LA RAZON SOCIAL “GO TIACO Y HERMANOS v. UNION INSURANCE SOCIETY OF CANTON LTD.

G.R. 13983, 1 September 1919

J. Street, Ponente

FACTS:

A cargo of rice belonging to the Go Tiaoco Brothers was transported in the early days of May 1915 on the
steamship Hondagua from the port of Saigon to Cebu. On discharging the rice from one of the compartments
in the after hold, upon arrival at Cebu, it was discovered that 1,473 sacks had been damaged by sea water.
The loss so resulting to the owners of rice, after proper deduction had been made for the portion saved, was
P3,875.

The policy of insurance, covering the shipment, was signed upon a form long in use among companies
engaged in maritime insurance. It purports to insure the cargo from the following among other risks:

"Perils . . . of the seas, men of war, fire, enemies, pirates, rovers, thieves, jettisons, . . . barratry of the master
and mariners, and of all other perils, losses, and misfortunes that have or shall come to the hurt, detriment,
or damage of the said goods and merchandise or any part thereof."

It was found out that the drain pipe which served as a discharge from the water closet passed down through
the compartment where the rice in question was stowed and then drained out to sea through the wall of the
compartment, which was a part of the wall of the ship. The joint or elbow where the pipe changed its direction
was of cast iron; and in course of time it had become corroded and abraded until a longitudinal opening had
appeared in the pipe about one inch in length. This hole had been in existence before the voyage was begun,
and an attempt had been made to repair it by filling with cement and bolting over it a strip of iron. The effect
of loading the boat was to submerge the vent, or orifice, of the pipe until it was about 18 inches or 2 feet
below the level of the sea. As a consequence the sea water rose in the pipe. Navigation under these
conditions resulted in the washing out of the cement-filling from the action of the sea water, thus permitting
the continued flow of the salt water into the compartment of rice.

An action on a policy of marine insurance issued by the Union Insurance Society of Canton, Ltd. upon the
cargo of rice belonging to the Go Tiaoco Brothers was filed. The trial court found that the inflow of the sea
water during the voyage was due to a defect in one of the drain pipes of the ship and concluded that the loss
was not covered by the policy of insurance. Judgment was accordingly entered in favor of Union Insurance
and Go Tiaoco Brothers appealed.

ISSUE (1): Whether or not perils of the sea includes “entrance of water into the ship’s hold through a defective
pipe”?

ISSUE (2): Whether or not there is an implied warranty on the seaworthy of the vessel in every marine
insurance contract?
*UNFAMILIAR TERMS [Black’s Law Dictionary; Merriam Webster Dictionary]

Peril(s) of the sea(s) - An action of the elements at sea of such force as to overcome the strength of a well-
founded ship and the normal precautions of good marine practice; A peril of the sea may relieve a carrier
from liability for the resulting losses; Also termed danger of navigation; marine peril; marine risk; danger of
the sea. [BLD]

"Of the marine periIs, by far the most important are those 'of the seas'. What is covered is
not any loss that may happen on the sea, but fortuitous losses occurring through extraordinary action
of the elements at sea, or any accident or mishap in navigation. By far the greatest number of claims
for marine loss, and of the insurance problems connected with other topics treated in this book arise
under this clause. Extraordinary action of the wind and waves is a sea peril. Collision, foundering,
stranding, striking on rocks and icebergs, are all covered under these words. Even a swell from a
passing ship may be a 'peril of the sea'. On the other hand, ordinary wear and tear are not included
under the coverage of this or any other phrase in the clause, nor are losses which are anticipatable
as regular incidents of sea carriage in general or of navigation in a particular part of the world." Grant
Gilmore & Charles L. Black Jr., The Law of Admiralty § 2-9, at 72-73 (2d ed. 1975).

Long form (Policy of marine insurance) – An insurance policy that expressly contains all the terms of the
insurance contract [BLD]

Men of war – An armed sailing ship [MWD]

Rover - A sea robber; Pirate [MWD]

Jettisons (Maritime law) - The act of voluntarily throwing cargo overboard to lighten or stabilize a ship that
is in immediate danger. Also termed equitable jettison; jactura; jactus mercium navis levandae causa BLD]

"The goods must not be swept away by the violence of the waves, for then the loss falls
entirely upon the merchant or his insurer, but they must be intentionally sacrificed by the mind and
agency of man, for the safety of the ship and the residue of the cargo. The jettison must be made for
sufficient cause, and not from groundless timidity. It must be made in a case of extremity, when the
ship is in danger of perishing by the fury of a storm, or is laboring upon rocks or shallows, or is closely
pursued by pirates or enemies; and then if the ship and the residue of the cargo be saved by means
of the sacrifice, nothing can be more reasonable than that the property saved should bear its
proportion of the loss," 3 James Kent, Commentaries on American Law *232-33 (George
Comstock ed., 11th ed. 1866).

Barratry - Vexatious incitement to litigation, esp. by soliciting potential legal clients; Barratry is a crime in
most jurisdictions. [BLD]

RATIO/HOLDING:

[1]: NO. It is determined that the words "all other perils, losses, and misfortunes" are to be interpreted as
covering risks which are of like kind (ejusdem generis) with the particular risks which are enumerated in the
preceding part of the same clause of the contract.
According to the ordinary rules of construction these words must be interpreted with reference to the words
which immediately precede them. They were no doubt inserted in order to prevent disputes founded on nice
distinctions. Their office is to cover in terms whatever may be within the spirit of the cases previously
enumerated, and so they have a greater or less effect as a narrower or broader view is taken of those cases.

For example, if the expression "perils of the seas" is given its widest sense the general words have little or
no effect as applied to that case. If on the other hand that expression is to receive a limited construction and
loss by perils of the seas is to be confined to loss ex marine tempestatis discrimine (arising out of a ‘tempest’
or “violent storm”, Merriam Webster), the general words become most important. But still, when they first
became the subject of judicial construction, they have always been held or assumed to be restricted to cases
"akin to" or "resembling" or "of the same kind as" those specially mentioned. I see no reason for departing
from this settled rule.

In marine insurance it is above all things necessary to abide by settled rules and to avoid anything like novel
refinements or a new departure. It must be considered to be settled, furthermore, that a loss which, in the
ordinary course of events, results from the natural and inevitable action of the sea, from the ordinary wear
and tear of the ship, or from the negligent failure of the ship's owner to provide the vessel with proper
equipment to convey the cargo under ordinary conditions, is not a peril of the sea. Such a loss is rather due
to what has been aptly called the "peril of the ship." The insurer undertakes to insure against perils of the sea
and similar perils, not against perils of the ship. There must, in order to make the insurer liable, be "some
casualty, something which could not be foreseen as one of the necessary incidents of the adventure. The
purpose of the policy is to secure an indemnity against accidents which may happen, not against events
which must happen."

Herein, the entrance of the sea water into the ship's hold through the defective pipe already described was
not due to any accident which happened during the voyage, but to the failure of the ship's owner properly to
repair a defect of the existence of which he was apprised.

The loss was therefore more analogous to that which directly results from simple unseaworthiness than to
that which results from perils of the sea.

[2]: YES. It is universally accepted that in every contract of insurance upon anything which is the subject of
marine insurance, a warranty is implied that the ship shall be seaworthy at the time of the inception of the
voyage. This rule is accepted in our own Insurance Law (Act No. 2427, sec. 106). It is also well settled that
a ship which is seaworthy for the purpose of insurance upon the ship may yet be unseaworthy for the
purpose of insurance upon the cargo (Act No. 2427, sec. 106).

Source: Mendiola, Michael Vernon Guerrero, Narratives - Insurance Law (Commercial), 2006. Additional research by FAL
Acedillo. Black’s Law Dictionary (6th edition). Merriam-Webster Dictionary.