Malayan Insurance Corp vs CA G.R. 119599 March 20, 1997

J. Romero

Facts:

TKC Marketing imported 3,000 metric tons of soya from Brazil to Manila. It was insured by Malayan at the value of almost 20 million pesos. The vessel, however, was stranded on South Africa because of a lawsuit regarding the possession of the soya. TKC consulted Malayan on recovery of the amount, but the latter claimed that it wasn’t covered by the policy. The soya was sold in Africa for Php 10 million, but TKC wanted Malayan to shoulder the remaining value of 10 million as well.

Petitioner filed suit due to Malayan’s reticence to pay. Malayan claimed that arrest by civil authorities wasn’t covered by the policy. The trial court ruled in TKC’s favor with damages to boot. The appellate court affirmed the decision under the reason that clause 12 of the policy regarding an excepted risk due to arrest by civil authorities was deleted by Section 1.1 of the Institute War Clauses which covered ordinary arrests by civil authorities. Failure of the cargo to arrive was also covered by the Theft, Pilferage, and Non-delivery Clause of the contract. Hence this petition.

Issues:

1.  WON the arrest of the vessel was a risk covered under the subject insurance policies.

2.  WON the insurance policies must strictly construed against the insurer.

Held: Yes. Yes. Petition dismissed.

Ratio:

1. Section 12 or the "Free from Capture & Seizure Clause" states:  "Warranted free of capture, seizure, arrest, restraint or detainment, and the consequences thereof or of any attempt thereat… Should Clause 12 be deleted, the relevant current institute war clauses shall be deemed to form part of this insurance.”

This was really replaced by the subsection 1.1 of section 1 of Institute War Clauses (Cargo) which included “the risks excluded from the standard form of English Marine Policy by the clause warranted free of capture, seizure, arrest, restraint or detainment, and the consequences thereof of hostilities or warlike operations, whether there be a declaration of war or not.”

The petitioner’s claim that the Institute War Clauses can be operative in case of hostilities or warlike operations on account of its heading "Institute War Clauses" is not tenable. It reiterated the CA’s stand that “its interpretation in recent years to include seizure or detention by civil authorities seems consistent with the general purposes of the clause.” This interpretation was regardless of the fact whether the arrest was in war or by civil authorities.

The petitioner was said to have confused the Institute War clauses and the F.C.S. in English law.

“It stated that "the F.C. & S. Clause was "originally incorporated in insurance policies to eliminate the risks of warlike operations". It also averred that the F.C. & S. Clause applies even if there be no war or warlike operations.  In the same vein, it contended that subsection 1.1 of Section 1 of the Institute War Clauses (Cargo) "pertained exclusively to warlike operations" and yet it also stated that "the deletion of the F.C. & S. Clause and the consequent incorporation of subsection 1.1 of Section 1 of the Institute War Clauses (Cargo) was to include "arrest, etc. even if it were not a result of hostilities or warlike operations."

The court found that the insurance agency tried to interpret executive and political acts as those not including ordinary arrests in the exceptions of the FCS clause , and claims that the War Clauses now included executive and political acts without including ordinary arrests in the new stipulation.

“A strained interpretation which is unnatural and forced, as to lead to an absurd conclusion or to render the policy nonsensical, should, by all means, be avoided.”

2. Indemnity and liability insurance policies are construed in accordance with the general rule of resolving any ambiguity therein in favor of the insured, where the contract or policy is prepared by the insurer. A contract of insurance, being a contract of adhesion, means that any ambiguity should be resolved against the insurer.