Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S.
Sagmit
COMMERCIAL LAW REVIEW:
Insurance Law
(Powerpoint in bold letters)
Two Major Topics:
- Insurance Code
- PDIC Law
PART ONE: GENERAL PRINCIPLES
Concept:
 An agreement whereby one undertakes for a
consideration to indemnify another against loss,
damage or liability arising from an unknown or
contingent event.
It is an agreement involving at least 2 persons. One is
exposed to a risk and the other one accepts payment so as to
indemnify the other person. The liability or the damage suffered by
one is shouldered by another individual. There is a consideration of
payment.
 A contract of suretyship is deemed an insurance
contract only if made by a surety who or which is doing
an insurance business as a vocation.
The one who enters a contract of suretyship is solidarily liable
with another for an obligation despite such party not being privy to
the contract.
Elements:
 The insured has insurable interest or interest of some
kind susceptible of pecuniary estimation
 The insured is subject to a risk of loss caused by the
happening of the designated perils;
 The insurer assumes the risk of loss;
 Assumption is part of a general scheme to distribute
actual losses among a large group of persons bearing
somewhat similar risks;
The risk of loss is distributed
 As consideration for the insurer’s promise, the insured
pays the premium
The insurer will not assume risk unless he gets something
PHIL HEALTHCARE vs. CIR
ISSUE: Is a healthcare agreement in the nature of a
contract of insurance?
FACTS: Individuals enrolled in its health care programs pay
an annual membership fee.
They are entitled to various preventive, diagnostic and
curative medical services provided by its duly licensed
physicians, specialists and other professional technical staff
participating in the group practice health delivery system at
a hospital or clinic owned, operated or accredited by it.
The DST under Section 185 of the 1997 Tax Code is
imposed on the privilege of making or renewing any policy
of insurance (except life, marine, inland and fire insurance),
bond or obligation in the nature of indemnity for loss,
damage, or liability.
RULING: The health care agreement is primarily a contract
of indemnity. A health care agreement is in the nature of a
non-life insurance policy.
Q: Is a health care agreement a contract of insurance?
If so, then, there must be payment of doc stamps.
A: A health care agreement is a contract of indemnity. The
investment is life because you cannot be indemnified for the death
of a loved one. But when a person suffers from a loss arising from
damage to property, there is restitution.
A health care agreement is a non-life insurance policy. The
health care provider in effect indemnifies the member for the
damage he suffers or for the expenses he experienced because of
some health-related problem. So, this will make the health care
agreement a contract of insurance.
Hence, doc stamps should be paid every time there is a
renewal of a health care agreement.
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009)
Q: Is an educational plan a contract of insurance or a pre-need?
A: It is how you defend your answer.
What are the elements of a contract of insurance? If you are able
to connect it with an educational plan, you get points.
Ma’am’s opinion: Unlike that health care agreement, here, you
know that the day will come that your child will attend school. Is it
really a risk or a contingency? It depends.
With the Phil HealthCare case, you can consider it as a contract of
insurance.
Principle of Subrogation
 Process of legal substitution
 The insurer, after paying the amount covered by the
policy, steps into the shoes of the insured
 Insurer avails of the rights of the insured against the
wrongdoer
 Insured CANNOT recover from offender what was paid by
insured but can recover any deficiency.
 Applicable only in non-life insurance (Philamgen v. CA)
The assumption of risk by the insurance company gives it the
right to be subrogated (stepping into the shoes).
You are now giving the insurance company the right to sue
whoever is at fault.
Case in point : motor vehicle liability insurance or car insurance.
If one car is damaged and there is a comprehensive insurance policy,
one can claim with his insurance company so that he will not be
hassled as to file an action against the party at fault.
If the insurance company of the car pays the owner, the car
insurance company now is subrogated to the right of the car owner.
He can now sue the person at fault. Instead of the insured filing the
case, it is now the insurer who has the right of filing a case against the
wrongdoer.
Q: What if the insured only got a certain sum of money from the
insurance company?
Example: A person got into an accident. He got P 5,000 from
the insurer. He spent P 50,000.
A: If he got P 5,000 from the insurer, he can still get the balance
from the wrongdoer. Insured cannot recover from the offender what
was paid by the insurer but can recover any deficienty. No double
recovery.
There was one case where San Miguel recovered twice. What
happened was there was refund. What happened was that he gave
the money he got back to the insurance company and collected from
the wrongdoer.
Just because the insurance company gave something, this does
not preclude the person from collecting the balance. He should not be
made to sign an acquittal.
Take note that subrogation is only applicable in non-life, logically.
Life insurance is personal in nature. Only some people can get a policy
using your own life.
Nature and Characteristics
 Aleatory
 Contract of indemnity for non-life and an investment
for life insurance
 Personal
 Executory and conditional on the part of the insurer
 Uberrimae fides
 Adhesion
Q: What is aleatory?
A: Dependent on chance
Q: Why executory and conditional?
A: Executory as to the insured and conditional as to the insurer. The
contingency - the event may or may not happen.
Q: What is uberrimae fides?
A: Utmost good faith
As you will see later, any concealment of information, even how
little, may be a ground for rescinding a contract of insurance.
There was a SunLife case where this person failed to say that he
was confined in a hospital. His cause of death was an airplane crash.
And yet, his claim was denied because there was concealment –
whether the fact concealed was the cause of the death.
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 Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit
The Supreme Court said that it was material. If it was not
concealed, he may not have been insured or the premium could
have been higher. But because there was concealment, the
beneficiary was precluded from claiming the proceeds.
Adhesion – if you are given a contract by the insurance
company, unless you want some additional clauses, the form itself
is already prepared. In that sense, it is a contract of adhesion.
Rule of Construction:
 Doubts are resolved in favor of the insured
 Since a contract of insurance is a contract of adhesion,
any obscure word or stipulation in the insurance policy
shall be resolved against the insurance company which
drafted the terms thereof (RIZAL SURETY V. CA, 336
SCRA 12)
Since a contract of insurance is a contract of adhesion, all
doubts must be resolved in favor of the insured, logically. It is like
a contract of employment.
Statute of Limitations
 General Rule: 10 YEARS from the time the cause of
action accrues.
 Exception: Period may be increased or decreased BUT
 In industrial life: cannot be shorter than SIX
YEARS
 In all other kinds of insurance: cannot be shorter
than ONE YEAR.
“Right of Action Accrues”
 Period is reckoned from the time of the denial of the
claim by the insurer (Vda de Gabriel v. CA)
 If there was no denial of the claim, right of action does
not accrue
There is a right - someone has to do something. If he fails to
do it, there is a violation of right. If there is a violation of right,
there is a cause of action.
Translated to insurance law, you should file a claim first with
your insurance company. If your claim is denied, the 10-year
period starts to run. If there was no denial, then, you cannot say
that the period has begun. There should be denial first.
There are cases where after the denial, the insured will file a
motion for reconsideration. In that instance, the period begins to
run already. It is only the first denial that will start the prescriptive
period. So, if you are denied, file the appropriate action.
“Doing an insurance business” – MEMORIZE 
 making or proposing to make, as insurer, any
insurance contract;
 making or proposing to make, as surety, any contract
of suretyship as a vocation and not merely incidental
to any other legitimate business or activity of the
surety.
Take note that this must be done on a regular basis, as a
vocation. It is not incidental and not as a one-shot deal when it
comes to a surety agreement.
 doing any kind of business, including a reinsurance
business, specifically recognized as doing insurance
business
Reinsurance (we will tackle later on) - basically, you have an
insurance company which will answer the damage.
Example: Fire insurance for P 10 M. But because P 10M is a
huge amount, your insurance company will now contract with
another entity saying that a portion of it, like P 5M of the P 10M will
be answered by such entity. The contract is between your
insurance company and another entity.
 doing or proposing to do any business in substance
equivalent to any of the foregoing
 An entity can still be deemed engaged even if he does
not derive any profit from the activity
Even if there is no profit, it is possible that you are still
engaged in insurance business.
Regulation of Insurance Business
 Insurance business is impressed with public interest.
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009)
 The public must be protected against insolvency or unfair
treatment by insurers.
 Insurance Commission is tasked to regulate the conduct
of insurance business through licensing, examination,
investigation and revocation (Sec. 414-416).
SECTION 414. The Insurance Commissioner shall have the duty
to see that all laws relating to insurance, insurance companies and
other insurance matters, mutual benefit associations, and trusts for
charitable uses are faithfully executed and to perform the duties
imposed upon him by this Code, and shall, notwithstanding any
existing laws to the contrary, have sole and exclusive authority to
regulate the issuance and sale of variable contracts as defined in
section two hundred thirty-two and to provide for the licensing of
persons selling such contracts, and to issue such reasonable rules and
regulations governing the same.
The Commissioner may issue such ruling, instructions, circulars,
orders and decision as he may deem necessary to secure the
enforcement of the provisions of this Code, subject to the approval of
the Secretary of Finance. Except as otherwise specified, decisions
made by the Commissioner shall be appealable to the Secretary of
Finance.
SECTION 415. In addition to the administrative sanctions
provided elsewhere in this Code, the Insurance Commissioner is
hereby authorized, at his discretion, to impose upon the insurance
companies, their directors and/or officers and/or agents, for any willful
failure or refusal to comply with, or violation of any provision of this
Code, or any order, instruction, regulation, or ruling of the Insurance
Commissioner, or any commission or irregularities, and/or conducting
business in an unsafe or unsound manner as may be determined by
the Insurance Commissioner, the following:
(a) Fines not in excess of five hundred pesos a day; and
(b) Suspension, or after due hearing, removal of directors and/or
officers and/or agents.
SECTION 416. The Commissioner shall have the power to
adjudicate claims and complaints involving any loss, damage or liability
for which an insurer may be answerable under any kind of policy or
contract of insurance, or for which such insurer may be liable under a
contract of suretyship, or for which a reinsurer may be sued under any
contract of reinsurance it may have entered into; or for which a mutual
benefit association may be held liable under the membership
certificates it has issued to its members, where the amount of any
such loss, damage or liability, excluding interest, cost and attorney's
fees, being claimed or sued upon any kind of insurance, bond,
reinsurance contract, or membership certificate does not exceed in any
single claim one hundred thousand pesos.
The insurer or surety may, in the same action file a counterclaim
against the insured or the obligee.
The insurer or surety may also file a cross-claim against a party
for any claim arising out of the transaction or occurrence that is the
subject matter of the original action or of a counterclaim therein.
With leave of the Commissioner, an insurer or surety may file a
third-party complaint against its reinsurers for indemnification,
contribution, subrogation or any other relief, in respect of the
transaction that is the subject matter of the original action filed with
the Commissioner.
The party filing an action pursuant to the provisions of this
section thereby submits his person to the jurisdiction of the
Commissioner. The Commissioner shall acquire jurisdiction over the
person of the impleaded party or parties in accordance with and
pursuant to the provisions of the Rules of Court.
The authority to adjudicate granted to the Commissioner under
this section shall be concurrent with that of the civil courts, but the
filing of a complaint with the Commissioner shall preclude the civil
courts from taking cognizance of a suit involving the same subject
matter.
Any decision, order or ruling rendered by the Commissioner after
a hearing shall have the force and effect of a judgment. Any party may
appeal from a final order, ruling or decision of the Commissioner by
filing with the Commissioner within thirty days from receipt of such
order, ruling or decision a notice of appeal to the Intermediate
Appellate Court in the manner provided for in the Rules of Court for
appeals from the Regional Trial Court to the Intermediate Appellate
Court.
As soon as a decision, order or ruling has become final and
executory, the Commissioner shall motu propio or on motion of the
interested party, issue a writ of execution required the sheriff or the
proper officer to whom it is directed to execute said decision, order or
award, pursuant to Rule thirty-nine of the Rules of Court.
For the purpose of any proceeding under this section, the
Commissioner, or any officer thereof designated by him, empowered
to administer oaths and affirmation, subpoena witnesses, compel their
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 Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit
attendance, take evidence, and require the production of any
books, papers, documents, or contracts or other records which are
relevant or material to the inquiry. In case of contumacy by, or
refusal to obey a subpoena issued to any person, the Commissioner
may invoke the aid of any court of first instance within the
jurisdiction of which such proceeding is carried on, where such
person resides or carries on his own business, in requiring the
attendance and testimony of witnesses and the production of
books, papers, documents, contracts or other records. And such
court may issue an order requiring such person to appear before
the Commissioner, or officer designated by the Commissioner, there
to produce records, if so ordered or to give testimony touching the
matter in question. Any failure to obey such order of the court may
be punished by such court as a contempt thereof.
A full and complete record shall be kept of all proceedings had
before the commissioner, or the officers thereof designated by him,
and all testimony shall be taken down and transcribed by a
stenographer appointed by the Commissioner.
A transcribed copy of the evidence and proceeding, or any
specific part thereof, of any hearing taken by a stenographer
appointed by the Commissioner, being certified by such
stenographer to be a true and correct transcript of the testimony on
this hearing of a particular witness, or of a specific proof thereof,
carefully compared by him from his original notes, and to be a
correct statement of evidence and proceeding had in such hearing
so purporting to be taken and subscribed, may be received as
evidence by the Commissioner and by any court with the same
effect as if such stenographer were present and testified to the
facts so certified.
The Insurance Commission is very strict when it comes to life
insurance policy.
That’s why if you take a look at Sections 414-416 of the
Insurance Code, the Insurance Commission is empowered to
regulate the conduct of insurance business through licensing,
granting of licenses, suspension of licenses if appropriate and even
to some extent, revocation.
What may be insured
Q: The ones who invested in Lehman Brothers - can they insure
their investment? Is that allowed?
A: YES.
In fact, there is one bar question. If you have a bank account,
it is covered by PDIC up to P 250,000 only. If you have P 500,000,
can you insure the half with another entity? YES, nothing prevents
you from doing that.
What can be insured against?
1. Contingent event – it may or may not happen (e.g. fire,
sinking of a ship, accident)
2. Unknown event – it is sure to happen but it is unknown with
respect to the time that it will happen (e.g. death)
It is not enough that you have a contingent event or it is not
event that you have an unknown event. These events should
damnify a person or should create a liability against that person
Damnify v. Create a liability
 Damnify - direct loss
Example: If the spouse of A dies, A suffers direct loss. If A’s
building collapsed, he will suffer direct loss
 Create a liability - expose the person to liability to third
persons. E.g. third party liability insurance
The policy holder may not suffer any loss personally but a suit
is filed against him. Example: TPL. If he crashed his car and his
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009)
passenger was injured or a pedestrian was bumped, he does not suffer
any loss but the pedestrian suffered loss or injury. The TPL is if he is
made liable to pay, he has something to answer for such liability.
So, there are 2 kinds of injury – direct and indirect.
Insurance by a married woman
 May take out an insurance on her life or that of her
children or that of her husband without the consent of
her husband (RA No. 7192)
 May take out insurance on paraphernal property
Q: How about conjugal property? How about property of the
absolute community?
A: It is ok but both of you will benefit, not just you, even if you are
the one who paid the premiums.
Insurance by a minor
 A property insurance taken by a minor is voidable or valid
until annulled (1390)
 If contract is not disaffirmed, insurer cannot invoke
minority to escape liability.
The one who is capacitated cannot use the minority of another
person as a defense to defeat the performance of an obligation.
LIFE INSURANCE
 Insurance on human lives and insurance
appertaining thereto or connected therewith (Sec. 179)
Classes
1. Individual – protection is based on
individual application.
There is a single insured person, whom we referred to as
cestui que vie.
2. Group – unit of selection is the group rather
than the individual, blanket policy covering a number of
individuals
When we talk about a group life insurance, there are several
individuals covered by 1 policy. We are talking about several
people covered by one policy but each individual posseses a
a certificate of participation. It is usually an employer
setting up a group life insurance for his employees. More of
than not, when the employee ceases to be employed, he no
longer enjoys the benefits under the group life policy.
Case: In that set-up, the employer is deemed to be an
agent of an insurance company. There was this where the
manager of the employer who collected premium and did
not remit the payment to the insurance company. The
insurance company collected again from the employee. The
Supreme Court said, in that case where there is a group life
insurance policy, the employer and even the agent of the
employer, is considered as agent of the insurance company.
If you already paid premium to the employer or to its agent,
you are now deemed to have paid to the insurance
company. The insurance company cannot collect again from
the employees. The insurance company must then go after
the manager of the employer.
3. Industrial – premiums are payable either
monthly or oftener if the face amount of insurance is not
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 Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

more than 500 times the current statutory minimum
wage in Metro Manila.
There are many special rules with regard to industrial life
insurance because this caters to those who belong to
lower-income bracket (fish ball and market vendors).
The face value of the policy is not more than 500 times of
the current statutory minimum wage in Metro Manila.
NON-LIFE
 Property insurance or insurance whose object is
other than a person’s life or where the covered peril is
something other than death
This is opposite of life. The object is not the person’s life but a
certain property. It is protected against a particular risk – a
building protected against fire, a building protected against theft, a
vessel protected against sinking.
TYPES: FIRE
 Includes 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
There is a qualification that allied risks are included. This talks
about proximate cause – fire caused by an explosion, damaged
caused by fire.
TYPES: CASUALTY
 Covers 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, marine.
Accident – remember the case on boxing where he died after
he slipped and his head was hit. (Dela Cruz v. Capital Insurance)
Is the consequence was an unexpected one?
What if combined with suicide? It is a totally different thing if
you do something and you actually expect to suffer. It is not an
accident anymore.
 vessels, craft, aircraft, vehicles, goods, freights, cargoes,
merchandise, effects, bottomry, respondentia interests
 person or property in connection with or appertaining to
marine, inland marine, transit or transportation insurance
but excludes life insurance or surety bonds or insurance
against loss by reason of bodily injury to any person who
arising out of ownership, maintenance or use of
automobiles
 precious stones, jewels, jewelry, precious metals,
whether in the course of transportation OR otherwise
 bridges, tunnels and other instrumentalities of
transportation and communication (excluding buildings,
furniture and furnishings fixed contents and supplies held
in storage), piers, wharves, docks and slips other aids of
navigation, dru docks, marine railways, dams
Bar Question: What is marine insurance?
Contrary to common perception, marine insurance is not limited
to vessels. It also covers aircraft, jewelries (whether in transit or not),
etc.
TYPES: SURETYSHIP
 An agreement whereby a party called the surety
guarantees the performance of another party called the
principal or obligor of an obligation or undertaking in
favor of a third party called the obligee.
 Includes official recognizances, stipulations,
bonds or undertakings issued by any company
There is solidarily liability – someone will answer for the
obligation of another person. The liability of this surety company is
solidarily. A person can proceed against the surety company directly
without the benefit of exhaustion/excussion.
PART TWO: LIFE INSURANCE
Procedure

If you did not expect that it will happen – that is a casualty.

Except: those events which are specifically covered by
particular policies – fire, theft, marine.

 Includes but is not limited to employers’ liability

insurance, workmen’s compensation insurance, public
liability insurance, motor vehicle liability insurance,
plate glass insurance, burglary and theft insurance,
personal accident and health insurance written by non-
life companies.

Personal accident and health insurance – casualty if property.

But as we have learned, it can also be characterized as life – when?
It can also be characterized as life if the risk involved is death.
If there is death, that is considered life.
But if you it is purely medical, disability, etc., it basically falls
under casualty.
Casualty: Compulsory Motor Vehicle Liability or Third Party
Liability
 Insurance against passenger and third party liability
for death or bodily injuries arising from motor vehicle
accidents
 Required before an owner or operator can use his
vehicle
 Required in registration or renewal of registration

Before they ply the road, it is required before registration that
the vehicle must have an insurance policy of this nature because
this is supposed to cover injuries or death caused by that vehicle to
third persons.
Take note: death or bodily injury. Damage to property not
covered. It falls under casualty because it is an accident,
regardless of whether it caused injury or death. It is still property
insurance because what we are actually insuring is the vehicle or
the owner of the vehicle, not the life of the person. It is only a
consequence.
Before the cancellation of the TPL by the insurer, it has to give
notice to the owner/operator but also to the LTO (private vehicle)
or LTFRB (common carrier).
TYPES: MARINE
1. Agent offers a life insurance policy
2. The proposed insured fills an application – representations and
concealments. Declarations based on the principle of uberrimei
fides. You pay the first premium – monthly, quarterly, semi-
annually, or annually.
Q: After your payment of the 1 st premium, are you already
covered?
A: Not yet because in this situation, the applicant becomes the
offeror and insurance company becomes the offeree.
3. Upon approval, there is now a policy contract given to you. If
disapproved, the premium is returned to you.
4. If the contingent happens, either the policyholder will get the
proceeds or his beneficiary will get the proceeds.

Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 4

 Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

Endowment – when you reach a certain age, you get the Accident
proceeds. If you do not survive, your beneficiaries will get the  An event which happens without any human agency
proceeds. Either way, there is recovery. or, if happening through human agency, an event which
under the circumstances, is unusual and not expected by
5. The claim is either granted or denied the person to whom it happens by reason of some
violence or casualty to the insured without his design,
Denial – this is when the prescriptive period begins to run. consent or voluntary cooperation (Sun Insurance v. CA)
Right + Violation of Right = Cause of Action
Death by suicide: compensable?
6. If you are denied, you go to the Insurance Commission or to  General Rule: NO.
the regular courts, depending on the amount of the claim  BASIS:
 Sec. 87 which provides that an insurer is not liable if
Q: When do you go to the Insurance Commissioner? loss is caused by willful act or connivance of the
A: P 100,000 below. (concurrent with courts) insured; and
 The Rules of Court which provides that a person is
Q: How about regular courts?
presumed to intend the consequences of his
A: Above P 100,000
voluntary acts
Exactly P 100,000 – regular courts (dagdag ko lang to, so verify)
Suicide is not compensable. If there is a degree of wilfulness and
brings about the event, then, that will defeat the claim (Section 87).
Jurisdiction: (double-check )
If you jump from the 20th floor of a building, you actually expect
MTC – P 300,000 and below
something to happen.
RTC – above P 300,000
When is suicide compensable? (Section 180-A)
Topics in Life Insurance
 If insured was not in his right mind/insane at the
 What may be insured against
time of suicide
 Rule in case of death by suicide
 If insured committed suicide after the policy has
 Insurable Interest
been effective for at least 2 years from issuance or
 Parties last reinstatement
 Kinds of life insurance  Note: The 2-year period can be shortened but not
 Kinds of life insurance policies lengthened

Concept Express stipulation is not clear. In that case, how much is the
 Life Insurance - insurance on human lives and premium?
insurance appertaining thereto or connected therewith
Retirement Death
Classes Life Annuity – debtor binds himself to pay annual pension
1. Individual – protection is based on individual or income during the life of one or more determinate persons
application. in consideration of a capital consisting of money or other
2. Group – unit of selection is the group rather than the property, whose ownership is transferred to him at once with
individual, blanket policy covering a number of the burden of income (Art. 2021, Civil Code)
individuals  Annuitant gives money or property to the insurer
3. Industrial – premiums are payable either monthly or  Insurer now becomes the debtor, and has the obligation
oftener if the face amount of insurance is not more to give annual pension or income to either the annuitant
than 500 times the current statutory minimum wage in or another person
Metro Manila.  The obligation of insurer to give pension stops upon the
death of the annuitant
Contingencies
 death Dynamics: At least 3 persons
 survival of a specific period One who has the money or capital. The insurance company
 continuance or cessation of life becomes the debtor because it now has the obligation to give pension
to the one who gave the money or to another person until that person
What may be insured against? dies.
 Actual death
 Living death (disability) This is different from other insurance because in others, you get
 Retirement death the proceeds after death. Here, the death of the insurer is the
resolutory condition. It now stops the obligation to give proceeds, like
Actual Death a trust fund.
 Cessation of life The definition is Article 2021 is but one type of life insurance.
 Best proof of death: Death certificate
 Policy matures upon the death of the insured INSURABLE INTEREST

Concept
Living Death
 Relation between the insured and a particular event such
 When the insured suffers from disability due to
that the happening of the event will damnify or cause loss
disease or accident which prevents him from
to the person
engaging in any lawful occupation
 Partakes the nature of health and disability
If an event happened and it does not affect a person, it is not an
benefits
insurable interest.
Ex: Death of the grandmother of your neighbour who is not your
Q: When do we say it is life?
relative. Something happened but you do not suffer any loss because
A: When one is insured and the risk is death
you have no insurable interest on the life of the grandmother.
Ex: The building owned by your cousin was burned. You do not
If it is purely health and disability, that is casualty insurance.
suffer any loss, unless you are a part-owner of the building.
Living Death: Accident and Health
PURPOSE FOR THE CONCEPT:
â Health, accident and disability insurance are
 To avoid wagering
deemed as both life and non-life insurance and
 To avoid temptation of bringing about the event
such may be issued by either life or non-life
insurance companies (sec. 187-A, 9th par)
â Is deemed a life insurance policy when one of the
risks insured against is death of insured by Case: Uy vs. Palomar
accident (Gallardo v. Morales) Lottery was discussed by analogy to a contract of insurance. A
contract of insurance is not a wagering contract. The purpose is a
person will enter into a life insurance policy not because he hopes that
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 5
 Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit
the event will happen but because he expects the event to happen
but he does not know when. And when it happens, he expects to
get something – investment.
As to property, you do not pay for a policy so that your
property will be burned and you will get proceeds. The owner,
unless he is guilty of owner, does not want his property to get
burned. But in case his property gets burned, he wants to be
indemnified. So, it is not wagering.
The reason why we have insurable interest is we do not really
want the event to happen but we want to be protected just in case
it happens.
On whose life does a person have insurable interest?
 himself, spouse, children
 person on whom he depends wholly or in part for
education or support or in whom he has a pecuniary
interest
 any person who is under legal obligation to him for
payment of money or respecting property or services of
which illness or death might delay or prevent
performance
 any person upon whose life any estate or interest
vested in him depends
Even if you are annulled from your spouse, the law still allows
you to recover from a policy. The spouse must exist at the start.
So, if you are married when you obtained the policy and at the time
of the death of your spouse you are annulled, there can still be
recovery, except when incapable of pecuniary estimation.
If a person is a debtor of yours, the value is only up to the
value of the debt, unless such debtor is your spouse or children
because it has not limit.
Estate or interest vested: Example – contract of commodatum,
free stay in a house. If the owner dies, because a contract of
commodatum is personal in nature, you stand to lose something
and it is capable of pecuniary estimation.
Section 10 (A)
 Every person has unlimited insurable interest in his
own life
 One also had insurable interest in the life of his spouse
and children on the basis of love and affection
Section 10(b)
Obligation to give support
Article 195, Family Code
 Spouses, legitimate ascendants and descendants
 parents and their legitimate children and
legitimate or illegitimate children of the latter
 parents and their illegitimate children and
legitimate or illegitimate children of the latter
 legitimate brothers and sisters whether of the full
or half blood
Article 196, Family Code
 Brothers and sisters not legitimately
related,whether of the full or half blood, are
likewise bound to support each other EXCEPT only
when the need for support of the brother or sister,
being of age, is due to a cause imputable to the
claimant’s fault or negligence.
Blood relationship, affinity: enough?
 In cases not falling under 195 and 196, mere blood
relationship or affinity does not create insurable
interest
 Examples: uncle, aunt, nephew, niece, cousins,
son-in-law, brother-in-law, stepchildren
Mere blood relationship will not suffice. Your relatives must
fall under those provided under Section 10. You cannot get a life
insurance policy on the life of your uncle unless you can prove that
he is supporting you. You cannot get a life insurance policy on the
life of your sister-in-law unless you can establish that she is your
debtor.
Section 10 (c)
Pecuniary Interest
 Debtor-Creditor
 Employer-Employee - El Oriente v. Posadas
 Business partners
ER-EE: If an employee brings so much profits will pass away,
but you have to substantiate that.
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009)
Business Partners: He brings in clients amounting to P 10M a
year. If he dies, there will be loss on the part of the co-partners or the
partnership.
Generally, when we talk about life, we cannot put a price on the
life of a person. However, under Sectio 10 (c), you can actually
concretize the face value of the policy because you insure the debtor
to the extent of the debt. You insure the employee to the extent of
the profits he gives to the company. You insure the business partner
to the extent of the earnings he gives the partnership.
Section 10 (d)
Person in whose estate an interest is dependent
 Person is given the right to use a house
 Right ceases when the owner dies and another
person becomes the owner
Measure of Recovery of Proceeds
 SEC. 183 - GENERAL RULE: Face value of the policy
 Except: pecuniary estimation is possible [10 (c)]
We cannot put a value on one’s life. It will depend on how much
premium the insured can afford. That’s the general rule.
Exception: Section 10 (c) – capable of pecuniary estimation. You
cannot get a policy that has a face value that is higher than your
pecuniary interest. If the value of debt is P 1M only, that is only
amount you can get from the policy.
Special Rule on Insurable Interest in Industrial Life
 Usual rules re insurable interest are generally not made
applicable in industrial life because:
 Proceeds are small, little danger to induce a person
to kill
 Investigation of presence of insurable interest will
nullify speedy payment of proceeds under the facility
of payment clause
 The costs to prove insurable interest will destroy the
purpose for this type of insurance
Special – market vendors, fish vendors, etc.
Some rules are not strictly applied because the proceeds are
small (500x the current statutory minimum wage in Metro Manila) –
around P 200,000.
Ma’am’s opinion: What may be small for us may be big for other
people. It may still induce other people to kill. But that is just an
assumption
Q: What is facility of payment clause? (Ma’am’s Dream Bar Q )
A: This is the only chance that a person will have to get the
proceeds even if he not a designated beneficiary.
Examples:
Group life (?) – the one who spent for the burial, you get up to P
500.
Industrial life – if the beneficiary is disqualified, if the beneficiary
is the estate, etc – a person who spent for the last illness of the
insured or the burial will be entitled to recover from an industrial life
policy.
The facility of payment clause covers precisely a situation where a
person who does not fall under Section 10 spends for the insured and
he is supposed to recover.
The purpose of industrial life is not in so much as an investment.
It is more of answering the obligations of the insured.
Ma’am’s Caveat: Other people are ok with P 200,000. There is that
danger of bringing about the event.
PARTIES
Insurer: Section 6
 Every person, partnership, association or corporation
duly authorized to transact insurance business as
elsewhere provided in this Code may be an insurer.
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 Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit
Insurer
 Insurance corporations- Sec. 185 - corporations
formed or organized to save any person or persons or
other corporations harmless from any loss, damage or
liability arising from any unknown or contingent event,
or to indemnify or compensate for such loss, damage
or liability or to guarantee performance with
contractual obligations or payment of debts
Basically, insurance corporations are those who undertake to
assume the risk upon the happening of the event, even if he is not
the one who suffered damage.
Insured: Section 7
 Anyone except a public enemy may be insured.
 Public enemy - citizen or national of any country
with which the Philippines is at war
Bar 2000
 May a member of the Moro Islamic Liberation Front or
its breakaway group Abu Sayyaf be insured with a
company licensed to do business under the Insurance
Code of the Philippines? Explain (3%)
Answer
 Yes, a member of the MILF or the Abu Sayyaf may be
insured. Only a public enemy cannot be insured. A
public enemy is a citizen or national of a country with
which the Philippines is at war.
Insured
 The person who must have insurable interest
 The person who pays the premiums
 Commonly referred to as the policyholder
 Not necessarily whose life is used to constitute the
insurance policy
This where you get confused because the term insured is
usually used alternately with cestui que vie.
The insured is the one who got the policy and paid the
premiums. But it is possible that he did not use his own life. He
may use the life of his spouse and make himself as the beneficiary.
That is allowed. The insured is the policy holder. Do not confuse
him with the person whose life is used to get the policy.
Q: Can the insured be the cestui que vie at the same time?
A: Yes, because you have an insurable interest on your own life.
Q: Can the insured be the beneficiary?
A: Yes, you get the policy as to the life of your spouse and you
make the proceeds payable to yourself.
Q: Can the cestui que vie be the beneficiary?
A: Yes. If you think about it, in endowment, you use your life
and if you survive a specific age, you receive the benefits. It is not
always death.
Insured: Rights
 Right to borrow on the policy 227(g)
You can use your insurance policy and pledge it with the
insurance company and you can get cash.
 Right to dividends if participating policy 227(e);
230(e)
If there is a declaration of dividends, you also earn.
 Right to reinstatement 227(j); 230(j)
 3 years from date of default in individual
 2 years from date of default in industrial
 payment of overdue premiums
 evidence of insurability
If you were not able to pay the premium, even after the
grace period, you will be in default. What happens to your
policy? You can reinstate your policy as long as, in the case of
the individual life, you reinstate within 3 years from default.
In industrial, 2 years. You pay the overdue premiums and
you show that you are still insurable.
 Right to transfer/bequeath-pass by transfer, will
or succession to any person whether he has
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009)
insurable interest or not; notice to insurer not
required
If you are paying the premium, you can transfer it to
another person (example: your creditor). It seems that there is
circumvention (“naikotan” ) of the insurable interest principle.
Example: You got a policy as to your wife. You made
yourself as the beneficiary and you are the one who pays the
premium. You have a debt as to your neighbour. You will
transfer the insurance policy to your neighbour. If something
happens to the wife, the neighbour can recover. But then, that
right originates from the principle that a life insurance policy is a
contract of investment.
Cestui Que Vie
 Person on whose life the insurance contract is
constituted
 Can be any of those enumerated under Section 10
Beneficiary
 One who receives benefits
 GENERAL RULE: Designation may be changed by
insured
 EXCEPTION: insured has expressly waived his right
to change
Another exception: if the beneficiary has a vested right to the
policy. There is a vested right – transfer to a creditor, who becomes
the beneficiary. Since it is in payment of a debt, the beneficiary has a
vested interest. You cannot just change him.
Bar 2005
 What are the effects of an irrevocable designation of a
beneficiary under the Insurance Code? Explain (2%)
 Jacob obtained a life insurance policy for P1 M
designating irrevocably Diwata, a friend, as his
beneficiary. Jacob changed his mind and wants to include
two other friends as beneficiaries. Can Jacob still add the
two friends? (2%)
Answer
 The irrevocable beneficiary has a vested interest in the
policy, including its incidents such as the policy loan and
cash surrender value
If you will change the beneficiary, you will have to get the
consent of the beneficiary. If it is not an irrevocable designation, you
can change anytime, unless you waive your right to change.
 Jacob cannot include the two friends as additional
beneficiaries as this would diminish the interest of Diwata
who is irrevocably designated as beneficiary. Diwata has
to consent first to the inclusion.
Disqualified Beneficiaries
 Article 2012 in relation to Article 739 of the Civil Code
 those made between persons who were guilty of
concubinage at the time of donation
Finding of guilt is not required
 those made between persons found guilty of the
same criminal offense in consideration thereof
Criminal finding is required
 those made to a public officer or his spouse,
descendants and ascendants by reason of his office
Beneficiary
 Insular Life v. Ebrado , 80 SCRA 181 - The designation of a
common law wife is void. This need only be proved by
preponderance of evidence, no previous conviction is
required
In this case, there was a first wife. It fell under concubinage.
Q: What if living together and both are single?
A: No. Can you donate? That is the same as donation. You cannot
donate to your common-law spouse or your spouse. There is an
element of intimidation, force or undue influence.
If the beneficiary is disqualified
 The estate of the insured will be entitled to the
proceeds of the life insurance policy.
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 Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit
It does not mean that the insurance policy will not pay. It will
pay to the estate of the insured.
Bar 1998
 A was issued a policy on whole life plan for P20,000. A
is married to B with whom he has 3 legitimate children.
However, A designated his common-law wife C as the
beneficiary in his policy and referred to C as his legal
wife. When A died, both B and C claimed the proceeds
of the insurance. Who is entitled to the proceeds?
(5%)
Answer
 The estate of A is entitled to the proceeds. C is a
disqualified beneficiary because of the illicit relation
she had with A.
Rules on Beneficiaries
 If beneficiary WILLFULLY causes the death of the
insured/cestui, the nearest relatives of the insured will
get the proceeds
Bar 2008
 On January 1, 2000, Antonio Rivera secured a life
insurance from SOS Insurance Corp. for P1 Million with
Gemma Rivera, his adopted daughter, as the
beneficiary. Antonio Rivera died on March 4, 2005 and
in the police investigation, it was ascertained that
Gemma Rivera participated as an accessory in the
killing of Antonio Rivera. Can SOS Insurance Corp.
avoid liability by setting up as a defense the
participation of Gemma Rivera in the killing of Antonio
Rivera? Discuss with reasons. (4%)
Answer
 SOS cannot avoid liability merely because Gemma was
an accessory to the death of Antonio. Under the law,
when the beneficiary willfully causes the death of the
cestui, the nearest relatives of the insured will be
entitled to the proceeds.
Guard against misleading questions! What is the rule under
the law?
If the beneficiary participated in the killing, the proceeds will
go to the nearest relatives. If the beneficiary dies ahead, the
proceeds will go to the estate of the one who pays the premium,
not to the estate of the beneficiary.
If there is no designated beneficiary, as in the case of GSIS, it
is the estate of the insured which is entitled to the proceeds.
Rules on Beneficiaries
 If beneficiary dies ahead of the insured/cestui, the
estate of the insured will get the proceeds
 If beneficiary is not designated, insured’s estate
will get the proceeds
NOTE!!
 Only the insured or policyholder in life insurance is
required to have insurable interest on the life of the
cestui.
Example: A will get a life insurance policy as to her wife and
make the proceeds payable to an orphanage. In the same
situation, the beneficiary may be the neighbour, who can bring
about the event.
Rule: Do not get a beneficiary which does not have an
insurable interest.
The only person required to have an insurable interest is the
one paying the premium.
 The beneficiary may or may not have insurable interest
on the life of the cestui. What is vital is that the
beneficiary is not disqualified under the law to get the
proceeds.
Bar 2000
 A is an elderly bachelor who took out an individual life
insurance policy on his life. The designated beneficiary
is B a companion-friend. A died in a fire which also
destroyed his home. The insurer refused payment to B
due to absence of insurable interest on the life of A. Is
the insurer correct?
Answer
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009)
 The insurer is wrong. B as the beneficiary is entitled to
collect the proceeds. As a beneficiary in a life insurance
policy, B is not required to have insurable interest on the
life of A. A had insurable interest on his own life and the
policy was taken on his life.
There is a 2nd part as to this question. The house was also
insured and the beneficiary was B. Can you argue in that manner? It
is different in property insurance. You are supposed to own the
property or you have an interest in the property before you can
recover in case of loss.
LIFE INSURANCE POLICY
Form
 GENERAL RULE: printed form
 EXCEPTIONS: group life and annuity contracts which may
be typewritten
 Contains blanks where word, phrase, clause, mark, sign
necessary to complete the policy are placed
This is a contract of adhesion. There are blanks because some
would like to put specific provisions covering them – covering death by
suicide, death by accident or at the end of it all, he wants to recover
the premiums he paid as well as the proceeds.
Contents (Sec. 51)
 Parties
 amount to be insured
 premium
 life insured
 risks
 period of effectivity
It is possible that the one who got the policy and is paying the
premium is not the cestui que vie.
More often than not, when we talk about life insurance, we are
not very much particular as to the date of effectivity because maturity
will depend upon the happening of the event – death. Unlike in
property insurance, it can be one year.
Required Provisions
 Grace period provision – provision which gives the
insured additional time to pay his premiums from the due
date
 Clarifies the right to collect if death happens within the
grace period
 Individual life – 30 days/1 month
 Group life – 30 days/1 month
 Industrial life – 4 weeks or if payable
monthly – 30 days/1 month
Even if there is a deadline for the payment of premium, there is
such a thing as grace period – you are given leeway or allowance.
If the contingency happens during the grace period, there can be
recovery. Ex: Premium must be paid today (Nov. 10). Grace Period,
any kind, is 30 days or 1 month. If A will die 2 weeks from now, he is
covered. What will happen is that unpaid premium will be deducted
from the proceeds, as long as within the grace period. After the grace
period, it has already lapsed.
 Entire contract provision – The policy shall constitute the
entire contract between the parties
 Misstatement of age provision – if the age of the insured
is misstated, the amount payable shall be as such
premium would have purchased at the correct age
Usually, when there is misrepresentation, based on the principle
of uberrimei fides, the innocent party can move for rescission but not if
the misrepresentation is as regards to age.
 Reinstatement provision – clarifies the requirements for
restoring a policy to premium-paying status after it has
lapsed.
 Individual – within 3 years from default
 Group – no reinstatement
 Industrial – within 2 years from default
You have a deadline to pay the premium. If you are not able to
pay, there is a grace period. If you are not able to pay thereafter, it
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 Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit
has now lapsed. There is such a thing as reinstatement provision.
Within the period provided under the law, the person whose policy
has lapsed may move for reinstatement.
Special Features
 Loan privilege – based on the cash surrender value, the
insured may obtain a loan by pledging the policy
If you do not have money and you have a policy, you can
pledge it. Then, you can borrow.
 Policy dividend options – if the policy is participating,
the policyholder is entitled to a share of the surplus.
 Exemption from claims of creditors – protection
against execution
Proceeds of a life insurance policy are exempted from claims
of creditors.
Exception to this rule: Endowment – the policyholder is still
alive. Because he survived the period, he earns. That is
income subject to income taxation. It is not, strictly speaking,
exempt from execution because it is does not proceed from
death. He earned it because he invested, just like saving in a
bank.
 Income tax treatment – proceeds of life insurance
policies are generally tax exempt. However,
endowment proceeds and cash surrender values are
treated as income and are taxable.
Same thing: if endowment, subject to income tax, except
those proceeds which are obtained because of death of the
cestui que vie.
 Surrender options – if the policyholder cannot continue
paying the premiums, he has some options which will
not put to waste what he has paid. However, these
options are available only upon payment of at least 3
annual premiums
If you do not want to reinstate and your policy has already
lapsed, there is a surrender option provision in the insurance
policy.
Surrender Options
 Cash Surrender Value 227(f); 230(f) and (g)
 payment of at least 3 annual premiums
 not less than the reserve on the policy
You surrender your policy and you will get cash. There must
be payment of at 3 annual premiums before you can avail of this
option. If you take a look at the policy, there is a table. More often
than not, you will not get anything from 0 to 3 years.
 Extended Insurance
 At least three annual premiums
 limited time, same face value
You purchase a new policy using the cash surrender value.
The difference – limited time covered, but same face value. If your
old policy covered during your life time for P 1M, this one, you are
covered for 10 years for P 1M. Recovery is the same but the period
of coverage is shorter.
 Paid-Up Insurance
 At least three annual premiums
 same period, lower proceeds
Same period – you are covered for the entire lifetime – but the
proceeds are lower. If before you are covered for your entire
lifetime P 1M, this time, you care covered for your entire lifetime
but for only P 500,000.
 Automatic Premium Loan
 Parties agree that in case of default insurer
advances the premium not subject to repayment
This is different from loan privilege. Loan privilege is you
borrow money using your policy as your security. This one is
different. If you are not able to pay the premium, if you have this
provision, automatically, the insurance company will pay the
 HOLDING: NO perfected contract of insurance
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009)
premium for you since you already have a reserve. It does not lapse
and more expensive.
Kinds of Policies
1. Ordinary Life – payment of premiums is annually or at
more frequent intervals throughout life and the beneficiary is
entitled to receive payment only after the death of the
insured.
This is the most common.
2. Limited Payment Life – premiums are payable only during a
limited period of years (10,15,20 years). After the period, the
insurance is deemed fully paid. Proceeds are payable upon
death of insured.
This is advisable if it will take some time before you will be able
to pay. If you have money now, you go for Limited Payment Life.
3. Term Insurance – provides coverage only if the insured dies
during a limited period.
If the insured dies within the period, the beneficiary gets
the proceeds. If the insured survives the period, the contract
is terminated.
This is also common. If the cestui que vie dies during a limited
period, then, there can be recovery. If he dies after that, then, there
is no recovery.
4. Endowment Policy – insured gets a sum of money if he
survives a specified period. If insured dies within the period,
the beneficiary gets the proceeds.
This is the more expensive one because there is recovery either
way. This is not exempt from income tax.
5. Life Annuity – debtor binds himself to pay an annual
pension or income during the life of one or more determinate
persons in consideration of a capital consisting of money or
other property, whose ownership is transferred to him at once
with the burden of income.
There is someone with money and gives his money or capital to
an insurance company. The insurance company becomes a debtor
because he is obligated to give pension to the appointed person or the
one who gave the money.
6. Accident Insurance – may be life or non-life insurance.
* If death is one of the risks insured against, it is classified
as life insurance.
When is the insurance contract perfected?
 At the time the insured-applicant has knowledge of the
approval of his application.
When a person applies for a life insurance policy, he is supposed
to pay the first premium at the time of the application.
When is the policy effective? Remember that case where there
was an old woman who asked her lawyer to check if her application for
life insurance policy had been approved. When it was checked, it was
not yet clear if it was approved. In the meantime, the old woman
died. Can the beneficiary recover? Was she aware that her
application approved? The one making the offer in that situation is the
applicant. Just like in obligations and contracts, the moment you know
that the offer was accepted, there is a perfected contract. The offeror
must first know that her application was approved before the contract
is perfected. In this case, the woman died without knowing that her
application was approved. The evidence was when she asked her
lawyer to check. So, she did not yet receive the approval.
If the applicant was not aware of the approval, there is no
perfected contract of insurance.
 Since the insured is the one making the offer, the
submission of the application WITHOUT the approval of
the policy does not result in a perfected contract of
insurance (Grepalife v. CA)
De Lim v. Sun Life – the applicant paid the premium upon
filing of application but he dies before the approval
9
 Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit
 If insured died during the period of provisional policy
which is conditioned upon approval of application,
beneficiary is NOT entitled to proceeds.
 Even if the insurer has approved the application via a
letter, there is no perfected contract if there is no
evidence that the applicant knew of the approval
(Enriquez v. SunLife, 41 Phil 629)
 The insured is presumed to have understood the
application and the contract of insurance ( Tang v. CA,
90 SCRA 236)
The insured is Chinese. The contract was in English. He does
not understand English. The Supreme Court ruled that when you
sign a contract, it is understood that you have understood the
content. That is not a valid argument.
There was one case where the policy was delivered in the
house of the aunt. The applicant died. At the time of the delivery
of the policy, he must be in a state of good health but the agent
still delivered. The Supreme Court said that at that time, the aunt
did not even know that the applicant has died. So, she received it
in good faith. So, there is a binding contract of insurance.
Reconcile with the acceptance rules – it seems inconsistent.
However, here, the agent was negligent. He should have first
checked if the applicant was in good health. The agent merely
relied on the representation of the aunt, who also did not know and
it was proven.
Cover Notes v. Binding Receipt
 COVER NOTE: Temporary insurance policies intended
to cover the insured while application is being
evaluated
A cover note is a form of goodwill. While your application is
being evaluated, you are already covered.
 BINDING RECEIPT: acknowledgment of receipt of
premium and application subject to evaluation. NOT
the same as cover note ( Great Pacific v. CA, 89 SCRA
543)
It is merely a receipt acknowledging that the first premium
was paid. But just because the person paid the first premium, it
does not mean that there was already a perfected contract of
insurance. Payment of premium is not an indicator of a perfected
contract of insurance.
Cover note is a valid insurance if:
 Issued and renewed with prior approval of the
Insurance Commissioner
 Valid and binding for not more than 60 days, unless the
insurance commission has approved an extension
based on valid grounds
It can be extended with the approval of the Insurance
Commission. You do not need to pay extra for this because it is
goodwill, whether or not the application is eventually approved.
 No separate premium is required for the cover note
(Pacific Timber v. CA)
 7-day notice to the other party is required to cancel the
cover note
 Policy must be issued within 60 days from issuance of
cover notes
Within the 60-day period of the cover note, the application
must have been evaluated – whether approved or not.
 60-day period may be extended upon written approval
of IC
 Written approval is dispensed when president, VP or
general manager that the renewal is not to circumvent
the insurance code (Ins. Memo Circular 3-75)
The written approval of the Insurance Commissioner can be
dispensed with if the president, the vice-president or the general
manager swears under oath that there is no circumvention of any
of the provisions of the Insurance Code.
If the person dies during the existence of the cover note, there
can be recovery.
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009)
PREMIUM
Concept
 Agreed price for assuming the risk
 The right to premium arises the moment the
property/object is exposed to risk
 Cash and carry basis - based on section 77 which provides
that the moment the thing insured is exposed to the peril,
the insurer has the right to payment of premium.
Bar Question: What is the cash and carry basis?
When is non-payment excused?
 insolvent insured
 insurer’s negligence or fault
 insurer waives the right to payment
Waiver – even if the insurance policy was issued, you still have
not yet paid. Or it was indicated in the insurance policy that you have
already paid you have not actually paid.
 war does not suspend the policy and does not excuse
non-payment of premiums
 Constantino vs. Asia Life, 87 Phil
248
Remember the 3 schools of thought: New York, Connecticut and
the United States.
We apply the United States - Non-payment due to the effects of
war does not merely suspend but puts an end to the insurance
contract if the time of the payment is particularly of the essence of the
contract. Insurance companies not only calculate on the premium but
on the compounding interest upon them. It is the basis that that they
are entitled to offer assurance at the favorable rate that they put. So,
it will put an end to the insurance contract. The insurance contract is
abrogated. (not mentioned in class – added note )
Premium
 If insured fails to pay 1st premium, insurer cannot
ask for specific performance but can only rescind the
contract since there is no creditor-debtor relationship
You applied for a life insurance policy and you did not pay the
first premium. Can a case for collection be filed against you?
When it comes to life insurance policy, NO, it cannot be filed
against you. Here, specific performance is not an option. Only
rescission is allowed.
Special Rule in Industrial Life if premiums are not paid
 If insured failed to pay because the insurance agent did
not collect in the address provided in the policy – policy
will NOT lapse
 Except: if 12 weeks or 3 months have lapsed from end of
grace period
If a policy holder does not pay the premium within the period and
the grace period, it will result to a lapsed policy.
But in industrial life, if the failure to pay was due to the non-
collection by the insurance agent, the policy holder is excused because
the fish vendor, market vendor, ice cream vendor do not have time to
go to the insurance company. Usually, an insurance agent goes to
them. If the reason why the policy holder was not able to pay is
because of the negligence of the agent, the policy holder is excused
except if it has been 3 months or 12 weeks from the lapse of the grace
period. This means 4 weeks plus 3 months equals 4 months. But one
has to establish that the failure to pay was due to the neglect of the
agent.
At a glance
 Only the insured must have insurable interest on the life
if the cestui
The one gets the proceeds is not required to have insurable
interest on the life of the cestui que vie. Be able to differentiate it to
propertly life later.
 Suicide is generally not compensable unless: mentally ill
or committed after the policy has existed for more than
two years from issuance
 If the beneficiary is disqualified because he participated
in the death of the cestui, the nearest relatives of the
insured will recover. In all other cases, it is the estate of
the insured which can recover
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 Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit
Emphasis: Willfully causing the death.
 If the cestui dies during the grace period, there can be
recovery
 If the cestui dies during the duration of the cover
notes, there can be recovery
 The measure of recovery in life insurance is the face
value of the policy. Except when insurable interest is
capable of pecuniary estimation
PART THREE : NON-LIFE INSURANCE
TOPICS
• What may be insured against
• Insurable interest
• Non-life insurance policy
• Premiums
• Parties
• Double insurance v reinsurance
• Different kinds of non-life insurance
Basically, the same topics with life insurance, except the last 2
topics. You do not have double insurance in life insurance. You
can get as many life insurance policies as you want.
WHAT MAY BE INSURED AGAINST
Requirement for Recovery
• Peril insured against must be the PROXIMATE CAUSE
of the loss or damage (Sec. 84)
SECTION 84. 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.
• NO liability if insured risk is only a remote cause or if
proximate cause is an excepted peril
• Concept of loss - injury, damage, liability, loss of
income or profits sustained by the insured in
consequence of the happening of one or more perils
insured against (Bonifacio Bros. V. Mora, 20 SCRA 261)
In life insurance, insurable interest has an important role when
you apply for an insurance policy. But if you are a beneficiary, as
long as you are not disqualified, you can get the proceeds.
In property insurance, there has to be evidence that the
proximate cause of the loss is a covered risk or event. If the
proximate cause is an excepted peril (it is not covered by the
policy), there can be no recovery of benefits or proceeds.
Loss – not necessarily total loss. It need not be total wreck.
Proximate Cause
• That which in the natural and continuous sequence,
unbroken by any NEW INDEPENDENT cause, produces
an event without which the event would not have
occurred.
• Also called the EFFICIENT CAUSE, or one that sets the
others in motion
• NOT equivalent to IMMEDIATE CAUSE
Basically, without proximate cause, there would be no loss. It
is also known as the efficient cause because it started everything,
leading to loss.
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009)
Immediate cause – it is the happening immediately before the
loss. It is possible that the happening before the loss is not the
proximate cause.
Proximate Cause: Examples
• Fire causes an explosion which results in loss. Fire is the
proximate cause of the loss. If fire is a covered peril, the
insurer is liable.
The explosion is the immediate cause. The fire is the proximate
cause.
Allied risks are covered only if they are categorically mentioned in
the policy. Explosion is an allied risk of fire.
• A house is insured against fire. The house is destroyed
due to the falling of a wall. The wall fell due to fire. The
insurer is liable
The falling of the wall is the immediate cause. The fire is the
proximate cause.
Immediate Cause vs. Proximate Cause
• Immediate cause – cause or peril which appears closest
in time to the loss
• Immediate cause is NOT necessarily the proximate cause
and vice versa
BAR 2007
• Alfredo took out a policy to insure his commercial
building against fire. A fire broke out and destroyed the
building. It was found that the proximate cause of the
fire was explosion but fire was the immediate cause of
the loss. There is no excepted peril in the policy. Can
there be recovery under the policy?
ANSWER
• Alfredo cannot recover from the policy. Section 84 of the
Insurance Code provides that before there can be
recovery under property insurance, the proximate cause
of the loss must be the covered peril. In the instant case,
the proximate cause of the loss was not the peril insured
against. Hence, there can be no recovery under the policy.
There could be no recovery because the proximate cause is the
explosion. There is no mention of an allied risk.
Hostile v. Friendly Fire
• Friendly - fire burns in a place where it is intended to
burn
• Hostile - occurs outside the confines or begins as a
friendly fire and becomes hostile by escaping from the
place where it ought to be
• Hostile fire is the one covered by fire insurance
Fire insurance covers only hostile fire, not friendly fire.
Section 85 Loss in the Course of Rescue
• Insurer is liable if the thing is rescued from peril
insured against if in the course of rescue, the thing is
exposed to a peril not insured against
SECTION 85. 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.
If the cause of the rescue is a covered peril, then, if there is some
damage because of rescue, that is covered.
Illustration
• An owner gets theft insurance for his car.
• In the course of rescuing the car from thieves, the car
suffers damages.
• The insurer is liable to the owner although the damage is
not due to theft since it was in the course of rescuing the
car from theft that it suffered some damage.
Another example: things rescued from fire but said things got wet
and were damaged. That is covered – loss in the course of rescue.
If loss due to wilful act or connivance of insured
• Section 87 - insurer is not liable if insured, through his
willful act or connivance caused the loss
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 Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit
• Ex. Arson, owner hiring other people to rob his
property
SECTION 87. 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.
In this case, there can be no recovery.
• Section 87 - if loss is through SIMPLE negligence of
insured or his agents, insurer is STILL LIABLE
• Insurer is NOT liable if loss is caused by GROSS
negligence of insured
There are 2 kinds of negligence – simple and gross. The
reason why we get property insurance because there will be times
that we will be negligent. The only question is – was the
negligence simple or gross?
If simple negligence, there can be recovery. If gross
negligence, that is tantamount to a wilful act. And based on
Section 87, there can be no payment.
Q: Leaving a candle burning? Is that simple negligence?
(No definite answer )
BAR 2007
• If the fire was found to have been caused by Alfredo’s
own negligence, can he still recover from the policy?
ANSWER
• I qualify. If the negligence was simple in nature then
Alfredo can still recover under the policy. However, if
there was gross negligence on the part of Alfredo then
he is barred from recovering under the policy.
INSURABLE INTEREST
Concept, Section 13
 Every interest in property, whether real or personal
(owner)
 Any relation thereto (lessee, agent)
 Liability in respect of property (carrier, depositary)
 Which will directly damnify the insured when a
contemplated peril happens
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.
Forms, Section 14
 Existing interest (owner)
 Inchoate interest founded on an existing interest
(shareholder)
Ex: Shareholder in Company A – you have 1,000 shares. You
have an interest as to the properties belonging to the company.
But can you actually say what is that interest? You cannot say ½ of
the building belongs to you. It is only upon dissolution and ___(?).
You have an existing interest but still inchoate.
 Expectancy coupled with an existing interest
(usufructuary, expected profit)
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.
Factual Expectation
• Mere factual expectation of loss not arising from any
legal right or duty in connection with the SM does NOT
constitute an insurable interest.
• NOTE: Factual expectation is enough basis in life
insurance.
In life insurance, you expect your parents to support you
(Article 195 of the Family Code). That is enough bases to get a
policy using their life, even if your parents do not really support
you. Even if you are richer than your parents, that is not an
argument because under the law, that is an expectation. That is
enough basis for life insurance.
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009)
But in property insurance, it is not enough that you expect only.
You must have an insurable interest. How will you know you have
insurable interest? Look at the concept – will you fall under any of
those and in what form?
Pure expectancy will not suffice.
Example: Your neighbour’s house was robbed. Maybe I will
suffer loss. So, I will ensure my neighbour’s house against theft.
Another example: Your building is near a gas station. You insure
the gas station agains fire.
These will not suffice.
In cases of property insurance, you must have an insurable
interest because it is easy to bring about the event when it comes to
property. It is easier to burn the house of your neighbour than to kill
your neighbour.
Beneficiary is required to have insurable interest
 Insurable interest is required before a person can benefit
from a property insurance (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.
Only one who has insurable interest in the property can recover.
BAR 2000
• A is an elderly bachelor who insured his house against
fire. He named his companion-friend as beneficiary. A
died in a fire which also destroyed his home. The insurer
refused payment to B due to absence of insurable interest
on the life of A. Is the insurer correct?
ANSWER
• The insurer is correct. The beneficiary in property
insurance must have insurable interest on the property.
The companion-friend of A does not have insurable
interest on the house of A. Hence, he cannot recover from
the fire insurance policy.
BAR 2001
• JQ, the owner of a condominium insured the same against
fire with XYZ Company and made the loss payable to his
brother MLQ. In case of loss by fire, who can recover
from the policy. State the reason for your answer (5%)
ANSWER
• JQ can recover since he has insurable interest over his
own condominium unit. MLQ cannot recover since it is
required that a beneficiary must have insurable interest
over the property.
Insurable interest in a mortgaged property (Sec. 8)
• Both the mortgagor and the mortgagee have insurable
interest on the mortgaged property
• The II of the mortgagor is to the full value of the SM
• The II of the mortgagee is only up to the extent of the
indebtedness
SECTION 8. 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.
Both the mortgagor and the mortgagee can get an insurance
policy on the same property. In a mortgage, the property is used as a
security for payment of a debt. The owner naturally can insure the
property up to that extent.
If the worth of the house is P 1M, the value of the policy can be
up to P 1M.
If the debt covered by the mortgage is P 200,000, the mortgagee
can insure the property only up to P 200,000.
BAR 1999
• A businessman obtained a fire insurance policy on his
stocks for P5 M. Three months later, a fire broke out and
destroyed the grocery and stocks. The insurer denied the
claim since the stocks were mortgaged to another person
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 Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit
who also insured the same stocks for P5 M. May the
businessman and the creditor obtain different
insurance policies on the same stocks?
ANSWER
• Yes. The businessman, as the owner and the
creditor, as the mortgagee have insurable interest over
the stocks. Hence, they may obtain separate policies
on the same stocks.
Measure
 Measure of insurable interest is the extent the
insured might be damnified by loss or injury (Sec. 17)
 Section 25: Void stipulations – payment of loss
whether insured has insurable interest or not or that
policy shall be proof of interest
In life insurance, the measure of recovery is the face value. In
property insurance, the measure of recovery is the extent of the
insurable interest. You cannot say face value of the property
because it varies – owner, mortgagee, lessee, agent.
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: Jurisprudence
• Fire insurance taken on a property belonging to
another is VOID, although the insurer had full
knowledge of fact of ownership and even if insured
subsequently acquired insurable interest (Cha v. CA,
277 SCRA 690)
In this case, he insured the property when it was not yet his.
He was not even a lessee. He does not belong to any of the forms
or concepts. The Supreme Court held that even if he became the
owner later on, you must be the owner 2 points in time – at the
time you got the policy and at the time of the loss. This is the case
in property insurance as opposed to life insurance, only at the time
you got the policy.
• Where the real intention of insured was to insure his
goods for P15,000 but insurer mistakenly insured the
building where the goods were contained and not
owned by insured, in case of loss of goods insured was
allowed to recover (Garcia v. Hongkong, 45 Phil 122)
The Supreme Court said that there was negligence on the part
of the insurance company. There can be recovery.
When insurable interest must exist in property insurance
 Time the insurance takes effect and when the loss
occurs, but NEED NOT exist in the meantime
Two points in time - at the start and at the time of the loss.
In life insurance, only at the start, except if capable of
pecuniary estimation.
Example: You get an insurance as to the life of your debtor.
You have an insurable interest. At the time of your debtor’s debt,
the debt has been already paid, then, there can be no recovery.
BAR 2002
• Distinguish insurable interest in property insurance
from insurable interest in life insurance (5%)
ANSWER
• In property insurance, the expectation of benefit must
have a legal basis. In life insurance, insurable interest
can be based on mere factual expectation.
• In property insurance, the actual value of the interest
is the limit of the insurance. There is no such limit in
life insurance except if insurable interest is capable of
pecuniary estimation.
• In property insurance, insurable interest must exist
when the insurance takes effect and at the time of the
loss but not in the meantime. In life insurance,
insurable interest must exist only at the time the
insurance takes effect.
Change of Ownership of Property
 Section 20 and 58: A change of interest in
any part of a thing insured unaccompanied by a
corresponding change of interest suspends the
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009)
insurance until the interest in the thing and interest
in the insurance are vested on the same person
Illustration
• A owns a car which is insured against theft
• A sells the car to B. The policy was not included in the
sale.
• If the car is carnapped, neither A nor B can recover under
the policy.
• A cannot recover because he does not own the car at the
time of the theft.
• B cannot recover because he does not own the policy
No one can recover. Insurable interest must exist at the time of
the issuance of the insurance policy and at the time of the loss.
Until the ownership over the policy and ownership over the
property is vested in one person, the policy is suspended.
Transfer of Property by Succession
 When the insured dies, and the subject matter is
transferred by succession, the new owner of the
thing will also own the insurance. (Sec. 23)
Illustration
• A owns a car which has theft insurance
• A bequeath the car to B under his will
• A dies
• B now owns the car, together with the insurance policy
When the policyholder dies, whoever gets the property is
automatically the owner of the policy. There is no need to indicate in
the last will and testament that the car and the policy is bequeathed.
Whoever gets the proper will now get the policy.
POLICY
Kinds
 Open – Value of thing is not agreed upon but is to be
ascertained at time of loss
 Valued – expresses on its face an agreement that the
thing shall be valued at a specific sum
 Running – successive insurances
Two Kinds of Values
• Face value – maximum amount which may be
recovered under the policy
• Valuation- value of the subject matter agreed on by
the parties
Who sets the value? Both parties. If they cannot agree, they go
to a third person for purposes of putting a value.
Open v. Valued
• Open - has a face value but has NO valuation of the
thing. Valuation is done after the loss
• Valued - has both face value and valuation of the
thing (at the start/at the time the policy is issued)
Illustration: Open
Value of the house: to be determined at time of loss
Face Value: P2 Million
If the valuation is more than the face value, recovery is
limited to the face value
Illustration: Valued
Valuation of the car : P1.5 Million
Face Value : P 1 Million
GENERAL RULE: Recovery will be based on valuation
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 Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit
EXCEPTION: If valuation is obtained through fraud or
misrepresentation. Recovery is limited to the face value or
insurer may deny the claim
Example of fraud: When the car checked, you borrowed and
put mag wheels, radio and other technology. But it was not yours.
At the time of the loss, it was discovered that those were not yours.
There will be 2 options available to the insurance company – it will
not pay you because you misrepresented or it will just stick to the
face value.
Illustration: Running
As of May 1, 2007 – value of goods – P1 Million
As of June 1, 2007 - value of goods – P500,000
It is not worthwhile to put a valuation because one day you
may have P 1M inside the grocery and the next day you may have P
500,000. The valuation is updated from time to time.
PREMIUM
• Cash and carry basis rule is followed
• Section 77 - insurer is entitled to premium as soon as
the thing insured is exposed to the peril insured
against
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.
The Cash and Carry basis rule provides that the insurance
company should receive the premium as soon as the property is
exposed to the risk.
Example: Marine Insurance – travel covered Manila to Davao
on this date. Even if it just reaches the Manila Bay, you cannot
demand the return of the premium because it is already exposed to
the risk. If the trip did not push through, you can demand refund.
You do not have to pay the entire premium in cash, even if
there is no qualification in Section 77.
• Premium - is the agreed price for assuming and
carrying the risk
 General Rule: Cash and carry basis – nonpayment of
the first premium prevents the contract from becoming
binding
 Premium must be paid in cash as a condition precedent
for non-life insurance policy to be valid and binding
• In Suretyship, payment of premium is also
necessary for the contract to be binding
• EXCEPT: if obligee has accepted the bond,
suretyship is binding even if premium has not
been paid, subject to the right of the insurer to
recover the premium from its principal (SEC. 177)
SECTION 177. 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
reasonable amount, not exceeding fifty per centum 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
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009)
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.
If the court or the obligee accepted the bond, it is already
binding.
When there is a credit scheme?
• UCPB v. Masagana April 4, 2001 - insured is entitled to
proceeds even if he has not fully paid premiums when:
– for years, insurer has been issuing fire
insurance policies to insured and the policies were
renewed
– insurer has been granting 60-90 day credit
extension
– no valid notice of non-renewal
– premium was paid by insured within credit
extension period
It is possible the payment of premium will not be in full or not in
cash. In this case, this is an exception. It has been covered for so
many years. The system for so many years was that the policy was
issued and the premium can be paid within 60-90 days from the
issuance. During one calendar year, there was a fire during the
extension period. The cash and carry rule was invoked. Since there
was no payment, it is not liable.
Initially, the Supreme Court ruled in favor of Masagana.
However, upon MFR, Supreme Court reversed itself. For so many
years, the insurance policy was issued and renewed. For so many
years, 60-90 day credit extension was given. There was no notice of
non-renewal. It means there was renewal. And it is paid within the
credit period.
Worse scenario – fire took place on the 90 th day and payment was
made on the 90th day. It is still covered. But if payment was made on
the 91st day, no more.
Section 77 is without exception. This is the first exception –
credit scheme.
BAR 2007
• Alfredo took out a policy to insure his commercial
building. The broker agreed to give a 15-day credit to
Alfredo within which to pay the premium. Upon delivery
of the policy on May 15, 2006, Alfredo issued a postdated
check dated May 30, 2006. On May 28, 2006, fire
destroyed the building. May Alfredo recover from the
policy?
ANSWER
• Alfredo can recover from the policy. In a decided case by
the Supreme Court, it was held that parties may agree on
a credit extension in paying the premium. The happening
of the peril during the credit extension will entitle the
insured to proceeds, less the unpaid premiums.
Premium by instalment: Makati Tuscany vs. CA
• Makati and American Assurance agreed that premiums
will be paid via three installments
• Makati paid premiums for 3 consecutive years in three
installments
• On the 4th year, Makati paid only the 1st 2 installments.
• American collected the 3rd installment
• Makati’s defense: Section 77 provides that no policy will
be effective unless the premium has been paid. Since
premiums were paid on installments, there was no valid
policy.
• Makati and American Assurance agreed that premiums
will be paid on three installments
• After paying premiums for 3 consecutive years, Makati
refused to pay the third installment on the 4th year
• American sought to collect the balance from Makati
• SC: Section 77 merely precludes the parties from
stipulating that the policy is valid even if premiums are
not paid, but does not expressly prohibit an agreement
granting credit extension, and such an agreement is not
contrary to morals, good customs, public order or public
policy (De Leon, the Insurance Code, at p. 175 ). So is an
understanding to allow insured to pay premiums in
installments not so proscribed. At the very least, both
parties should be deemed in estoppel to question the
arrangement they have voluntarily accepted
This is the 2nd exception.
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Q: Can you pay premium by instalment?
A: YES
Q: When does it take effect?
In this case, Makati paid for 3 consecutive years. On the 4 th
year, Makati only paid the first 2 installments and did not pay the
3rd installment. American collected for the 3 rd installment. There is
no loss yet.
Q: Can there be specific performance?
The Supreme Court held that there can be action for specific
performance because when the first instalment was paid, the policy
took effect. So, you have to make good the rest of the installment.
Contrast this with life insurance – if you do not want to pay
premiums life insurance, you are not covered. You cannot be
compelled. The relief of specific performance is not present in life
insurance.
With non-life insurance, the moment the property is exposed
to the peril, there can be specific performance or rescission. The
moment the property is exposed to the peril insured against, then,
there arises the obligation to pay premium.
In this case, the argument of Makati does not hold water
because the moment it paid the first installment it bound itself to
pay the rest of the premium.
Example: Owner-type jeepney covered by a common carrier
policy. The agent said it is ok, it can be covered. If such
misrepresentation is discovered before the loss of the jeepney, he can
ask for return of the premiums he paid. The insurer can ask for a
refund because if something happens to the jeepney, it is not covered
by the policy because it is not a common carrier.
When is insured entitled to return of premium?
 Over – insurance by several insurers– ratable return
of premium
Ratable Return of Premium in case of Overinsurance
• Sec. 82 – premiums to be returned when there is over
insurance by several insurers shall be proportioned to the
amount by which the aggregate sum insured in all
policies exceeds the insurable value of the thing at risk
Illustration: P 1.5 M house
Insurer Amount of Premiums
insurance Paid
A company P1,200,000.00 P24,000.00

Section 77 merely prohibits a party from paying and there is a

policy even if there is yet no payment. But parties may agreement
for instalment or credit scheme.
B company P600,000.00 P12,000.00

BAR 2006
• A Insurance Company issued an policy on the new car TOTAL P1,800,000.00 P36,000.00
of B. The premium of P60,000 was to be paid in 6
months. B paid only the 1st two months installments.
Despite demands, B failed to pay the rest of the
installments. Five months after the issuance of the How to compute:
policy, the vehicle was carnapped. A denied the claim • STEP 1: Determine amount overinsured
of B since B did not pay the premium resulting to
cancellation of the policy. Can B recover from A? Amount overinsured =
ANSWER Amount of insurance – value of property
• B can recover from A the proceeds of the policy less the
unpaid premiums. In a decided case by the Supreme • P1.8 – P1.5M = P300,000
Court, it was held that when the parties agreed on
payment of premiums by installment, the policy • STEP 2: Get the ratio of overinsurance with the total
becomes effective upon payment of first installment. amount of insurance
Absent any provision that non-payment of subsequent
installments will cause cancellation, the policy P300,000/P1,800,000.00 = 1/6
between A and B continue to exist.
Ratable Return
Exceptions to Cash and Carry Basis Sec. 77 • STEP 3: Multiply the ratio to the amount of premium
• Life/industrial life when the grace period applies paid to every insurer
• When the policy contains an acknowledgment of
receipt of premium, this is conclusive proof of payment A= 1/6 of P24,000 = P4,000 from A Company
• When the parties have agreed on installment payment B= 1/6 of P12,000 = P2,000 from B Company
(Makati Tuscany case)
• When the insurer has renewed the insurance over the BAR 2000
years under a clear credit term arrangement ( UCPB • Name at least three instances when an insured is
case) entitled to a return of the premium paid.
• In Suretyship where the obligee accepts the bond even
if premium has not been paid (Sec. 177) ANSWER:
1. Whole Premium – object never exposed to peril
When is insured entitled to return of premium? 2. Pro-rated Premium – surrender policy before period is up
 Whole premium – if object was never exposed to 3. Over-insurance by several insurers
peril, unless it is an indivisible policy
 E.g. insured pays in advance the annual premium, PARTIES
loss occurs before date of effectivity. Insured is
entitled to reimbursement of whole premium

Q: Is it possible that upon payment of premium, there is refund?

A: If the subject matter was never exposed to the peril, then,
there can be full refund.

 Pro-rated premium – surrender policy before

period is up
 E.g. A insures his house for 1 year but returns the
policy after 3 months. A is entitled to ¾ of the
premiums.
 If the contract is voidable on account of fraud /
misrepresentation of insurer/agent, facts insured was
ignorant of, default of insured other than fraud
 E.g. Agent represents that A can be insured even if
his age disqualifies him. Insured is entitled to
return of premium.
As opposed to life insurance, in property insurance, we are limited
to only 3 parties. There is no such person as cestui que vie. The
cestui que vie is replaced by a subject matter. In property insurance,
you use that property in order to obtain a non-life insurance policy.
When we talk about the insurer and insured in property
insurance, the same provisions in life insurance will apply.
The Beneficiary

Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 15

 Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit
• Section 18 - no contract or policy on property shall
be enforceable except for the benefit of some person
having an insurable interest in the property insured
Compare with Life Insurance
• Where the beneficiary is not required to have
insurable interest over the cestui que vie
• It is only the insured who must have insurable
interest over the cestui que vie
In life insurance, only the insured or the one paying the
premiums is required to have insurable interest. In the case of
property, the beneficiary must also have insurable interest. The
temptation of bringing about the event is greater when it comes to
property insurance.
Double insurance vs. Over-insurance
Double insurance does not exist in life insurance. A person
can get as many life insurance policies as he wants.
In property insurance, there is also no prohibition, unless there
is a stipulation to the contrary. You can only recover to the extent
of your interest. Even if you get many insurance policies, there will
be ratable return of premiums. You cannot earn profit from your
loss. You can only recover to the extent of your interest on the
property.
In life insurance, even if you have many insurance
policies, you do not call it double insurance. But in property, there
is such concept.
Double Insurance
 Same person is insured by several insurers in
respect of the same subject and interest (Sec. 93)
Same person, same subject, same interest – what is missing?
Samer risk. It is possible that one property is covered by several
insurers and yet the risk is not the same – one is theft, one is fire.
That is not double insurance.
 Requisites:
1. insured is the same
2. two or more insurers insuring separately
3. same subject matter
4. interest insured is the same
5. risk or peril insured against is the same
If one person is ensuring it against the fire because he is the
owner (full extent) and another person is ensuring it against fire
because he is the mortgagee (only up to the extent of the debt),
that is not double insurance. Among the requisites, # 1 and # 4 are
not satisfied.
BAR 2005
• When does double insurance exist? (2%)
BAR 1999
• A businessman obtained a fire insurance policy on
his stocks for P5 M. Three months later, a fire broke
out and destroyed the grocery and stocks. The insurer
refused to pay claiming that double insurance is
contrary to law. Is this contention tenable?
ANSWER
• The contention of the insurer is untenable. First,
there is no law prohibiting double insurance. Second,
there was no double insurance here because the
insured in the two policies are different. The two
insured also have different interests on the property.
Over-insurance
• OVER- INSURANCE – amount of insurance is
beyond the value of insured’s insurable interest
Over-insurance is when the insurable interest is less than the
total amount of the policy you got. Value of house is P 1.5M and
the insurance is P 1.8M.
Q: Do double-insurance and over-insurance go together?
A: NO, it is possible that there is only one insurance company and
the value is more than the insurable interest.
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009)
How to collect in case of over-insurance by double insurance,
Sec. 94
 Insured may claim payment from insurers in such
order he may select up to the amount they are severally
liable
 When policy is a valued policy, insurer must give
credit as against the valuation for any sum he receives
without regard to actual value of the SM
 Policy is unvalued, determine actual loss and collect
from insurance in such order as he may select
 If insured receives amount more than loss, hold sum
in trust according to the right of contribution
 Each insurer must contribute ratably to the loss in
proportion to the amount for which he is liable
(Memorize)
BAR 2005
• What is the nature of liability of several insurers in
double insurance (2%)
ANSWER
• In double insurance, the insurers are considered as
co-insurers. Each one is bound to contribute ratably to
the loss in proportion to the amount for which he is liable
under his contract (sec. 94e)
BAR 2008
• Terrazas de Patio Verde, a condominium building, has
a value of P50 Million. The owner insured the building
against fire with three (3) insurance companies for the
following amounts:
• Northern Insurance Corp. - P20 Million Southern
Insurance Corp. - P30 Million Eastern Insurance Corp. -
P50 Million
• Is the owner's taking of insurance for the building
with three (3) insurers valid? Discuss. (3%)
YES, because there is such no prohibition
• The building was totally razed by fire. If the owner
decides to claim from Eastern Insurance Corp. only P50
Million, will the claim prosper? Explain. (2%)
YES, it is possible. Go over Section 94.
REINSURANCE
• Contract by which an insurer procures a third person
to insure him against loss or liability by reason of an
original insurance
This does not exist in life insurance. This is a situation where the
value of the liability of the insurance company is very high, he gets
another who will insure him.
Illustration:
• A gets B to insure his building against fire for P10
Million.
• B (insurer) can get C (reinsurer) to reinsure him for
P5 Million out of the P10 Million insurance in favor of A.
Thus, B’s liability shall be limited to P5 Million. While C,
the reinsurer has to give the insurer the other P5 M.
In effect, the reinsurer insures the insurer.
Reinsurance vs. Double Insurance
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 Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

insurer becomes Insurer remains in this case the insurer shall be liable for only that part of the loss
the insured the insurer which the insured cannot recover from the charterer.

• Peril covered – perils of the sea or perils of navigation –

casualties due to unusual violence or extraordinary action
subject of subject of
of wind and wave or other extraordinary causes
insurance is the insurance is
connected with navigation – must be the PROXIMATE
original insurer’s property
risk
CAUSE
• Peril of the ship is NOT covered
insurance of a insurance of the
different interest same interest Peril of the Ship v. Peril of the Sea

• Roque v. IAC – sinking of barge without extra-ordinary

circumstances (SHIP)
original insured is insured is the party
not a party in interest in all • Go Tiaco v. Union – loss results from natural and
contracts inevitable action of the sea, from the ordinary wear and
tear of the ship or from negligence of owner to provide
with proper equipment (SHIP)
consent of original Insured has to give
insured is not his consent • Cathay v. CA – rusting of steel pipes in the course of the
necessary voyage in view of the toll on cargo of wind, water and salt
conditions (SEA)

Is the ship owner’s insurer liable in cases of loss if:

Kinds of Non-Life Insurance • vessel is chartered (Sec. 100)
– YES. liable only for part of the loss which
MARINE insured cannot recover from charterer
– Insurance of owner – full value of property
but recovery shall be limited to amount not paid by
charterer
– Insurance of charterer – extent of his
liability in case of loss

CHARTER PARTY – is a contract by which an entire ship, or some

principal part thereof, is let by the owner to another person for a
specified time or use; a contract of affreightment by which the owner
of a ship or other vessel lets the whole or a part of her to a merchant
or other person for the conveyance of goods, on a particular voyage or
a specified time, in consideration of the payment of the fee.

• Sections 99 and 100 – concept General Categories or Kinds of Charter Party

SECTION 99. Marine Insurance includes:
(1) Insurance against loss of or damage to:
(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes,
merchandise, effects, disbursements, profits, moneys, securities,
choses in action, evidences 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;
(b) 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);
(c) Precious stones, jewels, jewelry, precious metals,
whether in course of transportation or otherwise;
(d) 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.
(2) "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.
SECTION 100. 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
1. Bareboat or demise charter – It involves the transfer of full
possession and control of the vessel for the period covered in the
contract, the charterer obtaining the right to use the vessel and carry
whatever cargo it chooses, while manning and supplying the vessel as
well.
2. Time charter – It is a contract to use the vessel for a particular
period of time, the charterer obtaining the right to direct the
movements of the vessel during the chartering period, although the
owner retains possession.
3. Voyage charter – It is a contract for hir of a vessel for one or a
series of voyages usually for the purpose of transporting goods for the
charterer. The voyage charter is a contract of affreightment and is
considered a private carriage.
Illustration
• A and B enter into a charter agreement.
• A's vessel is valued at P1 Million.
• Per agreement, B’s insurer shall be liable up to P500,000
in case of loss. A has an insurance of P1 M.
• In case of loss:
– A’s insurer = P500,000
– B’s insurer = P500,000
Can ship owner get insurance for:
• Expected freightage (Sec. 103)
– Expected freightage which in the ordinary
and probably course of things he would have earned
but for the intervention of the peril insured against
– Important that insured must have an
inchoate right to freightage which cannot be
defeated
SECTION 103. 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.
Remember that in property insurance – expectancy coupled with
an existing right, not just expectancy.

Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 17

 Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit
• Expected profits (Sec. 105) – YES.
SECTION 105. One who has an interest in the thing from
which profits are expected to proceed has an insurable interest in
the profits.
It must be coupled with an existing interest. You cannot
insure expected profits if the voyage did not happen.
FIRE
Fire Insurance
• 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
• Fire must be the proximate cause, and must be hostile
in nature
Measure of Indemnity
• If there is a valuation – shall be conclusive as between
parties in adjusting partial or total loss in the absence
of FRAUD
This is refers to a valued policy. The valuation will be the
measure of recovery, unless there is fraud.
• If there is NO valuation - the expense it would be to
the insured to REPLACE the thing lost or injured in the
condition in which it was at the time of injury
This refers to an open policy. We have to determine the
valuation at the time of the loss. The measure is the expense it
would be to the insured to replace the thing lost and to restore it in
the same condition before it was damaged.
• Loss and its amount may be determined on the basis of
such proof as may be offered by insured which need
not be of such persuasiveness as is required in judicial
proceedings (Malayan v. Cruz Arnaldo)
There has to be proof, not as required in court. Only
preliminary proof – available evidence.
How valuation is made
• Sec. 172 – independent appraiser examines the
property and fixes the value
• Valuation shall be inserted in the policy (if valued policy;
if not, it would be determined at the time of the loss)
• GENERAL RULE: Valuation shall be the basis for
indemnity in case of total loss
• EXCEPT: If there is a change (in the property) increasing
the risk without the consent of insurer or if there's
fraud on the part of insured.
Example: You stated that the building is for residential
purposes only. You insured it against the fire. You did not inform
that it was converted to a restaurant or a store which sells LPG or
gasoline station. It increased the risk. So, valuation will not be
relied upon anymore. It may even be a ground to refuse payment
of proceeds.
• Partial loss – full amount of the partial loss
• Parties may agree that instead of payment, insurer
may repair, rebuild or replace property
Illustration
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009)
• Subject matter is a house
• Independent appraiser values it at P5 Million
• The valuation is attached to the policy
• If house is totally destroyed by fire, the valuation of
P5 M will be given
• If the house is half-destroyed, the indemnity will be
half of P5 Million or P2.5 M. (full value of partial loss)
• If the valuation is based on some fraud on the part of
the insured, e.g. adding fixtures which are not part of
the house OR there is an alteration increasing the
hazard such as converting in to an ammunition
factory, the valuation is not used.
This is the time that you can refer to the face value or your
insurance company will deny payment for misrepresentation.
• Parties may agree that instead of paying the amount,
insurer will rebuild the house.
CASUALTY INSURANCE
• Sec. 174 – insurance covering loss or liability arising from
accident or mishap excluding certain types of loss which
fall exclusively within the scope of other types of
insurance such as fire or marine
• Employers liability
• Workmens’ Compensation
• Public Liability
• Motor Vehicle Liability
• Plate glass insurance
• Burglary and theft insurance
• Personal accident and health insurance (when death is
NOT one of the risks insured against)
Motor Vehicle Liability Insurance (TPL)
• Motor vehicle – any vehicle propelled by any power other
than muscular power using the public highways, with
certain exceptions
If it is a motor vehicle, it cannot travel or go to the roads without
getting a TPL.
• Section 374 – unlawful for any land transportation owner
or operator to operate the same in public highways unless
there is a policy of insurance or guaranty in cash or bond
to indemnify the death or bodily injury of a third party or
passenger
At a glance
• Insurable interest is property insurance must exist at the
time of the issuance and at the time of the loss although
it need not exist in between these times
• A beneficiary in property insurance must have insurable
interest over the property
• It is possible that two or more persons may have
insurable interest over the same object. As in the case of
owner and lessee, mortgagor and mortgagee.
• In such cases, two or more separate insurance policies
may be obtained. This is not double insurance since they
don’t have the same insured and they have different
interests.
• The covered peril must be the proximate cause before
there can be recovery under the policy.
• Instances when there can be return of premiums.
• Payment of premiums must be on cash and carry basis.
• Important exceptions to cash and carry: credit extension
and installment payment
• Marine insurance covers only perils of the sea and NOT
perils of the ship.
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 Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit
• In marine, the ff persons can get insurance policies:
owner, charterer, for freightage, for expected profits.
• Fire insurance covers hostile fire
• Failure to give notice of loss in fire without
unreasonable delay will exonerate the insurer.
In case of fire, you must notify the insurance company
immediately so as to avoid removal of evidence. Otherwise, the
insurance company will be exonerated.
• Indemnity in fire may either be based on valuation OR
payment of cost to restore the object at the time of
loss
PART FOUR : PAYMENT OF PROCEEDS AND FILING OF
CLAIMS
IN LIFE INSURANCE
When
 General Rule: Paid immediately upon maturity of the
policy (death, survival, cessation or continuance of life)
 Exceptions:
 proceeds are payable in installments
 annuity
If Maturity is Due to Death
 Proceeds are paid within 60 days from presentation of
the claim and proof of death
Proof of Death is the death certificate
 Delay = interest unless due to fraudulent claim
Proof of Death vs. Notice of Death
 Notice of death is not enough, there must be proof of
death
 Proof of death - death certificate
If you look at the provision, presentation of claim PLUS proof
of death. It is not a matter of notifying the insurance company.
There has to be submission of proof death, mainly, the only proof
acceptable is a death certificate – no more nor less.
To Whom
 General rule: paid to designated beneficiaries
 Exception: Facility of payment clause in group life and
industrial life
This exception is aside from those that we discussed – the
beneficiary dies ahead of the insured, the beneficiary wilfully caused
the death of the insured, or there is no designated beneficiary.
Facility of Payment: Group Life
 There is no designated beneficiary
 pay not exceeding P500.00
 to any person equitably entitled for incurring funeral or
other expenses incident to the last illness or death of
the insured
In group, if there is no designated beneficiary, any person who
incurred funeral or other expenses relative to the last illness or
death of the insured, can recover even if he is not the designated
beneficiary but unfortunately, only up to P 500.00.
Facility of Payment: Industrial
 If beneficiary:
 does not surrender policy with proof of death
during period stated in the policy OR
 is the estate of insured OR
 is a minor OR
 dies before the insured OR
 is legally incompetent to give valid release
This is more extensive in character. In group life, no
designated beneficiary only. In this case, if any of the conditions
mentioned will be present, then, the following can get proceeds, no
limit:
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009)
 proceeds may be given to:
 the executor or administrator of insured OR
 any of insured’s relative by blood as legal adoption or
by marriage OR
 any person who incurred expenses for maintenance,
medical attention or burial
This time, there are conditions and there are 3 classes of people
who can claim and there is no limit. That is why, if you remember,
there is no strict application of the concept of insurable interest in
industrial. It is not strictly applied because it is very natural for them,
the market vendors, fish vendors belonging to the low income group,
to help each other. You do not have to prove insurable interest if we
are talking about an industrial life insurance policy – loosening the rule
of insurable interest. Under the facility of payment clause, there is a
way of claiming.
NON-LIFE INSURANCE
When must proceeds be paid
 within 30 days after proof of loss is received by
insurer and ascertainment of loss is made
Ascertainment of Loss
 made either by agreement between parties or by
arbitration
Ascertainment of loss = extent of loss
When
 If no ascertainment is made or can be had within 60 days
from receipt of proof of loss, insurer must pay within 90
days after receipt of proof
This is the “30-60-90 Rule”
In life, 30 days.
In non-life, 30-60-90. Generally, 30 days if there is proof of loss
plus ascertainment. But if within 60 days, there is only proof of loss
without ascertainment, there must be payment to the beneficiary
within 90 days from submission of proof.
Refusal to pay within period unless due to a
fraudulent claim = interest
Illustration
 A presents proof of loss of car by theft and insurer
ascertains amount of loss on January 1, 2000
 Proceeds must be paid 30 days after January 1, 2000.
Otherwise, interest must be paid.
 A presents proof of theft on January 1, 2000 but
parties cannot agree on amount of loss by March 1, 2000
(within 60 days from Jan.1).
 Proceeds must be paid within 90 days from January
1, 2000. Otherwise, interest will accrue.
If there is no proof, the period for the insurer to pay will not run
because it is the fault of the insured.
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 Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit
MOTOR VEHICLE LIABILITY
Procedure for filing claims
There has to be written notice of claim within 6 months from
the accident. If the claim is filed after the 6-month period, there
can be no recovery anymore, unless the one filing the claim is still
in the hospital.
What must the written notice contain? The nature of the
accident, the extent, the duration of the injury certified by a
licensed physician.
Even if it is only a minor injury, you have to go a doctor,
because that the requirement for filing a TPL.
If they do not agree, there would be payment under the no-
fault indemnity clause.
No fault indemnity clause: Section 378
 death or injury of 3rd party
 without necessity of proving fault or negligence of
any kind
 if total indemnity of one person shall not exceed
P15,000. (This used to be P5,000. But by virtue of a
memorandum circular of the Insurance Commission, this has
now been increased to P 15,000)
SECTION 378. Any claim for death or injury to any passenger
or third party pursuant to the provisions of this chapter shall be
paid without the necessity of proving fault or negligence of any
kind; Provided, That for purposes of this section —
(i) The total indemnity in respect of any person shall not exceed
fifteen thousand pesos; (as amended)
(ii) The following proofs of loss, when submitted under oath, shall
be sufficient evidence to substantiate the claim:
(a) Police report of accident; and
(b) Death certificate and evidence sufficient to establish the
proper payee; or
(c) Medical report and evidence of medical or hospital
disbursement in respect of which refund is claimed.
(iii) Claim may be made against one motor vehicle only. In the
case of an occupant of a vehicle, claim shall lie against the insurer
of the vehicle in which the occupant is riding, mounting or
dismounting from. In any other case, claim shall lie against the
insurer of the directly offending vehicle. In all cases, the right of the
party paying the claim to recover against the owner of the vehicle
responsible for the accident shall be maintained.
Whether the insurance company likes it or not, if it does not
agree with the claim, it still has to pay not exceeding P 15,000 as
long as the following documents are paid:
 Proofs of loss are submitted under oath.
 police report of accident ; and
 Death certificate and evidence to establish payee
OR medical report and evidence of medical and
hospital disbursement.
 Claim against one motor vehicle only
 if occupant of a vehicle, claim against insurance of
vehicle
 otherwise, claim against offending vehicle
This is very important. If you are the third party injured and
you are caught in between of two vehicles, who can you sue? You
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009)
cannot sue both. You sue the most offending vehicle. There can be
no claim against more than one vehicle.
If you are a passenger, that will be filed against the insurer of the
vehicle, which you are a passenger.
You have 6 months to claim. Otherwise, it is waived.
DELAY, PROOF, SUBROGATION
Generally, if the insurance company incurs delay in the payment
of proceeds, it will become liable for interest. But there are some
instances where delay is deemed reasonable.
Reasonable Delay in Payment
 delay due to investigation to ascertain the truth of
information it received that insured was not insurable at
time of application (Chuy v. Philamlife)
 delay caused by determination of actual beneficiary
and claims of creditors (RCBC v. CA)
If there is confusion as to who should get the proceeds, there will
be investigation. That will also justify delay. The insurance company
is not liable for interest.
Preliminary Proof of Loss
 best evidence which insured has
 not evidence in ordinary courts
 purpose : Apprise insurer of loss and make proper
investigation while evidence is still fresh and to
prevent further loss
A claimant need not present the same evidence required in court
but only the best evidence which he has which would give the
insurance company an idea as to what the extent of the loss is.
(example: pictures). Affidavit of witnesses not required, otherwise,
before you know it, the 6-month has lapsed and you cannot claim
anymore.
So, the purpose is to just inform the insurance company of the
loss or the extent of the loss.
Notice of Loss in Fire Insurance
 must be given without unnecessary delay
 otherwise, the insurer is exonerated
When it comes to fire insurance, there is no need to give proof of
loss immediately. The minimum requirement under the law is notice
of loss, without unnecessary delay.
Even if within 24 hours, the insurance company may even have
doubts already. The main purpose is to be able to preserve the
evidence.
If there is unnecessary delay in giving notice, then, the insurance
company will not be obligated to pay. This is a special rule with regard
to claims in case of fire insurance policies.
Subrogation
 when insurer pays for the loss
 payment to insured operates as an equitable
assignment to the insurer of all remedies which insured
may have for the recovery
 subrogation is limited to the amount
recoverable by the insured
Subrogation – stepping into the shoes of the person; being able
to proceed against the wrongdoer. The right to sue the one at fault is
transferred to the insurance company.
When we talk about subrogation, the claim of the insurance
company is limited to the proceeds he paid to the policy holder.
MARINE
What may be insured against
 Only covers loss due to perils of the sea and not
perils of the ship
 In case there is a bottomry, insurable interest of the
ship owner is limited to excess of its value over the
amount secured by bottomry. (101)
SECTION 101. The insurable interest of the owner of a ship
hypothecated by bottomry is only the excess of its value over the
amount secured by bottomry.
Bottomry – a loan which uses the the vessel as security.
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Example: The vessel is is worth P 2M. This was used to expenses incurred in saving cargo reshipped pursuant to the last
secure a loan for P 1M. How much is insurable by the owner? Only section, up to the amount insured.
the portion not covered by the loan because the moment that the Nothing in this or in the preceding section shall render a marine
vessel disappears or is destroyed, the loan is deemed paid. That is insurer liable for any amount in excess of the insured value or, if there
the effect of a bottomry loan. You are only going to suffer loss for be none, of the insurable value.
the portion not covered by the loan.
Kinds of loss in marine
Who can insure?
 Freightage – all benefits derived by the owner
either from chartering the ship or its employment for
the carriage of his own goods or those of others (102)

Freightage (freight) – the benefit which is to accrue to the

owner of the vessel from its use in the voyage contemplated or the
benefit derived from the employment of the ship.

 Charterer of the ship has insurable interest on the

ship to the extent that he is damnified by the loss
(106)

Average
 General – insurer is liable for proportion of the
loss assessed (136)

 Particular – insurer is liable unless there is a Total v. Partial Loss

stipulation exempting the insurer (136)  Every loss which is not total is partial (128)

Difference:  Total loss may either be actual or constructive

General – one sacrificed (jettison) and all are benefited. In
general average, one sacrifices and all are benefited. A sacrifices Constructive – abandonment and more than ¾ rule
his goods but everyone benefited. Who is supposed to be liable for
the loss? Not only the insurer of A but the insurers of those who  Actual loss may be presumed from the continued
were benefited by the sacrifice. The loss is shared by all who
absence of a ship without being heard of (132)
benefited, to the extent that they were benefited.

Particular – only one sacrificed and he is the only one who SECTION 132. An actual loss may be presumed from the
benefited. The one who will bear the loss is the insurer of the one continued absence of a ship without being heard of. The length of time
who jettisoned his goods. which is sufficient to raise this presumption depends on the
circumstances of the case.
General Average
 Goods of A valued at 1 M are disposed Since this is a presumption, this is rebuttable.
 Disposition saves the goods of B (1 M) and C (1 M)
Actual Loss, 130
 The 1 M loss of A will be shared by B and C in
 total destruction of the thing
proportion to the value of the goods belonging to them
 irretrievable loss of thing by sinking or being broken
which are saved. The 1 M loss will be divided by three
up
Particular Average  damage which renders thing valueless for the
 If the goods of A are disposed purpose it is held
 But disposition did not inure to the common The object is still there but it cannot serve the original purpose.
Example: rice already got wet
benefit of other owners of goods
 other event which effectively deprives owner of
 Only A and his insurer will suffer the loss
possession of the thing at the port of destination
 Other owners and their insurers will not contribute
in A’s loss
Actual loss - recovery for the entire amount.
Reshipment
Constructive Total Loss, 131
 Insured peril prevents a ship from completing
 Also called technical total loss
voyage at an intermediate port, liability of the marine
insurer continues after reshipment without prejudice
 Loss which gives the person the right to abandon
to insurer's right to collect more premiums (133)
under Section 139
SECTION 133. When a ship is prevented, at an intermediate
When there can be abandonment – Section 139
port, from completing the voyage, by the perils insured against, the
 >3/4 of the value is actually lost or would have to be
liability of a marine insurer on the cargo continues after they are
spent to recover it from peril
thus reshipped.
Nothing in this section shall prevent an insurer from requiring an
 If the vessel is injured to such an extent as to reduce
additional premium if the hazard be increased by this extension of
liability. its value to >3/4

 If the thing is a ship, and the voyage cannot be

Expenses of reshipment are included. You cannot say that
there is no more obligation because it is already reshipment. The
insurer still has liability but it can collect more premiums. If insurer
covers a specified trip, but later there is reshipment, that is extra
expense. The insured is still covered by the insurance policy but
the insurance company may still collect more premiums.
 In case of reshipment, the insurer of goods is
liable for damages, expenses of discharging, storage,
reshipment and other expenses (134)
performed without incurring either expense to the
insured of >3/4 the value of the thing abandoned or a
risk which a prudent man would not take under the
circumstances
 If the thing is cargo or freightage, voyage cannot be
performed, nor another ship be procured within a
reasonable time and with reasonable diligence to forward
the cargo, without incurring like expenses or risk >3/4 of
the value of the vessel.

SECTION 134. In addition to the liability mentioned in the last Under these situations, there is no need to establish that the
section, a marine insurer is bound for damages, expenses of vessel was totally destroyed or that it sunk. Under these situations,
discharging, storage, reshipment, extra freightage, and all other there can be abandonment because these situations will give rise to

Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 21

 Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit
constructive total loss, which means, you can recover from the
policy to the full extent of the face value.
Abandonment
 Neither partial nor conditional (140)
There is no such thing as partial or conditional abandonment.
It is either you abandon in full or not abandon at all.
 Must be made within a reasonable time after
receipt of reliable information of loss (141)
 If information on loss is incorrect or thing is
restored and there is no total loss, abandonment is
ineffectual (141)
SECTION 141. 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.
Example: You receive information that the vessel is destroyed
up to 80%. So, you abandoned. However, the loss is only up to
50%. So, there is no valid abandonment. You cannot recover the
entire amount or the face value.
 It is made orally or in writing. If orally, written
notice shall be submitted within 7 days from oral
notice (143)
 Has the effect of transferring by the insured of his
interest, to the insurer with all chances of recovery and
indemnity (146)
What happens when the policy holder abandons? As the word
implies, the insured gives up all his rights with regard to the vessel
in favour of the insurance company. If there is abandonment, you
are transferring all your rights to the insurance company.
 If insurer pays for loss as if there was actual total
loss
 BUT there was no formal abandonment
 Insurer is entitled to whatever may remain of the
thing insured or its proceeds of salvage (147)
SECTION 147. 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.
What if despite the absence of any formal abandonment, the
insurance company still pays the entire face value? This is
tantamount to abandonment. If you accept the face value, it is as
if you are saying to the insured company that it is ok for them to do
whatever they want with the property.
If you do not want to accept, it means there is no
abandonment.
Who is entitled to freightage in case of abandonment?
◦ Freightage earned before the loss belongs to the
insurer of the freightage
◦ Freightage earned after the loss belongs to the
insurer of the ship
Insurer refuses valid abandonment
 the rights of the insured are not prejudiced by
refusal of insurer to accept abandonment (149)
 Insurer is still liable for actual total loss deducting
any amount given to the insured (Sec. 154).
 Acceptance of abandonment may be express or
implied. Mere silence is acceptance (150)
Q: What if the policy holder abandons but such abandonment is
not accepted by the insurance company?
A: The insurer is still entitled to the face value, as long as the
more than ¾ rule is established.
Insurer refuses to abandon
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009)
 If insured fails to abandon, he can recover actual loss
(Sec. 155).
Q: Why should you abandon?
You incur 90% loss and you still do not abandon. The face value
of your policy is P 1M. If you do not abandon, you only get 90% of P
1M, which is p 900,000. But if you abandon, even if there is still 10%
remaining, you can get the entire P 1M.
That’s why if you do not abandon, under Section 155, you just
get the actual loss, which is 90% only.
Illustration
 A insures a vessel with B for P1 Million
 The vessel's value is reduced to P200,000 due to a
peril of the SEA
 TWO CHOICES OF A: Abandon or claim actual loss
If A abandons
 A must immediately give a written notice of
abandonment to B
 If B accepts the abandonment, it must give A P1
Million
 B now has all the right with respect to the vessel
 HOWEVER, freightage earned before loss will belong
to the insurer of the goods
 Freightage earned after the loss will belong to the
insurer of the vessel
If A does not abandon BUT
 B still gives A P1 Million
 B will now have the right over the vessel, what
remains of it and proceeds of salvage
 A can recover ACTUAL loss or P800,000 since the
vessel is reduced to 20% of its former value of P1 Million
Measure of Indemnity
 Valuation is conclusive between parties in
determining total or partial loss EXCEPT if there is
fraud (156)
 Marine insurer is liable for partial loss only for such
proportion of the amount insured by him as the loss
bears to the value of the whole interest.
How to estimate loss in open policy (161)
 Value of the ship – value at the beginning of risk
including articles which adds to its value or to prepare it
for the voyage
 Value of the cargo – actual cost to insured when
laden on board OR market value at the time and place of
lading
 Value of the freightage is the gross freightage,
exclusive of primage
Primage is a compensation payable to the captain and the crew
members although modern practice treats it as additional
compensation to the shipowner or ship agent who thereby assumes
the responsibility of paying the captain and the members of the crew.
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 Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit
 Cost of insurance shall be added to the estimated
value
LITIGATION OF CLAIMS
 If single claim is P100,000 or BELOW (excluding
cost, interest and attorney’s fees) – concurrent
jurisdiction of insurance commission and trial courts
(MTCs)
 If more than P100,000- Trial Courts (regular courts
depending on the amount – RTC above P 300,000 and MTC
P300,000 and below)
Powers of the Commissioner
Adjudicatory Powers
 Single claims of P100,000 or below (excluding
cost, attorney’s fees and interest)
 This jurisdiction is concurrent with the regular
courts
Administrative Powers
 Grant certificates of authority to engage in
insurance business
- Licensing, revocation, checking of maintenance of margin
solvency, fine, suspend license, etc.
 Require any insurance company to keep its
records in a manner that will allow IC's authorized
representatives to verify the solvency of the insurer
and has complied with IC and circulars (Sec. 245)
SECTION 245. The Commissioner shall require every insurance
company doing business in the Philippines to keep its books,
records, accounts and vouchers in such manner that he or his
authorized representatives may readily verify its annual statements
and ascertain whether the company is solvent and has complied
with the provisions of this Code or the circulars, instructions, rulings
or decisions of the Commissioner.
 At least once a year to examine the affairs,
financial condition and method of business of insurers
(Sec. 246)
SECTION 246. The Commissioner shall at least once a year
and whenever he considers the public interest so demands, cause
an examination to be made into the affairs, financial condition and
method of business of every insurance company authorized to
transact business in the Philippines and of any other person, firm or
corporation managing the affairs and/or property of such insurance
company. Such company, as well as such managing person, firm or
corporation, shall submit to the examiner all such books, papers
and securities as he may require and such examiner shall also have
the power to examine the officers of such company under oath
touching its business and financial condition, and the authority to
transact business in the Philippines of any such company shall be
suspended by the Commissioner if such examination is refused and
such company shall not thereafter be allowed to transact further
business in the Philippines until it has fully complied with the
provisions of this section.
Government-owned or controlled corporations or entities engaged
in social or private insurance shall similarly be subject to such
examination by the Commissioner unless their respective charters
otherwise provide.
To issue licenses/registrations/authority to the ff:
 Domestic or foreign insurer (247)
 Reinsurance Broker (license) (Sec. 310)
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009)
 Insurance Agent and Broker (license) (Sec. 299)
 Resident agent of a foreign insurer (certificate of
registration) (Sec. 315)
 Non-life company underwriter (certificate of
registration) (Sec. 318)
 Adjusters (Sec. 323)
 Actuary (Sec. 335)
Insurance agents have to take exams.
Administrative Powers
 Suspension or Revocation of certificate of authority
on the ff grounds:
◦ Insurer is in an unsound condition (financial)
◦ Insurer failed to comply with the provisions of law or
regulations (memorandum circulars) obligatory upon it
 Insurer's condition or method of business is
hazardous to the public or its policyholders (ex. over-
investment)
 Insurer's paid up capital or available assets or
security deposits is impaired or is deficient
 Margin of solvency is deficient
 Commission of any of unfair settlement practices
(Sec. 241)
Q: What is the margin of solvency?
SECTION 194. An insurance company doing business in the
Philippines shall at all times maintain a margin of solvency which
shall be an excess of the value of its admitted assets exclusive of its
paid-up capital, in the case of a domestic company, or an excess of the
value of its admitted assets in the Philippines, exclusive of its security
deposits, in the case of a foreign company, over the amount of its
liabilities, unearned premium and reinsurance reserves in the
Philippines of at least two per mille of the total amount of its insurance
in force as of the preceding calendar year on all policies, except term
insurance, in the case of a life insurance company, or of at least ten
per centum of the total amount of its net premium written during the
preceding calendar year, in the case of a company other than a life
insurance company; Provided, That in either case, such margin shall in
no event be less than five hundred thousand pesos; and Provided,
further, That the term "paid-up capital" shall not include contributed
surplus and capital paid in excess of par value. xxx
An insurance company is supposed to maintain that before it can
declare dividends.
Unfair Claims Settlement Practices (241)
 Knowingly misrepresenting to claimants pertinent
facts or policy provisions relating to coverage at issue
 Failing to acknowledge with reasonable promptness
pertinent communications with respect to claims arising
under its policies
 Failing to adopt and implement reasonable standards
for the prompt investigation of claims arising under its
policies
 Not attempting in good faith to effectuate prompt,
fair and equitable settlement of claims submitted in
which liability has become reasonably clean; or
 Compelling policyholders to institute suit to recover
amounts due under its policies by offering without
justifiable reason substantially less than the amounts
ultimately recovered in suits brought by them
These are grounds to revoke or to suspend certificate of authority
of the insurance company.
At a glance
 Period to pay claims in life and non-life (60 days; 30-
60-90 rule)
 Facility of payment clause
 Notice of loss in fire insurance (special rule – you have
to give this without unreasonable delay, otherwise, the insurance
company may be exonerated)
 Actual loss
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 Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit
 Constructive loss- >¾ rule on abandonment =
right to abandon = giving up everything
 Jurisdiction of the insurance commissioner
 Jurisdiction of regular courts
 Unfair claims settlement practices
PART FIVE : GROUNDS FOR RESCISSION
PDIC LAW
Grounds
• Concealment
• Misrepresentation
• Breach of warranty, express or implied
• Other grounds - Section 64-65 (non-life)
CONCEALMENT
 neglect to communicate that which a
party knows and ought to communicate.
Requisites of Concealment
(a) party knows the fact which he neglects to
communicate or disclose
(b) party concealing is duty bound to disclose
such fact to the other (from the fact that the information is
material in nature – you do not have to communicate
everything)
(c) party concealing makes no warranty as to
concealed fact (if there is an existing warranty as to the
information concealed, there is no concealment which would
give rise to a rescission)
(d) other party has no means of ascertaining
the fact concealed (if there is neglect to communicate
something about the state of health of the applicant but the
applicant was made to undergo medical examination which will
reveal that, then, we cannot charge the person with
concealment because the insurance company had the means
of ascertaining the same information)
What must be communicated
 All facts within his knowledge
 Material to the contract (test of materiality)
 Other party has no means of ascertaining
 He makes no warranty
 Information which prove or tend to prove falsity of
warranty
What need not be communicated
 Those which the other knows
 Those which, in the exercise of ordinary case, the
other ought to know and which the other has no
reason to suppose him ignorant
 Those of which the other waives communication
 Those which prove or tend to prove the existence
of a risk excluded by a warranty, and which are
not otherwise material; and
 Those which relate to a risk excepted from the
policy, and which are not otherwise material
 General causes open to his inquiry which may
affect the political or material perils contemplated
(32) (things that can be read in the newspaper; those
practiced in the business; scheduled trips of the vessel;
war in a certain place; current events – if the insurance
company is not aware of that, we cannot charge the
other party with concealment because these are general
information)
 General usages of trade (32)
 Nature or amount of interest, except in answer to
an inquiry (34) (there is no need to declare extent of
insurable interest unless there is a question to that effect)
 Information of his own judgment (35) (example: are
you in a state of good health?)
Test of Materiality
 Determined not by event
 Probable and reasonable influence of facts upon
the party to whom communication is due in
Section 110
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009)
forming his estimate of the disadvantages of the
proposed contract OR in making his inquiries
 Assessment of risk, in making/omitting further
inquiries, cause him to reject the risk or accept it at
higher premium rate/different terms
Example: You did not declare that you only have 1 kidney. Now,
there is a high-risk for kidney malfunction. Even if your death was not
due to a kidney malfunction, that will still be concealment of a material
fact because if it would have been declared, the insurance policy might
not have been approved or insured with a higher premium or further
medical tests could have been required. That is material in the case of
life insurance.
If you use your building as an LPG store, premium could have
been made higher.
Materiality
• Sunlife v. CA, 245 SCRA 268 - where the applicant
concealed prior medical history and he died in a
plane crash, there was still concealment
notwithstanding the apparent lack of relation
between the fact concealed and the cause of death
BAR 2001
• A applied for non-medical life insurance. He did not
inform the insurer that he was examined and confined at
St. Luke’s Hospital where he was diagnosed with lung
cancer. A died in a plane crash. Is the insurer liable
considering that the fact concealed had no bearing with
the cause of death of A?
Answer
• The insurer is not liable. The concealed fact is
material to the approval and issuance of the policy.
According to a decided case, the insured need not die of
the disease he failed to disclose to the insurer. It is
sufficient that his non-disclosure misled the insurer in
forming his estimate of the risks of the proposed
insurance policy or in making further inquiries.
Waiver of Right to Information
 By terms of insurance OR
Example: if the information was not asked
 Neglect to make inquiries
 concealment entitles the unguilty party to
rescind
Concealment in Marine Insurance
 in addition to Section 28
 all information he possesses material to the risk
except those in Section 30
 state exact and whole truth in relation to all matters
that he represents
 information of belief or expectation of a third person
as to a material fact is MATERIAL (Example: if you think
the vessel will continue its voyage when there is Signal No.
1, it will probably sink)
 insured is presumed to know prior loss at time of
insuring (rebuttable)
In Marine Insurance, the rules are stricter.
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.
Concealment in Marine Insurance
• General Rule: Concealment entitles the innocent
party to rescind
• Exception: Section 110
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 Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit
Concealment as to following does NOT vitiate the
entire contract but exonerates the insurer from loss
resulting from risk concealed.
(a) national character of insured
(b) liability of thing insured to capture and detention
(c) liability to seizure from breach of foreign laws of
trade
(d) the want of necessary document
(e) the use of false and simulated papers
Under Section 110, it is only when the cause of the loss is the
fact concealed that the policy holder cannot collect. If you
concealed something but the information concealed was not the
cause of loss, you can still collect. The fact concealed is also the
cause of the loss. But because you did not declare the national
character, the ship was caught, that will exonerate the insurance
company.
Example: You did not declare that the voyage will be
breaching the laws of Germany. But you were caught because of
forged and simulated papers. Then, you can still collect.
Incontestability Clause in Life Insurance
Section 48, 2nd par – if life insurance has been in force
during the lifetime of the insured for a period of 2 years
from DATE OF ISSUE or LAST REINSTATEMENT
 The insurer cannot prove that the policy
is void ab initio or is rescindible
 By reason of fraudulent concealment or
misrepresentation of the insured or his agent
This is only applicable in life insurance. There is
concealment/misrepresentation but the beneficiary can still recover
because the life insurance policy has been enforced during the
lifetime of the insured for at least 2 years reckoned from the issue
or last reinstatement. If you did not discover, you cannot use that
as a ground to deny payment of proceeds.
Illustration
• A is issued a life insurance policy on April 2, 2000
• He conceals the fact that he has tuberculosis
• A dies on April 3, 2002.
• Insurance company must pay. Although there was
concealment, the policy has been in force during
the lifetime of A for 2 years from April 2, 2000.
Case: At the time of the claim, the policy has been enforced
for 2 years. However, it was discovered that before the 2-year
period, the policy holder already died. The beneficiaries just
delayed the claim.
Incontestability will apply if the policyholder is alive during the
existence of the policy for 2 years from issuance or last
reinstatement. In this case, the claim was denied.
When Incontestability Clause DOES NOT apply
• Person has no insurable interest
• Cause of death is an excepted peril
• Premiums have not been paid (lapse)
• Conditions of the policy relating to military or
naval service have been violated
• Fraud of a vicious type is present when policy was
taken out (example: fake death)
• Beneficiary failed to furnish proof of death or to
comply with any condition imposed by the policy after
the loss has happened
• That the action was not brought within time
specified
MISREPRESENTATION
 Representations – factual statements made by the
insured at the time of, or prior to the issuance of the
policy
This is the more active version of concealment.
 Statement
 (a) as a fact of something which is untrue
(b) which the insured stated with knowledge that
it is untrue and with an intent to deceive, or which
he states positively as true without knowing it to
be true and which has a tendency to mislead, and
(c) where such fact in either case is material to the
risk
Test of Falsity & Materiality
Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009)
Sec. 44 – when the facts fail to correspond with its assertion
or stipulations
Sec. 45 – materiality is determined using the same test in
concealment (Sec. 31)
Test of falsity – when the information given does not correspond
to facts.
Misrepresentations as a ground to rescind
 entitled to rescind from the time the representation
becomes false
 right to rescind by insurer is waived by acceptance of
premiums despite knowledge of ground to rescind
(waiver – the insurance company is still liable for the
proceeds)
Misrepresentations as to Age in Life Insurance
 no rescission
 proceeds shall be such as the premium would have
purchased at the correct age
All other forms of misrepresentation are grounds to rescind
except if you misstate your age.
Effect: Premium and age are not adjusted.
Example: You stated that you are 20 years old but you are
actually 30 years old. If you are 20 years old and you want to be
covered for P 1M, you will pay P5,000. Since you are already 30 years
old, it should be P 15,000 to be covered for P 1M. So, the P 5,000
paid at 30 years old, how much will you get? You will not make the
premium at P 5,000. So, instead of P 1M, maybe, you will just be
covered up to P 500,000 only – you get a face value smaller than you
expect.
Misrepresentation in Marine Insurance
 entitles the insurer to rescind
 eventual falsity of a representation as to expectation
without fraud, does NOT avoid a marine insurance
contract
Special Rule in Marine: If at the start, the representation was still
true but eventually, it became false. This will not avoid the policy as
long as without fraud.
BREACH OF WARRANTY
Warranty
• Either express or implied
• May relate to the past, present or future
Past: I warrant that I have never used this kind of chemical in my
establishment
Present: I am not using any chemical at this point
Future: I warrant that I will not use this chemical at any future time
Implied Warranties in Marine Insurance (only in Marine)
 Seaworthiness - 113
SECTION 113. 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.
 Nationality or neutrality – 120
SECTION 120. 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.
 Improper deviation -121
SECTION 121. When the voyage contemplated by a marine
insurance policy is described by the places of beginning and ending,
the voyage insured is one which conforms to the course of sailing fixed
by mercantile usage between those places.
 Illegal ventures
BAR 2000
• What warranties are implied in marine insurance?
(2%)
Seaworthiness
25
 Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

• Section 114 - a ship is seaworthy if reasonable fit
to perform the service, and to encounter the ordinary
perils of the voyage contemplated by the parties to the
policy
• Section 116 - extends not only to the
seaworthiness of the ship itself but requires that it be
properly laden, provided with competent master,
sufficient number of competent officers and seamen,
requisite appurtenances and equipment and other
implements for the voyage
Improper Deviation
• Section 123 - deviation is a departure from the
course of the voyage insured or unreasonable
delay in pursuing the voyage or the
commencement of an entirely different voyage
• Sec. 4 (g) - the amount due to any depositor for
deposits in an insured bank net of any obligation of the
depositor to the insured bank as of the date of closure,
but not to exceed Two hundred fifty thousand pesos
(P250,000.00).
The Bank must be a member of PDIC.
Types of Insured Bank Deposits
• Single depositor account
• In trust for and by account (differentiate this from a trust
fund)
• Joint account
• Institutional account ( in cases of partnerships,
corporations)
• Single and joint account
P 250,000 insurance – one bank, regardless of the number of
branches.
Single Depositor Account – All in the name of Pedro

Proper Deviation, 124 Account Number Type Amount

• caused by circumstances outside the control of the
master or owner #1 Checking P180,000
• when necessary to comply with a warranty or to
avoid peril
#2 Savings P50,000
• when made in good faith upon reasonable grounds
to avoid a peril
• in good faith to save human life or to relieve #3 Time P70,000
another vessel
Total P300,000
In these instances, there is no violation of implied warranty
against improper deviation. P250,000 – insured;
P50,000 uninsured
Nationality
• Section 120 - where the nationality or neutrality of
the ship is expressly warranted, it is impliedly
warrantied that the ship will carry the requisite • Accounts are owned by one person, Pedro. Thus, all
documents to show such nationality or neutrality and it accounts will be consolidated or added together as they
will not carry any document which will cast suspicion are maintained in the same right and capacity, regardless
thereon. of account type. Total amount insured cannot exceed
P250,000.
All vessels have nationality.
In trust for and by accounts
Other Ground for Rescission in Non-Life Insurance
Account Number Account Holder Deposit
 non- payment of premium (this is also a ground in life
insurance) #1 Pedro P280,000
 conviction of a crime arising out of acts increasing
the hazard insured against (e.g. arson) #2 Pedro ITF Jo P260,000
 discovery of fraud / material misrepresentation
 discovery of willful or reckless acts or omissions #3 Pedro by Juan P290,000

increasing the hazard insured against Pedro #1 & #3 P280,000 + P290,000 =

 physical changes in the property becoming P570,000 less P250,000
uninsurable insurance = P320,000
(uninsured)
 determination by Insurance Commissioner that
continuation of the policy would violate or would place
the insurer in violation of the Insurance Code
Jo #2 P260,000 – P250,000
insurance = P10,000
Notice of Cancellation (uninsured)
 In writing
 Mailed or delivered to named insured at address Juan #3 Nothing
shown in the policy
 Shall state
 grounds relied on If you put something in trust for someone, the owner is the
 upon written request, insurer will furnish beneficiary.
fact on which cancellation is based
• Pedro is the principal owner of Accounts #1 and #3.
Rescission must be exercised Thus, these 2 accounts will be consolidated as they are
 Before the commencement of any action on the maintained in the same right and capacity; and insurance
contract is up to P250,000 only. (Juan is just an authorized
 In which motor vehicle liability insurance notice of representative)
cancellation must be sent to the land transportation
owner/operator and the LTO at least 15 days before • On the other hand, account #2 is owned by Jo with
date of effectivity Pedro acting as agent. Jo is thus entitled to a separate
maximum limit of P250,000. Juan is not entitled to
REPUBLIC ACT NO. 9302 anything since he merely opened an account for Pedro
An Act Amending RA 3591, as amended, Otherwise known
as the “Charter of the Philippine Deposit Insurance Joint Account
Corporation” and for Other Purposes

Bank Deposit – a contract of loan; creditor-debtor relationship

Insured Deposit, Concept

Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 26

 Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

Account # Account Holder Balance Account #1 Benjamin P200,000

#1 Pedro & Maria P400,000

Account #2 Benjamin & Jose P500,000

#2 Juan &/or Pedro P650,000

Account #3 Benjamin &/or Jonas P300,000

“And” and “and/or” have the same effect for purposes of the
PDIC.

Account Number Insured Share Uninsured

Account #4 Benjamin or Jose or P400,000
Jonas
Pedro - #1 P125,000 P75,000

Pedro - #2 P125,000 P200,000

Total deposits P250,000 Total: P275,000

Insured deposits P250,000

Maria - #2 P125,000 P75,000

Juan - #2 P125,000 P200,000

• For account #1 amounting to P400,000, Pedro and

Maria share at P200,000 each. They will also divide
equally the P250,000 MDIC or computed at P125,000
each.

• For account #2 amounting to P650,000, Juan and

Pedro share at P325,000 each. They will also divide
the P250,000 MDIC at P125,000 each.

Institutional Account

Account No. Account Holder Balance

#1 ABC Co. P600,000

#2 ABC Co. &/or Pedro Cruz P800,000

ABC Co. #1 P600,000

ABC Co. #2 P800,00

Pedro Cruz NONE NONE

Total for ABC P1,400,000-P250,000

insurance = P1,150,000
(uninsured)

• Joint accounts held by a juridical person with

natural person will be presumed to belong to the
juridical person. Thus, Accounts #1 and #2 will be
consolidated in the name of ABC Co. Total amount of
insured deposits will be P250,000.

P 250,000 for each account under the name of the company,

whether or not it is joined with another person or none. It is only
up to P 250,000 for the same bank.

Single and Joint Accounts

Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 27

 Insurance Law Review – Based on PowerPoint Presentations and Lectures of Atty. Maria Christina S. Sagmit

Benjamin
Benjamin (single Account #1 P200,000 (insured)
account)

Benjamin (joint accounts) Account #2 Share: P250,000 Insured:

P125,000
Uninsured: P125,000

Benjamin (joint accounts) Account #3 Share: P150,000

Insured: P125,000
Uninsured: P25,000

Benjamin (joint) Account #4 Share: P 133,333

Insured: P83,333
Uninsured: P50,000

Jose

Jose Account #2 Share: P250,000

Insured: P125,000
Uninsured: P125,000

Jose Account #4 Share: P 133,333

Insured: P83,333
Uninsured: P50,000

Jonas
Jonas Account #3 Share: P150,000
Insured: P125,000
Uninsured: P25,000

Jonas (joint) Account #4 Share: P 133,333

Insured: P83,333
Uninsured: P50,000

Single and Joint Accounts

• Under the new rules, single account is insured
separately to a maximum coverage of P250,000, thus,
Account #1 owned by Benjamin is insured for
P200,000. For joint ownership, each joint account is
considered equally shared among co-depositors unless
otherwise indicated in the deposit document.
Insurance coverage of P250,000 will apply to the sum
of shares of a depositor in the insured portion of each
joint account.

BAR 1997
A has the following accounts: P10,000 savings account,
P20,000 checking account, P30,000 money market placement
and P40,000 trust fund in a medium-sized commercial bank.
State which of the four accounts are insured by the PDIC.
ANSWER
The P10,000 savings account and the P20,000 checking
account are deemed insured under by the PDIC.

BAR 2000
BD has a bank deposit of half a million pesos. Since the
PDIC limit is P250,000, BD would like some protection for the
excess by taking out an insurance against all risks arising from
unsound bank practices. Does BD have insurable interest under
the Insurance Code?
ANSWER
• Yes, BD has insurable interest in his bank deposit. In
case of loss to the extent of the amount not covered by
PDIC, BD will be damnified. He will suffer pecuniary loss
of P250,000 since PDIC Law only covers accounts up to
P250,000.

-END -

Notes prepared by: Jazzie M. Sarona (4-Manresa 2008-2009) 28