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Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S.

Sagmit

COMMERCIAL LAW REVIEW:


Insurance Law Q: Is an educational plan a contract of insurance or a pre-need?
(Powerpoint in bold letters) A: It is how you defend your answer.
What are the elements of a contract of insurance? If you are
Two Major Topics: able to connect it with an educational plan, you get points.
- Insurance Code
- PDIC Law Ma’am’s opinion: Unlike that health care agreement, here, you
know that the day will come that your child will attend school. Is it
PART ONE: GENERAL PRINCIPLES really a risk or a contingency? It depends.
With the Phil HealthCare case, you can consider it as a contract of
Concept: insurance.
 An agreement whereby one undertakes for a
consideration to indemnify another against loss, Principle of Subrogation
damage or liability arising from an unknown or
contingent event.  Process of legal substitution
 The insurer, after paying the amount covered by the
It is an agreement involving at least 2 persons. One is policy, steps into the shoes of the insured
exposed to a risk and the other one accepts payment so as to  Insurer avails of the rights of the insured against the
indemnify the other person. The liability or the damage suffered by wrongdoer
one is shouldered by another individual. There is a consideration of  Insured CANNOT recover from offender what was paid by
payment. insured but can recover any deficiency.
 Applicable only in non-life insurance (Philamgen v. CA )
 A contract of suretyship is deemed an insurance
contract only if made by a surety who or which is doing The assumption of risk by the insurance company gives it the
an insurance business as a vocation. right to be subrogated (stepping into the shoes).
You are now giving the insurance company the right to sue
The one who enters a contract of suretyship is solidarily liable whoever is at fault.
with another for an obligation despite such party not being privy to Case in point : motor vehicle liability insurance or car insurance.
the contract. If one car is damaged and there is a comprehensive insurance policy,
one can claim with his insurance company so that he will not be
Elements: hassled as to file an action against the party at fault.
If the insurance company of the car pays the owner, the car
 The insured has insurable interest or interest of some insurance company now is subrogated to the right of the car owner.
kind susceptible of pecuniary estimation He can now sue the person at fault. Instead of the insured filing the
 The insured is subject to a risk of loss caused by the case, it is now the insurer who has the right of filing a case against the
happening of the designated perils; wrongdoer.
 The insurer assumes the risk of loss;
 Assumption is part of a general scheme to distribute Q: What if the insured only got a certain sum of money from the
actual losses among a large group of persons bearing insurance company?
somewhat similar risks; Example: A person got into an accident. He got P 5,000 from
the insurer. He spent P 50,000.
The risk of loss is distributed A: If he got P 5,000 from the insurer, he can still get the balance
from the wrongdoer. Insured cannot recover from the offender what
 As consideration for the insurer’s promise, the insured was paid by the insurer but can recover any deficienty. No double
pays the premium recovery.

The insurer will not assume risk unless he gets something There was one case where San Miguel recovered twice. What
happened was there was refund. What happened was that he gave
PHIL HEALTHCARE vs. CIR the money he got back to the insurance company and collected from
the wrongdoer.
ISSUE: Is a healthcare agreement in the nature of a
contract of insurance? Just because the insurance company gave something, this does
not preclude the person from collecting the balance. He should not be
FACTS: Individuals enrolled in its health care programs pay made to sign an acquittal.
an annual membership fee.
They are entitled to various preventive, diagnostic and Take note that subrogation is only applicable in non-life, logically.
curative medical services provided by its duly licensed Life insurance is personal in nature. Only some people can get a policy
physicians, specialists and other professional technical staff using your own life.
participating in the group practice health delivery system at
a hospital or clinic owned, operated or accredited by it. Nature and Characteristics
The DST under Section 185 of the 1997 Tax Code is  Aleatory
imposed on the privilege of making or renewing any policy  Contract of indemnity for non-life and an investment
of insurance (except life, marine, inland and fire insurance), for life insurance
bond or obligation in the nature of indemnity for loss,  Personal
damage, or liability.  Executory and conditional on the part of the insurer
 Uberrimae fides
RULING: The health care agreement is primarily a contract  Adhesion
of indemnity. A health care agreement is in the nature of a
non-life insurance policy. Q: What is aleatory?
A: Dependent on chance
Q: Is a health care agreement a contract of insurance?
If so, then, there must be payment of doc stamps. Q: Why executory and conditional?
A: A health care agreement is a contract of indemnity. The A: Executory as to the insured and conditional as to the insurer.
investment is life because you cannot be indemnified for the death The contingency - the event may or may not happen.
of a loved one. But when a person suffers from a loss arising from
damage to property, there is restitution. Q: What is uberrimae fides?
A health care agreement is a non-life insurance policy. The A: Utmost good faith
health care provider in effect indemnifies the member for the
damage he suffers or for the expenses he experienced because of As you will see later, any concealment of information, even how
some health-related problem. So, this will make the health care little, may be a ground for rescinding a contract of insurance.
agreement a contract of insurance.
Hence, doc stamps should be paid every time there is a There was a SunLife case where this person failed to say that he
renewal of a health care agreement. was confined in a hospital. His cause of death was an airplane crash.

Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 1


Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

And yet, his claim was denied because there was concealment – Regulation of Insurance Business
whether the fact concealed was the cause of the death.  Insurance business is impressed with public interest.
The Supreme Court said that it was material. If it was not  The public must be protected against insolvency or unfair
concealed, he may not have been insured or the premium could treatment by insurers.
have been higher. But because there was concealment, the  Insurance Commission is tasked to regulate the conduct
beneficiary was precluded from claiming the proceeds. of insurance business through licensing, examination,
investigation and revocation (Sec. 414-416).
Adhesion – if you are given a contract by the insurance
company, unless you want some additional clauses, the form itself SECTION 414. The Insurance Commissioner shall have the duty
is already prepared. In that sense, it is a contract of adhesion. to see that all laws relating to insurance, insurance companies and
other insurance matters, mutual benefit associations, and trusts for
Rule of Construction: charitable uses are faithfully executed and to perform the duties
 Doubts are resolved in favor of the insured imposed upon him by this Code, and shall, notwithstanding any
 Since a contract of insurance is a contract of adhesion, existing laws to the contrary, have sole and exclusive authority to
any obscure word or stipulation in the insurance policy regulate the issuance and sale of variable contracts as defined in
shall be resolved against the insurance company which section two hundred thirty-two and to provide for the licensing of
drafted the terms thereof (RIZAL SURETY V. CA, 336 persons selling such contracts, and to issue such reasonable rules and
SCRA 12) regulations governing the same.
The Commissioner may issue such ruling, instructions, circulars,
Since a contract of insurance is a contract of adhesion, all orders and decision as he may deem necessary to secure the
doubts must be resolved in favor of the insured, logically. It is like enforcement of the provisions of this Code, subject to the approval of
a contract of employment. the Secretary of Finance. Except as otherwise specified, decisions
made by the Commissioner shall be appealable to the Secretary of
Statute of Limitations Finance.
 General Rule: 10 YEARS from the time the cause of
action accrues. SECTION 415. In addition to the administrative sanctions
 Exception: Period may be increased or decreased BUT provided elsewhere in this Code, the Insurance Commissioner is
 In industrial life: cannot be shorter than SIX hereby authorized, at his discretion, to impose upon the insurance
YEARS companies, their directors and/or officers and/or agents, for any willful
 In all other kinds of insurance: cannot be shorter failure or refusal to comply with, or violation of any provision of this
than ONE YEAR. Code, or any order, instruction, regulation, or ruling of the Insurance
Commissioner, or any commission or irregularities, and/or conducting
“Right of Action Accrues” business in an unsafe or unsound manner as may be determined by
 Period is reckoned from the time of the denial of the the Insurance Commissioner, the following:
claim by the insurer (Vda de Gabriel v. CA ) (a) Fines not in excess of five hundred pesos a day; and
 If there was no denial of the claim, right of action does (b) Suspension, or after due hearing, removal of directors and/or
not accrue officers and/or agents.

There is a right - someone has to do something. If he fails to SECTION 416. The Commissioner shall have the power to
do it, there is a violation of right. If there is a violation of right, adjudicate claims and complaints involving any loss, damage or liability
there is a cause of action. for which an insurer may be answerable under any kind of policy or
contract of insurance, or for which such insurer may be liable under a
Translated to insurance law, you should file a claim first with contract of suretyship, or for which a reinsurer may be sued under any
your insurance company. If your claim is denied, the 10-year contract of reinsurance it may have entered into; or for which a mutual
period starts to run. If there was no denial, then, you cannot say benefit association may be held liable under the membership
that the period has begun. There should be denial first. certificates it has issued to its members, where the amount of any
There are cases where after the denial, the insured will file a such loss, damage or liability, excluding interest, cost and attorney's
motion for reconsideration. In that instance, the period begins to fees, being claimed or sued upon any kind of insurance, bond,
run already. It is only the first denial that will start the prescriptive reinsurance contract, or membership certificate does not exceed in any
period. So, if you are denied, file the appropriate action. single claim one hundred thousand pesos.
The insurer or surety may, in the same action file a counterclaim
―Doing an insurance business” – MEMORIZE  against the insured or the obligee.
 making or proposing to make, as insurer, any The insurer or surety may also file a cross-claim against a party
insurance contract; for any claim arising out of the transaction or occurrence that is the
 making or proposing to make, as surety, any contract subject matter of the original action or of a counterclaim therein.
of suretyship as a vocation and not merely incidental With leave of the Commissioner, an insurer or surety may file a
to any other legitimate business or activity of the third-party complaint against its reinsurers for indemnification,
surety. contribution, subrogation or any other relief, in respect of the
transaction that is the subject matter of the original action filed with
Take note that this must be done on a regular basis, as a the Commissioner.
vocation. It is not incidental and not as a one-shot deal when it The party filing an action pursuant to the provisions of this
comes to a surety agreement. section thereby submits his person to the jurisdiction of the
Commissioner. The Commissioner shall acquire jurisdiction over the
 doing any kind of business, including a reinsurance person of the impleaded party or parties in accordance wit h and
business, specifically recognized as doing insurance pursuant to the provisions of the Rules of Court.
business The authority to adjudicate granted to the Commissioner under
this section shall be concurrent with that of the civil courts, but the
Reinsurance (we will tackle later on) - basically, you have an filing of a complaint with the Commissioner shall preclude the civil
insurance company which will answer the damage. courts from taking cognizance of a suit involving the same subject
Example: Fire insurance for P 10 M. But because P 10M is a matter.
huge amount, your insurance company will now contract with Any decision, order or ruling rendered by the Commissioner after
another entity saying that a portion of it, like P 5M of the P 10M will a hearing shall have the force and effect of a judgment. Any party may
be answered by such entity. The contract is between your appeal from a final order, ruling or decision of the Commissioner by
insurance company and another entity. filing with the Commissioner within thirty days from receipt of such
order, ruling or decision a notice of appeal to the Intermediate
 doing or proposing to do any business in substance Appellate Court in the manner provided for in the Rules of Court for
equivalent to any of the foregoing appeals from the Regional Trial Court to the Intermediate Appellate
 A n e nt it y ca n s t ill be de e m e d e nga ge d e v e n if he doe s Court.
not de riv e a ny profit from t he a ct iv it y As soon as a decision, order or ruling has become final and
executory, the Commissioner shall motu propio or on motion of the
Even if there is no profit, it is possible that you are still interested party, issue a writ of execution required the sheriff or the
engaged in insurance business. proper officer to whom it is directed to execute said decision, order or
award, pursuant to Rule thirty-nine of the Rules of Court.

Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 2


Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

For the purpose of any proceeding under this section, the  Create a liability - expose the person to liability to third
Commissioner, or any officer thereof designated by him, persons. E.g. third party liability insurance
empowered to administer oaths and affirmation, subpoena The policy holder may not suffer any loss personally but a suit is
witnesses, compel their attendance, take evidence, and require the filed against him. Example: TPL. If he crashed his car and his
production of any books, papers, documents, or contracts or other passenger was injured or a pedestrian was bumped, he does not suffer
records which are relevant or material to the inquiry. In case of any loss but the pedestrian suffered loss or injury. The TPL is if he is
contumacy by, or refusal to obey a subpoena issued to any person, made liable to pay, he has something to answer for such liability.
the Commissioner may invoke the aid of any court of first instance
within the jurisdiction of which such proceeding is carried on, where So, there are 2 kinds of injury – direct and indirect.
such person resides or carries on his own business, in requiring the
attendance and testimony of witnesses and the production of Insurance by a married woman
books, papers, documents, contracts or other records. And such  May take out an insurance on her life or that of her
court may issue an order requiring such person to appear before children or that of her husband without the consent of
the Commissioner, or officer designated by the Commissioner, there her husband (RA No. 7192)
to produce records, if so ordered or to give testimony touching the  May take out insurance on paraphernal property
matter in question. Any failure to obey such order of the court may
be punished by such court as a contempt thereof. Q: How about conjugal property? How about property of the
A full and complete record shall be kept of all proceedings had absolute community?
before the commissioner, or the officers thereof designated by him, A: It is ok but both of you will benefit, not just you, even if you are
and all testimony shall be taken down and transcribed by a the one who paid the premiums.
stenographer appointed by the Commissioner.
A transcribed copy of the evidence and proceeding, or any Insurance by a minor
specific part thereof, of any hearing taken by a stenographer
appointed by the Commissioner, being certified by such  A property insurance taken by a minor is voidable or valid
stenographer to be a true and correct transcript of the testimony on until annulled (1390)
this hearing of a particular witness, or of a specific proof thereof,  If contract is not disaffirmed, insurer cannot invoke
carefully compared by him from his original notes, and to be a minority to escape liability.
correct statement of evidence and proceeding had in such hearing
so purporting to be taken and subscribed, may be received as The one who is capacitated cannot use the minority of another
evidence by the Commissioner and by any court with the same person as a defense to defeat the performance of an obligation.
effect as if such stenographer were present and testified to the
facts so certified.

The Insurance Commission is very strict when it comes to life


insurance policy.

That’s why if you take a look at Sections 414-416 of the


Insurance Code, the Insurance Commission is empowered to
regulate the conduct of insurance business through licensing,
granting of licenses, suspension of licenses if appropriate and even
to some extent, revocation.

What may be insured

LIFE INSURANCE
 Insurance on human lives and insurance appertaining
thereto or connected therewith (Sec. 179)

Classes
1. Individual – protection is based on individual application.

There is a single insured person, whom we referred to as


cestui que vie.
Q: The ones who invested in Lehman Brothers - can they insure
their investment? Is that allowed? 2. Group – unit of selection is the group rather than the
A: YES. individual, blanket policy covering a number of
individuals
In fact, there is one bar question. If you have a bank account,
it is covered by PDIC up to P 250,000 only. If you have P 500,000, When we talk about a group life insurance, there are several
can you insure the half with another entity? YES, nothing prevents individuals covered by 1 policy. We are talking about several
you from doing that. people covered by one policy but each individual posseses a
a certificate of participation. It is usually an employer
What can be insured against? setting up a group life insurance for his employees. More of
1. Contingent event – it may or may not happen (e.g. fire, than not, when the employee ceases to be employed, he no
sinking of a ship, accident) longer enjoys the benefits under the group life policy.
2. Unknown event – it is sure to happen but it is unknown with
respect to the time that it will happen (e.g. death) Case: In that set-up, the employer is deemed to be an
agent of an insurance company. There was this where the
It is not enough that you have a contingent event or it is not manager of the employer who collected premium and did
event that you have an unknown event. These events should not remit the payment to the insurance company. The
damnify a person or should create a liability against that person insurance company collected again from the employee. The
Supreme Court said, in that case where there is a group life
Damnify v. Create a liability insurance policy, the employer and even the agent of the
employer, is considered as agent of the insurance company.
 Damnify - direct loss If you already paid premium to the employer or to its agent,
you are now deemed to have paid to the insurance
Example: If the spouse of A dies, A suffers direct loss. If A’s company. The insurance company cannot collect again from
building collapsed, he will suffer direct loss the employees. The insurance company must then go after
the manager of the employer.

Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 3


Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

3. Industrial – premiums are payable either monthly or TYPES: MARINE


oftener if the face amount of insurance is not more
than 500 times the current statutory minimum wage in  vessels, craft, aircraft, vehicles, goods, freights, cargoes,
Metro Manila. merchandise, effects, bottomry, respondentia interests
 person or property in connection with or appertaining to
There are many special rules with regard to industrial life marine, inland marine, transit or transportation insurance
insurance because this caters to those who belong to but excludes life insurance or surety bonds or insurance
lower-income bracket (fish ball and market vendors). against loss by reason of bodily injury to any person who
The face value of the policy is not more than 500 times of arising out of ownership, maintenance or use of
the current statutory minimum wage in Metro Manila. automobiles
 precious stones, jewels, jewelry, precious metals,
NON-LIFE whether in the course of transportation OR otherwise
 Property insurance or insurance whose object is other  bridges, tunnels and other instrumentalities of
than a person’s life or where the covered peril is transportation and communication (excluding buildings,
something other than death furniture and furnishings fixed contents and supplies held
in storage), piers, wharves, docks and slips other aids of
This is opposite of life. The object is not the person’s life but a navigation, dru docks, marine railways, dams
certain property. It is protected against a particular risk – a
building protected against fire, a building protected against theft, a Bar Question: What is marine insurance?
vessel protected against sinking.
Contrary to common perception, marine insurance is not limited
TYPES: FIRE to vessels. It also covers aircraft, jewelries (whether in transit or not),
 Includes insurance against loss by fire, lightning, etc.
windstorm, tornado or earthquake and other allied
risks, when such risks are covered by extension to fire TYPES: SURETYSHIP
insurance policies or under separate policies
 An agreement whereby a party called the surety
There is a qualification that allied risks are included. This talks guarantees the performance of another party called the
about proximate cause – fire caused by an explosion, damaged principal or obligor of an obligation or undertaking in
caused by fire. favor of a third party called the obligee.
 Includes official recognizances, stipulations, bonds or
TYPES: CASUALTY undertakings issued by any company
 Covers loss or liability arising from accident or mishap,
excluding certain types of loss which by law or custom There is solidarily liability – someone will answer for the
are considered as falling exclusively within the scope obligation of another person. The liability of this surety company is
of other types of insurance such as fire, marine. solidarily. A person can proceed against the surety company directly
without the benefit of exhaustion/excussion.
Accident – remember the case on boxing where he died after
he slipped and his head was hit. (Dela Cruz v. Capital Insurance ) PART TWO: LIFE INSURANCE
Is the consequence was an unexpected one?
What if combined with suicide? It is a totally different thing if Procedure
you do something and you actually expect to suffer. It is not an
accident anymore.

If you did not expect that it will happen – that is a casualty.


Except: those events which are specifically covered by
particular policies – fire, theft, marine.

 Includes but is not limited to employers’ liability


insurance, workmen’s compensation insurance, public
liability insurance, motor vehicle liability insurance,
plate glass insurance, burglary and theft insurance,
personal accident and health insurance written by non-
life companies.

Personal accident and health insurance – casualty if property.


But as we have learned, it can also be characterized as life – when?
It can also be characterized as life if the risk involved is death.
If there is death, that is considered life.
But if you it is purely medical, disability, etc., it basically falls
under casualty.
Casualty: Compulsory Motor Vehicle Liability or Third Party
Liability
 Insurance against passenger and third party liability
for death or bodily injuries arising from motor vehicle
accidents
 Required before an owner or operator can use his
vehicle
 Required in registration or renewal of registration

Before they ply the road, it is required before registration that 1. Agent offers a life insurance policy
the vehicle must have an insurance policy of this nature because 2. The proposed insured fills an application – representations and
this is supposed to cover injuries or death caused by that vehicle to concealments. Declarations based on the principle of uberrimei
third persons. fides. You pay the first premium – monthly, quarterly, semi-
Take note: death or bodily injury. Damage to property not annually, or annually.
covered. It falls under casualty because it is an accident,
regardless of whether it caused injury or death. It is still property Q: After your payment of the 1 st premium, are you already
insurance because what we are actually insuring is the vehicle or covered?
the owner of the vehicle, not the life of the person. It is only a A: Not yet because in this situation, the applicant becomes the
consequence. offeror and insurance company becomes the offeree.
Before the cancellation of the TPL by the insurer, it has to give
notice to the owner/operator but also to the LTO (private vehicle) 3. Upon approval, there is now a policy contract given to you. If
or LTFRB (common carrier). disapproved, the premium is returned to you.
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 4
Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

4. If the contingent happens, either the policyholder will get the â Is deemed a life insurance policy when one of the
proceeds or his beneficiary will get the proceeds. risks insured against is death of insured by accident
(Gallardo v. Morales )
Endowment – when you reach a certain age, you get the
proceeds. If you do not survive, your beneficiaries will get the Accident
proceeds. Either way, there is recovery.  An event which happens without any human agency or, if
happening through human agency, an event which under
5. The claim is either granted or denied the circumstances, is unusual and not expected by the
person to whom it happens by reason of some violence or
Denial – this is when the prescriptive period begins to run. casualty to the insured without his design, consent or
Right + Violation of Right = Cause of Action voluntary cooperation ( Sun Insurance v. CA )

6. If you are denied, you go to the Insurance Commission or to Death by suicide: compensable?
the regular courts, depending on the amount of the claim  General Rule: NO.
 BASIS:
Q: When do you go to the Insurance Commissioner?  Sec. 87 which provides that an insurer is not liable if
A: P 100,000 below. (concurrent with courts) loss is caused by willful act or connivance of the
insured; and
Q: How about regular courts?  The Rules of Court which provides that a person is
A: Above P 100,000 presumed to intend the consequences of his
voluntary acts
Exactly P 100,000 – regular courts (dagdag ko lang to, so verify)
Suicide is not compensable. If there is a degree of wilfulness and
Jurisdiction: (double-check ) brings about the event, then, that will defeat the claim (Section 87).
MTC – P 300,000 and below If you jump from the 20th floor of a building, you actually expect
RTC – above P 300,000 something to happen.

Topics in Life Insurance When is suicide compensable? (Section 180-A)


 What may be insured against  If insured was not in his right mind/insane at the
 Rule in case of death by suicide time of suicide
 Insurable Interest  If insured committed suicide after the policy has
 Parties been effective for at least 2 years from issuance or
 Kinds of life insurance last reinstatement
 Kinds of life insurance policies  Note: The 2-year period can be shortened but not
lengthened
Concept
 Life Insurance - insurance on human lives and Express stipulation is not clear. In that case, how much is the
insurance appertaining thereto or connected therewith premium?

Classes Retirement Death


1. Individual – protection is based on individual Life Annuity – debtor binds himself to pay annual pension
application. or income during the life of one or more determinate persons
2. Group – unit of selection is the group rather than the in consideration of a capital consisting of mone y or other
individual, blanket policy covering a number of property, whose ownership is transferred to him at once with
individuals the burden of income (Art. 2021, Civil Code)
3. Industrial – premiums are payable either monthly or  Annuitant gives money or property to the insurer
oftener if the face amount of insurance is not more  Insurer now becomes the debtor, and has the obligation
than 500 times the current statutory minimum wage in to give annual pension or income to either the annuitant
Metro Manila. or another person
 The obligation of insurer to give pension stops upon the
Contingencies death of the annuitant
 death
 survival of a specific period Dynamics: At least 3 persons
 continuance or cessation of life One who has the money or capital. The insurance company
becomes the debtor because it now has the obligation to give pension
What may be insured against? to the one who gave the money or to another person until that person
 Actual death dies.
 Living death (disability)
 Retirement death This is different from other insurance because in others, you get
the proceeds after death. Here, the death of the insurer is the
Actual Death resolutory condition. It now stops the obligation to give proceeds, like
 Cessation of life a trust fund.
 Best proof of death: Death certificate The definition is Article 2021 is but one type of life insurance.
 Policy matures upon the death of the insured
INSURABLE INTEREST
Living Death
 When the insured suffers from disability due to Concept
disease or accident which prevents him from  Relation between the insured and a particular event such
engaging in any lawful occupation that the happening of the event will damnify or cause loss
 Partakes the nature of health and disability to the person
benefits
If an event happened and it does not affect a person, it is not an
Q: When do we say it is life? insurable interest.
A: When one is insured and the risk is death Ex: Death of the grandmother of your neighbour who is not your
relative. Something happened but you do not suffer any loss because
If it is purely health and disability, that is casualty insurance. you have no insurable interest on the life of the grandmother.
Ex: The building owned by your cousin was burned. You do not
Living Death: Accident and Health suffer any loss, unless you are a part-owner of the building.
â Health, accident and disability insurance are
deemed as both life and non-life insurance and PURPOSE FOR THE CONCEPT:
such may be issued by either life or non-life  To avoid wagering
insurance companies (sec. 187-A, 9th par)  To avoid temptation of bringing about the event

Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 5


Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

Case: Uy vs. Palomar  Business partners


Lottery was discussed by analogy to a contract of insurance. ER-EE: If an employee brings so much profits will pass away, but
A contract of insurance is not a wagering contract. The purpose is you have to substantiate that.
a person will enter into a life insurance policy not because he hopes Business Partners: He brings in clients amounting to P 10M a
that the event will happen but because he expects the event to year. If he dies, there will be loss on the part of the co-partners or the
happen but he does not know when. And when it happens, he partnership.
expects to get something – investment.
As to property, you do not pay for a policy so that your Generally, when we talk about life, we cannot put a price on the
property will be burned and you will get proceeds. The owner, life of a person. However, under Sectio 10 (c), you can actually
unless he is guilty of owner, does not want his property to get concretize the face value of the policy because you insure the debtor
burned. But in case his property gets burned, he wants to be to the extent of the debt. You insure the employee to the extent of
indemnified. So, it is not wagering. the profits he gives to the company. You insure the business partner
The reason why we have insurable interest is we do not really to the extent of the earnings he gives the partnership.
want the event to happen but we want to be protected just in case
it happens. Section 10 (d)
Person in whose estate an interest is dependent
On whose life does a person have insurable interest?  Person is given the right to use a house
 himself, spouse, children  Right ceases when the owner dies and another
 person on whom he depends wholly or in part for person becomes the owner
education or support or in whom he has a pecuniary
interest Measure of Recovery of Proceeds
 any person who is under legal obligation to him for  SEC. 183 - GENERAL RULE: Face value of the policy
payment of money or respecting property or services of  Except: pecuniary estimation is possible [10 (c)]
which illness or death might delay or prevent
performance We cannot put a value on one’s life. It will depend on how much
 any person upon whose life any estate or interest premium the insured can afford. That’s the general rule.
vested in him depends Exception: Section 10 (c) – capable of pecuniary estimation. You
cannot get a policy that has a face value that is higher than your
Even if you are annulled from your spouse, the law still allows pecuniary interest. If the value of debt is P 1M only, that is only
you to recover from a policy. The spouse must exist at the start. amount you can get from the policy.
So, if you are married when you obtained the policy and at the time
of the death of your spouse you are annulled, there can still be Special Rule on Insurable Interest in Industrial Life
recovery, except when incapable of pecuniary estimation.  Usual rules re insurable interest are generally not made
If a person is a debtor of yours, the value is only up to the applicable in industrial life because:
value of the debt, unless such debtor is your spouse or children  Proceeds are small, little danger to induce a person
because it has not limit. to kill
Estate or interest vested: Example – contract of commodatum,  Investigation of presence of insurable interest will
free stay in a house. If the owner dies, because a contract of nullify speedy payment of proceeds under the facility
commodatum is personal in nature, you stand to lose something of payment clause
and it is capable of pecuniary estimation.  The costs to prove insurable interest will destroy the
purpose for this type of insurance
Section 10 (A)
 Every person has unlimited insurable interest in his Special – market vendors, fish vendors, etc.
own life Some rules are not strictly applied because the proceeds are
 One also had insurable interest in the life of his spouse small (500x the current statutory minimum wage in Metro Manila) –
and children on the basis of love and affection around P 200,000.

Section 10(b) Ma’am’s opinion: What may be small for us may be big for other
Obligation to give support people. It may still induce other people to kill. But that is just an
Article 195, Family Code assumption
 Spouses, legitimate ascendants and descendants
 parents and their legitimate children and Q: What is facility of payment clause? (Ma’am’s Dream Bar Q )
legitimate or illegitimate children of the latter A: This is the only chance that a person will have to get the
 parents and their illegitimate children and proceeds even if he not a designated beneficiary.
legitimate or illegitimate children of the latter Examples:
 legitimate brothers and sisters whether of the full Group life (?) – the one who spent for the burial, you get up to P
or half blood 500.
Industrial life – if the beneficiary is disqualified, if the beneficiary
Article 196, Family Code is the estate, etc – a person who spent for the last illness of the
 Brothers and sisters not legitimately insured or the burial will be entitled to recover from an industrial life
related,whether of the full or half blood, are policy.
likewise bound to support each other EXCEPT only The facility of payment clause covers precisely a situation where a
when the need for support of the brother or sister, person who does not fall under Section 10 spends for the insured and
being of age, is due to a cause imputable to the he is supposed to recover.
claimant’s fault or negligence. The purpose of industrial life is not in so much as an investment.
It is more of answering the obligations of the insured.
Blood relationship, affinity: enough?
 In cases not falling under 195 and 196, mere blood Ma’am’s Caveat: Other people are ok with P 200,000. There is that
relationship or affinity does not create insurable danger of bringing about the event.
interest
 Examples: uncle, aunt, nephew, niece, cousins, PARTIES
son-in-law, brother-in-law, stepchildren

Mere blood relationship will not suffice. Your relatives must


fall under those provided under Section 10. You cannot get a life
insurance policy on the life of your uncle unless you can prove that
he is supporting you. You cannot get a life insurance policy on the
life of your sister-in-law unless you can establish that she is your
debtor.

Section 10 (c)
Pecuniary Interest
 Debtor-Creditor
 Employer-Employee - El Oriente v. Posadas Insurer: Section 6
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 6
Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

 Every person, partnership, association or


corporation duly authorized to transact insurance  Right to transfer/bequeath-pass by transfer, will or
business as elsewhere provided in this Code may succession to any person whether he has insurable
be an insurer. interest or not; notice to insurer not required

Insurer If you are paying the premium, you can transfer it to


 Insurance corporations- Sec. 185 - corporations another person (example: your creditor). It seems that there is
formed or organized to save any person or persons or circumvention (―naikotan‖ ) of the insurable interest principle.
other corporations harmless from any loss, damage or Example: You got a policy as to your wife. You made
liability arising from any unknown or contingent event, yourself as the beneficiary and you are the one who pays the
or to indemnify or compensate for such loss, damage premium. You have a debt as to your neighbour. You will
or liability or to guarantee performance with transfer the insurance policy to your neighbour. If something
contractual obligations or payment of debts happens to the wife, the neighbour can recover. But then, that
right originates from the principle that a life insurance policy is a
Basically, insurance corporations are those who undertake to contract of investment.
assume the risk upon the happening of the event, even if he is not
the one who suffered damage. Cestui Que Vie
 Person on whose life the insurance contract is
Insured: Section 7 constituted
 Anyone except a public enemy may be insured.  Can be any of those enumerated under Section 10
 Public enemy - citizen or national of any country
with which the Philippines is at war Beneficiary
 One who receives benefits
Bar 2000  GENERAL RULE: Designation may be changed by
 May a member of the Moro Islamic Liberation Front or insured
its breakaway group Abu Sayyaf be insured with a  EXCEPTION: insured has expressly waived his right
company licensed to do business under the Insurance to change
Code of the Philippines? Explain (3%)
Answer Another exception: if the beneficiary has a vested right to the
 Yes, a member of the MILF or the Abu Sayyaf may be policy. There is a vested right – transfer to a creditor, who becomes
insured. Only a public enemy cannot be insured. A the beneficiary. Since it is in payment of a debt, the beneficiary has a
public enemy is a citizen or national of a country with vested interest. You cannot just change him.
which the Philippines is at war.
Bar 2005
Insured  What are the effects of an irrevocable designation of a
 The person who must have insurable interest beneficiary under the Insurance Code? Explain (2%)
 The person who pays the premiums  Jacob obtained a life insurance policy for P1 M
 Commonly referred to as the policyholder designating irrevocably Diwata, a friend, as his
 Not necessarily whose life is used to constitute the beneficiary. Jacob changed his mind and wants to include
insurance policy two other friends as beneficiaries. Can Jacob still add the
two friends? (2%)
This where you get confused because the term insured is Answer
usually used alternately with cestui que vie.  The irrevocable beneficiary has a vested interest in the
The insured is the one who got the policy and paid the policy, including its incidents such as the policy loan and
premiums. But it is possible that he did not use his own life. He cash surrender value
may use the life of his spouse and make himself as the beneficiary.
That is allowed. The insured is the policy holder. Do not confuse If you will change the beneficiary, you will have to get the
him with the person whose life is used to get the policy. consent of the beneficiary. If it is not an irrevocable designation, you
can change anytime, unless you waive your right to change.
Q: Can the insured be the cestui que vie at the same time?
A: Yes, because you have an insurable interest on your own life.  Jacob cannot include the two friends as additional
beneficiaries as this would diminish the interest of Diwata
Q: Can the insured be the beneficiary? who is irrevocably designated as beneficiary. Diwata has
A: Yes, you get the policy as to the life of your spouse and you to consent first to the inclusion.
make the proceeds payable to yourself.
Disqualified Beneficiaries
Q: Can the cestui que vie be the beneficiary?  Article 2012 in relation to Article 739 of the Civil Code
A: Yes. If you think about it, in endowment, you use your life  those made between persons who were guilty of
and if you survive a specific age, you receive the benefits. It is not concubinage at the time of donation
always death.
Finding of guilt is not required
Insured: Rights
 Right to borrow on the policy 227(g)  those made between persons found guilty of the
same criminal offense in consideration thereof
You can use your insurance policy and pledge it with the
insurance company and you can get cash. Criminal finding is required

 Right to dividends if participating policy 227(e);  those made to a public officer or his spouse,
230(e) descendants and ascendants by reason of his office

If there is a declaration of dividends, you also earn. Beneficiary


 Insular Life v. Ebrado , 80 SCRA 181 - The designation of a
 Right to reinstatement 227(j); 230(j) common law wife is void. This need only be proved by
 3 years from date of default in individual preponderance of evidence, no previous conviction is
 2 years from date of default in industrial required
 payment of overdue premiums
 evidence of insurability In this case, there was a first wife. It fell under concubinage.

If you were not able to pay the premium, even after the Q: What if living together and both are single?
grace period, you will be in default. What happens to your A: No. Can you donate? That is the same as donation. You cannot
policy? You can reinstate your policy as long as, in the case of donate to your common-law spouse or your spouse. There is an
the individual life, you reinstate within 3 years from default. element of intimidation, force or undue influence.
In industrial, 2 years. You pay the overdue premiums and
you show that you are still insurable. If the beneficiary is disqualified
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 7
Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

 The estate of the insured will be entitled to the due to absence of insurable interest on the life of A. Is
proceeds of the life insurance policy. the insurer correct?
Answer
It does not mean that the insurance policy will not pay. It will  The insurer is wrong. B as the beneficiary is entitled to
pay to the estate of the insured. collect the proceeds. As a beneficiary in a life insurance
policy, B is not required to have insurable interest on the
Bar 1998 life of A. A had insurable interest on his own life and the
 A was issued a policy on whole life plan for P20,000. A policy was taken on his life.
is married to B with whom he has 3 legitimate children.
However, A designated his common-law wife C as the There is a 2nd part as to this question. The house was also
beneficiary in his policy and referred to C as his legal insured and the beneficiary was B. Can you argue in that manner? It
wife. When A died, both B and C claimed the proceeds is different in property insurance. You are supposed to own the
of the insurance. Who is entitled to the proceeds? property or you have an interest in the property before you can
(5%) recover in case of loss.
Answer
 The estate of A is entitled to the proceeds. C is a LIFE INSURANCE POLICY
disqualified beneficiary because of the illicit relation
she had with A. Form
 GENERAL RULE: printed form
Rules on Beneficiaries  EXCEPTIONS: group life and annuity contracts which may
 If beneficiary WILLFULLY causes the death of the be typewritten
insured/cestui, the nearest relatives of the insured will
get the proceeds  Contains blanks where word, phrase, clause, mark, sign
necessary to complete the policy are placed
Bar 2008
 On January 1, 2000, Antonio Rivera secured a life This is a contract of adhesion. There are blanks because some
insurance from SOS Insurance Corp. for P1 Million with would like to put specific provisions covering them – covering death by
Gemma Rivera, his adopted daughter, as the suicide, death by accident or at the end of it all, he wants to recover
beneficiary. Antonio Rivera died on March 4, 2005 and the premiums he paid as well as the proceeds.
in the police investigation, it was ascertained that
Gemma Rivera participated as an accessory in the Contents (Sec. 51)
killing of Antonio Rivera. Can SOS Insurance Corp.  Parties
avoid liability by setting up as a defense the  amount to be insured
participation of Gemma Rivera in the killing of Antonio  premium
Rivera? Discuss with reasons. (4%)  life insured
Answer  risks
 SOS cannot avoid liability merely because Gemma was  period of effectivity
an accessory to the death of Antonio. Under the law,
when the beneficiary willfully causes the death of the It is possible that the one who got the policy and is paying the
cestui, the nearest relatives of the insured will be premium is not the cestui que vie.
entitled to the proceeds. More often than not, when we talk about life insurance, we are
not very much particular as to the date of effectivity because maturity
Guard against misleading questions! What is the rule under will depend upon the happening of the event – death. Unlike in
the law? property insurance, it can be one year.
If the beneficiary participated in the killing, the proceeds will
go to the nearest relatives. If the beneficiary dies ahead, the Required Provisions
proceeds will go to the estate of the one who pays the premium,  Grace period provision – provision which gives the
not to the estate of the beneficiary. insured additional time to pay his premiums from the due
If there is no designated beneficiary, as in the case of GSIS, it date
is the estate of the insured which is entitled to the proceeds.  Clarifies the right to collect if death happens within the
grace period
Rules on Beneficiaries  Individual life – 30 days/1 month
 If beneficiary dies ahead of the insured/cestui, the  Group life – 30 days/1 month
estate of the insured will get the proceeds  Industrial life – 4 weeks or if payable monthly –
 If beneficiary is not designated, insured’s estate 30 days/1 month
will get the proceeds
Even if there is a deadline for the payment of premium, there is
NOTE!! such a thing as grace period – you are given leeway or allowance.
 Only the insured or policyholder in life insurance is If the contingency happens during the grace period, there can be
required to have insurable interest on the life of the recovery. Ex: Premium must be paid today (Nov. 10). Grace Period,
cestui. any kind, is 30 days or 1 month. If A will die 2 weeks from now, he is
covered. What will happen is that unpaid premium will be deducted
Example: A will get a life insurance policy as to her wife and from the proceeds, as long as within the grace period. After the grace
make the proceeds payable to an orphanage. In the same period, it has already lapsed.
situation, the beneficiary may be the neighbour, who can bring
about the event.  Entire contract provision – The policy shall constitute the
entire contract between the parties
Rule: Do not get a beneficiary which does not have an
insurable interest.  Misstatement of age provision – if the age of the insured
is misstated, the amount payable shall be as such
The only person required to have an insurable interest is the premium would have purchased at the correct age
one paying the premium.
Usually, when there is misrepresentation, based on the principle
 The beneficiary may or may not have insurable interest of uberrimei fides, the innocent party can move for rescission but not if
on the life of the cestui. What is vital is that the the misrepresentation is as regards to age.
beneficiary is not disqualified under the law to get the
proceeds.  Reinstatement provision – clarifies the requirements for
restoring a policy to premium-paying status after it has
Bar 2000 lapsed.
 A is an elderly bachelor who took out an individual life
insurance policy on his life. The designated beneficiary  Individual – within 3 years from default
is B a companion-friend. A died in a fire which also  Group – no reinstatement
destroyed his home. The insurer refused payment to B  Industrial – within 2 years from default

Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 8


Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

You have a deadline to pay the premium. If you are not able provision, automatically, the insurance company will pay the premium
to pay, there is a grace period. If you are not able to pay for you since you already have a reserve. It does not lapse and more
thereafter, it has now lapsed. There is such a thing as expensive.
reinstatement provision. Within the period provided under the law,
the person whose policy has lapsed may move for reinstatement. Kinds of Policies

Special Features 1. Ordinary Life – payment of premiums is annually or at


 Loan privilege – based on the cash surrender value, the more frequent intervals throughout life and the beneficiary is
insured may obtain a loan by pledging the policy entitled to receive payment only after the death of the
insured.
If you do not have money and you have a policy, you can
pledge it. Then, you can borrow. This is the most common.

 Policy dividend options – if the policy is participating, 2. Limited Payment Life – premiums are payable only during a
the policyholder is entitled to a share of the surplus. limited period of years (10,15,20 years). After the period, the
insurance is deemed fully paid. Proceeds are payable upon
 Exemption from claims of creditors – protection death of insured.
against execution But can be subject under settlement
This is advisable if it will take some time before you will be able
Proceeds of a life insurance policy are exempted from claims to pay. If you have money now, you go for Limited Payment Life.
of creditors.
Exception to this rule: Endowment – the policyholder is still 3. Term Insurance – provides coverage only if the insured dies
alive. Because he survived the period, he earns. That is during a limited period.
income subject to income taxation. It is not, strictly speaking, If the insured dies within the period, the beneficiary gets
exempt from execution because it is does not proceed from the proceeds. If the insured survives the period, the contract
death. He earned it because he invested, just like saving in a is terminated.
bank.
This is also common. If the cestui que vie dies during a limited
 Income tax treatment – proceeds of life insurance period, then, there can be recovery. If he dies after that, then, there
policies are generally tax exempt. However, is no recovery.
endowment proceeds and cash surrender values are
treated as income and are taxable. 4. Endowment Policy – insured gets a sum of money if he
survives a specified period. If insured dies within the period,
Same thing: if endowment, subject to income tax, except the beneficiary gets the proceeds.
those proceeds which are obtained because of death of the
cestui que vie. This is the more expensive one because there is recovery either
way. This is not exempt from income tax.
 Surrender options – if the policyholder cannot continue
paying the premiums, he has some options which will 5. Life Annuity – debtor binds himself to pay an annual
not put to waste what he has paid. However, these pension or income during the life of one or more determinate
options are available only upon payment of at least 3 persons in consideration of a capital consisting of money or
annual premiums other property, whose ownership is transferred to him at once
with the burden of income.
If you do not want to reinstate and your policy has already
lapsed, there is a surrender option provision in the insurance There is someone with money and gives his money or capital to
policy. an insurance company. The insurance company becomes a debtor
because he is obligated to give pension to the appointed person or the
Surrender Options one who gave the money.
Dependent on the cash surrender value
 Cash Surrender Value 227(f); 230(f) and (g) 6. Accident Insurance – may be life or non-life insurance.
 payment of at least 3 annual premiums
 not less than the reserve on the policy * If death is one of the risks insured against, it is classified
as life insurance.
You surrender your policy and you will get cash. There must
be payment of at 3 annual premiums before you can avail of this When is the insurance contract perfected?
option. If you take a look at the policy, there is a table. More often  At the time the insured-applicant has knowledge of the
than not, you will not get anything from 0 to 3 years. approval of his application.

 Extended Insurance When a person applies for a life insurance policy, he is supposed
 At least three annual premiums to pay the first premium at the time of the application.
 limited time, same face value
When is the policy effective? Remember that case where there
You purchase a new policy using the cash surrender value. was an old woman who asked her lawyer to check if her application for
The difference – limited time covered, but same face value. If your life insurance policy had been approved. When it was checked, it was
old policy covered during your life time for P 1M, this one, you are not yet clear if it was approved. In the meantime, the old woman
covered for 10 years for P 1M. Recovery is the same but the period died. Can the beneficiary recover? Was she aware that her
of coverage is shorter. application approved? The one making the offer in that situation is the
applicant. Just like in obligations and contracts, the moment you know
 Paid-Up Insurance that the offer was accepted, there is a perfected contract. The offeror
 At least three annual premiums must first know that her application was approved before the contract
 same period, lower proceeds is perfected. In this case, the woman died without knowing that her
application was approved. The evidence was when she asked her
Same period – you are covered for the entire lifetime – but the lawyer to check. So, she did not yet receive the approval.
proceeds are lower. If before you are covered for your entire If the applicant was not aware of the approval, there is no
lifetime P 1M, this time, you care covered for your entire lifetime perfected contract of insurance.
but for only P 500,000.
 Since the insured is the one making the offer, the
 Automatic Premium Loan Accrued dividends submission of the application WITHOUT the approval of
 Parties agree that in case of default insurer the policy does not result in a perfected contract of
advances the premium not subject to repayment insurance (Grepalife v. CA)

This is different from loan privilege. Loan privilege is you


borrow money using your policy as your security. This one is
different. If you are not able to pay the premium, if you have this
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 9
Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

 De Lim v. Sun Life – the applicant paid the premium manager swears under oath that there is no circumvention of any of
upon filing of application but he dies before the the provisions of the Insurance Code.
approval
 HOLDING: NO perfected contract of insurance If the person dies during the existence of the cover note, there
can be recovery.
 If insured died during the period of provisional policy
which is conditioned upon approval of application, PREMIUM
beneficiary is NOT entitled to proceeds.
Concept
 Even if the insurer has approved the application via a  Agreed price for assuming the risk
letter, there is no perfected contract if there is no  The right to premium arises the moment the
evidence that the applicant knew of the approval property/object is exposed to risk
(Enriquez v. SunLife, 41 Phil 629)  Cash and carry basis - based on section 77 which provides
that the moment the thing insured is exposed to the peril,
 The insured is presumed to have understood the the insurer has the right to payment of premium.
application and the contract of insurance ( Tang v. CA,
90 SCRA 236) Bar Question: What is the cash and carry basis?

The insured is Chinese. The contract was in English. He does When is non-payment excused?
not understand English. The Supreme Court ruled that when you  insolvent insured
sign a contract, it is understood that you have understood the  insurer’s negligence or fault
content. That is not a valid argument.  insurer waives the right to payment

There was one case where the policy was delivered in the Waiver – even if the insurance policy was issued, you still have
house of the aunt. The applicant died. At the time of the delivery not yet paid. Or it was indicated in the insurance policy that you have
of the policy, he must be in a state of good health but the agent already paid you have not actually paid.
still delivered. The Supreme Court said that at that time, the aunt
did not even know that the applicant has died. So, she received it  war does not suspend the policy and does not excuse
in good faith. So, there is a binding contract of insurance. non-payment of premiums
Reconcile with the acceptance rules – it seems inconsistent.  Constantino vs. Asia Life, 87 Phil 248
However, here, the agent was negligent. He should have first
checked if the applicant was in good health. The agent merely Remember the 3 schools of thought: New York, Connecticut and
relied on the representation of the aunt, who also did not know and the United States.
it was proven. We apply the United States - Non-payment due to the effects of
war does not merely suspend but puts an end to the insurance
Cover Notes v. Binding Receipt contract if the time of the payment is particularly of the essence of the
contract. Insurance companies not only calculate on the premium but
 COVER NOTE: Temporary insurance policies intended on the compounding interest upon them. It is the basis that that they
to cover the insured while application is being are entitled to offer assurance at the favorable rate that they put. So,
evaluated it will put an end to the insurance contract. The insurance contract is
abrogated. (not mentioned in class – added note )
A cover note is a form of goodwill. While your application is
being evaluated, you are already covered. Premium
 If insured fails to pay 1st premium, insurer cannot
 BINDING RECEIPT: acknowledgment of receipt of ask for specific performance but can only rescind the
premium and application subject to evaluation. NOT contract since there is no creditor-debtor relationship
the same as cover note ( Great Pacific v. CA, 89 SCRA
543) You applied for a life insurance policy and you did not pay the
It is merely a receipt acknowledging that the first premium first premium. Can a case for collection be filed against you?
was paid. But just because the person paid the first premium, it When it comes to life insurance policy, NO, it cannot be filed
does not mean that there was already a perfected contract of against you. Here, specific performance is not an option. Only
insurance. Payment of premium is not an indicator of a perfected rescission is allowed.
contract of insurance.
Special Rule in Industrial Life if premiums are not paid
Cover note is a valid insurance if:  If insured failed to pay because the insurance agent did
 Issued and renewed with prior approval of the not collect in the address provided in the policy – policy
Insurance Commissioner will NOT lapse
 Valid and binding for not more than 60 days, unless the  Except: if 12 weeks or 3 months have lapsed from end of
insurance commission has approved an extension grace period
based on valid grounds
If a policy holder does not pay the premium within the period and
It can be extended with the approval of the Insurance the grace period, it will result to a lapsed policy.
Commission. You do not need to pay extra for this because it is But in industrial life, if the failure to pay was due to the non-
goodwill, whether or not the application is eventually approved. collection by the insurance agent, the policy holder is excused because
the fish vendor, market vendor, ice cream vendor do not have time to
 No separate premium is required for the cover note go to the insurance company. Usually, an insurance agent goes to
(Pacific Timber v. CA ) them. If the reason why the policy holder was not able to pay is
 7-day notice to the other party is required to cancel the because of the negligence of the agent, the policy holder is excused
cover note except if it has been 3 months or 12 weeks from the lapse of the grace
 Policy must be issued within 60 days from issuance of period. This means 4 weeks plus 3 months equals 4 months. But one
cover notes has to establish that the failure to pay was due to the neglect of the
agent.
Within the 60-day period of the cover note, the application
must have been evaluated – whether approved or not. At a glance
 Only the insured must have insurable interest on the life
 60-day period may be extended upon written approval if the cestui
of IC
 Written approval is dispensed when president, VP or The one gets the proceeds is not required to have insurable
general manager that the renewal is not to circumvent interest on the life of the cestui que vie. Be able to differentiate it to
the insurance code (Ins. Memo Circular 3-75) propertly life later.

The written approval of the Insurance Commissioner can be  Suicide is generally not compensable unless: mentally ill
dispensed with if the president, the vice-president or the general or committed after the policy has existed for more than
two years from issuance
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 10
Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

 If the beneficiary is disqualified because he Basically, without proximate cause, there would be no loss. It is
participated in the death of the cestui, the nearest also known as the efficient cause because it started everything,
relatives of the insured will recover. In all other cases, leading to loss.
it is the estate of the insured which can recover Immediate cause – it is the happening immediately before the
loss. It is possible that the happening before the loss is not the
Emphasis: Willfully causing the death. proximate cause.

 If the cestui dies during the grace period, there can be Proximate Cause: Examples
recovery • Fire causes an explosion which results in loss. Fire is the
 If the cestui dies during the duration of the cover proximate cause of the loss. If fire is a covered peril, the
notes, there can be recovery insurer is liable.
 The measure of recovery in life insurance is the face
value of the policy. Except when insurable interest is The explosion is the immediate cause. The fire is the proximate
capable of pecuniary estimation cause.
Allied risks are covered only if they are categorically mentioned in
PART THREE : NON-LIFE INSURANCE the policy. Explosion is an allied risk of fire.

TOPICS • A house is insured against fire. The house is destroyed


• What may be insured against due to the falling of a wall. The wall fell due to fire. The
• Insurable interest insurer is liable
• Non-life insurance policy
• Premiums The falling of the wall is the immediate cause. The fire is the
• Parties proximate cause.
• Double insurance v reinsurance
• Different kinds of non-life insurance Immediate Cause vs. Proximate Cause
• Immediate cause – cause or peril which appears closest
Basically, the same topics with life insurance, except the last 2 in time to the loss
topics. You do not have double insurance in life insurance. You • Immediate cause is NOT necessarily the proximate cause
can get as many life insurance policies as you want. and vice versa

WHAT MAY BE INSURED AGAINST BAR 2007


• Alfredo took out a policy to insure his commercial
building against fire. A fire broke out and destroyed the
building. It was found that the proximate cause of the
fire was explosion but fire was the immediate cause of
the loss. There is no excepted peril in the policy. Can
there be recovery under the policy?
ANSWER
• Alfredo cannot recover from the policy. Section 84 of the
Insurance Code provides that before there can be
recovery under property insurance, the proximate cause
of the loss must be the covered peril. In the instant case,
the proximate cause of the loss was not the peril insured
against. Hence, there can be no recovery under the policy.

There could be no recovery because the proximate cause is the


Requirement for Recovery explosion. There is no mention of an allied risk.
• Peril insured against must be the PROXIMATE CAUSE
of the loss or damage (Sec. 84) Hostile v. Friendly Fire
• Friendly - fire burns in a place where it is intended to
SECTION 84. Unless otherwise provided by the policy, an burn
insurer is liable for a loss of which a peril insured against was the • Hostile - occurs outside the confines or begins as a
proximate cause, although a peril not contemplated by the contract friendly fire and becomes hostile by escaping from the
may have been a remote cause of the loss; but he is not liable for a place where it ought to be
loss of which the peril insured against was only a remote cause. • Hostile fire is the one covered by fire insurance

Fire insurance covers only hostile fire, not friendly fire.


• NO liability if insured risk is only a remote cause or if
proximate cause is an excepted peril Section 85 Loss in the Course of Rescue
• Insurer is liable if the thing is rescued from peril
• Concept of loss - injury, damage, liability, loss of insured against if in the course of rescue, the thing is
income or profits sustained by the insured in exposed to a peril not insured against
consequence of the happening of one or more perils
insured against (Bonifacio Bros. V. Mora, 20 SCRA 261) SECTION 85. An insurer is liable where the thing insured is
rescued from a peril insured against that would otherwise have caused
In life insurance, insurable interest has an important role when a loss, if, in the course of such rescue, the thing is exposed to a peril
you apply for an insurance policy. But if you are a beneficiary, as not insured against, which permanently deprives the insured of its
long as you are not disqualified, you can get the proceeds. possession, in whole or in part; or where a loss is caused by efforts to
In property insurance, there has to be evidence that the rescue the thing insured from a peril insured against.
proximate cause of the loss is a covered risk or event. If the
proximate cause is an excepted peril (it is not covered by the If the cause of the rescue is a covered peril, then, if there is some
policy), there can be no recovery of benefits or proceeds. damage because of rescue, that is covered.

Loss – not necessarily total loss. It need not be total wreck. Illustration
• An owner gets theft insurance for his car.
Proximate Cause • In the course of rescuing the car from thieves, the car
• That which in the natural and continuous sequence, suffers damages.
unbroken by any NEW INDEPENDENT cause, produces • The insurer is liable to the owner although the damage is
an event without which the event would not have not due to theft since it was in the course of rescuing the
occurred. car from theft that it suffered some damage.
• Also called the EFFICIENT CAUSE, or one that sets the
others in motion Another example: things rescued from fire but said things got wet
• NOT equivalent to IMMEDIATE CAUSE and were damaged. That is covered – loss in the course of rescue.

Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 11


Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

If loss due to wilful act or connivance of insured policy using their life, even if your parents do not really support you.
• Section 87 - insurer is not liable if insured, through his Even if you are richer than your parents, that is not an argument
willful act or connivance caused the loss because under the law, that is an expectation. That is enough basis
for life insurance.
• Ex. Arson, owner hiring other people to rob his But in property insurance, it is not enough that you expect only.
property Simulated robbery You must have an insurable interest. How will you know you have
insurable interest? Look at the concept – will you fall under any of
SECTION 87. An insurer is not liable for a loss caused by the those and in what form?
willful act or through the connivance of the insured; but he is not
exonerated by the negligence of the insured, or of the insurance Pure expectancy will not suffice.
agents or others. Example: Your neighbour’s house was robbed. Maybe I will
suffer loss. So, I will ensure my neighbour’s house against theft.
In this case, there can be no recovery. Another example: Your building is near a gas station. You insure
the gas station agains fire.
• Section 87 - if loss is through SIMPLE negligence of These will not suffice.
insured or his agents, insurer is STILL LIABLE
• Insurer is NOT liable if loss is caused by GROSS In cases of property insurance, you must have an insurable
negligence of insured interest because it is easy to bring about the event when it comes to
property. It is easier to burn the house of your neighbour than to kill
There are 2 kinds of negligence – simple and gross. The your neighbour. When required?
reason why we get property insurance because there will be times Perfection of the contract of insurance
that we will be negligent. The only question is – was the Beneficiary is required to have insurable interest
negligence simple or gross?  Insurable interest is required before a person can benefit
If simple negligence, there can be recovery. If gross from a property insurance (Sec. 18)
negligence, that is tantamount to a wilful act. And based on
Section 87, there can be no payment. SECTION 18. No contract or policy of insurance on property
shall be enforceable except for the benefit of some person having an
Q: Leaving a candle burning? Is that simple negligence? insurable interest in the property insured.
(No definite answer )
Only one who has insurable interest in the property can recover.
BAR 2007
• If the fire was found to have been caused by Alfredo’s BAR 2000
own negligence, can he still recover from the policy? • A is an elderly bachelor who insured his house against
ANSWER fire. He named his companion-friend as beneficiary. A
• I qualify. If the negligence was simple in nature then died in a fire which also destroyed his home. The insurer
Alfredo can still recover under the policy. However, if refused payment to B due to absence of insurable interest
there was gross negligence on the part of Alfredo then on the life of A. Is the insurer correct?
he is barred from recovering under the policy. ANSWER
• The insurer is correct. The beneficiary in property
INSURABLE INTEREST Non-life insurance insurance must have insurable interest on the property.
The companion-friend of A does not have insurable
Concept, Section 13 interest on the house of A. Hence, he cannot recover from
 Every interest in property, whether real or personal the fire insurance policy.
(owner)
 Any relation thereto (lessee, agent) BAR 2001
 Liability in respect of property (carrier, depositary) • JQ, the owner of a condominium insured the same against
 Which will directly damnify the insured when a fire with XYZ Company and made the loss payable to his
contemplated peril happens brother MLQ. In case of loss by fire, who can recover
from the policy. State the reason for your answer (5%)
SECTION 13. Every interest in property, whether real or ANSWER
personal, or any relation thereto, or liability in respect thereof, of • JQ can recover since he has insurable interest over his
such nature that a contemplated peril might directly damnify the own condominium unit. MLQ cannot recover since it is
insured, is an insurable interest. required that a beneficiary must have insurable interest
over the property.
Forms, Section 14
 Existing interest (owner) Insurable interest in a mortgaged property (Sec. 8)
 Inchoate interest founded on an existing interest • Both the mortgagor and the mortgagee have insurable
(shareholder) Ex. Dividends of a shareholder interest on the mortgaged property
• The II of the mortgagor is to the full value of the SM
Ex: Shareholder in Company A – you have 1,000 shares. You • The II of the mortgagee is only up to the extent of the
have an interest as to the properties belonging to the company. indebtedness
But can you actually say what is that interest? You cannot say ½ of
the building belongs to you. It is only upon dissolution and ___(?). SECTION 8. Unless the policy otherwise provides, where a
You have an existing interest but still inchoate. mortgagor of property effects insurance in his own name providing
that the loss shall be payable to the mortgagee, or assigns a policy of
 Expectancy coupled with an existing interest insurance to a mortgagee, the insurance is deemed to be upon the
(usufructuary, expected profit) interest of the mortgagor, who does not cease to be a party to the
original contract, and any act of his, prior to the loss, which would
SECTION 14. An insurable interest in property may consist in: otherwise avoid the insurance, will have the same effect, although the
(a) An existing interest; property is in the hands of the mortgagee, but any act which, under
(b) An inchoate interest founded on an existing interest; or the contract of insurance, is to be performed by the mortgagor, may
(c) An expectancy, coupled with an existing interest in that out of be performed by the mortgagee therein named, with the same effect
which the expectancy arises. as if it had been performed by the mortgagor.

Factual Expectation Both the mortgagor and the mortgagee can get an insurance
• Mere factual expectation of loss not arising from any policy on the same property. In a mortgage, the property is used as a
legal right or duty in connection with the SM does NOT security for payment of a debt. The owner naturally can insure the
constitute an insurable interest. property up to that extent.
• NOTE: Factual expectation is enough basis in life If the worth of the house is P 1M, the value of the policy can be
insurance. up to P 1M.
If the debt covered by the mortgage is P 200,000, the mortgagee
In life insurance, you expect your parents to support you can insure the property only up to P 200,000.
(Article 195 of the Family Code). That is enough bases to get a
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 12
Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

BAR 1999 insurable interest must exist only at the time the
• A businessman obtained a fire insurance policy on his insurance takes effect.
stocks for P5 M. Three months later, a fire broke out
and destroyed the grocery and stocks. The insurer Change of Ownership of Property
denied the claim since the stocks were mortgaged to  Section 20 and 58: A change of interest in any part of
another person who also insured the same stocks for a thing insured unaccompanied by a corresponding
P5 M. May the businessman and the creditor obtain change of interest suspends the insurance until the
different insurance policies on the same stocks? interest in the thing and interest in the insurance are
ANSWER vested on the same person
• Yes. The businessman, as the owner and the creditor,
as the mortgagee have insurable interest over the Illustration
stocks. Hence, they may obtain separate policies on • A owns a car which is insured against theft
the same stocks. • A sells the car to B. The policy was not included in the
sale.
Measure • If the car is carnapped, neither A nor B can recover under
 Measure of insurable interest is the extent the insured the policy.
might be damnified by loss or injury (Sec. 17) • A cannot recover because he does not own the car at the
 Section 25: Void stipulations – payment of loss time of the theft.
whether insured has insurable interest or not or that • B cannot recover because he does not own the policy
policy shall be proof of interest
No one can recover. Insurable interest must exist at the time of
In life insurance, the measure of recovery is the face value. In the issuance of the insurance policy and at the time of the loss.
property insurance, the measure of recovery is the extent of the Until the ownership over the policy and ownership over the
insurable interest. You cannot say face value of the property property is vested in one person, the policy is suspended.
because it varies – owner, mortgagee, lessee, agent.
Transfer of Property by Succession
SECTION 25. Every stipulation in a policy of insurance for the  When the insured dies, and the subject matter is
payment of loss whether the person insured has or has not any transferred by succession, the new owner of the
interest in the property insured, or that the policy shall be received thing will also own the insurance. (Sec. 23)
as proof of such interest, and every policy executed by way of
gaming or wagering, is void. Illustration
• A owns a car which has theft insurance
Insurable Interest: Jurisprudence • A bequeath the car to B under his will
• A dies
• Fire insurance taken on a property belonging to • B now owns the car, together with the insurance policy
another is VOID, although the insurer had full
knowledge of fact of ownership and even if insured When the policyholder dies, whoever gets the property is
subsequently acquired insurable interest ( Cha v. CA, automatically the owner of the policy. There is no need to indicate in
277 SCRA 690) the last will and testament that the car and the policy is bequeathed.
Whoever gets the proper will now get the policy.
In this case, he insured the property when it was not yet his.
He was not even a lessee. He does not belong to any of the forms POLICY
or concepts. The Supreme Court held that even if he became the
owner later on, you must be the owner 2 points in time – at the Kinds
time you got the policy and at the time of the loss. This is the case  Open – Value of thing is not agreed upon but is to be
in property insurance as opposed to life insurance, only at the time ascertained at time of loss
you got the policy.
 Valued – expresses on its face an agreement that the
• Where the real intention of insured was to insure his thing shall be valued at a specific sum
goods for P15,000 but insurer mistakenly insured the
building where the goods were contained and not  Running – successive insurances
owned by insured, in case of loss of goods insured was
allowed to recover (Garcia v. Hongkong, 45 Phil 122) Two Kinds of Values
• Face value – maximum amount which may be
The Supreme Court said that there was negligence on the part recovered under the policy
of the insurance company. There can be recovery.
• Valuation- value of the subject matter agreed on by
When insurable interest must exist in property insurance the parties
 Time the insurance takes effect and when the loss
occurs, but NEED NOT exist in the meantime Who sets the value? Both parties. If they cannot agree, they go
to a third person for purposes of putting a value.
Two points in time - at the start and at the time of the loss.
Open v. Valued
In life insurance, only at the start, except if capable of • Open - has a face value but has NO valuation of the
pecuniary estimation. thing. Valuation is done after the loss
Example: You get an insurance as to the life of your debtor. • Valued - has both face value and valuation of the
You have an insurable interest. At the time of your debtor’s debt, thing (at the start/at the time the policy is issued)
the debt has been already paid, then, there can be no recovery.
Illustration: Open
BAR 2002
• Distinguish insurable interest in property insurance
from insurable interest in life insurance (5%)
ANSWER
• In property insurance, the expectation of benefit must Value of the house: to be determined at time of loss
have a legal basis. In life insurance, insurable interest Face Value: P2 Million
can be based on mere factual expectation. If the valuation is more than the face value, recovery is
• In property insurance, the actual value of the interest limited to the face value
is the limit of the insurance. There is no such limit in
life insurance except if insurable interest is capable of
pecuniary estimation.
• In property insurance, insurable interest must exist
when the insurance takes effect and at the time of the
loss but not in the meantime. In life insurance,
Illustration: Valued
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 13
Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

whether or not the premium has been paid by the obligor to the
surety; Provided, That if the contract of suretyship or bond is not
accepted by, or filed with the obligee, the surety shall collect only
Valuation of the car : P1.5 Million
reasonable amount, not exceeding fifty per centum of the premium
Face Value : P 1 Million
due thereon as service fee plus the cost of stamps or other taxes
GENERAL RULE: Recovery will be based on valuation
imposed for the issuance of the contract or bond; Provided, however,
EXCEPTION: If valuation is obtained through fraud or
That if the non-acceptance of the bond be due to the fault or
misrepresentation. Recovery is limited to the face value or
negligence of the surety, no such service fee, stamps or taxes shall be
insurer may deny the claim collected.
In the case of a continuing bond, the obligor shall pay the
Example of fraud: When the car checked, you borrowed and
subsequent annual premium as it falls due until the contract of
put mag wheels, radio and other technology. But it was not yours.
suretyship is cancelled by the obligee or by the Commissioner or by a
At the time of the loss, it was discovered that those were not yours.
court of competent jurisdiction, as the case may be.
There will be 2 options available to the insurance company – it will
not pay you because you misrepresented or it will just stick to the
face value. If the court or the obligee accepted the bond, it is already
binding.
Illustration: Running
When there is a credit scheme?
• UCPB v. Masagana April 4, 2001 - insured is entitled to
proceeds even if he has not fully paid premiums when:
– for years, insurer has been issuing fire insurance
policies to insured and the policies were renewed
– insurer has been granting 60-90 day credit extension
– no valid notice of non-renewal
– premium was paid by insured within credit extension
period

It is possible the payment of premium will not be in full or not in


As of May 1, 2007 – value of goods – P1 Million cash. In this case, this is an exception. It has been covered for so
As of June 1, 2007 - value of goods – P500,000 many years. The system for so many years was that the policy was
issued and the premium can be paid within 60-90 days from the
It is not worthwhile to put a valuation because one day you issuance. During one calendar year, there was a fire during the
may have P 1M inside the grocery and the next day you may have P extension period. The cash and carry rule was invoked. Since there
500,000. The valuation is updated from time to time. was no payment, it is not liable.
Initially, the Supreme Court ruled in favor of Masagana.
PREMIUM However, upon MFR, Supreme Court reversed itself. For so many
• Cash and carry basis rule is followed years, the insurance policy was issued and renewed. For so many
years, 60-90 day credit extension was given. There was no notice of
• Section 77 - insurer is entitled to premium as soon as non-renewal. It means there was renewal. And it is paid within the
the thing insured is exposed to the peril insured credit period.
against Worse scenario – fire took place on the 90th day and payment
was made on the 90th day. It is still covered. But if payment was
SECTION 77. An insurer is entitled to payment of the premium as made on the 91st day, no more.
soon as the thing insured is exposed to the peril insured against. Section 77 is without exception. This is the first exception –
Notwithstanding any agreement to the contrary, no policy or credit scheme.
contract of insurance issued by an insurance company is valid and
binding unless and until the premium thereof has been paid, except BAR 2007
in the case of a life or an industrial life policy whenever the grace • Alfredo took out a policy to insure his commercial
period provision applies. building. The broker agreed to give a 15-day credit to
Alfredo within which to pay the premium. Upon delivery
The Cash and Carry basis rule provides that the insurance of the policy on May 15, 2006, Alfredo issued a postdated
company should receive the premium as soon as the property is check dated May 30, 2006. On May 28, 2006, fire
exposed to the risk. destroyed the building. May Alfredo recover from the
Example: Marine Insurance – travel covered Manila to Davao policy?
on this date. Even if it just reaches the Manila Bay, you cannot ANSWER
demand the return of the premium because it is already exposed to • Alfredo can recover from the policy. In a decided case by
the risk. If the trip did not push through, you can demand refund. the Supreme Court, it was held that parties may agree on
You do not have to pay the entire premium in cash, even if a credit extension in paying the premium. The happening
there is no qualification in Section 77. of the peril during the credit extension will entitle the
insured to proceeds, less the unpaid premiums.
• Premium - is the agreed price for assuming and
carrying the risk Premium by instalment: Makati Tuscany vs. CA
• Makati and American Assurance agreed that premiums
 General Rule: Cash and carry basis – nonpayment of will be paid via three installments
the first premium prevents the contract from becoming • Makati paid premiums for 3 consecutive years in three
binding installments
 Premium must be paid in cash as a condition precedent • On the 4th year, Makati paid only the 1st 2 installments.
for non-life insurance policy to be valid and binding • American collected the 3rd installment
• Makati’s defense: Section 77 provides that no policy will
• In Suretyship, payment of premium is also be effective unless the premium has been paid. Since
necessary for the contract to be binding premiums were paid on installments, there was no valid
policy.
• EXCEPT: if obligee has accepted the bond, • Makati and American Assurance agreed that premiums
suretyship is binding even if premium has not will be paid on three installments
been paid, subject to the right of the insurer to • After paying premiums for 3 consecutive years, Makati
recover the premium from its principal (SEC. 177) refused to pay the third installment on the 4th year
• American sought to collect the balance from Makati
SECTION 177. The surety is entitled to payment of the • SC: Section 77 merely precludes the parties from
premium as soon as the contract of suretyship or bond is perfected stipulating that the policy is valid even if premiums are
and delivered to the obligor. No contract of suretyship or bonding not paid, but does not expressly prohibit an agreement
shall be valid and binding unless and until the premium therefor has granting credit extension, and such an agreement is not
been paid, except where the obligee has accepted the bond, in contrary to morals, good customs, public order or public
which case the bond becomes valid and enforceable irrespective of policy (De Leon, the Insurance Code, at p. 175 ). So is an
understanding to allow insured to pay premiums in
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 14
Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

installments not so proscribed. At the very least, both  If the contract is voidable on account of fraud /
parties should be deemed in estoppel to question the misrepresentation of insurer/agent, facts insured was
arrangement they have voluntarily accepted ignorant of, default of insured other than fraud

This is the 2nd exception.  E.g. Agent represents that A can be insured even if
Q: Can you pay premium by instalment? his age disqualifies him. Insured is entitled to return
A: YES of premium.
Q: When does it take effect?
Example: Owner-type jeepney covered by a common carrier
In this case, Makati paid for 3 consecutive years. On the 4 th policy. The agent said it is ok, it can be covered. If such
year, Makati only paid the first 2 installments and did not pay the misrepresentation is discovered before the loss of the jeepney, he can
3rd installment. American collected for the 3 rd installment. There is ask for return of the premiums he paid. The insurer can ask for a
no loss yet. refund because if something happens to the jeepney, it is not covered
by the policy because it is not a common carrier.
Q: Can there be specific performance?
The Supreme Court held that there can be action for specific When is insured entitled to return of premium?
performance because when the first instalment was paid, the policy  Over – insurance by several insurers– ratable return
took effect. So, you have to make good the rest of the installment. of premium

Contrast this with life insurance – if you do not want to pay Ratable Return of Premium in case of Overinsurance
premiums life insurance, you are not covered. You cannot be
compelled. The relief of specific performance is not present in life • Sec. 82 – premiums to be returned when there is over
insurance. insurance by several insurers shall be proportioned to the
With non-life insurance, the moment the property is exposed amount by which the aggregate sum insured in all
to the peril, there can be specific performance or rescission. The policies exceeds the insurable value of the thing at risk
moment the property is exposed to the peril insured against, then,
there arises the obligation to pay premium. Illustration: P 1.5 M house
In this case, the argument of Makati does not hold water
because the moment it paid the first installment it bound itself to
pay the rest of the premium. Insurer Amount of Premiums
insurance Paid
Section 77 merely prohibits a party from paying and there is a
policy even if there is yet no payment. But parties may agreement
for instalment or credit scheme. A company P1,200,000.00 P24,000.00

BAR 2006
• A Insurance Company issued an policy on the new car
B company P600,000.00 P12,000.00
of B. The premium of P60,000 was to be paid in 6
months. B paid only the 1st two months installments.
Despite demands, B failed to pay the rest of the
installments. Five months after the issuance of the TOTAL P1,800,000.00 P36,000.00
policy, the vehicle was carnapped. A denied the claim
of B since B did not pay the premium resulting to
cancellation of the policy. Can B recover from A?
ANSWER How to compute:
• B can recover from A the proceeds of the policy less the • STEP 1: Determine amount overinsured
unpaid premiums. In a decided case by the Supreme
Court, it was held that when the parties agreed on Amount overinsured =
payment of premiums by installment, the policy Amount of insurance – value of property
becomes effective upon payment of first installment.
Absent any provision that non-payment of subsequent • P1.8 – P1.5M = P300,000
installments will cause cancellation, the policy
between A and B continue to exist. • STEP 2: Get the ratio of overinsurance with the total
amount of insurance
Exceptions to Cash and Carry Basis Sec. 77
• Life/industrial life when the grace period applies P300,000/P1,800,000.00 = 1/6
• When the policy contains an acknowledgment of
receipt of premium, this is conclusive proof of paym ent Ratable Return
• When the parties have agreed on installment payment • STEP 3: Multiply the ratio to the amount of premium
(Makati Tuscany case) paid to every insurer
• When the insurer has renewed the insurance over the
years under a clear credit term arrangement ( UCPB A= 1/6 of P24,000 = P4,000 from A Company
case) B= 1/6 of P12,000 = P2,000 from B Company
• In Suretyship where the obligee accepts the bond even
if premium has not been paid (Sec. 177) BAR 2000
• Name at least three instances when an insured is entitled
When is insured entitled to return of premium? to a return of the premium paid.
 Whole premium – if object was never exposed to peril,
unless it is an indivisible policy ANSWER:
 E.g. insured pays in advance the annual premium, loss 1. Whole Premium – object never exposed to peril
occurs before date of effectivity. Insured is entitled to 2. Pro-rated Premium – surrender policy before period is up
reimbursement of whole premium 3. Over-insurance by several insurers

Q: Is it possible that upon payment of premium, there is refund? PARTIES


A: If the subject matter was never exposed to the peril, then,
there can be full refund.

 Pro-rated premium – surrender policy before period is


up
 E.g. A insures his house for 1 year but returns the
policy after 3 months. A is entitled to ¾ of the
premiums.

Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 15


Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

As opposed to life insurance, in property insurance, we are


limited to only 3 parties. There is no such person as cestui que vie. Over-insurance is when the insurable interest is less than the
The cestui que vie is replaced by a subject matter. In property total amount of the policy you got. Value of house is P 1.5M and the
insurance, you use that property in order to obtain a non-life insurance is P 1.8M.
insurance policy.
When we talk about the insurer and insured in property Q: Do double-insurance and over-insurance go together?
insurance, the same provisions in life insurance will apply. A: NO, it is possible that there is only one insurance company and
the value is more than the insurable interest.
The Beneficiary
• Section 18 - no contract or policy on property shall be How to collect in case of over-insurance by double insurance,
enforceable except for the benefit of some person Sec. 94
having an insurable interest in the property insured  Insured may claim payment from insurers in such order
he may select up to the amount they are severally liable
Compare with Life Insurance  When policy is a valued policy, insurer must give credit as
• Where the beneficiary is not required to have insurable against the valuation for any sum he receives without
interest over the cestui que vie regard to actual value of the SM
 Policy is unvalued, determine actual loss and collect from
• It is only the insured who must have insurable interest insurance in such order as he may select
over the cestui que vie  If insured receives amount more than loss, hold sum in
trust according to the right of contribution
In life insurance, only the insured or the one paying the  Each insurer must contribute ratably to the loss in
premiums is required to have insurable interest. In the case of proportion to the amount for which he is liable
property, the beneficiary must also have insurable interest. The
temptation of bringing about the event is greater when it comes to (Memorize)
property insurance.
BAR 2005
• What is the nature of liability of several insurers in double
Double insurance vs. Over-insurance insurance (2%)
ANSWER
Double insurance does not exist in life insurance. A person • In double insurance, the insurers are considered as co-
can get as many life insurance policies as he wants. insurers. Each one is bound to contribute ratably to the
In property insurance, there is also no prohibition, unless there loss in proportion to the amount for which he is liable
is a stipulation to the contrary. You can only recover to the extent under his contract (sec. 94e)
of your interest. Even if you get many insurance policies, there will
be ratable return of premiums. You cannot earn profit from your BAR 2008
loss. You can only recover to the extent of your interest on the • Terrazas de Patio Verde, a condominium building, has a
property. value of P50 Million. The owner insured the building
In life insurance, even if you have many insurance against fire with three (3) insurance companies for the
policies, you do not call it double insurance. But in property, there following amounts:
is such concept. • Northern Insurance Corp. - P20 Million Southern
Insurance Corp. - P30 Million Eastern Insurance Corp. -
Double Insurance P50 Million
 Same person is insured by several insurers in • Is the owner's taking of insurance for the building with
respect of the same subject and interest (Sec. 93) three (3) insurers valid? Discuss. (3%)

Same person, same subject, same interest – what is missing? YES, because there is such no prohibition
Samer risk. It is possible that one property is covered by several
insurers and yet the risk is not the same – one is theft, one is fire. • The building was totally razed by fire. If the owner
That is not double insurance. decides to claim from Eastern Insurance Corp. only P50
Million, will the claim prosper? Explain. (2%)
 Requisites:
1. insured is the same YES, it is possible. Go over Section 94.
2. two or more insurers insuring separately
3. same subject matter REINSURANCE
4. interest insured is the same • Contract by which an insurer procures a third person to
5. risk or peril insured against is the same insure him against loss or liability by reason of an original
insurance
If one person is ensuring it against the fire because he is the
owner (full extent) and another person is ensuring it against fire This does not exist in life insurance. This is a situation where the
because he is the mortgagee (only up to the extent of the debt), value of the liability of the insurance company is very high, he gets
that is not double insurance. Among the requisites, # 1 and # 4 are another who will insure him.
not satisfied.
Illustration:
BAR 2005 • A gets B to insure his building against fire for P10 Million.
• When does double insurance exist? (2%)
• B (insurer) can get C (reinsurer) to reinsure him for P5
BAR 1999 Million out of the P10 Million insurance in favor of A.
• A businessman obtained a fire insurance policy on his Thus, B’s liability shall be limited to P5 Million. While C,
stocks for P5 M. Three months later, a fire broke out the reinsurer has to give the insurer the other P5 M.
and destroyed the grocery and stocks. The insurer
refused to pay claiming that double insurance is In effect, the reinsurer insures the insurer.
contrary to law. Is this contention tenable?
ANSWER
• The contention of the insurer is untenable. First, there
is no law prohibiting double insurance. Second, there
was no double insurance here because the insured in
the two policies are different. The two insured also
have different interests on the property.

Over-insurance
• OVER- INSURANCE – amount of insurance is beyond
the value of insured’s insurable interest

Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 16


Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

Reinsurance vs. Double Insurance SECTION 100. The owner of a ship has in all cases an insurable
interest in it, even when it has been chartered by one who covenants
insurer becomes Insurer remains to pay him its value in case of loss: Provided, That in this case the
the insured the insurer insurer shall be liable for only that part of the loss which the insured
cannot recover from the charterer.

• Peril covered – perils of the sea or perils of navigation –


subject of casualties due to unusual violence or extraordinary action
subject of insurance is of wind and wave or other extraordinary causes
insurance is the property connected with navigation – must be the PROXIMATE
original insurer’s
CAUSE
risk
• Peril of the ship is NOT covered
insurance of a
different interest insurance of the Peril of the Ship v. Peril of the Sea
same interest
• Roque v. IAC – sinking of barge without extra-ordinary
circumstances (SHIP)
original insured is insured is the party
not a party in interest in all • Go Tiaco v. Union – loss results from natural and
contracts inevitable action of the sea, from the ordinary wear and
tear of the ship or from negligence of owner to provide
with proper equipment (SHIP)
consent of original Insured has to give • Cathay v. CA – rusting of steel pipes in the course of the
insured is not his consent
voyage in view of the toll on cargo of wind, water and salt
necessary conditions (SEA)

Is the ship owner’s insurer liable in cases of loss if:


Kinds of Non-Life Insurance • vessel is chartered (Sec. 100)
– YES. liable only for part of the loss which insured
MARINE cannot recover from charterer
– Insurance of owner – full value of property but
recovery shall be limited to amount not paid by
charterer
– Insurance of charterer – extent of his liability in case
of loss

CHARTER PARTY – is a contract by which an entire ship, or some


principal part thereof, is let by the owner to another person for a
specified time or use; a contract of affreightment by which the owner
of a ship or other vessel lets the whole or a part of her to a merchant
or other person for the conveyance of goods, on a particular voyage or
a specified time, in consideration of the payment of the fee.

• Sections 99 and 100 – concept General Categories or Kinds of Charter Party


1. Bareboat or demise charter – It involves the transfer of full
possession and control of the vessel for the period covered in the
SECTION 99. Marine Insurance includes:
(1) Insurance against loss of or damage to: contract, the charterer obtaining the right to use the vessel and carry
whatever cargo it chooses, while manning and supplying the vessel as
(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes,
well.
merchandise, effects, disbursements, profits, moneys, securities,
2. Time charter – It is a contract to use the vessel for a particular
choses in action, evidences of debts, valuable papers, bottomry,
period of time, the charterer obtaining the right to direct the
and respondentia interests and all other kinds of property and
movements of the vessel during the chartering period, although the
interests therein, in respect to, appertaining to or in connection
owner retains possession.
with any and all risks or perils of navigation, transit or
3. Voyage charter – It is a contract for hir of a vessel for one or a
transportation, or while being assembled, packed, crated, baled,
compressed or similarly prepared for shipment or while awaiting series of voyages usually for the purpose of transporting goods for the
charterer. The voyage charter is a contract of affreightment and is
shipment, or during any delays, storage, transhipment, or
considered a private carriage.
reshipment incident thereto, including war risks, marine builder's
risks, and all personal property floater risks;
Illustration
(b) Person or property in connection with or appertaining to
• A and B enter into a charter agreement.
a marine, inland marine, transit or transportation insurance,
• A's vessel is valued at P1 Million.
including liability for loss of or damage arising out of or in
• Per agreement, B’s insurer shall be liable up to P500,000
connection with the construction, repair, operation, maintenance or
use of the subject matter of such insurance (but not including life in case of loss. A has an insurance of P1 M.
insurance or surety bonds nor insurance against loss by reason of
• In case of loss:
bodily injury to any person arising out of ownership, maintenance,
– A’s insurer = P500,000
or use of automobiles);
– B’s insurer = P500,000
(c) Precious stones, jewels, jewelry, precious metals,
whether in course of transportation or otherwise;
Can ship owner get insurance for:
(d) Bridges, tunnels and other instrumentalities of
• Expected freightage (Sec. 103)
transportation and communication (excluding buildings, their
furniture and furnishings, fixed contents and supplies held in – Expected freightage which in the ordinary and
probably course of things he would have earned but
storage); piers, wharves, docks and slips, and other aids to
for the intervention of the peril insured against
navigation and transportation, including dry docks and marine
– Important that insured must have an inchoate right
railways, dams and appurtenant facilities for the control of
to freightage which cannot be defeated
waterways.
(2) "Marine protection and indemnity insurance," meaning
insurance against, or against legal liability of the insured for loss, SECTION 103. The owner of a ship has an insurable interest in
damage, or expense incident to ownership, operation, chartering, expected freightage which according to the ordinary and probable
maintenance, use, repair, or construction of any vessel, craft or course of things he would have earned but for the intervention of a
instrumentality in use of ocean or inland waterways, including peril insured against or other peril incident to the voyage.
liability of the insured for personal injury, illness or death or for loss
of or damage to the property of another person.

Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 17


Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

Remember that in property insurance – expectancy coupled • Parties may agree that instead of payment, insurer may
with an existing right, not just expectancy. repair, rebuild or replace property

• Expected profits (Sec. 105) – YES. Illustration

SECTION 105. One who has an interest in the thing from • Subject matter is a house
which profits are expected to proceed has an insurable interest in • Independent appraiser values it at P5 Million
the profits. • The valuation is attached to the policy
• If house is totally destroyed by fire, the valuation of
It must be coupled with an existing interest. You cannot P5 M will be given
insure expected profits if the voyage did not happen. • If the house is half-destroyed, the indemnity will be
half of P5 Million or P2.5 M. (full value of partial loss)
FIRE • If the valuation is based on some fraud on the part of
the insured, e.g. adding fixtures which are not part of
the house OR there is an alteration increasing the
hazard such as converting in to an ammunition
factory, the valuation is not used.

This is the time that you can refer to the face value or your
insurance company will deny payment for misrepresentation.

• Parties may agree that instead of paying the amount,


insurer will rebuild the house.

CASUALTY INSURANCE

Fire Insurance
• Insurance against loss by fire, lightning, windstorm,
tornado or earthquake and other allied risks, when
such risks are covered by extension to fire insurance
policies or under separate policies
• Fire must be the proximate cause, and must be hostile
in nature • Sec. 174 – insurance covering loss or liability arising from
accident or mishap excluding certain types of loss which
Measure of Indemnity fall exclusively within the scope of other types of
• If there is a valuation – shall be conclusive as between insurance such as fire or marine
parties in adjusting partial or total loss in the absence
of FRAUD • Employers liability
• Workmens’ Compensation
This is refers to a valued policy. The valuation will be the • Public Liability
measure of recovery, unless there is fraud. • Motor Vehicle Liability
• Plate glass insurance
• If there is NO valuation - the expense it would be to • Burglary and theft insurance
the insured to REPLACE the thing lost or injured in the • Personal accident and health insurance (when death is
condition in which it was at the time of injury NOT one of the risks insured against)

This refers to an open policy. We have to determine the Motor Vehicle Liability Insurance (TPL)
valuation at the time of the loss. The measure is the expense it • Motor vehicle – any vehicle propelled by any power other
would be to the insured to replace the thing lost and to restore it in than muscular power using the public highways, with
the same condition before it was damaged. certain exceptions

• Loss and its amount may be determined on the basis of If it is a motor vehicle, it cannot travel or go to the roads without
such proof as may be offered by insured which ne ed getting a TPL.
not be of such persuasiveness as is required in judicial
proceedings (Malayan v. Cruz Arnaldo) • Section 374 – unlawful for any land transportation owner
or operator to operate the same in public highways unless
There has to be proof, not as required in court. Only there is a policy of insurance or guaranty in cash or bond
preliminary proof – available evidence. to indemnify the death or bodily injury of a third party or
passenger
How valuation is made
• Sec. 172 – independent appraiser examines the At a glance
property and fixes the value • Insurable interest is property insurance must exist at the
time of the issuance and at the time of the loss although
• Valuation shall be inserted in the policy (if valued policy; it need not exist in between these times
if not, it would be determined at the time of the loss)
• A beneficiary in property insurance must have insurable
• GENERAL RULE: Valuation shall be the basis for interest over the property
indemnity in case of total loss
• It is possible that two or more persons may have
• EXCEPT: If there is a change (in the property) increasing insurable interest over the same object. As in the case of
the risk without the consent of insurer or if there's owner and lessee, mortgagor and mortgagee.
fraud on the part of insured.
• In such cases, two or more separate insurance policies
Example: You stated that the building is for residential may be obtained. This is not double insurance since they
purposes only. You insured it against the fire. You did not inform don’t have the same insured and they have different
that it was converted to a restaurant or a store which sells LPG or interests.
gasoline station. It increased the risk. So, valuation will not be
relied upon anymore. It may even be a ground to refuse payment • The covered peril must be the proximate cause before
of proceeds. there can be recovery under the policy.

• Partial loss – full amount of the partial loss • Instances when there can be return of premiums.

• Payment of premiums must be on cash and carry basis.

Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 18


Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

 dies before the insured OR


• Important exceptions to cash and carry: credit  is legally incompetent to give valid release
extension and installment payment
This is more extensive in character. In group life, no designated
• Marine insurance covers only perils of the sea and NOT beneficiary only. In this case, if any of the conditions mentioned will
perils of the ship. be present, then, the following can get proceeds, no limit:

• In marine, the ff persons can get insurance policies:  proceeds may be given to:
owner, charterer, for freightage, for expected profits.  the executor or administrator of insured OR

• Fire insurance covers hostile fire  any of insured’s relative by blood as legal adoption or
by marriage OR
• Failure to give notice of loss in fire without
unreasonable delay will exonerate the insurer.  any person who incurred expenses for maintenance,
medical attention or burial
In case of fire, you must notify the insurance company
immediately so as to avoid removal of evidence. Otherwise, the This time, there are conditions and there are 3 classes of people
insurance company will be exonerated. who can claim and there is no limit. That is why, if you remember,
there is no strict application of the concept of insurable interest in
• Indemnity in fire may either be based on valuation OR industrial. It is not strictly applied because it is very natural for them,
payment of cost to restore the object at the time of the market vendors, fish vendors belonging to the low income group,
loss to help each other. You do not have to prove insurable interest if we
are talking about an industrial life insurance policy – loosening the rule
PART FOUR : PAYMENT OF PROCEEDS AND FILING OF of insurable interest. Under the facility of payment clause, there is a
CLAIMS way of claiming.

IN LIFE INSURANCE NON-LIFE INSURANCE

When When must proceeds be paid


 General Rule: Paid immediately upon maturity of the  within 30 days after proof of loss is received by
policy (death, survival, cessation or continuance of life) insurer and ascertainment of loss is made

 Exceptions: Ascertainment of Loss


 proceeds are payable in installments  made either by agreement between parties or by
 annuity arbitration

If Maturity is Due to Death Ascertainment of loss = extent of loss


 Proceeds are paid within 60 days from presentation of
the claim and proof of death When
 If no ascertainment is made or can be had within 60 days
Proof of Death is the death certificate from receipt of proof of loss, insurer must pay within 90
days after receipt of proof
 Delay = interest unless due to fraudulent claim
This is the ―30-60-90 Rule‖
Proof of Death vs. Notice of Death
 Notice of death is not enough, there must be proof of In life, 30 days.
death In non-life, 30-60-90. Generally, 30 days if there is proof of loss
plus ascertainment. But if within 60 days, there is only proof of loss
 Proof of death - death certificate without ascertainment, there must be payment to the beneficiary
within 90 days from submission of proof.
If you look at the provision, presentation of claim PLUS proof
of death. It is not a matter of notifying the insurance company. Refusal to pay within period unless due to a
There has to be submission of proof death, mainly, the only proof fraudulent claim = interest
acceptable is a death certificate – no more nor less.
Illustration
To Whom  A presents proof of loss of car by theft and insurer
 General rule: paid to designated beneficiaries ascertains amount of loss on January 1, 2000
 Proceeds must be paid 30 day s after January 1, 2000.
 Exception: Facility of payment clause in group life and Otherwise, interest must be paid.
industrial life
 A presents proof of theft on January 1, 2000 but parties
This exception is aside from those that we discussed – the cannot agree on amount of loss by March 1, 2000 (within
beneficiary dies ahead of the insured, the beneficiary wilfully caused 60 days from Jan.1).
the death of the insured, or there is no designated beneficiary.  Proceeds must be paid within 90 days from January 1,
2000. Otherwise, interest will accrue.
Facility of Payment: Group Life
 There is no designated beneficiary If there is no proof, the period for the insurer to pay will not run
 pay not exceeding P500.00 because it is the fault of the insured.
 to any person equitably entitled for incurring funeral or
other expenses incident to the last illness or death of
the insured

In group, if there is no designated beneficiary, any person who


incurred funeral or other expenses relative to the last illness or
death of the insured, can recover even if he is not the designated
beneficiary but unfortunately, only up to P 500.00.

Facility of Payment: Industrial


 If beneficiary:
 does not surrender policy with proof of death
during period stated in the policy OR
 is the estate of insured OR
 is a minor OR

Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 19


Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

MOTOR VEHICLE LIABILITY cannot sue both. You sue the most offending vehicle. There can be
no claim against more than one vehicle.
Procedure for filing claims If you are a passenger, that will be filed against the insurer of the
vehicle, which you are a passenger.

You have 6 months to claim. Otherwise, it is waived.

DELAY, PROOF, SUBROGATION

Generally, if the insurance company incurs delay in the payment


of proceeds, it will become liable for interest. But there are some
instances where delay is deemed reasonable.

Reasonable Delay in Payment


 delay due to investigation to ascertain the truth of
information it received that insured was not insurable at
time of application (Chuy v. Philamlife)
 delay caused by determination of actual beneficiary and
claims of creditors (RCBC v. CA)

There has to be written notice of claim within 6 months from If there is confusion as to who should get the proceeds, there will
the accident. If the claim is filed after the 6-month period, there be investigation. That will also justify delay. The insurance company
can be no recovery anymore, unless the one filing the claim is still is not liable for interest.
in the hospital.
Preliminary Proof of Loss
What must the written notice contain? The nature of the  best evidence which insured has
accident, the extent, the duration of the injury certified by a  not evidence in ordinary courts
licensed physician.  purpose : Apprise insurer of loss and make proper
Even if it is only a minor injury, you have to go a doctor, investigation while evidence is still fresh and to
because that the requirement for filing a TPL. prevent further loss

If they do not agree, there would be payment under the no- A claimant need not present the same evidence required in court
fault indemnity clause. but only the best evidence which he has which would give the
insurance company an idea as to what the extent of the loss is.
No fault indemnity clause: Section 378 (example: pictures). Affidavit of witnesses not required, otherwise,
before you know it, the 6-month has lapsed and you cannot claim
 death or injury of 3rd party anymore.
So, the purpose is to just inform the insurance company of the
 without necessity of proving fault or negligence of any loss or the extent of the loss.
kind
Notice of Loss in Fire Insurance
 if total indemnity of one person shall not exceed  must be given without unnecessary delay
P15,000. (This used to be P5,000. But by virtue of a  otherwise, the insurer is exonerated
memorandum circular of the Insurance Commission, this has
now been increased to P 15,000) When it comes to fire insurance, there is no need to give proof of
loss immediately. The minimum requirement under the law is notice
SECTION 378. Any claim for death or injury to any passenger of loss, without unnecessary delay.
or third party pursuant to the provisions of this chapter shall be Even if within 24 hours, the insurance company may even have
paid without the necessity of proving fault or negligence of any doubts already. The main purpose is to be able to preserve the
kind; Provided, That for purposes of this section — evidence.
(i) The total indemnity in respect of any person shall not exceed If there is unnecessary delay in giving notice, then, the insurance
fifteen thousand pesos; (as amended) company will not be obligated to pay. This is a special rule with regard
(ii) The following proofs of loss, when submitted under oath, shall to claims in case of fire insurance policies.
be sufficient evidence to substantiate the claim:
(a) Police report of accident; and Subrogation
(b) Death certificate and evidence sufficient to establish the  when insurer pays for the loss
proper payee; or  payment to insured operates as an equitable assignment
(c) Medical report and evidence of medical or hospital to the insurer of all remedies which insured may have for
disbursement in respect of which refund is claimed. the recovery
(iii) Claim may be made against one motor vehicle only. In the  subrogation is limited to the amount recoverable by
case of an occupant of a vehicle, claim shall lie against the insurer the insured
of the vehicle in which the occupant is riding, mounting or
dismounting from. In any other case, claim shall lie against the Subrogation – stepping into the shoes of the person; being able
insurer of the directly offending vehicle. In all cases, the right of the to proceed against the wrongdoer. The right to sue the one at fault is
party paying the claim to recover against the owner of the vehicle transferred to the insurance company.
responsible for the accident shall be maintained. When we talk about subrogation, the claim of the insurance
company is limited to the proceeds he paid to the policy holder.
Whether the insurance company likes it or not, if it does not
agree with the claim, it still has to pay not exceeding P 15,000 as MARINE
long as the following documents are paid:
What may be insured against
 Proofs of loss are submitted under oath.  Only covers loss due to perils of the sea and not perils of
 police report of accident ; and the ship
 Death certificate and evidence to establish payee
OR medical report and evidence of medical and  In case there is a bottomry, insurable interest of the ship
hospital disbursement. owner is limited to excess of its value over the amount
secured by bottomry. (101)
 Claim against one motor vehicle only
 if occupant of a vehicle, claim against insurance of SECTION 101. The insurable interest of the owner of a ship
vehicle hypothecated by bottomry is only the excess of its value over the
 otherwise, claim against offending vehicle amount secured by bottomry.

This is very important. If you are the third party injured and Bottomry – a loan which uses the the vessel as security.
you are caught in between of two vehicles, who can you sue? You
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 20
Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

Example: The vessel is is worth P 2M. This was used to expenses incurred in saving cargo reshipped pursuant to the last
secure a loan for P 1M. How much is insurable by the owner? Only section, up to the amount insured.
the portion not covered by the loan because the moment that the Nothing in this or in the preceding section shall render a marine
vessel disappears or is destroyed, the loan is deemed paid. That is insurer liable for any amount in excess of the insured value or, if there
the effect of a bottomry loan. You are only going to suffer loss for be none, of the insurable value.
the portion not covered by the loan.
Kinds of loss in marine
Who can insure?
 Freightage – all benefits derived by the owner either
from chartering the ship or its employment for the
carriage of his own goods or those of others (102)

Freightage (freight) – the benefit which is to accrue to the


owner of the vessel from its use in the voyage contemplated or the
benefit derived from the employment of the ship.

 Charterer of the ship has insurable interest on the ship


to the extent that he is damnified by the loss (106)

Average
 General – insurer is liable for proportion of the loss
assessed (136)

 Particular – insurer is liable unless there is a


stipulation exempting the insurer (136) Total v. Partial Loss
 Every loss which is not total is partial (128)
Difference:
General – one sacrificed (jettison) and all are benefited. In  Total loss may either be actual or constructive
general average, one sacrifices and all are benefited. A sacrifices
his goods but everyone benefited. Who is supposed to be liable for Constructive – abandonment and more than ¾ rule
the loss? Not only the insurer of A but the insurers of those who
were benefited by the sacrifice. The loss is shared by all who  Actual loss may be presumed from the continued absence
benefited, to the extent that they were benefited. of a ship without being heard of (132)
Particular – only one sacrificed and he is the only one who
SECTION 132. An actual loss may be presumed from the
benefited. The one who will bear the loss is the insurer of the one
continued absence of a ship without being heard of. The length of time
who jettisoned his goods.
which is sufficient to raise this presumption depends on the
circumstances of the case.
General Average
 Goods of A valued at 1 M are disposed
 Disposition saves the goods of B (1 M) and C (1 M) Since this is a presumption, this is rebuttable.
 The 1 M loss of A will be shared by B and C in
proportion to the value of the goods belonging to them Actual Loss, 130
which are saved. The 1 M loss will be divided by three  total destruction of the thing
 irretrievable loss of thing by sinking or being broken up
Particular Average  damage which renders thing valueless for the purpose it
 If the goods of A are disposed is held
 But disposition did not inure to the common benefit of The object is still there but it cannot serve the original purpose.
other owners of goods Example: rice already got wet
 Only A and his insurer will suffer the loss  other event which effectively deprives owner of
 Other owners and their insurers will not contribute in possession of the thing at the port of destination
A’s loss
Actual loss - recovery for the entire amount.
Reshipment
 Insured peril prevents a ship from completing voyage Constructive Total Loss, 131
at an intermediate port, liability of the marine insurer  Also called technical total loss
continues after reshipment without prejudice to
insurer's right to collect more premiums (133)  Loss which gives the person the right to abandon under
Section 139
SECTION 133. When a ship is prevented, at an intermediate
When there can be abandonment – Section 139
port, from completing the voyage, by the perils insured against, the
 >3/4 of the value is actually lost or would have to be
liability of a marine insurer on the cargo continues after they are
spent to recover it from peril
thus reshipped.
Nothing in this section shall prevent an insurer from requiring an
additional premium if the hazard be increased by this extension of  If the vessel is injured to such an extent as to reduce its
value to >3/4
liability.
 If the thing is a ship, and the voyage cannot be performed
Expenses of reshipment are included. You cannot say that without incurring either expense to the insured of >3/4
there is no more obligation because it is already reshipment. The the value of the thing abandoned or a risk which a
insurer still has liability but it can collect more premiums. If insurer prudent man would not take under the circumstances
covers a specified trip, but later there is reshipment, that is extra
expense. The insured is still covered by the insurance policy but  If the thing is cargo or freightage, voyage cannot be
the insurance company may still collect more premiums. performed, nor another ship be procured within a
reasonable time and with reasonable diligence to forward
the cargo, without incurring like expenses or risk >3/4 of
 In case of reshipment, the insurer of goods is liable for
the value of the vessel.
damages, expenses of discharging, storage,
reshipment and other expenses (134)
Under these situations, there is no need to establish that the
vessel was totally destroyed or that it sunk. Under these situations,
SECTION 134. In addition to the liability mentioned in the last there can be abandonment because these situations will give rise to
section, a marine insurer is bound for damages, expenses of constructive total loss, which means, you can recover from the policy
discharging, storage, reshipment, extra freightage, and all other to the full extent of the face value.

Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 21


Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

Abandonment 90% of P 1M, which is p 900,000. But if you abandon, even if there is
 Neither partial nor conditional (140) still 10% remaining, you can get the entire P 1M.
That’s why if you do not abandon, under Section 155, you just
There is no such thing as partial or conditional abandonment. get the actual loss, which is 90% only.
It is either you abandon in full or not abandon at all.
Illustration
 Must be made within a reasonable time after receipt of  A insures a vessel with B for P1 Million
reliable information of loss (141)
 The vessel's value is reduced to P200,000 due to a peril of
 If information on loss is incorrect or thing is restored the SEA
and there is no total loss, abandonment is ineffectual
(141)  TWO CHOICES OF A: Abandon or claim actual loss

SECTION 141. An abandonment must be made within a If A abandons


reasonable time after receipt of reliable information of the loss, but  A must immediately give a written notice of abandonment
where the information is of a doubtful character, the insured is to B
entitled to a reasonable time to make inquiry.
 If B accepts the abandonment, it must give A P1 Million
Example: You receive information that the vessel is destroyed
up to 80%. So, you abandoned. However, the loss is only up to  B now has all the right with respect to the vessel
50%. So, there is no valid abandonment. You cannot recover the
entire amount or the face value.  HOWEVER, freightage earned before loss will belong to
the insurer of the goods
 It is made orally or in writing. If orally, written notice
shall be submitted within 7 days from oral notice (143)  Freightage earned after the loss will belong to the insurer
of the vessel
 Has the effect of transferring by the insured of his
interest, to the insurer with all chances of recovery and If A does not abandon BUT
indemnity (146)  B still gives A P1 Million

What happens when the policy holder abandons? As the word  B will now have the right over the vessel, what remains of
implies, the insured gives up all his rights with regard to the vessel it and proceeds of salvage
in favour of the insurance company. If there is abandonment, you
are transferring all your rights to the insurance company.  A can recover ACTUAL loss or P800,000 since the vessel is
reduced to 20% of its former value of P1 Million
 If insurer pays for loss as if there was actual total loss
 BUT there was no formal abandonment
 Insurer is entitled to whatever may remain of the thing
insured or its proceeds of salvage (147)

SECTION 147. If a marine insurer pays for a loss as if it were


an actual total loss, he is entitled to whatever may remain of the
thing insured, or its proceeds or salvage, as if there had been a
formal abandonment.

What if despite the absence of any formal abandonment, the


insurance company still pays the entire face value? This is
tantamount to abandonment. If you accept the face value, it is as
if you are saying to the insured company that it is ok for them to do
Measure of Indemnity
whatever they want with the property.
 Valuation is conclusive between parties in
If you do not want to accept, it means there is no
determining total or partial loss EXCEPT if there is
abandonment.
fraud (156)
Who is entitled to freightage in case of abandonment?
 Marine insurer is liable for partial loss only for such
◦ Freightage earned before the loss belongs to the
proportion of the amount insured by him as the loss
insurer of the freightage
bears to the value of the whole interest.
◦ Freightage earned after the loss belongs to the
How to estimate loss in open policy (161)
insurer of the ship
 Value of the ship – value at the beginning of risk
including articles which adds to its value or to prepare it
Insurer refuses valid abandonment
for the voyage
 the rights of the insured are not prejudiced by
refusal of insurer to accept abandonment (149)
 Value of the cargo – actual cost to insured when laden on
board OR market value at the time and place of lading
 Insurer is still liable for actual total loss deducting
any amount given to the insured (Sec. 154).
 Value of the freightage is the gross freightage, exclusive
of primage
 Acceptance of abandonment may be express or
implied. Mere silence is acceptance (150)
Primage is a compensation payable to the captain and the crew
members although modern practice treats it as additional
Q: What if the policy holder abandons but such abandonment is
compensation to the shipowner or ship agent who thereby assumes
not accepted by the insurance company?
the responsibility of paying the captain and the members of the crew.
A: The insurer is still entitled to the face value, as long as the
more than ¾ rule is established.
 Cost of insurance shall be added to the estimated value
Insurer refuses to abandon
LITIGATION OF CLAIMS
 If insured fails to abandon, he can recover actual
 If single claim is P100,000 or BELOW (excluding cost,
loss (Sec. 155).
interest and attorney’s fees) – concurrent jurisdiction of
insurance commission and trial courts (MTCs)
Q: Why should you abandon?
You incur 90% loss and you still do not abandon. The face
value of your policy is P 1M. If you do not abandon, you only get

Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 22


Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

 If more than P100,000- Trial Courts (regular courts Administrative Powers


depending on the amount – RTC above P 300,000 and MTC  Suspension or Revocation of certificate of authority on
P300,000 and below) the ff grounds:
◦ Insurer is in an unsound condition (financial)
Powers of the Commissioner ◦ Insurer failed to comply with the provisions of law or
regulations (memorandum circulars) obligatory upon it
 Insurer's condition or method of business is hazardous to
the public or its policyholders (ex. over-investment)
 Insurer's paid up capital or available assets or security
deposits is impaired or is deficient
 Margin of solvency is deficient
 Commission of any of unfair settlement practices (Sec.
241)

Q: What is the margin of solvency?


Adjudicatory Powers
SECTION 194. An insurance company doing business in the
 Single claims of P100,000 or below (excluding cost, Philippines shall at all times maintain a margin of solvency which
attorney’s fees and interest) shall be an excess of the value of its admitted assets exclusive of its
paid-up capital, in the case of a domestic company, or an excess of the
 This jurisdiction is concurrent with the regular courts value of its admitted assets in the Philippines, exclusive of its security
deposits, in the case of a foreign company, over the amount of its
Administrative Powers liabilities, unearned premium and reinsurance reserves in the
Philippines of at least two per mille of the total amount of its insurance
 Grant certificates of authority to engage in insurance in force as of the preceding calendar year on all policies, except term
business insurance, in the case of a life insurance company, or of at least ten
per centum of the total amount of its net premium written during the
- Licensing, revocation, checking of maintenance of margin preceding calendar year, in the case of a company other than a life
solvency, fine, suspend license, etc. insurance company; Provided, That in either case, such margin shall in
no event be less than five hundred thousand pesos; and Provided,
 Require any insurance company to keep its records in a further, That the term "paid-up capital" shall not include contributed
manner that will allow IC's authorized representatives surplus and capital paid in excess of par value. xxx
to verify the solvency of the insurer and has complied
with IC and circulars (Sec. 245) An insurance company is supposed to maintain that before it can
declare dividends.
SECTION 245. The Commissioner shall require every insurance
company doing business in the Philippines to keep its books, Unfair Claims Settlement Practices (241)
records, accounts and vouchers in such manner that he or his  Knowingly misrepresenting to claimants pertinent facts
authorized representatives may readily verify its annual statements or policy provisions relating to coverage at issue
and ascertain whether the company is solvent and has complied
with the provisions of this Code or the circulars, instructions, rulings  Failing to acknowledge with reasonable promptness
or decisions of the Commissioner. pertinent communications with respect to claims arising
under its policies
 At least once a year to examine the affairs, financial
condition and method of business of insurers (Sec.  Failing to adopt and implement reasonable standards for
246) the prompt investigation of claims arising under its
policies
SECTION 246. The Commissioner shall at least once a year
and whenever he considers the public interest so demands, cause  Not attempting in good faith to effectuate prompt, fair
an examination to be made into the affairs, financial condition and and equitable settlement of claims submitted in which
method of business of every insurance company authorized to liability has become reasonably clean; or
transact business in the Philippines and of any other person, firm or
corporation managing the affairs and/or property of such insurance  Compelling policyholders to institute suit to recover
company. Such company, as well as such managing person, firm or amounts due under its policies by offering without
corporation, shall submit to the examiner all such books, papers justifiable reason substantially less than the amounts
and securities as he may require and such examiner shall also have ultimately recovered in suits brought by them
the power to examine the officers of such company under oath
touching its business and financial condition, and the authority to These are grounds to revoke or to suspend certificate of authority
transact business in the Philippines of any such company shall be of the insurance company.
suspended by the Commissioner if such examination is refused and
such company shall not thereafter be allowed to transact further At a glance
business in the Philippines until it has fully complied with the  Period to pay claims in life and non-life (60 days; 30-60-
provisions of this section. 90 rule)
Government-owned or controlled corporations or entities engaged
in social or private insurance shall similarly be subject to such  Facility of payment clause
examination by the Commissioner unless their respective charters
otherwise provide.  Notice of loss in fire insurance (special rule – you have to
give this without unreasonable delay, otherwise, the insurance
To issue licenses/registrations/authority to the ff: company may be exonerated)

 Domestic or foreign insurer (247)  Actual loss


 Reinsurance Broker (license) (Sec. 310)
 Insurance Agent and Broker (license) (Sec. 299)  Constructive loss- >¾ rule on abandonment = right to
 Resident agent of a foreign insurer (certificate of abandon = giving up everything
registration) (Sec. 315)
 Non-life company underwriter (certificate of  Jurisdiction of the insurance commissioner
registration) (Sec. 318)
 Adjusters (Sec. 323)  Jurisdiction of regular courts
 Actuary (Sec. 335)
 Unfair claims settlement practices
Insurance agents have to take exams.

Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 23


Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

PART FIVE : GROUNDS FOR RESCISSION If you use your building as an LPG store, premium could have
PDIC LAW been made higher.

Grounds Materiality
• Concealment • Sunlife v. CA, 245 SCRA 268 - where the applicant
• Misrepresentation concealed prior medical history and he died in a
• Breach of warranty, express or implied plane crash, there was still concealment
• Other grounds - Section 64-65 (non-life) notwithstanding the apparent lack of relation
between the fact concealed and the cause of death
CONCEALMENT
 neglect to communicate that which a party knows and BAR 2001
ought to communicate. • A applied for non-medical life insurance. He did not
inform the insurer that he was examined and confined at
Requisites of Concealment St. Luke’s Hospital where he was diagnosed with lung
(a) party knows the fact which he neglects to cancer. A died in a plane crash. Is the insurer liable
communicate or disclose considering that the fact concealed had no bearing with
(b) party concealing is duty bound to disclose such fact to the cause of death of A?
the other (from the fact that the information is material in Answer
nature – you do not have to communicate everything) • The insurer is not liable. The concealed fact is material to
(c) party concealing makes no warranty as to concealed the approval and issuance of the policy. According to a
fact (if there is an existing warranty as to the information decided case, the insured need not die of the disease he
concealed, there is no concealment which would give rise to a failed to disclose to the insurer. It is sufficient that his
rescission) non-disclosure misled the insurer in forming his estimate
(d) other party has no means of ascertaining the fact of the risks of the proposed insurance policy or in making
concealed (if there is neglect to communicate something further inquiries.
about the state of health of the applicant but the applicant
was made to undergo medical examination which will reveal Waiver of Right to Information
that, then, we cannot charge the person with concealment  By terms of insurance OR
because the insurance company had the means of ascertaining Example: if the information was not asked
the same information)  Neglect to make inquiries
 concealment entitles the unguilty party to rescind
What must be communicated
 All facts within his knowledge Concealment in Marine Insurance
 Material to the contract (test of materiality)  in addition to Section 28
 Other party has no means of ascertaining  all information he possesses material to the risk
 He makes no warranty except those in Section 30
 Information which prove or tend to prove falsity of  state exact and whole truth in relation to all matte rs
warranty that he represents
 information of belief or expectation of a third person
What need not be communicated as to a material fact is MATERIAL (Example: if you think
 Those which the other knows the vessel will continue its voyage when there is Signal No.
 Those which, in the exercise of ordinary case, the 1, it will probably sink)
other ought to know and which the other has no  insured is presumed to know prior loss at time of
reason to suppose him ignorant insuring (rebuttable)
 Those of which the other waives communication
 Those which prove or tend to prove the existence In Marine Insurance, the rules are stricter.
of a risk excluded by a warranty, and which are
not otherwise material; and SECTION 28. Each party to a contract of insurance must
 Those which relate to a risk excepted from the communicate to the other, in good faith, all facts within his knowledge
policy, and which are not otherwise material which are material to the contract and as to which he makes no
 General causes open to his inquiry which may warranty, and which the other has not the means of ascertaining.
affect the political or material perils contemplated SECTION 30. Neither party to a contract of insurance is bound to
(32) (things that can be read in the newspaper; those communicate information of the matters following, except in answer to
practiced in the business; scheduled trips of the vessel; the inquiries of the other:
war in a certain place; current events – if the insurance (a) Those which the other knows;
company is not aware of that, we cannot charge the (b) Those which, in the exercise of ordinary care, the other ought to
other party with concealment because these are general know, and of which the former has no reason to suppose him
information) ignorant;
 General usages of trade (32) (c) Those of which the other waives communication;
 Nature or amount of interest, except in answer to (d) Those which prove or tend to prove the existence of a risk
an inquiry (34) (there is no need to declare extent of excluded by a warranty, and which are not otherwise material;
insurable interest unless there is a question to that effect) and
 Information of his own judgment (35) (example: are (e) Those which relate to a risk excepted from the policy and which
you in a state of good health?) are not otherwise material.

Test of Materiality Concealment in Marine Insurance


• General Rule: Concealment entitles the innocent
 Determined not by event party to rescind
 Probable and reasonable influence of facts upon • Exception: Section 110
the party to whom communication is due in
forming his estimate of the disadvantages of the Section 110
proposed contract OR in making his inquiries Concealment as to following does NOT vitiate the entire
 Assessment of risk, in making/omitting further contract but exonerates the insurer from loss resulting from
inquiries, cause him to reject the risk or accept it risk concealed.
at higher premium rate/different terms (a) national character of insured
(b) liability of thing insured to capture and detention
Example: You did not declare that you only have 1 kidney. (c) liability to seizure from breach of foreign laws of
Now, there is a high-risk for kidney malfunction. Even if your death trade
was not due to a kidney malfunction, that will still be concealment (d) the want of necessary document
of a material fact because if it would have been declared, the (e) the use of false and simulated papers
insurance policy might not have been approved or insured with a
higher premium or further medical tests could have been required. Under Section 110, it is only when the cause of the loss is the fact
That is material in the case of life insurance. concealed that the policy holder cannot collect. If you concealed

Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 24


Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

something but the information concealed was not the cause of loss,  right to rescind by insurer is waived by acceptance of
you can still collect. The fact concealed is also the cause of the premiums despite knowledge of ground to rescind
loss. But because you did not declare the national character, the (waiver – the insurance company is still liable for the
ship was caught, that will exonerate the insurance company. proceeds)
Example: You did not declare that the voyage will be
breaching the laws of Germany. But you were caught because of Misrepresentations as to Age in Life Insurance
forged and simulated papers. Then, you can still collect.  no rescission
 proceeds shall be such as the premium would have
Incontestability Clause in Life Insurance purchased at the correct age
Section 48, 2nd par – if life insurance has been in force
during the lifetime of the insured for a period of 2 years All other forms of misrepresentation are grounds to rescind
from DATE OF ISSUE or LAST REINSTATEMENT except if you misstate your age.
 The insurer cannot prove that the policy is void ab Effect: Premium and age are not adjusted.
initio or is rescindible Example: You stated that you are 20 years old but you are
 By reason of fraudulent concealment or actually 30 years old. If you are 20 years old and you want to be
misrepresentation of the insured or his agent covered for P 1M, you will pay P5,000. Since you are already 30 years
old, it should be P 15,000 to be covered for P 1M. So, the P 5,000
This is only applicable in life insurance. There is paid at 30 years old, how much will you get? You will not make the
concealment/misrepresentation but the beneficiary can still recover premium at P 5,000. So, instead of P 1M, maybe, you will just be
because the life insurance policy has been enforced during the covered up to P 500,000 only – you get a face value smaller than you
lifetime of the insured for at least 2 years reckoned from the issue expect.
or last reinstatement. If you did not discover, you cannot use that
as a ground to deny payment of proceeds. Misrepresentation in Marine Insurance
 entitles the insurer to rescind
Illustration  eventual falsity of a representation as to expectation
• A is issued a life insurance policy on April 2, 2000 without fraud, does NOT avoid a marine insurance
• He conceals the fact that he has tuberculosis contract
• A dies on April 3, 2002.
• Insurance company must pay. Although there was Special Rule in Marine: If at the start, the representation was still
concealment, the policy has been in force during true but eventually, it became false. This will not avoid the policy as
the lifetime of A for 2 years from April 2, 2000. long as without fraud.

Case: At the time of the claim, the policy has been enforced BREACH OF WARRANTY
for 2 years. However, it was discovered that before the 2-year
period, the policy holder already died. The beneficiaries just Warranty
delayed the claim. • Either express or implied
Incontestability will apply if the policyholder is alive during the • May relate to the past, present or future
existence of the policy for 2 years from issuance or last
reinstatement. In this case, the claim was denied. Past: I warrant that I have never used this kind of chemical in my
establishment
When Incontestability Clause DOES NOT apply Present: I am not using any chemical at this point
• Person has no insurable interest Future: I warrant that I will not use this chemical at any future time
• Cause of death is an excepted peril
• Premiums have not been paid (lapse) Implied Warranties in Marine Insurance (only in Marine)
• Conditions of the policy relating to military or naval  Seaworthiness - 113
service have been violated
• Fraud of a vicious type is present when policy was SECTION 113. In every marine insurance upon a ship or freight,
taken out (example: fake death) or freightage, or upon any thing which is the subject of marine
• Beneficiary failed to furnish proof of death or to insurance, a warranty is implied that the ship is seaworthy.
comply with any condition imposed by the policy after
the loss has happened  Nationality or neutrality – 120
• That the action was not brought within time specified
SECTION 120. Where the nationality or neutrality of a ship or
MISREPRESENTATION
cargo is expressly warranted, it is implied that the ship will carry the
 Representations – factual statements made by the
requisite documents to show such nationality or neutrality and that it
insured at the time of, or prior to the issuance of the
will not carry any documents which cast reasonable suspicion thereon.
policy

This is the more active version of concealment.  Improper deviation -121

 Statement SECTION 121. When the voyage contemplated by a marine


 (a) as a fact of something which is untrue insurance policy is described by the places of beginning and ending,
(b) which the insured stated with knowledge that the voyage insured is one which conforms to the course of sailing fixed
it is untrue and with an intent to deceive, or which by mercantile usage between those places.
he states positively as true without knowing it to
be true and which has a tendency to mislead, and  Illegal ventures
(c) where such fact in either case is material to the
risk BAR 2000
• What warranties are implied in marine insurance? (2%)
Test of Falsity & Materiality
Sec. 44 – when the facts fail to correspond with its Seaworthiness
assertion or stipulations • Section 114 - a ship is seaworthy if reasonable fit to
perform the service, and to encounter the ordinary perils
Sec. 45 – materiality is determined using the same test in of the voyage contemplated by the parties to the policy
concealment (Sec. 31) • Section 116 - extends not only to the seaworthiness of
the ship itself but requires that it be properly laden,
Test of falsity – when the information given does not provided with competent master, sufficient number of
correspond to facts. competent officers and seamen, requisite appurtenances
and equipment and other implements for the voyage
Misrepresentations as a ground to rescind
 entitled to rescind from the time the
representation becomes false

Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 25


Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

Improper Deviation P 250,000 insurance – one bank, regardless of the number of


• Section 123 - deviation is a departure from the branches.
course of the voyage insured or unreasonable
delay in pursuing the voyage or the Single Depositor Account – All in the name of Pedro
commencement of an entirely different voyage

Proper Deviation, 124 Account Number Type Amount


• caused by circumstances outside the control of the
master or owner #1 Checking P180,000
• when necessary to comply with a warranty or to
avoid peril #2 Savings P50,000
• when made in good faith upon reasonable grounds
to avoid a peril
• in good faith to save human life or to relieve #3 Time P70,000
another vessel
Total P300,000
In these instances, there is no violation of implied warranty
against improper deviation. P250,000 – insured;
P50,000 uninsured
Nationality
• Section 120 - where the nationality or neutrality of the
ship is expressly warranted, it is impliedly warrantied • Accounts are owned by one person, Pedro. Thus, all
that the ship will carry the requisite documents to accounts will be consolidated or added together as they
show such nationality or neutrality and it will not carry are maintained in the same right and capacity, regardless
any document which will cast suspicion thereon. of account type. Total amount insured cannot exceed
P250,000.
All vessels have nationality.
In trust for and by accounts
Other Ground for Rescission in Non-Life Insurance
 non- payment of premium (this is also a ground in life
insurance) Account Number Account Holder Deposit

 conviction of a crime arising out of acts increasing the #1 Pedro P280,000


hazard insured against (e.g. arson)
 discovery of fraud / material misrepresentation #2 Pedro ITF Jo P260,000
 discovery of willful or reckless acts or omissions
increasing the hazard insured against #3 Pedro by Juan P290,000

 physical changes in the property becoming uninsurable Pedro #1 & #3 P280,000 + P290,000 =
 determination by Insurance Commissioner that P570,000 less P250,000
continuation of the policy would violate or would place insurance = P320,000
(uninsured)
the insurer in violation of the Insurance Code

Notice of Cancellation
P260,000 – P250,000
 In writing Jo #2
insurance = P10,000
 Mailed or delivered to named insured at address (uninsured)
shown in the policy
 Shall state Juan #3 Nothing
 grounds relied on
 upon written request, insurer will furnish
fact on which cancellation is based If you put something in trust for someone, the owner is the
beneficiary.
Rescission must be exercised
 Before the commencement of any action on the • Pedro is the principal owner of Accounts #1 and #3. Thus,
contract these 2 accounts will be consolidated as they are
 In which motor vehicle liability insurance notice of maintained in the same right and capacity; and insurance
cancellation must be sent to the land transportation is up to P250,000 only. (Juan is just an authorized
owner/operator and the LTO at least 15 days before representative)
date of effectivity
• On the other hand, account #2 is owned by Jo with Pedro
acting as agent. Jo is thus entitled to a separate
REPUBLIC ACT NO. 9302
maximum limit of P250,000. Juan is not entitled to
An Act Amending RA 3591, as amended, Otherwise known
anything since he merely opened an account for Pedro
as the “Charter of the Philippine Deposit Insurance
Corporation” and for Other Purposes
Joint Account

Bank Deposit – a contract of loan; creditor-debtor relationship


Account # Account Holder Balance
Insured Deposit, Concept
• Sec. 4 (g) - the amount due to any depositor for
deposits in an insured bank net of any obligation of the #1 Pedro & Maria P400,000
depositor to the insured bank as of the date of closure,
but not to exceed Two hundred fifty thousand pesos #2 Juan &/or Pedro P650,000
(P250,000.00).

The Bank must be a member of PDIC. ―And‖ and ―and/or‖ have the same effect for purposes of the
PDIC.
Types of Insured Bank Deposits
• Single depositor account
• In trust for and by account (differentiate this from a
trust fund)
• Joint account
• Institutional account ( in cases of partnerships,
corporations)
• Single and joint account

Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 26


Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

Benjamin
Account Number Insured Share Uninsured
Benjamin (single Account #1 P200,000 (insured)
account)
Pedro - #1 P125,000 P75,000

Benjamin (joint accounts) Account #2 Share: P250,000 Insured:


Pedro - #2 P125,000 P200,000 P125,000
Uninsured: P125,000

Total deposits P250,000 Total: P275,000

Insured deposits P250,000


Benjamin (joint accounts) Account #3 Share: P150,000
Insured: P125,000
Maria - #2 P125,000 P75,000
Uninsured: P25,000

Juan - #2 P125,000 P200,000


Benjamin (joint) Account #4 Share: P 133,333
Insured: P83,333
• For account #1 amounting to P400,000, Pedro and Uninsured: P50,000

Maria share at P200,000 each. They will also divide


equally the P250,000 MDIC or computed at P125,000
each. Jose

• For account #2 amounting to P650,000, Juan and


Pedro share at P325,000 each. They will also divide Jose Account #2 Share: P250,000
Insured: P125,000
the P250,000 MDIC at P125,000 each.
Uninsured: P125,000
Institutional Account

Account No. Account Holder Balance


Jose Account #4 Share: P 133,333
Insured: P83,333
#1 ABC Co. P600,000 Uninsured: P50,000

#2 ABC Co. &/or Pedro Cruz P800,000

ABC Co. #1 P600,000


Jonas
ABC Co. #2 P800,00 Jonas Account #3 Share: P150,000
Insured: P125,000
Pedro Cruz NONE NONE
Uninsured: P25,000

Total f or ABC P1,400,000-P250,000


insurance = P1,150,000
(uninsured)

Jonas (joint) Account #4 Share: P 133,333


Insured: P83,333
• Joint accounts held by a juridical person with natural
Uninsured: P50,000
person will be presumed to belong to the juridical
person. Thus, Accounts #1 and #2 will be consolidated
in the name of ABC Co. Total amount of insured
deposits will be P250,000.

P 250,000 for each account under the name of the company, Single and Joint Accounts
whether or not it is joined with another person or none. It is only • Under the new rules, single account is insured separately
up to P 250,000 for the same bank. to a maximum coverage of P250,000, thus, Account #1
owned by Benjamin is insured for P200,000. For joint
Single and Joint Accounts ownership, each joint account is considered equally
shared among co-depositors unless otherwise indicated in
Account #1 Benjamin P200,000 the deposit document. Insurance coverage of P250,000
will apply to the sum of shares of a depositor in the
insured portion of each joint account.

Account #2 Benjamin & Jose P500,000 BA R 1997


A has the following accounts: P10,000 savings account,
P20,000 checking account, P30,000 money market placement and
P40,000 trust fund in a medium-sized commercial bank. State
which of the four accounts are insured by the PDIC.
Account #3 Benjamin &/or Jonas P300,000 A NSWER
The P10,000 savings account and the P20,000 checking
account are deemed insured under by the PDIC.

Account #4 Benjamin or Jose or P400,000 BA R 2000


Jonas BD has a bank deposit of half a million pesos. Since the PDIC
limit is P250,000, BD would like some protection for the excess by
taking out an insurance against all risks arising from unsound
bank practices. Does BD have insurable interest under the
Insurance Code?
A NSWER
• Yes, BD has insurable interest in his bank deposit. In case of
loss to the extent of the amount not covered by PDIC, BD will
be damnified. He will suffer pecuniary loss of P250,000 since
PDIC Law only covers accounts up to P250,000.

-END -

Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 27