Right to Subrogation

Company X procured an “open-‐policy” marine insurance from Y Insurance, a foreign
corporation. The insurance was for a transshipment of certain wooden work tools and
workbenches purchased for consignee Z. The cargo, packed inside one container van was
shipped from Hamburg, Germany en route to Manila, Philippines. The ship arrived and docked
where cargo was received by Aboitiz Shipping Corporation, thereafter it issued a bill of lading
containing a notation ‘grounded outside warehouse’. It was then shipped to Cebu City and was
released to Z. Two days after its release, Aboitiz received a call from Z informing it that the
cargo sustained water damage. Z then informed the Philippine office of Y Insurance for
insurance claims. Y Insurance got an official weather report from PAGASA, it would appear that
heavy rains caused water damage to the shipment, noticeably the shipment was placed outside
the warehouse of Aboitiz based on the bill of lading containing an notation “grounded outside the
warehouse”. Aboitiz refused to settle the claim, Y Insurance paid the amount of Php 280, 176.92
to consignee Z, and a subrogation receipt was thereafter signed.

A case for collection of actual damages with interest and attorney’s fees was filed with RTC.
Aboitiz disavowed any liability and asserted that the claim had no factual and legal bases, and
that complaint had no cause of action, plaintiff Y Insurance had no personality to sue, cause of
action was barred, suit was premature there being no claim made upon Aboitiz. RTC rendered
decision against Y Insurance and case was elevated to CA, which reversed RTC decision. Case
was then elevated to SC.

ISSUES:

a. Is Respondent Y Insurance the real party-in-interest that possesses the right of subrogation to
claim reimbursement from Aboitiz?

b. Is this right to subrogation an absolute right?

RESOLUTION:

a. YES. A foreign corporation not licensed to do business in the Philippines is not absolutely
incapacitated from filing a suit in local courts. Only when that foreign corporation is
“transacting” or “doing business” in the country will a license be necessary before it can institute

which is not prohibited under Philippine law. intended to give temporary protection pending the investigation of the risk by the insurer. 168402.suits.. NO. Both the insurer and the consignee are bound by the contractual stipulations under the bill of lading. Subrogation is not dependent upon. Cover Note Law On Insurance inShare What is a cover note? The cover note is merely a written memorandum of the most important terms of the preliminary contract of insurance.T. It is the act of engaging in business without the prescribed license.R. (Aboitiz Shipping Corporation vs. in life insurance. Insurance Company of North America. bring suits on isolated business transactions. [Reyes. the payment by the insurer to the assured operates as an equitable assignment of all remedies the assured may have against the third party who caused the damage. In life insurance.J. No. provided that it is later determined that the applicant was insurable at the time it was given. which bars a foreign corporation from access to our courts. or until the issuance of a formal policy. Thus.]) b. August6. Thus. By its nature. this Court has held that a foreign insurance company may sue in the Philippine courts upon the marine insurance policies issues by it abroad to cover international-‐ bound cargoes shipped by a Philippine carrier. It may. no liability shall attach until the insurer approves the risk. Thus. however. G. nor does it grow out of. a binding slip or binding receipt DOES NOT insure itself. 2. 2008. This Right of Subrogation has its limitations. even if it has no license to do business in this country. and not the lack of license per se. . it is subject to all conditions in the policy expected even though that policy may never issue. It accrues simply upon payment of the insurance by the insurer. any privity of contract or upon written assignment of claim. The insurer can be subrogated only to the rights as the insured may have against the wrongdoer. to wit: 1. R. where an agreement is made between an applicant and the insurers’ agent.

whether or not the premium therefore has been paid or not. 6) A cover note may be extended or renewed beyond the aforementioned period of 60 days with the written approval of the Insurance Commissioner. the right acquired by the insured is merely to demand the delivery of the policy in accordance with the terms agreed upon and the obligation assumed by the insurer is to deliver the said policy. the values of such risks. and the premiums therefore . What are the rules governing cover notes? 1) Insurance companies doing business in the Philippines may issue cover notes to bind insurance temporarily pending the issuance of the policy 2) A cover not shall e deemed to be a contract of insurance within the meaning of Sec. 4) A cover not shall be valid and binding for a period NOT exceeding 60 days from the date of its issuance. provided that such written approval may be dispensed with upon the certification of the Pres. 5) If a cover not is not so canceled. BUT such cover note may be canceled by either party upon at least 7 days notice to the other party. 3) NO cover note shall be issued or renewed unless in the form previously approved by the Insurance Commission.Can you explain a preliminary executory contract of insurance? By a preliminary executory contract of insurance. a policy of insurance shall. the insurer makes a contract to insure the subject matter at some subsequent time which may be definite or indefinite. Under such an executory contract. Such policy shall include within its terms the identical insurance bound under the cover note and the premiums therefore. 1(1) of IC. VP or General Mgr of the Insurance company concerned. that the risks involved. within 60 days after the issuance of the cover not be issued in lieu thereof.

have not as yet been determined or established and that such extension or renewal is NOT contrary to and is not for the purpose of violating any provision of the Insurance Code. information to the insurer and otherwise induce him to enter into the insurance contract. What is the difference between a representation and concealment? . Representation and Misrepresentation in Insurance Law On Insurance inShare Representation and Misrepresentation in Insurance Section 36. A representation may be oral or written. What is a representation? A representation is a factual statement made by the insured at the time of. the issuance of the policy to give. or prior to. 7) The insurance companies may impose on cover notes a deposit premium equivalent to at least 25% of the estimated premium of the intended insurance coverage but in no case less than P500.

and 3. What is a misrepresentation? A Misrepresentation is a statement: 1. Is misrepresentation synonymous with concealment? NO. Which the insured stated with knowledge that it is untrue and with an intent to deceive or which he states as true without knowing it to be true and which has the tendency to mislead. What is the effect of a misrepresentation? A misrepresentation by the insured renders the insurance contract voidable at the option of the insurer. while a representation may be made at the time of the issuance of the contract. Where such fact in either case is material to the risk. What is the duty of the person applying for insurance? . although the policy is not thereby rendered void ab initio. Concealment usually occurs prior to making of the insurance contract. As a fact of something which is untrue 2. Misrepresentation is an active form of concealment.A concealment is a negative act. meaning it is the failure to do something which is required while representation is positive act as the insured volunteers such facts.

A representation may be made at the time of. Example of misrepresentations such that the insurer avoids any liability to the insured If the insurer was made to believe that he was insuring a brick house when in truth and in fact. The language of a representation is to be interpreted by the same rules as the language of contracts in general. Why is such information important? The information forms the basis of the contract as made. issuance of the policy. or when the insurer insured a man of thirty and it turns out that the man who dies was a 130. It describes. Section 41 provides that “A representation may be altered or withdrawn before the insurance is effected. . Hence the untruthfulness of any representation will necessarily avoid the contract. Section 37. the house was made of nipa. or before.It is duty to give the insurer all such information concerning the risk as will be of use to the latter in estimating its character and in determining whether or not to assume it. marks out and defines the risk assumed. Sometimes.” Section 38. but not afterwards. it may appear on the policy itself. This information may be given orally or written in papers not connected with the contract such as in the application or examiner’s report.

A representation as to the future is to be deemed a promise. unless it appears that it was merely a statement of belief or expectation.How are misrepresentations construed? They are construed liberally in favor of the insured. Section 39. local disease or injury in any organ. you can still say NO even if three weeks before you were suffering from LBM because you ate one kaing of avocados. Must the representations be literally true? No. they you can say NO. . the question will be construed as referring to habitual use. If you are asked if you had any illnesses. So if you drink only when there is an occasion. It is sufficient that they be substantially true. How can a representation be substantially true and not literally true? De Leon cites two examples: If one is asked if he drinks.

What is a promissory representation? A promissory representation 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. 3. but NOT incorporated in the policy. Affirmative or promissory What is an affirmative representation? It is any allegation as to the existence or non-existence of a fact when the contract begins. Made at the time of the issuance of the policy or before.What are the different kinds of representations? They may either be: 1. . The non-performance of such a promise CANNOT be shown by the insurer in defense to an action on the policy. it used to indicate a parol or oral promise made in connection with the insurance. but proof that the promise was made with fraudulent intent and will serve to defeat the insurance. Oral or written. What is the nature of a promissory representation? First. 2. An example would be when the insured states that the house subject of the insurance is used only for residential purposes.

saranghameda po…” Does a false representation based on an opinion or expectation avoid the policy? IT DEPENDS. promise. intention. A TV hostess saying “Will be back. inserted in the policy. and not properly a representation. In such a case. An applicant for fire insurance on a building orally promised that the building will be occupied. It is however in such a case merely an executory term of the contract. substantially a condition or a warranty.. A representation of an expectation. is therefore. it is an undertaking by the insured. is called a promissory representation. What must the insurer then to do to avoid liability? . 2. Examples of promissory representations 1.Second. 3. but NOT specifically made a warranty.. An applicant for fire insurance on a building orally promised to install two fire extinguishers within the bldg. A promissory representation. will NOT avoid the policy of insurance if there is NO actual fraud in inducing the acceptance of the risk or its acceptance at a lower rate of premium and this is likewise the rule although the statement is material to the risk. belief opinion or judgment of the insured. the insurer is not justified in relying upon such statement but is obligated to make further inquiry. although false.

The insurer must prove both the materiality of the insured’s opinion and the latter’s intent to deceive. The intent to deceive is already presumed. any representation made by the insured prior to the issuance of the policy to the effect that the house was used only as a residence is NOT a defense in the action for the recovery of the amount of the insurance. When is a representation deemed a mere expression of opinion? An oral representation as to a future event. or condition over which the insured has no control. with reference to property or life insured will be deemed a mere expression of opinion. Examples 1) If the policy expressly provides that the house insured is used as a warehouse. all the insurer needs to prove is its falsity and materiality. 2) The representation of the insured to the effect that the last time the vessel was drydocked was six months ago would NOT qualify the implied warranty that the vessel is seaworthy. . If the representation is one of fact. A representation cannot qualify an express provision in a contract of insurance. Why is it that a representation cannot qualify an express provision in a contract of insurance? A representation cannot qualify an express provision or an express warranty in a contract of insurance because a representation is not a part of the contract but only a collateral inducement to it. Section 40. but it may qualify an implied warranty. which will avoid a contract ONLY when made in bad faith.

These conditions must exist during the making of the contract. What is the reason for this provision? As representations induce the insurer in assuming the risk insured against and in issuing the insurance policy. we refer ONLY to conditions represented as ALREADY EXISTING. But now. We earlier said that promissory statements of conditions that exist subsequent to the completion of the contract are conditions or warranties and not representations (See annotations under Sec. Section 42.Section 41. . A representation must be presumed to refer to the date on which the contract goes into effect. To what time does representation refer? Representations refer only to the time of making the contract. it is but logical that representations may not be altered or withdrawn after the insurance is affected. although it became false at the time it was made. but not afterwards. 39). When is there false representation? There is NO false representation if the representation was true at the time the contract takes effect. A representation may be altered or withdrawn before the insurance is effected.

The entire group of insureds wager is lost by the other wagering party. or gambling contract. . Insured avoids misfortune. Tends to increase the inequality of fortune. What one insured gains is not at the expense of Essence is whatever one person wins from a another insured.There is false representation if although the representation was true at the time it was made. it subsequently became false at the time the contract took effect. Gambler courts fortune Tends to equalize fortune. The distinctions are the following: Insurance Gambling Contract contract Parties seek to distribute loss by reason of Parties contemplate gain through mere chance mischance or the occurrence of a contingent event. it is not a contract of chance and is not used for profit.(Sec. 25) White it is based on a contingency. Distinctions and Similarities Between an Insurance Contract and a Wagering Contract Distinctions between an insurance contract and a wagering contract A contract of insurance is a contract of indemnity and not a wagering.

In risk of loss to himself where no such risk purchasing insurance. the promise being condition upon the payment of. he creates a non-existing risk of loss to the purchaser. the funds which make possible the payment of all claims. one party promises to pay a given sum to the other upon the occurrence of a given future event. A contract of insurance is a contract of indemnity and not a wagering or gambling contract. a stipulated amount by the other party to the contract. . the insurer faces an existed previously.provides through the premiums paid. In either case. much more. Although it is true that an insurance contract is also based on a contingency. Insurance Contract Versus Wagering or Gambling Contract Is a contract of insurance a wagering or gambling contract? NO. it is not a contract of chance. than he paid or agreed to pay. In both. already existing risk of economic loss. Similarities between an insurance contract and a gambling contract? They are similar in only one respect. Purchase of insurance does not create a new and As soon as a party makes a wager. one party may receive more. or agreement to pay.

gift exhibition. no consideration has been paid and consequent. to promote the sale of certain products. Can a sweepstakes holder insure himself against the failure of his ticket to win? NO. The failure to win a prize would not damnify or create a liability against him. There is consideration of price aid if it appears that the prizes offered by whatever name they may be called came out of the fund raised by the sale of chances among the participants in order to win the prizes. etc. for the participants are not required to pay more than the usual price o the products. and various forms of gambling. resorts to a scheme which envisions the giving away for free of certain prizes for the purchase of said products. prizes and chance. . such as policy playing. there is no lottery. It cannot be said that he suffered a “loss” of prize when he did not win. Are all prizes equivalent to a lottery? If the prizes do not come out of the fund or contributions by the participants.What is the concept of a lottery? The term “lottery” extends to all schemes for the distribution of prizes by chance. What are the three essential elements of lottery? Consideration. prize concerts. Ex: A company. raffles at fairs.

Art.Laws That Govern Insurance Under The Civil Code: Art. Art. unless there is a stipulation to the contrary. all of whom must be living at the time the annuity is established. . Art. or upon the lives of various persons. The lack of payment of the income due does not authorize the recipient of the life annuity to demand the reimbursement of the capital or to retake possession of the property alienated. or who was at the that time suffering from an illness which caused his death within twenty days following said date. It may also be constituted in favor of the person or persons upon whose life or lives the contract is entered into. Life annuity shall be void if constituted upon the life of a person who was already dead at the time the contract was entered into. Matters not expressly provided for in such special laws shall be regulated by this Code. The contract of insurance is governed by special laws. 2021. Any person who is forbidden from receiving any donation under Art. The aleatory contract of life annuity binds the debtor to pay an annual pension or income during the life of one or more determinate persons in consideration of a capital consisting of money or other property. or in favor of another or other persons. 2023. Art. 2022. 2024. 2012. 2011. Art. whose ownership is transferred to him at once with the burden of income. unless there is a stipulation to the contrary. The annuity may be constituted upon the life of the person who gives the capital. upon that of a third person. he shall have only a right judicially to claim the payment of the income in arrears and to require a security for the future income. according to said article. 739 cannot be named beneficiary of a life insurance policy by a person who cannot make any donation to him.

If the annuity was constituted in fraud of creditors. the whole amount of the installment which began to run during his life shall be paid. as amended) 2. Social Security Act of 1954 ( RA 1161. 2026. at least. The income corresponding to the year in which the person enjoying it dies shall be pain in proportion to the days during which he lived. The Property Insurance Law ( RA 656. and 6. He who constitutes an annuity by gratuitous title upon his property. EO 250. Republic Act No.Art. may provide at the time the annuity is established that the same shall not be subject to execution or attachment on account of the obligations of the recipient of the annuity. RA 3591 How to construe provisions of the Insurance Code Since our present IC is based mainly on the Insurance Act. if the income should be paid by installments in advance. the latter may ask for execution or attachment of the property. No annuity shall be claimed without first proving the existence of the person upon whose life the annuity is constituted. Art. as amended by PD 245) 4. the courts should follow in fundamental points. 2025. Revised GSIS Act of 1977 (PD 1146. Special Laws That Govern Insurance 1. 4898 5. 2027. . which in turn was taken verbatim from the law of California (except for Chap V. (as amended) 3. Art. the construction placed by California Courts on California law (and the construction placed by the NY Courts on NY law). which was taken from the law of NY).

the statute is usually deemed to have been adopted with the construction so given.This is in accordance with the well settled rule in statutory construction that when a statute has been adopted from some other state or country. and said statute has previously been construed by the courts of such state or country. .