INSURANCE CODE

(P.D. No. 1460)

I. GENERAL CONCEPTS

CONTRACT OF INSURANCE

An agreement whereby one undertakes for a consideration to indemnify another against loss, damage
or

liability arising from an unknown or contingent event. (Sec. 2, par. 2, IC)

DOING AN INSURANCE BUSINESS OR TRANSACTING AN INSURANCE BUSINESS (Sec. 2, par. 4)

1. Making or proposing to make, as insurer, any insurance contract;

2. Making or proposing to make, as surety, any contract of suretyship as a vocation, not as a mere
incident

to any other legitimate business of a surety;

3. Doing any insurance business, including a reinsurance business;

4. Doing or proposing to do any business in substance equivalent to any of the foregoing

II. CHARACTERISTICS OF AN INSURANCE CONTRACT (The Insurance Code of the Philippines Annotated,

Hector de Leon, 2002 ed.)

1. Consensual it is perfected by the meeting of the minds of the parties.

2. Voluntary the parties may incorporate such terms and conditions as they may deem convenient.

3. Aleatory it depends upon some contingent event.

4. Unilateral imposes legal duties only on the insurer who promises to indemnify in case of loss.

5. Conditional It is subject to conditions the principal one of which is the happening of the event
insured

against.

6. Contract of indemnity Except life and accident insurance, a contract of insurance is a contract of

indemnity whereby the insurer promises to make good only the loss of the insured.

7. Personal each party having in view the character, credit and conduct of the other.
REQUISITES OF A CONTRACT OF INSURANCE (The Insurance Code of the Philippines Annotated, Hector
de

Leon, 2002 ed.)

1. A subject matter which the insured has an insurable interest.

2. Event or peril insured against which may be any future contingent or unknown event, past or future
and a

duration for the risk thereof.

3. A promise to pay or indemnify in a fixed or ascertainable amount.

4. A consideration known as premium.

5. Meeting of the minds of the parties.

5 CARDINAL PRINCIPLES IN INSURANCE

1. Insurable Interest

2. Principle of Utmost Good Faith

An insurance contract requires utmost good faith (uberrimae fidei) between the parties. The applicant
is

enjoined to disclose any material fact, which he knows or ought to know.

Reason: An insurance contract is an aleatory contract. The insurer relies on the representation of the

applicant, who is in the best position to know the state of his health.

3. Contract of Indemnity

It is the basis of all property insurance. The insured who has insurable interest over a property is only

entitled to recover the amount of actual loss sustained and the burden is upon him to establish the
amount of

such loss (Reviewer on Commercial Law, Professors Sundiang and Aquino)

Rules:

a. Applies only to property insurance except when the creditor insures the life of his debtor.

b. Life insurance is not a contract of indemnity.

c. Insurance contracts are not wagering contracts. (Sec. 4)

4. Contract of Adhesion (Fine Print Rule)

Most of the terms of the contract do not result from mutual negotiations between the parties as they
are

prescribed by the insurer in final printed form to which the insured may adhere if he chooses but
which he

cannot change. (Rizal Surety and Insurance Co., vs. CA, 336 SCRA 12)

5. Principle of Subrogation

It is a process of legal substitution where the insurer steps into the shoes of the insured and he avails of
the

latters rights against the wrongdoer at the time of loss.

The principle of subrogation is a normal incident of indemnity insurance as a legal effect of payment; it

inures to the insurer without any formal assignment or any express stipulation to that effect in the
policy. Said

right is not dependent upon nor does it grow out of any private contract. Payment to the insured makes
the

insurer a subrogee in equity. (Malayan Insurance Co., Inc. v. CA, 165 SCRA 536; see also Art. 2207, NCC)

Purposes: (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.)

1. To make the person who caused the loss legally responsible for it.

2. To prevent the insured from receiving a double recovery from the wrongdoer and the insurer.

3. To prevent tortfeasors from being free from liabilities and is thus founded on considerations of public

policy.

Rules:

1. Applicable only to property insurance.

2. The insurer can only recover from the third person what the insured could have recovered.

3. There can be no subrogation in cases:

a. Where the insured by his own act releases the wrongdoer or third party liable for the loss or damage;
b. Where the insurer pays the insured the value of the loss without notifying the carrier who has in good
faith

settled the insureds claim for loss;

c. Where the insurer pays the insured for a loss or risk not covered by the policy. (Pan Malayan
Insurance

Company v. CA, 184 SCRA 54)

d. In life insurance

e. For recovery of loss in excess of insurance coverage

CONSTRUCTION OF INSURANCE CONTRACT

The ambiguous terms are to be construed strictly against the insurer, and liberally in favor of the
insured.

However, if the terms are clear, there is no room for interpretation. (Calanoc vs. Court of Appeals, 98
Phil. 79)

III. DISTINGUISHING ELEMENTS OF AN INSURANCE CONTRACT

1. The insured possesses an insurable interest susceptible of pecuniary estimation;

2. The insured is subject to a risk of loss through the destruction or impairment of that interest by the

happening of designated perils;

3. The insurer assumes that risk of loss;

4. Such assumption is part of a general scheme to distribute actual losses among a large group or
substantial

number of persons bearing somewhat similar risks; and

5. The insured makes a ratable contribution (premium) to a general insurance fund.

A contract possessing only the first 3 elements above is a risk-shifting device. If all the elements, it is a
riskdistributing

device. (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.)

IV. PERFECTION OF AN INSURANCE CONTRACT

An insurance contract is a consensual contract and is therefore perfected the moment there is a
meeting of
minds with respect to the object and the cause or consideration.

What is being followed in insurance contracts is what is known as the cognition theory. Thus, an

acceptance made by letter shall not bind the person making the offer except from the time it came to
his

knowledge. (Enriquez vs. Sun Life Assurance Co. of Canada, 41 Phil. 269)

Binding Receipt

A mere acknowledgment on behalf of the company that its branch office had received from the
applicant the

insurance premium and had accepted the application subject to processing by the head office.

Cover Note (Ad Interim)

A concise and temporary written contract issued to the insurer through its duly authorized agent
embodying

the principal terms of an expected policy of insurance.

Purpose: It is intended to give temporary insurance protection coverage to the applicant pending the

acceptance or rejection of his application.

Duration: Not exceeding 60 days unless a longer period is approved by Insurance Commissioner (Sec.
52).

Riders

Printed stipulations usually attached to the policy because they constitute additional stipulations
between

the parties. (Ang Giok Chip vs. Springfield, 56 Phil. 275)

In case of conflict between a rider and the printed stipulations in the policy, the rider prevails, as being
a

more deliberate expression of the agreement of the contracting parties. (C. Alvendia, The Law of
Insurance in

the Philippines, 1968 ed.)

Clauses

An agreement between the insurer and the insured on certain matter relating to the liability of the
insurer in
case of loss. (Prof. De Leon, p.188)

Endorsements

Any provision added to the contract altering its scope or application. (Prof. De Leon, p.188)

POLICY OF INSURANCE

The written instrument in which a contract of insurance is set forth. (Sec. 49)

Contents: (Sec. 51)

1. Parties

2. Amount of insurance, except in open or running policies;

3. Rate of premium;

4. Property or life insured;

5. Interest of the insured in the property if he is not the absolute owner;

6. Risk insured against; and

7. Duration of the insurance.

Persons entitled to recover on the policy (sec. 53): The insurance proceeds shall be applied exclusively

to the proper interest of the person in whose name or to whose benefit it is made, unless otherwise
specified in

the policy.

Kinds:

1. OPEN POLICY value of thing insured is not agreed upon, but left to be ascertained in case of loss.
(Sec.

60)

The actual loss, as determined, will represent the total indemnity due the insured from the insurer

except only that the total indemnity shall not exceed the face value of the policy. (Development
Insurance

Corp. vs. IAC, 143 SCRA 62)

2. VALUED POLICY definite valuation of the property insured is agreed by both parties, and written on
the

face of policy. (Sec. 61)

In the absence of fraud or mistake, the agreed valuation will be paid in case of total loss of the

property, unless the insurance is for a lower amount.

3. RUNNING POLICY contemplates successive insurances and which provides that the object of the
policy

may from time to time be defined (Sec. 62)

V. TYPES OF INSURANCE CONTRACTS

1. Life insurance

a. Individual life (Secs. 179183, 227)

b. Group life (Secs. 50, last par., 228)

c. Industrial life (Secs. 229231)

2. Non-life insurance

a. Marine (Secs. 99166)

b. Fire (Secs. 167173)

c. Casualty (Sec. 174)

3. Contracts of bonding or suretyship (Secs. 175178)

Note:

1. Health and accident insurance are either covered under life (Sec. 180) or casualty insurance. (Sec.
174).

2. Marine, fire, and the property aspect of casualty insurance are also referred to as property insurance.

VI. PARTIES TO INSURANCE CONTRACT

1. Insurer - Person who undertakes to indemnify another.

For a person to be called an insurance agent, it is necessary that he should perform the function for

compensation. (Aisporna vs. CA, 113 SCRA 459)

2. Insured - The party to be indemnified upon the occurrence of the loss. He must have capacity to
contract,

must possess an insurable interest in the subject of the insurance and must not be a public enemy.

A public enemy- a nation with whom the Philippines is at war and it includes every citizen or subject

of such nation.

3. Beneficiary - A person designated to receive proceeds of policy when risk attaches.

Rules in the designation of the beneficiary:

a. LIFE

i. A person who insures his own life can designate any person as his beneficiary, whether or not the

beneficiary has an insurable interest in the life of the insured subject to the limitations under Art.

739 and Art. 2012 of the NCC.

Reason: in essence, a life insurance policy is no different form a civil donation insofar as the

beneficiary is concerned. Both are founded on the same consideration of liberality. (Insular Life

vs. Ebrado, 80 SCRA 181)

ii. A person who insures the life of another person and name himself as the beneficiary must have

an insurable interest in such life. (Sec. 10)

iii. As a general rule, the designation of a beneficiary is revocable unless the insured expressly

waived the right to revoke in the policy. (Sec. 11)

iv. The interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary is the

principal accomplice or accessory in willfully bringing about the death of the insured in which event, the

nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified.

(Sec. 12)

b. PROPERTY

The beneficiary of property insurance must have an insurable interest in such property, which must

exist not only at the time the policy takes effect but also when the loss occurs. (Sec. 13 and 18).

Effects of Irrevocable Designation Of Beneficiary

Insured cannot:

1. Assign the policy

2. Take the cash surrender value of the policy

3. Allow his creditors to attach or execute on the policy;

4. Add new beneficiary; or

5. Change the irrevocable designation to revocable, even though the change is just and reasonable.

The insured does not even retain the power to destroy the contract by refusing to pay the premiums
for the

beneficiary can protect his interest by paying such premiums for he has an interest in the fulfillment of
the

obligation. (Vance, p. 665, cited in de Leon, p. 101, 2002 ed.)

VII. INSURABLE INTEREST

A. In General

A person has an insurable interest in the subject matter if he is so connected, so situated, so

circumstanced,

so related, that by the preservation of the same he shall derive pecuniary benefit, and by its destruction
he

shall suffer pecuniary loss, damage or prejudice.

B. Life

Every person has an insurable interest in the life and health:

a. of himself, of his spouse and of his children;

b. of any person on whom he depends wholly or in part for education or support;

c. of any person under a legal obligation to him to pay money or respecting property or services, of

which death or illness might delay or prevent performance; and

d. of any person upon whose life any estate or interest vested in him depends. (Sec. 10)

When it should exist: When the insurance takes effect; not thereafter or when the loss occurs.
Amount:

GENERAL RULE: There is no limit in the amount the insured can insure his life.

EXCEPTION: In a creditor-debtor relationship where the creditor insures the life of his debtor, the limit
of

insurable interest is equal to the amount of the debt.

Note: If at the time of the death of the debtor the whole debt has already been paid, the creditor can no

longer recover on the policy because the principle of indemnity applies.

C. Property

Every interest in property whether real or personal, or any relation thereto, or liability in respect
thereof, of

such nature that the contemplated peril might directly damnify the insured (Sec. 13), which may consist
in:

1. an existing interest;

2. any inchoate interest founded on an existing interest; or

3. an expectancy coupled with an existing interest in that out of which the expectancy arises. (Sec.

14)

When it should exist: When the insurance takes effect and when the loss occurs, but need not exist in
the

meantime.

Amount: The measure of insurable interest in property is the extent to which the insured might be

damnified by loss or injury thereof. (Sec. 17)

INSURABLE INTEREST IN LIFE INSURABLE INTEREST IN

PROPERTY

Must exist only at the time the policy takes effect and need not exist

at the time of loss

Must exist at the time the policy takes

effect and when the loss occurs

Unlimited except in life insurance effected by creditor on life of

debtor.

Limited to actual value of interest in

property insured.

The expectation of benefit to be derived from the continued

existence of life need not have any legal basis whatever. A

reasonable probability is sufficient without more.

An expectation of a benefit to be

derived from the continued existence

of the property insured must have a

legal basis.

The beneficiary need not have an insurable interest over the life of

the insured if the insured himself secured the policy. However, if the

life insurance was obtained by the beneficiary, the latter must have

insurable interest over the life of the insured.

The beneficiary must have insurable

interest over the thing insured.

SPECIAL CASES

1. In case of a carrier or depositary

A carrier or depository of any kind has an insurable interest in a thing held by him as such, to the extent
of

his liability but not to exceed the value thereof (Sec. 15)

2. In case of a mortgaged property

The mortgagor and mortgagee each have an insurable interest in the property mortgaged and this
interest

is separate and distinct from the other.

a. Mortgagor As owner, has an insurable interest therein to the extent of its value, even though the

mortgage debt equals such value. The reason is that the loss or destruction of the property insured will
not

extinguish the mortgage debt.

b. Mortgagee His interest is only up to the extent of the debt. Such interest continues until the
mortgage

debt is extinguished.

The lessor cannot be validly a beneficiary of a fire insurance policy taken by a lessee over his
merchandise,

and the provision in the lease contract providing for such automatic assignment is void for being
contrary to

law and public policy. (Cha vs. Court of Appeals, 227 SCRA 690)

STANDARD OR UNION MORTGAGE

CLAUSE

OPEN OR LOSS PAYABLE MORTGAGE CLAUSE

Subsequent acts of the mortgagor cannot

affect the rights of the assignee

Acts of the mortgagor affect the mortgagee. Reason: Mortgagor

does not cease to be a party to the contract. (Secs. 8 and 9)

Effects of Loss Payable Clause

a. The contract is deemed to be upon the interest of the mortgagor; hence, he does not cease to be a
party to

the contract.

b. Any act of the mortgagor prior to the loss, which would otherwise avoid the insurance affects the
mortgagee

even if the property is in the hands of the mortgagee.

c. Any act, which under the contract of insurance is to be performed by the mortgagor, may be
performed by

the mortgagee with the same effect.

d. In case of loss, the mortgagee is entitled to the proceeds to the extent of his credit.

e. Upon recovery by the mortgagee to the extent of his credit, the debt is extinguished.

In case a mortgagee insures his own interest and a loss occurs, he is entitled to the proceeds of the

insurance but he is not allowed to retain his claim against the mortgagor as the claim is discharged but it

passes by subrogation to the insurer to the extent of the money paid by such insurer. (Palileo vs. Cosio)

VIII. RISK

What may be insured against:

1. Future contingent event resulting in loss or damage Ex. Possible future fire

2. Past unknown event resulting in loss or damage Ex. Fact of past sinking of a vessel unknown to the

parties

3. Contingent liability Ex. Reinsurance

IX. PREMIUM PAYMENTS

Consideration paid an insurer for undertaking to indemnify the insured against a specified peril.

Basis of the right of the insurer to collect premiums: Assumption of risk.

GENERAL RULE: No policy issued by an insurance company is valid and binding until actual payment of

premium. Any agreement to the contrary is void. (Sec. 77)

EXCEPTIONS:

1. In case of life or industrial life insurance, when the grace periods applies; (Sec. 77)

2. When the insurer makes a written acknowledgment of the receipt premium; (Sec. 78)

3. Section 77 may not apply if the parties have agreed to the payment of the premium in installments
and

partial payment has been made at the time of the loss. (Makati Tuscany Condominium Corp. v. CA, 215

SCRA 462)
4. Where a credit term has been agreed upon. (UCPB vs. Masagana Telemart, 308 SCRA 259)

5. Where the parties are barred by estoppel. (UCPB vs. Maagana Telemart, 356 SCRA 307)

Section 77 merely precludes the parties from stipulating that the policy is valid even if the premiums
are not

paid. (Makati Tuscany Condominium Corp. v. CA, 215 SCRA 462)

Effect of Acknowledgment of Receipt of Premium in Policy: Conclusive evidence of its payment, so far as

to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the

premium is actually paid. (Sec. 78)

ENTITLEMENT OF INSURED TO RETURN OF PREMIUMS PAID

A. Whole:

1. If the thing insured was never exposed to the risks insured against; (Sec. 79)

2. If contract is voidable due to the fraud or misrepresentation of insurer or his agents; (Sec.

81)

3. If contract is voidable because of the existence of facts of which the insured was ignorant

without his fault; (Sec. 81)

4. When by any default of the insured other than actual fraud, the insurer never incurred

liability; (Sec. 81)

5. When rescission is granted due to the insurers breach of contract. (Sec. 74)

B. Pro rata:

1. When the insurance is for a definite period and the insured surrenders his policy before the

termination thereof;

Exceptions:

a. policy not made for a definite period of time

b. short period rate is agreed upon

c. life insurance policy

2. When there is over-insurance (Sec. 82);

Instances when premiums are not recoverable:

1. When the risk has already attached and the risk is entire and indivisible.

2. In life insurance.

3. When the contract is rescindable or rendered void ab initio by the fraud of the insured.

4. When the contract is illegal and the parties are in pari delicto.

PREMIUM ASSESSMENT

Levied and paid to meet anticipated losses. Collected to meet actual losses.

Payment is not enforceable against

the insured.

Payment is enforceable once

levied unless otherwise agreed upon.

Not a debt. It becomes a debt once properly levied unless otherwise agreed.

X. TRANSFER OF POLICY

1. Life Insurance

It can be transferred even without the consent of the insurer except when there is a stipulation
requiring the

consent of the insurer before transfer. (Sec. 181)

Reason: The policy does not represent a personal agreement between the insured and the insurer.

2. Property insurance

It cannot be transferred without the consent of the insurer.

Reason: The insurer approved the policy based on the personal qualification and the insurable interest
of the

insured.

3. Casualty insurance

It cannot be transferred without the consent of the insurer. (Paterson cited in de Leon p. 82)
Reason: The moral hazards are as great as those of property insurance.

CHANGE OF INTEREST IN THE THING INSURED

The mere (absolute) transfer of the thing insured does not transfer the policy, but suspends it until the
same

person becomes the owner of both the policy and the thing insured. (Sec. 58)

Reason: Insurance contract is personal.

GENERAL RULE: A change of interest in any part of a thing insured unaccompanied by a corresponding

change of interest in the insurance suspends the insurance to an equivalent extent, until the interests in
the

thing and the interest in the insurance are vested in the same person. (Sec. 20)

EXCEPTIONS:

1. In life, health and accident insurance.(Sec. 20);

2. Change in interest in the thing insured after occurrence of an injury which results in a loss.

(Sec. 21);

3. Change in interest in one or more of several distinct things separately insured by one policy.

(Sec. 22);

4. Change of interest, by will or succession, on the death of the insured. (Sec. 23);

5. Transfer of interest by one of several partners, joint owners, or owners in common, who are

jointly insured, to others. (Sec. 24);

6. When a policy is so framed that it will inure to the benefit of whomsoever, during the

continuance of the risk, may become the owner of the interest insured. (Sec. 57);

7. When there is an express prohibition against alienation in the policy, in case of alienation, the

contract of insurance is not merely suspended but avoided. (Art. 1306, NCC).

XI. ASCERTAINMENT AND CONTROL OF RISK AND LOSS

A. Four Primary Concerns of the Parties:

1. Correct estimation of the risk;

2. Precise delimitation of the risk;

3. Control of the risk;

4. Determining whether a loss occurred and if so, the amount of such loss.

B. Devices used for ascertaining and controlling risk and loss:

1. Concealment A neglect to communicate that which a party knows and ought to communicate (Sec.
26)

Requisites:

a. A party knows a fact which he neglects to communicate or disclose to the other.

b. Such party concealing is duty bound to disclose such fact to the other.

c. Such party concealing makes no warranty as to the fact concealed.

d. The other party has not the means of ascertaining the fact concealed.

e. Material

Effects: Entitles insurer to rescind, even if the death or loss is due to a cause not related to the
concealed

matter (Sec. 27).

Note: Good Faith is not a defense in concealment. Sec. 27 clearly provides that, the concealment
whether

intentional or unintentional entitles the injured party to rescind the contract of insurance.

Test of Materiality: Determined not by the event, but solely by the probable and reasonable influence of
the

facts upon the party to whom the communication is due, in forming his estimate of the advantages of
the

proposed contract, or in making his inquiries (Sec. 31).

Exception to Sec. 31:

a. Incontestability clause

b. Matters under Sec.110 (marine insurance)

 The waiver of medical examination in a non-medical insurance contract renders even more material
the

information required of the applicant concerning the previous conditions of health and diseases
suffered.

(Sunlife v. Sps. Bacani, 246 SCRA 268).

The right to information of material facts may be waived, either by the terms of the insurance or by
neglect

to make inquiries as to such facts where they are distinctly implied in other facts of which information is

communicated. (Sec.33)

Where matters of opinion or judgment are called for, answers made in good faith and without intent
to

deceive will not avoid the policy even though they are untrue. Reason: The insurer cannot rely on those

statements. He must make further inquiry. (Philamcare Health Systems vs. CA, G.R. No. 125678, March
18,

2002).

2. Representations Factual statements made by the insured at the time of, or prior to, the issuance of
the

policy to give information to the insurer and induce him to enter into the insurance contract. They are

considered an active form of concealment.

Requisites of a false representation (misrepresentation):

a. The insured stated a fact which is untrue.

b. Such fact was stated with knowledge that it is untrue and with intent to deceive or which he states

positively as true without knowing it to be true and which has a tendency to mislead.

c. Such fact in either case is material to the risk.

Characteristics:

a. It is not a part of the contract but merely a collateral inducement to it.

b. It may be oral or written.

c. It is made at the same time of issuing the policy or before but not after.
d. It may be altered or withdrawn before the insurance is effected but not afterwards.

e. It always refers to the date the contract goes into effect.

Kinds:

a. AFFIRMATIVE affirmation of a fact when the contract begins; and

b. PROMISSORY promise to be performed after policy was issued.

Effect of Misrepresentation: the injured party is entitled to rescind from the time when the
representation

becomes false.

Test of Materiality: Same as that in concealment.

Where the insured merely signed the application form and made the agent of the insurer fill the same
for

him, it was held that by doing so, the insured made the agent of the insurer his own agent and he was

responsible for his acts for that purpose. (Insular Life Assur. Co. vs. Feliciano, 74 Phil. 469)

3. Warranties Statement or promise by the insured set forth in the policy or by reference incorporated

therein, the untruth or non-fulfillment of which in any respect, and without reference to whether
insurer was in

fact prejudiced by such untruth or non-fulfillment, renders the policy voidable by the insurer.

Purpose: To eliminate potentially increasing hazards which may either be due to the acts of the insured
or to

the change to the condition of the property.

Kinds:

a. EXPRESS an agreement expressed in a policy whereby the insured stipulates that certain facts
relating to

the risk are or shall be true, or certain acts relating to the same subject have been or shall be done.

b. IMPLIED - it is deemed included in the contract although not expressly mentioned. Example: In marine

insurance, seaworthiness of the vessel.

Effects of breach of warranty:

a. Material

GENERAL RULE: Violation of material warranty or of a material provision of a policy will entitle the
other

party to rescind the contract. (Sec. 74)

EXCEPTIONS:

a. Loss occurs before the time of performance of the warranty.

b. The performances becomes unlawful at the place of the contract.

c. Performance becomes impossible. (Sec. 73)

b. Immaterial (ex. Other insurance clause)

GENERAL RULE: It will not avoid the policy.

EXCEPTION: When the policy expressly provides or declares that a violation thereof will avoid it. (Sec.
75)

WARRANTY REPRESENTATION

Part of the contract Mere collateral inducement

Written on the policy, actually or by

reference

May be written in the policy or may be oral.

Presumed material Must be proved to be material

Must be strictly complied with Requires only substantial truth and compliance

4. Conditions Events signifying in its broadest sense either an occurrence or a non-occurrence that
alters

the previously existing legal relations of the parties to the contract. They may be conditions precedent
or

conditions subsequent.

Effect of breach:

a. Condition precedent prevents the accrual of cause of action

b. Condition subsequent avoids the policy or entitles the insurer to rescind

The insurer may also protect himself against fraudulent claims of loss and this he attempts to do by

inserting in the policy various conditions which take the form of conditions precedent. For instance,
there are

conditions requiring immediate notice of loss or injury and detailed proofs of loss within a limited
period.

5. Exceptions Provisions that may specify excepted perils. It makes more definite the coverage
indicated by

the general description of the risk by excluding certain specified risk that otherwise would be included
under

the general language describing the risks assumed.

Effect: Limit the coverage of the contract.

RESCISSION

Grounds:

A. Concealment

B. Misrepresentation

C. Breach of material warranty

D. Breach of a condition subsequent

Waiver of the right to rescind: Acceptance of premium payments despite the knowledge of the ground
for

rescission. (Sec. 45)

Limitations on the right of the insurer to rescind:

1. Non-life such right must be exercised prior to the commencement of an action on the contract;

2. Life such right must be availed of during the first two years from the date of issue of policy or its last

reinstatement; prior to incontestability. (Sec. 48)

CANCELLATION OF NON-LIFE INSURANCE POLICY

Right of the insurer to abandon the contract on the occurrence of certain grounds after the effectivity
date of
a non-life policy.

Grounds:

1. Non-payment of premium;

2. Conviction of a crime out of acts increasing the hazard insured against;

3. Discovery of fraud or material misrepresentation;

4. Discovery of willful or reckless acts of omissions increasing the hazard insured against;

5. Physical changes in property making the property uninsurable; and

6. Determination by the Insurance Commissioner that the continuation of the policy would violate the

Insurance Code. (Sec. 64)

Requirements:

1. Prior notice of cancellation to the insured;

2. Notice must be in writing, mailed or delivered to the named insured at the address shown in the

policy;

3. Notice must state which of the grounds set forth in Sec. 64 is relied upon and upon request of the

insured, the insurer must furnish facts on which the cancellation is based;

4. Grounds should have existed after the effectivity date of the policy.

XII. INCONTESTABILITY CLAUSE

Clause in life insurance policy that stipulates that the policy shall be incontestable after a stated period.

Requisites:

1. Life insurance policy

2. Payable on the death of the insured

3. It has been in force during the lifetime of the insured for a period of at least two years from the date
of its

issue or of its last reinstatement

Note: The period of 2 years may be shortened but it cannot be extended by stipulation.
 Incontestability only deprives the insurer of those defenses which arise in connection with the
formation and

operation of the policy prior to loss. (Prof. De Leon, p. 173 citing Wyatt and Wyatt, p. 878)

BARRED DEFENSES

OF THE INSURER

DEFENSES NOT BARRED

1. Policy is void ab initio

2. Policy is rescindable by reason of the

fraudulent concealment or misrepresentation

of the insured or his agent

1. That the person taking the insurance lacked insurable

interest as required by law;

2. That the cause of the death of the insured is an

excepted risk;

3. That the premiums have not been paid (Secs. 77,

227[b], 228[b], 230[b]);

4. That the conditions of the policy relating to military or

naval service have been violated (Secs. 227[b],

228[b]);

5. That the fraud is of a particularly vicious type;

6. That the beneficiary failed to furnish proof of death or

to comply with any condition imposed by the policy

after the loss has happened; or

7. That the action was not brought within the time

specified.

XIII.
A. OVER-INSURANCE results when the insured insures the same property for an amount greater than
the

value of the property with the same insurance company.

Effect in case of loss:

1. The insurer is bound only to pay to the extent of the real value of the property lost;

2. The insured is entitled to recover the amount of premium corresponding to the excess in value of the

property;

B. DOUBLE INSURANCE exists where same person is insured by several insurers separately in respect
to

same subject and interest. (Sec. 93)

Requisites:

1. Person insured is the same;

2. Two or more insurers insuring separately;

3. Subject matter is the same;

4. Interest insured is also the same;

5. Risk or peril insured against is likewise the same.

Effects: Where double insurance is allowed, but over insurance results: (Sec. 94)

1. The insured, unless the policy otherwise provides, may claim payment from

the insurers in such order as he may select, up to the amount for which the insurers are severally liable

under their respective contracts;

2. Where the policy under which the insured claims is a valued policy, the

insured must give credit as against the valuation for any sum received by him under any other policy

without regard to the actual value of the subject matter insured;

3. Where the policy under which the insured claims is an unvalued policy he

must give credit, as against the full insurable value, for any sum received by him under any policy;

4. Where the insured receives any sum in excess of the valuation in the case
of valued policies, or of the insurable value in the case of unvalued policies, he must hold such sum in

trust for the insurers, according to their right of contribution among themselves;

5. Each insurer is bound, as between himself and the other insurers, to

contribute ratably to the loss in proportion to the amount for which he is liable under his contract.

Additional or Other Insurance Clause

A condition in the policy requiring the insured to inform the insurer of any other insurance coverage of
the

property insured. It is lawful and specifically allowed under Sec. 75 which provides that (a) policy may
declare

that a violation of a specified provision thereof shall avoid it, otherwise the breach of an immaterial
provision

does not avoid it.

A stipulation against double insurance.

Purposes:

1. To prevent an increase in the moral hazard

2. To prevent over-insurance and fraud.

To constitute a violation of the clause, there should have been double insurance.

C. REINSURANCE a contract by which the insurer procures a third person to insure him against loss or

liability by reason of an original insurance (also known as Reinsurance Cession). (Sec. 95)

In every reinsurance, the original contract of insurance and the contract of reinsurance are covered
by

separate policies.

DOUBLE INSURANCE REINSURANCE

Involves the same interest Involves different interest

Insurer remains in such capacity Insurer becomes the insured in relation to reinsurer

Insured is the party in interest in the 2

contracts

Original insured has no interest in the reinsurance contract.

Subject of insurance is property Subject of insurance is the original insurers risk

Insured has to give his consent Insureds consent not necessary

TERMS:

1. Reinsurance treaty Merely an agreement between two insurance companies whereby one agrees to

cede and the other to accept reinsurance business pursuant to provisions specified in the treaty. (Prof.
De

Leon, p. 306)

2. Automatic reinsurance The reinsured is bound to cede and the reinsurer is obligated to accept a
fixed

share of the risk which has to be reinsured under the contract. (Prof. De Leon, p. 305)

3. Facultative reinsurance There is no obligation to cede or accept participation in the risk each party

having a free choice. But once the share is accepted, the obligation is absolute and the liability
thereunder can

be discharged only by payment. (Equitable Ins. & Casualty Co. vs. Rural Ins. & Surety Co., Inc. 4 SCRA
343)

4. Retrocession A transaction whereby the reinsurer in turn, passes to another insurer a portion of the
risk

reinsured. It is really the reinsurance of reinsurance. (Prof. De Leon, p. 305)

XIV.

A. LOSS, IN INSURANCE

Injury or damage sustained by the insured in consequence of the happening of one or more of the
accidents

or misfortune against which the insurer, in consideration of the premium, has undertaken to indemnify
the

insured. (Bonifacio Bros. Inc. vs. Mora, 20 SCRA 261)

Loss for which insurer is liable Loss for which insurer is

not liable

1. Loss the proximate cause of which is the peril insured against (Sec. 84);

2. Loss the immediate cause of which is the peril insured against except

where proximate cause is an excepted peril;

3. Loss through negligence of insured except where there was gross

negligence amounting to willful acts; and

4. Loss caused by efforts to rescue the thing from peril insured against;

5. If during the course of rescue, the thing is exposed to a peril not insured

against, which permanently deprives the insured of its possession, in

whole or in part (Sec. 85).

1. Loss by insureds willful

act;

2. Loss due to connivance of

the insured (Sec. 87);

and

3. Loss where the excepted

peril is the proximate

cause.

Proximate Cause An event that sets all other events in motion without any intervening or independent

case, without which the injury or loss would not have occurred.

REQUISITES FOR RECOVERY UPON INSURANCE

1. The insured must have insurable interest in the subject matter;

2. That interest is covered by the policy;

3. There must be a loss; and

4. The loss must be proximately caused by the peril insured against.

NOTICE OF LOSS

In fire insurance In other types of insurance

Required Not required

10

Failure to give notice will defeat the

right of the insured to recover.

Failure to give notice will not exonerate the insurer, unless there is

a stipulation in the policy requiring the insured to do so.

B. CLAIMS SETTLEMENT

The indemnification of the loss of the insured.

TIME FOR PAYMENT OF CLAIMS

LIFE POLICIES

NON-LIFE POLICIES

a. Maturing upon the expiration of the term

The proceeds are immediately payable to the

insured, unless they are made payable in

installments or as annuity, in which case, the

installments or annuities shall be paid as they

become due.

b. Maturing at the death of the insured,

occurring prior to the expiration of the term

stipulated The proceeds are payable to the

beneficiaries within 60 days after presentation

and filing of proof of death.

The proceeds shall be paid within 30 days after the receipt

by the insurer of proof of loss, and ascertainment of the

loss or damage by agreement of the parties or by

arbitration but not later than 90 days from such receipt of

proof of loss whether or not ascertainment is had or

made.

In case of an unreasonable delay in the payment of the insureds claim by the insurer, the insured can

recover: 1) attorneys fees; 2) expenses incurred by reason of the unreasonable withholding; 3) interest
at

double the legal interest rate fixed by the Monetary Board; and 4) the amount of the claim. (Zenith
Insurance

Corp. vs. CA, 185 SCRA 398)

XV. PRESCRIPTIVE PERIOD (Secs. 63 & 384)

Rules:

1. In the absence of an express stipulation in the policy, it being based on a written contract, the action

prescribes in 10 years.

2. However the parties may validly agree on a shorter period provided it is not less than one year from
the

time the cause of action accrues.

3. The cause of action accrues from the rejection of the claim of the insured and not from the time of
loss.

It shall commence from the denial of the claim, not from the resolution of the motion for
reconsideration,

otherwise it can be used by the insured as a scheme or device to waste time until the evidence which
may be

used against him is destroyed. (Sun Insurance Office, Ltd. v. CA, 195 SCRA)

4. In CMVLI, the written notice of claim must be filed within 6 months from the date of the accident
otherwise

the claim is deemed waived. The suit for damages either with the proper court or with the Insurance
Commissioner should be filed within 1 year from the date of the denial of the claim by the insurer,
otherwise

claimants right of action shall prescribe. (Sec. 384)

PARTICULAR KINDS OF INSURANCE CONTRACTS

XVI. MARINE INSURANCE

Insurance against risks connected with navigation, to which a ship, cargo, freightage, profits or other

insurable interest in movable property, may be exposed during a certain voyage or a fixed period of
time. (Sec.

99)

Coverage:

A.

1. Vessels, goods, freight, cargo, merchandise, profits, money, valuable papers, bottomry and
respondentia,

and interest in respect to all risks or perils of navigation;

2. Persons or property in connection with marine insurance;

3. Precious stones, jewels, jewelry and precious metals whether in the course of transportation or
otherwise;

and

4. Bridges, tunnels, piers, docks and other aids to navigation and transportation. (Sec. 99)

Cargo can be the subject of marine insurance, and once it is entered into, the implied warranty of

seaworthiness immediately attaches to whoever is insuring the cargo, whether he be the shipowner or

not. (Roque v. IAC, 139 SCRA 596)

B. Marine Protection and Indemnity Insurance

Classes of inland marine insurance: (Prof. De Leon, p. 325)

1. Property in transit provides protection to property frequently exposed to loss while it is

transportation form one location to another.

2. Bailee liability - insurance for those who have temporary custody of the goods.
3. Fixed transportation property they are so insured because they are held to be an essential

part of the transportation system such as bridges, tunnels, etc.

11

4. Floater provides insurance to follow the insured property wherever it may be located,

subject always to the territorial limits of the contract.

Insurable interest:

A.

1. Shipowner

a. Over the vessel to the extent of its value, except that if chartered, the insurance is only up to

the amount not recoverable from the charterer. (Sec. 100).

b. He also has an insurable interest on expected freightage. (Sec. 103).

c. No insurable interest if he will be compensated by charterer for the value of the vessel, in case

of loss.

2. Cargo owner

Over the cargo and expected profits (Sec. 105).

3. Charterer

Over the amount he is liable to the shipowner, if the ship is lost or damaged during the voyage

(Sec. 106).

B.

In loans on bottomry and respondentia

Repayment of the loan is subject to the condition that the vessel or goods, respectively, given as a
security,

shall arrive safely at the port of destination.

1. Owner/Debtor

Difference between the value of vessel or goods and the amount of loan. (Sec. 101)

2. Creditor/lender
Amount of the loan

Note: If a vessel is hypothecated by bottomry, only the excess is insurable, since a loan on bottomry
partakes

of the nature of an insurance coverage to the extent of the loan accommodation. The same rule would
apply to

the hypothecation of the cargo by respondentia. (Pandect of Commercial Law and Jurisprudence, Justice
Jose

Vitug, 1997 ed.)

PERILS OF THE SEA PERILS OF THE SHIP

Includes only those casualties due to

the:

1. unusual violence; or

2. extraordinary action of wind and

wave; or

3. Other extraordinary causes

connected with navigation.

A loss which in the ordinary course of events, results from the:

1. natural and inevitable action of the sea

2. ordinary wear and tear of the ship or

3. Negligent failure of the ships owner to provide the vessel with

proper equipment to convey the cargo under ordinary conditions.

Note: It is only perils of the sea which may be insured against unless perils of the ship is covered by an
all-risk

policy.

SPECIAL MARINE INSURANCE CONTRACTS AND CLAUSES

A. All Risks Policy insurance against all causes of conceivable loss or damage, except: 1) as otherwise

excluded in the policy; or 2) due to fraud or intentional misconduct on the part of the insured.
 The insured has the initial burden of proving that the cargo was in good condition when the policy
attached

and that the cargo was damaged when unloaded from the vessel; thereafter, the burden then shifts to
the

insurer to show the exception to the coverage. (Filipinas Merchants Insurance vs. Court of Appeals, 179
SCRA

638)

B. Barratry Clause

A clause which provides that there can be no recovery on the policy in case of any willful misconduct on
the

part of the master or crew in pursuance of some unlawful or fraudulent purpose without consent of
owners,

and to the prejudice of the owners interest. (Roque vs. IAC, 139 SCRA 596)

C. Inchamaree Clause

A clause which makes the insurer liable for loss or damage to the hull or machinery arising from the:

1. Negligence of the captain, engineers, etc.

2. Explosions, breakage of shafts; and

3. Latent defect of machinery or hull. (Bar Review Materials in Commercial Law, Jorge Miravite, 2002
ed.)

D. Sue and Labor Clause

A clause under which the insurer may become liable to pay the insured, in addition to the loss actually

suffered, such expenses as he may have incurred in his efforts to protect the property against a peril for
which

the insurer would have been liable. (Sec. 163)

MATTERS ALTHOUGH CONCEALED, WILL NOT VITIATE THE CONTRACT EXCEPT WHEN THEY CAUSED

THE LOSS (Sec. 110)

1. National character of the insured;

12
2. Liability of the thing insured to capture or detention;

3. Liability to seizure from breach of foreign laws;

4. Want of necessary documents; and

5. Use of false or simulated papers.

Note: This should be related to the general rule regarding material concealment.

DISTINCTIONS ON CONCEALMENT (Commercial Law Reviewer, A.F. Agbayani, 1988 ed.)

MARINE INSURANCE OTHER PROPERTY INSURANCE

The information of the belief or expectation of 3rd

persons is material and must be communicated

The information or belief of a 3rd party is not

material and need not be communicated unless it

proceeds form an agent of the insured whose duty

it is to give information

The concealment of any fact in relation to any of the

matters stated in Sec. 110 does not vitiate the entire

contract but merely exonerates the insurer from a risk

resulting from the fact concealed

Concealment of any material fact will vitiate the

entire contract, whether or not the loss results for

the risk concealed.

IMPLIED WARRANTIES

1. Seaworthiness of the ship at the inception of the insurance (Sec. 113);

2. Against improper deviation (Sec. 123, 124, 125);

3. Against illegal venture;

4. Warranty of neutrality: the ship will carry the requisite documents of nationality or neutrality of the
ship or cargo where such nationality or neutrality is expressly warranted; (Sec. 120)

5. Presence of insurable interest.

While the payment by the insurer for the insured value of the lost cargo operates as a waiver of the
insurers

right to enforce the term of the implied warranty against the assured under the marine insurance policy,
the

same cannot be validly interpreted as an automatic admission of the vessels seaworthiness by the
insurer as

to foreclose recourse against the common carrier for any liability under the contractual obligation as
such

common carrier. (Delsan Transportation Lines vs. CA, 364 SCRA 24)

Seaworthiness

A relative term depending upon the nature of the ship, voyage, service and goods, denoting in general a

ships fitness to perform the service and to encounter the ordinary perils of the voyage, contemplated
by the

parties to the policy (Sec. 114).

GENERAL RULE: The warranty of seaworthiness is complied with if the ship be seaworthy at the time
of the

commencement of the risk. Prior or subsequent unseaworthiness is not a breach of the warranty nor is
it

material that the vessel arrives in safety at the end of her voyage.

EXCEPTIONS:

1. In the case of a time policy, the ship must be seaworthy at the commencement of every voyage she
may

undertake

2. In the case of cargo policy, each vessel upon which the cargo is shipped or transshipped, must be

seaworthy at the commencement of each particular voyage

3. In the case of a voyage policy contemplating a voyage in different stages, the ship must be seaworthy
at
the commencement of each portion

Applicability of implied warranty of seaworthiness to cargo owners: It becomes the obligation of a

cargo owner to look for a reliable common carrier, which keeps its vessels in seaworthy conditions. The
shipper

may have no control over the vessel but he has control in the choice of the common carrier that will
transport

his goods (Roque v. IAC, 139 SCRA 596).

Deviation

A departure from the course of the voyage insured, or an unreasonable delay in pursuing the voyage or
the

commencement of an entirely different voyage. (Sec.123)

Instances:

1. Departure of vessel from the course of the sailing fixed by mercantile usage

2. Departure of vessel from the most natural, direct and advantageous route if not fixed by mercantile

usage

3. Unreasonable delay in pursuing voyage

4. Commencement of an entirely different voyage (Secs. 121-123)

Kinds:

1. Proper -

a. When caused by circumstances outside the control of the ship captain or ship owner;

b. When necessary to comply with a warranty or to avoid a peril;

c. When made in good faith to avoid a peril;

d. When made in good faith to save human life or to relieve another vessel in distress (Sec. 124)

Effect: In case of loss, the insurer is still liable.

2. Improper - Every deviation not specified in Sec. 124 (Sec. 125).

13

Effect: In case of loss or damage, the insurer is not liable. (Sec. 126)
LOSS

1. Total:

a. Actual -

i. Total destruction;

ii. Irretrievable loss by sinking;

iii. Damage rendering the thing valueless; or

iv. Total deprivation of owner of possession of thing insured. (Sec. 130)

b. Constructive -

i. Actual loss of more than of the value of the object;

ii. Damage reducing value by more than of the value of the vessel and of cargo; and

iii. Expense of transshipment exceed of value of cargo. (Sec. 131, in relation to Sec. 139)

In case of constructive total loss, insured may:

1. Abandon goods or vessel to the insurer and claim for whole insured value (Sec. 139), or

2. Without abandoning vessel, claim for partial actual loss. (Sec. 155)

2. Partial: That which is not total (Sec. 128).

AVERAGE

Any extraordinary or accidental expense incurred during the voyage for the preservation of the vessel,

cargo, or both, and all damages to the vessel and cargo from the time it is loaded and the voyage
commenced

until it ends and the cargo unloaded.

GENERAL PARTICULAR

Has inured to the common benefit and profit of all

persons interested in the vessel and cargo

Has not inured to the common benefit and profit of all

persons interested in the vessel and her cargo.

To be borne equally by all of the interests

concerned in the venture.

To be borne alone by the owner of the cargo or the

vessel, as the case may be.

Requisites for the right to claim contribution:

1. Common danger to the vessel or cargo;

2. Part of the vessel or cargo was sacrificed

deliberately;

3. Sacrifice must be for the common safety

or for the benefit of all;

4. Sacrifice must be made by the master or

upon his authority;

5. It must be not be caused by any fault of

the party asking the contribution;

6. It must be successful, i.e. resulted in the

saving of the vessel or cargo; and

Necessary.

RIGHT OF INSURED IN CASE OF GENERAL AVERAGE

GENERAL RULE: The insured may either hold the insurer directly liable for the whole of the insured
value of

the property sacrificed for the general benefit, subrogating him to his own right of contribution or
demand

contribution from the other interested parties as soon as the vessel arrives at her destination

EXCEPTIONS:

1. After the separation of interests liable to contribution

2. When the insured has neglected or waived his right to contribution

FPA Clause (Free From Particular Average)

A clause agreed upon in a policy of marine insurance in which it is stated that the insurer shall not be
liable

for a particular average, such insurer shall be free therefrom, but he shall continue to be liable for his

proportion of all general average losses assessed upon the thing insured. (Sec. 136)

ABANDONMENT

The act of the insured by which, after a constructive total loss, he declared the relinquishment to the
insurer

of his interest in the thing insured. (Sec. 138)

Requisites for validity:

1. There must be an actual relinquishment by the person insured of his interest in the thing insured (Sec.

138);

2. There must be a constructive total loss (Sec. 139);

3. The abandonment be neither partial nor conditional (Sec. 140);

4. It must be made within a reasonable time after receipt of reliable information of the loss (Sec. 141);

5. It must be factual (Sec. 142);

6. It must be made by giving notice thereof to the insurer which may be done orally or in writing (Sec.
143);

and

14

7. The notice of abandonment must be explicit and must specify the particular cause of the
abandonment

(Sec. 144).

Effects:

1. It is equivalent to a transfer by the insured of his interest to the insurer with all the chances of
recovery

and indemnity (Transfer of Interest)(Sec.146)

2. Acts done in good faith by those who were agents of the insured in respect to the thing insured,
subsequent to the loss, are at the risk of the insurer and for his benefit. (Transfer Of Agency)(Sec.148)

If an insurer refuses to accept a valid abandonment, he is liable upon an actual total loss, deducting
form

the amount any proceeds of the thing insured which may have come to the hands of the insured.
(Sec.154)

CO-INSURANCE

A marine insurer is liable upon a partial loss, only for such proportion of the amount insured by him as
the

loss bears to the value of the whole interest of the insured in the property insured. (Sec. 157)

When the property is insured for less than its value, the insured is considered a co-insurer of the
difference

between the amount of insurance and the value of the property.

Requisites:

1. The loss is partial;

2. The amount of insurance is less than the value of the property insured.

Rules:

1. Co-insurance applies only to marine insurance

2. Logically, there cannot be co-insurance in life insurance.

3. Co-insurance applies in fire insurance when expressly provided for by the parties.

CO-INSURANCE REINSURANCE

A percentage in the value of the insured property which the

insured himself assumes to act as insurer to the extent of the

deficiency in the insurance of the insured property. In case of

loss or damage, the insurer will be liable only for such

proportion of the loss or damage as the amount of the

insurance bears to the designated percentage of the full

value of the property insured. (Bar Review Materials in

Commercial Law, Jorge Miravite, 2002 ed.)

Situation where the insurer procures a 3rd

party called the reinsurer to insure him against

liability by reason of an original insurance.

Basically, reinsurance is an insurance against

liability which the original insurer may incur in

favor of the original insured.

XVII. FIRE INSURANCE

A contract by which the insurer for a consideration agrees to indemnify the insured against loss of, or

damage to, property by hostile fire, including loss by lightning, windstorm, tornado or earthquake and
other

allied risks, when such risks are covered by extension to fire insurance policies or under separate
policies.

(Sec. 167)

Prerequisites to recovery:

1. Notice of loss must be immediately given, unless delay is waived expressly or impliedly by the
insurer

2. Proof of loss according to best evidence obtainable. Delay may also be waived expressly or impliedly
by

the insurer

HOSTILE FIRE FRIENDLY FIRE

One that escapes from the place where it was intended

to burn and ought to be.

One that burns in a place where it was intended to

burn and ought to be

Insurer is liable Insurer is not liable

Measure of Indemnity
1. Open policy: only the expense necessary to replace the thing lost or injured in the condition it was at
the

time of the injury

2. Valued policy: the parties are bound by the valuation, in the absence of fraud or mistake

Note: It is very crucial to determine whether a marine vessel is covered by a marine insurance or fire

insurance. The determination is important for 2 reasons:

1. Rules on constructive total loss and abandonment applies only to marine insurance;

2. Rule on co-insurance applies primarily to marine insurance;

3. Rule on co-insurance applies to fire insurance only if expressly agreed upon. (Commercial

Law Reviewer, Aguedo Agbayani, 1988 ed.)

15

ALTERATION AS A SPECIAL GROUND FOR RESCISSION BY INSURER

Requisites:

1. The use or condition of the thing is specifically limited or stipulated in the policy;

2. Such use or condition as limited by the policy is altered;

3. The alteration is made without the consent of the insurer;

4. The alteration is made by means within the control of the insured;

5. The alteration increases the risk; (Sec. 168) and

6. There must be a violation of a policy provision. (Sec. 170)

Fall-of-building clause

A clause in a fire insurance policy that if the building or any part thereof falls, except as a result of fire,
all

insurance by the policy shall immediately cease.

Option to rebuild clause

A clause giving the insurer the option to reinstate or replace the property damaged or destroyed or any
part

thereof, instead of paying the amount of the loss or the damage.

 The insurer, after electing to rebuild, cannot be compelled to perform this undertaking by specific

performance because this is an obligation to do, not to give. Remedy: Art. 1167, NCC.

XVIII. CASUALTY OR ACCIDENT INSURANCE

Insurance covering loss or liability arising from accident or mishap, excluding those falling under other
types

of insurance such as fire or marine. (Sec. 174)

Classifications:

1. Insurance against specified perils which may affect the person and/or property of the insured.
(accident or

health insurance)

Examples: personal accident, robbery/theft insurance

2. Insurance against specified perils which may give rise to liability on the part of the insured for claims
for

injuries to or damage to property of others. (third party liability insurance)

Insurable interest is based on the interest of the insured in the safety of persons, and their property,
who

may maintain an action against him in case of their injury or destruction, respectively.

Examples: workmens compensation, motor vehicle liability

In a third party liability (TPL) insurance contract, the insurer assumes the obligation by paying the
injured

third party to whom the insured is liable. Prior payment by the insured to the third person is not
necessary in

order that the obligation may arise. The moment the insured becomes liable to third persons, the
insured

acquires an interest in the insurance contract which may be garnished like any other credit. (Perla
Comapnia

de Seguro, Inc vs. Ramolete, 205 SCRA 487)

Aside from compulsory motor vehicle liability insurance, the Insurance Code contains no other
provisions
applicable to casualty insurance. Therefore, such casualty insurance are governed by the general
provisions

applicable to all types of insurance, and outside of such statutory provisions, the rights and obligations
of the

parties must be determined by their contract, taking into consideration its purpose and always in
accordance

with the general principles of insurance law.

In burglary, robbery and theft insurance, the opportunity to defraud the insurer the moral hazard
is so

great that insurer have found it necessary to fill up the policies with many restrictions designed to
reduce the

hazard. Persons frequently excluded are those in the insureds service and employment. The purpose of
the

exception is to guard against liability should theft be committed by one having unrestricted access to the

property. (Fortune Insurance vs. CA, 244 SCRA 208)

Right of a third party injured to sue the insurer

1. Indemnity against liability A third party injured can directly sue the insurer.

2. Indemnity for actual loss or reimbursement after actual payment by the insured A third party has no
cause

of action against the insurer (Sec. 53, Bonifacio Bros. v. Mora, 20 SCRA 261).

The insurer is not solidarily liable with the insured. The insurers liability is based on contract; that of
the

insured is based on torts. Furthermore, the insurers liability is limited by the amount of the insurance

coverage (Pan Malayan Insurance Corporation v. CA, 184 SCRA 54).

INTENTIONAL vs. ACCIDENTAL AS USED IN INSURANCE POLICIES

1. Intentional Implies the exercise of the reasoning faculties, consciousness and volition. Where a
provision

of the policy excludes intentional injury, it is the intention of the person inflicting the injury that is
controlling.
If the injuries suffered by the insured clearly resulted from the intentional act of the third person, the
insurer is

relieve from liability as stipulated. (Biagtan v. the Insular Life Assurance Co. Ltd., 44 SCRA 58, 1972)

2. Accidental That which happens by chance or fortuitously, without intention or design, which is
unexpected,

unusual and unforeseen.

NO ACTION CLAUSE

A requirement in a policy of liability insurance which provides that suit and final judgment be first
obtained

against the insured; that only thereafter can the person injured recover on the policy. (Guingon vs. Del
Monte,

20 SCRA 1043)

16

XIX. COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE (CMVLI)

A species of compulsory insurance that provides for protection coverage that will answer for legal
liability for

losses and damages for bodily injuries or property damage that may be sustained by another arising
from the

use and operation of motor vehicle by its owner.

Purpose: To give immediate financial assistance to victims of motor vehicle accidents and/or their

dependents, especially if they are poor regardless of the financial capability of motor vehicle owners or

operators responsible for the accident sustained (Shafer v. Judge, RTC, 167 SCRA 386).

Claimants/victims may be a passenger or a 3rd party

It applies to all vehicles whether public and private vehicles.

Note: It is the only compulsory insurance coverage under the Insurance Code.

Method of coverage

1. Insurance policy

2. Surety bond
3. Cash deposit

Passenger Any fare-paying person being transported and conveyed in and by a motor vehicle for

transportation of passengers for compensation, including persons expressly authorized by law or by the

vehicles operator or his agents to ride without fare. (Sec. 373[b])

Third Party Any person other than the passenger, excluding a member of the household or a member
of the

family within the second degree of consanguinity or affinity, of a motor vehicle owner or land
transportation

operator, or his employee in respect of death or bodily injury arising out of and in the course of
employment.

(Sec. 373[c])

No-Fault Clause

A clause that allows the victim (injured person or heirs of the deceased) to an option to file a claim for
death

or injury without the necessity of proving fault or negligence of any kind.

Purpose: To guarantee compensation or indemnity to injured persons in motor vehicle accidents.

Rules:

1. Total indemnity - maximum of P5,000

2. Proofs of loss -

a. Police report of accident;

b. Death certificate and evidence sufficient to establish proper payee;

c. Medical report and evidence of medical or hospital disbursement.

3. Claim may be made against one motor

vehicle only

4. Proper insurer from which to claim -

a. In case of an occupant: Insurer of the vehicle in which the occupant is riding, mounting or

dismounting from;
b. In any other case: Insurer of the directly offending vehicle. (Sec. 378)

The claimant is not free to choose from which insurer he will claim the no fault indemnity as the
law makes

it mandatory that the claim shall lie against the insurer of the vehicle in which the occupant is riding,
mounting

or dismounting from. That said vehicle might not be the one that caused the accident is of no moment
since

the law itself provides that the party paying may recover against the owner of the vehicle responsible
for the

accident. (Perla Compania de Seguros, Inc. v. Ancheta, 169 SCRA 144)

This no-fault claim does not apply to property damage. If the total indemnity claim exceeds P5,000
and

there is controversy in respect thereto, the finding of fault may be availed of by the insurer only as to
the

excess. The first P5,000 shall be paid without regard to fault. (Prof. De Leon, p. 716)

The essence of the no-fault indemnity insurance is to provide victims of vehicular accidents or their
heirs

immediate compensation although in limited amount, pending final determination of who is responsible
for the

accident and liable for the victims injuries or death. (Ibid.)

SPECIAL CLAUSES

A. Authorized Driver Clause

A clause which aims to indemnify the insured owner against loss or damage to the car but limits the use
of

the insured vehicle to the insured himself or any person who drives on his order or with his permission

(Villacorta v. Insurance Commissioner)

The requirement that the person driving the insured vehicle is permitted in accordance with the
licensing

laws or other laws or regulations to drive the motor vehicle (licensed driver) is applicable only if the
person
driving is other than the insured.

B. Theft Clause

A clause which includes theft as among the risks insured against.

Where the car is unlawfully and wrongfully taken without the owners consent or knowledge, such
taking

constitutes theft, and thus, it is the theft clause and not the authorized driver clause that should
apply

(Palermo v. Pyramids Ins., 161 SCRA 677).

17

C. Cooperation Clause

A clause which provides in essence that the insured shall give all such information and assistance as the

insurer may require, usually requiring attendance at trials or hearings.

XX. SURETYSHIP

An agreement whereby a surety guarantees the performance by the principal or obligor of an obligation
or

undertaking in favor of an obligee. (Sec. 175)

It is essentially a credit accommodation.

It is considered an insurance contract if it is executed by the surety as a vocation, and not incidentally.
(Sec.

20

When the contract is primarily drawn up by 1 party, the benefit of doubt goes to the other party

(insured/obligee) in case of an ambiguity following the rule in contracts of adhesion. Suretyship,

especially in

fidelity bonding, is thus treated like non-life insurance in some respects.

Nature of liability of surety

1. Solidary;

2. Limited to the amount of the bond;

3. It is determined strictly by the terms of the contract of suretyship in relation to the principal contract

between the obligor and the obligee. (Sec. 176)

SURETYSHIP PROPERTY INSURANCE

Accessory contract Principal contract

3 parties: surety, obligor and oblige 2 parties: insurer and insured

Credit accommodation Contract of indemnity

Surety can recover from principal Insurer has no such right; only right of subrogation

Bond can be cancelled only with consent of obligee,

Commissioner or court

May be cancelled unilaterally either by insured or insurer

on grounds provided by law

Requires acceptance of obligee to be valid No need of acceptance by any third party

Risk-shifting device; premium paid being in the

nature of a service fee

Risk-distributing device; premium paid as a ratable

contribution to a common fund

XXI. LIFE INSURANCE

Insurance on human lives and insurance appertaining thereto or connected therewith which includes
every

contract or pledge for the payment of endowments or annuities. (Sec. 179)

Kinds: (Bar Review Materials in Commercial Law, Jorge Miravite, 2002 ed.)

1. Ordinary Life, General Life or Old Line Policy - Insured pays a fixed premium every year until he dies.

Surrender value after 3 years.

2. Group Life Essentially a single insurance contract that provides coverage for many individuals.

Examples: In favor of employees, mortgage redemption insurance.

3. Limited Payment Policy insured pays premium for a limited period. If he dies within the period, his
beneficiary is paid; if he outlives the period, he does not get anything.

4. Endowment Policy pays premium for specified period. If he outlives the period, the face value of the

policy is paid to him; if not, his beneficiaries receive the benefit.

5. Term Insurance insurer pays once only, and he is insured for a specified period. If he dies within the

period, his beneficiaries benefits. If he outlives the period, no person benefits from the insurance.

6. Industrial Life - life insurance entitling the insured to pay premiums weekly, or where premiums are

payable monthly or oftener.

Mortgage Redemption Insurance

A life insurance taken pursuant to a group mortgage redemption scheme by the lender of money on the
life

of a mortgagor who, to secure the loan, mortgages the house constructed from the use of the proceeds
of the

loan, to the extent of the mortgage indebtedness such that if the mortgagor dies, the proceeds of his life

insurance will be used to pay for his indebtedness to the lender assured and the deceaseds heirs will
thereby

be relieved from paying the unpaid balance of the loan. (Great Pacific Life Assurance Corp. vs. Court of

Appeals, 316 SCRA 677)

LIABILITY OF INSURER IN CERTAIN CAUSES OF DEATH OF INSURED

1. Suicide

Insurer is liable in the following cases:

1. If committed after two years from the date of the policys issue or its last reinstatement;

2. If committed in a state of insanity regardless of the date of the commission unless suicide is an

excepted peril. (Sec. 180-A)

3. If committed after a shorter period provided in the policy

Any stipulation extending the 2-year period is null and void.

2. At the hands of the law (E.g. by legal execution)

18
It is one of the risks assumed by the insurer under a life insurance policy in the absence of a valid policy

exception. (Vance,p.572 cited in de Leon, p. 107)

Note: Justice Vitug believes that death by suicide (if the insured is sane) or at the hands of the law
obviates

against recovery as being more in consonance with public policy and as being implicit under Section 87,
ICP.

(Pandect of Commercial Law and Jurisprudence, 1997 ed. P. 191)

3. Killing by the beneficiary

GENERAL RULE: The interest of a beneficiary in a life insurance policy shall be forfeited when the
beneficiary

is the principal accomplice or accessory in willfully bringing about the death of the insured, in which
event, the

nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified.
(Sec.

12)

EXCEPTIONS:

1. Accidental killing

2. Self-defense

3. Insanity of the beneficiary at the time he killed the insured

If the premiums paid came from conjugal funds, the proceeds are considered conjugal. If the
beneficiary is

other than the insureds estate, the source of premiums would not be relevant. (Del Val v. Del Val, 29
Phil 534)

The measure of indemnity in life or health insurance policy is the sum fixed in the policy except when
a

creditor insures the life of his debtor. (Sec. 183)

IS THE CONSENT OF THE BENEFICIARY NECESSARY TO THE ASSIGNMENT OF A LIFE INSURANCE

POLICY?
It depends. If the designation of the beneficiary is irrevocable, the beneficiarys consent is essential
because

of his vested right. If the designation is revocable, the policy may be assigned without such consent
because

the beneficiary only has a mere expectancy to the proceeds. (The Insurance Code of the Philippines
Annotated,

Hector de Leon, 2002 ed.)

Cash Surrender Value

As applied to a life insurance policy, it is the amount the insured in case of default, after the payment of
at

least 3 full annual premiums, is entitled to receive if he surrenders the policy and releases his claims
upon it.

LIFE INSURANCE FIRE INSURANCE

Contract of investment not of indemnity Contract of indemnity

Valued policy Open or valued policy

May be transferred or assigned to any person even if

he has no insurable interest

The insurable interest of the transferee or assignee is

essential

Consent of insurer is not essential to validity of

assignment

Consent of insurer must be secured in the absence of

waiver

Contingency that is contemplated is a certain event,

the only uncertainty being the time when it will take

place

Contingency insured against may or may not occur

A long-term contract and cannot be cancelled by the

insurer

May be cancelled by either party and is usually for a

term of one year

Beneficiary is under no obligation to prove actual

financial loss

Insured is required to submit proof of his actual

pecuniary loss as a condition precedent to collecting

the insurance.

XXII. VARIABLE CONTRACT

Any policy or contract on either a group or individual basis issued by an insurance company providing
for

benefits or other contractual payments or values thereunder to vary so as to reflect investment results
of any

segregated portfolio of investment.

XXIII. INSURANCE COMMISSIONER

Main agency charged with the enforcement of the Insurance Code and other related laws.

Functions:

1. ADJUDICATORY/QUASI-JUDICIAL

a. Exclusive original jurisdiction Any dispute in the enforcement of any policy issued pursuant to

Chapter VI (CMVLI). (Sec. 385, par. 2)

b. Concurrent original jurisdiction (with the RTC) Where the maximum amount involved in any single

claim is P100,000 (Sec. 416), except in case of maritime insurance which is within the exclusive
jurisdiction of

the RTC. (BP 129; admiralty & maritime jurisdiction)

Where the amount exceeds P100,000, the RTC has jurisdiction.

 The Insurance Commissioner has no jurisdiction to decide the legality of a contract of agency entered
into

between an insurance company and its agent. The same is not covered by the term doing or
transacting

insurance business under Sec 2, ICP, neither is it covered by Sec. 416 of the same Code which grants
the

Commissioner adjudicatory powers (Philippine American Life Insurance Co. v. Ansaldo, 234 SCRA 509).

2. ADMINISTRATIVE/REGULATORY

19

a. Enforcement of insurance laws

b. Issuance, suspension or revocation of certificate of authority

c. Power to examine books and records, etc.

d. Rule-making authority

e. Punitive

INSURANCE CODE

(PD 1460)

Who is the officer in charged with the implementation of laws of the Insurance Code?

The officer charged is the Insurance Commissioner of the Insurance Commission

What are the Administrative functions of the Insurance Commissioner?

The Commissioner has the following functions:

A. Administrative function (CRISPFe)

1. To issue Certificate of authority to qualified insurers

2. To Regulate the sale and issuance of variable contracts, to license persons selling them and

to issue rules and regulations governing the same

3. To Issue rulings, instructions circulars, orders and decisions for the enforcement of the

provisions of the code subject to approval of the Secretary of Finance.

4. To stop the operation of an insolvent insurance company and determine within 30 days
whether to rehabilitate or liquidate the company.

5. To impose appropriate fines and Penalties on insurance companies and on their officers and

agents for refusal to comply with any order, instruction of the Commissioner , or for

mismanagement

6. To see that all insurance laws are Faithfully executed

B. Adjudicative function (Jurisdiction)

The Commissioner has the power to adjudicate claims and complaints for amounts not exceeding P100k

per claim involving:

1. Loss, damage or liability of insurer under any policy or insurance contract

2. Liability of a reinsurer

3. Liability under the contract of suretyship

4. Liability of a mutual benefit association to its members

5. Counterclaims against the insured

6. Cross-claims against a co-party

7. Third party claims by the insurer against another party.

This authority is concurrent with the courts, but filing of the complaint with the Commissioner

shall preclude the civil courts from taking cognizance.

The final order or decision of the Commissioner shall have the force and effect of a judgment, and

may be appealed to the Court of Appeals within 15 days from notice of the award judgment, or of

denial of motion for reconsideration or new trial.

The decision may be subject of a writ of execution

Claims in excess of P100k RTC

Cause of action commences from the time of the denial of his claim by the insurer, express or

implied (Sun vs. CA 195 SCRA 193)

What is a Contract of Insurance?

"Contract of Insurance" is:

- an agreement

- whereby one undertakes for a consideration to indemnify another

- against (1) loss, (2) damage or (3) liability

- arising from an (1) unknown or (2) contingent event.

What does the doing/transacting insurance business mean?

"Doing an insurance business" or "transacting an insurance business" shall include (RISO)

(a) doing any kind of business, including a Reinsurance business, specifically recognized as constituting

the doing of an insurance business within the meaning of this Code;

(b) making or proposing to make, as insurer, any I nsurance contract;

(c) making or proposing to make, as surety, any contract of S uretyship as a vocation and not as merely

incidental to any other legitimate business or activity of the surety;

(d) Others - doing or proposing to do any business in substance equivalent to any of the foregoing in a

manner designed to evade the provisions of this Code.

20

The fact that no profit is derived from the making of insurance contracts, agreements or

transactions or that no separate or direct consideration is received therefor, shall not

be deemed conclusive to show that the making thereof does not constitute the doing or

transacting of an insurance business.

What are the Characteristics of an Insurance Contract? (C3UVAP2

1. Consensual perfected by the meeting of minds

2. Conditional subject to conditions happening of the event insured against and/or other conditions

like payment of premium

3. Contract of Indemnity promise of insurer to make good a loss

4. Unilateral impose legal duties only on the insurer who promises to indemnify in case of loss

5. Voluntary willingness of the parties

Note However that under the Motor Vehicle Insurance, Third Party Liability Insurance is

mandatory for vehicle registration

6. Aleatory depends on some contingent event

7. Personal it binds only the parties to it and their assignees

Note Stipulations pour autrui or a provision in favor of a third person not a party to

the contract. Under this doctrine, a third person is allowed to avail himself of a benefit

granted to him by the terms of the contract, provided that the contracting parties have

clearly and deliberately conferred a favor upon such person

8. Contract of perfect good faith for both parties (uberrima fides)

What are the classes of Insurance?

1. Life Insurance

2. Non-life Insurance

a. Fire Insurance

b. Marine Insurance

c. Casualty Insurance

d. Suretyship

What are the Elements of Contract of Insurance

1. Insurable interest of the insured interest of some kind susceptible of pecuniary or monetary

estimation

2. Insured subject to loss through the destruction or impairment of that interest by the happening

of designated perils

3. Insurer assumes the risk of loss

4. Such assumption is part of a general scheme to distribute actual losses among a large group of
persons bearing somewhat similar risk

5. Payment of premium ratable contribution to a general insurance fund as consideration to the

insurers promise

What are the Requisites of contract of Insurance

1. Subject matter in which the Insured has an insurable interest

2. Peril Insured against contingent or unknown event, past or future and a duration for the risk

thereof

3. A promise to damnify in a fixed or ascertainable amount

4. Payment of premium

5. Meeting of minds of the parties

Note: No policy of insurance shall be issued or delivered unless in the form previously

approved by the Insurance Commissioner.

What may be insured against?

1. A Future Contingent Event resulting in loss or damages

- e.g. destruction of a building from fire in Fire Insurance or the death of the insured in a Life

Insurance policy

- Note that the word Loss embraces injury or damage. A loss may be partial or total

2. A Past Unknown Event resulting in loss or damage

- This is best exemplified in a Marine Insurance where at the time the policy is executed, the vessel

subject of the insurance may have already sunk, but that fact was unknown to the parties at the

time of the execution of the policy

3. Contingent Liability

- This is best illustrated in Reinsurance where the liability of the insurer is in turn insured by him

with a second insurer.

Note that Drawing of any lottery, or for/against any chance or ticket in a lottery drawing a prize
may not be insured. A contract of insurance is a contract of indemnity and not a wagering or

gambling contract

21

Who are the parties to an Insurance Contract

1. Insurer

2. The Insured

3. Beneficiary

Insurer is the person, natural or juridical, who holds a certificate of authority from the

Insurance Commissioner and who undertakes to indemnify another by a contract of insurance

o Banks cannot be insurers

o Paid-up capital requirement for insurance companies

P2M and a contributed surplus of

P1M for life insurance

P500k for non-life insurance

P5M in case of reinsurance co.

o For Insurance Cooperative, recommendation from the Cooperative Development

Authority is required

o An Insurance agent should perform the function for a compensation

Insured

Generally, any person with capacity to contract and having an insurable interest in he life

property insured may be the insured

A married woman may take insurance on her life or on that of her children without need of

her husbands consent

A public enemy cannot be insured.

Public enemy means any citizen or juridical entity of the country with which the Philippines
may be at war

Effects of War on Insurance Contracts

1. War prevents an insurance contract from being enter into between citizens and juridical

entities of the warring states

2. For existing insurance contracts, the rules are:

a. Property Insurance war abrogates the contract (Kentucky Rule)

b. Life Insurance war terminates the policy, but the insured is entitled to the

equitable value of the policy arising from the premiums actually paid, when

commercial relations are resumed (U.S. Rule)

I. BENEFICIARY

The insurance proceeds shall be applied exclusively to the proper interest of the person in

whose name or for whose benefit it is made unless otherwise specified in the policy

Beneficiary

The beneficiary is the person designated to receive the proceeds of the policy when the risk

attaches.

He may be the (1) insured himself in the property insurance or (2) the insured or (3)a third

person in life insurance

The father or mother of a minor who is an insured or beneficiary of a life policy, may

exercise, for said minor, all rights under the policy up to P20k without the need of a court authority or

a bond (sec 180)

A. Beneficiary of one who insures his own life

As a general rule, the insured who insures his own life may designate any person, including his

estate as his beneficiary, whether or not the beneficiary has an insurable interest in the life of the

insured

The Insured has the right to change the designation of the beneficiary, unless he has expressly
designated an irrevocable beneficiary in his policy

What are the effects if the designation of beneficiary is irrevocable

The insured cannot

1.Assign the policy

2.Take the cash surrender value

3.Allow his creditors to attach execute on the policy

4.Add a new beneficiary or

5.Change the irrevocable designation to revocable, even though the change is just and

reasonable

Ratio: The irrevocability of the designated beneficiary and his heirs have acquired from the date

of the policy vested rights over the policy (Philam vs. Pineda 175 SCRA 201)

22

As a general rule: the proceeds of a life insurance policy belong to the designated

beneficiary to the exclusion of the heirs of the insured (Picar vs GSIS 33 SCRA 324)

Exception: Persons Disqualified as Beneficiaries

A beneficiary in life insurance is like a donee, hence, the civil code provision on the disqualifications of

a donee shall apply. Donations made between the following persons are void

1. Donation between persons guilty of adultery or concubinage

2. Donations between persons found guilty of the same criminal offense, in consideration

thereof

3. Donations made to a public officer or his wife, descendants and ascendants, by reason of his

office.

When does the interest of the beneficiary forfeited

The interest of the beneficiary in a life insurance policy shall be forfeited when the beneficiary is the

Principal, Accomplice, or accessory in willfully bringing about the death of the insured
 In this event, he nearest relative of the insured shall receive the proceeds of said

insurance if not otherwise disqualified

The nearest relatives of the insured in the order of enumeration are the following:

1. Legitimate children

2. Parents

3. Grandparents illegitimate children

4. Surviving spouse

5. Brothers and sisters of the full blood

6. Brothers and sisters of the half blood

7. Nephews and nieces.

NOTES:

(a) Where a specified person is beneficiary, the proceeds will inure to the beneficiary.

Q: A took out a life insurance policy and designated his wife, B, as the sole beneficiary. All the

premiums of the policy were paid out from his salaries. A died intestate leaving B and 3 children.

Divide the proceeds of the policy (1961 Bar)

A: All of the proceeds of the policy will go to the designated policy, B. The source of the premium

here is immaterial (Miravite, 2002ed., p200)

(b) If the premiums are paid from (1) salaries of the insured or (2) other conjugal

properties or funds, and the beneficiary is the estate of the insured, the proceeds of the life

insurance policy is considered conjugal.

B. Beneficiary if Life Insurance on the life of another person.

Where a policy is taken by a third person on the life of the insured, and said third person

designates himself as the beneficiary, the third person must have an insurable interest on the life of

the insured, at the time the policy became effective.

C. Beneficiary of Property Insurance

The beneficiary of the property insurance must have an insurable interest over the subject matter of

the insurance existing at the time the policy was taken and at the time the loss tool place

II. INSURABLE INTEREST

What is insurable Interest as referred in the Code?

- Insurable interest is a right or relationship

- In regard to the subject matter of the insurance

- Such that the insured will derive

1. pecuniary benefit or advantage from its preservation and

2. will suffer pecuniary loss or damage from its destruction or injury

- by the happening of the event insured against

A . Insurable Interest in Life

Define Insurable Interest in Life?

Insurable interest in life is the interest which a person has

3. In his life or

4. In the lives of other persons

a. Of his spouse and of his children

b. On whom he depends wholly or in part for education or support (Wife insuring Husbands life)

c. Under legal obligation to him to pay money, to deliver property or to render service (Creditor

insuring the life of its Debtor)

d. Upon whose file any estate or interest vested upon him. (Legatee of a usufruct insuring the

life of the usufructuary)

A corporation has an insurable interest in the lives of its officers when the death or illness of

said officers would materially and injuriously affect the corporation.

The corporation and the heirs of the manager can insure the life of the manager-decedent in

agreed proportion, since both have insurable interest over the life of the latter
23

When Insurable Interest should exist?

It must exist at the time the insurance is taken.

B. Insurable Interest in property

Rule: No contract or policy of insurance on property shall be enforceable except for the benefit of some
person

having insurable interest in the property insured

Insurable interest

Life insurance Property Insurance

Insurable interest must exist only at the time

the policy is taken

Insurable interest must exist at the time the policy is taken

and at the time the loss occurs

The beneficiary need not have an insurable

interest on the insureds life

The beneficiary must have an insurable interest in the

property insured

There is no limit to the amount of insurable

interest

Insurable interest is limited to the actual value of the

interest in the property

What is considered as an insurable interest in property?

Insurable interest in property is every interest in property whether real or personal, or any relation
thereto, or

liability in respect thereof, of such a nature that the contemplated peril might directly cause damage to
the

insured
 What does insurable interest in property consist of

An insurable interest in property consist of

1. An existing interest

2. An inchoate interest founded on an existing interest

3. An expectance coupled with an existing interest in that out of which the expectance arises

Examples of an insurable inchoate right in the property

1. Contractors interest to the completed building for unpaid construction cost

2. Lessors interest on the improvements made by the lessee

3. Naked owners interest over the property which another person has beneficial title

Note: A mere contingent or expectant interest in anything, not founded on an actual right to the thing,

nor upon any valid contract for it, is not insurable (e.g. property which one expects to inherit or that of a

general or unsecured creditor insuring the property of his debtor who is alive even though destruction
of

such property would render worthless any judgment he might obtain note further in the latter case, the

creditor can insure the property of a deceased debtor since all personal liability ceases with the death of

the debtor. The proceedings to subject the estate to the payment of the debt of the deceased are
against

all who have an interest in the property. Of course, an unsecured creditor has an insurable interest in
the

life of his debtor )

The vendee-consignee of goods in transit under a perfected contract of sale is vested with an equitable
title to

the goods even before receipt by him of the goods to constitute an insurable interest in the property (Fil

Merchants vs CA 179 SCRA 638)

A carrier or depositary of any kind has an insurable interest in a thing held by him as such, to the extent
of his

liability but not exceed the value thereof.

 To what extent is the insurable interest of a mortgagor in a mortgaged property? Of a

mortgagee?

a. The mortgagor has an insurable interest on his property as owner up to the full

value of his property, irrespective of any mortgage on said property in general.

b. The insurable interest of a mortgagee is up to the extent of his credit.

NOTE: Each may take separate insurances over the same property up to the extent of their

respective insurable interests.

Where the mortgagee independently of the mortgagor insured his won interest in the mortgaged

property, he is entitled to the proceeds of the policy in case of loss before payment of the mortgage.

But in such case, the mortgagee is not allowed to retain his claim against the mortgagor but it passes by

subrogation to the insurer to the extent of the insurance paid. In other words, the payment of the

insurance to the mortgagee does not relieve the mortgagor form his principal obligation but only

changes the creditor.

When is an insurance on the interest of the mortgagor

24

The insurance is on the mortgagors interest where the mortgagor takes insurance on the property in his

own right making the loss payable to the mortgagee

How?

The mortgagor may:

i. Take insurance on the property, and assign the same to the mortgagee (this operates merely as

an equitable transfer of the policy so as to enable the assignee to recover the proceeds)

ii. Constitute the mortgagee as beneficiary as his interest may appear

NOTE: In case of fire, marine and casualty insurance, the assignment must be with the consent of the

insurer because it is a personal contract. (Note that life insurance may be freely assigned before or

after loss occurs to any person whether he has an insurable interest or not)
 What are the effects of insurance taken in the on the interest of thee mortgagor?

The effects are:

a. Mortgagor continues to be a party to the contract

b. Any act by the mortgagor prior to the loss which would avoid the policy, will thus avoid the

policy, even if the property is in the hands of the mortgagee

c. Any act which under the contract of insurance is to be performed by the mortgagor (e.g.

payment of premium) may be performed by the mortgagee with the same effect, as if performed by

the mortgagor.

d. In case of loss, the mortgagee is entitled to the proceeds to the extent of his credit,

consequently, the debt is extinguished.

What is the effect If the mortgagor assigns the policy to the mortgagee with the insurers

consent, but the latter imposes new conditions on the assignee?

If at the time of the assent, the insurer imposes further obligations on the assignee making a new

contract with him, the act of the mortgagor cannot affect the rights of said assignee.

Take note of the distinctions between the assignment or transfer of:

a. The Policy itself which transfers the fights to the contract to another insured

b. The proceeds of the policy after the loss has happened , which involves a money claim under, or a

right of action on the policy

c. The subject matter of the insurance, such as a house insured under a fire policy which ahs the

effect of suspending the insurance (infra)

When insurable interest should exist?

It must exist at the time the policy is taken and at the time the loss incurred but it need not exist in the

meantime

Ratio: To prevent a person from taking out an insurance policy on property upon which he has no

insurable interest and collecting the proceeds of said policy in case of loss of the property. In such a
case,
the contract of insurance is a mere wager which is void. (Cha vs CA 277 SCRA 690)

What is the effect of a change of interest on the thing insured?

A change in the interest in any part of a thing insured unaccompanied by a corresponding change of

interest in the insurance, suspends the insurance to an equivalent extent, until the interest in the thing

and the interest in the insurance are vested in the same person.

Note: Mere transfer of a thing insured does not transfer the policy but suspends it until the same person

becomes the owner of both the policy and the thing insured. For a transferee to have an insurable
interest

over a policy undertaken by the transferor, the insurance policy should be assigned to him, when he

bought the property.

A change of interest in a thing insured, after the occurrence of an injury which results in a loss, does

not affect the right of the insured to indemnity for the loss

A change of interest, by will or succession, on the death of the insured, does not avoid an insurance;

and his interest in the insurance passes to the person taking his interest in the thing insured.

Otherwise stated, the insurance on property passes automatically, on the death of the insured , to the

heir, legatee or devisee who acquires interest in the thing insured.

A transfer of interest by one of several partners, joint owners etc. who are jointly insured, will not

avoid the insurance even though it has been agreed that the insurance shall cease upon an alienation

of the thing insured.

A change of interest where there are several things separately insured by one policy, does not avoid

the insurance as to the others

Example: A insured his car for P100k and jeep for P85k under the single policy, the sale of one

will not affect the insurance of the car.

BUT if the car and jeep were not separately valued in the policy , the sale of the jeep without

the insurers consent affects also the insurance of the car

25
 What stipulations are prohibited in an insurance policy?

1. Stipulations for the payment of loss whether the person insured has or has not any interest in the

subject matter of the insurance

2. Stipulation that the policy shall be received as proof of insurable interest.

What is the amount of insurance?

The measure of an insurable interest in property is the extent to which the insured might be damnified
by loss

or injury thereof.

In cases where the property is insured for less than its true or market value, what are the rules

to be followed?

In case of total loss: The property owner is entitled to receive the face value of the policy but in

no case exceeding the market value of the property.

In case of partial loss: The property owner is entitled only the amount in proportion to his loss

and the market value of the property as against the to face value of the policy. Ratio An owner of

property who insures the same for less that its true value is co-insurer for the uninsured portion of the

property if the policy is a valued one.

HOWEVER if the policy is an open one, the owner can collect the actual partial loss not

exceeding the face value of the policy

Example:

X has a property worth P10,000. He insures it against fire for P8,000. How much shall he collect from

then insurance in case of total loss? If there is Partial loss in the amount of P6,000?

In case of total loss P 8,000 face value of the policy

In case of partial loss - open policy P6,000 the actual partial loss not exceeding the face value of the

policy

In case of partial loss valued policy 6/10 of P8,000 or P4,800- the amount in proportion to his loss
and
the market value of the property as against the to face value of the policy.

III CONCEALMENT

What is Concealment?

Concealment is a neglect to communicate that which a party knows and ought to communicate to the
other

party.

What are the requisites for concealment?

For concealment to vitiate a contract of insurance, the following must be present

1. the matter concealed must be material

2. there must be an obligation for the insured to reveal the concealed matter to the insurer

What matters must be communicated even in the absence of inquiry?

Each party to a contract of insurance must communicate in good faith all facts within his knowledge only
when:

1. They are material to the contract

2. The other has not the means of ascertaining the said facts

3. As to which the party with the duty to communicate makes no warranty.

What is the test of materiality?

A fact is material if knowledge of it would have affected the decision of the insurer to enter into the
contract,

in estimating the risk, or in fixing the premium

Note:

Matters relating to the health of the insured are material and relevant to the approval and issuance of
the

life insurance policy as they definitely affect the insurers action on the application (Sunlife vs CA 245

SCRA 268)

It is well-settled that the insured need not die of the disease he had failed to disclose to the insurer, as it

is sufficient that his non-disclosure misled the insurer in forming his estimates of the risk of proposed
insurance policy or in making inquiries (ibid)

Lack of understanding by the illiterate insured of the statements and her application as to her state of

good health does not negate the insurers right to rescind (Tang vs CA 90 SCRA 236)

Concealment exists where the assured had knowledge of a fact material to the risk, and honesty, good

faith, and fair dealing requires that he should communicate it to the assured, but he designedly and

intentionally withholds the same.

What are the matters which one has no duty to disclose?

26

Neither party to a contract of insurance is bound to communicate information of the matters following,

except in answer to the inquiries of the other:

1. Those which are already known to the insurer

2. Those which, in the exercise of ordinary care, are ought to be known to the insurer or his agent,

3. Those undisclosed facts which are not material

4. Those which each party is bound to know:

- general causes eg. public events; and

- general usages of trade - eg. rules of navigation all risks connected with navigation)

5. Information or the nature or amount of the interest of one insured except if insured is a lessee or a

mortgagee (read sec 51)

6. Those of which the insurer waives communication

The right to information of material facts may be waived, either:

a. Expressly by the terms of the insurance

b. Impliedly by neglect to make inquiry as to such facts, where they are distinctly implied in

other facts of which information is communicated (Fact disclosed that one was confined in

the hospital. The insurer did not inquire as to the cause of confinement, the latter is in

estoppel)
7. Judgment upon the matters in question eg. Opinion, speculation or expectation (How long will you

live?)

What are the consequences of concealment?

The rule is concealment whether intentional or unintentional entitles the injured party to rescind a
contract

of insurance.

However, an intentional and fraudulent omission, on the part of one insured, to communicate
information

of matters proving or tending to prove the falsity of a warranty is required to entitle the insurer to
rescind

Note: Good faith is no defense in concealment (Sunlife vs CA 245 SCRA 268)

Exceptions:

1. Incontestability clause:

In life insurance, after a policy has been in force for at least two years, the insurer cannot rescind the

policy due to fraudulent concealment or misrepresentation of the insured.

If the insured dies within two years from the effectivity of the policy, rescission due to concealment or

misrepresentation of material matters may still be invoked by the insurer, provided done within two

years from the effectivity of the policy

2. Certain concealments in Marine Insurance

The following matters although concealed will not vitiate the contract of marine insurance except

when they are caused the loss.

a. National character of insured

b. Liability of insured thing to capture or detention

c. Liability to seizure form breach of foreign laws

d. Want of necessary documents

e. Use of false or simulated papers

IV REPRESENTATION

What is representation?

A representation is an oral or written statement of a fact or condition made by the insured at the time
of or

prior to the issuance of the policy, affecting the risk made by the insured to the insurer, tending to
induce the

insurer to assume the risk

Distinguish Misrepresentation with Concealment

Misrepresentation Concealment

Insured makes a statement of fact which is

untrue

Insured maintains silence when he ought to speak

What are the kinds of representation?

1. Oral

2. Written

3. Affirmative representation

4. Promissory representation

What is an affirmative representation?

It is any allegation as to the existence or non-existence of a fact when the contract begins

What is a promissory representation?

27

It is any promise to be fulfilled after the contract has come into existence or any statement concerning
what is

to happen during the existence of the insurance. A promissory representation is substantially a

condition or a

warranty.

A promissory representation maybe:

1. 1 Used to indicate a parole or oral promise made in connection with the insurance, but not

incorporated in the policy.

- the non-performance of such a promise cannot be shown by the insurer in defense of an action on

the policy, but proof that the promise was made with fraudulent intent will serve to defeat the

insurance

2. As an undertaking by the insured, inserted in the policy but not specifically made a warranty.

Distinguish Warranty and Representation

Warranty Representation

It is part of contracts It is mere collateral inducement, but it may qualify

an implied warranty

It is expressly set forth in the policy itself or

incorporated therein by reference

It may be oral or written in another instrument

It is conclusively presumed material It must be proved to be material

It must be strictly complied with It is requires only substantial truth or compliance

When is representation made?

A representation may be made at the time of or before issuance of the policy. It may be altered or
withdrawn

before issuance of the policy, but not afterwards

Note:

A representation must be presumed to refer to the date on which the contract goes into effect

Hence:

1. There is NO FALSE representation it is true at the time the contract takes effect although

false at the time it was made.

2. There is FALSE representation if it is true at the time it was made but false at the time the

contract takes effect in this case the insurer is entitled to rescind

 When is a representation deemed to be false?

A representation is deemed to be false when the facts fail to correspond with its assertions or
stipulations.

What is misrepresentation?

A misrepresentation in insurance is a statement:

1. As a fact of something which is untrue

2. Which the insured states with knowledge that it is untrue and with intent to deceive, or which he

states positively as true without knowing it to be true and which has the tendency to mislead

3. where such fact in either case is material to the risk

NOTE:

An insured who has no personal knowledge of a fact may communicated such information which he has,

and believes it to be true, upon the subject matter with the explanation that said information was
obtained

from 3rd persons. In this case he is not responsible if the information turns out to be false.

Except if the information proceeds from an agent of the insured whose duty is to give information to his

principal. This is so because knowledge of the agent is also knowledge of the principal

What is the effect of false representation or misrepresentation|?

If the representation is false on a material point, the injured party is entitled to rescind from the time

when the representation becomes false.

HOWEVER, the right to rescind given to the insurer is waived by the acceptance of premium payments
despite

knowledge of the ground of rescission

What is the test of materiality?

Materiality is determined by the probable and reasonable influence of the facts on the party to whom

communication is due, in forming his estimate of the contract, the risk and the premium

NOTE:
When the original contract of insurance was modified by reason of concealment or misrepresentation
on

the part of the insured especially when modification pertains to material points, upon discovery of such

concealment or misrepresentation, the insurer is allowed to rescind said modification.

When is the right to rescind available?

In order that the insurer may rescind a contract of insurance, such right must be exercised prior to the

commencement of an action on the contract. (Example, if the insured filed an action to collect amount
of the

insurance, it can no longer rescind the contract)

28

Incontestability clause

Incontestability means that after the requisites are shown to exist, the insurer shall be estopped from

contesting the policy or setting up any defense, except as is allowed of the ground of public policy.

Requisites:

1. The policy is a life insurance policy

2. It is payable on the death of the insured

3. It has been in force during the lifetime of the insured for at least 2 years from its date of issue or of

its last reinstatement

NOTE: The period of two years for contesting a life insurance policy may be shortened but it cannot

be extended by stipulation

Effect when the policy becomes incontestable

When the policy of life insurance becomes incontestable, the insurer may not refuse to pay the same by

claiming that:

1. The policy is void ab initio (voidable)

2. It is rescissible by reason of the fraudulent concealment of the insured or his agent or

3. It is rescissible by reason of the fraudulent misrepresentations of the insured or by his agent

 Defenses not barred by incontestable clause

The incontestability of a policy under the law is not absolute. The insurer may still contest the policy of
the

following grounds:

1. That the person taking the insurance lacked insurable interest as required by law

2. The cause of the death of the insured is an excepted risk

3. That the premiums have not been paid

4. That the conditions of the policy relating to military or naval service have been violated

5. The fraud is of a particularly vicious type, as when the policy was taken out in furtherance of a

scheme to murder the insured, or where the insured substitutes another person for the medical

examination or where the beneficiary feloniously kiss the insured

6. The beneficiary failed to furnish proof of death or to comply with any condition imposed by the policy

after the loss has happened

7. The action was not brought within the time specified

V. WARRANTIES

What is a warranty?

A warranty is a statement or promise stated in the policy itself or incorporated therein by reference,
whereby

the insured expressly contracts as to the present or future existence or certain facts, circumstances or

conditions, the literal truth of which is essential to the validity of the contract of insurance

What does warranty relate to?

It may relate to the past, the present, the future or to any or all of these.

What are the kinds of warranties?

1. Affirmative warranty where the insured asserts the existence of a matter at or before the issuance of

the policy

2. Promissory warranty where the insured promise or undertakes that certain matters shall exist or will
be done or omitted after the policy takes effect

3. Express warranty where the assertion or promise is clearly set forth in the policy or incorporated

therein by reference

4. Implied warranty where the assertion or promise is not expressly set forth in the policy, but because

of the general tenor of the terms of the policy, or from the very nature of the insurance contract, a

warranty is necessarily inferred or understood.

What is the required form to create a warranty?

There is no particular form or words necessary to create a warranty. Whether a warranty is constituted
or not

depends upon the intention of the parties, the nature of the contract or the words used thereto. Incase
of

doubt, the statement is presumed to be a mere representation and not a warranty.

When should an express warranty be made?

It should be made at or before the execution of a policy

Where should an express warranty be contained?

Express warranty may be contained either:

1. In the policy itself

2. In another instrument signed by the insured and referred to in the policy as making part of it. Mere

reference is not sufficient to give warranty.

29

Note:

A statement in a policy, of a matter relating to the person or thing insured, or to the risk as a fact is an

express warranty. A statement which is in the nature of an opinion or belief is not a warranty

What is a promissory warranty?

It is a statement in a policy that a thing which is material to the risk is intended to be done or not to be
done

after the policy takes effect.

As a general rule: the non-performance of a promissory warranty entitles the other party to rescind the

contract:

Exceptions to the rule are:

1. Loss occurs before the time arrives for the performance of the promissory warranty

2. Performance becomes unlawful before the time arrives for the performance of the promissory

warranty

3. Performance becomes impossible before the time arrives for the performance of the promissory

warranty

What happens when there is violation of material warranty or to other material provisions of

the policy?

All breaches of warranty give to the insurer the right to rescind the contract. This rule is true even if the

violation of the material warranty did not contribute to the loss.

If fraud intervenes in the breach, the insurer is freed from liability form the start, as the contract is fraud

ab initio. The insured is not entitled to the return of the premiums paid.

If there is no fraud in the breach, the insurer is freed from the contract the moment the breach occurs,

and is entitled to retain the premiums corresponding to the period up to the time of the breach. But if
the

breach was done at the time of the inception of the policy, the insured cannot recover for any loss
arising

thereafter, but all premiums should be returned to the insured

VI. THE POLICY

Define Policy of Insurance.

A policy of insurance is the written instrument in which a contract of insurance is set forth. It is the
formal

written instrument evidencing the contract of insurance entered between the insured and the insurer.

What form is the policy be embodied?

The policy shall be in printed form which may contain blank spaces on which words numbers and other
matters

necessary to complete the contract of insurance shall be written on. However, Group insurance and
groupannuity

policies may be typewritten and need not be in printed form.

What is a rider in a contract of insurance?

A rider is a printed or typed stipulation contained on a slip of paper attached to the policy and forming
an

integral part of the policy.

What is the effect of a rider, clause, warranty or endorsement purporting to be a part of the

contract and pasted on the policy?

As a general rule, these attached papers becomes part of a contract of insurance. However it will not
bind the

insured unless it is properly referred to therein in the policy. If the rider etc is issued after the original
policy

was in force shall not bind the insured unless it countersigned by the insured.

What are cover notes or interim policies?

Cover notes or interim policies or binding slips may be issued to bind the parties temporarily pending
the issue

of the policy. It is intended to give temporary protection pending the investigation of the risk by the
insurer or

until the issue of formal policy.

These notes are good for 60 days only, unless renewed with the written approval of the Insurance

Commissioner

What are the contents of the policy?

A policy contains, among others the following

1. The parties

2. Amount of insurance (except in open or running policies)

3. Rate of premium

4. The property or life insured

5. The interest of the insured in the property if he is not the owner

6. Risk insured against

7. Duration of the insurance

May an agent undertake a contract of insurance in favor of its principal?

30

Yes. The agent or trustee when making an insurance contract for and in behalf of his principal should
indicate

that he is merely acting in a representative capacity by signing as such agent or trustee, or by other
general

terms in the policy

May a partner in a partnership insure partnership property?

Yes. Insurable interest in the property of a partnership exists in both partnership and the partners and a

partner has an insurable interest in the firms property which will support a policy taken out thereof for
his own

benefit

What extent does the contract of insurance cover undertaken by a partner?

A partner who insures partnership property in his own name limits the contract to his individual share
unless

the terms of the policy clearly show that the insurance was meant to cover also the shares of the other

partners.

How are ambiguities in an insurance contract construed?

Contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolved against
the

insurer, otherwise stated, it should be construed liberally in favor of the insured and against the insurer

In Cebu vs William 306 SCRA 762 the Supreme Court held: although in this jurisdiction, contracts of
adhesion have been consistently upheld as valid per se as binding as an ordinary contract, the court

recognizes instances when reliance on such contracts cannot be favored especially where the facts and

circumstances warrant that subject stipulations be disregarded. The facts and circumstances vis--vis

the nature of the provision sought to be enforced should be considered, bearing in mind the principles
of

equity and fair play.

In Rizal vs CA 336 SCRA 12, Supreme court said: it is settled that the terms in an insurance policy,

which are ambiguous, equivocal, or uncertain are to be construed strictly and most strongly against the

insurer, and liberally in favor of the insured so as to effect the dominant purpose of indemnity or

payment to the insured, especially where forfeiture is involved, and the reason for this is that the

insured usually has no voice in the selection or arrangement of the words employed and that the

language of the contract is selected with great care and deliberation by experts and legal advisers

employed by and acting exclusively in the interest of the insurance company.

What are the kinds/classes of policies in non-life insurance?

1. Open or unvalued policy is one in which the value of the thing insured is not agreed upon, but is

left to be ascertained in case of loss. In other words, it is one in which a certain agreed sum is written

on the face of the policy not as the value of the property insured, but as the maximum limit of

recovery in case of destruction the peril insured against.

2. Valued policy is one which expresses on its face an agreement that the thing insured shall be valued

at a specified sum. In the absence of fraud or mistake, such value will be paid in case of total loss of

the property, unless the insurance is for a lower amount.

3. Running policy is one which contemplates successive insurances and which provides that the subject

of the policy may from time to time be defined

What are the requisites for a valid cancellation of non-life insurance?

1. Written prior notice to the insured, stating the facts and

2. For any of the following grounds

a. Non-payment of premium

b. Conviction of a crime arising out of acts increasing the hazard insured against

c. Discovery of fraud or material misrepresentation

d. Discovery of willful or reckless acts or omissions increasing the hazard insured against

e. Physical changes in the property insured which result in the property becoming uninsurable

f. A determination by the commissioner that the policy would violate the insurer

VII PREMIUM

Define premium.

Premium is the consideration paid an insurer for undertaking to indemnify the insured against a
specified peril

When is the insurer entitled to payment of the premium?

As soon as the thing insured is exposed to the peril insured against

What is the effect of the nonpayment of premium?

The policy or contract of insurance is not valid and binding.

Is this absolute?

No. The exceptions are the following:

1. Life and Industrial Life policy whenever the grace period provision applies(sec 77)

31

2. Written acknowledgment of the receipt of premium by insurer (sec 78)

3. Payment in installments of the premium and partial payment made at the time of loss

4. Credit extension for the payment of premium

5. Estoppel reliance in good faith on the practice of the insurance company

NOTES:

Grace period:

Life insurance 30 days or 1 month within which the payment of any premium after the first may be
made
Industrial life insurance -4 weeks and where the premiums are payable monthly, either 30 days or 1
month

Written acknowledgment in a policy or contract of insurance of the receipt or premium is conclusive

evidence

of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall
not be

binding until the premium is actually paid

Effect on nonpayment

1. Of First premium prevents the inception of the policy

2. Of subsequent premiums- it does not affect the validity of the contract unless, by express stipulation,

it is provided that the policy shall in any event be suspended or shall lapse.

When is the insured entitled to recover premiums?

The insured is entitled to a return of the whole premium:

1. If the thing insured was never exposed to the risk insured against

2. When the contract is voidable due to the fraud or misrepresentation of the insurer or his agent

3. When the contract is voidable because of the existence of facts of which the insured is ignorant

without his fault

4. When the insurer never incurred any liability under the policy because of the default of the insured

other that actual fraud

The insured is entitled to a ratable return of premium on the following cases:

1. Where the insurance is made for a definite period of time and the insured surrenders policy before

termination

2. Where there is over-insurance by several insurers

NOTES

Where the insurance is for a definite period of time and the insured cancels his policy by surrendering
the
policy, the insured is entitled to recover the premiums already paid equivalent to the unexpired term at
a pro

rata rate

Exception to this rule:

a. Where the insurance is not for a definite period

b. Where the policy is a life policy

c. Where a short period rate has been agreed upon

- Short period rate is that percentage, as agreed upon by the parties and appearing on the face of

the policy, which the insurer shall retain from the premium in the event that the policy is

surrendered by the insured for cancellation.

The premiums to be returned where there is over-insurance by several insurers shall be proportioned to
the

amount by which the aggregate sum insured in all the policies exceeds the value of the thing

Example:

X insures his house which has an insurable value of P1,500,000 as follows:

Insurer Amt of Insurance Premiums paid

A Co. P 1,200,000 P 24,000

B. Co 600,000 12,000

Aggregate sum P1,800,000.

In this case, there is an over insurance of P300,000, the amount by which the aggregate sum insured in

the two policies exceeds the insurable value of the house. The proportion is P300k to P1800k or 1/6.

Hence, 1/6 of P24k or P4k is what A co must return; and 1/6 of P12k or P2k is what B co must return

VIII DOUBLE INSURANCE

When does double insurance exists?

A double insurance exists where the same person is insured by several insurers separately in respect to
the

same subject and interest

 What are its requisites?

There is no double insurance unless the following requisites exist:

1. The person insured is the same

2. Two or more insurers insuring separately

3. The subject matter is the same

4. The interest insured is also the same and

32

5. The risk or peril insured against is likewise the same

Distinguish Double Insurance from Over-insurance

Double Insurance Over-Insurance

In double insurance, there may be no over-insurance as when

the sum total of the amounts of the policies issued does not

exceed the insurable interest of the insured

There is over-insurance when the amount of

the insurance is beyond the value of the

insureds insurable interest

There are always several insurers There may be only one insurer involved

THEREFORE, double insurance and over-insurance may exist at the same time or neither may exist at all

What is the binding effect of stipulation against double insurance?

A policy which contains no stipulation against additional insurance is not invalidated by the procuring of
such

insurance. However, a stipulation that insurance shall be avoided if additional insurance is procured
without

the insurers consent is valid and reasonable, and any breach thereof will prevent a recovery on the
policy

What are the effects of Double insurance?

The insured can insure with two or more companies unless prohibited by prior policy
 Where he is allowed, but over-insurance results, he can claim in case of loss, only up to

the agreed valuation (in valued policy) or up to the full insurable value (in open policy) from any, some

or all insurers, without prejudice to the insurers ratably apportioning the payments

The insured can also claim a ratable return of the premiums on the over-insured amount

Unrevealed other insurances, when required, is a material

concealment/misrepresentation and gives to the insurer the right to rescind

IX. REINSURANCE

What is a contract of reinsurance?

Reinsurance is a contract by which an insurer procures a third person to insure him against loss or
liability by

reason of such original insurance

What is the nature of contract of reinsurance?

A reinsurance is presumed to be a contract of indemnity against liability and not merely against damage.

The subject of the contract of reinsurance is the insurers risk and not the property insured under the
original

policy. The reinsurer agrees to indemnify the insurer , not against the actual payment made but against

liabilities incurred

Distinguish Reinsurance and Double Insurance

Reinsurance Double Insurance

The insurer becomes the insured in relation to the reinsurer The insurer remains as the insurer

The subject of the insurance is the original insurers risk The subject of the insurance is the

property

It is an insurance of different interest It involves the same interest

The original insured has no interest in the contract of reinsurance which is

independent of the original contract of insurance

The insured is the party in interest

in all the contracts

Distinguish Reinsurance and Co-insurance

Co-insurance is the percentage in the value of the insured property which the insured himself assumes
or

undertakes to act as insurer to the extent of the deficiency in the insurance of the insured property. In
case of

loss or damage, the insurer will be liable only for such proportion of the loss or damage as the amount
of

insurance bears to the designated percentage of the value of the property insured.

Reinsurance is where the insurer procures a third party, called the reinsurer, to insure him against
liability

by reason of such original insurance. Basically, a reinsurance is an insurance against liability which the
original

insurer may incur in favor of the original insured

Distinguish Reinsurance and Reinsurance Treaty

Reinsurance Reinsurance Treaty

A reinsurance policy is a contract of indemnity

one insurer makes with another to protect the

first insurer from a risk it has already assumed

A reinsurance treaty is merely an agreement between two

insurance companies where one agrees to cede and the other

to accept reinsurance business pursuant to provisions

specified in the treaty.

It is a Contract of insurance It is a contract for insurance

What are the matters which the reinsured must communicate to the reinsurer?

The insurer who obtains reinsurance, except under automatic reinsurance treaties, must communicate
the

following to the reinsurer:

a. All the representations of the original insured

33

b. All the knowledge and information he possesses, whether previously or subsequently

acquired, which are material to the risk

What does automatic reinsurance treaties refer to?

This refers to a case when two or more insurance companies agree in advance that each will reinsure a
part of

any line of insurance taken by the other, such contract is self executing and the obligation attaches

automatically on acceptance of a risk by the reinsured. In this case, the obligation to communicate is not

necessary due to the self-executing and automatic feature of such insurance.

What is meant by facultative reinsurance agreement?

A facultative reinsurance agreement is a contract wherein the reinsurer may or may not accept
participation in

the risk insured.

The term facultative is used in reinsurance contracts and it is so used in this particular case merely to
define

the right of the reinsurer to accept or not to accept participation in the risk insured. But once the share
is

accepted, the obligation is absolute and the liability assumed thereunder can be discharged by the one
and

only way payment of the share of losses. There is neither alternative nor substitute prestation
(Equitable

Insurance vs Rural Insurance 4 SCRA 343)

Does the original insured has interest in a contract of reinsurance?

None. The original insured has no interest in a contract of reinsurance.

Reinsurance is a contract solely between the reinsured and the reinsurer and creates no privity of
contract

between the reinsurer and the original insured. However, if the contract of reinsurance is made directly
for the
benefit of the reinsureds policyholders or if the reinsurer assumes and agrees to perform the
reinsureds

contracts, the reinsurer becomes directly liable to the policyholders. It is necessary for the original
insured to

accept and communicate acceptance of such benefit to the reinsurer before revocation

NOTE:

A reinsurer is entitled to avail of every defense which the reinsured may avail of against the original

insured (Gibson vs Revilla 38 SCRA 219)

X. LOSS

Define loss in contract of insurance

Loss is the injury or damage sustained by the insured from the perils insured against

What is Proximate cause?

Proximate cause is the active efficient cause which sets in motion a train of events which in turn brings
about a

result without the intervention of any force operating and working actively from a new and independent
force

What is a remote cause?

Remote cause is a cause that does not necessarily or immediately produce an event or injury

When is the insurer liable for losses?

The insurer is liable for:

1. Loss the proximate cause of which is the peril insured against although the peril not contemplated by

the contract may not have been a remote cause of the loss

2. Loss the immediate cause of which is the peril insured against except where the proximate cause is an

excepted peril

3. Loss through the negligence of the insured or of the insureds agents or others, and

4. Loss in the course of efforts to rescue the thing from the peril insured against although the cause of

loss is not a peril insured against..

 When is the insurer liable for losses?

1. Loss by the insureds willful act

2. Loss due to connivance of the insured; and

3. Loss where the excepted peril is the proximate cause

What are the prerequisites for the recovery for loss in insurance against fire?

1. Notice of loss which must be immediately given unless delay is waived expressly or impliedly by the

insurer

2. Proof of loss according to the best evidence obtainable. Delay may be also waived expressly or

impliedly by the insurer

All defects in a notice of loss, or in preliminary proof thereof, which the insured might

remedy, and which the insurer omits to specify to him, within reasonable time, as grounds of

objection, are waived.

When is the insurer of property against fire exonerated from liability?

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When no notice is given by the insured or by any other person entitled to the benefit of the insurance,
within a

reasonable time.

What kind of proof is needed for preliminary proof of loss?

When preliminary proof of loss is required in the policy, it is sufficient that the insured gives the best
evidence

which he has in his power and not evidence necessary in a court of justice.

XI. PAYMENT OF CLAIMS

A. Life Insurance

1. Where insured outlives maturity due, the claim is payable immediately on maturity of the

policy. This is true in endowment insurance

2. Where policy matures by Insureds death, the claim is payable within 60 days after
presentation of the claim and filing of proof of death of the insured. In case of unreasonable

delay, the insured is entitled to (1) Attorneys fees (2) expenses incurred by reason of the

unreasonable withholding (3) interest at the legal interest rate (6%) per annum as fixed by

the monetary board (4)amount of the claim., (5) moral damages if bad faith or fraud is

present and (6) exemplary damages if the act is wanton and oppressive.

3. Please note that for cases involving loss or injury, any person having any claim upon the

policy shall, without delay present a written notice of claim within six (6) months from date

of accident to the insured, otherwise, the claim shall be deemed waived. Action or suit for

recovery of damages due to loss or injury must be brought, in proper cases, with the

Commissioner of the Courts within one (1) year from denial of claim, otherwise, the

claimants right of action shall prescribe

B. Property Insurance

1. If amount of loss is determined by agreement or by arbitration, the claim is payable

within 30 days after proof of loss is received by the insurer.

2. If ascertainment of loss is not made within 60 days, the claim is payable within 90 days

from receipt of proof of loss by the insurer, if not paid, unreasonable delay is presumed

(Cathay vs CA 174 SCRA 11)

3. Please note the 1 year prescriptive period to file an action after denial of claim.

The prescriptive period is not suspended by the filing of a request for reconsideration after

denial of claim (Sun vs CA 195 SCRA 193)

C. Compulsory Motor vehicle liability Insurance

1. The insurance company will indemnify any authorized driver who is driving the motor vehicle

of the insured and in the event of death of said driver, the company shall likewise indemnify

his personal representatives and the company may at his option make indemnity payable

directly to the claimants or heirs of claimants. In other words, under the compulsory vehicle
liability insurance, direct payments may be made by the insurer to an accident victim of an

insured vehicle

2. Pour autrui clauses inure to the benefit of any person injured by the person insured as if he

were named in the policy

Note:

Article 2207 of the Civil Code makes it clear that the insurance company that has paid the indemnity for
the

injury or loss sustained by the property insured shall be subrogated to the rights of the insured against
the

wrongdoer or the person who has violated the contract. The insurer who pays the insured is an
assignee in

equity of the insured against the offender. (Malayan vs CA 165 SCRA 536)

As a general rule: Payment by the insurer to the insured for loss under the policy entitles the insurer to
be

subrogated to the rights of the insured against the wrongdoer.

The exceptions are:

1. Where the insured releases the wrongdoer from liability

2. Where the insurer pays without notifying the carrier, which in good faith had already paid the
insured,

and

3. Where the insurer pays the insured for a loss which is not included in the risk insured against, by the

policy

(Pan Malayan vs. CA 184 SCRA 54)

Where the insured was paid by the insurer, the latter is subrogated to all rights of the former against the

wrongdoer. If the insured after being paid by the insurer, releases the wrongdoer without the insurers

consent, the insurer loses his right of subrogation against the wrongdoer. The insurer will however be
entitled
to recover from the insured what the insured originally received from the insurer as the proceeds of the
policy

(Manila vs. CA 154 SCRA 650)

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CLASSES OF INSURANCE

MARINE INSURANCE

-Insurance against risks connected with navigation, to which a ship, cargo, freightage, profits or

others insurable interest in movable property, may be exposed during a certain voyage or a fixed period
of

time.

Coverage of Marine Insurance:

1. loss or damage to aircraft

2. Loss or damage goods & merchandise for shipment

3. Persons in connection w/ marine insurance

4. Precious stones, jewels, jewelry, precious metals

5. Bridges, tunnels, & other instrumentalities of navigation

Perils of Navigation

-perils in making landings in river navigation and damage from rain in consequence of improper

stowage.

War risks

-perils due directly to some hostile action, military maneuver, operational war danger

Builders risks

-damage to ways from launching as well as damage to the ship.

Perils of the sea

-all kinds of marine casualties & damages done to the ship or goods at sea by the violent action of the

winds or waves; not foreseen & not attributable to the fault of anybody.
Perils of the ship

-losses or damages resulting from:

a) natural and inevitable action of the sea

b) ordinary wear and tear of ship

c) negligent failure of the ship's owner to provide the vessel w/ proper equipment to convey the cargo
under

ordinary conditions.

Inchmaree clause

-provision in the policy that the insurance shall cover loss of, damage to, the hull or machinery

through negligence of the master, charterers, engineers, or pilots, or through explosions, bursting of
boilers,

breakage of shafts, or through any latent defect in the machinery or hull not resulting from want of due

diligence.

Insurable Interest in Marine Insurance:

1) Shipowner

- over the vessel, except that if chartered, the insurance is only up to the amount not recoverable

from the charterer

- .- he also has an insurable on expected freightage; no insurable interest if he will be compensated by

charterer in case of loss.

2) Cargo owner

- over the cargo & expected profits

3) Charterer

- over the amount he is liable to the shipowner, if the ship is lost or damaged during the voyage.

Loan on Bottomry/Respondentia

-loan in which under any condition whatever, the repayment of the sum loaned, and of the premium

stipulated, depends upon the safe arrival in port of the goods on which it is made, or of the price they
may
receive in case of accident.

INSURABLE INTEREST ON VESSEL HYPOTHECATED BY BOTTOMRY IN CASE OF

1.Owner/debtor

-difference between the actual value of the vessel and the loan on bottomry.

2.Creditor

-amount of the loan

RIGHT OF INSURER & LENDER IN CASE OF LOSS:

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- value of what may be saved/salvaged shall be divided between the lender & insurer, in proportion to

the legitimate interest of each one.

Freightage

- benefits derived by the owner, either from:

a) chartering of the ship

b) its employment for the carriage of his own goods or those of others.

Time when Insurable Interest on Freightage exists:

a) In case of a charter party, from the time the vessel has broken ground on the chartered voyage

b) If no charter party & price is to be paid for the carriage of goods, from the time said goods are
actually on

board the vessel or from the time both ship & goods are ready for specified voyage.

In Marine Insurance, insured is required to reveal all information which he possesses material to the
risk.

CONCEALMENT THAT DOES NOT VITIATE THE CONTRACT EXCEPT WHEN THEY CAUSED THE

LOSS:

1. national character of the insured

2. liability of the thing insured to capture and detention

3. liability to seizure from beach of foreign laws of trade.

4. want of necessary documents

5. use of false & simulated papers

EFFECT OF CONCEALMENT OF MATTERS:

- exonerates the insurer from a loss

EFFECT IF MISREPRESENTATION IS INTENTIONALLY FALSE:

- rescission of contract by insurer

EFFECT OF FALSITY OF REPRESENTATION AS TO EXPECTATION:

- non-avoidance of a contract of insurance

IMPLIED WARRANTIES IN MARINE INSURANSE:

a) the ship is seaworthy

b) no improper deviation from the agreed voyage will be made

c) vessel will not engage in illegal venture

d) where nationality or neutrality of a ship or cargo is expressly warranted

Seaworthiness

- relative term depending of the NATURE of the ship, the VOYAGE, & the SERVICE in which she is at the

time engaged.

- Reasonable fitness to perform the service & to encounter the ordinary perils of the voyage

contemplated by the parties.

EFFECT OF VIOLATION OF IMPLIED WARRANTY OF SEAWORTHINESS:

- insurer will not be liable for a loss

WHEN REQUIREMENT OF SEAWORTHINESS SATISFIED:

General Rule:

Seaworthiness of the vessel is required only at the commencement of the risk.

Exceptions:

1. insurance is made for a specified length of time

2. insurance is upon the cargo required to be transshipped at an immediate port

COURSE OF THE VOYAGE INSURED:

a) one agreed upon by the parties

b) in the absence of agreement, the course of sailing fixed by mercantile usage

c) if the course of sailing is not fixed by mercantile usage, one which to a master of ordinary skill and

direction, would seem the most natural, direct & advantageous

DEVIATION as defined is:

a) departure from the course of the voyage insured

b) unreasonable delay in pursuing the voyage

c) commencement of an entirely different voyage

DEVIATION IS PROPER:

a) when caused by circumstances over which neither the master nor the owner of the ship has any
control

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b) when necessary to comply with warranty, or to avoid a peril, whether or not the peril is insured
against

c) when made in good faith, & upon reasonable grounds of belief in its necessity to avoid a peril

d) when made in good faith, for the purpose of saving human life, or relieving another vessel in distress.

EFFECT OF IMPROPER DEVIATION:

- insurers become immediately absolved from further liability

Loss

A. TOTAL

1. Actual total loss ( exists when the subject matter of the insurance is wholly destroyed or lost or when
it is

so damaged as no longer to exist in its original charter) is caused by:

a. total destruction of the thing insured

b. irretrievable loss of the thing by sinking, or by leaving broken up

c. any damage to the thing which renders it valueless

d. other event which effectively deprives the owner of the possession

2. Constructive total loss ("technical total loss")

- one that gives to a person insured a right to abandon

B. PARTIAL LOSS

- loss other than a total loss

presumption of actual loss: continued absence of a ship without being heard.

CONTINUATION OF LIABILITY OF INSURER:

- whenever the ship upon which the cargo insured was loaded cannot continue the voyage due to the

peril insured against, & cargo is loaded on another vessel

ABANDONMENT - necessary only in Constructive Total Loss

Average

- extraordinary/accidental expense incurred during the voyage for the preservation of the vessel, cargo,

or both and all damages to the vessel & cargo from the time it is loaded and the voyage commenced

until it ends & the cargo unloaded.

KINDS OF AVERAGE:

1. GROSS/GENERAL AVERAGES

- include all the damages & expenses which are deliberately caused in order to save the vessel, its

cargo, or both at the same time, from real & known risk.

Requisites to the Right to claim general average contribution:

a. common danger to the vessel/cargo

b. part of the vessel/ cargo was sacrificed deliberately

c. sacrifice must be for common safety/benefit of all

d. must be made by the master or upon his authority

e. not be caused by any fault of the party asking the contribution

f. must be successful

g. must be necessary

2. SIMPLE/PARTICULAR AVERAGE

- includes all the expenses & damages caused to the vessel or to her cargo which have not inured to

the common benefit & profit of all the persons interested in the vessel & her cargo.

- Partial loss caused by a peril insured against, which is not a general average loss

''FPA CLAUSE"

- a situation wherein the insured & insurer stipulated in the policy that the vessel/cargo insured shall be

free from particular average

- effects:

a. if damage to the thing insured is a PARTICULAR average, the insured shall not be liable UNLESS

the loss suffered is total

b. if damage to the thing insured is a GENERAL average, insurer shall be liable whether the loss is

partial or total or for the condition of the insured for his proportion of all general average losses

assessed upon the thing insured which was saved.

There is an ACTUAL TOTAL LOSS if the insured is effectively deprived of the use & possession of the

property, whether by seizure/capture followed by condemnation/theft.

Abandonment

- act of the insured by which, after a constructive total loss, he declares the relinquishment to the

insurer of his interest in the thing insured

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- effect: insured is surrendering to the insurer whatever is left of the property insured, & resorting to

the policy for indemnity, insurer then becomes the owner of whatever may remain of the insured

thing & the insured may recover a total loss.

REQUISITES FOR VALID ABANDONMENT:

1. actual relinquishment by the person insured of his interest in the thing insured

2. constructive total loss

3. abandonment must be neither partial nor conditional

4. made within a reasonable time after receipt of reliable information of the loss

5. factual

6. made by giving notice to the insurer which may be done orally or in writing

7. notice of abandonment must be explicit & must specify the particular cause of the abandonment

WHEN ABANDONMENT MAY BE MADE:

1. if more than 3/4 of the value of the thing insured is actually lost

2. if more than 3/4 of the value of the thing insured would have to be expended to recover it from the
peril

3. if it is injured to such an extent as to reduce its value by more than 3/4

4. if the thing is insured is a ship & the contemplated voyage cannot be lawfully performed without
incurring

an expense to be insured of more than 3/4 the value of the thing abandoned.

5. If the thing insured is & the contemplated voyage can't be lawfully performed without incurring risk
which

a prudent man would not take under the circumstances

6. If the thing insured, being cargo or freightage, the voyage cannot be performed nor another ship
procured

by the master within reasonable time & with reasonable diligence

RIGHT OF RECOVERY WHEN:

1. abandonment is made

- recovery of TOTAL LOSS, insurer acquires all interest of the insured

2. no abandonment

- recovery only of ACTUAL LOSS

When abandonment becomes ineffectual:

- information which formed the basis of abandonment proved to be incorrect & there was in fact no

total loss

Form of Notice of Abandonment

- no particular form; may be made orally unless required to be in writing, even notice by telegraph is

sufficient if complies with requirements

- if done orally, insured must submit to the insurer within 7 days from such oral notice, a written notice

of the abandonment

EFFECTS OF ACCEPTANCE OF ABANDONMENT

1. becomes irrevocable UNLESS the ground upon which it owes made proven to be unfounded

2. conclusive upon parties

3. admission of the loss & sufficiency of abandonment

HOW ACCEPTANCE OF ABANDONMENT MADE:

a) express

b) implied from the acts of the insurer

- mere silence of the insurer for an unreasonable length of time after notice shall be construed as

acceptance

EFFECT OF VALUATION:

- conclusive between the parties provided

a) the insured has some interest at the risk

b) there is no fraud on his party

Co-insurance

- form of insurance in which the person who insures his property for less than the entire value is

understood to be his own insurer for the difference which exists between value of property & amount

of insurance

REQUISITES FOR APPLICATION:

1. insured taken is less than the actual value of the thing insured

2. loss is partial

MARINE INSURANCE FIRE INSURANCE

There is always co-insurance No co-insurance UNLESS expressly stipulated in the policy

39

Fire insurance

- a contract by which the insurer for a consideration agrees to indemnify the insured against loss, or

damage to, property by fire, but may include loss by lightning, windstorm, tornado & earthquake &
other allied

risks, when such risks are covered by extension to fire insurance policies/ under separate policies

Alteration

- alteration in the use or condition of thing insured will entitle the insurer to rescind the contract

provided following requisites are present:

- a) use or condition of the thing is specifically limited/stipulated in the policy.

- b) such case/condition as limited by the policy is altered

- c) the alteration is made without the consent of the insurer

- d) alteration is made by means within the control of the insured

- e) the alteration increases the risk

- f) violation of a policy provision

Co-insurance clause

- clause requiring the insured to maintain insurance to an amount equal to a specified percentage of the

value of the insured property under penalty of becoming co-insurer to the extent of such deficiency

Fall-off Building Clause

- clause in fire insurance policy that if the building or any part thereof falls, except as a result of fire, all

insurance by the policy shall immediately cease.

Option to Rebuild Clause

- option of insurer to repair, rebuild or replace buildings/structures wholly or partially damaged or

destroyed, instead of the payment of the loss.

- Alternative obligation, either pay the amount of the loss/ rebuild the building damaged

Casualty Insurance

- includes all forms of instrument against loss or liability arising from accident/mishap other than those

within the scope of other types of insurance

GENERAL DIVISION OF CASUALTY INSURANCE:

1. insurance against specified hazards which may affect the person/property of the insured

- e.g. personal accident, robbery/theft, damage to or loss of motor vehicle

2. insurance against specified hazards which may give rise to liability on the part of the insured for
claims for

injuries to others/damages to their property

- e.g. workmen's compensation, motor vehicle liability

LIFE INSURANCE ACCIDENT/HEALTH INSURANCE

Usual object is to provide fund for the benefit of the

estate/heirs beneficiaries of insured after the death of the

insured

Protect against not a loss of life but a loss of

time, earning capacity and expenses

Suretyship

- contract whereby a person binds himself solidarily with principal debtor for the fulfillment of an

obligation

NATURE OF LIABILITY OF SURETY:

1. solidary

2. limited to the amount of the bond

3. determined by the terms of the contract of suretyship in relation to the principal contract between
obligor

and obligee

SURETY GUARANTOR

insurer of debt insurer of solvency of debtor

Undertakes to pay if

principal dies not pay

Binds himself to pay if principal is unable to pay

primary Secondary

No such rights Can not be compelled to pay the creditor unless the latter has exhausted

all the properties of the debtor

SURETY PROPERTY INSURANCE

Accessory contract Principal contract

3 parties: surety, obligor 2 parties: insurer and insured

40

and obligee

Credit accommodation Contract of Indemnity

Surety can recover form

principal

No such right, only right of subrogation

Bond can be cancelled only

with consent of the oblige,

commissioner or the court

May be cancelled unilaterally either by insured or insurer on grounds

provided by law

Risk-shifting device
premium paid being in the

nature of a service fee

Risk-distributing device, premium paid as a ratable contribution to a

common fund

Requires acceptance of the

oblige to be valid

No need for acceptance by any third party

WHEN SURETY ENTITLED TO SERVICE FEE ONLY:

a) when contract of suretyship/ bond is not accepted by obligee

b) when contract of suretyship/ bond is not filed with obligee

TYPES OF SURETY BONDS

1. Contract bonds

a. Performance bonds

b. Payment bonds

2. Official

3. Judicial

Life Insurance

- insurance payable on the death of a person or on his surviving a specified period or otherwise

contingently on the continuance or cessation of life.

- Nature:

1. liability absolutely certain

2. amount of insurance generally no limit

3. direct pecuniary loss not required

KINDS OF LIFE INSURANCE

1. GENERAL, ordinary or old line life insurance

- fixed for a premium payable, without condition, at stated intervals, a sum certain is to be paid on

death, without condition

2. limited payment life insurance

- specified premiums are to be paid for a specified period or until the death of insured if it occurs before

the expiration of such period, and under which insurer is obligated to pay a specified sum on the

death of the insured

3. ENDOWMENT INSURANCE

- contract to pay a certain sum to the insured if he lives a certain length of time, or if he dies before

that time, to some other person indicated as beneficiary

4. TERM LIFE INSURANCE

- insurance for a term of years only, or until insured shall have arrived at a certain age

5. ADVANCE INSURANCE

- contract which provides for the payment to the insured of a lump sum immediately, in consideration

of his agreement to make certain periodical payments to the insurer for a specified period, or for that

end of the period, the performance of insured's obligation being secured by mortgage or deed of trust

6. TONTINE INSURANCE

- form of life insurance by which the policyholder under the same plan, that no dividends, return

premium, or surrender value shall be received for a term of years called the "tontine period," the

entire surplus from all sources being allowed to accumulate to the end of that period, and then divided

among all who have maintained their insurance in force and who have survived.

"No-fault" Clause

- any claim for death or injury shall be paid up to p5,000 without necessity of proving negligence or

fault, provided the following proofs of loss under oath are submitted:

1. police report of accident

2. death certificate and evidence sufficient to establish proper payee

3. medical report and evidence of medical or hospital disbursement

41

CLAIMS UNDER CMVLI

- a claim shall lie against the insurer of the vehicle in which the occupant is riding, mounting or

dismounting from in any other case, against the insurer of the directly offending vehicle

AUTHORIZED DRIVER CLAUSE

- the clause means that it indemnifies the insured owner against loss or damage to the car but limits

the use of the insured vehicle to the insured himself or any person who drives on his order or with his

permission

- the requirement that the person driving the insured vehicle is permitted in accordance with the

licensing laws or other laws or regulations to drive the motor vehicle. It is applicable only if the person

driving is other than the insured

- where the car is unlawfully and wrongfully taken without the owner's consent or knowledge, such

taking constitutes theft, and thus, it is the theft clause and not the "authorized driver clause" that

should apply.

Cooperation Clause

- clause in an automobile insurance policy which provides in essence that the insured shall give all such

information and assistance as the insurer may require, usually requiring attendance at trials or

hearings

LIABILITY OF INSURER IF INSURED WAS COMMITTING A FELONY:

- liabilities arising out of acts of negligence, which are also criminal, are also insurable on the ground

that such acts are accidental. Thus, a motor insurance policy covering the insureds liability for

accidental injury caused by his negligence, even though gross and attended by criminal consequences

such as homicide through reckless imprudence, will not be void as against public policy. But liability

consequences of deliberate criminal acts are not insurable

 JURISDICTION OF THE INSURANCE COMMISSIONER

- Original exclusive jurisdiction with the Insurance Commissioner

- Notice of claim must be filed within six months from the date of accident. Otherwise the claim shall be

deemed waived. Action or suit must be brought in proper cases, with the Commission or the courts

within one year from the denial of the claim, otherwise the claimant's right of action shall prescribe

FUNCTIONS OF THE COMMISSIONER:

1. Adjudicatory functions

2. Administrative Functions

- includes suspension or revocation of license, power to examine books and records

EFFECT OF DEATH OF INSURED THROUGH SUICIDE:

- in life insurance contract, the insurer is liable in case of suicide in the following cases:

1. if committed after two years from the date of the policy's issue or its last reinstatement

2. if committed after a shorter period provided in the policy

3. if committed in a state of insanity regardless of the date of the commission unless suicide is an

excepted peril

- Any stipulation extending the 2-year period is null and void

COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE (CMVLI)

- is a protection coverage that will answer for legal liability for losses and damages for bodily injuries or

property damage that may be sustained by another arising from the use and operation of motor

vehicle by its owner

- purpose: to give immediate financial assistance to victims of motor vehicle and/or their dependents,

especially if they are poor regardless of the financial capability of motor vehicle owners or operators

responsible for the accident sustained

42