FGU Insurance Corporation vs. Court of Appeals

A common carrier is not exempted from liability for loss of goods due to a natural disaster if the disaster was not the proximate and only cause of the loss, and the carrier's negligence contributed to the loss. Furthermore, an insurer is exonerated from liability when the insured's negligence is so gross as to amount to a willful act or misconduct, as opposed to ordinary negligence which is part of the risk the insurer assumes.

Anco Enterprises Company (ANCO) was a partnership between Ang Gui and Co To engaged in the shipping business, operating the M/T ANCO tugboat and the D/B Lucio barge as common carriers. The D/B Lucio had no engine of its own and had to be towed by a tugboat. San Miguel Corporation (SMC) shipped cargoes of beer on board the D/B Lucio, and ANCO procured a marine insurance policy from FGU Insurance Corporation covering the cargoes. A prior case, Civil Case No. R-19341, involved a different insurance contract between ANCO and FGU covering the vessel D/B Lucio itself, which was adjudged a constructive total loss.

Anco Enterprises Company (ANCO), a partnership between Ang Gui and Co To, was engaged in the shipping business, owning the M/T ANCO tugboat and the D/B Lucio barge, which were operated as common carriers. The D/B Lucio had no engine of its own and had to be towed by a tugboat to move from one place to another. On 23 September 1979, San Miguel Corporation (SMC) shipped from Mandaue City, Cebu, on board the D/B Lucio, for towage by M/T ANCO, cargoes consisting of 25,000 cases of Pale Pilsen and 350 cases of Cerveza Negra destined for Estancia, Iloilo, and 15,000 cases of Pale Pilsen and 200 cases of Cerveza Negra destined for San Jose, Antique. The consignees were SMC's Beer Marketing Division offices in Estancia and San Jose.

The D/B Lucio was towed by the M/T ANCO from Mandaue City to San Jose, Antique, arriving at about one o'clock in the afternoon of 30 September 1979. The tugboat M/T ANCO left the barge immediately after reaching San Jose, Antique. When the vessels arrived, the clouds over the area were dark and the waves were already big. The arrastre workers unloading the cargoes began to complain about their difficulty in unloading. SMC's District Sales Supervisor, Fernando Macabuag, requested ANCO's representative to transfer the barge to a safer place because the vessel might not withstand the big waves. ANCO's representative did not heed the request, confident that the barge could withstand the waves, notwithstanding that only the M/T ANCO was left at the wharf as all other vessels had left to seek shelter. Only 10,790 cases of beer were discharged into the custody of the arrastre operator.

At about ten to eleven o'clock in the evening of 01 October 1979, the crew of D/B Lucio abandoned the vessel because the barge's rope attached to the wharf was cut off by the big waves. At around midnight, the barge ran aground and was broken, and the cargoes of beer were swept away. ANCO failed to deliver to SMC's consignee 29,210 cases of Pale Pilsen and 550 cases of Cerveza Negra. The value per case of Pale Pilsen was P45.20 and of Cerveza Negra was P47.10, making SMC's claim against ANCO amount to P1,346,197.00.

SMC filed a complaint for Breach of Contract of Carriage and Damages against ANCO. Upon Ang Gui's death, ANCO, as a partnership, was dissolved, and on 26 January 1993, SMC filed a second amended complaint impleading the surviving partner Co To and the Estate of Ang Gui. ANCO admitted the loading of the cargoes but claimed it had an agreement with SMC that it would not be liable for losses due to fortuitous events, asserting the loss was caused by a storm. ANCO also asserted there was an agreement to insure the cargoes, which were insured with FGU for a total amount of P858,500.00 per Marine Insurance Policy No. 29591. ANCO filed a Third-Party Complaint against FGU, alleging that the loss occurred as a result of risks insured against in the policy. FGU admitted the existence of the policy but maintained it was only liable in case of total loss of the entire shipment, loss of any case as a result of the sinking of the vessel, or loss as a result of the vessel being on fire, and alleged that ANCO and SMC failed to exercise ordinary diligence in the care of the cargoes.

The trial court found that while the cargoes were indeed lost due to a fortuitous event, there was failure on ANCO's part to observe the degree of diligence required that would exonerate them from liability. The trial court held the Estate of Ang Gui and Co To liable to SMC and found FGU liable to bear 53% of the amount of the lost cargoes, reasoning that since the total cargo was 40,550 cases worth P1,833,905.00 and the policy was only for P858,500.00, the defendants as assured were co-insurers to the extent of P975,405.00, and since there was partial loss of only P1,346,197.00, the assured shall bear 53% of the loss. The appellate court affirmed in toto.

• Res Judicata: FGU argued that the Court of Appeals committed an error of law in holding that the doctrine of res judicata applies in the instant case.
• Insurance Liability: FGU argued that the Court of Appeals committed grave abuse of discretion in holding FGU liable under the insurance contract considering the circumstances surrounding the loss of the cargoes.
• Proximate Cause: The Estate of Ang Gui and Co To argued that the Court of Appeals committed grave abuse of discretion in affirming the findings of the lower court that the negligence of the crewmembers of the D/B Lucio was the proximate cause of the loss of the cargoes.
• Res Judicata (Estate): The Estate of Ang Gui and Co To argued that the respondent court acted with grave abuse of discretion when it ruled that the appeal was without merit despite the fact that said court had accepted the decision in Civil Case No. R-19341, as affirmed by the Court of Appeals and the Supreme Court, as res judicata.

• Fortuitous Event: ANCO contended that the decision in Civil Case No. R-19341, which was decided in its favor, constitutes res judicata with respect to the issues raised in the case at bar.
• Due Diligence: ANCO claimed that its crewmembers exercised due diligence to prevent or minimize the loss of the cargoes but their efforts proved no match to the forces unleashed by the typhoon, which was a natural calamity, a fortuitous event, an act of God, the consequences of which petitioners could not be held liable for.
• Negligence Defense: FGU alleged that the Third-Party Plaintiff ANCO and Plaintiff SMC failed to exercise ordinary diligence or the diligence of a good father of the family in the care and supervision of the cargoes insured to prevent its loss and/or destruction.

• Res Judicata: Whether the doctrine of res judicata applies between Civil Case No. R-19341 and the instant case.
• Proximate Cause: Whether the negligence of ANCO's representatives was the proximate cause of the loss of the cargoes.
• Insurance Liability: Whether FGU can be held liable under the insurance policy to reimburse ANCO for the loss of the cargoes despite the findings that such loss was occasioned by the blatant negligence of the latter's employees.

• Res Judicata: No. The doctrine of res judicata does not apply because there was no identity of parties, subject matter, and causes of action between Civil Case No. R-19341 and the instant case.
• Proximate Cause: Yes. The blatant negligence of ANCO's representatives was the proximate cause of the loss, and the natural disaster was not the proximate and only cause of the loss, so ANCO could not be exempted from liability under Article 1739 of the Civil Code.
• Insurance Liability: No. FGU is exonerated from liability because the blatant negligence of ANCO's employees was of such gross character that it amounts to a wrongful act, which releases the insurer from liability under the insurance contract.

• Res Judicata: The Court enumerated the essential requisites for res judicata to apply: (1) the former judgment must be final; (2) the former judgment must have been rendered by a court having jurisdiction over the subject matter and the parties; (3) the former judgment must be a judgment or order on the merits; and (4) there must be between the first and second action identity of parties, identity of subject matter, and identity of causes of action. While the first three elements were satisfied, the fourth was absent. The parties in Civil Case No. R-19341 were ANCO as plaintiff and FGU as defendant, while in the instant case, SMC is the plaintiff and the Estate of Ang Gui and Co To as defendants, with FGU impleaded as third-party defendant. The subject matter of the first case was the insurance contract covering the vessel D/B Lucio, while the instant case involves the loss of the cargoes of SMC. The prior decision resolved only three issues: seaworthiness of the vessel, proper notice of loss, and constructive total loss of the vessel. It did not pass upon the liability of ANCO for the loss of the cargoes or the alleged negligence of the crewmembers. The doctrine of res judicata precludes re-litigation of a particular fact or issue already passed upon, and since the prior case did not adjudicate the issues in the present case, only findings with respect to matters passed upon in the former judgment are conclusive.

• Proximate Cause: The Court applied the rule that findings of fact of lower courts, particularly when affirmed by the appellate court, are deemed final and conclusive, and the Supreme Court cannot review such findings on appeal unless they are totally devoid of support or are glaringly erroneous as to constitute palpable error or grave abuse of discretion. The Court found no cogent reason to fault the findings of the lower courts. ANCO admitted failure to deliver the cargoes. The patron of the tugboat M/T ANCO left the engine-less barge D/B Lucio to fend for itself despite signs of the impending storm, and ANCO's representative failed to heed the request to transfer the barge to a safer place. The other vessels at the port were transferred to Malandong, 5 kilometers from the wharf, and were definitely safer. Under Article 1733 of the Civil Code, common carriers are bound to observe extraordinary diligence in the vigilance over goods. Under Article 1739, in order for the common carrier to be exempted from responsibility, the natural disaster must have been the proximate and only cause of the loss, and the carrier must exercise due diligence to prevent or minimize loss. The calamity was not unforeseen nor unavoidable, as other vessels managed to transfer to another place. Citing Limpangco Sons vs. Yangco Steamship Co., the Court held that to be exempt from liability because of an act of God, the tug must be free from any previous negligence or misconduct by which that loss or damage may have been occasioned. The blatant negligence of the crewmembers, first in leaving the engine-less barge at the mercy of the storm without the assistance of the tugboat, and again in failing to heed the request to transfer the barge to a safer place, was the proximate cause of the loss.

• Insurance Liability: The Court recognized the basic rule in insurance that the carelessness and negligence of the insured or his agents constitute no defense on the part of the insurer, as one of the purposes of insurance is to protect the insured against the consequences of his own negligence. However, this rule presupposes that the loss has occurred due to causes which could not have been prevented by the insured despite the exercise of due diligence. The Court distinguished between ordinary negligence and gross negligence or negligence amounting to misconduct. Citing Standard Marine Ins. Co. vs. Nome Beach L. & T. Co., the Court noted that ordinary negligence of the insured and his agents is part of the risk the insurer takes upon himself, but willful exposure, gross negligence, negligence amounting to misconduct, etc., release the insurer from liability. Citing Williams vs. New England Insurance Co., the Court stated that while mistakes and negligence of the master or crew are incident to navigation and constitute a part of the perils the insurer is obliged to incur, such negligence or recklessness must not be of such gross character as to amount to misconduct or wrongful acts. The trial court and appellate court both concluded that the crewmembers were blatantly negligent. The Court, taking into account the circumstances, concluded that the blatant negligence of ANCO's employees was of such gross character that it amounts to a wrongful act which must exonerate FGU from liability under the insurance contract.

• Res Judicata — The doctrine precludes the re-litigation of a particular fact or issue already passed upon by a court of competent jurisdiction in a former judgment, in another action between the same parties based on a different claim or cause of action. The essential requisites are: (1) the former judgment must be final; (2) the former judgment must have been rendered by a court having jurisdiction over the subject matter and the parties; (3) the former judgment must be a judgment or order on the merits; and (4) there must be identity of parties, identity of subject matter, and identity of causes of action between the first and second action. The judgment in the prior action operates as estoppel only as to those matters in issue or points controverted, upon the determination of which the finding or judgment was rendered. In this case, the doctrine was inapplicable due to the absence of identity of parties, subject matter, and causes of action.

• Fortuitous Event / Caso Fortuito — Caso fortuito or force majeure are extraordinary events not foreseeable or avoidable, events that could not be foreseen, or which though foreseen, were inevitable. It is not enough that the event should not have been foreseen or anticipated; it must be one impossible to foresee or to avoid. Under Article 1739 of the Civil Code, in order that the common carrier may be exempted from responsibility, the natural disaster must have been the proximate and only cause of the loss, and the common carrier must exercise due diligence to prevent or minimize loss before, during, and after the occurrence of the natural disaster. The Court applied this doctrine to hold that the typhoon was not the proximate and only cause of the loss because ANCO's negligence contributed to it.

• Ordinary Negligence vs. Gross Negligence in Insurance — The ordinary negligence of the insured and his agents is part of the risk which the insurer takes upon himself, and the existence of such negligence, where it is the proximate cause of the loss, does not absolve the insurer from liability. However, willful exposure, gross negligence, or negligence amounting to misconduct release the insurer from liability. While mistakes and negligence of the master or crew are incident to navigation and constitute a part of the perils that the insurer is obliged to incur, such negligence or recklessness must not be of such gross character as to amount to misconduct or wrongful acts. The Court applied this doctrine to exonerate FGU from liability because ANCO's blatant negligence was of such gross character as to amount to a wrongful act.

• "To be exempt from liability because of an act of God, the tug must be free from any previous negligence or misconduct by which that loss or damage may have been occasioned. For, although the immediate or proximate cause of the loss in any given instance may have been what is termed an act of God, yet, if the tug unnecessarily exposed the two to such accident by any culpable act or omission of its own, it is not excused." — This passage from Limpangco Sons vs. Yangco Steamship Co. states the controlling rule that a common carrier cannot claim exemption from liability due to an act of God if its own previous negligence contributed to the loss.

• "The ordinary negligence of the insured and his agents has long been held as a part of the risk which the insurer takes upon himself, and the existence of which, where it is the proximate cause of the loss, does not absolve the insurer from liability. But willful exposure, gross negligence, negligence amounting to misconduct, etc., have often been held to release the insurer from such liability." — This passage from Standard Marine Ins. Co. vs. Nome Beach L. & T. Co. articulates the distinction between ordinary negligence, which is covered by insurance, and gross negligence amounting to misconduct, which releases the insurer from liability.

• "Authorities to prove that persons insured cannot recover for a loss occasioned by their own wrongful acts are hardly necessary, as the proposition involves an elementary principle of universal application. Losses may be recovered by the insured, though remotely occasioned by the negligence or misconduct of the master or crew, if proximately caused by the perils insured against, because such mistakes and negligence are incident to navigation and constitute a part of the perils which those who engage in such adventures are obliged to incur; but it was never supposed that the insured could recover indemnity for a loss occasioned by his own wrongful act or by that of any agent for whose conduct he was responsible." — This passage from Williams vs. New England Insurance Co. establishes the principle that an insured cannot recover for a loss occasioned by his own wrongful act or that of his agent, even though ordinary negligence of the crew is covered as a peril of navigation.

• Limpangco Sons vs. Yangco Steamship Co., 34 Phil. 597 (1916) — Cited as controlling authority for the rule that a tug must be free from any previous negligence or misconduct to be exempt from liability due to an act of God. The Court applied this principle to hold ANCO liable for the loss of cargo.

• Standard Marine Ins. Co. vs. Nome Beach L. & T. Co., 133 Fed R. 636 (1904) — Cited as authority for the distinction between ordinary negligence of the insured, which is part of the risk the insurer assumes, and gross negligence or negligence amounting to misconduct, which releases the insurer from liability. The Court applied this to exonerate FGU.

• Williams vs. New England Insurance Co., 3 Cliff. 244, Fed. Cas. No. 17,731 — Cited as authority for the principle that the insured cannot recover indemnity for a loss occasioned by his own wrongful act or that of any agent for whose conduct he is responsible. The Court applied this to hold that ANCO's gross negligence amounted to a wrongful act.

• Donato vs. Court of Appeals, G.R. No. 102603, 18 January 1993, 217 SCRA 196 — Cited for the fundamental and settled rule that findings of fact by the trial court are entitled to great weight on appeal and should not be disturbed unless for strong and cogent reasons, because the trial court is in a better position to examine real evidence and observe the demeanor of witnesses.

• Padillo vs. Court of Appeals, 422 Phil 334, 350 (2001) — Cited as one of the authorities enumerating the essential requisites for the application of res judicata.

• Article 1733, Civil Code of the Philippines — Provides that common carriers are bound to observe extraordinary diligence in the vigilance over the goods and for the safety of the passengers transported by them, according to all the circumstances of each case. The Court applied this to hold ANCO liable for failing to exercise the required degree of diligence.

• Article 1734, Civil Code of the Philippines — Provides that common carriers are responsible for the loss, destruction, or deterioration of the goods, unless the same is due to causes including flood, storm, earthquake, lightning, or other natural disaster or calamity. The Court considered this provision in determining whether ANCO could claim exemption.

• Article 1739, Civil Code of the Philippines — Provides that in order that the common carrier may be exempted from responsibility, the natural disaster must have been the proximate and only cause of the loss, and the common carrier must exercise due diligence to prevent or minimize loss before, during, and after the occurrence of flood, storm, or other natural disaster. The Court applied this to hold that the typhoon was not the proximate and only cause of the loss due to ANCO's negligence.

Puno (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concurred.