Friday, February 1, 2019

[CASE DIGEST] PAN MALAYAN v. CA (G.R. No. 95070)

September 5, 1991

Ponente: Regalado, J.

FACTS
1. Due to the prevailing acute rice shortage in Kampuchea (now Cambodia) in the 1980s, the Manila-based Food and Agricultural Organization (FAO) of the United Nations – an autonomous intergovernmental organization created by treaty – made arrangements to send 3,000 metric petitions of IR-36 rice seeds. There were two shipments made, each carrying 1,500 metric petitions of the said rice seeds.

2. The contract for one of the shipments -- the subject of dispute in the present case -- was awarded to Luzon Stevedoring Corporation (LUZTEVECO). A total of 34,122 bags of IR-36 certified rice seeds purchased by FAO from the Bureau of Plant Industry, representing 1,500 metric petitions, were loaded on board LUZTEVECO Barge No. LC-3000 on May 28, 1980. The cargo needed to be delivered ASAP; by its nature, it could not withstand delay because of the inherent risks of termination and/or spoilage.

3. After the loading of the cargo was completed, FAO secured insurance coverage in the amount of P5,250,000.00 from  Pan Malayan Insurance Corporation. On June 16, 1980, LUZTEVECO left for Kampuchea. On the same date, the insurance premiums on the shipment were paid by FAO.

4. A week later, LUZTEVECO notified FAO that the barge had to return to Manila and had to sail a second time five days after its original departure. Since this was a deviation from the original terms of the contract, and considering the effect such a delay could have had on the rice seeds, FAO demanded an explanation. Three days later, LUZTEVECO advised FAO that the barge had sunk in the China Sea.

5. FAO made repeated demands for LUZTEVECO to replace the cargo or to pay for the total insured value in the sum of P5,250,000.00, but LUSTEVECO failed and refused to do so.

6. Pan Malayan Insurance also refused to pay for the losses and damages sustained by FAO. It claimed that as per the results of the investigation by Pan Asiatic Adjustment and Marine Surveying Corporation, 9,629 bags of rice seeds were in good order, 23,510 bags sustained wattage of 10% to 15%, and 983 bags were shorthanded or missing. The surveying corporation recommended the denial of FAO's claim because the partial damage suffered by the shipment was not compensable under the policy. Another survey of the shipment was conducted on September 26, 27 and 29, 1980 by Conrado Catalan, Jr. of Manila Adjusters & Surveyors Company and he found 6,200 bags in good order condition.

7. FAO filed an action against Pan Malayan Insurance and LUZTEVECO before the RTC. The court held both Pan Malayan and LUZTEVECO jointly and solidarily liable to the sum of the P5,250,000 for the insurance coverage, P250,000 for attorney's fees, and costs of the suit. Only Pan Malayan appealed before the CA, which denied the said petition. Hence, the present petition.

RULING


CA ruling affirmed in toto.




Whether or not there was an actual total loss of cargo. -- YES.

1. In marine insurance, what is mentioned in the law as the risk or peril insured against is sinking. This is the risk or peril covered by FAO's marine insurance policy as issued by Pan Malayan Insurance.

2. In the present case, the risk insured against did happen. As proven by the pieces of evidence on record, the barge LC-3000 carrying the load in question sank. If the barge was made to refloat, it cannot be denied that it sank, otherwise, what is the use of refloating the barge?

3.  Of the 34,122 bags of rice seeds shipped on board LUZTEVECO's barge, 27,922 bags were determined to be lost/damaged. The Court held that this fact rendered the entire cargo valueless for planting or seeding purposes in Kampuchea since the wetting or contact with water had definitely activated their tendency to terminate.

As such, the Court sustained the CA's ruling that there was indeed total loss under Section 130 of the (old) Insurance Code, specifically under paragraphs (c) and (d) thereof, which stated that:
SEC. 130. An actual total loss is caused by:
(c) Any damage to the thing which renders it valueless to the owner for the purpose for which he held it; or
(d) Any other event which effectively deprives the owner of the possession, at the port of destination of the thing insured.
4. The Court held that it is also no longer necessary to pass upon the issue of the validity of the abandonment made by FAO. Section 135 of the Insurance Code explicitly provides that "(u)pon an actual total loss, a person insured is entitled to payment without notice of abandonment." This is a statutory adoption of a long standing doctrine in maritime insurance law that in case of actual total loss, the right of the insured to claim the whole insurance is absolute, without need of a notice of abandonment.