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VII. Risks and Coverage / Liability of Insurer A. Generally 1.

Insurable Risks (3)

Sec. 3. Any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest, or create a liability against him, may be insured against, subject to the provisions of this chapter. The consent of the husband is not necessary for the validity of an insurance policy taken out by a married woman on her life or that of her children. Any minor of the age of eighteen years or more, may, notwithstanding such minority, contract for life, health and accident insurance, with any insurance company duly authorized to do business in the hilippines, provided the insurance is taken on his own life and the beneficiary appointed is the minor!s estate or the minor!s father, mother, husband, wife, child, brother or sister. The married woman or the minor herein allowed to take out an insurance policy may e"ercise all the rights and privileges of an owner under a policy. All rights, title and interest in the policy of insurance taken out by an original owner on the life or health of a minor shall automatically vest in the minor upon the death of the original owner, unless otherwise provided for in the policy.

+. ,ife, health, accident insurance while it is true that in life, health, or accident insurance the person becomes the subject of insurance, the matter is generally viewed as one in reference to the insured as a party to the contract.

-. (asualty insurance in insurance .not falling within the scope of other types of insurance/ against perils which may affect the person and0or property of the insured and give rise to liability on his part to pay damages to others, )1# "!23#() 45))#& I" )1# &I"6" I%78,7#$ in its use, or the insured9s &I"6 8' ,8"" or ,I52I,I):, that he may suffer loss or be compelled to indemnify for the loss suffered by a + person.

Includes personal accident and health insurance as written by non;life insurance companies and all insurance against loss or liability which is not within the scope of other types of insurance, namely 'I&#, 45&I%#, "!&#):"1IP 5%$ ,I'#.

B. Event or Peril insured against: !nder "ection + p1 the contingency or un*nown event must be such that its happening will< $amnify or cause loss to a person having an insurable interest b. (reate a liability against him

hat may be insured? A. Subject matter: 1. In general anything that has an appreciable pecuniary value, which is subject to loss or deterioration or of which one may be deprived so that his pecuniary interest is or may be prejudiced, may properly constitute the subject matter of insurance. 2. Property Insurance both persons and property may be the subjects of insurance, but the term subject matter is ordinarily !"#$ I% &#'#&#%(# to the insurance of property. )he property covered by a policy is regarded as subject matter of the insurance, but it is apparent that in the last analysis, it is the ris* of loss of such property that is primarily involved.

!n*nown event may be past or future. )he insurer is liable for a fortuitous event if I) I" )1# #7#%) 8& P#&I, insured against and is the pro=imate cause of the loss sec>511?- ((. C. Insurance by a married oman:

5 married woman may ta*e out an insurance on her life or that of her children without the consent of her husband, or that of her husband, she having an insurable interest in the latter. "he may also ta*e out an insurance on her paraphernal or separate property or on property given to her by her husband. "ec1@ Insurance by a minor: 4ay only have life, health or accident insurance A 1> years or over A insurance is ta*en on his

life and A the beneficiary designated to receive the proceeds of the insurance is any of those enumerated by law. 5ny other insurance B voidable, in a proper action in court If the contract I" %8) $I"5''I&4#$ 2: )1# 4I%8&, )1# I%"!&#& (5%%8) #"(5P# ,I52I,I): 2: P#5$I%C 4I%8&I): 5" 5 $#'#%"# because persons who are capable cannot allege the incapacity of those with whom they contracted (1397 CC). Insurance company is bound, minor not.

in reinsurance, refers to the reinsurer(s share of the loss on risks ceded either automatically or facultatively'


Liability of Insurer for Loss $%tent of loss % depends whether the insured suffers a loss and the e"tent of that loss' as to e"tent, loss may be total, partial, or constructive total' o Satisfied by payment of the loss, reinstatement )repair or restoration* of the property lost or damaged, or its replacement )substitution* with another similar property'

#. $.

!"e#ified Risks $%#lusions and $%#e"tions

E!ceptions ma"e more de#inite the coverage indicated by the general description of the ris* by e!cluding certain speci#ied ris"s. )he e=ception may be of certain property or of certain peril within the general coverage. For example, this policy shall not co er accounts, bills, currency, deeds, evidences of debtD. nor unless specifically named heron in writing , bullion or manuscripts. % In a fire insurance policy, burning caused by lightning may be e=cepted from the ris*s assumed.

Cause of loss ( insurer assumes liability only for a loss pro"imately caused by the perils insured against although a peril not insured against may have been a remote cause of the loss' o +ut the insurer is still liable even if the pro"imate cause is not the peril insured against if the immediate cause is the peril insured against'

)urden of "roof *+ere loss +as o##urred , insurer has burden to prove that he is not liable' o -f a proof is made of a loss apparently within a contract of insurance, the burden is upon the insurer to prove by a preponderance of evidence, that the loss arose from a cause which is e"cepted or for which it is not liable, or from a cause which limits its liability'


Loss #. 'efinition of Loss in Insuran#e % the injury, damage, or liability sustained by the insured in conse&uence of the happening of one or more of the perils against which the insurer, in consideration of the premium, has undertaken to indemnify the insured


,ro%i-ate Cause (./)

!#o"e % embraces bodily, injury, including death, or property damage, or destruction' also includes loss of income or profits and legal liability to a third party'

!e# ./ .nless otherwise provided by the policy, an insurer is liable for a loss of which a peril insured against was the pro"imate cause, although a peril not contemplated by the contract may have been a remote cause of the loss' but he is not liable for a loss which the peril insured against was only a remote cause. #. 'efinition % That which, in a natural and continuous se&uence, unbroken by any new independent cause, produces an event and without which the event would not have occurred'

The pro"imate cause is the efficient cause , the one that sets others in motion , to which the loss is to be attributed, although other and incidental causes may be nearer in time to the result and operate more immediately in producing the loss' therefore, it is not e&uivalent to /immediate cause0' The &uestion that needs to be asked1 /-f the event did not happen, could the injury have resulted2 -f 34, then the event is the pro"imate cause'

caused by efforts to rescue the thing insured from a peril insured against. $%tension of "rin#i"le of "ro%i-ate #ause3 .nder Section 67, insurer is liable in two cases1 #. +ere t+e loss took "la#e *+ile being res#ued fro- t+e "eril insured against the insurer is liable where the insured is permanently deprived of the possession, in whole, or in part, of thee thing insured by a peril not insured against provided it is shown that said property would have been lost by the peril insured against and there been no attempt to rescue it' % Thus, the loss of goods by theft during the removal of the goods to save them from loss by fire is covered by a policy against fire unless, of course the policy itself contains a stipulation e"empting the insurer from liability for such loss'


0eaning of ,ro%i-ate Cause in Insuran#e Cases % -n tort cases, the rules of pro"imate cause are applied for the single purpose of fi"ing culpability and for that reason, the rules consider both the injury and the principal cause to fi" the blame on those who created the situation in which the physical laws of nature operated' 5owever, the rules of pro"imate cause in insurance is not concerned with the &uestion of culpability or why the injury occurred, but only with the nature of the injury and how it happened' if the nearest efficient cause of the loss is one of the perils insured against, the courts look no further' if it is not a peril insured against, recovery may nevertheless be had if the dominant cause is a risk or peril insured against' -f fire causes an e"plosion which results in a loss, fire is the pro"imate cause of the loss while e"plosion is the immediate cause'


+ere t+e loss is #aused by efforts to res#ue t+e t+ing insured fro- a "eril insured against 5ere, it is the efforts to rescue the thing that caused the loss1 % Thus, damages to goods by being trampled on or thrown about in the efforts to put out the fire are covered by the policy of fire insurance' The insurer is also liable for loss caused by preparing the goods for removal from the premises although they are not actually carried out if at the time the work of removal is begun, the property is in such danger of fire that a reasonably prudent man would attempt to protect it' So also, damage to the insured property caused by water during attempt to save it from fire is generally regarded as resulting directly from the fire itself and as making the insurer liable therefor' +ut the insured is bound to e"ercise a reasonable degree of care in removing the goods' necessity of removal to be determined not by result alone by the circumstances as they appear to the interested persons at time of fire'


Co-"ared *it+ I--ediate and Re-ote Cause


Loss 'uring Res#ue 1ro- A Covered ,eril (.2)

!e# .2 An insurer is liable where the thing insured is rescued from a peril insured against that would otherwise have caused a loss, if, in the course of such rescue, the thing is e"posed to a peril not insured against, which permanently deprives the insured of its possession, in whole or in part' or where a loss is

!e# .4 8here a peril is especially e"cepted in a contract of insurance, a loss, which would not have occurred but for such peril, is thereby e"cepted although the immediate cause of the loss was a peril which was not e"pected.

+ere "ro%i-ate #ause is an e%#e"ted "eril -nsurer not liable if pro"imate cause of loss is a peril e"cepted from the policy although the immediate cause is a peril not e"cepted' Thus, in a fire insurance policy which e"cludes loss thru e"plosion, if an e"plosion occurs first and causes a fire which results in a loss, the insurer is not liable' 5ere, pro"imate cause is the /e"plosion0 which is an e"cepted peril' /fire0 is the immediate cause but not the /pro"imate cause0' 5owever, if a hostile fire occurs and causes an e"plosion, then, /fire0 is the pro"imate cause and the insurer is liable for the loss caused by the /e"plosion0 notwithstanding the e"ception' -nsurer has burden of proof to prove that the loss is caused by the risks e"cepted'


+ere t+ere is gross negligen#e ( but gross negligence or recklessness on the part of insured, the conse&uences of which must have been palpably obvious to him at the time, will relieve the insurer from liability' % :ross negligence or recklessness must be evaluated in light of the circumstances surrounding each case'

). In Life Insuran#e !e# 167 ;ife insurance is insurance on human lives and insurance appertaining thereto or connected therewith. !e# 1.8 An insurance upon life may be made payable on the death of the person, or on his surviving a specified period, or otherwise contingently on the continuance or cessation of life. <ver contract or pledge for the payment of endowments or annuities shall be considered a life insurance contract for purposes of this =ode. -n the absence of a judicial guardian, the father, or in the latter(s absence or incapacity, the mother, or any minor, who is an insured or a beneficiary under a contract of life, health or accident insurance, may e"ercise, in behalf of said minor, any right under the policy, without necessity of court authority or the giving of a bond, where the interest of the minor in the particular act involved does not e"ceed twenty thousand pesos. Such right may include, but shall not be limited to, obtaining a policy loan, surrendering the policy, receiving the proceeds of the policy, and giving the minor(s consent to any transaction on the policy. 1. 'eat+ or !urviving a !"e#ified ,eriod (1679 1.8)


Loss 'ue to ilful A#t or Connivan#e v 5egligen#e of Insured (.6)

!e# .6 An insurer is not liable for a loss caused by the wilful act or through the connivance of the insured' but he is not e"onerated by the negligence of the insured, or of the insurance agents or others. Loss by *ilful a#t or t+ru #onnivan#e of insured % -nsurer not liable for loss caused by an intentional act )e.g. suicide* of the insured or thru his connivance' such loss not within the contemplation of a contract of insurance where risk should not be subject to the control of the parties' Loss #aused by negligen#e of insured #. +ere t+ere is ordinary negligen#e , one of the purposes of insurance is to protect the insured against the conse&uences of his own negligence and that of his agents' % Thus, a basic rule, is that the carelessness and negligence of the insured or his agents constitute no defence on the part of the insurer' The doctrine of contributory negligence does not in any way apply to rights under a contract of insurance' 9ere negligence or carelessness on the part of insured or of his servants, although directly causing or contributing to the loss, usually is one of the risks covered by the insurance and does not relieve the company from liability' An insurance policy would be of little value if it is permissible to set up a defence in every case where negligence could be shown'

Life insuran#e defined % +ased on Section #6>, it is insurance payable on death of a person, or on his surviving a specified period, or otherwise contingently on the continuance or cessation of life' 'eat+ ('is"utable ,resu-"tions: Rule 131: Ro#) 1. -f after ? years, if it is unknown whether or not absentee still lives, he is considered dead for all purposes, e"cept for succession'


Absentee not considered dead for the purpose of opening his succession until after #> years of absence' -f he disappeared at ?7 years old, an absence of 7 years shall be sufficient for his succession to opened'



The following are considered dead for all purposes including the division of estate among the heirs1 % A person on board a vessel los during a sea voyage, or an aircraft which is missing, who has not been hear of for @ years since the loss of the vessel or aircraft' % A member of the armed forces who has taken part in armed hostilities, and has been missing for @ years' % A person who has been in danger of death under other circumstances and his e"istence has not been known for @ years' &.

disabled persons are not contracts of indemnity' in these contracts, only medical e"penses incurred by the insured are paid' % 5ealth, accident and disability is deemed by law as both life and non%life'

5ature of Life Insuran#e (and 'istinguis+ed fro- 1ire and 0arine Insuran#e)

!#o"e of life Insuran#e The loss of earning power by persons results from their death, injury, illness, old age, or loss of employment' death is a contingency covered by life insurance, injury or sickness is covered by health insurance, old age is insured by annuities or pensions and unemployment insurance indemnifies for the loss of part of income and is a type of social insurance' #. Life insuran#e, in its simplest form, undertakes to protect the insured(s family, creditors, or others against pecuniary loss which may be the outgrowth of the death of the insured' % The loss occasioned by death is the cessation of the current earning power of the insured' applying an economic interpretation to the concept of death, the permanent loss of current earning capacity amounts to an /economic death0' Arom an economic standpoint, death may be1 i. Actual , the classification represents the so called /casket death0' ;iving death , this involves permanent disability' and Betirement death , living beyond the period of earning capacity represents this classification of death'

5ature of life insuran#e


Liability absolutely #ertain , The ordinary life insurance contemplates the certain payment of a specified sum at an uncertain time' and the premiums are so calculated that in accordance with the insured(s e"pectancy of life under a specified mortality table, there will be paid to the insurer in premiums and interest thereon, a sum e&ual to an amount to become due on the death of the insured plus the e"pense of administration' % -n case of fire and marine insurance, insurer takes merely a risk that a loss may take place within a given term, it being known by e"perience that such losses do not occur in a great majority of cases' -n ordinary life insurance, the event upon which the payment is to be made is absolutely certain to happen at some future time' in the average case the insurer only pays back the money that has been given to him to hold in &uasi trust for the insured plus interest and less e"penses' only in the case of premature death does the insurance payment embrace the element of indemnity'



$. ;ealt+: a##ident and disability insuran#e provides benefits for hospitals or medical e"penses, or for loss of time or earning power because of injury or illness' 8hile health insurance is written by life insurers, injury and illness are also viewed as casualties, that is, both as life and non%life insurance' hence, such policies may be issued by either life or non%life insurance companies' % ;ike life insurance, health insurance contracts that provide a specific periodic income to

A-ount of insuran#e generally *it+out li-it ( there is difficulty in fi"ing any sort of pecuniary value upon life )another reason why it(s not a contract of indemnity*' % 8ell recognized principle1 granting the e"istence of actual interest, e"cept when the interest grows out of an obligation to pay a fi"ed sum of money, there is no limit as to the amount insurance which may legally be placed upon the life of any person even though that person might be

one whose life was rather a burden upon the party in interest than a benefit possessing pecuniary value'


Life insuran#e is a valued "oli#y , it is a misnomer to speak of death as a /loss0 in the sense in which the burning of a building is spoken of as a /loss0 because there is no way to measure the value of human life' % The value placed on the insured is basically decided by the amount the purchaser is willing to pay in premiums' the amount is determined by factors affecting the life of the insured such as age, health, and occupation


'ire#t "e#uniary loss not re<uired ( when settlement is made, the beneficiaries are under no obligation to demonstrate, as a condition precedent to recovery, a direct pecuniary loss as a result of the death of the insured' % A life policy is more accurately characterized as a form if investment' The life insurance contract agrees to pay a certain stated amount rather than an amount determined after the loss to be a repayment for the loss' there can be no &uestion raised by the insurer paying the loss as to whether or not the loss of life actually resulted in an e&uivalent economic loss to the insured or his family' -t is fre&uently the case that at the time the policy becomes payable because of the death of the insured his value as a producer has ceased'

creditor on life of debtor* -nsurable interest need not have any legal basis =ontingency that is contemplated is certain event' only uncertain is the time it will take place .nless written only for a term, the liability of the insurer to make payment is certain, the only uncertain element being when such payment must be made' so, amount insured will have to be paid sooner or later Although may be terminated by insured, cannot be cancelled by the insurer , therefore, usually a long%term contract /loss0 to the beneficiary caused by the death of insured can seldom be measured accurately in terms of cash value +eneficiary under no obligation to prove actual financial loss as a result of the death of the insured in order to collect the insurance

-nsurable interest must have legal basis =ontingency insured against may occur or may not occur ;iability is uncertain because the happening of the peril insured against is uncertain' so, amount insured may not have to be paid

9ay be cancelled by either party and is usually for a term of one year

Beverse, generally true of the loss of property

-nsured re&uired to submit proof of his actual pecuniary loss as condition precedent to collect


=inds of Life Insuran#e ,oli#ies (In#luding $ndo*-ents and Annuities)

=inds of life insuran#e "oli#ies

Life insuran#e distinguis+ed fro- fire and -arine insuran#e Life 3ot a contract of indemnity Begarded as a valued policy 9ay be transferred or assigned to any person even if he has no insurable interest .nless e"pressly re&uired, consent of insurer is not essential to validity of the assignment -nsurable interest in the life or health of the person insured need not e"ist after the insurance takes effect or when loss occurs )e"cept that effected by a 1ire and -arine =ontracts of indemnity 9ay be open or valued The transferee or assignee must have an insurable interest in the thing insured =onsent, absence of waiver by the insurer, is essential in the assignment -nsurable interest in the property insured must e"ist not only when the insurance takes effect but also when loss occurs


>rdinary life "oli#y , one under the terms of which the insured is re&uired to pay a certain fi"ed premium annually or at more fre&uent intervals throughout his entire life and the beneficiary is entitled to receive payment under the policy only after the death of the insured' % 9any insurance companies consider this policy paid%up when insured reaches the age of #>>' thus, the ultimate payment of the insurance proceeds is as certain as death itself' Alternative form of payment1 /cash surrender value0' This policy is for the whole duration of life' it carries the lowest rate of premium' Also known as whole life or regular life, or straight life, or cash%value insurance'


Li-ited "ay-ent life "oli#y ( one under the terms of which the premiums are payable only during a limited period of years, usually #>, #7, or $>' % 8hen the specified number of premium payment have been made, the insurance is fully paid for' -t is like ordinary life policies in that it is payable only at the death of the insured' The insured can take advantage of the investment aspect of the policy' if the insured should die within the specified period, his beneficiary is entitled to all the proceeds of the policy without any liability for the unpaid premiums' +ecause of the limited number of payments, the premiums are proportionately higher' This does not have a cash surrender value' Also called limited premium insurance policy'

the insured may be given the option to convert the policy to one of whole life or endowment life' also known as temporary insurance' essentially pure insurance, i.e., it provides life insurance alone' another type of insurance is universal life that combines some aspects of term and some of whole life insurance'


$ndo*-ent "oli#y , one under the terms of which the insurer binds himself to pay a fi"ed sum to the insured if he survives for a specified period )maturity date stated in the policy*, or, if he dies within such period, to some other person indicated' % remium is higher because the cash values of the policy grow more rapidly' Ciffers from the limited payment life policy1 in latter, policy is paid only upon death of the insured' in former, the insured stands a chance of being paid the proceeds of the policy while still alive' After receiving the face amount of the policy, all coverage will terminate' -t has an increasing cash surrender value but premiums are high, as payment is re&uired even after the end of the term if the insured is still living' The proceeds on maturity can be paid either in a lump sum or as an annuity' This type represents both terms insurance and a form of annuity )right is to receive, for a definite term, fi"ed, periodical payments*' .seful in retirement planning' Aor the purpose of the -nsurance =ode, it is considered as a life insurance contract'

% %


?er- insuran#e "oli#y ( one which provides coverage only if the insured dies during a limited period' % it is an insurance for a fi"ed or a specific term, such as $, 7, or #> years' if the insured dies within specified period, the policy is paid to the beneficiary' if he survives the period, the contract terminates or e"pires at the end of the time period' the premium paid is levied during the specified terms and increases with each renewal term or the amount of coverage declines, and this is because as a person ages, the risk of death increases' premium lower than straight life insurance because of the possibility that insurer may not be obliged to pay anything in proceeds whatsoever if the insured survives the term' conse&uently, it is not considered to carry with it the element of investment' it has no loan value' there is generally no provision for payment of a cash surrender value or investment value upon surrender or lapse of the policy'

% %

% %

Contra#t of Annuity defined Art. 2021. The aleatory contract of life annuity binds the debtor to pay an annual pension or income during the life of one or more determinate persons in consideration of a capital consisting of money or other property, whose ownership is transferred to him at once with the burden of the income.

see Articles $>$$%$>$D in the =ivil =ode for other provisions on life annuity'

Con#e"t of annuity % has been called the /upside%down application of the life insurance principle0' % concept based on the notion that the purpose of life insurance is the scientific creation of an estate, whereas the purpose of the annuity is the scientific li&uidation of an estate' under a life insurance contract, the estate is created at death' under the annuity contract, the estate is fully li&uidated by death' =omparing the nature of the two1 /.

+oth provided protection from a substantial risk' a person may take life insurance and at the same time enter into a contract of annuity to provide security both against the risk of premature death and against the risk of long life. !ui#ide (1.89A@ Cf. .6)

!e# 1.89A The insurer in a life insurance contract shall be liable in case of suicides only when it is committed after the policy has been in force for a period of two years from the date of its issue or of its last reinstatement, unless the policy provides for a shorter period1 rovided, however, That suicide is committed in the state of insanity shall be compensable regardless of the date of commission. )cf. Sec 6?* Liability of insurer in #ase of sui#ide #. +en liable ( in a life insurance contract, the insurer is liable in case of suicide in the following cases1 a. Suicide after the policy has been in force for a period of $ years from date of issuance or of its last reinstatement' Suicide is committed after a shorter period )e.g. # year* provided in the policy although within the $ year period' and Suicide is committed in state of insanity regardless of the date of commission, unless suicide is an e"cepted risk'


-n e"change of premium, the purchaser of life insurance e"pects his insurer to pay his beneficiary a specified sum upon his death' Aor his premium, the purchaser of an annuity e"pects his insurer to pay him a periodic income as long as he lives'


Thus, under a life insurance contract, the insurer starts paying upon the death of the insured, whereas under an annuity contract, the insurer stops paying upon the death of the insured'


c. Annuity #ontra#ts distinguis+ed fro- ordinary life "oli#ies .nder the law, contracts of annuities are considered as life insurance contracts' the fact remains, however, that annuity and insurance are opposites' in this combination, one neutralizes the risk customarily inherent in the other' #. An annuity contract, unlike the life insurance contract, insures against economic problems resulting from a long life, rather than an early death' $. Arom viewpoint of insurer, insurance looks to longevity, while annuity, to transiency' .nder the ordinary life insurance policy, insured pays to the insurer an annuity and his beneficiary receives at the insured(s death the lump sum payment' under the usual form of annuity, the lump sum is paid to the insurer immediately and the annuitant receives the annuity payments as long as he lives' An annuity appears more like an /investment0 instead of an insurance, which may or may not turn out to be profitable' while life insurance is akin to /indemnity0'

3ote1 the policy cannot provide a period longer than $ years'

$. a.

+en not liable3 Suicide is not by reason of insanity and is committed within $ year period' Suicide is by reason of insanity but is not among the risks assumed by the insurer regardless of the date of commission' and The insurer can show that the policy was obtained with the intention to commit suicide even in the absence of any suicide e"clusion in the policy'






0easure of Inde-nity Ander Life ,oli#y (1.3)

!e# 1.3 .nless the interest of a person insured is susceptible of e"act pecuniary measurement, the


measure of the indemnity under a policy of insurance upon life or health is the sum fi"ed in the policy. % A person can purchase life insurance for any amount as long as he can pay premium' e"ception is when a person insures the life of another, as where a creditor insurers the life of his debtor' in this case, the interest of the creditor in the /life of the debtor0 is susceptible of e"act pecuniary measurement or estimation'


A##idental 'eat+ v 'eat+ by A##idental 0eans