Insurance 11/29/2018

FIRE INSURANCE

Fire insurance shall include insurance against loss by fire, lightning, windstorm, tornado or earthquake and
other allied risks, when such risks are covered by extension to fire insurance policies or under separate policies.
(Sec 169)

So we are specifically talking about fire, however, your other allied risks can be included as part of fire
insurance policy so magkakaroon ng extension or separate policy. So you have a policy for earthquake and you
have a policy for fire. But, they are all lumped together in this discussion because the law specifically refers to
fire insurance only and ang common characteristic of all the other allied risks is that they may be naturally
caused or disasters or calamities.

Fire

Fire is the active principle of burning, characterized by heat and light combustion. So the keyword as I
am concerned is fire requires combustion. So if it is overly hot or the light is overly strong, even if it may cause
damage, that is not a compensable damage under a fire insurance policy because no combustion has occurred.

When compensable

1. there must be combustion

2. it must be a hostile fire as opposed to a friendly fire
a) A friendly fire is a fire that burns in a place where it is intended to burn and employed for the
ordinary purpose of lighting, heating or manufacturing. So as opposed to a hostile fire, it is burning
in a place where it is not intended to burn. Like if you start a fire in the middle of the classroom.

b) Another hostile fire is one which started to be friendly but becomes hostile but it eventually
escapes from the place where it is intended to burn and becomes uncontrollable

c) A friendly fire which becomes hostile by not escaping from its proper place but because of the
unsuitable material used to light it becomes inherently dangerous and uncontrollable

Why friendly fire Not Applicable?

Because if you analyze it, the only way that there can be loss or damage when the fire is friendly is for
you to deliberately cause the loss or damage as it is burning in a place where it is intended to burn.

Alterations

An alteration is a change in the use or condition of a thing insured from that to which it is limited by
the policy made without the consent of the insurer, by means within the control of the insured, and increasing
the risks, entitles an insurer to rescind a contract of fire insurance. (Sec 170)

The insurer is allowed to rescind the contract of insurance because the alteration changes the
character of the risk which the insurer has not agreed to insure against.

Requisites to constitute an alteration as to allow the rescission of the contract:

1. the use or condition of the thing insured changed is specifically limited or stipulated in the
policy
2. alteration is without the consent of the insurer
 3. the alteration is made by means within the control of the insured
4. the alteration increases the risk of loss (most important) Thus, if the alteration does not
increase or reduce the risk does not affect the contract.

Measure of Indemnity

If it is an open policy, the reference amount is the value of the thing or subject matter of the insurance
prior to the event of the loss or the cost to replace the thing lost in the condition in which it was at the time of
the loss. So let’s say a house is covered by a fire insurance, the value of the house today (assuming the fire
occurs tomorrow) is the reference value or the cost to put up the same house today before the fire occurred.

If it is a valued policy, the value agreed upon by the insurer and the insured is the reference value as it
is conclusive in the absence of fraud.

How the valuation is made

The fixing of the value may be made by an independent appraiser who is paid by the insured and the
value may be then fixed between the insurer and the insured.

If it is a partial loss, the whole amount of the partial loss is paid. The 1/3 old for new does not apply
here as only in marine insurance.

If there are 2 or more insurers, each shall contribute pro-rata to the total or partial loss but the liability
of the insurers cannot be more than the amount stated in the policy.

The parties may stipulate that instead of payment, it will be the option to repair, rebuild or replace the
property wholly or partially damaged or destroyed.

As to the Transfer of Claims, sabi natin that an agreement to transfer a claim before a loss occurs is
void because there is no subject but once a loss has occurred, it can be transferred. But no transfer can be
made to anybody who is considered as an agent or representative of the insurer if the effect of such transfer is
to defraud the creditors of the insured.

CASUALTY INSURANCE

Casualty insurance is insurance covering loss or liability arising from accident or mishap, excluding certain types
of loss which by law or custom are considered as falling exclusively within the scope of other types of insurance
such as fire or marine. It includes, but is not limited to, employer’s liability insurance, motor vehicle liability
insurance, plate glass insurance, burglary and theft insurance, personal accident and health insurance as
written by non-life insurance companies, and other substantially similar kinds of insurance. (Sec 176)

Definitions

1. Employer’s liability is insurance obtained by the employer (insured) against liability to an employee for
damages caused or arising from injuries by reason of his employment.
2. Workmen’s compensation is insurance secured by the employer for the benefit of his employees and
laborers for loss resulting from injuries, disablement or death through industrial accident, casualty or
disease in connection with their employment. (GSIS & SSS)
3. Public liability is insurance against liability of the insured to pay damages for accidental bodily injury or
damage to property arising from an activity of the insured defined in the policy (e.g. concert)
4. Motor vehicle liability is insurance against loss or injury arising from the use of a motor vehicle by its
owner as opposed to the loss or damage to the vehicle itself.
 5. Plate glass is insurance that indemnifies the insured against the loss caused by the accidental breaking
of plate glass, windows, doors or show cases.
6. Burglary and Theft (self-explanatory)
7. Personal accident is insurance against expense, loss of time and suffering from accidents that cause a
physical injury
8. Health is insurance for indemnity for expenses or loss occasioned by sickness or disease.

SURETYSHIP

A contract of suretyship is an agreement whereby a party called the surety guarantees the
performance by another party called the principal or obligor of an obligation or undertaking in favor of a third
party called the obligee. (Sec 177)

It is an insurance contract if issued by an insurance company or one engaged in the business of

insurance. But if not, the Civil Code will govern.

Things to Remember:

1. Suretyship is one of the exception to the cash and carry principle where there is a valid insurance
contract even if the premium has not been paid.
2. The liability of the surety is solidary however, it is limited to the amount of the bond and determined
by the terms of the policy.

Example:

If the obligor is liable for 200K and the limit is 100K, the surety is solidary liable only up to 100K.

Distinguished from Guaranty:

1. A surety assumes liability as a regular party to the agreement, a guarantor’s liability depends on an
independent agreement to pay if the debtor fails to pay.
2. A surety is primarily liable while a guarantor is secondarily liable
3. A surety is not entitled to exhaustion while a guarantor is entitled to exhaustion

Pag sa guaranty, kailangang maubusan muna si debtor bago maging liable si guarantor. Kapag
surety, that is not possible because the liability is solidary.

LIFE INSURANCE

Life insurance is insurance on human lives and insurance appertaining thereto or connected therewith.

Every contract or undertaking for the payment of annuities including contracts for the payment of lump sums
under a retirement program where a life insurance company manages or acts as a trustee for such retirement
program shall be considered a life insurance contract for purposes of this Code. (Sec 181)

When payable:

1. Death of a person
2. Surviving a specific period
3. Contingent on the continuance or cessation of life