INSURANCE FINALS

WEEK 5

ISABELA ROQUE and ONG CHIONG vs INTERMEDIATE APPELATE COURT and PIONEER
INSURANCE AND SURETY CORPORATION

FACTS:

Manila Bay Lighterage Corporation entered into a contract with the petitioners whereby the
former would load and carry on board its barge from Malampaya Sound, Palawan to North Harbor,
Manila. The petitioners insured the logs against loss for P 100,000.00 with respondent Pioneer
Insurance and Surety Corporation. On February 29, 1972, the petitioners loaded on the barge 811
pieces of logs at Malampaya Sound, Palawan for carriage and delivery to North Harbor, Port of Manila.
Unfortunately, the shipment never reached its destination because the barge sank with the 811 pieces
of logs somewhere in Palawan on its way to Manila.

Petitioners wrote a letter to Manila Bay demanding payment of P 150,000.00 for the loss of the
shipment plus P 100,000.00 as unrealized profits but the latter ignored the demand. Another letter was
sent to respondent Pioneer claiming the full amount of P 100,000.00 under the insurance policy but
respondent refused to pay on the ground that its liability depended upon the Total loss by Total Loss of
Vessel only. Hence, petitioners commenced a suit against Manila Bay and respondent Pioneer. After
hearing, the trial court found in favor of the petitioners. IAC modified the trial court's decision and
absolved Pioneer from liability after finding that there was a breach of implied warranty of
seaworthiness on the part of Roque and Ong and that the loss of the insured cargo was caused by the
perils of the ship and not by the perils of the sea. It ruled that the loss is not covered by the marine
insurance policy. After the appellate court denied their motion for reconsideration, Roque and Ong filed
this petition for certiorari.

ISSUES:

a) Whether or not there is a warranty of seaworthiness by the cargo owner in cases of marine
cargo insurance
b) Whether or not the loss of the cargo was due to the perils of the ship

RULING:

a) YES. Section 113 of the Insurance Code provides that in a marine insurance upon a ship or
freight, or freightage, or upon anything which is the subject of marine insurance, a warranty is
implied that the ship is seaworthy. 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. The cargo owner may
also 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.

b) YES. The Supreme Court held that the loss of the cargo was due to the perils of the ship rather
than the perils of the sea in the case at bar. 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. It must be deemed 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.

LA RAZON SOCIAL GO TIAOCO Y HERMANOS vs UNION INSURANCE SOCIETY OF CANTON

FACTS:

A cargo of rice belonging to the Go Tiaoco Brothers was transported in the May 1915 on the
steamship Hondagua from the port of Saigon to Cebu. On discharging the rice from one of the
compartments in the after hold, upon arrival at Cebu, it was discovered that 1,473 sacks had been
damaged by sea water. The cost of the loss amounted to P3,875. The policy of insurance, covering the
shipment, was signed upon a form long in use among companies engaged in maritime insurance. It
purports to insure the cargo from the following among other risks: "Perils . . . of the seas, men, of war,
fire, enemies, pirates, rovers, thieves, barratry of the master and mariners, and of all other perils,
losses, and misfortunes that have or shall come to the hurt, detriment, or damage of the said goods and
merchandise or any part thereof.

It was found out that the drain pipe which served as a discharge from the water closet passed
down through the compartment where the rice in question was stowed and thence out to sea through
the wall of the compartment, which was a part of the wall of the ship. The joint or elbow where the pipe
changed its direction was of cast iron; and in course of time it had become corroded and abraded until
a longitudinal opening had appeared in the pipe about one inch in length. This hole had been in
existence before the voyage was begun, and an attempt had been made to repair it by filling with
cement and bolting over it a strip of iron. The effect of loading the boat was to submerge the orifice of
the pipe until it was about two 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 sea water 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: Whether or not the Union Insurance is liable for the damage done to the cargo

RULING:

NO. A marine insurer upon a policy in the usual form is not liable for 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. A policy of insurance upon a cargo of
rice stipulated that the insurer should be liable for losses incident to the perils of the sea "and all other
perils, losses, and misfortunes that have (or shall) come to the hurt, detriment or damage of the said
goods." During the voyage sea water entered the compartment where the cargo was stored through a
defective drain pipe, and damaged the rice. The defect in the pipe was the result of the ordinary use of
the ship, so far as appeared in the proof, and its existence had been known to the ship’s owner prior to
the inception of the voyage, repairs having been made upon the pipe in a slovenly manner. The
Supreme Court thus held that the insurer was not liable for the damage thus done to the cargo.

General terms following an enumeration of the particular risks assumed by the insurer in a
contract of marine insurance are interpreted as referring to risks of like character (ejusdem generis) as
those particularly mentioned, and not as extending the liability of the insurer to risks incident to defects
in the equipment of the ship. The Supreme Court further stressed that in every contract of insurance
upon anything which is the subject of marine insurance, a warranty on the part of the insured is implied
to the effect that the ship is (or was) seaworthy at the time of the inception of the voyage; and this
means that the ship must be adequately equipped to carry the cargo which is the subject of insurance.

CHOA TIEK SENG vs COURT OF APPEALS et al

FACTS:

On November 4, 1976 petitioner imported some lactose crystals from Holland. The goods were
loaded on board the vessel MS Benalder as the mother vessel, and thereafter aboard the feeder vessel
Wesser Broker V-25 of respondent Ben Lines Container, Ltd. The goods were insured by the
respondent Filipino Merchants’ Insurance Co., Inc. 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 respondent E. Razon, Inc., prior to the delivery to petitioner through his broker. Of the
600 bags delivered to petitioner, 403 were in bad order. The surveys showed that the bad order bags
suffered spillage and loss. Petitioner filed a claim for said loss against respondent insurance company.

However, respondent insurance company rejected the claim alleging that assuming that spillage
took place while the goods were in transit, petitioner and his agent failed to avert or minimize the loss
by failing to recover spillage from the sea van, thus violating the terms of the insurance policy sued
upon; and that assuming that the spillage did not occur while the cargo was in transit, the said 400 bags
were loaded in bad order, and that in any case, the van did not carry any evidence of spillage.

Hence, petitioner filed the complaint in the Regional Trial Court of Manila against respondent
insurance company. In its answer, respondent insurance company denied all the material allegations of
the complaint and raised several special defenses as well as a compulsory counterclaim. Respondent
insurance company filed a third-party complaint against respondents Ben Lines and broker.
Respondent broker filed its answer to the third-party complaint denying liability and arguing, among
others, that the petitioner has no valid cause of action against it. Similarly, Ben Lines filed its answer
denying any liability and a special defense arguing that respondent insurance company was not the
proper party in interest and has no connection whatsoever with Ben Lines Containers, Ltd. and that the
third-party complaint has prescribed under the applicable provisions of the Carriage of Goods by Sea
Act. RTC rendered a judgment dismissing the complaint, the counterclaim and the third-party complaint
with costs against the petitioner. The CA affirmed the trial court’s decision. Petitioner now filed this
petition for review on certiorari.

ISSUE: Whether or not Choa Tiek Seng can recover from the insurance company

RULING:

YES. In Gloren Inc. v. Filipinas Cia. de Seguros, it was held that an all risk insurance policy
insures against all causes of conceivable loss or damage, except as otherwise excluded in the policy or
due to fraud or intentional misconduct on the part of the insured. It covers all losses during the voyage
whether arising from a marine peril or not, including pilferage losses during the war. In the present
case, the all risks clause of the policy sued upon reads as follows: This insurance is against all risks of
loss or damage to the subject matter insured but shall in no case be deemed to extend to cover loss,
damage, or expense proximately caused by delay or inherent vice or nature of the subject matter
insured. Claims recoverable hereunder shall be payable irrespective of percentage. The terms of the
policy are so clear and require no interpretation. The insurance policy covers all loss or damage to the
cargo except those caused by delay or inherent vice 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 to risks not usually contemplated and avoids putting upon the insured the burden of
establishing that the loss was due to peril falling within the policy’s coverage. The insurer can avoid
coverage upon demonstrating 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
nor is there any pretension to this effect. Thus, the liability of respondent insurance company is clear.

FILIPINO MERCHANTS INSURANCE CO., INC., vs COURT OF APPEALS and CHOA TIEK SENG

FACTS:

Seng insured said shipment with insurance company herein under said cargo Policy No. M-
2678 for the 600 metric tons of fishmeal in new gunny bags of 90 kilos each from Bangkok, Thailand to
Manila against all risks under warehouse to warehouse terms. The fishmeal in 666 new gunny bags
were unloaded from the ship at Manila unto the arrastre contractor E. Razon, Inc. and defendant’s
surveyor ascertained and certified that in such discharge 105 bags were in bad order condition as
jointly surveyed by the ship’s agent and the arrastre contractor. The condition of the bad order was
reflected in the turn over survey report of Bad Order. The cargo was also surveyed by the arrastre
contractor before delivery of the cargo to the consignee and the condition of the cargo on such delivery
was reflected in E. Razon’s Bad Order Certificates covering a total of 227 bags in bad order condition.

The company’s surveyor has conducted a final and detailed survey of the cargo in the
warehouse and reported that the extent of shortage or loss on the bad order bags totaling to 227 bags.
Based on said computation, Seng made a formal claim against the Filipino Merchants Insurance
Company but said company refused to pay the claim. Consequently, the plaintiff brought an action
against said defendant while the company presented a third party complaint against the vessel and the
arrastre contractor. The trial court rendered judgment in favor of private respondent. On appeal, the
respondent court affirmed the decision of the lower court insofar as the award on the complaint is
concerned and modified the same with regard to the adjudication of the third-party complaint.

ISSUES:
 A. Whether or not an all risks marine policy has a technical meaning in insurance
B. Whether or not the failure of Choa Tiek Seng 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
C. Whether or not the consignee Choa Tiek Seng has an insurable interest in said goods
D. Whether or not the insurer is liable under the policy

RULING:

A. NO. 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.

B. NO. Generally, the burden of proof is upon the insured to show that a loss arose from a covered
peril, but under an all risks policy the burden is not on the insured to prove the precise cause of
loss or damage for which it seeks compensation. The insured under an all risks insurance policy
has the initial burden of proving that the cargo was in good condition when the policy attached
and that the cargo was damaged when unloaded from the vessel; thereafter, the burden then
shifts to the insurer to show the exception to the coverage. As we held in Paris-Manila
Perfumery Co. v. Phoenix Assurance Co., Ltd., the basic rule is that the insurance company has
the burden of proving that the loss is caused by the risks excepted and for want of such proof,
the company is liable.

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.

C. YES. 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 indemnify the insured. In principle, anyone who
has an insurable interest in property 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) expectancy coupled with an existing interest in
that out of which the expectancy arises. Herein private respondent, 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.

D. YES. There is no evidence presented to show that the condition of the gunny bags in which the
fishmeal was packed was such that they could not hold their contents in the course of the
necessary transit, much less any evidence that the bags of cargo had burst as the result of the
weakness of the bags themselves. Had there been such a showing that spillage would have
been a certainty, there may have been good reason to plead that there was no risk covered by
the policy. Under an all risks policy, it was sufficient to show that there was damage occasioned
by some accidental cause of any kind, and there is no necessity to point to any particular cause.
Thus, 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.

CALTEX (PHILIPPINES), INC., vs SULPICIO LINES, INC.,

FACTS:

On December 19, 1987, motor tanker MT Vector left Bataan enroute to Masbate loaded with
8,800 barrels of petroleum products shipped by petitioner Caltex. A day later, at about 6:30 a.m., 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. At about 10:30 p.m. of December 20, 1987, 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 survivor crew members from MT Vector claimed that they were
sleeping at the time of the incident. 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 and his daughter Corazon Cañezal both non-manifested passengers
but proved to be on board the vessel.

The Board of Marine Inquiry 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. On February 13, 1989, Teresita Cañezal et al filed with the Regional
Trial Court, of Manila, a complaint for Damages Arising from Breach of Contract of Carriage against
Sulpicio Lines, Inc. 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.

RTC dismissed the third party complaint against petitioner. On appeal to the Court of Appeals
interposed by Sulpicio Lines, Inc., the Court of Appeal modified the trial court's ruling and included
petitioner Caltex as one of those liable for damages.

ISSUE:

Whether or not the charterer of a sea vessel (Caltex) liable for damages resulting from a collision
between the chartered vessel (MV Vector) and a passenger ship (MV Doña Paz)

RULING:

NO. The Supreme Court held that a 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, 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. In the
same vein, one 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. 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. All things considered, the Supreme
Court found no legal basis to hold Caltex liable for damages.

SAN MIGUEL CORPORATION vs HEIRS OF SABINIANO INGUITO and JULIUS OUANO

FACTS:

San Miguel Corporation entered into a Time Charter Party Agreement with Julius Ouano. Under
the terms of the agreement, SMC chartered the M/V Doña Roberta owned by Julius Ouano for a period
of two years for the purpose of transporting SMC's beverage products from its Mandaue City plant to
various points in Visayas and Mindanao. On November 11, 1990, during the term of the charter, SMC
issued sailing orders to the Master of the MN Doña Roberta, Captain Sabiniano Inguito In accordance
with the sailing orders; Captain Inguito obtained the necessary sailing clearance from the Philippine
Coast Guard.
 M/V Doña Roberta departed from Mandaue City,and while it was abeam Cawit Island, SMC
Radio Operator Rogelio P. Moreno contacted Captain Inguito through the radio and advised him to take
shelter from typhoon Ruping. Captain Inguito replied that they will proceed since the typhoon was far
away from them, and that the winds were in their favor. Moreno reiterated the advice and pointed out
that it will be difficult to take shelter after passing Balicasag Island because they were approaching an
open sea. However, the captain still refused to heed his advice. At 2:30 a.m. of November 13, 1990, the
M/V Doña Roberta sank. Out of the 25 officers and crew on board the vessel, only five survived.

The heirs of the deceased captain and crew, as well as the survivors of the ill-fated M/V Doña
Roberta filed a complaint for tort against San Miguel Corporation and Julius Ouano before the RTC of
Lapu-Lapu City. Julius Ouano thereafter filed an answer with cross-claim, alleging that the proximate
cause of the loss of the vessel and 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 the sailing order for its
departure despite being forewarned of the impending typhoon. In its answer to the complaint and
answer to the cross-claim, SMC countered that it was Ouano who had the control, supervision and
responsibilities over the navigation of the vessel. This notwithstanding, and despite his knowledge of
the incoming typhoon, Ouano never bothered to initiate contact with his vessel. Contrary to his
allegation, SMC argued that the proximate cause of the sinking was Ouano's breach of his obligation to
provide SMC with a seaworthy vessel duly manned by competent crew members. SMC then interposed
counterclaims against Ouano for the value of the cargo lost in the sea tragedy.

RTC rendered judgment finding that the proximate cause of the loss of the M/V Doña Roberta
was attributable to SMC. Meanwhile, the CA declared San Miguel Corporation and Julian C. Ouano
jointly and severally liable to plaintiffs-appellees, except to the heirs of Capt. Sabiniano Inguito.

ISSUE:

Whether or not SMC should answer for the loss of lives and damages suffered by the heirs of the
officers and crew members who perished on board the M/V Doña Roberta, except Captain Inguito

RULING:

NO. The terms of the Charter Party Agreement between the parties clearly states that the
charterer, SMC should be free from liability for any loss or damage sustained during the voyage unless
it be shown that the same was due to its fault or negligence. The evidence does not show that SMC or
its employees were amiss in their duties. The facts indubitably establish that SMC's Radio Operator,
Rogelio P. Moreno, who was tasked to monitor every shipment of its cargo, repeatedly contacted
Captain Inguito and advised him to take shelter from typhoon Ruping. In contrast to the care exercised
by Moreno, Ouano was unavailable during the entire time that the vessel set out and encountered foul
weather. Considering that the charter was a contract of affreightment, the ship owner had the distinct
duty to ensure the safe carriage and arrival of goods transported on board its vessels.

More specifically, Ouano expressly warranted in the Time Charter Party that his vessel was
seaworthy. 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. Seaworthiness is defined as the
sufficiency of the vessel in materials, construction, equipment, officers, men, and outfit, for the trade or
service in which it is employed. It includes the fitness of a ship for a particular voyage with reference to
its physical and mechanical condition, the extent of its fuel and provisions supply, the quality of its
officers and crew, and its adaptability for the time of voyage proposed. The Supreme Court emphasized
that in the assailed decision, the Court of Appeals found that the proximate cause of the sinking of the
vessel was the negligence of Captain Sabiniano Inguito.

The Supreme Court likewise agreed with the Court of Appeals that 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 by satisfactorily 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. In the case at bar, Ouano miserably failed to overcome the presumption of
his negligence. He failed to prove that he exercised the due diligence in the selection and supervision
of the captain of the M/V Doña Roberta. Hence, he is vicariously liable for the loss of lives and property
occasioned by the lack of care and negligence of his employee. Consequently, the award of damages
granted by the Court of Appeals is affirmed only against Ouano, who should also indemnify SMC for the
cost of the lost cargo.
PHILIPPINE AMERICAN GENERAL INSURANCE COMPANY, INC., vs COURT OF APPEALS and
FELMAN SHIPPING LINES

FACTS:

On 6 July 1983, Coca-Cola Bottlers Philippines, Inc., loaded on board MV Asilda a vessel
owned and operated by respondent Felman Shipping Lines (7,500 cases of 1-liter Coca-Cola bottles to
be transported from Zamboanga City to Cebu City for consignee Coca-Cola Bottlers Philippines, Inc.
The shipment was insured with petitioner Philippine American General Insurance Co., Inc. under
Marine Open Policy No. 100367-PAG. The vessel sank in the waters of Zamboanga del Norte bringing
down the entire cargo including the subject 7,500 cases of 1-liter Coca-Cola bottles.

The consignee Coca-Cola Bottlers Philippines, Inc., Cebu plant, filed a claim with respondent
FELMAN for recovery of damages it sustained as a result of the loss of its bottles. Respondent denied
the claim thus prompting the consignee to file an insurance claim with PHILAMGEN which paid its claim
of P 755,250.00. Claiming its right of subrogation, PHILAMGEN sought recourse against respondent
FELMAN which disclaimed any liability for the loss. Thus, PHILAMGEN sued the ship owner for sum of
money and damages.

In its complaint, PHILAMGEN alleged that the sinking and total loss of the ship and its cargo
were due to the vessel's unseaworthiness as it was put to sea in an unstable condition. It further
alleged that the vessel was improperly manned and that its officers were grossly negligent in failing to
take appropriate measures to proceed to a nearby port or beach after the vessel started to list.
FELMAN filed a motion to dismiss based on the affirmative defense that no right of subrogation in favor
of PHILAMGEN was transmitted by the shipper, and that, in any event, FELMAN had abandoned all its
rights, interests and ownership over the ship together with her freight and appurtenances for the
purpose of limiting and extinguishing its liability under Article 587 of the Code of Commerce.

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 Coca Cola 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 or not MV Asilda was seaworthy when it left the port of Zamboanga
B. Whether or not the limited liability rule under Article 587 of the Code of Commerce is applicable
in the instant case
C. Whether or not PHILAMGEN was subrogated to the rights and legal actions which the shipper
had against FELMAN, the ship owner

RULING:

A. NO. The Supreme Court held that MV Asilda was unseaworthy when it left the port of
Zamboanga. It subscribed to the findings of the Elite Adjusters, Inc., and the Court of Appeals
that the proximate cause of the sinking of MV Asilda was its being top-heavy. The evidence
shows that approximately 2,500 cases of bottles were stowed on deck. It was established that
the sunken ship 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. NO. Article 587 of the Code of Commerce is not applicable to the case at bar. The Supreme
Court stressed that Article 587 speaks only of situations where the fault or negligence is
committed solely by the captain. Where the ship owner is likewise to be blamed, Article 587 will
not apply. Under such situation, it will be covered by the provisions of the Civil Code on
common carrier. It was already established at the outset that the sinking of the ship was due to
its unseaworthiness even at the time of its departure from the port of Zamboanga. It was top-
 heavy as an excessive amount of cargo was loaded on deck. Closer supervision on the part of
the ship owner could have prevented this fatal miscalculation. As such, FELMAN was equally
negligent. It cannot therefore escape liability through the expedient of filing a notice of
abandonment of the vessel by virtue of Article 587 of the Code of Commerce.

C. YES. 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 Coca Cola 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, the Supreme Court held in Pan Malayan Insurance Corporation
v. Court of Appeals that 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. Thus, 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. Respondent FELMAN SHIPPING LINES is ordered to pay petitioner
PHILIPPINE AMERICAN GENERAL INSURANCE CO., INC.

DELSAN TRANSPORT LINES, INC., vs COURT OF APPEALS and AMERICAN HOME

ASSURANCE CORPORATION

FACTS:

Caltex Philippines entered into a contract of affreightment with Delsan Transport Lines, Inc., for
a period of one year whereby the said common carrier agreed to transport Caltex’s industrial fuel oil
from the Batangas-Bataan Refinery to different parts of the country. Under the contract, petitioner took
on board its vessel MT Maysun 2,277.314 kiloliters of industrial fuel oil of Caltex to be delivered to the
Caltex Oil Terminal in Zamboanga City. The shipment was insured with American Home Assurance
Corporation.

On August 14, 1986, MT Maysum set sail from Batangas for Zamboanga City. Unfortunately,
the vessel sank in the early morning of August 16, 1986 near Panay Gulf in the Visayas taking with it
the entire cargo of fuel oil. Subsequently, private respondent paid Caltex P 5,096,635.67 representing
the insured value of the lost cargo. Exercising its right of subrogation under Article 2207 of the New
Civil Code, the private respondent demanded of the petitioner the same amount it paid to Caltex.

Due to its failure to collect from the petitioner despite prior demand, private respondent filed a
complaint with the Regional Trial Court of Makati City for collection of a sum of money. The trial court
rendered a decision dismissing the complaint against herein petitioner without pronouncement as to
cost. The trial court found that the vessel, MT Maysum, was seaworthy to undertake the voyage as
determined by the report from Philippine Coast Guard upon inspection during its annual dry-docking
and that the incident was caused by force majeure, thus exempting the common carrier (herein
petitioner) from liability for the loss of its cargo. The decision of the trial court, however, was reversed
on appeal by the Court of Appeals. The appellate court ruled that the petitioner is liable on its obligation
as common carrier4 to herein private respondent insurance company as subrogee of Caltex.

ISSUES:

A. Whether or not the payment made by the private respondent to Caltex 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
B. Whether or not the non-presentation of the marine insurance policy bars the complaint for
recovery of sum of money for lack of cause of action

RULING:

A. NO. The Supreme Court ruled that the payment made by the private respondent for the insured
value of the lost cargo operates as waiver of its (private respondent) 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 a common carrier. The fact of payment grants the private respondent
subrogatory right which enables it to exercise legal remedies that would otherwise be available
to Caltex as owner of the lost cargo against the petitioner common carrier.

B. NO. The Supreme Court held that the presentation in evidence of the marine insurance policy is
not indispensable in this case before the insurer may recover from the common carrier the
insured value of the lost cargo in the exercise of its subrogatory right. The subrogation receipt,
by itself, is sufficient to establish not only the relationship of herein private respondent as insurer
and Caltex, as the assured shipper of the lost cargo of industrial fuel oil, but also the amount
paid to settle the insurance claim. The right of subrogation accrues simply upon payment by the
insurance company of the insurance claim.

MADRIGAL, TIANGCO & CO., vs HANSON, ORTH & STEVENSON, INC.,

FACTS:

A motor launch owned by the plaintiffs was chartered by the defendant from the date of actual
delivery thereof in seaworthy condition with the necessary documents to enable her to navigate.
Delivery of the motor launch was made after the date agreed upon. While manned by a complement
engaged by the defendant, the motor launch sank. Plaintiffs brought the present action to recover the
value of the motor launch. The trial court dismissed the complaint on the ground that although it found
that there had been delivery of the motor launch to the defendant, yet it was unseaworthy. Plaintiffs
thus have appealed.

ISSUE:

Whether or not the motor launch was seaworthy and thus plaintiffs may recover the amount for which it
was insured

RULING:

NO. The preponderance of evidence leans to the conclusion that the motor launch was
unseaworthy, because at the time it sank there was no typhoon; the waves were those that were
caused by the monsoon winds of the season; the motor launch did not touch bottom or hit anything
during her cruise in the bay; and the water was bubbling in the engine room, from which it may be
inferred that the underneath planking gave way. This finding that the motor launch was unseaworthy
precludes recovery by the plaintiffs of the amount for which the motor was insured.