Insurance:

Q: What do you mean by insurance?

A: As you know contract of insurance is a contract whereby one undertakes for a
consideration to indemnify another against loss, damage, or liability arising from an
unknown or contingent event.

We all know that it is an imperfect definition because the bank that issues a
standard LC in a way it can also defines another, correct? In case of loss or liability.
But the standby LC is not an insurance contract. A person who guarantees the
obligation of another or secure the obligation of another in case that the debtor does
not pay or cannot pay, is a guarantor. But it is not a contract of insurance, right?
Unless the person is engaged in suretyship.

Q: What about life insurance?

A: There is nothing to indemnify in case of life insurance. It is an imperfect
definition. But the definition is just the same. Perhaps we can appreciate better if
enumerate the elements of insurance.
Q: So what are the elements of insurance?
A: IRA-­­ SP

1. Insurable interest-­­ The most important element of the contract of insurance.

Otherwise, without it, it can be a wagering contract.

Q: What is insurable interest?

A: It is interest which the law requires the person to have in the subject matter of
insurance such that its preservation will bring about pecuniary gain or benefit or
destruction will bring about pecuniary loss, damage, or liability. So it does have
connection or relation to the subject matter of insurance such that each
preservation will bring about the pecuniary gain or benefit or its destruction will
bring about pecuniary loss, damage, or liability.

2. Risk of Loss-­­

Q: What about the happening of a designated peril? Let’s take a contract of

insurance.
A: So there’s a risk of loss if the peril insured against fire does occur.

3. Assumption of Risk Of Loss-­­ Insurer assumes the risk of loss on behalf of the
insured.

4. The assumption of risk of loss is part of a general scheme to distribute risk of

persons similarly situated-­­ As you know in insurance, various persons pay
premium. All of them pay premiums to the insurance company. The insurance
company makes an actuarial study noh of so many number insured covering
properties noh, what do you think is likelihood of chance on how much
percentage of the total number of insured properties will be exposed to the risk
of fire? If the actuarial evaluation/studies is wrong, false, misplaced, it results in
actuarial loss to the insurance company. If you have poor actuarial, you end up
losing money with your capital. So you did not take the right forecast, right
actuarial study. What if all those properties gutted by fire? Then your capital is
wiped out. So it’s important to make a good actuarial study. So this is part of
general scheme, as we said, to distribute the loss of persons similarly situated. So
there’s come with it, study of hope noh that not all properties will be exposed to
risk of fire.

Q: That’s why, uhm, remember this bar exam question? The employer agrees to
send to school the children of his helper for faithful years of service once the
helper dies. Is there contract of insurance?
A: No. Because there’s no scheme to distribute losses of persons similarly
situated. It’s more of conditional donation to send to school the children of
helper if he dies for his faithful years of service. So there’s no 4th element of
scheme to distribute losses of persons similarly situated.

Q: What about Health Care Company? This was asked so many times in the bar.
Are HMOs (Health Maintenance Organizations) considered as Insurance
Companies? Are they engaged in insurance business? The agreement of HMOs, is
that in the nature of an insurance policy and therefore subject to Documentary

A: This is the case we handled noh. This is the case of Philippine Health Care
Providers v. CIR (2009), our client is Philippine Health Care Providers, now
known as Maxicare. What’s the concept of HMO? The concept is it provides
coverage to the members of the HMO. So these members pay premium. So group
premium in advanced. And for the year of coverage, they can avail themselves
various medical, dental, and health services of Maxicare through accredited
physicians, establishments, and all. So once they pay premium for the year, you
can go to any doctor of Maxicare, and avail yourself of various services that the
company offers to its participating physicians, doctors and all. So here, there is
no indemnity for loss, damage, or liability. It provides services to the members of
HMO. With or without sickness, you can go to any clinics for medical checkup.
You can go there for preventive, diagnostic, and curative services. So if the
principal object, SC said that if it is not to indemnify damage, loss, or liability,
then it is not insurance contract. That’s why HMOs are not insurance companies
but in the nature of insurance business because they provide services upon
payment of premium.
Q: Now what do you call the losses incurred by HMOs, in case all of the members
avail themselves of the services?
A: It’s not actuarial loss. It is an investment loss. Investment loss means that you
invested money, you may put capital in your business and anticipate reasonable
return on your investment or capital.
 You know just to give you a story, the issue there is about DST. Whether or not
the issuance of premium is subject to DST. So BIR assessed 400 million (all about
800 million including surcharges and penalty) against Maxicare for nonpayment
of DST for an HMO agreement. And Maxicare lost the case. So they engaged us for
motion for recon to take the case of Maxicare. So the previous counsel bungled it,
it is a reputable law firm one of the top law firms in our country. We are number
6 btw. So it is based on income noh. 2015 income, we are number 6. And to think
it is only our 9th year as to compare to top 5 who have been there for more than
50 years. We are number 6, based on income. Anyway, the previous law firm
bungled it noh, they lost the case. They referred the case to us. I was told that the
ponente was the retired CJ Corona. He was fond of constitutional arguments and
issues. He was at that time our student of our graduate school taking up
doctorate study in Civil Law. So I was told that he would likely to consider the
MR if we imbued arguments based on Constitution. So I had to ask Rene Gorospe,
our professor in Constitutional law. I asked “Sir, Is there any provision in the
Constitution that refers to Health Care?” And he said, there is. He said, “Under
our Constitution, the State must afford quality Health Care”. And that’s my
premise in my motion for recon. So I stated “the State has an obligation, the duty
to afford quality Health Care to its citizens. But it fails reasonably. And here we
are, the partners of the State in providing quality Health Care. But our lives are
threatened and about to be extinguished. So we come here to the Court for
rescue”. That’s my opening statement in my oral argument. The SC granted our
motion based on our oral argument. We argued there in Baguio (Then puro
kwento na lang about sa oral argument ni Dean na buti nalang hindi tinanong
percentage dun sa data. But anyway, pwede naman niya irefer sa president ng
Maxicare who was there. And tinatanong siya ni Justice Carpio if he was able to
get a BIR opinion, of course ayaw niya sagutin, ang lagi niya sinasasabi “Your
Honor, we went to Department of Health” because if they go to BIR they will be
estopped, they’ll be subjected to DST)

Q: Another reason why the SC said that HMOs are not insurance companies, is
that they are under DOH supervision and not under Insurance Commission.
Question is, what about the transfer of jurisdiction from DOH to Insurance
Commission? Because all HMOs since last year has been placed under
supervision of Insurance Commission and no longer under Department of
Health. Will that now change the nature of an HMO? Will now be that considered
as an insurance contract?
A: Of course, there is no SC decision yet. But I would like to believe that it’s not
considered an insurance business for the same reason, that the principal
purpose of an HMO is not to indemnify against loss or liability but to provide
various medical, dental, and health services to members from the participating
physicians, doctors, clinics, and all.

Another case we won for another HMO is MediCard. This time the issue is about
gross receipts tax. You must have discussed this in your tax code. Diba kapag
nakatanggap ka ng premium (MediCard and other HMOs received premiums from
members), how much of the hundred pero premium for example is subjected to vat?
Is it the entire hundred peso premium or only the portion of the premium that goes
to the company and not spent or disbursed for the payment of doctors, and other
medical providers? So BIR slapped the whole amount. It’s not fair diba. Ang
argument namin “No No No! It is not fair. Because not everything went to the
company. Others went to doctors, physicians, clinics”. So we capitalize the wordings
of the regulation of BIR. Ang nakalagay doon “The gross receipt is presumed to be
the entire amount collected by HMO”. So we said “It’s only presumed, not conclusive.
It means it can be overcome by evidence to the contrary”. So we won. The SC
reversed the BIR and held that “only the amount that went to the company is subject
to vat”.

5. Payment of Premium

Premium as you all know is the consideration received by the insurance company
for the agreement to indemnify against loss, damage, or liability. The so-­­ called
cash and carry rule in insurance contract. You know, there is no valid and efficacious
contract if there is no payment of premium.

Q: What are the exceptions to the cash and carry rule?

A: Our keyword is LIA-­­ S-­­ ICE

L-­­ Life and

I-­­ Industrial Insurance Policy whenever the grace period applies;

So if the risk insured against occurs within the grace period, then the insured
can recover despite non-­­ payment of premium.

A-­­ Acknowledgment of receipt of premium despite the fact that no premium was
paid by the insured.

Q: Why is it acknowledgment of receipt of premium perfects the insurance

contract?
A: SC said that it amounts to fiction of payment. So it is not the actual
payment, but the attachment of reasonable payment by the insurance
company. So it produces a fiction of payment that precludes the insurer from
denying claim in case the risk insured against occurs.

S-­­ Suretyship; If the obligee accepts the bond despite the fact that premium was
not paid.

Q: Do you remember the case of Philippine Pryce v. CA? The bonding

company, surety company, issued a bond to secure the obligation of the
obligor. The obligor paid the premium to the surety company. So surety
company issued a bond and accepted by the obligee. The check in payment of
 the premium bounced. The question now is, is the bonding company acting a
surety liable to the obligee?
A: Yes. Because once the bond is issued by the bonding company or the
surety that is, is accepted by the oblige, the bond becomes efficacious despite
non-­­ payment of premium.

I-­­ installment payment (Makati Tuscany v. CA)

Q: The premiums for fire insurance policy are payable on 4 installments.

After the 1st installment was made or before the 2nd installment, the fire
insured against destroyed the property. How much can the insured recover?
The entire amount under the insurance policy or the one corresponding to
the premium paid?
A: SC said the entire amount. The entire insurance coverage despite payment
only in partial of the premium because premium is payable on installment.
Q: What do you think is the right of the insurance company?
A: The right of the insurance company is to demand payment of the value of
the premium. But he is liable to pay the entire value/ amount fixed in the
insurance policy despite non-­­ payment in full of the premium.

C-­­ Credit extension

Q: The case of UCPB v. Masagana Telemart. Dean Tayag with us noh, one of
our senior partners. Some of you were under him right? All of you? Ahh all of
you? Anyway he did not handle the case of Masagana Telemart. That case is
the worst case… ever!!! (Uhmm.. In insurance! If not in all time noh). Ang
nangyari, irerenew yung fire insurance policy noh. Yung property, destroyed
by fire. Nagtender ng payment, check yung inissue. After the loss ha. After the
fire. So is the insurance company liable to pay the insured for the loss that
occurred after issuance of the check? So the check was issued only after the
loss.
A: SC said yes. Why? Estoppel. There has been practice between UCPB and
Msagana Telemart to grant credit extension to the insured. So it has been a
practice noh every year. To grant extension for the insured to pay the
premium even beyond the term of the policy. Because of that, the insurance
company is now estopped from denying a different practice or arrangement.
So insurance company was made liable to pay the insured for the fire that
gutted the property despite the fact that payment of premium was done after
the loss.
Q: Under the amendment, what is the maximum period for credit extension?
A: 90 days.

E-­­ Estoppel
 So let’s repeat, the general rule, payment of premium is necessary to make a
contract valid and efficacious under cash and carry rule. There are cases however
that despite non-­­ payment of premium, insurance company is liable to pay the
insured. So LIA-­­ S-­­ ICE.

Q: Who are the parties to an insurance contract btw?

A: We have the insurance company, the insured, beneficiary.
Q: Now can any person be an insurer?
A: Under the amendment, as you know, only juridical persons can be insurer. So
before amendment, any person natural or juridical, can be an insurer. Under
Amendment, RA 10607, only juridical persons may be insurer. Only they may be
given certificate of authority engaged in an insurance business.
Q: So anyone maybe insured except public enemy. May an Abu Sayaff be an insured
in a contract of insurance?
A: Yes. Because public enemy, as we took up in transpo, is a citizen of another
country in which Philippines is at war. Now abu sayaff are not citizens of another
country. They are not public enemies, that’s why they can be insured.
Q: What about Doris Duke? Doris Duke insured mga pusa niya. Is it allowed in the
Philippines?
A: No because it says person.
Q: What about corporation, non-­­ stock, non-­­ profit organization, organized to
take care of cats?
A: Yes. But not the cat itself. The corporation that is organized to manage the cats.

Q: Next in your outline, what are the characteristics of a contract of insurance?

A:

1. It is a risk distributing device because of the element that there is a scheme to

distribute losses among persons who are similarly situated.
2. Contract of utmost good faith (Uberrima fides contract)-­­ which means the
parties to the contract of insurance should be acting in good faith. It is more evident
or relates the most in concealment. As we have taken up under the rules on
concealment, the facts concealed need not be the cause of the loss. So the insured
must disclose information, facts not known to insurer that will have a bearing on the
insurer’s estimate of the risk, and how much premium to be charged. And in some
cases as you know, the facts concealed need not be the cause of the loss. Some cases
in your outline:
a. The insured did not disclose that his child-­­ beneficiary was a mongoloid. But he
did not die because of that, he died for other reasons. So can the insured recover? No
he cannot, because of concealment.
b. Failure to disclose that he had a renal failure. Namatay ng food poisoning.
c. Failure to disclose something about his medical history. He died of plane crash.

Q: What is the basis for this duty on the part of the insured to disclose information
to the insurance company?
A: Because of the contract of good faith. Insurance contract is a contract of utmost
good faith.

2. Next, it is a contract of indemnity.

Q: As we have defined, this means that insured can only recover based on the total
amount of loss sustained or incurred. Except for what kind of insurance?
A: This as we know only applies to property insurance.
Q: If the mortgagor insures his property against fire how much can he recover?
A: So if the entire property was gutted by fire, he can recover based on the value of
the property as ascertained by the parties or stated in the policy itself. He cannot
recover more than, otherwise it will defeat the very purpose of insurance contract
as one of indemnity.

Except for life insurance noh because you cannot put a price tag on the life of the
person. Exception for this life insurance is if insurance is taken on the life of the
debtor. In this case, the insurable interest is limited to the amount of debt incurred
by the debtor.

3. Contract of Adhesion-­­

Q: The insured only adheres to the terms and conditions of the insurance policy as
proposed by the insurance company. Now the participation of the insured is only to
adhere to the terms and conditions of the insurance policy. Does that mean that the
contract is not valid?
A: We have said time and again that the contract of adhesion is not necessarily void.
The fact that the insured participated only or adhered to the terms and conditions
does not make it void.
Q: So what is the principle emanating in this characteristic of insurance?
A: The principle is that ‘all doubts shall be resolved liberally in favor of the insured
and against the insurance company’. So any ambiguity shall be resolved against the
insurer and liberally in favor of the insured. As you know, if the contract is clear and
unambiguous, the terms are given in a plain meaning. So you only apply the
principle that ‘doubts shall be resolved liberally in favor of the insured and against
the insurer’ if there is a doubt.
Q: This was asked in the bar. What do you mean by contract of adhesion in terms of
resolving ambiguity?
A: It means that it shall be construed against the insurer and liberally in favor of the
insured.

Let’s take a look at the cases, the most recent ones:

1. Apha Insurance v. Castor-­­ This was already asked in the bar regarding
insurance coverage on a car. So he instructed the driver to bring the car to
the auto shop. The driver took a joy ride, hindi na binalik sa may-­­ ari. The
insured would like to recover based on terms of insurance policy. Insurance
company invoke the ‘damage clause’ of the policy. So there are 2 clauses
 relevant to this case. The ‘loss clause’ and the ‘damage clause’. Under the
‘damage clause’, the insurance company is not liable if the damage is caused
by insured or any of its employees. So the driver who took the vehicle is the
employee of the insured right? So therefore, based on this clause, the
insurance company is not liable on the damage caused. But is loss the same
as damage? They are not right? So loss is the fact of disappearance. Damage
does not mean loss. He cannot apply the ‘damage clause’ if what really
happened was the loss of the insured vehicle. So here you do not apply the
rule that in case of doubt, it shall be resolved against the insurer, instead you
enforce the policy based on its literal meaning.

2. Fortune Medicare v. Amorin-­­

Q: This is not yet asked in the bar. Remember this case? There’s an HMO. In
case of hospitalizations abroad, the members are entitled to reimbursement
based on standard charges. So he was in Honolulu Hawaii, then he had an
appendectomy and then he paid xxx amount in dollar equivalent. If he
availed himself the services in the Philippines, he would only pay like 10k.
But in Hawaii, he paid, more than 10k let’s say. So how much can be
recovered? $10k dollars or 10k pesos based on the phrase ‘you have the right
to be reimbursed based on standard charges’.
A: SC said that there is a doubt as to what standard charges means. So that
doubt shall be resolved in favor of the insured and against insurance
company. So insured was allowed to recover based on what is spent, what he
paid in Honolulu Hawaii.

Q: Also in this case, SC said that any doubt in the interpretation of an HMO,
shall be resolved against the insurance company and liberally in favor of the
insured. So how do we reconcile that?
A: In case of Philippine Health Care Provider v. CIR, we said that an HMO is
not a life insurance policy. HMOs are not engaged in insurance business. The
SC held however in this case that that rule applies to insurance policy is
applied to an HMO.

The SC said that with respect to liability, the liability of an HMO is ‘akin’ to a
non-­­ life insurance. But it’s business is not. So that is the distinction. So
again for liability, it is ‘akin’ to non-­­ life insurance company but for tax
purposes, nature of business, HMOs are not into insurance business.
Q: And because akin to non-­­ life insurance policy, how do you interpret
non-­­ life insurance policy?
A: Obviously, the doubt shall be resolved in favor of the insured and against
insurance company.

3.
 Q: Then there’s an interesting case. The case of Ty v. National Insurance. It’s
worth mentioning. So he is entitled to recover from insurance company in
case of loss of hand. Loss of hand as defined in the policy is ‘amputation of
the hand to the bones of the wrist’. Insured had an accident resulting to
temporary disability of his left hand, but not amputated. Can he recover?
A: No, because the loss is defined as ‘amputation’ and not temporary
disability. So not allowed to recover. So no need to interpret doubt, because it
is as it is in plain and literal meaning.

4. Contract of insurance is voluntary because the terms and conditions were

determined by the parties even though it is a contract of adhesion. There’s only
one kind of insurance that is compulsory, as you know. That is compulsory
motor vehicle insurance. You cannot operate a motor vehicle in public highways
without obtaining compulsory motor vehicle insurance covering 3rd party
liability. As you know, what is compulsory is against 3rd party liability.
5. Contract of insurance is personal-­­ This was also asked in the bar. The case of
Cha v. CA. Personal, to be bound by the contract of insurance , each party took
into account the personal qualifications of each other.

Q: In the case of Cha v. CA, the lease contract prohibits the lessee from taking
insurance on the goods, chattels, properties stored in the leased premises
without consent of the lessor. And if the lessee procures insurance policy, the
proceeds are deemed payable to the lessor and not to the lessee. And true
enough, the properties were gutted by fire. Who is entitled to receive the
proceeds of the insurance policy? Would it be the lessor by the stipulation or the
lessee, the injured party?
A: The SC cited 2 reasons why the lessor cannot recover:

1.) The contract of insurance is personal in nature-­­ You took into consideration
the qualifications of the lessee and not the lessor before the insurance
company agrees to grant fire insurance coverage to the insured.
2.) There are 2 factors in able to recover based on property insurance:

a.) He must have insurable interest over the property

b.) The insurable interest is protected by the policy.

So it is not enough that you have insurable interest. But interest must be
protected by the insurance policy itself.

Q: Does the lessor have insurable interest in the goods or chattels?

A: None, because he is not the owner. They are owned by the lessee.

Q: Also there’s this case of Maramag v. Maramag. This was asked twice or thrice in
the bar examination. Regarding life insurance policy where the insured designated
as beneficiaries his common law spouse and common law children. He died. Who
can recover from the proceeds of the life insurance policy? Is it the surviving spouse
of the insured or the beneficiaries? Now for beneficiaries, you have the common law
spouse and the common law children right?
A: As you know, the SC said that it is not the lawful wife because she is not
designated as a beneficiary. The common law spouse cannot also recover because
she is not allowed to be a beneficiary in an insurance policy. She is disqualified to be
designated as a beneficiary under the provisions of Civil Code on donation. The
common law children however are entitled to receive the proceeds of the life
insurance policy.
Q: What about the share of the common law spouse?
A: So in case of joint designation, one lawfully designated, the other one is not, the
share of the unlawfully designated beneficiary goes part of his share to the lawfully
designated beneficiary. So you have to impose to the common law children.

Q: Next question in your outline, When is the contract of insurance perfected? This
was asked so many times in the bar. Last time, 2 years ago. Is it perfected by the
meeting of the minds with respect to the object, cause, and consideration?
A: As you know it is right? It is consensual in nature, perfected from the moment
there is meeting of the minds on the object, cause, and consideration of the contract.
But what governs in an insurance contract is the so-­­ called cognition theory, not
the manifestation theory. Cognition theory meaning, the acceptance by the insurer is
made known to the insured. So it is perfected once the insured learns about the
acceptance of the insurance company.
Q: This was asked in the bar. June 1, the insured applied for fire insurance. June 5,
accepted. Insurance policy was mailed June 15. So june 20, risk insured against
occurs. June 21, the insured learns of the acceptance by the insurance company. So
is the insured entitled to recover?
A: No, because he learned of the acceptance only after loss, following the cognition
theory.

Now, it has to be qualified by the cash and carry rule. The meeting of the minds does
not perfect the contract unless you have payment of premium. So this principle
presupposes that there is payment of premium. Otherwise, you apply the cash and
carry rule.

Q: What about cover note? That’s also an exception right?

A: So we are discussing on the committee on how to answer this question. I had to
say that this question presupposes the application of cognition theory. But this
should be modified noh because of cash and carry rule. And the provision of the
insurance code has amended on cover note.

Cover note – temporary insurance coverage good for the period of 60 days. So
despite the fact that there is no premium payment for 60 days, the insured can
recover if the risk occurred within that period. So the premium was paid only after
the 60th day. So despite the fact, under the provisions of insurance code, it is valid
contract.

Q: So how do we reconcile this?

A: You still need to apply the cognition theory, so consensual in nature, except if the
question calls for the application of cash and carry rule or policy or provision of
insurance code on the issuance of the cover note. So you have to contextualize based
on how the question is drafted.

Next concept, insurable interest. As we say, insurable interest is the subject matter
of the insurance such that its preservation will bring about pecuniary gain or benefit
and destruction will bring about pecuniary loss, damage, or liability.

There are 2 kinds of insurable interest on life:

1.) Insurable interest on his own life

2.) Insurable interest on life of his spouse, children, any person whom he
depends partially or wholly for education and support, or any person who
has legal obligation to pay him money, deliver property or render service, or
any person upon whose life in the estate or interest depends.

Q: Alright favorite topic in the bar. As you know, if the insured pays an insurance
policy on his own life, he can designate anyone as his beneficiary. Except those who
are disqualified to receive donation under Art. 739 of the Civil Code. Because you all
know that life insurance is just like a donation. Therefore, can the insured designate
his gay friend as a beneficiary?
A: Yes.
Q: Can the lawful spouse complain about the deprivation of legitime?
A: No, because the insurance proceeds are payable to a person whose interest is
protected from (? 1:26:08.72) covered by the insurance policy.

So the insured can designate anyone as beneficiaries except of course his concubine,
public officers, or ascendants or descendants.

Q: Okay, what about if the insured takes insurance policy to the life of another?
A: Then he must have insurable interest in the life of the person. That person must
be his spouse, or his child, or depends him from education or support, or that
person has legal obligation to pay him money or render legal service, or upon whose
life any estate or interest specified by the person depends.

Q: This was asked in the bar. Can he take insurance policy on the life of another even
though he entertains impure thoughts on the person? Impure thoughts. Let’s say
that is his concubine.
A: He can. Because these are just thoughts. Maybe a ground from confession but not
a ground for unlawful designation. Not a ground to disqualify a beneficiary.
Let’s take a look one by one.

a.) On his life no problem. The life of spouse.

b.) Now when the law talks about spouse, it refers to common law spouse. (I
think lawful spouse ang gustong sabihin ni dean dito)
c.) Any person upon whom he depends for education or support-­­

Q: Remember this question about transgender? So they got married. After 1

month, he discovered that his spouse was a transgender. And he depends to
his spouse (transgender) for education and support. So the question is, it is a
valid insurance policy?
A: You know, there is a ‘dangling sentence’ when it says ‘he also depends to
that person for education and support’. So word transgender is panggulo lang
diba. So the answer is yes. Because he depends on that person for education
and support.
Q: Next question, when does insurable interest exist?
A: It exists only upon perfection of the insurance contract.

d.) Alright, Any person under legal obligation to pay him money-­­

Q: Can the creditor insure the life of his debtor?

A: Yes, on the amount of debt.

e.) Obligation to deliver property-­­ Contract to sell and payment of purchase

price has not been made in full.

f.) Deliver service-­­ This is common to law firms.

Q: Can the company procure life insurance on the ‘keyman’ of the

organization? Let’s say general manager/ president?
A: Yes. Because that person has a legal obligation to render service on the
insured.

Q: For example, in our case, they took out an insurance policy on my life, with
the law firm as my beneficiary. So can the law firm take an insurance on my
life and make itself as a beneficiary?
A: Yes, because I am the managing partner. I have the duty to render service
to my firm. So if something happens to me, the firm can collect and pay salary
of our employees for 2 years.

g.) Upon whose life in the estate or interest depends-­­

Q: Can the usufructuary insure the life of the owner of the naked title if his
continued possession of the property is co-­­terminus to the owner of the
naked title?
 A: Yes. Because that’s an example where interest depends on the life of this
person.

Let’s do some exercises:

1.) Scenario #1

Q: The insured took insurance on his life. In case of beneficiary, in case the
beneficiary unlawfully designated, what happens to the proceeds of the life
insurance policy?
A: So in case of unlawfully designation, proceeds are payable not to the
surviving spouse but to the estate of the insured. So as we said, the surviving
spouse cannot complain because he is not the person whose interest is
mentioned or protected in the policy.

2.) In case of joint designation, the share of unlawful designated beneficiary shall
form part of the share to the lawfully designated beneficiary (That’s the case of
Maramag v. Maramag). So the share of the common lawful spouse will not be
given to him. It will not form part of the estate. It will form part of the share of a
lawfully designated beneficiary.

So to emphasize, just because one beneficiary is unlawfully designated, it does not

mean that that share will form part of the estate of the insured. It forms part of the
additional share of the lawfully designated beneficiary. That’s what SC said in the
case of Maramag v. Maramag.

NOT TO THE ESTATE, BUT EVERYTHING GOES TO THE LAWFULLY DESIGNATED

BENEFICIARY.

Q: If the beneficiaries lawfully designated, if the insured dies ahead of the

beneficiary (Which is dapat naman talaga ganun diba. Dapat unang mamatay ang
insured para beneficiary can recover), the proceeds are payable to the beneficiary.
Now except for what?
A: Except if it is principal, accessory, or accomplice that bring about the death of the
insured.

As you know, it is not by negligence, not by imprudence, but willfully bring about
the death of the insured either as a principal, accessory or accomplice.

Q: Now, if that is so, what happens now to the proceeds of the policy? To whom will
it go? Is it to the estate of the insured?
A: Under the amendment, RA 10607, the proceeds will go to the designated
beneficiary (if any). Meaning there are two. So one of them is responsible for
bringing about the death of the insured, he cannot recover. But if there is another
one, another designated beneficiary, then he will be the one to recover.
If not designated and the policy is silent, that’s the only time that it will form part of
the estate of the insured. So take note, it will only form part of the estate of the
insured if there is no other beneficiaries designated or the policy is silent on as to
how it shall be distributed.

3.)

Q: 3rd scenario. Next scenario. In case the beneficiary predeceases the insured,
meaning unang namatay yung beneficiary, to whom will the proceeds of the life
insurance be payable?
A: We need to make a distinction between revocable and irrevocable. In an
irrevocable, the proceeds shall go to the legal representatives of the beneficiary. If it
is revocable, it forms part of the estate of the insured. So pag irrevocable, syempre
yung beneficiary hindi pwede makarecover kasi patay na. So yung legal
representatives yung pwede magrecover. If it is recovable, forms part of the estate
of the insured.

Q: Now what if the policy is silent? So beneficiary dies ahead of the insured and the
policy is silent as whether or not it is revocable or irrevocable. Who is entitled to the
proceeds?
A: The estate of the insured because the presumption is, the designation is revocable
and not irrevocable.

4.)

Q: Now, what about endowment plan/ endowment policy? So when will the
beneficiary recover if the insured dies before the end of the endowment period?
A: Well it goes to the beneficiary.

But if the insured survives, the benefits are payable to him. In a policy of
endowment, it a kind of life insurance. If you (insured) survived the term, then it
goes to you. Now if you died during that period or died before the end of the policy,
the proceeds shall go to the designated beneficiary.

5.)

Q: Next, may the insured change the beneficiary that is designated in the policy?
Let’s say he designated his spouse as the beneficiary. Then he suspected his spouse
guilty of adultery. Not proven yet. Just a hunch/suspicion. Can that beneficiary
complain of the change?
A: He cannot. Because every designation should be revocable unless otherwise
stipulated in the policy. If it is revocable, he cannot claim any vested right. It can be
change anytime by the insured.
Q: Now what about the effects of irrevocable designation of beneficiary?
A: So there is vested right in favor of that beneficiary. Any act on the part of the
insured that will impair the interest of that beneficiary should be nullified.
 Example, additional beneficiary. That’s not allowed.
Change in beneficiary, not allowed.
Again, any act that will impair the interest of the beneficiary is void if it is
irrevocably designated.

Q: Now what about insurable interest of property? What does it consist of?
A: Insurable interest consists of:

a.) Existing interest;

Examples would be:

  The owner may insure his property against fire.
 The depositor may insure his deposits for the amount in excess of what
PDIC covers

Q: This was asked in the bar right? So can the insured procure insurance
on the amount of deposit not issued by the PDIC?
A: Yes it can be indemnified in case the bank collapses. He can recover on
the amount dictated/ prescribed by law for PDIC coverage.

 Cargo owner-­­ The cargo owner may insure the cargo against loss or
 damage.
 Vessel or ship owner-­­ The vessel or ship owner may insure the vessel
against sinking or against claims by owners of cargo loaded on board the
vessel.

b.) Inchoate interest founded on existing interest;

Examples:

 Stockholder can insure the property of the corporation even though his
interest on the corporation is only inchoate. We have taken this up in
corpo right? The stockholder is not the owner of the property of the
corporation. While he does not own the property of the corporation, he
has still insurable interest on the property of the corporation. He has
inchoate interest on the property of the corporation. Inchoate interest
 founded on the existing interest.
 Property in the contract itself.

Q: This was asked in the bar. Can the buyer or the seller insure the
property under contract to sell?
A: Yes. The seller is still the owner until full payment of the purchase
price. The buyer because upon full payment of the purchase price, he
becomes the full owner of the property.
 Q: So this was asked in the bar. How much can the buyer insure? Is it just
the amount he paid? Or the value of the property he will purchase
A: Of course the value of the property that he will purchase. Because he
has the obligation to pay the balance based on the terms of the contract
itself.
Q: What about the seller? How much can he insure? Can he insure the
entire property? Or only to the extent not paid by the buyer if it’s a
contract to sell?
A: If supposed to be delivered, he can insure the entire property. Because
if that property is lost, it cannot be delivered. Then the payment by the
buyer will be given back to him. So he can insure the property for the full
amount, not just the amount he paid or amount not paid by the buyer.

Q: Now this was asked in the bar. What about a judgment creditor? Does
the judgment creditor have an insurable interest on the properties of the
judgment debtor? Is it that an existing interest?
A: No.
Q: Is it that an inchoate interest based on existing interest?
A: No.
Q: So when may a judgment creditor have an insurable interest on the
properties of the judgment debtor? When?
A: After the levy. Or before the levy, no insurable interest on the
properties of the judgment debtor.
Q: Now why after the levy?
A: Because after the levy, he has now inchoate interest based on the
existing interest. Because if the debtor does not redeem the property,
then the judgment creditor becomes the owner of the property.

c.) Expectancy coupled with existing interest in that out of which the expectancy
arises.

Examples:

  Growing crops
 Expected freightage under contract of transportation

Q: This was asked in the bar. Does the son have insurable interest on the
property of his father in the lifetime of his father?
A: No, because it is a mere expectancy not founded on the contract??
(1:47:20)

Q: When does insurable interest exist?

A: For life, as you know, it must exist at the time of perfection of the contract. It does
not exist at the time of loss. But for property insurance, at the time of perfection and
at the time the loss
Now, let’s take some exercises.

1.)

Q: Owner procured fire insurance. After one month he sold it. The fire insured
against occurs destroying his property. Can he recover?
A: No. For 2 reasons:

a.) Insurable interest on the property must exist on 2 occasions: When the contract
is perfected and at the time of the loss. In this case, although he has insurable
interest on the property when he procured the fire insurance, he does not have
insurable interest at the time of the loss.
b.) If the owner of the property is not the owner of the policy the contract is deemed
suspended until such time that the owner of the policy becomes owner of the
property.

2.)

Q: ABC hired a president and procured life insurance on the president. Can the
company insure life insurance on the president?
A: Yes because he has insurable interest on the life of the president. It has the
obligation to render service to the company.
Q: Now let’s say the president died on the 6th month of the term of the contract.
Obviously, the company can recover. What if he dies after 1 day of his resignation?
Can the company still recover on the proceeds of the life insurance?
A: Yes, because what is important is that there is insurable interest at the time of
perfection of contract.

Q: ABC hired an ex-­­pat, the GM of its operations. He (ex-­­pat) took insurance on

his life and company as beneficiary. Company provided housing to the GM. So the
company also bought a property of condo unit in Rockwell where the ex-­­ pat and
the family can stay for the duration of the contract. There was disagreement on how
to run the company. So he (ex-­­pat) became bitter and was fired by the company. So
ABC fired the ex-­­pat. So the ex-­­pat bought the condo unit. After 1 month of
purchase, he died. The property was destroyed by fire. Unfortunately for him, he
and his family likewise died. Can ABC recover on the life and property insurance?
A: On the life, yes. Because insurable interest exists at the time of perfection of
contract and not about the time of the loss.
Q: What about property insurance?
A: No, because he already acquired the property of the company. So company has no
longer insurable interest on the property at the time of the loss.

3.)
Q: What about the mortgagor and the mortgagee? We all know the mortgagor can
procure fire insurance on the mortgaged property independently of the mortgagee.
Is there double insurance in this case?
A: As you all know there is none because double insurance means the same person
to insurance, same interest, same subject matter and same risk. So here we have 2
persons thereby negating double insurance.
Q: But how much can the mortgagor insure?
A: The value of the property.
Q: How much can the mortgagee insure?
A: Based on the amount of levy procured or obtained by the mortgagor.

Q: So mortgagor procures fire insurance without designating mortgagee as the

beneficiary. Who can recover in case the risk insured against when the property is
destroyed by fire? Can the mortgagee recover?
A: He cannot recover because he was not designated as a beneficiary. He has
insurable interest on the property as the mortgagee but his insurable interest is not
mentioned in the policy, not protected in the policy.
Q: Now what is the right of the mortgagee?
A: He has a right for a lien on the proceeds of the insurance policy payable to the
insured. The proceeds take the place of the mortgaged property. It’s just a lien on
the proceeds of the policy.

Q: The mortgagor procures a fire insurance and made the mortgagee as a

beneficiary. Obviously in case the property is destroyed by fire, the mortgagee
receives the insurance proceeds right? What happens now to the loan of the
mortgagor?
A: If the proceeds are not to pay a loan, the loan is extinguished.
Q: What happens to the insurer? What is the right granted to the insurer?
A: The insurer, having been subrogated to the rights of the insured, can proceed
against the wrongdoer (if any).

4.)

Q: Mortgagor procures a fire insurance and made the mortgagee as a beneficiary.

The mortgagor set the property on fire (deliberately). Can the mortgagor recover?
A: He cannot.
Q: Can the mortgagee recover?
A: He cannot. Because any act made by the mortgagor affects the right of the
mortgagee to recover if he is just indicated as a beneficiary.

Different story if the mortgagee procures separate fire insurance on the property,
independently on the fire insurance procured or obtained by the mortgagor. If there
is a separate insurance policy by the mortgagee, the act of the mortgagor will not
affect his right to recover on this insurance policy.
But in this case, he did not procure a separate policy. He was just made a beneficiary
and the property was destroyed by fire upon the act of the mortgagor. That act of
the mortgagor affects the right of the mortgagee to recover.

5.)

Q: The mortgagor and the mortgagee procured separate fire insurance. So 1st
question, is there double insurance?
A: None, because you have 2 separate persons not one person.

So any act of the mortgagor will avoid the insurance policy procured by the
mortgagor, but not the one procured by the mortgagee. So we have 2 separate
policies. The act of the mortgagor will affect the rights of the mortgagee based on
the policy procured by the mortgagor, but will not affect his right to recover
(mortgagee) based on a separate insurance policy.

Q: So the mortgagor procured fire insurance. And the fire destroyed the property
after redemption period. Who can recover? Can the mortgagor recover? (ilang beses
ko inulit ulit yung audio pero ‘after’ talaga sabi ni Dean eh)
A: Of course he can. Because he has not lost ownership on the property.
Q: When will he lose ownership of the property?
A: He will only lose ownership of the property in case of non-­­ redemption. During
the redemption period right, he is still the owner of the property. So he has the right
to relieve the property. It would be different if the period expires, in which case he
has no more insurable interest on the property.

(Naguluhan ako sa trinanscribe ko. Parang di ko gets?! Baka during redemption

period and not ‘after redemption period’ ang gustong sabihin ni Dean? Anyway
kindly check 1:56:39.89)

6.)

Q: What has not yet been asked in the bar is the effects of the general banking law.
So this is something you have to be careful. So the mortgagor has insurable interest
during the redemption period. But once expires, no more insurable interest. If the
property is destroyed by fire in that period, then he can still recover because he has
not lost insurable interest, he cannot recover.

Now let’s say the mortgagor obtained a loan to the mortgagee. Procures fire
insurance on the property as required in the mortgage agreement, but without
designating the mortgagee as the beneficiary. So the mortgagor failed to pay the
loan. The mortgagee foreclosed the mortgaged property (then ang bilis na magsalita
di ko na nasundan 1:57:36.71). Can the mortgagor still recover?

A: It depends.
If the mortgagee is a bank, quasi-­­ bank, or trust entity and the mortgagor is a
juridical person. The mode of foreclosure is extra-­­ judicial, then the redemption
period is terminated upon registration of the same because of the changes under
Section 47 of the general banking law.

Now if the mortgagee is a non-­­ bank, then the period expires only after 1 year from
registration of the same.

So that’s not yet asked in the bar.

7.)

Q: Okay next. What if the mortgagor, within the redemption period assigned his
right to the mortgaged, to the fire insurance policy to a creditor to generate the
funds to pay off the mortgagee. And the property is destroyed by fire during the
redemption period. So who can recover? Can the mortgagee recover?

Let’s repeat the facts. So mortgagor obtained a loan to the mortgagee and procured
fire insurance on the property as required in the mortgage agreement but he did not
designate the mortgagee as the beneficiary. The loan was not paid. And the
mortgagee forecloses the mortgaged. During the redemption period, the mortgagor
assigns his rights on the policy to a creditor to generate the funds to pay off the
mortgagee. Now during that period, the property was destroyed by fire. Can the
mortgagor recover?
A: He cannot recover right? Because he has no insurable interest on the policy
having assigned his right to a 3rd party creditor. So when does it (insurable interest)
exist? It exists during the time of the perfection of the contract and the time of the
loss. Having assigned the policy to the creditor, he has no more insurable interest on
the property.
Q: What about the assignee of the policy? Can he recover?
A: He cannot because he has no insurable interest on the property. He may have
insurable interest but because it’s not specified in the policy, then he cannot recover.
Q: What about the mortgagee? Can he recover?
A: Well the mortgagee cannot recover because he is not the one designated as the
beneficiary. He has a lien only on the proceeds of the insurance policy.

8.)

Q: So general creditor as we said no insurable interest on the property. Now after

the levy, so he can procure fire insurance on the property, levied on execution?
A: Yes. Because he has inchoate interest founded on existing interest. It becomes a
full interest in case the mortgagor or debtor does not redeem the property.
Q: Now if the fire destroyed the property before redemption period, who can
recover on the policies? Can the owner, the mortgagor still recover based on the fire
insurance policy procured? And can the judgment creditor, not the mortgagee,
 judgment creditor who levied the property on execution and procured separate fire
insurance after the levy. So who can recover in that case?
A: Now if the mortgagor, as to the separate fire insurance policy can recover because
the redemption period has not yet expired. Now the creditor, having levied the
property and procured the fire insurance after the levy can likewise recover based
on his separate insurance policy. So before the levy, he has no insurable interest.
After the levy, he has insurable interest on the property levied.

Q: Next point, how do you distinguish insurable interest on life and insurable
interest on property?
A:

Insurable interest on life Insurable interest on

property
1. Extent Insurable interest is unlimited. Limited to the actual value
You cannot put a price tag on the of the property
person.

The only limitation is the amount

stated in the policy.
Interests of If the person takes an insurance
Beneficiaries in his own life, he can designate
anyone as beneficiary with or
without reason except those
disqualified to receive donation.
You must have insurable
interest in the property and
that insurable interest is
mentioned or protected in
the policy.

If the insurance policy is taken on

the life of another person, then he
must have insurable interest on
the life of that person he insured.
Basis Expectation of benefit to be He must have legal basis
derived by the beneficiary need founded on existing
not have any legal basis. interest, or inchoate
interest based on existing
interest.

Next, change of interest of the thing insured.

As you know change of interest of the thing insured, if it is accompanied by change
of interest in the insurance, suspends the policy right? So if the owner of the
property procures fire insurance and then sells the property, he cannot recover.

Q: Can the buyer recover?

A: He cannot, because he is not mentioned in the policy (unless the policy is
assigned to him, no problem there).
Exception are, our keyword LASWIP

1. In case of life, health, and accident insurance.

Q: Why is that so?

A: Because these are not contracts of indemnity. Insurable interest must exist
only at the time the insurance is perfected for life, health and accident
insurance. So the change in the policy as owner will not affect the rights of
the insured to recover. Because insurable interest exists only at the time the
contract is perfected.

2. After the occurrence of the injury

So the policy can be assigned right? If the policy is assigned after the
occurrence of the injury, it will not preclude recovery.

Q: Why is that so?

A: Because the right is already vested.

3. Several things are insured

Q: So let’s say you have 2 houses. A insured 2 separate houses covered by 1

policy. One got burned. Can he recover on the insurance proceeds covering
the destroyed property?
A: Yes, despite the fact that he does not own the other property.

4. Will or succession

So change of interest by will or succession because ownership is transferred

to the heirs by operation of law.

5. Inures to the benefit of whoever is claimed (?) as a beneficiary based on the

terms of the policy.

6. Partners

Q: Regarding payment of premium, it is a favorite topic in the bar, regarding

issuance of PDC. So we discussed the cash and carry rule and exceptions to the cash
and carry rule. What about payment of insurance premium through PDC? What is
the rule in this regard? And this has been asked 3 or 4x in the bar.
A: So to simplify, as long as the loss occurs within the credit period, the insured may
recover. So if the loss occurs before the date of the PDC, then the insured may
recover, simple as that.
So if PDC date is June 20 for example, so any loss before June 20 will bring about
recovery of the insured.

Q: Now what about if the loss occurs after June 20? So I’ll simplify the rules. If the
loss occurs during the credit extension, then the insured may recover. So if the PDC
date is June 20 for example the loss occurs before June 20, then the insured may
recover. Now what about if the loss occurs after June 20? Let’s say June 21. PDC was
tendered by the insured to the insurance company. The loss occurred after June 21.
May the insured recover?
A: It depends if the check is honored or not honored. So if the check is just encashed
but funded, then the insured may recover. If the check is dishonored, meaning not
funded, then the insured cannot recover.

So to clarify, to be clear about this, what is important is it occurs during the debit
period. If it does, then the insured may recover. (End of record 2:11:20)

May 3, 2018

STAGE/PHASE/LIFE OF INSURANCE CONTRACT:

Application/ Proposal-­­> Perfection-­­> no loss/ loss-­­> notice of loss -­­> proof of

loss -­­> claims/ settlement -­­> rejection/ acceptance -­­> suit-­­> subrogation

1. Application/ Proposal-­­ Application of the insured, or proposal of the insurer

2. 2 things may happen either loss or no loss. If there is no loss, everybody
happy, the insurer or insured, but there’s no bar examinations. There has to
be loss so that there maybe questions in the bar.
3. After loss, notice of loss comes next to be given by the insured to the insurer.
4. Of course submission of proof of loss
5. Then claims and settlement
6. With respect to claims and settlement, 2 things may happen. We have either
rejection of the claim or approval of the claim.
7. After rejection what comes next? The next step for the insured is to file a suit
against the insurance company.
8. After approval of the claim or payment by the insurer to the insured, the next
step is subrogation.

Let’s take up the first one, application for insurance coverage by the insured to
the insurer or the proposal of the insurer to the insured for insurance coverage.

Q: What is required to both parties?

A: Good faith. So duty on the part of the insured to disclose material facts. So
disclosure of material facts known to the insured and of course not known to the
insurer before the policy becomes effective. So the need to disclose material fact
of course exists or should be expressed rather before the policy becomes
effective.
Q: Now what should be disclosed?
A: Material facts known to the insured relating to the covered risk and of course
not known to the insurer.
Q: And what do you call that if the insured does not disclose or failed to disclose
material fact? Or there is neglect to disclose material facts?
A: Concealment. So at this point there has to be good faith on the part of both
parties. Material facts should be disclosed by both parties with each other. But from
the standpoint of the discussion, it is more required on the part of the insured
although the insurance code provides that that duty pertains to both parties but the
abundance/ wealth of jurisprudence in this regard refers more to disclosure of
material facts by the insured rather than the insurer. In fact, the well-­­ known
jurisprudence regarding the decision is done by the insurer if there is failure or
neglect to disclose material facts. Or there is misrepresentation as to material facts
communicated by the insured to the insurer.

Q: Is good faith relevant or material?

A: In your outline of cases, you may have been confused noh. In one or two cases
SC said that good faith is immaterial. Some cases SC said further intent is
necessary to entitle the insurer to rescind the policy right? Now the most recent,
is the one penned by Justice Del Castillo, your chairman on the bar exam
committee. So he said that if there is no further intent to conceal, there is no
deception on the part of the insured to the insurer, then the insurer is not
entitled to rescind the policy. In fact in the case of Insural Life v. Khu (2016), he
said that there can be no concealment if the insured authorized the insurer to
check and verify the medical history of the insured. So for practice purposes noh,
you advise your client, as long as the insured authorized the insurer, you can go
ahead, examine medical history. So if there’s authorization granted or given by
the insured to the insurer, SC said there can be no concealment. So there’s no
intent to conceal material facts.
Q: Now what’s the test of materiality?
A: As you know, the test of materiality is the reasonable and probable influence
on the insurer on forming the estimate of the risk and making inquire. Or in the
words of SC because the insurance code is mode verbose, “Bearing on the
decision of the insurer to provide the insurance coverage to the insured in
forming excessive risk and for how much the premium will be charged.” So that’s
the test of materiality. The likely influence on the decision of the insurer to
provide insurance coverage to the insured, in forming his estimate of the risk
and determining the amount of premium to be paid by the insured to the insurer.
And jurisprudence has it as you know, as we mentioned yesterday, the facts
concealed need not be the cause of the loss. So the material facts are not
communicated of the insured to the insurer, then the insurer is entitled to
rescind the policy, regardless of good faith (again, for some given exceptions).

Let’s take a look jurisprudence on your outline. We cited few of them yesterday.

1.)
Q: He did not disclose that he had kidney failure in his application for insurance
coverage. He died of plane crashed. Is the insurer entitled to rescind the policy?
A: SC said YES. Because that is a material fact which could have change the
decision of the insurer in forming estimate of the risk and determining how
much premium to be paid.

2.) Another case, application for endowment policy, making his child a
beneficiary. Now he did not disclose (the insured) to the insurance company that
his child was a mongoloid. He died of influenza. What’s the connection between
non-­­ disclosure of mongoloid baby, and influenza? None right? But SC said that
is a material fact that should have been disclosed to the insurer. If it in fact
disclosed, perhaps, the insurer would not have provided the insurance coverage,
or if it did, could have charged higher premium.

3.) Another case, various illness then died of food poisoning. What’s the
connection? Again None. But SC said that had it been disclosed to the insurance
company, it would not have perhaps enter into insurance contract, or if it did,
could have charged a higher premium.

4.) Now recent case, Sun Life v. Sylvia, He did not disclose that he had renal
failure. He died of gunshot. What’s the connection? Again None. But SC said that
this is a material fact following the same test. This could have a bearing in the
decision of the insurance company, providing the insurance coverage and
determining the amount of premium to be paid.

5.) Now what about cases to the contrary? Where the SC tried to made a
distinction between matters of facts and opinions in good faith.

In your outline, he died (insured) of peptic ulcer but in its application for the
insurance coverage, he disclosed that he had tumor associated with ulcer in his
stomach. He died of peptic ulcer noh, but what he had disclosed in his
application that he had a tumor, he was operated for ulcer on his stomach. Sabi
ng SC, perhaps he does not make a distinction between ulcer in stomach and
peptic ulcer. But there was good faith on his part, for him, there was a full
disclosure of material facts to the insurance company.

In the case of Sun Life v. Sylvia, he disclosed in his application that he was
treated for kidney problem. I’m sorry. He sough advice noh for kidney problem.
He died of renal failure. So was there a concealment of material fact? Sabi ng SC,
none. Because he disclosed that he had kidney problem. He sought advice for
kidney problem even though he died of renal failure. So you don’t have to be
specific. You don’t have to say that “I had renal problem”. You don’t need to be
technical in your choice of words, because these words can be medical in nature.
So in these 2 cases, in the opinion of the insured, there was disclosure of
materials.

Q: Okay, now what about waiver on the part of insurer of medical check-­­ up? So
the insurer says “We are waiving medical check-­­ up.” And because of that waiver of
medical check-­­ up, the insured does not disclose material facts despite several
illnesses he had contracted during his lifetime. Is this waiver of medical examination
tantamount to waiver of the obligation to disclose material facts?
A: SC said “the waiver of medical examination should even prompt the insured to
disclose material facts.” So don’t believe in insurance company which says “we
are waiving medical examination”. Don’t believe them. SC said insured still needs
to disclose material facts if there is waiver of medical examination.
Q: What about waiver to ask further inquiries? There’s one case. Ang tanong, “is
your property mortgaged?” And the insured communicated “yes”. Now there was
another blank meant for the question “How many insurance companies or how
many insurers provided in the insurance coverage for your property?” He did
not answer that part. And the insurance company did not make any further
inquiry. Now why is this relevant?
A: This is relevant in case of prohibition on other insurance or in case of double
insurance. As you know, as we will taken up this in a short while, if there is
prohibition on other insurance, and then the insured contracted other insurance,
it avoids the policy. Or if the policy requires only one insurance and then the
insured procures two or more insurance, this is a violation of a policy that
entitles the insurer to rescind the contract. But in that particular case, the
insured answer “There is no obligation on his company that covers the property”
now leaving in blank the next question “how many”, the insurance company
should have asked more inquiry. Having failed to do so, it amounts to waiver on
the part of the insurance company.

Q: Now this was asked in the bar. What if the material facts were disclosed in the
CORSEC of the insurer and not to the authorized officer of the insurance
company? Is there concealment on the part of the insured?
A: Disclosure to the CORSEC is not disclosure to the insurance company.
Disclosure should have been done to the authorized officer of the insurance
company.

Now the duty to disclose material facts is not limited as you know to life
insurance. It extends to property insurance. Example I gave earlier, let’s say the
insured did not disclose material information in the insurance coverage and the
insurer is entitled to rescind the policy.

Now another one, this was asked in the bar, the case of Malayan Insurance v.
PAP Company (2012), the insured did not disclose that after reinstatement of
the policy, he transferred the insured property to another building but within
the same compound. Remember this case? SC said that is material fact that
should have been made known or disclosed to the insurer. Failure of which, the
insurer is entitled to rescind the policy. In fact in that case there are 2 reasons
why insurance company is allowed to rescind the policy:

1.) Concealment of material fact that should have been disclosed to the insurance
company before the reinstatement.
2.) Alteration in the use of the thing insured that increased the risk without the
consent or knowledge of the insurance company. It likewise entitled the
insurance company to rescind the policy.

Q: How do you distinguish representation from concealment?

A: Representation is a statement of fact or condition that relates to the risk
covered by the policy that induces the insurer to provide insurance coverage.

So we say that representation is the disclosure made by the insured in

compliance with the duty to disclose. So concealment is failure or neglect to
disclose material facts. Representation is what you state in the policy in
compliance with duty to disclose material facts.

Example, “Have you been hospitalized?” If you answered “No”, that’s

misrepresentation.

“Enumerate the medicines you have taken for the last 2 years relating to kidney/
ulcer/ or whatever illness”. You concealed or did not disclose a vital or
important medicine. That’s concealment.

Now if what is indicated is wrong, that’s misrepresentation. So concealment is

failure to disclose, misrepresentation is statement of fact or omission to the risk
in compliance with the duty to disclose material facts.

Q: What about warranty? So insured makes certain warranty. How do you

distinguish warranty from representation?
A: Representation need not be part of insurance policy, whereas warranty, it
should be part of the insurance contract.

Example, let’s say the insured warrants that he must store “Hydrant pair (?)
0:18:27.96 floor of the building. If he is not then insurance company is entitled to
rescind.

Or another case, the insured warrants that he will not store firecrackers in the
building. He did. He purchased firecrackers and guess from what country? From
China. The building got burned. And this is the funny part, the firecrackers were
intact. And the cause of the fire was not the firecrackers. Can the insurer rescind
the policy?
A: Yes, because there is breach of warranty. It could have not been the cause of
the fire but there’s a warranty not to store firecrackers in the building. The
firecrackers may have contributed the risk insured against.
Q: Also at this point, what if the agent is the one who fills up the application of the
insurance coverage. The so-­­ called “theory of imputed knowledge” right? So is the
insured bound by the information or details filled-­­ up by the agent on behalf of the
insured?
A: The most recent case is Florendo v. Philam (2012). The SC said, if the insured
furnished the agent the information needed, communicated to agent to fill-­­ up the
application, then he acted in the instruction of the insured. In other words, in that
particular case, the insured is bound by the entries or information filled-­­ up/
indicated by agent on the application for the insurance coverage. So that’s the recent
case. The insured provided information to the agent and then he authorized the
agent to fill-­­ up the application, so the agent did so accordingly, so whatever is
there or is not there, binds the insurer. That’s the most recent case.

There’s a previous case, penned by Regalado, whether or not the so-­­ called theory of
imputed knowledge is valid or doubtful. But that’s an old case, already settled in the
case of Florendo v. Philam. The insured, if he authorized the agent to fill-­­ up the
insurance coverage, becomes the agent of the insured and not agent of insurance
company.

Okay, so after proposal of application for insurance coverage, what comes next? The
perfection of the contract.

Q: What do we say last time? When is the contract perfected?

A: Upon meeting of the minds of the cause, consideration, and object of the
insurance contract. But in our jurisdiction, we follow the so-­­ called cognition
theory. So it becomes valid only when the acceptance by the insurer is made known
to the insured. So if the risk insured against occurs after acceptance by the insurer
but before the knowledge of the insured of the acceptance made by the insurer, then
the insured cannot recover.

And also in this regard we discussed yesterday the so-­­ called “cash and carry rule”.
So as we said yesterday, when we said that it is upon the knowledge of the
acceptance by the insured, that’s on the premise that the PREMIUM HAS BEEN PAID.
If there’s no premium, then there’s no valid and efficacious contract.

Subject to the following exceptions of cash and carry rule: (LIA S ICE)

L-­­ Life and

I-­­ Industrial Insurance Policy whenever the grace period provision applies;
A-­­ Acknowledgment of receipt of premium despite the fact that no premium was
paid.

S-­­ Suretyship; If the obligee accepts the bond despite the fact that premium was
not paid.
I-­­ installment payment (Makati Tuscany Case)
C-­­ Credit extension
E-­­ Estoppel

Q: Now there’s this case not yet asked in the bar, Jose Marques v. Far East Bank. So
in this case, Far East Bank had a wholly owned subsidiary, Far East Bank Insurance
Company which provided fire insurance coverage to the insured. So Far East Bank
represented to the insured that its account with the bank has been in debited to the
payment of the premium. So all along, the insured was in the impression that he had
paid premium to the insurance company, owing to the representation by the bank
that the account had been in debited and remitted in favor of the insurance
company. It turned out that the account was not debited and the premium was not
remitted to the insurance company. And in the meantime, the property was
destroyed by fire. Can the insured recover?
A: Yes.
Q: Against whom? Against the insurance company or against the bank?
A: Against the bank and not the insurance company. Because in the insurance
company, there is no valid contract of insurance because NO PREMIUM WAS PAID.
On the other hand, Far East Bank has been made liable for the value of the property
because of its negligence and misrepresenting to the insurance company that the
account of the insured had been debited and premium was remitted accordingly to
the insurance company.

Q: What about the agent? If the agent accepts premium on behalf of the insurance
company, is that binding? What if for example the agent pocketed the premium and
did not remit to the insurance company? Is it a valid insurance contract?
A: Under Insurance Code, if the policy was delivered by the insurer to the agent,
then he is deemed to have been authorized to accept premium payment. That’s the
bottom line. So if the insurer delivers the policy to the agent, So the delivery of the
policy by the insurer to the agent is tantamount to authority on the part of the agent
to receive the premium on behalf of the insurer. So whatever happens beyond that
cannot be taken against the insured. So if the agent pocketed the premium, in so far
as the insured is concerned, he has paid and entitled to the coverage.

Q: Now, how do you distinguish a cover note from a binding slip? Which one
perfects the insurance contract despite non-­­ payment of premium?
A: Cover note right? Because cover note is a temporary or provisional insurance
coverage. So even though no premium was paid during the 60-­­ day period of the
cover note, the insured may recover.
Q: Now can you extend the cover note?
A: Only upon approval of the Insurance Commission.
Q: Now, what about binding slip?
A: Binding slip means given by the agent to the insured subject to processing of
application by head office.
So if the question is binding slip, the answer is, it does not perfect the insurance
contract. If what is issued to the insured is a cover note, it perfects the insurance
contract despite non-­­ payment of premium. So if the loss occurs on the 60-­­ day
period of cover note, the insured can recover.

Q: What about a promissory note? There’s a case in your outline. The insurance
company delivered the policy to the insured and it accepted a promissory note in
payment of the premium. And then despite non-­­ payment of premium or the
premium has not been paid yet, the risk insured against occurs. Let’s say fire. So the
fire destroyed the property. Can the insured recover? So he only issued promissory
note. He did not make an actual payment.
A: SC said that issuance of promissory note is tantamount to the credit granted by
the insurer to the insured and therefore the insured can recover subject to the
amendment under the Insurance Code that the credit period should not exceed 90
days. That’s what the law says. That’s why in our discussion here yesterday you
remember, this what SC said, the issuance of the PDC is equivalent to the issuance of
promissory note. As long as the loss occurs within the credit period, the insured may
recover. So let’s say a policy was issued June 1. PDC, June 15. The risk insured
against occurred during that period. Then the insured may recover. Because it is as
if credit extension was done by the insurer to the insured.
Q: Now what if it happens beyond the PDC, let’s say June 16?
A: Now the answer depends whether or not it is in cash or not in cash. If it’s in cash
but funded, the insured may recover. An in cash but not funded, then the insured
cannot recovered.

Q: Now who has the burden of proving or burden of keeping the policy in force? Is it
the insured or the insurer?
A: SC said that the burden is on the insured to keep the policy in force. The burden
with respect of payment of premium, the burden to keep the policy alive is on the
insured and not on the insurer. Bottom line is, if premium is not paid, before
reinstatement for example, and the policy lapses. So if there is no premium, there is
no valid insurance contract subject to those exceptions we discussed. So in case of
reinstatement, before reinstatement premium was not paid, then as if there is no
policy that is made.

Q: Let’s move on. After perfection of contract what comes next?

A: No loss/ loss.

Q: Now in case of loss, when may the insured recover?

A: Our keyword is PINE

P-­­ Proximate cause of the loss is the covered risk

Let’s say it’s a fire insurance. If the fire is the proximate cause, obviously the insured
can recover.
I-­­ Immediate cause of the loss is the covered risk except if the proximate cause is
excepted peril.

Q: Let’s say there’s a fire insurance policy. The property installed is in Building B.
There was explosion in Building A and the explosion in Building A caused fire that
affected Building B and destroyed the property insured in Building B. Can the
insured recover? The proximate cause is not the fire right but the explosion in
Building A. But the immediate cause is the fire. Can the insured recover?
A: Yes. If it indeed caused the loss on the risk insured against, then by law, the
insured can recover. The only exception is if the explosion, the proximate cause is an
excepted risk.

N-­­ Negligence of the insured; So the insured may recover despite this negligence.
As long as it is not “gross” negligence on the part of the insured.

It’s self explanatory.

E-­­ If the thing insured against was exposed from a risk or peril not covered by the
policy, depriving the insured the possession of the property.

Example, may fire. It tried to save the property from fire, placed the properties
inside the house, in a safe place, then taken by another. So robbery is not the risk
insured against, it’s fire, but it happened in the course of the efforts in rescuing the
thing from the risk insured against. In that case, the insured can recover.

Q: What about loss from which the insured cannot recover?

A: The insurer is not liable for GEC.

G-­­ Gross negligence

E-­­ Excepted Peril
C-­­ In case of connivance of the insured.

Now after loss, what comes next? Notice of Loss.

Q: Remember this case of BPI v. Laingo (March 2016), The so-­­ called two-­­in-­­
one deposit. Remember this case? Two-­­in-­­one deposit coverage. Anong ibig
sabihin niyan? You placed a deposit with the bank, automatically you have insurance
coverage that issued by PDIC by the bank. So the bank in this case is BPI affiliated
with FDU insurance company. So BPI had this product “if you deposit your money
with us, then automatically you get insurance coverage”. And of course insurance is
not given or provided by the BPI because banks are not allowed to be insurance
company. It was provided by FDU, a sister company of BPI. Now the depositor died.
The heirs of depositor notified BPI and not the insurance company. So the notice
was given to BPI and not to the insurance company. Can the heirs of the insured
recover?
 A: SC said yes. The doctrine of representation. In that case, SC said through
Justice Tony Carpio, the bank acted as agent of the insurance company in receiving
the notice of loss.

Q: After submission of notice of loss of course you need to submit proof of loss.
Within what period?
A: The period set by the policy.
Q: And if notice was not given within the period prescribed by the policy or the
proof of loss was not given within the period prescribed by the policy, then the
insurance company is not liable.

Then we have cases on that line. If notice was not given or proof of notice of loss was
not given within the period prescribed by the policy, then the insurance company is
not liable.

Now upon submission of proof of loss, the next step is claim/ settlement. So 2 things
may happen as we said. So rejection and approval of the claim.

Q: Now in cases of rejection, what are then defenses usually advanced or raised by
the insurance company?
A:

1.) No insurable interest-­­ As you know if there is no insurable interest, that

cannot be waived. So no amount of estoppel will apply if there is no insurable
interest in the subject matter of the insurance.
2.) Wrong claimant-­­

Q: To whom are the proceeds of the policy payable? What did we say
yesterday?
A: It depends. In case of property insurance, there are two things to be
satisfied whereas to say that he is the rightful claimant:

1.) “Does he have insurable interest on the property?”

2.) “Is his insurable interest covered by the policy?

So he may have insurable interest but not covered by the policy, then he cannot
recover.

Q: Let’s say a building contractor. He insured the interest on the building. Let’s say
the property was destroyed by fire. Can the owner of the building receive the
insurance proceeds?
A: No. Because the owner may have insurable interest on the building because he
owns it, but that interest is not covered by the policy. So in that case, only the
building contractor can recover and not the owner of the building.
 1.) Q: What about for life insurance? Yesterday we made a distinction right? If
the insured takes insurance policy on his own life, he can designate anyone
as beneficiary, given that the beneficiary has insurable interest on the life of
the insured. The only pre-­­ condition is that the beneficiary must not be
disqualified under Article 739 of the Civil Code. Now if the person takes
insurance on the life of another, then he must have insurable interest on the
life of the person. The insured must be his spouse or child, or upon whom he
depends or support wholly or partially, or has legal obligation to deliver the
property or render service, or any person upon whose life in the estate or
interest depends.

3.) 3rd defense is concealment as we have taken up.

4.) Misrepresentation

If there is concealment or misrepresentation, take note, the insurer must file

an action to rescind. If the claim precedes the legal action, then the insurance
company should be made liable. So if there is misrepresentation or concealment, the
insurer must file an action to rescind. So if there’s no action to rescind, so that is
deemed barred.

So in cases you have read in your outline, you may have noticed that insurance
company always file an action to rescind. If there is a claim by the beneficiary, and
they think that there is misrepresentation or concealment, they file an action to
rescind. So that precludes of recovery on the part of the beneficiary.

Of course, the most important principle, and I’m almost sure that this will be asked in
the bar, the so-­­ called incontestability clause. We all know that after the lapse of
2 years from the issuance of the policy, or reinstatement, the insurer cannot rescind
the policy even though there is misrepresentation or concealment on the part of the
insured.

Q: What do you mean by “2 years from the policy”? Is it date of issue or date of
receipt? When do we reckon the period? Date of issue is June 18 but received by the
insured only 2 months after.
A: From date of policy and not date of receipt. So 2 years counting from date of
policy or last reinstatement.

Q: Now this is tricky part, what if the insured dies within 2 years? Can the insurer
still rescind the policy on account of concealment or misrepresentation? What do
you think? This will be asked in the bar, I am almost sure.

A: Let’s take a look in jurisprudence in this regard. The first case is Tan v. CA
(1984). In the case of Tan v. CA, sabi ng SC if the insured dies within the 2 year
period, it does not matter. Basta after 2 years, the insurer can no longer rescind the
policy. So if within 2 years, namatay yung insured, then the insurance company can
still rescind the policy in case of concealment or misrepresentation.
Second case, Manila Bankers v. Aban. In that case, more than 2 years had lapsed
from issuance of the policy. In fact, 2 years and 7 months from the issuance of the
policy. So that alone means the insurance company can rescind on account of
concealment or misrepresentation in the so-­­ called incontestability clause. So
there was no need for the SC to discuss further because it occurred more than 2
years and 7 months. The thing is, SC unfortunately said if the insured dies within 2
years, then the insurance company can no longer recover. It’s obiter dictum. More
than 2 years and 7 months had lapsed from the issuance of the policy. Theoretically
the insurance company cannot rescind the policy anymore right? But there’s a
dangling phrase “or if the insured dies within the period, the insurer cannot rescind
the policy”. Meaning he is barred from rescinding the policy despite the concealment
or misrepresentation.

Then the last case is Sun Life v. Sylvia. So now, the once ‘obiter dictum’ is now the
‘ratio descidendi’. If the insured dies within 2 years or after the lapse of 2 years from
issuance of policy or statement, the insurance company can no longer rescind the
policy despite concealment or misrepresentation. Is it correct? Well, that’s what SC
said. Unfortunately, hindi sila nagkasundo ng Sun Life noh. So they had to file for
motion for reconsideration, but denied. So they came to us for 2nd motion for recon,
I was charging extra amount. Because my reputation is on the line diba. I always win
cases. Eh eto 2nd motion for recon na eh. So talo sila sa first case. Nag MR sila,
denied. Nagretire yung ponente, si Justice Reyes, wala pang bagong ponente kasi
dapat tapos na noh. So they came to us. Now it’s difficult for 2nd MR to be approved
right? I have to charge higher fees for the risk. But they made tawad, so we did not
accept.

Anyway, for BAR purposes, there are now 2 situations that bar insurance company
from rescinding the policy despite the concealment/ misrepresentation (Even
though if there is an obvious concealment/ misrepresentation), insurance company
must make good on the policy in any of these 2 cases:

1. 2 years from issuance of the policy or last reinstatement; or

2. The insured dies within 2 years.

In fact in the case of Sun Life v. Sylvia, namatay yung insured 3 months from
issuance of the policy. Sabi ng SC, hindi na pwede magrecover ang insurance
company, barred na siya under the incontestability clause siding the case of Manila
Bankers v. Aban. Which I think is wrong. What is the rationale of the
incontestability clause? To give time for insurance company to determine if there is
fraud. Because insurance coverage must be given on the bona fide claimant. What if
for example the insured dies one day after issuance of the policy? So how would the
rationale be accomplished, right? Tapos na. It’s wrong, that the one I would like to
argue, but I did not take the case. So for bar exam purposes, that’s how you should
answer. To repeat, you have 2 situations that will bar the insurance company to
rescind the policy despite the concealment or misrepresentation.
 1. So after 2 years from issuance of the policy, or last reinstatement; or
2. The insured dies within 2 years from the issuance of the policy.

So Sun Life v. Sylvia is your authority.

Now there’s also a case penned by Justice Del Castillo, Insular Life v. Khu (2016). So
naglapse yung policy sa life insurance. Btw, what are the requisites of the
incontestability clause?

1. Life insurance payable on death of insured;

2. The policy enforced at least 2 years from date of issuance or last
reinstatement.

Q: Does incontestability clause apply in case of ‘annuity contract’? (Not yet asked in
the bar)
A: No. Because annuity contract maybe a life insurance but it is not payable upon the
death of the insured.
Q: What happens in Annuity?
A: So magbabayad ka ng lump sum. Lump sum of amount issued every year (kaya
nga annuity), he receives the amount designated by the policy of the insurance
company. Pag namatay siya, that’s the time it terminates. So it’s not payable upon
the death of the insured but terminates upon the death of the insured. So it maybe a
life insurance but it’s not within the so-­­ called ‘incontestability’ clause. Because
this clause only applies for life insurance payable upon the death of the insured.

Q: So how about the case of Insular Life v. Khu? So this what happened. So the life
insurance policy had already lapsed. And the insured asked if he maybe reinstated.
So at first, the insurance company denied his request for reinstatement but
eventually admit subject to payment of additional premium. Now this is how the
letter of acceptance of Insular Life read: “We accept the imposition of extra
additional premium of 1,000 pesos effective on June 22, 1999”. Then the insured
died September 22, 2001. The premiums were paid December 22, 1999. Can the
insurer still rescind the policy. Sabi ng heirs ng beneficiary “No more, because 2
years had already lapsed. Kasi sabi mo effective June 20 1999. Namatay yung
insured September 22, 2001. So more than 2 years had already lapsed”. Ang tanong
dito, ano ba ibig sabihin ng “effective on June 22 1999”? Is it on payment of the
premium or reinstatement of the policy?
A: Sabi ng SC through Del Castillo, hindi clear ano ba yung effective. Yung premium o
yung policy? So dahil mayroong doubt, that doubt should be resolved in favor of the
insured and against the insurance company. So therefore, it is effective on June 22,
1999. Namatay siya September 22, 2001. More than 2 years had lapsed from
issuance of policy, then insurance company cannot recover.
Q: Ang tanong ng SC, ano ba talaga ang tama? Yung Sun Life or Insular Life v. Khu?
Yung Insular Life v. Khu, decided on April 18 2016. Yung Sun Life v. Sylvia, June 8
2016. So mas latest yung Sun Life, kaya hindi pa nagamit yung argument sa Insular
Life v. Khu na “if the insured died within 2 years, that clause will not set in”. That’s
the reason. But anyway, if the question in the bar is worded that way, so you have to
answer based on what Del Castillo said: “Any doubt should be resolved in favor of
the insured and against the insurance company.”

Q: Can the 2 year period be extended by stipulation?

A: It cannot be extended by stipulation, because by provision of law, it cannot be
shortened by the parties. If that’s the benefit given to the insurer, it can be waived or
shortened by the agreement of the parties.

Q: Now what are defenses not barred by incontestability clause?

A: IPE

I-­­ No insurable interest

P-­­ Premium not paid
E-­­ Excepted Risk
F-­­ Fraud of a vicious kind

Somebody asked me, is there a fraud that is not vicious? It is true right.
Anyway, what are the examples of fraud of this kind? So if somebody took an exam
in your behalf instead. So that’s not a defense barred by this incontestability clause.

C-­­ Failure to comply with conditions set forth by the policy to recover
insurance T-­­ Time barred

Time barred, example, the period to file notice of loss, period to file proof of
loss. If this has not been complied with, then the insurance company is not liable.

Moving on further. Other defenses available on the insurance company. Others, we

have taken up already:

1. No Insurable Interest
2. Wrong Claimant
3. Concealment
4. Misrepresentation
5. Breach of warranty
6. Violation of the policy

There’s an SC decision about discrepancy in the value of the goods lost and
the amount claimed by the insured. So SC said that if there’s a discrepancy between
the value of the goods and as claimed by the insured, the fraudulent discrepancy
entitles the insurance company to rescind the policy.

Now, that previous case is 25x more than the value of the goods. Kasi ang value ng
goods 1,000. Ang sabi ng insured 25,000. So there’s a discrepancy between the value
of the goods and the amount claimed by the insured. SC said that the insurer may
rescind the policy or not liable to pay the insured.
Q: What if, if it’s less than 25x? What if if it’s only 20%? Over-­­ valued?
A: There’s one case in your outline. SC said if the policy itself provides that violation
of the policy, it entitles the insurer to rescind. Any violation no matter what the
percentage maybe, will entitle the insurance company to rescind the policy.

So the bottom line is, If the policy provides that violation of the provision of the
policy, then it entitles the insurer to rescind. Any violation determined by the
insurance company will entitled it to rescind the policy whether or not it’s 25x more
than the actual loss suffered by the insured. So before the new case, the threshold,
based on jurisprudence, is 25x more than the actual value of the goods lost. But in
this new jurisprudence, it tells us that as long as the policy provides that “any
violation of the policy entitles the insurer to rescind” and the policy requires that
what should be claimed is the actual value of the goods not overvaluing it,
regardless of the percentage of the overvaluing, the insurer may rescind the policy.

7. Next defense, premium not paid. I think we already covered that.

8. Other insurance clause-­­ If it is prohibited by the policy.

Q: In fire insurance, if the insured procures additional fire insurance coverage from
another insurance company, does that entitle the insurance company to rescind the
policy?
A: It depends if the first policy prohibits other insurance. If it is prohibited and the
insured procured additional insurance coverage, then the insurer is not liable on the
policy.
Q: What if, if it is not prohibited? And the insured procures additional fire insurance
coverage? Will that entitle the insurer to rescind?
A: No. Because double insurance, unless prohibited by the policy, does not entitle
the insurer to rescind. What is prohibited is over insurance.
Q: Now in case of various insurance companies, how much can be recovered?
A: Depends on the value of the loss sustained or incurred by the insured. It can be
recovered from any of the insurance company or all of them proportionately, but
each of them must bear the cost proportionately. Will take this up under fire
insurance next meeting.

-­­ Let’s take a break I need to sign some documents-­­

So we are still on defenses on the face of the insurance contract where the insurance
company or insurer decides to reject or approve for payment. So for rejection, we
discussed various defenses that maybe raised by the insurer. Now, we are now on
defenses of other insurance clause. So we said before the break that other insurance
does not entitle the insurer to rescind unless the insurer bars/ prohibits
procurement of additional insurance. After it you can modify it. The insurer for
example may require or allow only one additional insurance coverage. So beyond
insurance coverage, meaning if the insured procures 2nd or 3rd, then that will entitle
the insurer to rescind the insurance policy. So it depends on how the policy is
couched.

Bottom line is, unless prohibited by the policy, procurement or 2nd insurance does
not entitle the insurer to rescind the policy.

Q: What about double insurance?

A: So double insurance, as we said, unless prohibited by the policy, does not entitle
the insurer to rescind. What is prohibited is over insurance.
Q: So if A, for example insured his property against fire for 1 million pesos (the value
of his property), he gets additional insurance coverage from 2nd insurance company,
from B company. 3rd one from C insurance company for 3 million pesos. Is that
prohibited?
A: That is allowed. That is double insurance. What is not allowed is over insurance.
Which means that as long as he recovers only the value of the loss, the actual loss
sustained, then there’s nothing wrong with that. He can recover the 1 million loss
from the insurance A (whereas the face value of policy), or from insurance B
(because the policy is only 4 <?> million) or insurance C (because it’s also 1 million)
but among A,B, and C, of course they shall bear the loss. Or the insured may recover
proportionately from all of them, as long as to repeat, it’s not more than the value of
the loss. Otherwise, you will encounter the principle that the “contract of insurance
is a contract of indemnity.

Q: Now what about the case of Llagona (?) v. Country Bankers? What if there is
other insurance clause and the insured did not know that the mortgagee procured
additional/other insurance. That’s what happened in the case of Llagona (?) v.
Country Bankers. So the mortgagor procured fire insurance on the mortgaged
property. And there’s other insurance clause in the policy prohibiting procurement
of another insurance. And the mortgagee without the knowledge of the mortgagor,
procures fire insurance from different insurance company. Does that entitle the
insurer to rescind?
A: SC said no. There should have the knowledge of the insured.
Q: Is there double insurance in this case? That’s another issue.
A: As you all know, as we discussed yesterday, there is double insurance if the
following elements are present: (ST-­­ SIR)

1. So same person
2. Two or more insurers
3. Same subject matter
4. Same interests
5. Same risk

So elements must concur to amount double insurance.

Q: On the first element, same person. What if the mortgagor and the mortgagee
procured separate insurance coverage?
A: Obviously there is no double insurance. Because they are procured by 2 different
persons. And the interests are likewise different. So the mortgagor insures because
of ownership and the mortgagee insures because of the possible non-­­ payment of
debt.

Q: Now remember the case of Malayan v. Philippine First Insurance (2012)? This
has already been asked in the bar. I think Wyeth is the company involved in this
case. Wyeth procured an ‘all risk marine insurance policy’. So goods are transported
to foreign country to the Philippine port. So these are products of Wyeth covered by
‘all risk marine insurance policy’. And the insurance company is issued the same
let’s say ABC company. And then Wyeth enters a contract with trucking company to
deliver various products of Wyeth to different customers. Wyeth procured
insurance coverage from trucking company. The trucking company procured
insurance coverage for recovery of any (?) in case of loss, damage to the goods
before delivery to the various customers. So let’s say out of 14 trucks, only 13 trucks
were delivered. And then the insurance company paid it, and therefore subrogated
to the rights of Wyeth. Can it proceed against the insurance company of the trucking
company? Is that double insurance in this case?
A: SC said no double insurance for the following reasons:

1. You have 2 persons. Wyeth and then the trucking company.

2. It maybe the same subject matter, the same goods, same products by Wyeth.
But same subject matter does not mean double insurance. Because all
elements must concur.
3. Different insurable interest. What is the insurable interest of Wyeth? Brought
about by ownership. What about the insurable interest of the trucking
company? To ensure to delivery to the goods, to provide claim against there
is loss or damage.
4. What about the risk insured against? The risk insured against, ownership on
the part of Wyeth. And the possibility of loss or damage in delivery of goods
on the part of the trucking company.

9. Now for the last defense available to the insurer is beyond the period. So the suit
is filed beyond the period allowed by the policy. Or notice of loss filed beyond the
period allowed by the policy.

After that, what comes next? So 2 things may happen. So the claim is rejected
because of any of those defenses.

Q: Within what period should the suit be filed by the insured?

A: As you all know, the suit maybe filed within 10 years from the date the cause of
action accrue.
Q: Now when does the cause of action accrue?
A: It accrues from rejection of the claim by the insurer.
Q: Can the period be shortened?
A: As you know, various jurisprudence, the 10 year prescriptive period to enforce
the right of the insured against the insurance company maybe shortened as long as
it is not less than 1 year from the cause of action accrue. Therefore in the cases we
discussed, remember Malayan Insurance, it was reduced to 60 days, right? SC said
that it is valid (1990 case) but that shall be deemed specific by these cases. It’s not
less than 1 year from the date the cause of action accrued.

Q: Now as we said, the cause of action accrued from rejection of claim by the insurer.
There’s a case in your outline, the insurer has not yet acted on the request of the
insured. And right away, the insured filed an action against the insurance company.
Will the claim prosper? In other words, can you treat the inaction of the insurer as
your cause of action in going to the court? In taxation, as you all know, there’s a
principle called “inaction”, right? Does that concept apply with respect to insurance?
A: SC said No. We have to wait for the insurance company to act on your claim. If
rejected, then you should file the suit within 1 year. 1 year, if that is stipulated in the
policy. In the policy decided, we have 10 years to enforce the policy against the
insurance company.

Q: Now let’s correlate this discussion with COGSA. Remember our discussion with
COGSA? What if the insurance company delays the processing of the claim? So notice
of loss has been submitted to insurance company and it delayed the processing of
the claim. As the consequence, the insured was not able to file a suit against the
common carrier. So the insured was hoping that the insurer will process the claim
favorably, but it delayed the processing and it precluded the insured from filing a
suit against the common carrier.
A: We said in that case that the common carrier is relieved from liability. The 1 year
period under COGSA cannot be waived. I mean it’s not extendible, so it cannot be
waived. So the common carrier is relieved from the liability. But the insurer must
make good on the loss sustained by the insured. The case of NYK Shipping. Because
of the inordinate delay, then the insurer must make good on the loss suffered by the
insured.
Q: What if there is denial? Then the insured asked for reconsideration? Will the
request for reconsideration toll the running of the 1 year period to file a suit against
the insurance company?
A: As you all know, the SC said in two cases, the recent one, Lhuiller v. GSIS, the 1
year period to file a suit, commences from the accrual of cause of action right? The
cause of action accrues from rejection of the claim. Rejection means the first time
rejected by the insurance company. So the request for reconsideration did not toll
the running of the 1 year period.

Paano pag sinabi sa’yo ng insurance company “Kulang yung mga dokyumento mo
eh. Magsubmit ka pa”. Hopefully, in the submission of additional documents, you’ll
be able to process your claim. That’s what happened in the case of GSIS noh? Pag
nireject claim mo, file a suit against the insurance company. You have 1 year to do
so, otherwise the insurance company will not be liable.
 Q: Now what about in case of payment? So let’s say the insurer decides to pay. When
is the proceeds payable?
A: So here we made a distinction between life and property insurance, right? For life
insurance, proceeds are payable, let’s say the policy matures by expiration of term
other than death of the insured, then it depends upon the maturity on the policy.
Except if the proceeds are payable by installment as annuity right? So annuity
means it is payable every year, in this case, it shall be made on the dates due under
the policy.
Q: Now what if the policy matures by the death of the insured? Within what period
should the payment be made?
A:
Pag life-­­ 60 days from presentation of claim and filing of the (whole content?)
Pag property-­­ within 30 if there is no contest, either by agreement or by
arbitration, they have determined the value of the loss.
Now if it is 60 days from the submission of the proof of loss, there is no agreement
as to the value or amount of the loss sustained by the insured.
The insured has 90 days to pay the insurer from the submission or presentation of
proof of loss.

Q: What is the consequence if the payment is made after this period?

A: Under the law, as amended, the Insurance Company is liable to pay 2x the interest
rate prescribed by the monetary board.
Q: Now there’s a recent case Stronghold Insurance v. Pamana Island Resort (June
1 2016), the question is, how much interest should be paid by the insurer? Is it
24%? Or 12%?
A: The law says 2x the rate of interest prescribed by the monetary board. Now the SC
said in that case, because the settled bank, BSP, imposed a uniform interest rate of 6%
regardless of the nature of obligation, therefore non-­­ payment of the proceeds by the
insurance company would make it liable to pay 12% interest. So 2x the rate. So SC
stressed that in secular 799 issued by BSP in 2013, the rate of interest of loans noh is
6%. The same likewise applies to non-­­ payment of insurance proceeds. So if there is a
common or flat interest rate, regardless of the nature of the obligation, where loan or
not loan, forbearance of goods or credit, non-­­ payment of insurance proceeds means
liability to take interest of 6%. But because the laws says 2x the
rate prescribed by monetary board, this is 12% interest. The authority to repeat is
Stronghold Insurance v. Pamana Island Resort (June 1 2016).

After payment, what’s the next step? Of course the next step is subrogation.
So the insurance company is subrogated to the rights of the insured. It acquires the
right of indemnity of the insured. It steps into the shoes of the insured right? So
whatever rights/claims/remedies of the insured against the wrongdoer, if any, shall
be acquired by operation of law by the insurer.

SC said that insurer acquires no more, no less, than the right of the insured. So if the
insurance company pays the insured, even though he is not entitled to it, then the
insurance company cannot recover any payment noh. He only steps to the shoes of
the insured.

Q: There’s one case that we discussed in transpo, but also relevant here for
insurance. The case of Malayan v. PASAR (?). Partial loss lang. Partial loss ng
copper. Binayaran ng insurance company for that total amount. So how much can
the insurance company recover against the common carrier? So if the insurance
company steps into the shoes of the insured by subrogation, how much can the
insurance company recover against the common carrier?
A: SC said that ‘only the amount that the insured is entitled to’. Only for the
amount of the partial loss. Consisted with the principle that by subrogation, the
insurer only acquires the same rights and remedies of the insured.

Q: There’s also another case in your outline. What if the Bill of Lading provides for a
limitation on the liability of the common carrier to a fixed amount? Let’s say $500
per package under COGSA? But insurance company paid the actual value of the
goods higher than the value of goods as fixed in the Bill of Lading. So how much can
the insurer recover?
A: Only the amount for which the common carrier is liable. With limitation on the
value of goods that is declared under Bill of Lading. So this is consistent with the
principle, the insurer only acquires the same rights or remedies as the insured. No
more, no less.

Now there’s an interesting case, penned by Del Castillo. Suddenly you are interested
now, whatever bar chairman says. Now our focus of our attention, our apple of our
eyes are the cases of Del Castillo. The issue is this:

Q: Is the presentation of the insurance policy a condition precedent for a

subrogation to takes place? So the insurance policy not marine policy. So is the
presentation of the insurance policy in the complaint probably insured,
indispensable requirement? So paano pag hindi niya na-­­ attach yung policy? Is that
fatal to the cause of action?
A: SC said through Justice Del Castillo, Eastern Shipping v. Prudential Guaranty
(2009), non-­­ presentation of insurance policy in the complaint filed by the insurer
is an indispensable requirement. Failure of which, the insurer cannot be subrogated
to the rights of the insured.

Now qualified by the decision of good friend of Justice Del Castillo, also retired,
Justice Reyes. They go hand in hand right? They go in tandem. Eto naman sabi ni
Justice Reyes:

“Exception: If the defendant fails to timely put it in issue, then the need to present
insurance policy is dispensed with”. In other words noh, it has to be questioned or
attacked by the defendant. So yung insurance company nagfile noh for subrogation.
Nagbayad siya sa insured, files a complaint against the wrongdoer. He must attach
the insurance policy, otherwise it is fatal to his cause of action.
 Exception as held in Asian Terminals v. Lepanto (2014), if defendant did not put it
in issue. If defendant fails to put it in issue, then it is deemed waived. So non-­­
presentation of the policy will not preclude the recovery or the claim by the insurer
against the wrongdoer.

Let’s repeat. If the insurer filed a complaint against the wrongdoer brought about by
subrogation, the insurer must attach in the complaint the insurance policy. Failure
of which, the insurer cannot acquire the rights of the insured. So there is no
subrogation in other words if there is no policy that is attached. Why? Because the
basis is the insurance policy. The exception is the case of Asian Terminals v.
Lepanto, if the defendant did not put it in issue. So the defendant should have
answer “There is no cause of action on the part of the insurer because it did not
attach the insurance policy in the complaint”. So if the defendant did not put it in
issue, then the non-­­ presentation of the insurance policy is not fatal to the cause of
action of the insurer.

Q: Does the subrogation require the consent of the insured or the wrongdoer? This
was asked in the bar and there are cases in your outline.
A: As you all know, it does not require the consent of the insured or the wrongdoer.
It is an equitable assignment by operation of law. The moment the insurance
company pays the insured, by operation of law, he is subrogated to the rights of the
insured against the wrongdoer.

Q: What about if ABC grants or extends life insurance coverage or issues life
insurance to the insured beneficiary designated. Let’s say somebody killed the
insured. So the insurance company paid the beneficiary. Can the insurance company
proceed against the killer of the insured? This was asked in the bar twice, I just
simplified the facts
A: No, because SUBROGATION DOES NOT EXIST IN LIFE INSURANCE. Subrogation
exists only in PROPERTY insurance.
Q: What is the basis?
A: Art. 227 of the Civil Code. If the insured received indemnity from the insurer, then
the insurance company is subrogated to the rights of the insured and can proceed
against the wrongdoer. So it talks about property insurance, it talks about
indemnity. And of course these concepts do not apply to life insurance.
Q: Now what if the insured does not recover the full amount from the insurance
company?
A: By express provision of law, he can proceed against the wrongdoer for any
deficiency.

Q: In what instances will there be no subrogation?

A:

1. In life insurance-­­ Because subrogation is a contract of indemnity.

2. It does not exist if the proximate cause of the damage was negligence of the
insurer himself.
 3. This was asked in the bar. If the insurer pays the insured for a loss not
covered by the policy. This is self-­­ explanatory right?

Q: This was also asked thrice in the bar. The case of Mahogany. When insured
releases the wrongdoer. Remember the case? Nagbanggan diba? Nabangga yung
sasakyan ng San Miguel. San Miguel is insured by ABC company. So ang ginawa ng
San Miguel, tumanggap ng pera sa nakabangga. Tapos nagissue ng quitclaim in favor
of the wrongdoer. So the question now is can the insurance company be subrogated
to the rights of the insured?
A: Sabi ng SC, if the insured releases the wrongdoer, Meaning the insured gives
quitclaim to the wrongdoer, then the insurance company cannot be subrogated.
Meaning he cannot recover against the wrongdoer right? In which case the insurer
is released from liability.

Q: Now what if the insured releases the wrongdoer after the insurance company has
paid the insured? So there are 2 situations right? The release made by the insured to
the wrongdoer was done before payment is given to the insurance company or after
payment by the insurance company.
A: If the release was done before payment to the insurance company, the insurance
company is not liable. But if the release was done after the insurance company has
paid the insured, then the insurance company can recover the payment against the
insured (not against the wrongdoer because he has no privity of contract with the
wrongdoer).

So bottomline is, the insurance company should not be prejudiced by the act of the
insured in releasing the wrongdoer. Because in so doing, the insurance company is
deprived of right of subrogation.

And the last one, any act that would deprive the insurer of the right of subrogation. I
think there’s one case, if the insured-­­ consignee does not file the suit against the
common carrier within 1 year from date goods are delivered or should have been
delivered, then the insurer is released from liability because it cannot be subrogated
to the rights of the insured. (End or record 1:36:53).

May 09, 2018

Marine insurance

Q: What is the concept of marine insurance?

A: As you know the real concept of marine insurance is insurance only against loss
or damage to vessel, right? But it has been expanded to include all risks or perils
arising from or incident to navigation. So it is not therefore limited to maritime
commerce, not limited to vessels, but to any loss, damage to vessels even in buses.
Basically, all risks or perils not just on navigation but incident to the transit or
transportation. In fact, there is one case that the concept of marine insurance
extended to personal accident insurance, right? to cover crew members in cases of
accidental death or injury. However in the context of discussion on who are the
parties in marine insurance, meaning who are the parties who have insurable
interest in marine insurance, the context seems limited to vessel, but just to make it
clear it has been expanded to include all loss, damage, liability incident to or arising
from transit or transportation.

Q: Who has insurable interest in marine insurance?

A: As I said, the provisions on Insurance Code on marine insurance seem to limit to
ship owner/ vessel owner, or charterer but it has been expanded since then to
include all incident to transit or transportation.

So who are the parties who have insurable interest in marine insurance, in the
conflicts of maritime commerce?

1. Ship Owner
2. Cargo Owner
3. Charterer

Q: What is the insurable interest of the ship owner?

A: He has insurable interest on the vessel itself, goods loaded on board the
vessel, expected freightage.

So with respect to vessel, the insurable interest is an existing interest on the

property because he owns it.

Q: What about the goods loaded on the vessel? What is the insurable interest of
the vessel owner if he does not own the goods loaded on board the vessel?
A: Well the insurable interest is the loss that may damnify or create liability on
his part.

And then of course we have insurable interest on the expected freightage

meaning the payment has been made by the shipper or passengers who had
already paid or about to be paid. If it is about to be paid, expectancy covered
interest other than expectancy that arises.

Q: What about if you there is a charter party agreement? What is the insurable
interest of the vessel owner?
A: The law says, the insurable interest of a vessel owner is limited to the amount
not paid or to be paid by the charterer. Meaning if the charterer agrees to pay the
vessel, it has been deducted from the quality of the vessel. But that’s not really
accurate right? Because the charterer may or may not pay the ship owner in case
of loss of the vessel, right? So the insurable interest of the ship owner is still
based on the value of the vessel, but it cannot recover more than the amount,
meaning more than the value of the vessel plus whatever amount that the
charterer will have to pay. So if the charterer pays the vessel owner, in that
amount, the payment shall be reduced accordingly. Otherwise it will be contrary
to the concept that insurance is one of indemnity.

Q: What about the charterer? What is insurable interest of charterer?

A: Insurable interest of course is the vessel, up to the extent of the amount he is
liable to the ship owner in case of loss to the vessel. So if the charterer leases or
rents, but the word is “chartered”, from the owner, then his insurable interest is
to the extent that he will be made liable in case of the loss of the vessel.

Q: What else can be the insurable interest of the charterer?

A: Well the expected freightage right in case he enters the contracts with cargo
owners or even passengers. So the charterer as you know may enter into
contracts also with cargo owners or passengers especially from bareboat or
demise charter right? So in bareboat charter as you know, as we discussed, the
ship owner becomes a lessor only and the charterer therefore can sub-­­lease
basically. Enter the contracts of carriage with cargo owners or passengers. So the
expected freightage of course, he has basically insurable interest therein.

Q: Now what kind or peril is insured against in marine insurance?

A: As you all know, in marine insurance, it is perils of the sea. So to recover on
marine insurance, the proximate cause of the loss must be the perils of the sea
not the perils of the ship unless it is an all-­­ risk marine insurance policy. So if
policy is silent, only loss, damage arising from perils of the sea are covered by
the insurance. It does not include losses, damage arising from perils of the ship.
Exception? An all-­­ risk marine insurance policy.

Q: The case of Roque v. CA, remember that case? So improper loading of the
logs, it tilted to one side, created a hole, water seeped into the vessel and the
improper loading was because of the crew members with deep resentment
against ship captain. So ordinarily, can the insured recover if the cause of the loss
is based on the act of the crew members? So there is a deliberate act on the part
of the crew members because of the resentment against ship captain. Ordinarily,
it is not perils of the sea, it is a peril of the ship. And when it relates to
seaworthiness, it is perils of the ship not perils of the sea. But in that bar exam
question, it was an all-­­ risk marine insurance policy. Therefore can the insured
recover?
A: The answer is yes. Because in an all-­­ risk marine insurance policy, it covers
any and all conceivable loss or damage arising from the perils of the sea or perils
of the ship. So regardless of the cause, whether perils of the sea or perils of the
ship, the insurance company is liable.
Q: Now, except only for what?
A: Willful act on the part of the insured and risk excluded by the policy.

Q: So how do we distinguish perils of the sea and perils of the ship?

A: Anything not arising from the following is perils of the sea:
 1. Ordinary and natural inevitable action of the sea;
2. Ordinary wear and tear;
3. Relating to seaworthiness of the vessel; Meaning sufficient number of crew
members, competent ship captain, proper and adequate equipments to carry
out the voyage.

So anything outside these three is considered perils of the sea. So if the loss
or damage therefore relates to or arose from any of these 3, then insurance
company is not liable.

Q: What makes a vessel unseaworthy?

A: Anything that affects the structure of the vessel, anything that relates to
competence and number of crew members, and adequacy of equipments to carry
out the voyage. And this is clear under the Insurance Code, right?

Let’s take a look at bar exam questions:

1.
Q: Sinking of the vessel because of the improper loading of the logs in one side, the
barge is tilting on one side, but because of the acts of the crew members. Is
insurance company liable?
A: Insurance company not liable as we said earlier in case of Roque v. CA, unless it is
an all-­­ risk marine insurance policy.

2.
Q: Now the captain was inexperienced. Or with expired license. Or the crew
members have deep seated anger against the ship captain. Is insurance company
liable?
A: Not liable because it relates to seaworthiness of the vessel. Unless again if it is an
all-­­ risk marine insurance policy.

3.
Q: In Roof deck cargo, is insurance company liable?
A: Not liable because it affects the seaworthiness of the vessel. Remember the case
of Felman v. Philam Insurance?

4.
Q: How about the reconfiguration of cargoes to accommodate more passengers? Is
insurance company liable?
A: Not liable because it affects the seaworthiness of the vessel.

5.
Q: Lack of monitory equipment
A: Again if it relates to seaworthiness, the insurance company is not liable.
6.
Q: Not enough life jackets. Is insurance company liable?
A: Again, not liable because it relates to seaworthiness of the vessel.

7.
Q: The hole, the water seeped into the vessel because of the defective drain pipe of
the ship.
A: Again perils of the ship. Relates to seaworthiness. Insurance company not liable.

8.
Q: Engine leaked because of extensive mileage that the ship accumulated. Meaning
nabutusan yung vessel because of extensive mileage the ship had accumulated. Is
insurance company liable?
A: Not liable unless it is an all-­­ risk marine insurance policy.

9.
Q: Port hole not secured at the port of the cargo
A: Again insurance company not liable unless it is an all-­­ risk marine insurance
policy.

So these are bar exam questions and jurisprudence.

Anyway, for our guidance, as we said, as long as it affects the seaworthiness of the
vessel at the outset, any subsequent act on the part of the ship owner or crew
members, then it is simply perils of the ship. Insurance company is not liable unless
it is an all-­­ risk marine insurance policy.

Q: What about strong winds? The case of Transimex v. Marife Insurance

Corporation (September 2016)
A: So strong winds, SC said in that case are only perils of the ship, not perils of the
sea.
Q: When will it become perils of the sea?
A: If the strong winds become storm. So strong winds accompanied by southwestern
monsoon will not classify as a storm. Strong winds and even waves are not
automatically considered perils of the sea if these conditions are not unusual for a
particular period or time.
Q: When will it become perils of the sea?
A: If it becomes a storm, as I said.

Remember how is it measured? So 48-­­ 55 knots equivalent 55-­­ 63 miles per hour.
So 55-­­ 63, storm. Anything less, strong wind only, perils of the ship. Now in the
beaufort scale, 10-­­11.

Q: This was asked in the bar. Now what about rusting of steel pipes? Nagrust in the
course of voyage. Is it perils of the sea or perils of the ship?
A: It is beyond debate. SC said in one case, Cathay Insurance v. CA, rusting of steel
pipes in the course of voyage is perils of the sea.
Q: Now what are the implied warranties in a contract of marine insurance? What
does the insured make?
A: SDINI

1. Seaworthiness of the vessel

Q: This was asked in the bar. Can the shipper say “he has no control over the
vessel”, “he has no control over the choice of the captain”, “he has no control
over the choice of crew members”, therefore their incompetence, their lack of
experience cannot be imputed against him?
A: No, because he makes the warranty that the vessel is seaworthy.

2. Deviation

Q: Now what does warranty against deviation mean?

A: Well, it will not deviate from the course of the voyage insured.
Q: Now, how do you know that that is the ‘course of the voyage’?
A: It is spelled out in the policy itself. The policy will have to indicate the
basis of beginning and ending of voyage. So that is the insured course of the
voyage.
Q: Now what if it is not indicated?
A: Well the rule under the law says, if not fixed by the policy, then that makes
a master of ordinary skill and discretion is NAD (natural, advantageous and
direct) course of the voyage

Q: When is deviation proper?

A: Our keyword is OWAS.

1. Outside the control of the ship captain or the ship owner.

Q: Asked in the bar. So the ship captain received a notice from Director of
Bureau that in the course of the voyage, it will cross a path of a typhoon.
So the ship captain of course deviated from the course of the voyage, Is
the insurance company liable?
A: Yes, that is a proper deviation.

Q: Let’s say the vessel changed his course because of an oil spill that
crossed the path of the vessel. Is insurance company liable?
A: Again it is a proper deviation.

2. Warranty-­­ to comply with the warranty

3. Avoid a peril whether or not the peril is insured against

Let’s say there is a warranty to avoid the area occupied by the pirates. So
the policy provides or makes a warranty that the ship owner and ship
 captain will have to avoid the area occupied by the pirates. So in that case,
because it complied with warranty then deviation is proper.

Q: Another one, making good faith to avoid the peril. Or there is a

reasonable ground to believe as necessary to avoid the peril. This was
asked in the bar. So the captain dreamt of earthquake along the path of
his ship. Waking up, he ordered to return to port. True enough, the
earthquake was struck 3 days later. And the ship was hit. Is deviation
proper?
A: It’s not proper because it has to avoid peril not imaginary or perils by
dream. So there must be an actual peril or reasonable belief that it is
necessary to avoid the peril. Anyway, it is brought about by dreams,
outside of this scope.

4. Save life-­­ So na-­­ alert siya from a family maroon in one part of the
island. There is an alarmed shot, in that case, deviation is proper to save
human lives.

So in these cases, deviation is proper and therefore any loss arising from
deviation, then insurance company will be liable.

3. Illegal venture (not engaged in legal venture)

4. Neutrality-­­ must always carry the correct documents of neutrality of the
ship
5. Insurable Interest

Q: Now when is the loss considered total to be able to recover the full amoun
under the contract of marine insurance?
A: So there is total loss in any of the following cases:

1. Total destruction-­­ Example, loss by sinking

2. Damage that rendered the thing valueless

Q: Bar exam question. The rice submerged the seawater. The rice can be still
used as animal feed. Is the insurer liable? So here there is no complete
destruction right? And there’s no loss by sinking. But the rice submerged the
seawater made worthless for the purpose intended. But it can be used as
animal feed. Is the insurance company liable?
A: The insurance company is still liable because when the thing is rendered
useless, it is considered as a total loss.

Q: Now what about constructive total loss?

A: As you know, if we talk about constructive total loss, it is as if total loss. The
insured may recover as if it is total loss, and the amounting figure, the threshold
figure is more than ¾ of the value of the object or the damage reduced the value
more than ¾, or extends shipment exceeds ¾ the value of the cargo.
 Q: This was asked in the bar. There are 1,000 pieces of Mindoro garden stones
insured against for total loss covered by 1 marine insurance policy. The stones were
loaded in 2 lighters. 600 pieces in 1 lighter. 2nd, 400 pieces. Now because of rough
seas, damage was caused in the 2nd lighter. So the loss of 325 out of 400 pieces. Is it
more than ¾ to warrant to cover at least for the stones loaded on board in the 2nd
lighter?
A: Now of course as you know, it is based on the totality of the goods covered by the
policy. In this case there is only one policy covering the entire 1,000 mindoro stones.
So therefore, the measure is the total 1,000 pieces and not the number of stones per
lighter. Except of course if that 2 marine insurance policy covering lighter 1 and the
2nd lighter. So totality of the object, not on the number of barge or vessel
accordingly under those by separate insurance policy.

Q: Now what should be coupled with constructive total loss so that the insured may
recover?
A: As you all know, it goes hand in hand, right, to stop total loss. Coupled with
abandonment. So they go hand in hand. In our discussion in limited liability rule, SC
said there is no need to abandon the vessel if the vessel if loss, right? If the vessel
sank. Therefore, it is only a constructive loss coupled with abandonment that
insured may recover the full amount.
Q: What are the requisites of abandonment? Or basically what is abandonment?
A: As you know, abandonment does not mean physically abandoned. But for the
insured to relinquish or waive or renounce his interest in the vessel in favor of the
insurance company. So without the assignment, without the act of relinquishment, is
not implied as to the act of relinquishment on his interest to the vessel to the
insurance company then the provision of statute of laws will not allow the insured
to recover the full amount. So he can only recover based on the actual amount of the
loss not the total amount under the contract of marine insurance.

Q: So what are the requisites under abandonment?

A:

1. Actual relinquishment
2. Constructive total loss
3. Factual and make reasonable time of receipt of information about the loss
4. Notice to the insurer

Q: There’s one bar exam question. Will notice to the agent of the insurance company
suffice? Of course when you relinquish an interest you have to notify the insurer
accordingly, right? Can you do the notice to the agent?
A: Yes. The agent represents the principal.

Q: This was asked in the bar. A cargo shipping run aground of the coast off Cebu due
to storm, and lost all his cargo amounting to 50 million pesos. Now the ship itself
suffered damages estimated at 80 million. So damage to the cargo 50 million.
Damage to ship 80 million. The cargo owner filed a suit against the shipping
company. But the shipping company invoked the doctrine of limited liability rule
because it suffered 80 million damage of the actual value of the cargo. Is shipping
company correct that limited liability rule?
A: When does limited liability rule apply? In case of total loss right? And
constructive loss coupled with abandonment. But in this case it did not incur total
loss nor abandoned the ship. So this rule will not apply. I mean the limited liability
rule will not apply.

Next one, fire insurance.

Q: What are the perils of fire insurance?
A: FLW TEOs

F-­­ Fire
L-­­ lightning
W-­­ Windstorm
T-­­ Thunderstorm
E-­­ Earthquake
O-­­ Other allied risk

If you notice, typhoon is not here. If you notice. Because typhoon is a Filipino term.
In the state it is called tornado or windstorm. Because our insurance code as you all
know is patterned with California Insurance Code. If you notice, there is no typhoon
right? But windstorm are equivalent to typhoon depending on the strength of the
wind. Tinatawag na Storm Surge.

I remember when I was still a member of the PHILJA. They insured the tagaytay
property of SC against fire where PHILJA seminars were being conducted. So he
asked me, “Does this include earthquake? Is the property insured from earthquake?”
Well I said “The concept of fire insurance, it includes earthquake. But you need to
spell out in the policy that it covers earthquake. So if it is only fire insurance policy,
it does not extend to all allied risk unless you embody the same in the policy. Of
course you have to pay additional premium obviously if you include likewise
earthquake and other allied risk.”

So the concept of fire insurance includes all of these risks (FLW TEOs). But you have
to spell out in the policy itself, otherwise limited to fire insurance.

We all know that fire is not force majeure right? We have seen that in our discussion
on vigilance over the goods. So fire is not force majeure because fire always involves
human agency. That’s why fire has to be covered by insurance. It’s not force
majeure, so how do you protect yourself? You have to get or procure fire insurance.

Q: What kind of fire is insured against in the fire insurance? For what kind of fire is
the insurer liable?
A: As you all know, the insured is not entitled to cover a loss if the cause of the
damage is due to hostile fire and not due to friendly fire.

Is there a friendly fire? Is it not that fire is always hostile? Anyway, that’s what the
law says.
Q: So what do you mean by hostile fire?
A: If it burns in a place where it is not intended to be and becomes uncontrollable, it
is hostile fire. That’s how it is defined. Now if the fire is confined in a place where it
is intended to be, and employed only for lighting, heating, manufacturing, it is a
friendly fire, so insurer is not liable.

Q: This was asked in the bar, the insurer insured the property of X in Baguio against
all direct loss and damage by fire. X lived in a house heated by a furnace because it is
in Baguio. His servant built a fire in the furnace using material that was highly
inflammable. The furnace fire caused heat and great volumes of smoke and soot that
damaged the furnishings in the rooms of X. Is the insurer liable?
A: Insurer is not liable because damage is not caused by hostile fire. It is a friendly
fire because the fire is placed where it is intended to be for the purpose of lighting or
heating.

Other example of friendly fire: Damage caused on the insured curtains in the
furniture in the condo by a smoke from a lamp where there is ignition outside the
lamp-­­ So smoke emitting from a lamp powered by kerosene and destroys the
curtains, the furnitures for example.

Q: So how much can be recovered by the insured in case the risk insured against
occurs?
A: So we have different kinds of policy. Open policy, valued policy, running policy
right?

1. Open policy-­­ value shall be determined at the time of loss.

2. Valued policy-­­ of course the amount is determined by the policy at the outset.
3. Running policy-­­ it contemplates a policy that shall be determined every
now and then.

Q: So if it is open, how much can be recovered by the insured?

A: Well the value as determined by the parties AFTER the loss. Now it should be
of course the actual value of the goods lost or damaged.
Q: What about valued policy?
A: Of course the amount fixed by the parties as long as it does not exceed the
actual value of the policy. So why valued policy allows the parties to fix the
amount to be recovered, that’s a presumption that the amount indicated therein
does not exceed the actual value of the property. Otherwise it is contrary to the
indemnity feature of insurance.
 Q: This was asked in the bar twice. A procured 3 fire insurance policies for 100
million pesos each. So we have X-­­ 400 million, Y-­­ 50 million, and Z-­­ 50
million. So the amount insured is 100 million pesos. Let’s say the property was
destroyed by fire how much can the insured recover and from whom?

(Inulit ko pero yan talaga yung figures. 0:59:23.70)

A: This is the case of Alpha Insurance, for double insurance, right? You
remember our discussion last meeting, Other insurance is allowed unless limited
by the policy. If the policy prohibits other insurance and the insured procured
additional insurance, then the policy is avoided, insurer is not liable. But if there
is no restriction in the obligation to procure other insurance, then the insured
may procure other additional insurances as long as of course it does not result to
overvaluation, or over-­­ insurance.
Q: So how much A can recover?
A: The actual value of the loss incurred by the insured. He can recover by X over
the entire amount 100 million, or he can recover from Y and Z combined 50
million each. Or he can claim proportionately among X,Y,Z as long as it does not
exceed 100 million pesos. But among X,Y, and Z as you know, this shall be borne
proportionately by different insurance companies.

Q: What is an effect of alteration in the use or condition of the thing insured?

A: As you know, any alteration made by the insured that affects or changed the
condition of the thing insured, entitles the insurer to rescind the policy.
Q: What are the elements in order for the insurer to entitle to rescind in case of
alteration in the use or condition of the thing insured?
A:

1. Obviously, the policy must indicate the use or condition of the things insured-
­­ So if we talk about the alteration in the use or condition, common sense
tells us the policy must indicate the use or condition of the things insured.
2. There is an alteration in the use or condition made without the consent of the
insurer, and increased the risk of the insurance company. Meaning increasing
the risk of loss.

So these are the elements. So if the alteration does not increase the risk of
loss, then such alteration will not entitle the insurer to rescind the policy
EXCEPT, EXCEPT, EXCEPT in a recent decision SC said that except if any
violation of the policy entitles the insurer to rescind. So whether or not the
alteration of thing insured in case of loss, the fact that the use of the thing
insured was altered and the violation of policy entitles the insurer to rescind.
So in other words, the basis of the decision or action of the insurer to rescind
is NOT the law on alteration of the thing insured but violation of the policy
itself. SC said “If the policy says, any violation of the policy entitles the
insurer to rescind, therefore, the alteration in case of risk of loss is
 immaterial”. The bottom line is the policy was contravened and that will
entitle the insurer to rescind.

So example:

Q: After the effectivity of the policy, the insured stored gasoline, paints, and
varnishes within the premises insured. So is the insurer liable if there is no
prohibition regarding of keeping gasoline, paints and varnishes upon the premises
of the insured?
A: Insurer is not liable if there is no prohibition in the policy in keeping gasoline,
paints, and varnishes in the premises of the insured. In other words if it did not
indicate the use or condition of the thing insured, insurer is not liable to insurer.

Another one:

Q: The fire insurance policy issued the described building as “unoccupied on the 1st
floor.” After insurance was procured, the said floor was later on occupied. Is there
alteration in this case?
A: There was right? Because from unoccupied to occupied. But if the policy did not
require that the 1st floor shall remained unoccupied, then there is no basis for the
insurer to rescind the policy.

So to recap, the right of the insurer to rescind is premised on the fact that the
insured paid premium based upon the risk at the time policy was issued and when
that risk is increased, then the insured should pay premium based upon the
increased risk right? So if it did not increase the risk as we said, the insurer is not
entitle to rescind, however, just to be clear, an increased risk of loss is necessary if
the policy provides that to avoid the policy whether or not the risk of loss increased,
then the insurer is entitled to rescind. So if the policy allows the insurer to rescind
on account of violation, whether or not there is an increase risk of loss, the insurer
may rescind. Not on the account of the law but on the account of the provisions of
the contract itself.

Do you remember the case of Malayan Insurance Company v. PAP? Regarding

transfer of insured property, equipments, from one building to another building
within the same compound but the relation was made without disclosure to the
insurance company. So what are the grounds that entitle the insurer to rescind? This
has not been asked yet in the bar.

1. Alteration in the use or condition of the thing insured.

2. Concealment-­­ This was not disclosed to the insurance company so that
concealment entitles the insurer to rescind.

Q: Now last question to fire insurance. What is the measure of indemnity in open or
valued insurance? So if it is valued policy what to be recovered?
 A: Valuation agreed upon by the parties. It shall be conclusive as long as it does not
exceed the actual value of the property.
Q: What about if it is an open policy? What is the measure of indemnity? This was
asked in the bar.
A: The replacement cost. So what is it for the injured to replace the thing loss in the
commission or at the time of the policy. So basically, replacement value of the
property.

So to repeat, open, replacement value. Valued policy, the valuation agreed upon the
parties as long as it does not exceed the actual value of the property. I mean there’s
no collusion between the insured and the agency of the insurer to inflate the value of
the property.

Next, casualty insurance.

Q: Is it not that any loss or liability from an accident is casualty, right? So what do
you mean by casualty insurance as a type of insurance?
A: As you all know, casualty insurance is an insurance that covers on a loss or
liability from accident or mishap not covered by other types of insurance. Not
covered by fire, marine, or other types of insurance.
Q: So what would be good examples of casualty insurance?
A:

1. Theft
2. Robbery
3. Burglary
4. Accident insurance especially yung mga nagboboxing. So obviously it will not
fall under fire, not under life, not under marine. It will cover under casualty
insurance.

Now let’s go to comprehensive motor vehicle insurance.

Q: So what is required of any land transportation of operator-­­ owner of a motor
vehicle to be able to operate the same in highways? Now, take note, the law does not
say public highways, right? But simply highway.
A: So you cannot operate a motor vehicle in highways unless you obtain compulsory
motor vehicle liability insurance.
Q: Now what is compulsory?
A: Insurance against death or injury caused to 3rd parties. It does not include as you
all know damage to property. What is only compulsory is liability in case of death or
injury to 3rd parties. It occurs on the negligence operation of the vehicle. You are not
required to get insurance for damage to your property or car, or damage caused to
other vehicle. Only liability for death or injury caused to 3rd parties.
Q: So 1st question, may the insured party in a motor vehicle accident sue directly the
insurer? This was asked twice or thrice in the bar.
A: The answer is yes. So the injured party may directly sue the insurance company
despite the fact that there is no privity of contract to a 3rd party insurance company.
Q: Why is that so?
A: Because this is a kind of insurance obtained for the benefit of 3rd party to cover
liabilities to 3rd parties. So privity of contract is not necessary in this case since the
insurance is procured to benefit or to indemnify against the claim 3rd parties.
Q: Next question, what if the injured party files a case against the operator, driver of
the vehicle, and there is no judgment yet whether or not the operator or driver is
negligent? Can the injured 3rd party recover from the insurance company? Or is the
liability of the insurance company premised or dependent on finality of judgment
declaring that the operator or driver of the vehicle was negligent?
A: As you know, SC said that it does not depend on the rendition of judgment by the
Court. It accrues upon the occurrence of the injury causing to 3rd party. If there is
death or injury caused to 3rd party, as a result of the negligent operation of the
vehicle, the heirs of the deceased person or the injured person itself may sue
directly or claims against the insurance company.
Q: What is the liability of the insurance company in this case? Is it solidary with the
wrongdoer? Is it joint and several with the wrongdoer?
A: As you all know, NO. The liability of the insurance company is not based on tort. It
is based on the terms and conditions of the policy. That’s why it is not jointly and
severally liable with the driver or operator of the vehicle. If it is a tortfeasor and a
common carrier as resolved in the case of Arriesgado v. Tiu, then they are both
solidarly liable right? But for insurance company, it is not liable solidarily with the
common carrier or with the tortfeasor. The basis of liability is determined on the
terms of the policy.
Q: What are the clauses that you see or customarily account in a comprehensive
motor vehicle insurance policy?
A: We have

1. No-­­ fault indemnity clause

Q: What do you mean by no-­­ fault indemnity?

A: Well it simply means, it is a clause that allows or provides any claim for
death or injury to a passenger OR to a 3rd party. So death or injury caused to a
passenger or to a 3rd party should be paid without necessity of proving fault or
negligence of any kind. So it is not limited to the passenger. It includes to 3 rd
party. So there is no need to establish fault or liability or negligence.
Q: So the agreed party can claim from who? From who?
A: So these are the rules: If the injured party is a passenger, under the no-­­
fault clause he can recover from the insurer of the vehicle where he is
occupying, embarking, or disembarking.
Q: Now what if he is not a passenger? This was asked in the bar. Let’s say he
was a pedestrian. He was hit by another vehicle. And he would like to recover
right away the amount of 50k pesos. So from whom can he recover?
A: From the INSURER OF THE OFFENDING VEHICLE.

Q: So let’s say X is a passenger of XYZ vehicle, the common carrier. It was hit
from behind by a vehicle owned by ABC. So clearly, there was fault on the
 driver of ABC. Now from whom can the passenger of XYZ recover under the
no-­­ fault clause?
A: From the insurer of XYZ where he was a passenger.
Q: Now what about XYZ?
A: It can recover from the INSURER OF THE OFFENDING VEHICLE.

But in so far as the passenger is concerned, he cannot recover under no-­­ fault
clause from the insurer of the offending vehicle. He can only recover from the
insurer of the vehicle where he was a passenger without prejudice on the right
of vehicle owner to claim against the insurer of the offending vehicle. So he
cannot choose. If he wants to recover under no-­­ fault indemnity clause, he can
only collect from the insurer of the vehicle where he was a passenger.

So the one ultimately liable of course is the insurer of the offending vehicle.
But for the no-­­ fault indemnity clause, the passenger can only recover from
the insurer of the vehicle where he was the passenger.

Q: Now other requisites?

A:

1.) The amount, 15k pesos-­­ This has to be upgraded noh. It’s too small. It’s
no longer realistic.
2.) Claim against the insurer where he was a passenger (embarking,
occupying, or disembarking)
3.) Medical certificate and police report covering the injury, or
4.) In case of death, proof of death

Q: Is the 15k pesos btw per person or per vehicle?

A It’s per person, not per vehicle. What if there are 8 persons right? 15k per
person.
Q: Also, this was asked in the bar. What about damage, can the agreed party
recover damages noh from the insurer?
A: Damage to property, no right? It only covers death or injury to passenger,
not damage to goods or property.
Q: Okay, asked this in question in the bar. Should the insurance company pay
the passenger or the pedestrian or the 3rd party if there was no fault on the
part of the vehicle?
A: Of course the answer is yes. Because this is the concept of no-­­ fault
indemnity to expedite the claim of the passenger against the insurer of the
vehicle where he was a passenger. That’s the whole concept. So it does not
require or presuppose any fault on the part of the vehicle driver.
Q: Now what if the insured, the agreed party, 3rd party wants to recover
more?
A: He can recover of course from the wrongdoer but in so far as the insurer is
concerned, he can only recover 15k pesos under no-­­ fault indemnity clause.
 Q: So this was asked in the bar. So what is the remedy available to the injured
party if this claim exceeds 15k pesos?
A: SUE the offender for the excess.

That’s the best way to go. Get the 15k right away to get a lawyer who can
retain the case for 15k, if any. Then let him file a case against the offender to
recover the excess.

2. Theft clause
3. Damaged clause

Q: What is theft clause?

A: Any act of taking with intent to gain.

Joyride as you all know in various cases is considered theft. So if the driver of
the insured brought the vehicle for repair, and then tried it for a joyride, that
is amount to taking. So what clause shall apply? The theft clause not the
damage clause.

Q: Remember the case of Alpha Insurance v. Castor? Theft clause, meaning

if the vehicle is lost regardless on who caused it. Then the damaged clause
where insurer is not liable if it is due to the act of the insured or any of its
employees or representatives. And then the vehicle was brought for repair by
the driver, taking for a joyride. So the insured was deprived of the
possession. What clause shall apply? The damaged clause or the theft clause?
So of course it’s not damaged clause, it is the theft clause because any act
obtained with intent to gain is tantamount to theft. And because in theft
clause there is no distinction as to the one who caused it, then the insurer is
liable. So damaged clause cannot apply in this case because it was not a
damage but an actual loss.

Remember when we took this up when we discussed on how to interpret the

terms of the policy? The policy shall be interpreted as is if there is no doubt
in its interpretation.

Alright, there is a very interesting case what if the thief not an authorized
driver? It’s not joke, it’s an actual case. It is not a hypothetical bar exam
question, it’s an actual case. So the insurance company argued that there is
no liability because the one who stole the vehicle has no valid driver’s
license. That lawyer probably has gone bankrupt of arguments, and so the SC
has to scold him noh. So theft clause, whether or not the one who took it has
driver license, the fact that there was taking with intent to gain entitles the
insured to recover.

4. Authorized Driver clause

 Q: So what is authorized driver clause?
A: So the driver of the accident must be duly authorized and licensed to drive,
otherwise the insurer is not liable.

Now, there’s a recent case, when you say authorized driver, it is based on the
type of vehicle that he is driving. So he may have a grade 1 license for
example, but that’s only for certain types of vehicle. So that’s not adequate if
you are driving let us say a 10 wheeler or 8 wheeler. So when you are talking
about authorized driver, meaning you are authorized and licensed to drive
the vehicle that he is driving. So there are different licenses as you all know
depending on the nature or type of vehicles.

Q: Alright, what if the insured is the one driving and he has no valid driver’s
license? Or his license has already expired? Can he recover from insurance
company?
A: Yes, right? Because the authorized driver clause will only apply to a driver
other than the insured. So if the person is other than the insured who is
driving then he must be authorized or licensed to drive, I mean the license
has not yet expired, it has been regularly issued. Now if the insured himself is
driving, of course despite the fact that he has no license, or license expired,
the insured may recover without prejudice to his liability under the land
transportation code. But for insurance purposes, he can recover from the
insured.

Okay, the next one, suretyship.

Q: Now what is the contract of suretyship?

A: Well it is the same as the definition of a surety as you know under the civil code.
The only difference is, the surety in this case is engaged or allowed to engage in
insurance business. But the concept, the principle is the same. So basically the
surety secures the obligation of the principal-­­ debtor to the obligee. Now, of course
the other difference other than that surety is engaged in suretyship allowed by the
insurance commission to engage in this type of business, the other distinction is as
to when the bond issued by the surety becomes valid and efficacious. As you all
know, if it is an ordinary surety agreement, the obligation of the surety arises once it
is distributed or subjected by the parties right and not payment or default or
breached on the part of the principal-­­ debtor obligor entitles the obligee to
proceed against the surety. As you know the surety is liable solidarily together with
the principal debtor. Now of course as you know, the liability of the surety is
premised on the valid principal obligation. If there is valid principal obligation and
he does not pay, then the oblige may proceed against the surety. Now, if it is a
contract of suretyship under the insurance code, the surety is not liable unless there
is premium payment. So that’s the other distinction. So surety in the context of
insurance code is not liable unless there is valid insurance payment.
Exception you remember the case of Philippine Pryce Corp? If the obligee has already
accepted the bond. So the surety is liable despite non-­­ payment of premium having
issued the bond and accepted by the obligee. Now the bond is not supposed to be
delivered to the obligee unless premium is paid. Now that is the evidence of
the obligation or liability of the surety. The delivery of the bond. Alright. But in that
case of Philippine Pryce Corp, the surety issued the bond noh taking that the check
issued to pay the premium will be good. It was dishonored for insufficient funds.
That’s the mistake on the part of the surety. So made liable by express provision of
law. So by accepting the bond, he is liable despite non-­­ payment of the premium.

Q: Alright this was asked in the bar. So A purchased goods from X on 90-­­day credit
basis secured by a surety bond posted by A. A did not pay. X filed an action for
collection. A claimed that she has paid the premium of the surety bond, the right of
action was against exclusively of the surety company. So basically the obligor having
paid the bond on the surety referred the complaint for collection to the surety, not
against him. Is that argument correct?
A: Of course that argument is wrong because the obligee may enforce his right
against anyone of the obligor, principal debtor and the surety. So the same concept
in the earlier discussion, right? So surety liable jointly and severally with the
principal debtor. Then the obligee may decide to choose to sue either the obligor
only, or the surety only, or both of them on a joint and several basis.

Q: Okay what about a continuing bond? Is there such a thing as continuing bond?
A: Yes, for any freight. So bonded warehouses for any freight to store palay or rice
noh owned by any freight. So warehouse must procure surety bond to protect or
secure the obligation to any freight. If it is a continuing bond, how do you cancel it?
So there’s one case in your outline. The case of Country Bankers v. Lagman, not yet
asked in the bar.

So continuing bond maybe cancelled only by the obligee and the insurance
commissioner and the Court.

Q: Is surety contract a principal contract or accessory contract?

A: We all know that it is only an accessory contract right? This was the gist of the
decision in the case of First Lepanto v. Chevron Philippines. So while the surety is
liable jointly and severally with the principal debtor, the surety contract is merely a
collateral and accessory contract, therefore its efficacy is dependent on a valid
principal obligation. So if the principal obligation cannot be fulfilled, or cannot be
enforced unless certain condition has been complied with, then the same condition
also apply to a surety. So the surety is dependent on the very simple condition as to
bring the principal debtor or obligor liable.

May 9, 2018
 Let’s take up the last type of insurance. Life insurance.
For some concepts, we discussed the relation of insurable interest.

Q: What is life insurance?

A: Insurance on human lives and anything connected therewith or appurtenant
thereto.
Q: What are the types or kinds of life insurance?
A:

We have the following:

1. Term insurance-­­ meaning the insurer is liable only if the insured dies with a
particular term or period. So let’s say he took an insurance only for 10 years.
So if he dies within the 10-­­ year period, then the beneficiary recovers.
Otherwise, insurer not liable. This is the cheapest type of life insurance
because you only pay for the insurance itself for a particular period. So there
is no investment component, purely simple life insurance on a term basis. So
if a term lapses, or he died when the term lapses, then the insurer is not
liable, the beneficiary does not get a single centavo from the insurance
company.

2. Whole life or permanent insurance-­­ Corollary the opposite of the term

insurance. The insurer is liable the moment the insured dies. Whether or not
he lives after 100 years.

3. Endowment policy-­­ What is endowment policy? Actually you have read

endowment policy in various cases in your outline. So what is the concept?
Again the concept is, the insured pays a premium over a certain term and
then if he survives the term or period or the maturity of the policy, he gets
the lump sum payment right? Now if he dies within that period, the proceeds
will go to the beneficiary. And this is one of the most popular type of
insurance right? Because you paid premium. If you survive the term, then he
gets the lump sum. Now if he died within that period, then the beneficiary
gets the proceeds.

4. Annuity
5. Group life insurance-­­ Employer of company obtains for their employees. So
let’s say I get insurance from members of the firm-­­ lawyers and non lawyers.
There is only one policy issued. The master policy given to the employer.

Q: Now how will be the employees cover?

A: So there is a schedule attached to the master policy. That schedule
determines the persons covered by the policy.
Q: Are you allowed to get a refund for life insurance? Let’s say provision or
item in insurance regarding refund of premium, right? When is premium
refundable?
 A:

1. If the property is never put at risk

2. Over insurance
3. Rescission of policy
4. Insurance for a definite term and the policy is surrendered for expiration
of the period of term.
5. Misrepresentation on the part of the insurer

Q: Is this available for life insurance?

A: NO. Refund of premium only applies to property insurance but not to life
insurance. Because the moment you pay, The moment the policy takes effect,
then insurer is exposed to liability. If the insured dies in any period or any
day, anytime rather within the period of the term, the insurer is liable.

Now in lieu of non-­­ refundable premium for life insurance, what does the
insured get in consideration of the term for this loss or inability to rectify the
premium. And this is called non-­­ default or non-­­ forfeiture options in life
insurance. So in your outline, in your syllabus, there is a topic after refund of
premium right? It says non-­­ forfeiture or non-­­ default option in life
insurance. It’s not refund per se but non-­­ default or non-­­ forfeiture
options for life insurance.

6. Industrial life insurance-­­ The premium is payable every week or every

month and not exceed 500x the amount obtained minimum wage in Metro
Manila. And with the word “industrial” written on the face policy. So this is
common or given to minimum wage earners. It’s required by law.

Q: What are the non-­­ default or non-­­ forfeiture options in life insurance?
Before we answer that question, are these options for term life insurance? Or
only for whole life or permanent insurance?
A: Well this option is available only for whole life insurance. It’s not available
for term insurance. As we said earlier, term insurance, you pay premium only
for a particular term, right? And the insured has to die within that period for
the insurer to be liable. That’s why this option is not applicable for term but
applicable for permanent or whole life insurance.
Q: So what are these options?

1. Cash surrender-­­ every whole life has a cash surrender value. Because if
you pay premium every month or 1 year, 2 years, 3 years. But usually this
is done on the 3rd year of the policy. So the cash value attached to the
policy. So if he cannot pay the premium anymore for whatever reason,
then you can surrender the policy and get the corresponding cash value
equivalent at the time of the surrender.

Q: Now of course when you surrender the policy can you reinstate it?
 A: Not anymore. Once you surrendered the policy it cannot be reinstated.
Q: Now how do you reinstate the policy?
A: By paying the premium right? So in your readings of the cases, you
have encountered situations where the policy lapsed right? And then the
insured applies for reinstatement it depends now on the approval of the
insurance company. Remember the case of Insular Life v. Khu, the one
penned by Justice Del Castillo? The life insurance policy lapsed already.
So theoretically the insurance company is no longer bound. But the
insured would like to obtain of course protection or coverage. So he has
to have that policy reinstated. He has to pay the premium for the period
covered by the insurance policy. But unless reinstated and he dies before
reinstatement, the insurance company is not liable. Supposing he does
not want to reinstate the policy because he cannot afford to pay the
premium, he can at least get the cash surrender value of the policy.

Q: Can he get a loan from the cash surrender value?

A: Of course right? If he can get the cash surrender value, then he can get
a loan against the amount corresponding to the cash surrender value of
the policy. To make it clear, once you surrender the policy, it cannot be
reinstated.

2. Now, the other option of the non-­­ default is so-­­called the reduced paid
up cash value. So reduced paid up cash value, meaning the cash value of
your policy will be used to purchase insurance, a term insurance.

So let’s say you have paid premium for 5 years, and let’s say the cash
surrender value is let us say 300k. So the 300k cash value of the policy will be
used to purchase a term insurance. So no longer whole life but a term
insurance equivalent to the real policy but for a lower amount. Let’s say you
have already paid 10 years. The cash value would be used to purchase a
policy for the same year that he had paid but for a lower amount. So let’s the
insurance is for 10 million. So you will use the cash value to pay premium for
that policy but for the same year but for a lower amount. No longer 10
million but let’s say 1 million or 2 million depending on how much your cash
surrender value can afford.

3. The last one, the so-­­ called extended term insurance. So the cash value
will be used to purchase a term insurance. Meaning no longer for life, but
term insurance.

So repeat. First, the cash surrender option. So surrender the policy get the
corresponding cash value of the policy. Once surrendered the policy it is
lapsed, cannot be reinstated. Second, so paid-­­ up cash value. Reduced paid
up. So the cash value is used to purchase to pay on that insurance, provided
on the coverage with the term equivalent to the original but for a lower
amount. And the third one, extended term insurance. So the cash value is
used to purchase a new life insurance but term only, no longer for life. So let’s
say yung binayad mo good only for 1 year or 2 years. Then your policy you
renew only for 2 years. So it doesn’t forfeit your premium payment. You are
able to use them depending on your appetite on what is acceptable or
pleasing to you.

Q: Next, to whom are proceeds of life insurance payable?

A: So we said of course they are payable to the beneficiary if the insured dies
ahead of the beneficiary. That’s supposed to be the case.
Q: What is the only exception? Or what are the exceptions rather?
A: The exceptions are if the beneficiary is unlawfully designated. In case of
unlawful designation, the proceeds will go to the estate of the insured. And
you remember our discussion, if the person takes insurance on his own life,
he can designate anyone as beneficiary as long as he is not disqualified to the
donation under Art. 739 of the Civil Code. Now the other exception is if the
beneficiary is the principal, accomplice, or accessory in willfully bringing
about the death of the insured. In which case, he therefore not subjected to
the proceeds. So remember we said this is not by way of reckless imprudence
right? It has to be “willful act” in bringing about the death of the insured as
principal, accessory or accomplice.

Q: What happens if the beneficiary is the one responsible for bringing

about the death of the insured in whatever capacity as principal,
accessory or accomplice?
A: So it will go to other beneficiary if once designated. If not designated
then the terms or provisions of the policy will apply, otherwise, if it is
silent, it will go to the estate of the insured.
Q: In case of 2 beneficiaries, both of them are lawfully designated, how
will the proceeds be divided?
A: It shall be divided based on the terms of the policy. Now if it is silent,
divide equally between and among the beneficiaries.
Q: Now what about if one is lawfully designated, the other one is
unlawfully designated. (Maramag v. Maramag)
A: So the share of the unlawfully designated beneficiary shall form part of
the share of the lawfully designated beneficiary. Do you remember we
said, that it is not correct to say that the share of unlawfully designated
beneficiary will be part of the proceed of the estate. Everything will go to
the lawfully designated beneficiary.
Q: Now what if the insured dies ahead of the beneficiary?
A: We make distinction between irrevocable and revocable beneficiary. If
it is irrevocable, the proceeds will not be payable to the estate of the
insured obviously but will go to the legal representatives of the
irrevocably designated beneficiary. Now if it is revocable designated
beneficiary then of course it will go the estate of the insured. If the policy
is silent then it is deemed to be one of revocably designated beneficiary.
 Of course do not forget the rules on incontestability clause. Remember to
summarize the discussion in the cases of Manila Bankers v. Aban and
Sun Life v. Sylvia. So in incontestability clause there are now 2 situations
where the insurer is precluded from rescinding the policy despite the
misrepresentation or concealment by the insured.

1.) If 2 years had lapsed from issuance of the policy or last reinstatement.
2.) If the insured dies within the 2 year period.

So any of these two will preclude the insurer from rescinding the policy.

Q: Is annuity life insurance?

A: It is considered life insurance.
Q: But how do you distinguish annuity from life insurance? Do you remember that
we mentioned annuity when we discussed incontestability clause? So does this
incontestability clause apply on annuity life insurance?
A: It does not. Because in incontestability clause, it shall only apply to a life
insurance payable upon the death of the insured. Now for annuity, the annuitant
pays premium, lump sum. And then every year, he receives annuity from the
insurance company. Now, the right to receive ends upon his death. So it’s the
opposite right? Ordinarily an insurance, you get the proceeds upon the death of the
insured. For annuity the payment ceases when the annuitant dies. During his
lifetime he gets annuity, meaning every year depending on the date indicated on the
policy.

Q: Can a life insurer be made liable let’s say when the insured was executed for a
crime? So he took out a life insurance, designate someone as beneficiary. And then
he was executed for a crime. But eventually it turned out that there was a mistake. Is
the insurance company liable? Is the obligation of the insurer dependent on the guilt
or innocence of the insured? So let’s say inexecute yun pala nagkamali yung finding
ng court.
A: So as you know, if the insured dies because of execution, then the insurance
company is not liable. To say otherwise would be contrary to public policy.
Q: Why contrary to public policy?
A: Because there is a presumption that the judgment is correct. That life can never
be insured noh, in that contract of insurance.

Q: What if the insured commits suicide? A businessman procured a life insurance. 1

year of business operations, resulted in huge losses that cannot be recovered. So he
went depression, could not take it, and eventually decided to commit suicide. Which
suicide is committed 1 year and 6 months from the issuance of the policy. Is the
insurer liable?
A: Yes. The general rule, the insurer is liable if he committed suicide after 2 years
from issuance of policy or last reinstatement
Q: What’s the exception?
A: if he commits suicide in the state of insanity. In this case, compensable any day or
anytime before the 2 year expires.
Q: Now what is the rationale for the 2 year period?
A: Baka naman kasi kumuha lang siya ng insurance noh. Then later on he committed
suicide for the benefit of his beneficiaries. So 2 year period is enough noh. After 2
years, insurer is liable despite the fact the insured committed suicide. Meaning
‘within the 2 year period’ cannot be said that the insured took life insurance noh just
for the purpose of committing suicide to benefit his beneficiaries.
Q: Can the 2 year period be shortened?
A: Yes, if it is so provided in the policy.

Q: May a life or health insurance be transferred?

A: life, yes.
Q: How?
A: By transfer. By will/succession.
Q: So can the insured assign his life insurance policy to a lender to secure payment
of a loan?
A: Yes.
Q: Does that require the consent of the beneficiary?
A: It depends. If the beneficiary is irrevocably stated, it requires the consent.
Otherwise the assignment is not valid. Because you remember what we said last
time? If the beneficiaries are irrevocably designated, any act that will impair his
interest is not valid. So the policy will affect his right, therefore that shall be done
with his consent. Now if it is revocably designated, it can be assigned by the insured
to a 3rd party or any assignee.
Q: Does that require the consent of insurance company?
A: No. By the fact that it can be assigned, it does not require the consent of the
insurance company.
Q: Is notice required to be given to insurance company? Let’s say the insured
transfers the life insurance policy to an assignee. And the assignee dies. Who gets
the proceeds?
A: It depends again if irrevocably designated or revocably designated. Pag
irrevocable, of course the beneficiary. Pag revocable, the estate of the assignee.
Q: Now is notice required to be given to insurance company?
A: For sure consent is not necessary or not needed.
Q: What about notice of the assignment to the insurer?
A: It is not required unless otherwise stipulated by the policy.
Q: If notice is required to be given to the insurer and it is not so notified, what
happens to the assignee? Is the insurance policy voided or just the assignment?
A: Just the assignment. And therefore if insured dies, beneficiary can still recover.
Q: How do you distinguish assignment of policy from change of beneficiary? Are
they the same?
A: They are not. Because assignment is for a valuable consideration. When you
assign the right to a policy you get something in return. In consideration of
assignment. Whereas in change of beneficiary, without valuable consideration in
supporting the change of beneficiary.
Q: What is the measure of indemnity life insurance? Is it open? Valued?
A: Well these concepts obviously apply to property, not to life insurance. But
because you cannot put a price tag to the life of the person, so the limit is the
amount set forth in the policy. So therefore in that context, it is deemed to be a
valued policy. So whatever amount is measured in the liability of the insurer and
measure of indemnity by the insured.

Q: So just to clarify, these concepts are appropriate only for property. But in relation
to discussion to life insurance, what is ‘akin’ to?
A: So it’s not open but valued policy. So the limit of liability for insurer and the
measure of indemnity for insured is the amount indicated in the policy itself. That’s
why it is ‘akin’ to a valued policy.
Q: Within what period should the claim in life insurance be settled?
A: It depends. When does it mature? It is payable of course upon maturity. But
maturity can be based on the death or upon death of insured, or for a term other
than death of the insured.

If it is payable on a term upon death of the insured, then it has to be paid on that
period or term. Except annuity. IT.IS.PAYABLE.EVERY.YEAR.
Q: Now if it matures upon death of the insured within what period will it be paid?
A: Within 60 days from notice to insurer and presentation of the proof of death.

So in property 30, 60, 90 right?

Pag life 60.
30 sa property, if there is agreement.
It is 60 days, no agreement as to value of the loss, the insurer has 90 days to pay the
insured.

Q: Now what happens in case there is a delay? Remember Pamana v. Stronghold?

A: 2x the rate prescribed by the monetary board which means 12%.
Q: When do you count the 12%? When do you compute the 12% interest?
A: It is only in case of delay. Therefore it is not counted on day 1. Counted only if it is
not paid after 90 days for property and 60 days for life insurance.