INSURANCE-beda Reviewer PDF

San Beda College of Law
30 MEMORY AID IN COMMERCIAL LAW
INSURANCE CODE
(P.D. No. 1460)
I. GENERAL CONCEPTS CONTRACT OF INSURANCE An agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event. (Sec. 2, par. 2, IC DOING AN INSURANCE BUSINESS OR TRANSACTING AN INSURANCE BUSINESS (Sec. 2, !". 4) !. "aking or proposing to make, as insurer, any insurance contract# 2. "aking or proposing to make, as surety, any contract of suretyship as a vocation, not as a mere incident to any other legitimate business of a surety# $. %oing any insurance business, including a reinsurance business# &. %oing or proposing to do any business in substance e'uivalent to any of the foregoing II. C#ARACTERISTICS OF AN INSURANCE CONTRACT (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.) !. Consensual ( it is perfected by the meeting of the minds of the parties. 2. Voluntary ( the parties may incorporate such terms and conditions as they may deem convenient. $. Aleatory ( it depends upon some contingent event. &. nilateral ( imposes legal duties only on the insurer who promises to indemnify in case of loss. ). Conditional ( It is sub*ect to conditions the principal one of which is the happening of the event insured against. +. Contract of inde!nity ( ,-cept life and accident insurance, a contract of insurance is a contract of indemnity whereby the insurer promises to make good only the loss of the insured.
7. Personal ( each party having in view

the character, credit and conduct of the other. RE$UISITES OF A CONTRACT OF INSURANCE (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.) !. A sub*ect matter which the insured has an insurable interest. 2. ,vent or peril insured against which may be any future contingent or unknown event, past or future and a duration for the risk thereof. $. A promise to pay or indemnify in a fi-ed or ascertainable amount. &. A consideration known as .premium/. ). "eeting of the minds of the parties. % CARDINAL PRINCIPLES IN INSURANCE !. Insurable Interest 2. 0rinciple of 1tmost 2ood 3aith An insurance contract re'uires utmost good faith (u"erri!ae fidei between the parties. 4he applicant is en*oined to disclose any material fact, which he knows or ought to know. #eason$ An insurance contract is an aleatory contract. 4he insurer relies on the representation of the applicant, who is in the best position to know the state of his health. $. Contract of Indemnity It is the basis of all property insurance. 4he insured who has insurable interest over a property is only entitled to recover the amount of actual loss sustained and the burden is upon him to establish the amount of such loss (#e%ie&er on Co!!ercial La&, Professors 'undian( and A)uino) #ules$ a. Applies only to property insurance e-cept when the creditor insures the life of his debtor. b. 5ife insurance is not a contract of indemnity. c. Insurance contracts are not wagering contracts. (Sec. & &. Contract of Adhesion (3ine 0rint 6ule
COMMERCIAL LAW COMMITTEE

CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS Ramos EDP: ea!ri" I. Ramos S# JECT HEADS: $ari%&elle De 'era (Nego!ia)le Ins!rumen!s La*+, Jose -ernan.o Lla/e (Insuran%e+, Al.ri%& Del Rosario (Trans0or!a!ion La*s+, S&irley $ae Ta)ang%ura1 on 'in%en! Agus!in (Cor0ora!ion La*+, 2arl S!e/en Co (S0e%ial La*s+, Jo&n Lemuel Ga!.ula ( an3ing La*s+, Ro)es0ierre C# (La* on In!elle%!ual Pro0er!y+

31 MEMORY AID IN COMMERCIAL LAW "ost of the terms of the contract do not result from mutual negotiations between the parties as they are prescribed by the insurer in final printed form to which the insured may .adhere/ if he chooses but which he cannot change. (6i7al Surety and Insurance Co., vs. CA, $$+ SC6A !2 ). 0rinciple of Subrogation It is a process of legal substitution where the insurer steps into the shoes of the insured and he avails of the latter8s rights against the wrongdoer at the time of loss. 4he principle of subrogation is a normal incident of indemnity insurance as a legal effect of payment# it inures to the insurer without any formal assignment or any e-press stipulation to that effect in the policy. Said right is not dependent upon nor does it grow out of any private contract. 0ayment to the insured makes the insurer a subrogee in e'uity. ("alayan Insurance Co., Inc. v. CA, !+) SC6A )$+# see also Art. 229:, ;CC Purposes$ (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.) !. 4o make the person who caused the loss legally responsible for it. 2. 4o prevent the insured from receiving a double recovery from the wrongdoer and the insurer. $. 4o prevent tortfeasors from being free from liabilities and is thus founded on considerations of public policy. #ules$ !. Applicable only to property insurance. 2. 4he insurer can only recover from the third person what the insured could have recovered. $. 4here can be no subrogation in cases< a. =here the insured by his own act releases the wrongdoer or third party liable for the loss or damage# b. =here the insurer pays the insured the value of the loss without notifying the carrier who has in good faith settled the insured8s claim for loss# c. =here the insurer pays the insured for a loss or risk not covered by the policy. (0an "alayan Insurance Company v. CA, !>& SC6A )& d. In life insurance e. 3or recovery of loss in e-cess of insurance coverage CONSTRUCTION OF INSURANCE CONTRACT 4he ambiguous terms are to be construed strictly against the insurer, and liberally in favor of the insured. ?owever, if the terms are clear, there is no room for interpretation. (Calanoc vs. Court of Appeals, @> 0hil. :@ III. DISTINGUIS#ING ELE&ENTS OF AN INSURANCE CONTRACT !. 4he insured possesses an insura"le interest susceptible of pecuniary estimation# 2. 4he insured is sub*ect to a ris* of loss through the destruction or impairment of that interest by the happening of designated perils# $. 4he insurer assu!es that ris* of loss# &. Such assumption is part of a (eneral sche!e to distri"ute actual losses among a large group or substantial number of persons bearing somewhat similar risks# and ). 4he insured makes a ratable contribution (pre!iu! to a general insurance fund. A contract possessing only the first $ elements above is a ris*+shiftin( de%ice. If all the elements, it is a ris*+ distri"utin( de%ice. (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.) I'. PERFECTION OF AN INSURANCE CONTRACT An insurance contract is a consensual contract and is therefore perfected the moment there is a meeting of minds with respect to the ob*ect and the cause or consideration. =hat is being followed in insurance contracts is what is known as the ,co(nition theory-. 4hus, .an acceptance made by letter shall not bind the person making the offer e-cept from the time it came to his knowledge/. (,nri'ue7 vs. Sun 5ife Assurance Co. of Canada, &! 0hil. 2+@ B()*()+ Rece( , A mere acknowledgment on behalf of the company that its branch office had


32 MEMORY AID IN COMMERCIAL LAW received from the applicant the insurance premium and had accepted the application sub*ect to processing by the head office. Co-e" No,e (A* I),e"(.) A concise and temporary written contract issued to the insurer through its duly authori7ed agent embodying the principal terms of an e-pected policy of insurance. Purpose$ It is intended to give temporary insurance protection coverage to the applicant pending the acceptance or re*ection of his application. .uration$ ;ot e-ceeding +9 days unless a longer period is approved by Insurance Commissioner (Sec. )2 . R(*e"/ 0rinted stipulations usually attached to the policy because they constitute additional stipulations between the parties. (Ang 2iok Chip vs. Springfield, )+ 0hil. 2:) In case of conflict between a rider and the printed stipulations in the policy, the rider prevails, as being a more deliberate e-pression of the agreement of the contracting parties. (C. Al%endia, The La& of Insurance in the Philippines, /012 ed.) C0!1/e/ An agreement between the insurer and the insured on certain matter relating to the liability of the insurer in case of loss. (Prof. .e Leon, p./22) E)*o"/e.e),/ Any provision added to the contract altering its scope or application. (Prof. .e Leon, p./22) POLIC2 OF INSURANCE 4he written instrument in which a contract of insurance is set forth. (Sec. &@ Co),e),/3 (Sec. %1) !. Parties 2. Amount of insurance, e-cept in open or running policies# $. Rate of premium# &. Property or life insured# ). Interest of the insured in the property if he is not the absolute owner# +. Risk insured against# and :. Duration of the insurance. Pe"/o)/ e),(,0e* ,o "eco-e" o) ,4e o0(c5 (/ec. %6)3 4he insurance proceeds shall be applied e-clusively to the proper interest of the person in whose name or to whose benefit it is made, unless otherwise specified in the policy. 7()*/3 !. A0,; 0A5ICB ( value of thing insured is not agreed upon, but left to be ascertained in case of loss. (Sec. +9 4he actual loss, as determined, will represent the total indemnity due the insured from the insurer e-cept only that the total indemnity shall not e-ceed the face value of the policy. (%evelopment Insurance Corp. vs. IAC, !&$ SC6A +2 2. CA51,% 0A5ICB ( definite valuation of the property insured is agreed by both parties, and written on the face of policy. (Sec. +! In the absence of fraud or mistake, the agreed valuation will be paid in case of total loss of the property, unless the insurance is for a lower amount. $. 61;;I;2 0A5ICB ( contemplates successive insurances and which provides that the ob*ect of the policy may from time to time be defined (Sec. +2 '. T2PES OF INSURANCE CONTRACTS !. Life insurance a. Individual life (Secs. !:@(!>$, 22: b. 2roup life (Secs. )9, last par., 22> c. Industrial life (Secs. 22@(2$! 2. 3on+life insurance a. "arine (Secs. @@(!++ b. 3ire (Secs. !+:(!:$ c. Casualty (Sec. !:& $. Contracts of "ondin( or suretyship (Secs. !:)(!:> No,e3 !. ?ealth and accident insurance are either covered under life (Sec. !>9 or casualty insurance. (Sec. !:& . 2. "arine, fire, and the property aspect of casualty insurance are also referred to as property insurance.


33 MEMORY AID IN COMMERCIAL LAW shall be forfeited when the beneficiary is the principal accomplice or accessory in willfully bringing about the death of the insured in which event, the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise dis'ualified. (Sec. !2 b. 06A0,64B 4he beneficiary of property insurance must have an insurable interest in such property, which must e-ist not only at the time the policy takes effect but also when the loss occurs. (Sec. !$ and !> . E99ec,/ o9 I""e-oc!:0e De/(+)!,(o) O9 Be)e9(c(!"5 Insured cannot< 1. Assign the policy 2. Take the cash surrender value of the policy 3. Allow his creditors to attach or e-ecute on the policy# 4. Add new beneficiary# or 5. Change the irrevocable designation to revocable, even though the change is *ust and reasonable. 4he insured does not even retain the power to destroy the contract by refusing to pay the premiums for the beneficiary can protect his interest by paying such premiums for he has an interest in the fulfillment of the obligation. (Vance, p. 114, cited in de Leon, p. /0/, 2002 ed.) 'II. INSURABLE INTEREST A. In General A person has an insurable interest in the sub*ect matter if he is so connected, so situated, so circumstanced, so related, that by the preservation of the same he shall derive pecuniary benefit, and by its destruction he shall suffer pecuniary loss, damage or pre*udice. B. Life ,very person has an insurable interest in the life and health< a. of himself, of his spouse and of his children#
'I. PARTIES TO INSURANCE CONTRACT 1. Insurer + 0erson who undertakes to indemnify another. 3or a person to be called an insurance agent, it is necessary that he should perform the function for compensation. (Aisporna vs. CA, !!$ SC6A &)@ 2. Insured 8 4he party to be indemnified upon the occurrence of the loss. ?e must have capacity to contract, must possess an insurable interest in the sub*ect of the insurance and must not be a public enemy. A public enemy+ a nation with whom the 0hilippines is at war and it includes every citi7en or sub*ect of such nation. 6. Beneficiary D A person designated to receive proceeds of policy when risk attaches. 6ules in the designation of the beneficiary< a. 5I3, i. A person who insures his o&n life can designate any person as his beneficiary, whether or not the beneficiary has an insurable interest in the life of the insured sub*ect to the limitations under Art. :$@ and Art. 29!2 of the ;CC. #eason$ in essence, a life insurance policy is no different form a civil donation insofar as the beneficiary is concerned. Eoth are founded on the same consideration of liberality. (Insular 5ife vs. ,brado, >9 SC6A !>! ii. A person who insures the life of another person and name himself as the beneficiary must have an insurable interest in such life. (Sec. !9 iii. As a general rule, the designation of a beneficiary is revocable unless the insured e-pressly waived the right to revoke in the policy. (Sec. !! iv. 4he interest of a beneficiary in a life insurance policy

34 MEMORY AID IN COMMERCIAL LAW b. of any person on whom he depends wholly or in part for education or support# c. of any person under a legal obligation to him to pay money or respecting property or services, of which death or illness might delay or prevent performance# and d. of any person upon whose life any estate or interest vested in him depends. (Sec. !9 ;4e) (, /4o10* e<(/,3 =hen the insurance takes effect# not thereafter or when the loss occurs. A.o1),3 5636#AL # L6$ 4here is no limit in the amount the insured can insure his life. 67C6PTI83$ In a creditorDdebtor relationship where the creditor insures the life of his debtor, the limit of insurable interest is e'ual to the amount of the debt. No,e3 If at the time of the death of the debtor the whole debt has already been paid, the creditor can no longer recover on the policy because the principle of indemnity applies. C. Property ,very interest in property whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that the contemplated peril might directly damnify the insured (Sec. !$ , which may consist in< !. an e-isting interest# 2. any inchoate interest founded on an e-isting interest# or $. an e-pectancy coupled with an e-isting interest in that out of which the e-pectancy arises. (Sec. !& ;4e) (, /4o10* e<(/,3 =hen the insurance takes effect and when the loss occurs, but need not e-ist in the meantime. A.o1),3 4he measure of insurable interest in property is the e-tent to which the insured might be damnified by loss or in*ury thereof. (Sec. !: INSURABLE INT ER ES T IN LIF E
"ust e-ist only at the time the policy takes effect and need not e-ist at the time of loss 1nlimited e-cept in life insurance effected by creditor on life of debtor. 4he e-pectation of benefit to be derived from the continued e-istence of life need not have any legal basis whatever. A reasonable probability is sufficient without more. 4he beneficiary need not have an insurable interest over the life of the insured if the insured himself secured the policy. ?owever, if the life insurance was obtained by the beneficiary, the latter must have insurable interest over the life of the insured.
INSURABLE INTEREST IN PROPERT2
"ust e-ist at the time the policy takes effect and when the loss occurs 5imited to actual value of interest in property insured. An e-pectation of a benefit to be derived from the continued e-istence of the property insured must have a legal basis. 4he beneficiary must have insurable interest over the thing insured.
SPECIAL CASES /. In case of a carrier or depositary A carrier or depository of any kind has an insurable interest in a thing held by him as such, to the e-tent of his liability but not to e-ceed the value thereof (Sec. !) 2. In case of a !ort(a(ed property 4he mortgagor and mortgagee each have an insurable interest in the property mortgaged and this interest is separate and distinct from the other. a. "ortgagor ( As owner, has an insurable interest therein to the e-tent of its value, even though the mortgage debt e'uals such value. 4he reason is that the loss or


35 MEMORY AID IN COMMERCIAL LAW destruction of the property insured will not e-tinguish the mortgage debt. b. "ortgagee ( ?is interest is only up to the e-tent of the debt. Such interest continues until the mortgage debt is e-tinguished. 4he lessor cannot be validly a beneficiary of a fire insurance policy taken by a lessee over his merchandise, and the provision in the lease contract providing for such automatic assignment is void for being contrary to law and public policy. (Cha vs. Court of Appeals, 22: SC6A +@9 STANDARD OR UNION &ORTGAGE CLAUSE Subse'uent acts of the mortgagor cannot affect the rights of the assignee OPEN OR LOSS PA2ABLE &ORTGAGE CLAUSE Acts of the mortgagor affect the mortgagee. #eason$ "ortgagor does not cease to be a party to the contract. (Secs. > and @ the mortgagor as the claim is discharged but it passes by subrogation to the insurer to the e-tent of the money paid by such insurer. (0alileo vs. Cosio 'III. RIS7 =hat may be insured against< !. 3uture contingent event resulting in loss or damage ( ,-. 0ossible future fire 2. 0ast unknown event resulting in loss or damage ( ,-. 3act of past sinking of a vessel unknown to the parties $. Contingent liability ( ,-. 6einsurance I=. PRE&IU& PA2&ENTS Consideration paid an insurer for undertaking to indemnify the insured against a specified peril. Easis of the right of the insurer to collect premiums< Assumption of risk.
5636#AL # L6$ ;o policy issued by an insurance company is valid and binding until actual payment of premium. Any agreement to the contrary is void. (Sec. :: 67C6PTI83'$ !. In case of life or industrial life insurance, when the grace periods applies# (Sec. :: 2. =hen the insurer makes a written acknowledgment of the receipt premium# (Sec. :> $. Section :: may not apply if the parties have agreed to the payment of the premium in installments and partial payment has been made at the time of the loss. ("akati 4uscany Condominium Corp. v. CA, 2!) SC6A &+2 &. =here a credit term has been agreed upon. (1C0E vs. "asagana 4elemart, $9> SC6A 2)@ ). =here the parties are barred by estoppel. (1C0E vs. "aagana 4elemart, $)+ SC6A $9:
Section :: merely precludes the parties from stipulating that the policy is valid even if the premiums are not paid. ("akati 4uscany Condominium Corp. v. CA, 2!) SC6A &+2
E99ec,/ o9 Lo// P!5!:0e C0!1/e a. 4he contract is deemed to be upon the interest of the mortgagor# hence, he does not cease to be a party to the contract. b. Any act of the mortgagor prior to the loss, which would otherwise avoid the insurance affects the mortgagee even if the property is in the hands of the mortgagee. c. Any act, which under the contract of insurance is to be performed by the mortgagor, may be performed by the mortgagee with the same effect. d. In case of loss, the mortgagee is entitled to the proceeds to the e-tent of his credit. e. 1pon recovery by the mortgagee to the e-tent of his credit, the debt is e-tinguished. In case a mortgagee insures his own interest and a loss occurs, he is entitled to the proceeds of the insurance but he is not allowed to retain his claim against

3 MEMORY AID IN COMMERCIAL LAW E99ec, o9 Ac>)o?0e*+.e), o9 Rece( , o9 P"e.(1. () Po0(c53 Conclusi%e e%idence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid. (Sec. :>
PRE&IU&
5evied and paid to meet anticipated losses. 0ayment is not enforceable against the insured.
ASSESS&ENT
Collected to meet actual losses. 0ayment is enforceable once levied unless otherwise agreed upon. It becomes a debt once properly levied unless otherwise agreed.
ENTITLE&ENT OF INSURED TO RETURN OF PRE&IU&S PAID A. 9hole$ !. If the thing insured was never e-posed to the risks insured against# (Sec. :@ 2. If contract is voidable due to the fraud or misrepresentation of insurer or his agents# (Sec. >! $. If contract is voidable because of the e-istence of facts of which the insured was ignorant without his fault# (Sec. >! &. =hen by any default of the insured other than actual fraud, the insurer never incurred liability# (Sec. >! ). =hen rescission is granted due to the insurer8s breach of contract. (Sec. :& E. Pro rata$ !. =hen the insurance is for a definite period and the insured surrenders his policy before the termination thereof# ,-ceptions< a. policy not made for a definite period of time b. short period rate is agreed upon c. life insurance policy 2. =hen there is overDinsurance (Sec. >2 # I)/,!)ce/ ?4e) "e.(1./ !"e )o, "eco-e"!:0e3 !. =hen the risk has already attached and the risk is entire and indivisible. 2. In life insurance. $. =hen the contract is rescindable or rendered void ab initio by the fraud of the insured. &. =hen the contract is illegal and the parties are in pari delicto.
;ot a debt.
=. TRANSFER OF POLIC2 1. Life Insurance It can be transferred even without the consent of the insurer e-cept when there is a stipulation re'uiring the consent of the insurer before transfer. (Sec. !>! #eason$ 4he policy does not represent a personal agreement between the insured and the insurer. 2. Property insurance It cannot be transferred without the consent of the insurer. #eason$ 4he insurer approved the policy based on the personal 'ualification and the insurable interest of the insured. 3. Casualty insurance It cannot be transferred without the consent of the insurer. (Paterson cited in de Leon p. 22) #eason< 4he moral ha7ards are as great as those of property insurance. C#ANE OF INTEREST IN T#E T#ING INSURED 4he mere (absolute transfer of the thing insured does not transfer the policy, but suspends it until the same person becomes the owner of both the policy and the thing insured. (Sec. )> #eason< Insurance contract is personal. 5636#AL # L6$ A change of interest in any part of a thing insured unaccompanied by a corresponding change of interest in the insurance suspends the insurance to an e'uivalent e-tent, until the interests in the thing


3! MEMORY AID IN COMMERCIAL LAW and the interest in the insurance are vested in the same person. (Sec. 29 a. A party knows a fact which he neglects to communicate or disclose to the other. b. Such party concealing is duty bound to disclose such fact to the other. c. Such party concealing makes no warranty as to the fact concealed. d. 4he other party has not the means of ascertaining the fact concealed. e. "aterial ,ffects< ,ntitles insurer to rescind, even if the death or loss is due to a cause not related to the concealed matter (Sec. 2: . No,e3 2ood 3aith is not a defense in concealment. Sec. 2: clearly provides that, .the concealment whether intentional or unintentional entitles the in*ured party to rescind the contract of insurance./ Te/, o9 &!,e"(!0(,53 %etermined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the advantages of the proposed contract, or in making his in'uiries (Sec. $! . ,-ception to Sec. $!< a. Incontestability clause b. "atters under Sec.!!9 (marine insurance 4he waiver of medical e-amination in a nonDmedical insurance contract renders even more material the information re'uired of the applicant concerning the previous conditions of health and diseases suffered. (Sunlife v. Sps. Eacani, 2&+ SC6A 2+> . 4he right to information of material facts may be waived, either by the terms of the insurance or by neglect to make in'uiries as to such facts where they are distinctly implied in other facts of which information is communicated. (Sec.$$ =here matters of opinion or *udgment are called for, answers made in good faith and without intent to deceiver will not avoid the policy even though they
67C6PTI83'$ !. In life, health and accident insurance.(Sec. 29 # 2. Change in interest in the thing insured after occurrence of an in*ury which results in a loss. (Sec. 2! # $. Change in interest in one or more of several distinct things separately insured by one policy. (Sec. 22 # &. Change of interest, by will or succession, on the death of the insured. (Sec. 2$ # ). 4ransfer of interest by one of several partners, *oint owners, or owners in common, who are *ointly insured, to others. (Sec. 2& # +. =hen a policy is so framed that it will inure to the benefit of whomsoever, during the continuance of the risk, may become the owner of the interest insured. (Sec. ): # :. =hen there is an e-press prohibition against alienation in the policy, in case of alienation, the contract of insurance is not merely suspended but avoided. (Art. !$9+, ;CC .
=I. ASCERTAIN&ENT AND CONTROL OF RIS7 AND LOSS A. Fo1" P"(.!"5 Co)ce")/ o9 ,4e P!",(e/3 !. Correct estimation of the risk# 2. 0recise delimitation of the risk# $. Control of the risk# &. %etermining whether a loss occurred and if so, the amount of such loss. B. De-(ce/ 1/e* 9o" !/ce",!()()+ !)* co),"o00()+ "(/> !)* 0o//3 1. Co)ce!0.e), ( A neglect to communicate that which a party knows and ought to communicate (Sec. 2+ 6e'uisites<


3" MEMORY AID IN COMMERCIAL LAW are untrue. #eason$ 4he insurer cannot rely on those statements. ?e must make further in'uiry. (0hilamcare ?ealth Systems vs. CA, 2.6. ;o. !2)+:>, "arch !>, 2992 . 2. Re "e/e),!,(o)/ ( 3actual statements made by the insured at the time of, or prior to, the issuance of the policy to give information to the insurer and induce him to enter into the insurance contract. 4hey are considered an active form of concealment. 6e'uisites of a false representation (misrepresentation < a. 4he insured stated a fact which is untrue. b. Such fact was stated with knowledge that it is untrue and with intent to deceive or which he states positively as true without knowing it to be true and which has a tendency to mislead. c. Such fact in either case is material to the risk. Characteristics< a. It is not a part of the contract but merely a collateral inducement to it. b. It may be oral or written. c. It is made at the same time of issuing the policy or before but not after. d. It may be altered or withdrawn before the insurance is effected but not afterwards. e. It always refers to the date the contract goes into effect. Finds< a. A33I6"A4IC, ( affirmation of a fact when the contract begins# and b. 06A"ISSA6B ( promise to be performed after policy was issued. ,ffect of "isrepresentation< the in*ured party is entitled to rescind from the time when the representation becomes false. Te/, o9 &!,e"(!0(,53 Same as that in concealment. =here the insured merely signed the application form and made the agent of the insurer fill the same for him, it was held that by doing so, the insured made the agent of the insurer his own agent and he was responsible for his acts for that purpose. (Insular 5ife Assur. Co. vs. 3eliciano, :& 0hil. &+@ 6. ;!""!),(e/ ( Statement or promise by the insured set forth in the policy or by reference incorporated therein, the untruth or nonDfulfillment of which in any respect, and without reference to whether insurer was in fact pre*udiced by such untruth or nonDfulfillment, renders the policy voidable by the insurer. 0urpose< 4o eliminate potentially increasing ha7ards which may either be due to the acts of the insured or to the change to the condition of the property. Finds< a. ,G06,SS ( an agreement e-pressed in a policy whereby the insured stipulates that certain facts relating to the risk are or shall be true, or certain acts relating to the same sub*ect have been or shall be done. b. I"05I,% 8 it is deemed included in the contract although not e-pressly mentioned. ,-ample< In marine insurance, seaworthiness of the vessel. ,ffects of breach of warranty< a. "aterial 5636#AL # L6$ Ciolation of material warranty or of a material provision of a policy will entitle the other party to rescind the contract. (Sec. :& 67C6PTI83'$ a. 5oss occurs before the time of performance of the warranty. b. 4he performances becomes unlawful at the place of the contract. c. 0erformance becomes impossible. (Sec. :$ b. Immaterial (e-. Ather insurance clause 5636#AL # L6$ It will not avoid the policy. 67C6PTI83$ =hen the policy e-pressly provides or declares that a violation thereof will avoid it. (Sec. :) ;ARRANT2
0art of the contract =ritten on the policy, actually or by reference
REPRESENTATION
"ere collateral inducement "ay be written in the policy or may be oral.


3# MEMORY AID IN COMMERCIAL LAW
0resumed material "ust be strictly complied with "ust be proved to be material 6e'uires only substantial truth and compliance
2. Life ( such right must be availed of during the first two years from the date of issue of policy or its last reinstatement# prior to .incontestability./ (Sec. &> CANCELLATION OF NON8LIFE INSURANCE POLIC2 6ight of the insurer to abandon the contract on the occurrence of certain grounds after the effectivity date of a nonDlife policy. G"o1)*/3 !. NonDpayment of premium# 2. Conviction of a crime out of acts increasing the ha7ard insured against# $. Discovery of fraud or material misrepresentation# &. Discovery of willful or reckless acts of omissions increasing the ha7ard insured against# ). Physical changes in property making the property uninsurable# and +. Determination by the Insurance Commissioner that the continuation of the policy would violate the Insurance Code. (Sec. +& Re@1("e.e),/3 4. 0rior notice of cancellation to the insured# 5. ;otice must be in writing, mailed or delivered to the named insured at the address shown in the policy# 6. ;otice must state which of the grounds set forth in Sec. +& is relied upon and upon re'uest of the insured, the insurer must furnish facts on which the cancellation is based# 7. 2rounds should have e-isted after the effectivity date of the policy. =II. INCONTESTABILIT2 CLAUSE Clause in life insurance policy that stipulates that the policy shall be incontestable after a stated period. Re@1(/(,e/3 !. 5ife insurance policy 2. 0ayable on the death of the insured $. It has been in force during the lifetime of the insured for a period of at least two years from the date
4. Co)*(,(o)/ ( ,vents signifying in its broadest sense either an occurrence or a nonDoccurrence that alters the previously e-isting legal relations of the parties to the contract. 4hey may be conditions precedent or conditions subse'uent. ,ffect of breach< a. Condition precedent ( prevents the accrual of cause of action b. Condition subse'uent ( avoids the policy or entitles the insurer to rescind 4he insurer may also protect himself against fraudulent claims of loss and this he attempts to do by inserting in the policy various conditions which take the form of conditions precedent. 3or instance, there are conditions re'uiring immediate notice of loss or in*ury and detailed proofs of loss within a limited period. %. E<ce ,(o)/ ( 0rovisions that may specify e-cepted perils. It makes more definite the coverage indicated by the general description of the risk by e-cluding certain specified risk that otherwise would be included under the general language describing the risks assumed. ,ffect< 5imit the coverage of the contract. RESCISSION G"o1)*/3 A. Concealment E. "isrepresentation C. Ereach of material warranty %. Ereach of a condition subse'uent ;!(-e" o9 ,4e "(+4, ,o "e/c()*3 Acceptance of premium payments despite the knowledge of the ground for rescission. (Sec. &) L(.(,!,(o)/ o) ,4e "(+4, o9 ,4e ()/1"e" ,o "e/c()*3 !. 3on+life ( such right must be e-ercised prior to the commencement of an action on the contract#


40 MEMORY AID IN COMMERCIAL LAW of its issue or of its last reinstatement No,e< 4he period of 2 years may be shortened but it cannot be e-tended by stipulation. Incontestability only deprives the insurer of those defenses which arise in connection with the formation and operation of the policy prior to loss. (Prof. .e Leon, p. /:; citin( 9yatt and 9yatt, p. 2:2) BARRED DEFENSES OF T#E INSURER
!. 0olicy is void ab initio 2. 0olicy is rescindable by reason of the fraudulent concealment or misrepresentation of the insured or his agent
property with the same insurance company. E99ec, () c!/e o9 0o//3 !. 4he insurer is bound only to pay to the e-tent of the real value of the property lost# 2. 4he insured is entitled to recover the amount of premium corresponding to the e-cess in value of the property# B. DOUBLE INSURANCE A e-ists where same person is insured by several insurers separately in respect to same sub*ect and interest. (Sec. @$ Re@1(/(,e/3 !. 0erson insured is the same# 2. 4wo or more insurers insuring separately# $. Sub*ect matter is the same# &. Interest insured is also the same# ). 6isk or peril insured against is likewise the same. E99ec,/3 =here double insurance is allowed, but over insurance results< (Sec. @& !. 4he insured, unless the policy otherwise provides, may claim payment from the insurers in such order as he may select, up to the amount for which the insurers are severally liable under their respective contracts# 2. =here the policy under which the insured claims is a valued policy, the insured must give credit as against the valuation for any sum received by him under any other policy without regard to the actual value of the sub*ect matter insured# $. =here the policy under which the insured claims is an unvalued policy he must give credit, as against the full insurable value, for any sum received by him under any policy# &. =here the insured receives any sum in e-cess of the valuation in the case of valued policies, or of the insurable value in the case of unvalued policies, he must hold such sum in trust for the insurers, according to their right of contribution among themselves#
DEFENSES NOT BARRED

!. 4hat the person taking the insurance lacked insurable interest as re'uired by law# 2. 4hat the cause of the death of the insured is an e-cepted risk# $. 4hat the premiums have not been paid (Secs. ::, 22:HbI, 22>HbI, 2$9HbI # &. 4hat the conditions of the policy relating to military or naval service have been violated (Secs. 22:HbI, 22>HbI # ). 4hat the fraud is of a particularly vicious type# +. 4hat the beneficiary failed to furnish proof of death or to comply with any condition imposed by the policy after the loss has happened# or :. 4hat the action was not brought within the time specified.
=III. A. O'ER8INSURANCE A results when the insured insures the same property for an amount greater than the value of the


41 MEMORY AID IN COMMERCIAL LAW ). ,ach insurer is bound, as between himself and the other insurers, to contribute ratably to the loss in proportion to the amount for which he is liable under his contract. 1. Re()/1"!)ce ,"e!,5 A "erely an agreement between two insurance companies whereby one agrees to cede and the other to accept reinsurance business pursuant to provisions specified in the treaty. (Prof. .e Leon, p. ;01) 2. A1,o.!,(c "e()/1"!)ce ( 4he reinsured is bound to cede and the reinsurer is obligated to accept a fi-ed share of the risk which has to be reinsured under the contract. (Prof. .e Leon, p. ;04) 6. F!c10,!,(-e "e()/1"!)ce ( 4here is no obligation to cede or accept participation in the risk each party having a free choice. Eut once the share is accepted, the obligation is absolute and the liability thereunder can be discharged only by payment. (,'uitable Ins. J Casualty Co. vs. 6ural Ins. J Surety Co., Inc. & SC6A $&$ 4. Re,"oce//(o) ( A transaction whereby the reinsurer in turn, passes to another insurer a portion of the risk reinsured. It is really the reinsurance of reinsurance. (Prof. .e Leon, p. ;04) =I'. A. LOSS, IN INSURANCE In*ury or damage sustained by the insured in conse'uence of the happening of one or more of the accidents or misfortune against which the insurer, in consideration of the premium, has undertaken to indemnify the insured. (Eonifacio Eros. Inc. vs. "ora, 29 SC6A 2+! Lo// 9o" ?4(c4 ()/1"e" (/ 0(!:0e
!. 5oss the pro-imate cause of which is the peril insured against (Sec. >& # 2. 5oss the immediate cause of which is the peril insured against e-cept where pro-imate cause is an e-cepted peril# $. 5oss through negligence of
A**(,(o)!0 o" O,4e" I)/1"!)ce C0!1/e A condition in the policy re'uiring the insured to inform the insurer of any other insurance coverage of the property insured. It is lawful and specifically allowed under Sec. :) which provides that .(a policy may declare that a violation of a specified provision thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid it./ A stipulation against double insurance. 0urposes< !. 4o prevent an increase in the moral ha7ard 2. 4o prevent overDinsurance and fraud. 4o constitute a violation of the clause, there should have been double insurance. C. REINSURANCE ( a contract by which the insurer procures a third person to insure him against loss or liability by reason of an original insurance (also known as ,#einsurance Cession- . (Sec. @) In every reinsurance, the original contract of insurance and the contract of reinsurance are covered by separate policies. DOUBLE INSURANCE
Involves the same interest Insurer remains in such capacity Insured is the party in interest in the 2 contracts Sub*ect of insurance is property Insured has to give his consent
REINSURANCE
Involves different interest Insurer becomes the insured in relation to reinsurer Ariginal insured has no interest in the reinsurance contract. Sub*ect of insurance is the original insurer8s risk Insured8s consent not necessary
Lo// 9o" ?4(c4 ()/1"e" (/ )o, 0(!:0e

!. 5oss by insured8s willful act# 2. 5oss due to connivance of the insured (Sec. >: # and $. 5oss where the e-cepted peril is the pro-imate cause.
TER&S3


insured e-cept where there was gross negligence amounting to willful acts# and &. 5oss caused by efforts to rescue the thing from peril insured against# ). If during the course of rescue, the thing is e-posed to a peril not insured against, which permanently deprives the insured of its possession, in whole or in part (Sec. >) .
LIFE POLICIES
a. <aturin( upon the e=piration of the ter! ( 4he proceeds are immediately payable to the insured, unless they are made payable in installments or as annuity, in which case, the installments or annuities shall be paid as they become due. b. <aturin( at the death of the insured, occurrin( prior to the e=piration of the ter! stipulated ( 4he proceeds are payable to the beneficiaries within +9 days after presentation and filing of proof of death.
NON8LIFE POLICIES
4he proceeds shall be paid within $9 days after the receipt by the insurer of proof of loss, and ascertainment of the loss or damage by agreement of the parties or by arbitration but not later than @9 days from such receipt of proof of loss whether or not ascertainment is had or made.
P"o<(.!,e C!1/e ( An event that sets all other events in motion without any intervening or independent case, without which the in*ury or loss would not have occurred. RE$UISITES FOR RECO'ER2 UPON INSURANCE !. 4he insured must have insurable interest in the sub*ect matter# 2. 4hat interest is covered by the policy# $. 4here must be a loss# and &. 4he loss must be pro-imately caused by the peril insured against. NOTICE OF LOSS I) 9("e ()/1"!)ce
6e'uired 3ailure to give notice will defeat the right of the insured to recover.
I) o,4e" ,5 e/ o9 ()/1"!)ce
;ot re'uired 3ailure to give notice will not e-onerate the insurer, unless there is a stipulation in the policy re'uiring the insured to do so.
In case of an unreasonable delay in the payment of the insured8s claim by the insurer, the insured can recover< ! attorney8s fees# 2 e-penses incurred by reason of the unreasonable withholding# $ interest at double the legal interest rate fi-ed by the "onetary Eoard# and & the amount of the claim. (Kenith Insurance Corp. vs. CA, !>) SC6A $@> ='. PRESCRIPTI'E PERIOD (Sec/. 66 B 6C4) #ules$ !. In the absence of an e-press stipulation in the policy, it being based on a written contract, the action prescribes in !9 years. 2. ?owever the parties may validly agree on a shorter period provided it is not less than one year from the time the cause of action accrues. $. 4he cause of action accrues from the re>ection of the clai! of the insured and not from the time of loss.
B. CLAI&S SETTLE&ENT 4he indemnification of the loss of the insured. TI&E FOR PA2&ENT OF CLAI&S


43 MEMORY AID IN COMMERCIAL LAW It shall commence from the denial of the claim, not from the resolution of the motion for reconsideration, otherwise it can be used by the insured as a scheme or device to waste time until the evidence which may be used against him is destroyed. (Sun Insurance Affice, 5td. v. CA, !@) SC6A &. In C"C5I, the written notice of claim must be filed within + months from the date of the accident otherwise the claim is deemed waived. 4he suit for damages either with the proper court or with the Insurance Commissioner should be filed within ! year from the date of the denial of the claim by the insurer, otherwise claimant8s right of action shall prescribe. (Sec. $>& PARTICULAR CONTRACTS 7INDS OF INSURANCE C0!//e/ o9 ()0!)* .!"()e ()/1"!)ce3 (Prof. .e Leon, p. ;24) !. Property in transit ( provides protection to property fre'uently e-posed to loss while it is transportation form one location to another. 2. ?ailee lia"ility + insurance for those who have temporary custody of the goods. $. @i=ed transportation property A they are so insured because they are held to be an essential part of the transportation system such as bridges, tunnels, etc. &. @loater A provides insurance to follow the insured property wherever it may be located, sub*ect always to the territorial limits of the contract. I)/1"!:0e (),e"e/,3 A. 1$ 'hipo&ner a. Aver the vessel to the e-tent of its value, e-cept that if chartered, the insurance is only up to the amount not recoverable from the charterer. (Sec. !99 . b. ?e also has an insurable interest on e-pected freightage. (Sec. !9$ . c. ;o insurable interest if he will be compensated by charterer for the value of the vessel, in case of loss. 2. Car(o o&ner Aver the cargo and e-pected profits (Sec. !9) . ;. Charterer Aver the amount he is liable to the shipowner, if the ship is lost or damaged during the voyage (Sec. !9+ . E. In loans on bottomry and respondentia 6epayment of the loan is sub*ect to the condition that the vessel or goods, respectively, given as a security, shall arrive safely at the port of destination. /. 8&nerB.e"tor
='I. &ARINE INSURANCE Insurance against risks connected with navigation, to which a ship, cargo, freightage, profits or other insurable interest in movable property, may be e-posed during a certain voyage or a fi-ed period of time. (Sec. @@ Co-e"!+e3 A. !. Cessels, goods, freight, cargo, merchandise, profits, money, valuable papers, bottomry and respondentia, and interest in respect to all risks or perils of navigation# 2. 0ersons or property in connection with marine insurance# $. 0recious stones, *ewels, *ewelry and precious metals whether in the course of transportation or otherwise# and &. Eridges, tunnels, piers, docks and other aids to navigation and transportation. (Sec. @@ Cargo can be the sub*ect of marine insurance, and once it is entered into, the implied warranty of seaworthiness immediately attaches to whoever is insuring the cargo, whether he be the shipowner or not. (6o'ue v. IAC, !$@ SC6A )@+ E. "arine 0rotection and Indemnity Insurance

44 MEMORY AID IN COMMERCIAL LAW %ifference between the value of vessel or goods and the amount of loan. (Sec. !9! 2. CreditorBlender Amount of the loan No,e3 If a vessel is hypothecated by bottomry, only the e-cess is insurable, since a loan on bottomry partakes of the nature of an insurance coverage to the e-tent of the loan accommodation. The sa!e rule &ould apply to the hypothecation of the car(o "y respondentia. (Pandect of Co!!ercial La& and Curisprudence, Custice Cose Vitu(, /00: ed.) PERILS OF T#E PERILS OF T#E SEA S#IP
Includes only those casualties due to the< !. unusual violence# or 2. e-traordinary action of wind and wave# or $. Ather e-traordinary causes connected with navigation. A loss which in the ordinary course of events, results from the< !. natural and inevitable action of the sea 2. ordinary wear and tear of the ship or $. ;egligent failure of the ship8s owner to provide the vessel with proper e'uipment to convey the cargo under ordinary conditions.
B. B!""!,"5 C0!1/e A clause which provides that there can be no recovery on the policy in case of any willful misconduct on the part of the master or crew in pursuance of some unlawful or fraudulent purpose without consent of owners, and to the pre*udice of the owner8s interest. (6o'ue vs. IAC, !$@ SC6A )@+ C. I)c4!.!"ee C0!1/e A clause which makes the insurer liable for loss or damage to the hull or machinery arising from the< !. ;egligence of the captain, engineers, etc. 2. ,-plosions, breakage of shafts# and $. 5atent defect of machinery or hull. (?ar #e%ie& <aterials in Co!!ercial La&, Cor(e <ira%ite, 2002 ed.) D. S1e !)* L!:o" C0!1/e A clause under which the insurer may become liable to pay the insured, in addition to the loss actually suffered, such e-penses as he may have incurred in his efforts to protect the property against a peril for which the insurer would have been liable. (Sec. !+$ &ATTERS ALT#OUG# CONCEALED, ;ILL NOT 'ITIATE T#E CONTRACT E=CEPT ;#EN T#E2 CAUSED T#E LOSS (Sec. 110) !. ;ational character of the insured# 2. 5iability of the thing insured to capture or detention# $. 5iability to sei7ure from breach of foreign laws# &. =ant of necessary documents# and ). 1se of false or simulated papers. No,e3 4his should be related to the general rule regarding material concealment. DISTINCTIONS ON CONCEAL&ENT (Co!!ercial La& #e%ie&er, A.@. A("ayani, /022 ed.) &ARINE INSURANCE
4he information of the belief or e-pectation of $rd persons is
No,e< It is only perils of the sea which may be insured against unless perils of the ship is covered by an allDrisk policy. SPECIAL &ARINE INSURANCE CONTRACTS AND CLAUSES A. A00 R(/>/ Po0(c5 ( insurance against all causes of conceivable loss or damage, e-cept< ! as otherwise e-cluded in the policy# or 2 due to fraud or intentional misconduct on the part of the insured. 4he insured has the initial burden of proving that the cargo was in good condition when the policy attached and that the cargo was damaged when unloaded from the vessel# thereafter, the burden then shifts to the insurer to show the e-ception to the coverage. (3ilipinas "erchants Insurance vs. Court of Appeals, !:@ SC6A +$>
OT#ER PROPERT2 INSURANCE

4he information or belief of a $rd party is not material and


material and must be communicated need not be communicated unless it proceeds form an agent of the insured whose duty it is to give information Concealment of any material fact will vitiate the entire contract, whether or not the loss results for the risk concealed.
4he concealment of any fact in relation to any of the matters stated in Sec. !!9 does not vitiate the entire contract but merely e-onerates the insurer from a risk resulting from the fact concealed
I&PLIED ;ARRANTIES !. Seaworthiness of the ship at the inception of the insurance (Sec. !!$ # 2. Against improper deviation (Sec. !2$, !2&, !2) # $. Against illegal venture# 7. =arranty of neutrality< the ship will carry the re'uisite documents of nationality or neutrality of the ship or cargo where such nationality or neutrality is e=pressly warranted# (Sec. !29 ). 0resence of insurable interest. =hile the payment by the insurer for the insured value of the lost cargo operates as a waiver of the insurer8s right to enforce the term of the implied warranty against the assured under the marine insurance policy, the same cannot be validly interpreted as an automatic admission of the vessel8s seaworthiness by the insurer as to foreclose recourse against the common carrier for any liability under the contractual obligation as such common carrier. (%elsan 4ransportation 5ines vs. CA, $+& SC6A 2& Se!?o",4()e// A relative term depending upon the nature of the ship, voyage, service and goods, denoting in general a ship8s fitness to perform the service and to encounter the ordinary perils of the voyage, contemplated by the parties to the policy (Sec. !!& . 5636#AL # L6$ 4he warranty of seaworthiness is complied with if the
ship be seaworthy at the time of the commencement of the risk. 0rior or subse'uent unseaworthiness is not a breach of the warranty nor is it material that the vessel arrives in safety at the end of her voyage. 67C6PTI83'$ !. In the case of a time policy, the ship must be seaworthy at the commencement of every voyage she may undertake 2. In the case of cargo policy, each vessel upon which the cargo is shipped or transshipped, must be seaworthy at the commencement of each particular voyage $. In the case of a voyage policy contemplating a voyage in different stages, the ship must be seaworthy at the commencement of each portion A 0(c!:(0(,5 o9 (. 0(e* ?!""!),5 o9 /e!?o",4()e// ,o c!"+o o?)e"/3 It becomes the obligation of a cargo owner to look for a reliable common carrier, which keeps its vessels in seaworthy conditions. 4he shipper may have no control over the vessel but he has control in the choice of the common carrier that will transport his goods (6o'ue v. IAC, !$@ SC6A )@+ . De-(!,(o) A departure from the course of the voyage insured, or an unreasonable delay in pursuing the voyage or the commencement of an entirely different voyage. (Sec.!2$ Instances< !. %eparture of vessel from the course of the sailing fi-ed by mercantile usage 2. %eparture of vessel from the most natural, direct and advantageous route if not fi-ed by mercantile usage $. 1nreasonable delay in pursuing voyage &. Commencement of an entirely different voyage (Secs. !2!D!2$ Finds< !. 0roper D a. =hen caused by circumstances outside the control of the ship captain or ship owner#


4 MEMORY AID IN COMMERCIAL LAW b. =hen necessary to comply with a warranty or to avoid a peril# c. =hen made in good faith to avoid a peril# d. =hen made in good faith to save human life or to relieve another vessel in distress (Sec. !2& ,ffect< In case of loss, the insurer is still liable. 2. Improper D ,very deviation not specified in Sec. !2& (Sec. !2) . ,ffect< In case of loss or damage, the insurer is not liable. (Sec. !2+ LOSS !. Total$ a. Actual D i. 4otal destruction# ii. Irretrievable loss by sinking# iii. %amage rendering the thing valueless# or iv. 4otal deprivation of owner of possession of thing insured. (Sec. !$9 b. Constructive D i. Actual loss of more than L of the value of the ob*ect# ii. %amage reducing value by more than L of the value of the vessel and of cargo# and iii. ,-pense of transshipment e-ceed L of value of cargo. (Sec. !$!, in relation to Sec. !$@ In case of constructive total loss, insured may< !. Abandon goods or vessel to the insurer and claim for whole insured value (Sec. !$@ , or 2. =ithout abandoning vessel, claim for partial actual loss. (Sec. !)) 2. Partial$ 4hat which is not total (Sec. !2> . A'ERAGE Any e-traordinary or accidental e-pense incurred during the voyage for the preservation of the vessel, cargo, or both, and all damages to the vessel and cargo from the time it is loaded and the voyage commenced until it ends and the cargo unloaded.
GENERAL
?as inured to the common benefit and profit of all persons interested in the vessel and cargo 4o be borne e'ually by all of the interests concerned in the venture.
PARTICULAR
?as not inured to the common benefit and profit of all persons interested in the vessel and her cargo. 4o be borne alone by the owner of the cargo or the vessel, as the case may be.
6e'uisites for the right to claim contribution< !. Common danger to the vessel or cargo# 2. 0art of the vessel or cargo was sacrificed deliberately# $. Sacrifice must be for the common safety or for the benefit of all# &. Sacrifice must be made by the master or upon his authority# ). It must be not be caused by any fault of the party asking the contribution# +. It must be successful, i.e. resulted in the saving of the vessel or cargo# and ;ecessary. RIG#T OF INSURED IN CASE OF GENERAL A'ERAGE 5636#AL # L6$ 4he insured may either hold the insurer directly liable for the whole of the insured value of the property sacrificed for the general benefit, subrogating him to his own right of contribution or demand contribution from the other interested parties as soon as the vessel arrives at her destination

4! MEMORY AID IN COMMERCIAL LAW
67C6PTI83'$ !. After the separation of interests liable to contribution 2. =hen the insured has neglected or waived his right to contribution
FPA C0!1/e (F"ee F"o. P!",(c10!" A-e"!+e) A clause agreed upon in a policy of marine insurance in which it is stated that the insurer shall not be liable for a particular average, such insurer shall be free therefrom, but he shall continue to be liable for his proportion of all general average losses assessed upon the thing insured. (Sec. !$+ ABANDON&ENT 4he act of the insured by which, after a constructive total loss, he declared the relin'uishment to the insurer of his interest in the thing insured. (Sec. !$> Re@1(/(,e/ 9o" -!0(*(,53 !. 4here must be an !ctual relin'uishment by the person insured of his interest in the thing insured (Sec. !$> # 2. 4here must be a constructive total loss (Sec. !$@ # $. 4he abandonment be neither artial nor conditional (Sec. !&9 # &. It must be made within a reasonable ,ime after receipt of reliable information of the loss (Sec. !&! # ). It must be 9actual (Sec. !&2 # +. It must be made by giving )otice thereof to the insurer which may be done orally or in writing (Sec. !&$ # and :. 4he notice of abandonment must be e-plicit and must specify the particular cause of the abandonment (Sec. !&& . E99ec,/3 !. It is e'uivalent to a transfer by the insured of his interest to the insurer with all the chances of recovery and indemnity (4ransfer of Interest (Sec.!&+ 2. Acts done in good faith by those who were agents of the insured in respect to the thing insured, subse'uent to the loss, are at the risk of the insurer and for his benefit. (4ransfer Af Agency (Sec.!&>
If an insurer refuses to accept a valid abandonment, he is liable upon an actual total loss, deducting form the amount any proceeds of the thing insured which may have come to the hands of the insured. (Sec.!)& CO8INSURANCE A marine insurer is liable upon a partial loss, only for such proportion of the amount insured by him as the loss bears to the value of the whole interest of the insured in the property insured. (Sec. !): =hen the property is insured for less than its value, the insured is considered a coDinsurer of the difference between the amount of insurance and the value of the property. Re@1(/(,e/3 !. 4he loss is partial# 2. 4he amount of insurance is less than the value of the property insured. R10e/3 !. CoDinsurance applies only to marine insurance 2. 5ogically, there cannot be coD insurance in life insurance. $. CoDinsurance applies in fire insurance when e-pressly provided for by the parties. CO8INSURANCE
A percentage in the value of the insured property which the insured himself assumes to act as insurer to the e-tent of the deficiency in the insurance of the insured property. In case of loss or damage, the insurer will be liable only for such proportion of the loss or damage as the amount of the insurance bears to the designated percentage of the full value of the property insured. (?ar #e%ie& <aterials in Co!!ercial La&,
REINSURANCE
Situation where the insurer procures a $rd party called the reinsurer to insure him against liability by reason of an original insurance. Easically, reinsurance is an insurance against liability which the original insurer may incur in favor of the original insured.


4" MEMORY AID IN COMMERCIAL LAW
Cor(e <ira%ite, 2002 ed.)
='II. FIRE INSURANCE A contract by which the insurer for a consideration agrees to indemnify the insured against loss of, or damage to, property by hostile fire, including loss by lightning, windstorm, tornado or earth'uake and other allied risks, when such risks are covered by e-tension to fire insurance policies or under separate policies. (Sec. !+: P"e"e@1(/(,e/ ,o "eco-e"53 !. ;otice of loss ( must be immediately given, unless delay is waived e-pressly or impliedly by the insurer 2. 0roof of loss ( according to best evidence obtainable. %elay may also be waived e-pressly or impliedly by the insurer #OSTILE FIRE
Ane that escapes from the place where it was intended to burn and ought to be. Insurer is liable
ALTERATION AS A SPECIAL GROUND FOR RESCISSION B2 INSURER Re@1(/(,e/3 !. 4he use or condition of the thing is specifically limited or stipulated in the policy# 2. Such use or condition as limited by the policy is altered# $. 4he alteration is made without the consent of the insurer# &. 4he alteration is made by means within the control of the insured# ). 4he alteration increases the risk# (Sec. !+> and +. 4here must be a violation of a policy provision. (Sec. !:9 F!008o98:1(0*()+ c0!1/e A clause in a fire insurance policy that if the building or any part thereof falls, e-cept as a result of fire, all insurance by the policy shall immediately cease. O ,(o) ,o "e:1(0* c0!1/e A clause giving the insurer the option to reinstate or replace the property damaged or destroyed or any part thereof, instead of paying the amount of the loss or the damage. 4he insurer, after electing to rebuild, cannot be compelled to perform this undertaking by specific performance because this is an obligation to do, not to give. 6emedy< Art. !!+:, ;CC. ='III. CASUALT2 OR ACCIDENT INSURANCE Insurance covering loss or liability arising from accident or mishap, e-cluding those falling under other types of insurance such as fire or marine. (Sec. !:& C0!//(9(c!,(o)/3 !. Insurance a(ainst specified perils &hich !ay affect the person andBor property of the insured. (accident or health insurance ,-amples< personal accident, robberyMtheft insurance 2. Insurance a(ainst specified perils &hich !ay (i%e rise to lia"ility on the part of the insured for clai!s for
FRIENDL2 FIRE
Ane that burns in a place where it was intended to burn and ought to be Insurer is not liable
&e!/1"e o9 I)*e.)(,5 !. 8pen policy$ only the e-pense necessary to replace the thing lost or in*ured in the condition it was at the time of the in*ury 2. Valued policy$ the parties are bound by the valuation, in the absence of fraud or mistake No,e3 It is very crucial to determine whether a marine vessel is covered by a marine insurance or fire insurance. 4he determination is important for 2 reasons< !. #ules on constructi%e total loss and a"andon!ent ( applies only to marine insurance# 2. #ule on co+insurance ( applies primarily to marine insurance# $. #ule on co+insurance applies to fire insurance only if e-pressly agreed upon. (Co!!ercial La& #e%ie&er, A(uedo A("ayani, /022 ed.)


4# MEMORY AID IN COMMERCIAL LAW in>uries to or da!a(e to property of others. (third party liability insurance Insurable interest is based on the interest of the insured in the safety of persons, and their property, who may maintain an action against him in case of their in*ury or destruction, respectively. ,-amples< workmen8s compensation, motor vehicle liability In a third party liability (405 insurance contract, the insurer assumes the obligation by paying the in*ured third party to whom the insured is liable. 0rior payment by the insured to the third person is not necessary in order that the obligation may arise. 4he moment the insured becomes liable to third persons, the insured ac'uires an interest in the insurance contract which may be garnished like any other credit. (0erla Comapnia de Seguro, Inc vs. 6amolete, 29) SC6A &>: Aside from compulsory motor vehicle liability insurance, the Insurance Code contains no other provisions applicable to casualty insurance. 4herefore, such casualty insurance are governed by the general provisions applicable to all types of insurance, and outside of such statutory provisions, the rights and obligations of the parties must be determined by their contract, taking into consideration its purpose and always in accordance with the general principles of insurance law. In burglary, robbery and theft insurance, the opportunity to defraud the insurer ( the moral ha7ard ( is so great that insurer have found it necessary to fill up the policies with many restrictions designed to reduce the ha7ard. 0ersons fre'uently e-cluded are those in the insured8s service and employment. 4he purpose of the e-ception is to guard against liability should theft be committed by one having unrestricted access to the property. (3ortune Insurance vs. CA, 2&& SC6A 29> R(+4, o9 ! ,4("* !",5 ()D1"e* ,o /1e ,4e ()/1"e" !. Indemnity against liability ( A third party in*ured can directly sue the insurer. 2. Indemnity for actual loss or reimbursement after actual payment by the insured ( A third party has no cause of action against the insurer (Sec. )$, Eonifacio Eros. v. "ora, 29 SC6A 2+! . 4he insurer is not solidarily liable with the insured. 4he insurer8s liability is based on contract# that of the insured is based on torts. 3urthermore, the insurer8s liability is limited by the amount of the insurance coverage (0an "alayan Insurance Corporation v. CA, !>& SC6A )& .
INTENTIONAL -/. ACCIDENTAL AS USED IN INSURANCE POLICIES /. Intentional A Implies the e-ercise of the reasoning faculties, consciousness and volition. =here a provision of the policy e-cludes intentional in*ury, it is the intention of the person inflicting the in*ury that is controlling. If the in*uries suffered by the insured clearly resulted from the intentional act of the third person, the insurer is relieve from liability as stipulated. (Eiagtan v. the Insular 5ife Assurance Co. 5td., && SC6A )>, !@:2 2. Accidental ( 4hat which happens by chance or fortuitously, without intention or design, which is une-pected, unusual and unforeseen. NO ACTION CLAUSE A re'uirement in a policy of liability insurance which provides that suit and final *udgment be first obtained against the insured# that only thereafter can the person in*ured recover on the policy. (2uingon vs. %el "onte, 29 SC6A !9&$ =I=. CO&PULSOR2 &OTOR 'E#ICLE LIABILIT2 INSURANCE (C&'LI) A species of compulsory insurance that provides for protection coverage that will answer for legal liability for losses and damages for bodily in*uries or property damage that may be sustained by another arising from the use and operation of motor vehicle by its owner. 0urpose< 4o give immediate financial assistance to victims of motor vehicle


50 MEMORY AID IN COMMERCIAL LAW accidents andMor their dependents, especially if they are poor regardless of the financial capability of motor vehicle owners or operators responsible for the accident sustained (Shafer v. Nudge, 64C, !+: SC6A $>+ . ClaimantsMvictims may be a .passenger/ or a .$rd party/ It applies to all vehicles whether public and private vehicles. ;ote< It is the only compulsory insurance coverage under the Insurance Code. b. %eath certificate and evidence sufficient to establish proper payee# c. "edical report and evidence of medical or hospital disbursement. $. Claim may be made against one motor vehicle only &. 0roper insurer from which to claim D a. In case of an occupant< Insurer of the vehicle in which the occupant is riding, mounting or dismounting from# b. In any other case< Insurer of the directly offending vehicle. (Sec. $:> 4he claimant is not free to choose from which insurer he will claim the .no fault indemnity/ as the law makes it mandatory that the claim shall lie against the insurer of the vehicle in which the occupant is riding, mounting or dismounting from. 4hat said vehicle might not be the one that caused the accident is of no moment since the law itself provides that the party paying may recover against the owner of the vehicle responsible for the accident. (0erla Compania de Seguros, Inc. v. Ancheta, !+@ SC6A !&& 4his noDfault claim does not apply to property damage. If the total indemnity claim e-ceeds 0),999 and there is controversy in respect thereto, the finding of fault may be availed of by the insurer only as to the e-cess. 4he first 0),999 shall be paid without regard to fault. (Prof. .e Leon, p. :/1) 4he essence of the noDfault indemnity insurance is to provide victims of vehicular accidents or their heirs immediate compensation although in limited amount, pending final determination of who is responsible for the accident and liable for the victims in*uries or death. (I"id.) SPECIAL CLAUSES A. A1,4o"(Ee* D"(-e" C0!1/e A clause which aims to indemnify the insured owner against loss or damage to the car but limits the use of the insured vehicle to the insured himself or any person who drives on his order or with his permission (Cillacorta v. Insurance Commissioner
&e,4o* o9 co-e"!+e !. Insurance policy 2. Surety bond $. Cash deposit P!//e)+e" A Any fareDpaying person being transported and conveyed in and by a motor vehicle for transportation of passengers for compensation, including persons e-pressly authori7ed by law or by the vehicle8s operator or his agents to ride without fare. (Sec. $:$HbI T4("* P!",5 ( Any person other than the passenger, e-cluding a member of the household or a member of the family within the second degree of consanguinity or affinity, of a motor vehicle owner or land transportation operator, or his employee in respect of death or bodily in*ury arising out of and in the course of employment. (Sec. $:$HcI No8F!10, C0!1/e A clause that allows the victim (in*ured person or heirs of the deceased to an option to file a claim for death or in*ury without the necessity of proving fault or negligence of any kind. 0urpose< 4o guarantee compensation or indemnity to in*ured persons in motor vehicle accidents. 6ules< !. 4otal indemnity D ma-imum of 0),999 2. 0roofs of loss D a. 0olice report of accident#


51 MEMORY AID IN COMMERCIAL LAW 4he re'uirement that the person driving the insured vehicle is permitted in accordance with the licensing laws or other laws or regulations to drive the motor vehicle (licensed driver is applicable only if the person driving is other than the insured. B. T4e9, C0!1/e A clause which includes theft as among the risks insured against. =here the car is unlawfully and wrongfully taken without the owner8s consent or knowledge, such taking constitutes theft, and thus, it is the .theft clause/ and not the .authori7ed driver clause that should apply (0alermo v. 0yramids Ins., !+! SC6A +:: . C. Coo e"!,(o) C0!1/e A clause which provides in essence that the insured shall give all such information and assistance as the insurer may re'uire, usually re'uiring attendance at trials or hearings. ==. SURET2S#IP An agreement whereby a surety guarantees the performance by the principal or obligor of an obligation or undertaking in favor of an obligee. (Sec. !:) It is essentially a credit accommodation. It is considered an insurance contract if it is e-ecuted by the surety as a vocation, and not incidentally. (Sec. 29 =hen the contract is primarily drawn up by ! party, the benefit of doubt goes to the other party (insuredMobligee in case of an ambiguity following the rule in contracts of adhesion. Suretyship, especially in fidelity bonding, is thus treated like nonDlife insurance in some respects. N!,1"e o9 0(!:(0(,5 o9 /1"e,5 !. Solidary# 2. 5imited to the amount of the bond# $. It is determined strictly by the terms of the contract of suretyship in relation to the principal contract between the obligor and the obligee. (Sec. !:+ SURET2S#IP
Accessory contract $ parties< surety, obligor and oblige Credit accommodation Surety can recover from principal Eond can be cancelled only with consent of obligee, Commissioner or court 6e'uires acceptance of obligee to be valid
6iskDshifting device# premium paid being in the nature of a service fee
PROPERT2 INSURANCE
0rincipal contract 2 parties< insurer and insured Contract of indemnity Insurer has no such right# only right of subrogation "ay be cancelled unilaterally either by insured or insurer on grounds provided by law ;o need of acceptance by any third party
6iskDdistributing device# premium paid as a ratable contribution to a common fund
==I. LIFE INSURANCE Insurance on human lives and insurance appertaining thereto or connected therewith which includes every contract or pledge for the payment of endowments or annuities. (Sec. !:@ 7()*/3 (?ar #e%ie& <aterials in Co!!ercial La&, Cor(e <ira%ite, 2002 ed.) 1$ 8rdinary Life, 5eneral Life or 8ld Line Policy D Insured pays a fi-ed premium every year until he dies. Surrender value after $ years. 2$ 5roup Life ( ,ssentially a single insurance contract that provides coverage for many individuals. ,-amples< In favor of employees, .mortgage redemption insurance/. 3$ Li!ited Pay!ent Policy ( insured pays premium for a limited period. If he dies within the period, his beneficiary is paid# if he outlives the period, he does not get anything. 4$ 6ndo&!ent Policy ( pays premium for specified period. If he outlives the period, the face value of the policy is paid to him# if not, his beneficiaries receive the benefit. 5$ Ter! Insurance ( insurer pays once only, and he is insured for a specified period. If he dies within the period, his beneficiaries benefits. If he outlives the period,


52 MEMORY AID IN COMMERCIAL LAW no person benefits from the insurance. Industrial Life D life insurance entitling the insured to pay premiums weekly, or where premiums are payable monthly or oftener.
&o",+!+e Re*e. ,(o) I)/1"!)ce A life insurance taken pursuant to a group mortgage redemption scheme by the lender of money on the life of a mortgagor who, to secure the loan, mortgages the house constructed from the use of the proceeds of the loan, to the e-tent of the mortgage indebtedness such that if the mortgagor dies, the proceeds of his life insurance will be used to pay for his indebtedness to the lender assured and the deceased8s heirs will thereby be relieved from paying the unpaid balance of the loan. (2reat 0acific 5ife Assurance Corp. vs. Court of Appeals, $!+ SC6A +:: LIABILIT2 OF INSURER IN CERTAIN CAUSES OF DEAT# OF INSURED !. Suicide Insurer is liable in the following cases< !. If committed after t&o years from the date of the policy8s issue or its last reinstatement# 2. If committed in a state of insanity regardless of the date of the commission unless suicide is an e-cepted peril. (Sec. !>9DA $. If committed after a shorter period provided in the policy Any stipulation e-tending the 2Dyear period is null and void. 2. At the hands of the law (,.g. by legal e-ecution It is one of the risks assumed by the insurer under a life insurance policy in the absence of a valid policy e-ception. (Vance,p.4:2 cited in de Leon, p. /0:) No,e3 Nustice Citug believes that death by suicide (if the insured is sane or at the hands of the law obviates against recovery as being more in consonance with public policy and as being implicit under Section >:, IC0. (Pandect of Co!!ercial La& and Curisprudence, /00: ed. P. /0/) $. Killin !y the !eneficiary
5636#AL # L6$ 4he interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary is the principal accomplice or accessory in willfully bringing about the death of the insured, in which event, the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise dis'ualified. (Sec. !2 67C6PTI83'$ !. Accidental killing 2. SelfDdefense $. Insanity of the beneficiary at the time he killed the insured
If the premiums paid came from con*ugal funds, the proceeds are considered con*ugal. If the beneficiary is other than the insured8s estate, the source of premiums would not be relevant. (%el Cal v. %el Cal, 2@ 0hil )$& 4he measure of indemnity in life or health insurance policy is the sum fi-ed in the policy e-cept when a creditor insures the life of his debtor. (Sec. !>$ IS T#E CONSENT OF T#E BENEFICIAR2 NECESSAR2 TO T#E ASSIGN&ENT OF A LIFE INSURANCE POLIC2F It depends. If the designation of the beneficiary is irrevocable, the beneficiary8s consent is essential because of his vested right. If the designation is revocable, the policy may be assigned without such consent because the beneficiary only has a mere e-pectancy to the proceeds. (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.) C!/4 S1""e)*e" '!01e As applied to a life insurance policy, it is the amount the insured in case of default, after the payment of at least $ full annual premiums, is entitled to receive if he surrenders the policy and releases his claims upon it. LIFE INSURANCE
Contract of investment not of indemnity Calued policy "ay be transferred or assigned to any
FIRE INSURANCE
Contract of indemnity Apen or valued policy 4he insurable interest of the


person even if he has no insurable interest Consent of insurer is not essential to validity of assignment Contingency that is contemplated is a certain event, the only uncertainty being the time when it will take place A longDterm contract and cannot be cancelled by the insurer Eeneficiary is under no obligation to prove actual financial loss transferee or assignee is essential Consent of insurer must be secured in the absence of waiver Contingency insured against may or may not occur
"ay be cancelled by either party and is usually for a term of one year Insured is re'uired to submit proof of his actual pecuniary loss as a condition precedent to collecting the insurance.
==II. 'ARIABLE CONTRACT Any policy or contract on either a group or individual basis issued by an insurance company providing for benefits or other contractual payments or values thereunder to vary so as to reflect investment results of any segregated portfolio of investment. ==III. INSURANCE CO&&ISSIONER "ain agency charged with the enforcement of the Insurance Code and other related laws. F1)c,(o)/3 !. A%N1%ICA4A6BMO1ASIDN1%ICIA5 a. ,-clusive original *urisdiction ( Any dispute in the enforce!ent of any policy issued pursuant to Chapter CI (C"C5I . (Sec. $>), par. 2 b. Concurrent original *urisdiction (with the 64C ( =here the ma-imum amount involved in any single claim is 0!99,999 (Sec. &!+ , e-cept in case of maritime insurance which is within the e-clusive *urisdiction of the 64C. (E0 !2@# admiralty J maritime *urisdiction =here the amount e-ceeds 0!99,999, the 64C has *urisdiction.
4he Insurance Commissioner has no *urisdiction to decide the legality of a contract of a(ency entered into between an insurance company and its agent. 4he same is not covered by the term .doing or transacting insurance business/ under Sec 2, IC0, neither is it covered by Sec. &!+ of the same Code which grants the Commissioner ad*udicatory powers (0hilippine American 5ife Insurance Co. v. Ansaldo, 2$& SC6A )9@ . 2. A%"I;IS46A4IC,M6,215A4A6B a. ,nforcement of insurance laws b. Issuance, suspension or revocation of certificate of authority c. 0ower to e-amine books and records, etc. d. 6uleDmaking authority e. 0unitive


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