Summary: Filipino Merchants Insurance Co. Inc. vs. Court of Appeals (GR 85141, 28 November 1989)

Filipino Merchants Insurance Co. Inc. vs. Court of Appeals
[GR 85141, 28 November 1989]
Second Division, Regalado (J): 3 concur, 1 on leave

Facts: In December 1976, Choa Tiek Seng insured said shipment with Filipino Merchants Insurance Company (FMICI) under cargo Policy M-2678 for the sum of P267,653.59 for the goods described as 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. Actually, what was imported was 59.940 metric tons not 600 tons at $395.42 a ton CNF Manila. The fishmeal in 666 new gunny bags were unloaded from the ship on 11 December 1976 at Manila unto the arrastre contractor E. Razon, Inc. and FMICI'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 cargoes 120320 to 120322, consisting of 3 pages. 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 14859, 14863 and 14869 covering a total of 227 bags in bad order condition. FMICI's surveyor has conducted a final and detailed survey of the cargo in the warehouse for which he prepared a survey report with the findings on the extent of shortage or loss on the bad order bags totalling 227 bags amounting to 12,148 kilos. Based on said computation, Choa made a formal claim against FMICI for P51,568.62 the computation of which claim is contained therein. A formal claim statement was also presented by the Choa against the vessel dated 21 December 1976, but FMICI refused to pay the claim. Consequently, an action was brought by the consignee (Choa Tiek Seng) of the shipment of fishmeal loaded on board the vessel SS Bougainville and unloaded at the Port of Manila on or about 11 December 1976 and seeks to recover from FMICI the amount of P51,568.62 representing damages to said shipment which has been insured by FMICI under Policy M-2678. FMICI brought a third party complaint against third party defendants Compagnie Maritime Des Chargeurs Reunis and/or E. Razon, Inc. seeking judgment against the third party defendants in case judgment is rendered against FMICI. The court below, after trial on the merits, rendered judgment in favor of Choa, ordering FMICI to pay Choa the sum of P51,568.62 with interest at legal rate from the date of the filing of the complaint; and, on the third party complaint, the third party defendant Compagnie Maritime Des Chargeurs Reunis and third party defendant E. Razon, Inc. are ordered to pay FMICI jointly and severally reimbursement of the amounts paid by FMICI with legal interest from the date of such payment until the date of such reimbursement; without pronouncement as to costs. On appeal, and on 18 July 1988, the Court of Appeals 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. A motion for reconsideration of the aforesaid decision was denied, hence FMICI filed the petition for review.

Issue [1]: Whether an "all risks" marine policy has a technical meaning in insurance in that before a claim can be compensable it is essential that there must be "some fortuity," "casualty" or "accidental cause" to which the alleged loss is attributable.

Held [1]: NO. The "all risks clause" of the Institute Cargo Clauses read as follows "5. This insurance is against all risks of logs 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." 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. The very nature of the term "all risks" must be given a broad and comprehensive meaning as covering any loss other than a wilful and fraudulent act of the insured. This is pursuant to the very purpose of an "all risks" insurance to give protection to the insured in those cases where difficulties of logical explanation or some mystery surround the loss or damage to property. An "all risks" policy has been evolved to grant greater protection than that afforded by the "perils clause," in order to assure that no loss can happen through the incidence of a cause neither insured against nor creating liability in the ship; it is written against all losses, that is, attributable to external causes. The term "all risks" cannot be given a strained technical meaning, the language of the clause under the Institute Cargo Clauses being unequivocal and clear, to the effect that it extends to all damages/losses suffered by the insured cargo except (a) loss or damage or expense proximately caused by delay, and (b) loss or damage or expense proximately caused by the inherent vice or nature of the subject matter insured.

Issue [2]: Whether the failure of Choa 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.

Held [2]: NO. Although generally, the burden of proof is upon the insured to show that a loss arose from a covered peril, 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 held in Paris-Manila Perfumery Co. vs. 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. Coverage under an "all risks" provision of a marine insurance 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 the peril falling within the policy's coverage; the insurer can avoid coverage upon demonstrating that a specific provision expressly excludes the loss from coverage. 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.

Issue [3]: Whether the insurer is liable

Held [3]: There being no showing that the loss was caused by any of the excepted perils, the insurer is liable under the policy. It is believed that in the absence of any showing that the losses/damages were caused by an excepted peril, i.e. delay or the inherent vice or nature of the subject matter insured, and there is no such showing, the loss was covered by the policy. Herein, 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 (See Berk vs. Style [1956] cited in Marine Insurance Claims, p. 125). 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. Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the policy. The agreement has the force of law between the parties. The terms of the policy constitute the measure of the insurer's liability. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense.

Issue [4]: Whether the consignee (Choa) has an insurable interest in said goods.

Held [4]: Choa, as consignee of the goods in transit under an invoice containing the terms under "C & F Manila," has insurable interest in said goods. 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 damnify the insured. In principle, anyone has an insurable interest in property who 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) an expectancy, coupled with an existing interest in that out of which the expectancy arises. 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. The perfected contract of sale between him and the shipper of the goods operates to vest in him an equitable title even before delivery or before he performed the conditions of the sale. The contract of shipment, whether under F.O.B., C.I.F., or C. & F. as in the present case, is immaterial in the determination of whether the vendee has an insurable interest or not in the goods in transit. The perfected contract of sale even without delivery vests in the vendee an equitable title, an existing interest over the goods sufficient to be the subject of insurance. Further, Article 1523 of the Civil Code provides that where, in pursuance of a contract of sale, the seller is authorized or required to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for, the purpose of transmission to the buyer is deemed to be a delivery of the goods to the buyer, the exceptions to said rule not obtaining in the present case. The Court has heretofore ruled that the delivery of the goods on board the carrying vessels partake of the nature of actual delivery since, from that time, the foreign buyers assumed the risks of loss of the goods and paid the insurance premium covering them. C & F contracts are shipment contracts. The term means that the price fixed includes in a lump sum the cost of the goods and freight to the named destination. It simply means that the seller must pay the costs and freight necessary to bring the goods to the named destination but the risk of loss or damage to the goods is transferred from the seller to the buyer when the goods pass the ship's rail in the port of shipment.

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