-
Insurance Law notes with Atty.
Tambasacan
Insurance laws adopted in the Philippines:
 P.D 1460, law governing insurance in
the Philippines.
 in the absence of applicable
provisions in the Insurance code of 1978,
provisions in the civil code regarding
contracts shall govern.
 In the absence of applicable
provisions in both laws, the general
principles prevailing on the subjects in the
United States, particularly in California
where our insurance laws were based will
be applied.
(I.) Organizational structures or powers/
Jurisdiction of the Insurance Commission:
 Powers of Insurance Commissioner:
Title 1: Administrative and Adjudicatory
Powers
Sec. 414 and 415:
1. 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
2. to perform the duties imposed upon
him by this Code, and shall,
notwithstanding any existing laws to
the contrary,
3. have sole and exclusive authority to
regulate the issuance and sale of
variable contracts as defined in
section 232 and
4. to provide for the licensing of
persons selling such contracts, and to
issue such reasonable rules and
regulations governing the same
5. To issue such rulings, 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.
6. In addition to the administrative
sanctions provided elsewhere in this
Code 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.
7. to adjudicate claims and
complaints involving any loss,
damage or liability for which in
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.
 Jurisdiction of Insurance Commission:
The party filing an action pursuant to the
provisions of this section thereby submits his
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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 copy 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 amended
by Batas Pambansa Blg. 874).
As soon as a decision, order or ruling has
become final and executory, the
Commissioner shall motu proprio or on
motion of the interested party, issue a writ of
execution requiring 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.
8. 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 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 published 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. (As amended by
Presidential Decree No. 1455).
Commissioner has concurrent jurisdiction
with the regular courts to hear and decide
claims for which an insurer may be
answerable under any kind of policy or
contract of insurance where the amount of
the loss, damage , or liability excluding
interest, costs…
Appeal of a party affected by a final order,
decision or judgement of the insurance
commissioner shall be taken to the Ca with
15 days from notice.
Insurance commissioner’s resolutions and
orders which were issued in the
performance of administrative and
regulatory duties and functions should have
been appealed to the office of the secretary
of finance.
Cases:
1. Republic v. del Monte motors- duty to
hold security deposit
- The securities required by the Insurance
Code to be deposited with the Insurance
Commissioner are intended to answer for the
claims of all policy holders in the event that
the depositing insurance company becomes
insolvent or otherwise unable to satisfy their
claims. The security deposit must be ratably
distributed among all the insured who are
entitled to their respective shares; it cannot
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be garnished or levied upon by a single
claimant, to the detriment of the others.
Security deposits are:
1) answerable for all the obligations of the
depositing insurer under its insurance
contracts;
(2) at all times free from any liens or
encumbrance; and
(3) exempt from levy by any claimant.
regulatory powers, the commissioner is
authorized to
(1) issue (or to refuse to issue) certificates of
authority to persons or entities desiring to
engage in insurance business in the
Philippines;16
(2) revoke or suspend these certificates of
authority upon finding grounds for the
revocation or suspension;17
(3) impose upon insurance companies, their
directors and/or officers and/or agents
appropriate penalties -- fines, suspension or
removal from office -- for failing to comply
with the Code or with any of the
commissioner's orders, instructions,
regulations or rulings, or for otherwise
conducting business in an unsafe or unsound
manner.18
Included in the above regulatory
responsibilities is the duty to hold the
security deposits under Sections 19119 and
203 of the Code, for the benefit and security
of all policy holders. In relation to these
provisions, Section 192 of the Insurance
Code states:
w/n the security deposit held by the
insurance commissioner pursuant to sec 203
of the insurance code may be levied or
garnished in favor of only one insured.
2. Philamlife v. Ansaldo- lack of jurisdiction
on issues between insurance company and
its agents
Facts:
This case arose from a letter complaint of
private-respondent commissioner , alleging
certain problems encountered by agents,
supervisors, managers and public consumers
of the petitioner as a result of certain
practices of the company
Issue: whether or not the resolution of the
legality of the contract of agency falls within
the jurisdiction of the insurance
commissioner.
Held:
The general regulatory power of the
insurance commissioner is described in sec.
414 of the insurance code while sec. 415, on
the other hand, authorizes the commissioner,
at his discretion, to impose upon insurance
companies, their directors and or comply
with, or violation of any provisions of this
code the following fines (a) fines (b)
suspension
The definition of “doing an insurance
business”.
See sec. 416, a reading of the said section
shows that the quasi judicial power of the
insurance commissioner is limited by law “to
claims and complaints involving any loss,
damage, or liability for which insurer may be
answerable under any kind of policy or
contract of insurance,xxx”. Hence, this power
does not cover the relationship affecting the
insurance company and its agents but is
limited to adjudicating claims and complaints
filed by the insured against the insurance
company.
In insurance company there are two classes
of agents who sell its insurance policies: 1.
Salaried employees who keep definite hours
and work under the control and supervision
of the company and (2) registered
representatives, who work on commission
basis.
The first category, the relationship between
the insurance company and its agents is
governed b the contract of employment an
the provisions of the labor code, while under
the second category, the same s governed
by the contract of agency and the provisions
of the civil code. Dispute over the latter are
cognizable under the regular courts
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 Nature and characteristics of
Insurance contract:
(II.) Definition of the Insurance
contract
 Agreement whereby one undertakes
for a consideration to indemnify another
against loss, damage, or liability arising
from an unknown or contingent event
And a device which distributes the risk of
loss among all the insured.
 Elements of Insurance Contract:
a. Insured possess an interest of some
kind susceptible of pecuniary
estimation, known as insurable
interest
b. Insured is subjected to risk of loss
through the destruction or
impairment of that interest by the
happening of designated perils
c. Insurer assumes that risk of loss
d. Such assumption is part of the
general scheme to distribute actual
losses among large group of persons
bearing somewhat similar risks and
e. As consideration/s for the insurer’s
promise, the insured makes a ratable
contribution called a premium , to a
general insurance fund
 Premium- paid to the insurer by each
person belonging
to a large of group of persons
exposed to risk is a
contribution to a fund form
which the losses insured by
any of them will be
compensated.
1. It is aleatory. The liability of the
insurer depends upon some contingent
event. But it is not a gambling contract
or a contract of chance.
2. It is a contract of indemnity for non life
insurance; an investment in life
insurance.
Nonlife insurance- insured cannot make
a profit by securing more than his
actual loss
Life insurance- the contract is more of
an investment of the insured, as a
measure of the economic security for
him during his lifetime and for his
beneficiary after his death.
3. It is personal. Each party contract s
having in view the character, credit
and conduct of the other
4. It is executory and conditional on the
part of the insurer. It is executed as to
the insured after his payment of the
premium. It is executory and
conditional on the part of the insurer
because upon the happening of the
peril insured against and the
conditions having been met, he has
the obligation to execute the contract
by paying the insured.
5. It is one of perfect goodfaith. This
requirement is not for the insured
alone but even more so for the insurer,
since it its dominant bargaining
position carries with it a stricter
responsibility.
6. It is a contract of adhesion. Insurance
companies manage to impose upon
the insured prepared agreements in
printed form which the insured may
not change.
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 The term doing an insurance business
includes:
a. Making or proposing to make as
insurer any insurance contract
b. 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
c. Dong any kind business including
reinsurance business specifically
recognized as constituting the doing
of an insurance business and
d. Doing or proposing to do any business
in substance equivalent to any of the
foregoing in a manner designed to
evade the provisions of this code.
-In applying the provisions of this code, the
fact that no profit is derived from the
contract or transaction or that no separate
or direct consideration is received for such
contract or transaction shall not be deemed
conclusive to show that no insurance
business was transacted.
Cases:
1. Cir v. Phil American Accident Insurace
- The CTA held that respondents are not
taxable as lending investors because the
term "lending investors" does not embrace
insurance companies. The CTA traced the
history of the tax on lending investors, as
follows:
Originally, a person who was engaged
in lending money at interest was
taxed as a money lender. [Sec.
1464(x), Rev. Adm. Code] The term
money lenders was defined as
including "all persons who make a
practice of lending money for
themselves or others at interest."
[Sec. 1465(v), id.] Under this law, an
insurance company was not
considered a money lender and was
not taxable as such. To quote from an
old BIR Ruling:
"The lending of money at
interest by insurance
companies constitutes a
necessary incident of their
regular business. For this
reason, insurance companies
are not liable to tax as money
lenders or real estate brokers
for making or negotiating
loans secured by real
property. (Ruling, February 28,
1920; BIR 135.2)" (The
Internal Revenue Law,
Annotated, 2nd ed., 1929, by
B.L. Meer, page 143)
The same rule has been applied to banks.
"For making investments on
salary loans, banks will not be
required to pay the money
lender’s tax imposed by this
subsection, for the reason that
money lending is considered a
mere incident of the banking
business. [See Ruling No. 43,
(October 8, 1926) 25 Off. Gaz.
1326)" (The Internal Revenue
Law, Annotated, id.)
definition of the term remains the
same. [Sec. 1464(x), Rev. Adm. Code,
as finally amended by Com. Act No.
215, and Sec. 1465(v) of the same
Code, as finally amended by Act No.
3963] The same law is embodied in
the present National Internal Revenue
Code (Com. Act No. 466) without
change, except in the amount of the
tax. [See Secs. 182(A) (3) (dd) and
194(u), National Internal Revenue
Code.]
It is a well-settled rule that an
administrative interpretation of a law
which has been followed and applied
for a long time, and thereafter the law
is re-enacted without substantial
change, such administrative
interpretation is deemed to have
received legislative approval. In short,
the administrative interpretation
becomes part of the law as it is
presumed to carry out the legislative
purpose.5
The CTA held that the practice of lending
money at interest is part of the insurance
business. CA 466 already taxes the insurance
business. The CTA pointed out that the law
recognizes and even regulates this practice
of lending money by insurance companies.
The CTA observed that CA 466 also treated
differently insurance companies from lending
investors in regard to fixed taxes. Under
Section 182(A)(3)(gg), insurance companies
were subject to the same fixed tax as banks
and finance companies. The CTA reasoned
that insurance companies were grouped with
banks and finance companies because the
latter’s lending activities were also integral
to their business. In contrast, lending
investors were taxed at a different fixed tax
under Section 182(A)(3)(dd) of CA 466. The
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CTA stated that "insurance companies xxx
had never been required by respondent [CIR]
to pay the fixed tax imposed on lending
investors xxx."6
The dispositive portion of the Decision of 5
January 1995 of the Court of Tax Appeals
("CTA Decision") reads:
WHEREFORE, premises considered,
petitioners Philippine American
Accident Insurance Co., Philippine
American Assurance Co., and
Philippine American General
Insurance Co., Inc. are not taxable on
their lending transactions
independently of their insurance
business. Accordingly, respondent is
hereby ordered to refund to
petitioner[s] the sum of P7,985.25,
P7,047.80 and P14,541.97 in CTA
Cases No. 2514, 2515 and 2516,
respectively representing the fixed
and percentage taxes when (sic) paid
by petitioners as lending investor
from August 1971 to September
1972.
2. White gold Marine Services v. Pioneer
Insurance
- coverage for its vessels from The
Steamship Mutual Underwriting Association
(Bermuda) Limited (Steamship Mutual)
through Pioneer Insurance and Surety
Corporation (Pioneer). Subsequently, White
Gold was issued a Certificate of Entry and
Acceptance.[3] Pioneer also issued receipts
evidencing payments for the coverage. When
White Gold failed to fully pay its accounts,
Steamship Mutual refused to renew the
coverage.
Steamship Mutual thereafter filed a case
against White Gold for collection of sum of
money to recover the latter's unpaid
balance. White Gold on the other hand, filed
a complaint before the Insurance
Commission claiming that Steamship Mutual
violated Sections 186[4] and 187[5] of the
Insurance Code, while Pioneer violated
Sections' 299,[6] 300[7] and 301[8] in
relation to Sections 302 and 303, thereof.
The Insurance Commission dismissed the
complaint. It said that there was no need for
Steamship Mutual to secure a license
because it was not engaged in the insurance
business. It explained that Steamship Mutual
was a Protection and Indemnity Club (P & I
Club). Likewise, Pioneer need not obtain
another license as insurance agent and/or a
broker for Steamship Mutual because
Steamship Mutual was not engaged in the
insurance business. Moreover, Pioneer was
already licensed, hence, a separate license
solely as agent/broker of Steamship Mutual
was already superfluous.
Simply, the basic issues before us are (1) Is
Steamship Mutual, a P & I Club, engaged in
the insurance business in the Philippines? (2)
Does Pioneer need a license as an insurance
agent/broker for Steamship Mutual?
Is Steamship Mutual engaged in the
insurance business?
Section 2(2) of the Insurance Code
enumerates what constitutes doing an
insurance business' or 'transacting an
insurance business' . These are:
(a) making or proposing to make, as
insurer, any insurance contract;
(b) making, or proposing to make, as
surety, any contract of suretyship
as a vocation and not as merely
incidental to any other legitimate
business or activity of the surety;
(c) doing any kind of business, including
a reinsurance business, specifically
recognized as constituting the doing
of an insurance business within the
meaning of this Code;
(d) doing or proposing to do any
business in substance equivalent to
any of the foregoing in a manner
designed to evade the provisions of
this Code.
...
The same provision also provides, the fact
that no profit is derived from the making of
insurance contracts, agreements or
transactions, or that no separate or direct
consideration is received therefor, shall not
preclude the existence of an insurance
business.[12]chanroblesvirtuallawlibrary
The test to determine if a contract is an
insurance contract or not, depends on the
nature of the promise, the act required to be
performed, and the exact nature of the
agreement in the light of the occurrence,
contingency, or circumstances under which
the performance becomes requisite. It is not
by what it is called.
[13]chanroblesvirtuallawlibrary
Basically, an insurance contract is a contract
of indemnity. In it, one undertakes for a
consideration to indemnify another against
loss, damage or liability arising from an
unknown or contingent event.
[14]chanroblesvirtuallawlibrary
In particular, a marine insurance undertakes
to indemnify the assured against marine
losses, such as the losses incident to a
marine adventure.[15] Section 99[16] of the
Insurance Code enumerates the coverage of
marine insurance.
Relatedly, a mutual insurance company is a
cooperative enterprise where the members
are both the insurer and insured. In it, the
members all contribute, by a system of
premiums or assessments, to the creation of
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a fund from which all losses and liabilities are
paid, and where the profits are divided
among themselves, in proportion to their
interest.[17] Additionally, mutual insurance
associations, or clubs, provide three types of
coverage, namely, protection and indemnity,
war risks, and defense costs.
[18]chanroblesvirtuallawlibrary
A P & I Club is 'a form of insurance against
third party liability, where the third party is
anyone other than the P & I Club and the
members.[19] By definition then, Steamship
Mutual as a P & I Club is a mutual insurance
association engaged in the marine insurance
business.
The records reveal Steamship Mutual is doing
business in the country albeit without the
requisite certificate of authority mandated by
Section 187[20] of the Insurance Code. It
maintains a resident agent in the Philippines
to solicit insurance and to collect payments
in its behalf. We note that Steamship Mutual
even renewed its P & I Club cover until it was
cancelled due to non-payment of the calls.
Thus, to continue doing business here,
Steamship Mutual or through its agent
Pioneer, must secure a license from the
Insurance Commission.
Since a contract of insurance involves public
interest, regulation by the State is necessary.
Thus, no insurer or insurance company is
allowed to engage in the insurance business
without a license or a certificate of authority
from the Insurance Commission.
[21]chanroblesvirtuallawlibrary
 Suretyship, when deemed to be one
of Insurance (sec. 175)
Definition:
Contract of suretyship is an agreement
whereby a party called the surety
guarantees the performance by another
party called the principal or obligor of an
obligation or undertaking in favor of a third
party called the obligee. It includes official
recognizances, stipulations, bonds or
undertakings issued by any company by
virtue of and under the provisions of Act
No. 536, as amended by Act No. 2206
 Contract of Suretyship, when deemed
to be one of Insuranceif such surety
makes or proposes to make suretyship
contracts as a vocation and not merely
incidental to any other legitimate
business or activity of the surety.
 Doctrine of Estoppel (by deed or pais)
know the difference (art. 1431,cc)
 Where inequitable conduct is shown by
an insurance firm, it is stopped from
enforcing forfeitures or exemptions in
its favor, in order to forestall (prevent)
fraud or imposition on the insured
 If an insurance company had led the
insured to believe that he could qualify
under a certain insurance and the
latter entered into a contract of
insurance policy paying the premiums
due, the insurer could not thereafter, in
any litigation arising as such
representation be permitted to contend
that the insured as not qualified.
Cases:
1. DBP v. Ca- agent’s misrepresentation as
to eligibility for insurance
Facts:
Juan Dans, together with his wife Candida,
his son and daughter in law, applied for a
loan of P 500,00.00 with the DBP, Basilan
Branch. As the principal mortgagor, Dans,
then 76 years old was advised by DBP to
obtain a mortgagor redemption insurance
(MRI) with the DBP mortgage Redemption
Insurance Pool.
Dans died of cardiac arrest, the DBP, upon
notice relayed this to DBP MRI POOL, the
latter notified the former that Dans was
not eligible for MRI coverage being over
the acceptance age of 60 yrs old.
Held:
Undisputably, the power to approve MRI
applications is lodged with the DPB MRI
pool. The pool however, did not approve
the application of Dans. There is also no
showing that it accepted the sum of money
which DPB credited to its account with full
knowledge that it was payment for Dan’s
premium. There was as a result no
perfected contract of insurance; hence the
DPB MRI pool cannot be held liable.
DPB, could be liable. DBP was wearing 2
legal hats, the first as a lender and the
second as insurance agent. As an
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insurance agent, DBP made Dans go
through the motion of applying for aid
insurance, thereby leading him and his
family to believe that they have already
fulfilled all the requirements for the MRI
and that issuance of their policy was
forthcoming. Despite of his knowledge that
dan would not be qualified. Reimbursed
dan’s family with legal interest.
2. UCPB v. Masagana Telamart-granting of
credit term in premium payment
- the sc ruled that an insurance policy
other than life issued originally or on
renewal, is not valid and binding until
actual payment of the premium, and any
agreement to the contrary is void- the
parties may not agree expressly or
impliedly on the extension credit or time to
pay the premium and consider the policy
binding before actual payment. However,
upon motion the decision was
reconsidered and set aide, stating that
there are five exceptions to sec 77.
Petitioner decide not to renew the policies
upon expiration , the risk insured against
happened , respondent file claim. The
issue in this case is whether the fire
insurance policies issued by the petitioner
had expired on the latter date or had been
extended or renewed by an implied credit
arrangement though actual payment of
premium was tendered on a latter date
after the occurrence of the risk.
Petitioner for years had been granting
respondent a 60-90 day credit term within
which to pay the premiums on the
renewed policies. The said premiums were
paid within the 90-60 day credit term and
were duly accepted by the
- 5 exceptions to sec 77, Sec. 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.
1st, I the case of a life or industrial life policy
whenever the grace period provision applies
2nd, 78. An acknowledgment in a policy or
contract of insurance or the receipt of
premium is conclusive evidence of its
payment, so far as to make the policy
binding, notwithstanding any stipulation
therein that it shall not be binding until the
premium is actually paid.
3rd, if the parties have agreed to the payment
in installments of the premium and partial
payment has been made at the time of loss
4th, the insurer may grant credit extension for
the payment of the premium. Means that if
the insurer has granted the insured a credit
term for the payment of the premium and
loss occurs before the expiration of the term,
recovery on the policy should be allowed
even though the premium is paid after the
loss but within the credit term.
5th , estoppels, it would be unjust and in
equitable if recovery on the policy would not
be permitted against petitioner , which had
consistently granted a 60-90 day credit term
for the payment of premium despite its full
awareness of sec. 77. Estoppels bars it from
taking refuge under said section.
3. Fieldmen’s v. Songco- agent’s
misrepresentation as to eligibility for
insurance
- jeepney was insured through the
inducement of the agent of the insurance
company, the agent let them entered into
the insurance policy even if their vehicle is
a private owned and not public one. The
insurer had led the insured to believe that
he could qualify under the common carrier
liability insurance.
How ambiguities are construed (art
1377,cc)
Ambiguities or obscurities must be
strictly interpreted against the party
that caused them. As the insurance
policy is prepared solely by the insurer,
the ambiguities shall be construed
against it and in favor of the insured.
Cases:
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be construed liberally in favor of the insured

and strictly against the insurer in order to
1. As to amount to be paid
safeguard the latters interest. Thus, in
Del Rosario v. Equitable
Malayan Insurance Corporation v. Court of
- ambiguities must be strictly interpreted Appeals, this Court held that:
against the party that caused them. There
was no definite amount as to how much
should be entitle to them ang nakalagay lang
1-3,000,
Indemnity and liability insurance policies are
construed in accordance with the general
rule of resolving any ambiguity therein in
2. As to effectivity date favor of the insured, where the contract or
policy is prepared by the insurer. A contract
Landicho v. GSIS
of insurance, being a contract of adhesion,
- on june 1, 1964, the gsis issued in favor of par excellence, any ambiguity therein should
landicho an optional life additional insurance be resolved against the insurer;
policy. Upon his death, Me landicho filed a
clam but it was denied upon the ground that
the policy had never been in force. Whether
or not the insurance policy in question has
never been in force not a single premium 3. As to Peril insured against
having been paid before. Ruling is regarding
ambiguities and gsis induced the insured to Malayan vs. CA
believe that the policy was in forceby
- the perils clause includes not only “arrest”
accepting .
caused by political acts of a seizing state but
also by ordinary legal process such as a
lawsuit on ownership and possession of the
Eternal gardens v. Philamlife goods.

- May the inaction of the insurer on the

insurance application be considered as
approval of the application?
4. As to Area insured

- FFECTIVE DATE OF BENEFIT. Rizal Surety v. Ca

The insurance of any eligible

Lot Purchaser shall be
effective on the date he
contracts a loan with the
Assured. However, there shall
be no insurance if the
application of the Lot
Purchaser is not approved by
the Company.
- the contract of insurance is one of perfect
good faith (uberrima fides) not for the
insured alone, but equally so for the insurer,
in fact it is more so for the latter, since its
dominant bargaining position carries with it
stricter responsibility.

The issue here is that its fire insurance policy

An examination of the above provision would
sued upon covered only the contents of the
show ambiguity between its two sentences. four-span building, which was partly burned
The first sentence appears to state that the and not the damage caused by the fire on
the two-story annex building. In case of
insurance coverage of the clients of Eternal
ambiguities.
already became effective upon contracting a
loan with Eternal while the second sentence
appears to require Philamlife to approve the Gulf case
insurance contract before the same can
become effective.

It must be remembered that an insurance

contract is a contract of adhesion which must
-

(III.) What may be insured (sec.3)

-Any contingent or unknown event,

whether past or future, which may
damnify a person having an insurable
interest, or create a liability against
him, may be insured against, subject
to the provisions of this chapter.

The consent of the husband is not

necessary for the validity of an
insurance policy taken out by a
married woman on her life or that of
her children.

Any minor of the age of eighteen years

or more, may, notwithstanding such
minority, contract for life, health and
accident insurance, with any insurance
company duly authorized to do
business in the Philippines, provided
the insurance is taken on his own life
and the beneficiary appointed is the
minor's estate or the minor's father,
mother, husband, wife, child, brother
or sister.

The married woman or the minor

herein allowed to take out an
insurance policy may exercise all the
rights and privileges of an owner
under a policy.

All rights, title and interest in the

policy of insurance taken out by an
original owner on the life or health of a
minor shall automatically vest in the
minor upon the death of the original
owner, unless otherwise provided for
in the policy.

Sec. 4. The preceding section does not

authorize an insurance for or against
the drawing of any lottery, or for or
against any chance or ticket in a
lottery drawing a prize.

Sec. 5. All kinds of insurance are

subject to the provisions of this
chapter so far as the provisions can
apply

 Parties to a contract (sec.6)

Every person, partnership, association, or

corporation duly authorized to transact
insurance business as elsewhere provided
in this code, may be an insurer.

 Public enemy may not be insured (sec

7)
-

Anyone except a public enemy may be

insured
As in ordinary contracts, only persons who
have the capacity to enter into a contract
may be insured.
However, in the interest of justice and in
the absence of specific provision in the
insurance law, require that the premium
paid by the respondent for the period
covered by its policy from Dec. 11, 1941,
should be returned.

A public enemy- is a nation at war with

the Philippines and includes every citizen
or subject of such nation. A mob however
numerous it may be, or robbers, whoever
they may be, are never considered as a
public enemy.
B. Insurable Interest of mortgagor
separate from the mortgagee ( sec 8 and
9, 10) –see note

Case:

A corporation organized in the Philippines

whose majority t\stockholders are German
subjects became an enemy corporation
upon the outbreak of war between the
United States and Germany.

Filipinas Cia de Seguros v. Christern

Facts:

On October 11, 1941, Respondent

obtained from the petitioner fire policy.
On February 27, 1942, During the
Japanese military occupation the building
was burned.

Held:

There is no question that majority of the

stockholders of the respondent
corporation were german subjects. This
being so, we have to rule that said
respondent became an enemy corporation
upon the outbreak of the war between the
United States and Germany.

The respondent having became an enemy

corporation on Dec 10,1941, the
insurance policy issued in its favor on
October 1, 1941 by the petitioner had
ceased to be valid and enforceable, and
since the insurance goods were burned
after December 1-0, 1941 and during the
war, the respondent was not entitled to
any indemnity under said policy from the
petitioner.
(IV.) Insurable interest
-
Definition of insurable interest:
 A person has an insurable interest in
the subject matter insured where he
has such relation or connection, or
concern in it, that he will derive
pecuniary benefit or advantage from its
preservation and will suffer pecuniary
loss or damage from its destruction,
termination, or injury by the happening
of the event insured against.
 Insurable interest of mortgagor
separate from mortgagee (sec 8 and 9)
(-sec. 8, recognizes that both the mortgagor
and the mortgagee have each a separate
and distinct insurable interest in the
mortgaged property and they may take out
separate policies with the same or different
insurance companies)
 Extent of mortgagor’s (debtor) and
mortgagee’s (creditor) insurable interest
-Mortgagor, may insure the
mortgaged property up to its full
value
-Mortgagee, only to the extent of
the debt secured
 Insurance taken by mortgagor
(debtor)
-Mortgagor may take an insurance
payable, to himself and to the
mortgagee
a. If the mortgagor takes an insurance
payable to himself or for his own
benefit: only he can recover from the
insurer but the mortgagee has a lien
on the proceeds by virtue of the
mortgagee
b. If the mortgagor takes an insurance
the mortgagee or when the
mortgagor assigns the policy taken by
him to the mortgagee, unless the
policy otherwise provides, the legal
effects are:
1. Insurance is still deemed to be
upon the interest of the
mortgagor
2. Mortgagor does not cease to be a
party of the original contract
3. Any act of the mortgagor, prior to
the loss which would otherwise
render the insurance null and void
(e.g. the mortgagor violated the
policy by storing inflammable
materials in the insured property)
still renders it null and void
although the property is in the
hands of the mortgagee and the
proceeds are payable to the
mortgagee
4. Any act which, under the contract
of insurance Is to be performed by
the mortgagor (example, the
policy required a notice of proof
of loss from the insured, like
mortgagor) may be performed by
the mortgagee with same effect
5. In case of loss, the mortgagee is
entitled to the proceeds to the
extent of his credit, the
remainder, if any, shall accrue to
the mortgagor.
6. Upon recovery by the mortgagee
to the extent of his credit, the
debt is extinguish and the
mortgagor is released from his
indebtedness.
 Insurance taken by mortgagee
 A mortgagee insures his own interest in
the mortgaged property without
reference to the right of the mortgagor,
legal effects are:
1. Mortgagee is entitled to the
proceeds of the policy in case of
loss, to the extent of his credit
2. If the proceeds are more than
the total amount of the credit,
mortgagor has no right to
collect the balance
-
3. Proceeds are equal to the total
amount of the credit,
mortgagee can no longer
recover the mortgagor’s
indebtedness , since the insurer
is subrogated to the
mortgagee’s rights
4. Proceeds are less than the total
amount of the credit,
mortgagee may still recover
from the mortgagor for the
deficiency
5. Upon payment, insurer is
subrogated to the rights of the
mortgagee against the
mortgagor to the extent of the
amount paid. The insurer can
therefore collect the debt of the
mortgagor to the mortgagee.
 Transfer of insurance with approval of
insurer (sec 9)
Gen rule: mortgagor does not cease to be
a party to the insurance contract and his
acts still affect the policy
Exception:, under sec 9, If an insurer
assents to the transfer of an insurance
from a mortgagor to a mortgagee, and, at
the time of his assent, imposes further
obligation on the assignee, making a new
contract with him, the act of the
mortgagor cannot affect the rights of said
assignee.
 Sec. 10. Every person has an
insurable interest in the life and health:
(a) Of himself, of his spouse and of his
children;
(b) Of any person on whom he
depends wholly or in part for
education or support, or in whom he
has a pecuniary interest;
(c) Of any person under a legal
obligation to him for the payment of
money, or respecting property or
services, of which death or illness
might delay or prevent the
performance; and
(d) Of any person upon whose life any
estate or interest vested in him
depends
 Designation of beneficiary
Sec. 11. The insured shall have the
right to change the beneficiary he
designated in the policy, unless he has
expressly waived this right in said
policy.
-Limitations and Disqualifications, a person
may take a life insurance on his life payable
to any person called the beneficiary even
though said beneficiary is a stranger and has
no insurable interest in insured’s life, unlike if
you take an insurance policy on the life of
another and assign yourself as beneficiary,
you must have an insurable interest with the
insured for public policy purposes.
-any person who is forbidden from receiving
any donation under art. 739 cannot be
named beneficiary of a life insurance policy
by the person who cannot make any
donation, the ff donations are void:
1. Between persons who were guilty of
adultery and concubinage at the time
of the donation
2. Bet. Persons found guilty of the same
criminal offense
3. Made to a public officer or his wife,
descendants or ascendants by reason
of his office.
Case:
1. Insular life assurance co v. Ebrado
Facts:
Deceased husband ebrado was issued by
petitioner insurance company a whole-life
plan with a rider for accidental death benefits
designated as revocable beneficiary his
common law wife. Another woman who
claimed to be the legal wife, file her claim as
the widow of the deceased insured.
-
Held:
A common law wife of the insured who has a
legal wife is disqualified as beneficiary.
Article 2012 of the civiI code states that, any
person who is forbidden from receiving
donations under art 739 cannot be named as
beneficiary of a life insurance policy by the
person who cannot make a donation to him.
In this case, prohibition number 1 applies. It
is not required that there be a previous
conviction for adultery/concubinage to apply.
- In case of failure to designate a
beneficiary or where such designation
is void, the proceeds of the insurance
will go to the estate of the insured.
- No prohibition exist in naming as
 Beneficiary dies ahead of the insured
- As a rule insured has right to change
it unless he has expressly waived
such right:
1. If there is no such express waiver
therefore the beneficiary does not
have a vested interest in the policy. In
this case, if the beneficiary dies
ahead, the beneficiary’s estate or
legal representatives derive no
interest from him, and the right to the
proceeds passes to the estate of the
insured.
2. if the right to change the beneficiary
has been expressly waived, said
beneficiary has a vested interest in
the policy and if he dies ahead of the
insured, his representatives or heirs
are entitled to the proceeds upon the
death of the insured. (effects of
irrevocable designation of
beneficiaries)
 Forfeiture of Interest of the Beneficiary
Sec. 12. The interest of a beneficiary in
a life insurance policy shall be forfeited
when the beneficiary is the principal,
accomplice, or accessory in willfully
bringing about the death of the
insured; in which event, the nearest
relative of the insured shall receive the
proceeds of said insurance if not
otherwise disqualified.
 Sec. 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 beneficiaries entitled to proceeds:
Case:
1. Heirs of maramag v. maramag
Legitimate family has no right to
recover insurance proceeds from the
designated beneficiary- the
illegitimate family.
beneficiaries the children of the illicit
relationships by the insured, the
shares of the other wife will either be
forfeited by the court for the violation
of art. 739 or by the insurers
themselves, must be awarded to the
said illegitimate children or
designated beneficiaries, to the
exclusion of the petitioners.
It is only in case where the insured
failed to designate any beneficiary or
when the designated ones were
disqualified by law, that the insurance
policy proceeds shall redound to the
benefit of the estate of the insured.
 Distinction of insurable interest In life
from property:
Life Property
Unlimited except Limited to the
those taken by the actual value of the
creditor on the life interest on the
of the debtor property
It is sufficient that Must exist both at
insurable interest the time the
exist at the time insurance takes
the insurance effect and at the
takes effect but time of loss
not when the loss
occurs
Expectancy of the The expectancy
benefit may be must be coupled
sufficient even if with an existing
there is no legal legal basis
basis
 Illustrations of what is insurable
interest
Sec. 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.
Sec. 15. A carrier or depository of any kind
has an insurable interest in a thing held by
him as such, to the extent of his liability but
not to exceed the value thereof.
Sec. 16. A mere contingent or expectant
interest in anything, not founded on an
actual right to the thing, nor upon any valid
contract for it, is not insurable.
Sec. 17. The measure of an insurable
interest in
property is the extent to which the
insure might be damnified by loss or
injury thereof
. defaulted in the payment of the monthly
Cases:
1. Filipino Merchants Insurance vs. Ca
Facts:
This is an action brought by the Choa Tick
Seng the consignee of the shipment of
fishmeal loaded on board the vessel and
unloaded at the port of Manila and seeks to
recover from the defendant Filipino
merchants damages to said shipment which
has been insured by the defendant insurance
company.
Issue:
whether or not private respondent cho tick
seng as consignee of the goods in transit has
an insurable interest.
Held:
Yes, vendee or consignee or buyer of the
goods in transit under an invoice, has an
insurable interest in said goods.
Sec. 13, defines insurable interest in
property as 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. in principle,
anyone has an insurable interest in property
who derives a benefit from its existence or
would suffer loss from its destruction
whether he has or has not any title in, or lien
upon or possession of the property.
Insurance 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.
Private respondents interest is based on the
perfected contract of sale. The perfected
contract of sale between him and the shipper
of the goods operates to vest in him an
equitable title even before delivery or before
he performed the conditions of the sale.
2. Ong Lim Sing v. Feb leasing and
finance corporation
Facts:
FEB Leasing and Finance Corporation (FEB)
entered into a lease1[3] of equipment and
motor vehicles with JVL Food Products (JVL).
Under the contract, JVL was obliged to pay
FEB an aggregate gross monthly rental. JVL
rentals. FEB filed a Complaint with the
Regional Trial Court of Manila, docketed for
sum of money, damages. JVL and Lim
admitted the existence of the lease
agreement but asserted that it is in reality a
sale of equipment on installment basis, with
FEB acting as the financier.JVL and Lim
claimed that this intention was apparent
from the fact that they were made to believe
that when full payment was effected, a Deed
of Sale will be executed by FEB as vendor in
favor of JVL and Lim as vendees. FEB
purportedly assured them that documenting
the transaction as a lease agreement is just
an industry practice and that the proper
documentation would be. effected as soon as
full payment for every item was made
RTC- sale
CA- lease
Issue and held:
Whether or not a sale or lease. the subject
lease agreement is a contract of adhesion,
such a contract is not void per se.It is as
binding as any ordinary contract. A party
who enters into an adhesion contract is free
to reject the stipulations entirely.2[22] If the
terms thereof are accepted without
objection, then the contract serves as the
law between the parties.
Validity of the lease. the validity of between
FEB and JVL should be upheld. JVL entered
into the lease contract with full knowledge of
its terms and conditions. the parties are free
to agree to such stipulations, clauses, terms,
and conditions as they may want to include
1
2
-
in a contract.As long as such agreements are
not contrary to law, morals, good customs,
public policy, or public order, they shall have
the force of law between the parties.
Whether petitioner as a lessee has an
insurable interest over the subject matter or
not. Stipulation in Section 143 of the lease
contract, that the equipment shall be insured
at the cost and expense of the lessee against
loss, damage, or destruction from fire, theft,
accident, or other insurable risk for the full
term of the lease, is a binding and valid
stipulation. Petitioner, as a lessee, has an
insurable interest in the equipment and
motor vehicles leased. Section 17 of the
Insurance Code provides that the measure of
an insurable interest in property is the extent
to which the insured might be damnified by
loss or injury thereof.It cannot be denied that
JVL will be directly damnified in case of loss,
damage, or destruction of any of the
properties leased.
3. Guisano Cagayan vs. Insurance
Company of North america
Facts:
Intercapitol Marketing Corporation (IMC) is
the maker of Wrangler Blue Jeans. Levi
Strauss (Phils.) Inc. (LSPI) is the local
distributor of products bearing trademarks
owned by Levi Strauss & Co.. IMC and LSPI
separately obtained from respondent fire
insurance policies with book debt
endorsements. The insurance policies
provide for coverage on "book debts in
connection with ready-made clothing
materials which have been sold or
delivered to various customers and
dealers of the Insured anywhere in the
Philippines. The policies defined book
debts as the "unpaid account still
appearing in the Book of Account of the
Insured 45 days after the time of the loss
covered under this Policy.
Petitioner is a customer and dealer of the
products of IMC and LSPI. On February 25,
1991, the Gaisano Superstore Complex in
Cagayan de Oro City, owned by petitioner,
was consumed by fire. Included in the
items lost or destroyed in the fire were
stocks of ready-made clothing materials
sold and delivered by IMC and LSPI.
3
respondent filed a complaint for damages
against petitioner. It alleges that IMC and
LSPI filed with respondent their claims
under their respective fire insurance
policies with book debt endorsements;
that as of February 25, 1991, the unpaid
accounts of petitioner on the sale and
delivery of ready-made clothing materials
with IMC was P2,119,205.00 while with
LSPI it was P535,613.00; that respondent
paid the claims of IMC and LSPI and, by
virtue thereof, respondent was
subrogated to their rights against
petitioner; that respondent made several
demands for payment upon petitioner but
these went unheeded.
RTC- merchandise remains the property of
the vendor until the purchase price is fully
paid", IMC and LSPI retained ownership of
the delivered goods and must bear the
loss.
CA-set aside rtc.
Issue:
As to HOLDING THAT THE INSURANCE IN THE
INSTANT CASE WAS ONE OVER CREDIT:
when the words of a contract are plain and
readily understood, there is no room for
construction.22 In this case, the questioned
insurance policies provide coverage for "book
debts in connection with ready-made
clothing materials which have been sold or
delivered to various customers and dealers
of the Insured anywhere in the Philippines."23
; and defined book debts as the "unpaid
account still appearing in the Book of
Account of the Insured 45 days after the time
of the loss covered under this Policy.
Thus, what were insured against were the
accounts of IMC and LSPI with petitioner
which remained unpaid 45 days after the loss
through fire, and not the loss or destruction
of the goods delivered.
W/n THE COURT OF APPEALS ERRED IN
HOLDING THAT ALL RISK OVER THE SUBJECT
GOODS IN THE INSTANT CASE HAD
TRANSFERRED TO PETITIONER UPON
DELIVERY THEREOF.
The present case clearly falls under
paragraph (1), Article 1504 of the Civil Code:
ART. 1504. Unless otherwise agreed, the
goods remain at the seller's risk until the
ownership therein is transferred to the buyer,
but when the ownership therein is
transferred to the buyer the goods are at the
buyer's risk whether actual delivery has been
made or not, except that:
(1) Where delivery of the goods has been
made to the buyer or to a bailee for the
buyer, in pursuance of the contract and the
-

ownership in the goods has been retained by
the seller merely to secure performance by
the buyer of his obligations under the
contract, the goods are at the buyer's risk
from the time of such delivery;
against the wrongdoer or the person who has
violated the contract
 when insurable interest in property
must exist (sec 19)

An interest in property insured must

Thus, when the seller retains ownership only
to insure that the buyer will pay its debt, the
risk of loss is borne by the buyer.27
Accordingly, petitioner bears the risk of loss
of the goods delivered.
IMC and LSPI did not lose complete interest
over the goods. They have an insurable
interest until full payment of the value of the
delivered goods. Unlike the civil law concept
of res perit domino, where ownership is the
basis for consideration of who bears the risk
of loss, in property insurance, one's interest
is not determined by concept of title, but
whether insured has substantial economic
interest in the property.
See sec 13 and 14
Anyone has an insurable interest in property
who derives a benefit from its existence or
would suffer loss from its destruction.30
Indeed, a vendor or seller retains an
insurable interest in the property sold so long
as he has any interest therein, in other
words, so long as he would suffer by its
destruction, as where he has a vendor's
lien.31 In this case, the insurable interest of
IMC and LSPI pertain to the unpaid accounts
appearing in their Books of Account 45 days
after the time of the loss covered by the
policies.
W/n THE COURT OF APPEALS ERRED IN
HOLDING THAT THERE WAS AUTOMATIC
SUBROGATION UNDER ART. 2207 OF THE
CIVIL CODE IN FAVOR OF RESPONDENT
This rule is based on the principle that the
genus of a thing can never perish. Genus
nunquan perit.36 An obligation to pay money
is generic; therefore, it is not excused by
fortuitous loss of any specific property of the
debtor
The subrogation receipt, by itself, is sufficient
to establish not only the relationship of
respondent as insurer and IMC as the
insured, but also the amount paid to settle
the insurance claim. The right of subrogation
accrues simply upon payment by the
insurance company of the insurance claim.41
Respondent's action against petitioner is
squarely sanctioned by Article 2207 of the
Civil Code which provides:
exist when the insurance takes effect,
and when the loss occurs, but not exist
in the meantime; and interest in the life
or health of a person insured must exist
when the insurance takes effect, but
need not exist thereafter or when the
loss occur
 change of insurable interest, sec 20:
Except in the cases specified in the next
four sections, and in the cases of life,
accident, and health insurance, a change
of interest in any part of a thing insured
unaccompanied by a corresponding
change in interest in the insurance,
suspends the insurance to an equivalent
extent, until the interest in the thing and
the interest in the insurance are vested
in the same person.
Exceptions:
Sec. 21. A change in interest in a thing
insured, after the occurrence of an injury
which results in a loss, does not affect the
right of the insured to indemnity for the loss.
Sec. 22. A change of interest in one or more
several distinct things, separately insured by
one policy, does not avoid the insurance as
to the others.
Sec. 23. A change on interest, by will or
succession, on the death of the insured, does
not avoid an insurance; and his interest in
the insurance passes to the person taking his
interest in the thing insured.
Sec. 24. A transfer of interest by one of
several partners, joint owners, or owners in
common, who are jointly insured, to the
others, does not avoid an insurance even
though it has been agreed that the insurance
shall cease upon an alienation of the thing
insured.

Art. 2207. If the plaintiff's property has been

insured, and he has received indemnity from
the insurance company for the injury or loss
arising out of the wrong or breach of contract
complained of, the insurance company shall
be subrogated to the rights of the insured
-
 -
V. Concealment and Misrepresentation
 Concealment and Misrepresentation entitles
injured party to rescind (sec 27 in relation
to sec 46)
Sec. 27:
A concealment whether intentional or
unintentional entitles the injured party to
rescind a contract of insurance. (As
amended by Batasang Pambansa Blg. 874
- in the case of saturnino v. Phim American
life, it was ruled that in order to avoid a
policy it is not necessary to show actual
fraud on the part of the insured because a
concealment…
-it is optional on the injured party to rescind
the insurance contract by reason of
concealment of not.
- reason for this provision is that
concealment misleads or deceives the
insurer into accepting the risk, or accepting
it at the rate of premium agreed upon.
Sec. 46: see sec. 31
The materiality of a representation is
determined by the same rules as the
materiality of a concealment.
 Sec 28: Each party to an insurance
contract must communicate to the other
in good faith, all facts:
a) which are within his knowledge
b) which are material to the contract
c.) which the other party has not the means
of ascertaining; and
d) as to which the party with the duty to
communicate makes no warranty
- Concealment requires knowledge of the
fact concealed by the party charged with
concealment. Such knowledge must be
proven by the party claiming the existence of
concealment. If the fact allegedly concealed
is not within his knowledge, there is no
concealment.
There must be knowledge of the fat
concealed at the time the insurance takes
effect for concealment to after the affectivity
of the policy does not entitle the other party
to rescind the contract.
- if the fact concealed is of such a nature
that had the insurer known of it, it would not
have accepted the risk or would gave
demand a higher premium, or could have lad
down different terms or at least would have
made further inquiries before deciding to
assume the risk, such fact is material and its
non-disclosure entitles the other party to
rescind the contract although the cause of
the death or loss was entirely independent of
such concealed fact.
- if the other party has the means of
ascertaining the non-disclosed fact like
public events under sec. 32 or when the
insurer had very means to ascertain the non-
disclosed fact the other facts already
-
communicated but neglects to make
inquiries, the right to the information is
waived under sec. 33.
- there is no need to disclose facts on which
the insured make a warranty, express or
implied, because where a fact is covered by
a warranty, it is superfluous to require
disclosure.
 Sec. 29. An intentional and fraudulent
omission, on the part of one insured, to
communicate information of matters
proving or tending to prove the falsity of a
warranty, entitles the insurer to rescind.
- although facts or matters concerning which
the insured has made a warranty need not
be disclosed. The facts which tend to …must
be disclosed.
 Sec. 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
CASES:
1. Grepalife vs. Ca- concealment of
hypertension
Facts:
A contract of group life insurance was
executed between petitioner Great Pacific
Life Assurance Corporation (hereinafter
Grepalife) and Development Bank of the
Philippines (hereinafter DBP). Grepalife
agreed to insure the lives of eligible housing
loan mortgagors of DBP.
On November 11, 1983, Dr. Wilfredo
Leuterio, a physician and a housing debtor of
DBP applied for membership in the group life
insurance plan. In an application form, Dr.
Leuterio answered questions concerning his
health condition as follows:
7. Have you ever had, or consulted, a
physician for a heart condition, high blood
pressure, cancer, diabetes, lung; kidney or
stomach disorder or any other physical
impairment?
Answer: No. If so give details _____________.
8. Are you now, to the best of your
knowledge, in good health?
Answer: [x] Yes [ ] NO. 4
On November 15, 1983, Grepalife issued
Certificate No. B-18558, as insurance
coverage of Dr. Leuterio, to the extent of his
DBP mortgage indebtedness amounting to
eighty-six thousand, two hundred
(P86,200.00) pesos.1âwphi1.nêt
On August 6, 1984, Dr. Leuterio died due to
"massive cerebral hemorrhage."
Consequently, DBP submitted a death claim
to Grepalife. Grepalife denied the claim
alleging that Dr. Leuterio was not physically
healthy when he applied for an insurance
coverage on November 15, 1983. Grepalife
insisted that Dr. Leuterio did not disclose he
had been suffering from hypertension, which
caused his death. Allegedly, such non-
disclosure constituted concealment that
justified the denial of the claim.
Issue:
1. Whether the Court of Appeals erred in
holding petitioner liable to DBP as beneficiary
in a group life insurance contract from a
complaint filed by the widow of the
decedent/mortgagor?
2. Whether the Court of Appeals erred in not
finding that Dr. Leuterio concealed that he
had hypertension, which would vitiate the
insurance contract?
3. Whether the Court of Appeals erred in
holding Grepalife liable in the amount of
eighty six thousand, two hundred
-
(P86,200.00) pesos without proof of the
actual outstanding mortgage payable by the
mortgagor to DBP.
Held:
1). Petitioner alleges that the complaint was
instituted by the widow of Dr. Leuterio, not
the real party in interest, hence the trial
court acquired no jurisdiction over the case.
It argues that when the Court of Appeals
affirmed the trial court's judgment, Grepalife
was held liable to pay the proceeds of
insurance contract in favor of DBP, the
indispensable party who was not joined in
the suit.
To resolve the issue, we must consider the
insurable interest in mortgaged properties
and the parties to this type of contract. The
rationale of a group insurance policy of
mortgagors, otherwise known as the
"mortgage redemption insurance," is a
device for the protection of both the
mortgagee and the mortgagor. On the part of
the mortgagee, it has to enter into such form
of contract so that in the event of the
unexpected demise of the mortgagor during
the subsistence of the mortgage contract,
the proceeds from such insurance will be
applied to the payment of the mortgage
debt, thereby relieving the heirs of the
mortgagor from paying the obligation. 7 In a
similar vein, ample protection is given to the
mortgagor under such a concept so that in
the event of death; the mortgage obligation
will be extinguished by the application of the
insurance proceeds to the mortgage
indebtedness. 8 Consequently, where the
mortgagor pays the insurance premium
under the group insurance policy, making the
loss payable to the mortgagee, the insurance
is on the mortgagor's interest, and the
mortgagor continues to be a party to the
contract. In this type of policy insurance, the
mortgagee is simply an appointee of the
insurance fund, such loss-payable clause
does not make the mortgagee a party to the
contract
See sec 8.
The insured private respondent did not cede
to the mortgagee all his rights or interests in
the insurance, the policy stating that: "In the
event of the debtor's death before his
indebtedness with the Creditor [DBP] shall
have been fully paid, an amount to pay the
outstanding indebtedness shall first be paid
to the creditor and the balance of sum
assured, if there is any, shall then be paid to
the beneficiary/ies designated by the
debtor." 10 When DBP submitted the
insurance claim against petitioner, the latter
denied payment thereof, interposing the
defense of concealment committed by the
insured. Thereafter, DBP collected the debt
from the mortgagor and took the necessary
action of foreclosure on the residential lot of
private respondent. 11 In Gonzales La O vs.
Yek Tong Lin Fire & Marine Ins. Co. 12
we
held:
Insured, being the person with whom the
contract was made, is primarily the proper
person to bring suit thereon. * * * Subject to
some exceptions, insured may thus sue,
although the policy is taken wholly or in part
for the benefit of another person named or
unnamed, and although it is expressly made
payable to another as his interest may
appear or otherwise. * * * Although a policy
issued to a mortgagor is taken out for the
benefit of the mortgagee and is made
payable to him, yet the mortgagor may sue
thereon in his own name, especially where
the mortgagee's interest is less than the full
amount recoverable under the policy,
And in volume 33, page 82, of the same
work, we read the following:
Insured may be regarded as the real party in
interest, although he has assigned the policy
for the purpose of collection, or has assigned
as collateral security any judgment he may
obtain. 13
And since a policy of insurance upon life or
health may pass by transfer, will or
succession to any person, whether he has an
insurable interest or not, and such person
may recover it whatever the insured might
have recovered, 14 the widow of the decedent
Dr. Leuterio may file the suit against the
insurer, Grepalife.
2). The fraudulent intent on the part of the
insured must be established to entitle the
insurer to rescind the contract. 18
Misrepresentation as a defense of the insurer
to avoid liability is an affirmative defense
and the duty to establish such defense by
satisfactory and convincing evidence rests
upon the insurer. 19 In the case at bar, the
petitioner failed to clearly and satisfactorily
establish its defense, and is therefore liable
to pay the proceeds of the insurance.
Petitioner's claim is without merit. A life
insurance policy is a valued policy. 20 Unless
the interest of a person insured is susceptible
of exact pecuniary measurement, the
measure of indemnity under a policy of
insurance upon life or health is the sum fixed
in the policy.
. In private respondent's memorandum, she
states that DBP foreclosed in 1995 their
residential lot, in satisfaction of mortgagor's
outstanding loan. Considering this
supervening event, the insurance proceeds
shall inure to the benefit of the heirs of the
deceased person or his beneficiaries. Equity
dictates that DBP should not unjustly enrich
itself at the expense of another (Nemo cum
alterius detrimenio protest). Hence, it cannot
collect the insurance proceeds, after it
already foreclosed on the mortgage. The
-
proceeds now rightly belong to Dr. Leuterio's
heirs represented by his widow
Petition denied.
2. Grepalife vs. Ca- fact that insured is a
mongoloid concealed
Facts:
March 14, 1957, private respondent Ngo
Hing filed an application with the Great
Pacific Life Assurance Company (hereinafter
referred to as Pacific Life) for a twenty-year
endownment policy in the amount of
P50,000.00 on the life of his one-year old
daughter Helen Go. Said respondent
supplied the essential data which petitioner
Lapulapu D. Mondragon, Branch Manager of
the Pacific Life in Cebu City wrote on the
corresponding form in his own handwriting .
Mondragon finally type-wrote the data on
the application form which was signed by
private respondent Ngo Hing. The latter paid
the annual premuim the sum of P1,077.75
going over to the Company, but he reatined
the amount of P1,317.00 as his commission
for being a duly authorized agebt of Pacific
Life. Upon the payment of the insurance
premuim, the binding deposit receipt was
issued to private respondent Ngo Hing.
Likewise, petitioner Mondragon handwrote
at the bottom of the back page of the
application form his strong recommendation
for the approval of the insurance
application. Then on April 30, 1957,
Mondragon received a letter from Pacific Life
disapproving the insurance application. The
letter stated that the said life insurance
application for 20-year endowment plan is
not available for minors below seven years
old, but Pacific Life can consider the same
under the Juvenile Triple Action Plan, and
advised that if the offer is acceptable, the
Juvenile Non-Medical Declaration be sent to
the company.
The non-acceptance of the insurance plan by
Pacific Life was allegedly not communicated
by petitioner Mondragon to private
respondent Ngo Hing. Instead, on May 6,
1957, Mondragon wrote back Pacific Life
again strongly recommending the approval
of the 20-year endowment insurance plan to
children, pointing out that since 1954 the
customers, especially the Chinese, were
asking for such coverage.
It was when things were in such state that
on May 28, 1957 daughter died of influenza
with complication of bronchopneumonia.
Issue:
(1) whether the binding deposit receipt
constituted a temporary contract of the life
insurance in question;
(2) whether private respondent Ngo Hing
concealed the state of health and physical
condition of Helen Go, which rendered void
Held:
1.) At the back of Exhibit E are condition
precedents required before a deposit is
considered a BINDING RECEIPT. These
conditions state that:
A. If the Company or its agent, shan have
received the premium deposit ... and the
insurance application, ON or PRIOR to the
date of medical examination ... said
insurance shan be in force and in effect from
the date of such medical examination, for
such period as is covered by the deposit ...,
PROVIDED the company shall be satisfied
that on said date the applicant was insurable
on standard rates under its rule for the
amount of insurance and the kind of policy
requested in the application.
D. If the Company does not accept the
application on standard rate for the amount
of insurance and/or the kind of policy
requested in the application but issue, or
offers to issue a policy for a different plan
and/or amount ..., the insurance shall not be
in force and in effect until the applicant shall
have accepted the policy as issued or offered
by the Company and shall have paid the full
premium thereof. If the applicant does not
accept the policy, the deposit shall be
refunded.
E. If the applicant shall not have been
insurable under Condition A above, and the
Company declines to approve the application
the insurance applied for shall not have been
in force at any time and the sum paid be
returned to the applicant upon the surrender
of this receipt. (Emphasis Ours).
The aforequoted provisions printed on
Exhibit E show that the binding deposit
receipt is intended to be merely a provisional
or temporary insurance contract and only
upon compliance of the following conditions:
(1) that the company shall be satisfied that
the applicant was insurable on standard
rates; (2) that if the company does not
accept the application and offers to issue a
policy for a different plan, the insurance
contract shall not be binding until the
applicant accepts the policy offered;
otherwise, the deposit shall be reftmded; and
(3) that if the applicant is not ble according
to the standard rates, and the company
disapproves the application, the insurance
applied for shall not be in force at any time,
and the premium paid shall be returned to
the applicant.
Clearly implied from the aforesaid conditions
is that the binding deposit receipt in question
is merely an acknowledgment, on behalf of
the company, that the latter's branch office
had received from the applicant the
-
insurance premium and had accepted the
application subject for processing by the
insurance company; and that the latter will
either approve or reject the same on the
basis of whether or not the applicant is
"insurable on standard rates." Since
petitioner Pacific Life disapproved the
insurance application of respondent Ngo
Hing, the binding deposit receipt in question
had never become in force at any time.
As held by this Court, where an agreement is
made between the applicant and the agent,
no liability shall attach until the principal
approves the risk and a receipt is given by
the agent. The acceptance is merely
conditional and is subordinated to the act of
the company in approving or rejecting the
application. Thus, in life insurance, a "binding
slip" or "binding receipt" does not insure by
itself (De Lim vs. Sun Life Assurance
Company of Canada, 41 Phil. 264).
In the absence of a meeting of the minds
between petitioner Pacific Life and private
respondent Ngo Hing over the 20-year
endowment life insurance in the amount of
P50,000.00 in favor of the latter's one-year
old daughter, and with the non-compliance
of the abovequoted conditions stated in the
disputed binding deposit receipt, there could
have been no insurance contract duly
perfected between thenl Accordingly.
a contract of insurance, like other contracts,
must be assented to by both parties either
in person or by their agents ... The contract,
to be binding from the date of the
application, must have been a completed
contract, one that leaves nothing to be
dione, nothing to be completed, nothing to
be passed upon, or determined, before it
shall take effect. There can be no contract of
insurance unless the minds of the parties
have met in agreement and this first place,
there was no contract perfected between
the parties who had no meeting of their
minds
2.) this Court is of the firm belief that private
respondent had deliberately concealed the
state of health and piysical condition of his
daughter Helen Go. Wher private regpondeit
supplied the required essential data for the
insurance application form, he was fully
aware that his one-year old daughter is
typically a mongoloid child. Such a
congenital physical defect could never be
ensconced nor disguished. Nonetheless,
private respondent, in apparent bad faith,
withheld the fact materal to the risk to be
assumed by the insurance compary. As an
insurance agent of Pacific Life, he ought to
know, as he surely must have known. his
duty and responsibility to such a material
fact. Had he diamond said significant fact in
the insurance application fom Pacific Life
would have verified the same and would
have had no choice but to disapprove the
application outright.
The contract of insurance is one of perfect
good faith uberrima fides meaning good
faith, absolute and perfect candor or
openness and honesty; the absence of any
concealment or demotion, however slight
[Black's Law Dictionary, 2nd Edition], not for
the alone but equally so for the insurer (Field
man's Insurance Co., Inc. vs. Vda de Songco,
25 SCRA 70). Concealment is a neglect to
communicate that which a partY knows aDd
Ought to communicate (Section 25, Act No.
2427). Whether intentional or unintentional
the concealment entitles the insurer to
rescind the contract of insurance (Section 26,
Id.: Yu Pang Cheng vs. Court of Appeals, et
al, 105 Phil 930; Satumino vs. Philippine
American Life Insurance Company, 7 SCRA
316). Private respondent appears guilty
thereof.
We are thus constrained to hold that no
insurance contract was perfected between
the parties with the noncompliance of the
conditions provided in the binding receipt,
and concealment, as legally defined
3. Philamcare vs. Ca- no concealment
present
Facts:
Ernani Trinos, deceased husband of
respondent Julita Trinos, applied for a health
care coverage with petitioner Philamcare
Health Systems, Inc. In the standard
application form, he answered no to the
following question:
Have you or any of your family
members ever consulted or
been treated for high blood
pressure, heart trouble,
diabetes, cancer, liver disease,
asthma or peptic ulcer? (If Yes,
give details).1
The application was approved for a period of
one year from March 1, 1988 to March 1,
1989. Accordingly, he was issued Health
Care Agreement No. P010194. Under the
agreement, respondent’s husband was
entitled to avail of hospitalization benefits,
whether ordinary or emergency, listed
therein. He was also entitled to avail of "out-
patient benefits" such as annual physical
examinations, preventive health care and
other out-patient services.
Upon the termination of the agreement, the
same was extended for another year from
March 1, 1989 to March 1, 1990, then from
March 1, 1990 to June 1, 1990. The amount
of coverage was increased to a maximum
sum of P75,000.00 per disability.2
During the period of his coverage, Ernani
suffered a heart attack and was confined at
the Manila Medical Center (MMC) for one
month beginning March 9, 1990. While her
husband was in the hospital, respondent
-
tried to claim the benefits under the health
care agreement. However, petitioner denied
her claim saying that the Health Care
Agreement was void. According to
petitioner, there was a concealment
regarding Ernani’s medical history. Doctors
at the MMC allegedly discovered at the time
of Ernani’s confinement that he was
hypertensive, diabetic and asthmatic,
contrary to his answer in the application
form and eventually, respondent’s husband
died.
RTC- in favor of private respondents and Ca-
affirmed rtc
Issue:
Raising the primary argument that a health
care agreement is not an insurance
contract; hence the "incontestability clause"
under the Insurance Code6 does not apply.
Held:
See sec 2(1), an insurance contract exists
where the following elements occur:
1. The insured has an insurable interest;
2. The insured is subject to a risk of loss by
the happening of the designated peril;
3. The insurer assumes the risk;
4. Such assumption of risk is part of a
general scheme to distribute actual losses
among a large group of persons bearing a
similar risk; and
5. In consideration of the insurer’s promise,
the insured pays a premium
And see sec. 3 and sec. 10.
In the case at bar, the insurable interest of
respondent’s husband in obtaining the
health care agreement was his own health.
The health care agreement was in the
nature of non-life insurance, which is
primarily a contract of indemnity.9 Once the
member incurs hospital, medical or any
other expense arising from sickness, injury
or other stipulated contingent, the health
care provider must pay for the same to the
extent agreed upon under the contract.
Petitioner cannot rely on the “invalidation of
agreement”, failure to disclose intentional or
unintentional shall automatically invalidate
agreement.
The answer assailed by petitioner was in
response to the question relating to the
medical history of the applicant. This largely
depends on opinion rather than fact,
especially coming from respondent’s
husband who was not a medical doctor.
Where matters of opinion or judgment are
called for, answers made in good faith and
without intent to deceive will not avoid a
policy even though they are untrue.14 Thus,
(A)lthough false, a
representation of the
expectation, intention, belief,
opinion, or judgment of the
insured will not avoid the
policy if there is no actual
fraud in inducing the
acceptance of the risk, or its
acceptance at a lower rate of
premium, and this is likewise
the rule although the
statement is material to the
risk, if the statement is
obviously of the foregoing
character, since in such case
the insurer is not justified in
relying upon such statement,
but is obligated to make
further inquiry. There is a clear
distinction between such a
case and one in which the
insured is fraudulently and
intentionally states to be true,
as a matter of expectation or
belief, that which he then
knows, to be actually untrue,
or the impossibility of which is
shown by the facts within his
knowledge, since in such case
the intent to deceive the
insurer is obvious and
amounts to actual fraud.15
(Underscoring ours)
The fraudulent intent on the part of the
insured must be established to warrant
rescission of the insurance contract.16
Concealment as a defense for the health care
provider or insurer to avoid liability is an
affirmative defense and the duty to establish
such defense by satisfactory and convincing
evidence rests upon the provider or insurer.
In any case, with or without the authority to
investigate, petitioner is liable for claims
made under the contract. Having assumed a
responsibility under the agreement,
petitioner is bound to answer the same to
the extent agreed upon. In the end, the
liability of the health care provider attaches
once the member is hospitalized for the
disease or injury covered by the agreement
or whenever he avails of the covered
benefits which he has prepaid.
Under Section 27 of the Insurance Code, "a
concealment entitles the injured party to
rescind a contract of insurance." The right to
rescind should be exercised previous to the
commencement of an action on the
contract.17 In this case, no rescission was
made. Besides, the cancellation of health
care agreements as in insurance policies
require the concurrence of the following
conditions:
1. Prior notice of cancellation to insured;
-
2. Notice must be based on the occurrence
after effective date of the policy of one or
more of the grounds mentioned;
3. Must be in writing, mailed or delivered to
the insured at the address shown in the
policy;
4. Must state the grounds relied upon
provided in Section 64 of the Insurance Code
and upon request of insured, to furnish facts
on which cancellation is based.18
None of the above pre-conditions was
fulfilled in this case. When the terms of
insurance contract contain limitations on
liability, courts should construe them in such
a way as to preclude the insurer from non-
compliance with his obligation.19 Being a
contract of adhesion, the terms of an
insurance contract are to be construed
strictly against the party which prepared the
contract – the insurer.
This is equally applicable to Health Care
Agreements. The phraseology used in
medical or hospital service contracts, such
as the one at bar, must be liberally
construed in favor of the subscriber, and if
doubtful or reasonably susceptible of two
interpretations the construction conferring
coverage is to be adopted, and exclusionary
clauses of doubtful import should be strictly
construed against the provider
Finally, petitioner alleges that respondent
was not the legal wife of the deceased
member considering that at the time of their
marriage, the deceased was previously
married to another woman who was still
alive. The health care agreement is in the
nature of a contract of indemnity. Hence,
payment should be made to the party who
incurred the expenses
 Insured need not die of disease he
failed to disclose
 Test of Materiality (Sec 31)
Sec. 31:
Materiality is to be determined not by the
event, but solely by the probable and
reasonable influence of the facts upon the
party to whom the communication is due, in
forming his estimate of the disadvantages of
the proposed contract, or in making his
inquiries.
- materiality is determined not by the vent
but by the probable or reasonable influence
of the facts on the judgment of the parties in
entering into an insurance contract.
 Sec. 32. Each party to a contract of
insurance is bound to know all the
general causes which are open to his
inquiry, equally with that of the other,
and which may affect the political or
material perils contemplated; and all
general usages of trade.
- insurer need not disclose public events
such as that a nation is at war, laws political
conditions..
 Waiver of Material Information (sec.
33)
Sec. 33:
The right to information of material facts
may be waived, either by the terms of the
insurance or by neglect to make inquiry as
to such facts, where they are distinctly
implied in other facts of which information is
communicated
- a party is not bound to disclose material
facts the disclosure of which are waived:
a) expressly, by the terms of the policy
b.) impliedly, by neglect to make inquiries
as to such facts which can be distinctly
implied in the other facts already
communicated
Case:
Ng Gan Zee vs. asian Crusader- insurer
failed to conduct further inquiries on surgery
disclosed by insured.
Facts:
Kwong nam secured a 2o-year old
endowment insurance policy on his life from
the respondent, kwong died of cancer of the
liver with mestastasis. The alleged false
statements given by Kwong Nam are as
follows: operated on for a Tumor (mayoma)
of the stomach. Operation was 2 years ago.
Held:
Misrepresentation as a defense is an
affirmative defense. The duty to establish
such a defense by satisfactory and
convincing evidence rests upon the
defendant. The evidence before the court
does not clear and satisfactorily establish
that defense.
Kwong nam had informed insurer’s medical
examiner that the tumor for which he was
operated on was “associated with ulcer of
the stomach”. In the absence of evidence
that the insured had sufficient medical
knowledge as to enable him to distinguish
between peptic ulcer and a tumor, his
statement that said tumor was a associated
with ulcer of stomach should be construed
as an expression made in good faith of his
belief as the nature of his ailment.
-

Sec 33, see. It has been held that where,
“upon the face of the application, a question
appears to be not answered at all or to be
imperfectly answered, and the insurers issue
a policy without any further inquiry, they
waive the imperfection of the answer and
render the omission to answer more fully
immaterial.
Sec. 34 Information of the nature or
amount of the interest of one insured
need not be communicated unless in
answer to an inquiry, except as
prescribed by section fifty-one.
Representation- is an oral or written
statement of a material fact, made by the
insured to the insurer at the time of, or
before the issuance of the policy to induce
the latter to issue said policy.
Misrepresentation- or false representation in
insurance is a statement of a material point
or matter which is false and made by the
insured to deceive the insurer into entering
into an insurance contract.

Gen rule on communication of insurable

interest:
Misrepresentation Concealment
Active form of deceit Passive form of
The insured is not required to because here the deceit because the
communicate the nature of the amount insured makes an insured neglects of
or extent of his insurable interest in the oral or written false fails to disclose a
life or property insured to the insurer. statement to induce material fact in
the insurer to issue securing the
Exception: the policy insurance
Sc ruled that the  Sc ruled that
a) when the insurer makes inquiry from deceit made by the Concealment
the insured of the nature or amount of insured as both a of a material
the latter’s insurable interest, whether in concealment and a fact is
life or property insurance false representation, equivalent to
use interchangeably a false
b) sec, 51, the insurance policy must representation
specify, among others, “(e) the interest that such fact
of the insured in property insured, if he does not exist
is not the absolute owner thereof” Similarities: both
entitle the injury
- a trustee, mortgagee or a building party to rescind the
contractor must communicate his contract which
particular insurable interest in the requires that:
property insured even if no inquiry
thereto is made by the insurer. 1. require that the
fact concealed or
misrepresented must
be a material fact

 Sec. 35. Neither party to a contract of
insurance is bound to communicate, even
upon inquiry, information of his own
judgment upon the matters in question
2. may be committed
intentionally and
unintentionally
 Sec. 38. The language of a representation
is to be interpreted by the same rules as
the language of contracts in general.

-Only material facts are required to be

disclosed and not mere opinion,
speculations, intention or expectation.  Sec. 39. A representation as to the future
is to be deemed a promise, unless it
appears that it was merely a statement
of belief or expectation.
 Sec. 36. A representation may be oral
or written.

Kinds of Representation:

 37. A representation may be made at the

time of, or before, issuance of the policy
-

1. affirmative, which is an affirmation as and the insurer still issues the policy, it is not
to the existence or non-existence of a rescissible anymore.
fact when the contract begins

Eg: affirmation in the policy by the

insured that he is in good helth at the
time of the contract I an affirmative
representation
2. Promissory, which is a promise by the
insured concerning what I to happen
during the existence of the insurance.
Eg: a promise of the insured in the policy
that he will install additional fire
extinguishers in the building insured at a
stipulated future date is a promissory
representation.
 Sec. 40. A representation cannot
qualify an express provision in a contract
of insurance, but it may qualify an implied
warranty.
- if a policy expressly provides that al
floors in the building insured have water
sprinkler devices, a representation by the
insured before the insurance takes effect
that two of the floors did not have such
sprinklers does not qualify the express
provision in the contract. The insured
cannot recover from the insurer.
- a representation is a mere collateral
inducement to a contract. It is not a part
of the contract.
-under sec. 113, in every marine
insurance a warranty is implied that the
ship is seaworthy. A representation of the
insured that the vessel’s communications
facilities were out of order at the time
policy was issued qualifies the implied
warranty of seaworthiness. The insured
can still recover from the insurer.
- however, after the insurance is effected as
induced by the representation, it cannot
anymore be altered or withdrawn. If the false
representation is withdrawal afterwards, the
contract remains rescissible at the option of
the injured party.
 Incontestability clause
Sec. 48. Whenever a right to rescind a
contract of insurance is given to the insurer
by any provision of this chapter, such right
must be exercised previous to the
commencement of an action on the contract.
After a policy of life insurance made payable
on the death of the insured shall have been
in force during the lifetime of the insured for
a period of two years from the date of its
issue or of its last reinstatement, the insurer
cannot prove that the policy is void ab initio
or is rescindible by reason of the fraudulent
concealment or misrepresentation of the
insured or his agent.
Gen rule:
Sec. 48. Whenever a right to rescind a
contract of insurance is given to the insurer
by any provision of this chapter, such right
must be exercised previous(before) to the
commencement of an action on the
contract.
Exception:
Lack of insurable interest, non -payment of
premiums, fraud of a vicious (cruel) type

 Sec. 41. A representation may be A. when rescission may be exercised

altered or withdrawn before the
insurance is effected, but not afterwards.

1. where there is a right to rescind the

insurance contract, such right must be
- a representation is allowed to be altered exercised prior to the commencement of an
and withdrawn so long as the insurance has action on the contract.
not been effected because the insurer has
not yet been induced to issue the policy. If
the misrepresentation is withdrawn or
corrected before the insurance takes effect
-

2. the insurer may rescind the contract even

after the loss and filing of the claim
provided it is done before the insured files
an action against the insurer.

3. however, a defense to an action to

recover insurance that the insurance was
secured through concealment or
misrepresentation is not in the nature of an
action to rescind and hence not barred by
the provision.

B. Incontestability in life insurance policy

- in life insurance , where the policy which is

payable on the death of the insured has
been in force during the lifetime of the
insured for a period of two years from the
date of issue or of its last reinstatement, the
insurer cannot prove that the policy is void
or rescissible by reason of concealment or
misrepresentation.

-the incontestability of a life insurance

policy under this section only refers to
concealment and misrepresentation but
does not bar the insurer to prove that the
policy is void or rescissible on the ff
grounds:

a.) lack of insurable interest

b.) non-payment of premiums

c.) that the cause of death is an expected

risk or

d.) that the fraud committed was of a

particularly vicious type as when the
insured substituted himself with another
during the medical examination or where
the policy was taken in furtherance of a
scheme to murder the insured.
-
VI. Policy
- Sec. 49. The written instrument in which a
contract of insurance is set forth, is called a
policy of insurance
- under art. 1332 CC, the obligation to how
that the terms of the policy had been fully
explained to the insured who is unable to
understand the language of the contract,
when fraud or mistake is alleged, devolves
on the party seeking to enforce it.
 Significance of policy: contents (sec. 50
and 51)
Sec. 50. The policy shall be in printed form
which may contain blank spaces; and any
word, phrase, clause, mark, sign, symbol,
signature, number, or word necessary to
complete the contract of insurance shall be
written on the blank spaces provided therein.
Any rider, clause, warranty or endorsement
purporting to be part of the contract of
insurance and which is pasted or attached to
said policy is not binding on the insured,
unless the descriptive title or name of the
rider, clause, warranty or endorsement is
also mentioned and written on the blank
spaces provided in the policy.
Unless applied for by the insured or owner,
any rider, clause, warranty or endorsement
issued after the original policy shall be
countersigned by the insured or owner,
which countersignature shall be taken as his
agreement to the contents of such rider,
clause, warranty or endorsement.
Group insurance and group annuity policies,
however, may be typewritten and need not
be in printed form.
- if the rider, etc is pasted or attached to the
original policy at the time it was issued, the
signature of the insurance is not necessary
to make it binding.
- if the rider, etc. is executed after the
original policy was issued, it must be
counter-signed by the insured to be binding
unless said rider,etc. was applied for by the
insured himself.
- no application form, rider etc shall be
attached to, printed or stamped upon such
policy unless the form of such application,
etc. has been approved by the insurance
commission
- it is a well settled rule that in case
repugnance exists between written and
printed portions of a policy, the written
portion prevails, and there can be no
question that as far as nay inconsistency
exist, the type “rider” prevails over the
printed clause it covers.
-
Sec. 51. A policy of insurance must specify:
(a) The parties between whom the contract
is made;
(b) The amount to be insured except in the
cases of open or running policies;
(c) The premium, or if the insurance is of a
character where the exact premium is only
determinable upon the termination of the
contract, a statement of the basis and rates
upon which the final premium is to be
determined;
(d) The property or life insured;
(e) The interest of the insured in property
insured, if he is not the absolute owner
thereof;
(f) The risks insured against; and
(g) The period during which the insurance is
to continue.
- incorrect spelling of the names of parties
do not affect the policy. An error in the
designation of the name of the insured in
the absence of fraud does not invalidate the
policy.
 Cover notes ( Sec. 52)
Sec. 52. Cover notes may be issued to
bind insurance temporarily pending the
issuance of the policy. Within sixty days
after the issue of the cover note, a policy
shall be issued in lieu thereof, including
within its terms the identical insurance
bound under the cover note and the
premium therefor.
Cover notes may be extended or
renewed beyond such sixty days with the
written approval of the Commissioner if
he determines that such extension is not
contrary to and is not for the purpose of
violating any provisions of this Code. The
Commissioner may promulgate rules and
regulations governing such extensions
for the purpose of preventing such
violations and may by such rules and
regulations dispense with the
requirement of written approval by him
in the case of extension in compliance
with such rules and regulations.
Cover note- merely written memorandum of
the most important terms of a preliminary
contract of insurance, intended to give
temporary protection pending the
investigation of the risk by the insurer or
until the issuance of a formal policy. It is
also known as a “binding slip”, binding
receipt or binder.
- the insurance comm. May promulgate
rules and regulations concerning such
extensions and may dispense with the
requirement of written approval by him of
such extensions.
- pursuant to the authority granted by this
section, insurance comm. Has promulgated
the ff rules:
a.) a cover note is valid and binding for 60
days whether or not premium therefor has
been paid,but it may be cancelled by either
party upon at least 7 days notice to the
other party
b) if the cover note is not so cancelled, a
regular policy of insurance shall, within 60
days after the issuance of such cover note,
be issued in lieu thereof, including within its
terms the identical insurance bound under
the cover note and the premium therefor.
c.) a cover note may be extended beyond
the 60 day period with the written approval
of the insurance comm. Which approval
however, may be dispensed with upon the
certification of the president, v-pres or gen
magr of the insurance company that the risk
involved and the extension do not violate
the insurance code or any circular ruling
d.) insurance companies may impose on
cover notes a deposit premium equivalent
to at least 25 % of the estimated premium
of the intended insurance coverage but in
no case less than 500.00.
-
Cases:
1. De lim v. Sun life, acknowledgement
receipt not a cover note or binding receipts
did not give rise to temporary insurance
Facts:
Luis Lim applied to sun life for a life
insurance designated his wife as beneficiary.
The first premium was paid by lim and upon
payment of the company issued what was
called a provisional policy. Lim died after the
issuance of provisional policy but before the
approval of the application by home office of
the insurance company.
Held:
The clause in the application and the receipt
given by the solicitor general, which are to
be read together ,stipulate expressly that
the insurance shall become effective only
when the “application hall be approved and
the policy duly signed by the secretary of
the head office of the company and issued”.
It constituted no agreement at all for
preliminary or temporary insurance.
2. Pacific Timber export v. Ca- cover note
not treated as a separate policy or cover
note created temporary insurance
Facts:
Plaintiff secured temporary insurance from
defendant insurance company for its
exportation of board of feet of logs to be
shipped to Japan. Defendant issued a cover
note insuring said cargo. After the issuance
of the cover note but before the issuance of
said marine policies, some of the logs
intended to be exported were lost during
loading operations.
Issue: W/n the cover note was null and void
for lack of valuable consideration.
Held:
The court upholds PTECs submission that
the cover note was not without
consideration.
The fact that no separate premium was paid
on the cover note before the loss insured
against occurred, does not militate against
the validity of PTECS contention, for no such
premium could have been paid, since by the
nature of the cover note, it did not contain,
as all cover notes do not contain particulars
of the shipment that would serve as a basis
for the computation of the premiums. No
separate premiums are intended or required
to be pain on a cover note.
If the note is to be treated as a separate
policy instead of integrating it to the regular
policies subsequently issued, the purpose
and function of the cover note would be set
at naught or rendered meaningless, for it is
in real sense a contract, not a mere
application for insurance which is a mere
offer.
The non=payment of premium on the cover
note is therefore, no cause for the petitioner
to lose what is due it as if there had been
payment of premium, for nonpayment by it
was not chargeable against its fault. Had all
the logs been lost during the loading
operations, but after the issuance of the
cover note, liability on the note would have
already arisen even before payment of
premium.
Where a policy is delivered without requiring
payment of the premium, the presumption
is that a credit was intended and the policy
is valid.
 Sec. 53. The insurance proceeds shall be
applied exclusively to the proper interest
of the person in whose name or for
whose benefit it is made unless otherwise
specified in the policy.
 Sec. 54. When an insurance contract is
executed with an agent or trustee as the
insured, the fact that his principal or
beneficiary is the real party in interest
may be indicated by describing the
insured as agent or trustee, or by other
general words in the policy.
-
- if an agent or trustee secures an
insurance in his name without indicating
his principal, the agent is deemed to
have take the insurance for his own
benefit and interest and the principal has
no right of action against the insurer.
 Sec. 55. To render an insurance
effected by one partner or part-owner,
applicable to the interest of his co-
partners or other part-owners, it is
necessary that the terms of the policy
should be such as are applicable to the
joint or common interest.
- if the co-partner takes an insurance in
his name without indicating that said
insurance applies also to the interest of
the other co-partners , the insurance is
deemed to be limited only to the
individual share of the co-partner only.
 Sec. 56. When the description of the
insured in a policy is so general that it
may comprehend any person or any
class of persons, only he who can show
that it was intended to include him can
claim the benefit of the policy.
 Sec. 57. A policy may be so framed
that it will inure to the benefit of
whomsoever, during the continuance of
the risk, may become the owner of the
interest insured.
- the transfer of the property will not
suspend the insurance and instead the
insurance is deemed transfer together
with the property. Exception to sec. 20.
 Sec. 58. The mere transfer of a thing
insured does not transfer the policy, but
suspends it until the same person
becomes the owner of both the policy and
the thing insured.
 Sec. 59. A policy is either open,
valued or running.
Kinds of Insurance Policies
1. Sec. 60. An open policy is one in which the
value of the thing insured is not agreed
upon, but is left to be ascertained in case of
loss.
2. Sec. 61. A valued policy is one which
expresses on its face an agreement that the
thing insured shall be valued at a specific
sum.
3. Sec. 62. A running policy is one which
contemplates successive insurances, and
which provides that the object of the policy
may be from time to time defined, especially
as to the subjects of insurance, by additional
statements or indorsements.
Valued policy Open Policy
Proof of the value of Upon loss, the
the thing after the insured must prove
loss is not necessary the value of the
property insured
The parties have The value of the
conclusively property insured is
stipulated that the not agreed upon but
property insured is is left to be
valued at a specific ascertained in case
sum of loss.
- running policy, “floating policy”, is intended
to provide indemnity for property which
cannot be covered by specific insurance
because of its frequent change in location
and quantity. Usually issued on a constantly
changing quantity of stocks-in-trade.
 Agreement to limit the time to
commence an action
Sec. 63. A condition, stipulation, or
agreement in any policy of insurance,
limiting the time for commencing an action
thereunder to a period of less than one
year from the time when the cause of
action accrues, is void.
- cause of action accrues at the time the
claim is rejected by the insurer. Actions
may be filed in:
a) regular courts of justice
b) office of the insurance commissioner
c) Poea or dole
- when the agreement is contrary to sec. 63
and therefore void or when no period to
-
bring the action has been stipulated, an
insurance policy being a written contract,
the insured may bring the action within 10
years (art 1144,NCC) from the time ten
cause of action accrues.
Cases:
1. Eagle star v. chia Yu- period reckoned
from happening of the loss or a stipulation
that suit must be brought within one year
from the happening of the loss cannot be
given effect.
Facts:
Atkins shipped 14 bales of assorted
underwear consigned to respondent in
manila. The shipment was insured against
all risk by Eagle. The vessel arrived at
manila out of 14, 4 was missing and three
of those delivered was damaged.
Respondent claimed indemnity but was
declined by carrier and afterwards the
insurer.
Issue: W/N plaintiff’s action has prescribed.
Held:
Plaintiff’s cause of action did not accrue
until his claim was finally rejected by the
insurance company. This is because before
such final rejection, there was no real
necessity for bringing suit. As the policy
provides that the insured should file his
claim, first with the carrier and then the
insurer, he has a right to wait for his claim
to be finally decided before going to court.
The law does not encourage unnecessary
litigation. The suit was filed within 12
months from that date, the action ahs not
prescribed.
Note: a suit filed against the agent of the
insurer is not a suit against the insurer
which interrupts the prescriptive period.
2. ACCFA v. Alpha- a condition that suit
must be brought within one year from the
time of making claim for the loss is void
and action may be brought within 10 years.
Facts:
To guarantee the Asingan Farmer’s
cooperation against loss on account of
personal dishonesty, amounting to estafa or
larceny of its sec-treas, ladines alpha
insurance issued its bond with said ladines
as principals and alpha insurance as
solidary surety.
Asingan assigned its rights to agricultural
credit cooperative and financing
administration (ACCFA), with approval of
the principal and the surety. During the
affectivity of the bond ladines
misappropriated some of the funds. ACCFA
now claim against the insurer but their
claim was denied, a suit was filed.
Issue: w/m the suit must be dismissed as it
was filed more than one year made from
the loss under the 8th condition of the bond.
Held:
A fidelity bond is in effect, in the nature of a
contract of insurance against loss from
misconduct, and is governed by the same
principles of interpretation. The year for
instituting action in court must reckoned
from the time of Apelles’s refusal to comply
with its bond; it cannot be counted from the
creditors filing of the claim of loss, for that
does not import that the surety company
will refuse to pay. The 8th condition of the
bond is null and void.
3. Sun Insurance v. Ca- the contention of
the insured that the 1 year prescriptive
period does not start to run until the
petition for reconsideration on the rejection
in the first instance had been resolved by
the insurer is untenable.
Facts:
Private respondent tan took from the
plaintiff a property insurance policy to
-
cover his interest in the electrical supply
store of his brother housed in a building.4
days after the issuance of the policy, the
building was burned including the insured
store. Upon claim, petitioner wrote denying
the claim, tan wrote seeking for
reconsideration and the same was denied.
Held:
The insured’s cause of action or his right to
file claim either in the insurance
commission or in a court of competent
jurisdiction commences from the time of
the denial of his claim by the insurer, either
expressly or impliedly. The rejection to
should be construed as the rejection in the
first instance.
 Cancellation of Policy ( 64 and 65)
Sec. 64. No policy of insurance other
than life shall be cancelled by the
insurer except upon prior notice thereof
to the insured, and no notice of
cancellation shall be effective unless it is
based on the occurrence, after the
effective date of the policy, of one or
more of the following:
(a) non-payment of premium;
(b) conviction of a crime arising out of
acts increasing the hazard insured
against;
(c) discovery of fraud or material
misrepresentation;
(d) discovery of willful or reckless
acts or omissions increasing the
hazard insured against;
(e) physical changes in the property
insured which result in the property
becoming uninsurable; or
(f) a determination by the
Commissioner that the continuation
of the policy would violate or would
place the insurer in violation of this
Code.
Sec. 65. All notices of cancellation mentioned
in the preceding section shall be in writing,
mailed or delivered to the named insured at
the address shown in the policy, and shall
state (a) which of the grounds set forth in
section sixty-four is relied upon and (b) that,
upon written request of the named insured,
the insurer will furnish the facts on which the
cancellation is based.
-Requisites for cancellation of policy
1. a cancellation of an insurance policy other
than life to be valid must have the ff
requisites:
a) there must be prior notice thereof to the
insured
b) said notice must be based on the grounds
as provided by sec 64 and shall so state said
grounds
c) said notice must be in writing, mailed or
delivered to the named insured at the
address shown in the policy; and
d) if requested in writing by the insured, the
insurer must furnish the facts on which the
cancellation is based.
2. if there is no prior notice of if the
cancellation is not based on the grounds as
provided by sec. 64, the cancellation shall be
ineffective.
 Requisites for renewal of policy
1. an insurance policy other than life is
renewed provided:
a) the insurer does not mail or deliver to
the insured at least 45 days before its
expiry date a notice of its intention either:
1) not to renew the policy or
2) to condition its renewal upon
reduction of limits or elimination of
coverages; and
b) payment of the premium due on the
effective date of renewal.
Sec. 66. In case of insurance other than life,
unless the insurer at least forty-five days in
advance of the end of the policy period mails
or delivers to the named insured at the
address shown in the policy notice of its
intention not to renew the policy or to
condition its renewal upon reduction of limits
or elimination of coverages, the named
insured shall be entitled to renew the policy
upon payment of the premium due on the
effective date of the renewal. Any policy
written for a term of less than one year shall
be considered as if written for a term of one
year. Any policy written for a term longer
than one year or any policy with no fixed
expiration date shall be considered as if
written for successive policy periods or terms
of one year.
-

VII. Warranties

- a statement or promise stated in the policy

itself or incorporated therein by reference,
whereby the insured expressly contracts as
to the present or future existence of certain
facts, circumstances, or conditions, the
literal truth of which is essential to the
validity of the contract of insurance

 Sec. 67. A warranty is either expressed

or implied.

 Sec. 68. A warranty may relate to the

past, the present, the future, or to any
or all of these.

 Kinds of warranties

1) affirmative- the insured asserts the

existence of a matter at or before the
issuance of the policy

2) promissory- the insured promises or

undertakes that certain matters shall
exist or will be done or omitted after the
policy takes effect

3) express- the assertion or promise is

clearly set forth in the policy or
incorporated therein by reference

4) Implied- the assertion or promise is not

expressly set forth in the policy but
because of the general tenor or of the
terms of the policy or from the very
nature of the insurance contract, a
warranty is necessarily inferred or
understood.

 Warranty v. misrepresentation

Warranty Misrepresentation
A part of the contract Merely a collateral
inducement thereto
Either expressly set May be oral, or
forth in the policy written in another
-
itself or incorporated instrument
therein by reference
Must be strictly and May only be
literally performed substantially true
Presumed material Must be shown to be
so
A breach of warranty Misrepresentation is
is a breach of the a ground for
contract itself rescinding the
contract.
 Sec. 69. No particular form of words is
necessary to create a warranty.
- the use of the word “warranty” is not
necessary to establish a warranty. Whether a
warranty is constituted or not depends upon
the intention of the parties, the nature of the
contract or the words used thereto.
- in case doubt, the statement is presumed
to be a mere representation and not a
warranty.
 Sec. 70. Without prejudice to section
fifty-one, every express warranty, made at
or before the execution of a policy, must be
contained in the policy itself, or in another
instrument signed by the insured and
referred to in the policy as making a part of
it.
- it may also be contained in a rider. A rider
is an part of the policy and hence, warranty
contained in the rider is a part of the policy
and hence, a warranty contained in the rider
need not be signed by the insured unless
such rider was issued after the original
policy took effect.
 Sec. 71. A statement in a policy of
matter relating to the person or thing
insured, or to the risk, as a fact, is an
express warranty thereof.
- Statements in the applications or medical
examination are representations only and
not warranties, if the application or medical
examination is not incorporated in the policy
or made a part of it by reference.
 Sec. 72. A statement in a policy which
imparts that it is intended to do or not to do
a thing which materially affects the risk, is
a warranty that such act or omission shall
take place.
- a promissory warranty is a statement in
the policy that a thing which is material to
the risk is intended to be done or not done
after the policy takes effect.
 Sec. 73. When, before the time arrives for
the performance of a warranty relating to
the future, a loss insured against
happens, or performance becomes
unlawful at the place of the contract, or
impossible, the omission to fulfill the
warranty does not avoid the policy.
Gen rule: the non performance of a
promissory warranty entitles the
other party to rescind the contract
Exceptions: omission to fulfill the
promissory warranty does
not avoid the policy
when :
1) a loss insured against happens,
2) performance becomes unlawful at the
place of the contract
3) performance becomes impossible
 Violations of warranties entitles the
other party to rescind (sec. 74 to 76)
 Sec. 74. The violation of a material
warranty, or other material provision of a
policy, on the part of either party thereto,
entitles the other to rescind
-the above rule is true even if the violation
of the material warranty did not contribute
to the loss
- in one case, the keeping of alcohol and
varnish which was necessary for the
preservation of furnitures in a salable
condition does not violates the warranty
prohibiting the storage of inflammable
materials
- in another case, the warranty prohibiting
the storage of hazardous or inflammable
materials is not violated by a deposit in
small quantities of such materials which
was needed for daily use.
-in one case, it was ruled that gasoline was
not specifically mentioned among the
-

prohibited articles listed in the so-called

“hemp warranty”. The clause relied upon by
the insurer speaks of “oil” and is ambiguous Case:
and uncertain. Besides, the gasoline kept by
the insured was only incidental to his
business, being no more than a customary 2
days’ supply for the five or six motors
vehicles used for transporting the copra and 1. Union Manufacturing co v. Phil
hemp stored in the warehouse. Guaranty- duty to disclose existence of
other policies/ violation of a material
provision of the policy requiring notice of
present or future co-insurers (74)

 Sec. 75. A policy may declare that a

violation of specified provisions thereof
shall avoid it, otherwise the breach of an
Facts:
immaterial provision does not avoid the
policy.

Petitioner(UMC) obtained certain loans

Immaterial provision declared to be
material avoids policy if violated
- the parties may agree that a violation of
any provision of the policy, even if not
material ,shall avoid it.
from the republic bank. To secure the
payment thereof, Petitioner executed real
and chattel mortgages on certain
properties. Republic bank procured from
the defendant phil guaranty, an insurance
coverage on loss against fire over the
properties of Petitioner.

A fire occurred in the premises of

- by said stipulation, an immaterial
provision in the policy is converted into a
material provision
Petitioner, they now filed its claim with
defendant which was denied by the
defendant on the ground that it failed to
disclose other insurances that company
has applied for.

 Sec. 76. A breach of warranty without

fraud merely exonerates an insurer from Issue: w/n republic bank can recover
the time that it occurs, or where it is
broken in its inception, prevents the
policy from attaching to the risk.
Held:

-General Rule: fraud is not essential in a

breach of warranty. Under sec 74, a
mere violation of a material
warranty even without fraud entitles
the other party to rescind.
-under this sec., a breach or warranty
without fraud exonerates the insurer
from the time that the breach occurs. If
there is fraud, the policy is voided ab
initio and the insured is not entitled to
the return of the premium
They cannot recover for violations of a
material provision of the policy requiring
notice of present or future co-insurers and
it appearing that while the policy of the
defendant was in full force and effect the
Petitioner secured other fire insurance
policies without the written consent of the
defendant endorsed on the policy, both
cannot recover from the same policy of
the defendant because the same is null
and void.

- also, a breach of warranty without

fraud exonerates the insurer where the
warranty is broken in its inception
thereby preventing the policy from
attaching to the risk.
-

VIII. Premium

- is the agreed price or consideration paid

by the insured to the insurer for
undertaking to indemnify the former
against a specified peril

 When must premium be paid:

Sec. 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

- in no premium is paid even if the thing

insured is already exposed to the peril, the
insurance contract is not effective and the
insurer has no right to collect the premium.
-

By express provision of law, an insurance

contract requires as one of its essential
requisites the payment of the premium for -this section, the law establishes a legal
the contract to be valid and binding. fiction of payment. Sec. 78 should be
interpreted as an exception to sec. 77.

 Effect of non-payment
Cases:
- no insurance policy is valid and binding
unless and until the premium thereof has
been paid, notwithstanding any
agreement to the contrary. Hence, the 1. Phil phoenix vs. woodworks- no partial
non-payment of premium does not merely payment
suspend but puts an end to an insurance
contract.

Gen rule: non-payment of premiums cannot

be excused by an act of God, by sickness
or incapacity of the insured, or by war,
since the time of payment of premium is
peculiarly of the essence of the
contract.

Except: where the failure to pay was due to

the wrongful conduct of the insurer as the
act of the insurer or his agent in refusing the
tender of a premium properly made, it will
necessarily estop the insurer from claiming a
forfeiture of the policy for non-payment of
premium.

 Effect of check payment

- there was valid payment of premium

even if check was encashed after the
occurrence of the fire.

 Effect of partial payment

- of the premium made the policy

effective during the whole period of the
policy.
-payment of the premium to the insurance
agent or broker is payment to the
insurance company
 Sec. 78. An acknowledgment in a policy
or contract of insurance or the receipt of
premium is conclusive evidence of its
payment, so far as to make the policy
binding, notwithstanding any stipulation
therein that (although the said policy
said) it shall not be binding until the
premium is actually paid.
2. UCPB vs. Masagana- non- payment of
premiums: estoppels/ the supreme
court ruled that an insurance policy, other
than life, issued originally or on
renewal, is not valid and binding until
actual payment of the premium, and
any agreement to the contrary is void- the
parties may not agree expressly or
impliedly on the extension of credit or
time to pay the premium and
consider the policy binding before
actual payment. However, upon
motion for reconsideration, the decision
was reconsidered and set aside, stating
that there are five exceptions to sec. 77.
-

4. Tibay vs. Ca- partial payment/ where the

parties expressly stipulated that the
policy is not in force until the
premium has been fully paid, the
payment of partial premium by the
assured should not be considered the
payment required by the law and the
stipulation of the parties-rather, it must
be taken in the concept of a deposit to
be held in trust by the insurer until
such time that the full amount has been
tendered and duly receipt for

3. Phil phoenix vs. woodworks- partial

payment of the premium made the
policy effective during the whole
period of the policy

 Grace period in payment of premiums

(sec 227, 228 and 230)
-
Sec. 227. In the case of individual life or
endowment insurance, the policy shall
contain in substance the following conditions:
(a) A provision that the policyholder is
entitled to a grace period either of
thirty days or of one month within
which the payment of any premium
after the first may be made, subject
at the option of the insurer to an
interest charge not in excess of six
per centum per annum for the
number of days of grace elapsing
before the payment of the premium,
during which period of grace the
policy shall continue in full force, but
in case the policy becomes a claim
during the said period of grace before
the overdue premium is paid, the
amount of such premium with interest
may de deducted from the amount
payable under the policy in
settlement;
(b) A provision that the policy shall be
incontestable after it shall have been
in force during the lifetime of the
insured for a period of two years from
its date of issue as shown in the
policy, or date of approval of last
reinstatement, except for non-
payment of premium and except for
violation of the conditions of the
policy relating to military or naval
service in time of war;
(c) A provision that the policy shall
constitute the entire contract
between the parties, but if the
company desires to make the
application a part of the contract it
may do so provided a copy of such
application shall be indorsed upon or
attached to the policy when issued,
and in such case the policy shall
contain a provision that the policy
and the application therefor shall
constitute the entire contract
between the parties;
(d) A provision that if the age of the
insured is considered in determining
the premium and the benefits
accruing under the policy, and the
age of the insured has been
misstated, the amount payable under
the policy shall be such as the
premium would have purchased at
the correct age;
(e) If the policy is participating, a
provision that the company shall
periodically ascertain and apportion
any divisible surplus accruing on the
policy under conditions specified
therein;
(f) A provision specifying the options
to which the policyholder is entitled to
in the event of default in a premium
payment after three full annual
premiums shall have been paid. Such
option shall consist of:
(1) A cash surrender value
payable upon surrender of the
policy which shall not be less
than the reserve on the policy,
the basis of which shall be
indicated, for the then current
policy year and any dividend
additions thereto, reduced by
a surrender charge which shall
not be more than one-fifth of
the entire reserve or two and
one-half per centum of the
amount insured and any
dividend additions thereto;
(2) One or more paid-up
benefits on a plan or plans
specified in the policy of such
value as may be purchased by
the cash surrender value;
(g) A provision that at anytime after a
cash surrender value is available
under the policy and while the policy
is in force, the company will advance,
on proper assignment or pledge of
the policy and on sole security
thereof, a sum equal to, or at the
option of the owner of the policy, less
than the cash surrender value on the
policy, at a specified rate of interest,
not more than the maximum allowed
by law, to be determined by the
company from time to time, but not
more often than once a year, subject
to the approval of the Commissioner;
and that the company will deduct
from such loan value any existing
indebtedness on the policy and any
unpaid balance of the premium for
the current policy year, and may
collect interest in advance on the loan
to the end of the current policy year,
which provision may further provide
that such loan may be deferred for
not exceeding six months after the
application therefor is made;
(h) A table showing in figures cash
surrender values and paid-up options
available under the policy each year
upon default in premium payments,
during at least twenty years of the
policy beginning with the year in
which the values and options first
become available, together with a
provision that in the event of the
failure of the policyholder to elect one
of the said options within the time
specified in the policy, one of said
options shall automatically take effect
and no policyholder shall ever forfeit
his right to same by reason of his
failure to so elect;
-

(i) In case the proceeds of a policy are b) date of approval of last reinstatement
payable in installments or as an in case of reinstatement
annuity, a table showing the
minimum amounts of the installments
or annuity payments;
- incontestability clause does not apply
(j) A provision that the policyholder and the insurer can still claim:
shall be entitled to have the policy
reinstated at any time within three
years from the date of default of
premium payment unless the cash
surrender value has been duly paid, a) for non-payment of premium b) for
or the extension period has expired, non-liability for violation by the insured of
upon production of evidence of the conditions of the policy relating to
insurability satisfactory to the military or naval service in time of war
company and upon payment of all
overdue premiums and any
indebtedness to the company upon
said policy, with interest rate not 3) policy as entire contract provision or
exceeding that which would have policy and application as entire contract
been applicable to said premiums and provision
indebtedness in the policy years prior
to reinstatement.

Any of the foregoing provisions or portions
thereof not applicable to single premium or
term policies shall to that extent not be
incorporated therein; and any such policy
may be issued and delivered in the
Philippines which in the opinion of the
Commissioner contains provisions on any
one or more of the foregoing requirements
more favorable to the policyholder than
hereinbefore required.
This section shall not apply to policies of
group life or industrial life insurance.
- policy entire contract provision, where
the policy ic constituted as the entire
contract between the parties
- policy and application as entire contract
provision, where both the policy and the
application for said policy are constituted
as the entire contract between parties
4) misstatement of age provision

A. certain provisions to be contained in

individual life or endowment insurance
1.) grace period
- if the age of the insured is misstated,
the amount payable under the policy
shall be such as the premium would have
purchased at the correct age. The policy
is not voided.

- the policy holder is entitled to a grace

period to pay the premium, after
payment of the first premium, of thirty
days or one month from due date, during
which period the policy is in full force
2) incontestability clause
- under this clause, the policy shall be
incontestable after being in force for two
years either from:
5) dividend option provision
-life insurance contracts may be
“participating” or “non participating” at
the choice of the policy holder. If it is
“participating” the company shall
periodically apportion any divisible
surplus accruing on the policy and the
amount given to the policy holder. The
amount returned to the policy holder is
called a “policy dividend”

- these dividends may either

a) date of issue of the original policy a) paid in cash

b) applied to the next premium

-
c)retained with the company to
accumulate interest at the option of the
policy holder
6) policy surrender option provision
- the policyholder who has paid three
annual premiums but later defaults may
have the following options:
a) to secure the cash surrender value
payable upon surrender of the policy
b) instead of receiving cash, to have it
applied to a paid –up cash , insurance for
a reduced amount
c) instead of receiving cash, to have it
applied to an extended term insurance
7) policy loan provision
- at any time after a cash surrender value
becomes available, the policyholder is
given the right or privilege to secure a
loan from the insurance company, on
proper assignment or pledge of the policy
and on the sole security thereof
-the amount of the loan may be, at the
option of the policyholder:
a) equal to the cash surrender value
b)less than the cash surrender value
- the insurance company may deduct or
collect from such loan the ff:
a) any existing indebtedness of the
insurance policy
b) any unpaid balance of the premium for
the current policy year
c) interest in advance of the loan to the
end of the current policy year
-violation of this policy loan clause by the
insurance company entitles the
policyholder to rescind the contract
8) a table cash surrender values and
paid-up options available
- the insurance policy is required to
contain a table showing in figures the
cash surrender values and paid-up
options available under the policy each
year upon default in premium payments
-it shall also contain a provision that if
the policyholder fails to elect an option
within the specified time, one of said
options shall automatically take effect
and no policyholder shall ever forfeit his
right to the same by reason of his failure
to elect
9) reinstatement clause
- the policy holder is entitled to have his
policy reinstated at any time within 3
years from the default of premium
payment under certain conditions
Sec. 228. No policy of group life insurance
shall be issued and delivered in the
Philippines unless it contains in substance
the following provisions, or provisions which
in the opinion of the Commissioner are more
favorable to the persons insured, or at least
as favorable to the persons insured and more
favorable to the policy-holders:
(a) A provision that the policyholder is
entitled to a grace period of either
-
thirty days or of one month for the
payment of any premium due after
the first, during which grace period
the death benefit coverage shall
continue in force, unless the
policyholder shall have given the
insurer written notice of
discontinuance in advance of the date
of discontinuance and in accordance
with the terms of the policy. The
policy may provide that the
policyholder shall be liable for the
payment of a pro rata premium for
the time the policy is in force during
such grace period;
(b) A provision that the validity of the
policy shall not be contested, except
for non-payment of premiums after it
has been in force for two years from
its date of issue; and that no
statement made by any insured
under the policy relating to his
insurability shall be used in
contesting the validity of the
insurance with respect to which such
statement was made after such
insurance has been in force prior to
the contest for a period of two years
during such person's lifetime nor
unless contained in written
instrument signed by him;
(c) A provision that a copy of the
application, if any, of the policyholder
shall be attached to the policy when
issued, that all statements made by
the policyholder or by persons
insured shall be deemed
representations and not warranties,
and that no statement made by any
insured shall be used in any contest
unless a copy of the instrument
containing the statement is or has
been furnished to such person or to
his beneficiary;
(d) A provision setting forth the
conditions, if any, under which the
insurer reserves the right to require a
person eligible for insurance to
furnish evidence of individual
insurability satisfactory to the insurer
as a condition to part or all of his
coverage;
(e) A provision specifying an equitable
adjustment of premiums or of
benefits or of both to be made in the
event that the age of a person
insured has been misstated, such
provision to contain a clear statement
of the method of adjustment to be
used;
(f) A provision that any sum becoming
due by reason of death of the person
insured shall be payable to the
beneficiary designated by the
insured, subject to the provisions of
the policy in the event that there is no
designated beneficiary, as to all or
any part of such sum, living at the
death of the insured, and subject to
any right reserved by the insurer in
the policy and set forth in the
certificate to pay at its option a part
of such sum not exceeding five
hundred pesos to any person
appearing to the insurer to be
equitably entitled thereto by reason
of having incurred funeral or other
expenses incident to the last illness or
death of the person insured;
(g) A provision that the insurer will
issue to the policyholder for delivery
to each person insured an individual
certificate setting forth a statement
as to the insurance protection to
which he is entitled, to whom the
insurance benefits are payable, and
the rights set forth in paragraphs (h),
(i) and (j) following;
(h) A provision that if the insurance,
or any portion of it, on a person
covered under the policy ceases
because of termination of
employment or of membership in the
class or classes eligible for coverage
under the policy, such person shall be
entitled to have issued to him by the
insurer, without evidence of
insurability, an individual policy of life
insurance without disability or other
supplementary benefits, provided
application for the individual policy
and payment of the first premium to
the insurer shall be made within thirty
days after such termination and
provided further that:
(1) the individual policy shall
be on any one of the forms,
except term insurance, then
customarily issued by the
insurer at the age and for an
amount not in excess of the
coverage under the group
policy; and
(2) the premium on the
individual policy shall be at
the insurer's then customary
rate applicable to the form
and amount of the individual
policy, to the class of risk to
which such person then
belongs, and to his age
attained on the effective date
of the individual policy.
(i) A provision that if the group policy
terminates or is amended so as to
terminate the insurance of any class
of insured persons, every person
insured thereunder at the date of
-
such termination whose insurance
terminates and who has been so
insured for five years prior to such
termination date shall be entitled to
have issued to him by the insurer an
individual policy of life insurance
subject to the same limitations as set
forth in paragraph (h), except that the
group policy may provide that the
amount of such individual policy shall
not exceed the smaller of (a) the
amount of the person's life insurance
protection ceasing less the amount of
any life insurance for what he is or
becomes eligible under any group
policy issued or reinstated by the
same or another reinsurer within
thirty days after such termination,
and (b) two thousand pesos;
(j) A provision that if a person insured
under the group policy dies during the
thirty-day period within which he
would have been entitled to an
individual policy issued to him in
accordance with (h) and (i) above and
before such individual policy shall
have become effective, the amount of
life insurance which he would have
been entitled to have issued to him as
an individual policy shall be payable
as a claim under the group policy
whether or not application for the
individual policy or the payment of
the first premium has been made;
(k) In the case of a policy issued to a
creditor to insure debtors of such
creditor, a provision that the insurer
will furnish to the policyholder for
delivery to each debtor insured under
the policy a form which will contain a
statement that the life of the debtor is
insured under the policy and that any
death benefit paid thereunder by
reason of his death shall be applied to
reduce or extinguish indebtedness.
The provisions of paragraphs (f) to (j) shall
not apply to policies issued to a creditor to
insure his debtors. If a group life policy is on
a plan of insurance other than term, it shall
contain a non-forfeiture provision or
provisions which in the opinion of the
Commissioner is or are equitable to the
insured or the policyholder: Provided, That
nothing herein contained shall be so
construed as to require group life policies to
contain the same non-forfeiture provisions as
are required of individual life policies.
A. group life insurance
- is one where a a specified number of
persons usually the employees of a
particular company, are insured under a
single contract, as a low cost mass
protection insurance. There is usually no
medical examination made of the persons
insured. they pay a uniform premium,
usually deducted from their salaries, and the
death of any member will give rise to the
insurer’s liability to pay the beneficiary of
the particular deceased.
Sec. 229. The term "industrial life insurance"
as used in this Code shall mean that form of
life insurance under which the premiums are
payable either monthly or oftener, if the face
amount of insurance provided in any policy is
not more than five hundred times that of the
current statutory minimum daily wage in the
City of Manila, and if the words "industrial
policy" are printed upon the policy as part of
the descriptive matter.
An industrial life policy shall not lapse for
non-payment of premium if such non-
payment was due to the failure of the
company to send its representative or agent
to the insured at the residence of the insured
or at some other place indicated by him for
the purpose of collecting such premium:
Provided, That the provisions of this
paragraph shall not apply when the premium
on the policy remains unpaid for a period of
three months or twelve weeks after the
grace period has expired.
Sec. 230. In the case of industrial life
insurance, the policy shall contain in
substance the following provisions:
(a) A provision that the insured is
entitled to a grace period of four
weeks within which the payment of
any premium after the first may be
made, except that where premiums
are payable monthly, the period of
grace shall be either one month or
thirty days; and that during the period
of grace, the policy shall continue in
full force, but if during such grace
period the policy becomes a claim,
then any overdue and unpaid
premiums may be deducted from any
amount payable under the policy in
settlement;
(b) A provision that the policy shall be
incontestable after it has been in
force during the lifetime of the
insured for a specified period, not
more than two years from its date of
issue, except for non-payment of
premiums and except for violation of
the conditions of the policy relating to
naval or military service, or services
auxiliary thereto, and except as to
provisions relating to benefits in the
event of disability as defined in the
policy, and those granting additional
insurance specifically against death
by accident or by accidental means,
or to additional insurance against loss
of, or loss of use of, specific members
of the body;
-
(c) A provision that the policy shall
constitute the entire contract
between the parties, or if a copy of
the application is endorsed upon and
attached to the policy when issued, a
provision that the policy and the
application therefor shall constitute
the entire contract between the
parties, and in the latter case, a
provision that all statements made by
the insured shall, in the absence of
fraud, be deemed representations
and not warranties;
(d) A provision that if the age of the
person insured, or the age of any
person, considered in determining the
premium, or the benefits accruing
under the policy, has been misstated,
any amount payable or benefit
accruing under the policy shall be
such as the premium paid would have
purchased at the correct age;
(e) A provision that if the policy is a
participating policy, the company
shall periodically ascertain and
apportion any divisible surplus
accruing on the policy under the
conditions specified therein;
(f) A provision that in the event of
default in premium payments after
three full years' premiums have been
paid, the policy shall be converted
into a stipulated form of insurance,
and that in the event of default in
premium payments after five full
years' premiums have been paid, a
specified cash surrender value shall
be available, in lieu of the stipulated
form of insurance, at the option of the
policyholder. The net value of such
stipulated form of insurance and the
amount of such cash value shall not
be less than the reserve on the policy
and dividend additions thereto, if any,
at the end of the last completed
policy year for which premiums shall
have been paid (the policy to specify
the mortality table, rate of interest
and method of valuation adopted to
compute such reserve), exclusive of
any reserve on disability benefits and
accidental death benefits, less an
amount not to exceed two and one-
half per centum of the maximum
amount insured by the policy and
dividend additions thereto, if any, at
the end of the last completed policy
year for which premiums shall have
been paid (the policy to specify the
mortality table, rate of interest and
method of valuation adopted to
compute such reserve), exclusive of
any reserve on disability benefits and
accidental death benefits, less an
amount not to exceed two and one-
half per centum of the maximum
amount insured by the policy and
dividend additions thereto, if any,
when the issue age is under ten
years, and less an amount not to
exceed two and one-half per centum
of the current amount insured by the
policy and dividend additions thereto,
if any, if the issue age is ten years or
older, and less any existing
indebtedness to the company on or
secured by the policy;
(g) A provision that the policy may be
surrendered to the company at its
home office within a period of not less
than sixty days after the due date of
a premium in default for the specified
cash value, provided that the insurer
may defer payment for not more than
six months after the application
therefor is made;
(h) A table that shows in figures the
non-forfeiture benefits available
under the policy every year upon
default in payment of premiums
during at least the first twenty years
of the policy, such table to begin with
the year in which such values become
available, and a provision that the
company will furnish upon request an
extension of such table beyond the
year shown in the policy;
(i) A provision that specifies which
one of the stipulated forms of
insurance provided for under the
provision of paragraph (f) of this
section shall take effect in the event
of the insured's failure, within sixty
days from the due date of the
premium in default, to notify the
insurer in writing as to which one of
such forms he has selected;
(j) A provision that the policy may be
reinstated at any time within two
years from the due date of the
premium in default unless the cash
surrender value has been paid or the
period of extended term insurance
expired, upon production of evidence
of insurability satisfactory to the
company and payment of arrears of
premiums with interest at a rate not
exceeding six per centum per annum
payable annually;
(k) A provision that when a policy
shall become a claim by death of the
insured, settlement shall be made
upon receipt of
due proof of death, or not later than
two months after receipt of such
proof;
(l) A title on the face and on the back
of the policy correctly describing its
form;
-
(m) A space on the front or the back
of the policy for the name of the
beneficiary designated by the insured
with a reservation of the insured's
right to designate or change the
beneficiary after the issuance of the
policy. The policy may also provide
that no designation or change of
beneficiary shall be binding on the
insurer until endorsed on the policy
by the insurer, and that the insurer
may refuse to endorse the name of
any proposed beneficiary who does
not appear to the insurer to have an
insurable interest in the life of the
insured. Such policy may also contain
a provision that if the beneficiary
designated in the policy does not
surrender the policy with due proof of
death within the period stated in the
policy, which shall not be less than
thirty days after the death of the
insured, or if the beneficiary is the
estate of the insured, or is a minor, or
dies before the insured, or is not
legally competent to give valid
release, then the insurer may make
any payment thereunder to the
executor or administrator of the
insured, or to any of the insured's
relatives by blood or legal adoption or
connections by marriage or to any
person appearing to the insurer to be
equitably entitled thereto by reason
of having incurred expense for the
maintenance, medical attention or
burial of the insured; and
(n) A provision that when an industrial
life insurance policy is issued
providing for accidental or health
benefits, or both, in addition to life
insurance, the foregoing provisions
shall apply only to the life insurance
portion of the policy.
Any of the foregoing provisions or portions
thereof not applicable to non-participating or
term policies shall to that extent not be
incorporated therein. The foregoing
provisions shall not apply to policies issued
or granted pursuant to the non-forfeiture
provisions prescribed in provisions of
paragraphs (f) and (i) of this section, nor
shall provisions of paragraphs (f), (g), (h),
and (i) hereof be required in term insurance
of twenty years or less but such term policies
shall specify the mortality table, rate of
interest, and method of computing reserves.
 Instances where insured is entitled to
return of premiums paid (sec. 79-82)
 Sec. 79. A person insured is entitled to a
return of premium, as follows:
(a) To the whole premium if no part of
his interest in the thing insured be
exposed to any of the perils insured
against;
(b) Where the insurance is made for a
definite period of time and the
insured surrenders his policy, to such
portion of the premium as
corresponds with the unexpired time,
at a pro rata rate, unless a short
period rate has been agreed upon
and appears on the face of the policy,
after deducting from the whole
premium any claim for loss or
damage under the policy which has
previously accrued; Provided, That no
holder of a life insurance policy may
avail himself of the privileges of this
paragraph without sufficient cause as
otherwise provided by law
 Sec. 80. If a peril insured against has
existed, and the insurer has been liable
for any period, however short, the insured
is not entitled to return of premiums, so
far as that particular risk is concerned.
 Sec. 81. A person insured is entitled to
return of the premium when the contract
is voidable, on account of fraud or
misrepresentation of the insurer, or of his
agent, or on account of facts, the
existence of which the insured was
ignorant without his fault; or when by any
default of the insured other than actual
fraud, the insurer never incurred any
liability under the policy.
 Sec. 82. In case of an over-insurance by
several insurers, the insured is entitled to
a ratable return of the premium,
proportioned to the amount by which the
aggregate sum insured in all the policies
exceeds the insurable value of the thing
at risk.
- When the insured is entitled to a return
of premiums paid insured is entitled to
recover premiums already made in the ff
instances:
1) when no part of the interest of the
thing insured has been exposed to any of
the perils insured against
-the assumption of risk is one of the
essential elements of an insurance
contract. If there is no assumption of risk
because the thing insured was not
-
exposed to the peril insured against, no
valid insurance contract was effected and
the premium may be recovered.
ex: when a vessel in insured for a certain
voyage and said voyage did not proceed,
the insured is entitled to a return of the
premium.
-where the risk in entire and the contract
is indivisible, the insured is not entitled to
a return of the premium if the insurer was
not exposed to the peril for any period,
however short
ex: x insured his cargo from manila to
tokypo japan. The vessel with the cargo
left manila and 7 days away from Tokyo, x
surrendered the policy. X cannot recover
the premium because the risk was entire
and indivisible and the insurer had been
exposed to the risk already.
2) where the insurance is made for a
definite period of time and the insured
surrenders his policy before the expiration
of that period
- where the insurance is made for a
definite period of time and the insured
surrenders his policy, he can recover a
portion of the premium as corresponds
with the unexpired time
Ex: x pays P 1,200 as premium for one
year for a fire policy on his building. After
the lapse of 6 months, x surrenders the
policy. X is entitled to a return of p600
from the premium paid, corresponding to
the unexpired portion of 6 months
- the rule does not apply where:
a) the insurance is not for definite
period
b) a short period rate has been agreed
upon; or
c) the policy is a life insurance policy
- short period rates are those usually
found in a table of figures in the policy
stipulating the amount or rate of premium
for specified short times or premium at
short time basis. When said short period
rate is agreed upon, the amount
recoverable upon surrender will not be the
amount corresponding to the unexpired
period, but only the balance after
deducting the percentage to be retained
by the insurer as stated in the short rate
table.
- life insurance policy is a indivisible
contract and hence the insured cannot
recover the premiums paid. However, he
is entitled to receive the “cash surrender
value” of his policy after three full annual
premiums shall have been paid.
3) where the contract is voidable on
account of the fraud or misrepresentation
of the insurer or of his agent
4) when the contract is voidable on
account of facts, the existence of which
the insured was ignorant of without his
fault
- when at the time the insurance is taken
the insured, who was ignorant of the
facts, did not have insurable interest in
the thing insured, the insured is entitled
to a return of the premium
5) when by any default of the insured
other than actual fraud, the insurer never
incurred any liability under the policy; and
- x insured his vessel for a trip to Japan
and paid the premium in advance. The
vessel was destroyed before the trip. X is
entitled to recover the premium paid.
-however, the insured is not entitled to
recover the premium f the policy is
annulled by reason of the fraud or
misrepresentation of the insured.
6) in case of an over-insurance by several
insurers
-

- in case of over-insurance, ie: an

insurance in excess of the amount of the
insurable interest of the insured, by
several insurers, the insured is entitled to
a ratable return of the premium ,
proportioned to the amount by which the
aggregate sum insured n all the policies
exceeds the insurable value of the thing
at risk.
-

use, repair, or construction of any

vessel, craft or instrumentality in use
of ocean or inland waterways,
including liability of the insured for
XII. Marine Insurance personal injury, illness or death or for
loss of or damage to the property of
another person.

 Sec. 99. Marine Insurance includes:

1.) “marine insurance”
(1) Insurance against loss of or
damage to:
(a) Vessels, craft, aircraft, vehicles,
goods, freights, cargoes,
merchandise, effects, disbursements, - is defined by enumerating what matters
profits, moneys, securities, choses in it includes
action, evidences of debts, valuable
papers, bottomry, and respondentia
interests and all other kinds of
property and interests therein, in -in the previous insurance act, it was
respect to, appertaining to or in defined as insurance against risk
connection with any and all risks or connected with navigation to which a ship
perils of navigation, transit or or cargo may be exposed during a certain
transportation, or while being voyage.
assembled, packed, crated, baled,
compressed or similarly prepared for
shipment or while awaiting shipment,
or during any delays, storage, 2) marine insurance under the insurance
transhipment, or reshipment incident code covers not only property exposed to
thereto, including war risks, marine risk of marine navigation but also those
builder's risks, and all personal which are exposed to risk not connected
property floater risks; with marine navigation such as insurance
against loss or damage to
(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 -Aircraft
out of or in connection with the
construction, repair, operation, -goods while being assembled, packed,
maintenance or use of the subject crated, baled, compressed or similarly
matter of such insurance (but not prepared for shipment or while awaiting
including life insurance or surety shipment,, not yet in the course of
bonds nor insurance against loss by transportation
reason of bodily injury to any person
arising out of ownership, - Precious stones, jewels, jewelry,
maintenance, or use of automobiles); precious metals, whether in course of
transportation or otherwise
(c) Precious stones, jewels, jewelry,
precious metals, whether in course of
- Bridges, tunnels and other
transportation or otherwise;
instrumentalities of transportation and
communication
(d) Bridges, tunnels and other
instrumentalities of transportation
and communication (excluding
buildings, their furniture and
furnishings, fixed contents and  Property covered
supplies held in storage); piers,
wharves, docks and slips, and other
aids to navigation and transportation,
including dry docks and marine - any property or interest enumerated in this
railways, dams and appurtenant section
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,
- term “goods and merchandise” in a marine
policy includes all articles which are carried
on the ship for commercial purposes. They
do not include the clothing of the passengers
-

of the crew unless shipped as part of the legal process such as a lawsuit on ownership
cargo, nof food and other provisions and possession of the goods
intended for the consumption of the
passengers, unless these are expressly
included in the policy
-rusting of a cargo of steel pipes in the
course of a voyage is a peril of the sea

- freightage- signified all the benefits derived

by the owner, either from the chartering of
the ship for its employment for the carriage Case:
of his own goods or those of others. It will
not be covered by the policy unless
expressly indicated.

Cathay Insurance co V. CA

 Risk insured against

-insurer is liable for all losses proximately

caused by the prerils covered by the
marine policy

- these risk not only perils of the sea but

also fire, enemies pirates, thieves,
jettison, suprisals, takings at sea, arrest,
restraints, and detainments of all kings,
princess, and people of what nation,
condition or quality so ever, barratry of
the master and mariners and of all other
perils, losses and misfortunes, that have
or shall come t the hurt, detriment, or
damage of the said goods and
merchandise, ship or any part thereof.

 Perils of the ship

- fire may not be considered a natural
disaster since it almost arises from some
act of man.
- losses or damages resulting from

A) natural and inevitable action of the sea

b) ordinary wear and tear of a ship

 “Perils of the sea”
c) negligent failure of the ship’s owner to
provide the vessel with proper equipment to
convey the cargo under ordinary conditions
- those casualties due to the violent action of
the winds and waves

- if perils of the ship are not expressly

included in the policy, the insurer is not
liable for a loss caused by a peril of the ship
- shipwreck, foundering, stranding, collision,
and every specie of damage done to the ship
or goods at sea by the violent action of the
winds and waves

 Inchmaree clause- provicion in the

-includes not only arrest caused by political policy that the insurance shall cover
acts or a seizing state but also by ordinary loss or damage to the hull or
-
machinery through negligence of the
master, charters, mariners, engineers
or pilots or thoruhg explosions,
bursting of boilers, breakage of shafts
or through any latent defect in the hull
or machinery not resulting from want
of due diligence
 All risk clause
-a provision of the marine insurance policy
creates a special type of insurance which
extends coverage to risk not usually
contemplated and avoids putting upon the
insured the burden of establishing that the
loss was due to the peril falling within the
policy’s coverage.
• Other risk
1) Barratry- is a willful act of the master or
crew in pursuance of some fraudulent or
unlawful purpose, without the consent of the
owner, and to the prejudice of his interest.
Ex. Burning of the ship, violation of revenue
laws subjecting the ship to penalties or
unlawfully selling the cargo
2) “takings at sea, arrest, restraints, and
detainments of all kings, princess, and
people”
Means extraordinary acts of sovereign
authority in times of war or under other
unusual international conditions like
blockades and embargoes
 Insurable interest of the ship
owner, cargo owner, and
charterer (sec 100-106)
INSURABLE INTEREST
Sec. 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 in this case the insurer shall
be liable for only that part of the loss which
the insured cannot recover from the
charterer.
1) Insurable interest of the shipowner in the
vessel
This insurable interest continues even if:
A) the vessel has been chartered by one who
covenenats to pay shipowner the vessels’
value in case of loss
B) shipowner has mortgaged the vessel to
another
-if the vessel is chartered and the charterer
covenants to pay the owner in case of loss,
the insurer shall be liable for only the part of
the loss which the insured cannot recover
from the charterer.
 2) Insurable interest of the
charterer
-to the extent that he is liable to be
damnified by its loss
Sec. 101. The insurable interest of the owner
of the ship hypothecated by bottomry is only
the excess of its value over the amount
secured by bottomry.
“a loan on bottomry”- a loan which is
payable only if the vessel given as security
for said loan arrives safely at port fro
contemplated voyage
“respondentia loan”- a loan which is payable
only upon the safe arrival in a port of the
gods given as security
1) insurable interest of the shipowner
When a vessel is hypothecated by way of
bottomry, the owner has an insubale interest
only in th excess of the vessel’s value over
the amount of the bottomry loan. This is
because when the vessel bottomed is lost,
the owner need not pay the loan and is
therefore benefited to the extent of the
amount of the loan obtained and the loss he
actually suffers is only the difference
between the actual value of the vessel and
the bottomry loan.
2) insurable interest of the lender on
bottomry
As security to the extent of the loan
-
Sec. 102. Freightage, in the sense of a policy
of marine insurance, signifies all the benefits
derived by the owner, either from the
chartering of the ship or its employment for
the carriage of his own goods or those of
others.
Sec. 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.
A. insurable interest in a freightage
1. the shipowner may insured expected
freightage if there is a risk of not being able
to collect the same by the happening of the
peril insured against
2. however, where freight is payable whether
the vessel is lost or not, the shipowner has
no insurable interest in such freight
Sec. 104. The interest mentioned in the last
section exists, in case of a charter party,
when the ship has broken ground on the
chartered voyage. If a price is to be paid for
the carriage of goods it exists when they are
actually on board, or there is some contract
for putting them on board, and both ship and
goods are ready for the specified voyage.
1. in case the vessel is chartered, the
shipowner’s insurable interest in expected
freightage exist from the time the ship has
broken ground on the chartered voyage.
2. in case the vessel is employed for the
carriage of goods without a charter party,
the shipowner’s insurable interest in
expected freightage , exist when the goods
are actually on board , or there is some
contract putting them on board and both
vessel and goods are ready for the specified
voyage.
Sec. 105. One who has an interest in the
thing from which profits are expected to
proceed has an insurable interest in the
profits.
-I.I on expected profits
-example:
The owner of a cargo or merchandise
transported by a vessel has an insurable
interest not only on the value of the
merchandise but also on the expected profits
from the future sale of the merchandise
which may be adversely affected by the
perils of the sea.
Sec. 106. The charterer of a ship has an
insurable interest in it, to the extent that he
is liable to be damnified by its loss.
Example: see the book
 Concealment and
Misrepresentation; not
necessary that the loss be a
consequence of the matter
concealed (sec. 107)
CONCEALMENT
Sec. 107. In marine insurance each party is
bound to communicate, in addition to what is
required by section twenty-eight, all the
information which he possesses, material to
the risk, except such as is mentioned in
Section thirty, and to state the exact and
whole truth in relation to all matters that he
represents, or upon inquiry discloses or
assumes to disclose.
1) the rules on concealment in marine
insurance are stricter than that of ordinary
insurance. To constitute concealment in
marine insurance, it is sufficient that the
insured is in possession of the material fact
concealed although he may not aware of it,
which is a requirement in concealment in
ordinary insurance.
2) ex: if the agent failed to notify his
principal of the loss of a cargo and the latter
after the loss but ignorant thereof, secured
insurance “lost or not” on the venture, such
insurance will be void on the ground of
concealment.
Sec. 108. In marine insurance, information of
the belief or expectation of a third person, in
reference to a material fact, is material.
Sec. 109. A person insured by a contract of
marine insurance is presumed to have
knowledge, at the time of insuring, of a prior
loss, if the information might possibly have
reached him in the usual mode of
transmission and at the usual rate of
communication.
Sec. 110. A concealment in a marine
insurance, in respect to any of the following
matters, does not vitiate the entire contract,
but merely exonerates the insurer from a
loss resulting from the risk concealed:
(a) The national character of the insured;
(b) The liability of the thing insured to
capture and detention;
(c) The liability to seizure from breach of
foreign laws of trade;
(d) The want of necessary documents;
(e) The use of false and simulated papers.
REPRESENTATION
-
 Sec. 111. If a representation by
a person insured by a contract
of marine insurance, is
intentionally false in any
material respect, or in respect of
any fact on which the character
and nature of the risk depends,
the insurer may rescind the
entire contract.
Sec. 112. The eventual falsity of a
representation as to expectation does not, in
the absence of fraud, avoid a contract of
marine insurance
 Implied warranties
Sec. 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.
Case: Roque vs. Iac-seaworthiness of the
vessel or a warranty is
implied that the ship is seaworthy in every
marine insurance upon a ship or
freight( cargo/ shipments) or freightage or
upon anything which is the subject of marine
insurance
 When vessel is sea worthy ( 114-120)
Sec. 114. A ship is seaworthy when
reasonably fit to perform the service and to
encounter the ordinary perils of the voyage
contemplated by the parties to the policy.
-this section adopts the principle that
seaworthiness is a relative term depending
on the nature of the ship, the voyage, and
the service in which she is at the time
engaged.
Sec. 115. An implied warranty of
seaworthiness is complied with if the ship be
seaworthy at the time of the of
commencement of the risk, except in the
following cases:
(a) When the insurance is made for a
specified length of time, the implied
warranty is not complied with unless the ship
be seaworthy at the commencement of
every voyage it undertakes during that time;
(b) When the insurance is upon the cargo
which, by the terms of the policy, description
of the voyage, or established custom of the
trade, is to be transhipped at an
intermediate port, the implied warranty is
not complied with unless each vessel upon
which the cargo is shipped, or transhipped,
be seaworthy at the commencement of each
particular voyage.
Gen rule: commencement of the risk
Exceptions:
1) insurance is made for a specified length of
time, the ship must be seaworthy at the
commencement of every voyage it
undertakes during that time
2) insurance is upon cargo required to be
transshipped, each vessel upon which the
cargo is shipped or transshipped. Must be
seaworthy at the commencement of each
particular voyage and
3) where different portions of the voyage
contemplated differ in respect to the things
required to make the ship seaworthy
therefor, the ship must be seaworthy at the
commencement of each portion with
reference to that portion
Sec. 116. A warranty of seaworthiness
extends not only to the condition of the
structure of the ship itself, but requires that
it be properly laden, and provided with a
competent master, a sufficient number of
competent officers and seamen, and the
requisite appurtenances and equipment,
such as ballasts, cables and anchors,
cordage and sails, food, water, fuel and
lights, and other necessary or proper stores
and implements for the voyage.
Sec. 117. Where different portions of the
voyage contemplated by a policy differ in
respect to the things requisite to make the
ship seaworthy therefor, a warranty of
seaworthiness is complied with if, at the
commencement of each portion, the ship is
seaworthy with reference to that portion.
A. Seaworthiness required at
commencement of each portion of voyage
1) this is an exception to the general rule
that seaworthiness of the vessel is required
only at the commencement of the risk
2 hence, seaworthiness is required at the
commencement of each portion of the
voyage with reference to said portions
Sec. 118. When the ship becomes
unseaworthy during the voyage to which an
insurance relates, an unreasonable delay in
repairing the defect exonerates the insurer
on ship or shipowner's interest from liability
from any loss arising therefrom.
A. unseaworthiness during the voyage
-
1) if the ship is seaworthy at the start of the
voyage, unseaworthiness during the voyage
does not avoid the policy.
2) however, an unreasonable delay in
repairing the defect causing
unseaworthiness during the voyage
exonerates (absolves) the insurer on ship or
shipowner’s interest from liability from any
loss arising therefrom
Sec. 119. A ship which is seaworthy for the
purpose of an insurance upon the ship may,
nevertheless, by reason of being unfitted to
receive the cargo, be unseaworthy for the
purpose of the insurance upon the cargo.
A. Seaworhtiness as to cargo
1) a ship which is seaworthy for an insurance
upon the ship, may, by reason of being
unfitted to receive the cargo, be
unseaworthy for an insurance upon cargo
2) it was stated that the vessel was
unseaworthy for cargo because of a
defective pipe which the shipowner failed to
repair, with the result that water entered the
vessel and the cargo was damaged.
Therefore the insurer of the cargo was not
liable.
Sec. 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.
A. Implied warranty that requisite documents
on nationality or neutrality are carried
- implied warranty under this section only
arises when the nationality or neutrality of
the vessel or cargo is expressly warranted.
THE VOYAGE AND DEVIATION
Sec. 121. When the voyage contemplated by
a marine insurance policy is described by the
places of beginning and ending, the voyage
insured in one which conforms to the course
of sailing fixed by mercantile usage between
those places.
Sec. 122. If the course of sailing is not fixed
by mercantile usage, the voyage insured by
a marine insurance policy is that way
between the places specified, which to a
master of ordinary skill and discretion, would
mean the most natural, direct and
advantageous.
 Deviation; when it is proper ( sec. 123
to 124)
Sec. 123. Deviation is a departure from the
course of the voyage insured, mentioned in
the last two sections, or an unreasonable
delay in pursuing the voyage or the
commencement of an entirely different
voyage.
A. example
1) departure from the course of sailing fixed
by mercantile usage or
2) departure from the most natural, direct
and advantageous course if no course has
been fixed by mercantile usage
Sec. 124. A deviation is proper:
(a) When caused by circumstances over
which neither the master nor the owner of
the ship has any control;
(b) When necessary to comply with a
warranty, or to avoid a peril, whether or not
the peril is insured against;
(c) When made in good faith, and upon
reasonable grounds of belief in its necessity
to avoid a peril; or
(d) When made in good faith, for the purpose
of saving human life or relieving another
vessel in distress.
Note: deviation is proper if it does not vitiate
the marine policy
Every deviation not specified in sec. 124 is
improper
Sec. 125. Every deviation not specified in the
last section is improper.
Sec. 126. An insurer is not liable for any loss
happening to the thing insured subsequent
to an improper deviation.
LOSS
Sec. 127. A loss may be either total or
partial.
Sec. 128. Every loss which is not total is
partial.
-
Sec. 129. A total loss may be either actual or
constructive.
Sec. 130. An actual total loss is cause by:
(a) A total destruction of the thing insured;
(b) The irretrievable loss of the thing by
sinking, or by being broken up;
(c) Any damage to the thing which renders it
valueless to the owner for the purpose for
which he held it; or
(d) Any other event which effectively
deprives the owner of the possession, at the
port of destination, of the thing insured.
Sec. 131. A constructive total loss is one
which gives to a person insured a right to
abandon, under Section one hundred thirty-
nine.
A. Constructive total loss which is also known
as “technical total loss” is one which gives
the insured the right to abandon the thing
insured by relinquishing to the insurer his
interest in such thing, entitling him to
recover for a total loss threof.
In turn, the insurer acquires all the rights
over the thing insured. he can salvage it,
repair it, sell it and recover from those who
caused its loss.
-see sec. 139
B. Partial loss
1) partial loss is any loss which is not total
2) examples of partial loss:
a) where only a part of the cargo is lost
b) where only a portion of the vessel is
damaged
Sec. 132. An actual loss may be presumed
from the continued absence of a ship without
being heard of. The length of time which is
sufficient to raise this presumption depends
on the circumstances of the case.
A. examples of actual loss
a) where the ship is so badly damaged that it
no longer exists as a ship but is only a mass
of material
b) where the vessel is captured and
condemned
c) where the vessel is completely burned and
d) where a cargo of machinery insured sank
with the vessel even if part of the machinery
was recovered from the shipwreck but such
part was so rusty as to be of no value even
for use in another machinery
Sec. 133. When a ship is prevented, at an
intermediate port, from completing the
voyage, by the perils insured against, the
liability of a marine insurer on the cargo
continues after they are thus reshipped.
Nothing in this section shall prevent an
insurer from requiring an additional premium
if the hazard be increased by this extension
of liability.
Sec. 134. In addition to the liability
mentioned in the last section, a marine
insurer is bound for damages, expenses of
discharging, storage, reshipment, extra
freightage, and all other expenses incurred in
saving cargo reshipped pursuant to the last
section, up to the amount insured.
Nothing in this or in the preceding section
shall render a marine insurer liable for any
amount in excess of the insured value or, if
there be none, of the insurable value.
Sec. 135. Upon an actual total loss, a person
insured is entitled to payment without notice
of abandonment.
 General average ( sec. 136)
Sec. 136. Where it has been agreed that an
insurance upon a particular thing, or class of
things, shall be free from particular average,
a marine insurer is not liable for any
particular average loss not depriving the
insured of the possession, at the port of
destination, of the whole of such thing, or
class of things, even though it becomes
entirely worthless; but such insurer is liable
for his proportion of all general average loss
assessed upon the thing insured.
A. Kinds of average
a) general
b) particular
B. General Average
1) under art 809 of the code of commerce, a
general average includes all damages and
expenses which are deliberately caused in
order to save the vessel, its cargo or both at
the same time, for real and known risk
2) a general average gives rise to the right of
the owner to contribution from those
benefited threby or, if he is insured, he has
the alternative of seeking indemnity from his
insurer, surrogating the latter to his right of
cotributon, he losses his alternative
3) a general average is never allowed unless
the loss or damage has been incurred for the
“common safety” of both vessel and cargo.
4) refloating is not a general average
-
C. particular average
1) in marine policy, particular average
means any partial loss caused by the peril
insured against which is not a general
average.
2) insurer is liable for a particular average
unless the policy excludes it. Where it has
been stipulated that the insurance shall not
cover particular average (FPA- Free from
particular average), the marine insurer is not
liable for any particular average loss which
does not deprive the insured of the
possession, at the point of destination, of he
whole of such thing, or class of things, even
though it becomes entirely worthless; but
such insurer is liable for the proportion of all
general average loss assessed upon the
thing insured, even in the absence of any
agreement to that effect
Sec. 137. An insurance confined in terms to
an actual loss does not cover a constructive
total loss, but covers any loss, which
necessarily results in depriving the insured of
the possession, at the port of destination, of
the entire thing insured.
 Constructive total loss; when it exist
ABANDONMENT
Sec. 138. Abandonment, in marine
insurance, is the act of the insured by which,
after a constructive total loss, he declares
the relinquishment to the insurer of his
interest in the thing insured.
Sec. 139. A person insured by a contract of
marine insurance may abandon the thing
insured, or any particular portion thereof
separately valued by the policy, or otherwise
separately insured, and recover for a total
loss thereof, when the cause of the loss is a
peril insured against:
(a) If more than three-fourths thereof in
value is actually lost, or would have to be
expended to recover it from the peril;
(b) If it is injured to such an extent as to
reduce its value more than three-fourths;
(c) If the thing insured is a ship, and the
contemplated voyage cannot be lawfully
performed without incurring either an
expense to the insured of more than three-
fourths the value of the thing abandoned or
a risk which a prudent man would not take
under the circumstances; or
(d) If the thing insured, being cargo or
freightage, and the voyage cannot be
performed, nor another ship procured by the
master, within a reasonable time and with
reasonable diligence, to forward the cargo,
without incurring the like expense or risk
mentioned in the preceding sub-paragraph.
But freightage cannot in any case be
abandoned unless the ship is also
abandoned.
Case:
oriental assurance v. CA- computation based
on entire shipment and not per vessel basis.
A) “Abandonment”- the right given by the
law to the insured in case of constructive
total loss to relinquish to the insurer in the
thing insured
B) when the insured may exercise right to
abandon (sec 139)
Sec. 140. An abandonment must be neither
partial nor conditional.
Sec. 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.
Sec. 142. Where the information upon which
an abandonment has been made proves
incorrect, or the thing insured was so far
restored when the abandonment was made
that there was then in fact no total loss, the
abandonment becomes ineffectual.
Sec. 143. Abandonment is made by giving
notice thereof to the insurer, which may be
done orally, or in writing; Provided, That if
the notice be done orally, a written notice of
such abandonment shall be submitted within
seven days from such oral notice.
Sec. 144. A notice of abandonment must be
explicit, and must specify the particular
cause of the abandonment, but need state
only enough to show that there is probable
cause therefor, and need not be
accompanied with proof of interest or of loss.
Sec. 145. An abandonment can be sustained
only upon the cause specified in the notice
thereof.
-
Sec. 146. An abandonment is equivalent to a
transfer by the insured of his interest to the
insurer, with all the chances of recovery and
indemnity.
Sec. 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.
Sec. 148. Upon an abandonment, acts done
in good faith by those who were agents of
the insured in respect to the thing insured,
subsequent to the loss, are at the risk of the
insurer and for his benefit.
Sec. 149. Where notice of abandonment is
properly given, the rights of the insured are
not prejudiced by the fact that the insurer
refuses to accept the abandonment.
Sec. 150. The acceptance of an
abandonment may be either express or
implied from the conduct of the insurer. The
mere silence of the insurer for an
unreasonable length of time after notice shall
be construed as an acceptance.
Sec. 151. The acceptance of an
abandonment, whether express or implied, is
conclusive upon the parties, and admits the
loss and the sufficiency of the abandonment.
Sec. 152. An abandonment once made and
accepted is irrevocable, unless the ground
upon which it was made proves to be
unfounded.
Sec. 153. On an accepted abandonment of a
ship, freightage earned previous to the loss
belongs to the insurer of said freightage; but
freightage subsequently earned belongs to
the insurer of the ship.
Sec. 154. If an insurer refuses to accept a
valid abandonment, he is liable as upon
actual total loss, deducting from the amount
any proceeds of the thing insured which may
have come to the hands of the insured.
 Recovery of actual loss in lieu of
abandonment
Sec. 155. If a person insured omits to
abandon, he may nevertheless recover his
actual loss.

 MEASURE OF INDEMNITY
Sec. 156. A valuation in a policy of marine
insurance in conclusive between the parties
thereto in the adjustment of either a partial
or total loss, if the insured has some interest
at risk, and there is no fraud on his part;
except that when a thing has been
hypothecated by bottomry or respondentia,
before its insurance, and without the
knowledge of the person actually procuring
the insurance, he may show the real value.
But a valuation fraudulent in fact, entitles
the insurer to rescind the contract.
A. valued marine policy
1) the valuation is conclusive between the
parties in the adjustment of either a partial
or total loss, unless the insured has no
insurable interest or unless there is fraud on
the part of the insured, in which case the
insurer would have the right to seek
rescission of the contract.
2) neither party can give evidence of the real
value of the thing insured, except that when
a thing has been hypothecated by bottomry
or respondentia, before insurance of the
valued marine policy, and without the
knowledge of the person who actually
procured the insurance, in which case the
insurer may show the real value but he is
now entitled to rescind unless he can prove
that the valuation is fraudulent.
Sec. 157. A marine insurer is liable upon a
partial loss, only for such proportion of the
amount insured by him as the loss bears to
the value of the whole interest of the insured
in the property insured.
Example on the book. P. 279
Differentiate with fire insurance, when there
is no co-insurance and the insurer is liable
for the full amount of the partial loss, unless
there is a stipulation to the contrary.
Sec. 158. Where profits are separately
insured in a contract of marine insurance,
the insured is entitled to recover, in case of
loss, a proportion of such profits equivalent
to the proportion which the value of the
property lost bears to the value of the whole.
p. 280
Sec. 159. In case of a valued policy of marine
insurance on freightage or cargo, if a part
only of the subject is exposed to the risk, the
evaluation applies only in proportion to such
part.
Sec. 160. When profits are valued and
insured by a contract of marine insurance, a
loss of them is conclusively presumed from a
loss of the property out of which they are
expected to arise, and the valuation fixes
their amount.
Sec. 161. In estimating a loss under an open
policy of marine insurance the following rules
are to be observed:
(a) The value of a ship is its value at the
beginning of the risk, including all articles or
charges which add to its permanent value or
-
which are necessary to prepare it for the
voyage insured;
(b) The value of the cargo is its actual cost to
the insured, when laden on board, or where
the cost cannot be ascertained, its market
value at the time and place of lading, adding
the charges incurred in purchasing and
placing it on board, but without reference to
any loss incurred in raising money for its
purchase, or to any drawback on its
exportation, or to the fluctuation of the
market at the port of destination, or to
expenses incurred on the way or on arrival;
(c) The value of freightage is the gross
freightage, exclusive of primage, without
reference to the cost of earning it; and
(d) The cost of insurance is in each case to
be added to the value thus estimated.
“drawback- allowance made by the
government upon the duties on imported
merchandise when the importer, instead of
selling here, re-exports it or the refunding of
such duties is already paid
Drawback is excluded in determining the
value of the freightage in estimating a loss
under an open marine policy.
“primage”- small allowance or compensation
payable to the master or owner of the vessel
for the use of his cables for lading and
unlading in any port
Sec. 162. If cargo insured against partial loss
arrives at the port of destination in a
damaged condition, the loss of the insured is
deemed to be the same proportion of the
value which the market price at that port, of
the thing so damaged, bears to the market
price it would have brought if sound.
Sec. 163. A marine insurer is liable for all the
expenses attendant upon a loss which forces
the ship into port to be repaired; and where
it is stipulated in the policy that the insured
shall labor for the recovery of the property,
the insurer is liable for the expense incurred
thereby, such expense, in either case, being
in addition to a total loss, if that afterwards
occurs.
A. when expenses for repair and recovery
are borne by insurer
1) if the ship has to make a port to
undertake repairs caused by the perils
insured against, the marine insurer must
bear the attendant expenses. The insurer is
also liable for expenses insured for saving
the vessel from the perils insured against,
such as expenses of launching or raising the
vessel of or towing or navigating it into port
for her safety. These expenses called “port
of refuse expenses”
2) the insurer is also liable for expenses for
the recovery of the property if the policy
stipulated and imposes upon the insured the
duty make to such recovery, aka “the sue
and labor clause”,
3) said expenses are to be added to a total
loss, if this occurs afterwards.
Sec. 164. A marine insurer is liable for a loss
falling upon the insured, through a
contribution in respect to the thing insured,
required to be made by him towards a
general average loss called for by a peril
insured against; provided, that the liability of
the insurer shall be limited to the proportion
of contribution attaching to his policy value
where this is less than the contributing value
of the thing insured.
Sec. 165. When a person insured by a
contract of marine insurance has a demand
against others for contribution, he may claim
the whole loss from the insurer, subrogating
him to his own right to contribution. But no
such claim can be made upon the insurer
after the separation of the interests liable to
the contribution, nor when the insured,
having the right and opportunity to enforce
the contribution from others, has neglected
or waived the exercise of that right.
A. choice of insured in case of general
average loss
1) an insured whose property suffered a
general average loss may either demand
contribution from the other interested
parties or claim the whole loss from the
insurer, subrogating him to his own right to
contribution from the other interested
parties
2) no claim for general average loss can be
made upon the insurer
a) after the separation of interest liable to
contribution ex: after the cargo liable for
contribution has been removed from the
vessel
b) when the insured having the right and
opportunity to enforce contribution from
others, has neglected or waved the exercise
of that right.
Sec. 166. In the case of a partial loss of ship
or its equipment, the old materials are to be
applied towards payment for the new. Unless
otherwise stipulated in the policy, a marine
insurer is liable for only two-thirds of the
remaining cost of repairs after such
deduction, except that anchors must be paid
in full.
-qualify the rule that a partial loss renders
the insurer liable for such proportion of the
-

amount insured by him as the loss bears the

value of the whole interest of the insured in
the property(sec 157)
-

XIII. Fire insurance

A.) Definition:

“fire insurance"

-shall include insurance against loss by fire,

lightning, windstorm, tornado or earthquake
and other allied risks, when such risks are
covered by extension to fire insurance
policies or under separate policies.

B) a fire policy does not automatically cover

all the other risk mentioned. However, when
such other risk are expressly covered by the
fire policy, the provisions of law governing
fire insurance will govern such policy.

“Fire”

- the active principle of burning,

characterized by heat and light combustion.

- combustion which produces heat but no

visible glow or light is not fire

C) To recover under a fire policy:

1) fire must be the proximate cause of the

damage or loss

2) the loss or damage must be due to a

hostile and not a “friendly” fire.

“friendly fire”

- one which burns in a place where it is

intended to burn and employed for the
ordinary purpose of lighting, heating or
manufacturing
-

1) the policy limits the use or condition of the

thing insured
- ex: a fire burning in a stove or a lamp, or an
explosion due to the ignition of vapor coming
in contact with the burning gas lamp is not
the result of fire, because the fire within the 2) there is an alteration in said use or
lamp was friendly. condition

“hostile fire” 3) alteration is without the consent of the

insurer

1) burns at a place where it is not intended

to burn 4) alteration is made by means within the
insured’s control and

2) starts as a friendly fire but becomes

hostile if it should escape from the place 5) alteration increases the risk of loss
where it is intended to be and becomes
uncontrollable or

F) When alteration does not affect the

insurance contract
3) is a friendly fire which may become hostile
not by escaping from its proper place but
because of the unsuitable material used to
light it and it becomes inherently dangerous
and uncontrollable. -An alteration in the use or condition of a
thing insured from that to which it is limited
by the policy, which does not increase the
risk, does not affect a contract of fire
insurance
-ex: fire in a furnace resulting in damages
caused by the heat from such fire to the
walls by cracking and blisters
- however, although increase in the risk of
loss as general rule is necessary,

D) Fire due to abnormal conditions or extra- Exception: when the policy provides that a
ordinary circumstances: violation of specified provisions would avoid
it

- fire insurance policy may validly restrict its

coverage to losses under ordinary conditions, G) Insurance contract not affected by
and exclude those due to extraordinary insured’s act not in violation of policy
circumstances or abnormal conditions like
war, invasion, rebellion, civil war and similar
causes

- A contract of fire insurance is not affected

-however, if the fire is completely unrelated
to the extraordinary circumstances or
abnormal conditions, the insurer is still liable
by any act of the insured subsequent to the
execution of the policy, which does not
violate its provisions, even though it
increases the risk and is the cause of the loss

Sec. 171.
E) Right of insurer to rescind in case of
alteration in use or conditions of thing
insured, provided:

If there is no valuation in the policy, the

measure of indemnity in an insurance
against fire is the expense it would be to the
insured at the time of the commencement of
-

the fire to replace the thing lost or injured in

the condition in which at the time of the
injury; but if there is a valuation in a policy of and in case of a partial loss the full amount
fire insurance, the effect shall be the same of the partial loss shall be so paid,
as in a policy of marine insurance.

and in case there are two or more policies

A) If there is no valuation in the policy or covering the insured's interest therein, each
open fire policy policy shall contribute pro rata to the
payment of such whole or partial loss.

- the measure of indemnity is the expense it

would be to the insured at the time of the But in no case shall the insurer be required
commencement of the fire to replace the to pay more than the amount thus stated in
thing lost or injured in the condition in which such policy.
at the time of the injury

“option to rebuild or repair clause”

B) if there is a valuation in a policy of fire
insurance or Valued fire policy

This section shall not prevent the parties

- the valuation as agreed upon by the parties
is conclusive between them in the
adjustment of either a partial or total loss in
the absence of fraud
from stipulating in such policies concerning
the repairing, rebuilding or replacing of
buildings or structures wholly or partially
damaged or destroyed.

A) How valuation is made

Sec. 172.

- valuation of the insured’s interest in the

Whenever the insured desires to have a
valuation named in his policy, insuring any
building or structure against fire, he may
require such building or structure to be
examined by an independent appraiser and
the value of the insured's interest therein
may then be fixed as between the insurer
and the insured.
The cost of such examination shall be paid
for by the insured. A clause shall be inserted
in such policy stating substantially that the
value of the insured's interest in such
building or structure has been thus fixed.
thing insured may be made by an
independent appraiser and the value of the
insured's interest therein may then be fixed
as between the insurer and the insured or
therefore confirmed by the parties
- A clause shall be inserted in such policy
stating substantially that the value of the
insured's interest in such building or
structure or said valuation has been thus
fixed.
B) Arbitration clause

In the absence of any change increasing the

risk without the consent of the insurer or of
fraud on the part of the insured, - policy may provide that in case of any
question, dispute or disagreement in any of
the provisions of the policy, which includes
any question as to the valuation of the loss,
the dispute shall be referred to the decisions
then in case of a total loss under such policy, of arbitrators
the whole amount so insured upon the
insured's interest in such building or
structure, as stated in the policy upon which
the insurers have received a premium, shall
be paid,
-

-submission to arbitration is usually made a

condition precedent to any claim against the
insurer. This clause has been upheld as valid
by the Supreme Court and when present, no
action can be maintained by the insured
unless the award has been made or sought,
or unless the company has denied liability on
some of the grounds stated in the clause.

C) Prohibition against transfer of fire policy

by insured to agent’s of insurer

- after a loss has occurred, the insured has

the right to assign his rights under the policy

-this right is subject to prohibition, that No

policy of fire insurance shall be pledged,
hypothecated, or transferred to any person,
firm or company who acts as agent for or
otherwise represents the issuing company,
and any such pledge, hypothecation, or
transfer hereafter made shall be void and of
no effect insofar as it may affect other
creditors of the insured
-
XIV. Motor Vehicle Liability Insurance
I. COMPULSORY MOTOR VEHICLE
LIABILITY INSURANCE (CMVLI)
A) Definitions
Passenger"
-is any fare paying person being transported
and conveyed in and by a motor vehicle for
transportation of passengers for
compensation, including persons expressly
authorized by law or by the vehicle's
operator or his agents to ride without fare.
Owner" or "motor vehicle owner" means the
actual legal owner of a motor vehicle, in
whose name such vehicle is duly registered
with the Land Transportation Commission;
"Land transportation operator" means the
owner or owners of motor vehicles for
transportation of passengers for
compensation, including school buses;
Motor vehicle
- any vehicle propelled by any power other
than muscular power using the public
highways.
B) COMPULSORY MOTOR VEHICLE
LIABILITY INSURANCE (CMVLI)
-It shall be unlawful for any land
transportation operator or owner of a motor
vehicle to operate the same in the public
highways unless there is in force in relation
thereto a policy of insurance or guaranty in
cash or surety bond to indemnify the death,
bodily injury, of a third-party or passenger,
as the case may be, arising from the use
thereof.
- liability of the insurer under CMVLI is for
loss or damage
- where an insurance policy insured directly
against liability, the insurer’s liability accrues
immediately upon the occurrence of the
injury or event upon which the liability
depends and does not depend on the
recovery of judgment by the injured party
against the insured
C) Own damage coverage
- the insurer had assumed to reimburse the
cost of repairing the damage to the insured
vehicle.
D) Third party liability coverage
- pertains to liabilities arising from the death
of, or bodily injuries suffered by 3rd parties
E) Comprehensive motor vehicle insurance
policy
- cover death or bodily injury of a 3rd party or
passenger (mandatory under CMVLI),
property damage to 3rd parties, and (own)
damage to or theft of the vehicle insured
Sec. 375. The Commissioner shall furnish the
Land Transportation Commissioner with a list
of insurance companies authorized to issue
the policy of insurance or surety bond
required by this chapter
A) No registration or renewal if no CMVLI
- Land Transportation Commission shall not
allow the registration or renewal of
registration of any motor vehicle without a
CMVLI, guaranty in cash or surety bond
-

Sec. 377. (2) In the case of an owner of a motor

Every land transportation operator and every
owner of a motor vehicle shall, before
applying for the registration or renewal of
registration of any motor vehicle, at his
option, either secure an insurance policy or
surety bond issued by any insurance
company authorized by the Commissioner or
make a cash deposit in such amount as
herein required as limit of liability for
purposes specified in section three hundred
seventy-four.
vehicle, the insurance or guaranty in cash or
surety bond shall cover liability for death or
injury to third parties in an amount not less
than that set forth in the following scale in
any one accident:
I. Private Cars
(a) Bantam : Twenty thousand pesos;
(b) Light : Twenty thousand pesos;

(1) In the case of a land transportation (c) Heavy : Thirty thousand pesos;
operator,

the insurance guaranty in cash or surety

bond shall cover liability for death or bodily
injuries of third-parties and/or passengers II. Other Private Vehicles
arising out of the use of such vehicle

in the amount not less than twelve thousand (a) Tricycles, motorcyles, and scooters :
pesos per passenger or third party and an Twelve thousand pesos;
amount, for each of such categories, in any
one accident of not less than that set forth in
the following scale: (or CMVLI amount (b) Vehicles with an unladen weight of 2,600
depends on the authorized passenger kilos or less : Twenty thousand pesos;
capacity of the vehicle but cannot be less
than 12, 000 per person)
(c) Vehicles with an unladen weight of
(a) Motor vehicles with an authorized between 2,601 kilos and 3,930 kilos : Thirty
capacity of twenty-six or more passengers: thousand pesos;
Fifty thousand pesos;

(b) Motor vehicles with an authorized (d) Vehicles with an unladen weight over
capacity of from twelve to twenty-five 3,930 kilos : Fifty thousand pesos.
passengers: Forty thousand pesos;
The Commissioner may, if warranted, set
(c) Motor vehicles with an authorized forth schedule of indemnities for the
capacity of from six to eleven passengers: payment of claims for death or bodily injuries
Thirty thousand pesos;
-note this section provides for the minimum
(d) Motor vehicles with an authorized amount of CMVLI
capacity of five or less passengers: Five
thousand pesos multiplied by the authorized
capacity.
Sec. 378.
Provided, however, That such cash deposit
made to, or surety bond posted with, the
Any claim for death or injury to any
Commissioner shall be resorted to by him in
passenger or third party pursuant to the
cases of accidents the indemnities for which
provisions of this chapter shall be paid
to third-parties and/or passengers are not
without the necessity of proving fault or
settled accordingly by the land
negligence of any kind;
transportation operator and,

in that event, the said cash deposit shall be
replenished or such surety bond shall be
restored with sixty days after impairment or
expiry, as the case may be, by such land
transportation operator, otherwise, he shall
secure the insurance policy required by this
chapter.
The aforesaid cash deposit may be invested
by the Commissioner in readily marketable
government bonds and/or securities.
Provided, That for purposes of this section:
(i) The total indemnity in respect of any
person shall not exceed five thousand pesos;
(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.
A) “No- fault indemnity”
- insurer may be held liable without the
necessity of proving fault or negligence
provided:
a) claim is for death or injury to a 3rd party or
passenger
b) the total indemnity in respect to any one
person does not exceed P 5,000
c) that the proofs required by law are
submitted
B) Where the claim exceeds P 5,000, the
insurance company shall pay only P,5000
without prejudice to the claimant to pursue
his claim further, in which case, he shall not
be required or compelled by the insurance
company to execute any quit claim releasing
it from liability under the policy
Sec. 379.
No land transportation operator or owner of
motor vehicle shall be unreasonably denied
the policy of insurance or surety bond by the
insurance companies authorized to issue the
same,
otherwise, the Land Transportation
Commission shall require from said land
transportation operator or owner of the
vehicle, in lieu of a policy of insurance or
surety bond, a certificate that a cash deposit
has been made with the Commissioner in
such amount required as limits of indemnity
in section three hundred seventy-seven to
answer for the passenger and/or third-party
liability of such land transportation operator
or owner of the vehicle.
No insurance company may issue the policy
of insurance or surety bond required under
this chapter unless so authorized under
existing laws.
The authority to engage in the casualty
and/or surety lines of business of an
insurance company that refuses to issue or
renew, without just cause, the insurance
policy or surety bond therein required shall
be withdrawn immediately
A) Prohibition against unjust denial of CMVLI
by insurance companies
- no operator or owner shall be unreasonably
denied a CMVLI or surety bond by the
insurance company. The authority of such
insurance company which refuses to issue or
renew said CMVLI without just cause shall be
withdrawn
Sec. 380.
No cancellation of the policy shall be valid
unless written notice thereof is given to the
land transportation operator or owner of the
vehicle and to the Land Transportation
Commission at least fifteen days prior to the
intended effective date thereof.
Upon receipt of such notice, the Land
Transportation Commission, unless it
receives evidence of a new valid insurance or
guaranty in cash or surety bond as
prescribed in this chapter, or an
endorsement of revival of the cancelled one,
shall order the immediate confiscation of the
plates of the motor vehicle covered by such
cancelled policy.
The same may be re-issued only upon
presentation of a new insurance policy or
that a guaranty in cash or surety band has
been made or posted with the Commissioner
and which meets the requirements of this
chapter, or an endorsement or revival of the
cancelled one
-

A) CMVLI cancellation by insurance company Sec. 383. CMVLI is a for of:

requires notice to operator or owner and LTC

In the settlement and payment of claims, the

Sec. 381.
If the cancellation of the policy or surety
bond is contemplated by the land
transportation operator or owner of the
vehicle,
indemnity shall not be availed of by any
accident victim or claimant as an instrument
of enrichment by reason of an accident, but
as an assistance or restitution insofar as can
fairly be ascertained

Sec. 384.
he shall, before the policy or surety bond
ceases to be effective, secure a similar policy
of insurance
Any person having any claim upon the policy
issued, without any unnecessary delay,
present to the insurance company concerned
or surety bond to replace the policy a written notice of claim setting forth the
nature, extent and duration of the injuries
sustained as certified by a duly licensed
physician.
or surety bond to be cancelled or make a
cash deposit in sufficient amount with the
Commissioner
Notice of claim must be filed within six
months from date of accident, otherwise, the
claim shall be deemed waived.
and without any gap, file the required
documentation with the Land Transportation
Commission, and notify the insurance
company concerned of the cancellation of its “filing of action within 1 year from denial of
policy or surety bond claim”

Sec. 382. (change of ownership or engine) Action or suit for recovery of damage due to
loss or injury must be brought, in proper
cases, with the Commissioner or the Courts
within one year from denial of the claim,
otherwise, the claimant's right of action shall
In case of change of ownership of a motor prescribe
vehicle, or change of the engine of an
insured vehicle, there shall be no need of
issuing a new policy until the next date of
registration or renewal of registration of such
vehicle, and

Sec. 385.

provided that the insurance company shall

agree to continue the policy, such change of
ownership
or such change of the engine shall be
indicated in a corresponding endorsement by
the insurance company concerned, and a
signed duplicate of such endorsement shall,
within a reasonable time, be filed with the
Land Transportation Commission
The insurance company concerned shall
forthwith ascertain the truth and extent of
the claim and make payment within five
working days after reaching an agreement.
If no agreement is reached, the insurance
company shall pay only the "no-fault"
indemnity provided in section three hundred
-
seventy-eight without prejudice to the
claimant from pursuing his claim further,
in which case, he shall not be required or
compelled by the insurance company to
execute any quit claim or document
releasing it from liability under the policy of
insurance or surety bond issued.
In case of any dispute in the enforcement of
the provisions of any policy issued pursuant
to this chapter, the adjudication of such
dispute shall be within the original and
exclusive jurisdiction of the Commissioner,
subject to the limitations provided in section
four hundred sixteen.
Sec. 386.
It shall be unlawful for a land transportation
operator or owner of motor vehicle to require
his or its drivers or other employees to
contribute in the payment of premiums.
Sec. 387.
No government office or agency
having the duty of implementing the
provisions of this chapter nor any official or
employee thereof
shall act as agent in procuring the insurance
policy or surety bond provided for herein.
The commission of an agent procuring the
said policy or bond shall in no case exceed
ten per centum of the amount of the
premiums therefor
Sec. 388.
Any land transportation operator or owner of
motor vehicle or any other person violating
any of the provisions of the preceding
sections shall be
punished by a fine of not less than five
hundred pesos but not more than one
thousand pesos and/or imprisonment for not
more than six months.
The violation of section three hundred
seventy-seven by a land transportation
operator shall be a sufficient cause for the
revocation of the certificate of public
convenience issued by the Board of
Transportation covering the vehicle
concerned.
Sec. 389.
Whenever any violation of the provisions of
this chapter is committed by a corporation or
association, or by a government office or
entity, the executive officer or officers of said
corporation, association or government office
or entity who shall have knowingly
permitted, or failed to prevent, said violation
shall be held liable as principals.
II. CASUALTY INSURANCE
A) Definition
- insurance covering loss or liability arising
from accident or mishap, excluding certain
types of loss which by law or custom are
considered as falling exclusively within the
scope of other types of insurance such as fire
or marine
- includes, but is not limited to:
B) employer's liability insurance
- liability for damages caused workmen
arising from injuries by reason of defective
conditions or machinery, defect attributable
to negligence of the employer or his agents,
some act or omission of a fellow workman in
obedience to the orders of the employer
C) workmen’s compensation insurance
-

injured may suffer and also liability which

may be created against him
compensation for loss resulting from injuries,
disablement or death of workmen through
industrial accident, disease
- authorized driver clause

act, injury or sickness is compensable as

:The insured himself

1) personal injury from accident arising out

and in the course of employment
2) illness directly caused by employment
: any person driving on the insured’s order or
with his permission, provided that the person
driving is permitted in accordance with the
licensing or other laws or regulations to drive
Motor vehicle

3) sickness as the result of employment
4) sickness aggravated by the nature of
employment
:or any person has been permitted and is not
disqualified by order of a court or by reason
of any enactment or regulation in that behalf
from driving such motor vehicle

:cases

- at the time of the collision the one driving

aside from the owner don’t have valid
license, insurer not liable
D) Public Liability insurance

-purpose of the authorized driver clause:

- indemnifies against liability on account of
injuries to the person or property of another.
It may extend to automobiles, elevators, fly
wheels, libel, theaters and vessels
E) motor vehicle liability insurance
: a person other than the insured owner, who
drives the car on the insured’s order, such as
his regular driver or with his permission such
as a friend, family or employees of a car
service or repair shop msut be duly licensed
and have no disqualification to drive.

- insurance against passenger and 3rd party

liability for death or bodily injuries and Note: see “option to repair clause” (p.312)
damage to property arising from motor
vehicle accidents

-motor vehicle liability insurance should not

be confused with insurance for loss or F) plate glass insurance
damage on the motor vehicle itself payable
to the owner of said insured vehicle.

-against loss from accidental breaking of

plate-glass windows, doors, show cases, etc
However, a single policy may contain both
insurance on the loss or damage which the
-

E) burglary and theft insurance - personal accident insurance

- insurance to cover loss of property through :issued by a non-life insurance company is

burglary, robbery or theft insurance to indemnify the insured against
expense, loss of time and suffering from
accidents causing him physical injury

-theft in insurance policies does not

necessarily have exactly the same meaning
as “theft” under the penal statutes, but -health insurance
should usually cover only what is commonly
thought of as theft, unless the language of
the policy otherwise indicates
: one which indemnifies the insured for
expenses and loss occasioned by disease

-in robbery policies, in order to reduce the

hazard of the insured himself setting up an
apparent robbery, the policy sometimes
requires that entry into the premises or into
a safe must be by violence and that visible
marks must be left upon the exterior thereof
-when a personal accident and health
insurance issued by a life insurance company
or in addition to a policy on the life of the
insured, it is more of a life insurance rather
than a casualty insurance

- in robbery policies covering stores, a

stipulation is often made that a specified
number of employees ne in the store at
designated hours
- in burglary, robbery, theft insurance, the
opportunity to defraud the insurer is so great
that insurers have found it necessary to fill
up their policies with countless restriction
- when one of the risks insured in a personal
accident insurance is the death of the
insured by accident, such insurance may also
be regarded as a life insurance. In a broader
sense, “life insurance” includes accident
insurance, since life is insured under either
contract.

-Cases:

1) Villacorta

2) Palermo

F) personal accident and health insurance as

written by non-life insurance companies, and
other substantially similar kinds of insurance.
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XVI. Suretyship (vs. guarantee)

A. Definition

contract of suretyship

-is an agreement whereby a party called the

surety guarantees the performance by
another party called the principal or obligor
of an obligation or undertaking in favor of a
third party called the oblige
-
- includes official recognizances, stipulations,
bonds or undertakings issued by any
company
- suretyship contract is deemed to be an
insurance contract only when the surety is
engaged in business as such and not merely
an isolated transaction
-therefore, a corporation organized for the
purpose of guaranteeing performance of
contractual obligations of the payment of
debts of others is deemed an insurance
corporation and thereby subject to all the
requirements of the insurance code
B. liability of the surety or sureties shall be
joint and several (solidary) with the obligor
and shall be limited to the amount of the
bond. It is determined strictly by the terms of
the contract of suretyship in relation to the
principal contract between the obligor and
the oblige
-either of them may be compelled to pay the
entire obligation and payment of one of them
extinguishes the obligation
C. Requisites to hold a surety liable on a
counter bond are: (p.328)
D. nature of the proceedings to recover
damages against the surety
-upon application of the prevailing party the
court must order the surety to show cause
why the bond should not respond for the
judgment of damages.
-hearing will be summary and will be limited
to such new defense
Sec. 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 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.
A. Premium payment in suretyship
Genrule:
unless and until the premium is paid, the
insurance contract is not valid and binding
Except:
when a bond or suretyship contract is issued
and accepted by the creditor or oblige, said
bond or contract shall be valid and binding
whether or not the premium has been paid.
B) if the contract or bond is not accepted by,
or filed with the oblige, the surety can still
collect a reasonable amount not greater than
50 perscent of the premium due as service
fee plus stamps or taxes, unless the non-
acceptance was due to the surety’s fault or
negligence
c) where the bond is continuing one
-
d) where the premium has already paid, the
assured obligor cannot recover it on the
ground that later on the surety was unable to
pay the indebtedness secured by it
Sec. 178.
Pertinent provisions of the Civil Code of the
Philippines shall be applied in a suppletory
character whenever necessary in interpreting
the provisions of a contract of suretyship.
Title XVII. Life Insurance
A) Definition
Life insurance is insurance on human lives
and insurance appertaining thereto or
connected therewith
B) When payable:
An insurance upon life may be made
payable:
1)on the death of the person,
2)or on his surviving a specified period,
3) or otherwise contingently on the
continuance or cessation of life.
Every contract or pledge for the payment of
endowments or annuities shall be considered
a life insurance contract for purpose of this
Code.
In the absence of a judicial guardian, the
father, or in the latter's absence or
incapacity, the mother, or any minor, who is
an insured or a beneficiary under a contract
of life, health or accident insurance, may
exercise, in behalf of said minor, any right
under the policy, without necessity of court
authority or the giving of a bond, where the
interest of the minor in the particular act
involved does not exceed twenty thousand
pesos. Such right may include, but shall not
be limited to, obtaining a policy loan,
surrendering the policy, receiving the
proceeds of the policy, and giving the
minor's consent to any transaction on the
policy.
Sec. 180-A. (Rules in Suicide)
The insurer in a life insurance contract shall
be liable in case of suicides only when it is
committed after the policy has been in force
for a period of two years from the date of its
issue or of its last reinstatement, unless the
policy provides a shorter period: Provided,
however, That suicide committed in the state
of insanity shall be compensable regardless
of the date of commission. (As amended by
Batasang Pambansa Blg. 874).
C) Kinds of Life Insurance
1) Whole life or ordinary life policies
- the insured agrees to pay annual, semi-
annual or quarterly premiums while he lives.
-The insurer agrees to pay the face value of
the policy upon the death of the insured
-
2) Limited payment life policy
- insured agrees to pay premiums only for a
specified number of years, usually 10, 15,
20. Should he survives the said periods, he
stops paying any further premium, and when
he dies, the insurer is to pay the proceeds.
If the insured dies before the expiration of
the period, the beneficiary likewise is entitled
to the proceeds without paying the
premiums for the remainder of the specified
period.
3) Term Policy
- the insurer’s liability arises only upon the
death of the insured within the agreed term
or period.
If the latter survives the period, the contract
terminates and the insurer is not liable.
4) Endowment Policy
- The insurer agrees to pay certain sum to
the insured if he outlives a designated
period. If he dies before that time, the
proceeds are paid to the beneficiary.
5) Life annuity
- by the aleatory contract of life annuity, the
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 the income. A
life annuity is expressly considered a life
insurance contract by the insurance code.
D) Life Insurance in relation to accident
or health insurance
1) accident insurance may be regarded as
life insurance
2) health insurance may likewise be
regarded as life insurance . while health
insurance is usually issued by life insurers,
injury and illness are also viewed as
casualties
3) health, accident and disability are deemed
as both life and non-life insurance and such
policies may be issued by either a life or non-
life insurance company.
E) Life insurance’ risk covered
1) in life insurance, all causes of death would
be covered, unless expressly excluded by
law, by the insurance policy or by reasons of
public policy
2) a death expressly excluded by law is when
the beneficiary is the principal, accomplice,
or accessory in willfully bringing about the
death of the insured. the beneficiary forfeits
his interest in the life policy
3) a life insurance may expressly exclude
de4ath by “assault or murder or as a result
of injuries intentionally inflicted by the 3rd
person
4) ( Rule in payment of suicide)
With the amendment of 180-a, the insurer in
a life policy is liable for suicide only when
committed after two years from the date of
its issue or of its last reinstatement, unless
the policy provides a shorter period.
suicide committed in the state of insanity
shall be compensable regardless of the date
of commission.
5) a life insurance may exclude death in the
hands of law.
-

6) may also exclude “death as a result of (Notice to insurer in case of

military service” or death while in military
service. Cause of death would be material in
the first case but immaterial in the second.
F) Accident insurance; risk covered
(compensability in case of accident)
assignment)
Notice to an insurer of a transfer or bequest
thereof is not necessary to preserve the
validity of a policy of insurance upon life or
health, unless thereby expressly required.
A) assignment of life policy

1) life or health may pass by transfer, will or

1) accidents insurance may cover the risk of
death alone, or injuries, and medical
expenses alone, or may cover all these. It
may be an independent contract or it may be
supplemental to a life policy
succession to any person, whether he has an
insurable interest or not.
2) There is no need to give notice to the
insurer of such assignment unless expressly
required by the policy

Sec. 183.

2) An accident insurance policy usually Unless the interest of a person insured is

specifies “death by accident means”. Where
a crew member of a vessel voluntarily
jumped into sea to save a passenger from
drowning, but drowned himself, recovery was
allowed on the accident policy.
susceptible of exact pecuniary measurement,
the measure of indemnity under a policy of
insurance upon life or health is the sum fixed
in the policy
A) Measure of indemnity in life Policy

1) The measure of indemnity in life policy is

3) accident insurance may also contain
various clauses enumerated accidents. It
may exclude accident or death as results
from any bodily disease and poisoning.
4) accident insurance may also carry a
disability clause wherein the insurer will pay
benefits in case of the insured’s disability
resulting from an accident. It may cover
permanent as well as temporary disability or
only one of them.
the amount specified in the policy. In effect,
a life policy is a valid one.
2) Since a person’s interest in his life is not
susceptible of exact pecuniary estimation, he
can insure his life for any amount as long as
he pays the commensurate premium. In case
he dies, the amount of indemnity is the sum
fixed in the policy.

G) group life insurance, aka: mortagage

redemption insurance

- device protection of both mortgagee and

mortagagor

Sec. 181.

(Transfer of insurance Policies)

A policy of insurance upon life or health may

pass by transfer, will or succession to any
person, whether he has an insurable interest
or not, and such person may recover upon it
whatever the insured might have recovered.

Sec. 182.
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Title XVIII. Claims Settlement ( Sec. 241

to 244)

Sec. 241.

(1) No insurance company doing business in

the Philippines shall refuse, without just
cause, to pay or settle claims arising under
coverages provided by its policies,

nor shall any such company engage in unfair

claim settlement practices.

Any of the following acts by an insurance

company, if committed without just cause
and performed with such frequency as to
indicate a general business practice, shall
constitute unfair claim settlement practices:

(a) knowingly misrepresenting to

claimants pertinent facts or policy provisions
relating to coverage at issue;

(b) failing to acknowledge with

reasonable promptness pertinent
communications with respect to claims
arising under its policies;

(c) failing to adopt and implement

reasonable standards for the prompt
investigation of claims arising under its
policies;

(d) not attempting in good faith to

effectuate prompt, fair and equitable
settlement of claims submitted in which
liability has become reasonably clear; or

(e) compelling policyholders to

institute suits to recover amounts due under
its policies by offering without justifiable
reason substantially less than the amounts
ultimately recovered in suits brought by
them.

(2) Evidence as to numbers and types of

valid and justifiable complaints to the
Commissioner against an insurance
company, and the Commissioner's complaint
experience with other insurance companies
writing similar lines of insurance shall be
admissible in evidence in an administrative
or judicial proceeding brought under this
section.

(3) If it is found, after notice and an

opportunity to be heard, that an insurance
company has violated this section, each
-
instance of non-compliance with paragraph
(1) may be treated as a separate violation of
this section and shall be considered sufficient
cause for the suspension or revocation of the
company's certificate of authority.
A) Rules on claims settlement
1) Insurance companies are enjoined from:
a) refusing, without just cause to pay or
settle claims arising under their policies
b) engaging in unfair claim settlement
practices
2) This section enumerates the acts
constituting unfair claim settlement practices
which shall be considered sufficient causes
for suspension or revocation of the
company’s certificate of authority
Sec. 242.
The proceeds of a life insurance policy shall
be paid immediately upon maturity of the
policy, unless such proceeds are made
payable in installments or as an annuity, in
which case the installments, or annuities
shall be paid as they become due:
Provided, however, That in the case of a
policy maturing by the death of the insured,
the proceeds thereof shall be paid within
sixty days after presentation of the claim and
filing of the proof of the death of the insured.
Refusal or failure to pay the claim within the
time prescribed herein will entitle the
beneficiary to collect interest on the
proceeds of the policy for the duration of the
delay at the rate of twice the ceiling
prescribed by the Monetary Board, unless
such failure or refusal to pay is based on the
ground that the claim is fraudulent.
The proceeds of the policy maturing by the
death of the insured payable to the
beneficiary shall include the discounted
value of all premiums paid in advance of
their due dates, but are not due and payable
at maturity.
A. Payment of proceeds in life insurance
policy
1) The proceeds in a life insurance policy
shall be paid immediately upon maturity of
the policy unless such proceeds are made
payable in installments or as an annuity, in
which case the installments, or annuities
shall be paid as they become due
2) In case of a policy maturing by the death
of the insured, the proceeds shall be paid
within 60 days after presentation of claim
and filing of proof of death after said 60
days, the beneficiary is entitled to interest,
unless the refusal to pay is based on the
ground that the claim is fraudulent.
Sec. 243.
The amount of any loss or damage for which
an insurer may be liable, under any policy
other than life insurance policy, shall be paid
within thirty days after proof loss is received
by the insurer and ascertainment of the loss
or damage is made either by agreement
between the insured and the insurer or by
arbitration;
but if such ascertainment is not had or made
within sixty days after such receipt by the
insurer of the proof of loss, then the loss or
damage shall be paid within ninety days
after such receipt.
Refusal or failure to pay the loss or damage
within the time prescribed herein will entitle
the assured to collect interest on the
proceeds of the policy for the duration of the
delay at the rate of twice the ceiling
prescribed by the Monetary Board, unless
such failure or refusal to pay is based on the
ground that the claim is fraudulent.
A) payment of proceeds in non-life
insurance
1) The proceeds under a non-life insurance
policy shall be paid within thirty days after
proof loss is received by the insurer and
ascertainment of the loss or damage is made
either by agreement between the insured
and the insurer or by arbitration
2) if such ascertainment is not had or made
within sixty days after such receipt by the
insurer of the proof of loss, then the loss or
damage shall be paid within ninety days
after such receipt
3) Refusal or failure to pay the loss or
damage within the time prescribed herein
-

will entitle the assured to collect interest as to whether the payment of the claim of
unless the claim is fraudulent. the insured has been unreasonably denied or
withheld;

and in the affirmative case, the insurance

B) Advancement or loan of money by
insurer after the loss is not payment
1) a written agreement between the insured
and the insurer whereby after the loss the
insurer will advance or loan the amount of
representing the loss repayable only out of
money collected by the insured on account
of the loss is valid. Such loan is not a
payment of insurance and the insurer is not
subrogated to the insured’s rights.
company shall be adjudged to pay damages
which shall consist of attorney's fees and
other expenses incurred by the insured
person by reason of such unreasonable
denial or withholding of payment plus
interest of twice the ceiling prescribed by the
Monetary Board of the amount of the claim
due the insured, from the date following the
time prescribed in section two hundred forty-
two or in section two hundred forty-three, as
the case may be, until the claim is fully
satisfied; Provided, That the failure to pay
any such claim within the time prescribed in
said sections shall be considered prima facie
evidence of unreasonable delay in payment.

A. Unreasonable denial of payment of

C) Right of Subrogated claim

1) after payment of loss by the insurance
company, it is subrogated to the rights of the
insured against third persons whose
negligence or wrongful act caused the loss
2) subrogation does not apply to life and
accident insurance because they are
generally not contracts of indemnity; except
when a life insurance is a contract of
indemnity, such as a life policy secured by a
creditor on the life of the debtor . therefore,
subrogation exist generally only in property
insurance
1) if the payment of the claim has been
unreasonably denied or withheld, as found
by the insurance commissioner or the court,
the insurance company is liable for damages
consisting of attorney’s fees and other
expenses plus interest of twice the ceiling
prescribed by the monetary board
2) There is a prima evidence of unreasonable
delay if the insured fails to pay any claim
within the time prescribed in sec 242 and
243.

3) subrogation is by operation of law and

need not be stipulated, although many..

4) the subrogated insurer cannot recover

more than what the insured may recover
from the 3rd persons causing the loss

5) the insurer is subrogated to whatever

rights the insured has against his solidary
debtor under 1217 of NCC which gives to a
soldary debtor who has paid the entire
obligation the right to be reimbursed by his
co-debtors for the share which corresponds
to each.

Sec. 244.

In case of any litigation for the enforcement

of any policy or contract of insurance, it shall
be the duty of the Commissioner or the
Court, as the case may be, to make a finding