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San Beda College of Law: Insurance Code
San Beda College of Law: Insurance Code
30
MEMORY AID IN COMMERCIAL LAW
INSURANCE CODE
(P.D. No. 1460)
and the interest in the insurance are a. A party knows a fact which he
vested in the same person. (Sec. 20) neglects to communicate or
disclose to the other.
b. Such party concealing is duty
bound to disclose such fact to
EXCEPTIONS: the other.
1. In life, health and accident c. Such party concealing makes no
insurance.(Sec. 20); warranty as to the fact
2. Change in interest in the thing concealed.
insured after occurrence of an d. The other party has not the
injury which results in a loss. means of ascertaining the fact
(Sec. 21); concealed.
3. Change in interest in one or e. Material
more of several distinct things Effects: Entitles insurer to rescind,
separately insured by one policy. even if the death or loss is due to a
(Sec. 22); cause not related to the concealed
4. Change of interest, by will or matter (Sec. 27).
succession, on the death of the Note: Good Faith is not a defense in
insured. (Sec. 23); concealment. Sec. 27 clearly provides
5. Transfer of interest by one of that, “the concealment whether
several partners, joint owners, intentional or unintentional entitles the
or owners in common, who are injured party to rescind the contract of
jointly insured, to others. (Sec. insurance.”
24);
6. When a policy is so framed that Test of Materiality: Determined not by
it will inure to the benefit of the event, but solely by the probable
whomsoever, during the and reasonable influence of the facts
continuance of the risk, may upon the party to whom the
become the owner of the communication is due, in forming his
interest insured. (Sec. 57); estimate of the advantages of the
7. When there is an express proposed contract, or in making his
prohibition against alienation in inquiries (Sec. 31).
the policy, in case of alienation, Exception to Sec. 31:
the contract of insurance is not a. Incontestability clause
merely suspended but avoided. b. Matters under Sec.110 (marine
(Art. 1306, NCC). insurance)
are untrue. Reason: The insurer cannot that purpose. (Insular Life Assur. Co. vs.
rely on those statements. He must make Feliciano, 74 Phil. 469)
further inquiry. (Philamcare Health
Systems vs. CA, G.R. No. 125678, March 3. Warranties – Statement or promise
18, 2002). by the insured set forth in the policy or
by reference incorporated therein, the
2. Representations – Factual untruth or non-fulfillment of which in
statements made by the insured at the any respect, and without reference to
time of, or prior to, the issuance of the whether insurer was in fact prejudiced
policy to give information to the insurer by such untruth or non-fulfillment,
and induce him to enter into the renders the policy voidable by the
insurance contract. They are considered insurer.
an active form of concealment. Purpose: To eliminate potentially
Requisites of a false representation increasing hazards which may either be
(misrepresentation): due to the acts of the insured or to the
a. The insured stated a fact which change to the condition of the property.
is untrue. Kinds:
b. Such fact was stated with a. EXPRESS – an agreement expressed in
knowledge that it is untrue and a policy whereby the insured stipulates
with intent to deceive or which that certain facts relating to the risk are
he states positively as true or shall be true, or certain acts relating
without knowing it to be true to the same subject have been or shall
and which has a tendency to be done.
mislead. b. IMPLIED - it is deemed included in the
c. Such fact in either case is contract although not expressly
material to the risk. mentioned. Example: In marine
Characteristics: insurance, seaworthiness of the vessel.
a. It is not a part of the contract but Effects of breach of warranty:
merely a collateral inducement to it. a. Material
b. It may be oral or written. GENERAL RULE: Violation of material
c. It is made at the same time of issuing warranty or of a material provision of a
the policy or before but not after. policy will entitle the other party to
d. It may be altered or withdrawn before rescind the contract. (Sec. 74)
the insurance is effected but not EXCEPTIONS:
afterwards. a. Loss occurs before the time of
e. It always refers to the date the performance of the warranty.
contract goes into effect. b. The performances becomes
Kinds: unlawful at the place of the
a. AFFIRMATIVE – affirmation of a fact contract.
when the contract begins; and c. Performance becomes
b. PROMISSORY – promise to be impossible. (Sec. 73)
performed after policy was issued. b. Immaterial (ex. Other insurance
Effect of Misrepresentation: the clause)
injured party is entitled to rescind from GENERAL RULE: It will not avoid the
the time when the representation policy.
becomes false. EXCEPTION: When the policy expressly
provides or declares that a violation
Test of Materiality: Same as that in thereof will avoid it. (Sec. 75)
concealment.
WARRANTY REPRESENTATION
Where the insured merely signed the Part of the contract Mere collateral
application form and made the agent of inducement
the insurer fill the same for him, it was Written on the May be written in
held that by doing so, the insured made policy, actually or by the policy or may
the agent of the insurer his own agent reference be oral.
and he was responsible for his acts for
Note: The period of 2 years may be 1. The insurer is bound only to pay to
shortened but it cannot be extended by the extent of the real value of the
stipulation. property lost;
2. The insured is entitled to recover the
amount of premium corresponding to
Incontestability only deprives the the excess in value of the property;
insurer of those defenses which arise in
connection with the formation and B. DOUBLE INSURANCE – exists where
operation of the policy prior to loss. same person is insured by several
(Prof. De Leon, p. 173 citing Wyatt and insurers separately in respect to same
Wyatt, p. 878) subject and interest. (Sec. 93)
Requisites:
BARRED DEFENSES NOT 1. Person insured is the same;
DEFENSES BARRED 2. Two or more insurers insuring
OF THE INSURER separately;
1. Policy is void ab 1. That the person 3. Subject matter is the same;
initio taking the insurance 4. Interest insured is also the same;
2. Policy is lacked insurable 5. Risk or peril insured against is
rescindable by interest as required likewise the same.
reason of the by law;
fraudulent 2. That the cause of
Effects: Where double insurance is
concealment or the death of the
misrepresentation of insured is an allowed, but over insurance results:
the insured or his excepted risk; (Sec. 94)
agent 3. That the 1. The
premiums have not insured, unless the policy otherwise
been paid (Secs. 77, provides, may claim payment from
227[b], 228[b], the insurers in such order as he may
230[b]); select, up to the amount for which
4. That the the insurers are severally liable
conditions of the
under their respective contracts;
policy relating to
military or naval 2. Where
service have been the policy under which the insured
violated (Secs. claims is a valued policy, the insured
227[b], 228[b]); must give credit as against the
5. That the fraud is valuation for any sum received by
of a particularly him under any other policy without
vicious type; regard to the actual value of the
6. That the subject matter insured;
beneficiary failed to
3. Where
furnish proof of
death or to comply the policy under which the insured
with any condition claims is an unvalued policy he must
imposed by the give credit, as against the full
policy after the loss insurable value, for any sum
has happened; or received by him under any policy;
7. That the action 4. Where
was not brought the insured receives any sum in
within the time excess of the valuation in the case of
specified.
valued policies, or of the insurable
value in the case of unvalued
XIII. policies, he must hold such sum in
A. OVER-INSURANCE – results when the trust for the insurers, according to
insured insures the same property for an their right of contribution among
amount greater than the value of the themselves;
property with the same insurance 5. Each
company. insurer is bound, as between himself
Effect in case of loss: and the other insurers, to contribute
It shall commence from the denial of Classes of inland marine insurance:
the claim, not from the resolution of the (Prof. De Leon, p. 325)
motion for reconsideration, otherwise it 1. Property in transit – provides
can be used by the insured as a scheme protection to property
or device to waste time until the frequently exposed to loss while
evidence which may be used against him it is transportation form one
is destroyed. (Sun Insurance Office, Ltd. location to another.
v. CA, 195 SCRA) 2. Bailee liability - insurance for
4. In CMVLI, the written notice of claim those who have temporary
must be filed within 6 months from the custody of the goods.
date of the accident otherwise the claim 3. Fixed transportation property –
is deemed waived. The suit for damages they are so insured because they
either with the proper court or with the are held to be an essential part
Insurance Commissioner should be filed of the transportation system
within 1 year from the date of the denial such as bridges, tunnels, etc.
of the claim by the insurer, otherwise 4. Floater – provides insurance to
claimant’s right of action shall prescribe. follow the insured property
(Sec. 384) wherever it may be located,
subject always to the territorial
PARTICULAR KINDS OF INSURANCE limits of the contract.
CONTRACTS Insurable interest:
A.
XVI. MARINE INSURANCE 1.Shipowner
Insurance against risks connected with a. Over the vessel to the
navigation, to which a ship, cargo, extent of its value, except
freightage, profits or other insurable that if chartered, the
interest in movable property, may be insurance is only up to the
exposed during a certain voyage or a amount not recoverable
fixed period of time. (Sec. 99) from the charterer. (Sec.
Coverage: 100).
A. b. He also has an insurable
1. Vessels, goods, freight, cargo, interest on expected
merchandise, profits, money, freightage. (Sec. 103).
valuable papers, bottomry and c. No insurable interest if he
respondentia, and interest in respect will be compensated by
to all risks or perils of navigation; charterer for the value of
2. Persons or property in connection the vessel, in case of loss.
with marine insurance; 2. Cargo owner
3. Precious stones, jewels, jewelry and Over the cargo and expected
precious metals whether in the profits (Sec. 105).
course of transportation or 3. Charterer
otherwise; and Over the amount he is liable
4. Bridges, tunnels, piers, docks and to the shipowner, if the ship is
other aids to navigation and lost or damaged during the
transportation. (Sec. 99) voyage (Sec. 106).
Cargo can be the subject of
marine insurance, and once it is B.
entered into, the implied In loans on bottomry and respondentia
warranty of seaworthiness Repayment of the loan is subject to
immediately attaches to the condition that the vessel or goods,
whoever is insuring the cargo, respectively, given as a security, shall
whether he be the shipowner or arrive safely at the port of destination.
not. (Roque v. IAC, 139 SCRA 1. Owner/Debtor
596) Difference between the value
B. Marine Protection and Indemnity of vessel or goods and the
Insurance amount of loan. (Sec. 101)
c. When made in good faith to avoid a Has inured to the Has not inured to the
peril; common benefit and common benefit and
d. When made in good faith to save profit of all persons profit of all persons
human life or to relieve another vessel interested in the interested in the
vessel and cargo vessel and her cargo.
in distress (Sec. 124)
To be borne equally To be borne alone by
Effect: In case of loss, the
by all of the interests the owner of the
insurer is still liable. concerned in the cargo or the vessel,
2. Improper - Every deviation not venture. as the case may be.
specified in Sec. 124 (Sec. 125). Requisites for the
Effect: In case of loss or right to claim
damage, the insurer is not liable. contribution:
(Sec. 126) 1. Common
danger to the
vessel or
LOSS cargo;
1. Total: 2. Part of the
a. Actual - vessel or cargo
i. Total destruction; was sacrificed
ii. Irretrievable loss by sinking; deliberately;
iii. Damage rendering the thing 3. Sacrifice must
valueless; or be for the
iv. Total deprivation of owner of common safety
possession of thing insured. or for the
(Sec. 130) benefit of all;
b. Constructive - 4. Sacrifice must
i. Actual loss of more than ¾ be made by
of the value of the object; the master or
ii. Damage reducing value by upon his
more than ¾ of the value of authority;
the vessel and of cargo; and 5. It must be not
iii. Expense of transshipment be caused by
exceed ¾ of value of cargo. any fault of
(Sec. 131, in relation to Sec. the party
139) asking the
In case of constructive contribution;
total loss, insured may: 6. It must be
1. Abandon goods or successful, i.e.
vessel to the insurer and resulted in the
claim for whole insured saving of the
value (Sec. 139), or vessel or
2. Without abandoning cargo; and
vessel, claim for partial Necessary.
actual loss. (Sec. 155)
2. Partial: That which is not total (Sec. RIGHT OF INSURED IN CASE OF
128). GENERAL AVERAGE
GENERAL RULE: The insured may either
AVERAGE hold the insurer directly liable for the
Any extraordinary or accidental whole of the insured value of the
expense incurred during the voyage for property sacrificed for the general
the preservation of the vessel, cargo, or benefit, subrogating him to his own right
both, and all damages to the vessel and of contribution or demand contribution
cargo from the time it is loaded and the from the other interested parties as soon
voyage commenced until it ends and the as the vessel arrives at her destination
cargo unloaded. EXCEPTIONS:
1. After the separation of interests
GENERAL PARTICULAR liable to contribution
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson O’S Ramos EDP: Beatrix I. Ramos SUBJECT
HEADS:
Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario
(Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
San Beda College of Law
47
MEMORY AID IN COMMERCIAL LAW
2. When the insured has neglected or any proceeds of the thing insured which
waived his right to contribution may have come to the hands of the
insured. (Sec.154)
FPA Clause (Free From Particular
Average) CO-INSURANCE
A clause agreed upon in a policy of A marine insurer is liable upon a
marine insurance in which it is stated partial loss, only for such proportion of
that the insurer shall not be liable for a the amount insured by him as the loss
particular average, such insurer shall be bears to the value of the whole interest
free therefrom, but he shall continue to of the insured in the property insured.
be liable for his proportion of all general (Sec. 157)
average losses assessed upon the thing When the property is insured for less
insured. (Sec. 136) than its value, the insured is considered
ABANDONMENT a co-insurer of the difference between
The act of the insured by which, after the amount of insurance and the value of
a constructive total loss, he declared the the property.
relinquishment to the insurer of his
interest in the thing insured. (Sec. 138) Requisites:
Requisites for validity: 1. The loss is partial;
1. There must be an actual 2. The amount of insurance is less than
relinquishment by the person insured the value of the property insured.
of his interest in the thing insured
(Sec. 138); Rules:
2. There must be a constructive total 1. Co-insurance applies only to marine
loss (Sec. 139); insurance
3. The abandonment be neither partial 2. Logically, there cannot be co-
nor conditional (Sec. 140); insurance in life insurance.
4. It must be made within a reasonable 3. Co-insurance applies in fire insurance
time after receipt of reliable when expressly provided for by the
information of the loss (Sec. 141); parties.
5. It must be factual (Sec. 142);
6. It must be made by giving notice CO-INSURANCE REINSURANCE
thereof to the insurer which may be A percentage in the Situation where the
done orally or in writing (Sec. 143); value of the insured insurer procures a 3rd
and property which the party called the
7. The notice of abandonment must be insured himself reinsurer to insure
explicit and must specify the assumes to act as him against liability
insurer to the extent by reason of an
particular cause of the abandonment
of the deficiency in original insurance.
(Sec. 144). the insurance of the Basically, reinsurance
insured property. In is an insurance
Effects: case of loss or against liability which
1. It is equivalent to a transfer by the damage, the insurer the original insurer
insured of his interest to the insurer will be liable only for may incur in favor of
with all the chances of recovery and such proportion of the original insured.
indemnity (Transfer of Interest) the loss or damage as
(Sec.146) the amount of the
insurance bears to
2. Acts done in good faith by those who
the designated
were agents of the insured in respect percentage of the
to the thing insured, subsequent to full value of the
the loss, are at the risk of the property insured.
insurer and for his benefit. (Transfer (Bar Review
Of Agency)(Sec.148) Materials in
Commercial Law,
If an insurer refuses to accept a valid Jorge Miravite, 2002
abandonment, he is liable upon an actual ed.)
total loss, deducting form the amount
Requisites:
XVII. FIRE INSURANCE 1. The use or condition of the thing
A contract by which the insurer for a is specifically limited or
consideration agrees to indemnify the stipulated in the policy;
insured against loss of, or damage to, 2. Such use or condition as limited
property by hostile fire, including loss by by the policy is altered;
lightning, windstorm, tornado or 3. The alteration is made without
earthquake and other allied risks, when the consent of the insurer;
such risks are covered by extension to 4. The alteration is made by means
fire insurance policies or under separate within the control of the insured;
policies. (Sec. 167) 5. The alteration increases the risk;
(Sec. 168) and
6. There must be a violation of a
Prerequisites to recovery: policy provision. (Sec. 170)
1. Notice of loss – must be immediately
given, unless delay is waived expressly or Fall-of-building clause
impliedly by the insurer A clause in a fire insurance policy that
2. Proof of loss – according to best if the building or any part thereof falls,
evidence obtainable. Delay may also be except as a result of fire, all insurance
waived expressly or impliedly by the by the policy shall immediately cease.
insurer
Option to rebuild clause
HOSTILE FIRE FRIENDLY FIRE A clause giving the insurer the option
One that escapes One that burns in a to reinstate or replace the property
from the place place where it was damaged or destroyed or any part
where it was intended to burn thereof, instead of paying the amount of
intended to burn and ought to be the loss or the damage.
and ought to be. The insurer, after electing to rebuild,
Insurer is liable Insurer is not liable cannot be compelled to perform this
undertaking by specific performance
Measure of Indemnity because this is an obligation to do, not
1. Open policy: only the expense to give. Remedy: Art. 1167, NCC.
necessary to replace the thing lost or
injured in the condition it was at the XVIII. CASUALTY OR ACCIDENT
time of the injury INSURANCE
2. Valued policy: the parties are bound Insurance covering loss or liability
by the valuation, in the absence of fraud arising from accident or mishap,
or mistake excluding those falling under other types
of insurance such as fire or marine. (Sec.
Note: It is very crucial to determine 174)
whether a marine vessel is covered by a
marine insurance or fire insurance. The Classifications:
determination is important for 2 reasons: 1. Insurance against specified perils
1. Rules on constructive total loss which may affect the person and/or
and abandonment – applies only property of the insured. (accident or
to marine insurance; health insurance)
2. Rule on co-insurance – applies Examples: personal accident,
primarily to marine insurance; robbery/theft insurance
3. Rule on co-insurance applies to 2. Insurance against specified perils
fire insurance only if expressly which may give rise to liability on the
agreed upon. (Commercial Law part of the insured for claims for
Reviewer, Aguedo Agbayani, injuries to or damage to property of
1988 ed.) others. (third party liability insurance)
Insurable interest is based on the
ALTERATION AS A SPECIAL GROUND interest of the insured in the safety of
FOR RESCISSION BY INSURER persons, and their property, who may
maintain an action against him in case of The insurer is not solidarily liable with
their injury or destruction, respectively. the insured. The insurer’s liability is
Examples: workmen’s compensation, based on contract; that of the insured is
motor vehicle liability based on torts. Furthermore, the
In a third party liability (TPL) insurer’s liability is limited by the
insurance contract, the insurer assumes amount of the insurance coverage (Pan
the obligation by paying the injured third Malayan Insurance Corporation v. CA,
party to whom the insured is liable. Prior 184 SCRA 54).
payment by the insured to the third
person is not necessary in order that the
obligation may arise. The moment the
insured becomes liable to third persons,
the insured acquires an interest in the “INTENTIONAL” vs. “ACCIDENTAL” AS
insurance contract which may be USED IN INSURANCE POLICIES
garnished like any other credit. (Perla 1. Intentional – Implies the exercise of
Comapnia de Seguro, Inc vs. Ramolete, the reasoning faculties, consciousness
205 SCRA 487) and volition. Where a provision of the
Aside from compulsory motor vehicle policy excludes intentional injury, it is
liability insurance, the Insurance Code the intention of the person inflicting the
contains no other provisions applicable injury that is controlling. If the injuries
to casualty insurance. Therefore, such suffered by the insured clearly resulted
casualty insurance are governed by the from the intentional act of the third
general provisions applicable to all types person, the insurer is relieve from
of insurance, and outside of such liability as stipulated. (Biagtan v. the
statutory provisions, the rights and Insular Life Assurance Co. Ltd., 44 SCRA
obligations of the parties must be 58, 1972)
determined by their contract, taking into 2. Accidental – That which happens by
consideration its purpose and always in chance or fortuitously, without intention
accordance with the general principles or design, which is unexpected, unusual
of insurance law. and unforeseen.