Understanding the Prescription Period for Insurance Claims in the Philippines

G.R. No. 124050, June 19, 1997

Imagine a business importing goods, diligently insuring them against all possible damage. Upon arrival, a significant portion is damaged, and the insurer denies the claim, citing delays. This scenario highlights the critical importance of understanding the prescription periods for insurance claims in the Philippines, particularly the difference between claims against carriers and claims against insurers.

The case of Mayer Steel Pipe Corporation vs. Court of Appeals clarifies that while claims against carriers are governed by the one-year prescriptive period under the Carriage of Goods by Sea Act, claims against insurers under an insurance contract have a longer prescriptive period based on the Civil Code.

The Legal Landscape of Insurance and Carriage of Goods

Navigating the legal framework surrounding insurance and the carriage of goods requires understanding specific laws and their interplay. The Carriage of Goods by Sea Act (COGSA) and the Insurance Code define the rights and obligations of parties involved in the shipment and insurance of goods.

Section 3(6) of the Carriage of Goods by Sea Act stipulates:

“…the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is brought within one year after delivery of the goods or the date when the goods should have been delivered.”

This provision primarily governs the relationship between the carrier and the shipper/consignee. However, the relationship between the shipper and the insurer is governed by the Insurance Code and general principles of contract law.

An insurance contract, as defined, is “a contract whereby one party, for a consideration known as the premium, agrees to indemnify another for loss or damage which he may suffer from a specified peril.” In the context of an “all risks” policy, the insurer agrees to cover all losses except those resulting from the insured’s willful and fraudulent acts.

Article 1144 of the New Civil Code states:

“The following actions must be brought within ten years from the time the right of action accrues: (1) Upon a written contract…”

This provision establishes the prescriptive period for actions based on written contracts, including insurance policies.

The Mayer Steel Pipe Corporation Case: A Detailed Look

The case revolves around Mayer Steel Pipe Corporation (Mayer) and the Hongkong Government Supplies Department (Hongkong), who contracted for the manufacture and supply of steel pipes. Mayer insured these goods with South Sea Surety and Insurance Co., Inc. (South Sea) and Charter Insurance Corp. (Charter) under “all risks” policies.

Here’s a breakdown of the key events:

• 1983: Mayer ships steel pipes and fittings to Hongkong, insured by South Sea and Charter.
• Industrial Inspection (International) Inc. certifies the goods as being in good order prior to shipping.
• Upon arrival in Hongkong, a substantial portion of the goods is found to be damaged.
• Mayer and Hongkong file an insurance claim.
• Charter pays a portion of the claim (HK$64,904.75), but the insurers refuse to pay the remaining balance (HK$299,345.30).
• April 17, 1986: Mayer and Hongkong file a lawsuit to recover the unpaid balance.

The insurance companies argued that the damage was due to factory defects, which were not covered by the policies. The trial court ruled in favor of Mayer, finding that the damage was not due to manufacturing defects and that the “all risks” policies covered the loss.

The Court of Appeals reversed the trial court’s decision, arguing that the claim had prescribed under Section 3(6) of the Carriage of Goods by Sea Act, as the lawsuit was filed more than one year after the goods were unloaded. However, the Supreme Court disagreed, stating:

“Under this provision, only the carrier’s liability is extinguished if no suit is brought within one year. But the liability of the insurer is not extinguished because the insurer’s liability is based not on the contract of carriage but on the contract of insurance.”

The Supreme Court emphasized that the one-year prescriptive period applies to claims against the carrier, not the insurer. The insurer’s liability stems from the insurance contract, which has a prescriptive period of ten years under Article 1144 of the New Civil Code.

“When private respondents issued the ‘all risks’ policies to petitioner Mayer, they bound themselves to indemnify the latter in case of loss or damage to the goods insured. Such obligation prescribes in ten years, in accordance with Article 1144 of the New Civil Code.”

Practical Implications for Businesses and Individuals

This case underscores the importance of understanding the distinct liabilities and corresponding prescription periods for carriers and insurers. Businesses involved in importing or exporting goods should be aware of these differences to protect their interests.

For businesses:

• Always secure “all risks” insurance policies to cover potential losses during shipment.
• Thoroughly document the condition of goods before shipment and upon arrival.
• Understand the different prescriptive periods for claims against carriers (1 year) and insurers (10 years).

Key Lessons

• Separate Liabilities: Carriers and insurers have distinct liabilities with different prescriptive periods.
• “All Risks” Policies: These policies provide broad coverage, but understanding exclusions is crucial.
• Prescription Period: Claims against insurers based on insurance contracts prescribe in ten years.

Frequently Asked Questions

Q: What is an “all risks” insurance policy?

A: An “all risks” policy covers all types of losses or damages, except those specifically excluded in the policy, such as those due to the insured’s willful misconduct or fraud.

Q: How long do I have to file a claim against a carrier for damaged goods?

A: Under the Carriage of Goods by Sea Act, you have one year from the date of delivery (or the date when the goods should have been delivered) to file a claim against the carrier.

Q: How long do I have to file a claim against an insurer for damaged goods?

A: Under Article 1144 of the New Civil Code, you have ten years from the time the right of action accrues (i.e., when the damage occurred) to file a claim against the insurer, based on the insurance contract.

Q: What should I do if my insurance claim is denied?

A: Review the policy terms carefully to understand the reasons for denial. Gather all relevant documentation, including the insurance policy, shipping documents, inspection reports, and damage assessments. Consult with a legal professional to assess your options and determine the best course of action.

Q: Does the one-year period in the Carriage of Goods by Sea Act also apply to claims against the insurer?

A: No, the one-year period applies only to claims against the carrier. Claims against the insurer are governed by the prescriptive period for written contracts under the Civil Code, which is ten years.

Q: What is the impact of an independent inspection report in an insurance claim?

A: An independent inspection report, like the one from Industrial Inspection in the Mayer Steel case, can provide crucial evidence regarding the condition of the goods before shipment. This can help establish whether the damage occurred during transit or was due to pre-existing defects.

ASG Law specializes in insurance law and commercial litigation. Contact us or email hello@asglawpartners.com to schedule a consultation.