Cathay Insurance Co. vs. Court of Appeals

Rusting of steel pipes in the course of a sea voyage constitutes a "peril of the sea" under a marine insurance policy, and any ambiguity in the policy's coverage provisions must be construed against the insurer as the drafter thereof.

Remington Industrial Sales Corporation was the insured, consignee, and importer of a shipment of seamless steel pipes transported from Japan to the Philippines aboard the vessel SS "Eastern Mariner." Cathay Insurance Co. issued a marine insurance policy covering the shipment while in transit. The total value of the shipment was P2,894,463.83 at the prevailing exchange rate of P7.95 to a dollar in June and July 1984, when the shipment was made.

Remington Industrial Sales Corporation, as insured, consignee, and importer, shipped seamless steel pipes from Japan to the Philippines aboard the vessel SS "Eastern Mariner." The shipment, valued at P2,894,463.83 at the prevailing exchange rate of P7.95 to a dollar, was made in June and July 1984. Cathay Insurance Co. had issued a marine insurance policy covering the cargo while in transit, the opening sentence of which referenced "perils of the sea."

The voyage lasted seven days, from July 1 to July 7, 1981. Upon arrival, the steel pipes were found to be in a rusty condition. Remington received the pipes at its bodega and placed the notation "rusty" on the way bills, which it characterized as a natural and spontaneous reaction to the condition of the cargo upon receipt. Remington thereafter submitted proof of loss to Cathay Insurance, claiming P868,339.15 representing its losses and damages from the rusting.

Cathay Insurance denied the claim. The insurer maintained that the rusting was not covered by the policy, arguing that rust is an inherent vice of steel pipes rather than a peril of the sea. Petitioner also invoked the 15-day clause in the policy and the absence of a bad order survey from the arrastre, and introduced cargo receipts or tally sheets indicating no damage to the steel pipes during the voyage. It further contended that heavy rusting of steel or iron pipes cannot occur within a seven-day voyage, characterizing this as a fact of unquestionable demonstration or public knowledge requiring no evidence.

Remington countered that coverage under the policy was unmistakable, that contractual limitations in insurance policies must be strictly construed against the insurer, and that rust is not an inherent vice of seamless steel pipes absent external factors. The insured also noted that the 15-day clause had been foreclosed in the pre-trial order and was not even raised in petitioner's answer to the complaint. The trial court found that the loss allowance of 30% was proper and credited the testimony of two witnesses who clarified the absence of a bad order survey from the arrastre. The Court of Appeals affirmed these factual findings, including the 30% loss allowance and the 34% per annum interest rate fixed by the policy and the Insurance Code.

• Express Exception to Coverage: Petitioner maintained that there is an express exception to the application of the policy, and that private respondent admitted the shipment is not covered by a "square provision of the contract" but instead claims implied coverage from the phrase "perils of the sea" in the opening sentence of the policy.
• Rust Not a Peril of the Sea: Petitioner argued that private respondent's insistence that rusting is a peril of the sea is erroneous, and that rusting is not a risk insured against since an insurable risk must be a casualty that could not be foreseen as one of the necessary incidents of the adventure.
• Rust as Inherent Vice: Petitioner contended that while a loss occasioned by inherent defect or vice in the insured article is not within the policy's terms, private respondent erroneously insists that rusting is not an inherent vice of steel pipes.
• Strict Construction Misapplied: Petitioner argued that private respondent inaccurately invokes the rule of strict construction against the insurer under the guise of imparting a non-existing ambiguity or doubt into the policy so as to resolve it against the insurer.
• Impossibility of Heavy Rusting in Seven Days: Petitioner maintained that heavy rusting of steel or iron pipes cannot occur within a seven-day voyage, a fact of unquestionable demonstration or public knowledge needing no evidence, and pointed to clear cargo receipts or tally sheets indicating no damage during the voyage.
• Speculative Damages: Petitioner argued that the award of P868,339.15 was founded on speculation, surmises, or conjectures, and that the amount of loss was not proven by competent, satisfactory, and clear evidence.

• Unmistakable Coverage: Respondent contended that coverage of its loss under the insurance policy issued by petitioner is unmistakable.
• Strict Construction Against Insurer: Respondent argued that contractual limitations in insurance policies are regarded with extreme caution by courts and must 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.
• Rust Not Inherent Vice: Respondent maintained that rust is not an inherent vice of seamless steel pipes without interference of external factors.
• 15-Day Clause Foreclosed: Respondent argued that the 15-day clause of the policy had been foreclosed in the pre-trial order and was not even raised in petitioner's answer to the complaint.
• Timing of Rusting: Respondent contended that the decision was correct in not holding that the heavy rusting of the seamless steel pipes did not occur during the voyage of seven days from July 1 to July 7, 1981.
• Bad Order Survey Clarified: Respondent argued that the alleged lack of a bad order survey from the arrastre was more than clarified by no less than two witnesses.
• Notation of "Rusty": Respondent maintained that placing the notation "rusty" on the way bills was not only its right but a natural and spontaneous reaction of whoever received the seamless steel pipes in a rusty condition at its bodega.
• No Speculation in Award: Respondent argued that 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.
• Interest Rate Proper: Respondent contended that 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.

• Coverage Under Perils of the Sea: Whether the rusting of steel pipes during a sea voyage constitutes a "peril of the sea" under the marine insurance policy.
• Strict Construction Against Insurer: Whether the policy's coverage provisions must be construed against the insurer as drafter.
• Binding Effect of Appellate Factual Findings: Whether the factual findings of the Court of Appeals are binding on the Supreme Court.

• Coverage Under Perils of the Sea: Yes. 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.
• Strict Construction Against Insurer: Yes. Any ambiguity in the insurance contract must be construed against the maker, issuer, or drafter thereof — the insurer — pursuant to the cardinal rule of contract interpretation.
• Binding Effect of Appellate Factual Findings: Yes. Save for certain exceptions, findings of fact of the appellate tribunal are binding on the Supreme Court, and none of the exceptions apply to this case.

• Coverage Under Perils of the Sea: The Court found that the rusting of steel pipes during a voyage qualifies as a "peril of the sea" because of the toll on the cargo of wind, water, and salt conditions encountered during transit. The Court reasoned that if the insurer could not be held accountable for such damage, the precise purpose of insuring cargo during a voyage would be rendered fruitless. The Court also noted that any attack on the 15-day clause in the policy had been foreclosed at the pre-trial conference, removing that potential defense from consideration.
• Strict Construction Against Insurer: The Court applied the cardinal rule of contract interpretation that ambiguities in a contract should be construed against the maker, issuer, or drafter — in this case, the insurer. Even if the coverage question were considered ambiguous, the resolution would favor the insured. The Court emphasized that obscure phrases and exceptions should not be allowed to defeat the very purpose for which the policy was procured, reinforcing the insured's right to coverage.
• Binding Effect of Appellate Factual Findings: The Court reaffirmed the doctrine that, save for certain exceptions, the factual findings of the appellate tribunal are binding on the Supreme Court. The Court found that none of the recognized exceptions applied to this case, thereby upholding the Court of Appeals' factual findings, including the 30% loss allowance and the interest rate of 34% per annum.

• Perils of the Sea in Marine Insurance — The rusting of steel pipes during a sea voyage constitutes a "peril of the sea" due to the toll on the cargo of wind, water, and salt conditions. The Court applied this principle to hold the insurer liable for rust damage sustained by the insured's shipment during a seven-day voyage from Japan to the Philippines, emphasizing that the purpose of marine cargo insurance would be rendered fruitless if such damage were excluded.
• Construal of Insurance Contracts Against the Insurer — Any ambiguity in an insurance contract must be construed against the maker, issuer, or drafter thereof, namely the insurer. The Court relied on this cardinal rule as an alternative ground for sustaining coverage, holding that obscure phrases and exceptions in the policy should not defeat the purpose for which the policy was procured.
• Binding Effect of Appellate Court's Factual Findings — Save for certain exceptions, the factual findings of the appellate tribunal are binding on the Supreme Court. The Court found none of the recognized exceptions applicable, thereby upholding the Court of Appeals' findings on the loss allowance and interest rate.

• "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." — This is the ratio decidendi, establishing that rusting of steel pipes during maritime transit falls within the coverage of "perils of the sea" under a marine insurance policy.
• "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." — This articulates the dual rationale of strict construction against the insurer and purposive interpretation of marine insurance contracts.
• "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." — This states the doctrine on the binding effect of the appellate court's factual findings on the Supreme Court.

• Insurance Code — Referenced in connection with the 34% per annum interest rate, described as double the ceiling prescribed by the Monetary Board, fixed by the insurance policy itself and the Insurance Code. The specific article is not cited in the text.
• Settlement of Claim Provision of the Policy — Applied by the trial court to fix the interest rate at 34% per annum from February 3, 1982, or 90 days from private respondent's submission of proof of loss, until paid.

Fernan (Chairman), Gutierrez, Jr., and Cortes, JJ., concurred.