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INSURANCE CONTRACT OF INSURANCE

nature that a contemplated peril might directly damnify the insured is an insurable interest (Sec. 13). It may consist of: (a) An existing interest An inchoate interest founded on an existing interest An expectancy coupled with an existing interest in that out of which the expectancy arises;

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) A contract of suretyship shall also be deemed an insurance contract if made by a surety who or which is doing an insurance business. NATURE AND CHARACTERISTICS OF A CONTRACT OF INSURANCE: 1. 2. ALEATORY depends upon some contingent event. Contract of INDEMNITY for Non-Life recovery is commensurate to the loss. It is an investment in life insurance secured by the insured as a measure of economic security for him during his lifetime and for his beneficiary upon his death except one secured by the creditor on the life of the debtor. PERSONAL contract - insurer contracts with reference to the character of the insured and vice versa. EXECUTORY & CONDITIONAL on part of the insurer. It is one of PERFECT GOOD FAITH Contract of ADHESION insurance companies manage to impose upon the insured prepared contracts, which the insured cannot change. Consequently, they are to construed as follows: a. In case there is no doubt as to the terms of the insurance contract, it is to be construed in its plain, ordinary, and popular sense. If doubtful, ambiguous, certain, it is to be construed strictly against the insurer and liberally in favor of the insured because the latter has no voice in the selection of the words used, and the language used is selected by the lawyers of the Insurer (Qua Chee Gan vs. Law Union Rock Ins. Co. Ltd. 52 OG 1982).

(b) (c)

Note: -

Expectancy must be founded on an actual right to the thing or a valid contract for it; A carrier or depository of any kind has insurable interest in the thing held by him such to the extent of his liability but not to exceed the value thereof (Sec. 13, 14, and 15). But, a mere contingent or expectant interest in anything, not founded on contract or actual right to the thing is not insurable as there is no insurable interest (Sec. 16).

3.

4. 5. 6.

INCHOATE RIGHT The right to lay claim on the fun is dependent on the solvency of the insurer and is subject to all other obligations of the company arising from its insurance contracts. Thus, the respondents interest is merely inchoate. Being a mere expectancy, it has no attribute of property. At this time, it is nonexistent and may never exist. Hence, it would be premature to make the security deposit answerable for CISCOs present obligation to Del Monte Motors. (Republic of the Philippines v. Del Monte Motors, Inc., Oct.9, 2006 G.R. No. 156956) INSURABLE INTEREST IN BANK DEPOSITS BAR EXAM; 2000 (VIII - b) Q: BD has bank deposit of half a million pesos.Since the limit of trhe insurance coverage of the Philippine Deposit Insurance Corp Act ( 3591) is only one tenth of BDs deposit, he would like some protection for the excess by taking out an insurance against all risks or contingencies of loss arising from any unsound or unsafe banking practices including unforeseen adverse effects of the continuing crisis involving the banking and financial sector in Asia. Does BD have insurable interest within the meaning of the Insurance Code? A: Yes, BD has insurable interest in his bank deposit. In case of loss of said deposit, more particularly to the extent of the amount in excess of the limit covered by the Philippine Deposit Insurance Corporation Act, BD will be damnified. He will suffer pecuniary loss of P400,000.00, that is, his bank deposit of half a million pesos minus P100,000.00 which is the maximum amount recoverable from the PDIC. MUST THE BENEFICIARY IN PROPERTY HAVE INSURABLE INTEREST ON THE PROPERTY INSURED? YES, as 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.

b.

ELEMENTS OF AN INSURANCE CONTRACT 1. The insured should possess an interest of some kind, susceptible of pecuniary estimation known as insurable interest. Generally a person has insurable interest in the subject matter insured when: He has such a relation or connection with or concern in, such subject matter that he will derive pecuniary benefit or advantage from its preservation or will suffer pecuniary loss or damage from its destruction, termination or injury by the happening of the event insured against. It is necessary because its absence renders the contract void.

IN WHAT DOES A PERSON HAVE INSURABLE INTEREST IN (LIFE) 1. 2. Himself, his spouse and of his children. Any person on whom he depends wholly or in fact for education or support or in whom he has pecuniary interest. Any person under legal obligation to him for the payment of money, respecting property or services of which death or illness might delay or prevent performance. Any person upon whose life, any estate or interest vested in him depends.

COMPARE WITH INSURABLE INTEREST IN LIFE: 2002 BAR EXAM (N0.XVII) INSURABLE INTEREST IN LIFE INSURABLE INTEREST IN PROPERTY Must exist at the time the policy takes effect and when the loss occurs

3.

Must exist only at the time the policy takes effect and need not exist at the time of loss Unlimited except in life insurance effected by creditor on life of debtor 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. 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.

Limited to actual value of interest in property insured An expectation of a benefit to be derived from the continued existence of the property insured must have a legal basis.

4.

WHEN MUST INSURABLE INTEREST IN LIFE EXIST Insurable interest in life must exist at the time of the effectivity of the policy and need not exist at the time of the death of the insured as life insurance is not a contract of indemnity. It is meant to give financial security to the insured or his beneficiaries (Sec. 19). However, insurable interest of a creditor on the life of the debtor must exist only at the time of effectivity but also at the time of the death of the debtor as in this instance it is a contract of indemnity. His interest is capable of exact pecuniary measurement.

The beneficiary must have insurable interest over the thing insured.

IS THE CONSENT OF THE INSURED REQUIRED WHEN INSURANCE IS TAKEN The law does not require the consent of the person insured and such has been considered as not essential to the validity of the contract as long as there is insurable interest at the beginning;

CHANGE OF INTEREST IN PROPERTY INSURED (Transfer or Sale of Insured Property) (1994 & 2000 Bar Exams) 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) change of interest after the loss; 2) change of interest in one or more of several things separately insured; 3) change of interest by will or succession; and 4) transfer of interest by a partner, joint owner, or common owner, to another partner, joint owner or common owner.

WHEN DOES A PERSON HAVE INSURABLE INTEREST IN PROPERTY A person has insurable interest in property as every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such

Bar Exam (1980): Q: A insures his house for P 10, 000 commencing January 1, 1952. On February 15, 1952, A sells the house to B for P15,000 without endorsing or transferring the fire policy to B. On April 20, 1952, the house is completely destroyed on account of the accidental fire. Can A or B collect the proceeds of the policy from the insurer? Explain and give reasons for your answer. (1952, 1959, 1980 Bar) A: Neither A, the seller, nor B, the buyer, can collect under the policy. A transfer of interest in property without any transfer of interest in the insurance suspends the latter until the interest in the property and in the insurance is vested in the same person. A has transferred his interest in the object of the insurance (the house) to B without a transfer of his interest in the insurance to B. As the interests in the object and in the insurance are in different persons at the time of the loss, none can recover under the policy. WHAT CHANGE IS CONTEMPLATED An absolute transfer of the property not life, a lease/mortgage. EXCEPTIONS TO THE REQUIREMENTS OF INSURABLE INTEREST: (1) Life, health or accident insurance because they are not contracts of indemnity and insurable interest is not required at the time of loss; A change of interest after occurrence of an injury and results in loss does not affect the right of the insured to indemnity; - After a loss, the liability of the insurer is fixed; A change of interest in one or more several distinct things, separately insured by one policy, does not avoid as to the others; (Sec. 22) A change of interest in one or more several distinct things, separately insured by one policy, does not avoid the insurance as to the insured; (Sec. 23) A transfer of interest by one or several partners, joint owners, or owners in common, who are jointly insured to the others, does not avoid insurance even though it has been agreed that the insurance shall lease upon an allocation of the thing insured; When notwithstanding a prohibition, the consent of the obtained; and insurer is

PARTIES TO A CONTRACT OF INSURANCE: 1. INSURER every person, partnership, association or corporation duly authorized to transact insurance business as provided in the code may be an insurer. It is the party who agrees to indemnify another upon the happening of specified contingency. INSURED party to be indemnified in case of loss (Sec. 6). Anyone except a public enemy (a nation at war with Philippines and every citizen subject of such nation.

2.

BAR EXAM; 2000 (VIII - a) Q: May a member of the Moro Islamic Liberation Front ( MILF ) or its breakaway group, the Abu Sayaff, be insured with a company licensed to do business under the Insurance Code of the Philippines? Explain. A: A member of the MILF or the Abu Sayyaf may be insured with a company licensed to do business under the Insurance Code of the Philippines. What is prohibited to be insured is a public enemy. A public enemy is a citizen or national of a country with which the Philippines is at war. Such member if the MILF or the Abu Sayyaf is not a citizen or national of another country, but of the Philippines. WHO MAY INSURE A MORTGAGED PROPERTY

(2)

Both the mortgagor and the mortgagee may take out separate policies with the same or different companies. The mortgagor to the extent of his property, the mortgagee to the extent of his credit; (Sec. 8) INSURANCE INTEREST ON MORTGAGED PROPERTY (2005 BAR EXAM (N0. X - 2- a) Armando Geagonia v. CA 241 SCRA 154 SC:

(3)

(4)

(5)

(6)

Condition 3 is what is known as other insurance clause which is a valid provision allowed by the insurance code in order to prevent in an increase in the moral hazard and to serve as a warranty that no other insurance exists. Its incorporation in fire policies prevents over insurance and adverts the perpetration of fraud. Its violation will thus avoid the policy. However, in order to constitute a violation, the other insurance must be upon the same subject matter, the same interest therein, and the same risk. Double insurance exists where the same person is insured by several insurers separately in respect of the same subject and interest. The court ruled that since the stocks in trade insured with PFIC were mortgaged property, separate insurances covering different insurable interests may be obtained by the mortgagor and mortgagee. The insurable interests of a mortgagor and mortgagee are separate and distinct, thus no double insurance exists since the policies of PFIC do not cover the same interest as that covered under the policy of Country Bankers Insurance Corp. The non-disclosure of the policies with PFIC was not fatal to Armandos right to recover on his policy with Country Bankers Insurance Corp. WHAT ARE THE CONSEQUENCES WHERE THE MORTGAGOR INSURES THE PROPERTY MORTGAGED IN HIS OWN NAME BUT MAY THE LOSS PAYABLE TO THE MORTGAGEE OR ASSIGNS THE POLICY TO HIM: a. The insurance is still deemed to be upon the interest of the mortgagor who does not cease to be a party to the original contract. Hence, if the policy is cancelled, notice must be given to the mortgagor. Any act of the mortgagor, prior to loss, which would otherwise avoid the policy or insurance, will have the same effect although the property is in the hands of the mortgagee. Hence, if there is a violation of the policy by the mortgagor, the mortgagee cannot recover. Any act required to be done by the mortgagor may be performed by the mortgagee with the same effect if it has been performed by the mortgagor. Upon the occurrence of the loss, the mortgagee is entitled to recover to the extent of his credit and the balance if any to be paid to the mortgagor, since such is for both their benefits; Upon recovery by the mortgagee, his credit is extinguished;

(7)

When the policy is so framed that it will insure to the benefit of whomsoever may become the owner during the continuance of the risk.

CONTINUATION OF ELEMENTS: 1. 2. Insurable interest; The insured is subject to risk of loss through the destruction or impairment of that interest by the happening of the designated risk; The insurer assumes the risk of loss; Such assertion is part of a general scheme to distribute actual loss among a large group of persons bearing somewhat similar risk; As a consideration for the insurers promise, the insured makes a ratable contribution called a premium to the general insurance fund;

3. 4.

5.

WHAT MAY BE INSURED AGAINST Any unknown or contingent event, whether past or future, which may damnify a person having insurable interest or create a liability against him, may be insured against (Sec. 3). NOTE: IN RELATION TO THE INSURANCE SO SECURE 1. The consent of the husband is not necessary for the validity of an insurance policy taken by a married woman on her life and that of her children. Under Art. 145 of the Family Code, she can also insure her separate property without the consent of the husband. A minor may take out a contract for life, health and accident insurance with any company authorized to do business in the Philippines, provided it be taken out on his own life and the beneficiary named is his estate, father, mother, husband, wife, child, brother or sister. In so doing, the married woman/minor may exercise all the rights or privileges under the policy.

b.

c.

2.

d.

e.

But What is the effect of the death of the original owner of a policy, which covers the life of a minor, ahead of the minor? all rights, title and interest in the policy shall automatically vest in the minor unless otherwise provided in the policy; WHAT CANNOT BE INSURED An insurance for or against the drawing of any lottery or for or against any chance or ticket in a lottery drawing or prize. Because gambling results in profit and insurance only seeks to indemnify the insured against loss (Sec. 4).

Note: Union Mortgage Clause creates the relation of insured and insurer between mortgagee and the insurer independent of the contract of the mortgagor. In such case, any act of the mortgagor can no longer affect the rights of the mortgagee the insurance contract is now independent of that with the mortgagor;

WHAT IS THE EFFECT OF INSURANCE PROCURED BY THE MORTGAGEE WITHOUT REFERENCE TO THE RIGHT OF THE MORTGAGOR a. The mortgagee may collect from the insurer upon the occurrence of the loss to the extent of his credit. Unless otherwise stated, the mortgagor cannot collect the balance of the proceeds after the mortgagee is paid. The insurer, after payment to the mortgagee, becomes subrogated to the rights of the mortgagee against the mortgagor and may collect the debt to the extent paid to the mortgagee. The mortgagee after payment cannot collect anymore from the mortgagor but if he is unable to collect in full from insurer, he can recover from the mortgagor. The mortgagor is not released from the debt because the insurer is subrogated in place of the mortgagee. BENEFICIARY the person who receives the benefits of an insurance policy upon maturity.

2.

The automatic assignment of the policy to the lessor is void for being contrary to law and public policy. The proceeds of the fire insurance policy rightfully belong to the Sps. Cha. The insurer cannot be compelled to pay the proceeds of the policy to the lessor who has no insurable interest on the property insured.

3.

b.

CAN THE BENEFICIARY BE CHANGED - The insured shall have the right to change the beneficiary he designated unless he has expressly waived the right in the policy (Sec. 11); - If he has waived the right, the effect is to make the designation as irrevocable. Note that the designation of the guilty spouse as irrevocable beneficiary is revocable as the instance of the innocent spouse in cases of termination of: (1) (2) (3) (4) a subsequent marriage; nullification of marriage; annulment of marriage; and legal separation (Art. 34, (4) Family Code

c.

d.

e.

3.

WHAT IS THE EXTENT OF THE INTEREST OF THE IRREVOCABLE BENEFICIARY IN A LIFE INSURANCE CONTRACT BENEFICIARIES IN LIFE INSURANCE Anyone, except who are prohibited by law to receive donations from the insured. Note Art. 739 of the Civil Code, hence the following cannot be designated as beneficiaries. Those made between persons guilty of adultery or concubinage at the time of the designation. Those guilty of the same criminal offense in consideration thereof. BAR EXAM (2008) BAR EXAM; 2005 (NO. IX -1) Q: On January 1, 2000, Antonio Rivera secured a life insurance from SOS Insurance Corp. for P1 Million with Gemma Rivera, his adopted daughter, as the beneficiary. Antonio Rivera died on March 4, 2005 and in the police investigation, it was ascertained that Gemma Rivera participated as an accessory in the killing of Antonio Rivera. Can SOS Insurance Corp. avoid liability by setting up as a defense the participation of Gemma Rivera in the killing of Antonio Rivera? Discuss with reasons. A: Sec. 12: 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. Thus, the insurance company must still pay out the proceeds of the life insurance policy to the nearest qualified relative of the insured. Those made to a public officer or his wife, descendants/ascendants by reasons of his office. A prior conviction for adultery/concubinage is not required, it can be proven by preponderance of evidence in the same action nullifying the designation. Note the cases of Insular Life vs. Ebrado, 80 SCRA 181, where a common law wife of the insured who is married could not be named as a beneficiary and SSS vs. Davac, 17 SCRA 863, where the insured designated his second wife as a beneficiary was upheld as the latter was not aware of the first marriage. Beneficiary in life and property insurance (BAR EXAMS; 2005) Philippine American Life Insurance Company v. Pineda (175 SCRA 416) The benefits of the policy shall accrue to the estate of the insured. SC: WHO RECOVERS IF BENEFICIARY PREDECEASES THE INSURED Under the law, the beneficiary designated in a life insurance contract cannot be changed without his or her consent because of the beneficiarys vested interest in the policy. In this regard, it is worth nothing that the beneficiary designation indorsement which forms part of the policy in the name of Rodolfo Dimayuga states that the designation of the beneficiaries is irrevocable and no right or privilege under the policy may be exercised, or agreement made with the insurance company to any change in or amendment to the policy without the consent of the said beneficiary. Accordingly, based on the provisions of the contract and the law applicable, it is only with the consent of all the beneficiaries that any change or amendment to the policy concerning the irrevocability of beneficiaries may be legally and validly effected. Insurable interest on property (BAR EXAMS, 2009) Spouses Nilo Cha v. CA Aug. 18, 1997 SC: 1. The lessor cannot validly be a beneficiary of the fire insurance policy taken by the spouses Cha. It has no insurable interest on the merchandize insured because it remains with the spouses. If designation is irrevocable, the legal representatives of the beneficiary may recover unless it was stipulated that the benefits are payable only if living. If revocable, and no change is made, the benefits passes to the estate of the insured. The rule holds also if benefits were payable only if living or if surviving and the beneficiary dies before the insured. CONCEALMENT Neglect to communicate that which a party knows and ought to communicate (Sec. 26). EFFECT OF CONCEALMENT Whether intentional or not, it entitles the injured party to rescind the contract of insurance (Sec. 27). Q: What are the effects of an irrevocable designation of a beneficiary under the Insurance Code? Explain. A: The irrevocable beneficiary has a vested interest in the policy, including its incident such as the policy loan and cash surrender value. (Grogorio v. Sun Life Assurance Company of Canada, 48 Phil. 53 [1925]) 2005 BAR EXAM (NO. IX- 2) Q: Jacob obtained a life insurance policy for P1 Million designating irrevocably Diwata, a friend, as his beneficiary. Jacob, however, changed his mind and wants Yob and Jojo, his other friends, to be included as beneficiaries considering that the proceeds of the policy are sufficient for the three friends.Can Jacob still add Yob and Jojo as his beneficiaries? Explain. A: The insured cannot add other beneficiaries as this would diminish the interest of Diwata who is the irrevocably designated beneficiary. The insured can only do so with the consent of Diwata. WHAT IS THE INTEREST OF AN IRREVOCABLE BENEFICIARY IN AN ENDOWMENT POLICY His interest is contingent as benefits are to be paid only if the assured dies before the specified period. If the insured outlives the period, the benefits are paid to the insured. WHAT IS THE EFFECT OF FAILURE TO DESIGNATE OR BENEFICIARY IS DISQUALIFIED The beneficiary has a vested right that cannot be taken away without his consent. In fact should the insured discontinue payment of the premium, the beneficiary may continue paying. Neither can the insured get a loan or obtain the cash surrender value of the policy without his consent (Nario vs. Philamlife, 20 SCRA 434). Note: Where the wife and minor children were named irrevocable beneficiaries, wife dies, the husband seeks to change the beneficiaries with the consent of the children. The consent is not valid due to minority. (Philamlife vs. Pineda, 170 SCRA 416)

2001 BAR EXAM (N0.XVI) Q: A applied for a non-medical life insurance. The insured did not inform the insurer that one week prior to his application for insurance, he was examined and confined at St. Lukes hospital where he was diagnosed for lung cancer. The insured soon thereafter died in a plane crash. Is the insurer liable considering that the fact concealed had no bearing with the cause of death of the insured? Why? A: No. The concealed fact is material to the approval and issuance of the insurance policy. It is well settled that the insured need not die of the disease he failed to disclose to the insurer. It is sufficient that his non-disclosure misled the insurer in forming his estimate of the risks of the proposed insurance policy or in making inquiries. WHO MUST PROVE KNOWLEDGE OF THE FACT CONCEALED? The party claiming existence of concealment must prove that there was knowledge on the part of the party charged with concealment. AS OF WHAT TIME MUST THE PARTY CHARGED WITH CONCEALMENT HAVE KNOWLEDGE OF THE FACT CONCEALED Generally, at the time of the effectivity of the policy. Note that even if a party did not know of the existence at the crime of application but before its effectivity, there is concealment. Information acquired after effectivity is not concealment and does not constitute ground to rescind the policy, as after the policy is issued, information subsequently acquired is no longer material as it will not affect or influence the party to enter into contract. However, in case of the reinstatement of a lapsed policy, facts known after effectivity but before reinstatement must be disclosed. HOW IS THE MATERIALITY REPRESENTATION DETERMINED? OF THE CONCEALMENT OR

WHEN MAY REPRESENTATION BE MADE Since it is an inducement to entering a contract it must ordinarily be made at the same time as or before the insurance of the policy (Sec. 37). Note that it can also be made after the issuance of the policy when the purpose thereof is to induce the insurer to modify an existing insurance contract as the provisions also apply to a modification (Same with concealment) FORMS AND KINDS OF REPRESENTATION It may be Oral or Written and can either be: (a) (b) Affirmative an affirmation of a fact existing when the contract begins. Promissory statement by the insured concerning what is to happen during the term of the insurance.

IS A REPRESENTATION PART OF THE CONTRACT No, it cannot qualify as an express provision in a contract (it is a collateral inducement to the contract but it may qualify an implied warranty. (Sec. 40) CAN A REPRESENTATION BE WITHDRAWN OR ALTERED Yes, as long as the insurance has not yet been effected and the insurer has not yet been induced to issue the policy. If withdrawn or altered afterwards, the contract can be rescinded as the insurer has already been led to issue the policy. (Sec. 41) TO WHAT DATE DOES A REPRESENTATION REFER It must be presumed to refer to the date on which the contract goes into effect. (Sec. 42) Note: There is no false representation if it is true at the time the contract takes effect although false at the time it is made. WHEN IS THE INSURED REQUIRED TO DISCLOSE INFORMATION FROM A 3RD PERSON When the information material to the transaction was acquired by an agent of the insured, as knowledge of the agent is also knowledge of the principal. WHAT IS THE EFFECT OF MISREPRESENTATION ON A MATERIAL POINT?

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 disadvantages of the proposed contract or in making his inquiries. (Sec. 31) MUST THERE BE A CAUSAL CONNECTION BETWEEN THE FACT CONCERNED AND THE CAUSE OF THE LOSS? Not necessary. It is sufficient that the non-revelation has misled the insurer in forming its estimate of disadvantage of fixing the premium. WHAT FACTS MUST BE COMMUNICATED? (a) Such fact within his knowledge as concealment requires knowledge of the fact concealed by the party charged with concealment. Fact/s material to the contract it must be of such nature that had the insurer known of it, it would not have accepted the risk or demanded a higher premium. That the other party had no means of ascertaining such fact/s. That the party with a duty to communicate makes no warranty (Sec. 28) as the existence of a warranty make the requirement to disclose superfluous but an intentional fraudulent omission on the part of the one insured to communicate information on a matter proving or tending to prove falsity of a warranty entitles the insurer to rescind. (Sec. 29)

If it is false on material point, whether affirmative or promissory the injured party is entitled to rescind the contract from the time the representation becomes false. However, the right to rescind is considered waived by the acceptance of premium payments despite knowledge of the ground to rescind. (Sec. 45) WHEN IS THE RIGHT TO RESCIND SUPPOSED TO BE EXERCISED It is exercised previous to the commencement of an action on the contract (Sec. 48). Note the case of Tan Chay Hing vs. West Coast Life Insurance Co., 51 Phil 80, where an insurer interposed the defense in an action to claim the proceeds that the contract is null and void. Section 48 was held to apply only when there is a contract to rescind. It is also qualified by 2nd paragraph of Section 48 which provides that after a policy of life insurance payable on the death of the insured shall have been in force during the lifetime of the insured for a period of 2 years from the date of issue or its last reinstatement, the insurer cannot prove that the policy is void ab initio or is subject to rescission by reason of a fraudulent concealment or misrepresentation of the insured or his agent (known as the incontestability clause). WHAT IS THE THEORY AND OBJECT BEHIND THE INCONTESTABILITY CLAUSE (a) On the part of the insurer an insurer has/should have a reasonable opportunity to investigate the statements which are made by the applicant an that after a definite period, it should no longer be permitted to question its validity. On part of the insured its object is to give the greatest possible assurance that the beneficiaries would receive payment of the proceeds without question as to validity or the policy.

(b)

(c) (d)

1996, 1997, and 2001 BAR EXAMS Sun Life Assurance Co. of Canada vs. CA, June 22, 1995 Robert Bacani was issued life insurance non-medical policy for P100,000.00 with his mother as beneficiary. In his application, he concealed his confinement at the Lung Center of the Philippines for certain illness. He died of a plane crash. The insurance company refused to pay for breach of the insurance contract.RTC and CA granted the claim of the beneficiary because the concealed facts were not material or irrelevant to the cause of death. SC: The SC reversed the ruling and held that the information which the insured failed to disclose was material and relevant to the approval and issuance of the policy. The facts concealed would have affected the insurers action on the application either by charging a higher rate of premium or rejecting the same. The insured need not die of the disease he concealed. It is sufficient that his non-disclosure misled the insurer in forming his estimate of the risk involved or in making inquiries. The contract of insurance can be rescinded by reason of concealment and this has to be exercised within the two year contestability period. REPRESENTATION Oral or written statement of a fact or a condition affecting the risk made by the insured to the insurance company, tending to induce the insurer to take the risk. (Sec. 36)

(b)

REQUISITES OF INCONTESTABILITY CLAUSE (1) (2) (3) It is a life insurance policy; It is payable on the death of the insured; It has been in force during the lifetime of the insured for at least two years from date of issue/or last reinstatement.

WHAT DEFENSES ARE NOT BARRED BY INCONTESTABILITY EVEN AFTER THE LAPSE OF 2 YEARS? (1) (2) (3) non-payment of premiums; lack of insurable interest; that the cause of death was excepted or not covered by the terms of the policy; that the fraud was of a particular vicious type such as: a. b. c. (5) policy was taken in furtherance of a scheme to murder the insured; where the insured substituted another for the medical examination; where the beneficiary feloniously killed the insured;

IS PAYMENT OF A PREMIUM PAYMENT FOR THE COVER NOTE NECESSARY TO BE PROTECTED AGAINST RISK INSURED AGAINST? Cover note held to be binding despite the absence of a premium payment for its issuance. No separate premiums are intended or required to be paid on a cover note because they do not contain particulars of the property insured that would serve as the basis for the computation of premiums such being the case no premium can be fixed. The cover notes should not be treated as a separate policy but should be integrated in the regular policy subsequently issued so that premiums on the regular policy should include that for the cover note (Pacific Timber vs. CA, 112 SCRA 199); BAR EXAM; 2009 (IV) Q: Antarctica Life Assurance Corporation (ALAC) publicly offered a specially designed insurance policy covering persons between the ages of 50 to 75 who may be afflicted with serious and debilitating illnesses. Quirico applied for insurance coverage, stating that he was already 80 years old. Nonetheless, ALAC approved his application.Quirico then requested ALAC for the issuance of a cover note while he was trying to raise funds to pay the insurance premium. ALAC granted the request. Ten days after he received the cover note, Quirico had a heart seizure and had to be hospitalized. He then filed a claim on the policy. a. Can ALAC validly deny the claim on the ground that the insurance coverage, as publicly offered, was available only to persons 50 to 75 years of age? Why or why not? (2%) b. Did ALACs issuance of a cover note result in the perfection of an insurance contract between Quirico and ALAC? Explain. A: a. b. No. There was no concealment on the part of Quirico as to his age. Yes, one of the exception of the cash and carry rule is in life insurance when the grace period applies. in the case at bar, the issuance of the cover note shows that the insurer granted a grace period.

(4)

violation of a condition in the policy relating to military or naval service in time of war; the necessary notice or proof of death was not given; action is not brought within time specified in the policy, which in no case should be less than 1 year as per Sec. 63.

(6) (7)

CONCEALMENT AND REPRESENTATION COMPARED 1. In concealment the insured withholds information of material facts, while in representation the insured makes erroneous statements; In concealment and misrepresentation both give the insurer the right to rescind the contract of insurance; The materiality of concealment and representation are determined by the same rules; Whether the concealment or representation is intentional or not, the injured party can rescind; Since insurance contracts are of utmost good faith the insurer is also covered by the rules.

2.

3.

4.

WHOSE INTEREST IS INSURED 5. (1) 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 (Sec. 53).

POLICY It is the written instrument in which a contract of insurance is set forth. (Sec. 49) WHAT MUST A POLICY SPECIFY?

MAY A 3RD PERSON SUE THE INSURER No, in general rule unless there is stipulation. Unless otherwise specified in the policy, a 3RD person may sue if: (a) The insurance contract contain stipulation in favor of a 3RD person, the latter though not a party may sue to enforce before the contract is revoked by the parties; The insurance contract provides for indemnity against liability to 3RD persons. The test to determine whether a 3rd person may directly sue the insurer of the wrongdoer is: if the contract provides indemnity against liability to 3RD persons, then the latter to whom the insured is liable may directly sue the insurer, on the other hand, if the insurance if for the indemnity against actual loss or payment then the 3rd person cannot sue the insurer recourse is against the insured alone.

A policy must specify: (1) (2) (3) The parties whom the contract is made; The amount to be insured except in open or running policies; The premium, or if the premium is to be determined at the termination of the contract, a statement of the basis and rates upon which the final premium is to be determined; The property or life insured; The interest of the insured in the property insured, if not the absolute owner; The risks insured against; The period during which the insurance is to continue. (Sec. 51) (2)

(b)

(4) (5) (6) (7)

COVER NOTES It is a written memorandum of the most important terms of a preliminary contract of insurance intended to give protection pending investigation by the insurer of the risk or until the insurance of the formal policy (Sec. 52). It is also known as binding slip or receipt or binder. EFFECTIVITY OF A COVER NOTE The effectivity of a cover note is 60 days as within such period, a policy shall be issued including in its terms the identical assurance found under the cover rate and the premium therefore. It may however, be extended beyond 60 days and with the written approval of the Insurance Commissioner if he determines that it does not violate the Insurance Code.

If the contract is executed with an agent or trustee as the insured, the fact that his principal or beneficiary is the real party in interest may be indicated by describing the insured as the agent/trustee or by general words in the policy (Sec. 54). If not indicated, it is as if the insurance is the taken out by the agent/trustee alone, consequently the principal has no right against the insurer; If a partner or part owner effects insurance, it is necessary that the terms of the policy should be such as are applicable to the joint or common interest so that it may be applicable to the interest of his copartners/owners (Sec. 55). Consequently, the policy must state that the interest of all is insured, if not, it is only the interest of the one getting the policy that is insured; When the description of the insured in the policy is so general that it may comprehend any person or any class of persons, only he who can show that it was intended to include him can claim the benefit of the policy (Sec. 56). 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). The proceeds become payable to who may be the owner at the time the loss or injury occurs. This is an exception to Sec. 20. The 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 (Sec. 58). Note the exceptions to this rule as found in Sec. 20-24 and 57.

(3)

(4) NOTE THE FOLLOWING RULES HAVE BEEN PROMULGATED BY THE INSURANCE COMMISSIONER: (1) A cover note is valid for 60 days whether or not a premium is paid but may be cancelled by either party upon at least 7-day notice to the other party. If the other note is not cancelled, a regular policy must be issued within 60 days from the date of issue of the cover note including within its terms the identical insurance. (6) (3) It may be extended with the written approval of the commissioner but may be dispensed with by a certification of the President, Vice-President or General Manager of the insurer that the risks involved and the extension do not violate the code. Insurance companies may impose a deposit premium equivalent to at least 25% of the estimated premium but in no case less than Php500.00.

(5)

(2)

(4)

KINDS OF INSURANCE POLICIES: Open Policy - value of the thing insured is not agreed upon, but is left to be ascertained in case of loss (Sec. 60). What is mentioned, as the amount is not the value of the property but merely the maximum limit of the insurers liability. In case of loss, the insurer only pays the actual cash value at the time of loss. Valued Policy - expresses on its face that the thing insured shall be valued at a specified sum (Sec. 61). The valuation of the property insured is conclusive between the parties. In the absence of fraud or mistake, such value will be paid in case of a total loss. Running Policy (Floating Policy) -contemplates successive insurances and which provides that the object of the policy may be from time to time defined especially as to the subjects of insurance, by additional statements or indorsements (Sec. 62). This is also known as a Floating Policy usually issued to provide indemnity for property, which cannot be covered by specific insurance because of a frequent change in location and quantity. VALUED POLICY vs. OPEN POLICY VALUED POLICY Proof of value of the thing after the loss is not necessary. Parties have conclusively stipulated that the property insured is valued at a specified sum. OPEN POLICY Insured must prove the value of the thing insured. Value is not agreed but left to be ascertained upon loss.

WARRANTIES It is a statement or promise stated in the policy or incorporated therein by reference, whereby the insured expressly or impliedly (Section 67) contracts as to the past, present or future (Section 68) existence of certain facts, conditions or circumstances the literal truth of which is essential to the validity of the contract. KINDS OF WARRANTIES (1) Affirmative those that relate to matters that exist at or before the issuance of the policy; Promissory those where the insured promises or undertakes that certain matters shall exist or will be done or will be omitted after the policy takes effect. It is a statement in the policy, which imparts that it is intended to do or not to do a thing which materially affects the risk, is a warranty that such act or omission shall take place (Section 72); Express a statement in a policy of a matter relating to the person or thing insured or to the risk as a fact (Section 71) and where the assertion or promise is clearly set forth in the policy or incorporated therein by reference. They can be affirmative or promissory warranties; An express warranty made at or before the execution of the policy should be contained (a) in the policy itself (b) in another instrument signed by the insured and referred to in the policy as making a part of it (Section 70). This includes a rider it is a part of the policy, it need not be signed unless the rider was issued after the original policy took effect; (4) Implied 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. Note that the law only provides for implied warranties in contracts of marine insurance. See Sec. 113 (seaworthiness) and 126 (deviation).

(2)

(3)

CAN THERE BE AGREEMENTS AS TO PRESCRIPTION OF AN ACTION OR LIMITATIONS ON THE PERIOD OF TIME TO BRING AN ACTION Yes, provided the period agreed upon should not be less than one year (Section 63). If less than one year, the agreement is void. The period so agreed shall be considered as having commenced from the time the cause of action accrues. Usually, the cause of action accrues from the date of the insurers rejection of the claim of the beneficiary or of the insured since before rejection there is no necessity to bring suit. When no period is stipulated or if the stipulation is void, the period is within 10 years under article 1144, New Civil Code, it being a written contract (Eagle Star vs. Chia Yu 96 Phil 696, ACCFA vs. Alpha Insurance, 24 SCRA 151). WHERE IS THE ACTION FILED The action may be filed in the following: (1) (2) Courts; Insurance Commissioner, who has concurrent jurisdiction with courts for claims not exceeding Php100,000.00; POEA/DOLE have the power to compel a surety to make good on a solidary undertaking in the same proceeding where the liability of the principal obligor is determined.

EFFECT OF VIOLATION OF A WARRANTY The violation of a material warranty or other material provision of the policy, on the part of either party thereto, entitles the other to rescind (Sec. 74). Note that the insured can exercise the right also when the insurer violates a warranty, like when it refuses to grant a loan on the policy. Note that a causal connection between the violation of the warranty is not necessary So, even if the violation did act contribute in the loss the other party may still rescind. THE NON PERFORMANCE OF A PROMISSORY WARRANTY DOES NOT AVOID THE POLICY WHEN BEFORE THE ARRIVAL OF THE TIME FOR PERFORMANCE (Sec. 73) (1) (2) (3) The loss insured against happens; The performance becomes unlawful at the place of the contract; The performance becomes impossible.

(3)

Note that the claim becomes action upon filing with the court. CANCELLATION OF THE POLICY If policy other than life shall be cancelled by the insurer except upon prior notice thereof to the insured. No notice of cancellation shall be effective if not based on the occurrence, after effective date of one or more grounds: (Section 64) (1) (2) Non payment of premium; Conviction of a crime arising out of acts increasing the hazard insured against Discovery of material representation; Discovery of willful or reckless acts or omissions increasing the hazard insured against; Physical changes in the property insured which the result in the property being uninsurable; Determination by the insurance commissioner that continuation of the policy would place the insurer in violation of the code:

WARRANTY VS. REPRESENTATIONS WARRANTY Part of the contract Expressly set forth in the policy or incorporated therein by reference Strictly and literally performed Presumed material Breach of warranty is a breach of the contract itself REPRESENTATION Merely a collateral inducement thereto May be oral or written in another statement Must be substantially true Must be shown to be so Misrepresentation is rescind the contract a ground to

(3) (4)

(5)

(6)

FORM OF NOTICE OF CANCELLATION It must be in writing, mailed or delivered to the name insured at the address shown in the policy which shall state: (1) (2) The grounds relied upon as per Section 64, and; That upon written request of the named insured, the insurer will furnish the facts on which cancellation is based (Sec. 65).

PREMIUM The agreed price for assuming and carrying the risk. WHEN IS THE INSURER ENTITLED TO A PREMIUM? The insurer is entitled to the payment of a premium as soon as the thing insured is exposed to the peril insured against. Notwithstanding any agreement to the contrary, no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium is paid except in: (1) In case of life or industrial life (life insurance policy where the premium is payable monthly or oftener) whenever the grace period applies (Sec. 77); When the insurer makes a written acknowledgement of the receipt of premium, such is conclusive evidence of the payment of the premium to make it binding notwithstanding any stipulation therein that it shall not be binding until the premium is paid (Sec. 78) HENCE, the effect of an acknowledgement in a policy or contract of insurance of the receipt of the premium is that it is conclusive evidence of payment so far as to make the policy binding. However, it is conclusive only to make the policy binding and not for the purpose of collecting premium, and; Where the obligee has accepted the bond or suretyship contract in which case such bond or suretyship contract becomes valid and enforceable irrespective of whether or not the premium has been paid by the obligor to the surety (Sec. 177).

(6)

In case of over insurance. Here the insurance is in excess of the amount of the insurable interest of the insured and it is insured by several insurers, the insured is entitled to a RATABLE RETURN OF PREMIUM, proportional to the amount by which the aggregate sum insured in all the policies exceeds the insurable value;

WHEN ARE THEY NOT RECOVERABLE Premiums cannot be recovered: (1) If the peril insured against has existed, and the insurer has been liable for any period, the period being entire and indivisible (Sec. 80). In life insurance (Sec. 79-b) cash surrender value. When the insured is guilty of fraud or misrepresentation (Sec. 81).

(2) (3)

(2)

LOSS AND NOTICE OF LOSS WHAT ARE THE RULES TO DETERMINE WHETHER THE INSURER IS LIABLE FOR THE LOSS OF THE THING INSURED? 1. 2. Loss of which a peril insured is the proximate cause. Loss caused by efforts to rescue the thing insured from a peril insured against that would otherwise have caused a loss, if in the course if such rescue, the thing is exposed to peril not insured against, which permanently deprives the insured of its possession in whole or in part, or where a loss is caused by efforts to rescue the thing insured from a peril insured against (Sec. 85). Here the principle of proximate cause is extended to loss incurred while saving the thing insured. Where a peril is especially excepted in a contract of insurance a loss, which would not have occurred but for such peril, is thereby excepted although the immediate cause of the loss was a peril which was not excepted (Sec. 86). The immediate cause is the CAUSE OR CONDITION NEAREST THE TIME AND PLACE OF THE INJURY. Here, the insurer will be liable if both the immediate cause and the proximate cause are not excepted. If the proximate cause is excepted and the immediate cause is not, the insurer is not liable. An insurer is not liable for loss caused by the willful act or through the convenience of the insured; but he is not exonerated by the negligence of the insured, or of the insureds agent or others (Sec. 87).

(3)

EXCEPTIONS TO SECTION 77: UCPB General Insurance Inc. vs .Masagana Telemart, Inc. (G.R. No. 137172 April 4, 2001) 1. 2. When the grace periods applies; (Sec. 77) When the insurer makes a written acknowledgment of the receipt premium; (Sec. 78) 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) If the insurer granted the insured a credit term for the payment of the premium and loss occurs before the expiration of the term, recovery should be allowed even the premium is paid after the loss but within the credit term; Where the parties are barred by estoppel.

3.

3.

4.

4.

2007 BAR EXAM (IV) Q: Alfredo took out a policy to insure his commercial building against fire. The broker for the insurance company agreed to give a 15-day credit within which to pay the insurance premium. Upon delivery of the policy on May 15, 2006, Alfredo issued a postdated check payable on May 30, 2006. On May 28, 2006, a fire broke out and destroyed the building owned by Alfredo.Reason briefly in (a), (b) and (c). a. May Alfredo recover on the insurance policy? A: Yes, Alfredo can recover on the insurance policy. Although Section 77 of the Insurance Code provides that in fire insurance, payment of premium is necessary for validity of the policy (also known as cash and carry provision), nonetheless, the rule has been modified by the decisions of the Supreme Court after the promulgation of the Insurance Code. Thus, in UCPB General Insurance v. Masagana Telemart, G.R. No. 137172, April 4, 2001, it was held that the insured should be allowed to recover on losses sustained even when premium was paid after the fact of loss, provided payment was received by the insurer during the credit period given to the insured. (See also South Sea Surety v. Court of Appeals, G.R. No. 102253, June 2, 1995; American Home Assurance v. Chua, G.R. No. 130421, June 28, 1999) where the Supreme Court ruled that is the check payment for premium was received by the insurer prior to the loss or within the credit period, the insured was allowed to recover. b. Would your answer in (a) be the same if it was found that the proximate cause of the fire was an explosion and that fire was but the immediate cause of loss and there is no excepted peril under the policy?

5.

WHAT IS THE EFFECT OF PARTIAL PAYMENT? Ordinarily, the obligation to pay premium when due is considered an indivisible obligation. Hence, forfeiture is not prevented by a part payment unless, payment by installment has been agreed upon or is the established practice the basic principles of equity and fairness would not allow the insurer to collect and accept installments and later deny liability as premiums were not paid in full. PAYMENT TO INSURANCE AGENT OR BROKER --payment to the insurance company. WHEN IS THE INSURED ENTITLED TO A RETURN OF THE PREMIUMS PAID? 2000 BAR EXAM (IX a) The insured is entitled to a return when: (1) To the whole premium, when no part of the interest in the thing insured is exposed to any of the perils insured against (Sec. 79 A); Where the insurance is made for a definite period of time and the insured surrenders his policy before the expiration of the period, here the insured only recovers a portion of the policy premiums corresponding with the unexpired time but it does not apply if: a. b. the policy is not so definite; a short period rate (insurance is for a period of less than a year and a rate has been agreed to if the policy is surrendered; Example: If the policy is in force for a month the insurer retains 20% of the premium) has been agreed upon; the policy is a life insurance policy it is indivisible but he has a cash surrender value;

(2)

Yes, recovering under an insurance contract is allowed if the cause of the loss was either the proximate or the immediate cause as long as an expected peril was not the proximate cause of the loss. (Section 86, Insurance Code of the Philippines.) The fire being the immediate cause for the loss of the commercial building, would warrant recovery under the policy. c. If the fire was found to have been caused by Alfredo's own negligence, can he still recover on the policy?

c.

(3)

When the contract is voidable on account of fraud or misrepresentation of the insurer or the agent (Sec. 81); Where the contract is voidable on account of facts, the existence of which the insured was ignorant without his fault (Sec. 81); When by any default of the insured other than actual fraud, the insurer never incurred any liability under the policy (Sec. 81);

Yes, he can still recover. The doctrine of contributory negligence does not in any way apply to rights under a contract of insurance, unless it is a case of willful act. (Section 87, Insurance Code of the Philippines)

(4)

(5)

RECOGNIZING THAT THERE ARE PROBLEMS IN PROXIMATE CAUSE NOTE THE FOLLOWING RULES: (a)

DETERMINING

DOUBLE INSURANCE Where the same person is insured by several insurers separately in respect to the same subject or interest (Sec. 91). 2005 BAR EXAM (N0. X 2 -b)

If there is a single cause which is an insured peril, clearly it is the proximate cause and there is liability; If there are concurrent causes (those happening together) with no excluded perils, there if liability if one of the causes is an insured peril, the others may be ignored; If there are concurrent causes with an excepted peril (insured peril operate together to produce the loss) the claim will be outside the scope of the policy; But if the results of the operation of the insured peril can be clearly separated from the effects of the excepted peril, the insurer is liable; Where a number of causes operate one from the other, the original cause happens to be a peril, the insurer is liable.

(b)

Q: What is the nature of the liability of the several insurers in double insurance? Explain. A: In double insurance, the insurers considered as co-insurers. Each one is bound to contribute ratably to the loss in proportion to the amount for which he is liable under his contract. (Section 94(e), Insurance Code. REQUISITES OF DOUBLE INSURANCE: 1. 2. 3. 4. 5. Same person is insured; There are several insurers; Subject insured is the same; Interest insured is the same; Risk of peril insured against is the same;

(c)

(d)

(e)

TRANSFER OF CLAIMS There is prohibition TO PREVENT OVER-INSURANCE, thus preventing fraud. An agreement not to transfer the claim of the insured after the loss happens is VOID if MADE BEFORE THE LOSS except as otherwise provided in case of life insurance (Sec. 33). This means that the insured has an absolute right to transfer his claim against the insurer AFTER THE LOSS occurs, what is prohibited is a transfer prior to the loss. This is so because such stipulation after the loss occurs shall hinder the transmission of property. Neither does it affect the insurer as its liability is already fixed and what is actually assigned is the money claim, not the contract itself. The exception in Sec. 173 that provides that the transfer of a fire insurance policy to any person or company who acts as an agent for or otherwise represents the issuing company is prohibited and is void insofar as it affects other creditors of the insured. NOTICE AND PROOF OF LOSS Notice of loss must be given without unnecessary delay by the insured or some person entitled to the benefit of the insurance. IF NOT THEN, the insurer is exonerated (Sec. 88). WITHOUT UNNECESSARY DELAY is within a reasonable time, depending on circumstances of a peculiar case, although courts have construed the requirement liberally in favor of the insured. PROOF OF LOSS If the policy requires Preliminary Proof of Loss (evidence given the insurer of the occurrence of the loss, its particulars, and data necessary to enable it to determine liability and the amount thereof) IT IS NOT NECESSARY that the insured give such proof AS MAY OR WOULD BE NECESSARY IN A COURT OF JUSTICE WHAT IS SUFFICIENT is the BEST EVIDENCE which he has in his power at that time (Sec. 89). WHEN ARE DEFECTS IN THE NOTICE OR PROOF LOSS DEEMED WAIVED BY THE INSURER When the insurer fails to specify to the insured any defect which the insured can remedy without delay. When the insurer denies liability on a ground other than that defect in the notice or proof of loss. 2. WHEN IS DELAY IN THE GIVING OF NOTICE WAIVED 1. 2. If it is caused by any act of the insurer. If the insurer omits to make an objection promptly and specifically on that ground. despite delay, the insurer does not object (Sec. 91). 3. (b) 2008 BAR EXAM: Q: Terrazas de Patio Verde, a condominium building, has a value of P50 Million. The owner insured the building against fire with three (3) insurance companies for the following amounts: Northern Insurance Corp. 20M,Sounthern Insurance Corp.30M, Eastern Insurance Corp.50M. a. b. Is the owner's taking of insurance for the building with three (3) insurers valid? Discuss. The building was totally razed by fire. If the owner decides to claim from Eastern Insurance Corp. only P50 Million, will the claim prosper? Explain.

A: (a) Taking out insurance covering the same property, same insurable interest and same risk with three insurance companies is double insurance recognized under sec 93 of ICP. However, in American Home Assurance Corp vs. Chua June 28, 1999, the court referred to the common inclusion of the other insurance clause in the fire insurance policies requiring disclosure of co-insurance of the same property with other insurers. Insured can recover from Eastern Inssurance Corp up to the extent of his loss. However, Eastern may refuse to pay if the policy contains an other insurance clause stipulating that non -disclosure of double insurance will avoid the policy. (Geagonia v. Country Bankers Insurance, 2/6/95). As there is no indication of a contractual prohibition on double or other insurance, all insurance contracts over the building are deemed valid and enforceable. The law prohibits double or over-recovery, not double insurance. Since eastern insured the property up 50% the total coverage, it is liable for only 50% of the total actual loss. Eastern Insurance Corp, is liable to the extent of its coverage but may recover one half of the total indemnity from the co-insurers in the proportion of 60% (Southern Insurance)- 40 % ( Northern Insurance) EFFECTS OF OVER-INSURANCE BY DOUBLE INSURANCE 1. Insured, unless the policy otherwise provide, 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. 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 policy without regard to the actual value of the subject matter insured. 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 the policy. Where the insured receives any sum in excess of the valuation in case of a valued policy or the insurable value in case of an unvalued policy, he must hold such sum in trust for the insurers, according to their right of contribution among them; In relation paragraph (4) Each insurer is bound, as between himself and the other insurers to contribute ratably to the loss in proportion to the amount for which it is liable under his contract. ALSO REFERRED TO AS THE PRINCIPLE OF CONTRIBUTION WHICH HAS ALREADY BEEN INCOPORATED IN ALMOST ALL POLICIES that should there be other insurances covering the same property, the liability of the company would be limited to its ratable proportion of the loss or damage (Also known as CONTRIBUTION CLAUSE).

WHAT HAPPENS AFTER PAYMENT BY THE INSURER SUBSEQUENT TO GIVING OF NOTICE OF LOSS In property insurance, after the insured has received payment from the insurer of the loss covered by the policy, the insurance company is SUBROGATED to the rights of the insured against the wrongdoer or the person who has violated the contract. The right of subrogation accrues upon payment of the insurance claim. NOTE: Subrogation takes effect by operation of law and does not require the consent of the wrong doer (Firemans Fire Insurance vs. Jamilla & Company, 70 SCRA 323). THERE IS NO SUBROGATION IN: (a) (b) (c) Life insurance as it is not a contract of indemnity When proximate cause of the loss is the insured himself When the insurer pays to the insured a loss not covered by the policy;

4.

5.

TEST TO DETERMINE EXISTENCE OF DOUBLE INSURANCE Whether the insured, in case of happening of the risk, can directly benefited by recovering on both policies? If yes there is double insurance. IS DOUBLE INSURANCE VALID? It depends, if there is prohibition in the policy then it is not valid, but if there is no prohibition, it is valid provided it must follow the provisions of the law.

docks, marine railways, dams and appurtenant facilities for the control of waterways. AND Marine Protection and Indemnity Insurance meaning insurance against, or against legal liability of the insured for loss, damage or expense incident to ownership, operation, chartering, maintenance, use, repair, or construction of any vessel, craft or instrumentality in use in ocean or island waterways, including liability of the insured for personal injury, illness or death or for loss or damage to the property of another person (Sec. 99). WHAT RISKS ARE INSURED AGAINST? The basic risk insured against is commonly known as PERILS OF THE SEA. WHAT ARE NOT COVERED? (a) (b) (c) natural and inevitable action of the sea; ordinary wear and tear of the ship; negligent failure of the ship owner to provide the vessel with the proper equipment to convey the cargo under ordinary conditions.

DOUBLE

INSURANCE

OVER

INSURANCE

There must be two or more insurers. The total amount of the policies need not exceed the value of the insurable interest.

One insurer is sufficient. The value must always be in excess of the insurable interest;

REINSURANCE Occurs when an insurer procures a 3RD person to insure him against loss or liability by reason of such original insurance (Sec. 95). WHEN IS REINSURANCE COMPULSORY? 1. When a non-life insurer insured in any one risk or hazard an amount exceeding 20% of its net worth, the insurer needs reinsurance of the excess over such limit (Sec. 215 (1)). When a foreign insurance company withdraws from the Philippines, it should cause its primary liabilities under policies insuring residents of the Philippines to be reinsured by another company authorized to transact an insurance business in the Philippines.

2008 BAR EXAM (IX b) Q: On October 30, 2007, M/V Pacific, a Philippine registered vessel owned by Cebu Shipping Company (CSC), sank on her voyage from Hong Kong to Manila. Empire Assurance Company (Empire) is the insurer of the lost cargoes loaded on board the vessel which were consigned to Debenhams Company. After it indemnified Debenhams, Empire as subrogee filed an action for damages against CSC. b) Assume that the vessel was not seaworthy as in fact its hull had leaked, causing flooding in the vessel. Will your answer be the same? Explain. A: When the vessel is not seaworthy, it is an exception to the hypothecary principle in maritime commerce. To limit its liability to the amount of the insurance proceeds, the carrier has the burden of proving that the unseaworthiness of its vessel was not due to its fault or negligence. The failure to discharge such a heavy burden precludes application of the limited liability rule and the carrier is liable to the full extent of the claims of the cargo owners (Aboitiz Shipping v. New India Assurance Company, G.R. No. 156978, 02 May 2006). 2008 EXAM (IX c)

2.

DOUBLE INSURANCE VS. REINSURANCE DOUBLE INSURANCE Insurer remains an insurer Subject matter is property REINSURANCE Insurer becomes the insured Subject matter is the insurers risk or liability Different interest and risk are insured

Same interest and risk is insured with another

Q:c) Assume the facts in question (b). Can the heirs of the three (3) crew members who perished recover from CSC? Explain fully. A: Yes, because the crew members died while performing their assigned duties, aggravated by the failure of the ship owner to ensure that the vessel is seaworthy. Workmens compensation has been classified by jurisprudence as an exception to the hypothecary nature of maritime commerce, [Abueg v.San Diego, 77 Phil. 730 (1948)], especially in this case where the vessel was not seaworthy at the time it sank. WHAT PERILS ARE INSURED IN AN ALL RISK POLICY It is to be construed as creating a special insurance and extending to all risk than are usually contemplated and will cover all losses except such that may arise from intentional fraud, intentional misconduct, or that otherwise excluded. It may include all losses whether arising from a marine peril or not to include pilferage during a war (Filipino Merchant Insurance Co. vs. CA, 179 SCRA 638). NOTE: Inchamaree Clause one that covers any loss other than a willful and fraudulent act of the insured and avoids putting upon the insured the burden of establishing that a loss was due to a peril within the policys coverage, whether arising from a marine peril or not provided the risk is not excluded; WHAT CONSTITUTES INSURANCE? 1. INSURABLE INTEREST IN OCEAN MARINE

WHAT KIND OF CONTRACT IS REINSURANCE? It is presumed to be a contract of indemnity against liability, and merely against damage (Sec. 97). As a RULE, the reinsurer is not liable to the reinsured for a loss under an original policy if the reinsured is not liable to the original policyholder. EXTENT OF LIABILITY OF THE REINSURER? The liability of the reinsurer is measured by the liability of the reinsured to the original policy holder PROVIDED, it does not exceed the amount of reinsurance.

CLASSES OF INSURANCE MARINE INSURANCE Insurance against loss or damage to: (a) Vessels, craft, aircraft, vehicles, goods freight, cargoes, merchandise effects, disbursements, profits, moneys, securities, loses in action, evidences of debt, valuable papers, bottomry or respondentia interest and all other kind of property and interests therein, in respect to, appertaining to or in connection with any and all risks or perils of navigation, transit or transportation or while being assembled, packed, crated, baled, compressed, or similarly prepared for shipment or while awaiting shipment or during any delays, storage, transshipment or reshipment incident thereto; Person or property in connection with or appertaining to marine, island marine, transit or transportation insurance, including liability for loss or in connection with the construction, repair, operation, maintenance, use of the subject matter of the insurance. (But not including life insurance, or surety bonds nor insurance against loss by reason of bodily injury to any person arising out of the ownership, maintenance, use of automobiles); Precious stones, jewels, jewelry, precious metals whether in the course of transportation or otherwise; Bridges, tunnels or other instrumentalities of transportation and communications (excluding buildings, their furniture and furnishings, fixed contents, and supplies held in storage), piers, wharves, docks, slips, and other aids to navigation and transportation including dry

The owner of a vessel has insurable interest in the vessel such shall continue even if the vessel has been chartered by one who covenants to pay the owner the value of the vessel upon loss but in case of loss, the owner is liable only for the part of the loss which the insured cannot recover from the charterer. (Sec. 100) The insurable interest of the owner of a ship hypothecated by bottomry is only the excess of its value over the amount secured by bottomry. (Sec. 101) The owner of a vessel also has insurable interest in expected freightage, which according to the ordinary course of things he would have earned but for the intervention of a peril insured against or other peril incident to the voyage. (Sec. 102)

2.

(b)

3.

(c)

ARE THERE PERSONS/PARTIES OTHER THAN THE OWNER WHO HAS INSURABLE INTEREST? YES; 1. One who has an interest in the thing from which profits are expected to proceed, has insurable interest on the profits (Sec. 105). The charterer of a ship has insurable interest to the extent that he is liable to be damnified by its loss (Sec. 106).

(d)

2.

CONCEALMENT IN MARINE INSURANCE A party is bound to communicate, in addition to what is required by section 28 (facts within his knowledge, material to the contract, other party has not the means of ascertaining, as to which party with a duty to communicate makes no warranty) information that he possesses, that are material to the risk AND, to state the EXACT and WHOLE TRUTH in relation to all matters that he represents, or upon inquiry discloses or assumes to disclose EXCEPT those that the insurer knows or those in the exercise of ordinary care, the other ought to know, and which the former has no reason to suppose him to be ignorant under Section 30 (Section 107); NOTE: That the rules on concealment in marine insurance are stricter as it is sufficient that the insured is in POSSESSION OF THE MATERIAL FACT, ALTHOUGH HE IS UNAWARE OF IT. A party is also bound to communicate, the information belief or expectation of a 3rd person, in reference to a material fact, is material. Note: under section 35 such is not required to be communicated in ordinary insurance (Sec. 108). PRESUMPTION OF A PRIOR LOSS Insured in marine insurance is presumed to have knowledge, at the time of insuring, or prior, if information might possibly reached him in the usual mode of transportation and the usual rate of communication (Sec. 109). EFFECT OF CONCEALMENT It exonerates the insurer from a loss resulting from the risks concealed as related to: (a) the national character of the insured; (b) the liability of the thing insured to capture and detention; (c) the liability to seizure from breach of laws of foreign laws of trade; (d) the want of necessary documents ; (e) the use of false/simulated documents ORDINARY CONCEALMENT vs. MARINE INSURANCE ORDINARY INSURANCE Opinion or belief of a 3RD person or own judgment of the insured is not material and need not be communicated (Sec. 35) A causal connection between the fact concealed and cause of loss is not necessary for the insurer to rescind; MARINE INSURANCE Belief or expectation of 3RD person in reference to a material fact is material and has to be communicated;

WARRANTY OF SEAWORTHINESS EXTENDS TO: The warranty of seaworthiness extends not only to the condition of the structure of the ship, but it requires that: (a) (b) (c) it be properly laden or loaded with cargo; is provided with a competent master, sufficient number of officers and seamen; it must have the requisite equipment and appurtenances like ballast, cables, anchors, cordage, sails, food, water, fuel, lights and other necessary and proper stores and implements for the voyage (Sec. 116). Note that when a ship becomes unseaworthy during the voyage it will not avoid the policy as long as there is no unreasonable delay in repairing the defect. Otherwise the insurer is exonerated on the ship or the ship owners interest from any liability from any loss arising therefrom (Sec. 118). Hence, if loss is not one due to the defect or peril was not increased by the defect insurer is liable. Also, while a ship may be seaworthy for purposes of insurance on it, it may by reason of being unfitted to receive cargo, be unseaworthy for the purpose of insurance on the cargo (Sec. 119). 2. It shall carry the requisite documents to show its nationality or neutrality and that it shall not carry any document that will cast reasonable suspicion on the vessel (Sec. 120). This warranty arises only when nationality or the neutrality of the vessel or cargo is expressly warranted. That the vessel shall not make any improper deviation from the intended voyage.

3.

DEVIATION: It is a departure from the course of the voyage as defined by Section 121 and 122 or an unreasonable delay in pursuing the voyage or the commencement of an entirely different voyage. (Sec. 123) WHEN IS DEVIATION PROPER (2005 BAR) A vessel can properly proceed to a port other than its port of destination in the following cases: 1. When caused by circumstances over which neither the master or the owner of the ship has any control; When necessary to comply with a warranty, or to avoid a peril, whether or not the peril is insured against; When made in good faith, and upon reasonable grounds of belief In the necessity to avoid peril; When made in good faith for the purpose of saving human life or relieving another vessel in distress. (Sec. 124)

The concealment of any of the matters stated in section 110 merely exonerates the insurer from loss, if the results from the fact concealed;

2. 3. 4.

REPRESENTATION IN MARINE INSURANCE: If the representation is intentionally false in any material respect, or, in respect of any fact on which the character and nature of the risk depends, the insurer may rescind (Section 111). But the eventual falsity of a representation as to an expectation does not in the absence of fraud avoid the contract (Sec. 112). WHAT ARE THE IMPLIED WARRANTIES IN MARINE INSURANCE? 2000 BAR EXAM (IX b) 1. In every contract of marine insurance upon a ship or freight, freightage or upon anything which is the subject of marine insurance, there is an implied warranty that the ship is sea worthy (Sec. 113). a. A ship is sea worthy when it is reasonably fit to perform the service and encounter the ordinary perils of the voyage, contemplated by the parties (Sec. 114). Note that it is relative and is made to depend on the circumstances. The implied warranty of seaworthiness complied with as a general rule when it is seaworthy at the time of the commencement of the risk except: i. when the insurance is made for a specified length of time, it must be seaworthy at the commencement of every voyage it undertakes at that time. when the insurance is upon cargo, which by the terms of the policy description of the voyage, or established custom of trade, it is required to be transshipped at an immediate port in which case each vessel upon which the cargo is shipped or transshipped must be seaworthy at the commencement of each particular voyage (Sec. 115). where different portions of the voyage contemplated in the policy differ in respect to the things requisite to make the ship seaworthy, I which case it must be seaworthy at the commencement of each portion (Sec. 117).

2005 BAR EXAM (N0. XIV -1 - a) Q: On a clear weather, M/V Sundo, carrying insured cargo, left the port of Manila bound for Cebu. While at sea, the vessel encountered a strong typhoon forcing the captain to steer the vessel to the nearest island where it stayed for seven days. The vessel ran out of provisions for its passengers. Consequently, the vessel proceeded to Leyte to replenish its supplies. a) Assuming that the cargo was damaged because of such deviation, who between the insurance company and the owner of the cargo bears the loss? Explain. A: The Insurance company should bear the loss. Since the deviation was cured by a strong typhoon, it was caused by circumstances beyond the control of the captain, and also to avoid a peril whether or not insured against. Deviation is therefore proper. (Sec. 145(a)) CONSEQUENCE OF IMPROPER DEVIATION Insurer is not liable for any loss happening to the thing insured subsequent to an improper deviation (Sec. 126). 5. That the vessel does not or will not engage in any illegal venture;

b.

ii.

LOSS IN MARINE INSURANCE KINDS OF TOTAL LOSSES: Actual or Constructive (1) If it is an Actual Total Loss it may be caused by: a. b. c. total destruction of the thing insured; the irretrievable loss of the thing which renders it valueless to the owner for the purpose that he held it; any other event which effectively deprives the owner of the possession at the port of destination of the thing insured (Sec. 130).

iii.

An actual total loss can also be presumed from the continued absence of the ship without being heard of (section 132). The length of time which is sufficient to raise these presumption depends on the circumstances of the case;

(2) (2) It is a constructive total loss when the person insured is given a right to abandon under Section 139 (Sec. 131).

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 (Sec. 148). The agents of the insured become agents of the insurer. This retroacts to the date of the loss when abandonment is effectively made;

2005 BAR EXAM (N0. X -1- a) EFFECTIVITY OF ABANDONMENT: Q: M/V Pearly Shells, a passenger and cargo vessel, was insured for P40,000,000.00 against constructive total loss. Due to a typhoon, it sank near Palawan. Luckily, there were no casualties, only injured passengers. The shipowner sent a notice of abandonment of his interest over the vessel to the insurance company which then hired professionals to afloat the vessel for P900,000.00. When re-floated, the vessel needed repairs estimated at P2,000,000.00. The insurance company refused to pay the claim of the shipowner, stating that there was no constructive total loss. a) Was there constructive total loss to entitle the shipowner to recover from the insurance company? Explain. A: There was constructive total loss. When the vessel sank, it was likely that it would be totally lost because of the improbability of recovery. (Arnolds Law of Marine Insurance and Average, 16th ed., Vol. II, pp. 954-955) Suggested Alternative Answer: There was no constructive total loss. The loss is not more than the value of the vessel which was insured for P40,000,000.00. The cost of refloating is P900,000.00 and the needed repairs amount P2,000,000.00, or a total of only P2,900,000.00 which does not constitute more than the value of the vessel. THE DOCTRINE OF LIMITED LIABILITY [when not applicable] The doctrine of limited liability under Article 587 of the Code of Commerce is not applicable to the present case. This rule does not apply to situations in which the loss or the injury is due to the concurrent negligence of the ship owner and the captain. It has already been established that the sinking of the M/V Central Bohol had been caused by the fault or negligence of the Ship Captain and the crew, as shown by the improper stowage of the cargo logs. Closer supervision on the part of the ship owner could have prevented this fatal miscalc ulation. As such, the ship owner was equally negligent. It cannot escape liability by virtue of the limited liability rule. (Central Shipping Company, Inc. v. Insurance Company of North America, Sept. 20, 2004, G.R. No. 150751) ABANDONMENT is the act of the insured by which, after a constructive total loss, he desires to the insurer the relinquishment in its favor his interest in the thing insured (Sec. 138). A person insured by a contract of marine insurance may abandon the thing insured, or any particular portion thereof separately valued by the policy, or otherwise separately insured and recover a total loss when the cause of loss is a peril insured against if: more than thereof in value is actually lost or would have to be expended to recover it form the peril insured against. if it is injured to such extent as to reduce its value by more than of value. if the thing injured is a ship and contemplated voyage cannot lawfully be performed without incurring either an expense to the insured of more than the value of the thing abandoned or a risk which a prudent man would not take under the circumstances. if the insured is freightage or cargo and the voyage cannot be performed nor another ship cannot be procured by the master within a reasonable time with reasonable diligence to forward the cargo without incurring the like expense or risk mentioned in item (c) but, freightage cannot be abandoned unless the ship is abandoned (Sec. 139). Abandonment must neither be partial nor conditional (Sec. 140). Hence, it must be total and absolute; and must be made within a reasonable time after receipt of reliable information of the loss but, where the information is of doubtful character, the insured is entitled to a reasonable time to make an inquiry (Sec. 141). HOW NOTICE OF ABANDONMENT IS MADE 2005 BAR EXAM (N0. X - 1- b) By giving notice, oral or written notice to the insurer but if orally given, a written notice of such must be submitted within seven days from giving oral notice (Sec. 143). The notice must be explicit and specify the particular cause of the abandonment but need start only enough to show that there is probable cause therefore and need not be accompanied by proof of interest or of loss (Sec. 144). The requirement as the explicitness of the notice is due to the fact that abandonment can only be sustained upon the cause specified in the notice (Sec. 145). EFFECTS OF ABANDONMENT (1) It is equivalent to a transfer by the insured of his interest to the insurer, with all the chances of recovery and indemnity (Sec. 146) Note though, if the insurer pays for a loss as if it were an actual total loss, he is entitled to whatever may remain of the thing insured, or its proceeds or salvage as if there has been a formal abandonment. Here the insurer has opted to pay for total actual loss notwithstanding the absence on actual abandonment; a. b. Enforcing the contribution against interested parties; or Claiming from the insurer. If it be the latter, subrogation takes place; Abandonment becomes effective upon the acceptance of the insurer. If it is not accepted despite validity, the insured may nevertheless claim an actual total loss. LIABILITY FOR AVERAGES AVERAGE is any extraordinary or accidental expense incurred during the voyage for the preservation of the vessel, cargo, or both and all damages to the vessel or cargo from the time it is loaded and the voyage commenced until it ends and the cargo is unloaded. KINDS OF AVERAGES: (a) Particular or simple average is a damage or expense caused to the vessel, cargo, or which has not inured to the common benefit and profit of all persons interested in the cargo or the vessel. This is borne ordinarily by the owner of the vessel or cargo that gives rise to the expenses or suffered the damage. General or gross average is an expense or damage suffered deliberately in order to save the vessel or its cargo or both from real and known risk. Thus, all persons having an interest in the vessel and cargo or both at the occurrence of the average shall contribute.

(b)

IN CASE OF GENERAL AVERAGE LOSS The insurer is liable for the loss falling upon the insured, though a contribution in respect to the thing insured when required to be made by him towards a general average loss called for a peril insured against but liability is limited to the proportion of the contribution attaching to his policy value where this is less than the contributing value of the thing insured (Sec. 164). Meaning that the insured can hold his insurer liable for contribution up to the value of the policy; RIGHT OF SUBROGATION When a person injured in a contract of marine insurance has a demand against the others for contribution, he may claim the whole loss from his insurer subrogating the insurer to his own right to contribution but no such claim can be made upon the insurer if: (a) (b) There is separation of the interest liable to contribution; When the insured having the right and opportunity to enforce contribution from others, has neglected or waived the exercise of the right (Sec. 165). Meaning that the insured has a choice of recovery on the happening of a general average loss. They are:

MEASURE OF INDEMNITY IN MARINE INSURANCE IF THE POLICY IS VALUED; 1. A valuation in the policy of marine insurance is exclusive between the parties thereto in the adjustment of either a partial or total loss, if the insured has some interest at risk and there is no fraud on his part. If there is fraud in valuation, it entitles the insurer to rescind as it is an exception as to conclusiveness (Sec. 156); If however, hyphotecated by the bottomry or respondentia before insurance and without knowledge of the person securing it he may show the real value; An insurer is liable upon a partial loss only for such proportion of the amount insured by him as the loss bears to the whole interest of the insured (Sec. 157). The effect is that the insured is deemed a co-insurer if the value of the insurance is less than the value of the property. This applies even in the absence of a stipulation in the contract and is also known as the average clause.

2.

3.

The two requisites for the application of the average clause: a. insurance is for less than actual value; b. the loss is partial Note: That co-insurance exist in Marine Insurance: In Fire Insurance, there is no co-insurance unless expressly stipulated (Sec. 171-172). In life insurance, there is none also as value is fixed in the policy (Sec. 183). 4. In case profits are separately insured in a contract of marine insurance (see Sec. 105) , the insured can recover in case of a loss (and under Sec. 160, there is a conclusive presumption of a loss from the loss of the property out of which they were expected to arise, and the valuation fixes their amount), a proportion of such profits equivalent to proportion

of the value of the property lost bears to the value of the whole (Sec. 158).

CASUALTY INSURANCE Generally, it is one that covers loss or liability arising from an accident or mishap excluding those that fall exclusively within other types of insurance like fire or marine. It includes employers liability, workmens compensation, public liability, motor vehicle liability, plate glass liability, burglary and theft, personal accident and health insurance as written by non-life companies and other 1993 and 1994 BAR EXAMS: Sun Insurance Office vs. CA July 17, 1992 X was issued a personal accident insurance for P200,000. Two months later, he died of a bullet wound in his head. He was playing with his hand gun from which he removed the magazine. He pointed his gun to his temple and fired. The insurance company refused to pay the beneficiary. Was there suicide or accident? SC: 1.

IF THE POLICY IS OPEN (a) The value of the ship is the value at the beginning of the risk, including all articles or charges which add to its permanent value or which are necessary to prepare it for the voyage insured; The value of the cargo is its actual cost to the insured, when laden on board where the cost cannot be ascertained, its Market Value at the time and place of lading. Adding the charges incurred in purchasing and placing it on board but without reference to any loss incurred in raising money for its purchase or any DRAWBACK on its EXPROPRIATION or FLUCTUATION of the market at the port of destination or expenses incurred on the way or on arrival; Value of freightage is the gross freightage, exclusive or primage without reference to the cost of earning it; The cost of insurance is in each case to be added to the value thus estimated (Sec. 161).

(b)

(c)

(d)

X was negligent but it should not prevent the beneficiary from recovery because there is nothing in the policy that exempts the insurer of the responsibility to pay indemnity if the insured is shown to have contributed to his own accident.t The death is accidental. Accident happens by chance without intention or design and which is unexpected or unforeseen.

IF THE CARGO INSURED AGAINST PARTIAL LOSS If it arrives at the port of destination in a damaged condition, the loss of the insured is deemed to be the same proportion of the value which the market price at that port of the thing so damaged bears to the market price it would have brought if sound (Sec. 162). Meaning if reduction in value is 1/5, then amount of recovery on the insurance is also 1/5. FIRE INSURANCE Insurance against fire includes loss or damage due to lightning, windstorm, tornado, earthquake or other allied risks when such risks are covered by extensions to the fire insurance policy or under separate policies (section 167). Hence, while it is not limited to loss or damage due to fire, coverage as to other risks is not automatic. 2001 BAR EXAM (N0.XVII) Q: JQ, owner of the condominium unit, insured the same against fire with XYZ Insurance Corp. and made the loss payable to his brother. MLQ. In case of loss by fire of the said condominium unit, who may recover on the fire insurance policy? State the reasons for your answer? A: JQ can recover on the fire insurance policy for the loss of the said condominium unit. He has the insurable interest as owner-insured. As beneficiary in the fire insurance policy, MLQ cannot recover on the fire insurance policy. For the beneficiary to recover on the fire or property insurance policy, it is required that he must have insurable interest in the property insured. In this case, MLQ does not have insurable interest in the condominium unit. FIRE DEFINED In insurance, it is defined as the active principle of burning, characterized by heat and light combustion. Combustion without visible light or glow is not fire ALTERATION DEFINED Is a change in the use or condition of a thing insured from that to which it is limited by the policy, made without the consent of the insurer, by means within the control of the insured, and increasing the risk, which entitles the insurer to rescind the contract of insurance (Sec. 168). HOW IS VALUATION MADE: (1) Whenever the insured would like to have a valuation stated in a policy insuring a building or structure against fire, it may be made by an independent appraiser, who is paid by the insured and the value may be fixed between the insurer and the insured; Subsequently, the clause is then inserted in the policy that said valuation has thus been fixed; In case of loss, provided there is no change increasing the risk without the consent of the insured or fraud on the part of the insured, the insurer will pay the whole amount so insured and stated in the policy is paid. If it is a partial loss, the whole amount of the partial loss is paid. In case there are 2 or more policies, each shall contribute pro-rata to the total or partial loss but the liability of the insurers cannot be more than the amount stated in the policy; Or the parties may stipulate that instead of payment, the option to repair, rebuild or replace the property wholly or partially damaged or destroyed shall be exercised (Sec. 172).

2.

SURETYSHIP An agreement whereby a party called the surety guarantees the performance by another party called the principal or obligor of an obligation or undertaking in favor of a 3RD party called the obligee (Sec. 175). Includes official recognizances, bonds or undertakings issued by any company under Act No. 536, as amended by act no. 2206 (Government transactions by authorized companies) LIABILITY OF THE SURETY It is joint and several (solidary) with the obligor but limited to the amount of the bond and determined strictly by the terms of the contract in relation to the principal contract between obligor obligee (Sec. 176). IS A SURETYSHIP CONTRACT VALID AND BINDING WHERE THE PREMIUM HAS NOT YET BEEN PAID? Generally, payment of the premium is a condition precedent. Hence the bond is not valid. An exception is when it is issued and accepted by the obligor, it is valid despite non payment of the premium (Sec. 177). SURETY vs. GUARANTY SURETY Assumes liability as a regular party to the agreement. GUARANTY Guarantors liability depends on an independent agreement to pay if primary debtor fails to pay Secondarily liable. Entitled to exhaustion.

Primarily liable. Not entitled to exhaustion.

NON-NECESSITY OF A DEMAND ON THE SURETY Demand on the surety is not necessary before bringing the suit against them. On this point, it may be worth mentioning that a surety is not even entitled, as a matter of right, to be given notice of the principals default. (Intra-Strata Assurance Corporation, Et Al. v. Republic of the Philippines, Etc., Jul. 9, 2008 G.R. No. 156571) LIFE INSURANCE Is insurance on human lives and insurance appertaining thereto or connected therewith (Sec. 179) WHEN IS IT PAYABLE An insurance upon life may be made payable upon: (a) death of the person; or (b) his surviving a specified period; or (c) otherwise, contingently on the continuance or cessation of life; COMMON KINDS: WHOLE LIFE/ORDINARY LIFE/STRAIGHT LIFE : premiums are payable for life and the insurer agrees to pay the face value upon the death of the insured. LIMITED PAYMENT LIFE: insured pays premiums for a limited period after which he stops with a guarantee by the insurer that upon death the face amount is to be paid if death occurs while payment is not complete beneficiary acts face amount. TERM POLICY: insurer is liable only upon death of the insured within the agreed term or period. If insured survives the insurer is not liable.

(2)

(3)

(4)

ENDOWMENT : protection is for a limited period, if the insured is still alive at the end of the period, the value of the policy is paid to him. If he dies before the end period, it is paid to the beneficiaries. ANNUITY: where the insured or a named person/s is paid a sum or sums periodically during life or a certain period (note that contracts for the payment of endowment or annuities are considered as life insurance contracts). DISTINGUISHING LIFE INSURANCE FROM PAYMENT OF ANNUITY

CANCELLATION OF THE POLICY (a) By the insurer requires written notice to motor vehicle owner/land transportation operator at least 15 days prior to intended effective date. If so canceled, the Land Transportation Office may order the immediate confiscation of license plates unless it receives a new valid insurance/surety/proof of cash deposit or revival by endorsement of the cancelled policy (Sec. 130); By the insured the motor vehicle owner/land transportation operator shall secure a similar policy or surety before the cancelled policy/surety ceases to be effective or make a cash deposit and file the same or proof thereof with the Land Transportation Office (Sec. 381).

(b) (1) In life insurance, it is payable upon the death of the insured, while in annuity, it is payable during the lifetime of the annuitant; In life insurance, the premium is paid in installments, while in annuity, annuitant pays a single premium; In life insurance, there is lump sum payment upon death, while in annuity, annuities are paid until death;

(2)

PAYMENT OF CLAIMS A claim for payment must be filed without any unnecessary delay, within 6 month from the date of accident by giving written notice setting forth the nature, extent and duration of the injuries as certified by a duly licensed physician (Sec. 384). WHAT IS NO FAULT INDEMNITY?

(3)

WHAT RISKS ARE COVERED? (1) Generally - all causes of death are covered unless excluded by law, by policy or public policy. Suicide, if committed after the policy has been in force for a period of two years from date of issue or last reinstatement unless policy provides a shorter period but it is nevertheless compensable if committed in the state of insanity regardless of date of commission (Sec. 180-A)

(2)

A no fault indemnity claim is a claim for payment for death or injury to a passenger of third party without necessity of proving fault or negligence. This is payable by the insurer provided: (a) (b) indemnity in respect of one person shall not exceed Php5,000.00; the necessary proof of loss under oath to substantiate the claim is submitted

IS A LIFE INSURANCE POLICY TRANSFERABLE OR ASSIGNABLE? Yes, it may pass by transfer, will or succession to any person, whether he has insurable interest or not. (Sec. 181) IS NOTICE TO THE INSURER OR TRANSFER OR BEQUEST REQUIRED? It is not necessary to preserve the validity of the policy unless thereby expressly required (Sec. 181) IS THE CONSENT OF THE BENEFICIARY REQUIRED? Yes, if he designated as an irrevocable beneficiary as he has acquired a vested right;

AGAINST WHOM IS THE PAYMENT CLAIMED A claim under the no fault indemnity clause may be made against one motor vehicle insurer only as follows: (a) in case of an occupant of a vehicle against the insurer of the vehicle in which the occupant is riding, mounting or dismounting from; in any other case, from the insurer of the directly offending vehicle; in all cases, the right of the party paying the claim to recover against the owner of the vehicle responsible for the accident shall be maintained;

(b) BUSINESS INSURANCE REQUIREMENTS FOR A CERTIFICATE OF AUTHORITY FROM THE INSURANCE COMMISSION: (a) (b) (c) Qualified by Philippines Laws to transact insurance business; Has a name that is not in anyway similar to another company; If organized as a stock corporation, it should have a paid up capital of no less that Php5,000,000.00; If it is organized as a mutual company (one whose capital funds are not contributed by stockholders but by policy holders) it must have available cash assets of at least Php5,000,000.00 above all liabilities for losses reported, expenses, taxes, legal reserves of all outstanding risks, and the contributed surplus fund equal to the amounts required of stock corporations (Php1,000,000.00 if a life insurance company or Php500,000.00, if a non life insurance company). If a foreign insurance company, it must appoint a resident agent, deposit securities and maintain a legal reserve (Sec. 184-193). (c)

INTERPRETATION OF THE AUTHORIZED DRIVER CLAUSE (1991 Bar Exams) The authorized driver clause is interpreted to refer to the insured or any person driving on the order of the insured or with his permission provided, such person is permitted to operate a motor vehicle in accordance with our licensing laws or regulations and who is not otherwise disqualified; NOTE THE FOLLOWING JURISPRUDENCE:

(d)

(1)

If license is expired, person is not authorized to operate a motor vehicle (Tarco Jr. vs. Phil Guaranty, 15 SCRA 313) Issued a temporary operators permit or a temporary vehicle receipt, a person is authorized to operate a motor vehicle, but if it has expired, it is as if he has no license (Guttierez vs. Capital Insurance, 130 SCRA 618, PEZA vs. Alikpala, 160 SCRA 31) A tourist with license but in the country for more than 90 days, is not authorized to operate a motor vehicle because it is as if he has no license (Strokes vs. Malayan, 127 SCRA 766) A drivers license that bears all the earmarks of a duly issued license is presumed genuine. A license is not necessary, where the insured himself is the driver (Paterno vs. Pyramid Insurance, 161 SCRA 677, 1986 BAR)

(2)

(e)

(3)

COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE It is to provide protection or coverage to answer for bodily injury or property damage that may be sustained by another arising from the use of motor vehicle. Please note though that what is now compulsory is death of bodily injury arising from motor vehicle accidents as per amendment to the insurance code by PD 1814 and PD 1455 brought about by insurance losses due to padded claims for property damage. Hence, property damage is now optional; DISTINGUISHED FROM OWN DAMAGE COMPREHENSIVE MOTOR VEHICLE INSURANCE: (a) COVERAGE AND Q: 1. Third party liability answers for liabilities arising from death or bodily injury to 3RD persons or passengers. 2. (b) Own damage insurance answers for reimbursement of the cost of repairing the damage to vehicle of the insured. Comprehensive insurance answers for all liabilities/damages arising from the use/operation of a motor vehicle it includes third party own damage, theft and property damage. (4)

(5)

BAR EXAM; 1996

While driving his car, X sideswiped A causing injuries to the latter. A sued X and the third party liability insurer for the damage sustained by A. The insurance company moved to dismiss the complaint contending that theliability of X has not yet been determined with finality.

(c)

Is the contention of the insurance company correct? May the insurer be held solidarily liable with X A: No. When an insurance policy insures directly against liability, the insurers liability accrues immediately upon the occurrence of the injury. No. The insurer cannot be held solidarily liable with X because its liability is based on a contract while that of X is based on torts. (Vda. De Maglana vs. Consolacion, August 6, 1992)

WHEN DOES THE LIABILITY OF THE INSURER ACCRUE? The occurrence of an injury for which the insured may be liable immediately gives rise to insurer liability (Shafer vs. Judge, 167 SCRA 386).

COMPREHENSIVE MOTOR VEHICLE INSURANCE (1993 & 2000 Bar Exam) The liability of the insurance company s direct and solidary with the operator but only up to the amount stated in the policy and accrues immediately upon the occurrence of the accident. Any amount awarded beyond the amount stated in the policy is the sole responsibility of the carrier. NON-FAULT CLAUSE IN COMPULSORY MOTOR POLICY (2000 Bar Exam) VEHICLE INSURANCE

Proof of fault or negligence is not necessary for the payment of any claim for death or injury to a passenger or to a third party. The maximum amount of indemnity is P 10, 000.00 upon submission of death certificate, medical certificate and police report. The purpose is in order to give immediate assistance to the victim of motor vehicle accidents and/or the dependents specially if they are poor, regardless of the financial capability of the owner of the motor vehicle or operator responsible for the accident. This does not include property damage. NECESSITY TO REGULATE INSURANCE COMPANIES COVERING PUBLIC UTILITY VEHICLES The present case shows a clear public necessity to regulate the proliferation of such insurance companies. Because of the PUV operat ors complaints, the LTFRB thus assessed the situation. It found that in order to protect the interests of the riding public and to resolve problems involving the passenger insurance coverage of PUVs, it had to issue Memorandum Circular No. 2001 -001 accrediting PAMI and PAIC II as the two groups allowed to participate in the program. Memorandum Circular No. 2001-001 required that [a]ll public utility vehicles whose LTO license plate, as per latest LTO Official Receipt, with an EVEN middle number (0, 2, 4, 6 and 8) shall be insured with UCPB insurance (PAMI) while those with an ODD middle number (1, 3, 5, 7 and 9) shall be insured with Great Domestic Insurance (PAIC II) x x x .