G.R. No. L-66935 November 11, 1985
ISABELA ROQUE, doing business under the name and style of Isabela Roque Timber Enterprises and ONG CHIONG, petitioners, vs. HON. INTERMEDIATE APPELLATE COURT and PIONEER INSURANCE AND SURETY CORPORATION, respondents.

FACTS

Petitioners insured a shipment of logs with respondent Pioneer Insurance for P100,000. The logs were loaded onto the barge Mable 10, owned by Manila Bay Lighterage Corporation, for transport from Palawan to Manila. The barge sank en route, resulting in the total loss of the cargo. Petitioners sued both the common carrier and the insurer. The trial court held them jointly and severally liable.
Manila Bay did not appeal the trial court’s decision. Pioneer Insurance appealed to the Intermediate Appellate Court, which modified the judgment and absolved the insurer from liability. The appellate court found the vessel was unseaworthy at the commencement of the voyage, as a hatch was left open and it lacked proper covers, allowing seawater to enter. It ruled the loss was due to “perils of the ship” (inherent unseaworthiness) and not “perils of the sea,” and that the cargo owners breached the implied warranty of seaworthiness under the marine insurance policy.

ISSUE

The core issue is whether the insurer, Pioneer, is liable under the marine cargo insurance policy given the finding that the loss was caused by the vessel’s unseaworthiness.

RULING

The Supreme Court affirmed the appellate court’s decision, absolving Pioneer Insurance from liability. The legal logic rests on two key principles of marine insurance law. First, under Section 113 of the Insurance Code, an implied warranty of seaworthiness attaches in every contract of marine insurance. This warranty applies not only to hull insurance but also to cargo insurance. The warranty is absolute and requires that the vessel be reasonably fit for the intended voyage at the time of sailing. The petitioners, as the assured cargo owners, are deemed to have warranted the seaworthiness of the carrying vessel. Since the barge was found unseaworthy at the voyage’s inception, this implied warranty was breached, discharging the insurer from its contractual obligation.
Second, the proximate cause of the loss determines coverage. The policy insures against “perils of the sea”—fortuitous events like storms or stranding. The loss here was caused by “perils of the ship”—specifically, the vessel’s leaky and unprepared condition due to an open hatch and lack of tarpaulin. This constitutes an inherent vice or defect in the vessel, not an external fortuitous event. The ingress of water was a direct and inevitable consequence of the unseaworthy state, not an accident during the voyage. Therefore, the loss falls outside the coverage of the marine insurance policy, which is designed to indemnify against accidental maritime perils, not losses that must happen from the vessel’s unfit condition. Liability for such a loss rests solely with the common carrier, Manila Bay, based on its contractual and legal duties, not with the insurer. The Court modified the award only to grant petitioners the P8,000 salvage value of recovered logs, to be deducted from the carrier’s liability.