Aboitiz Shipping vs. New India Assurance, 488 SCRA 563 (2006)

FACTS

Societe Francaise Des Colloides loaded cargoes insured by respondent New India Assurance Company, Ltd. In HK consigned in favor of General Textil. The cargo was transferred to M/V P. Aboitiz for transshipment to Manila. The vessel was advised by the Japanese Meteorological Center that it was safe to travel to its destination. But while at sea, the vessel received a report of a typhoon moving within its general path. To avoid the typhoon, the vessel changed its course. However, its hull leaked causing the vessel sank, but the captain and his crew were saved.

Petitioner notified the consignee, General Textile, of the total loss of the vessel and all of its cargoes. General Textile, lodged a claim with respondent for the amount of its loss. Respondent hired a surveyor to investigate the cause of the sinking. In its report, the surveyor concluded that the cause was the flooding of the holds brought about by the vessel’s questionable seaworthiness.

Respondent filed a complaint for damages against petitioner Aboitiz, Franco-Belgian Services and the latter’s local agent, F.E. Zuellig, Inc. (Zuellig) alleged that the proximate cause of the loss of the shipment was the fault or negligence of the master and crew of the vessel, its unseaworthiness, and the failure of defendants therein to exercise extraordinary diligence in the transport of the goods.

Petitioners responded, claiming that they exercised extraordinary diligence in handling the shipment while it was in their possession; its vessel was seaworthy; and the proximate cause of the loss of cargo was a fortuitous event. The BMI exonerated the captain and crew of any administrative liability; and declared the vessel seaworthy and concluded that the sinking was due to the vessel’s exposure to the approaching typhoon.

The trial court  ruled in favor of respondent. It held petitioner liable for the total value of the lost cargo plus legal interest. The Court of Appeals affirmed in toto the trial court’s decision.

Respondent’s claim for damages should only be against the insurance proceeds and limited to its pro rata share in view of the doctrine of limited liability.

ISSUE

whether the limited liability doctrine, which limits respondent’s award of damages to its pro rata share in the insurance proceeds, applies in this case.

HELD

NO. From the nature of their business and for reasons of public policy, common carriers are bound to observe extraordinary diligence over the goods they transport according to all the circumstances of each case. In the event of loss, destruction or deterioration of the insured goods, common carriers are responsible, unless they can prove that the loss, destruction or deterioration was brought about by the causes specified in Article 1734 of the Civil Code. In all other cases, common carriers are presumed to have been at fault or to have acted negligently, unless they prove that they observed extraordinary diligence. Moreover, where the vessel is found unseaworthy, the shipowner is also presumed to be negligent since it is tasked with the maintenance of its vessel.

To limit its liability to the amount of the insurance proceeds, petitioner has the burden of proving that the unseaworthiness of its vessel was not due to its fault or negligence. Considering the evidence presented and the circumstances obtaining in this case, we find that petitioner failed to discharge this burden.

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