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LECTURE NOTES ON INSURANCE 2004 WHAT LAWS GOVERN INSURANCE The laws governing insurance in the order of priority

are (1) The Insurance Code [PD 1460-whose effectivity date is June 11, 1978} (2) in the absence of applicable provisions, the Civil Code (2) In the absence of applicable provisions in the Insurance Code and Civil Code, the general principles on the subject in the United States (Constantino vs. Asia Life Insurance, 87 Phil 248) Example: H applied for insurance with S Company with offices in Montreal, Canada. The application was mailed to S and on November 26. the insurer 3ve notice of acceptance by cable. H never received the cable and he died on December 20. The Insurance Code is silent as to acceptance by cable. The Civil Code shall apply and under Article 1319, an acceptance made by letter shall not bind the person making the offer except from the time it came to his

knowledge. There was no valid contract as H died without knowing the acceptance of his application. (Enriquez vs. Sun Life Assurance of Canada, 41 Phil 269) WHAT IS A CONTRACT OF INSURANCE A Contract of Insurance is an agreement whereby one undertakes far .a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. A Contract of Suretyship shall also be deemed an insurance contract made by a surety who or which is doing an insurance business. Doing an insurance business or transacting an insurance business is: ^af making or proposing to make as insurer, any insurance contract;

Jfr making or proposing to make, as surety, any contract of suretyship as ' a vocation and not as merely incidental to any other legitimate business or activity of the surety; doing any business including a reinsurance business, specifically recognized as doing an insurance business within the meaning of the Code; ^c^doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of the Code. (Section 2) NOTE - the fact thaljio profiyis derived from making of insurance contracts, agreements or transactions Tirltiaig^gfegparaie or oirectconsideralion is received shallfnotJbe deemed CONCLUSIVE to show that the making thereof doesfjioh constitute the doing or transacting of an insurance business NATURE AND CHARACTERISTICS OF A CONTRACT OF INSURANCE

1. IT IS AN(AlEATORY/CONTRACT - the liability of Ihe Insurer depends upon the happening ot a contingent event. It is not a wagering contract. 2. IT IS A CONTRACT OF(iNDEMNilYjFOR 'fciON-LIEE/- recover/ is commensurate to the loss. IT IS AlVlfivbSTMEKp IN LIFE INSURANCE -secured by the insured as a measure'^FeCT^^lm^aecurity fcr him during his lifetime and for his beneficiary upon his death (^XCEP^one secured by the creditor on the life_of the debtor. 3. IT IS y^PERSONAl^CONTRACT - an insurer contracts with reference to the character of the insured and vice v^rsa. 3___LLJS EXECUTORY AND CONDITIONAL ON THE PART OF THE (JNSURER^} because upon happening of the event or peril insured against the ConOtttfins having been met. it has the obliqation to execute tbe-eeotrau by paying the insured. IT IS EXECUTED ON THE

PART OF THEflNSUREQ^fler) the payment of the premium . '' ^ 5. IT IS ONE OF PERFEC1(gOOD FAITH jor both Insurer and Insured, but more so for the INSURER, since its dominant bargaining position imposes a stricter liability/responsibility. f* ' 6. IT IS A CONTRACT QFy^DHESIQN^Insurance companies manage to impose upon the insured preparethcurttracts which the insured cannot change Consequently, they are construed as follows: a. In case there is(ncj)doubt as to the terms of the insurance contract, it is to be construed in its PLAIN, ORDINARY, AND POPULAR SENSE. ^

Jj. If DOUBTFUL. AMBIGUOUS, UNCERTAIN it is to be construed ( strictlyjbgainst the insurer andJiberallv in favor of thejnsured 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 v. LAW UNION ROCK INS. CO. LTD 98 Phil. 85) ILLUSTRATIONS: -''a. P Bank obtained insurance against robbery which xdudedjbss by anv criminal act of the insured or any authorized representative While transferring funds from one branch to another, the insured's armored truck was robbed. Tne driver was assigned by a labor contractor with the insured, while the security guard was assigned by an agency contracted by the insured. Both driver and guard were found to be involved. Can the loss be excluded? HELD: THE LOSS IS EXCLUDED, the DRIVER/GUARD ALTHOUGH ASSIGNED BY

LABOR CONTRACTORS - ARE AUTHORI7FO RFPRFSFNTATIVF.S. THE TERMS ARE CLEAR AND UNAMBIGUOUS (Fortune Insurance v. CA, 244 SCRA 308). /b. Personal Accident policies providing payment for "loss of hand. The Insurance policy defines it as amputation. Insured has an accident resulting in a temporary total disability but hand is not amputated. HELD: Insurer is not liable (TY v. First National Surety and Assurance Company - 17 SCRA 364) BUT - in a case where the policy provided for loss of both legs by amputation, a claim against the policy was allowed for a total paralysis to exclude total paralysis is contrary to public policy, public good and sound morality, as it would force the insured to have his legs amputated to be able to claim on the policy (Panaton v. Malayan - 2 Court of Appeals 783). c Warranty in ? fire insurance policy prohibited storage of oils having a flash point of below 300

Fahrenheit. Gasoline is stored. Is there a policy violation? HELD: The clause is ambiguous. In ordinary parlance oil means lubricants - not gasoline. There is no reason why gasoline could not be expressed clearly in the language the public can readily understand. {QUA CHEE GAN 98 Phil. 85) v/d. An action to recover the amount of PHP 2.000.00 due to death by drowning where the policy provided for indemnity in the amount of PHP 1,000.00 to PHP 3,000.00. HELD: the interpretation of the obscure stipulation in contract must not favor the one who caused the obscurity. Hence, judgment for an additional PHP 2,000.00 was affirmed (Del Rosario vs. Equitable Insurance and Casualty Company, 8 SCRA 343). /e. Denial of a claim on the ground that the insured vehicle was a private owner" type vehicle on the ground that the policy issued to the insured was a Common Carriers Liability Insurance Policy which covers a pub-

lic vehicle for hire. HELD: Insurer is liable as it was aware all along that the vehicle of the insured was a private vehicle. (Fieldmans Insurance v. Mercedes Vargas vda De Songco, 25 SCRA 70) f. Denial of claim for benefit due to the death of Flaviano Landicho in a plane crash under a GSIS Policy on the ground of non payment of the premium: HELD: The policy contained a provision that the application for insurance is authority for GSIS to cause the deduction of premium from (he insured's salary (Landicho v. GSIS, 44 SCRA 7) OTHER CASE REFERENCES: New Life Enterprises v. CA, 207 SCRA 669 WHAT ARE THE 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: r OR ADVANTAGE FROM ITS PRESERVATION OR WILL SUFFER PECUNIARY LOSS OR DAMAGE FROM ITS DESIEUCIIOM, BYTh I HAP> "NING ATNTINSURETTAGAINST. OF 1 Hr -

iimessaFV-becau&fi its(ahspnr.fDf -W-r \ the Ighsenc^ _

the principle that insurance~T5~Scontract of initernnitTytf'thfi insured has no interest~7ie will not stand to suffer loss or injury by the happening of the event insured against

IN WHAT DOES A PERSON INSURABLE INTEREST IN

HAVE

a. Every person has an insurable interest in the LIFE and HEALTH of 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 a pecuniary interest (Note Article 195 of the Family Code specifying the persons obligated to support each other. Example-pecuniary interest-partners, employees)^) any person under a legal obligation to him for the payment of money, respecting property or services, of which death or illness might delay or prevent performance (Examples: Mortgagors. Debtors)j> any person upon whose life, any estate or interest vested in him depends (Example: Usufructuary X allows Y to receive fruits of the land of the former as long as he is alive. Y has insurable interest in the life of X, because the death of X will terminate his right and cause him damage). (Section 10) irfHAT IS THE BASIS OF INSURABLE INTEREST IN LIFE

II ex;sts^be4tiere js,ras9ajple grpw4^ounde<3jmih.e(relatiorvt>f the parties. ' eitheffpecuniap? ori^ontractu^f or b^(blood/or affinity) to expect so-me benefit from tfre-eerrfinuance'Oftrfe'of the insur?ci ~~ '---

WHEN MUST INSURABLE INTEREST IN LIFE EXIST ---Insurable interest ir(hfpnust exist at theTlinnj) of the ^ffectivityW the policy and {need nopfexist at theTme nf the death nt thp mtnrart a^-iiTp in^nranra iacnnfift nnntrar.t Of inriP.mnity.IT IS MEANT TO GIVE FINANCIAL SEGyfiilY EITHER TO THE INSURED OR HIS BENEFICIARIES (Section 1 Q^HoweveO insurable interest of g^credilor^n the life of a debtor must exist not"onlty a* tne time of ertectivitV UuPdliiU m tne time ot the death of the debtor- as~Tn this instance it is a contract of indemnity.HIS

INTEREST IS CAPABLE OF PECUNIARY MEASUREMENT

EXACT

WHAT IS THE EXTENT OF INSURABLE INTEREST IN ONES LIFE He has (jniimited intej^sj)in his own life or that of another person^egardless)of whether oTnot (he latter has insurable interest. Provided, that if the beneficiary has no insurable interest, there is no force or oad faith. BUT i ie ta<es out a policy on the life of another and names himself as Ihs henpri--iary ha mud hawo an insurable interest in the life of tha insured. IS THE CONSENT OF THE INSURED REQUIRED WHEN INSURANCE IS TAKEN The law doe^riot)reauire the^onsenLbf the person insured and such has hepn consiueiea as not essentialfo the validity nf the contract as Innfl ac therp is insurable interest at the beginning.

b. A person also 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 NATURE THAT A CONTEMPLATED PERIL MIGHT DIRECTLY DAMNIFY THE INSURED IS AN INSURABLE INTEREST (Section 13). It may consist of (1) An existing interest ( Example. By means of a conditional deed of sale, A sold his house to B for PHP 2,000,000.00. B pays a down payment of PHP 500,000 00. Prior to full payment and execution of an absolute sale, A has insurable interest in tne house equivalent to the balance due him, while B has insurable interest to the extent of the down payment because loss of the house will mean that he suffers a loss of PHP 500,000.00 (2) An inchoate interest founded on an existing interest (Defined: interest in real estate which is not a present interest but which may ripen into a vested interest if not barred, extinguished, or divested.

Example: interest in Corporate property arising from stockholdings but limited to its value (3) An expectancy, coupled with an existing interest in that out ot which {Tie expectancy arises.(Ex3mple: A ship owner has insurable interest in expected freight charges. Future crops that a farmer will grow on land belonging to him at the time of the issuance of the policy) Note that the expectancy must be founded on an actual right to the thing or a valid contract for it. Note also that a carrier or depository of any kind has insurable interest in the thing held by him as such to the extent of his liability but not to exceed the value thereof (Sections 13, 14, 15). But, a mere contingent orexgeclant interest in anything,fjoyfounded on contract or actual right to the thing is(notJlNSURABLE - as there Is no insurable interest (Section 16). Examples: (1) a son has no insurable interest on a building owned by father despite being designated

as an heir in the will as the will does not produce any effect before the testator's death (2) the owner of land on expected crops has insurable interest as he owns the land WHAT IS THE (jEST/OR MEASURE OF INSURABLE INTEREST IN PROPERTY Whether one will derive pecuniary benefit or advantage frnm its preservatinn of will suffer pecuniary loss or damaoe from its riestmr-.tinn (Section 17) MUST THE BENEFICIARY IN PROPERTY INSURANCE 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.

EXAMPLE: The owner insures his building against fire naming his nephew as beneficiary. In case of loss - only the owner can recover - what is not enforceable is the designation of beneficiary - not the entire policy itself. WHEN MUST INSURABLE INTEREST IN PROPERTY EXIST Must^exist at the timejhe insurance takes effect tend) when the loss occurs} but neerf notjexist in the meantime (Section 19) / 1. If A insures his house on May 2002 for 1 yr and without assigning the policy, he sold it to B if a fire occurs after it is sold to B - A cannot recover. B cannot recover also as he has no insurable interest at the time the insurance was procured. 2. An unsecured creditor secures insurance over the house of his debtor, A The house is burned.

The creditor cannot recover as he has no insurable ir.terest at the time the insurance was obtained. What if A sold the house to the creditor before the loss? Still no recovery as there was no insurable interest at the time it took effect. 3. If A re acquires the property from B before the fire - A can recover on the policy. OMPARE WITH INSURABLE INTEREST IN LIFE ' LIFE PROPERTY /based on pecuniary

not necessary - can be based interest on consanguinity or affinity

. 2. only at effectivity^xcepj^hat of effectivity and loss

exist at the time

/ taken by a creditor in the life IN RELATION TO THE NEED FOR THE EXISTENCE OF INSURABLE INTEREST. PLS. NOTE: That a change of interest in any port of a thing insured in accompanied by a corresponding change cf interest in the insurance(suspend,s the insurance to an equivalent extent until interest in the thing and intereSTTffthe insurance is vested In the saffie person.-- ' EG. A buyer of a property insured by the previous owner who has not obtained a transfer of the insurance policy in his name - cannot recover. RELATED QUERY - How about the seller - NO no insurable interest at the time of loss - (Sec 19) WHAT CHANGE IS CONTEMPLATED

An absolute transfer of the propert/NOT LIFE A LEASE / MORTGAGE EXCEPTIONS/i. Life, Health or accident insurance because they are not contracts of indemnity and insurable interest is not required at the time of loss. 2. A change of interes occurrence of an injury and results in loss - does not affect the right of theTfisured to indemn'ty - (Sec 21) - after loss - the liability of the insurer is fixed 3 a change of interest in one or more several distinct things, separately insured by one policy, does not avoid the insurance as to the others. (Sec 22} A. a change of interest by will or succession on the death of the insured does not avoid the insurance his interest passes on the thing insured (Sec 23) 5. 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 insurance shall lease upon an allocation of the thing insured. - there must be not stipulation against it - otherwise it is avoided. transfer to strangers avoid the policy

6. when notwithstanding a prohibition, the consent of the insurer is obtained v/cxr"! 7. when the policy is so framd that it will insure 1o the benefit of whomsoever may become the owner during the continuance of the risk. LASTLY The following areyokystipulations in propertyjnsucance -

A. a stipulation for the payment of the loss whether the person insured has or hasmotyiterest in the nronertv insured - because it is a contract of indemnity. B. Stipulation that the policy shall_be received as proof of such interest existence of insurable interest doesJnoTidepend on the policy C. every policy issued by way of gaining or wagering shall be(void) Those insured without insurable interest - as they do not suffer a damage from the occurrence of the event insured against - they vested profit. CONTINUATION OF ELEMENTS-

^ 2. The insured is subject to risk of loss through the destruction or impairment of that interest by the happening of the designated risks. 3. The Insurer assumes the risk of loss ^-4. Such assertion is part of a general scheme to distributed actual loss among a large group of persons bearing somewhat similar risks As a consideration for the insurers promise, the insured makes a ratable contribution called a premium to the general insurance fund. WHAT MAY BE INSURED AGAINST ANY UNKNOWN) OR(CONTINGENT)EVENT. WHETHER PAST OR FUTURE. WHIcfrrWA'T^AMN I FT A PERSON HAVING INSURABLE INTEREST OR CREATE A LIABILITY AGAINST HIM, MAY BE INSURED AGAINST (Section 3)

Example: Insurance against damage, liability.unknown past event ( in marine insurance - insurance over the vessel against perils of the sea lost or not lost), or future event like loss or theft of the object />* ^ location to the insurance so secured, NOTE (1) The^onsen^of the husband is (notyiecessary for the validity of an insurance policy'laRen by a MARRIED woman on her life and that of her children. Under Article 145 of the Family Code, she c^H-raJso insure her separate property without the consent of the husband. (2)_(min<x may take out a contract for life, health and accident insurance with -erfiy corTTpany 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 dninp tnp marriprj wo-

man / minor may exercise all the rights or privileges under the policy. NOTE: RA6809 lowering the age of minority_trom 21-18. 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 a prize. BECAUSE GAMBLING RESULTS IN PROFIT AND INSURANCE ONLY SEEKS TO INDEMNIFY THE INSURED AGAINST LOSS (Section 4).

WHO ARE THE PARTIES TO A CONTRACT OF INSURANCE 1. INSURER - Every person, partnership, association or corporation duly authonzed TcTtransact 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 (Section 6). 2. INSURED - Party to be indemnified in case of a loss (Section 7).\nyone except a'pupiic enemy^is a nation at war with the Philippines and every ciliZSn or subjecTot such nation.- WHY - the purpose of war is to cripple the power and exhaust the resources of the enemy, and it is inconsistent to destroy it's resources then pay it the value of what has been destroyed) may be insured. WHO MAY PROPERTY INSURE A MORTGAGED

Both the Mortgagor and Mortgagee may take out separate policies with the same or dtffgxEnLcQmpanies. The^nortgagcy?- to the extent of the value of his property, th^mortgagep- to the extenfSTFiis credit (Section 8). ~ " WHAT ARE THE CONSEQUENCES WHERE THE MORTGAGOR INSURES THE PROPERTY MORTGAGED IN HIS OWN NAME BUT MAKES THE LOSS PAYABLE TO THE MORTGAGEE OR ASSIGNS THE POLICY TO HIM. UNLESS THE OTHERWISE POLICY PROVIDES

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. b. 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 mortqeqee/cannof^ecover c. Any act required to be done by the mortgagor may be performed by the mortgagee with the same effect as if it has been performed by the mortgagor. Example: if notice of loss is required, tne mortgagee may give it. d. Upon the occurrence of the-tessr^pe mortgagee is entitled to recover to the pvtgnt nf hk rrwjit and the^jalance^ if any, is to be paid to the mortgagor. since such is fnr hoth their hanafitc __ e. Upon recovery by the mortgagee, his credit is(extinguishe<^)

IF ON THE OTHER HAND, (Section 9), tha(l_nsurepkssents to tnajransferj^f the insurance from the mortgagor to the mortgageer"and at Ji*etime oFhis assent, imposes further qualif:cations"6fl ine 355Kin< flaking a(newJbontract with him, the acts ot the mokiGaGOR cannot affect the rights of the assignee - NOTE .UNION MORTGAGE CLAUSE - Creates the relation of insured and insurer between the mortgagee and the nsurer inaenenaem nt ihp mntrart _of^ihg mortgagor. In such case, any act of the mortgagor can no longer affect the rights of the mortgagee - the insurance contrad 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. The mortgagee may collect from the insurer upon 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. ^jer. 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. ^4. The mortgagee after payment cannot collect anymore from the mortgagor BUT if he is unable to collect in full from the insurer, he C3n recover from the mortgagor. ^-e. The mortgagor is(no)released from the debt hecause theCinsrire^ is subrogated in place ot the mortgage? 3. 8ENEFICIARY - the person who receives the benefits of an insurance policy upon its maturity. WHO MAY BE A BFNFFICIARIFS IN LIFE INSURANCE

vAnyone, except those who are! prohibited .fcv law to receivf; donations frnm thg Insured. Note Article 739 of the Civil Code, hence the following cannot be designated as beneficiaries niThose made between person^uiltyjof adultery or concubinage at theItirrie\of the/designation](2)Those found guilty of the same criminal offense in consideration thprpof (3) wife, descendants / ascendants by reason of his office ^S ==-

A (R10JJ^ CONVICTION FOR ADULTERY / CONCUBINAGE ISkiiU r REQUIRED, it can be proven by a preponderance of evidence in mi1 aclioB jiuilifyingthe designation. Note the cases of Insular Life vs. Ebrado, 80 SCFRA 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. The disqualification does (not)extend to the CchildrQ^DT~ftTg~a<feilteiy or concubinage in view ot the express recognition ot tha. successional rigbls^af illegitimate childrer Article 237,NCC and Article 176, Family T^ude)"'' hose made to a public officer or his MUST THE BENEFICIARY HAVE INSURABLE INTEREST ON THE LIFE OF THE INSURED It is recognized that the insured may name anyone he chooses, (except/hose disqualified to receive donations, as a beneficiary in his life insurancejl^enjLbe is a_stranger and has no insurable interest in the life of the insured. The i^esigrjafSff however, must Eg a Qt - . .1 wiihmiii krai in na

iNTENT TO ENTER INTO A WAGERING CONTRACT. (Example: Jose obtains several life insurance policies that he cannot afford. Named as beneficiary is Juan, the spouse or children of Jose are not named as beneficiaries. The premiums are paid by Juan, who did not have insurable interest in the life of Jose. In this case the policies are void because they were entered into as v. agering contracts) 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 (Section 11; v / If he has waived the rioht. the effect is to make lhefde3ianation>s irrevocable. NoIfLlboLicih that the designation of the guilty spouse as"irrevocable beneficiary is ^revocabl^at the ijisjanoe of the innocent spouse in cases of termination of (1) a 'subsequent marriaoe (2) nullification of marriage (3) annulment of marriage, and (4) legal ^gparatinn {Article 43 (4) Family Code)

WHAT IS THE EXTENT OF THE INTEREST OF THE IRREVOCABLE BENEFICIARY IN A LIFE INSURANCE CONTRACT The (beneficiary^ has a (vested Vight that (cannot)be taken away (vithouOhis consent. In fact should the Insured discontinue payment of the nremium 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). WHAT IS THE INTEREST IRREVOCABLE BENEFICIARY ENDOWMENT POLICY OF IN AN AN

His interest is contingent as benefits are to be paid him 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 THE FAILURE TO DESIGNATE OR BENEFICIARY IS DISQUALIFIED The benefits of the pohry shallCccrue^ the estate of the insured. WHO RECOVERS IF BENEFICIARY PRFDFCEASES THE INSURED IF DFSIGNATION IS \[BRgVQCABU?, the legal representative nf th^ t>eneficiao<-Artav recover 6nfessJil was stipulated that the benefits are payable only IF LIVING1. IF DESIGNATION'^ ftEVOT.ARI F and ftp Change is made. the benefits passes to the festate Jbf the Insured. The rule holds also iLhenefils were payable only if living" or if surviving and the beneficiary riies(Kgfoffi the insured.

WHAT HAPPENS TO INTEREST OF THE BENEFICIARY IN LiFE INSURANCE WHERE HE WILLFULLY KILLS THE INSURED If the killing is WILLFUL, the interest is (forfeited^) if he is the principal, an accomplice, or an accessory. The NEAR ESI KbCATIVE OF INSURED GETS THE PROCEEDS IF NOT OTHERWISE DISQUALIFIED (Section 12). If not willful or felonious, the provision does not apply. OUTLINE OF GENERAL PROVISIONS I. INSURANCE AND WHAT IS DOING AN INSURANCE BUSINESS [2] II CHARACTERISTICS AND ELEMENTS: Insurable Interest- (a) Why it is necessary (b) What it consists of (b.1) In Life [10] (b.2) In Property [13,14,15, 16]

(c) When it <.<ust exist [17,18,19] (d) Effect of a change (20,21.22.23,24] III. CONTRACT OF INSURANCE: may be insured against [3] (b) (a) Whal

What cannot be insured against [4], (c) Void stipulations [25]- Applicability [5] CONCEALMENT WHAT ISCONC :ALMENT ceaisnenys . neglect to commijnicate that which a party knows and ought to communicate (S :tion 26) WMAT IS THE E FECT OF CONCEALMENT v'.nether intentio al or not, it entitles the injured party t<TresciridVie contract of yjrance (Sectif n 27) Noie-tacugh that the right to rescind is ^jptional^bn the

i.1 of the iniurec par^'yRescissioj^is an option because it misleads nr ripnoivps insurer into XeDtinoTFie~7isk or accepting it at the rate of premium agreed information jcqmreqf afterJteffectivitv ia not^oncealment and does not constitute ground* to rescind the policy, as after the oolicv is is.^uari. intomnaTiorT subsequently acquired is no longer material as it will not affect or influence the party to enter irrto 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 OF CONCEALMENT OR REPRESENTATION DETERMINED Materiality) i$_deteoriined not hy the event but(solely)by the probable and >g860Betfl^nfluencg>iif ihp^facts ugoo-tiie-party to whom the communication is due, in forming hl^gstimatejfef th

disadvantages"frf the proposed contract or in making his inquiries (Section 31). WHAT IS THE TEST OF MATERIALITY Tha tesLjf ipgtstiality i^whetheoknowlerlne nf the true facts could have (Tnfltiencer, Ifpn iripntnnsnrpr in rfptprmir w.ipthpr tn arr-ppt t, ,p risk or in fixing "the premiums MUST THERE BE A CAUSAL CONNECTION BETWEEN THE FACT CONCERNED A.ND THE CAUSE OF LOSS Concealment need not, in order to be material, be of facts which bring about or contribute to, or are connected of the insured's loss, it is IMMATERIAL that there is no causal relationship between the fact concealed and-toaioss sustained. IT LSSLLFFICIENT THAT THE NON-REVELATION HAS<MISLED?THE INSURER IN FORMING ITS ESTIMATE OF DISADVANTAGE OR FIXING THE PREMIUM. Examples: Insured con-

cealed kidney disease and enlarged liver -Later he died of thrombosis, is the insurer liable? NO, since the fact concealed was material though the insured did not die therefrom. Henson v. Philam - 50 OG 73428. Insured had concealed that he had kidney disease. He dies in plane crash. The INSURER not liable (Sunlrfe vs. CA - 245 SCRA 269) WHAT FACTo COMMUNICATED THEN MUST BE

Each party to an insurance contract is bound to communicate to the other all facts that meet the following requisites: (1) .Suclfrfact^hat must bd'withirVhis knowledge as concealment requires knowledge of the fact concealeaEylhe party charged wilh concealment. (2) Fact/s must be material tn the nnnfrar.t - 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

{3) That the other party had(nq)means of ascertaining such fact/s (4) That the oarly with a duty to communicate makes no warranty (Section 28) as the existen e of a warranty makes the requirement to disclose superfluous BUT - an intentional and fraudulent omission on the part of the one insured to communicate in-ormation on a matter PROVING OR TENDING TO PROVE THE FALSITY OF A WARRANTYf'entitiefe the insurer to rescind (Section 29). 'txample: Wf' anty that the ship is seaworthy - THE INTENTIONAL AND FRAUDUL; N' OMISSION OF THE INSURED TO sta*e that the ships communic..!:ori3 equipment is out of order will entitle the insurer to rescind. Except in a >wer to the inquiries of the other: (1) Ihc wnich the other knows - as the insurer cannot sav that it has been

deceived misled. Example: Insured discloses that he has tuberculosis to the agent of t* insurer, who in turn omits to state the same in the application of the insured w;-, deemed knowledge of the insurer (Insular Life Assurance Co vs. Feliciano ' Phil 468). Insurer had surveyed the location and surrounding area of a build ; that is to be insured against fire, an omission to state that there are neighbor' otiildings will not avoid policy.

(t) Hi which, in the exercise of ordinary cars ttip might n knny, and of wt -: ,hs former has no rpacnn tn c. ippnca him tn jnnran[ The facts that the -;i ought to know as per Section 32 are: (1) all the general causes which ar n* n to his inquiry, equally with that of the other, and which may affect

the polit. o. material perils contemplated. Example: public events like the fact that a n,<- n at war, or laws or political conditions in other countries. Here, the source c formation is equally open to the insurer, who is therefore presumed to knov. em, and (b) all the general uses of trade Examples: Rules of navigat! tion. kinds of seasons, all the risks of naviga-

c) I- -i. of wniL.n the other waives communication. akes place either, t in 3 terms of the insurance or by the neglect to n___uiries as to such fa . Vi.-iere they are distinctly implied in other facts of which information is commu; oatad (Sec-

tion 33). Example: where an application for insurance is madeV wfilifTg' and the questions therein are unanswered or incompletely answe'-.-d - and the insurer without further inquiries', issues the policy. It thereby waives ail right 1o a disclosure or to a more complete answer. If question asks whethei the insured has submitted himself to any infirmary, sanitarium or hospita; for consultation or treatment. Insured replies that he was confined at the Quezon Memorial Hospital for five days due to influenza. There is no waiver and shall constitute concealment as the answer was complete and could be relied upon by the insurer. If the insured answered "yes", the answer would have been incomplete and ambiguous. This would constitute a waiver as the insured did not must have knowledge of the fact concealed at the time of the ft pnlir.y Note that evenoi party did holXnow of the existRncfl al make any further inquiry. (Note Ng Gan Zee vs Asian Crusader Life Assurance. 122 SCRA 461)

ISSUE: Is the waivewjf a medical examination tantamount to a waiver of material information^ NOy because waiver of medical examination^ made when" the injured represents himself M nood healm It is reasonable to assume that had the insured revealed material infomation - the insurer would not have waived the examination. Example: A obtained a non-medical insurance. In the policy, it was stated that A never had cancer - but 2 months prior she was operated on for cancer - the beneficiaries claimed payment stating that there was no material misrepresentation in view of the waiver of the medical examination. The misrepresentation was to be taken into consideration before issuing the policy, it was A's representation that she had a clean bill of health that led the insurer not to require a medical examination (Saturnino v. Pnil-Am -7 SCRA 316) d) Those which prove or tend to prove the existence of a risk ^xcludg^ warranty, and which are not otherwise material. Example: The insurance only covers loss due to hijacking or terrorism. A warranty has been made by the insured that loss due to

perils of ttie sea is excluded. Consequently, the fact that the vessel's engines have been fitted with used parts need not be disclosed as the seaworthiness of the vessel is not matenai. e) Ihose which relate to a risk exempted from tne pclicv. and wnich are'rpP) otherwise material (Section 30) Example: Policy covers against loss by theft. There is no need to disclose that the are.a where the object is located is earthquake prone area if loss due to earthquakes is not covered by the policy. OTHER MATTERS THAT DO NOT NEED TO BE COMMUNICATED Information of the nature w amount of the interest of one insured need not be communicated unless in answer to inquiry, except as prescribed by Section 51 as the extent of the interest of the insured in property insured must be specified if he is not the absolute owner. Also - a trustee, mortgagee or building contractor must communicate hs particu-

lar insurable interest in the property even if no inquiry is made. (Section 34) Neither party to a contract is bound to communicate even upon inquiry any intimation of his'own opinion or judgment upon the matters question (Section 351flnlv material facts are required - nnt opinions speculations or expectations CjEXCEP]7 in marine insurance - where the belief or the expectation of a 3ra person in reference to a material fact is material and must be communicated. Example: The insured is required to disclose an opinion of marine experts 35 Tb seaworthiness of a vessel (See Section 108) REPRESENTATIONS WHAT IS A REPRESENTATION Oral or written statement of a fact or a condition affecting the risk made by the {INSURED) to the Insurance'COmpany. tending to inriurp iosuraZ in j jfcfi ih^ risk (Section 36)

WHEN MAY A 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 issuance of the policy (Section 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) * HOW SHOULD A REPRESENTATION BE CONSTRUED The language of a representation is to be interpreted by tf>e same rules as the language of contracts in general (Section 38). HENCE . it reed not be literally true and correct / accurate in every respect, RAiHER. it is sufficient u is substant'dllv or materially true. )n case of a promissory representation, it is sufficient if it is substantially complied with. Examples: (1) H bought a car for PHP 2,800.00

and spent PHP 900.00 for repairs - H gave it to W as a gift. W secures insurance and says the price is around PHP 4.000.00, though the present actual value is about PHP 3.000.00. Is W guilty of misrepresentation because she did not pay for the car? NO, because the literal truth is not necessary. The insurer can value the car independently. WHAT ARE THE FORMS AND KINDS OF REPRESENTATION Representations may be ORAL or WRITTEN and can either be. AFFIRMATIVE- which is an (affirmation^f aCj^ct>texistinq when the contract, begins. Example: That the insured is of good health at the time of the contract. PROMISSORY - which is a statement by the insured concerning what is to happen during the term of the insurance. Example: That the insured will install additional fire extinguishers at a stipulated fu-

ture date A representation as to the future is to be deemed a promise, unless it was merely a statement of belief or expectation. IS A REPRESENTATION PART OF THE CONTRACT .Nojil cannot qualify as an express provision in a contract ( it is a collateral inducement to the contract) BUT it may qualify an implied warranty? Seclion 40) Example: Under Section 113 - it is implied that a ship is seaworthy. A representation by the insured that its communication system is defective will QUALIFY the warranty. Hence, insured can still recover in case of loss CAN A REPRESENTATION BE WITHDRAWN OR ALTERED Yes, as long as the insurance hasfnot^et been<feffected~!)ind the insured hastnoh vet 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 (Section 41). TO WHAT DATE DOES A REPRESENTATION REFER It must be presumed to refer to the date on which the contract goes into effect (Section 42). NOTE: there is no false representation if it is TRUF at thp timp thp contract takes effect although false at the time it is made. Example: Insured states at application that vessel is in TOKYO but is really in HONGKONG, there is no false representation if at issuance vessel is already in TOKYO. CONVERSELY, there is a false representation, if it is true at the time it is made but false at the time the contract takes effect. Example: Insured states that he has never been affected with pneumonia at application, but if in the meantime, he is afflicted wiiti pneumonia before the policy takes effect, and he does not disclose , there is a false representation.

WHEN IS A REPRESENTATION SAID TO BE FALSE When th^facts)fail to correspond with its assertions or stipulations (Section 44) MUST THE INSURED COMMUNICATE INFORMATION OF WHICH HAS NO PERSONAL KNOWLEDGE BUT MERELY RECEIVES THE SAME FROM OTHERS When a person has(n^ERSONAL KNOWLEDGE OF A FACTS - HE MAY OR MAY NOT communicate such information to the insurer. If he does communicate, he is not responsible for its truth (Section 43). Hence, there can be no misrepresentation 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. Example: If a ship captain is aware of a defect that affects the seaworthiness, that defect must be communicated as the ship captain is under obligation to disclose it to the owner. WHAT IS THE EFFECT OF MISREPRESENTATION ON A MATERIAL POINT, if it is false on a material point, whetheL^ffirmative or promissory - the injured party is entitled to rescind the contract frorruthe time thejrenfasentation becomes false, HOWEVER, the right to rescind is considered'waiverDhv the acceptance of piemium payments despite knowledge of the around tn rp<?rinh fs^r-tinn Example: Insurer was aware of the lack of extinguishers required by the policy. BUT there is no waiver - if the insurer had no

knowledge of the ground at the time of the acceptance of the premium. Example: Unauthorized driver. (Stokes vs. Mala,an 127 SCRA 766) HOW IS MATERIALITY DETERMINED The same as concealment (Section 46)^>robable}bnd (reasonable/influence oJ the facts upon the party to whom the rePrssfentation ig-TTraTftr'In forming his estimate of the advantage/disadvantages of the contract or in making innnirigs WHEN IS THE RIGHT TO RESCIND SUPPOSED TO BE EXERCISED - (Sec 48) The right to rescind must be exercised PRFVIOI IS tn the rnmmpnrmoni_n( an action on the contract (Section 48). Note the case of TAN CHAY HING vs. WEST COAST LIFE INSURANCE CO, 51 PHIL 80, where an insurer interposed the de-

fense 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. IXiS ALSO QUALIFIED BY 2nd PAR OF SECTION 48 WHICH PROVIDES that (afte^a policy of life insurance payable on the death of the insured shall have ~5een~Tn Torce ourinjj the lifetime OftfiB insured tor aJ3nod ot 'l years trnrn the date ot issu^ or )ts_last reinstatement, the insure<fcannoLi>rove that the policy is "VOID AB trtrfio nr it; mihjgrt -in regf-kiinn hy rpatnn nf p franciiilpnt concealment or misrepresentation of thp ingnrpH nr hie ag^ni ( KNOWN AS THE INCONTESTABILITY CLAUSE) WHAT IS THE THEORY AND OBJECT BEHIND THE INCONTESTABILITY CLAUSE

On the part of the INSURER - an insurer has/should have a reasonable opportunity to investigate the statements which are made by the applicant and that after a definite period, it should no longer be permitted to .Question its validity. On the part of the INSURED - its object s to give the greatest possible assurance that the beneficiaries would receive payment of the proceeda^wrthoul; question as to validity of the policy WHAT ARE THE REQUISITES The requisites are (1)lt is a life insurance policy i2)lt is a payable on the death of the insured (3) It has been m torce aunnq the lifetime of the insured for AT LEAST TWO YEARS from date of issue / or last reinstatement. NOTE: TAN vs. CA - 174 SCRA 403- DURING 'IHb UhbllMb Ul- IHb INSURED MEANS THAT THE POLICY IS NO LONGER IN FORCE IF THE INSURED DIES. Facts: Philam issued policy on November 6. 1973. On April 26, 1975 the insured died. The benefi-

ciaries claimed but the insurer denied the claim o^t September 11, 1975 and rescinded the policy on the ground of misrepresentation and concealment. HELD - Insurer has two years from date of issue / reinstatement within which to contest the policy whether or not the insured stiH lives within the period. WHAT DEFENSES ARE(NOT^BARRED BY INCONTESTABILITY EVEN AFTER THE LAPSE OF 2 YEAR3s'' The defenses that are not oarred are (1) non-payment nf premiums (2) lad< of insurable interest (3) that the cause of death wag'excepte&o^nojjcovered by the terms of the policy (4) that th fraud Vas ot a particular vicious type such as (a) policy was taken in furtherance of a~scheme to Tiurder the insured (b) where the insured substituted another for the medical examination (c) where the beneficiary feloniously killed the insured (5) violation of a condition in the policy relating to military or naval service in time of war (6) the necessary notice or

proof of death waslholxiiven (7) action is^notfcrouaht wilhin time snenitied in tfrp p.tliry which in no case should be less than 1 year as per Section 63. WHAT ARE THE INCONTESTABILITY E."FECTS OF

a^nsurerDr.anr'rioaonqer escape liability tenoer the policy or be allowed to prove that the policy is void ah initin nr may he rpsrinripri hy teasao eoceealmeol nr misrepresentation by the agent of the insured or the insured. DISTINGUISH CONCEALMENT REPRESENTATION FROM

.^c.i,.yis the neglect of one party to communicate to the other material facts. I he information he gives in compliance ivith his duty to reveal information is representation. Representation therefore, is the communication required to compty with the prohibition against concealment-

Concealment is the Dassivefanrt)misreprRSRntatinn is the active form of the same bad faith' ' CONCEALMENT COMPARED AND REPRESENTATION

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 net, the injured party can rescind Sx Since insurance contracts are of utmost good faith - the insurer is also covered by the rules

POLICY DEFINE POLICY It is the written instrument in which a contract of insurance is set forth (Section 49). HOW IS IT CONTRUED. WHAT IF THE INSURED DOES NOT UNDERSTAND THE CONTENTS OF THE POLICY Generally in favor of the insured and against the insurer. The burden of proving that the terms of the policy have been explained is upon the party seeking to enforce it The cl?;m of the beneficiary that since the insured was illiterate and spoke Chinese only, she could not be held guilty of concealment because the application and policy was in English (Tang vs. CA, 90 SCRA 236) FORM OF THE POLICY

It shall be printed and may contain blank spaces and any word, phrase, clause or mark, sign, symbol, signature, or number necessary to complete it shall be written in the blank spaces (Section 50). IF there are RIDERS, CLAUSES, WARRANTIES OR ENDORSEMENTS purporting to be part^jof-tbe contract of insurance and which are pasted or attached to the policy ig(NOT) BINDING on the insured -\UNLESS^he descriptive title of the same is also mentioned and written on the btgnHTsoaces provided in the policy NOTE - if pasted nr attached to Ihe original policy at the time it was issued - the signature of the insured is not necessapy-tajnaKe it binding, if after the original policy is issued, it must be (^counter-signed \>v the insured UNI ESS applied for by the insured. No rider, clauses, or warranties, or endorsements shall be attached, printed or stamped on the policy unless the form of such application has been approved by the Insurance Commissioner.

^RIDERS - are forms attached to the policy when the company finds it necessary to alter or amend the applicants answer to any question in the application. ^LAUSES - are forms containing additional stipulations. ^WARRANTIES - are written statement / stipulations inserted on the face of the contract or incorporated by proper words of reference - where the insured contracts as to the existence of facts, circumstances cr conditions - the truth of which are essential to the validity of the contract. /ENDORSEMENTS - are agreements (nop contained but may be written or ^ attached to policy to change or modify a part thereof. WHAT MUST A POLICY SPECIFY A policy must specify (1) Thft_QartiRS bptwppQ_wtmm the-coatcacLis-made (2) The amount to

be insured(xceE^n open or running policies (3) The premium-or if the -premium is to be deiet -pri at thr> termination of the r.qj ra. a statement of the basis and rates upon which the final premium is to be determined (4)The property or life insured (5) The interest of the insured in the nroperfy insured if CnoQhc absolute owner (6) Thp riski inciirpri (7) The period during which the insurance is to continue (Section 51) WHAT ARE COVER NOTES it is a written memorandum of the most important terms of a preliminary contract of insurance intended to give protections pending ^investigation by the insurei of the risk or until the issuance of the formal policy (Section 52). It is ALSO KNOWN AS BINDING SLIP OR RECEIPT OR bFnDER EFFECTIVITY OF A COVER NOTE

The effectivitv of a cover note isfeo DAYS-X 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 Ihe Insurance Commissioner if he determines that it does not violate the Insurance Cnrle 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 paicQ>uyit may be cancelled by ejjher party upon at least 7 Pay notice to the other party (2) if the cover note igjiot'jcancelled 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 3) It mav be exter.aed v/itn tne written approval oHFie xommissioner but may be dispensed with hy a r.artificatinnjjf the Pres VP or GM of the insurer that the risks involved and the extension dcnot)i/iolate the code (4) insurance

companfes~maV Impose a~5eposrt premium equivalent to at least ^5% of the estimated premiunt buTirTn&case less than PHP 500.0(7. WHEN WILL A COVER NOTE GIVE ADEQUATE INSURANCE PROTECTION It gives adequate insurance protection when it is a preliminary contract of PRESENT INSURANCE and not a mere agreement to insure at a future time, AS on acceptance of the application or issuance / delivery of the policy. (44 CJS S58). Example: (1) Agent issued a provisional policy acknowledging receipt of premiums and stating that the insurance shall be effective upon approval and issuance of the policy by the head office. Them is no protection as it is a mere acknowledgment of the payment of premiums as the effentivity of thp imutfrtano is expressly provided (LIM vs SUhJLlFE - <*1 PHIL 265) (2) In life insurance, a "binding slip does not insure by itself as it was staied that it was subject to the approval of the insurer and the same was sub-

sequently disapproved (GREPALIFE vs. CA. 89 SCRA 543). IS PAYMENT OF A PREMIUM PAYMENT FOR THE COVER NOTE NECESSARY TO BE PROTECTED AGAINST THE 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 THE 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 ShOUldfnqTfoe treatpr] a upparatp polir.y hut should be integrated in the regular policy subsequently issued so that premiums on the reqular policy should include that for the cover notef PACIFIC TIMBER vs. 193). WHOSE INTEREST IS INSURED -

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 (Section 53). Example: (1) In the case of Del Val v. Del Val. 29 PHIL 534. the designation of sister as sole beneficiary in a life insurance cannot be defeated by the contention of the of plaintiff that proceeds belong to the estate of the insured was disregarded as insurance is to be governed by special law. not by the law covering donations or succession (2) In the case of Bonifacio Bros v. Mara, GR No. 20853, May 29. 1967.- Action to recover cost of repays and labor to a motor vehicle where the policy states loss is payable to H.S. Reyes, the mortgagee of the vehicle who had no knowledge of the fact that Mara had it repaired with Bonifacio Bros., where the court ruled that H.S. Reyes is the one entitled to the proceeds because a policy of insurance is a separate and independent contract between the insured and the in-

surer, and that third persons have no right to the proceeds of the insurance. MAY A 3^ PERSON SUE THE INSURER - unless otherwise specified in the policy, a 3W person may sue if (1) the insurance contract contains a stipulation in favor of a 3* person, tne latter though not a party may sue to enforce before the contract is revoked hv the partips. Fxampie In the case of COQUIA v. FiELDMENS INSURANCE CO - 26 SCRA 179. the insurance company undertook to indemnify any authorized driver who was driving the motor vehicle insured. Coquia, while driving the insured motor vehicle, met and accident and died. His_hejrs ^y_ere allowed to sue the insurer, the policy being considered in C3he nature of a contract pour auTrDPand iherefore the enforcement thereof may be demanded by a 3rd party for whose benefit it was made (2) the insurance contract provides for indemnity against liability to 3' persons. Example: In the case of GUINGON v. DEL MONTE 20 SCRA 1C43, the insu'ec1 procured insurance that would indemnify him against any and

all sums which he may be legally liable to pay in respect to the death or bodily injury to any person. A jeepney covered by the insurance had bumped Guingon and had caused his death. The insurance was held to be one for indemnity for liability tc third persons (THIRD PARTY LIABILITY), and therefore, such third person is entitled to sue the insurer. THE TEST TO DETERMINE WHETHER A 3TO PERSON MAY DIRECTLY SUE THE INSURER OF THE WRONGDOER is: if the contract provides for indemnity against liability to 3'a persons, then the latteFlo whom the insured is liable may oirectly sue the insurer. ON THE OTHER HAND, if the insurance is for indemnity against actual loss or payment - then the 3' person cannot sue the insurer - recourse is against the insured alone. 2. 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 (Section 54). If not indicated, it is as if the insurance is the taken out

by the agent / trustee atone, consequently the principal has no right against the insurer. 3. 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 co-partners / owners (Section 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. 4. 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 oolicv .(Section 56). txampie: In a Fire insurance policy where the insured is Dela Cruz & Associates. X to be able to recover his share must prove that he is a partner.

5. When a policy is so framed that it will innre to thp hpngfit of whomsoever during the continuance of the risk, mav become the owner nf thp interest insured (Section 57). The proceeds become payable to who mav be the owner at the time the loss or injury occurs. This is an exception to Section 20. 6. Thei'mere)transfer of a thing insured doesfnot)transfer the policy but suspends il until the same person becomes the owner of both the policy and tfre thing insured (Section 58). Note the exceptions to this rule as found in Sections 20-24 and 57 WHAT ARE THE KINDS OF INSURANCE POLICIES The kinds of policies are (1) Open (2) Valued, or (3) Running (Section 59). OPEN FOLICY/S one in which the value of the thine inF.urnri isfrgl^g An

rpp.1 upon, but is left to be ascertained in case of loss (Section 601 What is mentioned as the amount is not the value of the orocertv but merely the maximum limit of the insurer's liability. In case of loss, the insurer only pays the ( actualcasFTyalue at the time of loss Example: 'FIRE INSURANCE, where the loss IB TO Be determined but payment is limited to the amount stated in the policy.
A[VALUED

POLIC'FLis one which expresses on it face that the thing insured shall be VaiuMai a specifiedsum (Section 61). I he valuation or me property insured js~coiiCIUSivy uutwytiii (Tie parties. In the absence of fraud or mistake, such value will be paid in case of a total loss. A VALUED POLICY DISTINGUISHED FROM AN OPEN POLICY JJfln a valued policy, proof of value of the thing after the loss is not necessary. In an open policy, the

insured must prove the value of the thing insured j^ln a valued policy, the parties have conclusively stipulated that that property insured is valued at a specified sum. In an open policy, the value is not agreed but left to be ascertained upon loss {NOTE: this does not violate the principle that a contract of insurance is a contract of indemnity as long as the valuation is reasonable and is bonafide). A JRUNNING POLICY| is one which contemplates successive insurances and which provides that the object ot the policy may be trom time to time defined especially as to the subjects of insurance, by additional statements or indorsements (Section 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. Example: Insurance pro^ d by a retail establishment to cover its inventory that fL~, i in quantity, or is located in several areas.

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 shoul<CNOT>hF I FSS THAN ONE YEAR (Section 63). If less than one year th^ agreement is VOID. The period so agreed shall be considered as having gpmrpenceriMrnm thp timp thp rjn<;p of action c*ccnjes3Usuat|y, the CAUSE OF ACTION accrues from the date of the insurer's rfeiectiomof the claim of the beneficiary or of the insured - SINCE BEFORE REJECTION there is no necessity to bring suit WHEN NO PFfav^j STIPULATED OR IF THE STIPULATION IS VOID, the period is withiiClO veafo. under Article 1144. NCC. it being a written contract (EAGLE STAR vs. CRWTU 96 PHIL 696, ACCFA vs. ALPHA INSURANCE, 24 SCRA 151). IF THE INSURED ASKS FOR A RECONSIDERATION OF THE DENIAL, the period is still counted from the fane .the claim is denied at the flr^l instance

- NOT PECONSIDERATION - as it nives the insured a scheme or devise to waste time until evidence that may be considered against him can be destroyed( Sun Life Office Ltd vs. CAR 195 SCRA 193). The period does not run rf action is hrnunht against an agent of the insurer WHAT IS THE PRESCRIPTIVE PERIOD FOR MOTOR VEHICLE INSURANCE ([One yeaj) from(deniaLbf the claim - NOT DATE OF ACCIDENT - (Summit Guaranty vs. De (Suzman 15 SCRA 389 WHERE IS THE ACTION FILED An action may be filed in the following: (1) Courts (2) Insurance Commissioner, who has concurrent jurisdiction with courts for .claims not exceeding PHP 100.000 00 (3) 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 ~pnngpal obligor is determineri Note that the

claim hemmes an ADTIOM unon filing with the Court. CANCELLATION OF THE POLICY No policy other than life shall be cancelled by the insurer EXCEPT UPON PRIOR NOTICE THEREOF TO THE INSURED. NO NOTICE OF CANCELLATION SHALL BE EFFECTiv'E IF NOT BASED ON THE OCCURRENCE, AFTER EFFECTIVE DATE OF ONE OR MORE GROUNDS (1) non-payment of nrpminm (?\ conviction nf a rrimp arising nul of arts increasing the hazard insured against Example: insured has been convicted of arson or car theft (3) discovery of fraud or material misrepresentation Example: insured represents himself as the owner but is not actually the owner (41 discovery of willful or reckless acts or omissions increasing the hazard insured against Example: storage of hazardous materials in the premises (5) physical changes in the property insured which result in the property being uninsurable. Example: private vehicle being converted in-

to a racing vemcie (6) determination bv Ihe insurance commissioner that a continuation of the policy would place the insurer in violation nf the mrie Example: policy was issued absent insurable interest (Section 64). FORM OF NOTICE OF CANCFI1 ATIOK the name insured at the address It must be in(writing! (mailed^or (jciiverg; shown in the HrTTsliall <tate (1)" .slatp4.i) The grounds relied upon as per Section 64, and (2) that upon written request of the named insurer! the insurer will furnish Ihe facts on which cancellation is based (Section 65). NOTES: (1) a tire insurance policy is cancelled on October 15. 1981. The insurer's clerk allegedly sent notice of cancellation by mail but there was no proof that it was actually mailed and received. Insurer relies on the presumption of regularity HLD. Considering the strict language of the law thatfiatoolicy can be

cancelled Without) prior notice"^ it behooved on the insurer to make sure that cancellation was actually sent and received by the insured (Malayan vs Arnaldo, 156 SCRA 672). (2) A insured his building against fire and made the loss payable to mortgagee. Upon cancellation notice was sent to the mortgagee HELD: Thgt^ was no valid notice of cancellation The notice is personal to the insuredand(nof) to any unautnorized person (Saura Import Export vs. Philippine International Surety Go, Inc., 8 SCRA 143) DOES THE INSURED HAVE THE RIGHT TO RENEW HIS POLICY Yes, in insurance other than life the NAMFb INSIIRFD may renew the noitcv upon payment of the PREMIUM due on the effective date of the renewal, IF, he has not h6pnniPn nntire RY T 'F IMSI IPFP OF THF INTFNTION NP~ TO RENEW OR TO CONDITION RENEWAL UPON REDUCTION OF LIMITS OR ELIMINATION OF COVFRAGFS hy mail nr delivery at least

FORTY FIVE DAYS d\r e of the ENn nf the phi irv gg). WARRANTIES It is a statement or promise staled in the policy or incorporated therein bv reference~wherebv the INSURED - expressly nr impiiortiy (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 p<;c;pntial tn thp validity nf Ihe contract. Examples: AS TO PAST - That he never had a heart ailment, AS TO THE PRESENT - That he is in good healtn/ That house is being utilized as a residence. AS TO THE FUTURE - That insured will not store explosives FORM No particular form of words is necessary to create a warranty (Section 69). What is essential is what the parties intend a statement to be, and if so intended

as a warranty it must be included as part of the contract. NOTE:(1) Whether a warranty is constituted or not depends upon the intention of the parties, the nature of the contract, or the words used thereto (2) In case of doubt, the statement is presumed to be a representation not a warranty. WHAT ARE THE KINDS OF WARRANTIES 1. Affirmative V those that relate to matters that exist AT or BEFORE the issuance of the polffcy. Example: that vessel is equipped of a competent crew. 2. i Promissory -I those where the insured promises or undertakes that certain matters shall exist'or will be done or will be omitted after the policy tateo effect. It is a statement in the policy, which imports 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). Example: That a house shall not be leased out. That the insured's premises will be fenced.

NOTE that (inlpss thp mntrary inlRntinn appears, the courts will presume that the warranty is mprply an affirmativ/p warranty Example: A description of the property as being a two storey residence- there is no promissory warranty that it will be maintained as a residence OR there is a statement that there is , security guard on duty at night is not a promissory warranty that a security guaiu will be maintained. 3. Express!- a statement in a policy of a matter relating to the person or thing insured, br 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 itsglf. fb) in another instrument signed by the insured and referred to in the policy as making a oart.nf it (Sec-

tion 70). This indua_ss_a-BIDER - it is a part of the policy, it need not be signed unless the rider was issued after the original policy took effect.
4

' j [Pftlied where the assertion or promise is not expressly set forth in the policyffiUtjaecause of the general tencr of the terms of the policy or from the very nature of the insurance contract, a warranty is necessarily interreo~or understood. Note that the law only provides ror impnea warranties in contracts of marine insurance. See Sections 113 (seaworthiness) and 126 (deviation). EFFECT OF VIOLATION OF A WARRANTY The violation of a material warranty, or other material provision nf thn nolir.v. on the part of either nartv thereto entitles the other tn rescind (Section 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. BUT as far as the insured, NOTE ALSO that (1) while a policy may declare that a violation of specified provisions

thereof shall avoid it, OTHERWISE the breach of an immaterial provision does not avoid the policy (Section 75). MEANING- ORDINARILY A BREACH OF AN IMMATERIAL PROVISION DOES NOT AVOID A POLICY, however, if stipulated that any breach avoids the policy, the policy is avoided. (2) a breach of warranty without fraud, merely axoneratec an insurer from the time it occurs, or where it is broken at its inception, prevents the policy from attaching to the risk (Section 76). MEANING- that if the breach is without fraud- the policy is avoided only from the time of the breach, prior to the breach it is still effective. Consequently, the insured is entitled to a pro-rate return of the premium paid under Section 79 (b) or all premiums, if the breach occurs at the inception of the contract, as sucn is void ab initio and had never become binding. NOTE that a CAUSAL CONNECTION between the violation of the warranty is not necessary - So, even if the violation did not contribute to the loss - the other party may still rescind. Example: A in-

sured building against fire. A warranty stated that no hazardous goods would be stored.A stored fireworks. The building was burned and the fireworks were discovered stored in the area not affected by the fire. The Insurer was' not held liable as the storage had increased the risk (Young v. Midland Textile Ins. - 30 PHIL 617) THE NON-PERFORMANCE OF A PROMISSORY WARRANTY DOES NOT AVOID THE POLICY WHEN BEFORE THE ARRIVAL OF THE TIME FOR PERFORMANCE (1) the toss insured against happens. Example: There is a warranty that a firewall will be constructed, but fire occurs before the period for compliance (2) tjne performance becomes unlawful at the place of the contract. Example: A law or ordinance prohibits the construction of the specified firewall (3) the performance becomes impossible. Example. A severe lack of materials to construct (Section 73)

DISTINGUISHING REPRESENTATIONS.

IT

FROM

1. A warranty is part of the contract, while a representation is merely a collateral inducement thereto. 2. A warranty is expressly set forth in the policy nr incorporated therein hy reference while a representation may be oral or written in another statement. 3. A warranty must be strictly and literally performed while a representation must be substantially true 4. A warranty is presumed material while a representation must be shown to be so. ' 5. A breach of warranty is a breach of the contract itself while a (mis) representation is around to rescind the contract. PREMIUM

The agreed price for assuming and carrying the risk WHEN IS THE INSURER ENTITLED TO A PREMIUM ThgJasurer is entitled to the paymenl of a premium as soon as the thing insured is^exposecQo the peril insured against. Notwithstanding any agreement to the contrary, no pohcv-o^-cqintract of insurance issued bv-afrirTsttrgni jompanv is valid and bindinc^uniess^and until the premium is pai^ EXCEPJ in (1) In case of life or industrial life (life insurance policy where the preTmjrrTTs payable monthly or oftener) whenever the grace period annties (Sectinn77i (21 When the insurer makes a written acknowledgment of the rprfiint of nrpminm siirh is nnnrli isiv/p eviaeiTCg-or lhe~p>iymeni or tng1 'stipulation therein that it shall not be binding until the premium is naid (Section /tsj MLNUt, the ettect c~an acknowledgment in a policy or contract of insurance of the receipt of ihe premium - is that

it is conclusive evidence of its payment -so far as to make tha policy binding HOWEVER, it is conclusive only to mske the policy binding and not for the purpose of collecting the premium, and (3) ^yyfiprp.lhp nl-.npp anrppted thfc ^ond or suretyship mrTrart in whir-h r-agu such bond or suretyship contract becomes valid and enforceable irrespective of whsthe.r nr nnt tha pmmiunn been p 1 h th y obligor. 1q, thf auretyfSection 177). NOTE - that there is no excuse for non-payment of the premium since payment on time is of the essence. THE ONLY RECOGNIZED EXCEPTION is when failure is due to the wrongful conduct of the insurer. Example: the refusal to accept a validly tendered payment of the premium. WHAT IS PAYMENT THE EFFECT OF PARTIAL

ORDINARILY, the obligation to pay premium^when due is considered an INDIVISIBLE OBLIGATION,Hence, forfeiture istpotjirevented

by a part payment UNLESS.payment bv installment has been agreed upon or is the established-praL ,cr ^Afiin primpipi rq nr ~Q[)ITY AND FAIRNFSS wnnlrt nnt a qw the insurer to collect and acnent installments and later deny liability as premiums were not paid in ful|. (See Philippine Phoenix Surety and Ins. v. Woodworks -20 SCRA 1270, Makati Tuscany Condominium Corporation v. CA, 215 SCRA 462 - payment by installment was agreed upon, NOTE ALSO TIBAY v. CA - 257 SCRA 126 - any partial payment when there is an agreement that the policy shall not be effective pending payment of full premium' was in the concept of deposit.) PAYMENT TO INSURANCE AGENT OR BROKER is payment to the insurance company. WILL PAYMENT BY PROMISSORY NOTE OR CHECK BE SUFFICIENT TO MAKE THE POLICY BINDING

No. Art 1249 2nc paragraph of the Civil Code, that such produces when it is encashed. -WHEN IS THE INSURED ENTITLEO TO A RETURN OF THE PREMIUMS PAID The insured is entitled to a return when (1) To the whole premium, when no pari of the interest in the thing insm- .i is exnoseri tn any f thg .... in<;iirpH again* (Section 79 -a). Example: insurance on a vessel for a voyage that did not take place (2) where the insurance is made for a definite period of time and the insured surrenders his policy hstnrfi lhs expiration nf the perinri Here >he insured only recovers a portion of the policy premiums corresponding with the unexpired time BUT it does not apply if (a) the policy is not for a definite period (b) 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 foi a month, the insurer retains 20% of the premium) has been agreed upon (c) the policy is a life insurance policy - it is indivisible but he has a cash sur-

render value (3) when the contract is voidable on account of fraud or misrepresentation of the insurer or inp. agent (Section 81). Example: where insurer makes a representation not contained in the policy because policy is not that applied for (4; where the contract is voidable on account of facts, the existence of which the insured was ignorant without his fault" (Section 81). Example: when the insurance is taken by the insured, wtno is ignorant of the facts, that he did not have insurable interest or a person, not knowing that hat his car has been totally damaged, procured insurance over ii(5). when by any default of the insured other than actual fraud, the insurer never incurred any liability under the policy (Section bi) txampie: a person ins-ured his vessel for a trip, but vessel is destroyed before the trip. (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. Example:

A's house is valued at 1.5million. he obtained the following policies - Here A is entitled to the return of 5.000 from X and 10000 from Y Insurer 10.000 20.000 1.000.000 2.000.000 X Y TO WHOM ARE THE PREMIUMS RETURNED Unless otherwise stated they shall be returned to the insured who paid them. WHEN ARE THEY NOT RECOVERABLE Premium Amount

Premiums cannot be recovered: (ij if the peril insured against has existed. and the insurer has been liable for any psrind the period hping pntirp and inrlivisihle (Section 80). Example: The vessel is insured for a voyage that will take 5 days, 2 days into a voyage, the policy is surrendered (2) In life insurance - (Section 79-b), and (3) when the insured is guilty of fraud or misrepresentation (Section 81) LOSS AND NOTICE OF LOSS
1

risk by the insi er^2) The father of the insured obtained an insurance policy ;/er his daughte; but did not disclose that she was a monyoloid child, the child ;:es of influenza .he concealment relieves the insurer of liability (Grepalife vs. 39 S 543) AC iS OF PROV ;lONS ON CONCEALMENT / REPRESENTATION u; damental chr icteristic of a contract of insurance that it is one of PERFECT

Jl MOST QOOr_ -AITH VHD MUST F RC7E KNOWLEDGE OF THE FACT CONCEALED party cla minq the^yi^tPnr^\i^Q^^^monL>rniKf <fvriypv)that thp[-p - nowlecki^or the part of the party charged with concealment. Example: If the -sured stated thit there was no hereditary taint (illness that has affected *:;i tbers of ;he imily) on either side of the family to my knowledge - IN . -;i..ER TO PRO / SHOW CONCEALMENT - the insurer must proye that the hereditary tain; al ged to exist v/as known to the insured. AS OF WHAT T <1E MUST THE PARTY CHARGED WITH CONCEALMENT HAVE KNOWLEt 3E OF THE FACT CONCEALED Generally, a pan effectivitv o

the time of a >liratinn hi it hpfnrp itc Qffor-Hv>ity thprp is r.onr-ealment

LOSS AND NOTICE OF LOSS WHAT ARE THE RULES TO DETERMINE WHETHER THE INSURER IS LAIBLE FOR THE LOSS OF THE THING INSURED They are: (1) Loss of which a peril insured against is the proximate cause ( ^PROXIMATE CAUSE - that which, in a natural and continuous sequence, unbroken by any efficient intervening cause, produces an iniurv and without which the injury wnuiH nni -hawy nm irrgr^ although a peril not contemplated by the contract may have been a remote cause BUT the insurer is not liable for a loss of which the peril insured against was only a remote cause (Section 84). Example: In life insurance that covers death by accident, if the insured sustains an accident that renders him weak, while in said state, he contracts a cold that develops into pneumonia. Ths proximate cause is the

accident, while the remote cause is the pneumonia, the insurer is liable. An example of a loss, where the peril insured against is only a remote cause is: firemen train their hoses at the house of the insured, damaging windows and furnitures, though not necessary to put out the fire as the same was affecting the house of the neighbor. The insured cannot claim loss due to fire as it is only a remote cause. RECOGNIZING THAT THERE ARE PROBLEMS IN DETERMINING PROXIMATE CAUSE - NOTE THE FOLLOWING RULES: a there is a single cause which is an insured peril, clearly it is the proximate cause and there is liability. Example: Insurance is against fire and the property insured is burned OR Insurance covers accidental death and the insured dies in an accident J&F If there are concurrent causes (those happening together) with no excluded perils, there is liability if one of the cansps is an insured ppril thp others mav be ignored.. Example: In accident insur-

ance where the insured has a heart disease. He is involved in an accident that causes injuries, which coupled with his weak heart causes his death. The proximate cause is the accident. The insurer is liable. excepted penl operate together to produce the lossl the claim will he outside the scope Of the nnlir.v lxamplrv Nn liability in a claim for prope^y stolen by rioters under a burglary policy, if the policy exclude riot risks. (d) But, if the results of the operation of the insured peril can be clearly separated from the effects of the excepted peril the insnrer is liahle Example: a personal accident policy will cover death by accident although the insured was suffering from a disease excluded by the policy (3) Where aJMDbeinf causes, npprate one after the othei. .and the original cause happens to be a peril insured against there is liability. Example: Insured scratches an open wound, which gets infected,

which ultimately results in death BUT if the direct chain of events can be traced to an excepted peril there is no liability. Example: An earthquake (if excepted) causes a fire that spreads, all resulting fire damage is deemed caused by an excepted peril. BUT, if the chain of events is broken by the intervention of a new an independent cause, liability will depend upon whether the new cause is an insured or excepted peril. Example: if the insured is treated in the hospital for an accident but while there he contracts a disease, the disease is the proximate cause, there will be no liability under the accident policy, if death by disease is covered, then the insurer is liable (2) Loss caused bv efforts to rescue the thing insured from a peril insured against that would otherwise have caused a loss, if in ihe course of such rescue" the thing is exposed to peril not insured against, which permanently deprives the insured of its possession in whole nr in part or where a loss is caused bv efforts to rescue the thing insured from a peril 'np"rprl against (Section 85). Here the prin-

ciple of proximate cause is extended to loss incurred while saving the thing insured. Example: (a) When the thing insured is water damaged due to efforts to put out a fire, the fire being a peri! insured against (b) theft by 3rd persons while the goods are brought out in the course of rescuing them from a fire, which is the insured against BUT - no loss if the goods are left out and are lost - it is now to lack of reasonable care and vigilance (c) A insured the contents of his ho;., against fire. A fire breaks out, while removing the contents, they were stolen . they were broken or damaged, theft or breakage not being perils insured against, 3. Whpre a peril is especially excepted in a contract of insurance, a los~ 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 (Section 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. Example: A factory is insured against (ire, but it excepts loss through explosion. If an explosion occurs and results into a fire that creates a loss, the insurer is not liable. If a fire occurs first, then an explosion is caused, the insurer is liable. 4. An insurer is not liable for a toss caused by the willful act or through the connivance of the insured: but he is not exonerated bv the negligence of the insured, or of the insureds agent or others, rs^ntinn 87). Consequently, if Ihe insured was merely negligent, the insurer is still liable as one of the principal reasons for procuring insurance is to protect himself against the consequences of his own negligence or that of his agents. Example: The insured carelessly used kerosene in lighting a stove, causing his house to catch fire, the insurer is liable for loss BUT if the negligence is so

gross so as to be sufficient basis for fraudulent intent - it can amount to a willful act. TRANSFER OF CLAIMS An agreement not to transfer the claim of the insured after the loss happens - IS VOID if MADE BEFORE THE LOSS except as olben^ise provide_iLcase of life insurance (Section 83). This means that thetfnsuredjhas an AbsoluteJriqht to transfer his claim against th& insurer AFTFR THE I OSS occurs, what IT prompter] is a transfer prior to the loss. This is so because such a stipulation atter 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 is Section 173 that provides Inat the transfer of a fire insurance policy to any pprenn nr nnmpany who acts as an aoenl for or otherwise represents the issuing company is prohibited and is votd insofar as it affects other creditors of the insured.

NOTICE AND PROOF OF LOSS WHEN MUST NOTICE OF LOSS BE GIVEN AND BY WHOM Notice of Loss must be givei( withqgl>unnecessary delay by the insured or some person entitled to the benefit oFthe insurance. IF NOT GIVEN, the insurer is exoection 83). MEANING OF 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. NOTE THE SPECIFIC APPLICATION TO FIRE INSURANCE due to the nature of the loss and urgent need to determine the cause thereof- The longer the period that lapses from the time of loss, the greater is the opportunity of the insured to" larTipferwith the evidence in preparation tor a fraudulent claim. * 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 (Section 89). WHEN ARE DEFECTS IN THE NOTICE OR PROOF OF LOSS DEEMED WAIVED BY THE INSURER 1. When the insurer fails 1q specify to the insured any defect which Jhe insured can remedy without delay. Example: It is required to be sworn to but ts accepted by the insurer 2. When the insurer denies liability on a ground other than the defect in the notice or nroof of loss. Example: Denial is based on nullity of the contract (Section 90)

WHEN IS DELAY IN THE GIVING OF NOTICE WAIVED 1. _lf it is caused by any act of the insurer. Example: The insurer accepts payment of the premium witn run Knowledge mat the premises have been lost or damaged will be estopped from claiming delay in the giving of nolice of loss. 2. If the insurer omits to make an objection promptly and specifically on that ground. MEANING: despite delay, the insurer does not object (Section 91) REQUIREMENT OF CERTIFICATION TESTIMONY OF A THIRD PERSON OR

If in the giving of preliminary proof of loss, a certification or testimony of a third person other than the insured is required, it is sufficient for the insured to use REASONABLE DILIGENCE to procure it. In case of REFUSAL to give il, the

insured can furnish REASONABLE EVIDENCE to the insurer that such refusal WAS NOT INDUCED BY ANY JUST GROUNDS OF DISBELIEF in the facts necessary to be certified or testified - ONCE SHOWN or GIVEN the requirement may be dispensed with (Section 92). WHAT HAPPENS AFTER PAYMENT BY THE INSURER SUBSEQUENT TO GIVING OF NOTICE OF LOSS Jn property insurancejafter Ihe insured has received payment from the insurer of fne loss covered bylhe policy, the insurance company is SUBROGATED to the rights 01 the insured against thp wrnnnriner nr the person who has violated the contract. The right of subrogation accrues upon payment of the insurance claim. NOTE: That subroaation taKes eneci Dy operation ot law ana aoes not require the consent of the wrongdoer ^Firemans Fire Insurance vs. Jamilla & Company, 70 SCRA 323). THERE ^(ftO/SUBROGATION in (a) Life Insurance as it is not a contract of indemnity (b) when

proximate cause of the loss is the insured hi ije'f (cTwhen the insurer pays to the insured a loss not covered hv the nnlir.v THE INSURED IS RU LONGER ENTITLES TO COLLECT FROM WRONGDOER [f thp amnnni th-w he received from the insurer h compensated for the loss. DOUBLE INSURANCE WHEN DOES DOUBLE INSURANCE EXIST Where the same person is insured fay several insurers separately in respect to same subject or interest (Section 93). Its REQUISITES are: (1) same person is insured (2) there are several insurers (3) subject insured is the same (4) interest insured is the same (5) risk or peril insured against Is the same There is a prohibition iu PK_/ENT OVER-INSURANCE, thus preventing fraud. EFFECTS OF OVER-INSURANCE BY DOUBLE INSURANCE

1. Insured, unless the policy otherwise provides, may claim payment from the insurers in such order as he may select up to the amount for which the insurers are severally liable under their respective contracts Example: A house is insured with X Insurance for 10K, with Y Insurance for 20K, and with Z Insurance for2CK. It is valued at 20K. In case of loss - A can recover 10K-from X Insurance and 10K from either Y insurance orZ Insurance 2. Where the policy under which the insured claims is a valued pofey. 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. Example: A owns a house valued at 40K. He insured it with X Insurance for 35K and with Y Insurance for 5K. The vaiue of the house with both companies jt 70K If i' is lost - A can collect 5K from Y Insurance. He cannot collect 35K from Y Insurance but only the difference between the value of the house (20K) and the value of the policy with Y Insurance (5K)

3. Where the policy under which the insured claims is an unvalued poStcy, he must give credit, as against the full insurable value, for any sum received Dy ntm under any policy. Example: A insured his house with X Insurance for 4OK and with Y Insurance for 30K, and with Z Insurance for 20K. The policies are open. The loss is 70K. If Y Insurance and Z Insurance have paid 50K. X Insurance will only have to pay A, the difference between what he received from Y and Z (50K) and the amount of loss (70K) or 20K. 4. 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. Example: if A collects 35K from X Insurance and 5K irom Y Insurance when the value of the house is only 20K. Jie must hold the 2GK excess in trust. If the policies are open, if A can collecniLiK trcm x insurance, 30K from Y Insurance and 20K from Z Insurance,

when the actual loss is only 7CK - ho must hold the excess in trust. 5. In relation Paragraph (4) - Each insurer is bound, as between himself and the other insurers to contribute ratabfy to the loss in proportion to the an .aunt for which it is liable under his contract. ALSO REFERRED TO AS THE PRINCIPLE OF CONTRIBUTION - WHICH HAS ALREADY BEEN INCORPORATED 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) The formula is: Insurer Policy / total amount of policies times the amount of loss equals the share of the insurer Example: 1QK x 20K = 4.000 - X Insurance 50K 20K x 20K = 8,000 - Y Insurance ^

50K 20K x 20K = 8,000 - Z Insurance / 50K If Z Insurance paid 20K but since its share is only 8K, it may collect 4,000 from X Insurance and 8K from Y Insurance, so that it only pays its ratable share (Section 94) TEST TO DETERMINE DOUBLE INSURANCE EXISTENCE OF

Whether the insured, in case of happening of the risk, can be directly benefited by recovering on both policies? Iftyeyi - there is double insurance IS DOUBLE INSURANCE VALID If there is an'OTHEgiNSURANCE CLAUSE - one that prevents other insurance on the property(^xcep^ yvith the consent of the company -

THEN IT WILL PREVENT ENFOl:*CEMEh I Uh I Rfc i-LILILV. tile {JDnCy~then will be NULL AND VOID. If there is(pQ)OTHER INSURANCE Cl AUSF then double insurance is allowed but the provisions of Sect;on 94 must be followed because property insurance ts a contract of indemnity. DISTINGUISHING OVER FROM DOUBLE INSURANCE INSURANCE

1. In double insurance, there must be 2 or more insurers. In over insurance, 1 insurer is sufficient. 2 In double insurance, the total amount of the nnlicips negriCnnfoxceed the value of insurable interest. In over insurance, the value must always be in excess of the insurable interest. ~ REINSURANCE WHAT IS REINSURANCE

Reinsurance occurs when an insurer procures a 3rd person to insure him against loss or liability by reason of such original insurance (Section 95) WHEN IS REINSURANCE COMPULSORY 1. When a non-iife incurs insure in any one risk or hazard ?n amount exceeding 20% of its net worth, the insurer needs reinsurance nf the excess over such limit (Section 215, Paragraph 1) 2. When a forgipn ia.gnran/'o r-nmnany withdraws frnm th' PhilfL nS. it should cause its jjrjjrgaty^liabilities under policies insuring residents of the Philippines to be /reinsured t>v another mmnanv authorized to transact an insurance business in tne Philippines (Section 275) DISTINGUISH REINSURANCE DOUBLE INSURANCE FROM

1. In double insurance, the insurer remains an insurer. In reinsurance, [he insurer becomes the insured. ' 2. In double insurance the subject matter is property. In reinsurance, the' subject matter is the insurer's risk or liability 3. In double insurance, the same interest and risk is insured with another In reinsurance, different risk and interest are insured. WHAT MUST BE COMMUNICATED WHEN THE ORIGINAL INSURER OBTAINS REINSURANCE Excgp? in automatic reinsurance treaties (where two or more insurance companies agree in advance that they will reinsure a part of any line of insurance taken by the other. Since such contracts are self-executing and the obligation attaches automatically, the information required to be communicated herein could not influence the reinsurer in deciding

whether or not to accept the reinsurance because it is automatic), it mufit 'nmmnnigato (1) all representations of the originsf insured (2) all information or knowledge he possesses whether previously or subs&quently acquired, which are material to the risk (Section 96). bxample: after issuance of the policy, the original insured had a bad reputation and that he had burned a building, the reinsurance is rendered void if it is not disclosed. NOTE: the fact that the representations nn lhp nriginal insured were untrue at the time of the execution of the reinsurance will not affect liability of the insurer, provided they were true at the time of the original contract. WHAT KIND REINSURANCE OF CONTRACT IS

It is presumed to be a contract of indemnity against liability, and not merely against damage (Section 97). As a RULfc, the reinsurer is not liable to the reinsured for a loss under an original policy if the reinsured is not liable to the original policy holder. Example: A insured his car against vehicular acci-

dents wiih B Insurance. B Insurance reinsures the policy with C Insurance. A violates the policy by allowing an unlicensed driver to use the vehicle. B insurance cannot claim against C Insurance on the reinsurance as it was never liable to A- BUT when the reinsured becomes liable under the original policy, it may obtain payment from the reinsurer even before paying the loss to the original insured. Example: A insured his house with X Insurance. X Insurance reinsures with Z Insurance. The house is burned, but X Insurance cannot pay because it is insolvent. X Insurance can still collect from Z Insurance because it is a contract of indemnity against liability and not merely against damage. NOTE: The subject of the reinsurance contract is the insurer's riskCnoPlthe property insured in the original imlinv - THUS IT IS NOT NECESSARY THAT THE INSURER FIRST PAY ON A CLAIM ON THE ORIGINAL POLICY BEFORE CLAIMING FROM THE REINSURER. WHAT IS THE EXTENT OF THE LIABILITY OF THE REINSURER

The liability of the reinsurer is measured by the liability of the reinsured to the original policy holder HKOVlubL). it ooes not exceed the amount of reinsurance Example: A insures his house valued at 1 million X Insurance for 1.5 million. X Insurance reinsured with Z Insurance for 1.2 million The house bums. The liability of Z Insurance is only up to 1 million, which is the liability of X Insurance. WHAT IF ORIGINAL INSURED AND INSURANCE COMPANY SETTLES FOR LESS, the liability of Z Insurance is still only up to what is paid by X Insurance OTHERWISE, Ihe original insurer profits and thus violates that Ihe principle that it is a contract of indemnity. WHAT IS THE INTEREST OF THE ORIGINAL INSURED IN THE CONTRACT OF REINSURANCE The original insured has no interest in the contract of reinsurance (Section 98). Hence, oniy the reinsured can claim against the reinsurer.

CLASSES OF INSURANCE

INSURANCE

MARINE

WHAT IS MARINE INSURANCE Insurance against loss or damage to: Vessels, craft, aircraft, vehicles .goods, freights, cargoes, merchandise, ects. disbursements, profits, moneys, securities, choses in action, evidences of debt, valuable papers, bottomry or respondentia interest and all other kinds 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, TRANSHIPMENT OR RESHIPMENT INCIDENT THERETO, including WAR RISKS, MARINE BUILDER'S RISK, AND

ALL PERSONAL PROPERTY FLOATER RISKS (follows property wherever it may be) Person or property in connection with or appertaining to marine, island irine. 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. id) Bridges, tunnels or other instrumentalities of transportation and 1 communications (excluding buildings, their furniture and furnistvngs fixed con-

tents, and supplies held in storage), piers, wharves . docks, slips, and other aids to navigation and transportation, including dry docks, marine railways, dams and appurtenant facilities for the control of waterways. - 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( Section 99). .NOTE - that marine insurance is really TRANSPORTATION INSURAMCE which is a kind of insurance which is concerned with the perils of property in (or incidental to)_transit as opposed to property penis at a generally fixed location BUT it does~~not mciuae normal motor~vehide insurance which is treated separately by law.

WHAT ARE THE DIVISIONS TRANSPORTATION INSURANCE

OF

The divisions of transportation insurance are. jJ) Ocean Marine Insurance pertaining primarily to sea perils of ships and cargoes, andj) Inland Marine Insurance pertaining primarily to land or over land (but sometimes water) transportation perils of property shipped by railroads, motor trucks, airplanes and other means of transportation. These includes four basic policies: (a> property in transit; providing protection to property trequentty exposed to loss while in transport from one place to another (b) bailee liability providing protection to persons who have temporary custody of goods or personal property of others (c) fixed transportation property- providing protection to fixed property considered aids to the movement of property, like bridges and tunnels, and (d) floater-providing protection to personal property (such as precious stones,'jewelryf works ot art) wherever it may be located subject always to the territorial limits of the contract and need not necessarily be in the course

of transportation. NOTE also that marine insurance may be in the form of property insurance? inoemniTying the insured for loss or damage to property (Har. I, Section 93Tor liability insurance, protecting the insured against the consequences of legal liability for loss or damage to property or for personal iniurv illness or death of a person (Par. 2, Section 99) WHAT RISKS ARE INSURED AGAINST The basic risk insured against is what is commonly known as PERILS OF THE SEA (aII kinds of marine casualties and damages done tc the ship or qooas at sea by the violent action of the winds or waves, one that could not be foreseen and is not attributable to the fault of anybody. Examples: shipwrecks, foundering. strandingTcoIlision, including the jettisoning of cargo if made for the purpose of saving the vessel) although it also includes FIRE, ENEMIES, PIRATES. THIEVES, JETTISON, SURPRISALS, TAKING AT SEA, ARRESTS, RESTRAINTS, DETAINMENTS OF KINGS,

PRINCESS AND PEOPLE OF WHAT NATION, CONDITION OR QUALITY, BARRATRY OF THE MASTER AND ALL OTHER PERILS LOSSES, MISFORTUNES THAT HAVE OR SHALL COME TO HURT, DETRIMENT OR DAMAGE OF THE SAID GOODS, MERCHANDISE, SHIP OR ANY PART THEREOF. WHAT ARE NOT COVERED Generally PERILS OF THE SHIP ARE^O^COVERED (losses or damages that result from (a) natural and inevitable action of the sea fb) ordinary wear and tear of the ship (c) negligent failure of the ship owner to provide the vessel with the proper equiprnent to convey the caraQ under ordinary conditions. Example: (a) Insurance upon a cargo of rice, when sea water entered the compartment where the lice was found through a defective steel pipe (b) The insured loaded logs unto a barge. The logs are covered by

insurance. The barge sank due to improper loadinn and leaks because the barge was not provided with tarpaulins that could have prevented the barge from retaining sea water splashing into it during the voyage. WHO MUST CHECK ON WORTHINESS OF A VESSEL THE SEA

Sinre-there is n implied warranty nf seaworthiness it becomes the obligation of dhe cargo owneZ>or the insured to look for a reliable common carrier which keeps it vessels~seaworthv. .he insured may have no cnnlrr. nn tbe ues el but has j| control in the choice of common carrier. WHAT PERILS ARE INSURED IN AN " ALL RISKS POLICY It is to be construed as creating a special insurance and extending to all risks than are usually contemplated and will cover al! losses except such that may arise from intentional fraud, intentional mis-

conduct,'or that otherwise excluded. It may include all losses whether arising from a marine peril or not, to include pilferage during a war (Filipino Merchants Insurance Co. vs. CA, 179 SCRA 638). DEFINITION OF OTHER TERMS BARRATRY is a wiliful act of ^tbe-aaaster and crew in pursuance of some fraudulent or unlawful purpose fwithout She consent of the nwnsr and to the prejudice of his interest. Example: burning of the ship or unlawfully selling the "cargo. \ INCHMAREE CLAUSE/is a provision in marine isurance that it shall cover loss v or damage to the hull or MACHINERY THRU THE NEGLIGENCE OF THE MASTER. CHARTERERS, MARINERS. ENGINEERS, or PILOTS THRU EXPLOSION, BURSTING OF BOILERS, BREAKAGE OF SHAFTS OR ^THROUGH ANY LATENT DCrCCT IN THE IIULL-6R MAGHINERV^NOT

RESULTING FROM WANT OF DUE DILIGENCE. THIS IS ALSO AS KNOWN IN "MARINE INSURANCE AS THE NEGLIGENCE CLAUS.' ALL RISKS 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 the loss was due to a peril within the policy's coverage whether arising from a marine paril or not PROVIDED the risk is not excluded. WHAT CONSTITUTES INTEREST IN INSURANCE INSURABLE

1. The owner of a vessel has insurable interest in the vessel, and such shall continue even if (a) the vessel has been chartered by one who covenants to pay the owner the value~oT the vessel upon losj BUT,) in case of loss, the insurer is liable only for the part of tne loss wtiich the insured cannofyecover from the from the charterer (Section 100)

Tne insurable interest of the owner of a ship hypothecated by bottomry is (onlffiie excess of its value over the amount secured by bottomry (Secticn 101) -I^BOTTOMRY/RESPONDFNJDTDEFINED IS A loan payable only if the(vessei^ ijIrerr^s.-se&SntYfor-saTti'loan arrives safelv at port from rnntpmpiatert. Jnyagp (BOTTOMRY) or a loan payable only upon the safe arrival in port of the(goo3) ^^'given as security (RESPONDENTIA)! ' " These CONTRACTS ARE IN THE NATURE OF A MORTGAGE as the owner borrows money for Ihe use, equipment or repair of the vessel for a definite term with the ship as security with maritime or extraordinary interest on account of the risks borne by the lender, it being stipulated that it the ship be lost during the voyage or wunin a limited penod, trve lender also loses ms money (NOit I ha ('
THE

LENDER

HAS INSURABLE INTERESI TO IHB

LXIENT OF LOAN)

Example: The owner of the vessel valued at PHP 300.000 as security for a loan of PHP 200,000.00. His insurable interest is the excess of the value of the vessel over the loan or PHP 100.000.00. If the vessel is lost, the owner does not have to pay the loan of PHP 200,000.00. 3. 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. ( Section 103) FREIGHTAGE DEFINED are the benefits derived bv the ownsr from (a) chartering of the shin (b) its f nplovment for the (. jriajp nf nk .iwn gnat r those of others (Section 102)

IT EXISTS (a) jn case of a charter party - when the ship has broken on the chartared voyage (D) it a price is to tie paid for the carriage of goods. when they are actually on board or them is contract to put tham on board AND the vessel and goods are ready for the specified vovaae (Section 104). ARE THERE PERSONS/ PARTIES OTHER THAN THE OWNER WHO HAS INSURABLE INTEREST One whr has an interest in the thing from which profits are expected to proceed, has insurable interest on the profits (Section 105). Example: owner of cargo transported on a vessel not only has insurable interest on the cargo but also on the expected profits from a future sale. The charterer of a ship has insurable interest to the extent that he is liable to be damnified by its loss (Section 106). Example: A charters B's vessel on condition that A would pay B in case of loss the

amount of PHP 300,000.90. A has insurable interest to the extent of PHP 300,000.00. CONCEALMENT IN MARINE INSURANCE A PARTY IS BOUND TO COMMUNICATE, in addition lo 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 tn the risk AND to state the FXACT and WHOLE TRUTH in relation in aiuia;!t^s-that Tie represents, or upon inquiry discloses or assumes to disnlnRAiFXC.FPT;thrisq that the insurer knows or those in the exercise of ordinary cam MiB-mKar nmjhi tf knnw anrl whirh tho fnrmor hag nn rpasnn tn ^ngn_l-iim tn | igonrant Unger 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. Example: If an agent fails to notify .principal of the loss of the cargo and the latter, after the loss but ignorant thereof. secured insurance lost or not lost, the insurance will he vniri due try r;ngpaalmi=>nt A PARTY IS ALSO BOUND TO COMMUNICATE, the information belief or expectation of a 3,d person, in reference to a material fact, is material. Note: under Section 35 such is not required to be communicated in ordinary insurance (Section 108) PRESUMPTION OF A PRIOR LOSS Insured in marine insurance i^'prcsum^Do have knowledge. AT THE TIME OF HrasORlflGT oT a prior "loss, if INFORMATION MIGHT POSSIBLY''HAVE REACHED HIM IN THE

USUAL MODE OF TRANSMISSION AND AT THE USUAL RATE OF COMMUNICATION (Section 109) EFFECT OF CONCEALMENT WHILE CONCEALMENT AS A RULE ENTITLES THE INJURED PARTY TO RESCIND, the rule must yield to Section 110 as it does not vitiate the contract but merely 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 sejzitre 'TroiT breach of foreign laws ot trade (d) thewant of the necessary documents (~e)~the use of false/simulated documents. ExamplefThe vessel is seized due to ladTot documents, the insurer is exonerated. If the vessel is lost due to a storm, the insurer is liable despite concealment of lack of documents.

DISTINGUISHING ORDINARY CONCEALMENT FROM THAT IN MARINE INSURANCE ^ '1: In ordinary insurance, opinion or belief of a 3rd person or own judgment of the insured is not material and need not be communicated (Section 35), in marine insurance, belief or expectation of a 3rd person in reference to a material fact is material and has to be communicated. In ordinary insurance, a causal connection between the fact concealed and cause of loss is not necessary for the insurer to rescind, in marine insurance the concealment of any of the matters stated in Section 110 merely exonerates the insurer from loss, if the loss results from the fact concealed. REPRESENTATION IN MARINE INSURANCE WHEN IS THE INSURER ENTITLED TO RESCIND

. If the representation is INTENTIONALLY FALSE IN ANY MATFRIAl RFSPFP.T, . OR. in respect Of any fact on which thP rharartpr anH na|i iro ->a rick ^pporn-tc; 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 CSectinn 1171 Fvampig- tutamont jc to timg nf sailing, nature of the cargo or amount of profits. WHAT ARE THE IMPLIED WARRANTIES IN MARINE INSURANCE (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 SEAWORTHY (Section 113). --*---. A SHIP IS SEAWORTHY when it is reasonably fit to perform Ihe service and to ^encounter ine ordinary perns 01 tne voyage, contemplated py tne

parties to the policy (Section 114). NO I h mat it is relative and is macte to depend on the circumstances. THE IMPLIED WARRANTY OF SEAWORTHINESS IS COMPLIED WITH as a GENEgAL_RULE yyhen it is seaworthy at the time of the commencement of the riskC^FXCFR? CaTwhen the Insurance is made tor a specilied length of time, it musTEe seaworthy at the commencement of ever-voyage it undertakes at that time (b) when the insurance is unon rarnn which hv ihe terms or ihe policy, description of the vovane or estahli'rtn'i fiiintern of tr 3de, ~is required to oe transshipped at an immediate port, in which rase - each vessel upon which tne cargo is snipped or transshinned must be seaworthy at the ^commencement of each particular voyage (Section 115). (c) where different portions of the voyage contemplated in the nnlir.v differ in rpsnprt tn thp things requisite to make the ship seaworthy, in which case it must hp> seaworthy al the .Tornrnencemeni ot each portion (Section 117). Example: the voyage will pass thru rivers - then seas - the warranty is not

complied with if at the time it goes out to sea - it is not seaworthy to encounter the perils of tne sea. TO WHAT DOES THE WARRANTY OF SEAWORTHINESS EXTEND TO The warranty of seaworthiness extends only to the condition of the structure of the ship, but it requires that (a) it be properly laden or loaded with cargo (b) is provided with a competent master, sufficient number of ofricars and seamen (c) it ~musf have the requisite equipment and appurtenances LIKE ballasts, cables. "aiiUiuib, uoraage, sails, food, water, fuel, lights and other necessary and proper stores and implements for the voyage (Section 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 shipowner's interest

from any liability from any loss arising therefrom (Section 118). HENCE, if loss is hot one due to the defect or peril was not increased by the defect INSURER is still 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 (Section 119). Example: A cargo of wheat was laden on a ship which had a port hole insecurely fastened at the time of lading. The port hole was foot above the water line, and in the course of the voyage, water entered the cargo area and damaged the wheat. The ship was deemed unworthy with reference to the cargo, hence the insurer of the cargo was not liable (Steel vs. State Line Steamship, cited in Go Tiaco vs. Union Society of Canton, 40 Phil 40) (2) It shall carry the requisite documents to shew its nationality or neutrality and that it SHALL NOT

carry any document that will cast reasonable suspicion on the vessel (Section 120). THIS WARRANTY ARISES ONLY WHEN NATIONALITY OR THE NEUTRALITY OF THE VESSEL OR CARGO IS EXPRESSLY WARRANTED. (3) That the vessel shall not make any improper deviation from the intended voyage. HOW IS THE DETERMINED INTENDED VOYAGE

(a) When it is described by places of beginning end ending, the voyage is the course of sailing fixed by mercantile usage between Tiose places (Section 121). (b) When it is not fixed by mercantile usage, Uie voyage is the way between the places specified which to a master of ordinary sk.itl and discretion would seem the most natural, direct and advantageous (Section '22).

It is aydeparturg from the course ot the voyage s ^pfjppH hy 171 gi-|ti 122 OR~anUnrea$onaPie geiav in pursuing the voyage OR the commenr.emant of an entirely different voyage (Section 123). WHEN IS A DEVIATION PROPER When it is caused by circumstances over which neither the master nor the ownef of the ship has any control. Example: An ailment strikes lhe crew of the vessel. J&) When necessary to comply with a warranty, gr to avoid a peril, whether or ^ not the peril is insured against. Example: When repairs are necessary or to avoid getting caught in a conflict. When made in aopri faith and upon reasnnahle grounds of belief in its necessity avnirt a pprii. PvampiP- when undertaken to avoid the eye of a ~storm

When made in nond faith for the nurpose of saving human life or relieving another vessel in distress. Example: When assistance is given ANY DEVIATION THAT IS NOT SO INCLUDED IS NOT PROPER (Sections 124 and 125) CONSEQUENCE DEVIATION OF AN IMPROPER

Insurer is not liable for any loss happening to the thing insured subsequent to an improper deviation (Section 126). This applies whether the risk has been increased or diminished. _ _ (4) That the vessel does not or will not engage in ahy illegal upntnre) LOSSES IN MARINE INSURANCE

Losses in marine insurance may be partial or total (Section 127). A loss that is not TOTAL is PARTIAL (Section 128). KINDS OF TOTAL LOSSES A total loss may be ACTUAL CONSTRUCTIVE (Section 129). or

(1) If it is an ACTUAL TOTAL LOSS it may be caused by : (a) total destruction of the thing insured (b) the irretrievable loss of the thing by sinking or by being broken up (c) any damage to the thing which renders it valueless to the owner for fFTe purpose that he held it (d^ any other event which effertivply rippriu^ thp owner of tho possession, at the port of rifi_siiaatinn nf thn thinn innnrrri (Section 130) Example: When palay was rendered valueless because they began to germinate, thus it no longer remains as the ssme thing, it was an ACTUAL TOTALJ.OSS (Pan Malayan v. CA 201 SCRA 382)

-Aff 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 this presumption DEPENDS on the CIRCUMSTANCES of the case ^F"THE VESSEL BE PREVENTED, AT AN IMMEDIATE PORT, FROM y COMPLETING THE VOYAGE, by the perils insured against, the liability of Ihe marine insurer on the cargo continues after they are reshipped (Section 133) and the liability extends to damages, expenses of discharging, storage, reshipment, extra freightage and all other expenses incurred in saving the cargo reshipped UP TO THE AMOUNT INSURED NOTHING SHALL RENDER THE INSURER LIABLE FOR AN AMOUNT IN EXCF?'S OF THE INSURED VALUE OR IF NONE, OF THE INSURABLE VALUE (Section 134).

JJPON ACTUAL TOTAL LOSS, the insured is entitled to payment without notice ' of abandonment (Section 135) AND IF THE insurance is confined to an ACTUAL LOSS it will not cover a CONSTRUCTIVE uOSS. but it will cover any loss, which necessarily results in depriving the insured of possession, at the port of destination of the entire thing insured (Section 137) :) it is a CONSTRUCTIVE TOTAL LOSS when the person insured is given a_ right to ABANDON under Section129 (Section 131) ABANDONMENT is the act of the insured by which, AFTER A CONSTRUCTIVE TOTAL LOSS, he declares to the insurer the RELINQUISHMENT in its favor of his INTEREST in the thing insured (Section 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 (a) more than X thereof in value is actually lost or would have to be expended to recover it from the penl (b) i7 it is miured to such extent as to reduce its value by more than V* of value (c) if the thing injured is a ship, and the contemplated i yage cannot lawfully be performedwithout incurring eitl^ecan expense to the insured ot mora than % the value of the thing abandoned ORJ a risk which a prudent man would not taKe ~undei tiie circumstances (d) if Tfie insured is FREIGHTAGE OR CARGO and Ine vovaae cannot be performed - NPK another smr> nrocurea PvThe master1 -WITHIN A REASONABLE TIMF WITH RFASONARI.E Pit IGENCE - to forwa'rd roft-without incurring thp likp pyponcp nf^k^RntioneriJruitem (c) BUT, FREIGHTAGE cannot he abandoned unless tfie ship b als^abandonefr (Section ABANP0NMENT MUST NEITHER BE PARTIAL NOR CONDITIONAL( Section Hence, it must be TOTAL and ABSOLUTE

ABANDONMENT MUST BE MADE within a reasonable time after receipt of RELIABLE information of the ioss BUT, where the information is of DOUBTFUL CHARACTFR the IN.S1 IRFD is entitled tn a reasonable time to make an inquiry (Section 141). This is to enable the insurer to take steps to preserve the property. if the information proves INCORRECT or thing insured is RESTORED when the abandonment was made that there was thea.iri_fart MO XQIAl I Jhp 'abandonment becomes INEFFECTUAL (Section 142) HOW NOJIC Ci_AUA.VDON_.viUNI .IS MADE
r

S'

'

By giving notice oral or written notice to thmsm:er BUT [f-orallv-flmpn a wriripn

notice oT such rn.ust.be submitted seyRn^qysC ^nm giving oral noticS^s

withit[

(Section 143). The notice must be'explicit aFlEripecify the~~PAR I ICttfaAR udusg of the abandonment BUT need stale only enough to show that there is P,BQSABIJCAUSE, TJ:lEf^F)RE and need NOT be accompanied by PROOF OF INTEREST OR OF LOSS (Section 144). The requirement as the exolicitness _ of.the-notice is due to the fact that abandonment can only be sustained upon-the 'cause speciiied in the NOTICE: (Section 145). ' ^

The contemplated voyage for the transport of cargo is from Point X to Point Y. In between, a loss occurs

and the ship is abandoned- The freightage already earned from Point X until the point of loss, belongs to the insurer of the freightage, if the ship is subsequently repaired, and continues on to point Y, the freightage c je belongs to the insurer of the ship. (3) IF ABANDONMENT 13 NO|T ACCEPTED despite its validity, the insurer is . liable upon an ACTUAL TC'AL LOSS, deducting Ti^m the amount any proceeds' of the thing insured~That may have come to the hands of the insured (Section 541 "his ; due to the facl that unaer section I4y which provides that if notice is properly given, it does not;prejudice tfieTTtlSured, if the INSURER refuses to accept the abandonment." ' IF ABANDONMENT IS NOT MADE OR OMITTED The fact that abandonment is not made or is omitted does not prejudice the insured as he may nevertheless recover his ACTUAL LOSS (Section 155)

LIABUJTYpOR AVERAGES

"

'

^A^ERAGE DEFINED - is .aw-extraordinary ojLaci jjerttai . expgpsa^jncurred during the voyage for th^preservatioii^of the^vessel/cargo) of both /vND all damages Jo the vesse1 or-mui) Horn the tim^~iPTs foadgcl arW-ffTe voyage commenced until it ends and the cargo is unloaded. KINDS OF AVERAGES ARE: (a) PARTICULAR OR SIMPLE AVERAGE is a damage or expense caused to the vessel or cargo which has NOT INURED to the COMMCN BENEFIT and PROFIT of all PERSONS interested in the CARGO or the VESSEL. This damage or expense is borne ordinarily by the owner of the vessel or cargo that gives rise to the expenses or suffered the damage Examples: Damage sustained by a cargo from tne time it is loaded to the time it is unloaded OR additional expenses that are incurred by the vessel from the time it puts out to sea until it reaches its destination (b) GENERAL OR GROSS AVERAGE is an expense or damage suffered deliberately in or-

der to save the vessel or its cargo or both from a REAL or KNOWN risk, THUS, all persons having an interest in the VESSEL and CARGO or both at the occurrence of the AVERAGE s.hall contribute. Example: Jettisoning of cargo. AS A RULE. WHEN IT HAS BEFN AGRFFH THAT AN INSURANCE UPON A PARTICULAR THING OR CLASS OF THINGS SHALL BE FREE FROM " PARTICULAR AVERAGE, a marine insurer is not liable for a particular average loss NOT DEPRIVING THE INSURED OF THE POSSESSION, AT THE PORT OF DESTINATION, of the whole such thing, or class of things, even though it becomes entirely worthless. BUT such insurer is liable for his proportion of all general average loss assessed upon Ihe thing insured (Section 136) IN CASE CF A GENERAL AVERAGE LOSS

The insurer is liable for the loss falling upon the insured, through a contribution in respect to tne 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 (Section 164V MEANING that the insured can hold his insurer liable for his contribution up to the value of the policy. RIGHT OF SUBROGATION When a person insured 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^fjcPsuch claim can be made upon the insurer if (a) there is separation of the interest liable 'to~ contribution, example: When the cargo liable for contribution has been removed from the vessel. NOR (b) whsn the insured having the right and op-

portunity to enforce contribution from others, has rJtGLECTED OR WAIVED The exercse ot tne rignt (section ib5). MbANiNG inat insured has a choice oi recovery on the happening of a genera! average loss. They are: (a) enforcing the contribution against interested parties, or (b) claiming from the insurer. !f it be the latter, subrogation takes place. MEASURE OF INDEMNITY IN MARINE INSURANCE 0-}" IF THE POLICY IS VALUED X (a) A valuation in the policy of marine insurance is conclusive between the parties thereto in the adjustment of either a partial or total loss, it 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 (Section 156)

If however, hypothecated by bottomry or respondentia - BEFORE INSURANCE AND WITHOUT KNOWLEDGE OF THE PERSON SECURING IT - he may show the real value. Example: a person purchases a vessel subject to bottomry but he is not aware of it, he may upon a loss show the real value of the vessel. The insurer cannot rescind. 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 (Section 15/). T_h affect is that fh^> insurpri is jflaaMri a rn-incnrar 'f the value of the insurance is less than the value of the property. THIS APPLIES ' EVEN IN IHfc At&tfJCfc OF A STIPULATION IN CONTRACT AND IS ALSO KNOWN AS THE AVERAGE CLAUSE. Example: A vessel valued at PHP 500.000.00 is insured for PHP 400.000.00. The vessel is damaged to the extent of PHP 200,000 00. The insurer is liable not for the PHP 200,000.00 but only for PHP 160,000.00. The formula being.

THE 2 REQUISITES FOR THE APPLICATION OF THE AVERAGE CLAUSE: (1) insurance is for less than actual vakip (2) the loss is partial NOTE: That co-insurance exists in Marine Insurance. In Fire Insurance, there is no oo-insurance (" unless exnressly stipulate^ (Sections 171/172). In Life insurance, there is none clso as value is fixed in the policy (Section 183) NOTE ALSO: That Section 157 is further qualified by Section 166, which orovkJes: That IN CASE OF A PARTIAL LOSS OF THE SHIP OR ITS EQUSPMENT the old materials are to be applied towards the payment of the new AND UNLESS STIPULATED IN THE POLICY, the insurer is liable only for 2/3 .J the (cn.ainmg cost or repairs after the deduction EXCEPT THAT ANCHORS ARE PAID IN FULL (Section 166).

.'(c) In case profits are separately insured in a contract of marine insurance ^ (See Section 105). the insured can recover in case of a loss (AND under Section 160, tnere is a conclusive presumption of a loss from the loss of the property out of which they were expccted 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 (Section 158). Example: Goods are valued at PHP 500,000.00, expected profits are PHP 50.000.00. Goods suffer a partial loss of PHP 100,000.00. The insured can recover PHP 10,000.00 on trie insurance over profits. Insurance of profits x loss Amount Recoverable Value of Goods (d) In case of a valued policy on Ireic itaoe or cargo, if only a part of ,ue subject is expose he valuation applies only in proportion to such dirt (Section 159). Example: goods are valued at PHP 500,000.00, if only PHP

250.000.00 are shipped and exposed to the risk, the valuation is reduced by 'A. In ca&e of ? total loss, the insured can only demand 'A of valuation or PHP 250.000 00. IF THE POLICY IS OPEN a) The value of the ship is its 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. Note: The value at the time it was built-er acquired is not the value that is material. (b) The value of the cargo is its actual cost to the insured, WHEN LADEN on board OR where that 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 exportation or fluctu-

ation of the market at the port of destination or expenses incurred on the way or on arrival. DRAWBACK - government allowance upon duties on imported merchandise when the importer re-exports instead of selling it. (c) Value of freightage is the GROSS FREIGHTAGE, exclusive of PRIMAGE, without reference to the cost of earning it. PRIMAGEJ- compensation paid by the shipper to the master of the vessel for his care and trouble bestowed on the goods of the shipper, which he retains in the s 3fc 3t a conTrar7stipulation with rhe~nwnpr flfrhp (a) The cost of insurance is in each case to be added to the value thus estimated (Section 161). fF CARGO IS 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 (Section 162). Meaning if reduction in value is 1/5, then amount of recovery on the insurance is also 1/5. la is: 'ta) Market Price in sound state less Market Price in damaged state equals tiorun Value. Reduction in Value divided by Market Price in sound state multiplied with "the Amount of Insurance equals the Amount of Recovery CONTINUATION OF MEASURE OF INDEMNITY REGARDLESS OF WHETHER'POLICY IS VALUED OR OPEN

, <2^ An insurer is liable (a) for all the expenses attendant upon a loss that forces the ship into port to be repaired. These refer to expenses for repairing the "ship due to damages attributable to"perils insured against, as well as other expenses such as launchinq. towinq, raisinq and naviqatina the vessel. T'nes expenses Rre also called PUKT OF REFUGE EXPENSES, (b) If so stipulated, that i.ie insured shall LABuk ror recovery ui (fifTproperty insured, the insurer is liable for expenses incurred thereby. Example: When the vessel is unlawfully detained. This is also Known as the SUE AND LABOR CLAUSE. In either case, said expenses ate 10 be aooea ;o~a TOTAL LOSS, if that afterwards occurs (Section it>3). ~ ~ FIRE INSURANCE WHAT IS INCLUDED IN FIRE INSURANCE

Insurance agains^ fire^ includes loss or damage due to LIGHTNING, WINDSTORM, TORNADO* EARTHQUAK" JK Oil IR~ALLIED KISKS wFien such risks "are covered by Hxteri5ions~tu the flra insurance policy or under separate policies (Section 167). Hence. whileH is~nbrTrn~ifefl to loss~or damage dD5 tb lire, coverage as to other risks is not automatic FIRE DEFINED In insurance, it is defined as the active principle of burning, characterized bv heat and light combustion. I Combustion (without visioie ngnt or glow is fnoj) fire)( Example: Damage caused by smoke from a lamp when no ignition~occurred outside the lamp) TO ALLOW RFP.OVFRY it must he the proximate cause of the damage or loss AND the fire must be HOSTILE (If it (a) .burns at a place where it is not intended to burn IDl stars as a tnenaiv tire but becomes hostile if it should escape from the place where it is intended to bum and becomes uncontrollable 7c) is a frienqiy nr6 WHICH becomes

hostile by not easing rrom its proper place buf because ot the unsuitable material used to light it and it becomes inherently dangerous and uncontrollable) as opposed to( FRIENDLY FIRHfone that burns in a place where it is intended to bum and employed for Ihe ordinary purpose of TigtWingr (mutiny ot manufacturing^ BUT the policy itself mav limit or restrict coverage to losses under ordinary conditions but not those due to extra-ordinary circumstances or abnormal conditions like war, invasion, rebellion, civil war or similar causes. !n these cases recovery is still possible. Is a changs'in th&jjse^or('conditiqrvof a thing insured fromjhat .to if_i_s !imtea~byjhe policy. mad^ferttTO^thefconsedg of th insurer..h'y_mgnn_s witl^n TrTeTcontrouot me insured. an^ncreasirjcp~th risk^wnich entllles the insurer^ rescind,, the contract of insurance fSecffbn 168) -------------------

From the foregoing definition, the requisites must be present to constitute an alteration so as to allow the rescission of the contract, to wit. ia-;' The use or condition of the thing insured is specifically limited or stipulated in the policy BUT under Section 170, the contract of insurance is not affected by an act of the insured SUBSEQUENT to the execution of the policy, which does not violate its provisions, even though it increases the risk and is the cause of the loss Example: (1) If the insured stored thinner, paints and varnish. A fire subsequently occurs and there is no express prohibition as to storage of such items, even if the risk is increased the insurer is still liable (BACHRACH v. BRITISH ASSURANCE.17 Phil 555), OR (2) The policy stales that the 1s' floor is unoccupied, it is later occupied. There is no alteration that entitles the insurer to rescind, the description of the house cannot be said to be a limitation as to use (HODGES v. CAPITAL INSURANCE (60 O.G. 2227)

(b. - 'There ;s an alteration in the said use or condition JO"- The alteration is without the consent of the insucec. JO-1 The alteration is made by means_withia_the_iQSLiredIg,.contml. If the alteration be by accident or means beyond the control of the insured, the requisite is not met. Example: The alteration is made by a tenant with the consent or knowledge of the insured, the insurer can rescind. If the alteration was undertaken by the tenant (ivitho^? the consent or knowledge of the insured, the insurer^cannot rescind. _ ifi) The alteration increases the risk of loss BUT under Section 169 any alteration in the use or condition ot the thiaa insured trnm that tn whifh i<= limited by .he poliCV, Which does not/increase th risls^loeg[ not Effect the contract j

BUT THERE MUST NOT BE ANY VIOLATION OF THE CONTRACT OTHERWISE. THE BASIS FOR RESCISSION IS THAT payment of the premium is based on the risk as assessed at the time of the issuance of the policy when the risk is increased without a corresponding increase in premium, it is as if no premium is paid. MEASURE OF INSURANCE INDEMNITY IN FIRE

in an OPEN POLICY it is the expense it would be to the insured at the time of (he commencement of the fire to replace the thing lost or injured in the condition in which it was al the time of the injury In a VALUED POLICY, it is the same as in marine insurance, the valuation as agreed upon by the parties is conclusive in the adjustment of either a partial or total loss in Ihe absence of fraud (Section 171). HOW IS THE VALUATION MADE

(1) Whenever tne 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 Ihe insured and the value may then 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 insurer or fiaud on the part of the insured, the insurer will pay the whcle amount so insured and stated in the policy is paid. If it is a PARTIAL LOSS, the whole amount of the partial less 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.

.(4)'' OR the parties may stipulate that instead or payment, the option to repair, rebuild or replace the property wholly or partially damaged or destroyed shall be exercised (Section 172). No policy of Fire insurance shall be pledged, hypothecated or transferred to any person, firm or company that acts as agent for or otherwise represents ihe issuing company, such shall be void and of no effect insofar as it may affect other creditors of the insured (Section 173). CASUALTY INSURANCE Generally, it is one that covers loss or liability arising from an accident. or_rmshaa EXCLUDING THOSE THAT (-SET 'EXCLUSIVELY WITHIN OTHER TYPFS OF INSURANCE LIKb~FTRE~OR MARINE. lt includes mpiove!"S tiabilily:~worMTien's compensation, public liability, motor vehicle liability, plate glass liability, burglary ana men ^personal- accident arid PieaIth

Insurance as written 6y~ndn iTfe-corfipanics, and other substantially similar insurance (Section 174). Employer s liability - is insurance obtained by the employer against liability to an employee for damages caused or arising from injuries by reason of his empfoyment VyofKmeivTcompensation - is insurance secured by an employer for the benefit "of his employees and laborers for loss resulting from injuries, disablement, or death through industrial accident, casualty, nr disease in connection with their employment. NOTE that most if not all types of this insurance is underwritten by the GSIS or the SSS. liability - is insurance against liability of the insured to pay damages for accidental bodily injury or damage to property arising from an activity of the insured defined in the policy. JAzftor vehicle liability - is insurance against loss or injury arising from the use of a motor vehicle by

its uwner es opposed loss or damage to the vehicle itself. Coverage for both may however be contained in one policy. Plate glass - is insurance that indemnifies the insured against loss caused by the accidental breaking of plate glass, windows, doors or show cases. rglary and Theft - is insurance against loss of property througn burglary or theft sonal accident - is insurance against expense, loss of time and suffering from accidents that cause a physical injury. Ber / acci J^ealth - is insurance for indemnity for expenses or loss occasioned by sickness or disease. SURETYSHIP

An agreement whereby a parly called the surety. auaranlee.sjhe\nprfnrmanr-.p hy another party called the PRINCIPAL or OBLTGOK^ of an^obtigatfgn' or undertaking in favor of a 3 0 party called the oblioee (Section 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) WHAT IS THE LIABILITY OF THE SURETY It is ipiQl_aDcLsev.eral (solidary) .with.theQBUGQB-but.timited.to the amount of the BOND ANH _DFJFRMIMF.TL_.STRIP.TI Y RY THF TERMS OF THE CONTRACT IN RFl ATION TD RB1NCIPA1__CONTRACT BETWEEN OBLIGOR - OBLIGEE (Section 176). T-HE-

IS A SURETYSHIP CONTRACT VALID AND dINDING WHERE THE PREMIUM HAS NOT YET BEEN PAID Generally, payment of the premium is a condition precedent. Hence the bondjs jnot yalid. An EXCEPTIONJs when it is issued and accepted by the obligee, it is 'vaTid despite non-payment of tfie~premium~(SgCTTon~t7T)-----------------WHAT OTHER LAWS SURETYSHIP CONTRACT GOVERN A

IN THE ABSENCE OF SPECIFIC PROVISIONS, CIVIL CODE PROVISIONS APPLY IN A SUPPLETORY CHARACTER IF NECESSARY TO INTERPRET THE CONTRACT PROVISIONS (Section 178) DISTINGUISHED WITH GUARANTY (1) A surety assumes liability as a regular party to the agreement a guarantor's liability depends on

an independent agreement to pay if primary debtor fails to pay (Z) A surety is primarily liable, a guarantor is secondarily liahliT (3) a surety is not entitled to EXHAUSTION, a guarantor is entitled to EXHAUSTIONLIFE INSURANCE (1) Generally - ail causes of death are covered UNLESS excluded by law, by _ the policy or public policy. Examples:" By lawbeneficiary is the principal, "accomplice or accessory in bringing death of the insured. By the policy- when it does not cover assault, murder or injuries inflicted intentionally by a 3' person BUT where the insured is(not)he intended victim, insurer is liable (Calanoc vs. CA, 98 Phil 79) What must be considered is that death or injury is not the natural or probable result of the insured's voluntary act (Finman General Assurance Corporation vs. CA. 213 SCRA 493) as onnosed to

an act oHheinsured to , . confront burglars_(Biagtan vs. Insular Life Assurance Company. 44 SCRA 58). By public policy- wtien the insured is executed for a crime committed. (2) SUICIDE, if committed after the policy has been in force for a period of two years from, date of Tssue or last reinstatement umess policy jrovices^a horter penorl BUT/t is nevertheless compensable if committed in ((he state o( ^Tnsanity/egsrciteSs ordate ot commission (Section 180 A) ' ---y IS A LIFE INSURANCE TRANSFERABLE OR ASSIGNABLE POLICY

Yes, it may pass by transfer, will or succession to any person, whether he has insurable interest or not (Section 181). EFFECT, the person to whom it is transferred rnay recover upon it whatever the insured might have recovered.

NOTE wf.ilt there is no need for the assignee/transferee to have insurable interest, it should not be used to circumvent the law prohibiting insurance without insurable r-iterest. THUS, an assignment CONTEMPORANEOUS with ISSUANCE may invalidate the policy unless made in good faith. IS NOTICE '0 THE INSURER OF TRANSFER OR BEQUEST REQUIRED It is not necessary to preseive the validity of the policy UNLESS THEREBY EXPRESSLV REQUIRED (Section 182) IS THE CONSENT OF THE BENEFICIARY REQUIRED Yes, if ne is designated as an (ifrevocai)^ beneficiary as he has acquired a vested right, '----^ WHAT IS THE MEASURE OF INDEMNITY IN LIFE INSURANCE

UNLESS Ihe interest of a person insured is susceptible of pecuniary estimation, the amount stated or specified in the policy is the measure of indemnity (Section 183). HENCE a life insurance policy has been held to be a VALUED POLICY. BUSINESS OF INSURANCE ORGANIZATION, CAPITALIZATION AUTHORIZATION AND

REQUIREMENTS FOR A CERTIFICATE OF AUTHORITY FROM THE . INSURANCE COMMISSION The requirements for a certificate of authority are: (a) qualified by Philippine Laws to transact insurance business (b) has a name that is not in anyway similar to another company (c) if organized as a stock corporation, it should have a paid Up capital of no less than PHP 5.000,OCD,00 (d) 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 PHP 5,000.000.00 above all liabilities for losses reported, expenses, taxes, legal reserves and reinsurance of all outstanding risks, and the contributed surplus fund equal to the amounts required of stock corporations (PHP 1,000,000.00 if a life insurance company oi PHP 500,000.00, if a non-life insurance company). If a foreign insurance company, it must appoint a resident agent, deposit securities and maintain a legal reserve (Sections 184193). The margin of solvency is the excess of the value of insurance company's admitted assets EXCLUSIVE of its pair! up capital _ln case of a DOMESTIC INSURANCE COMPANY anrl thp pyrpsi nf thp '/aIMP of its admitted assets in the Philippines exclusive of security deposits over the amount nf its liabilities. unearned premiums, and reinsurance reservs in the Philippines-Sft<*tinn 194). The required margin is in case of life insurance companies is TWO PERCENT (2%) of the total

amount of its insurance in force as of the preceeding calendar year on all policies except term insurance AND in case of non life insurance companies, at least TEN PERCENT (10%) of total amount of its net premium during the proceeding calendar year BUT IN NO CASE TO BE LESS THAN PHP 500.000.00. IF NOT MET, the insurance company is (a) not permitted to take on any new risK and no dividends can be declared (Section 195). COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE CONCEPT OF COMPULSORY VEHICLE LIABILITY INSURANCE MOTOR

It is to provide protection or coverage to answer for bodily injury or property damage Hiarmay~Be~sustained~T5y another arising~7rom the use of a motor vehicle. PLEA3H: (TOTE THOUGTT that wnaT is now compulsory is death or uodily injury arising from motor vehicle accidents AS PER AN AMENDMENT TO THE

INSURANCE CODE BY PD 1814 and PD1455 brought about by insurance losses due to padded claims for property damage. HENCE, property damage is now optional. HOW ITS ENFORCED COMPULSORY NATURE IS

The compulsory nature of the insurance is enforced by prescribing that any land transportation operator (owner/s or motor vehicles for transportation of passengers for compensation, including, school buses) or owner of a motor vehicle (actual legal owner of a motor vehicle in whose name the vehicle is registered with the LTO) would be considered as unlawfully operating a motor vehicle (is any vehicle as defined in Sec (3) RA 4136 which is propelled by any power other than muscular power using public highways with exceptions (a) road rollers, holley cars, street sweepers, sprinkles. lawn movers, bulldozers, graders, forklifts, amph'bian trucks, or cranes not used on public highways (b)Those that ran on rails or tracks (c) Tractor, trail-

ers iwhen propelled or intended to be propelled bv an attachment to a motor vehicle is classified as a motor vehicle without power rating), traction engines cf all kinds used exclusively for agricultural purposes) UNLESS there is a la) policy of insurance (contract of insurance against passenger or 3,d party liab ity for death or boaily injury arising from motor vehicle accidents),or (b) guaranty in cash, or (c) surety bond, to INDEMNIFY THE DEATH CR INJURY TO A THIRD PARTY other than a passenger, excluding a member of the housenold, or a member of the family of a motor vehicle owner or lane transportation operator or his employee in respect to death, bodily injury or damage to property arising out of and in the course of employment) OR PASSENGER (any fare paying person being transported or conveyed in and by motor vehicle for transportation of passengers for compensation, including persons expressly authorized by law or by the vehicle's operator or his agents to ride without fare) ARISING FROM THE USE THEREOF (Sections 373, 374).

COMPLIANCE by the motor vehicle owner or the land transportation operator is monitored as the Land I ransportation Office shall" not allow registration or renewal oi registration without ffvrrtpiiance witfi Section 374 'Section 376). EXTENT OF THE LIABILITY COVERAGE Every insurance policy, surety or cash deposit required by Section 374 shall comply with the minimum limits prescribed unoer Section 377. (a) if a Land Transportation Operator - it is PHP. 12_GaQ_QfLj)aLP3ssenger. Plus PHP 50,000.00 for vehicles^ with capacity of 26 or more passengers OR PHP 40.000.00 for vehicles with capacity of 12 to 25 passengers OR PHP 30.000.00 for vehicles with capacity of 6 to 11 passengers, OR PHP 5,000.00 per passenger for vehicles with capacity of 5 or less passengers PROVIDED, that if a cash deposit or surety bond is posted with the Commissioner,

it shall be resorted lo in case of accidents, the indemnities for which WERE NOT SETTLED by the Land Transportation Operator, and in that event, said deposit of surety bond shall be replenished or surety reposted or restored within 60 days from impairment or expiration OTHERWISE, he will be required to get an insurance policy. NOTE ALSO that the cash deposits may be invested in readily marketable government bonds and / or securities by the Commissioner (b) If a Motor Vehicle Owner for a Bantam or Light Car- PHP 20,000.00, a Heavy Car-PHP 30,000.00. For other private vehicles Tricyles / Scooters /Motorcycles - PHP 12,000 00, Vehicles with unladed might of 2600 kilos or lessPHP 20,000.00, if over 2601 kilos but not over 3930kilos - PHP 30,000.00, if over 3,930 kilos PHP 50.000.00. DISTINGUISHED FROM OWN DAMAGE COVERAGE AND COMPREHENSIVE MOTOR VEHICLE INSURANCE

Third Party Liability answers for liabilities arising from death or bodily injury to 3rd persons or passengers. 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 ot a motor vehicle, n mciuaes i nffa~FarfyrOwn Damage, Theft and Property Damaged "--' WHEN DOES THE LIABILITY OF THE INSURER ACCRUE In an insurance policy that directly insures against liability, the insurers liauiliLv accrues immediately upon the occurrence of the injury upon which liability depends, and does not depend on tne recovery ot |ugQff\ent bylhe injured party against the insurea. Hence, tnefe i? no need tor the insured to wait for a decision ot the court finding him guilty of reckless

imprudence. The occurrence of an injury for which the insured may be liable immediately gives rise to insurer liability ( Shafer vs. Judge, 167 SCRA 386). In fact a third party can bring a claim or an action directly aq?irist thp insuw lha Qonpr-i - c>se nf ihe statute_to protect the injured against the insolvency of the insured. NATURE OF INSURER THE LIABILITY OF THE

It is not solidary with the insured. The liability of the insurer is based on contract, while that of the insured is based onTort. (Malayan Insurance v. CA 165 SCRA 5SS) ' WHO CAN ISSUE POLICY OR SURETY BOND Those authorized by the commissioner in the list furnis-ned to Land Transportation Office (Section

375). If the Motor Vehicle Owr.er or the Land Transportation Operator is unable to obtain or is unreasonably denied the policy of insurance, they will be required to show proof of a cash deposit with the commissioner, but ttie authority of the insurance company to engage in casualty or surety lines of business shall be withdrawn immediately (Section 379) CANCELLATION OF THE POLICY 13Y THE INSURER , requires written notice to Motor Vehicle Owner/Land Transportation Operator at least 15 days prior to intended effective date. IF SO CANCELLED, the Land Transportation Office may order ne immediate confiscation of license plates UNLESS it receives new valid insurance / surety / proof of cash deposit or revival by endorsement of the cancelled policy (Section 380). 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 (Section 381). EFFECT OF A CHANGE IN OWNERSHIP OR CHANGE IN ENGINE There is no need to issue a new policy jntii the next date of r^oisiratmn PROVIDED, the insurer shall agree to continue the policy and such change shall be indicated in a second duplicate ~which is tiled with the Land Transporation Office (Section 382). OTHER PROHIBITED ACTS ) The Motor Vehicle Owner or the Land Transportation Operator cannot require driver/s/employees to contribute to the payment of the premium (Section 386) Any government office or agency having the duty to mplement the provisions, official or employee thereof shall not act as an agent in procuring the

policy or surety bond and in no case shall the commission of the procuring agent exceed 10% of the premiums paid (Section 387). The penalties for a violatipn by Ihe Motor Vehicle Owner or the Land Transportation Operator is a fine of not less than PHP 500.00 nor more than PHP 1,000.00 and / or imprisonment for not more than 6 months. If a Land Transportation Operator violates Section 377 (mimm'jm limits of coverage) it is sufficient cause for revocation of a certificate of public convenience (Seclion 388). If the violation is committed by a corporation / association or government office / entity, the executive officer/s who shall have knowingly permitted or failed to prevent the violation shall be held liable as principals (Section 389). .. PAYMENT OF CLAIMS A claim fnr payment ig la withotrf-m. -tiftfie<3essay_delay._within_6

nnnth , from the date of accident nature.

setting fnrth the

extent and duration of the injuries- as-certifiedby_a_ckjlyJjQgnsed_ehysLcta n (Section 384). EFFECT OF FAILURE TO FILE CLAIM WITHIN PERIOD The failure to file a claim will be deemed a waiven.il a claim is filed but denied, an action must be brought within 1 year froro dale ot deniaT>with ihe Insurance Commissione1' or the Court, otherwise the rkjfirDTrjrfioh will bs dceme^Las having prescribed. WHAT SHALL INSURANCE COMPANY DO UPON FILING OF THE CLAIM It shaII forthwith ascertain the truth and extent of the clrt'm ami makf> paymaot withit, ^ wording days after reaching an AORFFMF,. If NO AGRrr~Mr~*''T 5 REACHED IT'MUST

NEVERTHELESS PAY THE NO FAULT INDEMNITY (Section 378) without PRE.ji.JICE TO A FURTHER PUR5UII I Hfc CCATir-IN WHICH CASE HE SHALL NOT BE REQUIRFD OR COMPELLED TO EXECUTE A QUIT CLAIM OR RELEASE FROM LIABILITY. Note though that in case of dispute as to enforcement of policy provisions, the adjudication shall be within the original and exclusive jurisdiction of the commissioner subject to Section 416, which provides for concurrent jurisdiction but the filing with the Insurance Commissioner shall preclude filing with the court (Section 385).' WHAT IS NO FAULT INDEMNITY A no fault ..idemnitv claim^js-a-claii for payment for death or ini' rv to a ~ passenger" or third party' withopMvlECESSITY OF PROVING FAULT~~OR NEGLIGENCE. This is payjgEie ov tne insurer tJROVIDED (a) indemnity _in_ respect of one person shalf not exceed PHP 5,000.00 (b) the necessary proof of

joss under oath to substantiate the claim is,sufamittecLJtifise_are: police report of_ accident and eilhei_tiie-dealhxertifical_anfl sufficient evidence lo establish the payee OR the medica1 report and evidence of medical or hospital disbursement in respect of which refund is"rnade7~ AGAINST CLAIMED WHOM IS THE PAYMENT

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 vehicleagainst the insurer of the vehicle in which the occupant is riding, mounting or dismounting from (b) in any other case, from the insurer of the directly offending ' vehicle (c) irfan cases, the right of ttie_party paying the claim to recover against the owner of the vehicle responsible far, the-accidentshalLhe. maintained. INTERPRETATION OF THE AUTHORIZED DRIVER CLAUSE

The authorized driver clause is interpreted In refer to the insuredjx-atw person driving on the order of the insured or with his permissionfpROVIDEP. gych person is permitted to operate a motor vehicle in accordance~wtth~otjr licensing laws or regulations and who is not otherwise disqualified. NOTE the following jurisprudence (1)lf license is exoired, person is not authorized to operate a motor vehicle (Tarco Jr. v. Phil Guaranty - 15 SCRA 313), (2) Issued a Temporary Operator's 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 had no license (Gutierrez v. Capital Insurance 130 SCRA 618, PEZA v. Alikpala, 160 SCRA 31), (3) 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 (Stokes vs. Malayan 127 SCRA 766), (4) A driver's license that bears all the earmarks of a duly issued license is presumed genuine ffii a license is nnt necessary, where the insured himself is

the driver (Paterno v. Pyramid Insurance 161 SCRA 677, 1986 BAR) OTHER PROVISIONS ter VII- Mutual Benefit Associations (SEC. 390. Any society, ------------ or corporation, without capital stock, formed or organized not for profit but mainly for the purpose of paying sick benefits to member, or furnishing financial support to members while out of employment, or of paying to relatives of deceased members of fixed or any sum of money, irrespective of whether such aim or purpose is carried out by means of fixed dues, assessments, or voluntary contributions, or of providing, by the issuance of certificates of insurance, payment to i!s members of accident cr lite insurance benefits, out of due or assessments collected from the members, shall be Known as a mutual

benefit association within the intent of this Code. Any society, association, or corporation principally organized as a labor union shall be governed by the Labor Code notwithstanding any mutual benefit feature provisions in its charter as incident to its organization.) and Trusts for Charitable Use (SEC. 410. The term trust for charitable uses" within the intent of this Code, shall include, all real or personal properties or funds, as well as those acquired with the fruits or income therefrom or in exchange or substitution thereof, given to or received by arry person, corporation, association, foundation or entity, except the National Government, its instrumentalities or political subdivisions, for charitable, benevolent, educational pious, religious, or other uses for the benefit of the public at large or a particular portion hereof or for the benefit of an indefinite number of persons.) (Sections 396 to 413) Chapter VIII- Insurance Commissioner (Section 414- Administrative / Functions, Section 415Power to Impose Fines/Suspensions- Section 415, / Adjudicatory Powers-Note: it is concurrent with

courts but the filing with the commissioner shall preclude civil courts from taking cognizance of a suit over the same subject matter. Decisions are appealable to the CA within 30 days by notice of appeal (Section 415). (2) On an acce

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