Commercial Law Review: Key Insurance Concepts

Commercial Law Review
Law on Insurance
Maria Zarah Villanueva - Castro
INSURANCE CODE (P.D. 1460 as amended) Q: Is there a contract?

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

affecting the risk of which he is aware, or Sec. 77 of the Insurance Code states that:
material fact, which the applicant knows, “An insurer is entitled to payment of the
and those, which he ought to know. premium as soon as the thing insured is
*Material facts are facts needed by the exposed to the peril insured against.
insurer for the determination of whether he Notwithstanding any agreement to the
will assume or not the risk. contrary, no policy or contract of insurance
issued by an insurance company is valid and
D. Elements of Insurance binding unless and until the premium
1. Existence of an insurable interest thereof has been paid, except in the case of
Sec. 12 of the Insurance Code provides a life or an industrial life policy whenever
that: “The interest of a beneficiary in a life the grace period provision applies.”
insurance policy shall be forfeited when the
beneficiary is the principal, accomplice, or E. Right of Subrogation
accessory in willfully bringing about the *This principle is a normal incident of indemnity
death of the insured; in which event, the property insurance as a legal effect of payment;
nearest relative of the insured shall receive it inures to the insurer without any formal
the proceeds of said insurance if not assignment or any express stipulation to that
otherwise disqualified.” effect in the policy. Said right is not dependent
Sec. 13 of the Insurance Code provides upon nor does it grow out of any privity of
that: “Every interest in property, whether contract. Payment to the insured makes the
real or personal, or any relation thereto, or insurer an assignee in equity.
liability in respect thereof, of such nature *The insurer can only recover from the third
that a contemplated peril might directly person what the insured could have recovered.
damnify the insured, is an insurable Thus, there can be no recovery if the insurer
interest.” voluntarily paid even if the loss is not covered
Sec. 14 of the Insurance Code provides by the policy.
that: “An insurable interest in property may *The insured can no longer recover from the
consist in: offending party what was paid to him by the
(a) An existing interest; insurer but he can recover any deficiency, that
(b) An inchoate interest founded on an is, if his damages is more than what was paid.
existing interest; or The deficiency is not covered by the right of
(c) An expectancy, coupled with an existing subrogation.
interest in that out of which the expectancy Cases when there is no right of subrogation:
arises.” 1. The insured by his own act releases the
2. Risk of loss wrongdoer/third person liable for the loss
Sec. 51 paragraph g of the Insurance Code 2. Where the insurer pays the insured for a
provides that: “ A policy of insurance must loss or risk not covered by the policy
specify: x x x (g) The period during which 3. In life insurance
the insurance is to continue.” 4. For recovery of loss in excess of insurance
3. Assumption of risks coverage
Sec. 2 of the Insurance Code states that:
“xxx (1) A “contract of insurance” is an CONTRACT OF INSURANCE:
agreement whereby one undertakes for a A. Requisites of a contract of Insurance
consideration to indemnify another against 1. A subject matter in which the insured has
loss, damage or liability arising from an an insurable interest
unknown or contingent event.” 2. Event or peril insured against which may be
4. Scheme to distribute losses any future contingent or unknown event,
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past or future and a duration for the risk *In property insurance, the beneficiary must
thereof have insurable interest on the property.
3. A promise to pay or indemnify in a fixed or Sec. 11 of the Insurance Code states that: “The
ascertainable amount insured shall have the right to change the
4. A consideration known as premium beneficiary he designated in the policy, unless
5. Meeting of the minds of the parties he has expressly waived this right in said
policy.” *The designation is revocable unless
B. Perfection the right to revoke is expressly waived in the
*An insurance contract is consensual contract policy.
and is therefore perfected the moment there is Sec. 12 of the Insurance Code states that: “The
a meeting of minds with respect to the object interest of a beneficiary in a life insurance policy
and the cause or consideration. shall be forfeited when the beneficiary is the
*What is being followed in insurance contracts principal, accomplice, or accessory in willfully
is what is known as the Cognition Theory. bringing about the death of the insured; in
Q: What is the crucial point? which event, the nearest relative of the insured
A: The point wherein there must be an actual shall receive the proceeds of said insurance if
communication to the insured of the approval not otherwise disqualified.”
of the application. *In life or health insurance, the insured cannot
*In Great Pacific Life Assurance Corporation v assign the policy if the designation of the
CA, the SC held that the insured is the one beneficiary is irrevocable. Reason: The
making the offer by submitting an application to irrevocable beneficiary has vested right.
the insurer and the latter accepts the offer by *If the insured refuses to pay the premiums, the
approving the application. Thus, mere designated irrevocable beneficiary may
submission of the application without the continue the policy by paying premiums that
corresponding approval of the policy does not are due. (Article 1236 NCC)
result in the perfection of the contract of Q: Despite irrevocable designation, may the
insurance. insured revoke the beneficiary?
A: YES. Under Article 42 of the Family Code,
C. Parties to a contract of Insurance Article 43 (4) of the Family Code, Article 50 of
Sec. 6 of the Insurance Code states that: “Every the Family Code and Article 64 of the Family
person, partnership, association, or corporation Code.
duly authorized to transact insurance business 1. Rule on minors
as elsewhere provided in this code, may be an Sec. 3 of the Insurance Code states that:
insurer.” “Any minor of the age of eighteen years or
Sec. 7 of the Insurance Code states that: more, may, notwithstanding such minority,
“Anyone except a public enemy may be contract for life, health and accident
insured.” insurance, with any insurance company duly
Beneficiary – person designated to receive authorized to do business in the Philippines,
proceeds of policy when risk attaches. provided the insurance is taken on his own
General Rule: When one insures his own life, he life and the beneficiary appointed is the
may designate any person as the beneficiary, minor's estate or the minor's father,
whether or not the beneficiary has an insurable mother, husband, wife, child, brother or
interest in the life of the insured. sister.”
Exceptions: Persons specified in Article 739 in *This portion is repealed by RA 6809. Under
re Article 2012 of the New Civil Code. RA 6809, minors are no longer allowed to
*The designation of persons mentioned in enter into insurance contracts. This rule is
Article 739 is void but the policy is binding. absolute.
2. Rule on married women
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Sec. 3 of the Insurance Code provides that: B. Reason for the requirement of insurable
“The married woman or the minor herein interest
allowed to take out an insurance policy may *A policy issued to a person without the
exercise all the rights and privileges of an requisite insurable interest in the subject
owner under a policy.” matter is a mere wager policy or contract,
*Under RA 7192, married women can enter hence, it is VOID.
into insurance contracts without the Evil sought to be avoided: Temptation to
assistance of their husbands. destroy the thing insured.
Reason: He has nothing to lose but everything
D. Subject matter of Insurance to gain.
Sec. 3 of the Insurance Code states that: “Any
contingent or unknown event, whether past or C. Insurable interest in Life Insurance
future, which may damnify a person having an Sec. 10 of the Insurance Code provides that:
insurable interest, or create a liability against “Every person has an insurable interest in the
him, may be insured against, subject to the life and health:
provisions of this chapter.” (a) Of himself, of his spouse and of his children;
Sec. 4 of the Insurance Code states that: “The (b) Of any person on whom he depends wholly
preceding section does not authorize an or in part for education or support, or in whom
insurance for or against the drawing of any he has a pecuniary interest;
lottery, or for or against any chance or ticket in (c) Of any person under a legal obligation to him
a lottery drawing a prize.” for the payment of money, or respecting
property or services, of which death or illness
E. Insurance not a wagering contract might delay or prevent the performance; and
Sec. 4 of the Insurance Code states that: “The (d) Of any person upon whose life any estate or
preceding section does not authorize an interest vested in him depends.”
insurance for or against the drawing of any Q: May warehouseman insure the goods
lottery, or for or against any chance or ticket in deposited in his warehouse?
a lottery drawing a prize.” A: YES. In case of loss of the goods the
*Wagering contract is not allowed because it is warehouseman is liable to the owner of the
against public policy. goods.
Reason: The insured should not be happy Q: May bottomry lender insures the
because of the loss he suffered. hypothecated vessel?
Q: What prevents insurance policy from being a A: YES. There is an insurable interest up to the
wagering contract? amount covered by the bottomry.
A: Insurable interest. Q: Who gets the proceeds of the insurance?
A: The insured and the beneficiary.
INSURABLE INTEREST: *In life insurance, persons prohibited to make
A. Concept of Insurable Interest in General donation to each other are also prohibited to
*A person has an insurable interest in the become beneficiaries of each other.
subject matter if he is so connected, so *For disqualification purposes, what is needed
situated, so circumstanced, so related, that by is only a preponderance of evidence.
the preservation of the same he shall derive
pecuniary benefit, and by its destruction he D. Insurable interest in Property Insurance
shall suffer pecuniary loss, damage or Sec. 13 of the Insurance Code states that:
prejudice.” “Every interest in property, whether real or
*Insurable interest does not exist by legal personal, or any relation thereto, or liability in
relationship or by virtue of law. respect thereof, of such nature that a
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contemplated peril might directly damnify the executed by way of gaming or wagering, is
insured, is an insurable interest. “ void.”
Sec. 14 of the Insurance Code states that: “An 1. Insurable interest in case of mortgaged
insurable interest in property may consist in: property
(a) An existing interest; Sec. 8 of the Insurance Code states that:
(b) An inchoate interest founded on an existing “Unless the policy otherwise provides,
interest; or where a mortgagor of property effects
(c) An expectancy, coupled with an existing insurance in his own name providing that
interest in that out of which the expectancy the loss shall be payable to the mortgagee,
arises.” or assigns a policy of insurance to a
*In general, a person has an insurable interest mortgagee, the insurance is deemed to be
in the property, if he derives pecuniary benefit upon the interest of the mortgagor, who
or advantage from its preservation or would does not cease to be a party to the original
suffer pecuniary loss, damage or prejudice by its contract, and any act of his, prior to the
destruction whether he has or has no title in, or loss, which would otherwise avoid the
lien upon, or possession of the property. insurance, will have the same effect,
*Existence of insurable interest is a matter of although the property is in the hands of the
public policy, hence, the principle of estoppels mortgagee, but any act which, under the
cannot be invoked. contract of insurance, is to be performed by
*In order for hope or expectancy to be the mortgagor, may be performed by the
insurable, it must be coupled with existing mortgagee therein named, with the same
interest out of which the expectancy arises. It effect as if it had been performed by the
must be founded on an actual right to the thing mortgagor.”
or upon a valid contract. a. Standard or Union Mortgage Clause –
Sec. 19 of the Insurance Code states that: “An subsequent acts of the mortgagor
interest in property insured must exist when cannot affect the rights of the assignee.
the insurance takes effect, and when the loss b. Open or Loss Payable Clause – acts of
occurs, but not exist in the meantime; and the mortgagor affect the mortgagee.
interest in the life or health of a person insured Reason: Mortgagor does not cease to
must exist when the insurance takes effect, but be a party to the contract.
need not exist thereafter or when the loss Basis: Sec. 8 of the Insurance Code
occurs.” states that: “Unless the policy
Sec. 20 of the Insurance Code states that: otherwise provides, where a mortgagor
“Except in the cases specified in the next four of property effects insurance in his own
sections, and in the cases of life, accident, and name providing that the loss shall be
health insurance, a change of interest in any payable to the mortgagee, or assigns a
part of a thing insured unaccompanied by a policy of insurance to a mortgagee, the
corresponding change in interest in the insurance is deemed to be upon the
insurance, suspends the insurance to an interest of the mortgagor, who does not
equivalent extent, until the interest in the thing cease to be a party to the original
and the interest in the insurance are vested in contract, and any act of his, prior to the
the same person.” loss, which would otherwise avoid the
Sec. 25 of the Insurance Code states that: insurance, will have the same effect,
“Every stipulation in a policy of insurance for although the property is in the hands of
the payment of loss whether the person insured the mortgagee, but any act which,
has or has not any interest in the property under the contract of insurance, is to be
insured, or that the policy shall be received as performed by the mortgagor, may be
proof of such interest, and every policy performed by the mortgagee therein
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Law on Insurance
named, with the same effect as if it had insurance shall cease upon an alienation of
been performed by the mortgagor.” the thing insured.”
Sec. 9 of the Insurance Code states Sec. 57 of the Insurance Code provides
that: “If an insurer assents to the that: “A policy may be so framed that it will
transfer of an insurance from a inure to the benefit of whomsoever, during
mortgagor to a mortgagee, and, at the the continuance of the risk, may become
time of his assent, imposes further the owner of the interest insured.”
obligation on the assignee, making a *The policy follows where the interest is.
new contract with him, the act of the Sec. 58 of the Insurance Code provides
mortgagor cannot affect the rights of that: “The mere transfer of a thing insured
said assignee.” does not transfer the policy, but suspends it
2. Effect of change of interest in the thing until the same person becomes the owner
insured of both the policy and the thing insured.”
Sec. 20 of the Insurance Code states that: Article 1306 of the New Civil Code provides
“Except in the cases specified in the next that: “The contracting parties may establish
four sections, and in the cases of life, such stipulations, clauses, terms and
accident, and health insurance, a change of conditions as they may deem convenient,
interest in any part of a thing insured provided they are not contrary to law,
unaccompanied by a corresponding change morals, good customs, public order, or
in interest in the insurance, suspends the public policy.
insurance to an equivalent extent, until the
interest in the thing and the interest in the Insurable Insurable
insurance are vested in the same person.” Interest in Interest in
Sec. 21 of the Insurance Code states that: Property Life
“A change in interest in a thing insured, As to Limited to General
measure the actual Rule:
after the occurrence of an injury which
value of the Insurable
results in a loss, does not affect the right of interest in Interest in
the insured to indemnity for the loss.” the life is
Sec. 22 of the Insurance Code states that: property. unlimited.
“A change of interest in one or more several Exception: In
distinct things, separately insured by one life
insurance
policy, does not avoid the insurance as to
effected by a
the others.”
creditor on
*This is a divisible policy. the life of
Sec. 23 of the Insurance Code states that: the debtor.
“A change on interest, by will or succession, As to time The General
on the death of the insured, does not avoid when insurable Rule: It is
an insurance; and his interest in the insurable interest enough that
interest must exists when the insurable
insurance passes to the person taking his
exist the interest
interest in the thing insured.” insurance exists at the
*This is by operation of law. takes effect time the
Sec. 24 of the Insurance Code states that: and when policy takes
“A transfer of interest by one of several the loss effect and
partners, joint owners, or owners in occurs but need not
common, who are jointly insured, to the not need exist at the
exist in the time of the
others, does not avoid an insurance even
meantime. loss.
though it has been agreed that the Exception:
Obligee
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must have warranties and condition are devices that are related to
insurable the execution of the contract.
interest at
the time the A. Concealment
policy took 1. Concept
effect and at Q: When is there concealment?
the time of
Sec. 26 of the Insurance Code provides
loss.
that: “A neglect to communicate that which
As to There must The
expectation be a legal expectation a party knows and ought to communicate,
of benefit to basis. of the is called a concealment.”
be derived benefit to be 2. Duty to Communicate
derived need Sec. 28 of the Insurance Code states that:
not have any “Each party to a contract of insurance must
legal basis.
communicated to the other, in good faith,
As to the The General
beneficiary’s beneficiary Rule: The all facts within his knowledge which are
interest must have beneficiary material to the contract and as to which he
insurable need not makes no warranty, and which the other
interest have has not the means of ascertaining.”
over the insurable 3. Test of Materiality
thing interest over Sec. 31 of the Insurance Code provides
insured. the life of
that: “Materiality is to be determined not
The policy is the insured
still valid, if the by the event, but solely by the probable and
only the insured reasonable influence of the facts upon the
designation himself party to whom the communication is due,
was avoided secured the in forming his estimate of the disadvantages
because the policy. of the proposed contract, or in making his
beneficiary Exception: If inquiries.”
has no the life
*The fact disclosed may not be the
insurable insurance
interest. was proximate cause of the loss still there is
obtained by breach because there is a vitiation of
the consent, the contract is voidable.
beneficiary, 4. Effect of Concealment
the latter Sec. 27 of the Insurance Code provides
must have
that: “A concealment whether intentional
insurable
or unintentional entitles the injured party
interest over
the life of to rescind a contract of insurance.”
the insured. Sec. 29 of the Insurance Code provides
Q: In case where the designated beneficiary that: “An intentional and fraudulent
cannot claim the proceeds due to the fact omission, on the part of one insured, to
that such designation was void, who can communicate information of matters
claim the proceeds? proving or tending to prove the falsity of a
A: Insured. warranty, entitles the insurer to rescind.”
*It vitiates the contract and entitles the
DEVICES FOR ASCERTAINING AND CONTROLLING RISK insurer to rescind, even if the death or loss
AND LOSS: is due to a cause not related to the
*Concealment and representation are devices that are concealed matter.
related to the formation of the contract whereas 5. Matters which need not be communicated
that: “Neither party to a contract of
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insurance is bound to communicate Representations are factual statements

information of the matters following, made by the insured at the time of or prior
except in answer to the inquiries of the to the issuance of the policy to give
other: information to the insurer and otherwise
(a) Those which the other knows; induce him to enter into the insurance
(b) Those which, in the exercise of ordinary contract.
care, the other ought to know, and of which *Representation per se is not wrong as long
the former has no reason to suppose him as such representation is true.
ignorant; *The false representation may still be
(c) Those of which the other waives corrected as long as it is made before the
communication; issuance of the policy.
(d) Those which prove or tend to prove the 2. Kinds of Representation
existence of a risk excluded by a warranty, Sec. 36 of the Insurance Code provides
and which are not otherwise material; and that: “A representation may be oral or
(e) Those which relate to a risk excepted written.”
from the policy and which are not Sec. 37 of the Insurance Code provides
otherwise material.” that: “representation may be made at the
*Things need not be disclosed. time of, or before, issuance of the policy.”
Sec. 32 of the Insurance Code provides Sec. 39 of the Insurance Code provides
that: “Each party to a contract of insurance that: “A representation as to the future is to
is bound to know all the general causes be deemed a promise, unless it appears
which are open to his inquiry, equally with that it was merely a statement of belief or
that of the other, and which may affect the expectation. “
political or material perils contemplated; Sec. 42 of the Insurance Code provides
and all general usages of trade.” that: “. A representation must be presumed
Sec. 34 of the Insurance Code provides to refer to the date on which the contract
that: “Information of the nature or amount goes into effect.”
of the interest of one insured need not be 3. Test of Materiality
communicated unless in answer to an Sec. 46 of the Insurance Code provides
inquiry, except as prescribed by section that: “The materiality of a representation is
fifty-one.” determined by the same rules as the
Sec. 35 of the Insurance Code provides materiality of a concealment.”
that: “Neither party to a contract of *Facts that may probably and reasonably
insurance is bound to communicate, even influence the other party in forming his
upon inquiry, information of his own estimate.
judgment upon the matters in question. “ 4. Effect of Alteration or Withdrawal
6. Waiver of Information Sec. 41 of the Insurance Code provides
Sec. 33 of the Insurance Code provides that: “A representation may be altered or
that: “The right to information of material withdrawn before the insurance is effected,
facts may be waived, either by the terms of but not afterwards.”
the insurance or by neglect to make inquiry 5. Time to which representation refers
as to such facts, where they are distinctly Sec. 42 of the Insurance Code states that:
implied in other facts of which information “A representation must be presumed to
is communicated.” refer to the date on which the contract goes
into effect.”
B. Representation 6. Effect when representation is obtained
1. Concept from third persons
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Sec. 43 of the Insurance Code provides General Rule: Prescriptive period: Any time
that: “When a person insured has no before the commencement of a court
personal knowledge of a fact, he may action on the contract.
nevertheless repeat information which he Exception: In case of life insurance made
has upon the subject, and which he believes payable on the death of the insured.
to be true, with the explanation that he Q: How rescission is made?
does so on the information of others; or he A: By sending notice of cancellation or
may submit the information, in its whole rescission to the insured.
extent, to the insurer; and in neither case is Even if there is a court action, the insurer
he responsible for its truth, unless it may raise concealment or representation as
proceeds from an agent of the insured, an affirmative defense.
whose duty it is to give the information.” 2. When Life insurance policy becomes
7. When presumed false; effect of falsity incontestable
Sec. 44 of the Insurance Code provides Sec. 48 of the Insurance Code states that:
that: “A representation is to be deemed “Whenever a right to rescind a contract of
false when the facts fail to correspond with insurance is given to the insurer by any
its assertions or stipulations.” provision of this chapter, such right must be
Sec. 45 of the Insurance Code states that: exercised previous to the commencement
“If a representation is false in a material of an action on the contract.
point, whether affirmative or promissory, After a policy of life insurance made
the injured party is entitled to rescind the payable on the death of the insured shall
contract from the time when the have been in force during the lifetime of the
representation becomes false. The right to insured for a period of two years from the
rescind granted by this Code to the insurer date of its issue or of its last reinstatement,
is waived by the acceptance of premium the insurer cannot prove that the policy is
payments despite knowledge of the ground void ab initio or is rescindible by reason of
for rescission.” the fraudulent concealment or
misrepresentation of the insured or his
C. Remedies available in case of Concealment or agent.”
False Representation a. Requisites for incontestability
1. When rescission by the insurer may be 1. The insurance is a life insurance
exercised policy payable on the death of the
Sec. 48 of the Insurance Code states that: insured.
“Whenever a right to rescind a contract of 2. It has been in force during the
insurance is given to the insurer by any lifetime of the insured for at least 2
provision of this chapter, such right must be years from its date of issue or of its
exercised previous to the commencement last reinstatement. The period of 2
of an action on the contract. years may be shortened but it
After a policy of life insurance made cannot be extended by stipulation.
payable on the death of the insured shall *The defense should be misrepresentation
have been in force during the lifetime of the or concealment only.
insured for a period of two years from the *If the insured dies within 2 year period,
date of its issue or of its last reinstatement, the insurer may still rescind the contract. If
the insurer cannot prove that the policy is the insured died after the 2 year period, the
void ab initio or is rescindible by reason of insurer cannot rescind the contract.
the fraudulent concealment or b. Theory and Object of incontestability
misrepresentation of the insured or his After a policy of life insurance made
agent.” payable on the death of the insured
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shall have been in force during the *The condition may be complied with
lifetime of the insured for a period of 2 before or after the loss.
years from the date of its issue or of its
last reinstatement, the insurer cannot Warranty Representation
prove that the policy is void ab initio or Part of the contract A collateral
is rescindable by reason of the inducement
fraudulent concealment or Written on the Need not be written
policy or in a valid
misrepresentation of the insured or his
rider or attachment
agent. Generally Should be
c. Defenses not barred by conclusively established to be
incontestability presumed to be material
1. The person taking the insurance material
lacked insurable interest as The fact warranted Requires only to be
required by law must be strictly substantially true
complied with
2. The cause of the death of the
insured is an excepted risk
2. Kinds of Warranties
3. The premiums have not been paid
1. Express
4. The conditions of the policy relating
2. Implied – warranties that are deemed
to military or naval service have
included in the contract although not
been violated
expressly mentioned.
5. The fraud is of a particularly vicious
3. Affirmative – asserts the existence of a
type
fact or condition at the time it is made.
6. The beneficiary failed to furnish
4. Promissory – the insured stipulates that
proof of death or to comply with
certain facts or conditions shall exists or
any condition imposed by the policy
thing shall be done or omitted.
after the loss has happened
3. Time to which warranty refers
7. The action was not brought within
the time specified.
that: “A warranty may relate to the past,
8.
the present, the future, or to any or all of
D. Warranties
these.”
1. Concept; distinguished from
4. Effect of Breach
representation
Warranty is a statement or promise set
“The violation of a material warranty, or
forth in the policy or by reference
other material provision of a policy, on the
incorporated therein, the untruth or non-
part of either party thereto, entitles the
fulfillment of which in any respect, and
other to rescind.”
without reference to whether insurer was
in fact prejudiced by such untruth or non-
“A policy may declare that a violation of
fulfillment , renders the policy voidable.
specified provisions thereof shall avoid it,
Condition is a provision wherein certain
otherwise the breach of an immaterial
things are mandated by the insurer to be
provision does not avoid the policy.”
complied with by the insured in order for
the latter to recover.
“A breach of warranty without fraud merely
Examples:
exonerates an insurer from the time that it
1. Filing of the claim on time
occurs, or where it is broken in its inception,
2. Notice of loss
prevents the policy from attaching to the
3. Proof of loss
risk.”
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Law on Insurance
POLICY OF INSURANCE: (c) The premium, or if the insurance is of a

character where the exact premium is only
A. Definition and Form determinable upon the termination of the
Sec. 49 of the Insurance Code states that: “The contract, a statement of the basis and rates
written instrument in which a contract of upon which the final premium is to be
insurance is set forth, is called a policy of determined;
insurance.” (d) The property or life insured;
Sec. 50 of the Insurance Code provides that: (e) The interest of the insured in property
“The policy shall be in printed form which may insured, if he is not the absolute owner thereof;
contain blank spaces; and any word, phrase, (f) The risks insured against; and
clause, mark, sign, symbol, signature, number, (g) The period during which the insurance is to
or word necessary to complete the contract of continue.”
insurance shall be written on the blank spaces
provided therein. Any rider, clause, warranty or D. Papers attached to the policy and their binding
endorsement purporting to be part of the effect (rider, warranties, clause, endorsement)
contract of insurance and which is pasted or Rider is an attachment to an insurance policy
attached to said policy is not binding on the that modifies the conditions of the policy by
insured, unless the descriptive title or name of expanding or restricting its benefits or excluding
the rider, clause, warranty or endorsement is certain conditions from the coverage.
also mentioned and written on the blank spaces *Riders, together with other attachments to the
provided in the policy. Unless applied for by the policy like clause, warranty or endorsements,
insured or owner, any rider, clause, warranty or are not binding on the insured unless the
endorsement issued after the original policy descriptive title or name thereof is mentioned
shall be countersigned by the insured or owner, and written on the blank spaces provided in the
which countersignature shall be taken as his policy.
agreement to the contents of such rider, clause,
Purpose: To modify the conditions or
warranty or endorsement. Group insurance and provisions.
group annuity policies, however, may be Interpretation: In case of doubt, riders prevail
typewritten and need not be in printed form.” over the policy.
*Contract of insurance may be made in any *Riders and the like shall be countersigned by
form but the policy of insurance must be in the insured or owner unless he was the one
writing. who applied for the rider, clause, and warranty.
*When the requirements for a rider are
B. Fine Print Rule complied with including clause, warranty or
Insurance is a contract of adhesion considering
endorsement, it is considered part of the policy.
that most of the terms of the contract do not *It is a part of the original policy which is in the
result from mutual negotiations between the nature of a conditional obligation.
parties as they are prescribed by the insurer in
printed form to which the insured may E. Kinds of Policy
“adhere” if he chooses but which he cannot 1. Open
change. Sec. 60 of the Insurance Code states that:
“An open policy is one in which the value of
C. Contents of the Policy the thing insured is not agreed upon, but is
Sec. 51 of the Insurance Code provides that: “A left to be ascertained in case of loss.”
policy of insurance must specify: *To put a threshold for purposes of
(a) The parties between whom the contract is premium.
made; Advantage: actual valuation; the final
(b) The amount to be insured except in the valuation is accurate value of the property
cases of open or running policies;
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Law on Insurance
Disadvantage: hassle Commissioner may promulgate rules and

Example: regulations governing such extensions for the
Warehouse valued for P1M purpose of preventing such violations and may
At the time of loss the actual valuation of by such rules and regulations dispense with the
the warehouse is P800,000 requirement of written approval by him in the
The insured can only recover P800,000 case of extension in compliance with such rules
2. Valued and regulations. “
Sec. 61 of the Insurance Code provides *This is a preliminary contract of insurance.
that: “A valued policy is one which *The protection is temporary; limited to 60 days
expresses on its face an agreement that the only
thing insured shall be valued at a specific *In Pacific Timber Export Corporation v CA, the
sum.” SC held that no separate premium is required
Example: for the cover note. As an exception, the parties
a. Warehouse valued for P1M may agree otherwise.
Agreed valuation is P1M
The insured can recover the whole P1M G. Cancellation of Policy
without proving the actual value of the Sec. 64 of the Insurance Code states that: “No
property. policy of insurance other than life shall be
b. Warehouse valued for P1.5M cancelled by the insurer except upon prior
Agreed valuation is P1M notice thereof to the insured, and no notice of
The insurer can only recover P1M cancellation shall be effective unless it is based
3. Running on the occurrence, after the effective date of
Sec. 62 of the Insurance Code provides the policy, of one or more of the following:
that: “A running policy is one which (a) non-payment of premium;
contemplates successive insurances, and (b) conviction of a crime arising out of acts
which provides that the object of the policy increasing the hazard insured against;
may be from time to time defined, (c) discovery of fraud or material
especially as to the subjects of insurance, by misrepresentation;
additional statements or indorsements.” (d) discovery of willful or reckless acts or
*Usually covers stock and goods in omissions increasing the hazard insured against;
warehouse (e) physical changes in the property insured
Purpose: Avoidance of over and under which result in the property becoming
insurance. uninsurable; or
(f) a determination by the Commissioner that
F. Cover Notes the continuation of the policy would violate or
Sec. 52 of the Insurance Code provides that: would place the insurer in violation of this
“Cover notes may be issued to bind insurance Code.”
temporarily pending the issuance of the policy. Prescriptive Period:
Within sixty days after the issue of the cover Oral = 6 years; written= 10 years
note, a policy shall be issued in lieu thereof, Sec. 65 of the Insurance Code states that: “All
including within its terms the identical notices of cancellation mentioned in the
insurance bound under the cover note and the preceding section shall be in writing, mailed or
premium therefor. Cover notes may be delivered to the named insured at the address
extended or renewed beyond such sixty days shown in the policy, and shall state (a) which of
with the written approval of the Commissioner the grounds set forth in section sixty-four is
if he determines that such extension is not relied upon and (b) that, upon written request
contrary to and is not for the purpose of of the named insured, the insurer will furnish
violating any provisions of this Code. The the facts on which the cancellation is based.”
12
Law on Insurance
Sec. 66 of the Insurance Code states that: “In the premium thereof has been paid, except in
case of insurance other than life, unless the the case of a life or an industrial life policy
insurer at least forty-five days in advance of the whenever the grace period provision applies.”
end of the policy period mails or delivers to the *This is called as Cash and Carry Rule
named insured at the address shown in the Sec. 78 of the Insurance Code states that: “An
policy notice of its intention not to renew the acknowledgment in a policy or contract of
policy or to condition its renewal upon insurance or the receipt of premium is
reduction of limits or elimination of coverages, conclusive evidence of its payment, so far as to
the named insured shall be entitled to renew make the policy binding, notwithstanding any
the policy upon payment of the premium due stipulation therein that it shall not be binding
on the effective date of the renewal. Any policy until the premium is actually paid.”
written for a term of less than one year shall be General Rule: No insurance policy issued or
considered as if written for a term of one year. renewal is valid and binding until actual
Any policy written for a term longer than one payment of premium. Any agreement to the
year or any policy with no fixed expiration date contrary is void. (Cash and Carry Rule)
shall be considered as if written for successive Exceptions:
policy periods or terms of one year.” 1. In case of life and industrial life whenever
the grace period provision applies (Sec. 77);
H. Time to commence action on the policy; effect Requisites:
of stipulation a. Life and industrial life insurance
Q: When cause of action accrues? b. There is a grace period
A: From the denial of the claim. c. Grace period still exists
Sec. 63 of the Insurance Code provides that: “A 2. Where there is an acknowledgment in the
condition, stipulation, or agreement in any contract or policy of insurance that the
policy of insurance, limiting the time for premium had already been paid (Sec. 78);
commencing an action thereunder to a period Conclusive effect: the validity of the
of less than one year from the time when the contract/policy and its binding effect.
cause of action accrues, is void.” *No conclusive effect as to the payment of
premium.
PREMIUM: *Acknowledgment results to estoppel
A. Concept 3. The rule laid down in Makati Tuscany
Premium is the consideration paid to an insurer Condominium v CA to the effect that Sec.
for undertaking to indemnify the insured 77 may not apply if the parties have agreed
against a specified peril. to the payment of the premium in
Q: Who pays the premium? installments and partial payment has been
A: Insured made at the time of the loss;
Q: What is the consideration? *By express agreement
A: Insured: premium; Insurer: Assumption of Q: What was agreed upon?
risk A: Payment by instalment plan
4. Where a credit term was agreed upon like
B. Effect of non-payment of premium; exceptions the agreement in UCPB General Insurance,
Sec. 77 of the Insurance Code states that: “. An Inc. v Masagana Telemart where the
insurer is entitled to payment of the premium insurer granted a 60-90 day credit term for
as soon as the thing insured is exposed to the the payment of the premiums despite full
peril insured against. Notwithstanding any awareness of Sec.77;
agreement to the contrary, no policy or *By previous conduct/practice
contract of insurance issued by an insurance *Insured = principle of equity; insurer =
company is valid and binding unless and until estoppel.
13
Law on Insurance
5. Where the parties are barred by estoppels the aggregate sum insured in all the policies
Article 1306 of the : “New Civil Code states exceeds the insurable value of the thing at risk.”
that: “The contracting parties may establish
such stipulations, clauses, terms and conditions PERSONS ENTITLED TO RECOVER ON THE POLICY AND
as they may deem convenient, provided they CONDITIONS TO RECOVERY:
are not contrary to law, morals, good customs, A. Beneficiary
public order, or public policy.” Sec. 11 of the Insurance Code provides that:
“The insured shall have the right to change the
C. When insured entitled to return of premiums beneficiary he designated in the policy, unless
Sec. 79 of the Insurance Code states that: “A he has expressly waived this right in said
person insured is entitled to a return of policy.”
premium, as follows: Sec. 12 of the Insurance Code provides that:
(a) To the whole premium if no part of his “The interest of a beneficiary in a life insurance
interest in the thing insured be exposed to any policy shall be forfeited when the beneficiary is
of the perils insured against; the principal, accomplice, or accessory in
(b) Where the insurance is made for a definite willfully bringing about the death of the
period of time and the insured surrenders his insured; in which event, the nearest relative of
policy, to such portion of the premium as the insured shall receive the proceeds of said
corresponds with the unexpired time, at a pro insurance if not otherwise disqualified.”
rata rate, unless a short period rate has been Sec. 53 of the Insurance Code states that: “The
agreed upon and appears on the face of the insurance proceeds shall be applied exclusively
policy, after deducting from the whole premium to the proper interest of the person in whose
any claim for loss or damage under the policy name or for whose benefit it is made unless
which has previously accrued; Provided, That no otherwise specified in the policy.”
holder of a life insurance policy may avail Sec. 56 of the Insurance Code states that:
himself of the privileges of this paragraph “When the description of the insured in a policy
without sufficient cause as otherwise provided is so general that it may comprehend any
by law.” person or any class of persons, only he who can
Sec. 80 of the Insurance Code states that: “If a show that it was intended to include him can
peril insured against has existed, and the claim the benefit of the policy.”
insurer has been liable for any period, however Sec. 57 of the Insurance Code provides that: “A
short, the insured is not entitled to return of policy may be so framed that it will inure to the
premiums, so far as that particular risk is benefit of whomsoever, during the continuance
concerned.” of the risk, may become the owner of the
Sec. 81 of the Insurance Code states that: “A interest insured.”
person insured is entitled to return of the Q: Who receives the proceeds?
premium when the contract is voidable, on A: General Rule: Beneficiary
account of fraud or misrepresentation of the Exception: In case the designated beneficiary is
insurer, or of his agent, or on account of facts, disqualified, it is the insured who receive the
the existence of which the insured was ignorant proceeds.
without his fault; or when by any default of the General Rule: The designation of the
insured other than actual fraud, the insurer beneficiary is revocable.
never incurred any liability under the policy.” Exception: Irrevocable
Sec. 82 of the Insurance Code states that: “In In irrevocable designation, the general rule is
case of an over-insurance by several insurers, that the designated beneficiary cannot be
the insured is entitled to a ratable return of the changed.
premium, proportioned to the amount by which Exceptions:
1. The beneficiary consented to the change
14
Law on Insurance
2. Under Art. 45 of the Family Code which insured as agent or trustee, or by other general
substantially provides that the innocent words in the policy.”
spouse has the authority to revoke the
designation of his beneficiary D. Rule where insurance if made by partner or
3. In cases where the marriage is declared part owner
void ab initio Sec. 55 of the Insurance Code provides that:
4. In cases of annulment “To render an insurance effected by one
5. In cases of legal separation partner or part-owner, applicable to the
interest of his co-partners or other part-owners,
B. Limitations on the appointment of beneficiary it is necessary that the terms of the policy
Article 2012 of the New Civil Code states that: should be such as are applicable to the joint or
“Any person who is forbidden from receiving common interest. “
any donation under Article 739 cannot be E. Notice and proof of loss
named beneficiary of a life insurance policy by Sec. 88 of the Insurance Code states that: “In
the person who cannot make any donation to case of loss upon an insurance against fire, an
him, according to said article.” insurer is exonerated, if notice thereof be not
*The prohibition applies only to life insurance given to him by an insured, or some person
policy. entitled to the benefit of the insurance, without
*Under Article 1236 of the New Civil Code, the unnecessary delay.”
beneficiary may pay the premium even against Sec. 89 of the Insurance Code states that:
the will of the insurer. “When a preliminary proof of loss is required by
Reason: Beneficiary has interest over the a policy, the insured is not bound to give such
insurance policy. proof as would be necessary in a court of
Article 739 of the New Civil Code states that: justice; but it is sufficient for him to give the
”The following donations shall be void: best evidence which he has in his power at the
(1) Those made between persons who were time.”
guilty of adultery or concubinage at the time of Sec. 90 of the Insurance Code provides that:
the donation; “All defects in a notice of loss, or in preliminary
(2) Those made between persons found guilty proof thereof, which the insured might remedy,
of the same criminal offense, in consideration and which the insurer omits to specify to him,
thereof; without unnecessary delay, as grounds of
(3) Those made to a public officer or his wife, objection, are waived.”
descendants and ascendants, by reason of his Sec. 91 of the Insurance Code provides that:
office. “Delay in the presentation to an insurer of
In the case referred to in No. 1, the action for notice or proof of loss is waived if caused by any
declaration of nullity may be brought by the act of him, or if he omits to take objection
spouse of the donor or donee; and the guilt of promptly and specifically upon that ground.”
the donor and donee may be proved by Sec. 92 of the Insurance Code provides that: “If
preponderance of evidence in the same action.” the policy requires, by way of preliminary proof
of loss, the certificate or testimony of a person
C. Rule where insurance is made by an agent or other than the insured, it is sufficient for the
trustee insured to use reasonable diligence to procure
Sec. 54 of the Insurance Code provides that: it, and in case of the refusal of such person to
“When an insurance contract is executed with give it, then to furnish reasonable evidence to
an agent or trustee as the insured, the fact that the insurer that such refusal was not induced by
his principal or beneficiary is the real party in any just grounds of disbelief in the facts
interest may be indicated by describing the necessary to be certified or testified.”
DOUBLE INSURANCE:
15
Law on Insurance
A. Definition and requisites D. Rules for payment where there is over-

Sec. 93 of the Insurance Code provides that: “A insurance by double insurance
double insurance exists where the same person Sec. 94 of the Insurance Code states that:
is insured by several insurers separately in “Where the insured is over-insured by double
respect to the same subject and interest.” insurance:
Requisites: (a) The insured, unless the policy otherwise
1. The person insured is the same provides, may claim payment from the insurers
2. There are two or more insurers insuring in such order as he may select, up to the
separately amount for which the insurers are severally
3. The subject matter is the same liable under their respective contracts;
4. The interest insured is also the same (b) Where the policy under which the insured
5. The risk or peril insured against is likewise claims is a valued policy, the insured must give
the same credit as against the valuation for any sum
received by him under any other policy without
B. Distinguished from Over-insurance regard to the actual value of the subject matter
Distinctions: insured;
(c) Where the policy under which the insured
Double Insurance Over-Insurance claims is an unvalued policy he must give credit,
When the amount of as against the full insurable value, for any sum
There may be no over- the insurance is
received by him under any policy;
insurance as when the beyond the value of
sum total of the the insured’s insurable (d) Where the insured receives any sum in
amounts of the interest excess of the valuation in the case of valued
policies issued does policies, or of the insurable value in the case of
not exceed the unvalued policies, he must hold such sum in
insurable interest of trust for the insurers, according to their right of
the insured
contribution among themselves;
There are always There may only be one
several insurers insurer involved (e) Each insurer is bound, as between himself
and the other insurers, to contribute ratably to
*There is over-insurance if the total amount the loss in proportion to the amount for which
exceeds the value of the thing insured. he is liable under his contract.”
Example: Formula:
In Fire Insurance, A insured his property to X for Insurance Policy
500,000, to Y for 1M and to Z for 1M totalling to --------------------------- x Amount of loss
P2.5M. The property valued only for 1M. In this Total of Policy taken
situation there is over-insurance.
500000
C. Stipulation against double insurance X = --------- x 1M = 200,000
Q: Is double insurance legally prohibited? 2.5M
A: General Rule: NO.
Exception: If prohibited by an “other insurance
clause.” 1M
Basis: Sec. 75 of the Insurance Code which Y = -------- x 1M = 400,000
provides that: “A policy may declare that a 2.5M
violation of specified provisions thereof shall
avoid it, otherwise the breach of an immaterial 1M
provision does not avoid the policy.” Z = -------- x 1M = 400,000
2.5M
16
Law on Insurance
*The balance shall be returned. non-life company underwriters to be

*As far as the excess payment is concern, the subject to loss or damage from the same
excess shall be held in trust by the insured. occurrence of any hazard insured against.
Reinsurance ceded as authorized under the
REINSURANCE: succeeding title shall be deducted in
determining the risk retained. As to surety
*This is called a Liability Insurance risk, deduction shall also be made of the
A. Definition amount assumed by any other company
Sec. 95 of the Insurance Code provides that: “A authorized to transact surety business and
contract of reinsurance is one by which an the value of any security mortgage,
insurer procures a third person to insure him pledged, or held subject to the surety's
against loss or liability by reason of such original control and for the surety's protection.”
insurance.” 2. Sec. 275 of the Insurance Code which
Example: provides that: “Every foreign insurance
In fire insurance, A insured his property against company desiring to withdraw from the
fire to X, X reinsured his obligation to Y. Philippines shall, prior to such withdrawal,
Q: Can A recover to the reinsurer? discharge its liabilities to policyholders and
A: General Rule: NO creditors in this country. In case of its
Reason: No privity of contract policies insuring residents of the
Exception: Stipulation stating that the policy is Philippines, it shall cause the primary
taken for the benefit of the insured of the first liabilities under such policies to be
contract of insurance. (Stipulation pour autrui) reinsured and assumed by another
Q: Can X recover from Y even if X has not yet insurance company authorized to transact
pay A? business in the Philippines. In the case of
A: YES. Immediately arises from the time the such policies as are subject to cancellation
liability of X has occur. by the withdrawing company, it may cancel
such policies pursuant to the terms thereof
B. Nature in lieu of such reinsurance and assumption
Sec. 97 of the Insurance Code states that: “A of liabilities.”
reinsurance is presumed to be a contract of
indemnity against liability, and not merely C. Distinguished from double insurance
against damage.” Distinctions:
Sec. 98 of the Insurance Code provides that: Reinsurance Double Insurance
“The original insured has no interest in a Insurance of different Involves same interest
interests
contract of reinsurance.”
Insurer becomes an Insurer remains in
Q: Is reinsurance mandatory? insured in relation to such capacity
A: General Rule: NO reinsurer
Exceptions: Original insured has no Insured in the 1st
1. Sec. 215 of the Insurance Code which interest in reinsurance contract is a party in
provides that: “No insurance company contract interest in the 2nd
other than life, whether foreign or contract
Subject of insurance is Subject of insurance is
domestic, shall retain any risk on any one
the original insurer’s property
subject of insurance in an amount risk
exceeding twenty per centum of its net Consent of original Insured has to give his
worth. For purposes of this section, the insured, not necessary consent
term "subject of insurance" shall include all
properties or risks insured by the same D. Duty of reinsured to disclose facts
insurer that customarily are considered by
17
Law on Insurance
Sec. 96 of the Insurance Code provides that: arising out of ownership, maintenance, or use
“Where an insurer obtains reinsurance, except of automobiles);
under automatic reinsurance treaties, he must (c) Precious stones, jewels, jewelry, precious
communicate all the representations of the metals, whether in course of transportation or
original insured, and also all the knowledge and otherwise;
information he possesses, whether previously (d) Bridges, tunnels and other instrumentalities
or subsequently acquired, which are material to of transportation and communication
the risk.“ (excluding buildings, their furniture and
furnishings, fixed contents and supplies held in
MARINE INSURANCE: storage); piers, wharves, docks and slips, and
A. Definition other aids to navigation and transportation,
Marine Insurance includes policies that covers including dry docks and marine railways, dams
risks connected with navigation, to which a and appurtenant facilities for the control of
ship, cargo, freightage, profits or other waterways.
insurable interest in movable property, may be (2) "Marine protection and indemnity
exposed during a certain voyage or a fixed insurance," meaning insurance against, or
period of time. against legal liability of the insured for loss,
Basis: Sec. 99 of the Insurance Code. damage, or expense incident to ownership,
operation, chartering, maintenance, use, repair,
B. Scope of marine insurance or construction of any vessel, craft or
Sec. 99 of the Insurance Code provides that: instrumentality in use of ocean or inland
“Marine Insurance includes: waterways, including liability of the insured for
(1) Insurance against loss of or damage to: personal injury, illness or death or for loss of or
(a) Vessels, craft, aircraft, vehicles, goods, damage to the property of another person.”
freights, cargoes, merchandise, effects, *In Roque v IAC, the SC held that cargo can be
disbursements, profits, moneys, securities, the subject of marine insurance, and once it is
choses in action, evidences of debts, valuable entered into, the implied warranty of
papers, bottomry, and respondentia interests seaworthiness immediately attaches to
and all other kinds of property and interests whoever is insuring the cargo, whether he be
therein, in respect to, appertaining to or in the shipowner or not. Although he has no
connection with any and all risks or perils of control over the vessel, the shipper has control
navigation, transit or transportation, or while in the choice of vessel.
being assembled, packed, crated, baled,
compressed or similarly prepared for shipment C. Risks or losses covered in marine insurance
or while awaiting shipment, or during any 1. Perils of the sea vs. perils of the ship
delays, storage, transhipment, or reshipment Perils of the Sea Perils of the Ship
Include only those Is a loss which is in
incident thereto, including war risks, marine
casualties due to the ordinary course
builder's risks, and all personal property floater
the unusual of events, results:
risks; violence or 1. From the
(b) Person or property in connection with or extraordinary ordinary,
appertaining to a marine, inland marine, transit causes connected natural and
or transportation insurance, including liability with navigation. It inevitable
for loss of or damage arising out of or in has been said to action of the
include only such sea;
connection with the construction, repair,
losses as are of 2. From
operation, maintenance or use of the subject extraordinary ordinary
matter of such insurance (but not including life nature or arise wear and
insurance or surety bonds nor insurance against from some tear of the
loss by reason of bodily injury to any person overwhelming ship; and
18
Law on Insurance
power which 3. From the of the loss which the insured cannot
cannot be guarded negligent recover from the charterer.”
against by the failure of the Q: What is a charter party?
ordinary exertion of ship’s owner
A: A contract where the owner lends his
human skill or to provide
whole vessel to a charterer for a
prudence, as the vessel
distinguished from with the particular voyage.
the ordinary wear proper *Indemnity Principle applies
and tear of the equipment to b. Rule where vessel hypothecated by
voyage and from convey the bottomry
injuries suffered by cargo under Sec. 101 of the Insurance Code which
the vessel in ordinary
provides that: “The insurable interest of
consequence of her conditions.
not being the owner of the ship hypothecated by
unseaworthy. bottomry is only the excess of its value
Extraordinary perils Usual perils over the amount secured by bottomry.”
attendant to *Principle of Indemnity applies.
navigation Q: What is bottomry?
*Only perils of the sea are assumed by the A: it is a contract of loan which said
insurer. loan is used for the repair of the vessel.
2. “all risks” marine insurance policy means The payment of which is conditional.
that all risks are covered unless expressly *The owner’s insurable interest is the
excepted. The burden rests on the insurer amount in excess of the value of the
to prove that the loss is caused by a risk ship over the amount secured by the
that is excluded. bottomry
*Owner incurs loss due to the damage
D. Insurable interest in marine insurance of the vessel but at the same time he
1. Ship owner’s insurable interest receives gain due to the extinguishment
Sec. 100 of the Insurance Code provides of his loan obligation.
that: “The owner of a ship has in all cases c. Insurable interest in freightage
an insurable interest in it, even when it has Sec. 102 of the Insurance Code states
been chartered by one who covenants to that: “Freightage, in the sense of a
pay him its value in case of loss: Provided, policy of marine insurance, signifies all
That in this case the insurer shall be liable the benefits derived by the owner,
for only that part of the loss which the either from the chartering of the ship or
insured cannot recover from the charterer.“ its employment for the carriage of his
*The insurable interest of the shipowner is own goods or those of others.”
over the value of the vessel and over Sec. 103 of the Insurance Code
expected freightage. provides that: “The owner of a ship has
Measurement: Ownership an insurable interest in expected
*It does not matter whether the ship was freightage which according to the
mortgaged or chartered. ordinary and probable course of things
a. Rule where vessel is chartered he would have earned but for the
Sec. 100 of the Insurance Code states intervention of a peril insured against or
that: “The owner of a ship has in all other peril incident to the voyage.”
cases an insurable interest in it, even *Supposed earnings may be subject to
when it has been chartered by one who marine insurance.
covenants to pay him its value in case of 2. Charterer’s insurable
loss: Provided, That in this case the Sec. 106 of the Insurance Code provides
insurer shall be liable for only that part that: “The charterer of a ship has an
19
Law on Insurance
insurable interest in it, to the extent that he (c) The liability to seizure from breach of
is liable to be damnified by its loss.” foreign laws of trade;
(d) The want of necessary documents;
E. Concealment (e) The use of false and simulated papers.”
1. Meaning of concealment in marine
insurance F. Representations
*Definition of concealment in marine 1. Effect of false representation by the
insurance is the same as what defined in insured
Sec. 26 of the Insurance Code. Sec. 111 of the Insurance Code states that:
*However, concealment under the marine “If a representation by a person insured by
insurance is more strict than the ordinary a contract of marine insurance, is
insurance intentionally false in any material respect,
Reason: Unpredictable risk or in respect of any fact on which the
*In marine insurance, opinions and character and nature of the risk depends,
expectations of third persons are the insurer may rescind the entire
considered, whereas in ordinary insurance contract.”
as a general rule, opinions of third persons 2. Effect of false representation as to
are not necessary. Exception: expert expectation
opinion. Sec. 112 of the Insurance Code provides
2. Duty to communicate that: “The eventual falsity of a
Sec. 107 of the Insurance Code which representation as to expectation does not,
provides that: “In marine insurance each in the absence of fraud, avoid a contract of
party is bound to communicate, in addition marine insurance.”
to what is required by section twenty-eight, G. Implied warranties in marine insurance
all the information which he possesses, 1. Seaworthiness
material to the risk, except such as is Sec. 113 of the Insurance Code provides
mentioned in Section thirty, and to state that: “In every marine insurance upon a
the exact and whole truth in relation to all ship or freight, or freightage, or upon any
matters that he represents, or upon inquiry thing which is the subject of marine
discloses or assumes to disclose.” insurance, a warranty is implied that the
3. Opinions or expectations of third persons ship is seaworthy.”
Sec. 108 of the Insurance Code which *Charterer is also subject to warranty on
provides that: “In marine insurance, seaworthiness because he has control in the
information of the belief or expectation of a selection of the ship to be leased.
third person, in reference to a material fact, *Bottomry lender is also subject to
is material.” warranty on seaworthiness because he has
4. When concealment does not vitiate the also the control in the selection of the
entire contract vessel.
Sec. 110 of the Insurance Code states that: a. What constitutes seaworthiness
“A concealment in a marine insurance, in Sec. 114 of the Insurance Code states
respect to any of the following matters, that: “A ship is seaworthy when
does not vitiate the entire contract, but reasonably fit to perform the service
merely exonerates the insurer from a loss and to encounter the ordinary perils of
resulting from the risk concealed: the voyage contemplated by the parties
(a) The national character of the insured; to the policy.”
(b) The liability of the thing insured to Q: What makes a vessel seaworthy?
capture and detention; A: Sec. 114. Fitness of the vessel is the
general test.
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Law on Insurance
*Warranty on the condition of the ship insurance upon the ship may,
Example: nevertheless, by reason of being
Shipowner insured his vessel with X unfitted to receive the cargo, be
insurer. unseaworthy for the purpose of the
On the part of the insurer, the inured insurance upon the cargo.”
warrants that his vessel is ship worthy. b. When complied with; exceptions
The burden falls on the Sec. 115 of the Insurance Code
shipowner/insured of proving provides that: “An implied warranty of
otherwise. seaworthiness is complied with if the
*Seaworthiness depends on the ship be seaworthy at the time of the of
transaction entered into or undertaken commencement of the risk, except in
by the ship. the following cases:
Sec. 116 of the Insurance Code states (a) When the insurance is made for a
that: “A warranty of seaworthiness specified length of time, the implied
extends not only to the condition of the warranty is not complied with
structure of the ship itself, but requires unless the ship be seaworthy at the
that it be properly laden, and provided commencement of every voyage it
with a competent master, a sufficient undertakes during that time; (Time
number of competent officers and Policy)
seamen, and the requisite Example:
appurtenances and equipment, such as The transaction is covered for one
ballasts, cables and anchors, cordage year from January 1, 2007 to
and sails, food, water, fuel and lights, December 31, 2007.
and other necessary or proper stores The ship will undertake 5 different
and implements for the voyage.” voyages.
Requisites: The ship must be seaworthy at the
1. Condition of the structure of the commencement of each and every
ship voyage.
2. Properly laden and provided with a (b) When the insurance is upon the
competent master cargo which, by the terms of the
3. Sufficient number of competent policy, description of the voyage, or
officers and seamen established custom of the trade, is
4. Requisite appurtenances and to be transhipped at an
equipment intermediate port, the implied
*In Delsan Transport case, the SC held warranty is not complied with
that the issuance of certificate of unless each vessel upon which the
seaworthiness is not enough to prove cargo is shipped, or transhipped, be
seaworthiness of the ship. seaworthy at the commencement
Example: of each particular voyage. (Cargo
Cargo owner insured his cargo Policy)”
Q: Does that implied warranty on Controlling: There must be
seaworthiness apply to cargo owner? transhipment
A: YES. The cargo owner has the control *The ship must be seaworthy in
in the selection of the vessel where his each particular voyage.
cargoes to be shipped. Sec. 117 of the Insurance Code
Sec. 119 of the Insurance Code provides that: “Where different
provides that: “A ship which is portions of the voyage contemplated by
seaworthy for the purpose of an a policy differ in respect to the things
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Law on Insurance
requisite to make the ship seaworthy course of the voyage insured,

therefor, a warranty of seaworthiness is mentioned in the last two sections, or
complied with if, at the commencement an unreasonable delay in pursuing the
of each portion, the ship is seaworthy voyage or the commencement of an
with reference to that portion.” entirely different voyage.”
(Voyage Policy) *Deviation is either proper or improper.
*There is a single ship that completes *There is breach of warranty if the
the voyage however, the ship will deviation is improper.
undergo different degree of perils. b. When proper
*The ship must be seaworthy upon Sec. 124 of the Insurance Code
commencement of each level of peril. provides that: “A deviation is proper:
General Rule: The ship must be (a) When caused by circumstances over
seaworthy at the time of the which neither the master nor the owner
commencement of the risk. of the ship has any control;
Exceptions: (b) When necessary to comply with a
1. Time policy warranty, or to avoid a peril, whether or
2. Cargo policy not the peril is insured against;
3. Voyage policy *Whether or not the peril is covered by
*In time policy, seaworthiness the policy is immaterial.
commenced in every voyage. (c) When made in good faith, and upon
*In voyage policy, no transhipment. The reasonable grounds of belief in its
voyage has different stages to go necessity to avoid a peril; or
through. Every stage of voyage the ship (d) When made in good faith, for the
must be seaworthy. purpose of saving human life or
c. Rule where ship becomes unseaworthy relieving another vessel in distress.”
in the course of the voyage *Warranty is against improper
Sec. 118 of the Insurance Code deviation.
provides that: “When the ship becomes *Whether or not improper deviation
unseaworthy during the voyage to contributed to the loss is immaterial
which an insurance relates, an because there was already a breach of
unreasonable delay in repairing the implied warranty.
defect exonerates the insurer on ship or Sec. 126 of the Insurance Code states
shipowner's interest from liability from that: “An insurer is not liable for any
any loss arising therefrom.” loss happening to the thing insured
2. Warranty that necessary documents are subsequent to an improper deviation.”
carried
Sec. 120 of the Insurance Code states that: H. Loss
“Where the nationality or neutrality of a 1. Kinds of losses
ship or cargo is expressly warranted, it is a. Actual
implied that the ship will carry the requisite Sec. 130 of the Insurance Code
documents to show such nationality or provides that: “An actual total loss is
neutrality and that it will not carry any cause by:
documents which cast reasonable suspicion (a) A total destruction of the thing
thereon.” insured;
3. Warranty against improper deviation (b) The irretrievable loss of the thing by
a. Meaning of deviation sinking, or by being broken up;
Sec. 123 of the Insurance Code states
that: “Deviation is a departure from the
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Law on Insurance
(c) Any damage to the thing which (c) If the thing insured is a ship, and the
renders it valueless to the owner for the contemplated voyage cannot be lawfully
purpose for which he held it; or performed without incurring either an
(d) Any other event which effectively expense to the insured of more than three-
deprives the owner of the possession, fourths the value of the thing abandoned or
at the port of destination, of the thing a risk which a prudent man would not take
insured.” under the circumstances; or
Sec. 132 of the Insurance Code states (d) If the thing insured, being cargo or
that: “An actual loss may be presumed freightage, and the voyage cannot be
from the continued absence of a ship performed, nor another ship procured by
without being heard of. The length of the master, within a reasonable time and
time which is sufficient to raise this with reasonable diligence, to forward the
presumption depends on the cargo, without incurring the like expense or
circumstances of the case.” risk mentioned in the preceding sub-
b. Constructive paragraph. But freightage cannot in any
Sec. 131 of the Insurance Code case be abandoned unless the ship is also
provides that: “A constructive total loss abandoned.”
is one which gives to a person insured a Test: The loss is more than ¾ but less than
right to abandon, under Section one 1.
hundred thirty-nine. “ *If there is partial loss, only partial can be
2. Right to payment upon an actual total loss claimed.
Sec. 135 of the Insurance Code states that: *The extent of damage in constructive loss
“Upon an actual total loss, a person insured is so severe.
is entitled to payment without notice of *This is not automatic.
abandonment.” *There is an option either to abandon it or
3. Scope of insurance against actual total loss to recover only the partial loss.
Sec. 137 of the Insurance Code states that: 5. Concept of abandonment and its requisites
“An insurance confined in terms to an Definition:
actual loss does not cover a constructive Sec. 138 of the Insurance Code states that:
total loss, but covers any loss, which “Abandonment, in marine insurance, is the
necessarily results in depriving the insured act of the insured by which, after a
of the possession, at the port of constructive total loss, he declares the
destination, of the entire thing insured.” relinquishment to the insurer of his interest
4. When constructive total loss/partial loss in the thing insured.”
exists *It is necessary to abandon the surviving
Sec. 139 of the Insurance Code provides part of the thing.
that: “A person insured by a contract of Formula:
marine insurance may abandon the thing Constructive total loss + Abandonment =
insured, or any particular portion thereof Total loss
separately valued by the policy, or If there is only constructive total loss there
otherwise separately insured, and recover is only partial loss.
for a total loss thereof, when the cause of Requisites:
the loss is a peril insured against: 1. There must be an actual relinquishment
(a) If more than three-fourths thereof in by the person insured of his interest in
value is actually lost, or would have to be the thing insured.
expended to recover it from the peril; 2. There must be a constructive total loss
(b) If it is injured to such an extent as to 3. The abandonment be neither partial
reduce its value more than three-fourths; nor conditional
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Law on Insurance
4. It must be made within a reasonable common benefit and profit

time after receipt of reliable of all persons interested in
information of the loss the vessel and her cargo.
5. It must be factual and reasonable - It refers to those losses
6. It must be made by giving notice which occur under such
thereof to the insurer which may be circumstances as do not
done orally or in writing entitle the unfortunate
7. The notice of abandonment must be owners to receive
explicit and must specify the particular contribution from other
cause of the abandonment owners concerned in the
*The residual part is abandoned. Reason: venture as where a vessel
Principle of Indemnity accidentally runs aground
*If the requisites are satisfied the insurance and goes to pieces after the
company cannot refuse to accept the cargo is saved.
abandonment. Recourse: Go after the insurer
6. Average *Stipulation exempting the insurer for a
Average is any extraordinary or accidental particular average loss is possible and
expense incurred during the voyage for the valid.
preservation of the vessel, cargo, or both, ii. General
and all damages to the vessel and cargo - Includes damages and
from the time it is loaded and the voyage expenses which are
commenced until it ends and the cargo deliberately caused by the
unloaded. master of the vessel or
*Expenses for maritime transaction. upon his authority, in order
a. Kinds of average: to save the vessel, her
i. Particular cargo, or both at the same
Sec. 136 of the Insurance Code time from a real or known
provides that: “Where it has risk.
been agreed that an insurance - It must be borne equally by
upon a particular thing, or class all of the interests
of things, shall be free from concerned in the venture.
particular average, a marine b. Requisites of general average
insurer is not liable for any 1. There must be a common danger to
particular average loss not the vessel or cargo
depriving the insured of the 2. Part of the vessel or cargo was
possession, at the port of sacrificed deliberately
destination, of the whole of 3. The sacrifice must be for the
such thing, or class of things, common safety of for the benefit of
even though it becomes all
entirely worthless; but such 4. It must be made by the master or
insurer is liable for his upon his authority
proportion of all general 5. It must be successful, i.e., resulted
average loss assessed upon the in the saving of the vessel or cargo
thing insured.” 6. It must be necessary
- Includes all damages and c. Insurer’s liability for general average
expenses caused to the The insurer of the vessel or cargo that
vessel or to her cargo which are saved is liable for general average
have not inured to the contribution and not for particular
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Law on Insurance
average. Only the insurer of the *In fire insurance, there has to be an express stipulation
damaged cargo or vessel is liable for to that effect.
particular average if covered by the
policy. FIRE INSURANCE:
Q: If there is a stipulation exempting
the insurer for a particular average loss, A. Definition and scope of fire insurance
does it extend to general average loss? Sec. 167 of the Insurance Code provides that:
A: NO. “As used in this Code, the term "fire insurance"
Basis: Article 859 of the Code of shall include insurance against loss by fire,
Commerce; Article 812 of the Code of lightning, windstorm, tornado or earthquake
Commerce and other allied risks, when such risks are
Reason: Equity covered by extension to fire insurance policies
Q: Are there a mandatory co-insurance in marine or under separate policies.”
insurance?
A: YES. B. Risks or losses covered
Basis: Sec. 157 of the Insurance Code provides that: “A Q: What are allied risks?
marine insurer is liable upon a partial loss, only for such A: lightning, windstorm, tornado or earthquake,
proportion of the amount insured by him as the loss tsunami.
bears to the value of the whole interest of the insured Q: What are direct losses?
in the property insured.” A: Direct losses are losses that pertain to the
*There is a co-insurance when the property is insured physical destruction of the thing insured.
for less than its value, the insured is considered a co- Q: What are indirect losses?
insurer for the difference between the amount of A: Indirect losses pertain to consequential
insurance and the value of the property. losses.
Requisites: Q: Are consequential losses compensable?
A: General Rule: NO in standard fire policy
1. The loss is partial
2. The amount of insurance is less than the value Except: If there is an agreement
of the property insured. *The liability of the insurer is to pay for direct
Formula: losses only
Loss Friendly Fire – fire that burns in a place where it
------- x Insurance = Insurer’s Liability is supposed to burn.
Value Hostile Fire – fire that escapes and burns in a
Example: place where it is not supposed to be.
A’s insurable interest = P500,000
C. Effect of alteration in the thing
Insured Amount = P300,000
Loss = P300,000 Sec. 168 of the Insurance Code provides that:
Q: Would the whole P300,000 be recovered from the “An alteration in the use or condition of a thing
insurer? insured from that to which it is limited by the
A: NO. Only 180,000 will be recovered and the balance policy made without the consent of the insurer,
of 120,000 will be suffered by the insured as a co- by means within the control of the insured, and
insurer. increasing the risks, entitles an insurer to
Computation: rescind a contract of fire insurance.”
300,000 Sec. 169 of the Insurance Code states that: “An
----------- x 300,000 = 180,000 alteration in the use or condition of a thing
500,000 insured from that to which it is limited by the
If the loss is 500,000, the insured can recover the whole policy, which does not increase the risk, does
300,000 because there is a total loss and not partial not affect a contract of fire insurance.”
loss.
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Law on Insurance
Q: If the policy is silent as to the use or Q: What is the subject matter of the casualty
condition of the thing insured, are there implied insurance?
warranty in fire insurance? A: Life, property, liability and health brought by
A: General Rule: YES. The insured has the accident.
insurable interest in the thing insured.
Exception: If the policy expressly provides for B. Third Party Liability Insurance
the use of condition of the thing insured. *Casualty insurance ay provide for third party
liability in the nature of stipulation pour autrui
D. Measure of indemnity for personal injury and even damage to
Sec. 171 of the Insurance Code provides that: property, in which case, the third party may
“If there is no valuation in the policy, the directly sue the insurer upon the occurrence of
measure of indemnity in an insurance against the loss. However, the insurer is not solidarily
fire is the expense it would be to the insured at liable with the insured or the tortfeasor for the
the time of the commencement of the fire to latter’s obligation.
replace the thing lost or injured in the condition *Insurance against specified perils which may
in which at the time of the injury; but if there is give rise to liability on the part of the insured
a valuation in a policy of fire insurance, the for claims for injuries to or damage to property
effect shall be the same as in a policy of marine of others.
insurance.” *If there is no stipulation in favor of third
1. Open Policy: only the expense necessary to person but the insurance is an insurance against
replace the thing lost or injured in the liability to third persons, any third person who
condition it was at the time of the injury. might be injured may not sue the insurer.
2. Valued Policy: the parties are bound by the - Liable for actual loss, the third party has no
valuation, in the absence of fraud or direct recourse with the insurer but only to the
mistake. insured. The insured has recourse to the
insurer.
E. Co-insurance clause
General Rule: Applies primarily to marine C. Insurable interest
insurance. *Insurable interest is based on the interest of
Exception: Co-insurance applies to fire the insured in the safety of persons and their
insurance if expressly agreed upon. property, who may maintain an action against
him in case of their injury or destruction,
CASUALTY INSURANCE: respectively.
A. Concept
Sec. 174 of the Insurance Code states that: D. Meaning of “accident” and “accidental” in
“Casualty insurance is insurance covering loss or casualty insurance
liability arising from accident or mishap, *The terms “accident” and “accidental” as used
excluding certain types of loss which by law or in insurance contracts, have not acquired any
custom are considered as falling exclusively technical meaning. They are construed by the
within the scope of other types of insurance courts in the ordinary and common acceptation.
such as fire or marine. It includes, but is not Thus, the terms have been taken to mean that
limited to, employer's liability insurance, motor which happens by chance or fortuitously,
vehicle liability insurance, plate glass insurance, without intention or design, which is
burglary and theft insurance, personal accident unexpected, unusual and unforeseen. The
and health insurance as written by non-life terms do not, without qualification, exclude
insurance companies, and other substantially events resulting in damage or loss due to fault,
similar kinds of insurance.” recklessness or negligence of third parties.
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Law on Insurance
*It is something that the insured did not foresee Requires acceptance of No need of
or though foreseen cannot be avoided. obligee to be valid acceptance by any
*Accident or not, it must be taken from the third party
viewpoint of the victim. Risk-shifting device, Risk-distributing
premium paid being in device, premium paid
the nature of a service as a ratable
E. Basis and extent of insurer’s liability fee contribution to a
*The beneficiary is not designated, the common fund
proceeds will be given to the victims.
*The third party has direct recourse against the
insurer. The insurer is purely liable. LIFE INSURANCE:
SURETYSHIP: A. Definition
Sec. 179 of the Insurance Code provides that: “.
A. Definition Life insurance is insurance on human lives and
Sec. 175 of the Insurance Code states that: “A insurance appertaining thereto or connected
contract of suretyship is an agreement whereby therewith.”
a party called the surety guarantees the Sec. 180 of the Insurance Code states that: “An
performance by another party called the insurance upon life may be made payable on
principal or obligor of an obligation or the death of the person, or on his surviving a
undertaking in favor of a third party called the specified period, or otherwise contingently on
obligee. It includes official recognizances, the continuance or cessation of life.
stipulations, bonds or undertakings issued by Every contract or pledge for the payment of
any company by virtue of and under the endowments or annuities shall be considered a
provisions of Act No. 536, as amended by Act life insurance contract for purpose of this Code.
No. 2206.” In the absence of a judicial guardian, the father,
or in the latter's absence or incapacity, the
B. Nature of Liability of surety mother, or any minor, who is an insured or a
Sec. 176 of the Insurance Code provides that: beneficiary under a contract of life, health or
“The liability of the surety or sureties shall be accident insurance, may exercise, in behalf of
joint and several with the obligor and shall be said minor, any right under the policy, without
limited to the amount of the bond. It is necessity of court authority or the giving of a
determined strictly by the terms of the contract bond, where the interest of the minor in the
of suretyship in relation to the principal particular act involved does not exceed twenty
contract between the obligor and the obligee.” thousand pesos. Such right may include, but
shall not be limited to, obtaining a policy loan,
C. Distinctions between suretyship and property surrendering the policy, receiving the proceeds
insurance of the policy, and giving the minor's consent to
Suretyship Property Insurance any transaction on the policy.”
Accessory contract Principal Contract
There are three There are two parties: B. Kinds of Life Insurance
parties: surety, obligor insurer and insured 1. Ordinary Life, General Life or Old Line
and oblige
Policy – insured pays a fixed premium every
Credit accommodation Contract of indemnity
Surety can recover Insurer has no such year until he dies. Surrender value after 3
from principal right; only right of years.
subrogation 2. Group Life – essentially a single insurance
Bond can be cancelled May be cancelled contract that provides courage for money
only with consent of unilaterally either by individuals.
obligee, Commissioner, insured or insurer on 3. Limited Payment Policy – insured pays
or court grounds provided by
premium for a limited period. If he dies
law
27
Law on Insurance
within the period, his beneficiary is paid; if

he outlives the period, he does not get E. Measure of indemnity
anything. Sec. 183 of the Insurance Code states that:
4. Endowment Policy – pays premium for “Unless the interest of a person insured is
specified period. If he outlives the period, susceptible of exact pecuniary measurement,
the face value of the policy is paid to him; if the measure of indemnity under a policy of
not, his beneficiaries receive the benefit. insurance upon life or health is the sum fixed in
5. Term Insurance – insurer pays once only, the policy.”
and he is insured for a specified period. If General Rule: Life policy is always valued
he dies within the period, his beneficiaries Exception: If the creditor insured the life of the
benefits. If he outlives the period, no debtor.
person benefits from the insurance.
6. Industrial Life – life insurance entitling the COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE:
insured to pay premiums weekly, or where A. Reason for the requirement
premiums are payable monthly or oftener. Purpose: To give immediate financial assistance
to victims of motor vehicle accidents and/or
C. Liability of insurer in case of suicide their dependents, especially if they are poor
Sec. 180-A of the Insurance Code states that: regardless of the financial capability of motor
“The insurer in a life insurance contract shall be vehicle owners or operators responsible for the
liable in case of suicides only when it is accident sustained.
committed after the policy has been in force for Q: What is the mandatory reason for this type
a period of two years from the date of its issue of insurance?
or of its last reinstatement, unless the policy A: To allow the registration or renewal of
provides a shorter period: Provided, however, registration of any motor vehicle.
That suicide committed in the state of insanity
shall be compensable regardless of the date of B. Scope of coverage required
commission.” Sec. 374 of the Insurance Code states that: “It
*Recovery of the proceeds depends on the shall be unlawful for any land transportation
commission of the suicide. operator or owner of a motor vehicle to
*In case of suicide, the insured may recover operate the same in the public highways unless
only after two years from the date the policy there is in force in relation thereto a policy of
was issued or last reinstatement. insurance or guaranty in cash or surety bond
*In case of suicide committed in the state of issued in accordance with the provisions of this
insanity, it is compensable regardless of the chapter to indemnify the death, bodily injury,
date of the commission. and/or damage to property of a third-party or
passenger, as the case may be, arising from the
D. Right to assign life insurance policy use thereof.”
Sec. 181 of the Insurance Code states that: “A Sec. 376 of the Insurance Code states that:
policy of insurance upon life or health may pass “The Land Transportation Commission shall not
by transfer, will or succession to any person, allow the registration or renewal of registration
whether he has an insurable interest or not, and of any motor vehicle without first requiring
such person may recover upon it whatever the from the land transportation operator or motor
insured might have recovered. “ vehicle owner concerned the presentation and
Sec. 182 of the Insurance Code states that: filing of a substantiating documentation in a
“Notice to an insurer of a transfer or bequest form approved by the Commissioner evidencing
thereof is not necessary to preserve the validity that the policy of insurance or guaranty in cash
of a policy of insurance upon life or health, or surety bond required by this chapter is in
unless thereby expressly required.“ effect.”
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Law on Insurance
invested by the Commissioner in readily

C. Persons subject to the requirement marketable government bonds and/or
Sec. 377 of the Insurance Code provides that: securities.
“Every land transportation operator and every (2) In the case of an owner of a motor vehicle,
owner of a motor vehicle shall, before applying the insurance or guaranty in cash or surety
for the registration or renewal of registration of bond shall cover liability for death or injury to
any motor vehicle, at his option, either secure third parties in an amount not less than that set
an insurance policy or surety bond issued by forth in the following scale in any one accident:
any insurance company authorized by the I. Private Cars
Commissioner or make a cash deposit in such (a) Bantam : Twenty thousand pesos;
amount as herein required as limit of liability (b) Light : Twenty thousand pesos;
for purposes specified in section three hundred (c) Heavy : Thirty thousand pesos;
seventy-four. II. Other Private Vehicles
(1) In the case of a land transportation (a) Tricycles, motorcyles, and scooters : Twelve
operator, the insurance guaranty in cash or thousand pesos;
surety bond shall cover liability for death or (b) Vehicles with an unladen weight of 2,600
bodily injuries of third-parties and/or kilos or less : Twenty thousand pesos;
passengers arising out of the use of such vehicle (c) Vehicles with an unladen weight of between
in the amount not less than twelve thousand 2,601 kilos and 3,930 kilos : Thirty thousand
pesos per passenger or third party and an pesos;
amount, for each of such categories, in any one (d) Vehicles with an unladen weight over 3,930
accident of not less than that set forth in the kilos : Fifty thousand pesos.
following scale: The Commissioner may, if warranted, set forth
(a) Motor vehicles with an authorized capacity schedule of indemnities for the payment of
of twenty-six or more passengers: Fifty claims for death or bodily injuries with the
thousand pesos; coverages set forth herein.”
(b) Motor vehicles with an authorized capacity
of from twelve to twenty-five passengers: Forty D. No-Fault indemnity claim
thousand pesos; Sec. 378 of the Insurance Code provides that:
(c) Motor vehicles with an authorized capacity “Any claim for death or injury to any passenger
of from six to eleven passengers: Thirty or third party pursuant to the provisions of this
thousand pesos; chapter shall be paid without the necessity of
(d) Motor vehicles with an authorized capacity proving fault or negligence of any kind;
of five or less passengers: Five thousand pesos Provided, That for purposes of this section:
multiplied by the authorized capacity. (i) The total indemnity in respect of any
Provided, however, That such cash deposit person shall not exceed fifteen
made to, or surety bond posted with, the thousand pesos;
Commissioner shall be resorted to by him in (ii) The following proofs of loss, when
cases of accidents the indemnities for which to submitted under oath, shall be
third-parties and/or passengers are not settled sufficient evidence to substantiate the
accordingly by the land transportation operator claim: (a) Police report of accident; and
and, in that event, the said cash deposit shall be (b) Death certificate and evidence
replenished or such surety bond shall be sufficient to establish the proper payee;
restored with sixty days after impairment or or (c) Medical report and evidence of
expiry, as the case may be, by such land medical or hospital disbursement in
transportation operator, otherwise, he shall respect of which refund is claimed;
secure the insurance policy required by this (iii) Claim may be made against one motor
chapter. The aforesaid cash deposit may be vehicle only. In the case of an occupant
29
Law on Insurance
of a vehicle, claim shall lie against the any unnecessary delay, present to the insurance
insurer of the vehicle in which the company concerned a written notice of claim
occupant is riding, mounting or setting forth the nature, extent and duration of
dismounting from. In any other case, the injuries sustained as certified by a duly
claim shall lie against the insurer of the licensed physician. Notice of claim must be filed
directly offending vehicle. In all cases, within six months from date of accident,
the right of the party paying the claim otherwise, the claim shall be deemed waived.
to recover against the owner of the Action or suit for recovery of damage due to
vehicle responsible for the accident loss or injury must be brought, in proper cases,
shall be maintained.“ with the Commissioner or the Courts within one
Q: How does the law protects the victim? year from denial of the claim, otherwise, the
A: By the provision under the NO FAULT claimant's right of action shall prescribe.”
INDEMNITY CLAUSE.
*No fault clause applies only to bodily physical CLAIMS SETTLEMENT:
injuries or death not to property damage. A. Unfair claim settlement practices
Q: From whom should the injured recover? Sec. 241 of the Insurance Code states that: “(1)
A: (a) In the case of an occupant of a vehicle, No insurance company doing business in the
claim shall lie against the insurer of the vehicle Philippines shall refuse, without just cause, to
in which the occupant is riding, mounting or pay or settle claims arising under coverages
dismounting from; (b) If not an occupant, claim provided by its policies, nor shall any such
shall lie against the insurer of the directly company engage in unfair claim settlement
offending vehicle; (c) In all cases, the right of practices. Any of the following acts by an
the party paying the claim to recover against insurance company, if committed without just
the owner of the vehicle responsible for the cause and performed with such frequency as to
accident shall be maintained. indicate a general business practice, shall
Examples: constitute unfair claim settlement practices:
a. A passenger rode Y taxi cab. The taxi cab is (a) knowingly misrepresenting to claimants
insured by X company under the pertinent facts or policy provisions relating to
compulsory motor vehicle liability coverage at issue;
insurance. The taxi collided against a (b) failing to acknowledge with reasonable
MERALCO post. promptness pertinent communications with
The passenger can claim against X company respect to claims arising under its policies;
without proving fault or negligence. Only (c) failing to adopt and implement reasonable
documents that prove the happening of the standards for the prompt investigation of claims
incident. arising under its policies;
b. Passenger 1 received P15,000 under the no (d) not attempting in good faith to effectuate
fault clause. His actual expenses amount to prompt, fair and equitable settlement of claims
P50,000. submitted in which liability has become
Q: Can he still recover the balance? From reasonably clear; or
whom? (e) compelling policyholders to institute suits to
A: YES. Against the offending vehicle but recover amounts due under its policies by
this time he is required to prove fault or offering without justifiable reason substantially
negligence. less than the amounts ultimately recovered in
suits brought by them.
E. Notice of claim (2) Evidence as to numbers and types of valid
Sec. 384 of the Insurance Code states that: and justifiable complaints to the Commissioner
“Any person having any claim upon the policy against an insurance company, and the
issued pursuant to this Chapter shall, without Commissioner's complaint experience with
30
Law on Insurance
other insurance companies writing similar lines damage is made either by agreement between
of insurance shall be admissible in evidence in the insured and the insurer or by arbitration;
an administrative or judicial proceeding brought but if such ascertainment is not had or made
under this section. within sixty days after such receipt by the
(3) If it is found, after notice and an opportunity insurer of the proof of loss, then the loss or
to be heard, that an insurance company has damage shall be paid within ninety days after
violated this section, each instance of non- such receipt. Refusal or failure to pay the loss or
compliance with paragraph (1) may be treated damage within the time prescribed herein will
as a separate violation of this section and shall entitle the assured to collect interest on the
be considered sufficient cause for the proceeds of the policy for the duration of the
suspension or revocation of the company's delay at the rate of twice the ceiling prescribed
certificate of authority.” by the Monetary Board, unless such failure or
General Rule: Upon maturity of the policy refusal to pay is based on the ground that the
Exception: Annuities payment claim is fraudulent.”
B. Claims for life insurance policies D. Delay in payment of claims

Sec. 242 of the Insurance Code provides that: Sec. 244 of the Insurance Code provides that:
“The proceeds of a life insurance policy shall be “In case of any litigation for the enforcement of
paid immediately upon maturity of the policy, any policy or contract of insurance, it shall be
unless such proceeds are made payable in the duty of the Commissioner or the Court, as
installments or as an annuity, in which case the the case may be, to make a finding as to
installments, or annuities shall be paid as they whether the payment of the claim of the
become due: Provided, however, That in the insured has been unreasonably denied or
case of a policy maturing by the death of the withheld; and in the affirmative case, the
insured, the proceeds thereof shall be paid insurance company shall be adjudged to pay
within sixty days after presentation of the claim damages which shall consist of attorney's fees
and filing of the proof of the death of the and other expenses incurred by the insured
insured. Refusal or failure to pay the claim person by reason of such unreasonable denial
within the time prescribed herein will entitle or withholding of payment plus interest of twice
the beneficiary to collect interest on the the ceiling prescribed by the Monetary Board of
proceeds of the policy for the duration of the the amount of the claim due the insured, from
delay at the rate of twice the ceiling prescribed the date following the time prescribed in
by the Monetary Board, unless such failure or section two hundred forty-two or in section two
refusal to pay is based on the ground that the hundred forty-three, as the case may be, until
claim is fraudulent. the claim is fully satisfied; Provided, That the
The proceeds of the policy maturing by the failure to pay any such claim within the time
death of the insured payable to the beneficiary prescribed in said sections shall be considered
shall include the discounted value of all prima facie evidence of unreasonable delay in
premiums paid in advance of their due dates, payment.”
but are not due and payable at maturity.”
C. Claims for non-life insurance policies

“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
31

Commercial Law Review: Key Insurance Concepts

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Commercial Law Review: Key Insurance Concepts

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Commercial Law Review

INSURANCE CODE (P.D. 1460 as amended) Q: Is there a contract?

contract of insurance to disclose conditions 5. Payment of premiums

insurance is bound to communicate Representations are factual statements

POLICY OF INSURANCE: (c) The premium, or if the insurance is of a

Disadvantage: hassle Commissioner may promulgate rules and

A. Definition and requisites D. Rules for payment where there is over-

*The balance shall be returned. non-life company underwriters to be

requisite to make the ship seaworthy course of the voyage insured,

4. It must be made within a reasonable common benefit and profit

within the period, his beneficiary is paid; if

invested by the Commissioner in readily

B. Claims for life insurance policies D. Delay in payment of claims

C. Claims for non-life insurance policies

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