Insurance over the cargo

Open Cargo Policy

“The shipper insures all its shipments as described in the policy irrespective of route, time of shipment, or
class of approved vessel. There is automatic coverage. Thus, in one case, the Court said that a marine open
policy is the blanket insurance to be undertaken by the insurer on all goods to be shipped by the consignee
during the existence of the contract. It was noted that a Marine Risk Note is not the Open Cargo Policy. It
merely constitute an acknowledgement or declaration of the shipper about the specific shipment covered
by the marine insurance policy, the evaluation of the cargo and the chargeable premium. ”

ALL RISK POLICY

Petitioner imported some lactose crystals from Holland. The goods were loaded at the port at Rotterdam in
sea vans on board the vessel “MS Benalder” and thereafter another vessel “Wesser Broker V-25 of
respondent Ben Lines Container Ltd. The goods were insured by the respondent Filipino Merchants’
Insurance Co against all risk under the terms of the insurance cargo policy. Upon arrival at the port of
Manila, the cargo was discharged only to find out that of the 600 bags delivered to petitioner, 403 were in
bad order. The survey showed that the bad order bags suffered spillage.

The insurance policy covers all loss or damage to the cargo except those cause by delay of inherent vice or
nature of the cargo insured. It is the duty of the respondent insurance company to establish that said loss or
damaged falls within the exceptions provided for by law, otherwise it is liable therefor. Al “all risk”
provision of a marine policy created 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. In this case, the damage cause to the cargo has not
been attributed to any of the exceptions provided for nor is there any pretensions to this effect. Thus, the
liability of respondent insurance company is clear.

2. Filipino Merchants Insurance Co., Inc. vs Court of Appeals and Choa Tiek Seng, GR No. 85141,
November 28, 1989

Choa insured 600 tons of fishmeal for the sum of P267,653.59 from Bangkok, Thailand to Manila against
all risks under warehouse to warehouse terms. What was imported in the SS Bougainville was 59.940 metric
tons at $395.42 a ton. The cargo was unloaded from the ship and 227 bags were found to be in bad condition
by the arrastre. Choa made a formal claim against the defendant Filipino Merchants Insurance Company
for P51,568.62 He also presented a claim against the ship, but the defendant Filipino Merchants Insurance
Company refused to pay the claim. The plaintiff brought an action against the company and presented a
third party complaint against the vessel and the arrastre contractor.

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.“

An "all risks policy" should be read literally as meaning all risks whatsoever and covering all losses by an
accidental cause of any kind. “Accident” is construed by the courts in their ordinary and common
acceptance. The very nature of the term "all risks" must be given a broad and comprehensive meaning as
covering any loss other than a wilful and fraudulent act of the insured. This is pursuant to the very purpose
of an "all risks" insurance to give protection to the insured in those cases where difficulties of logical
explanation or some mystery surround the loss or damage to property. Institute Cargo Clauses 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.

3. New World International Development vs NYK- FilJapan Shipping Corp., GR No. 171468, August
24, 2011

Petitioner New World bought from DMT through its agent, Advatech three emergency generator sets worth
US$721,500.00. DMT shipped the generator sets by truck from Wisconsin, United States, to LEP Profit in
Chicago, Illinois. From there, the shipment went by train to Oakland, California, where it was loaded on S/S
California Luna V59, owned and operated by NYK for delivery to petitioner New World in Manila. NYK
issued a bill of lading, declaring that it received the goods in good condition. NYK unloaded the shipment
in Hong Kong and transhipped it to S/S ACX Ruby V/72 that it also owned and operated. On its journey to
Manila, however, ACX Ruby encountered typhoon Kadiang whose captain filed a sea protest on arrival at
the Manila South Harbor on October 5, 1993 respecting the loss and damage that the goods on board his
vessel suffered. Marina the Manila South Harbor arrastre or cargo-handling operator, received the shipment
on October 7, 1993. Upon inspection of the three container vans separately carrying the generator sets, two
vans bore signs of external damage while the third van appeared unscathed. The shipment remained at Pier
3’s Container Yard under Marina’s care pending clearance from the Bureau of Customs. Eventually, on
October 20, 1993 customs authorities allowed petitioner’s customs broker, Serbros Carrier Corporation, to
withdraw the shipment and deliver the same to petitioner New World’s job site in Makati City. An
examination of the three generator sets in the presence of petitioner New World’s representatives, Federal
Builders (the project contractor) and surveyors of petitioner New World’s insurer, Seaboard–Eastern
Insurance Company (Seaboard), revealed that all three sets suffered extensive damage and could no longer
be repaired. For these reasons, New World demanded recompense for its loss from respondents NYK,
DMT, Advatech, LEP Profit, LEP International Philippines, Inc. (LEP), Marina, and Serbros. While LEP
and NYK acknowledged receipt of the demand, both denied liability for the loss. Since Seaboard covered
the goods with a marine insurance policy, petitioner New World sent it a formal claim dated November 16,
1993. Replying on February 14, 1994, Seaboard required petitioner New World to submit to it an itemized
list of the damaged units, parts, and accessories, with corresponding values, for the processing of the claim.
But petitioner New World did not submit what was required of it, insisting that the insurance policy did
not include the submission of such a list in connection with an insurance claim. Reacting to this,
Seaboard refused to process the claim.

Petitioner New World asserts that the roles of respondents DMT, Advatech, LEP, LEP Profit, Marina and
Serbros in handling and transporting its shipment from Wisconsin to Manila collectively resulted in the
damage to the same, rendering such respondents solidarily liable with NYK, the vessel owner. But the issue
regarding which of the parties to a dispute incurred negligence is factual and is not a proper subject of a
petition for review on certiorari. And petitioner New World has been unable to make out an exception to
this rule. Consequently, the Court ruled that the generator sets were totally damaged during the
typhoon which beset the vessel’s voyage from Hong Kong to Manila and that it was her negligence in
continuing with that journey despite the adverse condition which caused petitioner New World’s loss. That
the loss was occasioned by a typhoon, an exempting cause under Article 1734 of the Civil Code, does not
automatically relieve the common carrier of liability. The latter (NYK common carrier) had the burden of
proving that the typhoon was the proximate and only cause of loss and that it exercised due diligence to
prevent or minimize such loss before, during, and after the disastrous typhoon. As found by the RTC and
the CA, NYK failed to discharge this burden.

Free of capture and seizure clause and Institute War Clause

Malayan Insurance Corporation vs The Hon. Court of Appeals and TKC Marketing Corporation
GR No. 119599, March 20, 1997

TKC Marketing Corp (TKC) had shipped 3189.171 matric tons of soya bean meal from Rio Del Grande,
Brazil to the Port of Manila. It was insured by Malayan Insurance Corp (MIC). While the ship was docked
in Durban , South Africa, it was arrested and detained by the civil authorities due to the questionable
ownership and possession. TKC thus made a formal complaint for the amount of 20, 184, 159.55 on the
policies and non-delivery of the cargo. MIC argued that the arrest was not covered by the insurance policy.
TKC advised MIC that it might transship the cargo and requested an extension of the insurance coverage
until actual transshipment; it was approved. The cargo was however sold due to perishable nature of goods.
MIC maintained that it was an expected risk and that it was not liable to pay the insurance.

The free of capture and seizure clause eliminates coverage for losses cause by war, piracy, or virtually any
lawful or unlawful taking or seizure of the vessel or cargo.

Institute war clause may be expressly provided to be deemed to form part of the policy if the FC&S clause
will be deleted. The clause provides that the insurance covers risks covered by the FC&S including captures,
seizure, arrest, restraint or detainment. When the IWC is deemed part of the policy, it also includes arrest
by ordinary judicial process and not necessarily only by means of political acts. Consistent with the general
purpose of the clause, the IWC includes seizures or detention by civil authorities.

Perils of the Sea and All Other like Perils

La Razon Social “Go Tiaco y Hermanos” vs Union Insurance Society of Canton Ltd. GR No. 13982,
September 1, 1919
A cargo of rice belonging to the Go Tiaoco Brothers, 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 1,473 sacks had been damaged
by sea water. The loss so resulting to the owners of rice, after proper deduction had been made for the
portion saved, was P3,875. The policy of insurance, covering the shipment, 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." It was found out
that 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 longitude in an 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 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. An action on a policy of marine insurance issued by the
Union Insurance Society of Canton, Ltd., upon the cargo of rice belonging to the Go Tiaoco Brothers was
filed. The trial court found that the inflow of the seawater 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 Union Insurance and Go Tiaoco Brothers appealed.

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 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 on the
other hand that expression is to receive a limited construction and loss by perils of the seas is to be confined
to loss ex marine tempestatis discrimine, the general words become most important. But still, 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. 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." Herein, 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.

Cathat Insurance vs Court of Appeals GR No. 190271, September 14, 2016

A complaint was 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.

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.