Professional Documents
Culture Documents
INSURANCE CODE
(P.D. No. 1460)
I. GENERAL CONCEPTS
CONTRACT OF INSURANCE
An agreement whereby one undertakes for a consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event. (Sec. 2, par. 2, IC)
DOING AN INSURANCE BUSINESS OR TRANSACTING AN INSURANCE BUSINESS (Sec. 2, par. 4)
1. Making or proposing to make, as insurer, any insurance contract;
2.
3.
4.
Making or proposing to make, as surety, any contract of suretyship as a vocation, not as a mere incident
to any other legitimate business of a surety;
Doing any insurance business, including a reinsurance business;
Doing or proposing to do any business in substance equivalent to any of the foregoing
II. CHARACTERISTICS OF AN INSURANCE CONTRACT (The Insurance Code of the Philippines Annotated,
Hector de Leon, 2002 ed.)
1. Consensual it is perfected by the meeting of the minds of the parties.
2. Voluntary the parties may incorporate such terms and conditions as they may deem convenient.
3. Aleatory it depends upon some contingent event.
4. Unilateral imposes legal duties only on the insurer who promises to indemnify in case of loss.
5. Conditional It is subject to conditions the principal one of which is the happening of the event insured
against.
6. Contract of indemnity Except life and accident insurance, a contract of insurance is a contract of
indemnity whereby the insurer promises to make good only the loss of the insured.
7.
Personal each party having in view the character, credit and conduct of the other.
REQUISITES OF A CONTRACT OF INSURANCE (The Insurance Code of the Philippines Annotated, Hector de
Leon, 2002 ed.)
1. A subject matter which the insured has an insurable interest.
2. Event or peril insured against which may be any future contingent or unknown event, past or future and a
duration for the risk thereof.
3. A promise to pay or indemnify in a fixed or ascertainable amount.
4. A consideration known as premium.
5. Meeting of the minds of the parties.
5 CARDINAL PRINCIPLES IN INSURANCE
1. Insurable Interest
2. Principle of Utmost Good Faith
An insurance contract requires utmost good faith (uberrimae fidei) between the parties. The applicant is
enjoined to disclose any material fact, which he knows or ought to know.
Reason: An insurance contract is an aleatory contract. The insurer relies on the representation of the
applicant, who is in the best position to know the state of his health.
3. Contract of Indemnity
It is the basis of all property insurance. The insured who has insurable interest over a property is only
entitled to recover the amount of actual loss sustained and the burden is upon him to establish the amount of
such loss (Reviewer on Commercial Law, Professors Sundiang and Aquino)
Rules:
a. Applies only to property insurance except when the creditor insures the life of his debtor.
b. Life insurance is not a contract of indemnity.
c. Insurance contracts are not wagering contracts. (Sec. 4)
4. Contract of Adhesion (Fine Print Rule)
Most of the terms of the contract do not result from mutual negotiations between the parties as they are
prescribed by the insurer in final printed form to which the insured may adhere if he chooses but which he
cannot change. (Rizal Surety and Insurance Co., vs. CA, 336 SCRA 12)
5. Principle of Subrogation
It is a process of legal substitution where the insurer steps into the shoes of the insured and he avails of the
latters rights against the wrongdoer at the time of loss.
The principle of subrogation is a normal incident of indemnity insurance as a legal effect of payment; it
inures to the insurer without any formal assignment or any express stipulation to that effect in the policy. Said
right is not dependent upon nor does it grow out of any private contract. Payment to the insured makes the
insurer a subrogee in equity. (Malayan Insurance Co., Inc. v. CA, 165 SCRA 536; see also Art. 2207, NCC)
Purposes: (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.)
1. To make the person who caused the loss legally responsible for it.
2. To prevent the insured from receiving a double recovery from the wrongdoer and the insurer.
3. To prevent tortfeasors from being free from liabilities and is thus founded on considerations of public
policy.
Rules:
1. Applicable only to property insurance.
2. The insurer can only recover from the third person what the insured could have recovered.
3. There can be no subrogation in cases:
a. Where the insured by his own act releases the wrongdoer or third party liable for the loss or damage;
b. Where the insurer pays the insured the value of the loss without notifying the carrier who has in good faith
settled the insureds claim for loss;
c. Where the insurer pays the insured for a loss or risk not covered by the policy. (Pan Malayan Insurance
Company v. CA, 184 SCRA 54)
d. In life insurance
e. For recovery of loss in excess of insurance coverage
CONSTRUCTION OF INSURANCE CONTRACT
The ambiguous terms are to be construed strictly against the insurer, and liberally in favor of the insured.
However, if the terms are clear, there is no room for interpretation. (Calanoc vs. Court of Appeals, 98 Phil. 79)
III. DISTINGUISHING ELEMENTS OF AN INSURANCE CONTRACT
1. The insured possesses an insurable interest susceptible of pecuniary estimation;
2. The insured is subject to a risk of loss through the destruction or impairment of that interest by the
happening of designated perils;
3. The insurer assumes that risk of loss;
4. Such assumption is part of a general scheme to distribute actual losses among a large group or substantial
number of persons bearing somewhat similar risks; and
5. The insured makes a ratable contribution (premium) to a general insurance fund.
A contract possessing only the first 3 elements above is a risk-shifting device. If all the elements, it is a riskdistributing device. (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.)
IV. PERFECTION OF AN INSURANCE CONTRACT
An insurance contract is a consensual contract and is therefore perfected the moment there is a meeting of
minds with respect to the object and the cause or consideration.
What is being followed in insurance contracts is what is known as the cognition theory. Thus, an
acceptance made by letter shall not bind the person making the offer except from the time it came to his
knowledge. (Enriquez vs. Sun Life Assurance Co. of Canada, 41 Phil. 269)
Binding Receipt
A mere acknowledgment on behalf of the company that its branch office had received from the applicant the
insurance premium and had accepted the application subject to processing by the head office.
Cover Note (Ad Interim)
A concise and temporary written contract issued to the insurer through its duly authorized agent embodying
the principal terms of an expected policy of insurance.
Purpose: It is intended to give temporary insurance protection coverage to the applicant pending the
acceptance or rejection of his application.
Duration: Not exceeding 60 days unless a longer period is approved by Insurance Commissioner (Sec. 52).
Riders
Printed stipulations usually attached to the policy because they constitute additional stipulations between
the parties. (Ang Giok Chip vs. Springfield, 56 Phil. 275)
In case of conflict between a rider and the printed stipulations in the policy, the rider prevails, as being a
more deliberate expression of the agreement of the contracting parties. (C. Alvendia, The Law of Insurance in
the Philippines, 1968 ed.)
Clauses
An agreement between the insurer and the insured on certain matter relating to the liability of the insurer in
case of loss. (Prof. De Leon, p.188)
Endorsements
Any provision added to the contract altering its scope or application. (Prof. De Leon, p.188)
POLICY OF INSURANCE
The written instrument in which a contract of insurance is set forth. (Sec. 49)
Contents: (Sec. 51)
1.
2.
3.
4.
5.
6.
7.
Parties
Amount of insurance, except in open or running policies;
Rate of premium;
Property or life insured;
Interest of the insured in the property if he is not the absolute owner;
Risk insured against; and
Duration of the insurance.
Persons entitled to recover on the policy (sec. 53): The insurance proceeds shall be applied exclusively
to the proper interest of the person in whose name or to whose benefit it is made, unless otherwise specified in
the policy.
Kinds:
1. OPEN POLICY value of thing insured is not agreed upon, but left to be ascertained in case of loss. (Sec.
60)
The actual loss, as determined, will represent the total indemnity due the insured from the insurer
except only that the total indemnity shall not exceed the face value of the policy. (Development Insurance
Corp. vs. IAC, 143 SCRA 62)
2. VALUED POLICY definite valuation of the property insured is agreed by both parties, and written on the
face of policy. (Sec. 61)
In the absence of fraud or mistake, the agreed valuation will be paid in case of total loss of the
property, unless the insurance is for a lower amount.
3. RUNNING POLICY contemplates successive insurances and which provides that the object of the policy
may from time to time be defined (Sec. 62)
V. TYPES OF INSURANCE CONTRACTS
1. Life insurance
a. Individual life (Secs. 179183, 227)
b. Group life (Secs. 50, last par., 228)
c. Industrial life (Secs. 229231)
2. Non-life insurance
a. Marine (Secs. 99166)
b. Fire (Secs. 167173)
c. Casualty (Sec. 174)
3. Contracts of bonding or suretyship (Secs. 175178)
Note:
1. Health and accident insurance are either covered under life (Sec. 180) or casualty insurance. (Sec. 174).
2. Marine, fire, and the property aspect of casualty insurance are also referred to as property insurance.
VI. PARTIES TO INSURANCE CONTRACT
1.
i.
A person who insures his own life can designate any person as his beneficiary, whether or not the
beneficiary has an insurable interest in the life of the insured subject to the limitations under Art.
739 and Art. 2012 of the NCC.
Reason: in essence, a life insurance policy is no different form a civil donation insofar as the
beneficiary is concerned. Both are founded on the same consideration of liberality. (Insular Life
vs. Ebrado, 80 SCRA 181)
ii.
A person who insures the life of another person and name himself as the beneficiary must have
an insurable interest in such life. (Sec. 10)
iii. As a general rule, the designation of a beneficiary is revocable unless the insured expressly
waived the right to revoke in the policy. (Sec. 11)
iv.
The interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary is the
principal accomplice or accessory in willfully bringing about the death of the insured in which event, the
nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified.
(Sec. 12)
b.
PROPERTY
The beneficiary of property insurance must have an insurable interest in such property, which must
exist not only at the time the policy takes effect but also when the loss occurs. (Sec. 13 and 18).
Effects of Irrevocable Designation Of Beneficiary
Insured cannot:
1.
2.
3.
4.
5.
The insured does not even retain the power to destroy the contract by refusing to pay the premiums for the
beneficiary can protect his interest by paying such premiums for he has an interest in the fulfillment of the
obligation. (Vance, p. 665, cited in de Leon, p. 101, 2002 ed.)
VII. INSURABLE INTEREST
A. In General
A person has an insurable interest in the subject matter if he is so connected, so situated, so circumstanced,
so related, that by the preservation of the same he shall derive pecuniary benefit, and by its destruction he
shall suffer pecuniary loss, damage or prejudice.
B. Life
Every person has an insurable interest in the life and health:
a. of himself, of his spouse and of his children;
b. of any person on whom he depends wholly or in part for education or support;
c. of any person under a legal obligation to him to pay money or respecting property or services, of
which death or illness might delay or prevent performance; and
d. of any person upon whose life any estate or interest vested in him depends. (Sec. 10)
When it should exist: When the insurance takes effect; not thereafter or when the loss occurs.
Amount:
GENERAL RULE: There is no limit in the amount the insured can insure his life.
EXCEPTION: In a creditor-debtor relationship where the creditor insures the life of his debtor, the limit of
insurable interest is equal to the amount of the debt.
Note: If at the time of the death of the debtor the whole debt has already been paid, the creditor can no
longer recover on the policy because the principle of indemnity applies.
C. Property
Every interest in property whether real or personal, or any relation thereto, or liability in respect thereof, of
such nature that the contemplated peril might directly damnify the insured (Sec. 13), which may consist in:
1. an existing interest;
2. any inchoate interest founded on an existing interest; or
3. an expectancy coupled with an existing interest in that out of which the expectancy arises. (Sec.
14)
When it should exist: When the insurance takes effect and when the loss occurs, but need not exist in the
meantime.
Amount: The measure of insurable interest in property is the extent to which the insured might be
damnified by loss or injury thereof. (Sec. 17)
INSURABLE INTEREST IN LIFE
Must exist only at the time the policy takes effect and need not exist
at the time of loss
Unlimited except in life insurance effected by creditor on life of
debtor.
INSURABLE INTEREST IN
PROPERTY
Must exist at the time the policy takes
effect and when the loss occurs
Limited to actual value of interest in
property insured.
An expectation of a benefit to be
derived from the continued existence
of the property insured must have a
legal basis.
The beneficiary need not have an insurable interest over the life of
the insured if the insured himself secured the policy. However, if the
life insurance was obtained by the beneficiary, the latter must have
insurable interest over the life of the insured.
SPECIAL CASES
1. In case of a carrier or depositary
A carrier or depository of any kind has an insurable interest in a thing held by him as such, to the extent of
his liability but not to exceed the value thereof (Sec. 15)
2. In case of a mortgaged property
The mortgagor and mortgagee each have an insurable interest in the property mortgaged and this interest
is separate and distinct from the other.
a. Mortgagor As owner, has an insurable interest therein to the extent of its value, even though the
mortgage debt equals such value. The reason is that the loss or destruction of the property insured will not
extinguish the mortgage debt.
b. Mortgagee His interest is only up to the extent of the debt. Such interest continues until the mortgage
debt is extinguished.
The lessor cannot be validly a beneficiary of a fire insurance policy taken by a lessee over his merchandise,
and the provision in the lease contract providing for such automatic assignment is void for being contrary to
law and public policy. (Cha vs. Court of Appeals, 227 SCRA 690)
GENERAL RULE: No policy issued by an insurance company is valid and binding until actual payment of
premium. Any agreement to the contrary is void. (Sec. 77)
EXCEPTIONS:
1.
In case of life or industrial life insurance, when the grace periods applies; (Sec. 77)
2.
When the insurer makes a written acknowledgment of the receipt premium; (Sec. 78)
3.
Section 77 may not apply if the parties have agreed to the payment of the premium in installments and
partial payment has been made at the time of the loss. (Makati Tuscany Condominium Corp. v. CA, 215
SCRA 462)
4.
Where a credit term has been agreed upon. (UCPB vs. Masagana Telemart, 308 SCRA 259)
5.
Where the parties are barred by estoppel. (UCPB vs. Maagana Telemart, 356 SCRA 307)
Section 77 merely precludes the parties from stipulating that the policy is valid even if the premiums are not
paid. (Makati Tuscany Condominium Corp. v. CA, 215 SCRA 462)
Effect of Acknowledgment of Receipt of Premium in Policy: 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. (Sec. 78)
1.
If the thing insured was never exposed to the risks insured against; (Sec. 79)
2.
If contract is voidable due to the fraud or misrepresentation of insurer or his agents; (Sec.
81)
3.
If contract is voidable because of the existence of facts of which the insured was ignorant
without his fault; (Sec. 81)
4.
When by any default of the insured other than actual fraud, the insurer never incurred
liability; (Sec. 81)
5.
When rescission is granted due to the insurers breach of contract. (Sec. 74)
B. Pro rata:
1. When the insurance is for a definite period and the insured surrenders his policy before the
termination thereof;
Exceptions:
a. policy not made for a definite period of time
b. short period rate is agreed upon
c. life insurance policy
2. When there is over-insurance (Sec. 82);
Instances when premiums are not recoverable:
1. When the risk has already attached and the risk is entire and indivisible.
2. In life insurance.
3. When the contract is rescindable or rendered void ab initio by the fraud of the insured.
4. When the contract is illegal and the parties are in pari delicto.
PREMIUM
ASSESSMENT
Not a debt.
X. TRANSFER OF POLICY
1. Life Insurance
It can be transferred even without the consent of the insurer except when there is a stipulation requiring the
consent of the insurer before transfer. (Sec. 181)
Reason: The policy does not represent a personal agreement between the insured and the insurer.
2. Property insurance
It cannot be transferred without the consent of the insurer.
Reason: The insurer approved the policy based on the personal qualification and the insurable interest of the
insured.
3. Casualty insurance
It cannot be transferred without the consent of the insurer. (Paterson cited in de Leon p. 82)
Reason: The moral hazards are as great as those of property insurance.
CHANGE OF INTEREST IN THE THING INSURED
The mere (absolute) transfer of the 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. (Sec. 58)
Reason: Insurance contract is personal.
GENERAL RULE: A change of interest in any part of a thing insured unaccompanied by a corresponding
change of interest in the insurance suspends the insurance to an equivalent extent, until the interests in the
thing and the interest in the insurance are vested in the same person. (Sec. 20)
EXCEPTIONS:
1.
2.
Change in interest in the thing insured after occurrence of an injury which results in a loss.
(Sec. 21);
3.
Change in interest in one or more of several distinct things separately insured by one policy.
(Sec. 22);
4.
Change of interest, by will or succession, on the death of the insured. (Sec. 23);
5.
Transfer of interest by one of several partners, joint owners, or owners in common, who are
jointly insured, to others. (Sec. 24);
6.
When a policy is so framed that it will inure to the benefit of whomsoever, during the
continuance of the risk, may become the owner of the interest insured. (Sec. 57);
7.
When there is an express prohibition against alienation in the policy, in case of alienation, the
contract of insurance is not merely suspended but avoided. (Art. 1306, NCC).
XI. ASCERTAINMENT AND CONTROL OF RISK AND LOSS
A. Four Primary Concerns of the Parties:
1. Correct estimation of the risk;
2. Precise delimitation of the risk;
b. IMPLIED - it is deemed included in the contract although not expressly mentioned. Example: In marine
insurance, seaworthiness of the vessel.
Effects of breach of warranty:
a. Material
GENERAL RULE: Violation of material warranty or of a material provision of a policy will entitle the other
party to rescind the contract. (Sec. 74)
EXCEPTIONS:
a.
Loss occurs before the time of performance of the warranty.
b.
The performances becomes unlawful at the place of the contract.
c.
Performance becomes impossible. (Sec. 73)
b. Immaterial (ex. Other insurance clause)
GENERAL RULE: It will not avoid the policy.
EXCEPTION: When the policy expressly provides or declares that a violation thereof will avoid it. (Sec. 75)
WARRANTY
REPRESENTATION
Presumed material
4. Conditions Events signifying in its broadest sense either an occurrence or a non-occurrence that alters
the previously existing legal relations of the parties to the contract. They may be conditions precedent or
conditions subsequent.
Effect of breach:
a. Condition precedent prevents the accrual of cause of action
b. Condition subsequent avoids the policy or entitles the insurer to rescind
The insurer may also protect himself against fraudulent claims of loss and this he attempts to do by
inserting in the policy various conditions which take the form of conditions precedent. For instance, there are
conditions requiring immediate notice of loss or injury and detailed proofs of loss within a limited period.
5. Exceptions Provisions that may specify excepted perils. It makes more definite the coverage indicated by
the general description of the risk by excluding certain specified risk that otherwise would be included under
the general language describing the risks assumed.
Effect: Limit the coverage of the contract.
RESCISSION
Grounds:
A. Concealment
B. Misrepresentation
C. Breach of material warranty
D. Breach of a condition subsequent
Waiver of the right to rescind: Acceptance of premium payments despite the knowledge of the ground for
rescission. (Sec. 45)
Limitations on the right of the insurer to rescind:
1. Non-life such right must be exercised prior to the commencement of an action on the contract;
2. Life such right must be availed of during the first two years from the date of issue of policy or its last
reinstatement; prior to incontestability. (Sec. 48)
CANCELLATION OF NON-LIFE INSURANCE POLICY
Right of the insurer to abandon the contract on the occurrence of certain grounds after the effectivity date of
a non-life policy.
Grounds:
1.
2.
3.
4.
5.
6.
Non-payment of premium;
Conviction of a crime out of acts increasing the hazard insured against;
Discovery of fraud or material misrepresentation;
Discovery of willful or reckless acts of omissions increasing the hazard insured against;
Physical changes in property making the property uninsurable; and
Determination by the Insurance Commissioner that the continuation of the policy would violate the
Insurance Code. (Sec. 64)
Requirements:
1.
2.
3.
4.
1.
2.
BARRED DEFENSES
OF THE INSURER
Policy is void ab initio
Policy is rescindable by reason of the
fraudulent concealment or misrepresentation
of the insured or his agent
XIII.
A. OVER-INSURANCE results when the insured insures the same property for an amount greater than the
value of the property with the same insurance company.
Effect in case of loss:
1. The insurer is bound only to pay to the extent of the real value of the property lost;
2. The insured is entitled to recover the amount of premium corresponding to the excess in value of the
property;
B. DOUBLE INSURANCE exists where same person is insured by several insurers separately in respect to
same subject and interest. (Sec. 93)
Requisites:
1. Person insured is the same;
2. Two or more insurers insuring separately;
3. Subject matter is the same;
4. Interest insured is also the same;
5. Risk or peril insured against is likewise the same.
Effects: Where double insurance is allowed, but over insurance results: (Sec. 94)
1.
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;
2.
Where the policy under which the insured claims is a valued policy, the
insured must give credit as against the valuation for any sum received by him under any other policy
without regard to the actual value of the subject matter insured;
3.
Where the policy under which the insured claims is an unvalued policy he
must give credit, as against the full insurable value, for any sum received by him under any policy;
4.
Where the insured receives any sum in excess of the valuation in the case
of valued policies, or of the insurable value in the case of unvalued policies, he must hold such sum in
trust for the insurers, according to their right of contribution among themselves;
5.
Each insurer is bound, as between himself and the other insurers, to
contribute ratably to the loss in proportion to the amount for which he is liable under his contract.
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REINSURANCE
TERMS:
1. Reinsurance treaty Merely an agreement between two insurance companies whereby one agrees to
cede and the other to accept reinsurance business pursuant to provisions specified in the treaty. (Prof. De
Leon, p. 306)
2. Automatic reinsurance The reinsured is bound to cede and the reinsurer is obligated to accept a fixed
share of the risk which has to be reinsured under the contract. (Prof. De Leon, p. 305)
3. Facultative reinsurance There is no obligation to cede or accept participation in the risk each party
having a free choice. But once the share is accepted, the obligation is absolute and the liability thereunder can
be discharged only by payment. (Equitable Ins. & Casualty Co. vs. Rural Ins. & Surety Co., Inc. 4 SCRA 343)
4. Retrocession A transaction whereby the reinsurer in turn, passes to another insurer a portion of the risk
reinsured. It is really the reinsurance of reinsurance. (Prof. De Leon, p. 305)
XIV.
A. LOSS, IN INSURANCE
Injury or damage sustained by the insured in consequence of the happening of one or more of the accidents
or misfortune against which the insurer, in consideration of the premium, has undertaken to indemnify the
insured. (Bonifacio Bros. Inc. vs. Mora, 20 SCRA 261)
Loss for which insurer is liable
1.
2.
3.
4.
5.
Loss the proximate cause of which is the peril insured against (Sec. 84);
Loss the immediate cause of which is the peril insured against except
where proximate cause is an excepted peril;
Loss through negligence of insured except where there was gross
negligence amounting to willful acts; and
Loss caused by efforts to rescue the thing from peril insured against;
If during the course of rescue, the thing is exposed to a peril not insured
against, which permanently deprives the insured of its possession, in
whole or in part (Sec. 85).
Proximate Cause An event that sets all other events in motion without any intervening or independent
case, without which the injury or loss would not have occurred.
REQUISITES FOR RECOVERY UPON INSURANCE
1. The insured must have insurable interest in the subject matter;
2. That interest is covered by the policy;
3. There must be a loss; and
4. The loss must be proximately caused by the peril insured against.
NOTICE OF LOSS
In fire insurance
Required
11
Failure to give notice will not exonerate the insurer, unless there is
a stipulation in the policy requiring the insured to do so.
B. CLAIMS SETTLEMENT
The indemnification of the loss of the insured.
TIME FOR PAYMENT OF CLAIMS
NON-LIFE POLICIES
LIFE POLICIES
a. Maturing upon the expiration of the term
The proceeds are immediately payable to the
insured, unless they are made payable in
installments or as annuity, in which case, the
installments or annuities shall be paid as they
become due.
b. Maturing at the death of the insured,
occurring prior to the expiration of the term
stipulated The proceeds are payable to the
beneficiaries within 60 days after presentation
and filing of proof of death.
In case of an unreasonable delay in the payment of the insureds claim by the insurer, the insured can
recover: 1) attorneys fees; 2) expenses incurred by reason of the unreasonable withholding; 3) interest at
double the legal interest rate fixed by the Monetary Board; and 4) the amount of the claim. (Zenith Insurance
Corp. vs. CA, 185 SCRA 398)
XV. PRESCRIPTIVE PERIOD (Secs. 63 & 384)
Rules:
1. In the absence of an express stipulation in the policy, it being based on a written contract, the action
prescribes in 10 years.
2. However the parties may validly agree on a shorter period provided it is not less than one year from the
time the cause of action accrues.
3. The cause of action accrues from the rejection of the claim of the insured and not from the time of loss.
It shall commence from the denial of the claim, not from the resolution of the motion for reconsideration,
otherwise it can be used by the insured as a scheme or device to waste time until the evidence which may be
used against him is destroyed. (Sun Insurance Office, Ltd. v. CA, 195 SCRA)
4. In CMVLI, the written notice of claim must be filed within 6 months from the date of the accident otherwise
the claim is deemed waived. The suit for damages either with the proper court or with the Insurance
Commissioner should be filed within 1 year from the date of the denial of the claim by the insurer, otherwise
claimants right of action shall prescribe. (Sec. 384)
PARTICULAR KINDS OF INSURANCE CONTRACTS
XVI. MARINE INSURANCE
Insurance against risks connected with navigation, to which a ship, cargo, freightage, profits or other
insurable interest in movable property, may be exposed during a certain voyage or a fixed period of time. (Sec.
99)
Coverage:
A.
1. Vessels, goods, freight, cargo, merchandise, profits, money, valuable papers, bottomry and respondentia,
and interest in respect to all risks or perils of navigation;
2. Persons or property in connection with marine insurance;
3. Precious stones, jewels, jewelry and precious metals whether in the course of transportation or otherwise;
and
4.
Bridges, tunnels, piers, docks and other aids to navigation and transportation. (Sec. 99)
Cargo can be the subject of marine insurance, and once it is entered into, the implied warranty of
seaworthiness immediately attaches to whoever is insuring the cargo, whether he be the shipowner or
not. (Roque v. IAC, 139 SCRA 596)
B. Marine Protection and Indemnity Insurance
Classes of inland marine insurance: (Prof. De Leon, p. 325)
1.
2.
3.
Bailee liability - insurance for those who have temporary custody of the goods.
Fixed transportation property they are so insured because they are held to be an essential
part of the transportation system such as bridges, tunnels, etc.
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4.
Floater provides insurance to follow the insured property wherever it may be located,
subject always to the territorial limits of the contract.
Insurable interest:
A.
1.
Shipowner
a.
Over the vessel to the extent of its value, except that if chartered, the insurance is only up to
the amount not recoverable from the charterer. (Sec. 100).
b. He also has an insurable interest on expected freightage. (Sec. 103).
c. No insurable interest if he will be compensated by charterer for the value of the vessel, in case
of loss.
2.
Cargo owner
Over the cargo and expected profits (Sec. 105).
3.
Charterer
Over the amount he is liable to the shipowner, if the ship is lost or damaged during the voyage
(Sec. 106).
B.
In loans on bottomry and respondentia
Repayment of the loan is subject to the condition that the vessel or goods, respectively, given as a security,
shall arrive safely at the port of destination.
1. Owner/Debtor
Difference between the value of vessel or goods and the amount of loan. (Sec. 101)
2. Creditor/lender
Amount of the loan
Note: If a vessel is hypothecated by bottomry, only the excess is insurable, since a loan on bottomry partakes
of the nature of an insurance coverage to the extent of the loan accommodation. The same rule would apply to
the hypothecation of the cargo by respondentia. (Pandect of Commercial Law and Jurisprudence, Justice Jose
Vitug, 1997 ed.)
PERILS OF THE SEA
PERILS OF THE SHIP
Includes only those casualties due to A loss which in the ordinary course of events, results from the:
the:
1. natural and inevitable action of the sea
1. unusual violence; or
2. ordinary wear and tear of the ship or
2. extraordinary action of wind and 3. Negligent failure of the ships owner to provide the vessel with
wave; or
proper equipment to convey the cargo under ordinary conditions.
3. Other
extraordinary
causes
connected with navigation.
Note: It is only perils of the sea which may be insured against unless perils of the ship is covered by an all-risk
policy.
SPECIAL MARINE INSURANCE CONTRACTS AND CLAUSES
A. All Risks Policy insurance against all causes of conceivable loss or damage, except: 1) as otherwise
excluded in the policy; or 2) due to fraud or intentional misconduct on the part of the insured.
The insured has the initial burden of proving that the cargo was in good condition when the policy attached
and that the cargo was damaged when unloaded from the vessel; thereafter, the burden then shifts to the
insurer to show the exception to the coverage. (Filipinas Merchants Insurance vs. Court of Appeals, 179 SCRA
638)
B. Barratry Clause
A clause which provides that there can be no recovery on the policy in case of any willful misconduct on the
part of the master or crew in pursuance of some unlawful or fraudulent purpose without consent of owners,
and to the prejudice of the owners interest. (Roque vs. IAC, 139 SCRA 596)
C. Inchamaree Clause
A clause which makes the insurer liable for loss or damage to the hull or machinery arising from the:
1. Negligence of the captain, engineers, etc.
2. Explosions, breakage of shafts; and
3.
Latent defect of machinery or hull. (Bar Review Materials in Commercial Law, Jorge Miravite, 2002 ed.)
13
While the payment by the insurer for the insured value of the lost cargo operates as a waiver of the insurers
right to enforce the term of the implied warranty against the assured under the marine insurance policy, the
same cannot be validly interpreted as an automatic admission of the vessels seaworthiness by the insurer as
to foreclose recourse against the common carrier for any liability under the contractual obligation as such
common carrier. (Delsan Transportation Lines vs. CA, 364 SCRA 24)
Seaworthiness
A relative term depending upon the nature of the ship, voyage, service and goods, denoting in general a
ships fitness to perform the service and to encounter the ordinary perils of the voyage, contemplated by the
parties to the policy (Sec. 114).
GENERAL RULE: The warranty of seaworthiness is complied with if the ship be seaworthy at the time of the
commencement of the risk. Prior or subsequent unseaworthiness is not a breach of the warranty nor is it
material that the vessel arrives in safety at the end of her voyage.
EXCEPTIONS:
1.
In the case of a time policy, the ship must be seaworthy at the commencement of every voyage she may
undertake
2.
In the case of cargo policy, each vessel upon which the cargo is shipped or transshipped, must be
seaworthy at the commencement of each particular voyage
3.
In the case of a voyage policy contemplating a voyage in different stages, the ship must be seaworthy at
the commencement of each portion
14
Effect: In case of loss or damage, the insurer is not liable. (Sec. 126)
LOSS
1. Total:
a. Actual i.
Total destruction;
ii.
PARTICULAR
Has not inured to the common benefit and profit of all
persons interested in the vessel and her cargo.
To be borne alone by the owner of the cargo or the
vessel, as the case may be.
1.
There must be an actual relinquishment by the person insured of his interest in the thing insured (Sec.
138);
2.
3.
4.
5.
6.
15
7.
The notice of abandonment must be explicit and must specify the particular cause of the abandonment
(Sec. 144).
Effects:
1. It is equivalent to a transfer by the insured of his interest to the insurer with all the chances of recovery
and indemnity (Transfer of Interest)(Sec.146)
2. Acts done in good faith by those who were agents of the insured in respect to the thing insured,
subsequent to the loss, are at the risk of the insurer and for his benefit. (Transfer Of Agency)(Sec.148)
If an insurer refuses to accept a valid abandonment, he is liable upon an actual total loss, deducting form
the amount any proceeds of the thing insured which may have come to the hands of the insured. (Sec.154)
CO-INSURANCE
A marine insurer is liable upon a 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. (Sec. 157)
When the property is insured for less than its value, the insured is considered a co-insurer of the difference
between the amount of insurance and the value of the property.
Requisites:
1. The loss is partial;
2. The amount of insurance is less than the value of the property insured.
1.
2.
3.
Rules:
Co-insurance applies only to marine insurance
Logically, there cannot be co-insurance in life insurance.
Co-insurance applies in fire insurance when expressly provided for by the parties.
CO-INSURANCE
A percentage in the value of the insured property which the
insured himself assumes to act as insurer to the extent of the
deficiency in the insurance of the insured property. In case of
loss or damage, the insurer will be liable only for such
proportion of the loss or damage as the amount of the
insurance bears to the designated percentage of the full
value of the property insured. (Bar Review Materials in
Commercial Law, Jorge Miravite, 2002 ed.)
REINSURANCE
Situation where the insurer procures a 3rd
party called the reinsurer to insure him against
liability by reason of an original insurance.
Basically, reinsurance is an insurance against
liability which the original insurer may incur in
favor of the original insured.
FRIENDLY FIRE
One that burns in a place where it was intended to
burn and ought to be
Insurer is liable
Measure of Indemnity
1. Open policy: only the expense necessary to replace the thing lost or injured in the condition it was at the
time of the injury
2. Valued policy: the parties are bound by the valuation, in the absence of fraud or mistake
Note: It is very crucial to determine whether a marine vessel is covered by a marine insurance or fire
insurance. The determination is important for 2 reasons:
1.
2.
3.
Rules on constructive total loss and abandonment applies only to marine insurance;
Rule on co-insurance applies primarily to marine insurance;
Rule on co-insurance applies to fire insurance only if expressly agreed upon. (Commercial
Law Reviewer, Aguedo Agbayani, 1988 ed.)
16
5.
6.
Fall-of-building clause
A clause in a fire insurance policy that if the building or any part thereof falls, except as a result of fire, all
insurance by the policy shall immediately cease.
Option to rebuild clause
A clause giving the insurer the option to reinstate or replace the property damaged or destroyed or any part
thereof, instead of paying the amount of the loss or the damage.
The insurer, after electing to rebuild, cannot be compelled to perform this undertaking by specific
performance because this is an obligation to do, not to give. Remedy: Art. 1167, NCC.
XVIII. CASUALTY OR ACCIDENT INSURANCE
Insurance covering loss or liability arising from accident or mishap, excluding those falling under other types
of insurance such as fire or marine. (Sec. 174)
Classifications:
1. Insurance against specified perils which may affect the person and/or property of the insured. (accident or
health insurance)
Examples: personal accident, robbery/theft insurance
2. Insurance against specified perils which may give rise to liability on the part of the insured for claims for
injuries to or damage to property of others. (third party liability insurance)
Insurable interest is based on the interest of the insured in the safety of persons, and their property, who
may maintain an action against him in case of their injury or destruction, respectively.
Examples: workmens compensation, motor vehicle liability
In a third party liability (TPL) insurance contract, the insurer assumes the obligation by paying the injured
third party to whom the insured is liable. Prior payment by the insured to the third person is not necessary in
order that the obligation may arise. The moment the insured becomes liable to third persons, the insured
acquires an interest in the insurance contract which may be garnished like any other credit. (Perla Comapnia
de Seguro, Inc vs. Ramolete, 205 SCRA 487)
Aside from compulsory motor vehicle liability insurance, the Insurance Code contains no other provisions
applicable to casualty insurance. Therefore, such casualty insurance are governed by the general provisions
applicable to all types of insurance, and outside of such statutory provisions, the rights and obligations of the
parties must be determined by their contract, taking into consideration its purpose and always in accordance
with the general principles of insurance law.
In burglary, robbery and theft insurance, the opportunity to defraud the insurer the moral hazard is so
great that insurer have found it necessary to fill up the policies with many restrictions designed to reduce the
hazard. Persons frequently excluded are those in the insureds service and employment. The purpose of the
exception is to guard against liability should theft be committed by one having unrestricted access to the
property. (Fortune Insurance vs. CA, 244 SCRA 208)
Right of a third party injured to sue the insurer
1. Indemnity against liability A third party injured can directly sue the insurer.
2. Indemnity for actual loss or reimbursement after actual payment by the insured A third party has no cause
of action against the insurer (Sec. 53, Bonifacio Bros. v. Mora, 20 SCRA 261).
The insurer is not solidarily liable with the insured. The insurers liability is based on contract; that of the
insured is based on torts. Furthermore, the insurers liability is limited by the amount of the insurance
coverage (Pan Malayan Insurance Corporation v. CA, 184 SCRA 54).
INTENTIONAL vs. ACCIDENTAL AS USED IN INSURANCE POLICIES
1. Intentional Implies the exercise of the reasoning faculties, consciousness and volition. Where a provision
of the policy excludes intentional injury, it is the intention of the person inflicting the injury that is controlling.
If the injuries suffered by the insured clearly resulted from the intentional act of the third person, the insurer is
relieve from liability as stipulated. (Biagtan v. the Insular Life Assurance Co. Ltd., 44 SCRA 58, 1972)
2. Accidental That which happens by chance or fortuitously, without intention or design, which is unexpected,
unusual and unforeseen.
NO ACTION CLAUSE
A requirement in a policy of liability insurance which provides that suit and final judgment be first obtained
against the insured; that only thereafter can the person injured recover on the policy. (Guingon vs. Del Monte,
20 SCRA 1043)
17
18
C. Cooperation Clause
A clause which provides in essence that the insured shall give all such information and assistance as the
insurer may require, usually requiring attendance at trials or hearings.
XX. SURETYSHIP
An agreement whereby a surety guarantees the performance by the principal or obligor of an obligation or
undertaking in favor of an obligee. (Sec. 175)
It is essentially a credit accommodation.
It is considered an insurance contract if it is executed by the surety as a vocation, and not incidentally. (Sec.
20
When the contract is primarily drawn up by 1 party, the benefit of doubt goes to the other party
(insured/obligee) in case of an ambiguity following the rule in contracts of adhesion. Suretyship, especially in
fidelity bonding, is thus treated like non-life insurance in some respects.
Nature of liability of surety
1. Solidary;
2. Limited to the amount of the bond;
3. It is determined strictly by the terms of the contract of suretyship in relation to the principal contract
between the obligor and the obligee. (Sec. 176)
SURETYSHIP
Accessory contract
3 parties: surety, obligor and oblige
Credit accommodation
PROPERTY INSURANCE
Principal contract
2 parties: insurer and insured
Contract of indemnity
1.
Ordinary Life, General Life or Old Line Policy - Insured pays a fixed premium every year until he dies.
Surrender value after 3 years.
2.
Group Life Essentially a single insurance contract that provides coverage for many individuals.
Examples: In favor of employees, mortgage redemption insurance.
3.
4.
Endowment Policy pays premium for specified period. If he outlives the period, the face value of the
policy is paid to him; if not, his beneficiaries receive the benefit.
5.
Term Insurance insurer pays once only, and he is insured for a specified period. If he dies within the
period, his beneficiaries benefits. If he outlives the period, no person benefits from the insurance.
6.
Industrial Life - life insurance entitling the insured to pay premiums weekly, or where premiums are
payable monthly or oftener.
19
It is one of the risks assumed by the insurer under a life insurance policy in the absence of a valid policy
exception. (Vance,p.572 cited in de Leon, p. 107)
Note: Justice Vitug believes that death by suicide (if the insured is sane) or at the hands of the law obviates
against recovery as being more in consonance with public policy and as being implicit under Section 87, ICP.
(Pandect of Commercial Law and Jurisprudence, 1997 ed. P. 191)
3. Killing by the beneficiary
GENERAL RULE: The interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary
is the principal accomplice or accessory in willfully bringing about the death of the insured, in which event, the
nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified. (Sec.
12)
EXCEPTIONS:
1. Accidental killing
2. Self-defense
3. Insanity of the beneficiary at the time he killed the insured
If the premiums paid came from conjugal funds, the proceeds are considered conjugal. If the beneficiary is
other than the insureds estate, the source of premiums would not be relevant. (Del Val v. Del Val, 29 Phil 534)
The measure of indemnity in life or health insurance policy is the sum fixed in the policy except when a
creditor insures the life of his debtor. (Sec. 183)
IS THE CONSENT OF THE BENEFICIARY NECESSARY TO THE ASSIGNMENT OF A LIFE INSURANCE
POLICY?
It depends. If the designation of the beneficiary is irrevocable, the beneficiarys consent is essential because
of his vested right. If the designation is revocable, the policy may be assigned without such consent because
the beneficiary only has a mere expectancy to the proceeds. (The Insurance Code of the Philippines Annotated,
Hector de Leon, 2002 ed.)
Cash Surrender Value
As applied to a life insurance policy, it is the amount the insured in case of default, after the payment of at
least 3 full annual premiums, is entitled to receive if he surrenders the policy and releases his claims upon it.
LIFE INSURANCE
Contract of investment not of indemnity
Valued policy
May be transferred or assigned to any person even if
he has no insurable interest
Consent of insurer is not essential to validity of
assignment
Contingency that is contemplated is a certain event,
the only uncertainty being the time when it will take
place
A long-term contract and cannot be cancelled by the
insurer
Beneficiary is under no obligation to prove actual
financial loss
FIRE INSURANCE
Contract of indemnity
Open or valued policy
The insurable interest of the transferee or assignee is
essential
Consent of insurer must be secured in the absence of
waiver
Contingency insured against may or may not occur
20
a.
b.
c.
d.
e.
Who is the officer in charged with the implementation of laws of the Insurance Code?
The officer charged is the Insurance Commissioner of the Insurance Commission
1.
2.
To Regulate the sale and issuance of variable contracts, to license persons selling them and
to issue rules and regulations governing the same
3.
To Issue rulings, instructions circulars, orders and decisions for the enforcement of the
provisions of the code subject to approval of the Secretary of Finance.
4.
To stop the operation of an insolvent insurance company and determine within 30 days
whether to rehabilitate or liquidate the company.
5.
To impose appropriate fines and Penalties on insurance companies and on their officers and
agents for refusal to comply with any order, instruction of the Commissioner , or for
mismanagement
an agreement
whereby one undertakes for a consideration to indemnify another
against (1) loss, (2) damage or (3) liability
arising from an (1) unknown or (2) contingent event.
(a)
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;
(b)
(c)
(d)
Others - doing or proposing to do any business in substance equivalent to any of the foregoing in a
manner designed to evade the provisions of this Code.
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;
21
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 therefor, shall not
be deemed conclusive to show that the making thereof does not constitute the doing or
transacting of an insurance business.
Note Stipulations pour autrui or a provision in favor of a third person not a party to
the contract. Under this doctrine, a third person is allowed to avail himself of a benefit
granted to him by the terms of the contract, provided that the contracting parties have
clearly and deliberately conferred a favor upon such person
8. Contract of perfect good faith for both parties (uberrima fides)
1.
Insurable interest of the insured interest of some kind susceptible of pecuniary or monetary
estimation
2.
Insured subject to loss through the destruction or impairment of that interest by the happening
of designated perils
Insurer assumes the risk of loss
Such assumption is part of a general scheme to distribute actual losses among a large group of
persons bearing somewhat similar risk
3.
4.
5.
1.
2.
3.
4.
5.
Peril Insured against contingent or unknown event, past or future and a duration for the risk
thereof
22
Insurer is the person, natural or juridical, who holds a certificate of authority from the
Insurance Commissioner and who undertakes to indemnify another by a contract of insurance
o
Banks cannot be insurers
o
Paid-up capital requirement for insurance companies
Insured
Generally, any person with capacity to contract and having an insurable interest in he life
property insured may be the insured
A married woman may take insurance on her life or on that of her children without need of
her husbands consent
Public enemy means any citizen or juridical entity of the country with which the Philippines
may be at war
Effects of War on Insurance Contracts
1. War prevents an insurance contract from being enter into between citizens and juridical
entities of the warring states
2. For existing insurance contracts, the rules are:
a. Property Insurance war abrogates the contract (Kentucky Rule)
b. Life Insurance war terminates the policy, but the insured is entitled to the
equitable value of the policy arising from the premiums actually paid, when
commercial relations are resumed (U.S. Rule)
I. BENEFICIARY
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
Beneficiary
The beneficiary is the person designated to receive the proceeds of the policy when the risk
attaches.
He may be the (1) insured himself in the property insurance or (2) the insured or (3)a third
person in life insurance
The father or mother of a minor who is an insured or beneficiary of a life policy, may
exercise, for said minor, all rights under the policy up to P20k without the need of a court authority or
a bond (sec 180)
A.
23
As a general rule: the proceeds of a life insurance policy belong to the designated
beneficiary to the exclusion of the heirs of the insured (Picar vs GSIS 33 SCRA 324)
In this event, he nearest relative of the insured shall receive the proceeds of said
insurance if not otherwise disqualified
The nearest relatives of the insured in the order of enumeration are the following:
1. Legitimate children
2. Parents
3. Grandparents illegitimate children
4. Surviving spouse
5. Brothers and sisters of the full blood
6. Brothers and sisters of the half blood
7. Nephews and nieces.
NOTES:
(a)
Where a specified person is beneficiary, the proceeds will inure to the beneficiary.
Q: A took out a life insurance policy and designated his wife, B, as the sole beneficiary. All the
premiums of the policy were paid out from his salaries. A died intestate leaving B and 3 children.
Divide the proceeds of the policy (1961 Bar)
A: All of the proceeds of the policy will go to the designated policy, B. The source of the premium
here is immaterial (Miravite, 2002ed., p200)
(b)
If the premiums are paid from (1) salaries of the insured or (2) other conjugal
properties or funds, and the beneficiary is the estate of the insured, the proceeds of the life
insurance policy is considered conjugal.
B.
C.
1.
A corporation has an insurable interest in the lives of its officers when the death or illness of
said officers would materially and injuriously affect the corporation.
The corporation and the heirs of the manager can insure the life of the manager-decedent in
agreed proportion, since both have insurable interest over the life of the latter
24
25
The insurance is on the mortgagors interest where the mortgagor takes insurance on the property in his
own right making the loss payable to the mortgagee
How?
The mortgagor may:
i.
Take insurance on the property, and assign the same to the mortgagee (this operates merely as
an equitable transfer of the policy so as to enable the assignee to recover the proceeds)
ii.
Constitute the mortgagee as beneficiary as his interest may appear
NOTE: In case of fire, marine and casualty insurance, the assignment must be with the consent of the
insurer because it is a personal contract. (Note that life insurance may be freely assigned before or
after loss occurs to any person whether he has an insurable interest or not)
What are the effects of insurance taken in the on the interest of thee mortgagor?
The effects are:
a.
Mortgagor continues to be a party to the contract
b.
Any act by the mortgagor prior to the loss which would avoid the policy, will thus avoid the
policy, even if the property is in the hands of the mortgagee
c.
Any act which under the contract of insurance is to be performed by the mortgagor (e.g.
payment of premium) may be performed by the mortgagee with the same effect, as if performed by
the mortgagor.
d.
In case of loss, the mortgagee is entitled to the proceeds to the extent of his credit,
consequently, the debt is extinguished.
What is the effect If the mortgagor assigns the policy to the mortgagee with the insurers
consent, but the latter imposes new conditions on the assignee?
If at the time of the assent, the insurer imposes further obligations on the assignee making a new
contract with him, the act of the mortgagor cannot affect the rights of said assignee.
a.
b.
The Policy itself which transfers the fights to the contract to another insured
c.
The subject matter of the insurance, such as a house insured under a fire policy which ahs the
effect of suspending the insurance (infra)
The proceeds of the policy after the loss has happened , which involves a money claim under, or a
right of action on the policy
26
In cases where the property is insured for less than its true or market value, what are the rules
to be followed?
In case of total loss: The property owner is entitled to receive the face value of the policy but in
no case exceeding the market value of the property.
In case of partial loss: The property owner is entitled only the amount in proportion to his loss
and the market value of the property as against the to face value of the policy. Ratio An owner of
property who insures the same for less that its true value is co-insurer for the uninsured portion of the
property if the policy is a valued one.
Example:
X has a property worth P10,000. He insures it against fire for P8,000. How much shall he collect from
then insurance in case of total loss? If there is Partial loss in the amount of P6,000?
In case of total loss P 8,000 face value of the policy
In case of partial loss - open policy P6,000 the actual partial loss not exceeding the face value of the
policy
In case of partial loss valued policy 6/10 of P8,000 or P4,800- the amount in proportion to his loss and
the market value of the property as against the to face value of the policy.
III CONCEALMENT
What is Concealment?
Concealment is a neglect to communicate that which a party knows and ought to communicate to the other
party.
27
Neither party to a contract of insurance is bound to communicate information of the matters following,
except in answer to the inquiries of the other:
1. Those which are already known to the insurer
2. Those which, in the exercise of ordinary care, are ought to be known to the insurer or his agent,
3. Those undisclosed facts which are not material
4. Those which each party is bound to know:
- general causes eg. public events; and
- general usages of trade - eg. rules of navigation all risks connected with navigation)
5.
6.
7.
Information or the nature or amount of the interest of one insured except if insured is a lessee or a
mortgagee (read sec 51)
Those of which the insurer waives communication
IV REPRESENTATION
What is representation?
A representation is an oral or written statement of a fact or condition made by the insured at the time of or
prior to the issuance of the policy, affecting the risk made by the insured to the insurer, tending to induce the
insurer to assume the risk
28
It is any promise to be fulfilled after the contract has come into existence or any statement concerning what is
to happen during the existence of the insurance. A promissory representation is substantially a condition or a
warranty.
A promissory representation maybe:
1. 1 Used to indicate a parole or oral promise made in connection with the insurance, but not
incorporated in the policy.
- the non-performance of such a promise cannot be shown by the insurer in defense of an action on
the policy, but proof that the promise was made with fraudulent intent will serve to defeat the
insurance
2. As an undertaking by the insured, inserted in the policy but not specifically made a warranty.
Representation
It is mere collateral inducement, but it may qualify
an implied warranty
It may be oral or written in another instrument
It must be proved to be material
It is requires only substantial truth or compliance
1.
There is NO FALSE representation it is true at the time the contract takes effect although
false at the time it was made.
2.
There is FALSE representation if it is true at the time it was made but false at the time the
contract takes effect in this case the insurer is entitled to rescind
What is misrepresentation?
A misrepresentation in insurance is a statement:
1. As a fact of something which is untrue
2. Which the insured states with knowledge that it is untrue and with intent to deceive, or which he
states positively as true without knowing it to be true and which has the tendency to mislead
3. where such fact in either case is material to the risk
NOTE:
An insured who has no personal knowledge of a fact may communicated such information which he has,
and believes it to be true, upon the subject matter with the explanation that said information was obtained
from 3rd persons. In this case he is not responsible if the information turns out to be false.
Except if the information proceeds from an agent of the insured whose duty is to give information to his
principal. This is so because knowledge of the agent is also knowledge of the principal
29
Incontestability clause
Incontestability means that after the requisites are shown to exist, the insurer shall be estopped from
contesting the policy or setting up any defense, except as is allowed of the ground of public policy.
Requisites:
1. The policy is a life insurance policy
2. It is payable on the death of the insured
3. It has been in force during the lifetime of the insured for at least 2 years from its date of issue or of
its last reinstatement
NOTE: The period of two years for contesting a life insurance policy may be shortened but it cannot
be extended by stipulation
What is a warranty?
A warranty is a statement or promise stated in the policy itself or incorporated therein by reference, whereby
the insured expressly contracts as to the present or future existence or certain facts, circumstances or
conditions, the literal truth of which is essential to the validity of the contract of insurance
1.
Affirmative warranty where the insured asserts the existence of a matter at or before the issuance of
the policy
2.
Promissory warranty where the insured promise or undertakes that certain matters shall exist or will
be done or omitted after the policy takes effect
3.
Express warranty where the assertion or promise is clearly set forth in the policy or incorporated
therein by reference
4.
Implied warranty 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.
2.
In another instrument signed by the insured and referred to in the policy as making part of it. Mere
reference is not sufficient to give warranty.
30
Note:
A statement in a policy, of a matter relating to the person or thing insured, or to the risk as a fact is an
express warranty. A statement which is in the nature of an opinion or belief is not a warranty
What happens when there is violation of material warranty or to other material provisions of
the policy?
All breaches of warranty give to the insurer the right to rescind the contract. This rule is true even if the
violation of the material warranty did not contribute to the loss.
If fraud intervenes in the breach, the insurer is freed from liability form the start, as the contract is fraud
ab initio. The insured is not entitled to the return of the premiums paid.
If there is no fraud in the breach, the insurer is freed from the contract the moment the breach occurs,
and is entitled to retain the premiums corresponding to the period up to the time of the breach. But if the
breach was done at the time of the inception of the policy, the insured cannot recover for any loss arising
thereafter, but all premiums should be returned to the insured
VI. THE POLICY
What is the effect of a rider, clause, warranty or endorsement purporting to be a part of the
contract and pasted on the policy?
As a general rule, these attached papers becomes part of a contract of insurance. However it will not bind the
insured unless it is properly referred to therein in the policy. If the rider etc is issued after the original policy
was in force shall not bind the insured unless it countersigned by the insured.
31
Yes. The agent or trustee when making an insurance contract for and in behalf of his principal should indicate
that he is merely acting in a representative capacity by signing as such agent or trustee, or by other general
terms in the policy
1.
Open or unvalued policy is one in which the value of the thing insured is not agreed upon, but is
left to be ascertained in case of loss. In other words, it is one in which a certain agreed sum is written
on the face of the policy not as the value of the property insured, but as the maximum limit of
recovery in case of destruction the peril insured against.
2.
Valued policy is one which expresses on its face an agreement that the thing insured shall be valued
at a specified sum. In the absence of fraud or mistake, such value will be paid in case of total loss of
the property, unless the insurance is for a lower amount.
3.
Running policy is one which contemplates successive insurances and which provides that the subject
of the policy may from time to time be defined
VII PREMIUM
Define premium.
Premium is the consideration paid an insurer for undertaking to indemnify the insured against a specified peril
Is this absolute?
No. The exceptions are the following:
1. Life and Industrial Life policy whenever the grace period provision applies(sec 77)
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c.
-
The premiums to be returned where there is over-insurance by several insurers shall be proportioned to the
amount by which the aggregate sum insured in all the policies exceeds the value of the thing
Example:
X insures his house which has an insurable value of P1,500,000 as follows:
Insurer
Amt of Insurance
Premiums paid
A Co.
P 1,200,000
P 24,000
B. Co
600,000
12,000
Aggregate sum
P1,800,000.
In this case, there is an over insurance of P300,000, the amount by which the aggregate sum insured in
the two policies exceeds the insurable value of the house. The proportion is P300k to P1800k or 1/6.
Hence, 1/6 of P24k or P4k is what A co must return; and 1/6 of P12k or P2k is what B co must return
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5.
The insured can insure with two or more companies unless prohibited by prior policy
Where he is allowed, but over-insurance results, he can claim in case of loss, only up to
the agreed valuation (in valued policy) or up to the full insurable value (in open policy) from any, some
or all insurers, without prejudice to the insurers ratably apportioning the payments
The insured can also claim a ratable return of the premiums on the over-insured amount
Unrevealed
other
insurances,
when
required,
is
a
material
concealment/misrepresentation and gives to the insurer the right to rescind
IX. REINSURANCE
Double Insurance
The insurer remains as the insurer
The subject of the insurance is the
property
It involves the same interest
The insured is the party in interest
in all the contracts
What are the matters which the reinsured must communicate to the reinsurer?
The insurer who obtains reinsurance, except under automatic reinsurance treaties, must communicate the
following to the reinsurer:
a.
All the representations of the original insured
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b.
All the knowledge and information he possesses, whether previously or subsequently
acquired, which are material to the risk
4.
Loss in the course of efforts to rescue the thing from the peril insured against although the cause of
loss is not a peril insured against..
When is
1. Loss
2. Loss
3. Loss
What are the prerequisites for the recovery for loss in insurance against fire?
1.
Notice of loss which must be immediately given unless delay is waived expressly or impliedly by the
insurer
2.
Proof of loss according to the best evidence obtainable. Delay may be also waived expressly or
impliedly by the insurer
All defects in a notice of loss, or in preliminary proof thereof, which the insured might
remedy, and which the insurer omits to specify to him, within reasonable time, as grounds of
objection, are waived.
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When no notice is given by the insured or by any other person entitled to the benefit of the insurance, within a
reasonable time.
B.
C.
Life Insurance
1.
Where insured outlives maturity due, the claim is payable immediately on maturity of the
policy. This is true in endowment insurance
2.
Where policy matures by Insureds death, the claim is payable within 60 days after
presentation of the claim and filing of proof of death of the insured. In case of unreasonable
delay, the insured is entitled to (1) Attorneys fees (2) expenses incurred by reason of the
unreasonable withholding (3) interest at the legal interest rate (6%) per annum as fixed by
the monetary board (4)amount of the claim., (5) moral damages if bad faith or fraud is
present and (6) exemplary damages if the act is wanton and oppressive.
3.
Please note that for cases involving loss or injury, any person having any claim upon the
policy shall, without delay present a written notice of claim within six (6) months from date
of accident to the insured, otherwise, the claim shall be deemed waived. Action or suit for
recovery of damages due to loss or injury must be brought, in proper cases, with the
Commissioner of the Courts within one (1) year from denial of claim, otherwise, the
claimants right of action shall prescribe
Property Insurance
1.
2.
If ascertainment of loss is not made within 60 days, the claim is payable within 90 days
from receipt of proof of loss by the insurer, if not paid, unreasonable delay is presumed
(Cathay vs CA 174 SCRA 11)
3.
Please note the 1 year prescriptive period to file an action after denial of claim.
The prescriptive period is not suspended by the filing of a request for reconsideration after
denial of claim (Sun vs CA 195 SCRA 193)
Note:
Article 2207 of the Civil Code makes it clear that the insurance company that has paid the indemnity for the
injury or loss sustained by the property insured shall be subrogated to the rights of the insured against the
wrongdoer or the person who has violated the contract. The insurer who pays the insured is an assignee in
equity of the insured against the offender. (Malayan vs CA 165 SCRA 536)
As a general rule: Payment by the insurer to the insured for loss under the policy entitles the insurer to be
subrogated to the rights of the insured against the wrongdoer.
The exceptions are:
1. Where the insured releases the wrongdoer from liability
2. Where the insurer pays without notifying the carrier, which in good faith had already paid the insured,
and
3. Where the insurer pays the insured for a loss which is not included in the risk insured against, by the
policy
(Pan Malayan vs. CA 184 SCRA 54)
Where the insured was paid by the insurer, the latter is subrogated to all rights of the former against the
wrongdoer. If the insured after being paid by the insurer, releases the wrongdoer without the insurers
consent, the insurer loses his right of subrogation against the wrongdoer. The insurer will however be entitled
to recover from the insured what the insured originally received from the insurer as the proceeds of the policy
(Manila vs. CA 154 SCRA 650)
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CLASSES OF INSURANCE
MARINE INSURANCE
-Insurance against risks connected with navigation, to which a ship, cargo, freightage, profits or
others insurable interest in movable property, may be exposed during a certain voyage or a fixed period of
time.
Coverage of Marine Insurance:
1. loss or damage to aircraft
2. Loss or damage goods & merchandise for shipment
3. Persons in connection w/ marine insurance
4. Precious stones, jewels, jewelry, precious metals
5. Bridges, tunnels, & other instrumentalities of navigation
Perils of Navigation
-perils in making landings in river navigation and damage from rain in consequence of improper
stowage.
War risks
-perils due directly to some hostile action, military maneuver, operational war danger
Builders risks
-damage to ways from launching as well as damage to the ship.
Perils of the sea
-all kinds of marine casualties & damages done to the ship or goods at sea by the violent action of the
winds or waves; not foreseen & not attributable to the fault of anybody.
Perils of the ship
-losses or damages resulting from:
a) natural and inevitable action of the sea
b) ordinary wear and tear of ship
c) negligent failure of the ship's owner to provide the vessel w/ proper equipment to convey the cargo under
ordinary conditions.
Inchmaree clause
-provision in the policy that the insurance shall cover loss of, damage to, the hull or machinery
through negligence of the master, charterers, engineers, or pilots, or through explosions, bursting of boilers,
breakage of shafts, or through any latent defect in the machinery or hull not resulting from want of due
diligence.
1)
2)
Cargo owner
over the cargo & expected profits
3)
Charterer
over the amount he is liable to the shipowner, if the ship is lost or damaged during the voyage.
Loan on Bottomry/Respondentia
-loan in which under any condition whatever, the repayment of the sum loaned, and of the premium
stipulated, depends upon the safe arrival in port of the goods on which it is made, or of the price they may
receive in case of accident.
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value of what may be saved/salvaged shall be divided between the lender & insurer, in proportion to
the legitimate interest of each one.
Freightage
benefits derived by the owner, either from:
a) chartering of the ship
b) its employment for the carriage of his own goods or those of others.
a)
b)
In Marine Insurance, insured is required to reveal all information which he possesses material to the risk.
CONCEALMENT THAT DOES NOT VITIATE THE CONTRACT EXCEPT WHEN THEY CAUSED THE
LOSS:
national character of the insured
liability of the thing insured to capture and detention
liability to seizure from beach of foreign laws of trade.
want of necessary documents
use of false & simulated papers
1.
2.
3.
4.
5.
a)
b)
c)
d)
Seaworthiness
relative term depending of the NATURE of the ship, the VOYAGE, & the SERVICE in which she is at the
time engaged.
Reasonable fitness to perform the service & to encounter the ordinary perils of the voyage
contemplated by the parties.
EFFECT OF VIOLATION OF IMPLIED WARRANTY OF SEAWORTHINESS:
insurer will not be liable for a loss
a)
b)
c)
a)
b)
c)
DEVIATION IS PROPER:
a) when caused by circumstances over which neither the master nor the owner of the ship has any control
38
b)
c)
d)
when necessary to comply with warranty, or to avoid a peril, whether or not the peril is insured against
when made in good faith, & upon reasonable grounds of belief in its necessity to avoid a peril
when made in good faith, for the purpose of saving human life, or relieving another vessel in distress.
B.
PARTIAL LOSS
loss other than a total loss
Average
extraordinary/accidental expense incurred during the voyage for the preservation of the vessel, cargo,
or both and all damages to the vessel & cargo from the time it is loaded and the voyage commenced
until it ends & the cargo unloaded.
1.
a.
b.
c.
d.
e.
f.
g.
2.
KINDS OF AVERAGE:
GROSS/GENERAL AVERAGES
include all the damages & expenses which are deliberately caused in order to save the vessel, its
cargo, or both at the same time, from real & known risk.
Requisites to the Right to claim general average contribution:
common danger to the vessel/cargo
part of the vessel/ cargo was sacrificed deliberately
sacrifice must be for common safety/benefit of all
must be made by the master or upon his authority
not be caused by any fault of the party asking the contribution
must be successful
must be necessary
SIMPLE/PARTICULAR AVERAGE
includes all the expenses & damages caused to the vessel or to her cargo which have not inured to
the common benefit & profit of all the persons interested in the vessel & her cargo.
Partial loss caused by a peril insured against, which is not a general average loss
''FPA CLAUSE"
a situation wherein the insured & insurer stipulated in the policy that the vessel/cargo insured shall be
free from particular average
effects:
a. if damage to the thing insured is a PARTICULAR average, the insured shall not be liable UNLESS
the loss suffered is total
b. if damage to the thing insured is a GENERAL average, insurer shall be liable whether the loss is
partial or total or for the condition of the insured for his proportion of all general average losses
assessed upon the thing insured which was saved.
There is an ACTUAL TOTAL LOSS if the insured is effectively deprived of the use & possession of the
property, whether by seizure/capture followed by condemnation/theft.
Abandonment
act of the insured by which, after a constructive total loss, he declares the relinquishment to the
insurer of his interest in the thing insured
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1.
2.
3.
4.
5.
6.
7.
1.
2.
3.
4.
5.
6.
effect: insured is surrendering to the insurer whatever is left of the property insured, & resorting to
the policy for indemnity, insurer then becomes the owner of whatever may remain of the insured
thing & the insured may recover a total loss.
1.
2.
no abandonment
recovery only of ACTUAL LOSS
1.
2.
3.
a)
b)
EFFECT OF VALUATION:
conclusive between the parties provided
a) the insured has some interest at the risk
b) there is no fraud on his party
Co-insurance
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 exists between value of property & amount
of insurance
1.
2.
MARINE INSURANCE
There is always co-insurance
FIRE INSURANCE
No co-insurance UNLESS expressly stipulated in the policy
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Fire insurance
- a contract by which the insurer for a consideration agrees to indemnify the insured against loss, or
damage to, property by fire, but may include loss by lightning, windstorm, tornado & earthquake & other allied
risks, when such risks are covered by extension to fire insurance policies/ under separate policies
Alteration
alteration in the use or condition of thing insured will entitle the insurer to rescind the contract
provided following requisites are present:
a) use or condition of the thing is specifically limited/stipulated in the policy.
b) such case/condition as limited by the policy is altered
c) the alteration is made without the consent of the insurer
d) alteration is made by means within the control of the insured
e) the alteration increases the risk
f) violation of a policy provision
Co-insurance clause
clause requiring the insured to maintain insurance to an amount equal to a specified percentage of the
value of the insured property under penalty of becoming co-insurer to the extent of such deficiency
Casualty Insurance
includes all forms of instrument against loss or liability arising from accident/mishap other than those
within the scope of other types of insurance
1.
2.
insurance against specified hazards which may give rise to liability on the part of the insured for claims for
injuries to others/damages to their property
e.g. workmen's compensation, motor vehicle liability
LIFE INSURANCE
Usual object is to provide fund for the benefit of the
estate/heirs beneficiaries of insured after the death of the
insured
1.
2.
3.
ACCIDENT/HEALTH INSURANCE
Protect against not a loss of life but a loss of
time, earning capacity and expenses
Suretyship
contract whereby a person binds himself solidarily with principal debtor for the fulfillment of an
obligation
NATURE OF LIABILITY OF SURETY:
solidary
limited to the amount of the bond
determined by the terms of the contract of suretyship in relation to the principal contract between obligor
and obligee
SURETY
insurer of debt
Undertakes
to
pay
principal dies not pay
primary
No such rights
if
SURETY
Accessory contract
3 parties: surety, obligor
GUARANTOR
insurer of solvency of debtor
Binds himself to pay if principal is unable to pay
Secondary
Can not be compelled to pay the creditor unless the latter has exhausted
all the properties of the debtor
PROPERTY INSURANCE
Principal contract
2 parties: insurer and insured
41
and obligee
Credit accommodation
Surety can recover form
principal
Bond can be cancelled only
with consent of the oblige,
commissioner or the court
Risk-shifting
device
premium paid being in the
nature of a service fee
Requires acceptance of the
oblige to be valid
Contract of Indemnity
No such right, only right of subrogation
May be cancelled unilaterally either by insured or insurer on grounds
provided by law
Risk-distributing device, premium paid as a ratable contribution to a
common fund
No need for acceptance by any third party
a)
b)
1.
2.
3.
Life Insurance
insurance payable on the death of a person or on his surviving a specified period or otherwise
contingently on the continuance or cessation of life.
Nature:
1. liability absolutely certain
2. amount of insurance generally no limit
3. direct pecuniary loss not required
1.
2.
3.
ENDOWMENT INSURANCE
contract to pay a certain sum to the insured if he lives a certain length of time, or if he dies before
that time, to some other person indicated as beneficiary
4.
5.
ADVANCE INSURANCE
contract which provides for the payment to the insured of a lump sum immediately, in consideration
of his agreement to make certain periodical payments to the insurer for a specified period, or for that
end of the period, the performance of insured's obligation being secured by mortgage or deed of trust
6.
TONTINE INSURANCE
form of life insurance by which the policyholder under the same plan, that no dividends, return
premium, or surrender value shall be received for a term of years called the "tontine period," the
entire surplus from all sources being allowed to accumulate to the end of that period, and then divided
among all who have maintained their insurance in force and who have survived.
"No-fault" Clause
any claim for death or injury shall be paid up to p5,000 without necessity of proving negligence or
fault, provided the following proofs of loss under oath are submitted:
1. police report of accident
2. death certificate and evidence sufficient to establish proper payee
3. medical report and evidence of medical or hospital disbursement
42
Cooperation Clause
clause in an automobile insurance policy which provides in essence that the insured shall give all such
information and assistance as the insurer may require, usually requiring attendance at trials or
hearings
1.
2.