Insurance Company of North America vs. Asian Terminals, Inc.

The one-year prescriptive period for filing suit under Section 3(6) of the Carriage of Goods by Sea Act applies only to the carrier and the ship, and not to an arrastre operator; the arrastre operator’s liability is subject to the claim periods and conditions stipulated in its cargo handling contract, but a timely request for a bad order survey that allows the operator to verify the loss satisfies the purpose of a formal claim and precludes the defense of late filing.

Macro-Lite Korea Corporation shipped 185 packages of electrolytic tin free steel to San Miguel Corporation via the vessel M/V “DIMI P,” covered by a bill of lading and insured with Insurance Company of North America. Upon arrival at the port of Manila on November 19, 2002, seven packages were already in bad order. The entire shipment was turned over to Asian Terminals, Inc. (ATI), the arrastre operator, for storage pending withdrawal. When the consignee’s broker withdrew the cargo on November 22, 23, and 29, 2002, an additional five packages were found damaged. The consignee filed claims against both the carrier and ATI. The insurer paid the consignee ₱431,592.14 and, as subrogee, sought recovery from ATI.

• The Shipment and Insurance: On November 9, 2002, Macro-Lite Korea Corporation shipped 185 packages (231,000 sheets) of electrolytic tin free steel to San Miguel Corporation aboard M/V “DIMI P,” covered by Bill of Lading No. POBUPOHMAN20638 with a declared value of US$169,850.35. The cargo was insured with Insurance Company of North America under Marine Policy No. MOPA-06310 against all risks.

• Discharge and Initial Damage: The vessel arrived at the port of Manila on November 19, 2002. Upon discharge, seven packages were noted to be damaged and in bad order, as reflected in Bad Order Cargo Receipts Nos. 3704, 3706, 3707, and 3709.

• Custody and Withdrawal: The shipment was turned over to respondent ATI on November 21, 2002 for storage pending withdrawal by the consignee’s customs broker, R.V. Marzan Brokerage Corp. The goods were withdrawn on November 22, 23, and 29, 2002. Before the last withdrawal on November 29, 2002, the consignee’s broker requested a Bad Order Survey. A joint inspection was conducted in the presence of representatives of ATI, Customs, the consignee, and the Shed Supervisor, resulting in an examination report recorded on the Request for Bad Order Survey No. 56422, which identified five additional packages as damaged with “dent, cut and crumple” while in ATI’s custody.

• Claim and Payment: On January 6, 2003, the consignee filed claims against both the carrier and ATI. Petitioner engaged BA McLarens Phils., Inc., which submitted a Survey Report on January 22, 2003 and an Evaluation Report on May 5, 2003. The adjuster determined that of twelve damaged skids, nine were rejected by the consignee and three accepted. Petitioner paid the consignee ₱431,592.14, as evidenced by a Subrogation Receipt dated January 8, 2004, and then demanded reparation from ATI. When ATI failed to satisfy the demand, petitioner filed suit.

• Trial Court Findings: The RTC found that the shipment suffered additional damage while in ATI’s custody, that ATI was estopped from denying the damage, and that the shipper had adequately declared the value to overcome the ₱5,000.00 per package liability limit under the cargo handling contract. The subrogation was deemed valid. However, the court dismissed the complaint on the ground that COGSA’s one-year prescriptive period barred the action.

• Non-applicability of COGSA Prescription: Petitioner argued that the one-year prescriptive period under COGSA applies only to the carrier and the ship, and does not extend to an arrastre operator such as respondent, which is engaged in warehousing, arrastre, and stevedoring, not in the carriage of goods by sea as a common carrier.

• Timing of Damage: Petitioner maintained that it sued respondent solely for the five additional packages damaged after discharge from the vessel and while in respondent’s custody, as proved by the Request for Bad Order Survey No. 56422; thus, the damage occurred outside the temporal scope of COGSA’s definition of “carriage of goods.”

• Entitlement to Full Actual Damages: Petitioner prayed for an award of ₱431,592.14 in actual damages, consistent with the amount paid to the consignee under the subrogation receipt.

• Prescription under COGSA: Respondent asserted, and the trial court agreed, that COGSA governed the claim because the goods were shipped from a foreign port to the Philippines, and that the suit was filed beyond the one-year period from delivery, thus barring recovery.

• Limitation of Liability: Respondent invoked Section 7.01 of the Contract for Cargo Handling Services, which limited its liability to ₱5,000.00 per package unless the cargo value was specified, manifested, or communicated in writing before discharge.

• COGSA Prescription: Whether the one-year prescriptive period under Section 3(6) of the Carriage of Goods by Sea Act applies to an action for damages against an arrastre operator.

• Actual Damages: Whether the insurer-subrogee is entitled to recover actual damages in the amount of ₱431,592.14 from respondent arrastre operator, and if so, the proper amount.

• COGSA Prescription: The one-year prescriptive period under COGSA does not apply to an arrastre operator. COGSA’s definition of “carriage of goods” covers only the period from loading to discharge from the ship. Section 3(6) expressly discharges only “the carrier and the ship” from liability if suit is not brought within one year. The arrastre operator’s responsibility arises from its independent contractual undertaking with the Philippine Ports Authority, not from the contract of carriage. Therefore, the dismissal on this ground was erroneous.

• Satisfaction of Formal Claim Requirement: Although the Contract for Cargo Handling Services required a formal claim within fifteen days from issuance of a certificate of loss, the consignee’s broker’s request for a bad order survey and the resulting joint inspection report, accomplished on November 29, 2002—the same day as the last withdrawal—enabled respondent to verify the damage and the extent of its liability within the contractual periods. Following New Zealand Insurance Company Limited v. Navarro, such timely request and inspection satisfied the purpose of the formal claim, which is to afford the depositary reasonable opportunity to check the validity of claims while facts are fresh. The lack of strict compliance with the fifteen-day filing period therefore caused no prejudice and did not relieve respondent of liability.

• Actual Damages: The claim for ₱431,592.14 was not fully recoverable. The Evaluation Report of BA McLarens Phils., Inc. showed that of the nine rejected skids, five product numbers matched those on the Bad Order Cargo Receipts issued by the shipping company, confirming those five were damaged upon arrival. Only the remaining four rejected skids were damaged while in ATI’s custody. Petitioner attempted to recover for all nine skids but was not forthright; recovery was limited to the four skids damaged under respondent’s watch. Applying the same valuation formula used by the adjuster, the actual damages for the four skids amounted to ₱164,428.76.

• Non-applicability of COGSA to arrastre operators — Section 3(6) of the Carriage of Goods by Sea Act limits its one-year prescriptive period to “the carrier and the ship.” Because the arrastre operator is not a party to the contract of carriage and its liability is governed by a separate cargo handling contract, the COGSA prescriptive defense is unavailable to it.

• Bad Order Survey as substitute for formal claim — Under the rule in New Zealand Insurance Company Limited v. Navarro and Fireman’s Fund Insurance Co. v. Manila Port Service Co., a consignee’s timely request for a bad order examination and the arrastre operator’s own inspection report can serve the purpose of a formal claim when the operator verifies the existence and extent of its liability within the stipulated claim periods. The formal claim requirement is satisfied if the arrastre operator suffers no prejudice by the delay in filing a separate formal demand.

• Limitation of subrogee’s rights — An insurer-subrogee steps into the shoes of the insured and may recover only what the insured could have recovered from the responsible party. The subrogee cannot acquire better rights than those of the insured, and any recovery is confined to the loss actually caused by the defendant’s breach.

• “It is noted that the term ‘carriage of goods’ covers the period from the time when the goods are loaded to the time when they are discharged from the ship; thus, it can be inferred that the period of time when the goods have been discharged from the ship and given to the custody of the arrastre operator is not covered by the COGSA.”

• “[T]he carrier and the ship may put up the defense of prescription if the action for damages is not brought within one year after the delivery of the goods or the date when the goods should have been delivered. … However, the COGSA does not mention that an arrastre operator may invoke the prescriptive period of one year; hence, it does not cover the arrastre operator.”

• “[T]he verification and ascertainment of liability by respondent ATI had been accomplished within thirty (30) days from the date of delivery of the package to the consignee and within fifteen (15) days from the date of issuance by the Contractor … of the examination report on the request for bad order survey. Although the formal claim was filed beyond the 15-day period … the purpose of the time limitations for the filing of claims had already been fully satisfied… as the arrastre operator had become aware of and had verified the facts giving rise to its liability.”

• New Zealand Insurance Company Limited v. Navarro, G.R. No. 48686, October 4, 1989 — Followed. Established that a timely request for a bad order survey and the resulting joint inspection satisfy the purpose of a formal claim, relieving the consignee from strict compliance with the contractual period for filing a formal claim.

• Fireman’s Fund Insurance Co. v. Manila Port Service Co., cited in Navarro — Relied upon. Held that the arrastre operator’s own inspection within the claim period verifies its liability and renders a formal claim unnecessary to trigger liability.

• E. Razon, Inc. v. CA, G.R. No. L-50242, May 21, 1988 — Cited by the trial court and acknowledged. Supported the proposition that presentation of shipping documents to the arrastre operator for assessment of charges satisfies the requirement for declaring the actual invoice value to overcome the contractual limitation of liability.

• Microsoft Corporation v. Maxicorp, Inc., G.R. No. 140946, September 13, 2004 — Cited. Defined the distinction between questions of law and questions of fact for purposes of appeals under Rule 45.

• Section 3(6), Carriage of Goods by Sea Act (Commonwealth Act No. 65) — Discharges “the carrier and the ship” from liability for loss or damage unless suit is brought within one year of delivery. The Court held that this prescriptive period, by its express terms, does not extend to arrastre operators who are neither carriers nor ships.

• Section 1(e), COGSA (CA No. 65) — Defines “carriage of goods” as covering the period from loading onto the ship to discharge from the ship. The Court inferred that the period after discharge, when goods are in the custody of the arrastre operator, falls outside COGSA’s scope.

• Section 7.01, Contract for Cargo Handling Services — Governs the arrastre operator’s liability, including a limitation to ₱5,000.00 per package unless the value is declared in writing, and establishes periods for requesting a certificate of loss (30 days from delivery) and filing a formal claim (15 days from issuance of the certificate). The Court applied these contractual periods in conjunction with the doctrine on bad order surveys.

Associate Justice Antonio T. Carpio, Associate Justice Roberto A. Abad, Associate Justice Jose Portugal Perez, and Associate Justice Jose Catral Mendoza concurred.