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INSURANCE CODE (P.D. 1460 as amended)
INTRODUCTION:
A. Laws governing Insurance
Insurance Code – primary law
New Civil Code – applied suppletorily
specifically on law on obligations and
contracts
GSIS Act
Property Insurance Law
Act 1498
B. General Concept of Insurance
Contract of Insurance is an agreement
whereby one undertakes for a consideration
to indemnify another against loss, damage
or liability arising from an unknown or
contingent event. (Sec. 2 par. 2)
*It is a contract of assumption of risk
Q: Who will take the risk?
A: Insurer
Q: Who will be exposed to the risk?
A: Insured
C. Characteristics
1. Risk Distributing Device – the device
of insurance serves to distribute the risk
of economic loss among as many as
possible to those who are subject to the
same kind of risk.
*The risk is distributed to the group of
persons having the same risk.
Q: Why is it a risk distribution device?
A: Insurer has different policyholders
that contribute to a common fund for
the same risk. The common fund will
indemnify the person who suffers loss
for the same risk.
Catch: not all policyholders will suffer
the same risk at the same time.
2. Contract of Adhesion – Insurance is a
contract of adhesion considering that
most of the terms of the contract do not
result from mutual negotiations
between the parties as they are
prescribed by the insurer in printed
form to which the insured may
“adhere” if he chooses but which he
cannot change.
*Insurer always comes up with already
made contract.
Q: Is there a contract?
A: YES.
Importance of knowing whether the
contract is one of adhesion: In case of
doubt, the contract shall be interpreted
strictly against the insurer and liberally
in favor of the insured.
Q: is this rule unfair?
A: NO. Because the contract was
already prepared by the insurer, the
only thing that the insured can do is
either take it wholly or leave it.
3. Aleatory – The obligation of the insurer
to pay the proceeds of the insurance
arises only upon the happening of an
event which is uncertain, or which is to
occur at an indeterminate time. (Article
2010 NCC)
*The insurer becomes liable upon the
happening of the peril insured against.
*One or both parties are reciprocally
bound to give or do something for
consideration upon the happening of an
event which is uncertain or to which is
to occur at an indeterminate time.
4. Contract of Indemnity - The insured
who has insurable interest over a
property is only entitled to recover the
amount of actual loss sustained and the
burden is upon him to establish the
amount of such loss.
*It is the basis of all property insurance.
*Life insurance is not a contract of
indemnity. Life is not subject to
pecuniary estimation; Life is precious.
General Rule: Insurance contract is a
contract of indemnity.
Exception: Life insurance
5. Uberrimae Fides Contract/Utmost
Good Faith – The contract of insurance
is one of perfect good faith not for the
insured alone but equally so for the
insurer; in fact, it is more so for the latter
since its dominant bargaining position
carries with it stricter responsibility.
*Since there was an assumption of risk
on the part of the insurer, it is their duty
to make an intelligent estimates that is

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the reason why it requires the parties to
the contract of insurance to disclose
conditions affecting the risk of which he
is aware, or material fact, which the
applicant knows, and those, which he
ought to know.
*Material facts are facts needed by the
insurer for the determination of whether
he will assume or not the risk.
D. Elements of Insurance
1. Existence of an insurable interest
Sec. 12 of the Insurance Code provides
that: “The interest of a beneficiary in a
life insurance policy shall be forfeited
when the beneficiary is the principal,
accomplice, or accessory in willfully
bringing about the death of the insured;
in which event, the nearest relative of
the insured shall receive the proceeds of
said insurance if not otherwise
disqualified.”
Sec. 13 of the Insurance Code provides
that: “Every interest in property,
whether real or personal, or any relation
thereto, or liability in respect thereof, of
such nature that a contemplated peril
might directly damnify the insured, is
an insurable interest.”
Sec. 14 of the Insurance Code provides
that: “An insurable interest in property
may consist in:
(a) An existing interest;
(b) An inchoate interest founded on an
existing interest; or
(c) An expectancy, coupled with an
existing interest in that out of which the
expectancy arises.”
2. Risk of loss
Sec. 51 paragraph g of the Insurance
Code provides that: “ A policy of
insurance must specify: x x x (g) The
period during which the insurance is to
continue.”
3. Assumption of risks
Sec. 2 of the Insurance Code states that:
“xxx (1) A “contract of insurance” is an
agreement whereby one undertakes for
a consideration to indemnify another
CONTRACT OF INSURANCE:
against loss, damage or liability arising
from an unknown or contingent event.”
4. Scheme to distribute losses
5. Payment of premiums
Sec. 77 of the Insurance Code states
that: “An insurer is entitled to payment
of the premium as soon as the thing
insured is exposed to the peril insured
against. Notwithstanding any
agreement to the contrary, no policy or
contract of insurance issued by an
insurance company is valid and binding
unless and until the premium thereof
has been paid, except in the case of a life
or an industrial life policy whenever the
grace period provision applies.”
E. Right of Subrogation
*This principle is a normal incident of
indemnity property insurance as a legal
effect of payment; it inures to the insurer
without any formal assignment or any
express stipulation to that effect in the
policy. Said right is not dependent upon nor
does it grow out of any privity of contract.
Payment to the insured makes the insurer
an assignee in equity.
*The insurer can only recover from the third
person what the insured could have
recovered. Thus, there can be no recovery if
the insurer voluntarily paid even if the loss
is not covered by the policy.
*The insured can no longer recover from the
offending party what was paid to him by
the insurer but he can recover any
deficiency, that is, if his damages is more
than what was paid. The deficiency is not
covered by the right of subrogation.
Cases when there is no right of
subrogation:
1. The insured by his own act releases the
wrongdoer/third person liable for the
loss
2. Where the insurer pays the insured for a
loss or risk not covered by the policy
3. In life insurance
4. For recovery of loss in excess of
insurance coverage

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A. Requisites of a contract of Insurance
1. A subject matter in which the insured
has an insurable interest
2. Event or peril insured against which
may be any future contingent or
unknown event, past or future and a
duration for the risk thereof
3. A promise to pay or indemnify in a
fixed or ascertainable amount
4. A consideration known as premium
5. Meeting of the minds of the parties
B. Perfection
*An insurance contract is consensual
contract and is therefore perfected the
moment there is a meeting of minds with
respect to the object and the cause or
consideration.
*What is being followed in insurance
contracts is what is known as the Cognition
Theory.
Q: What is the crucial point?
A: The point wherein there must be an
actual communication to the insured of the
approval of the application.
*In Great Pacific Life Assurance
Corporation v CA, the SC held that the
insured is the one making the offer by
submitting an application to the insurer and
the latter accepts the offer by approving the
application. Thus, mere submission of the
application without the corresponding
approval of the policy does not result in the
perfection of the contract of insurance.
C. Parties to a contract of Insurance
Sec. 6 of the Insurance Code states that:
“Every person, partnership, association, or
corporation duly authorized to transact
insurance business as elsewhere provided
in this code, may be an insurer.”
Sec. 7 of the Insurance Code states that:
“Anyone except a public enemy may be
insured.”
Beneficiary – person designated to receive
proceeds of policy when risk attaches.
General Rule: When one insures his own
life, he may designate any person as the
beneficiary, whether or not the beneficiary
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has an insurable interest in the life of the
insured.
Exceptions: Persons specified in Article 739
in re Article 2012 of the New Civil Code.
*The designation of persons mentioned in
Article 739 is void but the policy is binding.
*In property insurance, the beneficiary must
have insurable interest on the property.
Sec. 11 of the Insurance Code states that:
“The insured shall have the right to change
the beneficiary he designated in the policy,
unless he has expressly waived this right in
said policy.” *The designation is revocable
unless the right to revoke is expressly
waived in the policy.
Sec. 12 of the Insurance Code states that:
“The interest of a beneficiary in a life
insurance policy shall be forfeited when the
beneficiary is the principal, accomplice, or
accessory in willfully bringing about the
death of the insured; in which event, the
nearest relative of the insured shall receive
the proceeds of said insurance if not
otherwise disqualified.”
*In life or health insurance, the insured
cannot assign the policy if the designation
of the beneficiary is irrevocable. Reason:
The irrevocable beneficiary has vested right.
*If the insured refuses to pay the premiums,
the designated irrevocable beneficiary may
continue the policy by paying premiums
that are due. (Article 1236 NCC)
Q: Despite irrevocable designation, may the
insured revoke the beneficiary?
A: YES. Under Article 42 of the Family
Code, Article 43 (4) of the Family Code,
Article 50 of the Family Code and Article 64
of the Family Code.
1. Rule on minors
Sec. 3 of the Insurance Code states that:
“Any minor of the age of eighteen years
or more, may, notwithstanding such
minority, contract for life, health and
accident insurance, with any insurance
company duly authorized to do
business in the Philippines, provided
the insurance is taken on his own life
and the beneficiary appointed is the
minor's estate or the minor's father,
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mother, husband, wife, child, brother or
sister.”
*This portion is repealed by RA 6809.
Under RA 6809, minors are no longer
allowed to enter into insurance
contracts. This rule is absolute.
2. Rule on married women
Sec. 3 of the Insurance Code provides
that: “The married woman or the minor
herein allowed to take out an insurance
policy may exercise all the rights and
privileges of an owner under a policy.”
*Under RA 7192, married women can
enter into insurance contracts without
the assistance of their husbands.
D. Subject matter of Insurance
Sec. 3 of the Insurance Code states that:
“Any contingent or unknown event,
whether past or future, which may damnify
a person having an insurable interest, or
create a liability against him, may be
insured against, subject to the provisions of
this chapter.”
Sec. 4 of the Insurance Code states that:
“The preceding section does not authorize
an insurance for or against the drawing of
any lottery, or for or against any chance or
ticket in a lottery drawing a prize.”
E. Insurance not a wagering contract
Sec. 4 of the Insurance Code states that:
“The preceding section does not authorize
an insurance for or against the drawing of
any lottery, or for or against any chance or
ticket in a lottery drawing a prize.”
*Wagering contract is not allowed because it
is against public policy.
Reason: The insured should not be happy
because of the loss he suffered.
Q: What prevents insurance policy from
being a wagering contract?
A: Insurable interest.
INSURABLE INTEREST:
A. Concept of Insurable Interest in General
*A person has an insurable interest in the
subject matter if he is so connected, so
situated, so circumstanced, so related, that
by the preservation of the same he shall
DREIJIMENEZ| INSURANCE
derive pecuniary benefit, and by its
destruction he shall suffer pecuniary loss,
damage or prejudice.”
*Insurable interest does not exist by legal
relationship or by virtue of law.
B. Reason for the requirement of insurable
interest
*A policy issued to a person without the
requisite insurable interest in the subject
matter is a mere wager policy or contract,
hence, it is VOID.
Evil sought to be avoided: Temptation to
destroy the thing insured.
Reason: He has nothing to lose but
everything to gain.
C. Insurable interest in Life Insurance
Sec. 10 of the Insurance Code provides
that: “Every person has an insurable interest
in the life and health:
(a) Of himself, of his spouse and of his
children; (b) Of any person on whom he
depends wholly or in part for education or
support, or in whom he has a pecuniary
interest;
(c) Of any person under a legal obligation to
him for the payment of money, or
respecting property or services, of which
death or illness might delay or prevent the
performance; and
(d) Of any person upon whose life any
estate or interest vested in him depends.”
Q: May warehouseman insure the goods
deposited in his warehouse?
A: YES. In case of loss of the goods the
warehouseman is liable to the owner of the
goods.
Q: May bottomry lender insures the
hypothecated vessel?
A: YES. There is an insurable interest up to
the amount covered by the bottomry.
Q: Who gets the proceeds of the insurance?
A: The insured and the beneficiary.
*In life insurance, persons prohibited to
make donation to each other are also
prohibited to become beneficiaries of each
other.
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*For disqualification purposes, what is
needed is only a preponderance of
evidence.
D. Insurable interest in Property Insurance
Sec. 13 of the Insurance Code states that:
“Every interest in property, whether real or
personal, or any relation thereto, or liability
in respect thereof, of such nature that a
contemplated peril might directly damnify
the insured, is an insurable interest. “
Sec. 14 of the Insurance Code states that:
“An insurable interest in property may
consist in:
(a) An existing interest;
(b) An inchoate interest founded on an
existing interest; or
(c) An expectancy, coupled with an existing
interest in that out of which the expectancy
arises.”
*In general, a person has an insurable
interest in the property, if he derives
pecuniary benefit or advantage from its
preservation or would suffer pecuniary loss,
damage or prejudice by its destruction
whether he has or has no title in, or lien
upon, or possession of the property.
*Existence of insurable interest is a matter of
public policy, hence, the principle of
estoppels cannot be invoked.
*In order for hope or expectancy to be
insurable, it must be coupled with existing
interest out of which the expectancy arises.
It must be founded on an actual right to the
thing or upon a valid contract.
Sec. 19 of the Insurance Code states that:
“An interest in property insured must exist
when the insurance takes effect, and when
the loss occurs, but not exist in the
meantime; and interest in the life or health
of a person insured must exist when the
insurance takes effect, but need not exist
thereafter or when the loss occurs.”
Sec. 20 of the Insurance Code states that:
“Except in the cases specified in the next
four sections, and in the cases of life,
accident, and health insurance, a change of
interest in any part of a thing insured
unaccompanied by a corresponding change
in interest in the insurance, suspends the
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insurance to an equivalent extent, until the
interest in the thing and the interest in the
insurance are vested in the same person.”
Sec. 25 of the Insurance Code states that:
“Every stipulation in a policy of insurance
for the payment of loss whether the person
insured has or has not any interest in the
property insured, or that the policy shall be
received as proof of such interest, and every
policy executed by way of gaming or
wagering, is void.”
1. Insurable interest in case of mortgaged
property
Sec. 8 of the Insurance Code states that:
“Unless the policy otherwise provides,
where a mortgagor of property effects
insurance in his own name providing
that the loss shall be payable to the
mortgagee, or assigns a policy of
insurance to a mortgagee, the insurance
is deemed to be upon the interest of the
mortgagor, who does not cease to be a
party to the original contract, and any
act of his, prior to the loss, which would
otherwise avoid the insurance, will have
the same effect, although the property is
in the hands of the mortgagee, but any
act which, under the contract of
insurance, is to be performed by the
mortgagor, may be performed by the
mortgagee therein named, with the
same effect as if it had been performed
by the mortgagor.”
a. Standard or Union Mortgage
Clause – subsequent acts of the
mortgagor cannot affect the rights of
the assignee.
b. Open or Loss Payable Clause – acts
of the mortgagor affect the
mortgagee.
Reason: Mortgagor does not cease to
be a party to the contract.
Basis: Sec. 8 of the Insurance Code
states that: “Unless the policy
otherwise provides, where a
mortgagor of property effects
insurance in his own name
providing that the loss shall be
payable to the mortgagee, or assigns
a policy of insurance to a mortgagee,
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the insurance is deemed to be upon Sec. 23 of the Insurance Code states

the interest of the mortgagor, who that: “A change on interest, by will or
does not cease to be a party to the succession, on the death of the insured,
original contract, and any act of his, does not avoid an insurance; and his
prior to the loss, which would interest in the insurance passes to the
otherwise avoid the insurance, will person taking his interest in the thing
have the same effect, although the insured.”
property is in the hands of the *This is by operation of law.
mortgagee, but any act which, under Sec. 24 of the Insurance Code states
the contract of insurance, is to be that: “A transfer of interest by one of
performed by the mortgagor, may several partners, joint owners, or
be performed by the mortgagee owners in common, who are jointly
therein named, with the same effect insured, to the others, does not avoid an
as if it had been performed by the insurance even though it has been
mortgagor.” agreed that the insurance shall cease
Sec. 9 of the Insurance Code states upon an alienation of the thing
that: “If an insurer assents to the insured.”
transfer of an insurance from a Sec. 57 of the Insurance Code provides
mortgagor to a mortgagee, and, at that: “A policy may be so framed that it
the time of his assent, imposes will inure to the benefit of whomsoever,
further obligation on the assignee, during the continuance of the risk, may
making a new contract with him, the become the owner of the interest
act of the mortgagor cannot affect insured.”
the rights of said assignee.” *The policy follows where the interest is.
2. Effect of change of interest in the thing Sec. 58 of the Insurance Code provides
insured that: “The mere transfer of a thing
Sec. 20 of the Insurance Code states insured does not transfer the policy, but
that: “Except in the cases specified in the suspends it until the same person
next four sections, and in the cases of becomes the owner of both the policy
life, accident, and health insurance, a and the thing insured.”
change of interest in any part of a thing Article 1306 of the New Civil Code
insured unaccompanied by a provides that: “The contracting parties
corresponding change in interest in the may establish such stipulations, clauses,
insurance, suspends the insurance to an terms and conditions as they may deem
equivalent extent, until the interest in convenient, provided they are not
the thing and the interest in the contrary to law, morals, good customs,
insurance are vested in the same public order, or public policy.
person.”
Sec. 21 of the Insurance Code states Insurable Insurable
that: “A change in interest in a thing Interest in Interest in
insured, after the occurrence of an injury Property Life
As to Limited to General
which results in a loss, does not affect
measure the actual Rule:
the right of the insured to indemnity for Insurable
value of
the loss.” the interest Interest in
Sec. 22 of the Insurance Code states in the life is
that: “A change of interest in one or property. unlimited.
more several distinct things, separately Exception:
In life
insured by one policy, does not avoid
insurance
the insurance as to the others.”
effected by
*This is a divisible policy. a creditor
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on the life the latter

of the must have
debtor. insurable
As to time The General interest
when insurable Rule: It is over the
insurable interest enough life of the
interest exists when that the insured.
must exist the insurable Q: In case where the designated
insurance interest beneficiary cannot claim the proceeds
takes effect exists at the due to the fact that such designation
and when time the
was void, who can claim the proceeds?
the loss policy
occurs but takes effect A: Insured.
not need and need
DEVICES FOR ASCERTAINING AND
exist in the not exist at
the time of CONTROLLING RISK AND LOSS:
meantime.
the loss.
*Concealment and representation are devices that
Exception:
Obligee are related to the formation of the contract whereas
must have warranties and condition are devices that are
insurable related to the execution of the contract.
interest at
the time A. Concealment
the policy 1. Concept
took effect Q: When is there concealment?
and at the Sec. 26 of the Insurance Code provides
time of that: “A neglect to communicate that
loss.
which a party knows and ought to
As to There must The
expectation be a legal expectation communicate, is called a concealment.”
of benefit to basis. of the 2. Duty to Communicate
be derived benefit to Sec. 28 of the Insurance Code states
be derived that: “Each party to a contract of
need not insurance must communicated to the
have any other, in good faith, all facts within his
legal basis.
knowledge which are material to the
As to the The General
beneficiary’s beneficiary Rule: The contract and as to which he makes no
interest must have beneficiary warranty, and which the other has not
insurable need not the means of ascertaining.”
interest have 3. Test of Materiality
over the insurable Sec. 31 of the Insurance Code provides
thing interest that: “Materiality is to be determined
insured. over the
not by the event, but solely by the
The policy life of the
is still insured if probable and reasonable influence of the
valid, only the insured facts upon the party to whom the
the himself communication is due, in forming his
designation secured the estimate of the disadvantages of the
was policy. proposed contract, or in making his
avoided Exception:
inquiries.”
because the If the life
*The fact disclosed may not be the
beneficiary insurance
has no was proximate cause of the loss still there is
insurable obtained breach because there is a vitiation of
interest. by the consent, the contract is voidable.
beneficiary, 4. Effect of Concealment

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Sec. 27 of the Insurance Code provides need not be communicated unless in

that: “A concealment whether
intentional or unintentional entitles the
injured party to rescind a contract of
insurance.”
Sec. 29 of the Insurance Code provides
that: “An intentional and fraudulent
omission, on the part of one insured, to
communicate information of matters
proving or tending to prove the falsity
of a warranty, entitles the insurer to
rescind.”
*It vitiates the contract and entitles the
insurer to rescind, even if the death or
loss is due to a cause not related to the
concealed matter.
5. Matters which need not be
communicated
Sec. 30 of the Insurance Code provides
that: “Neither party to a contract of
insurance is bound to communicate
information of the matters following,
except in answer to the inquiries of the
other:
(a) Those which the other knows;
(b) Those which, in the exercise of
ordinary care, the other ought to know,
and of which the former has no reason
to suppose him ignorant;
(c) Those of which the other waives
communication;
(d) Those which prove or tend to prove
the existence of a risk excluded by a
warranty, and which are not otherwise
material; and
(e) Those which relate to a risk excepted
from the policy and which are not
otherwise material.”
*Things need not be disclosed.
Sec. 32 of the Insurance Code provides
that: “Each party to a contract of
insurance is bound to know all the
general causes which are open to his
inquiry, equally with that of the other,
and which may affect the political or
material perils contemplated; and all
general usages of trade.”
Sec. 34 of the Insurance Code provides
that: “Information of the nature or
amount of the interest of one insured
answer to an inquiry, except as
prescribed by section fifty-one.”
Sec. 35 of the Insurance Code provides
that: “Neither party to a contract of
insurance is bound to communicate,
even upon inquiry, information of his
own judgment upon the matters in
question. “
6. Waiver of Information
Sec. 33 of the Insurance Code provides
that: “The right to information of
material facts may be waived, either by
the terms of the insurance or by neglect
to make inquiry as to such facts, where
they are distinctly implied in other facts
of which information is communicated.”
B. Representation
1. Concept
Representations are factual statements
made by the insured at the time of or
prior to the issuance of the policy to give
information to the insurer and
otherwise induce him to enter into the
insurance contract.
*Representation per se is not wrong as
long as such representation is true.
*The false representation may still be
corrected as long as it is made before the
issuance of the policy.
2. Kinds of Representation
Sec. 36 of the Insurance Code provides
that: “A representation may be oral or
written.”
Sec. 37 of the Insurance Code provides
that: “representation may be made at
the time of, or before, issuance of the
policy.”
Sec. 39 of the Insurance Code provides
that: “A representation as to the future
is to be deemed a promise, unless it
appears that it was merely a statement
of belief or expectation. “
Sec. 42 of the Insurance Code provides
that: “. A representation must be
presumed to refer to the date on which
the contract goes into effect.”
3. Test of Materiality

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Sec. 46 of the Insurance Code provides
that: “The materiality of a C. Remedies
representation is determined by the
same rules as the materiality of a
concealment.”
*Facts that may probably and
reasonably influence the other party in
forming his estimate.
4. Effect of Alteration or Withdrawal
Sec. 41 of the Insurance Code provides
that: “A representation may be altered
or withdrawn before the insurance is
effected, but not afterwards.”
5. Time to which representation refers
Sec. 42 of the Insurance Code states
that: “A representation must be
presumed to refer to the date on which
the contract goes into effect.”
6. Effect when representation is obtained
from third persons
Sec. 43 of the Insurance Code provides
that: “When a person insured has no
personal knowledge of a fact, he may
nevertheless repeat information which
he has upon the subject, and which he
believes to be true, with the explanation
that he does so on the information of
others; or he may submit the
information, in its whole extent, to the
insurer; and in neither case is he
responsible for its truth, unless it
proceeds from an agent of the insured,
whose duty it is to give the
information.”
7. When presumed false; effect of falsity
Sec. 44 of the Insurance Code provides
that: “A representation is to be deemed
false when the facts fail to correspond
with its assertions or stipulations.”
Sec. 45 of the Insurance Code states
that: “If a representation is false in a
material point, whether affirmative or
promissory, the injured party is entitled
to rescind the contract from the time
when the representation becomes false.
The right to rescind granted by this
Code to the insurer is waived by the
acceptance of premium payments
despite knowledge of the ground for
rescission.”
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available in case of
Concealment or False Representation
1. When rescission by the insurer may be
exercised
Sec. 48 of the Insurance Code states
that: “Whenever a right to rescind a
contract of insurance is given to the
insurer by any provision of this chapter,
such right must be exercised previous to
the commencement of an action on the
contract.
After a policy of life insurance made
payable on the death of the insured shall
have been in force during the lifetime of
the insured for a period of two years
from the date of its issue or of its last
reinstatement, the insurer cannot prove
that the policy is void ab initio or is
rescindible by reason of the fraudulent
concealment or misrepresentation of the
insured or his agent.”
General Rule: Prescriptive period: Any
time before the commencement of a
court action on the contract.
Exception: In case of life insurance
made payable on the death of the
insured.
Q: How rescission is made?
A: By sending notice of cancellation or
rescission to the insured.
Even if there is a court action, the
insurer may raise concealment or
representation as an affirmative defense.
2. When Life insurance policy becomes
incontestable
Sec. 48 of the Insurance Code states
that: “Whenever a right to rescind a
contract of insurance is given to the
insurer by any provision of this chapter,
such right must be exercised previous to
the commencement of an action on the
contract.
After a policy of life insurance made
payable on the death of the insured shall
have been in force during the lifetime of
the insured for a period of two years
from the date of its issue or of its last
reinstatement, the insurer cannot prove
that the policy is void ab initio or is
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rescindible by reason of the fraudulent any condition imposed by the

concealment or misrepresentation of the policy after the loss has
insured or his agent.” happened
a. Requisites for incontestability 7. The action was not brought
1. The insurance is a life insurance within the time specified.
policy payable on the death of 8.
the insured. D. Warranties
2. It has been in force during the 1. Concept; distinguished from
lifetime of the insured for at least representation
2 years from its date of issue or Warranty is a statement or promise set
of its last reinstatement. The forth in the policy or by reference
period of 2 years may be incorporated therein, the untruth or
shortened but it cannot be non-fulfillment of which in any respect,
extended by stipulation. and without reference to whether
*The defense should be insurer was in fact prejudiced by such
misrepresentation or concealment only. untruth or non-fulfillment , renders the
*If the insured dies within 2 year period, policy voidable.
the insurer may still rescind the Condition is a provision wherein
contract. If the insured died after the 2 certain things are mandated by the
year period, the insurer cannot rescind insurer to be complied with by the
the contract. insured in order for the latter to recover.
b. Theory and Object of Examples:
incontestability 1. Filing of the claim on time
After a policy of life insurance made 2. Notice of loss
payable on the death of the insured 3. Proof of loss
shall have been in force during the *The condition may be complied with
lifetime of the insured for a period of before or after the loss.
2 years from the date of its issue or
of its last reinstatement, the insurer Warranty Representation
cannot prove that the policy is void Part of the A collateral
ab initio or is rescindable by reason contract inducement
Written on the Need not be written
of the fraudulent concealment or
policy or in a
misrepresentation of the insured or
valid rider or
his agent. attachment
c. Defenses not barred by Generally Should be
incontestability conclusively established to be
1. The person taking the insurance presumed to be material
lacked insurable interest as material
required by law The fact Requires only to be
warranted must substantially true
2. The cause of the death of the
be strictly
insured is an excepted risk complied with
3. The premiums have not been
paid 2. Kinds of Warranties
4. The conditions of the policy 1. Express
relating to military or naval 2. Implied – warranties that are
service have been violated deemed included in the contract
5. The fraud is of a particularly although not expressly mentioned.
vicious type 3. Affirmative – asserts the existence
6. The beneficiary failed to furnish of a fact or condition at the time it is
proof of death or to comply with made.

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4. Promissory – the insured stipulates any rider, clause, warranty or endorsement

that certain facts or conditions shall
exists or thing shall be done or
omitted.
3. Time to which warranty refers
Sec. 68 of the Insurance Code provides
that: “A warranty may relate to the past,
the present, the future, or to any or all of
these.”
4. Effect of Breach
Sec. 74 of the Insurance Code states
that: “The violation of a material
warranty, or other material provision of
a policy, on the part of either party
thereto, entitles the other to rescind.”
Sec. 75 of the Insurance Code states
that: “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.”
Sec. 76 of the Insurance Code states
that: “A breach of warranty without
fraud merely exonerates an insurer from
the time that it occurs, or where it is
broken in its inception, prevents the
policy from attaching to the risk.”
POLICY OF INSURANCE:
A. Definition and Form
Sec. 49 of the Insurance Code states that:
“The written instrument in which a contract
of insurance is set forth, is called a policy of
insurance.”
Sec. 50 of the Insurance Code provides
that: “The policy shall be in printed form
which may contain blank spaces; and any
word, phrase, clause, mark, sign, symbol,
signature, number, or word necessary to
complete the contract of insurance shall be
written on the blank spaces provided
therein. Any rider, clause, warranty or
endorsement purporting to be part of the
contract of insurance and which is pasted or
attached to said policy is not binding on the
insured, unless the descriptive title or name
of the rider, clause, warranty or
endorsement is also mentioned and written
on the blank spaces provided in the policy.
Unless applied for by the insured or owner,
DREIJIMENEZ| INSURANCE
issued after the original policy shall be
countersigned by the insured or owner,
which countersignature shall be taken as his
agreement to the contents of such rider,
clause, warranty or endorsement. Group
insurance and group annuity policies,
however, may be typewritten and need not
be in printed form.”
*Contract of insurance may be made in any
form but the policy of insurance must be in
writing.
B. Fine Print Rule
Insurance is a contract of adhesion
considering that most of the terms of the
contract do not result from mutual
negotiations between the parties as they are
prescribed by the insurer in printed form to
which the insured may “adhere” if he
chooses but which he cannot change.
C. Contents of the Policy
Sec. 51 of the Insurance Code provides
that: “A policy of insurance must specify:
(a) The parties between whom the contract
is made;
(b) The amount to be insured except in the
cases of open or running policies;
(c) The premium, or if the insurance is of a
character where the exact premium is only
determinable upon the termination of the
contract, a statement of the basis and rates
upon which the final premium is to be
determined;
(d) The property or life insured;
(e) The interest of the insured in property
insured, if he is not the absolute owner
thereof;
(f) The risks insured against; and
(g) The period during which the insurance
is to continue.”
D. Papers attached to the policy and their
binding effect (rider, warranties, clause,
endorsement)
Rider is an attachment to an insurance
policy that modifies the conditions of the
policy by expanding or restricting its
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benefits or excluding certain conditions
from the coverage.
*Riders, together with other attachments to
the policy like clause, warranty or
endorsements, are not binding on the
insured unless the descriptive title or name
thereof is mentioned and written on the
blank spaces provided in the policy.
Purpose: To modify the conditions or
provisions.
Interpretation: In case of doubt, riders
prevail over the policy.
*Riders and the like shall be countersigned
by the insured or owner unless he was the
one who applied for the rider, clause, and
warranty.
*When the requirements for a rider are
complied with including clause, warranty
or endorsement, it is considered part of the
policy.
*It is a part of the original policy which is in
the nature of a conditional obligation.
E. Kinds of Policy
1. Open
Sec. 60 of the Insurance Code states
that: “An open policy is one in which
the value of the thing insured is not
agreed upon, but is left to be ascertained
in case of loss.”
*To put a threshold for purposes of
premium.
Advantage: actual valuation; the final
valuation is accurate value of the
property
Disadvantage: hassle
Example:
Warehouse valued for P1M
At the time of loss the actual valuation
of the warehouse is P800,000
The insured can only recover P800,000
2. Valued
Sec. 61 of the Insurance Code provides
that: “A valued policy is one which
expresses on its face an agreement that
the thing insured shall be valued at a
specific sum.”
Example:
a. Warehouse valued for P1M
Agreed valuation is P1M
The insured can recover the whole P1M
without proving the actual value of the
property.
b. Warehouse valued for P1.5M
Agreed valuation is P1M
The insurer can only recover P1M
3. Running
Sec. 62 of the Insurance Code provides
that: “A running policy is one which
contemplates successive insurances, and
which provides that the object of the
policy may be from time to time
defined, especially as to the subjects of
insurance, by additional statements or
indorsements.”
*Usually covers stock and goods in
warehouse
Purpose: Avoidance of over and under
insurance.
F. Cover Notes
Sec. 52 of the Insurance Code provides
that: “Cover notes may be issued to bind
insurance temporarily pending the issuance
of the policy. Within sixty days after the
issue of the cover note, a policy shall be
issued in lieu thereof, including within its
terms the identical insurance bound under
the cover note and the premium therefor.
Cover notes may be extended or renewed
beyond such sixty days with the written
approval of the Commissioner if he
determines that such extension is not
contrary to and is not for the purpose of
violating any provisions of this Code. The
Commissioner may promulgate rules and
regulations governing such extensions for
the purpose of preventing such violations
and may by such rules and regulations
dispense with the requirement of written
approval by him in the case of extension in
compliance with such rules and regulations.
“
*This is a preliminary contract of insurance.
*The protection is temporary; limited to 60
days only
*In Pacific Timber Export Corporation v
CA, the SC held that no separate premium
is required for the cover note. As an
exception, the parties may agree otherwise.

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one year shall be considered as if written for

G. Cancellation of Policy
Sec. 64 of the Insurance Code states that:
“No policy of insurance other than life shall
be cancelled by the insurer except upon
prior notice thereof to the insured, and no
notice of cancellation shall be effective
unless it is based on the occurrence, after
the effective date of the policy, of one or
more of the following:
(a) non-payment of premium;
(b) conviction of a crime arising out of acts
increasing the hazard insured against;
(c) discovery of fraud or material
misrepresentation;
(d) discovery of willful or reckless acts or
omissions increasing the hazard insured
against;
PREMIUM:
(e) physical changes in the property insured
which result in the property becoming
uninsurable; or
(f) a determination by the Commissioner
that the continuation of the policy would
violate or would place the insurer in
violation of this Code.”
Prescriptive Period:
Oral = 6 years; written= 10 years
Sec. 65 of the Insurance Code states that:
“All notices of cancellation mentioned in
the preceding section shall be in writing,
mailed or delivered to the named insured at
the address shown in the policy, and shall
state (a) which of the grounds set forth in
section sixty-four is relied upon and (b)
that, upon written request of the named
insured, the insurer will furnish the facts on
which the cancellation is based.”
Sec. 66 of the Insurance Code states that:
“In case of insurance other than life, unless
the insurer at least forty-five days in
advance of the end of the policy period
mails or delivers to the named insured at
the address shown in the policy notice of its
intention not to renew the policy or to
condition its renewal upon reduction of
limits or elimination of coverages, the
named insured shall be entitled to renew
the policy upon payment of the premium
due on the effective date of the renewal.
Any policy written for a term of less than
a term of one year. Any policy written for a
term longer than one year or any policy
with no fixed expiration date shall be
considered as if written for successive
policy periods or terms of one year.”
H. Time to commence action on the policy;
effect of stipulation
Q: When cause of action accrues?
A: From the denial of the claim.
Sec. 63 of the Insurance Code provides
that: “A condition, stipulation, or agreement
in any policy of insurance, limiting the time
for commencing an action thereunder to a
period of less than one year from the time
when the cause of action accrues, is void.”
A. Concept
Premium is the consideration paid to an
insurer for undertaking to indemnify the
insured against a specified peril.
Q: Who pays the premium?
A: Insured
Q: What is the consideration?
A: Insured: premium; Insurer: Assumption
of risk
B. Effect of non-payment of premium;
exceptions Sec. 77 of the Insurance Code
states that: “. An insurer is entitled to
payment of the premium as soon as the
thing insured is exposed to the peril insured
against. Notwithstanding any agreement to
the contrary, no policy or contract of
insurance issued by an insurance company
is valid and binding unless and until the
premium thereof has been paid, except in
the case of a life or an industrial life policy
whenever the grace period provision
applies.”
*This is called as Cash and Carry Rule
Sec. 78 of the Insurance Code states that:
“An acknowledgment in a policy or contract
of insurance or the receipt of premium is
conclusive evidence of its payment, so far as
to make the policy binding,
notwithstanding any stipulation therein

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that it shall not be binding until the
premium is actually paid.”
General Rule: No insurance policy issued
or renewal is valid and binding until actual
payment of premium. Any agreement to the
contrary is void. (Cash and Carry Rule)
Exceptions:
1. In case of life and industrial life
whenever the grace period provision
applies (Sec. 77);
Requisites:
a. Life and industrial life insurance
b. There is a grace period
c. Grace period still exists
2. Where there is an acknowledgment in
the contract or policy of insurance that
the premium had already been paid
(Sec. 78);
Conclusive effect: the validity of the
contract/policy and its binding effect.
*No conclusive effect as to the payment
of premium.
*Acknowledgment results to estoppel
3. The rule laid down in Makati Tuscany
Condominium v CA to the effect that
Sec. 77 may not apply if the parties have
agreed to the payment of the premium
in installments and partial payment has
been made at the time of the loss;
*By express agreement
Q: What was agreed upon?
A: Payment by instalment plan
4. Where a credit term was agreed upon
like the agreement in UCPB General
Insurance, Inc. v Masagana Telemart
where the insurer granted a 60-90 day
credit term for the payment of the
premiums despite full awareness of
Sec.77;
*By previous conduct/practice
*Insured = principle of equity; insurer =
estoppel.
5. Where the parties are barred by
estoppels
Article 1306 of the : “New Civil Code states
that: “The contracting parties may establish
such stipulations, clauses, terms and
conditions as they may deem convenient,
PERSONS ENTITLED TO RECOVER ON THE
provided they are not contrary to law,
POLICY AND CONDITIONS TO RECOVERY:
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morals, good customs, public order, or
public policy.”
C. When insured entitled to return of
premiums Sec. 79 of the Insurance Code
states that: “A person insured is entitled to a
return of premium, as follows:
(a) To the whole premium if no part of his
interest in the thing insured be exposed to
any of the perils insured against;
(b) Where the insurance is made for a
definite period of time and the insured
surrenders his policy, to such portion of the
premium as corresponds with the
unexpired time, at a pro rata rate, unless a
short period rate has been agreed upon and
appears on the face of the policy, after
deducting from the whole premium any
claim for loss or damage under the policy
which has previously accrued; Provided,
That no holder of a life insurance policy
may avail himself of the privileges of this
paragraph without sufficient cause as
otherwise provided by law.”
Sec. 80 of the Insurance Code states that:
“If a peril insured against has existed, and
the insurer has been liable for any period,
however short, the insured is not entitled to
return of premiums, so far as that particular
risk is concerned.”
Sec. 81 of the Insurance Code states that:
“A person insured is entitled to return of
the premium when the contract is voidable,
on account of fraud or misrepresentation of
the insurer, or of his agent, or on account of
facts, the existence of which the insured was
ignorant without his fault; or when by any
default of the insured other than actual
fraud, the insurer never incurred any
liability under the policy.”
Sec. 82 of the Insurance Code states that:
“In case of an over-insurance by several
insurers, the insured is entitled to a ratable
return of the premium, proportioned to the
amount by which the aggregate sum
insured in all the policies exceeds the
insurable value of the thing at risk.”
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A. Beneficiary 3. In cases where the marriage is declared

Sec. 11 of the Insurance Code provides
that: “The insured shall have the right to
change the beneficiary he designated in the
policy, unless he has expressly waived this
right in said policy.”
Sec. 12 of the Insurance Code provides
that: “The interest of a beneficiary in a life
insurance policy shall be forfeited when the
beneficiary is the principal, accomplice, or
accessory in willfully bringing about the
death of the insured; in which event, the
nearest relative of the insured shall receive
the proceeds of said insurance if not
otherwise disqualified.”
Sec. 53 of the Insurance Code states 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.”
Sec. 56 of the Insurance Code states that:
“When the description of the insured in a
policy is so general that it may comprehend
any person or any class of persons, only he
who can show that it was intended to
include him can claim the benefit of the
policy.”
Sec. 57 of the Insurance Code provides
that: “A policy may be so framed that it will
inure to the benefit of whomsoever, during
the continuance of the risk, may become the
owner of the interest insured.”
Q: Who receives the proceeds?
A: General Rule: Beneficiary
Exception: In case the designated
beneficiary is disqualified, it is the insured
who receive the proceeds.
General Rule: The designation of the
beneficiary is revocable.
Exception: Irrevocable
In irrevocable designation, the general rule
is that the designated beneficiary cannot be
changed.
Exceptions:
1. The beneficiary consented to the change
2. Under Art. 45 of the Family Code which
substantially provides that the innocent
spouse has the authority to revoke the
designation of his beneficiary
void ab initio
4. In cases of annulment
5. In cases of legal separation
B. Limitations on the appointment of
beneficiary Article 2012 of the New Civil
Code states that: “Any person who is
forbidden from receiving any donation
under Article 739 cannot be named
beneficiary of a life insurance policy by the
person who cannot make any donation to
him, according to said article.”
*The prohibition applies only to life
insurance policy.
*Under Article 1236 of the New Civil Code,
the beneficiary may pay the premium even
against the will of the insurer.
Reason: Beneficiary has interest over the
insurance policy.
Article 739 of the New Civil Code states
that: ”The following donations shall be
void:
(1) Those made between persons who were
guilty of adultery or concubinage at the
time of the donation;
(2) Those made between persons found
guilty of the same criminal offense, in
consideration thereof;
(3) Those made to a public officer or his
wife, descendants and ascendants, by
reason of his office.
In the case referred to in No. 1, the action
for declaration of nullity may be brought by
the spouse of the donor or donee; and the
guilt of the donor and donee may be proved
by preponderance of evidence in the same
action.”
C. Rule where insurance is made by an agent
or trustee
Sec. 54 of the Insurance Code provides
that: “When an insurance contract is
executed with an agent or trustee as the
insured, the fact that his principal or
beneficiary is the real party in interest may
be indicated by describing the insured as
agent or trustee, or by other general words
in the policy.”

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D. Rule where insurance if made by partner
or part owner
Sec. 55 of the Insurance Code provides
that: “To render an insurance effected by
one partner or part-owner, applicable to the
interest of his co-partners or other part-
owners, it is necessary that the terms of the
policy should be such as are applicable to
the joint or common interest. “
E. Notice and proof of loss
Sec. 88 of the Insurance Code states that:
“In case of loss upon an insurance against
fire, an insurer is exonerated, if notice
thereof be not given to him by an insured,
or some person entitled to the benefit of the
insurance, without unnecessary delay.”
Sec. 89 of the Insurance Code states that:
“When a preliminary proof of loss is
required by a policy, the insured is not
bound to give such proof as would be
necessary in a court of justice; but it is
sufficient for him to give the best evidence
which he has in his power at the time.”
Sec. 90 of the Insurance Code provides
that: “All defects in a notice of loss, or in
preliminary proof thereof, which the
insured might remedy, and which the
insurer omits to specify to him, without
unnecessary delay, as grounds of objection,
are waived.”
Sec. 91 of the Insurance Code provides
that: “Delay in the presentation to an
insurer of notice or proof of loss is waived if
caused by any act of him, or if he omits to
take objection promptly and specifically
upon that ground.”
Sec. 92 of the Insurance Code provides
that: “If the policy requires, by way of
preliminary proof of loss, the certificate or
testimony of a person other than the
insured, it is sufficient for the insured to use
reasonable diligence to procure it, and in
case of the refusal of such person to give it,
then to furnish reasonable evidence to the
insurer that such refusal was not induced
by any just grounds of disbelief in the facts
necessary to be certified or testified.”
DOUBLE INSURANCE:
A. Definition and requisites
DREIJIMENEZ| INSURANCE
Sec. 93 of the Insurance Code provides
that: “A double insurance exists where the
same person is insured by several insurers
separately in respect to the same subject and
interest.”
Requisites:
1. The person insured is the same
2. There are two or more insurers insuring
separately
3. The subject matter is the same
4. The interest insured is also the same
5. The risk or peril insured against is
likewise the same
B. Distinguished from Over-insurance
Distinctions:
Double Insurance Over-Insurance
When the amount of
There may be no the insurance is
over-insurance as beyond the value of
when the sum total the insured’s
of the amounts of insurable interest
the policies issued
does not exceed the
insurable interest of
the insured
There are always There may only be
several insurers one insurer involved
*There is over-insurance if the total amount
exceeds the value of the thing insured.
Example:
In Fire Insurance, A insured his property to
X for 500,000, to Y for 1M and to Z for 1M
totalling to P2.5M. The property valued
only for 1M. In this situation there is over-
insurance.
C. Stipulation against double insurance
Q: Is double insurance legally prohibited?
A: General Rule: NO.
Exception: If prohibited by an “other
insurance clause.”
Basis: Sec. 75 of the Insurance Code which
provides that: “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.”
D. Rules for payment where there is over-
insurance by double insurance
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Sec. 94 of the Insurance Code states that:

“Where the insured is over-insured by
double insurance:
(a) The insured, unless the policy otherwise
provides, may claim payment from the
insurers in such order as he may select, up
to the amount for which the insurers are
severally liable under their respective
contracts;
(b) Where the policy under which the
insured claims is a valued policy, the
insured must give credit as against the
valuation for any sum received by him
under any other policy without regard to
the actual value of the subject matter
insured;
(c) Where the policy under which the
insured claims is an unvalued policy he
must give credit, as against the full
insurable value, for any sum received by
him under any policy;
(d) Where the insured receives any sum in
excess of the valuation in the case of valued
policies, or of the insurable value in the case
of unvalued policies, he must hold such
sum in trust for the insurers, according to
their right of contribution among
themselves;
(e) Each insurer is bound, as between
himself and the other insurers, to contribute
ratably to the loss in proportion to the
amount for which he is liable under his
contract.”
Formula:
Insurance Policy
--------------------------- x Amount of loss
Total of Policy taken
500000
X = --------- x 1M = 200,000
2.5M
1M
Y = -------- x 1M = 400,000
2.5M
1M
Z = -------- x 1M = 400,000
2.5M
DREIJIMENEZ| INSURANCE
*The balance shall be returned.
*As far as the excess payment is concern,
the excess shall be held in trust by the
insured.
REINSURANCE:
*This is called a Liability Insurance
A. Definition
Sec. 95 of the Insurance Code provides
that: “A contract of reinsurance is one by
which an insurer procures a third person to
insure him against loss or liability by reason
of such original insurance.”
Example:
In fire insurance, A insured his property
against fire to X, X reinsured his obligation
to Y.
Q: Can A recover to the reinsurer?
A: General Rule: NO
Reason: No privity of contract
Exception: Stipulation stating that the
policy is taken for the benefit of the insured
of the first contract of insurance.
(Stipulation pour autrui)
Q: Can X recover from Y even if X has not
yet pay A?
A: YES. Immediately arises from the time
the liability of X has occur.
B. Nature
Sec. 97 of the Insurance Code states that:
“A reinsurance is presumed to be a contract
of indemnity against liability, and not
merely against damage.”
Sec. 98 of the Insurance Code provides
that: “The original insured has no interest in
a contract of reinsurance.”
Q: Is reinsurance mandatory?
A: General Rule: NO
Exceptions:
1. Sec. 215 of the Insurance Code which
provides that: “No insurance company
other than life, whether foreign or
domestic, shall retain any risk on any
one subject of insurance in an amount
exceeding twenty per centum of its net
worth. For purposes of this section, the
term "subject of insurance" shall include
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all properties or risks insured by the insured, not his consent

same insurer that customarily are
considered by non-life company
underwriters to be subject to loss or
damage from the same occurrence of
any hazard insured against.
Reinsurance ceded as authorized under
the succeeding title shall be deducted in
determining the risk retained. As to
surety risk, deduction shall also be
made of the amount assumed by any
other company authorized to transact
surety business and the value of any
security mortgage, pledged, or held
MARINE INSURANCE:
subject to the surety's control and for the
surety's protection.”
2. Sec. 275 of the Insurance Code which
provides that: “Every foreign insurance
company desiring to withdraw from the
Philippines shall, prior to such
withdrawal, discharge its liabilities to
policyholders and creditors in this
country. In case of its policies insuring
residents of the Philippines, it shall
cause the primary liabilities under such
policies to be reinsured and assumed by
another insurance company authorized
to transact business in the Philippines.
In the case of such policies as are subject
to cancellation by the withdrawing
company, it may cancel such policies
pursuant to the terms thereof in lieu of
such reinsurance and assumption of
liabilities.”
C. Distinguished from double insurance
Distinctions:
Reinsurance Double Insurance
Insurance of Involves same
different interests interest
Insurer becomes an Insurer remains in
insured in relation to such capacity
reinsurer
Original insured has Insured in the 1st
no interest in contract is a party in
reinsurance contract interest in the 2nd
contract
Subject of insurance Subject of insurance
is the original is property
insurer’s risk
Consent of original Insured has to give
necessary
D. Duty of reinsured to disclose facts
Sec. 96 of the Insurance Code provides
that: “Where an insurer obtains reinsurance,
except under automatic reinsurance treaties,
he must communicate all the
representations of the original insured, and
also all the knowledge and information he
possesses, whether previously or
subsequently acquired, which are material
to the risk.“
A. Definition
Marine Insurance includes policies that
covers risks connected with navigation, to
which a ship, cargo, freightage, profits or
other insurable interest in movable
property, may be exposed during a certain
voyage or a fixed period of time.
Basis: Sec. 99 of the Insurance Code.
B. Scope of marine insurance
Sec. 99 of the Insurance Code provides
that: “Marine Insurance includes:
(1) Insurance against loss of or damage to:
(a) Vessels, craft, aircraft, vehicles, goods,
freights, cargoes, merchandise, effects,
disbursements, profits, moneys, securities,
choses in action, evidences of debts,
valuable papers, bottomry, and
respondentia interests and all other kinds of
property and interests therein, in respect to,
appertaining to or in connection with any
and all risks or perils of navigation, transit
or transportation, or while being assembled,
packed, crated, baled, compressed or
similarly prepared for shipment or while
awaiting shipment, or during any delays,
storage, transhipment, or reshipment
incident thereto, including war risks,
marine builder's risks, and all personal
property floater risks;
(b) Person or property in connection with or
appertaining to a marine, inland marine,
transit or transportation insurance,
including liability for loss of or damage
arising out of or in connection with the

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construction, repair, operation, maintenance has been said to action of the

or use of the subject matter of such include only such sea;
insurance (but not including life insurance losses as are of 2. From
extraordinary ordinary
or surety bonds nor insurance against loss
nature or arise wear and
by reason of bodily injury to any person
from some tear of the
arising out of ownership, maintenance, or overwhelming ship; and
use of automobiles); power which 3. From the
(c) Precious stones, jewels, jewelry, precious cannot be guarded negligent
metals, whether in course of transportation against by the failure of
or otherwise; ordinary exertion the ship’s
of human skill or owner to
(d) Bridges, tunnels and other
prudence, as provide the
instrumentalities of transportation and distinguished vessel with
communication (excluding buildings, their from the ordinary the proper
furniture and furnishings, fixed contents wear and tear of equipment
and supplies held in storage); piers, the voyage and to convey
wharves, docks and slips, and other aids to from injuries the cargo
navigation and transportation, including suffered by the under
vessel in ordinary
dry docks and marine railways, dams and
consequence of conditions.
appurtenant facilities for the control of her not being
waterways. unseaworthy.
(2) "Marine protection and indemnity Extraordinary Usual perils
insurance," meaning insurance against, or perils attendant to
against legal liability of the insured for loss, navigation
damage, or expense incident to ownership, *Only perils of the sea are assumed by
operation, chartering, maintenance, use, the insurer.
repair, or construction of any vessel, craft or 2. “all risks” marine insurance policy
instrumentality in use of ocean or inland means that all risks are covered unless
waterways, including liability of the expressly excepted. The burden rests on
insured for personal injury, illness or death the insurer to prove that the loss is
or for loss of or damage to the property of caused by a risk that is excluded.
another person.”
D. Insurable interest in marine insurance
*In Roque v IAC, the SC held that cargo can
1. Ship owner’s insurable interest
be the subject of marine insurance, and once
Sec. 100 of the Insurance Code provides
it is entered into, the implied warranty of
that: “The owner of a ship has in all
seaworthiness immediately attaches to
cases an insurable interest in it, even
whoever is insuring the cargo, whether he
when it has been chartered by one who
be the shipowner or not. Although he has
covenants to pay him its value in case of
no control over the vessel, the shipper has
loss: Provided, That in this case the
control in the choice of vessel.
insurer shall be liable for only that part
of the loss which the insured cannot
C. Risks or losses covered in marine
recover from the charterer.“
insurance
1. Perils of the sea vs. perils of the ship *The insurable interest of the shipowner
Perils of the Sea Perils of the Ship is over the value of the vessel and over
Include only those Is a loss which is in expected freightage.
casualties due to the ordinary course Measurement: Ownership
the unusual of events, results: *It does not matter whether the ship was
violence or 1. From the mortgaged or chartered.
extraordinary ordinary, a. Rule where vessel is chartered
causes connected natural and
with navigation. It inevitable

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Sec. 100 of the Insurance Code
states that: “The owner of a ship has
in all cases an insurable interest in it,
even when it has been chartered by
one who covenants to pay him its
value in case of loss: Provided, That
in this case the insurer shall be liable
for only that part of the loss which
the insured cannot recover from the
charterer.”
Q: What is a charter party?
A: A contract where the owner lends
his whole vessel to a charterer for a
particular voyage.
*Indemnity Principle applies
b. Rule where vessel hypothecated by
bottomry
Sec. 101 of the Insurance Code
which provides that: “The insurable
interest of the owner of the ship
hypothecated by bottomry is only
the excess of its value over the
amount secured by bottomry.”
*Principle of Indemnity applies.
Q: What is bottomry?
A: it is a contract of loan which said
loan is used for the repair of the
vessel. The payment of which is
conditional.
*The owner’s insurable interest is
the amount in excess of the value of
the ship over the amount secured by
the bottomry
*Owner incurs loss due to the
damage of the vessel but at the same
time he receives gain due to the
extinguishment of his loan
obligation.
c. Insurable interest in freightage
Sec. 102 of the Insurance Code
states that: “Freightage, in the sense
of a policy of marine insurance,
signifies all the benefits derived by
the owner, either from the
chartering of the ship or its
employment for the carriage of his
own goods or those of others.”
Sec. 103 of the Insurance Code
provides that: “The owner of a ship
has an insurable interest in expected
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freightage which according to the
ordinary and probable course of
things he would have earned but for
the intervention of a peril insured
against or other peril incident to the
voyage.”
*Supposed earnings may be subject
to marine insurance.
2. Charterer’s insurable
Sec. 106 of the Insurance Code provides
that: “The charterer of a ship has an
insurable interest in it, to the extent that
he is liable to be damnified by its loss.”
E. Concealment
1. Meaning of concealment in marine
insurance
*Definition of concealment in marine
insurance is the same as what defined in
Sec. 26 of the Insurance Code.
*However, concealment under the
marine insurance is more strict than the
ordinary insurance
Reason: Unpredictable risk
*In marine insurance, opinions and
expectations of third persons are
considered, whereas in ordinary
insurance as a general rule, opinions of
third persons are not necessary.
Exception: expert opinion.
2. Duty to communicate
Sec. 107 of the Insurance Code which
provides that: “In marine insurance each
party is bound to communicate, in
addition to what is required by section
twenty-eight, all the information which
he possesses, material to the risk, except
such as is mentioned in Section thirty,
and to state the exact and whole truth in
relation to all matters that he represents,
or upon inquiry discloses or assumes to
disclose.”
3. Opinions or expectations of third
persons
Sec. 108 of the Insurance Code which
provides that: “In marine insurance,
information of the belief or expectation
of a third person, in reference to a
material fact, is material.”
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4. When concealment does not vitiate the
entire contract
Sec. 110 of the Insurance Code states
that: “A concealment in a marine
insurance, in respect to any of the
following matters, does not vitiate the
entire contract, but merely exonerates
the insurer from a loss resulting from
the risk concealed:
(a) The national character of the insured;
(b) The liability of the thing insured to
capture and detention;
(c) The liability to seizure from breach of
foreign laws of trade;
(d) The want of necessary documents;
(e) The use of false and simulated
papers.”
F. Representations
1. Effect of false representation by the
insured
Sec. 111 of the Insurance Code states
that: “If a representation by a person
insured by a contract of marine
insurance, is intentionally false in any
material respect, or in respect of any fact
on which the character and nature of the
risk depends, the insurer may rescind
the entire contract.”
2. Effect of false representation as to
expectation
Sec. 112 of the Insurance Code provides
that: “The eventual falsity of a
representation as to expectation does
not, in the absence of fraud, avoid a
contract of marine insurance.”
G. Implied warranties in marine insurance
1. Seaworthiness
Sec. 113 of the Insurance Code provides
that: “In every marine insurance upon a
ship or freight, or freightage, or upon
any thing which is the subject of marine
insurance, a warranty is implied that the
ship is seaworthy.”
*Charterer is also subject to warranty on
seaworthiness because he has control in
the selection of the ship to be leased.
*Bottomry lender is also subject to
warranty on seaworthiness because he
has also the control in the selection of
the vessel.
a. What constitutes seaworthiness
Sec. 114 of the Insurance Code
states that: “A ship is seaworthy
when reasonably fit to perform the
service and to encounter the
ordinary perils of the voyage
contemplated by the parties to the
policy.”
Q: What makes a vessel seaworthy?
A: Sec. 114. Fitness of the vessel is
the general test.
*Warranty on the condition of the
ship
Example:
Shipowner insured his vessel with X
insurer.
On the part of the insurer, the inured
warrants that his vessel is ship
worthy. The burden falls on the
shipowner/insured of proving
otherwise.
*Seaworthiness depends on the
transaction entered into or
undertaken by the ship.
Sec. 116 of the Insurance Code
states that: “A warranty of
seaworthiness extends not only to
the condition of the structure of the
ship itself, but requires that it be
properly laden, and provided with a
competent master, a sufficient
number of competent officers and
seamen, and the requisite
appurtenances and equipment, such
as ballasts, cables and anchors,
cordage and sails, food, water, fuel
and lights, and other necessary or
proper stores and implements for
the voyage.”
Requisites:
1. Condition of the structure of the
ship
2. Properly laden and provided
with a competent master
3. Sufficient number of competent
officers and seamen
4. Requisite appurtenances and
equipment

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*In Delsan Transport case, the SC
held that the issuance of certificate
of seaworthiness is not enough to
prove seaworthiness of the ship.
Example:
Cargo owner insured his cargo
Q: Does that implied warranty on
seaworthiness apply to cargo
owner?
A: YES. The cargo owner has the
control in the selection of the vessel
where his cargoes to be shipped.
Sec. 119 of the Insurance Code
provides that: “A ship which is
seaworthy for the purpose of an
insurance upon the ship may,
nevertheless, by reason of being
unfitted to receive the cargo, be
unseaworthy for the purpose of the
insurance upon the cargo.”
b. When complied with; exceptions
Sec. 115 of the Insurance Code
provides that: “An implied warranty
of seaworthiness is complied with if
the ship be seaworthy at the time of
the of commencement of the risk,
except in the following cases:
(a) When the insurance is made for
a specified length of time, the
implied warranty is not
complied with unless the ship be
seaworthy at the commencement
of every voyage it undertakes
during that time; (Time Policy)
Example:
The transaction is covered for
one year from January 1, 2007 to
December 31, 2007.
The ship will undertake 5
different voyages.
The ship must be seaworthy at
the commencement of each and
every voyage.
(b) When the insurance is upon the
cargo which, by the terms of the
policy, description of the voyage,
or established custom of the
trade, is to be transhipped at an
intermediate port, the implied
warranty is not complied with
unless each vessel upon which
the cargo is shipped, or
transhipped, be seaworthy at the
commencement of each
particular voyage. (Cargo
Policy)”
Controlling: There must be
transhipment
*The ship must be seaworthy in
each particular voyage.
Sec. 117 of the Insurance Code
provides that: “Where different
portions of the voyage contemplated
by a policy differ in respect to the
things requisite to make the ship
seaworthy therefor, a warranty of
seaworthiness is complied with if, at
the commencement of each portion,
the ship is seaworthy with reference
to that portion.” (Voyage Policy)
*There is a single ship that
completes the voyage however, the
ship will undergo different degree of
perils.
*The ship must be seaworthy upon
commencement of each level of
peril.
General Rule: The ship must be
seaworthy at the time of the
commencement of the risk.
Exceptions:
1. Time policy
2. Cargo policy
3. Voyage policy
*In time policy, seaworthiness
commenced in every voyage.
*In voyage policy, no transhipment.
The voyage has different stages to
go through. Every stage of voyage
the ship must be seaworthy.
c. Rule where ship becomes
unseaworthy in the course of the
voyage
Sec. 118 of the Insurance Code
provides that: “When the ship
becomes unseaworthy during the
voyage to which an insurance
relates, an unreasonable delay in
repairing the defect exonerates the
insurer on ship or shipowner's

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interest from liability from any loss
arising therefrom.”
2. Warranty that necessary documents are
carried
Sec. 120 of the Insurance Code states
that: “Where the nationality or
neutrality of a ship or cargo is expressly
warranted, it is implied that the ship
will carry the requisite documents to
show such nationality or neutrality and
that it will not carry any documents
which cast reasonable suspicion
thereon.”
3. Warranty against improper deviation
a. Meaning of deviation
Sec. 123 of the Insurance Code
states that: “Deviation is a departure
from the course of the voyage
insured, mentioned in the last two
sections, or an unreasonable delay in
pursuing the voyage or the
commencement of an entirely
different voyage.”
*Deviation is either proper or
improper.
*There is breach of warranty if the
deviation is improper.
b. When proper
Sec. 124 of the Insurance Code
provides that: “A deviation is
proper:
(a) When caused by circumstances
over which neither the master nor
the owner of the ship has any
control;
(b) When necessary to comply with
a warranty, or to avoid a peril,
whether or not the peril is insured
against;
*Whether or not the peril is covered
by the policy is immaterial.
(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.”
*Warranty is against improper
deviation.
*Whether or not improper deviation
contributed to the loss is immaterial
because there was already a breach
of implied warranty.
Sec. 126 of the Insurance Code
states that: “An insurer is not liable
for any loss happening to the thing
insured subsequent to an improper
deviation.”
H. Loss
1. Kinds of losses
a. Actual
Sec. 130 of the Insurance Code
provides that: “An actual total loss is
cause by:
(a) A total destruction of the thing
insured;
(b) The irretrievable loss of the thing
by sinking, or by being broken up;
(c) Any damage to the thing which
renders it valueless to the owner for
the purpose for which he held it; or
(d) Any other event which
effectively deprives the owner of the
possession, at the port of
destination, of the thing insured.”
Sec. 132 of the Insurance Code
states that: “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.”
b. Constructive
Sec. 131 of the Insurance Code
provides that: “A constructive total
loss is one which gives to a person
insured a right to abandon, under
Section one hundred thirty-nine. “
2. Right to payment upon an actual total
loss
Sec. 135 of the Insurance Code states
that: “Upon an actual total loss, a person
insured is entitled to payment without
notice of abandonment.”
3. Scope of insurance against actual total
loss

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Sec. 137 of the Insurance Code states *This is not automatic.

that: “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.”
4. When constructive total loss/partial
loss exists
Sec. 139 of the Insurance Code provides
that: “A person insured by a contract of
marine insurance may abandon the
thing insured, or any particular portion
thereof separately valued by the policy,
or otherwise separately insured, and
recover for a total loss thereof, when the
cause of the loss is a peril insured
against:
(a) If more than three-fourths thereof in
value is actually lost, or would have to
be expended to recover it from the peril;
(b) If it is injured to such an extent as to
reduce its value more than three-
fourths;
(c) If the thing insured is a ship, and the
contemplated voyage cannot be lawfully
performed without incurring either an
expense to the insured of more than
three-fourths the value of the thing
abandoned or a risk which a prudent
man would not take under the
circumstances; or
(d) If the thing insured, being cargo or
freightage, and the voyage cannot be
performed, nor another ship procured
by the master, within a reasonable time
and with reasonable diligence, to
forward the cargo, without incurring the
like expense or risk mentioned in the
preceding sub-paragraph. But
freightage cannot in any case be
abandoned unless the ship is also
abandoned.”
Test: The loss is more than ¾ but less
than 1.
*If there is partial loss, only partial can
be claimed.
*The extent of damage in constructive
loss is so severe.
*There is an option either to abandon it
or to recover only the partial loss.
5. Concept of abandonment and its
requisites
Definition:
Sec. 138 of the Insurance Code states
that: “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.”
*It is necessary to abandon the
surviving part of the thing.
Formula:
Constructive total loss + Abandonment
= Total loss
If there is only constructive total loss
there is only partial loss.
Requisites:
1. There must be an actual
relinquishment by the person
insured of his interest in the thing
insured.
2. There must be a constructive total
loss
3. The abandonment be neither partial
nor conditional
4. It must be made within a reasonable
time after receipt of reliable
information of the loss
5. It must be factual and reasonable
6. It must be made by giving notice
thereof to the insurer which may be
done orally or in writing
7. The notice of abandonment must be
explicit and must specify the
particular cause of the abandonment
*The residual part is abandoned.
Reason: Principle of Indemnity
*If the requisites are satisfied the
insurance company cannot refuse to
accept the abandonment.
6. Average
Average is 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

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is loaded and the voyage commenced deliberately caused by

until it ends and the cargo unloaded.
*Expenses for maritime transaction.
a. Kinds of average:
i. Particular
Sec. 136 of the Insurance
Code provides that: “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.”
- Includes all damages and
expenses caused to the
vessel or to her cargo
which have not inured to
the common benefit and
profit of all persons
interested in the vessel
and her cargo.
- It refers 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.
Recourse: Go after the insurer
*Stipulation exempting the insurer
for a particular average loss is
possible and valid.
ii. General
- Includes damages and
expenses which are
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 or
known risk.
- It must be borne equally
by all of the interests
concerned in the venture.
b. Requisites of general average
1. There must be a common danger
to the vessel or cargo
2. Part of the vessel or cargo was
sacrificed deliberately
3. The sacrifice must be for the
common safety of for the benefit
of all
4. It must be made by the master or
upon his authority
5. It must be successful, i.e.,
resulted in the saving of the
vessel or cargo
6. It must be necessary
c. Insurer’s liability for general
average
The insurer of the vessel or cargo
that are saved is liable for general
average contribution and not for
particular average. Only the insurer
of the damaged cargo or vessel is
liable for particular average if
covered by the policy.
Q: If there is a stipulation exempting
the insurer for a particular average
loss, does it extend to general
average loss?
A: NO.
Basis: Article 859 of the Code of
Commerce; Article 812 of the Code
of Commerce
Reason: Equity
Q: Are there a mandatory co-insurance in marine
insurance?
A: YES.
Basis: Sec. 157 of the Insurance Code provides
that: “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.”

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*There is a co-insurance when the property is A: Direct losses are losses that pertain to the
insured for less than its value, the insured is physical destruction of the thing insured.
considered a co-insurer for the difference between Q: What are indirect losses?
the amount of insurance and the value of the A: Indirect losses pertain to consequential
property. losses.
Requisites: Q: Are consequential losses compensable?
1. The loss is partial A: General Rule: NO in standard fire policy
2. The amount of insurance is less than the Except: If there is an agreement
value of the property insured. *The liability of the insurer is to pay for
Formula: direct losses only
Loss Friendly Fire – fire that burns in a place
------- x Insurance = Insurer’s Liability where it is supposed to burn.
Value Hostile Fire – fire that escapes and burns in
Example: a place where it is not supposed to be.
A’s insurable interest = P500,000
Insured Amount = P300,000 C. Effect of alteration in the thing
Loss = P300,000 Sec. 168 of the Insurance Code provides
Q: Would the whole P300,000 be recovered from that: “An alteration in the use or condition
the insurer? of a thing insured from that to which it is
A: NO. Only 180,000 will be recovered and the limited by the policy made without the
balance of 120,000 will be suffered by the insured consent of the insurer, by means within the
as a co-insurer. control of the insured, and increasing the
Computation: risks, entitles an insurer to rescind a
300,000 contract of fire insurance.”
----------- x 300,000 = 180,000 Sec. 169 of the Insurance Code states that:
500,000 “An alteration in the use or condition of a
If the loss is 500,000, the insured can recover the thing insured from that to which it is
whole 300,000 because there is a total loss and not limited by the policy, which does not
partial loss. increase the risk, does not affect a contract
*In fire insurance, there has to be an express of fire insurance.”
stipulation to that effect. Q: If the policy is silent as to the use or
condition of the thing insured, are there
FIRE INSURANCE: implied warranty in fire insurance?
A: General Rule: YES. The insured has the
A. Definition and scope of fire insurance
insurable interest in the thing insured.
Sec. 167 of the Insurance Code provides
Exception: If the policy expressly provides
that: “As used in this Code, the term "fire
for the use of condition of the thing insured.
insurance" shall include insurance against
loss by fire, lightning, windstorm, tornado
D. Measure of indemnity
or earthquake and other allied risks, when
Sec. 171 of the Insurance Code provides
such risks are covered by extension to fire
that: “If there is no valuation in the policy,
insurance policies or under separate
the measure of indemnity in an insurance
policies.”
against fire is the expense it would be to the
insured at the time of the commencement of
B. Risks or losses covered
the fire to replace the thing lost or injured in
Q: What are allied risks?
the condition in which at the time of the
A: lightning, windstorm, tornado or
injury; but if there is a valuation in a policy
earthquake, tsunami.
of fire insurance, the effect shall be the same
Q: What are direct losses?
as in a policy of marine insurance.”

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1. Open Policy: only the expense necessary
to replace the thing lost or injured in the
condition it was at the time of the injury.
2. Valued Policy: the parties are bound by
the valuation, in the absence of fraud or
mistake.
person who might be injured may not sue
the insurer.
- Liable for actual loss, the third party has
no direct recourse with the insurer but only
to the insured. The insured has recourse to
the insurer.

E. Co-insurance clause C. Insurable interest

General Rule: Applies primarily to marine
insurance.
Exception: Co-insurance applies to fire
insurance if expressly agreed upon.
CASUALTY INSURANCE:
*Insurable interest is based on the interest of
the insured in the safety of persons and
their property, who may maintain an action
against him in case of their injury or
destruction, respectively.

A. Concept D. Meaning of “accident” and “accidental” in

Sec. 174 of the Insurance Code states that:
“Casualty insurance is insurance covering
loss or liability arising from accident or
mishap, excluding certain types of loss
which by law or custom are considered as
falling exclusively within the scope of other
types of insurance such as fire or marine. It
includes, but is not limited to, employer's
liability insurance, motor vehicle liability
insurance, plate glass insurance, burglary
and theft insurance, personal accident and
health insurance as written by non-life
insurance companies, and other
substantially similar kinds of insurance.”
Q: What is the subject matter of the casualty
insurance?
A: Life, property, liability and health
brought by accident.
casualty insurance
*The terms “accident” and “accidental” as
used in insurance contracts, have not
acquired any technical meaning. They are
construed by the courts in the ordinary and
common acceptation. Thus, the terms have
been taken to mean that which happens by
chance or fortuitously, without intention or
design, which is unexpected, unusual and
unforeseen. The terms do not, without
qualification, exclude events resulting in
damage or loss due to fault, recklessness or
negligence of third parties.
*It is something that the insured did not
foresee or though foreseen cannot be
avoided.
*Accident or not, it must be taken from the
viewpoint of the victim.

B. Third Party Liability Insurance E. Basis and extent of insurer’s liability

*Casualty insurance ay provide for third
party liability in the nature of stipulation
pour autrui for personal injury and even
damage to property, in which case, the third
party may directly sue the insurer upon the
SURETYSHIP:
occurrence of the loss. However, the insurer
is not solidarily liable with the insured or
the tortfeasor for the latter’s obligation.
*Insurance against specified perils which
may give rise to liability on the part of the
insured for claims for injuries to or damage
to property of others.
*If there is no stipulation in favor of third
person but the insurance is an insurance
against liability to third persons, any third
DREIJIMENEZ| INSURANCE
*The beneficiary is not designated, the
proceeds will be given to the victims.
*The third party has direct recourse against
the insurer. The insurer is purely liable.
A. Definition
Sec. 175 of the Insurance Code states that:
“A contract of suretyship is an agreement
whereby a party called the surety
guarantees the performance by another
party called the principal or obligor of an
obligation or undertaking in favor of a third
party called the obligee. It includes official
recognizances, stipulations, bonds or
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undertakings issued by any company by otherwise contingently on the continuance

virtue of and under the provisions of Act or cessation of life.
No. 536, as amended by Act No. 2206.” Every contract or pledge for the payment of
endowments or annuities shall be
B. Nature of Liability of surety considered a life insurance contract for
Sec. 176 of the Insurance Code provides purpose of this Code.
that: “The liability of the surety or sureties In the absence of a judicial guardian, the
shall be joint and several with the obligor father, or in the latter's absence or
and shall be limited to the amount of the incapacity, the mother, or any minor, who is
bond. It is determined strictly by the terms an insured or a beneficiary under a contract
of the contract of suretyship in relation to of life, health or accident insurance, may
the principal contract between the obligor exercise, in behalf of said minor, any right
and the obligee.” under the policy, without necessity of court
authority or the giving of a bond, where the
C. Distinctions between suretyship and interest of the minor in the particular act
property insurance involved does not exceed twenty thousand
Suretyship Property Insurance pesos. Such right may include, but shall not
Accessory contract Principal Contract be limited to, obtaining a policy loan,
There are three There are two surrendering the policy, receiving the
parties: surety, parties: insurer and
proceeds of the policy, and giving the
obligor and oblige insured
Credit Contract of minor's consent to any transaction on the
accommodation indemnity policy.”
Surety can recover Insurer has no such
from principal right; only right of B. Kinds of Life Insurance
subrogation 1. Ordinary Life, General Life or Old
Bond can be May be cancelled Line Policy – insured pays a fixed
cancelled only with unilaterally either premium every year until he dies.
consent of obligee, by insured or
Surrender value after 3 years.
Commissioner, or insurer on grounds
court provided by law 2. Group Life – essentially a single
Requires acceptance No need of insurance contract that provides
of obligee to be valid acceptance by any courage for money individuals.
third party 3. Limited Payment Policy – insured pays
Risk-shifting device, Risk-distributing premium for a limited period. If he dies
premium paid being device, premium within the period, his beneficiary is
in the nature of a paid as a ratable
paid; if he outlives the period, he does
service fee contribution to a
common fund not get anything.
4. Endowment Policy – pays premium for
specified period. If he outlives the
LIFE INSURANCE: period, the face value of the policy is
paid to him; if not, his beneficiaries
A. Definition
receive the benefit.
Sec. 179 of the Insurance Code provides
5. Term Insurance – insurer pays once
that: “. Life insurance is insurance on
only, and he is insured for a specified
human lives and insurance appertaining
period. If he dies within the period, his
thereto or connected therewith.”
beneficiaries benefits. If he outlives the
Sec. 180 of the Insurance Code states that:
period, no person benefits from the
“An insurance upon life may be made
insurance.
payable on the death of the person, or on
6. Industrial Life – life insurance entitling
his surviving a specified period, or
the insured to pay premiums weekly, or

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where premiums are payable monthly COMPULSORY MOTOR VEHICLE LIABILITY

or oftener. INSURANCE:

A. Reason for the requirement

C. Liability of insurer in case of suicide
Purpose: To give immediate financial
Sec. 180-A of the Insurance Code states
assistance to victims of motor vehicle
that: “The insurer in a life insurance
accidents and/or their dependents,
contract shall be liable in case of suicides
especially if they are poor regardless of the
only when it is committed after the policy
financial capability of motor vehicle owners
has been in force for a period of two years
or operators responsible for the accident
from the date of its issue or of its last
sustained.
reinstatement, unless the policy provides a
Q: What is the mandatory reason for this
shorter period: Provided, however, That
type of insurance?
suicide committed in the state of insanity
A: To allow the registration or renewal of
shall be compensable regardless of the date
registration of any motor vehicle.
of commission.”
*Recovery of the proceeds depends on the
B. Scope of coverage required
commission of the suicide.
Sec. 374 of the Insurance Code states that:
*In case of suicide, the insured may recover
“It shall be unlawful for any land
only after two years from the date the
transportation operator or owner of a motor
policy was issued or last reinstatement.
vehicle to operate the same in the public
*In case of suicide committed in the state of
highways unless there is in force in relation
insanity, it is compensable regardless of the
thereto a policy of insurance or guaranty in
date of the commission.
cash or surety bond issued in accordance
with the provisions of this chapter to
D. Right to assign life insurance policy
indemnify the death, bodily injury, and/or
Sec. 181 of the Insurance Code states that:
damage to property of a third-party or
“A policy of insurance upon life or health
passenger, as the case may be, arising from
may pass by transfer, will or succession to
the use thereof.”
any person, whether he has an insurable
Sec. 376 of the Insurance Code states that:
interest or not, and such person may
“The Land Transportation Commission
recover upon it whatever the insured might
shall not allow the registration or renewal of
have recovered. “
registration of any motor vehicle without
Sec. 182 of the Insurance Code states that:
first requiring from the land transportation
“Notice to an insurer of a transfer or
operator or motor vehicle owner concerned
bequest thereof is not necessary to preserve
the presentation and filing of a
the validity of a policy of insurance upon
substantiating documentation in a form
life or health, unless thereby expressly
approved by the Commissioner evidencing
required.“
that the policy of insurance or guaranty in
cash or surety bond required by this chapter
E. Measure of indemnity
is in effect.”
Sec. 183 of the Insurance Code states that:
“Unless the interest of a person insured is
C. Persons subject to the requirement
susceptible of exact pecuniary
Sec. 377 of the Insurance Code provides
measurement, the measure of indemnity
that: “Every land transportation operator
under a policy of insurance upon life or
and every owner of a motor vehicle shall,
health is the sum fixed in the policy.”
before applying for the registration or
General Rule: Life policy is always valued
renewal of registration of any motor
Exception: If the creditor insured the life of
vehicle, at his option, either secure an
the debtor.
insurance policy or surety bond issued by

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any insurance company authorized by the
Commissioner or make a cash deposit in
such amount as herein required as limit of
liability for purposes specified in section
three hundred seventy-four.
(1) In the case of a land transportation
operator, the insurance guaranty in cash or
surety bond shall cover liability for death or
bodily injuries of third-parties and/or
passengers arising out of the use of such
vehicle in the amount not less than twelve
thousand pesos per passenger or third party
and an amount, for each of such categories,
in any one accident of not less than that set
forth in the following scale:
(a) Motor vehicles with an authorized
capacity of twenty-six or more passengers:
Fifty thousand pesos;
(b) Motor vehicles with an authorized
capacity of from twelve to twenty-five
passengers: Forty thousand pesos;
(c) Motor vehicles with an authorized
capacity of from six to eleven passengers:
Thirty thousand pesos;
(d) Motor vehicles with an authorized
capacity of five or less passengers: Five
thousand pesos multiplied by the
authorized capacity.
Provided, however, That such cash deposit
made to, or surety bond posted with, the
Commissioner shall be resorted to by him in
cases of accidents the indemnities for which
to third-parties and/or passengers are not
settled accordingly by the land
transportation operator and, in that event,
the said cash deposit shall be replenished or
such surety bond shall be restored with
sixty days after impairment or expiry, as the
case may be, by such land transportation
operator, otherwise, he shall secure the
insurance policy required by this chapter.
The aforesaid cash deposit may be invested
by the Commissioner in readily marketable
government bonds and/or securities.
(2) In the case of an owner of a motor
vehicle, the insurance or guaranty in cash or
surety bond shall cover liability for death or
injury to third parties in an amount not less
than that set forth in the following scale in
any one accident:
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I. Private Cars
(a) Bantam : Twenty thousand pesos;
(b) Light : Twenty thousand pesos;
(c) Heavy : Thirty thousand pesos;
II. Other Private Vehicles
(a) Tricycles, motorcyles, and scooters :
Twelve thousand pesos;
(b) Vehicles with an unladen weight of
2,600 kilos or less : Twenty thousand pesos;
(c) Vehicles with an unladen weight of
between 2,601 kilos and 3,930 kilos : Thirty
thousand pesos;
(d) Vehicles with an unladen weight over
3,930 kilos : Fifty thousand pesos.
The Commissioner may, if warranted, set
forth schedule of indemnities for the
payment of claims for death or bodily
injuries with the coverages set forth herein.”
D. No-Fault indemnity claim
Sec. 378 of the Insurance Code provides
that: “Any claim for death or injury to any
passenger or third party pursuant to the
provisions of this chapter shall be paid
without the necessity of proving fault or
negligence of any kind; Provided, That for
purposes of this section:
(i) The total indemnity in respect of any
person shall not exceed fifteen
thousand pesos;
(ii) The following proofs of loss, when
submitted under oath, shall be
sufficient evidence to substantiate
the claim: (a) Police report of
accident; and
(b) Death certificate and evidence
sufficient to establish the proper
payee; or (c) Medical report and
evidence of medical or hospital
disbursement in respect of which
refund is claimed;
(iii) Claim may be made against one
motor vehicle only. In the case of an
occupant of a vehicle, claim shall lie
against the insurer of the vehicle in
which the occupant is riding,
mounting or dismounting from. In
any other case, claim shall lie against
the insurer of the directly offending
vehicle. In all cases, the right of the
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party paying the claim to recover
against the owner of the vehicle
responsible for the accident shall be
maintained.“
Q: How does the law protects the victim?
A: By the provision under the NO FAULT
INDEMNITY CLAUSE.
*No fault clause applies only to bodily
physical injuries or death not to property
CLAIMS SETTLEMENT:
damage.
Q: From whom should the injured recover?
A: (a) In the case of an occupant of a vehicle,
claim shall lie against the insurer of the
vehicle in which the occupant is riding,
mounting or dismounting from; (b) If not an
occupant, claim shall lie against the insurer
of the directly offending vehicle; (c) 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.
Examples:
a. A passenger rode Y taxi cab. The taxi
cab is insured by X company under the
compulsory motor vehicle liability
insurance. The taxi collided against a
MERALCO post.
The passenger can claim against X
company without proving fault or
negligence. Only documents that prove
the happening of the incident.
b. Passenger 1 received P15,000 under the
no fault clause. His actual expenses
amount to P50,000.
Q: Can he still recover the balance?
From whom?
A: YES. Against the offending vehicle
but this time he is required to prove
fault or negligence.
E. Notice of claim
Sec. 384 of the Insurance Code states that:
“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
DREIJIMENEZ| INSURANCE
months from 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 year from denial of the claim,
otherwise, the claimant's right of action
shall prescribe.”
A. Unfair claim settlement practices
Sec. 241 of the Insurance Code states that:
“(1) No insurance company doing business
in the Philippines shall refuse, without just
cause, to pay or settle claims arising under
coverages provided by its policies, nor shall
any such company engage in unfair claim
settlement practices. Any of the following
acts by an insurance company, if committed
without just cause and performed with such
frequency as to indicate a general business
practice, shall constitute unfair claim
settlement practices:
(a) knowingly misrepresenting to claimants
pertinent facts or policy provisions relating
to coverage at issue;
(b) failing to acknowledge with reasonable
promptness pertinent communications with
respect to claims arising under its policies;
(c) failing to adopt and implement
reasonable standards for the prompt
investigation of claims arising under its
policies;
(d) not attempting in good faith to
effectuate prompt, fair and equitable
settlement of claims submitted in which
liability has become reasonably clear; or
(e) compelling policyholders to institute
suits to recover amounts due under its
policies by offering without justifiable
reason substantially less than the amounts
ultimately recovered in suits brought by
them.
(2) Evidence as to numbers and types of
valid and justifiable complaints to the
Commissioner against an insurance
company, and the Commissioner's
complaint experience with other insurance
companies writing similar lines of insurance
shall be admissible in evidence in an
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administrative or judicial proceeding
brought under this section.
(3) If it is found, after notice and an
opportunity to be heard, that an insurance
company has violated this section, each
instance of non-compliance with paragraph
(1) may be treated as a separate violation of
this section and shall be considered
sufficient cause for the suspension or
revocation of the company's certificate of
authority.”
General Rule: Upon maturity of the policy
Exception: Annuities payment
B. Claims for life insurance policies
Sec. 242 of the Insurance Code provides
that: “The proceeds of a life insurance
policy shall be paid immediately upon
maturity of the policy, unless such proceeds
are made payable in installments or as an
annuity, in which case the installments, or
annuities shall be paid as they become due:
Provided, however, That in the case of a
policy maturing by the death of the insured,
the proceeds thereof shall be paid within
sixty days after presentation of the claim
and filing of the proof of the death of the
insured. Refusal or failure to pay the claim
within the time prescribed herein will
entitle the beneficiary to collect interest on
the proceeds of the policy for the duration
of the delay at the rate of twice the ceiling
prescribed by the Monetary Board, unless
such failure or refusal to pay is based on the
ground that the claim is fraudulent.
The proceeds of the policy maturing by the
death of the insured payable to the
beneficiary shall include the discounted
value of all premiums paid in advance of
their due dates, but are not due and payable
at maturity.”
C. Claims for non-life insurance policies
Sec. 243 of the Insurance Code states that:
“The amount of any loss or damage for
which an insurer may be liable, under any
policy other than life insurance policy, shall
be paid within thirty days after proof loss is
received by the insurer and ascertainment
of the loss or damage is made either by
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Law on Insurance
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agreement between the insured and the
insurer or by arbitration; but if such
ascertainment is not had or made within
sixty days after such receipt by the insurer
of the proof of loss, then the loss or damage
shall be paid within ninety days after such
receipt. Refusal or failure to pay the loss or
damage within the time prescribed herein
will entitle the assured to collect interest on
the proceeds of the policy for the duration
of the delay at the rate of twice the ceiling
prescribed by the Monetary Board, unless
such failure or refusal to pay is based on the
ground that the claim is fraudulent.”
D. Delay in payment of claims
Sec. 244 of the Insurance Code provides
that: “In case of any litigation for the
enforcement of any policy or contract of
insurance, it shall be the duty of the
Commissioner or the Court, as the case may
be, to make a finding as to whether the
payment of the claim of the insured has
been unreasonably denied or withheld; and
in the affirmative case, the insurance
company shall be adjudged to pay damages
which shall consist of attorney's fees and
other expenses incurred by the insured
person by reason of such unreasonable
denial or withholding of payment plus
interest of twice the ceiling prescribed by
the Monetary Board of the amount of the
claim due the insured, from the date
following the time prescribed in section two
hundred forty-two or in section two
hundred forty-three, as the case may be,
until the claim is fully satisfied; Provided,
That the failure to pay any such claim
within the time prescribed in said sections
shall be considered prima facie evidence of
unreasonable delay in payment.”
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