Oriental Assurance Corporation vs. Court of Appeals (Insurance Law)

 

Oriental Assurance Corporation vs. Court of Appeals

(Insurance Law)

200 SCRA 459 (G.R. No. 94052)

August 9, 1991

 

Petitioners:	Oriental Assurance Corporation
Respondents:	Court of Appeals and Panama Saw Mill Co., Inc.

 

J. Melencio - Herrera:

 

FACTS:

 

Private respondent Panama Sawmill Co. (Panama) bought, in Palawan, 1208 pieces of apitong logs, with a total volume of 2,000 cubic meters. It hired Transpacific Towage, Inc., to transport the logs by the sea to Manila and insured it against loss for ₱ 1 million pesos with petitioner Oriental Assurance Corp.

 

The logs were loaded on 2 barges: 1) on barge PCT-7000, 610 pieces of logs with a volume of 1000 cubic meters; and 2) Barge TPAC-1000, 598 pieces of logs, also with a volume of 1000 cubic meters. The two barges were towed by the tugboat, MT “Seminole.” During the voyage rough seas and strong winds caused damage to Barge TPAC-1000 resulting in the loss of 497 pieces of logs out of the 598 pieces loaded thereon.

 

Panama demanded payment for the loss but Oriental refused on the ground that its contract liability on the ground that its contract liability was to “TOTAL LOSS ONLY.”

 

ISSUE:

 

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

 

HELD:

 

Yes. The terms of the contract constitute the measure of the insurer’s liability and compliance therewith is a condition precedent to the insured’s right to recovery from the insurer. (Perla Compania de Seguros, Inc. vs. Court of Appeals, G.R. No. 78860, May 28, 1990, 185 SCRA 741). 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, therefore, be considered indivisible.

 

The basis thus used is, in our opinion, reversible error. The requirements for the application of Section 139 of the Insurance Code, quoted above, have not been met. The logs involved, although place in two barges, were not separately valued by the policy, nor separately insure. Resultantly, the logs lost in barge TPAC-1000 in relation to the total number of logs loaded on the same barge can not be made the basis for determining the constructive total loss. The logs having been insured as one inseparable unit, the correct basis for determining the existence of constructive total loss is the totality of the shipment of logs. 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 1,200 pieces of logs, the shipment can not be said to has sustained a constructive total loss under Section 139 (a) of the Insurance Code.