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TodayisSaturday,February20,2016

RepublicofthePhilippinesSUPREMECOURT

Manila

SECONDDIVISION

G.R.No.119599March20,1997

MALAYANINSURANCECORPORATION,petitioner,vs.THEHON.COURTOFAPPEALSandTKCMARKETINGCORPORATION,respondents.

ROMERO,J.:

Assailed in thispetition forreviewoncertiorari is thedecisionof theCourtofAppeals inCAG.R.No.430231whichaffirmed,withslightmodification,thedecisionoftheRegionalTrialCourtofCebu,Branch15.

PrivaterespondentTKCMarketingCorp.wastheowner/consigneeofsome3,189.171metrictonsofsoyabeanmealwhichwasloadedonboardtheshipMVAlKaziemahonoraboutSeptember8,1989forcarriagefromtheportofRiodelGrande,Brazil,totheportofManila.SaidcargowasinsuredagainsttheriskoflossbypetitionerMalayanInsuranceCorporationforwhichit issuedtwo(2)MarineCargopolicyNos.M/LP97800305amountingtoP18,986,902.45andM/LP97800306amountingtoP1,195,005.45,bothdatedSeptember1989.

While the vessel was docked in Durban, South Africa on September 11, 1989 enroute to Manila, the civilauthoritiesarrestedanddetaineditbecauseofalawsuitonaquestionofownershipandpossession.Asaresult,privaterespondentnotifiedpetitioneronOctober4,1989ofthearrestofthevesselandmadeaformalclaimfortheamountofUS$916,886.66, representing thedollarequivalenton thepolicies, fornondeliveryof thecargo.Privaterespondentlikewisesoughttheassistanceofpetitioneronwhattodowiththecargo.

Petitioner replied that thearrest of the vessel by civil authoritywasnot aperil coveredby thepolicies.Privaterespondent, accordingly, advised petitioner that itmight tranship the cargo and requested an extension of theinsurance coverage until actual transhipment, which extension was approved upon payment of additionalpremium.Theinsurancecoveragewasextendedunderthesametermsandconditionsembodiedintheoriginalpolicieswhile in theprocessofmakingarrangements for the transhipmentof thecargo fromDurban toManila,coveringtheperiodOctober4December19,1989.

However,onDecember11,1989,thecargowassoldinDurban,SouthAfrica,forUS$154.40permetrictonoratotal of P10,304,231.75 due to its perishable nature which could no longer stand a voyage of twenty days toManila and another twenty days for the discharge thereof. On January 5, 1990, private respondent forthwithreduced itsclaimtoUS$448,806.09(or itspesoequivalentofP9,879,928.89at theexchangerateofP22.0138per$1.00)representingprivaterespondent'slossaftertheproceedsofthesaleweredeductedfromtheoriginalclaimof$916,886.66orP20,184,159.55.

Petitionermaintaineditspositionthatthearrestofthevesselbycivilauthoritiesonaquestionofownershipwasanexcepted riskunder themarine insurancepolicies.Thispromptedprivate respondent to fileacomplaint fordamagesprayingthataside fromitsclaim, itbereimbursedtheamountofP128,770.88as legalexpensesandthe interest it paid for the loan it obtained to finance the shipment totalling P942,269.30. In addition, privaterespondentaskedformoraldamagesamountingtoP200,000.00,exemplarydamagesamountingtoP200,000.00andattorney'sfeesequivalentto30%ofwhatwillbeawardedbythecourt.

The lowercourtdecided in favorofprivaterespondentandrequiredpetitioner topay,asidefromthe insuranceclaim, consequential and liquidated damages amounting to P1,024,233.88, exemplary damages amounting toP100,000.00,reimbursementintheamountequivalentto10%ofwhateverisrecoveredasattorney'sfeesaswellasthecostsofthesuit.Onprivaterespondent'smotionforreconsideration,petitionerwasalsorequiredtofurtherpayinterestattherateof12%perannumonallamountsdueandowingtotheprivaterespondentbyvirtueofthe

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lowercourtdecisioncountedfromtheinceptionofthiscaseuntilthesameispaid.

Onappeal,theCourtofAppealsaffirmedthedecisionofthelowercourtstatingthatwiththedeletionofClause12of the policies issued to private respondent, the same became automatically covered under subsection 1.1 ofSection1oftheInstituteWarClauses.Thearrests,restraintsordetainmentscontemplatedintheformerclausewerethoseeffectedbypoliticalorexecutiveacts.Lossesoccasionedbyriotorordinaryjudicialprocesseswerenotcoveredtherein.Inotherwords,arrest,restraintordetainmentwithinthemeaningofClause12(orF.C.&S.Clause) rules out detention by ordinary legal processes. Hence, arrests by civil authorities, such as whathappenedintheinstantcase,isanexceptedriskunderClause12oftheInstituteCargoClauseortheF.C.&S.Clause.However,with thedeletionofClause12of the InstituteCargoClauseand theconsequentadoptionorinstitutionoftheInstituteWarClauses(Cargo),thearrestandseizurebyjudicialprocesseswhichwereexcludedundertheformerpolicybecameoneofthecoveredrisks.

The appellate court added that the failure to deliver the consigned goods in the port of destination is a losscompensable, not only under the Institute War Clause but also under the Theft, Pilferage, and NondeliveryClause(TNPD)oftheinsurancepolicies,asreadinrelationtoSection130oftheInsuranceCodeandasheldinWilliamsv.Cole.2

Furthermore, the appellate court contended that since the vessel was prevented at an intermediate port fromcompleting the voyage due to its seizure by civil authorities, a peril insured against, the liability of petitionercontinueduntilthegoodscouldhavebeentranshipped.Butduetotheperishablenatureofthegoods,ithadtobepromptlysoldtominimizeloss.Accordingly,thesaleofthegoodsbeingreasonableandjustified,itshouldnotoperatetodischargepetitionerfromitscontractualliability.

Hencethispetition,claimingthattheCourtofAppealserred:

1.Inrulingthatthearrestofthevesselwasariskcoveredunderthesubjectinsurancepolicies.

2.Inrulingthattherewasconstructivetotallossoverthecargo.

3.Inrulingthatpetitionerwasinbadfaithindecliningprivaterespondent'sclaim.

4.Ingivingunduereliancetothedoctrinethatinsurancepoliciesarestrictlyconstruedagainsttheinsurer.

In assigning the first error, petitioner submits the following: (a) an arrest by civil authority is not compensablesince the term "arrest" refers to "political or executive acts" and does not include a loss caused by riot or byordinaryjudicialprocessasinthiscase(b)thedeletionoftheFreefromcaptureorSeizureClausewouldleavethe assured covered solely for the perils specified by the wording of the policy itself (c) the rationale for theexclusionofanarrestpursuanttojudicialauthoritiesistoeliminatecollusionbetweenunscrupulousassuredandcivilauthorities.

Astothesecondassignederror,petitionersubmitsthatanylosswhichprivaterespondentmayhaveincurredwasin thenatureand formofunrecoveredacquisitionvaluebroughtaboutbyavoluntarysacrificesaleandnotbyarrest,detentionorseizureoftheship.

Astothethirdissue,petitionerallegesthat itsactofrejectingtheclaimwasaresultof itshonestbeliefthatthearrestof thevesselwasnota compensable riskunder thepolicies issued. In fact, petitioner supportedprivaterespondentbyaccommodating the latter's request foranextensionof the insurancecoverage,notwithstandingthatitwasthenundernolegalobligationtodoso.

Privaterespondent,ontheotherhand,arguedthatwhenitappealeditscasetotheCourtofAppeals,petitionerdidnotraiseasanissuetheawardofexemplarydamages.Itcannotnow,forthefirsttime,raisethesamebeforethisCourt.Likewise,petitionercannotsubmit for the first timeonappeal itsargument that itwaswrong for theCourtofAppeals tohaveruled theway itdidbasedon facts thatwouldneed inquiry into theevidence.Even ifinquiryintothefactswerepossible,suchwasnotnecessarybecausethecoverageasruleduponbytheCourtofAppealsisevidentfromtheverytermsofthepolicies.

Italsoarguedthatpetitioner,beingthesoleauthorofthepolicies,"arrests"shouldbestrictlyinterpretedagainstitbecause the rule is that any ambiguity is to be taken contra proferentum. Risk policies should be construedreasonablyandinamannerastomakeeffectivetheintentionsandexpectationsoftheparties.Itaddedthatthepoliciesclearlystipulate that theycover therisksofnondeliveryofanentirepackageand that itwaspetitioneritselfthatinvitedandgrantedtheextensionsandcollectedpremiumsthereon.

The resolution of this controversy hinges on the interpretation of the "Perils" clause of the subject policies inrelationtotheexcludedrisksorwarrantyspecificallystatedtherein.

Bywayofahistoricalbackground,marineinsurancedevelopedasanallriskcoverage,usingthephrase"perilsof

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the sea" to encompass thewide and varied range of risks thatwere covered. 3 The subject policies contain the"Perils"clausewhichisastandardforminanymarineinsurancepolicy.Saidclausereads:

Touching the adventureswhich the saidMALAYAN INSURANCECO., are content to bear, and totakeupon them in thisvoyage theyareof theSeasMenofWar,Fire,Enemies,Pirates,Rovers,Thieves, Jettisons, Letters of Mart and Counter Mart, Suprisals, Takings of the Sea, Arrests,RestraintsandDetainmentsofallKings,PrincessandPeoples,ofwhatNation,Condition,orqualitysoever,Barratryof theMasterandMariners,andofall otherPerils,Losses,andMisfortunes, thathavecometohurt,detriment,ordamageof thesaidgoodsandmerchandiseoranypart thereof .ANDincaseofanylossormisfortuneitshallbelawfultotheASSURED,theirfactors,servantsandassigns, to sue, labour, and travel for, in andabout thedefence, safeguards, and recoveryof thesaid goods and merchandises, and ship, & c., or any part thereof, without prejudice to thisINSURANCE to thechargeswhereof thesaidCOMPANY,willcontributeaccording to the rateandquantityof thesumherein INSURED.AND it isexpresslydeclaredandagreed thatnoactsof theInsurerorInsuredinrecovering,saving,orpreservingthePropertyinsuredshallbeconsideredasaWaiver,orAcceptanceofAbandonment.AnditisagreedbythesaidCOMPANY,thatthiswritingorPolicy of INSURANCE shall be of as much Force and Effect as the surest Writing or policy ofINSURANCE made in LONDON. And so the said MALAYAN INSURANCE COMPANY., INC., arecontented,anddoherebypromiseandbindthemselves,theirHeirs,Executors,GoodsandChattel,totheASSURED,hisortheirExecutors,Administrators,orAssigns,forthetruePerformanceofthePremisesconfessingthemselvespaidtheConsiderationdueuntothemforthisINSURANCEatandaftertheratearranged.(Emphasissupplied)

The exception or limitation to the "Perils" clause and the "All other perils" clause in the subject policies isspecifically referred toasClause12 called the "Free fromCapture&SeizureClause"or theF.C.&S.Clausewhichreads,thus:

Warrantedfreeofcapture,seizure,arrest,restraintordetainment,andtheconsequencesthereoforof any attempt thereat also from the consequences of hostilities and warlike operations, whethertherebeadeclarationofwaror not but thiswarranty shall not excludecollision, contactwithanyfixedorfloatingobject(otherthanamineortorpedo),stranding,heavyweatherorfireunlesscauseddirectly(andindependentlyofthenatureofthevoyageorservicewhichthevesselconcernedor,inthecaseofacollision,anyothervesselinvolvedthereinisperforming)byahostileactbyoragainstabelligerentpowerandforthepurposeofthiswarranty"power"includesanyauthoritiesmaintainingnaval,militaryorairforcesinassociationwithpower.

Further warranted free from the consequences of civil war, revolution, insurrection, or civil strikearisingtherefromorpiracy.

ShouldClause12bedeleted,therelevantcurrentinstitutewarclausesshallbedeemedtoformpartofthisinsurance.(Emphasissupplied)

However, theF.C.&S.Clausewasdeletedfromthepolicies.Consequently, theInstituteWarClauses(Cargo)wasdeemedincorporatedwhich,insubsection1.1ofSection1,provides:

1.Thisinsurancecovers:

1.1TherisksexcludedfromthestandardformofEnglishMarinePolicybytheclausewarrantedfreeof capture, seizure, arrest, restraint or detainment, and the consequences thereof of hostilities orwarlikeoperations,whethertherebeadeclarationofwarornotbutthiswarrantyshallnotexcludecollision, contactwith any fixedor floating object (other thanamineor torpedo), stranding, heavyweatherorfireunlesscauseddirectly(andindependentlyofthenatureonvoyageorservicewhichthevesselconcernedor,inthecaseofacollisionanyothervesselinvolvedthereinisperforming)byahostileactbyoragainstabelligerentpowerandforthepurposeofthiswarranty"power"includesanyauthoritymaintainingnaval,militaryorairforcesinassociationwithapower.Furtherwarrantedfree from the consequences of civil war, revolution, rebellion, insurrection, or civil strike arisingtherefrom,orpiracy.

According topetitioner, theautomatic incorporationof subsection1.1of section1of the InstituteWarClauses(Cargo), among others, means that any "capture, arrest, detention, etc." pertained exclusively to warlikeoperationsifthisCourtstrictlyconstruestheheadingofthesaidclauses.However,italsoclaimsthatthepartiesintendedto includearrests,etc.evenif itwerenottheresultofhostilitiesorwarlikeoperations.It furtherclaimsthatonthestrengthofjurisprudenceonthematter,theterm"arrests"wouldonlycoverthosearisingfrompoliticalorexecutiveacts,concludingthatwhetherprivaterespondent'sclaimisanchoredonsubsection1.1ofSection1oftheInstituteWarClauses(Cargo)ortheF.C.&S.Clause,thearrestofthevesselbyjudicialauthoritiesisanexcludedrisk.4

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This Court cannot agree with petitioner's assertions, particularly when it alleges that in the "Perils" Clause, itassumedtheriskofarrestcausedsolelybyexecutiveorpoliticalactsofthegovernmentoftheseizingstateandtherebyexcludes"arrests"causedbyordinarylegalprocesses,suchasintheinstantcase.

Withtheincorporationofsubsection1.1ofSection1oftheInstituteWarClauses,however,thisCourtagreeswiththe Court of Appeals and the private respondent that "arrest" caused by ordinary judicial process is deemedincludedamongthecoveredrisks.Thisinterpretationbecomesinevitablewhensubsection1.1ofSection1oftheInstituteWarClausesprovidedthat"thisinsurancecoverstherisksexcludedfromtheStandardFormofEnglishMarine Policy by the clause "Warranted free of capture, seizure, arrest, etc. . . ." or the F.C. & S. Clause.Jurisprudentially,"arrests"causedbyordinaryjudicialprocessisalsoariskexcludedfromtheStandardFormofEnglishMarinePolicybytheF.C.&S.Clause.

Petitionercannotadopt theargument that the"arrest"causedbyordinary judicialprocess isnot included in thecoveredrisksimplybecausetheF.C.&S.ClauseundertheInstituteWarClausescanonlybeoperativeincaseofhostilitiesorwarlikeoperationsonaccountof itsheading"InstituteWarClauses."ThisCourtagreeswith theCourt of Appealswhen it held that ". . . . Although the F.C.&S.Clausemay have originally been inserted inmarinepoliciestoprotectagainstrisksofwar,(seegenerallyG.Gilmore&C.Black,TheLawofAdmiraltySection29,at7173 [2dEd.1975]), its interpretation in recentyears to includeseizureordetentionbycivilauthoritiesseemsconsistentwiththegeneralpurposesoftheclause,...."5Infact,petitioneritselfaverredthatsubsection1.1ofSection1oftheInstituteWarClausesincluded"arrest"evenifitwerenotaresultofhostilitiesorwarlikeoperations.6 Inthis regard, since what was also excluded in the deleted F.C. & S. Clause was "arrest" occasioned by ordinary judicialprocess, logically,such "arrest"wouldnowbecomeacovered riskundersubsection1.1ofSection1of the InstituteWarClauses,regardlessofwhetherornotsaid"arrest"bycivilauthoritiesoccurredinastateofwar.

PetitioneritselfseemstobeconfusedabouttheapplicationoftheF.C.&S.Clauseaswellasthatofsubsection1.1 of Section 1 of the Institute War Clauses (Cargo). It stated that "the F.C. & S. Clause was "originallyincorporated in insurancepoliciestoeliminatetherisksofwarlikeoperations". Italsoaverredthat theF.C.&S.Clauseapplieseveniftherebenowarorwarlikeoperations...."7In thesamevein, itcontended thatsubsection1.1ofSection1oftheInstituteWarClauses(Cargo)"pertainedexclusivelytowarlikeoperations"andyetitalsostatedthat"thedeletionof theF.C.&S.Clauseandtheconsequent incorporationofsubsection1.1ofSection1of the InstituteWarClauses(Cargo)wastoinclude"arrest,etc.evenifwerenotaresultofhostilitiesorwarlikeoperations.8

ThisCourtcannothelpthe impressionthatpetitioner isoverlystraining its interpretationof theprovisionsof thepolicyinordertoavoidbeingliableforprivaterespondent'sclaim.

ThisCourtfindsitpointlessforpetitionertomaintainitspositionthatitonlyinsuresrisksof"arrest"occasionedbyexecutiveorpoliticalactsofgovernmentwhich is interpretedasnot referring to thosecausedbyordinary legalprocesses as contained in the "Perils" Clause deletes the F.C. & S. Clause which excludes risks of arrestoccasionedbyexecutiveor political acts of thegovernment andnaturally, also those causedbyordinary legalprocesses and, thereafter incorporates subsection 1.1 of Section 1 of the Institute War Clauses which nowincludesinthecoveragerisksofarrestduetoexecutiveorpoliticalactsofagovernmentbutthenstillexcludes"arrests"occasionedbyordinary legalprocesseswhensubsection1.1ofSection1ofsaidClausesshouldalsohaveincluded"arrests"previouslyexcludedfromthecoverageoftheF.C.&S.Clause.

Ithasbeenheldthatastrainedinterpretationwhichisunnaturalandforced,astoleadtoanabsurdconclusionorto render thepolicynonsensical,should,byallmeans,beavoided.9Likewise, itmust be borne inmind that suchcontracts are invariably prepared by the companies andmust be accepted by the insured in the form in which they arewritten. 10Any construction of a marine policy rendering it void should be avoided. 11 Such policies will, therefore, beconstruedstrictlyagainst thecompany inorder toavoida forfeiture,unlessnoother result ispossible from the languageused.12

Ifamarineinsurancecompanydesirestolimitorrestricttheoperationofthegeneralprovisionsofitscontractbyspecialproviso,exception,orexemption,itshouldexpresssuchlimitationinclearandunmistakablelanguage.13Obviously, the deletion of the F.C. & S. Clause and the consequent incorporation of subsection 1.1 of Section 1 of theInstitute War Clauses (Cargo) gave rise to ambiguity. If the risk of arrest occasioned by ordinary judicial process wasexpressly indicated as an exception in the subject policies, there would have been no controversy with respect to theinterpretationofthesubjectclauses.

Bethatasitmay,exceptionstothegeneralcoverageareconstruedmoststronglyagainstthecompany.14Evenanexpressexception inapolicy is tobeconstruedagainst theunderwritersbywhomthepolicy is framed,and forwhosebenefittheexceptionisintroduced.15

Aninsurancecontractshouldbesointerpretedastocarryoutthepurposeforwhichthepartiesenteredintothecontractwhich is, to insureagainstrisksof lossordamagetothegoods.Such interpretationshouldresult fromthe natural and reasonable meaning of language in the policy. 16 Where restrictive provisions are open to two

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interpretations,thatwhichismostfavorabletotheinsuredisadopted.17

Indemnity and liability insurance policies are construed in accordance with the general rule of resolving anyambiguitythereininfavoroftheinsured,wherethecontractorpolicyispreparedbytheinsurer.18Acontractofinsurance, being a contract of adhesion, par excellence, any ambiguity therein should be resolved against the insurer inotherwords, it should be construed liberally in favor of the insured and strictly against the insurer. Limitations of liabilityshould be regarded with extreme jealousy and must be construed in such a way as to preclude the insurer fromnoncompliancewithitsobligations.19

Inviewoftheforegoing,thisCourtseesnoneedtodiscusstheotherissuespresented.

WHEREFORE,thepetitionforreviewisDENIEDandthedecisionoftheCourtofAppealsisAFFIRMED.

SOORDERED.

Regalado,Puno,Mendoza,andTorres,Jr.,JJ.,concur.

Footnotes

1PennedbyJusticeGodardoA.JacintoandconcurredinbyJusticesRicardoJ.FranciscoandHectorL.Hofilena.

216Me.207.

3R.Keeton&A.Widiss,InsuranceLaw,467(1988).

4Petition,pp.1314,Rollo.

5BlaineRichards&Co.v.MarineIndem.,Ins.,Co.,653F.2nd1051(1980).

6Petition,p.13,Rollo.

7p.13,supra.

8Supra.

9Importers'&Exporters'Ins.Co.v.Jones,1924,266S.W.286,166Ark.370.

10GeneralAccident,Fire&LifeAss.Corp.v.LouisvilleHomeTelephoneCo.,1917,193S.W.1031.

11TheJ.L.Luckenbach,C.C.A.N.Y.(1933),65F.2d570.

12Wheelerv.AetnaIns.Co.,D.C.N.Y.(1933),F.Supp.820.

13RosenReichardtBrokerageCo.v.LondonAssur.Corp.(1924),264S.W.433.

14Quinlinanv.NorthwesternFire&MarineIns.Co.,D.C.N.Y.(1929),31F.2d149.

15Dolev.NewEnglandMut.MarineIns.Co.(1863)88Mass.373.

16CherokeeBrickCo.v.OceanAccident&GuarantyCorp.,Limited,(1918),94S.E.1032,Ga.App.702.

17RosenReichardtBrokerageCo.v.LondonAssur.Corporation,(1924),264S.W.433.

18Vol.II,G.Couch,CyclopediaofInsuranceLaw,pp.524525,(1963).

19FortuneInsuranceandSuretyCo.,Inc.v.CourtofAppeals,244SCRA308(1995).

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