INSURANCE REVIEWER unknown or contingent event through the payment of
consideration by the insured to the insurer under a
General Provisions
What is the basis of the right of subrogation? [p. 8]
The doctrine of subrogation is basically a process of
legal substitution; the insurer, after paying the amount covered
by the insurance policy, stepping into the shoes of the insured, as
it were, and availing himself of the latter’s rights that exist
against the wrongdoer at the time of the loss. It has roots in
equity. It is designed to promote and to accomplish justice and is
the mode which equity adopts to compel the ultimate payment of
debt by one who in justice and good conscience ought to pay.
What is the right of subrogation? [p. 8]
Subrogation is the substitution of one person in place of
one another with reference to a lawful claim or right, so that he
who is substituted succeeds to the rights of the other in relation
to a debt or claim, including its remedies and securities.
Is the right of subrogation applicable to all kinds of
insurance? [p. 9]
The right of subrogation under Article 2207 applies
only to property, and not to life insurance. The value of human
life is regarded as unlimited and, therefore, no recovery from a
third party can be deemed adequate to compensate the insured’s
beneficiary.
When is there a loss of right of subrogation by act of the
insured or insurer? [p. 12]
The right of subrogation has its limitations, to wit:
(1) Both the insurer (of goods covered by a bill of lading),
and the consignee are bound by the contractual
stipulations under the bill of lading; and
(2) The insurer can be subrogated only to the rights as the
insured may have against the wrongdoer.
What will happen if the insured assigned his rights against
the party at fault to the insurer? [p. 12]
The case is not between the insured and the insurer but
one between the shipper and the carrier because the insurance
company merely stepped into the shoes of the shipper.
What is a contract of insurance? [p. 15]
A “contract of insurance” is an agreement whereby one
undertakes for consideration to indemnify another against loss,
damage of liability arising from an unknown or contingent
event”.
What are the essential elements of an insurance contract? [p.
18]
(1) Subject Matter. – This refers to the thing insured. In
fire insurance and in marine insurance, the thing
insured is property; in life, health or accident insurance,
it is the life or health of the person that is the subject of
the contract; in casualty insurance, it is the insured’s
risk of loss or liability;
(2) Consideration. – The consideration for an insurance
contract is the premium paid by the insured. Its amount
is principally based on the probability of loss and extent
of liability for which the insurer may become liable
under the contract; and
(3) Object or Purpose. – Basically, a contract of insurance
is a risk-bearing contract. The principal object and
purpose of insurance is the transfer and distribution of
risk of loss, damage, or liability arising from an
legally binding contract to reimburse the insured for
losses suffered on the happening of the stipulated event.
What are the characteristics of an insurance contract? [p.
19]
(1) It is Consensual because it is perfected by the meeting
of the minds of the parties;
(2) It is Voluntary in the sense that it is not compulsory and
the parties may incorporate such terms and conditions
as they may deem convenient;
(3) It is Aleatory in the sense that it depends upon some
contingent event;
(4) It is Executed as to the insured after the payment of the
premium, and Executory on the part of the insurer in
the sense that it is not executed until payment for a loss;
(5) It is Conditional because it is subject to conditions the
principal one of which is the happening of the event
insured against;
(6) It is a Contract of Indemnity (except life and accident
insurance where the result is death) because the promise
of the insurer is to make good only the loss of the
insured;
(7) It is a Personal contract between the insurer and the
insured each party having in view the character, credit
and conduct of the other;
(8) It is Property in legal contemplation, since an insurance
is a contract.
How does an insurance contract differ from other contract?
[p. 21-22]
The contract of insurance made between the parties
usually called the insured and the insurer, is distinguished by the
presence of five elements, namely:
(1) The insured possesses an interest of some kind
susceptible of pecuniary estimation, known as
"insurable interest";
(2) The insured is subject to a risk of loss through the
destruction or impairment of that interest by the
happening of designated perils;
(3) The insurer assumes that risk of loss;
(4) Such assumption of risk is part of a general scheme to
distribute actual losses among a large group or
substantial number of persons bearing a similar risk;
and
(5) As consideration for the insurer's promise, the insured
makes a ratable contribution called "premium," to a
general insurance fund.
What is a risk-shifting device and a risk-distributing device?
[p. 24]
A risk-shifting device only possesses the first 3
distinguishing elements, that is:
(1) Insurable interest;
(2) Happening of the designated perils;
(3) Insurer assumes risk of loss.
A risk-distributing device includes all the elements,
which in addition:
(4) Distribute actual losses among a large group of persons
bearing a similar risk;
(5) Premium to the general insurance fund.
What are the classifications of contracts of insurance? [p. 43]
(1) Life Insurance
(a) Individual life;
(b) Group life;
 (c) Industrial life.
(2) Non-life insurance
(a) Marine
(b) Fire
(c) Casualty
(3) Contracts of suretyship or bonding
How will you interpret an insurance contract? [p. 45, 55, 58]
(1) All provisions of the insurance policy should be
examined and interpreted in consonance with its other.
The policy cannot be construed piecemeal;
(2) Various stipulations in the policy shall be interpreted
together, attributing to doubtful ones that sense which
may result from all of them taken jointly.
What does the term “doing an insurance business” or
transacting an insurance business” include? [p. 15 and 59]
(1) Making or proposing to make, as insurer, any insurance
contract;
(2) Making or proposing to make, as surety, any contract of
suretyship as a vocation and not as merely incidental to
any other legitimate business or activity of the surety;
(3) Doing any kind of business, including a reinsurance
business, specifically recognized as constituting the
doing of an insurance business within the meaning of
this code;
(4) Doing or proposing to do any business in substance
equivalent to any of the forgoing in a manner
designated to evade the provisions of this code.
Chapter I: The Contract of Insurance
Title 1: What May Be Insured?
What are the requisites of a contract of Insurance? [p. 65]
(1) A subject matter in which the insured has an insurable
interest (see Secs. 12-14.);
(2) Event or peril insured against which may be any
(future) contingent or unknown event, past or future
(Sec. 3.), and a duration for the risk thereof (see Sec. 51
[g].);
(3) A promise to pay or indemnify in a fixed or
ascertainable amount (see Sec. 2.);
(4) A consideration for the promise, known as the
"premium" (see Sec. 77.); and
(5) A meeting of minds of the parties upon all the
foregoing essentials, (see Arts. 1318, 1319, Civil Code.)
What is the subject matter of an insurance contract? [p. 66]
Anything that has an appreciable pecuniary value,
which is subject to loss or deterioration or of which one may be
deprived so that his pecuniary interest is or may be prejudiced,
may properly constitute the subject matter of insurance.
Example: Property insurance, Life, health and accident
insurance, and Casualty Insurance.
Who owns a life insurance policy? [p. 69]
Ownership of a modem life insurance policy is divided
between the insured and the beneficiary, the insured being the
owner of its various marketing and sales features, such as the
loan and cash surrender values, and the beneficiary being the
owner of a promise to pay the proceeds at the death of the
insured subject to the insured's right of revocation.
What do you mean by this – “an insurance contract is not a
wagering contract”? [p. 71]
A contract of insurance is a contract of indemnity and is
not a wagering or gambling contract, (see Sec. 25.) While it is
based on a contingency, it is not a contract of chance and is not
used for profit. The very purpose of insurance is the
reimbursement of the holder of insurance for actual loss suffered
from specified risks.
What is the similarity between insurance and gambling? [p.
72]
Insurance and gambling are similar in only one respect.
In both cases, one party promises to pay a given sum to the other
upon the occurrence of a given future event, the promise being
conditioned upon the payment of, or agreement to pay, a
stipulated amount by the other party to the contract.
Title 2: Parties to the Contract
Who are the parties in an insurance contract? [p. 74]
The two parties to a contract of insurance are:
(1) The insurer or the party who assumes or accepts the risk
of loss and undertakes for a consideration to indemnify
the insured or to pay him a certain sum on the
happening of a specified contingency or event.
(2) The insured or the second party to the contract, the
person in whose favor the contract is operative and who
is indemnified against, or is to receive a certain sum
upon the happening of a specified contingency or event;
He is the person whose loss is the occasion for the
payment of the insurance proceeds by the insurer.
Who is the insured? Is it the same as the assured? [p. 75]
"Insured" refers to the owner of the property insured or
the person whose life is the subject of the contract of insurance.
Although they are interchangeably used with assured, strictly
speaking, the term "assured," refers to the person for whose
benefit the insurance is granted.
Who is the beneficiary? Is it the same with the assured? [p.
75]
The beneficiary is the person designated by the terms of
the policy as the one to receive the proceeds of the insurance. He
is the third party in a contract of life insurance (see Secs. 179-
180.) for whose benefit the policy is issued and to whom the loss
is payable. “Beneficiary " is also used sometimes as a synonym
of “Assured.”
Who may be an insurer? [p. 75]
(1) Foreign or domestic insurance company or corporation
(2) Individual, partnership, or association
Can anybody become an insured and a beneficiary in an
insurable contract? [p. 77]
Yes, anybody can become insured except that of a
public enemy.
Who is a public enemy? [p. 78]
A public enemy designates a nation with whom the
Philippines is at war and it includes every citizen or subject of
such nation.
What is a control test? [p. 78]
The control test is where the corporation is deemed to
have the same citizenship as the controlling stockholder in time
of war. During this time, a private corporation is deemed an
enemy corporation although organized under Philippine laws if
they are controlled by enemy aliens.
What are the effects of war on existing insurance contracts?
[p. 78]
(1) Where parties rendered enemy aliens - By the law of
nations, all intercourse between citizens of belligerent
powers which is inconsistent with a state of war is
prohibited.
(2) With respect to property insurance - The rule adopted in
the Philippines is that an insurance policy ceases to
be valid and enforceable as soon as an insured becomes
a public enemy.
What is the United States Rule? [p. 79]
The United States rule declares that with respect to life
insurance during war, the contract is not merely suspended but is
abrogated by reason of non-payment of premiums, since the time
of the payments is peculiarly of the essence of the contract.
What are the extent of insurable interest of the mortgagor
and the mortgagee? [p. 80]
The mortgagor of the property as the owner has an
insurable interest therein to the extent of its value, even though
the mortgage debt equals such value. The reason is that the loss
or destruction of the property insured will not extinguish his
mortgage debt.
The mortgagee (or his assignee) has such an insurable
interest in the mortgaged property to the extent of the debt
secured, since the property is relied upon as security thereof, and
in insuring, he is not insuring the property itself but his interest
or lien thereon.
What are the legal effects of insurance procured by the
mortgagor for the benefit of the mortgagee or if the policy is
assigned to the mortgagee? [p. 83]
Under Section 8, where the mortgagor of property
effects insurance in his own name providing that the loss shall be
payable to the mortgagee, or assigns a policy of insurance to the
mortgagee, the following are the legal effects:
(1) The contract is deemed to be upon the interest of the
mortgagor; hence, he does not cease to be the party to
the contract;
(2) Any act of the mortgagor prior to the loss, which would
otherwise avoid the insurance (like storing inflammable
materials in the insured house) affects the mortgagee
even if the property is in the hands of the mortgagee;
(3) Any act which under the contract of insurance is to be
performed by the mortgagor (like payment of the
premium) may be performed by the mortgagee with the
same effect;
(4) In case of loss, the mortgagee is entitled to the proceeds
to the extent of his credit; and 
(5) Upon recovery by the mortgagee to the extent of his
credit, the debt is extinguished.  insurance on the life of another for the former's benefit,
NOTE: The rule on subrogation by the insurer to the right of the
mortgagee does not apply in this case.
What are the effects in case of the transfer or assignment of
the policy itself? [p. 86]
The effect of an assignment or transfer is to substitute
the assignee or transferee in place of the original insured in
respect to the right to claim indemnity or payment for a loss as
well as the obligation to perform the conditions, if any, of the
policy. The assignee, unless he makes a new contract with the
insurer, acquires no greater right under the insurance than the
assignor had, subject to insurer's defenses. 
What are the effects in case of assignment of the proceeds of
the policy? [p. 87]
The transfer or assignment of the proceeds of the policy
after a loss has happened, which involves a money claim under,
or a right of action on the policy.
What are the effects in case of assignment of the subject
matter of the insurance? [p. 87]
When there is a transfer of the subject matter of the
insurance, such as a house insured under a fire policy which has
the effect of suspending the insurance until the same person
becomes the owner of both the policy and the thing insured.
Title 3: Insurable Interest
What is an insurable interest? [p. 89]
An insurable interest is one of the most basic of all
requirements in insurance. In essence, it is that interest which the
law requires the owner of an insurance policy to have in the
person or thing insured.
Why is insurable interest an essential requirement in an
insurance contract? [p. 90]
It is an essential requirement because the existence of
insurable interest is a primary concern in determining the
liability of an insurer under a policy of insurance. Insurable
interest may be in life and health or in property. The existence of
insurable interest gives a person the legal right to insure the
subject of the policy of insurance. In the absence of such
interest, the person insuring in effect would be gambling (see
Sec. 3 [par. 1], 4, 18, 25.), which is prohibited by law (Revised
Penal Code, Article 195). It is a fundamental postulate of all
insurance that it must not be a mere bet upon a future event. 
What are the 2 general classes of life insurance policies? [p.
91]
Life insurance policies may be divided into two general
classes:
(1) Insurance upon one’s life. - Those taken out by the
insured upon his own life for the benefit of himself, or
of his estate, in case it matures only at his death, or for
the benefit of a third person who may be designated as
beneficiary. An application for insurance on one's own
life does not usually present an insurable interest
question; and
(2) Insurance upon life of another. - When one applies for
he must have an insurable interest in the life of that
person.
Is there a similarity between a life insurance policy and a
civil donation? [p. 93]
Yes, there is a similarity between a life insurance policy
and a civil donation because, in essence, a life insurance policy
is no different from a civil donation insofar as the beneficiary is
concerned. Both are founded upon the same consideration:
liberality.

A beneficiary is like a done, because from the
premiums of the policy which the insured pays out of liberality,
the beneficiary will receive the proceeds or profits of said
insurance.
Is the consent of the person whose life is insured essential to
the validity of the insurance taken by another? [p, 100]
It depends:
(1) It is essential to validity of policy when, on clear
principle and by the weight of authority, it is believed
that all such contracts, without the consent of the
insured, are contrary to public policy, and void.
Reason: The danger to the public of such insurances is
largely obviated when the insured, with knowledge of all the
circumstances, has given consent to the contract. His very
consent is strong evidence of the good faith of the person
procuring the insurance, and thus affords a needed guaranty
to society.
(2) It is not essential to validity of policy as provided under
the law. As long as it could be proved that the assured
has a legal insurable interest at the inception of the
policy, the insurance is valid even without such
consent.
Reason: The presence of insurable interest takes the
contract out or the class of forbidden wagers.
Who is the beneficiary in the contract of insurance? [p. 101]
The beneficiary of the contract is the person who is
named or designated in a contract of life, health, or accident
insurance as the one who is to receive the benefits which become
payable, according to the terms of the contract, upon the death of
the insured.
What are the kinds of beneficiary? Define each [p. 101]
Kinds of Beneficiary:
(1) Insured Himself. - A person, who is an immediate party
to the contract and pays the premiums necessary to
maintain it.
(2) Third Person Who Paid a Consideration - The third
person named as beneficiary may have paid a valuable
consideration for his selection.
(3) Third Person through Mere Bounty of Insured - The
beneficiary may be one who gives no consideration
whatsoever for any right that may be acquired in the
policy but is designated as recipient of the proceeds in
the policy through mere bounty of the insured.
Are there limitations as to who shall be designated as a
beneficiary? If yes, what are these? [p. 102]
Yes, there are limitations as to who shall be designated
as a beneficiary, namely:
(1) Any person who is forbidden from receiving any
donation cannot be named beneficiary of a life
insurance policy by the person who cannot make any
donation to him.
(2) Donations shall be void:
(a) Between persons who were guilty of adultery or
concubinage at the time of the donation;
(b) Between persons found guilty of the same criminal
offense, in consideration thereof; or
(c) To a public officer or his wife, descendants and
ascendants, by reason of his office.
(3) A life insurance policy, in essence is no different from a
civil donation insofar as the beneficiary is concerned.
Both are founded on the same consideration: liberality.
Does the insured have the absolute right to change the
beneficiary? [p. 104]
No, the insured does not have the absolute right to
change the beneficiary. Under Section 11 of The Insurance Code
of the Philippines states that:
“The insured shall have the right to change the
beneficiary he designated in the policy, unless he has expressly
waived this right in said policy. Notwithstanding the foregoing,
in the event the insured does not change the beneficiary during
his lifetime, the designation shall be deemed irrevocable.”
What will happen if the beneficiary predeceased the
insured? [p. 106]
If the beneficiary predeceased the insured, either of the
following will happen:
(1) His rights so vested should pass to his representatives,
and on the death of the insured, the proceeds of the
policy should belong, not to estate of the insured, but to
the representatives of the beneficiary; or
(2) The estate of the insured should be entitled to the
proceeds of the insurance especially where the
designation is subject to the express condition to pay
the beneficiary if he survives the insured or “if
surviving.”
When will the beneficiary forfeit his/ her right to the
insurance policy? [p. 109]
The beneficiary will forfeit his/her right to the
insurance policy if he/she is the principal, accomplice, or
accessory willfully bringing about the death of the insured. In
such a case, the share forfeited shall pass on to the other
beneficiaries, unless otherwise disqualified. In the absence of
other beneficiaries, the proceeds shall be paid in accordance with
the policy contract. If the policy contract is silent, the proceeds
shall be paid to the estate of the insured.
What is the liability of the insurer if the insured died: at the
hands of the law? Self destruction? Suicide while insane?
Caused by the beneficiary? Caused by violation of law? [p.
111]
The liability of the insurer if the insured died:
(1) At the Hands of the Law - Assumed by the insurer
under a life insurance policy in the absence of a valid
policy exception;
(2) Self-destruction - Insurer is not liable in case the
insured commits suicide intentionally, with whatever
motive, when in sound mind. Also, death which is
purely accidental, even though due to the insured’s own
carelessness or negligence is not excluded from the
coverage by the words “self-destruction,” “death by his
own hand,” and the like which are generally considered
synonymous with suicide;
(3) Suicide while Insane - Suicide of an insured while
insane does not discharge the insurer from his liability
on his contract. The insanity of the insured must have
known by the insurer and the unwitting act of self-
 destruction is as much the consequence of the disease
as if some vital organs were totally affected;
What are the prohibited stipulations in an insurance policy?
(4) Caused by the
Insurable Interest in Life Insurable Interest in Property
Beneficiary - The
insurer may properly As to extent of In property, insurable interest is limited
Insurable interest in life is unlimited
insert in the contract insurable interest to the actual value of the interest thereon
an express provision It is necessary that insurable interest
As to time when It is enough that insurable interest exists
excepting from “must exist when the insurance takes
insurable interest at the time the policy takes effect and
coverage death effect and when the loss occurs but need
must exist need not exist at the time of the loss
caused by the not exist in the meantime”
beneficiary, whether An expectation of benefit, to be derived
lawfully or from the continued existence of the
unlawfully; As to expectation The expectation of benefit to be derived property insured, however likely and
of benefit to be from the continued existence of life need morally certain of realization it may be,
(5) Caused by Violation derived not have any legal basis whatever will not afford a sufficient insurable
of Law - Committing interest unless that expectation has basis
a felony or violating of legal right.
a law would not warrant denial of liability. To avoid
liability, the insurer must further establish that the [p. 134]
commission of the felony or the violation of law was
(1) Wager Policy – Stipulation for the payment of loss
the cause or had a casual connection with the accident
whether the person insured has or has not any interest in
resulting in the death of the insured.
the subject matter of the insurance. [No interest in the
subject matter – policy/ contract is void]
What is the insurable interest in property? What does it
consists? How is it measured? What is the effect of absence (2) Stipulations that the policy shall be received as proof
of insurable interest in property? When should an insurable of insurable interest. [Existence of Insurable interest
interest in property exist? [p. 114 onwards; p. 120; p. 121; p. does not depend on the contract or its stipulations]
125]

The insurable interest in property is every interest in

property, whether real or personal, or any relation thereto, or
liability in respect thereof, of such nature that a contemplated
peril might directly damnify the insured.

It consists: Title 4: Concealment

(1) An existing interest; What is concealment? [p. 138]

Concealment is defined as neglect to communicate that

(2) An inchoate interest founded on an existing interest; and
(3) An expectancy, coupled with an existing interest in that
out of which the expectancy arises.
It is measured by the extent to which the insured might
be damnified by loss or injury thereof.
The effect of absence of insurable interest in the
property is that the premium is ordinarily returned to the insured
unless he is in pari delicto with the insurer.
An insurable interest in property exist when the
insurance takes effect, and when the loss occurs, but need not
exist in the meantime; and interest in the life or health of a
person insured must exist when the insurance takes effect, but
need not exist thereafter or when the loss occurs.
What is the insurable interest of a carrier or a depository?
[p. 118]
Insurable interest of a carrier or a depository is the loss
of the thing which may cause liability to the extent of its value.
What is a mere contingent or expectant interest? [p. 119]
A mere contingent or expectant interest is in anything,
not founded on an actual right to the thing, nor upon any valid
contract for it, is not insurable. It is a mere hope or expectation
of benefit which may be frustrated by the happening of some
event uncoupled with any present legal right which will not be
supported by a contract of insurance.
which a party knows and ought to communicate. It is intentional
withholding by the insured of any fact material to the risk.
What are concealment’s requisites and effects? [p. 139]
Requisites:
(1) A party knows the fact which he neglects to
communicate or disclose to the other;
(2) Such party concealing is duty bound to disclose such
fact to the other;
(3) Such party concealing makes no warranty of the fact
concealed; and
(4) The other party has not the means of ascertaining the
fact concealed.
Effects:
A concealment whether intentional or unintentional
entitles the injured party (insured or insurer) party to rescind a
contract of insurance.
Is proof of fraud necessary in concealment? [p. 140]
No. Under Section 27, the insurer need not prove fraud
in order to rescind a contract on the ground of concealment.
Otherwise, it would be impossible for the insurer to protect itself
and its honest policy holder against fraudulent and improper
claims. The insurer would be wholly at the mercy of anyone who
wished to apply for insurance, as it would be impossible to show
actual fraud except in extreme cases.
What are the rules of concealment in marine insurance? [p.
142]

What is the difference of insurable interest in life and The rule applicable in the Philippines, however, is
property? [p. 128] applicable to every kind of insurance (not just as to marine
insurance) is that fraud is not essential in order that the insured
may be guilty of concealment. It has been held that under Section
27 of the Insurance Act, the presence or absence of intent to
deceive is immaterial.
If the insurer fails to verify, what will happen? [p. 144]
The insurance company has no obligation to verify the
statements made by the insured in his application before the
issuing policy. It has the right to rely on the statements of the
insured as to material facts such as to his previous sickness, for
he knows the facts, and the matter is not one of which disclosure
is excused by law.
What is the test of materiality? [p. 147]
The test is in the effect which the knowledge of the fact
in question would have on the making of the contract. To be
material, a fact need not increase the risk or contribute to any
loss or damage suffered. It is sufficient if the knowledge of it
would influence the parties in making the contract. The matter
must, of course, be determined by court.
How will you prove that concealment is intentional? [p. 149]
A man’s state of mind or subjective belief is not
capable of proof in our judicial process, except through proof of
external acts or failure to act from which inferences as to his
subjective belief may be reasonable drawn.
Is the right to information waivable? [p. 151]
The right to information of material facts may be
waived either expressly, that is, by the terms of the insurance, or
impliedly, that is, by neglect to make inquiry of the facts already
communicated. (Sec 33)
Is it necessary to disclose opinion, speculation, intention or
expectation? [p. 153 and 154]
The duty to disclose is confined to facts. Hence, there is
no duty to disclose mere opinion, speculation, intention or
expectation. (Sec 35)
Title 5: Representation
What is representation and misrepresentation?
Representation pertains to a statement made by the
insured at the time of, or prior to, the issuance of the policy,
relative to the risk to be insured, as to an existing or past fact or
state of facts, or concerning a future happening, to give
information to the insurer and otherwise induce him to enter into
the insurance contract.
Misrepresentation is a statement as a fact of something
which is untrue, which the insured stated with knowledge that is
untrue and with an intent to deceive, or which he states
positively as true without knowing it to be true and which has a
tendency to mislead, and where such fact in either case is
material to the risk.
What is the intention when a representative is made?
The representations are made to influence the insurer to
accept the risk, it being merely collateral inducements to the
contract, which means that representations may be
communicated in any manner whatsoever that is intelligible.
However, they are not part of the contract unless expressly
made.
When representations are made?
Section 37 of the Insurance Code provides that a
representation may be made at the time of, or before, issuance of
the policy.
How are representations interpreted?
Representations are construed liberally in favor of the
insured, and are required to be only substantially true.
What are the kinds of representation?
The kinds of representation are:
(1) Oral or written;
(2) Made at the time of issuing the policy or before; and
(3) Affirmative or promissory
An Affirmative Representation is any allegation as to
the existence of a fact when the contract begins.
While a Promissory Representation is any promise to
be fulfilled after the contract has come into existence or any
statement concerning what is to happen during the existence of
the insurance.
When can you consider a representation as a mere
expression of opinion?
A representation can be considered as a mere
expression of opinion when it is an oral representation as to
future event or condition, over which the insured has no control,
with reference to property or life insured, and such will avoid a
contract only when made in bad faith.
Once a representation has been made, can you alter or
withdraw it?
A representation may be altered or withdrawn before
the insurance is effected, but not afterwards.
Discuss the effects of the following:
(1) Information obtained from third persons?
(2) Information obtained from the agent of the insured?
(3) Information obtained from the agent of the insurer?
The following are the effects of information according
to where they are obtained, thus:
(1) Information obtained from third persons? - The
insured is given discretion to communicate to the
insurer what he knows of a matter of which he has no
personal knowledge. If the representation turns out to
be false, he is not responsible therefore, provided that
he gives explanation that he does so on the information
of others.
(2) Information obtained from the agent of the
insured/insurer? - If the information proceeds from an
agent of the insured, whose duty is in the ordinary
course of business to communicate such information to
his principal, and it was possible for the agent under
such circumstances in the exercise of due diligence to
have made such communication before the making of
the contract, the insured will be liable for the truth.
(3) Information obtained from the agent of the insurer? -
It must be borne in mind that the same principle applies
to the insurer though in the nature of the things, the
question does not occur so frequently.
What is the effect if representation is false?
If a representation is false in a material point, whether
affirmative or promissory, the injured party is entitled to rescind
the contract from the time when the representation becomes
false.
What is the difference if there is collusion between the
insured and the insurer’s agent?
The following are the differences, to wit:
(1) Collusion with the insured - Collusion between the
agent of the agent and the insured in misrepresenting
the facts will vitiate the policy even though the agent is
acting within the apparent scope of his authority. When
there is collusion, the agent thereby ceases to represent
his principal, and represents himself; so the insurer is
not estopped from avoiding the policy.
(2) Collusion with principal of agent - Where the insured
merely signed the application form and made the agent
of the insurer fill the same for him, it was held that by
doing so, the insured made the agent of the insurer his
own agent. But where the insurer required its medical
examiner to put the questions and fill out the answers in
his own handwriting, the writer of the application is not
the agent of the insured. The insurer is liable when its
agent writes a false answer into the application without
the knowledge of the insured.
How will you determine the materiality of representation?
The materiality of the representation is to be determined
not by the event, but solely by the probable and reasonable
influence of the facts upon the party to whom the representation
is made, in forming his estimates of the disadvantages of the
proposed contract or in making his inquiries.
Distinguish concealment from misrepresentation.
In concealment, the insured withholds information of
material facts from the insurer, whereas in misrepresentation,
the insured makes erroneous statements of facts with the intent
of inducing the insurer to enter into the insurance contract;
What is incontestability clause?
This pertains to clauses in life insurance policies
stipulating that the policy shall be incontestable after a stated
period are in general use, and are now required by statutes in
force. Incontestability means that after the requisites are shown
to exist, the insurer shall be estopped from contesting the policy
or setting up any defense, except as is allowed, on the ground of
public policy.
What are the requisites to consider in an incontestability
clause?
In order that the insurance shall be incontestable, the
following requisites must be present:
(1) The policy is a life insurance policy;
(2) It is payable on the death of the insured; and
(3) It has been in force during the lifetime of the insured for
at least two (2) years from its date of issue or of its last
reinstatement.
What will happen if the policy becomes incontestable?
When a policy of life insurance becomes incontestable,
the insurer may not refuse to pay the same by claiming that:
(1) The policy is void ab initio; or
(2) It is rescissible by reason of the fraudulent concealment
of the insured or his agent, no matter how patent or
well-founded; or
(3) It is rescissible by reason of the fraudulent
misrepresentations of the insured or his agent.
What are the possible defenses against the application of the
incontestability clause?
The insurer may still contest the policy by way of
defense to a suit brought upon the policy or by action to rescind
the same, on any of the following grounds:
(1) That the person taking the insurance lacked insurable
interest as required by law;
(2) That the cause of the death of the insured is an excepted
risk;
(3) That the premiums have not been paid;
(4) That the conditions of the policy relating to military or
naval service have been violated;
(5) That the fraud is of a particularly vicious type;
(6) That the beneficiary failed to furnish proof of death or to
comply with any condition imposed by the policy after
the loss has happened; or
(7) That the action was not brought within the time
specified.
Title 6: The Policy
What is a policy of insurance? [p. 178]
Section 49 provides that a policy of insurance is a
written instrument in which a contract of insurance is set forth. It
is the written document embodying the terms and stipulations of
the contract of insurance between the insured and the insurer.
Explain the principle that an insurance contract is a contract
of adhesion [p. 179]
The term "adhesion contract" is essentially a
description of the manner by which the contract is formed: one
party having superior bargaining power imposes its choice of
terms on the other party. Ordinarily, contracts are freely
negotiated by parties with roughly equivalent bargaining power.
Although the insured can choose from a variety of available
coverages, he cannot negotiate the substance of the contract with
the insurer. Since in this type of contracts, the parties do not
bargain on equal footing, the weaker party's participation is
reduced to the alternative "to take it or leave it." Thus, those
contracts are viewed as traps for the weaker party whom the
courts of justice must protect. Consequently, where the language
used in an insurance contractor application is such as to create
ambiguity, the same should be resolved liberally in favor of the
insured and strictly against the party responsible therefor.
Policy insurance vs. Contract Insurance [p. 181]
A policy of insurance is different from the contract of
insurance:
(1) The policy is the formal written instrument evidencing
the contract of insurance entered into between the
insured and the insurer. It is the law between them.
(2) Form thereof previously approved by Insurance
Commissioner. Insurance policies generally are
required in standard forms. Under Section 226, no
policy of insurance shall be issued or delivered within
the Philippines unless in the form previously approved
by the Insurance Commissioner.
What is the required form of an insurance policy? [p. 182]
Section 50 provides that the policy shall be in printed
form which may contain blank spaces; and any word, phrase,
clause, mark, sign, symbol, signature, number, or word
necessary to complete the contract of insurance shall be written
on the blank spaces provided therein.
 Group insurance and group annuity policies, however,
may be typewritten and need not be in printed form.
In case of conflict between the written and printed
portions of a policy, the written portion prevails. (Jargue vs.
Union Fire Insurance Co., 56 Phil. 758 [1932].)
When is insurance perfected? [p. 182]
A contract of insurance, like other contracts, must be
assented to by the parties either in person or by their agents.
Under the law, assent or consent is manifested by the meeting of
the offer and the acceptance upon the thing and the cause which
are to constitute the contract. (Art. 1319, Civil Code.)
The following are necessary for the perfection of
insurance:
(1) Acceptance of application. - If an application for
insurance has not been either accepted or rejected, there
is no contract yet as it is merely an offer or proposal.
The contract, to be binding from the date of the
application, must have been a completed contract, one
that leaves nothing to be done, nothing to be completed,
nothing to be passed upon, or determined, before it
shall take effect. There can be no contract of insurance
unless the minds of the parties have met in agreement.
(2) Compliance with conditions precedent. - The parties
may impose additional conditions precedent to the
validity of the policy as a contract as they see fit. These
conditions are valid and enforceable. Until the
conditions are fulfilled, the policy is of no binding
effect. There is no valid and binding insurance contract
where no premium is paid unless credit is given or there
is a waiver or some agreement obviating the necessity
for prepayment of the premium.
(3) Cover Notes- Cover notes (also called a binder) may be
issued to afford immediate provisional protection to the
insured until the insurer can inspect or evaluate the risk
in question and issue the proper policy (Sec. 52, par.
1.), or until the risk is declined and notice thereof given.
When is there an offer and acceptance of an insurance
contract? [p. 185]
(1) In property and liability insurance. - It is the insured
who technically makes an offer to the insurer, who
accepts the offer, rejects it, or makes a counter-offer.
The offer is usually accepted by an insurance agent on
behalf of the insurer.
(2) In life and health insurance. - The situation depends
upon whether the insured pays the premium at the time
he applies for insurance.
(a) If he does not pay the premium, his application is
considered an invitation to the insurer to make an
offer, which he must then accept before the
contract goes into effect. If he pays the premium
with his application, his application will be
considered an offer. Binding receipt is a
conditional acceptance by the insurer.
(b) Where the application for insurance constitutes an
offer by the insured, a policy issued strictly in
accordance with the offer is an acceptance of the
offer that perfects the contract. If the policy issued
does not conform to the insured's application, it is
an offer to the insured which he may accept or
reject.
What is the significance of a delivery in an insurance policy?
[p. 186]
Delivery is the act of putting the insurance policy into
the possession of the insured. The delivery of the policy is
important because it serves:
(1) As evidence of the making of a contract and of its terms;
(2) As communication of the insurer's acceptance of the
insured's offer.
(3) As it affects the term of the coverage;
(4) As it marks the end of the insurer's opportunity to
decline coverage.
What are the modes of delivery in an insurance policy? [p.
187]
(1) Actual Delivery - Actual manual transfer of the policy;
(2) Constructive delivery - The intention of the parties
which may be shown by their acts or words.
What is the effect of delivery in an insurance policy? [p. 189]
(1) Where delivery conditional. - Non-performance of the
condition precedent prevents the contract from taking
effect;
(2) Where delivery unconditional. - Ordinarily
consummates the contract, and the policy as delivered
becomes the final contract between the parties; and
(3) Where premium still unpaid after unconditional
delivery. In the absence of any clear agreement
granting credit extension, the policy will lapse if the
premium is not paid, at the time and in the manner
specified in the policy.
What if the delivery was made to the insurer’s agent? [p.
188]
There has been much conflict of view on the question.
(1) Beneficiary cannot recover. - One view holds that the
beneficiary cannot recover for the simple reason that
the insurance agent is not his agent, (see Bradley vs.
New York Life Ins., 275 F. 657 [1921].)
(2) Beneficiary can recover. - The insured having complied
with every condition required of him, actual delivery to
him is not essential to give the policy binding effect,
(see New York Life Ins. Co. vs. Babcock,30 S.E. 273
[1898].)
What is a rider? In case of conflict between policy and the
rider, which will prevail? In case of conflict between the
policy and other attached papers, which will prevail? [p. 190]
A rider is a small printed or typed stipulation contained
on a slip of paper attached to the policy and forming an integral
part of the policy.
When there is an inconsistency between a rider and the
printed stipulations in the policy, the rider prevails, as being a
more deliberate expression of the agreement of the contracting
parties.
This principle applies to interpretation of clauses,
warranties, or indorsements which are attached to policies to
vary their terms.

What will happen if the insured fails to read the insurance
policy? [p. 193]
(1) Majority rule. - The insured's acceptance and retention
of the policy unread is not such laches as will defeat his
right to reformation. The basis for the decisions is that
insurance contracts are contracts of "adhesion" and not
of bargaining, that is, the insured purchases the contract
prepared solely by the insurer; and
(2) Minority rule. - One who accepts a contractual
instrument is conclusively presumed, in the absence of
fraud or mutual mistake, to know and assent to its
contents. The insured has the duty to read his policy
and is bound by his contract as written whether he reads
it or not.
Who has the duty to explain? [p. 195]
(1) Where terms of policy are clear. - The insurer has no
affirmative duty to explain the policy or its exclusions
to the insured;
(2) Important caveats. - The insurer or his agent(s) has the
duty to explain:
(a) Reasonable expectations of insured. - The doctrine
of "reasonable expectations" can operate to impose
de facto a duty on the insurer to explain the policy's
coverage to the insured;
(b) Options available to insured. - In the area of motor
vehicle insurance where legislations have made
certain kinds of coverage optional, usually
uninsured or underinsured motorist insurance,
courts have sometimes imposed a duty on the
insurer to explain the options to the insured;
(c) Information expected by insured from insurer's
agent. - Agents have the obligation to explain to
the customer the kinds of coverage available and to
help the insured in choosing an appropriate
coverage;
(d) Contractual rights of insured after denial of
coverage. - When the insured disputes a denial of
coverage, the duty of good faith and fair dealing
may impose an obligation on the insurer to alert the
insured to his rights.
What are the contents of a policy of insurance? [p. 197]
A policy of insurance must specify:
(1) Names of parties;
(2) Amount of insurance;
(3) Premium;
(4) Property or life insured;
(5) Interest of insured in property;
(6) Risks insured against;
(7) Term or duration of insurance.
What are the kinds of insurable risks? [p. 200]
The risks confronting man are ordinarily divided into
three (3) classifications, namely:
(1) Personal risks. - They are those involving the person.
This classification of risk is chiefly concerned with the
time of death or disability;
(2) Property risks. - They are those involving loss or
damage to property. This arises from the destruction of
property;
(3) Liability risks. - They are those involving liability for
the injury to the person or property of others. This is
occasioned by the operation of the law of liability and
may sometimes be called third party risks.
Distinguish risk, peril and hazards. [p. 201]
Risk is the chance of loss, or the possibility of the
occurrence of a loss, based on known and unknown factors.
Peril is the contingent or unknown event which may
cause a loss.
Hazard is the condition or factor, tangible or intangible,
which may create or increase the chance of loss from a given
peril.
What are the requirements for risk to be insurable? [p. 202]
(1) Importance - The loss to be insured against should be
important enough to warrant the existence of an
insurance contract;
(2) Calculability - The risk must permit a reasonable
statistical estimate of the chance of loss and possible
variations from the estimate;
(3) Definiteness of loss – The losses should be fairly
definite as to cause, time, place, and amount, for
otherwise, estimates of possible loss are difficult;
(4) No catastrophic loss -There must be no catastrophic
loss.
(5) Accidental nature - Insurable risks must also normally
be accidental in nature.
What are the kinds of preliminary contracts of insurance?
[p. 204]
There are two kinds of preliminary contract of
insurance, namely:
(1) Preliminary contract of present insurance. – The
insurer insures the subject matter usually by a “binding
slip,” or “binder” or “cover note,” the contract to be
effective until the formal policy is issued or the risk
rejected;
(2) Preliminary contracts of executor insurance. – The
insurer makes a contract to insure the subject matter at
some subsequent time which may be definite or
indefinite.
What are cover notes? [p. 206]
Cover notes (also called a binder) are short-term
insurance policies that may be issued to afford immediate
provisional protection to the insured until the insurer can inspect
or evaluate the risk in question and issue the proper policy or
until the risk is declined and notice thereof given.
What are the rules on cover notes? [p. 207]
(1) Insurance companies doing business in the Philippines
may issue cover notes to bind insurance temporarily,
pending the issuance of the policy;
(2) A cover note shall be deemed to be a contract of
insurance;
(3) No cover note shall be issued or renewed unless in the
form previously approved by the Insurance
Commission;
(4) A cover note shall be valid and binding for a period not
exceeding 60 days from the date of its issuance,
 whether or not the premium therefor has been paid, but
such cover note may be cancelled by either party upon
at least seven (7) days notice to the other party;
(5) If a cover note is not so cancelled, a policy of insurance
shall, within 60 days after the issuance of such cover
not, be issued in lieu thereof;
(6) A cover note may be extended or renewed beyond the
aforementioned period of 60 days with the written
approval of the Insurance Commission;
(7) Insurance companies may impose on cover notes a
deposit premium equivalent to at least 25% of the
estimated premium of the intended insurance coverage
but in no case less than P500.00
Are third persons entitled to recover on policy? [p. 208]
(1) As against the insured. - Third persons have no right
either in court of equity or in a court of law to the
proceeds of the policy unless there is some contract of
trust, express or implied, between the insured and third
persons;
(2) As against the insurer. - A third person, in the absence
of any provision in the policy, has also no right to the
proceeds thereof.
What is the rule where an insurance contract is made by an
agent or trustee? [p. 211]
When an insurance contract is executed with an agent
or trustee as the insured, he may indicate that his principal or
beneficiary is the real party in interest. This is done by merely
acting in a representative capacity by signing as an agent or
trustee.
Where insurance effected by partner or part owner [p. 211]
When insurance is effected by one partner or part
owner, applicable to the interest of his co-partners or other part-
owners, it is necessary that the terms of the policy should be
such as are applicable to the joint or common interest.
Who benefits the policy when the description of the insured
in a policy is in general terms? [p. 212]
When the description of the insured in a policy is so
general that it may comprehend any person or any class of
persons, only he who can show that it was intended to include
him, can claim the benefit of the policy
What is the effect of transfer of thing insured? [p. 213]
Mere transfer of a thing insured does not transfer the
policy, but suspends it until the same person becomes the owner
of both the policy and the thing insured.
What are the kinds of insurance policies? [p. 213]
Insurance policies may be OPEN, VALUED, or
RUNNING.
(1) Open policy. - It is one in which the value of the thing
insured is not agreed upon and the amount of insurance
merely represents the insurer’s maximum liability. The
value of such thing insured shall be ascertained at the
time of the loss. In other words, it does not
predetermine the value of the insured property but
establishes a maximum amount the insurer will pay in
case of a total loss of the property insured;
(2) Valued policy. - It is one which expresses on its face an
agreement that the thing insured shall be valued at a
specific sum. In other words, the value of the insured
property is predetermined and the value is the amount
to be used in case of a total loss;
(3) Running policy. - It is one which contemplates
successive insurances, and which provides that the
object of the policy may be from time to time defined,
especially as to the subjects of insurance, by additional
statements or indorsements.
What is the rule in the validity of an agreement limiting time
for commencing action? [p. 217]
GR: A clause in an insurance policy to the effect that an action
upon the policy by the insured must be brought within a certain
period is VALID.
XPN: If the period fixed for commencing action in a policy of
insurance is fixed to a period of less than one (1) year from the
time the cause of action accrues, such condition, stipulation or
agreement would be VOID.
What is cancellation of non-life insurance policy? [p. 222]
Cancellation is the right to rescind, abandon or cancel a
contract of insurance which may be terminated by either the
insurer or the insured before its expiration.
What are the formalities required for the right to cancel a
policy of insurance? [p. 222]
The right to cancel may be exercised when all the
following conditions are present:
(1) There must be prior notice of cancellation to the insured;
(2) The notice must be based on the occurrence, after the
effective date of the policy, of one or more of the
grounds for cancellation under Sec. 64 of the Insurance
Code;
(3) It must be in writing, mailed or delivered to the named
insured at the address in the policy, or to his authorized
broker; and
(4) It must state which of the grounds set forth is relied
upon.
Title 7: Warranties
What is a warranty? [p. 226]
Warranty is a statement or promise by the insured
contained in the policy itself or incorporated in or attached to it
by proper reference, the falsity or non-fulfillment of which and
regardless of whether or not the insurer has suffered loss or
prejudice as a result of the falsity or non-fulfillment, renders the
policy voidable at the election of the insurer.
What are the kinds of warranties? [p. 226]
(1) Express warranty. – It is an agreement contained in the
policy or clearly incorporated where the insured
stipulates certain facts relating to the risk are true or
certain acts have been done;
(2) Implied warranty. – It is a warranty which from the
very nature of the contract or general tenor of the words
is necessarily embodied in the policy and which binds
the insured as though expressed in the contract;
(3) Affirmative warranty. – It is one which asserts the
existence of a fact or condition at the time it is made;
(4) Promissory warranty. - It is one where the insured
stipulates that certain facts or conditions pertaining to
 the risk shall exist or that certain things with reference
thereto shall be done or omitted.
What time does warranty refers [p. 228]
A warranty may relate to the past, the present, the
future, or to any or all of these. But in the case of a promissory
warranty, the same may refer only to future events.
Does the word “warranty” in an insurance contract
necessarily constitute a warranty? [p. 228]
The use of the word warranty in an insurance contract
does not necessarily constitute a warranty nor is the word
necessary to constitute one. Whether a statement made by the
insured in an insurance policy is a warranty depends upon the
intention of the parties. The parties must intend a statement to be
a warranty and it must be included as part of the contract.
Distinguish warranties and representation. [p. 229]
(1) Warranties are considered parts of the contract, while
representations are but collateral inducements to it;
(2) Warranties are always written on the face of the policy,
actually or by reference, while representations may be
written in a totally disconnected paper or may be oral;
(3) Warranties must be strictly complied with, while in
representations, substantial truth only is required;
(4) Falsity or non-fulfillment of a warranty operates as a
breach of contract, while the falsity of a representation
renders the policy voidable or rescissible on the ground
of fraud;
(5) Warranties are presumed material, while the insurer
must show the materiality of a representation in order to
defeat an action on the policy.
Where does an express warranty be contained? [p. 231]
In order that a stipulation may be considered a
warranty, it must not only be clearly shown that such was the
intention of the parties but also must form part of the contract
itself or if contained in another instrument, it must be signed by
the insured and referred to in the policy as making a part of it.
Mere reference alone is not sufficient to give this effect.
What is a promissory warranty? [p. 234]
Section 72 refers to a promissory warranty, which
provides that, “a statement in a policy, which imparts that it is
intended to do or not to do a thing which materially affects the
risk, is a warranty that such act or omission shall take place.”
Title 8: Premium
What is a premium? [p. 244]
An insurance premium is the agreed price for assuming
and carrying the risk – that is, the consideration paid an insurer
for undertaking to indemnify the insured against a specified
peril.
What is an assessment? [p. 245]
An assessment is a sum specifically levied by mutual
insurance companies or associations, upon a fixed and definite
plan, to pay losses and expenses.
Distinguish Premium and Assessment. [p. 245]
The distinction between premiums and assessments lies
in the fact that the former are levied and paid to meet anticipated
losses, while the latter are collected to meet actual losses.
What is cash and carry rule? [p. 256 footnote]
The cash and carry rule is found in Section 77 of the
Insurance Code which provides that no contract of insurance is
binding unless the premium has been paid. The payment
contemplated is means full and prompt payment.
When is an insured entitled to recover premiums? [p. 275]
(1) When no part of the thing insured has been exposed to
any of the perils insured against;
(2) When the insurance is for a definite period and the
insured surrenders his policy before the termination
thereof;
(3) When the contract is voidable and subsequently annulled
because of the fraud or misrepresentation of the insurer
or his agent;
(4) When the contract is voidable because of the existence
of facts which the insured was ignorant without his
fault;
(5) When the insurer never incurred any liability under the
policy because of the default of the insured other than
actual fraud;
(6) When there is over-insurance;
(7) When rescission is granted due to the insurer’s breach of
contract.
May an insurer contract and accept payments in addition to
regular premiums? [p. 283]
Yes, Section 84 provides that an insurer may contract
and accept payments, in addition to regular premium, for the
purpose of paying future premiums on the policy or to increase
the benefits thereof.
Title 9: Loss
What is Loss in Insurance? [p. 285]
Injury, damage or liability sustained by the insured in
consequence of the happening of one or more of the perils
against which the insurer, in consideration of the premium, has
undertaken to indemnify the insured.
What is the scope of loss? [p. 285]
Loss in insurance law embraces bodily injury, including
death or property damage or destruction. It also includes loss of
income or profits and legal liability to a third party.
What is Proximate Cause? [p. 287]
It is that which, in a natural and continuous sequence,
unbroken by any new independent cause, produces an event and
without which the event would not have occurred.
It is the efficient cause, the one that sets others in
motion, to which the loss is to be attributed, although other and
incidental causes may be nearer in time to the result and operate
more immediately in producing the loss.
Explain what is hostile and friendly fires [p. 288]
 HOSTILE FIRE WhenFIRE
FRIENDLY is Notice of Loss necessary? [p. 298]

The insurer cannot be held liable to pay a claim unless

One that escapes from the place One that burnshe
in receives noticeitof that claim.
a place where
where it was intended to burn
and ought to be. intended to burn and oughtUnder the law, if notice of loss is not given to the
to be
insurer by the person insured or by the person entitled to the
benefit of the insurance without unnecessary delay, or in a
timely manner, the insurer is exonerated or discharge from
It is hostile when it occurs outside of the usual liability
It is to be regarded even though
as merely an the loss is one the policy was designed to
confines or begins as a friendly fire and becomes agency for the protect against. of
accomplishment
hostile by escaping from the place where it ought some purpose and not as a hostile
to be to some place where it ought not to be.
What is the time for giving notice of Loss?

(1) The notice of loss upon an insurance against fire must

Example: where a fire in the chimney due to be given “without unnecessary delay”. It is a
Examples: Fire burning in a
ignition of soot and smoke to issue from the stove requirement of policy that notice of loss be given
furnace, or a stove, or a lamp
so as to damage the property insured immediately or forthwith requires the giving of notice
within a reasonable time.

By reasonable time it means that the notice has been

Even though a fire may remain entirely within its given by
Damage that may be caused “as soon as circumstances permitted the insured,
proper place, it may become hostile if it by such fires, due to their in the exercise of reasonable diligence, to
negligent
accident , becomes so excessive as to be beyond communicate.”
management, is not considered to
control be within the terms of the policy.
(2) For life insurance, other than fire, the Commissioner
may specify the period for the submission of the notice
Insurer is liable Insurer is not liable
of loss.
What is the extension of the principle of proximate cause? [p. (3) The insurance contract may provide that the notice of
290] loss shall be given within stated time after the loss
occurs and that failure to give the notice within such
The insurer is liable in two (2) cases: time shall preclude recovery. Such provision is valid
provided the time so fixed is not unreasonably short.
(1) Where the loss took place while being rescued from
the peril insured against. - The insurer is liable where What is the purpose of Proof of loss? [p. 301]
the insured is permanently deprived of the possession,
in whole or in part of the thing insured by a peril not The statement of loss is much more formal requirement
insured against provided it is shown that said property and intended not only:
would have been lost by the peril insured against had
there been no attempt to rescue it. (1) To give the insurer information by which he may
determine the extent of his liability, but also,
(2) Where the loss is caused by efforts to rescue the thing (2) To afford him a means of detecting any fraud that may
insured from a peril insured against. - It is the efforts have been practiced upon him; and
to rescue the thing that caused the loss (3) To operate as a check upon extravagant claims.
Title 10: Notice of Loss Title 11: Double Insurance
What must be fulfilled before the insured becomes entitled to What is Double Insurance?
the benefit of fire insurance policy? [p. 297]
It exists where same person is insured by several
Conditions concerning matters after the loss that must insurers separately in respect to same subject and
be fulfilled before the insured becomes entitled to the benefit of interest. (Sec. 93)
fire insurance policy, namely:

(1) Written notice of loss must be given to the insurer; and

(2) When required by the policy, a preliminary proof of loss What are the requisites of Double Insurance? [p. 307]
must likewise be given.
There is no double insurance, unless the following
What is the meaning and purpose of Notice of Loss? [p. 298] requisites exist:

1) Notice of loss is more or less formal notice given
the insurer or claimant under a policy of the
occurrence of the loss insured against.
2) The purpose of a notice of loss is to apprise the
insurance company with the occurrence of the loss,
so that it may gather information and make proper
investigation while the evidence is still fresh and
take such action as may be necessary to protect its
interest from fraud or imposition, in the case of
property insurance, to prevent further loss to the
property.
(1) Person insured is the same;
(2) Two or more insurers insuring separately;
(3) Identity of Subject matter;
(4) Identity of Interest insured;
(5) Identity of Risk or peril insured against is likewise the
same.
Distinguish Double Insurance and Over Insurance. [p. 308]
Double insurance is different from over insurance:
 (1) There is over insurance when the amount of the
insurance is beyond the value of the insured’s insurable
interest. In double insurance, there may be no over
insurance as when the sum total of the amounts of the
policies issued does not exceed the insurable interest of
the insured
(2) While in double insurance there are always several
insurers, in over insurance there may be only one
insurer involved.
(3) Double insurance and over-insurance may exist at the
same time or neither may exist at all. Double insurance
is the term used instead of “co-insurance” when the
sums insured exceed the insurable interest. In such case,
there is “over-insurance” by “double insurance”.
What is the purpose of prohibition against Double
Insurance? [p. 309]
The purpose of the prohibition against double insurance
is to prevent over-insurance and thus averts the perpetration of
fraud. The public as well as the insurer is interested in
preventing the situation in which a loss would be profitable to
the insured.
Title 12: Reinsurance
What is Reinsurance? [p. 315]
A contract of reinsurance is a contract between the
reinsured and the reinsurer by which the latter agrees to protect
the former from risks already assumed.
Distinguish reinsurance distinguished from double
insurance. [p. 316]
(1) In double insurance, the insurer remains as the insurer of
the original insured, while in reinsurance, the insurer
becomes the insured, insofar as the reinsurer is
concerned;
(2) In double insurance, the subject of the insurance is
property; while in reinsurance, it is the original
insurer’s risk;
(3) Double insurance is an insurance of the same interest
while reinsurance is an insurance of a different interest;
(4) In double insurance, the insure is the party in interest in
all contracts, while in reinsurance, the original insured
has no interest in the contract of reinsurance which is
independent of the original contract of insurance;
(5) In double insurance, the insured has to give his consent,
while in reinsurance, the consent of the original insured
is not necessary.
What is Automatic & Facultative Methods of ceding
reinsurance? [p. 320]
(1) Automatic Reinsurance Treaties. - Here, the ceding
company (reinsured) is bound to cede (give off by way
of reinsurance) and the reinsurer is obligated to accept a
fixed share of the risk which has to be reinsured under
the contract;
(2) Facultative insurance. - It covers liability on individual
risk, there is no obligation either to cede or to accept
participation in the risk insured, each party having a
free choice. But once the share is accepted, the
obligation is absolute and the liability assumed there
under can be discharged by one and only way, payment
of the share of the losses.
Distinguish Reinsurance Treaty and Reinsurance policy. [p.
320]
A reinsurance policy is a contract of indemnity an
insurer makes with another to protect the first insurer from a risk
it has already assumed.
A reinsurance treaty is merely an agreement between
two insurance companies whereby one agrees to cede and the
other to accept reinsurance business pursuant to provisions
specified in the treaty.
Treaties are contracts for insurance; while reinsurance
policies or cessions are contracts of insurance.
What is presumed in a Contract of Reinsurance? [p. 321]
Section 99 provides that a contract of reinsurance is
presumed to be a contract of indemnity against liability, and not
merely against damage.
Does an original insured have a right in a contract of
reinsurance? [p. 322]
Section 100 states that the “original insured has no
interest in a contract of reinsurance.” Unless the contract so
provides, the insured has no concern with the contract of
reinsurance, and the reinsurer is not liable to the insured, either
as surety or otherwise.
What is the liability of the reinsurer to the reinsured? [p.
323]
The reinsurer is not liable to the reinsured for a loss
under an original policy if the latter is not liable to the original
insured or for an amount more than the sum actually paid to the
insured.
What is the liability of reinsurer to original insured? [p. 323]
(1) Contract of insurance solely between the insurer and
reinsurer. The original insured has absolutely no interest in the
contract and is a total stranger to it;
(2) Contract of reinsurance with stipulation in favor of
original insured. The reinsurer who has promised to pay the
losses accruing under the original policy will be liable to a suit
by the original insured under the contract of reinsurance;
(3) Contract reinsurance amounting to novation of original
contract. The original insured may also maintain an action
against the reinsurer in those cases in which the circumstances
attending the making of the contract of reinsurance amount to a
novation of the original contract and hence, operate to discharge
that contract and the original insurer from all obligations there
under. The original insurer, however will be released only when
the insured agrees with the insurer and reinsurer to the novation.
Chapter II: Classes of Insurance
Title I: Marine Insurance
What are the Perils of the Sea? [p. 331]
The phrase “perils of the sea” includes only those
casualties due to the unusual violence or extraordinary action of
wind and wave, or to other extraordinary causes connected with
navigation. It embraces all kinds of marine casualty such as
shipwreck, foundering, stranding, collision, and every specie of
damage done to the ship or goods at sea by the violent action of
the wind and waves or losses occasioned by the jettisoning of
cargo if it is made for the purpose of saving a vessel rendered
unworthy during the voyage, not through the fault of the captain.
Distinguish perils of the sea and perils of the ship. [p. 332]
Perils of the sea include only such losses that are
extraordinary nature or arise from some overwhelming power
which cannot be guarded against by the ordinary exertion of
human skill or prudence.
Perils of the ship which in the ordinary course of
events, results from the natural and inevitable action of the sea,
from the ordinary wear and tear of the ship, or from the
negligent failure of the ship’s owner to provide the vessel with
proper equipment to convey the cargo under ordinary conditions.
What is the Insurable interest of Insured in Marine
Insurance? [p.339]
Section 102 expressly states that “the owner of a ship
has in all cases an insurable interest in it, even when it has been
chartered by one who covenants to pay him its value in case of
loss; Provided, that in this case the insurer shall be liable for
only that part of the loss which the insured cannot recover from
the charterer.”
What is Loan on Bottomry? [p. 342]
It is one which is payable only if the vessel, given as a
security for the loan, completes in safety the contemplated
voyage. The lender in bottomry is entitled to receive a high rate
of interest to compensate him for the risk of losing his loan. The
owner of the vessel receives in case of loss no indemnity for his
loss, but he does secure immunity from payment of the loan.
What is the meaning of freightage? [p. 343]
Freightage is the benefit which is to accrue to the
owner of the vessel from its use in the voyage contemplated or
the benefit derived from the employment of the ship.
What are the sources of freightage? [p. 343]
Freightage may be derived from:
(1) The chartering of the ship;
(2) Its employment of the ship for the carriage of the ship-
owner’s own goods; and
(3) Employment of the ship for the carriage of the goods of
others.
What is Insurable interest in expected or anticipated
freightage? [p. 343]
The owner of a ship has an insurable interest in
expected freightage which he may not earn in case of
intervention of a peril insured against or other peril incident to
the voyage. The rule is the same although the freight has been
paid in advance.
What is the Insurable Interest in Passage of Money? [p. 344]
Passage money, unlike freight, is customarily payable
in advance it cannot be recovered if the vessel is lost before the
completion of the passage. Under such circumstances, the
passenger can clearly insure his advances of passage money but
the ship-owner may not insure it unless it is payable only upon
the completion of the voyage.
What is concealment in marine insurance? [p. 349]
Concealment in marine insurance is the failure to
disclose any material fact or circumstance which in fact or law is
within, or which ought to be within the knowledge of one party
and of which the other has no actual or presumptive knowledge.
What is Presumptive knowledge by Insured of Prior Loss?
[p. 351]
Section 111 provides that “a person insured by a
contract of marine insurance is presumed to have knowledge, at
the time of insuring, of a prior loss, if the information might
possibly have reached him in the usual mode of transmission and
at the usual rate of communication.”
What is the Effect of False Representation by the Insured?
[p. 353]
(1) If intentional. – Any misrepresentation of a material
fact made with fraudulent intent entitles the insurer to
rescind the entire contract;
(2) If not intentional. – If the misrepresentation is not
intentional or fraudulent but the fact misrepresented is
material to the risk, the insurer may also rescind the
contract from the time the representation becomes false.
Define Warranty in Marine Insurance [p. 354]
In marine insurance, a warranty has been defined as a
stipulation, either expressed or implied, forming part of the
policy as to some fact, condition or circumstance relating to the
risk.
What constitutes seaworthiness? [p. 357]
A ship is seaworthy, when reasonably fit to perform the
service, and to encounter the ordinary perils of the voyage,
contemplated by the parties to the policy. Seaworthiness is a
relative term depending upon the nature of the ship, the voyage,
and the service in which she is at the time engaged.
What are Time and Voyage Policies? [p. 361]
A time policy provides coverage for a fixed period of
time, at the expiration of which the insurance will lapse.
A voyage policy covers the subject matter for the
voyage named in the policy until the specified voyage ends,
regardless of the time it takes to complete the voyage.
What is the Express warranty as to nationality or neutrality?
[p. 364]
Section 122 provides that “where the nationality or
neutrality of a ship or cargo is expressly warranted, it is implied
that the ship will carry the requisite documents to show such
nationality or neutrality and that it will not carry any documents
which cast reasonable suspicion thereon.”
What is Deviation? [p. 366]
Deviation is a departure from the course of the voyage
insured, or an unreasonable delay in pursuing the voyage or the
commencement of an entirely different voyage.
What are those cases of deviation in Marine Insurance? [p.
366]
There are four (4) cases of deviation in marine
insurance, namely:
(1) Departure from the course of sailing fixed by mercantile
usage between the places of beginning and ending
specified in the policy;
 (2) Departure from the most natural, direct, and
advantageous route between the places specified if the
course of sailing is not fixed by mercantile usage;
(3) Unreasonable delay in pursuing the voyage; and
(4) The commencement of an entirely different voyage.
When is deviation proper? [p. 367]
Section 126 provides that a deviation is proper in the
following instances:
(1) When caused by circumstances over which neither the
master nor the owner of the ship has any control;
(2) When necessary to comply with a warranty, or to avoid a
peril, whether or not the peril is insured against;
(3) When made in good faith, and upon reasonable grounds
of belief in its necessity to avoid a peril; or
(4) When made in good faith, for the purpose of saving
human life or relieving another vessel in distress.
What is actual loss? [p. 369]
An actual total loss exists when the subject matter of
the insurance is wholly destroyed or lost or when it is so
damaged as no longer to exist in its original character.
What is constructive total loss? [p. 371]
A constructive total loss, or, as it is sometimes called, a
"technical total loss," is one in which the loss, although not
actually total, is of such a character that the insured is entitled, if
he thinks fit, to treat it as total by abandonment.
What is the importance of making a distinction between
Actual and Constructive Total Loss? [p. 372]
It is highly important that the two kinds of total loss be
carefully differentiated, for upon them depends the whole
doctrine of abandonment, so important in the law of marine
insurance.
In cases of actual total loss, no abandonment is
necessary; but if the loss is merely constructively total,
abandonment becomes necessary in order to recover as for a
total loss.
Can Actual Total Loss be presumed? [p. 372]
Section 134 provides that “an actual loss may be
presumed from the continued absence of a ship without being
heard of. The length of time which is sufficient to raise this
presumption depends on the circumstances of the case.”
What is the liability of Insurer in case of Reshipment? [p.
373]
Section 135 states that “when a ship is prevented, at an
intermediate port, from completing the voyage, by the perils
insured against, the liability of a marine insurer on the cargo
continues after they are thus reshipped.”
This rule will not be obligatory where resort must be
had to distant places to procure a vessel, and there are serious
impediments in the way of putting the cargo on board. In any
case, the insurer may require an additional premium if the hazard
be increased by the extension of liability.
What is Average? [p. 374]
Average is defined by the Code of Commerce as any
extraordinary or accidental expense incurred during the voyage
for the preservation of the vessel, cargo, or both and all damages
to the vessel and cargo from the time it is loaded and the voyage
commenced until it ends and the cargo unloaded.
What are the kinds of Average? [p. 374]
2 kinds of Average:
(1) Gross or General Average. - Include damages and
expenses which are deliberately caused by the master of
the vessel or upon his authority, in order to save the
vessel, her cargo, or both at the same time from a real
and known risk;
(2) Simple or Particular Average. - Include all damages
and expenses caused to the vessel to her cargo which
have not inured to the common benefit and profit of all
the persons interested in the vessel and her cargo.
What is the principle of General Average Contribution? [p.
375]
General average is principle of customary law,
independent of contract, whereby, when it is decided by the
master or captain of a vessel, acting for all the interests
concerned, to sacrifice any part of a venture exposed to a
common and imminent peril in order to save the rest, the
interests so saved are compelled to contribute ratably or
proportionately, based on the value of the said interests, to the
owner of the interest sacrificed, so that the cost of the sacrifice
shall fall equally upon all.
What are the requisites of a party claim general average
contribution? [p. 376]
(1) There must be a common danger to the vessel or cargo;
(2) Part of the vessel or cargo was sacrificed deliberately;
(3) The sacrifice must be for the common safety or for the
benefit of all;
(4) It must be made by the master or upon his authority;
(5) It must not be caused by any fault of the party asking the
contribution;
(6) It must be successful, i.e. resulted in the saving of the
vessel or cargo; and
(7) It must be necessary.
What is the liability of Insurer for General Average? [p. 376]
The liability of the insurer for general average is clearly
provided in the clause of Section 136 which states “but he is
liable for his proportion of all general average loss assessed
upon the thing insured. Also, Article 859 of the Code of
Commerce provides that it is mandatory in terms, and insurers,
whether for the vessel or for the freightage or for the cargo, are
bound to contribute to indemnity of the general average.
What is the liability of Insurer for Particular Average? [p.
378]
The marine insurer is liable only for general average
and not for particular average unless such particular average loss
has the effect of “depriving the insured of the possession at the
port of destination of the whole” of the thing insured (Sec 136).
In the absence of any contrary stipulation, the insurer is liable
for particular average loss.
What is Abandonment? [p. 379]
Section 140 provides that abandonment, in marine
insurance, is “the act of the insured by which, after a
constructive total loss, he declares the relinquishment to the
insurer of his interest in the thing insured.”
What are the requisites of Abandonment? [p. 379]
 (1) There must be an actual relinquishment by the person
insured of his interest in the thing insured;
(2) There must be a constructive or total loss;
(3) The abandonment must be neither partial nor
conditional;
(4) It must be made within a reasonable time after receipt of
reliable information of the loss;
(5) It must be factual;
(6) It must be made by giving notice thereof to the insurer
which may be done orally or in writing; and
(7) The notice of abandonment must be explicit and must
specify the particular cause of the abandonment.
When is Abandonment necessary? [p. 380]
(1) When the loss is only technically total, the insurer is
entitled to timely notice of abandonment by the insured
and he cannot be made liable for a total loss without it.
The insurer/ underwriter by prompt action might be
able to save some portion of the insured property;
(2) When the vessel is totally lost, abandonment is not
required as there is no vessel to abandon.
When must abandonment be made? [p. 383]
Section 143 provides that an abandonment must be
made within a reasonable time after receipt of reliable
information of loss (notice of abandonment), but where the
information is a doubtful character, the insured is entitled to a
reasonable time to make inquiry (but he cannot wait an undue
length of time to see whether it will be more profitable to
abandon or to claim for a partial loss).
By whom and to whom notice of abandonment must be
made? [p. 385]
(1) The abandonment need not necessarily be made by the
insured but may be made by an authorized agent, and
an agent having authority to insure has prima facie an
authority to abandon;
(2) The abandonment may be made to an agent of the
underwriter and abandonment to a broker who is agent
to both parties is sufficient.
What is the effect of a valid abandonment? [p. 386]
A valid abandonment makes the insurer entitled to all
the rights which the insured possessed in the thing insured.
According to Section 148, abandonment is equivalent to a
transfer by the insured of his interest to the insurer, with all the
chances of recovery and indemnity.
What is the right of an insurer who pays partial loss as
actual total loss? [p. 387]
Section 149 provides that if a marine insurer pays for a
loss as if it were an actual total loss, he is entitled to whatever
remain of the thing insured, or its proceed or salvage, as if there
had been a formal abandonment.
What is the form of acceptance of abandonment? [p. 388]
An insurer’s acceptance of an offered abandonment need not be
express. It may be implied by conduct, as by an act of the insurer
in consequence of an abandonment which can be justified only
under a right derived from the abandonment. Mere silence after
notice would not operate as an acceptance, if it is not “for an
unreasonable length of time”. Nor would steps taken by the
insurer to preserve the property from further loss for the benefit
of all the parties’ amount to an acceptance.
What is the Effect of Acceptance of Abandonment? [p. 389]
If the insurer accepts the abandonment, he becomes at once
liable for the whole amount of the insurance, and also becomes
entitled to all the rights which the insured possessed in the thing
insured. Acceptance of abandonment stops the insurer to rely on
any insufficiency in the FORM, TIME or RIGHT of
abandonment.
What is the right of insurer to Freightage? [p. 390]
When abandonment is validly made, the interest of the
insured in the thing covered passes to the insurer. The insurer of
the ship becomes the owner thereof after abandonment, and his
title becomes vested as of the time of the loss. Freightage earned
subsequent to the loss belongs to the insurer of the ship, but
freightage earned previously belongs to the insurer of said
freightage who is subrogated to the rights of the insured up to
the time of loss.
What is the effect of refusal to accept valid abandonment on
insurer’s liability? [p. 390]
If the insurer DECLINES to accept a proper
abandonment, he is LIABLE as upon an actual total loss less any
proceeds the insured may have received on account of the
damaged property as when the insured succeeds in selling the
property as damaged. If the abandonment was improper, the
insured may nevertheless recover to the extent of the damage
proved.
When can the insured be considered a co-insurer in Marine
Insurance? [p. 392]
In every marine insurance, the insured is expected to
cover by insurance the full value of the property insured. If the
value of his interest exceeds the amount of insurance, he is
considered the co-insurer for an amount determined by the
difference between the insurance taken out and the value of the
property.
What are the rules for estimating loss under an open police
in Marine Insurance? [p. 395]
In estimating a loss under an open policy of marine
insurance, the following rules are to be observed:
(1) The value of a ship is its value at the beginning of the
risk, including all articles or charges which add to its
permanent value or which are necessary to prepare it
for the voyage insured;
(2) The value of cargo is its actual cost to the insured, when
laden on board, or where that cost cannot be
ascertained, its market value at the time and place of
lading, adding the charges incurred in purchasing and
placing it on board, but without reference to any loss
incurred in raising money for its purchase, or to any
drawback on its exportation, or to the fluctuation of the
market at the port of destination, or to expenses
incurred on the way or on arrival;
(3) The value of freightage is the gross freightage, exclusive
of primage, without reference to the cost of earning it;
and
(4) The cost of insurance is in each case to be added to the
value thus estimated.
Title 4: Suretyship
What is a contract of suretyship?
A contract of suretyship is an agreement whereby a party called
the surety guarantees the performance by another party called
the principal or obligor of an obligation or undertaking in favor
of a third party called the obligee. It includes official
recognizances, stipulations, bonds or undertakings issued by any
company by virtue and under the provisions of Act No. 536 as
amended by Act No. 2206.

Chapter III: The Business of Insurance

Title 9: Policy Forms

What is a group insurance?

Group insurance is the coverage of a number of

individuals by means of a single blanket policy, thereby
affecting economies which frequently enable the insurer to sell
its services at lower premium rates than are ordinarily obtainable
for the same type of insurance protection on life policies sold to
individuals. It is essentially a single insurance contract that
provides coverage for many individuals.

What is the role of the employer?

In group insurance policies, the employer is the agent of

the insurer in performing the duties of administering group
insurance policies.

What is the role of the employee?

Although the employer may be the titular or named

insured, the insurance is actually related to the life and health of
the employee. Indeed the employee is in the position of a real
party to the master policy, and even in a non-contributory plan,
the payment by the employer of the entire premium is part of the
total compensation paid for the services of the employee.