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Right to Subrogation

Company X procured an open-policy marine insurance from Y Insurance, a foreign

corporation. The insurance was for a transshipment of certain wooden work tools and
workbenches purchased for consignee Z. The cargo, packed inside one container van was
shipped from Hamburg, Germany en route to Manila, Philippines. The ship arrived and docked
where cargo was received by Aboitiz Shipping Corporation, thereafter it issued a bill of lading
containing a notation grounded outside warehouse. It was then shipped to Cebu City and was
released to Z. Two days after its release, Aboitiz received a call from Z informing it that the
cargo sustained water damage. Z then informed the Philippine office of Y Insurance for
insurance claims. Y Insurance got an official weather report from PAGASA, it would appear that
heavy rains caused water damage to the shipment, noticeably the shipment was placed outside
the warehouse of Aboitiz based on the bill of lading containing an notation grounded outside the
warehouse. Aboitiz refused to settle the claim, Y Insurance paid the amount of Php 280, 176.92
to consignee Z, and a subrogation receipt was thereafter signed.

A case for collection of actual damages with interest and attorneys fees was filed with RTC.
Aboitiz disavowed any liability and asserted that the claim had no factual and legal bases, and
that complaint had no cause of action, plaintiff Y Insurance had no personality to sue, cause of
action was barred, suit was premature there being no claim made upon Aboitiz. RTC rendered
decision against Y Insurance and case was elevated to CA, which reversed RTC decision. Case
was then elevated to SC.


a. Is Respondent Y Insurance the real party-in-interest that possesses the right of subrogation to
claim reimbursement from Aboitiz?

b. Is this right to subrogation an absolute right?


a. YES. A foreign corporation not licensed to do business in the Philippines is not absolutely
incapacitated from filing a suit in local courts. Only when that foreign corporation is
transacting or doing business in the country will a license be necessary before it can institute
suits. It may, however, bring suits on isolated business transactions, which is not prohibited under
Philippine law. Thus, this Court has held that a foreign insurance company may sue in the
Philippine courts upon the marine insurance policies issues by it abroad to cover international-
bound cargoes shipped by a Philippine carrier, even if it has no license to do business in this
country. It is the act of engaging in business without the prescribed license, and not the lack of
license per se, which bars a foreign corporation from access to our courts. Thus, the payment by
the insurer to the assured operates as an equitable assignment of all remedies the assured may
have against the third party who caused the damage. Subrogation is not dependent upon, nor
does it grow out of, any privity of contract or upon written assignment of claim. It accrues
simply upon payment of the insurance by the insurer. (Aboitiz Shipping Corporation vs.
Insurance Company of North America, G.R. No. 168402, August6, 2008, [Reyes, R.T.,J.])

b. NO. This Right of Subrogation has its limitations, to wit:

1. Both the insurer and the consignee are bound by the contractual stipulations under the bill of
2. The insurer can be subrogated only to the rights as the insured may have against the

Cover Note
Law On Insurance


What is a cover note?

The cover note is merely a written memorandum of the most important terms of the preliminary
contract of insurance, intended to give temporary protection pending the investigation of the risk
by the insurer, or until the issuance of a formal policy, provided that it is later determined that the
applicant was insurable at the time it was given.

By its nature, it is subject to all conditions in the policy expected even though that policy may
never issue. In life insurance, where an agreement is made between an applicant and the
insurers agent, no liability shall attach until the insurer approves the risk. Thus, in life
insurance, a binding slip or binding receipt DOES NOT insure itself.
Can you explain a preliminary
executory contract of insurance?
By a preliminary executory contract of insurance, the insurer makes a contract to insure the
subject matter at some subsequent time which may be definite or indefinite. Under such an
executory contract, the right acquired by the insured is merely to demand the delivery of the
policy in accordance with the terms agreed upon and the obligation assumed by the insurer is to
deliver the said policy.

What are the rules governing cover

1) Insurance companies doing business in the Philippines may issue cover notes to bind
insurance temporarily pending the issuance of the policy

2) A cover not shall e deemed to be a contract of insurance within the meaning of Sec. 1(1) of

3) NO cover note shall be issued or renewed unless in the form previously approved by the
Insurance Commission.

4) A cover not shall be valid and binding for a period NOT exceeding 60 days from the date
of its issuance, whether or not the premium therefore has been paid or not, BUT such cover note
may be canceled by either party upon at least 7 days notice to the other party.

5) If a cover not is not so canceled, a policy of insurance shall, within 60 days after the
issuance of the cover not be issued in lieu thereof. Such policy shall include within its terms the
identical insurance bound under the cover note and the premiums therefore.

6) A cover note may be extended or renewed beyond the aforementioned period of 60 days
with the written approval of the Insurance Commissioner, provided that such written approval
may be dispensed with upon the certification of the Pres, VP or General Mgr of the Insurance
company concerned, that the risks involved, the values of such risks, and the premiums therefore
have not as yet been determined or established and that such extension or renewal is NOT
contrary to and is not for the purpose of violating any provision of the Insurance Code.

7) The insurance companies may impose on cover notes a deposit premium equivalent to at
least 25% of the estimated premium of the intended insurance coverage but in no case less than

Representation and
Misrepresentation in Insurance
Law On Insurance


Representation and
Misrepresentation in Insurance
Section 36. A representation may be oral or written.

What is a representation?
A representation is a factual statement made by the insured at the time of, or prior to, the
issuance of the policy to give, information to the insurer and otherwise induce him to enter into
the insurance contract.

What is the difference between a

representation and concealment?
A concealment is a negative act, meaning it is the failure to do something which is required
while representation is positive act as the insured volunteers such facts. Concealment usually
occurs prior to making of the insurance contract, while a representation may be made at the
time of the issuance of the contract.

What is a misrepresentation?
A Misrepresentation is a statement:
1. As a fact of something which is untrue
2. Which the insured stated with knowledge that it is untrue and with an intent to deceive or
which he states as true without knowing it to be true and which has the tendency to mislead; and
3. Where such fact in either case is material to the risk.

What is the effect of a

A misrepresentation by the insured renders the insurance contract voidable at the option of the
insurer, although the policy is not thereby rendered void ab initio.

Is misrepresentation synonymous
with concealment?
NO. Misrepresentation is an active form of concealment.

What is the duty of the person

applying for insurance?
It is duty to give the insurer all such information concerning the risk as will be of use to the latter
in estimating its character and in determining whether or not to assume it. This information may
be given orally or written in papers not connected with the contract such as in the application or
examiners report. Sometimes, it may appear on the policy itself.

Why is such information important?

The information forms the basis of the contract as made. It describes, marks out and defines the
risk assumed. Hence the untruthfulness of any representation will necessarily avoid the

Example of misrepresentations such

that the insurer avoids any liability to
the insured
If the insurer was made to believe that he was insuring a brick house when in truth and in fact,
the house was made of nipa, or when the insurer insured a man of thirty and it turns out that the
man who dies was a 130.

Section 37. A representation may be made at the time of, or before, issuance of the policy.

Section 41 provides that A representation may be altered or withdrawn before the insurance is
effected, but not afterwards.

Section 38. The language of a representation is to be interpreted by the same rules as the
language of contracts in general.
How are misrepresentations
They are construed liberally in favor of the insured.

Must the representations be literally

No. It is sufficient that they be substantially true.

How can a representation be

substantially true and not literally
De Leon cites two examples:
If one is asked if he drinks, the question will be construed as referring to habitual use. So if you
drink only when there is an occasion, they you can say NO.
If you are asked if you had any illnesses, local disease or injury in any organ, you can still say
NO even if three weeks before you were suffering from LBM because you ate one kaing of

Section 39. A representation as to the future is to be deemed a promise, unless it appears that it
was merely a statement of belief or expectation.
What are the different kinds of
They may either be:
1. Oral or written;
2. Made at the time of the issuance of the policy or before;
3. Affirmative or promissory

What is an affirmative
It is any allegation as to the existence or non-existence of a fact when the contract begins. An
example would be when the insured states that the house subject of the insurance is used only for
residential purposes.

What is a promissory
A promissory representation 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.

What is the nature of a promissory

First, it used to indicate a parol or oral promise made in connection with the insurance, but NOT
incorporated in the policy. The non-performance of such a promise CANNOT be shown by the
insurer in defense to an action on the policy, but proof that the promise was made with fraudulent
intent and will serve to defeat the insurance.
Second, it is an undertaking by the insured, inserted in the policy, but NOT specifically made a
warranty, is called a promissory representation. It is however in such a case merely an executory
term of the contract, and not properly a representation. A promissory representation, is therefore,
substantially a condition or a warranty.

Examples of promissory
1. An applicant for fire insurance on a building orally promised that the building will be
2. An applicant for fire insurance on a building orally promised to install two fire
extinguishers within the bldg.
3. A TV hostess saying Will be back.. promise.. saranghameda po

Does a false representation based

on an opinion or expectation avoid
the policy?
IT DEPENDS. A representation of an expectation, intention, belief opinion or judgment of the
insured, although false, will NOT avoid the policy of insurance if there is NO actual fraud in
inducing the acceptance of the risk or its acceptance at a lower rate of premium and this is
likewise the rule although the statement is material to the risk. In such a case, the insurer is not
justified in relying upon such statement but is obligated to make further inquiry.

What must the insurer then to do to

avoid liability?
The insurer must prove both the materiality of the insureds opinion and the latters intent to
deceive. If the representation is one of fact, all the insurer needs to prove is its falsity and
materiality. The intent to deceive is already presumed.

When is a representation deemed a

mere expression of opinion?
An oral representation as to a future event, or condition over which the insured has no control,
with reference to property or life insured will be deemed a mere expression of opinion, which
will avoid a contract ONLY when made in bad faith.
Section 40. A representation cannot qualify an express provision in a contract of insurance, but
it may qualify an implied warranty.

Why is it that a representation

cannot qualify an express provision
in a contract of insurance?
A representation cannot qualify an express provision or an express warranty in a contract of
insurance because a representation is not a part of the contract but only a collateral inducement to

1) If the policy expressly provides that the house insured is used as a warehouse, any
representation made by the insured prior to the issuance of the policy to the effect that the house
was used only as a residence is NOT a defense in the action for the recovery of the amount of the

2) The representation of the insured to the effect that the last time the vessel was drydocked
was six months ago would NOT qualify the implied warranty that the vessel is seaworthy.
Section 41. A representation may be altered or withdrawn before the insurance is effected, but
not afterwards.

What is the reason for this

As representations induce the insurer in assuming the risk insured against and in issuing the
insurance policy, it is but logical that representations may not be altered or withdrawn after the
insurance is affected.

Section 42. A representation must be presumed to refer to the date on which the contract goes
into effect.

To what time does representation

Representations refer only to the time of making the contract. We earlier said that promissory
statements of conditions that exist subsequent to the completion of the contract are conditions or
warranties and not representations (See annotations under Sec. 39). But now, we refer ONLY to
conditions represented as ALREADY EXISTING. These conditions must exist during the
making of the contract.

When is there false representation?

There is NO false representation if the representation was true at the time the contract takes
effect, although it became false at the time it was made.
There is false representation if although the representation was true at the time it was made, it
subsequently became false at the time the contract took effect.

Distinctions and Similarities

Between an Insurance Contract
and a Wagering Contract
Distinctions between an
insurance contract and a
wagering contract
A contract of insurance is a contract of indemnity and not a wagering, or gambling contract.(Sec.
25) White it is based on a contingency, it is not a contract of chance and is not used for profit.
The distinctions are the following:

Insurance Gambling
Contract contract
Parties seek to distribute loss by reason of Parties contemplate gain through mere chance
mischance or the occurrence of a contingent event.

Insured avoids misfortune. Gambler courts fortune

Tends to equalize fortune. Tends to increase the inequality of fortune.

What one insured gains is not at the expense of Essence is whatever one person wins from a
another insured. The entire group of insureds wager is lost by the other wagering party.
provides through the premiums paid, the funds
which make possible the payment of all claims;

Purchase of insurance does not create a new and As soon as a party makes a wager, he creates a
non-existing risk of loss to the purchaser. In risk of loss to himself where no such risk
purchasing insurance, the insurer faces an existed previously.
already existing risk of economic loss.

Similarities between an insurance

contract and a gambling contract?
They are similar in only one respect. In both, one party promises to pay a given sum to the other
upon the occurrence of a given future event, the promise being condition upon the payment of, or
agreement to pay, a stipulated amount by the other party to the contract.

In either case, one party may receive more, much more, than he paid or agreed to pay.

Insurance Contract Versus

Wagering or Gambling Contract

Is a contract of insurance a wagering

or gambling contract?
NO. A contract of insurance is a contract of indemnity and not a wagering or gambling contract.
Although it is true that an insurance contract is also based on a contingency, it is not a contract of
What is the concept of a lottery?
The term lottery extends to all schemes for the distribution of prizes by chance, such as policy
playing, gift exhibition, prize concerts, raffles at fairs, etc. and various forms of gambling.

What are the three essential

elements of lottery?
Consideration, prizes and chance.

There is consideration of price aid if it appears that the prizes offered by whatever name they may be
called came out of the fund raised by the sale of chances among the participants in order to win the

Are all prizes equivalent to a lottery?

If the prizes do not come out of the fund or contributions by the participants, no consideration has
been paid and consequent, there is no lottery. Ex: A company, to promote the sale of certain
products, resorts to a scheme which envisions the giving away for free of certain prizes for the
purchase of said products, for the participants are not required to pay more than the usual price o the

Can a sweepstakes holder insure

himself against the failure of his
ticket to win?
NO. It cannot be said that he suffered a loss of prize when he did not win. The failure to win a prize
would not damnify or create a liability against him.
Laws That Govern Insurance
Under The Civil Code:
Art. 2011. The contract of insurance is governed by special laws. Matters not expressly provided for
in such special laws shall be regulated by this Code.

Art. 2012. Any person who is forbidden from receiving any donation under Art. 739 cannot be named
beneficiary of a life insurance policy by a person who cannot make any donation to him, according to
said article.

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

Art. 2022. The annuity may be constituted upon the life of the person who gives the capital, upon
that of a third person, or upon the lives of various persons, all of whom must be living at the time the
annuity is established.

It may also be constituted in favor of the person or persons upon whose life or lives the contract is
entered into, or in favor of another or other persons.

Art. 2023. Life annuity shall be void if constituted upon the life of a person who was already dead at
the time the contract was entered into, or who was at the that time suffering from an illness which
caused his death within twenty days following said date.

Art. 2024. The lack of payment of the income due does not authorize the recipient of the life annuity
to demand the reimbursement of the capital or to retake possession of the property alienated, unless
there is a stipulation to the contrary; he shall have only a right judicially to claim the payment of the
income in arrears and to require a security for the future income, unless there is a stipulation to the
Art. 2025. The income corresponding to the year in which the person enjoying it dies shall be pain
in proportion to the days during which he lived; if the income should be paid by installments in
advance, the whole amount of the installment which began to run during his life shall be paid.

Art. 2026. He who constitutes an annuity by gratuitous title upon his property, may provide at the
time the annuity is established that the same shall not be subject to execution or attachment on
account of the obligations of the recipient of the annuity. If the annuity was constituted in fraud of
creditors, the latter may ask for execution or attachment of the property.

Art. 2027. No annuity shall be claimed without first proving the existence of the person upon whose
life the annuity is constituted.

Special Laws That Govern Insurance

1. Revised GSIS Act of 1977 (PD 1146, as amended)

2. Social Security Act of 1954 ( RA 1161, (as amended)

3. The Property Insurance Law ( RA 656, as amended by PD 245)

4. Republic Act No. 4898

5. EO 250; and

6. RA 3591

How to construe provisions of the

Insurance Code
Since our present IC is based mainly on the Insurance Act, which in turn was taken verbatim from
the law of California (except for Chap V, which was taken from the law of NY), the courts should
follow in fundamental points, at least, the construction placed by California Courts on California law
(and the construction placed by the NY Courts on NY law).
This is in accordance with the well settled rule in statutory construction that when a statute has been
adopted from some other state or country, and said statute has previously been construed by the
courts of such state or country, the statute is usually deemed to have been adopted with the
construction so given.