IN CASE OF INSURANCE UPON STOCKS-IN-TRADE, WHEN WILL MULTIPLE INSURANCE THEREON BE CONSIDERED AS

A VOILATION AGAINST DOUBLE INSURANCE?

In case of insurance upon stocks-in-trade, there is no violation of the prohibition against double insurance (1) where
the policies taken cover less than the entire quantity of the stocks-in-trade or (2) where the total amount of the
policies taken is less than the total value of the stocks-in-trade.

The reason is that such cases, the things insured are specific but described only in general terms. And therefore,
when another policy is taken on the stocks-in-trade and the total amount of first insurance and the additional policy
does not exceed the value of the whole stocks, or the total quantity of the stocks insured under the two policies is
less that the whole stocks, it may be said that the added insurance covers the goods not insured under the first
policy. In other words, such case is not considered as double insurance since the subject matters for the two policies
are not the same.

WHEN IS THE INSURER NOT SUBROGATED TO THE RIGHTS OF THE INSURED?

1. In life insurance because subrogation exists only when insurance is a contract of indemnity. Subrogation,
therefore, exists in property insurance;
2. When the proximate cause of the damage was the negligence of the insured himself;
3. When the insurer pays to the insured a loss not covered by the policy;
4. When the insured failed to comply with the legal or stipulated condition precedent prior to the filing of an
action against the wrongdoer, as when no notice of loss was given by the insured to the carrier liable for the
loss despite requested by law was not given by the insured-consignee. (LI-P-IP-IF)

WHAT IS A MUTUAL INSURANCE COMPANY OR ASSOCIATION?

A mutual insurance company is a cooperative enterprise where the members are both the insurer and the insured. In
it, the members all contribute, by a system of premiums or assessments, to the creation of a fund from which all
losses and liabilities are paid, and where the profits are divided among themselves, in proportion of their interest.
(BAR 2006)

MAY THE ORIGINAL INSURED HOLD THE REINSURER LIABLE?

The original insured cannot hold the reinsurer liable. A contract of reinsurance operates solely between the
reinsured and the reinsurer, and creates no privity between the reinsurer and the person originally insured. The
contract of insurance and that of reinsurance remain totally distinct and disconnected, and the reinsurer is in no way
liable to the reinsured’s policy holder. The original insured has no right of action against the reinsurer on the
reinsurance contract, and the reinsured alone has claim against the insurer.

However, if the contract of reinsurance is made directly for the benefit of the reinsured’s policy holders, or if the
reinsurer assumes and agrees to perform reinsured’s contracts, the ireinsurer becomes directly liable to the policy
holders. It is necessary, however, for the original insured to accept such benefit and communicate his acceptance to
the reinsurer before its revocation.

WHAT MATTERS MUST BE COMMUNICATED BY THE REINSURED TO THE REINSURER?

1. All representations made by the original insured, and

2. All the knowledge and information he possesses whether previously or subsequently acquired, which are
material to the risk.

However, where the reinsurance is automatic, the aforesaid information need not be communicated.
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DISTINGUISH FACULTATIVE REINSURANCE FROM REINSURANCE COMPACT

Facultative reinsurance is one wherein the reinsurer has the right to accept or not to accept participation in the risk
insured. But once the share is accepted, the obligation becomes absolute and the liability assumed thereunder can
be discharged by one and only way – payment of the share in the losses.

On the other hand, reinsurance compact is a contract whereby two or more insurance companies agree in advance
that each will reinsure a part of any line of insurance taken by the other and is self-executing contract. In such case,
reinsurance attaches automatically upon the acceptance of a risk by any one of the companies.

IS REINSURANCE COMPULSORY?

Ordinarily, reinsurance is voluntary and not compulsory except:

1. When a non-life insurer insures in any one risk or hazard an amount exceeding twenty per centum of its net
worth, the insurer needs reinsurance of the excess over said limit so that retention of the insurer will be
reduced to the maximum of 20 per centum of its net worth
2. When a foreign insurance company withdraws from the Philippines, it should cause its primary liabilities
under policies insuring residents of the Philippines to be reinsured and assumed by another insurance
company authorized to transact business in the Philippines.

WITHIN WHAT TIME SHOULD THE PROCEEDS OF LIFE INSURANCE POLICY BE PAID?

Payment of the proceeds of life insurance policy depends on the manner of maturity of the policy, as follows:

1. If the policy matures by the expiration of the terms (maturity other than by the death of the insured).
Payment shall be made immediately upon maturity except when the proceeds are payable in installments or
as an annuity, in which case the installments or annuities shall be paid as they become due; and
2. If the policy matures by the death of the insured, payment should be made within 60 days from the
presentation of the claim and filing of proof of death

WHEN ARE DEFECTS IN THE NOTICE OR PROOF OF LOSS DEEMED TO BE WAIVED BY THE INSURER?

1. When insurer writes to the insured that he considers the policy null and void
2. If the insurer makes objection on any ground other than a formal defect in preliminary proofs
3. Payment by reason of the loss
4. Refusal to pay based on merits of the claim
5. Denial of liability on other grounds
6. Where insurer joins the proceedings to determine the amount of loss by arbitration and makes no objection
on account of notice

WHAT ARE THE CONDITIONS SUBSEQUENT TO THE LOSS THAT THE INSURED MUST PERFORM TO BE ABLE TO
RECOVER?

1. Give a notice of loss without unnecessary delay, and

2. When required by the policy, submit a preliminary proof of loss
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WHAT IS THE EFFECT OF: (1) WILLFULL ACT OR CONNIVANCE OF THE INSURED; AND (2) FRADULENT CLAIM OF THE
INSURED?

(1) Realizing the necessity of suppressing a public menace, the law deprives the insured of the right to recover the
loss caused by his willful act or connivance with others. Thus, when the insured intentionally burned his house which
was insured against fire, the insurer is not liable.

(2) Fraud in the statement of loss operates to defeat recovery upon any part of the policy; for the policy is avoided
by any false and material representation in the statement of loss and all benefits under the policy are forfeited. Thus,
the falsity of invoices submitted by the insured to prove the loss, is evidence of a fraudulent claim and will avoid the
insurer’s liability.

WHAT ARE THE LOSSES FOR WHICH THE INSURER IS LIABLE?

1. Loss of which a peril insured against was the proximate cause;

2. Loss caused by efforts to rescue the thing insured from a peril insured against;
3. Loss caused by a peril not insured against to which the thing insured was exposed in the course of rescuing
the same from the peril insured against;
4. Loss, the immediate cause of which was the peril insured against unless the proximate cause thereof was
excepted in the contract;
5. Loss caused by the negligence of the insured.

WHEN ARE PREMIUMS NOT RECOVERABLE?

1. If the peril insured against has existed, and the insurer has been liable for any period, the peril being entire
and indivisible;
2. In life insurance;
3. When the insured is guilty of fraud or misrepresentation
4. When the policy is annulled or rescinded upon grounds other than those attributable to the insurer or if a
claim is denied by reason of fraud.

WHEN IS THE INSURED ENTITLED TO A RETURN OF THE PREMIUM?

1. When no part of the interest in the thing insured is exposed to any of the perils insured against;
2. Where the insurance is made for a definite period of time and the insured surrenders his policy before the
expiration of that period;
3. When the contract is voidable, and subsequently annulled under the provisions of the Civil Code; or on
account of fraud or misrepresentation of the insurer, or of his agent, or on account of facts, or the existence
of which the insured was ignorant of without his fault;
4. When by any default of the insured other than actual fraud, the insurer never incurred any liability under the
policy;
5. Where an insurance policy ceases to be effective by reason of war, which made the insured an enemy;
6. In case of over insurance (taking an insurance more than the value of one’s insurable interest;
7. When the insurance is illegal.

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WHEN MAY REINSTATEMENT OF LAPSED LIFE INSURANCE POLICY BE AVAILED OF?

Every life insurance policy must contain a provision that the holder of the policy shall be entitled to reinstatement of
the contract at any time within 3 years from the date of default in the payment of premium, unless the cash value
has been duly paid, or the extension period expired, upon production of evidence of insurability to the company and
the payment of all overdue premiums and any indebtedness to the company upon said policy.

HOW DOES AUTOMATIC LOAN CLAUSE OPERATE IN LIFE INSURANCE?

Automatic loan clause is a stipulation in the policy providing that upon default in the payment of premium, the same
“Shall be paid from the loan value of the policy until that value is consumed. In such case, the policy is continued in
force as full and effectively as though the premiums had been paid by the insured from funds derived from other
sources.

Automatic Loan Clause – if the insured did not pay the premium, the insurer will loan the former’s cash surrender
value, to be paid to the premium. Subject to interest.

WHAT IS CASH SURRENDER VALUE?

After the payment of 3 annual premiums, the insured may decide not to continue to policy anymore and get back a
cash surrender value.

It is not the same with return of the premium. It is less than the total amount of the premiums paid by the insured.

How does cash surrender value arise?

Premiums are commensurate with the risk assumed. The greater the risks the higher the rate of premium.

Actually, at the beginning of the policy, the insured is paying more to meet the deficiency in the later years of the
insured.

The excess is the cash surrender value.

HOW DOES THE PERIOD OF GRACE IN LIFE INSURANCE OPERATE?

In life insurance, after the payment of the first premium, the insured is entitled to a grace period of 30 days or one
month within which to pay the succeeding premiums. In case the insured dies during the period of grace and before
the payment of the premium due, the insurer is liable as the policy continues in force during the grace period but the
premium due and the interest thereon may be deducted from the amount payable to the beneficiary.

WHAT DEVICES ARE EMPLOYED TO PREVENT FORFEITURE OF A LIFE INSURANCE POLICY?

1. Period of grace;
2. Payment of the cash surrender value;
3. Giving options to the insured after payment of the three full annua premiums such as extended insurance
and paid-up insurance;
4. Automatic loan clause; and
5. Reinstatement of lapsed policies.

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WHEN IS THERE A DEVIATION FROM THE COURSE OF THE VOYAGE INSURED?

Deviation is (a) a departure from the course of the voyage insured; (b) an unreasonable delay in pursuing the voyage;
or (c) the commencement of an entirely different voyage.

At the commencement of the voyage, the vessel insured was seaworthy. During the voyage, the vessel broke its
shaft and become unseaworthy. The vessel was towed to the port and thereafter towed to the other port of
without being properly repaired. The vessel sprung a leak while at the last port and sunk. WILL THE INSURER BE
LIABLE?

Unreasonable delay in repairing the defect causing unseaworthiness arising after the commencement of the risk will
discharge the insurer from liability only when the damage or loss was caused by the unseaworthiness of the vessel,
and where the damage was caused by the particular defect that made the ship unseaworthy, the insurer is still liable.

In this case, since the particular defect that caused unseaworthiness was not the cause of the loss, the insurer was
liable although there was a failure to repair the vessel’s defect.

WHEN A VESSEL IS SEAWORTHY AT THE COMMENCEMENT OF THE VOYAGE BUT BECOMES UNSEAWORTHY
DURING THE VOYAGE WHAT MUST THE OWNER OR CAPTAIN OF THE VESSEL DO?

Seaworthiness of the vessel, as general rule, is necessary only at the commencement of the risk, and, therefore, the
insured does not warrant that the ship will be seaworthy during the entire voyage or throughout the life of the
policy. Accordingly, if a vessel is seaworthy at the inception of the voyage, subsequent unseaworthiness does not
avoid the policy.

However, when the ship becomes unseaworthy, during the voyage to which the insurance relates, it is the duty of
the owner or ship captain to have the defect repaired without unreasonable delay; otherwise, the insurer will be
exonerated from liability for any loss arising therefrom.

Q. (1) IS CAUSAL CONNECTION BETWEEN THE FACT CONCEALED AND THE CAUSE OF THE LOSS IN MARINE
INSURANCE NECESSARY? (2) WHEN IS CAUSAL CONNECTION BETWEEN THE FACT CONCEALED AND THE CAUSE OF
THE LOSS NECESSARY IN MARINE INSURANCE?

(1) Usually, concealment of material fact entitles the insurer to rescind a contract of insurance even if the fact
concealed is not the cause of the loss. However, in marine insurance concealment of the matters specified in Section
112 does not entitle the insurer to cancel the policy but merely exonerates the insurer from a loss resulting from the
risk concealed.

In other words, if the fact concealed is any one of the matters mentioned in this section, the insurer will still be liable
if the cause of the loss is not the fact concealed but will be exempted from liability should the fact concealed be the
cause of the loss.

(2) A concealment in a marine insurance in respect to any of the following matters, does not vitiate the entire
contract, but merely exonerates the insurer from a loss resulting from the risk concealed:

a) The national character of the insured;

b) The liability of the thing insured to capture and detention;

c) The liability to seizure from breach of foreign laws of trade;

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 d) The want of necessary documents;

e) The use of false and simulated papers

IN MARINE INSURANCE, WHAT MUST BE COMMUNICATED BY THE INSURED TO THE INSURER?

The duty the law imposes to an insured in marine insurance is the same as that required of an insured in any kind of
insurance, i.e. reveal all information which he possesses which is material to the risk. However, while in ordinary
insurance the insured is not bound to communicate even upon inquiry, an opinion upon the matters in question in
marine insurance the insured must reveal to the insurer information of the belief or expectation of a third person, in
reference to a material fact.

Therefore, if the insured at the time of effecting the insurance receives, or has intelligence or information or
knowledge of facts which affect the condition and safety of the ship on her voyage, and which, in the mind of a
prudent and rational underwriter, would increase the hazard or liability to a loan, it ought to be disclosed.

Thus, information received from others that there were French privateers or pirates in certain areas was ruled
material.

C, the creditor, loaned P20 M to D, the debtor, as loan on bottomry. The value of the vessel is P100 M and was
given as security for the loan.

(1) HOW MUCH IS THE INSURABLE INTEREST OF C IN THE VESSEL HYPOTHECATED?

(2) HOW MUCH IS THE INSURABLE INTEREST OF D IN THE VESSEL HE OWNS?

A. (1) The insurable interest of C on the vessel hypothecated is P20 M because if the vessel is lost, the damage to the
lender is the extent of the loan which he cannot collect anymore.

(2) The insurable interest of D is P80 M which is the difference between the value of the vessel and the loan because
he does not have to pay the loan of P20 M and therefore, the damage he suffers is only P80 M.

WHAT RISKS ARE COVERED BY MARINE INSURANCE?

Unless otherwise stated in the policy, loss due to perils of the ship is not within the coverage of marine insurance. A
marine policy in the usual form, therefore, includes perils of the sea and not perils of the ship, and accordingly, a
marine insurer upon a policy in the usual form is not liable for a loss caused by a peril of the ship.

However, marine insurance policy providing that the insurance is “against all risks” must be construed as creating a
special insurance and extending to other risks that are usually contemplated, and covers all losses except such as
may arise from the fraud of the insured, intentional misconduct on the part of the insured or otherwise excluded in
the policy. It covers all losses during the voyage whether arising from a marine peril or not, including pilferage losses
during war.

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DOES MARINE INSURANCE COVER ONLY THOSE THAT ARE SUBJECT TO THE MARITIME RISKS?

No. The present law includes within the coverage of marine insurance risks not connected with marine navigation in
the following instances:

a) Insurance against loss of or damage to aircraft;

b) Insurance against loss of or damage to goods and merchandise while being assembled, packed, crated,
baled, compressed or similarly prepared for shipment;

c) Insurance against loss of or injury to person in connection with marine transit or transportation insurance;

d) Insurance against loss of or damage to precious stones, jewels, jewelry, precious metals, whether in the
course of transportation or otherwise;

e) Insurance against loss of or damage to bridges, tunnels and other instrumentalities of transportation and
communication

What is required of any land transportation operator or owner of a motor vehicle to be able to operate the same
in highways?

It is unlawful for any land transportation operator or owner of a motor vehicle to operate the same in highways
unless there is: a policy of insurance, or guaranty in cash, or surety bond to indemnify the death or bodily injury of a
third-party or passenger arising from the use thereof. Such compulsory third-party coverage is limited to death or
bodily injuries.

MAY A LIFE INSURANCE POLICY BE TRANSFERRED?

A life insurance is property in the nature of non-negotiable chose in action even before the death of the insured. It
has all the characteristics of personal property and can be delivered and transferred as other personal property. The
transferee of the life policy need not have insurable interest and notice to the insurer of such assignment need not
be given unless expressly required by the policy.

Under the "authorized driver" clause, an authorized driver must not only be permitted to drive by the insured. It is
also essential that he is permitted under the law and regulations to drive the motor vehicle and is not disqualified
from so doing under any enactment or regulation. At the time of the accident, Stokes had been in the Philippines for
more than 90 days. Hence, under the law, he could not drive a motor vehicle without a Philippine driver’s license. He
was therefore not an "authorized driver" under the terms of the insurance policy in question, and MALAYAN was
right in denying the claim of the insured.

In a life insurance policy where death of the insured by “assault or murder, or intentional killing” is excepted from
its coverage, does the mere fact that the insured suffered a violent death by the hands of another person
necessary relieve the insurer of liability?

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The insurer’s liability in such case will depend on whether the insured’s death was intended or not. Thus, if the
insured was killed by another person intentionally the insurer is not liable, but where he insured was not an
intended victim of felonious assault, the insurer is still liable.

DISTINGUISH “PERILS OF THE SEA” FROM “PERILS OF THE SHIP”

Perils of the sea” embrace all kinds of marine casualties and damages done to the ship or goods at sea by the violent
action of the winds or waves, one that could not be foreseen and not attributable to the fault of anybody.

“Perils of the ship,” on the other hand, are losses or damages resulting from (a) the natural and inevitable action of
the sea, (b) ordinary wear and tear of the ship, or (c) negligent failure of the ship’s owner to provide the vessel with
proper equipment to convey the cargo under ordinary condition.

When is license to drive not necessary?

If the insured himself is the driver of the vehicle insured, he has the right to recover damage thereto even if he has
no driver’s license or the same had expired at the time of the accident.

Likewise, when a motor vehicle is covered by a comprehensive policy that includes theft, the insurer is liable for the
damage to the motor vehicle in case such damage is sustained on the occasion of or while the theft is being
committed even if the thief is not licensed to drive. Also, when the thief had an expired license when the car insured
was stolen, the insurer is nonetheless liable.