Oriental v CA G.R. No. 94052 August 9, 1991

J. Melencio-Herrera

Facts:

Panama Sawmill shipped 1208 pieces of apitog logs to Manila and insured the logs with Oriental for the value of Php 1 million. Two barges were loaded with 610 and 598 logs. At sea, typhoons ravaged one of the barges, resulting in the loss of 497 of 598 of the logs. 

The Insurance contract provided for indemnity under the following conditions:

Warranted that this Insurance is against TOTAL LOSS ONLY. Subject to the following clauses:

— Civil Code Article 1250 Waiver clause

— Typhoon warranty clause

— Omnibus clause.

Oriental didn’t give an indemnity because there wasn’t total loss of the shipment.

The sawmill filed a civil case against Oriental and the court ordered it to pay 410,000 as value for the missing logs. The CA affirmed the lower court judgment but reduced the legal interest.  Hence this appeal by Oriental.

Issue:

Whether or not Oriental Assurance can be held liable under its marine insurance policy based on the theory of a divisible contract of insurance and, consequently, a constructive total loss.

Held: No. Petition granted.

Ratio:

Perla v CA-  The terms of the contract constitute the measure of the insurer liability and compliance therewith is a condition precedent to the insured's right to recovery from the insurer.

“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.”

Also, the insurer's liability was for "total loss only" as stipulated. A total loss may be either actual or constructive. An actual total loss under Sec 130 of the Insurance Code is caused by:

(a) A total destruction of the thing insured;

(b) The irretrievable loss of the thing by sinking, or by being broken up;

(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.

A constructive total loss, gives to a person insured a right to abandon and it means:

SECTION 139.     A person insured by a contract of marine insurance may abandon the 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 appellate court considered the cargo in one barge as separate from the other and ruled that 497 of 598 was more than ¾ of the amount lost, showing a constructive total loss.

The SC, however, said that although the logs were placed in two barges, they were not separately valued by the policy, nor separately insured. 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 can not be said to have sustained a constructive total loss under Section 139(a) of the Insurance Code.