LOSS
and legal liability to a third party
SEC. 85. An agreement not to transfer the claim of
the insured against the insurer after the loss has
happened is void if made before the loss except as
otherwise provided in the case of life insurance.
Claim
- A demand for the satisfaction of a loss
suffered within the purview of an
insured’s policy
- May be made by the party insured, the
insurer with right of subrogation, or a
non-party but with a right against the
insured
Effect of agreement not to transfer claim of insured
after a loss—the insured has an absolute right to
transfer or assign his claim against the insurer. A
stipulation to the contrary is void.
What is transferred is the money claim under or a
right of action on the policy, not the personal
contract itself
Sec 173 prohibits transfer of a policy of fire
insurance to any agent
SEC. 86. Unless otherwise provided by the policy, an
insurer is liable for a loss of which a peril is insured
against was the proximate cause, although a peril
not contemplated by the contract may have been a
remote cause of the loss; but he is not liable for a
loss of which the peril insured against was only a
remote cause.
Loss in insurance
- The injury, damage, or liability sustained
by the insured in consequence of the
happening of one or more of the perils
against which the insurer, in
consideration of the premium, has
undertaken to indemnify the insured
Scope of loss
- Bodily injury, death, property damage or
destruction
- Also includes loss of income or profits
Liability of insurer for loss
- Extent of loss—depends upon whether
the insured suffers a loss and the extent
of that loss (total, partial, constructive
total); satisfied by the payment of loss,
reinstatement (repair/restoration), or
substitution
- Cause of loss—insurer assumes liability
for sec. 86 but also even if the proximate
cause is not the peril insured against if
the immediate cause is the peril insured
against (sec. 88)
- Burden of proof where loss has
occurred—insurer has burden of proof
(by a preponderance of evidence) to
show that he is not liable, that the loss
arose from a cause which is excepted
Amount of loss payable is affected by stipulations:
1. Franchise clause (marine cargo policy) –
no loss is payable if it does not reach a
certain amount, otherwise the entire
loss is payable;
2. Co-insurance clause (fire insurance, Sec.
172)
3. Deductible clause (CMVLI) – against loss
or damage which provides for the
deduction of a stipulated amount from
the damage payable based on the type
of vehicle
4. Contribution clause (double insurance,
Sec. 94[1])
Proximate cause ≠ immediate cause
- Is that which, in a natural and
continuous sequence, unbroken by any
new independent cause, produces an
event and without which the event
would not have occurred
- The efficient cause—the one that sets
others in motion—to which the loss is to
be attributed
- “Was there an unbroken connection
between the wrongful act and the injury,
a continuous operation? Did the facts
constitute a natural whole, or was there
some new and independent cause
 intervening between the wrong and the
injury?”; if the event did not happen,
could the injury have resulted?
Proximate cause in Torts
- In torts, the rules consider both the
injury and the principal cause to fix the
blame on those who created the
situation in which the physical laws of
nature operated
Examples:
1. Fire causes an explosion which results in
a loss, fire is the proximate cause of the
loss while explosion is the immediate
cause
2. If a house is insured against fire and it is
damaged by the falling of the wall of the
neighboring building (a peril excepted)
which is on fire, the fire is the proximate
cause although no part of the insured
house is actually on fire
3. Even if the fire results only after the fall
of the building and as a consequence of
such, nevertheless, the damage so far as
it is attributable to the fire and not
merely to he falling of the building, is a
loss by fire
4. If, however, the fall of the building,
although it occurs after a fire, is not the
result of the fire, the loss is not covered
by the policy; remote cause insurer not
liable
5. An accidental injury resulting in hernia
which forced the insured, as a last
resort, to submit to a surgical operation
which turns out to be unsuccessful, is
the proximate cause of death and not
the operation; unbroken chain of
causation without the intervention of a
new and independent cause
Hostile and friendly fires
- Fire insu provides indemnification
protection for hostile but not friendly
fires
- Friendly fire—fire burns in a place where
it’s intended or ought to burn, to be
regarded as merely an agency for the
completion of some purpose (exs:
furnace, stove, lamp,etc)
- Hostile fire—occurs outside of the usual
confines or begins as a friendly fire but
becomes hostile by escaping from the
place where it ought to be to some place
where it not ought to be
- It has been held that even
though it remains entirely within
its place, it may become hostile if
by accident it becomes beyond
control
SEC. 87. An insurer is liable where the thing insured
is rescued from a peril insured against that would
otherwise have caused a loss, if, in the course of
such rescue, the thing is exposed to a peril not
insured against, which permanently deprives the
insured of its possession in whole or in part or
where a loss is caused by efforts to rescue the thing
insured from a peril insured against.
Extension of principle of proximate cause
1. Where the loss took place while being
rescued from the peril insured against—
provided it is shown that the said
property would’ve been lost by the peril
insured against had there been no
attempt to rescue it
a. Loss of goods by theft during the
removal of the goods to save
them from loss by fire is covered
by a policy against fire; has to be
“in the course of such rescue”
2. Where the loss is caused by efforts to
rescue the thing insured from a peril
insured against
a. Damage to goods by being
trampled on or thrown about to
put out the fire, covered
b. Loss caused by preparing the
goods for removal from the
premises although they are not
actually carried out if at the time
the work of removal is begun, the
property is in such danger of fire
that a reasonable prudent man
would attempt to protect it
 c. Damage to insured property Loss caused by negligence of insured
caused by water during attempt 1. Where negligence is ordinary—careless
to save it from fire and negligence of the insured or his
* insured is bound to exercise reasonable degree of agents not a defense by insurer
care in removing the goods 2. Where negligence is gross—insurer is
relieved
SEC. 88. Where a peril is especially excepted in a
contract of insurance, a loss, which would not have
occurred but for such peril, is thereby excepted NOTICE OF LOSS
although the immediate cause of the loss was a
peril which was not excepted.
SEC. 90. In case of loss upon an insurance against
fire, an insurer is exonerated, if written notice
Where proximate cause is an excepted peril thereof be not given to him by an insured, or some
- Insurer not liable person entitled to the benefit of the insurance,
- In a fire insu policy which excludes loss without unnecessary delay. For other non-life
through explosion, if an explosion occurs insurance, the Commissioner may specify the
first and causes a fire which results in a period for the submission of the notice of loss.
loss, the insurer is not liable; fire is the
immediate cause but not the proximate
SEC. 91. When a preliminary proof of loss is
- Insurer has onus probandi
required by a policy, the insured is not bound to
give such proof as would be necessary in a court of
SEC. 89. An insurer is not liable for a loss caused by
justice, but it is sufficient for him to give the best
the willful act or through the connivance of the
evidence which he has in his power at the time.
insured; but he is not exonerated by the negligence
of the insured or of the insured’s agents or others.
Conditions before loss
- There must be compliance on the part of
Loss by willful act or through connivance of the
the insured with the terms of the policy
insured
(condition precedent for recovery)
- Insurer not liable for a loss caused by the
intention act (e.g. suicide) of the insured
Conditions after loss
or though his connivance; risk should not
1. Notice and proof of loss—written notice
be subject to the control of one of the
of loss (Sec. 90) and when required by
parties
the policy, a preliminary proof of loss
(Sec. 91)
Illustrative case:
Wife started a fire that damaged the house and
Notice of loss
some of its contents
- More or less formal notice given the
Facts: H and W fought. H left the house. W started
insurer by the insured or claimant under
the fire. H filed a claim on the insu policy. Policy was
a policy of the occurrence of the loss
in the names of H and W.
insured against
Issue: Can H, an innocent co-insured, collect when
the jointly insured party started the fire?
Time for giving notice
Held: Yes. H wasn’t guilty. When policy unclear,
- “without necessary delay” to give
construed against the insurer. The intentional
insurance property time to investigate
destruction of the property by one of the co-insured
and protect its interest against fraud or
shouldn’t be construed to deny recovery by the
imposition
other co-insured unless the policy so states. (Ryan v.
- Depends upon the circumstances
MFA Mutual Insurance Company)
Illustrative case:
A 12-year old student, through his guardian, as
judgment creditor of insured who injured him in an
accident, brought action against the insured’s two
insurers who defense was delay in notifying them of
the accident
Facts: RL (12 yo) was seriously injured in an accident
which resulted when another student WN was
pouring gasoline into the carburetor of an
automobile. WN switched on the ignition. Engine
backfired and can of gasoline ignited. WN threw it
away to avoid being burned and it struck and
critically burned RL who was walking nearby.
RL recovered $92,500 against WN but WN’s insurers
refused to defend or pay. Defense was lack of
notice.
Issue: WON the insured’s 2-year delay in notifying
Northern of the accident and his delay of 17 months
in notifying Travelers, his automobile insurer,
relieved both insurers of their contractual liability,
when notice is made an express condition
precedent to liability
Held:
1. Duty of insurer to show it has been
prejudiced because of delay in giving notice
2. Burden of proving actual prejudice is on the
insurer
3. Duty of insurer to show that an additional
insured knew of the policy and its conditions
(Lindus v. Northern Insurance Co. of New York)
Proof of loss
- More or less formal evidence given the
company by the insured or claimant
under a policy of the occurrence of the
loss, the particular thereof and the data
necessary to enable the company to
determine its liability and amount
thereof
- Notice may be informal or provisional
claim containing a minimum of
information as distinguished from a
formal claim which contains the full
details of the loss, computations of the
amounts claimed, and the supporting
evidence, together with the demand or
request for payment
Purpose of proof of loss
- Notice is for the insurer to protect itself
while statement of loss is much more
formal and intended: (1) to give the
insurer information by which he may
determine the extent of his liability but
also; (2) to afford him a means of
detecting any fraud that may have been
practiced upon him and (3) to operate as
a check upon extravagant claims
Burden of proof of loss in court action
- The insured; but once the insured makes
out a prima facie case in his favor, the
burden of evidence shifts to the insurer
to controvert
SEC. 92. All defects in a notice of loss, or in
preliminary proof thereof, which the insured might
remedy, and which the insurer omits to specify to
him, without unnecessary delay, as grounds of
objection, are waived.
When defects in notice or proof deemed waived
where the insurer:
1) Writes to the insured that he considers
the policy null and void as the furnishing
of the notice or proof of loss would be
vain and useless; or
2) Recognizes his liability to pay the claim;
or
3) Denies all liability under the policy; or
4) Joins in the proceedings for determining
the amount of the loss by atbitration,
making no objections on account of
notice and preliminary proof; or
5) Makes objection on any ground other
than a formal defect in the preliminary
proof
SEC. 93. Delay in the presentation to an insurer of
notice or proof of loss is waived if caused by any act
of his, or if he omits to take objection promptly and
specifically upon that ground.
When delay in presentation of notice or proof
deemed waived: (1) by an act of the insurer; (2)
failure to take objection promptly and specifically
upon that ground
Illustrative case:
Instead of invoking delay, insurer took steps to
determine cause and extent of loss
Facts: Loss occurred Mar 29, 2963. Notice was sent
by insured, dated Apr 4, 1963, was received by the
insurer only on Apr 15, 1963. It requested its
adjuster to investigate and assess the loss on July
17, 1963. Adjuster submitted his report on Aug 23
and his computation of liability on Sept 14.
Issue: Was there delay in giving notice of loss? On
this assumption, was there waiver of the delay on
the part of insurer?
Held: Defense of delay cannot be sustained.
Insurer’s reaction upon receipt of notice was to set
in the motion what would be necessary to
determine the cause and extent of loss.
But even on the assumption that there was delay,
waiver can be successfully raised against the
insurer. (Pacific Timber Export Corp v CA)
SEC. 94. If the policy requires, by way of preliminary
proof of loss, the certificate or testimony of a
person other than the insured, it is sufficient for the
insured to use reasonable diligence to procure it,
and in case of the refusal of such person to give it,
then to furnish reasonable evidence to the insurer
that such refusal was not induced by any just
grounds of disbelief in the facts necessary to be
certified or testified.
Effect of failure to secure certificate or testimony of
third person
- Mere due diligence is required to
procure
- In the event the person refuses, the
insured must furnish reasonable evid to
insurer that the refusal was not induced
by any just grounds of disbelief of said
person in the truth of the facts
necessary to be certified or testified
DOUBLE INSURANCE
SEC. 95. A double insurance exists where the same
person is insured by several insurers separately in
respect to the same subject and interest.
Double insurance
- In double insurance, there is co-
insurance by two or more insurers
- Requisites:
- The person insured is the same;
- 2 or more insurers insuring
separately;
- Identity of subject matter;
- Identity of interest insured;
- Identity of risk or peril insured
against
Examples:
1. X insures his house against fire with Y
and Z companies
2. X mortgages his house to B. Insurance
taken by X and another by B on same
house is not double insurance because it
is not on the same insurable interest
3. X insures his car against fire with Y
company and against theft with Z
company. No double insurance bec car is
not insured against the same risk or peril
Double Insurance v. Over-insurance
- Over-insurance when the amount of the
insurance is beyond the value of the
insured’s insurable interest; in double
insurance, there may be over-insurance
as when the sum total of the amounts of
the policies issued does not exceed the
insurable interest of the insured
- Over-insurance involves just one insurer;
in double, several insurers
- Double insurance is the term used
instead of “co-insurance” when the sums
insured exceed the insurable interest;
here, over-insurance by double
insurance
Binding effect of stipulation against double
insurance
- A policy which contains no stipulation
against additional insurance is not
invalidated by the procuring of such
insurance; policies of fire contain stips
that they shall be avoided if addtl insu is
procured
 1. Additional insurance obtained by insured—
additional or “other insurance” clause and
intended to prevent an increase in the moral
hazard. Valid and reasonable, and in
absence of consent, waiver or estoppel by
insurer, a breach will prevent recovery; must
be on the same subject matter, same
interest, and same risk
2. Additional insurance obtained by a third
person—without knowledge or consent of
insured will not affect his rights under the
policy in absent of ratification
SEC. 96. Where the insured in a policy other than
life is over-insured by double insurance:
(a) The insured, unless the policy otherwise
provides, may claim payment from the insurers
in such order as he may select, up to the
amount for which the insurers are severally
liable under their respective contracts;
(b) Where the policy under which the insured
claims is a valued policy, any sum received by
him under any other policy shall be deducted
from the value of the policy without regard to
the actual value of the subject matter insured;
(c) Where the policy under which the insured
claims is an unvalued policy, any sum received
by him under any policy shall be deducted
against the full insurable value, for any sum
received by him under any policy;
(d) Where the insured receives any sum in excess of
the valuation in the case of valued policies, or of
the insurable value in the case of unvalued
policies, he must hold such sum in trust for the
insurers, according to their right of contribution
among themselves;
(e) Each insurer is bound, as between himself and
other insurers, to contribute ratably to the loss
in proportion to the amount for which he is
liable under his contract.
Rules for payment of claims where there is over-
insurance by double insurance
- Sec. 96—principle of contribution—
which requires each insurer to
contribute ratably to the loss or damage
considering that the several insurances
cover the same subject matter and
interest against the same peril
- Only applies where there is over-
insu by double insu—the
insurance is contained in several
policies the total amount of
which is in excess of the
insurable interest of the insured
- Par [e] applies if the loss is greater than
the sum total of all policies issued, each
insurer is liable for the amount of his
policy
Example:
1. Several or solidary liability of insurers under
their respective contracts (par. A)—A owns a
house valued at P180,000 and he insures the
same with 3 insurance companies as follows:
a. X co., P60,000
b. Y co., P180,000
c. Z co., P240,000
If the house is totally burned, A, unless the
policies otherwise provide, may claim
payment from each of them in such order as
he may select, up to the amount for which
each is liable under its contract. X only liable
for 60k, can recover 180k from Z (not
exceed amount of insurable interest). A may
collect from all of them 60k; or just from Y at
180k.
The exception “unless the policy provides”
applies where a contribution clause is
included which stipulates that the company
shall not be allowed to contribute more than
its ratable proportion of the loss.
2. Where insured claims under a valued policy
(par. B)—same rules so long as he does not
exceed the total amount in face value of
contracts at 120k.
3. Where insured claims under an unvalued
policy (par. C)—or open, the value of loss
must be ascertained. If actual loss is 150k,
he may recover said amount from insurers in
such order he may select
4. Liability of each insurer to contribute ratably
to the loss (par. E)—formula is:

𝑎𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑝𝑜𝑙𝑖𝑐𝑦
𝑥 𝑙𝑜𝑠𝑠 = 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑦
𝑡𝑜𝑡𝑎𝑙 𝑖𝑛𝑠𝑢𝑟𝑎𝑛𝑐𝑒 𝑡𝑎𝑘𝑒𝑛
Pro rata contribution for each:
X company –
𝑃60,000
𝑥 𝑃180,000 = 𝑃22,500
𝑃480,000
Y company –
𝑃180,000
𝑃480,000
𝑥 𝑃180,000 = 𝑃67,500
Z company –
𝑃240,000
𝑥 𝑃180,000 = 𝑃90,000
𝑃480,000
Total amount recoverable = P180,000
So, if A is able to receive the amount of 180k from Y
under par. A, X and Y cos are liable to reimburse Y
co for their respective shares as indicated above.
However, if there is a pro rata clause in the policy, A
cannot exercise his right under par. A for he may
claim from each insurer only such amount
corresponding to his ratable proportion of the loss.
5. Where sum received by insured exceeds total
insurance taken (par. D)—so A, after
receiving 60k from X, succeeds in collecting
the sum of 120k and 144k from Y and Z cos,
respectively. Under par. D, A must hold the
amount of 144k, being in excess of his
insurable interest, in trust for insurers X, Y,
and Z. He cannot recover more than full
indemnity.
Pursuant to par. E, X can recover from Y Co,
1,500 and from Z Co, 18k. Thus
X company –
P 60, 000 (amt paid to A) – 18,000 (amt to
be returned by A) = P42,000
P42,000 – 1,500 (amt due from Y) = P40,500
P40,500 – 18,000 (amt due from Z) =
P22,500 (pro rata contribution)
Y company –
P120,000 (amt paid to A) – 54,000 (amt to
be returned by A) – P66,000
66,000 + 1,500 (amt due to X) = 67,500 (pro
rata contribution
Z company –
144,000 (amt paid to A) – 72,000 (amt to be
returned by A) = 72,000
72,000 – 18,000 (amt due to X) = 90,000
(pro rata contribution)
REINSURANCE
SEC. 97. A contract of reinsurance is one by which
an insurer procures a third person to insure him
against loss or liability by reason of such original
insurance.
Reinsurance
- A contract whereby one party, the
reinsurer, agrees to indemnify another,
the reinsured (original insurer), either in
whole or in part, against loss or liability
which the latter may sustain or incur
under a separate and original contract of
insurance with a third party, the original
insured
- “an insurance of an insurance”
(ie, insurance business is
transferred from one insurance
company to another)
- Sometimes “treaties”
- the reinsurance of a reinsurance is called
retrocession
Example:
X insures his house against fire for 1M with Y
company.
If Y Co., to relieve itself of any liability or to
reduce its potential liability under the contract,
reinsures the risk or part of it with Z co., another
contract of insurance is entered into, with Y and Z
as parties. By giving off the whole or some portion
of the risk insured, the insurer reduces the amount
of its possible loss. Y company becomes the
reinsure, while Z is the reinsurer.
In order that there be a contract of
reinsurance, it is necessary that there is an original
contract of insu; and since a contract of reinsurance
like any other must be supported by an insurable 2. insured’s pov—for the following:
interest, it is likewise clear that reinsurance may not a. gives insu cos greater financial
be for a greater amount than the original insurance, stability and makes the insured’s
although it may be for a less amount. policy more reliable;
In case the house is destroyed by fire, Z is b. if large amt of insu is needed, the
not bound to pay Y company more than the amount insured may obtain it without
actually paid by the latter to X. negotiating with numerous
companies;
Reinsurance v. double insurance c. enable the insured to obtain
Reinsurance Double Insurance protection promptly, without the
Insurer becomes the Insurer remains insurer delay that would be required to
insured, insofar as of original insured divide and distribute the amount
reinsurer is concerned among many companies;
Subject is original Subject is property d. all the insurance can be written
insurer’s risk under identical contract provisions,
Insurance of a different Same interest whereas otherwise these might vary
interest with the different companies among
Original insured has no Insured is the party in whom the insurance is divided;
interest in the contract interest in all contracts e. small companies are encouraged to
of reinsurance which is divide large exposures for safety and
independent of the enabled to accept a wide variety of
original contract of applicants
insurance 3. insuring public—contracts or “treaties” of
Consent of the original Insured has to give his reinsurance are plainly beneficial to the
insured (who is hardly consent public inasmuch as they promote both
even aware of the efficiency and stability in the conduct of the
reinsurance reinsurance business
transaction) is not
necessary SEC. 98. Where an insurer obtains reinsurance,
except under reinsurance treaties, he must
Value of reinsurance communicate all the representations of the original
1. insurer’s pov—reinsuring companies benefit insured, and also all the knowledge and information
from contracts of reinsurance he possesses, whether previously or subsequently
a. every insu company establishes a acquired, which are material to the risk.
limit on the maximum claim it wishes
to pay out called “retention” Duty of the reinsured to disclose facts
i. an insurer is able to issue - the duty is one of the strictest good faith
policies for amts in excess of since the risk insured against in a
its retention or beyond the contract of reinsurance is the probability
capacity of its financial that the original insurer may be
resources in case of loss compelled to indemnify for the loss
rather than inconvenience a under the policy issued by him
client - a policy may be avoided where the
ii. spreads risk over multiple reinsured conceals the fact
insurance companies, Example:
protection will be distributed X insurance company issued a fire policy, a
to a greater proportion of building, owned by Y. Z co. accepted reinsurance
those needing protection coverage under the policy. Thereafter, Y married H,
an ex-convict for arson. All the members of the
board of directors of X were invited as guests at the
wedding and knew who H was. Subsequently, the
building was completely destroyed by fire.
May X recover from Z notwithstanding that
X did not disclose H’s previous conviction for arson?
No. Generally, when a contract of insurance
has been entered into, the insured cannot be
charged with fraudulent concealment by reason of
the fact that he fails to disclose material matters.
Primary, direct, or ceding insurer (cedant) –
insurance company originally writing the insurance
Net retention or net line – portion of the risk
retained by the primary insurer; cession – portion
transferred to the reinsurer
Retrocession – if the reinsurer passes to another
insurer a portion of the risk insured
Ceding reinsurer – retrocedent; retrocessionaire –
second assuming reinsurer
Professional reinsurer – transacts solely and
exclusively reinsurance business in the PH
Automatic and facultative methods of ceding
reinsurance
- rule in sec. 98 does not apply in case of
automatic reinsurance treaties under
which the ceding company (reinsured) is
bound to cede (give off by way of
reinsurance) and the reinsurer is
obligated to accept a fixed share of the
risk which has to be reinsured under the
contract
- facultative insurance—which covers
liability on individual risk—there is no
obligation either to cede or to accept
participation in the risk insured, each
party having a free choice
- once the share is accepted, obli is
absolute and the liability
assumed can be discharged by
payment of the share of the
losses
- advantage to insurer is avoidance of any
delay in issuing policy
- by agreeing to accept business
automatically, the reinsurer is relying on
the underwriting judgment of the
insurer and is bound to accept a case
even though it may not agree with the
underwriting decision
Reinsurance treaty v. reinsurance policy
- reinsurance policy is a contract of
indemnity one insurer makes with
another to protect the first insurer from
a risk it has already assumed; a
reinsurance treaty is merely an
agreement between two insurance
companies whereby one agrees to cede
and the other to accept reinsurance
business
- Treaties – the lumping of the different
agreements under a contract has
resulted in the term known to the
insurance world as ‘treaties’; agreement
between companies to cover the
different situations described
- Reinsu policy are contracts of insu;
reinsu treaties are contracts for insu
SEC. 99. A reinsurance is presumed to be a contract
of indemnity against liability, and not merely against
damage.
Nature of a contract of reinsurance
- Subject of the contract of reinsurance is
the primary insurer’s risk and not the
property insured under the original
policy
1. Contract of indemnity against liability—the
reinsurer agrees to indemnify the insurer
against liabilities incurred
2. Contract, separate from original insurance
policy—the practice is for the reinsurer to
pay the insurer even before the latter has
indemnified the original insured
3. Contract based on original policy—the
reinsured risk must be the same as that
covered by the original insu policy
4. Insurable interest requirement applicable—
primary insurer is not entitled to contract
for reinsurance exceeding the limits of the
ceded to the reinsurer; cannot provide
coverage for risks beyond the orig scope
5. Rule on subrogation applicable
SEC. 100. The original insured has no interest in a
contract of reinsurance.
Rights of original insured in contract of reinsurance
- Insured has no concern with the
contract of reinsu, and the reinsurer is
not liable to the insured either as surety
or otherwise
- No privity between the original
reinsured and the reinsurer
Liability of reinsurer to reinsured
- Generally, reinsurer is entitled to avail
itself of every defense which the
reinsured might urge in an action by the
person originally insured
Liability of reinsurer to original insured
- Original insured may stand in any of 3
relations towards the reinsurer:
1. Contract of reinsurance solely between
insurer and reinsurer—here, orig insured
no interest
2. COR with stipulation in favor of original
insured—reinsurer may bind himself to
pay to the policyholder any loss for
which the insurer may become liable;
remedy of OI is to both
3. COR amounting to novation of original
contract—operates to discharge the
contract and the original insurer from all
obligations thereunder; involves the
surrender of original policy and issuance
of new one but same terms and
conditions
MARINE INSURANCE
Section 101. Marine Insurance includes:
(a) Insurance against loss of or damage to:
(1) Vessels, craft, aircraft, vehicles, goods, freights,
cargoes, merchandise, effects, disbursements,
profits, moneys, securities, choses in action,
instruments of debts, valuable papers, bottomry,
and respondentia interests and all other kinds of
property and interests therein, in respect to,
appertaining to or in connection with any and all
risks or perils of navigation, transit or
transportation, or while being assembled, packed,
crated, baled, compressed or similarly prepared for
shipment or while awaiting shipment, or during any
delays, storage, transhipment, or reshipment
incident thereto, including war risks, marine
builder’s risks, and all personal property floater
risks;
(2) Person or property in connection with or
appertaining to a marine, inland marine, transit or
transportation insurance, including liability for loss
of or damage arising out of or in connection with
the construction, repair, operation, maintenance or
use of the subject matter of such insurance (but not
including life insurance or surety bonds nor
insurance against loss by reason of bodily injury to
any person arising out of ownership, maintenance,
or use of automobiles);
(3) Precious stones, jewels, jewelry, precious
metals, whether in course of transportation or
otherwise; and
(4) Bridges, tunnels and other instrumentalities of
transportation and communication (excluding
buildings, their furniture and furnishings, fixed
contents and supplies held in storage); piers,
wharves, docks and slips, and other aids to
navigation and transportation, including dry docks
and marine railways, dams and appurtenant
facilities for the control of waterways.
Transportation insurance
- Concerned with the perils of property in
(or incidental to) transit as opposed to
property perils at a generally fixed
location
- Does not include normal motor vehicle
insurance
- Also known as marine insurance
Major divisions of transportation insurance
1. Ocean marine insurance – insurance of
marine perils; “an insurance against risk
connected with navigation, to which a ship,
cargo, freightage, profits, or other insurable
interest in movable property, may be
 exposed during a certain voyage or a fixed - Perils covered—includes only those
period of time; casualties due to the unusual violence or
2. Inland marine insurance—covers primarily extraordinary action of wind and wave,
the land or over the land transportation or to other extraordinary causes
perils of property shipped by railroads, connected with navigation
motor trucks, airplanes, and other means of - Extends to barratry – any willful
transportation, also covers risks of lake, misconduct on the part of the
river, or other inland waterway master or crew in pursuance of
transportation and other waterborne perils some unlawful or fraudulent
outside of those risks that fall definitely purpose without the consent of
within the ocean marine category the owners, and to the prejudice
of the owner’s interest
*Sec. 101 enumerates the coverage of marine - Perils not covered—does not include
insurance in the form of either property or liability losses resulting from ordinary wear and
insurance tear or other damage usually incident to
*Marine risk note – an acknowledgement or voyage; must be unusual
declaration of the insurer confirming the specific - A relative term—may vary with the
shipment covered by its maritime open policy, the circumstance
evaluation of the cargo, and the chargeable - Where a vessel designed for
premium; marine open policy – main insurance inland waters was insured while
contract being towed in the Gulf of
Mexico and insurer was fully
Risks or losses covered in ocean marine insurance aware of the hazardous nature
- All risks or losses may be insured against, and charged an extra premium,
except such as are repugnant to public the loss was held to be due to
policy or positively prohibited perils of the sea
1) Contract of insurance on freight
– the perils insured against shall Perils of the sea v. perils of the ship
not prevent ship from earning Has been said to A loss which, in the
2) Underwriter of a vessel does not include only such losses ordinary course of
undertake for the cargo but for as are of extraordinary events, results from:
ability of vessel to perform her nature or arise from a. Natural and
voyage some overwhelming inevitable
3) Insurance on time – that the ship power which cannot be action of the
shall be capable of performing guarded against by the sea
the voyage undertaken ordinary exertion of b. From the
notwithstanding any loss or human skills or ordinary wear
injury which may occur prudence, as and tear of the
4) In marine policies, insurer may distinguished from the ship
except liability from certain ordinary wear and tear c. From the
causes of the voyage and from negligent failure
5) Presumption is shipped goods the injuries suffered by of the ship’s
are stored below deck; a special the vessel in owner to
notice of stowage is needed if on consequence of her not provide the
deck being seaworthy vessel with
proper
“Perils of the sea” in ocean marine insurance, conditions
explained *insurer does not insure perils of the ship
*barratry not a peril of the sea, not covered if not
specified
*GR: everything which happens through the
inherent vice of the thing, or by the act of the
owner, master or shipper shall not be reputed a
peril if not otherwise borne in the policy
Perils of the sea must be the proximate cause of
loss
- Insurer only liable for such losses or
damages proximately caused by the
perils insured against
Examples:
1. Perishable cargo damaged by perils of
the sea, and before arrival at port of
destination, became so putrescent as to
be required to be thrown overboard for
crew’s safety; immed. Cause would be
the act of master and crew; but there is
no doubt that the insurer would be liable
for total loss upon the grounds that the
operative cause was the perils of the sea
2. Fire-insured vessel is struck lightning,
and takes fire and in order to save it, she
is scuttled and sunk in shoal water and
cannot be raised; immed cause was
scuttling but in a juridical sense, it would
be the fire and insurer is liable
3. All-risks insured vessel but shipwrecked
by a storm and burnt by natives;
proximate cause was fire but insurer
liable on the ground that vessel has
never been delivered from the original
peril of shipwreck
“All risks” marine insurance policy
- Insures against all causes of conceivable
loss or damage, except as otherwise
excluded in the policy or due to fraud or
intentional misconduct on the part of
insured
- Scope—all losses, including pilferage
losses during war
- Burden of proof on part of insurer to
established damage or loss that has
occurred, excluded from coverage
- Initial burden on part of insured to
establish damage or loss occurred—to
prove that the cargo was in good
condition when the policy attached and
that the cargo was damaged when
unloaded, then the burden shifts
Development of inland marine insurance in the US
(read)
Classes (scope) of inland marine insurance
Four divisions of inland marine insurance:
1. Property in transit – protection for
property frequently exposed to loss
while it is in transportation from one
location to another;
2. Bailee liability – protection to persons
who have temporary custody of the
goods or personal property of others,
such as carriers, laundrymen,
warehousemen, garagekeepers;
3. Fixed transportation property – covers
bridges, tunnels, and other
instrumentalities of transportation and
communication, although fixed property
4. Floater – provides insurance to follow
the insured property wherever it may be
located, subject always to the limits of
the contract eg jewelry, furs, works of
art, contractor’s equipment
INSURABLE INTEREST
SEC. 102. The owner of a ship has in all cases an
insurable interest in it, even when it has been
chartered by one who covenants to pay him its
value in case of loss; provided, that in this case the
insurer shall be liable for only that part of the loss
which the insured cannot recover from the
charterer.
Insurable interest of insured in marine insurance
- If taken upon a ship or cargo “lost or not
lost”, the insurer expressly agrees that
he will be bound in any event, even
though the vessel is lost na, contract is
binding and insurer must pay even if it is
proved that insured had nothing to
insure when contract was made
Insurable interest of owner of a ship
 - To the extent of its value even if he
mortgaged the same or has chartered it
to a third person who agrees to pay him
its value in case of loss
- Liability of insurer is subsidiary to
that of charterer; after payment
of indemnity, right of
subrogation is given to insurer
against charterer in case loss
from loss or breach of contract
- Shipowner’s liability arising from the
operation of a ship is merely co-
extensive with his interest in the vessel
such that a total loss thereof results in its
extinction – limited liability rule –
exceptions: (!) whether the injury or
death to a passenger is due either to
fault of the shipowner or to the
concurring negligence of shipowner and
captain; (2) where the vessel is insured;
(3) in workmen’s compensation claims
Insurable interest and sale contracts
- Vessel – owner has insurable interest;
one who holds mortgage; lessor
- Cargo – shipper or consignee
- FOB (free on board)
 FOB factory – buyer
 FOB point of destination –
not buyer
- CIF (cost, insurance, and freight)
– seller secures insurance
- C&F (cost and freight) – buyer
- Vendee/consignee of goods in transit
SEC. 103. The insurable interest of the owner of the
ship hypothecated by bottomry is only the excess of
its value over the amount secured by bottomry.
Loan on bottomry – one which is payable only if the
vessel, given as security for the loan, completes in
safety the contemplated voyage
- Lender in bottomry is entitled to a high
rate of interest to compensate him for
the risk of losing his loan
Where a vessel is bottomed, the owner has an
insurable interest only in the excess of its value over
the amount of the bottomry loan
Example:
If value of vessel of X is 2M and he borrows from Y
as a loan on bottomry, 800k, the nhe may effect
insurance on it for only 1.2M as this difference of its
value is the extent of his insurable interest.
SEC. 104. Freightage, in the sense of a policy of
marine insurance, signifies all the benefits derived
by the owner, either from the chartering of the ship
or its employment for the carriage of his own goods
or those of others.
Sources of freightage:
1. Chartering of ship
2. Employment of ship for carriage of owner’s
goods
3. Employment of ship for carriage of another’s
goods
SEC. 105. The owner of a ship has an insurable
interest in expected freightage which according to
the ordinary and probably course of things he
would have earned but for the intervention of a
peril insured against or other peril incident or the
voyage.
Insurable interest in expected or anticipated
freightage
- Shipowner includes charter who expects
to earn in transportation of goods
Insurable interest in passage money
- Passage money is customarily payable in
advance; cannot be recovered if vessel is
lost before completion of passage
SEC. 106. The interest mentioned in the last section
exists, in case of a charter party, when the ship has
broken ground on the chartered voyage. If a price is
to be paid for the carriage of goods it exists when
they are actually on board, or there is some
contract for putting them on board and bot ship
and goods are ready for the specified voyage.
If a price is to be paid for the carriage of goods, it
exists when:
1. when freight is to be paid for the hire of the
ship under a charter party;
 2. when they are actually on board;
3. there is a binding contract for freight and
ship is ready to receive
SEC. 107. One who has an interest in the thing from
which profits are expected to proceed has an
insurable interest in the profits.
Insurable interest in expected profits
- interest in thing involved based on some
legal right (eg. Commission to an agent
or consignee)
- interest based on a valuable
consideration (eg. One who has made a
contract for purchase of property which
has been made ready although not
loaded and who has contracted to sell it
at a profit)
SEC. 108. The charterer of a ship has an insurable
interest in it, to the extent that he is liable to be
damnified by its loss.
Insurable interest of charterer
1. Value of ship if charter stipulates
charterer to pay ship’s value in case of
loss
2. Profit he expects to earn by carrying
goods, in excess of charter hired
3. Up to the extent he is liable to be
damnified
Different types of charter parties:
1. Contracts of affreightment: use of shipping
space on vessels leased by the ship owner in
part or as a whole, to carry goods for others
a. Time charter: vessel is leased to
charterer for fixed period of time
b. Voyage charter: ship is leased for a
single voyage
2. Charter by demise or bareboat charter: by
the terms of which the whole vessel is let to
the charterer with a transfer to him of its
entire command & possession & consequent
control over its navigation including the
master & crew who are its servants
*deadfreight – cargo not loaded; amount paid by or
recoverable from a charterer of a ship for the
portion of the ship’s capacity the latter contracted
but failed to occupy
CONCEALMENT
SEC. 109. In marine insurance, each party is bound
to communicate, in addition to what is required by
Section 28, all the information which he possesses,
material to the risk, except such is mentioned in
Section 30, and to state the exact and whole truth
in relation to all matters that he represents, or upon
inquiry discloses or assumes to disclose.
Concealment
- failure to disclose any material fact or
circumstance which in fact or law is
within OR which ought to be within the
knowledge of one party & for which the
other has no actual of presumptive
knowledge.
SEC. 110. In marine insurance, information of the
belief or expectation of a third person, in reference
to a material fact, is material.
In marine insurance, the rule is STRICTER coz the
insured is bound to communicate to the insurer not
only (1) facts BUT also (2) beliefs or opinions of 3rd
persons OR (3) expectations of 3rd persons. Thus,
there is concealment where the insured at the time
of application for insurance did not disclose the
opinion of marine experts who inspected the vessel
insured that it was unseaworthy.
SEC. 111. A person insured by a contract of marine
insurance is presumed to have knowledge, at the
time of insuring a prior loss, if the information might
possibly have reached him in the usual mode of
transmission and at the usual rate of
communication.
Sec 109 establishes a rebuttable presumption of
knowledge of a prior loss on the part of the insured
“if the info might possibly have reached him in the
usual mode of transmission at the usual rate of
communication.

SEC. 112. A concealment in a marine insurance, in
respect to any of the following matters, does not
vitiate the entire contract, but merely exonerates
the insurer from a loss resulting from the risk
concealed:
(a) the national character of the insured;
(b) the liability of the thing insured to capture and
detention;
(c) the liability to seizure from breach of foreign
laws of trade;
(d) the want of necessary documents; and
(e) the use of false and simulated papers.
When concealment does not vitiate
- General Rule: Concealment of material
fact entitles the injured party to rescind
the entire contract of insurance
- Exception: Under this Section,
concealment of any of the
matters enumerated does NOT
avoid the policy ab initio.
If the vessel is lost by any of the causes in 110 which
was concealed, insurer is NOT liable.
If vessel is lost by other perils of the sea like a
storm, the insurer is liable.
REPRESENTATION
SEC. 113. If a representation by a person insured by
a contract of marine insurance, is intentional false
in any material respect, or in respect of any fact on
which the character and nature of the risk depends,
the insurer may rescind the entire contract.
General rule: Representation is material where it
would influence the judgment of a prudent insurer
in fixing the premium or in determining whether he
would take the risk
Effect of false representation by insured
- Intentional – avoids policy
- Not intentional – if not intentional but
fact misrepresented is material, may
rescind
SEC. 114. The eventual falsity of a representation as
to expectation does not, in the absence of fraud,
avoid a contract of marine insurance.
Statements of future facts or events which are in
their nature contingent & which the insurer is
bound to know that the insured could not have
intended to state as known facts, but as intentions
or expectations merely. MUST be made with
fraudulent intent to be a ground for rescission.
Examples:
1. Vessel will sail or is expected to sail
2. Nature of cargo to be shipped
3. Amt of profits expected
4. Destination of vessel
5. Statement that the insured has no doubt
that he can get insurance effected for a
certain premium
*Fraudulent intent as ground for rescission is
material only in marine policies. For other insurance
contracts, intent is immaterial & the insurer has a
right to rescind in case of misrepresentation or
concealment.
IMPLIED WARRANTIES
SEC. 115. In every marine insurance upon a ship or
freight, or freightage, or upon anything which is the
subject of marine insurance, a warranty is implied
that the ship is seaworthy.
Warranty
- Stipulation, either express or implied,
forming part of the policy as to some
fact, condition or circumstance relating
to the risk
Implied warranty
- In every insurance upon any marine
venture whether of vessel, cargo, or
freight, there are conditions upon the
underwriter’s liability for the risks
assumed
- Insurer will not be liable in case the
vessel:
 1. Is unseaworthy at the
inception of the insurance
2. Deviates from the agreed
voyage
3. Engages in an illegal venture
4. The ship will carry the
requisite documents of
nationality or neutrality of
the ship or cargo where such
nationality or neutrality is
expressly warranted
5. Insured has an insurable
interest in the subject matter
insured
Implied warranty of seaworthiness
- May be taken as that the warranty of
seaworthiness is to be taken as fulfilled,
or that the risk of unseaworthiness is
assumed by the insurer
- Unseaworthiness unknown to owner of
cargo insured is immaterial
- Obligation of a cargo owner to look for a
reliable common carrier which keeps its
vessels in seaworthy
- Shipper may have no control
over the vessel but he has full in
the choice of the common carrier
that will transport his goods
- Where vessel found unseaworthy
- GR: common carriers are
presumed to have been at fault
or to have acted negligently for
the loss, destruction, or
determination of goods, unless
they prove that they observed
diligence
 XPN: limited liability rule
SEC. 116. A ship is seaworthy, when reasonably fit
to perform the service and to encounter the
ordinary perils of the voyage contemplated by the
parties to the policy.
What constitutes seaworthiness
- Relative term depending upon the
nature of the ship, the voyage, and the
service in which she is at the tome
engaged
- A vessel to be seaworthy must be
adequately equipped for the voyage and
manner with a sufficient number of
competent officers and crew—the
failure to maintain seaworthiness
constitutes a breach of the contract of
carriage
- Ship—in a fit state as to repair,
equipment, crew, etc; must also
be in a suitable condition to carry
the cargo
Illustrative case:
Evidence established that insured motor launch was
unseaworthy
Facts: A motor launch owned by X was chartered by
Y. Delivery was made after agreed date. While
manned by a complement engaged by Y, the motor
launch sank. X brought an action to recover from Y
the value of the motor launch or from the insurer
the amount for which it was insured.
At the time it sank, there was no typhoon;
the waves were those caused by monsoon winds of
the season; the motor launch did not touch bottom
or hit anything, during her cruise in the bay; and the
water was bubbling in the engine room, from which
it could be inferred that the underneath planking
gave away.
Issue: Will the action proper?
Held: No. Whether or not there was delivery of the
motor launch on the date agreed upon becomes
unimportant if the same was unseaworthy; and the
preponderance of evidence established that it was
unseaworthy and that it sank due to her
unseaworthiness and not to the incompetence or
negligence of the complement engaged by Y to man
her.
Criterion of seaworthiness
- Not an absolute guaranty that the vessel
will safely meet all possible perils
- With reference to their physical and
mechanical condition, the extent of its
fuel and provisions supply, the quality of
its officers and crew, and its adaptability
for the service in which they are
employed
SEC. 117. An implied warranty of seaworthiness is
complied with if the ship be seaworthy at the time
of the commencement if the risk, except in the
following cases:
(a) When the insurance is made for a specified
length of time, the implied warranty is not
complied with unless the ship be seaworthy at
the commencement of every voyage it
undertakes during that time;
(b) When the insurance is upon the cargo which, by
the terms of the policy, description of the
voyage, or established custom of the trade, is to
be transshipped at an intermediate port, the
implied warranty is not complied with unless
each vessel upon which the cargo is shipped, or
transshipped, be seaworthy at the
commencement of each particular voyage.
When seaworthiness is complied with
- GR: warranty of seaworthiness is
complied with if the ship be seaworthy
at the time of the commencement of the
risk
- XPNs:
1. In case of time policy, the
ship must be seaworthy at
the commencement of every
voyage she may undertake
2. In case of cargo policy, each
vessel upon which the cargo
is shipped or transshipped,
must be seaworthy at the
commencement of each
particular voyage
3. In the case of voyage policy
contemplating a voyage in
different stages, the ship
must be seaworthy at the
commencement of each
portion
- Seaworthiness relates to the vessel’s
actual condition at the time of the
commencement of the voyage
Examples:
(1) X insures his ship for a voyage between
Manila and Tokyo. The implied warranty of
seaworthiness is complied with if the vessel
leaves Manila in seaworthy condition.
(2) Suppose X insures the ship for one year, a
specific length of time. If the vessel
undertakes 10 voyages during the period
specified, the implied warranty is not
complied unless the ship be seaworthy at
the commencement of each voyage.
(3) Suppose the insurance is upon cargo which
by the terms of the policy is to be carried by
two vessels; by vessel A from Manila to
Tokyo; and by vessel B, from Tokyo to San
Francisco.
In this case, the IW applies to the
commencement of each particular
voyage. So the insurer is not liable in
case of loss of or damage to the
cargo while in B, if vessel B is
unseaworthy when it leaves Tokyo
although vessel A leaves Manila in a
seaworthy condition.
Time and voyage policies
- Marine insurance policies are usually
valued policies, time or voyage
*transshipment – the act of taking cargo out of one
ship and loading it in another
SEC. 118. A warranty of seaworthiness extends not
only to the condition of the structure of the ship
itself, but requires that it be properly laden, and
provided with a competent master, a sufficient
number of competent officers and seamen, and the
requisite appurtenances and equipment, such as
ballasts, cables and anchors, cordage and sails,
food, water, fuel and lights, and other necessary or
proper stores and implements for the voyage.
Scope of seaworthiness of vessel
- Seaworthiness requires that the vessel
must have equipment and appliances
appropriate to the voyage in which it is
engaged and the cargo it carries; must
have sufficient fuel, stores, and
provisions to last for the entire voyage;
sufficient number of competent officers
 and men; if insur on cargo, properly
loaded
- Carrying of cargo on deck raises the
presumption of unseaworthiness unless
it can be shown that the deck cargo will
not interfere with the proper
management of the ship
SEC. 119. Where different portions of the voyage
contemplated by a policy differ in respect to the
things requisite to make the ship seaworthy
therefor, a warranty of seaworthiness is complied
with if, at the commencement of each portion, the
ship is seaworthy with reference to that portion.
Seaworthiness during voyage in stages
- Sec 119 provides the third exception to
the general rule in sec 117
- Where the policy contemplates a voyage
in different stages during which the
subject matter insured will be exposed
to different degrees or kinds of perils,
she must be seaworthy at the
commencement of each stage
- It is sufficient if at the
commencement of each stage
she is seaworthy for the purpose
of that stage; stages must be
separate and distinct
Example:
Vessel insured for a long voyage, part of which will
be in rivers and the rest across high seas and this
fact appears in the policy
- In this case, warranty is applied
separately to the different portions of
the voyage
SEC. 120. When the ship becomes unseaworthy
during the voyage to which an insurance relates, an
unreasonable delay in repairing the defect
exonerates the insurer on ship or shipowner’s
interest from liability from any loss arising
therefrom.
Where ship becomes unseaworthy during voyage
- GR: IW of seaworthiness is complied
with if the ship be seaworthy at the time
of the commencement of the risk – no
implied warranty of seaworthiness
throughout life of policy
- Duty of master, as shipowner’s rep, to
exercise due diligence to make it
seaworthy; if loss occurs because of
negligence, insurer is relieved
*the benefit of exoneration is given only to an
“insurer on ship or shipowner’s interest”
SEC. 121. A ship which is seaworthy for the purpose
of an insurance upon the ship may, nevertheless, by
reason of being unfitted to receive the cargo, be
unseaworthy for the purpose of insurance upon the
cargo.
SEC. 122. Where the nationality or neutrality of a
ship or cargo is expressly warranted, it is implied
that the ship will carry the requisite documents to
show such nationality or neutrality and that it will
not carry any documents which cast reasonable
suspicion thereon.
Express warranty as to nationality or neutrality
- Warrant of national character - may be
gathered from the language of the
policy, describing the vessel as
“Philippine” etc
- Property belongs to a subject of
the nationality
- Refers to the beneficial title
rather than legal
- Warrant of neutrality – imports that the
property insured is neutral and shall
appear to be and that it belongs to
neutrals and no act of insured can
compromise its neutrality
- Includes implied warranty to carry
requisite documents
VOYAGE AND DEVIATION
SEC. 123. When the voyage contemplated by a
marine insurance policy is described by the places
of beginning and ending, the voyage insured is one
which conforms to the course of sailing fixed by
mercantile usage between those places.
SEC. 124. If the course of sailing is not fixed by
mercantile usage, the voyage insured by a marine
insurance policy is that way between the places
specified, which to a master of ordinary skill and
discretion, would mean the most natural, direct and
advantageous.
SEC. 125. Deviation is a departure from the course
of the voyage insured, mentioned in the last 2
sections, or an unreasonable delay in pursuing the
voyage or the commencement of an entirely
different voyage.
Deviation
- Any unexcused departure from the
regular course or route of the insured
voyage or any other act which
substantially alters the risk constitutes
deviation
Cases of deviation in marine insurance
1. Departure from the course of sailing
fixed by mercantile usage between the
places of beginning and ending specified
in the policy (Sec 123)
2. Departure from the most natural, direct,
and advantageous route between the
places specified if the course of sailing is
not fixed by mercantile usage (Sec 124)
3. Unreasonable delay in pursuing the
voyage (Sec 125)
4. The commencement of an entirely
different voyage
SEC. 126. A deviation is proper:
(a) When caused by circumstances over which
neither the master nor the owner of the ship
has any control;
(b) When necessary to comply with a warranty, or
to avoid a peril, whether or not the peril is
insured against;
(c) When made in good faith, and upon reasonable
grounds of belief in its necessity to avoid a peril;
or
(d) When made in good faith, for the purpose of
saving human life or relieving another vessel in
distress.
SEC. 127. Every deviation not specified in the last
section is improper.
Kinds of deviation
- Proper – in cases enumerate in 126
- Improper – everything else
*insurer not exonerated from liability for loss
happening after proper deviation; as if none
Proper deviation
- Deviation from the course of the voyage
will not vitiate a policy of marine
insurance if the deviation is justified or
caused by actual necessity
- Where the ship is compelled to
head to another port by stress of
weather
- Where departure is made to take
on a pilot when necessary for
safety
- Where master seeks another
port of discharge when the river
is too shallow
- Such compulsory deviations are risks
implied assumed by the underwriter—
deviation to save property is justified
when to save another vessel in distress
- Deviation for saving a life is not
breach
SEC. 128. An insurer is not liable for any loss
happening to the thing insured subsequent to an
improper deviation.
Effect
- Without just cause, the insurer becomes
immediately absolved from further
liability under the policy for losses
occurring subsequent (not before) to
deviation
SUBTITLE 1-G LOSS
SEC. 129. A loss may be either total or partial.
SEC. 130. Every loss which is not total is partial.
SEC. 131. A total loss may be either actual or
constructive.
Kinds of losses
- Total
- Actual or absolute
- Constructive or technical
- Partial
SEC. 132. An actual loss is caused by:
(a) A total destruction of the thing insured;
(b) The irretrievable loss of the thing by sinking, or
by being broken up;
(c) Any damage to the thing which renders it
valueless to the owner for the purpose for
which he held it; or
(d) Any other event which effectively deprives the
owner of the possession, at the port of
destination, of the thing insured.
Actual Total Loss
- Exists when the subject matter of the
insurance is wholly destroyed or lost or
when it is so damaged as no longer to
exist in its original character
Complete physical destruction not essential to
constitute actual total loss
- May exist where the form and specie of
the thing is destroyed although the
materials of which it consisted still exist
- Examples:
- Vessel sinks in deep water and is
broken wholly to pieces
- Where the insured is
irretrievable deprived of
possession or ownership of the
cargo (sunk gold bars which
could not be retrieved)
- Seeds that were already wetted
because activated already
- Property insured passes
possession where owners cannot
recover without hazard
Limited Liability Rule
- Shipowner’s or ship agent’s liability is
usually co-extensive with his interest in
the vessel such that a total loss thereof
results in its extinction; real and
hypothecary doctrine in maritime law
- XPN: when the sinking of the
vessel is attributable to the
actual fault or negligence of the
shipowner or its failure to ensure
the seaworthiness of the vessel
SEC. 133. A constructive total loss is one which gives
to a person insured a right to abandon, under
Section 141.
Constructive Total Loss
- “technical total loss,” is one in which the
loss, although not actually total, is of
such character that the insured is
entitled, if he thinks fit, to treat it as
total by abandonment
*Important to differentiate 2 kinds of total loss for
upon them depends the doctrine of abandonment
(actual total loss=no abandonment necessary;
constructive total loss=an abandonment becomes
necessary in order to recover as for a total loss)
SEC. 134. An actual loss may be presumed from the
continued absence of a ship without being heard of.
The length of time which is sufficient to raise this
presumption depends on the circumstances of the
case.
Presumption of Actual Total Loss
- Where a vessel is not heard of within a
reasonable time after sailing, or for a
reasonable time after she was last seen,
presumption is lost from a peril insured
against
SEC. 135. When the ship is prevented, at an
intermediate port, from completing the voyage, by
the perils insured against, the liability of a marine
insurer on the cargo continues after they are thus
reshipped.
Nothing in this section shall prevent an insurer from
requiring an additional premium if the hazard be
increased by this extension of liability.
Liability of insurer in case of reshipment
(contemplates an insurance upon cargo)
- If original ship be disabled, and the
master, acting with discretion, as agent
of the merchant and shipowners,
forwards the cargo in another ship, such
necessary and justifiable change of ship
will not discharge the underwriter on the
goods from liability for any loss which
may take place on goods subsequently
to such reshipment
- Can always ask for additional premium
SEC. 136. In addition to the liability mentioned in
the last section, a marine insurer is bound for
damages, expense of discharging, storage,
reshipment, extra freightage, and all other expenses
incurred in saving cargo reshipped pursuant to the
last section, up to the amount insured.
Nothing in this or in the preceding section shall
render a marine insurer liable for any amount in
excess of the insured value or, if there be none, of
the insurable value.
Additional liability of insurer of goods
- Expenses above necessary to complete
transpo of reshipped cargo under 133
- Liab under 134 cannot exceed
amt of insurance
SEC. 137. Upon an actual total loss, a person
insured is entitled to payment without notice of
abandonment.
Right of insured to payment upon an actual total
loss
(1) Constructive total loss – abandonment by
insured is necessary in order to recover for a
total loss
(2) Actual total loss – right of insured to claim
whole insurance is absolute
SEC. 138. Where it has been agreed that an
insurance upon a particular thing, or a class of
things, shall be free from particular average, a
marine insurer is not liable for any particular
average loss not depriving the insured of the
possession, at the port of destination, of the whole
of such thing or class of things, even though it
becomes entirely worthless; but such insurer is
liable for his proportion of all general average loss
assessed upon the thing insured.
Average
- Defined as any extraordinary or
accidental expense incurred during the
voyage for the preservation of the
vessel, cargo, or both and all damages to
the vessel and cargo from the time it is
loaded and the voyage commenced until
it ends and the cargo unloaded
- Two kinds
- Gross/general: include damages
and expenses which are
deliberately caused by the
master of the vessel, or upon his
authority, in order to save the
vessel, her cargo, or both at the
same time from a real and known
risk
 Born equally by all of the
concerned in proportion
to the value of prop saved
- Simple/particular: include all
damages and expenses caused to
the vessel or to her cargo which
have not inured to the common
benefit and profit of all the
persons interested in the vessel
and her cargo; losses that occur
under circs that do not entitle
the owner to receive
contribution from other owners
 Suffered and born alone
by the owner
*partial loss = particular average = average, unless
general (synonymous in marine insurance)
Principle of General Average Contribution
- General average is a principle of
customary law, independent of contract,
whereby, when it is decided by the
master or captain of a vessel, acting for
all the interests concerned, to sacrifice
any part of a venture exposed to a
common and imminent peril in order to
save the rest, the interests so saved are
compelled to contribute ratably or
proportionately, based on the value of
the said interest sacrificed, so that the
cost of the sacrifice shall fall equally on
all
Requisites to Claim General Average Contrib
(1) There must be a common danger to the
vessel or cargo;
(2) Part of the vessel or cargo was sacrificed
deliberately;
(3) The sacrifice must be for the common safety
or for the benefit of all;
(4) Must be made by the master or upon his
authority;
(5) Must not be caused by any fault of the party
asking the contribution;
(6) Must be successful, i.e. resulted in the
saving of the vessel and/or cargo; and
(7) Must be necessary
Examples: the effects jettisoned to lighten the
vessel; the damage caused to the vessel wc had to
be opened or broken in order to save the cargo
(jettison = intentional casting overboard of any part
of a venture exposed to a peril in the hope of saving
the rest of the venture)
Liability of Insurer for General Average
- “he is liable for his proportion of all
general average loss assessed upon the
thing insured”
- Formula:
𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑖𝑛𝑠𝑢𝑟𝑎𝑛𝑐𝑒
𝑥 𝐺𝑒𝑛. 𝐴𝑣𝑒. 𝐿𝑜𝑠𝑠 (𝐺𝐴𝐿)
𝑇𝑜𝑡𝑎𝑙 𝑎𝑚𝑜𝑢𝑛𝑡 𝑜𝑟 𝑣𝑎𝑙𝑢𝑒 𝑖𝑛𝑣𝑜𝑙𝑣𝑒𝑑
= 𝑃𝑟𝑜𝑝𝑜𝑟𝑡𝑖𝑜𝑛 𝑜𝑓 𝐺𝐴𝐿 𝑓𝑜𝑟 𝑤ℎ𝑖𝑐ℎ 𝑖𝑛𝑠𝑢𝑟𝑒𝑟 𝑖𝑠 𝑙𝑖𝑎𝑏𝑙𝑒
Ex: A – owner of vessel worth 8M, insured against
“absolute total loss only” with Y Co. Vessel ran into
very heavy sea and jettison of 1M worth of cargo
belong to B was necessary. After, vessel was saved
together with the cargo of C valued at 600k and D
valued at 400k.
Here, Y Co. is liable to contribute to the
indemnity of the gen. ave. although the policy
makes it liable only upon actual total loss of the
vessel. Total value involved is 10M, consisting of the
value of cargo sacrificed and that of the vessel
and/or cargo saved.
Ratable contribution of parties will be:
Y. Co. 4/5 of 1M or 800k; B, 1/10 of 1M or 100k; C,
3/50 of 1M or 60k; and D, 2/50 of 1M or 40k.
Note that B contributes 100k as his part of
the indemnity for the gen ave bought about by the
jettison of his cargo. Liability of Y Co. cannot exceed
the contribution value of the vessel.
Liability of Insurer for Particular Average
- If the parties stipulate that the insurer
will be liable for “general average only”
he will not be liable for particular
average unless such particular average
loss has the effect of depriving the
insured of the possession at the port of
destination of the whole of the thing
insured
SEC. 139. An insurance confined in terms to an
actual total loss does not cover a constructive total
loss, but covers any loss, which necessarily results in
depriving the insured of the possession, at the port
of destination, of the entire thing insured.
Scope of Insurance against Actual Total Loss
- Insurance covering actual total loss does
not include constructive total loss.
However, it includes deprivation of
possession of thing insured at port of
destination
SUBTITLE 1 – H ABANDONMENT - No obligation upon insured to abandon;
if he omits, he may nevertheless recover
actual loss
SEC. 140. Abandonment, in marine insurance, is the
(2) Vessel is totally lost
act of the insured by which, after a constructive
- No abandonment required bec no more
total loss, he declares the relinquishment to the
vessel
insurer of his interest in the thing insured.
- Insurer answers for damages from which
shipowner or agent may be held liable
Abandonment
- Sec 140
SEC. 141. A person insured by a contract of marine
- An act of an insured in notifying the
insurance may abandon the thing insured, or any
insurer that owing to damage done to
particular potion thereof separately valued by the
the subject of insurance, he elects to
policy, or otherwise separately insured, and recover
take the amount of the insurance in the
for a total loss thereof, when the cause of the loss is
place of the subject thereof, the
a peril insured against:
remnant of which he cedes to the
(a) If more than three-fourths (3/4) thereof in value
insurer
is actually lost, or would have to be expended to
recover it from the peril;
Requisites of Abandonment
(b) If it is Injured to such an extent as to reduce its
(1) There must be an actual relinquishment by
value more than three-fourths (3/4);
the person insured of his interest in the
(c) If the thing insured is a ship, and the
thing insured (Sec. 140);
contemplated voyage cannot be lawfully
(2) There must be a constructive total loss (Sec.
performed without incurring either an expense
141);
to the insured of more than three-fourths (3/4)
(3) The abandonment be neither partial nor
the value of the thing abandoned or a risk which
conditional (Sec. 142);
a prudent man would not take under the
(4) Must be made within a reasonable time
circumstances; or
after receipt of reliable information of the
(d) If the thing insured, being cargo or freightage,
loss (Sec. 143);
and the voyage cannot be performed, nor
(5) Must be factual (Sec. 144);
another ship pro- cured by the master, within a
(6) Must be made by giving notice thereof to
reasonable time and with reasonable diligence,
the insurer which may be done orally or in
to forward the cargo, without incurring the like
writing (Sec. 145);
expense or risk mentioned in the preceding
(7) Notice of abandonment must be explicit and
subparagraph. But freightage cannot in any case
must specify the particular cause of the
be abandoned, unless the ship is also
abandonment (Sec. 146)
abandoned.
*Right of abandonment of vessels, as a legal
limitation of shipowner’s liability, does not apply to 3 Rules as to when a Constructive Total Loss exists:
cases where the injury or average was shipowner’s (1) English, when the subject matter of
fault insurance, while still existent in specie, is so
damaged as not to be worth, when repaired,
Necessity of Abandonment the cost of repairs
(1) Loss is only technically total (2) American, so damaged that the costs of
- Insured cannot claim the whole repairs would exceed ½ of the value of the
insurance without showing due regard t thing (a.k.a. “fifty percent rule”)
other interest which the underwriter (3) Philippines, insured may not abandon unless
may take in the abandoned property the loss/damage is > ¾ of value indicated in
Sec. 141
Rule when insurance is divisible
- Any particular portion of the thing
insured separately valued by the policy
may be separately abandoned as it is
deemed separately insured
Criterion as to extent of loss
- Is to be considered with reference to its
general market value immediately
before the disaster, even though policy
is valued
- Expenses incurred is also considered
SEC. 142. An abandonment must be neither partial
nor conditional.
The abandonment must be entire and absolute and
cover the whole interest insured. It must be
unconditional and unfettered by contingencies and
limitations.
SEC. 143. An abandonment must be made within a
reasonable time after receipt of reliable information
of the loss, but where the information is of a
doubtful character, the insured is entitled to a
reasonable time to make inquiry.
When abandonment must be made: When the
insured has received notice of a loss, he must elect
within a reasonable time whether he will abandon
to the insurer, and if he so elects, he must give
notice thereof within a reasonable time. This is in
order that the insurer may not be prejudiced by the
delay, and may take immediate steps for the
preservation of such property insured as may
remain in existence.
SEC. 144. Where the information upon which an
abandonment has been made proves incorrect, or
the thing insured was so far restored when the
abandonment was made that there was then in fact
no total loss, the abandonment becomes
ineffectual.
Abandonment must be factual
- Loss must exist at time of abandonment
- Abandonment is ineffectual:
- When the information upon
which an abandonment has been
made proves incorrect
- When the thing insured was so
far restored when the
abandonment was made that
there was in fact no total loss
Information required in order for the insured to
abandon:
- Need not be direct or positive
- A newspaper report, a letter
from an agent or a notice from
the master is sufficient. As long
as the information is of facts and
circumstances that renders it
highly probable that a
constructive loss has occurred,
that is enough
SEC. 145. Abandonment is made by giving notice
thereof to the insurer, which may be done orally, or
in writing; provided, that if the notice be done
orally, a written notice of such abandonment shall
be submitted within seven days from such oral
notice.
Form of Notice of Abandonment
- written or oral. But if oral, must give
written notice within 7 days.
By whom and to whom
- Abandonment need not necessarily be
made by the insured but may be made
an authorized agent, and an agent
having an authority to insure has prima
facie an authority to abandon
- May be made to an agent of the
underwriter and abandonment to a
broker who is agent for both parties
SEC. 146. A notice of abandonment must be explicit,
and must specify the particular cause of the
abandonment, but need state only enough to show
that there is probable cause therefor, and need not
be accompanied with proof of interest or of loss.
Notice of Abandonment must be explicit and specify
particular cause thereof
- There must be an intention to abandon
- must state grounds for abandonment
with such particularity as to enable the
underwriter to determine whether or
not he is bound to accept the offer
SEC. 147. An abandonment can be sustained only
upon the cause specified in the notice thereof.
Proof of other causes not admissible
- Meaning: If the cause you specified in
the notice is non-existent, you will not
be allowed to adduce evidence to prove
other causes for abandonment which
you did not so specify.
SEC. 148. An abandonment is equivalent to a
transfer by the insured of his interest to the insurer,
with all the chances of recovery and indemnity.
Effect of valid abandonment
- It transfers to the underwriter the
interests in the subject matter covered
by the policy subject to the rights and
interests, if any, of third persons.
- The underwriter acquires thereby the
entire interest insured, together with all
its incidents, including rights of action
which the insured has against third
persons for injury. In other words, the
insurer becomes entitled to all the rights
which the insured possessed in the thing
insured
SEC. 149. If a marine insurer pays for a loss as if it
were an actual total loss, he is entitled to whatever
may remain of the thing insured, or its proceeds or
salvage, as if there had been a formal
abandonment.
Rights of insurer who pays partial loss as actual total
loss
- An election and notice of abandonment
is a condition precedent to a claim for a
constructive total loss
- Abandonment equivalent to transfer of
interest from insured to insurer
SEC. 150. Upon an abandonment, acts done in good
faith by those who were agents of the insured in
respect to the thing insured, subsequent to the loss,
are at the risk of the insurer, and for his benefit.
Transfer of agency to insurer
- From the moment of a valid
abandonment, the master of the vessel
and agents of the insured become the
agents of the insurer, and the latter
becomes responsible for all their acts in
connection w the insured property and
for all the expenses and liability in
respect thereof
Liability of insurer for expenses and wages
- Abandonment relates back to the time
of loss and if effectual, title of insurer
becomes vested as of that date
SEC. 151. Where notice of abandonment is properly
given, the rights of the insured are not prejudiced
by the fact that the insurer refuses to accept the
abandonment.
Effect of insurer’s refusal to accept abandonment
on insured’s rights
- Acceptance is in no case necessary if
abandonment is properly made
SEC. 152. The acceptance of an abandonment may
either express or implied from the conduct of the
insurer. The mere silence of the insurer for an
unreasonable length of time after notice shall be
construed as an acceptance.
Form of acceptance of abandonment
- Need not be express
- May be implied by conduct
- Mere silence does not operate as
acceptance if it is not for an
unreasonable length of time
SEC. 153. The acceptance of an abandonment,
whether express or implied, is conclusive upon the
parties, and admits the loss and the sufficiency of
the abandonment.
SEC. 154. An abandonment once made and
accepted is irrevocable, unless the ground upon
which it was made proves to be unfounded.
Effect of acceptance of abandonment:
(1) Insurer becomes at once liable for the whole
amount of the insurance;
(2) Insurer becomes entitled to all rights which
the insured possessed in the thing insured;
(3) Fixes the rights of the parties. It is conclusive
upon them and is irrevocable.
Therefore, the acceptance of an abandonment
estops the underwriter from relying on any
insufficiency in the form, time or right of
abandonment.
- Except: when the ground upon which
the abandonment is made proves to be
unfounded.
SEC. 155. On an accepted abandonment of a ship,
freightage earned previous to the loss belongs to
the insurer of said freightage; but freightage
subsequently earned belongs to the insure of the
ship.
Right of insurer to freightage
- When abandonment is valid, interest of
the insured in the thing covered passes
to the insurer
- The insurer of the freightage is
subrogated to the rights of the insured
at the time of the loss hence any
freightage earned previous to the time
of loss rightfully belongs to him.
Example:
Suppose a ship is chartered to carry cargo
from Port A to Port C. Upon reaching Port B, the
ship was damaged and abandoned to insurer X
company. The ship was repaired by X company and
it continued its voyage to Port C.
In this case, the freightage on the cargo
from Port B to Port C belongs to X company but the
freightage on the cargo from Port A to Port B
belongs to the insurer of said freightage.
SEC. 156. If an insurer refuses to accept a valid
abandonment, he is liable upon an actual total loss,
deducting from the amount any proceeds of the
thing insured which may have come to the hands of
the insured.
Effect of refusal to accept a valid abandonment on
insurer’s liability
- Right of abandonment is absolute when
justified by the circumstances and no
acceptance is necessary to validate the
abandonment
- He is liable as upon an actual loss less
any proceeds the insured may have
received on account of the damaged
property as when the insured succeeds
in selling the property as damaged.
Formula:
Liability of insurer = Actual loss – Any Proceeds
Received by the Insured.
If abandonment was improper, the insured may
nevertheless recover to the extent of the damage
proved.
SEC. 157. If a person insured omits to abandon, he
may nevertheless recover his actual loss.
Effect of insured’s failure to abandon
- The insured has an election to abandon
or not, and he cannot be compelled to
abandon although abandonment is
proper. He may await the final event,
and recover accordingly for a total or
partial loss, as the case may be.
SUBTITLE 1-I MEASURE OF INDEMNITY
SEC. 158. A valuation in the policy of marine
insurance is conclusive between the parties thereto
in the adjustment of either a partial or total loss, if
the insured has some interest at risk, and there is
no fraud on his part except that when a thing has
been hypothecated by bottomry or respondentia,
before its insurance, and without the knowledge of
the person actually procuring the insurance, he may
show the real value. But a valuation fraudulent in
fact, entitles the insurer to rescind the contract.
Valuation in a marine policy
- Valuation in an marine policy (valued
policy) is conclusive between parties;
exception: hypothecation by bottomry
or respondentia before insurance;
fraudulent valuation entitles insurer to
rescind
Object of valuation
- It may happen that when a vessel is
insured for a long time or for a long
voyage, her value at the end of the
voyage may not be the same as at the
beginning. Hence, we resort to valuation
in order to fix in advance the value of the
property and thus, avoid the necessity of
proving its actual value in case of loss.
Insured value
- That stated in the policy. It is conclusive
upon the parties provided that the
insured has some interest at risk, and
there is no fraud on his part
In case of fraud on part of insured in stating the
value
- Insurer may rescind the contract.
In a valued marine policy, when the thing insured is
lost, neither party is permitted to give evidence of
the real value of the thing.
Reason: There was already a conclusive value given
to it by the parties in the policy.
Exception: If the thing has been hypothecated by
bottomry or respondentia before it was insured,
and such hypothecation is WITHOUT the knowledge
of the person who procured the insurance, the real
value of the thing MAY BE SHOWN by the insurer.
SEC. 159. A marine insurer is liable upon a partial
loss, only for such proportion of the amount insured
by him as the loss bears to the value of the whole
interest of the insured in the property insured.
When insured a co-insurer in marine insurance
- Principle of co-insurance
- In every marine insurance, the
insured is expected to cover by
insu the full value of the property
insured. However, there are
instances when people insure for
less than their interest. So if the
value of the insured’s interest
exceeds the amount of the
insurance, the insured is
considered a co-insurer for an
amount determined by the
differect between the insurer
taken out and the value of the
property.
Formula:
(𝑃𝑎𝑟𝑡𝑖𝑎𝑙)𝐿𝑜𝑠𝑠
𝑥 𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑖𝑛𝑠𝑢𝑟𝑎𝑛𝑐𝑒
𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑡ℎ𝑖𝑛𝑔 𝑖𝑛𝑠𝑢𝑟𝑒𝑑
= 𝑎𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑟𝑒𝑐𝑜𝑣𝑒𝑟𝑦
Ex: Vessel valued at 500k, insured for 400k and is
damage is 250k, insurer will be required to pay only
80% of the loss = 200k. the other 20% (the 50k),
being borne by the insured himself.
250,000 1
𝑜𝑟 𝑥 400,000 = 200,000
500,00 2
The insured is considered a co-insurer as to
the uninsured portion of 100,000. Circumstances in
which Section 157 will apply:
1.) Loss is partial; and
2.) Amount of insurance is less than the insured’s
entire insurable interest in the property insured. So
above, if loss is total, insurer liable for whole 400k
but if prop is insured to its full value, insured
entitled to recover full amount of partial loss =
250k.
Compare with Sec. 172 (fire insurance) – no co-
insurance in fire insurance unless stipulated
Sec. 160. Where profits are separately insured in a
contract in a contract of marine insurance, the
insured is entitled to recover, in case of loss, a
proportion of such profits equivalent to the
proportion which the value of the property lost
bears to the value of the whole.
Loss of profits separately insured
- Where profits are separately insured,
the insured is entitled to a proportion of
profits lost, equivalent to proportion of
property lost bears to value of whole
Formula:
𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑝𝑟𝑜𝑝 𝑙𝑜𝑠𝑡
𝑥 𝑎𝑚𝑡 𝑜𝑓 𝑖𝑛𝑠𝑢𝑟𝑎𝑛𝑐𝑒
𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑤ℎ𝑜𝑙𝑒 𝑝𝑟𝑜𝑝 𝑖𝑛𝑠𝑢𝑟𝑒𝑑
= 𝑎𝑚𝑡 𝑜𝑓 𝑟𝑒𝑐𝑜𝑣𝑒𝑟𝑦
Ex: Assuming that the amount of the profits insured
is 20,000, the value of the whole cargo from wc
such profits are expected to be realized is 80,000,
and the value of the goods lost is 48,000, then the
insured is entitled to recover 12,000 computed as
follows:
48,000 3
𝑜𝑟 5 𝑥 200,000 − 12,000
80,000
SEC. 16 1. In case of a valued policy of marine
insurance on freightage or cargo, if a part only of
the subject is exposed to risk, the valuation applies
only in the proportion to such part.
Where only part of a cargo or freightage insured
exposed to risk
- Where a cargo is insured under a valued
policy but only a portion of the cargo is
actually carried by the vessel at the time
of loss, the valuation will be reduced
proportionately. The insurer is bound to
return such portion of the premium as
corresponds with the portion of the
cargo which had been exposed to the
risk.
Ex: If 200 cavans of rice valued at 160,000 are
insured for the same amount for a voyage in a
certain vessel and only50 cavans were actually
loaded and shipped in said vessel, in case of total
loss, the insured can collect only ¼ of the entire
valuation or 0,000 but the insurer is bound to
return ¾ of the premiums paid by the insured ¾ of
the premiums paid by the insured since ¾ of the
cargo or 150 cavans were not exposed to th risk.
SEC. 162. When profits are valued and insured by a
contract of marine insurance, a loss of them is
conclusively presumed from a loss of the property
out of which they were expected to arise, and the
valuation fixes their amount.
Presumption of loss of profits
- When profits valued, loss is conclusively
presumed from loss of property from
which they arise and valuation fixes their
amount
- If the property is totally lost, then
consequently, the total profits
are also lost. Such loss of profits
are conclusively presumed from
the loss of the property and the
valuation agreed upon in the
policy fixes the amount of
recovery.
SEC. 163. In estimating a loss under an open policy
of marine insurance, the following rules are to be
observed:
(a) The value of a ship is its value at the beginning of
the risk, including all articles or charges which add
to its permanent value or which are necessary to
prepare it for the voyage insured;
(b) The value of cargo is its actual cost to the
insured, when laden on board, or where that cost
cannot be ascertained, its market value at the time
and place of lading, adding the charges incurred in
purchasing and placing it on board, but without
reference to any loss incurred in raising money for
its purchase, or to any drawback on its exportation,
or to the fluctuation of the market at the port of
destination, or to expenses incurred on the way or
on arrival;
(c) The value of freightage is the gross freightage,
exclusive of primage, without reference to the cost
of earning it; and
(d) The cost of insurance is in each case to be added
to the value thus estimated.
Rules in estimating loss in a marine open policy
regarding values of:
(1) Ship – Value at the beginning of the risk
(2) Cargo – Its actual cost to the insured, when
laden on board, or where that cost cannot be
ascertained, its market value at the time and place
of lading
(3) Freightage – Gross freightage, exclusive of
primage, without reference to the cost of
earning it
(4) Cost of insurance added to value estimated
*primage – small compensation paid by a shipper to
the master of the vessel for his care and trouble
bestowed on the shipper’s goods and which the
master is entitled to retain in the absence of an
agreement to the contrary with the owners of the
vessels
*In determining the loss under an open policy of
marine insurance, the real value of the thing
insured must be proved by the insured in each case.
Section 161 lays down the rules in ascertaining the
value to be used for indemnity purposes.
SEC. 164. If cargo insured against partial loss arrives
at the port of destination in a damaged condition,
the loss of the insured is deemed to be the same
proportion of the value which the market price at
that port, of the thing so damaged, bears to the
market price it would have brought if sound.
Where cargo insured against partial loss is damaged
- Section 162 applies if:
1. The cargo is insured against
partial loss; and
2. It suffers damage as a result of
which its market value at the
port of destination is reduced.
Formula:
𝑀𝑎𝑟𝑘𝑒𝑡 𝑝𝑟𝑖𝑐𝑒 𝑖𝑛 𝑠𝑜𝑢𝑛𝑑 𝑠𝑡𝑎𝑡𝑒 𝑙𝑒𝑠𝑠: 𝑚𝑎𝑟𝑘𝑒𝑡 𝑝𝑟𝑖𝑐𝑒 𝑑𝑎𝑚𝑎𝑔𝑒𝑑 𝑠𝑡𝑎𝑡𝑒
= 𝑟𝑒𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑖𝑛 𝑣𝑎𝑙𝑢𝑒(𝑑𝑒𝑝𝑟𝑒𝑐𝑖𝑎𝑡𝑖𝑜𝑛)
𝑟𝑒𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑖𝑛 𝑣𝑎𝑙𝑢𝑒
𝑥 𝑎𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑖𝑛𝑠𝑢
𝑚𝑎𝑟𝑘𝑒𝑡 𝑝𝑟𝑖𝑐𝑒 𝑖𝑛 𝑠𝑜𝑢𝑛𝑑 𝑠𝑡𝑎𝑡𝑒
= 𝑎𝑚𝑡 𝑜𝑓 𝑟𝑒𝑐𝑜𝑣𝑒𝑟𝑦
Ex: Suppose that goods valued at 500,000 and
insured for 300,000 were damaged on the way so
that their market price at the POD was only
400,000. Assuming that the market price of the
goods would have brought if sound is also 500,000,
the amt recoverable is 60,000 determined as
follows:
500,000 − 400,000 = 100,000
100,000 1
𝑜𝑟 𝑥 300,000 − 60,000
500,000 5
SEC. 165. A marine insurer is liable for all the
expenses attendant upon a loss which forces the
ship into port to be repaired; and where it is
stipulated in the policy that the insured shall labor
for the recovery of the property, the insurer is liable
for the expense incurred thereby, such expense, in
either case, being in addition to a total loss, if that
afterwards occurs.
Liability of insurer for expesnes incurred for repair
and recovery
- GR: marine insurer is not liable for more
than amount of policy
- XPN: port of refuge expenses
(165)
SEC. 166. A marine insurer is liable for a loss falling
upon the insured, through a contribution in respect
to the thing insured, required to be made by him
towards general average loss called for by a peril
insured against: Provided, that the liability of the
insurer shall be limited to the proportion of
contribution attaching to his policy value where this
is less than the contributing value of the thing
insured.
SEC. 167. When a person insured by a contract of
marine insurance has a demand against others for
contribution, he may claim the whole loss from the
insurer, subrogating him to his own right to
contribution. But no such claim can be made upon
the insurer after the separation of the interests liable
to contribution, nor when the insured having the Ex: If the vessel worth 8M was insurd for only 4M w
right and opportunity to enforce contribution from Y Co,, then Y is only liable for ½ of 800k, the
others, has neglected or waived the exercise of that proportion of the GAL assessed upon the vessel,
right. while A is liable to contribute the other 400k.

Rights of insured in case of general average SEC. 168. In the case of a partial loss of a ship or its
- GR: insurer is liable for any general equipment, the old materials are to be applied
average loss where it is payable or has towards payment for the new. Unless otherwise
been paid by the insured in consequence stipulated in the policy, a marine insurer is liable for
of a peril insured against. The insured only two-thirds (2/3) of the remaining cost of
may either hold the insurer directly repairs after such deduction, except that anchors
liable for the whole of the insured value must be paid in full.
of the property sacrificed for the general Liability of the insurer in case of partial loss of the
benefit, subrogating him to his own right ship or its equipment
of contribution, or demand contribution - 2/3 cost of repairs. “1/3 new for old” on
from the other interested parties as the theory that the new materials render
soon as the vessel arrives at her the ship more valuable than it was
destination. In other words, the insured before the loss
need not wait for an adjustment of the
average.
- XPNS:
(a) After the separation of the
interest liable to contribution
after the cargo liable for
contribution has been
removed from the vessel
(b) When the insured has
neglected or waived his right
to contribution

Limit as to liability of insurer

- It is limited to the proportion of
contribution attaching to his policy value
where this is less than the contributing
value of the thing insured. In other
words, the liability of the insurer shall be
less than the proportion of the general
average loss assessed upon the thing
insured where its contributing value is
more than the amount of the insurance.
In such case, the insured is liable to
contribute ratably with the insurer to the
indemnity of the general average.

Formula:
𝑎𝑚𝑡 𝑜𝑓 𝑖𝑛𝑠𝑢𝑟𝑎𝑛𝑐𝑒
𝑥 𝑝𝑟𝑜𝑝𝑜𝑟𝑡𝑖𝑜𝑛 𝑜𝑓 𝐺𝐴𝐿
𝑣𝑎𝑙𝑢𝑒 𝑜𝑓 𝑡ℎ𝑖𝑛𝑔 𝑖𝑛𝑠𝑢𝑟𝑒𝑑
= 𝑙𝑖𝑚𝑖𝑡 𝑜𝑓 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑦 𝑜𝑓 𝑖𝑛𝑠𝑢𝑟𝑒𝑟