Insurance Code

Commercial Law Review
Law on Insurance
Maria Zarah Villanueva - Castro
INSURANCE CODE (P.D. 1460 as amended) from mutual negotiations between the
parties as they are prescribed by the insurer
INTRODUCTION: in printed form to which the insured may
A. Laws governing Insurance “adhere” if he chooses but which he cannot
Insurance Code – primary law change.
New Civil Code – applied suppletorily *Insurer always comes up with already
specifically on law on obligations and contracts made contract.
GSIS Act Q: Is there a contract?
Property Insurance Law A: YES.
Act 1498 Importance of knowing whether the
contract is one of adhesion: In case of
B. General Concept of Insurance doubt, the contract shall be interpreted
Contract of Insurance is an agreement whereby strictly against the insurer and liberally in
one undertakes for a consideration to indemnify favor of the insured.
another against loss, damage or liability arising Q: is this rule unfair?
from an unknown or contingent event. (Sec. 2 A: NO. Because the contract was already
par. 2) prepared by the insurer, the only thing that
*It is a contract of assumption of risk the insured can do is either take it wholly or
Q: Who will take the risk? leave it.
A: Insurer 3. Aleatory – The obligation of the insurer to
Q: Who will be exposed to the risk? pay the proceeds of the insurance arises
A: Insured
only upon the happening of an event which
C. Characteristics is uncertain, or which is to occur at an
1. Risk Distributing Device – the device of indeterminate time. (Article 2010 NCC)
insurance serves to distribute the risk of *The insurer becomes liable upon the
economic loss among as many as possible happening of the peril insured against.
*One or both parties are reciprocally bound
to those who are subject to the same kind
to give or do something for consideration
of risk.
*The risk is distributed to the group of upon the happening of an event which is
persons having the same risk. uncertain or to which is to occur at an
Q: Why is it a risk distribution device? indeterminate time.
A: Insurer has different policyholders that 4. Contract of Indemnity - The insured who
contribute to a common fund for the same has insurable interest over a property is
risk. The common fund will indemnify the only entitled to recover the amount of
person who suffers loss for the same risk. actual loss sustained and the burden is
Catch: not all policyholders will suffer the upon him to establish the amount of such
same risk at the same time. loss.
2. Contract of Adhesion – Insurance is a *It is the basis of all property insurance.
contract of adhesion considering that most *Life insurance is not a contract of
of the terms of the contract do not result indemnity. Life is not subject to pecuniary
estimation; Life is precious.
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Law on Insurance
General Rule: Insurance contract is a Sec. 14 of the Insurance Code provides

contract of indemnity. that: “An insurable interest in property may
Exception: Life insurance consist in:
5. Uberrimae Fides Contract/Utmost Good (a) An existing interest;
Faith – The contract of insurance is one of (b) An inchoate interest founded on an
perfect good faith not for the insured alone existing interest; or
but equally so for the insurer; in fact, it is (c) An expectancy, coupled with an existing
more so for the latter since its dominant interest in that out of which the expectancy
bargaining position carries with it stricter arises.”
responsibility. 2. Risk of loss
*Since there was an assumption of risk on Sec. 51 paragraph g of the Insurance Code
the part of the insurer, it is their duty to provides that: “ A policy of insurance must
make an intelligent estimates that is the specify: x x x (g) The period during which
reason why it requires the parties to the the insurance is to continue.”
3. Assumption of risks
contract of insurance to disclose conditions
Sec. 2 of the Insurance Code states that:
affecting the risk of which he is aware, or
“xxx (1) A “contract of insurance” is an
material fact, which the applicant knows,
agreement whereby one undertakes for a
and those, which he ought to know.
consideration to indemnify another against
*Material facts are facts needed by the
loss, damage or liability arising from an
insurer for the determination of whether he
unknown or contingent event.”
will assume or not the risk.
4. Scheme to distribute losses
5. Payment of premiums
D. Elements of Insurance
1. Existence of an insurable interest
Sec. 12 of the Insurance Code provides “An insurer is entitled to payment of the
that: “The interest of a beneficiary in a life premium as soon as the thing insured is
insurance policy shall be forfeited when the exposed to the peril insured against.
beneficiary is the principal, accomplice, or Notwithstanding any agreement to the
accessory in willfully bringing about the contrary, no policy or contract of insurance
death of the insured; in which event, the issued by an insurance company is valid and
nearest relative of the insured shall receive binding unless and until the premium
the proceeds of said insurance if not thereof has been paid, except in the case of
otherwise disqualified.” a life or an industrial life policy whenever
Sec. 13 of the Insurance Code provides the grace period provision applies.”
that: “Every interest in property, whether
E. Right of Subrogation
real or personal, or any relation thereto, or
*This principle is a normal incident of indemnity
liability in respect thereof, of such nature
property insurance as a legal effect of payment;
that a contemplated peril might directly
it inures to the insurer without any formal
damnify the insured, is an insurable
assignment or any express stipulation to that
interest.”
effect in the policy. Said right is not dependent
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Law on Insurance
upon nor does it grow out of any privity of *What is being followed in insurance contracts
contract. Payment to the insured makes the is what is known as the Cognition Theory.
insurer an assignee in equity. Q: What is the crucial point?
*The insurer can only recover from the third A: The point wherein there must be an actual
person what the insured could have recovered. communication to the insured of the approval
Thus, there can be no recovery if the insurer of the application.
voluntarily paid even if the loss is not covered *In Great Pacific Life Assurance Corporation v
by the policy. CA, the SC held that the insured is the one
*The insured can no longer recover from the making the offer by submitting an application to
offending party what was paid to him by the the insurer and the latter accepts the offer by
insurer but he can recover any deficiency, that approving the application. Thus, mere
is, if his damages is more than what was paid. submission of the application without the
The deficiency is not covered by the right of corresponding approval of the policy does not
subrogation. result in the perfection of the contract of
Cases when there is no right of subrogation: insurance.
1. The insured by his own act releases the
wrongdoer/third person liable for the loss C. Parties to a contract of Insurance
2. Where the insurer pays the insured for a Sec. 6 of the Insurance Code states that: “Every
loss or risk not covered by the policy person, partnership, association, or corporation
3. In life insurance duly authorized to transact insurance business
4. For recovery of loss in excess of insurance as elsewhere provided in this code, may be an
coverage insurer.”
CONTRACT OF INSURANCE: “Anyone except a public enemy may be
A. Requisites of a contract of Insurance insured.”
1. A subject matter in which the insured has Beneficiary – person designated to receive
an insurable interest proceeds of policy when risk attaches.
2. Event or peril insured against which may be General Rule: When one insures his own life, he
any future contingent or unknown event, may designate any person as the beneficiary,
past or future and a duration for the risk whether or not the beneficiary has an insurable
thereof interest in the life of the insured.
3. A promise to pay or indemnify in a fixed or Exceptions: Persons specified in Article 739 in re
ascertainable amount Article 2012 of the New Civil Code.
4. A consideration known as premium *The designation of persons mentioned in
5. Meeting of the minds of the parties Article 739 is void but the policy is binding.
*In property insurance, the beneficiary must
B. Perfection have insurable interest on the property.
*An insurance contract is consensual contract Sec. 11 of the Insurance Code states that: “The
and is therefore perfected the moment there is insured shall have the right to change the
a meeting of minds with respect to the object beneficiary he designated in the policy, unless
and the cause or consideration. he has expressly waived this right in said policy.”
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Law on Insurance
*The designation is revocable unless the right to Sec. 3 of the Insurance Code provides that:
revoke is expressly waived in the policy. “The married woman or the minor herein
Sec. 12 of the Insurance Code states that: “The allowed to take out an insurance policy may
interest of a beneficiary in a life insurance policy exercise all the rights and privileges of an
shall be forfeited when the beneficiary is the owner under a policy.”
principal, accomplice, or accessory in willfully *Under RA 7192, married women can enter
bringing about the death of the insured; in into insurance contracts without the
which event, the nearest relative of the insured assistance of their husbands.
shall receive the proceeds of said insurance if
not otherwise disqualified.” D. Subject matter of Insurance
*In life or health insurance, the insured cannot Sec. 3 of the Insurance Code states that: “Any
assign the policy if the designation of the contingent or unknown event, whether past or
beneficiary is irrevocable. Reason: The future, which may damnify a person having an
irrevocable beneficiary has vested right. insurable interest, or create a liability against
*If the insured refuses to pay the premiums, the him, may be insured against, subject to the
designated irrevocable beneficiary may provisions of this chapter.”
continue the policy by paying premiums that are Sec. 4 of the Insurance Code states that: “The
due. (Article 1236 NCC) preceding section does not authorize an
Q: Despite irrevocable designation, may the insurance for or against the drawing of any
insured revoke the beneficiary? lottery, or for or against any chance or ticket in a
A: YES. Under Article 42 of the Family Code, lottery drawing a prize.”
Article 43 (4) of the Family Code, Article 50 of
the Family Code and Article 64 of the Family E. Insurance not a wagering contract
Sec. 4 of the Insurance Code states that: “The
Code.
1. Rule on minors preceding section does not authorize an
Sec. 3 of the Insurance Code states that: insurance for or against the drawing of any
“Any minor of the age of eighteen years or lottery, or for or against any chance or ticket in a
more, may, notwithstanding such minority, lottery drawing a prize.”
contract for life, health and accident *Wagering contract is not allowed because it is
insurance, with any insurance company duly against public policy.
Reason: The insured should not be happy
authorized to do business in the Philippines,
because of the loss he suffered.
provided the insurance is taken on his own
Q: What prevents insurance policy from being a
life and the beneficiary appointed is the
wagering contract?
minor's estate or the minor's father, mother, A: Insurable interest.
husband, wife, child, brother or sister.”
*This portion is repealed by RA 6809. Under INSURABLE INTEREST:
RA 6809, minors are no longer allowed to
enter into insurance contracts. This rule is A. Concept of Insurable Interest in General
absolute. *A person has an insurable interest in the
2. Rule on married women subject matter if he is so connected, so situated,
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Law on Insurance
so circumstanced, so related, that by the A: YES. There is an insurable interest up to the

preservation of the same he shall derive amount covered by the bottomry.
pecuniary benefit, and by its destruction he Q: Who gets the proceeds of the insurance?
shall suffer pecuniary loss, damage or A: The insured and the beneficiary.
*In life insurance, persons prohibited to make
prejudice.”
*Insurable interest does not exist by legal donation to each other are also prohibited to
relationship or by virtue of law. become beneficiaries of each other.
*For disqualification purposes, what is needed
B. Reason for the requirement of insurable is only a preponderance of evidence.
interest
*A policy issued to a person without the D. Insurable interest in Property Insurance
requisite insurable interest in the subject matter
“Every interest in property, whether real or
is a mere wager policy or contract, hence, it is
personal, or any relation thereto, or liability in
VOID.
Evil sought to be avoided: Temptation to respect thereof, of such nature that a
destroy the thing insured. contemplated peril might directly damnify the
Reason: He has nothing to lose but everything insured, is an insurable interest. “
to gain. Sec. 14 of the Insurance Code states that: “An
insurable interest in property may consist in:
C. Insurable interest in Life Insurance (a) An existing interest;
Sec. 10 of the Insurance Code provides that: (b) An inchoate interest founded on an existing
“Every person has an insurable interest in the interest; or
life and health: (c) An expectancy, coupled with an existing
(a) Of himself, of his spouse and of his children; interest in that out of which the expectancy
(b) Of any person on whom he depends wholly arises.”
or in part for education or support, or in whom *In general, a person has an insurable interest in
he has a pecuniary interest; the property, if he derives pecuniary benefit or
(c) Of any person under a legal obligation to him advantage from its preservation or would suffer
for the payment of money, or respecting pecuniary loss, damage or prejudice by its
property or services, of which death or illness destruction whether he has or has no title in, or
might delay or prevent the performance; and lien upon, or possession of the property.
(d) Of any person upon whose life any estate or *Existence of insurable interest is a matter of
interest vested in him depends.” public policy, hence, the principle of estoppels
Q: May warehouseman insure the goods cannot be invoked.
deposited in his warehouse? *In order for hope or expectancy to be
A: YES. In case of loss of the goods the insurable, it must be coupled with existing
warehouseman is liable to the owner of the interest out of which the expectancy arises. It
goods. must be founded on an actual right to the thing
Q: May bottomry lender insures the or upon a valid contract.
hypothecated vessel? Sec. 19 of the Insurance Code states that: “An
interest in property insured must exist when the
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Law on Insurance
insurance takes effect, and when the loss the mortgagor, may be performed by the
occurs, but not exist in the meantime; and mortgagee therein named, with the same
interest in the life or health of a person insured effect as if it had been performed by the
must exist when the insurance takes effect, but mortgagor.”
need not exist thereafter or when the loss a. Standard or Union Mortgage Clause –
occurs.” subsequent acts of the mortgagor
Sec. 20 of the Insurance Code states that: cannot affect the rights of the assignee.
“Except in the cases specified in the next four b. Open or Loss Payable Clause – acts of
sections, and in the cases of life, accident, and the mortgagor affect the mortgagee.
health insurance, a change of interest in any Reason: Mortgagor does not cease to
part of a thing insured unaccompanied by a be a party to the contract.
Basis: Sec. 8 of the Insurance Code
corresponding change in interest in the
states that: “Unless the policy otherwise
insurance, suspends the insurance to an
provides, where a mortgagor of
equivalent extent, until the interest in the thing
property effects insurance in his own
and the interest in the insurance are vested in
name providing that the loss shall be
the same person.”
Sec. 25 of the Insurance Code states that: payable to the mortgagee, or assigns a
“Every stipulation in a policy of insurance for the policy of insurance to a mortgagee, the
payment of loss whether the person insured has insurance is deemed to be upon the
or has not any interest in the property insured, interest of the mortgagor, who does not
or that the policy shall be received as proof of cease to be a party to the original
such interest, and every policy executed by way contract, and any act of his, prior to the
of gaming or wagering, is void.” loss, which would otherwise avoid the
1. Insurable interest in case of mortgaged insurance, will have the same effect,
property although the property is in the hands of
Sec. 8 of the Insurance Code states that: the mortgagee, but any act which,
“Unless the policy otherwise provides, under the contract of insurance, is to be
where a mortgagor of property effects performed by the mortgagor, may be
insurance in his own name providing that performed by the mortgagee therein
the loss shall be payable to the mortgagee, named, with the same effect as if it had
or assigns a policy of insurance to a been performed by the mortgagor.”
mortgagee, the insurance is deemed to be Sec. 9 of the Insurance Code states
upon the interest of the mortgagor, who that: “If an insurer assents to the
does not cease to be a party to the original transfer of an insurance from a
contract, and any act of his, prior to the mortgagor to a mortgagee, and, at the
loss, which would otherwise avoid the time of his assent, imposes further
insurance, will have the same effect, obligation on the assignee, making a
although the property is in the hands of the new contract with him, the act of the
mortgagee, but any act which, under the mortgagor cannot affect the rights of
contract of insurance, is to be performed by said assignee.”
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Law on Insurance
2. Effect of change of interest in the thing inure to the benefit of whomsoever, during
insured the continuance of the risk, may become
Sec. 20 of the Insurance Code states that: the owner of the interest insured.”
“Except in the cases specified in the next *The policy follows where the interest is.
four sections, and in the cases of life, Sec. 58 of the Insurance Code provides
accident, and health insurance, a change of that: “The mere transfer of a thing insured
interest in any part of a thing insured does not transfer the policy, but suspends it
unaccompanied by a corresponding change until the same person becomes the owner
in interest in the insurance, suspends the of both the policy and the thing insured.”
insurance to an equivalent extent, until the Article 1306 of the New Civil Code provides
interest in the thing and the interest in the that: “The contracting parties may establish
insurance are vested in the same person.” such stipulations, clauses, terms and
Sec. 21 of the Insurance Code states that: conditions as they may deem convenient,
“A change in interest in a thing insured, provided they are not contrary to law,
after the occurrence of an injury which morals, good customs, public order, or
results in a loss, does not affect the right of public policy.
the insured to indemnity for the loss.”
Insurable Insurable
“A change of interest in one or more several
Interest in Interest in
distinct things, separately insured by one Property Life
policy, does not avoid the insurance as to As to Limited to General
the others.” measure the actual Rule:
*This is a divisible policy. value of the Insurable
Sec. 23 of the Insurance Code states that: interest in Interest in
“A change on interest, by will or succession, the life is
on the death of the insured, does not avoid property. unlimited.
an insurance; and his interest in the Exception: In
life insurance
insurance passes to the person taking his
effected by a
interest in the thing insured.” creditor on
*This is by operation of law. the life of
Sec. 24 of the Insurance Code states that: the debtor.
“A transfer of interest by one of several As to time The General
partners, joint owners, or owners in when insurable Rule: It is
common, who are jointly insured, to the insurable interest enough that
others, does not avoid an insurance even interest must exists when the insurable
though it has been agreed that the exist the interest
insurance exists at the
insurance shall cease upon an alienation of
takes effect time the
the thing insured.” and when policy takes
Sec. 57 of the Insurance Code provides the loss effect and
that: “A policy may be so framed that it will occurs but need not
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Law on Insurance
not need exist at the the insured.

exist in the time of the Q: In case where the designated beneficiary
meantime. loss. cannot claim the proceeds due to the fact
Exception: that such designation was void, who can
Obligee must
claim the proceeds?
have
A: Insured.
insurable
interest at DEVICES FOR ASCERTAINING AND CONTROLLING RISK
the time the
AND LOSS:
policy took
effect and at
*Concealment and representation are devices that are
the time of
related to the formation of the contract whereas
loss.
As to There must The warranties and condition are devices that are related to
expectation be a legal expectation the execution of the contract.
of benefit to basis. of the
be derived benefit to be A. Concealment
derived need 1. Concept
not have any Q: When is there concealment?
legal basis. Sec. 26 of the Insurance Code provides
As to the The General that: “A neglect to communicate that which
beneficiary’s beneficiary Rule: The a party knows and ought to communicate, is
interest must have beneficiary called a concealment.”
insurable need not 2. Duty to Communicate
interest have Sec. 28 of the Insurance Code states that:
over the insurable “Each party to a contract of insurance must
thing interest over
communicated to the other, in good faith,
insured. the life of
all facts within his knowledge which are
The policy is the insured if
still valid, the insured material to the contract and as to which he
only the himself makes no warranty, and which the other has
designation secured the not the means of ascertaining.”
was avoided policy. 3. Test of Materiality
because the Exception: If Sec. 31 of the Insurance Code provides
beneficiary the life that: “Materiality is to be determined not
has no insurance by the event, but solely by the probable and
insurable was
reasonable influence of the facts upon the
interest. obtained by
the party to whom the communication is due, in
beneficiary, forming his estimate of the disadvantages of
the latter the proposed contract, or in making his
must have inquiries.”
insurable *The fact disclosed may not be the
interest over proximate cause of the loss still there is
the life of
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Law on Insurance
breach because there is a vitiation of that of the other, and which may affect the
consent, the contract is voidable. political or material perils contemplated;
4. Effect of Concealment and all general usages of trade.”
Sec. 27 of the Insurance Code provides Sec. 34 of the Insurance Code provides
that: “A concealment whether intentional that: “Information of the nature or amount
or unintentional entitles the injured party to of the interest of one insured need not be
rescind a contract of insurance.” communicated unless in answer to an
Sec. 29 of the Insurance Code provides inquiry, except as prescribed by section fifty-
that: “An intentional and fraudulent one.”
omission, on the part of one insured, to Sec. 35 of the Insurance Code provides
communicate information of matters that: “Neither party to a contract of
proving or tending to prove the falsity of a insurance is bound to communicate, even
warranty, entitles the insurer to rescind.” upon inquiry, information of his own
*It vitiates the contract and entitles the judgment upon the matters in question. “
insurer to rescind, even if the death or loss 6. Waiver of Information
is due to a cause not related to the Sec. 33 of the Insurance Code provides
concealed matter. that: “The right to information of material
5. Matters which need not be communicated facts may be waived, either by the terms of
Sec. 30 of the Insurance Code provides the insurance or by neglect to make inquiry
that: “Neither party to a contract of as to such facts, where they are distinctly
insurance is bound to communicate implied in other facts of which information
information of the matters following, except is communicated.”
in answer to the inquiries of the other:
(a) Those which the other knows; B. Representation
(b) Those which, in the exercise of ordinary 1. Concept
care, the other ought to know, and of which Representations are factual statements
the former has no reason to suppose him made by the insured at the time of or prior
ignorant; to the issuance of the policy to give
(c) Those of which the other waives information to the insurer and otherwise
communication; induce him to enter into the insurance
(d) Those which prove or tend to prove the contract.
existence of a risk excluded by a warranty, *Representation per se is not wrong as long
and which are not otherwise material; and as such representation is true.
(e) Those which relate to a risk excepted *The false representation may still be
from the policy and which are not corrected as long as it is made before the
otherwise material.” issuance of the policy.
*Things need not be disclosed. 2. Kinds of Representation
Sec. 32 of the Insurance Code provides Sec. 36 of the Insurance Code provides
that: “Each party to a contract of insurance that: “A representation may be oral or
is bound to know all the general causes written.”
which are open to his inquiry, equally with
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Law on Insurance
Sec. 37 of the Insurance Code provides he responsible for its truth, unless it
that: “representation may be made at the proceeds from an agent of the insured,
time of, or before, issuance of the policy.” whose duty it is to give the information.”
Sec. 39 of the Insurance Code provides 7. When presumed false; effect of falsity
that: “A representation as to the future is to Sec. 44 of the Insurance Code provides
be deemed a promise, unless it appears that that: “A representation is to be deemed
it was merely a statement of belief or false when the facts fail to correspond with
expectation. “ its assertions or stipulations.”
Sec. 42 of the Insurance Code provides Sec. 45 of the Insurance Code states that:
that: “. A representation must be presumed “If a representation is false in a material
to refer to the date on which the contract point, whether affirmative or promissory,
goes into effect.” the injured party is entitled to rescind the
3. Test of Materiality contract from the time when the
Sec. 46 of the Insurance Code provides representation becomes false. The right to
that: “The materiality of a representation is rescind granted by this Code to the insurer
determined by the same rules as the is waived by the acceptance of premium
materiality of a concealment.” payments despite knowledge of the ground
*Facts that may probably and reasonably for rescission.”
influence the other party in forming his
estimate. C. Remedies available in case of Concealment or
4. Effect of Alteration or Withdrawal False Representation
Sec. 41 of the Insurance Code provides 1. When rescission by the insurer may be
that: “A representation may be altered or exercised
withdrawn before the insurance is effected, Sec. 48 of the Insurance Code states that:
but not afterwards.” “Whenever a right to rescind a contract of
5. Time to which representation refers insurance is given to the insurer by any
Sec. 42 of the Insurance Code states that: provision of this chapter, such right must be
“A representation must be presumed to exercised previous to the commencement
refer to the date on which the contract goes of an action on the contract.
into effect.” After a policy of life insurance made payable
6. Effect when representation is obtained on the death of the insured shall have been
from third persons in force during the lifetime of the insured
Sec. 43 of the Insurance Code provides
for a period of two years from the date of
that: “When a person insured has no
its issue or of its last reinstatement, the
personal knowledge of a fact, he may
insurer cannot prove that the policy is void
nevertheless repeat information which he
ab initio or is rescindible by reason of the
has upon the subject, and which he believes
fraudulent concealment or
to be true, with the explanation that he
misrepresentation of the insured or his
does so on the information of others; or he
agent.”
may submit the information, in its whole
extent, to the insurer; and in neither case is
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Law on Insurance
General Rule: Prescriptive period: Any time *The defense should be misrepresentation
before the commencement of a court action or concealment only.
on the contract. *If the insured dies within 2 year period, the
Exception: In case of life insurance made insurer may still rescind the contract. If the
payable on the death of the insured. insured died after the 2 year period, the
Q: How rescission is made? insurer cannot rescind the contract.
A: By sending notice of cancellation or
b. Theory and Object of incontestability
rescission to the insured. After a policy of life insurance made
Even if there is a court action, the insurer
payable on the death of the insured
may raise concealment or representation as
shall have been in force during the
an affirmative defense.
lifetime of the insured for a period of 2
2. When Life insurance policy becomes
years from the date of its issue or of its
incontestable
last reinstatement, the insurer cannot
“Whenever a right to rescind a contract of prove that the policy is void ab initio or
is rescindable by reason of the
insurance is given to the insurer by any
provision of this chapter, such right must be fraudulent concealment or
misrepresentation of the insured or his
exercised previous to the commencement
of an action on the contract. agent.
c. Defenses not barred by incontestability
After a policy of life insurance made payable
1. The person taking the insurance
on the death of the insured shall have been
lacked insurable interest as required
in force during the lifetime of the insured
by law
for a period of two years from the date of
2. The cause of the death of the
its issue or of its last reinstatement, the
insured is an excepted risk
insurer cannot prove that the policy is void 3. The premiums have not been paid
ab initio or is rescindible by reason of the 4. The conditions of the policy relating
fraudulent concealment or to military or naval service have
misrepresentation of the insured or his been violated
agent.” 5. The fraud is of a particularly vicious
a. Requisites for incontestability type
1. The insurance is a life insurance 6. The beneficiary failed to furnish
policy payable on the death of the proof of death or to comply with
insured. any condition imposed by the policy
2. It has been in force during the after the loss has happened
lifetime of the insured for at least 2 7. The action was not brought within
years from its date of issue or of its the time specified.
last reinstatement. The period of 2 8.
years may be shortened but it D. Warranties
cannot be extended by stipulation. 1. Concept; distinguished from
representation
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Law on Insurance
Warranty is a statement or promise set 3. Time to which warranty refers

forth in the policy or by reference Sec. 68 of the Insurance Code provides
incorporated therein, the untruth or non- that: “A warranty may relate to the past, the
fulfillment of which in any respect, and present, the future, or to any or all of
without reference to whether insurer was in these.”
fact prejudiced by such untruth or non- 4. Effect of Breach
fulfillment , renders the policy voidable.
Condition is a provision wherein certain “The violation of a material warranty, or
things are mandated by the insurer to be other material provision of a policy, on the
complied with by the insured in order for part of either party thereto, entitles the
the latter to recover. other to rescind.”
Examples: Sec. 75 of the Insurance Code states that:
1. Filing of the claim on time “A policy may declare that a violation of
2. Notice of loss specified provisions thereof shall avoid it,
3. Proof of loss otherwise the breach of an immaterial
*The condition may be complied with provision does not avoid the policy.”
before or after the loss. Sec. 76 of the Insurance Code states that:
“A breach of warranty without fraud merely
Warranty Representation exonerates an insurer from the time that it
Part of the contract A collateral occurs, or where it is broken in its inception,
inducement prevents the policy from attaching to the
Written on the Need not be written risk.”
policy or in a valid
rider or attachment POLICY OF INSURANCE:
Generally Should be established
conclusively to be material A. Definition and Form
presumed to be Sec. 49 of the Insurance Code states that: “The
material written instrument in which a contract of
The fact warranted Requires only to be insurance is set forth, is called a policy of
must be strictly substantially true
insurance.”
complied with
Sec. 50 of the Insurance Code provides that:
2. Kinds of Warranties “The policy shall be in printed form which may
1. Express contain blank spaces; and any word, phrase,
2. Implied – warranties that are deemed clause, mark, sign, symbol, signature, number,
included in the contract although not or word necessary to complete the contract of
expressly mentioned. insurance shall be written on the blank spaces
3. Affirmative – asserts the existence of a provided therein. Any rider, clause, warranty or
fact or condition at the time it is made. endorsement purporting to be part of the
4. Promissory – the insured stipulates that contract of insurance and which is pasted or
certain facts or conditions shall exists or attached to said policy is not binding on the
thing shall be done or omitted. insured, unless the descriptive title or name of
12
Law on Insurance
the rider, clause, warranty or endorsement is (g) The period during which the insurance is to
also mentioned and written on the blank spaces continue.”
provided in the policy. Unless applied for by the
insured or owner, any rider, clause, warranty or D. Papers attached to the policy and their binding
endorsement issued after the original policy effect (rider, warranties, clause, endorsement)
Rider is an attachment to an insurance policy
shall be countersigned by the insured or owner,
that modifies the conditions of the policy by
which countersignature shall be taken as his
expanding or restricting its benefits or excluding
agreement to the contents of such rider, clause,
certain conditions from the coverage.
warranty or endorsement. Group insurance and
*Riders, together with other attachments to the
group annuity policies, however, may be
policy like clause, warranty or endorsements,
typewritten and need not be in printed form.”
are not binding on the insured unless the
*Contract of insurance may be made in any
descriptive title or name thereof is mentioned
form but the policy of insurance must be in
and written on the blank spaces provided in the
writing.
policy.
B. Fine Print Rule Purpose: To modify the conditions or provisions.
Insurance is a contract of adhesion considering Interpretation: In case of doubt, riders prevail
that most of the terms of the contract do not over the policy.
*Riders and the like shall be countersigned by
result from mutual negotiations between the
the insured or owner unless he was the one
parties as they are prescribed by the insurer in
who applied for the rider, clause, and warranty.
printed form to which the insured may “adhere”
*When the requirements for a rider are
if he chooses but which he cannot change.
complied with including clause, warranty or
C. Contents of the Policy endorsement, it is considered part of the policy.
Sec. 51 of the Insurance Code provides that: “A *It is a part of the original policy which is in the
policy of insurance must specify: nature of a conditional obligation.
(a) The parties between whom the contract is
E. Kinds of Policy
made;
1. Open
(b) The amount to be insured except in the
cases of open or running policies;
“An open policy is one in which the value of
(c) The premium, or if the insurance is of a
the thing insured is not agreed upon, but is
character where the exact premium is only
left to be ascertained in case of loss.”
determinable upon the termination of the
*To put a threshold for purposes of
contract, a statement of the basis and rates
premium.
upon which the final premium is to be Advantage: actual valuation; the final
determined; valuation is accurate value of the property
(d) The property or life insured; Disadvantage: hassle
(e) The interest of the insured in property Example:
insured, if he is not the absolute owner thereof; Warehouse valued for P1M
(f) The risks insured against; and At the time of loss the actual valuation of
the warehouse is P800,000
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Law on Insurance
The insured can only recover P800,000 contrary to and is not for the purpose of
2. Valued violating any provisions of this Code. The
Sec. 61 of the Insurance Code provides Commissioner may promulgate rules and
that: “A valued policy is one which regulations governing such extensions for the
expresses on its face an agreement that the purpose of preventing such violations and may
thing insured shall be valued at a specific by such rules and regulations dispense with the
sum.” requirement of written approval by him in the
Example:
case of extension in compliance with such rules
a. Warehouse valued for P1M
and regulations. “
Agreed valuation is P1M
The insured can recover the whole P1M *This is a preliminary contract of insurance.
*The protection is temporary; limited to 60 days
without proving the actual value of the
only
property.
*In Pacific Timber Export Corporation v CA, the
b. Warehouse valued for P1.5M
SC held that no separate premium is required
Agreed valuation is P1M
for the cover note. As an exception, the parties
The insurer can only recover P1M
may agree otherwise.
3. Running
G. Cancellation of Policy
that: “A running policy is one which Sec. 64 of the Insurance Code states that: “No
contemplates successive insurances, and policy of insurance other than life shall be
which provides that the object of the policy cancelled by the insurer except upon prior
may be from time to time defined, notice thereof to the insured, and no notice of
especially as to the subjects of insurance, by cancellation shall be effective unless it is based
additional statements or indorsements.” on the occurrence, after the effective date of
*Usually covers stock and goods in
the policy, of one or more of the following:
warehouse (a) non-payment of premium;
Purpose: Avoidance of over and under (b) conviction of a crime arising out of acts
insurance. increasing the hazard insured against;
(c) discovery of fraud or material
F. Cover Notes
misrepresentation;
(d) discovery of willful or reckless acts or
“Cover notes may be issued to bind insurance
omissions increasing the hazard insured against;
temporarily pending the issuance of the policy. (e) physical changes in the property insured
Within sixty days after the issue of the cover which result in the property becoming
note, a policy shall be issued in lieu thereof, uninsurable; or
including within its terms the identical (f) a determination by the Commissioner that
insurance bound under the cover note and the the continuation of the policy would violate or
premium therefor. Cover notes may be would place the insurer in violation of this
extended or renewed beyond such sixty days Code.”
with the written approval of the Commissioner Prescriptive Period:
if he determines that such extension is not Oral = 6 years; written= 10 years
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Law on Insurance
Sec. 65 of the Insurance Code states that: “All Premium is the consideration paid to an insurer
notices of cancellation mentioned in the for undertaking to indemnify the insured against
preceding section shall be in writing, mailed or a specified peril.
delivered to the named insured at the address Q: Who pays the premium?
shown in the policy, and shall state (a) which of A: Insured
the grounds set forth in section sixty-four is Q: What is the consideration?
relied upon and (b) that, upon written request A: Insured: premium; Insurer: Assumption of
of the named insured, the insurer will furnish risk
the facts on which the cancellation is based.”
B. Effect of non-payment of premium; exceptions
Sec. 66 of the Insurance Code states that: “In
Sec. 77 of the Insurance Code states that: “. An
case of insurance other than life, unless the
insurer is entitled to payment of the premium
insurer at least forty-five days in advance of the
as soon as the thing insured is exposed to the
end of the policy period mails or delivers to the
peril insured against. Notwithstanding any
named insured at the address shown in the
agreement to the contrary, no policy or contract
policy notice of its intention not to renew the
of insurance issued by an insurance company is
policy or to condition its renewal upon
valid and binding unless and until the premium
reduction of limits or elimination of coverages,
thereof has been paid, except in the case of a
the named insured shall be entitled to renew
life or an industrial life policy whenever the
the policy upon payment of the premium due
grace period provision applies.”
on the effective date of the renewal. Any policy
*This is called as Cash and Carry Rule
written for a term of less than one year shall be Sec. 78 of the Insurance Code states that: “An
considered as if written for a term of one year. acknowledgment in a policy or contract of
Any policy written for a term longer than one insurance or the receipt of premium is
year or any policy with no fixed expiration date conclusive evidence of its payment, so far as to
shall be considered as if written for successive make the policy binding, notwithstanding any
policy periods or terms of one year.” stipulation therein that it shall not be binding
until the premium is actually paid.”
H. Time to commence action on the policy; effect
General Rule: No insurance policy issued or
of stipulation
renewal is valid and binding until actual
Q: When cause of action accrues?
A: From the denial of the claim. payment of premium. Any agreement to the
Sec. 63 of the Insurance Code provides that: “A contrary is void. (Cash and Carry Rule)
condition, stipulation, or agreement in any Exceptions:
1. In case of life and industrial life whenever
policy of insurance, limiting the time for
the grace period provision applies (Sec. 77);
commencing an action thereunder to a period
Requisites:
of less than one year from the time when the a. Life and industrial life insurance
cause of action accrues, is void.” b. There is a grace period
c. Grace period still exists
PREMIUM:
A. Concept
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Law on Insurance
2. Where there is an acknowledgment in the (b) Where the insurance is made for a definite
contract or policy of insurance that the period of time and the insured surrenders his
premium had already been paid (Sec. 78); policy, to such portion of the premium as
Conclusive effect: the validity of the corresponds with the unexpired time, at a pro
contract/policy and its binding effect. rata rate, unless a short period rate has been
*No conclusive effect as to the payment of agreed upon and appears on the face of the
premium. policy, after deducting from the whole premium
*Acknowledgment results to estoppel
any claim for loss or damage under the policy
3. The rule laid down in Makati Tuscany
which has previously accrued; Provided, That no
Condominium v CA to the effect that Sec.
holder of a life insurance policy may avail
77 may not apply if the parties have agreed
himself of the privileges of this paragraph
to the payment of the premium in
without sufficient cause as otherwise provided
installments and partial payment has been
by law.”
made at the time of the loss;
*By express agreement Sec. 80 of the Insurance Code states that: “If a
Q: What was agreed upon? peril insured against has existed, and the insurer
A: Payment by instalment plan has been liable for any period, however short,
4. Where a credit term was agreed upon like the insured is not entitled to return of
the agreement in UCPB General Insurance, premiums, so far as that particular risk is
Inc. v Masagana Telemart where the concerned.”
insurer granted a 60-90 day credit term for Sec. 81 of the Insurance Code states that: “A
the payment of the premiums despite full person insured is entitled to return of the
awareness of Sec.77; premium when the contract is voidable, on
*By previous conduct/practice account of fraud or misrepresentation of the
*Insured = principle of equity; insurer = insurer, or of his agent, or on account of facts,
estoppel. the existence of which the insured was ignorant
5. Where the parties are barred by estoppels without his fault; or when by any default of the
Article 1306 of the : “New Civil Code states insured other than actual fraud, the insurer
that: “The contracting parties may establish never incurred any liability under the policy.”
such stipulations, clauses, terms and conditions Sec. 82 of the Insurance Code states that: “In
as they may deem convenient, provided they case of an over-insurance by several insurers,
are not contrary to law, morals, good customs, the insured is entitled to a ratable return of the
public order, or public policy.” premium, proportioned to the amount by which
the aggregate sum insured in all the policies
C. When insured entitled to return of premiums exceeds the insurable value of the thing at risk.”
Sec. 79 of the Insurance Code states that: “A
person insured is entitled to a return of PERSONS ENTITLED TO RECOVER ON THE POLICY AND
premium, as follows: CONDITIONS TO RECOVERY:
(a) To the whole premium if no part of his
A. Beneficiary
interest in the thing insured be exposed to any
of the perils insured against;
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Law on Insurance
Sec. 11 of the Insurance Code provides that: 2. Under Art. 45 of the Family Code which
“The insured shall have the right to change the substantially provides that the innocent
beneficiary he designated in the policy, unless spouse has the authority to revoke the
he has expressly waived this right in said policy.” designation of his beneficiary
Sec. 12 of the Insurance Code provides that: 3. In cases where the marriage is declared void
“The interest of a beneficiary in a life insurance ab initio
policy shall be forfeited when the beneficiary is 4. In cases of annulment
the principal, accomplice, or accessory in 5. In cases of legal separation
willfully bringing about the death of the
B. Limitations on the appointment of beneficiary
insured; in which event, the nearest relative of
Article 2012 of the New Civil Code states that:
the insured shall receive the proceeds of said
“Any person who is forbidden from receiving
insurance if not otherwise disqualified.”
any donation under Article 739 cannot be
named beneficiary of a life insurance policy by
insurance proceeds shall be applied exclusively
the person who cannot make any donation to
to the proper interest of the person in whose
him, according to said article.”
name or for whose benefit it is made unless
*The prohibition applies only to life insurance
otherwise specified in the policy.”
policy.
*Under Article 1236 of the New Civil Code, the
“When the description of the insured in a policy
beneficiary may pay the premium even against
is so general that it may comprehend any
the will of the insurer.
person or any class of persons, only he who can Reason: Beneficiary has interest over the
show that it was intended to include him can insurance policy.
claim the benefit of the policy.” Article 739 of the New Civil Code states that:
Sec. 57 of the Insurance Code provides that: “A ”The following donations shall be void:
policy may be so framed that it will inure to the (1) Those made between persons who were
benefit of whomsoever, during the continuance guilty of adultery or concubinage at the time of
of the risk, may become the owner of the the donation;
interest insured.” (2) Those made between persons found guilty
Q: Who receives the proceeds? of the same criminal offense, in consideration
A: General Rule: Beneficiary thereof;
Exception: In case the designated beneficiary is (3) Those made to a public officer or his wife,
disqualified, it is the insured who receive the descendants and ascendants, by reason of his
proceeds. office.
General Rule: The designation of the In the case referred to in No. 1, the action for
beneficiary is revocable. declaration of nullity may be brought by the
Exception: Irrevocable
spouse of the donor or donee; and the guilt of
In irrevocable designation, the general rule is
the donor and donee may be proved by
that the designated beneficiary cannot be
preponderance of evidence in the same action.”
changed.
Exceptions:
1. The beneficiary consented to the change
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Law on Insurance
C. Rule where insurance is made by an agent or notice or proof of loss is waived if caused by any
trustee act of him, or if he omits to take objection
Sec. 54 of the Insurance Code provides that: promptly and specifically upon that ground.”
“When an insurance contract is executed with Sec. 92 of the Insurance Code provides that: “If
an agent or trustee as the insured, the fact that the policy requires, by way of preliminary proof
his principal or beneficiary is the real party in of loss, the certificate or testimony of a person
interest may be indicated by describing the other than the insured, it is sufficient for the
insured as agent or trustee, or by other general insured to use reasonable diligence to procure
words in the policy.” it, and in case of the refusal of such person to
give it, then to furnish reasonable evidence to
D. Rule where insurance if made by partner or the insurer that such refusal was not induced by
part owner any just grounds of disbelief in the facts
Sec. 55 of the Insurance Code provides that: “To
necessary to be certified or testified.”
render an insurance effected by one partner or
part-owner, applicable to the interest of his co- DOUBLE INSURANCE:
partners or other part-owners, it is necessary
that the terms of the policy should be such as A. Definition and requisites
Sec. 93 of the Insurance Code provides that: “A
are applicable to the joint or common interest. “
E. Notice and proof of loss double insurance exists where the same person
Sec. 88 of the Insurance Code states that: “In is insured by several insurers separately in
case of loss upon an insurance against fire, an respect to the same subject and interest.”
insurer is exonerated, if notice thereof be not Requisites:
1. The person insured is the same
given to him by an insured, or some person
2. There are two or more insurers insuring
entitled to the benefit of the insurance, without
separately
unnecessary delay.” 3. The subject matter is the same
Sec. 89 of the Insurance Code states that: 4. The interest insured is also the same
“When a preliminary proof of loss is required by 5. The risk or peril insured against is likewise
a policy, the insured is not bound to give such the same
proof as would be necessary in a court of
justice; but it is sufficient for him to give the B. Distinguished from Over-insurance
best evidence which he has in his power at the Distinctions:
time.”
Double Insurance Over-Insurance
“All defects in a notice of loss, or in preliminary When the amount of
proof thereof, which the insured might remedy, There may be no over- the insurance is
and which the insurer omits to specify to him, insurance as when the beyond the value of
without unnecessary delay, as grounds of sum total of the the insured’s insurable
objection, are waived.” amounts of the interest
Sec. 91 of the Insurance Code provides that: policies issued does
not exceed the
“Delay in the presentation to an insurer of
insurable interest of
18
Law on Insurance
as against the full insurable value, for any sum

the insured received by him under any policy;
There are always There may only be one (d) Where the insured receives any sum in
several insurers insurer involved excess of the valuation in the case of valued
policies, or of the insurable value in the case of
*There is over-insurance if the total amount
unvalued policies, he must hold such sum in
exceeds the value of the thing insured.
trust for the insurers, according to their right of
Example:
In Fire Insurance, A insured his property to X for contribution among themselves;
(e) Each insurer is bound, as between himself
500,000, to Y for 1M and to Z for 1M totalling to
and the other insurers, to contribute ratably to
P2.5M. The property valued only for 1M. In this
the loss in proportion to the amount for which
situation there is over-insurance.
he is liable under his contract.”
C. Stipulation against double insurance Formula:
Q: Is double insurance legally prohibited? Insurance Policy
A: General Rule: NO. --------------------------- x Amount of loss
Exception: If prohibited by an “other insurance Total of Policy taken
clause.”
500000
Basis: Sec. 75 of the Insurance Code which
X = --------- x 1M = 200,000
provides that: “A policy may declare that a
2.5M
violation of specified provisions thereof shall
avoid it, otherwise the breach of an immaterial
provision does not avoid the policy.” 1M
Y = -------- x 1M = 400,000
D. Rules for payment where there is over- 2.5M
insurance by double insurance
Sec. 94 of the Insurance Code states that: 1M
“Where the insured is over-insured by double Z = -------- x 1M = 400,000
2.5M
insurance:
(a) The insured, unless the policy otherwise
*The balance shall be returned.
provides, may claim payment from the insurers *As far as the excess payment is concern, the
in such order as he may select, up to the excess shall be held in trust by the insured.
amount for which the insurers are severally
liable under their respective contracts; REINSURANCE:
(b) Where the policy under which the insured
claims is a valued policy, the insured must give *This is called a Liability Insurance
credit as against the valuation for any sum
A. Definition
received by him under any other policy without
Sec. 95 of the Insurance Code provides that: “A
regard to the actual value of the subject matter
contract of reinsurance is one by which an
insured;
insurer procures a third person to insure him
(c) Where the policy under which the insured
claims is an unvalued policy he must give credit,
19
Law on Insurance
against loss or liability by reason of such original Reinsurance ceded as authorized under the
insurance.” succeeding title shall be deducted in
Example: determining the risk retained. As to surety
In fire insurance, A insured his property against risk, deduction shall also be made of the
fire to X, X reinsured his obligation to Y. amount assumed by any other company
Q: Can A recover to the reinsurer?
authorized to transact surety business and
A: General Rule: NO
the value of any security mortgage,
Reason: No privity of contract
Exception: Stipulation stating that the policy is pledged, or held subject to the surety's
taken for the benefit of the insured of the first control and for the surety's protection.”
contract of insurance. (Stipulation pour autrui) 2. Sec. 275 of the Insurance Code which
Q: Can X recover from Y even if X has not yet provides that: “Every foreign insurance
pay A? company desiring to withdraw from the
A: YES. Immediately arises from the time the Philippines shall, prior to such withdrawal,
liability of X has occur. discharge its liabilities to policyholders and
creditors in this country. In case of its
B. Nature policies insuring residents of the
Sec. 97 of the Insurance Code states that: “A Philippines, it shall cause the primary
reinsurance is presumed to be a contract of liabilities under such policies to be
indemnity against liability, and not merely reinsured and assumed by another
against damage.” insurance company authorized to transact
business in the Philippines. In the case of
“The original insured has no interest in a
such policies as are subject to cancellation
contract of reinsurance.”
by the withdrawing company, it may cancel
Q: Is reinsurance mandatory?
A: General Rule: NO such policies pursuant to the terms thereof
Exceptions: in lieu of such reinsurance and assumption
1. Sec. 215 of the Insurance Code which of liabilities.”
provides that: “No insurance company other
than life, whether foreign or domestic, shall C. Distinguished from double insurance
Distinctions:
retain any risk on any one subject of
insurance in an amount exceeding twenty Reinsurance Double Insurance
per centum of its net worth. For purposes of Insurance of different Involves same interest
this section, the term "subject of insurance" interests
shall include all properties or risks insured Insurer becomes an Insurer remains in
by the same insurer that customarily are insured in relation to such capacity
considered by non-life company reinsurer
Original insured has no Insured in the 1st
underwriters to be subject to loss or
interest in reinsurance contract is a party in
damage from the same occurrence of any contract interest in the 2nd
hazard insured against. contract
Subject of insurance is Subject of insurance is
20
Law on Insurance
the original insurer’s property or while awaiting shipment, or during any

risk delays, storage, transhipment, or reshipment
Consent of original Insured has to give his incident thereto, including war risks, marine
insured, not necessary consent builder's risks, and all personal property floater
risks;
D. Duty of reinsured to disclose facts
(b) Person or property in connection with or
appertaining to a marine, inland marine, transit
“Where an insurer obtains reinsurance, except
or transportation insurance, including liability
under automatic reinsurance treaties, he must
for loss of or damage arising out of or in
communicate all the representations of the
connection with the construction, repair,
original insured, and also all the knowledge and
operation, maintenance or use of the subject
information he possesses, whether previously
matter of such insurance (but not including life
or subsequently acquired, which are material to
insurance or surety bonds nor insurance against
the risk.“
loss by reason of bodily injury to any person
MARINE INSURANCE: arising out of ownership, maintenance, or use
of automobiles);
A. Definition (c) Precious stones, jewels, jewelry, precious
Marine Insurance includes policies that covers metals, whether in course of transportation or
risks connected with navigation, to which a ship, otherwise;
cargo, freightage, profits or other insurable (d) Bridges, tunnels and other instrumentalities
interest in movable property, may be exposed of transportation and communication (excluding
during a certain voyage or a fixed period of buildings, their furniture and furnishings, fixed
time. contents and supplies held in storage); piers,
Basis: Sec. 99 of the Insurance Code. wharves, docks and slips, and other aids to
navigation and transportation, including dry
B. Scope of marine insurance
docks and marine railways, dams and
appurtenant facilities for the control of
“Marine Insurance includes:
(1) Insurance against loss of or damage to: waterways.
(a) Vessels, craft, aircraft, vehicles, goods, (2) "Marine protection and indemnity
freights, cargoes, merchandise, effects, insurance," meaning insurance against, or
disbursements, profits, moneys, securities, against legal liability of the insured for loss,
choses in action, evidences of debts, valuable damage, or expense incident to ownership,
papers, bottomry, and respondentia interests operation, chartering, maintenance, use, repair,
and all other kinds of property and interests or construction of any vessel, craft or
therein, in respect to, appertaining to or in instrumentality in use of ocean or inland
connection with any and all risks or perils of waterways, including liability of the insured for
navigation, transit or transportation, or while personal injury, illness or death or for loss of or
being assembled, packed, crated, baled, damage to the property of another person.”
*In Roque v IAC, the SC held that cargo can be
compressed or similarly prepared for shipment
the subject of marine insurance, and once it is
21
Law on Insurance
entered into, the implied warranty of *Only perils of the sea are assumed by the
seaworthiness immediately attaches to whoever insurer.
is insuring the cargo, whether he be the 2. “all risks” marine insurance policy means
shipowner or not. Although he has no control that all risks are covered unless expressly
over the vessel, the shipper has control in the excepted. The burden rests on the insurer
choice of vessel. to prove that the loss is caused by a risk that
is excluded.
C. Risks or losses covered in marine insurance
1. Perils of the sea vs. perils of the ship D. Insurable interest in marine insurance
1. Ship owner’s insurable interest
Perils of the Sea Perils of the Ship Sec. 100 of the Insurance Code provides
Include only those Is a loss which is in that: “The owner of a ship has in all cases an
casualties due to the ordinary course insurable interest in it, even when it has
the unusual of events, results:
been chartered by one who covenants to
violence or 1. From the
extraordinary ordinary, pay him its value in case of loss: Provided,
causes connected natural and That in this case the insurer shall be liable
with navigation. It inevitable for only that part of the loss which the
has been said to action of the insured cannot recover from the charterer.“
include only such sea; *The insurable interest of the shipowner is
losses as are of 2. From over the value of the vessel and over
extraordinary ordinary expected freightage.
nature or arise from wear and Measurement: Ownership
some tear of the *It does not matter whether the ship was
overwhelming ship; and
mortgaged or chartered.
power which 3. From the
a. Rule where vessel is chartered
cannot be guarded negligent
Sec. 100 of the Insurance Code states
against by the failure of the
ordinary exertion of ship’s owner that: “The owner of a ship has in all
human skill or to provide cases an insurable interest in it, even
prudence, as the vessel when it has been chartered by one who
distinguished from with the covenants to pay him its value in case of
the ordinary wear proper loss: Provided, That in this case the
and tear of the equipment to
insurer shall be liable for only that part
voyage and from convey the
of the loss which the insured cannot
injuries suffered by cargo under
the vessel in ordinary recover from the charterer.”
consequence of her conditions. Q: What is a charter party?
not being A: A contract where the owner lends his
unseaworthy. whole vessel to a charterer for a
Extraordinary perils Usual perils particular voyage.
attendant to *Indemnity Principle applies
navigation b. Rule where vessel hypothecated by
bottomry
22
Law on Insurance
Sec. 101 of the Insurance Code which insurable interest in it, to the extent that he
provides that: “The insurable interest of is liable to be damnified by its loss.”
the owner of the ship hypothecated by
bottomry is only the excess of its value E. Concealment
1. Meaning of concealment in marine
over the amount secured by bottomry.”
*Principle of Indemnity applies. insurance
Q: What is bottomry? *Definition of concealment in marine
A: it is a contract of loan which said loan insurance is the same as what defined in
is used for the repair of the vessel. The Sec. 26 of the Insurance Code.
*However, concealment under the marine
payment of which is conditional.
*The owner’s insurable interest is the insurance is more strict than the ordinary
amount in excess of the value of the insurance
Reason: Unpredictable risk
ship over the amount secured by the
*In marine insurance, opinions and
bottomry
expectations of third persons are
*Owner incurs loss due to the damage
considered, whereas in ordinary insurance
of the vessel but at the same time he
as a general rule, opinions of third persons
receives gain due to the extinguishment
are not necessary. Exception: expert
of his loan obligation.
c. Insurable interest in freightage opinion.
Sec. 102 of the Insurance Code states 2. Duty to communicate
that: “Freightage, in the sense of a Sec. 107 of the Insurance Code which
policy of marine insurance, signifies all provides that: “In marine insurance each
the benefits derived by the owner, party is bound to communicate, in addition
either from the chartering of the ship or to what is required by section twenty-eight,
its employment for the carriage of his all the information which he possesses,
own goods or those of others.” material to the risk, except such as is
Sec. 103 of the Insurance Code mentioned in Section thirty, and to state the
provides that: “The owner of a ship has exact and whole truth in relation to all
an insurable interest in expected matters that he represents, or upon inquiry
freightage which according to the discloses or assumes to disclose.”
ordinary and probable course of things 3. Opinions or expectations of third persons
he would have earned but for the Sec. 108 of the Insurance Code which
intervention of a peril insured against or provides that: “In marine insurance,
other peril incident to the voyage.” information of the belief or expectation of a
*Supposed earnings may be subject to third person, in reference to a material fact,
marine insurance. is material.”
2. Charterer’s insurable 4. When concealment does not vitiate the
Sec. 106 of the Insurance Code provides entire contract
that: “The charterer of a ship has an Sec. 110 of the Insurance Code states that:
“A concealment in a marine insurance, in
respect to any of the following matters,
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Law on Insurance
does not vitiate the entire contract, but *Bottomry lender is also subject to warranty
merely exonerates the insurer from a loss on seaworthiness because he has also the
resulting from the risk concealed: control in the selection of the vessel.
(a) The national character of the insured; a. What constitutes seaworthiness
(b) The liability of the thing insured to Sec. 114 of the Insurance Code states
capture and detention; that: “A ship is seaworthy when
(c) The liability to seizure from breach of reasonably fit to perform the service
foreign laws of trade; and to encounter the ordinary perils of
(d) The want of necessary documents; the voyage contemplated by the parties
(e) The use of false and simulated papers.”
to the policy.”
Q: What makes a vessel seaworthy?
F. Representations
A: Sec. 114. Fitness of the vessel is the
1. Effect of false representation by the
general test.
insured
*Warranty on the condition of the ship
Example:
“If a representation by a person insured by a Shipowner insured his vessel with X
contract of marine insurance, is insurer.
intentionally false in any material respect, On the part of the insurer, the inured
or in respect of any fact on which the warrants that his vessel is ship worthy.
character and nature of the risk depends, The burden falls on the
the insurer may rescind the entire contract.” shipowner/insured of proving
2. Effect of false representation as to otherwise.
expectation *Seaworthiness depends on the
Sec. 112 of the Insurance Code provides transaction entered into or undertaken
that: “The eventual falsity of a by the ship.
representation as to expectation does not, Sec. 116 of the Insurance Code states
in the absence of fraud, avoid a contract of that: “A warranty of seaworthiness
marine insurance.” extends not only to the condition of the
G. Implied warranties in marine insurance structure of the ship itself, but requires
1. Seaworthiness
that it be properly laden, and provided
with a competent master, a sufficient
that: “In every marine insurance upon a
number of competent officers and
ship or freight, or freightage, or upon any
seamen, and the requisite
thing which is the subject of marine
appurtenances and equipment, such as
insurance, a warranty is implied that the
ballasts, cables and anchors, cordage
ship is seaworthy.”
*Charterer is also subject to warranty on and sails, food, water, fuel and lights,
and other necessary or proper stores
seaworthiness because he has control in the
selection of the ship to be leased. and implements for the voyage.”
Requisites:
1. Condition of the structure of the
ship
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Law on Insurance
2. Properly laden and provided with a The transaction is covered for one
competent master year from January 1, 2007 to
3. Sufficient number of competent December 31, 2007.
officers and seamen The ship will undertake 5 different
4. Requisite appurtenances and voyages.
equipment The ship must be seaworthy at the
*In Delsan Transport case, the SC held commencement of each and every
that the issuance of certificate of voyage.
seaworthiness is not enough to prove (b) When the insurance is upon the
seaworthiness of the ship. cargo which, by the terms of the
Example: policy, description of the voyage, or
Cargo owner insured his cargo established custom of the trade, is
Q: Does that implied warranty on to be transhipped at an
seaworthiness apply to cargo owner? intermediate port, the implied
A: YES. The cargo owner has the control warranty is not complied with
in the selection of the vessel where his unless each vessel upon which the
cargoes to be shipped. cargo is shipped, or transhipped, be
Sec. 119 of the Insurance Code seaworthy at the commencement
provides that: “A ship which is of each particular voyage. (Cargo
seaworthy for the purpose of an Policy)”
insurance upon the ship may, Controlling: There must be
nevertheless, by reason of being transhipment
*The ship must be seaworthy in
unfitted to receive the cargo, be
each particular voyage.
unseaworthy for the purpose of the
Sec. 117 of the Insurance Code
insurance upon the cargo.”
provides that: “Where different
b. When complied with; exceptions
Sec. 115 of the Insurance Code portions of the voyage contemplated by
provides that: “An implied warranty of a policy differ in respect to the things
seaworthiness is complied with if the requisite to make the ship seaworthy
ship be seaworthy at the time of the of therefor, a warranty of seaworthiness is
commencement of the risk, except in complied with if, at the commencement
the following cases: of each portion, the ship is seaworthy
(a) When the insurance is made for a with reference to that portion.” (Voyage
specified length of time, the implied Policy)
warranty is not complied with *There is a single ship that completes
unless the ship be seaworthy at the the voyage however, the ship will
commencement of every voyage it undergo different degree of perils.
*The ship must be seaworthy upon
undertakes during that time; (Time
commencement of each level of peril.
Policy)
Example:
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Law on Insurance
General Rule: The ship must be voyage or the commencement of an

seaworthy at the time of the entirely different voyage.”
commencement of the risk. *Deviation is either proper or improper.
Exceptions: *There is breach of warranty if the
1. Time policy deviation is improper.
2. Cargo policy b. When proper
3. Voyage policy Sec. 124 of the Insurance Code
*In time policy, seaworthiness provides that: “A deviation is proper:
commenced in every voyage. (a) When caused by circumstances over
*In voyage policy, no transhipment. The which neither the master nor the owner
voyage has different stages to go of the ship has any control;
through. Every stage of voyage the ship (b) When necessary to comply with a
must be seaworthy. warranty, or to avoid a peril, whether or
c. Rule where ship becomes unseaworthy not the peril is insured against;
in the course of the voyage *Whether or not the peril is covered by
Sec. 118 of the Insurance Code the policy is immaterial.
provides that: “When the ship becomes (c) When made in good faith, and upon
unseaworthy during the voyage to reasonable grounds of belief in its
which an insurance relates, an necessity to avoid a peril; or
unreasonable delay in repairing the (d) When made in good faith, for the
defect exonerates the insurer on ship or purpose of saving human life or
shipowner's interest from liability from relieving another vessel in distress.”
any loss arising therefrom.” *Warranty is against improper
2. Warranty that necessary documents are deviation.
carried *Whether or not improper deviation
Sec. 120 of the Insurance Code states that: contributed to the loss is immaterial
“Where the nationality or neutrality of a because there was already a breach of
ship or cargo is expressly warranted, it is implied warranty.
implied that the ship will carry the requisite Sec. 126 of the Insurance Code states
documents to show such nationality or that: “An insurer is not liable for any
neutrality and that it will not carry any loss happening to the thing insured
documents which cast reasonable suspicion subsequent to an improper deviation.”
thereon.”
H. Loss
3. Warranty against improper deviation
1. Kinds of losses
a. Meaning of deviation
a. Actual
Sec. 123 of the Insurance Code states
Sec. 130 of the Insurance Code
that: “Deviation is a departure from the
provides that: “An actual total loss is
course of the voyage insured,
cause by:
mentioned in the last two sections, or (a) A total destruction of the thing
an unreasonable delay in pursuing the insured;
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Law on Insurance
(b) The irretrievable loss of the thing by separately valued by the policy, or
sinking, or by being broken up; otherwise separately insured, and recover
(c) Any damage to the thing which for a total loss thereof, when the cause of
renders it valueless to the owner for the the loss is a peril insured against:
purpose for which he held it; or (a) If more than three-fourths thereof in
(d) Any other event which effectively value is actually lost, or would have to be
deprives the owner of the possession, expended to recover it from the peril;
at the port of destination, of the thing (b) If it is injured to such an extent as to
insured.” reduce its value more than three-fourths;
Sec. 132 of the Insurance Code states (c) If the thing insured is a ship, and the
that: “An actual loss may be presumed contemplated voyage cannot be lawfully
from the continued absence of a ship performed without incurring either an
without being heard of. The length of expense to the insured of more than three-
time which is sufficient to raise this fourths the value of the thing abandoned or
presumption depends on the a risk which a prudent man would not take
circumstances of the case.” under the circumstances; or
b. Constructive (d) If the thing insured, being cargo or
Sec. 131 of the Insurance Code freightage, and the voyage cannot be
provides that: “A constructive total loss performed, nor another ship procured by
is one which gives to a person insured a the master, within a reasonable time and
right to abandon, under Section one with reasonable diligence, to forward the
hundred thirty-nine. “ cargo, without incurring the like expense or
2. Right to payment upon an actual total loss risk mentioned in the preceding sub-
paragraph. But freightage cannot in any
“Upon an actual total loss, a person insured
case be abandoned unless the ship is also
is entitled to payment without notice of
abandoned.”
abandonment.” Test: The loss is more than ¾ but less than
3. Scope of insurance against actual total loss
1.
*If there is partial loss, only partial can be
“An insurance confined in terms to an
claimed.
actual loss does not cover a constructive *The extent of damage in constructive loss
total loss, but covers any loss, which is so severe.
necessarily results in depriving the insured *This is not automatic.
of the possession, at the port of destination, *There is an option either to abandon it or
of the entire thing insured.” to recover only the partial loss.
4. When constructive total loss/partial loss 5. Concept of abandonment and its requisites
exists Definition:
Sec. 139 of the Insurance Code provides Sec. 138 of the Insurance Code states that:
that: “A person insured by a contract of “Abandonment, in marine insurance, is the
marine insurance may abandon the thing act of the insured by which, after a
insured, or any particular portion thereof constructive total loss, he declares the
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Law on Insurance
relinquishment to the insurer of his interest i. Particular

in the thing insured.” Sec. 136 of the Insurance Code
*It is necessary to abandon the surviving provides that: “Where it has
part of the thing. been agreed that an insurance
Formula: upon a particular thing, or class
Constructive total loss + Abandonment = of things, shall be free from
Total loss particular average, a marine
If there is only constructive total loss there
insurer is not liable for any
is only partial loss.
particular average loss not
Requisites:
1. There must be an actual relinquishment depriving the insured of the
possession, at the port of
by the person insured of his interest in
the thing insured. destination, of the whole of
2. There must be a constructive total loss such thing, or class of things,
3. The abandonment be neither partial even though it becomes entirely
nor conditional worthless; but such insurer is
4. It must be made within a reasonable liable for his proportion of all
time after receipt of reliable general average loss assessed
information of the loss upon the thing insured.”
5. It must be factual and reasonable - Includes all damages and
6. It must be made by giving notice expenses caused to the
thereof to the insurer which may be vessel or to her cargo which
done orally or in writing have not inured to the
7. The notice of abandonment must be common benefit and profit
explicit and must specify the particular of all persons interested in
cause of the abandonment the vessel and her cargo.
*The residual part is abandoned. Reason: - It refers to those losses
Principle of Indemnity which occur under such
*If the requisites are satisfied the insurance circumstances as do not
company cannot refuse to accept the entitle the unfortunate
abandonment. owners to receive
6. Average contribution from other
Average is any extraordinary or accidental owners concerned in the
expense incurred during the voyage for the venture as where a vessel
preservation of the vessel, cargo, or both, accidentally runs aground
and all damages to the vessel and cargo and goes to pieces after the
from the time it is loaded and the voyage cargo is saved.
commenced until it ends and the cargo Recourse: Go after the insurer
unloaded.
*Expenses for maritime transaction.
a. Kinds of average:
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Law on Insurance
*Stipulation exempting the insurer for a Basis: Article 859 of the Code of
particular average loss is possible and Commerce; Article 812 of the Code of
valid. Commerce
ii. General Reason: Equity
- Includes damages and Q: Are there a mandatory co-insurance in marine
expenses which are insurance?
deliberately caused by the A: YES.
master of the vessel or Basis: Sec. 157 of the Insurance Code provides that: “A
upon his authority, in order marine insurer is liable upon a partial loss, only for such
to save the vessel, her proportion of the amount insured by him as the loss
cargo, or both at the same bears to the value of the whole interest of the insured in
time from a real or known the property insured.”
risk. *There is a co-insurance when the property is insured
- It must be borne equally by for less than its value, the insured is considered a co-
all of the interests insurer for the difference between the amount of
concerned in the venture. insurance and the value of the property.
b. Requisites of general average Requisites:
1. There must be a common danger to
1. The loss is partial
the vessel or cargo 2. The amount of insurance is less than the value
2. Part of the vessel or cargo was
of the property insured.
sacrificed deliberately
Formula:
3. The sacrifice must be for the
Loss
common safety of for the benefit of
------- x Insurance = Insurer’s Liability
all
4. It must be made by the master or Value
Example:
upon his authority
5. It must be successful, i.e., resulted A’s insurable interest = P500,000
in the saving of the vessel or cargo Insured Amount = P300,000
6. It must be necessary Loss = P300,000
c. Insurer’s liability for general average Q: Would the whole P300,000 be recovered from the
The insurer of the vessel or cargo that insurer?
are saved is liable for general average A: NO. Only 180,000 will be recovered and the balance
contribution and not for particular of 120,000 will be suffered by the insured as a co-
average. Only the insurer of the insurer.
damaged cargo or vessel is liable for Computation:
particular average if covered by the 300,000
policy. ----------- x 300,000 = 180,000
Q: If there is a stipulation exempting the 500,000
insurer for a particular average loss,
does it extend to general average loss?
A: NO.
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Law on Insurance
If the loss is 500,000, the insured can recover the whole by means within the control of the insured, and
300,000 because there is a total loss and not partial increasing the risks, entitles an insurer to
loss. rescind a contract of fire insurance.”
*In fire insurance, there has to be an express stipulation Sec. 169 of the Insurance Code states that: “An
to that effect. alteration in the use or condition of a thing
insured from that to which it is limited by the
FIRE INSURANCE: policy, which does not increase the risk, does
not affect a contract of fire insurance.”
A. Definition and scope of fire insurance Q: If the policy is silent as to the use or
Sec. 167 of the Insurance Code provides that: condition of the thing insured, are there implied
“As used in this Code, the term "fire insurance" warranty in fire insurance?
shall include insurance against loss by fire, A: General Rule: YES. The insured has the
lightning, windstorm, tornado or earthquake insurable interest in the thing insured.
and other allied risks, when such risks are Exception: If the policy expressly provides for
covered by extension to fire insurance policies the use of condition of the thing insured.
or under separate policies.”
D. Measure of indemnity
B. Risks or losses covered Sec. 171 of the Insurance Code provides that:
Q: What are allied risks? “If there is no valuation in the policy, the
A: lightning, windstorm, tornado or earthquake, measure of indemnity in an insurance against
tsunami. fire is the expense it would be to the insured at
Q: What are direct losses? the time of the commencement of the fire to
A: Direct losses are losses that pertain to the replace the thing lost or injured in the condition
physical destruction of the thing insured. in which at the time of the injury; but if there is
Q: What are indirect losses?
a valuation in a policy of fire insurance, the
A: Indirect losses pertain to consequential
effect shall be the same as in a policy of marine
losses.
Q: Are consequential losses compensable? insurance.”
1. Open Policy: only the expense necessary to
A: General Rule: NO in standard fire policy
Except: If there is an agreement replace the thing lost or injured in the
*The liability of the insurer is to pay for direct condition it was at the time of the injury.
losses only 2. Valued Policy: the parties are bound by the
Friendly Fire – fire that burns in a place where it valuation, in the absence of fraud or
is supposed to burn. mistake.
Hostile Fire – fire that escapes and burns in a
place where it is not supposed to be. E. Co-insurance clause
General Rule: Applies primarily to marine
C. Effect of alteration in the thing insurance.
Sec. 168 of the Insurance Code provides that: Exception: Co-insurance applies to fire
“An alteration in the use or condition of a thing insurance if expressly agreed upon.
insured from that to which it is limited by the
CASUALTY INSURANCE:
policy made without the consent of the insurer,
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Law on Insurance
A. Concept *Insurable interest is based on the interest of

Sec. 174 of the Insurance Code states that: the insured in the safety of persons and their
“Casualty insurance is insurance covering loss or property, who may maintain an action against
liability arising from accident or mishap, him in case of their injury or destruction,
excluding certain types of loss which by law or respectively.
custom are considered as falling exclusively
within the scope of other types of insurance D. Meaning of “accident” and “accidental” in
such as fire or marine. It includes, but is not casualty insurance
limited to, employer's liability insurance, motor *The terms “accident” and “accidental” as used
vehicle liability insurance, plate glass insurance, in insurance contracts, have not acquired any
burglary and theft insurance, personal accident technical meaning. They are construed by the
and health insurance as written by non-life courts in the ordinary and common acceptation.
insurance companies, and other substantially Thus, the terms have been taken to mean that
similar kinds of insurance.” which happens by chance or fortuitously,
Q: What is the subject matter of the casualty without intention or design, which is
insurance? unexpected, unusual and unforeseen. The terms
A: Life, property, liability and health brought by do not, without qualification, exclude events
accident. resulting in damage or loss due to fault,
recklessness or negligence of third parties.
B. Third Party Liability Insurance *It is something that the insured did not foresee
*Casualty insurance ay provide for third party or though foreseen cannot be avoided.
liability in the nature of stipulation pour autrui *Accident or not, it must be taken from the
for personal injury and even damage to viewpoint of the victim.
property, in which case, the third party may
directly sue the insurer upon the occurrence of E. Basis and extent of insurer’s liability
the loss. However, the insurer is not solidarily *The beneficiary is not designated, the
liable with the insured or the tortfeasor for the proceeds will be given to the victims.
*The third party has direct recourse against the
latter’s obligation.
*Insurance against specified perils which may insurer. The insurer is purely liable.
give rise to liability on the part of the insured for
SURETYSHIP:
claims for injuries to or damage to property of
others. A. Definition
*If there is no stipulation in favor of third Sec. 175 of the Insurance Code states that: “A
person but the insurance is an insurance against contract of suretyship is an agreement whereby
liability to third persons, any third person who a party called the surety guarantees the
might be injured may not sue the insurer. performance by another party called the
- Liable for actual loss, the third party has no principal or obligor of an obligation or
direct recourse with the insurer but only to the undertaking in favor of a third party called the
insured. The insured has recourse to the insurer. obligee. It includes official recognizances,
stipulations, bonds or undertakings issued by
C. Insurable interest
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Law on Insurance
any company by virtue of and under the Sec. 179 of the Insurance Code provides that: “.
provisions of Act No. 536, as amended by Act Life insurance is insurance on human lives and
No. 2206.” insurance appertaining thereto or connected
therewith.”
B. Nature of Liability of surety Sec. 180 of the Insurance Code states that: “An
Sec. 176 of the Insurance Code provides that: insurance upon life may be made payable on
“The liability of the surety or sureties shall be the death of the person, or on his surviving a
joint and several with the obligor and shall be specified period, or otherwise contingently on
limited to the amount of the bond. It is the continuance or cessation of life.
determined strictly by the terms of the contract Every contract or pledge for the payment of
of suretyship in relation to the principal contract endowments or annuities shall be considered a
between the obligor and the obligee.” life insurance contract for purpose of this Code.
In the absence of a judicial guardian, the father,
C. Distinctions between suretyship and property or in the latter's absence or incapacity, the
insurance mother, or any minor, who is an insured or a
beneficiary under a contract of life, health or
Suretyship Property Insurance
Accessory contract Principal Contract accident insurance, may exercise, in behalf of
There are three There are two parties: said minor, any right under the policy, without
parties: surety, obligor insurer and insured necessity of court authority or the giving of a
and oblige bond, where the interest of the minor in the
Credit accommodation Contract of indemnity particular act involved does not exceed twenty
Surety can recover Insurer has no such thousand pesos. Such right may include, but
from principal right; only right of shall not be limited to, obtaining a policy loan,
subrogation
surrendering the policy, receiving the proceeds
Bond can be cancelled May be cancelled
only with consent of unilaterally either by of the policy, and giving the minor's consent to
obligee, Commissioner, insured or insurer on any transaction on the policy.”
or court grounds provided by
law B. Kinds of Life Insurance
Requires acceptance of No need of 1. Ordinary Life, General Life or Old Line
obligee to be valid acceptance by any Policy – insured pays a fixed premium every
third party year until he dies. Surrender value after 3
Risk-shifting device, Risk-distributing years.
premium paid being in device, premium paid 2. Group Life – essentially a single insurance
the nature of a service as a ratable contract that provides courage for money
fee contribution to a
individuals.
common fund
3. Limited Payment Policy – insured pays
premium for a limited period. If he dies
LIFE INSURANCE: within the period, his beneficiary is paid; if
he outlives the period, he does not get
A. Definition anything.
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Law on Insurance
4. Endowment Policy – pays premium for Sec. 182 of the Insurance Code states that:
specified period. If he outlives the period, “Notice to an insurer of a transfer or bequest
the face value of the policy is paid to him; if thereof is not necessary to preserve the validity
not, his beneficiaries receive the benefit. of a policy of insurance upon life or health,
5. Term Insurance – insurer pays once only, unless thereby expressly required.“
and he is insured for a specified period. If he
dies within the period, his beneficiaries E. Measure of indemnity
benefits. If he outlives the period, no person Sec. 183 of the Insurance Code states that:
benefits from the insurance. “Unless the interest of a person insured is
6. Industrial Life – life insurance entitling the susceptible of exact pecuniary measurement,
insured to pay premiums weekly, or where the measure of indemnity under a policy of
premiums are payable monthly or oftener. insurance upon life or health is the sum fixed in
the policy.”
C. Liability of insurer in case of suicide General Rule: Life policy is always valued
Sec. 180-A of the Insurance Code states that: Exception: If the creditor insured the life of the
“The insurer in a life insurance contract shall be debtor.
liable in case of suicides only when it is
COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE:
committed after the policy has been in force for
a period of two years from the date of its issue A. Reason for the requirement
or of its last reinstatement, unless the policy Purpose: To give immediate financial assistance
provides a shorter period: Provided, however, to victims of motor vehicle accidents and/or
That suicide committed in the state of insanity their dependents, especially if they are poor
shall be compensable regardless of the date of regardless of the financial capability of motor
commission.” vehicle owners or operators responsible for the
*Recovery of the proceeds depends on the accident sustained.
commission of the suicide. Q: What is the mandatory reason for this type
*In case of suicide, the insured may recover of insurance?
only after two years from the date the policy A: To allow the registration or renewal of
was issued or last reinstatement. registration of any motor vehicle.
*In case of suicide committed in the state of
insanity, it is compensable regardless of the B. Scope of coverage required
date of the commission. Sec. 374 of the Insurance Code states that: “It
shall be unlawful for any land transportation
D. Right to assign life insurance policy operator or owner of a motor vehicle to operate
Sec. 181 of the Insurance Code states that: “A
the same in the public highways unless there is
policy of insurance upon life or health may pass
in force in relation thereto a policy of insurance
by transfer, will or succession to any person,
or guaranty in cash or surety bond issued in
whether he has an insurable interest or not, and
accordance with the provisions of this chapter
such person may recover upon it whatever the
to indemnify the death, bodily injury, and/or
insured might have recovered. “
damage to property of a third-party or
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Law on Insurance
passenger, as the case may be, arising from the (b) Motor vehicles with an authorized capacity
use thereof.” of from twelve to twenty-five passengers: Forty
Sec. 376 of the Insurance Code states that: “The thousand pesos;
Land Transportation Commission shall not allow (c) Motor vehicles with an authorized capacity
the registration or renewal of registration of any of from six to eleven passengers: Thirty
motor vehicle without first requiring from the thousand pesos;
land transportation operator or motor vehicle (d) Motor vehicles with an authorized capacity
owner concerned the presentation and filing of of five or less passengers: Five thousand pesos
a substantiating documentation in a form multiplied by the authorized capacity.
approved by the Commissioner evidencing that Provided, however, That such cash deposit made
the policy of insurance or guaranty in cash or to, or surety bond posted with, the
surety bond required by this chapter is in Commissioner shall be resorted to by him in
effect.” cases of accidents the indemnities for which to
third-parties and/or passengers are not settled
C. Persons subject to the requirement accordingly by the land transportation operator
Sec. 377 of the Insurance Code provides that: and, in that event, the said cash deposit shall be
“Every land transportation operator and every replenished or such surety bond shall be
owner of a motor vehicle shall, before applying restored with sixty days after impairment or
for the registration or renewal of registration of expiry, as the case may be, by such land
any motor vehicle, at his option, either secure transportation operator, otherwise, he shall
an insurance policy or surety bond issued by any secure the insurance policy required by this
insurance company authorized by the chapter. The aforesaid cash deposit may be
Commissioner or make a cash deposit in such invested by the Commissioner in readily
amount as herein required as limit of liability for marketable government bonds and/or
purposes specified in section three hundred securities.
seventy-four. (2) In the case of an owner of a motor vehicle,
(1) In the case of a land transportation operator, the insurance or guaranty in cash or surety bond
the insurance guaranty in cash or surety bond shall cover liability for death or injury to third
shall cover liability for death or bodily injuries of parties in an amount not less than that set forth
third-parties and/or passengers arising out of in the following scale in any one accident:
the use of such vehicle in the amount not less I. Private Cars
than twelve thousand pesos per passenger or (a) Bantam : Twenty thousand pesos;
third party and an amount, for each of such (b) Light : Twenty thousand pesos;
(c) Heavy : Thirty thousand pesos;
categories, in any one accident of not less than
II. Other Private Vehicles
that set forth in the following scale: (a) Tricycles, motorcyles, and scooters : Twelve
(a) Motor vehicles with an authorized capacity
thousand pesos;
of twenty-six or more passengers: Fifty (b) Vehicles with an unladen weight of 2,600
thousand pesos; kilos or less : Twenty thousand pesos;
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Law on Insurance
(c) Vehicles with an unladen weight of between vehicle responsible for the accident
2,601 kilos and 3,930 kilos : Thirty thousand shall be maintained.“
pesos; Q: How does the law protects the victim?
(d) Vehicles with an unladen weight over 3,930 A: By the provision under the NO FAULT
kilos : Fifty thousand pesos. INDEMNITY CLAUSE.
The Commissioner may, if warranted, set forth *No fault clause applies only to bodily physical
schedule of indemnities for the payment of injuries or death not to property damage.
claims for death or bodily injuries with the Q: From whom should the injured recover?
coverages set forth herein.” A: (a) In the case of an occupant of a vehicle,
claim shall lie against the insurer of the vehicle
D. No-Fault indemnity claim
in which the occupant is riding, mounting or
“Any claim for death or injury to any passenger dismounting from; (b) If not an occupant, claim
shall lie against the insurer of the directly
or third party pursuant to the provisions of this
chapter shall be paid without the necessity of offending vehicle; (c) In all cases, the right of the
party paying the claim to recover against the
proving fault or negligence of any kind;
Provided, That for purposes of this section: owner of the vehicle responsible for the
(i) The total indemnity in respect of any accident shall be maintained.
person shall not exceed fifteen Examples:
thousand pesos; a. A passenger rode Y taxi cab. The taxi cab is
(ii) The following proofs of loss, when insured by X company under the
submitted under oath, shall be compulsory motor vehicle liability
sufficient evidence to substantiate the insurance. The taxi collided against a
claim: (a) Police report of accident; and MERALCO post.
(b) Death certificate and evidence The passenger can claim against X company
sufficient to establish the proper payee; without proving fault or negligence. Only
or (c) Medical report and evidence of documents that prove the happening of the
medical or hospital disbursement in incident.
respect of which refund is claimed; b. Passenger 1 received P15,000 under the no
(iii) Claim may be made against one motor fault clause. His actual expenses amount to
vehicle only. In the case of an occupant P50,000.
of a vehicle, claim shall lie against the Q: Can he still recover the balance? From
insurer of the vehicle in which the whom?
A: YES. Against the offending vehicle but
occupant is riding, mounting or
dismounting from. In any other case, this time he is required to prove fault or
negligence.
claim shall lie against the insurer of the
directly offending vehicle. In all cases,
E. Notice of claim
the right of the party paying the claim Sec. 384 of the Insurance Code states that: “Any
to recover against the owner of the person having any claim upon the policy issued
pursuant to this Chapter shall, without any
35
Law on Insurance
unnecessary delay, present to the insurance (e) compelling policyholders to institute suits to
company concerned a written notice of claim recover amounts due under its policies by
setting forth the nature, extent and duration of offering without justifiable reason substantially
the injuries sustained as certified by a duly less than the amounts ultimately recovered in
licensed physician. Notice of claim must be filed suits brought by them.
within six months from date of accident, (2) Evidence as to numbers and types of valid
otherwise, the claim shall be deemed waived. and justifiable complaints to the Commissioner
Action or suit for recovery of damage due to against an insurance company, and the
loss or injury must be brought, in proper cases, Commissioner's complaint experience with
with the Commissioner or the Courts within one other insurance companies writing similar lines
year from denial of the claim, otherwise, the of insurance shall be admissible in evidence in
claimant's right of action shall prescribe.” an administrative or judicial proceeding brought
under this section.
CLAIMS SETTLEMENT: (3) If it is found, after notice and an opportunity
to be heard, that an insurance company has
A. Unfair claim settlement practices
violated this section, each instance of non-
Sec. 241 of the Insurance Code states that: “(1)
compliance with paragraph (1) may be treated
No insurance company doing business in the
as a separate violation of this section and shall
Philippines shall refuse, without just cause, to
be considered sufficient cause for the
pay or settle claims arising under coverages
suspension or revocation of the company's
provided by its policies, nor shall any such
certificate of authority.”
company engage in unfair claim settlement
General Rule: Upon maturity of the policy
practices. Any of the following acts by an Exception: Annuities payment
insurance company, if committed without just
cause and performed with such frequency as to B. Claims for life insurance policies
indicate a general business practice, shall Sec. 242 of the Insurance Code provides that:
constitute unfair claim settlement practices: “The proceeds of a life insurance policy shall be
(a) knowingly misrepresenting to claimants paid immediately upon maturity of the policy,
pertinent facts or policy provisions relating to unless such proceeds are made payable in
coverage at issue; installments or as an annuity, in which case the
(b) failing to acknowledge with reasonable installments, or annuities shall be paid as they
promptness pertinent communications with become due: Provided, however, That in the
respect to claims arising under its policies; case of a policy maturing by the death of the
(c) failing to adopt and implement reasonable insured, the proceeds thereof shall be paid
standards for the prompt investigation of claims within sixty days after presentation of the claim
arising under its policies; and filing of the proof of the death of the
(d) not attempting in good faith to effectuate
insured. Refusal or failure to pay the claim
prompt, fair and equitable settlement of claims
within the time prescribed herein will entitle
submitted in which liability has become
the beneficiary to collect interest on the
reasonably clear; or
proceeds of the policy for the duration of the
36
Law on Insurance
delay at the rate of twice the ceiling prescribed withheld; and in the affirmative case, the
by the Monetary Board, unless such failure or insurance company shall be adjudged to pay
refusal to pay is based on the ground that the damages which shall consist of attorney's fees
claim is fraudulent. and other expenses incurred by the insured
The proceeds of the policy maturing by the person by reason of such unreasonable denial
death of the insured payable to the beneficiary or withholding of payment plus interest of twice
shall include the discounted value of all the ceiling prescribed by the Monetary Board of
premiums paid in advance of their due dates, the amount of the claim due the insured, from
but are not due and payable at maturity.” the date following the time prescribed in
section two hundred forty-two or in section two
C. Claims for non-life insurance policies
hundred forty-three, as the case may be, until
the claim is fully satisfied; Provided, That the
amount of any loss or damage for which an
failure to pay any such claim within the time
insurer may be liable, under any policy other
prescribed in said sections shall be considered
than life insurance policy, shall be paid within
prima facie evidence of unreasonable delay in
thirty days after proof loss is received by the
payment.”
insurer and ascertainment of the loss or
damage is made either by agreement between
the insured and the insurer or by arbitration;
but if such ascertainment is not had or made
within sixty days after such receipt by the
insurer of the proof of loss, then the loss or
damage shall be paid within ninety days after
such receipt. Refusal or failure to pay the loss or
damage within the time prescribed herein will
entitle the assured to collect interest on the
proceeds of the policy for the duration of the
delay at the rate of twice the ceiling prescribed
by the Monetary Board, unless such failure or
refusal to pay is based on the ground that the
claim is fraudulent.”
D. Delay in payment of claims

“In case of any litigation for the enforcement of
any policy or contract of insurance, it shall be
the duty of the Commissioner or the Court, as
the case may be, to make a finding as to
whether the payment of the claim of the
insured has been unreasonably denied or
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Commercial Law Review

General Rule: Insurance contract is a Sec. 14 of the Insurance Code provides

so circumstanced, so related, that by the A: YES. There is an insurable interest up to the

not need exist at the the insured.

Warranty is a statement or promise set 3. Time to which warranty refers

as against the full insurable value, for any sum

the original insurer’s property or while awaiting shipment, or during any

General Rule: The ship must be voyage or the commencement of an

relinquishment to the insurer of his interest i. Particular

A. Concept *Insurable interest is based on the interest of

D. Delay in payment of claims

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