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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, !. "aking or proposing to make, as insurer, any insurance contract# !". 4)

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. 5. Conditional ( It is sub)ect to conditions the principal one of which is the happening of the event insured against. 6. 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. $. A promise to pay or indemnify in a fi+ed or ascertainable amount. &. A consideration known as ,premium-. .. "eeting of the minds of the parties. % CARDINAL PRINCIPLES IN INSURANCE !. Insurable Interest 2. /rinciple of 0tmost 1ood 2aith An insurance contract re'uires utmost good faith (u"erri!ae fidei between the parties. 3he applicant is en)oined to disclose any material fact, which he knows or ought to know. #eason$ An insurance contract is an aleatory contract. 3he insurer relies on the representation of the applicant, who is in the best position to know the state of his health. $. Contract of Indemnity It is the basis of all property insurance. 3he insured who has insurable interest over a property is only entitled to recover the amount of actual loss sustained and the burden is upon him to establish the amount of such loss (#e%ie&er on Co!!ercial La&, Professors 'undian( and A)uino) #ules$ a. Applies only to property insurance e+cept when the creditor insures the life of his debtor. b. 4ife insurance is not a contract of indemnity. c. Insurance contracts are not wagering contracts. (Sec. & &. Contract of Adhesion (2ine /rint 5ule "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. (5i6al Surety and Insurance Co., vs. CA, $$7 SC5A !2 .. /rinciple 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. 3he 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. /ayment to the insured makes the insurer a subrogee in e'uity. ("alayan Insurance Co., Inc. v. CA, !7. SC5A .$7# see also Art. 229:, ;CC Purposes$ (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.) !. 3o make the person who caused the loss legally responsible for it. 2. 3o prevent the insured from receiving a double recovery from the wrongdoer and the insurer. $. 3o prevent tortfeasors from being free from liabilities and is thus founded on considerations of public policy. #ules$ !. Applicable only to property insurance.

2. 3he insurer can only recover from the third person what the insured could have recovered. $. 3here 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. (/an "alayan Insurance Company v. CA, !>& SC5A .& d. In life insurance e. 2or recovery of loss in e+cess of insurance coverage CONSTRUCTION OF INSURANCE CONTRACT 3he 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, @> /hil. :@ III. DISTINGUIS#ING ELE&ENTS OF AN INSURANCE CONTRACT !. 3he insured possesses an insura"le interest susceptible of pecuniary estimation# 2. 3he insured is sub)ect to a ris* of loss through the destruction or impairment of that interest by the happening of designated perils# $. 3he 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 .. 3he 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-. 3hus, ,an acceptance made by letter shall not bind the person making the offer e+cept from the time it came to his knowledge-. (*nri'ue6 vs. Sun 4ife Assurance Co. of Canada, &! /hil. 27@ B()*()+ Rece( , A mere acknowledgment on behalf of the company that its branch office had received from the applicant the insurance premium and had accepted the application 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 authori6ed 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 79 days unless a longer period is approved by Insurance Commissioner (Sec. .2 . R(*e"/ /rinted stipulations usually attached to the policy because they constitute additional stipulations between the parties. (Ang 1iok Chip vs. Springfield, .7 /hil. 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 3he written instrument in which a contract of insurance is set forth. (Sec. &@ Co),e),/3 (Sec. %1)

1. 2. 3. 4. 5. 6. 7.

Parties 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 3he 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 !. A/*; /A4ICB ( value of thing insured is not agreed upon, but left to be ascertained in case of loss. (Sec. 79 3he 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, !&$ SC5A 72 2. CA40*% /A4ICB ( definite valuation of the property insured is agreed by both parties, and written on the face of policy. (Sec. 7! 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. $. 50;;I;1 /A4ICB ( contemplates successive insurances and which provides that the ob)ect of the policy may from time to time be defined (Sec. 72 '. T2PES OF INSURANCE CONTRACTS !. Life insurance a. Individual life (Secs. !:@(!>$, 22: b. 1roup life (Secs. .9, last par., 22> c. Industrial life (Secs. 22@(2$! 2. 3on+life insurance a. "arine (Secs. @@(!77 b. 2ire (Secs. !7:(!:$ c. Casualty (Sec. !:& $. Contracts of "ondin( or suretyship (Secs. !:.(!:> No,e3 !. ?ealth and accident insurance are either covered under life (Sec. !>9 or casualty insurance. (Sec. !:& . 2. "arine, fire, and the property aspect of casualty insurance are also referred to as property insurance. 'I. PARTIES TO INSURANCE CONTRACT Insurer + /erson who undertakes to indemnify another. 2or a person to be called an insurance agent, it is necessary that he should perform the function for compensation. (Aisporna vs. CA, !!$ SC5A &.@ 2. Insured 8 3he 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 /hilippines is at war and it includes every citi6en or sub)ect of such nation. 6. Beneficiary D A person designated to receive proceeds of policy when risk attaches. 5ules in the designation of the beneficiary< a. 4I2*

1.

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 4ife vs. *brado, >9 SC5A !>!

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. 3he 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 b. /5A/*53B 3he 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<

ii.

1. 2. 3. 4. 5.

Assign the policy Take the cash surrender value of the policy Allow his creditors to attach or e+ecute on the policy# Add new beneficiary# or Change the irrevocable designation to revocable, even though the change is )ust and reasonable.

3he 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# 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$ 3here 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 3he 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 INTEREST IN LIFE "ust e+ist only at the time the policy takes effect and need not e+ist at the time of loss 0nlimited e+cept in life insurance effected by creditor on life of debtor. INSURABLE INTEREST IN PROPERT2 "ust e+ist at the time the policy takes effect and when the loss occurs 4imited to actual value of interest in property insured.

3he 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.

An e+pectation of a benefit to be derived from the continued e+istence of the property insured must have a legal basis. 3he beneficiary must have insurable interest over the thing insured.

3he 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.

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 3he 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. 3he reason is that the loss or 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. 3he 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: SC5A 7@9

STANDARD OR UNION &ORTGAGE CLAUSE

OPEN OR LOSS PA2ABLE &ORTGAGE CLAUSE

Subse'uent acts of the mortgagor cannot affect the rights of the assignee

Acts of the mortgagor affect the mortgagee. #eason$ "ortgagor does not cease to be a party to the contract. (Secs. > and @

E99ec,/ o9 Lo// P!5!:0e C0!1/e a. 3he 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. 0pon 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 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. (/alileo vs. Cosio 'III. RIS7 =hat may be insured against< !. 2uture contingent event resulting in loss or damage ( *+. /ossible future fire 2. /ast unknown event resulting in loss or damage ( *+. 2act of past sinking of a vessel unknown to the parties $. Contingent liability ( *+. 5einsurance 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 3uscany Condominium Corp. v. CA, 2!. SC5A &72 &. =here a credit term has been agreed upon. (0C/E vs. "asagana 3elemart, $9> SC5A 2.@ .. =here the parties are barred by estoppel. (0C/E vs. "aagana 3elemart, $.7 SC5A $9:
Section :: merely precludes the parties from stipulating that the policy is valid even if the premiums are not paid. ("akati 3uscany Condominium Corp. v. CA, 2!. SC5A &72 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. :>

ENTITLE&ENT OF INSURED TO RETURN OF PRE&IU&S PAID A. 9hole$

1.

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. PRE&IU& 4evied and paid to meet anticipated losses. /ayment is not enforceable against the insured. ASSESS&ENT Collected to meet actual losses. /ayment is enforceable once levied unless otherwise agreed upon.

;ot a debt.

It becomes a debt once properly levied unless otherwise agreed.

=. 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$ 3he 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$ 3he 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< 3he moral ha6ards are as great as those of property insurance. C#ANGE OF INTEREST IN T#E T#ING INSURED 3he 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 and the interest in the insurance are vested in the same person. (Sec. 29

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! # $. Change in interest in one or more of several distinct things separately insured by one policy. (Sec. 22 # &. Change of interest, by will or succession, on the death of the insured. (Sec. 2$ # .. 3ransfer of interest by one of several partners, )oint owners, or owners in common, who are )ointly insured, to others. (Sec. 2& # 7. =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. !$97, ;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. /recise 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. 27 5e'uisites< 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. 3he 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 1ood 2aith 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

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3he 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&7 SC5A 27> . 3he 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 deceive will not avoid the policy even though they are untrue. #eason$ 3he insurer cannot rely on those statements. ?e must make further in'uiry. (/hilamcare ?ealth Systems vs. CA, 1.5. ;o. !2.7:>, "arch !>, 2992 . 2. Re "e/e),!,(o)/ ( 2actual 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. 3hey are considered an active form of concealment. 5e'uisites of a false representation (misrepresentation < a. 3he 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. A22I5"A3IC* ( affirmation of a fact when the contract begins# and b. /5A"ISSA5B ( 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 4ife Assur. Co. vs. 2eliciano, :& /hil. &7@ 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. /urpose< 3o eliminate potentially increasing ha6ards which may either be due to the acts of the insured or to the change to the condition of the property. Finds< a. *G/5*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"/4I*% 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. 4oss occurs before the time of performance of the warranty. b. 3he performances becomes unlawful at the place of the contract. c. /erformance 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 /art of the contract =ritten on the policy, actually or by reference /resumed material "ust be strictly complied with REPRESENTATION "ere collateral inducement "ay be written in the policy or may be oral.

"ust be proved to be material 5e'uires only substantial truth and compliance

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. 3hey 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 3he 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. 2or 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)/ ( /rovisions 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< 4imit 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# 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 5ight of the insurer to abandon the contract on the occurrence of certain grounds after the effectivity date of a nonDlife policy. G"o1)*/3

1. 2. 3. 4. 5. 6.

NonDpayment of premium# Conviction of a crime out of acts increasing the ha6ard insured against# Discovery of fraud or material misrepresentation# Discovery of willful or reckless acts of omissions increasing the ha6ard 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. 7& Re@1("e.e),/3

1. 2. 3. 4.

/rior notice of cancellation to the insured# ;otice must be in writing, mailed or delivered to the named insured at the address shown in the policy# ;otice must state which of the grounds set forth in Sec. 7& is relied upon and upon re'uest of the insured, the insurer must furnish facts on which the cancellation is based# 1rounds 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 !. 4ife insurance policy 2. /ayable 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 of its issue or of its last reinstatement No,e< 3he 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 /olicy is void ab initio /olicy is rescindable by reason of the fraudulent concealment or misrepresentation of the insured or his agent DEFENSES NOT BARRED !. 3hat the person taking the insurance lacked insurable interest as re'uired by law# 2. 3hat the cause of the death of the insured is an e+cepted risk# $. 3hat the premiums have not been paid (Secs. ::, 22:HbI, 22>HbI, 2$9HbI # &. 3hat the conditions of the policy relating to military or naval service have been violated (Secs. 22:HbI, 22>HbI # .. 3hat the fraud is of a particularly vicious type# 7. 3hat the beneficiary failed to furnish proof of death or to comply with any condition imposed by the policy after the loss has happened# or :. 3hat the action was not brought within the time specified.

!. 2.

=III. A. O'ER8INSURANCE A results when the insured insures the same property for an amount greater than the value of the property with the same insurance company. E99ec, () c!/e o9 0o//3 !. 3he insurer is bound only to pay to the e+tent of the real value of the property lost# 2. 3he 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 !. /erson insured is the same# Philippians 4:13 =) 2. 3wo or more insurers insuring separately# $. Sub)ect matter is the same# &. Interest insured is also the same# .. 5isk or peril insured against is likewise the same. E99ec,/3 =here double insurance is allowed, but over insurance results< (Sec. @& !. 3he 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# .. *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.

10

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. /urposes< !. 3o prevent an increase in the moral ha6ard 2. 3o prevent overDinsurance and fraud. 3o 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

TER&S3 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 ( 3he 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 ( 3here 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. 5ural Ins. J Surety Co., Inc. & SC5A $&$ 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 SC5A 27! Lo// 9o" ?4(c4 ()/1"e" (/ 0(!:0e !. 2. $. &. .. 4oss the pro+imate cause of which is the peril insured against (Sec. >& # 4oss the immediate cause of which is the peril insured against e+cept where pro+imate cause is an e+cepted peril# 4oss through negligence of insured e+cept where there was gross negligence amounting to willful acts# and 4oss 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. >. . Lo// 9o" ?4(c4 ()/1"e" (/ )o, 0(!:0e !. 4oss by insured8s willful act# 2. 4oss due to connivance of the insured (Sec. >: # and $. 4oss where the e+cepted peril is the pro+imate cause.

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 !. 3he insured must have insurable interest in the sub)ect matter# 2. 3hat interest is covered by the policy# $. 3here must be a loss# and &. 3he loss must be pro+imately caused by the peril insured against. NOTICE OF LOSS I) 9("e ()/1"!)ce 5e'uired ;ot re'uired

I) o,4e" ,5 e/ o9 ()/1"!)ce

11

2ailure to give notice will defeat the right of the insured to recover.

2ailure to give notice will not e+onerate the insurer, unless there is a stipulation in the policy re'uiring the insured to do so.

B. CLAI&S SETTLE&ENT 3he indemnification of the loss of the insured. TI&E FOR PA2&ENT OF CLAI&S NON8LIFE POLICIES LIFE POLICIES a. <aturin( upon the e=piration of the ter! ( 3he 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 ( 3he proceeds are payable to the beneficiaries within 79 days after presentation and filing of proof of death. 3he 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.

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, !>. SC5A $@> ='. PRESCRIPTI'E PERIOD (Sec/. 66 B 6C4) #ules$ !. 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. $. 3he cause of action accrues from the re>ection of the clai! of the insured and not from the time of loss. 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, 4td. v. CA, !@. SC5A &. In C"C4I, the written notice of claim must be filed within 7 months from the date of the accident otherwise the claim is deemed waived. 3he 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 7INDS OF INSURANCE CONTRACTS ='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. /ersons or property in connection with marine insurance# $. /recious stones, )ewels, )ewelry and precious metals whether in the course of transportation or otherwise# and

4.

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. (5o'ue v. IAC, !$@ SC5A .@7 E. "arine /rotection and Indemnity Insurance C0!//e/ o9 ()0!)* .!"()e ()/1"!)ce3 (Prof. .e Leon, p. ;24)

1. 2. 3.

Property in transit ( provides protection to property fre'uently e+posed to loss while it is transportation form one location to another. ?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.

12

@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.

4.

1. a.

'hipo&ner

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. !97 . E. In loans on bottomry and respondentia 5epayment 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 %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 SEA PERILS OF T#E S#IP Includes only those casualties due to A loss which in the ordinary course of events, results from the< the< !. natural and inevitable action of the sea !. unusual violence# or 2. ordinary wear and tear of the ship or 2. e+traordinary action of wind and $. ;egligent failure of the ship8s owner to provide the vessel with wave# or proper e'uipment to convey the cargo under ordinary conditions. $. Ather e+traordinary causes connected with navigation.

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. 3he 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. (2ilipinas "erchants Insurance vs. Court of Appeals, !:@ SC5A 7$> B. B!""!,"5 C0!1/e A clause which provides that there can be no recovery on the policy in case of any willful misconduct on the part of the master or crew in pursuance of some unlawful or fraudulent purpose without consent of owners, and to the pre)udice of the owner8s interest. (5o'ue vs. IAC, !$@ SC5A .@7 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

3.

4atent 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. !7$ &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#

13

2. 4iability of the thing insured to capture or detention# $. 4iability to sei6ure from breach of foreign laws# &. =ant of necessary documents# and .. 0se of false or simulated papers. No,e3 3his 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 3he information of the belief or e+pectation of $rd persons is material and must be communicated OT#ER PROPERT2 INSURANCE 3he information or belief of a $rd party is not material and 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.

3he 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# 4. =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 .. /resence 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 3ransportation 4ines vs. CA, $7& SC5A 2& Se!?o",4()e// A relative term depending upon the nature of the ship, voyage, service and goods, denoting in general a ship8s fitness to perform the service and to encounter the ordinary perils of the voyage, contemplated by the parties to the policy (Sec. !!& . 5636#AL # L6$ 3he warranty of seaworthiness is complied with if the ship be seaworthy at the time of the commencement of the risk. /rior 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'$

1. 2. 3.

In the case of a time policy, the ship must be seaworthy at the commencement of every voyage she may undertake 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. 3he shipper may have no control over the vessel but he has control in the choice of the common carrier that will transport his goods (5o'ue v. IAC, !$@ SC5A .@7 . De-(!,(o) A departure from the course of the voyage insured, or an unreasonable delay in pursuing the voyage or the commencement of an entirely different voyage. (Sec.!2$ 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 $. 0nreasonable delay in pursuing voyage &. Commencement of an entirely different voyage (Secs. !2!D!2$ Finds< !. /roper D a. =hen caused by circumstances outside the control of the ship captain or ship owner# 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. .

14

*ffect< In case of loss or damage, the insurer is not liable. (Sec. !27 LOSS !. Total$ a. Actual D i. 3otal destruction# Irretrievable loss by sinking# iii. %amage rendering the thing valueless# or iv. 3otal 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$ 3hat 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 3o be borne e'ually by all of the interests concerned in the venture. 5e'uisites for the right to claim contribution< !. Common danger to the vessel or cargo# 2. /art 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# 7. It must be successful, i.e. resulted in the saving of the vessel or cargo# and ;ecessary. PARTICULAR ?as not inured to the common benefit and profit of all persons interested in the vessel and her cargo. 3o be borne alone by the owner of the cargo or the vessel, as the case may be.

ii.

RIG#T OF INSURED IN CASE OF GENERAL A'ERAGE 5636#AL # L6$ 3he 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 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. !$7 ABANDON&ENT 3he act of the insured by which, after a constructive total loss, he declared the relin'uishment to the insurer of his interest in the thing insured. (Sec. !$> Re@1(/(,e/ 9o" -!0(*(,53

1. 2. 3. 4. 5. 6.

3here must be an !ctual relin'uishment by the person insured of his interest in the thing insured (Sec. !$> # 3here must be a constructive total loss (Sec. !$@ # 3he abandonment be neither 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 artial nor conditional (Sec. !&9 # It must be made within a reasonable ,ime after receipt of reliable information of the loss (Sec. !&! #

15

7.

3he 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 (3ransfer of Interest (Sec.!&7 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. (3ransfer 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 !. 3he loss is partial# 2. 3he amount of insurance is less than the value of the property insured. !. 2. $. R10e/3 CoDinsurance applies only to marine insurance 4ogically, there cannot be coDinsurance in life insurance. CoDinsurance applies in fire insurance when e+pressly provided for by the parties. 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.

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&, 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. !7: 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. /roof 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. FRIENDL2 FIRE Ane that burns in a place where it was intended to burn and ought to be

Insurer is liable

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. 3he determination is important for 2 reasons<

1. 2. 3.

#ules on constructi%e total loss and a"andon!ent ( applies only to marine insurance# #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.)

16

ALTERATION AS A SPECIAL GROUND FOR RESCISSION B2 INSURER Re@1(/(,e/3 !. 3he 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# $. 3he alteration is made without the consent of the insurer# &. 3he alteration is made by means within the control of the insured#

5. 6.

3he alteration increases the risk# (Sec. !7> and 3here 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. 3he 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. 5emedy< Art. !!7:, ;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 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 (3/4 insurance contract, the insurer assumes the obligation by paying the in)ured third party to whom the insured is liable. /rior payment by the insured to the third person is not necessary in order that the obligation may arise. 3he 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. (/erla Comapnia de Seguro, Inc vs. 5amolete, 29. SC5A &>: Aside from compulsory motor vehicle liability insurance, the Insurance Code contains no other provisions applicable to casualty insurance. 3herefore, 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 ha6ard ( is so great that insurer have found it necessary to fill up the policies with many restrictions designed to reduce the ha6ard. /ersons fre'uently e+cluded are those in the insured8s service and employment. 3he purpose of the e+ception is to guard against liability should theft be committed by one having unrestricted access to the property. (2ortune Insurance vs. CA, 2&& SC5A 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. .$, Eonifacio Eros. v. "ora, 29 SC5A 27! . 3he insurer is not solidarily liable with the insured. 3he insurer8s liability is based on contract# that of the insured is based on torts. 2urthermore, the insurer8s liability is limited by the amount of the insurance coverage (/an "alayan Insurance Corporation v. CA, !>& SC5A .& . INTENTIONAL -/. ACCIDENTAL AS USED IN INSURANCE POLICIES /. Intentional A Implies the e+ercise of the reasoning faculties, consciousness and volition. =here a provision of the policy e+cludes intentional in)ury, it is the intention of the person inflicting the in)ury that is controlling. If the in)uries suffered by the insured clearly resulted from the intentional act of the third person, the insurer is relieve from liability as stipulated. (Eiagtan v. the Insular 4ife Assurance Co. 4td., && SC5A .>, !@:2 2. Accidental ( 3hat which happens by chance or fortuitously, without intention or design, which is une+pected, unusual and unforeseen. NO ACTION CLAUSE A re'uirement in a policy of liability insurance which provides that suit and final )udgment be first obtained against the insured# that only thereafter can the person in)ured recover on the policy. (1uingon vs. %el "onte, 29 SC5A !9&$

17

=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. /urpose< 3o give immediate financial assistance to victims of motor vehicle 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, 53C, !7: SC5A $>7 . ClaimantsMvictims may be a ,passenger- or a ,$rd party It applies to all vehicles whether public and private vehicles. ;ote< It is the only compulsory insurance coverage under the Insurance Code. &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 authori6ed 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. /urpose< 3o guarantee compensation or indemnity to in)ured persons in motor vehicle accidents. 5ules< !. 3otal indemnity D ma+imum of /.,999 2. /roofs of loss D a. /olice report of accident# 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 &. /roper 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. $:> 3he 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. 3hat 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. (/erla Compania de Seguros, Inc. v. Ancheta, !7@ SC5A !&& 3his noDfault claim does not apply to property damage. If the total indemnity claim e+ceeds /.,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. 3he first /.,999 shall be paid without regard to fault. (Prof. .e Leon, p. :/1) 3he 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 3he 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 ,authori6ed driver clause that should apply (/alermo v. /yramids Ins., !7! SC5A 7:: .

18

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. 4imited 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. !:7 SURET2S#IP Accessory contract $ parties< surety, obligor and oblige Credit accommodation PROPERT2 INSURANCE /rincipal contract 2 parties< insurer and insured Contract of indemnity

Surety can recover from principal Insurer has no such right# only right of subrogation Eond can be cancelled only with consent of obligee, "ay be cancelled unilaterally either by insured or insurer Commissioner or court on grounds provided by law 5e'uires acceptance of obligee to be valid ;o need of acceptance by any third party 5iskDshifting device# premium paid being in the 5iskDdistributing device# premium paid as a ratable nature of a service fee 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. 2. 3. 4. 5. 6.

8rdinary Life, 5eneral Life or 8ld Line Policy D Insured pays a fi+ed premium every year until he dies. Surrender value after $ years. 5roup Life ( *ssentially a single insurance contract that provides coverage for many individuals. *+amples< In favor of employees, ,mortgage redemption insurance-. Li!ited Pay!ent Policy ( insured pays premium for a limited period. beneficiary is paid# if he outlives the period, he does not get anything. If he dies within the period, his

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. 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, 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. (1reat /acific 4ife Assurance Corp. vs. Court of Appeals, $!7 SC5A 7:: LIABILIT2 OF INSURER IN CERTAIN CAUSES OF DEAT# OF INSURED !. Suicide Insurer is liable in the following cases< 1. 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

19

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 >:, IC/. (Pandect of Co!!ercial La& and Curisprudence, /00: ed. P. /0/) $. Killin !y the !eneficiary 5636#AL # L6$ 3he 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 $. Insanity of the beneficiary at the time he killed the insured If the premiums paid came from con)ugal funds, the proceeds are considered con)ugal. If the beneficiary is other than the insured8s estate, the source of premiums would not be relevant. (%el Cal v. %el Cal, 2@ /hil .$& 3he 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 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 FIRE INSURANCE Contract of indemnity Apen or valued policy 3he insurable interest of the 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%N0%ICA3A5BMO0ASIDN0%ICIA4 a. *+clusive original )urisdiction ( Any dispute in the enforce!ent of any policy issued pursuant to Chapter CI (C"C4I . (Sec. $>., par. 2 b. Concurrent original )urisdiction (with the 53C ( =here the ma+imum amount involved in any single claim is /!99,999 (Sec. &!7 , e+cept in case of maritime insurance which is within the e+clusive )urisdiction of the 53C. (E/ !2@# admiralty J maritime )urisdiction =here the amount e+ceeds /!99,999, the 53C has )urisdiction. 3he Insurance Commissioner has no )urisdiction to decide the legality of a contract of a(ency entered into between an insurance company and its agent. 3he same is not covered by the term ,doing or transacting insurance business- under Sec 2, IC/, neither is it covered by Sec. &!7 of the same Code which grants the Commissioner ad)udicatory powers (/hilippine American 4ife Insurance Co. v. Ansaldo, 2$& SC5A .9@ . 2. A%"I;IS35A3IC*M5*104A3A5B

20

a. b. c. d. e.

*nforcement of insurance laws Issuance, suspension or revocation of certificate of authority /ower to e+amine books and records, etc. 5uleDmaking authority /unitive I;S05A;C* CA%* (/% !&79

;4o (/ ,4e o99(ce" () c4!"+e* ?(,4 ,4e (. 0e.e),!,(o) o9 0!?/ o9 ,4e I)/1"!)ce Co*eF 3he officer charged is the Insurance Commissioner of the Insurance Commission ;4!, !"e ,4e A*.()(/,"!,(-e 91)c,(o)/ o9 ,4e I)/1"!)ce Co..(//(o)e"F 3he Commissioner has the following functions< A. Administrative function (C5IS/2e

1. 2. 3. 4. 5.

3o issue Certificate of authority to 'ualified insurers

3o Regulate the sale and issuance of variable contracts, to license persons selling them and to issue rules and regulations governing the same 3o Issue rulings, instructions circulars, orders and decisions for the enforcement of the provisions of the code sub)ect to approval of the Secretary of 2inance. 3o /,o the operation of an insolvent insurance company and determine within $9 days whether to rehabilitate or li'uidate the company. 3o impose appropriate fines and Penalties on insurance companies and on their officers and agents for refusal to comply with any order, instructionP of the Commissioner , or for mismanagement

6. 3o see that all insurance laws are Faithfully e+ecuted E. Ad)udicative function (Nurisdiction 3he Commissioner has the power to ad)udicate claims and complaints for amounts not e<cee*()+ P100> e" c0!(. involving< !. 4oss, damage or liability of insurer under any policy or insurance contract 2. 4iability of a reinsurer $. 4iability under the contract of suretyship &. 4iability of a mutual benefit association to its members .. Counterclaims against the insured 7. CrossDclaims against a coDparty :. 3hird party claims by the insurer against another party. 3his authority is concurrent with the courts, but filing of the complaint with the Commissioner shall preclude the civil courts from taking cogni6ance. 3he final order or decision of the Commissioner shall have the force and effect of a )udgment, and may be appealed to the Court of Appeals within !. days from notice of the award )udgment, or of denial of motion for reconsideration or new trial. 3he decision may be sub)ect of a writ of e+ecution Claims in e+cess of /!99k ( 53C Cause of action commences from the time of the denial of his claim by the insurer, e+press or implied (Sun vs. CA !@. SC5A !@$
;4!, (/ ! Co),"!c, o9 I)/1"!)ceF QContract of InsuranceQ is<

an !+"ee.e), whereby one undertakes for a consideration to ()*e.)(95 another against (1) loss, (2) damage or (6) liability arising from an (1) unknown or (2) contingent event.

;4!, *oe/ ,4e *o()+G,"!)/!c,()+ ()/1"!)ce :1/()e// .e!)F Q%oing an insurance businessQ or Qtransacting an insurance businessQ shall include (5ISA

(a) (b) (c) (d)

doing any kind of business, including a "e()/1"!)ce :1/()e//, specifically recogni6ed as constituting the doing of an insurance business within the meaning of this Code# .!>()+ o" "o o/()+ ,o .!>e, as insurer, any Insurance contract# making or proposing to make, as surety, any contract of Suretyship !/ ! -oc!,(o) and not as merely incidental to any other legitimate business or activity of the surety# #thers D doing or proposing to do any business in substance e'uivalent to any of the foregoing in a manner designed to evade the provisions of this Code.

21

3he 9!c, ,4!, )o "o9(, (/ *e"(-e* from the making of insurance contracts, agreements or transactions or that )o /e !"!,e o" *("ec, co)/(*e"!,(o) (/ "ece(-e* therefor, shall )o, be deemed co)c01/(-e to show that the making ,4e"eo9 *oe/ )o, co)/,(,1,e ,4e *o()+ o" ,"!)/!c,()+ o9 !) ()/1"!)ce :1/()e//.

;4!, !"e ,4e C4!"!c,e"(/,(c/ o9 !) I)/1"!)ce Co),"!c,F (C6U'AP2) !. Consensual ( perfected by the meeting of minds 2. Conditional ( sub)ect to conditions ( happening of the event insured against andMor other conditions like payment of premium $. Contract of Indemnity ( promise of insurer to make good a loss &. 0nilateral ( impose legal duties only on the insurer who promises to indemnify in case of loss .. Coluntary ( willingness of the parties ;ote ?owever that under the "otor Cehicle Insurance, 3hird /arty 4iability Insurance is mandatory for vehicle registration 7. Aleatory ( depends on some contingent event :. /ersonal ( it binds only the parties to it and their assignees ;ote Stipulations pour autrui or a provision in favor of a third person not a party to the contract. 0nder this doctrine, a third person is allowed to avail himself of a benefit granted to him by the terms of the contract, provided that the contracting parties have clearly and deliberately conferred a favor upon such person >. Contract of perfect good faith for both parties (uberrima fides ;4!, !"e ,4e c0!//e/ o9 I)/1"!)ceF !. 4ife Insurance 2. ;onDlife Insurance a. 2ire Insurance b. "arine Insurance c. Casualty Insurance d. Suretyship ;4!, !"e ,4e E0e.e),/ o9 Co),"!c, o9 I)/1"!)ce

1. 2.
6. &.

I)/1"!:0e (),e"e/, of the insured ( interest of some kind susceptible of pecuniary or monetary estimation Insured sub)ect to 0o// through the *e/,"1c,(o) o" (. !(".e), o9 ,4!, (),e"e/, by the happening of designated perils I)/1"e" !//1.e/ ,4e "(/> o9 0o// Such assumption is part of a general scheme to distribute actual losses among a large group of persons bearing somewhat similar risk P!5.e), o9 "e.(1. ( ratable contribution to a general insurance fund as consideration to the insurer8s promise

5.

;4!, !"e ,4e Re@1(/(,e/ o9 co),"!c, o9 I)/1"!)ce

1. 2. 3.
4. %.

S1:Dec, .!,,e" in which the Insured has an insura"le interest Pe"(0 I)/1"e* !+!()/, A contingent or unknown event, past or future and a duration for the risk thereof A "o.(/e ,o *!.)(95 in a fi+ed or ascertainable amount P!5.e), o9 "e.(1. &ee,()+ o9 .()*/ o9 ,4e !",(e/ No,e< ;o policy of insurance shall be issued or delivered unless in the form previously approved by the Insurance Commissioner.

;4!, .!5 :e ()/1"e* !+!()/,F !. A 2uture Contingent *vent resulting in loss or damages e.g. destruction of a building from fire in 2ire Insurance or the death of the insured in a 4ife Insurance policy ;ote that the word ,4oss- embraces in)ury or damage. A loss may be partial or total 2. A /ast 0nknown *vent resulting in loss or damage 3his is best e+emplified in a "arine Insurance where at the time the policy is e+ecuted, the vessel sub)ect of the insurance may have already sunk, but that fact was unknown to the parties at the time of the e+ecution of the policy $. Contingent 4iability 3his is best illustrated in 5einsurance where the liability of the insurer is in turn insured by him with a second insurer. ;ote that %rawing of any lottery, or forMagainst any chance or ticket in a lottery drawing a pri6e may not be insured. A contract of insurance is a contract of indemnity and not a wagering or gambling contract

22

;4o !"e ,4e !",(e/ ,o !) I)/1"!)ce Co),"!c, !. Insurer 2. 3he Insured $. Eeneficiary

I)/1"e" ( is the person, natural or )uridical, who holds a certificate of authority from the Insurance Commissioner and who undertakes to indemnify another by a contract of insurance o Eanks cannot be insurers o /aidDup capital re'uirement for insurance companies /2" and a contributed surplus of /!" for life insurance /.99k for nonDlife insurance /." in case of reinsurance co. o 2or Insurance Cooperative, recommendation from the Cooperative %evelopment Authority is re'uired o An Insurance agent should perform the function for a compensation I)/1"e* 1enerally, any person with capacity to contract and having an insurable interest in he life property insured may be the insured

A .!""(e* ?o.!) may take insurance on her life or on that of her children without need of her husband8s consent A 1:0(c e)e.5 cannot be insured. /ublic enemy means any citi6en or )uridical entity of the country with which the /hilippines may be at war E99ec,/ o9 ;!" o) I)/1"!)ce Co),"!c,/ !. =ar prevents an insurance contract from being enter into between citi6ens and )uridical entities of the warring states 2. 2or e+isting insurance contracts, the rules are< a. /roperty Insurance ( war abrogates the contract (Fentucky 5ule b. 4ife Insurance ( war terminates the policy, but the insured is entitled to the e'uitable value of the policy arising from the premiums actually paid, when commercial relations are resumed (0.S. 5ule I. B$%$&ICIA"' T4e ()/1"!)ce "ocee*/ /4!00 :e ! 0(e* e<c01/(-e05 ,o ,4e "o e" (),e"e/, o9 ,4e ?4o/e )!.e o" 9o" ?4o/e :e)e9(, (, (/ .!*e 1)0e// o,4e"?(/e / ec(9(e* () ,4e o0(c5 e"/o) ()

Be)e9(c(!"5 3he beneficiary is the person designated to receive the proceeds of the policy when the risk attaches. ?e may be the (! insured himself in the property insurance or (2 the insured or ($ a third person in life insurance 3he father or mother of a minor who is an insured or beneficiary of a life policy, may e+ercise, for said minor, all rights under the policy up to /29k without the need of a court authority or a bond (sec !>9 A. Be)e9(c(!"5 o9 o)e ?4o ()/1"e/ 4(/ o?) 0(9e A/ ! +e)e"!0 "10e, the insured &ho insures his o&n life may designate any person, including his estate as his beneficiary, whether or not the beneficiary has an insurable interest in the life of the insured 3he Insured has the right to change the designation of the beneficiary, unless he has e+pressly designated an irrevocable beneficiary in his policy ;4!, !"e ,4e e99ec,/ (9 ,4e *e/(+)!,(o) o9 :e)e9(c(!"5 (/ (""e-oc!:0e 3he insured cannot !. Assign the policy 2. 3ake the cash surrender value $. Allow his creditors to attach e+ecute on the policy &. Add a new beneficiary or .. Change the irrevocable designation to revocable, even though the change is )ust and reasonable R!,(o< 3he irrevocability of the designated beneficiary and his heirs have ac'uired from the date of the policy %ested ri(hts over the policy (/hilam vs. /ineda !:. SC5A 29!

23

A/ ! +e)e"!0 "10e< the proceeds of a life insurance policy belong to the designated beneficiary to the e+clusion of the heirs of the insured (/icar vs 1SIS $$ SC5A $2& E<ce ,(o)3 Pe"/o)/ D(/@1!0(9(e* !/ Be)e9(c(!"(e/ A beneficiary in life insurance is like a donee, hence, the civil code provision on the dis'ualifications of a donee shall apply. %onations made between the following persons are void !. %onation between persons guilty of adultery or concubinage 2. %onations between persons found guilty of the same criminal offense, in consideration thereof $. %onations made to a public officer or his wife, descendants and ascendants, by reason of his office. ;4e) *oe/ ,4e (),e"e/, o9 ,4e :e)e9(c(!"5 9o"9e(,e* 3he interest of the beneficiary in a life insurance policy shall be forfeited when the beneficiary is the /rincipal, Accomplice, or accessory in willfully bringing about the death of the insured In this event, he nearest relative of the insured shall receive the proceeds of said insurance if not otherwise dis'ualified 3he nearest relatives of the insured in the order of enumeration are the following< !. 4egitimate children 2. /arents $. 1randparents illegitimate children &. Surviving spouse .. Erothers and sisters of the full blood 7. Erothers and sisters of the half blood :. ;ephews and nieces. ;A3*S< (a =here a specified person is beneficiary, the proceeds will inure to the beneficiary. O< A took out a life insurance policy and designated his wife, E, as the sole beneficiary. All the premiums of the policy were paid out from his salaries. A died intestate leaving E and $ children. %ivide the proceeds of the policy (!@7! Ear A< All of the proceeds of the policy will go to the designated policy, E. 3he source of the premium here is immaterial ("iravite, 2992ed., p299 (b If the premiums are paid from (! salaries of the insured or (2 other con)ugal properties or funds, and the beneficiary is the estate of the insured, the proceeds of the life insurance policy is considered con)ugal. B. Be)e9(c(!"5 (9 L(9e I)/1"!)ce o) ,4e 0(9e o9 !)o,4e" e"/o). ;4e"e a policy is ta*en "y a third person on the life of the insured, and said third person designates himself as the beneficiary, the third person must have an insura"le interest on the life of the insured, at the time the policy became effective. Be)e9(c(!"5 o9 P"o e",5 I)/1"!)ce 3he beneficiary of the property insurance must have an insura"le interest over the sub)ect matter of the insurance e+isting at the time the policy was taken !)* at the time the loss tool place II. INSURABLE INTEREST

C.

;4!, (/ ()/1"!:0e I),e"e/, !/ "e9e""e* () ,4e Co*eF Insurable interest is a right or relationship In regard to the sub)ect matter of the insurance Such that the insured will derive pecuniary benefit or advantage from its preservation !)* 2. will suffer pecuniary loss or damage from its destruction or in)ury by the happening of the event insured against

1.

A . I)/1"!:0e I),e"e/, () L(9e De9()e I)/1"!:0e I),e"e/, () L(9eF Insurable interest in life is the interest which a person has $. In his life or &. In the lives of other persons a. Af his spouse and of his children b. An whom he depends wholly or in part for education or support (=ife insuring ?usband8s life c. 0nder legal obligation to him to pay money, to deliver property or to render service (Creditor insuring the life of its %ebtor d. 0pon whose file any estate or interest vested upon him. (4egatee of a usufruct insuring the life of the usufructuary A corporation has an insurable interest in the lives of its officers when the death or illness of said officers would materially and in)uriously affect the corporation. 3he corporation and the heirs of the manager can insure the life of the managerDdecedent in agreed proportion, since both have insurable interest over the life of the latter

24

;4e) I)/1"!:0e I),e"e/, /4o10* e<(/,F It must e+ist at the time the insurance is taken.

B. I)/1"!:0e I),e"e/, ()

"o e",5

R10e3 ;o contract or policy of insurance on property shall be enforceable e+cept for the benefit of some person having insurable interest in the property insured Insurable interest 4ife insurance /roperty Insurance Insurable interest must e+ist only at the ti!e Insurable interest must e+ist at the ti!e the policy is ta*en the policy is ta*en !)* at the ti!e the loss occurs 3he beneficiary need not have an insurable 3he beneficiary must have an insurable interest in the interest on the insured8s life property insured 3here is no limit to the amount of insurable Insurable interest is limited to the actual value of the interest interest in the property

;4!, (/ co)/(*e"e* !/ !) ()/1"!:0e (),e"e/, () "o e",5F Insurable interest in property is every interest in property whether real or personal, or any relation thereto, or liability in respect thereof, of such a nature that the contemplated peril might directly cause damage to the insured ;4!, *oe/ ()/1"!:0e (),e"e/, () "o e",5 co)/(/, o9 An insurable interest in property consist of !. An e+isting interest 2. An inchoate interest founded on an e+isting interest $. An e+pectance coupled with an e+isting interest in that out of which the e+pectance arises

E<!. 0e/ o9 !) ()/1"!:0e ()c4o!,e "(+4, () ,4e "o e",5 !. Contractor8s interest to the completed building for unpaid construction cost 2. 4essor8s interest on the improvements made by the lessee $. ;aked owner8s interest over the property which another person has beneficial title No,e3 A mere contingent or e+pectant interest in anything, not founded on an actual right to the thing, nor upon any valid contract for it, is not insurable (e.g. property which one e+pects to inherit or that of a general or unsecured creditor insuring the property of his debtor &ho is ali%e even though destruction of such property would render worthless any )udgment he might obtain note further in the latter case, the creditor can insure the property of a deceased de"tor since all personal lia"ility ceases &ith the death of the de"tor. The proceedin(s to su">ect the estate to the pay!ent of the de"t of the deceased are a(ainst all &ho ha%e an interest in the property. #f course( an unsecured creditor has an insura"le interest in the life of his de"tor 3he vendeeDconsignee of goods in transit under a perfected contract of sale is vested with an e'uitable title to the goods even before receipt by him of the goods to constitute an insurable interest in the property (2il "erchants vs CA !:@ SC5A 7$> A carrier or depositary of any kind has an insurable interest in a thing held by him as such, to the e+tent of his liability but not e+ceed the value thereof. To ?4!, e<,e), (/ ,4e ()/1"!:0e (),e"e/, o9 ! .o",+!+o" () ! .o",+!+e* "o e",5F O9 ! .o",+!+eeF a. 3he mortgagor has an insurable interest on his property as owner up to the full value of his property, irrespective of any mortgage on said property in general. b. 3he insurable interest of a mortgagee is up to the e+tent of his credit. ;A3*< E!c4 .!5 ,!>e /e !"!,e ()/1"!)ce/ over the same property up to the e+tent of their respective insurable interests. =here the mortgagee independently of the mortgagor insured his won interest in the mortgaged property, he is entitled to the proceeds of the policy in case of loss before payment of the mortgage. Eut in such case, the mortgagee is not allowed to retain his claim against the mortgagor but it passes by subrogation to the insurer to the e+tent of the insurance paid. In other words, the payment of the insurance to the mortgagee does not relieve the mortgagor form his principal obligation but only changes the creditor. ;4e) (/ !) ()/1"!)ce o) ,4e (),e"e/, o9 ,4e .o",+!+o"

25

3he insurance is on the mortgagor8s interest where the mortgagor takes insurance on the property in his own right making the loss payable to the mortgagee ?owR 3he mortgagor may< i. 3ake insurance on the property, and assign the same to the mortgagee (this operates merely as an e'uitable transfer of the policy so as to enable the assignee to recover the proceeds ii. Constitute the mortgagee as beneficiary as his interest may appear ;A3*< In case of fire, marine and casualty insurance, the assignment must be with the consent of the insurer because it is a personal contract. (;ote that life insurance may be freely assigned before or after loss occurs to any person whether he has an insurable interest or not ;4!, !"e ,4e e99ec,/ o9 ()/1"!)ce ,!>e) () ,4e o) ,4e (),e"e/, o9 ,4ee .o",+!+o"F 3he effects are< a. "ortgagor continues to be a party to the contract b. Any act by the mortgagor prior to the loss which would avoid the policy, will thus avoid the policy, 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 (e.g. payment of premium may be performed by the mortgagee with the same effect, as if performed by the mortgagor. d. In case of loss, the mortgagee is entitled to the proceeds to the e+tent of his credit, conse'uently, the debt is e+tinguished. ;4!, (/ ,4e e99ec, I9 ,4e .o",+!+o" !//(+)/ ,4e o0(c5 ,o ,4e .o",+!+ee ?(,4 ,4e ()/1"e"H/ co)/e),, :1, ,4e 0!,,e" (. o/e/ )e? co)*(,(o)/ o) ,4e !//(+)eeF If at the time of the assent, the insurer imposes further obligations on the assignee making a new contract with him, the act of the mortgagor cannot affect the rights of said assignee. 3ake note of the distinctions between the assignment or transfer of< 3he Po0(c5 itself which transfers the fights to the contract to another insured 3he "ocee*/ o9 ,4e o0(c5 after the loss has happened , which involves a money claim under, or a right of action on the policy 3he /1:Dec, .!,,e" o9 ,4e ()/1"!)ce, such as a house insured under a fire policy which ahs the effect of suspending the insurance (infra

a. b. c.

;4e) ()/1"!:0e (),e"e/, /4o10* e<(/,F It must e+ist at the time the policy is taken !)* at the time the loss incurred but it need not e+ist in the meantime R!,(o< 3o prevent a person from taking out an insurance policy on property upon which he has no insurable interest and collecting the proceeds of said policy in case of loss of the property. In such a case, the contract of insurance is a mere wager which is void. (Cha vs CA 2:: SC5A 7@9

;4!, (/ ,4e e99ec, o9 ! c4!)+e o9 (),e"e/, o) ,4e ,4()+ ()/1"e*F A change in the 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 interest in the thing and the interest in the insurance are vested in the same person. No,e< "ere transfer of a thing insured does not transfer the policy but suspends it until the same person becomes the owner of both the policy and the thing insured. 2or a transferee to have an insurable interest over a policy undertaken by the transferor, the insurance policy should be assigned to him, when he bought the property. A change of interest in a thing insured, after the occurrence of an in)ury which results in a loss, does not affect the right of the insured to indemnity for the loss A change of interest, by will or succession, on the death of the insured, does not avoid an insurance# and his interest in the insurance passes to the person taking his interest in the thing insured. Atherwise stated, the insurance on property passes automatically, on the death of the insured , to the heir, legatee or devisee who ac'uires interest in the thing insured. A transfer of interest by one of several partners, )oint owners etc. who are )ointly insured, will not avoid the insurance even though it has been agreed that the insurance shall cease upon an alienation of the thing insured. A change of interest where there are several things separately insured by one policy, does not avoid the insurance as to the others 6=a!ple$ A insured his car for /!99k and )eep for />.k under the single policy, the sale of one will not affect the insurance of the car. E03 if the car and )eep were not separately valued in the policy , the sale of the )eep without the insurer8s consent affects also the insurance of the car

26

;4!, /,( 10!,(o)/ !"e "o4(:(,e* () !) ()/1"!)ce o0(c5F Stipulations for the payment of loss whether the person insured has or has not any interest in the sub)ect matter of the insurance 2. Stipulation that the policy shall be received as proof of insurable interest. !.

;4!, (/ ,4e !.o1), o9 ()/1"!)ceF 3he measure of an insurable interest in property is the e+tent to which the insured might be damnified by loss or in)ury thereof. I) c!/e/ ?4e"e ,4e ,o :e 9o00o?e*F "o e",5 (/ ()/1"e* 9o" 0e// ,4!) (,/ ,"1e o" .!">e, -!01e, ?4!, !"e ,4e "10e/

I) c!/e o9 ,o,!0 0o//< 3he property owner is entitled to receive the face value of the policy but in no case e+ceeding the market value of the property. I) c!/e o9 !",(!0 0o//3 3he property owner is entitled only the amount in proportion to his loss and the market value of the property as against the to face value of the policy. R!,(o An owner of property who insures the same for less that its true value is coDinsurer for the uninsured portion of the property if the policy is a -!01e* o)e.

?A=*C*5 if the policy is an o e) o)e, the owner e+ceeding the face value of the policy

can collect the actual partial loss not

*+ample< G has a property worth /!9,999. ?e insures it against fire for />,999. ?ow much shall he collect from then insurance in case of total lossR If there is /artial loss in the amount of /7,999R In case of total loss ( / >,999 ( face value of the policy In case of partial loss D open policy ( /7,999 ( the actual partial loss not e+ceeding the face value of the policy In case of partial loss ( valued policy ( 7M!9 of />,999 or /&,>99D the amount in proportion to his loss and the market value of the property as against the to face value of the policy. III CONCEAL&ENT ;4!, (/ Co)ce!0.e),F Concealment is a neglect to communicate that which a party knows and ought to communicate to the other party. ;4!, !"e ,4e "e@1(/(,e/ 9o" co)ce!0.e),F 2or concealment to vitiate a contract of insurance, the following must be present !. the matter concealed must be material 2. there must be an obligation for the insured to reveal the concealed matter to the insurer ;4!, .!,,e"/ .1/, :e co..1)(c!,e* e-e) () ,4e !:/e)ce o9 ()@1("5F *ach party to a contract of insurance must communicate in good faith all facts within his knowledge only when< !. 3hey are material to the contract 2. 3he other has not the means of ascertaining the said facts $. As to which the party with the duty to communicate makes no warranty. ;4!, (/ ,4e ,e/, o9 .!,e"(!0(,5F A fact is material if knowledge of it would have affected the decision of the insurer to enter into the contract, in estimating the risk, or in fi+ing the premium No,e< "atters relating to the health of the insured are material and relevant to the approval and issuance of the life insurance policy as they definitely affect the insurer8s action on the application (Sunlife vs CA 2&. SC5A 27> It is wellDsettled that the insured need not die of the disease he had failed to disclose to the insurer, as it is sufficient that his nonDdisclosure misled the insurer in forming his estimates of the risk of proposed insurance policy or in making in'uiries (ibid 4ack of understanding by the illiterate insured of the statements and her application as to her state of good health does not negate the insurer8s right to rescind (3ang vs CA @9 SC5A 2$7 Concealment e+ists where the assured had knowledge of a fact material to the risk, and honesty, good faith, and fair dealing re'uires that he should communicate it to the assured, but he designedly and intentionally withholds the same. ;4!, !"e ,4e .!,,e"/ ?4(c4 o)e 4!/ )o *1,5 ,o *(/c0o/eF

27

;either party to a contract of insurance is bound to communicate information of the matters following, e)cept in ans&er to the in)uiries of the other$ /. Those &hich are already *no&n to the insurer 2. Those &hich, in the e=ercise of ordinary care, are ou(ht to "e *no&n to the insurer or his a(ent, ;. Those undisclosed facts &hich are not !aterial D. Those &hich each party is "ound to *no&$ D general causes ( eg. public events# and D general usages of trade D eg. rules of navigation all risks connected with navigation

5.
1.

Infor!ation or the nature or a!ount of the interest of one insured e)cept if insured is a lessee or a !ort(a(ee (read sec .! Those of &hich the insurer &ai%es co!!unication 3he right to information of material facts may be waived, either< a. *+pressly ( by the terms of the insurance b. Impliedly ( by neglect to make in'uiry as to such facts, where they are distinctly implied in other facts of which information is communicated (2act disclosed that one was confined in the hospital. 3he insurer did not in'uire as to the cause of confinement, the latter is in estoppel Cud(!ent upon the !atters in )uestion ( eg. Apinion, speculation or e+pectation (?ow long will you liveR

7.

;4!, !"e ,4e co)/e@1e)ce/ o9 co)ce!0.e),F 3he rule is concealment whether intentional or unintentional entitles the in)ured party to rescind a contract of insurance. ?owever, an intentional and fraudulent omission, on the part of one insured, to communicate information of matters proving or tending to prove the falsity of a &arranty is re'uired to entitle the insurer to rescind No,e3 1ood faith is no defense in concealment (Sunlife vs CA 2&. SC5A 27> E<ce ,(o)/3 1. I)co),e/,!:(0(,5 c0!1/e3 In life insurance, after a policy has been in force for at least two years, the insurer cannot rescind the policy due to fraudulent concealment or misrepresentation of the insured. If the insured dies within two years from the effectivity of the policy, rescission due to concealment or misrepresentation of material matters may still be invoked by the insurer, pro%ided done within two years from the effectivity of the policy 2. Ce",!() co)ce!0.e),/ () &!"()e I)/1"!)ce 3he following matters although concealed will not vitiate the contract of marine insurance e+cept when they are caused the loss. a. ;ational character of insured b. 4iability of insured thing to capture or detention c. 4iability to sei6ure form breach of foreign laws d. =ant of necessary documents e. 0se of false or simulated papers

I' REPRESENTATION ;4!, (/ "e "e/e),!,(o)F A representation is an oral or written statement of a fact or condition made by the insured at the time of or prior to the issuance of the policy, affecting the risk made by the insured to the insurer, tending to induce the insurer to assume the risk D(/,()+1(/4 &(/"e "e/e),!,(o) ?(,4 Co)ce!0.e), &(/"e "e/e),!,(o) Co)ce!0.e), Insured makes a statement of fact which is Insured maintains silence when he ought to speak untrue ;4!, !"e ,4e >()*/ o9 "e "e/e),!,(o)F 1. Aral 2. =ritten 6. Affirmative representation 4. /romissory representation

;4!, (/ !) !99(".!,(-e "e "e/e),!,(o)F It is any allegation as to the e+istence or nonDe+istence of a fact when the contract begins ;4!, (/ ! "o.(//o"5 "e "e/e),!,(o)F

28

It is any promise to be fulfilled after the contract has come into e+istence or any statement concerning what is to happen during the e+istence of the insurance. A pro!issory representation is su"stantially a condition or a &arranty. A promissory representation maybe< 1. ! 0sed to indicate a parole or oral promise made in connection with the insurance, but not incorporated in the policy. D the nonDperformance of such a promise cannot be shown by the insurer in defense of an action on the policy, but proof that the promise was made with fraudulent intent will serve to defeat the insurance 2. As an undertaking by the insured, inserted in the policy but not specifically made a warranty. D(/,()+1(/4 ;!""!),5 !)* Re "e/e),!,(o) ;!""!),5 It is part of contracts It is e+pressly set forth in the policy itself or incorporated therein by reference It is conclusively presumed material It must be strictly complied with

Re "e/e),!,(o) It is mere collateral inducement, but it may 'ualify an implied warranty It may be oral or written in another instrument It must be proved to be material It is re'uires only substantial truth or compliance

;4e) (/ "e "e/e),!,(o) .!*eF A representation may be made at the time of or before issuance of the policy. It may be altered or withdrawn before issuance of the policy, but not afterwards No,e3 A representation must be presumed to refer to the date on which the contract goes into effect ?ence<

1. 2.

3here is ;A 2A4S* representation it is ,"1e at the time the contract takes effect although 9!0/e at the time it was made. 3here is 2A4S* representation if it is ,"1e at the time it was made but 9!0/e at the time the contract takes effect ( in this case the insurer is entitled to rescind ;4e) (/ ! "e "e/e),!,(o) *ee.e* ,o :e 9!0/eF A representation is deemed to be false when the facts fail to correspond with its assertions or stipulations.

;4!, (/ .(/"e "e/e),!,(o)F A misrepresentation in insurance is a statement< !. As a fact of something which is untrue 2. =hich the insured states 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 the tendency to mislead $. where such fact in either case is material to the risk NOTE< An insured who has no personal knowledge of a fact may communicated such information which he has, and believes it to be true, upon the sub)ect matter &ith the e+planation that said information was obtained from $rd persons. In this case he is not responsible if the information turns out to be false. E<ce , if the information proceeds from an agent of the insured whose duty is to give information to his principal. 3his is so because knowledge of the agent is also knowledge of the principal ;4!, (/ ,4e e99ec, o9 9!0/e "e "e/e),!,(o) o" .(/"e "e/e),!,(o)IF If the representation is false on a material point, the in)ured party is entitled to rescind from the time when the representation becomes false. ?A=*C*5, the right to rescind given to the insurer is waived by the acceptance of premium payments despite knowledge of the ground of rescission ;4!, (/ ,4e ,e/, o9 .!,e"(!0(,5F "ateriality is determined by the probable and reasonable influence of the facts on the party to whom communication is due, in forming his estimate of the contract, the risk and the premium NOTE3 =hen the original contract of insurance was modified by reason of concealment or misrepresentation on the part of the insured especially when modification pertains to material points, upon discovery of such concealment or misrepresentation, the insurer is allowed to rescind said modification. ;4e) (/ ,4e "(+4, ,o "e/c()* !-!(0!:0eF In order that the insurer may rescind a contract of insurance, such right must be e+ercised prior to the commencement of an action on the contract. (*+ample, if the insured filed an action to collect amount of the insurance, it can no longer rescind the contract

29

Incontesta!ility clause I)co),e/,!:(0(,5 .e!)/ that after the re'uisites are shown to e+ist, the insurer shall be estopped from contesting the policy or setting up any defense, e+cept as is allowed of the ground of public policy. Re@1(/(,e/3 1. 3he policy is a life insurance policy 2. It is payable on the death of the insured 6. It has been in force during the lifetime of the insured for at least 2 years from its date of issue or of its last reinstatement NOTE< 3he period of two years for contesting a life insurance policy may be shortened but it cannot be e+tended by stipulation E99ec, ?4e) ,4e o0(c5 :eco.e/ ()co),e/,!:0e =hen the policy of life insurance becomes incontestable, the insurer may not refuse to pay the same by claiming that< !. 3he policy is void ab initio (voidable 2. It is rescissible by reason of the fraudulent concealment of the insured or his agent or $. It is rescissible by reason of the fraudulent misrepresentations of the insured or by his agent De9e)/e/ )o, :!""e* :5 ()co),e/,!:0e c0!1/e 3he incontestability of a policy under the law is not absolute. 3he insurer may still contest the policy of the following grounds< !. 3hat the person taking the insurance lacked insurable interest as re'uired by law 2. 3he cause of the death of the insured is an e+cepted risk $. 3hat the premiums have not been paid &. 3hat the conditions of the policy relating to military or naval service have been violated .. 3he fraud is of a particularly vicious type, as when the policy was taken out in furtherance of a scheme to murder the insured, or where the insured substitutes another person for the medical e+amination or where the beneficiary feloniously kiss the insured 7. 3he beneficiary failed to furnish proof of death or to comply with any condition imposed by the policy after the loss has happened :. 3he action was not brought within the time specified '. ;ARRANTIES ;4!, (/ ! ?!""!),5F A warranty is a statement or promise stated in the policy itself or incorporated therein by reference, whereby the insured e+pressly contracts as to the present or future e+istence or certain facts, circumstances or conditions, the literal truth of which is essential to the validity of the contract of insurance ;4!, *oe/ ?!""!),5 "e0!,e ,oF It may relate to the past, the present, the future or to any or all of these. ;4!, !"e ,4e >()*/ o9 ?!""!),(e/F

1. 2. 3. 4.

Affir!ati%e warranty where the insured asserts the e+istence of a matter at or before the issuance of the policy Pro!issory warranty where the insured promise or undertakes that certain matters shall e+ist or will be done or omitted after the policy takes effect 6=press warranty where the assertion or promise is clearly set forth in the policy or incorporated therein by reference I!plied warranty where the assertion or promise is not e+pressly set forth in the policy, but because of the general tenor of the terms of the policy, or from the very nature of the insurance contract, a warranty is necessarily inferred or understood.

;4!, (/ ,4e "e@1("e* 9o". ,o c"e!,e ! ?!""!),5F 3here is no particular form or words necessary to create a warranty. =hether a warranty is constituted or not depends upon the intention of the parties, the nature of the contract or the words used thereto. Incase of doubt, the statement is presumed to be a mere representation and not a warranty. ;4e) /4o10* !) e< "e// ?!""!),5 :e .!*eF It should be made at or before the e+ecution of a policy ;4e"e /4o10* !) e< "e// ?!""!),5 :e co),!()e*F *+press warranty may be contained either< !. In the policy itself

2.

In another instrument /(+)e* by the insured and referred to in the policy as making part of it. "ere reference is not sufficient to give warranty.

30

No,e< A statement in a policy, of a matter relating to the person or thing insured, or to the risk !/ ! 9!c, is an e+press warranty. A statement which is in the nature of an opinion or belief is not a warranty ;4!, (/ ! "o.(//o"5 ?!""!),5F It is a statement in a policy that a thing which is material to the risk is intended to be done or not to be done after the policy takes effect. A/ ! +e)e"!0 "10e3 the nonDperformance of a promissory warranty entitles the other party to rescind the contract< E<ce ,(o)/ to the rule are< 1. 4oss occurs before the time arrives for the performance of the promissory warranty 2. /erformance becomes unlawful before the time arrives for the performance of the promissory warranty 6. /erformance becomes impossible before the time arrives for the performance of the promissory warranty ;4!, 4! e)/ ?4e) ,4e"e (/ -(o0!,(o) o9 .!,e"(!0 ?!""!),5 o" ,o o,4e" .!,e"(!0 "o-(/(o)/ o9 ,4e o0(c5F All breaches of warranty give to the insurer the right to rescind the contract. 3his rule is true even if the violation of the material warranty did not contribute to the loss. If 9"!1* intervenes in the breach, the insurer is freed from liability form the start, as the contract is fraud ab initio. 3he insured is not entitled to the return of the premiums paid. If there is )o 9"!1* in the breach, the insurer is freed from the contract the !o!ent the "reach occurs, and is entitled to retain the premiums corresponding to the period up to the time of the breach. Eut if the breach was done at the ti!e of the inception of the policy, the insured cannot recover for any loss arising thereafter, but all premiums should be returned to the insured 'I. T#E POLIC2 De9()e Po0(c5 o9 I)/1"!)ce. A policy of insurance is the written instrument in which a contract of insurance is set forth. It is the formal written instrument evidencing the contract of insurance entered between the insured and the insurer. ;4!, 9o". (/ ,4e o0(c5 :e e.:o*(e*F 3he policy shall be in printed form which may contain blank spaces on which words numbers and other matters necessary to complete the contract of insurance shall be written on. ?owever, 1roup insurance and groupD annuity policies may be typewritten and need not be in printed form. ;4!, (/ ! "(*e" () ! co),"!c, o9 ()/1"!)ceF A rider is a printed or typed stipulation contained on a slip of paper attached to the policy and forming an integral part of the policy. ;4!, (/ ,4e e99ec, o9 ! "(*e", c0!1/e, ?!""!),5 o" e)*o"/e.e), 1" o",()+ ,o :e ! !", o9 ,4e co),"!c, !)* !/,e* o) ,4e o0(c5F As a general rule, these attached papers becomes part of a contract of insurance. ?owever it will not bind the insured unless it is properly referred to therein in the policy. If the rider etc is issued after the original policy was in force shall not bind the insured unless it countersigned by the insured. ;4!, !"e co-e" )o,e/ o" (),e"(. o0(c(e/F Cover notes or interim policies or binding slips may be issued to bind the parties temporarily pending the issue of the policy. It is intended to give temporary protection pending the investigation of the risk by the insurer or until the issue of formal policy. 3hese notes are good for 79 days only, unless renewed with the written approval of the Insurance Commissioner ;4!, !"e ,4e co),e),/ o9 ,4e o0(c5F A policy contains, among others the following !. 3he parties 2. Amount of insurance (e+cept in open or running policies $. 5ate of premium &. 3he property or life insured .. 3he interest of the insured in the property if he is not the owner 7. 5isk insured against :. %uration of the insurance &!5 !) !+e), 1)*e",!>e ! co),"!c, o9 ()/1"!)ce () 9!-o" o9 (,/ "()c( !0F

31

Bes. 3he agent or trustee when making an insurance contract for and in behalf of his principal should indicate that he is merely acting in a representative capacity by signing as such agent or trustee, or by other general terms in the policy &!5 ! !",)e" () ! !",)e"/4( ()/1"e !",)e"/4( "o e",5F Bes. Insurable interest in the property of a partnership e+ists in both partnership and the partners and a partner has an insurable interest in the firm8s property which will support a policy taken out thereof for his own benefit ;4!, e<,e), *oe/ ,4e co),"!c, o9 ()/1"!)ce co-e" 1)*e",!>e) :5 ! !",)e"F A partner who insures partnership property in his own name limits the contract to his individual share unless the terms of the policy clearly show that the insurance was meant to cover also the shares of the other partners. #o? !"e !.:(+1(,(e/ () !) ()/1"!)ce co),"!c, co)/,"1e*F Contract of insurance is a contract of adhesion, thus any ambiguity therein should be resolved against the insurer, otherwise stated, it should be construed liberally in favor of the insured and against the insurer In Cebu vs =illiam $97 SC5A :72 the Supreme Court held< ,although in this )urisdiction, contracts of adhesion have been consistently upheld as valid per se as binding as an ordinary contract, the court recogni6es instances when reliance on such contracts cannot be favored especially where the facts and circumstances warrant that sub)ect stipulations be disregarded. 3he facts and circumstances visDSDvis the nature of the provision sought to be enforced should be considered, bearing in mind the principles of e'uity and fair play.In 5i6al vs CA $$7 SC5A !2, Supreme court said< , it is settled that the terms in an insurance policy, which are ambiguous, e'uivocal, or uncertain are to be construed strictly and most strongly against the insurer, and liberally in favor of the insured so as to effect the dominant purpose of indemnity or payment to the insured, especially where forfeiture is involved, and the reason for this is that the insured usually has no voice in the selection or arrangement of the words employed and that the language of the contract is selected with great care and deliberation by e+perts and legal advisers employed by and acting e+clusively in the interest of the insurance company. ;4!, !"e ,4e >()*/Gc0!//e/ o9 o0(c(e/ () )o)80(9e ()/1"!)ceF

1. 2. 3.

O e) o" 1)-!01e* o0(c5 is one in which the value of the thing insured is not agreed upon, but is left to be ascertained in case of loss. In other words, it is one in which a certain agreed sum is written on the face of the policy not as the value of the property insured, but as the ma+imum limit of recovery in case of destruction the peril insured against. '!01e* o0(c5 is one which e+presses on its face an agreement that the thing insured shall be valued at a specified sum. In the absence of fraud or mistake, such value will be paid in case of total loss of the property, unless the insurance is for a lower amount. R1))()+ o0(c5 is one which contemplates successive insurances and which provides that the sub)ect of the policy may from time to time be defined

;4!, !"e ,4e "e@1(/(,e/ 9o" ! -!0(* c!)ce00!,(o) o9 )o)80(9e ()/1"!)ceF 1. =ritten prior notice to the insured, stating the facts and 2. 2or any of the following grounds !. ;onDpayment of premium :. Conviction of a crime arising out of acts increasing the ha6ard insured against c. %iscovery of fraud or material misrepresentation *. %iscovery of willful or reckless acts or omissions increasing the ha6ard insured against e. /hysical changes in the property insured which result in the property becoming uninsurable 9. A determination by the commissioner that the policy would violate the insurer

'II PRE&IU& De9()e "e.(1.. /remium is the consideration paid an insurer for undertaking to indemnify the insured against a specified peril ;4e) (/ ,4e ()/1"e" e),(,0e* ,o !5.e), o9 ,4e "e.(1.F As soon as the thing insured is e+posed to the peril insured against ;4!, (/ ,4e e99ec, o9 ,4e )o) !5.e), o9 "e.(1.F 3he policy or contract of insurance is not valid and binding. I/ ,4(/ !:/o01,eF ;o. 3he e+ceptions are the following< 1. 4ife and Industrial 4ife policy whenever the grace period provision applies(sec ::

32

2. =ritten acknowledgment of the receipt of premium by insurer (sec :> 6. /ayment in installments of the premium and partial payment made at the time of loss 4. Credit e+tension for the payment of premium %. *stoppel ( reliance in good faith on the practice of the insurance company NOTES3 1race period< 4ife insurance ( $9 days or ! month within which the payment of any premium after the first may be made Industrial life insurance D& weeks and where the premiums are payable monthly, either $9 days or ! month =ritten acknowledgment in a policy or contract of insurance of the receipt or premium is conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid *ffect on nonpayment !. Af 2irst premium ( prevents the inception of the policy 2. Af subse'uent premiumsD it does not affect the validity of the contract unless, by e+press stipulation, it is provided that the policy shall in any event be suspended or shall lapse. ;4e) (/ ,4e ()/1"e* e),(,0e* ,o "eco-e" "e.(1./F 3he insured is entitled to a return of the whole premium< !. If the thing insured was never e+posed to the risk insured against 2. =hen the contract is voidable due to the fraud or misrepresentation of the insurer or his agent $. =hen the contract is voidable because of the e+istence of facts of which the insured is ignorant without his fault &. =hen the insurer never incurred any liability under the policy because of the default of the insured other that actual fraud 3he insured is entitled to a ratable return of premium on the following cases< !. =here the insurance is made for a definite period of time and the insured surrenders policy before termination 2. =here there is overDinsurance by several insurers ;A3*S =here the insurance is for a definite period of time and the insured cancels his policy by surrendering the policy, the insured is entitled to recover the pre!iu!s already paid e)ui%alent to the une=pired ter! at a pro rata rate *+ception to this rule< a. =here the insurance is not for a definite period b. =here the policy is a life policy

c.
-

=here a short period rate has been agreed upon Short period rate is that percentage, as agreed upon by the parties and appearing on the face of the policy, which the insurer shall retain from the premium in the event that the policy is surrendered by the insured for cancellation.

3he premiums to be returned where there is overDinsurance by several insurers shall be proportioned to the amount by which the aggregate sum insured in all the policies e+ceeds the value of the thing *+ample< G insures his house which has an insurable value of /!,.99,999 as follows< Insurer Amt of Insurance /remiums paid A Co. / !,299,999 / 2&,999 E. Co 799,999 !2,999 Aggregate sum /!,>99,999. In this case, there is an over insurance of /$99,999, the amount by which the aggregate sum insured in the two policies e+ceeds the insurable value of the house. 3he proportion is /$99k to /!>99k or !M7. ?ence, !M7 of /2&k or /&k is what A co must return# and !M7 of /!2k or /2k is what E co must return

'III DOUBLE INSURANCE ;4e) *oe/ *o1:0e ()/1"!)ce e<(/,/F A double insurance e+ists where the same person is insured by several insurers separately in respect to the same sub)ect and interest ;4!, !"e (,/ "e@1(/(,e/F 3here is no double insurance unless the following re'uisites e+ist< !. 3he person insured is the same 2. 3wo or more insurers insuring separately $. 3he sub)ect matter is the same &. 3he interest insured is also the same and

33

..

3he risk or peril insured against is likewise the same

D(/,()+1(/4 Do1:0e I)/1"!)ce 9"o. O-e"8()/1"!)ce Do1:0e I)/1"!)ce O-e"8I)/1"!)ce In double insurance, there may be no overDinsurance as when 3here is overDinsurance when the amount of the sum total of the amounts of the policies issued does not the insurance is beyond the value of the e+ceed the insurable interest of the insured insured8s insurable interest 3here are always several insurers 3here may be only one insurer involved 3?*5*2A5*, double insurance and overDinsurance may e+ist at the same time or neither may e+ist at all ;4!, (/ ,4e :()*()+ e99ec, o9 /,( 10!,(o) !+!()/, *o1:0e ()/1"!)ceF A policy which contains no stipulation against additional insurance is not invalidated by the procuring of such insurance. ?owever, a stipulation that insurance shall be avoided if additional insurance is procured without the insurer8s consent is valid and reasonable, and any breach thereof will prevent a recovery on the policy ;4!, !"e ,4e e99ec,/ o9 Do1:0e ()/1"!)ceF 3he insured can insure with two or more companies unless prohibited by prior policy =here he is allowed, but overDinsurance results, he can claim in case of loss, only up to the agreed valuation (in valued policy or up to the full insurable value (in open policy from any, some or all insurers, without pre)udice to the insurers ratably apportioning the payments 3he insured can also claim a ratable return of the premiums on the overDinsured amount 0nrevealed other insurances, when re'uired, is a material concealmentMmisrepresentation and gives to the insurer the right to rescind

I=. REINSURANCE ;4!, (/ ! co),"!c, o9 "e()/1"!)ceF 5einsurance is a contract by which an insurer procures a third person to insure him against loss or liability by reason of such original insurance ;4!, (/ ,4e )!,1"e o9 co),"!c, o9 "e()/1"!)ceF A reinsurance is presumed to be a contract of indemnity against liability and not merely against damage. 3he sub)ect of the contract of reinsurance is the insurer8s risk and not the property insured under the original policy. 3he reinsurer agrees to indemnify the insurer , not against the actual payment made but against liabilities incurred D(/,()+1(/4 Re()/1"!)ce !)* Do1:0e I)/1"!)ce Re()/1"!)ce 3he insurer becomes the insured in relation to the reinsurer 3he sub)ect of the insurance is the original insurer8s risk It is an insurance of different interest 3he original insured has no interest in the contract of reinsurance which is independent of the original contract of insurance

Do1:0e I)/1"!)ce 3he insurer remains as the insurer 3he sub)ect of the insurance is the property It involves the same interest 3he insured is the party in interest in all the contracts

D(/,()+1(/4 Re()/1"!)ce !)* Co8()/1"!)ce CoDinsurance is the percentage in the value of the insured property which the insured himself assumes or undertakes 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 insurance bears to the designated percentage of the value of the property insured. 5einsurance is where the insurer procures a third party, called the reinsurer, to insure him against liability by reason of such original insurance. Easically, a reinsurance is an insurance against liability which the original insurer may incur in favor of the original insured D(/,()+1(/4 Re()/1"!)ce !)* Re()/1"!)ce T"e!,5 Re()/1"!)ce Re()/1"!)ce T"e!,5 A reinsurance policy is a contract of indemnity A reinsurance treaty is merely an agreement between two one insurer makes with another to protect the insurance companies where one agrees to cede and the other first insurer from a risk it has already assumed to accept reinsurance business pursuant to provisions specified in the treaty. It is a Contract of insurance It is a contract for insurance ;4!, !"e ,4e .!,,e"/ ?4(c4 ,4e "e()/1"e* .1/, co..1)(c!,e ,o ,4e "e()/1"e"F 3he insurer who obtains reinsurance, e+cept under automatic reinsurance treaties, must communicate the following to the reinsurer< a. All the representations of the original insured

34

b. All the knowledge and information he possesses, whether previously or subse'uently ac'uired, which are material to the risk ;4!, *oe/ !1,o.!,(c "e()/1"!)ce ,"e!,(e/ "e9e" ,oF 3his refers to a case when two or more insurance companies agree in advance that each will reinsure a part of any line of insurance taken by the other, such contract is self e+ecuting and the obligation attaches automatically on acceptance of a risk by the reinsured. In this case, the obligation to communicate is not necessary due to the selfDe+ecuting and automatic feature of such insurance. ;4!, (/ .e!), :5 9!c10,!,(-e "e()/1"!)ce !+"ee.e),F A facultative reinsurance agreement is a contract wherein the reinsurer may or may not accept participation in the risk insured. 3he term ,facultative- is used in reinsurance contracts and it is so used in this particular case merely to define the right of the reinsurer to accept or not to accept participation in the risk insured. Eut once the share is accepted, the obligation is absolute and the liability assumed thereunder can be discharged by the one and only way ( payment of the share of losses. 3here is neither alternative nor substitute prestation (*'uitable Insurance vs 5ural Insurance & SC5A $&$ Doe/ ,4e o"(+()!0 ()/1"e* 4!/ (),e"e/, () ! co),"!c, o9 "e()/1"!)ceF ;one. 3he original insured has no interest in a contract of reinsurance. 5einsurance is a contract solely between the reinsured and the reinsurer and creates no privity of contract between the reinsurer and the original insured. ?owever, if the contract of reinsurance is made directly for the benefit of the reinsured8s policyholders o" if the reinsurer assumes and agrees to perform the reinsured8s contracts, the reinsurer becomes directly liable to the policyholders. It is necessary for the original insured to accept and communicate acceptance of such benefit to the reinsurer before revocation NOTE< A reinsurer is entitled to avail of every defense which the reinsured may avail of against the original insured (1ibson vs 5evilla $> SC5A 2!@ =. LOSS De9()e 0o// () co),"!c, o9 ()/1"!)ce 4oss is the in)ury or damage sustained by the insured from the perils insured against ;4!, (/ P"o<(.!,e c!1/eF /ro+imate cause is the active efficient cause which sets in motion a train of events which in turn brings about a result without the intervention of any force operating and working actively from a new and independent force ;4!, (/ ! "e.o,e c!1/eF 5emote cause is a cause that does not necessarily or immediately produce an event or in)ury ;4e) (/ ,4e ()/1"e" 0(!:0e 9o" 0o//e/F 3he insurer is liable for< !. 4oss the pro+imate cause of which is the peril insured against although the peril not contemplated by the contract may not have been a remote cause of the loss 2. 4oss the immediate cause of which is the peril insured against e+cept where the pro+imate cause is an e+cepted peril $. 4oss through the negligence of the insured or of the insured8s agents or others, and

4.

4oss in the course of efforts to rescue the thing from the peril insured against although the cause of loss is not a peril insured against.. ,4e ()/1"e" 0(!:0e 9o" 0o//e/F by the insured8s willful act due to connivance of the insured# and where the e+cepted peril is the pro+imate cause "e"e@1(/(,e/ 9o" ,4e "eco-e"5 9o" 0o// () ()/1"!)ce !+!()/, 9("eF

;4e) (/ !. 4oss 2. 4oss $. 4oss

;4!, !"e ,4e

1. 2.

No,(ce o9 0o// which must be immediately given unless delay is waived e+pressly or impliedly by the insurer P"oo9 o9 0o// according to the best evidence obtainable. %elay may be also waived e+pressly or impliedly by the insurer All defects in a notice of loss, or in preliminary proof thereof, which the insured might remedy, and which the insurer omits to specify to him, within reasonable time, as grounds of ob)ection, are waived. "o e",5 !+!()/, 9("e e<o)e"!,e* 9"o. 0(!:(0(,5F

;4e) (/ ,4e ()/1"e" o9

35

=hen no notice is given by the insured or by any other person entitled to the benefit of the insurance, within a reasonable time. ;4!, >()* o9 "oo9 (/ )ee*e* 9o" "e0(.()!"5 "oo9 o9 0o//F =hen preliminary proof of loss is re'uired in the policy, it is sufficient that the insured gives the best evidence which he has in his power and not evidence necessary in a court of )ustice.

=I. PA2&ENT OF CLAI&S A. L(9e I)/1"!)ce

1. 2.

;4e"e ()/1"e* o1,0(-e/ .!,1"(,5 *1e, the claim is payable immediately on maturity of the policy. 3his is true in endowment insurance ;4e"e o0(c5 .!,1"e/ :5 I)/1"e*H/ *e!,4, the claim is payable within 79 days after presentation of the claim and filing of proof of death of the insured. In case of unreasonable delay, the insured is entitled to (! Attorney8s fees (2 e+penses incurred by reason of the unreasonable withholding ($ interest at the legal interest rate (7T per annum as fi+ed by the monetary board (& amount of the claim., (. moral damages if bad faith or fraud is present and (7 e+emplary damages if the act is wanton and oppressive. P0e!/e )o,e that for cases involving loss or in)ury, any person having any claim upon the policy shall, without delay present a written notice of claim within si+ (7 months from date of accident to the insured, otherwise, the claim shall be deemed waived. Ac,(o) or suit for recovery of damages due to loss or in)ury must be brought, in proper cases, with the Commissioner of the Courts within one (! year from denial of claim, otherwise, the claimant8s right of action shall prescribe

3.

B.

P"o e",5 I)/1"!)ce

1. 2. 3.
C.

I9 !.o1), o9 0o// (/ *e,e".()e* :5 !+"ee.e), o" :5 !":(,"!,(o), the claim is payable within $9 days after proof of loss is received by the insurer. I9 !/ce",!().e), o9 0o// (/ )o, .!*e ?(,4() 60 *!5/, the claim is payable within @9 days from receipt of proof of loss by the insurer, if not paid, unreasonable delay is presumed (Cathay vs CA !:& SC5A !! P0e!/e )o,e the ! year prescriptive period to file an action after denial of claim. 3he prescriptive period is not suspended by the filing of a re'uest for reconsideration after denial of claim (Sun vs CA !@. SC5A !@$

No,e< Article 229: of the Civil Code makes it clear that the insurance company that has paid the indemnity for the in)ury or loss sustained by the property insured ,shall be subrogated to the rights of the insured against the wrongdoer or the person who has violated the contract.- 3he insurer who pays the insured is an assignee in e'uity of the insured against the offender. ("alayan vs CA !7. SC5A .$7

Co. 10/o"5 &o,o" -e4(c0e 0(!:(0(,5 I)/1"!)ce 1. 3he insurance company will indemnify any authori6ed driver who is driving the motor vehicle of the insured and in the event of death of said driver, the company shall likewise indemnify his personal representatives and the company may at his option make indemnity payable directly to the claimants or heirs of claimants. In other words, under the compulsory vehicle liability insurance, direct payments may be made by the insurer to an accident victim of an insured vehicle 2. /our autrui clauses inure to the benefit of any person in)ured by the person insured as if he were named in the policy

A/ ! +e)e"!0 "10e3 /ayment by the insurer to the insured for loss under the policy entitles the insurer to be subrogated to the rights of the insured against the wrongdoer. T4e e<ce ,(o)/ !"e3 1. =here the insured releases the wrongdoer from liability 2. =here the insurer pays without notifying the carrier, which in good faith had already paid the insured, and 6. =here the insurer pays the insured for a loss which is not included in the risk insured against, by the policy (/an "alayan vs. CA !>& SC5A .& =here the insured was paid by the insurer, the latter is subrogated to all rights of the former against the wrongdoer. If the insured after being paid by the insurer, releases the wrongdoer without the insurer8s consent, the insurer loses his right of subrogation against the wrongdoer. 3he insurer will however be entitled to recover from the insured what the insured originally received from the insurer as the proceeds of the policy ("anila vs. CA !.& SC5A 7.9

36

CLASSES OF INSURANCE &ARINE INSURANCE DInsurance against risks connected with navigation, to which a ship, cargo, freightage, profits or others insurable interest in movable property, may be e+posed during a certain voyage or a fi+ed period of time. Co%era(e of <arine Insurance< !. loss or damage to aircraft 2. 4oss or damage goods J merchandise for shipment $. /ersons in connection wM marine insurance &. /recious stones, )ewels, )ewelry, precious metals .. Eridges, tunnels, J other instrumentalities of navigation Perils of 3a%i(ation Dperils in making landings in river navigation and damage from rain in conse'uence of improper stowage. 9ar ris*s Dperils due directly to some hostile action, military maneuver, operational war danger ?uilders ris*s Ddamage to ways from launching as well as damage to the ship. Perils of the sea Dall kinds of marine casualties J damages done to the ship or goods at sea by the violent action of the winds or waves# not foreseen J not attributable to the fault of anybody. Perils of the ship Dlosses or damages resulting from< a natural and inevitable action of the sea b ordinary wear and tear of ship c negligent failure of the shipUs owner to provide the vessel wM proper e'uipment to convey the cargo under ordinary conditions. Inch!aree clause Dprovision in the policy that the insurance shall cover loss of, damage to, the hull or machinery through negligence of the master, charterers, engineers, or pilots, or through e+plosions, bursting of boilers, breakage of shafts, or through any latent defect in the machinery or hull not resulting from want of due diligence.

I)/1"!:0e I),e"e/, () &!"()e I)/1"!)ce< Shipowner over the vessel, e+cept that if chartered, the insurance is only up to the amount not recoverable from the charterer .D he also has an insurable on e+pected freightage# no insurable interest if he will be compensated by charterer in case of loss. Cargo owner over the cargo J e+pected profits Charterer over the amount he is liable to the shipowner, if the ship is lost or damaged during the voyage.

2 $

Loan on ?otto!ryB#espondentia Dloan in which under any condition whatever, the repayment of the sum loaned, and of the premium stipulated, depends upon the safe arrival in port of the goods on which it is made, or of the price they may receive in case of accident. INSURABLE INTEREST ON 'ESSEL #2POT#ECATED B2 BOTTO&R2 IN CASE OF !.AwnerMdebtor Ddifference between the actual value of the vessel and the loan on bottomry. 2.Creditor Damount of the loan RIG#T OF INSURER B LENDER IN CASE OF LOSS3

37

value of what may be savedMsalvaged shall be divided between the lender J insurer, in proportion to the legitimate interest of each one.

F"e(+4,!+e benefits derived by the owner, either from< a chartering of the ship b its employment for the carriage of his own goods or those of others. a b !. 2. $. &. .. T(.e ?4e) I)/1"!:0e I),e"e/, o) F"e(+4,!+e e<(/,/3 In case of a charter party, from the time the vessel has broken ground on the chartered voyage If no charter party J price is to be paid for the carriage of goods, from the time said goods are actually on board the vessel or from the time both ship J goods are ready for specified voyage. In "arine Insurance, insured is re'uired to reveal all information which he possesses material to the risk. CONCEAL&ENT T#AT DOES NOT 'ITIATE T#E CONTRACT E=CEPT ;#EN T#E2 CAUSED T#E LOSS3 national character of the insured liability of the thing insured to capture and detention liability to sei6ure from beach of foreign laws of trade. want of necessary documents use of false J simulated papers

6@@6CT 8@ C83C6AL<63T 8@ <ATT6#'< e+onerates the insurer from a loss 6@@6CT I@ <I'#6P#6'63TATI83 I' I3T63TI83ALLE @AL'6$ rescission of contract by insurer 6@@6CT 8@ @AL'ITE 8@ #6P#6'63TATI83 A' T8 67P6CTATI83< nonDavoidance of a contract of insurance a b c d I&PLIED ;ARRANTIES IN &ARINE INSURANSE3 the ship is seaworthy no improper deviation from the agreed voyage will be made vessel will not engage in illegal venture where nationality or neutrality of a ship or cargo is e+pressly warranted

Se!?o",4()e// relative term depending of the ;A305* of the ship, the CABA1*, J the S*5CIC* in which she is at the time engaged. 5easonable fitness to perform the service J to encounter the ordinary perils of the voyage contemplated by the parties. 6@@6CT 8@ VI8LATI83 8@ I<PLI6. 9A##A3TE 8@ '6A98#THI36''< insurer will not be liable for a loss

;#EN RE$UIRE&ENT OF SEA;ORT#INESS SATISFIED< Ge)e"!0 R10e3 Seaworthiness of the vessel is re'uired only at the commencement of the risk. E<ce ,(o)/3 !. insurance is made for a specified length of time 2. insurance is upon the cargo re'uired to be transshipped at an immediate port

a b c

COURSE OF T#E 'O2AGE INSURED< one agreed upon by the parties in the absence of agreement, the course of sailing fi+ed by mercantile usage if the course of sailing is not fi+ed by mercantile usage, one which to a master of ordinary skill and direction, would seem the most natural, direct J advantageous *$+IA,I#% as defined is< departure from the course of the voyage insured unreasonable delay in pursuing the voyage commencement of an entirely different voyage

a b c

.6VIATI83 IS /5A/*5< a when caused by circumstances over which neither the master nor the owner of the ship has any control

38

b c d

when necessary to comply with warranty, or to avoid a peril, whether or not the peril is insured against when made in good faith, J upon reasonable grounds of belief in its necessity to avoid a peril when made in good faith, for the purpose of saving human life, or relieving another vessel in distress.

6@@6CT 8@ I<P#8P6# .6VIATI83$ insurers become immediately absolved from further liability Lo// A. 3A3A4 !. Actual total loss ( e+ists when the sub)ect matter of the insurance is wholly destroyed or lost or when it is so damaged as no longer to e+ist in its original charter is caused by< a. total destruction of the thing insured b. irretrievable loss of the thing by sinking, or by leaving broken up c. any damage to the thing which renders it valueless d. other event which effectively deprives the owner of the possession 2. E. Constructive total loss (Qtechnical total lossQ one that gives to a person insured a right to abandon /A53IA4 4ASS loss other than a total loss presumption of actual loss< continued absence of a ship without being heard. CONTINUATION OF LIABILIT2 OF INSURER3 whenever the ship upon which the cargo insured was loaded cannot continue the voyage due to the peril insured against, J cargo is loaded on another vessel AEA;%A;"*;3 D necessary only in Constructive 3otal 4oss

A-e"!+e e+traordinaryMaccidental e+pense incurred during the voyage for the preservation of the vessel, cargo, or both and all damages to the vessel J cargo from the time it is loaded and the voyage commenced until it ends J the cargo unloaded.

!.

7INDS OF A'ERAGE< 15ASSM1*;*5A4 AC*5A1*S include all the damages J e+penses which are deliberately caused in order to save the vessel, its cargo, or both at the same time, from real J known risk. #e)uisites to the #i(ht to clai! (eneral a%era(e contri"ution$ common danger to the vesselMcargo part of the vesselM cargo was sacrificed deliberately sacrifice must be for common safetyMbenefit of all must be made by the master or upon his authority not be caused by any fault of the party asking the contribution must be successful must be necessary SI"/4*M/A53IC04A5 AC*5A1* includes all the e+penses J damages caused to the vessel or to her cargo which have not inured to the common benefit J profit of all the persons interested in the vessel J her cargo. /artial loss caused by a peril insured against, which is not a general average loss

a. b. c. d. e. f. g. 2.

FF@PA CLA '6Q a situation wherein the insured J insurer stipulated in the policy that the vesselMcargo insured shall be free from particular average effects< a. if damage to the thing insured is a /A53IC04A5 average, the insured shall not be liable 0;4*SS the loss suffered is total b. if damage to the thing insured is a 1*;*5A4 average, insurer shall be liable whether the loss is partial or total or for the condition of the insured for his proportion of all general average losses assessed upon the thing insured which was saved. 3here is an AC30A4 3A3A4 4ASS if the insured is effectively deprived of the use J possession of the property, whether by sei6ureMcapture followed by condemnationMtheft. A:!)*o).e), act of the insured by which, after a constructive total loss, he declares the relin'uishment to the insurer of his interest in the thing insured

39

effect< insured is surrendering to the insurer whatever is left of the property insured, J resorting to the policy for indemnity, insurer then becomes the owner of whatever may remain of the insured thing J the insured may recover a total loss.

!. 2. $. &. .. 7. :. !. 2. $. &. .. 7. !. 2.

RE$UISITES FOR 'ALID ABANDON&ENT< actual relin'uishment by the person insured of his interest in the thing insured constructive total loss abandonment must be neither partial nor conditional made within a reasonable time after receipt of reliable information of the loss factual made by giving notice to the insurer which may be done orally or in writing notice of abandonment must be e+plicit J must specify the particular cause of the abandonment ;#EN ABANDON&ENT &A2 BE &ADE3 if more than $M& of the value of the thing insured is actually lost if more than $M& of the value of the thing insured would have to be e+pended to recover it from the peril if it is in)ured to such an e+tent as to reduce its value by more than $M& if the thing is insured is a ship J the contemplated voyage cannot be lawfully performed without incurring an e+pense to be insured of more than $M& the value of the thing abandoned. If the thing insured is J the contemplated voyage canUt be lawfully performed without incurring risk which a prudent man would not take under the circumstances If the thing insured, being cargo or freightage, the voyage cannot be performed nor another ship procured by the master within reasonable time J with reasonable diligence RIG#T OF RECO'ER2 ;#EN3 abandonment is made recovery of 3A3A4 4ASS, insurer ac'uires all interest of the insured no abandonment recovery only of AC30A4 4ASS 9hen a"andon!ent "eco!es ineffectual< information which formed the basis of abandonment proved to be incorrect J there was in fact no total loss @or! of 3otice of A"andon!ent no particular form# may be made orally unless re'uired to be in writing, even notice by telegraph is sufficient if complies with re'uirements if done orally, insured must submit to the insurer within : days from such oral notice, a written notice of the abandonment EFFECTS OF ACCEPTANCE OF ABANDON&ENT becomes irrevocable 0;4*SS the ground upon which it owes made proven to be unfounded conclusive upon parties admission of the loss J sufficiency of abandonment #O; ACCEPTANCE OF ABANDON&ENT &ADE3 e+press implied from the acts of the insurer mere silence of the insurer for an unreasonable length of time after notice shall be construed as acceptance EFFECT OF 'ALUATION3 conclusive between the parties provided a the insured has some interest at the risk b there is no fraud on his party Co8()/1"!)ce form of insurance in which the person who insures his property for less than the entire value is understood to be his own insurer for the difference which e+ists between value of property J amount of insurance RE$UISITES FOR APPLICATION< insured taken is less than the actual value of the thing insured loss is partial 2I5* I;S05A;C* ;o coDinsurance 0;4*SS e+pressly stipulated in the policy

!. 2. $. a b

!. 2.

"A5I;* I;S05A;C* 3here is always coDinsurance

40

F("e ()/1"!)ce D a contract by which the insurer for a consideration agrees to indemnify the insured against loss, or damage to, property by fire, but may include loss by lightning, windstorm, tornado J earth'uake J other allied risks, when such risks are covered by e+tension to fire insurance policiesM under separate policies A0,e"!,(o) alteration in the use or condition of thing insured will entitle the insurer to rescind the contract provided following re'uisites are present< a use or condition of the thing is specifically limitedMstipulated in the policy. b such caseMcondition as limited by the policy is altered c the alteration is made without the consent of the insurer d alteration is made by means within the control of the insured e the alteration increases the risk f violation of a policy provision Co8()/1"!)ce c0!1/e clause re'uiring the insured to maintain insurance to an amount e'ual to a specified percentage of the value of the insured property under penalty of becoming coDinsurer to the e+tent of such deficiency F!008o99 B1(0*()+ C0!1/e clause in 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 Re:1(0* C0!1/e option of insurer to repair, rebuild or replace buildingsMstructures wholly or partially damaged or destroyed, instead of the payment of the loss. Alternative obligation, either pay the amount of the lossM rebuild the building damaged C!/1!0,5 I)/1"!)ce includes all forms of instrument against loss or liability arising from accidentMmishap other than those within the scope of other types of insurance GENERAL DI'ISION OF CASUALT2 INSURANCE3 insurance against specified ha6ards which may affect the personMproperty of the insured e.g. personal accident, robberyMtheft, damage to or loss of motor vehicle insurance against specified ha6ards which may give rise to liability on the part of the insured for claims for in)uries to othersMdamages to their property e.g. workmenUs compensation, motor vehicle liability ACCI%*;3M?*A43? I;S05A;C* /rotect against not a loss of life but a loss of time, earning capacity and e+penses

!. 2.

4I2* I;S05A;C* 0sual ob)ect is to provide fund for the benefit of the estateMheirs beneficiaries of insured after the death of the insured

S1"e,5/4( contract whereby a person binds himself solidarily with principal debtor for the fulfillment of an obligation NATURE OF LIABILIT2 OF SURET2< solidary limited to the amount of the bond determined by the terms of the contract of suretyship in relation to the principal contract between obligor and obligee 5 A#A3T8# insurer of solvency of debtor Einds himself to pay if principal is unable to pay Secondary Can not be compelled to pay the creditor unless the latter has e+hausted all the properties of the debtor

!. 2. $.

' #6TE insurer of debt 0ndertakes to pay principal dies not pay primary ;o such rights

if

S05*3B Accessory contract $ parties< surety, obligor

/5A/*53B I;S05A;C* /rincipal contract 2 parties< insurer and insured

41

and obligee Credit accommodation Surety can recover form principal Eond can be cancelled only with consent of the oblige, commissioner or the court 5iskDshifting device premium paid being in the nature of a service fee 5e'uires acceptance of the oblige to be valid a b !. 2. $.

Contract of Indemnity ;o such right, only right of subrogation "ay be cancelled unilaterally either by insured or insurer on grounds provided by law 5iskDdistributing device, premium paid as a ratable contribution to a common fund ;o need for acceptance by any third party

;#EN SURET2 ENTITLED TO SER'ICE FEE ONL23 when contract of suretyshipM bond is not accepted by obligee when contract of suretyshipM bond is not filed with obligee T2PES OF SURET2 BONDS Contract bonds a. /erformance bonds b. /ayment bonds Afficial Nudicial

L(9e I)/1"!)ce insurance payable on the death of a person or on his surviving a specified period or otherwise contingently on the continuance or cessation of life. ;ature< !. liability absolutely certain 2. amount of insurance generally no limit $. direct pecuniary loss not re'uired 7INDS OF LIFE INSURANCE 5636#AL, ordinary or old line life insurance fi+ed for a premium payable, without condition, at stated intervals, a sum certain is to be paid on death, without condition li!ited pay!ent life insurance specified premiums are to be paid for a specified period or until the death of insured if it occurs before the e+piration of such period, and under which insurer is obligated to pay a specified sum on the death of the insured 63.89<63T I3' #A3C6 contract to pay a certain sum to the insured if he lives a certain length of time, or if he dies before that time, to some other person indicated as beneficiary T6#< LI@6 I3' #A3C6 insurance for a term of years only, or until insured shall have arrived at a certain age A.VA3C6 I3' #A3C6 contract which provides for the payment to the insured of a lump sum immediately, in consideration of his agreement to make certain periodical payments to the insurer for a specified period, or for that end of the period, the performance of insuredUs obligation being secured by mortgage or deed of trust T83TI36 I3' #A3C6 form of life insurance by which the policyholder under the same plan, that no dividends, return premium, or surrender value shall be received for a term of years called the Qtontine period,Q the entire surplus from all sources being allowed to accumulate to the end of that period, and then divided among all who have maintained their insurance in force and who have survived.

/.

2.

;.

D. 4.

1.

JNo89!10,J C0!1/e any claim for death or in)ury shall be paid up to p.,999 without necessity of proving negligence or fault, provided the following proofs of loss under oath are submitted< !. police report of accident 2. death certificate and evidence sufficient to establish proper payee $. medical report and evidence of medical or hospital disbursement

42

CLAI&S UNDER C&'LI a claim shall lie against the insurer of the vehicle in which the occupant is riding, mounting or dismounting from in any other case, against the insurer of the directly offending vehicle AUT#ORIKED DRI'ER CLAUSE the clause means that it indemnifies 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 the 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. It is applicable only if the person driving is other than the insured where the car is unlawfully and wrongfully taken without the ownerUs consent or knowledge, such taking constitutes theft, and thus, it is the theft clause and not the Qauthori6ed driver clauseQ that should apply. Coo e"!,(o) C0!1/e clause in an automobile insurance policy 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 LIABILIT2 OF INSURER IF INSURED ;AS CO&&ITTING A FELON23 liabilities arising out of acts of negligence, which are also criminal, are also insurable on the ground that such acts are accidental. 3hus, a motor insurance policy covering the insured8s liability for accidental in)ury caused by his negligence, even though gross and attended by criminal conse'uences such as homicide through reckless imprudence, will not be void as against public policy. Eut liability conse'uences of deliberate criminal acts are not insurable LURISDICTION OF T#E INSURANCE CO&&ISSIONER Ariginal e+clusive )urisdiction with the Insurance Commissioner ;otice of claim must be filed within si+ months from the date of accident. Atherwise the claim shall be deemed waived. Action or suit must be brought in proper cases, with the Commission or the courts within one year from the denial of the claim, otherwise the claimantUs right of action shall prescribe FUNCTIONS OF T#E CO&&ISSIONER< Ad)udicatory functions Administrative 2unctions includes suspension or revocation of license, power to e+amine books and records EFFECT OF DEAT# OF INSURED T#ROUG# SUICIDE3 in life insurance contract, the insurer is liable in case of suicide in the following cases< !. if committed after two years from the date of the policyUs issue or its last reinstatement 2. if committed after a shorter period provided in the policy $. if committed in a state of insanity regardless of the date of the commission unless suicide is an e+cepted peril Any stipulation e+tending the 2Dyear period is null and void

!. 2.

CO&PULSOR2 &OTOR 'E#ICLE LIABILIT2 INSURANCE (C&'LI) is a 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 purpose< to give immediate financial assistance to victims of motor vehicle andMor their dependents, especially if they are poor regardless of the financial capability of motor vehicle owners or operators responsible for the accident sustained