Key Takeaway: Customs Brokers Must Exercise Extraordinary Diligence, But Insurance Policy Presentation is Crucial for Claims

2100 Customs Brokers, Inc. v. Philam Insurance Company [Now AIG Philippines Insurance Inc.], G.R. No. 223377, June 10, 2020

Imagine a scenario where a crucial shipment of perishable goods arrives at its destination, only to be found damaged due to delays and improper handling. This is not just a logistical nightmare but can lead to significant financial losses and legal battles over responsibility. In the case of 2100 Customs Brokers, Inc. v. Philam Insurance Company, the Supreme Court of the Philippines had to determine the liability of a customs broker in the context of damaged cargo and the intricacies of insurance coverage. The case centered around a shipment of adhesive that required specific temperature controls, highlighting the importance of understanding the roles and responsibilities of customs brokers and the necessity of proper insurance documentation.

The key question was whether the customs broker, 2100 Customs Brokers, Inc., was negligent in handling the shipment, and whether the insurance policy covered the damage incurred. This case underscores the critical need for businesses to ensure they have the correct insurance coverage and that all relevant parties understand their obligations.

Legal Context: Understanding the Roles and Responsibilities

In the Philippines, a customs broker is considered a common carrier under certain conditions, as established by previous jurisprudence. This classification imposes a duty of extraordinary diligence on customs brokers, akin to that of common carriers, in handling goods entrusted to them. The Civil Code of the Philippines, under Article 1735, states that common carriers are presumed to have been at fault or acted negligently if the goods are lost, destroyed, or deteriorated.

Extraordinary diligence is defined as the utmost diligence of very cautious persons, with due regard for all the circumstances. For customs brokers, this means taking all necessary steps to ensure the goods are handled, stored, and transported in accordance with any specific instructions, such as temperature requirements for perishable items.

Moreover, the Customs Brokers Act of 2004 (Republic Act No. 9280) outlines the scope of practice for customs brokers, which includes preparing customs documents, handling import and export entries, and representing clients before government agencies. However, this act does not absolve them from their responsibilities as common carriers when they undertake to deliver goods.

When it comes to insurance, marine insurance can cover goods transported by air, as clarified by Section 101(a)(2) of the Insurance Code (Republic Act No. 10607). This provision extends coverage to include inland marine insurance, which pertains to the transportation of goods over land, including those shipped by airplane.

Case Breakdown: The Journey of a Damaged Shipment

The case began with Ablestik Laboratories shipping two cardboard boxes containing adhesive from Los Angeles to Manila via Japan Airlines. The shipment was insured with Philam Insurance Company against all risks. Upon arrival in Manila, the goods were stored at a warehouse controlled by the Bureau of Customs (BOC).

TSPIC, the consignee, notified 2100 Customs Brokers, Inc. (2100 CBI) of the shipment’s arrival on March 2, 2001. The goods required specific handling instructions due to their perishable nature, including maintaining temperatures of -40°F and re-icing if transit exceeded 72 hours. However, the payment of freight charges was delayed due to insufficient funds, which prevented the immediate release of the goods from BOC custody.

It wasn’t until March 6, 2001, that the goods were finally released to 2100 CBI and delivered to TSPIC. Upon inspection, TSPIC found the dry ice had melted, damaging the adhesive. TSPIC filed a claim with Philam Insurance, which paid out and then sought reimbursement from 2100 CBI, alleging negligence.

The case traversed through the Metropolitan Trial Court (MeTC), Regional Trial Court (RTC), and Court of Appeals (CA), with each court ruling in favor of Philam Insurance, holding 2100 CBI liable for the damage due to its status as a common carrier and its failure to exercise extraordinary diligence.

However, the Supreme Court reversed these decisions, highlighting two critical points:

• Negligence: The Supreme Court found that 2100 CBI was not negligent because the delay in the release of the goods was due to TSPIC’s failure to pay the freight charges on time, and 2100 CBI did not have custody of the goods until they were released by the BOC.
• Insurance Policy: The Court emphasized the importance of presenting the insurance policy in court. Philam Insurance failed to provide the original or a copy of the policy, which was necessary to determine the scope of coverage and whether the damage was compensable under the policy.

Justice Carandang stated, “The original copy of the insurance policy is the best proof of its contents. The contract of insurance must be presented in evidence to indicate the extent of its coverage.”

Another crucial quote from the decision is, “It would be physically impossible and unreasonable for 2100 CBI to implement any control or handling instructions over goods not in its custody.”

Practical Implications: Lessons for Businesses and Individuals

This ruling has significant implications for businesses and individuals involved in the import and export of goods:

• Insurance Documentation: Always ensure that insurance policies are readily available and presented in legal proceedings to prove coverage and the extent of liability.
• Customs Broker Duties: Customs brokers must understand their role as common carriers and the requirement to exercise extraordinary diligence when handling goods.
• Timely Payments: Delays in payment, such as freight charges, can have serious consequences for the condition of goods, especially perishable items.

Key Lessons:

• Ensure all parties involved in the transport of goods understand and adhere to handling instructions.
• Maintain proper documentation, including insurance policies, to support claims in case of damage.
• Be proactive in resolving payment issues to prevent delays in the release of goods.

Frequently Asked Questions

What is a customs broker?

A customs broker is a professional who assists importers and exporters in meeting regulatory requirements for the import and export of goods. They are responsible for preparing and submitting necessary documents to customs authorities.

Can a customs broker be held liable for damaged goods?

Yes, if a customs broker acts as a common carrier, they can be held liable for damaged goods if they fail to exercise the required extraordinary diligence in handling the shipment.

What is extraordinary diligence?

Extraordinary diligence is the highest level of care expected from a common carrier, requiring them to take all necessary precautions to ensure the safety and integrity of the goods they transport.

Is marine insurance applicable to goods transported by air?

Yes, marine insurance can cover goods transported by air under the category of inland marine insurance, as specified in the Insurance Code of the Philippines.

Why is it important to present the insurance policy in court?

Presenting the insurance policy in court is crucial to establish the scope of coverage and prove that the damage to the goods is compensable under the policy.

What can businesses do to prevent delays in the release of goods?

Businesses should ensure timely payment of all charges, including freight, and maintain clear communication with all parties involved in the transport chain.

How can a business ensure proper handling of perishable goods?

Businesses should provide clear handling instructions to all parties involved and ensure these instructions are followed, including maintaining required temperatures and timely re-icing if necessary.

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