Insurance Claims Understanding Time Limits AND ALL Risks Policies IN THE Philippines

Mayer Steel Pipe Corp. v. Court of Appeals (G.R. No. 124050, June 19, 1997) settles a common confusion in Philippine insurance law: the time limit for filing an insurance claim after goods are damaged in transit. The Supreme Court ruled that the one-year prescriptive period under the Carriage of Goods by Sea Act (COGSA) applies only to suits against the carrier, not against the insurer. Claims under an "all risks" insurance policy prescribe in ten years under the Civil Code.

Facts of the Case

In 1983, Mayer Steel Pipe Corporation contracted to manufacture and supply steel pipes to the Hongkong Government Supplies Department. Mayer insured the shipments under "all risks" policies issued by South Sea Surety and Insurance Co., Inc. and The Charter Insurance Corporation. A third-party inspector certified the pipes as in good order before loading. When the goods arrived in Hongkong, a substantial portion was found damaged.

Mayer and Hongkong filed claims. Charter paid a partial amount, but the insurers refused to pay the balance, arguing the damage was a factory defect excluded from coverage. On April 17, 1986, the petitioners filed suit against the insurers.

The trial court ruled for the petitioners, finding the damage was not a factory defect and was covered by the "all risks" policies. The Court of Appeals, however, dismissed the complaint on the ground of prescription, applying the one-year suit period under COGSA to the insurers.

The Issue

The sole question was whether the petitioners' action against the insurers had prescribed. The Court of Appeals had applied Section 3(6) of COGSA, which discharges the carrier and the ship from liability unless suit is brought within one year after delivery of the goods.

The Ruling

The Supreme Court reversed the Court of Appeals. It held that Section 3(6) of COGSA governs only the relationship between the carrier and the shipper, consignee, or insurer. It does not affect the relationship between the shipper and the insurer, which is governed by the Insurance Code.

The Court distinguished its earlier ruling in Filipino Merchants Insurance Co., Inc. v. Alejandro (145 SCRA 42). In that case, the insurer filed a third-party claim against the carrier for reimbursement beyond the one-year period. The Court held that the insurer, like the shipper, could no longer file a claim against the carrier after one year. That ruling applies only to suits against the carrier—not to suits by the shipper against the insurer.

Here, the petitioners' claim was based on the "all risks" insurance policies. An "all risks" policy covers all kinds of loss except those due to the willful and fraudulent act of the insured. By issuing such policies, the insurers bound themselves to indemnify the insured for loss or damage. That obligation prescribes in ten years under Article 1144 of the New Civil Code, which covers actions upon a written contract.

Practical Takeaways

• Know which prescriptive period applies. Claims against a carrier for loss or damage to goods shipped by sea must be filed within one year under COGSA. Claims against an insurer under a marine cargo policy are governed by the ten-year period for written contracts under Article 1144 of the Civil Code.
• "All risks" policies are broad. They cover all causes of loss or damage except those excluded in the policy or caused by the insured's willful or fraudulent act. A mere claim of "factory defect" will not defeat coverage unless the insurer proves an exclusion.
• Do not confuse the carrier's defense with the insurer's. If a carrier fails to pay within one year, the remedy is to sue the carrier promptly. But the insurer's liability arises from the insurance contract, not the contract of carriage, and is not extinguished by COGSA's one-year rule.
• Preserve evidence of the loss. The insurers in this case relied on a surveyor's report alleging factory defects. Documentary proof of the condition of goods before loading and after arrival was critical to the outcome.
• Seek timely legal advice. Prescription is a technical defense. When goods arrive damaged, consult counsel immediately to identify the correct defendant and the applicable prescriptive period.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.