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INSURANCE
Contract of Insurance agreement whereby one
undertakes for a consideration to indemnify another
against loss, damage, or liability arising from an
unknown or contingent event
Principle: aiding another from a loss caused by an
unfortunate event
It was derived form the maritime laws and forms part
of the general law merchant, and is of an
international character eventually incorporated into
the common law system.
The Insurance Code of 1978 (PD No. 1460)
consolidated all insurance laws.
Sources of Insurance Law
1. Insurance Code (primarily)
2. Special Laws (GSIS & SSS Laws)
3. Civil Code (subsidiarily)
If the Insurance Code is silent, the provisions of the
Civil Code govern.
The insurer is subrogated to the rights of the
insured as against the wrongdoer. Purpose of
subrogation: to make the person who caused the
loss responsible, but at the same time prevent
double-recovery on the part of the insured party.
Right of subrogation applies only to property
insurance not life insurance. The pecuniary value
of human life, after all, cannot be determined.
There is no need for privity between the insurer and
the wrongdoer to make the latter liable.
The cause for the loss or injury must be covered
by the insurance policy to entitle the insurer to
be subrogated. If the loss is not covered, there is
voluntary payment; there is no subrogation, but the
insurer may claim under Art. 1236 of the Civil Code.
Principle of Indemnity: The insured cannot recover
any more than the amount of the loss. If the
indemnity is insufficient, the insured may claim the
balance from the wrongdoer.
The insurer can be compelled to indemnify so long
as the required premiums are paid.
The insurer can recover from the wrongdoer only the
amount recoverable by the insured. If it pays
more than that required, it cannot recover the same
from the wrongdoer. Neither can the insurer claim
more than what it has paid to the insured.
The exercise of the right to subrogation is
discretionary the insurer may merely seek to be
reimbursed (which is different from subrogation).
If the insured defeats the insurers right of
subrogation by releasing the wrongdoer from
liability, the insurer may claim the amounts paid to
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the insured. But the insurer cannot go after the
wrongdoer.
Interpretation: since the provisions of the Insurance
Act (now Insurance Code) have been adopted from
NY and California statutes, then the American
authorities involving similar provisions deserve to be
adopted.
Surety Contract is deemed as an Insurance Contract
if made by a surety w/c is doing an insurance
business. (But strictly speaking, a contract of
Suretyship is different form an Insurance Contract)
The term doing an insurance business shall
include:
making or proposing to make, as insurer, an
insurance contract
making or proposing to make, as surety, any
contract of Suretyship as a vocation and not
merely as incidental to any other legitimate
business or activity
doing any kind of business, including
reinsurance business, specifically recognized
as constituting the doing of an insurance
business
doing or proposing to do any business in
substance equivalent to any of the foregoing in
a manner designed the evade the provisions of
the Insurance Code
The fact that there is no profit or that no separate
consideration is received therefor is immaterial.
Assurance a term synonymous w/ Insurance.
Definition from other viewpoints:
Economic method of reducing risk
Business as a business institution where risk
is incurred collectively
Mathematical application of mathematical
principles to calculate chance of loss
Social collective assumption of individual
risks
Elements:
Subject Matter the thing insured
Consideration premiums
Object & Purpose the transfer and distribution
of the risk of loss, damage, or liability arising
from the fortuitous event
Characteristics:
Consensual
Voluntary (but may sometimes be required by
law such as insurance for labor or for certain
vehicles, or may arise by operation of law
such as War Damage Corporation Act)
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Aleatory dependent upon some contingent Fields of Insurance

event
Imposes unilateral duties upon the Insurer so
long as the premiums are paid
Conditional
Contract of Indemnity
Personal (generally cannot be assigned or
transferred w/o the insurers consent or unless
stipulated)
But life insurance policies are generally transferable
as they are in the nature of property and do not
represent a personal agreement between insurer
and insured.
If there is no subject matter to be insured (insurable
interest), the contract is void.
General
Voluntary
o Commercial (profit motive)
Personal (life, accident, etc)
Property
Own Property
Damage caused to property of
another (casualty insurance)
o Cooperative (no profit motive)
o Voluntary Government Insurance
Social or government insurance (usually
compulsory)
Classifications

The insurance is on the insureds property interest Insurance against loss/impairment of property
and not upon the property itself. interests
o Marine
Distinguishing Elements: o Fire, earthquake, etc.
o Guaranty Insurance (non-performance of
1. Insurable Interest the insured possesses contracts)
some interest susceptible of pecuniary o Credit Insurance (Insolvency of debtors)
estimation o Fidelity (defalcations of employees or
2. The interest is subject to risk of loss or agents)
impairment o Theft Insurance
3. The insurer assumed the risk of loss or o Title Insurance (defective titles)
impairment
4. Such assumption of risk is part of a general Insurance against loss of earning power
scheme to distribute actual losses among a Insurance against contingent liability to make
large group or substantial number of persons payment to another or loss w/ regard to
bearing similar risk claims for damages
5. The insured makes ratable contribution called
premiums to the general insurance fund Other way of classifying:
Marine
If only first 3 elements attend, it is only a risk- Property
shifting device, but not an insurance contract w/ is Personal
a risk-distributing device where there is broad Liability
sharing of economic risk.
All-risk vs. specified risk insurance important to
It equitably distributes losses out of a general fund determine whether a certain loss is covered by the
contributed to by all. It also provides protection policy. In specified risk, the burden of proof is upon
against absorbing ones losses alone. the insured to prove that the loss is covered; it is
otherwise in case of all-risk insurance. Exclusions
Economic Effects of distributing/transferring risk: are to be construed in a manner more beneficial to
the insured.
1. Benefit to society as a whole
2. Side effects such as moral hazards (less All-risk insurance is not absolute the cause of the
caution due to guarantee of indemnity) loss must still be fortuitous.
3. Problems regarding measurement of risks
transferred costly to monitor insureds Classifications under Insurance Code
behavior; thus the following devices:
1. Life Insurance
Deductible the insured also bears the loss a. individual life
up to a certain amount; the insurer bears the b. group life
rest c. industrial life
2. Non-Life Insurance
Coinsurance the insured bears some stated a. marine
percentage of the loss b. fire
c. casualty
4. Problems regarding computation of premiums 3. Contracts of Suretyship or Bonding
5. Classification and sub-classification of risks
both costly

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Insurance contracts are construed strictly
against the insurer and liberally in favor of the
insured. They are usually contracts of adhesion.
Exclusions or forfeitures from coverage are not
favored.
Insurance policies are construed as a whole.
So long as the surety or guaranty company engages
in the insurance business as defined in the Code,
the guaranty insurances are deemed Insurance
Contracts regardless of the designation.
Doing or Transacting an Insurance Business
The designation is of course not controlling. See the
enumerated acts in page 1.
Not all contracts involving contingent obligations are
insurance contracts. The principal object and
purpose test is applicable, If the primary purpose of
the contract is indemnity, it is insurance. But if the
principal purpose is service (or some other subject
matter), and the risk-transfer is merely incidental,
then the arrangement is not insurance.
Functions of Insurance
Principal function risk bearing, spreading the
losses over a large number of persons.
Subsidiary functions
stimulates business enterprises
encourages business efficiency and enterprise
promotes loss prevention (usually carried out
or imposed by the insurer)
encourages savings some insurance policies
contain savings or investment elements
solves social problems (GSIS and SSS)
Indirect Functions
re-investment of pooled funds
productive use of reserve funds w/c may
reduce the cost of premiums
effect on prices because the cost of
insurance is less than the cost of risk w/o
insurance
basis of credit insured property is easier to
mortgage or encumber or otherwise deal with
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Requisites of Contract of Insurance
1. Subject matter in w/c the insured as an
insurable interest
2. Event or peril insured against (any contingent
or unknown event past or future and a
duration of the risk thereof)
3. Promise to pay or indemnify in a fixed
ascertainable amount
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4. Consideration for the promise (premium)
5. Meeting of the minds upon all the foregoing
Anything having appreciable pecuniary value that
may be subject to loss or deterioration may be
insured.
The event or imperil insured against must:
damnify or cause loss to a person having an
insurable interest, or
create liability against him
be the proximate cause of the loss
Note: an insurance against a past unknown event is
peculiar to marine insurance; in fire insurance, the
event must always be future.
Married woman may take out insurance on her life
or that of her children or over her property w/o
husbands consent.
A minor can enter into a contract of insurance
provided:
he is above 18 years old (?)
the contact is for life, health, or accident
the insurance is taken on his life
the beneficiary is his estate, parents, spouse,
sibling, or child
If the minor takes insurance on anything other than
his life, health, or accident, then the contract is
voidable.
Ownership in Life Insurance the ownership is
divided between the insured (as to its various
marketing and sales features) and the beneficiary
(as to the promise to pay)
The interest of the beneficiary depends upon the
provisions of the policy and the statutes.
Insurance is not authorized for or against:
the drawing of any lottery
any chance or ticket in a lottery drawing a
prize
Elements of Lottery:
1. consideration
2. prizes
3. chance
There is consideration if the prizes appear to come
out of the fund raised by the sale of chances among
the participants. If the prizes do not come from the
fund or contributions, consequently, there is no
lottery.
The failure to win the prize would not damnify or
create liability against the bettor there is really no
loss.
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Insurance Wagering Contract

Parties seek to distribute Parties contemplate gain Where:
loss due to mischance through chance mortgagor effects insurance in
Insured seeks to avoid Gambler courts fortune his name, but w/ mortgagee as
misfortune beneficiary, or
Equalizes fortune Increases the inequality mortgagor assigns the policy to
of fortune the mortgagee
What the insured gains One persons win is Then:
is not at the expense of anothers loss the mortgage remains upon the
another insured interest of the mortgagor (who
Does not create new risk Gambler creates the risk remains party to the contract)
but only insures already of loss himself when he Thus:
existing risks bets any act of the mortgagor prior to
the loss w/c avoids the insurance
will produce such effect, even
0 though the insured property is in
the possession of the mortgagee
But:
Every person, partnership, association, or any act w/c must be performed by
corporation duly authorized to transact business the mortgagor under the
under the Insurance Code may be an insurer. insurance contract (such as
payment of premiums) may be
Insurer party who accepts the risk and undertakes, performed by the mortgagee
for consideration, to indemnify the insured on the w/c produces the same effect as
happening of a specified contingency if done by the mortgagor

Insured the person indemnified or is to receive the In case of loss, the mortgagee is
sum upon the happening of a specified contingency; entitled to recover to the extent of his
it is his loss that gives rise to payment of the credit. The debt is then extinguished.
insurance proceeds

The insured may assign the proceeds.
Before foreign domestic insurance company or
corporation may engage in insurance business, he
must secure proper permit from the Insurance
Commissioner.
Mortgagor has right to assign the policy to the
mortgagee.
Mortgagor and mortgagee both have insurable
interests but these interests are separate. They
may be insured separately.

Even individual may be insurer provided he secures Extent of interest of mortgagor to the extent of
the license from the Commissioner. The insurance the value of the property, even though the mortgage
business is vested w/ public interest. debt equals such value

Anyone except a public enemy may be insured.
A public enemy is a state with w/c the Philippines is
at war including every citizen or subject of such
nation.
In order for a person to be insured, the following
elements must attend:
competence to enter into contract
must possess insurable interest
must not be a public enemy
Effect of war on pre-existing insurance:
Property insurance ceases to be valid and
enforceable
Life Insurance the contract is abrogated, but
the insured is entitled to the cash or reserve
value of the policy (or the excess of the
premiums paid over the actual risk during the
effectivity of the policy)
Extent of interest of mortgagee to the extent of
the debt secured (what is insured is the interest or
lien). His insurable interest is prima facie the value
of the mortgage and extends only to the amount of
the debt, and not exceeding the value of the
mortgaged property.
Extent of recovery:
Mortgagor no recovery beyond the value of
the loss
Mortgagee no recovery in excess of the credit
at the time of the loss, nor more than the value
of the property mortgaged
Mortgagee may insure his own interest; he will be
entitled to the proceeds of the policy in case of loss
before payment of the mortgage. Then the insurer is
subrogated to his rights. The principal debt remains,
but there is a change of creditor.

Termination of war does not revive the contract. Mortgagor may insure his own interest; in case of
loss, no proceeds inure to the mortgagee.

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Mortgagor may insure for the benefit of the

mortgagee; this is the usual practice.
mortgagee may be assignee of the policy w/
the consent of the insurer
mortgagee may be the mere pledgee w/o such
consent
a rider making the policy payable to the
mortgagee as his interest may appear may be
attached
a standard mortgage clause containing a
collateral independent contract between
mortgagee and insurer may be attached
the policy, though payable to the mortgagor,
may have been procured by a mortgagor under
a contract duty to insure for the mortgagees
benefit (mortgagee acquires equitable lien upon
the proceeds)
Standard of Union Mortgage Clause (Fire Insurance)
the acts of the mortgagor do not affect the
mortgagee (its purpose is to make separate
and distinct the contract of insurance on the
interest of the mortgagee)
Open or Loss-Payable Mortgage Clause (Fire)
acts of the mortgagor affect the mortgagee; it
merely provides for the payment of loss, if any,
to the mortgagee as is interest may appear
mortgagee becomes mere beneficiary and
does not become party to the contract
his right maybe defeated by the acts of the
mortgagor
Rights of the mortgagee under the mortgagors
policy:
before loss he is merely a conditional
appointee, his right becomes absolute upon
occurrence of the loss
after loss if the credit is not due, the
mortgagee is entitled to receive the proceeds to
apply to the extinguishment of he debt as soon
as it becomes due; if the credit is due, he may
apply the proceeds to the extent of the credit
Mortgagee insures in behalf of mortgagor
upon loss, mortgagee is entitled to receive
payment from the insured (?) w/c discharges
the debt if equal to it; if greater than the debt,
the mortgagee holds the excess as trustee for
the mortgagor
if there is a stipulation that the insurer shall be
subrogated to the rights of the mortgagee,
payment of the policy will not extinguish the
debt (even though the policy was procured by
arrangement w/ the mortgagor)
If:
insurer assents to transfer of
insurance to mortgagee, and at time
of assent imposes further
obligations on the assignee
(making a new contract w/ him)
Then:
acts of the mortgagor cannot affect
the rights of the assignee
The assignee is substituted in place of the original
insured. Assignee acquires no greater right than the
assignor unless he makes a new contract with the
insurer.
Fire insurance is non-assignable (personal) unless
the insurer consents or otherwise stipulated.
Marine insurance is believed to be generally
assignable even w/o consent of the insurer unless
such consent is otherwise required by the policy; but
it is believed that the rule is now otherwise, that
consent is required
Casualty insurance is not assignable w/o insurers
consent these involve moral hazards
Life Insurance is assignable (before or after the
loss) to any person with or without an insurable
interest unless the assignment contravenes public
policy, such as by allowing the assignee to wager on
the life of the insured.
Important distinctions:
transfer of the policy itself (rights arising
therefrom are transferred)
transfer of proceeds of the policy (after loss)
transfer of subject matter of the insurance
Assignment of insurance by mortgagor to
mortgagee: contract remains w/ the mortgagor, but
there is an equitable transfer of the policy to enable
the mortgagee to recover the amount due in case of
loss.
If the mortgagee pays separate consideration to the
insurer, a new contract is created and the acts of the
mortgagor cannot affect the assignee.

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INSURABLE INTEREST
Every person has insurable interest in life &
health of:
himself, spouse, children
any person upon whom he depends
(education or support)
any person in whom he has pecuniary
interest
any person under legal obligation to him for
payment of money, or respecting property
or services, the death or illness of w/c might
delay performance
person upon whose life an estate or interest
vested in him depends
The fact that the assured and insured are about to
be married is insufficient; any of the above
requirements must be proved to be present.
Insurable interest interest w/ the law requires
owner of insurance policy to have in the person or
thing insured
He must derive a pecuniary benefit or advantage in
its preservation, or he may suffer loss from its
destruction or impairment.
Ownership over the thing and the interest insured
may be different. In case of ownership, the value of
the thing is the measure; in case of mere interest,
every benefit or advantage must be considered.
Exception to the above rule: insurable interest over
life of a person there need not be pecuniary
interest.
Existence of insurable interest gives the person the
right to insure the subject of the policy. If there is no
insurable interest, the result is gambling w/c renders
the contract null and void and contrary to public
policy.
Insurable interest requirement not applicable in case
of industrial life insurance.
Requirement of insurable interest based on public
policy to prevent wager policies.
Wager policies (void):
allow insured to have interest in destruction
rather than preservation
promotes temptation and inducement to bring
to pass the event upon the happening of w/ the
insurance becomes payable
Insurable interest is the measure of upper limit of his
provable loss. Insurance is not a means of profit.
2 general classes of Life Insurance Policies:
Insurance upon ones own life does not
usually present an insurable interest question
(every person has unlimited insurable interest
in his own life)
Insurance upon life of another if it is for the
benefit of the one who procured the insurance,
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he must have an insurable interest in the life of
the insured (otherwise he might kill him to get
the proceeds)
Insurance taken on life on ones own life but for
the benefit of another in this case, presence of
insurable interest is only evidence of good faith to
support the contract (it is presumable that a person
has interest in preservation, not destruction, of his
own life).
Selection of the beneficiary by the insured is usually
sufficient guarantee of good faith.
It is possible that the insurance taken on ones own
life is actually a wager policy (in w/c case, void); it
may be indicated by:
original proposal was made by beneficiary
premiums are paid by beneficiary
beneficiary has no interest in the continued life
of the insured
If the life insurance is applied for by beneficiary he
must have an insurable interest in the life of the
insured.
In essence, a life insurance policy is similar to a
donation, its consideration being pure liberality.
Thus, those disqualified from donating to each
other cannot also designate each other as
beneficiary to his own life insurance.
True that donations between spouses during the
marriage are void, but in case of life insurance, it
takes effect after death of the insured.
The policy of the law is that the assured must have
an interest in the continued life (rather than the
destruction) of the insured; thus the assured must
have an insurable interest in the insureds life.
If a person insures life of insured for the benefit of
third person, both must have insurable interest in
continued life of the insured. The policy is then
assignable even if the assignee has no insurable
interest.
The following have, by law, an insurable interest in
each other, because they have legal obligation to
support (Family Code):
spouses
legitimate ascendants/descendants
parents and their legitimate children, and the
legitimate and illegitimate children of the latter
parents and their illegitimate children, and the
legitimate and illegitimate children of the latter
legitimate brothers and sisters, whether full or
half blood
Other than above, mere blood relationship or
affinity) does not automatically create insurable
interest. Love, affection, friendship, etc are not
sufficient; there must be pecuniary interest.
Examples of insurable interest:
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child supported has insurable interest in person
giving support
adopter who raised and supported child has
reasonable insurable interest (that she will also
be supported during the twilight of her years)
corporation has insurable interest in life of
officers who bring it prosperity
business partners
employees valuable to the business (not those
who may easily be replaced)
If a person is so related to another by contract or
commercial relation such that the death of one will
result to extinguishment or impairment of the
obligation, or to the delay of its performance, then
there is an insurable interest.
Creditor has unquestionable insurable interest
in life of debtor but only to the extent of the
amount of the debt and the cost of carrying the
insurance on the debtors life. Creditor can only
recover unpaid amounts as of the time of death.
The amount of insurance should not be so
disproportionate to the debt to make it a wagering
policy.
If creditor insures life of the debtor, there is no
agency relation created (unless otherwise shown).
If debtor insures self for the benefit of the creditor,
and the debt is fully paid, the policy is not
invalidated. The proceeds will go to the estate of the
debtor.
Am Jur: The fact that the debt later becomes
unenforceable does not extinguish the insurable
interest of the creditor over life of the debtor; the
moral/equitable obligation to pay remains.
Under our law, there must be a legal obligation to
pay for there to be insurable interest.
One may insure the life of a person where the
continuation of the estate or interest vested in him
who takes the insurance depends upon the life of
the insured. Example: usufruct and ownership are
severed; upon the death of either, usufruct and
ownership pass to a third person.
Under Phil. law, the consent of the insured is not
necessary to the validity of the policy the
presence of insurable interest being sufficient.
(Vance: absent consent of the insured, the policy
should be void; otherwise a strong temptation to
hasten the death of the insured may be present)
The insured may change the beneficiary in the
policy; unless he has waived such right.
The beneficiary, after all, acquires no vested right
but only an expectancy.
Kinds of beneficiary:
the insured himself
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third person who paid consideration (such as a
creditor)
third person through mere bounty of the insured
Upon the death of the insured, the proceeds
become the exclusive property of the
beneficiary. Thus, if insured declared insolvent prior
to death, the proceeds go to the beneficiary, not the
assignee in insolvency.
If a person takes insurance upon himself in favor of
third person beneficiary, the latter need not have
insurable interest (so long as done in good faith).
This is subject to certain limitations:
persons guilty of adultery or concubinage (may
be annulled by the true spouse, preponderance
of evidence suffices); in such case, the heirs
will get the proceeds, not the mistress
those made between persons guilty of same
criminal offense, made in consideration thereof
made to a public officer and his wife,
descendants, ascendants by reason of office
If there is no beneficiary designated (or if the one
designated is disqualified), the proceeds go to the
estate of the insured.
The insureds right to change the beneficiary ends at
his death; this cannot be exercised by his
representative. At that time, the beneficiarys right
becomes vested.
If the insured waives his right to change the
beneficiary, he can still change the same but
only w/ the consent of the designated
beneficiary. Neither can a new beneficiary be
added w/o the present beneficiarys consent.
Insured who waived his right cannot destroy the
contract by not paying premiums; the beneficiary
can pay the premiums himself (because he has an
interest in the fulfillment of the obligation).
The measure of the right of the beneficiary is the
face value not the cash surrender value of the
policy. Thus he must be paid on the basis thereof.
Where Beneficiary pre-deceased insured:
First View: proceeds go to the representatives
of the beneficiary
Second View: proceeds go to estate of the
insured besides the purpose of the insured is
to secure the person who he is entitled to
support (the beneficiary) who is now dead
It may be provided in the policy however that
the proceeds go to the beneficiary, his
executors, or assigns in w/c case, the
beneficiarys interest is not terminated by his
death.
Designation of the beneficiary interpretation must
always give life to the intent of the insured or the
parties.
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Children may mean, adopted, or even adult
child not part of the household, or after-born
children
Wife or spouse usually spouse as
ascertained at the time of death of insured
Husband and children / wife and children may
include children of a different spouse
Family must have been so regarded as
family by the insured
Heirs generally not only heirs at law, but that
class of persons who would take the property of
the insured
Estate or legal representatives usually strictly
construed to mean executors or administrators
unless otherwise intended
If 2 women married the same man (insured) in good
faith, the proceeds of his lie insurance are divided
equally between each family.
Interest of the beneficiary is forfeited if he is
principal, accomplice, or accessory to the death
of the insured. Nearest relative of insured
receives proceeds, if not disqualified.
Interest in this case means right to receive the
proceeds of the policy (not insurable interest).
Nearest relatives (in order) based on Succession:
1. legitimate children
2. father/mother
3. grandfather/mother or ascendants nearest
in degree
4. illegitimate children
5. surviving spouse
6. collateral relatives
a. brothers/sisters (full blood)
b. brothers/sisters (half blood)
c. nephews/nieces
7. the state
Liability of Insurer upon death of insured:
death at hands of law it is one of the risks
assumed by the insurer (Vance) unless
otherwise provided; but some courts rule
otherwise
self-destruction insurer is not liable if the
insured was of sound mind (this does not
include death due to recklessness or
negligence)
suicide while insane insurer remains liable,
unless otherwise provided (especially if due to
some disease of the brain)
death caused by beneficiary if killing is
intentional (regardless of intent to gain or lack
of it), beneficiary forfeits in favor of nearest
relative of insured; if the killing was not
felonious (self-defense, accidental, insanity) the
beneficiary may still claim
death while violating law insurer remains
liable, to avoid liability, insurer must prove that
the felony was the cause of the accident
resulting to the death (?)
These are insurable interests:
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every interest in real property, real or
personal
every liability in respect thereof
They must be of such nature that a
contemplated peril might directly damnify
the insured
Simply put, he must derive some benefit from the
property, or sustain damage in case of its loss. It is
sufficient that he might sustain loss, not that he
would necessarily by virtue of the event. Occurrence
of loss may be uncertain.
He need not own or even possess the property; it is
sufficient that he will be damnified by its loss.
Insurable interest is not necessarily interest in
property in the sense of the term, but merely
concern in its preservation or pecuniary loss in case
of its destruction.
Factual expectation insufficient in case of
property insurance. It is such expectation not
arising from any legal right such as interest of gas
station owner in preservation of hotel beside his
station because it brings more customers. Such is
not the case in life insurance.
Insurable interest in property may consist in:
1. existing interest (legal or equitable)
2. inchoate interest founded on existing interest
3. expectancy, coupled w/ existing interest in that
out of w/c the expectancy arises
Person having legal title in representative capacity
(such as executor) may insure the property, but the
proceeds go to the person for whose benefit he is
acting.
Examples of legal title:
ownership
seller of property prior to delivery (as trustee)
mortgagor of property mortgaged
lessor of property leased
assignee of property for benefit of creditors
Examples of equitable title:
purchaser before delivery
mortgagee of property
mortgagor after foreclosure but before
expiration of period for redemption
beneficiary under deed of trust
creditors under deed of assignment
judgment debtor, w/in period for redemption
constructors, upon the building prior to payment
More than 1 insurable interest may exist in the same
thing.
Inchoate interest must be founded on existing
interest. Examples:
stockholder over property of the corporation
(insurable interest limited to extent of the value
of this share)
partner over property of the firm
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Expectancy must be coupled w/ existing interest in
that out of w/c the expectancy arises. Examples:
farmer may insure future crops if to be grown
on his land, or if on land of others, he must own
them after they are grown
if contract will be impaired by destruction of
designated thing it can be insured such as
painter over structure that he was contracted to
decorate
Carrier or depositary has insurable interest in
property held as such to extent of his liability,
but not to exceed the value thereof.
Because he may be held liable for its loss. Such
bailee may insure only against loss of the benefits
he may derive therefrom, or he may insure himself
against his loss from its destruction or impairment.
If bailee insures both his property and that deposited
w/him, in the event of loss, it inures equally and
proportionally to the benefits of all the owners of the
property insured.
Warehousemen are required to insure against fire
the commodities he receives for storage.
Mere expectant or contingent interest in
anything, not founded on actual right to the
thing, nor upon any contract for it, is not
insurable.
Mere hope or expectation of benefit is not sufficient
to support an insurance contract.
Father cannot insure sons property (vice versa)
because their interests thereto are mere
expectancies. Neither can spouse as to the property
of the other.
But parents, children, and spouses may insure each
others lives because they are required by law to
support each other.
Creditor cannot insure debtors property while the
latter is alive. But after death, the assets of the
debtor ay be insured, the proceedings to subject the
estate to payment of claims is in rem.
Unsecured creditor who obtains judgment against
his debtor may insure the latters properties
because he has a right to levy upon them. But he
has insurable interest in the life of the debtor to the
extent of his interest.
Beneficiary has no insurable interest over property
of the testator before the latters death. But if the
testator expressly waived his right under the policy,
the beneficiary can have an insurable interest (?)
The measure of the insurable interest in the
property is: the extent to w/ the insured might be
damnified by loss or injury thereof.
The basis of insurance is indemnity.
[Type text]
Supra: thus, mortgagor has insurable interest to the
extent of the value of his property; mortgagee to the
extent of his credit secured by the mortgage.
Anything that reduces the loss (such as payment by
the wrongdoer) also reduces the insurers liability.
No contract or policy of insurance over property
is enforceable except: for the benefit of a person
w/ insurable interest in the property insured.
Even if the insured subsequently acquired insurable
interest, if at the time of the contract there is no
insurable interest, the contract is still void.
If the contract is declared void, the premiums must
be returned, except if the parties are in pare delicto.
Insured cannot be paid in amount greater than the
loss.
Principle of waiver or estoppel will not lend validity;
the public has an in the matter independent of the
concurrence of the parties.
Marine & Fire Insurance - the amount of indemnity
indicated in the policy is not the amount to be
received, but the maximum indemnity he might
obtain. The rule is otherwise in case of valued
policies or if the parties otherwise agreed.
Liability insurance contracts they are contracts
of indemnity against liability, not loss. If the insured
suffered no liability (for one reason or another) the
insurer is not liable.
Life Insurance contract The amount payable
only represents the value that the insurer bound
himself to pay, not the value of the human life.
Personal accident insurance they are not
contracts of indemnity, but if one contracts an
insurance upon the life of another, the measure of
indemnity is the loss sustained by the person who
procured the insurance
Health insurance contracts provide periodic
income to disabled persons, not indemnity. But
those that cover medical expenses are indemnity
contracts.
Health care agreement w/ a Health Maintenance
Organization (HMO) is in nature of non-life
insurance, primarily of indemnity. Health care
provider must pay for medical expenses to the
extent agreed upon; payment must be made to the
party who incurred the expenses
Interest in property must exist:
when the insurance takes effect
and when the loss occurs
but need not exist in the meantime
(intervening period)
[Type text]

Interest in the life or health of a person must change of interest in one or more of several
exist: things, separately insured by 1 policy
when the insurance takes effect change of interest by will or succession on
but need not exist thereafter or when the death of the insured
loss takes effect transfer of interest by 1 of several partners,
joint owners or owners in common, jointly
This is applicable to insurance on property, not life insured, to others
insurance except one on the life of the debtor. when policy is so framed that there is indemnity
regardless of owner of interest insured
Thus, if a fire takes place after the insured property if there is prohibition against alienation in the
has been sold, there can be no recovery. policy, in case of such alienation, the policy is
avoided
In liability insurance, insurable interest is not
particularly important so long as liability to a third Change of interest over the thing insured after
party attaches. occurrence of the injury creating the loss does
not affect the right of the insured to indemnity.
If insured property is sold but reacquired, there can
be recovery on the insurance. The right to indemnity becomes fixed; transfer of the
thing insured does not affect the right to collect (w/c
Vance: existence of insurable interest is not itself may be assigned).
necessary at the inception of the agreement so long
as it is present when the risk takes place Change of interest in 1 or more of several things
separately insured by 1 policy does not avoid
Insurable interest in: the insurance as to the others.
Life Property
Unlimited (except that Limited to actual value Important: if the contract or policy is indivisible, then
effected by creditor on of the interest thereon the change of interest as to some will also avoid the
life of debtor) policy as to the rest. Here the items are usually not
Insurable interest must Must exist when policy separately valued in the policy.
exist when the policy takes effect, and when
takes effect, but not the loss occurs, but not If the contract is divisible, the others not transferred
when the loss occurs in the meantime are still insured.
Expectation of benefit Expectation of benefit is
need from continued life not sufficient unless Divisibility or otherwise is a matter of intent. Mere
need not have legal there is a legal right apportionment of the insurance among various items
basis (such as in does not automatically make the contract divisible.
voluntary supporter)
In case of change of interest by will or
succession (death of insured):
If: insurance is not avoided
There is change of interest in any part of a decedents interest in the insurance passes
thing insured to the person taking his interest in the thing
unaccompanied by any change of interest in insured
the insurance
Then: Transfer of interest to others (who are jointly
The insurance is suspended to the same insured) by 1 of:
extent, until interest in the insurance and in several partners
the thing are again vested in the same joint owners
person. owners in common
Does not avoid the insurance, even though it
Mere transfer of a thing does not transfer the policy has been provided that that the insurance shall
but merely suspends it until the same person cease upon an alienation of the thing insured
becomes owner of both the thing and the policy.
In this case, no new party is brought to the
If insured property is sold but not the policy, in case contractual relation; there is no new risk.
of loss, nobody can recover on the policy. Purchaser
has no privity w insurer; seller has no more But if the policy provides that the insurance will be
insurable interest. void in case of any sale, transfer, or change of title
then the policy will be avoided by such alienation (?)
This rule applies to transfer or alienation of the
property not mere encumbrance. In case of transfer of part of the insured interest to a
stranger, the policy is avoided, but only as to the
This rule is not applicable to: party who caused the transfer.
life, health, accident insurance
change of interest in the thing insured after The following are void:
occurrence of the injury

[Type text]
[Type text]
stipulation requiring payment regardless of
the presence of insurable interest (this is a
mere wager)
or that the policy shall be received as proof
of such interest (absence of insurable interest
is a defense available only to the insurer)
any policy executed by way of gambling or
wagering
CONCEALMENT
Concealment failure to communicate that w/c a
party knows and ought to communicate.
4 Primary Concerns fir Insurance Contract:
1. correct estimation of risk to enable insurer to
determine if he is willing to assume it and at
what premium rate
2. precise delimitation of he risk w/c determines
the contingent duty to pay
3. control of risk after it is assumed
4. determining if a loss occurred and if so the
amount of such loss
The insurer must have the same information as the
applicant to estimate the risks.
2 parts of description of the risk:
1. designation of property interest to be covered
2. specification of perils to w/c the property will be
exposed
Warranties and conditions empower the insurer
to extinguish the legal relations created in case of
concealment or misrepresentation.
Exceptions make the coverage more definite by
excluding certain specified risks or properties, or for
controlling certain risks.
Executory warranties undertaking that certain
conditions should not exist in the future, enable the
insurer to rescind the contract in case the risk
becomes too burdensome.
Conditions precedent such as those requiring
immediate notice, detailed proof, or conditions
requiring certain actions to be brought w/in a
specified time
Requisites of Concealment:
1. party knows a fact that he does not
communicate
2. there is duty to disclose such fact
3. party concealing makes no warranty of the fact
concealed
4. other party has no means of ascertaining the
fact concealed
Concealment need not be intentional to entitle
the other party to rescind the same.
Insurance contracts are contracts of utmost good
faith uberrimae fidae.
[Type text]
It extends even to things that he ought to know; thus
not even forgetfulness is an excuse.
Both insurer and insured have duty to disclose.
Fraud is not an essential element. To require fraud
would place an undue burden upon the insurer.
Rules on Marine Insurance:
In US only in marine insurance is
concealment applicable; in case of fire
insurance, the insurer must undertake to
ascertain and investigate
In Phils. concealment applies regardless of
the type of insurance; intent to deceive is
immaterial
Each party has duty to communicate when:
1. they are material to the contract
2. the other party has no means of ascertaining it
3. the party w/ duty to communicate makes no
warranty as to it
Insurer has right to rely upon the representations of
the applicant; it need not verify all statements.
Intentional or fraudulent omission on part of
insured to communicate info on matters proving
or tending to prove the falsity of a warranty
entitles the insurer to rescind.
Here fraudulent intent is necessary. It is as to falsity
of a warranty example: that the ship is seaworthy.
No obligation to communicate the following,
unless asked for:
those w/c the other knows
those w/c the other ought to know (ordinary
care) and w/c he may not be reasonable
supposed ignorant
those of w/c the other waives communication
those w/c tend to prove risk w/c is excluded by
warranty & otherwise not material
those w/c relate to risk excepted from the policy
and not material
Information on the nature or amount of the interest
of one insured need not be communicated unless
asked for (Sec. 34).
Materiality is determined (not by the event)
solely by the probable and reasonable influence
of the facts upon the party to whom the
communication is due, in forming his estimate of
the disadvantages of the proposed contract or in
making inquiries.
Test: effect of knowledge of such fact in entering
into the agreement.
The fact concealed must be material. It must have a
probable influence on the other party in entering into
the contract.
The duty of disclosure exists at the time of the
contract.
[Type text]
Each party to the contract is bound to know:
all the general causes open to his inquiry,
equally w/ that of the other
all that may affect the political or material perils
contemplated
all general usages of trade
These matters need not be communicated and are
presumed known.
The right to info regarding material facts may be
waived:
by the terms of the insurance (expressly)
neglect to make inquiry as to facts already
communicated and w/c are distinctly
implied therein (impliedly)
If the insurer makes no further question as to a fact
disclosed or answered incompletely, there is implied
waiver unless there is concealment.
Information on nature or amount of interest of
one insured need not be communicated unless
in answer to inquiry (as prescribed in Sec. 51).
The interest of the insured must be disclosed if he is
not the absolute owner of the thing insured. If
ownership is absolute, there is no need to disclose
the interest.
There is no need to disclose opinion,
speculation, intention, or expectation. Duty of
disclosure is limited to facts.
REPRESENTATION
Representation factual statements made by
insured prior to issuance of policy to induce the
insurer to enter into the contract. (May also be made
by the insurer)
Misrepresentation a statement:
as a fact of something w/c is untrue
stated by insured w/ knowledge that it is untrue
or has tendency to mislead
the fact is material to the risk
Effect: insurance contract is voidable at the option of
the insurer.
Representation may be oral or n writing. It forms
basis of the contract. False material representation
entitles the insurer to avoid liability he did not
assume the risk.
Representation is made at the time of or prior to
entering into the insurance contract. But a
representation may be performed after the issuance
of the policy.
Interpretation of representations = interpretation of
contracts [same rules].
interpretation in favor of insured
substantial truth suffices
[Type text]
Example: question as to drinking pertains to habitual
drinking; question as to illness pertains to serious
illness.
Representation as to future = mere promise.
Unless it is shown to be mere statement of belief
or expectation.
Affirmative representation allegation as to
existence or non-existence of a fact (e.g. that house
is for residential purposes only)
Promissory representation promise to be fulfilled
after contract is perfected, or statement as to what is
to happen during existence of the contract
if not incorporated in the policy, non-
performance does not allow insurer to evade
liability, unless promise was fraudulent
undertaking by insured inserted in the policy
but not made a warranty [it becomes an
executory term of the contract]
It is substantially a condition or a warranty.
Effect of representations of opinion or expectation:
if it turned out false but there was good faith, it
does not avoid the policy even if material
if fraudulent, the policy may be avoided
In order for insurer to avoid liability, he must
prove that the false statement is: (1) material,
and (2) bad faith.
But if the representation pertains to fact, it
suffices that it is proven false regardless of
intent [intent to deceive presumed]
Reasoning: if statement of opinion, the insurer ought
to know that the opinion may be mistaken.
Examples of mere expression of opinion:
if the insured has no control over it or if to
pertains to the life of the insured
Representation:
may not qualify an express provision
but may qualify an implied warranty
Representation is not part of the contract but is a
mere inducement to it.
Representation may be withdrawn or altered:
before insurance is effected
but not thereafter
Representation is presumed to refer to the date
on w/c contract goes in effect.
Conditions represented to be existing must be
so during the making of the contact
There is no false representation if it becomes
true at the time of perfection even though
originally false
[Type text]
There is false representation if it becomes false
at the time of perfection, even if initially true.
A representation is continuing until the contract is
finally perfected.
When a person has no personal knowledge of a
fact:
he may repeat the info he has on the subject
w/c he believes to be true but w/ the
explanation that he does so on the
information of others
he may submit the information in its entirety
In neither case is he responsible for its truth
unless it proceeds from an agent of the
insured, whose duty is to give the
information
If he receives info material to the risk after the
insurance has been effected, he ought to
communicate it to his agent as soon as possible. If
he fails to do so, the policy is avoided.
If an agent of the insured [ex. captain] knows of info
[sinking of ship], he must communicate it to his
principal [ship owner] in reasonable time. If he fails
to do so, the principal is liable for it truth and cannot
collect.
DD: Simply put, notice to the agent is notice to the
principal. Same rule applies to insurer.
Representation is false when:
the facts fail to correspond w/ its assertions
or stipulations
Substantial truth suffices [unlike in the case of
warranties]. To avoid the policy, the
misrepresentation must be substantial.
Note: in marine insurance, substantial truth is
insufficient; insured must state exact truth.
Representation written in the policy, whenever
possible, will be construed as an affirmative
representation to save the policy from avoidance.
[Ex. statement that no smoking is allowed in the
building, if true at the time of the contract, will not
avoid the same if later on smoking takes place]
If representation is false in a material point
[affirmative or promissory]:
injured party may rescind the contract from
the time when the representation becomes
false
The right to rescind is waived if the insurer
receives premiums w/ knowledge of ground for
rescission. [Estoppel]
Fraud is not an element in order to rescind based on
misrepresentation.
If there is collusion between the insured and the
agent of the insurer as to misrepresentation, the
[Type text]
insurer may still avoid the policy. From that moment,
the agent no longer represents the insurer but only
represents himself.
If agent of the insurer fills out the application form for
the insured himself, he becomes agent of the
insured. [Insurer may evade liability]
Materiality of representation is determined by
same rules as materiality of concealment.
Materiality probable and reasonable influence of
the facts upon the party whom the representation is
made.
Misrepresentation is a judicial question.
Concealment Misrepresentation
Insured withholds info of Insured makes
material facts erroneous statement of
facts w/ intent to induce
insurer to contract
same rules to determine materiality
same effect = insure may rescind
intent is immaterial as to both
Provisions on concealment and representation
apply equally in case of modifications to the
insurance contract.
When the right to rescind is conferred to the
insurer, such right must be exercised
previous to the commencement of an action
on the contract.
In case of life insurance, the insurer has only
2 years from the date of issue or
reinstatement to prove that the contract is
rescindable based on concealment or
misrepresentation of the insured or agent.
This does not contemplate the defense of false
representation of concealment for w/c there is not
time limit. It contemplates an action to rescind w/c
must be commenced before any action upon the
contract is commenced by the insured.
Incontestability Clauses stipulate that the policy
becomes incontestable after a stated period; it is
valid. Insurer cannot anymore rescind or set up as a
defense except on the ground of public policy.
Rationale:
insurer had reasonable opportunity to
investigate
insured must be protected especially after
considerable time has passed and evidence
lost, and after he has paid substantial
premiums
Requisites for incontestability:
policy is a life insurance policy
[Type text]
payable on death of insured
it has been in force during the lifetime of the
insured for at least 2 years from issuance of
reinstatement
The 2 year period may be shortened but may not be
extended by stipulation.
When the policy has become incontestable, insurer
cannot refuse payment on the ground that:
void ab initio
misrepresentation or concealment by insured or
agent
Defenses not barred by incontestability:
no insurable interest
cause of death was an excepted risk
unpaid premiums
violation of military and naval service provisions
fraud of a vicious type such as procuring the
policy in furtherance of murder scheme
no proof of death or failure to comply w/
conditions under the policy after the loss
action not brought w/in the time specified
THE POLICY
Policy written instrument in w/c the insurance
contract is set forth [evidences the contract]
shall be in printed form
may contain blank spaces, and any
word/symbol (etc) needed to complete it is
written in the blank spaces
any rider, clause, warranty, endorsement
purporting to be part w/c is pasted or attached
is not binding unless descriptive title or
name of such is mentioned/written on the bank
spaces
any rider, clause, warranty, endorsement
issued after original warranty must be
countersigned by the insured or owner [unless
applied for by the insured] it constitutes his
agreement thereto
group insurance or group annuity policies need
not be in printed form [may be typewritten]
The policy need not be signed by the insured
unless there are express warranties contained in a
separate attachment.
Policy controls terms of insurance contract. In order
for insured to claim, he must prove that the claim is
covered by the policy.
Compliance w/ terms of the policy is condition
precedent to recovery.
Essentially a contract of adhesion. Insurer has
superior bargaining power. Thus ambiguities
construed against insurer. Forfeitures are
[Type text]
disfavored. Liberal construction for insured applies
equally in case of Suretyship.
But if the terms of the contract are clear, there is no
need for construction.
Policies of insurance [forms] must be approved by
the Insurance Commissioner.
Conflict between written and printed portions =
written portions prevail.
There can be no contract unless the minds of
the parties have met regardless of the signing
and filing of the application form. There must be
approval or some manifestation of consent on
the part of the insurer.
Conditions precedent to the validity of the contract
may be imposed such as payment of first
premium.
Delivery act of putting the insurance policy in the
physical possession of the insured.
it evidences the making of the contract and its
terms
communication of the insurers acceptance of
the terms offered by the insured
It may also be the reckoning period for the effectivity
of the insurance coverage. It is the decisive act that
ordinarily marks the end of the insurers opportunity
to decline coverage.
Manual delivery of the policy is not requisite to the
validity of the insurance contract unless agreed
upon.
Delivery is a matter of intention. Possession of the
policy by the insured, however, raises the
presumption that the contract has been perfected.
Delivery of policy to insurers agent before death of
the insured [2 views]:
cannot recover the insurance agent is not the
agent of the insured
can recover having complied w/ all the
requisites, actual delivery is not essential to
give binding effect
Conditional delivery non-performance prevent
the effectivity of the contract.
Unconditional delivery perfects the contract.
Unconditional delivery but premium unpaid
insurer cannot be presumed to have extended
credit; there must be some clear act of acceptance
on the part of the insurer. In the absence of
agreement to the contrary, the insurance will lapse if
the premium is not paid.
Rider printed or typed stipulation contained in a
slip of paper attached to and forming integral part of
the policy. It forms part of the insurance contract.
[Type text]
Conflict between rider and printed form = rider
prevails.
The forms of rider must also be approved by the
Insurance Commissioner.
Warranties helps to reduce specific potential
increases of hazard [such as stipulation that no
hazardous trades will be carried out in the insured
premises]
Clause agreement as to liability of the insurer in
case of loss
Three-fourths clause liability not to exceed
of the loss or damage
Loss Payable Clause loss payable to a
named party
Change of Ownership Clause it will inure to
the benefit of whomsoever is the owner of the
insured property
Endorsement provision altering the scope or
application of the insurance such as extending the
perils covered etc.
Where rider (etc) is physically attached to the policy,
delivered to the insured, sufficiently referred to in the
agreement, the fact that it does not have signature
will not bar its effectivity.
What is insured did not read the policy?
Majority rule: Fact that the insured did not read
the policy will not defeat his action for
reformation [because they are contracts of
adhesion].
Minority rule: contract law applied that one
who accepts the instrument, in the absence of
fraud or mistake, is presumed to know and
assent to its contents. Insured has the duty to
read the policy.
Recent trends: relaxation of rigid contract rules
especially since they are contacts of adhesion.
Duty to read is less significant tin modern
cases.
Where the terms are clear, there is no need for
insurer to explain the terms to the insured. Caveat:
doctrine of reasonable expectations [thus had
the insurer explained, he insurers expectations
of different coverage would be negated]
duty to explain in case of motor vehicle
insurance [some courts have imposed liability
beyond the coverage due to failure to explain]
negligence of the agent to explain the terms
in case of denial of coverage, insurer must
inform the insured of his remedial rights
Group Insurance coverage of several individuals
under a single blanket authority allowing the
insurer to sell its coverage at lower premiums
essentially single insurance contract providing
coverage for several individuals
[Type text]
essentially contract between employer and
insurer for the benefit of the employees
employer actually acts as agent to the insurer
besides the employee rarely knows of the
employers actions regarding the policy
employees are the real parties-in-interest, and
every controversy arising therefrom should be
resolved w/ the end in view of making the group
insurance a social agency
Policy of Insurance must specify:
1. parties
2. amount to be insured [except for open or
running policies]
3. premium [or statement of basis for
determination of premium if it is
determinable only upon termination of the
contract
4. property or life insured
5. interest of the insured in the property [if he
is not owner]
6. risks insured against
7. period w/in which insurance is to continue
Misspelled name is not important so long as the
parties can be sufficiently established. Even
designation suffices such as owner etc.
Sum insured is basis for computing premiums.
Amount of insurance is the maximum liability of the
insurer not necessarily the value of the property
insured.
In life, health, accidental death, or injury insurance,
the amount payable is usually fixed based on a
schedule.
In case of premiums, the rate increases as the risk
of loss increases as well as the nature and character
thereof.
Insurable interest is important to determine the
extent of the loss sustained by the insured.
All risks may be insured against save for those w/c
would contravene public policy or those that are
prohibited. Almost any contingent event past or
future may be insured against.
Insurer will not be liable unless the contingency took
place w/in the duration for w/c the insurance
coverage takes place [life of the policy].
Kinds of Insurable Risks
personal risks involve life and health risks
property risks loss or damage to property
o direct losses
o indirect losses [such as lost profit]
liability risks liability for injury or damage
[bodily or property] to others [third party risks]
Risk the chance of loss
Peril contingent or unknown event w/c may cause
the loss [such as calamities]
Hazard condition or factor w/c may create or
increase chance of loss
[Type text]

physical hazards everything relating to Rules on Cover Notes

location, exposure, structure, storage of insurance companies doing business in the
dangerous chemicals, etc. Phils, may issue cover notes
moral hazards those that have their deemed a contract of insurance
inception in mental attitudes [dishonesty, cannot be issued or renewed unless approved
insanity, carelessness, other psychological by Commissioner
factors] effective for not more than 60 days [regardless
of payment of premium], 7 day notice required
These terms are nonetheless interchanged in for cancellation
practice. if not cancelled w/in 60 days, policy must be
issued thereafter
Requisites for risk to be insurable: not extendible beyond 60 days except w/
1. Importance important enough to warrant approval of Commission w/ proper certification
protection from insurer that risks have yet to be
2. Calculability must permit reasonable ascertained and it is not for the purpose of
statistical estimate [if impossible to calculate, contravening the law
premiums cannot be determined] may impose deposit premium [at least 25% of
3. Definiteness of loss definiteness as to cause, estimated premium] in no case less than P 500
time, place, amount etc.
4. No catastrophic loss when large numbers of Insurance proceeds shall be:
people are subject to same loss at same time applied exclusively for proper person in
[defeats the purpose of insurance that whose name or for whose benefit it was
particular losses are borne by contributions of made
the many] unless otherwise specified in the policy
5. Accidental nature covers fortuitous or
unexpected events
0
The said requirements are not absolute insurance
is fairly relative.
WARRANTIES
Cover notes ay be issued to bind insurance
temporarily pending issuance of the policy
Warranty is express or implied.
w/in 60 days after issue of cover note, policy
shall be issued in lieu thereof
Warranty statement, promise by insured set forth
including w/in its terms the insurance
in policy [or incorporated by reference] w/c in case
bound under the cover note and the
of untruth or non-fulfillment, renders policy voidable
premium
at instance of insurer.
Commissioner may:
May also be made by insurer.
extend or renew cover notes if not contrary
to or circumventing the Code [written
Express contained in policy
approval]
Implied necessarily embodied in policy by the very
promulgate rules for the purpose
nature of the agreement [only in marine insurance]
dispense w/ written approval in case of
(?)
compliance w/ the rules
Ex. in marine policy, there is implied warranty that
2 Kinds of Prelim. Contract of Insurance
ship is seaworthy.
preliminary contract of present insurance
insurer insures subject matter, the contract to
Affirmative warranty assert the existence of fact or
be effective until formal policy is issued or risk
condition at the time it was made
rejected; temporary after payment of first
premium
Promissory often called executory warranty,
o in life insurance, binding slip does not
insured stipulates that certain facts or conditions
insure by itself
shall exist, or be done or omitted.
o serve needs of commercial convenience;
more credible than oral agreement
All warranties presumed affirmative.
preliminary executory contract of insurance
insurer makes contract to insure subject
Warranty may refer to:
matter at some subsequent time [definite or
past
indefinite]
present
o only right acquired by insured is to
future
demand delivery of the policy
But in case of promissory warranty, it can only refer
These grant provisional protection until the insurer
to future.
can examine and asses the risks. No premiums
required to be paid for cover notes.

[Type text]
[Type text]

No particular form of words needed to create
warranty. Depends on the intention of the parties.
In case of doubt as to whether it is warranty or
representation, it is presumed as representation.
loss occurs before the time arrives for the
performance of the warranty w/c has yet to
be performed
when performance becomes unlawful
when performance becomes impossible

Gratuitous answers in the application [not also in case of waiver on the part of the insurer
responsive to any question] are not warranties. if the insurer is barred by estoppel

Warranty Representation Other party may rescind if:

Parts of the contract Mere collateral violation of material warranty
inducements violation of material provision of the policy
Always written on the May be in totally
face of the policy disconnected paper or If provision breached is not material, there is not
even oral right to rescind. But parties ay stipulate that violation
Must be strictly complied Mere substantial truth of particular provision avoids policy even if not
with suffices material [converted to material one].
Falsity operates as Falsity renders contract
breach of contract void due to fraud In case of breach of warranty w/o fraud:
Presumed material Insurer must show insurer exonerated from liability from the
materiality of time of the breach
misrepresentation to o return of premium paid at pro
defeat the policy rata rate from time of breach
if broken at its inception, contract never
For representation to be considered warranty, it becomes binding [void ab initio]
must be expressly included or incorporated by clear o policy never attached to the risk
reference to the policy there must be intent that the o return of all premiums is due
rights of the insured will depend on fulfillment of the
warranty. If there is fraud:
policy avoided ab initio
Warranties are strictly construed against the insurer. insured not entitled to return of premiums

Every express warranty made at or before execution
of the policy must be:
contained in the policy itself
or in another instrument signed by the insured
and referred to in the policy as forming part if it
w/ prejudice to Sec. 51
Conditions occurrence or non-occurrence alters
previously existing legal relations; may be imposed
so long as not contrary to law (etc)
Condition precedent must happen before contract
takes effect

If warranty embodied in rider, it is valid even though Condition subsequent conditions to be complied
unsigned by insured; word another instrument w/ after the risk has attached, such as prior notice
does not refer to rider (Ang Giok v. Springfield)
Warranty Condition
Deemed an express warranty: Does not suspend or May prevent the contract
statement in the policy of a matter relating to defect operation of the from springing to life [a
person or thing insured, or to the risk, as a contract, but in case of limitation as to
fact breach there are attachment of risk]
remedies
Must be as a fact, not as mere opinion to be
deemed as an express warranty.
Exceptions provisions in the policy withdrawing
Opinion, if false, will not defeat the policy unless form the coverage certain risks.
they were consciously incorrect [fraudulent].
Warranty Exception
Breach of promises or agreements as to future Breach renders the Does not affect the
acts will not avoid the policy unless the contract defeasible binding force of the
promises are material to the risk. Materiality of contract
act/omission if it increases the risk. There may be waiver in Cannot be liable for
case of breach even w/o excepted loss unless the
General Rule: Violation of warranty avoids the consideration waiver amounts to a
policy. new contract w/
separate consideration
Exceptions: Cannot be barred by
incontestable clause

[Type text]
[Type text]
PREMIUMS
Insurer entitled to payment of premiums as soon
as thing insured is exposed to the risk
no policy is binding unless premiums are
paid
notwithstanding agreement to the contrary
except: life or industrial life policy if there is
a grace period
Insurance premium agreed price for assuming
the risk, consideration for the undertaking to
indemnify
If only 1 premium is paid for several things not
separately valued, insurance contract is indivisible.
Assessment sum levied by mutual insurance
companies upon a fixed or definite plan to pay
losses and expenses.
Premium Assessment
Levied and paid to meet Collected to meet actual
anticipated losses losses
Not enforceable against Legally enforceable
the insured unless otherwise agreed
Not a debt Considered debt
Non-payment of remaining premiums does not
automatically defeat the contract in case of a
partially executed contract but the obligation
to pay the premiums becomes demandable.
In fire, casualty, marine insurance, premiums are
demandable as soon as the risk attaches. In
Suretyship, as soon as the contract or bond is
delivered to the obligor.
The parties may stipulate that the policy will not
become effective unless there is full payment of the
required premiums.
In life insurance, the premium becomes debt only
when the contract has become binding [in case of
the first premium]. Subsequent premiums
demandable if insurer has continued the insurance
after maturity of the premium.
The insurer cannot compel the insured [life
insurance] to pay premiums. But in case of non-
payment, the contract fails to become binding [in
case of first premium]. In case of subsequent
premiums, the contract is not affected unless
otherwise stipulated. In case of life insurance, policy
holder is entitled to 30 day grace period; in case of
industrial life, 4 weeks.
Not even act of god can prevent forfeiture of policy
in case of non-payment of premiums. There must be
punctual payment.
Only excuse for non-payment: if it was due to
the conduct, condition, or default of the insurer.
[Type text]
In case of non-life insurance policy, payment
must be made in cash as a condition for the
contract to be binding. Agreement to extend
credit extension to insured is void.
De Leon submits that a credit extension agreement
is valid:
there is acknowledgement of receipt of the
premiums in the policy although none was made
[estoppel or waiver]
what the law disallows cannot be done by
indirection
unduly restrictive of freedom of contract
such rule is unduly favorable to the insurer
Policy is valid and binding even w/o payment of
premiums when:
life of industrial life policy if the grace period
applies
acknowledgement in the policy of receipt of the
premiums
if there is agreement allowing partial payments
and t time of loss installments have been paid
agreement to grant credit extension, and the
loss occurs before expiration of the credit term
insurer is estopped from invoking Sec. 77
Effect of acknowledgement of payment of
premium in the policy = conclusive evidence of
payment.
Notwithstanding any stipulation that policy
shall not be binding if unless the premiums
are actually paid
But only for the purpose of making the policy
binding [balance may still be recovered]
There is now payment by legal fiction
insurer waives condition of prepayment
Acceptance of premium does not preclude other
defenses available to insurer.
Insured is entitled to return of premiums when:
no part of his interest was exposed to the
risk insured against [full recovery]
insurance is for a definite period and he
surrenders the policy [proportional recovery
as to unexpired portion only]
o not applicable if a short period rate has
been agreed upon and appears on the
face of the policy [in w/c case the
proportion stipulated applies]
after deducting from the whole premium any
claim for loss or damage under the policy w/c
has previously accrued
o also inapplicable if the insurance is not for
a definite period
This provision not applicable to life
insurance policy unless there is sufficient
cause [not a divisible contract] but the
insured will be entitled to the cash surrender
value of the policy after 3 full annual
premiums shall have been paid
No return of premiums if:
peril existed
[Type text]
insurer was liable for any period no matter
how short
insofar as that risk is concerned
Insured may fully recover premiums if:
contract is voidable due to fraud or
misrepresentation of the insurer or agent
on account of facts the existence of w/c
inured was unaware w/o his fault
when by any default of the insured [but no
fraud] insurer never became liable under the
policy
In case of over-insurance by several insurers:
insured entitled to ratable return of
premiums
proportioned to the amount by w/c the
aggregate sum insured in all policies
exceeds value of the thing at risk
Principle: no premiums are due if no risk attaches.
If there is loss before the effectivity date of the
contract as stipulated, and there are premiums paid,
the insured is entitled to return of the premiums
actually paid.
If insurer and insured become public enemies of
each other, there must be return of premiums paid.
War abrogates the contract.
If the insurance is void for being illegal, then no
premiums are recoverable. But if the parties are not
in pare delicto, the innocent party may recover.
Guide:
If insurer could have been called upon to pay
the whole sum insured, then the whole
premium is earned and there shall be no return
If insurer could have been called upon to pay
only part of the whole sum insured but only part
thereof, then he must return the residue and
cannot retain a larger portion than such
0 where insured receives any sum in excess of
DOUBLE INSURANCE
Double Insurance same person is insured by
several insurers separately in respect to the same
subject and interest.
Requisites:
person insured is the same
2 or more insurers insuring separately
same subject matter
interest insured is the same
same risk or peril insured against
[Type text]
Double Insurance Over Insurance
There may be no over Amount of insurance is
insurance as when the beyond the value of
sum total of the amounts insurable interest
of the policies does not
exceed the insurable
interest
There are always There may be only 1
several insurers insurer involved
Both may exist concurrently.
A policy w/c has no provision against additional
insurance is not invalidated by procurement of
subsequent insurance.
In case of fire insurance, they contain provisions
against procurement of other insurance w/o the
insurers consent.
Breach of other insurance provision may prevent
recovery on the policy. Such stipulations are valid.
But to constitute violation, the subsequent insurance
must be upon the same interest and against the
same risk.
If procured by third person w/o knowledge of the
insured, it will not affect his rights under the policy.
Purpose of prohibition against double
insurance: prevent over-insurance and fraud.
Loss should not be a source of profit for the insured.
If there is over-insurance as a result of double-
insurance:
insured may claim from insurers in such order
as he may select up to amount for w/c the
insurers are severally liable under their
respective contracts [unless disallowed by
policy contribution clause]
in case of valued policy, insured must give
credit against the valuation for any sum
received by him under any other policy w/o
regard to the actual value of the subject matter
in case of unvalued policy, insured must give
credit, as against the full insurable value, for
any sum received by him under the policy
valuation [in case of valued policies] or of the
insurable value [unvalued policy] then he must
hold such sum in trust for the insurers
each insurer bound to contribute ratably to the
loss in proportion to the amount for w/c he is
liable under his contract
Insured cannot recover beyond value of his
insurable interest.
Principle of Contribution each insurer must
contribute ratably to cover the loss or damage
Contribution Clause stipulates that the insurer
cannot be held liable for more that its ratable
contribution for the loss.
[Type text]

REINSURANCE
Reinsurance one by w/c an insurer procures a
third person to insure him against loss or liability by
reason of an original insurance.
It is an insurance of the insurance. Sometimes
referred to as treaties.
Reinsurance cannot be for a greater amount than
the original insurance [but may be for less].
automatically
facultatively
Automatic Reinsurance Treaties the reinsured is
bound to cede and the reinsurer is bound to accept
a fixed share of the risk.
Facultative covers liability on individual risk, no
requirement to cede or accept participation w/ the
risk insured against but once accepted the liability
becomes assumed and absolute

Double Insurance Reinsurance Reinsurance Treaty Reinsurance Policy

Insurer remains the Insurer becomes the Agreement between 2 Mere contract of
insurer of the original insured insofar as insurance companies indemnity between 2
insured reinsurer is concerned where 1 agrees to cede insurers to protect 1
The subject matter is Subject matter is the and the other agrees to from the risk already
property original insurers risk accept reinsurance assumed
Insurance of the same Insurance of a different business
interest interest [interest of These are contracts for Contracts of insurance
original insurer] insurance
Insured is the party Original insured has no
interest in all the interest in the contract of Only after the reinsurance cession is made is the
contracts reinsurance original insurer obligated to pay reinsurance
[independent] premiums.
Insured must give his Consent of the original
consent insured is not needed Reinsurance is presumed to be contract of
indemnity
Value for Insurer: against liability
reinsurance allows the insurer to issue out not merely against damage
policies in excess of its retention limits or
beyond capacity of its resources The subject of the reinsurance is the risk of the
greater distribution of risk original insurer, not the property insured in the
reduces waste arising out of policies w/c are original policy.
applied for but not issued
profitable in the long run for the reinsurer It is not necessary that the original insurer first pay
for the loss before he may recover on the
Value for Insured: reinsurance.
insureds individual policy becomes more
reliable Even insolvency of the original insurer is not
insured may get insurance for great amounts obstacle to claim from the reinsurer [Vance].
w/o having to negotiate w/ several companies
prompt protection Reinsurance contract is separate and independent
greater uniformity of contractual provisions from the original insurance contract but based
small insurance companies can accept more thereon and must cover the same risk.
applicants
There must be an insurable interest. [duh]
Where insurer receives reinsurance: Principle of subrogation also applicable.
it must communicate all the information of
the original insured Original insured has no interest in the contract
as well as all the knowledge and info he of reinsurance.
possesses w/c are material [whether Reinsurer is not liable to the original insured [no
previously or subsequently acquired] privity] unless otherwise provided.

Rule not applicable in case of automatic
reinsurance treaties.
Quite similar to the duties of the original applicant;
necessitated by good faith.
Reinsurance may be defeated if the original insurer
makes concealments [such as previous loss or over-
insurance].
Reinsurance may be placed in effect either
The reinsurer is entitled to raise whatever defenses
it may or w/c the reinsured may in an action by the
insured. Reinsurer may also require proof of loss.
Original insured may stand in any of 3 relations
w/ reinsurer:
no privity
reinsurance w/ stipulation in favor of insured
where the reinsurer bound himself in favor of
the original insured
reinsurance is a novation of the original
insurance contract where the original insurer

[Type text]
[Type text]
is discharged, but only w/ the consent of all
parties [mere substitution of insurer]
0 Ocean sea perils, navigation; ship, cargo,
MARINE INSURANCE
Marine Insurance includes:
Insurance against loss/damage to:
o vessel, aircraft
o goods, freights, cargo
o profits, securities, chooses in action,
evidence of debt, valuable papers,
bottomry, respondentia interests
In connection w/ any risks of:
o navigation, transit or transportation
o assembling, packing, stalling,
preparation of shipment
o while awaiting shipment
o during delays, storage transshipment,
reshipment
o including war risks, marine builders
risks, and all personal property floater
risks
o persons or property in connection w/
marine, inland marine, transit or
transportation insurance
o including liability for loss in connection
w/ construction, repair, operation,
maintenance, use of subject matter
o but not including life insurance, surety
bonds, insurance against loss by
reason of bodily injury to any person
arising out of ownership, maintenance
or use of automobiles
o precious stones, jewels, precious
metals whether in course of
transportation or not
o bridges, tunnels, instrumentalities of
transportation and communication,
piers, wharves, docks, marine railways,
appurtenant facilities for control of
waterways
Marine protection and indemnity insurance
o insurance against legal liability of the
insured for loss [etc] incident to
ownership, operation, chartering, use,
construction, of any vessel [etc] or
instrumentality in use in ocean or
inland waterways
o including liability of the insured for
personal injury, illness, death, or loss
of or damage to property of another
person
Transportation Insurance concerned w/ perils of
property in [or incidental to] transit
[Type text]
does not include normal motor vehicle
insurance [treated separately]
Divisions of Marine [Transpo] Insurance
freightage, profits or other interests that may be
exposed during a certain voyage for fixed
period
Inland land or over the land transport, covers
perils by transport in trucks, railroad, airplane,
[etc] and by inland waterways and water-borne
perils not covered by marine insurance
May be in the form of property insurance or
indemnity insurance.
Marine Insurance:
1. ships or hulls
2. goods or cargoes
3. earnings such as freight, passage,
commissions, etc.
4. liability
All risks may be covered so long as not contrary to
public policy or law. If it does not state the risks
insured = valid and covers usual marine risks.
All other perils extends only to marine damage of
like kind to those enumerated.
The loss must have been caused by the risk insured
against [duh] thus:
insurance of freight does not include quality of
the goods
insurance over vessel does not cover cargo
[and vice versa]
insurance as to time does not assure that
voyage shall be completed before expiration of
the policy
certain liabilities may be excepted
Goods are presumed to be shipped under deck
[under the weather deck of the vessel], if shipped on
deck, they are not covered unless there is due
notice to the insurer who approves it. Otherwise,
they are discharged.
Perils of the sea include only those casualties
due to unusual violence or extraordinary action of
wind or wave or other extraordinary causes
shipwreck, stranding, collision, etc
losses due to jettisoning of cargo
barratry willful conduct of master or crew
Perils not covered:
ordinary wear and tear
if violence of the sea was not unusual or
unexpected
Perils of the sea is a relative term
Perils of the Sea Perils of the Ship
Losses of an Due to natural action of
extraordinary nature, the ship, ordinary wear
cannot be guarded and tear, negligence of
against by human skill ship owner in not taking
[Type text]
precautions
Covered by the Not covered by insurer
insurance
Peril of the sea must be the proximate cause of the
loss. Otherwise, no recovery.
All Risk Marine Insurance
covers all loss except those stipulated [burden
of proof as to exclusion is upon insurer]
insured need only prove that there was loss,
then the burden shifts to insurer
whether arising from marine peril or not
includes pilferage and war
does not cover loss arising form inherent vice
or nature of the thing insured
Inland Insurance includes:
property in transit
bailee liability protection to persons having
temporary custody
fixed transportation property covers bridges,
tunnels, and other instrumentalities of transport
ad communication [even though they are fixed
property]
floater follows the insured property wherever
it is subject to the territorial limits as per
contract [may be issued even for properties that
are seldom moved]
INSURABLE INTEREST
Owner of ship has insurable interest in it [to the
extent of its value]
even if chartered by one who agrees to pay
for its loss
provided that the insurer is liable only to the
extend that the owner cannot recover from
the charterer [subsidiary]
If the insurance is taken on a ship lost or not lost
then the insurer cannot evade liability even though
at time of contract the ship had already been lost
[hence no more insurable interest].
Liability of the insurer is subsidiary to that of the
charterer.
Charterer has insurable interest in the ship to the
extent that we will be damnified by its loss.
Insurable interest over ship:
owner
mortgagee
lessee
Insurable interest over cargo:
it depends on the terms of the sale
FOB factory buyer assumes risk when goods
leave the factory
FOB point of destination buyer not liable until
he has received the gods from the carrier
CIF seller liable for securing all insurance
C&F buyer procures his insurance
Insurable interest of vendee/consignee:
[Type text]
has interest based on the perfected contract of
sale [equitable title]
terms of the contract dont affect his insurable
interest
Insurable interest of the owner of the ship
hypothecated by bottomry:
only the excess of it value over the amount
secured by the bottomry [the bottomry loan]
Loan on bottomry one payable only if the vessel
given as security for the loan completes a safe
voyage
owner of the vessel receives no indemnity for
his loss, but is immune from payment of the
loan
Bottomry creditor has insurable interest to the
extent of his loan.
Bottomry debtor has insurable interest only to
extent of the excess of the value of the ship
over the loan.
Freightage signifies all benefits derived by
owner [of the vessel]:
from the chartering of the ship
from its employment for the carriage of his
own goods
from its employment for the carriage of the
goods of others
Owner of ship [or charterer who expects to earn
from transport of goods] has insurable interest in:
expected freightage [w/c he would have
earned in the regular course were it not for
the peril]
Freight covered by marine insurance is not limited to
freight but includes:
freight to be earned from the completion of the
voyage in the regular course
hire of the vessel payable by the charterer
benefit accruing to the owner for the use of is
vessel [profits upon carriage of his own goods]
Rule is the same even in case freight is paid for in
advance.
But if the agreement is that freight will be paid in any
event then there is no insurable interest in the
freight. But the shipper has insurable interest in the
same.
Passage money [normally paid in advance] not
recoverable if vessel is lost before completion of the
passage.
Insurable interest present in expected freightage
in a charter party:
when the ship has broken ground on the
chartered voyage
if price is to be paid for carriage of goods,
insurable interest exists when the goods
are:
o actually on board
[Type text]
o there is some contract for putting them
on board
o both ship and good are ready for the
voyage
For there to be insurable interest on expected
freightage the insured must have some inchoate
right to it such that he is in a position to acquire
the same were it not for the perils.
Where freight is the price to be paid for hire of
ship under charter party ship-owner has
inchoate right to freight as soon as there is
inception of performance by the ship
where inchoate right to freight accrues as soon
as the goods are actually put on board and
where part of the goods have been loaded and
the balance is ready, there is an insurable
interest in the whole freight
where ship-owner has made binding contract
for freight and ship is ready to receive the
goods, he has insurable interest
No insurable interest in expected freightage if:
there is no contract [even though the goods are
ready]
vessel is a mere seeking ship looking for
cargo to be transported [no insurable interest in
cargo not yet loaded]
One w/ interest in a thing from w/c profits are
expected to proceed has insurable interest in its
profits. [Must be some legal though inchoate
interest]
The interest in the thing must be based on some
valuable consideration.
Charterer of the ship has insurable interest in it
to the extent that he will be damnified by its loss.
if he agrees to pay for its value in case of loss,
then his insurable interest is to the extent of its
value
charterer has also insurable interest in
expected profits from carrying the goods in
excess of the amount he agreed to pay for the
charter of the vessel
Charter Party contract by w/c an entire ship or
some principal part thereof is lent by the owner to
another person for a specified time or use.
Bareboat or Demise ship owner turns over full
possession of the vessel to the charterer
charterer usually provides the crew
charterer is deemed the owner of the vessel for
the voyage stipulated [as to rights and
obligations]
Contract of Affreightment ship owner leases part
or all of its space to haul goods for others; owner
retains possession and control of the vessel.
Voyage Charter contract for carriage of
goods from one point to another
[Type text]
Time Charter use of vessel for a specified
period or for the duration of one or more
voyages
CONCEALMENT
In marine insurance, each party is bound to
communicate:
all material facts w/c the other party has no
means of acquiring and to w/c he makes no
warranty
all information w/c he possesses material to
the risk [except if there is waiver]
must state exact and whole truth in relation
to all matters that he represents, or upon
inquiry discloses assumes to disclose
Concealment for purposes of marine insurance,
failure to disclose any material fact or circumstance
w/c is or ought to be w/in the knowledge of the party
other party must not have actual or
presumptive knowledge
applies to both insurer and insured
Rule as to misrepresentation and concealment is
stricter in marine insurance.
To constitute concealment, it suffices that the
insured is in possession of the information even if
he is unaware of it [such as if his agent knows but
failed to communicate it].
In marine insurance
info of the belief or expectation of third
person in reference to material fact is
deemed material
Insured is bound to communicate even:
beliefs of third persons or opinions [such as
experts]
expectations of third persons
Insured is presumed to have known of a prior
loss at time of insuring if:
such info might have possibly reached him
in the usual mode or transmission or
communication
Rebuttable presumption. Modern communication.
If there is no negligence, insurance stands. Insured
is not bound to exhaust all means at precise
moment before contracting for insurance.
Concealment as to the following exonerates
insurer from loss resulting therefrom [but does
not vitiate entire contract]:
national character of insured
liability to seizure for breach of foreign trade
laws
want of necessary documents
use of false/simulated papers
So if the loss is caused by perils other than those
that relate to the foregoing, insurer is still liable.
[Type text]
REPRESENTATIONS
Insurer may rescind if:
intentional material misrepresentation of
insured
misrepresentation as to fact on w/c
character and nature of risk depends
Same rule as to other forms of insurance.
Material would influence the judgment of a prudent
insurer on whether to assume risk or establishing
premiums
If unintentional but material to the risk, insurer may
still rescind from the time the representation
becomes false.
Eventual falsity of representation as to
expectation does not avoid policy unless there
is fraud.
Insurer is after all bound to know that they are mere
opinions. Distinguished from promissory
representations.
IMPLIED WARRANTIES
Warranty is implied that ship is seaworthy in
everything that concerns marine insurance.
Warranty stipulation [express or implied] forming
part of contract as to fact or circumstance relating to
the risk.
Insurer is not liable if:
ship is unworthy at inception of insurance
ship deviates from agreed voyage
illegal venture
ship does not carry requisite documents of
nationality or neutrality [if expressly required]
May be excluded but only by clear provisions.
If insurer admits seaworthiness:
said warranty is deemed fulfilled
risk of un-seaworthiness is assumed
If cargo is the subject of the insurance, whoever
procures the insurance [even owner of the cargo] is
bound to know and communicate. Fact that it is
unknown is immaterial. Owner of cargo is bound to
contract w/ reliable common carrier.
Seaworthy reasonably fit to perform the
service ad encounter ordinary perils as
contemplated by the parties.
must be adequately equipped and manned
depends on the character of the voyage and
nature of the cargo
Implied warranty of seaworthiness is satisfied if
the ship is seaworthy at time of insurance,
except:
[Type text]
if insurance is for specified length of time
[time policy], ship must be seaworthy at
commencement of every voyage during
such time
insurance upon cargo to be transshipped
[cargo policy] at an intermediate port, each
vessel upon w/c the cargo is shipped must
be seaworthy at commencement of each
voyage
voyage policy voyage in different stages,
seaworthiness required for every
commencement of voyage
GR: must be seaworthy at time of commencement
of insurance prior or subsequent un-seaworthiness
immaterial.
Unexplained sinking creates presumption of un-
seaworthiness. Mere certificate of seaworthiness is
insufficient to overcome burden.
Time Policy Voyage Policy
Coverage for fixed Covers entire voyage
period of time named in the policy
Warranty of seaworthiness also requires:
ship must be properly laden
ship has competent master
sufficient number of competent crew
must have requisite appurtenances &
equipment and provisions to last the voyage
If insurance as to cargo, cargo must be:
properly loaded, stored, and dunned as not to
imperil the same
Carrying deck cargo raises presumption of un-
seaworthiness [makes ship unstable]; may be
overcome by showing that it does not interfere w/
management of vessel.
If insurance covers different stages of voyage
each w/ respective perils, it suffices that the ship
is seaworthy for the purpose of that stage at the
commencement thereof.
Contemplates separate and distinct stages each
requiring different kinds of precaution. Ex. one stage
through river, next stage through high seas.
If ship becomes un-seaworthy during voyage,
undue delay in repairing the defect exonerates
insurer. [negligence]
No implied warranty that ship will remain seaworthy
during voyage [required only at commencement].
Exception above.
Ship may be seaworthy for purpose of insurance
upon ship, but may be un-seaworthy for purpose
of insurance upon cargo.
Where nationality or neutrality of ship is
expressly warranted:
[Type text]
implied warranty that ship will carry the
requisite documents to show nationality or
neutrality
implied warranty that it will not carry
documents w/c will cast reasonable
suspicion thereon
Warranty as to nationality pertains to beneficial
ownership. Beneficial owner must be national of
such state.
Warranty as to neutrality no act of the insured or
his agent must compromise such neutrality.
Warranty extends to insureds interest but not to
interest of third person not covered by policy.
Warranty of nationality also requires that:
vessel be conducted and documented as of
such nation
continuing meaning change of nationality
amounts to breach except by sale or transfer
to alien in future
VOYAGE & DEVIATION
If voyage is described by place of beginning and
ending:
voyage insured is 1 w/c conforms to the
sailing fixed by mercantile usage between
such places
If course of sailing not fixed by usage:
voyage is that would be most natural and
advantageous to a master or ordinary skill
and discretion
Deviation
departure from course of voyage insured
unreasonable delay in pursuing the voyage
commencement of entirely different voyage
any other act w/c substantially alters the risk
departure from most natural, direct, and
advantageous route [if course of sailing not
fixed]
Deviation proper when:
caused by circumstances outside of control
necessary to comply w/ warranty or avoid
peril [whether insured against or not]
made in good faith and reasonable belief of
its necessity to avoid peril
good faith, if needed to save lives or relieve
another vessel in distress
Deviation to save property is not justified, unless to
save vessel in distress.
Improper deviation = insurer not liable.
Loss must be subsequent to the deviation.
Even though the deviation did not increase the risk
or contribute to the loss suffered, insurer not liable.
[Type text]
LOSS
Loss may be total or partial.
Total loss may be:
actual
o total destruction of thing
o irretrievable loss due to sinking or by
bring broken up
o damage w/c renders thing valueless
o any other event w/c deprives owner of
possession at port of destination
constructive or technical
o one w/c gives insured the right to treat
it as total loss by abandonment
In case of actual total loss, no abandonment is
necessary; but in case of constructive total loss,
abandonment is indispensable in order to recover.
Actual loss presumed by:
continued absence of ship w/o being heard
of [time required to raise presumption is
relative]
All that needs to be proven is that the vessel was
not heard of at her port of departure.
When ship prevented at intermediate port from
completing voyage by perils insured against:
liability of insurer continues after they are
re-shipped
but insure may require additional premium if
the hazard is increased due to extension
This concerns insurance upon cargo.
Rule not applicable if resort must be had to distant
places to procure a vessel and there are serious
impediments to putting the cargo on board.
Insurer also liable for damages and costs for
discharge, storage, reshipment, extra freightage,
and other expenses for saving the reshipped
cargo but only up to the amount insured [or
insurable value].
Upon actual or total loss, insured entitled to
payment w/o notice of abandonment. Rule is
otherwise in case of constructive loss.
If it has been agreed that insurance shall be free
from particular average
a marine insurer is not liable for any
particular average loss w/c does not deprive
the insured of possession at port of
destination of the whole of such thing or
class of things
even though the thing becomes entirely
worthless
but insurer is liable for his proportion of all
general average loss assessed upon the
thing insured
Average
[Type text]
extraordinary or accidental expense incurred
during voyage for the preservation of the
vessel, cargo, or both
all damages to the vessel and cargo from the
time it is loaded and the voyage commenced
until it ends ad the cargo unloaded.
Kinds of average:
1. Gross or general deliberately caused by
master of the vessel or upon his authority to
save the vessel at time of real risk, there is
proportionate contribution required
2. Simple or particular damage that has not
inured to the common benefit and profit of all
persons interested, does not entitle owners to
contribution from other owners in the venture
Requisites to claim common average:
common danger to vessel or cargo
part of vessel or cargo was sacrificed
deliberately
sacrifice for common safety and benefit of all
made by master or upon his authority
must be successful
necessary
Jettison international casting overboard of cargo to
save the rest of the venture
Insurer is liable for general average liable for his
proportion of all general average loss assessed
upon the thing insured.
It may be stipulated that insurer is liable only for
general average. In such case, insurer is liable for
particular average if such has the effect of depriving
the insured of possession at the port of the whole
of the thing insured.
In absence of exception, insurer is liable for
particular average.
Insurance confined to actual total loss does not
cover constructive loss
but it covers loss w/c necessarily results in
depriving insured of possession of the
entire thing at port of destination [it is really
a total loss]
ABANDONMENT
Abandonment act of the insured where after
constructive total loss he declares the
relinquishment to insurer of his interest in the
thing insured [or whats left of it].
Requisites of abandonment:
actual relinquishment by insured of his interest
there must be constructive total loss
must be made w/in reasonable time after notice
of the loss
must neither be partial or conditional
factual
[Type text]
notice to the insurer [oral or in writing]
notice of abandonment must be explicit and
must specify cause of abandonment
Insured has option to abandon and claim
constructive loss or recover only his actual loss.
Constructive loss may be availed if the cause of
the loss is a peril insured against:
if more than of its value is actually lost or
would have to be expended to recover it
from peril
if it is injured as to reduce its value by more
than
if insured is ship, and the contemplated
voyage cannot be performed w/o expense to
insured for more than value of the thing,
or if the risk w/c prudent man would not
take under the circumstances
insured is cargo/freightage voyage cannot
be performed or another ship procured w/o
incurring such loss
freightage cannot be abandoned unless the
ship is abandoned
Any portion of the thing separately valued by the
policy may be separately abandoned deemed
separately insured. Divisibility question of intention.
Criterion as to extent of loss general market value
immediately before disaster [even if the policy is
valued]. Value of the property may also be
considered especially if it states that the value
stated therein shall be taken as basis. (Am Jur)
Expenses for recovery are taken into account.
Abandonment cannot be partial or conditional.
But if only part of the thing is insured, then only that
part need be abandoned.
Abandonment must be made w/in reasonable
time after reliable info of loss
but if info is of doubtful character, insured
entitled to reasonable time to make inquiry
Purpose: so insurer will not be prejudiced by undue
delay and pay take precautions to save the thing.
Length of time dependent upon circumstances.
Abandonment becomes ineffectual if:
info relied upon for electing abandonment is
proved incorrect
thing insured was so far restored when
abandonment was made [thus in fact no
total loss]
Status of loss at time of offer to abandon is the
crucial point not that on prior or subsequent time.
Once abandonment validly elected, the rights of the
parties are fixed.
Abandonment justified in cases such as:
capture, seizure, detention of vessel
[Type text]

restraint, blockade, embargo If notice of abandonment is given, the rights of

voyage absolutely lost insured are not prejudiced by fact that insurer
urgent necessity impelled master to dispose of refuses to accept the abandonment.
the insured cargo
Insurers right to abandon is absolute when justified
Direct or positive info not needed to warrant by the circumstances and properly made
abandonment; the following suffice: acceptance being unnecessary.
protest of master
news report Acceptance may be express or implied; silence
letter from official or agent of insurer after notice for unreasonable length of
time = acceptance.
What is important is that the loss is highly
probable. Mere taking of steps to preserve the property do not
suffice to constitute implied acceptance.
Abandonment is made by giving notice [oral or Amount Recoverable in case of Partial Loss:
written] to the insurer Acceptance
if made orally, written notice must be given is conclusive Partial Loss
w/in 7 days from oral notice upon the ---------------- x Amount of Insurance
parties Value of Thing
Policy may require written notice. admits the loss
and sufficiency loss must be partial
Abandonment may be made by or through agents. of amount of insurance must be less than entire
abandonment insurable interest in the property
Notice of abandonment must be: is irrevocable,
explicit [relinquishment of all rights] unless the ground therefore is false or
must specify particular cause for unfounded
abandonment [to allow insurer to determine
w/n to accept the offer] On accepted abandonment of ship:
need only state enough to show that there is freightage earned prior to loss belong to
probable cause therefor insurer of freightage
need not be accompanied by proof of freightage earned after the loss belong to
interest or loss insurer of the ship

Insured cannot claim other ground for Title of insurer of the ship becomes owner after
abandonment other than that stated in the abandonment, his vests at time of loss.
notice.
If insurer refuses to accept valid abandonment:
Abandonment = transfer by insured of his he is liable upon actual total loss
interest to insurer w/ all chances of recovery and deducting
indemnity. therefrom In case of Loss of Profits [separately insured]
proceeds w/c
Insurer acquires interest and all its incidents may have Property Lost
including claim against third persons. No need for come to the ------------------ x Amount of Profit
formal instrument. hands of the While Property
insured
If insure pays as if there is total loss [even sans
abandonment], he is entitled to: If abandonment is improper, insured may still
whatever may remain of the thing recover but only to the extent of actual loss proved.
its proceeds or salvage, as if there had been
formal abandonment If insured fails to abandon, he may recover his
actual loss.
Election for abandonment is condition precedent to
claim for constructive total loss. Abandonment is at option of the insured.

Payment by insurer for total loss = offer for

abandonment, w/c if accepted estops the insured.

Upon abandonment
acts done in good faith by agents of insured
subsequent to the loss are at the risk of the
insurer and for his benefit
MEASURE OF INDEMNITY
From moment of abandonment, master and crew
become agents of the insurer [as such liable for their Valuation in marine insurance policy is
wages] conclusive in adjustment of loss [partial or total]
provided that:

[Type text]
[Type text]
insured has interest at risk and
no fraud on his part.
But insured may show real value if:
thing has been hypothecated by bottomry or
respondentia
before its insurance
w/o knowledge of the person procuring
insurance
Fraudulent valuation entitles insurer to rescind.
Purpose of valuation to fix the value of the
property.
Marine insurer is liable upon partial loss only for
such proportion of amount insured by him as
the loss bears to the value of the whole interest
insured.
If the value of the thing exceeds the amount of
insurance, the insured is deemed the co-insurer of
the difference.
Where profits are separately insured
insured may recover a proportion of such
profits equivalent to the proportion of the
loss against the value of the whole
This applies where the profits are separately insured
from the cargo itself.
In case of valued policy on freight or cargo
if only part of subject is exposed to risk,
then valuation applies only to such part
Valuation is reduced proportionately. But insurer is
bound to return the premiums proportionately.
When profits are valued
loss of profit is conclusively presumed from
loss of cargo
the valuation fixes their amount
Insured in entitled only to partial indemnity for the
profits lost in case of partial loss of the cargo.
Rules in estimating loss under open policy:
value of ship is its value at beginning of risk
[including all articles or charges that add to
its value]
value of cargo is actual cost to insured
when laden on board
o if cannot be ascertained, market value
at time & place of lading + charges of
placing it on board
o no reference to loss due to raising
money for its purchase, drawback on
exportation, or fluctuation of market
[Type text]
freightage gross freightage exclusive of
primage w/o reference to cost of earning it
cost of insurance added to the value of the
estimate
Expected profits from cargo are not considered.
Drawback allowance made by government upon
the duties on imported merchandise when the
importer instead of selling here, re-exports the same
Value of freightage = gross freightage, not net is
basis for determining.
Primage excluded from gross freightage; small
compensation paid by shipper to master of the
vessel for its care
If cargo insured against partial loss arrives in
damaged condition
loss of insured is deemed to be same
proportion of the value of the goods at port
against the market price it would have
fetched if delivered sound
Marine insurer is liable for all expenses
attendant upon a loss w/c forces a ship into port
to be repaired.
If it is stipulated in the policy that the insured
shall labor for recovery of property
insurer is liable for expenses incurred
thereby in addition to total loss if such
occurs
If the insured is made to contribute to general
average loss, marine insurer is liable for such
loss
provided that insurers liability is limited to
portion of the contribution attaching to his
policy value [if less than the contribution
required of the insured]
When insured has claim for general average
he may claim it from insurer
insurer is subrogated
But no such claim against insurer
after cargo liable for contribution has been
removed from vessel, or
if the insured neglected or waived to collect
from the others
Liability of marine insurer is limited to the proportion
of loss attaching to his policy value if less than the
contributing value of the thing insured.
In case of partial loss of the ship or its
equipment
old materials are to be applied towards
payment for the new
marine insurer is liable for only 2/3 of
remaining cost for repairs [unless otherwise
provided]
anchors must be paid in full
Liability for General Average Loss
Amount of Insurance
---------------------------- x Proportion of Loss
Value of Thing
 [Type text]

increase of risk

0 If there is no violation of the policy, even if the risk is

increased, contract is unaffected.

FIRE INSURANCE There is implied promise of the insured that he will

Fire Insurance includes:
fire, lightning
wind, storm, tornado
earthquake
other allied risks, when such risks are
covered by extension to fire insurance
policies or under separate policies
[additional premiums may be charged]
Must be hostile fire [not friendly fire].
There must be ignition or flame not mere heat
or smoke.
Extended coverage includes earthquake,
explosion, lightning, etc. or even to indirect
consequential losses. But as gen. rule, only direct
losses are covered.
not change the premises or character of business so
as to increase the risk.
Mere negligent acts temporarily endangering the
property do not violate the policy nor do temporary
acts or conditions if they ceased prior to the loss.
Increase of risk must be substantial.
If the increased risk is no longer present when the
loss occurred, the insurer remains liable unless
there is some breach of warranty.
Even if there is some violation, if the articles
prohibited are necessary for the business, the
policy will not be avoided.
If insured has no control over what caused increase
of risk, insurer is not absolved.

Loss of profits If there is no valuation in the policy, the measure

insurance or of indemnity is
Cargo insured against partial loss
business the expense to the insured at the time of
Reduction in value [loss] interruption commencement of fire to replace the thing
--------------------------------- x Amount of Insurance insurance lost or injured [actual loss]
Market price in sound state provides extended if there is valuation, same effect as marine
coverage even to insurance
lost profits.
Burden of proof to substantiate loss is upon insured.
Indirect/consequential loss:
damage to other property not usually covered If insured wants to have valuation named in
loss of earnings policy insuring any building or structure against
extra expenses such as cost of doing fire, he may
business in different place due to the fire require the building to be examined by
appraiser and the value fixed
Marine Insurance Fire Insurance cost of examination to be paid by insured
Rules in abandonment No such rule in fire clause stating the value to be inserted in the
and constructive total insurance policy
loss may apply
In case of partial loss of Insured may become co- In case of total loss
thing for less than its insurer if expressly the whole amount insured as stated in the
actual value. insured is agreed upon policy shall be paid
co-insurer for uncovered if there is no increase of risk in violation of
portion policy or fraud

In case of partial loss

Insurer may rescind if:
full amount of partial loss shall be paid
alteration in use or condition of the thing as
contemplated w/o consent of insurer by
If there are 2 or more policies covering same
means w/in control of insured and
interest
increasing the risks
each policy shall contribute pro rata
if it does not increase the risk, contract is
but each insurer cannot be made to pay
not affected
more than amount stated in the policy
Requisites for alteration to make contract
Parties may stipulate concerning repairs,
rescissible:
use or condition stipulated in policy
rebuilding, replacing or structures.
such use or condition is altered
Market value of personal property destroyed may be
w/o consent of insurer
considered to determine actual loss sustained.
by means w/in control of insured

[Type text]
[Type text]
Effect if there is valuation [same as marine]
valuation conclusive [in absence of fraud]
may recover full amount of total loss or partial
loss as the case may be
if building rendered unfit for its purpose, there is
total loss
if 2 or more policies cover same interest, there
is pro rata contribution
Insurer in fire insurance is required to give full
indemnity to extent of the value written in the policy
even though the property is inadequately insured.
But co-insurance clause may be inserted in fire
insurance policy. Requires insured to maintain
insurance to amount equal to the value or specified
percentage of insured property; otherwise he is
deemed co-insurer to the extent o the deficiency.
Option to build clause insurer may be given the
option to restore rather than indemnify. Choice of
insurer must be communicated to insured w/in time
specified; no effect until communicated.
After communicating election to build, insurer may
be compelled to rebuild even if the cost exceeds the
amount of insurance.
No policy of insurance may be
pledged
hypothecated
transferred
to any person who acts as agent for issuing
company.
Effect if done so: transfer is void.
Fire insurance or rights thereto transferable;
may be transferred even w/o consent of insurer.
It is the claim that is being assigned.
Right to transfer subject to the above limitation.
0 contract is only between the insured and
CASUALTY INSURANCE
Sec. 174. Casualty Insurance covers loss
arising from:
accident or mishap
employers liability insurance
workmens compensation
public liability
motor vehicle liability
personal accident & health as written by
non-life insurance companies
other substantially similar insurance
Excludes:
certain types of loss w/c by law or custom
fall exclusively w/in scope of other
insurance [such as fire & marine]
[Type text]
Can apply to almost any type of insurance; covers
all types of loss arising from accident or mishap.
Not exclusive list. May be presumed to include any
loss when an accident is the cause of loss.
Governed by provisions generally applicable to other
types of insurance, and by terms of contract; only
motor vehicle insurance contains peculiar rules.
2 Types of Insurance
1. Insurance on perils affecting person or property
of insured
2. Insurance affecting liability of the insured in
favor of others
Liability Insurance for the benefit of insured and
those in privity w/ him, or those who on ground of
public policy he is liable to
Liability Insurable
Liability for Quasi-Delict or Breach of Contract
Liability for Criminal Negligence
o must not be liability arising from deliberate
criminal acts [void]
Insurable interest: safety or freedom from damage of
persons who may maintain some action against the
insured. Thus, liability insurance is always supported
by insurable interest.
Liability of the insurer arises when liability of the
insured arises regardless of the loss at that time.
From the moment insured becomes liable to third
person, he acquires interest in the insurance w/c
may be garnished.
May injured person sue insurer directly? It depends
on the contact if there is stipulation pour autrui.
if contract is for indemnity against liability to
third persons, insured may be sued directly
if contract is for indemnity against actual loss
or payment, injured party cannot directly sue,
prior payment of the insured is needed and the
insurer
Liability of insurer arises from contract; liability of
insured arises form tort. Thus they are not solidarily
liable.
Beneficiary has burden of proof to demonstrate that
the peril causing loss is covered by insurance. Then
the burden shifts to insurer to prove exceptions.
Accident has no peculiar meaning construed in
ordinary sense. Unexpected, unforeseen, that which
happens fortuitously. But it is not necessary that the
insured is free from negligence or fault.
GR: Insurer not liable if accident is caused by
voluntary act of insured, unaccompanied by
anything unforeseen.
Exception: If the loss is not the natural or
probable consequence of the voluntary act, or if
[Type text]

an unforeseen event intervenes, insurer

remains liable. Surety Property Insurance
Accessory contract Principal contract
Example: Participation in a boxing match where Always 3 parties Only 2 parties [insurer &
insured slips and dies. Participation is not proximate [principal debtor, insured]
cause of the loss but rather the slip. creditor, surety]
More of a credit Contract of indemnity
Not covered: voluntary exposure to known accommodation
danger such as playing Russian roulette. Signify Surety entitled to No right of recovery
disregard for ones life. reimbursement from except when insurer is
principal entitled to subrogation
Both the cause and the result must be accidental May only be cancelled May be unilaterally
in order to claim. w/ consent of obligee, cancelled depending on
court , or Commissioner the grounds
Intentional exercise of reasoning facilities, Requires acceptance by No need for acceptance
consciousness, volition. obligee before it by 3rd party
becomes binding
No action clause stipulates that insurer cannot be Risk shifting device Risk distributing device
made co-defendant of the insured, and requires that
final judgment first be secured against insured. This
Surety Guarantee
cannot prevail against provisions of Rules of
Court on permissive joinder of parties. Assumed liability as Liability of guarantor
regular party depends upon
independent agreement
to pay upon default of
SURETYSHIP debtor
Surety primarily liable Guarantor secondarily
Sec. 175. Suretyship agreement where the
liable
surety guarantees the performance by another
Not entitled to the Guarantor entitled to
party [principal obligor] of an obligation in favor
benefit of exhaustion of such right
of third person.
debtors assets
includes official recognizances
Surety undertakes to Guarantor undertakes to
stipulations, bonds, undertakings by any
pay if the debtor does pay if the obligor cannot
company by virtue of Act No. 536 [as
not pay pay
amended by Act No. 2206]

One agrees to answer for debt, default, or Failure of the surety to indemnify does not excuse
miscarriage of another. non-payment of premiums by the principal debtor.

Act No. 536 in recognizances, guarantees for
faithful performance of duties w/ contract w/ the
government
security sufficient if issued by corporation
organized under Phil. laws and authorized as
such to be surety etc.
guarantee [etc] must be approved by the head
of the department, office [etc] required to
accept the same
Regulation of bonds falls under Insurance
Commissioner.
Sec. 176. Liability of surety is:
solidary w/ the obligor
limited to the amount of the bond
determined strictly by the terms of the
contract in relation to the principal contract
Usually evidenced by surety bond.
Where surety contract terminated, principal debtor
no longer liable for premiums, even if there is
pending case against surety arising from former
breach of the debtor.
Major types of surety bonds:
Contract bonds usually in construction &
supply contracts to protect client from default
[performance bond] as well as compensation of
employees of contractors [payment bond]
Fidelity bond loss due to dishonest act of
employee
o Industrial bond employees
o Public Official bond public officials
usually handling public funds
Judicial bond such as attachment bonds, bail
bonds, receiver bonds, etc.
Sec. 178. Civil Code applies suppletorily in
interpreting provisions of surety contract.

Misrepresentations made by the bond applicant Provisions on joint and solidary liability as well as
cannot prejudice the principal creditor. Surety different kinds of obligations apply.
usually issues an Indemnity Agreement in favor of
creditor.
0
Possible for surety to cede portion of the risk to
another surety in a bond reinsurance contract.

[Type text]
[Type text]

LIFE INSURANCE effected by creditor on

life of debtor]
Sec. 179. Life insurance is: Always regarded as May be valued or open
insurance on human life valued policy
insurance appertaining thereto or May be transferred or Transferee must have
connected therewith assigned to anyone insurable interest
even if he has no
Sec. 180. Insurance upon life may be made insurable interest
payable: Consent generally not Consent generally
on the death of the person required for validity of required unless there is
on his surviving a specified period transfer or assignment waiver
otherwise contingently on the continuance Insurable interest need Insurable interest
or cessation of life not exist after insurance needed both at inception
takes effect or when loss of agreement and at
Considered life insurance: occurs [same exception] time of loss
every contract or pledge for the payment of Insurable interest need Insurable interest must
endowments or annuities not have legal basis have legal basis
Contingency is certain Contingency may or
Where interest of minor beneficiary in life, [only the time is may not occur
health, or accident insurance does not exceed uncertain]
P20,000: Liability of insurer is Uncertain liability
father or mother [successively] may certain
exercise in behalf of said minor any right May not be cancelled by May be cancelled by
such as: insurer [usually long either party [usually for 1
o obtaining a policy loan term contract] year term]
o surrendering policy Loss cannot be Loss measurable by
o receiving proceeds measured in terms of cash value
o giving consent to any transaction cash value
w/o court authority or posting of bond Beneficiary need not Insured required to
in the absence of a judicial guardian prove actual financial submit proof as
loss condition precedent
Life insurance may also be defined as agreement to
pay given sum on the happening of certain Any person disqualified from receiving donation also
contingent during the duration of human life in
disqualified from being beneficiary of life insurance
consideration of payment of smaller amounts. policy on life of person who cannot donate to him.

All moneys, benefits, privileges, annuities accruing

Parties:
Owner of the policy may assign it, change
beneficiary, cash it, use it as collateral, and
must pay premiums
Cestui que vie person whose life is subject
of the policy
Beneficiary
One person may actually be all of the above.
Life insurance is not really a contract of
indemnity.
the event upon w/c payment is to be made is
actually certain to happen, except only in cases
of premature death
difficult to fix any pecuniary value on life
treated substantially as a value policy death
not generally regarded as a loss
No need for beneficiaries to demonstrate actual
pecuniary loss upon death of cestui que vie
Measure of indemnity is face amount of policy, not
value of human life and regardless of the actual
economic loss of the beneficiaries.
Life Insurance Marine / Fire Insurance
Not contract of Contact of indemnity
indemnity [except that
or growing out of life insurance are exempt from
execution regardless of amount of premiums paid.
Accident insurance generally distinct from life
insurance; but if one of the risks insured against is
death, it may be regarded as life insurance.
In accident insurance, burden of proof upon
beneficiary to prove that peril is covered.
Kinds of Life Insurance Policies
Ordinary
o insured is required to pay fixed
premiums during lifetime
o beneficiary entitled to proceeds after
death of the insured
o may include investment feature through
payment of cash surrender value,
possible to loan therefrom as well
o also know as whole life or regular life
o carries lowest premium rate
Limited Payment Life Policy
o premiums payable only during period of
years
o when the premiums are all paid,
insurance is deemed fully paid
o beneficiary entitled to all proceed w/o
need for further payment

[Type text]
[Type text]

o premiums are usually higher lives insured

o also called limited premium insurance
Term Insurance Policy
o coverage only if insured dies during
certain period
o if
insured survives the period, the
insurance is terminated
o premium increases or coverage
decreases as time goes by
o also called temporary insurance
Endowment Policy
o insurer binds to pay if the insured
survives a certain period or also if he
dies w/in certain period
o premiums are higher
o here insured stands chance to be paid
proceeds of the policy while still alive
o useful for retirement planning
o deemed life insurance contracts under
Insurance Code
Appears more like an Akin to indemnity
investment
Under the law, annuities are considered as life
insurance contracts.
A person may secure both life policy and annuity.
Sec. 180-A. Insurer of life policy liable for suicide
only if:
suicide is committed after policy has been
in effect for 2 years from date of issue or
last reinstatement
unless policy provides shorter period
but if done during insanity, compensable
regardless of the time of commission
Policy cannot provide for longer period than 2 years
as stated above.

Scope of Life Insurance Suicide may be excepted from the insurance

Life Insurance
o seeks to protect the family and other
persons from the loss of earning
capacity of the deceased [economic
death]
actual death
living death [permanent disability]
retirement death
Health, Accident, Disability Insurance
o hospital and medical
o loss of time and earning capacity
o deemed under the law as both life and
non-life insurance, hence may be issued
both by life and non-life insurance
companies
Contract of life annuity
debtor binds himself to pay annual pension or
income
during the life of one or more determinate
persons
in consideration of a capital consisting of
money and other property
whose ownership is transferred to him at one
with the burden of income
in short, for his premiums, the purchaser of an
annuity expects his insurer to pay him a
periodic income as long as he lives
in life insurance, the insurer pays upon death of
the insured, in annuity, the insurer stops paying
upon the death of the insured
coverage. Also not liable if insurer can show that the
insurance was taken for purpose of suicide.
Sec. 181. Policy of life or health insurance
may pass by transfer, will or succession
whether transferee has insurable interest or
not
such person may recover upon it whatever
the insured may have recovered
Provision in life insurance prohibiting transfer w/o
consent of the insurer is void.
All life policies assignable regardless of insurable
interest of the assignee [not contract of indemnity].
No insurable interest needed if the life policy
procured upon ones own life.
Where assignment is mere cloak to hide illegal
scheme to make contracts on human life, courts
may not permit the assignment.
Insured cannot assign policy w/o consent of
beneficiary if:
there is express waiver of right to change
beneficiary
in w/c case, beneficiary acquires vested right
If there is no such waiver:
may be assigned w/o consent of beneficiary
he acquires no vested right [mere expectancy]
beneficiary cannot assign right unless it
becomes fixed

Purpose of annuity is scientific liquidation of an Sec. 182. Notice to insurer of transfer or bequest
estate. not needed to preserve validity of the life or
health insurance
Annuity Ordinary Life Policy unless expressly required
Insures against Contemplates early
economic problems death If notice required:
resulting from long life assignment still valid as between assignor and
Looks to transiency Looks to longevity assignee
Insured receives Beneficiary receives
payments as long as he proceeds upon death of

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if insurer pays to beneficiary not knowing of the
assignment, it is still relieved [beneficiary
becomes trustee in favor of assignee]
the validity is unaffected, but the transfer will
not bind the insurer
Transfer w/ consent of the insurer creates a
novation; assignee takes the contract free from the
defenses available to the insurer against the original
insured [?]
Sec. 183. Measure of indemnity under a policy of
insurance upon life or death:
the sum fixed in the policy
unless the interest of the person insured is
susceptible of exact pecuniary
measurement
Life policies are valued ones.
How can there be exact pecuniary measure? If the
creditor insures the life of the debtor.
0 than P 12,000 per passenger or third person
COMPULSORY MOTOR VEHICLE
LIABILTITY INSURANCE
Sec. 373. Definitions.
Motor vehicle any vehicle defined under the Land
Transportation & Traffic Code
Passenger
any fare paying person being transported by
vehicle for transportation w/ compensation
includes persons who ride w/o fare as
authorized by owner or law
Third party
any person other than passenger
excludes member of household/family w/in 2nd
degree of owner /operator
excludes employee for purpose of death/bodily
injury arising out of employment
Owner
actual legal owner of vehicle in whose name it
is registered w/ LTO
Operator
owner of motor vehicle for transportation of
passenger for compensation
includes school bus owner
Motor Vehicle Insurance
against passenger & 3rd party liability
for death/bodily injury arising from motor
vehicle accident
Sec. 374. Unlawful for owner/operator of motor
vehicle:
to operate in public highways w/o policy f
insurance in force, or guarantee in cash or
security bond
Sec. 375. Commissioner shall furnish LTO w/ list of
insurance companies authorized to furnish such
insurance
Sec. 376. LTO shall not allow registration or
renewal of any motor vehicle unless:
presentation & filing by owner or operator of
documentation evidencing effectivity of
policy of insurance or required bond
must be approved by Commissioner
Sec. 377. Before applying for registration,
Operator/owner has option to:
secure insurance policy
surety bond issued by insurance co.
authorized by Commissioner
make cash deposit as limit of liability
In case of Operator:
insurance for death/bodily injury of not less
amount for any one accident of:
o capacity of 26+ passengers P50,000
o 12-20 passenger capacity P 40,000
o 6-11 passenger capacity P 30,000
o 5 or less P 5k x authorized capacity
Such cash deposit or bond shall be resorted to in
case of accidents the indemnities for w/c are not yet
settled.
Must be replenished or the surety bond must be
restored; otherwise, operator must secure the
required insurance.
Deposit may be invested by Commissioner in
marketable government bonds and securities.
In case of owner, insurance, cash bond or surety
for accident to third parties must cover not less
than following amounts:
bantam P 20,000
light P 20,000
heavy P 30,000
tricycle, motorcycle, scooter P 12,000
vehicle w/ un-laden weight of 2,600 kg. or
less P 20,000
unladen weight of 2,601-3,930 kg. P 30,000
unladen weight of 3,931+ - P 50,000
Sec. 378. Claim for death/injury of 3rd party shall
be paid w/o need for proof of fault or negligence
of any kind, provided:
total indemnity in favor of any 1 person
shall not exceed P 5,000
following proof sufficient
o police report
o death certificate and evidence sufficient
to establish proper payee

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o medical report and evidence of medical
or hospital disbursement of w/c
reimbursement is claimed
Claim against 1 motor vehicle only.
In case of occupant of vehicle:
claim against the insurer or vehicle that he
is riding [mandatory, no choice as to from
whom to claim]
In any other case:
claim against insurer of directly offending
vehicle
In all cases:
right of the party paying claim to recover
against responsible owner is maintained
Sec. 379. No owner/operator shall be
unreasonably denied insurance or surety by
authorized companies
otherwise their authority may be withdrawn
otherwise, LTO shall require instead cash
deposit made w/ Commissioner
No insurer may issue such insurance unless
authorized by law.
Sec.380. No cancellation of policy shall be
effective unless:
notice to operator or owner and LTO
at least 15 days prior to effectivity
Upon receipt of such notice, LTO shall:
order confiscation of plates of vehicle
Unless:
it receives new evidence of valid insurance
or guarantee in cash or surety
or indorsement of revival or previously
cancelled policy
plate may be re-issued in case of
compliance
Sec. 381. If cancellation of policy is
contemplated, owner/operator must:
secure new policy or replace it
make cash deposit
file required documentation w/ LTO w/o any
gap and before policy or surety ceases
notify the insurance company concerned of
the cancellation
Sec. 382. In case of change of ownership or
engine:
no need for new policy until next date of
registration or renewal, provided that the
company agrees to continue the policy
such change must be indicted in endorsement
by insurance company concerned
signed duplicate must be filed w/ the LTO
Sec. 383. Indemnity may not be availed of by
victim as means of enrichment, but only as
assistant or restitution.
Sec. 384. Person claiming must:
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present written notice to insurer of claim
w/o undue delay
set forth extent of damage as certified by
physician
must be presented w/in 6 months,
otherwise, waived
Action must be brought w/in 1 year from
denial of claim, otherwise, prescribed
Sec. 385. Insurer must:
ascertain truth and extent of claim
pay w/in 5 working days after reaching
agreement
If no agreement:
insurer must pay only the no fault indemnity
cannot compel to execute quitclaims
Dispute as to enforcement of provisions of policy
jurisdiction is w/ Commissioner.
Sec. 386. Unlawful to require drivers or
employees to contribute in paying premiums.
Sec. 387.
no government office, agency, official or
employee w/ duty to implement provisions
of the code may act as agent for procuring
insurance
commission agent cannot charge more than
10% of premiums as commission
Sec. 388. Owner/operator violating said
provisions:
fine not less than P 500 but not more than P
1,000
imprisonment not more than 6 months
violation of Sec. 377 = revocation of
certificate of public convenience by LTFRB
Sec. 389. Violation by corporation, association,
government entity:
executive officers who have knowingly
permitted or failed to prevent shall be liable
as principals.
Motor vehicle propelled by any power other than
muscle power, using public highways
excludes road rollers, street sweepers,
sprinklers, loan mowers, bulldozers, forklifts,
amphibian trucks, cranes, graders, vehicles w/c
run only on rails, tractors, traction engines for
agricultural purposes
Insurance to a certain extent compulsory. What the
law mandates is third party liability insurance.
Purpose: to assure the victims of indemnity
regardless of financial capacity of the
owner/operator.
Insurers liability is primary accrues immediately
upon occurrence of the contingency. May be sued
directly.
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Property damage no longer covered by compulsory
motor vehicle insurance. May be separately agreed
upon.
Persons subject to Compulsory Motor Vehicle
Liability Insurance [CMVLI]
motor vehicle owner [MVO]
land transportation operator [LTO]
Instead of CMVLI, owner/operator may:
post surety bond w/ Commissioner
make cash deposit w/ Commissioner
both must be replenished or restored to the
right amount whenever impaired
Scope of Coverage
MVO
o comprehensive against third party liability
for death or bodily injury
o if transporting for compensation, must
have passenger liability
LTO
o comprehensive against both third party
and passenger liability for death or bodily
injury
Duty of MVO/LTO contemplating cancellation of
his cover
notice to insurer
secure similar policy or bond before expiration
w/o such replacement, cash deposit w/
Commissioner and secure certification
Effect of Cancellation of Cover
confiscation by LTO of plates unless:
o furnish evidence of new insurance
o duplicate of endorsement filed w/ LTO
o certification by Commissioner re deposit is
furnished
No Fault Indemnity Claim victim of tort can
recover from insurer regardless of contributory fault
inapplicable to property damage
if total indemnity exceeds P 5k and there is
controversy in respect thereto, finding of fault
may be availed by the insurer only as to excess
of P 5k.
Claim where the victim is an occupant
must claim against insurer of vehicle that he
is riding
not free to choose from which insurer to
claim, regardless of who is at fault
In any other case
claim against insurer of vehicle responsible
for the accident
here victim is not occupant of the vehicle
occupant covers both passenger and third
party whether riding, mounting, or dismounting
MVO/LTO must be issued Certificate of Cover by
the insurer may serve as secondary proof.
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Limitations as to Use of Insured Vehicle under
Master Private Vehicle Policy does not cover:
hauling, carrying of logs, lumber, sand, gravel,
beverages, gas products, other inflammables
racing, pacemaking, reliability trial, speed test,
other purpose for motor trade
carriage of passengers for hire or reward
Limitations as to Use of Insured Vehicle under
Master Commercial Vehicle Policy does not
cover:
hauling, carrying of logs, lumber, sand, gravel,
beverages, gas products, other inflammables
racing, pacemaking, reliability trial, speed test
carriage of passengers for hire or reward
other purpose for motor trade
first two may be deleted and covered by
agreement
Limitations as to Use of Insured Vehicle under
Master Land Transportation Operations Policy
does not cover:
hauling, carrying of logs, lumber, sand, gravel,
beverages, gas products, other inflammables
racing, pacemaking, reliability trial, speed test,
other purpose for motor trade
Limitations as to Use of Insured Vehicle under
Master Motorcycle Policy does not cover:
hauling, carrying of logs, lumber, sand, gravel,
beverages, gas products, other inflammables
racing, pacemaking, reliability trial, speed test
carriage of passengers for hire or reward
other purpose for motor trade
Malus System
owner who suffered accident during preceding
policy period is required to pay surcharge upon
renewal in addition to basic premium
amount: amount of loss x rate of premium, in
no case less than P 30
Insured or his driver was without license
license required for driver driving w/ insureds
permission
not applicable to insured himself
only above 2 persons are contemplated as
allowed to drive insured vehicle
if authorized person is driving, he must have
license, otherwise, insurer can evade liability
different from theft clause
Civil Code provisions on quasi-delict, vicarious
liability applicable. Page 694-695.
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