G.R. No. 119599. March 20, 1997 (Case Brief / Digest)

**Title:** Malayan Insurance Corporation v. The Hon. Court of Appeals and TKC Marketing Corporation

TKC Marketing Corporation owned approximately 3,189.171 metric tons of soya bean meal insured by Malayan Insurance Corporation under two marine cargo policies, dated September 1989, for a voyage from Brazil to Manila. During transit, the vessel MV Al Kaziemah was arrested in Durban, South Africa, due to a lawsuit concerning ownership and possession, prompting TKC to file a claim with Malayan for non-delivery amounting to US$916,886.66. After extended insurance coverage and a failed attempt at transshipment due to the cargo’s perishable nature, it was sold in Durban, resulting in TKC adjusting their claim to US$448,806.09.

Malayan Insurance Corporation refused the claim, asserting that the arrest by civil authority was not covered under the policies. TKC then pursued legal action, and the Regional Trial Court of Cebu decided in favor of TKC, a decision affirmed by the Court of Appeals with slight modifications, including the determination that the arrest of the vessel fell under covered perils due to the deletion of Clause 12 from the policies, thereby adopting the Institute War Clauses (Cargo) which covered such incidents.

1. Whether the arrest of the vessel by civil authority constitutes a covered risk under the insurance policies.
2. Whether TKC’s loss qualified as a constructive total loss.
3. Whether Malayan Insurance Corporation acted in bad faith by rejecting TKC’s insurance claim.
4. The interpretation and application of the doctrine that policies are construed against the insurer.

**Court’s Decision:**
The Supreme Court denied Malayan Insurance Corporation’s petition for review, thereby affirming the Court of Appeals’ decision. The key findings included:
1. The arrest of the vessel by ordinary judicial process, due to the specific deletion of Clause 12 (F.C. & S. Clause) and adoption of Institute War Clauses (Cargo), became a covered risk under the insurance policies.
2. The court found that the need to sell the cargo due to its perishable nature, while attempting to transship it, constituted a loss compensable under the policies.
3. The court did not specifically address bad faith in its decision; however, it underscored the principle that insurance contracts are construed against the insurer, implying a broader coverage perspective that countered Malayan’s stance.
4. The court reaffirmed the doctrine that ambiguities in insurance policies are construed against the insurer, ensuring coverage interpretation favors the insured wherever reasonably possible.

The decision reiterated vital principles in insurance law, particularly:
– The principle that in case of ambiguity, insurance policies are construed against the insurer.
– Exceptions to the general coverage in insurance contracts should be expressed in clear and unmistakable language.

**Class Notes:**
– **Perils Clause in Marine Insurance:** Coverage typically includes a wide array of risks, excluding those specifically mentioned as exceptions.
– **Construction Against Insurer:** In case of ambiguity, the interpretation that favors the insured prevails.
– **Institute War Clauses (Cargo):** When adopted, cover risks previously excluded under standard marine policy exclusions such as the F.C. & S. Clause.
– **Doctrine of Constructive Total Loss:** Applies when the cost of rescuing or repairing the goods exceeds their value.

**Historical Background:**
This case exemplifies an evolution in the interpretation of marine insurance policies from a traditional exclusion of warranties like the F.C. & S. Clause towards a more inclusive coverage model under the Institute War Clauses, reflecting broader protections for shipments against modern logistical and legal challenges encountered in international trade.


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