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ORIENTAL ASSURANCE CORPORATION v. CA

FACTS:

Private respondent Panama Sawmill Co., Inc. purchased 1,208 pieces of apitong logs in Palawan and hired Transpacific Towage, Inc. to transport the logs by sea to Manila. Panama insured the shipment with petitioner Oriental Assurance Corporation for P1 million. The logs were loaded on two barges, but during the voyage, rough seas and strong winds caused damage to one of the barges resulting in the loss of 497 pieces of logs out of the 598 pieces loaded thereon. Panama demanded payment for the loss, but Oriental Assurance refused based on their contracted liability for "total loss only." Panama filed a Complaint for Damages against Ever Insurance Agency, Benito Sy Lee Yong, and Oriental Assurance before the Regional Trial Court.

ISSUES:

  1. Whether Oriental Assurance can be held liable under the marine insurance policy.

  2. Whether the loss should be considered a constructive total loss.

RULING:

  1. The Supreme Court held that Oriental Assurance cannot be held liable under the marine insurance policy. The insurance contract covered the entire shipment of 2,000 cubic meters of apitong logs, and the fact that the logs were loaded on two different barges did not make the contract several and divisible. The logs on the barges were not separately valued or insured, and only one premium was paid for the entire shipment, making the insurance contract indivisible.

  2. Furthermore, the insurer's liability was for "total loss only." A constructive total loss can be claimed when more than three-fourths of the insured property is actually lost or when it is injured to such an extent that its value is reduced by more than three-fourths. In this case, the loss of 497 pieces of logs from one barge out of the entire shipment did not meet the requirements for a constructive total loss. The correct basis for determining a constructive total loss is the totality of the shipment, not the loss of logs in one barge.

  3. Therefore, since there was neither an actual nor a constructive total loss, Panama cannot recover from Oriental Assurance. The Supreme Court absolved Oriental Assurance from liability under the marine insurance policy.

PRINCIPLES:

  • The terms of the insurance contract constitute the measure of the insurer's liability, and compliance with the terms is a condition precedent to the insured's right of recovery.

  • Whether a contract is entire or severable is determined by the intention of the parties, as reflected in the language employed in the contract.

  • A constructive total loss can be claimed when more than three-fourths of the insured property is actually lost or when it is injured to such an extent that its value is reduced by more than three-fourths.