COPY FOR INSURANCE LAW BLOCKS A AND B

COVERAGE OF FINAL EXAMS IS UP TO ARTICLE 186

XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
Insurance Laws – Lecture Notes
 Insurance Law (2 units, M/W; T/TH), 36 hours less 4 hours for anticipated non-
meeting days on mid-term and final examination weeks or net of 32
hours/meetings;
 448 Sections; 801 pages;
 Reading preparation, 14 sections per meeting; 25 pages per meeting;
 Note cases assigned for reading/class discussions; this will also take time
from class hours, so the reading plan can be 15 sections or 25 pages for each
day of meeting;
 Grading

1st Half MT Grade 2nd Half Final Grade

MT Exam % Equivalent Final Exam % Equivalent Ave. of MT &
-100 pts. @ 50% -100 pts. @ 50% Final Exam
passing passing
Eg.
100 100% 100 100% 100% or 1.00
50 75% 50 75% 75% or 3.00
Adjustment: possible adjustment of the computed grade by 1 or 2 grade
levels up considering class participation/recitation/attendance; quizzes;
assigned works; generally, there will be no downward adjustments except
when the accumulated absences require the student to be dropped or given a
grade of 5.0;

 All students attending the course are held responsible for reading the
assigned primary reference book, the statutory provisions and all the
commentaries/annotations contained in the book on their own, outside of
classes and in preparation for class discussions;

 Class seating plan;

 Students are advised to have printed copies of the book and make
appropriate markings on the book; digital/electronic copies can be helpful
supplements as when they enable reading under various circumstances but
are not a substitute to a printed book;
Primary reference: The Insurance Code of the Philippines Annotated by Hector S. De
Leon And Hector M. De Leon, Jr., 2014 Edition, published by Rex Book Store;
Assignment, General Provisions, pp. 1 to 64;

 The Insurance Code of the Philippines (PD No. 612, as amended by R.A. No.
10607)

 An insurance contract is a special contract governed by special laws on

insurance contracts; insurance matters not provided for by special law specials
laws on insurance are governed by provisions of the New Civil Code on
insurance matters;

 Need to know whether a given contract is an insurance contract or not; if it is a

contract is an insurance contract then it will governed by the provisions of the
special laws on insurance contracts; if it is not an insurance contract, then it will
be subject to the provisions of other applicable laws;

 E.g., ABC Corp. undertakes to pay B, a lender, in case a loan granted by B to C is

not paid as promised; is it a contract of insurance; is it governed by the
insurance code; if it is deemed an insurance contract, then under Sec. 193* of
the Insurance Code; if the undertaking is not deemed an insurance contract,
then it will not be subject to the provisions of the Insurance Code but to the
provisions of the NCC on contracts of guaranty;

*"Section 193. No insurance company shall transact any insurance business in the
Philippines until after it shall have obtained a certificate of authority for that purpose from
the Commissioner upon application therefor and payment by the company concerned of
the fees hereinafter prescribed.

 Note the importance of knowing what is an insurance contract as contemplated

under the Insurance Code;

 The applicable law provides for the definition of contract; what are the essential
elements of said contract; who are the parties to the contract; what are the
rights and obligations of the parties; what are the remedies of the parties in
case of violation of the contract; what requirements are required by the law to
be complied with; what are the effects in case of non-compliance, etc.;

 Insurance contract, as defined under the Insurance Code:

"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.

 Historical origin of insurance;

o Mutual insurance is as old as society itself; based on principle of aiding

another from a loss caused by an unfortunate event; writers note the
existence of benevolent societies organized for the purpose of extending
aid to unfortunate members from a fund contributed by all in the
Egyptians, Chinese, Hindus, Romans and Greeks as early as the 3rd
century before Christ;

o Origin of present day insurance (as an important agency to promote

commercial and industrial transactions) is attributed to the merchants of
Italian cities; mutual agreements were found among merchants of the
 Italian cities in the early middle ages engaged in common shipping Commented [rc1]: s
ventures for distributing among the mutual contractors the loss falling
upon any member by reason of the perils of navigation;

o From Italy, the practice of insuring commercial ventures against disasters

spread to other maritime states of Europe; Italian merchants (known as
Lombards) founded trading houses in London and brought the custom
of insuring against the hazards of trade; questions of insurance were
submitted to courts of merchants that were established among
themselves, resolving issues in accordance with the customs of
merchants;

o 1601, passage of the first English Insurance Act, special court was
established for the trial of marine insurance controversies; later all
questions involving insurance were determined by England’s common
law courts;

o In the United States, different kinds of insurance developed as like those

in England; but the US insurance industry has grown to such an extent
that (with the exception of ocean marine insurance) the English practices
and decisions have little influence on insurance in the United States;

20190708 MONDAY xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

o In the Philippines, insurance in its modern sense did not exist prior to the
19th century (1801 to 1900); in the pre-Spanish times, the family aided a
family member who suffered misfortune; the practice of providing
assistance extended as communities developed, mutual benefit societies
and fraternal organizations got organized to render assistance to their
members; economic reasons (low per capita income of the people) and
the fatalistic philosophy (as expressed in their “bahala na” attitude) are
pointed to as reasons for the slow and late development of insurance in
the Philippines;

 1829, insurance in its present concept was introduced in the

Philippines when Lloyd’s of London appointed a representative in
the Phil.; 1839, the Union Insurance Society of Canton appointed
an agent in Manila; the business transacted was limited to non-
life insurance; life insurance was introduced only in 1898 with the
entry of Sun Life Assurance of Canada;

 1906, first domestic non-life insurance company was organized;

  1910, first domestic life insurance company (Insular Life Assurance
Co., Ltd.) was organized;

 1936, social insurance was established with the creation of GSIS

covering government employees;

 1949, a government agency was formed to handle insurance

affairs; the Insular Treasurer was appointed Commissioner ex-
officio;

 1950, Reinsurance was introduced;

 1951, first workmen’s compensation pool (Royal Group

Incorporated) was organized;

 1954, SSS was organized covering employees of the private sector;

 Development of insurance laws in the Philippines

o Spanish period, provisions concerning insurance in the Philippines were

found in the Code of Commerce and in the Old Civil Code;

o 1915, American regime, the Insurance Act (Act. No. 2427) took effect; the
provisions of the Code of Commerce on insurance were repealed;

o 1950, Civil Code of the Philippines; the provisions of the old Civil Code
on insurance were repealed;

o 1974, PD No. 612, the Insurance Code, became effective and repealed the
Insurance Act (Act. No. 2427) which previously were amended by PD Nos.
63, 123 and 317;

o 1978, PD No. 1460 consolidated all insurance laws into a single code
known as The Insurance Code of 1978; it basically re-enacted PD No.
612, as amended (by PDs Nos. 1814 and 1981 and BP Blg. 874);

o August 15, 2013, R.A. No. 10607 was approved, entitled “ AN ACT
STRENGTHENING THE INSURANCE INDUSTRY, FURTHER AMENDING
PRESIDENTIAL DECREE NO. 612, OTHERWISE KNOWN AS "THE
INSURANCE CODE", AS AMENDED BY PRESIDENTIAL DECREE NOS. 1141,
1280, 1455, 1460, 1814 AND 1981, AND BATAS PAMBANSA BLG. 874, AND
FOR OTHER PURPOSES;
 Section 1. Presidential Decree No. 612, as amended, is hereby further amended to read
as follows:

"GENERAL PROVISIONS
"Section 1. This Decree shall be known as ‘The Insurance Code’.”

 "Section 446. Repealing Clause. – Except as expressly provided by this

Code, all laws, decrees, orders, rules and regulations or parts thereof,
inconsistent with any provision of this Code shall be deemed repealed,
amended or modified accordingly.;

 Laws governing insurance in the Philippines

o The law on insurance is now contained in

 The Insurance Code (PD No. 612, as amended by PD No. 1141,

1280, 1455, 1460, 1814 and 1981, BP Blg. 874, and R.A. No. 10607);

 special laws;

 and, partly, in the pertinent provisions of the Civil Code;

o Insurance contracts are governed primarily by the Insurance Code, but if

it does not specifically provide for a particular matter in question, the
provisions other special laws and the Civil Code shall govern;

o Art. 2011 of the Civil Code provides: “The contract of insurance is

governed by special laws. Matters not expressly provided for in such
special laws shall be regulated by this Code.”

o Among the special laws on insurance are:

 The Insurance Code (PD No. 612, as amended);

 The Revised GSIS Act of 1977 (PD No. 1146, as amended);
covering insurance of government employees;
 The Social Security Act of 1954 (R.A. No. 1161, as amended);
covering employees in the private sector;
 Others – Property Insurance Law for government property; life,
disability and accident insurance coverage for barangay officials;
insurance benefits of barangay officials and members of
Sangguniang Panlalawigan, Sangguniang Panglungsod and
Sangguniang Bayan; PDIC ;
 Note – Our Insurance Code was based on California and New York laws. When
a statute has been adopted from some other state or country and said statute
has previously been construed by the courts of such state or country, the
statute is deemed to have been adopted with the construction given. (Footnote
No. 21 in Philippine Health Providers, Inc. v. CIR, GR No. 167330, 9.18.2008,
citing a number of cases).

 Right of subrogation of the insurer to the rights of the insured against the
wrongdoer

o Subrogation is the substitution of one person in place of another with

reference to a lawful claim or right;

o Subrogation takes place by operation of law; after the insurer pays the
amount covered by the insurance policy, the insurer steps into the shoes
of the insured and can avail itself of the rights of the insured against the
wrongdoer;

Subrogation does not depend on contract or written assignment of claim

by the insured in favor of the insurer; it accrues simply upon payment of
the insurance claim by the insurer (see cases, p. 10);

o The purpose of subrogation is to make the person who caused the loss
to be legally responsible for the loss caused by him and not be free from
liabilities; and to prevent the insured from receiving a double recovery
(from the wrongdoer and from the insurer);

o Article 2207 of the Civil Code (Title on Damages).

If the plaintiff's property has been insured,
and he has received indemnity from the insurance company
for the injury or loss arising out of the wrong or breach of contract complained of,
the insurance company shall be subrogated
to the rights of the insured against the wrongdoer
or the person who has violated the contract.
If the amount paid by the insurance company does not fully cover the injury or loss,
the aggrieved party shall be entitled
to recover the deficiency from the person causing the loss or injury.

o There is wealth of jurisprudence that whenever the wrongdoer settles

with the insured without the consent of the insurer and with knowledge
of the insurer’s payment and right of subrogation, the insurer’s right to
subrogation is not defeated by the settlement entered into by the
wrongdoer with the insured (Danza’s Corporation v. Abrogar, 2006, p.
9);
 o The right of subrogation applies only to property insurance and not to
life insurance; what does this mean; what is the implication; does it
mean the victim (insured) can file an action against the wrongdoer for
damages despite receipt of payment from an insurer under some life
insurance policy; apparently yes, because whatever recovery the victim
may have from the wrongdoer in addition to the amount received from
the insurer cannot really be viewed as more than adequate because the
value of life is regarded as unlimited; life insurance contracts are not
ordinary contracts of indemnity (unlike property insurance, where the
insured is not intended to gain out of the insurance but merely to be
indemnified for the loss);

20190710 WEDNESDAY/BLOCK A XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

Note the case of a life insurance policy which is taken by a creditor (or
by the insured pursuant to agreement with the insurer) to secure a
debt, the pecuniary value involved is determined in such case; other
than this, the pecuniary value of life to the beneficiary of a life
insurance can seldom be determined with accuracy;

o Note (re matter or evidence), the presentation of the insurance policy is

not indispensable for the recovery by the insurer; the subrogation
receipt is sufficient to establish the relationship of the insured and the
insurer and the amount paid to settle the insurance (Delsan Transport
Lines, Inc., 2011, etc., p. 10);

o Case, the insurer paid the insured for a loss which was not a risk
covered by the policy (a voluntary payment by the insurer); there is no
right of subrogation for said payment against the third party liable for
the loss;

Note, Article 1236 NCC. [“The creditor is not bound to accept payment or
performance by a third person who has no interest in the fulfillment of the
obligation, unless there is a stipulation to the contrary.]

“Whoever pays for another may demand from the debtor what he has paid,
except that if he paid without the knowledge or against the will of the debtor, he
can recover only insofar as the payment has been beneficial to the debtor.
(1158a)”

o The insurer cannot compel the insured to seek indemnity elsewhere,

such as by claiming that it is a third person wrongdoer who is legally
obliged to pay indemnity to the victim (insured); the insurer must pay
 (if the claim is proper) and under the law he is subrogated to the right
of the insured against the third party wrongdoer;

o Under an insurer’s right of subrogation, the insurer can recover only the
amount recoverable by the insured from the party responsible for the
loss; the insurer cannot recover in full the amount it paid to the
insured if it is greater than that to which the insured could lawfully
claim against the person causing the loss (Rizal Surety & Insurance Co.,
1968, p.11);

o Neither can the insurer recover an amount more than it paid to the
insured; (under the law, the insured can recover the deficiency from
the wrongdoer; this happens in case of under-insurance);

o Limitations to the right of subrogation

 In case the goods insured are covered by a bill of lading, both

the insurer and the consignee (insured) are bound by the
contractual stipulations under the bill of lading; the insurer can
be subrogated only to the rights as the insured may have
against the wrongdoer; if as stipulated, the insured cannot
recover from the shipper in case of certain loss, the insurer
cannot lay claim against the carrier even if it paid the insured
indemnity for the loss under the terms of the policy;

 In case the insured, after receiving payment from the insurer,

released by his own act the wrongdoer or third person
responsible for the loss or damage from liability, the insurer
loses his right against the wrongdoer; but, for defeating the
insurer’s right of subrogation, the insured is under obligation to
return to the insurer the amount paid to him by the insurer;
under Art. 2207 NCC, the insurer is the real party in interest with
regard to the portion of the indemnity paid because the insurer
is subrogated to the rights of the insured with respect to said
amount (Manila Mahogany Manufacturing Corp., 1987, etc., p.
12);

 Where the insurer pays the insured the value of the lost goods
without notifying the carrier who has in good faith settled the
claim for the loss of the insured, the settlement is binding on
both the insured and the insurer; the insurer cannot bring an
action against the carrier based on his right of subrogation (Pan
 Malayan Corp. v, CA p. 12) – [read the circumstances in this
case];

 Where the insured (shipper/consignee of goods shipped) has

assigned its rights against the defendant (carrier of goods) for
damages caused to the cargo shipped to the insurer which paid
for the damages under an insurance contract, the case is not
between the insured and the insurer but one between the
shipper/consignee because the insurer merely stepped into the
shoes of the shipper;

 And if the shipper/consignee has a direct cause of action against

the carrier on account of damages to the cargo, such action can
be asserted by the insurer as a subrogee of the insured and the
carrier cannot set up as defense any defect in the insurance
policy because it is not a privy to the contract of insurance
(Compania Maritima, 1964, p. 13);

 Applicability of the Civil Code to insurance contracts; if the Insurance code or

other special laws on insurance do not specifically provide for a particular
matter in question, the provisions of the Civil Code regarding contracts shall
govern; note the following cases;

o Arts. 1330 and 1131 NCC were applied where the insurance company’s
consent was vitiated by error (Lucero Vda. De Sindayen, 1935, p. 13);

o Art. 1319, par. 2 NCC was applied in a case holding that the contract for
a life annuity was not perfected where the acceptance of the
application by the home office of the insurer never came to the
knowledge of the applicant who died (Enriquez v. Sun Life Assurance
Co. of Canada, 1920, p. 13);

o Art. 1353 NCC, an insurance contract was held null and void where the
consideration is false or fraudulent (Musngi, p. 13);

o Art. 1385 NCC, the rule imposing the obligation of mutual restitution in
rescission of contracts was applied in a case of rescission of an
insurance contract; the Insurance Code has no provision regarding the
matter;
 o Art. 2012 in relation to Art 739 NCC were applied in disqualifying a
common-law wife from becoming a beneficiary (The Insular Life
Assurance Co., 1977, p14); the Insurance Code had no provision on the
matter;

o The award of moral and exemplary damages in case of unreasonable

delay in the payment of insurance claims are governed by the
provisions of the NCC on damages (Zenith Insurance Corporation,
1990, p.14);

 Construction of the Insurance Code; interpretation is allowed where the

provisions are not clear;

o Our Insurance Code was based on California and New York laws. When a
statute has been adopted from some other state or country and said
statute has previously been construed by the courts of such state or
country, the statute is deemed to have been adopted with the
construction given. (Footnote No. 21 in Philippine Health Providers, Inc.
v. CIR, GR No. 167330, 9.18.2008, citing a number of cases; Cerezo, 1916,
p. 14);

o The rules enunciated by the best considered American authorities

involving similar provision of the Philippine law on insurance should be
adopted for the purpose of having our law on insurance conform as
nearly as possible to the modern law of insurance as found in the
United States proper (Gercio, 1925, etc. p. 15);

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.

Notes
 Insurance is a type of contract, defined in Sec. 2 of the Insurance Code; the
provision also state acts which will constitute “doing an insurance business”
or “transacting an insurance business”;

 As used in the code “insurance” covers “assurance”; the term assurance is

less used; many modern writers used “assurance” to describe life insurance
business (where there is reference to event like death which must happen)
and “insurance” where reference is to a contingent event which may or may
not happen;

 Comment on the definition; it does not make a proper reference to life

insurance; life insurance is a contract upon condition rather than to
indemnify; no recovery can fully repay for loss of life which is beyond
pecuniary value;
  A suggested definition to comprehend life insurance;
“a contract of insurance is an agreement
by which one party (insurer)
for a consideration (premium) paid by the other party (insured),
promises to pay money
or its equivalent
or to do some act valuable to the latter (or his nominee),
upon the happening of a loss, damage, liability, or disability
arising from an unknown or contingent event” (Vance, p. 83);

Compare Sec. 2 of the Insurance Code;

“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 written insurance contract is called a “policy”;

 Elements of an insurance contract;

o Subject matter; refers to the thing insured; in fire insurance and

marine insurance, the thing insured is the property; in life, health or
accident insurance, it is the life or health of the person insured; in
casualty insurance, it is the risk of loss or liability for the insured;

JULY 22, 2019 MONDAY INSURANCE A XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

o Consideration; the premium paid by the insured; the amount of

premium is principally based on the probability of loss and the extent
of liability undertaken by the insurer;

o Object and purpose; the transfer and distribution of risk of loss,

damage, or liability arising from an unknown or contingent event
through the payment of a consideration by the insured to the insurer
under a contract to reimburse the insured for losses suffered on the
happening of the stipulated event;
 o As in other contracts, in insurance contract there must be an offer
and an acceptance of the offer; the parties must have legal capacity
to enter into the contract; the requirements for the enforceability of
contracts must be complied with;

 Nature and characteristics of an insurance contract;

o Consensual; perfected by the meeting of minds of the parties;

o Voluntary; not compulsory; parties may incorporate such terms and

conditions as they may deem desirable and convenient, provided
they do not contravene the provisions of law and are not contrary to
public policy;

 Note the instances where the law requires the insurance

(motor vehicles, employees, as conditions for the grant of
license to conduct certain businesses affecting public safety or
welfare);

 An insurance may arise by operation of law; US case, War

Damage Corporation Act, regarding payment of compensation
without requiring a contract of insurance; social insurance
(GSIS, SSS) established by law;

o Aleatory; depending upon some contingent event; but not a

contract of chance; each party must take a risk (the insurer being
compelled to pay upon the happening of the contingency; the
insured being obliged to pay premium even if the contingency does
not happen;

o Executed on the part of the insured after the payment of premium;

executory on the part of the insurer until payment for a loss; after
the payment of the premium by the insured, the contract may be
viewed as unilateral, imposing legal duties only on the insurer who
promises to indemnify the insured in case of loss;

o Conditional; the performance of the obligation is subject to

conditions – happening of the event, performance of certain other
acts (notice of loss, etc.);

o Contract of indemnity; except in life and accident insurance where

death happens; in property insurance, the promise of the insurer is
to make good only the loss of the insured;
 A contract that contemplates possible gain to the insured upon the
happening of the event which fixes the liability of the insurer is
contrary to the nature of insurance; a person cannot secure
insurance upon property in which he has no insurable interest, such
contract will be void as being contrary to public policy; it affords
temptation to the insured to bring about the happening of the loss;

o Personal contract; the contract has in view the character, credit and
conduct of the other; in property insurance, the insured cannot
assign his right in the policy (before the happening of the loss) to
others without the consent of the insurer; life insurance policies are
generally assignable as they are in the nature of property;

 Distinguishing elements of the contract of insurance;

o The insured possesses an interest of some kind susceptible of

pecuniary estimation; known as the insurable interest;

o The insured is subject to a risk of loss through the destruction or

impairment of the interest of the insured by the happening of the
designated perils;

o The insurer assumes the risk of loss;

o The assumption of risk is part of a general scheme to distribute

actual losses among a large group or substantial number of persons
bearing similar risks;

o As consideration for the undertaking of the insurer, the insured

makes a ratable contribution (premium) to a general insurance fund;

 All the elements must be present to be an insurance contract; and even if

the contract contains all the elements, it is not an insurance contract 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;

 Classifications of insurance contracts under the Insurance Code;

o Life insurance contracts

 Individual life (Secs. 181-186; 233);
 Group life (Secs. 50, 234)
 Industrial life (Secs. 235-237);
 o Non-life insurance contracts
 Marine (Secs. 101-168);
 Fire (Secs. 169-175);
 Casualty (Sec. 176);

o Contracts of suretyship or bonding (Secs. 177-180); p. 43;

[See video - business insurance_a quick_easy overview];

 The general definition in Sec. 2 IC can cover any kind of loss, damage or
liability arising from unknown or contingent event; as long as there is no
prohibition by a statute or violation of public policy;

General concepts

The Parties

Parties to an insurance contract

 Insurer – undertakes to indemnify the insured against loss, damage or liability
arising from an unknown or contingent event;
 Insured/Assured – the owner of the policy whose property or life is insured;
some authors use the term assured in referring to life insurance (where the risk
involved is an event that is certain to happen, i.e. death, unlike in other
contracts of insurance); the term insurance covers assurance;
 (3rd party – beneficiary); party to whom the proceeds of insurance is made
payable; the beneficiary may or may not be a party to the original insurance
contract;

Beneficiary
o May be a party to the contract (as when the insured designates himself as
beneficiary) or a third person (not a party to the contract);

o Designation of third person as beneficiary may be based on the sole will of the
insured or be required by a separate agreement (as in the case of a mortgagee);

o Beneficiary has the right to file an action against the insurer in case of loss; no
other party can recover the proceeds other than the beneficiary;

o See Sec. 53 - "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.

o
July 29, 2019 Monday

o In life insurance, designated beneficiary (if valid) is entitled to the proceeds, not
the heirs; not the estate of the person whose life is insured; proceeds are the
separate and individual property of the beneficiary;

o An heir may be designated as beneficiary, in which case the proceeds

belong exclusively to said heir, not to the estate of the deceased;

o It is immaterial if the insured or the beneficiary pays the premium;

o It is required that the cestui (the person on whose life the insurance is
written) shall take the initiative in procuring the policy;

o Mere fact that the beneficiary pays the premium does not make the
contract void;

o Where the proceeds are to go to some third person, neither the cestui
(the person on whose life the insurance is written) nor the person who
pays the premium, the transaction is a gift by the person paying the
premiums and is unobjectionable;

o Where a beneficiary who pays the premium is to receive a substantial

part of the proceeds and the balance to a person who pays nothing,
transaction may be a gift by the beneficiary paying the premium;
 o Weight of authority – mere payment of premiums by the beneficiary
(who has no interest) upon a policy procured by the cestui does not ipso
facto render the policy void;

o In a number of cases, where A procured a policy upon his life and made
the proceeds payable to B who had no interest in A’s life and who agreed
to pay all the premiums, the court held the transaction to be a pure
wager and denied B the right to the proceeds; not clear if payment of
the premiums by B the beneficiary was a wager per se as making the
contract void or whether it was regarded as strong evidence that the
beneficiary was the active and moving party in the transaction;

o The real issue is whether or not the beneficiary took the initiative in
procuring the policy;

o Payment of premium by the beneficiary is not conclusive, but taken with

the surrounding circumstances, it may produce an irresistible inference
that the cestui was but a tool in the hands of the beneficiary;

July 31, 2019 Wednesday Block A

o Note that under the law, it is required that a person taking a life
insurance policy on the life of another person must have an insurable
interest over the life of that person; a third person who does not have
such insurable interest cannot procure a life insurance over the life of
that person;

o In property insurance, the insured-beneficiary, having insurable interest, is

entitled to the proceeds of the premium although he is not the owner of the
property;

 Policy of insurance is a distinct and independent contract between the

insured and the insurer, and third persons have no right to the proceeds
of the insurance, unless there be some contract or trust (expressed or
implied) between the insured and such third persons (Lampano v. Jose);

 Where different persons have different interests in the same

property (subject of the insurance), the insurance taken by one in
his own right and in his own interest does not in any way inure to
the benefit of another;

 In a case cited in the Aquino textbook (Shadgett v. Philips and

Crew Co.), a wife (Mrs. Shadgett) got a piano as a gift from her
 husband and she insured the piano for her benefit; she knew that
it was the obligation of her husband to insure the piano for the
benefit of the vendor; upon the loss of the piano, the vendor
claim entitlement to the proceeds of the insurance; the court held
that the vendor was not entitled; there was no undertaking on the
part of the part of Mrs. Shadgett to insure the piano for the
vendor’s benefit or to assume her husband’s obligation to insure
the piano for the vendor’s benefit; mere knowledge of husband’s
obligation to insure the piano did not impose that obligation on
her; strangers to the contract cannot acquire in their own right
any interest in the insurance money, except through an
assignment or some contract with which they are connected;

o Insurer has no obligation to turn over the proceeds of the insurance to

third persons even if the third persons are immediate relatives if there is
a designated beneficiary (Heirs of Loreto C. Maramag v. Eva Verna De
Guzman Maramag, et al. p. 57);

 The only persons entitled to claim the insurance proceeds are

either the insured, if still alive; or the beneficiary, if a beneficiary is
designated; the exception to this rule is where the insurance
contract was intended to benefit third persons in the form of
favourable stipulation or indemnity; in such case, third persons
may directly sue and claim from the insurer;

o If there is no beneficiary (or the designation is void), the proceeds shall

form part of the estate of the deceased insured; succession shall apply;

o In case of death of owner-beneficiary, see Sec. 3 – xxx "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
[i.e the person whose life or health is insured] upon the death of the
original owner, unless otherwise provided for in the policy.”; note that if
there is another person designated as beneficiary, the proceeds shall go
to the designated beneficiary;

 Problem – a person insured his own life and designated another

person as beneficiary and both died in the same incident;

 Rules on survivorship shall apply; if the persons involved

are not heirs of each other, Rule 131, section 3(jj) of the
Rules of Court shall apply; if they are heirs of each other,
 the provisions of Art. 43 of the NCC on survivorship of heirs
shall apply;

 Rule 131, Sec. 3;

(jj) That except for purposes of succession, when two

persons perish in the same calamity, such as wreck,
battle, or conflagration, and it is not shown who died
first, and there
are no particular circumstances from which it can be can be
inferred, the survivorship is determined from the
resulting the strength and age of
the sexes, according to the following rules:

1. If both were under the age of fifteen years, the older is

deemed to have survived;

2. If both were above the age of sixty, the younger is

deemed to have survived;

3. If one is under fifteen and the other above sixty, the

former is deemed to have survived;

4. If both be over fifteen and under sixty, and the sex be

different, the male is deemed to have survived; if the sex
be the same, the older;

5. If one be under fifteen or over sixty, and the other

between those ages, the latter is deemed to have
survived.

 Article 43. If there is a doubt, as between two or more

persons who are called to succeed each other, as to which
of them died first, whoever alleges the death of one prior
to the other, shall prove the same; in the absence of proof,
it is presumed that they died at the same time and there
shall be no transmission of rights from one to the other.
(33)

o Effect of use of conjugal funds for the payment of premium; proceeds

shall constitute community property if the policy was made payable to
 the estate of the deceased, i.e. ½ belongs to the estate and ½ to the
surviving spouse;

 Policy is considered as something acquired for a valuable

consideration; if paid with exclusive property, policy belongs to
owner; if paid with conjugal property or if the money cannot be
proved as coming from one or the other of the spouses, policy is
community property;

o If there is a designated beneficiary, the proceeds belong to the

beneficiary; the source of premium payment is immaterial;

o Vested interest of the beneficiary;

 measured on its full face value and not its cash surrender value
[loans granted by an insurance company using the cash surrender
value as collateral]; in case of death of the insured, beneficiaries
are paid on the basis of its face value;

 in case the insured should discontinue paying premiums,

beneficiaries may continue paying it and are entitled to automatic
extended term or paid-up insurance options;

 said vested right under the policy cannot be divisible at any given
time;

 Generally revocable
o As a rule, designation of beneficiary is revocable;

o If the insured want the designation to be irrevocable, it must be expressly

provided in the policy;

o See 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.

o An irrevocable beneficiary has vested rights over the policy; cannot be

affected by the subsequent assignment of the insurance policy; in case
 there is a cash-surrender value [explain this], it is the irrevocable
beneficiary who can take a policy loan thereon;

 Surrendering of a policy and taking of a policy loan [loans granted

by an insurance company using the cash surrender value as
collateral] are not merely acts of administration or management;
surrendering is an act of disposition or alienation, it involves
termination of contractual obligation; taking of a policy loan
involves incurring a contractual obligation; an irrevocable
beneficiary has interest therein;

 Exception – Art. 64 of the Family Code provides for revocation of

an irrevocable designation of beneficiary after the finality of the
decree of legal separation; the innocent spouse may revoke the
designation [the designation of the guilty spouse] as a beneficiary
in any insurance policy; takes effect upon written notification to
the insured [!?, insurer? The insured may be the innocent spouse];

 Also found in Art. 43, Art. 50 of NCC; revocation of the

designation as a beneficiary of the spouse who is in bad
faith applies in cases covered by Arts. 40, 42, 43, 45, 50, and
64 of the Family Code;

o Re Sec. 11 – “xxx Notwithstanding the foregoing, in the event the insured

does not change the beneficiary during his lifetime, the designation shall
be deemed irrevocable.”; in life insurance, this provision is a surplusage
because after the death of the insured, he can no longer change the
beneficiary (the insurance proceeds should already be paid after the
death of the insured); but this finds application in property insurance;
the policy may continue beyond the death of the insured;

 Forfeiture of rights of beneficiary

o "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.

o Beneficiary should not profit from his misdeed;

 Disqualification of beneficiary
o See Art. 2012 of NCC –
Any person
Who is forbidden from receiving any donation under Art. 739
cannot be named beneficiary of a life insurance policy
and by the person who cannot make any donation to him,
according to said article.

o Designation of a beneficiary in a insurance policy is no different from the

making of a civil donation to a donee; both are founded on the same
consideration of liberality; the beneficiary will receive the proceeds of
the insurance; the proscriptions in Art. 739 of NCC equally operates in
life insurance contracts; the insurance contract is valid but the
designation of the beneficiary is void;

o Grounds for disqualification;

 Those made between persons who were guilty of adultery or
concubinage at the time of the donation; [i.e., at the time of the
designation as beneficiary(!?)] what if adultery is committed after
the designation of the beneficiary? What if adultery is committed
previously, or after service of the penalty?;

illegitimate children are not covered by the prohibition; if the illegitimate children

are also designated as beneficiaries, the share of the concubine shall go to the

illegitimate children [legal basis? Heirs of Loreto C. Maramag v. Eva De Guzman

Maramag, GR No. 181132, June 5, 2009, p. 65 Aquino]; see #Insurancecase

20090605 heirs of loreto c. maramag v. maramag

 conviction is not required; guilt may be proven in the same

action for the declaration of nullity, by preponderance of
evidence; quantum of proof in criminal case is not
demanded;
  Note – spouse can designate the other spouse as
beneficiary, while a spouse is prohibited from making a
donation to the other spouse; said prohibition does not
apply to insurance contracts; insurance contract is a special
contract governed by special laws dealing exclusively with
insurance contracts; NCC and FC have no provisions
relating to the destination of life insurance proceeds;

 But an irrevocable designation of the guilty spouse as

beneficiary is allowed to be revoked by the innocent
spouse;

 Those made between persons found guilty of the same criminal

offense in consideration thereof;

 Those made to a public officer or his wife, descendants and

ascendants by reason of his office;

Trustee or agent
o Insurance policy may be obtained by a person through his agent or trustee;
contract may be executed by an agent or trustee;

o Fact that a person is acting as an agent or trustee for a principal must be

indicated in the policy; the word agent or trustee or some other general words
may be used [Sec. 54 IC, to read this];

Partner

o Situation where a partner or part-owner takes an insurance for the interest of

his co-partners or other part owners;

o Terms of the policy should be such as are applicable to the joint or common
interest;

o Case – partnership changed its name but was continuing the same business;
the new name were the names of the same and only partners of the
partnership; the change in the name does not avoid the policy; rights under
the old name of the partnership remain under the same policy;

Assignee of life insurance

 o Desirable to give to life insurance policies the ordinary characteristics of
property so far as reasonable safety permits; life insurance has become a form
of investment and savings;

o life or health insurance can be transferred even without the consent of the
insurer;

o See"Section 184. A policy of insurance upon life or health may pass by transfer,
will or succession to any person, whether he has an insurable interest or not,
and such person may recover upon it whatever the insured might have
recovered.

o How to transfer; no formalities are required for the assignment of life or health
insurance policies in IC; NCC provisions on assignment of right apply; for
example, one of the modes of transferring ownership is the delivery of the proof
or evidence of the right, accordingly, the delivery of the policy may transfer
ownership of the policy of insurance;

o Notice to insurer not necessary; since the right to transfer is conferred by law,
notice to the insurer is not even necessary to validate the transfer; the assignee
acquires the right even without the knowledge of the insurer; but it is more
advantageous to give notice to the insurer;

o Case of double assignment; who has the better right; the Philippines adopts
the American rule which provides that the assignee under the first assignment
has the preferable claim; in view of the absence of any specific provision on
double sale or assignment of right, the principle that the first in time is stronger
in right is followed;

Assignee of property insurance

o See "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

o Implied - Policy can be transferred as long as the transferee/assignee has

insurable interest in the thing insured; the assent of the insurer is necessary;

o Exceptions – when insurer’s assent is not necessary; transfer through will or

succession (successors-in-interest of the insured substitute the insured); other
instances of transfer by operation of law; cases where there is transfer among
partners;
Insurance agent and insurance broker

o To read the following provisions relating to insurance agents and brokers;

o "Section 307.
No insurance company doing business in the Philippines,
nor any agent thereof,
shall pay any commission or other compensation
to any person
for services in obtaining insurance,
unless such person shall have first procured
from the Commissioner a license to act
as an insurance agent of such company
or as an insurance broker
as hereinafter provided.

"No person shall

act as an insurance agent or as an insurance broker
in the solicitation or procurement of applications for insurance,
or receive for services in obtaining insurance,
any commission or other compensation
from any insurance company doing business in the Philippines,
or any agent thereof,
without first procuring a license so to act from the Commissioner,
which must be renewed every three (3) years thereafter.
Such license shall be issued by the Commissioner
only upon the written application of the person desiring it,
such application if for a license to act as insurance agent,
being approved or endorsed by the company such person desires to represent,
and shall be upon a form prescribed by the Commissioner
giving such information as he may require,
and upon payment of the corresponding fee hereinafter prescribed.
The Commissioner shall satisfy himself as to
the competence and trustworthiness of the applicant
and shall have the right
to refuse to issue or renew
and to suspend or revoke
any such license in his discretion.
The license shall expire after the thirty-first day of December of the third year
following the date of issuance
unless it is renewed.
 "Licenses may be renewed in the case of the company represented by such
agents, and in the case of insurance brokers, upon the application of the said
brokers, themselves.

20190814 WEDNESDAY INSURANCE A

o See "Section 318. Except as otherwise provided by law or treaty, it shall be

unlawful for any person, partnership, association or corporation in the
Philippines, for himself or itself, or for some other person, partnership,
association or corporation, either
to procure, receive or forward applications of insurance in,
or to issue or to deliver or accept policies or contracts of insurance
of or for, any insurance company or companies
not authorized to transact business in the Philippines,
covering risks, life or non-life, situated in the Philippines; and any such person,
partnership, association or corporation violating the provisions of this section
shall be deemed guilty of a penal offense, and upon conviction thereof, shall for
each such offense be punished by a fine of Two hundred fifty thousand pesos
(P250,000.00), or imprisonment of six (6) months, or both, at the discretion of
the court: Provided, That the provisions of this section shall not apply to
reinsurance.

 Insurance agent
o Any person

who for compensation

solicits or obtains insurance on behalf of any insurance

company

or transmit for a person other than himself an application for a

policy or contract of insurance to or from such company

or offers or assumes to act in the negotiating of such insurance;

o Includes agent, agency leader, agency manager or their equivalent;

o See "Section 309. Any person who for compensation solicits or

obtains insurance on behalf of any insurance company or transmits
for a person other than himself an application for a policy or contract
 of insurance to or from such company or offers or assumes to act in
the negotiating of such insurance shall be an insurance agent within
the intent of this section and shall thereby become liable to all the
duties, requirements, liabilities and penalties to which an insurance
agent is subject.

"An insurance agent is an independent contractor and not an

employee of the company represented. ‘Insurance agent’ includes an
agency leader, agency manager, or their equivalent.

"Since the insurance industry is imbued with public interest, the

insurance companies upon approval of the Commissioner may
exercise wide latitude in supervising the activities of their insurance
agents to ensure the protection of the insuring public.

o Although insurance agents are independent contractors and not

employees of the insurance company, insurance companies may
“exercise wide latitude in supervising the activities of their insurance
agents to ensure the protection of the insuring public.”
o

o Art. 309 was enacted after the legal controversy brought about by the
conflicting decisions (2008 and 2010) of the SC in the case of Tongko
v. The Manufacturers Life Insurance Company (p.70 Aquino); the
original decision ruled that the insurer had control over the insurance
agents that will make the agents employees of the insurer; later SC
reversed its own ruling holding that its previous decision was not
supported by the evidence adduced and was not in accordance with
prevailing jurisprudence; in its resolution of a motion for
consideration in the same case, SC ruled that the absence of any
showing of the insurer’s control over the insurance agent’s
contractual duties points to the absence of employer-employee
relationship;

o General agent; unlawful for any person, company or corporation in

the Philippines to act as general agent unless
 Empowered by a written power of attorney duly executed by
such insurance company
 And registered with the IC
 To receive notices, summons and legal processes
 For and in behalf of the insurance company concerned
  In connection with actions or other legal proceedings
against said insurance company

o Court processes; notices, summons or processes of any kind

 Sent by registered mail
 To the last registered address of such general agent of the
company concerned
 Or to the Commissioner
 Shall be sufficient service and deemed as if served on the
insurance company itself;
o Classes of agents; insurance company may have two classes of
agents
 Salaried employees who keep hours and work under the control
and supervision of the company; governed by contract of
employment and provisions of the labor code;
 Independent contractor who work on commission basis;
governed by contract of agency and NCC provisions on
agency; their acts within the limits of their authority are
considered binding on their principal;
 they also bind the principal if apparent authority is
given to them;
 when the agent exceeds his authority, the agent
becomes personally liable for damage;
 but even when the agent exceeds his authority, the
principal is still solidarily liable together with the agent
if the principal allowed the agent to act as though the
agent had full powers;
 acts of the agent beyond the scope of his authority do
not bind the principal unless the principal ratifies them,
expressly or impliedly;
o Disputes involving agents are cognizable by regular courts;
o Name used to designate a person is not controlling; note the
elements of employer-employee relationship, especially control;
o Collusion between the insured and the agent;
 Insurer is entitled to deny a claim if a material fact regarding the
health of the insured was concealed by the agent with the
participation of the insured; although
 Case – a material fact regarding the health of the insured was
concealed by the agent with the participation of the insured;
insurer may deny the claim; insured cannot escape effects of
the falsity committed with his complicity;
  Insurance broker; any person who for any compensation, commission or
other thing of value acts or aids in any manner in soliciting, negotiating or
procuring the making of any insurance contract or in placing risk or taking
out insurance, on behalf of an insured other than himself; insurance broker
acts for and in behalf of the insured (as against an insurance agent who
normally represents the insurer;

 Effect of receipt of premium; premium which an agent or broker collects

from the insured to be paid to the insurer shall be held by the agent or
broker in a fiduciary capacity (in trust) and shall not be misappropriated or
converted to his own use or illegally withheld by the agent or broker;

o Any insurance company which delivers to an agent or broker a policy

Shall be deemed to have authorized such agent or broker to receive
on its behalf payment of any premium due on the policy;

 No Jurisdiction over Insurer – agent relationship; power of the IC does not

cover the relationship between the insurance company and its
agents/brokers; Chapter IV, Title I of IC speaks only of the licensing
requirements and the limitations imposed on insurance agents and brokers;
IC can revoke the license or impose administrative sanctions on erring
agents or brokers; IC cannot exercise its quasi-judicial powers to assume
jurisdiction over controversies between the insurance companies and their
agents or brokers;

Chapter 3 – Insurable Interest

Concept

 An interest, arising
from the relation of the party obtaining the insurance
either as a creditor of or surety for the assured
or from ties of blood or marriage to him
as will justify a reasonable expectation of advantage or benefit from the
continuance of his life;
 Interest need not always be capable of pecuniary estimation, as in the case of
the interest over the life of a child, or spouse; the natural affection is
considered as powerful to protect the life of the insured and not desire their
death or injury because of the benefit under the insurance;

20190815 THURSDAY – INSURANCE B

20190819 MONDAY – INSURANCE A – Holiday

20190828 WEDNESDy – INSURANCE A

 When there is no insurable interest, the insurance may be a wager* on the part
of the person taking the insurance policy possibly with the desire for the early
death of the assured because of the expected benefit under the insurance; this
is condemned as against public policy;

*Wager – dict. meaning, an agreement in which people try to guess what will
happen and the person who guesses wrong has to give something (such as
money) to the person who guesses right; the money or other valuable thing
that you could win or lose in a bet; to make a bet**

**Bet - def, something that is staked between two parties on the outcome of a
contingent issue;

 Sec. 10 of IC now provides for an exclusive list of persons who may have
insurable interest in the life of another:

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.

 With respect to property insurance, the basic concept of insurable interest is

provided in Sec. 13 of IC:

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.

 The interest is a pecuniary reason for desiring the continued existence of the
property;

 Public policy requires an insurable interest in the property insured to prevent

wagering under the guise of insurance; and to reduce to a safe level the
temptation to destroy the insured property;

 A person has an insurable interest over a property when the person will derive
pecuniary benefit or advantage from the preservation of the insured property or
will suffer pecuniary loss or damage from its destruction;

 The requirement for insurable interest in the insured property may also reduce
moral hazard (dishonesty or character defects in a person that increase the
chance of loss) and help in measuring the loss of the insured;

 If the insured has no insurable interest the insurance contract is considered

unenforceable;

if the contract is established to be really a wager, the contract can be

considered void for being against public policy; see Sec. 25 of IC

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.

Insurable Interest in Life Insurance; it is required that a person procuring life insurance
on the life of another person must have insurable interest over the life of that other
person at the time the insurance is effected; he must be interested in in the
continuance of the life of the person to frustrate any evil intent of hastening the death
of the cestui because of the economic benefit to be derived from the insurance policy;
 Insurable interest under the code [as earlier mentioned];
o 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.

 Classes of insurable interest in life insurance

o The subject of life insurance may be a person’s own life or the life of
another person;

o Where the insurance is on the life of another person, the owner of the
insurance policy is different from the cestui (the person on whose life the
insurance is written, e.g. a parent taking life insurance on the life of a
child (the cestui);

o The beneficiary in a life insurance may be the owner of the insurance

policy (the one who took the insurance) or another person designated as
beneficiary in the policy;

o The person taking the insurance must have insurable interest in the
cestui

o Where the cestui is another person, the insurable interest may be based
on relationship by blood or marriage , business relationship, or other
pecuniary interest;

 (a) Of himself, of his spouse and of his children;

 Blood relationship or marriage – limited to spouse and
children; this considers the natural affection and moral
forces which prompt one to serve and protect the life of
the spouse and children;
  Other kinds of blood relationship do not fall under this
provision such as parents, brothers, sisters; but may fall
under the other paragraphs of Sec. 10,

for example a person has insurable interest over the life of

his parents because his parents are legally obligated under
the FC to give support to their children (which falls under
par. (b) of Sec. 10 - Of any person on whom he depends
wholly or in part for education or support, or in whom he
has a pecuniary interest); the basis of the insurable interest
is not the blood relationship but the matter of support or
pecuniary interest;

 (b) Of any person on whom he depends wholly or in part for

education or support, or in whom he has a pecuniary interest;
 Note the case of parents; under the FC, parents are obliged
to give support to their children, hence, a child has
insurable interest on the life of the parent;

 The law does not require that the person on whom one
depends for education or support is legally obligated to do
so; it may be a case of a mere family friend who without
being obligated under the law actually pays for the
education of a person;

20190820 tuesday INSURANCE B

 See Art. 195 of FC:

Subject to the provisions of the succeeding articles, the
following are obliged to support each other to the whole
extent set forth in the preceeding article:
(1) The spouses;
(2) Legitimate ascendants and descendants;
(3) Parents and their legitimate children and the legitimate
and illegitimate children of the latter; [what does
“latter” refer to; who are these; i.e. the legitimate
children];
(4) Parents and their illegitimate children and the legitimate
and illegitimate children of the latter; [what does
“latter” refer to; who are these; i.e. the illegitimate
children];
 (5) Legitimate brothers and sisters, whether of full or half
blood;

 The person entitled to support can insure the life of the

persons who are legally obligated to support them; even if
there is no present reliance for support;

 Insurable interest exists if support is a matter of right under

the law or a matter of fact even when the person giving
support is not obliged to give support by law;

 Regarding pecuniary interest

o It is enough if there is a reasonable certainty that the
continuation of the life of the cestui will be of direct,
material advantage to the insured; the requirement
is not satisfied if the benefit is indirect or uncertain;

o It is now generally accepted that a reasonable

expectancy of pecuniary (financial) benefit arising
from the continuance of life of an individual with
whom one has business dealings, or a reasonable
expectancy of pecuniary harm because of the death
of the cestui, furnishes an insurable interest;

 A company has insurable interest on the life

of its officers; or director;
 Also a partner on the life of his other
partner/s;
 An employer on the life of its employees;
 A surety on the life of the principal debtor;
 A close corporation on the lives of its
stockholders (who may directly manage the
close corporation);

 (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;

o Creditor has insurable interest on the life of a debtor

who may be obliged to deliver money, property or
to provide some service; but note that the debtor
 cannot insure the life of the creditor because he will
not be damnified by the death of the creditor;

 Note – if the creditor insures the life of the

debtor and pays for the premium, it is only
the creditor who is allowed to recover under
the policy; the debtor has no right to recover
from the insurer as there is no privity between
the insurer and the debtor;

20190828 WEDNESDAY INSURANCE A

 The rule is different in case of insurance under

an agreement of the parties (creditor and
debtor) for collateral security, with the debtor
paying the premiums; he is, on a principle of
natural equity, entitled to have the security
delivered to him when he pays his debt,
noting it was at his expense and was effected
to secure his debt; this is especially true
where the creditor is constituted as an agent
of the debtor for the purpose of securing the
policy (but note that the creditor can by
himself, based on his own insurable interest,
secure the insurance policy);

 Note – under Sec. 3 of IC, "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.

 If the creditor insures the life of the debtor

and the debt has been paid by the debtor, the
creditor can no longer recover; this type of
insurance is not like an ordinary life insurance,
but one that is a contract of indemnity (where
payment of insurance proceeds is supposed
to indemnify some loss); the rule in property
insurance that insurable interest must exist at
 the time of loss will apply; the creditor
cannot recover because he no longer has
insurable interest at the time of the time of
loss;

 (d) Of any person upon whose life any estate or interest

vested in him depends.
o Example, “A will become the owner of a property
when B attains the age of majority. A, by means of
insurance, assure an indemnity for loss to be
suffered by him in case B dies before attaining the
age of majority.”

 Mortgage redemption insurance

o MRI – a device for the protection of both the
mortgagee and the mortgagor. A mortgagee enters
into a form of contract so that in the event of the
unexpected demise of the mortgagor during the
subsistence of the mortgage contract, the proceeds
from such insurance will be applied to the payment
of the mortgage debt this is the benefit for the
mortgagee, the obligation due him is paid; and the
mortgagor’s heirs are relieved from paying the
mortgage debt – this is the benefit for the
mortgagor/his heirs;

o Debtors may be insured into a group life insurance

known as MRI;

o Where the insurance premium is paid by the

mortgagor under the group insurance policy,
making the loss payable to the mortgagee, the
insurance is on the mortgagor’s interest and the
mortgagor continues to be a party to the contract;
the mortgagee is simply an appointee of the
insurance fund, such loss payable clause does not
make the mortgagee a party to the contract;

o Read Paramount Life & General Insurance Corp. v.

Castro, GR No. 195728, April 19, 2016, p. 85 Aquino;
excerpt is unclear; “If the insurer that issued the
mortgage redemption insurance files a case against
the beneficiaries to declare null and void on the
 ground of fraud or material concealment, a third
party complaint can be filed by the beneficiaries
(defendants) against the mortgagee.” [Who are the
beneficiaries referred to? Are the proceeds not
supposed to go to the mortgagee (as beneficiaries)?
Why are the beneficiaries filing a case against the
mortgagee?; this must be involving a situation
where the proceeds are payable to designated
beneficiaries] To assign case for research.

20190822 THURSDAY

 Consent of the insured

o Is the consent of the cestui necessary for the purpose of securing a life
insurance?

o Two views – view supported by American legal writers that makes

consent necessary (otherwise void); another view which does not require
the cestui’s consent so long as insurable interest exists, the presence of
insurable interest takes the insurance contract out of the class of
forbidden wagers;

o Author Aquino agrees with the view that cestui’s consent is not necessary
in view of the following reasons:

 Extensive practice of insurer granting insurance in large amounts

on the lives of persons who have no knowledge of the insurance
contracts;

 Proponents of the view that consent is necessary cites large

amounts of insurance taken by tradesmen even on the King and
Queen, these are insurance not limited to the amount of pecuniary
interest or there is excess insurance;

 In Sec. 10 of IC, there is a set of persons who are not capable of

giving consent (such as infants) but the law intends to allow
parents to take insurance on the lives of their children (even if
infants or minors); outside of the cases of children and spouse,
interest is already pecuniary and excess insurance can already be
determined; invitation to mischief is minimal;

 The law is seeking merely to restrict the eligible beneficiaries to a

roughly selected class of persons who, by their general relations
 to the cestui, will render the harmful tendencies of such contracts
negligible;

 Consent of the cestui is not the only means by which the

temptation to murder may be counteracted;

o In the case of insurable interest on any person under a legal obligation

for the payment of money, or respecting a property or services, of which
the death or illness might delay or prevent the performance, the
insurable interest is limited up to the extent of the liability; in effect a
security for the obligation; the creditor who took the policy can not
recover more than what is owed to him;

 It is believed that it is unreasonable for the creditor to require the

consent of the debtor for the creditor to procure an insurance
policy that will only operate to secure the loan for his own
protection, with him paying the premium;

 In practice, consent is always present because the creditor make

the procurement of insurance a condition for the grant of the
loan; when the debtor enters into the loan agreement (containing
such provision requiring an insurance), in effect, the debtor gives
consent to the taking of the insurance;

 An alternative practice (among creditors and debtors) is for the

creditor to require the debtor to secure an insurance policy and
assign the policy to the creditor, or make the creditor the
beneficiary under the insurance;

Insurable interest in property insurance;

o Basic rule in property insurance is in Sec. 18 of IC,

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;

Note that when the person who took insurance on a certain property has no
insurable interest on the property, the insurance is unenforceable;

o Related provisions are Secs. 13, 14, 16, 17;

 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.;

Sec. 13 IC provides what insurable interest is in property;

 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 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.

 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.

 Test
o Whether the insured has interest in property, or any relation thereto, or
liability in respect thereof, of such nature that a contemplated peril might
directly damnify the insured; [damnify means to cause lose or damage
to;

or whether the insured will be benefited by the continued existence of

the property;

o Title to, or interest, in property (legal or equitable [just or fair]) will

support a contract of insurance;

o Kinds of insurable interest, insurable interest in property (which must

directly damnify the insured) property may be
  an existing interest;

 inchoate interest founded on an existing interest [inchoate means

incipient/not yet completely formed or developed/being only
partly in existence or operation];

 expectancy, coupled with an existing interest out of which the

expectancy arises;

o Existing interest, this includes the interest of an owner; but title or

ownership is not essential; as in the following persons even if not the
owners have insurable interest over a property – lessee, depositary,
usufructuary, borrowers in commodatum (bailee);

 A person who is holding a property without consideration with the

consent of the owner [such as a depositary] has insurable
interest on said property; he will suffer loss in case of damage or
destruction of the property;

 An unpaid seller has insurable interest on the goods even if

ownership had been transferred to the vendee; an unpaid seller
has a vendor’s lien on the unpaid goods and will be damnified by
the loss of the goods;

 A vendee or buyer has insurable interest over the goods even

while the goods are still in transit; he has interest based on the
perfected contract of sale;

o Inchoate interest founded on an existing interest [inchoate means

incipient/not yet completely formed or developed/being only partly in
existence or operation]; the inchoate interest must be founded on an
existing interest; an example is in the case of a purchaser of a property
in a public auction subject to a period of redemption; [China Banking
Corp. v. CA, G.R. No. 129644, Sept. 7, 2001, “Metrobank’s inchoate right
to the property would have become complete as of December 1988,
when the twelve-month redemption period expired without the right of
redemption having been exercised.”];

o expectancy, coupled with an existing interest out of which the

expectancy arises; an example is in the case of the owner of a ship who
has an insurable interest in expected freightage (compensation for the
transportation of goods) ; the freightage is something that is still in the
future or something that will be due after the delivery of the cargo, but it
 is coupled with an existing interest, i.e. the existing contract with the
shipper;

 Distinction between insurable interest in property insurance and life insurance

o In property insurance, Up to value of property; in life insurance,
unlimited, except in cases secured by creditor or for the benefit of a
creditor;

o Insurable interest of the person procuring insurance must exist at the

time of the perfection of the contract and at the time of loss; in life
insurance, only at the time of perfection (need not exist at the time of
death or injury);

o In property insurance, expectation of benefit must have legal basis; in

life insurance, need not have legal basis or need not be based on legally
enforceable obligation [note support by a person not legally obliged to
give support];

o Beneficiary must have insurable interest; insurable interest not necessary

if the insured took out the policy on his own life and designated the
beneficiary (who has no insurable interest on the life of the insured);

but a beneficiary taking insurance over the life of another must have
insurable interest;

 Insurable interest of bailee; [to bail means to deliver a personal property in

trust to another for a special purpose and for a limited period; baileee means
the person to whom a personal property is bailed or delivered in trust to
another for a special purpose and for a limited period]

o See Sec. 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.

o Carrier may be damnified by the loss of the goods because he may be

obligated to pay the shipper any damage to the cargo;

o Depositary is obligated to take care of the thing deposited and he can be

made liable if the thing deposited is damaged or lost;
 o The value of the property is fixed as the upper limit of the amount that
can be recovered by the carrier or depositary but not necessarily the
amount that can actually be recovered; recovery is limited up to the
extent of the liability;

20190827 TUESDAY INSURANCE B

o Case – A warehouseman insured his own property and property he held

in trust (under one policy); in case of loss of the properties, the insurance
inures to the benefit of all the owners of the properties insured equally
and proportionately even if the owners of the stored goods did not
request or know of the insurance; in this case, the SC observed that
giving a natural expression to the terms of the werehouse receipt, the
warehouseman acted as agent of the owners-depositors; note that in
this case, the warehouseman was not found to have taken the insurance
on his own behalf;

 Insurable interest of the mortgagor and mortgagee

o See Section 8 of IC.

Unless the policy otherwise provides,
where a 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.
o Both the mortgagor and the mortgagee have insurable interest over the
mortgaged property;

the mortgagor is the owner,

and the mortgagee has an existing interest in the property by reason of

the mortgage and he stands to be damnified by the loss of the property
because the loss of the security may prevent the mortgagee from being
paid for the obligation;

o Each (the mortgagor and the mortgagee) has an independent insurable

interest;
 both interests may be covered by one policy,
 or each may take out a separate policy covering his own interest
either at the same time or separate times;

o The mortgagor’s insurable interest covers the full value of the property
even though the mortgage debt is equivalent to the full value of the
property;

the mortgagee’s insurable interest is up to the extent of the debt; if the

debt has been paid, the mortgagee can no longer recover under the
policy;

o The usual practice is for the mortgagor to take out insurance for the
benefit of the mortgagee; this can be made in several ways which
include the following ways:

 The mortgagee is made the assignee of the policy with the

consent of the insurer;

 The mortgagee is made a pledgee without the insurer’s consent,

 or the original policy may contain a mortgage clause;

 A rider making the policy payable to the mortgagee may be

attached to the policy;

 A “standard mortgage clause”* may be attached to the policy;

*Standard mortgage clause is a clause in an insurance policy

that protects the interest of the lender to recover the proceeds
even if the borrower is at fault. This type of clauses is mainly
 included in fire and casualty insurance. The incorporation of this
clause in an insurance policy leads to the creation of a separate
contract between the insurer and the mortgagee. However, this
type of clause empowers the mortgagee to collect payment from
the insurer even if the policy is void or voidable with regard to the
insured. This clause is also termed as a “union mortgage clause.”
The object of the clause is to provide an additional coverage for
the mortgage lender;

 The policy, though by its terms is payable absolutely to the

mortgagor, it may have been procured by a mortgagor under a
contract duty to insure for the mortgagee’s benefit, in which case,
the mortgagee acquires an equitable lien upon the proceeds;

 The policy may provide for a loss payable clause in favour of the
mortgagee;

 In a policy obtained by the mortgagor with “loss payable

clause” in favour of the mortgagee as his interest may
appear, the mortgagee is only a beneficiary under the
policy; the mortgagee is not made a party to the contract
itself; any act of the mortgagor which will defeat the right
of the mortgagor will also defeat the right of the
mortgagee; this type of policy covers only such interest as
the mortgagee may have at the time of the issuance of the
policy; the typical “loss payable clause” is also known as
the “open mortgage clause;”

 “loss payable clause” must be distinguished from a “union

mortgage clause” where there is a transfer of the insurance
from the mortgagor to the mortgagee with the assent of
the insurer; this creates a collateral independent contract
between the insurer and the mortgagee; the mortgagee’s
right will not be affected by any default or breach on
condition by the mortgagor to which the mortgagee is not
a party; the applicable provision is Sec. 9 of IC

See 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.

 Insurable interest of mortgagee

o A mortgagee may insure the mortgaged property in his own name and
for his own interest, independently of the mortgagor;

in which case, the mortgagee is entitled to the insurance proceeds in

case of loss, but he is not allowed to retain his claim against the
mortgagor;

the claim is passed by subrogation to the insurer to the extent of the

money paid;

the insurance will not inure to the benefit of the mortgagor;

the mortgagor has no right of action against the mortgagee on the

policy;

the insurer in this case is akin to a surety;

o A mortgagee may also procure a policy as a contracting party in

accordance with the terms of an agreement which may require the
mortgagor to pay the premiums;

usually there is also a stipulation that in case the mortgagor fails or is

unable to pay the premium due, the mortgagee is authorized to pay the
premium subject to reimbursement by the mortgagor;

o A mortgagee may also procure an insurance policy for his own benefit
and make himself the beneficiary; the mortgagee will not share the
proceeds with the mortgagor; note that the mortgagee can only recover
up to the extent of the debt (that is his only insurable interest); will the
insurer have the right of subrogation? Yes;

 Subrogation
o Where a mortgagee obtains an insurance on the mortgaged property at
his own expense and for his own benefit, in case of loss and payment by
the insurer for the loss to the mortgagee, the insurer is subrogated to the
mortgagee’s claim against the mortgagor to the extent of the insurance
 paid; note that the mortgage debt is not extinguished by the payment of
insurance proceeds by the insurer to the mortgagee;

o The insurer is not subrogated to the rights of the mortgagee against the
mortgagor where it is the mortgagor who obtains the insurance or the
insurance was obtained at the mortgagor’s request and expense, in the
absence of a specific provision for said subrogation in the policy;

 Financial lease
o Financial lease – a mode of extending credit through a non-cancellable
lease contract

 Lessor purchases property to be leased (like machinery, motor

vehicles etc.)

 Lessee makes periodic payment of fixed amount of money to

amortize the purchase price/expense/margin of profit as provided
in the rules over an obligatory period of not less than two years;
 Lessee shall have the right to expense the lease rentals; [note, the
lessee is able to obtain for his use the property without having to
raise the amount needed to purchase the property; if the lessee
bought the property, what he will instead be able to
report/consider as expense is the depreciation of the property
over the period of its estimated service life];

 No obligation on the part of the lessee to purchase the leased

property at the end of the lease contract;

o Financial lessor has insurable interest because of its legal title to the
leased equipment;

the financial lessee also has insurable interest because it entitled to the
possession and use of the leased equipment;

Time when insurable interest must exist; the rule is different for property insurance
and life or health insurance; See Sec. 19 of IC

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.

 Property insurance
o Insurable interest need not exist continuously from the time the
insurance takes effect until the time of loss; note example when property
is insured then sold and later re-acquired; the insurance is deemed
suspended in the intervening period;

o See Sec. 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.

o See Sec. 58 –
"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.

o A policy may contain a provision that renders the policy void upon
transfer of the property without the consent of the insurer;

o That the sale is voidable will not enable the insured to pursue a claim
while the policy is suspended or rendered void by agreement, unless said
voidable sale is set aside before loss occurs; [even a voidable sale of the
insured property will suspend the insurance contract; a voidable contract
is deemed valid until avoided;]

o In the following cases, a change in interest will not suspend the insurance

 Sec. 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.

o The rule is that the policy is avoided, not merely suspended, if there is an
express prohibition to alienate and the insured breached the prohibition;

 Life insurance; In life insurance, all that is required is that the insured has
insurable interest over the life of the insured at the time the insurance takes
effect; life insurance is not a contract of indemnity; subsequent annulment of
marriage will not defeat claim of a spouse who previously insured the deceased
spouse;

Insurable interest of beneficiary

 Insurable interest of beneficiary in property insurance

 o The beneficiary in property insurance must have insurable interest in the
property insured;

o The contract will be considered a wagering contract if the beneficiary will

be allowed to recover even if he has no insurable interest;

 Insurable interest of beneficiary in life insurance

o If a person takes out an insurance on his own life, he can designated

anybody as beneficiary whether or not the person has insurable interest
over the life of the insured;

o If the insured takes out an insurance on the life of another and

designates himself as beneficiary, insurable interest on the part of the
insured is necessary;
o Insurable interest is also necessary on the part of the beneficiary if a
person takes out an insurance on the life of another and designates a
third person as beneficiary; note that the insurance is not taken by a
person on his own life;

Assignee in life insurance

o Assignee in life insurance; a life insurance policy can be transferred even

without the consent of or notice to the insurer; it is not necessary that the
transferee has insurable interest; See. Sec. 184; the transferee may recover
whatever the insured may have recovered under the policy;

Assignee in property insurance

o It is necessary that the transferee has insurable interest over the thing insured;

o See Sec. 18 - "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.

o A clause in an agreement providing for an automatic assignment of the policy is

void if the assignee does not have any insurable interest over the insured
property;

o If the transfer of the property insurance is made after the loss, insurable interest
on the part of the beneficiary is no longer necessary;

o A policy cannot prohibit the transfer of the policy after the loss has occurred;
 See Sec. 85 –
.
An agreement not to transfer the claim of the insured
against the insurer
after the loss has happened,
is void
if made before the loss
except as otherwise provided in the case of life insurance.

"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.
NOTES

"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.
NOTES

"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.

NOTES

"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.
NOTES

"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.
NOTES

"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.
NOTES

"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.
NOTES
"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.
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.
NOTES

"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.
NOTES

"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.
NOTES

"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.
NOTES

"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.
NOTES
"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.
NOTES

"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.
NOTES

"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.

NOTES

Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

Notes from Aquino Text:

CHAPTER 6. ASCERTAINING AND CONTROLLING RISKS

o Consider a usual group insurance contract for the passengers of a bus company;
for a premium of P5.00, the insurance company undertakes to pay P25,000 in
case of death of a passenger; P5 is 0.02% of the stipulated proceeds in case of
death of one passenger; in case of a terrible disaster where 50 passengers
meet an unspeakable tragedy, the insurance company will pay P1,250,000 and
total premiums of P5.00 each from 50 passengers would be P250; of course the
passengers insured under such group insurance will not only be the passengers
of one bus for one trip but the passengers that a bus company may have in all
its buses in all its trips during a stipulated period which might give total
premiums of much more than P250;
 a bus company with 50 buses each with a capacity for 50 passengers which
make a single trip a day would obtain a total premium of about P12,500 a day;
if the buses run for 365 days a year (an unrealistically high presumption), the
total premiums for one year will be P4,562,500 (as against a liability of
P1,250,000 in case of a tragedy of one bus with 50 passengers) ; but accident
may happen not just to one bus in a period of one year, there may be more
than one accident of such magnitude in a period of one year; should an
application for a group life insurance of this kind be approved or accepted by
an insurance company?;

o Note a case where NEA in 1999 insured all real and personal properties
mortgaged to it by electrical cooperatives under an Industrial All Risks Policy
(IAR) with GSIS; the total sum insured was P16,731,141,166.80 (P16.7 billion);
95% or P15.9 billion was reinsured by GSIS with Prudential Guarantee and
Assurance, Inc. (PGAI); GSIS agreed to pay PGAI reinsurance premiums in the
amount of P32,885,894.52 (P32.8 million) per quarter or total premium of
P131,543,578.08 (P131.5 million), about 0.827% of the amount insured; so for a
premium of P131.5 million, the reinsurance company undertakes to pay an
indemnity of P15.9 billion (GSIS v. PGAI, Nov. 20, 2011); of course, GSIS is not
the only client that PGAI has from whom it would collect premiums; was the
proposition of GSIS to PGAI an application that the reinsurance company ought
to accept or approve?;

o Insurance contract is so highly aleatory (dictionary definition, “depending on an

uncertain event or contingency as to both profit and loss; relating to luck and
especially to bad luck; origin – Latin aleatorius of a gambler, from aleator
gambler, from alea a dice game; first used in 1693) that the parties have four
primary concerns:

 The correct estimation of the risk which enables the insurer to decide
where he is willing to assume it and if so at what rate of premium;

 The precise delimitation of the risk which determines the extent of the
contingent duty to pay undertaken by the insurer;

 Such control of the risk after it is assumed as will enable the underwriter
(insurer) to guard against the increase of the risk because of change in
conditions; and,

 Determining whether the loss has occurred, and if so, the amount of loss;

o Different types of devices or ways have been developed to ascertain and

control risks which include provisions [which will be discussed later] regarding
  Concealment;
 Representation;
 Warranty;
 Conditions;
 Exceptions;

o Correct estimation of the risk may be made if all material information are
disclosed (not concealed) and if the parties are certain that disclosed
information can be relied upon;

o Delimitation of the risk may be made by specific description of the risk

consisting of the designation of the specific person or property interest to be
covered and the specification of the perils; also accomplished by using
“exceptions” that are contained in the policy or in a rider/endorsement;

o Control of the risk can be done by resorting to promissory warranties and

conditions that will prevent the occurrencof risks or hazards that may happen
that after the policy has been issued;

"TITLE 4

"CONCEALMENT

"Section 26.
A neglect to communicate
that which a party knows
and ought to communicate,
is called a concealment.

NOTES
 Primary concerns when parties enter into an insurance contract;

o Correct estimation of the risk for the insurer to decide whether or not
to assume the risk; and the rate of premium for the insurance;

o Precise delimitation of the riskw

o x
  x

"Section 27.
A concealment
whether intentional or unintentional
entitles the injured party
to rescind a contract of insurance.

NOTES

"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.

NOTES

"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.
NOTES

"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.

NOTES

"Section 31.
Materiality is to be determined
not by the event,
but solely by the probable and reasonable influence of the 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.

NOTES

"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.

NOTES

"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.

NOTES

"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.

NOTES

"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.

NOTES

NOTES FROM AQUINO TEXTBOOK:

1. Concealment

 Section 26. A neglect to communicate that which a party knows and

ought to communicate, is called a concealment.

 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.

 Note that the obligation to communicate is an obligation of both the

insured and the insurer; insurance contracts are contracts uberrimae
fidae, i.e. of utmost good faith;

 The rule in concealment is a requirement of honesty, good faith and fair

dealing; on the part of the insured, he undertakes to state all the
circumstances affecting the risk, a full and fair statement is required;

 Only material facts are required to be disclosed;

 On the part of the insured, a matter is material if such matter will
affect the insurer’s action on his application, approving or
rejecting the application, considering adjustment for a higher
premium, or fixing the terms and conditions of the policy;

 On the part of the insurer, a matter is material if it will affect the

decision of the insured to enter into the insurance contract;

 See, Sec. 31 of IC

Section 31. Materiality is to be determined not by the event,

but solely by the probable and reasonable influence of the 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.

 There is material concealment when the insured concealed

matters relating to physical or moral hazard (i.e. that which
increases the risks in the perils insured against); hazards affect the
estimate of the disadvantages of the proposed contract or the
chance of the insurer to make further inquiries and to decide on
the basis of such inquiries; a matter is material if the knowledge
of it would influence the parties in making the contract; it is not
necessary that it actually increased the risk or it contributed to the
loss or damage suffered;

 The principal question is whether the insurer was misled or

deceived into entering into the contract or in fixing the premium
of insurance by a withholding of information on facts within the
knowledge or presumed knowledge of the insured;

 Material information obtained after the filing of the application

and before the insurance takes effect must also be disclosed;
example, a change in health after submission of the application
and before the time it takes effect;

 Examples of material fact; in property insurance, the nature,

construction or use of an insured building or whether it is
particularly exposed to risk; in life insurance, the health or a high
risk occupation or hobby or the results of any health tests known
to the insured; in liability insurance, a bad accident record;
  Case – undisclosed transfer of the location of the insured
machineries when a fire insurance policy was renewed;

 Case – the application required disclosure of treatment for heart

condition in the last five years; the insured had a pacemaker
implant about 20 years ago before he signed the application;
the beneficiary pointed out that what was required to be disclosed
was treatment in the last five years; the SC rejected the argument
noting that the insured still had his pacemaker when he applied
for a pension plan in 1997 and this was an admission that he
remained under treatment for irregular heartbeat within the five
years preceding the application; the insured had also been taking
medicine for his heart condition and diabetes at the time of his
application, they clearly fell within the five-year period; the
concealment by the insured, entitled the insurer to rescind the
contract (Aquino, p. 181);

 Case – in life insurance, concealment of fainting spells or drug

overdose illness was held as material concealment;

 Case – in an automobile insurance, non-disclosure that the

insured did not have a driver’s license or that his license was
revoked or suspended was held a material concealment;

 The matters concealed need not be the cause of the loss; they need not
have a bearing on the actual cause of death, loss or damage;

 Case – the matter concealed related to the continuing treatment

of the insured for heart condition and diabetes but he died of
blood poisoning; SC sustained the denial of the claim on the
ground of concealment;

 Summary of the of the rules under the IC that allows the rescission of the
policy on the ground of concealment

 The party involved must know the fact concealed or at least he

ought to know the fact (Secs. 26 & 27);
 The fact concealed must be material (Sec. 28);
 No warranty is extended by the party regarding the fact concealed
(Sec. 28);
 The other party does not have the means of ascertaining (Sec. 28);

 On knowledge on the agent of the insured;

 Prof. Vance believes that knowledge on the part of the agent of
the insured can be imputed to the insured himself only if the
following circumstances are present – (1) if it was the duty of the
agent to acquire and communicate the information in question to
the insured; and (2) it was possible for the agent with the
exercise of reasonable diligence to have made such
communication to the insured before the making of the insurance
contract; these are consistent with Sec. 43 of IC which provides
that the principal-insured is bound with the knowledge of his
agent “whose duty it is to give information;”

 Case – the beneficiary argued that there was no concealment

because the soliciting agent knew that the insured had a
pacemaker implanted 20 years (the matter not disclosed) before
the insured signed the application and that the insured signed the
application in blank and let the soliciting agent fill the required
details; that the alleged concealment cannot be taken against the
insured;

SC rejected the argument stating that the responsibility of

preparing the application belonged to the insured; that the
insured cannot sign the application and disown the responsibility
for having it filled up; that if the insured furnished the soliciting
agent the needed information and delegated to her the filling up
of the application, then the agent acted on the instruction of the
insured and not the insurer’s; and that even assuming that it was
the soliciting agent who filled up the application, the insured is
still bound by what it contains because he expressly certified that
he authorized the actions of the soliciting agent;

SC noted also noted that the insured was a civil engineer and
manager of a construction company and he could be expected to
know that one must read every document, especially if it creates
rights and obligations affecting him before signing the document;

 Case – The insurer cannot rely on an alleged connivance between

the agent and the insured all the time, especially where the
incontestability clause applies;
  Some authorities cited in the dissenting opinion in the case of The
Insular Life Assurance Co. Ltd v. Feliciano, Dec. 29, 1943 which are
also persuasive

 The principle that the insured is not bound to know the

contents of the application, and may rely on the agent’s
assurances that his answers have been correctly written will
apply with special force where the insured is illiterate and
unable to read, or is ignorant of the language;

 If an agent (provided by the insured with a correct and

truthful answer to questions contained in the application)
fills in false answers without the knowledge of the insured,
the insurer cannot assert the falsity of such answers as a
defense against liability; or where the agent (apprised of
the true facts by the insured) inserts an incorrect answer,
the insurer cannot rely upon the error to avoid liability;

 Instances when there is no concealment, see Secs. 30, 32, 33, 34, and 35

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 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.
  Insurer is bound to know every cause with may occasion natural
perils such as the difficulty of the voyage, the kinds of seasons, the
probability of lightning, hurricanes, earthquakes, etc.; he is bound
to know every cause which may occasion political perils such as
rupture of states from war, various operations of it (probability of
safety, imbecility of the enemy through the weakness of their
counsels or their want of strength, etc.);

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 51. A policy of insurance
must specify: xxx "(e) The interest of the insured in property insured, if
he is not the absolute owner thereof; xxx.”

 The duty of disclosure requires that the statement to be made by one

party relates to facts and not opinion or judgment;

 But there must be good faith and there must be no intent to

deceive; although false, a representation of the expectation,
intention, belief, opinion or judgment of the insured will not avoid
the policy if there is no actual fraud in inducing the acceptance of
the risk, or its acceptance at a lower rate of premium;

this is also the rule although the statement is material to the risk if
the statement is of said character, since in such case, the insurer is
not justified in relying upon such statement, but is obligated to
make further inquiry;

there is a clear distinction for a case in which the insured

fraudulently and intentionally states to be true, as a matter of
expectation or belief, that which he knows to be actually untrue;

 Case – in the application (for health coverage with Philamcare

Health Systems, Inc. [PHSI] ), Ernani Trinos answered NO to the
question: “Have you or any or your family members ever
consulted or been treated for high blood pressure, heart trouble,
diabetes, cancer, liver disease, asthma or peptic ulcer?”; during a
 confinement in a hospital while the coverage was in effect, the
doctors discovered that Ernani Trinos was hypertensive, diabetic
and asthmatic; a claim for benefits under the health coverage was
made by his wife but it was denied by PHSI claiming that the
coverage was void because of concealment; no benefit was
obtained; [Ernani Trinos later left the hospital but was
hospitalized again and died]; the wife filed an action for damages
against PHSI for damages (including reimbursement for the
hospital expenses); SC held PHSI to be liable stating that the
“answer assailed by [PHSI[ was in response to the question
relating to the medical history of [Ernani Trinos]. This largely
depends on opinion rather than fact, especially coming from
[Ernani Trino] who was not a medical doctor. Where matters of
opinion or judgment are called for, answers made in good faith
and without intent to deceive will not avoid a policy even though
they are untrue.”;

 [The question asked was whether Trinos had ever consulted
or been treated for the high blood pressure, heart trouble,
etc. If the question only asked whether he had consulted
with or been treated by a doctor, such question would have
been a question asking for a fact; but the question asked
freconsultation or treat for the enumerated diseases; it may
be considered that even if he had previously consulted or
been treated by a doctor, he may not have indeed known
what he was treated for which would make his answer a
matter of opinion or judgment. SC may have considered
good faith in Trinos because he signed an authorization for
any entity to furnish any information for any consultation or
treatment he may have had. Although SC stated that, “with
or without the authority to investigate, PHSI is liable for
claims under the contract.”

 Case – the insured answered that there was “no recurrence” of his
kidney ailment; SC accepted the explanation that the answer may
be construed as an honest opinion of the insured who was not a
medical doctor;

 Case – the insured was asked whether he consulted a doctor or

submitted to ECG, X-rays blood test, and other test, or have been
attended or admitted to a hospital or have sought advice for
urine, kidney or bladder disorder; the insured answered “yes” to
whether he had consulted a doctor but limited his answer as
 consultation for cough and flu complications, and answered “no”
to the other questions; the insurer later discovered that two
weeks prior to the application, the insured was examined and
confined at the Lung Center of the Phil. where he was diagnosed
for renal (kidney) failure and was subjected to urinalysis, ultra-
sonography and hematology tests; SC ruled that there could not
have been good faith on the part of the insured because he was
surely aware of the previous confinement; that the information
that the insured failed to disclose were material and relevant to
the approval and issuance of the insurance policy; that the
matters undisclosed would have definitely affected the action of
the insurer on the application by approving it at higher premium,
rejecting it or further requiring a medical examination;

 Where the insurer, at the time of the issuance of a policy of insurance,

has knowledge of existing facts which, if insisted on, would invalidate the
contract from its inception, such knowledge constitutes a waiver of
conditions inconsistent with the facts, and the insurer is estopped
thereafter from asserting the breach of conditions; the insurer is deemed
presumed to have intended to waive the conditions and to execute a
binding contract, rather than to allow the insurer to deceive the insured
into thinking that he is insured when in fact he is not, and to have taken
his money without consideration;

 Case – the policy required the payment of premium before the

insurance shall become effective; the insurer issued a policy upon
execution of a promissory note for the payment of premium; a
check subsequently given as partial payment for the premium
was dishonoured for lack of funds; the insurer sought to deny
liability for non-payment of the premium; SC held that despite
said deviation from the terms of the policy, the insurer was liable;

 There is concealment whether or not it is intentional or unintentional;

see Sec. 27

Section 27. A concealment whether intentional or unintentional entitles

the injured party to rescind a contract of insurance.

 The basis of the rule vitiating the contract in cases of concealment

is that it misleads or deceives the insurer into accepting a risk, or
accepting it at the rate of premium agreed upon;
  Concealment, if material, will be fatal whether arising from
accident, negligence, inadvertence, or mistake, as if it were
intentional or fraudulent;

 Acdg. to SC, materiality of the information withheld does not

depend on the state of mind of the insured; neither does it
depend on the actual or physical events which ensue; good faith
is not a defense in concealment;

 Matters proving or tending to prove the falsity of a warranty; see Sec. 29

of IC

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.

 The omission needs to be intentional and fraudulent to entitle the

insurer to rescind;

 Actual knowledge of the insured is not necessary to give the insurer the
right to avoid the policy on the ground of concealment;

 Absence of knowledge of the fact concealed will not deprive the

insurer of the right to invoke concealment because unintentional
concealment is still concealment as provided for under Sec. 27 of
IC; "Section 27. A concealment whether intentional or
unintentional entitles the injured party to rescind a contract of
insurance.”

 Majority view – the insured need not know the fact concealed;
although the suppression should happen through mistake,
without any fraudulent intention, yet the underwriter is deceived
because the risk run is really different from the risk understood
and intended to be run at the time of the agreement;

 Example – the insured was already sick at the time he took

the policy but was not aware of the fact; there will be
concealment of material fact because concealment need
not be intentional;
  There is concealment even if the party does not know but
ought to know the matter concealed; the law ascribes to
him presumed knowledge of the fact concealed because he
ought to know it in view of the surrounding circumstances;
example – the insured was hospitalized for several months,
he should ought to know the nature of his illness;

 Minority view – the contract cannot be rescinded on the ground

of concealment if the non-disclosing party does not know the fact
involved; this relates to Sec. 26 of IC which provides that
concealment is neglect to communicate that which a party
“knows” and ought to communicate; (or at least ought to know);
the view is that one can conceal only if he know what to conceal;

 Waiver of the insurer; where upon the face of the application, a

question appears to be not answered at all or is answered
imperfectly, and the insurer issues a policy without any further
query, the insurer is deemed to have waived the imperfection of
the answer and render the omission to answer more fully
immaterial;

 Case – the insurer alleged that false statements have been

given by the insured regarding a surgical operation he
underwent and he claimed is fully recovered; the insured
reported that the surgery as an operation on a tumor
(mayoma) of the stomach, associated with ulcer of the
stomach; the doctor reported the insured was actually
diagnosed as having “peptic ulcer and the operation
involved a removal of part of the stomach of the insured;
the insurer claims it was a material misrepresentation;

SC considered the statement of the insured as an imperfect

answer that does not avoid the policy; the court noted that
if the ailment and operation of the insured had such an
important bearing, it could not understand why the insurer
did not make any further inquiries on the matter; the fact
that the insurer was too eager to accept the application
and receive the premium, it would be inequitable to allow
the insurer to avoid liability under the circumstance
(Aquino, p. 195);

 Case - Where an answer of the applicant to a direct

question of the insurer purports to be a complete answer,
 any substantial misstatement or omission avoid a policy
issued on the faith of the application;

 Case – SC ruled that there was no concealment where the

insured disclosed the fact that he had sought advice for
kidney problems and had undergone a procedure due to
kidney stone in 1987; the insurer claimed that there was
concealment because the insured did not disclose previous
medical treatment in 1994 which indicated “renal failure”;
acdg. to SC concealment as a defense to avoid liability is an
affirmative defense and the duty to establish such defense
by satisfactory and convincing evidence rests upon the
insurer; in the case, the insurer failed to clearly and
satisfactorily establish its allegations (Aquino, p. 196);

 The right to rescind under Sec. 27 should be exercised

previous to the commencement of an action on the
contract; but note that the concealment can be raised as a
defense in an action filed by the insured against the insurer;
in life insurance, the defense is also subject to an
incontestable clause;

NOTES FROM AQUINO TEXTBOOK:

2. Representation
o Representations are statements to give information to the insurer to induce
him to enter into the insurance contract; it is a collateral communication
made to the other party orally or in writing;

o Case – SC explained that representation of facts are the foundation of the

contract; if the whole foundation of the contract fails, the risk does not
attach and the policy never become a contract between the parties;

o Representations are made at the time or before the issuance of the policy
since they are supposed to induce the other party to enter into the contract;
statements made after the policy takes effect will no longer any bearing on
the decision of the parties to enter into the contract; see Sec. 37 - Section
37. A representation may be made at the time of, or before, issuance of the
policy;
  Exception to Sec. 37, see Sec. 47 - "Section 47. The provisions of this
chapter [re representation] apply as well to a modification of a
contract of insurance as to its original formation;

 Representations may also be made at the time of or before the

renewal of a policy;

o Comparison of representation with concealment

 Concealment involves an omission, non-disclosure; representation
involves a positive assertion or affirmation;
 Concealment cannot refer to a future act; representation can pertain
to the future because it can be promissory;
 The same test of materiality applies to both;
 In both cases, a party can rescind the contract;

o Kinds of representation; as to form, representation can be oral or written;

as to nature of the statement, it can be affirmative (dealing with facts
existing at the time the contract is made) or promissory ( concerning what is
to happen after the insurance is already effective); see Sec. 39 - 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;

o Interpretation;

 liberally construed in favour of the insured and are required to be

only substantially true;

 See Sec. 38 of IC - Section 38. The language of a representation is to

be interpreted by the same rules as the language of contracts in
general; Articles 1370 to 1379 of the NCC may be applied, such as
the rule that if the terms are clear and leave no doubt upon the
intention of the parties, the literal meaning of the stipulations shall
control;

 A representation is presumed to refer to the date on which the

contract goes into effect (Sec. 42); a representation that a house is
not occupied relates to the time the contract takes effect; it may have
been occupied before but there is no misrepresentation so long as
the house is not occupied when the contract takes effect; this rule
applies only to affirmative representations and not to promissory
representation (e.g., that the house shall not be occupied for
 residence or any other purpose; then the house should not be
occupied at anytime after the contract takes effect);

 A representation cannot qualify an express provision in the policy but

it may qualify an implied warranty; example, the implied warranty of
seaworthiness of an insured vessel may be qualified by a
representation made earlier by the insured that the vessel does not
have a particular equipment on board which otherwise is deemed
included in the implied warranty of seaworthiness;

 The materiality of representation is determined by the same rules as

the materiality of a concealment (Sec. 46 of IC); thus, representation
is deemed material if the knowledge of the information party will
affect the decision of the insurer to approve or reject the application,
consider a higher premium or fix such terms and conditions deemed
needed;

 Examples – representation is material if it relates to health,

freedom from disease, habits and medical attendance; in
some instances family relationship and family history may be
material;
 Case – the insured falsely represented that she had not
smoked for one year;
The applicant stated that she weighed 180 pounds when she in
weighed 300 pounds;

 Case -

 Representation as to age in life insurance, see Sec. 233(d) –

“Section 233. In the case of individual life or endowment insurance,

the policy shall contain in substance the following conditions:
xxx
(d) A provision that if the age of the insured is considered in
determining the premium and the benefits accruing under the policy,
and the age of the insured has been misstated, the amount payable
under the policy shall be such as the premium would have purchased
at the correct age; xxx;”

 The misstatement of the age of the insured does not avoid the
policy but only result in making the amount payable such
amount as the premium would have purchased at the correct
age;
  The Standard Life Insurance Policy Provision issed by the IC
(Circ. Letter No. 14-93 dated June 25, 1993) further provides
that if at the correct age, the insured is not eligible for any
coverage under the policy or its riders, the insurer will refund
the premiums actually received less any indebtedness under
the policy;

 Case – the life insurance policy provides that the insurer shall
not be liable when the insured is under 16 or over 60 years;
the insured was already over 60 when she applied for the
policy and actually disclosed that fact in the application; SC
ruled that the insurer is estopped from using the age of the
insured to avoid liability; the insurer should be construed as
having waived the age qualification wilfully or through the
negligence of its employees; the age as stated by the insured
could hardly be overlooked in the application form,
considering its prominence in the application form and that
the insurer received her payment of premium and issued the
policy without question;

 Case – misdescription of the building in fire insurance without the fault of

the insured cannot be considered material misrepresentation as a
ground to rescind the contract; SC held that the mistake of the
employees or agent of the insurer cannot prejudice the insured (Aquino,
p.211);

 Statements regarding the value of property are to a large extent matters

of opinion and the validity of valued policies cannot be made to depend
upon the absolute correctness of the estimated amount; men may
honestly differ about the value of properties insured;

o Remedy in case of misrepresentation; misrepresentation entitles the aggrieved

party to the right to rescind the contract; see Secs. 44 and 45 of IC –

Section 44. A representation is to be deemed false when the facts fail to

correspond with its assertions or stipulations.
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.
 o Instances when rescission is not available even when there is
misrepresentation; the injured party cannot rescind the policy on the
ground of false representation in the following cases (Secs. 48 and 45 of IC):

 When there is a waiver;

 When an action has already been commenced on the contract; but
note that misrepresentation can be raised by the insurer as a defense
in an action brought by the insured;
 When the incontestable clause applies;

o Acceptance of the premium (by itself) will not estop the insurer from
rescinding the policy on the ground of misrepresentation; even if the
insurer accepted the premium despite knowledge of the ground for
rescission, provided the other defenses as earlier mentioned are not
available;

NOTES FROM AQUINO TEXTBOOK:

Chapter 5 The Policy

o Section 49. The written instrument in which a contract of insurance is set

forth, is called a policy of insurance.

o Note the importance for policy to be clearly readable and understandable

for the protection of the public; in the past, provisions were of such bulk
and character that they would not be understood by men in general;
printed in such small type and in lines so long and so crowded that the
perusal of it was made physically difficult, painful and injurious;

o A policy issued in the Philippines is now subject to prior approval by the

Commissioner; see Section 232.

No policy, certificate or contract of insurance shall be issued or delivered within

the Philippines
unless in the form previously approved by the Commissioner,

and no application form shall be used with, and no rider, clause, warranty or
endorsement shall be attached to, printed or stamped upon such policy,
certificate or contract
 unless the form of such application, rider, clause, warranty or endorsement has
been approved by the Commissioner.

1. Consensual; contract of insurance is consensual, perfected by mere consent of

the parties; absence of a policy does not bar the contract from coming into
existence or being enforceable; no formality is required for its perfection but
note that under the IC the form of policy issued or delivered in the Phil. requires
the prior approval of the Commissioner;

2. Statute of Frauds Inapplicable

o Is the contract of insurance subject to the provisions of the Statute of
Fraud;

o See Article 1403 NCC. The following contracts are unenforceable, unless
they are ratified: xxx (a) An agreement that by its terms is not to be
performed within a year from the making thereof; xxx;

o Argument, insurance contract with a term of more than one year cannot
be performed within one year because the loss may occur after one year;
however, the obligation of the insurer to pay the proceeds may likewise
be performed within one year because the future event (like death) may
occur within one year; insurance contracts are not covered by the
Statute of Fraud, but note the requirement of the law for the issuance of
a policy; this avoids the issue in most cases;

3. Policy
o While the perfection of an insurance contract does not require formalities
(hence recall that insurance contracts may exist and be enforceable even
in the absence of a policy), note that under the IC it is mandated that a
written policy be issued by the insurer;

o See 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. Xxx

o Sec. 50. xxx 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.
 o Note IC Circular Letter No. 2014-47 (Nov. 21, 2014) – Guidelines on
Electronic Commerce of Insurance Products; Commissioner expresses
that:

 IC permits electronic documents;

 Electronic signature is permitted;
 Electronic communication is permitted for the delivery,
notice, mailing, issuance or similar acts;

 Information from the application form (as filled up thru

internet) shall be recapitulated in a summary and presented
to consumers before the contract is concluded; the process
of filling up may be prone to errors; clients are given
opportunity to validate their answers once more;

 Client may signify consent by clicking the confirmation

button; other modes of capturing consent (such as digital
electronics signature pad, software application) may be
used;

o Note/recall that under the IC, the form of all policies issued or delivered
in the Philippines are subject to prior approval by the Commissioner; See
Sec. 232 of IC; specimen copy of the form shall be stamped “approved”
by the Commissioner;

o Amendments or revisions to the “standard policy wordings” (as

previously approved) require prior approval by the Commissioner;

3.01 Other documents

o In addition to the policy, there may be other important documents
involved in insurance contracts relating to the creation of the insurance
contract, imposing limitation of liability, expanding coverage, etc.; they
may include the application, cover notes or binders, riders and
endorsements;

o Application is the offer of the person seeking to procure an insurance

policy; contains information and declarations that may constitute
representations of the applicant; declarations are statements providing
information about the risk to be insured and usually for the basis for a
decision regarding the issuance and rating of the insurance;
 o Binding receipts, receipts issued by an insurance company prior to the
issuance of a policy;
 In life insurance, a “binding slip” or “binding receipt” may be merely
conditional and does not insure by itself;
 Case – the binding deposit receipt was clearly intended to be merely
a “ provisional or temporary insurance contract, subject to the
compliance of the following conditions:
o That the insurer shall be satisfied that the applicant was
insurable on standard rates;
o That if the insurer does not accept the application and offers to
issue a policy for a different plan, the insurance contract shall
not be binding until the applicant accepts the policy of offered,
otherwise, the deposit shall be refunded;
o That if the applicant is not able to qualify according to the
standard rates, and the company disapproves the application,
the insurance applied for shall not be in force at any time, and
the premium paid shall be returned;

3.02 Policy form

o The insurer is generally free to provide for the terms and conditions of
the policies it will issue so as they are not contrary to LMCOP;
o Note that the forms (policy, application, rider, clause, warranty,
indorsements) are subject to the approval of the IC (Sec. 232); and that
there are minimum requirements for approval;
o Note standard policies approved by the IC
 Standard Fire Policy (approved on Sept. 1980, effective Jan. 1981);
 Standard Life Insurance Policy (June 26, 1993);
o Note that the IC prescribes certain mandatory provisions (such as
provision for grace period, options in the event of default in premium
payment, reinstatement clause, etc.) for certain insurance policies
 Individual life;
 Endowment insurance;
 Group life;
 Industrial life;
o Note that the IC consolidated the relevant rules on the approval of Non-
Life Insurance Policy Forms – “Guidelines on the Approval of Non-Life
Insurance Policy Forms” (Circular Letter No. 2015-58-A dated Dec. 21,
2015); recognizes the need for flexibility for insurer to design insurance
products to support the needs of the clients in a manner that shall
promote greater insurance protection; but the policy forms must not be
 inequitable, unfairly discriminatory, misleading, deceptive, obscure or
encourages misrepresentation;

4. Basic Provisions
o The terms of the insurance contract constitute the measure of the
insurer’s liability and compliance with such terms is a condition
precedent to the right of recovery of the insured;
o Sec. 51 provides for the contents of the policy but does not prohibit
additional stipulations provided they are not contrary to LMCOP;
o The various provisions of an insurance contract can be classified as
follows
 Declarations;
 Insuring agreements;
 Exclusions;
 Conditions;

o See Sec. 51
Section 51. A policy of insurance must specify: [PAP PIRP]
"(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.

o Declarations - declarations identify the insured; describe the property,

activity or life insured; state the types of coverage purchased, the
applicable policy limits and the terms of the coverage and indicate the
premium paid for each separate coverage purchases; the purpose is to
give the insurer sufficient information to enable it to issue the desired
policy at a proper price; most of the provisions of Sec. 51 are part of the
declarations;

o Insuring agreements – specify what the insurer promises to do; describes

the characteristics of the events covered under the policy;
 o Exclusions – limit the coverage provided; exclude specified perils,
property, sources of liability, persons, losses, locations and time periods;

o Conditions – prescribe conditions that must be complied before the

insurer can be made liable and may describe the basis for computing the
premium; define the terms used in the other parts of the policy;

o In marine insurance, the policy is to be distinguished from “Marine Risk

Notes” which is an acknowledgment or declaration confirming the
specific shipment covered by a Marine Open Policy, the evaluation of the
cargo, and the chargeable premium; it is not the policy itself;

o Non-Waiver Clause – In a non-life insurance policy, the insurer is allowed

to insert a non-waiver clause which is a provides that no change in the
policy is valid unless approved by the executive officer of the insurer; or
unless the approval is endorsed on the policy or attached to it, or both;
and that no agent has authority to change the policy or waive any of its
provisions;

4.01 Parties
o The policy must identify the insurer and the insured; the parties whose
consent is needed to perfect the contract must necessarily be specified;

4.02 Designation of Benefificiary

o The designation of the beneficiary must be made in unequivocal terms;

o See Sec. 53
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.

o Rules on designation; ideally, the name of the beneficiary is expressly

stated to avoid confusion; but the designation is not invalid even in the
absence of the specific name; it is enough that the identity of the
beneficiary is sufficiently determinable from the details provided in the
policy; some rules –
 Beneficiary designated is “wife” without specific name, in case the
first wife dies, the second wife is recognized as beneficiary;
  “Children” designated as beneficiary, these include adopted
children and children by the wife designated as beneficiary and
children of the previous marriage;
 “Our children” or “children of this marriage,” only the children of
the wife designated as beneficiary are included;
 Illegitimate children; there is a conflict of opinion in their
inclusion in the designation of “children” as beneficiary, but
considering the policy to protect children, it is submitted that
illegitimate children are included;
 Estate, may be designated by expressly indicating that the estate
is the beneficiary; “To the executors, administrators, assigns of the
insured” is taken to refer to the designation of the estate as
beneficiary;
 “Wife of the insured” or use of “Mrs.” is merely taken as merely
descriptive and the person whose specific name appears as
beneficiary (e.g. Mrs. Juana De La Cruz) is considered the
beneficiary even if in fact the person named is not married to the
insured;
 Specific name of a person is indicated with the additional
description as fiancé, the person designated is considered as
beneficiary even if the person is no longer the fiance of the
insured;
 Designation may be a “class designation” and this will include the
members of the class who are living at the time of the death of
the insured;
 Designation may be “Per Stirpes” meaning in equal shares to each
member of a specified class with the share of a deceased member
divided proportionately among his or her beneficiaries/surviving
children;

o 4.03 Amount insured, fixes the liability of the insurer;

 In property insurance, the insurer’s liability may be for total loss or
for less than total loss; policy may provide for different amounts
of compensation depending on the type or cause of loss;
 In health insurance, the liability may vary depending on the cause
of the injury;
 In life insurance, policy may provide for a bigger amount of
insurance coverage for certain causes of death as in the case
where double compensation is provided for accidental death;

 Amounts may vary depending on whether or not certain

conditions are complied with; case – a car insurance policy
provided not only for the limits of the insurer’s liability but also
 the mechanics that the insured had to follow to be entitled to full
indemnity of repairs; option to undertake repairs was accorded to
the insurer, otherwise the insurer’s liability is fixed at a smaller
amount; where the insurer is deprived of the option, and the
insured only notified the insurer when the repairs were done, the
insurer was held liable for a smaller amount stipulated in the
policy; it is not necessary for the insurer to prove that the cost of
repair undertaken at” the instance of the insured was
unreasonable;

 Case – SC held that “limitations on the liability on the part of the

insurer” [a health provider], must be construed in such a way as to
preclude the insurer from evading it;" obligations; they should be
scrutinized by the courts with “extreme jealousy” and care;

 Case – the policy stipulated an automatic increase in coverage

under certain circumstances; under an “automatic increase
clause,” the coverage is automatically increased to a higher
amount if the insured reaches a certain age;

4.04 Premium
o Recall Sec. 77 of IC, “no policy or contract of insurance issued by an
insurance company is valid and binding unless and until the premium
thereof has been paid;” the IC requires the payment of premium in
order to make the responsibility of the insurer to pay obtain obligatory
force;

o Recall, however, that a policy may be held as in force in certain instances

even if premium is actually yet unpaid, such as in the case of grace
period, grant of credit extension, payment of premium by instalments,
acknowledgment by the insurer of the receipt of premium (even if
premium is in fact not yet paid); in the first two instances, the initial
premium must have been paid;

o Ordinarily, the amount of premium payable should be specified in the

policy; but there are cases when the insurance is of a character where
the exact premium is determinable only upon the termination of
contract; in which cases, the law requires that a statement of the basis
and rates upon which the actual premium due is to be determined must
be stated in the policy;

o The amount of premium payable cannot be left to the sole will of one of
the parties;
4.05 Identification of the Insured

o Generally, the policy expressly specifies the insured to leave no room for
doubt as to the identity of the owner of the policy;
o In property insurance, the insured is the person who, having insurable
interest in the property insured, took out the insurance policy;
o In life insurance, a person may insure his own life or health; he may also
insure the life of another; the person whose life is insured is called the
insured and the person who took out the insurance is called the assured;

o When the Insured identified in general terms, see Sec. 56

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.

o It is a question of proof if the person claims that he is one of those

described as insured in general terms;

o Example – “registered owner” designated as the insured in a car

insurance; proof can be by presentation of the certificate of registration
of the car;

o There are cases when the insured are necessarily identified in general
terms

 Compulsory Third Party Liability Insurance, insurance is in favour

of passengers of the vehicle; they can be identified only at the
time of accident;
 Group Insurance Plan, provides that any person eligible shall
automatically be insured; a person is insured so long as he
qualifies under the coverage clause provided in the policy;

o Real owner of the policy in policies involving agents, trustees, co-owners

and partners, see Sec. 54 and 55

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.

 Covers instances that the principal takes an insurance on the

property through an agent or trustee and the policy does not
expressly provide that it was the principal who really took the
policy; the policy may contain words that will indicate that the
principal is the real party-interest;

 Note that both the principal and his agent or trustee both have
insurable interest in the property and can each insure the same
property; the owner is damnified by the loss of the property he
owns; the agent or trustee who takes care of the property may
also be damnified by the loss in view of his responsibility to take
care of the car;

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.

 Partners and co-owners have insurable interest in the property

owned by the partnership or owned in common;
 Insurance can be taken by the managing partner or co-owner on
the property for the partnership or the co-ownership; in such
case, the terms of the policy should expressly provide that the
insurance is applicable to the joint or common interest; an
express provision is necessary because a co-owner and partner
also have insurable interest on the property and they may take
insurance for their own benefit;

4.06 Identification of the Property Insured

o Sec. 51 of IC provides that the property insured and the interest of the
insured must be specified in the policy;
Section 51. A policy of insurance must specify: xxx (d) The property or life
insured;
(e) The interest of the insured in property insured, if he is not the
absolute owner thereof; xxx.

o Ideally, the description of the property should be so specific as to leave

no room to doubt its identity to avoid unnecessary dispute with the
insurer in case of loss; but an erroneous description of the property
 insured will not necessarily avoid the policy if the true intention of the
parties can be determined;

o Case (1923) - the insured took an insurance to cover merchandise that

he owned stored in a building not his own; the policy issued to him was
a policy on said building; during the effectivity of the insurance, the
merchandise were completely destroyed by fire; the court allowed the
insured to recover on the insurance (Garcia v. Hongkong Fire and Marine
Insurance);

o The insurance is not limited to property (real or personal); the insurance

can also be on the liability of the insured, as in the performance of an
obligation; e.g., the potential liability of a medical professional to his
patients may be insured against;

o Case - an insurance was taken by an owner of a resort against the risk

of loss through earthquake; he claimed that the insurance covered not
only the two swimming pools but also the other properties in the resort;
the insurer rejected the claim stating that only the two swimming pools
were insured; SC ruled in favour of the insurer, citing that all the
provisions of the policies and riders, taken and interpreted together
indubitable show the intention of the parties to earthquake shock
coverage to the two swimming pools only;

o The greatest liberality is shown by the courts in giving effect to the

insurance; courts are inclined to consider that the policy of insurance
covers any building which the parties manifestly intended to insure,
however inaccurate the description may be; (there was error in copying
the boundaries of the first oil mill in the typing of the policy for a new oil
mill; the agent’s insurer was notified of the error but the agent assured
the insured that the use of the adjective “new oil mill”; there was already
an existing insurance covering the property erroneously described in the
new insurance;

4.07 Risk Insured Against

o Recall 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 xxx;
o Note the elements
 The event that constitute the risk must be contingent or unknown,
e.g. death, fire, earthquake, etc.;
  The happening of the event will damnify the insured or will create
a liability against him;
o The following need to be within the scope of contractual definition
 Nature of the event;
 Time of its occurrence;
 Place of its occurrence;
 Nature of the loss suffered (in indemnity insurance);

o “Named perils policies,” specify the risk or risks insured against;

o “All risk policies,” read as meaning all risks whatsoever and covering all
losses by accidental cause of any kind; given a broad and
comprehensive meaning as covering any loss other than a wilful and
fraudulent act of the insured; the very purpose of an “all risks” insurance
is to give protection to the insured in those cases where difficulties of
logical explanation or some mystery surround the loss or damage to
property; the burden is not on the insured to prove the precise cause of
loss or damage;

o Case – under an “all risks insurance policy,” the insured has the initial
burden or proving that the cargo was in good condition when the policy
attached and that the cargo was damaged when unloaded from the
vessel; thereafter, the burden shifts to the insurer to show exceptions to
the coverage (Filipino Merchants Insurance Co., Inc. vs. CA, 11.28.1989);

5. Riders, “Ancillary Forms” that are not part of the original printed form but are
merely attached to the policy; they modify the provisions in the standard
policies by adding special provisions that add or exclude coverage; riders are
modifications in life insurance; (endorsements are modifications in property
and liability insurance, but are used interchangeably);
o See Sec. 50 of IC for the rules on riders etc.
“xxx
“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.
 “xxx.”

o Endorsement is a written agreement attached to a property insurance

policy to add or subtract insurance coverage; can add or reduce
coverage for acts or things that are not covered as part of the original
policy; can be added at the inception of the policy or later during the
term of the contract;

o Riders and endorsements supersede the standard policy provisions; they

prevail over the printed clause they cover;

6. Contract of Adhesion; insurance contracts are contracts of adhesion (also called

contracts by adherence); insurance contracts are prepared by the insurer and
the insured merely adheres (to abide by); the insured usually cannot change
the written policy imposed by the insurer;

6.01 Reading of Policy, the insured may accept policies without reading them,
and this may not be negligence per se; but this rule admits of exception as
when it is incumbent upon the insured to read the insurance contract if this can
be reasonable expected of him;

 case – a person who has been a businessman for a long period of time
and the contract concerns indemnity in case of loss in his money-making
trade of which important consideration he could not have been unaware
of as it was precisely the reason for his procuring the insurance;

 the receipt of the policy by the insured without objection binds the
insured; he may not thereafter be heard to say that he did not read the
policy or know its terms; it is his duty to read the policy and it will be
assumed that he did so;

 case – the insured discovers a mistake made by himself and the agent in
attaching a wrong rider; the insured elects to retain the policy issued,
neither requesting for the issuance of a different policy not offering to
pay the premium needed to insure against the risk he believed the rider
must have covered; insured was deemed to have accepted the policy as
issued (Aquino, p. 155);

7. Interpretation and Proof

o Cardinal [principal or prime importance] rule in the interpretation of
contracts, “when the words and language of documents are clear and
plain or readily understandable by an ordinary reader, there is absolutely
no room for interpretation or construction anymore; the first and
 fundamental duty of the courts is to apply the contract according to its
express terms; courts are not allowed to make contracts for the parties;
courts will intervene only when the terms of the policy are ambiguous,
equivocal or uncertain; parties must abide by the terms as written;

o Obligations arising from contracts have the force of law between the
contracting parties are should be complied with in good faith;

o Contracts of insurance are to be construed liberally in favour of the

insured and strict against the insurer, but they are to be construed
according to the sense and meaning of the terms which the parties
themselves have used;

7.01 Interpretation in Case of Doubt

o Note, insurance contracts are contracts of adhesion; doubt should be
resolved against the insurer who drafted the contract; Note, Article 1377
of NCC. “The interpretation of obscure words or stipulations in a contract
shall not favor the party who caused the obscurity.”

o Doctrine of reasonable expectation, the language of the insurance policy

is interpreted to give effect to the reasonable expectation of the insured;
the interpretation should favour the insured because of the disparate
bargaining status of the parties;

o Under the dominant purpose of indemnity or payment to the insured,

ambiguity in insurance contracts are to be construed strictly against the
insurer and liberally in favour of the insured; specially where forfeiture is
involved; the insured usually has no voice in the drafting of the contract
which is done with great care and deliberation by experts and legal
advisers working exclusively in the interest of the insurance company;

7.02 Forfeiture Clauses

o Coverage provisions are construed broadly to provide the broadest
possible coverage while exclusions are construed narrowly; exclusions
are strictly construed against the insurer and liberally interpreted in
favour of the insured;

7.03 Other Rules of Interpretation

o Expresso unius exclusion altlerius – the mention of one thing implies the
exclusion of another; an enumeration of excluded perils leads to a
conclusion that other causes not included in the enumeration are not
excluded from coverage;
 o Written words prevail over printed words;

o All provisions should be examined and a particular provision should not

be construed in isolation; all parts of the contract are deemed reflective
of the true intent of the parties; all provisions and riders should be taken
and interpreted together to show the intention of the parties;

o Policy should be read as a layman would have read it and not as it may
be analysed by an expert; however, plain meaning rule does not apply if
the parties used particular words in a technical sense;

7.04 Indivisibility
o There may be an issue of indivisibility when an insurance policy covers
two or more properties; when the contract covers several separate
subjects in consideration of separate premiums, the contract is divisible
and the invalidity of one does not affect the other; it is indivisible when
breach or misrepresentation regarding one subject affects the other
subjects;

o Whether a contract is entire or severable is a question of intention to be

determined by the language employed by the parties;

o Case – in the policy, the subject matter insured was the entire shipment
of 2,000 cubic meters of apitong logs; they were loaded in two different
barges; they were not separately valued or separately insured; only one
premium was paid for the entire shipment, making only one cause or
consideration; the contract was considered indivisible; the fact that they
were loaded on two different barges did not make the contract several
and divisible as to the items insured;

7.05 Proof
o If the terms and conditions of the policy are in question in a case, the
party who seeks to prove such terms and conditions must present the
policy during the trial and formally offer it as evidence;

o If a legal claim is sourced from an actionable document, the defendant

cannot be deprived of the right to examine or use such document in
order to intelligently raise a defense; a refusal to submit such document
into evidence constitutes a denial of the right which is rooted in due
process;
 o Case – insurance company was a plaintiff trying to recover based on its
right of subrogation; the insurance company is obliged to attach the
policy to the complaint as actionable document and to present and offer
it as evidence; note also that the failure may fatally diminish the
plaintiff’s substantiation of its own cause of action;

o Note that Circ. No. 11-2000 of IC prevents insurers and insurance agents
from divulging information in insurance policies; SC ruled that the
circular is not intended to prevent compliance with lawful orders of the
court; there is no legal impediment to the production of the insurance
application and the insurance policy pursuant to a subpoena issued by
the trial court (Yu v. CA, Nov. 29.2005);

o Case – in a case, the policy was attached to the complaint; court ruled
that the insurer cannot escape liability by claiming that the policy (bond
of a surety) was unaccounted for or missing from its custody; the insurer
cannot let the beneficiary suffer through fault of the insurer;

7.06 Signatory
o The officer who signs for the insurance company must be duly
authorized to sign; however, a violation of the internal rules of the
insurer regarding contract signatories cannot be used against an
innocent insured; as between the insured and the insurer, the insurer
who employed and gave character to an officer as its agent should be
the one to bear the loss;

8. Cover Notes
o Cover notes are interim (used or accepted for a limited time/not
permanent) or preparatory contracts of insurance; interim coverage may
be necessary because the insurer may need more time to process the
insurance application;

o See Sec. 52 of IC
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.

o Note such rules and regulations; see IC Circ. No. 3-75 which provides
that the written approval of the IC is dispensed with upon certification by
the insurer that the risk involved, the values of such risks and premium
therefor have not as yet been determined or established and the
extension or renewal is not contrary to or is not for the purpose of
violating the IC or any rule;

9. Kinds of Property Insurance Policy

o Property insurance may be open, valued or running;
o See Secs. 59, 60, 61, 62

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.

 No valuation of the property is stipulated in an open policy (but

the policy has a face value which serves as maximum limit to what
may be claimed under the policy); the insured is only entitled to
recover the amount of actual loss sustained as he may be able to
establish; the actual loss will represent the total indemnity which
shall not exceed the face value;

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.

 The valuation is binding on the parties; no party can establish a

different valuation in case of loss;

 The amount to be paid by the insurer as indemnity may not

necessarily be related to the actual loss; the measure of indemnity
is the agreed valuation and not the actual loss (reason why a
valued policy is considered an exception to the principle of
indemnity);
  A life insurance policy is always a valued policy because the
amount fixed in the policy is not related to the actual loss; the
value of the loss of life is not easily determined;

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.

 The extent of the property insured shall be defined from time to

time because of the nature of the business or property being
insured;
 Case – a fire insurance policy to cover stocks of rice while
contained in a certain building;
1âwphi1

10. Cancellation
 Cancellation of property insurance policies should be made in
accordance with Secs. 64 and 65 of IC;

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.

 Sec. 64 applies to insurance other than life insurance, only to property

insurance; but some grounds may apply to life insurance, such as non-
payment of premium, fraud or material misrepresentation;

 Notice is required to allow the insured an opportunity to negotiate for

other insurance, or to allow the insured to raise issue that he may have
regarding the cancellation;

 Where no specific number of days is provided in the policy for the giving
of insurance, reasonable notice and opportunity to obtain other
insurance must be given;
 Actual receipt by the insured of a notice of cancellation is universally
recognized as a condition precedent to a cancellation of the policy by
the insurer; in one case, a notice mailed but not received by the insured
was deemed ineffective as cancellation (Aquino, p.171);

 Cancellation by the insured; Sec. 64 deals with the right of the insurer to
cancel the policy; see Sec. 80 of IC where the right of the insured to
surrender a policy is implied

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.

 Note, in a case decided under the old Insurance Law, the SC ruled that
“neither the return of the policy, nor a demand for the return of a
proportion of the premium corresponding to the unexpired term, nor the
actual return of said portion of the premium is essential to the effectivity
of the request of the insured for the cancellation of the insurance policy.
Upon receipt thereof by the insurer, the contract become ipso facto
 terminated, without any further act of any party (Paulino v. The Capital
Insurance & Surety Co., Inc., May 15, 1959);

10.01 Rescission
 Rescission, like cancellation, is one of the ways to terminate the policy;
termination means any act by an insurer which has the effect of
discontinuing an insurance policy; the term includes non-renewal;

 If the termination is based on grounds other than those provided in Sec.

64 (grounds for cancellation by the insurer), the violation of the provision
of the policy or any breach must be consistent with the grounds allowed
by law on concealment, representation
and warranty;

 The grounds for rescission by the insurer of a non-life insurance policy

are as follows:
1. When representation is false on material point whether affirmative or
promissory;

2. Violation of material warranty on the part of either party or other

material provisions of the policy;

3. Intentional or unintentional concealment;

4. Violation of a special provision of the policy where the policy declares

that violation thereof shall avoid the policy;

5. Intentional or fraudulent omission, one the part of one insured, to

communicate information of matters proving or tending to prove the
falsity of a warranty;
6. With respect to fire insurance, alteration in the use or condition of a
thing insured from that to which it is limited by the policy made
without the consent of the insurer, by means within the control of the
insured, and increasing the risks;

11. Renewal of Policy

 Renewal means the issuance and delivery by an insurer of a policy for the
same or similar coverage superseding (at the end of the policy period) a
policy previously issued and delivered by the same insurer, or the
issuance and delivery of a certificate or notice extending the terms of a
policy beyond its period or term;
  Non-renewal if the termination of the policy by the insurer at the
expiration of the date of the policy;

 The insured has the right to renew a non-life insurance policy; in some
cases, by simply paying the premium due on the effective date of
renewal;

 See Sec. 66, provides for an instance when the insured (other than in life
insurance) shall not have the a right to renew, otherwise, the insured will
have a right to renew

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.

12. Reformation of the Policy

 The courts have the power to reform a contract of insurance and give it
an effect in the sense in which the parties intended to be bound; it
involves situations where what was agreed upon is different from what
was written in the policy;

 But it must be made clear to appear that the minds of the contracting
parties did actually meet in agreement and that they labored under some
error or mistake with respect to the expression of their purpose;

 Case – a mortgagee desired to insure his own insurable interest only,

correctly stating his intention; the insurer accepted the risk but the
policy was issued in the name of the mortgagor-owner, under the
mistaken belief by the insurer’s agent that the law required the policy to
be written in that manner; the court allowed the reformation of the
 contract, citing that by mistake of law, the agent adopted the wrong
form;

 To justify the reformation of a contract, the proof must be of the most

satisfactory character, and it must clearly appear that the contract failed
to express the real agreement between the parties;

 Note that it is also possible for the insured to recover if there has been a
mistake without the necessity of reformation of the contract;

o Case – the insured wanted a fire insurance on his stock of

merchandise which he owned; the stocks were stored in a
building he did not own; the policy issued to him was an
insurance policy on the building (not the stocks of merchandise he
sought to be insured); while the policy was in force, fire
completely destroyed both the building and the merchandise; the
insured was allowed to recover for the loss of his merchandise
under the circumstances;

Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
Title 7 WARRANTIES
20191001 TUESDAY - Insurance
20191002 WEDNESDAY - Insurance
Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

Warranties

o A warranty is an affirmation of fact or a promise that forms part of the terms

and conditions of the policy; it may be incorporated in the policy by way of
reference; the falsity or non-fulfilment of the warranty renders the policy
voidable by the insurer;

o See Sec. 68 - Section 68. A warranty may relate to the past, the present, the
future, or to any or all of these;

o A warranty is either express (stated in the policy or any of its attachments)

or implied (a natural element of the contract imposed by the law and is a
part of the policy without the need to be stated in the policy); it may also be
affirmative (affirmation of facts that exist at the time they are made) or
promissory (stipulates that certain thing shall be done or a specified
condition shall exist during the effectivity of the contract);
o Rules on promissory warranties, see Secs. 72 and 73 of IC

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 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.

o Promissory warranty may be a positive act (e.g. that firewall will be modified
according to certain specification) or an omission (e.g. that gasoline will not
be stored in the insured building);

o Formalities of express warranty;

 Sec. 69 of IC provides that no particular form or words are necessary

to create a warranty;

 But, Sec. 70 imposes the following requirements

Section 70. Without prejudice to Section 51 [what a policy shall

specify],

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.

o Breach of warranty renders the contract defeasible (capable of being

annulled or made void); the insurer must prove such breach consistent with
the rule that any violation must be established by the person who is making
 such allegation; the insurer may elect to waive his right to avoid the policy
in case of breach expressly or impliedly (e.g. renewing the policy knowing
that there was breach of warranty);

o Remedy in case of breach of warranty; see Secs. 74 and 75 of IC

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.

 Only a material breach will provide ground for rescission; breach of

immaterial provision does not avoid the policy; [?it is no longer the
rule now that all warranties are considered material the moment they
are expressed to be so in the policy – Aquino, p. 218;]

 If the policy itself provides that breach of a warranty or a provision

avoids the policy, the warranty is deemed to be material; the parties
may agree to be absolutely true and if untrue in any respect, the
policy is avoided;

 Breach of warranty may be waived by the other party;

o Breach of warranty may be with fraud (with intent to deceive) or without

fraud; see Sec. 76 of IC

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.;

o Warranty, distinguished from representation

  Warranty is part of the contract, representation is not part of the
contract but a collateral inducement; [“collateral” means related but
not in a direct or close way; accompanying as secondary or
subordinate; serving to support or reinforce);
 Warranty is written on a policy or its rider; representation can be oral;
 Warranty is presumed to be material; representation must be
established to be material;
 Warranty must be strictly complied; representation must be
substantially true;

Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
20191004 THURSDAY – Insurance B
20191021 MONDAY – Insurance A
TITLE 8 – PREMIUM
Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

"TITLE 8
"PREMIUM

"Section 77.
The right of the insurer to the payment of premium;
Payment of premium is essential for the insurance contract to be valid and
binding, with exceptions;
Grace period in life or an industrial life policy;
Credit extension in life or an industrial life policy;

"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.

* note re exposure to risk;

- where application is not approved, no premium can be recovered and if previously paid,
it must be returned;

-where the insurance is to take effect on a certain date and loss occurs before said date,
whole premium must be returned;
 -where the parties have become public enemies after a declaration of war, insurance
contract is abrogated, insurer is not entitled to payment or premium and nor liable for
indemnity in case of loss after the declaration of war;

NOTES

"Section 78.

Payment of premium through salary deduction for employees of the

Republic of the Philippines;

"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.

NOTES

"Section 79.

Acknowledgment in a policy of receipt of premium as conclusive evidence to

make the policy binding;

"Section 79.
An acknowledgment in a policy or contract of insurance of 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.
* Legal fiction of payment is made by law; the insurer is presumed by law to have
waived the condition of prepayment of premium for the validity or binding effect of
the contract; not contrary to LMCOP;

NOTES

"Section 80.
The right of the insured to a return of premium;

"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.

* In life insurance, there is no recovery of premium paid in case the insured

surrenders his policy; life insurance is not a divisible contract; it is an entire
insurance for life; each instalment is part of consideration for entire life insurance;
(note, value of assurance for one year of a person’s life when he is young, strong
and healthy is not the same as when he is old and weaker;

* the insured, however, is entitled to receive the cash surrender value of his policy
after 3 full annual premium had been paid);
NOTES

"Section 81.
When the insured is not entitled to a return of premium;

"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.

* example – insurance was procured upon a certain vessel against the perils of the
sea for a voyage from Manila to London; the voyage is to last 5 days; if the
insured cancels the policy 2 days after voyage, no portion of premium is returnable
because the thing insured has already been exposed to the risks insured against;

* note case where the insurance is divisible, consisting of several distinct risks for
which different premiums have been paid;

the premium paid for any particular risk is not earned until that risk has attached;

example – insurance was procured upon a vessel contemplating a voyage in 3

different stage; from Port A to B, Port B to C, and Port C to D; different amount of
premium were paid for each portion;

if the insurance is cancelled after reaching Port B, the premiums paid

corresponding to the 2 other stages can be recovered; no risk as attached with
respect to the 2 stages insurance;

NOTES

"Section 82.

The right of the insured to a return of premium when the contract is voidable
and is annulled;

"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.

NOTES

"Section 83.
The right of the insured to a ratable return of premium in case of over
insurance by several insurers;

"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.

NOTES

"Section 84.
The law allows the insurer to accept additional premium;

"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.

NOTES

XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

NOTES FROM AQUINO TEXTBOOK

LECTURE NOTES (BASED ON AQUINO Chapter 4 , p. 12 ]

PREMIUM

1. Premium required for the policy to be binding

o Sec. 77 provides the rule on 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.

o Insurer is entitled to the payment of premium as soon as the thing

insured is exposed to the peril insured against;

o Contract of insurance is generally unilateral; the payment of premium

gives rise to the obligation of the unilateral obligation of the insurer;

o usually the insured cannot be sued for non=payment of the premium,

the only effect of non-payment is that the policy will not go into force;
after the premium is paid, it is only the insurer that makes a legally
enforceable promise;

o Payment may be made to insurer or to its agent; see sec. 315; when
agent has authority to receive payment, payment is complete when the
money delivered is in the agent’s hand;

See 2nd par.

 Section 315. The premium, or any portion thereof, which an insurance
agent or insurance broker collects from an insured and which is to be
paid to an insurance company because of the assumption of liability
through the issuance of policies or contracts of insurance, shall be held
by the agent or broker in a fiduciary capacity and shall not be
misappropriated or converted to his own use or illegally withheld by the
agent or broker.

Any insurance company which delivers to an insurance agent or

insurance broker a policy or contract of insurance shall be deemed to
have authorized such agent or broker to receive on its behalf payment of
any premium which is due on such policy or contract of insurance at the
time of its issuance or delivery or which becomes due thereon.

In order to ensure faithful performance by the insurance agent or

insurance broker of these fiduciary responsibilities, the Insurance
Commissioner shall prescribe the minimum terms and conditions on such
matters in the standard agency or brokers agreement between the
agents and/or the broker with the insurance companies.

o Industrial life policy; see sec. 235, 2nd par.; industrial life insurance
provides coverage to industrial workers or people who are unable to
afford insurance for bigger amounts; fixed amount is given in case of
accident or death; a.k.a. burial policy, small death benefits;

Section 235. The term industrial life insurance as used in this Code shall
mean that form of life insurance under which the premiums are payable
either monthly or oftener, if the face amount of insurance provided in
any policy is not more than five hundred times that of the current
statutory minimum daily wage in the City of Manila, and if the words
industrial policy are printed upon the policy as part of the descriptive
matter.

An industrial life policy shall not lapse for nonpayment of premium

if such nonpayment was due to the failure of the company to send its
representative or agent to the insured at the residence of the insured or
at some other place indicated by him for the purpose of collecting such
premium:
 Provided, That the provisions of this paragraph shall not apply when the
premium on the policy remains unpaid for a period of three (3) months
or twelve (12) weeks after the grace period has expired.

1.01 Effect of non-payment

o Obligation of the insurer will not become valid and binding if the first
premium has not been paid; if the subsequent premiums have not been
paid, the policy issued will be deemed to have lapsed;

o Mere delivery of PN or post-dated checks is not sufficient unless the case

falls under any of the exceptions (in case of life or industrial life insurance
where grace period applied; in case of a written acknowledgment by the
insurer of receipt of premium, it is deemed a conclusive evidence of
payment of premium even if premium is actually unpaid/but insurer is
allowed to collect the premium if not payment has been made);

o Insurance is a risk-spreading device; actual loss is distributed among a

group of persons insured, loss is paid out of the funds obtained from
their contributions made through the payment of premiums;

o The law mandates insurers to maintain an adequate legal reserve,

sufficient to guarantee the security of its policy-holders; the integrity of
this legal reserve will be threatened or undermined if credit
arrangements for the payment of premiums were to be sanctioned,
except in the enumerated instances;

o An insurance contract is a consensual contract, perfected upon the

meeting of minds of the parties, but the obligation of the insurer is
conditioned on the payment of premium;

o Insurer has no right to demand or sue the insured for unpaid premium;
the non-payment of premium puts an end to the insurance contract, time
of payment is of the essence in insurance contracts; there will be no
more insurance contract to speak of; it will be an unfair dealing to allow
the insurer to sue for unpaid premium;

o Payment by check; delivery of a check after the loss is not effective;

delivery of a post-dated check before the loss will not result in making
the policy binding, except in the the cases where exceptions are allowed,
such as when there is a credit agreement;

o However, there is an opinion to the effect that if the ckeck is not post-
dated and is covered by sufficient funds, delivery of the check will make
 the insurance policy valid and binding even if the same is encashed after
the loss; it retroact to the date of acceptance by the insurer;

1.02 When binding even if premium is unpaid

o In the case of UCPB General Insurance Co., Inc. v. Masagana Telamart,

Inc. (April 4, 2001); the following exceptions where held:
 When grace period applied in case of life and industrial life
insurance;
 When there is an acknowledgment in the policy or receipt that
premium has been paid;
 When there is an agreement that premium will be paid on
instalment basis;
 When there is a credit extension;
 When equitable doctrine of estoppel applies;

o Grace period, the period after the date of the premium is due during
which the premium can be paid with no interest charged and the policy
remaining in force; this exception presupposes that an insurance policy
had already been in force; this cannot apply when the policy is first
taken; the provisions of the IC in Secs. 233, 234, and 236 are pertinent to
this concern;

 Section 233. In the case of individual life or endowment insurance,

the policy shall contain in substance the following conditions:

"(a) A provision that the policyholder is entitled to a grace period

either of thirty (30) days or of one (1) month within which the
payment of any premium after the first may be made, subject at
the option of the insurer to an interest charge not in excess of six
percent (6%) per annum for the number of days of grace elapsing
before the payment of the premium, during which period of grace
the policy shall continue in full force, but in case the policy
becomes a claim during the said period of grace before the
overdue premium is paid, the amount of such premium with
interest may be deducted from the amount payable under the
policy in settlement;

Xxx

 Section 234. No policy of group life insurance shall be issued and

delivered in the Philippines unless it contains in substance the
following provisions, or provisions which in the opinion of the
 Commissioner are more favorable to the persons insured, or at
least as favorable to the persons insured and more favorable to
the policyholders:

(a) A provision that the policyholder is entitled to a grace period

of either thirty (30) days or of one (1) month for the payment of
any premium due after the first, during which grace period the
death benefit coverage shall continue in force, unless the
policyholder shall have given the insurer written notice of
discontinuance in advance of the date of discontinuance and in
accordance with the terms of the policy. The policy may provide
that the policyholder shall be liable for the payment of a pro rata
premium for the time the policy is in force during such grace
period;

xxx

 Section 236. In the case of industrial life insurance, the policy shall
contain in substance the following provisions:"(a) A provision that
the insured is entitled to a grace period of four (4) weeks within
which the payment of any premium after the first may be made,
except that where premiums are payable monthly, the period of
grace shall be either one (1) month or thirty (30) days; and that
during the period of grace, the policy shall continue in full force,
but if during such grace period the policy becomes a claim, then
any overdue and unpaid premiums may be deducted from any
amount payable under the policy in settlement;

o Acknowledgment, see Sec. 79 of IC,

 "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.

 Insurer can still demand payment if actually unpaid;

o Installment, note the case of Makati Tuscany Condominium Corp. v. CA

(Nov. 6, 1992);
 SC allowed the insured to pay the premiums on instalments;
 Import of Sec. 77 is that prepayment of premium is strictly
required as a condition to the validity of the contract; but the
court did not rule that the request of the insured to make
instalment payment duly approved by the insurer would prevent
the entire contract from going into effect despite payment and
acceptance of the initial premium or the first instalment;

"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.

 Sec. 78 of IC in effect allows waiver of by the insurer of the

condition of prepayment by making an acknowledgment in the
insurance policy of receipt of premium as conclusive evidence of
payment in so far as to make the policy binding despite the fact
that premium is actually unpaid;

"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.

 Sec. 77 merely precludes the parties from stipulating that the

policy is valid even if the premiums are unpaid, but does not
expressly prohibit an agreement granting credit extension, and
such an agreement is not contrary to LMCOP; also an
understanding to allow the insured to pay in instalment is not so
prescribed; at the very least, both parties should be deemed in
estoppel to question the arrangement they have voluntarily
accepted;
  The SC noted that its decision in another case, Arce v. Capital
Surety and Insurance Co., the facts were different, in that case, no
payment was made by the insured at all despite the grace period
given; in Makati Tuscany Condominium Corp. v. CA, the insured
had paid the initial instalment and thereafter made staggered
payments (full payments for 1982 and 1983, and for 1984, paid 2
installments although it refused to pay the balance);

o Credit extension,

 Credit extension is allowed under the present law and in

jurisprudence; however, the policy must expressly and clearly
provide for a credit extension;

 See Sec.77

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.

 Said agreement will benefit the insured who can also pay
through the intermediary within the credit extension;

 If the insurer has granted the insured a credit term for the
payment of the premium and loss occurs before the expiration of
the term granted in the credit extension, recovery on the policy
should be allowed even though the premium is paid after the loss
but within the credit term;

 Acdg. to the SC, there is nothing in Sec. 77 which prohibits the

parties to provide a credit term within which to pay the premiums;
 that agreement is not against LMCOP; Art. 1306 of NCC provides
that contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they
are not contrary to LMCOP;

 Note, opinion of J. Vitug, there should at least be a partial

payment to establish the vinculum juris between the parties (but
note earlier observation that insurance contract is consensual);

o Estoppel, estoppel may bar an insurer from taking refuge under Sec. 77 if
the insured relied in good faith on a practice that they have been
following with the insurer; The SC ruled in a case that it would be unjust
and inequitable if recovery on the policy would not be permitted against
the insurer which had consistently granted a 60 to 90-day credit term for
the payment of premiums despite its full awareness of Sec. 77;

o Salary deductions for government employees,

 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.
 Note that policy is already binding although the premium is paid
or is to be paid through instalments;

o Surety,
 An exception only with respect to a suretyship under Sec. 179 of
IC;

 Section 179.
The surety is entitled to payment of the premium
as soon as the contract of suretyship or bond
is perfected and delivered to the obligor.
 No contract of suretyship or bonding shall be valid and binding
unless and until the premium therefor has been paid,
except where the obligee has accepted the bond,
in which case the bond becomes valid and enforceable
irrespective of whether or not the premium
has been paid by the obligor to the surety:
Provided, That if the contract of suretyship or bond
is not accepted by,
or filed with the obligee,
the surety shall collect only a reasonable amount,
not exceeding fifty percent (50%) of the premium due thereon
as service fee
plus the cost of stamps or other taxes
imposed for the issuance of the contract or bond:
Provided, however, That
if the non-acceptance of the bond be due
to the fault or negligence of the surety,
no such service fee, stamps or taxes shall be collected.

In the case of a continuing bond,

the obligor shall pay the subsequent annual premium
as it falls due
until the contract of suretyship is cancelled
by the obligee
or by the Commissioner
or by a court of competent jurisdiction, as the case may be.

o Valid tender of payment,

 The insurance contract will continue to be binding if the non-
payment was due to the fault of the insurer; such as refusal of the
tender of payment;

2. How to prevent lapse of life insurance policy

o The following are way used to prevent the lapse of life insurance policy -
Grace period; automatic policy loan; application of dividend;
restatement clause;

2.01 Automatic policy loan and cash surrender value

o Cash surrender value, (as applied to life insurance policy) an amount of
money the insurer agrees to pay to the policy holder if he surrenders the
policy and releases his claim against the insurer; the amount is held in
 trust by the insurer for the insured to be delivered upon demand; it is a
liability of the insurer to the insured;

o See Sec. 233 (f)

Section 233. In the case of individual life or endowment insurance, the
policy shall contain in substance the following conditions:

xxx
(f) A provision specifying the options to which the policyholder is entitled
to in the event of default in a premium payment after three (3) full
annual premiums shall have been paid. Such option shall consist of:

(1) A cash surrender value payable upon surrender of the policy which
shall not be less than the reserve on the policy,
the basis of which shall be indicated,
for the then current policy year and any dividend additions thereto,
reduced by a surrender charge which shall not be more than one-fifth
(1/5) of the entire reserve or two and one-half percent (2½%) of the
amount insured and any dividend additions thereto; and

(2) One or more paid-up benefits on a plan or plans specified in the

policy of such value as may be purchased by the cash surrender value.
xxx

(g) A provision that at any time

after a cash surrender value is available under the policy
and while the policy is in force,
the company will advance,
on proper assignment or pledge of the policy and on sole security
thereof,
a sum equal to,
or at the option of the owner of the policy,
less than the cash surrender value on the policy,
at a specified rate of interest,
not more than the maximum allowed by law,
to be determined by the company from time to time,
but not more often than once a year,
subject to the approval of the Commissioner;

and that the company will deduct from such loan value
any existing indebtedness on the policy
and any unpaid balance of the premium for the current policy year,
and may collect interest in advance on the loan
 to the end of the current policy year,

which provision may further provide

that such loan may be deferred
for not exceeding six (6) months after the application therefor is made;

o Automatic Premium Loan Clause,

If at the end of the grace period the premium has not been paid, a policy
loan will automatically be made from the policy’s cash value to pay the
premium;

o If the policy loan and accrued interest is not paid in cash, the insurer may
recover such unpaid balances from the death benefits if the insured dies
or from the cash surrender value;

o The insurer cannot file a case for the payment of the loan because in
reality the loan is an advance; a deduction from the sum that the insurer
must pay the insured;

2.02 Dividends

o A life insurance company may be participating or non-participating (in

the dividends that may be available from the insurer); if the policy is
participating, the insured is entitled to such dividends;

o The IC provides that if a policy is participating, the company shall

periodically ascertain and apportion any divisible surplus accruing on the
policy and it may be provided that the dividend shall be applied to the
premiums that are due and payable;

2.03 Reinstatement clause, Commented [rc2]:

o See Sec. 233(j),

Section 233. In the case of individual life or endowment insurance, the

policy shall contain in substance the following conditions:
xxx
(j) A provision that the policyholder shall be entitled
to have the policy reinstated
at any time within three (3) years
from the date of default of premium payment
unless the cash surrender value has been duly paid,
or the extension period has expired,
upon production of evidence of insurability satisfactory to the company
 and upon payment
of all overdue premiums
and any indebtedness to the company upon said policy,
with interest rate not exceeding
that which would have been applicable
to said premiums and indebtedness in the policy years
prior to reinstatement.

 The right to reinstatement is not absolute; insurer may deny if not

satisfied with the insurability of the insured;

3. Return of premium, Sec. 80 of IC enumerates the cases when return of premium

is a matter of right

o 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.

o 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.

o 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.

o 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.

3.01 Grounds, return of premium is warranted in the following cases

1. When the thing insured was not exposed to the peril insured against;
2. “Time policy” when the policy is surrendered before the expiration of
the stipulated time; refund is pro-rata;
3. When the contract is voidable and subsequently annulled under the
NCC;
4. When the contract is annulled 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;
5. When by any default of the insured other than actual fraud, the
insurer never incurred liability under the policy;
6. When there is over-insurance by several insurer;

4. Advanced payment

o May premiums be paid in advanced by the insured?

o See Sec. 84 of IC
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.

5. Rebate of premium
 o Section 370. No insurance company doing business in the Philippines or any
agent thereof, no insurance broker, and no employee or other
representative of any such insurance company, agent, or broker,

shall make, procure or negotiate any contract of insurance or agreement as

to policy contract,

other than is plainly expressed in the policy or other written contract issued
or to be issued as evidence thereof,

or shall directly or indirectly,

by giving or sharing a commission or in any manner whatsoever,
pay or allow or offer to pay or allow
to the insured or to any employee of such insured,
either as an inducement to the making of such insurance
or after such insurance has been effected,
any rebate from the premium which is specified in the policy,
or any special favor or advantage
in the dividends or other benefits to accrue thereon,

or shall give or offer to give

any valuable consideration or inducement of any kind, directly or indirectly,
which is not specified in such policy or contract of insurance;

nor shall any such company, or any agent thereof,

as to any policy or contract of insurance issued,
make any discrimination against any Filipino
in the sense that he is given
less advantageous rates, dividends or other policy conditions or privileges
than are accorded to other nationals because of his race.

TITLE 9 LOSS

LOSS AND NOTICE OF LOSS

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.
Notes

"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.

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.

Notes

"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.

Notes
"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.

Notes

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
20191022 –Insurance B
Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

1. "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.

Notes

"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.

Notes

"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.

Notes

"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.

Notes

"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 to the insurer
that such refusal was not induced
by any just grounds of disbelief in the facts necessary to be certified or testified.

NOTES

2. Loss; the determination of whether or not loss has been caused by a peril
insured against or by excepted peril or a risk not insured against is crucial in
fixing the liability of the insurer; in many cases it may only involve a simple
cause and effect analysis; in other cases, the task is complicated because of the
number of possible causes that preceded the loss;

- lose means the injury or damage sustained by the insured as a consequence

of the happening of a risk against which the insurer has undertaken to
indemnify the insured;
- in property insurance, loss means the pecuniary detriment consisting of the
total cash value of the property (in case of total loss) or the reduction of the
value of the property (in case of partial loss);

- in life insurance, loss occurs when the insured person dies; in health
insurance, loss occurs in case of injury or disability of the insured;

o Proximate Cause Defined, that cause

which, in the natural and continuous sequence,
unbroken by any efficient intervening cause,
produces the injury,
and without which the result would not have occurred;

 Distinguished from remote cause; remote cause is

that cause
which some independent force merely took advantage of
to accomplish something which is not the natural effect thereof;
the insurer will not be liable
if the peril insured against is a mere remote cause;
  Efficient cause; in insurance law,
“proximate cause” of a loss
is that cause proximate to the loss in efficiency
(not necessarily in time);
remote cause may be disregarded
in determining the cause of the loss,
but this rule needs to be interpreted in good sense
to uphold and not defeat the intention of the parties;
there must be a direct and uninterrupted sequence
between the proximate cause and the ultimate loss;
if any new intervening cause arises
between the primary cause and the ultimate loss,
such intervening cause
will rule out consideration of preceding causes,
subject to
the reality,
predominance
and efficiency
of such preceding causes;

 Peril insured against; in insurance, there is a threshold question –

whether the peril is covered by the insurance; first, there is need
to examine what perils are insured against, and what perils are
excluded; then, whether or not the event that transpired falls
within the contemplation of what is expressly provided for (the
perils insured against);

 Example in an insurance against fire; an underlying

question is whether or not fire occurred; it may involve a
conceptual problem on the meaning of fire; this is separate
from the issue on whether the particular fire involved is the
proximate cause of the loss;

 Immediate cause; this suggest proximity in time to the loss;

usually contemplated where there are at least two causes
involved; example – an explosion occurred in a building which
was followed by fire which destroyed the building; here the
immediate cause is the fire;

o Rules under the Insurance Code;

 The rules are not exactly the same as the rules in torts (although
the same concept of proximate cause is adopted); in torts, the
tortfeasor is liable only if his negligent act or omission is the
proximate cause of the loss (or the tortfeasor is not liable if his
negligent act is not the proximate of the loss even if such
negligent act immediately preceded the loss);

In insurance, it would be possible for the insured to recover even if

the peril insured against is not the proximate cause of the loss;
the insurer may be liable even if the peril insured against is just an
immediate cause and another cause is the proximate cause;

 See Secs. 86, 87 and 88 of IC

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.

 Remote Proximate Liability of

cause cause insurer

Peril not ins. Peril ins. Liable

Peril ins. Peril not ins. Not liable

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.
 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 [i.e. a peril insured against].

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
20191023 –Insurance A
Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

 Summary of the rules as contained in Secs. 86 to 88 of IC

 1. The insurer is liable if the peril insured against is

the proximate cause of the loss;
even if it is accompanied
by a remote cause or an immediate cause,
and whether or not such remote or immediate causes
are excepted perils;

o Proximate Cause Defined, that cause

which, in the natural and continuous sequence,
unbroken by any efficient intervening cause,
produces the injury,
and without which
the result would not have occurred;

 2. The insurer is not liable if the peril insured against is the

remote cause;

 3. The insurer is liable if the thing insured is damaged

because it was being rescued from the peril insured
against;
  4. The insurer is liable for damages caused by a peril not
insured against to which the thing was exposed while the
same was being rescued from a peril insured against;

 5. The insurer is liable if the peril insured against is the

immediate cause of the loss if the proximate cause is not an
excepted peril;

 6. The insurer is not liable if the peril insured against is the

immediate cause but the proximate cause is an excepted
peril;

 Example – Fire is a peril insured against; explosion is an excepted

peril; where fire (peril insured against) is the proximate cause and
the immediate cause is explosion (an excepted peril), the insurer
will be liable;
Rule - 1. The insurer is liable if the peril insured against is
the proximate cause of the loss;
even if it is accompanied
by a remote cause or an immediate cause,
and whether or not such remote or immediate causes
are excepted perils;

 Example – Fire is an excepted peril; explosion is a peril insured

against; where fire (an excepted peril) is the proximate cause and
the immediate cause is explosion (a peril insured against), the
insurer will not be liable; note that the explosion would not have
occurred if not for the fire which is an excepted peril;
Rule - 6. The insurer is not liable if the peril insured against is
the immediate cause but the proximate cause is an excepted
peril;

o Concurrent Causes;
 In insurance law, the issue is whether the insurer is liable if the
peril insured against is only one of the concurrent causes; courts
typically consider whether at least one of the contributing factors
that caused the loss is a risk covered by the insurance policy;
court frequently hold that coverage extends to the loss even
though an excluded element is a contributory cause;
 An incidental peril outside the policy, contributing to the risk
insured against, will not defeat recovery,

nor may the insurer defend by showing

that an earlier cause not within a peril insured against brought the
loss,

where the peril (incidental peril outside the policy) was the last
step prior to the loss;

or where the insured risk itself set into operation a chain of

causation in which the last step may have been an excepted risk;

 Where only one concurrent cause is insured against and damage

by each cause cannot be distinguished, the party responsible for
the dominating efficient cause has been held liable for the loss;
where the damage caused by each can be distinguished, each
party must bear its own proportion;

 Insurer is liable under the policy irrespective of the eventuality

that there is another concurrent proximate cause which constitute
an uncovered risk;

 Case – case of a homeowner’s policy which excluded flood

but the insured was allowed to recover although the
damage incurred was due to the flooding of the property
of the insured where the concurrent proximate cause was
the negligence of third parties in maintaining the flood
control facilities;

 Case – case where an owner of a home which slid down the

hill along with the hillside recovered under an all risk policy
expressly excluding earth movement because a concurrent
cause could be found in a sub-drain that had been
negligently damaged so that the ground become saturated
and moved;
 o Negligent and Intentional Acts or Omissions;

 See Sec. 89 of IC

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.

 Rationale – one of the purposes for taking out insurance is

to protect the insured against the consequences of his own
negligence and that of his agents;

 Effect of gross negligence; negligence or recklessness of

such gross character as to amount to misconduct or
wrongful act, otherwise, such acts or omissions shall release
the insurer from liability;

 Example – barge was left at the wharf despite looming bad

weather; the barge ran aground; representatives of the
insured did not heed request to move the barge to a more
secure place; only the subject vessel was left at the wharf,
all the others transferred their barges to a safer wharf;

3. Notice of Loss

o Parties may stipulate that notice be given within a certain period from
the time of the loss;

o Parties may agree that the absence of the notice of loss within the period
agreed upon will extinguish the liability of the insurer;
 o Notice of loss is separate from the claim itself, but a claim within the
period of giving notice is already deemed compliance with the
requirement for a notice of loss;

o With respect to fire insurance, see Sec. 90 of IC

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.

 Re “without unnecessary delay,” depends on the circumstances;

example – injured was injured and hospitalized for a long period
of time;

 Re policy requires immediate notice, not to be taken as an

imposition of an impossible requirement; may given as soon as
circumstances permitted the insured; can be construed as
meaning within a reasonable time;

 Denial of a claim on the ground that the policy is null and void is a
waiver of a notice of loss; If the policy is claimed as null and void,
the furnishing of notice would be useless;

 Notice to the agent of the insurer binds the insurer; notice to the
agent is notice to the principal (doctrine of representation);

4. Proof 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.
 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 to the insurer
that such refusal was not induced by any just grounds of disbelief
in the facts necessary to be certified or testified.

5. Defects in Notice and Proof

6. Effect of Delay

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
20191022 –Insurance B
Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
20191022 TUESDAY –Insurance B
Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
20191028 MONDAY –Insurance a
Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

TITLE 11

DOUBLE INSURANCE

Sections 95 to 96

"Section 95.
A double insurance exists
where the same person is insured
by several insurers
separately
in respect to the same subject and interest.

NOTES
X
"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 policy
shall be deducted from the value of the policy
without regard to the actual value of the subject matter insured;

"(c) Where the policy under which the insured claims is an unvalued policy,
any sum received by him under any policy
shall be deducted against the full insurable value,
for any sum received by him under any policy;

"(d) Where the insured receives any sum

in excess of the valuation in the case of valued policies,
or of the insurable value in the case of unvalued policies,
he must hold such sum in trust for the insurers,
according to their right of contribution among themselves;

"(e) Each insurer is bound,

as between himself and the other insurers,
to contribute ratably to the loss
in proportion to the amount
for which he is liable under his contract.

NOTES

TITLE 12

REINSURANCE

Sections 97 to 100

"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.

NOTES

"Section 98.
Where an insurer obtains reinsurance,
except under automatic reinsurance treaties,
he must communicate
all the representations of the original insured,
and also all the knowledge and information he possesses,
whether previously or subsequently acquired,
which are material to the risk.

NOTES

"Section 99.
A reinsurance
is presumed to be a contract of indemnity
against liability,
and not merely against damage.

NOTES

"Section 100.

The original insured

has no interest

in a contract of reinsurance.

NOTES
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
20191028 MONDAY – INSURANCE A
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX

CHAPTER 11. MARINE INSURANCE

Outline
1. Definition
2. Kinds of marine insurance
2.1 Ocean marine insurance
2.2 Inland marine insurance
2.3 Aviation insurance
3. Period covered
4. Risk insured against
4.1 All risk policy
4.2 Named perils policy
4.3 Inland marine insurance perils
5. Insurable interest
5.1 Insurable interest over the ship
5.2 Insurance over cargo
5.3 Insurance over freightage and income
6. Concealment
7. Representation
8. Implied warranties
8.1 Seaworthiness
8.2 Documents of nationality or neutrality
8.3 Legality
9. The voyage and deviation
9.1 Route
9.2 Deviation
10. Loss
10.1 Kinds of loss
11. Abandonment
11.1 Requisite
11.2 Effects of abandonment
11.3 Acceptance of abandonment
11.4 Revocation
11.5 Effect of failure to abandon
12. Measure of indemnity
12.1 Co-insurance clause
12.2 Freightage or cargo
12.3 Profits
 12.4 Partial loss of cargo
12.5 Sue and labor clause
12.6 Application of old materials
13. Averages
13.1 FPA clause
13.2 Simple or particular average
13.3 General average
13.4 Who will pay general average
13.5 Subrogation

"CHAPTER II
"CLASSES OF INSURANCE

"TITLE I
"MARINE INSURANCE

"SUB-TITLE 1-A

"DEFINITION

"Section 101. Marine Insurance includes:

"(a) Insurance against loss of or damage to:

"(1)
Vessels, craft, aircraft, vehicles,
goods, freights, cargoes, merchandise, effects, disbursements,
profits, moneys, securities, choses in action, instruments of debts, valuable papers,
bottomry, and respondentia interests
and all other kinds of property and interests therein,
in respect to, appertaining to or in connection
with any and all risks or perils of navigation, transit or transportation,
or while being assembled, packed, crated, baled, compressed
or similarly prepared for shipment
or while awaiting shipment,
or during any delays, storage, transhipment, or reshipment incident thereto,
including war risks, marine builder’s risks, and all personal property floater risks;

"(2)
Person or property
in connection with or appertaining
to a marine, inland marine, transit or transportation insurance,
including liability for loss of or damage
arising out of or in connection
with the construction, repair, operation, maintenance or use of the subject matter
of such insurance
(but not including life insurance or surety bonds nor insurance
against loss by reason of bodily injury to any person
arising out of ownership, maintenance, or use of automobiles);

"(3)
Precious stones, jewels, jewelry, precious metals,
whether in course of transportation or otherwise; and

"(4)
Bridges, tunnels and other instrumentalities of transportation and communication
(excluding buildings, their furniture and furnishings, fixed contents and supplies
held in storage);
piers, wharves, docks and slips,
and other aids to navigation and transportation,
including dry docks and marine railways, dams
and appurtenant facilities for the control of waterways.

"(b)
Marine protection and indemnity insurance,
meaning insurance against,
or against legal liability of the insured
for loss, damage, or expense
incident to
ownership, operation, chartering, maintenance, use, repair, or construction
of any vessel, craft or instrumentality in use of ocean or inland waterways,
including liability of the insured
for personal injury, illness or death or for loss of or damage
to the property of another person.

NOTES

"SUB-TITLE 1-B
"INSURABLE INTEREST

"Section 102.
The owner of a ship
has in all cases an insurable interest in it,
even when it has been chartered by one
who covenants to pay him its value in case of loss:
Provided, That in this case the insurer shall be liable
for only that part of the loss
which the insured cannot recover from the charterer.
NOTES

"Section 103.
The insurable interest of the owner
of the ship hypothecated by bottomry
is only the excess of its value
over the amount secured by bottomry.

NOTES

"Section 104.
Freightage,
[goods that are carried by ships, trains, trucks or planes;
amount of money paid for carrying goods]
in the sense of a policy of marine insurance,
signifies all the benefits derived by the owner,
either from the chartering of the ship
or its employment for the carriage
of his own goods or those of others.

NOTES

"Section 105.
The owner of a ship
has an insurable interest
in expected freightage
which according to the ordinary and probable course of things
he would have earned
but for the intervention
of a peril insured against or other peril incident to the voyage.

NOTES

Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
20191029 INSURANCE B
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

When is the shipowner said to have insurable interest in the expected freightage, hence
he can insure said interest?

"Section 106.
The interest mentioned in the last section [insurable interest in expected freightage]
exists,
in case of a charter party,
when the ship has broken ground on the chartered voyage.
If a price is to be paid for the carriage of goods
it exists when they are actually on board,
or there is some contract for putting them on board,
and both ship and goods are ready for the specified voyage.

NOTES
* To give an insurable interest in expected freightage, the insured must at least
have an inchoate right to freight, that is, he must be in such position with regard to
freight that nothing could prevent him from ultimately having a perfect right to the
freight but the intervention of the perils insured against;

* Where freight is the price to be paid for the hire of a ship under a charter party –
there is inchoate right as soon as there is an inception of the performance by the
ship under the charter party;

* There is inchoate right to freight as soon as the goods are actually put on board;
and where part of the goods has been loaded and the balance is ready, there is
insurable interest in the whole freight;

* Where the shipowner has made a binding contract for freight and the ship is in
readiness to receive the goods, there is insurable interest in the freightage;

* There is no insurable interest where there is no contract and no part of the

goods expected to be carried are on board (although there are goods ready for
shipment or the master is provided with funds for the purchase of cargo); a mere
“seeking ship” (vessel looking for cargo to be transported) has no in insurable
interest in freight to be earned on goods not loaded;

May expected profits be insured?

"Section 107.
One who has an interest
in the thing
from which profits are expected to proceed
has an insurable interest in the profits.

NOTES
* The interest in the thing involved need to be based on some legal right; the
interest might be contingent, such as commission to an agent or consignee;

* There is sufficient interest if it is based on a valuable consideration paid; one

who has made a contract for purchase of property which has been made ready for
shipment, although not loaded, and who has contracted to sell it at a profit, has an
insurable interest in the profits;

* Note that the owner of a cargo has an insurable interest on the value of the
cargo and also on the expected profit from the sale of the cargo which is exposed
by its transportation to the perils of the sea;

What is the insurable interest of a charterer of a ship?

"Section 108.
The charterer of a ship
has an insurable interest in it,
to the extent that he is liable to be damnified by its loss.

NOTES
* The insurable interest of a charterer of a ship is up to the extent that he is liable
to be damnified by its loss; one who charters a vessel, with a stipulation to pay the
value of the vessel in case of loss, has insurable interest to the extent of the value
of the vessel; the charterer has also an insurable interest in the profits he expects
to earn by carrying the goods in excess of the amount he agreed to pay for the
charter of the vessel;

* Charter party, a contract by which an entire ship or some principal part thereof is
lent by the owner to another person for a specified time or use;

* 2 kinds of types of charter parties;

bareboat or demise charter – the shipowner turns over full possession and control
of his vessel to the charterer, who then undertakes to provide a crew and victuals
and supplies and fuel for the ship during the term of the charter; it may be agreed
that the shipowner is to furnish a master and crew to man the vessel under the
charterer’s direction; they become agents and servants or employees of the
charterer;

contract of affreightment – the owner of the vessel leases part or all of its space to
haul goods for others; a contract of special service; shipwner retains possession,
command and navigation of the ship; contract may be a voyage charter or time
charter;

voyage or trip charter – contract for the carriage of goods, from one or more ports
of loading to one or more ports of unloading, on one or a series of voyages;
master and crew remain in the employ of the shipowner; the voyage charter being
a private carriage, the parties may fully contract respecting liability for damage to
the goods and other matters;

time charter – contract for the use of a vessel for a specified period of time or for
the duration of one or more specified voyages; owner of the time-chartered vessel
also retains possession and control through the master and crew who remain his
employees;

"SUB-TITLE 1-C
"CONCEALMENT

What are the parties to a marine insurance required to communicate to each other?

"Section 109.
In marine insurance,
each party is bound to communicate,
in addition to what is required by Section 28,
all the information which he possesses,
material to the risk,
except such as is mentioned in Section 30,
and to state the exact and whole truth
in relation to all matters that he represents,
or upon inquiry discloses or assumes to disclose.

"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.

"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.

NOTES
* Concealment in marine insurance is the failure to disclose any material fact or
circumstances which in fact or law is within, or which ought to be within the
knowledge of one party and of which the other has no actual or presumptive
knowledge;

* the rules on misrepresentation and concealment in marine insurance are more

strict than in fire insurance; due to the difference in the character of the property
and the greater facility the insurer possesses in obtaining information as to its
conditions and surrounding circumstances; vessels are often insured when absent
or afloat;

* under Sec. 107, to constitute concealment, it is sufficient that he insured is in

possession of the material fact concealed although he may not be aware of it;
thus, if the agent failed to notify his principal of the loss of a cargo and the
principal, after the loss but ignorant of the loss, secured insurance “lost or not” on
the venture, such insurance will be void on ground of concealment;

Would failure to communicate information of the belief or expectation of a third person

in reference to a material fact constitute concealment in marine insurance?

"Section 110.
In marine insurance,
information of the belief or expectation of a third person,
in reference to a material fact,
is material.

NOTES
* note that a rule (Secs. 35 and 43 IC), a party to a contract of insurance need not
communicate information of his own judgment to the insurer much less what he learns from a
third person;

"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.

"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.

* in marine insurance, the rule is quite strict because the insured is bound to communicate to
the insurer not only facts but also the following fact when they refer to a material fact

- beliefs of third persons,

- expectations of third person;

* thus, there is concealment where the insured at the time of application for insurance did not
disclose the opinion of marine experts who inspected the vessel insured that the vessel was
unseaworthy;

When is the insured presumed to have knowledge of prior loss at the time of insuring?

"Section 111.
A person insured by a contract of marine insurance
is presumed to have knowledge,
at the time of insuring,
of a prior loss,
if the information might possibly have reached him
in the usual mode of transmission
and at the usual rate of communication.

NOTES
* In Sec. 111, a rebuttable presumption is established of knowledge of a prior loss
on the part of the insured “if the information might possibly have reached him in the usual
mode of transmission and at the usual rate of communication.”

* the reason for the presumption is the quickness in the transmission of news by
means of present day communications;

* case – the insured (having no cause to expect the information) omits to call at
the post office where a letter was received on the morning of the day the insurance
was effected was held not guilty of negligence; the insured is not bound to use all
accessible means of information at the very last instant of time to ascertain the
condition of the property involved, p. 351;

What matters are enumerated in Section 112?

What is the effect of concealment on the matters enumerated in Sec. 112?

"Section 112.
A concealment in a marine insurance,
in respect to any of the following matters,
does not vitiate the entire contract,
but merely exonerates the insurer
from a loss resulting from the risk concealed:
"(a) The national character of the insured;
"(b) The liability of the thing insured to capture and detention;
"(c) The liability to seizure from breach of foreign laws of trade;
"(d) The want of necessary documents; and
"(e) The use of false and simulated papers.

NOTES
* As a rule, the concealment of a material fact entitles the injured party to rescind
the entire contract of insurance; however, the concealment of any of the matters
indicated in Sec. 112 does not avoid the policy ab initio; if the vessel be lost due
to any of the causes enumerated in Sec. 112 which was concealed, the insurer will
not be liable; but if the vessel be lost due to other perils of the sea (storm etc.), the
insurer is not exonerated from liability;

* re “national character” of the vessel is not a material fact, but where there are
facts within the knowledge of the insured which will expose the property to
belligerent risks or seizure and condemnation for violation of the trade or
navigation laws of another country, such facts must be disclosed, p. 352; such
facts are in respect to national character of the insured (one of the matters
indicated in Sec. 112;

"SUB-TITLE 1-D

"REPRESENTATION

What is the effect of representation by the insured when the representation is

intentionally false in any material respect? Or representation of a fact on which the
character of the risk depends?

"Section 113.
If a representation by a person insured by a contract of marine insurance,
is intentionally false
in any material respect,
or in respect of any fact on which the character and nature of the risk depends,
the insurer
may rescind the entire contract.

NOTES
* the general rules on representations in insurance apply to marine insurance,
including distinctions between representations and warranties and construction of
representations;

* a substantial misrepresentation of any material fact or circumstance relating to

marine insurance avoids the policy; p. 353;

* a representation is material where it would influence the judgment of a prudent

insurer in fixing the premium or in determining whether her would take the risk; this
concept is applicable to marine insurance;

* effect of false representation by the insured

- intentional; any misrepresentation of a material fact made with fraudulent intent
avoids the policy;

- not intentional; if the misrepresentation is not intentional or fraudulent but is

material to the risk, the insurer may also rescind the entire contract; See Sec. 45:

"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. [although the representation is intentionally false]

note Sec. 111:

"Section 111. A person insured by a contract of marine insurance is presumed to have

knowledge, at the time of insuring, of a prior loss, if the information might possibly have
reached him in the usual mode of transmission and at the usual rate of communication.

* representations held as material – age, equipment, earnings, and partidular

condition or rating of a vessel; that she is to be repaired at a certain place; that
the vessel has arrived at her port of destination or was at a certain place at a
certain time; that other underwriters had insured the vessel at a certain rate; as to
anything which concerns the state of the vessel at any particular period of its
voyage;

* note, statements of the nature and the amount of the cargo, where the ship was
not overloaded or where the underwriter did not rely thereon were held to be
immaterial, p. 353

What is the effect of the eventual falsity of a representation as to expectation?

"Section 114.
The eventual falsity of a representation
as to expectation
does not,
in the absence of fraud,
avoid a contract of marine insurance.

NOTES
* representation of expectations or intention are statements of future facts or
events which in their nature are contingent and which the insurer is bound to know
that the insured could not have intended to state as known facts; unless made
with fraudulent intent, the failure of fulfilment is not ground for rescission of the
policy;

* examples – statements of the time a vessel will sail or is expected to sail; the
nature of the cargo to be shipped; the amount of profits expected; destination of
the vessel; p. 354;

"SUB-TITLE 1-E

"IMPLIED WARRANTIES

What warranty is provided under Sec. 115 to be implied in every marine insurance
(upon a ship, freight, freightage or anything subject of marine insurance)?

"Section 115.
In every marine insurance
upon a ship or freight, or freightage,
or upon any thing which is the subject of marine insurance,
a warranty is implied that the ship is seaworthy.

NOTES
* warranty, in marine insurance, is defined as a stipulation, either expressed or
implied, forming part of the policy as to some fact, condition or circumstance
relating to the risk; p. 354;

* in every voyage policy of marine insurance, there is an implied warranty that the
vessel is in all respects seaworthy; such warranty can be excluded only be clear
provisions of the policy;

* if the policy provides that the seaworthiness of the vessel as between the parties
is admitted, the issue of seaworthiness cannot be raised by the insurer without
showing concealment or misrepresentation by the insured; the admission of
seaworthiness may mean that the warranty of seaworthiness is to be taken as
fulfilled or that the risk of unseaworthiness is assumed by the insurer;

* the implied warranty of seaworthiness applies to insurance on cargo, though the

shipper would not have a control on the condition of the ship; it becomes the
obligation of a cargo owner to look for a reliable common carrier which keeps its
vessel in seaworthy condition; the shipper may have no control over the vessel
but he has full control in the choice of the common carrier that will transport his
goods;

* the insurer will not be liable for any loss under the policy in case the vessel is
unseaworthy at the inception of the insurance; or deviate from the agreed voyage;
or engages in illegal venture; p. 355;

* another implied warranty is that the ship will carry the requisite documents of
nationality or neutrality or cargo where such nationality or neutrality is expressly
warranted; p. 355;

"Section 116.
A ship is seaworthy
when reasonably fit
to perform the service
and to encounter the ordinary perils of the voyage
contemplated by the parties to the policy.

NOTES
* seaworthiness is a relative term depending on the nature of the ship, the voyage,
and the service in which she is at the time engaged; generally, for a vessel to be
seaworthy, it must be adequately equipped for the voyage and manned with a
sufficient number of competent officers and crew; it be fit to encounter the
ordinary perils of navigation; must also be in a suitable condition to carry the
cargo put on board or intended to be put on board; reasonably capable of safely
carrying the cargo to its port of destination; p. 357;

When is seaworthiness required to be complied?

-Where insurance is made for a specified length of time?
-Where the insurance is made upon the cargo?

"Section 117.
An implied warranty of seaworthiness
is complied with
if the ship be seaworthy
at the time of the commencement of the risk,
except in the following cases:

"(a) When the insurance is made for a specified length of time,

the implied warranty is not complied with
unless the ship be seaworthy
at the commencement of every voyage it undertakes during that time;

"(b) When the insurance is upon the cargo

which, by the terms of the policy,
description of the voyage,
or established custom of the trade,
is to be transhipped at an intermediate port,
the implied warranty is not complied with
unless each vessel upon which the cargo is shipped, or transhipped,
be seaworthy at the commencement of each particular voyage.

NOTES
*

What does a warranty of seaworthiness comprehend?

(Or when is a ship deemed seaworthy?)

"Section 118.
A warranty of seaworthiness extends
not only to the condition of the structure of the ship itself,
but requires that it be properly laden,
and provided with a competent master, a sufficient number of competent officers and seamen,
and the requisite appurtenances and equipment,
such as ballasts, cables and anchors, cordage and sails,
food, water, fuel and lights,
and other necessary or proper stores and implements for the voyage.

NOTES

What is the requirement for seaworthiness where different portions of the voyage
contemplated in a policy differ with respect to make the ship seaworthy for the different
portions of the voyage?

"Section 119.
Where different portions of the voyage contemplated by a policy
differ in respect to the things requisite to make the ship seaworthy therefor,
a warranty of seaworthiness is complied with
if, at the commencement of each portion,
the ship is seaworthy with reference to that portion.

NOTES

What is the effect in case the ship become unseaworthy during the voyage covered in
the policy and there is unreasonable delay in repairing the defect?

"Section 120.
When the ship becomes unseaworthy
during the voyage to which an insurance relates,
an unreasonable delay in repairing the defect
exonerates the insurer
on ship or shipowner’s interest
from liability from any loss arising therefrom.

NOTES

May a ship be seaworthy for the purpose of insurance upon the ship but unseaworthy
for the purpose of insurance upon the cargo?

"Section 121.
A ship which is seaworthy
for the purpose of an insurance upon the ship
may, nevertheless,
by reason of being unfitted to receive the cargo,
be unseaworthy for the purpose of insurance upon the cargo.

NOTES

Where there is express warranty on the nationality or neutrality of a ship, what does
Sec. 122 require (provided as implied warranty)?

"Section 122.
Where the nationality or neutrality of a ship or cargo is expressly warranted,
it is implied that the ship will carry the requisite documents
to show such nationality or neutrality
and that it will not carry any documents
which cast reasonable suspicion thereon.

NOTES

"SUB-TITLE 1-F
"THE VOYAGE AND DEVIATION

In case the voyage contemplated in the policy is described by the places of beginning
and ending, what voyage (in terms of the course of sailing) is insured?

"Section 123.
When the voyage contemplated by a marine insurance policy
is described
by the places of beginning and ending,
the voyage insured is one
which conforms to the course of sailing
fixed by mercantile [relating to trade or merchants] usage between those places.

NOTES
In case the course of sailing is not fixed by mercantile usage, what voyage (in terms of
route or way) is insured in the policy?

"Section 124.
If the course of sailing is not fixed by mercantile usage,
the voyage insured by a marine insurance policy
is that way between the places specified,
which to a master of ordinary skill and discretion,
would mean the most natural, direct and advantageous.

NOTES
What is meant by deviation in marine insurance?
When is there deviation from the course of the voyage insured?

"Section 125.
Deviation
is a departure from the course of the voyage insured,
mentioned in the last two (2) sections,
or an unreasonable delay in pursuing the voyage
or the commencement of an entirely different voyage.

NOTES

When is deviation proper?

"Section 126.
A deviation is proper:

"(a) When caused by circumstances

over which neither the master nor the owner of the ship
has any control;

"(b) When necessary to comply with a warranty,

or to avoid a peril, whether or not the peril is insured against;

"(c) When made in good faith,

and upon reasonable grounds of belief
in its necessity to avoid a peril; or

"(d) When made in good faith,

for the purpose of saving human life
or relieving another vessel in distress.

NOTES

What deviation from the voyage insured is improper?

"Section 127.
Every deviation
not specified in the last section
is improper.

NOTES
What is the effect where there is an improper deviation?

"Section 128.
An insurer is not liable for any loss
happening to the thing insured
subsequent to an improper deviation.

NOTES

"SUB-TITLE 1-G
"LOSS

What loss (extent of loss) is contemplated in marine insurance?

"Section 129. A loss may be either total or partial.

NOTES

When is there a partial loss?

"Section 130.
Every loss
which is not total
is partial.

NOTES

What are the kinds of total loss?

"Section 131.
A total loss
may be either
actual
or constructive.

NOTES
What is actual total loss in marine insurance?
Or when is there actual total loss in marine insurance?

"Section 132. An actual total loss is caused by:

"(a) A total destruction of the thing insured;

"(b) The irretrievable loss of the thing by sinking, or by being broken up;

"(c) Any damage to the thing

which renders it valueless to the owner
for the purpose for which he held it; or

"(d) Any other event

which effectively deprives the owner of the possession,
at the port of destination,
of the thing insured.

NOTES

What is a constructive total loss in marine insurance?

"Section 133.
A constructive total loss
is one which gives to a person insured
a right to abandon,
under Section 141.

When is the insured given the right to abandon the thing insured in marine
insurance?
What is the effect of abandonment of the thing insured in marine insurance?

"Section 141.
A person insured by a contract of marine insurance
may abandon the thing insured,
or any particular portion thereof
separately valued by the policy,
or otherwise separately insured,
and recover for a total loss thereof,
when the cause of the loss is a peril insured against:

"(a) If more than three-fourths (¾) thereof in value is actually lost,

or would have to be expended to recover it from the peril;

"(b) If it is injured to such an extent

as to reduce its value more than three-fourths (¾);

"(c) If the thing insured is a ship,

and the contemplated voyage cannot be lawfully performed
without incurring either an expense to the insured
of more than three-fourths (¾) the value
of the thing abandoned
or a risk which a prudent man would not take under the circumstances; or
 "(d) If the thing insured,
being cargo or freightage,
and the voyage cannot be performed,
nor another ship procured by the master,
within a reasonable time and with reasonable diligence,
to forward the cargo,
without incurring the like expense
or risk mentioned in the preceding subparagraph.
But freightage cannot
in any case be abandoned
unless the ship is also abandoned.

NOTES

When may actual loss of the ship be presumed?

"Section 134.
An actual loss
may be presumed
from the continued absence of a ship
without being heard of.
The length of time which is sufficient to raise this presumption
depends on the circumstances of the case.

NOTES

What is the rule on the liability of a marine insurer on the cargo when a ship is
prevented at an intermediate port from completing the voyage by the perils insured
against?
What right is given to the insurer in case the hazard is increased by the extension of its
liability?

"Section 135.
When a ship is prevented,
at an intermediate port,
from completing the voyage,
by the perils insured against,
the liability of a marine insurer on the cargo
continues after they are thus reshipped.
"Nothing in this section
shall prevent an insurer
from requiring an additional premium
if the hazard be increased
by this extension of liability.
NOTES

What is the additional liability of the marine insurer (in addition to those mention in Art.
135)?
What is the limit to the liability of the marine insurer under Art. 136?

"Section 136.
In addition to the liability mentioned in the last section,
a marine insurer is bound
for damages,
expenses of discharging, storage, reshipment, extra freightage, and all other expenses
incurred in saving cargo reshipped pursuant to the last section,
up to the amount insured.
"Nothing in this or in the preceding section
shall render a marine insurer liable
for any amount in excess of the insured value
or, if there be none, of the insurable value.

NOTES

What is the rule regarding the requirement for a notice of abandonment in case of
actual total loss?

"Section 137.
Upon an actual total loss,
a person insured is entitled
to payment
without notice of abandonment.

NOTES
What is meant by particular average?
What is the rule in case of particular average loss?
What is meant by general average loss?
What is the rule in case of general average loss?

"Section 138.
Where it has been agreed
that an insurance upon a particular thing,
or class of things,
shall be free from particular average,
a marine insurer is not liable
for any particular average loss
not depriving the insured of the possession,
at the port of destination,
of the whole of such thing, or class of things,
even though it becomes entirely worthless;
but such insurer is liable
for his proportion of all general average loss
assessed upon the thing insured.

NOTES
Where the marine insurance is confined to an actual loss, may there be recovery for a
constructive total loss?
When is there liability for the insurer under Sec. 139?

"Section 139.
An insurance confined in terms
to an actual loss
does not cover a constructive total loss,
but covers any loss,
which necessarily results
in depriving the insured of the possession,
at the port of destination,
of the entire thing insured.

NOTES

"SUB-TITLE 1-H
"ABANDONMENT

What is abandonment?

"Section 140.
Abandonment, in marine insurance,
is the act of the insured by which,
after a constructive total loss,
he declares the relinquishment
to the insurer
of his interest in the thing insured.

NOTES

When is the insured given the right to abandonment?

May there be an abandonment of only a particular portion of the thing insured?

"Section 141.
A person insured by a contract of marine insurance
may abandon the thing insured,
or any particular portion thereof
separately valued by the policy,
or otherwise separately insured,
and recover for a total loss thereof,
when the cause of the loss is a peril insured against:

"(a) If more than three-fourths (¾) thereof in value is actually lost,

or would have to be expended to recover it from the peril;

"(b) If it is injured to such an extent

as to reduce its value more than three-fourths (¾);

"(c) If the thing insured is a ship,

and the contemplated voyage cannot be lawfully performed
without incurring either an expense to the insured
of more than three-fourths (¾) the value
of the thing abandoned
or a risk which a prudent man would not take under the circumstances; or

"(d) If the thing insured,

being cargo or freightage,
and the voyage cannot be performed,
nor another ship procured by the master,
within a reasonable time and with reasonable diligence,
to forward the cargo,
without incurring the like expense
or risk mentioned in the preceding subparagraph.
But freightage cannot
in any case be abandoned
unless the ship is also abandoned.

NOTES

What is the character of abandonment required under the law?

"Section 142.
An abandonment must be
neither
partial
nor conditional.

NOTES

When must abandonment be made?

"Section 143.
An abandonment must be made
within a reasonable time
after receipt of reliable information of the loss,
but where the information is of a doubtful character,
the insured is entitled
to a reasonable time to make inquiry.

NOTES
What is the effect when the information upon which an abandonment is made proves to
be incorrect?
Or when the thing insured was so far restored when the abandonment was made?
Or when in fact there was no total loss?

"Section 144.
Where the information upon which an abandonment
has been made proves incorrect,
or the thing insured was so far restored
when the abandonment was made
that there was then in fact no total loss,
the abandonment becomes ineffectual.

NOTES

How is abandonment made?

"Section 145.
Abandonment is made
by giving notice thereof to the insurer,
which may be done orally, or in writing:
Provided, That if the notice be done orally,
a written notice of such abandonment
shall be submitted within seven (7) days from such oral notice.

NOTES

What are the requisites for a proper notice of abandonment?

"Section 146.
A notice of abandonment
must be explicit,
and must specify the particular cause of the abandonment,
but need state only
enough to show that there is probable cause therefor,
and need not be accompanied with proof of interest or of loss.

NOTES

On what cause can an abandonment be sustained?

"Section 147.
An abandonment can be sustained
only upon the cause
specified in the notice thereof.

NOTES
What is the legal effect of an abandonment?

"Section 148.
An abandonment is equivalent
to a transfer by the insured of his interest
to the insurer,
with all the chances of recovery and indemnity.

NOTES

What is the effect of payment by the insurer for a loss as if it were an actual total loss?

"Section 149.
If a marine insurer pays for a loss
as if it were an actual total loss,
he is entitled to whatever may remain of the thing insured,
or its proceeds or salvage,
as if there had been a formal abandonment.

NOTES

What is the effect of acts of the agents of the insured in respect to the thing insured
subsequent to the loss?

"Section 150.
Upon an abandonment,
acts done in good faith
by those who were agents of the insured
in respect to the thing insured,
subsequent to the loss,
are at the risk of the insurer, and for his benefit.

NOTES

What is the rule where a proper notice of abandonment is made but the insurer refuses
to accept the abandonment?

"Section 151.
Where notice of abandonment
is properly given,
the rights of the insured are not prejudiced
by the fact that the insurer refuses to accept the abandonment.
NOTES

What is the form of acceptance of an abandonment required by law?

"Section 152.
The acceptance of an abandonment
may be either express
or implied from the conduct of the insurer.
The mere silence of the insurer
for an unreasonable length of time after notice
shall be construed as an acceptance.

NOTES

What is the effect of the acceptance by the insurer of the abandonment?

"Section 153.
The acceptance of an abandonment,
whether express or implied,
is conclusive upon the parties,
and admits
the loss
and the sufficiency of the abandonment.

NOTES

May an abandonment made by the insured and accepted by the insurer be revoked?

"Section 154.
An abandonment once made and accepted is irrevocable,
unless the ground upon which it was made
proves to be unfounded.

NOTES

When an abandonment of a ship is accepted by the insurer, to whom will the freightage
earned previous to the loss belong?
What about freightage earned subsequent to the loss?

"Section 155.
On an accepted abandonment of a ship,
freightage earned previous to the loss
belongs to the insurer of said freightage;
but freightage subsequently earned
belongs to the insurer of the ship.

NOTES

What is the liability of an insurer if he refuses to accept a valid abandonment?

"Section 156.
If an insurer refuses to accept a valid abandonment,
he is liable as upon an actual total loss,
deducting from the amount
any proceeds of the thing insured
which may have come to the hands of the insured.

NOTES

When the insured omits to abandon, what is the liability of the insurer?

"Section 157.
If a person insured omits
to abandon,
he may nevertheless recover his actual loss.

NOTES

"SUB-TITLE 1-I
"MEASURE OF INDEMNITY

What is the effect of a valuation made in a policy?

What is the rule where the thing insured is hypothecated by bottomry or respondentia?
What is the rule in case the valuation is fraudulent in fact?

"Section 158.
A valuation in a policy of marine insurance is conclusive
between the parties thereto
in the adjustment of either a partial or total loss,
if the insured has some interest at risk,
and there is no fraud on his part;
except that when a thing
has been hypothecated by bottomry or respondentia,
before its insurance,
and without the knowledge of the person actually procuring the insurance,
he may show the real value.
But a valuation fraudulent in fact,
entitles the insurer to rescind the contract.

NOTES

What is the liability of the insurer in case of partial loss of the thing insured?

"Section 159.
A marine insurer is liable upon a partial loss,
only for such proportion of the amount insured by him
as the loss bears to the value
of the whole interest of the insured in the property insured.

NOTES

In case of partial loss of the thing insured, may the insured recover from the insurer?
What will be the liability of the insurer?

"Section 160.
Where profits are separately insured in a contract of marine insurance,
the insured is entitled to recover,
in case of loss,
a proportion of such profits
equivalent to the proportion
which the value of the property lost
bears to the value of the whole.

NOTES

What is the rule in case of a valued policy of marine insurance on freightage or cargo if
only a part of the thing insured is exposed to risk?

"Section 161.
In case of a valued policy of marine insurance
on freightage or cargo,
if a part only of the subject is exposed to risk,
the valuation applies only in proportion to such part.

NOTES

What is the effect on profits valued and insured in marine insurance of the loss of the
property out of which profit is expected?

"Section 162.
When profits are valued and insured by a contract of marine insurance,
a loss of them is conclusively presumed
from a loss of the property out of which they are expected to arise,
and the valuation fixes their amount.

NOTES

In case of an open policy of marine insurance how will the value of the thing insured by
determined?

"Section 163.
In estimating a loss under an open policy of marine insurance
the following rules are to be observed:

"(a) The value of a ship

is its value at the beginning of the risk,
including all articles or charges which add to its permanent value
or which are necessary to prepare it for the voyage insured;

"(b) The value of the cargo

is its actual cost to the insured,
when laden on board,
or where the cost cannot be ascertained,
its market value at the time and place of lading,
adding the charges incurred in purchasing and placing it on board,
but without reference to any loss incurred in raising money for its purchase,
or to any drawback [an allowance made by the government upon the duties on imported
merchandise, when the importer instead of selling it in the place, re-exports it; refunding of
such duties if already paid] on its exportation,
or to the fluctuation of the market at the port of destination,
or to expenses incurred on the way or on arrival;

"(c) The value of freightage

is the gross freightage,
exclusive of primage,
[def., a small compensation paid by a shipper to the master of the vessel for his care and
trouble bestowed on the shipper’s foods and which the master is entitled to retain the the
absence of an agreement to the contrary with the owners of the vessel]
without reference to the cost of earning it; and

"(d) The cost of insurance

is in each case to be added to the value thus estimated.

NOTES

What is the liability of the insurer in case of cargo insured against partial loss when
said cargo arrives at the port of destination in a damaged condition?

"Section 164.
If cargo insured against partial loss
arrives at the port of destination
in a damaged condition,
the loss of the insured is deemed to be
the same proportion of the value
which the market price at that port,
of the thing so damaged,
bears to the market price it would have brought if sound.

NOTES

Who is liable for expenses attendant upon a loss which forces the ship into a port to be
repaired?
Where it is stipulated in the policy that the insured shall labor for the recovery of the
propery, who shall be liable for the expenses incurred thereby?
What is the rule in case a total loss occurs afterwards?

"Section 165.
A marine insurer is liable for all the expenses
attendant upon a loss
which forces the ship into port to be repaired;
and where it is stipulated in the policy
that the insured shall labor for the recovery of the property,
the insurer is liable for the expense incurred thereby,
such expense, in either case,
being in addition to a total loss,
if that afterwards occurs.

NOTES

What is the liability of a marine insurer for a loss falling upon the insured througha
contribution in respect to the thing insured?

"Section 166.
A marine insurer is liable for a loss falling upon the insured,
through a contribution in respect to the thing insured,
required to be made by him
towards a general average loss called for by a peril insured against:
Provided, That the liability of the insurer
shall be limited to
the proportion of contribution attaching to his policy value
where this is less than
the contributing value of the thing insured.

NOTES
What right is given to the insured by a contract of marine insurance where he has a
demand against others for contribution?
When is the insured not given such right?

"Section 167.
When a person insured by a contract of marine insurance
has a demand against others for contribution,
he may claim the whole loss from the insurer,
subrogating him to his own right to contribution.
But no such claim can be made upon the insurer
after the separation of the interests liable to contribution,
nor when the insured,
having the right and opportunity to enforce contribution from others,
has neglected or waived the exercise of that right.

NOTES

What is the rule on the liability of the insurer in case of partial loss of a ship or its
equipment?

"Section 168.
In the case of a partial loss of ship or its equipment,
the old materials are to be applied
towards payment for the new.
Unless otherwise stipulated in the policy,
a marine insurer is liable
for only two-thirds (2/3) of the remaining cost of repairs
after such deduction,
except that anchors must be paid in full.

NOTES

"TITLE 2
"FIRE INSURANCE

"Section 169.
As used in this Code,
the term fire insurance shall include
insurance against loss
by fire, lightning, windstorm, tornado or earthquake and other allied risks,
when such risks are covered by extension to fire insurance policies or under separate policies.

NOTES

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

NOTES
"Section 171.
An alteration in the use or condition of a thing insured
from that to which it is limited by the policy,
which does not increase the risk,
does not affect a contract of fire insurance.

NOTES

"Section 172.
A contract of fire insurance
is not affected by any act of the insured
subsequent to the execution of the policy,
which does not violate its provisions,
even though it increases the risk
and is the cause of the loss.

NOTES
"Section 173.
If there is no valuation in the policy,
the measure of indemnity in an insurance against fire
is the expense it would be to the insured
at the time of the commencement of the fire
to replace the thing lost or injured
in the condition in which it was at the time of the injury;
but if there is a valuation in a policy of fire insurance,
the effect shall be the same as in a policy of marine insurance.

NOTES

"Section 174.
Whenever the insured desires to have a valuation named in his policy,
insuring any building or structure against fire,
he may require such building or structure to be examined
by an independent appraiser
and the value of the insured’s interest therein
may then be fixed as between the insurer and the insured.
The cost of such examination
shall be paid for by the insured.
A clause shall be inserted in such policy
stating substantially that the value of the insured’s interest
in such building or structure has been thus fixed.
In the absence of any change
increasing the risk
without the consent of the insurer
or of fraud on the part of the insured,
then in case of a total loss under such policy,
the whole amount so insured upon the insured’s interest
in such building or structure,
as stated in the policy
upon which the insurers have received a premium,
shall be paid,
and in case of a partial loss
the full amount of the partial loss shall be so paid,
and in case there are two (2) or more policies covering the insured’s interest therein,
each policy shall contribute pro rata
to the payment of such whole or partial loss.
But in no case shall the insurer be required
to pay more than the amount thus stated in such policy.
This section shall not prevent the parties
from stipulating in such policies
concerning the repairing, rebuilding or replacing of buildings or structures
wholly or partially damaged or destroyed.

NOTES

"Section 175.
No policy of fire insurance
shall be pledged, hypothecated, or transferred to any person, firm or company
who acts as agent for or otherwise represents the issuing company,
and any such pledge, hypothecation, or transfer hereafter made
shall be void
and of no effect
insofar as it may affect other creditors of the insured.

NOTES

"TITLE 3
"CASUALTY INSURANCE
"Section 176.
Casualty insurance is insurance
covering loss or liability arising from accident or mishap,
excluding certain types of loss which by law or custom
are considered as falling exclusively within the scope of other types of insurance
such as fire or marine.
It includes, but is not limited to,
employer’s liability insurance,
motor vehicle liability insurance,
plate glass insurance,
burglary and theft insurance,
personal accident
and health insurance
as written by non-life insurance companies,
and other substantially similar kinds of insurance.

NOTES

"TITLE 4
"SURETYSHIP

"Section 177.
A contract of suretyship is an agreement
whereby a party called the surety
guarantees the performance
by another party called the principal or obligor
of an obligation or undertaking in favor of a third party called the obligee.
It includes official recognizances, stipulations, bonds or undertakings
issued by any company by virtue of and under
the provisions of Act No. 536, as amended by Act No. 2206.

NOTES

"Section 178.
The liability of the surety or sureties
shall be joint and several with the obligor
and shall be limited to the amount of the bond.
It is determined strictly by the terms of the contract of suretyship
in relation to the principal contract between the obligor and the obligee.

NOTES
"Section 179.
The surety is entitled to payment of the premium
as soon as the contract of suretyship or bond
is perfected and delivered to the obligor.
No contract of suretyship or bonding
shall be valid and binding
unless and until the premium therefor has been paid,
except where the obligee has accepted the bond,
in which case the bond becomes valid and enforceable
irrespective of whether or not the premium has been paid
by the obligor to the surety:
Provided,
That if the contract of suretyship or bond is not accepted by,
or filed with
the obligee,
the surety shall collect only a reasonable amount,
not exceeding fifty percent (50%) of the premium due thereon
as service fee
plus the cost of stamps or other taxes imposed for the issuance of the contract or bond:
Provided, however,
That if the nonacceptance of the bond
be due to the fault or negligence of the surety,
no such service fee, stamps or taxes shall be collected.

"In the case of a continuing bond,

the obligor shall pay the subsequent annual premium
as it falls due until the contract of suretyship is cancelled
by the obligee or by the Commissioner or by a court of competent jurisdiction, as the case may
be.

NOTES

"Section 180.
Pertinent provisions of the Civil Code of the Philippines
shall be applied in a suppletory character
whenever necessary in interpreting the provisions of a contract of suretyship.

NOTES

"TITLE 5
"LIFE INSURANCE

"Section 181.
Life insurance is insurance on human lives
and insurance appertaining thereto or connected therewith.

"Every contract or undertaking for the payment of annuities

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

NOTES
"Section 182.
An insurance upon life may be made payable
on the death of the person,
or on his surviving a specified period,
or otherwise contingently on the continuance or cessation of life.

"Every contract or pledge for the payment of endowments or annuities

shall be considered a life insurance contract for purposes of this Code.

"In the absence of a judicial guardian,

the father,
or in the latter’s absence or incapacity, the mother,
of any minor, who is an insured or a beneficiary
under a contract of life, health, or accident insurance,
may exercise, in behalf of said minor, any right under the policy,
without necessity
of court authority
or the giving of a bond,
where the interest of the minor in the particular act involved
does not exceed Five hundred thousand pesos (P500,000.00)
or in such reasonable amount as may be determined by the Commissioner.
Such right may include, but shall not be limited to,
obtaining a policy loan,
surrendering the policy,
receiving the proceeds of the Policy,
and giving the minor’s consent to any transaction on the policy.

"In the absence or in case of the incapacity of the father or mother,

the grandparent,
the eldest brother or sister at least eighteen (18) years of age,
or any relative who has actual custody of the minor insured or beneficiary,
shall act as a guardian
without need of a court order or judicial appointment as such guardian,
as long as such person is not otherwise disqualified or incapacitated.
Payment made by the insurer pursuant to this section
shall relieve such insurer of any liability under the contract.

NOTES

"Section 183.
The insurer in a life insurance contract
shall be liable in case of suicide
only when it is committed
after the policy has been in force for a period of two (2) years
from the date of its issue or of its last reinstatement,
unless the policy provides a shorter period:
Provided, however,
That suicide committed in the state of insanity
shall be compensable regardless of the date of commission.

NOTES
"Section 184.
A policy of insurance upon life or health
may pass
by transfer, will or succession
to any person,
whether he has an insurable interest or not,
and such person may recover upon it
whatever the insured might have recovered.

NOTES

"Section 185.
Notice to an insurer of a transfer or bequest thereof
is not necessary to preserve the validity
of a policy of insurance upon life or health,
unless thereby expressly required.

NOTES

"Section 186.
Unless the interest of a person insured
is susceptible of exact pecuniary measurement,
the measure of indemnity under a policy of insurance upon life or health
is the sum fixed in the policy.

NOTES

OTHER NOTES/REVIEW
Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

3. Warranties

o A warranty is an affirmation of fact or a promise that forms part of the terms

and conditions of the policy; it may be incorporated in the policy by way of
reference; the falsity or non-fulfilment of the warranty renders the policy
voidable by the insurer;

o See Sec. 68 - Section 68. A warranty may relate to the past, the present, the
future, or to any or all of these;
o A warranty is either express (stated in the policy or any of its attachments)
or implied (a natural element of the contract imposed by the law and is a
part of the policy without the need to be stated in the policy); it may also be
affirmative (affirmation of facts that exist at the time they are made) or
promissory (stipulates that certain thing shall be done or a specified
condition shall exist during the effectivity of the contract);

o Rules on promissory warranties, see Secs. 72 and 73 of IC

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 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.

o Promissory warranty may be a positive act (e.g. that firewall will be modified
according to certain specification) or an omission (e.g. that gasoline will not
be stored in the insured building);

o Formalities of express warranty;

 Sec. 69 of IC provides that no particular form or words are necessary

to create a warranty;
 But, Sec. 70 imposes the following requirements

Section 70. Without prejudice to Section 51 [what a policy shall

specify],

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.
o Breach of warranty renders the contract defeasible (capable of being
annulled or made void); the insurer must prove such breach consistent with
the rule that any violation must be established by the person who is making
such allegation; the insurer may elect to waive his right to avoid the policy
in case of breach expressly or impliedly (e.g. renewing the policy knowing
that there was breach of warranty);

o Remedy in case of breach of warranty; see Secs. 74 and 75 of IC

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.

 Only a material breach will provide ground for rescission; breach of

immaterial provision does not avoid the policy; [?it is no longer the
rule now that all warranties are considered material the moment they
are expressed to be so in the policy – Aquino, p. 218;]

 If the policy itself provides that breach of a warranty or a provision

avoids the policy, the warranty is deemed to be material; the parties
may agree to be absolutely true and if untrue in any respect, the
policy is avoided;

 Breach of warranty may be waived by the other party;

o Breach of warranty may be with fraud (with intent to deceive) or without

fraud; see Sec. 76 of IC

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.;

o Warranty, distinguished from representation

 Warranty is part of the contract, representation is not part of the
contract but a collateral inducement; [“collateral” means related but
not in a direct or close way; accompanying as secondary or
subordinate; serving to support or reinforce);
 Warranty is written on a policy or its rider; representation can be oral;
  Warranty is presumed to be material; representation must be
established to be material;
 Warranty must be strictly complied; representation must be
substantially true;

4. Other Devices; risks can also be limited or controlled using exceptions,

exclusions, and conditions;
o Conditions are in the nature of collateral terms; they may not relate to the
risk covered or may not be statement of facts, but are in the nature of
collateral promises or stipulations; conditions may be precedent to they
include the right of the insured to recover from the insurer; they include
 Promises or obligations regarding claims procedure that are not
fundamental to the validity of the contract; example – giving of
notice of loss; seeking the written consent of the insurer before any
settlement of any liability involving third persons;

 Conditions conferring more right to the insurer, enlarging or

repeating the minimum rights provided by law; example – that all
benefits under the policy shall be forfeited if the claim be in any
respect fraudulent (such as if a fraudulent leas contract is used to
support a claim under the policy);

 The burden is on the insurer to prove that the insured breached the
conditions imposed under the policy; breach in condition is a
defense that will relieve the insurer of his liability under the policy;

 Case – SC held as valid a provision in the policy that any settlement of

claim by third persons shall be subject to prior approval by the
insurer and that non-compliance will bar the insured from claim from
the insurer; see an example of how an insurer may provide a
condition in the policy:

“No admission, offer, promise or payment shall be made by or on

behalf of the insured without the written consent of the Company
which shall be entitled, if it so desires, to take over and conduct in his
[sic] name the defense or settlement of any claim, or to prosecute in
his [sic] name for its own benefit any claim for indemnity or damages
or otherwise, and shall have full discretion in the conduct of any
proceedings in the settlement of any claim, and the insured shall five
all such information and assistance as the Company may require. If
the Company shall make any payment in settlement of any claim, and
such payment includes any amount not covered by this Policy, the
Insured shall repay the Company the amount not so covered.”
 “No admission, offer, promise or payment shall be made by or on
behalf of the insured without the written consent of the Company
which shall be entitled, if it so desires, to take over and conduct in his
[sic] name the defense or settlement of any claim, or to prosecute in
his [sic] name for its own benefit any claim for indemnity or damages
or otherwise, and shall have full discretion in the conduct of any
proceedings in the settlement of any claim, and the insured shall five
all such information and assistance as the Company may require. If
the Company shall make any payment in settlement of any claim, and
such payment includes any amount not covered by this Policy, the
Insured shall repay the Company the amount not so covered.”

[Note – this can be a good exercise for legal writing; to give the law
student the task of improving how the provision can be better
written; note the tendency of lawyers (who presumably prepared the
contract) to try to say everything in one sentence that can go like a
“long and winding road;”

Example - “In case of any claim by a third person against the insured,
no admission, offer, promise or payment shall be made by the insured
or by any person on his behalf without the written consent of the
Insurance Company. The Insurance Company, if it so desires, can take
over in its own name and have full discretion in the conduct of any
proceedings in the settlement of any claim or prosecution of any
claim for indemnity or damages. The insured shall give all such
information and assistance as the Company may require. In the event
that the Company makes any payment in the settlement of the claim
and such payment includes any amount not covered by this Policy,
the insured will pay the Insurance Company.”]

o Exception/exclusion/exemption; provisions that may express limitations to

the liability of the insurer in case of loss or damage; they must be expressed
clearly and in unmistakable language; any vagueness or ambiguity is
resolved against the insurer; exceptions to the general coverage are
construed most strongly against the insurer;

o Examples –

 providing that the risk of arrest occasioned by ordinary judicial

process shall be an exception in a marine insurance policy;
 excluding from the coverage of a fire insurance policy damages
resulting from explosions;
  excluding from the coverage of a Theft and Robbery Insurance “any
loss caused by any dishonest, fraudulent or criminal acts of the
insured or any officer, employee, partner, director, trustee or
authorized representatives of the Insured whether acting alone or in
conjunction with others;”

5. Incontestable Clause; see Sec. 48 of IC

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.

o Sec. 233 of IC requires the following incontestability clause in Individual Life

and Endowment Policy

Section 233. In the case of individual life or endowment insurance, the policy
shall contain in substance the following conditions:

xxx

(b) A provision that the policy shall be incontestable after it shall have
been in force during the lifetime of the insured for a period of two (2)
years from its date of issue as shown in the policy, or date of approval of
last reinstatement, except for nonpayment of premium and except for
violation of the conditions of the policy relating to military or naval service
in time of war; xxx;

o Sec. 234 of IC requires the following incontestability clause in group life

insurance policies
 Section 234. No policy of group life insurance shall be issued and delivered
in the Philippines unless it contains in substance the following provisions,
xxx

"(b) A provision that the validity of the policy shall not be contested,
except for nonpayment of premiums after it has been in force for two (2)
years from its date of issue; and that no statement made by any insured
under the policy relating to his insurability shall be used in contesting the
validity of the insurance with respect to which such statement was made
after such insurance has been in force prior to the contest for a period of
two (2) years during such person’s lifetime nor unless contained in a
written instrument signed by him;

o Sec. 236 of IC requires the following incontestability clause in industrial life

insurance

Section 236. In the case of industrial life insurance, the policy shall contain in
substance the following provisions: xxx

"(b) A provision that the policy shall be incontestable after it has been in
force during the lifetime of the insured for a specified period, not more
than two (2) years from its date of issue, except for nonpayment of
premiums and except for violation of the conditions of the policy relating
to naval or military service, or services auxiliary thereto, and except as to
provisions relating to benefits in the event of disability as defined in the
policy, and those granting additional insurance specifically against death
by accident or by accidental means, or to additional insurance against loss
of, or loss of use of, specific members of the body;

o The incontestability period is one year only for a Term Insurance coverage
under a Group Life Insurance Policy that is required to cover planholders of
Pre-Need Plans (see the Standard Contract Provisions for Health, Pension
and Memorial pre-need plans);

o Rationale for the incontestability clause; for the purpose of shutting off
harassing defences; designed to induce the insurer to investigate and act
with reasonable promptness if it wishes to avoid the policy; the facts can be
ascertained and established if investigated within the soonest possible time;
investigation becomes harder through the passage of time; it is unfair for
the death of the insured who obviously can no longer defend his claim;

o Case – If the insurers do not investigate those they insure within two years
from the effectivity of the policy and while the insured is still alive, they will
 be obligated to honor claims on the policy they issue, regardless of fraud,
concealment or misrepresentation; the law prevents insurers from
indiscriminately soliciting and accepting insurance from just any one;

o Allegation of connivance with agent; the insurer cannot likewise escape the
operation of the incontestability clause by claiming that the insured
connived with the insurance agent; even if the allegation is true, the insurer
should have discovered the alleged fraud if proper investigation was made
during the two-year period (Aquino, p. 226);

o Case (Emilio Tan v. CA, June 29, 1989) – the policy can still be rescinded or
the claim can still be denied if the insured dies within the two-year period
provided under Sec. 48* of IC; otherwise, the beneficiaries of an insured
who dies right after taking out and paying for a life insurance policy would
be allowed to collect on the policy even if the insured fraudulently
concealed material facts;

[*Sec. 48 - xxx 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.]

o War Limitation Rider or War Clause

 Sec. 227 requires a provision in the policy that the incontestable
clause does not apply if there is a violation of the conditions of the
policy relating to military or naval service in times of war;
 the war clause itself is not required by the Insurance Code; the war
clause limits the liability of the insurer in the event the insured lost his
life as a result of war; this enables insurance companies to issue life
insurance policies even in times of war, otherwise, they may not be
willing to issue such policies in times of war or when war is imminent;

6. Defenses of Insured against Revocation

o Aside from the incontestability clause, other grounds may be invoked by the
insured or his beneficiaries to prevent the insurer from invoking the devices
for limiting or controlling the risk (such as concealment, misrepresentation,
violation of warranties etc.), such grounds include

  Guaranteed insurability clause;
 Failure to invoke before commencing of the action;
 Waiver;
 Estoppel

o Guaranteed insurability clause;

 See 234 of IC

“(b) xxx that no statement made by any insured under the policy relating
to his insurability shall be used in contesting the validity of the insurance
with respect to which such statement was made after such insurance has
been in force prior to the contest for a period of two (2) years during
such person’s lifetime nor unless contained in a written instrument
signed by him; xxx”

 Thus, statements indicated in Sec. 234 (b) that tend to show that the
insured is uninsurable cannot be used against the insured;

 “insurability” includes all matters which would have been considered

by the insurer in the application except the age of the insured;
includes such factors as habits, occupation, finances and good health;

 Good health is not the same as insurability; consider the case

of condemned criminal who is in perfect health but is hardly
insurable;
 A person may be considered uninsurable because of his
financial circumstances, coupled with heavy over-insurance
that is entirely out of line with his financial condition;
 Re Case - A person was known to be insolvent and the
circumstances showed probability of suicide;

 The insurability clause may also be stipulated in individual life and

endowment policies;

o Timeliness of rescission/failure to invoke before commencing of action;

 See Sec. 48 of IC

Section 48. Whenever a right to rescind a contract of insurance is

given to the insurer

by any provision of this chapter [includes concealment,

representations, warranties],
 such right must be exercised previous to the commencement of an
action on the contract.

 Reason for allowing rescission; an action to rescind a contract is

founded upon and presupposes the existence of the contract sought
to be rescinded; if all the material matters alleged by an insurer in a
pleading are true (such as concealment, misrepresentation etc.), there
could be no valid contract; the minds of the parties never met and
never agreed upon the terms and conditions of the contract; the
matters as alleged would constitute a valid defense for the insurer
against the cause of action of the insured;

 If an insurer cannot rescind the contract because of the

commencement of an action, the insurer can still set up the ground
for rescission as a defense;

 The exercise of the right to rescind does not require the filing of a
case in court; case – where any of the material representations are
false, the insurer’s tender of the premium and notice that the policy is
cancelled operate to rescind the contract of insurance (Aquino, 234);

o Waiver;
 Waiver is the intentional relinguishment of a known right; an
intended giving up of a known privilege or power; it always involves
consent but it does not rise to the level of a contract; it may be
express or implied;

 Right to information of material facts may be waived wither by the

terms of the policy or by neglect to make inquiry as to such facts,
where they are distinctly implied in other facts of which information is
communicated;

 Case – insured disclose that he had undergone surgery without

stating all the details; (and the insurer did not make any further
inquiry about the matter); the insurer can no longer rescind the
contract on the ground that the specific illness involved in the surgery
was not disclosed; insurer is deemed to have made a waiver for its
failure to make further inquiries;

 Case – insured was above overage under a policy which provided for
an exclusion if the insured is above a certain age; insurer can no
longer deny the claim on such ground if the insured disclosed his age
in the application;
  Case – it was determined that the bodega should have 11 fire
hydrants in the compounds as required by the terms of the policy,
instead of only two that it had as actually known by the insurer,
nevertheless, the insurer proceeded to issue the policy; the deviation
from the terms of the policy did not prevent the claim because the
insurer was aware of the lack of fire hydrants even before the policy
was issued;

o Estoppel;
 Art. 1431 of NCC provides that “Through estoppel an admission or
representation is rendered conclusive upon the person making it, and
cannot be denied or disproved as against the person relying thereon.”
 Unlike a waiver, there is no element of concern in estoppel;

 Case – Since the insurer had led the insured to believe that he could
qualify under the common carrier liability insurance policy and to
enter into the contract paying the premium due, the insurer count
not, thereafter, be permitted to change its stand to the detriment of
the heirs of the insured; a private vehicle was insured twice under a
common carrier liability insurance upon the insistence of the insurer’s
agent who discounted fears of the insured that his private car may
not fall within the terms of the policy; the insured was a man of scant
education;

CHAPTER 7. LOSS AND NOTICE OF LOSS

7. Loss; the determination of whether or not loss has been caused by a peril
insured against or by excepted peril or a risk not insured against is crucial in
fixing the liability of the insurer; in many cases it may only involve a simple
cause and effect analysis; in other cases, the task is complicated because of the
number of possible causes that preceded the loss;

- lose means the injury or damage sustained by the insured as a consequence

of the happening of a risk against which the insurer has undertaken to
indemnify the insured;

- in property insurance, loss means the pecuniary detriment consisting of the

total cash value of the property (in case of total loss) or the reduction of the
value of the property (in case of partial loss);

- in life insurance, loss occurs when the insured person dies; in health
insurance, loss occurs in case of injury or disability of the insured;
o Proximate Cause Defined, that cause which, in the natural and
continuous sequence, unbroken by any efficient intervening cause,
produces the injury, and without which the result would not have
occurred;

 Distinguished from remote cause; remote cause is that cause

which some independent force merely took advantage of to
accomplish something which is not the natural effect thereof; the
insurer will not be liable if the peril insured against is a mere
remote cause;

 Efficient cause; in insurance law, “proximate cause” of a loss is

that cause proximate to the loss in efficiency (not necessarily in
time); remote cause may be disregarded in determining the cause
of the loss, but this rule need to be interpreted in good sense to
uphold and not defeat the intention of the parties; there must be
a direct and uninterrupted sequence between the proximate cause
and the ultimate loss; if any new intervening cause arises between
the primary cause and the ultimate loss, such intervening cause
will rule out consideration of preceding causes, subject to the
reality, predominance and efficiency of such preceding causes;

 Peril insured against; in insurance, there is a threshold question –

whether the peril is covered by the insurance; first, there is need
to examine what perils are insured against, and what perils are
excluded; then, whether or not the event that transpired falls
within the contemplation of what is expressly provided for (the
perils insured against);

 Example in an insurance against fire; an underlying

question is whether or not fire occurred; it may involve a
conceptual problem on the meaning of fire; this is separate
from the issue on whether the particular fire involved is the
proximate cause of the loss;

 Immediate cause; this suggest proximity in time to the loss;

usually contemplated where there are at least two causes
involved; example – an explosion occurred in a building which
was followed by fire which destroyed the building; here the
immediate cause is the fire;

o Rules under the Insurance Code;

 The rules are not exactly the same as the rules in torts (although
the same concept of proximate cause is adopted); in torts, the
tortfeasor is liable only if his negligent act or omission is the
proximate cause of the loss (or the tortfeasor is not liable if his
negligent act is not the proximate of the loss even if such
negligent act immediately preceded the loss);

In insurance, it would be possible for the insured to recover even if

the peril insured against is not the proximate cause of the loss;
the insurer may be liable even if the peril insured against is just an
immediate cause and another cause is the proximate cause;

 See Secs. 86, 87 and 88 of IC

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.

 Remote Proximate Liability of

cause cause insurer

Peril not ins. Peril ins. Liable

Peril ins. Peril not ins. Not liable

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.
 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 [i.e. a peril insured against].

 Summary of the rules as contained in Secs. 86 to 88 of IC

 1. The insurer is liable if the peril insured against is the

proximate cause of the loss; even if it is accompanied by a
remote cause or an immediate cause, and whether or not
such remote or immediate causes are excepted perils;

 2. The insurer is not liable if the peril insured against is the

remote cause;

 3. The insurer is liable if the thing insured is damaged

because it was being rescued from the peril insured
against;

 4. The insurer is liable for damages caused by a peril not

insured against to which the thing was exposed while the
same was being rescued from a peril insured against;

 5. The insurer is liable if the peril insured against is the

immediate cause of the loss if the proximate cause is not an
excepted peril;

 6. The insurer is not liable if the peril insured against is the

immediate cause but the proximate cause is an excepted
peril;

 Example – Fire is a peril insured against; explosion is an excepted

peril; where fire (peril insured against) is the proximate cause and
the immediate cause is explosion (an excepted peril), the insurer
will be liable;
  Example – Fire is an excepted peril; explosion is a peril insured
against; where fire (an excepted peril) is the proximate cause and
the immediate cause is explosion (a peril insured against), the
insurer will not be liable; note that the explosion would not have
occurred if not for the fire which is an excepted peril;

o Concurrent Causes;
 In insurance law, the issue is whether the insurer is liable if the
peril insured against is only one of the concurrent causes; courts
typically consider whether at least one of the contributing factors
that caused the loss is a risk covered by the insurance policy;
court frequently hold that coverage extends to the loss even
though an excluded element is a contributory cause;

 An incidental peril outside the policy, contributing to the risk

insured against, will not defeat recovery, nor may the insurer
defend by showing that an earlier cause brought the loss not
within a peril insured against, where the peril was the last step
prior to the loss; or where the insured risk itself set into operation
a chain of causation in which the last step may have been an
excepted risk;

 Where only one concurrent cause is insured against and damage

by each cause cannot be distinguished, the party responsible for
the dominating efficient cause has been held liable for the loss;
where the damage caused by each can be distinguished, each
party must bear its own proportion;

 Insurer is liable under the policy irrespective of the eventuality

that there is another concurrent proximate cause which constitute
an uncovered risk;

 Case – case of a homeowner’s policy which excluded flood

but the insured was allowed to recover although the
damage incurred was due to the flooding of the property
of the insured where the concurrent proximate cause was
the negligence of third parties in maintaining the flood
control facilities;

 Case – case where an owner of a home which slid down the

hill along with the hillside recovered under al all risk policy
expressly excluding earth movement because a concurrent
 cause could be found in a sub-drain that had been
negligently damaged so that the ground become saturated
and moved;

o Negligent and Intentional Acts or Omissions;

 See Sec. 89 of IC

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.

 Rationale – one of the purposes for taking out insurance is

to protect the insured against the consequences of his own
negligence and that of his agents;

 Effect of gross negligence; negligence or recklessness of

such gross character as to amount to misconduct or
wrongful act, otherwise, such acts or omissions shall release
the insurer from liability;

 Example – barge was left at the wharf despite looming bad

weather; the barge ran aground; representatives of the
insured did not heed request to move the barge to a more
secure place; only the subject vessel was left at the wharf,
all the others transferred their barges to a safer wharf;

8. Notice of Loss
o Parties may stipulate that notice be given within a certain period from
the time of the loss;
o Parties may agree that the absence of the notice of loss within the period
agreed upon will extinguish the liability of the insurer;
 o Notice of loss is separate from the claim itself, but a claim within the
period of giving notice is already deemed compliance with the
requirement for a notice of loss;

o With respect to fire insurance, see Sec. 90 of IC

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.

 Re “without unnecessary delay,” depends on the circumstances;

example – injured was injured and hospitalized for a long period
of time;

 Re policy requires immediate notice, not to be taken as an

imposition of an impossible requirement; may given as soon as
circumstances permitted the insured; can be construed as
meaning within a reasonable time;

 Denial of a claim on the ground that the policy is null and void is a
waiver of a notice of loss; If the policy is claimed as null and void,
the furnishing of notice would be useless;

 Notice to the agent of the insurer binds the insurer; notice to the
agent is notice to the principal (doctrine of representation);

9. Proof 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.

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 to the insurer that
 such refusal was not induced by any just grounds of disbelief in the facts
necessary to be certified or testified.

10. Defects in Notice and Proof

11. Effect of Delay

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
CHAPTER 8. CLAIMS SETTLEMENT AND SUBROGATION

CHAPTER 9. DOUBLE INSURANCE

CHAPTER 10. REINSURANCE

CHAPTER 11. MARINE INSURANCE

Outline
14. Definition
15. Kinds of marine insurance
2.1 Ocean marine insurance
2.2 Inland marine insurance
2.3 Aviation insurance
16. Period covered
17. Risk insured against
4.1 All risk policy
4.2 Named perils policy
4.3 Inland marine insurance perils
18. Insurable interest
5.1 Insurable interest over the ship
5.2 Insurance over cargo
5.3 Insurance over freightage and income
19. Concealment
20. Representation
21. Implied warranties
8.1 Seaworthiness
8.2 Documents of nationality or neutrality
8.3 Legality
22. The voyage and deviation
9.1 Route
9.2 Deviation
23. Loss
 10.1 Kinds of loss
24. Abandonment
11.1 Requisite
11.2 Effects of abandonment
11.3 Acceptance of abandonment
11.4 Revocation
11.5 Effect of failure to abandon
25. Measure of indemnity
12.1 Co-insurance clause
12.2 Freightage or cargo
12.3 Profits
12.4 Partial loss of cargo
12.5 Sue and labor clause
12.6 Application of old materials
26. Averages
13.1 FPA clause
13.2 Simple or particular average
13.3 General average
13.4 Who will pay general average
13.5 Subrogation

xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx
xxxxxxxxxxxxx

1. Definition
o Cannot be given a simple definition; has no unified conception; is
sometimes thought of as insurance that secures vessels and its cargoes
against the perils of navigation; but the present law does not limit
marine insurance to the risks of navigation;

o See Sec. 101 of IC

Section 101. Marine Insurance includes:

"(a) Insurance against loss of or damage to:

"(1) Vessels, craft, aircraft, vehicles, goods, freights, cargoes,

merchandise, effects, disbursements, profits, moneys, securities,
choses in action, instruments of debts, valuable papers, bottomry,
and respondentia interests and all other kinds of property and
interests therein, in respect to, appertaining to or in connection with
any and all risks or perils of navigation, transit or transportation, or
while being assembled, packed, crated, baled, compressed or
 similarly prepared for shipment or while awaiting shipment, or
during any delays, storage, transhipment, or reshipment incident
thereto, including war risks, marine builder’s risks, and all personal
property floater risks;

"(2) Person or property in connection with or appertaining to a

marine, inland marine, transit or transportation insurance, including
liability for loss of or damage arising out of or in connection with
the construction, repair, operation, maintenance or use of the
subject matter of such insurance (but not including life insurance or
surety bonds nor insurance against loss by reason of bodily injury to
any person arising out of ownership, maintenance, or use of
automobiles);

"(3) Precious stones, jewels, jewelry, precious metals, whether in

course of transportation or otherwise; and

"(4) Bridges, tunnels and other instrumentalities of transportation

and communication (excluding buildings, their furniture and
furnishings, fixed contents and supplies held in storage); piers,
wharves, docks and slips, and other aids to navigation and
transportation, including dry docks and marine railways, dams and
appurtenant facilities for the control of waterways.

"(b) Marine protection and indemnity insurance, meaning insurance

against, or against legal liability of the insured for loss, damage, or
expense incident to ownership, operation, chartering, maintenance, use,
repair, or construction of any vessel, craft or instrumentality in use of
ocean or inland waterways, including liability of the insured for personal
injury, illness or death or for loss of or damage to the property of
another person.

2. Kinds of marine insurance

a. Two basic types of marine insurance – 1. Ocean marine insurance, and 2.
Inland marine insurance; but Sec. 101 is so broad that it includes Aircraft
Hull Policy (a type of Aviation Insurance) another type that is neither
Ocean Marine Insurance nor Inland Marine Insurance
o
b. 2.1 Ocean marine insurance
c. 2.2 Inland marine insurance
d. 2.3 Aviation insurance
3. Period covered
4. Risk insured against
a. 4.1 All risk policy
 b. 4.2 Named perils policy
c. 4.3 Inland marine insurance perils
5. Insurable interest
a. 5.1 Insurable interest over the ship
b. 5.2 Insurance over cargo
c. 5.3 Insurance over freightage and income
6. Concealment
7. Representation
8. Implied warranties
a. 8.1 Seaworthiness
b. 8.2 Documents of nationality or neutrality
c. 8.3 Legality
9. The voyage and deviation
a. 9.1 Route
b. 9.2 Deviation
10. Loss
a. 10.1 Kinds of loss
11. Abandonment
a. 11.1 Requisite
b. 11.2 Effects of abandonment
c. 11.3 Acceptance of abandonment
d. 11.4 Revocation
e. 11.5 Effect of failure to abandon
12. Measure of indemnity
a. 12.1 Co-insurance clause
b. 12.2 Freightage or cargo
c. 12.3 Profits
d. 12.4 Partial loss of cargo
e. 12.5 Sue and labor clause
f. 12.6 Application of old materials
13. Averages
a. 13.1 FPA clause
b. 13.2 Simple or particular average
c. 13.3 General average
d. 13.4 Who will pay general average
e. 13.5 Subrogation

CHAPTER 12. FIRE INSURANCE

CHAPTER 13. LIFE INSURANCE

CHAPTER 14. CASUALTY INSURANCE AND COMPULSORY THIRD PARTY LIABILITY
INSURANCE

CHAPTER 15. SURETYSHIP

CHAPTER 16. REGULATION OF INSURANCE BUSINESS

CHAPTER 17. THE INSURANCE COMMISSIONER

CHAPTER 18. PRE-NEEDS PLANS