Mayer Steel Pipe Corporation vs. Court of Appeals

The one-year prescriptive period in Section 3(6) of the Carriage of Goods by Sea Act discharges only the carrier and the ship and does not bar a suit by the shipper against the insurer under the contract of insurance; such insurance action is subject to the ten-year prescriptive period for written contracts under Article 1144 of the Civil Code. The Carriage of Goods by Sea Act governs the relationship between carrier and shipper/consignee/insurer, but does not affect the separate contractual relationship between shipper and insurer.

In 1983, Hongkong Government Supplies Department contracted Mayer Steel Pipe Corporation to manufacture and supply steel pipes and fittings. Mayer shipped the goods to Hongkong on various dates from August to October 1983. Before shipment, Mayer procured all-risk insurance policies from South Sea Surety and Insurance Co., Inc. and Charter Insurance Corporation to cover separate sets of invoices totaling over US$362,000. A third-party inspector certified the goods in good order prior to loading. Upon arrival in Hongkong, a substantial portion of the pipes and fittings was found damaged.

• The Insurance and Shipment: Petitioner Mayer Steel Pipe Corporation contracted to manufacture and supply steel pipes and fittings to petitioner Hongkong Government Supplies Department in 1983. From August to October 1983, Mayer shipped the goods covered by several invoices. Prior to shipment, Mayer obtained all-risk insurance policies from private respondents South Sea Surety and Insurance Co., Inc. (covering goods valued at US$212,772.09) and Charter Insurance Corporation (covering goods valued at US$149,470.00). Petitioners jointly appointed Industrial Inspection (International) Inc. as third-party inspector, which certified all pipes and fittings were in good order condition before loading.
• Discovery of Damage and Partial Payment: Upon arrival in Hongkong, a substantial portion of the pipes and fittings was discovered damaged. Petitioners filed claims for indemnity under the policies. Respondent Charter Insurance Corporation paid HK$64,904.75 in partial satisfaction. Petitioners demanded the balance of HK$299,345.30 representing repair costs.
• Denial of Liability and Suit: Private respondents refused to pay the balance, asserting the damage resulted from factory defects excluded under the policies. On April 17, 1986, petitioners filed an action for recovery of the unpaid sum. The trial court found the damage was not caused by manufacturing defects, held that the all-risk policies covered the loss save for willful or fraudulent acts of the insured, and ordered respondents to pay jointly and severally.
• Court of Appeals Ruling: On appeal, the Court of Appeals agreed the damage fell within the all-risk coverage, but applied Section 3(6) of the Carriage of Goods by Sea Act and ruled the action was barred because suit was filed more than one year after the goods were delivered. It relied on Filipino Merchants Insurance Co., Inc. v. Alejandro for the proposition that COGSA’s one-year limit applies to the insurer as well.

• Prescription of Action Against Insurer: Petitioners argued that Section 3(6) of the Carriage of Goods by Sea Act applies only to the carrier and ship; an insurer’s liability is based on the contract of insurance, not on the contract of carriage, and therefore the prescriptive period is the ten-year period under Article 1144 of the New Civil Code for actions upon a written contract.
• Misapplication of Filipino Merchants: Petitioners maintained that Filipino Merchants Insurance Co., Inc. v. Alejandro is distinguishable because it involved a third-party claim by an insurer against a carrier for reimbursement, not a direct suit by the shipper against the insurer. The ruling should not extend to bar a shipper’s direct contractual claim.

• Prescription Under COGSA: Private respondents contended that the action was barred by Section 3(6) of the Carriage of Goods by Sea Act, as suit was filed beyond one year from delivery of the goods. They relied on the broad statement in Filipino Merchants Insurance Co., Inc. v. Alejandro that “the coverage of the Act includes the insurer of the goods,” arguing the one-year prescriptive period extinguishes both carrier and insurer liability alike.

• Prescription of Action Against Insurer: Whether Section 3(6) of the Carriage of Goods by Sea Act, which prescribes a one-year limitation for suits against the carrier and ship, applies to bar an action filed by the insured shipper against the insurer under an all-risk marine insurance contract.

• Prescription of Action Against Insurer: Section 3(6) of the Carriage of Goods by Sea Act does not apply to the shipper’s direct action against the insurer. That provision discharges only the carrier and the ship from liability if no suit is filed within one year. The insurer’s liability arises from the contract of insurance, not from the contract of carriage. An all-risk policy obliges the insurer to indemnify the insured for all loss or damage except that caused by the willful or fraudulent act of the insured. As a written contract, the insurance policy is governed by the ten-year prescriptive period under Article 1144 of the Civil Code. The Court of Appeals misread Filipino Merchants Insurance Co., Inc. v. Alejandro: in that case, the insurer filed a third-party complaint against the carrier more than one year after delivery, and the one-year bar was correctly applied to that claim against the carrier. The pronouncement that the Act “includes the insurer of the goods” means only that the insurer, like the shipper, cannot sue the carrier after the one-year period. It does not mean the shipper is barred from suing the insurer directly based on the separate insurance contract. Here, the suit was filed within ten years; accordingly, it was timely and the trial court’s decision was properly reinstated.

• Prescriptive Period for Suits Against Insurer Under COGSA — The one-year prescriptive period in Section 3(6) of the Carriage of Goods by Sea Act applies exclusively to suits against the carrier and the ship; it does not limit actions brought by the insured against the insurer under a contract of insurance. The insurer’s liability is governed by the Insurance Code and the Civil Code, and a suit on the insurance policy prescribes in ten years under Article 1144. The statement in Filipino Merchants that the Act “includes the insurer of the goods” is limited to the context of a claim for reimbursement filed by the insurer against the carrier; it does not merge the insurer’s independent contractual obligation with the carrier’s liability under the contract of carriage.

• “A close reading of the law reveals that the Carriage of Goods by Sea Act governs the relationship between the carrier on the one hand and the shipper, the consignee and/or the insurer on the other hand. It defines the obligations of the carrier under the contract of carriage. It does not, however, affect the relationship between the shipper and the insurer. The latter case is governed by the Insurance Code.” — This passage demarcates the separate legal regimes applicable to carriage and insurance contracts.
• “When the court said in Filipino Merchants that Section 3(6) of the Carriage of Goods by Sea Act applies to the insurer, it meant that the insurer, like the shipper, may no longer file a claim against the carrier beyond the one-year period provided in the law. But it does not mean that the shipper may no longer file a claim against the insurer because the basis of the insurer’s liability is the insurance contract.” — This clarifies the limited scope of the earlier ruling and prevents its misapplication to direct actions against insurers.

• Filipino Merchants Insurance Co., Inc. v. Alejandro, 145 SCRA 42 (1986) — Distinguished. The one-year bar was applied to the insurer’s third-party complaint against the carrier, not to a shipper’s direct suit against the insurer. The case does not support extending the COGSA prescriptive period to extinguish an insurer’s liability under the insurance contract.
• Filipino Merchants Insurance Co., Inc. v. Court of Appeals, 179 SCRA 638 (1989) — Cited for the definition of an “all risks” insurance policy as covering all loss other than that due to the willful or fraudulent act of the insured.

• Section 3(6), Carriage of Goods by Sea Act — Held inapplicable to the shipper’s direct suit against the insurer; applies only to discharge the liability of the carrier and ship.
• Article 1144, New Civil Code — Applied; actions upon a written contract must be brought within ten years from accrual. The insurance policies being written contracts, the ten-year prescriptive period governed and had not lapsed.

Regalado, Romero, Mendoza, and Torres, Jr., JJ., concurred.