Saturday, March 31, 2012

Oriental Assurance Corporation vs. CA [G.R. No. 94052 August 9, 1991, 200 SCRA 459]

Facts: Panama bought, in Palawan, 1,208 pieces of apitong logs, with a total volume of 2,000 cubic meters. It hired Transpacific Towage, Inc., to transport said logs by sea to Manila and insured it against loss for P1-M with Oriental Assurance. 

The policy was issued. It is stipulated there, among others, that the subject matter insured is 2,000 cubic meters of apitong logs and that the vessels to be utilized are the following: MT. 'Seminole', Barge PCT-7000 for the 1,000 cubic meter of apitong logs and Barge Transpac-1000 for the other 1,000 cubic meter of apitong logs. It is also stipulated in the policy that the insurance is against TOTAL LOSS only, and it is subject to the following clauses, to wit: Civil Code Article 1250 Waiver clause, Typhoon warranty clause, and Omnibus clause. 

The logs were loaded on the 2 barges: (1) on barge PCT-7000, 610 pieces of logs with a volume of 1,000 cubicmeters; and (2) on Barge TPAC-1000, 598 pieces of logs, also with a volume of 1,000 cubic meters. On 28 January 1986, the 2 barges were towed by MT 'Seminole'(tugboat), during the voyage, rough seas and strong winds caused damage to Barge TPAC-1000 resulting in the loss of 497 pieces of logs out of the 598 pieces loaded thereon. 

Panama demanded payment for the loss but Oriental Assurance refused on the ground that its contracted liability was for "TOTAL LOSS ONLY." Consequently, Panama filed a Complaint for Damages against Ever Insurance Agency (allegedly, also liable), Benito Sy Lee Yong and Oriental Assurance, before the RTC-Kalookan. 

RTC rendered a decision ordering Oriental Assurance to pay Panama P415,000.00 as insurance indemnity. Both parties appealed. The appellate court affirmed the RTC decision. Both RTC and CA shared the view that the insurance contract should be liberally construed in order to avoid a denial of substantial justice; that the logs loaded in the two barges should be treated separately such that the loss sustained by the shipment in one of them may be considered as "constructive total loss" and correspondingly compensable. 

Oriental Assurance filed a petition for review on certiorari challenging the aforesaid dispositions. 

Issue: Is Oriental Assurance liable? 

Held: No. The SC held that the terms of the contract constitute the measure of the insurer’s liability and compliance therewith is a condition precedent to the insured's right to recovery from the insurer. That whether a contract is entire or severable is a question of intention to be determined by the language employed by the parties. The policy in question shows that the subject matter insured was the entire shipment of 2,000 cubic meters of apitong logs. The fact that the logs were loaded on two different barges did not make the contract several and divisible as to the items insured. The logs on the two barges were not separately valued or separately insured. Only one premium was paid for the entire shipment, making for only one cause or consideration. The insurance contract must, therefore, be considered indivisible. 

The law provides that a “constructive total loss”, is one which gives to a person insured by a contract of marine insurance a right to abandon thing insured, or any particular portion thereof separately valued by the policy, or otherwise separately insured, and recover for a total loss thereof, when the cause of the loss is a peril injured against: (a) If more than three-fourths thereof in value is actually lost, or would have to be expended to recover it from the peril; (b) If it is injured to such an extent as to reduce its value more than three-fourths. The logs involved, although placed in two barges, were not separately valued by the policy, nor separately insured. Resultantly, the logs lost in barge TPAC-1000 in relation to the total number of logs loaded on the same barge cannot be made the basis for determining constructive total loss. The logs having been insured as one inseparable unit, the correct basis for determining the existence of constructive total loss is the totality of the shipment of logs. Of the entirety of 1,208, pieces of logs, only 497 pieces thereof were lost or 41.45% of the entire shipment. Since the cost of those 497 pieces does not exceed 75% of the value of all 1,208 pieces of logs, the shipment cannot be said to have sustained a constructive total loss. Hence, no recovery can be had against Oriental Assurance. The latter has no liability under the policy.

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