Malayan Insurance Corp vs CA G.R.

119599 March 20, 1997

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 wasnt 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 Malayans reticence to pay. Malayan claimed that arrest by civil authorities wasnt covered by the policy.
The trial court ruled in TKCs 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 Nondelivery 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 petitioners 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 CAs 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.