insured is entitled to recover the full amount of the partial

CO-INSURANCE loss of P400,000.

Insurance; Co-Insurance vs. Re-Insurance (1994)

Co-insurance is a form of insurance in which the person Distinguish co-insurance from re-insurance.
who insures his property for less than the entire value is
understood to be his own insurer for the difference which SUGGESTED ANSWER:
exists between the true value of the property and the CO-INSURANCE is the percentage in the value of the
amount of insurance. insured property which the insured himself assumes or
undertakes to act as insurer to the extent of the deficiency
Requisites for co-insurance in the insurance of the insured property. In case of loss or
There is co-insurance when the following requisites damage, the insurer will be liable only for such proportion
concur: of the loss or damage as the amount of insurance bears to
1. The loss is partial; and the designated percentage of the full value of the property
2. The amount of insurance is less than the value of the insured.
property insured. (Sundiang Sr. & Aquino, 2014) REINSURANCE is where the insurer procures a third party,
called the reinsurer, to insure him against liability by
Co-insurance in marine insurance vs. CO-INSURANCE IN reason of such original insurance. Basically, a reinsurance
Co-insurance in fire insurance CO- FIRE INSURANCE is an insurance against liability which the original insurer
INSURANCE IN MARINE INSURANCE may incur in favor of the original insured.
There is co-insurance by virtue of There has to be an
Section 159 of the Insurance Code, as express stipulation
long as the above-enumerated to that effect.
requisites are present. MARINE INSURANCE

CO-INSURANCE REINSURANCE
Marine Insurance; Peril of the Ship vs. Peril of the Sea
The insurer remains as the The insurer becomes the
(1998)
insurer of the original insured insured, insofar as the
A marine insurance policy on a cargo states that “the
reinsurer is concerned
insurer shall be liable for losses incident to perils of the
The subject of insurance is the The subject is the original
sea.” During the voyage, seawater entered the
property insurer’s risk
compartment where the cargo was stored due to the
An insurance of the same Insurance of a different
defective drainpipe of the ship. The insured filed an action
interest interest
on the policy for recovery of the damages caused to the
The insured party is the party The original insured has
cargo. May the insured recover damages? (5%)
in interest in all contracts no interest in the contract
of reinsurance which is
SUGGESTED ANSWER:
independent of the original
No. The proximate cause of the damage to the cargo
contract of insurance
insured was the defective drainpipe of the ship. This is
The insured has to give Consent of the original
peril of the ship, and not peril of the sea. The defect in the
consent insured (who is hardly
drainpipe was the result of the ordinary use of the ship. To
even aware of the
recover under a marine insurance policy, the proximate
reinsurance transaction) is
cause of the loss or damage must be peril of the sea.
not necessary. (De Leon,
2014)
“Perils of the sea or perils of navigation” (1998 Bar)
Formula to determine the amount recoverable in co-
It includes only those casualties due to the (WiN):
insurance
1. Unusual violence or extraordinary action of WInd and
Illustration
wave, or
If a vessel valued at P1M is insured for only P800, 000 and
2. Other extraordinary causes connected with Navigation.
is damaged to the extent of P400, 000, the insurer will be
(De Leon, 2010)
required to pay only 80% of the loss suffered, or P320,000;
the other 20% or P80,000 being borne by the insured
“Perils of the ship”
himself.
It is a loss which, in the ordinary course of events, results
P400,000 or 2/5 X P800,000 = P320, 000 P1M
from the (NON):
The insured is considered a co-insurer as to the ninsured
1. Natural and inevitable action of the sea;
portion of P200,000. (1M – 800,000). If the loss is total,
2. Ordinary wear and tear of the ship;
the insurer is liable for the full amount of P800,000. On the
other hand, if the property is insured to its full value, the
3. Negligent failure of the ship’s owner to provide the
vessel with proper equipment to convey the cargo under
ordinary conditions.
Q: Remington Industrial Sales Corporation (Remington)
shipped on board a vessel, seamless steel pipes from Japan
to the Philippines and insured the shipment with Cathay
Insurance Co. (Cathay). Upon receipt of said shipment,
losses and damages were discovered. Upon demand under
the insurance contract, it was denied by Cathay.
Remington contends that the rust on the seamless steel
pipes is not an inherent vice of the shipment, thus the
same is considered as a peril of the sea. Cathay, on the
other hand claims that the loss was occasioned by an
inherent defect or vice in the insured article. Is the
“rusting” of the seamless steel pipes considered as a “peril
of the sea”?
A: YES. The rusting of steel pipes in the course of a voyage
is a “peril of the sea” in view of the toll on the cargo of
wind, water, and salt conditions. Moreover, it is a cardinal
rule in the interpretation of contracts that any ambiguity
therein should be construed against the
maker/issuer/drafter thereof, namely, the insurer. Besides
the precise purpose of insuring cargo during a voyage
would be rendered fruitless. (Cathay Insurance Co., v. CA,
et. al., G.R. No. L-76145, June 30, 1987)
Q: A marine insurance policy on a cargo states that “the
insurer shall be liable for losses incident to perils of the
sea.” During the voyage, seawater entered the
compartment where the cargo was stored due to the
defective drainpipe of the ship. The insured filed an action
on the policy for recovery of the damages caused to the
cargo. May the insured recover damages? (1998 Bar)
A: NO. The proximate cause of the damage to the cargo
insured was the defective drainpipe of the ship. This is
peril of the ship, and not peril of the sea. The defect in the
drainpipe was the result of the ordinary use of the ship. To
recover under a marine insurance policy, the proximate
cause of the loss or damage must be peril of the sea.
All Risks Marine Policy
General Rule: In the absence of stipulation, the risks
insured against are only perils of the sea, and does not
embrace all losses happening at sea. [Go Tiaco y Hermanos
v. Union Ins. Society of Canton, G.R. No. 13983 (1919)]
Exception: However, in an all risk policy, all risks are
covered unless expressly excepted.
The burden rests on the insurer to prove that the loss is
caused by a risk that is excluded. [Filipino Merchants Ins.
Co. v. CA, G.R. No. 85141(1989)]
Q: What is an “all risks” marine insurance policy?
A:
GR: It is that which insures against all causes of
conceivable loss or damage.
XPN:
1. As otherwise excluded in the policy; or
2. Due to fraud or intentional misconduct on the part of the
insured. (Choa Tiek v. CA, G.R. No. 84507, Mar. 15, 1990)
This type of policy grants greater protection than that
afforded by the “perils clause.”
Q: Who has the burden of proof in an “all risks” marine
insurance policy?
A: The insured under an "all risks insurance policy" has the
initial burden of proving that the cargo was in good
condition when the policy attached and that the cargo was
damaged when unloaded from the vessel; thereafter, the
burden then shifts to the insurer to show the exception to
the coverage.
Note: Carriers are not insurers of any and all risks to
passengers and goods. It merely undertakes to perform
certain duties to the public as the law imposes, and holds
itself liable for any breach thereof. (Pilapil v. CA, G.R. No.
52159, Dec. 22, 1989)
LOSS
Q: What are the two kinds of total loss?
A:
1. Actual total loss
2. Constructive total loss
Q: What constitutes actual total loss?
A:
1. A total destruction of the thing insured
2. The irretrievable loss of the thing by sinking, or by being
broken up
3. Any damage to the thing which renders it valueless to
the owner for the purpose for which he held it; or
4. Any other event which effectively deprives the owner of
the possession, at the port of destination, of the thing
insured. (Sec. 130)
Note: Complete physical destruction is not essential to
constitute actual total loss.
Q: What is constructive total loss?
A:
1. Actual loss of more than ¾ of the value of the object
2. Damage reducing value by more than ¾ of the value of
the vessel and of cargo; and
3. Expense of transshipment exceeds ¾ of the value of the
cargo. (Sec. 131)
Q: When is actual loss presumed?
A: It may be presumed from the continued absence of a
ship without being heard of. The length of time which is
sufficient to raise his presumption depends on the
circumstances of the case. (Sec. 132)
Q: In an insurance upon cargo, what is the liability of the
insurer in case of reshipment?
A: If the original ship be disabled, and the master, acting
with a wise discretion, as the agent of the merchant and
the ship owners, 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. (Sec. 133) The insurer may, however, require
additional premium if the hazard be increased by his
extension of liability.
Loss: Actual Total Loss (1996)
RC Corporation purchased rice from Thailand, which it
intended to sell locally. Due to stormy weather, the ship
carrying the rice became submerged in sea water, and with
it the rice cargo. When the cargo arrived in Manila, RC filed
a claim for total loss with the insurer, because the rice was
no longer fit for human consumption. Admittedly, the rice
could still be used as animal feed. Is RC’s claim for total
loss justified? Explain.
SUGGESTED ANSWER:
Yes, RC’s claim for total loss is justified. The rice, which
was imported from Thailand for sale locally, is obviously
intended for consumption by the public. The complete
physical destruction of the rice is not essential to
constitute an actual total loss. Such a loss exists in this case
since the rice, having been soaked in sea water and
thereby rendered unfit for human consumption, has
become totally useless for the purpose for which it was
imported (Pan Malayan Ins Co v CA gr 95070 Sep 5, 1991)
Loss: Constructive Total Loss (2005)
M/V Pearly Shells, a passenger and cargo vessel, was
insured for P40,000,000.00 against “constructive total
loss.” Due to a typhoon, it sank near Palawan. Luckily,
there were no casualties, only injured passengers. The ship
owner sent a notice of abandonment of his interest over
the vessel to the insurance company which then hired
professionals to afloat the vessel for P900,000.00. When
re-floated, the vessel needed repairs estimated at
P2,000,000.00. The insurance company refused to pay the
claim of the ship owner, stating that there was “no
constructive total loss.”
a) Was there “constructive total loss” to entitle the ship
owner to recover from the insurance company? Explain.
b) Was it proper for the ship owner to send a notice of
abandonment to the insurance company? Explain. (5%)
SUGGESTED ANSWER:
No, there was no "constructive total loss" because the
vessel was refloated and the costs of refloating plus the
needed repairs (P 2.9 Million) will not be more than three-
fourths of the value of the vessel. A constructive total loss
is one which gives to a person insured a right to abandon.
(Sec, 131, Insurance Code) There would have been a
constructive total loss had the vessel MN Pearly Shells
suffer loss or needed refloating and repairs of more than
the required three-fourths of its value, i.e., more than
P30.0 Million (Sec. 139, Insurance Code, cited in Oriental
Assurance v. Court of Appeals and Panama Saw Mill, G.R.
No. 94052, August 9, 1991) However, the insurance
company shall pay for the total costs of refloating and
needed repairs (P2.9 Million).
c) Was it proper for the ship owner to send a notice of
abandonment to the insurance company? Explain.
SUGGESTED ANSWER:
No, it was not proper for the ship owner to send a notice of
abandonment to the insurance company because
abandonment can only be availed of when, in a marine
insurance contract, the amount to be expended to recover
the vessel would have been more than three-fourths of its
value. Vessel MN Pearly Shells needed only P2.9 Million,
which does not meet the required three-fourths of its value
to merit abandonment. (Section 139, Insurance Code, cited
in Oriental Assurance v. Court of Appeals and Panama Saiv
Mill, G.R. No. 94052, August 9, 1991)
Loss: Total Loss Only (1992)
An insurance company issued a marine insurance policy
covering a shipment by sea from Mindoro to Batangas of
1,000 pieces of Mindoro garden stones against “total loss
only.” The stones were loaded in two lighters, the first with
600 pieces and the second with 400 pieces. Because of
rough seas, damage was caused the second lighter
resulting in the loss of 325 out of the 400 pieces. The
owner of the shipment filed claims against the insurance
company on the ground of constructive total loss inasmuch
as more than ¾ of the value of the stones had been lost in
one of the lighters. Is the insurance company liable under
its policy? Why?
SUGGESTED ANSWER:
The insurance company is not liable under its policy
covering against “total loss only” the shipment of 1,000
pieces of Mindoro garden stones. There is no constructive
total loss that can claimed since the ¾ rule is to be
computed on the total 1,000 pieces of Mindoro garden
stones covered by the single policy coverage (see Oriental
Assurance Co v CA 200 s 459)
Q: M/V Pearly Shells, passenger and cargo vessel, was
insured for P40,000,000.00 against constructive total loss.”
Due to a typhoon, it sank near Palawan. Luckily, there was
no casualties, only injured passengers. The shipowner sent
a notice of abandonment of his interest over the vessel to
the insurance company which then hired professionals to
afloat the vessel for P900,000.00. When re-floated, the
vessel needed repairs estimated at P2,000,000.00. The
insurance company refused to pay the claim of the
shipowner, stating that there was “no constructive total
loss.”
a. Was there “constructive total loss” to entitle the
shipowner to recover from the insurance company?
Explain.
b. Was it proper for the shipowner to send a notice of
abandonment to the insurance company? Explain
c. When does double insurance exist?
d. What is the nature of liability of the several insurers in
double insurance? (2005 Bar)
A:
a. NO. A constructive total loss is one which gives the
insured the right to abandon. (Sec 131, IC) Abandonment
of the thing insured may be availed of if the loss is more
than three-fourths of its value or the expense to recover it
from peril (Sec 139, IC). In this case, the constructive loss
claimed by the ship owner pertains to the vessel. The
expenses for refloating and estimated repairs did not
amount to three-fourths of the value of the vessel, hence,
there is no constructive total loss to speak of.
b. No. The case did not qualify as one for total constructive
loss. Deduced from the facts of the case, the loss incurred
during the peril did not amount to three-fourths of its
value. As provided in Sec. 139, abandonment may be
availed of if the loss is more than three-fourths of its value
or the expense to recover it from peril.
c. Sec. 93 of the Insurance Code provides that double
insurance exists where the same person is insured by
several insurers separately, in respect to the same subject
and interest.
d. In double insurance, the insurers are considered as co-
insurers. Each one is bound to contribute ratably to the
loss in proportion to the amount for which he is liable
under his contract. This is known as the “principle of
contribution” or “contribution clause.” (IC, Sec. 94 [e])
ABANDONMENT
It is the act of the insured by which, after a constructive
total loss he declared the relinquishment to the insurer of
his interest in the thing insured. (Sec. 140, ibid)
Effect of a valid abandonment
It is equivalent to a transfer by the insured of his interest,
to the insurer, with all the chances of recovery and
indemnity (Sec. 148, ibid).
Requisites of valid abandonment
1. There must be an actual relinquishment by the person
insured of his interest in the thing insured. (Sec. 140, ibid)
2. There must be a constructive total loss. (Sec. 141, ibid)
3. The abandonment must neither be partial nor
conditional. (Sec. 142, ibid)
4. It must be made within a reasonable time after receipt of
reliable information of the loss. (Sec. 143, ibid)
5. It must be factual. (Sec. 144, ibid)
6. It must be 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 7 days from such
oral notice. (Sec. 145, ibid)
7. The notice of abandonment must be explicit and must
specify the particular cause of abandonment. (Sec. 146,
ibid)
Such notice must state only enough to show that there is
probable cause for abandonment, but need not be
accompanied with proof of interest or of loss.
Person who may make notice of abandonment
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. (De Leon, 2010)
Person to whom notice of abandonment may be made
To the insurer or his authorized agent or the broker who is
the agent for both parties (ibid).
Acceptance of abandonment may either be express or
implied from the conduct of the insurer. Mere silence of
the insurer for unreasonable length of time after notice
shall be construed as an acceptance. (IC, Sec. 152)
Effects of acceptance of abandonment
1. The insurer 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. (Sec.
148, ibid)
2. GR: It fixes the rights of the parties; whether express or
implied, it is conclusive upon them, (Sec. 153, ibid.) and
irrevocable. (Sec. 154, ibid)
XPN: Where the ground upon which it was made proves to
be unfounded (Sec. 154, ibid). Under Sec. 147,
abandonment can be sustained only upon the ground
specified in the notice thereof.
3. It stops the insurer to rely on any insufficiency in the
form, time, or right, of abandonment (Sec. 145, 143, 141,
ibid). Whether the insured has a right to abandon is
immaterial where the abandonment is accepted and there
is no fraud. (New Orleans Ins. Co. vs. Piaggio, 16 Wall. [US]
378)
4. On accepted abandonment of a ship, freightage earned
previous to the loss belongs to the insurer of said
freightage; but freightage subsequently earned belongs to
the insurer of the ship. (Sec. 155, ibid)
Effect of the insurer’s refusal to accept a valid
abandonment
If the 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. (Sec. 156, ibid)
However, if the abandonment was improper, the insured
may nevertheless recover to the extent of the damage
proved. (De Leon, 2010)
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.
If the insured fails to abandon, he may nevertheless
recover his actual loss. (IC, Sec. 157)
DEVIATION
Q. What is deviation in marine insurance policy?
A: Deviation is a departure of the vessel from the course of
the voyage, or an unreasonable delay in pursuing the
voyage, or the commencement of an entirely new voyage.
(Sec. 123)
Q: What are the four cases of deviation in marine
insurance?
A:
1. Departure from the course of sailing fixed by mercantile
usage between the places of beginning and ending
specified in the policy. (Sec. 121)
2. Departure from the most natural, direct, and
advantageous route between the places specified if the
course of sailing is not fixed by mercantile usage. (Sec.
122)
3. Unreasonable delay in pursuing the voyage. (Sec. 123)
4. The commencement of an entirely different voyage.
Q: What are the two kinds of deviation?
A:
1. Proper – This will not vitiate a policy of marine
insurance because deviation is considered justified or
caused by actual necessity which is equal in importance to
such deviation. (Sec. 124)
2. Improper – The insurer becomes immediately absolved
from further liability under the policy for losses occurring
subsequent to the deviation because deviation is
considered to be without just cause. Every deviation not
specified in Sec.124 is improper. (Sec. 125)
Instances when deviation is proper (2000, 2005 Bar)
1. When caused by circumstances over which neither the
master nor the owner of the ship has any control;
2. When necessary to comply with a warranty, or to avoid
a peril, whether or not peril is insured against;
3. When made in good faith, and upon reasonable grounds
of belief in its necessity to avoid a peril; or
4. When made in good faith, for the purpose of saving
human life or relieving another vessel in distress. (IC, Sec.
126)
Improper deviation
Every deviation not specified under Sec. 126. (IC, Sec. 127)
In improper deviation, an insurer is not liable for any loss
happening to the thing insured subsequent to an improper
deviation. (IC, Sec. 128, 2005 Bar)
Carriage of Goods: Deviation: Liability (2005)
On a clear weather, M/V Sundo, carrying insured cargo, left
the port of Manila bound for Cebu. While at sea, the vessel
encountered a strong typhoon forcing the captain to steer
the vessel to the nearest island where it stayed for seven
days. The vessel ran out of provisions for its passengers.
Consequently, the vessel proceeded to Leyte to replenish
its supplies.
Assuming that the cargo was damaged because of such
deviation, who between the insurance company and the
owner of the cargo bears the loss? Explain.
SUGGESTED ANSWER:
The insurance company should bear the loss to the cargo
because the deviation of the vessel was proper in order to
void a peril, which was the strong typhoon. The running
out of provisions was a direct consequence of the proper
deviation in order to avoid the peril of the typhoon.
Carriage of Goods; Deviation; When Proper (2005)
Under what circumstances can a vessel properly proceed
to a port other than its port of destination? Explain. (4%)
SUGGESTED ANSWER:
Deviation is proper:
a) when caused by circumstances over which neither the
master nor the owner of the ship has any control;
b) when necessary to comply with a warranty or avoid a
peril, whether or not the peril is insured against;
c) when made in good faith, and upon reasonable grounds
of belief in its necessity to avoid a peril; or
d) when in good faith, for the purpose of saving human life,
or relieving another vessel in distress. (Sec. 124, Insurance
Code)
IMPLIED WARRANTIES
Q: What are the implied warranties in marine
insurance?
A:
1. Seaworthiness. (Sec. 113)
2. Non‐deviation from the agreed voyage. (Secs. 123, 124,
125)
3. Non‐engagement from illegal venture.
4. Warranty of neutrality ‐ the ship will carry neutrality of
the ship or cargo where such nationality or neutrality is
expressly warranted. (Sec. 120)
5. Presence of insurable interest
Carriage of Goods; Implied Warranty;
Liability (2010)
No.XIII. Paulo, the owner of an ocean-going vessel, offered
to transport the logs of Constantino from Manila to
Nagoya. Constantino accepted the offer, not knowing that
the vessel was manned by an irresponsible crew with
deep-seated resentments against Paolo, their employer.
Constantino insured the cargo of logs against both perils of
the sea and barratry. The logs were improperly loaded on
one side, thereby causing the vessel to tilt on one side. On
the way to Nagoya, the crew unbolted the sea valves of the
vessel causing water to flood the ship hold. The vessel
sank.
Constantino tried to collect from the insurance company
which denied liability, given the unworthiness of both the
vessel and its crew. Constantino countered that he was not
the owner of the vessel and he could therefore not be
responsible for conditions about which he was innocent.
(A) Is the insurance company liable? Why or why not?
(3%)
SUGGESTED ANSWER:
The insurance company is not liable, because there is an
implied warranty in every marine insurance that the ship
is seaworthy whoever is insuring the cargo, whether it be
the ship-owner or not.
There was a breach of warranty, because the logs were
improperly loaded and the crew was irresponsible. It is
the obligation of the owner of the cargo to look for a
reliable common carrier which keeps its vessel in
seaworthy condition.
LIFE INSURANCE
Q: Lawrence, a boxer, is a holder of an accident insurance
policy. In a boxing match, he died after being knocked out
by the opponent. Can his father who is a beneficiary under
said insurance policy successfully claim indemnity from
the insurance company? (1990 Bar)
A: YES. Clearly, the proximate cause of death was the
boxing contest. Death sustained in a boxing contest is an
accident. (De la Cruz v. Capital Insurance & Surety Co., G.R.
No. L-21574, June 30, 1966)
This no-fault claim does NOT apply to property damage. If
the total indemnity claim exceeds P15, 000 and there is
controversy in respect thereto, the finding of fault may be
availed of by the insurer only as to the excess. The first
P15, 000 shall be paid without regard to the fault. (CMVLI,
supra)
Insured; Accident vs. Suicide (1990)
Luis was the holder of an accident insurance policy
effective Nov 1, 1988 to Oct 31, 1989. At a boxing contest
held on Jan 1, 1989 and sponsored by his employer, he
slipped and was hit on the fact by his opponent so he fell
and his head hit one of the posts of the boxing ring. He was
rendered unconscious and was dead on arrival at the
hospital due to “intra-cranial hemorrhage.”
Can his father who is a beneficiary under said insurance
policy successfully claim indemnity from the insurance
company? Explain.
SUGGESTED ANSWER:
Yes, the father who is a beneficiary under the accidental
insurance can successfully claim indemnity for the death of
the insured. Clearly, the proximate cause of death was the
boxing contest. Death sustained in a boxing contest is an
accident. (De la Cruz v Capital Ins & Surety Co 17s559)
Insured; Accident vs. Suicide (1993)
S Insurance Co issued a personal accident policy to Bob
Tan with a face value of P500th. In the evening of Sep 5,
1992, after his birthday party, Tan was in a happy mood
but not drunk. He was playing with his hand gun, from
which he previously removed the magazine. As his
secretary was watching television, he stood in front of her
and pointed the gun at her. She pushed it aside and said
that it may be loaded. He assured her that it was not and
then pointed it at his temple. The next moment, there was
an explosion and Tan slumped to the floor lifeless. The
wife of the deceased sought payment on the policy but her
claim was rejected. The insurance company agreed that
there was no suicide. However, it was the submission of
the insurance company that there was no accident. In
support thereof, it contended a) that there was no accident
when a deliberate act was performed unless some
additional, unexpected, independent and unforeseen
happening occur which produces or brings about the
injury or death; and b) that the insured willfully exposed
himself to needless peril and thus removed himself from
the coverage of the insurance policy. Are the two
contentions of the insurance company tenable? Explain.
SUGGESTED ANSWER:
No. These two contentions are not tenable. The insurer is
liable for injury or death even due to the insured’s gross
negligence. The fact that the insured removed the
magazine from the hand gun means that the insured did
not willfully expose himself to needless peril. At most, the
insured is only guilty of negligence (Sun Ins v CA 211 s
554)
Insured; Accident vs. Suicide (1995)
Sun-Moon Insurance issued a Personal Accident Policy to
Henry Dy with a face value of P500th. A provision in the
policy states that “the company shall not be liable in
respect of “bodily injury’ consequent upon the insured
person attempting to commit suicide or willfully exposing
himself to needless peril except in an attempt to save
human life.” Six months later Henry Dy died of a bullet
wound in his head. Investigation showed that one evening
Henry was in a happy mood although he was not drunk. He
was playing with his handgun from which he had
previously removed its magazine. He pointed the gun at his
sister who got scared. He assured her it was not loaded. He
then pointed the gun at his temple and pulled the trigger.
The gun fired and Henry slumped on the floor. Henry’s
wife Beverly, as the designated beneficiary, sought to
collect under the policy. Sun-Moon Insurance rejected her
claim on the ground that the death of Henry was not
accidental. Beverly sued the insurer. Decide and Discuss
fully.
SUGGESTED ANSWER:
Beverly can recover the proceeds of the policy from the
insurer. The death of the insured was not due to suicide or
willful exposure to needless peril which are excepted risks.
The insured’s act was purely an act of negligence which is
covered by the policy and for which the insured got the
insurance for his protection. In fact, he removed the
magazine from the gun and when he pointed the gun to his
temple he did so because he thought that it was safe for
him to do so. He did so to assure his sister that the gun was
harmless. There is none in the policy that would relieve the
insurer of liability for the death of the insured since the
death was an accident.
Insured; Accident Policy (2004)
CNI insure SAM under a homeowner's policy against
claims for accidental injuries by neighbors. SAM's minor
son, BOY, injured 3 children of POS, a neighbor, who sued
SAM for damages. SAM's lawyer was ATT, who was paid
for his services by the insurer for reporting periodically on
the case to CNI. In one report, ATT disclosed to CNI that
after his investigations, he found the injuries to the 3
children not accidental but intentional.
SAM lost the case in court, and POS was awarded one
million pesos in damages which he sought to collect from
the insurer. But CNI used ATTs report to deny the claim on
the ground that the injuries to POS's 3 children were
intentional, hence excluded from the policy's coverage.
POS countered that CNI was estopped from using ATTs
report because it was unethical for ATT to provide
prejudicial information against his client to the insurer,
CNI. Who should prevail: the claimant, POS; or the insurer,
CNI? Decide with reasons briefly. (5%)

SUGGESTED ANSWER:
CNI is not estopped from using ATT's report, because CNI,
in the first place, commissioned it and paid ATT for it. On
the other hand, ATT has no conflict of interest because
SAM and CNI are on the same side — their interests being
congruent with each other, namely, to oppose POS's claim.
It cannot be said that ATT has used the information to the
disadvantage or prejudice of SAM. However, in Finman
General Assurance Corp. v. Court of Appeals, 213 SCRA 493
(1992), it was explained that there is no "accident" in the
context of an accident policy, if it is the natural result of the
insured's voluntary act, unaccompanied by anything
unforeseen except the injury.
There is no accident when a deliberate act is performed,
unless some additional and unforeseen happening occurs
that brings about the injury. This element of
deliberateness is not clearly shown from the facts of the
case, especially considering the fact that BOY is a minor,
and the injured parties are also children. Accordingly, it is
possible that CNI may not prosper. ATT's report is not
conclusive on POS or the court.
CASUALTY INSURANCE
Q: What is casualty insurance?
A: It is that which covers loss or liability arising from
accident or mishap, excluding those falling under types of
insurance as fire or marine. (Sec. 174)
Q: What are the two divisions of casualty insurance?
A: 1. Accident or health insurance – Insurance against
specified perils which may affect the person and/or
property of the insured. E.g. personal accident,
robbery/theft Insurance
2. Third party liability insurance – Insurance against
specified perils which may give rise to liability on the part
of the insured of claims for injuries or damage to property
of others.
Q: What are some rules on “third party liability insurance”?
A:
1. Insurable interest is based on the interest of the insured
in the safety of the persons, and their property, who may
maintain an action against him in case of their injury or
destruction respectively.
2. In a third party liability (TPL) insurance contract, the
insurer assumes the obligation by paying the injured third
party to whom the insured is liable. Prior payment by the
insured to the third person is not necessary in order that
the obligation may arise. The moment the insured becomes
liable to third persons, the insured acquires an interest in
the insurance contract which may be garnished like any
other credit.
3. In burglary, robbery and theft insurance, the
opportunity to defraud the insurer (moral hazard) is so
great that insurer have found it necessary to fill up the
policies with many restrictions designed to reduce the
hazard. Persons frequently excluded are those in the
insured’s service and employment. The purpose of the
exception is to guard against liability should theft be
committed by one having unrestricted access to the
property.
4. Right of third party injured to sue the insurer of party at
fault depends on whether the contract of insurance is
intended to benefit third persons also or only the insured
Q: When does the injured person have the right to sue
insurer of the party at fault?
A:
1. Indemnity against third party liability – injured third
party can directly sue the insurer.
Purpose: To protect injured person against the insolvency
of the insured who causes such injury.
2. Indemnity against actual loss or payment – third party
has no cause of action against the insurer. The third
person’s recourse is limited to the insured alone. The
contract is solely for the insurer to reimburse the insured
for liability actually satisfied by him.
Note: The insurer is not solidarily liable with the insured.
The insurer’s liability is based on contract; that of the
insured is based on torts. Furthermore, the insurer’s
liability is limited by the amount of the insurance coverage.
Q: Chirs, a boxer, is a holder of an accident insurance
policy. In a boxing match, de died after being knocked out
by the opponent. Can his father who is a beneficiary under
said insurance policy successfully claim indemnity from
the insurance company?
A: Yes. Clearly, the proximate cause of death was the
boxing contest. Death sustained in a boxing contest is an
accident. (De la Cruz v. Capital Insurance & Surety Co., G.R.
No. L‐21574, June 30, 1966 ) (1990 Bar Question)
Q: Sun‐Moon Insurance issued a Personal Accident Policy
to Henry Dy with a face value of P500,000. A provision in
the policy states that “the company shall not be liable in
respect of “bodily injury’ consequent upon the insured
person attempting to commit suicide or willfully exposing
himself to needless peril except in an attempt to save
human life.” Six months later Henry Dy died of a bullet
wound in his head. Investigation showed that one evening
Henry was in a happy mood although he was not drunk. He
was playing with his handgun from which he had
previously removed its magazine. He pointed the gun at his
sister who got scared. He assured her it was not loaded. He
then pointed the gun at his temple and pulled the trigger.
The gun fired and Henry slumped on the floor.
Henry’s wife Beverly, as the designated beneficiary, sought
to collect under the policy. Sun‐Moon Insurance rejected
her claim on the ground that the death of Henry was not
accidental. Beverly sued the insurer. Decide and Discuss
fully.
A: Beverly can recover the proceeds of the policy from the
insurer. The death of the insured was not due to suicide or
willful exposure to needless peril which are excepted risks.
The insured’s act was purely an act of negligence which is
covered by the policy and for which the insured got the
insurance for his protection. In fact, he removed the
magazine from the gun and when he pointed the gun to his
temple he did so because he thought that it was safe for
him to do so. He did so to assure his sister that the gun was
harmless. There is none in the policy that would relieve the
insurer of liability for the death of the insured since the
death was an accident. (1995 Bar Question)
Source of liability of third party liability insurance (1996,
2000 Bar)
The direct liability of the insurer under indemnity contract
against third party liability does not mean that the insurer
can be held solidarily liable with the insured. The insurer’s
liability is based on contract; that of the insured is based
on tort. (Figuracion vda. De Maglana, et. al. v. Hon.
Francisco Consolacion, G.R. No. 60506, August 6, 1992)
Insurer; 3rd Party Liability (1996)
While driving his car along EDSA, Cesar sideswiped
Roberto, causing injuries to the latter, Roberto sued Cesar
and the third party liability insurer for damages and/or
insurance proceeds. The insurance company moved to
dismiss the complaint, contending that the liability of
Cesar has not yet been determined with finality.
a) Is the contention of the insurer correct? Explain.
b) May the insurer be held liable with Cesar?
SUGGESTED ANSWER:
No, the contention of the insurer is not correct. There is no
need to wait for the decision of the court determining
Cesar’s liability with finality before the third party liability
insurer could be sued. The occurrence of the injury to
Roberto immediately gave rise to the liability of the
insurer under its policy. In other words, where an
insurance policy insures directly against liability, the
insurer’s liability accrues immediately upon the
occurrence of the injury or event upon which the liability
depends (Sherman Shafer v Judge RTC Olongapo City
Branch 75 GR l-78848, Nov 14 88 167s386)
The insurer cannot be held solidarily liable with Cesar. The
liability of the insurer is based on contract while that of
Cesar is based on tort. If the insurer were solidarily liable
with Cesar, it could be made to pay more than the amount
stated in the policy. This would, however, be contrary to
the principles underlying insurance contracts. On the other
hand, if the insurer were solidarily liable with Cesar and it
is made to pay only up to the amount stated in the
insurance policy, the principles underlying solidary
obligations would be violated. (Malayan Ins Co v CA GR L-
36413 Sep 26, 88 165s536; Figuracion vda de Maglana v
Consolacion GR 60506 Aug 6, 92 212s268 )
Insurer; 3rd Party Liability (2000)
X was riding a suburban utility vehicle (SUV) covered by a
comprehensive motor vehicle liability insurance (CMVLI)
underwritten by FastPay Insurance Company when it
collided with a speeding bus owned by RM Travel Inc. The
collision resulted in serious injuries to X; Y, a passenger of
the bus; and Z, a pedestrian waiting for a ride at the scene
of the collision. The police report established that the bus
was the offending vehicle. The bus had CMVLI policy
issued by Dragon Ins Co. X, Y, and Z jointly sued RM Travel
and Dragon Ins for indemnity under the Insurance Code of
the Phils (PD1460). The lower court applied the “no fault”
indemnity policy of the statute, dismissed the suit against
RM Travel, and ordered Dragon Ins to pay indemnity to all
three plaintiffs. Do you agree with the court’s judgment?
Explain (2%)
SUGGESTED ANSWER:
No. The cause of action of Y is based on the contract of
carriage, while that of X and Z is based on torts. The court
should not have dismissed the suit against RM Travel. The
court should have ordered Dragon Ins to pay each of X, Y ,
and Z to the extent of the insurance coverage, but
whatever amount is agreed upon in the policy should be
answered first by RM Travel and the succeeding amount
should be paid by Dragon Insurance up to the amount of
the insurance coverage. The excess of the claims of X, Y,
and Z, over and above such insurance coverage, if any,
should be answered or paid by RM Travel.
COMPULSORY MOTOR VEHICLE
LIABILITY INSURANCE
Q: What is a no fault indemnity clause?
A: It is a clause where the insurer is required to pay a third
party injured or killed in an accident without the necessity
of proving fault or negligence on the part of the insured.
There is a stipulated maximum amount to be recovered.
(1994 Bar Question)
Q: What are the rules under the “no fault clause”??
A:
1. The total indemnity in respect of any one person shall
not exceed P15,000 for all motor vehicles (Insurance
Memorandum Circular No. 4‐2006) (Sec. 378)
2. Proof of loss:
a. Police report of accident
b. Death certificate and evidence sufficient to establish
proper payee
c. Medical report and evidence of medical or hospital
disbursement. (Sec. 378 [ii])
3. Claim may be made against one motor vehicle only
4. In case of an occupant of a vehicle, the claim shall lie
against the insurer of the vehicle in which the occupant is
riding, mounting or dismounting from
5. In any other case, claim shall lie against the insurer of
the directly offending vehicle
6. In all cases, the right of the party paying the claim to
recover against the owner of the vehicle responsible for
the accident shall be maintained
Note: The claimant is not free to choose from which
insurer he will claim the "no fault indemnity," as the law,
by using the word "shall”, makes it mandatory that the
claim be made against the insurer of the vehicle in which
the occupant is riding, mounting or dismounting from.
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 may recover against the owner of the
vehicle responsible for the accident. (Perla Compania de
Seguros, Inc. v. Ancheta, G.R. No. L‐49599, Aug. 8, 1988)
This no‐fault claim does not apply to property damage. If
the total indemnity claim exceeds P15,000 and there is
controversy in respect thereto, the finding of fault may be
availed of by the insurer only as to the excess. The first
P15, 000 shall be paid without regard to the fault.
Q: X is a passenger of a jeepney for hire being driven by Y.
The jeepney collided with another passenger jeepney
being driven by Z who was driving recklessly. As a result of
the collision, X suffered injuries. Both passenger jeepneys
are covered by Comprehensive Motor Vehicular Insurance
Coverage. If X wants to claim under the "no fault indemnity
clause", his claim will lie (2012 Bar)
A: Against the insurer of the passenger jeepney driven by Y
because X was his passenger. The Insurance Code states
that in the case of an occupant of a vehicle, the claim shall
lie against the insurer of the vehicle in which the occupant
is riding, mounting or dismounting from.
On December 1, 2010, Kore A Corporation shipped from
South Korea to LT Corporation in Manila some 300,000
sheets of high-grade special steel. The shipment was
insured against all risks by NA Insurance(NA). The
carrying vessel arrived at the Portof Manila on January 10,
2011. When the shipment was discharged, it was noted
that 25,000 sheets were damaged and in bad order. The
entire shipment was turned over to the custody of ATI, the
arrastre operator, on January 21, 2011 for storage and
safekeeping, pending its withdrawal by the consignee’s
authorized customs broker, RVM.
On January 26 and 29, 2011, the subject shipment was
withdrawn by RVM from the custody of ATI. On January
29, 2011, prior to the withdrawal of the last batch of the
shipment, a joint inspection of the cargo was conducted
per the Request for Bad Order Survey (RBO) dated January
28, 2011. The examination report showed that 30,000
sheets of steel were damaged and in bad order.
NA Insurance paid LT Corporation the amount of
P30,000,000.00 for the 30,000 sheets that were damaged,
as shown in the Subrogation Receipt dated January 13,
2013. Thereafter, NA Insurance demanded reparation
against ATI for the goods damaged in its custody, in the
amount of P5,000,00.00. ATI refused to pay claiming that
the claim was already barred by the statute of limitations.
ATI alleged that the Carriage of Goods by Sea Act (COGSA)
applies in this case since the goods were shipped from a
foreign port to the Philippines. NA Insurance claims that
the COGSA does not apply, since ATI is not a shipper or
carrier. Who is correct? (5%)
SUGGESTED ANSWER
NA Insurance is correct. The COGSA applies only to
carriers or ships. A “carrier”, under Section 1(a) of the
COGSA, “includes the owner or the charterer who enters
into a contract of carriage with a shipper”, while a “ship” is
defined under Section 1(d) as “any vessel used for the
COGSA.” The COGSA does not apply to ATI as it is neither a
“carrier” nor a “ship”, much less a “shipper”. It is simply an
arrastre operator. Moreover, the COGSA does not mention
that an arrastre operator may invoke the prescriptive
period of one year; hence, it does not cover the arrastre
operator. (Insurance Co. of North America vs Asian
Terminals, Inc., (2012)
Insurer; 3rd Party Liability; No Fault Indemnity (1994)
What is your understanding of a “no fault indemnity”
clause found in an insurance policy?
SUGGESTED ANSWER:
Under the “NO FAULT INDEMNITY” clause, any claim for
death or injury of any passenger or third party shall be
paid without the necessity of proving fault or negligence of
any kind. The indemnity in respect of any one person shall
not exceed P5,000.00, provided they are under oath, the
following proofs shall be sufficient:
1. police report of the accident; and
2. death certificate and evidence sufficient to establish the
proper payee; or
3. medical report and evidence of medical or hospital
disbursement in respect of which refund is claimed.
4. Claim may be made against one motor vehicle only.