You are on page 1of 36


(P.D. No. 1460)

I. GENERAL CONCEPTS 4. Unilateral – imposes legal duties only

CONTRACT OF INSURANCE on the insurer who promises to
 An agreement whereby one indemnify in case of loss.
undertakes for a consideration to 5. Conditional – It is subject to
indemnify another against loss, conditions the principal one of which
damage or liability arising from an is the happening of the event insured
unknown or contingent event. (Sec. against.
2, par. 2, IC) 6. Contract of indemnity – Except life
“DOING AN INSURANCE BUSINESS and accident insurance, a contract of
OR TRANSACTING AN INSURANCE insurance is a contract of indemnity
BUSINESS” (Sec. 2, par. 4) whereby the insurer promises to
1. Making or proposing to make, as make good only the loss of the
insurer, any insurance contract; insured.
2. Making or proposing to make, as 7. Personal – each party having in view
surety, any contract of suretyship as a the character, credit and conduct of
vocation, not as a mere incident to the other.
any other legitimate business of a
3. Doing any insurance business, INSURANCE (The Insurance Code of
including a reinsurance business; the Philippines Annotated, Hector de
4. Doing or proposing to do any Leon, 2002 ed.)
business in substance equivalent to 1. A subject matter which the insured
any of the foregoing has an insurable interest.
2. Event or peril insured against
II. CHARACTERISTICS OF AN which may be any future contingent
INSURANCE CONTRACT (The or unknown event, past or future and
Insurance Code of the Philippines a duration for the risk thereof.
Annotated, Hector de Leon, 2002 ed.) 3. A promise to pay or indemnify in a
1. Consensual – it is perfected by the fixed or ascertainable amount.
meeting of the minds of the parties. 4. A consideration known as
2. Voluntary – the parties may “premium”.
incorporate such terms and 5. Meeting of the minds of the
conditions as they may deem parties.
3. Aleatory – it depends upon some
contingent event.
5 CARDINAL PRINCIPLES IN Surety and Insurance Co., vs. CA, 336
1. Insurable Interest 5. Principle of Subrogation
2. Principle of Utmost Good Faith  It is a process of legal substitution
 An insurance contract requires where the insurer steps into the
utmost good faith (uberrimae fidei) shoes of the insured and he avails of
between the parties. The applicant is the latter’s rights against the
enjoined to disclose any material fact, wrongdoer at the time of loss.
which he knows or ought to know.  The principle of subrogation is a
 Reason: An insurance contract is normal incident of indemnity
an aleatory contract. The insurer insurance as a legal effect of
relies on the representation of the payment; it inures to the insurer
applicant, who is in the best position without any formal assignment or
to know the state of his health. any express stipulation to that effect
3. Contract of Indemnity in the policy. Said right is not
 It is the basis of all property dependent upon nor does it grow out
insurance. The insured who has of any private contract. Payment to
insurable interest over a property is the insured makes the insurer a
only entitled to recover the amount subrogee in equity. (Malayan
of actual loss sustained and the Insurance Co., Inc. v. CA, 165 SCRA
burden is upon him to establish the 536; see also Art. 2207, NCC)
amount of such loss (Reviewer on  Purposes: (The Insurance Code of
Commercial Law, Professors Sundiang the Philippines Annotated, Hector de
and Aquino) Leon, 2002 ed.)
Rules: 1. To make the person who caused the
a. Applies only to property insurance loss legally responsible for it.
except when the creditor insures the 2. To prevent the insured from receiving
life of his debtor. a double recovery from the
b. Life insurance is not a contract of wrongdoer and the insurer.
indemnity. 3. To prevent tortfeasors from being
c. Insurance contracts are not wagering free from liabilities and is thus
contracts. (Sec. 4) founded on considerations of public
4. Contract of Adhesion (Fine Print policy.
Rule)  Rules:
 Most of the terms of the contract 1. Applicable only to property
do not result from mutual insurance.
negotiations between the parties as 2. The insurer can only recover from
they are prescribed by the insurer in the third person what the insured
final printed form to which the could have recovered.
insured may “adhere” if he chooses 3. There can be no subrogation in
but which he cannot change. (Rizal cases:
a. Where the insured by his own act 5. The insured makes a ratable
releases the wrongdoer or third party contribution (premium) to a general
liable for the loss or damage; insurance fund.
b. Where the insurer pays the insured  A contract possessing only the first
the value of the loss without notifying 3 elements above is a risk-shifting
the carrier who has in good faith device. If all the elements, it is a risk-
settled the insured’s claim for loss; distributing device. (The Insurance
c. Where the insurer pays the insured Code of the Philippines Annotated,
for a loss or risk not covered by the Hector de Leon, 2002 ed.)
policy. (Pan Malayan Insurance
d. In life insurance CONTRACT
e. For recovery of loss in excess of  An insurance contract is a
insurance coverage consensual contract and is therefore
perfected the moment there is a
CONSTRUCTION OF INSURANCE meeting of minds with respect to the
CONTRACT object and the cause or
 The ambiguous terms are to be consideration.
construed strictly against the insurer,  What is being followed in
and liberally in favor of the insured. insurance contracts is what is known
However, if the terms are clear, there as the “cognition theory”. Thus, “an
is no room for interpretation. acceptance made by letter shall not
(Calanoc vs. Court of Appeals, 98 Phil. bind the person making the offer
79) except from the time it came to his
knowledge”. (Enriquez vs. Sun Life
III. DISTINGUISHING ELEMENTS OF Assurance Co. of Canada, 41 Phil.
1. The insured possesses an insurable
interest susceptible of pecuniary Binding Receipt
estimation;  A mere acknowledgment on behalf
2. The insured is subject to a risk of loss of the company that its branch office
through the destruction or had received from the applicant the
impairment of that interest by the insurance premium and had accepted
happening of designated perils; the application subject to processing
3. The insurer assumes that risk of loss; by the head office.
4. Such assumption is part of a general
scheme to distribute actual losses Cover Note (Ad Interim)
among a large group or substantial  A concise and temporary written
number of persons bearing contract issued to the insurer
somewhat similar risks; and through its duly authorized agent
embodying the principal terms of an  Contents: (Sec. 51)
expected policy of insurance. 1. Parties
Purpose: It is intended to give 2. Amount of insurance, except in open
temporary insurance protection or running policies;
coverage to the applicant pending 3. Rate of premium;
the acceptance or rejection of his 4. Property or life insured;
application. 5. Interest of the insured in the
 Duration: Not exceeding 60 days property if he is not the absolute
unless a longer period is approved by owner;
Insurance Commissioner (Sec. 52). 6. Risk insured against; and
7. Duration of the insurance.
 Printed stipulations usually  Persons entitled to recover on the
attached to the policy because they policy (sec. 53): The insurance
constitute additional stipulations proceeds shall be applied exclusively
between the parties. (Ang Giok Chip to the proper interest of the person
vs. Springfield, 56 Phil. 275) in whose name or to whose benefit it
 In case of conflict between a rider is made, unless otherwise specified in
and the printed stipulations in the the policy.
policy, the rider prevails, as being a  Kinds:
more deliberate expression of the 1. OPEN POLICY – value of thing
agreement of the contracting parties. insured is not agreed upon, but left to
(C. Alvendia, The Law of Insurance in be ascertained in case of loss. (Sec.
the Philippines, 1968 ed.) 60)
 The actual loss, as determined, will
Clauses represent the total indemnity due the
 An agreement between the insured from the insurer except only
insurer and the insured on certain that the total indemnity shall not
matter relating to the liability of the exceed the face value of the policy.
insurer in case of loss. (Prof. De Leon, (Development Insurance Corp. vs.
p.188) IAC, 143 SCRA 62)
2. VALUED POLICY – definite
Endorsements valuation of the property insured is
 Any provision added to the agreed by both parties, and written
contract altering its scope or on the face of policy. (Sec. 61)
application. (Prof. De Leon, p.188)  In the absence of fraud or mistake,
the agreed valuation will be paid in
POLICY OF INSURANCE case of total loss of the property,
 The written instrument in which a unless the insurance is for a lower
contract of insurance is set forth. amount.
(Sec. 49)
3. RUNNING POLICY – contemplates  A public enemy- a nation with
successive insurances and which whom the Philippines is at war and it
provides that the object of the policy includes every citizen or subject of
may from time to time be defined such nation.
(Sec. 62) 3. Beneficiary - A person designated
to receive proceeds of policy when
1. Life insurance  Rules in the designation of the
a. Individual life (Secs. 179–183, 227) beneficiary:
b. Group life (Secs. 50, last par., 228) a. LIFE
c. Industrial life (Secs. 229–231) i. A person who insures his own life can
2. Non-life insurance designate any person as his
a. Marine (Secs. 99–166) beneficiary, whether or not the
b. Fire (Secs. 167–173) beneficiary has an insurable interest
c. Casualty (Sec. 174) in the life of the insured subject to
3. Contracts of bonding or suretyship the limitations under Art. 739 and
(Secs. 175–178) Art. 2012 of the NCC.
Note:  Reason: in essence, a life insurance
1. Health and accident insurance are policy is no different form a civil
either covered under life (Sec. 180) or donation insofar as the beneficiary is
casualty insurance. (Sec. 174). concerned. Both are founded on the
2. Marine, fire, and the property same consideration of liberality.
aspect of casualty insurance are also (Insular Life vs. Ebrado, 80 SCRA 181)
referred to as property insurance. ii. A person who insures the life of
VI. PARTIES TO INSURANCE another person and name himself as
CONTRACT the beneficiary must have an
1. Insurer - Person who undertakes insurable interest in such life. (Sec.
to indemnify another. 10)
 For a person to be called an iii. As a general rule, the designation of a
insurance agent, it is necessary that beneficiary is revocable unless the
he should perform the function for insured expressly waived the right to
compensation. (Aisporna vs. CA, 113 revoke in the policy. (Sec. 11)
SCRA 459) iv. The interest of a beneficiary in a life
2. Insured - The party to be insurance policy shall be forfeited
indemnified upon the occurrence of when the beneficiary is the principal
the loss. He must have capacity to accomplice or accessory in willfully
contract, must possess an insurable bringing about the death of the
interest in the subject of the insured in which event, the nearest
insurance and must not be a public relative of the insured shall receive
enemy. the proceeds of said insurance if not
otherwise disqualified. (Sec. 12)
 The beneficiary of property  Every person has an insurable
insurance must have an insurable interest in the life and health:
interest in such property, which must a. of himself, of his spouse and of his
exist not only at the time the policy children;
takes effect but also when the loss b. of any person on whom he depends
occurs. (Sec. 13 and 18). wholly or in part for education or
Effects of Irrevocable Designation Of c. of any person under a legal obligation
Beneficiary to him to pay money or respecting
 Insured cannot: property or services, of which death
1. Assign the policy or illness might delay or prevent
2. Take the cash surrender value of the performance; and
policy d. of any person upon whose life any
3. Allow his creditors to attach or estate or interest vested in him
execute on the policy; depends. (Sec. 10)
4. Add new beneficiary; or  When it should exist: When the
5. Change the irrevocable designation insurance takes effect; not thereafter
to revocable, even though the change or when the loss occurs.
is just and reasonable.  Amount:
 The insured does not even retain GENERAL RULE: There is no limit in
the power to destroy the contract by the amount the insured can insure his
refusing to pay the premiums for the life.
beneficiary can protect his interest by EXCEPTION: In a creditor-debtor
paying such premiums for he has an relationship where the creditor
interest in the fulfillment of the insures the life of his debtor, the limit
obligation. (Vance, p. 665, cited in de of insurable interest is equal to the
Leon, p. 101, 2002 ed.) amount of the debt.
Note: If at the time of the death of
VII. INSURABLE INTEREST the debtor the whole debt has
already been paid, the creditor can
A. In General no longer recover on the policy
 A person has an insurable interest because the principle of indemnity
in the subject matter if he is so applies.
connected, so situated, so
circumstanced, so related, that by the C. Property
preservation of the same he shall  Every interest in property whether
derive pecuniary benefit, and by its real or personal, or any relation
destruction he shall suffer pecuniary thereto, or liability in respect thereof,
loss, damage or prejudice. of such nature that the contemplated
peril might directly damnify the
insured (Sec. 13), which may consist have any legal the property
in: basis insured must
1. an existing interest; whatever. A have a legal
2. any inchoate interest founded on an reasonable basis.
existing interest; or probability is
3. an expectancy coupled with an sufficient
existing interest in that out of which without more.
the expectancy arises. (Sec. 14) The beneficiary The
 When it should exist: When the need not have beneficiary
insurance takes effect and when the an insurable must have
loss occurs, but need not exist in the interest over insurable
meantime. the life of the interest over
 Amount: The measure of insurable insured if the the thing
interest in property is the extent to insured himself insured.
which the insured might be secured the
damnified by loss or injury thereof. policy.
(Sec. 17) However, if the
life insurance
LIFE PROPERTY beneficiary,
Must exist only Must exist at the latter must
at the time the the time the have insurable
policy takes policy takes interest over
effect and effect and the life of the
need not exist when the loss insured.
at the time of occurs
Unlimited Limited to 1. In case of a carrier or depositary
except in life actual value  A carrier or depository of any kind
insurance of interest in has an insurable interest in a thing
effected by property held by him as such, to the extent of
creditor on life insured. his liability but not to exceed the
of debtor. value thereof (Sec. 15)
The An 2. In case of a mortgaged property
expectation of expectation  The mortgagor and mortgagee
benefit to be of a benefit each have an insurable interest in the
derived from to be derived property mortgaged and this interest
the continued from the is separate and distinct from the
existence of continued other.
life need not existence of
a. Mortgagor – As owner, has an Effects of Loss Payable Clause
insurable interest therein to the a. The contract is deemed to be upon
extent of its value, even though the the interest of the mortgagor; hence,
mortgage debt equals such value. The he does not cease to be a party to the
reason is that the loss or destruction contract.
of the property insured will not b. Any act of the mortgagor prior to
extinguish the mortgage debt. the loss, which would otherwise
b. Mortgagee – His interest is only up avoid the insurance affects the
to the extent of the debt. Such mortgagee even if the property is in
interest continues until the mortgage the hands of the mortgagee.
debt is extinguished. c. Any act, which under the contract
of insurance is to be performed by
 The lessor cannot be validly a the mortgagor, may be performed by
beneficiary of a fire insurance policy the mortgagee with the same effect.
taken by a lessee over his d. In case of loss, the mortgagee is
merchandise, and the provision in the entitled to the proceeds to the extent
lease contract providing for such of his credit.
automatic assignment is void for e. Upon recovery by the mortgagee
being contrary to law and public to the extent of his credit, the debt is
policy. (Cha vs. Court of Appeals, 227 extinguished.
SCRA 690)
 In case a mortgagee insures his
STANDARD OPEN OR own interest and a loss occurs, he is
OR UNION LOSS entitled to the proceeds of the
MORTGAGE PAYABLE insurance but he is not allowed to
CLAUSE MORTGAGE retain his claim against the mortgagor
CLAUSE as the claim is discharged but it
Subsequent Acts of the passes by subrogation to the insurer
acts of the mortgagor to the extent of the money paid by
mortgagor affect the such insurer. (Palileo vs. Cosio)
cannot affect mortgagee.
the rights of Reason: VIII. RISK
the assignee Mortgagor  What may be insured against:
does not 1. Future contingent event resulting in
cease to be a loss or damage – Ex. Possible future
party to the fire
contract. 2. Past unknown event resulting in loss
(Secs. 8 and or damage – Ex. Fact of past sinking
9) of a vessel unknown to the parties
3. Contingent liability – Ex. Reinsurance
Effect of Acknowledgment of Receipt
IX. PREMIUM PAYMENTS of Premium in Policy: Conclusive
 Consideration paid an insurer for evidence of its payment, so far as to
undertaking to indemnify the insured make the policy binding,
against a specified peril. notwithstanding any stipulation
 Basis of the right of the insurer to therein that it shall not be binding
collect premiums: Assumption of risk. until the premium is actually paid.
GENERAL RULE: No policy issued by (Sec. 78)
an insurance company is valid and
binding until actual payment of ENTITLEMENT OF INSURED TO
premium. Any agreement to the RETURN OF PREMIUMS PAID
contrary is void. (Sec. 77)
1. In case of life or industrial life 1. If the thing insured was never
insurance, when the grace periods exposed to the risks insured against;
applies; (Sec. 77) (Sec. 79)
2. When the insurer makes a written 2. If contract is voidable due to the
acknowledgment of the receipt fraud or misrepresentation of insurer
premium; (Sec. 78) or his agents; (Sec. 81)
3. Section 77 may not apply if the 3. If contract is voidable because of the
parties have agreed to the payment existence of facts of which the
of the premium in installments and insured was ignorant without his
partial payment has been made at fault; (Sec. 81)
the time of the loss. (Makati Tuscany 4. When by any default of the insured
Condominium Corp. v. CA, 215 SCRA other than actual fraud, the insurer
462) never incurred liability; (Sec. 81)
4. Where a credit term has been agreed 5. When rescission is granted due to the
upon. (UCPB vs. Masagana Telemart, insurer’s breach of contract. (Sec. 74)
308 SCRA 259) B. Pro rata:
5. Where the parties are barred by 1. When the insurance is for a definite
estoppel. (UCPB vs. Maagana period and the insured surrenders his
Telemart, 356 SCRA 307) policy before the termination
 Section 77 merely precludes the  Exceptions:
parties from stipulating that the a. policy not made for a definite period
policy is valid even if the premiums of time
are not paid. (Makati Tuscany b. short period rate is agreed upon
Condominium Corp. v. CA, 215 SCRA c. life insurance policy
462) 2. When there is over-insurance (Sec.
Instances when premiums are not 2. Property insurance
recoverable:  It cannot be transferred without
1. When the risk has already attached the consent of the insurer.
and the risk is entire and indivisible.  Reason: The insurer approved the
2. In life insurance. policy based on the personal
3. When the contract is rescindable qualification and the insurable
or rendered void ab initio by the interest of the insured.
fraud of the insured. 3. Casualty insurance
4. When the contract is illegal and the  It cannot be transferred without
parties are in pari delicto. the consent of the insurer. (Paterson
PREMIUM ASSESSMENT cited in de Leon p. 82)
 Reason: The moral hazards are as
Levied and Collected to great as those of property insurance.
paid to meet meet actual
anticipated losses. CHANE OF INTEREST IN THE THING
losses. INSURED
 The mere (absolute) transfer of
Payment is Payment is the thing insured does not transfer
not enforceable the policy, but suspends it until the
enforceable once same person becomes the owner of
against levied unless both the policy and the thing insured.
the insured. otherwise (Sec. 58)
agreed upon.  Reason: Insurance contract is
Not a debt. It becomes a GENERAL RULE: A change of
debt once interest in any part of a thing insured
properly unaccompanied by a corresponding
levied unless change of interest in the insurance
otherwise suspends the insurance to an
agreed. equivalent extent, until the interests
in the thing and the interest in the
X. TRANSFER OF POLICY insurance are vested in the same
1. Life Insurance person. (Sec. 20)
 It can be transferred even without EXCEPTIONS:
the consent of the insurer except 1. In life, health and accident
when there is a stipulation requiring insurance.(Sec. 20);
the consent of the insurer before 2. Change in interest in the thing
transfer. (Sec. 181) insured after occurrence of an injury
 Reason: The policy does not which results in a loss. (Sec. 21);
represent a personal agreement
between the insured and the insurer.
3. Change in interest in one or more of b. Such party concealing is duty bound
several distinct things separately to disclose such fact to the other.
insured by one policy. (Sec. 22); c. Such party concealing makes no
4. Change of interest, by will or warranty as to the fact concealed.
succession, on the death of the d. The other party has not the means of
insured. (Sec. 23); ascertaining the fact concealed.
5. Transfer of interest by one of several e. Material
partners, joint owners, or owners in  Effects: Entitles insurer to rescind,
common, who are jointly insured, to even if the death or loss is due to a
others. (Sec. 24); cause not related to the concealed
6. When a policy is so framed that it will matter (Sec. 27).
inure to the benefit of whomsoever, Note: Good Faith is not a defense in
during the continuance of the risk, concealment. Sec. 27 clearly provides
may become the owner of the that, “the concealment whether
interest insured. (Sec. 57); intentional or unintentional entitles
7. When there is an express prohibition the injured party to rescind the
against alienation in the policy, in contract of insurance.”
case of alienation, the contract of Test of Materiality: Determined not
insurance is not merely suspended by the event, but solely by the
but avoided. (Art. 1306, NCC). probable and reasonable influence of
the facts upon the party to whom the
XI. ASCERTAINMENT AND CONTROL communication is due, in forming his
OF RISK AND LOSS estimate of the advantages of the
A. Four Primary Concerns of the proposed contract, or in making his
Parties: inquiries (Sec. 31).
1. Correct estimation of the risk;  Exception to Sec. 31:
2. Precise delimitation of the risk; a. Incontestability clause
3. Control of the risk; b. Matters under Sec.110 (marine
4. Determining whether a loss occurred insurance)
and if so, the amount of such loss.  The waiver of medical examination
B. Devices used for ascertaining and in a non-medical insurance contract
controlling risk and loss: renders even more material the
1. Concealment – A neglect to information required of the applicant
communicate that which a party concerning the previous conditions of
knows and ought to communicate health and diseases suffered. (Sunlife
(Sec. 26) v. Sps. Bacani, 246 SCRA 268).
 Requisites:  The right to information of
a. A party knows a fact which he material facts may be waived, either
neglects to communicate or disclose by the terms of the insurance or by
to the other. neglect to make inquiries as to such
facts where they are distinctly
implied in other facts of which d. It may be altered or withdrawn
information is communicated. before the insurance is effected but
(Sec.33) not afterwards.
 Where matters of opinion or e. It always refers to the date the
judgment are called for, answers contract goes into effect.
made in good faith and without  Kinds:
intent to deceiver will not avoid the a. AFFIRMATIVE – affirmation of a fact
policy even though they are untrue. when the contract begins; and
Reason: The insurer cannot rely on b. PROMISSORY – promise to be
those statements. He must make performed after policy was issued.
further inquiry. (Philamcare Health  Effect of Misrepresentation: the
Systems vs. CA, G.R. No. 125678, injured party is entitled to rescind
March 18, 2002). from the time when the
2. Representations – Factual representation becomes false.
statements made by the insured at Test of Materiality: Same as that in
the time of, or prior to, the issuance concealment.
of the policy to give information to  Where the insured merely signed
the insurer and induce him to enter the application form and made the
into the insurance contract. They are agent of the insurer fill the same for
considered an active form of him, it was held that by doing so, the
concealment. insured made the agent of the insurer
 Requisites of a false his own agent and he was responsible
representation (misrepresentation): for his acts for that purpose. (Insular
a. The insured stated a fact which is Life Assur. Co. vs. Feliciano, 74 Phil.
untrue. 469)
b. Such fact was stated with knowledge 3. Warranties – Statement or
that it is untrue and with intent to promise by the insured set forth in
deceive or which he states positively the policy or by reference
as true without knowing it to be true incorporated therein, the untruth or
and which has a tendency to mislead. non-fulfillment of which in any
c. Such fact in either case is material to respect, and without reference to
the risk. whether insurer was in fact
 Characteristics: prejudiced by such untruth or non-
a. It is not a part of the contract but fulfillment, renders the policy
merely a collateral inducement to it. voidable by the insurer.
b. It may be oral or written.  Purpose: To eliminate potentially
c. It is made at the same time of increasing hazards which may either
issuing the policy or before but not be due to the acts of the insured or to
after. the change to the condition of the
 Kinds:
a. EXPRESS – an agreement Written on the May be
expressed in a policy whereby the policy, actually written in the
insured stipulates that certain facts or by policy or may
relating to the risk are or shall be reference be oral.
true, or certain acts relating to the Presumed Must be
same subject have been or shall be material proved to be
done. material
b. IMPLIED - it is deemed included in Must be Requires only
the contract although not expressly strictly substantial
mentioned. Example: In marine complied with truth and
insurance, seaworthiness of the compliance
vessel. 4. Conditions – Events signifying in
 Effects of breach of warranty: its broadest sense either an
a. Material occurrence or a non-occurrence that
GENERAL RULE: Violation of alters the previously existing legal
material warranty or of a material relations of the parties to the
provision of a policy will entitle the contract. They may be conditions
other party to rescind the contract. precedent or conditions subsequent.
(Sec. 74)  Effect of breach:
EXCEPTIONS: a. Condition precedent – prevents the
a. Loss occurs before the time of accrual of cause of action
performance of the warranty. b. Condition subsequent – avoids the
b. The performances becomes unlawful policy or entitles the insurer to
at the place of the contract. rescind
c. Performance becomes impossible.  The insurer may also protect
(Sec. 73) himself against fraudulent claims of
b. Immaterial (ex. Other insurance loss and this he attempts to do by
clause) inserting in the policy various
GENERAL RULE: It will not avoid the conditions which take the form of
policy. conditions precedent. For instance,
EXCEPTION: When the policy there are conditions requiring
expressly provides or declares that a immediate notice of loss or injury and
violation thereof will avoid it. (Sec. detailed proofs of loss within a
75) limited period.
5. Exceptions – Provisions that may
WARRANTY REPRESENTAT specify excepted perils. It makes
ION more definite the coverage indicated
Part of the Mere by the general description of the risk
contract collateral by excluding certain specified risk
inducement that otherwise would be included
under the general language 4. Discovery of willful or reckless acts of
describing the risks assumed. omissions increasing the hazard
 Effect: Limit the coverage of the insured against;
contract. 5. Physical changes in property making
RESCISSION the property uninsurable; and
 Grounds: 6. Determination by the Insurance
A. Concealment Commissioner that the continuation
B. Misrepresentation of the policy would violate the
C. Breach of material warranty Insurance Code. (Sec. 64)
D. Breach of a condition  Requirements:
subsequent 1. Prior notice of cancellation to the
 Waiver of the right to rescind: insured;
Acceptance of premium payments 2. Notice must be in writing, mailed or
despite the knowledge of the ground delivered to the named insured at the
for rescission. (Sec. 45) address shown in the policy;
 Limitations on the right of the 3. Notice must state which of the
insurer to rescind: grounds set forth in Sec. 64 is relied
1. Non-life – such right must be upon and upon request of the
exercised prior to the insured, the insurer must furnish
commencement of an action on the facts on which the cancellation is
contract; based;
2. Life – such right must be availed of 4. Grounds should have existed after
during the first two years from the the effectivity date of the policy.
date of issue of policy or its last
reinstatement; prior to XII. INCONTESTABILITY CLAUSE
“incontestability.” (Sec. 48)  Clause in life insurance policy that
stipulates that the policy shall be
CANCELLATION OF NON-LIFE incontestable after a stated period.
 Right of the insurer to abandon 1. Life insurance policy
the contract on the occurrence of 2. Payable on the death of the insured
certain grounds after the effectivity 3. It has been in force during the
date of a non-life policy. lifetime of the insured for a period of
 Grounds: at least two years from the date of its
1. Non-payment of premium; issue or of its last reinstatement
2. Conviction of a crime out of acts Note: The period of 2 years may be
increasing the hazard insured against; shortened but it cannot be extended
3. Discovery of fraud or material by stipulation.
misrepresentation;  Incontestability only deprives the
insurer of those defenses which arise
in connection with the formation and
operation of the policy prior to loss. vicious type;
(Prof. De Leon, p. 173 citing Wyatt 6. That the
and Wyatt, p. 878) beneficiary
failed to
BARRED DEFENSES furnish proof
DEFENSES NOT BARRED of death or to
OF THE comply with
INSURER any condition
1. Policy is 1. That the imposed by
void ab initio person taking the policy
2. Policy is the insurance after the loss
rescindable by lacked has
reason of the insurable happened; or
fraudulent interest as 7. That the
concealment required by action was not
or law; brought
misrepresenta 2. That the within the
tion of the cause of the time specified.
insured or his death of the
agent insured is an XIII.
excepted risk; A. OVER-INSURANCE – results when
3. That the the insured insures the same
premiums property for an amount greater than
have not been the value of the property with the
paid (Secs. 77, same insurance company.
227[b],  Effect in case of loss:
228[b], 1. The insurer is bound only to pay to
230[b]); the extent of the real value of the
4. That the property lost;
conditions of 2. The insured is entitled to recover the
the policy amount of premium corresponding to
relating to the excess in value of the property;
military or B. DOUBLE INSURANCE – exists
naval service where same person is insured by
have been several insurers separately in respect
violated (Secs. to same subject and interest. (Sec.
227[b], 93)
228[b]);  Requisites:
5. That the 1. Person insured is the same;
fraud is of a 2. Two or more insurers insuring
particularly separately;
3. Subject matter is the same; Additional or “Other Insurance”
4. Interest insured is also the same; Clause
5. Risk or peril insured against is  A condition in the policy requiring
likewise the same. the insured to inform the insurer of
 Effects: Where double insurance is any other insurance coverage of the
allowed, but over insurance results: property insured. It is lawful and
(Sec. 94) specifically allowed under Sec. 75
1. The insured, unless the policy which provides that “(a) policy may
otherwise provides, may claim declare that a violation of a specified
payment from the insurers in such provision thereof shall avoid it,
order as he may select, up to the otherwise the breach of an
amount for which the insurers are immaterial provision does not avoid
severally liable under their respective it.”
contracts;  A stipulation against double
2. Where the policy under which the insurance.
insured claims is a valued policy, the  Purposes:
insured must give credit as against 1. To prevent an increase in the moral
the valuation for any sum received by hazard
him under any other policy without 2. To prevent over-insurance and
regard to the actual value of the fraud.
subject matter insured;  To constitute a violation of the
3. Where the policy under which the clause, there should have been
insured claims is an unvalued policy double insurance.
he must give credit, as against the full C. REINSURANCE – a contract by
insurable value, for any sum received which the insurer procures a third
by him under any policy; person to insure him against loss or
4. Where the insured receives any sum liability by reason of an original
in excess of the valuation in the case insurance (also known as
of valued policies, or of the insurable “Reinsurance Cession”). (Sec. 95)
value in the case of unvalued policies,  In every reinsurance, the original
he must hold such sum in trust for contract of insurance and the
the insurers, according to their right contract of reinsurance are covered
of contribution among themselves; by separate policies.
5. Each insurer is bound, as between
himself and the other insurers, to DOUBLE REINSURANCE
contribute ratably to the loss in INSURANCE
proportion to the amount for which Involves the Involves
he is liable under his contract. same interest different
Insurer Insurer
remains in becomes the
such capacity insured in 4. Retrocession – A transaction
relation to whereby the reinsurer in turn, passes
reinsurer to another insurer a portion of the
Insured is the Original risk reinsured. It is really the
party in insured has no reinsurance of reinsurance. (Prof. De
interest in the interest in the Leon, p. 305)
2 contracts reinsurance
contract. XIV.
Subject of Subject of A. LOSS, IN INSURANCE
insurance is insurance is  Injury or damage sustained by the
property the original insured in consequence of the
insurer’s risk happening of one or more of the
Insured has to Insured’s accidents or misfortune against which
give his consent not the insurer, in consideration of the
consent necessary premium, has undertaken to
indemnify the insured. (Bonifacio
TERMS: Bros. Inc. vs. Mora, 20 SCRA 261)
1. Reinsurance treaty – Merely an
agreement between two insurance Loss for which Loss for
companies whereby one agrees to insurer is which insurer
cede and the other to accept liable is not liable
reinsurance business pursuant to 1. Loss the 1. Loss by
provisions specified in the treaty. proximate insured’s
(Prof. De Leon, p. 306) cause of willful act;
2. Automatic reinsurance – The which is the 2. Loss due
reinsured is bound to cede and the peril insured to
reinsurer is obligated to accept a against (Sec. connivance
fixed share of the risk which has to be 84); of the
reinsured under the contract. (Prof. 2. Loss the insured (Sec.
De Leon, p. 305) immediate 87); and
3. Facultative reinsurance – There is cause of 3. Loss
no obligation to cede or accept which is the where the
participation in the risk each party peril insured excepted
having a free choice. But once the against except peril is the
share is accepted, the obligation is where proximate
absolute and the liability thereunder proximate cause.
can be discharged only by payment. cause is an
(Equitable Ins. & Casualty Co. vs. excepted
Rural Ins. & Surety Co., Inc. 4 SCRA peril;
343) 3. Loss
negligence of 2. That interest is covered by the
insured policy;
except where 3. There must be a loss; and
there was 4. The loss must be proximately
gross caused by the peril insured against.
amounting to NOTICE OF LOSS
willful acts; In fire In other
and insurance types of
4. Loss insurance
caused by
efforts to Required Not required
rescue the
thing from Failure to give Failure to
peril insured notice will give notice
against; defeat the will not
5. If during right of the exonerate
the course of insured to the insurer,
rescue, the recover. unless there
thing is is a
exposed to a stipulation in
peril not the policy
insured requiring the
against, which insured to do
permanently so.
deprives the
insured of its
possession, in B. CLAIMS SETTLEMENT
whole or in  The indemnification of the loss of
part (Sec. 85). the insured.

Proximate Cause – An event that sets

all other events in motion without
any intervening or independent case,
without which the injury or loss
would not have occurred.


1. The insured must have insurable
interest in the subject matter;
NON-LIFE and filing of
a. The proceeds
Maturing shall be paid
upon the within 30 days
expiration of after the
the term – receipt by the
The proceeds insurer of  In case of an unreasonable delay in
are proof of loss, the payment of the insured’s claim by
immediately and the insurer, the insured can recover:
payable to ascertainment 1) attorney’s fees; 2) expenses
the insured, of the loss or incurred by reason of the
unless they damage by unreasonable withholding; 3) interest
are made agreement of at double the legal interest rate fixed
payable in the parties or by the Monetary Board; and 4) the
installments by arbitration amount of the claim. (Zenith
or as annuity, but not later Insurance Corp. vs. CA, 185 SCRA 398)
in which than 90 days
case, the from such XV. PRESCRIPTIVE PERIOD (Secs. 63
installments receipt of & 384)
or annuities proof of loss  Rules:
shall be paid whether or 1. In the absence of an express
as they not stipulation in the policy, it being
become due. ascertainment based on a written contract, the
b. is had or action prescribes in 10 years.
Maturing at made. 2. However the parties may validly
the death of agree on a shorter period provided it
the insured, is not less than one year from the
occurring time the cause of action accrues.
prior to the 3. The cause of action accrues from
expiration of the rejection of the claim of the
the term insured and not from the time of loss.
stipulated – It shall commence from the denial
The proceeds of the claim, not from the resolution
are payable of the motion for reconsideration,
to the otherwise it can be used by the
beneficiaries insured as a scheme or device to
within 60 waste time until the evidence which
days after may be used against him is
destroyed. (Sun Insurance Office, Ltd.  Cargo can be the subject of marine
v. CA, 195 SCRA) insurance, and once it is entered into,
4. In CMVLI, the written notice of the implied warranty of
claim must be filed within 6 months seaworthiness immediately attaches
from the date of the accident to whoever is insuring the cargo,
otherwise the claim is deemed whether he be the shipowner or not.
waived. The suit for damages either (Roque v. IAC, 139 SCRA 596)
with the proper court or with the B. Marine Protection and Indemnity
Insurance Commissioner should be Insurance
filed within 1 year from the date of  Classes of inland marine
the denial of the claim by the insurer, insurance: (Prof. De Leon, p. 325)
otherwise claimant’s right of action 1. Property in transit – provides
shall prescribe. (Sec. 384) protection to property frequently
exposed to loss while it is
PARTICULAR KINDS OF INSURANCE transportation form one location to
CONTRACTS another.
2. Bailee liability - insurance for those
XVI. MARINE INSURANCE who have temporary custody of the
 Insurance against risks connected goods.
with navigation, to which a ship, 3. Fixed transportation property – they
cargo, freightage, profits or other are so insured because they are held
insurable interest in movable to be an essential part of the
property, may be exposed during a transportation system such as
certain voyage or a fixed period of bridges, tunnels, etc.
time. (Sec. 99) 4. Floater – provides insurance to follow
 Coverage: the insured property wherever it may
A. be located, subject always to the
1. Vessels, goods, freight, cargo, territorial limits of the contract.
merchandise, profits, money,  Insurable interest:
valuable papers, bottomry and A.
respondentia, and interest in respect 1. Shipowner
to all risks or perils of navigation; a. Over the vessel to the extent of its
2. Persons or property in connection value, except that if chartered, the
with marine insurance; insurance is only up to the amount
3. Precious stones, jewels, jewelry and not recoverable from the charterer.
precious metals whether in the (Sec. 100).
course of transportation or b. He also has an insurable interest on
otherwise; and expected freightage. (Sec. 103).
4. Bridges, tunnels, piers, docks and c. No insurable interest if he will be
other aids to navigation and compensated by charterer for the
transportation. (Sec. 99) value of the vessel, in case of loss.
2. Cargo owner
 Over the cargo and expected PERILS OF THE PERILS OF
profits (Sec. 105). SEA THE SHIP
3. Charterer Includes only A loss which
 Over the amount he is liable to the those in the
shipowner, if the ship is lost or casualties due ordinary
damaged during the voyage (Sec. to the: course of
106). 1. unusual events,
violence; or results from
B. 2. extraordin the:
In loans on bottomry and ary action of 1. natural
respondentia wind and and
 Repayment of the loan is subject wave; or inevitable
to the condition that the vessel or 3. Other action of the
goods, respectively, given as a extraordinary sea
security, shall arrive safely at the port causes 2. ordinary
of destination. connected wear and
1. Owner/Debtor with tear of the
 Difference between the value of navigation. ship or
vessel or goods and the amount of 3. Negligent
loan. (Sec. 101) failure of the
2. Creditor/lender ship’s owner
 Amount of the loan to provide
the vessel
Note: If a vessel is hypothecated by with proper
bottomry, only the excess is equipment to
insurable, since a loan on bottomry convey the
partakes of the nature of an cargo under
insurance coverage to the extent of ordinary
the loan accommodation. The same conditions.
rule would apply to the hypothecation
of the cargo by respondentia. Note: It is only perils of the sea which
(Pandect of Commercial Law and may be insured against unless perils
Jurisprudence, Justice Jose Vitug, of the ship is covered by an all-risk
1997 ed.) policy.


A. All Risks Policy – insurance against
all causes of conceivable loss or
damage, except: 1) as otherwise
excluded in the policy; or 2) due to he may have incurred in his efforts to
fraud or intentional misconduct on protect the property against a peril
the part of the insured. for which the insurer would have
 The insured has the initial burden been liable. (Sec. 163)
of proving that the cargo was in good
condition when the policy attached MATTERS ALTHOUGH CONCEALED,
and that the cargo was damaged WILL NOT VITIATE THE CONTRACT
when unloaded from the vessel; EXCEPT WHEN THEY CAUSED THE
thereafter, the burden then shifts to LOSS (Sec. 110)
the insurer to show the exception to 1. National character of the insured;
the coverage. (Filipinas Merchants 2. Liability of the thing insured to
Insurance vs. Court of Appeals, 179 capture or detention;
SCRA 638) 3. Liability to seizure from breach of
foreign laws;
B. Barratry Clause 4. Want of necessary documents; and
 A clause which provides that there 5. Use of false or simulated papers.
can be no recovery on the policy in Note: This should be related to the
case of any willful misconduct on the general rule regarding material
part of the master or crew in concealment.
pursuance of some unlawful or
fraudulent purpose without consent DISTINCTIONS ON CONCEALMENT
of owners, and to the prejudice of the (Commercial Law Reviewer, A.F.
owner’s interest. (Roque vs. IAC, 139 Agbayani, 1988 ed.)
SCRA 596)
 A clause which makes the insurer INSURANCE
liable for loss or damage to the hull The information The
or machinery arising from the: of the belief or information
1. Negligence of the captain, engineers, expectation of or belief of a
etc. 3rd persons is 3rd party is
2. Explosions, breakage of shafts; and material and not material
3. Latent defect of machinery or hull. must be and need not
(Bar Review Materials in Commercial communicated be
Law, Jorge Miravite, 2002 ed.) communicate
d unless it
D. Sue and Labor Clause proceeds
 A clause under which the insurer form an agent
may become liable to pay the of the insured
insured, in addition to the loss whose duty it
actually suffered, such expenses as is to give
information foreclose recourse against the
The Concealment common carrier for any liability under
concealment of of any the contractual obligation as such
any fact in material fact common carrier. (Delsan
relation to any will vitiate Transportation Lines vs. CA, 364 SCRA
of the matters the entire 24)
stated in Sec. contract,
110 does not whether or Seaworthiness
vitiate the not the loss  A relative term depending upon
entire contract results for the the nature of the ship, voyage,
but merely risk service and goods, denoting in
exonerates the concealed. general a ship’s fitness to perform
insurer from a the service and to encounter the
risk resulting ordinary perils of the voyage,
from the fact contemplated by the parties to the
concealed policy (Sec. 114).
GENERAL RULE: The warranty of
IMPLIED WARRANTIES seaworthiness is complied with if the
1. Seaworthiness of the ship at the ship be seaworthy at the time of the
inception of the insurance (Sec. 113); commencement of the risk. Prior or
2. Against improper deviation (Sec. 123, subsequent unseaworthiness is not a
124, 125); breach of the warranty nor is it
3. Against illegal venture; material that the vessel arrives in
4. Warranty of neutrality: the ship will safety at the end of her voyage.
carry the requisite documents of EXCEPTIONS:
nationality or neutrality of the ship or 1. In the case of a time policy, the ship
cargo where such nationality or must be seaworthy at the
neutrality is expressly warranted; commencement of every voyage she
(Sec. 120) may undertake
5. Presence of insurable interest. 2. In the case of cargo policy, each
vessel upon which the cargo is
 While the payment by the insurer shipped or transshipped, must be
for the insured value of the lost cargo seaworthy at the commencement of
operates as a waiver of the insurer’s each particular voyage
right to enforce the term of the 3. In the case of a voyage policy
implied warranty against the assured contemplating a voyage in different
under the marine insurance policy, stages, the ship must be seaworthy at
the same cannot be validly the commencement of each portion
interpreted as an automatic
admission of the vessel’s
seaworthiness by the insurer as to
 Applicability of implied warranty  Effect: In case of loss, the insurer is
of seaworthiness to cargo owners: It still liable.
becomes the obligation of a cargo 2. Improper - Every deviation not
owner to look for a reliable common specified in Sec. 124 (Sec. 125).
carrier, which keeps its vessels in  Effect: In case of loss or damage,
seaworthy conditions. The shipper the insurer is not liable. (Sec. 126)
may have no control over the vessel
but he has control in the choice of
the common carrier that will LOSS
transport his goods (Roque v. IAC, 1. Total:
139 SCRA 596). a. Actual -
i. Total destruction;
Deviation ii. Irretrievable loss by sinking;
 A departure from the course of the iii. Damage rendering the thing
voyage insured, or an unreasonable valueless; or
delay in pursuing the voyage or the iv. Total deprivation of owner of
commencement of an entirely possession of thing insured. (Sec.
different voyage. (Sec.123) 130)
 Instances: b. Constructive -
1. Departure of vessel from the course i. Actual loss of more than ¾ of the
of the sailing fixed by mercantile value of the object;
usage ii. Damage reducing value by more than
2. Departure of vessel from the most ¾ of the value of the vessel and of
natural, direct and advantageous cargo; and
route if not fixed by mercantile usage iii. Expense of transshipment exceed ¾
3. Unreasonable delay in pursuing of value of cargo. (Sec. 131, in
voyage relation to Sec. 139)
4. Commencement of an entirely  In case of constructive total loss,
different voyage (Secs. 121-123) insured may:
 Kinds: 1. Abandon goods or vessel to the
1. Proper - insurer and claim for whole insured
a. When caused by circumstances value (Sec. 139), or
outside the control of the ship 2. Without abandoning vessel, claim
captain or ship owner; for partial actual loss. (Sec. 155)
b. When necessary to comply with a 2. Partial: That which is not total (Sec.
warranty or to avoid a peril; 128).
c. When made in good faith to avoid a
peril; AVERAGE
d. When made in good faith to save  Any extraordinary or accidental
human life or to relieve another expense incurred during the voyage
vessel in distress (Sec. 124) for the preservation of the vessel,
cargo, or both, and all damages to the master or
the vessel and cargo from the time it upon his
is loaded and the voyage commenced authority;
until it ends and the cargo unloaded. 5. It must be not
be caused by
GENERAL PARTICULAR any fault of the
Has inured to Has not inured party asking
the common to the the
benefit and common contribution;
profit of all benefit and 6. It must be
persons profit of all successful, i.e.
interested in persons resulted in the
the vessel and interested in saving of the
cargo the vessel and vessel or
her cargo. cargo; and
To be borne To be borne Necessary.
equally by all alone by the
of the interests owner of the RIGHT OF INSURED IN CASE OF
concerned in cargo or the GENERAL AVERAGE
the venture. vessel, as the GENERAL RULE: The insured may
case may be. either hold the insurer directly liable
Requisites for for the whole of the insured value of
the right to the property sacrificed for the
claim general benefit, subrogating him to
contribution: his own right of contribution or
1. Common demand contribution from the other
danger to the interested parties as soon as the
vessel or vessel arrives at her destination
2. Part of the 1. After the separation of interests
vessel or cargo liable to contribution
was sacrificed 2. When the insured has neglected or
deliberately; waived his right to contribution
3. Sacrifice must
be for the FPA Clause (Free From Particular
common Average)
safety or for A clause agreed upon in a policy of
the benefit of marine insurance in which it is stated
all; that the insurer shall not be liable for
4. Sacrifice must a particular average, such insurer
be made by shall be free therefrom, but he shall
continue to be liable for his to the thing insured, subsequent to
proportion of all general average the loss, are at the risk of the insurer
losses assessed upon the thing and for his benefit. (Transfer Of
insured. (Sec. 136) Agency)(Sec.148)

ABANDONMENT  If an insurer refuses to accept a

 The act of the insured by which, valid abandonment, he is liable upon
after a constructive total loss, he an actual total loss, deducting form
declared the relinquishment to the the amount any proceeds of the thing
insurer of his interest in the thing insured which may have come to the
insured. (Sec. 138) hands of the insured. (Sec.154)
 Requisites for validity:
1. There must be an actual CO-INSURANCE
relinquishment by the person insured  A marine insurer is liable upon a
of his interest in the thing insured partial loss, only for such proportion
(Sec. 138); of the amount insured by him as the
2. There must be a constructive total loss bears to the value of the whole
loss (Sec. 139); interest of the insured in the property
3. The abandonment be neither partial insured. (Sec. 157)
nor conditional (Sec. 140);  When the property is insured for
4. It must be made within a reasonable less than its value, the insured is
time after receipt of reliable considered a co-insurer of the
information of the loss (Sec. 141); difference between the amount of
5. It must be factual (Sec. 142); insurance and the value of the
6. It must be made by giving notice property.
thereof to the insurer which may be
done orally or in writing (Sec. 143);  Requisites:
and 1. The loss is partial;
7. The notice of abandonment must be 2. The amount of insurance is less
explicit and must specify the than the value of the property
particular cause of the abandonment insured.
(Sec. 144).
 Rules:
 Effects: 1. Co-insurance applies only to
1. It is equivalent to a transfer by the marine insurance
insured of his interest to the insurer 2. Logically, there cannot be co-
with all the chances of recovery and insurance in life insurance.
indemnity (Transfer of 3. Co-insurance applies in fire
Interest)(Sec.146) insurance when expressly provided
2. Acts done in good faith by those who for by the parties.
were agents of the insured in respect
INSURANCE  A contract by which the insurer for
A percentage Situation a consideration agrees to indemnify
in the value of where the the insured against loss of, or damage
the insured insurer to, property by hostile fire, including
property which procures a 3rd loss by lightning, windstorm, tornado
the insured party called or earthquake and other allied risks,
himself the reinsurer when such risks are covered by
assumes to act to insure him extension to fire insurance policies or
as insurer to against liability under separate policies. (Sec. 167)
the extent of by reason of
the deficiency an original
in the insurance.  Prerequisites to recovery:
insurance of Basically, 1. Notice of loss – must be
the insured reinsurance is immediately given, unless delay is
property. In an insurance waived expressly or impliedly by the
case of loss or against liability insurer
damage, the which the 2. Proof of loss – according to best
insurer will be original insurer evidence obtainable. Delay may also
liable only for may incur in be waived expressly or impliedly by
such favor of the the insurer
proportion of original
the loss or insured. HOSTILE FIRE FRIENDLY
damage as the FIRE
amount of the One that One that
insurance escapes from burns in a
bears to the the place place where it
designated where it was was intended
percentage of intended to to burn and
the full value burn and ought to be
of the property ought to be.
insured. (Bar Insurer is Insurer is not
Review liable liable
Materials in
Commercial Measure of Indemnity
Law, Jorge 1. Open policy: only the expense
Miravite, 2002 necessary to replace the thing lost or
ed.) injured in the condition it was at the
time of the injury
2. Valued policy: the parties are all insurance by the policy shall
bound by the valuation, in the immediately cease.
absence of fraud or mistake
Option to rebuild clause
Note: It is very crucial to determine  A clause giving the insurer the
whether a marine vessel is covered option to reinstate or replace the
by a marine insurance or fire property damaged or destroyed or
insurance. The determination is any part thereof, instead of paying
important for 2 reasons: the amount of the loss or the
1. Rules on constructive total loss and damage.
abandonment – applies only to  The insurer, after electing to
marine insurance; rebuild, cannot be compelled to
2. Rule on co-insurance – applies perform this undertaking by specific
primarily to marine insurance; performance because this is an
3. Rule on co-insurance applies to fire obligation to do, not to give. Remedy:
insurance only if expressly agreed Art. 1167, NCC.
upon. (Commercial Law Reviewer,
Aguedo Agbayani, 1988 ed.) XVIII. CASUALTY OR ACCIDENT
ALTERATION AS A SPECIAL GROUND  Insurance covering loss or liability
FOR RESCISSION BY INSURER arising from accident or mishap,
 Requisites: excluding those falling under other
1. The use or condition of the thing is types of insurance such as fire or
specifically limited or stipulated in marine. (Sec. 174)
the policy;
2. Such use or condition as limited by  Classifications:
the policy is altered; 1. Insurance against specified perils
3. The alteration is made without the which may affect the person and/or
consent of the insurer; property of the insured. (accident or
4. The alteration is made by means health insurance)
within the control of the insured;  Examples: personal accident,
5. The alteration increases the risk; (Sec. robbery/theft insurance
168) and 2. Insurance against specified perils
6. There must be a violation of a policy which may give rise to liability on the
provision. (Sec. 170) part of the insured for claims for
injuries to or damage to property of
Fall-of-building clause others. (third party liability insurance)
 A clause in a fire insurance policy  Insurable interest is based on the
that if the building or any part interest of the insured in the safety of
thereof falls, except as a result of fire, persons, and their property, who may
maintain an action against him in
case of their injury or destruction, service and employment. The
respectively. purpose of the exception is to guard
 Examples: workmen’s against liability should theft be
compensation, motor vehicle liability committed by one having
 In a third party liability (TPL) unrestricted access to the property.
insurance contract, the insurer (Fortune Insurance vs. CA, 244 SCRA
assumes the obligation by paying the 208)
injured third party to whom the
insured is liable. Prior payment by the Right of a third party injured to sue
insured to the third person is not the insurer
necessary in order that the obligation 1. Indemnity against liability – A third
may arise. The moment the insured party injured can directly sue the
becomes liable to third persons, the insurer.
insured acquires an interest in the 2. Indemnity for actual loss or
insurance contract which may be reimbursement after actual payment
garnished like any other credit. (Perla by the insured – A third party has no
Comapnia de Seguro, Inc vs. cause of action against the insurer
Ramolete, 205 SCRA 487) (Sec. 53, Bonifacio Bros. v. Mora, 20
 Aside from compulsory motor SCRA 261).
vehicle liability insurance, the
Insurance Code contains no other  The insurer is not solidarily liable
provisions applicable to casualty with the insured. The insurer’s
insurance. Therefore, such casualty liability is based on contract; that of
insurance are governed by the the insured is based on torts.
general provisions applicable to all Furthermore, the insurer’s liability is
types of insurance, and outside of limited by the amount of the
such statutory provisions, the rights insurance coverage (Pan Malayan
and obligations of the parties must be Insurance Corporation v. CA, 184
determined by their contract, taking SCRA 54).
into consideration its purpose and
always in accordance with the “INTENTIONAL” vs. “ACCIDENTAL”
general principles of insurance law. AS USED IN INSURANCE POLICIES
1. Intentional – Implies the exercise
 In burglary, robbery and theft of the reasoning faculties,
insurance, the opportunity to defraud consciousness and volition. Where a
the insurer – the moral hazard – is so provision of the policy excludes
great that insurer have found it intentional injury, it is the intention
necessary to fill up the policies with of the person inflicting the injury that
many restrictions designed to reduce is controlling. If the injuries suffered
the hazard. Persons frequently by the insured clearly resulted from
excluded are those in the insured’s the intentional act of the third
person, the insurer is relieve from  It applies to all vehicles whether
liability as stipulated. (Biagtan v. the public and private vehicles.
Insular Life Assurance Co. Ltd., 44 Note: It is the only compulsory
SCRA 58, 1972) insurance coverage under the
2. Accidental – That which happens Insurance Code.
by chance or fortuitously, without
intention or design, which is Method of coverage
unexpected, unusual and unforeseen. 1. Insurance policy
2. Surety bond
NO ACTION CLAUSE 3. Cash deposit
 A requirement in a policy of
liability insurance which provides that Passenger – Any fare-paying person
suit and final judgment be first being transported and conveyed in
obtained against the insured; that and by a motor vehicle for
only thereafter can the person transportation of passengers for
injured recover on the policy. compensation, including persons
(Guingon vs. Del Monte, 20 SCRA expressly authorized by law or by the
1043) vehicle’s operator or his agents to
ride without fare. (Sec. 373[b])
LIABILITY INSURANCE (CMVLI) Third Party – Any person other than
 A species of compulsory insurance the passenger, excluding a member
that provides for protection coverage of the household or a member of the
that will answer for legal liability for family within the second degree of
losses and damages for bodily injuries consanguinity or affinity, of a motor
or property damage that may be vehicle owner or land transportation
sustained by another arising from the operator, or his employee in respect
use and operation of motor vehicle of death or bodily injury arising out of
by its owner. and in the course of employment.
 Purpose: To give immediate (Sec. 373[c])
financial assistance to victims of
motor vehicle accidents and/or their “No-Fault” Clause
dependents, especially if they are  A clause that allows the victim
poor regardless of the financial (injured person or heirs of the
capability of motor vehicle owners or deceased) to an option to file a claim
operators responsible for the for death or injury without the
accident sustained (Shafer v. Judge, necessity of proving fault or
RTC, 167 SCRA 386). negligence of any kind.
 Claimants/victims may be a  Purpose: To guarantee
“passenger” or a “3rd party” compensation or indemnity to
injured persons in motor vehicle  This no-fault claim does not apply
accidents. to property damage. If the total
 Rules: indemnity claim exceeds P5,000 and
1. Total indemnity - maximum of there is controversy in respect
P5,000 thereto, the finding of fault may be
2. Proofs of loss - availed of by the insurer only as to
a. Police report of accident; the excess. The first P5,000 shall be
b. Death certificate and evidence paid without regard to fault. (Prof.
sufficient to establish proper payee; De Leon, p. 716)
c. Medical report and evidence of
medical or hospital disbursement.  The essence of the no-fault
3. Claim may be made against one indemnity insurance is to provide
motor victims of vehicular accidents or their
vehicle only heirs immediate compensation
4. Proper insurer from which to claim although in limited amount, pending
- final determination of who is
a. In case of an occupant: Insurer responsible for the accident and
of the vehicle in which the occupant liable for the victims injuries or death.
is riding, mounting or dismounting (Ibid.)
b. In any other case: Insurer of SPECIAL CLAUSES
the directly offending vehicle. (Sec. A. Authorized Driver Clause
378)  A clause which aims to indemnify
the insured owner against loss or
 The claimant is not free to choose damage to the car but limits the use
from which insurer he will claim the of the insured vehicle to the insured
“no fault indemnity” as the law himself or any person who drives on
makes it mandatory that the claim his order or with his permission
shall lie against the insurer of the (Villacorta v. Insurance
vehicle in which the occupant is Commissioner)
riding, mounting or dismounting  The requirement that the person
from. That said vehicle might not be driving the insured vehicle is
the one that caused the accident is of permitted in accordance with the
no moment since the law itself licensing laws or other laws or
provides that the party paying may regulations to drive the motor vehicle
recover against the owner of the (licensed driver) is applicable only if
vehicle responsible for the accident. the person driving is other than the
(Perla Compania de Seguros, Inc. v. insured.
Ancheta, 169 SCRA 144)
B. Theft Clause
 A clause which includes theft as Nature of liability of surety
among the risks insured against. 1. Solidary;
 Where the car is unlawfully and 2. Limited to the amount of the bond;
wrongfully taken without the owner’s 3. It is determined strictly by the terms
consent or knowledge, such taking of the contract of suretyship in
constitutes theft, and thus, it is the relation to the principal contract
“theft clause” and not the between the obligor and the obligee.
“authorized driver clause that should (Sec. 176)
apply (Palermo v. Pyramids Ins., 161
C. Cooperation Clause Accessory Principal
 A clause which provides in essence contract contract
that the insured shall give all such 3 parties: 2 parties:
information and assistance as the surety, insurer and
insurer may require, usually requiring obligor and insured
attendance at trials or hearings. oblige
Credit Contract of
XX. SURETYSHIP accommodati indemnity
 An agreement whereby a surety on
guarantees the performance by the Surety can Insurer has no
principal or obligor of an obligation or recover from such right;
undertaking in favor of an obligee. principal only right of
(Sec. 175) subrogation
 It is essentially a credit Bond can be May be
accommodation. cancelled cancelled
 It is considered an insurance only with unilaterally
contract if it is executed by the surety consent of either by
as a vocation, and not incidentally. obligee, insured or
(Sec. 20 Commissione insurer on
 When the contract is primarily r or court grounds
drawn up by 1 party, the benefit of provided by
doubt goes to the other party law
(insured/obligee) in case of an Requires No need of
ambiguity following the rule in acceptance of acceptance by
contracts of adhesion. Suretyship, obligee to be any third party
especially in fidelity bonding, is thus valid
treated like non-life insurance in Risk-shifting Risk-
some respects. device; distributing
premium paid device;
being in the premium paid 6. Industrial Life - life insurance entitling
nature of a as a ratable the insured to pay premiums weekly,
service fee contribution to or where premiums are payable
a common monthly or oftener.
Mortgage Redemption Insurance
XXI. LIFE INSURANCE  A life insurance taken pursuant to
 Insurance on human lives and a group mortgage redemption
insurance appertaining thereto or scheme by the lender of money on
connected therewith which includes the life of a mortgagor who, to secure
every contract or pledge for the the loan, mortgages the house
payment of endowments or constructed from the use of the
annuities. (Sec. 179) proceeds of the loan, to the extent of
 Kinds: (Bar Review Materials in the mortgage indebtedness such that
Commercial Law, Jorge Miravite, if the mortgagor dies, the proceeds of
2002 ed.) his life insurance will be used to pay
1. Ordinary Life, General Life or Old Line for his indebtedness to the lender
Policy - Insured pays a fixed premium assured and the deceased’s heirs will
every year until he dies. Surrender thereby be relieved from paying the
value after 3 years. unpaid balance of the loan. (Great
2. Group Life – Essentially a single Pacific Life Assurance Corp. vs. Court
insurance contract that provides of Appeals, 316 SCRA 677)
coverage for many individuals.
Examples: In favor of employees, LIABILITY OF INSURER IN CERTAIN
“mortgage redemption insurance”. CAUSES OF DEATH OF INSURED
3. Limited Payment Policy – insured 1. Suicide
pays premium for a limited period. If  Insurer is liable in the following
he dies within the period, his cases:
beneficiary is paid; if he outlives the 1. If committed after two years from the
period, he does not get anything. date of the policy’s issue or its last
4. Endowment Policy – pays premium reinstatement;
for specified period. If he outlives the 2. If committed in a state of insanity
period, the face value of the policy is regardless of the date of the
paid to him; if not, his beneficiaries commission unless suicide is an
receive the benefit. excepted peril. (Sec. 180-A)
5. Term Insurance – insurer pays once 3. If committed after a shorter period
only, and he is insured for a specified provided in the policy
period. If he dies within the period,  Any stipulation extending the 2-
his beneficiaries benefits. If he year period is null and void.
outlives the period, no person 2. At the hands of the law (E.g. by
benefits from the insurance. legal execution)
 It is one of the risks assumed by fixed in the policy except when a
the insurer under a life insurance creditor insures the life of his debtor.
policy in the absence of a valid policy (Sec. 183)
exception. (Vance,p.572 cited in de
Note: Justice Vitug believes that BENEFICIARY NECESSARY TO THE
death by suicide (if the insured is ASSIGNMENT OF A LIFE INSURANCE
sane) or at the hands of the law POLICY?
obviates against recovery as being  It depends. If the designation of
more in consonance with public the beneficiary is irrevocable, the
policy and as being implicit under beneficiary’s consent is essential
Section 87, ICP. (Pandect of because of his vested right. If the
Commercial Law and Jurisprudence, designation is revocable, the policy
1997 ed. P. 191) may be assigned without such
3. Killing by the beneficiary consent because the beneficiary only
GENERAL RULE: The interest of a has a mere expectancy to the
beneficiary in a life insurance policy proceeds. (The Insurance Code of the
shall be forfeited when the Philippines Annotated, Hector de
beneficiary is the principal Leon, 2002 ed.)
accomplice or accessory in willfully
bringing about the death of the Cash Surrender Value
insured, in which event, the nearest  As applied to a life insurance
relative of the insured shall receive policy, it is the amount the insured in
the proceeds of said insurance if not case of default, after the payment of
otherwise disqualified. (Sec. 12) at least 3 full annual premiums, is
EXCEPTIONS: entitled to receive if he surrenders
1. Accidental killing the policy and releases his claims
2. Self-defense upon it.
3. Insanity of the beneficiary at the
time he killed the insured LIFE FIRE
 If the premiums paid came from Contract of Contract of
conjugal funds, the proceeds are investment indemnity
considered conjugal. If the not of
beneficiary is other than the insured’s indemnity
estate, the source of premiums Valued policy Open or
would not be relevant. (Del Val v. Del valued policy
Val, 29 Phil 534) May be The insurable
transferred interest of the
 The measure of indemnity in life or or assigned transferee or
health insurance policy is the sum to any person assignee is
even if he has essential vary so as to reflect investment
no insurable results of any segregated portfolio of
interest investment.
Consent of Consent of
insurer is not insurer must XXIII. INSURANCE COMMISSIONER
essential to be secured in  Main agency charged with the
validity of the absence of enforcement of the Insurance Code
assignment waiver and other related laws.
Contingency Contingency  Functions:
that is insured against 1. ADJUDICATORY/QUASI-JUDICIAL
contemplate may or may a. Exclusive original jurisdiction –
d is a certain not occur Any dispute in the enforcement of any
event, the policy issued pursuant to Chapter VI
only (CMVLI). (Sec. 385, par. 2)
uncertainty b. Concurrent original jurisdiction
being the (with the RTC) – Where the maximum
time when it amount involved in any single claim is
will take P100,000 (Sec. 416), except in case of
place maritime insurance which is within
A long-term May be the exclusive jurisdiction of the RTC.
contract and cancelled by (BP 129; admiralty & maritime
cannot be either party jurisdiction)
cancelled by and is usually  Where the amount exceeds
the insurer for a term of P100,000, the RTC has jurisdiction.
one year
Beneficiary is Insured is  The Insurance Commissioner has
under no required to no jurisdiction to decide the legality
obligation to submit proof of a contract of agency entered into
prove actual of his actual between an insurance company and
financial loss pecuniary loss its agent. The same is not covered by
as a condition the term “doing or transacting
precedent to insurance business” under Sec 2, ICP,
collecting the neither is it covered by Sec. 416 of
insurance. the same Code which grants the
Commissioner adjudicatory powers
XXII. VARIABLE CONTRACT (Philippine American Life Insurance
 Any policy or contract on either a Co. v. Ansaldo, 234 SCRA 509).
group or individual basis issued by an
insurance company providing for 2. ADMINISTRATIVE/REGULATORY
benefits or other contractual a. Enforcement of
payments or values thereunder to insurance laws
b. Issuance, suspension or revocation of
certificate of authority
c. Power to examine books and records,
d. Rule-making authority
e. Punitive