INSURANCE LAW

(Reviewer for Midterm Exam)

1. Contract of Insurance – an agreement whereby one undertakes for a consideration to

indemnify another against loss, damage, or liability arising from an unknown or contingent
event.
2. Suretyship – an agreement whereby a party (surety) guarantees payment of one’s debt, or the
performance of one’s obligation or undertaking in favor of a third party. It shall be deemed to
be an insurance contract only if made by a surety, who/which is doing or transacting an
insurance business as a vocation.
3. Essential Elements of Insurance Contract (All must be present):
a) The insured must have insurable interest on the subject matter.
b) The insured is of the risk of sustaining loss, damage, or liability arising from an unknown
or contingent event.
c) The risk of loss, damage, or liability is assumed by the insurer.
d) The insured has to pay the premiums (consideration).
e) The insurance is a risk distributing device, whereby the proceeds to be paid come from the
common fund of premium payments.
4. Characteristics of Insurance:
a) Consensual – it is perfected upon meeting of the minds of the parties.
b) Aleatory – in the sense that it depends upon some contingent events.
c) Conditional – it is subject to conditions, the principal of which is the happening of the
event insured against.
d) Personal – on the part of both parties, the insured has to pay the premiums while the
insurer has to indemnify the insured upon happening of the contingent events.
e) Adhesion – only one party (insurer) prepares the contract, while the other party (insured)
has to merely sign it.
f) A sort of investment and for indemnification – life insurance is something for
investment purposes while non-life insurance is for indemnification purposes.
g) Of utmost good faith – both parties must deal with each other with utmost good faith, or
they must be transparent without any form of fraud or concealment in the execution of the
contract.
h) Unilateral – imposing legal duties only on the insurer who promises to indemnify in case
of loss.
i) Voluntary – in the sense that it is not compulsory.
5. Under Section 6, only juridical persons, such as: corporation, partnership, and association
may be authorized to engage in the business of insurance, while natural person cannot be an
insurer.
6. Section 7 provides that anyone except a public enemy may be insured. Such enemy refers to
the country, including its nationals and juridical persons, with whom our country is at war.
7. Insurable Interest – A right or interest of the insured in the subject matter of the insurance
contract whereby the continued existence of such subject shall give substantial and pecuniary
advantage or benefit to the insured, while destruction or impairment thereof shall cause
extremely substantial and pecuniary loss on his part.
8. Basis of Insurable Interest:
a) Contract
b) Law
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 c) Relationship (either by blood or affinity)
9. Persons obliged to give support under the Family Code (Blood relationship with insurable
interest):
a) The spouses;
b) Legitimate ascendants and descendants (up to grandparents and grandchildren);
c) Parents and their legitimate children and the legitimate and illegitimate children of the
latter;
d) Parents and their illegitimate children and the legitimate and illegitimate children of the
latter; and
e) Legitimate brothers and sisters, whether of full or half-blood.
10. Distinguish Life Insurance from Property Insurance:
Life Property
1) Subject matter: Life, health, and accident. Property (real and personal).
2) Nature: In the form of investment. For indemnification.
3) Extent of Pecuniary interest is not Mere pecuniary interest is not
pecuniary interest: enough. enough.
4) As to extent of Unlimited (except for the life of Up to the value of the property
insurable interest: the debtor)
5) As to time when It is enough that insurable It is necessary that insurable interest
insurable interest interest exists at the time the must exist at the time the insurance
must exist (Sec. insurance takes effect, and need takes effect and when the loss occurs,
19): not exist at the time of the loss. but need not exist in the meantime.
6) As to expectation The expectation of benefit to be The same expectation shall have a
of benefit to be derived from the continued basis of legal right.
derived: existence of life does not need
any legal basis.
11. Insurable interest in life and property may consist in:
Life (Sec. 10) Property (Sec. 14)
1) Of himself (Insured), of his/her spouse, 1) An existing interest;
and of his/her children;
2) Of any person on whom he depends 2) An inchoate interest founded on an
wholly or in part for education or support, existing interest; or
or in whom he has a pecuniary interest;
3) Of any person under a legal obligation to 3) An expectancy, coupled with an existing
him for the payment of money, or interest that out of which the expectancy
respecting property or services, of which arises.
death or illness might delay or prevent the
performance; and
4) Of any person upon whose life any estate
or interest vested in him depends.
12. Examples of permissible persons (insured) whose life can be insured by another (policy
owner):
a) Of the persons legally obliged to support each other;
b) Of the debtor by the creditor;
c) Of the employee by the employer; and
d) Of one of the business partners by a partner.

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13. Rule on the designation of beneficiaries in life insurance (Sec. 11):
a) Generally, designation is revocable, unless the right to change is expressly waived in the
policy;
b) Such designation shall be deemed irrevocable if it is not changed during the lifetime of the
insured;
c) If the policy involves the life of the insured, the latter can designate anyone as beneficiary
considering that such kind of contract partakes of the nature of a donation, except those
who are disqualified under the law to be a donee.
d) In the case where the original policy owner insures the life of another, the beneficiary to
be designated therein must have an insurable interest in the life of the insured.
14. Payment of insurance proceeds in case the same is forfeited against the beneficiary who
is guilty of killing the insured as provided under Section 12:
a) To the other qualified beneficiaries.
b) In the absence thereof, the proceeds shall be paid in accordance with the policy contract.
c) If the policy is silent, the proceeds shall be paid to the estate of the insured.
15. Disqualified beneficiaries (or donees under the law): 1) Those guilty of adultery or
concubinage; 2) Public officers in relation to their office, including their respective spouses,
and their legitimate ascendants and descendants.
16. Exceptions to Section 20 which provides that a change in interest in any part of a thing
insured without a change in interest in the insurance, suspends the insurance until both
interests just mentioned are vested in the same person:
a) In the case of life, health, and accident insurance.
b) A change of interest in interest in a thing insured after the occurrence of a loss (Sec. 21).
c) A change of interest in one or more several distinct things, separately insured under one
policy (Sec. 22).
d) A change of interest by will or succession on the death of the insured (Sec. 23).
e) A transfer of interest by one of several partners, joint owners, or common owners, who are
jointly insured, to the others (Sec. 24).
17. Concealment – a neglect to communicate that which a party knows and ought to
communicate (Sec. 26).
18. Requisites/Elements of Concealment (Sec. 28):
a) Facts which are within the knowledge of a party.
b) Facts which are material to the insurance contract.
c) Facts which are not covered by warranties.
d) The other party has no means of ascertaining the concealed facts.
19. Test of the materiality of the facts (Sec.31): Facts are material if they affect or influence the
decision making of the insurer to enter into a contract of insurance.
20. Representation – an oral or written statement of facts or conditions prevailing during the
process and issuance of the policy which may affect or influence the decision-making of a
party to enter into a contract.
21. Failure to fulfill promissory representation is tantamount to misrepresentation.
22. Misrepresentation – failure of the facts to correspond with the assertions or stipulations made
by either party to the contract.
23. Under Section 39, a representation as to the future, is to be deemed a promise, unless it
appears that it was merely a statement of belief or expectation.
24. Section 41 provides that a representation may be altered or withdrawn before the insurance is
effected, but not afterwards.
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 INSURANCE LAW
(Reviewer for Final Exam)

1. Policy – a written instrument in which a contract of insurance is set forth (Sec. 49).
2. Any purported attachment (rider, clause, warranty, or endorsement) to the policy must be
mentioned therein in order to have a binding effect on the insured (Sec. 50)
3. Section 51 provides the following information to be specified in the policy, to wit:
a) The contracting parties,
b) The amount to be insured,
c) The premium,
d) The property or life insured,
e) The insured’s interest in the property insured, if he is not the absolute owner thereof,
f) The risks insured against, and
g) The period during which the insurance is to continue.

4. Cover Note (Binder) – a mere written memorandum purposely issued for the temporary
protection of the preliminary contract of insurance pending investigation of the risk, and
issuance of a formal policy by the insurer (Sec. 52).
5. Section 53 is a general rule which provides that the insurance proceeds shall be applied
exclusively to the proper interest of the person in whose name, or for whose benefit it is made
unless otherwise specified in the policy, (such as in the following situations):
a) In the case of pour autrui – a stipulation in a contract conferring a benefit on the third
person, called a third party beneficiary; and
b) In the case of insurance against liability – the proceeds shall go directly to the person
(third party) injured in an accident.
6. Section 57 is an exception to Section 58. The latter provides that the mere transfer of a thing
insured does not transfer the policy, but suspends it until the same person becomes the owner
of both policy and the thing insured. In this case, the assignment of the policy to the new
owner of a thing is needed for the latter to be entitled to the insurance benefits. In Section 57,
however, there is no need for such assignment of the policy to the new owner as it grants
automatic transfer of the ownership of the interest insured.
7. There are three (3) kinds of policy described as follows (Sec. 59):
a) Open policy – one in which the value of the thing insured is not agreed upon, and the
amount of the insurance merely represents the insurer’s maximum liability (Sec. 60).
b) Valued policy – one which expresses on its face an agreement that the thing insured shall
be valued at a specific sum (Sec. 61).
c) Running policy – one which contemplates successive insurance, and which provides that
the object of the policy may be from time to time defined, especially as to the subjects of
insurance, by additional statements or endorsements (Sec. 62).
8. The period of time within which to commence an action involving contracts of insurance
depends on the following conditions or circumstances:
a) The contracting parties may agree or stipulate in the policy on any period of time, but it
shall not be less than one (1) year from the time when the cause of action accrues.
b) In the absence of any stipulation to that effect, the pertinent provision of the Civil Code on
actionable document (contract) shall apply which is within ten (10) years, but not less than
one year from the time when the cause of action accrues.

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 Other rules on the matter:
a) The reckoning time as to when the cause of action accrues is upon the final denial or
rejection by the insurer of the claim or demand for payment of the insurance proceeds
made by the insured or the designated beneficiary.
b) A condition, stipulation, or agreement in any policy of insurance, limiting the time for
commencing an action to a period of less than one (1) year from the time when the cause
of action accrues, is void (Sec. 63).
9. Set forth in Sections 64 & 65 are the conditions or requirements in order for the cancellation
of non-life insurance policy shall be valid and effective, to wit:
a) There must be a prior notice to the insured. This is so because cancellation is unilateral.
b) The notice must be made in writing.
c) The written notice must be mailed or delivered to the named insured at the address shown
in the policy, or to his broker authorized in writing to receive such document.
d) The cancellation must be based on any of the following grounds (Sec. 64):
1) Non-payment of premium;
2) Conviction of a crime arising out of acts increasing the hazard insured against;
3) Discovery of fraud or material misrepresentation;
4) Discovery of willful or reckless acts or omissions increasing the hazard insured
against;
5) Physical changes in the property insured which result in the property becoming
uninsurable; or
6) Discovery of other insurance coverage that makes the total insurance in excess of the
value of the property insured.
10. Section 66 pertains to, among others, renewal of the non-life insurance policy which states
that the named insured shall be entitled to renew the policy upon payment of the premium due
on the effective date of the renewal, unless the insurer at least 45 days in advance of the end
of the policy period mails or delivers to the insured notice of its intention not to renew the
policy or to condition its renewal upon reduction of limits or elimination of coverages.
11. Warranty – an express or implied statement of facts about the past, present, or future matters
relating to the person or thing insured, or to the risk insured against (Sections 67, 68, & 71).
12. Section 70 provides that every express warranty, made at or before the execution of the
policy, must be contained in the policy itself, or in another instrument signed by the insured
and referred to in the policy as making a part of it.
13. The following are the four (4) kinds of policy:
a) Express warranty
b) Implied warranty
c) Affirmative warranty
d) Promissory warranty – done after the approval or issuance of the policy.
14. As provided under Section 73, the omission to fulfill the warranty relating to the future does
not avoid the policy when the following circumstances exist or occur before the time arrives
for the performance thereof:
a) A loss insured against happens;
b) Performance becomes unlawful at the place of the contract; or
c) Performance becomes impossible.
15. Section 74 provides that violation of a material warranty, or other material provision of a
policy, on the part of either party thereto, entitles the other to rescind the contract.
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16. As stated in Section 75, a policy may declare that a violation of specified provisions thereof
shall avoid it, otherwise the breach of an immaterial provision does not avoid the policy.
17. Affirmative warranty is one which asserts the existence of a fact or condition at the time it is
made, while promissory warranty is one where the insured stipulates that certain facts or
conditions pertaining to the risk shall exist or that certain things with reference thereto shall be
done or omitted.
18. Warranties distinguished from Representations:
a) Warranties are parts of the contract while representations are but mere collateral
inducements to the contract;
b) Warranties are always written on the face of the policy, actually or by reference, while
representations may be written in a totally disconnected paper or may be oral;
c) Warranties must be strictly complied with, while in the representations, substantial truth
only is required;
d) Materiality of warranties are presumed, while in the case of representations, the same
must be proven by the insured;
e) The effect of violating the warranties is breach of contract, while that of the
representations is rescission;
18. Premium is the agreed price for assuming and carrying the risk – that is, the consideration
paid an insurer for undertaking to indemnify the insured against a specified peril.
19. When is the insurer entitled to payment of the premium? According to Section 77, the
insurer is entitled to payment of the premium when the thing insured is exposed to the peril
insured against.
20. Under Section 79, an acknowledgment in the policy or contract of insurance of the receipt of
premium is conclusive evidence of its payment.
21. State the four (4) instances where the insured is entitled to a return of premium:
a) If no part of his interest in the thing insured is exposed to any of the perils insured against;
b) Where the insurance is made for a definite period of time and the insured surrenders his
policy;
c) When the contract is voidable, and subsequently annulled under the provisions of the
Civil Code; and
d) In case of an over insurance by several insurers other than life.
22. Section 85 – Except in the case of life insurance, an agreement not to transfer the claim of the
insured against the insurer after the loss has happened is void if made before the loss.
23. Section 86 – Unless otherwise provided by the policy, an insurer is liable for the loss if the
peril insured against was the proximate cause thereof; but he is not liable therefor if such
peril was only a remote cause thereof except in the case contemplated under Section 88.
24. When is the insurer liable for the loss of the thing insured:
a) When the peril or risk insured against is the proximate cause of the loss (Sec. 86);
b) When the loss is caused by the exposure of the thing insured to the peril not insured
against during the time when such thing is being rescued from the peril insured against
(Sec. 87);
c) Where the loss is caused by efforts to rescue the thing insured from a peril insured against
(Sec. 87);
d) When the peril insured against is the remote cause of the loss provided that its proximate
cause is not excepted in the policy or contract of insurance (Sec. 88); and
e) When the loss is caused by the negligent act (not willful act) of the insured (Sec. 89).

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25. Section 90 – In an insurance against fire, the insurer is exonerated from liability for loss if
written notice thereof is not given to him by the insured, or those who are entitled to the
benefit of the insurance, without unnecessary delay. (Note: Notice must be given within the
reasonable period of time).
26. Non-compliance with the stipulated requirement on the submission of a preliminary proof of
loss to the insurer as provided in Section 91, will be a ground for denying the insurance claim.
27. Failure to raise the issue or to object on the defects in a notice of loss shall be deemed a
waiver of such defects (Sec. 92).
28. Double Insurance – it exists where the same person is insured by several insurers separately
in respect to the same subject and interest (Sec. 95).
29. Requisites of Double Insurance:
a) The person insured is the same;
b) There are two or more insurers insuring separately;
c) There is identity of subject matter;
d) There is identity of interest insured; and
e) There is identity of the risk or peril insured against.
30. As a general rule, double insurance is not void or illegal, unless it is prohibited by the policy,
or if allowed, approval of the insurer should have been taken by the insured. As a result
thereof, any excess amount shall be nullified.
31. Contract of Reinsurance – is one by which an insurer procures a third person to insure him
against loss, damage, or liability by reason of such original insurance (Sec. 97).
32. In double insurance, the property is being insured while in reinsurance, the liability is
being insured.
33. The original insured has no part or interest in a contract of reinsurance except if it is made for
his benefit (Sec. 100).
34. Marine Insurance –
35. Perils of the sea –
36. Perils of the ship –
37. Barratry – any willful misconduct of the master or crew in pursuance of some unlawful or
fraudulent purpose without the consent of the owner of the ship, and to the prejudice of his
interest.
38. Bottomry – a loan contracted by the owner of the ship which is used as collateral thereof.
39. Respondentia – a loan contracted by the owner of the cargoes which are made as collateral
thereof.
40. Freightage – all benefits derived by the owner from chartering of the ship, and from
transporting of his own goods or of those of the others (Sec. 104).
41. The owner of the ship has insurable interest in expected freightage (Sec. 105).
42. Under Section 108, the charterer (lessee) of the ship has insurable interest to it, to the extent
that he is liable to be damnified by its loss.
43. Section 112 states that a concealment does not vitiate the entire contract of marine insurance,
but merely exonerates the insurer from a loss resulting from the risk concealed respecting the
following matters:
a) The national character of the insured;
b) The liability of the thing insured to capture and detention;
c) The liability to seizure from breach of foreign laws of trade;
d) The want of necessary documents; and
e) The use of false and simulated papers.
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44. The following are implied warranties in marine insurance:
a) The ship is seaworthy (Sec. 115);
b) The ship/vessel will not make improper deviation;
c) The ship owner will not engage in improper or illegal venture; and
d) The ship will carry the requisite documents to show the nationality or neutrality of a ship
or cargo (Sec. 122).
45. Seaworthiness is complied with at the time of the commencement of every voyage.
46. Deviation – it is a departure from the course of the voyage insured, or an unreasonable delay
in pursuing the voyage, or the commencement of an entirely different voyage (Sec. 125).
47. Under Section 126, a deviation is proper in the following instances:
a) When caused by circumstances beyond the control of the master or owner of the ship;
b) When necessary to comply with a warranty, or to avoid a peril insured against or not;
c) When made in good faith, and upon reasonable grounds of belief in its necessity to avoid a
peril; or
d) When made in good faith, for the purpose of saving human life or relieving another vessel
in distress.
48. If the loss of the thing insured happened after the improper deviation, the insurer is not
liable therefor (Sec. 128).
49.