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CONCEPT OF INSURANCE

• Applicable laws: Article 2011 of the Civil Code states that the contract of insurance is governed by special laws and that matters not expressly provided for in the special laws shall be regulated by the Civil Code. Therefore, the laws applicable to insurance shall be in the following order: (a) Insurance Code of 1978 (Pres. Decree, 1460, as amended); (b) In the absence of applicable provisions in the Insurance Code, the Civil Code; (c) In the absence of applicable provisions in the Insurance Code and the Civil Code, the general principles prevailing on the subject in the United States, particularly in the State of California where our Insurance Code was based ( Constantino v. Asia Life Ins. Co., 87 Phil 246)

• Insurance defined A contract of insurance is an agreement whereby one (insurer) undertakes for a consideration to indemnify another (insured) against loss, damage or liability arising from an unknown or contingent event. (Sec 2, Insurance Code of 1978; Gulf Resorts, Inc. v. Philippine Charter Insurance Corp., 458 SCRA 550 [2005]) A contract of suretyship shall be deemed to be an insurance contract if made by a surety who or which is doing insurance business. (2nd par, par (1) Sec 2, ICP) The term “doing an insurance business” or “transacting an insurance business”, shall include: a) Making or proposing to make, as insurer, any insurance contract; b) making or proposing to make, as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety;

c) Doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of this Code; d) Doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of the Code. The fact that no profit is derived from the making of insurance contracts, agreements, or transactions or that no separate or direct consideration is received therefore, shall not be deemed conclusive to show that the making thereof do thereof does not constitute the doing or transacting of an insurance business. (Par(3) Sec 2 ICP)

• Interpretation of Insurance Contracts. a) When there is no doubt as to the terms of the insurance contract, the provisions must be construed in their plain, ordinary and popular sense. (Union Mfg. Co., v. Republic Bank, 47 SCRA 271). b) When the terms of the policy are ambiguous, uncertain or doubtful, the provisions must be interpreted strictly and most strongly against the insurer, and liberally in favor of the insured. Reasons: 1) the insured usually has no voice in the selection or arrangement of the words employed, and the language of the contract is selected with great care and deliberation by experts and legal advisers employed by, and acting exclusively in the interest of the insurance company. (Gulf Resorts, Inc. v. Phil Charter Ins. Corp., 458 SCRA 551, May 16, 2005) 2) Insurance policies are contracts of adhesion (Mackenzie v. Phil am Life, 69 OG 9918) c) The provisions of the insurance contract must be read in its entirety, that is, the provisions must be construed together to arrive at the correct and true intention of the partied in the contract. Note: Insurance contracts are to be construed according to the sense and meaning of the term which parties, themselves, have used. (New Life Enterprises v. CA, 2001 SCRA 669)

• Events Covered by Insurance: General Rule: Only a future event can be covered by an insurance contract. (Section 3) Exception: A past event may be covered by marine insurance – if the loss of the vessel in the past could not have been known by ordinary means of communication, then it could be the subject of marine insurance. (Sec 109) NOTE: Ordinarily, the event covered by the policy is a future contingency. However a past event may likewise be included within the coverage of a policy. To be so covered, the past event causing the loss must be unknown to both parties and they must expressly stipulate that a prior loss is insured in the policy.

• Insurable Risks: The risks that may be insured may either be: (a) one that may cause damage to the insurer, or (b) one that may create liability against him.

• Who are the parties to an insurance contracts? (a)Insurer – the person who undertakes to indemnify another by a contract of insurance; (b)Insured – the person to be indemnified. (Note: Anyone except a public enemy may be insured) (c)Beneficiary – the person who receives benefit or advantage, or the one who is entitled to the benefit of a contract, that is, the one to whom the insurance is payable or is entitled to the proceeds of the policy on the occurrence of the event designated. - Public enemy defined: Public enemy is a nation at war with the Philippines and also every citizen or subject nation. Such term does not include robbers, thieves or riotous mobs. -Who may insure a mortgage property: Both the Mortgagor and the Mortgagee may take out separate polices with the same of different

the insured pays a premium. Insurer assumes risk. CA 273 SCRA 432 [1997]) . Insured is subject to a risk of loss by the happening of the designated peril. (Philamcare Health System v. Such assumption of risk is part of the general scheme to distribute actual losses among large group of persons bearing similar risk.companies. The mortgagor – to the extent of the value of his property. ELEMENTS OF AN INSURANCE CONTRACTS • What are the essential elements of an Insurance Contract? The following are the elements of Insurance Contract: (a) (b) (c) (d) (e) Insured has an insurable interest. except those who are forbidden by law to receive donations from the insured 2. and In consideration of the insurer’s promise. • Who may be beneficiary: Any person may be designated as beneficiary in a life insurance contract even though he is a stranger and has no insurable interest in the insured. the mortgagee – to the extent of his credit.

An insurer contracts with reference to the character of the insured and vice versa. the amount of insurable interest is already susceptible of pecuniary estimation.Life insurance is not a contract of indemnity. (RULE: RECOVERY = LOSS) . The right to recover is commensurate with the loss sustained. c) It is a PERSONAL CONTRACT . .by an aleatory contract. because the party insured is entitled to compensation for such loss as has been occasioned by the perils insured against. but a contract to pay a certain sum of money in the event of death. the assignment or conveyance of the property insured does not transfer the insurance and instead the policy is suspended. for life cannot be the subject of valuation or the loss adjustable on any principle of indemnity.Life insurance is an investment because it is secured by the insurer as a measure of economic security for him during his lifetime and for his beneficiary upon his death EXCEPT one secured by the creditor on the life of the debtor the reason being.3.Non-life insurance is a contract of indemnity. (Sec 2010. it is an INVESTMENT in LIFE INSURANCE . CHARACTERISTICS / NATURE OF INSURANCE CONTRACTS a) It is an ALEATORY CONTRACT . one of the parties or both reciprocally bind themselves to give or to do something in consideration of what the other shall give or do upon the happening of an event which is uncertain. As a consequence. which value ordinarily equivalent to the amount of the debt. Civil Code). or which is to occur at an indeterminate time. b) It is a CONTRACT OF INDEMNITY for NON-LIFE INSURANCE. . It is not a wagering contract. Insurance is aleatory in the sense that the liability of the insurer depends upon the happening of a contingent event.

Insurance is conditional in the sense that the insurer is not obligated to pay unless the loss arises from the specified perils.d) It is an EXECUTORY AND CONDITIONAL on the part of the INSURER and it is EXECUTED on the part of the INSURED. .Both parties. the latter’s participation in the agreement being reduced to the alternative to “take it or leave it”. -Insurance contract is executory after payment of premiums. e) It is an ONEROUS CONTRACT . and the premium must be paid. the insured and the insurer.Insurance contract is formal and real (not consensual) in nature because a policy is required to be issued.There is valuable consideration (premium) f) It is a BILATERAL CONTRACT .It is required that the parties.Insurance policies are contracts of adherence. to deal with each other in absolute good faith. that is. . but more so with the insurer since its dominant bargaining position imposes a stricter liability or responsibility. the insurer and the insured. i) It is a CONTRACT OF ADHESION . h) It is one of ABSOLUTE/PERFECT GOOD FAITH . executed on the part of the insured upon payment of premium and wholly executory on the part of the insurer. that is. g) It is a FORMAL CONTRACT . agreements prepared by one party and imposed upon parties dealing with it which may not be changed. are bound to do something.

crafts. transit or while awaiting or transshipment including war risk. use. marine builder’s risk and floater’ risk. profits. CLASSES OF INSURANCE A.Vessels. repair and maintenance. including liability of the insured for personal injury. respondentia – all exposed to perils of the sea. papers. craft. operation. (c) bridges. maintenance. chartering. (2)”Marine protection and indemnity insurance”. tunnels. illness or death or for loss or damage to the property of another person (Sec 99) . -It also includes: (a) persons connected with marine insurance including construction. Marine Insurance • WHAT IS MARINE INSURANCE? Marine Insurance Includes: (1) Insurance against loss of damage to: . cargo. (b) precious stones. or against legal liability of the insured for loss damage or expense incident to ownership. and piers and the furnishings as aids to navigation. meaning insurance against. jewelry and metals. bottomry. or instrumentality in use in ocean or island waterways.4. repair or construction of any vessel.

183 SCRA 223 [1990]) • “All risks” policy in marine insurance A marine insurance policy providing that the insurance is “against all risks” must be construed as creating a special insurance and extending to other risks than the usually contemplated. loss due to perils of the ship is not within the coverage of marine insurance. therefore. are losses or damages resulting from (a)the natural and inevitable action of the sea. “Perils of the sea” embrace all kinds of marine casualties. intentional misconduct on the part of the insured. in an “all risk policy”. The burden rests on the insurer to prove that the loss is caused by a risk excluded. and damages done to the ship or goods at sea by the violent action of the winds or waves. and covers all losses except such as may arise from the fraud of the insured. However. A marine policy in the usual form. all risks are covered unless expressly excepted. “Perils of the ship” on the other hand. as it protects the insured against the consequences of legal liability for loss or damage to property or for personal injury. Section 99) • Perils of the sea vs.(b) ordinary wear and tear of the ship. (Choa Tiek Seng v. Section 99) (b) Liability insurance. one that could not be foreseen and not attributable to the fault of anybody. 40). includes perils of the sea and not perils of the ship. as it indemnifies the insured for loss or damage to property. or (c) negligent failure of the ship’s owner to provide the vessel with proper equipment to convey the cargo under ordinary condition. Thus the insured is bound to prove that the cause of the loss is a peril of the sea. It cover all losses . (Go Tiaco Y Hermanos v. Union Insurance Society of Canton 40 Phil. CA. or otherwise excluded in the policy.• What are the Forms of Marine Insurance? (a) Property Insurance. perils of the ship. (Par 1. Unless otherwise stated in the policy. illness or death of a person (Par 2.

No honest error of judgment or mere negligence. 139 SCRA 596 [1985]) Inchmaree clause – (also known as negligence clause) is a provision in marine insurance policy that the insurance shall cover loss of. Bottomry – is a loan payable only if the vessel given as a security for said loan arrives safely at port from contemplated voyage. (Roque v IAC. unless criminally gross. Thereafter. it being stipulated that if . bursting of boilers. the burden is shifted to the insurer to prove that the loss was due to excepted perils. The burden of the insured. • Definition of some terms Barratry – any willful misconduct on the part of the master crew in pursuance of some unlawful or fraudulent purpose without the consent owners. To impose on the insured the burden of proving the precise cause of the loss or damage would be inconsistent with the broad protective purpose of “all risks” insurance. charterers. or damage to. This may be expressly covered by the policy. can be barratry. as the owner borrows money for the use. mariners. equipment or repair of the vessel for a definite term with the ship as security with maritime or extraordinary interest on account of the risks borne by the lender. therefore. engineers. or through any latent defect in the machinery or hull not resulting from want of due diligence. breakage of shafts. Note: Both the contracts of bottomry and respondentia are in the nature of a mortgage. and t the prejudice of owner’s interest. Charter Party – a contract by virtue of which the owner or the agent of a vessel binds himself to transport merchandise or person for a fixed price. proof of willful and intentional act is necessary. the hull or machinery through the negligence of the master. or pilots. is to prove merely that the goods he transported have been lost. Respondentia – a loan payable only upon the safe arrival in port of the goods given as security. destroyed or deteriorated. including pilferage losses during war. When so covered.during the voyage whether arising from a marine peril or not. or through explosions.

either from (a) the chartering of the ship or (b) its employment for the carriage of his own goods or those of others. signifies all the benefits derived by the owner. Freightage – in the sense of a policy of marine insurance. in case of (a) charter party. which according to the ordinary course of things would have earned but for the intervention of a peril insured against or other peril incident to the voyage. b) Cargo Owner/ Shipper -over the cargo and expected profits (Sec 105. 100. the shipowner can recover only the amount not recoverable from the charterer. a) Shipowner 1) over the value of the vessel though it is under a charter party (Sec.(Sec 102. the lender also loses his money.ICP) .ICP) 2) over the expected freightage. ICP). ICP) It exists. when the ship has broken on the chartered voyage (b) if a price is to be paid for the carriage goods. ICP) • Insurable Interest The insurable interests in marine insurance are as follows. the insurable interest is only up to the excess of the value of the vessel over the loan. ii) if the ship is hypothecated by a bottomry loan.the ship be lost during the voyage or within the limited period. ICP) Note: i) if the chartered and the charterer agreed to pay the shipowner the value of the vesel in case of loss. (Sec 100. when they are actually on board and the vessel and the goods are ready for specified voyage (Sec 104.(Sec 101.

• Concealment in Marine Insurance There is concealment where the insured has knowledge of facts. (Sec 28.) 2) Each party is bound to communicate all information which he possesses. in good faith. of a prior loss. if information might possibly have reached him in the usual mode of transmission and at the usual rate of communication (Sec 109) . ICP) • Presumption of Loss The insured in marine insurance is presumed to have knowledge. in reference to a material fact. ICP). (Sec 106. or upon inquiry discloses or assumes to disclose (Sec 107. material to the risks and to state the exact truth in relation to all matters that he represents. ICP. -2) over his expected profits or freightage if he accepts cargoes from other persons for a fee. -3) over his own cargo or his client’s cargo. all facts within his knowledge which are material to the contract as to which he makes no warranty. hence it must also be communicated. (Sec 108. • What needs to be communicated? 1) Each party must communicate to the other. at the time of insuring. ICP) 3) Information of the belief or expectation of a third person. and he fails to do so. if the ship is lost or damaged during the voyage. and which the other has no means of ascertaining.c) Charterer -1) over the vessel up to the extent of the amount he is liable to the shipowner. material to the risk. and good faith and fair dealing requires him to reveal them. is material in marine insurance.

ICP) • Distinguishing ordinary concealment from that in marine insurance 1) In ordinary insurance. provided that it is known to the parties and the parties expressly stipulate on the coverage of a past event. Knowledge of the past event on the part of the insured may be difficult to prove. The law intended to overcome such difficulty by raising this presumption. e) The use of false and simulated papers. in marine insurance the concealment of any of the matters stated in Section 110 merely exonerates the insurer from loss. if the loss results from the fact concealed. ICP) In marine insurance. 2) In ordinary insurance.A past event is within the scope of insurance. a causal connection between the fact concealed and cause of loss is not necessary for the insurer to rescind. • Effect of Concealment General Rule: Concealment entitles the injured party to rescind the contract Exception: Concealment in marine insurance in respect to any of the following matters does not vitiate the entire contract.(Sec 35. b) The liability of the thing inured to capture and detention. c) The liability to seizure from breach of foreign laws of trade. . but merely exonerates the insurer from a loss resulting from the risk concealed: a) The national character of the insured. belief or expectation of a third person in reference to a material fact is material and has to be communicated. (Sec 110. opinion or belief of a third person or own judgment of the insured is not material and need not be communicated. d) The want of necessary documents.

therefore. . The eventual falsity. (d) warranty of possession of documents of neutrality: that the ship will carry the requisite documents of nationality or neutrality of the ship or cargo where such nationality or neutrality is expressly warranted. (b) That the ship will not deviate from agreed voyage unless deviation is proper (Secs. It is the essence of warranty that its breach bars recovery even though the breach has nothing to do with the loss. does not.125.The false representation that will entitle the insurer to rescind the contract of insurance must be representation of positive facts and not mere expectation or belief. the contract depends and is conclusively presumed material.In marine insurance a misrepresentation to entitle the insurer to rescind the contract. 123. 124. ICP). a condition on which. (Sec 111) . of a representation as to expectation.A warranty is a statement in the policy. (c) That the ship will not engage in illegal venture. Misrepresentation . must be intentionally false in any material respect. in the absence of fraud.Representation is a statement incidental to the contract of insurance relative to some fact having reference thereto and upon the faith of which the contract is entered into. ICP). or in respect of any fact on which the charterer and nature of the risk depends. (Secs 67 – 76) • Implied Warranties in Marine Insurance (a) That the ship is seaworthy at the inception of the insurance (Sec 113.• Representation Definition . (Sec 112) • Implied Warranties Warranty defined: . avoid a contract of insurance. part of the contract.

ICP) . and to encounter the ordinary perils of the voyage.Seaworthiness of a vessel is a relative term. in which case each vessel upon which the cargo is shipped. when satisfied? General Rule: The requirement of seaworthiness is satisfied when the vessel is seaworthy at the commencement of the risk. (b) When the insurance is upon the cargo required to be transshipped at an indeterminate port.A ship is seaworthy. • Requirement of seaworthiness.Thus. ICP) . in which case. (Sec 115. • “Seaworthiness” as the main warranty in marine insurance: Definition: . Exceptions: (a) When the insurance is for a specific period. depending on the nature of the ship. or transshipped.(e) presence of insurable interest. (Sec 114. ICP) and (c) Where different portions of the voyage contemplated by the policy differ in respect to things requisite to make the ship seaworthy at the commencement of each portion with reference to that portion. (Sec 117. must be seaworthy at the commencement of each particular voyage. and the service in which she is at the time engaged. . contemplated by the parties to the policy. the voyage. Note: The foregoing warranties are implied as they exist by the mere fact that a contract of marine insurance is entered into. a vessel seaworthy for one purpose may be unseaworthy for another purpose. when reasonably fit to perform the service. the vessel must be seaworthy at the commencement of every voyage she may undertake during such period.

but it requires that: (a) it be properly laden or loaded with cargo. or an unreasonable delay in pursuing voyage.The warranty if seaworthiness extends not only to the condition of the structure of the ship. or an unreasonable delay in pursuing voyage or the commencement of an entirely different voyage (Sec 123. ICP) .Accordingly. ICP). Provided there is no unreasonable delay in repairing the defect.Unjustified deviation will bar recovery from marine policy. the insurer is exonerated on the ship or the shipowner’s interest from any liability arising from therefrom. (c) it must have the requisite equipment and appurtenances. sufficient number of officers and seamen. • The Voyage and Deviation Deviation defined: . subsequent unseaworthiness does not avoid the policy. . the insurer is still liable. ICP) .Seaworthiness of a vessel.• To what does the warranty of seaworthiness extend to? .Deviation is the departure of the vessel from course of voyage.However. (Sec 118. Otherwise. (Sec 118. ICP) • Unseaworthiness during the voyage: . where the damage was not caused by the particular defect that made the ship unseaworthy. if a vessel is seaworthy at the inception of the voyage. (b) is provided with a competent master. is necessary only at the commencement of the risk. (Sec 116.Unreasonable delay in repairing the defect causing the unseaworthiness arising after the commencement of the risk will discharge the insurer from liability only when the damage or loss was caused by the unseaworthiness of the vessel. . . as a general rule.

ICP. or by being broken up. (iii) Any damage to the thing which renders it valueless to the owner for the purpose for which he held it. (Section 126 ICP). (ii) The irretrievable loss of the thing by sinking.) b) Improper deviation is every deviation not specified in Sec 124. (Sec 124. .An insurer is not liable for any loss happening to a thing insured subsequent to an improper deviation. or (iv) Any other event which effectively deprives the owner of the possession. (Sec 125. ICP) • Effect of improper deviation? .• Kinds of deviation: Proper and Improper a) Deviation is proper when: 1) if due to circumstances outside the control of the ship captain or ship owner. at the port of destination. 4) if made to save human life or another distressed vessel. 3) if made in good faith to avoid a peril. This applies whether the risk increased or diminished. of the thing insured. • Loss Kinds of Losses: Loss in marine insurance may be: 1) TOTAL – a total loss ay either be: (a) Actual Loss which is caused by: (i) A total destruction of the thing insured. 2) If done to comply with a warranty.

(ii) If it is injured to such an extent as to reduce its value more than ¾. the insured is entitled to payment without notice of abandonment (Sec 135. (Sec 131) (i) If more than ¾ thereof in value I actually lost. which necessarily results in depriving the insured of possession. (iv) If the thing insured. . But freightage cannot in any case be abandoned unless the ship is also abandoned. (iii) If the thing insured is a ship. if the insurance is confined to an actual loss it will not cover a constructive loss.(b) Constructive total loss. without abandoning vessel. nor another ship procured by the mater. which is one that gives to a person insured a right to abandon under the following circumstances. being cargo or freightage and the voyage cannot be performed. insured may abandon the goods or vessel to the insurer and claim for whole insured value. PARTIAL – a loss other than a total loss • Actual Loss . but will cover any loss.Upon actual total loss. without incurring the like expense or risk mentioned in the preceding sub-paragraph. at the port of destination of the entire thing insured (Sec. or would have to be expended to recover it fro the peril. or he may.) Furthermore. 137) . and the contemplated voyage cannot be lawfully performed without incurring either an expense to the insured of more than ¾ the value of the thing abandoned or a risk which a prudent man would not take under the circumstances. (Sec 139) Note: In case of constructive total loss. within reasonable diligence.An actual loss can be presumed from the continued absence of the ship without being heard of (Sec 132). to forward the cargo. The length of time which is sufficient to raise this presumption depends on the circumstances of the case. claim for partial actual loss. 2..

5) It must be factual (Sec 142.• Abandonment . ICP). ICP). or its proceed or salvage as if there has been a formal abandonment. after a constructive total loss. 6) It must be made by giving notice thereof to the insurer which may be done orally or in writing (Sec 143. Note though. 7) The notice of abandonment must be explicit and must specify the particular cause of the abandonment (Sec144. • Requisites of valid abandonment: 1) There must be an actual relinquishment by the person insured of his interest in the thing insured (Sec 138. (Here the insurer opted to pay for a total actual loss. ICP). he declares the relinquishment to the insurer of his interest in the thing insured (Sec 138. 3) The abandonment must neither be partial nor conditional (Sec 140. ICP). 2) There must be a constructive total loss (Sec 139. ICP). 4) It must be made within a reasonable time after receipt of reliable information of the loss. ICP). ICP). ICP). if the insurer pays for a loss as if it were an actual loss. notwithstanding the absence of actual abandonment) . with all the chances of recovery and indemnity (Sec. (Sec 141.Abandonment is the act of the insured by which. ICP). • Effects of Abandonment: 1) It is equivalent to a transfer of his interest to the insurer. he is entitled to whatever may remain of the thing insured. 146.

it does not prejudice the insured. The agents of the insured becomes the agents of the insurer.) • Effectivity of abandonment 1) Upon acceptance of the Insurer. that subsequently earned belongs to the insurer of the ship.Once accepted and made.2) Acts done in good faith by those who were agents of the insured in respect to the thing insured subsequent to the loss. abandonment is conclusive between the parties. or the thing insured was so far restored when the abandonment was made that there was in fact no total loss.(Sec 153) 3) If abandonment is not accepted despite validity. that is. freightage earned previous to the lo belongs to the insurer of the freightage. the loss is admitted together with the sufficiency of abandonment. if the insurer refuses to accept the abandonment. Note: The fact that abandonment is not made or is omitted does not prejudice the insured as he may nevertheless recover his actual loss (Sec 155.(Sec 142) 2) On an accepted abandonment involving a ship. are at the risk of the insurer and for his benefit (Sec 148).Acceptance may either be express or implied from the conduct of the insurer. where the information upon which abandonment has been made proves incorrect. . abandonment is irrevocable. that is. unless the ground upon which it was made proves to be unfounded (Sec 152).The mere silence of the insurer for an unreasonable length of time after notice shall be construed as acceptance (Sec 150). the insurer is liable upon an actual total loss. . that if notice is properly given. .Once accepted. This is due to the fact that under Sec 149. (Sec 151) . which provides. deducting from the amount any proceeds of the thing insured may have come to the hands of the insured (Sec 154). • Liability for averages -AVERAGE DEFINED: Average is any extraordinary or accidental expense incurred during the voyage for the preservation of .

A valuation in a policy of marine insurance is conclusive between the parties thereto in the adjustment of either a partial or total loss provided: (a) the insured has some interest at the risk and (b) there is no fraud on his part. all average shall contribute. b) General or gross average – damage or expense suffered deliberately in order to save the vessel. Thus. and without the knowledge of the person procuring the insurance.In such case. -The insured has a choice of recovery on the happening of the general average loss. subrogation takes place .the vessel. the insured does not have to prove the value of the insured at the time of the loss except when it has been hypothecated by bottomry or respondentia before its insurances. or (b) claiming from the insurer. or both from real or known risk. and all damages to the vessel or cargo from the time it its loaded and the voyage commenced until it ends and the cargo is unloaded. This is an exception to conclusiveness. . • Measure of Indemnity Effect of Valuation. They are: (a) enforcing the contribution against interested parties. This damage or expense is borne ordinarily by the owner of the vessel or cargo that gives rise to expenses or suffered the damage. in which case the real value thereof must be shown. . entitles the insurer to rescind the contract. -KINDS of AVERAGES: a) Particular or simple average – damage or expense caused to the vessel or cargo which has not inured to the common benefit and profit of all persons interested in the cargo or the vessel. .A valuation fraudulent in fact. or its cargo. or both.The insured can hold his insurer liable for his contribution up to the value of the policy. . If it be the latter. cargo.

under the conditions of the standard policy.In either event. It must be alleged and clearly proven by the insurer. even though it is great. (Sec 157) -Where co-insurance exists: In marine insurance. In case the insurer should fail to do so. such overvaluation. -Requisites for application: The principle of co-insurance applies only where the (a) insurance taken is less than the actual value of the thing insured and (b) the loss is partial. entirely avoids the insurance. The formula to determine the extent of the insurer’s liability is: __Loss__ x Insurance = Insurer’s Liability Value . 171 and 172) -Effect of Co-insurance: The insurer is liable upon the partial loss only for such proportion of the amount insured by him as the loss bears to the value of the whole interest of the insured in the property insured.Under-insurance must be proven: In order that the principle of co-insurance can apply. if fraudulent. the insurer must prove that the value of the property insured is more than the amount of the policy obtained. (Sec 157). in overvaluing his property. . • Co-Insurance (also known as Average Clause) -Co-insurance defined: It is a form of insurance in which the person who insures his property for less than the entire value is understood to be his own insurer for the difference which exist between the true value of the property and the amount of the insurance. While in fire insurance there is no co-insurance unless expressly stipulated in the policy. that the insured. there can not be any pro rata sharing of the loss under the policy and the recovery under the policy is the actual loss except that it can not exceed the face value of the policy.Effect of Over-valuation . did so knowingly and with fraudulent intent. (Secs. is not sufficient proof of fraud. .Overvaluation of property by the insured may take place either at the time of making the contract or at the time of submission of the proof of loss. .But the mere fact of overvaluation. there is always co-insurance (Sec 157).

which he retains in the absence of a contrary stipulation with the owner of the vessel.When profits are separately insured. except that anchors are paid in full (Sec 166) • Valuation of insurance as to profits In case of insurance of expected profits the loss of the cargo or property out of which profits are expected to arise. when laden on board or where that cost cannot be ascertained. exclusive of primage without reference to the cost of earning it.Primage – it is the compensation paid by he shipper to the master of the vessel for his care and trouble bestowed on the goods of the shipper.. . (d) The cost of insurance is in each case to be added to the value thus estimated. adding the charges incurred in purchasing and placing it on board – but without reference to any sum incurred in raising money for its purchase or any drawback on its exportation or fluctuation of the market at the port of destination or expenses incurred on the way or on arrival. the insurer is liable only for 2/3 of the remaining cost or repairs after the deduction. (b) The value of the cargo is its actual cost to the insured.Drawback – it is the government allowance upon duties on imported merchandise when the importer re-exports instead of selling it. the insurer is liable to a proportion of such profits equivalent to the proportion which the value of the property lost bears to the value of the whole. . its market value at the time and place of lading. (Sec 163) • Valuation if the policy is open (a) The value of the ship is its value at the beginning of the risk. the old materials are to be applied towards the payment of the new and unless stipulated in the policy. . (c) Value of freightage is the gross freightage. carries with it a conclusive presumption of loss of the expected profits (Sec 160). including all articles or charges which add to its permanent value or which are necessary to prepare it for the voyage insured. and the property out of which profit are expected to rise is partially lost.Note: In case of a partial loss of the ship or its equipment. - .

as well as other expenses such as launching. B. said expenses are to be added to a total loss. . that the insured shall labor for recovery of the property insured. FIRE INSURANCE • Fire defined: In insurance.If the cargo arrives at the port of destination in a damaged condition. -The formula is: (a) Market price in – Market Price in = Reduction in value sound state damaged state (b) ____Reduction in Value___ x Amount of Insurance = Amount of Recovery Market Price in Sound State • Measure of indemnity. This is also known as the “sue and labor clause” -In either case.An insurer is liable (a) for all expenses attendant upon a loss that forces the ship into a port to be repaired.• If cargo is insured against partial loss: . the insurer is liable for expenses incurred thereby. characterized by heat and light combustion. the loss of the insured is deemed to be the same proportion of the value which the market place at that port of the thing so damaged bears to the market price it would have brought if sound (Sec 162). towing. raising. and navigating the vessel. These expenses are also called “port of refuge expenses”. if that afterwards occurs (Sec 163). (b) If so stipulated. regardless of whether the policy is valued or open: . These refer to expenses for repairing the ship due to damages attributable to perils insured against. it is defied as the active principle of burning .

tornado. which entitles the insurer to rescind the contract of insurance (Sec 168). Friendly fire on the other hand. by means within the control of the insured. is one that burns in place where it is intended to burn and employed for the ordinary purpose of lighting. heating or manufacturing. • Effect of Alteration: . • Hostile fire vs. and increasing the risk. windstorm. • Alteration defined: It is a change in the use or condition of a thing insured from that which is limited by the policy. friendly fire: Hostile fire is a fire that: (a) burns at a place where it is intended to burn. AND (b) The fire must be hostile as opposed to friendly fire.• Coverage Insurance against fire includes loss or damage due to lightning. made without the consent of the insurer. earthquake or other allied risks when such risks are covered by extensions to the insurance policy or under separate policies (Sec 167). (b) starts as a friendly fire but becomes hostile if it should escape from the place where it is intended to burn and becomes uncontrollable. • Requisites to allow recovery (a) The fire must be the proximate cause of the damage or the loss. (c) is a friendly fire which becomes hostile by not escaping from its proper place but because of the unsuitable material used to light it and it becomes inherently dangerous and uncontrollable.

• Measure of Indemnity: a) In Open Policy – it is the expense it would be to the insured to replace the thing lost or insured in the condition it was at the time of the injury (Sec 171). b) In case of Valued Policy – the valuation as agreed upon by the parties is conclusive in the adjustment of either a partial or total loss in the absence of fraud (Sec 171) • How valuation is made? . (d) The alteration was made by means within the control of the insured (note: If the alteration be by accident or means beyond the control of the insured. and (e) The alteration increased the risk of loss. • Basis for rescission: Payment of the premium is based on the risk as assessed at the time of the issuance of the policy when the risk is increased without a corresponding increase in premium. But any alteration in the use or condition of the thing insured from that to which is limited by the policy. which does not increase the risk. (note: A contract of fire insurance is not affected by any act of the insured subsequent to the execution of the policy. (b) There is an alteration in the said use or condition. (c) The alteration was made without the consent of the insurer. this requisite is not met). which does not violate its provision. to wit: (a) The use or condition of the thing insured is specifically limited or stipulated in the policy. does not affect the contract (Sec 169).An alteration in the use or condition of the thing insured will entitle the insurer to rescind the contract of insurance provided the following requisites are present. even though it increases the risk and is the cause of the loss (Sec 170)). it is as if no premium is paid.

CASUALTY INSURANCE • Casualty Insurance defined: Generally. 3) In case of loss. burglary and theft insurance. rebuild or replace the property wholly or partially damaged or destroyed shall be exercised (Sec 172). hypothecated or transferred to any person. employer’s liability insurance.1) Whenever insured would like to have the valuation stated in a policy insuring a building or structure against fire. plate glass insurance. If it is a partial loss. . (Sec 174) • Examples of Casualty Insurance . each shall contribute pro-rate to the total or partial loss but the liability of the insurers cannot be more than the amount stated in the policy. motor vehicle liability insurance. provided there is no change increasing the risk without the consent of the insurer or fraud on the part of the insured. public liability insurance.No policy of fire insurance shall be pledged. who is paid by the insured and the value may then be fixed between the insurer and the insured. but not limited to. personal accident and health insurance as written by non-life companies and other substantially similar kinds of insurance. workmen’s compensation insurance. 4) Or the parties may stipulate that instead of payment the option to repair. it may be made by an independent appraiser. It includes. This is also known as the “option to rebuild clause”. it is one that covers loss or liability arising from an accident or mishap. the clause is then inserted in the policy that said valuation has thus been fixed. firm or company that acts as agent for or otherwise represents the issuing company. excluding those that fall exclusively within other types of insurance like fire or marine. hypothecation or transfer hereafter made shall be void and of no effect as it may affect other creditors of the insured. C. Any of such pledge. the whole amount of the partial loss is paid. 2) Subsequently. the insurer will pay the whole amount so insured and stated in the policy is paid. In case there are two or more policies.

(h) Health – insurance for indemnity for expenses or loss occasioned by sickness or disease. (d) Motor vehicle liability – insurance against passenger and third-party liability for death or bodily injuries and damage to property arising from motor vehicle accidents. • Life insurance distinguished fro accident and health insurance: . disablement. (b) Workmen’s Compensation – insurance secured by an employer for the benefit of his employees and laborers for loss resulting from injuries. etc. and suffering from accidents that causes physical injury. (f) Burglary and theft – insurance against loss of property through burglary and theft (g) Personal Accident – insurance against expense. (e) Plate glass – insurance against loss from accidental breaking of plate-glass windows. when the policy provides indemnity against actual loss or payment. or death through industrial accident. or disease in connection with their employment. third persons cannot directly sue the insurer since the only duty of the insurer in this case is to reimburse the insured for liability paid to him to third persons. • When third persons can directly sue the insurer in liability insurance? When the policy provides for indemnity against liability to third persons.(a) Employer’s liability – insurance obtained by employer against liability to an employs for damages cause or arising from injuries by reason of his employment. (c) Public utility – insurance against liability of the insured to pay damages for accidental bodily injury or damage to property arising from an activity of the insured defined in the policy. loss of time. doors. casualty. show-case. such third person can directly sue the insurer since they have beneficial interest in the proceeds of the policy However.

When it is issued and accepted by the obligee. when one of the risks insured in an accident insurance is death of the insured by accident. • Liability of the Surety: The liability of the surety shall be joint and solidary with the obligor and shall be limited to the amount of the bond and determined strictly by the terms of the contract in relation to the principal contract between obligor – obligee. it is valid despite non-payment of the premium (Sec 177) • When surety entitled to service fee only? The surety shall be entitled only o a reasonable service fee in an amount not exceeding fifty per centum of the premium due. It includes official recognizance. such insurance may also be regarded as a life insurance.The usual object of life insurance is to provide a fund for the benefit of the estate or the heirs or beneficiaries of the insured after the latter’s death. However. but a loss of time. plus the cost . bonds and other undertaking (Sec 175). It is a collateral contract in relation to the principal contract between the obligor and the obligee. earning capacity. While the usual purpose of personal accident and health insurance is to protect against not a loss of life. and expenses. D. (Sec 176) • Payment of premium on bonds: General Rule: Exception: Payment of premium is a condition precedent for the validity of suretyship contract or bond. SURETYSHIP • Suretyship defined: A contract of suretyship is an agreement whereby the surety guarantee the performance by the principal or obligor of an obligation or undertaking in favor of a third party or obligee.

. (Sec 177) • Surety’s Right to collect: The surety can demand payment from the principal upon the latter’s default even before the former has paid the creditor. if the non-acceptance of the bond or suretyship contract is due to the fault or negligence of the surety.. However. no service fee. 169 SCRA 66) E.. contingently on the continuance or cessation of life.. Jr. or (2) his surviving a specified period. stamps or taxes can be collected. v. Inc. Co. (Merchantile Ins. or b) When the contract of suretyship or bond is not filed with the obligee. or (3) or otherwise.stamps and other taxes imposed for the issuance of the bond. (Sec 179) • When Payable? An insurance upon life may be made payable on (1) death of the person. & Co. • Usual Kind of Life Insurance: (a) Whole life / Ordinary Life / Straight Life – premiums are payable for life and the insurer agrees to pay the face value upon the death of the insured. Inc. LIFE INSURANCE • Life Insurance defined: Is insurance on human lives and insurance appertaining thereto or connected therewith. Felipe Ysmael. in the following cases: a) When the contract of suretyship or bond is not accepted by the obligee.

it is paid to the beneficiaries. • Where the insured is a minor: . • Annuity defined: Annuity is a contract to pay the insured. the insurer undertakes to pay annuities until the death of the annuitant. (c) In annuity. it is paid to the beneficiaries. If he dies before the end of the period. If h die before the end of the period. the value of the policy is paid to him. the following distinctions between annuity and life insurance could be made: (a) Annuity is payable during the lifetime of the annuitant. if the insured is still alive at the end of the period. the performance of insured’s obligation being secured by mortgage or deed of trust. (e) Endowment – protection is for a limited period. sum or sums periodically during a life or a certain period. (b) The annuitant pays a single premium. the insurer pays a lump sum upon death of the insured.(b) Limited payment life – insured pay premiums for a limited period after which he stops with a guarantee by the insurer that upon death amount is to be paid – death occurs while payment is not complete – beneficiary receives face amount. or a named person or persons. while life insurance I usually payable upon the death of the insured. (d) Advance Insurance – a contract which provides for the payment to the insured of a lump sum immediately. while insured in life insurance pays premiums by installments. the value of the policy is paid to him. or for the end of that period. in consideration of his agreement to make certain periodical payments to the insurer for a specified period. (c) Term Policy – Insurer is liable only upon death of the insured within the agreed term or period. while in life insurance. • Annuity distinguished from life insurance: Although annuity is considered life insurance for purposes of the Insurance Code.

may act in behalf of the minor without need of bond or court authority. unless: 1. the mother.e. whether he has insurable interest or not (Section 181). the interest of the minor does not exceed Php 20. in default. • Risks Covered: 1) Generally. all causes of death are covered. loan. an assignment contemporaneous with issuance may invalidate the policy unless made in good faith. Excluded by law. will or succession to any person. obtaining a policy. beneficiary is the principal accomplice or an accessory in bringing the death of the insured.a.The person to whom the life insurance is transferred may recover upon it whatever the insured might have recovered. in the absence or incapacity of a judicial guardian.c. if (a) committed after the policy has been in force for a period of two years from date of issue or last reinstatement unless policy provides a shorter period (b) but it is nevertheless compensable if committed in the date of insanity regardless of the date of commission (Sec 180-A) • Assignment of Life Insurance: A life insurance may pass by transfer. 1. the father. i.e.As far as a minor.b.e when the insured is executed for a crime committed.00. who is the insured or a beneficiary in an insurance contract. Thus. it should not be used to circumvent the law prohibiting insurance without insurable interest. murder or injuries inflicted intentionally by 3rd persons 1. receiving the proceeds of the policy and giving the minor’s consent to any transaction on the policy. . 2) Suicide.000. i. when it does not cover assault. Excluded by policy.While there is no need for the assignee to have insurable interest. surrendering the policy. i. . when it involves the exercise of any right under the policy to include but not limited to. provided. . Excluded by public policy.

. the amount of the policy should be paid. unless thereby expressly required (Sec 182). when the insurable interest is susceptible of pecuniary measurement. the consent of such beneficiary to the assignment of the policy must be obtained since the beneficiary. • Life Insurance is Valued Policy: Life insurance contract is a valued policy in the sense that the sum payable to the beneficiary is the amount specified in the policy.However. for then. -The consent of the beneficiary to an assignment by the insured is not necessary where the insured has not expressly waived the right to change the beneficiary. . the measure of indemnity under a policy of insurance upon life or health is the sum fixed in the policy. COMPULSORY MOTOR LIABILITY INSURANCE VEHICLE . • Measure of Indemnity: Unless the interest of a person insured is susceptible of exact pecuniary measurement. in such case. has a vested right on the policy that cannot be defeated by an assignment or transfer without his consent. for in such case the beneficiary has no vested right as the insured may still change him.This is a consequence of the rule that life insurance is not a contract of indemnity and since the value of life lost could not be ascertained. then the amount of the loss suffered should be the basis of payment.Where the policy is payable to a beneficiary other than the insured or his estate or personal representatives. as in the case of insurance procured by a creditor on the life of the debtor.Notice to the insurer of transfer or bequest is not necessary to preserve the validity of the policy. and the right to change the beneficiary is expressly waived.. . life insurance of such nature is a contract of indemnity. F.

Php 40. or (c) surety bond. surety or cash deposit required by Section 374 shall comply with the minimum limits prescribed under Section 377. 26 or more passengers a.2. Property damage is now optional.000 authorized capacity (b) In case of owner of a motor vehicle: .000.000.000. Php 5. • Extent of the Liability: Every insurance policy. Php 30.4. .Compliance by the motor vehicle owner or the land transportation operator is monitored as the Land Transportation Office shall not allow registration or renewal of registration without compliance with Section 374 (Sec 376). summarized as follows: (a) in case of a Land transportation operator. to indemnify the death or bodily injury of a third party or passenger arising from the use thereof (Sec 374). motor vehicles with an authorized capacity of: a. What is now compulsory is death or bodily injury arising from motor vehicle accidents. • How Its Compulsory Nature enforced? The Insurance code makes it unlawful for any land transportation operator or owner of a motor vehicle to operate in highways unless there is: (a) a policy insurance. from 6 to 11 passengers a.1.3. from 12 to 25 passengers a.• Concept: It is to provide protection to answer for bodily or property damage that may be sustained by another arising from the use of a motor vehicle. or (b) guaranty in cash. five or less passengers multiplied by the Php 50.

I.00 b.000.000.000. Vehicles with an unladen weight of 2.601 kilos and 3930 kilos: 30.00 iv.000. Vehicles with an unladen weight over 3930 kilos: 50. Vehicles with an unladen weight between 2. Heavy: Php 30.b.00 ii. Bantam: Php 20.600 kilos or less: 20.II Other Private Vehicles i.000. • Nature of the liability of the insurer: . Tricycles. Light: Php 20. and does not depend on the recovery of judgment by the injured party against the insured. it is sufficient cause for the revocation of a certificate of public convenience. Private cars i.000.00 ii.If Land Transportation operator violates these minimum limits of coverage. and scooters: 12.00 Php Php Php Php .000.00 iii. motorcycles. the insurer’s liability accrues immediately upon the occurrence of the injury upon which the liability depends. • When liability accrues? Where the insurance policy insures directly against liability.00 iii.

unless it receives new valid insurance / surety / proof of cash deposit or revival b y endorsement of the cancelled policy (Sec 380). it requires written notice to Motor Vehicle Owner / Land Transportation operator at least 15 day prior to intended effective date. CA 165 SCRA 536). they will be required to show proof of a cash deposit with the commissioner. -If the motor vehicle owner or the land transportation operator is unable to obtain or is unreasonably denied the policy insurance. . while that of the insured is based on tort. the Motor Vehicle owner / Land Transportation operator shall secure a similar policy or surety before the cancelled policy / surety ceases to be effective or make cash deposit and file the same or proof thereof with the LTO (Sec 381). but the authority of the insurance company to engage in casualty or surety lines of business shall be withdrawn immediately. (Sec 379) • Cancellation of the policy: a) By the insurer. the LTO may order the immediate confiscation of license plates. The liability of the insurer is based on contract. (Malayan Insurance v. b) By the insured. . • Other Prohibited Acts: 1) The Motor Vehicle Owner or the Land Transportation Operator cannot require drivers or employees to contribute to the payment of the premium (Sec 386). • Who can issue policy or surety bond? Those authorized by the commissioner in the list furnished to LTO (Sec 375). official or employee thereof shall not act as an agent in procuring the policy or surety bond and in no case shall the commission of the procuring agent exceed 10% of the premiums paid (Sec 387).It is not solidary with the insured. 2) Any government office or agency having the duty to implement the provisions.If so cancelled.

2) If the victim is an occupant of a vehicle. • Rules on No fault indemnity claims: 1) A claim may be made against one motor vehicle only.000. from the date of accident by giving written notice setting forth the nature. the claim shall lie against the insurer of the vehicle in which he is riding. .00 without prejudice to the claimant from pursuing his claim further. in which case.000. an action must be brought within 1 year from date of denial with the Insurance Commissioner or the Court. provided the following requisites are present: a) The claim is for death or injury to any passenger or third party. .Note: Where the claim exceeds P5.000. .• Payment of Claims: A claim for payment is to be filed without unnecessary delay. he shall not be required or compelled by the insurance company to execute any quitclaim or document releasing it from liability under the policy.00. • No fault indemnity claim: It is a claim for payment for death or injury to a passenger or third party without the necessity of proving fault or negligence. otherwise the right of action will be deemed as having prescribed. mounting or dismounting from.The failure to file claim will be deemed a waiver.00 c) The necessary proof of loss under oath to substantiate the claim must be submitted. If a claim is filed but denied. extent and duration of the injuries as certified by the duly licensed physician. b) The total indemnity in respect of any one person does not exceed P5. the insurance company shall pay only P5. within 6 months.

the claim shall lie against the insurer of the directly offending vehicle. • Note the following jurisprudence: 1) If the license is expired. the right of the party paying the claim to recover against the owner of the vehicle responsible for the accident shall be maintained. are duly licensed drivers and have no disqualification to drive a motor vehicle. v.3) In any other case. The main purpose of the “authorized driver clause” is to assure that the persons other than the insured owner. Philn Guaranty 15 SCRA 313) 2) Issued a Temporary Operator’s Permit or a Temporary Vehicle Receipt. • Sufficient proof of loss: The following proofs of loss. a person is authorized to operate a motor vehicle. provided. • Authorized Driver Clause : The authorized driver clause is interpreted to refer to the insured or any person driving on the order of the insured or with his permission. if the victim is not an occupant of a vehicle). when submitted under oath shall be sufficient evidence to substantiate the claim: 1) Police report of the accident and. 2) Death certificate and evidence sufficient to establish the proper payee or.e. but . 4) In all cases. person is not authorized to operate a motor vehicle (Tarco Jr. (i. such person is permitted to operate a motor vehicle in accordance with our licensing laws or regulations and who is not otherwise disqualified. 3) Medical report and evidence of medical or hospital disbursement in respect of which refund is claimed. who drive the car on the insured’s order.

Insurable Interest • It is required that the insured in an insurance contract should posses an interest of some kind.known as “insurable interest”. A. Insurable Interest in Life and Property Insurance Insurable interest in life insurance . ( CCC Insurance Corporation v CA 31 SCRA 264) 5) a license is not necessary. a person has insurable interest in the subject matter insured when: He has such a relation or connection with. it is as if he ha no license (Gutierrez v. 2. This is based on the principle that insurance is a contract of indemnity. the contract would in effect be a mere wager or gambling which is VOID. (Stokes vs. termination or injury by the happening of the event insured against. or concern in. • Purpose of “insurable interest” requirement: 1. The existence of insurable interest is necessary because its absence renders the contract VOID. susceptible of pecuniary estimation--. Generally. Malayan 127 SCRA 766) 4) A driver’s license that bears all the earmarks of duly issued license is presumed genuine. Pyramid Insurance 161 SCRA 677) 5. Capital Insurance 130 SCRA 618) 3) A tourist with license but in the country for more than 90 days is not authorized to operate a motor vehicle because it is as if he had no license. where the insured himself is the driver (Paterno v. such subject matter that he will derive pecuniary benefit or advantage from its preservation or will suffer pecuniary loss or damage from its destruction. Without such insurable interest.if it has expired.

either pecuniary or contractual or by blood or by affinity to expect some benefit from the continuance of life of the insured.Pertinent provisions of the Insurance Code: SECTION 10. • What is the extent of insurable interest in one’s life? He has unlimited interest in his own life or that of another person regardless of whether or not the latter has insurable interest. Every person has an insurable interest in the life & health: (a) (b) (c) Of himself. His interest is capable of exact pecuniary measurement. insurable interest of a creditor on the life of the debtor must exist only at the time of effectivity but also at the time of the death of the debtor – as in this instance it is a contract of indemnity. But. • What is the basis of insurable interest in life? It exist when there is reasonable ground founded on the relation of the parties. or in whom he has a pecuniary interest. or respecting property or services. It is meant to give financial security to the insured or his beneficiaries (Section 19). there is no force or bad faith. • When must insurable interest in life exist? Insurable interest in life must exist at the time of the effectivity of the policy and need not exist at the time of the death of the insured as life insurance is not a contract of indemnity. that if the beneficiary has no insurable interest. Of any person under a legal obligation to him for the payment of money. Provided. if he takes out a policy on the life of another and names himself as . Of any person on whom he depends wholly or in part for education or support. and Of any person upon whose life any estate or interest vested in him (d) depends. of his spouse & of his children. However. of w/c death or illness might delay or prevent the performance.

739 of the Civil Code. Family Code). (Philippine Health Care Providers Inc. it can be proven by proponderance of evidence in the same action nullifying the designation. where the insured designated his second wife as a beneficiary was upheld as the latter was not aware of the first marriage. 176. 12 2008 G. injury or other stipulated contingency to the extent agreed upon under the contract. 287. 3.beneficiary. where a common law wife of the insured who is married could not be named as a beneficiary and SSS vs. 80 SCRA 181. V. hence the following cannot be designated as beneficiaries. . medical or any other expense asising from sickness. petitioner is bound to indemnify any member who incurs hospital. Jun. except who are prohibited by law to receive donations from the insured. 167330) • WHO MAY INSURANCE? BE BENEFICIARIES IN LIFE Anyone. 17 SCRA 863. Those made between persons guilty of adultery or concubinage at the time of the designation. Note art. Note the cases of Insular Life vs. Ebrado. 2. NCC and Art. 1. The disqualification does not extend to the children of the adultery or concubinage in view of the express recognition of the successional rights of illegitimate children (Art. wife. Davac. Commissioner of Internal Revenue. he must have an insurable interest in the life of the insured. Under the agreement. thereof.R. NOTE: The insurable interest of every member of petitioner’s health care program in obtaining the health care agreement is his own health. NOTE: A prior conviction for adultery/concubinage is not required. Those guilty of the same criminal offense in consideration Those made to a public officer or his descendants/ascendants by reasons of his office.

NOTE: Pertinent Decisions of the Supreme Court Beneficiary in life and property insurance (2005 bar exams) SC Ruling: Under the law. It has no insurable interest on the merchandize insured because it remains with the spouses. The automatic assignment of the policy to the lessor is void for being contrary to law and public policy. Accordingly. it is only with the consent of all the beneficiaries that any change or amendment to the policy concerning the irrevocability of beneficiaries may be legally and validly effected. The lessor cannot validly be a beneficiary of the fire insurance policy taken by the spouses Cha. [Philippine American Life Insurance Company v. 2. Pineda (175 SCRA 416)] Insurable interest on property SC RULING: 1. The designation. . The proceeds of the fire insurance policy rightfully belong to the spouses cha. or agreement made with the insurance company to any change in or amendment to the policy without the consent of the said beneficiary. In this regard. even if he is a stranger and has no insurable interest in the life of the insured. must be in GOOD FAITH AND WITHOUT FRAUD OR INTENT TO ENTER INTO A WAGERING CONTRACT. the beneficiary designated in a life insurance contract cannot be changed without his or her consent because of the beneficiary’s vested interest in the policy. based on the provisions of the contract and the law applicable. however.• MUST THE BENEFICIARY HAVE INSURABLE INTEREST ON THE LIFE OF THE INSURED? It is recognized that the insured may name anyone he chooses except those disqualified to receive donations as a beneficiary in his life insurance. it is worth nothing that the beneficiary designation indorsement which forms part of the policy in the name of Rodolfo Dimayuga states that the designation of the beneficiaries is irrevocable and no right or privilege under the policy may be exercised.

The insurer cannot be compelled to pay the proceeds of the policy to the lessor who has no insurable interest on the property insured. (Spouses Nilo Cha v. CA Aug. 18, 1997, 2009).

• CAN THE BENEFICIARY BE CHANGED? The insured shall have the right to change the beneficiary he designated – unless he has expressly waived the right in the policy (Section 11); If he has waived the right, the effect is to make the designation as irrevocable. Note that the designation of the guilty spouse as irrevocable beneficiary is revocable as the instance of the innocent spouse in cases of termination of: (1) (2) (3) (4) a subsequent marriage; nullification of marriage; annulment of marriage; and legal separation (Art. 34, (4) Family Code

• WHAT IS THE EXTENT OF THE INTEREST OF THE IRREVOCABLE BENEFICIARY IN A LIFE INSURANCE CONTRACT? The beneficiary has a vested right that cannot be taken away without his consent. In fact should the insured discontinue payment of the premium, the beneficiary may continue paying. Neither can the insured get a loan or obtain the cash surrender value of the policy without his consent (Nario vs. Philamlife, 20 SCRA 434).Note: where the wife and minor children were named
irrevocable beneficiaries, wife dies, the husband seeks to change the beneficiaries with the consent of the children. The consent is not valid due to minority. (Philamlife vs. Pineda, 170 SCRA 416).

NOTE: 2005 BAR EXAM (NO. IX -1) Q: What are the effects of an irrevocable designation of a beneficiary under the Insurance Code? Explain. (2%)

A: The irrevocable beneficiary has a vested interest in the policy, including its incident such as the policy loan and cash surrender value. (Grogorio v. Sun Life Assurance Company of Canada, 48 Phil. 53 [1925])

2005 BAR EXAM (NO. IX- 2) Q: Jacob obtained a life insurance policy for P1 Million designating irrevocably Diwata, a friend, as his beneficiary. Jacob, however, changed his mind and wants Yob and Jojo, his other friends, to be included as beneficiaries considering that the proceeds of the policy are sufficient for the three friends.Can Jacob still add Yob and Jojo as his beneficiaries? Explain. (2%) A: The insured cannot add other beneficiaries as this would diminish the interest of Diwata who is the irrevocably designated beneficiary. The insured can only do so with the consent of Diwata.

• WHAT IS THE INTEREST OF AN IRREVOCABLE BENEFICIARY IN AN ENDOWMENT POLICY?

His interest is contingent as benefits are to be paid only if the assured dies before the specified period. If the insured outlives the period, the benefits are paid to the insured;

• WHAT IS THE EFFECT OF FAILURE TO DESIGNATE OR BENEFICIARY IS DISQUALIFIED

The benefits of the policy shall accrue to the estate of the insured;

• WHO RECOVERS IF PREDECEASES THE INSURED?

BENEFICIARY

If the designation is irrevocable, the legal representatives of the beneficiary may recover unless it was stipulated that the benefits are payable only “if living.” If designation is revocable, and no change is made, the benefits passes to the estate of the insured. The rule holds also if benefits were

payable “only if living” or “if surviving” and the beneficiary dies before the insured.

• *WHAT HAPPENS TO INTEREST OF THE BENEFICIARY IN LIFE INSURANCE WHERE HE WILLFULLY KILLS THE INSURED?

If the killing is willful, the interest is forfeited, if he is the principal, an accomplice, or an accessory. The nearest relative of insured gets the proceeds if not otherwise disqualified (Section 12). If not willful or felonious, the provision does not apply.

B. Insurable interest in property insurance
Pertinent provisions of the Insurance Code:
SECTION 13. Every interest in property, whether real or personal, or any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured, is an insurable interest.

SECTION 14. An insurable interest in property may consist in: (a) (b) (c) An existing interest; An inchoate interest founded on an existing interest; or An expectancy, coupled w/ an existing interest in that out of w/c the expectancy arises.

• In what does a person have insurable interest in property?

A person has insurable interest in property as every interest in property, whether real or personal, or any relation thereto, or

• What is the test or measure of insurable interest in property? Whether one will derive pecuniary benefit or advantage from its preservation or will suffer pecuniary loss or damage from its destruction. such as a warehouseman. (Section 17) . a mere contingent or expectant interest in anything. Expectancy must be founded on an actual right to the thing or a valid contract for it. A carrier or depository of any kind has insurable interest in the thing held by him such to the extent of his liability but not to exceed the value thereof (Sections 13. or divested). 14. (c ) An expectancy coupled with an existing interest in that out of which the expectancy arises. (b) An inchoate interest founded on an existing interest – (Defined: Interest in real estate which is not a present interest but which may ripen into a vested interest if not barred. It may consist of: (a) An existing interest. Note: 1. But. and 15). of such nature that a contemplated peril might directly damnify the insured is an insurable interest (section 13). not founded on contract or actual right to the thing is not insurable – as there is no insurable interest (Section 16). 2. extinguished.liability in respect thereof.

the general rule is no limit on the amount of insurable interest. Beneficiary must have an beneficiaries need not have insurable interest in property insurable interest on his life. until the interest in the thing and the interest in the insurance are vested in the same person. The exception is an insurance taken by the creditor on the life of his debtor. insured. 20) . 3.• Must the beneficiary in property insurance have insurable interest on the property insured? YES. In life insurance. (Sec. Taken on insured’s life. • Distinctions Insurable Interest in Life Insurable Interest in Property 1. In which case. • WHEN MUST INSURABLE INTEREST IN PROPERTY EXIST Must exist at the time the insurance takes effect and when the loss occurs but need not exits in the meantime (Section 19). as no contract or policy of insurance on property shall be enforceable. 10) • In relation to the need for the existence of insurable interest: GENERAL RULE: The effect of a change of interest in any part of a thing insured unaccompanied by a corresponding change in interest in the insurance. the value of interest in property insured. the insurable interest is limited only to the extent of the debt. No limit on the amount of 3. Except for the benefit of some person having insurable interest in the property insured. Must exist at the time the 1. Must exist at the time the policy policy is taken. (Sec. is taken and at the time loss occurs. suspends the insurance to an equivalent extent. 2. Insurable interest is limited to insurable interest. his 2.

a lease/mortgage. • WHAT CHANGE IS CONTEMPLATED An absolute transfer of the property not life. insurer is . does not avoid as to the others (Section 22). (Section 23) (5) A transfer of interest by one or several partners. who are jointly insured – to the others. separately insured by one policy. (4) A change of interest in one or more several distinct things. the liability of the insurer is fixed (3) A change of interest in one or more several distinct things.After a loss. • Note: There must be no stipulation against it – otherwise it is avoided. (2) A change of interest after occurrence of an injury and results in loss – does not affect the right of the insured to indemnity. Transfer to strangers avoid the policy (6) When notwithstanding a prohibition.No claim in insurance contract while it is suspended because it can happen that the insurable interest will be returned. EXCEPTIONS TO THE REQUIREMENTS OF INSURABLE INTEREST: (1) Life. health or accident insurance because they are not contracts of indemnity and insurable interest is not required at the time of loss. the consent of the obtained. does not avoid the insurance as to the insured. separately insured by one policy. . does not avoid insurance even though it has been agreed that the insurance shall lease upon an allocation of the thing insured. or owners in common. joint owners.

93) • REQUISITES OF DOUBLE INSURANCE 1. . 3. Interest insured is the same. 4. DOUBLE INSURANCE AND OVER INSURANCE • When does double insurance exist? Double Insurance exists where the same person is insured by several insurers separately in respect to the same subject and interest. (Sec. C. Subject insured is the same. Risk of peril insured against is the same. Same person is insured. There are several insurers. and 5. 2.(7) When the policy is so framed that it will insure to the benefit of whomsoever may become the owner during the continuance of the risk.

as against the full insurable value. he must hold such sum in trust for the insurers. the insured must give credit as against the valuation for any sum received by him under any policy without regard to the actual value of the subject matter insured. 5. Where the policy under which the insured claims is an unvalued policy. may claim payment from the insurers in such order as he may select up to the amount for which the insurers are severally liable under their respective contracts. A person may therefore procure two or more insurances to cover his property. However. Where the policy under which the insured claims is a valued policy. Where the insured receives any sum in excess of the valuation in case of a valued policy or the insurable value in case of an unvalued policy.Take Note: Double insurance is not prohibited by law. 2. for any sum received by him under the policy. according to their right of contribution among them. as between himself and the other insurers to contribute ratably to the loss in proportion to the amount for which it is liable under . In relation paragraph (4) – Each insurer is bound. 4. Insured. The rationale is to prevent the danger that the insured will over insure his property. 3. he must give credit. unless the policy otherwise provide. the insurer may insert an “Other Insurance Clause” which will prohibit double insurance. • EFFECTS OF INSURANCE OVER-INSURANCE BY DOUBLE 1.

the policy will be NULL and VOID. the liability of the company would be limited to its ratable proportion of the loss or damage (Also known as CONTRIBUTION CLAUSE) • TEST TO DETERMINE EXISTENCE OF DOUBLE INSURANCE Whether the insured. If there is no OTHER INSURANCE CLAUSE. in case of happening of the risk.his contract. then double insurance is allowed but the provisions of Section 94 must be followed because property insurance is a contract of indemnity. ALSO REFERRED TO AS THE PRINCIPLE OF CONTRIBUTION – WHICH HAS ALREADY BEEN INCOPORATED IN ALMOST ALL POLICIES – that should there be other insurances covering the same property. it is valid provided it must follow the provisions of the law. can directly benefited by recovering on both policies? If yes – there is double insurance. IS DOUBLE INSURANCE VALID? It depends. if there is prohibition in the policy then it is not valid. If there is an OTHER INSURANCE CLAUSE – one that prevents other insurance on the property except without the consent of the company – THEN IT WILL PREVENT ENFORCEMENT OF THE POLICY. but if there is no prohibition. .

one insurer is two or more sufficient.there must be .the total . it should cause its primary liabilities under policies insuring residents of the Philippines to be reinsured by another company authorized to transact an insurance business in the Philippines. When a foreign insurance company withdraws from the Philippines. When a non-life insurer insured in any one risk or hazard an amount exceeding 20% of its net worth. insurers. • REINSURANCE occurs when an insurer procures a 3RD person to insure him against loss or liability by reason of such original insurance.the value must amount of the always be in policies need excess of the not exceed the insurable value of the interest.DISTINGUSHING INSURACE OVER INSURANCE FROM DOUBLE DOUBLE OVER INSURANCE INSURANCE . . (Section 95) • WHEN IS REINSURANCE COMPULSORY? 1. • WHAT MUST BE COMMUNICATED WHEN THE ORIGINAL INSURER OBTAINS REINSURANCE? . insurable interest. the insurer needs reinsurance of the excess over such limit (Section 215 (1)) 2.

Example: A insures his house valued at 1 million to X insurance for 1.Except in automatic reinsurance treaties (when two or more insurance companies agree in advance that they will reinsure a part of any line of insurance taken by the other. . As a RULE. which is the liability of X Insurance. which are material to the risk (Section 96) • WHAT KIND OF CONTRACT IS REINSURANCE? It is presumed to be a contract of indemnity against liability. Since such contracts are self-executing and the obligation attaches automatically.2 million. the information required to be communicated herein could not influence the reinsurer in deciding whether or not to accept the reinsurance because it is automatZ representations of the original insured.5 Million. The house burns. and merely against damage (Section 97). The liability of Z insurance is only up to 1 million. Note: The subject of the reinsurance contract is the insurers risk not the property insured in the original policy – Thus. the liability of Z Insurance is still only up to what is paid by X Insurance OTHERWISE. it does not exceed the amount of reinsurance. the reinsurer is not liable to the reinsured for a loss under an original policy if the reinsured is not liable to the original policyholder. it is not necessary that the insurer first pay on the claim on the original policy before claiming from the insurer. the original insurer profits and thus violates that the principle that is a contract of indemnity. X insurance reinsured with Z insurance for 1.all information or knowledge he possesses whether previously or subsequently acquired. • WHAT IS THE EXTENT OF LIABILITY OF THE REINSURER? The liability of the reinsurer is measured by the liability of the reinsured to the original policy holder PROVIDED. What if the original insured and insurance company settles for less.

Hence only the reinsured can claim against the reinsurer. the mortgagee – to the extent of his credit. • WHO MAY INSURE A MORTGAGED PROPERTY? Both the mortgagor and the mortgagee may take out separate policies with the same or different companies. The mortgagor – to the extent of his property. the mortgagee’s interest is only up to the extent of his debt. (section 8) • WHAT ARE THE CONSEQUENCES WHERE THE MORTGAGOR INSURES THE PROPERTY MORTGAGED IN HIS OWN NAME BUT MAY THE .• WHAT IS THE INTEREST OF THE ORIGINAL INSURED IN THE CONTRACT OF REINSURANCE? The original insured has no interest in the contract of reinsurance (section 98). has an insurable interest equivalent to the value of the property. such that each of them may insure the same property for his own benefit. as owner. D. MULTIPLE OR SEVERAL INTERESTS ON SAME PROPERTY • INSURABLE INTEREST OF MORTGAGOR AND MORTGAGEE OVER MORTGAGED PROPERTY Both the mortgagor and mortgagee each have an insurable interest in the property mortgaged and this interest is separate and distinct from the other. While the mortgagor.

and at the time of his assent. The insurance is still deemed to be upon the interest of the mortgagor who does not cease to be a party to the original contract. prior to loss. the acts of the mortgagor cannot affect the rights of the assignee – Note the Union Mortgage Clause – creates the relation of insured and insurer between mortgagee and the insurer independent of the .LOSS PAYABLE TO THE MORTGAGEE OR ASSIGNS THE POLICY TO HIM? UNLESS THE POLICY PROVIDES OTHERWISE: a. the mortgagee cannot recover. Upon recovery by the mortgagee. e. since such is for both their benefits. Example: If notice of loss is required. Upon the occurrence of the loss. the mortgagee is entitled to recover to the extent of his credit and the balance if any to be paid to the mortgagor. if there is a violation of the policy by the mortgagor. if the policy is cancelled. Hence. the insurer assents to the transfer of the insurance from the mortgagor to the mortgagee. which would otherwise avoid the policy or insurance. the mortgagee may give it. (section 9). d. notice must be given to the mortgagor. will have the same effect although the property is in the hands of the mortgagee. Any act required to be done by the mortgagor may be performed by the mortgagee with the same effect if it has been performed by the mortgagor. c. Hence. b. imposes further qualifications on the assignee. If on the other hand. his credit is extinguished. making a new contract with him. Any act of the mortgagor.

The mortgagee after payment cannot collect anymore from the mortgagor BUT if he is unable to collect in full from insurer. LTD 1CAR 2) . • WHAT IS THE EFFECT OF INSURANCE PROCURED BY THE MORTGAGEE WITHOUT REFERENCE TO THE RIGHT OF THE MORTGAGOR? a. becomes subrogated to the rights of the mortgagee against the mortgagor and may collect the debt to the extent paid to the mortgagee. TAKE NOTE: A person who is interested in the safety and preservation of materials in his possession belonging to third parties because he stands either to benefit from their continued existence or to be prejudiced by their destruction. The mortgagee may collect from the insurer upon the occurrence of the loss to the extent of his credit.contract of the mortgagor. b. the mortgagor cannot collect the balance of the proceeds after the mortgagee is paid. c. A person having mere right of possession of property may insure it to its full value and in his own name. PHOENIX ASSURANCE CO. even when he is not responsible for its safekeeping. after payment to the mortgagee. has an insurable interest thereon which is not necessarily limited to the extent of his liability to the owners thereof. The mortgagor is not released from the debt because the insurer is subrogated in place of the mortgagee. The insurer. (ANG KA YU vs. d. any act of the mortgagor can no longer affect the rights of the mortgagee – the insurance contract is now independent of that with the mortgagor. he can recover from the mortgagor. e. Unless otherwise stated. In such case.

6. The perfection of the contract of insurance between the deceased and respondent corporation was further conditioned upon compliance with the following requisites stated in the application form: . paid P2. for a stipulated consideration. No.R.Delay in Acceptance Take Note of this case: “VIRGINIA A. on the other hand. Only when the applicant pays the premium and receives and accepts the policy while he is in good health that the contract of insurance is deemed to have been perfected.075. is a meeting of the minds between two persons whereby one binds himself. his application was subject to the acceptance of private respondent BF Lifeman Insurance Corporation. with respect to the other to give something or to render some service. one party undertakes to compensate the other for loss on a specified subject by specified perils. Offer and Acceptance/Consensuality 1. A contract. When Primitivo filed an application for insurance. CA (G. Under Article 1318 of the Civil Code. Insurance is a contract whereby. 112329 2000)” January 28. Perfection of the Contract of Insurance A. PEREZ vs.00 and submitted the results of his medical examination.

inasmuch as the applicant was already dead at the time the policy was issued. No contract of insurance. the health of the applicant at the time of the delivery of the policy is beyond the control or will of the insurance company.. There was non-fulfillment of the condition. unless unless the minds of the parties have met in agreement. Hence. it is only when the applicant pays the premium and receives and accepts the policy while he is in good health that the contract of insurance is deemed to have been perfected. (b) the premiums paid. like all other contracts. the non-fulfillment of the condition resulted in the non-perfection of the contract. the suspensive condition was the policy must have been delivered and accepted by the applicant while he is in good health. Rather. and (c) the policy must have been delivered to and accepted by the applicant while he is in good health. the condition is a suspensive one whereby the acquisition of rights depends upon the happening of an event which constitutes the condition. Its assent was given when it issues a corresponding policy to the applicant. . Under the abovementioned provision.there shall be no contract of insurance unless and until a policy is issued on this application and that the said policy shall not take effect until the premium has been paid and the policy delivered to and accepted by me/us in person while I/We. The condition imposed by the corporation that the policy must have been delivered to and accepted by the applicant while he is in good health can hardly be considered as a potestative or facultative condition. am/are in good health.A contract of insurance. In this case. the following conditions were imposed by the respondent company for the perfection of the contract of insurance: (a) a policy must have been issued. On the contrary. In the case at bar. however. The assent of private respondent BF Lifeman Insurance Corporation therefore was not given when it merely received the application form and all the requisite supporting papers of the applicant.

it is merely a proposal or an offer to make a contract. in the case at bar. before it shall take effect. nothing to be passed upon. however. to be binding from the date of application. and the policy was issued on December 2. .must be assented to by both parties. 1987. while it may have taken some time for the application papers to reach the main office. There can be no contract of insurance unless the minds of the parties have met in agreement. the application papers were forwarded to the head office on November 27. the same was acted upon less than a week after it was received. Delay in acting on the application does not constitute acceptance even though the insured has forwarded his first premium with his application. either in person or through their agents and so long as an application for insurance has not been either accepted or rejected. The processing of applications by respondent corporation normally takes two to three weeks. Delay in acting on the application not unreasonable so as to constitute gross negligence for which the insurance corporation may be penalized. The corporation may not be penalized for the delay in the processing of the application papers.Respondent corporation cannot be held liable for gross negligence. .12 In this case. 1987.). Under these circumstances. the longest being a month. one that leaves nothing to be done. or determined. It should be noted that an application is a mere offer which requires the overt act of the insurer for it to ripen into a contract. we hold that the delay could not be deemed unreasonable so as to constitute gross negligence 2. must have been a completed contract. 1987. the requisite medical examination was undergone by the deceased on November 1. Moreover. nothing to be completed. The contract. Delivery of Policy • DEFINE POLICY It is the written instrument in which a contract of insurance is set forth (Section 49.

• HOW IS IT CONSTRUED. The claim of the beneficiary that since the insured was illiterate and spoke Chinese only. 90 SCRA 236). or endorsements shall be attached. • FORM OF THE POLICY It shall be printed and may contain blank spaces and any word. Clauses – are forms containing additional stipulations. signature. Riders – are forms attached to the policy when the company finds it necessary to alter or amend the applicant’s answer to any question in the application. phrase. WHAT IF THE INSURED DOES NOT UNDERSTAND THE CONTENTS OF THE POLICY? Generally in favor of the insured and against the insurer. If after the original policy is issued. If there are riders. or warranties. The burden of proving that the terms of the policy have been explained is upon the party seeking to enforce it. No rider. CA. clause or mark. or number necessary to complete it shall be written in the blank spaces (Section 50). Note: if pasted or attached to the original policy at the time it was issued – the signature of the insured is not necessary to make it binding. clauses. symbol. warranties or endorsements purporting to be part of the contract of insurance and which are pasted or attached to the policy is not binding on the insured – unless the descriptive title of the same is also mentioned and written on the blank spaces provided in the policy. she could not be held guilty of concealment because the application and policy was in English (Tang vs. sign. Warranties – are written statement/stipulations inserted on the face of the contract or incorporated by proper words or reference . it must be countersigned by the insured unless applied for by the insured. clauses. printed or stamped on the policy unless the form of such application has been approved by the insurance commissioner.

Endorsements – are agreements not contained but may be written or attached to policy to change or modify a part thereof. (3) The premium.– where the insured contracts as to the existence of facts. • WHAT ARE COVER NOTES? It is a written memorandum of the most important terms of a preliminary contract of insurance intended to give protection pending investigation by the insurer of the risk or until the insurance of the formal policy (Section 52). a statement of the basis and rates upon which the final premium is to be determined. It is also known as binding slip or receipt or binder. if not the absolute owner. . (5) The interest of the insured in the property insured. circumstances or conditions – the truth of which are essential to the validity of the contract. or if the premium is to be determined at the termination of the contract. • WHAT MUST A POLICY SPECIFY? A policy must specify: (1) The parties whom the contract is made. (4) The property or life insured. (2) The amount to be insured except in open or running policies. (6) The risks insured against. (7) The period during which the insurance is to continue (Section 51).

00. a regular policy must be issued within 60 days from the date of issue of the cover note including within its terms the identical insurance. a policy shall be issued including in its terms the identical assurance found under the cover rate and the premium therefore. Vice-President or General Manager of the insurer that the risks involved and the extension do not violate the code. (3) It may be extended with the written approval of the commissioner but may be dispensed with by a certification of the President. (4) Insurance companies may impose a deposit premium equivalent to at least 25% of the estimated premium but in no case less than Php500.• EFFECTIVITY OF A COVER NOTE The effectivity of a cover note is 60 days – as within such period. NOTE THE FOLLOWING PROMULGATED BY COMMISSIONER: RULES THE HAVE BEEN INSURANCE (1) A cover note is valid for 60 days whether or not a premium is paid but may be cancelled by either party upon at least 7 day notice to the other party. . It may however. be extended beyond 60 days and with the written approval of the Insurance Commissioner if he determines that it does not violate the Insurance Code. (2) If the other note is not cancelled.

41 Phil 265). The cover notes should not be treated as a separate policy but should be integrated in the regular policy subsequently issued so that premiums on the regular policy should include that for the cover note (Pacific Timber vs. . a binding slip does not insure by itself as it was stated that it was subject to the approval of the insurer and the same was subsequently disapproved (Grepalife vs. Sunlife. as on acceptance of the application or issuance/delivery of the policy. CA. There is no protection as it is a mere acknowledgement of the payment of premiums as the effectivity of the insurance is expressly provided (Lim vs. 112 SCRA 199). (44 CJS 958) Example: (1) Agent issued a provisional policy acknowledging receipt of premiums and stating that the insurance shall be effective upon approval and issuance of the policy by the head office.• WHEN WILL A COVER NOTE GIVE ADEQUATE INSURANCE PROTECTION? It gives adequate insurance protection when it is a preliminary contract of present insurance and not a mere agreement to insure a future time. No separate premiums are intended or required to be paid on a cover note because they do not contain particulars of the property insured that would serve as the basis for the computation of premiums – such being the case no premium can be fixed. • IS PAYMENT OF A PREMIUM PAYMENT FOR THE COVER NOTE NECESSARY TO BE PROTECTED AGAINST RISK INSURED AGAINST? Cover note held to be binding despite the absence of a premium payment for its issuance. 89 SCRA 546). CA. (2) In life insurance.

and that third persons have no right to the proceeds of the insurance. • MAY A 3RD PERSON SUE THE INSURER? No. not by the law covering donations or succession. in general rule unless there is stipulation. the designation of a sister as a sole beneficiary in life insurance cannot be defeated by the contention of the plaintiff that the proceeds belong to the estate of the insured was disregarded as insurance is to be governed by special law. Reyes is the one entitled to the proceeds because a policy of insurance is a separate and independent contract between the insured and the insurer. G. Reyes. . Example: (a) In the case of Del Val vs. vs. 29 May 1967. (b) In the case of Bonifacio Bros. Del Val.R. the mortgagee of the vehicle who had no knowledge of the fact that Mara had it repaired with Bonifacio Bros. No. a 3RD person may sue if: (a) The insurance contract contain stipulation in favor of a 3RD person. 29 Phil 534.S. 20853.• WHOSE INTEREST IS INSURED (1) The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or for whose benefit it is made unless otherwise specified in the policy (Section 53). the latter though not a party may sue to enforce before the contract is revoked by the parties.S. where the court ruled that H. Mara. Unless otherwise specified in the policy. action to recover cost of repairs and labor to a motor vehicle where the policy states loss is payable to H..

26 SCRA 179. the insurance company undertook to indemnify any authorized driver who was driving the motor vehicle insured. If not indicated. . Fieldmens Insurance Co. A jeepney covered by the insurance had bumped Guingon and had caused his death. His heirs were allowed to sue the insurer. (2) If the contract is executed with an agent or trustee as the insured. it is as if the insurance is the taken out by the agent/trustee alone. The test to determine whether a 3rd person may directly sue the insurer of the wrongdoer is: if the contract provides indemnity against liability to 3RD persons. then the latter to whom the insured is liable may directly sue the insurer. such third person is entitled to sue the insurer. (b) The insurance contract provides for indemnity against liability to 3RD persons. which he may be legally liable to pay in respect to the death or bodily injury to any person. the fact that his principal or beneficiary is the real party in interest may be indicated by describing the insured as the agent/trustee or by general words in the policy (Section 54). if the insurance if for the indemnity against actual loss or payment – then the 3rd person cannot sue the insurer – recourse is against the insured alone. Coquia. Del Monte. while driving the insured motor vehicle met an accident and died. and therefore.Example: In case of Coquia vs. 20 SCRA 1043. The insurance was held to be one for indemnity for liability to third persons (Third Party Liability). the insured procured insurance that would indemnify him against any and all sums. the policy being considered in the nature of a contract pour autrui and therefore the enforcement thereof may be demanded by a 3rd party whose benefit it was made. on the other hand. Example: In the case of Guingon vs. consequently the principal has no right against the insurer.

In case of loss.(3) If a partner or part owner effects insurance. Note the exceptions to this rule as found in sections 20-24 and 57. it is only the interest of the one getting the policy that is insured. (4) When the description of the insured in the policy is so general that it may comprehend any person or any class of persons. The proceeds become payable to who may be the owner at the time the loss or injury occurs. This is an exception to section 20. What is mentioned. if not. . it is necessary that the terms of the policy should be such as are applicable to the joint or common interest so that it may be applicable to the interest of his co-partners/owners (Section 55). (5) When a policy is so framed that it will inure to the benefit of whomsoever. • WHAT ARE KINDS OF INSURANCE POLICIES? The kinds of policies are (1) Open. but is left to be ascertained in case of loss (Section 60). only he who can show that it was intended to include him can claim the benefit of the policy (Section 56). Consequently. (2) Valued. during the continuance of the risk may become the owner of the interest insured (Section 57). An Open Policy is one in which the value of the thing insured is not agreed upon. or (3) Running (Section 59). the policy must state that the interest of all is insured. (6) 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 (Section 58). as the amount is not the value of the property but merely the maximum limit of the insurer’s liability.

the insurer only pays the actual cash value at the time of loss. . the insured must prove the value of the thing insured. the value is not agreed but left to be ascertained upon loss. which expresses on its face that the thing insured shall be valued at a specified sum (Section 61). In the absence of fraud or mistake. This is also known as a Floating Policy – usually issued to provide indemnity for property. by additional statements or indorsements (Section 62). such value will be paid in case of a total loss. which cannot be covered by specific insurance because of a frequent change in location and quantity. The valuation of the property insured is conclusive between the parties. (2) In a valued policy. Example: Insurance procured by a retail establishment to cover its inventory that fluctuates in quantity. proof of value of the thing after the loss is not necessary. In an open policy. In an open policy. A Running Policy (Floating 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. or is located in several areas. A Valued Policy is one. • VALUED POLICY DISTINGUISHED FROM AN OPEN POLICY (1) In a valued policy. the parties have conclusively stipulated that the property insured is valued at a specified sum.

No notice of . (3) POEA/DOLE have the power to compel a surety to make good on a solidary undertaking in the same proceeding where the liability of the principal obligor is determined.Note: this does not violate the principle that a contract of insurance is a contract of indemnity as long as the valuation is reasonable and is bonafide). • CANCELLATION OF THE POLICY If policy other than life shall be cancelled by the insurer except upon prior notice thereof to the insured. 15 SCRA 389) • WHERE IS THE ACTION FILED? The action may be filed in the following: (1) Courts.00. • WHAT IS THE PRESCRIPTIVE MOTOR VEHICLE INSURANCE? PERIOD OF One year from denial of the claim – not date of accident – (Summit Guaranty vs. Note that the claim becomes action upon filing with the court.000. (2) Insurance Commissioner. who has concurrent jurisdiction with courts for claims not exceeding Php100. De Guzman.

(6)Determination by the insurance commissioner that continuation of the policy would place the insurer in violation of the code.cancellation shall be effective if not based on the occurrence. . after effective date of one or more grounds: (Section 64) (1)Non payment of premium. (2) That upon written request of the named insured. (5)Physical changes in the property insured which the result in the property being uninsurable. and. mailed or delivered to the name insured at the address shown in the policy which shall state: (1) The grounds relied upon as per section 64. • FORM OF NOTICE OF CANCELLATION It must be in writing. (4)Discovery of willful or reckless acts or omissions increasing the hazard insured against. (2)Conviction of a crime arising out of acts increasing the hazard insured against (3)Discovery of material representation. the insurer will furnish the facts on which cancellation is based (Section 65).

Philippine International Surety Co. • IS THE INSURED HAVE THE RIGHT TO RENEW HIS POLICY? Yes. Premium Payment • What is a premium? . 1981. 8 SCRA 143). he has not been given notice by the insurer of the intention not to renew or to condition renewal upon reduction of limits or elimination of coverages by mail or delivery at least forty five days in advance of the end of the policy. Held: Considering the strict language of the law that no policy can be cancelled without prior notice – it behooved on the insurer to make sure that cancellation was actually sent and received by the insured (Malayan vs. if. The notice is personal to the insured and not to any unauthorized person (Saura Import Export vs. (2)A insured his building against fire and made the loss payable to mortgagee. in insurance other than life. Arnaldo. the named insured.. Inc. The insurer’s clerk allegedly got notice of cancellation by mail but there was no proof that it was actually mailed and received.Notes: (1) A fire insurance policy is cancelled on October 15. Upon cancellation notice was sent to the mortgagee. 156 SCRA 762). B. may renew the policy upon payment of the premium due on the effective date of the renewal. Insurer relies on the presumption of regularity.. Held: There was no valid notice of cancellation.

(2)When the insurer makes a written acknowledgement of the receipt of premium. payment by installment has been agreed . Notwithstanding any agreement to the contrary. However. it is conclusive only to make the policy binding and not for the purpose of collecting premium. (3)Where the obligee has accepted the bond or suretyship contract in which case such bond or suretyship contract becomes valid and enforceable irrespective of whether or not the premium has been paid by the obligor to the surety (Section 177.) • WHAT IS THE EFFECT OF PARTIAL PAYMENT? Ordinarily. such is conclusive evidence of the payment of the premium to make it binding notwithstanding any stipulation therein that it shall not be binding until the premium is paid (Section 78) HENCE. the obligation to pay premium when due is considered an indivisible obligation. forfeiture is not prevented by a part payment unless.The agreed price for assuming and carrying the risk. • WHEN IS THE PREMIUM? INSURER ENTITLED TO A The insurer is entitled to the payment of a premium as soon as the thing insured is exposed to the peril insured against. and. the effect of an acknowledgement in a policy or contract of insurance of the receipt of the premium – is that it is conclusive evidence of payment – so far as to make the policy binding. Hence. no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium is paid except in: (1)In case of life or industrial life (life insurance policy where the premium is payable monthly or oftener) whenever the grace period applies (Section 77).

CA – 257 SCRA 126 – any partial payment when there is an agreement that the policy shall not be effective pending payment of full premium was in the concept of deposit. (See Philippine Phoenix Surety and Ins.upon or is the established practice – the basic principles of equity and fairness would not allow the insurer to collect and accept installments and later deny liability as premiums were not paid in full. Reinstatement of a Lapsed Policy of Life Insurance E. vs. Refund of Premiums • WHEN IS THE INSURED ENTITLED TO A RETURN OF THE PREMIUMS PAID? The insured is entitled to a return when: . Non-Default Options in Life Insurance D. payment by installment was agreed upon.) Note: PAYMENT TO INSURANCE AGENT OR BROKER is payment to the insurance company. Woodworks – 20 SCRA 1270. art. • WILL PAYMENT BY PROMISORY NOTE OR CHECK BE SUFFICIENT TO MAKE THE POLICY BINDING? No. Makati Tuscany Condominium Corporation vs. that such produces payment only when it is ENCASHED. C. CA. note also Tibay vs. 1249 2ND paragraph of the Civil Code.

(Section 81). Here the insurance is in excess of the amount of the insurable interest of the insured and it is insured by several insurers. (c) the policy is a life insurance policy – it is indivisible but he has a cash surrender value. when no part of the interest in the thing insured is exposed to any of the perils insured against (Section 79 –A). Example: If the policy is in force for a month the insurer retains 20% of the premium) has been agreed upon. the existence of which the insured was ignorant without his fault (Section 81). (b) a short period rate (insurance is for a period of less than a year and a rate has been agreed to if the policy is surrendered. (3) When the contract is voidable on account of fraud or misrepresentation of the insurer or the agent (Section 81). (6) In case of over insurance. (2) Where the insurance is made for a definite period of time and the insured surrenders his policy before the expiration of the period. the insured is entitled to a RATABLE RETURN OF PREMIUM. (4) Where the contract is voidable on account of facts.(1) To the whole premium. (5) When by any default of the insured other than actual fraud. the insurer never incurred any liability under the policy. here the insured only recovers a portion of the policy premiums corresponding with the unexpired time but it does not apply if: (a) the policy is not so definite. . proportional to the amount by which the aggregate sum insured in all the policies exceeds the insurable value.

• WHOM ARE THE PREMIUMS RETURNED? Unless otherwise stated. Rescission of Insurance Contracts A. Concealment • WHAT IS CONCEALMENT? Concealment is a neglect to communicate that which a party knows and ought to communicate (Section 26) . WHEN ARE THEY NOT RECOVERABLE? Premiums cannot be recovered: (1) If the peril insured against has existed. (3) When the insured is guilty of fraud or misrepresentation (Section 81). (2) In life insurance – (Section 79-b) cash surrender value. 7. the period being entire and indivisible (Section 80). and the insurer has been liable for any period. they shall be returned to the insured who paid them.

Lukes hospital where he was diagnosed for lung cancer. he was examined and confined at St. It is sufficient that his non-disclosure misled the insurer in forming his estimate of the risks of the proposed insurance policy or in making inquiries. NOTE: 2001 BAR EXAM (N0. The insured did not inform the insurer that one week prior to his application for insurance. It is well settled that the insured need not die of the disease he failed to disclose to the insurer. (2) The father of the insured obtained an insurance policy over his daughter. . but did not disclose that she was a mongoloid child. The insured soon thereafter died in a plane crash. CA 89 SCRA 543) • BASIS OF PROVISIONS CONCEALMENT/REPRESENTATION ON Fundamental characteristic of a contract of insurance that it is one of perfect/utmost good faith.XVI): A applied for a non-medical life insurance. Examples: (1) The insured does not disclose sickness but dies of another cause. the concealment relieves the insurer of liability (Grepalife vs. The concealed fact is material to the approval and issuance of the insurance policy.• WHAT IS THE EFFECT OF CONCEALMENT? Whether intentional or not. it entitles the injured party to rescind the contract of insurance (Section 27). There is concealment because it is material to a determination of the assumption of risk by the insurer. Is the insurer liable considering that the fact concealed had no bearing with the cause of death of the insured? Why? A: No. the child dies of influenza.

Note that even if a party did not know of the existence at the rime of application but before its effectivity. Information acquired after effectivity is not concealment and does not constitute ground to rescind the policy. • WHAT IS THE TEST OF MATERIALITY? . facts known after effectivity but before reinstatement must be disclosed. However. there is concealment. a party must have knowledge of the fact concealed at the time of the effectivity of the policy. • HOW IS THE CONCEALMENT DETERMINED? MATERIALITY OF THE OR REPRESENTATION Materiality is determined not by the event. information subsequently acquired is no longer material as it will not affect or influence the party to enter into contract. in forming his estimate of the disadvantages of the proposed contract or in making his inquiries (Section 31). • AS OF WHAT TIME MUST THE PARTY CHARGED WITH CONCEALMENT HAVE KNOWLEDGE OF THE FACT CONCEALED? Generally. in case of the reinstatement of a lapsed policy. but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due. as after the policy is issued.• WHO MUST PROVE KNOWLEDGE OF THE FACT CONCEALED? The party claiming existence of concealment must prove that there was knowledge on the part of the party charged with concealment.

245 SCRA 269. it would not have accepted the risk or demanded a higher premium. He dies in plane crash. is the insurer liable? No. since the fact concealed was material though the insured did not die therefrom (Henson vs. (b) Fact/s must be material to the contract – it must be of such nature that had the insurer known of it. be of facts which about or contribute to or are connected of the insured’s loss. Insured had concealed that he had kidney disease.The test of materiality is whether knowledge of the true facts could have influence a prudent insurer in determining whether to accept the risk or in fixing the premiums. It is immaterial that there is no causal relationship between the fact concealed and the loss sustained. Philam 50 OG 73428). It is sufficient that the nonrevelation has misled the insurer in forming its estimate of disadvantage of fixing the premium. Examples: Insured concealed kidney disease and enlarged liver – later he died of thrombosis. • WHAT FACTS MUST BE COMMUNICATED? Each party to an insurance contract is bound to communicate to the other all facts that meet the following requisites: (a) Such fact that must be within his knowledge – as concealment requires knowledge of the fact concealed by the party charged with concealment. CA. The insurer is not liable (Sunlife vs. (c) That the other party had no means of ascertaining such fact/s. (d) That the party with a duty to communicate makes no warranty (Section 28) – as the existence of a warranty make the . • MUST THERE BE A CAUSAL CONNECTION BETWEEN THE FACT CONCERNED AND THE CAUSE OF THE LOSS? Not necessary Concealment need not be material.

(4) Those which prove or tend to prove the existence of a risk excluded by a warranty. the former has no reason to suppose him to be ignorant. and which are not otherwise material. and of which. the other ought to know. . • WHAT MATTER COMMUNICATED? NEED NOT BE Except in answer to the inquiries of the other: (1) Those which the other knows – as the insurer cannot say that it has been deceived or misled. an omission to state that there are neighboring buildings will not avoid policy. The facts that the other ought to know as per section 32 are: (3) Those of which the other waives communication. Insurer had surveyed the location and surrounding area of a building that it is to be insured against fire. 74 Phil 468). A waiver takes place either. Feliciano. Example: Insured discloses that he has tuberculosis to he agent of the insurer. who in turn omits to state the same in the application of the insured was deemed knowledge of the insurer (Insular Life Assurance Co. (2) Those which in the exercise of ordinary care. vs.requirement to disclose superfluous but – an intentional fraudulent omission on the part of the one insured to communicate information on a matter proving or tending to prove falsity of a warranty entitles the insurer to rescind (Section 29). by the terms of the insurance or by he neglect to make inquiries as to such facts where they are distinctly implied in other facts of which information is communicated (section 33).

The insurance company refused to pay for breach of the insurance contract. The facts concealed would have affected the insurer’s action on the application either by charging a higher rate of premium or rejecting the same. OF CANADA VS. and 2001 Bar Exams) Robert Bacani was issued life insurance non-medical policy for P100. he concealed his confinement at the Lung Center of the Philippines for certain illness. Note: SUNLIFE ASSURANCE CO. SC RULING: The SC reversed the ruling and held that the information which the insured failed to disclose was material and relevant to the approval and issuance of the policy. 1995 (1996. CA. and which are not otherwise material (section 30). The contract of insurance can be rescinded by reason of concealment and this has to be exercised within the two year contestability period. 1997. In his application.00 with his mother as beneficiary. Misrepresentation/Omissions • WHAT IS REPRESENTATION? Oral or written statement of a fact or a condition affecting the risk made by the insured to the insurance company. It is sufficient that his nondisclosure misled the insurer in forming his estimate of the risk involved or in making inquiries.RTC and CA granted the claim of the beneficiary because the concealed facts were not material or irrelevant to the cause of death. B. JUNE 22. He died of a plane crash.(5) Those which relate to the risk exempted from the policy. tending to induce the insurer to take the risk (Section 36) .000. The insured need not die of the disease he concealed.

Hence. . In case of a promissory representation. Note that it can also be made after the issuance of the policy when the purpose thereof is to induce the insurer to modify an existing insurance contract – as the provisions also apply to a modification (Same with concealment) • HOW SHOULD CONSTRUED? REPRESENTATION BE The language of a representation is to be interpreted by the same rules as the language of the contracts in general (section 38). • WHAT ARE THE FORMS REPRESENTATION? AND KINDS OF Representations may be Oral or Written and can either be: (a)Affirmative – which is an affirmation of a fact existing when the contract begins.• WHEN MAY REPRESENTATION BE MADE? Since it is an inducement to entering a contract – it must ordinarily be made at the same time as or before – the insurance of the policy (section 37). it is sufficient if it is substantially or materially true. it need not be literally true and correct/accurate in every respect. it is sufficient if it is substantially complied with. rather.

as long as the insurance has not yet been effected and the insurer has not yet been induced to issue the policy. • CAN A REPRESENTATION BE WITHDRAWN OR ALTERED? Yes. • IS A REPRESENTATION CONTRACT? PART OF THE No. • TO WHAT DATE DOES A REPRESENTATION REFER? It must be presumed to refer to the date on which the contract goes into effect (section 42). . the contract can be rescinded as the insurer has already been led to issue the policy (section 41). If withdrawn or altered afterwards.(b) Promissory – which is a statement by the insured concerning what is to happen during the term of the insurance. it cannot qualify as an express provision in a contract (it is a collateral inducement to the contract but it may qualify an implied warranty (section 40).

there can be no misrepresentation. If he does communicate. as knowledge of the agent is also knowledge of the principal. he is not responsible for its truth (section 43). Hence. • WHEN IS A REPRESENTATION SAID TO BE FALSE? When the facts fail to correspond with its assertions or stipulations (Section 44) • MUST THE INSURED COMMUNICATE INFORMATION OF WHICH HE HAS NO PERSONAL KNOWLEDGE BUT MERELY RECEIVES THE SAME FROM OTHERS? When a person has no personal knowledge of facts – he may or may not communicate such information to the insurer.Note: There is no false representation if it is true at the time the contract takes effect although false at the time it is made. • WHEN IS THE INSURED REQUIRED TO DISCLOSE INFORMATION FROM A 3RD PERSON? When the information material to the transaction was acquired by an agent of the insured. • WHAT IS THE EFFECT OF MISREPRESENTATION ON A MATERIAL POINT? .

But there is no waiver – if the insurer had no knowledge of the ground at the time of the acceptance of the premium.If it is false on material point. 51 Phil 80. the right to rescind is considered waived by the acceptance of premium payments despite knowledge of the ground to rescind (section 45). where an insurer interposed the defense in an action to claim the proceeds that the contract is null and void. 127 SCRA 766) • HOW IS MATERIALITY DETERMINED? The same as concealment (Section 46) probable and reasonable influence of the facts upon the party to whom the representation is made in forming his estimate of the advantage/disadvantages of the contract or I making inquiries. It is also qualified by 2nd paragraph of section 48 which provides that after a policy of life insurance payable on the .. • WHEN IS THE RIGHT TO RESCIND SUPPOSED TO BE EXERCISED? The right to rescind must be exercised previous to the commencement of an action on the contract (section 48). Note the case of Tan Chay Hing vs. (b)Unauthorized driver (Strokes vs. Malayan. whether affirmative or promissory – the injured party is entitled to rescind the contract from the time the representation becomes false. Examples: (a)Insurer was aware of the lack of the extinguishers required by the policy. West Coast Life Insurance Co. Section 48 was held to apply only when there is a contract to rescind. However.

• REQUISITES OF INCONTESTABILITY CLAUSE The requisites are: (1) It is a life insurance policy.death of the insured shall have been in force during the lifetime of the insured for a period of 2 years from the date of issue or its last reinstatement. (b)On part of the insured – its object is to give the greatest possible assurance that the beneficiaries would receive payment of the proceeds without question as to validity or the policy. (3) It has been in force during the lifetime of the insured for at least two years from date of issue/or last reinstatement. . (2) It is payable on the death of the insured. the insurer cannot prove that the policy is void ab initio or is subject to rescission by reason of a fraudulent concealment or misrepresentation of the insured or his agent (known as the incontestability clause). it should no longer be permitted to question its validity. • WHAT IS THE THEORY AND OBJECT BEHIND THE INCONTESTABILITY CLAUSE? (a) On the part of the insurer – an insurer has/should have a reasonable opportunity to investigate the statements which are made by the applicant an that after a definite period.

where the insured substituted another for the medical examination. On April 26. 174 SCRA 403 – during the lifetime of the insured means that the policy is no longer in force if the insured dies. (3)that the cause of death was excepted or not covered by the terms of the policy. The beneficiaries claimed but the insurer denied the claim on September 11. • WHAT DEFENSES ARE NOT BARRED BY INCONTESTABILITY EVEN AFTER THE LAPSE OF 2 YEARS? (1)non-payment of premiums. . policy was taken in furtherance of a scheme to murder the insured. 1973.Tan vs. CA. (6)the necessary notice or proof of death was not given. (5)violation of a condition in the policy relating to military or naval service in time of war. where the beneficiary feloniously killed the insured. 1975 the insured died. (7)action is not brought within time specified in the policy. c. which in no case should be less than 1 year as per section 63. b. (4)that the fraud was of a particular vicious type such as: a. Facts: Philam issued policy on November 6. 1975 and rescinded the policy on the ground of misrepresentation and concealment. (2)lack of insurable interest. Held: Insurer has two years from date of issue/reinstatement within which to contest the policy whether or not the insured still lives within the period.

• CONCEALMENT COMPARED AND REPRESENTATION 1. In concealment – the insured withholds information of material facts.• WHAT ARE THE INCONTESTABILITY? EFFECTS OF The insurer can no longer escape liability. tender the policy or be allowed to prove that the policy is void ab initio or may be rescinded by reason of concealment or misrepresentation by the agent of the insured or the insured. The information he gives in compliance with his duty to reveal information is representation. Representation therefore is the communication required to comply with the prohibition against concealment. Concealment is the passive and misrepresentation is the active form of the same bad faith. • DISTINGUISH CONCEALMENT REPRESENTATION FROM Concealment is the neglect of one party to communicate to the other material facts. . while in representation – the insured makes erroneous statements.

5. What is essential is what the parties intend a statement to be and if so intended as a warranty it must be included as part of the contract. Whether the concealment or representation is intentional or not. . the injured party can rescind.2. whereby the insured – expressly or impliedly (Section 67) contracts as to the past. Since insurance contracts are of utmost good faith – the insurer is also covered by the rule. The materiality of concealment and representation are determined by the same rules. present or future (Section 68) existence of certain facts. conditions or circumstances – the literal truth of which is essential to the validity of the contract. C. In concealment and misrepresentation both give the insurer the right to rescind the contract of insurance. Breach of Warranties • Warranty defined It is a statement or promise stated in the policy or incorporated therein by reference. • FORM No particular form of words is necessary to create a warranty (Section 69). 4. 3.

(3) Express – a statement in a policy of a matter relating to the person or thing insured or to the risk as a fact (Section 71) and where the assertion or promise is clearly set forth in the policy or incorporated therein by reference. (2) In case of doubt. which imparts that it is intended to do or not to do a thing which materially affects the risk.Note: (1) Whether a warranty is constituted or not depends upon the intention of the parties. Note that unless the contrary intention appears. (2) Promissory – those where the insured promises or undertakes that certain matters shall exist or will be done or will be omitted after the policy takes effect. the statement is presumed to be a representation not a warranty. • WHAT ARE THE KINDS OF WARRANTIES? (1) Affirmative – those that relate to matters that exist at or before the issuance of the policy. is a warranty that such act or omission shall take place (Section 72). They can be affirmative or promissory warranties. This includes . or the words used thereto. the courts will presume that the warranty is merely an affirmative warranty. the nature of the contract. An express warranty made at or before the execution of the policy should be contained (a) in the policy itself (b) in another instrument signed by the insured and referred to in the policy as making a part of it (Section 70). It is a statement in the policy.

a rider – it is a part of the policy, it need not be signed unless the rider was issued after the original policy took effect;

(4) Implied – where the assertion or promise is not expressly set forth in the policy but because of the general tenor of the terms of the policy or from the very nature of the insurance contract, a warranty is necessarily inferred or understood. Note that the law only provides for implied warranties in contracts of marine insurance. See section 113 (seaworthiness) and 126 (deviation).

• EFFECT OF VIOLATION OF A WARRANTY

The violation of a material warranty, or other material provision of the policy, on the part of either party thereto, entitles the other to rescind (Section 74.)

Note that the insured can exercise the right also when the insurer violates a warranty, like when it refuses to grant a loan on the policy. But as far as the insured,

Note also that:

(1) While a policy may declare that a violation of a specified provisions thereof shall avoid it, otherwise the breach of an immaterial provision does not avoid the policy (Section 75). Meaning ordinarily a breach of an immaterial provision does not avoid a policy, however, if stipulated that any breach avoids the policy, the policy is avoided;

(2) A breach of a warranty without fraud, merely exonerates an insurer from the time it occurs, or where it is broken at its inception, prevents the policy from attaching

to the risk (Section 76). Meaning – that if the breach is without fraud – the policy is avoided only from the time of the breach it is still effective. Consequently, the insured is entitled to a pro-rate return of the premium paid under section 79 (b) or all premiums, if the breach occurs at the inception of the contract, as such is void ab initio and had never become binding;

Note that a causal connection between the violation of the warranty is not necessary – So, even if the violation did act contribute in the loss – the other party may still rescind.

Example: A insured building against fire. A warranty stated that no hazardous goods should be stored. A stored fireworks. The building was burned and the fireworks were discovered stored in the area not affected by the fire. The insurer was not held liable as the storage had increased the risk (Young vs. Midland Textiles Ins. – 30 Phil 617);

• THE NON PERFORMANCE OF A PROMISSORY WARRANTY DOES NOT AVOID THE POLICY WHEN BEFORE THE ARRIVAL OF THE TIME FOR PERFORMANCE

(1)

The loss insured against happens;

(2)

The performance becomes unlawful at the place of the contract;

(3)

The performance becomes impossible.

DISTINGUISHING IT FROM REPRESENTATIONS

WARRANTY • A warranty is part of the contract; • A warranty is expressly set forth in the policy or incorporated therein by reference;

REPRESENTATIO N • Repre sentation is merely a collateral inducement thereto; • A Representation my be oral or written in another statement;

•A warranty must strictly and literally performed;

• Representation must be substantially true;

• A warranty presumed material;

is • A representation must be shown to be so;

•A breach of warranty is a breach of the contract itself

• (mis)representati on is a ground to rescind the contract;

8. Claims Settlement and Subrogation

A. Notice and Proof of Loss

When the insurer denies liability on a ground other than that defect in the notice or proof of loss. • WITHOUT UNNECESSARY DELAY is within a reasonable time. the insurer is exonerated (Section 88). depending on circumstances of a peculiar case. 2. IF NOT THEN. and data necessary to enable it to determine liability and the amount thereof) IT IS NOT NECESSARY that the insured give such proof – AS MAY OR WOULD BE NECESSARY IN A COURT OF JUSTICE WHAT IS SUFFICIENT is the BEST EVIDENCE which he has in his power at that time (Section 89). • PROOF OF LOSS If the policy requires Preliminary Proof of Loss (evidence given the insurer of the occurrence of the loss. although courts have construed the requirement liberally in favor of the insured. its particulars. When the insurer fails to specify to the insured any defect which the insured can remedy without delay. Example: Denial is based on nullity of the contract (Section 90) • WHEN IS DELAY IN THE GIVING OF NOTICE WAIVED .• NOTICE AND PROOF OF LOSS Notice of loss must be given without unnecessary delay by the insured or some person entitled to the benefit of the insurance. • WHEN ARE DEFECTS IN THE NOTICE OR PROOF LOSS DEEMED WAIVED BY THE INSURER 1.

the insured can furnish REASONABLE EVIDENCE to the insurer that such refusal WAS NOT INDUCED BY ANY JUST GROUNDS OF DISBELIEF in the facts necessary to be certified or testified – ONCE SHOWN or GIVEN the requirement may be dispensed with (Section 92). Unfair Claims Settlement. 3. Guidelines on Claims Settlement 1. the insurer does not object (Section 91). Sanctions • Claims of Settlement The indemnification of the loss of the insured. • REQUIREMENT OF CERTIFICATION TESTIMONY OF A THIRD PERSON OR In the giving of preliminary proof of loss. the unsured can recover: . In case of an unreasonable delay/denial in the payment of the insured’s claim by the insurer. a certification or testimony of a third person other than the insured is required. In case of REFUSAL to give it. If the insurer omits to make an objection promptly and specifically on that ground. If it is caused by any act of the insurer. it is sufficient for the insured to use REASONABLE DILIGENCE to procure it. – despite delay.1. B.

Attorney’s fees b. Expenses incurred by reason of the unreasonablewithholding. Except: Refusal of failure to pay the loss or damage will entitle the insured to collect interest unless such refusal or failure to pay is based on the ground that the claim is fraudulent. it is maturing upon the expiration of the term or at the death of the insured. If maturing upon the expiration of the term. Amount of the claim. the proceeds are immediately payable to the insured. except if the proceeds are payable in installments or annuities. If maturing upon death of the insured. • When should claims be paid? In case of life policies. the proceeds are payable to the beneficiaries within 60 days after presentation of the claim and filing of proof of death. Prescription of Action • RULES . • Effect of refusal or failure to pay claim within the time prescribed The insurer shall be liable to pay interest “twice the ceiling prescribed by the Monetary Board” which means twice 12% per annum (legal rate of interest prescribed in CB No 416) or 24% per annum on the proceeds of the insurance from the date following the time prescribed in Secs. Interest at double the legal interest rate fixed by the Monetary Board. and d. c. occurring prior to the expiration of the term stipulated.a. which shall be paid as they become due. 2. until the claim is fully satisfied. 242 or 243 of the Insurance Code.

provided such period is not less than one (1) year from the time the cause of action accrues. (Sun Life Office. such agreement is VOID. 1991) 2. claimant’s right of action shall prescribe. In Compulsory Motor Vehicle Insurance. should be filed within one year from the date of the denial of the claim by the insurer.1. otherwise. March 13. the written notice of claims must be filed within 6 months from the date of the accident. The suit for damages. the prescriptive period should be counted from the date of the claim was denied and not at the first reconsideration. the insured may bring the action within ten (10) years in case the contract is written. Subrogation • WHAT HAPPENS AFTER PAYMENT BY THE INSURER SUBSEQUENT TO GIVING OF NOTICE OF LOSS? . 3. The stipulated prescriptive period shall begin to run from the date of the insurer’s rejection of the claim filed by the insured or beneficiary and not from the time of the loss. CA. 4. 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. In case the claim was denied by the insurer but the insured filed a petition for reconsideration. otherwise the claim is deemed waived even if the same is brought within one year from its rejection. LTD v. b. 3. If there is no stipulation or the stipulation was void. a. either with the proper court or with the Insurance Commissioner. If the period agreed upon is less than one (1) year from the time the cause of action accrues.

00 plus interest pursuant to Art. • The insured is no longer to collect from the wrongdoer if the amount that he received from the insurer has fully compensated for the loss. 2207. 250. JUNE 11. NOTE: Subrogation takes effect by operation of law and does not require the consent of the wrong doer (Fireman’s Fire Insurance vs. CA & FELMAN SHIPPING LINES. INSURANCE CO. 2207 0f the Civil Code which provides: “Art. • THERE IS NO SUBROGATION IN: (a)Life insurance as it is not a contract of indemnity (b)When proximate cause of the loss is the insured himself (c)When the insurer pays to the insured a loss not covered by the policy. VS.” . SC RULING: It ordered Felman to pay Phialamgen P 755. the insurance company shall be subrogated to the right of the insured against the wrongdoer or the person who violated the contract. Jamilla & Company. If the plaintiff’s property has been insured. • SUBROGATION (ART. NEW CIVIL CODE) NOTE: PHILIPPINE AMERICAN GEN. and he has received indemnity from the insurance company for the injury or loss arising out of the wrong or breach of contract.1997. after the insured has received payment from the insurer of the loss covered by the policy. the insurance company is SUBROGATED to the rights of the insured against the wrongdoer or the person who has violated the contract. The right of subrogation accrues upon payment of the insurance claim. 2207.In property insurance. 70 SCRA 323).