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PART THREE

proximate cause of the loss was not the peril insured


against. Hence, there can be no recovery under the policy.

NON-LIFE INSURANCE

Hostile v. Friendly Fire

Topics

What may be insured against


Insurable interest
Non-life insurance policy
Premiums
Parties
Double insurance v reinsurance
Different kinds of non-life insurance

Hostile fire is the one covered by fire insurance

NO
liability
if
insured risk is only
a remote cause or
if proximate cause is an excepted peril
Concept of loss - injury, damage, liability, loss of
income or profits sustained by the insured in
consequence of the happening of one or more perils
insured against (Bonifacio Bros. V. Mora, 20 SCRA 261)

That which in the natural and continuous sequence,


unbroken by any NEW INDEPENDENT cause, produces an
event without which the event would not have occurred.

Also called the EFFICIENT CAUSE, or one that sets the


others in motion

NOT equivalent to IMMEDIATE CAUSE

Proximate Cause: Examples


Fire causes an explosion which results in loss. Fire is the
proximate cause of the loss. If fire is a covered peril, the
insurer is liable.
A house is insured against fire. The house is destroyed due
to the falling of a wall. The wall fell due to fire. The insurer
is liable

peril not insured against


Illustration

An owner gets fire insurance for his house and all furniture
inside.

In the course of rescuing the furniture from fire, the furniture


is damaged due to water.

The insurer is liable to the owner although the damage is


not due to fire since it was in the course of rescuing the
furniture from fire that it suffered some damage.

If loss due to willful act or connivance of insured

Section 89 - insurer is not liable if insured, through his willful


act or connivance caused the loss

Ex. Arson, owner hiring other people to rob his property

If loss due to willful act or connivance of insured

Section 89 - if loss is through SIMPLE negligence of insured


or his agents, insurer is STILL LIABLE

Insurer is NOT liable if loss is caused by GROSS


negligence of insured

Bar 2007

Immediate Cause v. Proximate Cause

Immediate cause cause or peril which appears closest in


time to the loss

Immediate cause is NOT necessarily the proximate cause


and vice versa

Bar 2007

Alfredo took out a policy to insure his commercial building


against fire. A fire broke out and destroyed the building. It
was found that the proximate cause of the fire was
explosion but fire was the immediate cause of the loss.
There is no excepted peril in the policy. Can there be
recovery under the policy.

Alfredo cannot recover from the policy. Section 84 of the


Insurance Code provides that before there can be recovery
under property insurance, the proximate cause of the loss
must be the covered peril. In the instant case, the

If the fire was found to have been caused by Alfredos own


negligence, can he still recover from the policy?
ANSWER

I qualify. If the negligence was simple in nature then Alfredo


can still recover under the policy. However, if there was
gross negligence on the part of Alfredo then he is barred
from recovering under the policy.

Bar 2014

On February 21, 2013, Barrack entered into a contract of


insurance with Matino Insurance Company (Matino)
involving a motor vehicle. The policy obligates Matino to pay
Barrack the amount of Six Hundred Thousand Pesos
(P600,000.00) in case of loss or damage to said vehicle
during the period covered, which is from February 26, 2013
to February 26, 2014.

On April 16, 2013, at about 9:00 a.m., Barrack instructed his


driver, JJ, to bring the motor vehicle to a near by auto shop
for tune-up. However, JJno longer returned and despite

ANSWER

Insurer is liable if the thing is rescued from peril insured


against if in the course of rescue, the thing is exposed to a

Unknown Event- time of occurrence is unknown


Contingent Event- may
or may not happen

Hostile - occurs outside the confines or begins as a friendly


fire and becomes hostile by escaping from the place where
it ought to be

Proximate Cause

Which will damnify a person OR


create a liability against him

Requirement for recovery


Peril
insured
against must be
the
PROXIMATE
CAUSE of the loss
or damage (sec.
86)

Friendly - fire burns in a place where it is intended to burn

Section 87:
Loss in the course of rescue

WHAT MAY BE INSURED AGAINST

diligent efforts to locate the said vehicle, the efforts proved


futile. Resultantly, Barrack promptly notified Matino of the
said loss and demanded payment of the insurance
proceeds of P600,000.00.

In a letter dated July 5, 2013. Matino denied the claim,


reasoning as stated in the contract that "the company shall
not be liable for any malicious damage caused by the
insured, any member of his family or by a person in the
insureds service. Is Matino correct in denying the claim?
(4%)

Suggested Answer
No, Matino is wrong in denying the claim.

Under the Insurance Code, an insurance policy is intended


to cover losses due to acts of simple negligence. It is only
when the insured is guilty of willfull connivance in bringing
about the risk insured against or gross negligence that an
insurer can deny compensation.

In this case, the act of Barrack of allowing his driver to bring


the car for tune up is simple negligence, which should be
covered by an insurance policy.

JQ can recover since he has insurable interest over his own


condominium unit. MLQ cannot recover since it is required
that a beneficiary must have insurable interest over the
property.

Bar 2014

Further, the act of JJ, Barracks driver in running away with


the vehicle, cannot be considered as malicious damage. It is
a crime, which is an act covered by an insurance policy.
Hence, Matino cannot use this exlusionary clause to defeat
payment of proceeds.

A person is said to have an insurable interest in the subject


matter insured where he has a relation or connection with,
or concern in it that he will derive pecuniary benefit or
advantage from its preservation. Which among the following
subject matters is not considered insurable? (1%)
1)
2)
3)
4)

INSURABLE INTEREST
Concept, Section 13

Every interest in property, whether real or personal


(owner)

Any relation thereto (lessee, agent)

Liability in respect of property (carrier, depositary)

Which will directly damnify the insured when a


contemplated peril happens

Existing interest (owner)

Inchoate interest founded on an existing interest


(shareholder)

Expectancy coupled with


(usufructuary, expected profit)

an

existing

A partner in a firm on its future profits


A general creditor on debtors property
A judgment creditor on debtors property
A mortgage creditor on debtors mortgaged property

Suggested answer
(B) A general creditor on debtors property

Insurable interest in a
mortgaged property (Sec. 8)

Forms, Sec. 14

interest

Factual Expectation

Mere factual expectation of loss not arising from any legal


right or duty in connection with the SM does NOT constitute
an insurable interest.

NOTE: Factual expectation is enough basis in


insurance.

life

Both the mortgagor and the mortgagee have insurable


interest on the mortgaged property

The II of the mortgagor is to the full value of the SM

The II of the mortgagee is only up to the extent of the


indebtedness

Bar 2012
A house and lot is covered by a real estate mortgage (REM) in favor
of ZZZ Bank. The bank required that the house be insured. The
owner of the policy failed to endorse nor assign the policy to the
bank. However, the Deed of Real Estate Mortgage has an express
provision which says that the insurance policy is also endorsed with
the signing of the REM. Will this be sufficient?
A.
B.

Beneficiary is required to have insurable interest

C.

D.

Insurable interest is required before a person can


benefit from a property insurance (Sec. 18)

Bar 2000

JQ, the owner of a condominium insured the same against


fire with XYZ Company and made the loss payable to his
brother MLQ. In case of loss by fire, who can recover from
the policy. State the reason for your answer (5%)
ANSWER

Suggested Answer

The insurer is correct. The beneficiary in property insurance


must have insurable interest on the property.
The
companion-friend of A does not have insurable interest on
the house of A. Hence, he cannot recover from the fire
insurance policy.

Bar 2001

A is an elderly bachelor. He insured his house against fire.


He named his companion-friend as beneficiary. A died in a
fire which also destroyed his home. The insurer refused
payment to B due to absence of insurable interest on the life
of A. Is the insurer correct?
ANSWER

Bar 2014

Bar 1999

No, insurance policy must be expressly endorsed to the


bank so that the bank will have a right in the proceeds
of such insurance in the event of loss.
The express provision contained in the Deed of Real
Estate Mortgage to the effect that the policy is also
endorsed is sufficient.
Endorsement of Insurance Policy in any form is not
legally allowed.
Endorsement of the Insurance Policy must be in a
formal document to be valid.

A businessman obtained a fire insurance policy on his


stocks for P5 M. Three months later, a fire broke out and
destroyed the grocery and stocks. The insurer denied the
claim since the stocks were mortgaged to another person
who also insured the same stocks for P5 M. May the
businessman and the creditor obtain different insurance
policies on the same stocks?

D.

existing at the time of perfection for property insurance


but for life insurance both at the time of perfection and
at the time of loss.
existing at the time of perfection only.

ANSWER

ANSWER

C.

Yes. The businessman, as the owner and the creditor, as


the mortgagee have insurable interest over the stocks.
Hence, they may obtain separate policies on the same
stocks.

B.
existing at the time of perfection and at the time of
loss for property insurance but only at the time of perfection
for life insurance.

Change of ownership of property


Measure

Measure of insurable interest is the extent the insured


might be damnified by loss or injury (Sec. 17)

Section 25: Void stipulations payment of loss whether


insured has insurable interest or not or that policy shall
be proof of interest

INSURABLE INTEREST:
jurisprudence

Fire insurance taken on a property belonging to another is


VOID, although the insurer had full knowledge of fact of
ownership and even if insured subsequently acquired
insurable interest (Cha v. CA, 277 SCRA 690)
Where the real intention of insured was to insure his goods
for P15,000 but insurer mistakenly insured the building
where the goods were contained and not owned by insured,
in case of loss of goods insured was allowed to recover
(Garcia v. Hongkong, 45 Phil 122)

Illustration

A owns a car which is insured against theft

A sells the car to B. The policy was not included in the sale.

If the car is carnapped, neither A nor B can recover under


the policy.

A cannot recover because he does not own the car at the


time of the theft.

B cannot recover because he does not own the policy

Transfer of property by succession

When
insurable
property insurance

interest

must

exist

in

Time the insurance takes effect and when the loss


occurs, but NEED NOT exist in the meantime

Bar 2002

Distinguish insurable interest in property insurance from


insurable interest in life insurance (5%)

Section 20 and 58: A change of interest in any


part of a thing insured unaccompanied by a
corresponding change of interest suspends the
insurance until the interest in the thing and
interest in the insurance are vested on the
same person

When the insured dies, and the subject matter is transferred


by succession, the new owner of the thing will also own the
insurance. (Sec. 23)

Illustration

A owns a car which has theft insurance

A bequeath the car to B under his will

A dies

B now owns the car, together with the insurance policy

ANSWER

In property insurance, the expectation of benefit must have


a legal basis. In life insurance, insurable interest can be
based on mere factual expectation.

In property insurance, the actual value of the interest is the


limit of the insurance. There is no such limit in life
insurance except if insurable interest is capable of pecuniary
estimation.

In property insurance, insurable interest must exist when the


insurance takes effect and at the time of the loss but not in
the meantime. In life insurance, insurable interest must
exist only at the time the insurance takes effect.

Bar 2012
For both the Life Insurance and Property Insurance, the insurable
interest is required to be A.
B.

existing at the time of perfection of the contract and at


the time of loss.
existing at the time of perfection and at the time of loss
for property insurance but only at the time of perfection
for life insurance.

POLICY
KINDS

Open Value of thing is not agreed upon but is to be


ascertained at time of loss. The amount of the insurance
merely represents the insurers maximum liability.

Valued expresses on its face an agreement that the thing


shall be valued at a specific sum

Running successive insurances

TWO KINDS OF VALUES

Face value maximum amount which may be recovered


under the policy

Valuation- value of the subject matter agreed on by the


parties

Open v. Valued

Open - has a face value but has NO valuation of the thing.


Valuation is done after the loss

When the parties have agreed on installment payment


(Makati Tuscany case)

Valued - has both face value and valuation of the thing

When the insurer has renewed the insurance over the years
under a clear credit term arrangement (UCPB case)

In Suretyship where the obligee accepts the bond even if


premium has not been paid (Sec. 177)

Illustration: Open
Value of the building: to be determined at time of loss
Face Value: P10 Million

When there is a credit scheme

If the valuation is more than the face value, recovery is limited to


the face value

Illustration: Valued
Valuation of the car : P15 Million
Face Value

: P 10 Million

UCPB v. Masagana April 4, 2001 - insured is entitled to


proceeds even if he has not fully paid premiums when:

for years, insurer has been issuing fire


insurance policies to insured and the policies
were renewed

insurer has been granting 60-90 day credit


extension

no valid notice of non-renewal

premium was paid by insured within credit


extension period

GENERAL RULE: Recovery will be based on valuation


EXCEPTION: If valuation is obtained through fraud or
misrepresentation. Recovery is limited to the face value or
insurer may deny the claim

Bar 2007

Illustration: Running
As of June 1, 2014 value of goods P1 Million

Alfredo took out a policy to insure his commercial building.


The broker agreed to give a 15-day credit to Alfredo within
which to pay the premium. Upon delivery of the policy on
May 15, 2006, Alfredo issued a postdated check dated May
30, 2006. On May 28, 2006, fire destroyed the building.
May Alfredo recover from the policy?
ANSWER

As of June 10, 2014 - value of goods P500,000

PREMIUM

Alfredo can recover from the policy. In a decided case by


the Supreme Court, it was held that parties may agree on a
credit extension in paying the premium. The happening of
the peril during the credit extension will entitle the insured to
proceeds, less the unpaid premiums.

Cash and carry basis rule is followed

Section 77 - insurer is entitled to premium as soon as the


thing insured is exposed to the peril insured against

Premium - is the agreed price for assuming and carrying the


risk

Makati and American Assurance agreed that premiums will


be paid via three installments

General Rule: Cash and carry basis nonpayment of


the first premium prevents the contract from becoming
binding

Makati paid premiums for 3 consecutive years in three


installments

Premium must be paid in cash as a condition precedent


for non-life insurance policy to be valid and binding

On the 4th year, Makati paid only the 1st 2 installments.

American collected the 3rd installment

Makatis defense: Section 77 provides that no policy will be


effective unless the premium has been paid.
Since
premiums were paid on installments, there was no valid
policy.

Makati and American Assurance agreed that premiums will


be paid on three installments

After paying premiums for 3 consecutive years, Makati


refused to pay the third installment on the 4th year

American sought to collect the balance from Makati

SC: Section 77 merely precludes the parties from stipulating


that the policy is valid even if premiums are not paid, but
does not expressly prohibit an agreement granting credit
extension, and such an agreement is not contrary to morals,
good customs, public order or public policy (De Leon, the
Insurance Code, at p. 175). So is an understanding to allow
insured to pay premiums in installments not so proscribed.
At the very least, both parties should be deemed in estoppel
to question the arrangement they have voluntarily accepted

In Suretyship, payment of premium is also necessary for


the contract to be binding

EXCEPT: if obligee has accepted the bond, suretyship is


binding even if premium has not been paid, subject to the
right of the insurer to recover the premium from its principal
(SEC. 177)

Exceptions to Cash and Carry Basis, Sec. 77

Life/industrial life when the grace period applies

whenever under the broker and agency agreements


with duly licensed intermediaries, a ninety (90)-day
credit extension is given. No credit extension to a duly
licensed intermediary should exceed ninety (90) days
from date of issuance of the policy.

An acknowledgment in a policy or contract of insurance or


the receipt of premium is conclusive evidence of its
payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it shall not be
binding until the premium is actually paid.

Premium by installment:
Makati Tuscany v. CA

Bar 2006

A Insurance Company issued an policy on the new car of B.


The premium of P60,000 was to be paid in 6 months. B paid
only the 1st two months installments. Despite demands, B
failed to pay the rest of the installments. Five months after
the issuance of the policy, the vehicle was carnapped. A
denied the claim of B since B did not pay the premium
resulting to cancellation of the policy. Can B recover from
A?
ANSWER

B can recover from A the proceeds of the policy less the


unpaid premiums. In a decided case by the Supreme Court,
it was held that when the parties agreed on payment of
premiums by installment, the policy becomes effective upon
payment of first installment. Absent any provision that nonpayment of subsequent installments will cause cancellation,
the policy between A and B continue to exist.

Bar 2010

Enrique obtained from Seguro Insurance Company a


comprehensive motor vehicle insurance to cover his top of
the line Aston Martin. The policy was issued on March 31,
2010 and, on even date, Enrique paid the premium with a
personal check postdated April 6, 2010.

On April 5, 2010, the car was involved in an accident that


resulted in its total loss.

On April 10, 2010, the drawee bank returned Enriques


check with the notation "Insufficient Funds." Upon
notification, Enrique immediately deposited additional funds
with the bank and asked the insurer to redeposit the check.

Enrique thereupon claimed indemnity from the insurer. Is


the insurer liable under the insurance coverage? Why or
why not? (3%)

Enrique cannot recover. In a decided case, the Supreme


Court said that an insurer and the insured may agree on a
credit scheme for payment of premiums, which will give rise
to a perfected contract of insurance. However, the insurer
must make payment within the period agreed on (UCPB v.
Masagana).

On September 25, 2013, Danny Marcial (Danny) procured


an insurance on his life with a face value of P5,000,000.00
from RN Insurance Company (RN), with his wife Tina
Marcial(Tina) as sole beneficiary. On the same day, Danny
issued an undated check to RN for the full amount of the
premium.
On October 5, 2013, Danny met a tragic accident and died.
Tina claimed the insurance benefit, but RN was quick to
deny the claim because at the time of Dannys death, the
check was not yet encashed and therefore the premium
remained unpaid.
Is RN correct? Will your answer be the same if the check is
dated October 15, 2013? (4%)

Suggested Answer

RN is correct in denying the claim.

P1,200,000.00

P24,000.00

B company P600,000.00 P12,000.00

TOTAL

P1,800,000.00

P36,000.00

Based on jurisprudence, an insurer can be held liable for loss if


the insurer and the insured agreed on a credit scheme
where is a definite period when premium should be fully
paid.

In this case, there was no clear credit extension period or


scheme since the check issue by Danny was undated.
Since there was no payment of premiums or even a definite
time when payment should be made, there was no valid
insurance policy at the time of Dannys death. Hence, there
can be no recovery of proceeds.

My answer will not be the same if the check was dated


October 15, 2014.

If the check was properly dated, this means that there was a
valid credit extension scheme or period between the parties.
Hence, there was a valid policy and there should be
payment of proceeds, less the amount of premiums.

When is insured entitled to return of premium?

Whole premium if object was never exposed to peril,


unless it is an indivisible policy

E.g. insured pays in advance the annual


premium, loss occurs before date of effectivity.
Insured is entitled to reimbursement of whole
premium

Pro- rated premium surrender policy before period is


up

In this case, Enriques check bounced on April 6. He only


funded the check on April 10 or 4 days late than the date of
the check. Thus, there was no perfected contract of
insurance which can cover the April 5 accident. Enrique
cannot recover under the policy.

Bar 2014

Amount of insurance
Premiums Paid

A company

Suggested Answer

Insurer

E.g. A insures his house for 1 year but returns


the policy after 3 months. A is entitled to of
the premiums.

If the contract is voidable and subsequently annulled


under the provisions of the Civil Code or on account of
fraud / misrepresentation of insure/agent, facts insured
was ignorant of, default of insured other than fraud

E.g. Agent represents that A can be insured


even if his age disqualifies him. Insured is
entitled to return of premium.

Over insurance by several insurers, other than life

ratable return of premium

ADDITIONAL PREMIUMS

Section 84. An insurer may contract and accept payments,


in addition to regular premium, for the purpose of paying
future premiums on the policy or to increase the benefits
thereof.

NOTE!

A person insured is not entitled to a return of premium if the


policy is annulled, rescinded or if a claim is denied by
reason of fraud.

RATABLE RETURN
OVERINSURANCE

OF

PREMIUM

IN

CASE

OF

Sec. 82 premiums to be returned when there is over


insurance by several insurers shall be proportioned to the
amount by which the aggregate sum insured in all policies
exceeds the insurable value of the thing at risk

Insurer- Bancassurance

Section 375. The term bancassurance shall mean the


presentation and sale to bank customers by an insurance
company of its insurance products within the premises of
the head office of such bank duly licensed by the Bangko
Sentral ng Pilipinas or any of its branches under such rules
and regulations which the Commissioner and the Bangko
Sentral ng Pilipinas may promulgate.

To engage in bancassurance arrangement, a bank is not


required to have equity ownership of the insurance
company. No insurance company shall enter into a
bancassurance arrangement unless it possesses all the
requirements as may be prescribed by the Commissioner
and the Bangko Sentral ng Pilipinas.

No insurance product under this section, whether life or nonlife, shall be issued or delivered unless in the form
previously approved by the Commissioner.

Section 376. Personnel tasked to present and sell insurance


products within the bank premises shall be duly licensed by
the Commissioner and shall be subject to the rules and
regulations of this Act.

"Section 377. The Commissioner and the Bangko Sentral ng


Pilipinas shall promulgate rules and regulations to effectively
supervise the business of bancassurance.

Illustration: P1.5M house

How to compute:
STEP 1: Determine amount overinsured
Amount overinsured =
Amount of insurance value of property

P1.8 P1.5M = P300,000

STEP 2: Get the ratio of overinsurance


insurance

with the total amount of

P300,000/P1,800,000.00 = 1/6
Ratable Return
STEP 3: Multiply the ratio to the amount of premium paid to every
insurer
A= 1/6 of P24,000 = P4,000 from A Company
B= 1/6 of P12,000 = P2,000 from B Company

Bar 2000

Name at least three instances when an insured is entitled to


a return of the premium paid.

Insurer-Mutual Benefit Association and Trusts for Charitable


Uses

PARTIES

Insurer
InsuredBeneficiary

Section 403. Any society, association or corporation,


without capital stock, formed or organized not for profit but
mainly for the purpose of paying sick benefits to members,
or of furnishing financial support to members while out of
employment, or of paying to relatives of deceased members
of fixed or any sum of money, irrespective of whether such
aim or purpose is carried out by means of fixed dues or
assessments collected regularly from the members, or of
providing, by the issuance of certificates of insurance,
payment of its members of accident or life insurance
benefits out of such fixed and regular dues or assessments,
but in no case shall include any society, association, or
corporation with such mutual benefit features and which
shall be carried out purely from voluntary contributions
collected not regularly and /or no fixed amount from
whomsoever may contribute, shall be known as a mutual
benefit association within the intent of this Code.

Mutualization and Demutualization

The beneficiary

Section 18 - no contract or policy on property shall be


enforceable except for the benefit of some person having an
insurable interest in the property insured

Mutualization A a shareholder-owned company is


converted into a mutual organization, typically through
takeover by an existing mutual organization. A mutual
organization is customer-owned.

Demutualization -customer-owned mutual organization or


cooperative changes form to a joint, stock company,
sometimes called stocking for privatization.

Compare with Life Insurance

Where the beneficiary is not required to have insurable


interest over the cestui que vie

It is only the insured who must have insurable interest over


the cestui que vie

Mutualization

Section 280. A domestic mutual life insurance company


doing business in the Philippines may convert itself into an
incorporated
stock
life
insurance
company
by
demutualization. To that end, it may provide and carry out a
plan for the conversion by complying with the requirements
of this title.

"The conversion of a domestic mutual life insurance


company to an incorporated stock life insurance company
shall be carried out pursuant to a conversion plan duly
approved by the Commissioner.

"The Commissioner shall promulgate such rules and


regulations as he or she may deem necessary to carry out

Insurer

Before issuing such certificate of authority, the


Commissioner must be satisfied that the name of the
company is not that of any other known company
transacting a similar business in the Philippines, or a name
so similar as to be calculated to mislead the public. The
Commissioner may issue rules and regulations on the
use of names of insurance companies and other
supervised persons or entities.

the provisions of this title, after due consultation with


representatives of the insurance industry.

"All converted insurers under the provisions of this title shall


be subject to all other applicable provisions of this Code.
The provisions of the Corporation Code shall apply in a
suppletory manner.

Bar 2005

Bar 1999

Mutual Benefit Association

Section 408. "A mutual benefit association shall only


maintain free and unassigned surplus of not more than
twenty percent (20%) of its total liabilities as verified by the
Commissioner. Any amount in excess shall be returned to
the members by way of dividends, enhancing the equity
value or providing benefits in kind and other relevant
services. In addition, subject to the approval of the
Commissioner, a mutual benefit association may allocate a
portion for capacity building and research and development
such as developing new products and services, upgrading
and improving operating systems and equipment and
continuing member education.

TRUST BUSINESS IN GENERAL

"Section 429. An insurance company may engage in limited


trust business, consisting of managing funds pertaining only
to retirement and pre-need plans, provided it has secured a
license to do so from the Bangko Sentral ng Pilipinas. This
trust business shall be separate and distinct from the
general business of the insurance company and shall be
subject to rules and regulations as may be promulgated by
the Bangko Sentral ng Pilipinas in consultation with the
Commissioner.

CHAPTER IX REGISTRATION, RESPONSIBILITIES AND


OVERSIGHT OF SELF-REGULATORY ORGANIZATIONS

Section 430. The Commissioner shall have the power to


register as a self-regulatory organization, or otherwise
grant licenses, and to regulate, supervise, examine,
suspend or otherwise discontinue, as a condition for the
operation of organizations whose operations are related to
or connected with the insurance market such as, but not
limited to, associations of insurance companies, whether life
or non-life, reinsurers, actuaries, agents, brokers, dealers,
mutual benefit associations, trusts, rating agencies, and
other persons regulated by the Commissioner, which are
engaged in the business regulated by this Code.

The Commissioner may prescribe rules and regulations


which are necessary or appropriate in the public interest or
for the protection of investors to govern self-regulatory
organizations and other organizations licensed or regulated
pursuant to the authority granted hereunder including, but
not limited to, the requirement of cooperation within and
among all participants in the insurance market to ensure
transparency and facilitate exchange of information.

X borrowed from CCC Bank. She mortgaged her house and


lot in favor of the bank. X insured her house. Tt1e bank also
got the house insured.

A.
B.
C.

Is this double insurance? Explain your answer. (3%)


Is this legally valid? Explain your answer. (3%)
In case of damage, can X and CCC Bank separately
claim for the insurance proceeds? (4%)
Answer

A.

No, this is not double insurance. Double insurance


exists when the same person is insured by several
insurers in respect of the same subject and interest
The insured in the two policies are different and they
have different interests. Xs interest is as the owner of
the house and lot while CCCs interest is as the
mortgagee and is limited to the amount of the debt.
Yes, this is legally valid. Both the mortgagee and the
owner have insurable interests over the property. Either
party may obtain a property insurance policy on the
same property because both stand to suffer loss in
case the house and lot is destroyed or damaged.
Yes, both X and CCC can claim under their insurance
policies. X can claim to the extent of the value of the
property. CCC can claim to the extent of the unpaid
debt in favor of X, that is secured by the property.

B.

C.

Over-insurance
OVER- INSURANCE amount of insurance is beyond the value
of insureds insurable interest

How to collect in case of over-insurance by double


insurance, Sec. 96

The insured, unless the policy otherwise provides, 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;

Valued Policy- any sum received by him under any other


policy shall be deducted from the value of the policy without
regard to the actual value of the subject matter insured;

Unvalued Policy- any sum received by him under any policy


shall be deducted against the full insurable value, for any
sum received by him under any policy;

Policy is unvalued, determine actual loss and collect


from insurance in such order as he may select

If insured receives amount more than loss, hold sum in


trust according to the right of contribution

Each insurer must contribute ratably to the loss in


proportion to the amount for which he is liable

Double Insurance v. Over-insurance


Double Insurance

Same person is insured by several insurers in respect


of the same subject and interest (Sec. 95)
Requisites:
1.
2.
3.
4.
5.

insured is the same


two or more insurers insuring separately
same subject matter
interest insured is the same
risk or peril insured against is the same

The contention of the insurer is untenable. First, there is no


law prohibiting double insurance. Second, there was no
double insurance here because the insured in the two
policies are different. The two insured also have different
interests on the property.

Bar 2012

Self-Regulatory Organizations

A businessman obtained a fire insurance policy on his


stocks for P5 M. Three months later, a fire broke out and
destroyed the grocery and stocks. The insurer refused to
pay claiming that double insurance is contrary to law. Is this
contention tenable?
ANSWER

Trust Business

When does double insurance exist? (2%)

Bar 2005

What is the nature of liability of several insurers in double


insurance (2%)
ANSWER

In double insurance, the insurers are considered as coinsurers. Each one is bound to contribute ratably to the loss
in proportion to the amount for which he is liable under his
contract (Sec. 96e)

Kinds of Non-Life Insurance


MARINE

Sections 99 and 100 concept

Peril covered perils of the sea or perils of navigation


casualties due to unusual violence or extraordinary action of
wind and wave or other extraordinary causes connected
with navigation must be the PROXIMATE CAUSE

Peril of the ship is NOT covered

Bar 2012
X insured the building she owns with two (2) insurance companies for
the same amount. In case of damage, A.
B.
C.
D.

X can not claim from any of the two (2) insurers because with
the double insurance, the insurance coverage becomes
automatically void.
the two (2) insurers will be solidarily liable to the extent of the
loss.
the two (2) insurers will be proportionately liable.
X can choose who he wants to claim against.

ANSWER: D

Peril of the Ship v. Peril of the Sea

Roque v. IAC sinking of barge


circumstances (SHIP)

without extra-ordinary

Go Tiaco v. Union loss results from natural and inevitable


action of the sea, from the ordinary wear and tear of the ship
or from negligence of owner to provide with proper
equipment (SHIP)

Cathay v. CA rusting of steel pipes in the course of the


voyage in view of the toll on cargo of wind, water and salt
conditions (SEA)

Reinsurance
Contract by which an insurer procures a third person to insure
him against loss or liability by reason of an original insurance

Illustration

A gets B to insure his building against fire for P10 Million.

B (insurer) can get C (reinsurer) to reinsure him for P5


Million out of the P10 Million insurance in favor of A. Thus,
Bs liability shall be limited to P5 Million. While C, the
reinsurer has to give the insurer the other P5 M.

Reinsurance

v.

Double Insurance

Bar 2011
Perils of the ship, under marine insurance law, refer to loss
which in the ordinary course of events results from
A.
B.
C.
D.

natural and inevitable actions of the sea.


natural and ordinary actions of the sea.
unnatural and inevitable actions of the sea.
unnatural and ordinary actions of the sea.

Answer

A. natural and inevitable actions of the sea.

Is ship owners insurer liable in case of loss if:

insurer becomes
the insured

subject of
insurance is the
original insurers
risk

Insurer remains
the insurer

subject of
insurance is
property

vessel is chartered (Sec. 102)

YES. liable only for part of the loss which insured


cannot recover from charterer

Insurance of owner full value of property but


recovery shall be limited to amount not paid by
charterer

Insurance of charterer extent of his liability in


case of loss

Illustration

insurance of a
different interest

insurance of the
same interest

original insured is
not a party

insured is the
party in interest
in all contracts

A and B enter into a charter agreement.


A's vessel is valued at P1 Million.
Per agreement, Bs insurer shall be liable up to P500,000 in
case of loss. A has an insurance of P1 M.
In case of loss:

As insurer = P500,000

Bs insurer = P500,000

Can ship owner get insurance for:

consent of original
insured is not
necessary

Insured has to
give his consent

Expected freightage (Sec. 105)

Expected freightage which in the ordinary and


probably course of things he would have earned
but for the intervention of the peril insured against

Important that insured must have an inchoate right


to freightage which cannot be defeated

Expected profits (Sec. 107) YES.

FIRE

Fire Insurance insurance against loss by fire, lightning,


windstorm, tornado or earthquake and other allied risks,
when such risks are covered by extension to fire
insurance policies or under separate policies

Bar 2014

On May 13, 1996, PAM, Inc. obtained a P15,000,000.00 fire


insurance policy from Ilocano Insurance covering its
machineries and equipment effective for one (1) yearor until
May 14, 1997. The policy expressly stated that the insured
properties were located at "Sanyo Precision Phils. Building,
Phase III, Lots 4 and 6, Block 15, PEZA, Rosario, Cavite."
Before its expiration, the policy was renewed on "as is"
basis for another year or until May 13, 1998. The subject
properties were later transferred to Pace Factory also in
PEZA. On October 12, 1997, during the effectivity of the
renewed policy, a fire broke out at the Pace Factory which
totally burned the insured properties.

The policy forbade the removal of the insured properties


unless sanctioned by Ilocano. Condition 9(c) of the policy
provides that "the insurance ceases to attach as regards the
property affected unless the insured, before the occurrence
of any loss or damage, obtains the sanction of the company
signified by endorsement upon the policy x x x (c) if the
property insured is removed to any building or place other
than in that which is herein stated to be insured." PAM
claims that it has substantially complied with notifying
Ilocano through its sister company, the RBC, which, in fact,
referred PAM to Ilocano for the insurance coverage. Is
Ilocano liable under the policy? (4%)

Fire must be the proximate cause, and must be hostile in


nature

Measure of Indemnity

If there is a valuation shall be conclusive as between


parties in adjusting partial or total loss in the absence of
FRAUD

If there is NO valuation - the expense it would be to the


insured to REPLACE the thing lost or injured in the condition
in which it was at the time of injury

Loss and its amount may be determined on the basis of


such proof as may be offered by insured which need not be
of such persuasiveness as is required in judicial
proceedings (Malayan v. Cruz Arnaldo)

How valuation is made

Sec. 174 independent appraiser examines the property


and fixes the value

Valuation shall be inserted in the policy

GENERAL RULE: Valuation shall be the basis for indemnity in


case of total loss

EXCEPT: If there is a change increasing the risk without the


consent of insurer or if there's fraud on the part of insured.

Partial loss full amount of the partial loss

Parties may agree that instead of payment, insurer may


repair, rebuild or replace property

Suggested Answer

Ilocano is liable under the policy.

Under the Insurance Code, any alteration in the use or


condition of a thing insured which is limited by the policy, but
does not increase the risk will not affect the validity of the
policy.

In this case, although the policy forbade the transfer of the


goods without the consent of the insurer, the transfer of the
goods did not increase the risk of fire. Hence, the transfer
will not exonerate Ilocano.

Further, PAM should be deemed to have substantially


complied with the consent requirement when it notified the
agent of Ilocano. Hence, Ilocano was wrong in denying the
claim.

Illustration

Subject matter is a house


Independent appraiser values it at P10 Million
The valuation is attached to the policy
If house is totally destroyed by fire, the valuation of P10
M will be given
If the house is half-destroyed, the indemnity will be half
of P10 Million or P5 M.
If the valuation is based on some fraud on the part of
the insured, e.g. adding fixtures which are not part of
the house OR there is an alteration increasing the
hazard such as converting in to an ammunition factory,
the valuation is not used.
Parties may agree that instead of paying the amount,
insurer will rebuild the house.

When alteration can exonerate insurer

The use or condition of a thing is altered


Policy prohibits or limits the alteration
Made without the consent of the insurer, by means
within the control of the insured
increasing the risks = Insurer can rescind the K

When alteration does not affect policy

The use or condition of a thing insured is altered


Policy prohibits it or limits it
It does not increase the risk

Act which does not violate the policy

any act of the insured subsequent to the execution of


the policy
Act does not violate its provisions, even though it
increases the risk and is the cause of the loss
No effect on policy

CASUALTY INSURANCE

Sec. 176 insurance covering loss or liability arising from


accident or mishap excluding certain types of loss which fall
exclusively within the scope of other types of insurance such
as fire or marine

Casualty Insurance

Employers liability

Motor Vehicle Liability

Plate glass insurance

Burglary and theft insurance

Personal accident and health insurance (when death is NOT


one of the risks insured against)

Motor Vehicle Liability Insurance

Motor vehicle any vehicle propelled by any power other


than muscular power using the public highways, with certain
exceptions

Section 387 unlawful for any land transportation owner or


operator to operate the same in public highways unless
there is a policy of insurance or guaranty in cash or bond to
indemnify the death or bodily injury of a third party or
passenger

What happens to the P10 million debt of Mario to Armando?


Explain. (3%)

At a glance

Insurable interest is property insurance must exist at the


time of the issuance and at the time of the loss although
it need not exist in between these times

A beneficiary in property insurance must have insurable


interest over the property

It is possible that two or more persons may have


insurable interest over the same object. As in the case of
owner and lessee, mortgagor and mortgagee.

In such cases, two or more separate insurance policies


may be obtained. This is not double insurance since they
dont have the same insured and they have different
interests.

Suggested Answer

Armando cannot recover from either policy. Under Section


89 of the Insurance Code, an insurer is exonerated when
the loss is caused by the willful act of the insured.

The loan will remain, but it will be considered as unsecured.

In Life Insurance

WHEN

General Rule: Paid immediately upon maturity of the


policy (death, survival, cessation or continuance of life)

Exceptions:

The covered peril must be the proximate cause before


there can be recovery under the policy.

Instances when there can be return of premiums.

proceeds are payable in installments

Payment of premiums must be on cash and carry basis.

annuity

Important exceptions to cash and carry: credit extension


and installment payment

Marine insurance covers only perils of the sea and NOT


perils of the ship.

In marine, the following persons can get insurance policies:


owner, charterer, for freightage, for expected profits.

Fire insurance covers hostile fire

Failure to give written notice of loss in fire


unreasonable delay will exonerate the insurer.

Indemnity in fire may either be based on valuation OR


payment of cost to restore the object at the time of loss

If maturity is due to death

Proceeds are paid within 60 days from


presentation of the claim and proof of death

Delay = interest unless due to fraudulent claim

Proof of death v. Notice of Death


with

Notice of death is not enough, there must be proof of


death

Proof of death - death certificate


TO WHOM

PART FOUR:
PAYMENT OF PROCEEDS
AND FILING OF CLAIMS
Basic Rule in Recovery

Sec. 89. An insurer is not liable for a loss caused by the


willful act or through the connivance of the insured; but he is
not exonerated by the negligence of the insured, or of the
insurance agents or others.

Bar 2010

General rule: paid to designated beneficiaries

Exception: Facility of payment clause in group life and


industrial life

Facility of Payment : Group Life

There is no designated beneficiary

pay not exceeding P500.00

to any person equitably entitled for incurring funeral or


other expenses incident to the last illness or death of
the insured

Facility of Payment: Industrial

To secure a loan of P10 million, Mario mortgaged his


building to Armando. In accordance with the loan
arrangements, Mario had the building insured with First
Insurance Company for P10 million, designating Armando
as the beneficiary.
Armando also took an insurance on the building upon his
own interest with Second Insurance Company for P5 million.
The building was totally destroyed by fire, a peril insured
against under both insurance policies. It was subsequently
determined that the fire had been intentionally started by
Mario and that in violation of the loan agreement, he had
been storing inflammable materials in the building.
How much, if any, can Armando recover from either or both
insurance companies? (2%)

If beneficiary:

does not surrender policy with proof of death


during period stated in the policy OR

is the estate of insured OR

is a minor OR

dies before the insured OR

is legally incompetent to give valid release

proceeds may be given to:

the executor or administrator of insured OR

any of insureds relative by blood as legal


adoption or by marriage OR

any person who incurred expenses


maintenance, medical attention or burial

for

Claim against one motor vehicle only

NON-LIFE INSURANCE
WHEN

if occupant of a vehicle, claim against insurance of


vehicle

otherwise, claim against offending vehicle

Bar 2012

within 30 days after proof of loss is received by insurer


and ascertainment of loss is made

Ascertainment of loss

made either by agreement between parties or by


arbitration

If no ascertainment is made or can be had within 60


days from receipt of proof of loss, insurer must pay
within 90 days after receipt of proof

A.

Refusal to pay within period unless due to a fraudulent


claim = interest

C.

X is a passenger of a jeepney for hire being driven by Y. The jeepney


collided with another passenger jeepney being driven by Z who was
driving recklessly. As a result of the collision, X suffered injuries. Both
passenger jeepneys are covered by Comprehensive Motor Vehicular
Insurance Coverage. If X wants to claim under the "no fault indemnity
clause", his claim will lie against the insurer of the jeepney being driven by Z
who was the one at fault.
the claim shall lie against the insurer of the passenger
jeepney driven by Y because X was his passenger.
X has a choice against whom he wants to make his
claim.
None of the above.

B.

D.

ILLUSTRATION

A presents proof of loss of car by theft and insurer


ascertains amount of loss on January 1, 2000

Proceeds must be paid 30 days after January 1, 2000.


Otherwise, interest must be paid.

A presents proof of theft on January 1, 2000 but parties


cannot agree on amount of loss by March 1, 2000 (within 60
days from Jan.1).

Proceeds must be paid within 90 days from January 1, 2000.


Otherwise, interest will accrue.

MOTOR VEHICLE LIABILITY

Death certificate and evidence to establish payee


OR medical report and evidence of medical and
hospital disbursement.

Bar 2014

On May 26, 2014, Jess insured with Jack Insurance (Jack)


his 2014 Toyota Corolla sedan under a comprehensive
motor vehicle insurance policy for one year. On July 1,
2014, Jess car was unlawfully taken. Hence, he
immediately reported the theft to the Traffic Management
Command (TMC) of the Philippine National Police (PNP),
which made Jess accomplish a complaint sheet as part of
its procedure. In the complaint sheet, Jess alleged that a
certain Ric Silat(Silat) took possession of the subject vehicle
to add accessories and improvements thereon.

However, Silat failed to return the subject vehicle within the


agreed 3-day period. As a result, Jess notified Jack of his
claim for reimbursement of the value of the lost vehicle
under the insurance policy. Jack refused to pay claiming that
there is no theft as Jess gave Silat lawful possession
of the car. Is Jack correct? (4%)

Procedure for filing claims

Accident
Within six months, file written notice of claim.
Filed after six months = waived claim
Notice must contain nature, extent, duration of injuries certified by a licensed physician

Suggested answer

Jack is wrong.

Jeff obtained a comprehensive motor vehicle


insurance policy, which should cover all kinds of
losses for whatever reason, except gross negligence.

The policy should cover the loss of the car, although it


was not really unlawfully taken by Silat. The fact
remains that there was loss of vehicle and the
proceeds for the loss should be paid to Jeff.

Insurer gets notice

Ascertain nature and truth of claim


If parties agree, pay claim within 5 calendar days

If no agreement is reached

Insurer must pay under no-fault indemnity clause


Delay, Proof, Subrogation
Reasonable Delay in
Payment
No fault Indemnity Clause:
Section 391

death or injury of 3rd party

without necessity of proving fault or negligence of any kind

if total indemnity of one person shall not exceed P15,000.

Proofs of loss are submitted under oath.

police report of accident ; and

delay due to investigation to ascertain the truth of


information it received that insured was not insurable at
time of application (Chuy v. Philamlife)

delay caused by determination of actual beneficiary and


claims of creditors (RCBC v. CA)

Preliminary Proof of Loss

best evidence which insured has

not evidence in ordinary courts

purpose : Apprise insurer of loss and


make
proper investigation while evidence is still
fresh and to prevent further loss

Bar 2011

NOTICE OF LOSS IN FIRE

Must be written

Must be given without unnecessary delay

Otherwise, the insurer is exonerated

NOTICE IN OTHER NON-LIFE POLICIES

The Commissioner may specify the period for the


submission of the notice of loss.

when insurer pays for the loss

payment to insured operates as an equitable


assignment to the insurer of all remedies which insured
may have for the recovery
subrogation is limited to the amount
by the insured

T Shipping, Co. insured all of its vessels with R Insurance,


Co. The insurance policies stated that the insurer shall
answer for all damages due to perils of the sea. One of the
insured's ship, the MV Dona Priscilla, ran aground in the
Panama Canal when its engine pipes leaked and the oil
seeped into the cargo compartment. The leakage was
caused by the extensive mileage that the ship had
accumulated. May the insurer be made to answer for the
damage to the cargo and the ship?

A. Yes, because the insurance policy covered any or all damage


arising from perils of the sea.
B. Yes, since there appears to have been no fault on the part of
the shipowner and shipcaptain.

Subrogation

Barratry includes every wrongful act committed by a vessel


master or crew, to the prejudice of the owner or the
charterer.

C. No, since the proximate cause of the damage was the breach
of warranty of seaworthiness of the ship.
D. No, since the proximate cause of the damage was due to
ordinary usage of the ship, and thus not due to a peril of the sea.

recoverable

Answer

Marine

What may be insured against

Only covers loss due to perils of the sea and not perils of the
ship

In case there is a bottomry, insurable interest of the ship


owner is limited to excess of its value over the amount
secured by bottomry.

D. No, since the proximate cause of the damage was due to


ordinary usage of the ship, and thus not due to a peril of the
sea.

Who can insure?

Freightage all benefits derived by the owner either from


chartering the ship or its employment for the carriage of his
own goods or those of others (102)

Charterer of the ship has insurable interest on the ship to the


extent that he is damnified by the loss (106)

Bar 2010

Paolo, the owner of an ocean-going vessel, offered to


transport the logs of Constantino from Manila to Nagoya.
Constantino accepted the offer, not knowing that the vessel
was manned by an irresponsible crew with deep-seated
resentments against Paolo, their employer.
Constantino insured the cargo of logs against both perils of
the sea and barratry. The logs were improperly loaded on
one side, thereby causing the vessel to tilt on one side. On
the way to Nagoya, the crew unbolted the sea valves of the
vessel causing water to flood the ship hold. The vessel
sank.
Constantino tried to collect from the insurance company
which denied liability, given the unworthiness of both the
vessel and its crew.
Constantino countered that he was not the owner of the
vessel and he could therefore not be responsible for
conditions about which he was innocent.

General insurer is liable for proportion of the loss


assessed (136)

Particular insurer is liable unless there is a stipulation


exempting the insurer (136)

General Average

Goods of A valued at 1 M are disposed

Disposition saves the goods of B (1 M) and C (1 M)

The 1 M loss of A will be shared by B and C in proportion to


the value of the goods belonging to them which are saved.
The 1 M loss will be divided by three

Particular Average

If the goods of A are disposed

But disposition did not inure to the common benefit of other


owners of goods

Suggested Answer

Only A and his insurer will suffer the loss

The insurer is not liable because the vessel violated the


implied warranty of seaworthiness. The loss was also
caused by a peril of the ship and not peril of the sea.

Other owners and their insurers will not contribute in As loss

Is the insurance company liable? Why or why not? (3%)

What is "barratry" in marine insurance? (2%)

Average

Reshipment

Insured peril prevents a ship from completing voyage at an


intermediate port, liability of the marine insurer continues
after reshipment without prejudice to insurer's right to collect
more premiums (133)
In case of reshipment, the insurer of goods is liable for
damages, expenses of discharging, storage, reshipment
and other expenses (134)

For a constructive total loss to exist in marine insurance, it is


required that the person insured relinquish his interest in the
thing insured. This relinquishment must be

A.
B.
C.
D.

actual.
constructive first and if it fails, then actual.
either actual or constructive.
constructive.
Answer:

A. actual.

Abandonment
Kinds of loss in marine

Loss in marine

It is made orally or in writing. If orally, written notice shall be


submitted within 7 days from oral notice (143)

Has the effect of transferring by the insured of his interest, to


the insurer with all chances of recovery and indemnity (146)

Partial

Total
Actual

Bar 2011

Constructive

X Shipping, Co., insured its vessel MV Don Teodoro for


Php100 Million with ABC Insurance, Co. through T, an agent
of X Shipping. During a voyage, the vessel accidentally
caught fire and suffered damages estimated at Php80
Million. T personally informed ABC Insurance that X
Shipping was abandoning the ship.

Later, ABC insurance denied X Shippings claim for loss on


the ground that a notice of abandonment through its agent
was improper. Is ABC Insurance right?

A.
B.

Yes, since X Shipping should have ratified its agents action.


No, since T, as agent of X Shipping who procured the
insurance, can also give notice of abandonment for his
principal.
Yes, since only the agent of X Shipping relayed the fact of
abandonment.
No, since in the first place, the damage was more than 34
of the ship's value.

Total v Partial Loss

Every loss which is not total is partial (128)

Total loss may either be actual or constructive

Actual loss may be presumed from the continued absence


of a ship without being heard of (132)

Actual Loss, 130

total destruction of the thing

irretrievable loss of thing by sinking or being broken up

damage which renders thing valueless for the purpose it is


held

C.
D.

other event which effectively deprives owner of possession


of the thing at the port of destination

Answer

Constructive Total Loss, 133

Also called technical total loss

Loss which gives the person the right to abandon under


Section 141

When there can be abandonment - SECTION 141

>3/4 of the value is actually lost or would have to be spent to


recover it from peril

If the vessel is injured to such an extent as to reduce its


value to >3/4

If insurer pays for loss as if there was actual total loss, BUT there
was no formal abandonment,Insurer is entitled to whatever may
remain of the thing insured or its proceeds of salvage (147)

Who is entitled to freightage in case of abandonment?

If the thing is a ship, and the voyage cannot be performed


without incurring either expense to the insured of >3/4 the
value of the thing abandoned or a risk which a prudent man
would not take under the circumstances
If the thing is cargo or freightage, voyage cannot be
performed, nor another ship be procured within a
reasonable time and with reasonable diligence to forward
the cargo, without incurring like expenses or risk >3/4 of the
value of the vessel.

B. No, since T, as agent of X Shipping who procured the


insurance, can also give notice of abandonment for his
principal.

freightage earned before the loss belongs to the


insurer of the freightage

Freightage earned after the loss belongs to the


insurer of the ship

Insurer refuses valid abandonment

the rights of the insured are not prejudiced by refusal of


insurer to accept abandonment

Abandonment

Neither partial nor conditional (140)

Must be made within a reasonable time after receipt of


reliable information of loss (141)

Insurer is still liable for actual total loss deducting any


amount given to the insured

If information on loss is incorrect or thing is restored and


there is no total loss, abandonment is ineffectual (141)

Acceptance of abandonment may be express or implied.


Mere silence is acceptance

Insured refuses to abandon

Bar 2011

If insured fails to abandon, he can recover actual loss

Illustration

A insures a vessel with B for P1 Million


The vessel's value is reduced to P200,000 due to a
peril of the SEA
TWO CHOICES OF A: Abandon or claim actual loss
o If A abandons

A must immediately give a written


notice of abandonment to B

If B accepts the abandonment, it


must give A P1 Million

B now has all the right with respect to


the vessel

HOWEVER,
freightage
earned
before loss will belong to the insurer
of the goods

Freightage earned after the loss will


belong to the insurer of the vessel

If A does not abandon BUT

B still gives A P1 Million

B will now have the right over the vessel, what remains
of it and proceeds of salvage

A can recover ACTUAL loss or P800,000 since the


vessel is reduced to 20% of its former value of P1
Million
Total

Constructive

Actual

Insured must abandon to getInsured


full amount
>3/4 rule
gets full amount

Measure of Indemnity

Valuation is conclusive between parties in determining total or


partial loss EXCEPT if there is fraud

Marine insurer is liable for partial loss only for such proportion
of the amount insured by him as the loss bears to the value of
the whole interest.

How to estimate loss in open policy (161)

Value of the ship value at the beginning of risk including


articles which adds to its value or to prepare it for the voyage

Value of the cargo actual cost to insured when laden on


board OR market value at the time and place of lading

Value of the freightage is the gross freightage, exclusive of


primage

Cost of insurance shall be added to the estimated value

Effect of an Other Insurance Policy Clause

Generally allowed

Only subject to possible stipulation that insurer must be informed


or must consent to additional insurance policies on the same
property

Bar 2011

If an insurance policy prohibits additional insurance on the


property insured without the insurer's consent, such provision
being valid and reasonable, a violation by the insured
A.
B.

reduces the value of the policy.


avoids the policy.

C.
D.

offsets the value of the policy with the additional


insurancess value.
forfeits premiums already paid.

Answer

B. avoids the policy.

Litigation of Claims

(e) Enlist the aid and support of, and/or deputize any and all
enforcement agencies of the government in the
implementation of its powers and functions under this Code;

Administrative Powers

(f) Issue cease and desist orders to prevent fraud or injury to


the insuring public;

(g) Punish for contempt of the Commissioner, both direct


and indirect, in accordance with the pertinent provisions of
and penalties prescribed by the Rules of Court;

(h) Compel the officers of any registered insurance


corporation or association to call meetings of stockholders
or members thereof under its supervision;

Powers of the Commissioner

Insurance Commissioner

Administrative Powers

Section 437. The Insurance Commissioner shall be appointed by


the President of the Republic of the Philippines for a term of six
(6) years without reappointment and who shall serve as such
until the successor shall have been appointed and qualified. If
the Insurance Commissioner is removed before the expiration of
his term of office, the reason for the removal must be published.

Adjudicatory Powers

(i) Issue subpoena duces tecum and summon witnesses to


appear in any proceeding of the Commission and, in
appropriate cases, order the examination, search and
seizure of all documents, papers, files and records, tax
returns, and books of accounts of any entity or person under
investigation as may be necessary for the proper disposition
of the cases before it, subject to the provisions of existing
laws;

Single claims of P5 Million or below (excluding cost,


attorneys fees and interest)

This jurisdiction is concurrent with the regular courts

(j) Suspend or revoke, after proper notice and hearing, the


license or certificate of authority of any entity or person
under its regulation, upon any of the grounds provided by
law;

Adjudicatory Powers

Administrative Powers

does not cover the relationship between the insurance company


and its agents/brokers but is limited to adjudicating claims and
complaints filed by the insured against the insurance company.

(k) Conduct an examination to determine compliance with


laws and regulations if the circumstances so warrant as
determined by appropriate rules and regulations;

Administrative Powers

(l) Investigate not oftener than once a year from the last
date of examination to determine whether an institution is
conducting its business on a safe and sound basis:
Provided, That, the deficiencies/irregularities found by or
discovered by an audit shall be immediately addressed;

Administrative Powers

(m) Inquire into the solvency and liquidity of the institutions


under its supervision and enforce prompt corrective action;

(n) To retain and utilize, in addition to its annual budget, all


fees, charges and other income derived from the regulation
of insurance companies and other supervised persons or
entities;

(o) To fix and assess fees, charges and penalties as the


Commissioner may find reasonable in the exercise of
regulation; and

(p) Exercise such other


as well as those which
necessary or incidental
Commission to achieve
Code.

Administrative Powers

To impose penalties on insurers:

Fines not less than Five thousand pesos a (P5,000.00) and


not more than Two hundred thousand pesos (P200,000.00);
and

Suspension, or after due hearing, removal of directors


and/or officers and/or agents.

Administrative Powers

At least once a year to examine the affairs, financial


condition and method of business of insurers

To issue licenses/registrations/authority to the ff:

Domestic or foreign insurer (247)

To see that all laws relating to insurance, insurance companies and


other insurance matters, mutual benefit associations, and trusts for
charitable uses are faithfully executed and to perform the duties
imposed upon him by this Code

Administrative Powers

has sole and exclusive authority to regulate the issuance and sale
of variable contracts as defined in Section 238 hereof and to provide
for the licensing of persons selling such contracts, and to issue such
reasonable rules and regulations governing the same.

Administrative Powers

Issue such rulings, instructions, circulars, orders and decisions as


may be deemed necessary to secure the enforcement of the
provisions of this Code to ensure the efficient regulation of the
insurance industry in accordance with global best practices and to
protect the insuring public. Except as otherwise specified, decisions
made by the Commissioner shall be appealable to the Secretary of
Finance.

Administrative Powers

(a) Formulate policies and recommendations on issues


concerning the insurance industry, advise Congress and
other government agencies on all aspects of the insurance
industry and propose legislation and amendments thereto;

(b) Approve, reject, suspend or revoke licenses or


certificates of registration provided for by this Code;

Administrative Powers

(c) Impose sanctions for the violation of laws and the rules,
regulations and orders issued pursuant thereto;

(d) Prepare, approve, amend or repeal rules, regulations


and orders, and issue opinions and provide guidance on
and supervise compliance with such rules, regulations and
orders;

powers as may be provided by law


may be implied from, or which are
to the express powers granted the
the objectives and purposes of this

Reinsurance Broker (license) (Sec. 310)

Insurance Agent and Broker (license) (Sec. 299)

To issue licenses/registrations/authority to the ff:

Resident agent
registration)

Non-life company underwriter (certificate of registration)

Adjusters Actuary

Grounds to revoke agents license

Has willfully violated any provision of this Code; or

Has intentionally made a material misstatement in the


application to qualify for such license; or

SECTION 251. It is unlawful to:

Has obtained or attempted to obtain a license by fraud or


misrepresentation; or

(a) Present or cause to be presented any fraudulent claim for the


payment of a loss under a contract of insurance; and

Has been guilty of fraudulent or dishonest practices; or

Grounds to revoke agents license

Has misappropriated or converted to his own use or illegally


withheld moneys required to be held in a fiduciary capacity;
or

(b) Fraudulently prepare, make or subscribe any writing with intent to


present or use the same, or to allow it to be presented in support of
any such claim. Any person who violates this section shall be
punished by a fine not exceeding twice the amount claimed or
imprisonment of two (2) years, or both, at the discretion of the court.

of

foreign

insurer

(certificate

Unfair Claims Settlement Practices

Not attempting in good faith to effectuate prompt, fair and


equitable settlement of claims submitted in which liability has
become reasonably clean; or
of

Unfair Claims Settlement Practices

Compelling policyholders to institute


suit
to recover amounts due under its
policies by offering without justifiable
reason substantially less than the amounts
ultimately recovered in suits
brought
by
them

Unlawful Claims

Appeal of Insurance Commission cases

Has not demonstrated trustworthiness and competence to


transact business as an insurance agent or insurance
broker in such manner as to safeguard the public; or

If Administrative functions- File a Memorandum of Appeal


within 15 days to the Secretary of Finance (Rule IX, Section
1 of Insurance Memorandum Circular 1-93)

Has materially misrepresented the terms and conditions of


policies or contracts of insurance which he seeks to sell or
has sold; or

If Adjudicatory functions- Court of Appeals (depending on


mode of appeal)

Grounds to revoke agents license

At a glance

Has failed to pass the written examination prescribed, if not


otherwise exempt from taking the same.

Period to pay claims in life and non-life (60 days; 30-60-90


rule)

"In addition to the foregoing causes, no license to act as


insurance agent or insurance broker shall be renewed if the
holder thereof has not been actively engaged as such agent
or broker in accordance with such rules as the
Commissioner may prescribe.

Facility of payment clause

Notice of loss in fire insurance

At a glance

Actual loss

Constructive loss- > rule on abandonment

At a glance

Jurisdiction of the insurance commissioner

Jurisdiction of regular courts

Unfair claims settlement practices

Administrative Powers

Suspension or Revocation of certificate of authority on the ff


grounds:

Insurer is in an unsound condition

Insurer failed to comply with the provisions of law


or regulations obligatory upon it

Administrative Powers

Framework

Insurer's condition or method of business is hazardous to


the public or its policyholders

PART FIVE

Insurer's paid up capital or available assets or security


deposits is impaired or is deficient

GROUNDS FOR RESCISSION


PDIC LAW

Margin of solvency is deficient

GROUNDS

Commission of any of unfair settlement practices

Concealment

Unfair Claims Settlement Practices

Misrepresentation

Knowingly misrepresenting to claimants pertinent facts


or policy provisions relating to coverage at issue

Breach of warranty, express or implied

Other grounds - Section 64-65

Failing to acknowledge with reasonable promptness


pertinent communications with respect to claims
arising under its policies

CONCEALMENT

CONCEALMENT

Unfair Claims Settlement Practices

Failing to adopt and implement reasonable standards


for the prompt investigation of claims arising under its
policies

neglect to communicate that which a party knows


and ought to communicate.

May be intentional or unintentional

Requisites of Concealment

party knows the fact which he neglects


communicate or disclose

(b) party concealing is duty bound to

to

disclose such fact to the other

A applied for non-medical life insurance. He did not inform


the insurer that he was examined and confined at St. Lukes
Hospital where he was diagnosed for lung cancer. A died in
a plane crash. Is the insurer liable considering that the fact
concealed had no bearing with the cause of death of A?
Answer

The insurer is not liable. The concealed fact is material to


the approval and issuance of the policy. According to a
decided case, the insured need not die of the disease he
failed to disclose to the insurer. It is sufficient that his nondisclosure misled the insurer in forming his estimate of the
risks of the proposed insurance policy or in making further
inquiries.

All facts within his knowledge

Bar 2011

Material to the contract

Other party has no means of ascertaining

He makes no warranty

An insured, who gains knowledge of a material fact already


after the effectivity of the insurance policy, is not obliged to
divulge it. The reason for this is that the test of concealment
of material fact is determined

Information which prove or tend to prove falsity of


warranty

Bar 2011

A. at the time of the issuance of the policy.


B. at any time before the payment of premium.
C. at the time of the payment of the premium.
D. at any time before the policy becomes effective.

Answer

D. at any time before the policy becomes effective.

WAIVER OF RIGHT TO INFORMATION

By terms of insurance OR

Neglect to make inquiries

Requisites of Concealment

a)

party concealing makes no warranty as to concealed fact

b)

other party has no means of ascertaining the fact concealed

WHAT MUST BE COMMUNICATED

WHAT NEED NOT BE COMMUNICATED

Those which the other knows

Those which, in the exercise of ordinary case, the other


ought to know and which the other has no reason to
suppose him ignorant

WHAT NEED NOT BE COMMUNICATED

Those of which the other waives communication

Those which prove or tend to prove the existence of a


risk excluded by a warranty, and which are not
otherwise material; and

Those which relate to a risk excepted from the policy,


and which are not otherwise material

What need not be communicated

General causes open to his inquiry which may affect the


political or material perils contemplated (32)

General usages of trade (32)

What need not be communicated

Nature or amount of interest, except in answer to an


inquiry (34)

TEST OF MATERIALITY
Determined not by event

Probable and reasonable influence of facts upon the


party to whom communication is due in forming his
estimate of the disadvantages of the proposed contract
OR in making his inquiries

TEST OF MATERIALITY

Assessment of risk, in making/omitting further


inquiries, cause him to reject the risk or accept it at
higher premium rate/different terms

Materiality

Sunlife v. CA, 245 SCRA 268 - where the applicant


concealed prior medical history and he died in a plane
crash, there was still concealment notwithstanding the
apparent lack of relation between the fact concealed and the
cause of death
Bar 2001

concealment entitles the unguilty party to


rescind

CONCEALMENT
In Marine Insurance

in addition to Section 28

all information he possesses material to the risk


except those in Section 30

CONCEALMENT
In Marine Insurance

state exact and whole truth in relation to all matters that


he represents

information of belief or expectation of a third person as


to a material fact is MATERIAL

insured is presumed to know prior loss at time of


insuring

Concealment in Marine Insurance

General Rule: Concealment entitles the innocent party to


rescind

Exception: Section 110

Information of his own judgment (35)

Section 110
Concealment as to following does NOT vitiate the entire
contract but exonerates the insurer from loss resulting from risk
concealed.
(a) national character of insured
(b) liability of thing insured to capture and detention

Section 110

c) liability to seizure from breach of foreign laws of trade

an investigation into the claim and came out withthe


following findings:

(d) the want of necessary document


(e) the use of false and simulated papers

INCONTESTABILITY
LIFE INSURANCE

CLAUSE

IN

Section 48, 2nd par if life insurance has been in force during
the lifetime of the insured for a period of 2 years from DATE OF
ISSUE or LAST REINSTATEMENT
the insurer cannot prove that the policy is void ab initio or is
rescindible
by reason of fraudulent concealment or misrepresentation of
the insured or his agent.

1. Sotero did not personally apply for insurance coverage,


as she was illiterate.

2. Sotero was sickly since 1990.

3. Soterodid not have the financial capability to pay the


premium on the policy.

4. Sotero did not sign the application for insurance.

5. Aban was the one who filed the insurance application and
designated herself as the beneficiary.

Bar 2014

For the above reasons and claiming fraud, Ilocos Life


denied Abans claim on April 16, 1997, but refunded the
premium paid on the policy. (6%)

(A) May Sotero validly designate her niece as beneficiary?

(B) May the incontestability period set in even in cases of


fraud as alleged in this case?

Illustration

A is issued a life insurance policy on April 2, 2000

He conceals the fact that he has tuberculosis

A dies on April 3, 2002.

(C) Is Aban entitled to claim the proceeds under the policy?

Insurance company must pay.


Although there was
concealment, the policy has been in force during the lifetime
of A for 2 years from April 2, 2000.

Suggested Answer

(B) May the incontestability period set in even in cases of


fraud as alleged in this case?

The incontestability clause shall not apply because the


niece did not have insurable interest on the life of her aunt.
Hence, she cannot use the clause to recover.

Suggested Answer

(c) Is Aban entitled to claim the proceeds under the policy?

No Aban is not entitled to the proceeds because she was


the one who obtained the policy on the life of her aunt and
she does not have insurable interest. Hence, the policy is
void.

MISREPRESENTATION

MISREPRESENTATION

Representations factual statements made by the


insured at the time of, or prior to the issuance of the
policy

MISREPRESENTATION

Statement

(a) as a fact of something which is untrue

When Incontestability Clause DOES NOT apply

Person has no insurable interest

Cause of death is an excepted peril

Premiums have not been paid

Conditions of the policy relating to military or naval service


have been violated

When
Incontestability
DOES NOT apply

Fraud of a vicious type is present when policy was taken out

Beneficiary failed to furnish proof of death or to comply with


any condition imposed by the policy after the loss has
happened

That the action was not brought within time specified

Bar 2012

The "incontestability clause" in a Life Insurance Policy


means ---

Clause

A.
that life insurance proceeds cannot be claimed two (2) years
after the death of the insured.
B.
that two (2) years after date of issuance or reinstatement of
the life insurance policy, the insurer cannot anymore prove that the
policy is void ab initio or rescindable by reason of fraudulent
concealment or misrepresentation of the insured.
C.
that the insured can still claim from the insurance policy
after two (2) years even though premium is not paid.

(b) which the insured stated with knowledge that it


is untrue and with an intent to deceive, or which he
states positively as true without knowing it to be true and which
has a tendency to mislead, and
(c) where such fact in either case is material to the
risk

D.
that the insured can only claim proceeds in a life insurance
policy two (2) years after death.

Bar 2014

On July 3, 1993, Delia Sotero (Sotero) took out a life


insurance policy from Ilocos Bankers Life Insurance
Corporation (Ilocos Life) designating Creencia Aban(Aban),
her niece, as her beneficiary. Ilocos Life issued Policy No.
747, with a face value of P100,000.00, in Soteros favor on
August 30, 1993, after the requisite medical examination
and payment of the premium.

On April 10, 1996, Sotero died. Aban filed a claim for the
insurance proceeds on July 9, 1996. Ilocos Life conducted

Test of Falsity & Materiality

Sec. 44 when the facts fail to correspond with


or stipulations

its

assertion

Sec. 45 materiality is determined using the same test in


concealment (Sec. 31)

Misrepresentation as a ground to rescind

entitled to rescind from the time the representation


becomes false

right to rescind by insurer is waived by acceptance of


premiums despite knowledge of ground to rescind

Misrepresentations
in Life Insurance

no rescission

proceeds shall be such as the premium would have


purchased at the correct age

when made in good faith upon reasonable grounds


to avoid a peril

Misrepresentation
in Marine Insurance

in good faith to save human life or to relieve


another vessel

entitles the insurer to rescind

eventual falsity of a representation as to expectation


without fraud, does NOT avoid a marine insurance
contract

Bar 2011

Shipowner X, in applying for a marine insurance policy from


ABC, Co., stated that his vessel usually sails middle of
August and with normally 100 tons of cargo. It turned out
later that the vessel departed on the first week of September
and with only 10 tons of cargo. Will this avoid the policy that
was issued?

as

to

Proper Deviation, 124

caused by circumstances outside the control of the master


or owner

when necessary to comply with a warranty or to avoid peril

Proper Deviation, 124

Age

Bar 2011

A. Yes, because there was breach of implied warranty.


B. No, because there was no intent to breach an implied
warranty. C. Yes, because it relates to a material
representation.
D. No, because there was only representation of intention.

Bar 2011

T, the captain of MV Don Alan, while asleep in his cabin,


dreamt of an Intensity 8 earthquake along the path of his
ship. On waking up, he immediately ordered the ship to
return to port. True enough, the earthquake and tsunami
struck three days later and his ship was saved. Was the
deviation proper?

Bar 2011

A. Yes, because the deviation was made in good faith and


on a reasonable ground for believing that it was necessary
to avoid a peril.

B. No, because no reasonable ground for avoiding a peril


existed at the time of the deviation.

C. No, because T relied merely on his supposed gift of


prophecy.

D. Yes, because the deviation took place based on a


reasonable belief of the captain.

Answer

D. No, because there was only representation of intention.

Answer

Breach of Warranty

B. No, because no reasonable ground for avoiding a peril


existed at the time of the deviation.

Warranty

Nationality

Either express or implied

May relate to the past, present or future

Implied Warranties in Marine Insurance

Section 120 - where the nationality or neutrality of the ship is


expressly warranted, it is impliedly warrantied that the ship
will carry the requisite documents to show such nationality
or neutrality and it will not carry any document which will
cast suspicion thereon.

Other
Ground
non life insurance

Seaworthiness - 113
Nationality or neutrality 120
Improper deviation -121
Illegal ventures

Bar 2000

What warranties are implied in marine insurance? (2%)

Seaworthiness

Section 114 - a ship is seaworthy if reasonably fit to perform


the service, and to encounter the ordinary perils of the
voyage contemplated by the parties to the policy

Seaworthiness

Section 116 - extends not only to the seaworthiness of the


ship itself but requires that it be properly laden, provided
with competent master, sufficient number of competent
officers and seamen, requisite appurtenances and
equipment and other implements for the voyage

Improper Deviation

Section 123 - deviation is a departure from the course of the


voyage insured or unreasonable delay in pursuing the
voyage or the commencement of an entirely different
voyage

for

Rescission

in

non- payment of premium


conviction of a crime arising out of acts increasing the
hazard insured against
discovery of fraud / material misrepresentation

Other Ground for Rescission in non life insurance

discovery of willful or reckless acts or omissions


increasing the hazard insured against
physical changes in the property becoming uninsurable
Discovery of other insurance coverage that makes the
total insurance in excess of the value of the property insured
determination by Insurance Commissioner that
continuation of the policy would violate or would place the
insurer in violation of the Insurance Code

Notice of Cancellation

In writing

Mailed or delivered to named insured at address shown


in the policy OR

or to his broker provided the broker is authorized in


writing by the policy owner to receive the notice of
cancellation on his behalf

Notice of Cancellation

Shall state

grounds relied on

upon written request, insurer will furnish fact


on which cancellation is based

Rescission must be exercised

Before the commencement of any action on the


contract

In which motor vehicle liability insurance notice of


cancellation must be sent to the land transportation
owner/operator and the LTO at least 15 days before date
of effectivity