FILIPINO MERCHANTS INSURANCE CO., INC., PETITIONER, VS. COURT OF APPEALS AND CHOA TIEK SENG, RESPONDENTS.

This is a review of
the decision of the Court of Appeals, promulgated on July 19, 1988, the dispositive
part of which reads:

“WHEREFORE, the judgment appealed from is affirmed insofar as
it orders defendant Filipino Merchants Insurance Company to pay the plaintiff
the sum of P51,568.62 with interest at legal rate from the date of filing of
the complaint, and is modified with respect to the third party complaint in
that (1) third party defendant E. Razon, Inc. is
ordered to reimburse third party plaintiff the sum of P25,471.80 with legal
interest from the date of payment until the date of reimbursement, and (2) the
third-party complaint against third party defendant Compagnie
Maritime Des Chargeurs Reunis
is dismissed.”^[1]

The facts as found by the trial court and adopted by the Court of
Appeals are as follows:

“This is an action
brought by the consignee of the shipment of fishmeal loaded on board the vessel
SS Bougainville and unloaded at the Port of Manila on or about December 11,
1976 and seeks to recover from the defendant insurance company the amount of
P51,568.62 representing damages to said shipment which
has been insured by the defendant insurance company under Policy No. M-2678.  The defendant
brought a third party complaint against third party defendants Compagnie Maritime Des Chargeurs Reunis and/or E. Razon, Inc.
seeking judgment against the third (sic) defendants in case judgment is
rendered against the third party plaintiff. 
It appears from the evidence presented that in December 1976, plaintiff insured said shipment with defendant
insurance company under said cargo Policy No. M-2678 for the sum of P267,653.59 for the goods described as 600 metric tons of
fishmeal in new gunny bags of 90 kilos each from Bangkok,
Thailand to Manila
against all risks under warehouse to warehouse terms.  Actually, what was imported was 59.940 metric
tons not 600 tons at $395.42 a ton CNF Manila. 
The fishmeal in 666 new gunny bags were unloaded from the ship on December
11, 1976 at Manila unto the arrastre contractor E. Razon, Inc. and defendant’s surveyor ascertained and
certified that in such discharge 105 bags were in bad order condition as jointly surveyed by the ship’s agent
and the arrastre contractor.  The condition of the bad order was reflected
in the turn over survey report of Bad Order cargoes Nos. 120320 to 120322, as
Exhibit C-4 consisting of three (3) pages which are also Exhibits 4, 5 and
6-Razon.  The cargo was also surveyed by
the arrastre contractor before delivery of the cargo
to the consignee and the condition of the cargo on such delivery was reflected
in E. Razon‘s
Bad Order Certificate No. 14859, 14863 and 14869 covering a total of 227 bags
in bad order condition.  Defendant’s
surveyor has conducted a final and detailed survey of the cargo in the
warehouse for which he prepared a survey report Exhibit F with the findings on
the extent of shortage or loss on the bad order bags totalling
227 bags amounting to 12,148 kilos, Exhibit F-1.  Based on said computation the plaintiff made
a formal claim against the defendant Filipino Merchants Insurance Company for
P51,568.62 (Exhibit C) the computation of which claim is contained
therein.  A formal claim statement was
also presented by the plaintiff against the vessel dated December 21, 1976, Exhibit B, but the defendant
Filipino Merchants Insurance Company refused to pay the claim.  Consequently, the plaintiff brought an action
against said defendant as adverted to above and defendant presented a third
party complaint against the vessel and the arrastre
contractor.”^[2]

The court below, after trial on the merits, rendered judgment in
favor of private respondent, the decretal portion
whereof reads:

“WHEREFORE, on the main complaint, judgment is hereby rendered
in favor of the plaintiff and against the defendant Filipino Merchant’s (sic)
Insurance Co., ordering the defendants to pay the plaintiff the following
amount:

“The sum of P51,568.62 with interest
at legal rate from the date of the filing of the complaint;

“On the third party complaint, the third party defendant Compagnie Maritime Des Chargeurs Reunis and third party defendant E. Razon,
Inc. are ordered to pay to the third party plaintiff jointly and severally
reimbursement of the amounts paid by the third party plaintiff with legal
interest from the date of such payment until the date of such reimbursement.

“Without pronouncement as to costs.”^[3]

On appeal, the respondent court affirmed the decision of the
lower court insofar as the award on the complaint is concerned and modified the
same with regard to the adjudication of the third-party complaint.  A motion for reconsideration of the aforesaid
decision was denied, hence this petition with the following assignment of
errors:

“1. The Court of Appeals erred in its interpretation and
application of the ‘all risks’ clause of the marine insurance policy when it
held the petitioner liable to the private respondent for the partial loss of
the cargo, notwithstanding the clear absence of proof of some fortuitous event,
casualty, or accidental cause to which the loss is attributable, thereby contradicting
the very precedents cited by it
in its decision as well as a prior decision of the same Division of the said
court (then composed of Justices Cacdac, Castro-Bartolome, and Pronove);

“2. The Court of Appeals erred in not holding that the private
respondent had no insurable interest in the subject cargo, hence, the marine
insurance policy taken out by private respondent is null and void;

“3. The Court of Appeals erred in not holding that the private
respondent was guilty of fraud in not disclosing the fact, it being bound out
of utmost good faith to do so, that it had no insurable interest in the subject
cargo, which bars its recovery on the policy.”^[4]

On the first assignment of error, petitioner contends that an
“all risks” marine policy has a technical meaning in insurance in
that before a claim can be compensable it is essential that there must be
“some fortuity,” “casualty” or “accidental cause”
to which the alleged loss is attributable and the failure of herein private
respondent, upon whom lay the
burden, to adduce evidence showing that the alleged loss to the cargo in
question was due to a fortuitous event precludes his
right to recover from the insurance policy. 
We find said contention untenable.

The “all risks clause” of the Institute Cargo Clauses read as follows:

“5.     This insurance is
against all risks of loss or damage to the subject-matter insured but shall in
no case be deemed to extend to cover loss, damage, or expense proximately
caused by delay or inherent vice or nature of the subject-matter insured.  Claims recoverable hereunder shall be payable
irrespective of percentage.”^[5]

An “all risks policy” should be read literally as
meaning all risks whatsoever and covering all losses by an accidental cause of
any kind.  The terms “accident”
and “accidental”, as used in insurance contracts, have not acquired
any technical meaning.  They are
construed by the courts in their ordinary and common acceptance.  Thus, the terms have been taken to mean that
which happens by chance or fortuitously, without intention and design, and
which is unexpected, unusual and unforeseen. 
An accident is an event that takes place without one’s foresight or
expectation; an event that proceeds from an unknown cause, or is an unusual
effect of a known cause and, therefore, not expected.^[6]

The very nature of the term “all risks” must be given a broad and comprehensive meaning as
covering any loss other than a wilful and fraudulent
act of the insured.^[7]
This is pursuant to the very purpose of an “all risks” insurance to
give protection to the insured in those cases where difficulties of logical
explanation or some mystery surround the loss or damage to property.^[8]
An “all risks” policy has been evolved to grant greater protection
than that afforded by the “perils clause,” in order to assure that no
loss can happen through the incidence of a cause neither insured against nor
creating liability in the ship; it is written against all losses, that is,
attributable to external causes.^[9]

The term “all risks” cannot be given a strained
technical meaning, the language of the clause under the Institute Cargo Clauses
being unequivocal and clear, to the effect that it extends to all
damages/losses suffered by the insured cargo except (a) loss or damage or
expense proximately caused by delay, and (b) loss or damage or expense
proximately caused by the inherent vice or nature of the subject matter
insured.

Generally, the burden of proof is upon the insured to show that a
loss arose from a covered peril, but under an “all risks” policy the
burden is not on the insured to prove the precise cause of loss or damage for which it seeks compensation.  The insured under an “all risks
insurance policy” has the initial burden of proving that the cargo was in
good condition when the policy attached and that the cargo was damaged when
unloaded from the vessel; thereafter, the burden then shifts to the insurer to
show the exception to the coverage.^[10]
As we held in Paris-Manila Perfumery Co. vs. Phoenix
Assurance Co., Ltd.^[11]
the basic rule is that the insurance company has the burden of proving that the
loss is caused by the risks excepted and for want of such proof, the company is
liable.

Coverage under an “all risks” provision of a marine
insurance policy creates a special type of insurance which extends coverage to
risks not usually contemplated and avoids putting upon the insured the burden
of establishing that the loss was due to the peril falling within the policy’s
coverage; the insurer can avoid coverage upon demonstrating that a specific
provision expressly excludes the loss from coverage.^[12]
A marine insurance policy providing that the insurance was to be “against
all risks” must be construed as creating a special insurance and extending
to other risks than are usually contemplated, and covers all losses except such
as arise from the fraud of the insured.^[13]
The burden of the insured, therefore, is to prove merely that the goods he
transported have been lost, destroyed or deteriorated.  Thereafter, the burden is shifted to the
insurer to prove that the loss was due to excepted perils.  To impose on the insured the burden of
proving the precise cause of the loss or damage would be inconsistent with the
broad protective purpose of “all risks” insurance.

In the present case, there being no showing that the loss was
caused by any of the excepted
perils, the insurer is liable under the policy. 
As aptly stated by the respondent Court of Appeals, upon due
consideration of the authorities and jurisprudence it discussed –

 “x x
x it is believed that in the absence of any showing
that the losses/damages were caused by an excepted peril, i.e. delay or the
inherent vice or nature of the subject matter insured, and there is no such
showing, the lower court did not err in
holding that the loss was covered by the policy.

“There is no evidence presented to show that the condition of
the gunny bags in which the fishmeal was packed was such that they could not
hold their contents in the course of the necessary transit, much less any
evidence that the bags of cargo had burst as the result of the weakness of the
bags themselves.  Had there been such a
showing that spillage would have been a certainty, there may have been good
reason to plead that there was no risk covered by the policy (See Berk vs. Style [1956] cited in Marine Insurance Claims,
ibid, p. 125).  Under an ‘all risks’
policy, it was sufficient to show that there was damage occasioned by some
accidental cause of any kind, and there is no necessity to point to any
particular cause.”^[14]

Contracts of insurance are contracts of indemnity upon the terms
and conditions specified in the policy. 
The agreement has the force of law between the parties.  The terms of the policy constitute the
measure of the insurer’s liability.  If
such terms are clear and unambiguous, they must be taken and understood in
their plain, ordinary and popular sense.^[15]

Anent the issue of insurable interest, we uphold the ruling of
the respondent court that private respondent, as consignee of the goods in
transit under an invoice containing the terms under “C & F
Manila,” has insurable interest in said goods.

Section 13 of the Insurance Code defines insurable interest in
property as every interest in property, whether real or personal, or any
relation thereto, or liability in respect thereof, of such nature that a
contemplated peril might directly damnify the
insured.  In principle, anyone has an
insurable interest in property who derives a benefit
from its existence or would suffer loss from its destruction whether he has or
has not any title in, or lien upon or possession of the property.^[16]
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.^[17]

Herein private respondent, as vendee/consignee of the goods in
transit has such existing interest therein as may be the subject of a valid
contract of insurance.  His interest over
the goods is based on the perfected contract of sale.^[18]
The perfected contract of sale between him and the shipper of the goods
operates to vest in him an equitable title even before delivery or before he
performed the conditions of the sale.^[19]
The contract of shipment, whether under F.O.B., C.I.F., or C. & F. as in
this case, is immaterial in the determination of whether the vendee has an
insurable interest or not in the goods in transit.  The perfected contract of sale even without
delivery vests in the vendee an equitable title, an existing interest over the
goods sufficient to be the subject of insurance.

Further, Article 1523 of the Civil Code provides that where, in
pursuance of a contract of sale, the seller is authorized or required to send
the goods to the buyer, delivery of the goods to a carrier, whether named by
the buyer or not, for, the purpose of transmission to the buyer is deemed to be
a delivery of the goods to the buyer, the exceptions to said rule not obtaining in the present
case.  The Court has heretofore ruled
that the delivery of the goods on board the carrying vessels partake of the
nature of actual delivery since, from that time, the foreign buyers assumed the
risks of loss of the goods and paid the insurance premium covering them.^[20]

C & F contracts are shipment
contracts.  The term means that the price
fixed includes in a lump sum the cost of the goods and freight to the named
destination.^[21]
It simply means that the seller must pay the costs and freight necessary to
bring the goods to the named destination but the risk of loss or damage to the
goods is transferred from the seller to the buyer when the goods pass the
ship’s rail in the port of shipment.^[22]

Moreover, the issue of lack of insurable interest was not among
the defenses averred in petitioner’s answer. 
It was neither an issue agreed upon by the parties at the pre-trial
conference nor was it raised during the trial in the
court below.  It is a settled rule that
an issue which has not been raised in the court a quo
cannot be raised for the first time on appeal as it would be offensive to the
basic rules of fair play, justice and due process.^[23]
This is but a permuted
restatement of the long settled rule that when a party deliberately adopts a
certain theory, and the case is tried and decided upon that theory in the court
below, he will not be permitted to change his theory on appeal because, to
permit him to do so, would be unfair to the adverse party.^[24]

If despite the fundamental doctrines just stated, we nevertheless
decided to indite a disquisition on the issue of
insurable interest raised by petitioner, it was to put at rest all doubts on the matter under the facts in this case
and also to dispose of petitioner’s third assignment of error which
consequently needs no further discussion.

WHEREFORE, the instant petition is DENIED and the assailed decision of the respondent Court of Appeals is AFFIRMED in toto.

SO ORDERED.

Paras, Padilla, and Sarmiento, JJ., concur.

Melencio-Herrera, J., (Chairman),
on leave.

^[1]
Rollo, 41; Justice Gonzaga-Reyes, ponente, with Justices Serafin
E. Camilon and Pedro A. Ramirez concurring.

^[2]
Rollo, 26-28.

^[3]
Ibid., 8-29.

^[4]
Ibid., 10-11.

^[5]
Original Record, Civil Case No. (112091)
R-81-750, 26.

^[6]
29A Am. Jur., 308-309.

^[7]
Phoenix Ins. Co. vs. Branch (Fla. App) 234 So
2d 396.

^[8]
Morrison Grain Co. vs. Utica Mut. Ins. Co. (1980, CA S Fla.) 632 F. 2d 424.

^[9]
Gilmore and Black, The Law of Admiralty, 68, 169.

^[10]
See Footnote 8, ante.

^[11]
49 Phil. 753 (1926).

^[12]
Walker vs. Traveller’s Indemnity Co., (La. App.) 289
So. 2nd 864, 869.

^[13]
Goix vs. Knox, 1 Johns, Cas. 337, cited in Words and Phrases, Permanent Ed.,
Vol. 3, (1953 ed.), 310.

^[14]
Rollo, 32.

^[15]
Pacific Banking Corp. vs. Court of Appeals, G.R. No. 41014, Nov. 28, 1988.

^[16]
43 Am. Jur. 2d, 507-508.

^[17]
Sec. 14, Insurance Code.

^[18]
Original Record, Folder of Exhibits, Exh. C-2, 6.

^[19]
43 Am. Jur. 2d, 522; Vance
on Insurance, 164-168.

^[20]
Rattan Arts & Decorations, Inc. vs. Collector of
Internal Revenue, et al., 13 SCRA 626 (1965).

^[21]
Business Law Principles and Cases by Harold Luck, Charles M. Hewitt, John D. Donnel, and A. James Barns, Second Uniform Commercial Code
Edition, 751-752.

^[22]
Guide to INCO Terms, 1980 Ed., 48-50.

^[23]
De Los Santos vs. Court of
Appeals, et al., 140 SCRA 44 (1985); Dulos Realty
& Development Corp. vs. Court of Appeals, et al., 157 SCRA 425
(1988); Ramos, et al. vs. Intermediate Appellate Court, et. al., G.R. No. 78282, July 5, 1989.

^[24]
Molina vs. Somes, 24 Phil.
49 (1913); Agoncillo, et al. vs. Javier, 38
Phil. 424 (1918).