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. 18 The perfected contract of sale
between him and the shipper of the goods operates to vest in him
an equitable title even before delivery or before 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.