San Beda College of Law: Insurance Code

San Beda College of Law 1
MEMORY AID IN COMMERCIAL LAW
INSURANCE CODE
(P.D. No. 1460)
I. GENERAL CONCEPTS 7. Personal – each party having in view

the character, credit and conduct of
CONTRACT OF INSURANCE the other.
 An agreement whereby one
undertakes for a consideration to REQUISITES OF A CONTRACT OF
indemnify another against loss, damage INSURANCE (The Insurance Code of the
or liability arising from an unknown or Philippines Annotated, Hector de Leon,
contingent event. (Sec. 2, par. 2, IC) 2002 ed.)
1. A subject matter which the insured
has an insurable interest.
“DOING AN INSURANCE BUSINESS OR 2. Event or peril insured against which
TRANSACTING AN INSURANCE may be any future contingent or
BUSINESS” (Sec. 2, par. 4) unknown event, past or future and a
1. Making or proposing to make, as duration for the risk thereof.
insurer, any insurance contract; 3. A promise to pay or indemnify in a
2. Making or proposing to make, as fixed or ascertainable amount.
surety, any contract of suretyship as 4. A consideration known as “premium”.
a vocation, not as a mere incident 5. Meeting of the minds of the parties.
to any other legitimate business of a
surety; 5 CARDINAL PRINCIPLES IN INSURANCE
3. Doing any insurance business, 1. Insurable Interest
including a reinsurance business; 2. Principle of Utmost Good Faith
4. Doing or proposing to do any  An insurance contract requires utmost
business in substance equivalent to good faith (uberrimae fidei) between
any of the foregoing the parties. The applicant is enjoined to
disclose any material fact, which he
II. CHARACTERISTICS OF AN INSURANCE knows or ought to know.
CONTRACT (The Insurance Code of the  Reason: An insurance contract is an
Philippines Annotated, Hector de Leon, aleatory contract. The insurer relies on
2002 ed.) the representation of the applicant, who
1. Consensual – it is perfected by the is in the best position to know the state
meeting of the minds of the parties. of his health.
2. Voluntary – the parties may 3. Contract of Indemnity
incorporate such terms and  It is the basis of all property
conditions as they may deem insurance. The insured who has insurable
convenient. interest over a property is only entitled
3. Aleatory – it depends upon some to recover the amount of actual loss
contingent event. sustained and the burden is upon him to
4. Unilateral – imposes legal duties only establish the amount of such loss
on the insurer who promises to (Reviewer on Commercial Law,
indemnify in case of loss. Professors Sundiang and Aquino)
5. Conditional – It is subject to Rules:
conditions the principal one of a. Applies only to property
which is the happening of the event insurance except when the
insured against. creditor insures the life of his
6. Contract of indemnity – Except life debtor.
and accident insurance, a contract b. Life insurance is not a contract
of insurance is a contract of of indemnity.
indemnity whereby the insurer c. Insurance contracts are not
promises to make good only the loss wagering contracts. (Sec. 4)
of the insured. 4. Contract of Adhesion (Fine Print Rule)
 Most of the terms of the contract do between the parties as they are prescribed
not result from mutual negotiations by the insurer in final printed form to
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON:Jayson O’S Ramos EDP: Beatrix I. Ramos SUBJECT HEADS:
Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario (Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel Gatdula (Banking Laws);
Robespierre CU (Law on Intellectual Property)
which the insured may “adhere” if he

chooses but which he cannot change. e. For recovery of loss in excess of
(Rizal Surety and Insurance Co., vs. CA, insurance coverage
336 SCRA 12)
5. Principle of Subrogation CONSTRUCTION OF INSURANCE
 It is a process of legal substitution CONTRACT
where the insurer steps into the shoes of  The ambiguous terms are to be
the insured and he avails of the latter’s construed strictly against the insurer,
rights against the wrongdoer at the time and liberally in favor of the insured.
of loss. However, if the terms are clear, there is
 The principle of subrogation is a no room for interpretation. (Calanoc vs.
normal incident of indemnity insurance Court of Appeals, 98 Phil. 79)
as a legal effect of payment; it inures to
the insurer without any formal III. DISTINGUISHING ELEMENTS OF AN
assignment or any express stipulation to INSURANCE CONTRACT
that effect in the policy. Said right is not 1. The insured possesses an insurable
dependent upon nor does it grow out of interest susceptible of pecuniary
any private contract. Payment to the estimation;
insured makes the insurer a subrogee in 2. The insured is subject to a risk of loss
equity. (Malayan Insurance Co., Inc. v. through the destruction or
CA, 165 SCRA 536; see also Art. 2207, impairment of that interest by the
NCC) happening of designated perils;
 Purposes: (The Insurance Code of the 3. The insurer assumes that risk of loss;
Philippines Annotated, Hector de Leon, 4. Such assumption is part of a general
2002 ed.) scheme to distribute actual losses
1. To make the person who caused the among a large group or substantial
loss legally responsible for it. number of persons bearing somewhat
2. To prevent the insured from similar risks; and
receiving a double recovery from the 5. The insured makes a ratable
wrongdoer and the insurer. contribution (premium) to a general
3. To prevent tortfeasors from being insurance fund.
free from liabilities and is thus  A contract possessing only the first 3
founded on considerations of public elements above is a risk-shifting device.
policy. If all the elements, it is a risk-
 Rules: distributing device. (The Insurance Code
1. Applicable only to property insurance. of the Philippines Annotated, Hector de
2. The insurer can only recover from the Leon, 2002 ed.)
third person what the insured could have
recovered. IV. PERFECTION OF AN INSURANCE
3. There can be no subrogation in cases: CONTRACT
a. Where the insured by his own act  An insurance contract is a consensual
releases the wrongdoer or third party contract and is therefore perfected the
liable for the loss or damage; moment there is a meeting of minds with
b. Where the insurer pays the insured the respect to the object and the cause or
value of the loss without notifying the consideration.
carrier who has in good faith settled  What is being followed in insurance
the insured’s claim for loss; contracts is what is known as the
c. Where the insurer pays the insured for “cognition theory”. Thus, “an
a loss or risk not covered by the policy. acceptance made by letter shall not bind
(Pan Malayan Insurance Company v. the person making the offer except from
CA, 184 SCRA 54) the time it came to his knowledge”.
d. In life insurance (Enriquez vs. Sun Life Assurance Co. of
Canada, 41 Phil. 269)
Binding Receipt
 A mere acknowledgment on behalf of
the company that its branch office had
received from the applicant the insurance premium and had accepted the
application subject to processing by the

head office. 5. Interest of the insured in the
property if he is not the absolute
Cover Note (Ad Interim) owner;
 A concise and temporary written 6. Risk insured against; and
contract issued to the insurer through its 7. Duration of the insurance.
duly authorized agent embodying the
principal terms of an expected policy of  Persons entitled to recover on the
insurance. policy (sec. 53): The insurance proceeds
Purpose: It is intended to give shall be applied exclusively to the proper
temporary insurance protection coverage interest of the person in whose name or
to the applicant pending the acceptance to whose benefit it is made, unless
or rejection of his application. otherwise specified in the policy.
 Duration: Not exceeding 60 days  Kinds:
unless a longer period is approved by 1. OPEN POLICY – value of thing insured
Insurance Commissioner (Sec. 52). is not agreed upon, but left to be
ascertained in case of loss. (Sec. 60)
Riders  The actual loss, as determined,
 Printed stipulations usually attached will represent the total indemnity
to the policy because they constitute due the insured from the insurer
additional stipulations between the except only that the total indemnity
parties. (Ang Giok Chip vs. Springfield, shall not exceed the face value of
56 Phil. 275) the policy. (Development Insurance
 In case of conflict between a rider Corp. vs. IAC, 143 SCRA 62)
and the printed stipulations in the 2. VALUED POLICY – definite valuation
policy, the rider prevails, as being a of the property insured is agreed by both
more deliberate expression of the parties, and written on the face of
agreement of the contracting parties. policy. (Sec. 61)
(C. Alvendia, The Law of Insurance in  In the absence of fraud or
the Philippines, 1968 ed.) mistake, the agreed valuation will be
paid in case of total loss of the
Clauses property, unless the insurance is for
 An agreement between the insurer a lower amount.
and the insured on certain matter 3. RUNNING POLICY – contemplates
relating to the liability of the insurer in successive insurances and which provides
case of loss. (Prof. De Leon, p.188) that the object of the policy may from
time to time be defined (Sec. 62)
Endorsements
 Any provision added to the contract V. TYPES OF INSURANCE CONTRACTS
altering its scope or application. (Prof. 1. Life insurance
De Leon, p.188) a. Individual life (Secs. 179–183, 227)
b. Group life (Secs. 50, last par., 228)
POLICY OF INSURANCE c. Industrial life (Secs. 229–231)
 The written instrument in which a 2. Non-life insurance
contract of insurance is set forth. (Sec. a. Marine (Secs. 99–166)
49) b. Fire (Secs. 167–173)
c. Casualty (Sec. 174)
 Contents: (Sec. 51) 3. Contracts of bonding or suretyship
1. Parties (Secs. 175–178)
2. Amount of insurance, except in open Note:
or running policies; 1. Health and accident insurance are
3. Rate of premium; either covered under life (Sec. 180) or
4. Property or life insured; casualty insurance. (Sec. 174).
2. Marine, fire, and the property aspect
of casualty insurance are also referred to
as property insurance.
VI. PARTIES TO INSURANCE CONTRACT indemnify another.

1. Insurer - Person who undertakes to  For a person to be called an
insurance agent, it is necessary

that he should perform the beneficiary is the principal
function for compensation. accomplice or accessory in
(Aisporna vs. CA, 113 SCRA 459) willfully bringing about the
2. Insured - The party to be indemnified death of the insured in which
upon the occurrence of the loss. He must event, the nearest relative
have capacity to contract, must possess of the insured shall receive
an insurable interest in the subject of the proceeds of said
the insurance and must not be a public insurance if not otherwise
enemy. disqualified. (Sec. 12)
 A public enemy- a nation with b. PROPERTY
whom the Philippines is at war  The beneficiary of property
and it includes every citizen or insurance must have an insurable
subject of such nation. interest in such property, which
3. Beneficiary - A person designated to must exist not only at the time
receive proceeds of policy when risk the policy takes effect but also
attaches. when the loss occurs. (Sec. 13
 Rules in the designation of the and 18).
beneficiary: Effects of Irrevocable Designation Of
a. LIFE Beneficiary
i. A person who insures his  Insured cannot:
own life can designate any 1. Assign the policy
person as his beneficiary, 2. Take the cash surrender value of
whether or not the the policy
beneficiary has an insurable 3. Allow his creditors to attach or
interest in the life of the execute on the policy;
insured subject to the 4. Add new beneficiary; or
limitations under Art. 739 5. Change the irrevocable
and Art. 2012 of the NCC. designation to revocable, even
 Reason: in essence, a life though the change is just and
insurance policy is no reasonable.
different form a civil  The insured does not even retain the
donation insofar as the power to destroy the contract by
beneficiary is concerned. refusing to pay the premiums for the
Both are founded on the beneficiary can protect his interest by
same consideration of paying such premiums for he has an
liberality. (Insular Life vs. interest in the fulfillment of the
Ebrado, 80 SCRA 181) obligation. (Vance, p. 665, cited in de
ii. A person who insures the life Leon, p. 101, 2002 ed.)
of another person and name
himself as the beneficiary VII. INSURABLE INTEREST
must have an insurable A. In General
interest in such life. (Sec.  A person has an insurable interest in
10) the subject matter if he is so connected,
iii. As a general rule, the so situated, so circumstanced, so
designation of a beneficiary related, that by the preservation of the
is revocable unless the same he shall derive pecuniary benefit,
insured expressly waived the and by its destruction he shall suffer
right to revoke in the policy. pecuniary loss, damage or prejudice.
(Sec. 11) B. Life
iv. The interest of a beneficiary  Every person has an insurable interest
in a life insurance policy in the life and health:
shall be forfeited when the a. of himself, of his spouse and of
his children;
b. of any person on whom he
depends wholly or in part for
education or support;
c. of any person under a legal obligation to him to pay money or

respecting property or services,

of which death or illness might exist at the time of when the loss
delay or prevent performance; loss occurs
and Unlimited except in Limited to actual
life insurance value of interest in
d. of any person upon whose life effected by creditor property insured.
any estate or interest vested in on life of debtor.
him depends. (Sec. 10) The expectation of An expectation of
 When it should exist: When the benefit to be derived a benefit to be
insurance takes effect; not thereafter or from the continued derived from the
when the loss occurs. existence of life need continued
 Amount: not have any legal existence of the
GENERAL RULE: There is no limit in the basis whatever. A property insured
amount the insured can insure his life. reasonable must have a legal
probability is basis.
EXCEPTION: In a creditor-debtor
sufficient without
relationship where the creditor insures more.
the life of his debtor, the limit of The beneficiary need The beneficiary
insurable interest is equal to the amount not have an insurable must have
of the debt. interest over the life insurable interest
Note: If at the time of the death of the of the insured if the over the thing
debtor the whole debt has already been insured himself insured.
paid, the creditor can no longer recover secured the policy.
on the policy because the principle of However, if the life
indemnity applies. insurance was
obtained by the
beneficiary, the
C. Property latter must have
 Every interest in property whether insurable interest
real or personal, or any relation thereto, over the life of the
or liability in respect thereof, of such insured.
nature that the contemplated peril
might directly damnify the insured (Sec. SPECIAL CASES
13), which may consist in: 1. In case of a carrier or depositary
1. an existing interest;  A carrier or depository of any kind has
2. any inchoate interest an insurable interest in a thing held by
founded on an existing him as such, to the extent of his liability
interest; or but not to exceed the value thereof
3. an expectancy coupled with (Sec. 15)
an existing interest in that 2. In case of a mortgaged property
out of which the expectancy  The mortgagor and mortgagee each
arises. (Sec. 14) have an insurable interest in the
 When it should exist: When the property mortgaged and this interest is
insurance takes effect and when the loss separate and distinct from the other.
occurs, but need not exist in the a. Mortgagor – As owner, has an
meantime. insurable interest therein to the
 Amount: The measure of insurable extent of its value, even though the
interest in property is the extent to which mortgage debt equals such value.
the insured might be damnified by loss or The reason is that the loss or
injury thereof. (Sec. 17) destruction of the property insured
will not extinguish the mortgage
INSURABLE INSURABLE debt.
INTEREST IN LIFE INTEREST IN b. Mortgagee – His interest is only up
PROPERTY to the extent of the debt. Such
Must exist only at the Must exist at the interest continues until the mortgage
time the policy takes time the policy debt is extinguished.
effect and need not takes effect and
 The lessor cannot be validly a
beneficiary of a fire insurance policy
taken by a lessee over his merchandise, providing for such automatic assignment is
and the provision in the lease contract void for being contrary to law and public
policy. (Cha vs. Court of Appeals, 227

SCRA 690) 2. Past unknown event resulting in loss
or damage – Ex. Fact of past sinking
STANDARD OR OPEN OR LOSS of a vessel unknown to the parties
UNION PAYABLE 3. Contingent liability – Ex. Reinsurance
MORTGAGE MORTGAGE
CLAUSE CLAUSE IX. PREMIUM PAYMENTS
 Consideration paid an insurer for
Subsequent acts Acts of the
undertaking to indemnify the insured
of the mortgagor mortgagor affect
against a specified peril.
cannot affect the the mortgagee.
 Basis of the right of the insurer to
rights of the Reason:
collect premiums: Assumption of risk.
assignee Mortgagor does
not cease to be a
party to the GENERAL RULE: No policy issued by an
insurance company is valid and binding
contract. (Secs.
until actual payment of premium. Any
8 and 9)
agreement to the contrary is void. (Sec.
77)
Effects of Loss Payable Clause
a. The contract is deemed to be upon
EXCEPTIONS:
the interest of the mortgagor; hence, he
1. In case of life or industrial life
does not cease to be a party to the
insurance, when the grace periods
contract.
applies; (Sec. 77)
b. Any act of the mortgagor prior to the
2. When the insurer makes a written
loss, which would otherwise avoid the
acknowledgment of the receipt
insurance affects the mortgagee even if
premium; (Sec. 78)
the property is in the hands of the
3. Section 77 may not apply if the
mortgagee.
parties have agreed to the payment
c. Any act, which under the contract of
of the premium in installments and
insurance is to be performed by the
partial payment has been made at
mortgagor, may be performed by the
the time of the loss. (Makati
mortgagee with the same effect.
Tuscany Condominium Corp. v. CA,
d. In case of loss, the mortgagee is
215 SCRA 462)
entitled to the proceeds to the extent of
4. Where a credit term has been
his credit.
agreed upon. (UCPB vs. Masagana
e. Upon recovery by the mortgagee to
Telemart, 308 SCRA 259)
the extent of his credit, the debt is
5. Where the parties are barred by
extinguished.
estoppel. (UCPB vs. Maagana
Telemart, 356 SCRA 307)
 In case a mortgagee insures his own
interest and a loss occurs, he is entitled
 Section 77 merely precludes the
to the proceeds of the insurance but he
parties from stipulating that the policy is
is not allowed to retain his claim against
valid even if the premiums are not paid.
the mortgagor as the claim is discharged
(Makati Tuscany Condominium Corp. v.
but it passes by subrogation to the
CA, 215 SCRA 462)
insurer to the extent of the money paid
by such insurer. (Palileo vs. Cosio)
Effect of Acknowledgment of Receipt
of Premium in Policy: Conclusive
VIII. RISK
evidence of its payment, so far as to
 What may be insured against:
make the policy binding,
1. Future contingent event resulting in
notwithstanding any stipulation therein
loss or damage – Ex. Possible future
that it shall not be binding until the
fire
premium is actually paid. (Sec. 78)
ENTITLEMENT OF INSURED TO RETURN exposed to the risks insured

OF PREMIUMS PAID against; (Sec. 79)
2. If contract is voidable due to the
A. Whole: fraud or misrepresentation of
1. If the thing insured was never insurer or his agents; (Sec. 81)
3. If contract is voidable because of

the existence of facts of which
the insured was ignorant without Payment is not Payment is
enforceable against enforceable once
his fault; (Sec. 81)
the insured. levied unless
4. When by any default of the otherwise agreed
insured other than actual fraud, upon.
the insurer never incurred
liability; (Sec. 81)
5. When rescission is granted due Not a debt. It becomes a debt
to the insurer’s breach of once properly
contract. (Sec. 74) levied unless
B. Pro rata: otherwise agreed.
1. When the insurance is for a
definite period and the insured X. TRANSFER OF POLICY
surrenders his policy before the 1. Life Insurance
termination thereof;  It can be transferred even without the
 Exceptions: consent of the insurer except when
a. policy not made for a there is a stipulation requiring the
definite period of consent of the insurer before transfer.
time (Sec. 181)
b. short period rate is  Reason: The policy does not represent
agreed upon a personal agreement between the
c. life insurance policy insured and the insurer.
2. When there is over-insurance 2. Property insurance
(Sec. 82);  It cannot be transferred without the
consent of the insurer.
Instances when premiums are not  Reason: The insurer approved the
recoverable: policy based on the personal
1. When the risk has already qualification and the insurable interest
attached and the risk is entire and of the insured.
indivisible. 3. Casualty insurance
2. In life insurance.  It cannot be transferred without the
3. When the contract is rescindable consent of the insurer. (Paterson cited
or rendered void ab initio by the in de Leon p. 82)
fraud of the insured.  Reason: The moral hazards are as
4. When the contract is illegal great as those of property insurance.
and the parties are in pari
delicto. CHANE OF INTEREST IN THE THING
INSURED
 The mere (absolute) transfer of the
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. (Sec. 58)
 Reason: Insurance contract is
personal.
GENERAL RULE: A change of interest in
any part of a thing insured
unaccompanied
PREMIUM by a corresponding
ASSESSMENT change of interest in the insurance suspends the
insurance to an equivalent extent, until the interests in the thing and the interest in the
insurance
Leviedare
andvested in the
paid to same person.
Collected to meet (Sec. 20)
meet anticipated actual losses.
EXCEPTIONS:
losses. 3. Change in interest in one or more
1. In life, health and accident of several distinct things
insurance.(Sec. 20); separately insured by one policy.
2. Change in interest in the thing (Sec. 22);
insured after occurrence of an 4. Change of interest, by will or
injury which results in a loss. succession, on the death of the
(Sec. 21); insured. (Sec. 23);
5. Transfer of interest by one of

several partners, joint owners, c. Such party concealing makes no
or owners in common, who are warranty as to the fact
jointly insured, to others. (Sec. concealed.
24); d. The other party has not the
6. When a policy is so framed that means of ascertaining the fact
it will inure to the benefit of concealed.
whomsoever, during the e. Material
continuance of the risk, may  Effects: Entitles insurer to rescind,
become the owner of the even if the death or loss is due to a
interest insured. (Sec. 57); cause not related to the concealed
7. When there is an express matter (Sec. 27).
prohibition against alienation in Note: Good Faith is not a defense in
the policy, in case of alienation, concealment. Sec. 27 clearly provides
the contract of insurance is not that, “the concealment whether
merely suspended but avoided. intentional or unintentional entitles the
(Art. 1306, NCC). injured party to rescind the contract of
insurance.”
XI. ASCERTAINMENT AND CONTROL OF
RISK AND LOSS Test of Materiality: Determined not by
the event, but solely by the probable
A. Four Primary Concerns of the and reasonable influence of the facts
Parties: upon the party to whom the
1. Correct estimation of the risk; communication is due, in forming his
2. Precise delimitation of the risk; estimate of the advantages of the
3. Control of the risk; proposed contract, or in making his
4. Determining whether a loss occurred inquiries (Sec. 31).
and if so, the amount of such loss.  Exception to Sec. 31:
a. Incontestability clause
B. Devices used for ascertaining and b. Matters under Sec.110 (marine
controlling risk and loss: insurance)
1. Concealment – A neglect to
communicate that which a party knows  The waiver of medical examination in
and ought to communicate (Sec. 26) a non-medical insurance contract
 Requisites: renders even more material the
a. A party knows a fact which he information required of the applicant
neglects to communicate or concerning the previous conditions of
disclose to the other. health and diseases suffered. (Sunlife v.
b. Such party concealing is duty Sps. Bacani, 246 SCRA 268).
bound to disclose such fact to
the other.  The right to information of material
facts may be waived, either by the terms
of the insurance or by neglect to make
inquiries as to such facts where they are
distinctly implied in other facts of which
information is communicated. (Sec.33)
 Where matters of opinion or judgment

are called for, answers made in good
faith and without intent to deceiver will
not avoid the policy even though they
are untrue. Reason: The insurer cannot
rely on those statements. He must make
further inquiry. (Philamcare Health
Systems vs. CA, G.R. No. 125678, March
18, 2002).
2. Representations – Factual time of, or prior to, the issuance of the

statements made by the insured at the policy to give information to the insurer
and induce him to enter into the

insurance contract. They are considered untruth or non-fulfillment of which in
an active form of concealment. any respect, and without reference to
 Requisites of a false representation whether insurer was in fact prejudiced
(misrepresentation): by such untruth or non-fulfillment,
a. The insured stated a fact which renders the policy voidable by the
is untrue. insurer.
b. Such fact was stated with  Purpose: To eliminate potentially
knowledge that it is untrue and increasing hazards which may either be
with intent to deceive or which due to the acts of the insured or to the
he states positively as true change to the condition of the property.
without knowing it to be true  Kinds:
and which has a tendency to a. EXPRESS – an agreement expressed in
mislead. a policy whereby the insured stipulates
c. Such fact in either case is that certain facts relating to the risk are
material to the risk. or shall be true, or certain acts relating
 Characteristics: to the same subject have been or shall
a. It is not a part of the contract but be done.
merely a collateral inducement to it. b. IMPLIED - it is deemed included in the
b. It may be oral or written. contract although not expressly
c. It is made at the same time of issuing mentioned. Example: In marine
the policy or before but not after. insurance, seaworthiness of the vessel.
d. It may be altered or withdrawn before  Effects of breach of warranty:
the insurance is effected but not a. Material
afterwards. GENERAL RULE: Violation of material
e. It always refers to the date the warranty or of a material provision of a
contract goes into effect. policy will entitle the other party to
 Kinds: rescind the contract. (Sec. 74)
a. AFFIRMATIVE – affirmation of a fact EXCEPTIONS:
when the contract begins; and a. Loss occurs before the time of
b. PROMISSORY – promise to be performance of the warranty.
performed after policy was issued. b. The performances becomes
 Effect of Misrepresentation: the unlawful at the place of the
injured party is entitled to rescind from contract.
the time when the representation c. Performance becomes
becomes false. impossible. (Sec. 73)
b. Immaterial (ex. Other insurance
Test of Materiality: Same as that in clause)
concealment. GENERAL RULE: It will not avoid the
policy.
 Where the insured merely signed the EXCEPTION: When the policy expressly
application form and made the agent of provides or declares that a violation
the insurer fill the same for him, it was thereof will avoid it. (Sec. 75)
held that by doing so, the insured made
the agent of the insurer his own agent
and he was responsible for his acts for
that purpose. (Insular Life Assur. Co. vs.
Feliciano, 74 Phil. 469)
3. Warranties – Statement or promise

by the insured set forth in the policy or
by reference incorporated therein, the

WARRANTY REPRESENTATION
Part of the contract Mere collateral
inducement
Written on the May be written in
policy, actually or by the policy or may
reference be oral.
Presumed material Must be proved to
be material
Must be strictly Requires only
complied with substantial truth
and compliance
4. Conditions – Events signifying in its 1. Non-life – such right must be exercised

broadest sense either an occurrence or a prior to the commencement of an action
non-occurrence that alters the on the contract;
previously existing legal relations of the 2. Life – such right must be availed of
parties to the contract. They may be during the first two years from the date of
conditions precedent or conditions issue of policy or its last reinstatement;
subsequent. prior to
 Effect of breach: “incontestability.” (Sec. 48)
a. Condition precedent – prevents
the accrual of cause of action
b. Condition subsequent – avoids
the policy or entitles the insurer
to rescind
 The insurer may also protect himself
against fraudulent claims of loss and this
he attempts to do by inserting in the
policy various conditions which take the
form of conditions precedent. For
instance, there are conditions requiring
immediate notice of loss or injury and
detailed proofs of loss within a limited
period.
5. Exceptions – Provisions that may

specify excepted perils. It makes more
definite the coverage indicated by the
general description of the risk by
excluding certain specified risk that
otherwise would be included under the
general language describing the risks
assumed.
 Effect: Limit the coverage of the
contract.
RESCISSION
 Grounds:
A. Concealment
B. Misrepresentation
C. Breach of material warranty
D. Breach of a condition subsequent
 Waiver of the right to rescind:
Acceptance of premium payments
despite the knowledge of the ground for
rescission. (Sec. 45)
 Limitations on the right of the
insurer to rescind:

CANCELLATION OF NON-LIFE mailed or delivered to the

INSURANCE POLICY named insured at the address
 Right of the insurer to abandon the shown in the policy;
contract on the occurrence of certain 3. Notice must state which of the
grounds after the effectivity date of a grounds set forth in Sec. 64 is
non-life policy. relied upon and upon request of
 Grounds: the insured, the insurer must
1. Non-payment of premium; furnish facts on which the
2. Conviction of a crime out of acts cancellation is based;
increasing the hazard insured 4. Grounds should have existed
against; after the effectivity date of the
3. Discovery of fraud or material policy.
misrepresentation;
4. Discovery of willful or reckless XII. INCONTESTABILITY CLAUSE
acts of omissions increasing the  Clause in life insurance policy that
hazard insured against; stipulates that the policy shall be
5. Physical changes in property incontestable after a stated period.
making the property uninsurable;  Requisites:
and 1. Life insurance policy
6. Determination by the Insurance 2. Payable on the death of the insured
Commissioner that the 3. It has been in force during the
continuation of the policy would lifetime of the insured for a period
violate the Insurance Code. (Sec. of at least two years from the date
64) of its issue or of its last
 Requirements: reinstatement
1. Prior notice of cancellation to Note: The period of 2 years may be
the insured; shortened but it cannot be extended by
2. Notice must be in writing, stipulation.
 Incontestability only deprives the

insurer of those defenses which arise in
connection with the formation and
operation of the policy prior to loss.
(Prof. De Leon, p. 173 citing Wyatt and
Wyatt, p. 878)
BARRED DEFENSES NOT

DEFENSES BARRED
OF THE INSURER

1. Policy is void ab 1. That the person

initio taking the insurance corresponding to the excess in value
2. Policy is lacked insurable of the property;
rescindable by interest as required
reason of the by law; B. DOUBLE INSURANCE – exists where
fraudulent 2. That the cause of same person is insured by several
concealment or the death of the
misrepresentation of insured is an
insurers separately in respect to same
the insured or his excepted risk; subject and interest. (Sec. 93)
agent 3. That the  Requisites:
premiums have not 1. Person insured is the same;
been paid (Secs. 77, 2. Two or more insurers insuring
227[b], 228[b], separately;
230[b]); 3. Subject matter is the same;
4. That the 4. Interest insured is also the same;
conditions of the 5. Risk or peril insured against is
policy relating to
military or naval
likewise the same.
service have been
violated (Secs.  Effects: Where double insurance is
227[b], 228[b]); allowed, but over insurance results:
5. That the fraud is (Sec. 94)
of a particularly 1. The insured, unless the policy
vicious type; otherwise provides, may claim
6. That the payment from the insurers in such
beneficiary failed to order as he may select, up to the
furnish proof of
amount for which the insurers are
death or to comply
with any condition severally liable under their
imposed by the respective contracts;
policy after the loss 2. Where the policy under which the
has happened; or insured claims is a valued policy, the
7. That the action insured must give credit as against
was not brought the valuation for any sum received
within the time by him under any other policy
specified. without regard to the actual value of
the subject matter insured;
XIII. 3. Where the policy under which the
A. OVER-INSURANCE – results when the insured claims is an unvalued policy
insured insures the same property for an he must give credit, as against the
amount greater than the value of the full insurable value, for any sum
property with the same insurance received by him under any policy;
company. 4. Where the insured receives any sum
 Effect in case of loss: in excess of the valuation in the case
1. The insurer is bound only to pay to of valued policies, or of the
the extent of the real value of the insurable value in the case of
property lost; unvalued policies, he must hold such
2. The insured is entitled to recover sum in trust for the insurers,
the amount of premium according to their right of
contribution among themselves;
5. Each insurer is bound, as between
himself and the other insurers, to
contribute ratably to the loss in
proportion to the amount for which
he is liable under his contract.
Additional or “Other Insurance” Clause

 A condition in the policy requiring the
insured to inform the insurer of any
other insurance coverage of the property
insured. It is lawful and specifically allowed under Sec. 75 which provides that
“(a) policy may declare that a violation

of a specified provision thereof shall reinsured under the contract. (Prof. De
avoid it, otherwise the breach of an Leon, p. 305)
immaterial provision does not avoid it.” 3. Facultative reinsurance – There is no
 A stipulation against double obligation to cede or accept
insurance. participation in the risk each party
 Purposes: having a free choice. But once the share
1. To prevent an increase in the is accepted, the obligation is absolute
moral hazard and the liability thereunder can be
2. To prevent over-insurance and discharged only by payment. (Equitable
fraud. Ins. & Casualty Co. vs. Rural Ins. &
 To constitute a violation of the Surety Co., Inc. 4 SCRA 343)
clause, there should have been double
insurance. 4. Retrocession – A transaction whereby
the reinsurer in turn, passes to another
C. REINSURANCE – a contract by which insurer a portion of the risk reinsured. It
the insurer procures a third person to is really the reinsurance of reinsurance.
insure him against loss or liability by (Prof. De Leon, p. 305)
reason of an original insurance (also
known as “Reinsurance Cession”). (Sec. XIV.
95) A. LOSS, IN INSURANCE
 In every reinsurance, the original  Injury or damage sustained by the
contract of insurance and the contract of insured in consequence of the happening
reinsurance are covered by separate of one or more of the accidents or
policies. misfortune against which the insurer, in
consideration of the premium, has
DOUBLE REINSURANCE undertaken to indemnify the insured.
INSURANCE (Bonifacio Bros. Inc. vs. Mora, 20 SCRA
Involves the same Involves different 261)
interest interest
Insurer remains in Insurer becomes the
such capacity insured in relation
to reinsurer
Insured is the party Original insured has
in interest in the 2 no interest in the
contracts reinsurance
contract.
Subject of Subject of insurance
insurance is is the original
property insurer’s risk
Insured has to give Insured’s consent
his consent not necessary
TERMS:
1. Reinsurance treaty – 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. (Prof. De Leon, p. 306)
2. Automatic reinsurance – The

reinsured is bound to cede and the
reinsurer is obligated to accept a fixed
share of the risk which has to be
Loss for which Loss for which
insurer is liable insurer is not
liable

1. Loss the 1. Loss by

proximate cause of insured’s willful
which is the peril act;
insured against 2. Loss due to
(Sec. 84); connivance of the
2. Loss the insured (Sec. 87);
immediate cause of and
which is the peril 3. Loss where the
insured against excepted peril is
except where the proximate
proximate cause is cause.
an excepted peril;
3. Loss through
negligence of
insured except
where there was
gross negligence
amounting to willful
acts; and
4. Loss caused by
efforts to rescue the
thing from peril
insured against;
5. If during the
course of rescue,
the thing is exposed

to a peril not annuity, in which later than 90 days
insured against, case, the from such receipt of
which permanently installments or proof of loss
deprives the insured annuities shall be whether or not
of its possession, in paid as they ascertainment is
whole or in part become due. had or made.
(Sec. 85).
b. Maturing at
the death of the
Proximate Cause – An event that sets all insured, occurring
other events in motion without any prior to
intervening or independent case, the
without which the injury or loss would expiration of the
not have occurred. term stipulated –
The proceeds are
REQUISITES FOR RECOVERY UPON payable to the
beneficiaries
INSURANCE within 60 days
1. The insured must have insurable after presentation
interest in the subject matter; and filing of proof
2. That interest is covered by the policy; of death.
3. There must be a loss; and
4. The loss must be proximately caused  In case of an unreasonable delay in the
by the peril insured against. payment of the insured’s claim by the
insurer, the insured can recover: 1)
NOTICE OF LOSS attorney’s fees; 2) expenses incurred by
In fire insurance In other types of reason of the unreasonable withholding;
insurance 3) interest at double the legal interest rate
fixed by the Monetary Board; and 4) the
Required Not required amount of the claim. (Zenith Insurance
Corp. vs. CA, 185 SCRA 398)
Failure to give Failure to give
notice will defeat notice will not
XV. PRESCRIPTIVE PERIOD (Secs. 63
the right of the exonerate the
insured to recover. insurer, unless & 384)
there is a  Rules:
stipulation in the 1. In the absence of an express
policy requiring the stipulation in the policy, it being based
insured to do so. on a written contract, the action
prescribes in 10 years.
2. However the parties may validly agree
B. CLAIMS SETTLEMENT on a shorter period provided it is not less
 The indemnification of the loss of the than one year from the time the cause of
insured. action accrues.
3. The cause of action accrues from the
TIME FOR PAYMENT OF CLAIMS rejection of the claim of the insured and
NON-LIFE not from the time of loss.
LIFE POLICIES POLICIES It shall commence from the denial of
the claim, not from the resolution of the
a. Maturing The proceeds shall motion for reconsideration, otherwise it
upon the be paid within 30 can be used by the insured as a scheme
expiration of the days after the or device to waste time until the
term – The receipt by the
proceeds are insurer of proof of
evidence which may be used against him
immediately loss, and is destroyed. (Sun Insurance Office, Ltd.
payable to the ascertainment of v. CA, 195 SCRA)
insured, unless the loss or damage 4. In CMVLI, the written notice of claim
they are made by agreement of the must be filed within 6 months from the
payable in parties or by date of the accident otherwise the claim
installments or as arbitration but not is deemed waived. The suit for damages
either with the proper court or with the
Insurance Commissioner should be filed
within 1 year from the date of the denial of the transportation system
of the claim by the insurer, otherwise such as bridges, tunnels, etc.
claimant’s right of action shall prescribe. 4. Floater – provides insurance to
(Sec. 384) follow the insured property
wherever it may be located,
PARTICULAR KINDS OF INSURANCE subject always to the territorial
CONTRACTS limits of the contract.
 Insurable interest:
XVI. MARINE INSURANCE A.
 Insurance against risks connected with 1.Shipowner
navigation, to which a ship, cargo, a. Over the vessel to the
freightage, profits or other insurable extent of its value, except
interest in movable property, may be that if chartered, the
exposed during a certain voyage or a insurance is only up to the
fixed period of time. (Sec. 99) amount not recoverable
 Coverage: from the charterer. (Sec.
A. 100).
1. Vessels, goods, freight, cargo, b. He also has an insurable
merchandise, profits, money, interest on expected
valuable papers, bottomry and freightage. (Sec. 103).
respondentia, and interest in respect c. No insurable interest if he
to all risks or perils of navigation; will be compensated by
2. Persons or property in connection charterer for the value of
with marine insurance; the vessel, in case of loss.
3. Precious stones, jewels, jewelry and 2. Cargo owner
precious metals whether in the  Over the cargo and expected
course of transportation or profits (Sec. 105).
otherwise; and 3. Charterer
4. Bridges, tunnels, piers, docks and  Over the amount he is liable
other aids to navigation and to the shipowner, if the ship is
transportation. (Sec. 99) lost or damaged during the
 Cargo can be the subject of voyage (Sec. 106).
marine insurance, and once it is
entered into, the implied B.
warranty of seaworthiness In loans on bottomry and respondentia
immediately attaches to  Repayment of the loan is subject to
whoever is insuring the cargo, the condition that the vessel or goods,
whether he be the shipowner or respectively, given as a security, shall
not. (Roque v. IAC, 139 SCRA arrive safely at the port of destination.
596) 1. Owner/Debtor
B. Marine Protection and Indemnity  Difference between the value
Insurance of vessel or goods and the
 Classes of inland marine insurance: amount of loan. (Sec. 101)
(Prof. De Leon, p. 325) 2. Creditor/lender
1. Property in transit – provides  Amount of the loan
protection to property
frequently exposed to loss while Note: If a vessel is hypothecated by
it is transportation form one bottomry, only the excess is insurable,
location to another. since a loan on bottomry partakes of the
2. Bailee liability - insurance for nature of an insurance coverage to the
those who have temporary extent of the loan accommodation. The
custody of the goods. same rule would apply to the
3. Fixed transportation property – hypothecation of the cargo by
they are so insured because they respondentia. (Pandect of Commercial
are held to be an essential part Law and Jurisprudence, Justice Jose
Vitug, 1997 ed.)
PERILS OF THE PERILS OF THE
SEA SHIP 1. Negligence of the captain, engineers,
Includes only those A loss which in the etc.
casualties due to ordinary course of 2. Explosions, breakage of shafts; and
the: events, results 3. Latent defect of machinery or hull.
1. unusual from the: (Bar Review Materials in Commercial
violence; or 1. natural and Law, Jorge Miravite, 2002 ed.)
2. extraordinary inevitable action of
action of wind and the sea
D. Sue and Labor Clause
wave; or 2. ordinary wear
3. Other and tear of the
 A clause under which the insurer may
extraordinary causes ship or become liable to pay the insured, in
connected with 3. Negligent addition to the loss actually suffered,
navigation. failure of the ship’s such expenses as he may have incurred
owner to provide in his efforts to protect the property
the vessel with against a peril for which the insurer
proper would have been liable. (Sec. 163)
equipment to
convey the cargo MATTERS ALTHOUGH CONCEALED, WILL
under ordinary
conditions. NOT VITIATE THE CONTRACT EXCEPT
WHEN THEY CAUSED THE LOSS (Sec.
Note: It is only perils of the sea which 110)
may be insured against unless perils of 1. National character of the insured;
the ship is covered by an all-risk policy. 2. Liability of the thing insured to
capture or detention;
SPECIAL MARINE INSURANCE 3. Liability to seizure from breach of
CONTRACTS AND CLAUSES foreign laws;
A. All Risks Policy – insurance against all 4. Want of necessary documents; and
causes of conceivable loss or damage, 5. Use of false or simulated papers.
except: 1) as otherwise excluded in the Note: This should be related to the
policy; or 2) due to fraud or intentional general rule regarding material
misconduct on the part of the insured. concealment.
 The insured has the initial burden of
proving that the cargo was in good condition DISTINCTIONS ON CONCEALMENT
when the policy attached and that the cargo (Commercial Law Reviewer, A.F.
was damaged when Agbayani, 1988 ed.)
unloaded from the vessel; thereafter, MARINE INSURANCE OTHER
the burden then shifts to the insurer to PROPERTY
show the exception to the coverage. INSURANCE
(Filipinas Merchants Insurance vs. Court The information of the The information or
of Appeals, 179 SCRA 638) belief or expectation belief of a 3rd party
of 3rd persons is is not material and
material and must be need not be
B. Barratry Clause communicated communicated
 A clause which provides that there unless it proceeds
can be no recovery on the policy in case form an agent of
of any willful misconduct on the part of the insured whose
the master or crew in pursuance of some duty it is to give
unlawful or fraudulent purpose without information
consent of owners, and to the prejudice The concealment of Concealment of any
of the owner’s interest. (Roque vs. IAC, any fact in relation to material fact will
139 SCRA 596) any of the matters vitiate the entire
stated in Sec. 110 contract, whether
does not vitiate the or not the loss
C. Inchamaree Clause entire contract but results for the risk
 A clause which makes the insurer merely exonerates the concealed.
liable for loss or damage to the hull or insurer from a risk
machinery arising from the: resulting from the fact
concealed
IMPLIED WARRANTIES inception of the insurance (Sec. 113);
1. Seaworthiness of the ship at the 2. Against improper deviation (Sec. 123,
124, 125);
3. Against illegal venture; 3. In the case of a voyage policy
4. Warranty of neutrality: the ship will contemplating a voyage in different
carry the requisite documents of stages, the ship must be seaworthy
nationality or neutrality of the ship at the commencement of each
or cargo where such nationality or portion
neutrality is expressly warranted;
(Sec. 120)  Applicability of implied warranty of
5. Presence of insurable interest. seaworthiness to cargo owners: It
becomes the obligation of a cargo owner
 While the payment by the insurer for to look for a reliable common carrier,
the insured value of the lost cargo which keeps its vessels in seaworthy
operates as a waiver of the insurer’s conditions. The shipper may have no
right to enforce the term of the implied control over the vessel but he has
warranty against the assured under the control in the choice of the common
marine insurance policy, the same carrier that will transport his goods
cannot be validly interpreted as an (Roque v. IAC, 139 SCRA 596).
automatic admission of the vessel’s
seaworthiness by the insurer as to Deviation
foreclose recourse against the common  A departure from the course of the
carrier for any liability under the voyage insured, or an unreasonable
contractual obligation as such common delay in pursuing the voyage or the
carrier. (Delsan Transportation Lines vs. commencement of an entirely different
CA, 364 SCRA 24) voyage. (Sec.123)
 Instances:
Seaworthiness 1. Departure of vessel from the
 A relative term depending upon the course of the sailing fixed by
nature of the ship, voyage, service and mercantile usage
goods, denoting in general a ship’s 2. Departure of vessel from the
fitness to perform the service and to most natural, direct and
encounter the ordinary perils of the advantageous route if not fixed
voyage, contemplated by the parties to by mercantile usage
the policy (Sec. 114). 3. Unreasonable delay in pursuing
GENERAL RULE: The warranty of voyage
seaworthiness is complied with if the 4. Commencement of an entirely
ship be seaworthy at the time of the different voyage (Secs. 121-123)
commencement of the risk. Prior or  Kinds:
subsequent unseaworthiness is not a 1. Proper -
breach of the warranty nor is it material a. When caused by circumstances outside
that the vessel arrives in safety at the the control of the ship captain or ship
end of her voyage. owner;
EXCEPTIONS: b. When necessary to comply with a
1. In the case of a time policy, the ship warranty or to avoid a peril;
must be seaworthy at the c. When made in good faith to avoid a
commencement of every voyage she peril;
may undertake d. When made in good faith to save
2. In the case of cargo policy, each human life or to relieve another vessel
vessel upon which the cargo is in distress (Sec. 124)
shipped or transshipped, must be  Effect: In case of loss, the
seaworthy at the commencement of insurer is still liable.
each particular voyage 2. Improper - Every deviation not
specified in Sec. 124 (Sec. 125).
 Effect: In case of loss or
damage, the insurer is not liable.
(Sec. 126)
LOSS i. Total destruction;

1. Total: ii. Irretrievable loss by sinking;
a. Actual - iii. Damage rendering the thing
valueless; or
iv. Total deprivation of owner of vessel or
possession of thing insured. cargo;
(Sec. 130) 2. Part of the
b. Constructive - vessel or cargo
i. Actual loss of more than ¾ was sacrificed
of the value of the object; deliberately;
ii. Damage reducing value by 3. Sacrifice must
more than ¾ of the value of be for the
the vessel and of cargo; and common safety
iii. Expense of transshipment or for the
exceed ¾ of value of cargo. benefit of all;
(Sec. 131, in relation to Sec. 4. Sacrifice must
139) be made by
 In case of constructive the master or
total loss, insured may: upon his
1. Abandon goods or authority;
vessel to the insurer and 5. It must be not
claim for whole insured be caused by
value (Sec. 139), or any fault of
2. Without abandoning the party
vessel, claim for partial asking the
actual loss. (Sec. 155) contribution;
2. Partial: That which is not total (Sec. 6. It must be
128). successful, i.e.
resulted in the
AVERAGE saving of the
 Any extraordinary or accidental vessel or
expense incurred during the voyage for cargo; and
the preservation of the vessel, cargo, or Necessary.
both, and all damages to the vessel and
cargo from the time it is loaded and the RIGHT OF INSURED IN CASE OF
voyage commenced until it ends and the GENERAL AVERAGE
cargo unloaded. GENERAL RULE: The insured may
either hold the insurer directly liable for
GENERAL PARTICULAR the whole of the insured value of the
Has inured to the Has not inured to the property sacrificed for the general
common benefit and common benefit and benefit, subrogating him to his own right
profit of all persons profit of all persons of contribution or demand contribution
interested in the interested in the from the other interested parties as soon
vessel and cargo vessel and her cargo. as the vessel arrives at her destination
To be borne equally To be borne alone by
by all of the interests the owner of the
EXCEPTIONS:
concerned in the cargo or the vessel, 1. After the separation of interests
venture. as the case may be. liable to contribution
Requisites for the 2. When the insured has neglected or
right to claim waived his right to contribution
contribution:
1. Common FPA Clause (Free From Particular
danger to the Average)
A clause agreed upon in a policy of
marine insurance in which it is stated
that the insurer shall not be liable for a
particular average, such insurer shall be
free therefrom, but he shall continue to
be liable for his proportion of all general
average losses assessed upon the thing
insured. (Sec. 136)
ABANDONMENT  The act of the insured by which, after a

constructive total loss, he declared the
relinquishment to the insurer of his a co-insurer of the difference between
interest in the thing insured. (Sec. 138) the amount of insurance and the value of
 Requisites for validity: the property.
1. There must be an actual
relinquishment by the person insured  Requisites:
of his interest in the thing insured 1. The loss is partial;
(Sec. 138); 2. The amount of insurance is less than
2. There must be a constructive total the value of the property insured.
loss (Sec. 139);
3. The abandonment be neither partial  Rules:
nor conditional (Sec. 140); 1. Co-insurance applies only to marine
4. It must be made within a reasonable insurance
time after receipt of reliable 2. Logically, there cannot be co-
information of the loss (Sec. 141); insurance in life insurance.
5. It must be factual (Sec. 142); 3. Co-insurance applies in fire insurance
6. It must be made by giving notice when expressly provided for by the
thereof to the insurer which may be parties.
done orally or in writing (Sec. 143);
and CO-INSURANCE REINSURANCE
7. The notice of abandonment must be A percentage in the Situation where the
explicit and must specify the value of the insured insurer procures a 3rd
particular cause of the abandonment property which the party called the
insured himself reinsurer to insure
(Sec. 144). assumes to act as him against liability
insurer to the extent by reason of an
 Effects: of the deficiency in original insurance.
1. It is equivalent to a transfer by the the insurance of the Basically,
insured of his interest to the insurer insured property. In reinsurance is an
with all the chances of recovery and case of loss or insurance against
indemnity (Transfer of damage, the insurer liability which the
Interest)(Sec.146) will be liable only for original insurer may
2. Acts done in good faith by those who such proportion of incur in favor of the
the loss or damage as original insured.
were agents of the insured in respect
the amount of the
to the thing insured, subsequent to insurance bears to
the loss, are at the risk of the the designated
insurer and for his benefit. (Transfer percentage of the
Of Agency)(Sec.148) full value of the
property insured.
 If an insurer refuses to accept a valid (Bar Review
abandonment, he is liable upon an Materials in
actual total loss, deducting form the Commercial Law,
Jorge Miravite, 2002
amount any proceeds of the thing ed.)
insured which may have come to the
hands of the insured. (Sec.154)
XVII. FIRE INSURANCE
CO-INSURANCE  A contract by which the insurer for a
 A marine insurer is liable upon a consideration agrees to indemnify the
partial loss, only for such proportion of insured against loss of, or damage to,
the amount insured by him as the loss property by hostile fire, including loss by
bears to the value of the whole interest lightning, windstorm, tornado or
of the insured in the property insured. earthquake and other allied risks, when
(Sec. 157) such risks are covered by extension to
 When the property is insured for less fire insurance policies or under separate
than its value, the insured is considered policies. (Sec. 167)
 Prerequisites to recovery: or impliedly by the insurer

1. Notice of loss – must be immediately 2. Proof of loss – according to best
given, unless delay is waived expressly evidence obtainable. Delay may also be
waived expressly or impliedly by the
insurer 6. There must be a violation of a
policy provision. (Sec. 170)
HOSTILE FIRE FRIENDLY FIRE
One that escapes One that burns in a Fall-of-building clause
from the place place where it was  A clause in a fire insurance policy that
where it was intended to burn if the building or any part thereof falls,
intended to burn and ought to be except as a result of fire, all insurance
and ought to be. by the policy shall immediately cease.
Insurer is liable Insurer is not liable
Option to rebuild clause
Measure of Indemnity  A clause giving the insurer the option
1. Open policy: only the expense to reinstate or replace the property
necessary to replace the thing lost or damaged or destroyed or any part
injured in the condition it was at the thereof, instead of paying the amount of
time of the injury the loss or the damage.
2. Valued policy: the parties are bound  The insurer, after electing to rebuild,
by the valuation, in the absence of fraud cannot be compelled to perform this
or mistake undertaking by specific performance
because this is an obligation to do, not
Note: It is very crucial to determine to give. Remedy: Art. 1167, NCC.
whether a marine vessel is covered by a
marine insurance or fire insurance. The XVIII. CASUALTY OR ACCIDENT
determination is important for 2 reasons: INSURANCE
1. Rules on constructive total loss  Insurance covering loss or liability
and abandonment – applies only arising from accident or mishap,
to marine insurance; excluding those falling under other types
2. Rule on co-insurance – applies of insurance such as fire or marine. (Sec.
primarily to marine insurance; 174)
3. Rule on co-insurance applies to
fire insurance only if expressly  Classifications:
agreed upon. (Commercial Law 1. Insurance against specified perils
Reviewer, Aguedo Agbayani, which may affect the person and/or
1988 ed.) property of the insured. (accident or
health insurance)
ALTERATION AS A SPECIAL GROUND  Examples: personal accident,
FOR RESCISSION BY INSURER robbery/theft insurance
 Requisites: 2. Insurance against specified perils
1. The use or condition of the thing which may give rise to liability on the
is specifically limited or part of the insured for claims for
stipulated in the policy; injuries to or damage to property of
2. Such use or condition as limited others. (third party liability insurance)
by the policy is altered;  Insurable interest is based on the
3. The alteration is made without interest of the insured in the safety of
the consent of the insurer; persons, and their property, who may
4. The alteration is made by means maintain an action against him in case of
within the control of the their injury or destruction, respectively.
insured;  Examples: workmen’s compensation,
5. The alteration increases the risk; motor vehicle liability
(Sec. 168) and  In a third party liability (TPL)
insurance contract, the insurer assumes
the obligation by paying the injured
third party to whom the insured is liable.
Prior payment by the insured to the third
person is not necessary in order that the
obligation may arise. The moment the
insured becomes liable to third persons,
the insured acquires an interest in the insurance contract which may be garnished
like any other credit. (Perla Comapnia
de Seguro, Inc vs. Ramolete, 205 SCRA “INTENTIONAL” vs. “ACCIDENTAL” AS
487) USED IN INSURANCE POLICIES
 Aside from compulsory motor vehicle 1. Intentional – Implies the exercise of
liability insurance, the Insurance Code the reasoning faculties, consciousness
contains no other provisions applicable and volition. Where a provision of the
to casualty insurance. Therefore, such policy excludes intentional injury, it is
casualty insurance are governed by the the intention of the person inflicting the
general provisions applicable to all types injury that is controlling. If the injuries
of insurance, and outside of such suffered by the insured clearly resulted
statutory provisions, the rights and from the intentional act of the third
obligations of the parties must be person, the insurer is relieve from
determined by their contract, taking into liability as stipulated. (Biagtan v. the
consideration its purpose and always in Insular Life Assurance Co. Ltd., 44 SCRA
accordance with the general principles 58, 1972)
of insurance law. 2. Accidental – That which happens by
chance or fortuitously, without intention
 In burglary, robbery and theft or design, which is unexpected, unusual
insurance, the opportunity to defraud and unforeseen.
the insurer – the moral hazard – is so
great that insurer have found it NO ACTION CLAUSE
necessary to fill up the policies with  A requirement in a policy of liability
many restrictions designed to reduce the insurance which provides that suit and
hazard. Persons frequently excluded are final judgment be first obtained against
those in the insured’s service and the insured; that only thereafter can the
employment. The purpose of the person injured recover on the policy.
exception is to guard against liability (Guingon vs. Del Monte, 20 SCRA 1043)
should theft be committed by one having
unrestricted access to the property. XIX. COMPULSORY MOTOR VEHICLE
(Fortune Insurance vs. CA, 244 SCRA 208) LIABILITY INSURANCE (CMVLI)
 A species of compulsory insurance
Right of a third party injured to sue that provides for protection coverage
the insurer that will answer for legal liability for
1. Indemnity against liability – A third losses and damages for bodily injuries or
party injured can directly sue the property damage that may be sustained
insurer. by another arising from the use and
2. Indemnity for actual loss or operation of motor vehicle by its owner.
reimbursement after actual payment by  Purpose: To give immediate financial
the insured – A third party has no cause assistance to victims of motor vehicle
of action against the insurer (Sec. 53, accidents and/or their dependents,
Bonifacio Bros. v. Mora, 20 SCRA 261). especially if they are poor regardless of
the financial capability of motor vehicle
 The insurer is not solidarily liable with owners or operators responsible for the
the insured. The insurer’s liability is accident sustained (Shafer v. Judge,
based on contract; that of the insured is RTC, 167 SCRA 386).
based on torts. Furthermore, the  Claimants/victims may be a
insurer’s liability is limited by the “passenger” or a “3rd party”
amount of the insurance coverage (Pan  It applies to all vehicles whether
Malayan Insurance Corporation v. CA, public and private vehicles.
184 SCRA 54). Note: It is the only compulsory insurance
coverage under the Insurance Code.
Method of coverage by a motor vehicle for transportation of

1. Insurance policy passengers for compensation, including
2. Surety bond persons expressly authorized by law or by
3. Cash deposit the vehicle’s operator or his agents to ride
without fare. (Sec. 373[b])
Passenger – Any fare-paying person
being transported and conveyed in and Third Party – Any person other than the
passenger, excluding a member of the
household or a member of the family or dismounting from. That said vehicle
within the second degree of might not be the one that caused the
consanguinity or affinity, of a motor accident is of no moment since the law
vehicle owner or land transportation itself provides that the party paying may
operator, or his employee in respect of recover against the owner of the vehicle
death or bodily injury arising out of and responsible for the accident. (Perla
in the course of employment. (Sec. Compania de Seguros, Inc. v. Ancheta,
373[c]) 169 SCRA 144)
“No-Fault” Clause  This no-fault claim does not apply to

 A clause that allows the victim property damage. If the total indemnity
(injured person or heirs of the deceased) claim exceeds P5,000 and there is
to an option to file a claim for death or controversy in respect thereto, the
injury without the necessity of proving finding of fault may be availed of by the
fault or negligence of any kind. insurer only as to the excess. The first
 Purpose: To guarantee compensation P5,000 shall be paid without regard to
or indemnity to injured persons in motor fault. (Prof. De Leon, p. 716)
vehicle accidents.
 Rules:  The essence of the no-fault indemnity
1. Total indemnity - maximum of P5,000 insurance is to provide victims of
2. Proofs of loss - vehicular accidents or their heirs
a. Police report of accident; immediate compensation although in
b. Death certificate and evidence limited amount, pending final
sufficient to establish proper payee; determination of who is responsible for
c. Medical report and evidence of the accident and liable for the victims
medical or hospital disbursement. injuries or death. (Ibid.)
3. Claim may be made against one
motor vehicle only SPECIAL CLAUSES
4. Proper insurer from which to claim - A. Authorized Driver Clause
a. In case of an occupant: Insurer  A clause which aims to indemnify the
of the vehicle in which the occupant is insured owner against loss or damage to
riding, mounting or dismounting from; the car but limits the use of the insured
b. In any other case: Insurer of the vehicle to the insured himself or any
directly offending vehicle. (Sec. 378) person who drives on his order or with
his permission (Villacorta v. Insurance
 The claimant is not free to choose Commissioner)
from which insurer he will claim the “no  The requirement that the person
fault indemnity” as the law makes it driving the insured vehicle is permitted
mandatory that the claim shall lie in accordance with the licensing laws or
against the insurer of the vehicle in other laws or regulations to drive the
which the occupant is riding, mounting motor vehicle (licensed driver) is
applicable only if the person driving is
other than the insured.
B. Theft Clause
 A clause which includes theft as
among the risks insured against.
 Where the car is unlawfully and
wrongfully taken without the owner’s
consent or knowledge, such taking
constitutes theft, and thus, it is the
“theft clause” and not the “authorized
driver clause that should apply (Palermo
v. Pyramids Ins., 161 SCRA 677).
C. Cooperation Clause information and assistance as the insurer

 A clause which provides in essence may require, usually requiring attendance
that the insured shall give all such at trials or hearings.
XX. SURETYSHIP
 An agreement whereby a surety XXI. LIFE INSURANCE
guarantees the performance by the  Insurance on human lives and
principal or obligor of an obligation or insurance appertaining thereto or
undertaking in favor of an obligee. (Sec. connected therewith which includes
175) every contract or pledge for the
 It is essentially a credit payment of endowments or annuities.
accommodation. (Sec. 179)
 It is considered an insurance contract  Kinds: (Bar Review Materials in
if it is executed by the surety as a Commercial Law, Jorge Miravite, 2002
vocation, and not incidentally. (Sec. 20 ed.)
 When the contract is primarily drawn 1. Ordinary Life, General Life or Old
up by 1 party, the benefit of doubt goes Line Policy - Insured pays a fixed
to the other party (insured/obligee) in premium every year until he dies.
case of an ambiguity following the rule Surrender value after 3 years.
in contracts of adhesion. Suretyship, 2. Group Life – Essentially a single
especially in fidelity bonding, is thus insurance contract that provides
treated like non-life insurance in some coverage for many individuals.
respects. Examples: In favor of employees,
“mortgage redemption insurance”.
Nature of liability of surety 3. Limited Payment Policy – insured
1. Solidary; pays premium for a limited period.
2. Limited to the amount of the bond; If he dies within the period, his
3. It is determined strictly by the terms of beneficiary is paid; if he outlives the
the contract of suretyship in relation to period, he does not get anything.
the principal contract between the 4. Endowment Policy – pays premium
obligor and the obligee. (Sec. 176) for specified period. If he outlives
the period, the face value of the
policy is paid to him; if not, his
SURETYSHIP PROPERTY beneficiaries receive the benefit.
INSURANCE 5. Term Insurance – insurer pays once
Accessory contract Principal contract only, and he is insured for a
3 parties: surety, 2 parties: insurer specified period. If he dies within
obligor and oblige and insured the period, his beneficiaries
Credit Contract of benefits. If he outlives the period,
accommodation indemnity no person benefits from the
Surety can recover Insurer has no such insurance.
from principal right; only right of 6. Industrial Life - life insurance
subrogation entitling the insured to pay
Bond can be May be cancelled
premiums weekly, or where
cancelled only with unilaterally either by
consent of obligee, insured or insurer on premiums are payable monthly or
Commissioner or grounds provided by oftener.
court law
Requires No need of Mortgage Redemption Insurance
acceptance of acceptance by any  A life insurance taken pursuant to a
obligee to be valid third party group mortgage redemption scheme by
Risk-shifting device; Risk-distributing the lender of money on the life of a
premium paid being device; premium paid mortgagor who, to secure the loan,
in the nature of a as a ratable
service fee contribution to a mortgages the house constructed from
common fund the use of the proceeds of the loan, to
the extent of the mortgage indebtedness
such that if the mortgagor dies, the
proceeds of his life insurance will be
used to pay for his indebtedness to the
lender assured and the deceased’s heirs
will thereby be relieved from paying the
unpaid balance of the loan. (Great
Pacific Life Assurance Corp. vs. Court of Appeals, 316 SCRA 677)
1. Accidental killing
LIABILITY OF INSURER IN CERTAIN 2. Self-defense
CAUSES OF DEATH OF INSURED 3.Insanity of the beneficiary at the
1. Suicide time he killed the insured
 Insurer is liable in the following cases:
1. If committed after two years  If the premiums paid came from
from the date of the policy’s conjugal funds, the proceeds are
issue or its last reinstatement; considered conjugal. If the beneficiary is
2. If committed in a state of other than the insured’s estate, the source
insanity regardless of the date of of premiums would not be relevant. (Del
the commission unless suicide is Val v. Del Val, 29 Phil 534)
an excepted peril. (Sec. 180-A)
3. If committed after a shorter
period provided in the policy
 Any stipulation extending the 2-year
period is null and void.
2. At the hands of the law (E.g. by legal
execution)
 It is one of the risks assumed by the
insurer under a life insurance policy in
the absence of a valid policy exception.
(Vance,p.572 cited in de Leon, p. 107)
Note: Justice Vitug believes that death
by suicide (if the insured is sane) or at
the hands of the law obviates against
recovery as being more in consonance
with public policy and as being implicit
under Section 87, ICP. (Pandect of
Commercial Law and
Jurisprudence, 1997 ed. P.
191)
3. Killing by the beneficiary
GENERAL RULE: The interest of a
beneficiary in a life insurance policy
shall be forfeited when the beneficiary is
the principal accomplice or accessory in
willfully bringing about the death of the
insured, in which event, the nearest
relative of the insured shall receive the
proceeds of said insurance if not
otherwise disqualified. (Sec. 12)
EXCEPTIONS:
 The measure of indemnity in life or
health insurance policy is the sum
fixed in the policy except when a
creditor insures the life of his debtor.
(Sec. 183) IS THE CONSENT OF THE
BENEFICIARY NECESSARY TO THE
ASSIGNMENT OF A LIFE INSURANCE
POLICY?
 It depends. If the designation of the
beneficiary is irrevocable, the
beneficiary’s consent is essential
because of his vested right. If the
designation is revocable, the policy
may be assigned without such consent
because the beneficiary only has a
mere expectancy to the proceeds.
(The Insurance Code of the Philippines
Annotated, Hector de Leon, 2002 ed.)
Cash Surrender Value

 As applied to a life insurance policy,
it is the amount the insured in case of
default, after the payment of at least
3 full annual premiums, is entitled to
receive if he surrenders the policy and
releases his claims upon it.
LIFE INSURANCE FIRE INSURANCE
Contract of Contract of indemnity

investment not of
indemnity
Valued policy Open or valued policy
May be transferred The insurable
or assigned to any interest of the
person even if he transferee or
has no insurable assignee is essential
interest
Consent of insurer is Consent of insurer
not essential to must be secured in
validity of the absence of waiver
assignment
Contingency that is Contingency insured
contemplated is a against may or may
certain event, the not occur
only uncertainty
being the time when
it will take place
A long-term May be cancelled by
contract and cannot either party and is
be cancelled by the usually for a term of
insurer one year
Beneficiary is under Insured is required to
no obligation to submit proof of his
prove actual actual pecuniary loss
financial loss as a condition
precedent to
collecting the
insurance.
XXII. VARIABLE CONTRACT

 Any policy or contract on either a  The Insurance Commissioner has no
group or individual basis issued by an jurisdiction to decide the legality of a
insurance company providing for benefits contract of agency entered into between
or other contractual payments or values an insurance company and its agent. The
thereunder to vary so as to reflect same is not covered by the term “doing
investment results of any segregated or transacting insurance business” under
portfolio of investment. Sec 2, ICP, neither is it covered by Sec.
416 of the same Code which grants the
XXIII. INSURANCE COMMISSIONER Commissioner adjudicatory powers
 Main agency charged with the (Philippine American Life Insurance Co.
enforcement of the Insurance Code and v. Ansaldo, 234 SCRA 509).
other related laws.
 Functions: 2. ADMINISTRATIVE/REGULATORY
1. ADJUDICATORY/QUASI-JUDICIAL a. Enforcement of insurance laws
a. Exclusive original jurisdiction – b. Issuance, suspension or
Any dispute in the enforcement of any revocation of certificate of
policy issued pursuant to Chapter VI authority
(CMVLI). (Sec. 385, par. 2) c. Power to examine books and
b. Concurrent original jurisdiction records, etc.
(with the RTC) – Where the maximum d. Rule-making authority
amount involved in any single claim is e. Punitive
P100,000 (Sec. 416), except in case of
maritime insurance which is within the
exclusive jurisdiction of the RTC. (BP
129; admiralty & maritime jurisdiction)
 Where the amount exceeds
P100,000, the RTC has
jurisdiction.

San Beda College of Law: Insurance Code

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

San Beda College of Law: Insurance Code

Uploaded by

Copyright:

Available Formats

San Beda College of Law 1

MEMORY AID IN COMMERCIAL LAW

I. GENERAL CONCEPTS 7. Personal – each party having in view

which the insured may “adhere” if he

application subject to processing by the

VI. PARTIES TO INSURANCE CONTRACT indemnify another.

insurance agent, it is necessary

c. of any person under a legal obligation to him to pay money or

respecting property or services,

policy. (Cha vs. Court of Appeals, 227

ENTITLEMENT OF INSURED TO RETURN exposed to the risks insured

3. If contract is voidable because of

5. Transfer of interest by one of

 Where matters of opinion or judgment

2. Representations – Factual time of, or prior to, the issuance of the

and induce him to enter into the

3. Warranties – Statement or promise

COMMERCIAL LAW COMMITTEE

4. Conditions – Events signifying in its 1. Non-life – such right must be exercised

5. Exceptions – Provisions that may

COMMERCIAL LAW COMMITTEE

CANCELLATION OF NON-LIFE mailed or delivered to the

 Incontestability only deprives the

BARRED DEFENSES NOT

COMMERCIAL LAW COMMITTEE

1. Policy is void ab 1. That the person

Additional or “Other Insurance” Clause

“(a) policy may declare that a violation

2. Automatic reinsurance – The

COMMERCIAL LAW COMMITTEE

1. Loss the 1. Loss by

COMMERCIAL LAW COMMITTEE

LOSS i. Total destruction;

ABANDONMENT  The act of the insured by which, after a

 Prerequisites to recovery: or impliedly by the insurer

Method of coverage by a motor vehicle for transportation of

“No-Fault” Clause  This no-fault claim does not apply to

C. Cooperation Clause information and assistance as the insurer

Cash Surrender Value

Contract of Contract of indemnity

XXII. VARIABLE CONTRACT

You might also like