1
Insurance Notes
The Insurance Code
Section 1. This Decree shall be known as ‘The Insurance
Code’.
Laws Governing Insurance
1. The Insurance Code as Amended (RA 10607)
2. Civil Code
3. Special Laws
Insurance contracts are governed primarily by the insurance
code and subsidiarily by the Civil Code
RIGHT OF SUBROGATION
 Process of legal substitution
 The insurer, after paying the amount covered by the
policy, steps into the shoes of the insured
 Insurer avails of the rights of the insured against the
wrongdoer
 Insured CANNOT recover from offender what was
paid by insurer but can recover any deficiency.
 The principle of subrogation is a normal incident of
indemnity insurance as a legal effect of payment; it
inures to the insurer without any formal assignment or
any express stipulation to that effect in the policy. Said
right is not dependent upon nor does it grow out of any
private contract. Payment to the insured makes the
insurer a subrogee in equity. (Malayan Insurance Co.,
Inc. v. CA, 165 SCRA 536; see also Art. 2207, NCC)
 Applicable only in non-life insurance (Philamgen v. CA)
 In insurance law, an insurer, after paying the claim of
an insured, by process of legal substitution, steps into
the shoes of the insured and can proceed against an
erring party or the one who caused the loss.
INSTANCES WHEN SUBROGATION IS NOT
APPLICABLE
1. When the insurer pay the insured for a loss not covered by
the policy.
2. The insurer by his own act releases the wrongdoer.
3. In case of life insurance.
4. Recovery of loss in excess of the limits provided by the
policy.
Section 2. Whenever used in this Code, the following terms
shall have the respective meanings hereinafter set forth or
indicated, unless the context otherwise requires:
(a) A contract of insurance is an agreement whereby one
undertakes for a consideration to indemnify another against
loss, damage or liability arising from an unknown or
contingent event.
A contract of suretyship shall be deemed to be an insurance
contract, within the meaning of this Code, only if made by a
surety who or which, as such, is doing an insurance business
as hereinafter provided.
(b) The term doing an insurance business or transacting an
insurance business, within the meaning of this Code, shall
include:
(1) Making or proposing to make, as insurer, any
insurance contract;
(2) Making or proposing to make, as surety, any
contract of suretyship as a vocation and not as merely
incidental to any other legitimate business or activity
of the surety;
(3) Doing any kind of business, including a
reinsurance business, specifically recognized as
constituting the doing of an insurance business within
the meaning of this Code;
(4) Doing or proposing to do any business in
substance equivalent to any of the foregoing in a
manner designed to evade the provisions of this Code.
In the application of the provisions of this Code, the fact that
no profit is derived from the making of insurance contracts,
agreements or transactions or that no separate or direct
consideration is received therefor, shall not be deemed
conclusive to show that the making thereof does not
constitute the doing or transacting of an insurance business.
(c) As used in this Code, the term Commissioner means the
Insurance Commissioner.
NATURE AND CHARACTERISTICS
1. Consensual
2. Voluntary
3. Aleatory – depends upon a contingent event. But it is not
a contract of chance
4. Contract of indemnity for non-life and an investment for
life insurance
5. Personal - As a rule, the insured cannot assign, before the
happening of the loss, his rights under a property policy
to others without the consent of the insurer.
6. Executory and conditional on the part of the insurer (a
unilateral contract)
7. Conditional

8. Uberrimae fides (utmost good faith)
Distinguishing Elements of the contract of insurance
1. The insured possesses an interest of some kind
susceptible of pecuniary estimation, known as "insurable
interest";
2. The insured is subject to a risk of loss through the
destruction or impairment of that interest by the
happening of designated perils;
3. The insurer assumes that risk of loss;
4. Such assumption of risk is part of a general scheme to
distribute actual losses among a large group or
substantial number of persons bearing a similar risk; and
5. As consideration for the insurer's promise, the insured
makes a ratable contribution called "premium," to a
general insurance fund.
All the elements must be present, otherwise there can be no
contract of insurance, and even if the contract contains all the
elements, it is not an insurance contract within the context of
the Insurance Code if the primary purpose of the parties is the
rendering of service and not the indemnification of a party for
loss, damage, or liability incurred by the latter.
A contract possessing only the first three elements named
above is a risk-shifting device (like guaranty), but not a
contract of insurance which is fundamentally a risk-
distributing {risk-sharing or risk-policy) device.
All-risk vs. Specified risk
All-risk insurance reimburses the insured for damage to the
subject matter of the policy from all causes except those
specifically excepted in the policy. In other words, all those
not excluded are automatically included. Specified-risk
insurance covers damage to the subject matter of the policy
only if it results from specifically identified causes listed in the
policy.
Under a specified-risk policy, the burden is ordinarily placed
on the insured to initially prove that the loss falls within the
policy's provisions on coverage. However, under an all-risk
policy, once the insured establishes that a loss occurred
through some event other than an inherent defect or normal
depreciation, the burden is ordinarily placed on the insurer to
prove that the loss falls within an explicit exception to
coverage.
Classifications under the Code.
(1) Life insurance contracts which may be:
(a) individual life (see Sees. 179-183, 227.);
(b) group life (see Sees. 50, last par., 228.); and
(c) industrial life (see Sees. 229-231.);
(2) Non-life insurance contracts which may be:
2
Insurance Notes
(a) marine (see Sees. 99-166.);
(b) fire (see Sees. 167-173.); and
(c) casualty (see Sec. 174.); and
(3) Contracts of suretyship or bonding.22 (See Sees. 175-178.)
Construction of Insurance Contracts
 It is basic that all provisions of the insurance policy
should be examined and interpreted in consonance with
each other. The policy cannot be construed price-meal.
 As a general rule, contracts of insurance are to be
construed or interpreted liberally in favor of the insured
and strictly against the insurer resolving all ambiguities
against the latter. (Since an insurance contract is a
contract of adhesion)
Principal Object and Purpose Test
Under the so-called "principal object and purpose test," if the
principal object and purpose is "indemnity the contract
constitutes insurance, but if it is "service," risk transfer and
distribution being merely incidental, then the arrangement is
not insurance and, therefore, not subject to laws regulating
insurance.
CHAPTER I
THE CONTRACT OF INSURANCE
TITLE I: WHAT MAY BE INSURED
Section 3. Any contingent or unknown event, whether past
or future, which may damnify a person having an insurable
interest, or create a liability against him, may be insured
against, subject to the provisions of this chapter.
The consent of the spouse is not necessary for the validity of
an insurance policy taken out by a married person on his or
her life or that of his or her children.
All rights, title and interest in the policy of insurance taken
out by an original owner on the life or health of the person
insured shall automatically vest in the latter upon the death
of the original owner, unless otherwise provided for in the
policy.
Requisites of a contract of insurance
1. A subject matter in which the insured has an insurable
interest (see Sees. 12-14.);
2. Event or peril insured against which may be any (future)
contingent or unknown event, past or future (Sec. 3.), and
a duration for the risk thereof (see Sec. 51 [g].);
 3
Insurance Notes

Section 7. Anyone except a public enemy may be insured.

3. A promise to pay or indemnify in a fixed or ascertainable
amount (see Sec. 2.); Capacity of party insured.

1. Natural person. — In order that a person may be the

4. A consideration for the promise, known as the premium, party insured in a contract of insurance, two essential
(see Sec. 77.); and requisites are necessary, to wit:

5. A meeting of minds of the parties upon all the foregoing a. He must be competent to make a contract; and
essentials, (see Arts. 1318,1319, Civil Code.) b. He must possess an insurable interest in the subject
of the insurance.
Section 4. The preceding section does not authorize an
insurance for or against the drawing of any lottery, or for or A third requisite, applicable also to juridical persons, may be
against any chance or ticket in a lottery drawing a prize. added, i.e., that the insured must not be a public enemy. (Sec.
7.)
A contract of insurance is a contract of indemnity and is not a
wagering or gambling contract, (see Sec. 25.) While it is based 2. Juridical person. — A juridical person, like a partnership
on a contingency, it is not a contract of chance and is not used or a corporation, may take out insurance on property
for profit. The very purpose of insurance is the owned by it. Note that Section 3 specifically authorizes
reimbursement of the holder of insurance for actual loss minors, 18 years or more to take out insurance payable to
suffered from specified risks. a limited class of beneficiaries.
Gambling Contract Insurance Contract Meaning of public enemy.
Parties contemplate gain by Parties seek to distribute
mere chance possible loss by reason of A public enemy designates a nation with whom the
mischance Philippines is at war and it includes every citizen or subject
A gambler courts fortune The insured avoids of such nation. The term may be taken to mean "alien
misfortune enemy." A mob, however numerous they may be, or robbers
Whatever one person wins What one insured gains is or thieves whoever they may be, are never considered public
from a wager is lost by the not at the expense of enemies for purposes of the above provision.
other wagering party another insured
As soon as a party makes a Purchase of insurance does Effect of war on existing insurance contracts
wager, he creates a risk of not create a new risk on the
loss to himself where no part of the insured, instead a. Property Insurance – The rule adopted in the
such risk previously existed it frees the insured from Philippines is that an insurance policy ceases to be valid
economic risk. and enforceable as soon as an insured becomes a public
enemy.

Insurance and gambling are similar in only one respect. In
both cases, one party promises to pay a given sum to the
other upon the occurrence of a given future event, the
promise being conditioned upon the payment of, or
agreement to pay, a stipulated amount by the other party to
the contract.
Section 5. All kinds of insurance are subject to the provisions
of this chapter so far as the provisions can apply.
b. Life Insurance – a contract is merely suspended but is
abrogated by reason of nonpayment of premiums, since
the time of the payments is peculiarly of the essence of
the contract. However, the insured is entitled to the cash
or reserve value of the policy (if any), which is the
excess of the premiums paid over the actual risk carried
during the years when the policy had been in force.
The termination of war does not revive the contract

Section 8. Unless the policy otherwise provides, where a

TITLE II: PARTIES TO THE CONTRACT
Section 6. Every corporation, partnership, or association,
duly authorized to transact insurance business as elsewhere
provided in this Code, may be an insurer.
Parties to an insurance contract are:
1. Insurer
2. Insured
mortgagor of property effects insurance in his own name
providing that the loss shall be payable to the mortgagee, or
assigns a policy of insurance to a mortgagee, the insurance is
deemed to be upon the interest of the mortgagor, who does
not cease to be a party to the original contract, and any act of
his, prior to the loss, which would otherwise avoid the
insurance, will have the same effect, although the property is
in the hands of the mortgagee, but any act which, under the
contract of insurance, is to be performed by the mortgagor,

may be performed by the mortgagee therein named, with the
same effect as if it had been performed by the mortgagor.
Insurable interest of mortgagee and mortgagor
1. Separate insurable interest
The mortgagor and the mortgagee have each an insurable
interest in the property mortgaged (Sec. 13.), and this interest
is separate and distinct from the other. Consequently,
insurance taken by one in his own name only and in his favor
alone, does not inure to the benefit of the other. (Sec. 53.) And
in case both of them take out separate insurance policies on
the same property, or one policy covering their respective
interests, the same is not open to the objection that there is
double insurance.
2. Extent of insurable interest
a. Mortgagor – value of property
b. Mortgagee – amount of debt
Insurance by mortgagee of his own interest
Payment made by the insurer to the mortgagee, in case of
loss, gives the insurer the right of subrogation. He is
subrogated to the rights of the mortgagee to collect from the
mortgagor.
Insurance by mortgagor for benefit of mortgagee, or policy
assigned to mortgagee.
Under Section 8, where the mortgagor of property effects
insurance in his own name providing that the loss shall be
payable to the mortgagee, or assigns a policy of insurance3 to
the mortgagee, the following are the legal effects:
(1) The contract is deemed to be upon the interest of the
mortgagor; hence, he does not cease to be party to the
contract;
(2) Any act of the mortgagor prior to the loss, which would
otherwise avoid the insurance (like storing inflammable
materials in the insured house) affects the mortgagee even if
the property is in the hands of the mortgagee;
(3) Any act which under the contract of insurance is to be
performed by the mortgagor (like payment of the premium)
may be performed by the mortgagee with the same effect;
(4) In case of loss, the mortgagee is entitled to the proceeds to
the extent of his credit; and
(5) Upon recovery by the mortgagee to the extent of his
credit, the debt is extinguished.
The rule on subrogation by the insurer to the right of the mortgagee
does not apply in this case.
4
Insurance Notes
Effect of standard and open clauses in fire insurance policy
1. If a fire insurance policy contains a standard or union
mortgage clause, the acts of the mortgagor do not affect
the mortgagee. The purpose of the clause is to make a
separate and distinct contract of insurance on the interest
of the mortgagee.
2. An open or loss-payable mortgage clause merely
provides for the payment of loss, if any, to the
mortgagee as his interest may appear (see Sec. 57.) and
under it, the acts of the mortgagor affect the mortgagee.
If the policy is obtained by the mortgagor with a loss-
payable clause in favor of the mortgagee as his interest
may appear, the mortgagee is only a beneficiary under
the contract and recognized as such by the insurer but
not made a party to the contract itself.
Section 9. If an insurer assents to the transfer of an insurance
from a mortgagor to a mortgagee, and, at the time of his
assent, imposes further obligations on the assignee, making a
new contract with him, the acts of the mortgagor cannot
affect the rights of said assignee.
The effect of an assignment or transfer is to substitute the
assignee or transferee in place of the original insured in
respect to the right to claim indemnity or payment for a loss
as well as the obligation to perform the conditions, if any, of
the policy.
The assignee, unless he makes a new contract with the
insurer, acquires no greater right under the insurance than
the assignor had, subject to insurer's defenses.
TITLE 3: INSURABLE INTEREST
Section 10. Every person has an insurable interest in the life
and health:
(a) Of himself, of his spouse and of his children;
(b) Of any person on whom he depends wholly or in part for
education or support, or in whom he has a pecuniary interest;
(c) Of any person under a legal obligation to him for the
payment of money, or respecting property or services, of
which death or illness might delay or prevent the
performance; and
(d) Of any person upon whose life any estate or interest
vested in him depends.
Insurable Interest - In essence, it is that interest which the
law requires the owner of an insurance policy to have in the
person or thing insured.
Pecuniary in nature. — In general, a person is deemed to
have an insurable interest in the subject matter insured where

he has a relation or connection with or concern in it that he
will derive pecuniary or financial benefit or advantage from
its preservation and will suffer pecuniary loss or damage
from its destruction, termination, or injury by the happening
of the event insured against.
Interest does not necessarily imply a right to the whole or a
part of a thing. To have an interest in the preservation of a
thing is to be circumstanced with respect to it as to have
benefit from its existence and prejudice from its destruction.
The rule is that an insurable interest is necessary to the
validity of an insurance contract whatever the subject matter
of the policy, whether upon property or life. A policy issued to
a person without interest in the subject matter insured is a
mere wager policy or contract and is void for illegality. (more
like gambling)
2 general classes of life insurance policies
1. Insurance upon one’s own life – taken by the insured
himself upon his own life. He may designate any
beneficiary and it is not necessary that the beneficiary in
the policy has an insurable interest in the life of the
insured.
2. Insurance upon the life of another - When one applies
for insurance on the life of another for the former's
benefit, he must have an insurable interest in the life of
that person.
Similarity between life insurance and donation
 Both are acts of liberality
 The rule on prohibited donations under Article 739 of
the civil code also applies to insurance contracts
 Although spouses are prohibited from making
donations to each other, a life insurance policy taken by
a spouse on his (her) life in favor of the other is allowed
because it only takes effect after the death of the
insured.
Insurable Interest
a. When mere blood relationship is enough
a. The spouses;
b. Legitimate ascendants and descendants;
c. Parents and their legitimate children and the
legitimate or illegitimate children of the latter;
d. Parents and their illegitimate children and the
legitimate or illegitimate children of the latter;
e. Legitimate brothers and sisters, whether of the
full or half-blood.
b. When pecuniary benefit essential
In other cases, mere blood relationship {e.g., lesser degree of
kinship, such as uncle or aunt, and nephew or niece, and
cousins) does not create an insurable interest in the life of
5
Insurance Notes
another. Also, mere relationship by affinity (e.g., son-in-law,
brother-in-law, step-children) ordinarily does not constitute
an insurable interest.
Under our law, there must be an expectation of pecuniary
benefit in the life of the insured to sustain the insurance, that
is, a risk of actual monetary loss from his death. Hence, "love
and affection/' "gratitude," or "friendship," by itself is not
sufficient.
The expectation, however, need not have legal basis
whatever; it is sufficient that it be actual.
Insurable interest of creditor in the life of the debtor
Under our law, however, it is clear that a creditor may not
insure the life of his debtor unless the latter has a legal
obligation to him for the payment of money. Therefore, if it
becomes unenforceable, the insurable interest ceases.
Section 11. The insured shall have the right to change the
beneficiary he designated in the policy, unless he has
expressly waived this right in said policy. Notwithstanding
the foregoing, in the event the insured does not change the
beneficiary during his lifetime, the designation shall be
deemed irrevocable.
The consent of the beneficiary is not needed since the
beneficiary has no vested rights in the proceeds of the
insurance.
Section 12. The interest of a beneficiary in a life insurance
policy shall be forfeited when the beneficiary is the principal,
accomplice, or accessory in willfully bringing about the death
of the insured. In such a case, the share forfeited shall pass on
to the other beneficiaries, unless otherwise disqualified. In
the absence of other beneficiaries, the proceeds shall be paid
in accordance with the policy contract. If the policy contract
is silent, the proceeds shall be paid to the estate of the
insured.
The nearest relatives of the insured in the order of
enumeration are the following:
1. The legitimate children;
2. The father and mother, if living;
3. The grandfather and grandmother, or ascendants
nearest in degree, if living;
4. The illegitimate children;
5. The surviving spouse; and
6. The collateral relatives, to wit:
a. brothers and sisters of the full blood;
b. brothers and sisters of the half-blood; and
c. nephews and nieces,
7. In default of the above, the State shall be entitled to
receive the insurance proceeds,

The crime referred to here must be intentional and
constitutes a felony, if due to self-defense, this article does
not apply.
As a rule, death by suicide avoids the insurance. Exemption,
death by suicide of an insured while insane.
Death caused by violation of law. — The mere fact that the
insured died while he was committing a felony or violating a
law would not warrant denial of liability. To avoid liability,
the insurer must further establish that the commission of the
felony or the violation of law was the cause or had a casual
connection with the accident resulting in the death of the
insured.
Hence, even if the insured died because he is driving a
vehicle when he has no driver’s license, would not avoid the
insurance.
Section 13. Every interest in property, whether real or
personal, or any relation thereto, or liability in respect
thereof, of such nature that a contemplated peril might
directly damnify the insured, is an insurable interest.
Insurable Interest in Property
The principle may be stated generally that anyone has an
insurable interest in property who derives a benefit from its
existence or would suffer loss from its destruction.
Section 14. An insurable interest in property may consist in:
(a) An existing interest;
(b) An inchoate interest founded on an existing interest; or
(c) An expectancy, coupled with an existing interest in that
out of which the expectancy arises.
Section 15. A carrier or depository of any kind has an
insurable interest in a thing held by him as such, to the extent
of his liability but not to exceed the value thereof.
Section 16. A mere contingent or expectant interest in any
thing, not founded on an actual right to the thing, nor upon
any valid contract for it, is not insurable.
A father cannot insure his son's property nor can a son insure
the property that he expects to inherit from his father as his
interest is merely an expectancy of inheriting. Similarly, a
spouse has no insurable interest in the property of the other.
Section 17. The measure of an insurable interest in property
is the extent to which the insured might be damnified by loss
or injury thereof.
6
Insurance Notes
Section 18. No contract or policy of insurance on property
shall be enforceable except for the benefit of some person
having an insurable interest in the property insured.
Principle of indemnity applicable. — This principle is at the
basis of all contracts of property insurance. Accordingly, an
insurance taken out by a person on property in which he has
no insurable interest is void.
Where the insurance is invalidated on the ground that no
insurable interest exists, the premium is ordinarily returned
to the insured unless he is in pari delicto with the insurer,
Section 19. An interest in property insured must exist when
the insurance takes effect, and when the loss occurs, but need
not exist in the meantime; and interest in the life or health of
a person insured must exist when the insurance takes effect,
but need not exist thereafter or when the loss occurs.
Time when insurable interest must exist.
The general rule stated in this section is applicable only to
insurance on property and not to life insurance except that on
the life of the debtor.
1. When insurance takes effect and loss occurs. — Insurable
interest in property must exist at two distinct times: on
the date of execution of the contract of insurance; and on
the date of the occurrence of the risk insured against,
otherwise, the policy is void. Thus, if a fire occurs after
the sale or alienation of the property, the former owner
cannot recover on the policy.
2. When insurance takes effect. — In life insurance, the
insurable interest requirement is satisfied if the interest
exists at the time the policy is procured, even if it has
ceased to exist at the time of the insured's death.
Insurable interest in life Insurable Interest in
insurance property insurance
Insurable interest is Limited to the actual value
unlimited of the interest thereon
It is enough that the interest It is necessary that
at the time the policy takes insurable interest exist both
effect and need not exist at at the time the policy takes
the time of loss effect and at the time of loss
The expectation of benefit The benefits derived from
from the life of the insured the property must have
need not have legal basis legal basis
for as long as it is actual
Section 20. Except in the cases specified in the next four
sections, and in the cases of life, accident, and health
insurance, a change of interest in any part of a thing insured
unaccompanied by a corresponding change of interest in the
insurance, suspends the insurance to an equivalent extent,
until the interest in the thing and the interest in the insurance
are vested in the same person.

Generally speaking, the mere transfer of a thing insured does
not transfer the policy but suspends it until the same person
becomes the owner of both the policy and the thing insured.
Exceptions to general rule.
The rule that change of interest suspends the insurance is
subject to exceptions, to wit:
1. In life, health, and accident insurance (Sec. 20.);
2. A change of interest in the thing insured after the
occurrence of an injury which results in a loss (Sec. 21.);
3. A change of interest in one or more of several things,
separately insured by one policy (Sec. 22.);
4. A change of interest by will or succession on the death
of the insured (Sec. 23.);
5. A transfer of interest by one of several partners, joint
owners, or owners in common, who are jointly insured,
to the others (Sec. 24.);
6. When a policy is so framed that it will inure to the
benefit of whomsoever, during the continuance of the
risk, may become the owner of the interest insured (Sec.
57.); and
7. When there is an express prohibition against alienation
in the policy, in case of alienation, the contract of
insurance is not merely suspended but is avoided. (Art.
1306, Civil Code; see Sec. 24.)
Section 21. A change of interest in a thing insured, after the
occurrence of an injury which results in a loss, does not affect
the right of the insured to indemnity for the loss.
Section 22. A change of interest in one or more of several
distinct things, separately insured by one policy, does not
avoid the insurance as to the others.
Section 23. A change of interest, by will or succession, on the
death of the insured, does not avoid an insurance; and his
interest in the insurance passes to the person taking his
interest in the thing insured.
Section 24. A transfer of interest by one of several partners,
joint owners, or owners in common, who are jointly insured,
to the others, does not avoid an insurance even though it has
been agreed that the insurance shall cease upon an alienation
of the thing insured.
Section 25. Every stipulation in a policy of insurance for the
payment of loss whether the person insured has or has not
any interest in the property insured, or that the policy shall
be received as proof of such interest, and every policy
executed by way of gaming or wagering, is void.
Wagering or gaming policies void.
Stipulations prohibited in an insurance policy
7
Insurance Notes
1. Stipulation for the payment of loss whether the person
insured has or has not any interest in the subject matter
of the insurance.
2. Stipulation that the policy shall be received as proof of
insurable interest.
TITLE 4: CONCEALMENT
Section 26. A neglect to communicate that which a party
knows and ought to communicate, is called a concealment.
Four primary concerns of the parties to an insurance
contract.
In making a contract, so highly aleatory as that of insurance,
the parties have four primary concerns, to wit:
1. The correct estimation of the risk which enables the
insurer to decide whether he is willing to assume it,
and if so, at what rate of premium;
2. The precise delimitation of the risk which
determines the extent of the contingent duty to pay
undertaken by the insurer;
3. Such control of the risk after it is assumed as will
enable the insurer to guard against the increase of
the risk because of change in conditions; and
4. Determining whether a loss occurred and if so, the
amount of such loss.
Concealment is defined by Section 26 as a neglect to
communicate that which a party knows and ought to
communicate.
Requisites of concealment
1. a party knows the fact which he neglects to
communicate or disclose to the other;
2. such party concealing is duty bound to disclose such
fact to the other;
3. such party concealing makes no warranty of the fact
concealed; and
4. the other party has not the means of ascertaining the
fact concealed.
Section 27. A concealment whether intentional or
unintentional entitles the injured party to rescind a contract
of insurance.
Section 28. Each party to a contract of insurance must
communicate to the other, in good faith, all facts within his
knowledge which are material to the contract and as to which
he makes no warranty, and which the other has not the
means of ascertaining.

Matters that must be communicated even in the absence of
inquiry.
This section makes it the duty of each party to a contract of
insurance to communicate in good faith all facts within his
knowledge only when:
1. they are material to the contract;
2. the other has not the means of ascertaining the said facts
3. as to which the party with the duty to communicate
makes no warranty.
The test is: If the applicant is aware of the existence of some
circumstances which he knows would influence the insurer in acting
upon his application, good faith requires him to disclose that
circumstance, though unasked.
Effect of failure of insurer to verify
The effect of material concealment cannot be avoided by the
allegation that the insurer could have known and discovered
the illness or disease which the insured had concealed.
The insurance company has the right to rely on the
statements of the insured as to material facts such as to his
previous sickness, for he knows the facts, and the matter is
not one of which disclosure is excused by the law.
Section 29. An intentional and fraudulent omission, on the
part of one insured, to communicate information of matters
proving or tending to prove the falsity of a warranty, entitles
the insurer to rescind.
Under this section the concealment relates to the falsity of a
warranty.
Unlike in ordinary concealment (Sec. 27.), the non-disclosure
under Section 29 must be intentional and fraudulent in order
that the contract may be rescinded.
Section 30. Neither party to a contract of insurance is bound
to communicate information of the matters following, except
in answer to the inquiries of the other:
(a) Those which the other knows;
(b) Those which, in the exercise of ordinary care, the other
ought to know, and of which the former has no reason to
suppose him ignorant;
(c) Those of which the other waives communication;
(d) Those which prove or tend to prove the existence of a risk
excluded by a warranty, and which are not otherwise
material; and
(e) Those which relate to a risk excepted from the policy and
which are not otherwise material.
Section 31. Materiality is to be determined not by the event,
but solely by the probable and reasonable influence of the
8
Insurance Notes
facts upon the party to whom the communication is due, in
forming his estimate of the disadvantages of the proposed
contract, or in making his inquiries.
Determination of materiality
Test of materiality. — The test is in the effect which the
knowledge of the fact in question would have on the making
of the contract.
From the standpoint of the insurer. — A fact is material if
the knowledge of it would have a "probable and reasonable
influence upon the insurer in assessing the risk involved and
in making or omitting further inquiries, and cause him either
to reject the risk or to accept it only at a higher premium rate
or on different terms though that fact may not even remotely
contribute to the contingency upon which the insurer would
become liable, or in any wise affect the risk.
Concealment must take place at the time the contract is
entered into in order that the policy may be avoided and not
afterwards.
Section 32. Each party to a contract of insurance is bound to
know all the general causes which are open to his inquiry,
equally with that of the other, and which may affect the
political or material perils contemplated; and all general
usages of trade.
Section 33. The right to information of material facts may be
waived, either by the terms of insurance or by neglect to
make inquiry as to such facts, where they are distinctly
implied in other facts of which information is communicated.
Section 34. Information of the nature or amount of the
interest of one insured need not be communicated unless in
answer to an inquiry, except as prescribed by Section 51.
Section 35. Neither party to a contract of insurance is bound
to communicate, even upon inquiry, information of his own
judgment upon the matters in question.
The duty to disclose is confined to facts. Hence, there is no
duty to disclose mere opinion, speculation, intention or
expectation.
TITLE 5: REPRESENTATION
Section 36. A representation may be oral or written.
Representation is a statement made by the insured at the
time of, or prior to, the issuance of the policy (Sec. 37.), as to
an existing or past fact or state of facts, or concerning a future
happening, to give information to the insurer and otherwise
induce him to enter into the insurance contract.
Misrepresentation in insurance is a statement (1) as a fact of
something which is untrue, (2) which the insured stated with
knowledge that it is untrue and with an intent to deceive, or
which he states positively as true without knowing it to be

true and which has a tendency to mislead, and (3) where
such fact in either case is material to the risk.
Such a misrepresentation by the insured renders the
insurance contract voidable at the option of the insurer, even
though innocently made and without wrongful intent.
Section 37. A representation may be made at the time of, or
before, issuance of the policy.
Clearly, a representation made after the policy is issued could
not have influenced either party to enter into the contract.
However, a representation may be performed after the
issuance of the policy.
Section 38. The language of a representation is to be
interpreted by the same rules as the language of contracts in
general.
Representations are construed liberally in favor of the
insured, and are required to be only substantially true.
Warranties (Sec. 67.), by contrast, must be literally true, or the
contract will fail.
Section 39. A representation as to the future is to be deemed
a promise, unless it appears that it was merely a statement of
belief or expectation.
Kinds of representation
A representation may be: (1) oral or written (Sec. 36.); (2)
made at the time of issuing the policy or before (Sec. 37.); and
(3) affirmative or promissory.
An affirmative representation is any allegation as to the
existence or non-existence of a fact when the contract begins.
Thus, the statement of the insured that the house to be
insured is used only for residential purposes is an affirmative
representation.
A promissory representation is any promise to be fulfilled
after the contract has come into existence or any statement
concerning what is to happen during the existence of the
insurance.
Nature of promissory representations
1. First, it is used to indicate a parol or oral promise made in
connection with the insurance, but not incorporated in the
policy. The non-performance of such a promise cannot be
shown by the insurer in defense to an action on the
policy, but proof that the promise was made with
fraudulent intent will serve to defeat the insurance
2. Secondly, an undertaking by the insured, inserted in the
policy, but not specifically made a warranty, is called also
a "promissory representation." It is, however, in such a
case, merely an executory term of the contract, and not
properly a representation.
9
Insurance Notes
Effect on policy of expressions of opinion or expectation.
Representation of the expectation, intention, belief, opinion
or judgment of the insured, although false, will not avoid a
policy of insurance if there is no actual fraud in inducing the
acceptance of the risk, since in such case the insurer is not
justified in relying upon such a statement, but is obligated to
make further inquiry.
If the representation is one of fact, all the insurer need to
prove is its falsity and materiality as defined in Sections 44,
45, and 46. The intent to deceive is presumed.
Section 40. A representation cannot qualify an express
provision in a contract of insurance, but it may qualify an
implied warranty.
Section 41. A representation may be altered or withdrawn
before the insurance is effected, but not afterwards.
Section 42. A representation must be presumed to refer to the
date on which the contract goes into effect.
The representation must be true at the time the contract takes
effect and need not be true at the time of execution of the
contract.
Section 43. When a person insured has no personal
knowledge of a fact, he may nevertheless repeat information
which he has upon the subject, and which he believes to be
true, with the explanation that he does so on the information
of others; or he may submit the information, in its whole
extent, to the insurer; and in neither case is he responsible for
its truth, unless it proceeds from an agent of the insured,
whose duty it is to give the information.
Effect where information obtained from third persons
Under this section, the insured is given discretion to
communicate to the insurer what he knows of a matter of
which he has no personal knowledge. If the representation
turns out to be false, he is not responsible therefor, provided
he gives explanation that he does so on the information of
others.
Section 44. A representation is to be deemed false when the
facts fail to correspond with its assertions or stipulations.
Unlike in the case of warranties (see Sec. 67.), representations
are not required to be literally true; they need only be
substantially true. In order that a policy shall be avoided, a
representation relied upon must be false in a substantial and
material respect.
Section 45. If a representation is false in a material point,
whether affirmative or promissory, the injured party is
entitled to rescind the contract from the time when the
representation becomes false.

Effect of falsity of representation.
Fraud or intent to misrepresent facts is not essential to entitle
the injured party to rescind a contract of insurance on the
ground of false representation.
To be deemed false, it is sufficient if the representation fails
to correspond with the facts (Sec. 44.) in a material point.
Effect of collusion or fraud of agent of insurer.
Collusion with insured. — Collusion between the agent and
the insured in misrepresenting the facts will vitiate the policy
even though the agent is acting within the apparent scope of
his authority. (Mutual Aid Union vs. Blackwall, 196 S.W.
792.) When there is collusion, the agent thereby ceases to
represent his principal, and represents himself; so the insurer
is not estopped from avoiding the policy.
Likewise, where the insured merely signed the application
form and made the agent of the insurer fill the same for him,
it was held that by doing so, the insured made the agent of
the insurer his own agent. (Insular Life Assur. Co. vs.
Feliciano, 74 Phil. 469 )
Section 46. The materiality of a representation is determined
by the same rules as the materiality of a concealment.
Concealment Misrepresentation
The insured withholds The insured makes
information of material erroneous statements of
facts from the insurer facts with the intent of
inducing the insurer to
enter into the contract
Same materiality with concealment
Same effect. It gives the insurer a right to rescind the
contract.
Section 47. The provisions of this chapter apply as well to a
modification of a contract of insurance as to its original
formation.
Section 48. Whenever a right to rescind a contract of
insurance is given to the insurer by any provision of this
chapter, such right must be exercised previous to the
commencement of an action on the contract.
After a policy of life insurance made payable on the death of
the insured shall have been in force during the lifetime of the
insured for a period of two (2) years from the date of its issue
or of its last reinstatement, the insurer cannot prove that the
policy is void ab initio or is rescindable by reason of the
fraudulent concealment or misrepresentation of the insured
or his agent.
When an insurer must exercise his right to rescind
In non-life policy — Under the first paragraph of Section 48,
in order that the insurer may rescind a contract of insurance,
10
Insurance Notes
such right must be exercised prior to the commencement of
an action on the contract. In other words, the insurer is no
longer entitled to rescind a contract of insurance after the
insured has filed an action to collect the amount of the
insurance. It has been held, however, that where any of the
material representations is false, the insurer's tender of the
premiums and notice that the policy is cancelled before
commencement of the suit thereon, operates to rescind a
contract of insurance.
In life policy. — With reference to life insurance contracts,
the foregoing rulings should be understood to be qualified by
the second paragraph of Section 48. By virtue of the second
paragraph, the defenses mentioned are available only during
the first two years of a life insurance policy.
Incontestability of life policies.
Incontestability means that after the requisites are shown to
exist, the insurer shall be estopped from contesting the policy
or setting up any defense, except as is allowed, on the ground
of public policy.
Requisites for incontestability.
Under our law, in order that the insurance shall be
incontestable, the following requisites must be present:
(1) The policy is a life insurance policy;
(2) It is payable on the death of the insured; and
(3) It has been in force during the lifetime of the insured for at
least two (2) years from its date of issue or of its last
reinstatement.
The period of two (2) years for contesting a life insurance
policy by the insurer may be shortened but it cannot be
extended by stipulation.
Defenses not barred by incontestable clause
Incontestability only deprives the insurer of those defenses
which arise in connection with the formation and operation
of the policy prior to loss.
The insurer may still contest the policy by way of defense to a
suit brought upon the policy or by action to rescind the same,
on any of the following grounds:
(1) That the person taking the insurance lacked insurable
interest as required by law;
(2) That the cause of the death of the insured is an excepted
risk;
(3) That the premiums have not been paid (Sees. 77, 227[b],
228[b], 230[b].);
(4) That the conditions of the policy relating to military or
naval service have been violated (Sees. 227[b], 228[b].);

(5) That the fraud is of a particularly vicious type, as where
the policy was taken out in furtherance of a scheme to
murder the insured, or where the insured substitutes another
person for the medical examination, or where the beneficiary
feloniously kills the insured (Vance, op. cit., pp. 582-583.);
(6) That the beneficiary failed to furnish proof of death or to
comply with any condition imposed by the policy after the
loss has happened (see Sec. 242.); or
(7) That the action was not brought within the time specified,
(see Sec. 63.)
TITLE 6: THE POLICY
Section 49. The written instrument in which a contract of
insurance is set forth, is called a policy of insurance.
Section 50. The policy shall be in printed form which may
contain blank spaces; and any word, phrase, clause, mark,
sign, symbol, signature, number, or word necessary to
complete the contract of insurance shall be written on the
blank spaces provided therein.
Any rider, clause, warranty or endorsement purporting to be
part of the contract of insurance and which is pasted or
attached to said policy is not binding on the insured, unless
the descriptive title or name of the rider, clause, warranty or
endorsement is also mentioned and written on the blank
spaces provided in the policy.
Unless applied for by the insured or owner, any rider, clause,
warranty or endorsement issued after the original policy
shall be countersigned by the insured or owner, which
countersignature shall be taken as his agreement to the
contents of such rider, clause, warranty or endorsement.
Notwithstanding the foregoing, the policy may be in
electronic form subject to the pertinent provisions of Republic
Act No. 8792, otherwise known as the ‘Electronic Commerce
Act’ and to such rules and regulations as may be prescribed
by the Commissioner.
Policy of Insurance – it is the written document embodying
the terms and stipulations of the contract of insurance
between the insurer and the insured
The policy is usually signed only by the insurer.
Policy controls terms of insurance contract
1. Measure of insurer’s liability - An insurance policy is
essentially a contract between the insurer and the
insured. Its terms constitute the measure of the insurer's
liability, and in order to recover, the insured must show
himself within the terms
2. Presence of requisites for validity – all the requisites of a
valid contract must be present
11
Insurance Notes
3. Compliance of insure with conditions of the policy – the
compliance of the insured to the terms of the policy is a
condition precedent to recovery.
Policy, a contract of "adhesion."
The term "adhesion contract" is essentially a description of
the manner by which the contract is formed: one party
having superior bargaining power imposes its choice of
terms on the other party. Ordinarily, contracts are freely
negotiated by parties with roughly equivalent bargaining
power. However, this classical model is far removed from
the reality of the insurance business.
Hence, ambiguities in an insurance contract is resolved in
favor of the insured.
Finman General Assurance Corp. vs. Court of Appeals, 213
SCRA 493 [1992].
HELD: Where the personal accident insurance policy
involved specifically enumerated only ten (10)
circumstances wherein no liability attaches to the insurer for
any injury, disability or loss suffered by the insured as a
result of any of the stipulated causes, the failure of the
insurer to include death resulting from murders or assault
among the prohibited risks leads inevitably to the
conclusion that it did not intend to limit or exempt itself
from liability for such death. The principle of expressio unius
est exclusio alterius — the mention of one thing implies the
exclusion of another thing — is applicable.
Perfection of the insurance contract - Under the law, assent
or consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to
constitute the contract.
a. The mere signing of an application for life insurance
and the payment of the first premium do not bind the
insurer to issue a policy where there is no evidence of
any contract.
b. Similarly, the contract is not perfected where the
applicant for life insurance dies before its approval or it
does not appear that the acceptance of the application
ever came to the knowledge of the applicant.
Rider in a contract of insurance.
A rider is a small printed or typed stipulation contained on a
slip of paper attached to the policy and forming an integral
part of the policy. Usually constitute additional stipulations.
When there is an inconsistency between a rider and the
printed stipulations in the policy, the rider prevails, as being
a more deliberate expression of the agreement of the
contracting parties.
Attached papers on insurance policy.

As a general rule, a rider, slip, or other paper becomes a part
of a contract or policy of insurance if properly and
sufficiently attached or referred to therein in a manner as to
leave no doubt as to the intention of the parties in such
respect.
Effect of lack of signature - the fact that it is without the
signature of the insurer or of the insured will not prevent its
inclusion and construction as a part of the insurance
contract.
Insurer's duty to explain the policy.
Reasonable expectations of insured. — The doctrine of
"reasonable expectations" can operate to impose de factoa
duty on the insurer to explain the policy's coverage to the
insured. If a court holds that an insured's reasonable
expectations entitle him to coverage despite policy language
to the contrary, the court has said, in effect, that the insurer
must pay for the loss because the insurer failed to explain
the limitations on coverage to the insured.
Group Insurance
Generally speaking, group insurance (see Sec. 228.) is the
coverage of a number of individuals by means of a single or
blanket policy, thereby effecting economies which
frequently enable the insurer to sell its services at lower
premium rates than are ordinarily obtainable for the same
type of insurance protection on life policies sold to
individuals.
— It is essentially a single insurance contract that provides
coverage for many individuals. In its original and most
common form, group insurance provides life or health
insurance coverage for the employees of one employer.
Section 51. A policy of insurance must specify:
(a) The parties between whom the contract is made;
(b) The amount to be insured except in the cases of open or
running policies;
(c) The premium, or if the insurance is of a character where
the exact premium is only determinable upon the termination
of the contract, a statement of the basis and rates upon which
the final premium is to be determined;
(d) The property or life insured;
(e) The interest of the insured in property insured, if he is not
the absolute owner thereof;
(f) The risks insured against; and
(g) The period during which the insurance is to continue.
Section 51 enumerates what the policy of insurance must
contain. Their inclusion in insurance policies is deemed
12
Insurance Notes
essential to enable the parties to determine easily the nature
and effect of the contract entered by them thereby avoiding
lawsuits.
Kinds of insurable risks.
(1) Personal risks. — They are those involving the person.
This classification of risk is chiefly concerned with the time of
death or disability. It is perfectly apparent that of death there
is no uncertainty but the time of its occurrence. And aside
from death, there is the risk of incapacity through accidental
injury, illness or old age. Personal risks are often divided into
life and health risks;
(2) Property risks. — They are those involving loss or
damage to property. This second classification of risk is that
which arises from die destruction of property. The possible
loss of a cargo or ship at sea is considered a risk to those
engaged in maritime operations.
(a) Direct losses by fire, lightning, windstorm, flood,
and other forces of nature offer a constant threat of
loss to real estate, as well as all kinds of personal
property and property involved in any form of
transportation;
(b) Indirect losses also may occur, including loss of
profits, rents, or favorable leases; and
(3) Liability risks. — They are those involving liability for
the injury to the person or property of others. This third
classification of risk is occasioned by the operation of the law
of liability (tort) and may sometimes be called third party
risks.
Risk, peril, and hazards distinguished
(1) Risk is the chance of loss, or the possibility of the
occurrence of a loss, based on known and unknown
factors.
(2) In contrast to risk, peril is the contingent or
unknown event which may cause a loss. It is the
contingency that one insures against, (see Sec. 3, par.
1.) Its existence creates the risk, and its occurrence
results in loss. It may be covered or excluded by a
policy of insurance.
(3) Hazard is the condition or factor, tangible or
intangible, which may create or increase the chance
of loss from a given peril.
Requirements for risks to be insurable.
(1) Importance. — The loss to be insured against should
be important enough to warrant the existence of an
insurance contract.
(2) Calculability. — The risk must permit a reasonable
statistical estimate of the chance of loss and possible
variations from the estimate.

(3) Definiteness of loss. — The losses should be fairly
definite as to cause, time, place, and amount, for
otherwise, estimates of possible loss are difficult;
(4) No catastrophic loss – it is usual to exclude political
and war risks from most insurance policies although
these risks may sometimes be shouldered by the
State.
(5) Accidental nature.
Section 52. Cover notes may be issued to bind insurance
temporarily pending the issuance of the policy. Within sixty
(60) days after issue of a cover note, a policy shall be issued
in lieu thereof, including within its terms the identical
insurance bound under the cover note and the premium
therefor.
Cover notes may be extended or renewed beyond such sixty
(60) days with the written approval of the Commissioner if
he determines that such extension is not contrary to and is
not for the purpose of violating any provisions of this Code.
The Commissioner may promulgate rules and regulations
governing such extensions for the purpose of preventing
such violations and may by such rules and regulations
dispense with the requirement of written approval by him in
the case of extension in compliance with such rules and
regulations.
Preliminary contracts of insurance.
(1) By a preliminary contract of present insurance, the
insurer insures the subject matter usually by what is
known as the "binding slip," or "binder" or "cover note,"
the contract to be effective until the formal policy is
issued or the risk rejected. The binder is actually a
temporary contract of insurance and is usually issued
after the applicant pays the first premium.
(2) By a preliminary executory contract of insurance, the
insurer makes a contract to insure the subject matter at
some subsequent time which may be definite or
indefinite. Under such an executory contract, the right
acquired by the insured is merely to demand the
delivery of a policy in accordance with the terms agreed
upon and the obligation assumed by the insurer is to
deliver such policy.
Rules on cover notes.
(1) Insurance companies doing business in the Philippines
may issue cover notes to bind insurance temporarily,
pending the issuance of the policy.
(2) A cover note shall be deemed to be a contract of insurance
within the meaning of Section 1(1) of the Code.
(3) No cover note shall be issued or renewed unless in the
form previously approved by the Insurance Commission.
13
Insurance Notes
(4) A cover note shall be valid and binding for a period not
exceeding sixty (60) days from the date of its issuance,
whether or not the premium therefor has been paid, but such
cover note may be cancelled by either party upon at least
seven (7) days notice to the other party.
(5) If a cover note is not so cancelled, a policy of insurance
shall, within sixty (60) days after the issuance of such cover
note, be issued in lieu thereof. Such policy shall include
within its terms the identical insurance bond under the cover
note and the premium therefor.
(6) A cover note may be extended or renewed beyond the
aforementioned period of sixty (60) days with the written
approval of the Insurance Commission.
(7) Insurance companies may impose on cover notes a
deposit premium equivalent to at least 25% of the estimated
premium of the intended insurance coverage but in no case
less than P500.00
Section 53. The insurance proceeds shall be applied
exclusively to the proper interest of the person in whose
name or for whose benefit it is made unless otherwise
specified in the policy.
Persons entitled to recover on policy
As against the insured, third persons have no right either in a
court of equity or in a court of law to the proceeds of the
policy unless there be some contract of trust, express or
implied
Section 54. When an insurance contract is executed with an
agent or trustee as the insured, the fact that his principal or
beneficiary is the real party in interest may be indicated by
describing the insured as agent or trustee, or by other general
words in the policy.
Section 55. To render an insurance effected by one partner or
part-owner, applicable to the interest of his co-partners or
other part-owners, it is necessary that the terms of the policy
should be such as are applicable to the joint or common
interest.
Section 56. When the description of the insured in a policy is
so general that it may comprehend any person or any class of
persons, only he who can show that it was intended to
include him, can claim the benefit of the policy.
Section 57. A policy may be so framed that it will inure to the
benefit of whomsoever, during the continuance of the risk,
may become the owner of the interest insured.
Section 58. The mere transfer of a thing insured does not
transfer the policy, but suspends it until the same person
becomes the owner of both the policy and the thing insured.
Section 59. A policy is either open, valued or running.

Section 60. An open policy is one in which the value of the
thing insured is not agreed upon, and the amount of the
insurance merely represents the insurer’s maximum liability.
The value of such thing insured shall be ascertained at the
time of the loss.
Section 61. A valued policy is one which expresses on its face
an agreement that the thing insured shall be valued at a
specific sum.
Section 62. A running policy is one which contemplates
successive insurances, and which provides that the object of
the policy may be from time to time defined, especially as to
the subjects of insurance, by additional statements or
indorsements.
Kinds of policies
(1) An open or unvalued policy is defined in Section 60. In
other words, it is one in which a certain agreed sum is
written on the face of the policy not as the value of the
property insured, but as the maximum limit of the
insurer's liability (i.e., face value), in case of destruction
by the peril insured against.
Example:
Where a house insured for P1,000,000.00 is totally destroyed
by fire, the insurer may introduce evidence to show that the
property was not really worth P1,000,000.00 but some rather
less sum. Thus, in case the value of the property at the time of
the loss was only P800,000.00, then this is all that the insured
will receive although the face value of the policy is
P1,000,000.00.
In other words, the amount recoverable is determined by the
amount of the loss but not exceeding the face amount of the
policy. But until shown otherwise by the insurer, the house
must be considered as having an actual value of P1,000,000.00,
the amount of the insurance.
(2) A valued policy is defined in Section 61. Therefore, it is
one in which the parties expressly agree on the value of
the subject matter of the insurance. Thus, there are two
values — the face value of the policy and the value of the
thing insured. In the absence of fraud or mistake, the
agreed value of the thing insured will be paid in case of
total loss of the property, unless the insurance is for a
lower amount.
EXAMPLE:
A policy insuring a ship "valued at P50 million" is a valued
policy. Such a valuation, unless it is fraudulent or so grossly
excessive as to indicate fraud, is conclusive upon the parties
(see Sec. 156.) and in case of loss, it always furnishes the basis
of settlement even though it might be proved that the actual
value of the property lost is more or less.
14
Insurance Notes
(3) A running policy is defined in Section 62. This kind of
policy is intended to provide indemnity for property
which cannot well be covered by a valued policy because
of its frequent change of location and quantity, or for
property of such a nature as not to admit of a gross
valuation.
Thus, insurance may be carried on a constantly changing stock
of goods, or on grain that is being carried to and from in the
harbor on lighters. Under such circumstances, these policies
are usually known as "floating," "running," or "blanket."
It is a contract that has no fixed face value, the face value
adjusting itself to the changing value at one specified location
or at each of several locations.
Section 63. A condition, stipulation, or agreement in any
policy of insurance, limiting the time for commencing an
action thereunder to a period of less than one (1) year from the
time when the cause of action accrues, is void.
Period limitation. — If the period fixed is less than one year
from the time the cause of action accrues, the stipulation
would be void. (Sec. 63.) In the case, however, of a policy of
industrial life insurance, the period cannot be less than six (6)
years after the cause of action accrues. (Sec. 231 [d].)
When cause of action accrues.
The right of the insured to the payment of his loss accrues
from the happening of the loss. However, the cause of action
in an insurance contract does not accrue until the insured's
claim is finally rejected by the insurer. This is because before
such final rejection, there is no real necessity for bringing suit.
Section 64. No policy of insurance other than life shall be
cancelled by the insurer except upon prior notice thereof to
the insured, and no notice of cancellation shall be effective
unless it is based on the occurrence, after the effective date of
the policy, of one or more of the following:
(a) Nonpayment of premium;
(b) Conviction of a crime arising out of acts increasing the
hazard insured against;
(c) Discovery of fraud or material misrepresentation;
(d) Discovery of willful or reckless acts or omissions
increasing the hazard insured against;
(e) Physical changes in the property insured which result in
the property becoming uninsurable;
(f) Discovery of other insurance coverage that makes the total
insurance in excess of the value of the property insured; or
(g) A determination by the Commissioner that the
continuation of the policy would violate or would place the
insurer in violation of this Code.

Section 65. All notices of cancellation mentioned in the
preceding section shall be in writing, mailed or delivered to
the named insured at the address shown in the policy, or to
his broker provided the broker is authorized in writing by
the policy owner to receive the notice of cancellation on his
behalf, and shall state:
(a) Which of the grounds set forth in Section 64 is relied
upon; and
(b) That, upon written request of the named insured, the
insurer will furnish the facts on which the cancellation is
based.
Form and sufficiency of notice of cancellation by the
Insurer.
The conditions under which the right may be exercised are:
(1) There must be prior notice of cancellation to the
insured;
(2) The notice must be based on the occurrence, after
the effective date of the policy, of one or more of the
grounds mentioned (Sec. 64.);
(3) It must be in writing, mailed or delivered to the
named insured at the address shown in the policy;
and
(4) It must state which of the grounds set forth is relied
upon. (Sec. 65; see Sees. 380, 381.)
Section 66. In case of insurance other than life, unless the
insurer at least forty-five (45) days in advance of the end of
the policy period mails or delivers to the named insured at
the address shown in the policy notice of its intention not to
renew the policy or to condition its renewal upon reduction
of limits or elimination of coverages, the named insured shall
be entitled to renew the policy upon payment of the
premium due on the effective date of the renewal. Any policy
written for a term of less than one (1) year shall be considered
as if written for a term of one (1) year. Any policy written for
a term longer than one (1) year or any policy with no fixed
expiration date shall be considered as if written for
successive policy periods or terms of one (1) year.
In case of insurance other than life, the named insured is
given the right to renew upon the same terms and conditions
the original policy upon payment of the premium due on the
effective date of the renewal unless the insurer at least forty-
five (45) days in advance of the end of the period mails or
delivers to the insured notice of its intention not to renew the
policy or to condition its renewal upon reduction of its
amount or elimination of some coverages.
TITLE 7: WARRANTIES
Section 67. A warranty is either expressed or implied.
Warranty is a statement or promise by the insured set forth in
the policy itself or incorporated in it by proper reference, the
15
Insurance Notes
untruth or nonfulfillment of which in any respect and
without reference to whether the insurer was in fact
prejudiced by such untruth or nonfulfillment, renders the
policy voidable by the insurer.
A warranty may also be made by the insurer.
Kinds of warranties.
In the law of insurance, warranties are either affirmative (see
Sec. 68.) or promissory (see Sec. 72.) and either express or
implied, and there may be several warranties of different
kinds in one policy.
(1) An express warranty is an agreement contained in the
policy or clearly incorporated therein as part thereof
whereby the insured stipulates that certain facts relating
to the risk are or shall be true or certain acts relating to
the same subjects have been or shall be done.
(2) An implied warranty is a warranty which from the very
nature of the contract or from the general tenor of the
words, although no express warranty is mentioned, is
necessarily embodied in the policy as a part thereof and
which binds the insured as though expressed in the
contract.
(3) An affirmative warranty is one which asserts the
existence of a fact or condition at the time it is made. The
warranty is continuing if it is one that must be satisfied
during the entire coverage period of the insurance.
(4) A promissory warranty, not infrequently called
"executory" warranty, is one where the insured stipulates
that certain facts or conditions pertaining to the risk shall
exist or that certain things with reference thereto shall be
done or omitted. It is in the nature of a condition
subsequent.
Unless the contrary intention appears, the courts will
presume that the warranty is merely affirmative.
Section 68. A warranty may relate to the past, the present,
the future, or to any or all of these.
Section 69. No particular form of words is necessary to create
a warranty.
Intention of the parties in regard thereto. In case of doubt, a
statement will be construed as a representation rather than a
warranty especially if such statement is contained in any
instrument other than the policy like an application which is,
in itself, collateral merely to the contract of insurance. The
parties must intend a statement to be a warranty and it must
be included as a part of the contract.
Warranty Representations
Considered part of the Collateral inducements
 16
Insurance Notes

contract
Always written on the face
of the policy
Must be strictly complied
with
Falsity or nonfulfillment of
the warranty constitutes
breach of contract
only
May be written or may ne
oral
Only substantial
compliance is required
Falsity of a representation
renders the policy void due
to fraud
works forfeiture of the policy which is avoided for increase in
hazard.
EXAMPLE
If it is agreed that the insured shall not store inflammable
materials of any kind, there is a warranty that such act will
not be committed.

Section 70. Without prejudice to Section 51, every express
warranty, made at or before the execution of a policy, must
be contained in the policy itself, or in another instrument
signed by the insured and referred to in the policy as making
a part of it.
Section 71. A statement in a policy, of a matter relating to the
person or thing insured, or to the risk, as fact, is an express
warranty thereof.
Section 73. When, before the time arrives for the performance
of a warranty relating to the future, a loss insured against
happens, or performance becomes unlawful at the place of
the contract, or impossible, the omission to fulfill the
warranty does not avoid the policy.
When breach of warranty does not avoid policy.
(1) When loss occurs before time for performance.
EXAMPLE:

Express warranty regarding person, thing, or risk.
1. Under Section 71, the statement in the policy relating to
the person or thing insured, or to the risk, must be as a
fact and not as an opinion, or belief, to constitute an
express warranty thereof.
EXAMPLE:
The statement of the insured as to his age, or the purpose for
which the property insured is used like for dwelling, or that
certain acts shall not be done, like storing hazardous goods, is
an express warranty, the falsity or breach of which would
avoid the policy.
2. A statement in the policy which, from the very nature of
the subject matter of the inquiry, can only be an
expression of an opinion is not, strictly speaking, a
warranty of its truthfulness.
EXAMPLES:
Where the answers in an application are qualified by the
words, appended at its foot, "the above is as near correct as I
remember," "to the best of my knowledge and belief," or
similar words, the right to recover on the policy will not be
defeated unless some answers are consciously incorrect.
Section 72. A statement in a policy, which imparts that it is
intended to do or not to do a thing which materially affects
the risk, is a warranty that such act or omission shall take
place.
Section 72 refers to a promissory warranty. Breach of
promises or agreements as to future acts will not avoid a
policy unless the promises are material to the risk.
The act or omission is material to the risk if it increases the
risk, and under the law, only substantial increase of risk
If the insured warrants that within five days after the
execution of the contract he will install fire extinguishers in
the insured premises and the loss occurs on the second day
without the insured having complied with the warranty, the
policy is not avoided by the failure to perform said warranty.
(2) When performance becomes unlawful. —
EXAMPLE:
The policy contains an express warranty that the insured
house which at the time was rented to tenants shall cease to
be rented and shall be used as private dwelling for the family
of the insured within three months from the date of the
policy. Subsequently, a law was passed prohibiting the
ejectment of tenants without fixed period of lease within a
period of one year in view of an emergency existing.
(3) When performance becomes impossible - Failure to
comply with a promissory warranty may be due not
only to legal impossibility but also to physical
impossibility.
Where insurer barred by waiver or estoppel.
Waiver may be defined as "an intentional relinquishment of a
known right." It may be express or implied. Failure on the
part of the insurer to assert a forfeiture upon breach of
warranty or condition, after knowledge thereof, amounts to a
waiver or estoppel. If waiver is to be implied from conduct
mainly, said conduct must be clearly indicative of a clear
intent of the insurer to waive its right under the policy.
Under estoppel, the insurer is precluded, because of some
action or inaction on its part, from relying on an otherwise
valid defense as against the insured who has been induced to
enter into the contract by the insurer's representation or
conduct.

EXAMPLES:
(1) Other insurance clause violated. — The insurer, knowing
that the insured has violated a clause of the policy
prohibiting the making of other insurances on the same
property without giving notice to the insurer, preferred
to continue the policy by demanding and collecting the
premium. This act constitutes a waiver of the right to
rescind the insurance contract
(2) Premium not paid. — Similarly, an extension of time for
the payment of a premium amounts to a waiver of the
insurer's right to require payment of the premium on the
due date or within the grace period.
Section 74. The violation of a material warranty, or other
material provision of a policy, on the part of either party
thereto, entitles the other to rescind.
Section 75. A policy may declare that a violation of specified
provisions thereof shall avoid it, otherwise the breach of an
immaterial provision does not avoid the policy.
Section 76. A breach of warranty without fraud merely
exonerates an insurer from the time that it occurs, or where it
is broken in its inception, prevents the policy from attaching
to the risk.
Effect of breach of warranty by insured.
(1) Without fraud. — Where there is no fraud, the policy is
avoided only from the time of breach (Sec. 76.) and the
insured is entitled (a) to the return of premium paid at a
pro rata rate from the time of breach (see Sec. 79[b].) if it
occurs after the inception of the contract; or (b) to all the
premiums if it is broken during the inception of the
contract. In the latter case, the contract is void ab initio
and never becomes binding.
(2) With fraud. — Where there is fraud, the policy is avoided
ab initio, and the insured is not entitled to the return of
the premium paid.
Conditions in insurance policy
(1) A condition precedent calls for the happening of
some event or the performance of some act after the
terms of the contract have been agreed upon, before
the contract shall be binding on the parties, such as
that the policy shall not take effect until delivery
and payment of the first premium during the good
health of the applicant.
(2) A condition subsequent is that which pertains not
to the attachment of the risk and the inception of the
policy, but to the contract of insurance after the risk
has attached and during the existence thereof, such
as the condition requiring notice and proof of loss in
case of loss upon an insurance against fire,
17
Insurance Notes
Exceptions in insurance policy - Exceptions are inserted in a
contract of insurance for the purpose of withdrawing from
the coverage of the policy.
EXAMPLE:
If the policy contains warranted statement that the insured
building is occupied, we have an undoubted warranty. If the
policy declares that "this entire policy shall be void if the
insured building be or becomes vacant or unoccupied and so
remained for more than ten days," we have just as clearly a
condition. If the provision is that "this company shall not be
liable for any loss while the insured building is vacant or
unoccupied" we have an unmistakable exception.
TITLE 8: PREMIUM
Section 77. An insurer is entitled to payment of the premium
as soon as the thing insured is exposed to the peril insured
against. Notwithstanding any agreement to the contrary, no
policy or contract of insurance issued by an insurance
company is valid and binding unless and until the premium
thereof has been paid, except in the case of a life or an
industrial life policy whenever the grace period provision
applies, or whenever under the broker and agency
agreements with duly licensed intermediaries, a ninety (90)-
day credit extension is given. No credit extension to a duly
licensed intermediary should exceed ninety (90) days from
date of issuance of the policy.
An insurance premium may be defined as the agreed price
for assuming and carrying the risk — that is, the
consideration paid an insurer for undertaking to indemnify
the insured against a specified peril.
An assessment, in the law of insurance, is a sum specifically
levied by mutual insurance companies or associations, upon
a fixed and definite plan, to pay losses and expenses
The chief distinction, however, between premiums and
assessments lies in the fact that the former are levied and
paid to meet anticipated losses, while the latter are collected
to meet actual losses. The payment of premium, after the
first, is not enforceable against the insured; while
assessments, unless otherwise agreed, are legally enforceable
once levied. Hence, while premium is not a debt, an
assessment, properly levied, unless otherwise expressly
agreed, is a debt.
ILLUSTRATIVE CASES:
1. Balance of premium was not paid.
Facts: On April 1,1960, X Co. (insurer) issued and delivered
to Y Co. (insured) a fire policy for the amount of P300,000.00
for a term of one year. The premium of said policy amounted
to P6,000.00. On September 22,1960, Y Co. paid P3,000.00.
Notwithstanding several demands, Y Co. refused to pay the
balance.

Issue: Did the nonpayment cancel the policy?
Held: No. In this case, the risk attached upon the issuance
and delivery to Y Co. on April 1,1960 of the fire policy. As the
policy was effective for one (1) year, from April 1,1960 to
April 1,1961, the balance of the premium was still collectible.
As the contract had become perfected, the parties could
demand from each other the performance of whatever
obligations they had assumed.
The insurer may deduct the unpaid premium from the
proceeds of the insurance.
2. No premium was paid.
Facts: Suppose, no partial payment of the premium was
made by Y Co. to X Co.
Issue: May X Co. recover the unpaid premium from Y Co.?
Held: No. The continuance of the insurer's obligation is
conditioned upon the payment of the premium, so that no
recovery can be had upon a lapsed policy, the contractual
relation between the parties having ceased. In fact, if the peril
insured against had occurred, X Co., as insurer, would have
had a valid defense against recovery under the policy.
3. The balance of the premium which was only partially paid, was
paid only after the loss has occurred.
Facts: Private respondent X & Co. (insurer) issued a fire
insurance policy in favor of T (insured) on a residential
building for P600,000.00. T only paid P600.00 out of the total
premium of P2,900 thus leaving a considerable balance
unpaid. T paid the balance two (2) days after the insured
building was completely destroyed by fire. The policy
provides for payment of premium in full before the "policy
shall be deemed effective, valid and binding upon the
company."
Issue: Is the fire insurance policy valid and enforceable upon
mere partial payment of premium.
Held: No. The policy provides for payment of premium in
full before the "policy shall be deemed effective, valid and
binding upon the company." By express agreement of the
parties, no vinculum juris or bond of law was to be
established until full payment was effected prior to the
occurrence of the risk insured against.
The insurer may deduct the unpaid premium from the
proceeds of the insurance.
Effect of nonpayment of premium (to summarize)
(1) First premium. — Nonpayment of the first premium
unless waived (see Sec. 78.), prevents the contract from
becoming binding notwithstanding the acceptance of the
application nor the issuance of the policy.
18
Insurance Notes
(2) Subsequent premiums. — Nonpayment of subsequent
premiums does not affect the validity of the contracts
unless, by express stipulation, it is provided that the
policy shall in that event be suspended or shall lapse
Excuses for nonpayment of premium
(1) Fortuitous events. — Even the act of God, rendering the
payment of the premium by the insured wholly
impossible (see Art. 1174, Civil Code.), will not prevent
the forfeiture of the policy when the premium remains
unpaid.
(2) Condition, conduct or default of insurer. — Indeed, no
excuse whatever will avail to prevent a forfeiture except
only when the nonpayment has in some way been
induced by the condition, conduct or default of the
insurer.
Thus, nonpayment is excused where the insurer has become
insolvent and has suspended business, or has refused
without justification a valid tender of premiums.
When policy valid and binding notwithstanding
nonpayment of premium.
(1) In the case of a life or an industrial policy whenever the
grace period provision applies (Sec. 77.);
(2) When there is an acknowledgment in a policy or contract
of insurance of receipt of premium even if there is a
stipulation therein that it shall not be binding until the
premium is actually paid (Sec. 78.);
(3) When there is an agreement allowing the insured to pay
the premium in installments and partial payment has
been made at the time of loss (see Makati Tuscany
Condominium Corp. vs. Court of Appeals, 215 SCRA
463 [1992], infra.);
(4) When there is an agreement to grant the insured credit
extension for the payment of the premium (Art. 1306,
Civil Code.), and loss occurs before the expiration of the
credit term; and
(5) When estoppel bars the insurer from invoking Section 77
to avoid recovery on a policy providing a credit term for
the payment of the premiums, as against the insured
who relied in good faith on such extension.
Section 78. Employees of the Republic of the Philippines,
including its political subdivisions and instrumentalities, and
government-owned or -controlled corporations, may pay
their insurance premiums and loan obligations through
salary deduction: Provided, That the treasurer, cashier,
paymaster or official of the entity employing the government
employee is authorized, notwithstanding the provisions of
any existing law, rules and regulations to the contrary, to
make deductions from the salary, wage or income of the
latter pursuant to the agreement between the insurer and the
government employee and to remit such deductions to the

insurer concerned, and collect such reasonable fee for its
services.
Section 79. An acknowledgment in a policy or contract of
insurance or the receipt of premium is conclusive evidence of
its payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it shall not be
binding until the premium is actually paid.
It must be noted, however, that the conclusive presumption
extends only to the question of the binding effect of the
policy. As far as the payment of the premium itself is
concerned, the acknowledgment is only a prima facie
evidence of the fact of such payment. In other words, the
insurer may still dispute its acknowledgment but only for the
purpose of recovering the premium due and unpaid.
Whether payment was indeed made is a question of fact
Section 80. A person insured is entitled to a return of
premium, as follows:
(a) To the whole premium if no part of his interest in the
thing insured be exposed to any of the perils insured against;
(b) Where the insurance is made for a definite period of time
and the insured surrenders his policy, to such portion of the
premium as corresponds with the unexpired time, at a pro
rata rate, unless a short period rate has been agreed upon and
appears on the face of the policy, after deducting from the
whole premium any claim for loss or damage under the
policy which has previously accrued: Provided, That no
holder of a life insurance policy may avail himself of the
privileges of this paragraph without sufficient cause as
otherwise provided by law.
Section 81. If a peril insured against has existed, and the
insurer has been liable for any period, however short, the
insured is not entitled to return of premiums, so far as that
particular risk is concerned.
Section 82. A person insured is entitled to a return of the
premium when the contract is voidable, and subsequently
annulled under the provisions of the Civil Code; or on
account of the fraud or misrepresentation of the insurer, or of
his agent, or on account of facts, or the existence of which the
insured was ignorant of without his fault; or when by any
default of the insured other than actual fraud, the insurer
never incurred any liability under the policy.
A person insured is not entitled to a return of premium if the
policy is annulled, rescinded or if a claim is denied by reason
of fraud.
Section 83. In case of an over insurance by several insurers
other than life, the insured is entitled to a ratable return of the
premium, proportioned to the amount by which the
aggregate sum insured in all the policies exceeds the
insurable value of the thing at risk.
19
Insurance Notes
When insured entitled to recover premiums.
(1) When no part of the thing insured has been exposed to
any of the perils insured against
(2) When the insurance is for a definite period and the
insured surrenders his policy before the termination
thereof;
(3) When the contract is voidable because of the fraud or
misrepresentations of the insurer or his agent;
(4) When the contract is voidable because of the existence of
facts of which the insured was ignorant without his
fault;
(5) When the insurer never incurred any liability under the
policy because of the default of the insured other than
actual fraud;
(6) When there is over-insurance (Sec. 82.); and
(7) When rescission is granted due to the insurer's breach of
contract.
Recovery of premiums paid is not allowed in life insurance if
the insured surrenders his policy.
The reason is that life insurance is not a divisible contract. It
is not an insurance for a single year, with a privilege of
renewal from year to year by paying the annual premium but
that it is an entire contract of insurance for life subject to
discontinuance and forfeiture for nonpayment of any of the
stipulated premiums.
However, the insured will be entitled to receive the "cash
surrender value" of his policy "after three full annual
premiums shall have been paid
Section 84. An insurer may contract and accept payments, in
addition to regular premium, for the purpose of paying
future premiums on the policy or to increase the benefits
thereof.
TITLE 9: LOSS
Section 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 may be defined as a demand for the satisfaction of a
loss suffered within the purview of an insured's policy.
Before a loss has occurred, an insurance policy, except a life
insurance policy (see Sec. 181.), is not assignable without the
consent of the insurer on the theory that the policy is a
personal contract between the insured and insurer
Section 86. Unless otherwise provided by the policy, an
insurer is liable for a loss of which a peril 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 may be defined as 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.
The word "loss" in insurance law embraces bodily injury,
including death, or property damage or destruction. It also
includes loss of income or profits and legal liability to a third
party.
Meaning of proximate cause.
Proximate 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. It is to be observed that the proximate cause is
the efficient cause — the one that sets others in motion — to
which the loss is to be attributed, although other and
incidental causes may be nearer in time to the result and
operate more immediately in producing the loss.
If the nearest efficient cause of the loss is one of the perils
insured against, the courts look no further; if it is not a peril
insured against, recovery may nevertheless be had if the
dominant cause is a risk or peril insured against.
EXAMPLES:
1. If fire causes an explosion which results in a loss, fire is
the proximate cause of the loss (Scripture vs. Lowell
Mut. Fire Ins. Co., 57 Am. Dec. 11.) while explosion is the
immediate cause. The insurer is liable where either peril
is covered by the policy.
2. If a house is insured against fire and it is damaged by the
falling of a wall of a neighboring building (a peril not
contemplated by the contract) which is on fire, the fire is
the proximate cause although no part of the insured
house is actually on fire.
Hostile and friendly fires explained.
(1) When fire a friendly fire. — So long as a fire burns in
place where it was intended to burn, and ought to be, it
is to be regarded as merely an agency for the
accomplishment of some purpose and not as a hostile
peril. It is a friendly fire.
The principle underlying these cases is simply that the policy
shall not be construed to protect the insured from injury
consequent upon his negligent use or management of fire, so
long as it is confined to the place where it ought to be.
(2) When fire a hostile fire. — It is hostile when it occurs
outside of the usual confines or begins as a friendly fire
and becomes hostile by escaping from the place where it
ought to be to some place where it ought not to be.
20
Insurance Notes
Section 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.
In this article the insurer is liable in two cases
(1) Where the loss took place while being rescued from
the peril insured against –
The insurer is liable where the insured is permanently
deprived of the possession, in whole or in part, of the thing
insured by a peril not insured against provided it is shown
that said property would have been lost by the peril insured
against had there been no attempt to rescue it. Thus, the 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.
(2) Where the loss is caused by efforts to rescue the
thing insured from a peril insured against
Thus, damages to goods by being trampled on or thrown
about in the efforts to put out the fire are covered by the
policy of fire insurance.
Section 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 although the immediate cause
of the loss was a peril which was not excepted.
Thus, in a fire insurance policy which excludes loss through
explosion, if an explosion occurs first and causes a fire which
results in a loss, the insurer is not liable. In his case, the
proximate cause of the loss is "explosion" which is an
excepted peril; "fire" is the immediate cause but not the
"proximate cause."
However, if a hostile fire occurs and causes an explosion,
then, "fire" is the proximate cause and the insurer is liable for
the loss caused by the "explosion" notwithstanding the
exception.
Section 89. An insurer is not liable for a loss caused by the
willful act or through the connivance of the insured; but he is
not exonerated by the negligence of the insured, or of the
insurance agents or others.
Thus, when the insured intentionally burns the insured
goods and submits fraudulent proof of loss, the policy is
avoided.
Loss caused by negligence of insured - it is a basic rule in
insurance that the carelessness and negligence of the insured
or his agents constitute no defense on the part of the insurer.

But gross negligence or recklessness on the part of the
insured, the consequence of which must have been palpably
obvious to him at the time, will relieve the insurer from
liability.
TITLE 10: NOTICE OF LOSS
Section 90. In case of loss upon an insurance against fire, an
insurer is exonerated, if written notice thereof be not given to
him by an insured, or some person entitled to the benefit of
the insurance, without unnecessary delay. For other non-life
insurance, the Commissioner may specify the period for the
submission of the notice of loss.
Section 91. When a preliminary proof of loss is required by a
policy, the insured is not bound to give such proof as would
be necessary in a court of justice; but it is sufficient for him to
give the best evidence which he has in his power at the time.
Conditions after the loss
1. Written notice – within reasonable time
2. Proof of loss
Excuses for non-compliance with conditions
Failure to give notice and proof of loss will be excused when
it is due to the death or incapacity of the insured or the fact
that the beneficiary had no knowledge of the existence of the
policy of the insured who died before the fire.
Section 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.
It is the duty of the dissatisfied insurer to indicate the defects
in the proofs of loss as given, so that the deficiencies may be
supplied. His retention of the defective proofs constitutes a
waiver of his objections.
Section 93. Delay in the presentation to an insurer of notice
or proof of loss is waived if caused by any act of him, or if he
omits to take objection promptly and specifically upon that
ground.
When delay in presentation of notice or proof deemed
waived.
An insurance company, by accepting payment of premium
with full knowledge that the premises had been injured or
destroyed by fire, is estopped from claiming that notice of the
fire was not given forthwith to the insurer by the insured as
required by the terms of the policy
Section 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
21
Insurance Notes
to the insurer that such refusal was not induced by any just
grounds of disbelief in the facts necessary to be certified or
testified.
TITLE 11: DOUBLE INSURANCE
Section 95. A double insurance exists where the same person
is insured by several insurers separately in respect to the
same subject and interest.
In double insurance, there is co-insurance by two or more
insurers; hence, it is also known as "co-insurance.
Requisites of double insurance.
(1) The person insured is the same;
(2) Two or more insurers insuring separately;
(3) The subject matter is the same;
(4) The interest insured is also the same; and
(5) The risk or peril insured against is likewise the same.
Double Insurance Over-insurance
There can be no over- The amount of insurance
insurance exceeds the value of the
insured property
Several insurers There can only be one
insurer.
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. Invariably, policies of fire insurance contain a
stipulation or condition that they shall be avoided if
additional insurance is procured on the property without the
insurer's consent.
Purpose of prohibition against double insurance.
The purpose of the prohibition against double insurance is to
prevent over-insurance and thus avert the perpetration of
fraud. The public, as well as the insurer, is interested in
preventing the situation in which a loss would be profitable
to the insured.
Section 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
 22
Insurance Notes

policy shall be deducted from the value of the policy without A contract of reinsurance is a contract whereby one party,
regard to the actual value of the subject matter insured; the reinsurer, agrees to indemnify another, the reinsured
(original insurer), either in whole or in part, against loss or
(c) Where the policy under which the insured claims is an liability which the latter may sustain or incur under a
unvalued policy, any sum received by him under any policy separate and original contract of insurance with a third party,
shall be deducted against the full insurable value, for any the original insured. It has been referred to simply as "an
sum received by him under any policy; insurance of an insurance"
(d) Where the insured receives any sum in excess of the The reinsurance of a reinsurance is called retrocession.
valuation in the case of valued policies, or of the insurable
value in the case of unvalued policies, he must hold such It is obvious that in order that there may be a contract of
sum in trust for the insurers, according to their right of reinsurance, it is necessary that there is an original contract of
contribution among themselves; insurance; and since a contract of reinsurance like any other
contract of insurance must be supported by an insurable
(e) Each insurer is bound, as between himself and the other interest, it is likewise clear that reinsurance may not be for a
insurers, to contribute ratably to the loss in proportion to the greater amount than the original insurance, although it may
amount for which he is liable under his contract. be easily for a less amount.
As the contract of insurance is a contract of indemnity (Sec. Reinsurance Double Insurance
18.), the insured can recover no more than the amount of his The insurer becomes the The insurer remains the
insurable interest whether the insurance is contained in one insured insurer of the original
policy or in several policies insured
The subject is the original The subject of the insurance
EXAMPLE
insurer’s risk is property
A owns a house valued at P180,000.00 and he insures the An insurance of different Insurance of the same
interest interest
same with three insurance companies as follows:
the original insured has The insured is the party in
X Company- P60,000.00 no interest in the contract of interest in all the contracts
reinsurance which is
Y Company - 180,000.00 independent of
the original contract of
Z Company - 240,000.00 insurance
Consent of the original The insured has to give his
If the house is totally burned, A, unless the policies otherwise
insured is not necessary consent
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. Thus, A may demand indemnity first from Section 98. Where an insurer obtains reinsurance, except
X company but the latter is liable only to the extent of under automatic reinsurance treaties, he must communicate
P60,000.00, the amount specified in its policy. But if A elects all the representations of the original insured, and also all the
to claim payment first from Z company, A cannot recover knowledge and information he possesses, whether
more than P180,000 which is the value of his insurable previously or subsequently acquired, which are material to
interest. A, may collect P60,000.00 from each of the insurers, the risk.
or P180,000.00 only from Y company and nothing from X
company and Z company. Duty of reinsured to disclose facts.

The exception allowed by law (i.e., "unless the policy
otherwise provides") applies where the policy contains what
is generally referred to as the contribution clause which
stipulates that the insurance company shall not be liable to
pay or contribute more than its ratable proportion of the loss
or damage,
TITLE 12: REINSURANCE
Section 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.
Where an underwriter is seeking to insure his risks, his duty
to disclose all material facts is no less than the similar duty
imposed on a person seeking an original insurance; the duty
in both cases is one of the strictest good faith. Thus, a policy
may be avoided where the reinsured conceals the fact that a
loss has taken place or that the property is over-insured
where he has knowledge thereof.
Automatic and facultative methods of ceding reinsurance.
The rule in Section 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)
 23
Insurance Notes

and the reinsurer is obligated to accept a fixed share of the

risk which has to be reinsured under the contract.

In a 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. But once the share is accepted, the obligation is
absolute and the liability assumed thereunder can be
discharged by one and only way — payment of the share of
the losses. There is no alternative or substitute prestation.

Reinsurance treaty distinguished from reinsurance policy.

A reinsurance policy is a contract of indemnity one insurer

makes with another to protect the first insurer from a risk it
has already assumed x x x. In contradistinction, a reinsurance
treaty is merely an agreement between two insurance
companies whereby one agrees to cede and the other to
accept reinsurance business pursuant to provisions specified
in the treaty.

Reinsurance treaties and reinsurance policies are not

synonymous. Treaties are contracts for insurance;
reinsurance policies or cessions x x x are contracts of
insurance."

Section 99. A reinsurance is presumed to be a contract of

indemnity against liability, and not merely against damage.

Therefore, it is by no means necessary that the insurer shall

first have paid a loss accruing, as a condition precedent to his
demanding payment of the reinsurer.

In fact, the insolvency of the insurer, which precludes him

from fulfilling in full the obligation incurred to the insured
under the original policy, does not in any wise affect the right
of the insurer to demand payment in full under the policy of
reinsurance and this is true even if the original insured
should decide not to enforce his claim against the insurer

Section 100. The original insured has no interest in a contract

of reinsurance.

But the contract of reinsurance may contain a provision

whereby the reinsurer binds himself to pay to the
policyholder any loss for which the insurer may become
liable. Therefore, the reinsurer who has promised to pay the
losses accruing under the original policy will be liable to a
suit by the original insured under the contract of reinsurance