638 SUPREME COURT REPORTS ANNOTATED

Filipino Merchants Insurance Co., Inc. vs. Court of Appeals

*
G.R. No. 85141. November 28, 1989.

FILIPINO MERCHANTS INSURANCE CO., INC.,

petitioner, vs. COURT OF APPEALS and CHOA TIEK
SENG, respondents.

Insurance; An “all risks” policy covers all losses other than

those caused by the wilful and fraudulent act of insured.—The
very nature of the term “all risks” must be given a broad and
comprehensive meaning as covering any loss other than a wilful
and fraudulent act of the insured. This is pursuant to the very
purpose of an “all risks” insurance to give protection to the
insured in those cases where difficulties of logical explanation or
some mystery surround the loss or damage to property. An “all
risks” policy has been evolved to grant greater protection than
that afforded by the “perils clause,” in order to assure that no loss
can happen through the incidence of a cause neither insured
against nor creating liability in the ship; it is written against all
losses, that is, attributable to external causes.
Same; Same; Insurer has burden of proof to show that loss is
caused by an excepted risk.—Generally, the burden of proof is
upon the insured to show that a loss arose from a covered peril,
but under an “all risks”, policy the burden is not on the insured to
prove the precise cause of loss or damage for which it seeks
compensation. The insured under an “all risks insurance policy”
has the initial burden of proving that the cargo was in good
condition when the policy attached and that the cargo was
damaged when unloaded from the vessel; thereafter, the burden
then shifts to the insurer to show the exception to the coverage.
As we held in Paris­Manila Perfumery Co. vs. Phoenix Assurance
Co., Ltd. the basic rule is that the insurance company has the
burden of proving that the loss is caused by the risks excepted
and for want of such proof, the company is liable.
Same; Insurable Interest; Perfected contract of sale even
without delivery vests in the vendee, an equitable title, an existing
interest over the goods sufficient to be subject of insurance.—
Herein private respondent, as vendee/consignee of the goods in
transit has such existing interest therein as may be the subject of
a valid contract of insurance. His interest over the goods is based
on the perfected contract of sale. The perfected contract of sale
between him and the shipper of the

________________

* SECOND DIVISION.

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VOL. 179, NOVEMBER 28, 1989 639

Filipino Merchants Insurance Co., Inc. vs. Court of Appeals

goods operates to vest in him an equitable title even before

delivery or before he performed the conditions of the sale. The
contract of shipment, whether under F.O.B., C.I.F., or C. & F. as
in this case, is immaterial in the determination of whether the
vendee has an insurable interest or not in the goods in transit.
The perfected contract of sale even without delivery vests in the
vendee an equitable title, an existing interest over the goods
sufficient to be the subject of insurance.
Same; Marine Insurance; Obligations and Contracts; Delivery;
Delivery of goods on board the carrying vessels partake of the
nature of actual delivery.—Further, Article 1523 of the Civil Code
provides that where, in pursuance of a contract of sale, the seller
is authorized or required to send the goods to the buyer, delivery
of the goods to a carrier, whether named by the buyer or not, for,
the purpose of transmission to the buyer is deemed to be a
delivery of the goods to the buyer, the exceptions to said rule not
obtaining in the present case. The Court has heretofore ruled that
the delivery of the goods on board the carrying vessels partake of
the nature of actual delivery since, from that time, the foreign
buyers assumed the risks of loss of the goods and paid the
insurance premium covering them.

PETITION to review the decision of the Court of Appeals.

Gonzaga­Reyes, J.

The facts are stated in the opinion of the Court.

     Balgos & Perez Law Offices for petitioner.
     Lapuz Law Office for private respondent.

REGALADO, J.:
This is a review of the decision of the Court of Appeals,
promulgated on July 19, 1988, the dispositive part of which
reads:

“WHEREFORE, the judgment appealed from is affirmed insofar

as it orders defendant Filipino Merchants Insurance Company to
pay the plaintiff the sum of P51,568.62 with interest at legal rate
from the date of filing of the complaint, and is modified with
respect to the third party complaint in that (1) third party
defendant E. Razon, Inc. is ordered to reimburse third party
plaintiff the sum of P25,471.80 with legal interest from the date of
payment until the date of reimbursement, and (2) the third­party
complaint against third party defendant

640

640 SUPREME COURT REPORTS ANNOTATED

Filipino Merchants Insurance Co., Inc. vs. Court of Appeals
1
Compagnie Maritime Des Chargeurs Reunis is dismissed.”

The facts as found by the trial court and adopted by the

Court of Appeals are as follows:

“This is an action brought by the consignee of the shipment of

fishmeal loaded on board the vessel SS Bougainville and unloaded
at the Port of Manila on or about December 11, 1976 and seeks to
recover from the defendant insurance company the amount of
P51,568.62 representing damages to said shipment which has
been insured by the defendant insurance company under Policy
No. M­2678. The defendant brought a third party complaint
against third party defendants Compagnie Maritime Des
Chargeurs Reunis and/or E. Razon, Inc. seeking judgment against
the third (sic) defendants in case judgment is rendered against
the third party plaintiff. It appears from the evidence presented
that in December 1976, plaintiff insured said shipment with
defendant insurance company under said cargo Policy No. M­2678
for the sum of P267,653.59 for the goods described as 600 metric
tons of fishmeal in new gunny bags of 90 kilos each from
Bangkok, Thailand to Manila against all risks under warehouse
to warehouse terms. Actually, what was imported was 59.940
metric tons not 600 tons at $395.42 a ton CNF Manila. The
fishmeal in 666 new gunny bags were unloaded from the ship on
December 11, 1976 at Manila unto the arrastre contractor E.
Razon, Inc. and defendant’s surveyor ascertained and certified
that in such discharge 105 bags were in bad order condition as
jointly surveyed by the ship’s agent and the arrastre contractor.
The condition of the bad order was reflected in the turn over
survey report of Bad Order cargoes Nos. 120320 to 120322, as
Exhibit C­4 consisting of three (3) pages which are also Exhibits
4, 5 and 6­Razon. The cargo was also surveyed by the arrastre
contractor before delivery of the cargo to the consignee and the
condition of the cargo on such delivery was reflected in E. Razon’s
Bad Order Certificate No. 14859, 14863 and 14869 covering a
total of 227 bags in bad order condition. Defendant’s surveyor has
conducted a final and detailed survey of the cargo in the
warehouse for which he prepared a survey report Exhibit F with
the findings on the extent of shortage or loss on the bad order
bags totalling 227 bags amounting to 12,148 kilos, Exhibit F­1.
Based on said computation the plaintiff made a formal claim
against the defendant Filipino Merchants Insurance Company for
P51,568.62 (Exhibit C) the computation of which

________________

1 Rollo, 41; Justice Gonzaga­Reyes, ponente, with Justices Serafin E.

Camilon and Pedro A. Ramirez concurring.

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VOL. 179, NOVEMBER 28, 1989 641

Filipino Merchants Insurance Co., Inc. vs. Court of Appeals

claim is contained therein. A formal claim statement was also

presented by the plaintiff against the vessel dated December 21,
1976, Exhibit B, but the defendant Filipino Merchants Insurance
Company refused to pay the claim. Consequently, the plaintiff
brought an action against said defendant as adverted to above
and defendant presented a third party complaint against the
2
vessel and the arrastre contractor.”

The court below, after trial on the merits, rendered

judgment in favor of private respondent, the decretal
portion whereof reads:

“WHEREFORE, on the main complaint, judgment is hereby

rendered in favor of the plaintiff and against the defendant
Filipino Merchant’s (sic) Insurance Co., ordering the defendants
to pay the plaintiff the following amount:
“The sum of P51,568.62 with interest at legal rate from the
date of the filing of the complaint;
“On the third party complaint, the third party defendant
Compagnie Maritime Des Chargeurs Reunis and third party
defendant E. Razon, Inc. are ordered to pay to the third party
plaintiff jointly and severally reimbursement of the amounts paid
by the third party plaintiff with legal interest from the date of
such payment until the date of such reimbursement.
3
 3
“Without pronouncement as to costs.”

On appeal, the respondent court affirmed the decision of

the lower court insofar as the award on the complaint is
concerned and modified the same with regard to the
adjudication of the third­party complaint. A motion for
reconsideration of the aforesaid decision was denied, hence
this petition with the following assignment of errors:

“1. The Court of Appeals erred in its interpretation and

application of the ‘all risks’ clause of the marime
insurance policy when it held the petitioner liable
to the private respondent for the partial loss of the
cargo, notwithstanding the clear absence of proof of
some fortuitous event, casualty, or accidental cause
to which the loss is attributable, thereby
contradicting the very precedents cited by it in

________________

2 Rollo, 26­28.
3 Ibid., 8­29.

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642 SUPREME COURT REPORTS ANNOTATED

Filipino Merchants Insurance Co., Inc. vs. Court of Appeals

its decision as well as a prior decision of the same

Division of the said court (then composed of
Justices Cacdac, Castro­Bartolome, and Pronove);
“2. The Court of Appeals erred in not holding that the
private respondent had no insurable interest in the
subject cargo, hence, the marine insurance policy
taken out by private respondent is null and void;
“3. The Court of Appeals erred in not holding that the
private respondent was guilty of fraud in not
disclosing the fact, it being bound out of utmost
good faith to do so, that it had no insurable interest
in the subject
4
cargo, which bars its recovery on the
policy.”

On the first assignment of error, petitioner contends that

an “all risks” marine policy has a technical meaning in
insurance in that before a claim can be compensable it is
essential that there must be “some fortuity,” “casualty” or
“accidental cause” to which the alleged loss is attributable
and the failure of herein private respondent, upon whom
lay the burden, to adduce evidence showing that the
alleged loss to the cargo in question was due to a fortuitous
event precludes his right to recover from the insurance
policy. We find said contention untenable.
The “all risks clause” of the Institute Cargo Clauses read
as follows:

“5. This insurance is against all risks of loss or damage to the

subject­matter insured but shall in no case be deemed to extend to
cover loss, damage, or expense proximately caused by delay or
inherent vice or nature of the subject­matter insured. Claims
recoverable hereunder shall be payable irrespective of
5
percentage.”

An “all risks policy” should be read literally as meaning all

risks whatsoever and covering all losses by an accidental
cause of any kind. The terms “accident” and “accidental”, as
used in insurance contracts, have not acquired any
technical meaning. They are construed by the courts in
their ordinary and common acceptance. Thus, the terms
have been taken to mean that which happens by chance or
fortuitously, without intention and design, and which is
unexpected, unusual and unforeseen. An

________________

4 Ibid., 10­11.
5 Original Record, Civil Case No. (112091) R­81­750, 26.

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VOL. 179, NOVEMBER 28, 1989 643

Filipino Merchants Insurance Co., Inc. vs. Court of Appeals

accident is an event that takes place without one’s foresight

or expectation; an event that proceeds from an unknown
cause, or is an unusual 6
effect of a known cause and,
therefore, not expected.
The very nature of the term “all risks” must be given a
broad and comprehensive meaning as covering any7 loss
other than a wilful and fraudulent act of the insured. This
is pursuant to the very purpose of an “all risks” insurance
to give protection to the insured in those cases where
difficulties of logical explanation 8or some mystery surround
the loss or damage to property. An “all risks” policy has
been evolved to grant greater protection than that afforded
by the “perils clause,” in order to assure that no loss can
happen through the incidence of a cause neither insured
against nor creating liability in the ship; it is written 9
against all losses, that is, attributable to external causes.
The term “all risks” cannot be given a strained technical
meaning, the language of the clause under the Institute
Cargo Clauses being unequivocal and clear, to the effect
that it extends to all damages/losses suffered by the
insured cargo except (a) loss or damage or expense
proximately caused by delay, and (b) loss or damage or
expense proximately caused by the inherent vice or nature
of the subject matter insured.
Generally, the burden of proof is upon the insured to
show that a loss arose from a covered peril, but under an
“all risks” policy the burden is not on the insured to prove
the precise cause of loss or damage for which it seeks
compensation. The insured under an “all risks insurance
policy” has the initial burden of proving that the cargo was
in good condition when the policy attached and that the
cargo was damaged when unloaded from the vessel;
thereafter, the burden then shifts
10
to the insurer to show
the exception to the coverage. As we held in Paris­Manila
11
Perfumery Co. vs. Phoenix Assurance Co., Ltd.

________________

6 29A Am. Jur., 308­309.

7 Phoenix Ins. Co. vs. Branch (Fla. App) 234 So 2d 396.
8 Morrison Grain Co. vs. Utica Mut. Ins. Co. (1980, CA S Fla.) 632 F. 2d
424.
9 Gilmore and Black, The Law of Admiralty, 68, 169.
10 See Footnote 8, ante.
11 49 Phil. 753 (1926).

644

644 SUPREME COURT REPORTS ANNOTATED

Filipino Merchants Insurance Co., Inc. vs. Court of Appeals

the basic rule is that the insurance company has the

burden of proving that the loss is caused by the risks
excepted and for want of such proof, the company is liable.
Coverage under an “all risks” provision of a marine
insurance policy creates a special type of insurance which
extends coverage to risks not usually contemplated and
avoids putting upon the insured the burden of establishing
that the loss was due to the peril falling within the policy’s
coverage; the insurer can avoid coverage upon
demonstrating that a specific
12
provision expressly excludes
the loss from coverage. A marine insurance policy
providing that the insurance was to be “against all risks”
must be construed as creating a special insurance and
extending to other risks than are usually contemplated,
and covers all
13
losses except such as arise from the fraud of
the insured. The burden of the insured, therefore, is to
prove merely that the goods he transported have been lost,
destroyed or deteriorated. Thereafter, the burden is shifted
to the insurer to prove that the loss was due to excepted
perils. To impose on the insured the burden of proving the
precise cause of the loss or damage would be inconsistent
with the broad protective purpose of “all risks” insurance.
In the present case, there being no showing that the loss
was caused by any of the excepted perils, the insurer is
liable under the policy. As aptly stated by the respondent
Court of Appeals, upon due consideration of the authorities
and jurisprudence it discussed—

“x x x it is believed that in the absence of any showing that the

losses/damages were caused by an excepted peril, i.e. delay or the
inherent vice or nature of the subject matter insured, and there is
no such showing, the lower court did not err in holding that the
loss was covered by the policy.
“There is no evidence presented to show that the condition of
the gunny bags in which the fishmeal was packed was such that
they could not hold their contents in the course of the necessary
transit,

________________

12 Walker vs. Traveller’s Indemnity Co., (La. App.) 289 So. 2nd 864,
869.
13 Goix vs. Knox, 1 Johns. Cas. 337, cited in Words and Phrases,
Permanent Ed., Vol. 3, (1953 ed.), 310.

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VOL. 179, NOVEMBER 28, 1989 645

Filipino Merchants Insurance Co., Inc. vs. Court of Appeals

much less any evidence that the bags of cargo had burst as the
result of the weakness of the bags themselves. Had there been
such a showing that spillage would have been a certainty, there
may have been good reason to plead that there was no risk
covered by the policy (See Berk vs. Style [1956] cited in Marine
Insurance Claims, ibid, p. 125). Under an ‘all risks’ policy, it was
sufficient to show that there was damage occasioned by some
accidental cause of any kind, and there is no necessity to point to
14
any particular cause.”
Contracts of insurance are contracts of indemnity upon the
terms and conditions specified in the policy. The agreement
has the force of law between the parties. The terms of the
policy constitute the measure of the insurer’s liability. If
such terms are clear and unambiguous, they must be taken
and understood
15
in their plain, ordinary and popular
sense.
Anent the issue of insurable interest, we uphold the
ruling of the respondent court that private respondent, as
consignee of the goods in transit under an invoice
containing the terms under “C & F Manila,” has insurable
interest in said goods.
Section 13 of the Insurance Code defines insurable
interest in property as every interest in property, whether
real or personal, or any relation thereto, or liability in
respect thereof, of such nature that a contemplated peril
might directly damnify the insured. In principle, anyone
has an insurable interest in property who derives a benefit
from its existence or would suffer loss from its destruction
whether he has or has not 16
any title in, or lien upon or
possession of the property. Insurable interest in property
may consist in (a) an existing interest; (b) an inchoate
interest founded on an existing interest; or (c) an
expectancy, coupled with an 17existing interest in that out of
which the expectancy arises.
Herein private respondent, as vendee/consignee of the
goods in transit has such existing interest therein as may
be the subject of a valid contract of insurance. His interest
over the

________________

14 Rollo, 32.
15 Pacific Banking Corp. vs. Court of Appeals, G.R. No. 41014, Nov. 28,
1988.
16 43 Am. Jur. 2d, 507­508.
17 Sec. 14, Insurance Code.

646

646 SUPREME COURT REPORTS ANNOTATED

Filipino Merchants Insurance Co., Inc. vs. Court of Appeals
18
goods is based on the perfected contract of sale. The
perfected contract of sale between him and the shipper of
the goods operates to vest in him an equitable title even
before
19
delivery or before he performed the conditions of the
sale. The contract of shipment, whether under F.O.B.,
C.I.F., or C. & F. as in this case, is immaterial in the
determination of whether the vendee has an insurable
interest or not in the goods in transit. The perfected
contract of sale even without delivery vests in the vendee
an equitable title, an existing interest over the goods
sufficient to be the subject of insurance.
Further, Article 1523 of the Civil Code provides that
where, in pursuance of a contract of sale, the seller is
authorized or required to send the goods to the buyer,
delivery of the goods to a carrier, whether named by the
buyer or not, for, the purpose of transmission to the buyer
is deemed to be a delivery of the goods to the buyer, the
exceptions to said rule not obtaining in the present case.
The Court has heretofore ruled that the delivery of the
goods on board the carrying vessels partake of the nature of
actual delivery since, from that time, the foreign buyers
assumed the risks of loss of the 20
goods and paid the
insurance premium covering them.
C & F contracts are shipment contracts. The term
means that the price fixed includes in a lump sum the 21cost
of the goods and freight to the named destination. It
simply means that the seller must pay the costs and freight
necessary to bring the goods to the named destination but
the risk of loss or damage to the goods is transferred from
the seller to the buyer 22
when the goods pass the ship’s rail
in the port of shipment.
Moreover, the issue of lack of insurable interest was not
among the defenses averred in petitioner’s answer. It was
neither an issue agreed upon by the parties at the pre­trial

________________

18 Original Record, Folder of Exhibits, Exh. C­2, 6.

19 43 Am. Jur. 2d, 522; Vance on Insurance, 164­168.
20 Rattan Arts & Decorations, Inc. vs. Collector of Internal Revenue, et
al., 13 SCRA 626 (1965).
21 Business Law Principles and Cases by Harold Luck, Charles M.
Hewitt, John D. Donnel, and A. James Barns, Second Uniform
Commercial Code Edition, 751­752.
22 Guide to INCO Terms, 1980 Ed., 48­50.

647

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Filipino Merchants Insurance Co., Inc. vs. Court of Appeals

conference nor was it raised during the trial in the court

below. It is a settled rule that an issue which has not been
 raised in the court a quo cannot be raised for the first time
on appeal as it would be offensive
23
to the basic rules of fair
play, justice and due process. This is but a permuted
restatement of the long settled rule that when a party
deliberately adopts a certain theory, and the case is tried
and decided upon that theory in the court below, he will not
be permitted to change his theory on appeal because, 24 to
permit him to do so, would be unfair to the adverse party.
If despite the fundamental doctrines just stated, we
nevertheless decided to indite a disquisition on the issue of
insurable interest raised by petitioner, it was to put at rest
all doubts on the matter under the facts in this case and
also to dispose of petitioner’s third assignment of error
which consequently needs no further discussion.
WHEREFORE, the instant petition is DENIED and the
assailed decision of the respondent Court of Appeals is
AFFIRMED in toto.
SO ORDERED.

     Paras, Padilla and Sarmiento, JJ., concur.

     Melencio­Herrera (Chairman), J., On leave.

Petition denied, decision affirmed in toto.

Note.—In marine insurance, the implied warranty of

seaworthiness attaches to the shipper whether shipowner
or not. (Roque vs. Intermediate Appellate Court, 139 SCRA
596.)

——o0o——

________________

23 De Los Santos vs. Court of Appeals, et al., 140 SCRA 44 (1985); Dulos
Realty & Development Corp. vs. Court of Appeals, et al., 157 SCRA 425
(1988); Ramos, et al. vs. Intermediate Appellate Court, et. al., G.R. No.
78282, July 5, 1989.
24 Molina vs. Somes, 24 Phil. 49 (1913); Agoncillo, et al. vs. Javier, 38
Phil. 424 (1918).

648

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