Marine Insurance

MAYER STEEL PIPE CORPORATION and HONGKONG GOVERNMENT SUPPLIES

DEPARTMENT, petitioners,
vs. COURT OF APPEALS, SOUTH SEA SURETY AND INSURANCE CO., INC. and the
CHARTER INSURANCE CORPORATION, respondents.
G.R. No. 124050. June 19, 1997. PUNO, J p:

Facts:

In 1983, petitioner Hongkong contracted petitioner Mayer to manufacture and supply various
steel pipes and fittings. Prior to the shipping, petitioner Mayer insured the pipes and fittings
against all risks with private respondents South Sea Surety and Charter Insurance. Three
invoices were insured with respondent South Sea, while the remaining invoices were insured
with respondent Charter.

A third party inspector appointed by both petitioners certified all the pipes and fittings
to be in good order condition before they were loaded in the vessel. Nonetheless, when the
goods reached Hongkong, it was discovered that a substantial portion thereof was damaged.

Petitioners filed a claim against private respondents for indemnity under the insurance
contract. Respondent Charter paid petitioner Hongkong. Petitioners demanded payment of the
balance representing the cost of repair of the damaged pipes, however private respondents
refused to pay because the insurance surveyor's report allegedly showed that the damage is a
factory defect, thus not covered by the insurance policies.

In 1986, petitioners filed an action against private respondents to recovery of sum of

money. The trial court ruled in favor of petitioners. It found that the damage to the goods is not
due to manufacturing defects. It also noted that the insurance contracts executed by petitioner
Mayer and private respondents are "all risks" policies which insure against all causes of
conceivable loss or damage. The only exceptions are those excluded in the policy, or those
sustained due to fraud or intentional misconduct on the part of the insured.

Private respondents elevated the case to respondent Court of Appeals, which affirmed
the finding of the trial court. However, it set aside the decision of the trial court and dismissed
the complaint on the ground of prescription since it was filed more than two years from the
time the goods were unloaded from the vessel. It held that the action is barred under Section
3(6) of the Carriage of Goods by Sea Act which provides for the prescription of insurer's liability
after one year if no action for indemnity is filed against the carrier or the insurer.

Hence this petition.

Issue:

Whether or not the petitioners' claim is barred by prescription.

Held:

No. The petitioners' claim is not barred by prescription under the Carriage of Goods by
Sea Act, which defines the obligations of the carrier under the contract of carriage. The
relationship between petitioner Mayer as shipper and respondents as insurer is is governed by
the Insurance Code. Thus, the liability of the insurer is not extinguished because the insurer's
liability is based not on the contract of carriage but on the contract of insurance.

In the case at bar, it was the shipper which filed a claim against the insurer. The basis of
the shipper's claim is the "all risks" insurance policies issued by private respondents to
petitioner Mayer. The Supreme Court held that an "all risks" insurance policy covers all kinds of
loss other than those due to willful and fraudulent act of the insured. Thus, when private
respondents issued the "all risks" policies to petitioner Mayer, they bound themselves to
indemnify the latter in case of loss or damage to the goods insured. Such obligation prescribes
in ten years, in accordance with Article 1144 of the New Civil Code.

The petition was GRANTED.