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IN MARINE INSURANCE
Loss
SEC. 129. A loss may be either total or partial.
SEC. 130. Every loss which is not total is partial.
SEC. 131. A total loss may be either actual or constructive.
Kinds of losses.
The law classifies loss into either total or partial.
There are two kinds of total loss: actual or absolute; and
constructive or technical.
When the loss is total, the underwriter is liable for the whole of
the amount insured.
SEC. 132. An actual total loss is caused by:
(a) A total destruction of the thing insured;
(b) The irretrievable loss of the thing by sinking, or by
being broken up;
(c) Any damage to the thing which renders it valueless to
the owner for the purpose for which he held it; or
(d) Any other event which effectively deprives the owner
of the possession, at the port of destination, of the thing
insured.
Meaning of actual total loss.
An actual total loss exists when the subject matter of the
insurance is wholly destroyed or lost or when it is so damaged
as no longer to exist in its original character.
Complete physical destruction not essential to constitute
actual total loss.
Under Section 132, the complete physical destruction of the
subject matter as in the case of fire is not essential to
constitute an actual total loss. (pars, [b], [c], [d].) Such a loss
may exist where the form and specie of the thing is destroyed
although the materials of which it consisted still exist.
EXAMPLES:
(1) Where a vessel sinks in deep water or runs on the
reef and is broken wholly to pieces, the loss is
actually total. The same is true where a vessel is so
badly injured that she no longer exists as a ship but is
a mere confused mass of material. Likewise, where
the insured is irretrievably deprived of possession or
ownership of the cargo in question (e.g., sunk gold
bars which could not be retrieved), an actual total loss
has been suffered.
(2) An actual total loss is suffered where the cargo, by
the process of decomposition or other chemical
agency, no longer remains the same kind of thing as
VIRGILIO, MARK
before. Thus, in a case, the insured rice seeds found
wetted were determined to be lost and rendered
valueless to the insured for planting or seeding
purposes since the wetting or contact with water had
definitely activated their tendency to germinate. The
rice seeds were treated and would germinate upon
mere contact with water. Another example is where
cement submerged in water becomes concrete. Here,
there is a loss of species which means that the
damage sustained causes the cargo to be different
from the original.
Limited liability rule.
The shipowner's or ship agent's liability is usually coextensive
with his interest in the vessel such that a total loss thereof
results in its extinction. In our jurisdiction, the limited liability
rule is embodied in Articles 587,590 and 837 under Book III of
the Code of Commerce.
These articles precisely intend to limit the liability of the
shipowner or agent to the value of the vessel, its
appurtenances and freightage earned in the voyage, provided
that the owner or agent abandons the vessel. When the vessel
is totally lost in which case there is no vessel to abandon,
abandonment is not required. Because of such total loss, the
liability of the shipowner or agent for damages is extinguished.
As an exception to the limited liability doctrine, a shipowner or
ship agent may be held liable for damages when the sinking of
the vessel is attributable to the actual fault or negligence of the
shipowner or its failure to ensure the seaworthiness of the
vessel.
SEC. 133. A constructive total loss is one which gives to a
person insured a right to abandon, under Section 141.
Meaning of constructive total loss.
A constructive total loss, or, as it is sometimes called, a
"technical total loss," is one in which the loss, although not
actually total, is of such a character that the insured is entitled,
if he thinks fit, to treat it as total by abandonment.
Importance of distinction between actual and constructive
total loss.
It is highly important that the two kinds of total loss be carefully
differentiated, for upon them depends the whole doctrine of
abandonment.
In cases of actual total loss, no abandonment is necessary; but
if the loss is merely constructively total, an abandonment
becomes necessary in order to recover as for a total loss.
SEC. 134. An actual loss may be presumed from the
continued absence of a ship without being heard of. The
length of time which is sufficient to raise this presumption
depends on the circumstances of the case.
Presumption of actual total loss.
Where a vessel is not heard of at all within a reasonable time
after sailing, or for a reasonable time after she was last seen,
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she will be presumed to have been lost from a peril insured
against.
To lay a foundation for the presumption, it is enough to prove
that the vessel was not heard of at her port of departure after
she sailed without calling witnesses from her port of destination
to show that she never arrived there. But plaintiff must prove
that when the vessel left her port of outfit, she was bound on
the voyage insured. There is no fixed rule with regard to the
time after which a missing vessel will be presumed to be lost. It
depends upon the circumstances of each case.
SEC. 135. When a ship is prevented, at an intermediate
port, from completing the voyage, by the perils insured
against, the liability of a marine insurer on the cargo
continues after they are thus reshipped.
Nothing in this section shall prevent an insurer from
requiring an additional premium if the hazard be increased
by this extension of liability.
Liability of insurer in case of reshipment.
The above section contemplates an insurance upon cargo.
(1) If the original ship be disabled, and the master, acting with
a wise discretion, as the agent of the merchant and the
shipowners, forwards the cargo in another ship, such
necessary and justifiable change of ship will not discharge the
underwriter on the goods from liability for any loss which may
take place on goods subsequently to such reshipment.
(2) This rule will not be obligatory where resort must be had to
distant places to procure a vessel, and there are serious
impediments in the way of putting the cargo on board.
In any case, the insurer may require an additional premium if
the hazard be increased by the extension of liability.
SEC. 136. In addition to the liability mentioned in the last
section, a marine insurer is bound for damages, expenses
of discharging, storage, reshipment, extra freightage, and
all other expenses incurred in saving cargo reshipped
pursuant to the last section, up to the amount insured.
“Nothing in this or in the preceding section shall render a
marine insurer liable for any amount in excess of the
insured value or, if there be none, of the insurable value.
Additional liability of insurer of goods.
The expenses specified in Section 136 refer to those
necessary to complete the transportation of cargo reshipped
under Section 135. The insurer is liable for them in addition to
paying for any loss or damage which may take place on the
goods, due to the perils insured against.
The liability, however, of the insurer under Section 136 cannot
exceed the amount of the insurance
SEC. 137. Upon an actual total loss, a person insured is
entitled to payment without notice of abandonment.
Right of insured to payment upon an actual total loss.
VIRGILIO, MARK
(1) In constructive total loss, an abandonment by the insured is
necessary in order to recover for a total loss in the absence of
any provision to the contrary in the policy.
(2) In case of actual total loss, the right of the insured to claim
the whole insurance is absolute. Hence, he need not give
notice of abandonment nor formally abandon to the insurer
anything that may remain of the insured property.
SEC. 138. Where it has been agreed that an insurance
upon a particular thing, or class of things, shall be free
from particular average, a marine insurer is not liable for
any particular average loss not depriving the insured of
the possession, at the port of destination, of the whole of
such thing, or class of things, even though it becomes
entirely worthless; but such insurer is liable for his
proportion of all general average loss assessed upon the
thing insured.
Meaning of average.
Average is defined by the Code of Commerce as any
extraordinary or accidental expense incurred during the voyage
for the preservation of the vessel, cargo, or both and all
damages to the vessel and cargo from the time it is loaded and
the voyage commenced until it ends and the cargo unloaded.
Kinds of average.
Averages are of two kinds. They are:
(1) Gross or general averages which include damages and
expenses which are deliberately caused by the master of the
vessel or upon his authority, in order to save the vessel, her
cargo, or both at the same time from a real and known risk.
(Art. 811, ibid.)
A general average loss must be borne equally by all of the
interests concerned in the venture; and
(2) Simple or particular averages which include all damages
and expenses caused to the vessel or to her cargo which have
not inured to the common benefit and profit of all the persons
interested in the vessel and her cargo. They refer to those
losses which occur under such circumstances as do not entitle
the unfortunate owners to receive contribution from other
owners concerned in the venture as where a vessel
accidentally runs aground and goes to pieces after the cargo is
saved.
A particular average loss is suffered by and borne alone by the
owner of the cargo or of the vessel, as the case may be.
The terms "partial loss," "particular average," and "average,
unless general" are generally regarded as synonymous when
used in marine insurance.
Liability of insurer for general average.
The liability of the insurer for general average is clearly
provided in the clause of Section 138 which states "but he is
liable for his proportion of all general average loss assessed
upon the thing insured."
It has been held by our Supreme Court that Article 859 of the
Code of Commerce which reads:
"The underwriters of the vessels, of the freightage and of the
cargo shall be obliged to pay for the indemnity of the gross
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average in so far as is required of each one of these objects
respectively." … is still in force.
Article 859 is mandatory in terms, and insurers, whether for the
vessel or for the freightage or for the cargo, are bound to
contribute to the indemnity of the general average. And there is
nothing unfair in the provision; it simply places the insurer on
the same footing as other persons who have an interest in the
vessel, or the cargo therein, at the time of the occurrence of
the general average and who are compelled to contribute.
The formula for computing the liability of the insurer may be
stated as follows:
Amount of x General = Proportion of
insurance Average Loss GAL for which
÷ (GAL) insurer is liable
Total amount or
value involved
EXAMPLE:
A is the owner of a vessel worth P8,000,000.00 insured against
"absolute total loss only" with Y Co. The vessel ran into very
heavy sea and it became necessary to jettison the cargo
belonging to B valued at P1,000,000.00. As a result of the
jettison, the vessel was saved together with the cargo
belonging to C valued at P600,000.00 and to D valued at
P400,000.00.
Here, Y Co. is liable to contribute to the indemnity of the
general average although the policy makes it liable only upon
actual total loss of the vessel. The total value involved is
P10,000,000.00, consisting of the value of the cargo sacrificed
and that of the vessel and/or cargo saved.
The ratable contribution of the parties will be as follows: Y Co.,
4 / 5 of P1,000,000.00 or P800,000.00; B, 1 /10 of
P1,000,000.00 or P100,000.00; C, 3/50 of P1,000,000.00 or
P60,000.00; and D, 2/50 of P1,000,000.00 or P40,000.00.
Note that B contributes P100,000 as his part of the indemnity
for the general average brought about by the jettison of his
cargo. The liability of Y Co. cannot exceed the contributing
value of the vessel.
Liability of insurer for particular average.
Policies of marine insurance frequently contain stipulations
with respect to certain class of goods which are perishable or
peculiarly subject to damage under which the insurer will not
be liable for loss, partial or total, arising from perils of the sea.
The purpose of such stipulation is to protect the insurer.
In addition, it may be agreed by the parties that the insurance
shall be free from particular average. In such case, the marine
insurer is liable only for general average and not for particular
average unless such particular average loss has the effect of
"depriving the insured of the possession at the port of
destination of the whole" of the thing insured. (Sec. 136.) In the
absence of any contrary stipulation, the insurer is liable for
particular average loss.
Examples of particular average:
The damage suffered by the cargo from the time of its
embarkation until it is unloaded; the damage and expenses
suffered by the vessel from the time it is put to sea from the
port of departure until it anchors to the port of destination.
VIRGILIO, MARK
SEC. 139. An insurance confined in terms to an actual loss
does not cover a constructive total loss, but covers any
loss, which necessarily results in depriving the insured of
the possession, at the port of destination, of the entire
thing insured.
Scope of insurance against actual total loss.
An insurance against "total loss only" will cover any total loss,
whether it is actual or constructive, although there is authority
to the contrary. Where the insurance is against "absolute" total
loss or "actual" total loss, the insurer will not be liable for
constructive or technical total loss.
If the insured is deprived of the possession of the entire thing
insured at the port of destination, the insurer is liable because
the permanent non-arrival thereof is really an actual total loss.
Phil. Manufacturer v. Insurance, 42 Phil 378
Whatever may be the rule in other jurisdictions, the policy
having been issued at Manila, it must be construed under the
terms and provisions of those sections, and section 122
specifically says that:
1. "a total loss may be either actual or constructive," and
that,
2. "the loss of the thing by sinking, or being broken up,"
is an actual loss or that "any damage to the thing which
renders it valueless to the owner for the purposes for which he
held it" is an actual loss.
FACTS:
Petitioner – Phil. Manufacturing Co. duly organized under the
laws of the Philippine Islands with its principal office and place
of business at Manila, and at the times alleged was the owner
of the steel tank lighter named Philmaco.
Respondent – Union Insurance company organized under the
laws of Hongkong and duly authorized to transact business
here
Respondent insured the petitioner's lighter for the sum of
P16,000, and issued its policy for such insurance, which
recites:
 Steel tank lighter Philmaco is insured "for and during
the space of twelve calendar-months from July 6,
1917 to July 5, 1918, both dates inclusive, upon the
hull, machinery, tackle, apparel, boats or other
furniture of the good ship or vessel"
 Assured is and shall be rated and valued on hull,
engine and pumping machinery, whereof this policy
insures 16K, P. I. C. Warranted against the absolute
total loss of the lighter only.
 Warranted trading between Bitas, Tondo, or Pasig
River and steamers in the Bay of Manila or harbor.
In consideration, petitioner paid the defendant P960 as a
premium.
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During the life of the policy and as a result of a typhoon, the
lighter was sunk in the Manila Bay.
Petitioner notified the respondent and demanded payment of
the full amount of its policy while respondent refused, and
denied its liability.
Petitioner commenced this action and alleged:
1. steel tank lighter Philmaco became a total loss by
sinking in the waters of the Bay of Manila while
operating within the places noted in the said insurance
policy
2. such loss immediately became due and payable
Respondent’s Answer: It was only liable for an absolute total
loss, and that there was not a total destruction of the lighter
Lower Court: In favor of the defendant
Plaintiff appealed.
Additional facts: The petitioner notified the respondent that the
lighter was of no value, and offered to abandon the wreck as
an absolute total loss to the petitioner. The respondent refused
the offer, and instructed petitioner to salve the wreck, if it was
possible to do so. Under such instructions, the petitioner
employed a third party to proceed with the salvage. After
several attempts and on September 20, 1918, the storm-
beaten hull was finally raised and between two barges was
taken to the Pandacan Slipway.
3. Respondent’s claim: The plaintiff having finally raised
the lighter, reconstructed and placed it in commission,
and having used a large portion of its hull in such
reconstruction, the defendant claims that the loss was
not an absolute total loss under the terms and
provisions of the policy. That plaintiff having
reconstructed a new lighter out the remains of the old
one, it cannot claim or assert that the old one was a
total loss.
ISSUE: WON the loss is an absolute total loss within the terms
and provisions of the policy | YES
RULING:
An act revising the insurance laws and regulating insurance
business in the Philippine Islands, No. 2427, was enacted by
the Philippine Legislature December 12, 1914, and, under the
heading of "Loss", contains the following provisions:
SEC. 120. A loss may be either total or partial.
SEC. 121. Every loss which is not total is partial.
SEC. 122. A total loss may be either actual or
constructive.
SEC. 123. An actual total loss is caused by:
(a) A total destruction of the thing insured;
(b) The loss of the thing by sinking, or by
being broken up;
VIRGILIO, MARK
(c) damage to the thing which renders it
valueless to the owner for the purpose for
which he held it. . .
At the time the lighter was sunk and in the bottom of the bay
under the conditions then there existing, it was of no value to
the owner, and, if it was of no value to the owner, it would be a
actual total loss. To render it valueless to the owner, it is not
necessary that there should be an actual or total loss or
destruction of all the different parts of the entire vessel. The
question here is whether, under the conditions then and there
existing, and as the lighter laid in the bottom of the bay, was it
of any value to the owner. If it was not of any value to the
owner, then there was an actual loss or a "total destruction of
the thing insured" within the meaning of the above sections of
Act No. 2427 of the insurance code.
The lighter was sunk about July 1, 1918. After several futile
attempts, it was finally raised on September 20, 1918.
It is fair to assume that in its then condition much further time
would be required to make the necessary repairs and install
the new machinery before it could again be placed in
commission.
During all that time the owner would be deprived of the use of
its vessel or the interest on its investment. When those
questions are considered the testimony is conclusive that the
cost of salvage, repair, and reconstruction was more than the
original cost of the vessel of its value at the time the policy was
issued.
As found by the trial court "it is difficult to see how there could
have been a more complete loss of the vessel than that which
actually occurred." Upon the facts that shown here, any other
construction would nullify the statute, and, as applied to the
conditions existing in the Manila Bay, this kind of a policy
would be worthless, and there would not be any consideration
for the premium.
Moreover, where a policy which was issued at Manila provides
that it "shall be of as much force and effect as the surest
writing or policy of insurance made in London," and   there is
no allegation or proof of the Marine Law of Great Britain, the
policy should be construed under sections 120, 121, 122, and
123 of Act No. 2427 of the Philippine Legislature.
Pan Malayan Insurance Co. vs. CA,
FACTS:
The Food and Agricultural Organization of the United Nations
(FAO, the insured) is an autonomous intergovernmental
organization created by treaty, intended and made
arrangements to send rice seeds to Kampuchea to be
distributed to the people for seedling purposes.
Luzon Stevedoring Corporation (LUZTEVECO, the shipper)
offered to ship the FAO’s cargo, consisting of 3,000 metric
petitions in two lots of rice seeds, to Vietnam Ocean Shipping
Industry in Vaung Tau, Vietnam. FAO accepted the offer and
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LUZTEVECO issued its billing of lading. The latter then
secured insurance coverage in the amount of P5,250,000.00
from petitioner, Pan Malayan Insurance Corporation (insurer).
Shipper advised insured of the sinking of the barge in the
China Sea, hence it formally filed its claim under the marine
insurance policy. Moreover, insured was then informed by the
shipper of the recovery of the lost shipment, for which reason
the insured formally filed its claim with the shipper for
compensation of damage to its cargo.
Despite repeated demands to replace the same or to pay for
the total insured value in the sum of P5,250,000.00, shipper
failed and refused to do so.
After an investigation, the adjuster made a report
recommending the denial of FAO's claim because the partial
damage suffered by the shipment is not compensable under
the policy. On the basis of said recommendation, petitioner
denied FAO's claim.
RTC ruled in favor of insured, CA affirmed.
ISSUE:
Whether or not insurer is liable for the loss - YES
RULING:
The law classifies loss into either total or partial. Total loss may
be actual or absolute, or it may otherwise be constructive or
technical. Petitioner submits that respondent court erred in
ruling that there was total loss of the shipment despite the fact
that only 27,922 bags of rice seeds out of 34,122 bags were
rendered valueless to FAO and the shipment sustained only a
loss of 78%. FAO, however, claims that, for all intents and
purposes, it has practically lost its total or entire shipment in
this case, inclusive of expenses, premium fees, and so forth,
despite the alleged recovery by defendant LUZTEVECO.
Under Sections 129 and 130 of the New Insurance Code, a
total loss may either be actual or constructive. In case of total
loss in Marine Insurance, the assured is entitled to recover
from the underwriter the whole amount of his subscription.
In fact, FAO formally filed its claim under the marine and it
claimed actual loss under paragraphs (c) and (d) of Section
130 of the Insurance Code which provides:
SEC. 130. An actual total loss is caused by:
(a) A total destruction of the thing insured;
(b) The irretrievable loss of the thing by sinking, or by
being broken up;
(c) Any damage to the thing which renders it
valueless to the owner for the purpose for which he
held it; or
(d) Any other event which effectively deprives the
owner of the possession, at the port of destination of
the thing insured.
VIRGILIO, MARK
The bags containing said cargo were marked "TREATED,
UNFIT FOR FOOD" (Exh. "E-3-b"; TSN, January 15, 1985, pp.
3-5) and the seeds themselves were of such a fragile nature
that they have the tendency to germinate upon mere contact
with water.
Moreover, the rule is that where the cargo by the process of
decomposition or other chemical agency no longer remains the
same kind of thing as before, an actual total loss has been
suffered.
It is undisputed that no replacement whatsoever or any
payment, for that matter, of the value of said lost cargo was
made to FAO by petitioner or LUZTEVECO. FAO suffered
actual total loss under Section 130 of the Insurance Code,
specifically under paragraphs (c) and (d) thereof, recompense
for which it has been denied up to the present.
In view of our aforestated holding that there was actual total
loss of the goods insured in this case, it is no longer necessary
to pass upon the issue of the validity of the abandonment
made by FAO. Section 135 of the Insurance Code explicitly
provides that "(u)pon an actual total loss, a person insured is
entitled to payment without notice of abandonment." This is a
statutory adoption of a long-standing doctrine in maritime
insurance law that in case of actual total loss, the right of the
insured to claim the whole insurance is absolute, without need
of a notice of abandonment.
Jarque v. Smith
Facts: The plaintiff was the owner of the motorboat Pandan
and held a marine insurance policy for the sum of P45,000 on
the boat, the policy being issued by the National Union Fire
Insurance Company and according to the provisions of a
"rider" attached to the policy, the insurance was against the
"absolute total loss of the vessel only." The ship ran into very
heavy sea off the Islands of Ticlin, and it became necessary to
jettison a portion of the cargo. As a result of the jettison, the
National Union Fire Insurance Company was assessed in the
sum of P2,610.86 as its contribution to the general average.
The insurance company, insisting that its obligation did not
extend beyond the insurance of the "absolute total loss of the
vessel only, and to pay proportionate salvage of the declared
value," refused to contribute to the settlement of the general
average. The present action was thereupon instituted, and
after trial the court below rendered judgment in favor of the
plaintiff and ordered the company to pay the plaintiff the sum of
P2,610.86 as its part of the indemnity The insurance company
appealed to this court.
Issues:
1. WON the lower court erred in disregarding the typewritten
clause endorsed upon the policy, Exhibit A, expressly limiting
insurer's liability thereunder of the total loss of the wooden
vessel Pandanand to proportionate salvage charges. No
2. WON the lower court erred in concluding that defendant and
appellant, National Union Fire Insurance Company is liable to
contribute to the general average resulting from the jettison of
a part of said vessel's cargo. No
RULING:
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1. One of the clauses of the document originally read as
follows: Touching the Adventures and Perils which the said
National Union Fire Insurance Company is content to bear, and
to take upon them in this Voyage; they are of the Seas, Men-
of-War, Fire, Pirates, Rovers, Thieves, Jettison, Letters of Mart
and Countermart, Surprisals, and Takings at Sea. Arrest,
Restraint and Detainments, of all Kings Princes and People of
what Nation, Condition or Quality so ever; Barratry of the
Master and Marines, and of all other Perils, Losses and
Misfortunes, that have or shall come to the Hurt, Detriment, or
Damage of the said Vessel or any part thereof; and in case of
any Loss or Misfortunes, it shall be lawful for the Assured, his
or their Factors, Servants, or assigns, to sue, labor and travel
for, in and about the Defense. Safeguard, and recovery of the
said Vessel or any Charges whereof the said Company, will
contribute, according to the rate and quantity of the sum herein
assured shall be of as much force and Virtue as the surest
Writing or Policy of Insurance made in LONDON.
Attached to the policy over and above the said clause is a
"rider" containing typewritten provisions, among which appears
in capitalized type the following clause:
AGAINST THE ABSOLUTE TOTAL LOSS OF THE VESSEL
ONLY, AND TO PAY PROPORTIONATE SALVAGE
CHARGES OF THE DECLARED VALUE
At the bottom of the same rider following the type written
provisions therein set forth are the following words: "Attaching
to and forming part of the National Union Fire Insurance Co.,
Hull Policy No. 1055."
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 any
inconsistency exists, the above-mentioned typed "rider"
prevails over the printed clause it covers. Section 291 of the
Code of Civil Procedure provides that "when an instrument
consists partly of written words and partly of a printed form and
the two are inconsistent, the former controls the latter.
2. In the absence of positive legislation to the contrary, the
liability of the defendant insurance company on its policy
would, perhaps, be limited to "absolute loss of the vessel only,
and to pay proportionate salvage of the declared value." But
the policy was executed in this jurisdiction and "warranted to
trade within the waters of the Philippine Archipelago only."
Here the liability for contribution in general average is not
based on the express terms of the policy, but rest upon the
theory that from the relation of the parties and for their benefit,
a quasi-contract is implied by law.
Article 859 of the Code of Commerce is still in force and reads
as follows: ART. 859. The underwriters of the vessel, of the
freight, and of the cargo shall be obliged to pay for the
indemnity of the gross average in so far as is required of each
one of these objects respectively.
The article is mandatory in its terms, and the insurers, whether
for the vessel or for the freight or for the cargo, are bound to
contribute to the indemnity of the general average. It simply
places the insurer on the same footing as other persons who
have an interest in the vessel, or the cargo therein at the time
of the occurrence of the general average and who are
compelled to contribute.
VIRGILIO, MARK
In the present case it is not disputed that the ship was in grave
peril and that the jettison of part of the cargo was necessary. If
the cargo was in peril to the extent of call for general average,
the ship must also have been in great danger, possibly
sufficient to cause its absolute loss. The jettison was therefore
as much to the benefit of the underwriter as to the owner of the
cargo. If no jettison had taken place and if the ship by reason
thereof had foundered, the underwriter's loss would have been
many times as large as the contribution now demanded.
MEASURE OF INDEMNITY
SEC. 158. A valuation in a policy of marine insurance is
conclusive between the parties thereto in the adjustment
of either a partial or total loss, if the insured has some
interest at risk, and there is no fraud on his part; except
that when a thing has been hypothecated by bottomry or
respondentia, before its insurance, and without the
knowledge of the person actually procuring the insurance,
he may show the real value. But a valuation fraudulent in
fact, entitles the insurer to rescind the contract.
Valuation in a marine policy.
(1) Object of valuation. — A policy of marine insurance may be
valued or open. Section 158 refers to a valued marine policy.
The object of a valuation in a policy is to fix in advance the
value of the property and thus avoid the necessity of proving its
actual value in case of loss.
(2) Effect of valuation. — It may happen when a vessel, for
example, is insured for a long time or for a long voyage, her
value at the end of the voyage, may not be the same as at the
beginning. But, in general, the insured value must be taken to
be that which is stated in the policy. It is conclusive upon the
parties provided that (a) the insured has some interest at risk
and (b) there is no fraud on his part. If the valuation is
fraudulent in fact, the insurer is entitled to rescind the contract.
(3) Right to give evidence of value. — In a valued marine
policy, neither party can thus give evidence of the real value of
the thing insured. However, when the thing has been
hypothecated by bottomry or respondentia before its insurance
and without the knowledge of the person who actually procured
the insurance, the insurer may show the real value but he is
not entitled to rescind the contract unless he can prove that the
valuation was in fact fraudulent.
SEC. 159. A marine insurer is liable upon a partial loss,
only for such proportion of the amount insured by him as
the loss bears to the value of the whole interest of the
insured in the property insured.
When insured a co-insurer in marine insurance.
In every marine insurance, the insured is expected to cover by
insurance the full value of the property insured. If the value of
his interest exceeds the amount of insurance, he is considered
the co-insurer for an amount determined by the difference
between the insurance taken out and the value of the property.
The rule is different in fire insurance.
The law determines the amount recoverable according to the
following formula:
INSURANCE PART C
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(Partial) Loss X amount of = Amount
÷ insurance recovery
Value of thing
insured
EXAMPLE:
If a vessel valued at P500,000.00 is insured for only
P400,000.00 and is damaged to the extent of P250,000.00, the
insurer will be required to pay only 80% of the loss suffered, or
P200,000.00; the other 20% or P50,000.00 being borne by the
insured himself.
In the example given, we have the following computation:
P250,000.00
P500,000.00
The insured is considered a co-insurer as to the uninsured
portion of P100,000.00.
Note that Section 159 applies only if (1) the loss is partial and
(2) the amount of insurance is less than the insured's entire
insurable interest in the property insured. So, in the same
example, if the loss is total, the insurer is liable for the full
amount of P400,000.00. On the other hand, if the property is
insured to its full value, the insured is entitled to recover the full
amount of the partial loss of P250,000.00.
SEC. 160. Where profits are separately insured in a
contract of marine insurance, the insured is entitled to
recover, in case of loss, a proportion of such profits
equivalent to the proportion which the value of the
property lost bears to the value of the whole.
Loss of profits separately insured.
If the profits to be realized are separately insured from the
vessel or cargo, the insured is entitled to recover, in case of
loss, such proportion of the profits as the value of the property
lost
bears to the value of the whole property.
The formula may be stated thus:
Value of property x Amount of = Amount
lost insurance recovery
÷ insured
Value of whole
property
EXAMPLE:
Assuming that the amount of the profits insured is P20,000.00,
the value of the whole cargo from which such profits are
expected to be realized is P80,000.00, and the value of the
goods lost is P48,000.00, then the insured is entitled to recover
P12,000.00 computed as follows:
P48,000.00 / P80,000 or3/5 x P200,000.00 = P12,000.00
P80,000.00
SEC. 161. In case of a valued policy of marine insurance
on freightage or cargo, if a part only of the subject is
exposed to risk, the valuation applies only in proportion to
such part.
VIRGILIO, MARK
of Where only part of a cargo or freightage insured exposed
to risk.
Where cargo is insured under a valued policy but only a portion
of the cargo is actually carried by the vessel at the time of loss,
the valuation will be reduced proportionately. The insurer is
bound to return such portion of the premium as corresponds
with the portion of the cargo which had been exposed to the
risk.
EXAMPLE:
If 200 cavans of rice valued at P160,000.00 are insured for the
same amount for a voyage in a certain vessel and only 50
cavans were actually loaded and shipped in said vessel, in
case of total loss, the insured can collect only 1/4 of the entire
valuation or P40,000.00 but the insurer is bound to return 3/4
of the premiums paid by the insured since 3/4 of the cargo or
150 cavans were not exposed to the risk.
SEC. 162. When profits are valued and insured by a
contract of marine insurance, a loss of them is
conclusively presumed from a loss of the property out of
which they are expected to arise, and the valuation fixes
their amount.
Presumption of loss of profits.
Where profits are separately insured from the property out of
which they are expected to arise, the insured, in case of partial
loss of the property, is entitled merely to partial indemnity for
the profits lost. (Sec. 158.) If the property is totally lost, pro
tanto the total profits are also lost. Thus, under Section 160,
such loss of the profits is conclusively presumed from the loss
of the property and the valuation agreed upon in the policy
fixes the amount of recovery.
EXAMPLE:
Where the value of the profits insured is fixed at P100,000.00
and the cargo out of which said profits are expected to arise is
completely lost by the peril insured against, the insured can
recover the total amount of P100,000.00.
The loss of the profit of P100,000.00 is conclusively presumed
from the total loss of the cargo and the insurer is bound by the
of valuation.
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SEC. 163. In estimating a loss under an open policy of
marine insurance the following rules are to be observed:
(a) The value of a ship is its value at the beginning of the
risk, including all articles or charges which add to its
permanent value or which are necessary to prepare it for
the voyage insured;
(b) The value of the cargo is its actual cost to the insured,
when laden on board, or where the cost cannot be
ascertained, its market value at the time and place of
lading, adding the charges incurred in purchasing and
placing it on board, but without reference to any loss
incurred in raising money for its purchase, or to any
drawback 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.
Rules for estimating loss under an open policy of marine
insurance.
Section 163 refers to an open policy while Section 158 refers
to valued policies.
In determining the loss under an open policy of marine
insurance, the real value of the thing insured must be proved
by the insured in each case.
Section 163 lays down the value to be used for indemnity
purposes.
(1) Value of vessel. — Under paragraph (a), in ascertaining the
value of a vessel, the value is to be taken as of the
commencement of the risk and not its value at the time she
was built.
(2) Value of cargo. — Under paragraph (b), the value of the
cargo is its actual cost to the insured, when laden on board, or
where that cost cannot be ascertained, its market value at the
time and place of shipment. The expected profits from the
cargo are not considered since they can be covered by a
separate insurance. In customs law, drawback is an allowance
(to the whole or part only) made by the government upon the
duties on imported merchandise, when the importer, instead of
selling it here, re-exports it, or the refunding of such duties if
already paid.
(3) Value of freightage. — Under paragraph (c), the gross
freightage and not the net freightage is the basis for
determining the value of the freightage. The reason is that the
gross amount of the freightage, as the measure of indemnity,
can be easily and exactly determined. On the other hand, to
take the net amount of the freightage as the basis, would lead
to lawsuits over the deductions which should be made.
Primage is excluded from gross freightage. It is a small
compensation paid by a shipper to the master of the vessel for
his care and trouble bestowed on the shipper's goods and
which the master is entitled to retain in the absence of an
agreement to the contrary with the owners of the vessels.
VIRGILIO, MARK
(4) Cost of insurance. — Under paragraph (d), the cost of the
insurance is always added in calculating the value of the ship,
cargo, or freightage or other subject matter in an open policy.
SEC. 164. If cargo insured against partial loss arrives at
the port of destination in a damaged condition, the loss of
the insured is deemed to be the same proportion of the
value which the market price at that port, of the thing so
damaged, bears to the market price it would have brought
if sound.
Where cargo insured against partial loss is damaged.
The foregoing provision applies if the cargo is insured against
partial loss and it suffers damage as a result of which its
market value at the port of destination is reduced.
The formula may be stated as follows:
Market price in sound state
Less: Market price in damaged state
= Reduction in value (depreciation)
Reduction in x Amount of = Amount of
value insurance recovery
÷ insured
Market price in
sound state
EXAMPLE:
Suppose that goods valued at P500,000.00 and insured for
P300,000.00 were damaged on the way so that their market
price at the port of destination was only P400,000.00.
Assuming that the market price of the goods would have
brought if sound is also P500,000.00, the amount recoverable
is P60,000.00 determined as follows:
1. P500,000.00 - P400,000.00 = P100,000.00
2. P100,000.00/ P500,000.00 or 1/5 x 300,000 = P60,000.00
SEC. 165. A marine insurer is liable for all the expenses
attendant upon a loss which forces the ship into port to be
repaired; and where it is stipulated in the policy that the
insured shall labor for the recovery of the property, the
insurer is liable for the expense incurred thereby, such
expense, in either case, being in addition to a total loss, if
that afterwards occurs.
Liability of insurer for expenses incurred for repair and
recovery.
As a general rule, a marine insurer is not liable for more than
the amount of the policy.
Under Section 165, however, expenses incurred in repairing
the damages suffered by a vessel because of the perils
insured against as well as those incurred for saving the vessel
from such perils, such as the expenses of launching or raising
the vessel or of towing or navigating it into port for her safety,
are items to be borne by the insurer in addition to a total loss if
that afterwards takes place. Such expenses are known as
"Port of refuge" expenses.
INSURANCE PART C
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SEC. 166. A marine insurer is liable for a loss falling upon
the insured, through a contribution in respect to the thing
insured, required to be made by him towards a general
average loss called for by a peril insured
against: Provided, That the liability of the insurer shall be
limited to the proportion of contribution attaching to his
policy value where this is less than the contributing value
of the thing insured.
SEC. 167. When a person insured by a contract of marine
insurance has a demand against others for contribution,
he may claim the whole loss from the insurer, subrogating
him to his own right to contribution. But no such claim
can be made upon the insurer after the separation of the
interests liable to contribution, nor when the insured,
having the right and opportunity to enforce contribution
from others, has neglected or waived the exercise of that
right.
Rights of insured in case of general average.
(1) General rule. — The insurer is liable for any general
average loss where it is payable or has been paid by the
insured in consequence of a peril insured against. The insured
may either hold the insurer directly liable for the whole of the
insured value of the property sacrificed for the general benefit,
subrogating him to his own right of contribution or demand
contribution from the other interested parties as soon as the
vessel arrives at her destination. In other words, the insured
need not wait for an adjustment of the average.
(2) Exceptions. — However, there can be no recovery for
general average loss against the insurer:
(a) after the separation of the interests liable to contribution,
that is to say, after the cargo liable for contribution has been
removed from the vessel; or
(b) when the insured has neglected or waived his right to
contribution.
Limit as to liability of insurer.
The liability of the marine insurer for any general average loss
is limited to the proportion of contribution attaching to his policy
value where this is less than the contributing value of the thing
insured. In other words, the liability of the insurer shall be less
than the proportion of the general average loss assessed upon
the thing insured where its contributing value is more than the
amount of the insurance. In such case, the insured is liable to
contribute ratably with the insurer to the indemnity of the
general average.
The formula may be stated as follows:
Amount of x Proportion of = Limit of liability
insurance general insurance of insurer
÷ (6) It must be made by giving notice thereof to the insurer
Value of thing
insured
EXAMPLE:
Thus, in the example under Section 138, if the vessel worth
P8,000,000.00 was insured by A for only P4,000,000.00 with Y
Co., then Y Co. is liable for only 1/2 of P800,000.00, the
proportion of the general average loss assessed upon the
vessel, while A is liable to contribute the other P400,000.00.
VIRGILIO, MARK
SEC. 168. In the case of a partial loss of ship or its
equipment, the old materials are to be applied towards
payment for the new. Unless otherwise stipulated in the
policy, a marine insurer is liable for only two-thirds (2/3) of
the remaining cost of repairs after such deduction, except
that anchors must be paid in full.
Liability of insurer in case of partial loss of ship or its
equipment.
In case of a partial loss of a vessel, by common usage which
has the sanction of law, there is deducted from the cost of
repairs "one-third new for old," on the theory that the new
materials render the vessel much more valuable than it was
before the loss. When repairs are thus made, one-third of the
cost of the repair is laid upon the insured as his burden, and
the implied agreement under the policy is that in case of
damage to the ship by a peril within the policy, the loss shall be
estimated at two-thirds of the cost of repairs fairly executed or
one-third new for old, as is commonly expressed.
Section 168 prescribes the deductions to be made from such
cost subject to other conditions stipulated in the policy.
ABANDONMENT
SEC. 140. Abandonment, in marine insurance, is the act of
the insured by which, after a constructive total loss, he
declares the relinquishment to the insurer of his interest in
the thing insured.
Meaning of abandonment.
Section 140 gives the definition of abandonment in marine
insurance. It has also been defined as the act of an insured in
notifying the insurer that owing to damage done to the subject
of the insurance, he elects to take the amount of the insurance
in the place of the subject thereof, the remnant of which he
cedes to the insurer.
Requisites for valid abandonment.
The requisites for a valid abandonment in marine insurance
are:
(1) There must be an actual relinquishment by the person
insured of his interest in the thing insured (Sec. 140.);
(2) There must be a constructive total loss (Sec. 141.);
(3) The abandonment be neither partial nor conditional (Sec.
1402);
(4) It must be made within a reasonable time after receipt of
reliable information of the loss (Sec. 143.);
(5) It must be factual (Sec. 144.);
which may be done orally or in writing (Sec. 145.); and
(7) The notice of abandonment must be explicit and must
specify the particular cause of the abandonment. (Sec. 146.)
The international rule is to the effect that the right of
abandonment of vessels, as a legal limitation of a shipowner's
liability, does not apply to cases where the injury or average
was occasioned by the shipowner's own fault. Article 587 of the
Code of Commerce speaks only of situations where the fault or
negligence is committed solely by the captain. Where the
INSURANCE PART C
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shipowner is likewise to be blamed, Article 587 will not apply
and such situation will be covered by the provisions of the Civil
Code on Common Carriers.
Necessity for abandonment.
(1) When the loss is only technically total, the insured cannot
claim the whole insurance without showing due regard to the
interest which the underwriter may take in the abandoned
property. Therefore, whenever the underwriter by prompt
action might be able to save some portion of the insured
property, he is entitled to timely notice of abandonment by the
insured and he cannot be made liable for a total loss without it.
But there is no obligation upon the insured to abandon. It is a
matter of his own election. If he omits to abandon, he may
nevertheless recover his actual loss.
(2) When the vessel is totally lost, abandonment is not required
as there is no vessel to abandon. By reason of such total loss,
the liability of the ship's owner or agent for damages
extinguished in the absence of any finding of fault on other
part. However, the insurer answers for the damages from
which the shipowner or agent may be held liable.
SEC. 141. A person insured by a contract of marine
insurance may abandon the thing insured, or any
particular portion thereof separately valued by the policy,
or otherwise separately insured, and recover for a total
loss thereof, when the cause of the loss is a peril insured
against:
(a) If more than three-fourths (¾) thereof in value is
actually lost, or would have to be expended to recover it
from the peril;
(b) If it is injured to such an extent as to reduce its value
more than three-fourths (¾);
(c) If the thing insured is a ship, and the contemplated
voyage cannot be lawfully performed without incurring
either an expense to the insured of more than three-
fourths (¾) the value of the thing abandoned or a risk
which a prudent man would not take under the
circumstances; or
(d) If the thing insured, being cargo or freightage, and the
voyage cannot be performed, nor another ship procured
by the master, within a reasonable time and with
reasonable diligence, to forward the cargo, without
incurring the like expense or risk mentioned in the
preceding subparagraph. But freightage cannot in any
case be abandoned unless the ship is also abandoned.
When constructive total loss exists.
As to when a constructive total loss exists, three (3) rules may
be mentioned.
(1) According to the English rule, when the subject matter of
the insurance, while still existent in specie, is so damaged as
not to be worth, when repaired, the cost of the repairs.
(2) According to the American rule, when it is so damaged that
the cost of repairs would exceed one-half of the value of the
VIRGILIO, MARK
thing as required. The American rule is ordinarily spoken of as
the "fifty percent rule."
(3) In the Philippines, the insured may not abandon the thing
insured unless the loss or damage is more than three-fourths
of its value as indicated in Section 141.
Abandonment where insurance divisible and where
indivisible.
Under the first paragraph of Section 141, any particular portion
of the thing insured separately valued by the policy may be
separately abandoned as it is deemed separately insured.
Whether a contract is entire or severable is a question of
intention to be determined by the language employed by the
parties.
In a case, the policy in question showed that the subject matter
insured was the entire shipment of 2,000 cubic meters of logs.
It was held that the fact that the logs were loaded in two
different barges did not make the contract of insurance several
and divisible as to the items insured because the logs on the
two barges were not separately valued or separately insured,
for only one premium was paid for the entire shipment making
only one cause or consideration. The logs having been insured
as one inseparable unit, the totality of the shipment of logs
should be the basis for the existence of constructive total loss.
Criterion as to extent of loss.
The extent of the injury to the vessel is to be considered with
reference to its general market value immediately before the
disaster. This has been held to be the proper rule, even though
the policy is valued. It has also been held, however, that the
valuation of the policy is the proper criterion; and this will, of
course, apply where the policy expressly provides that the
value stated therein shall be taken as the basis of estimate.
In determining the extent of the loss, the expenses incurred or
to be incurred by the insured recovering the thing insured (e.g.,
expenses of refloating a vessel) are taken into account.
SEC. 142. An abandonment must be neither partial nor
conditional.
Abandonment must be absolute.
The abandonment must be entire and cover the whole interest
insured; it must be unconditional, unfettered by contingencies
and limitations. However, if only a part of a thing is covered by
the insurance, the insured need only abandon that part.
SEC. 143. An abandonment must be made within a
reasonable time after receipt of reliable information of the
loss, but where the information is of a doubtful character,
the insured is entitled to a reasonable time to make
inquiry.
Abandonment must be made within a reasonable time.
(1) Reliable information of loss. — When the insured has
received notice of a loss, he must elect within a reasonable
time whether he will abandon to the insurer, and if he elects to
INSURANCE PART C
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abandon, he must give notice thereof. This is in order that the
insurer may not be prejudiced by the delay, and may take
immediate steps for the preservation of such of the property
insured as may remain in existence.
(2) Double character of information of loss. —What is a
reasonable time is a question depending on the facts and
circumstances in each case. Thus, if from information first
received, the character of the loss is not made clearly to
appear, the insured is entitled to a sufficient interval to
ascertain its real nature, but he cannot wait an undue length of
time to see whether it will be more profitable to abandon or to
claim for a partial loss. After the property passes beyond the
control of the insured, as from an unjustifiable sale, an
abandonment is too late.
SEC. 144. Where the information upon which an
abandonment has been made proves incorrect, or the
thing insured was so far restored when the abandonment
was made that there was then in fact no total loss, the
abandonment becomes ineffectual.
Abandonment must be factual.
(1) Existence of loss at time of abandonment. — The right of
the insured to abandon and recover for a total loss depends
upon the state of facts at the time of the offer to abandon, and
not upon the state disclosed by the information received, or
upon the state of loss at a prior or subsequent time.
(2) Effect of subsequent events. — If the abandonment when
made is good, the rights of the parties are definitely fixed, and
do not become changed by any subsequent events. If, on the
other hand, the abandonment, when made, is not good,
subsequent circumstances will not affect it so as retroactively,
to impart to it a validity which it has not at its origin.
Accordingly, the insured cannot abandon when the thing
insured is safe; or when he knew, at the time of his offer to
abandon, that the vessel has been repaired and is successfully
pursuing her voyage; and the invalidity of the abandonment is
not cured by the subsequent loss of the thing insured. But if,
after a valid abandonment has been made, the insured
property was recovered, the insured cannot withdraw the
abandonment.
(3) Instances justifying abandonment. — It has been held that
the insured may abandon for a total loss under a marine
insurance policy in case of capture, seizure, or detention of the
ship or cargo; restraint by blockade or embargo; where through
no fault of the owner, funds for repair cannot be raised; where
the voyage is absolutely lost; or where under urgent necessity,
the master of a vessel at an intermediate port, makes a sale of
the insured property.
Information need not be direct or positive.
The intelligence which authorized the insured to abandon need
not be direct or positive information.
The protest of the master, a newspaper report, the report of a
pilot, or a letter from an official or an agent, is sufficient. The
information must be of such facts and circumstances as to
render it highly probable that a constructive total loss has
VIRGILIO, MARK
occurred, and facts sufficient to constitute a total loss must
exist. But the facts and the information need not be the same.
SEC. 145. Abandonment is made by giving notice thereof
to the insurer, which may be done orally, or in
writing: Provided, That if the notice be done orally, a
written notice of such abandonment shall be submitted
within seven (7) days from such oral notice.
Form of notice of abandonment.
The law requires no particular form for giving notice of
abandonment.
(1) The notice may be made orally unless the policy requires it
to be in writing, and even then, a notice by telegraph is
sufficient if it otherwise complies with the requirements.
(2) If the notice be done orally, the insured must submit to the
insurer within seven days from such oral notice, a written
notice of the abandonment. (Sec. 145.)
By whom and to whom notice made.
(1) The abandonment need not necessarily be made by the
insured but may be made by an authorized agent, and an
agent having an authority to insure has prima facie an authority
to abandon.
(2) The abandonment may be made to an agent of the
underwriter and abandonment to a broker who is agent for both
parties is sufficient.
SEC. 146. A notice of abandonment must be explicit, and
must specify the particular cause of the abandonment, but
need state only enough to show that there is probable
cause therefor, and need not be accompanied with proof
of interest or of loss.
Notice of abandonment must be explicit.
The notice of abandonment must be explicit, and not left ppen
as a matter of inference from some equivocal acts. There must
be an intention to abandon, apparent from the communication
to the insurer, and a relinquishment of all rights to the insurer.
The use of the word "abandon" is not necessary; it is sufficient
if expressions are used which inform the insurer that it is the
intention of the insured to give up the property insured. But
there is no abandonment although the insured may have given
notice of an intention to abandon, if he continues to claim and
use the property as his own
Notice of abandonment must specify particular cause
thereof.
The grounds for the abandonment must be stated with such
particularity as to enable the underwriter to determine whether
or not he is bound to accept the offer. However, it is sufficient if
the notice shows probable cause for the abandonment; nor is it
required that it be accompanied with proof of interest or of loss.
(Sec. 146.)
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SEC. 147. An abandonment can be sustained only upon
the cause specified in the notice thereof.
Proof of other causes not admissible.
The insured must state sufficient grounds for the abandonment
to make it valid and he cannot avail himself of any ground of
abandonment other than that stated at the time thereof.
If he assigns an insufficient cause or causes which do not in
fact exist, proof of other causes will not be admitted in suing for
a total loss.
SEC. 148. An abandonment is equivalent to a transfer by
the insured of his interest to the insurer, with all the
chances of recovery and indemnity.
Effect of valid abandonment.
A valid abandonment transfers to the insurer the interests in
the subject matter covered by the policy subject to the rights
and interests, if any, of third persons. The insurer acquires
thereby the entire interest insured, together with all its
incidents, including rights of action which the insured has
against third persons for the injury. In other words, the insurer
becomes entitled to all the rights which the insured possessed
in the thing insured.
The execution of a formal instrument is not necessary to effect
an abandonment for, by Section 148, the act of abandonment,
when accepted has all the effects which the most carefully
drawn assignment would accomplish. The effect of the
abandonment retroacts to the time of the loss.
SEC. 149. If a marine insurer pays for a loss as if it were an
actual total loss, he is entitled to whatever may remain of
the thing insured, or its proceeds or salvage, as if there
had been a formal abandonment.
Rights of insurer who pays partial loss as actual total loss.
An election and notice of abandonment is a condition
precedent to a claim for a constructive total loss.
Under Section 149, the interest of the insured over the thing
covered by the policy will be transferred to the insurer,
notwithstanding the lack of abandonment, as if there had been
a formal abandonment, in case the insurer pays for a loss as if
it were an actual total loss. The acceptance by the insured of
the payment is deemed an offer of abandonment on his part.
Hence, the insurer is entitled to whatever may remain of the
thing insured, or its proceeds or salvage.
SEC. 150. Upon an abandonment, acts done in good faith
by those who were agents of the insured in respect to the
thing insured, subsequent to the loss, are at the risk of the
insurer, and for his benefit.
Transfer of agency to insurer.
The captain or master continues to be the agent of the insured
until abandonment, but from the moment of a valid
VIRGILIO, MARK
abandonment, the master of the vessel and agents of the
insured become the agents of the insurer, and the latter
becomes responsible for all their acts in connection with the
insured property and for all the expenses and liabilities in
respect thereof.
Liability of insurer for expenses and wages.
The abandonment when made relates back to the time of the
loss and if effectual, the title of the insurer becomes vested as
of that date and he is responsible for the reasonable expenses
incurred by the master after that date in an attempt to save the
vessel. Insurers are also liable for the wages of seamen
earned subsequent to the loss, but take free from any lien or
liability for wages earned prior thereto.
SEC. 151. Where notice of abandonment is properly given,
the rights of the insured are not prejudiced by the fact that
the insurer refuses to accept the abandonment.
Effect of insurer's refusal to accept abandonment on
insured's rights.
Acceptance is in no case necessary if the abandonment is
properly made. The insured's right to abandon, in a policy of
marine insurance, is absolute when justified by the
circumstances.
SEC. 152. The acceptance of an abandonment may be
either express or implied from the conduct of the insurer.
The mere silence of the insurer for an unreasonable length
of time after notice shall be construed as an acceptance.
Form of acceptance of abandonment.
(1) An insurer's acceptance of an offered abandonment need
not be express.
(2) It may be implied by conduct, as by an act of the insurer in
consequence of an abandonment which can be justified only
under a right derived from the abandonment. Thus, where the
insurer refused the abandonment of a ship but took possession
of the same for the purpose of making repairs and retained it
for an unreasonable time, he will be deemed to have accepted
the abandonment.
(3) Mere silence after notice would not operate as an
acceptance, if it is not "for an unreasonable length of time."
(Sec. 152.) Nor would steps taken by the insurer to preserve
the property from further loss for the benefit of all the parties
amount to an acceptance.
SEC. 153. The acceptance of an abandonment, whether
express or implied, is conclusive upon the parties, and
admits the loss and the sufficiency of the abandonment.
SEC. 154. An abandonment once made and accepted is
irrevocable, unless the ground upon which it was made
proves to be unfounded.
Effect of acceptance of abandonment.
INSURANCE PART C
13
(1) Upon receiving notice of abandonment, the insurer may
accept or reject the abandonment. If he accepts, he becomes
at once liable for the whole amount of the insurance, and also
becomes entitled to all rights which insured possessed in the
thing insured.
(2) The acceptance of an abandonment fixed the rights of the
parties; whether expressed or implied, is conclusive upon them
and irrevocable.
(3) Therefore, the acceptance of an abandonment stops the
insurer to rely on any insufficiency in the form, time, or right, of
abandonment. Whether or not the insured has a right to
abandon is immaterial where the abandonment is accepted
and there is no fraud.
The only exception provided by law is the case where the
ground upon which it was made proves to be unfounded.
Under Section 147, an abandonment can be sustained only
upon the ground specified in the notice thereof.
SEC. 155. On an accepted abandonment of a ship,
freightage earned previous to the loss belongs to the
insurer of said freightage; but freightage subsequently
earned belongs to the insurer of the ship.
Right of insurer to freightage.
When abandonment is validly made, the interest of the insured
in the thing covered passes to the insurer.
The insurer of the ship becomes the owner thereof after an
abandonment, and his title becomes vested as of the time of
loss. Hence, freightage earned subsequent to the loss belongs
to the insurer of said ship. But freightage earned previously
belongs to the insurer of said freightage who is subrogated to
the rights of the insured up to the time of loss.
EXAMPLE:
Suppose a ship is chartered to carry cargo from Port A to Port
C. Upon reaching Port B, the ship was damaged and
abandoned to insurer X company. The ship was repaired by X
company and it continued its voyage to Port C.
In this case, the freightage on the cargo from Port B to Port C
belongs to X company but the freightage on the cargo from
Port A to Port B belongs to the insurer of said freightage.
SEC. 156. If an insurer refuses to accept a valid
abandonment, he is liable as upon an actual total loss,
deducting from the amount any proceeds of the thing
insured which may have come to the hands of the insured.
Effect of refusal to accept a valid abandonment on
insurer's liability.
The insured's right to abandon, in a policy of marine insurance,
is absolute when justified by the circumstances and no
acceptance is necessary to validate the abandonment.
(1) If the insurer declines to accept a proper abandonment, he
is liable as upon an actual total loss less any proceeds the
VIRGILIO, MARK
insured may have received on account of the damaged
property as when the insured succeeds in selling the property
as damaged.
(2) If the abandonment was improper, the insured may
nevertheless recover to the extent of the damage proved.
SEC. 157. If a person insured omits to abandon, he may
nevertheless recover his actual loss.
Effect of insured's failure to make abandonment.
The insured has an election to abandon or not, and cannot be
compelled to abandon although abandonment is proper. He
may await the final event, and recover accordingly for a total or
a partial loss, as the case may be.
Note that under Section 157, the insured fails to make an
abandonment. On the other hand, Section 156 applies where a
valid abandonment has been made but the insurer refuses to
accept the same without any valid reason.
Oriental Assurance Corp. v. Court of Appeals
FACTS:
Panama Sawmill shipped 1208 pieces of apitog logs to Manila
and insured the logs with Oriental for the value of Php 1
million. Two barges were loaded with 610 and 598 logs. At
sea, typhoons ravaged one of the barges, resulting in the loss
of 497 of 598 of the logs. 
The Insurance contract provided for indemnity under the
following conditions:
Warranted that this Insurance is against TOTAL LOSS ONLY.
Subject to the following clauses:
1. Civil Code Article 1250 Waiver clause
2. Typhoon warranty clause.
3. Omnibus clause.
Oriental didn’t give an indemnity because there wasn’t total
loss of the shipment.
The sawmill filed a civil case against Oriental and the court
ordered it to pay 410,000 as value for the missing logs. The CA
affirmed the lower court judgment but reduced the legal
interest.  Hence this appeal by Oriental.
 
ISSUE:
Whether or not Oriental Assurance can be held liable under its
marine insurance policy based on the theory of a divisible
contract of insurance and, consequently, a constructive total
loss
RULING: NO.
Oriental Assurance has no liability.
The terms of the contract constitute the measure of the insurer
liability and compliance therewith is a condition precedent to
the insured’s right to recovery from the insurer (Perla
Compania de Seguros, Inc. v. Court of Appeals, G.R. No.
78860, May 28, 1990, 185 SCRA 741). Whether a contract is
entire or severable is a question of intention to be determined
INSURANCE PART C
14
by the language employed by the parties. The policy in
question shows that the subject matter insured was the entire
shipment of 2,000 cubic meters of apitong logs. The fact that
the logs were loaded on two different barges did not make the
contract several and divisible as to the items insured. The logs
on the two barges were not separately valued or separately
insured. Only one premium was paid for the entire shipment,
making for only one cause or consideration. The insurance
contract must, therefore, be considered indivisible.
More importantly, the insurer’s liability was for “total loss only.”
A total loss may be either actual or constructive (Sec. 129,
Insurance Code). An actual total loss is caused by:
(a) A total destruction of the thing insured;
(b) The irretrievable loss of the thing by sinking, or by being
broken up;
(c) Any damage to the thing which renders it valueless to the
owner for the purpose for which he held it; or
(d) Any other event which effectively deprives the owner of the
possession, at the port of destination, of the thing insured.
(Section 130, Insurance Code).
A constructive total loss is one which gives to a person insured
a right to abandon, under Section 139 of the Insurance Code.
This provision reads:
SECTION 139 (now 141). A person insured by a contract of
marine insurance may abandon the thing insured, or any
particular portion thereof separately valued by the policy, or
otherwise separately insured, and recover for a total loss
thereof, when the cause of the loss is a peril injured 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;
The requirements for the application of Section 139 of the
Insurance Code, quoted above, have not been met. The logs
involved, although placed in two barges, were not separately
valued by the policy, nor separately insured. Resultantly, the
logs lost in barge TPAC-1000 in relation to the total number of
logs loaded on the same barge cannot be made the basis for
determining constructive total loss. The logs having been
insured as one inseparable unit, the correct basis for
determining the existence of constructive total loss is the
totality of the shipment of logs. Of the entirety of 1,208, pieces
of logs, only 497 pieces thereof were lost or 41.45% of the
entire shipment. Since the cost of those 497 pieces does not
exceed 75% of the value of all 1,208 pieces of logs, the
shipment cannot be said to have sustained a constructive total
loss under Section 139(a) of the Insurance Code.
IN COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE
No fault indemnity clause
VIRGILIO, MARK
SEC. 397.Any person having any claim upon the policy
issued pursuant to this chapter shall, without any
unnecessary delay, present to the insurance company
concerned a written notice of claim setting forth the
nature, extent and duration of the injuries sustained as
certified by a duly licensed physician. Notice of claim
must be filed within six (6) months from the date of
accident, otherwise, the claim shall be deemed waived.
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 (1) year from denial of the claim,
otherwise, the claimant’s right of action shall prescribe.
Any person having any claim upon the policy issued pursuant
to this chapter shall, without any unnecessary delay:
1. Present to the insurance company concerned a written
notice of claim setting forth the nature, extent and duration of
the injuries sustained as certified by a duly licensed physician.
2. Notice of claim must be filed within six (6) months from the
date of accident, otherwise, the claim shall be deemed waived.
3. 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 (1) year from denial of the claim,
otherwise, the claimant’s right of action shall prescribe.
SEC. 398. The insurance company concerned shall
forthwith ascertain the truth and extent of the claim and
make payment within five (5) working days after reaching
an agreement. If no agreement is reached, the insurance
company shall pay only the no-fault indemnity provided in
Section 391 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 439.
The insurance company concerned shall forthwith:
1. Ascertain the truth and extent of the claim and make
payment within five (5) working days after reaching an
agreement.
2. If no agreement is reached, the insurance company shall
pay only the no-fault indemnity provided in Section 391 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 439.
INSURANCE PART C
15

SEC. 391. Any claim for death or injury to any passenger

or third-party pursuant to the provisions of this chapter DEATH INDEMNITY P 70, 000.00
shall be paid without the necessity of proving fault or Burial and Funeral 30,000.00
negligence of any kind: Provided, That for purposes of Expenses
this section:
B.
(a) The total indemnity in respect of any person shall not
Types of Services Maximum
be less than Fifteen thousand pesos (P15,000.00);
Accommodation Rendered Reimbursable
or Professional Fees and/or
(b) The following proofs of loss, when submitted under Attendance Charges
oath, shall be sufficient evidence to substantiate the Extended
claim: 1. Hospital Maximum of 45 500.00
Rooms days per
(1) Police report of accident; and accident,

Laboratory 2,000.00
(2) Death certificate and evidence sufficient to establish
Examination,
the proper payee; or
fees, x-rays
2. Surgical Major Operation 7,500.00
(3) Medical report and evidence of medical or hospital Expenses Medium 5,000.00
disbursement in respect of which refund is claimed; Operation
Minor Operation 1,500.00
(c) Claim may be made against one motor vehicle only. In 3. Major Operation 2,500.00
the case of an occupant of a vehicle, claim, shall lie Anesthesiologist’s Medium 2,000.00
against the insurer of the vehicle in which the occupant is Fees Operation
riding, mounting or dismounting from. In any other case, Minor Operation 500.00
claim shall lie against the insurer of the directly offending 4. Operating Major Operation 1,500.00
vehicle. In all cases, the right of the party paying the claim Room Medium 1,000.00
to recover against the owner of the vehicle responsible for Operation
the accident shall be maintained. Minor Operation 500.00
5. Medical For daily visits of 400.00 /day
Expenses Practitioner or
Insurance Memorandum 4-2006 specialists
SUBJECT: COMPULSORY MOTOR VEHICLE LIABILITY
INSURANCE (CMVLI) COVERAGE The total amount
of medical 5,000.00
TO: ALL NON-LIFE INSURANCE COMPANIES, INSURANCE expenses must
BROKERS, INSURANCE ADJUSTERS AND ALL OTHERS not exceed (For a
CONCERNED single period of
confinement)
In the interest of the public and pursuant to the authority vested 6. Drugs and Actual value of 20,000.00
in me by the provisions of Section 414 in relation to Chapter VI Medicines drugs and
of the Insurance Code of 1978, the Limits of Liability, Schedule medicines used
of Indemnities for Bodily Injury and/or Death, and Premium but not to exceed
Rates prescribed under Insurance Memorandum Circular No. 7. Ambulance Actual amount 1,500.00
1-96 dated November 4, 1996 are hereby revised as follows: charged for
ambulance
I. LIMITS OF LIABILITY transport but not
to exceed
The limits for third party liability for all CMVLI coverage shall be
One Hundred Thousand Pesos (P100,000.00) each for all PERMANENT AMOUNT
types of motor vehicles with an additional One Hundred DISABLEMENT
Thousand Pesos (P100,000.00) for passenger liability if the Loss Of or Loss of Use of:
motor vehicle is used as a Two Limbs 50,000.00
public utility vehicle. Both Hands, or All Fingers & 50,000.00
Both Thumbs
II. SCHEDULE OF INDEMNITIES FOR BODILY INJURY Both Feet 50,000.00
AND/OR DEATH One Hand and One Foot 50,000.00
Sight of Both Eyes 50,000.00
The following Schedule of Indemnities shall be observed in the Injuries Resulting in being 50,000.00
settlement of claims for death, bodily injuries, professional fees permanently bedridden
and hospital charges for services rendered to traffic accident Any other injury causing 50,000.00
victims under the CMVLI policy. permanent total disablement
Arm at or above elbow 20,000.00
Arm between elbow and 15,000.00
A. wrist

VIRGILIO, MARK INSURANCE PART C

16

Hand 15,000.00 5. Taxi, PUJ and 2,514. 162. 301. 18. 3,150.
Four Fingers and Thumb of 15,000.00 Mini Bus 97 67 80 86 00
one Hand 6. PUB and 3,313. 162. 397. 24. 4,150.
Four Fingers 12,000.00 Tourists Bus 37 67 60 85 00
Leg at or above knee 20,000.00 7. 574.85 162. 68.9 4.3 720.00
Leg below knee 15,000.00 Motorcycles/Tricycl 67 8 1
One Foot 15,000.00 es/Trailers
All Toes of one foot 10,000.00
Thumb 8,000.00 This Circular shall apply to all CMVLI policies that shall be
Index Finger 6,000.00 issued on or after January 1, 2007.
Sight of One Eye 20,000.00
Hearing – Both Ears 30,000.00 (SGD.) EVANGELINE CRISOSTOMO-ESCOBILLO
Hearing – One Ear 15,000.00 Insurance Commissioner

Approved: (SGD.) MARGARITO B. TEVES

Secretary Department of Finance
III. NO FAULT INDEMNITY

Any claim for death or bodily injuries sustained by a passenger

or third party shall be paid without the necessity of proving fault GSIS vs.CA
or negligence of any kind provided the total indemnity in
respect of any person shall be fifteen thousand pesos (Php The liability of GSIS based on the insurance contract is direct,
15,000.00) for all motor vehicles. but not solidary with that of the NFA.
IV. Set forth hereunder are the respective rates of premium for FACTS:
one-year and three-year CMVLI coverage.
National Food Authority (NFA) was the owner of a Chevrolet
VEHICLE BASIC DST EV LG TOTA truck which was insured against liabilities for death of and
CLASSIFICATION PREM 12.5 AT T L injuries to third persons with the GSIS. Thereafter, it collided
IUM 0% 12 0.7 PREM with a public utility vehicle, a Toyota Tamaraw. The Toyota
% 5% IUM Tamaraw was owned and operated by Victor Uy, under the
For One-Year name and style of "Victory Line." Civil case for damages, was
CMVLI Coverage filed by an injured passenger, Librado Taer, against Uy, the
1. Private Cars 447.11 55.8 53.6 3.3 560.00 operator of the public utility vehicle, and insurer, Mabuhay
(including jeeps & 9 5 5 Insurance and Guaranty Co. (MIGC).
Utility Vehicles
2. Light/Medium 487.03 60.8 58.4 3.6 610.00 Trial court rendered its decision holding that Corbeta's
Trucks (Own 8 4 5 negligence was the proximate cause of the, awarded Uy the
Goods) Not Over total amount of P109,100.00 for damages and ordered MIGC,
3,930 kgs. Corbeta and NFA to pay plaintiff Taer, jointly and severally, the
3. Heavy Trucks 958.08 119. 114. 7.1 1,200. total amount of P40,559.94 for actual, compensatory, and
(Own Goods) and 76 97 9 00 moral damages plus attorney's fees.
Private Buses over
3,930 kgs. Petitioner denies solidary liability with the NFA or the negligent
4. AC and Tourists 590.82 73.8 70.9 4.4 740.00 operator of the cargo truck because it claims that they are
Cars 5 0 3 liable under different obligations and since neither the provision
5. Taxi, PUJ and 878.24 109. 105. 6.5 1,100. of the contract nor the insurance law provides for solidary
Mini Bus 78 39 9 00 liability, petitioner asserts that the presumption is that its
6. PUB and 1,157. 144. 138. 8.6 1,450. obligation arising from a contract of insurance is joint.
Tourists Bus 69 71 92 8 00
7. 199.60 24.9 23.9 1.5 250.00 ISSUE:
Motorcycles/Tricycl 5 5 0
es/Trailers Whether the GSIS is solidarily liable with the negligent
For Three-Year insured/owner-operator of the Chevrolet truck for damages
CMVLI Coverage awarded to private respondents which are beyond the
1. Private Cars 1,285. 162. 154. 9.6 1,610. limitations of the insurance policy and the Insurance
(including jeeps & 43 67 25 4 00 Memorandum Circular No. 5-78.
Utility Vehicles)
2. Light/Medium 1,397. 162. 167. 10. 1,750. RULING: NO.
Trucks (Own 21 67 1 67 48 00
Goods) Not Over It is now established that the injured or the heirs of a deceased
3,930 kgs. victim of a vehicular accident may sue directly the insurer of
3. Heavy Trucks 2,746. 162. 329. 20. 3,440. the vehicle. Common carriers are required to secure
(Own Goods) and 51 67 58 60 00 Compulsory Motor Vehicle Liability Insurance [CMVLI]
Private Buses over coverage as provided under the Insurance Code. The general
3,930 kgs. purpose of statutes enabling an injured person to proceed
directly against the insurer is to protect injured persons against
4. AC and Tourists 1,692. 162. 203. 12. 2,120.
the insolvency of the insured who causes such injury, and to
Cars 61 67 11 69 00
give such injured person a certain beneficial interest in the

VIRGILIO, MARK INSURANCE PART C

17
proceeds of the policy. However, although the victim may
proceed directly against the insurer for indemnity, the third
party liability is only up to the extent of the insurance policy and
those required by law.
While it is true that where the insurance contract provides for
indemnity against liability to third persons, and such third
persons can directly sue the insurer, the direct liability of the
insurer under indemnity contracts against third party liability
does not mean that the insurer can be held liable in solidum
with the insured and/or the other parties found at fault. For the
liability of the insurer is based on contract; that of the insured
carrier or vehicle owner is based on tort.
The liability of GSIS based on the insurance contract is direct,
but not solidary with that of the NFA. At the time of the incident,
the schedule of indemnities for death and/or bodily injuries,
professional fees, hospital and other charges payable under a
CMVLI coverage was provided under the Insurance
Memorandum Circular was twelve thousand (P12,000.00)
pesos per victim.
Tiu v. Arriesgado
Although the victim may proceed directly against the insurer
for indemnity, the third party liability is only up to the extent of
the insurance policy and those required by law.
FACTS:
One of the rear tires of the cargo truck marked Condor Hollow
Blocks and General Merchandise exploded. The driver, Sergio
Pedrano, then parked along the right side of the national
highway and removed the damaged tire to have it vulcanized
while he trucks tail lights were also left on. As the bus was
approaching the bridge, Laspias saw the stalled truck, which
was then about 25 meters away.
He applied the break and tried to swerve to the left to avoid
hitting the truck but it was too late; the bus rammed into the
trucks left rear. The impact damaged the right side of the bus
and left several passengers injured.
Respondent Pedro A. Arriesgado then filed a complaint for
breach of contract of carriage, damages and attorney’s fees
before the Regional
Trial Court of Cebu City alleging that the passenger bus in
question was cruising at a fast and high speed along the
national road, and that petitioner Laspias did not take
precautionary measures to avoid the accident.The petitioners,
for their part, filed a ThirdParty Complaint against the following:
respondent Philippine Phoenix Surety and Insurance, Inc.
(PPSII), petitioner Tius insurer.
Trial court rendered in favor of plaintiff as against defendant
William Tiu ordering the latter to pay the plaintiff. According to
the trial court, there was no dispute that petitioner William Tiu
was engaged in business as a common carrier. The appellate
court rendered judgment affirming the trial.
ISSUE:
Whether the third party defendants are jointly and severally
liable directly to plaintiff-appellee.
RULING: NO
VIRGILIO, MARK
As can be gleaned from the Certificate of Cover, such
insurance contract was issued pursuant to the Compulsory
Motor Vehicle Liability Insurance Law. It was expressly
provided therein that the limit of the insurers liability for each
person was P12,000, while the limit per accident was pegged
at P50,000.
An insurer in an indemnity contract for third party liability is
directly liable to the injured party up to the extent specified in
the agreement but it cannot be held solidarily liable beyond
that amount.
Indeed, the nature of Compulsory Motor Vehicle Liability
Insurance is such that it is primarily intended to provide
compensation for the death or bodily injuries suffered by
innocent third parties or passengers as a result of the negligent
operation and use of motor vehicles. The victims and/or their
dependents are assured of immediate financial assistance,
regardless of the financial capacity of motor vehicle owners. As
the Court explained in Government Service Insurance System
v. Court of Appeals:
However, although the victim may proceed directly against the
insurer for indemnity, the third party liability is only up to the
extent of the insurance policy and those required by law. While
it is true that where the insurance contract provides for
indemnity against liability to third persons, and such persons
can directly sue the insurer, the direct liability of the insurer
under indemnity contracts against third party liability does not
mean that the insurer can be held liable in solidum with the
insured and/or the other parties found at fault. For the liability
of the insurer is based on contract; that of the insured carrier or
vehicle owner is based on tort.
Perla v. Ancheta
Under Sec. 378 (now 391), the claim shall lie against the
insurer of the vehicle in which the occupant is riding and no
other. The claimant is not free to choose from which insurer he
will claim the “no fault indemnity” as the law uses the term
“shall.” That said vehicle might not be the one that caused the
accident is of no moment since the law itself provides that the
party paying the claim may recover against the owner of the
vehicle responsible for the accident.
FACTS:
There was a collision between the IH Scout (in which private
respondents were riding) and a Superlines bus. Private
respondents sustained injuries. A complaint for damages was
filed against Superlines, the bus driver and petitioner insurance
company, the insurer of the bus. The vehicle in which the
private respondents were riding was insured with Malayan
Insurance Co. Even before summons could be served, the
judge issued an order for the Insurance Company to pay
immediately within 5 days the P5,000 under the “no-fault
clause” as provided for in the Insurance Code.
Petitioner moved for the reconsideration of the order; it was
denied. Petitioner contends that under the Insurance Code, the
insurer liable to pay the P5,000 is the insurer of the vehicle in
which private respondents were riding, not petitioner.
ISSUE:
Whether or not petitioner is the insurer liable to indemnify the
private respondents under the Insurance Code.
INSURANCE PART C
18

RULING NO.
Supreme Court says that the provision is clear and
unambiguous. Under Sec. 391, the claim shall lie against the
insurer of the vehicle in which the occupant is riding and no
other. The claimant is not free to choose from which insurer he
will claim the “no fault indemnity” as the law uses the term
“shall.” That said vehicle might not be the one that caused the
accident is of no moment since the law itself provides that the
party paying the claim may recover against the owner of the
vehicle responsible for the accident.
contract. It however renders him subject to the penal sanctions
of the Motor Vehicle Law.
The requirement that the driver be "permitted in accordance
with the licensing or other laws or regulations to drive the
Motor Vehicle and is not disqualified from driving such motor
vehicle by order of a Court of Law or by reason of any
enactment or regulation in that behalf," applies only when the
driver" is driving on the insured's order or with his permission."
It does not apply when the person driving is the insured
himself.

Essence of “no fault indemnity” clause: to provide victims of

vehicular accidents or their heir’s immediate compensation
pending final determination of who is responsible for the
accident. The “no fault indemnity” provision is part and parcel
of the Insurance Code provisions on compulsory motor vehicle
liability and should be read together with the requirement for
compulsory passenger and/or third party liability insurance.

Palermo v. Pyramids

While the Motor Vehicle Law prohibits a person from operating

a motor vehicle on the highway without a license or with an
expired license, an infraction of the Motor Vehicle Law on the
part of the insured, is not a bar to recovery under the
insurance contract. It however renders him subject to the penal
sanctions of the Motor Vehicle Law.

FACTS:

On March 7, 1969, the insured, appellee Andrew Palermo, filed

a complaint in the Court of First Instance of Negros Occidental
against Pyramid Insurance Co., Inc., for payment of his claim
under a Private Car Comprehensive Policy MV-1251 issued by
the defendant.

In its answer, the appellant Pyramid Insurance Co., Inc.,

alleged that it disallowed the claim because at the time of the
accident, the insured was driving his car with an expired
driver's license.

After the trial, the court a quo rendered judgment on October

29, 1969 ordering the defendant "to pay the plaintiff the sum of
P20,000.00, value of the insurance of the motor vehicle in
question and to pay the costs." On November 26, 1969, the
plaintiff filed a "Motion for Immediate Execution Pending
Appeal." It was opposed by the defendant, but was granted by
the trial court on December 15, 1969.

ISSUE:

Whether or not plaintiff was not authorized to drive the insured

motor vehicle because his driver's license had expired.

RULING: NO.

There is no merit in the appellant's allegation that the plaintiff

was not authorized to drive the insured motor vehicle because
his driver's license had expired. The driver of the insured motor
vehicle at the time of the accident was, the insured himself,
hence an "authorized driver" under the policy.

While the Motor Vehicle Law prohibits a person from operating

a motor vehicle on the highway without a license or with an
expired license, an infraction of the Motor Vehicle Law on the
part of the insured, is not a bar to recovery under the insurance

VIRGILIO, MARK INSURANCE PART C