Malayan Insurance Corp. v. CA & TKC Marketing Corp.

G.R. No. 119599

March 20, 1977
Romero, J.:
FACTS:
- TKC Marketing Corp (TKC) had shipped 3189.171 metric tons of
soya bean meal from Rio Del Grande, Brazil to the Port of Manila; It
was insured by Malayan Insurance Corp. (MIC)
- While the ship was docked in Durban, South Africa, it was arrested
and detained by the civil authorities due to the questionable
ownership and possession.
- TKC thus made a formal complaint for the amount of
P20,184,159.55 on the policies and non-delivery of the cargo.
- MIC argued that the arrest was not covered by the insurance policy
- TKC advised MIC that it might transship the cargo and requested
an extension of the insurance coverage until actual transshipment;
it was approved
- Cargo was however sold due to the perishable nature of the goods
for a total of P10,304,231,75 which was deducted from the original
claim of P20m.
- MIC maintained that it was an expected risk and that it was not
liable to pay the insurance.
- Lower Court decided in favor of TKC
- Court of Appeals affirmed the decision of the lower court.
o Reasons:
o Clause 12 losses occasioned by riot or ordinary judicial
process were not covered therein = arrest restraint or
detainment within the meaning of clause 12 rules out
detention by ordinary legal process.
o Clause 12 was deleted and thus the policy is now covered by
the institute of war which now includes this covered risk
o Also the failure to deliver the consigned goods in the port of
destination is a loss compensable under the Institute of War
Clause and Theft, Pilferage, and Non-delivery Clause
(TNPD)
ISSUE:
1) WON the arrest of the vessel was a risk covered by the insurance
policy
2) WON the insurance policy is strictly construed against the insurer.

HELD:
1) Yes, Section 12 or the "Free from Capture & Seizure Clause"
states: "Warranted free of capture, seizure, arrest, restraint or
detainment, and the consequences thereof or of any attempt
thereat Should Clause 12 be deleted, the relevant current
institute war clauses shall be deemed to form part of this
insurance.
This was really replaced by the subsection 1.1 of section 1 of
Institute War Clauses (Cargo) which included the risks excluded
from the standard form of English Marine Policy by the clause
warranted free of capture, seizure, arrest, restraint or
detainment, and the consequences thereof of hostilities or
warlike operations, whether there be a declaration of war or not.
The petitioners claim that the Institute War Clauses can be
operative in case of hostilities or warlike operations on account of
its heading "Institute War Clauses" is not tenable. It reiterated
the CAs stand that its interpretation in recent years to include
seizure or detention by civil authorities seems consistent with the
general purposes of the clause. This interpretation was
regardless of the fact whether the arrest was in war or by civil
authorities.
The petitioner was said to have confused the Institute War
clauses and the F.C.S. in English law.
It stated that "the F.C. & S. Clause was "originally
incorporated in insurance policies to eliminate the risks of warlike
operations". It also averred that the F.C. & S. Clause applies even
if there be no war or warlike operations. In the same vein, it
contended that subsection 1.1 of Section 1 of the Institute War
Clauses (Cargo) "pertained exclusively to warlike operations" and
yet it also stated that "the deletion of the F.C. & S. Clause and the
consequent incorporation of subsection 1.1 of Section 1 of the
Institute War Clauses (Cargo) was to include "arrest, etc. even if
it were not a result of hostilities or warlike operations."
The court found that the insurance agency tried to
interpret executive and political acts as those not including
ordinary arrests in the exceptions of the FCS clause , and claims

that the War Clauses now included executive and political acts
without including ordinary arrests in the new stipulation.
A strained interpretation which is unnatural and forced, as
to lead to an absurd conclusion or to render the policy
nonsensical, should, by all means, be avoided.
2) Indemnity

and liability insurance policies are construed in

accordance with the general rule of resolving any ambiguity
therein in favor of the insured, where the contract or policy is
prepared by the insurer. A contract of insurance, being a contract
of adhesion, means that any ambiguity should be resolved against
the insurer.