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 latter’s 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 insured’s 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 risk-
distributing 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. 179–183, 227)
b. Group life (Secs. 50, last par., 228)
c. Industrial life (Secs. 229–231)
2. Non-life insurance
a. Marine (Secs. 99–166)
b. Fire (Secs. 167–173)
c. Casualty (Sec. 174)
3. Contracts of bonding or suretyship
(Secs. 175–178)
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 have any legal the property
in: basis insured must
1. an existing interest; whatever. A have a legal
2. any inchoate interest founded on an reasonable basis.
existing interest; or probability is
3. an expectancy coupled with an sufficient
existing interest in that out of which without more.
the expectancy arises. (Sec. 14) The beneficiary The
 When it should exist: When the need not have beneficiary
insurance takes effect and when the an insurable must have
loss occurs, but need not exist in the interest over insurable
meantime. the life of the interest over
 Amount: The measure of insurable insured if the the thing
interest in property is the extent to insured himself insured.
which the insured might be secured the
damnified by loss or injury thereof. policy.
(Sec. 17) However, if the
life insurance
INSURABLE INSURABLE was obtained
INTEREST IN INTEREST IN by the
LIFE PROPERTY beneficiary,
Must exist only Must exist at the latter must
at the time the the time the have insurable
policy takes policy takes interest over
effect and effect and the life of the
need not exist when the loss insured.
at the time of occurs
loss SPECIAL CASES
Unlimited Limited to 1. In case of a carrier or depositary
except in life actual value  A carrier or depository of any kind
insurance of interest in has an insurable interest in a thing
effected by property held by him as such, to the extent of
creditor on life insured. his liability but not to exceed the
of debtor. value thereof (Sec. 15)
The An 2. In case of a mortgaged property
expectation of expectation  The mortgagor and mortgagee
benefit to be of a benefit each have an insurable interest in the
derived from to be derived property mortgaged and this interest
the continued from the is separate and distinct from the
existence of continued other.
life need not existence of
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 OPEN OR
OR UNION LOSS
MORTGAGE PAYABLE
CLAUSE MORTGAGE
CLAUSE
Subsequent Acts of the
acts of the mortgagor
mortgagor affect the
cannot affect mortgagee.
the rights of Reason:
the assignee 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
insurer’s 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 2. Property insurance
recoverable:  It cannot be transferred without
1. When the risk has already attached the consent of the insurer.
and the risk is entire and indivisible.  Reason: The insurer approved the
2. In life insurance. policy based on the personal
3. When the contract is rescindable qualification and the insurable
or rendered void ab initio by the interest of the insured.
fraud of the insured. 3. Casualty insurance
4. When the contract is illegal and the  It cannot be transferred without
parties are in pari delicto. the consent of the insurer. (Paterson
PREMIUM ASSESSMENT cited in de Leon p. 82)
 Reason: The moral hazards are as
Levied and Collected to great as those of property insurance.
paid to meet meet actual
anticipated losses. CHANE OF INTEREST IN THE THING
losses. INSURED
 The mere (absolute) transfer of
Payment is Payment is the thing insured does not transfer
not enforceable the policy, but suspends it until the
enforceable once same person becomes the owner of
against levied unless both the policy and the thing insured.
the insured. otherwise (Sec. 58)
agreed upon.  Reason: Insurance contract is
personal.
Not a debt. It becomes a GENERAL RULE: A change of
debt once interest in any part of a thing insured
properly unaccompanied by a corresponding
levied unless change of interest in the insurance
otherwise suspends the insurance to an
agreed. equivalent extent, until the interests
in the thing and the interest in the
X. TRANSFER OF POLICY insurance are vested in the same
1. Life Insurance person. (Sec. 20)
 It can be transferred even without EXCEPTIONS:
the consent of the insurer except 1. In life, health and accident
when there is a stipulation requiring insurance.(Sec. 20);
the consent of the insurer before 2. Change in interest in the thing
transfer. (Sec. 181) insured after occurrence of an injury
 Reason: The policy does not which results in a loss. (Sec. 21);
represent a personal agreement
between the insured and the insurer.
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 deceiver 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 REPRESENTAT
ION
Part of the Mere
contract collateral
inducement
Written on the May be
policy, actually written in the
or by policy or may
reference be oral.
Presumed Must be
material proved to be
material
Must be Requires only
strictly substantial
complied with 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 4. Discovery of willful or reckless acts of
describing the risks assumed. omissions increasing the hazard
 Effect: Limit the coverage of the insured against;
contract. 5. Physical changes in property making
RESCISSION the property uninsurable; and
 Grounds: 6. Determination by the Insurance
A. Concealment Commissioner that the continuation
B. Misrepresentation of the policy would violate the
C. Breach of material warranty Insurance Code. (Sec. 64)
D. Breach of a condition  Requirements:
subsequent 1. Prior notice of cancellation to the
 Waiver of the right to rescind: insured;
Acceptance of premium payments 2. Notice must be in writing, mailed or
despite the knowledge of the ground delivered to the named insured at the
for rescission. (Sec. 45) address shown in the policy;
 Limitations on the right of the 3. Notice must state which of the
insurer to rescind: grounds set forth in Sec. 64 is relied
1. Non-life – such right must be upon and upon request of the
exercised prior to the insured, the insurer must furnish
commencement of an action on the facts on which the cancellation is
contract; based;
2. Life – such right must be availed of 4. Grounds should have existed after
during the first two years from the the effectivity date of the policy.
date of issue of policy or its last
reinstatement; prior to XII. INCONTESTABILITY CLAUSE
“incontestability.” (Sec. 48)  Clause in life insurance policy that
stipulates that the policy shall be
CANCELLATION OF NON-LIFE incontestable after a stated period.
INSURANCE POLICY  Requisites:
 Right of the insurer to abandon 1. Life insurance policy
the contract on the occurrence of 2. Payable on the death of the insured
certain grounds after the effectivity 3. It has been in force during the
date of a non-life policy. lifetime of the insured for a period of
 Grounds: at least two years from the date of its
1. Non-payment of premium; issue or of its last reinstatement
2. Conviction of a crime out of acts Note: The period of 2 years may be
increasing the hazard insured against; shortened but it cannot be extended
3. Discovery of fraud or material by stipulation.
misrepresentation;  Incontestability only deprives the
insurer of those defenses which arise
in connection with the formation and
operation of the policy prior to loss. vicious type;
(Prof. De Leon, p. 173 citing Wyatt 6. That the
and Wyatt, p. 878) beneficiary
failed to
BARRED DEFENSES furnish proof
DEFENSES NOT BARRED of death or to
OF THE comply with
INSURER any condition
1. Policy is 1. That the imposed by
void ab initio person taking the policy
2. Policy is the insurance after the loss
rescindable by lacked has
reason of the insurable happened; or
fraudulent interest as 7. That the
concealment required by action was not
or law; brought
misrepresenta 2. That the within the
tion of the cause of the time specified.
insured or his death of the
agent insured is an XIII.
excepted risk; A. OVER-INSURANCE – results when
3. That the the insured insures the same
premiums property for an amount greater than
have not been the value of the property with the
paid (Secs. 77, same insurance company.
227[b],  Effect in case of loss:
228[b], 1. The insurer is bound only to pay to
230[b]); the extent of the real value of the
4. That the property lost;
conditions of 2. The insured is entitled to recover the
the policy amount of premium corresponding to
relating to the excess in value of the property;
military or B. DOUBLE INSURANCE – exists
naval service where same person is insured by
have been several insurers separately in respect
violated (Secs. to same subject and interest. (Sec.
227[b], 93)
228[b]);  Requisites:
5. That the 1. Person insured is the same;
fraud is of a 2. Two or more insurers insuring
particularly 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 REINSURANCE
INSURANCE
Involves the Involves
same interest different
interest
Insurer Insurer
remains in becomes the
 such capacity insured in 4. Retrocession – A transaction
relation to whereby the reinsurer in turn, passes
reinsurer to another insurer a portion of the
Insured is the Original risk reinsured. It is really the
party in insured has no reinsurance of reinsurance. (Prof. De
interest in the interest in the Leon, p. 305)
2 contracts reinsurance
contract. XIV.
Subject of Subject of A. LOSS, IN INSURANCE
insurance is insurance is  Injury or damage sustained by the
property the original insured in consequence of the
insurer’s risk happening of one or more of the
Insured has to Insured’s accidents or misfortune against which
give his consent not the insurer, in consideration of the
consent necessary premium, has undertaken to
indemnify the insured. (Bonifacio
TERMS: Bros. Inc. vs. Mora, 20 SCRA 261)
1. Reinsurance treaty – Merely an
agreement between two insurance Loss for which Loss for
companies whereby one agrees to insurer is which insurer
cede and the other to accept liable is not liable
reinsurance business pursuant to 1. Loss the 1. Loss by
provisions specified in the treaty. proximate insured’s
(Prof. De Leon, p. 306) cause of willful act;
2. Automatic reinsurance – The which is the 2. Loss due
reinsured is bound to cede and the peril insured to
reinsurer is obligated to accept a against (Sec. connivance
fixed share of the risk which has to be 84); of the
reinsured under the contract. (Prof. 2. Loss the insured (Sec.
De Leon, p. 305) immediate 87); and
3. Facultative reinsurance – There is cause of 3. Loss
no obligation to cede or accept which is the where the
participation in the risk each party peril insured excepted
having a free choice. But once the against except peril is the
share is accepted, the obligation is where proximate
absolute and the liability thereunder proximate cause.
can be discharged only by payment. cause is an
(Equitable Ins. & Casualty Co. vs. excepted
Rural Ins. & Surety Co., Inc. 4 SCRA peril;
343) 3. Loss
through
 negligence of 2. That interest is covered by the
insured policy;
except where 3. There must be a loss; and
there was 4. The loss must be proximately
gross caused by the peril insured against.
negligence
amounting to NOTICE OF LOSS
willful acts; In fire In other
and insurance types of
4. Loss insurance
caused by
efforts to Required Not required
rescue the
thing from Failure to give Failure to
peril insured notice will give notice
against; defeat the will not
5. If during right of the exonerate
the course of insured to the insurer,
rescue, the recover. unless there
thing is is a
exposed to a stipulation in
peril not the policy
insured requiring the
against, which insured to do
permanently so.
deprives the
insured of its
possession, in B. CLAIMS SETTLEMENT
whole or in  The indemnification of the loss of
part (Sec. 85). the insured.

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;
TIME FOR PAYMENT OF CLAIMS presentation
NON-LIFE and filing of
LIFE POLICIES POLICIES proof of
death.
a. The proceeds
Maturing shall be paid
upon the within 30 days
expiration of after the
the term – receipt by the
The proceeds insurer of  In case of an unreasonable delay in
are proof of loss, the payment of the insured’s claim by
immediately and the insurer, the insured can recover:
payable to ascertainment 1) attorney’s fees; 2) expenses
the insured, of the loss or incurred by reason of the
unless they damage by unreasonable withholding; 3) interest
are made agreement of at double the legal interest rate fixed
payable in the parties or by the Monetary Board; and 4) the
installments by arbitration amount of the claim. (Zenith
or as annuity, but not later Insurance Corp. vs. CA, 185 SCRA 398)
in which than 90 days
case, the from such XV. PRESCRIPTIVE PERIOD (Secs. 63
installments receipt of & 384)
or annuities proof of loss  Rules:
shall be paid whether or 1. In the absence of an express
as they not stipulation in the policy, it being
become due. ascertainment based on a written contract, the
b. is had or action prescribes in 10 years.
Maturing at made. 2. However the parties may validly
the death of agree on a shorter period provided it
the insured, is not less than one year from the
occurring time the cause of action accrues.
prior to the 3. The cause of action accrues from
expiration of the rejection of the claim of the
the term insured and not from the time of loss.
stipulated – It shall commence from the denial
The proceeds of the claim, not from the resolution
are payable of the motion for reconsideration,
to the otherwise it can be used by the
beneficiaries insured as a scheme or device to
within 60 waste time until the evidence which
days after 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 claimant’s 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.
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 PERILS OF THE PERILS OF
profits (Sec. 105). SEA THE SHIP
3. Charterer Includes only A loss which
 Over the amount he is liable to the those in the
shipowner, if the ship is lost or casualties due ordinary
damaged during the voyage (Sec. to the: course of
106). 1. unusual events,
violence; or results from
B. 2. extraordin the:
In loans on bottomry and ary action of 1. natural
respondentia wind and and
 Repayment of the loan is subject wave; or inevitable
to the condition that the vessel or 3. Other action of the
goods, respectively, given as a extraordinary sea
security, shall arrive safely at the port causes 2. ordinary
of destination. connected wear and
1. Owner/Debtor with tear of the
 Difference between the value of navigation. ship or
vessel or goods and the amount of 3. Negligent
loan. (Sec. 101) failure of the
2. Creditor/lender ship’s owner
 Amount of the loan to provide
the vessel
Note: If a vessel is hypothecated by with proper
bottomry, only the excess is equipment to
insurable, since a loan on bottomry convey the
partakes of the nature of an cargo under
insurance coverage to the extent of ordinary
the loan accommodation. The same conditions.
rule would apply to the hypothecation
of the cargo by respondentia. Note: It is only perils of the sea which
(Pandect of Commercial Law and may be insured against unless perils
Jurisprudence, Justice Jose Vitug, of the ship is covered by an all-risk
1997 ed.) 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 he may have incurred in his efforts to
fraud or intentional misconduct on protect the property against a peril
the part of the insured. for which the insurer would have
 The insured has the initial burden been liable. (Sec. 163)
of proving that the cargo was in good
condition when the policy attached MATTERS ALTHOUGH CONCEALED,
and that the cargo was damaged WILL NOT VITIATE THE CONTRACT
when unloaded from the vessel; EXCEPT WHEN THEY CAUSED THE
thereafter, the burden then shifts to LOSS (Sec. 110)
the insurer to show the exception to 1. National character of the insured;
the coverage. (Filipinas Merchants 2. Liability of the thing insured to
Insurance vs. Court of Appeals, 179 capture or detention;
SCRA 638) 3. Liability to seizure from breach of
foreign laws;
B. Barratry Clause 4. Want of necessary documents; and
 A clause which provides that there 5. Use of false or simulated papers.
can be no recovery on the policy in Note: This should be related to the
case of any willful misconduct on the general rule regarding material
part of the master or crew in concealment.
pursuance of some unlawful or
fraudulent purpose without consent DISTINCTIONS ON CONCEALMENT
of owners, and to the prejudice of the (Commercial Law Reviewer, A.F.
owner’s interest. (Roque vs. IAC, 139 Agbayani, 1988 ed.)
SCRA 596)
MARINE OTHER
C. Inchamaree Clause INSURANCE PROPERTY
 A clause which makes the insurer INSURANCE
liable for loss or damage to the hull The information The
or machinery arising from the: of the belief or information
1. Negligence of the captain, engineers, expectation of or belief of a
etc. 3rd persons is 3rd party is
2. Explosions, breakage of shafts; and material and not material
3. Latent defect of machinery or hull. must be and need not
(Bar Review Materials in Commercial communicated be
Law, Jorge Miravite, 2002 ed.) communicate
d unless it
D. Sue and Labor Clause proceeds
 A clause under which the insurer form an agent
may become liable to pay the of the insured
insured, in addition to the loss whose duty it
actually suffered, such expenses as is to give
 information foreclose recourse against the
The Concealment common carrier for any liability under
concealment of of any the contractual obligation as such
any fact in material fact common carrier. (Delsan
relation to any will vitiate Transportation Lines vs. CA, 364 SCRA
of the matters the entire 24)
stated in Sec. contract,
110 does not whether or Seaworthiness
vitiate the not the loss  A relative term depending upon
entire contract results for the the nature of the ship, voyage,
but merely risk service and goods, denoting in
exonerates the concealed. general a ship’s fitness to perform
insurer from a the service and to encounter the
risk resulting ordinary perils of the voyage,
from the fact contemplated by the parties to the
concealed policy (Sec. 114).
GENERAL RULE: The warranty of
IMPLIED WARRANTIES seaworthiness is complied with if the
1. Seaworthiness of the ship at the ship be seaworthy at the time of the
inception of the insurance (Sec. 113); commencement of the risk. Prior or
2. Against improper deviation (Sec. 123, subsequent unseaworthiness is not a
124, 125); breach of the warranty nor is it
3. Against illegal venture; material that the vessel arrives in
4. Warranty of neutrality: the ship will safety at the end of her voyage.
carry the requisite documents of EXCEPTIONS:
nationality or neutrality of the ship or 1. In the case of a time policy, the ship
cargo where such nationality or must be seaworthy at the
neutrality is expressly warranted; commencement of every voyage she
(Sec. 120) may undertake
5. Presence of insurable interest. 2. In the case of cargo policy, each
vessel upon which the cargo is
 While the payment by the insurer shipped or transshipped, must be
for the insured value of the lost cargo seaworthy at the commencement of
operates as a waiver of the insurer’s each particular voyage
right to enforce the term of the 3. In the case of a voyage policy
implied warranty against the assured contemplating a voyage in different
under the marine insurance policy, stages, the ship must be seaworthy at
the same cannot be validly the commencement of each portion
interpreted as an automatic
admission of the vessel’s
seaworthiness by the insurer as to
  Applicability of implied warranty  Effect: In case of loss, the insurer is
of seaworthiness to cargo owners: It still liable.
becomes the obligation of a cargo 2. Improper - Every deviation not
owner to look for a reliable common specified in Sec. 124 (Sec. 125).
carrier, which keeps its vessels in  Effect: In case of loss or damage,
seaworthy conditions. The shipper the insurer is not liable. (Sec. 126)
may have no control over the vessel
but he has control in the choice of
the common carrier that will LOSS
transport his goods (Roque v. IAC, 1. Total:
139 SCRA 596). a. Actual -
i. Total destruction;
Deviation ii. Irretrievable loss by sinking;
 A departure from the course of the iii. Damage rendering the thing
voyage insured, or an unreasonable valueless; or
delay in pursuing the voyage or the iv. Total deprivation of owner of
commencement of an entirely possession of thing insured. (Sec.
different voyage. (Sec.123) 130)
 Instances: b. Constructive -
1. Departure of vessel from the course i. Actual loss of more than ¾ of the
of the sailing fixed by mercantile value of the object;
usage ii. Damage reducing value by more than
2. Departure of vessel from the most ¾ of the value of the vessel and of
natural, direct and advantageous cargo; and
route if not fixed by mercantile usage iii. Expense of transshipment exceed ¾
3. Unreasonable delay in pursuing of value of cargo. (Sec. 131, in
voyage relation to Sec. 139)
4. Commencement of an entirely  In case of constructive total loss,
different voyage (Secs. 121-123) insured may:
 Kinds: 1. Abandon goods or vessel to the
1. Proper - insurer and claim for whole insured
a. When caused by circumstances value (Sec. 139), or
outside the control of the ship 2. Without abandoning vessel, claim
captain or ship owner; for partial actual loss. (Sec. 155)
b. When necessary to comply with a 2. Partial: That which is not total (Sec.
warranty or to avoid a peril; 128).
c. When made in good faith to avoid a
peril; AVERAGE
d. When made in good faith to save  Any extraordinary or accidental
human life or to relieve another expense incurred during the voyage
vessel in distress (Sec. 124) for the preservation of the vessel,
cargo, or both, and all damages to the master or
the vessel and cargo from the time it upon his
is loaded and the voyage commenced authority;
until it ends and the cargo unloaded. 5. It must be not
be caused by
GENERAL PARTICULAR any fault of the
Has inured to Has not inured party asking
the common to the the
benefit and common contribution;
profit of all benefit and 6. It must be
persons profit of all successful, i.e.
interested in persons resulted in the
the vessel and interested in saving of the
cargo the vessel and vessel or
her cargo. cargo; and
To be borne To be borne Necessary.
equally by all alone by the
of the interests owner of the RIGHT OF INSURED IN CASE OF
concerned in cargo or the GENERAL AVERAGE
the venture. vessel, as the GENERAL RULE: The insured may
case may be. either hold the insurer directly liable
Requisites for for the whole of the insured value of
the right to the property sacrificed for the
claim general benefit, subrogating him to
contribution: his own right of contribution or
1. Common demand contribution from the other
danger to the interested parties as soon as the
vessel or vessel arrives at her destination
cargo; EXCEPTIONS:
2. Part of the 1. After the separation of interests
vessel or cargo liable to contribution
was sacrificed 2. When the insured has neglected or
deliberately; waived his right to contribution
3. Sacrifice must
be for the FPA Clause (Free From Particular
common Average)
safety or for A clause agreed upon in a policy of
the benefit of marine insurance in which it is stated
all; that the insurer shall not be liable for
4. Sacrifice must a particular average, such insurer
be made by 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
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- REINSURANCE XVII. FIRE INSURANCE
INSURANCE  A contract by which the insurer for
A percentage Situation a consideration agrees to indemnify
in the value of where the the insured against loss of, or damage
the insured insurer to, property by hostile fire, including
property which procures a 3rd loss by lightning, windstorm, tornado
the insured party called or earthquake and other allied risks,
himself the reinsurer when such risks are covered by
assumes to act to insure him extension to fire insurance policies or
as insurer to against liability under separate policies. (Sec. 167)
the extent of by reason of
the deficiency an original
in the insurance.  Prerequisites to recovery:
insurance of Basically, 1. Notice of loss – must be
the insured reinsurance is immediately given, unless delay is
property. In an insurance waived expressly or impliedly by the
case of loss or against liability insurer
damage, the which the 2. Proof of loss – according to best
insurer will be original insurer evidence obtainable. Delay may also
liable only for may incur in be waived expressly or impliedly by
such favor of the the insurer
proportion of original
the loss or insured. HOSTILE FIRE FRIENDLY
damage as the FIRE
amount of the One that One that
insurance escapes from burns in a
bears to the the place place where it
designated where it was was intended
percentage of intended to to burn and
the full value burn and ought to be
of the property ought to be.
insured. (Bar Insurer is Insurer is not
Review liable liable
Materials in
Commercial Measure of Indemnity
Law, Jorge 1. Open policy: only the expense
Miravite, 2002 necessary to replace the thing lost or
ed.) 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.)
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: workmen’s
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 insured’s
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 insurer’s
liability is based on contract; that of
the insured is based on torts.
Furthermore, the insurer’s 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)
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
vehicle’s 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
- final determination of who is
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
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 Nature of liability of surety
among the risks insured against. 1. Solidary;
 Where the car is unlawfully and 2. Limited to the amount of the bond;
wrongfully taken without the owner’s 3. It is determined strictly by the terms
consent or knowledge, such taking of the contract of suretyship in
constitutes theft, and thus, it is the relation to the principal contract
“theft clause” and not the between the obligor and the obligee.
“authorized driver clause that should (Sec. 176)
apply (Palermo v. Pyramids Ins., 161
SCRA 677). SURETYSHIP PROPERTY
INSURANCE
C. Cooperation Clause Accessory Principal
 A clause which provides in essence contract contract
that the insured shall give all such 3 parties: 2 parties:
information and assistance as the surety, insurer and
insurer may require, usually requiring obligor and insured
attendance at trials or hearings. oblige
Credit Contract of
XX. SURETYSHIP accommodati indemnity
 An agreement whereby a surety on
guarantees the performance by the Surety can Insurer has no
principal or obligor of an obligation or recover from such right;
undertaking in favor of an obligee. principal only right of
(Sec. 175) subrogation
 It is essentially a credit Bond can be May be
accommodation. cancelled cancelled
 It is considered an insurance only with unilaterally
contract if it is executed by the surety consent of either by
as a vocation, and not incidentally. obligee, insured or
(Sec. 20 Commissione insurer on
 When the contract is primarily r or court grounds
drawn up by 1 party, the benefit of provided by
doubt goes to the other party law
(insured/obligee) in case of an Requires No need of
ambiguity following the rule in acceptance of acceptance by
contracts of adhesion. Suretyship, obligee to be any third party
especially in fidelity bonding, is thus valid
treated like non-life insurance in Risk-shifting Risk-
some respects. device; distributing
premium paid device;
 being in the premium paid
nature of a as a ratable
service fee 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 deceased’s 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 policy’s 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)
  It is one of the risks assumed by fixed in the policy except when a
the insurer under a life insurance creditor insures the life of his debtor.
policy in the absence of a valid policy (Sec. 183)
exception. (Vance,p.572 cited in de
Leon, p. 107) IS THE CONSENT OF THE
Note: Justice Vitug believes that BENEFICIARY NECESSARY TO THE
death by suicide (if the insured is ASSIGNMENT OF A LIFE INSURANCE
sane) or at the hands of the law POLICY?
obviates against recovery as being  It depends. If the designation of
more in consonance with public the beneficiary is irrevocable, the
policy and as being implicit under beneficiary’s consent is essential
Section 87, ICP. (Pandect of because of his vested right. If the
Commercial Law and Jurisprudence, designation is revocable, the policy
1997 ed. P. 191) may be assigned without such
3. Killing by the beneficiary consent because the beneficiary only
GENERAL RULE: The interest of a has a mere expectancy to the
beneficiary in a life insurance policy proceeds. (The Insurance Code of the
shall be forfeited when the Philippines Annotated, Hector de
beneficiary is the principal Leon, 2002 ed.)
accomplice or accessory in willfully
bringing about the death of the Cash Surrender Value
insured, in which event, the nearest  As applied to a life insurance
relative of the insured shall receive policy, it is the amount the insured in
the proceeds of said insurance if not case of default, after the payment of
otherwise disqualified. (Sec. 12) at least 3 full annual premiums, is
EXCEPTIONS: entitled to receive if he surrenders
1. Accidental killing the policy and releases his claims
2. Self-defense upon it.
3. Insanity of the beneficiary at the
time he killed the insured LIFE FIRE
INSURANCE INSURANCE
 If the premiums paid came from Contract of Contract of
conjugal funds, the proceeds are investment indemnity
considered conjugal. If the not of
beneficiary is other than the insured’s indemnity
estate, the source of premiums Valued policy Open or
would not be relevant. (Del Val v. Del valued policy
Val, 29 Phil 534) May be The insurable
transferred interest of the
 The measure of indemnity in life or or assigned transferee or
health insurance policy is the sum to any person assignee is
 even if he has essential vary so as to reflect investment
no insurable results of any segregated portfolio of
interest investment.
Consent of Consent of
insurer is not insurer must XXIII. INSURANCE COMMISSIONER
essential to be secured in  Main agency charged with the
validity of the absence of enforcement of the Insurance Code
assignment waiver and other related laws.
Contingency Contingency  Functions:
that is insured against 1. ADJUDICATORY/QUASI-JUDICIAL
contemplate may or may a. Exclusive original jurisdiction –
d is a certain not occur Any dispute in the enforcement of any
event, the policy issued pursuant to Chapter VI
only (CMVLI). (Sec. 385, par. 2)
uncertainty b. Concurrent original jurisdiction
being the (with the RTC) – Where the maximum
time when it amount involved in any single claim is
will take P100,000 (Sec. 416), except in case of
place maritime insurance which is within
A long-term May be the exclusive jurisdiction of the RTC.
contract and cancelled by (BP 129; admiralty & maritime
cannot be either party jurisdiction)
cancelled by and is usually  Where the amount exceeds
the insurer for a term of P100,000, the RTC has jurisdiction.
one year
Beneficiary is Insured is  The Insurance Commissioner has
under no required to no jurisdiction to decide the legality
obligation to submit proof of a contract of agency entered into
prove actual of his actual between an insurance company and
financial loss pecuniary loss its agent. The same is not covered by
as a condition the term “doing or transacting
precedent to insurance business” under Sec 2, ICP,
collecting the neither is it covered by Sec. 416 of
insurance. the same Code which grants the
Commissioner adjudicatory powers
XXII. VARIABLE CONTRACT (Philippine American Life Insurance
 Any policy or contract on either a Co. v. Ansaldo, 234 SCRA 509).
group or individual basis issued by an
insurance company providing for 2. ADMINISTRATIVE/REGULATORY
benefits or other contractual a. Enforcement of
payments or values thereunder to 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