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
in 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 P10 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. Whether the arrest of the vessel was a risk covered under the subject insurance
policies
2. Whether the insurance policies must be strictly construed against the insurer

RULING:
1. Yes. 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 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
that is unnatural and forced to lead to an absurd conclusion or render the policy
nonsensical should be avoided.

2. Yes. 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.

Dispositive Portion:

WHEREFORE, the petition for review is DENIED and the decision of the Court of
Appeals is AFFIRMED.