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36 views

Cases

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Chloe Sy Galita
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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G.R. No.

124050 June 19, 1997

MAYER STEEL PIPE CORPORATION and HONGKONG GOVERNMENT SUPPLIES


DEPARTMENT, petitioners,
vs.
COURT OF APPEALS, SOUTH SEA SURETY AND INSURANCE CO., INC. and the
CHARTER INSURANCE CORPORATION, respondents.

Facts:

In 1983, petitioner Hongkong Government Supplies Department (Hongkong)


contracted petitioner Mayer Steel Pipe Corporation (Mayer) to manufacture and supply
various steel pipes and fittings. From August to October, 1983, Mayer shipped the pipes
and fittings to Hongkong Prior to the shipping, petitioner Mayer insured the pipes and
fittings against all risks with private respondents South Sea Surety and Insurance Co.,
Inc. (South Sea) and Charter Insurance Corp. (Charter). Petitioners Mayer and
Hongkong jointly appointed Industrial Inspection (International) Inc. as third-party
inspector to examine whether the pipes and fittings are manufactured in accordance
with the specifications in the contract. Industrial Inspection certified all the pipes and
fittings to be in good order condition before they were loaded in the vessel.
Nonetheless, when the goods reached Hongkong, it was discovered that a substantial
portion thereof was damaged.

Petitioners filed a claim against private respondents for indemnity under the insurance
contract. Respondent Charter paid petitioner Hongkong the amount of HK$64,904.75.
Petitioners demanded payment of the balance of HK$299,345.30 representing the cost
of repair of the damaged pipes. Private respondents refused to pay because the
insurance surveyor's report allegedly showed that the damage is a factory defect.

On April 17, 1986, petitioners filed an action against private respondents to recover the
sum of HK$299,345.30. For their defense, private respondents averred that they have
no obligation to pay the amount claimed by petitioners because the damage to the
goods is due to factory defects which are not covered by the insurance policies.

The trial court ruled in favor of petitioners. It found that the damage to the goods is not
due to manufacturing defects. It also noted that the insurance contracts executed by
petitioner Mayer and private respondents are "all risks" policies which insure against all
causes of conceivable loss or damage. The only exceptions are those excluded in the
policy, or those sustained due to fraud or intentional misconduct on the part of the
insured.

Private respondents elevated the case to respondent Court of Appeals.


Respondent court affirmed the finding of the trial court that the damage is not due to
factory defect and that it was covered by the "all risks" insurance policies issued by
private respondents to petitioner Mayer. However, it set aside the decision of the trial
court and dismissed the complaint on the ground of prescription. It held that the action
is barred under Section 3(6) of the Carriage of Goods by Sea Act since it was filed only
on April 17, 1986, more than two years from the time the goods were unloaded from
the vessel.

Section 3(6) of the Carriage of Goods by Sea Act provides that "the carrier and the ship
shall be discharged from all liability in respect of loss or damage unless suit is brought
within one year after delivery of the goods or the date when the goods should have
been delivered." Respondent court ruled that this provision applies not only to the
carrier but also to the insurer, citing Filipino Merchants Insurance Co., Inc. v. Alejandro.
6

Issue:

The respondent Court of Appeals committed an error in dismissing the complaint.

Ruling:

Yes. Respondent court erred in applying Section 3(6) of the Carriage of Goods by Sea
Act.

Section 3(6) of the Carriage of Goods by Sea Act states that the carrier and the ship
shall be discharged from all liability for loss or damage to the goods if no suit is filed
within one year after delivery of the goods or the date when they should have been
delivered. Under this provision, only the carrier's liability is extinguished if no suit is
brought within one year. But the liability of the insurer is not extinguished because the
insurer's liability is based not on the contract of carriage but on the contract of
insurance. A close reading of the law reveals that the Carriage of Goods by Sea Act
governs the relationship between the carrier on the one hand and the shipper, the
consignee and/or the insurer on the other hand. It defines the obligations of the carrier
under the contract of carriage. It does not, however, affect the relationship between
the shipper and the insurer. The latter case is governed by the Insurance Code.

Our ruling in Filipino Merchants Insurance Co., Inc. v. Alejandro 8 and the other cases 9
cited therein does not support respondent court's view that the insurer's liability
prescribes after one year if no action for indemnity is filed against the carrier or the
insurer. In that case, the shipper filed a complaint against the insurer for recovery of a
sum of money as indemnity for the loss and damage sustained by the insured goods.
The insurer, in turn, filed a third-party complaint against the carrier for reimbursement
of the amount it paid to the shipper. The insurer filed the third-party complaint on
January 9, 1978, more than one year after delivery of the goods on December 17,
1977. The court held that the insurer was already barred from filing a claim against the
carrier because under the Carriage of Goods by Sea Act, the suit against the carrier
must be filed within one year after delivery of the goods or the date when the goods
should have been delivered. The court said that "the coverage of the Act includes the
insurer of the goods." 10

The Filipino Merchants case is different from the case at bar. In Filipino Merchants, it
was the insurer which filed a claim against the carrier for reimbursement of the amount
it paid to the shipper. In the case at bar, it was the shipper which filed a claim against
the insurer. The basis of the shipper's claim is the "all risks" insurance policies issued by
private respondents to petitioner Mayer.

The ruling in Filipino Merchants should apply only to suits against the carrier filed either
by the shipper, the consignee or the insurer. When the court said in Filipino Merchants
that Section 3(6) of the Carriage of Goods by Sea Act applies to the insurer, it meant
that the insurer, like the shipper, may no longer file a claim against the carrier beyond
the one-year period provided in the law. But it does not mean that the shipper may no
longer file a claim against the insurer because the basis of the insurer's liability is the
insurance contract. An insurance contract is a contract whereby one party, for a
consideration known as the premium, agrees to indemnify another for loss or damage
which he may suffer from a specified peril. 11 An "all risks" insurance policy covers all
kinds of loss other than those due to willful and fraudulent act of the insured. 12 Thus,
when private respondents issued the "all risks" policies to petitioner Mayer, they bound
themselves to indemnify the latter in case of loss or damage to the goods insured. Such
obligation prescribes in ten years, in accordance with Article 1144 of the New Civil
Code. 13

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