Marine Insurance
MARINE INSURANCE
(Title 1, ICP)
1 . D E F I N I T I O N A N D SC O P E ( SE C . 1 0 1 )
MI covers loss or damage to property, and even persons, in connection
with all risks or perils of navigation. In addition, MI includes “marine
protection and indemnity insurance” against liability incidental to
ownership, operation, maintenance or construction of vessels and
facilities therefore. (The current Code retains verbatim the provisions in
Sec. 99 of the Insurance Code of 1978.)
- Includes other properties and risks which may not be necessarily
connected at all with navigation but include “any and all risks or
perils of navigation transit or transportation” and even precious
stones, jewels, jewelry, and precious metals, whether in the course
of transportation or otherwise.
Construction of a MI Policy
It is worth noting that a MI contract is categorized under the contracts of
the law merchant. By virtue of this fact, more weight is given to
established usage pertinent to that branch of law in the construction of MI
contracts.
The term “goods and merchandise” generally cover all articles laden upon
the ship for mercantile purposes, excluding those boarded upon the ship
for other reasons. For instance, clothing of the officers and the crew as
well as the provisions intended to be consumed on a passenger vessel
would not be embraced by the term, unless such objects are transported
as merchandise. The owner of the vessel has an insurable interest in
expected freightage.
Go Tiaoco y Hermanos vs Union Insurance Society of Canton, Ltd.,
G.R. No. 13983, Sept. 1, 1919
2. AVERAGES
The liability of the IR under an insurance contract may be affected by the
averages suffered by the subject of the insurance and also by the
agreement under the policy regarding the inclusion or exclusion of any
particular average under the policy.
The doctrine of general average contribution in cases of marine disaster
belongs properly to admiralty law, but such doctrine is frequently used in
adjusting insurance payments as a particular policy may or may not
declare that it is free from a certain kind of average loss.
“AVERAGE” (Definition under COC) any extraordinary or accidental
expense incurred during the voyage for the preservation of the vessel,
cargo, or both and all damages to the vessel and the cargo from the time it
is loaded and the voyage commenced until it ends and the cargo is
unloaded.
Example:
Jettison – the intentional casting overboard of any part of a venture
exposed to peril whether it be of the cargo, or of the ship’s furniture or
tackle, in the hope of saving the rest of the venture.
o The loss incurred in doing so is an extraordinary expense made
to preserve the ship itself and the cargo.
In admiralty law, there are TWO KINDS OF AVERAGES: general average
losses and particular average losses.
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a. GENERAL AVERAGE (Article 811, Code of Commerce)
General Averages include damages and expenses which are deliberately
caused by the master of the vessel, acting for all the interests concerned,
to sacrifice any part of a venture exposed to a common and imminent peril
in order to save the rest, the interests so saved are compelled to contribute
pro rata to the owner of the sacrifice fall equally upon all who are
benefited.
The loss is borne not by the owner of the vessel alone, but by all the
owners of the interests involved, who are pro tanto obliged to give
proportionate or GA contributions to make up for such loss.
Vance (well-known publicist): a device for the limited (pro rata) distribution
of loss.
Reason: The sacrifice was made for the common benefit of all who
have an interest in the venture.
Examples: Jettison, the bringing into port of vessels for repairs or re-
handling of cargo
Magsaysay, Inc. vs Agan
96 Phil 504 (1955)
SC laid down the requisites for General Average, to wit:
1. There must be a common danger. Both the ship and the cargo,
after having been loaded, are subject to the same danger,
whether during the voyage, or in the port or loading or
unloading. The danger arises from the accidents of the sea,
dispositions of the authority, or faults of men, provided that the
circumstances producing the peril should be ascertained and
imminent or may rationally be said to be certain and imminent.
This last requirement excludes measures undertaken against a
distant peril.
2. That for the common safety, part of the vessel or of the cargo or
both is sacrificed deliberately.
3. That from the expenses or damages caused follows the
successful saving of the vessel and cargo.
4. That the expenses or damages should have been incurred or
inflicted after taking proper legal steps and authority.
(Procedural Requirements)
Vance: …and the sacrifice was made by the master or upon his authority
and that it was not caused by any fault of the party asking for the
contribution. (Sacrifice + No Fault)
o Sec. 138, last clause, ICP
Sets forth the liability of an IR for GA
“x x x but such insurer is liable for his proportion of all general average loss
assessed upon the thing insured.”
Jarque v. Smith, Bell & Co. Ltd.
56 Phil 758 (1930)
Court held that in this jurisdiction, the liability for contribution to GA is not
based on the express terms of the policy, but rests upon the theory that
from the relation of the parties and for their benefit, a quasi-contract is
implied by law.
Marine Insurance
o Article 859, Code of Commerce (mandatory)
The insurers, whether for the vessel or for the freight or for the cargo
are bound to contribute to the indemnity of the General Average.
o Article 812, Code of Commerce
It places the IR in the same footing as other persons who have
an interest in the vessel, or the cargo therein, at the time of the
occurrence of the GA by compelling them to contribute.
Protections to the IR: Limitations to the IR’s liability for
contribution to the portion attaching to the value of the
policy
o Sec. 166-167, ICP (LIMITATIONS)
Sec. 166: A marine insurer is liable for a loss falling upon the ID,
through a contribution in respect to the thing insured, required to
be made by him towards a general average loss called for by a
peril insured against; provided, that the liability of the IR shall be
limited to the proportion of contribution attaching to his policy
value where this is less than the contributing value of the thing
insured.
Sec. 167: When a person insured by a contract of MI has a demand
against others for contribution, he may claim the whole loss from
the IR, subrogating him to his own right to contribution. But no
such claim can be made upon the IR:
1. After the separation of the interests liable to the contribution,
nor when the ID
2. Having the right and opportunity to enforce the contribution
from others, has neglected or waived the exercise of that
right. (Waiver/Estoppel)
Compagnie de Commerce et de Navigation d’ Extreme Orient vs The
Hamburg Amerika Pachetfacht Actien Gesselschaft
36 Phil 590 (1917)
There was a charter party agreement whereby a vessel was obliged to
deliver cargo from Saigon to a port in Hamburg. However, due to the
impending war among European countries, the vessel obtained a bill of
health and stayed in Manila. (During those times, a bill of health was
required to ensure that the vessel was not carrying infectious diseases
from the port of origin.) As a result, the cargo deteriorated. The owner of
the cargo filed an action to recover the full value of the cargo.
Court did not sustain the claim of the ship owner for GA because under the
said rules, it is necessary that the loss or damage was made for the
common safety in order to successfully claim for a general average.
Authorities, according to the Court, are of the unanimous opinion that
claims for GA must be supported by proof that the sacrifices were made to
avert a common imminent peril, and that extraordinary expenses, for
which reimbursement is sought, were incurred for the joint benefit of ship
and cargo. There was no GA in this case because the act of the master of
the vessel in taking refuge in Manila was solely for the purpose of saving
the vessel and not for the common safety of vessel and cargo.
LESSON: It’s a matter of PROOF.
b. PARTICULAR AVERAGE (Article 809, Code of Commerce)
Particular Averages (PAs) include all damages and expenses caused to the
vessel or to her cargo that have not inured to the common benefit and
profit of all the persons interested in the vessel and her cargo. PA losses
are usually partial losses. These are the losses which occur under such
circumstances which do not entitle the unfortunate owners to receive
contribution from the other owners concerned in the same venture. They
must be borne by the owner of the vessel alone. These are merely losses
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suffered by and borne alone by particular interests in a venture, and not
by all persons contributing ratably.
Examples: A vessel is accidentally run aground and gets destroyed after
the cargo is saved; wages of the crew when the vessel is detained by
reason of force majeure. (It can be a case of GA if there was sufficient proof)
The liability of the IR for PA would depend on the terms of the policy. The
IR may stipulate that it shall not be liable for PA (FPA or fee from PA), in
which case the stipulation would control and its liability would be limited
to contribution to GA only under Sec. 136 of the Code.
DEPTALS EXAM
Magsaysay, Inc. v. Agan
(How to classify a loss as a general or particular average)
A vessel owned and operated by Magsaysay (“M”) ran aground while in a
port for a stopover. Because attempts to refloat the vessel using its own
power failed, M had it refloated by a stevedoring company at an agreed
compensation. At the point of destination, the cargo was delivered to their
respective owners and consignees. However, the shippers refused to
contribute to the average.
M theorized that the expenses in floating the vessel constitute a GA to
which both the ship and the cargo owners should contribute.
Agan denies liability alleging that the stranding of the vessel was due to
the fault, negligence and lack of skill of its master and, hence, the expenses
for refloating the vessel did not constitute a GA.
RULING: Although the stranding of the vessel was accidental, such
expenses fall under Particular Average. The Court used the
enumerations under Art. 809 and 811 of the Code of Commerce, and
number 2 of Article 809 referring to expenses suffered by the vessel “by
reason of an accident of the sea or force majeure”. For GAs to apply, under
Art. 811, these should have been expenses caused in order to refloat a
vessel when it was intentionally stranded for purposes of saving it. Since
the requisite procedures for GAs was not followed, the claim of M cannot
be granted.
Philippine Home Assurance v. CA
257 SCRA 468 (1996)
The case involved salvaging of a vessel due to a small flame in the
acetylene cylinder that exploded.
RULING: Court upheld the rule that the procedure prescribed by Arts 813
and 814 of the Code of Commerce must be complied with so that expenses
and damages may be classified as GA. The Court ruled that due to non-
compliance with the prescribed procedure, it cannot be a claim for GAs
and the IR cannot recover from the consignees what it has paid the owner
of the vessel.
NOTE: Distinguish PA from GA.
3. RISKS COVERED
a. Perils of the sea versus
b. Perils of the ship
In ascertaining the liability of an IR under a marine policy, a distinction is
often made between “perils of the sea” and “perils of the ship”. Marine
policies generally cover only “perils of the sea”.
Marine Insurance
Perils of the sea covers only those casualties due to unusual violence or
extraordinary action of wind and wave, or to other extraordinary causes
connected with navigation; it does not include losses resulting from
ordinary wear and tear, or other damage incident to the voyage, which
would fall under the category of perils of the ship.
La Razon v. Union Insurance Society of Canton, Ltd.,
40 Phil 40 (1919)
Concept of perils of the sea
Under the marine policy issued by the IR, the cargo was insured against
“Perils . . . of the seas, men of war, fire, enemies, pirates, rovers, thieves,
jettisons, letters of mart and countermart, surprisals, takings at sea,
arrests, restraints, and detainments, of all kings, princes, and people, of
what nation, condition, or quality soever, barratry of the master and
mariners, and of all other perils, losses, and misfortunes that have or
shall come to the hurt, detriment, or damage of the said goods and
merchandise or any part thereof.”
It was found that the cause of the damage of the vessel was a defect in one
of the drain pipes of the ship.
RULING: SC characterized the loss occasioned by the inflow of sea water
into the ship’s hold through the defective pipe as a “peril of the ship”. This
was because the defect causing the damage was not due to any accident
but to failure of the ship owner to properly repair a defect of which he was
apprised. The loss was, thus, due to simple unseaworthiness. Moreover,
the defect was due to ordinary wear and tear. Therefore, it was not
caused by a “peril of the sea”.
Roque v. IAC
139 SCRA 596 (1985)
Reiteration: In marine cases, the risks insured against are “perils of the
sea”. These cover only losses that are of an extraordinary nature, or arise
from some overwhelming power, which cannot be guarded against by the
ordinary exertion of human skill and prudence. Any damage attributable
to the inherent vice of the vessel or to the act of the owners, masters or
shippers, shall not be considered a peril, unless the policy provides
otherwise.
RULING: The Court absolved the IR because the vessel sank on account of
“perils of the ship”. At the time of the misfortune, there was no typhoon
but ordinary strong wind and waves, a condition which is natural and
normal in the open sea. The sinking of the vessel was found to be due to
the improper loading of the cargo logs such that the barge tilted to one
side, hence, could not be navigated or even keeled. This ultimately led to
the sinking of the vessel, due to the unseaworthiness of the vessel and the
negligence of the crew.
Cathay v. CA
151 SCRA 710 (1987)
Court considered the rusting of seamless steel pipes in transit as “perils of
the sea” because of the toll on the cargo of wind, water and salt conditions.
(Mechanical Failures not yet known by the parties)
Malayan Insurance v. CA
270 SCRA 242 (1997)
There was a deletion of the “Free from Capture & Seizure” clause from the
policy, which meant that when the vessel’s cargo of soya bean meal was
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arrested and detained by the authorities in South America, it was an arrest
that was a covered risk in the insurance policy, since the risk of “arrest” is
caused by any ordinary judicial process.
The EXCEPTION to a “perils of the sea” condition for IR liability is when
there is an “ALL-RISK POLICY”.
4. I N SU R A B L E I N T E R E S T I N MA R I N E
I N SU R A N C E
Peculiar Provision in MI: Concept of “lost or not lost” provision in
reference to the subject of MI, wherein both the IR and the ID are not
certain if the vessel is already lost at sea
a. SHIP OWNER (Secs. 102, 105, ICP)
The owner of the ship has an Insurable Interest in two things:
(1) The vessel in all cases; and
(2) The expected freightage in some situations.
The owner of the vessel (VO) always has an Insurable Interest in it.
However, in the event the vessel has been chartered, and the charterer
contracts to pay him its value in case of loss, the IR is liable only for the part
of the loss that cannot be recovered from the charterer.
Where the ship is hypothecated by bottomry, that is when the owner
secures a loan against his interest in the vessel and is payable only when
the vessel has completed its voyage, the Insurable Interest is only the value
of the ship not secured by bottomry.
b. FREIGHTAGE (Secs. 104, 105 ICP)
Signifies all the benefits derived by the owner either from (1) the
chartering of the ship; or (2) its employment for the carriage of his own
goods or those of others.
The ship owner also has an II in expected freightage, which he would have
earned in the ordinary and probable course of things if it were not for the
happening of the peril insured against or other peril incident to the
voyage.
Code lists instances where there are special rules for the commencement
of existence of the interest. In the specific case of a charter party, the II in
expected freightage exists only when the ship has broken ground on the
chartered voyage. In the instance where a price is to be paid for the
carriage of the goods, the interest exists when (1) the goods are actually
on board, or there is some contract for putting them on board, and (2)
both the ship and goods are ready for the specified voyage.
c. CHARTERER (Sec. 108, ICP)
The charterer of a ship has an insurable interest in the vessel to the extent
that he is liable to be damnified by its loss.
A charter party is a contract by which an entire ship or some principal part
thereof is let by the owner to another owner person for a specified time or
use. The ship owner and the charterer could stipulate that the latter pay
for the value of the vessel in case of loss, the charterer, then has II over the
extent of its value. The charterer also has II in the profits he expects to earn
by carrying the goods in excess of the amount he agreed to pay for the
charter of the vessel.
2 TYPES OF CHARTER PARTIES
1. Bareboat or Demise Charter
Refers to where the whole vessel itself is leased out, and the
charterer must provide his own crew and supplies for the voyage.
Marine Insurance
This has powerful implications on the liability of the charterer for
loss or damage because he is essentially in charge of the vessel.
2. Contract of Affreightment
The owner of the vessel only leases part or all of its space to haul the
goods of them. It is a contract of special service to be rendered by the
owner of the vessel who retains the possession, command and
navigation of the ship, the charterer or freighter merely having use
of the space in the vessel in return for the payment of the charter hire
or freight.
2 SUBCLASSES of contracts of Affreightment
a) Voyage or trip charter – a contract for only one or a series
of voyages
b) Time charter – where the vessel can be used for a specified
period of time
The type of charter parties becomes controversial in determining the
liability of the ship owner.
Coastwise Lighterage Corp. vs CA
245 SCRA 796 (1995)
The contract was deemed to be that of affreightment and not of a demise,
and the transaction was not said to be a private carrier on lease, but rather,
the ship owner was a common carrier, making the ship owner liable for
breach of contract when it failed to exercise extraordinary diligence in
avoiding the loss or destruction of the goods transported.
Lea Mer Industries vs Malayan Insurance
471 SCRA 698 (2005)
SC ruled that the contract was that of affreightment as shown by the fact
that it was the ship owner’s crew that manned the tugboat and controlled
the barge.
Planters Products, Inc. vs CA,
226 SCRA 476 (1993)
“It is therefore the imperative that a public carrier shall remain as such,
notwithstanding the charter of the whole or portion of a vessel by one or
more persons, provided the charter is limited to the ship only, as in the
case of a time charter or voyage-charter. It is only when the charter
includes both the vessel and its crew, as in a bareboat or demise that a
common carrier become private, at least insofar as the particular voyage
covering the charter-party is concerned. Indubitably, a shipowner in a
time or voyage charter retains possession and control of the ship, although
her holds may, for the moment, be the property of the charterer.”
Loadstar Shipping vs Pioneer
479 SCRA 655 (2006)
The existence of a charter agreement did not remove the status of the ship
owner as a common carrier. The agreement was limited to the ship only
and did not involve both the vessel and its crew. Its charter is only a
voyage-charter, not a bareboat charter.
Puromines, Inc. vs CA, 220 SCRA 281 (1993)
5. CONCEALMENT AND REPRESENTATIONS
In MI, the law requires a broader spectrum of information to be disclosed
by the parties compared to what the law generally requires for all
contracts of insurance. The more stringent rules on concealment in MI is
usually explained by the fact that until the advent of advanced
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communication, the IR had to rely heavily on the ID for facts affecting the
degree of risk.
The rules on disclosure applicable to every insurance contract also apply
to MI contracts, but it does have additional safeguards and in a sense
stricter, given the additional requirements.
In addition to what Sec. 28 of the Code requires that each party in MI must
communicate ALL the information in his possession which is material to
the risk except those which he is not bound to communicate according to
Sec. 30 of the Code except upon inquiry by the other party.
Material information includes the information of the belief or expectation
of a third person regarding a material fact. (Sec. 110)
There is also a PRESUMPTION of knowledge of a prior loss at the time of
insuring, if the information might have possibly reached the ID in the usual
mode of transmission and at the usual rate of communication.
Sec. 111: However, not all concealments in a MI render the entire contract
void. In the following, the IR is merely exonerated from losses resulting
from the risk which was concealed, to wit:
a. The national character of the ID;
b. The liability of the thing insured to capture and detention;
c. The liability to seizure from breach of foreign laws of trade;
d. The want of necessary documents;
e. The use of false and simulated papers.
Sec. 113: If a representation by a person insured by a contract of MI is
intentionally false in any material respect, or in respect of any fact on
which the character and nature of the risk depends, the IR may rescind the
entire contract.
Sec. 114: The eventual falsity of a representation as to expectation does
not, in the absence of fraud, avoid a contract of MI.
6. IMPLIED WARRANTIES
(Secs. 102, 116, 117, 122, 123, 124, 125, ICP)
Implied in every contract of MI are 3 conditions upon the IR’s liability for
the risks assumed else the IR will not be liable. These conditions are
usually termed implied warranties.
In the Code are 3 IMPLIED WARRANTIES: (1) seaworthiness of the
vessel, (2) improper deviation, and (3) proper documentation. A fourth
implied warranty can be considered and that is (4) not to engage in an
illegal venture, such as carrying out illegal trade or contraband.
Seaworthiness of the vessel
 The ship is seaworthy when it is reasonably fit to perform the service
and to encounter the ordinary perils of the voyage contemplated by
the parties to the policy.
 This is not an absolute guarantee that the vessel will safely meet all
possible perils.
 Sec. 118: The warranty of seaworthiness extends not only to the
condition of the structure of the ship, but requires that the ship be
(1) Properly laden;
(2) Provided with a competent master, and a sufficient number
of competent officers and seamen; and
(3) Provided with the requisite appurtenances and equipment.
“ALAS!” –Atty. Mendoza, 2018
 Complied with if the ship is seaworthy at the time of the
commencement of the risk, which is the start of the voyage.
Thereafter, the Code provides special rules for different cases to
determine the seaworthiness. Thus, when the insurance is for a
Marine Insurance
specified length of time, the seaworthiness must exist at the
commencement of every voyage of the ship covered by the period;
when the insurance is upon cargo which must be transshipped at an
intermediate port, seaworthiness is a requirement for each vessel
which will carry the cargo at the commencement of each particular
voyage.
 However, even if the ship starts out as seaworthy but becomes
unseaworthy at some time during the voyage, any unreasonable
delay in repairing the defect exonerates the insurer on ship or
shipowner’s interest from any liability for loss arising therefrom.
(Sec. 120)
 Seaworthiness also depends on the type of insurance taken. A ship
seaworthy for purposes of insurance on the ship may not be
seaworthy for purposes of insurance on the cargo if the ship is not
reasonably capable of safely carrying the cargo to a proper port of
destination. (American jurisprudence has shown that this provision
can be cited to rule against the liability of the IR because the ship was
deemed to be unseaworthy with respect to the cargo.)
Roque v. IAC
139 SCRA 596
There is an implied warranty of seaworthiness upon the ship or upon any
thing which is the subject of MI following the clear provision of Sec. 115 of
the Code. Here, the owner of the cargo sought indemnity from the IR,
claiming that as mere owner of the cargo, she had no control over the
vessel and, therefore, the warranty of seaworthiness does not apply to
her. The Court rejected this argument and explained how the warranty
attaches, in this wise:
“x x x there can be mistaking the fact that the term ‘cargo’ can be
subject of MI and that once it is so made, the implied warranty
immediately attaches to whoever is insuring the cargo whether he
be the shipowner or not x x x”
Since the law provides for an implied warranty of seaworthiness in every
contract of ordinary MI, it becomes the obligation of the cargo owner to
look for a reliable common carrier which keeps its vessels in seaworthy
condition. The shipper of the 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.
IMPLIED WARRANTY AGAINST IMPROPER DEVIATION
What is voyage insured?
In MI policies, the voyage insured is described by naming the ports of
departure and of destination, and the voyage insured would depend on
whether the course of sailing is fixed by mercantile usage. If it is so fixed,
the voyage insured is one which conforms to the course of sailing fixed by
mercantile usage between the ports of departure and destination named;
If the course of sailing is not fixed by mercantile usage, the voyage insured
is that way between the places specified, which to a master of ordinary
skill and discretion, would mean the most natural, direct and
advantageous.
 If the voyage insured is not followed, there is a deviation.
 Deviation may occur in any of 3 ways:
1. A departure from the course of the voyage insured, as
expressed in the policy
2. An unreasonable delay in pursuing the voyage, or
3. The commencement of an entirely different voyage
 A deviation may either be proper or improper.
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Sec. 126: A deviation is PROPER under the following
circumstances: (IR not exonerated, ID is excused)
1. When caused by circumstances over which neither the
master nor the owner of the ship has any control
2. When necessary to comply with a warranty, or to avoid
a peril, whether or not the peril is insured against
3. When made in good faith, and upon reasonable
grounds of belief in its necessity to avoid a peril, or
4. When made in good faith, for the purposes of saving
human life or relieving another vessel in distress.
 Every deviation which does not fall within the above
enumeration is considered Improper Deviation (Sec. 127)
 Improper deviation exonerates the IR because the ID, in effect,
novated the contract without the consent of the IR. In effect, it
has put additional risks that affected the seaworthiness of the
vessel.
IMPLIED WARRANTY OF PROPER DOCUMENTATION
Sec. 122: Where the nationality or neutrality of a ship or cargo is
expressly warranty, it is implied that the ship will carry the requisite
documents to show such nationality or neutrality and that it will not carry
any document which casts reasonable suspicion thereon.
7. KINDS OF LOSSES COVERED
The liability of the IR in MI is determined by the terms of the contract.
However, there are principles unique to MI which must be considered.
Among these are the concepts of total and partial loss.
a. ACTUAL TOTAL LOSS
(Sec. 132, ICP); Presumption of Actual Total Loss
Total loss may either be ACTUAL or CONSTRUCTIVE total loss. (Sec. 131)
In actual total loss, an insured event makes it impossible for the subject to
reach its destination in specie. Total loss is when the things insured are
wholly lost or destroyed or when they are so greatly damaged as to be
worthless.
Sec. 132 provides for the causes of actual total loss:
1. A total destruction of the thing insured;
2. The irretrievable loss of the thing by sinking, or by being broken
up;
3. Any damage to the thing which renders it valueless to the
owner for the purpose for which he held it; or
4. Any other event which effectively deprives the owner of the
possession, at the port of destination, of the thing insured.
Illustrations:
 Where a vessel sinks deep in sea and can no longer be refloated
 Or when it gets burned or reefed
 Or is wholly broken to pieces
 Where the ship has gotten so injured that it no longer exists as a
ship, but is a mere confused mass of material
 Such destruction may equally apply to goods covered by MI
Malayan Insurance vs CA
201 SCRA 382 (1991)
The insured cargo consisted of rice seeds, which was prone to the risks of
germination and spoilage. The barge sank after the carrier deviated from
its route. The ID was notified that only 78% of the cargo was destroyed.
The IR refused recovery, so the question of total loss was made the issue.
Marine Insurance
RULING: SC sided with the ID and held that there was an actual total loss.
The rice seeds were treated and would germinate upon mere contact with
water. The Court explained that there is an actual total loss where the
cargo no longer remains the same kind of thing it was before because of
decomposition or other chemical agency. It was emphasized that the
complete physical destruction of the subject matter is not essential to
constitute a total loss. There may be such a loss where the form and specie
of the thing is destroyed, although the materials constituting it still exist.
Philippine Manufacturing v. Union Insurance Society of Canton, Ltd.,
42 Phil 378 (1921)
An insurance company insured a steel tank under a policy which
stipulates “warranted against the absolute loss of the lighter only”.
During the life of the policy and as a result of a typhoon, the lighter was
sunk in Manila Bay. The IR denied liability on the ground that there was
no absolute total loss as, upon its instruction, the ID was able to raise the
vessel and reconstruct it, although the cost of the salvage and repairs were
substantially equal to the original cost of the lighter and its value as
stipulated in the policy.
RULING: SC ruled that there was an actual total loss for which the IR is
liable on the basis of then Section 123(c) of Act. 2427. The provision states
that there is an actual total loss where there exists any damage to the thing
which renders it VALUELESS to the owner for the purpose for which he
held it.
The Court observed that at the time the lighter was sunk and in the bottom
of the bay under the conditions then and there existing, it was of no value
to the owner, and, hence, an actual total loss according to the then
provision.
In English practice, a vessel is a total loss when it has sustained such
extensive damage which renders it reasonably impractical to repair it.
Presumption of Actual Total Loss – when there is continued absence of a
ship without being heard of. The length of time before the presumption
arises would depend on the circumstances of the case. (Sec. 134)
b. CONSTRUCTIVE TOTAL LOSS ( F O C U S)
In constructive total loss, it would be possible for the property to reach the
destination in specie but the cost of doing so is greater than the value of
the subject.
Such loss which gives to a person a right to abandon under Sec. 141.
The DIFFERENCE between actual and constructive loss is that in the
latter, there is a need for proper abandonment before the IR can claim
total loss; whereas in the former, the ID has a right to claim payment even
without notice of abandonment. (Sec. 137)
The requirements of abandonment under Sec. 141 must be complied
with to recover under a policy for constructive total loss. Non-compliance
is fatal to recovery.
Oriental Assurance v. CA
200 SCRA 459 (1991)
Panama Sawmill hired a carrier to transport 1,208 of Apitong logs. The
shipment was insured for “Total Loss Only”. The logs were loaded on 2
barges and these barges were towed by one tugboat. During the voyage,
rough seas and strong winds caused damage to one of the barges resulting
in the loss of 497 pieces of logs out of the 598 pieces loaded thereon. The
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IR refused to pay on the ground that its contracted liability was for “Total
Loss Only”.
ISSUE: Whether the IR could be held liable on the policy based on the
theory of a divisible contract of insurance and, consequently, a
constructive total loss.
RULING: No liability attaches to the IR under the policy. The Court
maintained that the terms of the contract are the measure of the IR’s
liability and compliance therewith is a condition precedent to the IR’s
liability. Whether a contract is entire or severable is a question of
intention to be determined by the language employed by the parties. The
Court found that the contract was indivisible. It took into consideration
several factors such as the fact that the logs on the two barges were not
separately valued or separately insured and that only one premium was
paid for the entire shipment so there was only one cause / consideration.
Here, when it was argued to be a case of constructive total loss, the Court
declared that there was no such loss because the requirements for the
application of Sec. 141 and then Sec. 139 of the Insurance Code of 1978 for
the determination of CTL have not been made. Said section requires that
more than three-fourths of the value of the shipment is actually lost before
there can be a right to abandon, resulting in the CTL asserted.
In light of the fact that the logs have been insured as one inseparable unit,
both barges must also be treated as an inseparable unit for the 75%
requirement for a CTL. Since the cost of the loss did not exceed 75% of the
value of all the insured logs, the shipment cannot be said to have sustained
a CTL. Absent a total loss, there can be no recovery against the IR.
ALL-RISK MI POLICIES, ADDITIONAL EXCEPTION
 The “INHERENT VICE” Clause – the deterioration of the insured
property attributable to ordinary wear and tear is excluded from the
coverage of the insurance
• But there can be recovery when the natural deterioration is caused
or hastened by a “peril of the sea”
Choa Tiek Seng v. CA
183 SCRA 223 (1990)
Lactose crystals imported from Holland were insured under an “all risks”
clause that read as:
“The insurance is against all risks of loss or damage to
the subject matter insured but shall in no case be
deemed to extend to cover loss, damage, or expense
proximately caused by delay or inherent vice or
nature of the subject matter insured. Claims
recoverable hereunder shall be payable irrespective of
percentage.”
The lactose crystals, upon arrival at the port of Manila, were discharged
into the custody of the arrastre operator, prior to delivery to the
consignee. 403 out of the 600 bags were found to be in bad order,
prompting the cargo owner to file a claim for loss. The IR refused to pay
and filed a third-party complaint against the arrastre operator. The
appellate court dismissed the complaint holding that the “all risks”
coverage embraces only losses occasioned by and resulting from “extra
and fortuitous events”. It held that an “all-risk” coverage has a technical
meaning in MI, which necessitates the occurrence of a fortuitous event in
order to impose liability on the IR.
Marine Insurance
RULING: overturned this ruling, citing the case of Gloren. It was ruled in
that case 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 the fraud or intentional misconduct on the part of the ID.” Applying
this, the clear terms of the “all risks” clause in the policy require no
interpretation. There are only two excluded risks according to the clause
and it is the IR’s duty to establish that the loss falls within those exceptions
provided for by law or the contract. Failing in this, the claim for recovery
was sustained.
*It is sufficient to show that the damage was occasioned by some
accidental cause of any kind and there is no necessity to point to any
particular cause.
c. ABANDONMENT (SEC. 140-153, ICP)
Abandonment: (Sec 140) The act of the ID in which, after a constructive
total loss, he declares the relinquishment to the IR of his interest in the
thing insured (Definition of Abandonment)
 The right to abandonment belongs to the ID and arises only in cases
of CTL. However, there must be a showing of due regard to the IR’s
interest in the abandoned property, or to anything which may
remain of the insured property. The IR, by prompt action, might be
able to save part of the insured property and it is in his interest in this
which makes it necessary for the ID to give timely notice to the IR
about his intent to abandon.
 Sec. 143: An abandonment must be made within a reasonable time
after receipt of reliable information of the loss, but where the
information is of a doubtful character, the ID is entitled to a
reasonable time to make inquiry.
 Sec. 141: READ this as this contain the rule on constructive loss.
(Our version of the American Rule.)
 Abandonment must neither be partial nor conditional. (Sec. 142)
 The abandonment must be based on facts which are obtaining at the
time of the abandonment, otherwise the abandonment would be
ineffectual. (Reason: the existence of CTL must be ascertained
because this is what gives birth to the right to abandon)
 Hence, when the information upon which the abandonment was
based proves incorrect or the thing insured was so far restored at the
time of the abandonment, the abandonment becomes ineffectual
because there was in fact no total loss when the abandonment was
made.
 Secs. 145 and 146: the procedure and requisites for giving notice of
abandonment
 A written or oral notice is given to the IR. When the notice is given
orally, there must be a subsequent written notice submitted within
7 days from the date of giving notice. The notice must contain the
particular cause of the abandonment and must be explicit enough so
as to provide a showing of probable cause for abandonment. The
importance of indicating the particular cause is that an
abandonment can be sustained only upon the cause specified in the
notice.
EFFECTS OF AN ACCEPTED ABANDONMENT
(Sec. 152) - IR’S Acceptance may be Express or Implied
1. The interest of the ID is transferred to the IR with all the
chances of recovery and indemnity. The IR acquires the same
title to the abandoned vessel as he might have acquired by
purchase. He may save and repair her, sell her, or otherwise do
as he will with her
2. Acts done in good faith by those who were agents of the ID in
respect to the thing insured, subsequent to the loss, are at the
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risk of the IR and for his benefit. This is a necessary
consequence of the transfer of interest of the ID to the IR upon
acceptance of abandonment.
3. The acceptance of an abandonment, whether express or
implied, is conclusive upon the parties and admits the loss and
the sufficiency of the abandonment. The acceptance fixes the
rights of the parties and neither party can rescind the
transaction by reason of subsequent developments affecting
the expediency of either the abandonment or the acceptance.
4. An abandonment once made and accepted is irrevocable,
unless the ground upon which it is made proves to be
unfounded
5. Freightage earned previous to the loss belongs to the IR of said
freightage, but freightage subsequently earned belongs to the
IR of the ship
NOTE:
The IR may not unduly refuse or decline an abandonment declared by the
ID with proper notice because such refusal would prejudice the ID’s rights.
Should the IR refuse to accept a valid abandonment, he would still be liable
as upon an actual total loss, subject only to deductions which the ID
received from the proceeds of the thing insured. (Sec. 156)
 The effects of abandonment may still obtain even in the absence of a
formal abandonment (exception to general rule). This is sanctioned
by Sec. 149 which provides that if a marine insurer pays for a loss as
if it were an actual loss, he is entitled to whatever may remain of the
thing insured, or its proceeds or salvage, as if there had been a formal
abandonment.
d. PARTIAL LOSS
Every loss which is not total is partial (Sec. 130)
A MI policy may also stipulate that it insures partial loss.
Where the ID omits to abandon, he may recover only to the extent of his
actual loss. (Sec. 157)
(NOTE: Concept of Co-Insurance)
Aboitiz v. Philippine American General Insurance Co.,
173 SCRA 357 (1989)
Marinduque Mining shipped valve parts from the US. When the cargo
arrived in Manila, it was deposited in the office of Aboitiz Shipping for
transshipment to Nocnoc Island. However, before it was transshipped,
the cargo was pilfered (nanakaw). The IR paid Marinduque. The IR sought
reimbursement from Aboitiz. Aboitiz claimed that the cargo was not
covered by any insurance policy when the pilferage occurred.
RULING: Aboitiz is liable after a finding that the shipment was shielded
by a continuing open insurance coverage from the time it was loaded on
the vessel to the time of deposit with Aboitiz. The contention of Aboitiz
that stealing happened before it was loaded on its own vessel was not
recognized in view of the fact that the cargo was in possession of Aboitiz
in its office when the pilferage took place.
8. ME A SU R E O F I N D E MN I T Y
a. VALUED POLICY (SECS. 158, 161, ICP)
General Rule: A valuation in a MI policy is conclusive between the parties
in the adjustment of a partial or total loss
Exceptions:
(1) If the ID has no interest in the risk;
(2) If there is fraud on the part of the ID; and
Marine Insurance KAMM | 2018

(3) When the subject has been hypothecated by bottomry or
respondentia before its insurance and without the knowledge of
the person actually procuring the insurance
When the vessel is subject to a loan on bottomry or respondentia loan, the
ID may show the real value of the vessel. This is not so in the second case
of fraudulent valuation, where the IR is given the right to rescind the
contract.
Where there is partial loss of the ship or its equipment, the old materials
are to be deducted from the payment for the new ones. A marine insurer
is liable for only two-thirds of the remaining cost of repairs after such
deduction, unless the policy stipulates to the contrary, but anchors must
be paid in full. (Sec. 168)
Where profits are separately insured, the ID can recover a proportion of
the profits equivalent to the percentage of loss. (Sec. 160)

In a valued policy on freightage and cargo, if only a part is exposed to the
risk, the IR will be liable only for that proportionate value of the portion of
the subject exposed to the risk as against the total value of the thing as
stated in the policy. (Sec. 161)
In a MI on profits where the profits are valued in the policy, loss is
conclusively presumed from a loss of the thing from which the profits are
expected to arise. The valuation of the profits will fix the amount of the
loss.
OTHER EXPENSES FOR WHICH MARINE INSURER IS LIABLE
a. Repairs and Recovery
b. Contribution to General Average
Sec. 165: The liability of the IR includes expenses incurred when the ship
is forced into port for repairs because of a loss. Also, where the policy
stipulated that the ID must try to recover the property, the IR is liable for
the expenses incurred in such recovery. These expenses in both cases can
be added to the value of the total loss if it occurs afterwards.

b. OPEN POLICY (SEC. 163, ICP)
The value of the property is not stated in the policy. The value of the loss
is estimated only subsequent to the loss. The rules in determining the
value of the loss is provided for in Sec. 163 of the Code. ( R E A D T H I S ! )
c. PARTIAL LOSS (SEC. 159, ICP)
The simplest way of computing for the value of recovery in a MI policy is to
find the percentage or fraction of loss and multiply the value of the policy
by this amount. The fraction of loss is calculated by comparing the value
of the insured property would have had at the port of destination if it were
undamaged as against its value now that it is damaged. The IR is liable
only for the proportionate amount of the insurance taken. The extent of
the liability is only as to the value of the loss as against the value of the
whole insurable interest in the insured property. (Sec. 159)
Illustration:
If the subject is valued at P100,000, which is also the II of the ID, if an
insurance taken is P100,000 and the partial loss amounted to only
P20,000, the IR is only liable for P20,000. The IR is only liable to pay 20%
of the value of the insurance taken.
Sec. 166: The IR is liable for any general average loss where it is payable
or has been paid by the ID if there has been loss or damage from a peril
insured against. The liability of the IR shall be limited to the proportion of
the contribution attaching to his policy value where there is less than the
contributing value of the thing insured.
REVELANT CASES:
 Filipino Merchants Insurance vs CA, 179 SCRA 638 (1989)
 Caltex (Phils) Inc. vs Sulpicio Lines, 315 SCRA 709 (1999)
 Delsan Transport vs CA, 369 SCRA 24 (2001)
 Cebu Salvage vs Phil. Home Assurance, 512 SCRA 667 (2007)
 Keppel Cebu Shipyard vs Pioneer Insurance and Surety Corp., 601 SCRA
96; GR#s 180880-81 and 180896-97, Sept. 18, 2012
 Eastern Shipping Lines, Inc. (ESLI) vs BPI/MS Insurance Corp., and
Mitsui Sumitomo Insurance Co., Ltd., GR#182864 (Jan. 12, 2015)

If the insurance taken is less than the value of the II, the ID is deemed by
law to be a co-insurer of the IR. In fact, MI is said to be customarily co-
insurance unless the policy value is greater than the value of the insured
property. This is because if the loss does not cover the entire value of the
thing, the ID only receives from the IR the proportion of the insurance
corresponding to the percentage of the loss.

Illustration:
Same facts mentioned above. Except that now, the value of the insurance
taken is P60,000 instead of P100,000. Following the same loss percentage
above, the insured will only get 20% of the P60,000 which is P12,000
because there was only a 20% loss. As a result, the ID will therefore bear
the value of the loss which the IR is not liable to pay, which is the difference
between the total value of the loss and what he will recover. Thus, P8,000
of the loss of P20,000 will be shouldered by the ID.

In insurance of cargo, where the cargo arrives at the port of destination in

a damaged condition, the loss of the ID is the same percentage as the
difference between the market price of the damaged goods at the port of
destination and the market price if the goods had arrived in good
condition. (Sec. 164)

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