Title
Pacific Timber Export Corp. vs. Court of Appeals
Case
G.R. No. L-38613
Decision Date
Feb 25, 1982
Temporary insurance via Cover Note issued for timber export; 30 logs lost during loading. Insurer denied claim, citing void Cover Note and delayed notice. Court ruled Cover Note valid, insurer waived delay defense, favoring claimant.
insurance policies
loss of logs
loading operations

Case Summary (G.R. No. L-38613)

Factual Background

Pacific Timber Export Corporation obtained temporary insurance by Cover Note No. 1010 on March 19, 1963 for the export of 1,250,000 board feet of Philippine lauan and apitong logs to be shipped to Okinawa and Tokyo. The cover note expressly provided that coverage was "Subject to the Terms and Conditions of the WORKMEN'S INSURANCE COMPANY, INC. printed Marine Policy form as filed with and approved by the Office of the Insurance Commissioner." Regular marine cargo Policy Nos. 53 HO 1032 and 53 HO 1033 were later issued on April 2, 1963.

Loss During Loading

While being loaded aboard the SS Woodlock at Diapitan Bay on March 29, 1963, a raft of seventy-five logs broke up in bad weather. Forty-five pieces were salvaged and thirty pieces were verified lost or washed away. The lost logs fell within the quantity covered by the cover note but were not included among the specific logs listed in the subsequently issued marine policies.

Notice and Claim

By letter dated April 4, 1963 and received April 15, 1963, Pacific Timber Export Corporation notified Workmen's Insurance Company, Inc. of the approximate loss of thirty-two pieces of logs. The plaintiff later submitted a formal claim statement seeking P19,286.79 under the two marine policies. The insurer, however, treated the loss as pertaining to the broader quantity in the cover note.

Adjustment and Insurer's Investigation

On July 17, 1963, the insurer engaged the First Philippine Adjustment Corporation to inspect and assess the loss. The adjuster reported on August 23, 1963 that the loss of thirty pieces was not covered by the specific marine policies because those policies covered the actual number of logs loaded aboard the vessel, but that the loss fell within the 1,250,000 bd. ft. covered by Cover Note No. 1010. The adjuster submitted a computation of probable liability on September 14, 1963 totaling P11,042.04.

Insurer's Denial and Administrative Correspondence

Despite the adjuster’s findings, Workmen's Insurance Company, Inc. wrote Pacific Timber Export Corporation on January 13, 1964 denying the claim on the ground that the entire shipment covered by the marine policies arrived in good order and asserting that the cover note had become "null and void by virtue of the issuance of Marine Policy Nos. 53 HO 1032 and 1033." The insured brought the denial to the attention of the Insurance Commissioner on March 21, 1964. The Insurance Commissioner replied March 30, 1964 advising that it was "only fair and equitable to indemnify the insured under Cover Note No. 1010." The insurer later informed the Commissioner that it denied the claim on advice of counsel for lack of valuable consideration.

Trial Court Proceedings and Judgment

The Court of First Instance of Manila rendered judgment in favor of Pacific Timber Export Corporation and against Workmen's Insurance Company, Inc., ordering payment of P11,042.04 with interest at twelve percent from receipt of notice of loss on April 15, 1963 until complete payment, awarding P3,000.00 as attorney's fees and costs.

Court of Appeals Decision

The Court of Appeals reversed the trial court. The Court of Appeals found that the cover note was null and void for lack of valuable consideration and held that the insurer was released from liability under the cover note. The Court of Appeals’ factual findings regarding issuance of the cover note, the marine policies, the loss during loading, the notice and the adjuster's report were summarized in the record and were treated by the Supreme Court as generally binding.

Issues Presented on Review

The petition advanced two principal errors: first, that the Court of Appeals erred in holding Cover Note No. 1010 null and void for lack of valuable consideration when premiums for the comprehensive insurance coverage, which included the cover note, were paid and no separate premium was collected for cover notes; and second, that the Court of Appeals erred in sustaining the insurer's defense of unreasonable delay in giving notice of loss because the insurer did not promptly and specifically object on that ground and therefore waived the defense under Section 84 of the Insurance Act.

Petitioner’s Contentions

Pacific Timber Export Corporation maintained that the cover note had valid consideration because it was expressly made subject to the terms of the marine policies and the payment of premiums formed part of those terms. The petitioner argued that no separate premium was intended or required for a cover note, as a cover note functioned as a binder pending issuance of the full marine policies. The petitioner further contended that the insurer did not promptly and specifically raise delay as a defense and that the insurer's subsequent investigation and adjustment efforts evidenced waiver under Section 84 of the Insurance Act.

Respondent’s Defenses

Workmen's Insurance Company, Inc. defended on two principal grounds: that the cover note lacked valuable consideration and therefore was null and void, and that the insured delayed in giving notice of loss, a defense that the Court of Appeals accepted. The insurer also asserted that issuance of the marine policies rendered the cover note null and void and later, on advice of counsel, maintained non-liability for lack of valuable consideration.

Supreme Court’s Disposition

The Supreme Court sustained petitioner’s assignments of error, set aside the Court of Appeals decision, and reinstated the judgment of the Court of First Instance in its entirety. The Court ordered enforcement of the trial court’s award of P11,042.04 with interest at the rate of twelve percent from April 15, 1963 until full payment, attorney's fees of P3,000.00, and costs. No special pronouncement as to costs was made.

Legal Reasoning on Consideration

The Court held that the cover note was supported by consideration. It reasoned that the cover note was expressly made subject to the terms and conditions of the insurer's printed marine policy and that payment of premiums was one such term. The Court observed that a cover note, by its nature, did not specify particulars necessary for premium computation and therefore no separate premium could or would be collected at the time of issuance. The Court found it immaterial that no separate premium was paid on the cover note because petitioner later paid in full the premiums called for by the insurer's statement after issuance of the marine policies, and because the cover note performed the function of a

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