INSURANCE CODE

(P.D. No. 1460)

I. GENERAL CONCEPTS
CONTRACT OF INSURANCE
.
An agreement whereby one undertakes for a consideration to indemnify another aga
inst 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, par. 4)
1.
Making or proposing to make, as insurer, any insurance contract;
2.
Making 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;
3.
Doing any insurance business, including a reinsurance business;
4.
Doing or proposing to do any business in substance equivalent to any of the fore
going
II. CHARACTERISTICS OF AN INSURANCE CONTRACT (The Insurance Code of the Philippi
nes Annotated,
Hector de Leon, 2002 ed.)
1. 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.
3. Aleatory it depends upon some contingent event.
4. Unilateral imposes legal duties only on the insurer who promises to indemnify
in case of loss.
5.
Conditional It is subject to conditions the principal one of which is the happen
ing of the event insured
against.
6.
Contract of indemnity Except life and accident insurance, a contract of insuranc
e 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 othe
r.
REQUISITES OF A CONTRACT OF INSURANCE (The Insurance Code of the Philippines Ann
otated, Hector de
Leon, 2002 ed.)
1. A subject matter which the insured has an insurable interest.
2. Event or peril insured against which may be any future contingent or unknown
event, past or future and a
duration for the risk thereof.
3. A promise to pay or indemnify in a fixed or ascertainable amount.
4. A consideration known as premium.
5. Meeting of the minds of the parties.
5 CARDINAL PRINCIPLES IN INSURANCE
1. Insurable Interest
2. Principle of Utmost Good Faith
.
An insurance contract requires utmost good faith (uberrimae fidei) between the p
arties. The applicant is
enjoined to disclose any material fact, which he knows or ought to know.
.
Reason: An insurance contract is an aleatory contract. The insurer relies on the
representation of the
applicant, who is in the best position to know the state of his health.
3. Contract of Indemnity
.
It is the basis of all property insurance. The insured who has insurable interes
t over a property is only
entitled to recover the amount of actual loss sustained and the burden is upon h
im to establish the amount of
such loss (Reviewer on Commercial Law, Professors Sundiang and Aquino)
.Rules:
a.
Applies only to property insurance except when the creditor insures the life of
his debtor.
b.
Life insurance is not a contract of indemnity.
c.
Insurance contracts are not wagering contracts. (Sec. 4)
4. Contract of Adhesion (Fine Print Rule)
.
Most 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. (Rizal Surety and Insurance Co., vs. CA, 336 SCRA 12)
5. Principle of Subrogation
.
It is a process of legal substitution where the insurer steps into the shoes of
the insured and he avails of the
latters rights against the wrongdoer at the time of loss.
.
The principle of subrogation is a normal incident of indemnity insurance as a le
gal effect of payment; it
inures to the insurer without any formal assignment or any express stipulation t
o that effect in the policy. Said
right is not dependent upon nor does it grow out of any private contract. Paymen
t to the insured makes the
insurer a subrogee in equity. (Malayan Insurance Co., Inc. v. CA, 165 SCRA 536;
see also Art. 2207, NCC)
.
Purposes: (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002
ed.)
1.
To make the person who caused the loss legally responsible for it.
2.
To prevent the insured from receiving a double recovery from the wrongdoer and t
he insurer.
3.
To prevent tortfeasors from being free from liabilities and is thus founded on c
onsiderations of public
policy.
.
Rules:
1. Applicable only to property insurance.
2. The insurer can only recover from the third person what the insured could hav
e recovered.
3. There can be no subrogation in cases:
a. Where the insured by his own act releases the wrongdoer or third party liable
for the loss or damage;
b. Where the insurer pays the insured the value of the loss without notifying th
e carrier who has in good faith
settled the insureds claim for loss;
c. Where the insurer pays the insured for a loss or risk not covered by the poli
cy. (Pan Malayan Insurance
Company v. CA, 184 SCRA 54)
d. In life insurance
e. For recovery of loss in excess of insurance coverage
CONSTRUCTION OF INSURANCE CONTRACT
.
The ambiguous terms are to be construed strictly against the insurer, and libera
lly in favor of the insured.
However, if the terms are clear, there is no room for interpretation. (Calanoc v
s. Court of Appeals, 98 Phil. 79)
III. DISTINGUISHING ELEMENTS OF AN INSURANCE CONTRACT
1. The insured possesses an insurable interest susceptible of pecuniary estimati
on;
2.
The insured is subject to a risk of loss through the destruction or impairment o
f that interest by the
happening of designated perils;
3. The insurer assumes that risk of loss;
4. Such assumption is part of a general scheme to distribute actual losses among
a large group or substantial
number of persons bearing somewhat similar risks; and
5. The insured makes a ratable contribution (premium) to a general insurance fun
d.
.
A contract possessing only the first 3 elements above is a risk-shifting device.
If all the elements, it is a risk-
distributing device. (The Insurance Code of the Philippines Annotated, Hector de
Leon, 2002 ed.)
IV. PERFECTION OF AN INSURANCE CONTRACT
.
An insurance contract is a consensual contract and is therefore perfected the mo
ment there is a meeting of
minds with respect to the object and the cause or consideration.
.
What is being followed in insurance contracts is what is known as the cognition t
heory. Thus, an
acceptance made by letter shall not bind the person making the offer except from
the time it came to his
knowledge. (Enriquez vs. Sun Life Assurance Co. of Canada, 41 Phil. 269)
Binding Receipt
.
A mere acknowledgment on behalf of the company that its branch office had receiv
ed from the applicant the
insurance premium and had accepted the application subject to processing by the
head office.
Cover Note (Ad Interim)
.
A concise and temporary written contract issued to the insurer through its duly
authorized agent embodying
the principal terms of an expected policy of insurance.
.Purpose: It is intended to give temporary insurance protection coverage to the
applicant pending the
acceptance or rejection of his application.
.
Duration: Not exceeding 60 days unless a longer period is approved by Insurance
Commissioner (Sec. 52).
Riders
.
Printed stipulations usually attached to the policy because they constitute addi
tional stipulations between
the parties. (Ang Giok Chip vs. Springfield, 56 Phil. 275)
.
In case of conflict between a rider and the printed stipulations in the policy,
the rider prevails, as being a
more deliberate expression of the agreement of the contracting parties. (C. Alve
ndia, The Law of Insurance in
the Philippines, 1968 ed.)
Clauses
.
An agreement between the insurer and the insured on certain matter relating to t
he liability of the insurer in
case of loss. (Prof. De Leon, p.188)
Endorsements
.
Any provision added to the contract altering its scope or application. (Prof. De
Leon, p.188)
POLICY OF INSURANCE
.
The written instrument in which a contract of insurance is set forth. (Sec. 49)
.
Contents: (Sec. 51)
1. Parties
2. Amount of insurance, except in open or running policies;
3. Rate of premium;
4. Property or life insured;
5. Interest of the insured in the property if he is not the absolute owner;
6. Risk insured against; and
7. Duration of the insurance.
.
Persons entitled to recover on the policy (sec. 53): The insurance proceeds shal
l be applied exclusively
to the proper interest of the person in whose name or to whose benefit it is mad
e, unless otherwise specified in
the policy.
.
Kinds:
1.
OPEN POLICY value of thing insured is not agreed upon, but left to be ascertaine
d in case of loss. (Sec.
60)
.
The actual loss, as determined, will represent the total indemnity due the insur
ed from the insurer
except only that the total indemnity shall not exceed the face value of the poli
cy. (Development Insurance
Corp. vs. IAC, 143 SCRA 62)
2.
VALUED POLICY definite valuation of the property insured is agreed by both parti
es, and written on the
face of policy. (Sec. 61)
.
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.
3. RUNNING POLICY contemplates successive insurances and which provides that the
object of the policy
may from time to time be defined (Sec. 62)
V. TYPES OF INSURANCE CONTRACTS
1. Life insurance
a.
Individual life (Secs. 179183, 227)
b.
Group life (Secs. 50, last par., 228)
c.
Industrial life (Secs. 229231)
2.
Non-life insurance
a.
Marine (Secs. 99166)
b.
Fire (Secs. 167173)
c.
Casualty (Sec. 174)
3. Contracts of bonding or suretyship (Secs. 175178)
Note:
1. Health and accident insurance are either covered under life (Sec. 180) or cas
ualty insurance. (Sec. 174).
2. Marine, fire, and the property aspect of casualty insurance are also referred
to as property insurance.
VI. PARTIES TO INSURANCE CONTRACT
1.
Insurer -Person who undertakes to indemnify another.
.
For a person to be called an insurance agent, it is necessary that he should per
form the function for
compensation. (Aisporna vs. CA, 113 SCRA 459)
2. Insured -The party to be indemnified upon the occurrence of the loss. He must
have capacity to contract,
must possess an insurable interest in the subject of the insurance and must not
be a public enemy.
.
A public enemy-a nation with whom the Philippines is at war and it includes ever
y citizen or subject
of such nation.
3. Beneficiary -A person designated to receive proceeds of policy when risk atta
ches.
.
Rules in the designation of the beneficiary:
a. LIFE
i.
A person who insures his own life can designate any person as his beneficiary, w
hether or not the
beneficiary has an insurable interest in the life of the insured subject to the
limitations under Art.
739 and Art. 2012 of the NCC.
.
Reason: in essence, a life insurance policy is no different form a civil donatio
n insofar as the
beneficiary is concerned. Both are founded on the same consideration of liberali
ty. (Insular Life
vs. Ebrado, 80 SCRA 181)
ii.
A person who insures the life of another person and name himself as the benefici
ary must have
an insurable interest in such life. (Sec. 10)
iii.
As a general rule, the designation of a beneficiary is revocable unless the insu
red expressly
waived the right to revoke in the policy. (Sec. 11)
iv. The interest of a beneficiary in a life insurance policy shall be forfeited
when the beneficiary is the
principal accomplice or accessory in willfully bringing about the death of the i
nsured in which event, the
nearest relative of the insured shall receive the proceeds of said insurance if
not otherwise disqualified.
(Sec. 12)
b.
PROPERTY
.
The beneficiary of property insurance must have an insurable interest in such pr
operty, which must
exist not only at the time the policy takes effect but also when the loss occurs
. (Sec. 13 and 18).
Effects of Irrevocable Designation Of Beneficiary
.
Insured cannot:
1.
Assign the policy
2.
Take the cash surrender value of the policy
3.
Allow his creditors to attach or execute on the policy;
4.
Add new beneficiary; or
5.
Change the irrevocable designation to revocable, even though the change is just
and reasonable.
.
The insured does not even retain the power to destroy the contract by refusing t
o pay the premiums for the
beneficiary can protect his interest by paying such premiums for he has an inter
est in the fulfillment of the
obligation. (Vance, p. 665, cited in de Leon, p. 101, 2002 ed.)
VII. INSURABLE INTEREST
A. In General
.
A person has an insurable interest in the subject matter if he is so connected,
so situated, so circumstanced,
so related, that by the preservation of the same he shall derive pecuniary benef
it, and by its destruction he
shall suffer pecuniary loss, damage or prejudice.
B. Life
.
Every 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 propert
y 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. 10)
.
When it should exist: When the insurance takes effect; not thereafter or when th
e loss occurs.
.
Amount:
.GENERAL RULE: There is no limit in the amount the insured can insure his life.
.EXCEPTION: In a creditor-debtor relationship where the creditor insures the lif
e of his debtor, the limit of
insurable interest is equal to the amount of the debt.
Note: 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
.
Every 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.
13), which may consist in:
1.
an existing interest;
2.
any inchoate interest founded on an existing interest; or
3.
an expectancy coupled with an existing interest in that out of which the expecta
ncy arises. (Sec.
14)
.
When it should exist: When the insurance takes effect and when the loss occurs,
but need not exist in the
meantime.
.
Amount: The measure of insurable interest in property is the extent to which the
insured might be
damnified by loss or injury thereof. (Sec. 17)
INSURABLE INTEREST IN LIFE INSURABLE INTEREST IN
PROPERTY
Must exist only at the time the policy takes effect and need not exist
at the time of loss
Must exist at the time the policy takes
effect and when the loss occurs
Unlimited except in life insurance effected by creditor on life of
debtor.
Limited to actual value of interest in
property insured.
The expectation of benefit to be derived from the continued
existence of life need not have any legal basis whatever. A
reasonable probability is sufficient without more.
An expectation of a benefit to be
derived from the continued existence
of the property insured must have a
legal basis.
The beneficiary need not have an insurable interest over the life of
the insured if the insured himself secured the policy. However, if the
life insurance was obtained by the beneficiary, the latter must have
insurable interest over the life of the insured.
The beneficiary must have insurable
interest over the thing insured.
SPECIAL CASES
1.
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 extent of
his liability but not to exceed the value thereof (Sec. 15)
2.
In case of a mortgaged property
.
The mortgagor and mortgagee each have an insurable interest in the property mort
gaged and this interest
is separate and distinct from the other.
a. Mortgagor As owner, has an insurable interest therein to the extent of its va
lue, even though the
mortgage debt equals such value. The reason is that the loss or destruction of t
he property insured will not
extinguish the mortgage debt.
b. Mortgagee His interest is only up to the extent of the debt. Such interest co
ntinues until the mortgage
debt is extinguished.
.
The 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, 227 SCRA 690)
STANDARD OR UNION MORTGAGE
CLAUSE
OPEN OR LOSS PAYABLE MORTGAGE CLAUSE
Subsequent acts of the mortgagor cannot
affect the rights of the assignee
Acts of the mortgagor affect the mortgagee. Reason: Mortgagor
does not cease to be a party to the contract. (Secs. 8 and 9)
Effects of Loss Payable Clause
a. The contract is deemed to be upon the interest of the mortgagor; hence, he do
es not cease to be a party to
the contract.
b. Any act of the mortgagor prior to the loss, which would otherwise avoid the i
nsurance 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 mort
gagor, may be performed by
the mortgagee with the same effect.
d. In case of loss, the mortgagee is entitled to the proceeds to the extent of h
is credit.
e. Upon recovery by the mortgagee to the extent of his credit, the debt is extin
guished.
.
In case a mortgagee insures his own interest and a loss occurs, he is entitled t
o 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 extent of the money paid by such ins
urer. (Palileo vs. Cosio)
VIII. RISK
.
What may be insured against:
1. Future contingent event resulting in loss or damage Ex. Possible future fire
2. Past unknown event resulting in loss or damage Ex. Fact of past sinking of a
vessel unknown to the
parties
3. Contingent liability Ex. Reinsurance
IX. PREMIUM PAYMENTS
.
Consideration paid an insurer for undertaking to indemnify the insured against a
specified peril.
.
Basis of the right of the insurer to collect premiums: Assumption of risk.
.GENERAL RULE: No policy issued by an insurance company is valid and binding unt
il actual payment of
premium. Any agreement to the contrary is void. (Sec. 77)
.EXCEPTIONS:
1.
In case of life or industrial life insurance, when the grace periods applies; (S
ec. 77)
2.
When the insurer makes a written acknowledgment of the receipt premium; (Sec. 78
)
3.
Section 77 may not apply if the parties have agreed to the payment of the premiu
m in installments and
partial payment has been made at the time of the loss. (Makati Tuscany Condomini
um Corp. v. CA, 215
SCRA 462)
4.
Where a credit term has been agreed upon. (UCPB vs. Masagana Telemart, 308 SCRA
259)
5.
Where the parties are barred by estoppel. (UCPB vs. Maagana Telemart, 356 SCRA 3
07)
.
Section 77 merely precludes the parties from stipulating that the policy is vali
d even if the premiums are not
paid. (Makati Tuscany Condominium Corp. v. CA, 215 SCRA 462)
Effect of Acknowledgment of Receipt of Premium in Policy: Conclusive evidence of
its payment, so far as
to make the policy binding, notwithstanding any stipulation therein that it shal
l not be binding until the
premium is actually paid. (Sec. 78)
ENTITLEMENT OF INSURED TO RETURN OF PREMIUMS PAID
A. Whole:
1.
If the thing insured was never exposed to the risks insured against; (Sec. 79)
2. If contract is voidable due to the fraud or misrepresentation of insurer or h
is agents; (Sec.
81)
3. If contract is voidable because of the existence of facts of which the insure
d was ignorant
without his fault; (Sec. 81)
4. When by any default of the insured other than actual fraud, the insurer never
incurred
liability; (Sec. 81)
5. When rescission is granted due to the insurers breach of contract. (Sec. 74)
B. Pro rata:
1.
When the insurance is for a definite period and the insured surrenders his polic
y before the
termination thereof;
.
Exceptions:
a.
policy not made for a definite period of time
b. short period rate is agreed upon
c. life insurance policy
2.
When there is over-insurance (Sec. 82);
Instances when premiums are not recoverable:
1. When the risk has already attached and the risk is entire and indivisible.
2.
In life insurance.
3. When the contract is rescindable or rendered void ab initio by the fraud of t
he insured.
4. When the contract is illegal and the parties are in pari delicto.
PREMIUM ASSESSMENT
Levied and paid to meet anticipated losses. Collected to meet actual losses.
Payment is not enforceable against
the insured.
Payment is enforceable once
levied unless otherwise agreed upon.
Not a debt. It becomes a debt once properly levied unless otherwise agreed.
X. TRANSFER OF POLICY
1. Life Insurance
.
It can be transferred even without the consent of the insurer except when there
is a stipulation requiring the
consent of the insurer before transfer. (Sec. 181)
.
Reason: The policy does not represent a personal agreement between the insured a
nd the insurer.
2. Property insurance
.
It cannot be transferred without the consent of the insurer.
.
Reason: The insurer approved the policy based on the personal qualification 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. 82)
.
Reason: The moral hazards are as great as those of property insurance.
CHANGE OF INTEREST IN THE THING INSURED
.
The 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. 58)
.
Reason: Insurance contract is personal.
.GENERAL RULE: A change of interest in any part of a thing insured unaccompanied
by a corresponding
change of interest in the insurance suspends the insurance to an equivalent exte
nt, until the interests in the
thing and the interest in the insurance are vested in the same person. (Sec. 20)

.EXCEPTIONS:
1. In life, health and accident insurance.(Sec. 20);
2. Change in interest in the thing insured after occurrence of an injury which r
esults in a loss.
(Sec. 21);
3. Change in interest in one or more of several distinct things separately insur
ed by one policy.
(Sec. 22);
4. Change of interest, by will or succession, on the death of the insured. (Sec.
23);
5. Transfer of interest by one of several partners, joint owners, or owners in c
ommon, who are
jointly insured, to others. (Sec. 24);
6. When a policy is so framed that it will inure to the benefit of whomsoever, d
uring the
continuance of the risk, may become the owner of the interest insured. (Sec. 57)
;
7. When there is an express prohibition against alienation in the policy, in cas
e of alienation, the
contract of insurance is not merely suspended but avoided. (Art. 1306, NCC).
XI. ASCERTAINMENT AND CONTROL OF RISK AND LOSS
A. Four Primary Concerns of the Parties:
1.
Correct estimation of the risk;
2.
Precise delimitation of the risk;
3.
Control of the risk;
4. Determining whether a loss occurred and if so, the amount of such loss.
B. Devices used for ascertaining and controlling risk and loss:
1. Concealment A neglect to communicate that which a party knows and ought to co
mmunicate (Sec. 26)
.
Requisites:
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.
The other party has not the means of ascertaining the fact concealed.
e. Material
.
Effects: Entitles insurer to rescind, even if the death or loss is due to a caus
e not related to the concealed
matter (Sec. 27).
Note: Good Faith is not a defense in concealment. Sec. 27 clearly provides that,
the concealment whether
intentional or unintentional entitles the injured party to rescind the contract
of insurance.
Test of Materiality: Determined not by the event, but solely by the probable and
reasonable influence of the
facts upon the party to whom the communication is due, in forming his estimate o
f the advantages of the
proposed contract, or in making his inquiries (Sec. 31).
.
Exception to Sec. 31:
a. Incontestability clause
b. Matters under Sec.110 (marine insurance)
.
The waiver of medical examination in a non-medical insurance contract renders ev
en more material the
information required of the applicant concerning the previous conditions of heal
th and diseases suffered.
(Sunlife v. Sps. Bacani, 246 SCRA 268).
.
The right to information of material facts may be waived, either by the terms of
the insurance or by neglect
to make inquiries as to such facts where they are distinctly implied in other fa
cts of which information is
communicated. (Sec.33)
.
Where matters of opinion or judgment are called for, answers made in good faith
and without intent to
deceive will not avoid the policy even though they are untrue. Reason: The insur
er cannot rely on those
statements. He must make further inquiry. (Philamcare Health Systems vs. CA, G.R
. No. 125678, March 18,
2002).
2. Representations Factual statements made by the insured at the time of, or pri
or to, the issuance of the
policy to give information to the insurer and induce him to enter into the insur
ance contract. They are
considered an active form of concealment.
.
Requisites of a false representation (misrepresentation):
a.
The 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 mis
lead.
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 after
wards.
e. It always refers to the date the contract goes into effect.
.
Kinds:
a. AFFIRMATIVE affirmation of a fact when the contract begins; and
b. PROMISSORY promise to be performed after policy was issued.
.
Effect of Misrepresentation: the injured party is entitled to rescind from the t
ime when the representation
becomes false.
Test of Materiality: Same as that in concealment.
.
Where the insured merely signed the application form and made the agent of the i
nsurer 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 Life Assur. Co. vs. Felician
o, 74 Phil. 469)
3. Warranties Statement or promise by the insured set forth in the policy or by
reference incorporated
therein, the untruth or non-fulfillment of which in any respect, and without ref
erence to whether insurer was in
fact prejudiced by such untruth or non-fulfillment, renders the policy voidable
by the insurer.
.
Purpose: To eliminate potentially increasing hazards which may either be due to
the acts of the insured or to
the change to the condition of the property.
.
Kinds:
a. EXPRESS an agreement expressed in a policy whereby the insured stipulates tha
t certain facts relating to
the risk are or shall be true, or certain acts relating to the same subject have
been or shall be done.
b. IMPLIED -it is deemed included in the contract although not expressly mention
ed. Example: In marine
insurance, seaworthiness of the vessel.
.
Effects of breach of warranty:
a. Material
.GENERAL RULE: Violation of material warranty or of a material provision of a po
licy will entitle the other
party to rescind the contract. (Sec. 74)
.EXCEPTIONS:
a. Loss occurs before the time of performance of the warranty.
b. The performances becomes unlawful at the place of the contract.
c. Performance becomes impossible. (Sec. 73)
b. Immaterial (ex. Other insurance clause)
.GENERAL RULE: It will not avoid the policy.
.EXCEPTION: When the policy expressly provides or declares that a violation ther
eof will avoid it. (Sec. 75)
WARRANTY REPRESENTATION
Part of the contract Mere collateral inducement
Written on the policy, actually or by
reference
May be written in the policy or may be oral.
Presumed material Must be proved to be material
Must be strictly complied with Requires only substantial truth and compliance
4. Conditions Events signifying in its broadest sense either an occurrence or a
non-occurrence that alters
the previously existing legal relations of the parties to the contract. They may
be conditions precedent or
conditions subsequent.
.
Effect of breach:
a. Condition precedent prevents the accrual of cause of action
b. Condition subsequent avoids the policy or entitles the insurer to rescind
.
The 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 pre
cedent. For instance, there are
conditions requiring immediate notice of loss or injury and detailed proofs of l
oss within a limited period.
5. Exceptions Provisions that may specify excepted perils. It makes more definit
e the coverage indicated by
the general description of the risk by excluding certain specified risk that oth
erwise would be included under
the general language describing the risks assumed.
.
Effect: Limit the coverage of the contract.
RESCISSION
.
Grounds:
A. Concealment
B. Misrepresentation
C. Breach of material warranty
D. Breach of a condition subsequent
.
Waiver of the right to rescind: Acceptance of premium payments despite the knowl
edge of the ground for
rescission. (Sec. 45)
.
Limitations on the right of the insurer to rescind:
1. Non-life such right must be exercised 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 o
f issue of policy or its last
reinstatement; prior to incontestability. (Sec. 48)
CANCELLATION OF NON-LIFE INSURANCE POLICY
.
Right of the insurer to abandon the contract on the occurrence of certain ground
s after the effectivity date of
a non-life policy.
.
Grounds:
1.
Non-payment of premium;
2.
Conviction of a crime out of acts increasing the hazard insured against;
3.
Discovery of fraud or material misrepresentation;
4.
Discovery of willful or reckless acts of omissions increasing the hazard insured
against;
5.
Physical changes in property making the property uninsurable; and
6.
Determination by the Insurance Commissioner that the continuation of the policy
would violate the
Insurance Code. (Sec. 64)
.
Requirements:
1.
Prior notice of cancellation to the insured;
2.
Notice must be in writing, mailed or delivered to the named insured at the addre
ss shown in the
policy;
3.
Notice must state which of the grounds set forth in Sec. 64 is relied upon and u
pon request of the
insured, the insurer must furnish facts on which the cancellation is based;
4.
Grounds should have existed after the effectivity date of the policy.
XII. INCONTESTABILITY CLAUSE
.
Clause in life insurance policy that stipulates that the policy shall be inconte
stable after a stated period.
.
Requisites:
1.
Life insurance policy
2.
Payable on the death of the insured
3.
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
Note: The period of 2 years may be shortened but it cannot be extended by stipul
ation.
.
Incontestability only deprives the insurer of those defenses which arise in conn
ection with the formation and
operation of the policy prior to loss. (Prof. De Leon, p. 173 citing Wyatt and W
yatt, p. 878)
BARRED DEFENSES
OF THE INSURER
DEFENSES NOT BARRED
1. Policy is void ab initio
2. Policy is rescindable by reason of the
fraudulent concealment or misrepresentation
of the insured or his agent
1. That the person taking the insurance lacked insurable
interest as required by law;
2. That the cause of the death of the insured is an
excepted risk;
3. That the premiums have not been paid (Secs. 77,
227[b], 228[b], 230[b]);
4. That the conditions of the policy relating to military or
naval service have been violated (Secs. 227[b],
228[b]);
5. That the fraud is of a particularly vicious type;
6. That the beneficiary failed to furnish proof of death or
to comply with any condition imposed by the policy
after the loss has happened; or
7. That the action was not brought within the time
specified.
XIII.
A. OVER-INSURANCE results when the insured insures the same property for an amou
nt greater than the
value of the property with the same insurance company.
.
Effect in case of loss:
1.
The insurer is bound only to pay to the extent of the real value of the property
lost;
2.
The insured is entitled to recover the amount of premium corresponding to the ex
cess in value of the
property;
B. DOUBLE INSURANCE exists where same person is insured by several insurers sepa
rately in respect to
same subject and interest. (Sec. 93)
.
Requisites:
1.
Person insured is the same;
2.
Two or more insurers insuring separately;
3.
Subject matter is the same;
4.
Interest insured is also the same;
5.
Risk or peril insured against is likewise the same.
.
Effects: Where double insurance is allowed, but over insurance results: (Sec. 94
)
1. The 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 insu
rers are severally liable
under their respective contracts;
2. Where the policy under which the insured claims is a valued policy, the
insured must give credit as against the valuation for any sum received by him un
der any other policy
without regard to the actual value of the subject matter insured;
3. Where the policy under which the insured claims is an unvalued policy he
must give credit, as against the full insurable value, for any sum received by h
im under any policy;
4. Where the insured receives any sum in excess 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 themselve
s;
5. Each 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 liabl
e under his contract.
Additional or Other Insurance Clause
.
A condition in the policy requiring the insured to inform the insurer of any oth
er insurance coverage of the
property insured. It is lawful and specifically allowed under Sec. 75 which prov
ides 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.
.
Purposes:
1. To prevent an increase in the moral hazard
2. To prevent over-insurance and fraud.
.
To 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 Reinsurance Cession).
(Sec. 95)
.
In every reinsurance, the original contract of insurance and the contract of rei
nsurance are covered by
separate policies.
DOUBLE INSURANCE REINSURANCE
Involves the same interest Involves different interest
Insurer remains in such capacity Insurer becomes the insured in relation to rein
surer
Insured is the party in interest in
contracts
the 2 Original insured has no interest in the reinsurance contract.
Subject of insurance is property Subject of insurance is the original insurers ri
sk
Insured has to give his consent Insureds consent not necessary
TERMS:
1. Reinsurance treaty Merely an agreement between two insurance companies whereb
y one agrees to
cede and the other to accept reinsurance business pursuant to provisions specifi
ed in the treaty. (Prof. De
Leon, p. 306)
2. Automatic reinsurance The reinsured is bound to cede and the reinsurer is obl
igated to accept a fixed
share of the risk which has to be reinsured under the contract. (Prof. De Leon,
p. 305)
3. Facultative reinsurance There is no obligation to cede or accept participatio
n in the risk each party
having a free choice. But once the share is accepted, the obligation is absolute
and the liability thereunder can
be discharged only by payment. (Equitable Ins. & Casualty Co. vs. Rural Ins. & S
urety Co., Inc. 4 SCRA 343)
4. Retrocession A transaction whereby the reinsurer in turn, passes to another i
nsurer a portion of the risk
reinsured. It is really the reinsurance of reinsurance. (Prof. De Leon, p. 305)
XIV.
A. LOSS, IN INSURANCE
.
Injury or damage sustained by the insured in consequence of the happening of one
or more of the accidents
or misfortune against which the insurer, in consideration of the premium, has un
dertaken to indemnify the
insured. (Bonifacio Bros. Inc. vs. Mora, 20 SCRA 261)
Loss for which insurer is liable Loss for which insurer is
not liable
1. Loss the proximate cause of which is the peril insured against (Sec. 84);
2. Loss the immediate cause of which is the peril insured against except
where proximate cause is an excepted peril;
3. Loss through negligence of insured except where there was gross
negligence amounting to willful acts; and
4. Loss caused by efforts to rescue the thing from peril insured against;
5. If during the course of rescue, the thing is exposed to a peril not insured
against, which permanently deprives the insured of its possession, in
whole or in part (Sec. 85).
1. Loss by insureds willful
act;
2. Loss due to connivance of
the insured (Sec. 87);
and
3. Loss where the excepted
peril is the proximate
cause.
Proximate Cause An event that sets all other events in motion without any interv
ening or independent
case, without which the injury or loss would not have occurred.
REQUISITES FOR RECOVERY UPON INSURANCE
1. The insured must have insurable interest in the subject matter;
2. That interest is covered by the policy;
3. There must be a loss; and
4. The loss must be proximately caused by the peril insured against.
NOTICE OF LOSS
In fire insurance In other types of insurance
Required
Not required
Failure to give notice will defeat the Failure to give notice will not exonerate
the insurer, unless there is
right of the insured to recover. a stipulation in the policy requiring the insur
ed to do so.
B. CLAIMS SETTLEMENT
.
The indemnification of the loss of the insured.
TIME FOR PAYMENT OF CLAIMS
LIFE POLICIES
NON LIFE POLICIES
a. Maturing upon the expiration of the term
The 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. Maturing at the death of the insured,
occurring prior to the expiration of the term
stipulated The proceeds are payable to the
beneficiaries within 60 days after presentation
and filing of proof of death.
The proceeds shall be paid within 30 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 90 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 insureds claim by the insu
rer, the insured can
recover: 1) attorneys fees; 2) expenses incurred by reason of the unreasonable wi
thholding; 3) interest at
double the legal interest rate fixed by the Monetary Board; and 4) the amount of
the claim. (Zenith Insurance
Corp. vs. CA, 185 SCRA 398)
XV. PRESCRIPTIVE PERIOD (Secs. 63 & 384)
.
Rules:
1. In the absence of an express stipulation in the policy, it being based on a w
ritten contract, the action
prescribes in 10 years.
2. However 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.
3. The cause of action accrues from the rejection of the claim of the insured an
d 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 unti
l the evidence which may be
used against him is destroyed. (Sun Insurance Office, Ltd. v. CA, 195 SCRA)
4. In CMVLI, the written notice of claim must be filed within 6 months from the
date of the accident otherwise
the claim is deemed waived. The suit for damages either with the proper court or
with the Insurance
Commissioner should be filed within 1 year from the date of the denial of the cl
aim by the insurer, otherwise
claimants right of action shall prescribe. (Sec. 384)
PARTICULAR KINDS OF INSURANCE CONTRACTS
XVI. MARINE INSURANCE
.
Insurance against risks connected with navigation, to which a ship, cargo, freig
htage, profits or other
insurable interest in movable property, may be exposed during a certain voyage o
r a fixed period of time. (Sec.
99)
.
Coverage:
A.
1.
Vessels, goods, freight, cargo, merchandise, profits, money, valuable papers, bo
ttomry and respondentia,
and interest in respect to all risks or perils of navigation;
2.
Persons or property in connection with marine insurance;
3.
Precious stones, jewels, jewelry and precious metals whether in the course of tr
ansportation or otherwise;
and
4.
Bridges, tunnels, piers, docks and other aids to navigation and transportation.
(Sec. 99)
.
Cargo can be the subject of marine insurance, and once it is entered into, the i
mplied warranty of
seaworthiness immediately attaches to whoever is insuring the cargo, whether he
be the shipowner or
not. (Roque v. IAC, 139 SCRA 596)
B. Marine Protection and Indemnity Insurance
.
Classes of inland marine insurance: (Prof. De Leon, p. 325)
1.
Property in transit provides protection to property frequently exposed to loss w
hile it is
transportation form one location to another.
2.
Bailee liability -insurance for those who have temporary custody of the goods.
3.
Fixed transportation property they are so insured because they are held to be an
essential
part of the transportation system such as bridges, tunnels, etc.
4.
Floater provides insurance to follow the insured property wherever it may be loc
ated,
subject always to the territorial limits of the contract.
.
Insurable interest:
A.
1.
Shipowner
a.
Over the vessel to the extent of its value, except that if chartered, the insura
nce is only up to
the amount not recoverable from the charterer. (Sec. 100).
b.
He also has an insurable interest on expected freightage. (Sec. 103).
c.
No insurable interest if he will be compensated by charterer for the value of th
e vessel, in case
of loss.
2. Cargo owner
.
Over the cargo and expected profits (Sec. 105).
3. Charterer
.
Over the amount he is liable to the shipowner, if the ship is lost or damaged du
ring the voyage
(Sec. 106).
B.
In loans on bottomry and respondentia
.
Repayment of the loan is subject to the condition that the vessel or goods, resp
ectively, given as a security,
shall arrive safely at the port of destination.
1.
Owner/Debtor
.
Difference between the value of vessel or goods and the amount of loan. (Sec. 10
1)
2. Creditor/lender
.
Amount of the loan
Note: If a vessel is hypothecated by bottomry, only the excess is insurable, sin
ce a loan on bottomry partakes
of the nature of an insurance coverage to the extent of the loan accommodation.
The same rule would apply to
the hypothecation of the cargo by respondentia. (Pandect of Commercial Law and J
urisprudence, Justice Jose
Vitug, 1997 ed.)
PERILS OF THE SEA PERILS OF THE SHIP
Includes only those casualties due to
the:
1. unusual violence; or
2. extraordinary action of wind and
wave; or
3. Other extraordinary causes
connected with navigation.
A loss which in the ordinary course of events, results from the:
1. natural and inevitable action of the sea
2. ordinary wear and tear of the ship or
3. Negligent failure of the ships owner to provide the vessel with
proper equipment to convey the cargo under ordinary conditions.
Note: It is only perils of the sea which may be insured against unless perils of
the ship is covered by an all-risk
policy.
SPECIAL MARINE INSURANCE CONTRACTS AND CLAUSES
A. All Risks Policy insurance against all causes of conceivable loss or damage,
except: 1) as otherwise
excluded in the policy; or 2) due to fraud or intentional misconduct on the part
of the insured.
.
The insured has the initial burden of proving that the cargo was in good conditi
on when the policy attached
and that the cargo was damaged when unloaded from the vessel; thereafter, the bu
rden then shifts to the
insurer to show the exception to the coverage. (Filipinas Merchants Insurance vs
. Court of Appeals, 179 SCRA
638)
B. Barratry Clause
.
A clause which provides that there can be no recovery on the policy in case of a
ny willful misconduct on the
part of the master or crew in pursuance of some unlawful or fraudulent purpose w
ithout consent of owners,
and to the prejudice of the owners interest. (Roque vs. IAC, 139 SCRA 596)
C. Inchamaree Clause
.
A clause which makes the insurer liable for loss or damage to the hull or machin
ery arising from the:
1.
Negligence of the captain, engineers, etc.
2.
Explosions, breakage of shafts; and
3.
Latent defect of machinery or hull. (Bar Review Materials in Commercial Law, Jor
ge Miravite, 2002 ed.)
D. Sue and Labor Clause
.
A clause under which the insurer may become liable to pay the insured, in additi
on to the loss actually
suffered, such expenses as he may have incurred in his efforts to protect the pr
operty against a peril for which
the insurer would have been liable. (Sec. 163)
MATTERS ALTHOUGH CONCEALED, WILL NOT VITIATE THE CONTRACT EXCEPT WHEN THEY CAUSE
D
THE LOSS (Sec. 110)
1.
National character of the insured;
2.
Liability of the thing insured to capture or detention;
3.
Liability to seizure from breach of foreign laws;
4.
Want of necessary documents; and
5. Use of false or simulated papers.
Note: This should be related to the general rule regarding material concealment.

DISTINCTIONS ON CONCEALMENT (Commercial Law Reviewer, A.F. Agbayani, 1988 ed.)
MARINE INSURANCE OTHER PROPERTY INSURANCE
The information of the belief or expectation of 3rd
persons is material and must be communicated
The information or belief of a 3rd 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
The concealment of any fact in relation to any of the
matters stated in Sec. 110 does not vitiate the entire
contract but merely exonerates the insurer from a risk
resulting from the fact concealed
Concealment of any material fact will vitiate the
entire contract, whether or not the loss results for
the risk concealed.
IMPLIED WARRANTIES
1.
Seaworthiness of the ship at the inception of the insurance (Sec. 113);
2.
Against improper deviation (Sec. 123, 124, 125);
3.
Against illegal venture;
4.
Warranty of neutrality: the ship will carry the requisite documents of nationali
ty or neutrality of the
ship or cargo where such nationality or neutrality is expressly warranted; (Sec.
120)
5.
Presence of insurable interest.
.
While the payment by the insurer for the insured value of the lost cargo operate
s as a waiver of the insurers
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 vessels seawo
rthiness by the insurer as
to foreclose recourse against the common carrier for any liability under the con
tractual obligation as such
common carrier. (Delsan Transportation Lines vs. CA, 364 SCRA 24)
Seaworthiness
.
A relative term depending upon the nature of the ship, voyage, service and goods
, denoting in general a
ships fitness to perform the service and to encounter the ordinary perils of the
voyage, contemplated by the
parties to the policy (Sec. 114).
.GENERAL RULE: The warranty of seaworthiness is complied with if the ship be sea
worthy at the time of the
commencement of the risk. Prior or subsequent unseaworthiness is not a breach of
the warranty nor is it
material that the vessel arrives in safety at the end of her voyage.
.EXCEPTIONS:
1.
In the case of a time policy, the ship must be seaworthy at the commencement of
every voyage she may
undertake
2.
In the case of cargo policy, each vessel upon which the cargo is shipped or tran
sshipped, must be
seaworthy at the commencement of each particular voyage
3.
In the case of a voyage policy contemplating a voyage in different stages, the s
hip must be seaworthy at
the commencement of each portion
.
Applicability of implied warranty of seaworthiness to cargo owners: It becomes t
he obligation of a
cargo owner to look for a reliable common carrier, which keeps its vessels in se
aworthy conditions. The shipper
may have no control over the vessel but he has control in the choice of the comm
on carrier that will transport
his goods (Roque v. IAC, 139 SCRA 596).
Deviation
.
A departure from the course of the voyage insured, or an unreasonable delay in p
ursuing the voyage or the
commencement of an entirely different voyage. (Sec.123)
.
Instances:
1. Departure of vessel from the course of the sailing fixed by mercantile usage
2.
Departure of vessel from the most natural, direct and advantageous route if not
fixed by mercantile
usage
3. Unreasonable delay in pursuing voyage
4. Commencement of an entirely different voyage (Secs. 121-123)
.
Kinds:
1. Proper a.
When caused by circumstances outside the control of the ship captain or ship own
er;
b.
When necessary to comply with a warranty or to avoid a peril;
c.
When made in good faith to avoid a peril;
d.
When made in good faith to save human life or to relieve another vessel in distr
ess (Sec. 124)
.
Effect: In case of loss, the insurer is still liable.
2. Improper -Every deviation not specified in Sec. 124 (Sec. 125).
.
Effect: In case of loss or damage, the insurer is not liable. (Sec. 126)
LOSS
1. Total:
a. Actual i.
Total destruction;
ii.
Irretrievable loss by sinking;
iii. Damage rendering the thing valueless; or
iv. Total deprivation of owner of possession of thing insured. (Sec. 130)
b. Constructive i.
Actual loss of more than of the value of the object;
ii. Damage reducing value by more than of the value of the vessel and of cargo;
and
iii. Expense of transshipment exceed of value of cargo. (Sec. 131, in relation t
o Sec. 139)
.
In case of constructive total loss, insured may:
1. Abandon goods or vessel to the insurer and claim for whole insured value (Sec
. 139), or
2. Without abandoning vessel, claim for partial actual loss. (Sec. 155)
2. Partial: That which is not total (Sec. 128).
AVERAGE
.
Any extraordinary or accidental expense incurred during the voyage for the prese
rvation of the vessel,
cargo, or both, and all damages to the vessel and cargo from the time it is load
ed and the voyage commenced
until it ends and the cargo unloaded.
GENERAL PARTICULAR
Has inured to the common benefit and profit of all
persons interested in the vessel and cargo
Has not inured to the common benefit and profit of all
persons interested in the vessel and her cargo.
To be borne equally by all of the interests
concerned in the venture.
To be borne alone by the owner of the cargo or the
vessel, as the case may be.
Requisites for the right to claim contribution:
1. Common danger to the vessel or cargo;
2. Part of the vessel or cargo was sacrificed
deliberately;
3. Sacrifice must be for the common safety
or for the benefit of all;
4. Sacrifice must be made by the master or
upon his authority;
5. It must be not be caused by any fault of
the party asking the contribution;
6. It must be successful, i.e. resulted in the
saving of the vessel or cargo; and
Necessary.
RIGHT OF INSURED IN CASE OF GENERAL AVERAGE
.GENERAL RULE: The insured may either hold the insurer directly liable for the w
hole of the insured value of
the property sacrificed for the general benefit, subrogating him to his own righ
t of contribution or demand
contribution from the other interested parties as soon as the vessel arrives at
her destination
.EXCEPTIONS:
1.
After the separation of interests liable to contribution
2.
When the insured has neglected or waived his right to contribution
FPA Clause (Free From Particular Average)
.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 con
tinue to be liable for his
proportion of all general average losses assessed upon the thing insured. (Sec.
136)
ABANDONMENT
.
The act of the insured by which, after a constructive total loss, he declared th
e relinquishment to the insurer
of his interest in the thing insured. (Sec. 138)
.
Requisites for validity:
1.
There must be an actual relinquishment by the person insured of his interest in
the thing insured (Sec.
138);
2.
There must be a constructive total loss (Sec. 139);
3.
The abandonment be neither partial nor conditional (Sec. 140);
4.
It must be made within a reasonable time after receipt of reliable information o
f the loss (Sec. 141);
5.
It must be factual (Sec. 142);
6.
It must be made by giving notice thereof to the insurer which may be done orally
or in writing (Sec. 143);
and
7.
The notice of abandonment must be explicit and must specify the particular cause
of the abandonment
(Sec. 144).
.
Effects:
1.
It is equivalent to a transfer by the insured of his interest to the insurer wit
h all the chances of recovery
and indemnity (Transfer of Interest)(Sec.146)
2.
Acts done in good faith by those who were agents of the insured in respect to th
e thing insured,
subsequent to the loss, are at the risk of the insurer and for his benefit. (Tra
nsfer Of Agency)(Sec.148)
.
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.154)
CO-INSURANCE
.
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 ins
ured. (Sec. 157)
.
When the property is insured for less than its value, the insured is considered
a co-insurer of the difference
between the amount of insurance and the value of the property.
.
Requisites:
1. The loss is partial;
2. The amount of insurance is less than the value of the property insured.
.
Rules:
1. Co-insurance applies only to marine insurance
2. Logically, there cannot be co-insurance in life insurance.
3. Co-insurance applies in fire insurance when expressly provided for by the par
ties.
CO-INSURANCE REINSURANCE
A percentage in the value of the insured property which the
insured himself assumes to act as insurer to the extent 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. (Bar Review Materials in
Commercial Law, Jorge Miravite, 2002 ed.)
Situation where the insurer procures a 3rd
party called the reinsurer to insure him against
liability by reason of an original insurance.
Basically, reinsurance is an insurance against
liability which the original insurer may incur in
favor of the original insured.
XVII. FIRE INSURANCE
.
A contract by which the insurer for a consideration agrees to indemnify the insu
red against loss of, or
damage to, property by hostile fire, including loss by lightning, windstorm, tor
nado or earthquake and other
allied risks, when such risks are covered by extension to fire insurance policie
s or under separate policies.
(Sec. 167)
.
Prerequisites to recovery:
1. Notice of loss must be immediately given, unless delay is waived expressly or
impliedly by the insurer
2. Proof of loss according to best evidence obtainable. Delay may also be waived
expressly or impliedly by
the insurer
HOSTILE FIRE FRIENDLY FIRE
One that escapes from the place where it was intended
to burn and ought to be.
One that burns in a place where it was intended to
burn and ought to be
Insurer is liable Insurer is not liable
Measure of Indemnity
1. Open policy: only the expense necessary to replace the thing lost or injured
in the condition it was at the
time of the injury
2. Valued policy: the parties are bound by the valuation, in the absence of frau
d or mistake
Note: It is very crucial to determine whether a marine vessel is covered by a ma
rine insurance or fire
insurance. The determination is important for 2 reasons:
1.
Rules on constructive total loss and abandonment applies only to marine insuranc
e;
2.
Rule on co-insurance applies primarily to marine insurance;
3.
Rule on co-insurance applies to fire insurance only if expressly agreed upon. (C
ommercial
Law Reviewer, Aguedo Agbayani, 1988 ed.)
ALTERATION AS A SPECIAL GROUND FOR RESCISSION BY INSURER
.
Requisites:
1. The use or condition of the thing is specifically limited or stipulated in th
e policy;
2. Such use or condition as limited by the policy is altered;
3. The alteration is made without the consent of the insurer;
4. The alteration is made by means within the control of the insured;
5.
The alteration increases the risk; (Sec. 168) and
6.
There must be a violation of a policy provision. (Sec. 170)
Fall-of-building clause
.
A clause in a fire insurance policy that if the building or any part thereof fal
ls, except as a result of fire, all
insurance by the policy shall immediately cease.
Option to rebuild clause
.
A clause giving the insurer the option to reinstate or replace the property dama
ged or destroyed or any part
thereof, instead of paying the amount of the loss or the damage.
.
The insurer, after electing to rebuild, cannot be compelled to perform this unde
rtaking by specific
performance because this is an obligation to do, not to give. Remedy: Art. 1167,
NCC.
XVIII. CASUALTY OR ACCIDENT INSURANCE
.
Insurance covering loss or liability arising from accident or mishap, excluding
those falling under other types
of insurance such as fire or marine. (Sec. 174)
.
Classifications:
1. Insurance against specified perils which may affect the person and/or propert
y of the insured. (accident or
health insurance)
.
Examples: personal accident, robbery/theft insurance
2. Insurance against specified perils which may give rise to liability on the pa
rt of the insured for claims for
injuries to or damage to property of others. (third party liability insurance)
.
Insurable interest is based on the interest of the insured in the safety of pers
ons, and their property, who
may maintain an action against him in case of their injury or destruction, respe
ctively.
.
Examples: workmens compensation, motor vehicle liability
.
In a third party liability (TPL) insurance contract, the insurer assumes the obl
igation by paying the injured
third party to whom the insured is liable. Prior payment by the insured to the t
hird person is not necessary in
order that the obligation may arise. The moment the insured becomes liable to th
ird persons, the insured
acquires an interest in the insurance contract which may be garnished like any o
ther credit. (Perla Comapnia
de Seguro, Inc vs. Ramolete, 205 SCRA 487)
.
Aside from compulsory motor vehicle liability insurance, the Insurance Code cont
ains no other provisions
applicable to casualty insurance. Therefore, such casualty insurance are governe
d 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 purp
ose 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 hazard is so
great that insurer have found it necessary to fill up the policies with many res
trictions designed to reduce the
hazard. Persons frequently excluded are those in the insureds service and employm
ent. The purpose of the
exception is to guard against liability should theft be committed by one having
unrestricted access to the
property. (Fortune Insurance vs. CA, 244 SCRA 208)
Right of a third party injured to sue the insurer
1. Indemnity against liability A third party injured can directly sue the insure
r.
2. Indemnity for actual loss or reimbursement after actual payment by the insure
d A third party has no cause
of action against the insurer (Sec. 53, Bonifacio Bros. v. Mora, 20 SCRA 261).
.
The insurer is not solidarily liable with the insured. The insurers liability is
based on contract; that of the
insured is based on torts. Furthermore, the insurers liability is limited by the
amount of the insurance
coverage (Pan Malayan Insurance Corporation v. CA, 184 SCRA 54).
INTENTIONAL vs. ACCIDENTAL AS USED IN INSURANCE POLICIES
1. Intentional Implies the exercise of the reasoning faculties, consciousness an
d volition. Where a provision
of the policy excludes intentional injury, it is the intention of the person inf
licting the injury that is controlling.
If the injuries suffered by the insured clearly resulted from the intentional ac
t of the third person, the insurer is
relieve from liability as stipulated. (Biagtan v. the Insular Life Assurance Co.
Ltd., 44 SCRA 58, 1972)
2. Accidental That which happens by chance or fortuitously, without intention or
design, which is unexpected,
unusual and unforeseen.
NO ACTION CLAUSE
.
A requirement in a policy of liability insurance which provides that suit and fi
nal judgment be first obtained
against the insured; that only thereafter can the person injured recover on the
policy. (Guingon vs. Del Monte,
20 SCRA 1043)
XIX. COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE (CMVLI)
.
A species of compulsory insurance that provides for protection coverage that wil
l answer for legal liability for
losses and damages for bodily injuries 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 acci
dents and/or their
dependents, especially if they are poor regardless of the financial capability o
f motor vehicle owners or
operators responsible for the accident sustained (Shafer v. Judge, RTC, 167 SCRA
386).
.
Claimants/victims may be a passenger or a 3rd party
.
It applies to all vehicles whether public and private vehicles.
Note: It is the only compulsory insurance coverage under the Insurance Code.
Method of coverage
1. Insurance policy
2. Surety bond
3. Cash deposit
Passenger Any fare-paying person being transported and conveyed in and by a moto
r vehicle for
transportation of passengers for compensation, including persons expressly autho
rized by law or by the
vehicles operator or his agents to ride without fare. (Sec. 373[b])
Third Party Any person other than the passenger, excluding a member of the house
hold 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 injury arising out of an
d in the course of employment.
(Sec. 373[c])
No-Fault Clause
.
A clause that allows the victim (injured person or heirs of the deceased) to an
option to file a claim for death
or injury without the necessity of proving fault or negligence of any kind.
.
Purpose: To guarantee compensation or indemnity to injured persons in motor vehi
cle accidents.
.
Rules:
1. Total indemnity -maximum of P5,000
2. Proofs of loss a.
Police report of accident;
b. Death certificate and evidence sufficient to establish proper payee;
c. Medical report and evidence of medical or hospital disbursement.
3. Claim may be made against one motor
vehicle only
4. Proper insurer from which to claim 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. 378)
.
The 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 whic
h the occupant is riding, mounting
or dismounting from. That said vehicle might not be the one that caused the acci
dent is of no moment since
the law itself provides that the party paying may recover against the owner of t
he vehicle responsible for the
accident. (Perla Compania de Seguros, Inc. v. Ancheta, 169 SCRA 144)
.
This no-fault claim does not apply to property damage. If the total indemnity cl
aim exceeds P5,000 and
there is controversy in respect thereto, the finding of fault may be availed of
by the insurer only as to the
excess. The first P5,000 shall be paid without regard to fault. (Prof. De Leon,
p. 716)
.
The essence of the no-fault indemnity insurance is to provide victims of vehicul
ar accidents or their heirs
immediate compensation although in limited amount, pending final determination o
f who is responsible for the
accident and liable for the victims injuries or death. (Ibid.)
SPECIAL CLAUSES
A. Authorized Driver Clause
.
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
(Villacorta v. Insurance Commissioner)
.
The requirement that the person driving the insured vehicle is permitted in acco
rdance with the licensing
laws or other laws or regulations to drive the motor vehicle (licensed driver) i
s applicable only if the person
driving is other than the insured.
B. Theft Clause
.
A clause which includes theft as among the risks insured against.
.
Where the car is unlawfully and wrongfully taken without the owners consent or kn
owledge, such taking
constitutes theft, and thus, it is the theft clause and not the authorized driver c
lause that should apply
(Palermo v. Pyramids Ins., 161 SCRA 677).
C. Cooperation Clause
.
A clause which provides in essence that the insured shall give all such informat
ion and assistance as the
insurer may require, usually requiring attendance at trials or hearings.
XX. SURETYSHIP
.
An agreement whereby a surety guarantees the performance by the principal or obl
igor of an obligation or
undertaking in favor of an obligee. (Sec. 175)
.
It is essentially a credit accommodation.
.
It is considered an insurance contract if it is executed by the surety as a voca
tion, and not incidentally. (Sec.
.
When the contract is primarily drawn up by 1 party, the benefit of doubt goes to
the other party
(insured/obligee) in case of an ambiguity following the rule in contracts of adh
esion. Suretyship, especially in
fidelity bonding, is thus treated like non-life insurance in some respects.
Nature of liability of surety
1.
Solidary;
2.
Limited to the amount of the bond;
3. It is determined strictly by the terms of the contract of suretyship in relat
ion to the principal contract
between the obligor and the obligee. (Sec. 176)
SURETYSHIP PROPERTY INSURANCE
Accessory contract Principal contract
3 parties: surety, obligor and oblige 2 parties: insurer and insured
Credit accommodation Contract of indemnity
Surety can recover from principal Insurer has no such right; only right of subro
gation
Bond can be cancelled only with consent of obligee,
Commissioner or court
May be cancelled unilaterally either by insured or insurer
on grounds provided by law
Requires acceptance of obligee to be valid No need of acceptance by any third pa
rty
Risk-shifting device; premium paid being in the
nature of a service fee
Risk-distributing device; premium paid as a ratable
contribution to a common fund
XXI. LIFE INSURANCE
.
Insurance on human lives and insurance appertaining thereto or connected therewi
th which includes every
contract or pledge for the payment of endowments or annuities. (Sec. 179)
.
Kinds: (Bar Review Materials in Commercial Law, Jorge Miravite, 2002 ed.)
1.
Ordinary Life, General Life or Old Line Policy -Insured pays a fixed premium eve
ry year until he dies.
Surrender value after 3 years.
2.
Group Life Essentially a single insurance contract that provides coverage for ma
ny individuals.
Examples: In favor of employees, mortgage redemption insurance.
3.
Limited Payment Policy insured pays premium for a limited period. If he dies wit
hin the period, his
beneficiary is paid; if he outlives the period, he does not get anything.
4.
Endowment Policy pays premium for specified period. If he outlives the period, t
he face value of the
policy is paid to him; if not, his beneficiaries receive the benefit.
5.
Term 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 benefit
s from the insurance.
6.
Industrial Life -life insurance entitling the insured to pay premiums weekly, or
where premiums are
payable monthly or oftener.
Mortgage Redemption Insurance
.
A life insurance taken pursuant to a group mortgage redemption scheme by the len
der 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 extent 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
deceaseds heirs will thereby
be relieved from paying the unpaid balance of the loan. (Great Pacific Life Assu
rance Corp. vs. Court of
Appeals, 316 SCRA 677)
LIABILITY OF INSURER IN CERTAIN CAUSES OF DEATH OF INSURED
1. Suicide
.
Insurer is liable in the following cases:
1.
If committed after two years from the date of the policys issue or its last reins
tatement;
2.
If committed in a state of insanity regardless of the date of the commission unl
ess suicide is an
excepted peril. (Sec. 180-A)
3. If committed after a shorter period provided in the policy
.
Any stipulation extending the 2-year period is null and void.
2. At the hands of the law (E.g. by legal execution)
.
It is one of the risks assumed by the insurer under a life insurance policy in t
he absence of a valid policy
exception. (Vance,p.572 cited in de Leon, p. 107)
Note: Justice Vitug believes that death by suicide (if the insured is sane) or a
t the hands of the law obviates
against recovery as being more in consonance with public policy and as being imp
licit under Section 87, ICP.
(Pandect of Commercial Law and Jurisprudence, 1997 ed. P. 191)
3. Killing by the beneficiary
.GENERAL RULE: The interest of a beneficiary in a life insurance policy shall be
forfeited when the beneficiary
is the principal accomplice or accessory in willfully bringing about the death o
f the insured, in which event, the
nearest relative of the insured shall receive the proceeds of said insurance if
not otherwise disqualified. (Sec.
12)
.EXCEPTIONS:
1. Accidental killing
2. Self-defense
3. Insanity of the beneficiary at the time he killed the insured
.
If the premiums paid came from conjugal funds, the proceeds are considered conju
gal. If the beneficiary is
other than the insureds estate, the source of premiums would not be relevant. (De
l Val v. Del Val, 29 Phil 534)
.
The measure of indemnity in life or health insurance policy is the sum fixed in
the policy except when a
creditor insures the life of his debtor. (Sec. 183)
IS THE CONSENT OF THE BENEFICIARY NECESSARY TO THE ASSIGNMENT OF A LIFE INSURANC
E
POLICY?
.
It depends. If the designation of the beneficiary is irrevocable, the beneficiar
ys 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 expectancy to the proceeds. (The Insurance Code
of the Philippines Annotated,
Hector de Leon, 2002 ed.)
Cash Surrender Value
.
As applied to a life insurance policy, it is the amount the insured in case of d
efault, after the payment of at
least 3 full annual premiums, is entitled to receive if he surrenders the policy
and releases his claims upon it.
LIFE INSURANCE FIRE INSURANCE
Contract of investment not of indemnity Contract of indemnity
Valued policy Open or valued policy
May be transferred or assigned to any person even if
he has no insurable interest
The insurable interest of the transferee or assignee is
essential
Consent of insurer is not essential to validity of
assignment
Consent of insurer must be secured in the absence of
waiver
Contingency that is contemplated is a certain event,
the only uncertainty being the time when it will take
place
Contingency insured against may or may not occur
A long-term contract and cannot be cancelled by the
insurer
May be cancelled by either party and is usually for a
term of one year
Beneficiary is under no obligation to prove actual
financial loss
Insured is required to submit proof of his actual
pecuniary loss as a condition precedent to collecting
the insurance.
XXII. VARIABLE CONTRACT
.
Any policy or contract on either a group or individual basis issued by an insura
nce company providing for
benefits or other contractual payments or values thereunder to vary so as to ref
lect investment results of any
segregated portfolio of investment.
XXIII. INSURANCE COMMISSIONER
.
Main agency charged with the enforcement of the Insurance Code and other related
laws.
.
Functions:
1. ADJUDICATORY/QUASI-JUDICIAL
a. Exclusive original jurisdiction Any dispute in the enforcement of any policy
issued pursuant to
Chapter VI (CMVLI). (Sec. 385, par. 2)
b. Concurrent original jurisdiction (with the RTC) Where the maximum amount invo
lved in any single
claim is P100,000 (Sec. 416), except in case of maritime insurance which is with
in the exclusive jurisdiction of
the RTC. (BP 129; admiralty & maritime jurisdiction)
.
Where the amount exceeds P100,000, the RTC has jurisdiction.
.
The Insurance Commissioner has no jurisdiction to decide the legality of a contr
act of agency entered into
between an insurance company and its agent. The same is not covered by the term d
oing or transacting
insurance business under Sec 2, ICP, neither is it covered by Sec. 416 of the sam
e Code which grants the
Commissioner adjudicatory powers (Philippine American Life Insurance Co. v. Ansa
ldo, 234 SCRA 509).
2. ADMINISTRATIVE/REGULATORY
a.
Enforcement of insurance laws
b.
Issuance, suspension or revocation of certificate of authority
c.
Power to examine books and records, etc.
d.
Rule-making authority
e.
Punitive
INSURANCE CODE
(PD 1460)

Who is the officer in charged with the implementation of laws of the Insurance C
ode?
The officer charged is the Insurance Commissioner of the Insurance Commission

What are the Administrative functions of the Insurance Commissioner?
The Commissioner has the following functions:
A.
Administrative function (CRISPFe)
1.
To issue Certificate of authority to qualified insurers
2. To Regulate the sale and issuance of variable contracts, to license persons s
elling them and
to issue rules and regulations governing the same
3. To Issue rulings, instructions circulars, orders and decisions for the enforc
ement of the
provisions of the code subject to approval of the Secretary of Finance.
4. To stop the operation of an insolvent insurance company and determine within
30 days
whether to rehabilitate or liquidate the company.
5. To impose appropriate fines and Penalties on insurance companies and on their
officers and
agents for refusal to comply with any order, instruction of the Commissioner , or
for
mismanagement
6.
To see that all insurance laws are Faithfully executed
B. Adjudicative function (Jurisdiction)
The Commissioner has the power to adjudicate claims and complaints for amounts n
ot exceeding P100k
per claim involving:
1.
Loss, damage or liability of insurer under any policy or insurance contract
2.
Liability of a reinsurer
3.
Liability under the contract of suretyship
4.
Liability of a mutual benefit association to its members
5.
Counterclaims against the insured
6.
Cross-claims against a co-party
7. Third party claims by the insurer against another party.
.
This authority is concurrent with the courts, but filing of the complaint with t
he Commissioner
shall preclude the civil courts from taking cognizance.
.
The final order or decision of the Commissioner shall have the force and effect
of a judgment, and
may be appealed to the Court of Appeals within 15 days from notice of the award
judgment, or of
denial of motion for reconsideration or new trial.
.
The decision may be subject of a writ of execution
.
Claims in excess of P100k RTC
.
Cause of action commences from the time of the denial of his claim by the insure
r, express or
implied (Sun vs. CA 195 SCRA 193)
What is a Contract of Insurance?
"Contract of Insurance" is:
-an agreement
-whereby one undertakes for a consideration to indemnify another
-against (1) loss, (2) damage or (3) liability
-arising from an (1) unknown or (2) contingent event.

What does the doing/transacting insurance business mean?
"Doing an insurance business" or "transacting an insurance business" shall inclu
de (RISO)
(a) doing any kind of business, including a Reinsurance business, specifically r
ecognized as constituting
the doing of an insurance business within the meaning of this Code;
(b) making or proposing to make, as insurer, any Insurance contract;
(c) making or proposing to make, as surety, any contract of Suretyship as a voca
tion and not as merely
incidental to any other legitimate business or activity of the surety;
(d) Others -doing or proposing to do any business in substance equivalent to any
of the foregoing in a
manner designed to evade the provisions of this Code.
.
The fact that no profit is derived from the making of insurance contracts, agree
ments or
transactions or that no separate or direct consideration is received therefor, s
hall not
be deemed conclusive to show that the making thereof does not constitute the doi
ng or
transacting of an insurance business.

What are the Characteristics of an Insurance Contract? (C3UVAP2)
1.
Consensual perfected by the meeting of minds
2.
Conditional subject to conditions happening of the event insured against and/or
other conditions
like payment of premium
3.
Contract of Indemnity promise of insurer to make good a loss
4.
Unilateral impose legal duties only on the insurer who promises to indemnify in
case of loss
5.
Voluntary willingness of the parties
.
Note However that under the Motor Vehicle Insurance, Third Party Liability Insur
ance is
mandatory for vehicle registration
6.
Aleatory depends on some contingent event
7.
Personal it binds only the parties to it and their assignees
.
Note Stipulations pour autrui or a provision in favor of a third person not a pa
rty to
the contract. Under 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 parti
es have
clearly and deliberately conferred a favor upon such person
8.
Contract of perfect good faith for both parties (uberrima fides)

What are the classes of Insurance?
1.
Life Insurance
2.
Non-life Insurance
a.
Fire Insurance
b.
Marine Insurance
c.
Casualty Insurance
d.
Suretyship

What are the Elements of Contract of Insurance
1.
Insurable interest of the insured interest of some kind susceptible of pecuniary
or monetary
estimation
2.
Insured subject to loss through the destruction or impairment of that interest b
y the happening
of designated perils
3.
Insurer assumes the risk of loss
4.
Such assumption is part of a general scheme to distribute actual losses among a
large group of
persons bearing somewhat similar risk
5.
Payment of premium ratable contribution to a general insurance fund as considera
tion to the
insurers promise

What are the Requisites of contract of Insurance
1.
Subject matter in which the Insured has an insurable interest
2.
Peril Insured against contingent or unknown event, past or future and a duration
for the risk
thereof
3.
A promise to damnify in a fixed or ascertainable amount
4.
Payment of premium
5.
Meeting of minds of the parties
Note: No policy of insurance shall be issued or delivered unless in the form pre
viously
approved by the Insurance Commissioner.

What may be insured against?
1.
A Future Contingent Event resulting in loss or damages
-e.g. destruction of a building from fire in Fire Insurance or the death of the
insured in a Life
Insurance policy
-Note that the word Loss embraces injury or damage. A loss may be partial or total

2.
A Past Unknown Event resulting in loss or damage
-
This is best exemplified in a Marine Insurance where at the time the policy is e
xecuted, the vessel
subject of the insurance may have already sunk, but that fact was unknown to the
parties at the
time of the execution of the policy
3.
Contingent Liability
-
This is best illustrated in Reinsurance where the liability of the insurer is in
turn insured by him
with a second insurer.
.
Note that Drawing of any lottery, or for/against any chance or ticket in a lotte
ry drawing a prize
may not be insured. A contract of insurance is a contract of indemnity and not a
wagering or
gambling contract
Who are the parties to an Insurance Contract
1.
Insurer
2.
The Insured
3.
Beneficiary
.
Insurer is the person, natural or juridical, who holds a certificate of authorit
y from the
Insurance Commissioner and who undertakes to indemnify another by a contract of
insurance
o
Banks cannot be insurers
o
Paid-up capital requirement for insurance companies
.
P2M and a contributed surplus of

P1M for life insurance
P500k for non-life insurance
.
P5M in case of reinsurance co.
o
For Insurance Cooperative, recommendation from the Cooperative Development
Authority is required
o
An Insurance agent should perform the function for a compensation
.
Insured
Generally, any person with capacity to contract and having an insurable interest
in he life
property insured may be the insured
A married woman may take insurance on her life or on that of her children withou
t need of
her husbands consent

A public enemy cannot be insured.
Public enemy means any citizen or juridical entity of the country with which the
Philippines
may be at war
Effects of War on Insurance Contracts
1.
War prevents an insurance contract from being enter into between citizens and ju
ridical
entities of the warring states
2.
For existing insurance contracts, the rules are:
a.
Property Insurance war abrogates the contract (Kentucky Rule)
b. Life Insurance war terminates the policy, but the insured is entitled to the
equitable value of the policy arising from the premiums actually paid, when
commercial relations are resumed (U.S. Rule)
I. BENEFICIARY
The insurance proceeds shall be applied exclusively to the proper interest of th
e person in
whose name or for whose benefit it is made unless otherwise specified in the pol
icy
.
Beneficiary
The beneficiary is the person designated to receive the proceeds of the policy w
hen the risk
attaches.
He may be the (1) insured himself in the property insurance or (2) the insured o
r (3)a third
person in life insurance
The father or mother of a minor who is an insured or beneficiary of a life polic
y, may
exercise, for said minor, all rights under the policy up to P20k without the nee
d of a court authority or
a bond (sec 180)
A.
Beneficiary of one who insures his own life
As a general rule, the insured who insures his own life may designate any person
, including his
estate as his beneficiary, whether or not the beneficiary has an insurable inter
est in the life of the
insured
The Insured has the right to change the designation of the beneficiary, unless h
e has expressly
designated an irrevocable beneficiary in his policy

What are the effects if the designation of beneficiary is irrevocable
The insured cannot
1.Assign the policy
2.Take the cash surrender value
3.Allow his creditors to attach execute on the policy
4.Add a new beneficiary or
5.Change the irrevocable designation to revocable, even though the change is jus
t and
reasonable
Ratio: The irrevocability of the designated beneficiary and his heirs have acqui
red from the date
of the policy vested rights over the policy (Philam vs. Pineda 175 SCRA 201)
As a general rule: the proceeds of a life insurance policy belong to the designa
ted
beneficiary to the exclusion of the heirs of the insured (Picar vs GSIS 33 SCRA
324)
Exception: Persons Disqualified as Beneficiaries
A beneficiary in life insurance is like a donee, hence, the civil code provision
on the disqualifications of
a donee shall apply. Donations made between the following persons are void
1.
Donation between persons guilty of adultery or concubinage
2.
Donations between persons found guilty of the same criminal offense, in consider
ation
thereof
3.
Donations made to a public officer or his wife, descendants and ascendants, by r
eason of his
office.

When does the interest of the beneficiary forfeited
The interest of the beneficiary in a life insurance policy shall be forfeited wh
en the beneficiary is the
Principal, 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 disqualified
.
The nearest relatives of the insured in the order of enumeration are the followi
ng:
1.
Legitimate children
2.
Parents
3.
Grandparents illegitimate children
4.
Surviving spouse
5.
Brothers and sisters of the full blood
6.
Brothers and sisters of the half blood
7. Nephews and nieces.
NOTES:
(a) Where a specified person is beneficiary, the proceeds will inure to the bene
ficiary.
Q: A took out a life insurance policy and designated his wife, B, as the sole be
neficiary. All the
premiums of the policy were paid out from his salaries. A died intestate leaving
B and 3 children.
Divide the proceeds of the policy (1961 Bar)
A: All of the proceeds of the policy will go to the designated policy, B. The so
urce of the premium
here is immaterial (Miravite, 2002ed., p200)
(b) If the premiums are paid from (1) salaries of the insured or (2) other conju
gal
properties or funds, and the beneficiary is the estate of the insured, the proce
eds of the life
insurance policy is considered conjugal.
B.
Beneficiary if Life Insurance on the life of another person.
Where a policy is taken by a third person on the life of the insured, and said t
hird person
designates himself as the beneficiary, the third person must have an insurable i
nterest on the life of
the insured, at the time the policy became effective.
C.
Beneficiary of Property Insurance
The beneficiary of the property insurance must have an insurable interest over t
he subject matter of
the insurance existing at the time the policy was taken and at the time the loss
tool place
II. INSURABLE INTEREST
What is insurable Interest as referred in the Code?
-Insurable interest is a right or relationship
-In regard to the subject matter of the insurance
-Such that the insured will derive
1. pecuniary benefit or advantage from its preservation and
2. will suffer pecuniary loss or damage from its destruction or injury
-by the happening of the event insured against
A .
Insurable Interest in Life
Define Insurable Interest in Life?
Insurable interest in life is the interest which a person has
3. In his life or
4. In the lives of other persons
a.
Of his spouse and of his children
b.
On whom he depends wholly or in part for education or support (Wife insuring Hus
bands life)
c. Under legal obligation to him to pay money, to deliver property or to render
service (Creditor
insuring the life of its Debtor)
d. Upon whose file any estate or interest vested upon him. (Legatee of a usufruc
t insuring the
life of the usufructuary)

A corporation has an insurable interest in the lives of its officers when the de
ath or illness of
said officers would materially and injuriously affect the corporation.

The corporation and the heirs of the manager can insure the life of the manager-
decedent in
agreed proportion, since both have insurable interest over the life of the latte
r
When Insurable Interest should exist?
It must exist at the time the insurance is taken.
B. Insurable Interest in property
Rule: No contract or policy of insurance on property shall be enforceable except
for the benefit of some person
having insurable interest in the property insured
Insurable interest
Life insurance Property Insurance
Insurable interest must exist only at the time
the policy is taken
Insurable interest must exist at the time the policy is taken
and at the time the loss occurs
The beneficiary need not have an insurable
interest on the insureds life
The beneficiary must have an insurable interest in the
property insured
There is no limit to the amount of insurable
interest
Insurable interest is limited to the actual value of the
interest in the property

What is considered as an insurable interest in property?
Insurable interest in property is every interest in property whether real or per
sonal, or any relation thereto, or
liability in respect thereof, of such a nature that the contemplated peril might
directly cause damage to the
insured

What does insurable interest in property consist of
An insurable interest in property consist of
1.
An existing interest
2.
An inchoate interest founded on an existing interest
3.
An expectance coupled with an existing interest in that out of which the expecta
nce arises
Examples of an insurable inchoate right in the property
1.
Contractors interest to the completed building for unpaid construction cost
2.
Lessors interest on the improvements made by the lessee
3.
Naked owners interest over the property which another person has beneficial title

Note: A mere contingent or expectant interest in anything, not founded on an act
ual right to the thing,
nor upon any valid contract for it, is not insurable (e.g. property which one ex
pects to inherit or that of a
general or unsecured creditor insuring the property of his debtor who is alive e
ven though destruction of
such property would render worthless any judgment he might obtain note further i
n the latter case, the
creditor can insure the property of a deceased debtor since all personal liabili
ty ceases with the death of
the debtor. The proceedings to subject the estate to the payment of the debt of
the deceased are against
all who have an interest in the property. Of course, an unsecured creditor has a
n insurable interest in the
life of his debtor )
The vendee-consignee of goods in transit under a perfected contract of sale is v
ested with an equitable title to
the goods even before receipt by him of the goods to constitute an insurable int
erest in the property (Fil
Merchants vs CA 179 SCRA 638)
A carrier or depositary of any kind has an insurable interest in a thing held by
him as such, to the extent of his
liability but not exceed the value thereof.

To what extent is the insurable interest of a mortgagor in a mortgaged property?
Of a
mortgagee?
a. The mortgagor has an insurable interest on his property as owner up to the fu
ll
value of his property, irrespective of any mortgage on said property in general.

b.
The insurable interest of a mortgagee is up to the extent of his credit.
NOTE: Each may take separate insurances over the same property up to the extent
of their
respective insurable interests.
Where the mortgagee independently of the mortgagor insured his won interest in t
he mortgaged
property, he is entitled to the proceeds of the policy in case of loss before pa
yment of the mortgage.
But in such case, the mortgagee is not allowed to retain his claim against the m
ortgagor but it passes by
subrogation to the insurer to the extent of the insurance paid. In other words,
the payment of the
insurance to the mortgagee does not relieve the mortgagor form his principal obl
igation but only
changes the creditor.

When is an insurance on the interest of the mortgagor
The insurance is on the mortgagors interest where the mortgagor takes insurance o
n the property in his
own right making the loss payable to the mortgagee
How?
The mortgagor may:
i. Take insurance on the property, and assign the same to the mortgagee (this op
erates merely as
an equitable 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
NOTE: In case of fire, marine and casualty insurance, the assignment must be wit
h the consent of the
insurer because it is a personal contract. (Note that life insurance may be free
ly assigned before or
after loss occurs to any person whether he has an insurable interest or not)

What are the effects of insurance taken in the on the interest of thee mortgagor
?
The effects are:
a. Mortgagor 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 mortg
agor (e.g.
payment of premium) may be performed by the mortgagee with the same effect, as i
f performed by
the mortgagor.
d. In case of loss, the mortgagee is entitled to the proceeds to the extent of h
is credit,
consequently, the debt is extinguished.

What is the effect If the mortgagor assigns the policy to the mortgagee with the
insurers
consent, but the latter imposes new conditions on the assignee?
If at the time of the assent, the insurer imposes further obligations on the ass
ignee making a new
contract with him, the act of the mortgagor cannot affect the rights of said ass
ignee.
.
Take note of the distinctions between the assignment or transfer of:
a.
The Policy itself which transfers the fights to the contract to another insured
b.
The proceeds of the policy after the loss has happened , which involves a money
claim under, or a
right of action on the policy
c.
The subject matter of the insurance, such as a house insured under a fire policy
which ahs the
effect of suspending the insurance (infra)

When insurable interest should exist?
It must exist at the time the policy is taken and at the time the loss incurred
but it need not exist in the
meantime
Ratio: To 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 277 SCRA 690
)

What is the effect of a change of interest on the thing insured?
A change in the interest in any part of a thing insured unaccompanied by a corre
sponding change of
interest in the insurance, suspends the insurance to an equivalent extent, until
the interest in the thing
and the interest in the insurance are vested in the same person.
Note: Mere transfer of a thing insured does not transfer the policy but suspends
it until the same person
becomes the owner of both the policy and the thing insured. For a transferee to
have an insurable interest
over a policy undertaken by the transferor, the insurance policy should be assig
ned to him, when he
bought the property.
A change of interest in a thing insured, after the occurrence of an injury 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 n
ot avoid an insurance;
and his interest in the insurance passes to the person taking his interest in th
e thing insured.
Otherwise stated, the insurance on property passes automatically, on the death o
f the insured , to the
heir, legatee or devisee who acquires interest in the thing insured.
A transfer of interest by one of several partners, joint owners etc. who are joi
ntly insured, will not
avoid the insurance even though it has been agreed that the insurance shall ceas
e upon an alienation
of the thing insured.
A change of interest where there are several things separately insured by one po
licy, does not avoid
the insurance as to the others
Example: A insured his car for P100k and jeep for P85k under the single policy,
the sale of one
will not affect the insurance of the car.
BUT if the car and jeep were not separately valued in the policy , the sale of t
he jeep without
the insurers consent affects also the insurance of the car

What stipulations are prohibited in an insurance policy?
1.
Stipulations for the payment of loss whether the person insured has or has not a
ny interest in the
subject matter of the insurance
2.
Stipulation that the policy shall be received as proof of insurable interest.

What is the amount of insurance?
The measure of an insurable interest in property is the extent to which the insu
red might be damnified by loss
or injury thereof.

In cases where the property is insured for less than its true or market value, w
hat are the rules
to be followed?
.
In case of total loss: The property owner is entitled to receive the face value
of the policy but in
no case exceeding the market value of the property.
.
In case of partial loss: The property owner is entitled only the amount in propo
rtion to his loss
and the market value of the property as against the to face value of the policy.
Ratio An owner of
property who insures the same for less that its true value is co-insurer for the
uninsured portion of the
property if the policy is a valued one.
.
HOWEVER if the policy is an open one, the owner can collect the actual partial l
oss not
exceeding the face value of the policy
Example:
X has a property worth P10,000. He insures it against fire for P8,000. How much
shall he collect from
then insurance in case of total loss? If there is Partial loss in the amount of
P6,000?
In case of total loss P 8,000 face value of the policy
In case of partial loss -open policy P6,000 the actual partial loss not exceedin
g the face value of the
policy
In case of partial loss valued policy 6/10 of P8,000 or P4,800-the amount in pro
portion to his loss and
the market value of the property as against the to face value of the policy.
III CONCEALMENT

What is Concealment?
Concealment is a neglect to communicate that which a party knows and ought to co
mmunicate to the other
party.

What are the requisites for concealment?
For concealment to vitiate a contract of insurance, the following must be presen
t
1.
the matter concealed must be material
2.
there must be an obligation for the insured to reveal the concealed matter to th
e insurer

What matters must be communicated even in the absence of inquiry?
Each party to a contract of insurance must communicate in good faith all facts w
ithin his knowledge only when:
1.
They are material to the contract
2.
The other has not the means of ascertaining the said facts
3.
As to which the party with the duty to communicate makes no warranty.

What is the test of materiality?
A fact is material if knowledge of it would have affected the decision of the in
surer to enter into the contract,
in estimating the risk, or in fixing the premium
Note:
Matters relating to the health of the insured are material and relevant to the a
pproval and issuance of the
life insurance policy as they definitely affect the insurers action on the applic
ation (Sunlife vs CA 245
SCRA 268)
It is well-settled that the insured need not die of the disease he had failed to
disclose to the insurer, as it
is sufficient that his non-disclosure misled the insurer in forming his estimate
s of the risk of proposed
insurance policy or in making inquiries (ibid)
Lack of understanding by the illiterate insured of the statements and her applic
ation as to her state of
good health does not negate the insurers right to rescind (Tang vs CA 90 SCRA 236
)
Concealment exists where the assured had knowledge of a fact material to the ris
k, and honesty, good
faith, and fair dealing requires that he should communicate it to the assured, b
ut he designedly and
intentionally withholds the same.

What are the matters which one has no duty to disclose?
Neither party to a contract of insurance is bound to communicate information of
the matters following,
except in answer to the inquiries of the other:
1.
Those which are already known to the insurer
2.
Those which, in the exercise of ordinary care, are ought to be known to the insu
rer or his agent,
3.
Those undisclosed facts which are not material
4.
Those which each party is bound to know:
-general causes eg. public events; and
-general usages of trade -eg. rules of navigation all risks connected with navig
ation)
5.
Information or the nature or amount of the interest of one insured except if ins
ured is a lessee or a
mortgagee (read sec 51)
6.
Those of which the insurer waives communication
.
The right to information of material facts may be waived, either:
a.
Expressly by the terms of the insurance
b.
Impliedly by neglect to make inquiry as to such facts, where they are distinctly
implied in
other facts of which information is communicated (Fact disclosed that one was co
nfined in
the hospital. The insurer did not inquire as to the cause of confinement, the la
tter is in
estoppel)
7.
Judgment upon the matters in question eg. Opinion, speculation or expectation (H
ow long will you
live?)

What are the consequences of concealment?
The rule is concealment whether intentional or unintentional entitles the injure
d party to rescind a contract
of insurance.
However, 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 warranty is required to
entitle the insurer to rescind
Note: Good faith is no defense in concealment (Sunlife vs CA 245 SCRA 268)
Exceptions:
1.
Incontestability clause:
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, resciss
ion due to concealment or
misrepresentation of material matters may still be invoked by the insurer, provi
ded done within two
years from the effectivity of the policy
2.
Certain concealments in Marine Insurance
The following matters although concealed will not vitiate the contract of marine
insurance except
when they are caused the loss.
a. National character of insured
b. Liability of insured thing to capture or detention
c. Liability to seizure form breach of foreign laws
d. Want of necessary documents
e. Use of false or simulated papers
IV REPRESENTATION

What is representation?
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 t
he insurer, tending to induce the
insurer to assume the risk

Distinguish Misrepresentation with Concealment
Misrepresentation Concealment
Insured
untrue
makes a statement of fact which is Insured maintains silence when he ought to sp
eak

What are the kinds of representation?
1.
Oral
2.
Written
3.
Affirmative representation
4.
Promissory representation

What is an affirmative representation?
It is any allegation as to the existence or non-existence of a fact when the con
tract begins

What is a promissory representation?
It is any promise to be fulfilled after the contract has come into existence or
any statement concerning what is
to happen during the existence of the insurance. A promissory representation is
substantially a condition or a
warranty.
A promissory representation maybe:
1.
1 Used to indicate a parole or oral promise made in connection with the insuranc
e, but not
incorporated in the policy.
-the non-performance 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 serv
e to defeat the
insurance
2.
As an undertaking by the insured, inserted in the policy but not specifically ma
de a warranty.

Distinguish Warranty and Representation
Warranty Representation
It is part of contracts It is mere collateral inducement, but it may qualify
an implied warranty
It is expressly set forth in the
incorporated therein by reference
policy itself or It may be oral or written in another instrument
It is conclusively presumed material It must be proved to be material
It must be strictly complied with It is requires only substantial truth or compl
iance

When is representation made?
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
Note:
A representation must be presumed to refer to the date on which the contract goe
s into effect
Hence:
1. There is NO FALSE representation it is true at the time the contract takes ef
fect although
false at the time it was made.
2. There is FALSE representation if it is true at the time it was made but false
at the time the
contract takes effect in this case the insurer is entitled to rescind

When is a representation deemed to be false?
A representation is deemed to be false when the facts fail to correspond with it
s assertions or stipulations.

What is misrepresentation?
A misrepresentation in insurance is a statement:
1.
As a fact of something which is untrue
2.
Which the insured states with knowledge that it is untrue and with intent to dec
eive, or which he
states positively as true without knowing it to be true and which has the tenden
cy to mislead
3.
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 informa
tion which he has,
and believes it to be true, upon the subject matter with the explanation that sa
id information was obtained
from 3rd persons. In this case he is not responsible if the information turns ou
t to be false.
Except if the information proceeds from an agent of the insured whose duty is to
give information to his
principal. This is so because knowledge of the agent is also knowledge of the pr
incipal

What is the effect of false representation or misrepresentation|?
If the representation is false on a material point, the injured party is entitle
d to rescind from the time
when the representation becomes false.
HOWEVER, the right to rescind given to the insurer is waived by the acceptance o
f premium payments despite
knowledge of the ground of rescission

What is the test of materiality?
Materiality 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
NOTE:
When 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 modific
ation.

When is the right to rescind available?
In order that the insurer may rescind a contract of insurance, such right must b
e exercised prior to the
commencement of an action on the contract. (Example, if the insured filed an act
ion to collect amount of the
insurance, it can no longer rescind the contract)
Incontestability clause
Incontestability means that after the requisites are shown to exist, the insurer
shall be estopped from
contesting the policy or setting up any defense, except as is allowed of the gro
und of public policy.
Requisites:
1.
The policy is a life insurance policy
2.
It is payable on the death of the insured
3.
It has been in force during the lifetime of the insured for at least 2 years fro
m its date of issue or of
its last reinstatement
NOTE: The period of two years for contesting a life insurance policy may be shor
tened but it cannot
be extended by stipulation

Effect when the policy becomes incontestable
When the policy of life insurance becomes incontestable, the insurer may not ref
use to pay the same by
claiming that:
1.
The policy is void ab initio (voidable)
2.
It is rescissible by reason of the fraudulent concealment of the insured or his
agent or
3.
It is rescissible by reason of the fraudulent misrepresentations of the insured
or by his agent

Defenses not barred by incontestable clause
The incontestability of a policy under the law is not absolute. The insurer may
still contest the policy of the
following grounds:
1.
That the person taking the insurance lacked insurable interest as required by la
w
2.
The cause of the death of the insured is an excepted risk
3.
That the premiums have not been paid
4.
That the conditions of the policy relating to military or naval service have bee
n violated
5.
The 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 fo
r the medical
examination or where the beneficiary feloniously kiss the insured
6.
The beneficiary failed to furnish proof of death or to comply with any condition
imposed by the policy
after the loss has happened
7.
The action was not brought within the time specified
V. WARRANTIES

What is a warranty?
A warranty is a statement or promise stated in the policy itself or incorporated
therein by reference, whereby
the insured expressly contracts as to the present or future existence or certain
facts, circumstances or
conditions, the literal truth of which is essential to the validity of the contr
act of insurance

What does warranty relate to?
It may relate to the past, the present, the future or to any or all of these.

What are the kinds of warranties?
1.
Affirmative warranty where the insured asserts the existence of a matter at or b
efore the issuance of
the policy
2.
Promissory warranty where the insured promise or undertakes that certain matters
shall exist or will
be done or omitted after the policy takes effect
3.
Express warranty where the assertion or promise is clearly set forth in the poli
cy or incorporated
therein by reference
4.
Implied warranty where the assertion or promise is not expressly set forth in th
e 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.

What is the required form to create a warranty?
There is no particular form or words necessary to create a warranty. Whether a w
arranty is constituted or not
depends upon the intention of the parties, the nature of the contract or the wor
ds used thereto. Incase of
doubt, the statement is presumed to be a mere representation and not a warranty.


When should an express warranty be made?
It should be made at or before the execution of a policy

Where should an express warranty be contained?
Express warranty may be contained either:
1.
In the policy itself
2.
In another instrument signed by the insured and referred to in the policy as mak
ing part of it. Mere
reference is not sufficient to give warranty.
Note:
A statement in a policy, of a matter relating to the person or thing insured, or
to the risk as a fact is an
express warranty. A statement which is in the nature of an opinion or belief is
not a warranty

What is a promissory warranty?
It is a statement in a policy that a thing which is material to the risk is inte
nded to be done or not to be done
after the policy takes effect.
As a general rule: the non-performance of a promissory warranty entitles the oth
er party to rescind the
contract:
Exceptions to the rule are:
1.
Loss occurs before the time arrives for the performance of the promissory warran
ty
2.
Performance becomes unlawful before the time arrives for the performance of the
promissory
warranty
3.
Performance becomes impossible before the time arrives for the performance of th
e promissory
warranty

What happens when there is violation of material warranty or to other material p
rovisions of
the policy?
All breaches of warranty give to the insurer the right to rescind the contract.
This rule is true even if the
violation of the material warranty did not contribute to the loss.
If fraud intervenes in the breach, the insurer is freed from liability form the
start, as the contract is fraud
ab initio. The insured is not entitled to the return of the premiums paid.
If there is no fraud in the breach, the insurer is freed from the contract the m
oment the breach occurs,
and is entitled to retain the premiums corresponding to the period up to the tim
e of the breach. But if the
breach was done at the time of the inception of the policy, the insured cannot r
ecover for any loss arising
thereafter, but all premiums should be returned to the insured
VI. THE POLICY

Define Policy of Insurance.
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 insu
red and the insurer.

What form is the policy be embodied?
The policy shall be in printed form which may contain blank spaces on which word
s numbers and other matters
necessary to complete the contract of insurance shall be written on. However, Gr
oup insurance and group-
annuity policies may be typewritten and need not be in printed form.

What is a rider in a contract of insurance?
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.

What is the effect of a rider, clause, warranty or endorsement purporting to be
a part of the
contract and pasted on the policy?
As a general rule, these attached papers becomes part of a contract of insurance
. However it will not bind the
insured unless it is properly referred to therein in the policy. If the rider et
c is issued after the original policy
was in force shall not bind the insured unless it countersigned by the insured.

What are cover notes or interim policies?
Cover notes or interim policies or binding slips may be issued to bind the parti
es temporarily pending the issue
of the policy. It is intended to give temporary protection pending the investiga
tion of the risk by the insurer or
until the issue of formal policy.
These notes are good for 60 days only, unless renewed with the written approval
of the Insurance
Commissioner

What are the contents of the policy?
A policy contains, among others the following
1.
The parties
2.
Amount of insurance (except in open or running policies)
3.
Rate of premium
4.
The property or life insured
5.
The interest of the insured in the property if he is not the owner
6.
Risk insured against
7.
Duration of the insurance

May an agent undertake a contract of insurance in favor of its principal?
Yes. The 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 o
r trustee, or by other general
terms in the policy

May a partner in a partnership insure partnership property?
Yes. Insurable interest in the property of a partnership exists in both partners
hip and the partners and a
partner has an insurable interest in the firms property which will support a poli
cy taken out thereof for his own
benefit

What extent does the contract of insurance cover undertaken by a partner?
A partner who insures partnership property in his own name limits the contract t
o 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.

How are ambiguities in an insurance contract construed?
Contract of insurance is a contract of adhesion, thus any ambiguity therein shou
ld be resolved against the
insurer, otherwise stated, it should be construed liberally in favor of the insu
red and against the insurer
In Cebu vs William 306 SCRA 762 the Supreme Court held: although in this jurisdic
tion, contracts of
adhesion have been consistently upheld as valid per se as binding as an ordinary
contract, the court
recognizes instances when reliance on such contracts cannot be favored especiall
y where the facts and
circumstances warrant that subject stipulations be disregarded. The facts and ci
rcumstances vis--vis
the nature of the provision sought to be enforced should be considered, bearing
in mind the principles of
equity and fair play.
In Rizal vs CA 336 SCRA 12, Supreme court said: it is settled that the terms in
an insurance policy,
which are ambiguous, equivocal, or uncertain are to be construed strictly and mo
st strongly against the
insurer, and liberally in favor of the insured so as to effect the dominant purp
ose 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 employ
ed and that the
language of the contract is selected with great care and deliberation by experts
and legal advisers
employed by and acting exclusively in the interest of the insurance company.

What are the kinds/classes of policies in non-life insurance?
1.
Open or unvalued policy is one in which the value of the thing insured is not ag
reed upon, but is
left to be ascertained in case of loss. In other words, it is one in which a cer
tain agreed sum is written
on the face of the policy not as the value of the property insured, but as the m
aximum limit of
recovery in case of destruction the peril insured against.
2.
Valued policy is one which expresses on its face an agreement that the thing ins
ured 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.
3.
Running policy is one which contemplates successive insurances and which provide
s that the subject
of the policy may from time to time be defined

What are the requisites for a valid cancellation of non-life insurance?
1.
Written prior notice to the insured, stating the facts and
2.
For any of the following grounds
a.
Non-payment of premium
b.
Conviction of a crime arising out of acts increasing the hazard insured against
c.
Discovery of fraud or material misrepresentation
d.
Discovery of willful or reckless acts or omissions increasing the hazard insured
against
e.
Physical changes in the property insured which result in the property becoming u
ninsurable
f.
A determination by the commissioner that the policy would violate the insurer
VII PREMIUM

Define premium.
Premium is the consideration paid an insurer for undertaking to indemnify the in
sured against a specified peril

When is the insurer entitled to payment of the premium?
As soon as the thing insured is exposed to the peril insured against

What is the effect of the nonpayment of premium?
The policy or contract of insurance is not valid and binding.

Is this absolute?
No. The exceptions are the following:
1.
Life and Industrial Life policy whenever the grace period provision applies(sec
77)
2.
Written acknowledgment of the receipt of premium by insurer (sec 78)
3.
Payment in installments of the premium and partial payment made at the time of l
oss
4.
Credit extension for the payment of premium
5. Estoppel reliance in good faith on the practice of the insurance company
NOTES:
Grace period:
Life insurance 30 days or 1 month within which the payment of any premium after
the first may be made
Industrial life insurance -4 weeks and where the premiums are payable monthly, e
ither 30 days or 1 month
Written acknowledgment in a policy or contract of insurance of the receipt or pr
emium is conclusive evidence
of its payment, so far as to make the policy binding, notwithstanding any stipul
ation therein that it shall not be
binding until the premium is actually paid
Effect on nonpayment
1.
Of First premium prevents the inception of the policy
2.
Of subsequent premiums-it does not affect the validity of the contract unless, b
y express stipulation,
it is provided that the policy shall in any event be suspended or shall lapse.

When is the insured entitled to recover premiums?
The insured is entitled to a return of the whole premium:
1.
If the thing insured was never exposed to the risk insured against
2.
When the contract is voidable due to the fraud or misrepresentation of the insur
er or his agent
3.
When the contract is voidable because of the existence of facts of which the ins
ured is ignorant
without his fault
4.
When the insurer never incurred any liability under the policy because of the de
fault of the insured
other that actual fraud
The insured is entitled to a ratable return of premium on the following cases:
1.
Where the insurance is made for a definite period of time and the insured surren
ders policy before
termination
2.
Where there is over-insurance by several insurers
NOTES
Where 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 premiums already paid equivalent
to the unexpired term at a pro
rata rate
Exception to this rule:
a. Where the insurance is not for a definite period
b. Where the policy is a life policy
c. Where a short period rate has been agreed upon
-
Short period rate is that percentage, as agreed upon by the parties and appearin
g on the face of
the policy, which the insurer shall retain from the premium in the event that th
e policy is
surrendered by the insured for cancellation.
The premiums to be returned where there is over-insurance by several insurers sh
all be proportioned to the
amount by which the aggregate sum insured in all the policies exceeds the value
of the thing
Example:
X insures his house which has an insurable value of P1,500,000 as follows:
Insurer Amt of Insurance Premiums paid
A Co. P 1,200,000 P 24,000
B. Co 600,000 12,000
Aggregate sum P1,800,000.
In this case, there is an over insurance of P300,000, the amount by which the ag
gregate sum insured in
the two policies exceeds the insurable value of the house. The proportion is P30
0k to P1800k or 1/6.
Hence, 1/6 of P24k or P4k is what A co must return; and 1/6 of P12k or P2k is wh
at B co must return
VIII DOUBLE INSURANCE

When does double insurance exists?
A double insurance exists where the same person is insured by several insurers s
eparately in respect to the
same subject and interest

What are its requisites?
There is no double insurance unless the following requisites exist:
1.
The person insured is the same
2.
Two or more insurers insuring separately
3.
The subject matter is the same
4.
The interest insured is also the same and
5. The risk or peril insured against is likewise the same
Distinguish Double Insurance from Over-insurance
Double Insurance Over-Insurance
In double insurance, there may be no over-insurance as when
the sum total of the amounts of the policies issued does not
exceed the insurable interest of the insured
There is over-insurance when the amount of
the insurance is beyond the value of the
insureds insurable interest
There are always several insurers There may be only one insurer involved
THEREFORE, double insurance and over-insurance may exist at the same time or nei
ther may exist at all
What is the binding effect of stipulation against double insurance?
A policy which contains no stipulation against additional insurance is not inval
idated by the procuring of such
insurance. However, a stipulation that insurance shall be avoided if additional
insurance is procured without
the insurers consent is valid and reasonable, and any breach thereof will prevent
a recovery on the policy
What are the effects of Double insurance?
.
The insured can insure with two or more companies unless prohibited by prior pol
icy
.
Where he is allowed, but over-insurance results, he can claim in case of loss, o
nly up to
the agreed valuation (in valued policy) or up to the full insurable value (in op
en policy) from any, some
or all insurers, without prejudice to the insurers ratably apportioning the paym
ents
.
The insured can also claim a ratable return of the premiums on the over-insured
amount
.
Unrevealed other insurances, when required, is a material
concealment/misrepresentation and gives to the insurer the right to rescind
IX. REINSURANCE
What is a contract of reinsurance?
Reinsurance is a contract by which an insurer procures a third person to insure
him against loss or liability by
reason of such original insurance
What is the nature of contract of reinsurance?
A reinsurance is presumed to be a contract of indemnity against liability and no
t merely against damage.
The subject of the contract of reinsurance is the insurers risk and not the prope
rty insured under the original
policy. The reinsurer agrees to indemnify the insurer , not against the actual p
ayment made but against
liabilities incurred
Distinguish Reinsurance and Double Insurance
Reinsurance Double Insurance
The insurer becomes the insured in relation to the reinsurer The insurer remains
as the insurer
The subject of the insurance is the original insurers risk The subject of the ins
urance is the
property
It is an insurance of different interest It involves the same interest
The original insured has no interest in the contract of reinsurance which is
independent of the original contract of insurance
The insured is the party in interest
in all the contracts
Distinguish Reinsurance and Co-insurance
Co-insurance is the percentage in the value of the insured property which the in
sured himself assumes or
undertakes to act as insurer to the extent 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 insure
d.
Reinsurance is where the insurer procures a third party, called the reinsurer, t
o insure him against liability
by reason of such original insurance. Basically, a reinsurance is an insurance a
gainst liability which the original
insurer may incur in favor of the original insured
Distinguish Reinsurance and Reinsurance Treaty
Reinsurance Reinsurance Treaty
A reinsurance policy is a contract of indemnity
one insurer makes with another to protect the
first insurer from a risk it has already assumed
A reinsurance treaty is merely an agreement between two
insurance companies where one agrees to cede and the other
to accept reinsurance business pursuant to provisions
specified in the treaty.
It is a Contract of insurance It is a contract for insurance
What are the matters which the reinsured must communicate to the reinsurer?
The insurer who obtains reinsurance, except under automatic reinsurance treaties
, must communicate the
following to the reinsurer:
a. All the representations of the original insured
b. All the knowledge and information he possesses, whether previously or subsequ
ently
acquired, which are material to the risk

What does automatic reinsurance treaties refer to?
This 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 executing and th
e obligation attaches
automatically on acceptance of a risk by the reinsured. In this case, the obliga
tion to communicate is not
necessary due to the self-executing and automatic feature of such insurance.

What is meant by facultative reinsurance agreement?
A facultative reinsurance agreement is a contract wherein the reinsurer may or m
ay not accept participation in
the risk insured.
The term facultative is used in reinsurance contracts and it is so used in this pa
rticular case merely to define
the right of the reinsurer to accept or not to accept participation in the risk
insured. But 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. There is neither alternative nor substi
tute prestation (Equitable
Insurance vs Rural Insurance 4 SCRA 343)

Does the original insured has interest in a contract of reinsurance?
None. The original insured has no interest in a contract of reinsurance.
Reinsurance is a contract solely between the reinsured and the reinsurer and cre
ates no privity of contract
between the reinsurer and the original insured. However, if the contract of rein
surance is made directly for the
benefit of the reinsureds policyholders or if the reinsurer assumes and agrees to
perform the reinsureds
contracts, the reinsurer becomes directly liable to the policyholders. It is nec
essary for the original insured to
accept and communicate acceptance of such benefit to the reinsurer before revoca
tion
NOTE:
A reinsurer is entitled to avail of every defense which the reinsured may avail
of against the original
insured (Gibson vs Revilla 38 SCRA 219)
X. LOSS

Define loss in contract of insurance
Loss is the injury or damage sustained by the insured from the perils insured ag
ainst

What is Proximate cause?
Proximate cause is the active efficient cause which sets in motion a train of ev
ents which in turn brings about a
result without the intervention of any force operating and working actively from
a new and independent force

What is a remote cause?
Remote cause is a cause that does not necessarily or immediately produce an even
t or injury

When is the insurer liable for losses?
The insurer is liable for:
1.
Loss the proximate cause of which is the peril insured against although the peri
l not contemplated by
the contract may not have been a remote cause of the loss
2.
Loss the immediate cause of which is the peril insured against except where the
proximate cause is an
excepted peril
3.
Loss through the negligence of the insured or of the insureds agents or others, a
nd
4.
Loss 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..

When is the insurer liable for losses?
1.
Loss by the insureds willful act
2.
Loss due to connivance of the insured; and
3.
Loss where the excepted peril is the proximate cause

What are the prerequisites for the recovery for loss in insurance against fire?
1.
Notice of loss which must be immediately given unless delay is waived expressly
or impliedly by the
insurer
2.
Proof of loss according to the best evidence obtainable. Delay may be also waive
d expressly or
impliedly by the insurer
.
All defects in a notice of loss, or in preliminary proof thereof, which the insu
red might
remedy, and which the insurer omits to specify to him, within reasonable time, a
s grounds of
objection, are waived.

When is the insurer of property against fire exonerated from liability?
When no notice is given by the insured or by any other person entitled to the be
nefit of the insurance, within a
reasonable time.

What kind of proof is needed for preliminary proof of loss?
When preliminary proof of loss is required 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 justice.
XI. PAYMENT OF CLAIMS
A.
Life Insurance
1.
Where insured outlives maturity due, the claim is payable immediately on maturit
y of the
policy. This is true in endowment insurance
2.
Where policy matures by Insureds death, the claim is payable within 60 days after

presentation of the claim and filing of proof of death of the insured. In case o
f unreasonable
delay, the insured is entitled to (1) Attorneys fees (2) expenses incurred by rea
son of the
unreasonable withholding (3) interest at the legal interest rate (6%) per annum
as fixed by
the monetary board (4)amount of the claim., (5) moral damages if bad faith or fr
aud is
present and (6) exemplary damages if the act is wanton and oppressive.
3.
Please note that for cases involving loss or injury, any person having any claim
upon the
policy shall, without delay present a written notice of claim within six (6) mon
ths from date
of accident to the insured, otherwise, the claim shall be deemed waived. Action
or suit for
recovery of damages due to loss or injury must be brought, in proper cases, with
the
Commissioner of the Courts within one (1) year from denial of claim, otherwise,
the
claimants right of action shall prescribe
B.
Property Insurance
1.
If amount of loss is determined by agreement or by arbitration, the claim is pay
able
within 30 days after proof of loss is received by the insurer.
2.
If ascertainment of loss is not made within 60 days, the claim is payable within
90 days
from receipt of proof of loss by the insurer, if not paid, unreasonable delay is
presumed
(Cathay vs CA 174 SCRA 11)
3.
Please note the 1 year prescriptive period to file an action after denial of cla
im.
The prescriptive period is not suspended by the filing of a request for reconsid
eration after
denial of claim (Sun vs CA 195 SCRA 193)
C.
Compulsory Motor vehicle liability Insurance
1.
The insurance company will indemnify any authorized driver who is driving the mo
tor vehicle
of the insured and in the event of death of said driver, the company shall likew
ise indemnify
his personal representatives and the company may at his option make indemnity pa
yable
directly to the claimants or heirs of claimants. In other words, under the compu
lsory vehicle
liability insurance, direct payments may be made by the insurer to an accident v
ictim of an
insured vehicle
2.
Pour autrui clauses inure to the benefit of any person injured by the person ins
ured as if he
were named in the policy
Note:
Article 2207 of the Civil Code makes it clear that the insurance company that ha
s paid the indemnity for the
injury or loss sustained by the property insured shall be subrogated to the right
s of the insured against the
wrongdoer or the person who has violated the contract. The insurer who pays the i
nsured is an assignee in
equity of the insured against the offender. (Malayan vs CA 165 SCRA 536)
As a general rule: Payment by the insurer to the insured for loss under the poli
cy entitles the insurer to be
subrogated to the rights of the insured against the wrongdoer.
The exceptions are:
1.
Where the insured releases the wrongdoer from liability
2.
Where the insurer pays without notifying the carrier, which in good faith had al
ready paid the insured,
and
3.
Where the insurer pays the insured for a loss which is not included in the risk
insured against, by the
policy
(Pan Malayan vs. CA 184 SCRA 54)
Where the insured was paid by the insurer, the latter is subrogated to all right
s of the former against the
wrongdoer. If the insured after being paid by the insurer, releases the wrongdoe
r without the insurers
consent, the insurer loses his right of subrogation against the wrongdoer. The i
nsurer will however be entitled
to recover from the insured what the insured originally received from the insure
r as the proceeds of the policy
(Manila vs. CA 154 SCRA 650)
CLASSES OF INSURANCE

MARINE INSURANCE
-Insurance against risks connected with navigation, to which a ship, cargo, frei
ghtage, profits or
others insurable interest in movable property, may be exposed during a certain v
oyage or a fixed period of
time.
Coverage of Marine Insurance:
1.
loss or damage to aircraft
2.
Loss or damage goods & merchandise for shipment
3.
Persons in connection w/ marine insurance
4.
Precious stones, jewels, jewelry, precious metals
5.
Bridges, tunnels, & other instrumentalities of navigation
Perils of Navigation
-perils in making landings in river navigation and damage from rain in consequen
ce of improper
stowage.
War risks
-perils due directly to some hostile action, military maneuver, operational war
danger
Builders risks
-damage to ways from launching as well as damage to the ship.
Perils of the sea
-all kinds of marine casualties & damages done to the ship or goods at sea by th
e violent action of the
winds or waves; not foreseen & not attributable to the fault of anybody.
Perils of the ship
-losses or damages resulting from:
a) natural and inevitable action of the sea
b) ordinary wear and tear of ship
c) negligent failure of the ship's owner to provide the vessel w/ proper equipme
nt to convey the cargo under
ordinary conditions.
Inchmaree clause
-provision 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
xplosions, bursting of boilers,
breakage of shafts, or through any latent defect in the machinery or hull not re
sulting from want of due
diligence.
Insurable Interest in Marine Insurance:
1) Shipowner
-over the vessel, except that if chartered, the insurance is only up to the amou
nt not recoverable
from the charterer
-
.-he also has an insurable on expected freightage; no insurable interest if he w
ill be compensated by
charterer in case of loss.
2)
Cargo owner
-over the cargo & expected profits
3)
Charterer
-over the amount he is liable to the shipowner, if the ship is lost or damaged d
uring the voyage.
Loan on Bottomry/Respondentia
-loan in which under any condition whatever, the repayment of the sum loaned, an
d of the premium
stipulated, depends upon the safe arrival in port of the goods on which it is ma
de, or of the price they may
receive in case of accident.

INSURABLE INTEREST ON VESSEL HYPOTHECATED BY BOTTOMRY IN CASE OF
1.Owner/debtor
-difference between the actual value of the vessel and the loan on bottomry.
2.Creditor
-amount of the loan

RIGHT OF INSURER & LENDER IN CASE OF LOSS:
-value of what may be saved/salvaged shall be divided between the lender & insur
er, in proportion to
the legitimate interest of each one.
Freightage
-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.

Time when Insurable Interest on Freightage exists:
a) In case of a charter party, from the time the vessel has broken ground on the
chartered voyage
b) If no charter party & 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 & goods are ready for specified voya
ge.

In Marine Insurance, insured is required to reveal all information which he poss
esses material to the risk.

CONCEALMENT THAT DOES NOT VITIATE THE CONTRACT EXCEPT WHEN THEY CAUSED THE
LOSS:
1.
national character of the insured
2.
liability of the thing insured to capture and detention
3.
liability to seizure from beach of foreign laws of trade.
4.
want of necessary documents
5.
use of false & simulated papers
EFFECT OF CONCEALMENT OF MATTERS:
-exonerates the insurer from a loss
EFFECT IF MISREPRESENTATION IS INTENTIONALLY FALSE:
-
rescission of contract by insurer
EFFECT OF FALSITY OF REPRESENTATION AS TO EXPECTATION:
-non-avoidance of a contract of insurance

IMPLIED WARRANTIES IN MARINE INSURANSE:
a) the ship is seaworthy
b) no improper deviation from the agreed voyage will be made
c) vessel will not engage in illegal venture
d) where nationality or neutrality of a ship or cargo is expressly warranted
Seaworthiness
-relative term depending of the NATURE of the ship, the VOYAGE, & the SERVICE in
which she is at the
time engaged.
-Reasonable fitness to perform the service & to encounter the ordinary perils of
the voyage
contemplated by the parties.
EFFECT OF VIOLATION OF IMPLIED WARRANTY OF SEAWORTHINESS:
-insurer will not be liable for a loss

WHEN REQUIREMENT OF SEAWORTHINESS SATISFIED:
General Rule:
Seaworthiness of the vessel is required only at the commencement of the risk.
Exceptions:
1.
insurance is made for a specified length of time
2.
insurance is upon the cargo required to be transshipped at an immediate port

COURSE OF THE VOYAGE INSURED:
a) one agreed upon by the parties
b) in the absence of agreement, the course of sailing fixed by mercantile usage
c) if the course of sailing is not fixed by mercantile usage, one which to a mas
ter of ordinary skill and
direction, would seem the most natural, direct & advantageous
DEVIATION as defined is:
a) departure from the course of the voyage insured
b) unreasonable delay in pursuing the voyage
c) commencement of an entirely different voyage
DEVIATION IS PROPER:
a) when caused by circumstances over which neither the master nor the owner of t
he ship has any control
b) when necessary to comply with warranty, or to avoid a peril, whether or not t
he peril is insured against
c) when made in good faith, & upon reasonable grounds of belief in its necessity
to avoid a peril
d) when made in good faith, for the purpose of saving human life, or relieving a
nother vessel in distress.
EFFECT OF IMPROPER DEVIATION:
-
insurers become immediately absolved from further liability
Loss
A.
TOTAL
1.
Actual total loss ( exists when the subject matter of the insurance is wholly de
stroyed or lost or when it is
so damaged as no longer to exist 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.
Constructive total loss ("technical total loss")
-one that gives to a person insured a right to abandon
B.
PARTIAL LOSS
-loss other than a total loss

presumption of actual loss: continued absence of a ship without being heard.

CONTINUATION OF LIABILITY OF INSURER:
-whenever the ship upon which the cargo insured was loaded cannot continue the v
oyage due to the
peril insured against, & cargo is loaded on another vessel

ABANDONMENT -necessary only in Constructive Total Loss
Average
-extraordinary/accidental expense incurred during the voyage for the preservatio
n of the vessel, cargo,
or both and all damages to the vessel & cargo from the time it is loaded and the
voyage commenced
until it ends & the cargo unloaded.

KINDS OF AVERAGE:
1.
GROSS/GENERAL AVERAGES
-
include all the damages & expenses which are deliberately caused in order to sav
e the vessel, its
cargo, or both at the same time, from real & known risk.
Requisites to the Right to claim general average contribution:
a.
common danger to the vessel/cargo
b.
part of the vessel/ cargo was sacrificed deliberately
c.
sacrifice must be for common safety/benefit of all
d.
must be made by the master or upon his authority
e.
not be caused by any fault of the party asking the contribution
f.
must be successful
g.
must be necessary
2.
SIMPLE/PARTICULAR AVERAGE
-includes all the expenses & damages caused to the vessel or to her cargo which
have not inured to
the common benefit & profit of all the persons interested in the vessel & her ca
rgo.
-Partial loss caused by a peril insured against, which is not a general average
loss
''FPA CLAUSE"
-a situation wherein the insured & insurer stipulated in the policy that the ves
sel/cargo insured shall be
free from particular average
-effects:
a.
if damage to the thing insured is a PARTICULAR average, the insured shall not be
liable UNLESS
the loss suffered is total
b.
if damage to the thing insured is a GENERAL average, insurer shall be liable whe
ther the loss is
partial or total or for the condition of the insured for his proportion of all g
eneral average losses
assessed upon the thing insured which was saved.

There is an ACTUAL TOTAL LOSS if the insured is effectively deprived of the use
& possession of the
property, whether by seizure/capture followed by condemnation/theft.

Abandonment
-act of the insured by which, after a constructive total loss, he declares the r
elinquishment to the
insurer of his interest in the thing insured
-effect: insured is surrendering to the insurer whatever is left of the property
insured, & resorting to
the policy for indemnity, insurer then becomes the owner of whatever may remain
of the insured
thing & the insured may recover a total loss.

REQUISITES FOR VALID ABANDONMENT:
1.
actual relinquishment by the person insured of his interest in the thing insured

2.
constructive total loss
3.
abandonment must be neither partial nor conditional
4.
made within a reasonable time after receipt of reliable information of the loss
5.
factual
6.
made by giving notice to the insurer which may be done orally or in writing
7.
notice of abandonment must be explicit & must specify the particular cause of th
e abandonment

WHEN ABANDONMENT MAY BE MADE:
1.
if more than 3/4 of the value of the thing insured is actually lost
2.
if more than 3/4 of the value of the thing insured would have to be expended to
recover it from the peril
3.
if it is injured to such an extent as to reduce its value by more than 3/4
4.
if the thing is insured is a ship & the contemplated voyage cannot be lawfully p
erformed without incurring
an expense to be insured of more than 3/4 the value of the thing abandoned.
5.
If the thing insured is & the contemplated voyage can't be lawfully performed wi
thout incurring risk which
a prudent man would not take under the circumstances
6.
If the thing insured, being cargo or freightage, the voyage cannot be performed
nor another ship procured
by the master within reasonable time & with reasonable diligence

RIGHT OF RECOVERY WHEN:
1.
abandonment is made
-recovery of TOTAL LOSS, insurer acquires all interest of the insured
2.
no abandonment
-recovery only of ACTUAL LOSS

When abandonment becomes ineffectual:
-
information which formed the basis of abandonment proved to be incorrect & there
was in fact no
total loss
Form of Notice of Abandonment
-no particular form; may be made orally unless required to be in writing, even n
otice by telegraph is
sufficient if complies with requirements
-if done orally, insured must submit to the insurer within 7 days from such oral
notice, a written notice
of the abandonment

EFFECTS OF ACCEPTANCE OF ABANDONMENT
1.
becomes irrevocable UNLESS the ground upon which it owes made proven to be unfou
nded
2.
conclusive upon parties
3.
admission of the loss & sufficiency of abandonment

HOW ACCEPTANCE OF ABANDONMENT MADE:
a) express
b) implied from the acts of the insurer
-mere silence of the insurer for an unreasonable length of time after notice sha
ll be construed as
acceptance

EFFECT OF VALUATION:
-conclusive between the parties provided
a) the insured has some interest at the risk
b) there is no fraud on his party
Co-insurance
-form of insurance in which the person who insures his property for less than th
e entire value is
understood to be his own insurer for the difference which exists between value o
f property & amount
of insurance

REQUISITES FOR APPLICATION:
1.
insured taken is less than the actual value of the thing insured
2.
loss is partial
MARINE INSURANCE FIRE INSURANCE
There is always co-insurance No co-insurance UNLESS expressly stipulated in the
policy

Fire insurance
-a contract by which the insurer for a consideration agrees to indemnify the ins
ured against loss, or
damage to, property by fire, but may include loss by lightning, windstorm, torna
do & earthquake & other allied
risks, when such risks are covered by extension to fire insurance policies/ unde
r separate policies

Alteration
-
alteration in the use or condition of thing insured will entitle the insurer to
rescind the contract
provided following requisites are present:
-a) use or condition of the thing is specifically limited/stipulated in the poli
cy.
-b) such case/condition 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

Co-insurance clause
-clause requiring the insured to maintain insurance to an amount equal to a spec
ified percentage of the
value of the insured property under penalty of becoming co-insurer to the extent
of such deficiency

Fall-off Building Clause
-clause in fire insurance policy that if the building or any part thereof falls,
except as a result of fire, all
insurance by the policy shall immediately cease.

Option to Rebuild Clause
-option of insurer to repair, rebuild or replace buildings/structures wholly or
partially damaged or
destroyed, instead of the payment of the loss.
-Alternative obligation, either pay the amount of the loss/ rebuild the building
damaged

Casualty Insurance
-includes all forms of instrument against loss or liability arising from acciden
t/mishap other than those
within the scope of other types of insurance

GENERAL DIVISION OF CASUALTY INSURANCE:
1.
insurance against specified hazards which may affect the person/property of the
insured
-e.g. personal accident, robbery/theft, damage to or loss of motor vehicle
2.
insurance against specified hazards which may give rise to liability on the part
of the insured for claims for
injuries to others/damages to their property
-e.g. workmen's compensation, motor vehicle liability
LIFE INSURANCE ACCIDENT/HEALTH INSURANCE
Usual object is to provide fund for the benefit of the
estate/heirs beneficiaries of insured after the death of the
insured
Protect against not a loss of life but a loss of
time, earning capacity and expenses
Suretyship
-contract whereby a person binds himself solidarily with principal debtor for th
e fulfillment of an
obligation

NATURE OF LIABILITY OF SURETY:
1.
solidary
2.
limited to the amount of the bond
3.
determined by the terms of the contract of suretyship in relation to the princip
al contract between obligor
and obligee
SURETY GUARANTOR
insurer of debt insurer of solvency of debtor
Undertakes to pay if
principal dies not pay
Binds himself to pay if principal is unable to pay
primary Secondary
No such rights Can not be compelled to pay the creditor unless the latter has ex
hausted
all the properties of the debtor
SURETY PROPERTY INSURANCE
Accessory contract Principal contract
3 parties: surety, obligor 2 parties: insurer and insured
and obligee
Credit accommodation Contract of Indemnity
Surety can recover form
principal
No such right, only right of subrogation
Bond can be cancelled only
with consent of the oblige,
commissioner or the court
May be cancelled unilaterally either by insured or insurer on grounds
provided by law
Risk-shifting device
premium paid being in the
nature of a service fee
Risk-distributing device, premium paid as a ratable contribution to a
common fund
Requires acceptance of the
oblige to be valid
No need for acceptance by any third party
WHEN SURETY ENTITLED TO SERVICE FEE ONLY:
a) when contract of suretyship/ bond is not accepted by obligee
b) when contract of suretyship/ bond is not filed with obligee
TYPES OF SURETY BONDS
1. Contract bonds
a. Performance bonds
b. Payment bonds
2. Official
3. Judicial
Life Insurance
-insurance payable on the death of a person or on
contingently on the continuance or cessation of life.
-Nature:
1. liability absolutely certain
2. amount of insurance generally no limit
3. direct pecuniary loss not required
KINDS OF LIFE INSURANCE
1. GENERAL, ordinary or old line life insurance
his surviving a specified period or otherwise
-fixed for a premium payable, without condition, at stated intervals, a sum cert
ain is to be paid on
death, without condition
2. limited payment life insurance
-specified premiums are to be paid for a specified period or until the death of
insured if it occurs before
the expiration of such period, and under which insurer is obligated to pay a spe
cified sum on the
death of the insured
3. ENDOWMENT INSURANCE
-contract to pay a certain sum to the insured if he lives a certain length of ti
me, or if he dies before
that time, to some other person indicated as beneficiary
4. TERM LIFE INSURANCE
-insurance for a term of years only, or until insured shall have arrived at a ce
rtain age
5. ADVANCE INSURANCE
-contract which provides for the payment to the insured of a lump sum immediatel
y, in consideration
of his agreement to make certain periodical payments to the insurer for a specif
ied period, or for that
end of the period, the performance of insured's obligation being secured by mort
gage or deed of trust
6. TONTINE INSURANCE
-form of life insurance by which the policyholder under the same plan, that no d
ividends, return
premium, or surrender value shall be received for a term of years called the "to
ntine period," the
entire surplus from all sources being allowed to accumulate to the end of that p
eriod, and then divided
among all who have maintained their insurance in force and who have survived.
"No-fault" Clause
-any claim for death or injury shall be paid up to p5,000 without necessity of p
roving negligence or
fault, provided the following proofs of loss under oath are submitted:
1. police report of accident
2. death certificate and evidence sufficient to establish proper payee
3. medical report and evidence of medical or hospital disbursement
CLAIMS UNDER CMVLI
-a claim shall lie against the insurer of the vehicle in which the occupant is r
iding, mounting or
dismounting from in any other case, against the insurer of the directly offendin
g vehicle

AUTHORIZED DRIVER CLAUSE
-the clause means that it indemnifies the insured owner against loss or damage t
o the car but limits
the use of the insured vehicle to the insured himself or any person who drives o
n his order or with his
permission
-the requirement that the person driving the insured vehicle is permitted in acc
ordance with the
licensing laws or other laws or regulations to drive the motor vehicle. It is ap
plicable only if the person
driving is other than the insured
-where the car is unlawfully and wrongfully taken without the owner's consent or
knowledge, such
taking constitutes theft, and thus, it is the theft clause and not the "authoriz
ed driver clause" that
should apply.
Cooperation Clause
-clause in an automobile insurance policy which provides in essence that the ins
ured shall give all such
information and assistance as the insurer may require, usually requiring attenda
nce at trials or
hearings
LIABILITY OF INSURER IF INSURED WAS COMMITTING A FELONY:
-liabilities arising out of acts of negligence, which are also criminal, are als
o insurable on the ground
that such acts are accidental. Thus, a motor insurance policy covering the insur
eds liability for
accidental injury caused by his negligence, even though gross and attended by cr
iminal consequences
such as homicide through reckless imprudence, will not be void as against public
policy. But liability
consequences of deliberate criminal acts are not insurable

JURISDICTION OF THE INSURANCE COMMISSIONER
-
Original exclusive jurisdiction with the Insurance Commissioner
-Notice of claim must be filed within six months from the date of accident. Othe
rwise the claim shall be
deemed waived. Action or suit must be brought in proper cases, with the Commissi
on or the courts
within one year from the denial of the claim, otherwise the claimant's right of
action shall prescribe

FUNCTIONS OF THE COMMISSIONER:
1.
Adjudicatory functions
2.
Administrative Functions
-includes suspension or revocation of license, power to examine books and record
s

EFFECT OF DEATH OF INSURED THROUGH SUICIDE:
-
in life insurance contract, the insurer is liable in case of suicide in the foll
owing cases:
1.
if committed after two years from the date of the policy's issue or its last rei
nstatement
2.
if committed after a shorter period provided in the policy
3.
if committed in a state of insanity regardless of the date of the commission unl
ess suicide is an
excepted peril
-
Any stipulation extending the 2-year period is null and void
COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE (CMVLI)
-is a protection coverage that will answer for legal liability for losses and da
mages for bodily injuries or
property damage that may be sustained by another arising from the use and operat
ion of motor
vehicle by its owner
-purpose: to give immediate financial assistance to victims of motor vehicle and
/or their dependents,
especially if they are poor regardless of the financial capability of motor vehi
cle owners or operators
responsible for the accident sustained