Summary: Roque vs. Intermediate Appellate Court (GR L-66935, 11 November 1985)

Roque vs. Intermediate Appellate Court
[GR L-66935, 11 November 1985]
First Division, Gutierrez (J): 5 concur, 1 on leave

Facts: On 19 February 1972, the Manila Bay Lighterage Corporation (MBLC) a common carrier, entered into a contract with Isabela Roque (doing business under the name and style of Isabela Roque Timber Enterprises) and Ong Chiong whereby the former would load and carry on board its barge Mable 10 about 422.18 cubic meters of logs from Malampaya Sound, Palawan to North Harbor, Manila. Roque and Ong insured the logs against loss for P100,000.00 with the Pioneer Insurance and Surety Corporation (Pioneer). On 29 February 1972, Roque and Ong 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 Mable 10 sank with the 811 pieces of logs somewhere off Cabuli Point in Palawan on its way to Manila. The barge where the logs were loaded was apparently not seaworthy such that it developed a leak. 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 tarpaulin, the ordinary splash of sea waves brought more water inside the barge. On 8 March 1972, Roque and Ong wrote a letter to MBLC demanding payment of P150,000.00 for the loss of the shipment plus P100,000.00 as unrealized profits but the latter ignored the demand. Another letter was sent to Pioneer claiming the full amount of P100,000.00 under the insurance policy but Pioneer refused to pay on the ground that its liability depended upon the "Total loss by Total Loss of Vessel only". Hence, Roque and Ong commenced Civil Case 86599 against MBLC and Pioneer Pioneer. During the initial stages of the hearing, MBLC informed the trial court that it had salvaged part of the logs. The court ordered them to be sold to the highest bidder with the funds to be deposited in a bank in the name of Civil Case 86599. After hearing, the trial court found in favor of Roque and Ong, condemning MBLC and Pioneer to pay Roque and Ong, jointly and severally, the sum of P100,000.00; sentencing MBLC to pay Roque and Ong, in addition, the sum of P50,000.00, plus P12,500.00, that the latter advanced to the former as down payment for transporting the logs in question; ordering the counterclaim of Pioneer against Roque and Ong, dismissed, for lack of merit, but as to its cross-claim against its MBLC, the latter is ordered to reimburse the former for whatever amount it may pay Roque and Ong as such surety; ordering the counterclaim of MBLC against Roque and Ong, dismissed for lack of merit; dismissing Roque's and Ong's claim of not less than P100,000.00 and P75,000.00 as exemplary damages, for lack of merit; granting Roque's and Ong's claim for attorney's fees in the sum of P10,000.00; ordering MBLC and Pioneer to pay the costs; and holding that the sum of P150,000.00 award to Roque and Ong, shall bear interest of 6% from 25 March 1975, until amount is fully paid. Pioneer appealed to the Intermediate Appellate Court. MBLC did not appeal, as allegedly, the transportation company is no longer doing business and is without funds. On 30 January 1984, the appellate court 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 the petition for certiorari.

Issue [1]: Whether there is a warranty of seaworthiness by the cargo owner in cases of marine cargo insurance.

Held [1]: YES. There is no dispute over the liability of the common carrier MBLC. In fact, it did not bother to appeal the questioned decision. However, Roque and Ong state that MBLC has ceased operating as a firm and nothing may be recovered from it. They are, therefore, trying to recover their losses from the insurer. The liability of the insurance company is governed by law. Section 113 of the Insurance Code provides that "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 that "Marine insurance includes: (1) Insurance against loss of or damage to: (a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise..." From the above-quoted 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. As ruled in the case of Go Tiaoco y Hermanos v. Union Insurance Society of Canton (40 Phil. 40), "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)." 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. As was held in Richelieu and Ontario Nav. Co. v. Boston Marine, Inc., Co. (136 U.S. 406), "the exception of losses occasioned by unseaworthiness was in effect a warranty that a loss should not be so occasioned, and whether the fact of unseaworthiness were known or unknown would be immaterial." 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. The Court was constrained to apply Section 113 of the Insurance Code to the facts of this case. "In marine cases, the risks insured against are 'perils of the sea' (Chute v. North River Ins. Co., Minn. 214 NW 472, 55 ALR 933). The purpose of such insurance is protection against contingencies and against possible damages and such a policy does not cover a loss or injury which must inevitably take place in the ordinary course of things. There is no doubt that 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 of the owners, master or shipper, shall not be reputed a peril, if not otherwise borne in the policy. (14 RCL on 'Insurance', Sec. 384, pp. 1203-1204; Cia. de Navegacion v. Firemen's Fund Ins. Co., 277 US 66, 72 L. ed. 787, 48 S. Ct. 459)."

Issue [2]: Whether the loss of the cargo was due to the perils of the ship rather than the perils of the sea.

Held [2]: PERILS OF THE SHIP. 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. In fact, in Roque's and Ong's complaint, it is alleged that the barge Mable 10 of MBLC developed a leak which allowed water to come in and that one of the hatches of said barge was negligently left open by the person in charge thereof causing more water to come in", and that "he loss of their cargo was due to the fault, negligence, and/or lack of skill of MBLC and/or MBLC's representatives on barge Mable 10. It is quite unmistakable that the loss of the cargo was due to the perils of the ship rather than the perils of the sea. The facts clearly negate Roque's and Ong's claim under the insurance policy. In the case of Go Tiaoco y Hermanos v. Union Ins. Society of Canton, the Court had occasion to elaborate on the term "perils of the ship" when it ruled that "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. 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.”

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