G.R. No. 119599 - Malayan Insurance Corp. vs. Court of Appeals

Private respondent TKC Marketing Corporation was the owner/consignee of 3,189.171 metric tons of soya bean meal shipped aboard MV Al Kaziemah from Rio del Grande, Brazil, to Manila.
Petitioner Malayan Insurance Corporation issued two Marine Cargo Policies to insure the shipment, with total coverage amounting to P20,181,907.90.

While docked at Durban, South Africa on September 11, 1989, civil authorities arrested and detained the ship over a lawsuit involving ownership and possession.
TKC Marketing notified the petitioner on October 4, 1989, of the vessel's arrest and filed a claim for US$916,886.66 (equivalent to total policy coverage) for non-delivery of cargo.
Petitioner denied coverage, asserting the vessel's arrest was not a peril insured against.

TKC Marketing requested an extension of insurance coverage pending transhipment of cargo, which petitioner approved upon payment of additional premium covering October 4 to December 19, 1989.
Due to the perishability of the cargo, the soya bean meal was sold on December 11, 1989, in Durban for US$154.40 per metric ton, totaling P10,304,231.75.
On January 5, 1990, TKC Marketing reduced its claim to US$448,806.09 (P9,879,928.89 equivalent) after deducting proceeds from the sale.

Petitioner maintained denial of claim, leading TKC Marketing to file a complaint for damages, including actual loss, legal expenses, interest on loan financing the shipment, moral damages, exemplary damages, and attorney’s fees.
Regional Trial Court ruled in favor of TKC Marketing, awarding the insurance claim, consequential damages, exemplary damages, attorneys’ fees, costs, and 12% interest from inception of the case.
Upon appeal, the Court of Appeals affirmed with slight modification, finding coverage under the Institute War Clauses due to the deletion of Clause 12 (Free from Capture & Seizure Clause) from the policies, which otherwise excluded arrest from coverage.

Whether the arrest of the vessel by civil authorities is a risk covered under the subject insurance policies.
Whether there was a constructive total loss of the cargo.
Whether petitioner acted in bad faith in declining private respondent’s insurance claim.
Whether the doctrine of strict construction of insurance policies against the insurer was correctly applied by the Court of Appeals.