‘The Insurance Code’

Policy
Section 60 to 66
By: Carlo Franco B. Rapay
 Section 60

“ An open policy is one in which the value of the thing insured is not agreed
upon, and the amount of the insurance merely represents the insurer’s
maximum liability. The value of such thing insured shall be ascertained at the
time of the loss.”
 Section 61- A valued policy is one which expresses on its face an
agreement that the thing insured shall be valued at a specific sum.

• EFFECT OF VALUATION- In a valued policy, the valuation is

“conclusive between parties thereto in the adjustment of either a partial or
total loss, if the insured has some interest at risk, and there is no fraud on his
part.”
• LIFE INSURANCE IS A VALUATION POLICY- Unless the interest of
a person insured is susceptible of exact pecuniary measurement, the measure
of indemnity under a policy of insurance upon life or health is the sum fixed
in the policy.
 OPEN AND VALUED POLICIES
DISTINGUISHED
• 1. In open policy, the value of the thing insured is not agreed upon in the
policy, while in valued policy, the parties have stipulated in the policy that the
thing insured is valued at a specific sum.
• 2. In open policy, upon occurrence of the loss, the insured must prove the
value of the thing insured while in valued policy, proof of value of the thing
after the loss is no longer necessary.
 Section 62- A running policy is one which contemplates successive insurances,
and which provides that the object of the policy may be from time to time
defined, especially as to the subjects of insurance, by additional statements or
indorsements.

• RUNNING POLICY- It is also called “floating policy”. It is intended to

supplement specific insurance and to provide indemnity for property which
cannot be covered by specific insurance because of its frequent change in
location and quantity. It is usually issued when stocks-in-trade are insured
which cannot be covered by specific insurance.
 Section 63- A condition, stipulation, or agreement in any policy of insurance,
limiting the time for commencing an action thereunder to a period of less than
one (1) year from the time when the cause of action accrues, is void.

• LIMITATION OF ACTION BY AGREEMENT- The parties to a

contract of insurance may validly agree that an action on the policy should
be brought within a limited period of time, provided such period is not less
than one year from the time the cause of action accrues. If the period agreed
upon should be less than 1 year from the time the cause of action accrues,
such agreement is void. The stipulation in the policy that an action on the
claim denied by the insurer must be brought within the certain period of
time from the denial over the rules on prescription of actions, provided that
the agreed period is not less than one year from denial of the claim.
 COMPUTATION OF ONE YEAR
PERIOD
• The prescriptive period to bring suit in court under an insurance policy
begins to run from the date of insurer’s rejection of the claim filed by the
insured, the beneficiary or any person claiming under an insurance contract.
The reason is that the prescriptive period must be counted from the accrual
of the cause of action. And the cause of action accrues from the time the
insurer rejects the claim of the insured since , before such rejection, there in
no necessity for bringing suit against the insurer.
 Illustration
• Fulton Insurance, issued a fire insurance policy in favor of Sally Ang
covering stocks of general merchandise. The policy provided that if the
claim is rejected and no action is commenced within 12 months after such
rejection, all the benefits would be forfeited. On Dec 27 1954, the stocks
were destroyed by fire and on Dec 30 1954 the insured claimed loss from
insurer . On April 6, 1956 the claim was denied and the notice of denial was
received by insurer on April 19, 1956. On May 6, 1958 the insured filed an
action against insurer. Has the action prescribed?
• WHEN NO PERIOD AGREED UPON- When no period for bringing the
action has agreed upon in the policy, or when such agreement is void, the insured
may bring the action within the prescriptive period provided for in the Civil Code,
that is 10 years in case the contract is written and within six years in case of an oral
contract from the time the cause of action accrues.
• WHERE RECONSIDERATION WAS FILED- In case the claim was denied
by the insurer but the insured filed a petition for reconsideration , the prescriptive
period should be counted from the date the claim was denied at the first instance
not from the denial of the petition for reconsideration. To rule otherwise would
give insured persons a scheme or devise to waste time until any evidence which may
be considered against them is destroyed.
Section 64-No policy of insurance other than life shall be cancelled by the insurer except upon
prior notice thereof to the insured, and no notice of cancellation shall be effective unless it is
based on the occurrence, after the effective date of the policy, of one or more of the
following:

(a) Non payment of premium;

(b) Conviction of a crime arising out of acts increasing the hazard insured against;
(c) Discovery of fraud or material misrepresentation;
(d) Discovery of wilful or reckless acts or omissions increasing the hazard insured against;
(e) Physical changes in the property insured which result in the property becoming uninsurable;
(f) Discovery of other insurance coverage that makes the total insurance in excess of the value of the
property insured; or
(g) A determination by the Commissioner that the continuation of the policy would violate or would
place the insurer in violation of this Code.
• This is a new provision intended to curb the practice of some insurance
companies of cancelling policies without justifiable grounds. Prior to the
adoption of the insurance code, it was the practice on the part of some
insurers to provide in the policy that in may cancel the policy by giving notice
of cancellation to the insured. The cancellation were often times arbitrary
and without reasonable basis. The practice is terminated by this section.
• Under this section the cancellation should be based on any of the grounds
provided otherwise, the same would be ineffective.
Section 65- All notices of cancellation mentioned in the preceding section shall be in
writing, mailed or delivered to the named insured at the address shown in the policy,
or to his broker provided the broker is authorized in writing by the policy owner to
receive the notice of cancellation on his behalf, and shall state:

(a)Which of the grounds set forth in Section 64 is relied upon; and

(b) That, upon written request of the named insured, the insurer will furnish the
facts on which the cancellation is based.
 Requirements:

1. Prior notice of cancellation to the insured;

2. Notice must be in writing, mailed or delivered to the named insured at the

address shown in the policy;

3. Notice must state which of the grounds set forth in Sec. 64 is relied upon and
upon request of theinsured, the insurer must furnish facts on which the
cancellation is based;

4. Grounds should have existed after the effectivity date of the policy
 NOTICE MAILED BUT NOT
RECEIVED.
• The notice of cancellation necessary to produce the effect of terminating the
contract must be actual notice. Thus a notice of cancellation sent by mail,
but not received by the insured, is ineffective as cancellation.

• Actual receive of the notice of cancellation is absolutely essential and the

insurer could not merely rely on the presumption of regularity in the
performance of duty.
 PERSONAL NOTICE NECESSARY

After cancelling the policy pursuant to Section 64 allowing the same, notice of
cancellation must be sent to the insured himself not to some other person so
as to enable the insured to procure another insurance, otherwise the
cancellation is not valid.
 Section 66

• In case of insurance other than life, unless the insurer at least forty-five (45) days in
advance of the end of the policy period mails or delivers to the named insured at
the address shown in the policy notice of its intention not to renew the policy or to
condition its renewal upon reduction of limits or elimination of coverages, the
named insured shall be entitled to renew the policy upon payment of the premium
due on the effective date of the renewal.
• Any policy written for a term of less than one (1) year shall be considered as if
written for a term of one (1) year. Any policy written for a term longer than one (1)
year or any policy with no fixed expiration date shall be considered as if written for
successive policy periods or terms of one (1) year.
• It gives the insured the option to renew property insurance by the payment
of the premium due on the effective date of renewal unless at least forty five
days prior to the end of policy, the insurer gives notice of its intention not to
renew the policy.