nature of
the obligation and that which corresponds with the circumstances of the persons, the time and the place.
Hence, considering the nature of the obligation between Caltex and MT Vector, the liability as found by
the Court of Appeals is without basis.

The relationship between the parties in this case is governed by special laws. Because of the implied
warranty of seaworthiness, shippers of goods, when transacting with common carriers, are not expected
to inquire into the vessel’s seaworthiness, genuineness of its licenses and compliance with all maritime
laws. To demand more from shippers and hold them liable in case of failure exhibits nothing but the
futility of our maritime laws insofar as the protection of the public in general is concerned. By the same
token, we cannot expect passengers to inquire every time they board a common carrier, whether the
carrier possesses the necessary papers or that all the carrier’s employees are qualified. Such a practice
would be an absurdity in a business where time is always of the essence. Considering the nature of
transportation business, passengers and shippers alike customarily presume that common carriers
possess all the legal requisites in its operation.

Thus, the nature of the obligation of Caltex demands ordinary diligence like any other shipper in shipping
his cargoes.

Caltex and Vector Shipping Corporation had been doing business since 1985, or for about two years
before the tragic incident occurred in 1987. Past services rendered showed no reason for Caltex to
observe a higher degree of diligence.

Clearly, as a mere voyage charterer, Caltex had the right to presume that the ship was seaworthy as
even the Philippine Coast Guard itself was convinced of its seaworthiness.

7.San Miguel vs Heirs of Inguito GR No. 141716 July 4,2002

Topic: Marine Insurance -Insurable Interest
Facts:
San Miguel (SMC) entered into a Time Charter Party Agreement with Julius Ouano, doing business
under the name and style J. Ouano Marine Services. SMC chartered MV Dona Roberta, owned by
Ouano, fora period of 2 years, for the purpose of transporting SMC's beverage products from
Mandaue City plant to various points in Visayas and Mindanao. The agreement stated that:
o Ouano warrants ownership, title and interest over the vessel
o that the vessel is put at SMC's disposal; SMC hires the use and service of the vessel
o that the owner warrants that the vessel is seaworthy and in proper, useful and
operational condition; and that SMC should immediately notify Ouano in case it finds any
defect in the vessel that
o there is no employer-employee relationship between Ouano (and/or the crew of the
vessel) and SMC; Ouano held SMC free from all claims and liabilities arising out of the acts
of the crew and the condition of the vessel
o that Ouano undertook to pay all compensation of all the vessel's crewothat Ouano shall
indemnify SMC for damages and losses arising from the incompetence and/or negligence
of, and/or the failure to observe the required extra-ordinary diligence by the crew; Ouano
would automatically be liable for shortlanded shipment, where the value shall be
withheld from Ouano's collectibles, and wrong levels, where the value shall likewise be
withheld, but SMC shall reimburse Ouano if SMC's laboratory shall make a determination
that the bottles were never opened after it left the plant
o SMC issued sailing orders to the master of the vessel, Captain Inguito, stating where to
sail to, when it is expected to depart and arrive, to maintain communications, and to
observe weather condition (exercise utmost precautionary measures)
o Inguito obtained the necessary sailing clearance from the Philippine Coast Guard. The
loading was completed on schedule, but the vessel did not leave in accordance with the
orders.
o November 12, 1990:
o 4am -a typhoon was spotted near Samar moving towards the general direction of Eastern
Visayas
o 6am -the vessel left Mandaue
o 7am -while still abeam Cawit Island off Cebu, SMC Radio Operator Moreno contacted
Inguito and advised him to take shelter; Inguito replied that they would proceed since the
typhoon was far away from them and that the winds were in their favour
o 4pm -Moreno reiterated to Inguito the advice and pointed out that it would be difficult
to take shelter after passing Balicasag Island because they were approaching open sea;
Inguitorefused to heedo8pm -vessel was 38 miles southeast of Balicasago10pm -vessel
was 25 miles approaching Sulauan Point; moments later power went out in Moreno's
office
o 1:40pm -power resumed, Moreno made a series of calls to the vessel but he failed to get
in touch with anyone
o November 13, 1990
o 1:15am -Inguito called Moreno over the radio and requested that he contact Rico Ouano,
son of the owner, because they needed a helicopter to rescue them; vessel was 20 miles
west of Sulauan Point. Inguiti requested for a helicopter to rescue them; the Chief
Engineer informed Rico that they can no longer stop the water from coming into the
vessel because the crew members were feeling dizzy from the petroleum fumes
o 2:30am -the vessel sank; only 5 of the 25 officers and crew on board survived
 Ouano, in lieu of the Inguito (who died in the sea tragedy), filed a Marine Protest
 the heirs of Inguito filed a complaint for tort against SMC and Ouano with the RTC of Lapu-
Lapu City
 Ouano filed a cross-claim: the proximate cause of the loss of the vessel and of its officers
and crew was the fault and negligence of SMC, which had complete control and disposal
of the vessel as charterer and which issued a sailing order despite being forewarned of
the typhoon; he prayed for indemnification of the cost of the vessel and unrealized rentals
and earning
 SMC: it was Ouano who had control, supervision and responsibilities over the navigation
of the vessel; Ouano never initiated contact with the vessel despite knowledge of the
typhoon; the proximate cause was Ouano's breach of his obligation to provide SMC with
a seaworthy vessel duly manned by competent crew members; demanded the value of
the cargo lost in sea
 RTC: the proximate cause was attributable to SMC; liable for the loss of earnings of those
who died in the sea tragedy, moral and exemplary damages for heirs of each deceased
crew member; liable for the value of the total loss of the vessel and unrealized rental
earnings
 SMC and Ouano appealed to the CA. CA -modified the decision: SMC and Ouano are jointly
liable to the heirs of the deceased; the claims of SMC and Ouano against each other are
dismissed
Issue: Who should be held liable for the loss
note: i don't know how this involves insurable interest >.< it only talks about how the owner
shall indemnify the charterer
Ruling: Ouano, the owner of the vessel, is liable to the heirs of the deceased, and to SMC for
the loss of their goods

 a charter party is a contract by virtue of which the owner or the agent of a vessel binds
himself to transport merchandise or persons for a fixed price. It has also been defined
as a contract by virtue of which the owner or the agent of the vessel leases for a
 certain price the whole or a portion of the vessel for the transportation of goods or
personsfrom one port to another
 2 types of charter parties: (1) bareboat or demise: the charterer mans the vessel with
his own people; (2) contract of affreightment: the owner of the vessel leases part or
all of its space to haul goods for others. It is a contract for special service to be
rendered by the owner of the vessel. Under such contract the ship owner retains the
possession, command and navigation of the ship, the charterer or freighter merely
having use of the space in the vessel in return for his payment of the charter hire.
 2 types of contract of affreightment: time charter and voyage charter
 If the charter is a contract of affreightment, which leaves the general owner in
possession of the ship as owner for the voyage, the rights and the responsibilities of
ownership rest on the owner. The charterer is free from liability to third persons in
respect of the ship
 the charter between SMC and Ouano was a contract of affreighment, as evidenced by
the the provisions of their agreement
 Ouano was the employer, and had command and control over the vessel and the
crew
 SMC should free from liability for any loss or damage sustained during the voyage,
unless it can be shown that the loss was due to its fault or negligence, which the
evidence does not show (attempts of SMC's radio operator to advise Inguito to take
shelter and efforts to keep in contact)
 Absent any showing of fault or negligence from SMC, Ouano had the clear duty to
ensure the safe carriage and arrival of goods transported on board its vessels. Ouano
also expressly warranted that the vessel was seaworthy.
 seaworthiness: the sufficiency of the vessel in materials, construction, equipment,
officers, men, and outfit for the trade or service in which it is employed; includes the
fitness of a ship for its fuel and provisions supply, the quality of its officers and crew,
and its adaptability for the time of voyage proposed
 The CA found that the proximate cause of the sinking was the negligence of Inguito
 Ouano is vicariously liable for the negligent acts of his employee, Captain Inguito.
Under Articles 2176 and 2180 of the Civil Code, owners and managers are responsible
for damages caused by the negligence of a servant or an employee, the master or
employer is presumed to be negligent either in the selection or in the supervision of
that employee. This presumption may be overcome only bysatisfactorily showing that
the employer exercised the care and the diligence of a good father of a family in the
selection and the supervision of its employee.
 Ouano failed topresent proof that he exercised the due diligence in the selection and
supervision of the captain. Thus, he is vicariously liable for the loss of lives and
property occasioned by the lack of care and negligence of his employee
**as for insurable interest, Section 100, 103, 105 and 106 provide for who has an insurable
interest in this caseSection 100. The owner of a ship has in all cases an insurable interest in it,
even when it has been chartered by one who covenants to pay him its value in case of
loss;Provided, That in this case the insurer shall be liable for only that part of the loss which the
insured cannot recover from the chartererSec. 103. The owner of a ship has an insurable interest
in expected freightage which according to the ordinary and probable course of things he would
have earned but for the intervention of a peril insured against or other peril incident to the
voyage. (freightage: the benefit which is to accrue to the owner from the use of the vessel in the
voyage contemplated, ir thebenefit derived from the employment of the ship)Sec. 105. One who
has an interest in the thing from which profits are expected to proceed has an insurable interest
in the profits.Sec. 106. The charterer of a ship has an insurable interest in it, to the extent that
he is liable to be damnified by its loss

IMPLIED WARRANTIES

1.DELSAN TRANSPORT LINES, INC. VS. CA ET.AL.

G.R. No.127897, November 15, 2001

Facts: Caltex Phil. entered into a contract of affreightment with the petitioner, Delsan Transport Lines,
Inc. for a period of one year whereby the petitioner agreed to transport Caltex industrial fuel oil from
Batangas refinery to different parts of the country. On August 14, 1986, MT Maysun set sail for
Zamboanga City but unfortunately the vessel in the early morning of August 16, 1986 near Panay Gulf.
The shipment was insured with the private respondent, American Home Assurance Corporation.
Subsequently, private respondent paid Caltex the sum of Php.5,096,635.57. Exercising its right of
subrogation under Art. 2207, NCC, the private respondent demanded from the petitioner the same
amount paid to Caltex. Due to its failure to collect from the petitioner, private respondent filed a
complaint with the RTC of Makati City but the trial court dismissed the complaint, finding the vessel to be
seaworthy and that the incident was due to a force majeure, thus exempting the petitioner from liability.
However, the decision of the trial court was reversed by the CA, giving credence to the report of PAGASA
that the weather was normal and that it was impossible for the vessel to sink.
Issue: Whether or not the payment made by private respondent for the insured value of the lost cargo
amounted to an admission that the vessel was seaworthy, thus precluding any action for recovery against
the petitioner.

Held: The payment by the private respondent for the insured value of the lost cargo operates as waiver of
its right to enforce the term of the implied warranty against Caltex under the marine insurance policy.
However, the same cannot be validly interpreted as an automatic admission of the vessel’s seaworthiness
by the private respondent as to foreclose recourse against the petitioner for any liability under its
contractual obligation as common carrier. The fact of payment grants the private respondent subrogatory
right which enables it to exercise legal remedies that otherwise be available to Caltex as owner of the lost
cargo against the petitioner common carrier.

2.ROQUE V. INTERMEDIATE APPELLATE COURT, 139 SCRA 596 (1985)

Petitioner: Isabela Roque, doing busines under the name and style of Isabela Roque Timber Enterprises
and Ong Chiong
Respondent: Intermediate Appelate Court and Pioneer Insurance And Surety Corporation

FACTS:

Manila Bay Lighterage Corporation (Manila Bay) a common carrier, entered into a contract with
petitioners whereby the former would load and cary on board its barge Marble 10 about 422.18 cubic
meters of logs from Malampaya Sound, Palawan to North Harbor Manila. The petitioners insured
the logs against loss for ₱ 100,000.00 with respondent Pioneer Insurance and Surety Corporation
(Pioneer)

The petitioner loaded on the barge, 811 pieces of logs at Malampaya Sound, Palawan for carriage
and delivery to North Harbor, Port of Manila, but the shipment never reached its destination
because Marble 10 sank with the 811 pieces of logs somewhere off Cabuli Point in Palawan on its
way to Manila. As alleged by the petitioners in their complaint and as found by both the trial and
appellate courts, the barge where the logs were loaded was not seaworthy such that it developed a leak.
The appellate court further found that 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 tarpauline, the ordinary
splash of seawaves brought more water inside the barge Respondent ignored the petitioner demand for
payment of ₱ 150,000.00 for the loss of the shipment plus ₱ 100,000.00 as unrealized
profits.Respondent Pioneer denied the claim of petitioner for the full amount of ₱ 100,000.00 on the
ground that its liability depended upon the total loss of vessel only.

The trial court decided in favor of the plaintiff (petitioner).The appellate court modified the trial courts
decision and absolved Pioneer from liability after finding that there was a breach of implied warranty
of seaworthiness on the part of the petitioners and that the loss of the insured cargo was caused by the
“perils of the ship” and not by the “perils of sea.” It ruled that the loss is not covered by the marine insurance
policy.

ISSUE:

Whether or not the implied warranty of seaworthiness in marine insurance attaches to the shipper who
is not the shipowner.

HELD:

Section 113 of the Insurance Code provides:In every marine insurance upon a ship or freight, or
freightage, or upon any thing which is the subject of marine insurance, a warranty is implied that the ship
is seaworthy.

Section 99 of the same Code also provides in part.

Marine insurance includes:

(1) Insurance against loss of or damage to:

(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, ...

From the abovequoted provisions, there can be no mistaking the fact that the term “cargo

” can be the subject of marine insurance and that once it is so made, the implied warranty of seaworthiness
immediately attaches to whoever is insuring the cargo whether he be the shipowner or not Moreover,
the fact that the unseaworthiness of the ship was unknown to the insured is immaterial in ordinary
marine insurance and may not be used by him as a defense in order to recover on the marine insurance
policy.Since the law provides for an implied warranty of seaworthiness in every contract of ordinary
marine insurance, it becomes the obligation of a cargo owner to look for a reliable common carrier
which keeps its vessels in seaworthy condition. The shipper of cargo may have no control over the vessel
but he has full control in the choice of the common carrier that will transport his goods. Or the
cargo owner may enter into a contract of insurance which specifically provides that the insurer
answers not only for the perils of the sea but also provides for coverage of perils of the ship.There is no
doubtthat the term ‘perils of the sea’ extends only to losses caused by sea damage, or by the violence of
the elements, and does not embrace all losses happening at sea. They insure against losses from
extraordinary occurrences only, such as stress of weather,winds and waves, lightning, tempests, rocks
and the like. These are understood to be the ‘perils of the sea’ referred in the policy, and not those
ordinary perils which every vessel must encounter. ‘Perils of the sea’ has been said to include only such
losses as are of extraordinary nature, or arise from some overwhelming power, which cannot be
guarded against by the ordinary exertion of human skill and prudence. Damage done to a vessel by
perils of the sea includes every species of damages done to a vessel at sea, as distinguished from the
ordinary wear and tear of the voyage, and distinct from injuries suffered by the vessel in consequence
of her not being seaworthy at the outset of her voyage (as in this case). It is also the general rule
that everything which happens thru the inherent vice of the thing, or by the act ofthe owners, master
or shipper, shall not be reputed a peril, if not otherwise borne in the policy.On the contention of the
petitioners that the trial court found that the loss was occasioned by the perils of the sea characterized by
the “storm and waves” which buffeted the vessel, the records show that the court ruled otherwise. It stated:
“x x x The other affirmative defense of defendant Lighterage, That the supposed loss of the logs was
occasioned by force majeure was not supported by the evidence. At the time Mable 10 sank,
there was no typhoon but ordinary strong wind and waves, a condition which is natural and normal
in the open sea. The evidence shows that the sinking of Mable 10 was due to improper loading of
the logs on one side so that the barge was tilting on one side and for that it did not navigate on even
keel; that it was no longer seaworthy that was why it developed leak; that the personnel of the
tugboat and the barge committed a mistake when it turned loose the barge from the tugboat east of
Cabuli point where it was buffeted by storm and waves, while the tugboat proceeded to west of Cabuli
point where it was protected by the mountain side from the storm and waves coming from the east
direction. x x x”lt must be considered to be settled, furthermore, that a loss which, in the ordinary course
of events, results from the natural and inevitable action of the sea, from the ordinary wear and tear of
the ship, or from the negligent failure of the ship’s owner to provide the vessel with proper equipment to
convey the cargo under ordinary conditions, is not a peril of the sea. Such a loss is rather due to what has
been aptly called the ‘peril of the ship.’ ‘The insurer undertakes to insure against perils of the sea and
similar perils, not against perils of the ship. As was well said by Lord Herschell in Wilson, Sons & Co. v.
Owners of Cargo per the Xantho ([1887], 12 A. C., 503, 509), there must, in order to make the insurer
liable,be ’some casualty, something which could not be foreseen as one of the necessary incidents of
the adventure. The purpose of the policy is to secure an indemnity against accidents which may happen,
not against events which must happen Barratry as definedin American Insurance Law is “any willful
misconduct on the part of master or crew in pursuance of some unlawful or fraudulent purpose
without the consent of the owners, and to the prejudice of the owner’s interest,” (Sec. 171, U.S.
Insurance Law, quoted in Vance, Handbook on Law of Insurance, 1951, p. 929.) Barratry necessarily
requires a willful and intentional act in its commission. No honest error of judgment or mere
negligence, unless criminally gross, can be barratry. (See Vance on Law of Insurance, p. 929 and cases
cited therein.) In the case at bar, there is no finding that the loss was occasioned by the willful or
fraudulent acts of the vessel’s crew. There was only simpl negligence or lack of skill. Hence, the second
assignment of error must likewise be dismissed.

3.Caltex vs Sulpicio Lines

Facts: MV Vector and Caltex entered into a charter contract (contract of affreightment). On December
20, 1987, motor tanker MV Vector, carrying petroleum products of Caltex, collided in the open sea with
passenger ship MV Doña Paz, causing the death of all but 25 of the latter’s passengers. Among those who
died were Sebastian Canezal and his daughter Corazon Canezal. On March 22, 1988, the board of marine
inquiry found that Vector Shipping Corporation was at fault. On February 13, 1989, Teresita Cañezal and
Sotera E. Cañezal, Sebastian Cañezal’s wife and mother respectively, filed with the Regional Trial Court of
Manila a complaint for damages arising from breach of contract of carriage against Sulpicio Lines. Sulpicio
filed a third-party complaint against Vector and Caltex. The trial court dismissed the complaint against
Caltex, but the Court of Appeals included the same in the liability. Hence, Caltex filed this petition.

Issue:

Whether or not Caltex, as the charterer of a sea vessel, is liable for damages resulting from a collision
between the chartered vessel and a passenger ship?

Ruling:

The Supreme Court ruled in the negative. The Supreme Court ruled that MT Vector is a common carrier.
The charter party agreement did not convert the common carrier into a private carrier. The parties
entered into a voyage charter, which retains the character of the vessel as a common carrier. It is imperative
that a public carrier shall remain as such, notwithstanding the charter of the whole or portion of a
vessel by one or more persons, provided the charter is limited to the ship only, as in the case of a time-
charter or voyage charter. It is only when the charter includes both the vessel and its crew, as in a
bareboat or demise that a common carrier becomes private, at least insofar as the particular
voyage covering the charter-party is concerned. Indubitably, a ship-owner in a time or voyage charter
retains possession and control of the ship, although her holds may, for the moment, be the property of the
charterer. A common carrier is a person or corporation whose regular business is to carry passengers or
property for all personswho may choose to employ and to remunerate him. 16 MT Vector fits the
definition of a common carrier under Article 1732 of the Civil Code. The public must of necessity rely on
the care and skill of common carriers in the vigilance over the goods and safety of the passengers,
especially because with the modern development of science and invention, transportation has
become more rapid, more complicated and somehow more hazardous. For these reasons, a
passenger or a shipper of goods is under no obligation to conduct an inspection of the ship and its
crew, the carrier being obliged by law to impliedly warrant its seaworthiness. The charterer of a vessel
has no obligation before transporting its cargo to ensure that the vessel it chartered complied with all legal
requirements. The duty rests upon the common carrier simply for being engaged in "public service." The
relationship between the parties in this case is governed by special laws. Because of the implied
warranty of seaworthiness, shippers of goods, when transacting with common carriers, are
not expected to inquire into the vessel’s seaworthiness, genuineness of its licenses and
compliance with all maritime laws. To demand more from shippers and hold them liable in case of
failure exhibits nothing but the futility of our maritime laws insofar as the protection of the public in general
is concerned. Such a practice would be an absurdity in a business where time is always of the essence.
Considering the nature of transportation business, passengers and shippersalike customarily presume that
common carriers possess all the legal requisites in its operation.

Oriental Assurance vs. Court of Appeals G.R. No. 94052 August 9, 1991

FACTS:

1. 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.

2. 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.

3. Oriental didn’t give an indemnity because there wasn’t total loss of the shipment.

4. 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:

WON 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?

NO.

HELD: 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 divisible as to the items insured. The logs on the two barges were not separately valued or separately
insured. Only one premium was paid for the entire shipment, making for only one cause or consideration.
The insurance contract must, therefore, be considered indivisible.” 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

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.

Panmalayan Insurance vs. CA G.R. No. 81026 April 3, 1990

On December 10, 1985, PANMALAY filed a complaint for damages against private respondents Erlinda
Fabie and her driver. PANMALAY averred the following: that it insured a Mitsubishi Colt Lancer car
registered in the name of Canlubang Automotive Resources Corporation [CANLUBANG]; that on May 26,
1985, due to the "carelessness, recklessness, and imprudence" of the unknown driver of a pick-up, the
insured car was hit and suffered damages in the amount of P42,052.00; that PANMALAY defrayed the cost
of repair of the insured car and, therefore, was subrogated to the rights of CANLUBANG against the driver
of the pick-up and his employer, Erlinda Fabie; and that, despite repeated demands, defendants, failed and
refused to pay the claim of PANMALAY. Section III-1 of the insurance policy which refers to the conditions
under which the insurer PANMALAY is liable to indemnify the assured CANLUBANG against damage to or
loss of the insured vehicle, reads as follows: SECTION III LOSS OR DAMAGE 1. The Company will, subject
to the Limits of Liability, indemnify the Insured against loss of or damage to the Scheduled Vehicle and its
accessories and spare parts whilst thereon: (a) by accidental collision or overturning, or collision or
overturning consequent upon mechanical breakdown or consequent upon wear and tear; (b) by fire,
external explosion, self ignition or lightning or burglary, housebreaking or theft; (c) by malicious act; (d)
whilst in transit (including the processes of loading and unloading) incidental to such transit by road, rail,
inland, waterway, lift or elevator. xxx xxx xxx

Issue:
Whether or not the insurer PANMALAY may institute an action to recover the amount it had paid its
assured in settlement of an insurance claim against private respondents as the parties allegedly responsible
for the damage caused to the insured vehicle.

Rulings: Yes. It is a basic rule in the interpretation of contracts that the terms of a contract are to be
construed according to the sense and meaning of the terms which the parties thereto have used. In the case
of property insurance policies, the evident intention of the contracting parties, i.e., the insurer and the
assured, determine the import of the various terms and provisions embodied in the policy. It is only when
the terms of the policy are ambiguous, equivocal or uncertain, such that the parties themselves disagree
about the meaning of particular provisions, that the courts will intervene. In such an event, the policy will
be construed by the courts liberally in favor of the assured and strictly against the insurer. PANMALAY
contends that the coverage of insured risks under the above section, specifically Section IIIÂ-1(a), is
comprehensive enough to include damage to the insured vehicle arising from collision or overturning due
to the fault or negligence of a third party. CANLUBANG is apparently of the same understanding. It cannot
be said that the meaning given by PANMALAY and CANLUBANG to the phrase "by accidental collision or
overturning" found in the first paint of sub-paragraph (a) is untenable. Although the terms "accident" or
"accidental" as used in insurance contracts have not acquired a technical meaning, the Court has on several
occasions defined these terms to mean that which 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" Certainly, it cannot be inferred from jurisprudence that these terms, without qualification,
exclude events resulting in damage or loss due to the fault, recklessness or negligence of third parties. The
concept "accident" is not necessarily synonymous with the concept of "no fault". It may be utilized simply
to distinguish intentional or malicious acts from negligent or careless acts of man. The Court, furthermore.
finds it noteworthy that the meaning advanced by PANMALAY regarding the coverage of Section IIIÂ-1(a)
of the policy is undeniably more beneficial to CANLUBANG than that insisted upon by respondents herein.
By arguing that this section covers losses or damages due not only to malicious, but also to negligent acts
of third parties, PANMALAY in effect advocates for a more comprehensive coverage of insured risks. And
this, in the final analysis, is more in keeping with the rationale behind the various rules on the interpretation
of insurance contracts favoring the assured or beneficiary so as to effect the dominant purpose of indemnity
or payment Having thus shown from the above discussion that PANMALAY has a cause of action against
third parties whose negligence may have caused damage to CANLUBANG's car, the Court holds that there
is no legal obstacle to the filing by PANMALAY of a complaint for damages against private respondents as
the third parties allegedly responsible for the damage.

Malayan Insurance Corp vs CA G.R. 119599 March 20, 1997

J. Romero

Facts:

TKC Marketing imported 3,000 metric tons of soya from Brazil to Manila. It was insured by Malayan at the
value of almost 20 million pesos. The vessel, however, was stranded on South Africa because of a lawsuit
regarding the possession of the soya. TKC consulted Malayan on recovery of the amount, but the latter
claimed that it wasn’t covered by the policy. The soya was sold in Africa for Php 10 million, but TKC wanted
Malayan to shoulder the remaining value of 10 million as well.

Petitioner filed suit due to Malayan’s reticence to pay. Malayan claimed that arrest by civil authorities wasn’t
covered by the policy. The trial court ruled in TKC’s favor with damages to boot. The appellate court
affirmed the decision under the reason that clause 12 of the policy regarding an excepted risk due to arrest
by civil authorities was deleted by Section 1.1 of the Institute War Clauses which covered ordinary arrests
by civil authorities. Failure of the cargo to arrive was also covered by the Theft, Pilferage, and Non-delivery
Clause of the contract. Hence this petition.
Issues:

1. WON the arrest of the vessel was a risk covered under the subject insurance policies.

2. WON the insurance policies must strictly construed against the insurer.

Held: Yes. Yes. Petition dismissed.

Ratio:

1. Section 12 or the "Free from Capture & Seizure Clause" states: "Warranted free of capture, seizure, arrest,
restraint or detainment, and the consequences thereof or of any attempt thereat… Should Clause 12 be
deleted, the relevant current institute war clauses shall be deemed to form part of this insurance.”

This was really replaced by the subsection 1.1 of section 1 of Institute War Clauses (Cargo) which included
“the risks excluded from the standard form of English Marine Policy by the clause warranted free of capture,
seizure, arrest, restraint or detainment, and the consequences thereof of hostilities or warlike operations,
whether there be a declaration of war or not.”

The petitioner’s claim that the Institute War Clauses can be operative in case of hostilities or warlike
operations on account of its heading "Institute War Clauses" is not tenable. It reiterated the CA’s stand that
“its interpretation in recent years to include seizure or detention by civil authorities seems consistent with
the general purposes of the clause.” This interpretation was regardless of the fact whether the arrest was in
war or by civil authorities.

The petitioner was said to have confused the Institute War clauses and the F.C.S. in English law.

“It stated that "the F.C. & S. Clause was "originally incorporated in insurance policies to eliminate the risks
of warlike operations". It also averred that the F.C. & S. Clause applies even if there be no war or warlike
operations. In the same vein, it contended that subsection 1.1 of Section 1 of the Institute War Clauses
(Cargo) "pertained exclusively to warlike operations" and yet it also stated that "the deletion of the F.C. &
S. Clause and the consequent incorporation of subsection 1.1 of Section 1 of the Institute War Clauses
(Cargo) was to include "arrest, etc. even if it were not a result of hostilities or warlike operations."

The court found that the insurance agency tried to interpret executive and political acts as those not
including ordinary arrests in the exceptions of the FCS clause , and claims that the War Clauses now
included executive and political acts without including ordinary arrests in the new stipulation.

“A strained interpretation which is unnatural and forced, as to lead to an absurd conclusion or to render
the policy nonsensical, should, by all means, be avoided.”

2. Indemnity and liability insurance policies are construed in accordance with the general rule of resolving
any ambiguity therein in favor of the insured, where the contract or policy is prepared by the insurer. A
contract of insurance, being a contract of adhesion, means that any ambiguity should be resolved against
the insurer.

G.R. No. 116940 June 11, 1997 The Phil. American Gen. Insurance Co., Inc. vs Court of
Appeals and Felman Shipping Lines

Facts:

July 6, 1983 Coca-cola loaded on board MV Asilda, owned and operated by Felman, 7,500 cases of 1-liter
Coca-Cola soft drink bottles to be transported to Zamboanga City to Cebu. The shipment was insured with
Philamgen.
July 7, the vessel sank in Zamboanga del Norte. July 15, cocacola filed a claim with respondent Felman for
recovery of damages. Felman denied thus prompted cocacola to file an insurance claim with Philamgen.
Philamgen later on claimed its right of subrogation against Felman which disclaimed any liability for the
loss.

Philamgen alleged that the sinking and loss were due to the vessel's unseaworthiness, that the vessel was
improperly manned and its officers were grossly negligent. Felman filed a motion to dismiss saying that
there is no right of subrogation in favor of Philamgen was transmitted by the shipper.

RTC dismissed the complaint of Philamgen. CA set aside the dismissal and remanded the case to the lower
court for trial on the merits. Felman filed a petition for certiorari but was denied.

RTC rendered judgment in favor of Felman. it ruled that the vessel was seaworthy when it left the port of
Zamboanga as evidenced by the certificate issued by the Phil. Coast Guard and the ship owner’s surveyor.
Thus, the loss is due to a fortuitous event, in which, no liability should attach unless there is stipulation or
negligence.

On appeal, CA rendered judgment finding the vessel unseaworthy for the cargo for being top-heavy and the
cocacola bottles were also improperly stored on deck. Nonetheless, the CA denied the claim of Philamgen,
saying that Philamgen was not properly subrogated to the rights and interests of the shipper plus the filing
of notice of abandonment had absolved the ship owner from liability under the limited liability rule.

Issues: (a) Whether the vessel was seaworthy, (b) whether limited liability rule should apply and (c)
whether Philamgen was properly subrogated to the rights against Felman.

Ruling:

(a) The vessel was unseaworthy. The proximate cause thru the findings of the Elite Adjusters, Inc., is the
vessel's being top-heavy. Evidence shows that days after the sinking coca-cola bottles were found near the
vicinity of the sinking which would mean that the bottles were in fact stowed on deck which the vessel was
not designed to carry substantial amount of cargo on deck. The inordinate loading of cargo deck resulted in
the decrease of the vessel's metacentric height thus making it unstable.

(b) Art. 587 of the Code of Commerce is not applicable, the agent is liable for the negligent acts of the captain
in the care of the goods. This liability however can be limited through abandonment of the vessel, its
equipment and freightage. Nonetheless, there are exceptions wherein the ship agent could still be held
answerable despite the abandonment, as where the loss or injury was due to the fault of the ship owner and
the captain. The international rule is that the right of abandonment of vessels, as legal limitation of liability,
does not apply to cases where the injury was occasioned by the fault of the ship owner. Felman was
negligent, it cannot therefore escape liability.

(c) Generally, in 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. However, the implied warranty of seaworthiness can be excluded by terms in writing in the policy of
the clearest language. The marine policy issued by Philamgen to cocacola has dispensed that the
"seaworthiness of the vessel as between the assured and the underwriters in hereby admitted."

The result of the admission of seaworthiness by Philamgen may mean two things: (1) the warranty of
seaworthiness is fulfilled and (2) the risk of unseaworthiness is assumed by the insurance company. This
waiver clause would mean that Philamgen has accepted the risk of unseaworthiness, therefore Philamgen
is liable.

On the matter of subrogation, it is provided that;

Art. 2207. If the plaintiff's 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.

Pan Malayan Insurance Corp. vs CA: 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.

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 soft drink bottles is inevitable.

WHEREFORE, the petition is GRANTED. Respondent FELMAN SHIPPING LINES is ordered to pay
petitioner PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC.

FIRE INSURANCE

1.E. M. BACHRACH vs. BRITISH AMERICAN ASSURANCE COMPANYG.R. No. L-5715

December 20, 1910JOHNSON, J.:

FACTS:

1. E. M. Bachrach insured against loss or damage by fire, goods, belonging to its general furniture store,
such as iron and brass bedsteads, toilet tables, chairs, ice boxes, bureaus, washstands, mirrors,and sea-
grass furniture from British American Assurance Company through it's agent.

2. In the policy, Co insurance was allowed which should be declared in the event of loss or claim. Also, such
policy provided Permission granted for the use of gasoline not to exceed 10 gallons for the "Calalac"
automobile, but only whilst contained in the reservoir of the car.

3. Fire broke out. British American Assurance Company denied the claim of Bachrach alleging the ff:

a. That the plaintiff maintained a paint and varnish shop in the said building where the goods which
were insured were stored.

b. That the plaintiff transferred his interest in and to the property covered by the policy to H. W.
Peabody & Co. to secure certain indebtedness due and owing to said company, and also that the plaintiff
had transferred his interest in certain of the goods covered by the said policy to one Macke, to secure certain
obligations assumed by the said Macke for and on behalf of the insured. That the sanction of the said
defendant had not been obtained by the plaintiff, as required by the said policy.

c. That the plaintiff, immediately preceding the outbreak of the alleged fire, willfully placed a
gasoline can containing 10 gallons of gasoline in the upper story of said buildingin close proximity to a
portion of said goods, wares, and merchandise, which can was so placed by the plaintiff as to permit the
gasoline to run on the floor of said second story, and after so placing said gasoline, he, the plaintiff, placed
in close proximity to said escaping gasoline a lighted lamp containing alcohol, thereby greatly increasing
the risk of fire.

4. The lower court ruled in favor of Bachrach making British American Assurance liable.

ISSUE: WoN British American Assurance liable of such claim.

HELD:YES.

RATIO DECIDENDI:-Keeping of inflammable oils on the premises, though prohibited by the policy, does
not void it if such keeping is incidental to the business. It may be added also that there was no provision in
the policy prohibiting the keeping of paints and varnishes upon the premises where the insured property
was stored. If the company intended to rely upon a condition of that character, it ought to have been plainly
expressed in the policy.-Furthermore, upon reading the policy of insurance issued by the defendant to the
plaintiff, it will be noted that there is no provision in said policy prohibiting the plaintiff from placing a
mortgage upon the property insured. It is claimed that the execution of a chattel mortgage on the insured
property violated what is known as the "alienation clause," which is now found in most policies, and which
is expressed in the policies involved in cases 6496 and 6497 by a purchase imposing forfeiture if the interest
in the property pass from the insured. (Cases 6496 and 6497, in which are involved other action against
other insurance companies for the same loss as in the present action.)*alienation clause -forfeiture if the
interest in the property pass from the insured-there is no alienation within the meaning of the insurance
law until the mortgage acquires a right to take possession by default under the terms of the mortgage. No
such right is claimed to have accrued in the case at bar, and the alienation clause is therefore inapplicable.-
This clause has been the subject of a vast number of judicial decisions (13 Am. & Eng. Encyc. of Law, 2d ed.,
pp. 239 et seq.), and it is held by the great weight of authority that the interest in property insured does not
pass by the mere execution of a chattel mortgage and that while a chattel mortgage is a conditional sale,
there is no alienation within the meaning of the insurance law until the mortgage acquires a right to take
possession by default under the terms of the mortgage. No such right is claimed to have accrued in the case
at bar, and the alienation clause is therefore inapplicable.

Ong Guan Can v. The Century Insurance Co. (46 PHIL. 592), December 2, 1924

FACTS PLAINTIFFS-‐
APPELLEES: Ong Guan Can and the Bank of the Philippine Islands DEFENDANT-‐
APPELLANT: The Century Insurance Co., LTD. PONENTE: Villamor, J. The plaintiff owned a
building that was insured against fire by the defendant in the sum of Php 30,000, including the
merchandise therein contained in the sum of Php 15,000. Both the house and merchandise insure
d were burned in February 28, 1923 while the policies issued by the defendant in favor of the pl
aintiff were still in force. The CFI of Iloilo granted the case in favor of the plaintiff that The Ce
ntury Insurance Co. should pay Ong Guan Can the sum of Php 45,000 as the total value of the
insured house and merchandise. The Insurance Company appealed that the judgment be modified
to permit it to rebuild the house and that they be relieved from the payment of the sum in whic
h the building was insured.

ISSUE/S Whether the defendant-‐

appellant can rebuild the house burnt as a sufficient idemnity to the inured for the actual loss su
ffered by him. LAWS Article
1199. A person alternatively bound by different prestations shall completely perform one of them.
The creditor cannot be compelled to receive part of one and part of the other undertaking.
(1131)

HOLDINGS Yes. The defendant may build the house as an alternative prestation, freeing him fr
om the payment of the sum in which the building was insured. This conclusion is in line with
The Civil Code’s Article
1131. Paying the sum in which the building was insured is one of the 2 prestations provid
ed in one of the clauses stipulating the conditions of the policies. Based
on the same Article of the Civil Code, the complete performance of one of them is suffici
ent to extinguish the obligation. While there are several prestations, only one is due.