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Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 76145 June 30, 1987
CATHAY INSURANCE CO., petitioner,
vs.
HON. COURT OF APPEALS, and REMINGTON INDUSTRIAL SALES CORPORATION, respondents.
PARAS, J.:
This petition seeks the review of the decision of the Court of Appeals 1 in CA-G.R. CV No. 06559 affirming the decision of the
Regional Trial Court (RTC), 2 National Capital Region (NCR) Manila, Branch 38 and the Resolution of the said appellate
court denying petitioner's motion for reconsideration.
Originally, this was a complaint filed by private respondent corporation against petitioner (then defendant)
company seeking collection of the sum of P868,339.15 representing private respondent's losses and
damages incurred in a shipment of seamless steel pipes under an insurance contract in favor of the said
private respondent as the insured, consignee or importer of aforesaid merchandise while in transit from
Japan to the Philippines on board vessel SS "Eastern Mariner." The total value of the shipment was
P2,894,463.83 at the prevailing rate of P7.95 to a dollar in June and July 1984, when the shipment was
made.
The trial court decided in favor of private respondent corporation by ordering petitioner to pay it the sum of
P866,339.15 as its recoverable insured loss equivalent to 30% of the value of the seamless steel pipes;
ordering petitioner to pay private respondent interest on the aforecited amount at the rate of 34% or double
the ceiling prescribed by the Monetary Board per annum from February 3, 1982 or 90 days from private
respondent's submission of proof of loss to petitioner until paid as provided in the settlement of claim
provision of the policy; and ordering petitioner to pay private respondent certain amounts for marine
surveyor's fee, attorney's fees and costs of the suit.
Respondent in its comment on the petition, contends that:
1. Coverage of private respondent's loss under the insurance policy issued by petitioner is unmistakable.
2. Alleged contractual limitations contained in insurance policies are regarded with extreme caution by
courts and are to be strictly construed against the insurer; obscure phrases and exceptions should not be
allowed to defeat the very purpose for which the policy was procured.
3. Rust is not an inherent vice of the seamless steel pipes without interference of external factors.
4. No matter how petitioner might want it otherwise, the 15-day clause of the policy had been foreclosed in
the pre-trial order and it was not even raised in petitioner's answer to private respondent's complaint.
5. The decision was correct in not holding that the heavy rusting of the seamless steel pipes did not occur
during the voyage of 7 days from July 1 to July 7, 1981.
6. The alleged lack of supposed bad order survey from the arrastre capitalized on by petitioner was more
than clarified by no less than 2 witnesses.
7. The placing of notation "rusty" in the way bills is not only private respondent's right but a natural and
spontaneous reaction of whoever received the seamless steel pipes in a rusty condition at private
respondent's bodega.
8. The Court of Appeals did not engage in any guesswork or speculation in concluding a loss allowance of
30% in the amount of P868,339.15.
9. The rate of 34% per annum double the ceiling prescribed by the Monetary Board is the rate of interest
fixed by the Insurance Policy itself and the Insurance Code.

The petitioner however maintains that:


(1) Private respondent does not dispute the fact that, contrary to the finding of the respondent Court (the
petitioner has failed "to present any evidence of any viable exeption to the application of the policy") there
is in fact an express exeption to the application of the policy.
(2) As adverted to in the Petition for Review, private respondent has admitted that the question shipment in
not covered bya " square provision of the contract," but private respondent claims implied coverage from
the phrase " perils of the sea" mentioned in the opening sentenced of the policy.
(3) The insistence of private respondent that rusting is a peril of the sea is erroneous.
(4) Private respondent inaccurately invokes the rule of strict construction against insurer under the guise of
construction in order to impart a non-existing ambiguity or doubt into the policy so as to resolve it against
the insurer.
(5) Private respondent while impliedly admitting that a loss occasioned by an inherent defect or vice in the
insured article is not within the terms of the policy, erroneously insists that rusting is not an inherent vice or
in the nature of steel pipes.
(6) Rusting is not a risk insured against, since a risk to be insured against should be a casualty or some
casualty, something which could not be foreseen as one of the necessary incidents of adventure.
(7) A fact capable of unquestionable demonstration or of public knowledge needs no evidence. This fact of
unquestionable demonstration or of public knowledge is that heavy rusting of steel or iron pipes cannot
occur within a period of a seven (7) day voyage. Besides, petitioner had introduced the clear cargo receipts
or tally sheets indicating that there was no damage on the steel pipes during the voyage.
(8) The evidence of private respondent betrays the fact that the account of P868,339.15 awarded by the
respondent Court is founded on speculation, surmises or conjectures and the amount of less has not been
proven by competent, satisfactory and clear evidence.
We find no merit in this petition.
There is no question that the rusting of steel pipes in the course of a voyage is a "peril of the sea"
in view of the toll on the cargo of wind, water, and salt conditions. At any rate if the insurer cannot be
held accountable therefor, We would fail to observe a cardinal rule in the interpretation of contracts,
namely, that any ambiguity therein should be construed against the maker/issuer/drafter thereof, namely,
the insurer. Besides the precise purpose of insuring cargo during a voyage would be rendered fruitless. Be
it noted that any attack of the 15-day clause in the policy was foreclosed right in the pre-trial conference.
Finally, it is a cardinal rule that save for certain exceptions, findings of facts of the appellate tribunal are
binding on Us. Not one of said exceptions can apply to this case.
WHEREFORE, this petition is hereby DENIED, and the assailed decision of the Court of Appeals is hereby
AFFIRMED.
SO ORDERED.
Fernan (Chairman), Gutierrez, Jr., and Cortes, JJ., concur.
Padilla and Bidin, JJ., took no part.

Republic of the Philippines


SUPREME COURT
Manila
EN BANC
G.R. No. 13983

September 1, 1919

LA RAZON SOCIAL "GO TIAOCO Y HERMANOS," plaintiff-appellant,


vs.
UNION INSURANCE SOCIETY OF CANTON, LTD., defendant-appellee.
P. E. del Rosario and W. F. Mueller for appellant.
Crossfield and O'Brien for appellee.
STREET, J.:
This is an action on a policy of marine insurance issued by the Union Insurance Society of Canton, Ltd.,
upon a cargo of rice belonging to the plaintiffs, Go Tiaoco Brothers, which was transported in the early days
of 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 one thousand four
hundred seventy-three sacks and been damages by sea water. The loss so resulting to the owners of rice,
after proper deduction had been made for the portion saved, was three thousand eight hundred seventy
five pesos and twenty-five centavos (P3,875.25). 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 the defendant and
the plaintiffs appealed.
The facts with reference to the manner in which the sea water effected entrance into the hold may be
summarized as follows, substantially in accordance with the findings of the trial court:
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 vent, or orifice, of the pipe until it was about 18 inches or 2 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.
The court found in effect that the opening above described had resulted in course of time from ordinary
wear and tear and not from the straining of the ship in rough weather on that voyage. The court also found
that the repairs that had been made on the pipe were slovenly and defective and that, by reason of the
condition of this pipe, the ship was not properly equipped to receive the rice at the time the voyage was
begun. For this reason the court held that the ship was unseaworthy.
The policy of insurance 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, jettisons, . . . 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."
The question whether the insurer is liable on this policy for the loss caused in the manner above stated
presents two phases which are in a manner involved with each other. One has reference to the meaning of
the expression "perils of the seas and all other perils, losses, and misfortunes," as used in the policy; the
other has reference to the implied warranty, on the part of the insured, as to the seaworthiness of the ship.
The meaning of the expression "perils . . . of the seas . . . and all other perils, losses, and misfortunes,"
used in describing the risks covered by policies of marine insurance, has been the subject of frequent
discussion; and certain propositions relative thereto are now so generally accepted as to be considered

definitely settled.
In the first place it is determined that the words "all other perils, losses, and misfortunes" are to be
interpreted as covering risks which are of like kind (ejusdem generis) with the particular risks which are
enumerated in the preceding part of the same clause of the contract. "According to the ordinary rules of
construction," said Lord Macnaghten in Thames and Mersey Marine Insurance Co. vs. Hamilton, Fraser &
Co. ([1887]), 12 A. C., 484, 501), "these words must be interpreted with reference to the words which
immediately precede them. They were no doubt inserted in order to prevent disputes founded on nice
distinctions. Their office is to cover in terms whatever may be within the spirit of the cases previously
enumerated, and so they have a greater or less effect as a narrower or broader view is taken of those
cases. For example, if the expression 'perils of the seas' is given its widest sense the general words have
little or no effect as applied to that case. If no the other hand that expression is to receive a limited
construction, as apparently it did in Cullen vs. Butler (5 M. & S., 461), and loss by perils of the seas is to be
confined to loss ex marinae tempestatis discrimine, the general words become most important. But still,
ever since the case of Cullen vs. Butler, when they first became the subject of judicial construction, they
have always been held or assumed to be restricted to cases 'akin to' or resembling' or 'of the same kind as'
those specially mentioned. I see no reason for departing from this settled rule. In marine insurance it is
above all things necessary to abide by settled rules and to avoid anything like novel refinements or a new
departure."
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. vs. 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."
In the present case the entrance of the sea water into the ship's hold through the defective pipe already
described was not due to any accident which happened during the voyage, but to the failure of the ship's
owner properly to repair a defect of the existence of which he was apprised. The loss was therefore more
analogous to that which directly results from simple unseaworthiness than to that which results from perils
of the sea.
The first of the two decisions of the House of Lords from which we have quoted (Thames and Mersey
Marine Insurance Co. vs. Hamilton, Fraser & Co. [1887], 12 A. C., 484) arose upon the following state of
facts: In March, 1884, the Inchmaree was lying at anchor off Diamond Island and was about to start upon
her voyage. To this end it became necessary to fill up her boilers. There was a donkey-engine with a
donkey-pump on board, and the donkey-engine was set to pump up water from the sea into the boilers.
Those in charge of the operation did not take the precaution of making sure that the valve of the aperture
leading into one of the boilers was open. This valve happened to be closed. The result was that the water
being unable to make its way into the boiler was forced back and split the air-chamber and so disabled the
pump. It was held that whether the injury occurred through negligence or accidentally without negligence, it
was not covered by the policy, since the loss did not fall either under the words "perils of the seas" or under
the more general words "all other perils, losses, and misfortunes." Lord Bramwell, in the course of his
opinion quoted with approbation as definition given by Lopes L.J. in Pandorf vs. Hamilton (16 Q. B. D.,
629), which is as follows: In a sea-worthy ship damage to goods caused by the action of the sea during
transit not attributable to the fault of anybody, is a damage from a peril of the sea.
The second of the decision from the House of Lords from which we have quoted (Wilson, Son &
Co. vs. owners of Cargo per the Xantho [1887], 12 A. C., 503) arose upon the following facts: The owners
of certain cargo embarked the same upon the steamship Xantho. A collision took place in a fog between
this vessel and another ship, Valuta. An action was thereupon instituted by the owners of the cargo against
the owners of the Xantho. It was held that if the collision occurred without fault on the part of the carrying
ship, the owners were not liable for the value of the cargo lost by such collision.

Still another case was decided in the House of Lords upon the same date as the preceding two, which is
equally instructive as the others upon the question now under consideration. We refer to Hamilton, Fraser
& Co. vs. Pandorf & Co. ([1887], 12 A. C., 518), where it appeared that rice was shipped under a charter
party and bills of lading which expected "dangers and accident of the sea." During the voyage rats gnawed
a hole in a pipe on board the ship, whereby sea water effected an entrance into the ship's hold and
damaged the rice. It appeared that there was no neglect or default on the part of the shipowners or their
servants in the matter of attending to the cargo. It was held that this loss resulted from an accident or peril
of the sea and that the shipowners were not responsible. Said Bramwell: "No question of negligence exists
in this case. The damage was caused by the sea in the course of navigation with no default in any one. I
am, therefore, of opinion that the damage was caused by peril of the sea within the meaning of the bill of
lading." The point which discriminates this decision from that now before us is that in the present case the
negligence of the shipowners must be accepted as established. Undoubtedly, if in Hamilton, Fraser &
Co. vs. Pandorf & Co. [1887], 12 A. C., 518), it had appeared that this hold had been gnawed by the rats
prior to this voyage and the owners, after having their attention directed to it, had failed to make adequate
repairs, the ship would have been liable.
The three decisions in the House of Lords above referred to contain elaborate discussions concerning the
liability of shipowners and insurers, respectively, for damage happening to cargo in the course of a sea
voyage; and it would be presumptuous for us to undertake to add to what has been there said by the
learned judges of that high court. Suffice it to say that upon the authority of those cases there is no room to
doubt the liability of the shipowner for such a loss as occurred in this case. By parity of reasoning the
insurer is not liable; for, generally speaking, the shipowner excepts the perils of the sea from his
engagement under the bill of lading, while this is the very peril against which the insurer intends to give
protection. As applied to the present case it results that the owners of the damages rice must look to the
shipowner for redress and not to the insurer.
The same conclusion must be reached if the question be discussed with reference to the seaworthiness of
the ship. 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). It is also well settled that
a ship which is seaworthy for the purpose of insurance upon the ship may yet be unseaworthy for the
purpose of insurance upon the cargo (Act No. 2427, sec. 106). In Steel vs. State Line Steamship Co.
([1877], L. R. 3 A. C., 72), a cargo of wheat was laden upon a ship which had a port-hole insecurely
fastened at the time of the lading. This port-hole was about one foot above the water line; and in the course
of the voyage sea water entered the compartment where the wheat was stores and damaged the cargo. It
was held that the ship was unseaworthy with reference to the cargo in question. In Gilroy, Sons &
Co. vs. Price & Co. ([1893], 18 A. C., 56), a cargo of jute was shipped. During the voyage the vessel
encountered stormy weather, as a consequence of which the cargo shifted its position and broke a pipe
leading down through the hold from the water closet, with result that water entered the vessel and the jute
was damaged. It was found that the cargo was improperly stowed and that the owners of the ship were
chargeable with negligence for failure to protect the pipe by putting a case over it. It was accordingly held
that the ship was unseaworthy.
From what has been said it follows that the trial court committed no error in absolving the defendant from
the complaint. The judgment must therefore be affirmed, and it is so ordered, with costs.
Arellano, C.J., Johnson, Araullo, Malcolm, Avacena and Moir, JJ., concur.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-66935 November 11, 1985
ISABELA ROQUE, doing busines under the name and style of Isabela Roque Timber Enterprises
and ONG CHIONG, petitioners,

vs.
HON. INTERMEDIATE APPELATE COURT and PIONEER INSURANCE AND SURETY
CORPORATION,respondent.
GUTIERREZ, JR., J.:
This petition for certiorari asks for the review of the decision of the Intermediate Appellate Court which
absolved the respondent insurance company from liability on the grounds that the vessel carrying the
insured cargo was unseaworthy and the loss of said cargo was caused not by the perils of the sea but by
the perils of the ship.
On February 19, 1972, the Manila Bay Lighterage Corporation (Manila Bay), a common carrier, entered into
a contract with the petitioners 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. The petitioners
insured the logs against loss for P100,000.00 with respondent Pioneer Insurance and Surety Corporation
(Pioneer).
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, 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. As alleged by the petitioners in their complaint and as found by both the trial and
appellate courts, the barge where the logs were loaded was not seaworthy such that it developed a leak.
The appellate court further found that 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 March 8, 1972, the petitioners wrote a letter to Manila Bay 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 respondent Pioneer claiming the full amount of P100,000.00 under the insurance policy
but respondent refused to pay on the ground that its hability depended upon the "Total loss by Total Loss of
Vessel only". Hence, petitioners commenced Civil Case No. 86599 against Manila Bay and respondent
Pioneer.
After hearing, the trial court found in favor of the petitioners. The dispositive portion of the decision reads:
FOR ALL THE FOREGOING, the Court hereby rendered judgment as follows:
(a) Condemning defendants Manila Bay Lighterage Corporation and Pioneer Insurance and
Surety Corporation to pay plaintiffs, jointly and severally, the sum of P100,000.00;
(b) Sentencing defendant Manila Bay Lighterage Corporation to pay plaintiff, 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;
(c) Ordering the counterclaim of defendant Insurance against plaintiffs, dismissed, for lack
of merit, but as to its cross-claim against its co-defendant Manila Bay Lighterage
Corporation, the latter is ordered to reimburse the former for whatever amount it may pay
the plaintiffs as such surety;
(d) Ordering the counterclaim of defendant Lighterage against plaintiffs, dismissed for lack
of merit;
(e) Plaintiffs' claim of not less than P100,000.00 and P75,000.00 as exemplary damages
are ordered dismissed, for lack of merits; plaintiffs' claim for attorney's fees in the sum of
P10,000.00 is hereby granted, against both defendants, who are, moreover ordered to pay
the costs; and
(f) The sum of P150,000.00 award to plaintiffs, shall bear interest of six per cent (6%) from
March 25, 1975, until amount is fully paid.
Respondent Pioneer appealed to the Intermediate Appellate Court. Manila Bay did not appeal. According to

the petitioners, the transportation company is no longer doing business and is without funds.
During the initial stages of the hearing, Manila Bay 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 No. 86599.
On January 30, 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 the
petitioners 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, the petitioners filed this petition with the
following assignments of errors:
I
THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING THAT IN CASES OF
MARINE CARGO INSURANCE, THERE IS A WARRANTY OF SEAWORTHINESS BY THE
CARGO OWNER.
II
THE INTERMEDIATE APPELLATE COURT ERRED IN HOLDING THAT THE LOSS OF
THE CARGO IN THIS CASE WAS CAUSED BY "PERILS OF THE SHIP" AND NOT BY
"PERILS OF THE SEA."
III
THE INTERMEDIATE APPELLATE COURT ERRED IN NOT ORDERING THE RETURN TO
PETITIONER OF THE AMOUNT OF P8,000.00 WHICH WAS DEPOSITED IN THE TRIAL
COURT AS SALVAGE VALUE OF THE LOGS THAT WERE RECOVERED.
In their first assignment of error, the petitioners contend that the implied warranty of seaworthiness
provided for in the Insurance Code refers only to the responsibility of the shipowner who must see to it that
his ship is reasonably fit to make in safety the contemplated voyage.
The petitioners state that a mere shipper of cargo, having no control over the ship, has nothing to do with
its seaworthiness. They argue that a cargo owner has no control over the structure of the ship, its cables,
anchors, fuel and provisions, the manner of loading his cargo and the cargo of other shippers, and the
hiring of a sufficient number of competent officers and seamen. The petitioners' arguments have no merit.
There is no dispute over the liability of the common carrier Manila Bay. In fact, it did not bother to appeal
the questioned decision. However, the petitioners state that Manila Bay 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:
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.
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 we have ruled in the case of Go Tiaoco y Hermanos v. Union Insurance Society of Canton (40 Phil. 40):
The same conclusion must be reached if the question be discussed with reference to the
seaworthiness of the ship. 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):
There was no look-out, and both that and the rate of speed were contrary to the Canadian
Statute. 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.
We are constrained to apply Section 113 of the Insurance Code to the facts of this case. As stated by the
private respondents:
In marine cases, the risks insured against are "perils of the sea" (Chute v. North River Ins.
Co., Minn214 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, anddistinct 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).
With regard to the second assignment of error, petitioners maintain, that the loss of the cargo was caused
by the perils of the sea, not by the perils of the ship because as found by the trial court, the barge was
turned loose from the tugboat east of Cabuli Point "where it was buffeted by storm and waves." Moreover,
petitioners also maintain that barratry, against which the cargo was also insured, existed when the
personnel of the tugboat and the barge committed a mistake by turning loose the barge from the tugboat
east of Cabuli Point. The trial court also found that the stranding and foundering of Mable 10 was due to
improper loading of the logs as well as to a leak in the barge which constituted negligence.
On the contention of the petitioners that the trial court found that the loss was occasioned by the perils of
the sea characterized by the "storm and waves" which buffeted the vessel, the records show that the court
ruled otherwise. It stated:
xxx xxx xxx
... The other affirmative defense of defendant Lighterage, 'That the supposed loss of the
logs was occasioned by force majeure... "was not supported by the evidence. 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 the petitioners' complaint, it is alleged that "the barge Mable 10 of defendant carrier 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 "the loss of said plaintiffs' cargo was
due to the fault, negligence, and/or lack of skill of defendant carrier and/or defendant carrier'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 the petitioners' claim under the insurance policy. In the case of Go Tiaoco
y Hermanos v. Union Ins. Society of Canton, supra, we had occasion to elaborate on the term "perils of the
ship." We ruled:
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.
In the present case the entrance of the sea water into the ship's hold through the defective
pipe already described was not due to any accident which happened during the voyage, but
to the failure of the ship's owner properly to repair a defect of the existence of which he was
apprised. The loss was therefore more analogous to that which directly results from simple
unseaworthiness than to that which result from the perils of the sea.
xxx xxx xxx
Suffice it to say that upon the authority of those cases there is no room to doubt the liability
of the shipowner for such a loss as occurred in this case. By parity of reasoning the insurer
is not liable; for generally speaking, the shipowner excepts the perils of the sea from his
engagement under the bill of lading, while this is the very perils against which the insurer
intends to give protection. As applied to the present case it results that the owners of the
damaged rice must look to the shipowner for redress and not to the insurer.
Neither can petitioners allege barratry on the basis of the findings showing negligence on the part of the
vessel's crew.
Barratry as defined in American Insurance Law is "any willful misconduct on the part of master or crew in
pursuance of some unlawful or fraudulent purpose without the consent of the owners, and to the prejudice
of the owner's interest." (Sec. 171, U.S. Insurance Law, quoted in Vance, Handbook on Law of Insurance,
1951, p. 929.)
Barratry necessarily requires a willful and intentional act in its commission. No honest error of judgment or
mere negligence, unless criminally gross, can be barratry. (See Vance on Law of Insurance, p. 929 and
cases cited therein.)
In the case at bar, there is no finding that the loss was occasioned by the willful or fraudulent acts of the

vessel's crew. There was only simple negligence or lack of skill. Hence, the second assignment of error
must likewise be dismissed.
Anent the third assignment of error, we agree with the petitioners that the amount of P8,000.00
representing the amount of the salvaged logs should have been awarded to them. However, this should be
deducted from the amounts which have been adjudicated against Manila Bay Lighterage Corporation by
the trial court.
WHEREFORE, the decision appealed from is AFFIRMED with the modification that the amount of
P8,000.00 representing the value of the salvaged logs which was ordered to be deposited in the Manila
Banking Corporation in the name of Civil Case No. 86599 is hereby awarded and ordered paid to the
petitioners. The liability adjudged against Manila Bay Lighterage Corporation in the decision of the trial
court is accordingly reduced by the same amount.
SO ORDERED.
Teehankee (Chairman), Melencio-Herrera, Plana, De la Fuente and Patajo, JJ., concur.
Relova, J., is on leave.
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 85141 November 28, 1989
FILIPINO MERCHANTS INSURANCE CO., INC., petitioner,
vs.
COURT OF APPEALS and CHOA TIEK SENG, respondents.
Balgos & Perez Law Offices for petitioner.
Lapuz Law office for private respondent.
REGALADO, J.:
This is a review of the decision of the Court of Appeals, promulgated on July 19,1988, the dispositive part
of which reads:
WHEREFORE, the judgment appealed from is affirmed insofar as it orders defendant
Filipino Merchants Insurance Company to pay the plaintiff the sum of P51,568.62 with
interest at legal rate from the date of filing of the complaint, and is modified with respect to
the third party complaint in that (1) third party defendant E. Razon, Inc. is ordered to
reimburse third party plaintiff the sum of P25,471.80 with legal interest from the date of
payment until the date of reimbursement, and (2) the third-party complaint against third
party defendant Compagnie Maritime Des Chargeurs Reunis is dismissed. 1
The facts as found by the trial court and adopted by the Court of Appeals are as follows:
This is an action brought by the consignee of the shipment of fishmeal loaded on board the
vessel SS Bougainville and unloaded at the Port of Manila on or about December 11, 1976
and seeks to recover from the defendant insurance company the amount of P51,568.62
representing damages to said shipment which has been insured by the defendant insurance
company under Policy No. M-2678. The defendant brought a third party complaint against
third party defendants Compagnie Maritime Des Chargeurs Reunis and/or E. Razon, Inc.
seeking judgment against the third (sic) defendants in case Judgment is rendered against
the third party plaintiff. It appears from the evidence presented that in December 1976,
plaintiff insured said shipment with defendant insurance company under said cargo Policy
No. 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 December 11, 1976 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 cargoes Nos. 120320 to 120322, as Exhibit C-4 consisting of three (3) pages which
are also Exhibits 4, 5 and 6- Razon. 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 Certificate No. 14859, 14863 and 14869 covering a
total of 227 bags in bad order condition. Defendant's surveyor has conducted a final and
detailed survey of the cargo in the warehouse for which he prepared a survey report Exhibit
F with the findings on the extent of shortage or loss on the bad order bags totalling 227
bags amounting to 12,148 kilos, Exhibit F-1. Based on said computation the plaintiff made a
formal claim against the defendant Filipino Merchants Insurance Company for P51,568.62
(Exhibit C) the computation of which claim is contained therein. A formal claim statement
was also presented by the plaintiff against the vessel dated December 21, 1976, Exhibit B,
but the defendant Filipino Merchants Insurance Company refused to pay the claim.
Consequently, the plaintiff brought an action against said defendant as adverted to above
and defendant presented a third party complaint against the vessel and the arrastre
contractor. 2
The court below, after trial on the merits, rendered judgment in favor of private respondent, the decretal
portion whereof reads:
WHEREFORE, on the main complaint, judgment is hereby rendered in favor of the plaintiff
and against the defendant Filipino Merchant's (sic) Insurance Co., ordering the defendants
to pay the plaintiff the following amount:
The sum of P51,568.62 with interest at legal rate from the date of the filing of the complaint;
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 to the third party plaintiff
jointly and severally reimbursement of the amounts paid by the third party plaintiff with legal
interest from the date of such payment until the date of such reimbursement.
Without pronouncement as to costs. 3
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.
A motion for reconsideration of the aforesaid decision was denied, hence this petition with the following
assignment of errors:
1. The Court of Appeals erred in its interpretation and application of the "all risks" clause of
the marine insurance policy when it held the petitioner liable to the private respondent for
the partial loss of the cargo, notwithstanding the clear absence of proof of some fortuitous
event, casualty, or accidental cause to which the loss is attributable, thereby contradicting
the very precedents cited by it in its decision as well as a prior decision of the same Division
of the said court (then composed of Justices Cacdac, Castro-Bartolome, and Pronove);
2. The Court of Appeals erred in not holding that the private respondent had no insurable
interest in the subject cargo, hence, the marine insurance policy taken out by private
respondent is null and void;
3. The Court of Appeals erred in not holding that the private respondent was guilty of fraud
in not disclosing the fact, it being bound out of utmost good faith to do so, that it had no
insurable interest in the subject cargo, which bars its recovery on the policy. 4
On the first assignment of error, petitioner contends that 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 and the failure of herein

private respondent, upon whom lay the burden, 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. We
find said contention untenable.
The "all risks clause" of the Institute Cargo Clauses read as follows:
5. 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. 5
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. 6
The very nature of the term "all risks" must be given a broad and comprehensive meaning as covering any
loss other than a willful and fraudulent act of the insured. 7 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. 8 An "all asks" 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. 9
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.
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. 10 As we held in Paris-Manila Perfumery Co. vs. Phoenix Assurance Co., Ltd. 11 the basic rule is that
the insurance company has the burden of proving that the loss is caused by the risk 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. 12 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. 13 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.
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. As aptly stated by the respondent Court of Appeals, upon due
consideration of the authorities and jurisprudence it discussed
... 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 lower court did not err in holding that the loss was covered by
the policy.

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, Ibid, 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. 14
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. 15
Anent the issue of insurable interest, we uphold the ruling of the respondent court that private respondent,
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 y. 16 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. 17
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. 18The 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 be performed the conditions of the sale. 19 The
contract of shipment, whether under F.O.B., C.I.F., or C. & F. as in this 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. 20
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. 21 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. 22
Moreover, the issue of lack of insurable interest was not among the defenses averred in petitioners answer.
It was neither an issue agreed upon by the parties at the pre-trial conference nor was it raised during the
trial in the court below. It is a settled rule that an issue which has not been raised in the court a quo cannot
be raised for the first time on appeal as it would be offensive to the basic rules of fair play, justice and due
process. 23 This is but a permuted restatement of the long settled rule that when a party deliberately adopts a
certain theory, and the case is tried and decided upon that theory in the court below, he will not be permitted to
change his theory on appeal because, to permit him to do so, would be unfair to the adverse party. 24
If despite the fundamental doctrines just stated, we nevertheless decided to indite a disquisition on the
issue of insurable interest raised by petitioner, it was to put at rest all doubts on the matter under the facts
in this case and also to dispose of petitioner's third assignment of error which consequently needs no

further discussion.
WHEREFORE, the instant petition is DENIED and the assailed decision of the respondent Court of Appeals
is AFFIRMED in toto.
SO ORDERED.
Paras, Padilla and Sarmiento, JJ., concur.
Melencio-Herrera (Chairperson), J., is on leave.
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 84507 March 15, 1990
CHOA TIEK SENG, doing business under the name and style of SENG'S COMMERCIAL
ENTERPRISES,petitioner,
vs.
HON. COURT OF APPEALS, FILIPINO MERCHANTS' INSURANCE COMPANY, INC., BEN LINES
CONTAINER, LTD. AND E. RAZON, INC., respondents.
Lapuz Law Office for petitioner.
De Santos, Balgoz & Perez for respondent Filipino Merchants' Insurance Company, Inc.
Marilyn Cacho-Noe for respondent Ben Lines Container, Ltd.
GANCAYCO, J.:
This is an appeal from a decision of the Court of Appeals dated February 18, 1988 in CA-G.R. CV No.
09627 which affirmed the decision of the Regional Trial Court (RTC) of Manila which in turn dismissed the
complaint. 1
On November 4, 1976 petitioner imported some lactose crystals from Holland. The importation involved
fifteen (15) metric tons packed in 600 6-ply paper bags with polythelene inner bags, each bag at 25 kilos
net. The goods were loaded at the port at Rotterdam in sea vans 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. (Ben Lines for short). The goods were insured by the respondent Filipino Merchants'
Insurance Co., Inc. (insurance company for short) for the sum of P98,882.35, the equivalent of
US$8,765.00 plus 50% mark-up or US$13,147.50, 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. (broker for short), 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 later valued at P33,117.63.
Petitioner filed a claim for said loss dated February 16, 1977 against respondent insurance company in the
amount of P33,117.63 as the insured value of the loss.
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 dated August 2, 1977 in the Regional Trial Court of Manila against
respondent insurance company seeking payment of the sum of P33,117.63 as damages plus attorney's
fees and expenses of litigation. 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. On
February 24, 1978, 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.
On November 6, 1979, respondent Ben Lines filed a motion for preliminary hearing on the affirmative
defense of prescription. In an order dated February 28, 1980, the trial court deferred resolution of the
aforesaid motion after trial on the ground that the defense of prescription did not appear to be indubitable.
After the pre-trial conference and trial on the merits, on March 31, 1986, the court a quo rendered a
judgment dismissing the complaint, the counterclaim and the third-party complaint with costs against the
petitioner.
Hence, the appeal to the Court of Appeals by petitioner which, in due course, as aforestated, affirmed the
judgment of the trial court.
A motion for reconsideration of said judgment was denied by the appellate court in a resolution dated
August 1, 1988.
Petitioner now filed this petition for review on certiorari in this Court predicated on the following grounds:
I
RESPONDENT COURT ERRED IN HOLDING THAT THE INSURED SHIPMENT DID NOT
SUSTAIN ANY DAMAGE/LOSS DESPITE ADMISSION THEREOF ON THE PART OF
RESPONDENT INSURANCE COMPANY AND THE FINDING OF THE LATTER'S
SURVEYORS.
II
RESPONDENT COURT ERRED IN HOLDING THAT AN "ALL RISKS" COVERAGE
COVERS ONLY LOSSES OCCASIONED BY OR RESULTING FROM "EXTRA AND
FORTUITOUS EVENTS" DESPITE THE CLEAR AND UNEQUIVOCAL DEFINITION OF
THE TERM MADE AND CONTAINED IN THE POLICY SUED UPON.
III
THE HOLDING OF RESPONDENT COURT THAT AN "ALL RISKS" COVERAGE COVERS
LOSSES OCCASIONED BY AND RESULTING FROM "EXTRA AND FORTUITOUS
EVENTS" CONTRADICTS THE RULING OF THE SAME COURT IN ANOTHER CASE
WHERE THE DEFINITION OF THE TERM "ALL RISKS"/ STATED IN THE POLICY WAS
MADE TO CONTROL HENCE THE NEED FOR REVIEW. 2
The petition is impressed with merit.
The appellate court, in arriving at the conclusion that there was no damage suffered by the cargo at the
time of the devanning thereof, held as follows:
Appellant argued that the cargo in question sustained damages while still in the possession
of the carrying vessel, because as his appointed surveyor reported, Worldwide Marine
Survey Corporation, at the time of devanning at the pier, 403 bags were already in bad
order and condition. Appellant found support to this contention on the basis of the survey
report of Worldwide Marine Survey Corporation of the Philippines and of the Adjustment
Corporation of the Philippines which were identified by his sole witness, Jose See. It must
be pointed out, however, that witness Jose See was incompetent to identify the two survey
reports because he was not actually present during the actual devanning of the cargo,
which fact was admitted by him, hence, he failed to prove the authenticity of the aforesaid
survey reports.
On the other hand, the evidence submitted by the appellee would conclusively establish the

fact that there was no damage suffered by the subject cargo at the time of the devanning
thereof. The cargo, upon discharge from the vessel, was delivered to the custody of the
arrastre operator (E. Razon) under clean tally sheet (Exh. 6-FMIC). Moreover, the container
van containing the cargo was found with both its seal and lock intact. Article IV, paragraph 4
of the Management Contract (Exh. 5) signed between the Bureau of Customs and the
Arrastre Operator provides:
4. Tally Sheets for Cargo Vans or Containers The contractor shall give a
clean tally sheet for cargo vans received by it in good order and condition
with locks, and seals intact.
The same cargo was in turn delivered into the possession of the appellant by the arrastre
operator at the pier in good order and condition as shown by the clean gate passes (Exhs. 2
and 3) and the delivery permit (Exh. 4). The clean gate passes were issued by appellee
arrastre operator covering the shipment in question, with the conformity of the appellant's
representative. The clean gate passes provide in part:
. . . issuance of this Gate Pass constitutes delivery to and receipt by
consignee of the goods as described above, in good order and condition,
unless an accompanying B.O. (Bad Order) Certificate duly issued and noted
on the face of this Gate Pass appears.
These clean gate passes are undoubtedly important and vital pieces of evidence. They are
noted in the dorsal side of another important piece of document which is the permit to
deliver (Exh. 4) issued by the Bureau of Customs to effect delivery of the cargo to the
consignee. The significance and value of these documents is that they bind the shipping
company and the arrastre operator whenever a cargo sustains damage while in their
respective custody. It is worthy of note that there was no turn over survey executed between
the vessel and the arrastre operator, indicating any damage to the cargo upon discharge
from the custody of the vessel. There was no bad order certificate issued by the appellee
arrastre operator, indicating likewise that there was no damage to the cargo while in its
custody.
It is surprising to the point that one could not believe that if indeed there was really damage
affecting the 403 bags out of the 600, with an alleged estimated spillage of 240%, this
purportedly big quantity of spillage was never recovered which could have been easily done
considering that the shipment was in a container van which was found to be sealed and
intact. 3
However, in the same decision of the appellate court, the following evidence of the petitioner on this aspect
was summarized as follows:
The 600 bags which the original carrier received in apparent good order condition and
certified to by the vessel's agent to be weighing 15,300 kg. gross, were unloaded from the
transhipment vessel "Wesser Broker" stuffed in one container and turned over to the
arrastre operator, third party defendant-appellee E. Razon, Inc. A shipboard surveyor, the
Worldwide Marine Cargo Surveyor, as well as a representative of the vessel "Wesser
Broker" and a representative of the arrastre operator attended the devanning of the
shipment and the said shipboard surveyor certified that 403 bags were in bad order
condition with estimated spillage as follows:
65 P/bags each of 20%
78 P/bags each of 35%
79 P/bags each of 45%
87 P/bags each of 65%
94 P/bags each of 75%
(Exh. F-1)
Defendant and third-party plaintiff-appellee's protective surveyor determined the exact
spillage from the bad order bags as found by the shipboard surveyor at the consignee's

warehouse by weighing the bad order bags. Said protective surveyor found after weighing
the 403 bags in bad order condition that an aggregate of 5,173 kilos were missing therefrom
(Exh. F). 4
The assertion of the appellate court that the authenticity of the survey reports of the Worldwide Marine
Cargo Survey Corporation and the Adjustment Corporation of the Philippines were not established as Jose
See who identified the same was incompetent as he was not actually present during the actual devanning
of the cargo is not well taken.
In the first place it was respondent insurance company which undertook the protective survey aforestated
relating to the goods from the time of discharge up to the time of delivery thereof to the consignee's
warehouse, so that it is bound by the report of its surveyor which is the Adjustment Corporation of the
Philippines. 5 The Worldwide Marine Cargo Survey Corporation of the Philippines was the vessel's surveyor.
The survey report of the said Adjustment Corporation of the Philippines reads as follows:
During the turn-over of the contents delivery from the cargo sea van by the representative of
the shipping agent to consignee's representative/ Broker (Saint Rose Forwarders), 403
bags were bursted and/or torn, opened on one end contents partly spilled. The same were
inspected by the vessel's surveyor (Worldwide Marine & Cargo Survey Corporation),
findings as follows:
One (1) Container No. 2987789
Property locked and secured with Seal No. 18880.
FOUND:
197-Paper Bags (6-Ply each with One inner Plastic Lining Machine Stitched
with cotton Twine on Both ends. Containing Lactose Crystal 25 mesh Sep
061-09-03 in good order.
403-Bags, 6-ply torn and/or opened on one end, contents partly spilled,
estimated spillages as follows:
65 P/bags each of 20%
78 P/bags each of 35%
79 P/bags each of 45%
87 P/bags each of 65%
94 P/bags each of 75%
(emphasis supplied) 6
The authenticity of the said survey report need not be established in evidence as it is binding on
respondent insurance company who caused said protective survey.
Secondly, contrary to the findings of the appellate court that petitioner's witness Jose See was not present
at the time of the actual devanning of the cargo, what the record shows is that he was present when the
cargo was unloaded and received in the warehouse of the consignee. He saw 403 bags to be in bad order.
Present then was the surveyor, Adjustment Corporation of the Philippines, who surveyed the cargo by
segregating the bad order cargo from the good order and determined the amount of loss. 7 Thus, said
witness was indeed competent to identify the survey report aforestated.
Thirdly, in its letter dated May 26, 1977 to petitioner, respondent insurance company admitted in no
uncertain terms, the damages as indicated in the survey report in this manner:
We do not question the fact that out of the 600 bags shipment 403 bags appeared to be in
bad order or in damaged condition as indicated in the survey report of the vessel surveyor. .
..8
This admission even standing alone is sufficient proof of loss or damage to the cargo.
The appellate court observed that the cargo was discharged from the vessel and delivered to the custody
of the broker under the clean tally sheet, that the container van containing the cargo was found with both its
seal and lock intact; and that the cargo was delivered to the possession of the petitioner by the broker in
good order and condition as shown by the clean gate passes and delivery permit.

The clean tally sheet referred to by the appellate court covers the van container and not the cargo stuffed
therein. 9The appellate court clearly stated that the clean tally sheet issued by the broker covers the cargo vans
received by it in good order and condition with lock and seal intact. Said tally sheet is no evidence of the
condition of the cargo therein contained. Even the witness of the respondent insurance company, Sergio
Icasiano, stated that the clean gate passes do not reflect the actual condition of the cargo when released by the
broker as it was not physically examined by the broker. 10
There is no question, therefore, that there were 403 bags in damaged condition delivered and received by
petitioner.
Nevertheless, on the assumption that the cargo suffered damages, the appellate court ruled:
Even assuming that the cargo indeed sustained damage, still the appellant cannot hold the
appellee insurance company liable on the insurance policy. In the case at bar, appellant
failed to prove that the alleged damage was due to risks connected with navigation. A
distinction should be made between "perils of the sea" which render the insurer liable on
account of the loss and/or damage brought about thereof and "perils of the ship" which do
not render the insurer liable for any loss or damage. Perils of the sea or perils of navigation
embrace all kinds of marine casualties, such as shipwreck, foundering, stranding, collision
and every specie of damage done to the ship or goods at sea by the violent action of the
winds or waves. They do not embrace all loses happening on the sea. A peril whose only
connection with the sea is that it arises aboard ship is not necessarily a peril of the sea; the
peril must be of the sea and not merely one accruing on the sea (The Phil. Insurance Law,
by Guevarra, 4th ed., 1961, p. 143). In Wilson, Sons and Co. vs. Owners of Cargo per the
Xantho (1887) A.C. 503, 508, it was held:
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.
Moreover, the cargo in question was insured in an "against all risk policy." Insurance
"against all risk" has a technical meaning in marine insurance. Under an "all risk" marine
policy, there must be a general rule be a fortuitous event in order to impose liability on the
insurer; losses occasioned by ordinary circumstances or wear and tear are not covered,
thus, while an "all risk" marine policy purports to cover losses from casualties at sea, it does
not cover losses occasioned by the ordinary circumstances of a voyage, but only those
resulting from extra and fortuitous events.
It has been held that damage to a cargo by high seas and other weather is not covered by
an "all risk" marine policy, since it is not fortuitous, particularly where the bad weather
occurs at a place where it could be expected at the time in question. (44 Am. Jur. 2d. 216)
In Go Tiaoco y Hermanas vs. Union Insurance Society of Canto, 40 Phil. 40, it was held:
In the present case, the entrance of the sea water into the ship's hold
through the defective pipe already described was not due to any accident
which happened during the voyage, but to the failure of the ship's owner
properly to repair a defect of the existence of which he was apprised. The
loss was therefore more analogous to that which directly results from simple
unseaworthiness than to that whose results, from perils of the sea. 11
The Court disagrees.
In Gloren Inc. vs. Filipinas Cia. de Seguros, 12 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:
5. 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. 13
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. 14
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.
WHEREFORE, the decision appealed from is hereby REVERSED AND SET ASIDE and another judgment
is hereby rendered ordering the respondent Filipinas Merchants Insurance Company, Inc. to pay the sum of
P33,117.63 as damages to petitioner with legal interest from the filing of the complaint, plus attorney's fees
and expenses of litigation in the amount of P10,000.00 as well as the costs of the suit.
SO ORDERED.
Narvasa, Cruz, Grio-Aquino and Medialdea, JJ., concur.
Republic
SUPREME
Manila

of

the

Philippines
COURT

SECOND DIVISION
G.R. No. 119599 March 20, 1997
MALAYAN INSURANCE CORPORATION, petitioner,
vs.
THE HON. COURT OF APPEALS and TKC MARKETING CORPORATION, respondents.
ROMERO, J.:
Assailed in this petition for review on certiorari is the decision of the Court of Appeals in CA-G. R. No.
43023 1 which affirmed, with slight modification, the decision of the Regional Trial Court of Cebu, Branch 15.
Private respondent TKC Marketing Corp. was the owner/consignee of some 3,189.171 metric tons of soya
bean meal which was loaded on board the ship MV Al Kaziemah on or about September 8, 1989 for
carriage from the port of Rio del Grande, Brazil, to the port of Manila. Said cargo was insured against the
risk of loss by petitioner Malayan Insurance Corporation for which it issued two (2) Marine Cargo policy
Nos. M/LP 97800305 amounting to P18,986,902.45 and M/LP 97800306 amounting to P1,195,005.45, both
dated September 1989.
While the vessel was docked in Durban, South Africa on September 11, 1989 enroute to Manila, the civil
authorities arrested and detained it because of a lawsuit on a question of ownership and possession. As a
result, private respondent notified petitioner on October 4, 1989 of the arrest of the vessel and made a
formal claim for the amount of US$916,886.66, representing the dollar equivalent on the policies, for nondelivery of the cargo. Private respondent likewise sought the assistance of petitioner on what to do with the
cargo.
Petitioner replied that the arrest of the vessel by civil authority was not a peril covered by the policies.
Private respondent, accordingly, advised petitioner that it might tranship the cargo and requested an
extension of the insurance coverage until actual transhipment, which extension was approved upon

payment of additional premium. The insurance coverage was extended under the same terms and
conditions embodied in the original policies while in the process of making arrangements for the
transhipment of the cargo from Durban to Manila, covering the period October 4 - December 19, 1989.
However, on December 11, 1989, the cargo was sold in Durban, South Africa, for US$154.40 per metric ton
or a total of P10,304,231.75 due to its perishable nature which could no longer stand a voyage of twenty
days to Manila and another twenty days for the discharge thereof. On January 5, 1990, private respondent
forthwith reduced its claim to US$448,806.09 (or its peso equivalent of P9,879,928.89 at the exchange rate
of P22.0138 per $1.00) representing private respondent's loss after the proceeds of the sale were deducted
from the original claim of $916,886.66 or P20,184,159.55.
Petitioner maintained its position that the arrest of the vessel by civil authorities on a question of ownership
was an excepted risk under the marine insurance policies. This prompted private respondent to file a
complaint for damages praying that aside from its claim, it be reimbursed the amount of P128,770.88 as
legal expenses and the interest it paid for the loan it obtained to finance the shipment totalling
P942,269.30. In addition, private respondent asked for moral damages amounting to P200,000.00,
exemplary damages amounting to P200,000.00 and attorney's fees equivalent to 30% of what will be
awarded by the court.
The lower court decided in favor of private respondent and required petitioner to pay, aside from the
insurance claim, consequential and liquidated damages amounting to P1,024,233.88, exemplary damages
amounting to P100,000.00, reimbursement in the amount equivalent to 10% of whatever is recovered as
attorney's fees as well as the costs of the suit. On private respondent's motion for reconsideration,
petitioner was also required to further pay interest at the rate of 12% per annum on all amounts due and
owing to the private respondent by virtue of the lower court decision counted from the inception of this case
until the same is paid.
On appeal, the Court of Appeals affirmed the decision of the lower court stating that with the deletion of
Clause 12 of the policies issued to private respondent, the same became automatically covered under
subsection 1.1 of Section 1 of the Institute War Clauses. The arrests, restraints or detainments
contemplated in the former clause were those effected by political or executive acts. Losses occasioned by
riot or ordinary judicial processes were not covered therein. In other words, arrest, restraint or detainment
within the meaning of Clause 12 (or F.C. & S. Clause) rules out detention by ordinary legal processes.
Hence, arrests by civil authorities, such as what happened in the instant case, is an excepted risk under
Clause 12 of the Institute Cargo Clause or the F.C. & S. Clause. However, with the deletion of Clause 12 of
the Institute Cargo Clause and the consequent adoption or institution of the Institute War Clauses (Cargo),
the arrest and seizure by judicial processes which were excluded under the former policy became one of
the covered risks.
The appellate court added that the failure to deliver the consigned goods in the port of destination is a loss
compensable, not only under the Institute War Clause but also under the Theft, Pilferage, and Non-delivery
Clause (TNPD) of the insurance policies, as read in relation to Section 130 of the Insurance Code and as
held in Williams v.Cole. 2
Furthermore, the appellate court contended that since the vessel was prevented at an intermediate port
from completing the voyage due to its seizure by civil authorities, a peril insured against, the liability of
petitioner continued until the goods could have been transhipped. But due to the perishable nature of the
goods, it had to be promptly sold to minimize loss. Accordingly, the sale of the goods being reasonable and
justified, it should not operate to discharge petitioner from its contractual liability.
Hence this petition, claiming that the Court of Appeals erred:
1. In ruling that the arrest of the vessel was a risk covered under the subject insurance policies.
2. In ruling that there was constructive total loss over the cargo.
3. In ruling that petitioner was in bad faith in declining private respondent's claim.
4. In giving undue reliance to the doctrine that insurance policies are strictly construed against the insurer.
In assigning the first error, petitioner submits the following: (a) an arrest by civil authority is not
compensable since the term "arrest" refers to "political or executive acts" and does not include a loss

caused by riot or by ordinary judicial process as in this case; (b) the deletion of the Free from capture or
Seizure Clause would leave the assured covered solely for the perils specified by the wording of the policy
itself; (c) the rationale for the exclusion of an arrest pursuant to judicial authorities is to eliminate collusion
between unscrupulous assured and civil authorities.
As to the second assigned error, petitioner submits that any loss which private respondent may have
incurred was in the nature and form of unrecovered acquisition value brought about by a voluntary sacrifice
sale and not by arrest, detention or seizure of the ship.
As to the third issue, petitioner alleges that its act of rejecting the claim was a result of its honest belief that
the arrest of the vessel was not a compensable risk under the policies issued. In fact, petitioner supported
private respondent by accommodating the latter's request for an extension of the insurance coverage,
notwithstanding that it was then under no legal obligation to do so.
Private respondent, on the other hand, argued that when it appealed its case to the Court of Appeals,
petitioner did not raise as an issue the award of exemplary damages. It cannot now, for the first time, raise
the same before this Court. Likewise, petitioner cannot submit for the first time on appeal its argument that
it was wrong for the Court of Appeals to have ruled the way it did based on facts that would need inquiry
into the evidence. Even if inquiry into the facts were possible, such was not necessary because the
coverage as ruled upon by the Court of Appeals is evident from the very terms of the policies.
It also argued that petitioner, being the sole author of the policies, "arrests" should be strictly interpreted
against it because the rule is that any ambiguity is to be taken contra proferentum. Risk policies should be
construed reasonably and in a manner as to make effective the intentions and expectations of the parties. It
added that the policies clearly stipulate that they cover the risks of non-delivery of an entire package and
that it was petitioner itself that invited and granted the extensions and collected premiums thereon.
The resolution of this controversy hinges on the interpretation of the "Perils" clause of the subject policies in
relation to the excluded risks or warranty specifically stated therein.
By way of a historical background, marine insurance developed as an all-risk coverage, using the phrase
"perils of the sea" to encompass the wide and varied range of risks that were covered. 3 The subject policies
contain the "Perils" clause which is a standard form in any marine insurance policy. Said clause reads:
Touching the adventures which the said MALAYAN INSURANCE CO., are content to bear,
and to take upon them in this voyage; they are of the Seas; Men-of-War, Fire, Enemies,
Pirates, Rovers, Thieves, Jettisons, Letters of Mart and Counter Mart, Suprisals, Takings of
the Sea, Arrests, Restraints and Detainments of all Kings, Princess and Peoples, of what
Nation, Condition, or quality soever, Barratry of the Master and Mariners, and of all other
Perils, Losses, and Misfortunes, that have come to hurt, detriment, or damage of the said
goods and merchandise or any part thereof . AND in case of any loss or misfortune it shall
be lawful to the ASSURED, their factors, servants and assigns, to sue, labour, and travel for,
in and about the defence, safeguards, and recovery of the said goods and merchandises,
and ship, & c., or any part thereof, without prejudice to this INSURANCE; to the charges
whereof the said COMPANY, will contribute according to the rate and quantity of the sum
herein INSURED. AND it is expressly declared and agreed that no acts of the Insurer or
Insured in recovering, saving, or preserving the Property insured shall be considered as a
Waiver, or Acceptance of Abandonment. And it is agreed by the said COMPANY, that this
writing or Policy of INSURANCE shall be of as much Force and Effect as the surest Writing
or policy of INSURANCE made in LONDON. And so the said MALAYAN INSURANCE
COMPANY., INC., are contented, and do hereby promise and bind themselves, their Heirs,
Executors, Goods and Chattel, to the ASSURED, his or their Executors, Administrators, or
Assigns, for the true Performance of the Premises; confessing themselves paid the
Consideration due unto them for this INSURANCE at and after the rate arranged.
(Emphasis supplied)
The exception or limitation to the "Perils" clause and the "All other perils" clause in the subject policies is
specifically referred to as Clause 12 called the "Free from Capture & Seizure Clause" or the F.C. & S.
Clause which reads, thus:

Warranted free of capture, seizure, arrest, restraint or detainment, and the consequences
thereof or of any attempt thereat; also from the consequences of hostilities and warlike
operations, whether there be a declaration of war or not; but this warranty shall not exclude
collision, contact with any fixed or floating object (other than a mine or torpedo), stranding,
heavy weather or fire unless caused directly (and independently of the nature of the voyage
or service which the vessel concerned or, in the case of a collision, any other vessel
involved therein is performing) by a hostile act by or against a belligerent power and for the
purpose of this warranty "power" includes any authorities maintaining naval, military or air
forces in association with power.
Further warranted free from the consequences of civil war, revolution, insurrection, or civil
strike arising therefrom or piracy.
Should Clause 12 be deleted, the relevant current institute war clauses shall be deemed to
form part of this insurance. (Emphasis supplied)
However, the F. C. & S. Clause was deleted from the policies. Consequently, the Institute War Clauses
(Cargo) was deemed incorporated which, in subsection 1.1 of Section 1, provides:
1. This insurance covers:
1.1 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; but
this warranty shall not exclude collision, contact with any fixed or floating object (other than
a mine or torpedo), stranding, heavy weather or fire unless caused directly (and
independently of the nature on voyage or service which the vessel concerned or, in the case
of a collision any other vessel involved therein is performing) by a hostile act by or against a
belligerent power; and for the purpose of this warranty "power" includes any authority
maintaining naval, military or air forces in association with a power. Further warranted free
from the consequences of civil war, revolution, rebellion, insurrection, or civil strike arising
therefrom, or piracy.
According to petitioner, the automatic incorporation of subsection 1.1 of section 1 of the Institute War
Clauses (Cargo), among others, means that any "capture, arrest, detention, etc." pertained exclusively to
warlike operations if this Court strictly construes the heading of the said clauses. However, it also claims
that the parties intended to include arrests, etc. even if it were not the result of hostilities or warlike
operations. It further claims that on the strength of jurisprudence on the matter, the term "arrests" would
only cover those arising from political or executive acts, concluding that whether private respondent's claim
is anchored on subsection 1.1 of Section 1 of the Institute War Clauses (Cargo) or the F.C. & S. Clause, the
arrest of the vessel by judicial authorities is an excluded risk. 4
This Court cannot agree with petitioner's assertions, particularly when it alleges that in the "Perils" Clause,
it assumed the risk of arrest caused solely by executive or political acts of the government of the seizing
state and thereby excludes "arrests" caused by ordinary legal processes, such as in the instant case.
With the incorporation of subsection 1.1 of Section 1 of the Institute War Clauses, however, this Court
agrees with the Court of Appeals and the private respondent that "arrest" caused by ordinary judicial
process is deemed included among the covered risks. This interpretation becomes inevitable when
subsection 1.1 of Section 1 of the Institute War Clauses provided that "this insurance covers the risks
excluded from the Standard Form of English Marine Policy by the clause "Warranted free of capture,
seizure, arrest, etc. . . ." or the F.C. & S. Clause. Jurisprudentially, "arrests" caused by ordinary judicial
process is also a risk excluded from the Standard Form of English Marine Policy by the F.C. & S. Clause.
Petitioner cannot adopt the argument that the "arrest" caused by ordinary judicial process is not included in
the covered risk simply because the F.C. & S. Clause under the Institute War Clauses can only be
operative in case of hostilities or warlike operations on account of its heading "Institute War Clauses." This
Court agrees with the Court of Appeals when it held that ". . . . Although the F.C. & S. Clause may have
originally been inserted in marine policies to protect against risks of war, (see generally G. Gilmore & C.
Black, The Law of Admiralty Section 2-9, at 71-73 [2d Ed. 1975]), its interpretation in recent years to

include seizure or detention by civil authorities seems consistent with the general purposes of the clause, . .
. ." 5 In fact, petitioner itself averred that subsection 1.1 of Section 1 of the Institute War Clauses included
"arrest" even if it were not a result of hostilities or warlike operations. 6 In this regard, since what was also
excluded in the deleted F.C. & S. Clause was "arrest" occasioned by ordinary judicial process, logically, such
"arrest" would now become a covered risk under subsection 1.1 of Section 1 of the Institute War Clauses,
regardless of whether or not said "arrest" by civil authorities occurred in a state of war.
Petitioner itself seems to be confused about the application of the F.C. & S. Clause as well as that of
subsection 1.1 of Section 1 of the Institute War Clauses (Cargo). 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 . . . ." 7 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 were not a
result of hostilities or warlike operations. 8
This Court cannot help the impression that petitioner is overly straining its interpretation of the provisions of
the policy in order to avoid being liable for private respondent's claim.
This Court finds it pointless for petitioner to maintain its position that it only insures risks of "arrest"
occasioned by executive or political acts of government which is interpreted as not referring to those
caused by ordinary legal processes as contained in the "Perils" Clause; deletes the F.C. & S. Clause which
excludes risks of arrest occasioned by executive or political acts of the government and naturally, also
those caused by ordinary legal processes; and, thereafter incorporates subsection 1.1 of Section 1 of the
Institute War Clauses which now includes in the coverage risks of arrest due to executive or political acts of
a government but then still excludes "arrests" occasioned by ordinary legal processes when subsection 1.1
of Section 1 of said Clauses should also have included "arrests" previously excluded from the coverage of
the F.C. & S. Clause.
It has been held that 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. 9 Likewise, it must be
borne in mind that such contracts are invariably prepared by the companies and must be accepted by the
insured in the form in which they are written. 10 Any construction of a marine policy rendering it void should be
avoided. 11 Such policies will, therefore, be construed strictly against the company in order to avoid a forfeiture,
unless no other result is possible from the language used. 12
If a marine insurance company desires to limit or restrict the operation of the general provisions of its
contract by special proviso, exception, or exemption, it should express such limitation in clear and
unmistakable language. 13Obviously, 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) gave rise to ambiguity. If the risk of arrest
occasioned by ordinary judicial process was expressly indicated as an exception in the subject policies, there
would have been no controversy with respect to the interpretation of the subject clauses.
Be that as it may, exceptions to the general coverage are construed most strongly against the
company. 14 Even an express exception in a policy is to be construed against the underwriters by whom the
policy is framed, and for whose benefit the exception is introduced. 15
An insurance contract should be so interpreted as to carry out the purpose for which the parties entered
into the contract which is, to insure against risks of loss or damage to the goods. Such interpretation should
result from the natural and reasonable meaning of language in the policy. 16 Where restrictive provisions are
open to two interpretations, that which is most favorable to the insured is adopted. 17
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. 18 A
contract of insurance, being a contract of adhesion, par excellence, any ambiguity therein should be resolved
against the insurer; in other words, it should be construed liberally in favor of the insured and strictly against the
insurer. Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as
to preclude the insurer from noncompliance with its obligations. 19
In view of the foregoing, this Court sees no need to discuss the other issues presented.
WHEREFORE, the petition for review is DENIED and the decision of the Court of Appeals is AFFIRMED.

SO ORDERED.
Regalado, Puno, Mendoza, and Torres, Jr., JJ., concur.