Insurance

San Beda College of Law
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MEMORY AID IN COMMERCIAL LAW
INSURANCE CODE
(P.D. No. 1460)
I. GENERAL CONCEPTS 7. Personal – each party having in view

the character, credit and conduct of
CONTRACT OF INSURANCE the other.
 An agreement whereby one
undertakes for a consideration to REQUISITES OF A CONTRACT OF
indemnify another against loss, damage INSURANCE (The Insurance Code of the
or liability arising from an unknown or Philippines Annotated, Hector de Leon,
contingent event. (Sec. 2, par. 2, IC) 2002 ed.)
1. A subject matter which the insured
“DOING AN INSURANCE BUSINESS OR has an insurable interest.
TRANSACTING AN INSURANCE 2. Event or peril insured against which
BUSINESS” (Sec. 2, par. 4) may be any future contingent or
1. Making or proposing to make, as unknown event, past or future and a
insurer, any insurance contract; duration for the risk thereof.
2. Making or proposing to make, as 3. A promise to pay or indemnify in a
surety, any contract of suretyship as fixed or ascertainable amount.
a vocation, not as a mere incident to 4. A consideration known as “premium”.
any other legitimate business of a 5. Meeting of the minds of the parties.
surety;
3. Doing any insurance business, 5 CARDINAL PRINCIPLES IN INSURANCE
including a reinsurance business; 1. Insurable Interest
4. Doing or proposing to do any 2. Principle of Utmost Good Faith
business in substance equivalent to  An insurance contract requires utmost
any of the foregoing good faith (uberrimae fidei) between
the parties. The applicant is enjoined to
II. CHARACTERISTICS OF AN INSURANCE disclose any material fact, which he
CONTRACT (The Insurance Code of the knows or ought to know.
Philippines Annotated, Hector de Leon,  Reason: An insurance contract is an
2002 ed.) aleatory contract. The insurer relies on
1. Consensual – it is perfected by the the representation of the applicant, who
meeting of the minds of the parties. is in the best position to know the state
2. Voluntary – the parties may of his health.
incorporate such terms and 3. Contract of Indemnity
conditions as they may deem  It is the basis of all property
convenient. insurance. The insured who has insurable
3. Aleatory – it depends upon some interest over a property is only entitled
contingent event. to recover the amount of actual loss
4. Unilateral – imposes legal duties only sustained and the burden is upon him to
on the insurer who promises to establish the amount of such loss
indemnify in case of loss. (Reviewer on Commercial Law,
5. Conditional – It is subject to Professors Sundiang and Aquino)
conditions the principal one of which Rules:
is the happening of the event a. Applies only to property
insured against. insurance except when the
6. Contract of indemnity – Except life creditor insures the life of his
and accident insurance, a contract debtor.
of insurance is a contract of b. Life insurance is not a contract
indemnity whereby the insurer of indemnity.
promises to make good only the loss c. Insurance contracts are not
of the insured. wagering contracts. (Sec. 4)
4. Contract of Adhesion (Fine Print Rule)
COMMERCIAL LAW COMMITTEE

 CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON:Jayson O’S Ramos  EDP: Beatrix I. Ramos  SUBJECT
HEADS:
Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario
(Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel
Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
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 Most of the terms of the contract do e. For recovery of loss in excess of

not result from mutual negotiations insurance coverage
between the parties as they are
prescribed by the insurer in final printed CONSTRUCTION OF INSURANCE
form to which the insured may “adhere” CONTRACT
if he chooses but which he cannot  The ambiguous terms are to be
change. (Rizal Surety and Insurance Co., construed strictly against the insurer,
vs. CA, 336 SCRA 12) and liberally in favor of the insured.
5. Principle of Subrogation However, if the terms are clear, there is
 It is a process of legal substitution no room for interpretation. (Calanoc vs.
where the insurer steps into the shoes of Court of Appeals, 98 Phil. 79)
the insured and he avails of the latter’s
rights against the wrongdoer at the time III. DISTINGUISHING ELEMENTS OF AN
of loss. INSURANCE CONTRACT
 The principle of subrogation is a 1. The insured possesses an insurable
normal incident of indemnity insurance interest susceptible of pecuniary
as a legal effect of payment; it inures to estimation;
the insurer without any formal 2. The insured is subject to a risk of loss
assignment or any express stipulation to through the destruction or
that effect in the policy. Said right is not impairment of that interest by the
dependent upon nor does it grow out of happening of designated perils;
any private contract. Payment to the 3. The insurer assumes that risk of loss;
insured makes the insurer a subrogee in 4. Such assumption is part of a general
equity. (Malayan Insurance Co., Inc. v. scheme to distribute actual losses
CA, 165 SCRA 536; see also Art. 2207, among a large group or substantial
NCC) number of persons bearing somewhat
 Purposes: (The Insurance Code of the similar risks; and
Philippines Annotated, Hector de Leon, 5. The insured makes a ratable
2002 ed.) contribution (premium) to a general
1. To make the person who caused the insurance fund.
loss legally responsible for it.  A contract possessing only the first 3
2. To prevent the insured from elements above is a risk-shifting device.
receiving a double recovery from the If all the elements, it is a risk-
wrongdoer and the insurer. distributing device. (The Insurance Code
3. To prevent tortfeasors from being of the Philippines Annotated, Hector de
free from liabilities and is thus Leon, 2002 ed.)
founded on considerations of public
policy. IV. PERFECTION OF AN INSURANCE
 Rules: CONTRACT
1. Applicable only to property insurance.  An insurance contract is a consensual
2. The insurer can only recover from the contract and is therefore perfected the
third person what the insured could have moment there is a meeting of minds with
recovered. respect to the object and the cause or
3. There can be no subrogation in cases: consideration.
a. Where the insured by his own act  What is being followed in insurance
releases the wrongdoer or third party contracts is what is known as the
liable for the loss or damage; “cognition theory”. Thus, “an
b. Where the insurer pays the insured the acceptance made by letter shall not bind
value of the loss without notifying the the person making the offer except from
carrier who has in good faith settled the time it came to his knowledge”.
the insured’s claim for loss; (Enriquez vs. Sun Life Assurance Co. of
c. Where the insurer pays the insured for Canada, 41 Phil. 269)
a loss or risk not covered by the policy.
(Pan Malayan Insurance Company v. Binding Receipt
CA, 184 SCRA 54)  A mere acknowledgment on behalf of
d. In life insurance the company that its branch office had

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received from the applicant the 5. Interest of the insured in the

insurance premium and had accepted property if he is not the absolute
the application subject to processing by owner;
the head office. 6. Risk insured against; and
7. Duration of the insurance.
Cover Note (Ad Interim)
 A concise and temporary written  Persons entitled to recover on the
contract issued to the insurer through its policy (sec. 53): The insurance proceeds
duly authorized agent embodying the shall be applied exclusively to the proper
principal terms of an expected policy of interest of the person in whose name or
insurance. to whose benefit it is made, unless
Purpose: It is intended to give otherwise specified in the policy.
temporary insurance protection coverage  Kinds:
to the applicant pending the acceptance 1. OPEN POLICY – value of thing insured
or rejection of his application. is not agreed upon, but left to be
 Duration: Not exceeding 60 days ascertained in case of loss. (Sec. 60)
unless a longer period is approved by  The actual loss, as determined,
Insurance Commissioner (Sec. 52). will represent the total indemnity
due the insured from the insurer
Riders except only that the total indemnity
 Printed stipulations usually attached shall not exceed the face value of
to the policy because they constitute the policy. (Development Insurance
additional stipulations between the Corp. vs. IAC, 143 SCRA 62)
parties. (Ang Giok Chip vs. Springfield, 2. VALUED POLICY – definite valuation of
56 Phil. 275) the property insured is agreed by both
 In case of conflict between a rider parties, and written on the face of
and the printed stipulations in the policy. (Sec. 61)
policy, the rider prevails, as being a  In the absence of fraud or
more deliberate expression of the mistake, the agreed valuation will be
agreement of the contracting parties. paid in case of total loss of the
(C. Alvendia, The Law of Insurance in property, unless the insurance is for
the Philippines, 1968 ed.) a lower amount.
3. RUNNING POLICY – contemplates
Clauses successive insurances and which provides
 An agreement between the insurer that the object of the policy may from
and the insured on certain matter time to time be defined (Sec. 62)
relating to the liability of the insurer in
case of loss. (Prof. De Leon, p.188) V. TYPES OF INSURANCE CONTRACTS
1. Life insurance
Endorsements a. Individual life (Secs. 179–183, 227)
 Any provision added to the contract b. Group life (Secs. 50, last par., 228)
altering its scope or application. (Prof. c. Industrial life (Secs. 229–231)
De Leon, p.188) 2. Non-life insurance
a. Marine (Secs. 99–166)
POLICY OF INSURANCE b. Fire (Secs. 167–173)
 The written instrument in which a c. Casualty (Sec. 174)
contract of insurance is set forth. (Sec. 3. Contracts of bonding or suretyship
49) (Secs. 175–178)
Note:
 Contents: (Sec. 51) 1. Health and accident insurance are
1. Parties either covered under life (Sec. 180) or
2. Amount of insurance, except in open casualty insurance. (Sec. 174).
or running policies; 2. Marine, fire, and the property aspect
3. Rate of premium; of casualty insurance are also referred to
4. Property or life insured; as property insurance.

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VI. PARTIES TO INSURANCE CONTRACT beneficiary is the principal

1. Insurer - Person who undertakes to accomplice or accessory in
indemnify another. willfully bringing about the
 For a person to be called an death of the insured in which
insurance agent, it is necessary event, the nearest relative
that he should perform the of the insured shall receive
function for compensation. the proceeds of said
(Aisporna vs. CA, 113 SCRA 459) insurance if not otherwise
2. Insured - The party to be indemnified disqualified. (Sec. 12)
upon the occurrence of the loss. He must b. PROPERTY
have capacity to contract, must possess  The beneficiary of property
an insurable interest in the subject of insurance must have an insurable
the insurance and must not be a public interest in such property, which
enemy. must exist not only at the time
 A public enemy- a nation with the policy takes effect but also
whom the Philippines is at war when the loss occurs. (Sec. 13
and it includes every citizen or and 18).
subject of such nation. Effects of Irrevocable Designation Of
3. Beneficiary - A person designated to Beneficiary
receive proceeds of policy when risk  Insured cannot:
attaches. 1. Assign the policy
 Rules in the designation of the 2. Take the cash surrender value of
beneficiary: the policy
a. LIFE 3. Allow his creditors to attach or
i. A person who insures his own execute on the policy;
life can designate any person 4. Add new beneficiary; or
as his beneficiary, whether 5. Change the irrevocable
or not the beneficiary has an designation to revocable, even
insurable interest in the life though the change is just and
of the insured subject to the reasonable.
limitations under Art. 739  The insured does not even retain the
and Art. 2012 of the NCC. power to destroy the contract by
 Reason: in essence, a life refusing to pay the premiums for the
insurance policy is no beneficiary can protect his interest by
different form a civil paying such premiums for he has an
donation insofar as the interest in the fulfillment of the
beneficiary is concerned. obligation. (Vance, p. 665, cited in de
Both are founded on the Leon, p. 101, 2002 ed.)
same consideration of
liberality. (Insular Life vs. VII. INSURABLE INTEREST
Ebrado, 80 SCRA 181) A. In General
ii. A person who insures the life  A person has an insurable interest in
of another person and name the subject matter if he is so connected,
himself as the beneficiary so situated, so circumstanced, so
must have an insurable related, that by the preservation of the
interest in such life. (Sec. same he shall derive pecuniary benefit,
10) and by its destruction he shall suffer
iii. As a general rule, the pecuniary loss, damage or prejudice.
designation of a beneficiary B. Life
is revocable unless the  Every person has an insurable interest
insured expressly waived the in the life and health:
right to revoke in the policy. a. of himself, of his spouse and of
(Sec. 11) his children;
iv. The interest of a beneficiary b. of any person on whom he
in a life insurance policy depends wholly or in part for
shall be forfeited when the education or support;

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c. of any person under a legal INSURABLE INSURABLE

obligation to him to pay money INT INTEREST IN
or respecting property or ER PROPERTY
services, of which death or ES
illness might delay or prevent T
performance; and IN
d. of any person upon whose life LIF
any estate or interest vested in E
him depends. (Sec. 10) Must exist only at the Must exist at the
 When it should exist: When the time the policy takes time the policy
insurance takes effect; not thereafter or effect and need not takes effect and
when the loss occurs. exist at the time of when the loss
 Amount: loss occurs
GENERAL RULE: There is no limit in the Unlimited except in Limited to actual
life insurance value of interest in
amount the insured can insure his life. effected by creditor property insured.
EXCEPTION: In a creditor-debtor on life of debtor.
relationship where the creditor insures The expectation of An expectation of a
the life of his debtor, the limit of benefit to be derived benefit to be
insurable interest is equal to the amount from the continued derived from the
of the debt. existence of life need continued
Note: If at the time of the death of the not have any legal existence of the
debtor the whole debt has already been basis whatever. A property insured
paid, the creditor can no longer recover reasonable must have a legal
probability is basis.
on the policy because the principle of
sufficient without
indemnity applies. more.
The beneficiary need The beneficiary
C. Property not have an insurable must have
 Every interest in property whether interest over the life insurable interest
real or personal, or any relation thereto, of the insured if the over the thing
or liability in respect thereof, of such insured himself insured.
nature that the contemplated peril secured the policy.
might directly damnify the insured (Sec. However, if the life
13), which may consist in: insurance was
obtained by the
1. an existing interest;
beneficiary, the
2. any inchoate interest latter must have
founded on an existing insurable interest
interest; or over the life of the
3. an expectancy coupled with insured.
an existing interest in that
out of which the expectancy SPECIAL CASES
arises. (Sec. 14) 1. In case of a carrier or depositary
 When it should exist: When the  A carrier or depository of any kind has
insurance takes effect and when the loss an insurable interest in a thing held by
occurs, but need not exist in the him as such, to the extent of his liability
meantime. but not to exceed the value thereof
 Amount: The measure of insurable (Sec. 15)
interest in property is the extent to 2. In case of a mortgaged property
which the insured might be damnified by  The mortgagor and mortgagee each
loss or injury thereof. (Sec. 17) have an insurable interest in the
property mortgaged and this interest is
separate and distinct from the other.
a. Mortgagor – As owner, has an
insurable interest therein to the
extent of its value, even though the
mortgage debt equals such value.
The reason is that the loss or
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destruction of the property insured the mortgagor as the claim is discharged

will not extinguish the mortgage but it passes by subrogation to the
debt. insurer to the extent of the money paid
b. Mortgagee – His interest is only up by such insurer. (Palileo vs. Cosio)
to the extent of the debt. Such
interest continues until the mortgage VIII. RISK
debt is extinguished.  What may be insured against:
1. Future contingent event resulting in
 The lessor cannot be validly a loss or damage – Ex. Possible future
beneficiary of a fire insurance policy fire
taken by a lessee over his merchandise, 2. Past unknown event resulting in loss
and the provision in the lease contract or damage – Ex. Fact of past sinking
providing for such automatic assignment of a vessel unknown to the parties
is void for being contrary to law and 3. Contingent liability – Ex. Reinsurance
public policy. (Cha vs. Court of Appeals,
227 SCRA 690) IX. PREMIUM PAYMENTS
 Consideration paid an insurer for
STANDARD OR OPEN OR LOSS undertaking to indemnify the insured
UNION PAYABLE against a specified peril.
MORTGAGE MORTGAGE  Basis of the right of the insurer to
CLAUSE CLAUSE collect premiums: Assumption of risk.
Subsequent acts Acts of the
of the mortgagor mortgagor affect GENERAL RULE: No policy issued by an
cannot affect the the mortgagee. insurance company is valid and binding
rights of the Reason: until actual payment of premium. Any
assignee Mortgagor does agreement to the contrary is void. (Sec.
not cease to be a 77)
party to the
contract. (Secs. 8 EXCEPTIONS:
and 9) 1. In case of life or industrial life
insurance, when the grace periods
Effects of Loss Payable Clause applies; (Sec. 77)
a. The contract is deemed to be upon 2. When the insurer makes a written
the interest of the mortgagor; hence, he acknowledgment of the receipt
does not cease to be a party to the premium; (Sec. 78)
contract. 3. Section 77 may not apply if the
b. Any act of the mortgagor prior to the parties have agreed to the payment
loss, which would otherwise avoid the of the premium in installments and
insurance affects the mortgagee even if partial payment has been made at
the property is in the hands of the the time of the loss. (Makati
mortgagee. Tuscany Condominium Corp. v. CA,
c. Any act, which under the contract of 215 SCRA 462)
insurance is to be performed by the 4. Where a credit term has been
mortgagor, may be performed by the agreed upon. (UCPB vs. Masagana
mortgagee with the same effect. Telemart, 308 SCRA 259)
d. In case of loss, the mortgagee is 5. Where the parties are barred by
entitled to the proceeds to the extent of estoppel. (UCPB vs. Maagana
his credit. Telemart, 356 SCRA 307)
e. Upon recovery by the mortgagee to
the extent of his credit, the debt is  Section 77 merely precludes the
extinguished. parties from stipulating that the policy is
valid even if the premiums are not paid.
 In case a mortgagee insures his own (Makati Tuscany Condominium Corp. v.
interest and a loss occurs, he is entitled CA, 215 SCRA 462)
to the proceeds of the insurance but he
is not allowed to retain his claim against
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Effect of Acknowledgment of Receipt

of Premium in Policy: Conclusive PREMIUM ASSESSMENT
evidence of its payment, so far as to
make the policy binding, notwithstanding Levied and paid to Collected to meet
any stipulation therein that it shall not meet anticipated actual losses.
be binding until the premium is actually losses.
paid. (Sec. 78)
Payment is not Payment is
enforceable against enforceable once
the insured. levied unless
otherwise agreed
ENTITLEMENT OF INSURED TO RETURN upon.
OF PREMIUMS PAID
A. Whole: Not a debt. It becomes a debt

1. If the thing insured was never once properly levied
exposed to the risks insured unless otherwise
against; (Sec. 79) agreed.
2. If contract is voidable due to the
fraud or misrepresentation of X. TRANSFER OF POLICY
insurer or his agents; (Sec. 81) 1. Life Insurance
3. If contract is voidable because of  It can be transferred even without the
the existence of facts of which consent of the insurer except when there
the insured was ignorant without is a stipulation requiring the consent of
his fault; (Sec. 81) the insurer before transfer. (Sec. 181)
4. When by any default of the  Reason: The policy does not represent
insured other than actual fraud, a personal agreement between the
the insurer never incurred insured and the insurer.
liability; (Sec. 81) 2. Property insurance
5. When rescission is granted due to  It cannot be transferred without the
the insurer’s breach of contract. consent of the insurer.
(Sec. 74)  Reason: The insurer approved the
B. Pro rata: policy based on the personal
1. When the insurance is for a qualification and the insurable interest
definite period and the insured of the insured.
surrenders his policy before the 3. Casualty insurance
termination thereof;  It cannot be transferred without the
 Exceptions: consent of the insurer. (Paterson cited
a. policy not made for a in de Leon p. 82)
definite period of time  Reason: The moral hazards are as
b. short period rate is great as those of property insurance.
agreed upon
c. life insurance policy CHANE OF INTEREST IN THE THING
2. When there is over-insurance INSURED
(Sec. 82);  The mere (absolute) transfer of the
thing insured does not transfer the
Instances when premiums are not policy, but suspends it until the same
recoverable: person becomes the owner of both the
1. When the risk has already policy and the thing insured. (Sec. 58)
attached and the risk is entire and  Reason: Insurance contract is
indivisible. personal.
2. In life insurance. GENERAL RULE: A change of interest in
3. When the contract is rescindable any part of a thing insured
or rendered void ab initio by the unaccompanied by a corresponding
fraud of the insured. change of interest in the insurance
4. When the contract is illegal and suspends the insurance to an equivalent
the parties are in pari delicto. extent, until the interests in the thing

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and the interest in the insurance are a. A party knows a fact which he
vested in the same person. (Sec. 20) neglects to communicate or
disclose to the other.
b. Such party concealing is duty
bound to disclose such fact to
EXCEPTIONS: the other.
1. In life, health and accident c. Such party concealing makes no
insurance.(Sec. 20); warranty as to the fact
2. Change in interest in the thing concealed.
insured after occurrence of an d. The other party has not the
injury which results in a loss. means of ascertaining the fact
(Sec. 21); concealed.
3. Change in interest in one or e. Material
more of several distinct things  Effects: Entitles insurer to rescind,
separately insured by one policy. even if the death or loss is due to a
(Sec. 22); cause not related to the concealed
4. Change of interest, by will or matter (Sec. 27).
succession, on the death of the Note: Good Faith is not a defense in
insured. (Sec. 23); concealment. Sec. 27 clearly provides
5. Transfer of interest by one of that, “the concealment whether
several partners, joint owners, intentional or unintentional entitles the
or owners in common, who are injured party to rescind the contract of
jointly insured, to others. (Sec. insurance.”
24);
6. When a policy is so framed that Test of Materiality: Determined not by
it will inure to the benefit of the event, but solely by the probable
whomsoever, during the and reasonable influence of the facts
continuance of the risk, may upon the party to whom the
become the owner of the communication is due, in forming his
interest insured. (Sec. 57); estimate of the advantages of the
7. When there is an express proposed contract, or in making his
prohibition against alienation in inquiries (Sec. 31).
the policy, in case of alienation,  Exception to Sec. 31:
the contract of insurance is not a. Incontestability clause
merely suspended but avoided. b. Matters under Sec.110 (marine
(Art. 1306, NCC). insurance)
XI. ASCERTAINMENT AND CONTROL OF  The waiver of medical examination in

RISK AND LOSS a non-medical insurance contract
renders even more material the
A. Four Primary Concerns of the information required of the applicant
Parties: concerning the previous conditions of
1. Correct estimation of the risk; health and diseases suffered. (Sunlife v.
2. Precise delimitation of the risk; Sps. Bacani, 246 SCRA 268).
3. Control of the risk;
4. Determining whether a loss occurred  The right to information of material
and if so, the amount of such loss. facts may be waived, either by the terms
of the insurance or by neglect to make
B. Devices used for ascertaining and inquiries as to such facts where they are
controlling risk and loss: distinctly implied in other facts of which
1. Concealment – A neglect to information is communicated. (Sec.33)
communicate that which a party knows
and ought to communicate (Sec. 26)  Where matters of opinion or judgment
 Requisites: are called for, answers made in good
faith and without intent to deceiver will
not avoid the policy even though they

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are untrue. Reason: The insurer cannot that purpose. (Insular Life Assur. Co. vs.
rely on those statements. He must make Feliciano, 74 Phil. 469)
further inquiry. (Philamcare Health
Systems vs. CA, G.R. No. 125678, March 3. Warranties – Statement or promise
18, 2002). by the insured set forth in the policy or
by reference incorporated therein, the
2. Representations – Factual untruth or non-fulfillment of which in
statements made by the insured at the any respect, and without reference to
time of, or prior to, the issuance of the whether insurer was in fact prejudiced
policy to give information to the insurer by such untruth or non-fulfillment,
and induce him to enter into the renders the policy voidable by the
insurance contract. They are considered insurer.
an active form of concealment.  Purpose: To eliminate potentially
 Requisites of a false representation increasing hazards which may either be
(misrepresentation): due to the acts of the insured or to the
a. The insured stated a fact which change to the condition of the property.
is untrue.  Kinds:
b. Such fact was stated with a. EXPRESS – an agreement expressed in
knowledge that it is untrue and a policy whereby the insured stipulates
with intent to deceive or which that certain facts relating to the risk are
he states positively as true or shall be true, or certain acts relating
without knowing it to be true to the same subject have been or shall
and which has a tendency to be done.
mislead. b. IMPLIED - it is deemed included in the
c. Such fact in either case is contract although not expressly
material to the risk. mentioned. Example: In marine
 Characteristics: insurance, seaworthiness of the vessel.
a. It is not a part of the contract but  Effects of breach of warranty:
merely a collateral inducement to it. a. Material
b. It may be oral or written. GENERAL RULE: Violation of material
c. It is made at the same time of issuing warranty or of a material provision of a
the policy or before but not after. policy will entitle the other party to
d. It may be altered or withdrawn before rescind the contract. (Sec. 74)
the insurance is effected but not EXCEPTIONS:
afterwards. a. Loss occurs before the time of
e. It always refers to the date the performance of the warranty.
contract goes into effect. b. The performances becomes
 Kinds: unlawful at the place of the
a. AFFIRMATIVE – affirmation of a fact contract.
when the contract begins; and c. Performance becomes
b. PROMISSORY – promise to be impossible. (Sec. 73)
performed after policy was issued. b. Immaterial (ex. Other insurance
 Effect of Misrepresentation: the clause)
injured party is entitled to rescind from GENERAL RULE: It will not avoid the
the time when the representation policy.
becomes false. EXCEPTION: When the policy expressly
provides or declares that a violation
Test of Materiality: Same as that in thereof will avoid it. (Sec. 75)
concealment.
WARRANTY REPRESENTATION
 Where the insured merely signed the Part of the contract Mere collateral
application form and made the agent of inducement
the insurer fill the same for him, it was Written on the May be written in
held that by doing so, the insured made policy, actually or by the policy or may
the agent of the insurer his own agent reference be oral.
and he was responsible for his acts for

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Presumed material Must be proved to of issue of policy or its last

be material reinstatement; prior to
Must be strictly Requires only “incontestability.” (Sec. 48)
complied with substantial truth
and compliance CANCELLATION OF NON-LIFE
4. Conditions – Events signifying in its INSURANCE POLICY
broadest sense either an occurrence or a  Right of the insurer to abandon the
non-occurrence that alters the contract on the occurrence of certain
previously existing legal relations of the grounds after the effectivity date of a
parties to the contract. They may be non-life policy.
conditions precedent or conditions  Grounds:
subsequent. 1. Non-payment of premium;
 Effect of breach: 2. Conviction of a crime out of acts
a. Condition precedent – prevents increasing the hazard insured
the accrual of cause of action against;
b. Condition subsequent – avoids 3. Discovery of fraud or material
the policy or entitles the insurer misrepresentation;
to rescind 4. Discovery of willful or reckless acts
 The insurer may also protect himself of omissions increasing the hazard
against fraudulent claims of loss and this insured against;
he attempts to do by inserting in the 5. Physical changes in property making
policy various conditions which take the the property uninsurable; and
form of conditions precedent. For 6. Determination by the Insurance
instance, there are conditions requiring Commissioner that the continuation
immediate notice of loss or injury and of the policy would violate the
detailed proofs of loss within a limited Insurance Code. (Sec. 64)
period.  Requirements:
1. Prior notice of cancellation to
5. Exceptions – Provisions that may the insured;
specify excepted perils. It makes more 2. Notice must be in writing,
definite the coverage indicated by the mailed or delivered to the
general description of the risk by named insured at the address
excluding certain specified risk that shown in the policy;
otherwise would be included under the 3. Notice must state which of the
general language describing the risks grounds set forth in Sec. 64 is
assumed. relied upon and upon request of
 Effect: Limit the coverage of the the insured, the insurer must
contract. furnish facts on which the
cancellation is based;
RESCISSION 4. Grounds should have existed
 Grounds: after the effectivity date of the
A. Concealment policy.
B. Misrepresentation
C. Breach of material warranty XII. INCONTESTABILITY CLAUSE
D. Breach of a condition subsequent  Clause in life insurance policy that
 Waiver of the right to rescind: stipulates that the policy shall be
Acceptance of premium payments incontestable after a stated period.
despite the knowledge of the ground for  Requisites:
rescission. (Sec. 45) 1. Life insurance policy
 Limitations on the right of the 2. Payable on the death of the insured
insurer to rescind: 3. It has been in force during the
1. Non-life – such right must be lifetime of the insured for a period
exercised prior to the commencement of of at least two years from the date
an action on the contract; of its issue or of its last
2. Life – such right must be availed of reinstatement
during the first two years from the date
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40
Note: The period of 2 years may be 1. The insurer is bound only to pay to
shortened but it cannot be extended by the extent of the real value of the
stipulation. property lost;
2. The insured is entitled to recover the
amount of premium corresponding to
 Incontestability only deprives the the excess in value of the property;
insurer of those defenses which arise in
connection with the formation and B. DOUBLE INSURANCE – exists where
operation of the policy prior to loss. same person is insured by several
(Prof. De Leon, p. 173 citing Wyatt and insurers separately in respect to same
Wyatt, p. 878) subject and interest. (Sec. 93)
 Requisites:
BARRED DEFENSES NOT 1. Person insured is the same;
DEFENSES BARRED 2. Two or more insurers insuring
OF THE INSURER separately;
1. Policy is void ab 1. That the person 3. Subject matter is the same;
initio taking the insurance 4. Interest insured is also the same;
2. Policy is lacked insurable 5. Risk or peril insured against is
rescindable by interest as required likewise the same.
reason of the by law;
fraudulent 2. That the cause of
 Effects: Where double insurance is
concealment or the death of the
misrepresentation of insured is an allowed, but over insurance results:
the insured or his excepted risk; (Sec. 94)
agent 3. That the 1. The
premiums have not insured, unless the policy otherwise
been paid (Secs. 77, provides, may claim payment from
227[b], 228[b], the insurers in such order as he may
230[b]); select, up to the amount for which
4. That the the insurers are severally liable
conditions of the
under their respective contracts;
policy relating to
military or naval 2. Where
service have been the policy under which the insured
violated (Secs. claims is a valued policy, the insured
227[b], 228[b]); must give credit as against the
5. That the fraud is valuation for any sum received by
of a particularly him under any other policy without
vicious type; regard to the actual value of the
6. That the subject matter insured;
beneficiary failed to
3. Where
furnish proof of
death or to comply the policy under which the insured
with any condition claims is an unvalued policy he must
imposed by the give credit, as against the full
policy after the loss insurable value, for any sum
has happened; or received by him under any policy;
7. That the action 4. Where
was not brought the insured receives any sum in
within the time excess of the valuation in the case of
specified.
valued policies, or of the insurable
value in the case of unvalued
XIII. policies, he must hold such sum in
A. OVER-INSURANCE – results when the trust for the insurers, according to
insured insures the same property for an their right of contribution among
amount greater than the value of the themselves;
property with the same insurance 5. Each
company. insurer is bound, as between himself
 Effect in case of loss: and the other insurers, to contribute

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ratably to the loss in proportion to and the other to accept reinsurance

the amount for which he is liable business pursuant to provisions specified
under his contract. in the treaty. (Prof. De Leon, p. 306)
Additional or “Other Insurance” Clause 2. Automatic reinsurance – The

 A condition in the policy requiring the reinsured is bound to cede and the
insured to inform the insurer of any reinsurer is obligated to accept a fixed
other insurance coverage of the property share of the risk which has to be
insured. It is lawful and specifically reinsured under the contract. (Prof. De
allowed under Sec. 75 which provides Leon, p. 305)
that “(a) policy may declare that a 3. Facultative reinsurance – There is no
violation of a specified provision thereof obligation to cede or accept
shall avoid it, otherwise the breach of an participation in the risk each party
immaterial provision does not avoid it.” having a free choice. But once the share
 A stipulation against double is accepted, the obligation is absolute
insurance. and the liability thereunder can be
 Purposes: discharged only by payment. (Equitable
1. To prevent an increase in the Ins. & Casualty Co. vs. Rural Ins. &
moral hazard Surety Co., Inc. 4 SCRA 343)
2. To prevent over-insurance and
fraud. 4. Retrocession – A transaction whereby
 To constitute a violation of the the reinsurer in turn, passes to another
clause, there should have been double insurer a portion of the risk reinsured. It
insurance. is really the reinsurance of reinsurance.
(Prof. De Leon, p. 305)
C. REINSURANCE – a contract by which
the insurer procures a third person to XIV.
insure him against loss or liability by A. LOSS, IN INSURANCE
reason of an original insurance (also  Injury or damage sustained by the
known as “Reinsurance Cession”). (Sec. insured in consequence of the happening
95) of one or more of the accidents or
 In every reinsurance, the original misfortune against which the insurer, in
contract of insurance and the contract of consideration of the premium, has
reinsurance are covered by separate undertaken to indemnify the insured.
policies. (Bonifacio Bros. Inc. vs. Mora, 20 SCRA
261)
DOUBLE REINSURANCE
INSURANCE Loss for which Loss for which
Involves the same Involves different insurer is liable insurer is not
interest interest liable
Insurer remains in Insurer becomes the 1. Loss the 1. Loss by
such capacity insured in relation proximate cause of insured’s willful
to reinsurer which is the peril act;
Insured is the party Original insured has insured against 2. Loss due to
in interest in the 2 no interest in the (Sec. 84); connivance of the
contracts reinsurance 2. Loss the insured (Sec. 87);
contract. immediate cause of and
Subject of Subject of insurance which is the peril 3. Loss where the
insurance is is the original insured against excepted peril is
property insurer’s risk except where the proximate
Insured has to give Insured’s consent proximate cause is cause.
his consent not necessary an excepted peril;
3. Loss through
TERMS: negligence of
insured except
1. Reinsurance treaty – Merely an
where there was
agreement between two insurance gross negligence
companies whereby one agrees to cede amounting to willful
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acts; and NON-LIFE

4. Loss caused by LIFE POLICIES POLICIES
efforts to rescue the
thing from peril a. Maturing The proceeds shall
insured against; upon the be paid within 30
5. If during the expiration of the days after the
course of rescue, term – The receipt by the
the thing is exposed proceeds are insurer of proof of
to a peril not immediately loss, and
insured against, payable to the ascertainment of
which permanently insured, unless the loss or damage
deprives the insured they are made by agreement of the
of its possession, in payable in parties or by
whole or in part installments or as arbitration but not
(Sec. 85). annuity, in which later than 90 days
case, the from such receipt of
Proximate Cause – An event that sets all installments or proof of loss
other events in motion without any annuities shall be whether or not
intervening or independent case, without paid as they ascertainment is
which the injury or loss would not have become due. had or made.
occurred. b. Maturing at
the death of the
insured, occurring
REQUISITES FOR RECOVERY UPON prior to the
INSURANCE expiration of the
1. The insured must have insurable term stipulated –
interest in the subject matter; The proceeds are
2. That interest is covered by the policy; payable to the
3. There must be a loss; and beneficiaries
4. The loss must be proximately caused within 60 days
by the peril insured against. after presentation
and filing of proof
of death.
NOTICE OF LOSS
In fire insurance In other types of
insurance  In case of an unreasonable delay in
the payment of the insured’s claim by
Required Not required the insurer, the insured can recover: 1)
attorney’s fees; 2) expenses incurred by
Failure to give Failure to give
reason of the unreasonable withholding;
notice will defeat notice will not
the right of the exonerate the 3) interest at double the legal interest
insured to recover. insurer, unless rate fixed by the Monetary Board; and 4)
there is a the amount of the claim. (Zenith
stipulation in the Insurance Corp. vs. CA, 185 SCRA 398)
policy requiring the
insured to do so. XV. PRESCRIPTIVE PERIOD (Secs. 63 &
384)
 Rules:
B. CLAIMS SETTLEMENT 1. In the absence of an express
 The indemnification of the loss of the stipulation in the policy, it being based
insured. on a written contract, the action
prescribes in 10 years.
TIME FOR PAYMENT OF CLAIMS 2. However the parties may validly agree
on a shorter period provided it is not less
than one year from the time the cause of
action accrues.
3. The cause of action accrues from the
rejection of the claim of the insured and
not from the time of loss.

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It shall commence from the denial of  Classes of inland marine insurance:
the claim, not from the resolution of the (Prof. De Leon, p. 325)
motion for reconsideration, otherwise it 1. Property in transit – provides
can be used by the insured as a scheme protection to property
or device to waste time until the frequently exposed to loss while
evidence which may be used against him it is transportation form one
is destroyed. (Sun Insurance Office, Ltd. location to another.
v. CA, 195 SCRA) 2. Bailee liability - insurance for
4. In CMVLI, the written notice of claim those who have temporary
must be filed within 6 months from the custody of the goods.
date of the accident otherwise the claim 3. Fixed transportation property –
is deemed waived. The suit for damages they are so insured because they
either with the proper court or with the are held to be an essential part
Insurance Commissioner should be filed of the transportation system
within 1 year from the date of the denial such as bridges, tunnels, etc.
of the claim by the insurer, otherwise 4. Floater – provides insurance to
claimant’s right of action shall prescribe. follow the insured property
(Sec. 384) wherever it may be located,
subject always to the territorial
PARTICULAR KINDS OF INSURANCE limits of the contract.
CONTRACTS  Insurable interest:
A.
XVI. MARINE INSURANCE 1.Shipowner
 Insurance against risks connected with a. Over the vessel to the
navigation, to which a ship, cargo, extent of its value, except
freightage, profits or other insurable that if chartered, the
interest in movable property, may be insurance is only up to the
exposed during a certain voyage or a amount not recoverable
fixed period of time. (Sec. 99) from the charterer. (Sec.
 Coverage: 100).
A. b. He also has an insurable
1. Vessels, goods, freight, cargo, interest on expected
merchandise, profits, money, freightage. (Sec. 103).
valuable papers, bottomry and c. No insurable interest if he
respondentia, and interest in respect will be compensated by
to all risks or perils of navigation; charterer for the value of
2. Persons or property in connection the vessel, in case of loss.
with marine insurance; 2. Cargo owner
3. Precious stones, jewels, jewelry and  Over the cargo and expected
precious metals whether in the profits (Sec. 105).
course of transportation or 3. Charterer
otherwise; and  Over the amount he is liable
4. Bridges, tunnels, piers, docks and to the shipowner, if the ship is
other aids to navigation and lost or damaged during the
transportation. (Sec. 99) voyage (Sec. 106).
 Cargo can be the subject of
marine insurance, and once it is B.
entered into, the implied In loans on bottomry and respondentia
warranty of seaworthiness  Repayment of the loan is subject to
immediately attaches to the condition that the vessel or goods,
whoever is insuring the cargo, respectively, given as a security, shall
whether he be the shipowner or arrive safely at the port of destination.
not. (Roque v. IAC, 139 SCRA 1. Owner/Debtor
596)  Difference between the value
B. Marine Protection and Indemnity of vessel or goods and the
Insurance amount of loan. (Sec. 101)

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44
2. Creditor/lender  A clause which provides that there

 Amount of the loan can be no recovery on the policy in case
of any willful misconduct on the part of
Note: If a vessel is hypothecated by the master or crew in pursuance of some
bottomry, only the excess is insurable, unlawful or fraudulent purpose without
since a loan on bottomry partakes of the consent of owners, and to the prejudice
nature of an insurance coverage to the of the owner’s interest. (Roque vs. IAC,
extent of the loan accommodation. The 139 SCRA 596)
same rule would apply to the
hypothecation of the cargo by C. Inchamaree Clause
respondentia. (Pandect of  A clause which makes the insurer
Commercial Law and liable for loss or damage to the hull or
machinery arising from the:
Jurisprudence, Justice Jose 1. Negligence of the captain,
Vitug, 1997 ed.) engineers, etc.
PERILS OF THE PERILS OF THE 2. Explosions, breakage of shafts; and
SEA SHIP 3. Latent defect of machinery or hull.
Includes only those A loss which in the (Bar Review Materials in Commercial
casualties due to ordinary course of
the: events, results
Law, Jorge Miravite, 2002 ed.)
1. unusual from the:
violence; or 1. natural and D. Sue and Labor Clause
2. extraordinary inevitable action of  A clause under which the insurer may
action of wind and the sea become liable to pay the insured, in
wave; or 2. ordinary wear addition to the loss actually suffered,
3. Other and tear of the ship such expenses as he may have incurred
extraordinary causes or in his efforts to protect the property
connected with 3. Negligent against a peril for which the insurer
navigation. failure of the ship’s
would have been liable. (Sec. 163)
owner to provide
the vessel with
proper equipment MATTERS ALTHOUGH CONCEALED, WILL
to convey the cargo NOT VITIATE THE CONTRACT EXCEPT
under ordinary WHEN THEY CAUSED THE LOSS (Sec.
conditions. 110)
1. National character of the insured;
Note: It is only perils of the sea which 2. Liability of the thing insured to
may be insured against unless perils of capture or detention;
the ship is covered by an all-risk policy. 3. Liability to seizure from breach of
foreign laws;
SPECIAL MARINE INSURANCE 4. Want of necessary documents; and
CONTRACTS AND CLAUSES 5. Use of false or simulated papers.
A. All Risks Policy – insurance against all Note: This should be related to the
causes of conceivable loss or damage, general rule regarding material
except: 1) as otherwise excluded in the concealment.
policy; or 2) due to fraud or intentional
misconduct on the part of the insured. DISTINCTIONS ON CONCEALMENT
 The insured has the initial burden of (Commercial Law Reviewer, A.F.
proving that the cargo was in good Agbayani, 1988 ed.)
condition when the policy attached and
that the cargo was damaged when MARINE INSURANCE OTHER
unloaded from the vessel; thereafter, PROPERTY
the burden then shifts to the insurer to INSURANCE
show the exception to the coverage. The information of the The information or
(Filipinas Merchants Insurance vs. Court belief or expectation belief of a 3rd party
of Appeals, 179 SCRA 638) of 3rd persons is is not material and
material and must be need not be
B. Barratry Clause communicated communicated

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45
unless it proceeds subsequent unseaworthiness is not a

form an agent of breach of the warranty nor is it material
the insured whose that the vessel arrives in safety at the
duty it is to give end of her voyage.
information
EXCEPTIONS:
The concealment of Concealment of any
1. In the case of a time policy, the ship
any fact in relation to material fact will
any of the matters vitiate the entire must be seaworthy at the
stated in Sec. 110 contract, whether commencement of every voyage she
does not vitiate the or not the loss may undertake
entire contract but results for the risk 2. In the case of cargo policy, each
merely exonerates the concealed. vessel upon which the cargo is
insurer from a risk shipped or transshipped, must be
resulting from the fact seaworthy at the commencement of
concealed each particular voyage
IMPLIED WARRANTIES 3. In the case of a voyage policy
1. Seaworthiness of the ship at the contemplating a voyage in different
inception of the insurance (Sec. stages, the ship must be seaworthy
113); at the commencement of each
2. Against improper deviation (Sec. portion
123, 124, 125);
3. Against illegal venture;  Applicability of implied warranty of
4. Warranty of neutrality: the ship will seaworthiness to cargo owners: It
carry the requisite documents of becomes the obligation of a cargo owner
nationality or neutrality of the ship to look for a reliable common carrier,
or cargo where such nationality or which keeps its vessels in seaworthy
neutrality is expressly warranted; conditions. The shipper may have no
(Sec. 120) control over the vessel but he has
5. Presence of insurable interest. control in the choice of the common
carrier that will transport his goods
 While the payment by the insurer for (Roque v. IAC, 139 SCRA 596).
the insured value of the lost cargo
operates as a waiver of the insurer’s Deviation
right to enforce the term of the implied  A departure from the course of the
warranty against the assured under the voyage insured, or an unreasonable delay
marine insurance policy, the same in pursuing the voyage or the
cannot be validly interpreted as an commencement of an entirely different
automatic admission of the vessel’s voyage. (Sec.123)
seaworthiness by the insurer as to  Instances:
foreclose recourse against the common 1. Departure of vessel from the
carrier for any liability under the course of the sailing fixed by
contractual obligation as such common mercantile usage
carrier. (Delsan Transportation Lines vs. 2. Departure of vessel from the
CA, 364 SCRA 24) most natural, direct and
advantageous route if not fixed
Seaworthiness by mercantile usage
 A relative term depending upon the 3. Unreasonable delay in pursuing
nature of the ship, voyage, service and voyage
goods, denoting in general a ship’s 4. Commencement of an entirely
fitness to perform the service and to different voyage (Secs. 121-123)
encounter the ordinary perils of the  Kinds:
voyage, contemplated by the parties to 1. Proper -
the policy (Sec. 114). a. When caused by circumstances outside
GENERAL RULE: The warranty of the control of the ship captain or ship
seaworthiness is complied with if the owner;
ship be seaworthy at the time of the b. When necessary to comply with a
commencement of the risk. Prior or warranty or to avoid a peril;

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c. When made in good faith to avoid a Has inured to the Has not inured to the
peril; common benefit and common benefit and
d. When made in good faith to save profit of all persons profit of all persons
human life or to relieve another vessel interested in the interested in the
vessel and cargo vessel and her cargo.
in distress (Sec. 124)
To be borne equally To be borne alone by
 Effect: In case of loss, the
by all of the interests the owner of the
insurer is still liable. concerned in the cargo or the vessel,
2. Improper - Every deviation not venture. as the case may be.
specified in Sec. 124 (Sec. 125). Requisites for the
 Effect: In case of loss or right to claim
damage, the insurer is not liable. contribution:
(Sec. 126) 1. Common
danger to the
vessel or
LOSS cargo;
1. Total: 2. Part of the
a. Actual - vessel or cargo
i. Total destruction; was sacrificed
ii. Irretrievable loss by sinking; deliberately;
iii. Damage rendering the thing 3. Sacrifice must
valueless; or be for the
iv. Total deprivation of owner of common safety
possession of thing insured. or for the
(Sec. 130) benefit of all;
b. Constructive - 4. Sacrifice must
i. Actual loss of more than ¾ be made by
of the value of the object; the master or
ii. Damage reducing value by upon his
more than ¾ of the value of authority;
the vessel and of cargo; and 5. It must be not
iii. Expense of transshipment be caused by
exceed ¾ of value of cargo. any fault of
(Sec. 131, in relation to Sec. the party
139) asking the
 In case of constructive contribution;
total loss, insured may: 6. It must be
1. Abandon goods or successful, i.e.
vessel to the insurer and resulted in the
claim for whole insured saving of the
value (Sec. 139), or vessel or
2. Without abandoning cargo; and
vessel, claim for partial Necessary.
actual loss. (Sec. 155)
2. Partial: That which is not total (Sec. RIGHT OF INSURED IN CASE OF
128). GENERAL AVERAGE
GENERAL RULE: The insured may either
AVERAGE hold the insurer directly liable for the
 Any extraordinary or accidental whole of the insured value of the
expense incurred during the voyage for property sacrificed for the general
the preservation of the vessel, cargo, or benefit, subrogating him to his own right
both, and all damages to the vessel and of contribution or demand contribution
cargo from the time it is loaded and the from the other interested parties as soon
voyage commenced until it ends and the as the vessel arrives at her destination
cargo unloaded. EXCEPTIONS:
1. After the separation of interests
GENERAL PARTICULAR liable to contribution
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47
2. When the insured has neglected or any proceeds of the thing insured which
waived his right to contribution may have come to the hands of the
insured. (Sec.154)
FPA Clause (Free From Particular
Average) CO-INSURANCE
A clause agreed upon in a policy of  A marine insurer is liable upon a
marine insurance in which it is stated partial loss, only for such proportion of
that the insurer shall not be liable for a the amount insured by him as the loss
particular average, such insurer shall be bears to the value of the whole interest
free therefrom, but he shall continue to of the insured in the property insured.
be liable for his proportion of all general (Sec. 157)
average losses assessed upon the thing  When the property is insured for less
insured. (Sec. 136) than its value, the insured is considered
ABANDONMENT a co-insurer of the difference between
 The act of the insured by which, after the amount of insurance and the value of
a constructive total loss, he declared the the property.
relinquishment to the insurer of his
interest in the thing insured. (Sec. 138)  Requisites:
 Requisites for validity: 1. The loss is partial;
1. There must be an actual 2. The amount of insurance is less than
relinquishment by the person insured the value of the property insured.
of his interest in the thing insured
(Sec. 138);  Rules:
2. There must be a constructive total 1. Co-insurance applies only to marine
loss (Sec. 139); insurance
3. The abandonment be neither partial 2. Logically, there cannot be co-
nor conditional (Sec. 140); insurance in life insurance.
4. It must be made within a reasonable 3. Co-insurance applies in fire insurance
time after receipt of reliable when expressly provided for by the
information of the loss (Sec. 141); parties.
5. It must be factual (Sec. 142);
6. It must be made by giving notice CO-INSURANCE REINSURANCE
thereof to the insurer which may be A percentage in the Situation where the
done orally or in writing (Sec. 143); value of the insured insurer procures a 3rd
and property which the party called the
7. The notice of abandonment must be insured himself reinsurer to insure
explicit and must specify the assumes to act as him against liability
insurer to the extent by reason of an
particular cause of the abandonment
of the deficiency in original insurance.
(Sec. 144). the insurance of the Basically, reinsurance
insured property. In is an insurance
 Effects: case of loss or against liability which
1. It is equivalent to a transfer by the damage, the insurer the original insurer
insured of his interest to the insurer will be liable only for may incur in favor of
with all the chances of recovery and such proportion of the original insured.
indemnity (Transfer of Interest) the loss or damage as
(Sec.146) the amount of the
insurance bears to
2. Acts done in good faith by those who
the designated
were agents of the insured in respect percentage of the
to the thing insured, subsequent to full value of the
the loss, are at the risk of the property insured.
insurer and for his benefit. (Transfer (Bar Review
Of Agency)(Sec.148) Materials in
Commercial Law,
 If an insurer refuses to accept a valid Jorge Miravite, 2002
abandonment, he is liable upon an actual ed.)
total loss, deducting form the amount

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 Requisites:
XVII. FIRE INSURANCE 1. The use or condition of the thing
 A contract by which the insurer for a is specifically limited or
consideration agrees to indemnify the stipulated in the policy;
insured against loss of, or damage to, 2. Such use or condition as limited
property by hostile fire, including loss by by the policy is altered;
lightning, windstorm, tornado or 3. The alteration is made without
earthquake and other allied risks, when the consent of the insurer;
such risks are covered by extension to 4. The alteration is made by means
fire insurance policies or under separate within the control of the insured;
policies. (Sec. 167) 5. The alteration increases the risk;
(Sec. 168) and
6. There must be a violation of a
 Prerequisites to recovery: policy provision. (Sec. 170)
1. Notice of loss – must be immediately
given, unless delay is waived expressly or Fall-of-building clause
impliedly by the insurer  A clause in a fire insurance policy that
2. Proof of loss – according to best if the building or any part thereof falls,
evidence obtainable. Delay may also be except as a result of fire, all insurance
waived expressly or impliedly by the by the policy shall immediately cease.
insurer
Option to rebuild clause
HOSTILE FIRE FRIENDLY FIRE  A clause giving the insurer the option
One that escapes One that burns in a to reinstate or replace the property
from the place place where it was damaged or destroyed or any part
where it was intended to burn thereof, instead of paying the amount of
intended to burn and ought to be the loss or the damage.
and ought to be.  The insurer, after electing to rebuild,
Insurer is liable Insurer is not liable cannot be compelled to perform this
undertaking by specific performance
Measure of Indemnity because this is an obligation to do, not
1. Open policy: only the expense to give. Remedy: Art. 1167, NCC.
necessary to replace the thing lost or
injured in the condition it was at the XVIII. CASUALTY OR ACCIDENT
time of the injury INSURANCE
2. Valued policy: the parties are bound  Insurance covering loss or liability
by the valuation, in the absence of fraud arising from accident or mishap,
or mistake excluding those falling under other types
of insurance such as fire or marine. (Sec.
Note: It is very crucial to determine 174)
whether a marine vessel is covered by a
marine insurance or fire insurance. The  Classifications:
determination is important for 2 reasons: 1. Insurance against specified perils
1. Rules on constructive total loss which may affect the person and/or
and abandonment – applies only property of the insured. (accident or
to marine insurance; health insurance)
2. Rule on co-insurance – applies  Examples: personal accident,
primarily to marine insurance; robbery/theft insurance
3. Rule on co-insurance applies to 2. Insurance against specified perils
fire insurance only if expressly which may give rise to liability on the
agreed upon. (Commercial Law part of the insured for claims for
Reviewer, Aguedo Agbayani, injuries to or damage to property of
1988 ed.) others. (third party liability insurance)
 Insurable interest is based on the
ALTERATION AS A SPECIAL GROUND interest of the insured in the safety of
FOR RESCISSION BY INSURER persons, and their property, who may

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49
maintain an action against him in case of  The insurer is not solidarily liable with
their injury or destruction, respectively. the insured. The insurer’s liability is
 Examples: workmen’s compensation, based on contract; that of the insured is
motor vehicle liability based on torts. Furthermore, the
 In a third party liability (TPL) insurer’s liability is limited by the
insurance contract, the insurer assumes amount of the insurance coverage (Pan
the obligation by paying the injured third Malayan Insurance Corporation v. CA,
party to whom the insured is liable. Prior 184 SCRA 54).
payment by the insured to the third
person is not necessary in order that the
obligation may arise. The moment the
insured becomes liable to third persons,
the insured acquires an interest in the “INTENTIONAL” vs. “ACCIDENTAL” AS
insurance contract which may be USED IN INSURANCE POLICIES
garnished like any other credit. (Perla 1. Intentional – Implies the exercise of
Comapnia de Seguro, Inc vs. Ramolete, the reasoning faculties, consciousness
205 SCRA 487) and volition. Where a provision of the
 Aside from compulsory motor vehicle policy excludes intentional injury, it is
liability insurance, the Insurance Code the intention of the person inflicting the
contains no other provisions applicable injury that is controlling. If the injuries
to casualty insurance. Therefore, such suffered by the insured clearly resulted
casualty insurance are governed by the from the intentional act of the third
general provisions applicable to all types person, the insurer is relieve from
of insurance, and outside of such liability as stipulated. (Biagtan v. the
statutory provisions, the rights and Insular Life Assurance Co. Ltd., 44 SCRA
obligations of the parties must be 58, 1972)
determined by their contract, taking into 2. Accidental – That which happens by
consideration its purpose and always in chance or fortuitously, without intention
accordance with the general principles or design, which is unexpected, unusual
of insurance law. and unforeseen.
 In burglary, robbery and theft NO ACTION CLAUSE

insurance, the opportunity to defraud  A requirement in a policy of liability
the insurer – the moral hazard – is so insurance which provides that suit and
great that insurer have found it final judgment be first obtained against
necessary to fill up the policies with the insured; that only thereafter can the
many restrictions designed to reduce the person injured recover on the policy.
hazard. Persons frequently excluded are (Guingon vs. Del Monte, 20 SCRA 1043)
those in the insured’s service and
employment. The purpose of the XIX. COMPULSORY MOTOR VEHICLE
exception is to guard against liability LIABILITY INSURANCE (CMVLI)
should theft be committed by one having  A species of compulsory insurance
unrestricted access to the property. that provides for protection coverage
(Fortune Insurance vs. CA, 244 SCRA 208) that will answer for legal liability for
losses and damages for bodily injuries or
Right of a third party injured to sue the property damage that may be sustained
insurer by another arising from the use and
1. Indemnity against liability – A third operation of motor vehicle by its owner.
party injured can directly sue the  Purpose: To give immediate financial
insurer. assistance to victims of motor vehicle
2. Indemnity for actual loss or accidents and/or their dependents,
reimbursement after actual payment by especially if they are poor regardless of
the insured – A third party has no cause the financial capability of motor vehicle
of action against the insurer (Sec. 53, owners or operators responsible for the
Bonifacio Bros. v. Mora, 20 SCRA 261). accident sustained (Shafer v. Judge,
RTC, 167 SCRA 386).

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50
 Claimants/victims may be a a. In case of an occupant: Insurer

“passenger” or a “3rd party” of the vehicle in which the occupant is
 It applies to all vehicles whether riding, mounting or dismounting from;
public and private vehicles. b. In any other case: Insurer of the
Note: It is the only compulsory insurance directly offending vehicle. (Sec. 378)
coverage under the Insurance Code.
 The claimant is not free to choose
from which insurer he will claim the “no
fault indemnity” as the law makes it
mandatory that the claim shall lie
against the insurer of the vehicle in
which the occupant is riding, mounting
Method of coverage or dismounting from. That said vehicle
1. Insurance policy might not be the one that caused the
2. Surety bond accident is of no moment since the law
3. Cash deposit itself provides that the party paying may
recover against the owner of the vehicle
Passenger – Any fare-paying person responsible for the accident. (Perla
being transported and conveyed in and Compania de Seguros, Inc. v. Ancheta,
by a motor vehicle for transportation of 169 SCRA 144)
passengers for compensation, including
persons expressly authorized by law or  This no-fault claim does not apply to
by the vehicle’s operator or his agents to property damage. If the total indemnity
ride without fare. (Sec. 373[b]) claim exceeds P5,000 and there is
controversy in respect thereto, the
Third Party – Any person other than the finding of fault may be availed of by the
passenger, excluding a member of the insurer only as to the excess. The first
household or a member of the family P5,000 shall be paid without regard to
within the second degree of fault. (Prof. De Leon, p. 716)
consanguinity or affinity, of a motor
vehicle owner or land transportation  The essence of the no-fault indemnity
operator, or his employee in respect of insurance is to provide victims of
death or bodily injury arising out of and vehicular accidents or their heirs
in the course of employment. (Sec. immediate compensation although in
373[c]) limited amount, pending final
determination of who is responsible for
“No-Fault” Clause the accident and liable for the victims
 A clause that allows the victim injuries or death. (Ibid.)
(injured person or heirs of the deceased)
to an option to file a claim for death or SPECIAL CLAUSES
injury without the necessity of proving A. Authorized Driver Clause
fault or negligence of any kind.  A clause which aims to indemnify the
 Purpose: To guarantee compensation insured owner against loss or damage to
or indemnity to injured persons in motor the car but limits the use of the insured
vehicle accidents. vehicle to the insured himself or any
 Rules: person who drives on his order or with
1. Total indemnity - maximum of P5,000 his permission (Villacorta v. Insurance
2. Proofs of loss - Commissioner)
a. Police report of accident;  The requirement that the person
b. Death certificate and evidence driving the insured vehicle is permitted
sufficient to establish proper payee; in accordance with the licensing laws or
c. Medical report and evidence of other laws or regulations to drive the
medical or hospital disbursement. motor vehicle (licensed driver) is
3. Claim may be made against one motor applicable only if the person driving is
vehicle only other than the insured.
4. Proper insurer from which to claim -

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51
B. Theft Clause subrogation

 A clause which includes theft as Bond can be May be cancelled
among the risks insured against. cancelled only with unilaterally either by
 Where the car is unlawfully and consent of obligee, insured or insurer on
wrongfully taken without the owner’s Commissioner or grounds provided by
court law
consent or knowledge, such taking
Requires No need of
constitutes theft, and thus, it is the acceptance of acceptance by any
“theft clause” and not the “authorized obligee to be valid third party
driver clause that should apply (Palermo Risk-shifting device; Risk-distributing
v. Pyramids Ins., 161 SCRA 677). premium paid being device; premium paid
in the nature of a as a ratable
service fee contribution to a
C. Cooperation Clause common fund
 A clause which provides in essence XXI. LIFE INSURANCE
that the insured shall give all such  Insurance on human lives and
information and assistance as the insurer insurance appertaining thereto or
may require, usually requiring connected therewith which includes
attendance at trials or hearings. every contract or pledge for the
XX. SURETYSHIP payment of endowments or annuities.
 An agreement whereby a surety (Sec. 179)
guarantees the performance by the  Kinds: (Bar Review Materials in
principal or obligor of an obligation or Commercial Law, Jorge Miravite, 2002
undertaking in favor of an obligee. (Sec. ed.)
175) 1. Ordinary Life, General Life or Old
 It is essentially a credit Line Policy - Insured pays a fixed
accommodation. premium every year until he dies.
 It is considered an insurance contract Surrender value after 3 years.
if it is executed by the surety as a 2. Group Life – Essentially a single
vocation, and not incidentally. (Sec. 20 insurance contract that provides
 When the contract is primarily drawn coverage for many individuals.
up by 1 party, the benefit of doubt goes Examples: In favor of employees,
to the other party (insured/obligee) in “mortgage redemption insurance”.
case of an ambiguity following the rule 3. Limited Payment Policy – insured
in contracts of adhesion. Suretyship, pays premium for a limited period.
especially in fidelity bonding, is thus If he dies within the period, his
treated like non-life insurance in some beneficiary is paid; if he outlives the
respects. period, he does not get anything.
4. Endowment Policy – pays premium
Nature of liability of surety for specified period. If he outlives
1. Solidary; the period, the face value of the
2. Limited to the amount of the bond; policy is paid to him; if not, his
3. It is determined strictly by the terms beneficiaries receive the benefit.
of the contract of suretyship in 5. Term Insurance – insurer pays once
relation to the principal contract only, and he is insured for a
between the obligor and the obligee. specified period. If he dies within
(Sec. 176) the period, his beneficiaries
benefits. If he outlives the period,
SURETYSHIP PROPERTY no person benefits from the
INSURANCE insurance.
Accessory contract Principal contract 6. Industrial Life - life insurance
3 parties: surety, 2 parties: insurer and entitling the insured to pay
obligor and oblige insured premiums weekly, or where
Credit Contract of premiums are payable monthly or
accommodation indemnity oftener.
Surety can recover Insurer has no such
from principal right; only right of Mortgage Redemption Insurance

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52
 A life insurance taken pursuant to a 1. Accidental killing

group mortgage redemption scheme by 2. Self-defense
the lender of money on the life of a 3. Insanity of the beneficiary at the
mortgagor who, to secure the loan, time he killed the insured
mortgages the house constructed from
the use of the proceeds of the loan, to  If the premiums paid came from
the extent of the mortgage indebtedness conjugal funds, the proceeds are
such that if the mortgagor dies, the considered conjugal. If the beneficiary is
proceeds of his life insurance will be other than the insured’s estate, the
used to pay for his indebtedness to the source of premiums would not be
lender assured and the deceased’s heirs relevant. (Del Val v. Del Val, 29 Phil 534)
will thereby be relieved from paying the
unpaid balance of the loan. (Great  The measure of indemnity in life or
Pacific Life Assurance Corp. vs. Court of health insurance policy is the sum fixed
Appeals, 316 SCRA 677) in the policy except when a creditor
insures the life of his debtor. (Sec. 183)
LIABILITY OF INSURER IN CERTAIN IS THE CONSENT OF THE BENEFICIARY
CAUSES OF DEATH OF INSURED NECESSARY TO THE ASSIGNMENT OF A
1. Suicide LIFE INSURANCE POLICY?
 Insurer is liable in the following cases:  It depends. If the designation of the
1. If committed after two years beneficiary is irrevocable, the
from the date of the policy’s beneficiary’s consent is essential
issue or its last reinstatement; because of his vested right. If the
2. If committed in a state of designation is revocable, the policy may
insanity regardless of the date of be assigned without such consent
the commission unless suicide is because the beneficiary only has a mere
an excepted peril. (Sec. 180-A) expectancy to the proceeds. (The
3. If committed after a shorter Insurance Code of the Philippines
period provided in the policy Annotated, Hector de Leon, 2002 ed.)
 Any stipulation extending the 2-year
period is null and void. Cash Surrender Value
2. At the hands of the law (E.g. by legal  As applied to a life insurance policy, it
execution) is the amount the insured in case of
 It is one of the risks assumed by the default, after the payment of at least 3
insurer under a life insurance policy in full annual premiums, is entitled to
the absence of a valid policy exception. receive if he surrenders the policy and
(Vance,p.572 cited in de Leon, p. 107) releases his claims upon it.
Note: Justice Vitug believes that death
by suicide (if the insured is sane) or at LIFE INSURANCE FIRE INSURANCE
the hands of the law obviates against
recovery as being more in consonance Contract of Contract of indemnity
with public policy and as being implicit investment not of
indemnity
under Section 87, ICP. (Pandect of Valued policy Open or valued policy
Commercial Law and Jurisprudence, May be transferred The insurable
1997 ed. P. 191) or assigned to any interest of the
3. Killing by the beneficiary person even if he transferee or
GENERAL RULE: The interest of a has no insurable assignee is essential
beneficiary in a life insurance policy interest
shall be forfeited when the beneficiary is Consent of insurer is Consent of insurer
not essential to must be secured in the
the principal accomplice or accessory in validity of absence of waiver
willfully bringing about the death of the assignment
insured, in which event, the nearest Contingency that is Contingency insured
relative of the insured shall receive the contemplated is a against may or may
proceeds of said insurance if not certain event, the not occur
otherwise disqualified. (Sec. 12) only uncertainty
being the time when
EXCEPTIONS:

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53
it will take place

A long-term May be cancelled by
contract and cannot either party and is
be cancelled by the usually for a term of
insurer one year
Beneficiary is under Insured is required to
no obligation to submit proof of his
prove actual actual pecuniary loss
financial loss as a condition
precedent to
collecting the
insurance.
XXII. VARIABLE CONTRACT

 The Insurance Commissioner has no
 Any policy or contract on either a
jurisdiction to decide the legality of a
group or individual basis issued by an
contract of agency entered into between
insurance company providing for benefits
an insurance company and its agent. The
or other contractual payments or values
same is not covered by the term “doing
thereunder to vary so as to reflect
or transacting insurance business” under
investment results of any segregated
Sec 2, ICP, neither is it covered by Sec.
portfolio of investment.
416 of the same Code which grants the
Commissioner adjudicatory powers
XXIII. INSURANCE COMMISSIONER
(Philippine American Life Insurance Co.
 Main agency charged with the
v. Ansaldo, 234 SCRA 509).
enforcement of the Insurance Code and
other related laws.
2. ADMINISTRATIVE/REGULATORY
 Functions:
a. Enforcement of insurance laws
1. ADJUDICATORY/QUASI-JUDICIAL
b. Issuance, suspension or
a. Exclusive original jurisdiction –
revocation of certificate of
Any dispute in the enforcement of any
authority
policy issued pursuant to Chapter VI
c. Power to examine books and
(CMVLI). (Sec. 385, par. 2)
records, etc.
b. Concurrent original jurisdiction
d. Rule-making authority
(with the RTC) – Where the maximum
e. Punitive
amount involved in any single claim is
P100,000 (Sec. 416), except in case of
maritime insurance which is within the
exclusive jurisdiction of the RTC. (BP
129; admiralty & maritime jurisdiction)
 Where the amount exceeds
P100,000, the RTC has
jurisdiction.

HEADS:

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San Beda College of Law

I. GENERAL CONCEPTS 7. Personal – each party having in view

COMMERCIAL LAW COMMITTEE

 Most of the terms of the contract do e. For recovery of loss in excess of

COMMERCIAL LAW COMMITTEE

received from the applicant the 5. Interest of the insured in the

COMMERCIAL LAW COMMITTEE

VI. PARTIES TO INSURANCE CONTRACT beneficiary is the principal

COMMERCIAL LAW COMMITTEE

c. of any person under a legal INSURABLE INSURABLE

destruction of the property insured the mortgagor as the claim is discharged

Effect of Acknowledgment of Receipt

A. Whole: Not a debt. It becomes a debt

COMMERCIAL LAW COMMITTEE

XI. ASCERTAINMENT AND CONTROL OF  The waiver of medical examination in

COMMERCIAL LAW COMMITTEE

COMMERCIAL LAW COMMITTEE

Presumed material Must be proved to of issue of policy or its last

COMMERCIAL LAW COMMITTEE

ratably to the loss in proportion to and the other to accept reinsurance

Additional or “Other Insurance” Clause 2. Automatic reinsurance – The

acts; and NON-LIFE

COMMERCIAL LAW COMMITTEE

COMMERCIAL LAW COMMITTEE

2. Creditor/lender  A clause which provides that there

COMMERCIAL LAW COMMITTEE

unless it proceeds subsequent unseaworthiness is not a

COMMERCIAL LAW COMMITTEE

COMMERCIAL LAW COMMITTEE

COMMERCIAL LAW COMMITTEE

 In burglary, robbery and theft NO ACTION CLAUSE

COMMERCIAL LAW COMMITTEE

 Claimants/victims may be a a. In case of an occupant: Insurer

COMMERCIAL LAW COMMITTEE

B. Theft Clause subrogation

COMMERCIAL LAW COMMITTEE

 A life insurance taken pursuant to a 1. Accidental killing

COMMERCIAL LAW COMMITTEE

it will take place

XXII. VARIABLE CONTRACT

COMMERCIAL LAW COMMITTEE

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