INSURANCE (Atty. Minda Gapuz)
He can
ELEMENTS: COC-II-ER-AR-S-P
1. Consent, object, consideration
2. insurable interest
3. exposure of risk insured against
4. assumption of risk
5. scheme of distributing loss
6. premium
Insurance is –
• an agreement
• for a consideration
• to indemnify another against LOSS,
DESTRUCTION, OR LIABILITY
• arising from an unknown or contingent
event
A past event may be covered by MARINE INSURANCE,
provided that the loss of vessel in the past could not be
known by ordinary means of communication.
Characteristics: R-I-A-U-C
1. Risk-distributing (contribution of all to a
certain fund will be used for the payment of
insurance of one – insurance fund)
2. Contract of indemnity (exchange of value for
value – aleatory or uncertain)
** waging contract depends on chance
3. Contract of adhesion (fine print rule, policy
already approved by the commission; generally
construed in favor of the insured)
4. Uberrimae Fides contract (utmost good faith
contract; disclose facts)
5. Consensual contract (perfected from the time
of meeting of minds with respect to object,
cause, or consideration)
In insurance, the insurer is the OFFEROR because the
insured is the one who applies. If there is no policy
given, then there is no acceptance by the insurance
company or the insured, there is no meeting of the
minds.
INSURABLE INTEREST
 The relationship with a person or interest to benefit
from the person or the thing insured.
• protect the person or the thing because
of the PECUNIARY BENEFIT and to
prevent PECUNIARY LOSS
• every interest in property, real or
personal, of such nature that a
contemplated peril might directly
damnify the insured
• Generally , mistress cannot be insured
by a married man. However, if he
derives pecuniary interest from such
mistress (support), it is the designation
only as a spouse that is void.
still insure the life of the mistress.
• Illegitimate child can be insured
because the law does not distinguish
what kind of child should be insurable.
(sec. 6)The insurer must be registered under the laws
of the Philippines through the insurance commissioner.
• for regulation purposes
• for the fine print rule
•
WHO/WHAT MAY NOT BE INSURED:
Public enemy
Paramour
Wager (any chance or ticket in a lottery drawing a
prize)
(sec. 10) INSURABLE INTEREST IN LIFE AND HEALTH:
(Family, depend – E/S, debtor, other dependents)
1. Of himself, his spouse, and of his children
2. Of any person on whom he depends wholly or in
part for education or support, or in whom he
has a pecuniary interest
3. Or anyone who has legal obligations to him for
the payment of money or respecting property
or services of which death or illness might
delay or prevent the performance;
4. Of any person whose life any estate or interest
vested in him depends.
(sec. 11)The insured shall have the right to change the
beneficiary he designated in the policy, unless he has
expressly waived this right:
IRREVOCABLE BENEFICIARY
A beneficiary in a life insurance policy or segregated
fund contract whose compensation cannot be changed
without his or her consent.
The interest of the beneficiary in the insurance policy
will be FORFEITED if he willfully brings about or causes
the death of the insured, whether he is the principal,
accomplice, or accessory to the crime. With this, the
nearest relative of the insured shall receive the
proceeds of the insurance as long as that person is not
disqualified.
(sec. 14) An insurable interest in property consist in:
1. An exiting interest;
2. An inchoate interest founded on an existing
interest;
3. An expectancy coupled with an existing
interest from which the expectancy arises.
A carrier or depository has insurable interest to the
thing he holds to the extent of his liability only.
(sec. 19) The interest in the property insured must
exist when the insurance takes effect (e.g. when
claiming under the insurance) and when the loss
occurred. It may not exist in the meantime (if the
insurance is not yet for claiming or when the risk
insured against has not yet happened).
The interest in the life or health of a person insured
must exist when the insurance takes effect (when
claiming) but need not exist thereafter or when the
loss occurs.
(sec. 20) In case of property insurance, a change in
interest in any part of a thing insured, unaccompanied
by a corresponding change in the insurance, suspends
the insurance to an equivalent extent, until the
interest in the thing and the interest in the insurance
are vested in the same person.
- if there is change in the interest in the thing
without change in the interest in the insurance
(policy), the insurance is deemed suspended. It
will continue when the interest in the thing and
interest in the insurance is vested in the same
person.
A change in interest in the thing insured after the loss
does not affect the right of the insured to indemnity
for the loss.
If the insured dies, such death does not avoid insurance
and his interest in the insurance passes to the person
taking his interest in the thing insured.
DEVICES TO CONTROL THE RISKS used by the insurer:
1. Concealment (a neglect to communicate that
which a party knows or ought to communicate)
2. Warranties (additional contracts: riders; a
promise not to do something after the
execution of the contract)
3. Misrepresentation ( when all the facts fail to
correspond with the represented assertions or
stipulations)
4. Exceptions (placed in the policy itself)
5. Those which are not placed in the policy as the
risk insured against. (if a particular risk is not
the one insured against, e.g. fire, it cannot be
covered by the insurance policy)
CONCEALMENT and MISREPRESENTATION
• (sec. 27) The fact that there is
concealment, whether intentional or
not, the insurer can RESCIND the
contract.
Exceptions: (sec. 30)
1. Those which the other knows;
2. Those which the other ought to know in the
exercise of ordinary care, and of which the
former has no reason to suppose him ignorant;
3. Those of which the other waives
communication;
4. Those which prove or tend to prove the
existence of a risk excluded by a warranty and
which are not material;
5. Those which relate to a risk exempted from the
policy and which are not material.
Generally, if there is concealment or
misrepresentation, the contract (policy) is VOID.
- Because there is deceit or fraud in obtaining
the consent of the insurer with the conditions
of the policy.
- The insurer is entitled to rescind the contract.
CANCELLATION VS. RESCISSION
Cancellation
• insurance for a certain period, the
premium paid within the unexpired
period
• where the property is insured for more
than its value
• the interest was not exposed to the
peril insured against
• void ab initio – no insurable interest
• contract is voidable (fraud or
misrepresentation of insurer)
• premium should be returned
Rescission
• there is fraud, concealment,
misrepresentation in obtaining the
insurance policy
• no return of premium
• right to rescind should be exercised
prior to the commencement of an
action in the contract (before any
claim is made)
The right to rescind granted by law to the insurer is
waived by the acceptance of premium payments
despite the knowledge of the ground for rescission.
THE FACT CONCEALED NEED NOT BE THE CAUSE OF THE
LOSS OR DEATH.
INCONTESTABILITY CLAUSE
 If the concealment or misrepresentation has been
discovered after 2 years from the time the policy was
enforced (executed), insurer INSURER CANNOT RESCIND
the policy. The 2-year period is enough for him to
investigate.
The incontestability clause is applicable only in life or
industrial life insurance, except when EXPRESSLY
applied in non-life insurance.
In life and industrial life insurance – the computation
for incontestability clause will be from the date of
reinstatement which starts on the date of payment.
(example: 6-months grace period, and the insured paid
premium on the 4th months, the computation starts
from the 4th month)
In non-life insurance (health or casualty or medical
insurance), if there is no clear stipulation in the
contract regarding concealment, the rule on
concealment from the code should be followed; if
there are stipulations against concealment as
exception, the insurer is NOT liable.
Concealment is only an affirmative defense in not
paying the insured if there is no express stipulation
against it. The contract cannot be rescinded
automatically by the insurer.
The non-payment of premium does not affect the
incontestability rule, if the policy has been issued and
payment has already been acknowledged.
Incontestability clause cannot be invoked when:
1. failure to pay premium – no premium no pay
2. material concealment found within 2 years
from the enforcement of the policy
3. there is no insurable interest (void ab initio)
4. no proof of death
5. willful act (to expose the subject to the risk
insured against)
6. exempted risk
MATERIALITY OF CONCEALED FACT
- Determined by the probable and reasonable
influence of the facts upon the insurer in
forming his estimate of the disadvantages of
the proposed contract or in making his
inquiries.
Each party in the contract is bound to know all the
general causes which are open to his inquiry which may
affect the material perils contemplated.
The right to information of material facts may be
waived, either by the terms of the insurance of by
neglect of the other party to make inquiry as to such
facts.
POLICY – the contract of insurance
Cover notes – temporary insurance issued pending the
issuance of insurance policy which usually lasts for 60
days. It may be extended with the written approval of
the commissioner if he determines that such extension
is not contrary to any provision of the insurance code.
(sec. 58) The mere transfer of a thing insured does not
transfer the policy, but suspends it until the same
person becomes the owner of both the policy and the
thing insured.
OPEN POLICY – a policy in which the value of the thing
insured is not agreed upon, but is left to be ascertained
in case of loss.
(the value of the thing at the time of the loss)
VALUED POLICY – a policy which expresses on its face
an agreement that the thing insured shall be valued at
a specific sum.
(the value of the thing stated in the policy)
RUNNING POLICY – a policy which contemplates
successive insurances, and which provides that the
object of the policy may be from time to time defined
by additional statements or indorsements.
(insured shall make inventory of the properties every
now and then to the insurer)
(sec 64) The commencement of an action under the
insurance should not be less that one year from the
time when the cause of action accrues (refusal of the
insurer to pay the insured), otherwise, the agreement
as to the time is void.
Grounds for RESCISSION of Policy:
1. non-payment of premium
2. conviction of a crime arising out of acts
increasing then hazard insured against
3. discovery of fraud or material
misrepresentation
4. discovery of willful or reckless acts or omissions
increasing the hazard insured against
5. physical changes (material alteration) to the
property insured which result in the property
becoming uninsurable
6. determination by the commissioner that the
continuation of the policy would violate the
code or would place the insurer in violation of
the code
7. Breach of warranty.
** As long as the activity does not change the risk, the
insurer is still liable.
CASH AND CARRY PROVISION
- no premium, no insurance
- except:
1. In life or in industrial life insurance – because
there is a grace period in which the insured has
already been entitled to the insurance without
having paid the premiums for the agreed
period.
2. In case of temporary receipt or
acknowledgment of premium by the insurer
(even if there is actually no payment yet)
through the principle of ESTOPPEL. However,
the insured is not exempt from payment of the
proceeds of insurance.
- if there is credit: for as long as the insured paid
within the period stipulated, and the insured
paid even after the loss, the insurer is liable.
- If the insurer willingly accepted the payment
even after loss, the insurer is lable.
3. If the payment was given to the agent of the
insurer, the act of the agent is the act of the
principal. The insurer is still liable.
4. The insurer is liable as long as the check has
sufficient funds.
Insurance by installment – If the insured paid a part of
the insurance, and the property has been damaged or
lost before the completion of premium, the insurer
should pay the insured, but the insured is still liable to
pay the proceeds of the insurance.
CAN A POLICY BE TRANSFERRED?
LIFE insurance – can always be transferred even
without the consent of the insurer.
PROPERTY insurance – could only be transferred with
the consent of the insurer.
- insurable interest must exist at the time of
execution and risk, but may not exist in the
mean time; suspended until the insurable
interest and the policy is vested in the same
person.
PROXIMATE CAUSE – cause which was uninterrupted by
any event, without which, the injury would not have
occurred.
** With FIRE INSURANCE – as ling as fire is the
proximate cause, whatever the immediate cause is, the
insurer is still liable.
WARRANTIES
- These are promises written in the insurance,
wherein the insured and the insurer signed, and
appended the same in the policy.
- If there is breach, the insurer may rescind the
policy.
- If there is insurer’s knowledge of breach of
contract by the insured, and he did not take
action, and the insured still received insurance
money, the insurer is ESTOPPED from the return
of such money.
FIRE INSURANCE
- Proximate cause of loss should be fire
- May include fire caused by natural disaster.
- Property must be consumed by fire, or when
the reason for loss or damage is caused by
trying to save the property (water damages or
theft), or when the wall of the house collapsed
to another infrastructure because of the fire…
there is a right to claim from the insurer.
- If the proximate cause is excepted from the
liabilities stipulated in the policy, the insurer is
not liable for the loss (example: explosion)
- FRIENDLY FIRE: the fire is on that place where
it is supposed to burn. If the fire escapes from
where it is supposed to burn, it becomes
HOSTILE fire.
THE INSURERE IS STILL LIABLE EVEN IF THE IMMEDIATE
CAUSE OF THE LOSS IS NOT THE PERIL INSURED, AS
LONG AS THE PROXIMATE CAUSE IS THAT PERIL INSURED.
MARINE INSURANCE
- Covers all risks in the shipment or navigation of
a vessel, including the goods shipped, profits,
and the ship itself.
- CHARTERER (lessee) has insurable interest with
the freightage of the goods.
- Owner of the VESSEL has insurable interest with
the vessel itself and the goods
- Owner of the GOODS has insurable interest with
the goods themselves.
- INSURABLE:
o Any peril during the voyage
o Any peril for a certain period
o Ay peril for a certain voyage
- PERILS OF THE SHIP : ordinary wear and tear of
the ship, ordinary occurrences in the voyage
- PERILS OF THE SEA: unexpected and inevitable
circumstances and casualties due to the
violence of the sea (INCH MARIE CLAUSE)
Implied warranty of sea worthiness – ship is reasonably
fit to perform service and must be able to encounter
the ordinary perils of the voyage. It is not limited to
the physical structure of the vessel, but must be laden
with the proper equipment, machinery, crew members,
and food for passengers.
Implied warranties of the ship:
1. W. of seaworthiness
2. W. that the vessel will not deviate from the
route
3. W. that the vessel will not engage in illegal
papers
4. W. that the vessel has the proper documents
IN THE ABSENCE OF ANY STIPULATION, ONLY THE PERILS
OF THE SEA IS INSURED, UNLESS “ALL-RISK POLICY” IS
STIPULATED.
ALL-RISK POLICY – exempting clauses arte important;
concealment will not vitiate the contract except when
such concealment is the cause of damage or loss.
BAREBOAT or DEMISE charter
- charterer: ship becomes common carrier
- the real owner: becomes private carrier, tasked
to observe diligence of a good father of a
family
VOYAGE OR TIME CHARTER- AFREIGHTMENT
- the owner of the vessel is the common carrier
(extraordinary diligence)
- shipper is a private carrier
INSURABLE INTEREST IN MARINE INSURANCE:
Shipper – cargo, expected profits
Charterer – the ship and the goods
Ship-owner – the ship itself
RESPONSIBILITY OF THE SHIPPER - should look for a
seaworthy ship
- INSURER should investigate first the
seaworthiness of the ship before paying the
claimant.
CONCEALMENT IN MARINE INSURANCE
- opinion of 3rd persons are material and must be
disclosed (example: Pag-asa report, Engineer of
the ship report on the machine of the ship)
- if due to concealment, there was loss or
damage, that us the only time that the insurer
may rescind the contract
- CANNOT RESCIND contract with the following
grounds:
o National character of the ship
o Falsified or simulated documents
o Illegal goods/contraband
GENERAL AVERAGE LOSS – damages and expenses
incurred for the salvation of the cargo or ship from a
real or known risk  everybody benefits!
PARTICULAR AVERAGE LOSS – damages and expenses
incurred not for the common benefit of all but only for
particular or certain persons.
CONSTRUCTIVE TOTAL LOSS
– if the owner of the vessel would spend more
than ¾ of the value of the vessel to save it, or
if the injury reduced the value of the thing
insured for more than ¾.
– the owner should abandon everything to the
insurer, so the insurer would look for something
to salvage from it. The insurer will pay the
value of the vessel.
– Need to notify the insurer immediately, must
be made within reasonable time after receipt
of reliable information of the loss
HOW ABANDONMENT IS MADE:
1. notice (generally in writing) to the insurer
2. notice should be made explicitly stating the
cause of abandonment
3. if oral notice is made, there should be a
written notice within 7 days from the oral
notice
VEHICLE INSURANCE
Comprehensive insurance for vehicles – all risk
insurance
No fault indemnity clause – right to claim without
proving fault or negligence; made on the vehicle within
which the injured is riding at the time of the accident;
indemnity not exceeding PhP 5,000; proof for claim –
medical cert, or death cert, or police report of the
accident.
3 party suit against insurer – depends on the policy
(sometimes, the person at fault pays first, then the
insurer pays afterwards)
Compulsory 3rd party liability - the purpose is to give
financial assistance to victims of motor vehicle
accidents or their dependents
Compulsory motor vehicle liability insurance
- contract of insurance against liability for death
or bodily injuries of passengers or 3rd parties
arising from motor vehicle accidents
PROCESS UNDER COMPULSORY 3RD PARTY LIABILITY
1. File notice of claim within 6 months from date
of accident. Include cert. of physician.
2. Prescriptive period- action should be filed in:
a. Insurance commission – less than Php
100,000 claim
b. RTC – more that Php 100,000 claim
Within 1 year from denial of claim (with
stipulation) or 10 years (without stipulation)
3. If there is agreement, the insurer should make
payment within 5 days of Compulsory 3rd party
liability;
4. If there is no agreement, insurer shall pay “no
fault indemnity” without prejudice to pursue
claim further. The insurer has the right of
subrogation to sue for recovery against the
vehicle at fault.
Authorized drivers clause – driver should be duly
licensed or with permission, even if the license is fake.
- Expired license of the driver (not the insured himself)
is not authorized driver.
Theft Clause – if there is theft clause and the vehicle is
unlawfully taken, insurer is liable under the clause and
authorized driver clause DOES NOT APPLY. Insured can
recover even if thief has no license.
OVER INSURANCE – same property insured for greater
value; insured is entitled to ratable return of premium
proportioned to the amount by which the aggregate
sum insured exceeds the insurable value of the thing at
risk.
DOUBLE INSURANCE – 2 or more insurance, same
property, not exceeding value of property
RE-INSURANCE – taken by the original insurer to insure
his liability
SETTLEMENT OF CLAIMS:
1. Notice of loss given within reasonable time: so
that the insurer will have ample time to
investigate on the loss/ destruction/ death.
2. Notice of claim to the insurer should be given
within 6 months after notice of loss. Submission
of evidence of loss.
3. Insurer should pay
a. NON-LIFE – 30 days after proof of loss is
received by the insurer, and the loss/
damage has been ascertained through
agreement or arbitration;
b. NON-LIFE – 90 days after receipt of
proof of loss, and the ascertainment
had not been made within 60 days after
such receipt;
c. LIFE INSURANCE – immediately upon
maturity of policy (except when
payable in installments or as an
annuity, they are payable as they
become due);
d. LIFE INSURANCE - within 60 days from
filing of proof of death.

DOUBLE INTEREST DOCTRINE – The insurer must pay

immediately upon maturity, otherwise, the insurer
pays:
(12% interest per annum x 2) of the principal + other
damages at 6% per annum

WHEN DOES THE CAUSE OF ACTION ACCRUE?

- upon final denial of the claim
- MR filed in the insurance company does not
affect the prescriptive period.

** When the insurer pays, there is the right of

subrogation. The insurer steps into the shoes of the
insured. Need not be stipulated.

** Subrogation does not apply in:

- LIFE insurance
- or when the insurer released the wrong doer
- or when he pays for a risk which is not covered
by the policy
- or when he pays more than the value of the
insurance.