Crammer INSURANCE
; 2003
GENERAL PROVISIONS
Sec. 1. Name of Decree: The Insurance Code of 1978
Laws Governing Insurance:
1.) PD 1460: Insurance Code of 1978
Construction of Insurance Code follows that of the law of
California (except for Ch. 5 w/c was taken from the law of New
York).
2.) Arts. 2011 to 2012, CC: Insurance
Hot tip: Art. 2012, CC: Any person forbidden from receiving
any donation under Art. 739 cannot be named beneficiary of a
life insurance policy by the person who cannot make any
donation to him.
3.) Arts. 2021 to 2027, CC: Life Annuity
4.) Art. 2186, CC: Compulsory Motor Vehicle
Liability Insurance
5.) Arts. 43, par. 4, 50, 64, Family Code:
Revocation of irrevocable beneficiaries in
terminated marriages.
Constantino v. Asia Life: Non-payment of premiums
voids policy even if due to war. We follow the US Rule.
Punctual payments important since insurer calculates on
the basis of prompt payments. Time is of the essence.
No premium, no insurance,
Insular Life v. Ebrado: Person forbidden from
receiving donation cannot be named beneficiary.
Donations between persons guilty of
adultery/concubinage void. Common-law spouse barred
from receiving proceeds.
Interpretation of Insurance Contracts: Strictly against
insurer, liberally in favor of insured.
Qua Chee Gan v. Law Union: Gasoline not specifically
mentioned in prohibited articles. “Oils” usually means
lubricants. Ambiguities or obscurities must be strictly
interpreted against the party that caused them. K of
insurance is a K of adhesion. Construed strictly against
insurer, liberally in favor of insured.
Ty v. Filipinas Cia de Seguros: Where insurance co.
defines “partial disability” as loss of either hand by
amputation, insured cannot recover for temporary
disability. No ambiguity, literal meaning must apply.
Sec. 2. Definition of Terms:
1.) Contract of insurance: An agreement whereby
one undertakes for a consideration to indemnify
another against loss, damage or liability arising
from an unknown or contingent event. (Includes
surety contract.)
Characteristics of an insurance contract:
Helen C. Arevalo
1st Sem.
1.) Consensual;
2.) Voluntary;
3.) Aleatory;
4.) Executory;
5.) Conditional;
6.) Personal.
Elements of insurance contract:
1.) Consent of parties
a.) Insurer
b.) Insured
2.) Object: Transfer or distribute risk of loss, damage,
liability or disability from insured to insurer
3.) Cause/consideration: Premiums
4.) INSURABLE INTEREST: Insured possesses an interest
of some kind susceptible of pecuniary estimation.
Classifications of insurance contracts:
1.) Life
a.) Individual
b.) Group life
c.) Industrial life
2.) Non-life
a.) Marine
b.) Fire
c.) Casualty
3.) Contracts of suretyship and bonding
2.) Doing/transacting an insurance business:
Includes:
a.) Making or proposing to make, as insurer,
any insurance contract;
b.) Making or proposing to make, as surety, any
contract of suretyship as a vocation and not
as merely incidental to any other legitimate
business or activity of the surety;
c.) Doing any kind of business, including a
reinsurance business, specifically recognized
as constituting the doing of an insurance
business within the meaning of this Code;
d.) Doing or proposing to any business in
substance equivalent to the foregoing in a
manner designed to evade the provisions of
this Code.
Fact that no profit derived from contract/transaction is not
deemed conclusive to show that no insurance business was
transacted.
3.) Commissioner: The Insurance Commissioner.
Philamlife v. Ansaldo: The insurance commissioner
has the authority to regulate the business of insurance
(see definition above). The contract of agency is not
include w/in the meaning of the insurance business and
so the insurance commissioner has no jurisidiction.
The quasi-judicial power of the Commish is limited by
law to claims and complaints involving any loss, damage
or liability for w/c an insurer may be answerable under
any kind of policy or contract of insurance. Hence, this
power does not cover the relationship affecting the
insurance company and its agents but is limited to
adjudicating claims and complaints filed by the insured
against the insurance company.
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Crammer INSURANCE 1st Sem.; 2003
against any chance or ticket in a lottery drawing a
Philamcare v. CA: Health care agreement is a contract prize.
of insurance. It has the following elements:
1.) The insured has an insurable interest (his own Sec. 25: A policy contract executed by way of gambling or
health); wagering is void.
2.) The insured is subject to a risk of loss by the
Differences between a contract of insurance and a gambling
happening of the designated peril (incurs expenses of contract:
hospitalization/out-patient services); Gambling Insurance
3.) The insurer assumes the risk; Parties contemplate gain thru’ Parties seek to distribute
4.) Such assumption of risk is part of a general mere chance. possible loss by reason of his
scheme to distribute actual losses among a large group mis-chance.
of persons bearing a similar risk; and Gambler seeks fortune. Insured seeks to avoid
5.) In consideration of the insurer’s promise, the misfortune.
insured pays a premium. Increases inequality of Tends to equalize fortune.
fortune.
Whatever one persons wins What one insured gains is not
from a wager is lost by the at the expense of another
CHAPTER 1. THE CONTRACT OF INSURANCE other wagering party. insured.
When a party makes a wager, Purchase of insurance does
Title 1. What May Be Insured (Against) he creates a risk of loss to not create a risk of loss to the
himself where no such risk purchaser. Reason he
Sec. 3. What may be insured (against): existed previously. purchases is because he
already faces an existing risk
1.) Any contingent or unknown event, whether past
of economic loss.
or future, which may cause damage to a person
having an insurable interest; or
Sec. 5. Applicability of Chapter 1 provisions to all
2.) Any contingent or unknown event, whether past
kinds of insurance: All kinds of insurance are subject
or future, which may create a liability against
to the provisions of this chapter so far as the provisions
the person insured.
can apply.
Validity of insurance policy taken out by
married women and minors: The consent of the
husband is not necessary for the validity of an insurance
policy taken out by a married woman on her life or that Title 2. Parties to the Contract:
of her children. 1.) Insurer;
Rights of insured married women and minors: 2.) Insured.
The married woman or the minor herein allowed to take
out an insurance policy may exercise all rights and Sec. 6. Who may be an insurer: Every person,
privileges of an owner under a policy. partnership, association, or corporation duly authorized
All rights, title and interest in the policy of insurance to transact insurance business as elsewhere provided in
taken out by an original owner on the life or health of a this code.
minor shall automatically vest in the minor upon the
Sec. 184: Insurer/insurance co.: Includes all individuals,
death of the original owner, unless otherwise provided partnerships, associations, or corporations including GOCCs,
for in the policy. engaged as principals in the insurance business, except mutual
benefit associations. Unless the context otherwise requires, the
Art. 1174, CC: Fortuitous events. No person responsible for term shall also include professional reinsurers.
fortuitous events.
Sec. 185: Insurance corporations: Corporations formed or
Art. 110, CC: Married women as administrators of paraphernal organized:
property. Either spouse may transfer the administration of his 1.) To save any person or persons or other corps
or her exclusive property. harmless from loss, damage or liability arising from any
unknown or future contingent event, or
Art. 1327, CC: Who cannot give consent to contracts: 2.) To indemnify or to compensate any person or
1.) Unemancipated minors; persons or other corps for any such loss, damage or
2.) Insane or demented persons; liability, or
3.) Deaf-mutes who do not know how to write. 3.) To guarantee the performance of or compliance
w/ contractual obligations or the payment of debts of
Art. 1390, CC: Voidable contracts: others.
1.) Those where one of the parties is incapable of giving
consent to a contract; Sec. 187: Certificate of authority from the Insurance
2.) Those where the consent is vitiated by mistake, Commissioner is required to transact insurance business.
violence, intimidation, undue influence or fraud.
Sec. 7. Who may be insured: Anyone except a public
Sec. 4. Section 3 does not authorize an insurance for
enemy may be insured.
or against the drawing of any lottery, or for or
Requisites for one to be an insured:

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Crammer INSURANCE
1.) He must be competent to enter into a contract;
2.) He must possess an insurable interest in the
subject of insurance;
3.) He must not be a public enemy.
Public enemy: Nation w/ whom the Phils is at war, and it
includes every citizen or subject of such nation.
Filipinas Cia de Seguros v. Christern Huenefeld &
Co.: Enemy corp. War – Policy ceased to be valid and
enforceable. But premiums returned. Effect of war on
existing insurance contracts between Phils and
citizen/subject of public enemy: Policy ceases to be valid
and enforceable as soon as an insured becomes a public
enemy.
Sec. 8. Insurance taken by mortgagor in his own
name but loss payable to mortgagee (or assigns
policy to mortgagee) deemed to be upon his
(mortgagor’s) interest, but mortgagee may perform any
act under contract of insurance w/c is to be performed
by mortgagor.
Effects when mortgagor effects insurance in his own name and
provides that the loss be payable to the mortgagee:
1.) K deemed to be upon the interest of the m’or, hence he
does not cease to be a party to the K;
2.) Ant act of m’or prior to the loss, w/c would otherwise
avoid the insurance affects the m’ee even if the property
is in the hands of the m’ee;
3.) Any act w/c under the K of insurance is to be performed
by the m’or nay be performed by the m’ee;
4.) In case of loss, the m’ee is entitled to the proceeds to
the extent of his credit;
5.) Upon recovery by the m’ee to the extent of his credit,
the debt is extinguished.
Art. 2127, CC: Security of mortgage extends to indemnity from
insurance.
San Miguel v. Law Union Rock Ins. Co.: Insurance
policies issued in the name of mortgagee (SMB) only.
Altho’ stated that merely m’ee, policies contained no
reference to any other interest in the property. M’or
(Dunn) sold property but no assignment of the policies
were made to the buyer (Harding). SMB liable to
Harding?
No. Insurance applied to exclusively to proper
interest of the person in whose name it is made. Neither
Dunn or Harding can recover on policies. No change or
assignment of the policies had been undertaken.
Besides, owner’s interest not covered by the policies.
SMC only to recover to extent of its mortgage credit.
Grepalife v. CA: Group life insurance plan to insure
lives of eligible housing loan m’ors of DBP. Grepalife
claims that widow of member of group life insurance
plan is not a real party in interest so no jurisidiction.
Wrong! Widow may file suit. Rationale of grp
insurance policy of m’ors is a device for protection of
both m’ee and m’or. Insurance is on the m’or’s interest.
M’or continues to be a party to the contract. M’ee is not
a party to the contract, simply an appointee of the
insurance fund. Insured is real party in interest. Since
Helen C. Arevalo
1st Sem.; 2003
may pass by transfer, will/succession, widow may file
suit.
Sec. 9. When transfer of insurance is made from
mortgagor to mortgagee w/ assent of insurer w/
imposition of additional obligations on assignee, the
mortgagor’s acts do not affect assignee’s rights.
This is an exception to the rule that all acts of the m’or affects
the m’ee: when further obligations imposed on the m’ee.
Title 3. Insurable Interest
Sec. 10. Insurable interest in life and health:
Every person has an insurable interest in the life and
health of:
1.) Himself, of his spouse and of his children;
2.) Any person on whom he depends wholly or in part
for education or support, or in whom he has a
pecuniary interest;
3.) Any person under a legal obligation to him for
the payment of money, or respecting property or
services, of w/c death or illness might delay or
prevent the performance; and
4.) Any person upon whose life any estate or
interest vested in him depends.
Hot tip: Memorize this!
Insurable interest: Person deemed to have insurable interest in
subject matter where he has a relation or connection with or
concern in it that he will derive pecuniary benefit or advantage
from its preservation and will suffer pecuniary loss or damage
from its destruction, termination, or injury by the happening of
the event insured against.
Col. C. Castro v. Insurance Commissioner: Castro
got insurance on the life of his driver. 3 months later,
driver shot to death by “unknown” persons (Colonel is
that you?!!) Does er have insurable interest in his
driver?
I think not, murderer! It must appear that:
1.) There is a real concern in the life of the party
named whose death would be the cause of
substantial loss to those who are named as
beneficiaries (mere relationship insufficient).
2.) The destruction of the life of the insured would
cause pecuniary loss to the complainant.
Lincoln National Life v. San Juan: Er insured life of
ee (tenant in er’s coconut land who goes by the name of
Misteryoso San Juan). Misteryoso very misteryosly
disappeared and a severed and rotting head was later
found in jeep, purportedly his. Can er recover proceeds?
No way! Geez, these employers are sick, man!
El Oriente v. Posadas: El Oriente procured an insurance
policy on the life of A. Velhagen (who had more than 35 years
experience in the cigar mfg business) for $50,000. Velhagen
had no interest/participation in the proceeds of the life
insurance. Did El Oriente had insurable interest over Velhagen’s
life?
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SC said: Yes, El Oriente had insurable interest over the life of
one of their employees (e.g. the Gen. Mgr, I think). This is
because Velhagen had over 35 years of experience in the
business. This is an example of a “Key Man Insurance”…
Velhagen was a key person in the company, that’s why the
company had insurable interest over his life… Sir compared this
case with the Castro case.
Philamcare v. CA: (supra) Health care agreement is an
insurance contract. Health (in this case his own) is an
insurable interest.
Sec. 11. Insured has right to change beneficiary
unless waived
Beneficiary: A person, whether natural or juridical, for whose
benefit the policy is issued and is the recipient of the proceeds
of the insurance.
Sec. 53: To whom insurance proceeds payable (infra).
Sec. 2012, CC: Disqualified beneficiaries: those forbidden from
receiving donation under Art. 739 cannot be named beneficiary
of a life insurance policy by the person who cannot make any
donation to him.
Art. 739, CC: Void donations:
1.) Those made between persons who were guilty of
adultery or concubinage at the time of the donation;
2.) Those made between persons found guilty of the
same criminal offense, in consideration thereof;
3.) Those made to a public officer or his wife,
descendants and ascendants by reason of his office.
Art. 43(4), FC: Revocation of irrevocable beneficiaries in
terminated marriages due to reappearance of absent spouse –
allowed if innocent spouse and other in bad faith.
Art. 50, FC: Revocation of irrevocable beneficiary in marriages
declared void and those annulled by final judgment – allowed
also as in 43(4), FC.
Art. 64, FC: Revocation of irrevocable beneficiary in legal
separation – After final decree, innocent spouse may revoke
designation of offending spouse as beneficiary.
Revocation/change in beneficiary to take effect upon written
notification to insured.
Nario v. Philamlife: Court authorization in a competent
guardianship proceeding is needed in order to proceed
w/ transaction (policy loan or surrender of policy) w/c
involve a disposition or alienation of the property of the
minor beneficiary. Written consent of father-guardian, if
w/o court authorization, is insufficient. Sir says this is no
longer so. Father/mother do not need court authorization since
they are already guardians of their child.
SSS v. Davac: Disqualification of concubinage does not
apply where concubine had no knowledge that she was
such (meaning, where there is no proof that she knew of
the previous marriage).
Gercio v. Sun Life: Cannot change beneficiary in the
absence of stipulation expressly permitting such change.
This was the old rule, it no longer holds true. Now, there is a
Helen C. Arevalo
1st Sem.; 2003
right to change beneficiary even w/o stipulation as long as the
right had not been waived.
Sec. 12. Interest of beneficiary in a life insurance policy
forfeited if beneficiary a principal, accomplice or
accessory in death of insured; nearest relative of
insured to receive proceeds if not disqualified.
Sec. 13. Insurable interest in property is that w/c is
of such nature that a contemplated peril will damnify
an insured
Harvardian College v. Country Bankers: Even if not
owners of the building and so w/o title to the property
insured, building used and in their possession for several
years w/ the knowledge and consent of the owner as the
site of their educational institution. They, therefore, had
an insurable interest in the building since they would
have directly benefited by the preservation of the
property, and certainly suffered a pecuniary loss by its
being burned.
Test in determining insurable interest in property:
Whether one will derive pecuniary benefit or advantage
from its preservation, or will suffer pecuniary loss or
damage from its destruction, termination or injury by
the happening of the event insured against.
Sec. 14. What an insurable interest in property
consists of:
1.) An existing interest;
2.) An inchoate interest founded on an existing
interest; or
3.) An expectancy, coupled w/ an existing interest in
that out of w/c the expectancy arises.
Existing interest: Legal or equitable title.
Inchoate interest: Interest w/c has not yet ripened.
Expectancy: Must be coupled w/ an existing interest in that out
of w/c such expectancy arises.
Traders Insurance v. Golangco: Even if not owner,
can claim insurance proceeds since he still had insurable
interest therein. He was in legal possession and
collecting rentals from its occupant, and so he was
directly damnified by such loss.
Filipino Merchants v. CA: Tiekeng, consignee of
fishmeal and vessel, had insurable interest due to
perfected sale. Such sale was the basis of insurable
interest.
Sec. 15. Insurable interest of a carrier or depositary
is extent of its liability
Lopez v. Del Rosario: Del Rosario, warehouseman,
liable to owner of stored goods (Lopez) for his share.
She acted as the agent of Lopez in taking out the
insurance of the contents of the warehouse.
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Sec. 16. Contingent or expectant interest not
founded on actual right or valid contract not
insurable
Sec. 17. Measure of insurable interest in property
– extent to w/c insured might be damnified by
loss (Property insurance is strictly a contract of
indemnity)
San Miguel v. Law Union Rock: (supra) SMC collects
only to extent of mortgage credit.
Cha v. CA: Cha: lessees; CKS: lessors. Stipulation for
consent contrary to public policy. CKS has no insurable
interest.
Sec. 18. Unenforceability of property insurance
contract by one not having insurable interest
Garcia v. Hong Kong Fire & Marine Ins. Co.:
Merchandise insured but insurance co. mistakenly issued
policy covering building where merchandise stored.
Policy written in English w/c insured did not understand.
Insured should be able to collect.
Sec. 19. Time when insurable interest must exist:
1.) Property insurance: at time insurance takes effect
& at time of loss;
2.) Life insurance: only at time insurance takes
effect.
Tai Tong Chua Che v. Insurance Commissioner:
M’ee who insured mortgaged property of m’or can
collect proceeds of policy since allegation that mortgage
debt was already paid had not been proved.
Sec. 20. Effect of change of interest in thing insured
on contract of insurance:
General rule: insurance suspended until same
person becomes owner of both policy and the thing
insured.
Exceptions:
1.) Life, health and accident insurance;
2.) The change of interest in the thing insured occurs
after the injury w/c results in a loss;
3.) A change of interest in one or more of several
things separately insured by one policy;
4.) A change of interest by will or succession on the death
of the insured;
5.) A transfer of interest by will or succession on the death
of the insured;
6.) A transfer of joint interest by one of several partners,
joint owners or owners in common, who are jointly
insured, to the other.
Sec. 58 (supra): Effect of transfer of thing insured – does not
automatically transfer policy – coverage merely suspended.
Bachrach v. British American Assurance Co.:
Bachrach’s furniture shop burned down. One of the
reasons claim denied was because Bachrach had
executed a chattel mortgage on the properties insured
Helen C. Arevalo
1st Sem.; 2003
w/o consent of the insurer. He should be able to claim
proceeds of policy. There was no express provision
against the execution of a chattel mortgage on the
property insured.
Sec. 21. Change in the thing insured after
occurrence of injury resulting in loss does not
affect right to indemnity
Sec. 22. Change of interest in one or more distinct
things separately insured does not affect
insurance of others
Sec. 23. Change of interest by will or succession of
insured does not avoid the insurance
Sec. 181: Allows life insurance policy to pass by transfer, will or
succession to anyone w/ or w/o insurable interest.
Sec. 24. Transfer of interest by one of partners,
joint owners or common owners who are jointly
insured, to the others, does not avoid the
insurance
Sec. 25. Stipulation in policy for payment of loss
whether insurable interest exists or not, or that
policy is proof of such interest, or policy on
wagering is void (This provision is the authority for
voiding a contract for lack of insurable interest)
Title 4. Concealment
Sec. 26. What is concealment: A neglect to
communicate that w/c a party knows and ought to
communicate.
Requisites of concealment:
1.) A party knows a fact w/c he neglects to
communicate or disclose to the other;
2.) Such party concealing is duty bound to disclose
such fact to the other;
3.) Such party concealing makes no warranty of the facts
concealed; and
4.) The other party has no means of ascertaining the fact
concealed.
Four primary concerns of parties to an insurance contract:
1.) The correct estimation of the risk w/c enables the
insurer to decide whether he is willing to assume it, and
if so, at what rate of premium;
2.) The precise delimitation of the risk w/c
determines the extent of the contingent duty to pay
undertaken by the insurer;
3.) Such control of the risk after it is assumed as will
enable the insurer to guard against the increase of the
risk because of change in conditions; and
4.) Determining whether a loss occurred, and if so, the
amount of such loss.
Sec. 27. Intentional or unintentional concealment
entitles injured party to rescind contract
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Law makes no distinction between intentional and unintentional
concealment. There is no need to prove fraud to be able to
rescind.
Criterion in applying Sec. 27: Was the insurer misled or
deceived into entering a contract obligation or in fixing the
premium of insurance by the withholding of material
information or facts w/in the insured’s knowledge or presumed
knowledge?
Saturnino v. Philamlife: Concealed operation for
cancer involving removal or right breast. Info given
obviously false as well as material. Insurer allowed to
rescind.
Materiality is to be determined not by the event, but
solely by the probable and reasonable influence of the
facts upon the party to whom the communication is due
in forming his estimate of the proposed contract, or in
making his inquiries.
Waiver of medical examination renders even more
material info required concerning previous condition of
health and diseases suffered.
Henson v. Philamlife: There is no need to prove intent
to conceal to warrant rescission.
Sec. 28. Duty of each party in an insurance contract to
communicate to the other, in good faith all facts
material to the contract and as to w/c he makes no
warranty, and w/c the other has no means of
ascertaining (Insurance contract is a contract
“uberrima fides” – meaning “of utmost good faith”) hot
tip: remember meaning of this crazy latin word!
Exception to duty to communicate: Those falling under Sec. 30
Test to determine whether one must communicate: If the
applicant is aware of the existence of some circumstance w/c
he knows would influence the insurer in acting upon his
application, good faith requires him to disclose that
circumstance, though unasked.
Sec. 31: What is material (infra)
Sec. 107: Concealment in marine insurance – in addition to
matters in Sec. 28, all info material to the risk (except those in
Sec. 30) must be communicated.
Sec. 35 (infra): Mere opinion, judgment, or expectation not
necessary to be communicated.
Fieldman’s Insurance v. Songco: Owner of an owner-
type jeep persuaded by insurance agent to enter into a
common carrier insurance contract. After accident,
insurance co. refused to pay up on the ground that the
vehicle was not a common carrier.
Ins. Co. estopped. It knew all along that it was a
private vehicle.
Sec. 29. Failure to communicate information
proving or intending to prove the falsity of a
warranty entitles insurer to rescind – Here the
concealment must be intentional or fraudulent to
warrant rescission.
Helen C. Arevalo
INSURANCE 1st Sem.; 2003
Sec. 30. Matters w/c each party to insurance
contract is not bound to communicate:
1.) Those w/c the other knows;
2.) Those w/c, in the exercise of ordinary care, the
other ought to know, and of which the former
has no reason to suppose him ignorant;
3.) Those of w/c the other waives communication;
4.) Those which prove or tend to prove the
existence of a risk excluded by the warranty,
and w/c are not otherwise material; and
5.) Those w/c relate to a risk excepted from the
policy and w/c are not otherwise material.
Exception: when the other inquires
Insular Life v. Feliciano: Falsified answers due to
collusion between the insured and the insurance agent
and medical examiner. Insurance company absolved
from liability.
Sec. 31. Materiality to be determined by influence
of facts on party in forming estimate of the risk,
not by the event.
Test of materiality: If the knowledge of fact would cause the
insurer to reject the risk, or to accept it only at a higher
premium rate, that fact is material, though it may not even
remotely contribute to the contingency upon w/c the insurer
would become liable, or in any wise affect the risk.
Principal question to ask: Was the insurer misled or deceived
into entering a contract obligation or in fixing the premium of
insurance by the withholding of material information or facts
w/in the insured’s knowledge or presumed knowledge? If so,
then the contract is avoided, even if the cause of the loss w/c
subsequently occurred be unconnected w/ the fact concealed.
Sun Life v. CA: Sorry!
Sec. 32. Each party bound to know:
1.) General causes w/c…
a.) are open to his inquiry, equally w/
that of the other,
b.) may affect either the political or
material perils contemplated.
2.) General usages of trade.
Sec. 33. Right to information of material facts may
be waived by:
1.) Terms of insurance (expressly); or
2.) Neglect to make inquiries where they are
directly implied in other facts already
communicated (impliedly).
Ng Gan Zee v. Asian Crusader Life: Insured stated in
his application that he had a tumor removed from his
stomach. Yun pala, it was actually a portion of his
stomach w/c was removed. Ins. co. now refuses to pay
on ground on false information.
Pay up, damnum you! Can’t rescind the contract.
Insured did not have sufficient knowledge to distinguish
between a tumor and an ulcer. His statement was made
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in good faith. Ins. co. could have made an inquiry as to
the illness and operation. Its failure to do so constituted
a waiver of the imperfection of the answer.
Sec. 34. Nature or amount of interest need not be
communicated.
Exceptions:
1.) In answer to an inquiry; or
2.) When he is not the absolute owner (Sec. 51: items that
must be included in an insurance policy: (e) Interest of
insured in property insured, if he is not the absolute
owner thereof.)
Sec. 35. Opinion or judgment of a party to a contract
not required to be communicated
Sec. 108 (marine insurance): Info of the belief or expectation
of a 3rd person w/ respect to material facts is material.
Title 5. Representation (Importance of
representation: False representation entitles insured
party to rescind – Sec. 45)
Sec. 36. Representation may be oral or written
Representation: A factual statement made by the insured at the
time of or prior to, the issuance of the policy to give
information to the insurer and otherwise induce him to enter
into the insurance contract.
Misrepresentation: A statement…
1.) as a fact of something w/c is untrue;
2.) w/c the insured stated w/ knowledge that it is untrue
and w/ an intent to deceive, or w/c he states as true w/o
knowing it to be true and w/c has a tendency to
mislead; and
3.) where such fact in either case is material to the risk.
Effect of misrepresentation: Renders insurance contract
voidable at the option of the insurer, although the policy is not
thereby rendered void ab initio.
Sec. 37. Representation to be made at time of, or
before issuance of a policy
Sec. 41: representation may be withdrawn or altered before
effectivity date.
Sec. 38. Language of communication the same as
contracts in general
Representations are construed liberally in favor of the insured.
Representations need not be literally true. It is sufficient if they
are substantially true.
Sec. 39. Representation as to the future deemed a
promise unless merely a statement of belief or
expectation
Different kinds of representation:
1.) Oral or written;
2.) Made at time of issuance of the policy or before; and
3.) Affirmative or promissory.
Helen C. Arevalo
1st Sem.; 2003
Affirmative representation: Any allegation as to the existence or
non-existence of a fact when the contract begins.
Promissory representation: Any promise to e fulfilled after the
contract has come into existence or any statement concerning
what is to happen during the existence of the insurance.
Sec. 40. Representation cannot qualify express
provision of contract, but may qualify an implied
warranty
Sec. 41. Representation may be altered or
withdrawn before insurance is effected, but not
afterwards
Sec. 42. Representation refers to date of
effectivity of contract
There is no false representation if the representation was true
at the time the contract takes effect altho’ it was false at the
time it was made. But there is false representation is although/
true at the time it was made, it subsequently becomes false at
the time the contract took effect.
Sec. 43. Effect of representation when person has
no personal knowledge of facts:
1.) He may repeat info w/c…
a.) He believes to be true,
b.) With the explanation that he does so on the
info of others; or
2.) He may submit the info, in its whole extent to
the insurer.
3.) In either case he is not responsible for its
truth.
Exception: it proceeds from an agent of insured
whose duty is to give information.
Harding v. Commercial Union: Proposal form made
out by person authorized to solicit insurance is an act of
the insurer. Facts, even if false, not warranted by
insured in the absence of willful misstatement.
Sec. 44. Misrepresentation: When facts fail to
correspond to assertions or stipulations,
representation is deemed false
Sec. 45. False representation in a material point
entitles insurer to rescind from time it becomes
false. Right to rescind waived by acceptance of
premium despite knowledge
Note that fraudulent intent here is immaterial.
Musngi v. West Coast Life: Concealed that he saw
several physicians for a number of ailments. He knew
that he was suffering from all these ailments yet he
concealed this. This concealment constituted fraud
because the insurance company by reason of such
statement accepted the risk w/c it would otherwise have
rejected.
7 Section 3D
Crammer INSURANCE
Edillon v. Manila Bankers Life: There is was a
provision in the certificate of insurance excluding ins. co.
of liability to persons under 16 or over 60 years of age.
However, insured stated correctly her date of birth
showing that she was already 64 years old. She did not
conceal her age, yet co. accepted her premium and
issued the policy. Co. is estopped from disclaiming
liability.
Collado v. Insular Life:
Accepting overdue premiums does NOT necessarily
deprive it of d right to cancel d policy in case of default.
A reinstated policy should be viewed as a new K, & d
period for contestability for fraud/ breach of warranty in
d application runs from the time of reinstatement.
Sec. 46. Materiality of a representation is governed
by same rules as materiality of concealment
Sec. 31: How materiality determined: not by event but y the
influence of facts on other party in forming an estimate of the
risk.
Sec. 47. Provisions of Chapter 1 applicable to
amendment as well as to original contract
Sec. 48. Incontestable clause; Insurer’s right to
rescind; When must it be commenced:
1.) Non-life policy: before commencement of an
action;
2.) Life insurance policy: incontestable if in force 2
years from date of issue or last
reinstatement.
Sections 227(b), 228(b) and 230(b) make the incontestable
clause compulsory in all life insurance contracts.
Soliman v. U.S. Life: Insurer is once again given 2
years from date of reinstatement to investigate the
veracity of the facts represented in the application for
reinstatement.
Tan v. CA: Key phrase: “2 years”. Does not need to be
during lifetime of the insured. The phrase “during the
lifetime” simply means that the policy is no longer in
force after the death.
Tan Chay Cheng v. West Coast Life: Misrepresent-
ations made. Tan Chay claims that co. cannot rescind
because an axn for performance had already been filed.
Trial court found for Tan Chay holding that an insurer
cannot avoid a policy unless it brings axn. to rescind
before it is sued thereon.
Trial court wrong. Through fraud in its execution, the
policy is void ab initio and therefore no valid contract
was ever made. Not an axn for rescission coz that would
presuppose the existence of a contract. Therefore, not
barred by Sec. 48.
Philamcare v. CA: (supra) Philamcare did not want the
health care agreement to be considered an insurance
contract because the incontestability clause in Sec. 48
Helen C. Arevalo
1st Sem.; 2003
requires that any right to rescind must be exercised
before any axn is commenced on the contract, and w/in
2-year period. But as we all know it is an insurance
contract so the incontestability clause applies.
Title 6. The Policy
Sec. 49. Policy: The written contract of insurance
Contract is the meeting of the minds. The policy is the formal
written instrument evidencing the contract.
The best evidence that a contract has been entered into
between the insurer and the insured is the delivery of the policy
by the insurer to the insured.
Effects of delivery of policy: If delivery is conditional, non-
fulfillment of the condition bars the contract from taking effect.
If unconditional, the insurance becomes effective at the time of
delivery.
Enriquez v. Sunlife: The contract of insurance was not
perfected. It had not been proved that the acceptance of
application ever came to the knowledge of the applicant.
An acceptance of an offer of insurance not actually or
constructively communicated to the proposer does not
make a contract of insurance, as the locus poenitentiae
is ended when an acceptance has passed beyond the
control of the party.
Sec. 50. Formal requirements of a policy:
1.) In printed form w/c may contain blank spaces;
and
2.) Any word, phrase, clause, mark, sign, symbol,
signature, number or word necessary to complete
the contract of insurance shall be written in the
blank spaces provided therein.
Formal requirements of a rider, clause,
warranty, endorsement as part of the contract:
1.) The descriptive title or name of the rider w/c is
pasted or attached to the policy must be
mentioned and written on the blank spaces
provided in the policy; and
2.) Unless applied for by the insured or owner, said
insured or owner must countersign the rider.
Requirements of group insurance and group
annuity policies: May be typewritten and need not be
in printed form.
Sec. 226: Form of policies, application, riders, clauses,
warranties or endorsements must be approved by the
Insurance Commissioner.
Rider: A printed or typed stipulation contained on a slip of
paper attached to the policy and forming an integral part of the
policy. Riders are usually attached to the policy because they
constitute additional stipulations between the parties.
If there is an inconsistency between the policy and the rider,
the rider prevails, it being a more deliberate expression of the
agreement of the parties.
8 Section 3D
Crammer INSURANCE
Warranties: Inserted or attached to a policy to eliminate
specific potential increases of hazard during the policy term
owing to axns of the insured, or conditions of property.
Clauses: Agreements between the insurer and the insured on
certain matters relating to the liability of the insurer in case of
loss.
Endorsement: An endorsement is any provision added to an
insurance contract altering its scope or application.
Sec. 51. Substantive requirements in a contract of
insurance: Policy must specify:
1.) The parties between whom the contract is made;
2.) The amount to be insured except in the case of
open or running policies;
3.) The premium, or if the insurance is of a
character where the exact premium is only
determinable upon the termination of the
contract, a statement of the basis and rates
upon w/c the final premium is to be determined;
4.) The property/life insured;
5.) The interest of the insured in property insured if
he is not the absolute owner thereof;
6.) The risks insured against; and
7.) The period during w/c the insurance is to
continue.
Kinds of insurable risks:
1.) Personal: life or health;
2.) Property: involves loss or damage to property;
3.) Liability: involves liability of the insured for an injury
caused to a person or property of another.
Requirements in order that a risk be insurable:
1.) The loss to be insured against must be important
enough to warrant the existence of an insurable
contract;
2.) The risk must permit a reasonable statistical estimate of
the chance of loss in order to determine the amount of
premium to be paid;
3.) The loss should be definite as to cause, time, place and
amount;
4.) The loss is not catastrophic;
5.) The risk is accidental in nature.
See Sections 227, 228 & 230 for additional matters to be
included in individual, group and industrial life insurance
policies.
Sec. 52. Rules on cover notes (binding receipts or
slips, interim, temporary or provisional policies):
1.) Insurance companies doing business in the Phils
may issue cover notes to bind insurance
temporarily pending the issuance of the
policy.
2.) A cover note shall be deemed to be a contract of
insurance w/in the meaning of Sec. 1(1) of this
Code.
3.) No cover note shall be issued or renewed unless
in the form previously approved by the Insurance
Commission.
4.) A cover note shall be valid and binding for a
period not exceeding 60 days from the date of its
issuance, whether or not the premium therefore
Helen C. Arevalo
1st Sem.; 2003
has been paid, but such cover note may be
canceled by either party upon at least 7 days
notice to the other party.
5.) If a cover note is not so canceled, a policy of
insurance shall w/in 60 days after issuance
of the cover note be issued in lieu thereof.
Such policy shall include w/in its terms the
identical insurance bound under the cover note
and premium therefor.
6.) A cover note may be extended or renewed
beyond the aforementioned period of 60 days w/
the written approval of the Insurance
Commission, provided that such written approval
may be dispensed w/ upon the certification of the
president, VP, or gen mgr of the insurance co.
concerned, that the risks involved, the values of
such risks, and the premiums therefore have not
been determined or established and that such
extension or renewal is not contrary to and is not
for the purpose of violation of any provision of the
Insurance Code.
7.) Insurance companies may impose on cover notes
a deposit premium equivalent to at least 25% of
the estimated premium of the intended insurance
coverage but in no case less than P500.
Cover note: Written memorandum of the most important terms
of the preliminary contract of insurance, intended to give
temporary protection pending the investigation of the risk by
the insurer, or until the issue of a formal policy, provided it is
later determined that the applicant was insurable at the time it
was given.
2 types of preliminary contracts of insurance:
1.) Preliminary contract of present insurance; and
2.) Preliminary executory contract.
Preliminary contract of present insurance: Insurer insures the
subject matter usually by what is known as a “binding slip” or
“binder” or “cover note” w/c is the contract to be effective until
the formal policy is issued or the risk rejected.
Preliminary executory contract of insurance: Insurer makes a
contract to insure the subject matter at some subsequent time
w/c may be definite or indefinite. Under such an executory
contract, the right acquired by the insured is merely a right to
demand the delivery of a policy in accordance w/ the terms
agreed upon and the obligation assumed by the insurer is to
deliver such policy.
Grepalife v. CA: Binding deposit receipt is merely an
acknowledgment of receipt of premium. It is merely
conditional as the insurance co. may still approve or
reject the application. It is not a temporary contract of
life insurance. Grepalife had disapproved of the
application and so the binding deposit receipt never
came into force.
Pacific Timber v. CA: Ins. co. refuses to pay since it
claims that the cover note was null and void due to the
issuance of the policy.
Cover note is not a separate policy. It is integrated
into the regular policies subsequently issued. If it were a
separate policy, its purpose would be rendered
9 Section 3D
Crammer INSURANCE
meaningless. Cover note was w/ consideration. No
separate premiums required.
Sec. 53. Insurance proceeds; to whom payable:
The person in whose name or for whose benefit the
policy was made.
Exception: Sec. 12: Forfeiture of proceeds by life insurance
beneficiary when he is principal, accomplice, or accessory in
willfully bringing about the death of the insured, in w/c case,
proceeds will go to nearest relative of insured.
Art. 2127, CC: The security of a mortgage extends to the
indemnity granted or owing the owner from the insurer.
Bonifacio Bros. V. Mora: Insurance proceeds go
directly to person in whose name policy made. the
proceeds cannot go directly to the dudes who repaired
the car in the absence of stipulation pour autrui in
contract. Since the repairmen and autoparts shop have
no privity of contract w/ the ins. co., they have no cause
of axn.
Coquia v. Fieldman’s Insurance: Where there is an
express stipulation pour autrui (in event of driver, ins.
co. will indemnify his personal representatives),
enforcement of contract may be demanded by a 3rd
party as they have a direct cause of action.
Del Val v. Del Val:
Del Val died intestate. His beneficiary was his son,
Andres. Andres got the proceeds and redeemd parcels
of land sold pacto de retro. Siblings say the proceeds
should got to the estate.
HELD: NO!!!! The proceeds of an insurance policy
belong exclusively to the BENEFICIARY & not to the
estate of the person whose life was insured, and that
such proceeds are the separate & individual property of
the beneficiary, and not of the heirs of the person whose
life was insured.
RCBC v. CA:
Goyu took out a loan from RCBC. He mortgaged his
factories to RCBC. His factories were insured & he told
the insurance agent to endorse policies to RCBS.
Factories were struck by fire. Goyu claimed proceed.
MICO refused on the ground that policies were attached
& proceeds were claimed by other creditors of Goyu.
HELD: RCBC won!
Sec. 53 ordains that the insurance proceeds of the
endorsed policies shall be applied exclusively to the
proper interest of the person for whose benefit it was
made. In this case, to the extent of Goyu's obligation
w/ RCBC, the interest of Goyu in the policies had been
TRANSFERRED to RCBC effective as of the time of the
endorsement.
There are other issues, but this is the one relevant to
this Section. (I hope-rosa)
Helen C. Arevalo 10
1st Sem.; 2003
Sec. 54. Insurance contract w/ agent or trustee as
insured: Fact that principal or beneficiary is the real
party in interest may be indicated in policy.
Insurance may be taken by a person:
1.) personally, or
2.) through his agent or trustee.
If taken thru’ agent or trustee, should indicate that he is merely
acting in a representative capacity since insurance is to be
applied exclusively to the interest of the person in whose name
and for whose benefit it is made.
Sec. 55. Policy terms should be made applicable to
joint interest to render insurance effected by one
partner or part owner applicable to co-partners or
part owners
Sec. 56. Who can claim policy benefits in case of a
general description of insured: he who can show that
it was intended to include him (that he is the person
described; or that he belongs to the class of persons
comprehended in the policy).
Sec. 57. A policy can be framed to inure to the
benefit of whomsoever becomes the owner of the
interest insured
San Miguel v. Law Union Rock: (supra) Since policy
made out only in name of SMC and not framed to cover
owner or his assignees, assignee/owner could not claim
under the policy.
Sec. 58. Transfer of thing insured does not
automatically transfer policy; coverage suspended
until owner of policy and owner of interest are one
and the same
San Miguel v. Law Union Rock: (supra) Transfer of
ownership over property insured does not mean
assignee can recover under policy on that property
unless so stipulated (w/c it wasn’t).
Sec. 59. A policy is either open, valued or running
Sec. 60. What an open policy is: One in w/c the value
of the thing insured is not agreed upon, but is left to be
ascertained in case of loss.
It is one in w/c a certain agreed sum is written on the face of
the policy not as the value of the property insured, but as the
maximum limit of the insurer’s liability.
See Sec. 161: open policy rules in marine insurance; and Sec.
171: open policy rules in fire insurance.
Dev. Ins. Corp. v. IAC: In an open policy, in event of
loss, whether total or partial, it is understood that the
amount of the loss shall be subject to appraisal and the
liability of the company shall limited to the actual loss
and in no case shall exceed the amount of the policy.
Section 3D
Crammer INSURANCE
Sec. 61. What a valued policy is: One w/c expresses
on its face an agreement that the thing insured shall be
valued at a specified sum.
It is one in w/c the parties expressly agree on the value of the
subject matter of the insurance.
See Sec. 156: Valued policy rules in marine insurance; and Sec.
157: Valued policy rules in fire insurance.
Sec. 62. Meaning of a running policy (sometimes
called floating, adjustable, blanket or declaration policy):
One w/c contemplates successive insurances, and w/c
provides that the object of the policy may be from time
to time defined, especially as to the subjects of
insurance, by additional statements or indorsements.
This kind of policy is intended to provide indemnity for property
w/c cannot well be covered by a valued policy because of its
frequent change of location and quantity, or for property of
such nature as not to admit of a gross valuation. It also
denotes insurance w/c contemplates that the risk is shifting,
fluctuating or varying, and w/c covers a class of property rather
than any particular thing.
Advantages of a running policy:
1.) The insured is neither underinsured nor overinsured at
any time, the premium being based on the monthly
wages reported;
2.) He avoids cancellations that would otherwise be
necessary to keep insurance adjusted to the value of
each location, and for w/c cancellations he would be
charged the expensive short rate;
3.) He is saved the trouble of watching his insurance and
the danger of being underinsured in spite of his care,
thru’ oversight or mistake; and
4.) The rate is adjusted to 100% insurance.
Sec. 63. Stipulations limiting commencement of an
action to less than 1 year from the time cause of
action accrues are void
Sec. 231(d): Industrial life policy; Void if less than 6 years.
Sec. 229: Industrial life insurance:
1.) Premiums payable monthly or oftener;
2.) Face amount not more than 500 times minimum wage in
the City of Manila;
3.) “industrial policy” printed on contract.
Art. 1144 & 1445, CC: If no period agreed upon, the action
must be brought w/in 10 years (written contract) or 6 years
(oral contract).
You can stipulate a period when an action based on the
insurance contract can be brought. In the absence of
stipulation, the period is 10 years. However, if you do stipulate
and you limit the period to less than one year, the stipulation is
void.
New Life Enterprises v. CA:
Remember the case with the clarificatory letter. Also,
the contract had a stipulation that an axn should be
commenced within a year d cause of axn accrued.
Helen C. Arevalo 11
1st Sem.; 2003
HELD: The stipulation in the k was EQUAL to 1 year (to
commence an axn), the prohibition is for LESS than 1
yr. Therefore, the stipulation was valid. The SC said
that the 1 year should be reckoned from the 1st rejexn,
NOT the rejexn after the denial of M4recon.
Sec. 64. Cancellation of a policy (other than life)
by the insurer to be effective requires prior notice
and occurrence of enumerated conditions:
1.) Non-payment of premium;
2.) Conviction of a crime arising out of acts
increasing the hazard insured against;
3.) Discovery of fraud or material
misrepresentation;
4.) Discovery of willful/reckless acts/omissions
increasing the hazard insured against;
5.) Physical changes in the property insured w/c
result in the property becoming uninsurable; or
6.) A determination by the Commissioner that the
continuation of the policy would violate or would
place the insurer in violation of this Code.
Cancellation: The right to rescind, abandon or cancel a contract
of insurance.
Non-payment of premium: refers to premiums subsequent to
the first premium because the law speaks of non-payment after
the effective date of the policy. Remember, if you do not pay
the 1st policy, no policy is valid and binding. Therefore, the 1st
premium is the condition precedent to the effectivity of the
insurance. So any premium after the effective date of the policy
must refer to the premiums after the 1st one has been paid.
Sec. 79(b): (infra) Cancellation by insured implied.
Compare with Sec. 66: (infra) non-renewal of non-life policy
Rules in Compulsory Motor Vehicle Liability:
1.) Sec. 380: for written notice of cancellation of CTPL by
insurer – written notice to LTO also needed 15 days
prior to effectivity of cancellation.
2.) Sec. 381: for cancellation of CTPL policy by vehicle
owner or operator – notice to LTO also needed plus
replacement of CTPL policy or bond efore cancellation
effective.
Sec. 65. Conditions for cancellation (by insurer) of
policy (other than life):
1.) There must be prior notice of cancellation to the
insured;
2.) The notice must be based on the occurrence,
after the effective date of the policy, of one or
more of the grounds mentioned in Sec. 64;
3.) The notice must be in writing, mailed or
delivered to the insured at the address shown in
the policy;
4.) It must state which of the grounds set forth in
Sec. 64 is relied upon; and
5.) If so requested by the insured, it is the duty
of the insurer to furnish the facts on which the
cancellation is based.
Section 3D
Crammer INSURANCE 1st Sem.; 2003
Saura v. Phil International Co.: Notice of cancellation meant to be a warranty but a representation. In case of doubt,
by insurer to m’ee alone is not effective as to m’or/ such statement is only considered a representation.
owner. There must be actual and personal notice.
Difference between a warranty and a representation:
Warranties Representations
Malayan Insurance v. Arnaldo: Notice was not
Considered parts of the Collateral inducements to the
effectively made. No proof was presented that the notice contract. contract.
was actually mailed to and received. A valid cancellation Always written on the face of May be written in a totally
requires: the policy, actually or by disconnected paper, or may
1.) Prior notice to insured; reference. even be oral.
2.) Notice must be based on grounds mentioned; Must be strictly complied w/. Substantial truth only
3.) Must be in writing, mailed or delivered to the required.
insured; Falsity/non-fulfillment Falsity renders policy void on
4.) Must state ground for cancellation. operates as a breach of the ground of fraud.
contract.
Presumed material. Insurer must show the
Sec. 66. In non-life insurance, insured is entitled materiality in order to defeat
to renew contract by payment of premium unless axn on policy.
notified by insurer 45 days prior to expiry date
Sec. 70. An express warranty must be in the policy
itself or in another document signed by the insured
Title 7. Warranties and made part of the policy

Sec. 67. A warranty is express or implied
Warranty: A statement or promise set forth in the policy itself
or incorporated in it by proper reference, the untruth or non-
fulfillment of w/c in any respect and w/o reference to whether
the insurer was in fact prejudiced by such untruth or non-
fulfillment, renders the policy voidable by the insurer.
Different kinds of warranty:
1.) Affirmative (Sec. 68);
2.) Promissory (Sec. 72);
3.) Express (Sec. 67); or
4.) Implied (Sec. 67).
Express warranty: An agreement contained in the policy or
clearly incorporated therein as part thereof whereby the insured
stipulates that certain facts relating to the risk are or shall be
true or certain acts relating to the same subjects have been or
shall be done.
Implied warranty: Warranty w/c from the very nature of the
contract or from the general tenor of the words, altho’ no
express warranty is mentioned, is necessarily embodied in the
policy as part thereof and w/c binds the insured as tho’
expressed in the contract.
Affirmative warranty: One w/c asserts the existence of a fact or
condition at the time it is made.
Promissory warranty: One where the insured stipulates that
certain facts or conditions pertaining to the risk shall exist or
that certain things w/ reference thereto shall be done or
omitted. It is the nature of a condition subsequent.
Sec. 68. A warranty may relate to the past, present
or to the future, or any or all of them
Sec. 69. No particular form of words necessary to
create a warranty
When insured stipulates something in the policy or even in the
application form, it is not always a warranty. It depends on his
intention. Sometimes a statement made by the insured is not
Ang Giok Chip v. Springfield Fire & Marine Ins.:
It is well settled that a rider attached to a policy is a
part of the contract, to the same extent and with like
effect as if actually embodied therein. In the second
place, an express warranty must appear upon the face
of the policy, or be clearly incorporated therein and
made a part thereof by explicit reference, or by words
clearly evidencing such intention.
Sec. 71. Express warranty: A statement in the policy
relating to the person or thing insured, or to the risk
as a fact
Sec. 72. Promissory warranty: to do or not to do a
thing that materially affects the risk
An act or omission is material to the risk if it increases the risk.
Under the law, only substantial increase of risk forfeits the
policy.
Sec. 73. Breach of warranty; effect: Avoids contract
of insurance.
Exceptions:
1.) When loss occurs before time for
performance;
2.) When performance becomes unlawful;
3.) When performance becomes impossible.
Sec. 74. Violation of a material warranty or other
material provision by either parties entitles other
party to rescind
Young v. Midland Textile Ins.: Even if (storage of
firecrackers) not cause of the event insured against
(fire), violation of warranty terminates the contract.
Compliance with terms of contract is condition precedent
to right of recovery.
Sec. 75. If specifically stipulated, a violation of a
specified provision shall avoid a policy, otherwise

Helen C. Arevalo 12 Section 3D

Crammer INSURANCE
a breach of immaterial provision does not avoid
the policy
Gen Insurance v. Ng Hua: Stipulation that failure to
give notice that any other insurance was obtained would
result in forfeiture of the benefits. The rebel didn’t give
notice that he had insurance on the same goods w/
another co. Breach of warranty. Insurer entitled to
rescind. Materiality of non-disclosure of other insurance
policies is undoubted.
Sec. 76. Breach of warranty, w/o fraud,
exonerates insurer or prevents policy from
attaching to risk depending on when breach
occurred
Breach of warranty…
1.) Without fraud: policy avoided only from time of the
breach and hence, the insured is entitled to:
a.) a return of premiums paid at the pro rata rate from
the time of the breach if it occurs after the inception
of the contract; or
b.) to all the premiums if it is broken during the
inception of the contract.
2.) With fraud: policy avoided ab initio and the insurer is
not entitled to the return of the premium paid.
Title 8. Premium
Sec. 77. Insurer entitled to premium from moment
risk attached; policy binding only when premium
paid; Exceptions (a life insurance policy where the
grace period applies)
Premium: The agreed price for assuming and carrying the risk.
It is the consideration paid an insurer for undertaking to
indemnify the insured against a specified peril.
Assessment: A sum specifically levied by mutual insurance
companies or associations, upon a fixed and definite plan, to
pay losses and expenses.
Difference between a premium and an assessment:
Premium Assessment
Levied and paid to meet Collected to meet actual
anticipated losses. losses.
Payment of premium, after Legally enforceable once
the 1st, is not enforceable levied.
against the insured.
Not a debt. Is a debt (if properly levied).
Effect of non-payment of premiums:
1.) Non-payment of the 1st premium unless waived prevents
the contract from becoming binding notwithstanding the
acceptance of the application nor the issuance of the policy. But
non-payment of the balance of the premium due does not
produce the cancellation of the contract.
2.) Non-payment of subsequent premiums does not affect
the validity of the contracts unless by express stipulation, it is
provided that the policy in that event be suspended or shall
lapse.
Helen C. Arevalo 13
1st Sem.; 2003
Secs. 227(a), 228(a), 230(a): In the case of life or endowment
insurance, group life insurance and industrial life insurance, the
policy holder is entitled to a grace period of 30 days.
Sec. 78 (infra): acknowledgement of receipt of premium in
policy is binding.
Sec. 177: Surety bond premiums.
Sec. 52 (supra): rules on cover notes.
Sec. 306(2): delivery of policy to agent presumes authority to
collect premium.
Phil. Phoenix v. Woodworks #1: Partial payment,
balance unpaid. No cancellation of contract. Contract
had been perfected and partially performed. Can
demand payment of balance.
Phil. Phoenix v. Woodworks #2: No payment at all.
Policy must be deemed to have lapsed.
Valenzuela v. CA: Valenzuela, agent, is not liable for
unpaid premiums. The policies having lapsed, there is no
more contract or obligation.
South Sea Surety v. CA: Agent, in receiving check for
the insurance premium prior to the occurrence of the
risk insured against, acted as agent holding the
insurance co. liable. Delivery of policy to agent means
he’s authorized to receive payment of any premium.
Premiums paid to agent so co. liable for proceeds.
Areola v. CA: Agent’s receipt is ins. co.’s receipt.
Agent’s failure to remit not a defense, co. is liable for
fraudulent acts of its employees.
Tibay v. CA: Partial payment does not make contract
valid, binding and enforceable. There was an express
stipulation for payment of premium in full. Cannot
collect on policy.
UCPB v. Masagana Telamart: UCPB is in estoppel for
having received 60-90 day credit term.
Sec. 78. Legal fiction of payment of premium for
purposes of making policy binding: Acknowledgment
in policy of receipt of premium is conclusive evidence of
payment for purpose of making policy binding.
American Home Assurance v. CA: Check received as
payment for renewal of policy and a renewal certificate
delivered. Fire occurred. Official receipt for payment
issued. There is valid payment of premium even if the
check was encashed after the fire.
Sec. 79. When insured entitled to return of
premiums:
1.) When no part of thing insured has been
exposed to any of the perils insured against
(whole premium returned);
2.) When the insurance is for a definite period and
Section 3D
Crammer INSURANCE 1st Sem.; 2003
the insured surrenders his policy before
termination thereof (such portion as corresponds
w/ unexpired time, at a pro rata rate,
returned).
Exceptions:
a.) Short period rate agreed upon and appears
on face of policy (exception to pro rata rate).
b.) Life insurance (exception to applicability of
this section).
3.) When the contract is voidable because of fraud or
misrepresentations of the insurer or his agent (Sec. 81
infra);
4.) When the contract is voidable because of the existence
of facts of w/c the insurer was ignorant w/o his fault
(Sec. 81 infra);
5.) When the insurer never incurred any liability under the
policy because of default of the insured other than
actual fraud (Sec. 81 infra);
6.) When there is overinsurance (Sec. 82 infra);
7.) When rescission is granted due to the insurer’s breach of
contract.

Short period rate clause: A clause w/c appears in most fire

insurance policies providing that in the event the policy is
surrendered by the insured for cancellation, the company shall
retain a premium for the time the policy has been in force.

There is no right to recovery of premiums in life insurance

because it is not a divisible contract. It is not an insurance for
any single year, w/ a privilege of renewal from year to year by
paying the annual premium. It is an entire contract of insurance
for life subject to discontinuance and forfeiture for non-
payment of any of the stipulated premiums.

Grepalife v. CA: Late payment. Letter sent to insured

saying policy not in force. Insurer must return premium.
policy inoperative/ineffectual from the beginning. Co.
never at risk and so not entitled to keep premium.

Sec. 80. Insured not entitled to return of premiums

when risk already attached and insurer liable for
any period

Makati Tuscany v. CA: Where the risk is entire and the

contract is indivisible, the insured is not entitled to a
refund of the premiums paid where the insurer was
exposed to the risk for any period, however brief or
momentary.

Sec. 81. Insured entitled to return of premium

when:
1.) Contract voidable due to insurer’s fault; or
2.) Insurer never incurred liability due to:
a.) Insured’s ignorance of facts or
b.) Default other than fraud

Grepalife v. CA: (supra) Never at risk; not entitled to

keep premiums.

Sec. 82. Insured entitled to ratable return of premium

in case of over-insurance.

Helen C. Arevalo 14 Section 3D

Crammer INSURANCE
Title 9. Loss
Sec. 83. Agreement not to transfer claim after loss
happened is void.
Exception: Life insurance
Limitation on the Transfer: Sec 173: Transfer of FIRE policy to
agents of insurer is void if in fraud of creditors
Rationale: Against public policy for it hinders the free
transmission of property from one person to another.
Why should the agreement be void when it is a personal
contract? After loss has been suffered, it is no longer a personal
contract which is being assigned but a money claim OR a right
of action under the policy. There is no moral hazard because
the insurer’s risk cannot be increased anymore since the loss
has already occurred.
Sec. 84. Insurer liable if peril insured against is
proximate cause.
Loss: Injury or damage sustained by the insured in
consequence of the happening of one or more of the accidents
or misfortunes against which the insurer, in consideration of the
premium, has undertaken to indemnify the insured.
Liability of Insurer for Loss: Depends on:
1.) Whether the insured suffers a loss; and
2.) The extent of the loss.
Insurer liable only for a loss PROXIMATELY caused by the perils
insured against although a peril not insured against may have
been the remote cause of the loss.
Proximate cause: That which, in natural & continuous
sequence, unbroken by any new independent cause, produces
an event and without which the event would not have occurred.
It is the efficient cause – one that sets others in motion – to
which the loss is attributed, although other & incidental causes
may be nearer in time to the result & operate more
immediately in producing the loss.
Proximate cause is NOT synonymous to immediate cause.
Sec. 85. Insurer’s liability for loss:
1.) Loss from peril not insured against to which
thing was exposed in rescuing it from peril
insured against; and
2.) Loss caused by efforts to rescue thing insured
from a peril insured against.
Insurer is liable when:
1.) Loss took place while being rescued from the peril
insured against;
2.) Loss took place when, while in the course of rescue,
thing is exposed to a peril not insured against, which
permanently deprived the insured of possession of the
thing;
3.) Loss is caused by efforts to rescue the thing insured
from a peril insured against.
Sec. 86. Insurer liable for loss, the immediate
cause of which was the peril insured against
Helen C. Arevalo 15
1st Sem.; 2003
unless the proximate cause was excepted in
contract
Even if the proximate cause is not the peril insured against, the
insurer may still be held liable if the immediate cause is the
peril insured against.
3 kinds of causes:
1.) Remote;
2.) Proximate; and
3.) Immediate
Sec. 87. Insurer not liable for loss caused by willful act
or with connivance of insured; Insurer liable for
negligence of insured
Insurer is not liable for loss when:
1.) Loss was caused by willful act of insured; or
2.) Through the connivance of the insured.
Exception to the Rule:
Sec 180-A (Suicide Clause): Insurer liable if:
1.) Suicide committed AFTER 2 yrs from date of issue; or
2.) Committed anytime in state of insanity
Insurer is liable for negligence of insured.
Contributory negligence on part of insured does NOT mitigate
insurer’s liability. It has no application to insurance contracts.
Title 10. Notice of Loss
Sec. 88. In fire insurance, failure of insured/
assured to give notice of loss without unnecessary
delay exonerates insurer
Sec. 89. Preliminary proof of loss if required by policy
need not be that required by a court of law; best
evidence enough
Condition that MUST be Complied with BEFORE loss occurs:
Compliance with terms of the policy. The terms of the contract
constitute the measure of the insurer’s liability & non-
compliance therewith by the insured bars his right of recovery.
Condition that MUST be Complied with AFTER loss occurs:
1.) Notice of loss must be given to insurer without delay
(immediately given)
2.) When required by the policy, preliminary proof of loss
(may be given later)
These requirements are NOT exclusive. Certificate of attending
physician as part of proof of death is required in some life &
accident policies.
Notice of loss: More or less formal notice given by the insured
or claimant under a policy of the occurrence of the loss insured
against.
Purpose: To apprise the insurance company with the occurrence
of the loss, so that it may gather info & make proper
investigation while evidence is still fresh & take such action as
may be necessary to protect its interest. In property insurance,
it prevents further loss to the property.
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Crammer INSURANCE
Effect if notice of loss not given: Insurer is exonerated.
When notice of loss must be given: Without unnecessary delay;
within reasonable time.
Proof of loss: More or less formal evidence of the occurrence of
loss given the company by the insured or claimant under a
policy of the occurrence of the loss, the particulars thereof and
the data necessary to enable the company to determine its
liability and the amount thereof.
Purpose:
1.) To give insurer info by which he may determine extent
of his liability;
2.) To afford him a means of detecting any fraud that may
have been practiced upon him;
3.) To operate as a check upon extravagant claims
Form of notice and proof of loss: WALA! It may be given orally
or in writing. However, its advisable to give it in writing for the
protection of the insured or beneficiaries. Para its not your
word against theirs.
Sec. 90. Defects in notice or preliminary proof of loss
waived if insurer omits to specify them as grounds of
objections
Sec 90 presupposes that notice of loss & proof of loss have
already been given. It is the DUTY of the insurer to specify to
the insured all defects in the notice of loss or in the preliminary
proof as grounds for its objection without necessary delay.
Otherwise, same shall be deemed WAIVED.
There is waiver when the insurer:
1.) Writes to the insured that he considers the policy null
& void so that furnishing of notice or proof of loss
would be useless
2.) Recognizes his liability to pay claim
3.) Denies liability under the policy
4.) Joins in the proceedings for determining amt of loss by
arbitration without making objections to the notice &
preliminary proof
5.) Makes no objections on any ground other than a
formal defect in the preliminary proof
General statement that proof is defective is NOT
sufficient. Insurer must specify what those defects are in
order that insured may remedy them.
Malayan Insurance v. Arnaldo: Malayan denied
liability on ground that the certification issued by
the Integrated National Police given by Pinca
(insured) was not a persuasive proof of the
amount of loss. Was notice given sufficient?
YES. Loss & its amount may be determined on
the basis of such proof as may be offered by the
insured, which need not be of such persuasiveness
as is required in judicial proceedings. The
certification was sufficient. Failure of insurer to
specify defects of proof & w/o unnecessary delay
is deemed waiver of all objections to notice and
proof of loss.
Pacific Bank v. CA: Letters were sent as notice of
loss but the subsequent required written notice
and pertinent docs had not been submitted as per
Helen C. Arevalo 16
1st Sem.; 2003
the contract. Since the required claim together
with the relevant docs which contains the
necessary info to ascertain the amount of loss)
had not been complied with, ins. co. cannot be
deemed to have finally rejected insured’s claim
and therefore, no cause of action had yet arisen.
Compliance is a requirement sine qua non to right
to maintain action as prior thereto no violation of
petitioner’s right can be attributable to the ins. co.
Before final rejection, there is no real necessity for
bringing suit. Action was premature.
Sec. 91. Delay in notice or proof of loss waived if caused
by insurer or if he fails to object promptly
2 cases of waiver by the insurer of delay in presentation of
notice or proof of loss:
1.) Delay is caused by an act of the insurer
2.) Insurer omits to take objection promptly & specifically
upon ground of delay
Pacific Timber v. CA: No marine policy yet BUT cover
note issued. Insured logs were lost. Pacific Timber
immediately filed claim. Insurer requested an
adjustment company to inspect & assess the loss
BUT later denied the claim. Was notice given by
Pacific Timber on time?
YES. The defense of delay raised by insurer
cannot be sustained. The law requires that this
ground of delay be promptly & specifically
asserted when a claim on the insurance agreement
is made. (1) Insurer had enough time to
determine if Pacific was guilty of delay BUT failed
to raise the issue. (2) Delay was never raised in
the proceedings which took place with the
Insurance Commissioner.
Sec. 92. If required by policy as a preliminary proof of
loss, the certificate or testimony of person other than
insured satisfies it if insured used reasonable diligence
to procure it; If person refuses to give it, then
reasonable evidence to insurer enough provided refusal
is not based on disbelief in facts
Where the policy requires, by way of preliminary proof of loss,
the certificate/testimony of a person other than the insured, the
insured is merely required to exercise due diligence to procure
it.
If he fails to procure certificate BUT has exercised due
diligence, he would be considered to have complied with the
requirement.
If the third person refuses: Insured must furnish
reasonable evidence that the refusal was made NOT coz
of disbelief on the part of the third person in the facts
necessary to be certified BUT coz of other grounds.
Title 11. Double Insurance
Sec. 93. When double insurance exists:
1.) Person insured is the same;
Section 3D
Crammer INSURANCE
2.) Interest insured is the same;
3.) Risk OR peril insured against is the same;
4.) Subject matter insured is the same; and
5.) Two or more insurers insure separately.
Double insurance is NOT the same as over insurance.
Double insurance Over insurance
There may be no over Amount of insurance is
insurance as when the sum beyond the insured’s insurable
total of the amts of the interest
policies issued does not
exceed the insurable interest
of the insured.
Always Several insurers May only be one insurer
involved
Stipulation in policy that double insurance is prohibited &
violation of stipulation will result in avoidance of the policy is
VALID and reasonable.
Purpose of prohibition against double insurance: To prevent
over insurance & thus avert the perpetration of fraud. The
public & insurer are interested in preventing the situation in
which a loss would be profitable to the insured.
Reason for prohibition of over insurance: An insurance contract
is strictly a contract of indemnity & the insured can’t profit.
The hazard in this is that the insured may be tempted to cause
the peril.
Pioneer Ins. v. Yap: Yap took a fire insurance policy
for his building from Pioneer Insurance which
provided that notice shall be given to Pioneer of
subsequently effected policies, otherwise, all
benefits shall be forfeited. He procured another
fire insurance policy for the same property with
Federal Insurance WITHOUT notifying Pioneer.
When the building burned down, Pioneer denied
Yap’s claim for violation of the notice requirement.
Is Pioneer free from liability?
YES. By plain terms of the policy, other
insurance effected without the consent of Pioneer
would ipso facto avoid the contract. PURPOSE: to
prevent over-insurance & thus avert the
perpetration of fraud. The public, as well as the
insurer, is interested in preventing the situation in
which a loss would be profitable to the insured.
Geagonia v. CA: Geagonia obtained a fire insurance
policy over its stock-in-trade from Country
Banker’s Insurance. The policy provided that (1)
insurer be notified of other policies, otherwise,
benefits shall be forfeited; (2) nullity shall only be
to the extent exceeding P200T of the total policies
obtained. Geagonia obtained a policy from Phil
First Insurance without notice. He now filed a
claim for P100T. Is Country Banker’s Insurance
liable?
YES. #1 only refers to double insurance. There
was no double insurance in this case coz the
second insurance was procured by Geagonia’s
creditor-mortgagee which has a distinct &
Helen C. Arevalo 17
1st Sem.; 2003
separate insurable interest. Non-discloure of the
former policies were NOT fatal to Geagonia’s right
to recover on the policy. Country Banker’s
Insurance is also liable coz it was willing to
assume the risk provided that the TOTAL insurance
does not exceed P200T.
Sec. 94. Consequences of over-insurance in case of
double insurance:
1.) The insured, unless the policy otherwise
provides, may claim payment from the insurers
in such order as he may select, up to the
amount for which the insurers are severally
liable under their respective contracts;
2.) Where the policy under which the insured
claims is a valued policy, the insured must
give credit as against the valuation for any sum
received by him under any other policy without
regard to the actual value of the subject
matter insured;
3.) Where the policy under which the insured
claims is an unvalued policy he must give
credit, as against the full insurable value, for any
sum received by him under any policy;
4.) Where the insured receives any sum in
excess of the valuation in the case of valued
policies, or of the insurable value in the case
of unvalued policies, he must hold such sum in
trust for the insurers, according to their right
of contribution among themselves;
5.) Each insurer is bound, as between himself
and the other insurers, to contribute ratably
to the loss in proportion to the amount for
which he is liable under his contract.
Sec 94 applies only when there is over-insurance by double
insurance, that is, the insurance is contained in several policies
& the total amount of which is in excess of the insurable
interest of the insured.
Example: P6M house.
Insured with:
X: P4M
Y: P2M
Z: P6M
1.) Insured can collect payment from each insurer in such
order as he may select, up to the amount for which
each is liable under its contract. e.g. XYorZ, YXorZ, OR
Z only.
2.) If insured already collects P4M from X, he must credit
against the valuation of P6M for P4M already received
by him without regard to his actual loss. He may
recover the difference of P2M from Y or Z or from both
so long as he does NOT recover more than P2M. If the
insured is fully indemnified for his loss by one insurer,
he cannot file subsequent claims against the others.
3.) In case of an open or unvalued policy, ascertain the
value of loss by showing proof of the amount & extent
of loss then follow same steps. Just remember that
the insured cannot collect more than the value of the
loss.
Section 3D
Crammer INSURANCE 1st Sem.; 2003
4.) Insurer is bound to contribute ratably to the loss in
proportion to the amount for which he is liable under To relieve the insurer from liability under an insurance
his contract. contract, the insurer must reinsure the risk with a
reinsurance company.
Formula: Amount of policy x Loss = Liability of insurer
Total insurance Read with Sec. 215 – retention limits of non-life
companies – not exceeding 20% of net worth on any one
Pro-rata Contribution: risk. 20% of net worth= MAX liability for ONE subject of
X: P4M x P6M = P2M insurance EXCEPT life insurance companies
P12M
Read with Sec. 222 – life insurance company cannot
Y: P2M x P6M = P1M reinsure whole risk on one life or all its insurance in
P12M force without consent of Ins. Commissioner

Z: P4M x P6M = P3M

P12M

If the insured received P6M from Z, X & Y are liable to

Reinsurance Policy Reinsurance Treaty
reimburse Z for their respective shares. However, if there is a contract of indemnity merely an agreement between
pro-rata clause in the policy, where the insurer is liable only for one insurer makes with two insurance companies
his ratable proportion of the loss, the insured cannot exercise another to protect the 1st whereby one agrees to cede &
his right under the 1st policy & he may claim only such amt insurer from a risk it has the other to accept reinsurance
corresponding to his ratable proportion of the loss. already assumed. business pursuant to provisions
specified in the treaty
If the insured collects more then the ratable liability of the Contracts OF insurance Contracts FOR insurance
insurer: The insured should hold the excess IN TRUST for the
insurers. Philamlife v. Auditor General: Philamlife & Airco
entered into a reinsurance treaty with Airco as reinsurer
Formula to Pro-rate:
of Philamlife. Central Bank collected forex margin from
EXCESS x pro-rata contribution (fraction) = Share of
insurer from excess the reinsurance premiums. Philamlife contends that it is
not liable for the tax since pre-existing obligations were
expressly exempt from margin fee. Is the reinsurance
treaty a pre-existing obligation?
Title 12. Reinsurance
NO. Philamlife is liable to pay the forex margin.
Payment of premium is NOT a pre-existing obligation.
Sec. 95. Reinsurance: contract whereby one party
NOTHING in the treaty obligates Philamlife to remit to
(reinsurer) agrees to indemnify another
Airco a fixed & obligatory sum by way of reinsurance
(reinsured/original insurer), either in whole or in
premiums. All that the reinsurance treaty provides is
part, against loss or liability which the latter
that Philamlife agrees to reinsure. The treaty speaks of
(reinsured) may sustain or incur under a separate
a probability & not a reality. For without reinsurance, no
& original contract of insurance with a third party
premium is due.
(original insured).
Sec. 96. Requirement when insurer obtains reinsurance:
Communicate all
Difference between Reinsurance and Double 1.) Representations,
insurance 2.) Knowledge &
3.) Information
he possesses that are material to the risk
Reinsurance Double Insurance
Original insurer becomes an Original insurer remains an Things that insurer-reinsured must communicate to the
insured as far as the insurer reinsurer:
reinsurer is concerned 1.) All the representations of the original insured;
SUBJECT: original insurer’s SUBJECT: Property and
risk 2.) All the knowledge and information he possesses,
Insurance of different interest Insurance of SAME interest whether previously or subsequently acquired,
Original insured has no Insured is the party in interest which are material to the risk.
interest in the K of in all the contract
reinsurance which is Exception: In case of automatic reinsurance treaty.
independent of the original K
of insurance Automatic reinsurance treaty: An agreement between 2
Consent of original insured Consent of original insured or more insurance companies that each will reinsure a
NOT necessary necessary part of any line of insurance taken by the other; such
contract is self-executing and the obligation attaches
automatically on acceptance of a risk by the reinsured.
Reinsurance & surety risks shall be deducted in determining the
In this case, the obligation to communicate is not
risk retained.

Helen C. Arevalo 18 Section 3D

Crammer INSURANCE
necessary due to the self-executing and the automatic
feature of such reinsurance treaty.
Sec. 97. Reinsurance presumed indemnity contract
against liability and not merely against damage
Nature of reinsurance contract: Reinsurer agrees to
indemnify insurer NOT against actual payment but
against liabilities incurred. Thus, it is by no means
necessary that the insurer shall first have paid a loss
accruing, as a condition precedent to his demanding
payment of the reinsurer.
Reason: SM of contract is the INSURER’S RISK and NOT
the property insured under the original policy.
Sec. 98. Original insured (in insurance contract) has no
interest in reinsurance contract
Reinsurance contract: Contract between reinsured & reinsurer
by which the later agrees to protect the former from risks
already assumed. The insured, unless the contract so provides,
has no concern with the contract of reinsurance & the reinsurer
is NOT liable to the insured either as surety or otherwise.
Liability of reinsurer to reinsured: Reinsurer is entitled to avail
itself of every defense which the reinsured might urge in an
action by the person originally insured. e.g. reinsurer not liable
if reinsured not liable to original insured. Reinsurer liable only
to the extent that reinsured is liable.
Liability of reinsurer to original insured:
1.) If the K is only between the insurer & reinsurer,
contemplating only an indemnity to the insurer against
losses suffered by reason of the policies carried by him
the original insured has ABSOLUTELY no interest in the
contract & is a total stranger to it.
2.) If the reinsurance contract contains a stipulation
assigning the right of the insurer in favor of the
insured, then the insured may go after the reinsurer as
an assignee. But the insured-assignee will have no
rights greater than that vested in the insurer-assignor.
3.) If the reinsurance K contains a provision whereby the
reinsurer binds himself to pay the insured for any loss
which the insurer may become obliged to pay under
the original policy, then reinsurer becomes liable to a
suit by the insured under the K of insurance. Insured
may go against BOTH the insurer & reinsurer.
Artex Dev. Corp. v. Wellington Insurance: Wellington
issued an insurance policy over the buildings,
stocks, & machinery of Artex. Later, Wellington
reinsured the risk with Alexander & Alexander.
When fire gutted the insured properties,
Wellington paid Artex BUT left an unpaid balance.
Artex then manifested that since Wellington was
undergoing financial difficulties, it should be
allowed to go after Alexander & Alexander for the
balance. Can Artex recover from Alexander
(reinsurer)?
NO. Artex NOT being a party or privy to
Wellington’s reinsurance contracts, could not
directly demand enforcement of such reinsurance
contracts.
Helen C. Arevalo 19
1st Sem.; 2003
UNLESS there is a specific grant in or assignment of
the reinsurance contract in favor of the insured or a
manifest intention of the contracting parties to the
reinsurance K to grant such benefit to the insured, the
insured NOT being privy to the reinsurance K, has NO
CAUSE OF ACTION against the reinsurer. The stipulation
pour autrui MUST be clearly expressed.
Artex’ right as insured to sue Wellington as
insurer directly & solely should not be affected or
curtailed in any way, by Wellington’s filing a third-
party complaint or separate suit against its
reinsurer.
CHAPTER II – CLASSES OF INSURANCE
Title 1. Marine Insurance
Subtitle 1-A. Definition
Sec. 99. Marine insurance includes:
1.) Insurance against loss of or damage to:
a.) Vessels, craft, aircraft, disbursements,
profits, moneys, securities, choses in
action, evidences of debt, valuable
papers, bottomry, and respondentia
interests and all other kinds of property
and interests therein, in respect to,
appertaining to or in connection with any
and all risks or perils of navigation,
transit or transportation, or while being
assembled, packed, crated, baled
compressed or similarly prepared for
shipment or while awaiting shipment, or
during any delays, storage,
transshipment or reshipment incident
thereto, including war risks, marine
builder’s risks, and all personal property
floater risks;
b.) Person or property in connection with or
appertaining to a marine, inland marine,
transit or transportation insurance,
including liability for loss or for damage
arising out of or in connection with the
construction, repair, operation,
maintenance or use of the subject matter
of insurance;
c.) Precious stones, jewels, jewelry,
precious metals, whether in course of
transportation or otherwise;
d.) Bridges, tunnels and other
instrumentalities of transportation and
communication; piers, wharves, docks
and slips, and other aids of navigation
and transportation;
2.) Marine protection and indemnity insurance, meaning
insurance against legal liability of the insured for loss,
damage or expense incident to ownership,
operation, chartering, maintenance, use, repair
or construction of any vessel, craft or
instrumentality in use in ocean or inland
waterways, including liability of the insured for
personal injury, illness or death or for loss of or
damage to the property of another person.
2 major divisions of transportation insurance:
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Crammer INSURANCE
1.) Ocean marine insurance; and
2.) Inland marine insurance.
Scope of ocean marine insurance: Protection for:
1.) Ships or hulls;
2.) Goods or cargoes;
3.) Earning such as freight, passage money, commissions,
or profits; and
4.) Liability incurred by the owner or any party interested
in or responsible for the insured property by reason of
maritime perils.
Perils of the sea: Casualties due to unusual violence OR
extraordinary action of wind & wave OR to other extraordinary
causes connected with navigation. Embraces all kinds of
marine casualty such as shipwreck, foundering, stranding,
collision & every specie of damage done to ship or goods at sea
by violent action of the wind & waves or losses occasioned by
jettisoning the cargo if it is made for the purpose of saving a
vessel rendered unworthy during the voyage, NOT thru the
fault of the captain.
Not covered: Losses resulting from ordinary wear & tear OR
other damage usually incident to the voyage are not included.
Mere fact that the injury is due to the violence of some marine
force does NOT necessarily bring it w/in the protection of the
policy of such violence NOT unusual or unexpected.
Perils of the ship: Loss which in the ordinary course of events,
results
1.) From natural & inevitable action of the sea
2.) From wear & tear of the ship
3.) From negligent failure of the ship owner to provide
vessel with proper equipment to convey cargo under
ordinary conditions (Go Tiaco v. Union Insurance
Society of Canton)
The insurer does NOT undertake to insure against perils of the
ship BUT only perils of the sea. Insured can hold insurer liable
only for perils of the sea. For perils of the ship, the injured
party must look to the ship owner for redress. For the insurer
to be liable, perils of the sea must be the proximate cause of
the loss.
Scope of Inland Marine Insurance: Risk must involve an
element of transportation.
4 classes of inland marine insurance:
1.) Property in transit: Insurance provides protection for
property frequently exposed to loss while it is in
transport from one location to another
2.) Bailee liability: Insurance provides protection to
persons who have temporary custody of goods
(carriers, laundrymen, warehousemen, & garage
keepers)
3.) Fixed transportation property: Insurance covers
bridges, tunnels, & other instrumentalities of transpo &
communication. They are insured coz they are held to
be an essential part of the transpo system.
4.) floater: Provides insurance to follow the insured
property wherever it may be located, subject to
territorial limits of the K. Floater policies may be
issued for items like jewelry, fur, works of art,
contractor’s equipment, theoretical property, salesmen
samples & others. Although floaters are issued on the
basis of the transportation or movement of good, they
have also been issued to properties seldom moved.
Helen C. Arevalo 20
1st Sem.; 2003
Go Tiaco v. Union Insurance: Go Tiaco insured a
cargo of rice with Union Insurance. The rice was
damaged BUT Union Insurance refused to pay
alleging that the ship was unseaworthy. Is Union
Insurance liable?
NO. Seaworthiness as to the ship is different as
to seaworthiness as to the cargo. In this case, the
vessel may be seaworthy as to the ship BUT it is
not seaworthy as to the cargo. The entrance of
sea water into the ship’s hold thru the defective
pipe already described was not due to any
accident which happened during the voyage BUT
to the failure of the ship’s owner to repair a defect
the existence of which he was appraised.
Filipino Merchants Ins. v. CA: Choa Tiek Seng is the
consignee of a shipment of fishmeal insured by
Filipino Merchants. When the shipment was
damaged, Filipino Merchants refused to pay as the
“all risks policy” excluded accidents. Is FM liable?
YES. FM failed to discharge the burden of proof
that the cause of the loss was not an insured peril.
Subtitle 1-B. Insurable Interest
Sec. 100. Insurable interest of shipowner when ship
chartered.
Insurable interest of owner of the ship: On the vessel to the
extent of its value. He continues to have insurable interest even
if he mortgaged or chartered the vessel to a third person who
agrees to pay him its value in case of loss. However, the
insurer is only liable only for the part of the loss which the
insured cannot recover from the charterer.
insurable interest of owner of the ship IF CHARTERED: To the
extent that he can’t recover from the charterer
Sec. 101. Insurable interest of shipowner if
hypothecated by bottomry: Excess of its value over
amount of bottomry loan.
Insurable interest of lender: To the extent of the loan.
Loan on bottomry: Payable only if vessel is given as security for
the loan completes in safety the contemplated voyage. Lender
is entitled to high rate of interest to compensate him from the
risk of losing his loan. Owner of the vessel receives in case of
loss no indemnity BUT he does secure immunity from payment
of the loan.
Respondentia loan: Loan on goods
Sec. 102. Meaning of freightage in marine insurance:
ALL 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
Sources of freightage:
1.) Chartering of ship
2.) Employment of ship for carriage of owner’s goods
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3.) Employment of ship for carriage of another’s goods
Sec. 103. Insurable interest of shipowner in expected
freightage: The shipowner has an insurable interest in
expected freightage which according to the ordinary and
probable course of things he would have earned but for
the intervention of a peril insured against or other peril
incident to the voyage.
Sec. 104. When insurable interest in freightage of
charter party exists: When the ship has broken ground
on the chartered voyage.
If a price is to be paid for the carriage of goods, it exists
when:
1.) They are actually on board; or
2.) There is some contract for putting them on
board, and both the ship and goods are ready for
the specified voyage.
Sec. 105. Insurable interest in profits. One who has an
interest in the thing from which profits are
expected to proceed has an insurable interest in
the profits.
To give an insurable interest in expected freightage, the
insured must have an inchoate right to freight. He must
be in such position with regard to freight that nothing
could prevent him from ultimately having a perfect right
to it but the intervention of the perils insured against.
Sec. 106. Insurable interest of charterer of ship: To the
extent that he is liable to be damnified by its loss.
Insurable interest of a charterer:
1.) Value of ship IF charter stipulates charterer to pay
ship’s value in case of loss
2.) Profit he expects to earn by carrying goods, in excess
of the charter hired
3.) Up to the extent that he is liable to be damnified by its
loss.
Different types of charter parties:
1.) Contracts of affreightment: use of shipping space on
vessels leased by the ship owner in part or as a whole,
to carry goods for others
a.) Time charter: vessel is leased to charterer
for fixed period of time
b.) Voyage charter: ship is leased for a single
voyage
2.) Charter by demise or bareboat charter: by the terms
of which the whole vessel is let to the charterer with a
transfer to him of its entire command & possession &
consequent control over its navigation including the
master & crew who are its servants
Subtitle 1-C. Concealment
Sec. 107. What information (other than that required
in section 28) each party in marine insurance is bound
to communicate to the other: All the information he
possesses, material to the risk, except such as is
mentioned in Sec. 30, and to state the exact and
whole truth in relation to all matters that he
Helen C. Arevalo 21
1st Sem.; 2003
represents, or upon inquiry discloses or assumes
to disclose.
Concealment: Failure to disclose any material fact or
circumstance which in fact or law is within OR which
ought to be within the knowledge of one party & for
which the other has no actual of presumptive knowledge.
Sec. 108. In marine insurance, info of belief or
expectation of 3rd party with respect to a material fact is
material
In marine insurance, the rule is STRICTER coz the insured is
bound to communicate to the insurer not only (1) facts BUT
also (2) beliefs or opinions of 3rd persons OR (3) expectations of
3rd persons. Thus, there is concealment where the insured at
the time of application for insurance did not disclose the opinion
of marine experts who inspected the vessel insured that it was
unseaworthy.
Sec. 109. Presumption of knowledge of prior loss
Sec 109 establishes a rebuttable presumption of knowledge of a
prior loss on the part of the insured “if the info might possibly
have reached him in the usual mode of transmission at the
usual rate of communication.
Reason: Quickness in transmission of news by means of
modern communications
Sec. 110. Concealment in marine insurance does not
vitiate entire contract but merely exonerates insurer
with respect to matters enumerated
1.) National character of the insured;
2.) Liability of the thing insured to capture and
detention;
3.) Liability to seizure from breach of foreign
laws of trade;
4.) Want of necessary documents;
5.) Use of false and simulated papers.
General Rule: Concealment of material fact entitles the injured
party to rescind the entire contract of insurance.
Exception: Under this Section, concealment of any of the
matters enumerated does NOT avoid the policy ab initio.
If the vessel is lost by any of the causes in 110 which was
concealed, insurer is NOT liable.
If vessel is lost by other perils of the sea like a storm,
the insurer is liable.
Subtitle 1-D. Representation
Sec. 111. Marine insurer entitled to rescind contract if
representation is intentionally false in any material
aspect
Compare with Sec. 45 where intent is not essential
Sec. 112. Falsity of representation as to expectation in
absence of fraud does not avoid contract
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Effect of False Representation of FACT in Marine
Insurance:
1.) If made with FRAUDULENT intent: avoids policy
2.) NOT intentional BUT material: insurer may also
rescind
Effect of Falsity of Representation as to EXPECTATIONS
REPRESENTATIONS OF EXPECTATION: Statements of future
facts or events which are in their nature contingent & which the
insurer is bound to know that the insured could not have
intended to state as known facts, but as intentions or
expectations merely. MUST be made with fraudulent intent to
be a ground for rescission.
Examples:
1.) Vessel will sail or is expected to sail
2.) Nature of cargo to be shipped
3.) Amt of profits expected
4.) Destination of vessel
5.) Statement that the insured has no doubt that he can
get insurance effected for a certain premium
Note: Fraudulent intent as ground for rescission is
material only in marine policies. For other insurance
contracts, intent is immaterial & the insurer has a right
to rescind in case of misrepresentation or concealment.
Subtitle 1-E. Implied Warranties
Sec. 113. Seaworthiness of ship an implied warranty in
marine insurance
Warranty: Stipulation, either expressed or implied, forming part
of the policy as to some fact, conditions, or circumstance
relating to the risk.
Implied Warranties:
1.) Seaworthiness at inception of voyage (Sec. 113);
2.) Carry proper documents if nationality expressly
warranted (Sec. 120);
3.) No improper deviation (Secs. 123-125);
4.) Not an illegal venture (Vance).
Madrigal v. Hanson: Isla Verde, owned by Madrigal,
was chartered by Mabanta & insured by Hanson.
The vessel sank. Hanson denies liability as the
vessel was unseaworthy. Was the vessel not sea
worthy, thus, making Hanson liable?
NO. The vessel was unseaworthy coz (1) no typhoon
at time it sank; (2) waves were not rough; (3) launch
did not touch bottom or hit anything during her cruise;
(4) water was bubbling in the engine room.
Unseaworthiness of the vessel, thus, precludes recovery.
Roque v. IAC: Roque insured its logs with Pioneer
Insurance. The logs were loaded on Mla Bay
Lighterage Corporation’s barge which sank.
Pioneer Insurance denied liability as the ship was
not seaworthy. Was the ship seaworthy?
NO. Seaworthiness as to the ship is different as to
seaworthiness as to the cargo. In this case, the vessel
was seaworthy as to the ship BUT NOT seaworthy as to
the cargo.
Helen C. Arevalo 22
1st Sem.; 2003
Cargo can be the subject of marine insurance & once
it is contracted, the implied warranty of seaworthiness
immediately attaches to whoever is insuring the cargo,
w/r he be the owner or not. Cargo owner has the
obligation to choose a common carrier that takes care of
its ships. While the cargo owner has no control over the
ship itself & its seaworthiness, he has control over the
choice of shipping company to use.
The cause of the loss was perils of the ship &
NOT perils of the sea. An insurer is only liable for
perils of the sea.
Sec. 114. Meaning of seaworthiness: Reasonably fit to
perform the service, and to encounter the ordinary
perils of the voyage, contemplated by the parties
to the policy.
Sec. 115. Seaworthiness satisfied if ship seaworthy at
start of voyage; Exceptions:
1.) In the case of a time policy: The ship must
be seaworthy at the commencement of
EVERY voyage she may undertake;
2.) In the case of cargo policy: each vessel
upon which the cargo is shipped or
transshipped must be seaworthy at the
commencement of EAC PARTICULAR
voyage;
3.) In the case of a voyage policy
contemplating a voyage in different stages,
the ship must be seaworthy at the
commencement of EACH PORTION.
Sec. 116. Seaworthiness of ship means it must be
properly laden and refers not only to body of vessel but
also to crew and equipment
Sec. 117. Where different portions of voyage are
contemplated in the policy, a ship must be seaworthy at
start of every portion
Sec. 118. Unseaworthiness during the voyage must be
attended to by shipowner or captain without reasonable
delay, otherwise insurer exonerated from loss
Sec. 119. Seaworthiness of vessel for hull insurance is
not necessarily seaworthiness for purposes of cargo
insurance
Seaworthiness: Relative term depending upon the nature of the
ship, the voyage, and the service in which she is at the time
engaged.
Nature of ship: Vessel must be in a fit state as to:
1.) Repair
2.) Equipment
3.) Crew
4.) All other respects to perform the voyage insured & to
encounter the ordinary perils of navigation
5.) Suitable condition to carry the cargo to be put on
board or intended to be put on board
6.) NOT necessary that cargo itself shall be seaworthy
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Nature of the voyage: What is reasonable fitness to encounter
perils expected to arise in the curse of the voyage vary
naturally with the character of the voyage.
Nature of service: Reasonably capable of safely carrying the
cargo to its port of destination.
Seaworthiness does not mean you need to have a perfect
vessel. Only that which is sufficient for the kind of vessels
insured & the service in which they are employed.
Compliance of Seaworthiness:
General Rule: Complied with if the ship be seaworthy at
time of commencement of the risk. Prior or subsequent
seaworthiness is not a breach of the warranty; nor is it material
that the vessel arrives in safety at the end of her voyage.
There is no implied warranty that the vessel will remain in
seaworthy condition throughout the life of the policy.
Exceptions:
1.) TIME POLICY: seaworthy at commencement of EVERY
voyage she may undertake
2.) CARGO POLICY: seaworthy at commencement of
EACH PARTICULAR VOYAGE
3.) VOYAGE POLICY: contemplating a voyage in different
stages, seaworthy at commencement of EACH
PORTION.
Scope of Seaworthiness:
1.) Vessel:
a.) Equipment & appliances appropriate to
voyage in which it is engaged & cargo it
carries
b.) Sufficient fuel, stores, & provisions to last for
the entire voyage
c.) Sufficient number of competent officers &
men
d.) Properly loaded, stowed, dunnaged, &
secured so as not to imperil navigation of
vessel OR cause injury to vessel or cargo
Ship becomes unseaworthy during voyage: Duty of the
master as the ship owner’s representative to exercise
due diligence to make it seaworthy again & if LOSS
should occur coz of negligence in repairing the defect,
the insurer is relieved of liability.
Philamgen v. CA: Coca cola loaded bottles on MV
Asilda owned by Felman. Shipment insured by
Philamgen. Vessel sank.
Unseaworthy as to cargo. Top-heavy. Carrying
deck cargo raises presumption of
unseaworthiness.
Sec. 120. Express warranty on nationality or neutrality
of vessel implies requisite documents are carried on
board (Implied warranty to carry required documents)
If you EXPRESSLY WARRANT the nationality or neutrality
of the ship or cargo, you impliedly warrant that you will
carry the documents showing or proving such nationality
or neutrality.
Subtitle 1-F. The Voyage & Deviation
Helen C. Arevalo
1st Sem.; 2003
Sec. 121. Voyage contemplated by marine insurance
policy with points of departure and ending refers to
route fixed by mercantile usage
Sec. 122. If sailing route is not fixed by mercantile
usage, the voyage insured is that to which a master of
ordinary skill and discretion would be most natural,
direct and advantageous
Sec. 123. Deviation is:
1.) A departure from the course of the voyage
2.) Unreasonable delay in pursuing voyage
3.) The commencement of an entirely different
voyage
Deviation: Unexcused departure from the regular course or
route of the insured voyage OR any other act which
substantially alters the risk
4 cases of deviation:
1.) Departure from course of sailing fixed by mercantile
usage
2.) NOT FIXED BY MERCANTILE USAGE: departure from
most natural, direct, & advantageous route
3.) Unreasonable delay in pursuing voyage
4.) Commencement of entirely different voyage
In case of proper deviation, the effect is as if there was
no deviation at all. Hence, it is not that the insurer is
exonerated from liability, BUT that the INSURER WAS
NEVER LIABLE.
Sec. 124. Instances when deviation is proper:
1.) When caused by circumstances over which
neither the master nor the owner of the
ship has any control;
2.) When necessary to comply with a warranty,
or to avoid a peril, whether or not the peril
is insured against;
3.) When made in good faith, and upon
reasonable grounds of belief in its necessity
to avoid peril; or
4.) When made in good faith, for the purpose
of saving human life or relieving another
vessel in distress.
Sec. 125. Deviation not specified in Sec. 124 is improper
Sec. 126. Insurer not liable if loss occurred after an
improper deviation
Kinds of deviation:
1.) Proper deviation;
2.) Improper deviation.
Effect of improper deviation: Insurer becomes
immediately absolved from further liability under the
policy for losses occurring SUBSEQUENT to (NOT before!)
the deviation, notwithstanding the fact that the deviation
did not increase the risk not in any wise contribute to the
loss.
23 Section 3D
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Subtitle 1-G. Loss
Sec. 127. Loss is either total or partial
Sec. 128. When loss not total, it is partial
Sec. 129. Total loss is either actual or constructive
Sec. 130. Actual loss and causes thereof
Kinds of losses:
1.) Total
a.) Actual
b.) Constructive
2.) Partial
Effect of total loss: Underwriter is liable for the WHOLE
AMOUNT INSURED
Actual Total Loss: SM of insurance is wholly destroyed or lost or
when it is so damaged as no longer to exist in its original
character. Complete physical destruction is not essential to
constitute actual total loss.
Causes:
1.) Total destruction of the thing insured
2.) The irretrievable loss of the thing by sinking OR by
being broken up
3.) Any damage to the thing which renders it valueless to
the owner for the PURPOSE for which he held it
4.) Any other event which effectively deprives the owner
of the possession, at the port of destination, of the
thing insured.
PMC v. Union Insurance: PMC was the owner of a
lighter. Union Ins. issued it a policy for absolute
total loss of the lighter. Typhoon, it sunk,
salvaged, cost of repairs = cost of ship. Union Ins.
refuses to pay saying that hindi sya absolute total
loss since they salvaged the wreck and put it back
into operation.
Hello?!! Syempre absolute total loss sya. Nag-
sink nga yung ship, eh! PMC had to spend more
than the original cost of the vessel when repairing
it. Union Ins. must pay up.
Malayan v. CA: TKC Mktg insured its soya bean meal
with Malayan Ins. Co. While docked in Durban,
South Africa, shipment arrested and detained.
Malayan liable for loss. “Arrest” caused by
ordinary judicial process included among the
covered risks. There was a constructive total loss
over the cargo.
Sec. 131. Constructive total loss or “technical total loss”
is one which gives insured the right to abandon under
Sec. 139
Constructive total loss: One in which the loss, although
not actually total, is of such a character that the insured
is entitled, if he thinks fit, to treat it as a total loss by
abandonment.
Helen C. Arevalo 24
1st Sem.; 2003
In cases of actual total loss, no abandonment is
necessary, but if the loss is merely constructively total,
an abandonment becomes necessary in order to recover
as for a total loss.
Sec. 132. Presumption of actual loss arises from
continued absence of ship without being heard from;
length of time depends on circumstances
Presumption: Where a vessel is not heard of at all within
a reasonable time after sailing, or for a reasonable time
after she was last seen, she will be presumed to have
been lost from a peril insured against.
Sec. 133. Liability of insurer continues during
reshipment if ship is prevented from completing voyage
by a peril insured against
Type of insurance contemplated under 133: Cargo.
It is well-settled that if the original ship be disabled, and
the master. Acting with wise discretion forwards the
cargo in another ship, such necessary and justifiable
change of ship will not discharge the underwriter on the
goods from liability for any loss which may take place on
goods subsequent to such reshipment. In any case
however, the insurer may always require an additional
premium if the hazard is increased by the extension of
liability.
Sec. 134. Marine insurer also liable for damages,
expenses for discharging, storage, reshipment, extra
freightage and other expenses in saving cargo reshipped
– but only up to amount insured
Expenses contemplated in 134: Those necessary to
complete the transportation of cargo reshipped under
Sec. 133.
The insurer is liable for them in addition to paying for
any loss or damage which may take lace on the goods,
due to the perils insured against. The liability however of
the insurer under Sec. 134 cannot exceed the amount of
the insurance.
Sec. 135. Insured entitled to payment in actual total
loss; no need of abandonment
In case of actual total loss, the right of the insured to
claim the whole insurance is absolute. Hence, he need
not give notice of abandonment nor formally abandon to
the insurer anything that may remain of the insured
property.
Pan Malayan Ins. v. CA: FAO transported its rice
seeds to Vietnam. Barge sank in the China Sea.
Some bags of seed were recovered.
Still an absolute total loss. All bags were
rendered valueless for their purposes since when
they got wet, they started to germinate. Since
absolute total loss, no need for notice of
abandonment.
Sec. 136. Free from particular average (FPA) coverage
does not cover particular or simple average losses
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unless loss is total; but insurer liable for general or
gross average loss
Average: Any extraordinary or accidental expense
incurred during the voyage for the preservation of the
vessel, cargo or both; and all damages to the vessel and
cargo from the time it is loaded and the voyage
commenced, until it ends and the cargo is unloaded (Art.
806, Code of Commerce)
Kinds of Average:
1.) Gross or general average: Include damages and
expenses which are deliberately caused by the
master of the vessel or upon his authority, in
order to save the vessel, her cargo, or both at
the same time from a real or known risk. A
general average loss must be borne equally by
all of the interests concerned in the venture
(Sec. 812, Code of Commerce).
2.) Simple or particular averages: Includes all
damages and expenses caused to the vessel or to
her cargo which have not inured to the common
benefit and profit of all the persons interested in
the vessel and cargo. They refer to those losses
which occur under such circumstances as do not
entitle the owners to receive contribution from
other owners concerned in the venture. It is
suffered by and borne alone by the owner of the
cargo or of the vessel, as the case may be (Sec.
808, Code of Commerce).
Principle behind general average: Principle of customary
law, independent of contract, whereby when it is decided
by the master of a vessel, acting for all the interests
concerned, to sacrifice any part of a venture exposed to
a common and imminent peril in order to save the rest,
the interests so saved are compelled to contribute
ratably to the owner of the interest sacrificed, so that
the cost of the sacrifice shall fall equally upon all.
Requisites to the right to claim general average
contribution:
1.) There must be a common danger to the vessel or
cargo;
2.) Part of the vessel or cargo was sacrificed
deliberately;
3.) The sacrifice must be for the common safety or
for the benefit of all;
4.) It must be made by the master or upon his
authority;
5.) It mustn’t be caused by any fault of the party
asking for contribution;
6.) It must be successful, i.e. it resulted in the
saving of the vessel and/or the cargo; and
7.) It must be necessary.
Example: Jettisoning of goods to lighten the vessel.
Jettison: Intentional casting overboard of any part of a
venture exposed to a peril in the hope of saving the rest
of the venture.
Liability of insurer for general average: His proportion.
He is placed on same footing as other persons who have
an interest in the vessel, or the cargo therein, at the time
of the occurrence of the general average and who are
compelled to contribute.
Helen C. Arevalo
1st Sem.; 2003
Formula for computing liability of insurer:
Loss x Amount insured = Contribution
Value
Liability of insurer for particular average: If the parties
stipulate that the insurer will be liable for “general
average only” he will not be liable for particular average
unless such particular average loss has the effect of
depriving the insured of the possession at the port of
destination of the whole of the thing insured.
Sec. 137. Insurance covering actual total loss does not
include constructive total loss. However, it includes
deprivation of possession of thing insured at port of
destination
Subtitle 1-H. Abandonment
Sec. 138. Abandonment is act of insured after a
constructive total loss in relinquishing to insurer his
interest in thing insured
Abandonment: The act of an insured in notifying the insurer
that owing to damage done to the subject of the insurance, he
elects to take the amount of insurance in the place of the
subject thereof, the remnant of which he cedes to the insurer.
Requisites for a valid abandonment:
1.) There must be an actual relinquishment by the person
insured of his interest in the thing insured.
2.) There must be a constructive total loss.
3.) The abandonment is neither partial nor conditional.
4.) The abandonment must be made within a reasonable
time after receipt of reliable information of the loss.
5.) It must be factual.
6.) It must be by giving notice thereof to the insurer
which may be done orally or in writing.
7.) The notice of abandonment must be explicit and must
specify the particular cause of the abandonment.
Sec. 139. Abandonment may be done when more than
¾ of value will be suffered by insured to recover thing
insured or its equivalent
When the insured may abandon the thing insured: When the
loss or damage is more than three-fourths of its value.
Rule when the insurance is divisible: Any particular
portion of the thing insured separately valued by the
policy may be separately abandoned as it is deemed
separately insured.
See also Sec. 146 for consequences of abandonment
Oriental Assurance Corp. v. CA: Logs insured for total
loss only. They were loaded onto 2 barges. 1 of the
barges was damaged due to rough seas and strong
winds and so most of the logs on that barge were
lost. Was there constructive total loss?
NO. Contract indivisible. No Constructive loss.
The logs, although placed on 2 different barges,
were not separately valued by the policy, nor
separately insured. The logs having been insured
as one inseparable unit, the correct basis for
25 Section 3D
Crammer INSURANCE
determining the existence of constructive total
loss is the totality of the shipment of logs. 2/3
requirement not met.
Pan Malayan Ins. v. CA: Barge on which FAO rice
seed on the way to Vietnam was sank in China
Sea.
Total loss due to germination. No need to go
into issue of validity of abandonment since in
actual total loss, a person is entitled to payment
without notice of abandonment.
Sec. 140. Abandonment must not be partial nor
conditional
The abandonment must be entire and absolute and cover
the whole interest insured. It must be unconditional and
unfettered by contingencies and limitations.
Sec. 141. Abandonment must be made within
reasonable time from receipt of information of loss
When abandonment must be made: When the insured
has received notice of a loss, he must elect within a
reasonable time whether he will abandon to the insurer,
and if he so elects, he must give notice thereof within a
reasonable time. This is in order that the insurer may not
be prejudiced by the delay, and may take immediate
steps for the preservation of such property insured as
may remain in existence.
Sec. 142. If basis for abandonment is incorrect then it is
ineffectual
When the loss must exist: At the time of abandonment.
When abandonment is ineffectual:
1.) When the information upon which an abandonment
has been made proves incorrect; and
2.) When the thing insured was so far restored when the
abandonment was made that there was in fact no total
loss.
Information required in order for the insured to abandon: Need
not be direct or positive. A newspaper report, a letter from an
agent or a notice from the master is sufficient. As long as the
information is of facts and circumstances that renders it highly
probable that a constructive loss has occurred, that is enough.
Sec. 143. Notice of abandonment to insurer may be oral
or written, if oral, written notice must be submitted
within 7 days
Form of notice: Written or oral. But if oral, must give written
notice within 7 days.
It need not be made by insured himself. Can be made by
an authorized agent.
Sec. 144. Notice of abandonment must be explicit,
specifying particular cause; Probable cause not enough,
no need of proof of interest or loss
Helen C. Arevalo 26
1st Sem.; 2003
Sec. 145. Abandonment sustained only upon specified
cause in notice
Meaning: If the cause you specified in the notice is non-
existent, you will not be allowed to adduce evidence to
prove other causes for abandonment which you did not
so specify.
Sec. 146. Abandonment equivalent to transfer of
interest from insured to insurer
Effect of valid abandonment: It transfers to the
underwriter the interests in the subject matter covered
by the policy subject to the rights and interests, if any, of
third persons. The underwriter acquires thereby the
entire interest insured, together with all its incidents,
including rights of action which the insured has against
third persons for injury. In other words, the insurer
becomes entitled to all the rights which the insured
possessed in the thing insured.
Sec. 147. If marine insurer pays for loss as if actual total
loss, the he is entitled to remainder of thing insured,
proceeds, or salvage as if abandoned
When formal abandonment necessary: Only in constructive
loss.
Situation contemplated by this article: There is a
constructive loss but without waiting for a formal
abandonment, the insurer (magnanimously) pays the
insured as if the loss were actual and total. The law then
steps in and says that since the insurer paid and the
insured accepted, we will consider that as an offer and
acceptance of abandonment. Hence, from that time on,
the insurer is entitled to whatever may remain of the
thing insured, or its proceeds or salvage.
Sec. 148. Upon abandonment, acts done in good faith by
agents of insured after loss are at risk of insurer and for
his benefit (agent of the insured becomes agent of the
insurer.
The captain or master of the ship continues to be the agent of
the insured until abandonment, but from the moment of a valid
abandonment, the master of the vessel and the agents of the
insured become the agents of the underwriter, and the
underwriter becomes responsible for all their acts in connection
with the insured property and for all the expenses and liabilities
in respect thereto.
The abandonment when made relates back to the time of
the loss and of effectual, the title of the underwriter
becomes vested as of that date and he is responsible for
the reasonable expenses incurred by the master after the
date in an attempt to save the vessel. The insurer is
likewise liable for the wages of the seamen earned
subsequent to the loss.
Sec. 149. When notice of abandonment is properly
given, insured is not prejudiced by insurer’s refusal to
accept it
Effect on the insured’s rights if the insurer refuses to
accept the abandonment: Acceptance is in no case
necessary if the abandonment is properly made. In this
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case, the insured’s right cannot be prejudiced by the
refusal of the insurer to accept.
Sec. 150. Acceptance of abandonment is express, or
implied from insurer’s conduct. Mere silence of insurer
for an unreasonable length of time after notice deemed
acceptance
Form of abandonment: Any. It may be express or implied from
the acts of the insurer.
The silence must be for an unreasonable length of time.
Sec. 151. Express or implied acceptance of an
abandonment is conclusive between parties, admits loss
and sufficiency of abandonment
Sec. 152. Abandonment is irrevocable unless ground is
unfounded
Effect of acceptance of abandonment:
1.) Insurer becomes at once liable for the whole amount
of the insurance;
2.) Insurer becomes entitled to all rights which the
insured possessed in the thing insured;
3.) Fixes the rights of the parties. It is conclusive upon
them and is irrevocable.
Therefore, the acceptance of an abandonment estops the
underwriter from relying on any insufficiency in the
form, time or right of abandonment. Except: when the
ground upon which the abandonment is made proves to
be unfounded.
Sec. 153. In an accepted abandonment of ship,
freightage before loss belongs to insurer of freightage;
freightage after belongs to insurer of ship
Right to freightage of insurer of ship: When abandonment is
validly made, the interest of the insured in the thing covered
passes to the insurer. The insurer of the ship becomes the
owner thereof after an abandonment, and his title becomes
vested as of the time of the loss. Hence, freightage earned
subsequent to the loss belongs to the insurer of the ship.
Right to freightage of insurer of freightage: The insurer
of the freightage is subrogated to the rights of the
insured at the time of the loss hence any freightage
earned previous to the time of loss rightfully belongs to
him.
Sec. 154. If insurer refuses to accept valid
abandonment, he is liable for actual total loss less
proceeds from thing insured in hands of insured
Effect on the insurer’s liability if he refuses to accept valid
abandonment: He is liable as upon an actual loss less any
proceeds the insured may have received on account of the
damaged property as when the insured succeeds in selling the
property as damaged.
Formula:
Liability of insurer = Actual loss – Any Proceeds Received by
the Insured.
Helen C. Arevalo 27
1st Sem.; 2003
If abandonment was improper, the insured may
nevertheless recover to the extent of the damage
proved.
Sec. 155. If insured does not abandon, he can recover
actual loss
Effect of insured’s failure to abandon: The insured has an
election to abandon or not, and he cannot be compelled
to abandon although abandonment is proper. He may
await the final event, and recover accordingly for a total
or partial loss, as the case may be.
Subtitle 1-I. Measure of Indemnity
Sec. 156. Valuation in an marine policy (valued policy) is
conclusive between parties; exception: hypothecation by
bottomry or respondentia before insurance; fraudulent
valuation entitles insurer to rescind
Object of valuation: It may happen that when a vessel is
insured for a long time or for a long voyage, her value at the
end of the voyage may not be the same as at the beginning.
Hence, we resort to valuation in order to fix in advance the
value of the property ands thus, avoid the necessity of proving
its actual value in case of loss.
Insured value: That stated in the policy. It is conclusive upon
the parties provided that the insured has some interest at risk,
and there is no fraud on his part.
In case of fraud on part of insured in stating the value: Insurer
may rescind the contract.
In a valued marine policy, when the thing insured is lost,
neither party is permitted to give evidence of the real value of
the thing.
Reason: There was already a conclusive value given to it by the
parties in the policy.
Exception: If the thing has been hypothecated by
bottomry or respondentia before it was insured, and
such hypothecation is WITHOUT the knowledge of the
person who procured the insurance, the real value of the
thing MAY BE SHOWN by the insurer.
See Sec. 161 for marine open policies
Sec. 157. In a marine policy in case of partial loss the
insurer is liable only for a proportion of the amount
insured as it bears to the interest insured (principle of
co-insurance)
Meaning: In every marine insurance, the insured is expected to
cover by insurance the full value of the property insured.
However, there are instances when people insure for less than
their interest. So if the value of the insured’s interest exceeds
the amount of insurance, the insured is considered a co-insurer
for an amount determined by the difference between the
insurance taken out and the value of the property.
Formula:
Partial Loss x Amt of = Amt of
Value of thing insured Insurance Recovery
Section 3D
Crammer INSURANCE
Circumstances in which Section 157 will apply:
1.) Loss is partial; and
2.) Amount of insurance is less than the insured’s entire
insurable interest in the property insured
Compare with Sec. 172 (fire insurance) – no co-
insurance in fire insurance unless stipulated
Sec. 158. Where profits are separately insured, the
insured is entitled to a proportion of profits lost,
equivalent to proportion of property lost bears to value
of whole
Formula:
Value of Property lost x Amt of = Amt
of
Value of whole property insured Profits
Recovery
Sec. 159. In a valued marine policy of freightage or
cargo, if part of subject is exposed to risk, valuation
applies in proportion to such part
Meaning: When cargo is insured under a valued policy
but only a portion of the cargo is actually carried by the
vessel at the time of loss, the valuation will be reduced
proportionately. The insurer is bound to return such
portion of the premium as corresponds with the portion
of the cargo which had not been exposed to the risk.
Sec. 160. When profits valued, loss is conclusively
presumed from loss of property from which they arise
and valuation fixes their amount
Meaning: If the property is totally lost, then
consequently, the total profits are also lost. Such loss of
profits are conclusively presumed from the loss of the
property and the valuation agreed upon in the policy
fixes the amount of recovery.
Sec. 161. Rules in estimating loss in a marine open
policy regarding values of:
1.) Ship – Value at the beginning of the risk.
2.) Cargo – Its actual cost to the insured, when
laden on board, or where that cost cannot
be ascertained, its market value at the time
and place of lading.
3.) Freightage – Gross freightage, exclusive of
primage, without reference to the cost of
earning it.
4.) Cost of insurance added to value estimated
In determining the loss under an open policy of marine
insurance, the real value of the thing insured must be
proved by the insured in each case. Section 161 lays
down the rules in ascertaining the value to be used for
indemnity purposes.
Sec. 162. Rule when cargo insured against partial loss
arrives in damaged condition; loss is deemed in same
proportion as market price of damaged goods bears to
market price of goods in sound condition in port of
destination
Helen C. Arevalo 28
1st Sem.; 2003
Section 162 applies if:
1.) The cargo is insured against partial loss; and
2.) It suffers damage as a result of which its market value at
the port of destination is reduced.
Formula:
Market price _ Market price = Depreciation
In sound state in damaged state
Depreciation x Amt of = Amt
of
Market price in sound state Insurance
Recovery
Sec. 163. Sue and Labor Clause (if stipulated): Insurer
liable for expense incurred by insured in recovering the
property in addition to total loss if it occurs later
As a general rule, a marine insurer is not liable for more
than the amount of the policy. Under Section 163,
however, expenses incurred in repairing damages
suffered by a vessel because of perils insured against
and expenses incurred for saving the vessel from such
perils are items to be borne by the insurer in addition to
a total loss if that afterwards takes place. Such expenses
are known as Port of Refuge Expenses.
Sec. 164. Marine insurer liable for general average loss
contribution in proportion to what insured value bears to
contributing value of thing insured
See also Arts. 811-812, Code of Commerce (rules on
general average loss)
Jarque v. Smith Bell: Jarque owned the motorboat
Pandan which he insured with Nat’l Union Fire Ins.
Co. for absolute total loss only. Due to very heavy
sea, they had to jettison cargo. Ins. co. liable to
contribute?
YES. Liability for contribution in general
average is not based on express terms of policy,
but rests upon the theory that from the relation of
the parties and for their benefit, a quasi-contract
is implied by law.
Art. 859 of Code of Commerce is mandatory.
Insurers are bound to contribute to indemnity of
the general average. This simply places the insurer
on the same footing as other persons who have an
interest in the vessel, or the cargo therein. The
jettison was as much to the benefit of the
underwriter as to the owner, if jettison had not
taken place and the ship foundered, insurer would
have had to pay a lot more money.
Sec. 165. Marine insurer is liable for general average
loss and is subrogated to insured’s right to general
average contribution, but shall not be liable
1.) When insurer is made liable after separation of
interests liable to contribution;
2.) When insured neglected or waived the right to
demand contribution from others
Section 3D
Crammer INSURANCE
Rights of the insured in case of general average: The insurer is
liable for any general average loss where it is payable or has
been paid by the insured in consequence of a peril insured
against. The insured may either hold the insurer directly liable
for the whole of the insured value of the property sacrificed for
the general benefit, subrogating him to his own right of
contribution, or demand contribution from the other interested
parties as soon as the vessel arrives at her destination. In other
words, the insured need not wait for an adjustment of the
average.
There can be no recovery for general average against the
insurer:
1.) After the separation of the interests liable to
contribution, or rather, after the cargo liable for
contribution has been removed from the vessel; or
2.) When the insured has neglected or waived his right to
contribution.
Limit as to the liability of the insurer: It is limited to the
proportion of contribution attaching to his policy value where
this is less than the contributing value of the thing insured. In
other words, the liability of the insurer shall be less than the
proportion of the general average loss assessed upon the thing
insured where its contributing value is more than the amount of
the insurance. In such case, the insured is liable to contribute
ratably with the insurer to the indemnity of the general
average.
Formula:
Amount of insurance x Proportion of gen. = Limit
of
Value of thing insured ave. loss assessed liability
of
upon thing insured insurer
See Art. 2207, Civil Code – Insurer subrogated to rights
of the insured against wrongdoers
Sec. 166. Partial loss of ship or equipment – old
materials to be applied to payment of new. Unless
stipulated, marine insurer liable for only 2/3 of
remaining costs of repairs but anchors to be paid in full
Liability of the insurer in case of partial loss of the ship
or its equipment: 2/3 cost of repairs. “1/3 new for old”
on the theory that the new materials render the ship
more valuable than it was before the loss.
Title 2. Fire Insurance
Sec. 167. Fire insurance includes insurance against fire,
lightning, windstorm, tornado, earthquake & other allied
risks if these are stipulated in fire policies or in separate
policies
Fire insurance: A contract of indemnity by which the insurer for
a consideration, agrees to indemnify the insured against the
loss of or damage to, a property by fire. As used in this Code, it
includes loss also by:
1.) Lightning;
2.) Windstorm;
3.) Tornado;
4.) Earthquake; and
5.) Other allied risks.
Helen C. Arevalo 29
1st Sem.; 2003
But only when such risks are covered by extension to fire
insurance policies or under separate policies, subject to the
payment additional premiums.
Nature of fire insurance: Contract of indemnity. Indemnity is its
sole purpose and any contract that contemplates a possible
gain to the insured by the happening of the event upon which
the liability becomes fixed is contrary to the proper nature of
insurance and is not allowed.
Risks or losses covered: In determining whether a risk or cause
of loss is written, the scope and coverage of a fire insurance
policy and the intention of the parties, as indicated by their
contract controls. Fire insurance policies now frequently contain
extended coverage provisions bringing certain additional risks,
or all other risks not excluded within the coverage of this policy.
In some policies, damage or loss by explosion, lightning,
earthquake or riot may be expressly insured against in addition
to that caused by fire. They may also extend the coverage to
indirect or inconsequential losses.
Kinds of indirect/consequential losses:
1.) Physical damage – caused to other property which is
not covered by the basic insurance policy.
2.) Loss of earnings due to the interruption of business by
damage to insured’s property.
3.) Extra expense or additional expenditure or charges
incurred by the insured following damage or
destruction of buildings or contents by an insured
peril.
Sec. 168. Change within control of insured, in use or
condition of thing insured, without consent of insurer
increasing the risk entitles insurer to rescind
Sec. 169. Change which does not increase risk does not
affect contract
Requisites for insurer to rescind in case of alteration:
1.) The use or condition of the thing is specifically limited
or stipulated in the policy;
2.) Such use or condition as limited by the policy is
altered;
3.) The alteration is made without the consent of the
insurer;
4.) The alteration is made by means within the control of
the insured; and
5.) The alteration increases the risk.
Alterations which avoid the policy: Any alteration in the use or
condition of the property insured which increase the risk.
Alterations which do not avoid the policy:
1.) Building insured used in a different way but which is
not of a dangerous character and does not differ
materially from the use specified in the policy; or
2.) Prohibited articles are necessary or ordinarily used in
the business conducted in the insured premises; or
3.) The making of repairs, painting and other acts of
similar character on the thing insured.
Sec. 170. Act of insured increasing risk and is cause of
loss but which does not violate fire policy provisions
does not affect fire policy
Sec. 171. If no valuation in policy (open policy),
measure of indemnity is replacement cost; if there is
Section 3D
Crammer INSURANCE
valuation (valued policy), same rule as in marine
insurance (conclusive between parties)
Sec. 172. If insured desires valuation in a fire policy –
an independent appraiser may be hired by insured at his
expense & value can then be fixed between him and
insurer and a clause then stipulated mentioning value.
Value stated is maximum of insurer’s liability. Full
amount of partial loss is payable. Parties can also
stipulate that repair, replacement or rebuilding of
buildings be done
Measure of indemnity under an open policy: Amount of
actual loss sustained. Burden is upon him to establish
the amount of such loss by a preponderance of evidence.
Measure of indemnity under a valued policy: Valuation in
policy of fire insurance is conclusive between the parties
in the adjustment of either partial or total loss if the
insured had an insurable interest and was not guilty of
fraud.
Unlike in marine insurance, in the absence of stipulation,
insured is not a co-insurer under fire policies. Thus, if
property valued at P10,000 is insured for P5,000 and is
damaged by fire to the extent of one-half of its value, the
insurer will be compelled to pay the entire P5,000
necessary to repair the loss.
To avoid such a situation, fire insurers insert 2 types of
clause in their policy:
1.) Co-insurance clause; and
2.) Option to rebuild clause.
Co-insurance clause: A clause requiring the insured to
maintain insurance to an amount equal to the value or
specified percentage of the value of the insured property
under penalty of being a co-insurer to the extent of such
deficiency. In other words, this clause is inserted to
make the insured a co-insurer.
Option to rebuild clause: Under this clause, if stipulated,
the insurer is given the option to reinstate or replace the
building damaged or destroyed or any part thereof,
instead of paying the amount of the loss or damage.
Compare with Sec. 157 (marine insurance) where there
is always co-insurance
Galian v. State Assurance: Household effects were
insured against fire. House caught fire causing
substantial damage to property. Insured made
itemized statement of losses and values. Insurer
refuses to pay saying that the claim made was
fraudulent for overstating amount. Is insured
qualified to appraise the value of the household
effects?
YES. All people of ordinary education and
refinement are reasonably familiar with household
effects. One need not be an expert to be
considered competent to testify as to the value of
these articles. Insured was intimately acquainted
with the articles since he was the one who
purchased them most of them.
Helen C. Arevalo 30
1st Sem.; 2003
Gen. Insurance v. Ng Hua: Policy contained
stipulation that insured should give notice to the
insurer of any other insurance effected otherwise,
all benefits under the policy would be forfeited.
Insured had obtained other insurance on same
goods. The face of the policy bears the annotation:
Co-insurance declared. CA, referring to annotation
held that there was no violation inasmuch as
coinsurance exists when a condition of the policy
requires the insured to bear ratable proportion of
the loss when the value of the insured policy
exceeds the face value of the policy, hence there is
no co-insurance here. Whether co-insurance
exists.
YES. Undoubtedly, coinsurance exists under the
condition described by the CA. but that is one kind
of co-insurance. It is not the only situation where
co-insurance exists. Other insurers of the same
property against the same hazard are sometimes
referred to as co-insurers. If “co-insurance”
means what the CA says, annotation served no
purpose. Annotation must be deemed a warranty
that the property was not insured by any other
policy. Violation entitles insurer to rescind.
Ong Guan Can v. Century Ins.: Ins co. contends that
under clause 14 of the conditions of the policies, it
should be allowed to, instead of paying for the loss
of burnt house, rebuild the same although the
house would be smaller.
This clause makes the obligation of the insurer
an alternative one. Notice is required. The
insurance company failed to notify the insured of
his election, stating which of the 2 prestations he
is disposed to fulfill. The object of notice is to give
the insured an opportunity to express his consent,
or to impugn the election made by the insurer, and
only after said notice shall the election take legal
effect when consented by the creditor, or if
impugned by the latter, when declared proper by
the competent court. They did not give formal
notice. (AND unfair kaya kung smaller house with
cheap materials.)
Sec. 173. No policy of fire insurance shall be pledged,
hypothecated, or transferred to agents or
representatives of issuing company (insurer). Such
contracts are void insofar as they affect creditors of
insured
Even after loss has occurred, insured may pledge,
hypothecate or transfer a fire insurance policy or rights
thereunder. He may even do this without the consent of
or notice to the insurer.
Limitation: Prohibition in Sec. 173 which says a transfer
of a policy of fire insurance to any person or company
who acts as agent or otherwise represents the insurer is
void and of no effect insofar as it may affect the creditors
of the insured.
Section 3D
Crammer INSURANCE
Compare with Sec. 83 – agreement not to transfer claim
after loss is void.
Title 3. Casualty Insurance
[with CTPL Secs. 373-389]
Sec. 174. Casualty insurance is insurance covering loss
or liability arising from accidents or mishaps outside
coverage of fire or marine insurance. It includes
workmen’s compensation, employer’s liability, public
liability, motorcar, plate glass, burglary and theft,
personal accident and health insurance as written by
non-life insurance companies
Casualty insurance: Includes all forms of insurance
against loss or liability arising from accident or mishap
which are not within the scope of other types of
insurance, namely marine, fire, suretyship and fire.
General divisions of casualty insurance
1) Insurance against specified perils which may affect the
person and or property of the insured such as personal
accident, robbery or theft, damage to or loss of motor
vehicle etc.; and
2) Insurance against specified perils which may give rise
to liability on the part of the insured for claims for
injuries to others or damage to their property, such as
workmen’s compensation, motor vehicle liability,
professional liability, products liability etc.
Liability insurance: It is a contract of indemnity for the benefit
of the insured and those in privity with him, or those to whom
the law upon the grounds of public policy extends the indemnity
against liability. Under policies of this type, an indemnity is
provided to the insured in respect of his legal liability to pay
damages, usually arising out of negligence or nuisance and
occasionally, under contract.
Insurable liability: Liability which arises from the commission of
a quasi-delict or a tort is insurable. However, if the liability
arose from the commission of a crime, it depends. If the
liability arose out of acts of negligence which are also criminal,
they may be insurable on the ground that such acts are
ACCIDENTAL. Example is motor insurance policy covering the
insured’s liability for accidental injury caused by negligence,
even if it so gross resulting to homicide.
On the other hand, if the liability arose out of DELIBERATE
criminal acts, such is not insurable.
Rule as to death or injury resulting from accidental means:
GR: Death or injury does not result from accident or
accidental means within the terms of an accident policy if it is
the natural result of the insured’s voluntary act, unaccompanied
by anything unforeseen except the death or injury
EXCEPTION: There is no accident when a deliberate act is
performed unless some additional, unexpected, independent
and unforeseen happening occurs which produce or brings
about injury or death. In other words, the death or injury is not
the natural or probable result of the insured’s voluntary act, or
if something unforeseen occurs in the doing of the act which
produces the injury, the resulting death is within the protection
of policies insuring against death or injury from accident.
Villacorta v. Ins. Commission: Insured got private car
policy on his Colt Lancer for theft and 3rd partly
liability. Vehicle was brought to Sunday Machine
Helen C. Arevalo 31
1st Sem.; 2003
Works. Taken by 6 persons to Rizal where they
had an accident. Claim denied. Commish dismissed
complaint contending that it does not fall under
Own Damage or Theft Coverage but under the
Authorized Driver Clause.
Mali ang commish. Insured did not know the
driver, he is an unauthorized driver. When car
unlawfully taken, theft clause, not authorized
driver clause applies. It was without the owner’s
consent – eh ‘di theft sya. Ins. Co. must pay.
Association of Baptists v. Fieldmen’s Insurance:
Chevrolet carry-all placed at Mobilgas station
under care of Rene Te to be displayed for sale. One
of the station boys took the car for a joy-ride
without the consent of either Rene Te or the
owner. Bumped an electric post.
It was theft; ins. co. liable. Taking without
consent = theft. No need for conviction.
Preponderance of evidence only. Besides, no
stipulation in policy which requires prior
conviction for theft to entitle insured to recovery.
Tanco v. Phil Guaranty: Owner’s auto while being
driven by his brother, got in a car accident. There’s
an exception clause in the policy w/c provided
that the co. is not liable in case the driver is not an
authorized driver. At the time of collision, brother
did not have a valid driver’s license.
NOT authorized driver. Authorized driver:
1.) On owner’s order/permission;
2.) Permitted by licensing laws; not
disqualified.
Stokes v. Malayan Insurance: Owner’s car, when in
collision, driven by James Stokes, who was
authorized to do so by owner. Stokes is Irish. He
was here for more than 90 days.
NOT authorized driver. Tourists who are
licensed to drive in own country can drive in phils.
However, after 90 days, they should pay fees and
carry a license to still be able to drive here.
Gutierrez v. Capital Insurance: Jeepney got into a
collision. Passenger killed. Jeepney driver licensed
for years 1962 and 1963 but at the time of the
accident, did nto have license. Instead, he had a
carbon copy of a traffic violation report which
served as temporary operator’s permit but only for
15 days. 15-day period had already expired.
NOT authorized driver. Barred from recovery
under policy
Palermo v. Pyramid Insurance: Claim was disallowed
since insured was driving with an expired driver’s
license. Tama ba ang disallowance?
NO. Driver of the vehicle at the time of accident
was the insured himself, hence, an authorized
driver. The requirement that the driver be
permitted in accordance with the licensing and
other laws/regulations applies only when the
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Crammer INSURANCE
driver is driving on the insured’s order/with his
permission. It does not apply when the person
driving is the insured himself.
How does a standard authorized driver clause in a
private motor vehicle policy read?
‘AUTHORIZED DRIVER
Any of the following:
a) the insured
b) any person driving on the insured’s orders or
with his permission; provided that the person
driving is permitted in accordance with the
licensing or other laws or regulations, to drive
the motor vehicle and is not disqualifies from
driving such motor vehicle by order of a court of
law or by reason of any enactment or regulation
in that behalf.’
MEANING? Either the insured himself, or someone authorized or
permitted to drive by the insured, provided he is not
disqualified by law.
Ergo, The requirement of a license does not apply
to the driver who is the insured himself, but only
to driver (b), the permitted one. But the insured
could still be subject to penal laws for driving
without a valid license.
CCC Ins. Corp. v. CA: Time of vehicular collision the
owner’s driver was driving. He possessed a license
but without taking the exam.
He is an authorized driver. A genuine license
which is really issued by the Motor Vehicles Office
is proof that he is qualified. The issuance of the
license is proof that the Motor Vehicles Office
Official considered the driver qualified to operate
motor vehicles, and the insured was entitled to
rely upon such license. Hence, no breach was
committed and the insurer is liable.
Perla Cia de Seguros v. CA: While the car was parked
it was carnapped. Ins. Co. denied claim since
person who was driving the vehicle before it was
carnapped was in possession of an expired driver’s
license and hence, not an authorized driver.
Ins. co. liable. Where a car is admittedly
unlawfully taken w/o the owner’s
consent/knowledge, such taking constitutes theft
and therefore it is the theft clause and not the
authorized driver clause that should apply. There
is no causal connection between the possession of
a valid driver’s license and the loss of a vehicle.
Sun Insurance v. CA: Felix Lim took the magazine
out of his gun then pointed it to his temple,
thinking it was unloaded. He pulled the trigger and
shot himself to death.
Ins co. liable. This is a case of pure accident. He
did not expose himself intentionally to peril. He
really thought the gun was not loaded. Oo, bobo
sya, he was negligent, but it was an accident.
Accidents are usually caused by negligence and
kabobohan.
Helen C. Arevalo 32
1st Sem.; 2003
Finman Gen. Ins. v. CA: Charlie was stabbed to
death at a maskara festival. There was no motive
for the stabbing – thrill killing. Finman says that
death by assault/murder is not included in the
policy.
Finman liable. There was no voluntary act of
Charlie that led to his death. He did not mean to
get in the path of a psychotic murderer nor in the
way of the latter’s knife. It was a case of pure
accident. No stipulation that death by
assault/murder excluded.
Fortune Ins. v. CA: Producers Bank of the Phils. filed
a complaint for recovery of the sum of P725,000
which was lost during a robbery of Producer’s
armored vehcle while it was in transit to transfer
the money from one of its branches to its head
office. Among the accused were the driver of the
armored truck and one of the guards. The policy
contained among its general exceptions any loss
caused by any dishonest, fraudulent or criminal
act of the insured or any officer, employee,
partner…or authorized representative of the
insured.
The driver and the guard were, inrespect to the
transfer of money from the branch to the principal
office, authorized representatives as they were
entrusted with the specific duty to safely transfer
that money. Ins. co. exempt from liability.
Gabriel v. CA: Gabriel, insured, was employed at
contruction project in Iraq and covered by a
personal accident insurance under a group policy.
The insured risk was for bodily injury caused by
violent accidental external and visible means
which injury would solely and independently of
any other cause result in death/disability. He died.
Wife claimed insurance. The only evidence given
was wife’s own affidavit and a letter of a co-
worker.
Lack of evidence. In an accident insurance, the
insured’s beneficiary has burden of proof in
demonstrating that the cause of death is due to
the covered peril (not like life insurance where
insured’s death, regardless of cause would
normally be compensable).
CHAPTER VI – COMPULSORY MOTOR VEHICLE LIABILITY
INSURANCE
Sec. 373. Definition of Terms. See nalang codal if you
really want to know this but I don’t think it’s important.
Motor vehicle: Under Section 3a of RA 4136, a motor vehicle
means any vehicle propelled by any power other than muscular
power using the public highways BUT EXCEPTING road rollers,
trolley cars, streetsweepers, sprinklers, lawnmowers,
bulldozers, graders, forklifts, amphibian trucks and cranes if not
used in public highways, vehicles which run only on rails or
tracks and tractors, trailers and traction engines of all kinds
used exclusively for agricultural purposes.
Section 3D
Crammer INSURANCE
Camping trailers or those used to carry boats or other
objects, which you attach at the end of your car: Not
considered extension of car you attach them to. Those
trailers, regardless of number of wheels, as long as they
are intended to be propelled by attachment to a motor
vehicle are classified as a separate motor vehicle with no
power rating.
Sec. 374. Insurance policy, cash or surety bond in favor
of 3rd party or passenger in case of death or bodily
injury, is required for motor vehicles.
Motor vehicle liability insurance (MVLI): MVLI is a
protection coverage that will answer for legal liability for
losses and damages for bodily injuries or property
damage that may be sustained by another arising from
the use and operation of a motor vehicle by its owner.
Before this protection was obtained purely on a
voluntary basis by a vehicle owner to meet his needs in
connection with whatever liability he would have
incurred in operating the vehicle. However now, with the
increase in the number of stupid, idiotic and moronic
drivers whose licenses should be revoked, legal
luminaries have made it COMPULSORY.
Persons subject to CMVLI requirement:
1.) Motor vehicle owner or one who is the actual legal
owner of a motor vehicle whose name such vehicle is
registered with the LTO; or
2.) Land transportation operator or one who is the owner
of a motor vehicle being used for conveying
passengers for compensation
Is the CMVLI a MUST? Not really, because there
are two substitutes for the CMVLI policy:
1.) Posting of a surety bond with the Insurance
Commissioner who shall be made the creditor in
the bond in such amount required as limits of
indemnity to answer for the same losses sought
to be covered by the CMVLI policy; or
2.) The making of a cash deposit with the Insurance
Commission in such amounts required as limits
of indemnity also for the same purpose
Type of coverage required by the law:
For owners of private motor vehicles- coverage must be
comprehensive against third party liability for death or bodily
injury. In case the private motor vehicle is being used to
transport passengers for compensation (ex. school bus), such
coverage must also include passenger liability
For operators of land transportation- the coverage
must also be comprehensive against both passenger and
third party liabilities for death or bodily injuries.
However, the insurer may also extend additional other
risks, but only at its option.
Sec. 375. Insurance Commissioner to furnish list of
authorized insurance companies.
Sec. 376. Evidence of 3rd party liability coverage
required prior to motor vehicle registration or renewal
Prerequisite before a motor vehicle is registered and
operated: Sec 374 prohibits a land transportation
operator or a motor vehicle owner from operating his
Helen C. Arevalo 33
1st Sem.; 2003
vehicle in public highways unless there is in force in
relation thereto a policy insurance or guaranty in cash or
surety bond to indemnify the death or bodily injury of a
third party or of a passenger, arising from the use of the
vehicle. This is what the law calls THIRD PARTY
LIABILITY COVERAGE
Sec. 377. Compulsory liability maximum amount limits
Sec. 378. No fault indemnity; amount limits
a.) Death & bodily injuries only
b.) Not more than P5,000 per person
c.) Claim against one motor vehicle only; against
motor vehicle where one is a passenger,
mounting or dismounting; otherwise,
against offending vehicle
d.) Proofs required by law are submitted (i.e.
police report, death certificate, medical
report, proof of medical expenses)
What is a ‘no-fault indemnity’ claim? VERY IMPT!
LUMABAS SA FINALS 15 PTS!!!
It provides that in cases where the vehicle insured
causes death or physical injuries, the person injured may
claim under the following circumstances:
1.) If the person is a passenger of the vehicle meaning he
is on board, or boarding or dismounting from the
vehicle, the person injured or his heirs (in case of
death) may claim from the insurer of the vehicle he
was on board under the CMVLI
2.) If it transpires in any other case but resulting from an
accident involving motor vehicles and the person is not
a passenger, he may claim from the insurer of the
offending vehicle.
Under the ‘no-fault indemnity clause,’ the person injured
or the heirs may claim up to P5,000—without need of
establishing whose fault or who is liable for the accident.
That the said vehicle might not be the one who caused
the accident is immaterial since the law provides that the
party paying the claim may later on recover against the
owner of the vehicle responsible for the accident. This is
precisely the essence of the ‘no-fault indemnity’
insurance, to provide victims immediate compensation
although in a limited amount, pending final
determination of who is responsible for the accident and
liable for the victim’s injuries or death. Nevertheless, he
or his heirs may only claim from one vehicle and if the
person injured wishes to claim more he must establish
fault or liability as to who caused the accident.
When does the insurer’s liability attach? The
insurer’s liability attaches to any party during the
effectivity of the policy in the absence of any
showing that the same has been cancelled with
proper notice to all parties concerned
Perla Cia de Seguros v. Ancheta: Bus collision
between 2 buses, IH Scout and Superlines.
Passengers of IH Scout sustained injuries and
went after the insurer of Superlines (Perla) under
the no fault indemnity provision.
It is the insurer of IH Scout (Malayan) which is
liable under the no fault clause. The law is clear –
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they must claim against the insurer of the vehicle
in which they were riding.
Sec. 379. Rules for insurance companies authorized to
issue CTPL insurance
Sec. 380. Rules on cancellation of compulsory liability
coverage by insurer
1.) Notice to land operator or owner
2.) Notice to LTO 15 days prior to cancellation
Sec. 381. Rules on cancellation of compulsory liability
coverage by land transportation operator or owner
1.) Replace policy, bond or cash & file with LTO
2.) Notify insurer of cancellation
Duty if one intends to cancel his CMVLI policy: One must
1) Give the insurance or surety company concerned
a written notice of his intention to cancel;
2) He must secure, before the insurance policy or
surety bond ceases to be effective, another
similar policy or bond to replace the one
cancelled;
3) Without making such replacement, make a cash
deposit in sufficient amount with the Insurance
Commissioner and secure a certification from the
Insurance Commissioner regarding the deposit
made for presentation to and filing with the LTO
What should one do in case his cash deposit has already
been proceeded against, or his surety bond has already
expired?
He should replenish the cash deposit or restore the bond
or secure an insurance policy within 60 days from
impairment or expiration
Effect of the cancellation of insurance: When the LTO
receives notice of cancellation from the insurance
company, it shall order the confiscation of the plates of
the motor vehicle concerned, unless it receives any of
the following:
1.) Evidence or proof of a new and valid CMVLI cover
which may be either an insurance policy or guaranty in
cash or surety bond;
2.) A signed duplicate of an endorsement or addendum
issued by the insurance company concerned showing
revival or continuance of the CMVLI owner; or
3.) A certification issued by the Insurance Commissioner
to the effect that a cash deposit in the amount
required as limit of indemnity has been made with him
by the motor vehicle owner or land transportation
operator
Sec. 382. Effect of change of ownership of motor vehicle
on CTPL insurance coverage: no need of issuing a
new policy until the next date of registration or
renewal of registration of such vehicle, and
provided the ins. co. shall agree to continue the
policy, such change of ownership shall be
indicated in an endorsement filed with the Land
Transpo. Commission.
Sec. 383. Indemnity not an instrument of enrichment
Helen C. Arevalo 34
1st Sem.; 2003
Sec. 384. Claims procedure in case of compulsory motor
vehicle liability insurance
1.) Notice of claim to insurer within 6 months –
otherwise
2.) Action or suit – within 1 year from denial of
claim – otherwise action prescribed
Schafer v. Judge, RTC Olongapo: Schafer obtained a
private car policy over his Ford for 3rd party
liability. An information for reckless imprudence
resulting in damage to property and serious
physical injuries was filed against Schafer. Schafer
was granted leave of court to file a 3rd party
complaint against Makati Ins. Insurer moved to
dismiss. Dismissed.
Trail court erred in dismissing 3rd party
complaint. There is no need to wait for the
decision of the Trial Court finding him guilty of
reckless imprudence. Where an insurance policy
insures directly against liability, the insurer’s
liability accrues immediately upon the occurrence
of the injury or event upon which the liability
depends, and does not depend on the recovery of
judgment by the injured party against the insured.
Summit Guaranty v. Arnaldo: Vehicular accident –
Olaso and Floralde. Olaso’s insurer, FGU Ins., paid
it’s share of repair cost and now (subrogated)
went after Floralde. Floralde failed to reveal his
ins. carrier. Later on, found out that it was
Summit. Motion to dismiss filed by Summit on
ground of prescription.
No prescription. In the present case, it is not
denied that an extrajudicial demand for payment
was made by FGU on Summit but Summit failed to
respond to it. Nevertheless, the complaint was
filed even BEFORE denial of the claim was made by
summit. For all legal purposes, the 1-year
prescriptive period had not begun to run. The
cause of action arises only and starts to run only
upon denial of the claim.
Sec. 385. Deadline for payment of claims:
1.) After reaching agreement – within 5
working days.
2.) No agreement – pay under no fault
indemnity.
CTPL claims under original jurisdiction of Insurance
Commission subject to sec. 416.
Sec. 386. Unlawful to require drivers and employees to
contribute premiums
Sec. 387. Government offices, and their employees
prohibited from acting as agents.
Sec. 388. Sanctions and penalties for violation of these
provisions:
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1.) Fine of not less than P500 but not more
than P1,000 and/or imprisonment for not
more than 6 months.
2.) Revocation of certificate of public
convenience (in the case of land
transportation operator).
Sec. 389. Persons liable as principals in case violator of
these provisions is a corporation, association or
government office: Executives or officers who knowingly
permitted or failed to prevent violation.
Title 4. Suretyship
Sec. 175. Surety contract is an agreement where a party
(the surety) guarantees performance by another party
(the principal or obligor) of an obligation or undertaking
in favor of a 3rd party (obligee)
Nature of the liability of the surety:
1.) Joint and Several or Solidary – This means that upon
default by the obligor in complying with his obligation
as secured by the bond, the surety becomes primarily
liable to the obligee who has the right to demand
payment under the terms and conditions of the bond.
2.) Limited to the amount of the bond
3.) Determined strictly by the terms of the contract of
suretyship in relation to the principal contract between
the obligor and the obligee.
Other Relevant Provisions of Law
1.) Civil Code, Article 2047. (Difference between guaranty
and suretyship): By guaranty, a person, called the
guarantor, binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter
should fail to do so. If the person binds himself
solidarily with the principal debtor, the provisions
[regarding joint and solidary obligations] shall be
observed. In such case, the contract is called a
suretyship.
2.) Insurance Code, Section 2, par. 1 and 2(b): Surety
contracts are also considered insurance contracts.
Sec. 176. Liability of surety is solidary with obligor but
limited to amount of bond. It is determined strictly by
surety contract and principal contract between obligor
and obligee
NASSCO v. Torrento: Although as a rule, sureties are
only subsidiarily liable for an obligation, nevertheless, if
they bind themselves jointly and severally, or in
solidum, with the principal debtor, the creditor may
bring an action against anyone of them, either alone or
together with the principal debtor.
While it is the rule that the liability of a surety
is limited by the terms of the surety bond fixing its
liability and that such liability cannot be extended
by implication, it should be noted in the present
case that although the technical specifications of
the items to be purchased have been changed, it
clearly appears that such changes are not
substantial and have not added any other liability
Helen C. Arevalo 35
1st Sem.; 2003
to that originally assumed. A surety is not
released by a change in the contract which does
not have the effect of making its obligation more
onerous.
Napocor v. CA: The surety bond must be read in its
entirety and together with the principal contract
between the NPC (obligee) and the contractor
(obligor). The provisions must be construed
together to arrive at their true meaning. Certain
stipulations cannot be segregated and then made
to control.
Sec. 177. Surety entitled to payment of premium as
soon as contract perfected & delivered to obligor.
Contract not valid until premium paid except where
obligee accepted bond where contract valid irrespective
of whether premium paid or not; if contract not accepted
by, or not filed with, obligee, surety entitled to service
fee of not exceeding 50% of premium due plus
documentary stamps and other taxes
Section 177 contains the rules for payment of premium.
In a nutshell:
1.) The premium becomes a debt as soon as the contract
of suretyship or bond is perfected and delivered to the
obligor;
2.) The contract of suretyship or bonding shall not be valid
and binding unless and until the premium therefor has
been paid;
3.) Where the obligee has accepted the bond, it shall be
valid and enforceable notwithstanding that the
premium has not been paid;
4.) If the contract of suretyship or bond is not accepted
by, or filed with the obligee, the surety shall collect
only a reasonable amount, not exceeding 50% of the
premium due thereon as service fee, plus the cost of
doc stamps and other taxes imposed for the issuance
of the bond.
5.) If the non-acceptance of the bond is due to the fault or
negligence of the surety, no such service fee, stamps,
or taxes shall be collected.
6.) In case of a continuing bond, the obligor shall pay the
subsequent annual premium as it falls due until the
contract of suretyship is cancelled by the obligee or by
the Commissioner, or by a court of competent
jurisdiction.
Phil Pryce Assurance v. CA: The surety claims the
defense that the checks issued by its principal in
payment for the premiums bounced, hence there is
not contract of surety to speak of.
This is incorrect. The surety must pay. While it
is true that no contract of suretyship or bonding
shall be valid and binding unless and until the
premium therefor has been paid, the exception is
where the obligee has accepted the bond, in which
case the bond becomes valid and enforceable,
irrespective of whether or not the premium has
been paid by the obligor to the surety. In this
case, the obligee had already accepted the bond.
Therefore, the bond is valid and binding,
notwithstanding non-payment of premiums by the
obligor.
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Sec. 178. Civil Code provisions suppletory in interpreting
surety contracts
See Arts. 2047, Civil Code (Guaranty)
Arts. 1207-1222, Civil Code (joint and solidary
obligations)
Title 5. Life Insurance (See also Secs. 226-231)
Sec. 179. Life insurance covers human lives and allied
matters
Gallardo v. Morales: Morales sentenced to pay
Gallardo P7,000. Before execution of judgment,
Mrales’s husband died by assassination. He was
covered by a personal accident policy issued by a
non-life insurance co. Sheriff garnished and levied
execution on sum due from ins co. Morales
objected saying that proceeds from any life
insurance are exempt from execution. Exempt ba?
YES. Life insurance is, generally speaking,
distinct and different from an accident insurance.
However, when one of the risks insured in the
latter is death of the insured by accident, then
there are authorities to the effect that such
accident insurance may, also be regarded as life
insurance.
Sec. 180. Life insurance is that payable upon
1.) Death of insured; or
2.) His surviving a specified period.
Contract for payment of endowments or annuities
considered a life insurance contract under Insurance
Code.
In the absence of a judicial guardian, the following
exercise rights of minor insureds or beneficiaries under
life insurance policies (without court authority or bond):
1.) Father
2.) In latter’s absence or incapacity, the Mother
Provided minor’s interest does not exceed P20,000
But see Art. 225, par. 2, Family Code which amends par.
3 of Sec. 180 – Father and mother are joint legal
guardians over minor children’s property; no need of
court appointment; Guardians bond needed only when
minor’s annual income or property is more than P50,000
Life insurance: An insurance payable on the death of a
person, or on his surviving a specified period, or
otherwise contingently on the continuance or cessation
of life. It is a contract to make specific payments upon
the death of a person whose life is insured.
Life insurance may be made payable:
1.) On the death of the person;
2.) On his surviving a specified period; or
3.) Otherwise contingently on the continuation or
cessation of life.
Parties involved in a policy of life insurance:
1.) Insurer;
Helen C. Arevalo 36
1st Sem.; 2003
2.) Owner of the policy – who has the power to
name or change the beneficiary, to assign the
policy, to cash it in for its surrender value, or to
use it as collateral in obtaining a loan, and who
has the obligation of paying the premiums;
3.) Person whose life is subject of the policy, also
known as the cestui que vie;
4.) The beneficiary to whom the proceeds are paid.
Note that one person might occupy all 3 positions by
naming his estate as beneficiary; but then again, each of
the 3 positions may also be held by separate parties.
Different types of life insurance policies:
1.) Ordinary life insurance policy;
2.) Limited payment life policy;
3.) Term insurance policy;
4.) Endowment policy; and
5.) Life annuity.
Ordinary life policy: One under the terms of which the
insured is required to pay a certain fixed premium
annually or at more frequent intervals throughout the
life and the beneficiary is entitled to receive payment
under the policy only after the death of the insured.
Thus, the ultimate payment of the insurance proceeds is
as certain as death itself.
In this type of policy, do you get payment only when
death occurs? Not really because this type of policy has
an alternative form of payment which is called the cash
surrender value. This feature means that in case the
owner cancels the policy or the policy lapses through
non-payment of premium, the insurer returns a certain
amount which is found in a table of rates in the policy
itself. This amount is called the cash surrender value.
Limited Payment Life policy: One under the terms of
which the premiums are payable only during a limited
period of years. When the specified number of premium
payments have been made, the insurance is fully paid
for. It is like ordinary life policies in that it is payable
only at the death of the insured. If the insured should die
within the specified period, the beneficiary is entitled to
all the proceeds of the policy without any liability for the
unpaid premiums. Because of the limited number of
payments to be made by the insured, the premiums are
proportionately higher.
Term Insurance policy: One which provides coverage
only if the insured dies during a limited period. It is an
insurance for a fixed or specific term. If the insured dies
within the period specified, the policy is paid to the
beneficiary. If he survives the period, the contract
terminates. The premium is levied during the specified
terms and increases with each renewal terms. The
premium is lower than in the case of ordinary life
insurance because of the possibility that the insurer may
not be obliged to pay anything in the proceeds
whatsoever if the insured survives the term. Moreover,
there is generally no provision for payment of a cash
surrender value upon surrender or lapse of the policy.
The insured may however be given the option to convert
the policy to ordinary or endowment life.
Endowment policy: One under the terms of which the
insurer binds himself to pay a fixed sum to the insured if
he survives for a specified period, or if he dies within
such period, to some other person indicated. The
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premium is higher because the cash values of the policy
grow more rapidly. This kind of policy differs from the
limited payment life policy in that in the case of the
latter, the policy is paid only upon the death of the
insured. Here, the insured stands a chance of being paid
the proceeds of the policy while still alive. The proceeds
on maturity can be paid either in lump sum or as an
annuity. This type of policy is thus useful in retirement
planning.
Life annuity: A contract whereby the insurer binds
himself to pay an annual pension or income during the
life of one or more determinate persons in consideration
of a capital consisting of money or other property, whose
ownership is transferred to him at once with the burden
of the income. Although essentially, annuities differ from
ordinary life policies, the law considers them as life
insurance contracts. The law governing annuities is the
Civil Code.
Calanoc v. CA: Basilio, a watchman of an auto
supply shop, secured a life insurance policy from
Philamlife to which was attached a supplementary
contract covering death by accident. One day, he
heard something suspicious happening at the
house of Ojeda, about a block away from the shop.
He went there and was fatally shot. Widow was
given amt under life ins. policy but not the
additional sum under the supplemental policy
covering death by accident. Hindi daw accident.
Accident sya. Liable ang Philamlife. The
happening was a pure accident on the part of the
victim. It cannot be presumed that the malefactor
aimed at the deceased precisely because he
wanted to take his life.
Kanapi v. Insular Life: Kanapi insured his life with
Insular life. Under their contract, an additional
P5,000 was to be paid if the death was due to
accidental means. The additional payment was
subject to the exception that it would not apply if
the death resulted from injury “intentionally
inflicted by a 3rd party.” Insured died of a bullet
wound inflicted w/o provocation on his part. The
killer was found guilty of murder. Should insular
life pay the additional sum?
NO. The agreed facts are to the effect that the
insured was murdered, thus making it indisputable
that his death resulted from injury “intentionally
inflicted by a 3rd party”.
Biagtan v. Insular Life: Same facts with first, only
this time, the insured (Biagtan) was killed by
multiple stab wounds inflicted by a band of
robbers.
Same thing. Insular cannot be held liable under
the Accidental Death Benefit. Whether the robbers
had the intent to kill or merely to scare the victim
or ward off any defense he might offer, it canno
tbe denied that the act itself of inflicting the
injuries was intentional. The exclusion clause does
not speak of the purpose – whether homicidal or
not – of a 3rd party in causing injuries, but only the
Helen C. Arevalo 37
1st Sem.; 2003
fact that such injuries have been intentionally
inflicted. This was obviously intended to
distinguish them from injuries which, although
received at the hands of a 3rd party, are purely
accidental.
Bank of PI v. Posadas: Schuetze got life insurance
with Sun Life and named his estate as beneficiary.
He married Gelano and executed a will wherein
she was made his universal heir. Schuetze died.
BPI was appointed administrator of the estate.
BPI received the proceeds of the life insurance and
delivered them to Gelano, less inheritance tax.
Gelano protested the deduction of inheritance tax
and insisted on a refund. Is she entitled to one?
YES but only a PARTIAL one. As all the
premiums on the life insurance policy taken out by
Schuetze were paid out of the conjugal funds, with
the exception of the first, the proceeds of the
policy, excluding the proportional part
corresponding to the first premium, constitute
community property, notwithstanding the fact that
the policy was made payable to the deceased’s
estate, so that one-half belongs to the estate and
the other half belongs to Gelano. Only one-half
were inherited, half of the tax should be refunded.
Del Val v. Del Val: It is erroneously claimed that the
proceeds of the insurance policy payable to an heir
belong to the estate. It is argued that the proceeds are
akin to donations inter vivos which are subject to
collation.
The contract of life insurance is a special contract and
the destination of the proceeds thereof is determined by
special laws which deal exclusively with that subject.
The Civil Code has no provisions which relate directly
and specifically to life-insurance contracts or to the
destination of life insurance proceeds. That subject is
regulated exclusively by the Code of Commerce which
provides for the terms of the contract, the relations of
the parties and the destination of the proceeds of the
policy.
The proceeds of the life-insurance policy being
the exclusive property of the defendant and he
having used a portion thereof in the repurchase of
the real estate sold by the decedent prior to his
death with right to repurchase, and such
repurchase having been made and the conveyance
taken in the names of all of the heirs instead of the
defendant alone, plaintiffs claim that the property
belongs to the heirs in common and not to the
defendant alone.
Dela Cruz v. Capital Insurance Company: dela Cruz, an
employee of Itogon-Suyoc Mines, was the holder
of an accident insurance policy. In celebration of
New Year, Itogon-Suyoc sponsored a boxing
contest. Dela Cruz joined. He slipped and was hit
by his opponent at the back part of his head,
causing him to fall, with his head hitting the rope
of the ring. He subsequently died. Ins. co. refuses
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to pay. It argues that since his inclusion in the
boxing card was voluntary, he cannot be
considered as having met his death by “accidental
means.”
Ins. Co. liable. The term “accident” and
“accidental’ as used in insurance contracts have
not acquired any technical meaning, and are
construed by the courts in their ordinary and
common acceptations. Thus, the terms have been
taken to mean that which happen by chance or
fortuitously, without intention and design, and
which is unexpected, unusual and unforeseen.
Here, it was an accident, he was rendered that
fatal blow because he slipped.
Pineda v. CA: In group insurance policies, the
employer is the agent of the insurer.
The father and mother are the legal guardian of
the child’s property if the market value of the
property does not exceed P50,000, otherwise a
bond is required.
Sec. 180-A. Insurer in a life policy liable for suicide if
committed after policy in force for 2 years after issue or
last reinstatement unless shorter period stipulated.
Suicide while insane is compensable regardless of date
of commission (Sec. 3, BP 874)
This is an exception to Sec. 87 where the insurer is not
liable for loss caused by the willful act of the insured
In case of suicide, insurer is liable when:
1.) The suicide is commited after the policy has been
in force for a period of 2 years from the date of
its issue or of its last reinstatement;
2.) The suicide is committed after a shorter period
provided in the policy although within the 2
years period; and
3.) The suicide is committed in the state of insanity
regardless of the date of commission, unless
suicide is an excepted risk.
Cannot provide for longer period than 2 years.
Insurer is not liable when:
1.) The suicide is not by reason of insanity or is
committed within the 2 year period;
2.) The suicide is by reason of insanity however it is
not one of the risks assumed by the insurer; and
3.) The insurer can show that the policy was
obtained with the intention to commit suicide,
even in the absence of any suicide exclusion in
the policy.
Edralin v. Insular Life: Insured died as a result of her
inhalation of poisonous gas from the cooking gas
stove in the kitchen at her residence. Accidental or
suicide?
The basic instinct of self-preservation militates
against the commission of suicide. It is incumbent
upon a party alleging suicide as a defense,
especially in actions involving insurance policies to
prove it by clear and convincing proof. Failure to
prove, must pay claim.
Helen C. Arevalo 38
1st Sem.; 2003
Sec. 181. A life insurance policy may pass by transfer,
will or succession whether transferee has insurable
interest or not
See also Sec. 23 – change of interest by will or
succession does not avoid an insurance
Sec. 182. Notice to insurer of transfer not necessary
unless stipulated
When effecting a transfer, the consent of the following
must be obtained:
1.) Assignor;
2.) Assignee; and
3.) Beneficiary.
When is the consent of the beneficiary a must? Only in
policies which contain an express waiver of the right to
change the beneficiary. The execution of such waiver
gave the beneficiary a vested and absolute interest
which he cannot be divested of without his consent. In
case the policy contains no such waiver, the insured may
assign the policy without the consent of the beneficiary.
Is notice to insurer of a transfer necessary in all cases?
Not really, it depends. If the policy does not expressly
require the insured to give notice of an assignment or
transfer of the policy to the insurer, such notice is not
essential to the validity of the assignment. However,
where notice to the insurer is required by the provision
of the policy, an assignment without such notice, in the
absence of waiver, shall have no effect so far as the
insurer is concerned. This means that the insurer is
relieved of any responsibility in case payment is made to
the beneficiary before receipt by the insurer of the
notice.
Sec. 183. Measure of indemnity under life insurance
policy is face amount of policy unless interest of person
insured is measurable (Life insurance is a valued policy)
CHAPTER III – THE BUSINESS OF INSURANCE
Title 9. Policy Forms
[Read in conjunction with sample insurance policies, and
Arts. 2011, 2012, 2021-2027 (CC)]
Sir says: “read the codal, if you don’t understand it, read
the policy.” Dudes, ang HABA ng codal! He lectured on
the mandatory provisions, etc. (e.g. (a) is the grace
period; (b) is the incontestability clause… with where to
find them in the sample policies.) Kaso, I don’t have
notes so read yours. If you don’t have notes either, read
someone else’s. That’s what I’m planning on doing if I
have time pa. If there’s no time, ok lang yun. I don’t
think these provisions are very important. Tinanong ba
nya mga to sa past exams?
Sec. 226. Pre-approval of Insurance Commissioner
required for every insurance policy, certificate,
contract or endorsement.
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Sec. 227. Mandatory provisions in single life
insurance contracts (not applicable to group life or
industrial life).
Sec. 228. Mandatory provisions in group life
insurance policies.
Sec. 229. Definition of industrial life insurance
policies: That form of life insurance under which the
premiums are payable either monthly or oftener, if the
face amount of insurance provided in any policy is not
more than 500 times that of the current statutory
minimum wage in the City of Manila, and if the words
“industrial policy” are printed upon the policy as part of
the descriptive matter.
Sec. 230. Mandatory provisions in industrial life
insurance policies.
Sec. 231. Prohibited provisions in an industrial life
insurance policy.
Title 11. Claims Settlement
Sec. 241. Acts constituting unfair claim settlement
practices
What are acts that constitute unfair claim settlement
practices? LUMABAS TO SA FINALS, 5 pts for
enumeration
1.) Knowingly misrepresenting to claimants pertinent facts
or policy provisions relating to coverages at issue;
2.) Failing to acknowledge with reasonable promptness
pertinent communications with respect to claims
arising under its policies;
3.) Failing to adopt and implement reasonable standards
for the prompt investigation of claims arising under its
policies;
4.) Not attempt in good faith to effectuate prompt, fair
and equitable settlement of claims submitted in which
liability has become reasonably clear; or
5.) Compelling policyholders to institute suits to recover
amounts due under its policies by offering without
justifiable reason substantially less than the amounts
that could be ultimately recovered in suits brought by
them.
How or when do these acts become unfair practices? LUMABAS
DIN TO 5 PTS
They become unfair practices when:
1.) It is done without just or legal grounds; and
2.) if it done regularly so as to constitute a general
business practice
What is the effect of having found after due investigation that
any of the acts had been committed by the insurance company?
5 PTS DIN TO (inimbento ko lang yung tanong, basta yung
sagot sa bluebook ni mr/ms 97 ay:)
Any of the acts constituting unfair claim settlement
practices taken separately or individually may EACH
CONSTITUTE A GROUND OR BE SUFFICIENT CAUSE FOR THE
REVOCATION OR SUSPENSION of the Certificate to operate as
an insurance company in the Philippines issued by the
Insurance Commissioner.
Helen C. Arevalo 39
1st Sem.; 2003
When an insured decides to compromise a third party claim,
instead of filing suit, must the insurer respect such decision?
Where a policy gives the control of the decision to settle
claim or litigate it, the insurer nevertheless is required to
observe a certain measure of consideration for the interest of
the insured. In case of liability insurance, it is usually in the
interest of the insures that the case be settled. The rule that
has become generally accepted is that while the express terms
of the policy do not impose on the insurer the duty to settle the
claim at all costs, there is an implied duty on his part to give
due consideration to the interest of the insured in its exercise of
the option to reject a compromise settlement and proceed with
litigation.
Sec. 242. Period within which claim proceeds of
life insurance policy should be settled:
a.) Immediately upon maturity of policy (survival
benefits)
b.) Those maturing by death (death benefits) –
within 60 days after presentation of claim and
filing of proof of death
Effects of non-payment – interest at 2x the CB ceiling.
What is the time payment of claims in life insurance policies?
It depends.
1) In policies maturing upon the expiration of the term
set for the therein, the proceeds are immediately
payable to the insured, unless they are made payable
in installments or as an annuity, in which case the
installments or the annuities shall be paid as they
become due; and
2) In policies maturing at the death of the insured
occurring prior to the expiration of the term stipulated,
the proceeds are payable to the beneficiaries within 60
days after presentation of the claim and filing of proof
of death
Is the 60 day period mandatory? NO. It is merely procedural in
nature, evidently to determine the exact amount to be paid and
the interest thereon to which the beneficiaries may be entitled
to collect in case of unwarranted refusal of the company to pay,
and also to enable the insurer to verify or check on the fact of
death which it may evidently waive.
Sec. 243. Period within which claim proceeds of a
non-life policy should be settled:
a.) Within 30 days after receipt of proof of loss and
ascertainment of loss is made by agreement or
arbitration.
b.) Within 90 days after receipt of proof of loss if
ascertainment of loss is not made within 60
days.
Effects of non-payment – interest at 2x the CB ceiling.
In case of fire, what are the obligations of the insured in a fire
insurance contract?
1.) Two of these, the requirement of the notice of loss and
obligation to file a proof of loss, are conditions with
which the insured must comply before there is any
liability on the part of the insurer
2.) Furthermore, after a fire, the insured is required to do
everything reasonable to prevent further damage to
the property insured. An insured who fails to protect
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Crammer INSURANCE
his property adequately from further loss after the fire
cannot collect for the additional loss thus occasioned.
What are the settlement options of the insurer in a fire
insurance contract? The fire insurance contract usually provides
for two options of settlement by the insurer: the payment of
damages for the loss; or the restoration of the subject matter
of the insurance to its former condition. If the insurer elects to
rebuild, the amount of damage recoverable for a breach is not
thereafter limited to the amount of the insurance, this is the
reason why this option is rarely exercised. Usually, insurers
prefer to settle all losses by a cash payment.
How does liability insurance differ from other types of
insurance? In liability insurance, the claimant is not the insured
himself. Hence the adjuster is not dealing with a customer of
the insurer, but with a third person to whom the customer of
the insurer is liable. Furthermore, the determination of the
adequate amount to compensate for the injury is made difficult
by many uncertain factors which don’t really have pecuniary
value, like loss of time, suffering and inconvenience. It is
relatively easier if the victim suffered minor injuries like cuts
and wounds which did not require a long confinement. You
could still compute the compensation based on medical bills
and hospital expenses but just imagine if the injured party
suffered permanent injury, the problem of damages now
becomes complex.
What is the time payment of claims in non-life policies? The
proceeds shall be paid within 30 days after receipt by the
insurer of proof of loss, and ascertainment of the loss or
damage by agreement of the parties, or by arbitration but not
later than 90 days from such receipt of proof of loss whether or
not ascertainment is made.
*NOTE: Rule is different with Compulsory Motor Vehicle
Liability Insurance
What is the effect if the claim is fraudulent? Under policies,
particularly against fire, which contain a provision to the effect
that all benefits under the policy shall be forfeited if the claim
for loss be in any respect fraudulent, or if any false declaration
be made by the insured or his agent to obtain any benefit
under the policy, a serious discrepancy between the actual loss
and that claimed in the proof of loss, shall avoid it. Fraud in any
part of the claim taints the whole. And the mere filing of such
claim will exonerate the insurer.
Upon whom rests the burden of proving fraud? Upon Insurer
Effect if the false statements were innocently made: The
insured can recover for his loss
Is resort to arbitration mandatory? It depends on your contract.
Some contracts contain a provision that in event of loss and the
company denies liability, no action can be taken without first
submitting to arbitration. This type of stipulation is valid. Some
provision say that arbitration only be resorted to in case of
dispute as to amount of liability. Thus, no arbitration is
necessary if the dispute is as to the existence or non-existence
of liability.
Sec. 244. Duty of Commissioner or Court to make a
finding of unreasonable denial of claim and to
award damages, if findings affirmative; failure to
pay claim within prescribed time prima facie
evidence of unreasonable delay.
Helen C. Arevalo 40
1st Sem.; 2003
When is the insured entitled to damages? Under Secs 242, 243
& 244, the Commissioner or the Court must make a finding that
the payment of the claim has been unreasonably denied or
withheld before the insured shall be entitled to collect damages
and interest of 24%. In the absence of such finding, the
judgment should bear only interest at the legal rate of 12% for
the delay in the payment of the claim.
When does the presumption of unreasonable delay arise? There
is prima facie presumption of unreasonable delay if the insurer
fails to pay any such claim within the time prescribed in Secs
242, 243 &244. To overcome the presumption, the burden of
proof rests on the insurer.
What type of damages may be awarded the insured in case of
unreasonable delay? Under Sec 244, the damages that may be
awarded are:
1.) Attorney’s fees
2.) Other expenses incurred by the insured person by
reason of such unreasonable denial or withholding of
payment
3.) Interest at twice the ceiling prescribed by the
Monetary Boar of the amount of the claim due the
insured; and
4.) The amount of the claim
Cathay Ins. v. CA: Unreasonable delay in the
processing and payment of insurance claims entitles the
assured to collect interest at the rate of twice the ceiling
prescribed by the Monetary Board for the duration of the
delay. Prima facie evidence of delay in payment of the
claim is created by the failure of the insurer to pay the
claim within the time fixed in both Sections 242 and 243
of the Insurance Code.
Insurer is liable to pay the damages consisting
of atty’s fees and other expenses incurred by the
insured by reason of the insurer’s delay.
Zenith Ins. v. CA: Under the Insurance Code, in case of
unreasonable delay in the payment of the proceeds of
an insurance policy, the damages that may be awarded
are:
1.) Atty’s fees;
2.) Other expenses incurred by the insured person
by reason of such unreasonable denial or
withholding of payment;
3.) Interest at twice the ceiling prescribed by the
Monetary Board of the amount of the claim due
the injured; and
4.) The amount of the claim.
RCBC v. CA: Insurance over mortgaged properties
obtained pursuant to mortgage contract. Mortgaged
property burned; mortgagor Goyu claims proceeds.
GOYU cannot seek relief under Section 53 of the
Insurance Code which provides that the proceeds of
insurance shall exclusively apply to the interest of the
person in whose name or for whose benefit it is made.
The peculiarity of the circumstances obtaining in the
instant case presents a justification to take exception to
the strict application of said provision, it having been
sufficiently established that it was the intention of the
parties to designate RCBC as the party for whose benefit
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Crammer INSURANCE
the insurance policies were taken out. Consider thus the
following:
1.) It is undisputed that the insured pieces of property
were the subject of mortgage contracts entered into
between RCBC and GOYU in consideration of and for
securing GOYU's credit facilities from RCBC. The
mortgage contracts contained common provisions
whereby GOYU, as mortgagor, undertook to have the
mortgaged property properly covered against any loss
by an insurance company acceptable to RCBC.
2.) GOYU voluntarily procured insurance policies to cover
the mortgaged property from MICO, no less than a
sister company of RCBC and definitely an acceptable
insurance company to RCBC.
3.) Endorsement documents were prepared by MICO's
underwriter, Alchester Insurance Agency, Inc., and
copies thereof were sent to GOYU, MICO and RCBC.
GOYU did not assail, until of late, the validity of said
endorsements.
4.) GOYU continued until the occurrence of the fire, to
enjoy the benefits of the credit facilities extended by
RCBC which was conditioned upon the endorsement of
the insurance policies to be taken by GOYU to cover
the mortgaged properties.
Finman v. CA: As regards the submission of documents
to prove loss, substantial, not strict compliance with the
requirements will always be deemed sufficient.
A prima facie evidence of unreasonable delay in
payment of the claim is created by the failure of the
insurer to pay the claim within the time fixed in both
Sections 243 and 244.
CHAPTER VIII – THE INSURANCE COMMISSIONER
1st Sem.; 2003
declare the insolvency of an insurer in liquidation or rehab
proceedings.
Adjudicatory power of the Commissioner: Sec 416 empowers
the Commission to adjudicate claims and complaints involving
any loss, damage or liability being claimed or suited upon any
kind of insurance, bond reinsurance contract or membership
certificate where the amount thereof, excluding interests, cost
and attorney’s fees, does not exceed in any single claim,
P100,000. Any decision, order or ruling rendered by the
Commissioner after a hearing has the force and effect of a
judgment appealable to the Court of Appeals.
Almendras v. OIC: The Office of the Insurance
Commission is an administrative agency vested with
regulatory power as well as with adjudicatory authority.
Among the several regulatory or non-quasi-judicial
duties of the Insurance Commissioner is the authority to
issue, or refuse issuance of, a certificate of authority to
a person or entity desirous of engaging in insurance
business in the Philippines, and to revoke or suspend
such certificate upon a finding of the existence of
statutory grounds for such revocation or suspension.
The claim of petitioner in excess of P100,000
fell outside the quasi-judicial jurisdiction of the
Insurance Commissioner.
Philamlife v. Ansaldo: Insurance Commissioner has
the authority to regulate the business of insurance.
The quasi-judicial power of the Insurance
Commissioner does not cover the relationship affecting
the insurance company and its agents or employees but
is limited to adjudicating claims and complaints filed by
the insured against the insurance company.

Title 1. Administrative and Adjudicatory Powers

Special thanks to my troops: Privates X, Feet, & Tin,
Secs. 414-416. Powers and duties of Insurance You made this Mission Impossible possible!
Commissioner At ease!

What are the major administrative powers of the Insurance GOOD LUCK TO US ALL! ☺
Commissioner?
1.) Licensing,
2.) examination and
3.) investigation of insurance companies

Licensing: Acheck on the insurer’s financial condition to

ascertain that it has the required capital and surplus for the
kinds of insurance permitted in the license (Secs 186-191). The
Commissioner has power to refuse to issue a renewal license,
as well as the power of suspension or revocation

Examination: Once the insurance companies have been

licensed, the Commissioner proceeds with examination—the
checking of assets, liabilities and reserves is part of this
procedure, as well as a review of almost all underwriting,
investment and claim practices of the insurers.

Investigation: Investigation determines whether or not insurers

or their representatives are meeting the requirements of the
law. Free access to records and books of the insurers and
hearing of unfair trade practices are examples. As a result of
investigation, the Commisioner may issue administrative rulings
or advisory opinions with regard to the business conduct of
insurers or their agents. In extreme cases, he may even

Helen C. Arevalo 41 Section 3D