Marine Insurance

(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, effects,
disbursements, profits, moneys, securities, choses in action, evidences of debts, valuable
papers, bottomry, and respondentia interests and all other kinds of property and interests
therein, in respect to, appertaining to or in connection with any and all risks or perils of
navigation, transit or transportation, or while being assembled, packed, crated, baled,
compressed or similarly prepared for shipment or while awaiting shipment, or during any
delays, storage, transhipment, or reshipment incident thereto, including war risks, marine
builders, and all personal property floater risks;

(b) Person or property in connection with or appertaining to a marine, inland marine, transit
or transportation insurance, including liability for loss of or damage arising out of or in
connection with the construction, repair, operation, maintenance or use of the subject
matter of such insurance (but not including life insurance or surety bonds nor insurance
against loss by reason of bodily injury to any person arising out of ownership, maintenance,
or use of automobiles);

(c) Precious stones, jewels, jewelry, precious metals, whether in course of transportation or
otherwise;

(d) Bridges, tunnels and other instrumentalities of transportation and communication

(excluding buildings, their furniture and furnishings, fixed contents and supplies held in
storage); piers, wharves, docks and ships, and other aids to navigation and transportation,
including dry dock and marine railways, dams and appurtenant facilities for the control of
waterways.

Choses in Action
chattels subject matter of action

Bottomry a contract whereby a ship owner borrows money to finance a voyage, pledging the
vessel insecurity. A loan on bottomry is payable only if the vessel given as security for the loan
complete in safety the contemplated voyage.

Respondentia the pledge is usually cargo

Two major divisions of transportation insurance:

Ocean marine insurance; and
inland marine insurance

Ocean marine insurance covers risks connected with navigation, to which a ship, cargo freightage,
profits or other insurable interest in movable property which may be exposed during a certain voyage
or a fixed period of time.

Inland marine insurance covers the land transportation perils of property shipped by railroads,
motor
trucks, airplanes and other means of transportation

Perils of the Sea or Perils of Navigation includes those casualties due to the unusual violence or
ordinary action of wind and wave, or to other extraordinary causes connected with navigation.

It is important to define the perils of the sea or navigation because the purpose of marine insurance is
to secure indemnity against perils of these perils and not from mere loss from ordinary wear and tear
or from injuries suffered by the ship in consequence of her not being seaworthy. In other words, the
perils of the sea or navigation must be the proximate cause of the loss.

covers all kinds of marine casualty such as shipwreck, foundering (sinking), stranding, collision and
all damage done to the ship or goods at sea by the violent action of the wind and waves

includes only such losses as are of extraordinary nature, or arise from some overwhelming power,
which cannot be guarded against by the ordinary exertion of human skill and prudence. This is distinct
from the injuries suffered by the vessel in consequence of her not being seaworthy at the outset of
her voyage. (Roque vs. IAC, 139 SCRA 597)

barratry any willful misconduct on the part of the master or crew in pursuance of some unlawful or
fraudulent purpose without the consent the owners, and to the prejudice of the ownersinterest
(also stated in Roque vs. IAC)

does not cover losses resulting from ordinary wear and tear or other damage usually incident to
the voyage (perils of the ship)

A loss which in the ordinary course of events, results from the natural and inevitable action of the sea,
from the ordinary wear and tear of the ship, or from the negligent failure of the ship owner to
provide the vessel with proper equipment to convey the cargo under ordinary conditions is not a peril
of the sea but a peril of the ship (Roque vs. IAC, 139 SCRA 597)

What is an all risk marine insurance policy?

A marine insurance that covers all losses during the voyage whether arising from a marine peril or
not, including pilferage losses during the war but still does not include inherent vice of the subject
matter insured. The burden of proof here is on the insurance company to establish that the loss or
damage falls within the exception, otherwise, it is liable.

Insurable Interest In Marine Insurance

the interest which the law requires the owner of an insurance policy to have in the person or thing
insured
one will derive pecuniary benefit or advantage from its preservation and will suffer pecuniary loss
or damage from its destruction
benefit from its existence and prejudice from its destruction

I. The owner of a ship has insurable interest on the vessel to the extent of its value, even if he has
mortgaged the same, or has chartered it.

What is a charter party?

It is a contract by which an entire ship or some principal part thereof is lent by the owner to another
person for a specified time or use.

The charterer agrees to pay the owner the value of the vessel in case of loss. Therefore, the owner, in
case he has chartered his vessel, has insurable interest in the vessel only for that part of the loss
which he cannot recover from the charterer.
Example: A is the owner of the ship valued at 10 million. He charters it to B who agrees to pay the
value in case of loss. A can still insure it for 10 million. But if the vessel is lost and he only
recovers 8 million from B, he can still recover from his insurer the amount of 2 million. If he
recovers from the insurer and the latter pays him only 5 million, he can recover the
deficiency from B. The liability of the insurer is subsidiary (secondary or ancillary) to that of
the charterer.

A charterer has insurable interest in the ship, to the extent that he is liable to be damnified in case of
its loss

II. Insurable Interest in Cargo - depends on the terms of sale or the contract of shipment

F.O.B. Factory the buyer assumes responsibility when the goods leave the factory
F.O.B. Point of Destination the buyer does not assume responsibility until the goods are
received from the carrier
C.I.F. (cost, insurance, freight) the seller assumes responsibility for securing all the necessary
insurance
C & F (cost and freight) the buyer procures his own insurance

But if a vendee already has a perfected contract of sale with the goods as the subject matter thereof,
he has existing interest on goods in transit. He has an equitable title on the same even before delivery.
(Filipino Merchants Insurance Co. Inc. vs. Court of Appeals, 179 SCRA 638)

Remember Sec. 14. : An 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 existing interest in that out of which the expectancy arises.

II. The owner has insurable interest on the expected freightage.

Freightage defined in Sec. 102, thus:

Sec. 102. Freightage, in the sense of a policy of marine insurance, signifies all the benefits derived by
the owner, either from the chartering of the ship or its employment for the carriage of his own goods
or those of others.

The owner of a ship has an insurable interest in expected freightage which according to the ordinary
and probable course of things he would have earned but for the intervention of a peril insured against
or other peril incident to the voyage.

The right to expected freightage must be inchoate (partly in existence). Nothing could prevent the
insured from having it except the intervention of the peril insured against.

Example: there is a contract to be paid upon the hire of the charter party, or the goods are actually
put on board.

Concealment
In marine insurance each party is bound to communicate, in addition to what is required by Section
28, all the information which he possesses, material to the risk, except such as is mentioned in Section
30, and to state the exact and whole truth in relation to all matters that he represents, or upon inquiry
discloses or assumes to disclose.
Sec. 28. Each party to a contract of insurance must be communicated to the other, in good faith, all
facts within his knowledge which are material to the contract and as to which he makes no warranty,
and which the other has not the means of ascertaining.

Sec. 30. Neither party to a contract of insurance is bound to communicate information of the matters
following, except in answer to the inquiries of the other:
(a) Those which the other knows;
(b) Those which, in the exercise of ordinary care, the other ought to know, and of which the
former has no reason to suppose him ignorant;
(c) Those of which the other waives communication;
(d) Those which prove or tend to prove the existence of a risk excluded by a warranty, and
which are not otherwise material; and
(e) Those which relate to a risk excepted from the policy and which are not otherwise material.

Note: Stricter interpretation in marine insurance. In marine insurance, information of the belief or
expectation of a third person, in reference to a material fact, is material.

Sec.35. Neither party to a contract of insurance is bound to communicate, even upon inquiry,
information of his own judgment upon the matters in question.

Would the knowledge of a particular fact, influence the parties in making the contract?
Insofar as the insurer is concerned, would the knowledge of the fact cause him to accept or
reject the risk, or accept it at a higher premium? It need not increase the risk or contribute to
any loss or damage.

Representations
Sec. 111. If a representation by a person insured by a contract of marine insurance, is intentionally
false in any material respect, or in respect of any fact on which the character and nature of the risk
depends, the insurer may rescind the entire contract.

Note: If false in material points, the injured party is entitled to rescind.

What representations are considered material?

Representations as to the age, equipment, earnings, condition of a vessel; that she is to be repaired
at a certain place; that she has arrived at her port of destination; that she was at a certain place at a
certain time; that other underwriters had insured her at a certain rate; or as to anything that concerns
the state of the vessel at any particular period of her voyage.

Sec. 112. The eventual falsity of a representation as to expectation does not, in the absence of
fraud, avoid a contract of marine insurance.

Implied Warranty of Seaworthiness

Warranty defined as a stipulation, either express or implied, forming part of the policy, as to some
fact, condition, or circumstances relating to the risk.

In every marine insurance upon a ship or freight, or freightage, or upon anything which is the subject
of marine insurance, a warranty is implied that the ship is seaworthy. (Sec. 113)
A ship is seaworthy when reasonably fit to perform the service and to encounter the ordinary perils
of the voyage contemplated by the parties to the policy. (Sec. 114)

equipped for the voyage and manned with a sufficient number of competent officers and crew;
equipped to encounter the ordinary perils of navigation;
in a suitable condition to carry the cargo put on board or intended to be put on board.

Sec. 115. An implied warranty of seaworthiness is complied with if the ship be seaworthy at the
time of the commencement of the risk,except in the following cases:
(a) When the insurance is made for a specified length of time, the implied warranty is not
complied with unless the ship be seaworthy at the commencement of every voyage it
undertakes during that time;

(b) When the insurance is upon the cargo which, by the terms of the policy, description of the
voyage, or established custom of the trade, is to be transshipped at an intermediate port, the
implied warranty is not complied with unless each vessel upon which the cargo is shipped,
or transhipped, be seaworthy at the commencement of each particular voyage.

Rule: The ship must be seaworthy at the commencement of each stage (of a particular voyage or
time of commencement of the voyage)

Note: There is no warranty that the vessel will remain seaworthy throughout the life of the policy

Other implied warranties apart from the ship being seaworthy:

No deviation of the ship

The ship will not engage in illegal ventures
Where the nationality is expressly warranted, that the ship will carry then requisite documents

Voyage and Deviation

When voyage is described by places of beginning and ending, the voyage insured should conform to
the course of sailing fixed by mercantile usage. If not fixed by mercantile usage, it is the most natural,
direct and advantageous.

If a voyage deviates from its course or route, the insurer is not liable for any loss that will ensue. Any
unexpected departure from the course of voyage or route is what is called deviation.

But there are proper cases of deviation. In cases of proper deviation, the insurer is still liable for loss
happening after the deviation. In cases of improper deviation, the insurer will not be liable. (Sec.
125)

(a) When caused by circumstances over which neither the master nor the owner of the ship has
any control;
(b) When necessary to comply with a warranty, or to avoid a peril, whether or not the peril is
insured against;
(c) When made in good faith, and upon reasonable grounds of belief in its necessity to avoid a
peril; or
(d) When made in good faith, for the purpose of saving human life or relieving another vessel in
distress. (Sec. 124)
LOSS IN MARINE INSURANCE

Loss may be total or partial

Every loss which is not total is partial.

A total loss may be either actual or constructive.

Sec. 130. An actual total loss 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 vessel that sunk and is totally broken to pieces.

A vessel that sunk and was finally raised in such a condition that much further time would be
required to make the necessary repairs and install new machinery before it can run again
and/or the cost of salvage, repair and reconstruction was more than the original cost of the
vessel or its value at the time the policy was issued.
An actual total loss of the cargo is suffered when by process of decomposition or other chemical
agency, the cargo no longer remains the same kind of thing as before.
Example would be cement submerged in water.
An actual loss may be presumed from the continued absence of a ship without being heard of. The
length of time which is sufficient to raise this presumption depends on the circumstances of
the case. (SEC. 132)

A constructive total loss is one which gives to a person insured a right to abandon, under Section
one hundred thirty-nine. (Sec. 131)

Average defined by the Code of Commerce as any extraordinary or accidental expense incurred
during the voyage for the preservation of the vessel, cargo or both and all damages to the
vessel and cargo from the time it is loaded and the voyage commenced until it ends and the
cargo unloaded.

Gross or general average damages and expenses which are deliberately caused by the master of the
vessel or upon his authority, in order to save the vessel, her cargo, or both at the same
time from a real and known risk. This general average loss is borne equally by all of
the interested parties in the venture.

Example of a general average:

Jettison the intentional casting overboard of any part of a venture exposed to peril in the hope of
saving the rest of the venture.

Simple or particular averages all damages which include all damages and expenses caused to the
vessel or to her cargo which have not inured to the common benefit and profit of all the persons
 interested in the vessel and her cargo. This is borne by the ownerof the ship or the cargo as
the case may be. In the absence of any contrary stipulation, the insurer is liable for particular
average loss.

Abandonment, in marine insurance, is the act of the insured by which, after a constructive total
loss, he declares the relinquishment to the insurer of his interest in the thing insured. (Sec.
138)
An abandonment is equivalent to a transfer by the insured of his interest to the insurer, with all
the chances of recovery and indemnity. (Sec. 146)

Abandonment has been defined as the act of an insured in notifying the insurer that owing to the
damage done to the object of the insurance, he elects to take the amount of the insurance in
the place of the subject thereof, the remnant of which he cedes to the insurer.

Abandonment must be absolute [neither partial nor conditional] (Sec. 140) and made within a
reasonable period of time. (Sec.141).

Abandonment is made by giving notice thereof to the insurer, which may be done orally, or in
writing; Provided, that if the notice be done orally, a written notice of such abandonment shall
be submitted within seven days from such oral notice. (Sec. 143)

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 insured 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;
(c) If the thing insured is a ship, and the contemplated voyage cannot be lawfully performed
without incurring either an expense to the insured of more than three-fourths the value
of the thing abandoned or a risk which a prudent man would not take under the
circumstances; or
(d) If the thing insured, being cargo or freightage, and the voyage cannot be performed, nor
another ship procured by the master, within a reasonable time and with reasonable
diligence, to forward the cargo, without incurring the like expense or risk mentioned in the
preceding sub-paragraph. But freightage cannot in any case be abandoned unless the ship is
also abandoned.

Freightage defined in Sec. 102, thus: Sec. 102.

Freightage, in the sense of a policy of marine insurance, signifies all the benefits derived by the
owner, either from the chartering of the ship or its employment for the carriage of his own
goods or those of others.

M/V Pearly Shells, a passenger and cargo vessel, was insured for P40,000,000.00 against
constructive total loss. Due to a typhoon, it sank near Palawan. Luckily, there were no
casualties, only injured passengers. The ship owner sent a notice of abandonment of his
interest over the vessel to the insurance company which then hired professionals to afloat the
vessel for P900,000.00. When re-floated, the vessel needed repairs estimated at
P2,000,000.00. The insurance company refused to pay the claim of the ship owner, stating
that there was no constructive total loss. a) Was there constructive total loss to entitle
 the ship owner to recover from the insurance company? Explain. b) Was it proper for the ship
owner to send a notice of abandonment to the insurance company? Explain. c) Was it proper
for the ship owner to send a notice of abandonment to the insurance company? Explain.

Fire Insurance
A fire insurance is a contract of indemnity by which the insurer, for a consideration, agrees to
indemnify the insured against loss of, or damage
to, a property by hostile fire.

A policy of insurance on a vessel engaged in navigation is a contract of ocean marine insurance

although it insures against fire risks only.

In marine insurance, the rules on constructive total loss and abandonment apply. These do not
apply to fire insurance.

In case of partial loss ofa thing insured for less than its actual value, the insured in a marine
insurance is a co-insurer of the uninsured portion (Sec. 157) while the insured may only
becomea co-insurer in fire insurance if expressly agreed upon by the parties. To put it simply,
the owner is responsible for the uninsured portion. In fire insurance, the insured is
indemnified for the loss within the insured amount.

(Partial) loss x amt. of insurance = amt. Value of thing of recovery

1. An alteration in the use or condition of the thing from that limited by the policy, made
without the consent of the insurer, by means within the controlof the insured, increasing
the risks, entitles the insurer to rescind the contract of insurance;
2. An alteration in the use or condition of the thing from that limited by the policy, which
does not increase the risks, does not affect the contract of insurance.
3. Alterations where certain articles are kept in the insured premises, even if these articles are
prohibited to be kept in the premises by the policy, if the articles are required by the
insureds business.
4. Alterations like making repairs where the insured property would be useless if these acts
were prohibited.
5. Any alterations or acts by the insured subsequent to the execution of the policy, which
does not violate its provisions, even though it increases the risk and is the cause of the loss.
(But fire insurance contracts nowadays always have provisions that it shall be avoided by any
act of the insured which increases the risk.)

Casualty insurance includes all forms of insurance against loss or liability arising from accident or
mishap excluding certain types of loss or liability which are not within the scope of other types of
insurance.

Employers liability insurance; workmens compensation insurance; public liability insurance;

motor vehicle liability insurance; and similar kind

Insurable Interest in liability insurance isfound in the interest of the insured in the safety of persons
who may maintain, or in the freedom from damage of property which may become the basis of suits
against him in case of their injury or destruction.
Right of injured party tosue insurer of party at fault:

The right of the person injured to sue the insurer of the party at fault (insured) depends on whether
the contract of insurance is intended to benefit third persons also or only the insured.

Where the contract provides for indemnity against liability to third persons, then third persons, to
whom the insured is liable, can sue directly the insurer upon occurrence of the injury or
event upon which the liability depends.

Where the contract is for indemnity against actual loss or payment, then third persons cannot proceed
against the insurer, the contract being solely to reimburse the insured for liability actually
discharged by him through payment to third persons, said third persons recourse being thus
limited to the insured alone. Prior payment by the insured is necessary in order that the
obligation of the person may arise.

Basis and Extent of Insurers Liability:

The liability of the insurer to the third party is based on contract; that of the insured is based on tort.

Example:
ABCInsurance Company issued in favor of Mr. Reyes, a private comprehensive policy for own
damage not to exceed Php 10,000.00 and a third party liability in the amount of Php
20,000.00. The insured jeep, while being driven by Juan dela Cruz, an employee of DEF
Company, collided with a passenger bus belonging to GHI Company, causing damage to the
insured vehicle and injuries to Maria and Jose who were riding the jeep.

In this case, Mr. Reyes and DEF Company are liable to Maria and Jose. Mr. Reyes is liable pursuant to
Art. 2184 of the Civil Code, while the basis of the liability of DEF Company is Article 2180
of the same Code.

C.C. Art. 2184. In motor vehicle mishap, the owner is solidarily liable with his driver, if the former,
who was in the vehicle, could have, by the use of due diligence, prevented the misfortune.
Xxx

C.C. Art. 2180. The obligation imposed by Art. 2176 (quasi-delict) is demandable not only for ones
own acts or omission, but also for ones acts or omissions, but also for those of persons for
whom one is responsible.

Xxx Employers shall be liable for the damages caused by their employees and house helpers acting
within the scope of their assigned tasks even though the former are not engaged in any
business industry.

Xxx The responsibility treated of in this article shall cease when the persons herein mentioned
prove that they observed all the diligence of a good father of a family to prevent damage.

ABC Insurances basis of liability is the insurance contract existing between it and Mr. Reyes at the
time of the complained vehicular accident. ABC Insurance, upon payment to Maria and Jose
shall be subrogated to whatever rights Mr. Reyes has against DEF Company.

A contract of suretyship is an agreement whereby a party called the surety guarantees the
performance by anotherparty called the principal or obligor of and obligation or undertaking
 in favor of a third party called the oblige. It includes official recognizances, stipulations,
bonds or undertakings issued by any company by virtue of and under the provisions of Act
No. 536, as amended byAct No. 2206. (Sec. 175)

The liability of the surety or sureties shall be joint and several with the obligor and shall be
limited to the amount of the bond. It is determined strictly by the terms of the contract of
suretyship in relation to the principal contract between the obligor and the obligee. (As
amended by Presidential Decree No. 1455). (Sec. 176)

1. The premium becomes a debt as soon as the contract of suretyship or bond is perfected
and delivered to the obligor;

2. The contract of suretyship or bonding shall not be valid and binding unless and until the
premium therefor has been paid;

4. If the contract of suretyship or bond is not accepted by the obligee, the surety shall collect
only a reasonable amount.