INSURANCE LAW

Atty. Jose Martin A. Loon

CLASS POLICIES

Basis for Evaluation:

Finals - 60%
Recitation - 40%

● The class is expected to memorize salient provisions of the Civil Code related to the assignment for
the week.
● A clean-desk rule policy will also be observed during classes. Students are not allowed to bring any
gadgets nor hardcopies of cases or digests, excluding the class syllabus.
● There is no grade of "4". As such, no removals will be given. A student who fails in class will
automatically get a "5".
● A perfect attendance in class will entitle a student to a .25 incentive.

Grade Equivalents:

97 - 100 = 1.00
94 - 96 = 1.25
90 - 93 = 1.50
87 - 89 = 1.75
83 - 86 = 2.00
90 - 82 = 2.25
77 - 79 = 2.50
74 - 76 = 2.75
70 - 73 = 3.00
0 - 69 = 5.00

I. INTRODUCTION
A. Origin and growth of insurance
1. Early maritime or marine insurance (See VANCE, A Handbook on the Law of Insurance,
3rd ed., 1951, pp. 7-21).

Aboitiz Shipping v New India Assurance, 488 SCRA 563 (2006) (on the real and
hypothecary nature of mantime law)

2. Development of insurance from marine to present day varieties

3. The insurance business in the Philippines: its beginnings and current status.
4. Office of the Insurance Commission; Administrative & Adjudicatory Powers (Sections 414
to 416)
 PhilAm v. Arnaldo, 234 SCRA 505 (1994)
Republic (represented by Eduardo T. Malinis as Insurance Commissioner v. . Del Monte
Motors Inc., 504 SCRA 52' (2006)

B. Laws Governing Insurance (unless specified,, all sections referred to in this Outline are the
Insurance Code)
1. The insurance Code (Presidential Decree Nos. 612 & 1460) as amended (e.g. Batas
Pambansa Blg. 874). Antecedent=Insurance Act 2427(December 11, 1974) which
repealed the applicable provisions of the Code of Commerce, Act 2427 being copied
from the Califomia Insurance Act.

Gerda v. Sunlite Assurance, 48 Phil. 53

Ang Giok Chip v. Springfield, 52 Phil. 375
Philippine Health Care Products v. Commissioner of Internal Revenue, 600 SCRA
2. Civil Code; esp. Articles 739, 2011, 2012, 2021 to 2027 (dealing with life annuities),
2186 X 2207 (subrogation)
3. Special laws (eg, GSIS Act, SSS Act, PDIC, crop insurance and government property
insurance, among others.)
C. Laws governing insurance
D. General concept of insurance
E. Characteristics
1. risk distributing device
2. contract of adhesion
3. aleatory
4. contract of indemnity
5. ubberrimae fides contract
F. Elements of insurance
G. Right of SUBROGATION
CASES:
■ While Gold Marine Services vs Pioneer Insurance et al. (GR No. 154514, 28 July 2005)
■ Verendia vs CA (217 SCRA 417)
■ Rizal Surety and Insurance Co. Vs. CA (336 SCRA 12)
■ Philamcare Health Systems Inc. vs. CA (379 SCRA 356)
■ Fortune Insurance and Surety Co., Inc. vs. CA (244 SCRA 308)
■ Gulf Resorts Inc. vs Philippine Charter Insurance Corp. GR No. 155167, 16 May 2005
■ Manila Mahogany vs, CA (154 SCRA 650)
■ Federal Express Corporation vs. American Home Assurance Company and Phil-Am Insurance
Company, Inc., G.R. NO. 150094, 18 August 2004)
■ Eternal Gardens Memorial Park Corporation vs. Phil. American Life Insurance Co., GR No. 166245,
09 April 2008.

II. CONTRACT OF INSURANCE

A. Definitions
 1. Contract of Insurance" (Sec. 2-1); and "Contract of Surcetyslup", (ibid, See also Sec
175)
2. "Doing an insurance business" (sec.2.2)
B. Elements of a contract of insurance
1. Insurable interest
2. Risk of loss or damage
3. Designated peril as cause
4. Consideration; premium
5. Risk distributing scheme
C. Characteristics/Nature of insurance contracts (Review relevant provisions of the Civil Code on
"Obligations and Contracts”")
1. Aleatory (Art. 2010, CC)
2. Executory and conditional
3. Synallagmatic (See dissent of Vitug, in UCPB General Insurance vs. Masagana
Telemart, 356 SCRA 307 (2001)
4. Consensual and voluntary (Arts. 1305, 1306, and 1308, CC)
5. Contract of Adhesion
6. Personal and of highest degree of good faith
7. Indemnity (non-life or property)
D. Perfection
E. Parties to the contract (Sec. 6 & 7, Insurance Code of the Philippines (ICP)
1. rule on minors (Sec. 3, ICP)
2. rule on married women (Sec. 3, ICP)
F. Subject matter of insurance (Sec. 3 & 4, ICP)
G. Insurance not a wagering contract (Sec. 4, ICP)
CASES:
■ Enriquez vs Sun Life Insurance of Canada (G.R. No. 15895, Nov. 29, 1920)
■ Development Bank vs. CA (G.R. No. 100937, March 21, 1994)
■ Great Pacific Life Assurance Co. VS. CA (G.R. Nos. 31845 & 31873, April 30, 1979)

III. GENERAL CLASSIFICATION OF INSURANCE UNDER THE CODE

A. Life
1. Individual life (as defined in Sections 179 and 180); pure endowment
2. Group life (Sections 50; 228, last par.)

Pineda v. CA & Insular Life, 226 SCRA 7554 (93)

3. Industrial life (as defined in Sec. 229; for discussion infra)

B. Non-life (limited to definitions)

1. Marine (Sec. 99)
2. Fire (Sec. 167)
3. Casualty (Sec. 174) or liability insurance
4. Suretyship (Sec. 175)

C. Other modes of classification of insurance contracts

 1. Private and public (voluntary and compulsory)
2. 'first party insurance" and "third party insurance" (See Sec. 174)
D. Some life insurance plans in the market
1. Whole life plan (ordinary, limited payment, single premium, joint-life, universal life,
variable life; endowment life)
2. Term plan
3. Modified life
4. Pure endowment plan
5. Endowment plan
E. Construction/interpretation of insurance contracts (review Arts. 1370 to 1379, CC)
1. Basis/rationale for interpretation, whether literal or liberal (review consensual and
obligatory nature of an insurance contract Arts. 1305, 1306 & 1308, CC) as well as Arts.
1370 to 1379 on interpretation
2. Some cases dealing with the construction and interpretation. Discussion to be limited
to contractual provision requiring interpretation (how it arose and how it was resolved
and basis for such resolution)

CASES:
■ Cebu Shipyard v. William Lines, 306 SCRA 762 (1999)
■ New Life Enterprises v. CA, 207 SCRA 699 (1992)
■ First Quezon City Insurance v. CA, 218 SCRA 526 .
■ Ty v. First National, 1 SCRA 1324 (1961)
■ Misamis Lumber v. Capital Inc., 17 SCRA 228 (1966)
■ Sun Insurance v. CA, 195 SCRA 193 (1991)

`
■ Fortune Ins. V. CA 244 SCRA 308 (1995)

■ Perla v. CA, 185 SCRA 74 .

■ Oriental Assurance v. CA, 200 SCRA 459 (1991)

■ Malayan Ins. V. CA, 270 SCRA 242 (1997)

■ Western Guaranty v CA, 187 SCRA 652

■ Qua v. Law Union 96 Phil. 85 (1955)

■ Del Rosario v. Equitable Ins. 8 SCRA 343 (1963)

■ Geagonia v. CA 241 SCRA 152 (1995)

■ Sun Insurance v. CA 211 SCRA 554 (1992)

■ Rizal Surety v. CA 336 SCRA 12
IV. INSURABLE INTEREST
A. Concept of insurable interest in general

B. Reason for the requirement of insurable interest

C. Insurable interest in life insurance (Sec. 10, ICP)

D. Insurable interest in property insurance (Sec. 13 & 14, ICP)

1. Insurable interest in case of mortgaged property (Sec. 8, ICP)

a) standard or union mortgage clause

b) open or loss payable clause

2. Effect of change of interest in the thing insured (Sec. 20, 21, 22, 23, 24, 57458, 16M
Art. 1306, Civil Code of the Philippines)
V. s

A. Concealment
1. Concept (Sec. 26, ICP)

2. Duty to communicate (Sec. 28, ICP)

3. Test of materiality (Sec. 31, ICP)

4. Effect of concealment (Sec. 27 & 29, ICP)

5. Matters which need not be communicated (Sec. 30, 32, 34, & 35 ICP)

6. Waiver of information (Sec. 33, ICP)

B. Representation
1. Concept (Sec. 36, ICP)

2. Kinds of representation (Sec. 36, 37, 39, 42, ICP)

3. Test of materiality (Sec. 46, ICP)

4. Effect of alteration or withdrawal (Sec. 41, ICP)

5. Time to which representation refers (Sec. 42, ICP)

6. Effect when representation is obtained from third persons (Sec. 43, ICP)

7. When presumed false; effect of falsity (Sec. 44 & 45, ICP)

C. Remedies available in case of concealment or false representation
1. When rescission by the insurer may be exercised (Sec. 48, ICP)
2. When life insurance policy becomes incontestable (Sec. 48, ICP)

a) requisites for incontestability

b) theory and object of incontestability

c) defenses not barred by incontestability

D. Warranties
1. Concept; distinguished from representation

2. Kinds of warranties (express, implied, affirmative, promissory)

3. Time to which warranty refers (Sec. 68, ICP)

4. Effect of breach (Sec. 74, 75, & 76, ICP)

VI. THE POLICY OF INSURANCE
A. Definition and form (Sec. 49-50, ICP)
B. Fine print rule
C. Contents of the policy (Sec. 51, ICP)
D. Paper attached to the policy and their binding effect (rider, warranties, clause, endorsement)
E. Kinds of policy
1. open (Sec. 60, ICP)
2. valued (Sec. 61, ICP)
3. running (Sec. 62, ICP)
F. Cover notes (Sec. 52, ICP)
G. Cancellation of policy (Sec. 65-66, ICP)
H. Time to commence action on the policy; effect of stipulation (Sec. 63, ICP)

CASES:
■ Pacific Timber Export Corporation vs CA (112 SCRA 199)
■ Great Pacific Life Assurance Corporation vs. CA, 89 SCRA 543)
■ Philam Life and General Insurance Co. vs Judge Valencia-Bagalacsa (GR No. 139776; August 1,
2002).
VII. PREMIUM
A. Concept
B. Effect of non-payment of premium; Exceptions (Sec. 77, 78, ICP, Art. 1306, NCC)
C. When insured entitled to return of premiums (Sec. 79-82, ICP)
CASES:
■ Velasco V. Apostol, 173 SCRA 228 (1985)
■ Valenzuela v. CA, 191 SCRA 1 (1990)
■ South Sea Surety v. CA 244 SCRA 744 (1995)
■ Areala v. CA 236 SCRA 643 (1994)
■ Makati Tuscany Condominium Corp. vs. CA (215 SCRA 462)
■ UCPB General Insurance vs. Masagana Telamart (June 15, 1999)
■ UCPB General Insurance vs Masagana Telamart (356 SCRA 307)
■ American Home Insurance vs Chua (G.R. No. 130421, June 28, 1999)
■ Tibay vs CA (257 SCRA 126) see dissent, Phil. Phoenix Surety & Ins. Co. vs. Woodworks, Inc.,
(92 SCRA 429)

VIII. THE POLICY, PARTIES THERETO, & RIGHTS THEREON

A. Definition of a policy of insurance (Sec. 49)
B. Form & contents (Sections 50 & 51 a to g); Sec. 226; cf. group insurance (Sec. 228)
C. Riders and endorsements; rules on formalities & effectivity (Section 50, par. 2)

D. Cover notes (Sec. 52)

E. Types of non-life insurance policies (Sections 59, 60, 61 & 62) cf. Secs. 156, 161, 171
1. Open
2. Valued
 3.Running(floating).
F. Parties
1. Insurer (Secs 6, 184, 185 & 299) df: Agents and brokers: Secs 300, 301, 306
2. The insured (cf. cestui que vie in life insurance) Secs. 7, 54, 55, 56 & 57; RA 6809; Arts
110-111, Family Code; Article 1390, CC
3. Beneficiaries (life insurance)
a) Designation & right to change (Sec. 11)
b) Statutory limitations (Arts. 739, 2011 & 2012, CC)
c) Forfeiture of benefits by the beneficiary (Sec. 12)
G. Rights of Insured Over a Life Insurance Policy
1. Right to assign (cf. change of beneficiary) (see Grepalife v. CA (1999)
2. Right to borrow (Sec. 227 g.)
3. Right to dividends (Sec. 227 e)
CASES
:
■ Lim v. Sun Life Assurance 41 Phil. 263 (1920)
■ Great Pacific Life v. CA, 89 SCRA 543 (1979)
■ Pacific Timber Export v. CA, 112 SCRA 199 (1982)
■ Development Insurance v. IAC, 143 SCRA 62 (1986)
■ Harding v. Commercial Union Assurance, 38 Phil. 464 (1918)
■ White Gold Marine Services v. Pioneer Insurance & the Steamship Mutual, 464 SCRA 448 (2005 )
■ Pandiman v. Marine Manning Management Corp. & Singhid, 460 SCRA 418 (2005)
■ Filipinas Cia de Seguros v. Christern Huenefeld, 89 Phil 54. (1951)
■ Insular v. Ebrado, 80 SCRA 181 (1977)
■ Consuegra v. GSIS, 37 SCRA 315 (1971)
■ SSS v. Davac, 17 SCRA 863 (1966)
■ Del Val v. Del Val, 29 Phil. 534 (1915)
■ Gercio v. Sun Life Assurance, 48 Phil. 53 (1925)
■ Philippine American Life Insurance v. Pineda, 175 SCRA 416 (1989)
■ Sun Life Assurance of Canada v. Ingersoll, 41 Phil. 331 (1922)
■ Great Pacific Life v. CA 316 SCRA 677 (1999) on "mortgage redemption insurance"

IX. PERSONS ENTITLED TO RECOVER ON THE POLICY AND CONDITIONS TO RECOVERY

A. Beneficiary (Sec. 11-12, 53, 56, & 57 ICP)

B. Limitations on the appointment of beneficiary (Art 2012 & 739, NCC)
C. Rule where insurance if made by an agent or trustee (Sec. 54, ICP)
D. Rule where insurance if made by partner or part owner (Sec. 55, ICP)
E. Notice and proof of loss (Sec. 88-92, ICP)

CASES
:
■ Bonifacio Bros. Inc. vs Mora (May 29, 1976)

■ The Insular Life Assurance vs Ebrado 80 SCRA 191)

 ■ Vda. de Consuegra vs. GSIS 37 SCRA 315); GO vs Redfern (72 Phil 1)
■ Country Bankers Insurance Corporation vs. Lianga Bay (January 23, 2012).
X. RECISSION OF INSURANCE CONTRACTS: CONCEALMENT, MISREPRESENTATION, &
BREACH OF WARRANTIES
A. Basis Rationale
1. Insurance is of utmost good faith (uberrimae fide)
2. As risk management devices
3. As grounds for recission
B. Concealment
1. Definition: Secs 26, 27 (as amended by B.P. 874) 28 & 29
2. Matters which need not be disclosed Secs 30, 32, 33, 34 & 35
3. Test of materiality: Sec, 31
C. Misrepresentation
1. The active form of concealment
2. Sections 36 to 47 (Sec. 45 as amended by B.P. 874):
a) Form and when made (Secs 36, 37, 41 & 42)
b) Representation as to future (Sec 39)
c) Representation as to information (Sec 43)
d) Effect of misrepresentation (Secs. 44 & 45)
e) Misrepresentation as to age (supra)' Sec. 2270)
f) Test of materiality (Sec. 46)
D. The incontestable clause" in life insurance policies'; defenses not barred (Sections 48 and 227
b.)
E. Warranties: Sections 67 to 76
1. Kinds
a) Express (Sections 67 & 71)
b) Implied (manne only)
c) Affirmative (Sec. 68)
d) Promissory (Section 72 & 73
2. Warranties in fire insurance policies; standard policies, standard clauses (Sections 10S,
169, 170)
a) Storage of hazardous materials
b) Alteration in use or condition
c) Sole ownership clause
d) "Other insurance" clause
CASES:
■ Ng v. Asian Crusader, 122 SCRA 461 (1983)
■ Canilang v. CA, 223 SCRA 443 (1993)
■ Yu V. CA, 105 Phil. 930 (1959)
■ Great Pacific Life v. CA, 89 SCRA 643 (1979)
■ Pacific Banking v. CA, 168 SCRA 1 (1988)
■ Sunlife v. CA, 245 SCRA 258 (1995)
■ Eguaras v. Great Eastern, 33 Phil. 263 (1916)
■ Qua v. Law Union Rock, 98 Phil. 85 (1955)
■ Argente v. West Coast Life, 51 Phil 725 (1928)
■ Great Pacific Life v. CA, 316 SCRA 677 (1999)
 ■ Edillion v. Manila Bankers Life, 117 SCRA 187 (1982)
■ Harding v. Commercial Union, 38 Phil. 469 (1918)
■ Tan v. CA, 174 SCRA 403 (1989)
■ Pioneer v. Yap, 61 SCRA 426 (1974)
■ New Life Enterprises v. CA, 207 SCRA 609 (1992)
■ Pacific Banking v. CA, 168 SCRA 1 (1988)
■ Young v. Midland Textile Insurance, 30 Phil 617 (1915)

XI. DOUBLE INSURANCE

A. Definition and requisites (Sec. 93, ICP)
B. Distinguished from over-insurance
C. Stipulation against double insurance
D. Rules for payment where there is over-insurance by double insurance (Sec. 94, ICP)

XII. REINSURANCE
A. Definition (Sec. 95, ICP)
B. Nature (Sec. 97 & 98, ICP)
C. Distinguished from double insurance
D. Duty of reinsured to disclose facts (Sec. 96, ICP)
CASES:
■ PHILAM V. Auditor, 22 SCRA 135 (1968)
■ Fieldman v. Asian Surety, 34 SCRA 36 (1970)
■ Equitable Insurance v. Rural Insurance, 4 SCRA 343 (1962) .
■ Artex Development Co. v. Wellington Ins. Co., 51 SCRA 352 (1973)

XIII. MARINE INSURANCE

A. Definition
B. Scope of marine insurance (Sec. 99, ICP)
C. Risks or losses covered in marine insurance
1. perils of the sea vs. perils of the ship
2. "all risks" marine insurance policy
D. Insurable interest in marine insurance
1. ship owner's insurable interest (Sec. 100, ICP)
a) rule where vessel is chartered (Sec. 100, ICP)
b) rule where vessel hypothecated by bottomry (Sec. 101, ICP)
c) Insurable interest in freightage (Sec. 102-103, ICP)
2. charterer's insurable interest (Sec. 106, ICP)

E. Concealment

1. Meaning of concealment in marine insurance

 2. Duty to communicate (Sec. 107, ICP)
3. Opinions or expectations of third persons (Sec. 108, ICP)
4. When concealment does not vitiate the entire contract (Sec. 110, ICP)

F. Representations
1. Effect of false representation by the insured (Sec. 111, 1CP)
2. Effect of false representation as to expectation (Sec. 112, ICP)

G. Implied warranties in Marine Insurance

1. Seaworthiness (Sec. 113, ICP)

a) what constitutes seaworthiness (Sec. 114, 116, 119, ICP)
b) when complied with; Exceptions (Sec. 115, ICP)
c) rule where ship becomes unseaworthy in the course of the voyage (Sec. 118,
ICP)
2. Warranty that necessary documents are carried (Sec. 120, ICP)
3. Warranty against improper deviation
a) meaning of deviation (Sec. 123, ICP)
b) when proper (Sec. 124, ICP.)
c) effect of improper deviation (Sec. 125, ICP)
H. Loss
1. Kinds of losses (actual and constructive) (Sec. 130, 131, & 132, ICP)
2. Right to payment upon an actual total loss (Sec. 135, ICP)
3. Scope of insurance against actual total loss (Sec. 137, ICP)
4. When constructive total loss exists (Sec. 139, ICP)
5. Concept of abandonment and its requisites
6. Average
a) Kinds of average (particular and general)
b) Requisites of general average
c) Insurer's liability for general average

CASES:
■ Roque vs IAC (139 SCRA 596)
■ Go Tiaco vs. Union Ins. Society of Canton (40 Phil 401)
■ Cathay Insurance vs CA (151 SCRA 710 SCRA 638)
■ Oriental Assurance Corporation vs CA (200 SCRA 459).
■ A. Magsaysay, Inc. v. Agan, 96 Phil. 504 (1955)
■ Jarque v. Smith Bell & Co., 56 Phil 758 (1930)
■ Phil Home Assurance v. CA, 257 SCRA 468
■ La Razon v. Union Insurance, 40 Phil. 40 (1919)
■ Malayan Insurance v. CA, 270 SCRA 242 (1997)
■ Mayer Steel v. CA & Southsea Surety, 274 SCRA 432
■ Coastwise v. CA, 245 SCRA 796 (1995)
■ Cebu Salvage v. Phil. Home Assurance, 512 SCRA 667 (2007)

■ Choa v. CA, 183 SCRA 223 (1990)

 ■ Filipino Merchants v. CA, 178 SCRA 638 (1989)
■ Oriental Assurance v. CA, 200 SCRA 459 (1991)
■ Pan Malayan v. Ca, 201 SCRA 382 (1991)

XIV. FIRE INSURANCE

A. Definition and scope of fire insurance (Sec. 167, ICP)

B. Risks or losses covered
C. Effect of alteration in the thing insured (Sec. 168, ICP)
D. Measure of indemnity
E. Co-insurance clause

CASES::
■ Phil. Home Assurance v. CA, 257 SCRA 468 (1996)

XV. CASUALTY INSURANCE

A. Concept (Sec. 174, ICP)

B. Third Party Liability insurance
C. Insurable interest
D. Meaning of "accident" and "accidental” in casualty insurance
E. Basis and extent of insurer's liability
CASES:
■ Finman General Assurance Co. vs. CA (September 2, 1992) .
■ Sun Insurance Office Ltd. vs. CA (July 17, 1992) .
■ Biagtan vs. The Insular Life Assurance Co., Ltd., (44 SCRA 58).
■ Fortune Insurance v. CA, 244 SCRA 309

XVI. SURETYSHIP
A. Definition (Sec. 175, ICP)
B. Nature of liability of surety (Sec. 176, ICP)
C. Distinctions between suretyship and property insurance

CASES:
■ National Power Corp v. CA, 145 SCRA 529 (1986)
■ Zaragoza v. Fidelino, 163 SCRA 443 (1988)
■ Stronghold Insurance v. CA, 208 SCRA 336 (1992)
■ Prudential v. Equinox, 533 SCRA 257 (2007)
■ Intra-Strata v. Republic, 557 SCRA 363

XVII. LIFE INSURANCE

A. Definition (Sec. 179 & 180, ICP)

 B. Kinds of life insurance
C. Liability of insurer in case of suicide (Sec. 180-A, ICP)
D. Right to assign life insurance policy (Sec. 181 & 18 2, 1CP)
E. Measure of indemnity (Sec. 183, ICP)

CASES:
■ Finman v. CA, 213 SCRA 493 (1992)
■ Calanoc v CA, 98 Phil. 79 (1955)
■ Biagtan v. Insular, 44 SCRA 58 (with dissenting opinion) (1972)
■ Sun Insurnace v. CA, 211 SCRA 554 (1992)
■ De la Cruz v. Capital Insurance, 17 SCRA 559 (1966)

XVIII. GROUP LIFE INSURANCE (Sec. 50; 228 last par.)

CASES:
■ Eternal Gardens v. PHILAMLIFE, 551 SCRA 1
■ GREPALIFE V. CA, 316 SCRA 677