Professional Documents
Culture Documents
MARINE INSURANCE
(Title 1, ICP)
The liability of the IR for PA would depend on the terms of the policy. The
o Article 812, Code of Commerce IR may stipulate that it shall not be liable for PA (FPA or fee from PA), in
It places the IR in the same footing as other persons who have which case the stipulation would control and its liability would be limited
an interest in the vessel, or the cargo therein, at the time of the to contribution to GA only under Sec. 136 of the Code.
occurrence of the GA by compelling them to contribute.
Protections to the IR: Limitations to the IR’s liability for Magsaysay, Inc. vs Agan
contribution to the portion attaching to the value of the (how to classify a loss as a general or particular average)
policy
A vessel owned and operated by Magsaysay ran aground while in a port
o Sec. 166-167, ICP for a stopover. Because attempts to refloat the vessel using its own power
Sec. 166: A marine insurer is liable for a loss falling upon the ID, failed, M had it refloated by a stevedoring company at an agreed
through a contribution in respect to the thing insured, required to compensation. At the point of destination, the cargo was delivered to their
be made by him towards a general average loss called for by a respective owners and consignees. However, the shippers refused to
peril insured against; provided, that the liability of the IR shall be contribute to the average.
limited to the proportion of contribution attaching to his policy
value where this is less than the contributing value of the thing M theorized that the expenses in floating the vessel constitute a GA to
insured. which both the ship and the cargo owners should contribute.
Sec. 167: When a person insured by a contract of MI has a demand
against others for contribution, he may claim the whole loss from Agan denies liability alleging that the stranding of the vessel was due to
the IR, subrogating him to his own right to contribution. But no the fault, negligence and lack of skill of its master and, hence, the expenses
such claim can be made upon the IR after the separation of the for refloating the vessel did not constitute a GA.
interests liable to the contribution, nor when the ID, having the
right and opportunity to enforce the contribution from others, has Court: Although the stranding of the vessel was accidental, such expenses
neglected or waived the exercise of that right. fall under PA. The Court used the enumerations under Art. 809 and 811
of the Code of Commerce, and number 2 of Article 809 referring to
Compagnie de Commerce et de Navigation d’ Extreme Orient vs The expenses suffered by the vessel “by reason of an accident of the sea or
Hamburg Amerika Pachetfacht Actien Gesselschaft force majeure”. For GAs to apply, under Art. 811, these should have been
36 Phil 590 (1917) expenses caused in order to refloat a vessel when it was intentionally
stranded for purposes of saving it. Since the requisite procedures for Gas
There was a charter party agreement whereby a vessel was obliged to was not followed, the claim of M cannot be granted.
deliver cargo from Saigon to a port in Hamburg. However, due to the
impending war among European countries, the vessel obtained a bill of Philippine Home Assurance vs CA, 257 SCRA 468 (1996)
health and stayed in Manila. (During those times, a bill of health was
required to ensure that the vessel was not carrying infectious diseases The case involved salvaging of a vessel due to a small flame in the
from the port of origin.) As a result, the cargo deteriorated. The owner of acetylene cylinder that exploded.
the cargo filed an action to recover the full value of the cargo.
Court upheld the rule that the procedure prescribed by Arts 813 and 814
Court did not sustain the claim of the ship owner for GA because under the of the Code of Commerce must be complied with so that expenses and
said rules, it is necessary that the loss or damage was made for the damages may be classified as GA. The Court ruled that due to non-
common safety in order to successfully claim for a general average. compliance with the prescribed procedure, it cannot be a claim for GAs
Authorities, according to the Court, are of the unanimous opinion that and the IR cannot recover from the consignees what it has paid the owner
claims for GA must be supported by proof that the sacrifices were made to of the vessel.
avert a common imminent peril, and that extraordinary expenses, for
which reimbursement is sought, were incurred for the joint benefit of ship 3. RISKS COVERED
and cargo. There was no GA in this case because the act of the master of
the vessel in taking refuge in Manila was solely for the purpose of saving a. Perils of the sea versus
the vessel and not for the common safety of vessel and cargo. b. Perils of the ship
In ascertaining the liability of an IR under a marine policy, a distinction is
b. Particular Average (Article 809, Code of Commerce) often made between “perils of the sea” and “perils of the ship”. Marine
Particular Averages (PAs) include all damages and expenses caused to the policies generally cover only “perils of the sea”.
vessel or to her cargo that have not inured to the common benefit and
profit of all the persons interested in the vessel and her cargo. PA losses Perils of the sea covers only those casualties due to unusual violence or
are usually partial losses. These are the losses which occur under such extraordinary action of wind and wave, or to other extraordinary causes
circumstances which do not entitle the unfortunate owners to receive connected with navigation; it does not include losses resulting from
contribution from the other owners concerned in the same venture. They ordinary wear and tear, or other damage incident to the voyage, which
must be borne by the owner of the vessel alone. These are merely losses would fall under the category of perils of the ship.
suffered by and borne alone by particular interests in a venture, and not
by all persons contributing ratably. La Razon Social “Go Tiaoco y Hermanos” vs Union Insurance Society of
Canton, Ltd.,
Examples: A vessel is accidentally run aground and gets destroyed after 40 Phil 40 (1919)
the cargo is saved; wages of the crew when the vessel is detained by Concept of perils of the sea
reason of force majeure
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Under the marine policy issued by the IR, the cargo was insured against
“Perils . . . of the seas, men of war, fire, enemies, pirates, rovers, thieves, The owner of the vessel (VO) always has an II in it. However, in the event
jettisons, letters of mart and countermart, surprisals, takings at sea, arrests, the vessel has been chartered, and the charterer contracts to pay him its
restraints, and detainments, of all kings, princes, and people, of what nation, value in case of loss, the IR is liable only for the part of the loss that cannot
condition, or quality soever, barratry of the master and mariners, and of all be recovered from the charterer.
other perils, losses, and misfortunes that have or shall come to the hurt,
detriment, or damage of the said goods and merchandise or any part Where the ship is hypothecated by bottomry, that is when the owner
thereof.” secures a loan against his interest in the vessel and is payable only when
the vessel has completed its voyage, the II is only the value of the ship not
It was found that the cause of the damage of the vessel was a defect in one secured by bottomry.
of the drain pipes of the ship. SC characterized the loss occasioned by the
inflow of sea water into the ship’s hold through the defective pipe as a b. Freightage (Secs. 104, 105 ICP)
“peril of the ship”. This was because the defect causing the damage was Signifies all the benefits derived by the owner either from (1) the
not due to any accident but to failure of the ship owner to properly repair chartering of the ship; or (2) its employment for the carriage of his own
a defect of which he was apprised. The loss was, thus, due to simple goods or those of others.
unseaworthiness. Moreover, the defect was due to ordinary wear and
tear. Therefore, it was not caused by a “peril of the sea”. The ship owner also has an II in expected freightage, which he would have
earned in the ordinary and probable course of things if it were not for the
Roque vs IAC, 139 SCRA 596 (1985) happening of the peril insured against or other peril incident to the
voyage.
Reiteration: In marine cases, the risks insured against are “perils of the
Code lists instances where there are special rules for the commencement
sea”. These cover only losses that are of an extraordinary nature, or arise
of existence of the interest. In the specific case of a charter party, the II in
from some overwhelming power, which cannot be guarded against by the
expected freightage exists only when the ship has broken ground on the
ordinary exertion of human skill and prudence. Any damage attributable
chartered voyage. In the instance where a price is to be paid for the
to the inherent vice of the vessel or to the act of the owners, masters or
carriage of the goods, the interest exists when (1) the goods are actually
shippers, shall not be considered a peril, unless the policy provides
on board, or there is some contract for putting them on board, and (2)
otherwise.
both the ship and goods are ready for the specified voyage.
The Court absolved the IR because the vessel sank on account of “perils of
c. Charterer (Sec. 108, ICP)
the ship”. At the time of the misfortune, there was no typhoon but
The charterer of a ship has an insurable interest in the vessel to the extent
ordinary strong wind and waves, a condition which is natural and normal
that he is liable to be damnified by its loss.
in the open sea. The sinking of the vessel was found to be due to the
A charter party is a contract by which an entire ship or some principal part
improper loading of the cargo logs such that the barge tilted to one side,
thereof is let by the owner to another owner person for a specified time or
hence, could not be navigated or even keeled. This ultimately led to the
use. The ship owner and the charterer could stipulate that the latter pay
sinking of the vessel, due to the unseaworthiness of the vessel and the
for the value of the vessel in case of loss, the charterer, then has II over the
negligence of the crew.
extent of its value. The charterer also has II in the profits he expects to earn
by carrying the goods in excess of the amount he agreed to pay for the
Cathay vs CA, 151 SCRA 710 (1987)
charter of the vessel.
The type of charter parties becomes controversial in determining the Material information includes the information of the belief or expectation
liability of the ship owner. of a third person regarding a material fact. (Sec. 110)
can be cited to rule against the liability of the IR because the ship was show such nationality or neutrality and that it will not carry any document
deemed to be unseaworthy with respect to the cargo.) which casts reasonable suspicion thereon.
Roque v IAC, 139 SCRA 596: There is an implied warranty of
seaworthiness upon the ship or upon any thing which is the subject 7. KINDS OF LOSSES COVERED
of MI following the clear provision of Sec. 115 of the Code. Here, the
owner of the cargo sought indemnity from the IR, claiming that as The liability of the IR in MI is determined by the terms of the contract.
mere owner of the cargo, she had no control over the vessel and, However, there are principles unique to MI which must be considered.
therefore, the warranty of seaworthiness does not apply to her. The Among these are the concepts of total and partial loss.
Court rejected this argument and explained how the warranty
attaches, in this wise: a. ACTUAL TOTAL LOSS
▪ “x x x there can be mistaking the fact that the term ‘cargo’ can (Sec. 132, ICP); Presumption of Actual Total Loss
be subject of MI and that once it is so made, the implied Total loss may either be actual or constructive total loss. (Sec. 131)
warranty immediately attaches to whoever is insuring the In actual total loss, an insured event makes it impossible for the subject to
cargo whether he be the shipowner or not xxx” reach its destination in specie. Total loss is when the things insured are
Since the law provides for an implied warranty of wholly lost or destroyed or when they are so greatly damaged as to be
seaworthiness in every contract of ordinary MI, it becomes the worthless.
obligation of the cargo owner to look for a reliable common
carrier which keeps its vessels in seaworthy condition. The Sec. 132 provides for the causes of actual total loss:
shipper of the cargo may have no control over the vessel but he 1. A total destruction of the thing insured
has full control in the choice of the common carrier that will 2. The irretrievable loss of the thing by sinking, or by being
transport his goods. broken up
3. Any damage to the thing which renders it valueless to the
IMPLIED WARRANTY AGAINST IMPROPER DEVIATION owner for the purpose for which he held it
4. Any other event which effectively deprives the owner of
What is voyage insured? the possession, at the port of destination, of the thing
In MI policies, the voyage insured is described by naming the ports of insured
departure and of destination, and the voyage insured would depend on Illustrations:
whether the course of sailing is fixed by mercantile usage. If it is so fixed, Where a vessel sinks deep in sea and can no longer be refloated,
the voyage insured is one which conforms to the course of sailing fixed by Or when it gets burned or reefed
mercantile usage between the ports of departure and destination named; Or is wholly broken to pieces
If the course of sailing is not fixed by mercantile usage, the voyage insured Where the ship has gotten so injured that it no longer exists as a
is that way between the places specified, which to a master of ordinary ship, but is a mere confused mass of material
skill and discretion, would mean the most natural, direct and Such destruction may equally apply to goods covered by MI
advantageous.
If the voyage insured is not followed, there is a deviation. Malayan Insurance Corp. vs CA
Deviation may occur in any of 3 ways: 201 SCRA 382 (1991)
1. A departure from the course of the voyage insured, as
expressed in the policy The insured cargo consisted of rice seeds, which was prone to the risks of
2. An unreasonable delay in pursuing the voyage, or germination and spoilage. The barge sank after the carrier deviated from
3. The commencement of an entirely different voyage its route. The ID was notified that only 78% of the cargo was destroyed.
A deviation may either be proper or improper. The IR refused recovery, so the question of total loss was made the issue.
Sec. 126: a deviation is proper under the following SC sided with the ID and held that there was an actual total loss. The rice
circumstances: (IR not exonerated, ID is excused) seeds were treated and would germinate upon mere contact with water.
1. When caused by circumstances over which neither the The Court explained that there is an actual total loss where the cargo no
master nor the owner of the ship has any control longer remains the same kind of thing it was before because of
2. When necessary to comply with a warranty, or to avoid a decomposition or other chemical agency. It was emphasized that the
peril, whether or not the peril is insured against complete physical destruction of the subject matter is not essential to
3. When made in good faith, and upon reasonable grounds constitute a total loss. There may be such a loss where the form and specie
of belief in its necessity to avoid a peril, or of the thing is destroyed, although the materials constituting it still exist.
4. When made in good faith, for the purposes of saving
human life or relieving another vessel in distress.
Philippine Manufacturing Co. vs Union Insurance Society of Canton, Ltd.,
Every deviation which does not fall within the above
42 Phil 378 (1921)
enumeration is considered improper deviation. (Sec. 127)
Improper deviation exonerates the IR because the ID, in effect,
An insurance company insured a steel tank under a policy which
novated the contract without the consent of the IR. In effect, it
stipulates “warranted against the absolute loss of the lighter only”. During
has put additional risks that affected the seaworthiness of the
the life of the policy and as a result of a typhoon, the lighter was sunk in
vessel.
Manila Bay. The IR denied liability on the ground that there was no
absolute total loss as, upon its instruction, the ID was able to raise the
IMPLIED WARRANTY OF PROPER DOCUMENTATION
vessel and reconstruct it, although the cost of the salvage and repairs were
substantially equal to the original cost of the lighter and its value as
Sec. 122: where the nationality or neutrality of a ship or cargo is expressly stipulated in the policy. SC ruled that there was an actual total loss for
warranty, it is implied that the ship will carry the requisite documents to
which the IR is liable on the basis of then Sec. 123 (c) of Act. 2427. The
provision states that there is an actual total loss where there exists any
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damage to the thing which renders it valueless to the owner for the requirement for a CTL. Since the cost of the loss did not exceed 75% of the
purpose for which he held it. value of all the insured logs, the shipment cannot be said to have sustained
a CTL. Absent a total loss, there can be no recovery against the IR.
The Court observed that at the time the lighter was sunk and in the bottom
of the bay under the conditions then and there existing, it was of no value ALL-RISK MI POLICIES, ADDITIONAL EXCEPTION
to the owner, and, hence, an actual total loss according to the then The “Inherent Vice” Clause – the deterioration of the insured
provision. property attributable to ordinary wear and tear is excluded from
the coverage of the insurance
In English practice, a vessel is a total loss when it has sustained such • But there can be recovery when the natural deterioration is caused
extensive damage which renders it reasonably impractical to repair it. or hastened by a “peril of the sea”
Presumption of Actual Total Loss – when there is continued absence of a
ship without being heard of. The length of time before the presumption Choa Tiek Seng vs CA
arises would depend on the circumstances of the case. (Sec. 134) 183 SCRA 223 (1990)
b. CONSTRUCTIVE TOTAL LOSS Lactose crystals imported from Holland were insured under an “all risks”
In constructive total loss, it would be possible for the property to reach the clause that read as:
destination in specie but the cost of doing so is greater than the value of “The insurance is against all risks of loss or damage to
the subject. the subject matter insured but shall in no case be
deemed to extend to cover loss, damage, or expense
Such loss which gives to a person a right to abandon under Sec. 141. proximately caused by delay or inherent vice or
The difference between actual and constructive loss is that in the latter, nature of the subject matter insured. Claims
recoverable hereunder shall be payable irrespective of
there is a need for proper abandonment before the IR can claim total loss;
percentage.”
whereas in the former, the ID has a right to claim payment even without
notice of abandonment. (Sec. 137)
The lactose crystals, upon arrival at the port of Manila, were discharged
into the custody of the arrastre operator, prior to delivery to the
The requirements of abandonment under Sec. 141 must be complied with
consignee. 403 out of the 600 bags were found to be in bad order,
to recover under a policy for constructive total loss. Non-compliance is
prompting the cargo owner to file a claim for loss. The IR refused to pay
fatal to recovery.
and filed a third-party complaint against the arrastre operator. The
appellate court dismissed the complaint holding that the “all risks”
Oriental Assurance Corp. vs CA
coverage embraces only losses occasioned by and resulting from “extra
200 SCRA 459 (1991)
and fortuitous events”. It held that an “all-risk” coverage has a technical
meaning in MI, which necessitates the occurrence of a fortuitous event in
Panama Sawmill hired a carrier to transport 1,208 of apitong logs. The order to impose liability on the IR.
shipment was insured for “Total Loss Only”. The logs were loaded on 2
barges and these barges were towed by one tugboat. During the voyage, SC: overturned this ruling, citing the case of Gloren. It was ruled in that
rough seas and strong winds caused damage to one of the barges resulting case that “an all-risk insurance policy insures against all causes of
in the loss of 497 pieces of logs out of the 598 pieces loaded thereon. The conceivable loss or damage, except as otherwise excluded in the policy or
IR refused to pay on the ground that its contracted liability was for “Total due to the fraud or intentional misconduct on the part of the ID.” Applying
Loss Only”. this, the clear terms of the “all risks” clause in the policy require no
interpretation. There are only two excluded risks according to the clause
Issue: whether the IR could be held liable on the policy based on the and it is the IR’s duty to establish that the loss falls within those exceptions
theory of a divisible contract of insurance and, consequently, a provided for by law or the contract. Failing in this, the claim for recovery
constructive total loss. was sustained.
SC: No liability attaches to the IR under the policy. The Court maintained *It is sufficient to show that the damage was occasioned by some
that the terms of the contract are the measure of the IR’s liability and accidental cause of any kind and there is no necessity to point to any
compliance therewith is a condition precedent to the IR’s liability. particular cause.
Whether a contract is entire or severable is a question of intention to be
determined by the language employed by the parties. The Court found c. ABANDONMENT (SEC. 140-153, ICP)
that the contract was indivisible. It took into consideration several factors
such as the fact that the logs on the two barges were not separately valued
or separately insured and that only one premium was paid for the entire Sec 140: The act of the ID in which, after a constructive total loss, he
shipment so there was only one cause / consideration. declares the relinguishment to the IR of his interest in the thing
insured (definition of abandonment)
The right to abandonment belongs to the ID and arises only in cases
Here, when it was argued to be a case of constructive total loss, the Court
of CTL. However, there must be a showing of due regard to the IR’s
declared that there was no such loss because the requirements for the
interest in the abandoned property, or to anything which may
application of Sec. 141 and then Sec. 139 of the Insurance Code of 1978 for
remain of the insured property. The IR, by prompt action, might be
the determination of CTL have not been made. Said section requires that
able to save part of the insured property and it is in his interest in this
more than three-fourths of the value of the shipment is actually lost before
which makes it necessary for the ID to give timely notice to the IR
there can be a right to abandon, resulting in the CTL asserted. about his intent to abandon.
Sec. 143: An abandonment must be made within a reasonable time
In light of the fact that the logs have been insured as one inseparable unit, after receipt of reliable information of the loss, but where the
both barges must also be treated as an inseparable unit for the 75%
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The effects of abandonment may still obtain even in c. PARTIAL LOSS (SEC. 159, ICP)
the absence of a formal abandonment (exception to general The simplest way of computing for the value of recovery in a MI policy is
rule). This is sanctioned by Sec. 149 which provides that if a to find the percentage or fraction of loss and multiply the value of the
marine insurer pays for a loss as if it were an actual loss, he is policy by this amount. The fraction of loss is calculated by comparing the
entitled to whatever may remain of the thing insured, or its value of the insured property would have had at the port of destination if
proceeds or salvage, as if there had been a formal it were undamaged as against its value now that it is damaged. The IR is
abandonment. liable only for the proportionate amount of the insurance taken. The
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extent of the liability is only as to the value of the loss as against the value Eastern Shipping Lines, Inc. (ESLI) vs BPI/MS Insurance Corp.,
of the whole insurable interest in the insured property. (Sec. 159) and Mitsui Sumitomo Insurance Co., Ltd., GR#182864 (Jan. 12, 2015)
Illustration:
If the subject is valued at P100,000, which is also the II of the ID, if an
insurance taken is P100,000 and the partial loss amounted to only
P20,000, the IR is only liable for P20,000. The IR is only liable to pay 20%
of the value of the insurance taken.
If the insurance taken is less than the value of the II, the ID is deemed by
law to be a co-insurer of the IR. In fact, MI is said to be customarily co-
insurance unless the policy value is greater than the value of the insured
property. This is because if the loss does not cover the entire value of the
thing, the ID only receives from the IR the proportion of the insurance
corresponding to the percentage of the loss.
Illustration:
Same facts mentioned above. Except that now, the value of the insurance
taken is P60,000 instead of P100,000. Following the same loss percentage
above, the insured will only get 20% of the P60,000 which is P12,000
because there was only a 20% loss. As a result, the ID will therefore bear
the value of the loss which the IR is not liable to pay, which is the difference
between the total value of the loss and what he will recover. Thus, P8,000
of the loss of P20,000 will be shouldered by the ID.
Where there is partial loss of the ship or its equipment, the old materials
are to be deducted from the payment for the new ones. A marine insurer
is liable for only two-thirds of the remaining cost of repairs after such
deduction, unless the policy stipulates to the contrary, but anchors must
be paid in full. (Sec. 168)
Sec. 165: The liability of the IR includes expenses incurred when the ship
is forced into port for repairs because of a loss. Also, where the policy
stipulated that the ID must try to recover the property, the IR is liable for
the expenses incurred in such recovery. These expenses in both cases can
be added to the value of the total loss if it occurs afterwards.
Sec. 166: The IR is liable for any general average loss where it is payable
or has been paid by the ID if there has been loss or damage from a peril
insured against. The liability of the IR shall be limited to the proportion of
the contribution attaching to his policy value where there is less than the
contributing value of the thing insured.
REVELANT CASES:
Filipino Merchants Insurance vs CA, 179 SCRA 638 (1989)
Caltex (Phils) Inc. vs Sulpicio Lines, 315 SCRA 709 (1999)
Delsan Transport vs CA, 369 SCRA 24 (2001)
Cebu Salvage vs Phil. Home Assurance, 512 SCRA 667 (2007)
Keppel Cebu Shipyard vs Pioneer Insurance and Surety Corp., 601 SCRA
96; GR#s 180880-81 and 180896-97, Sept. 18, 2012