Filipino Merchants Insurance Co., Inc. vs. Court of Appeals

Under an "all risks" marine insurance policy, the insured need only prove that the cargo was in good condition when the policy attached and that it was damaged when unloaded from the vessel; thereafter, the burden shifts to the insurer to prove that the loss falls under an excepted peril. A consignee under a C&F contract has insurable interest in goods in transit by virtue of the perfected contract of sale, which vests equitable title even before delivery.

Private respondent Choa Tiek Seng was the consignee of a shipment of fishmeal transported from Bangkok, Thailand to Manila under a C&F Manila invoice. The shipment was insured with petitioner Filipino Merchants Insurance Co., Inc. under Marine Cargo Policy No. M-2678, an "all risks" policy on a warehouse-to-warehouse basis. Upon discharge at the Port of Manila, the cargo was turned over to arrastre contractor E. Razon, Inc., and damage was ascertained by the insurer's surveyor. When petitioner refused to pay the formal claim, private respondent sued, prompting petitioner to file a third-party complaint against the vessel owner and the arrastre contractor.

In December 1976, private respondent Choa Tiek Seng insured a shipment of fishmeal with petitioner Filipino Merchants Insurance Co., Inc. under Marine Cargo Policy No. M-2678 for P267,653.59. The policy covered 600 metric tons of fishmeal packed in new gunny bags of 90 kilos each, to be transported from Bangkok, Thailand to Manila against all risks under warehouse-to-warehouse terms. The actual importation was 59.940 metric tons at $395.42 a ton CNF Manila.

The fishmeal in 666 new gunny bags was unloaded from the vessel SS Bougainville on December 11, 1976 at the Port of Manila and turned over to arrastre contractor E. Razon, Inc. Petitioner's surveyor ascertained and certified that 105 bags were in bad order condition upon discharge, as jointly surveyed by the ship's agent and the arrastre contractor, the condition being reflected in the turn over survey report of Bad Order cargoes Nos. 120320 to 120322. The arrastre contractor also surveyed the cargo before delivery to the consignee, issuing Bad Order Certificate Nos. 14859, 14863, and 14869 covering a total of 227 bags in bad order condition. Petitioner's surveyor then conducted a final and detailed survey of the cargo in the warehouse, preparing a survey report showing a total shortage or loss on the 227 bad order bags amounting to 12,148 kilos.

Based on this computation, private respondent made a formal claim against petitioner for P51,568.62. A formal claim statement was likewise presented against the vessel dated December 21, 1976, but petitioner refused to pay. Private respondent consequently filed an action against petitioner, which in turn filed a third-party complaint against the vessel owner Compagnie Maritime Des Chargeurs Reunis and arrastre contractor E. Razon, Inc., seeking reimbursement in case judgment was rendered against it.

The trial court, after trial on the merits, rendered judgment in favor of private respondent, ordering petitioner to pay P51,568.62 with legal interest from the date of filing of the complaint, and ordering the third-party defendants to jointly and severally reimburse petitioner for amounts paid with legal interest. On appeal, the Court of Appeals affirmed the award on the main complaint and modified the disposition on the third-party complaint, dismissing the claim against Compagnie Maritime Des Chargeurs Reunis and ordering only E. Razon, Inc. to reimburse petitioner P25,471.80 with legal interest. A motion for reconsideration was denied, prompting the present petition.

• "All Risks" Clause Interpretation: Petitioner contended that an "all risks" marine policy has a technical meaning requiring proof of "some fortuity," "casualty," or "accidental cause" to which the loss is attributable, and that private respondent's failure to adduce evidence showing the loss was due to a fortuitous event precluded recovery.
• Insurable Interest: Petitioner argued that private respondent had no insurable interest in the subject cargo, rendering the marine insurance policy null and void.
• Fraud and Concealment: Petitioner maintained that private respondent was guilty of fraud in not disclosing, as bound by utmost good faith, that it had no insurable interest in the subject cargo, which bars recovery on the policy.

• "All Risks" Coverage: Whether an insured under an "all risks" marine insurance policy must prove the precise cause of loss or damage, or whether the burden shifts to the insurer to show the loss falls under an excepted peril.
• Insurable Interest: Whether a consignee under a C&F Manila contract has insurable interest in goods in transit.
• Fraud and Concealment: Whether private respondent committed fraud by failing to disclose an alleged lack of insurable interest, barring recovery on the policy.

• "All Risks" Coverage: No. The insured need only prove the cargo was in good condition when the policy attached and damaged when unloaded; the burden then shifts to the insurer to prove an excepted peril under the Institute Cargo Clauses.
• Insurable Interest: Yes. A consignee under a C&F contract has insurable interest by virtue of the perfected contract of sale, which vests equitable title even before delivery, pursuant to Section 13 of the Insurance Code and Article 1523 of the Civil Code.
• Fraud and Concealment: No. The insurable interest issue was not raised in petitioner's answer, at pre-trial, or during trial, and cannot be raised for the first time on appeal; moreover, the consignee did possess insurable interest, negating any fraud.

• "All Risks" Coverage: The "all risks" clause of the Institute Cargo Clauses provides that the insurance is against all risks of loss or damage to the subject-matter insured, except loss proximately caused by delay or inherent vice. The term "all risks" must be given a broad and comprehensive meaning, covering any loss other than a willful and fraudulent act of the insured, and cannot be given a strained technical meaning. The very purpose of "all risks" insurance is to protect the insured where difficulties of logical explanation or mystery surround the loss. While generally the burden is on the insured to show a loss arose from a covered peril, under an "all risks" policy the insured's initial burden is limited to proving the cargo was in good condition when the policy attached and damaged when unloaded; thereafter, the burden shifts to the insurer to show the exception to coverage. To impose on the insured the burden of proving the precise cause would be inconsistent with the broad protective purpose of "all risks" insurance. In this case, there was no showing the loss was caused by excepted perils—no evidence that the gunny bags were so weak they could not hold their contents, or that spillage was a certainty. The insurer, having failed to prove an excepted peril, is liable under the policy.

• Insurable Interest: Section 13 of the Insurance Code defines insurable interest in property as every interest in property of such nature that a contemplated peril might directly damnify the insured. A vendee/consignee of goods in transit has an existing interest based on the perfected contract of sale, which operates to vest equitable title even before delivery or before performance of the conditions of sale. The type of shipment contract—whether F.O.B., C.I.F., or C.&F.—is immaterial to the determination of insurable interest. Under Article 1523 of the Civil Code, delivery of goods to a carrier for transmission to the buyer is deemed delivery to the buyer. Under a C&F contract, risk of loss transfers from seller to buyer when the goods pass the ship's rail at the port of shipment. Private respondent's insurable interest was therefore established.

• Fraud and Concealment: The issue of lack of insurable interest was not among the defenses averred in petitioner's answer, was neither an issue agreed upon at the pre-trial conference nor raised during trial in the court below. It is settled that an issue not 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. A party who deliberately adopts a certain theory and tries the case on that theory in the lower court cannot change that theory on appeal. Since the consignee did possess insurable interest, the fraud argument also fails on the merits and needs no further discussion.

• All Risks Insurance Doctrine — Under an "all risks" marine insurance policy, the insured's burden is limited to proving that the cargo was in good condition when the policy attached and that it was damaged when unloaded from the vessel. Thereafter, the burden shifts to the insurer to prove that the loss was caused by an excepted peril. The insured need not prove the precise cause of loss or damage. The term "all risks" is given a broad and comprehensive meaning, covering any loss other than a willful and fraudulent act of the insured, and extends to all damages/losses except those proximately caused by (a) delay or (b) inherent vice or nature of the subject matter insured. The Court applied this doctrine to hold the insurer liable, there being no evidence that the loss fell under either excepted peril.

• Insurable Interest of a Consignee/Vendee — A vendee or consignee of goods in transit has insurable interest based on the perfected contract of sale, which vests equitable title even before delivery. The type of shipment contract (F.O.B., C.I.F., or C.&F.) is immaterial to the determination of insurable interest. Under Article 1523 of the Civil Code, delivery of goods to a carrier for transmission to the buyer is deemed delivery to the buyer. The Court applied this to hold that private respondent, as consignee under a C&F Manila contract, had an existing interest sufficient to support a valid contract of insurance.

• Theory of the Case Doctrine — A party who deliberately adopts a certain theory and tries and decides the case on that theory in the lower court cannot change that theory on appeal, as it would be unfair to the adverse party. Issues not raised in the court a quo cannot be raised for the first time on appeal. The Court applied this to bar petitioner from raising the insurable interest issue, which was never pleaded in its answer, agreed at pre-trial, or raised during trial.

• "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." — This passage defines the scope of "all risks" coverage and establishes the principle that the term should be read literally rather than given a strained technical meaning.

• "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." — This is the canonical formulation of the burden-of-proof rule under an "all risks" policy, frequently cited in subsequent marine insurance jurisprudence.

• "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." — This restates the shifting burden rule and articulates the rationale for why the insured is not required to prove the precise cause of loss.

• Paris-Manila Perfumery Co. vs. Phoenix Assurance Co., Ltd., 49 Phil. 753 (1926) — Cited as controlling authority for the rule that the insurance company has the burden of proving that a loss is caused by an excepted risk, and for want of such proof, the company is liable. The Court relied on this case to establish the shifting burden under an "all risks" policy.

• Pacific Banking Corp. vs. Court of Appeals, G.R. No. 41014, Nov. 28, 1988 — Cited for the principle that contracts of insurance are contracts of indemnity upon the terms and conditions specified in the policy, and that clear and unambiguous terms must be taken in their plain, ordinary, and popular sense.

• Rattan Arts & Decorations, Inc. vs. Collector of Internal Revenue, 13 SCRA 626 (1965) — Cited for the proposition that delivery of goods on board carrying vessels partakes of the nature of actual delivery, as foreign buyers assumed the risks of loss and paid insurance premiums covering the goods.

• De Los Santos vs. Court of Appeals, 140 SCRA 44 (1985) — Cited for the settled rule that an issue not 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.

• Section 13, 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. Applied to hold that the consignee had insurable interest in the goods in transit.

• Section 14, Insurance Code — Provides that 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. Applied to classify the consignee's interest as an existing interest based on the perfected contract of sale.

• Article 1523, 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 for transmission to the buyer is deemed delivery of the goods to the buyer. Applied to support the finding that the consignee had insurable interest, as delivery to the carrier was deemed delivery to the buyer.

Paras, Padilla, and Sarmiento, JJ., concurred. Melencio-Herrera (Chairperson), J., was on leave.