TITLE2 FIRE INSURANCE SEC. 169. As used in this Code, the term “fire Insurance” shall include insurance against loss by fire, lightning, windstorm, tomado or earthquake and other allied risks, when such risks are covered by extension to fire insurance policies or under separate policies. Fire insurance defined. Aire insurance isa contract of indemnity by which the insurer, fora stipulated premium, agrees to indemnify the insured against loss of, or damage to, specific property caused by hostile fire (see Sec. 86.) etc, located at the place stated in the policy. Fire-and-extended coverage. As used in the Code, it includes not on! 85 by lightning, windstorm, ete. but only when such tole ae vere by txtension to fre insurance policies or under separate policies (Sec. 169.) subject to the payment of additional premiums. The coverage may be attached to the standard fire policy by endorsements (see Sec, 50.) Thus, distinction is drawn between fre insurance alone and fire-and-extended " fire-and-extended coverage to protect the insured against these Nature of fire insurance. Fire insuranceis essentially acontract of 7 ntractof indemnity. Indemnit e its eae and any contract t contemplate a pone 8 insured by the happening of the event ‘upon which 08 << (CLASSES OF INSURANCE 9 “Tile 2— Fie lsurance e019 the liability becomes fixed is contrary to its proper nature and is not allowed. (Vance, op. cit, p. 101.) Concept of fire. Ina case, the court defining fire, said: “Spontaneous combustion is usually a rapid oxidation. Fire is oxidation which is so rapid as to produce either a flame ot a glow. Fire is always caused by combustion, but combustion does not always cause fire. The word ‘spontaneous’ refers to the origin of the combustion. It means the intemal development without the action of an external agent. Combustion or spontaneous combustion may be so rapid as to produce fire, but until it does so, combustion cannot be said to be fire.” (Western Woolen Mills Co. v. Northern Assur. Co,, 139 Fed. 637, cited in D.L. Bickelhaupt, p.478.) ‘The presence of heat, steam, or even smoke is evidence of fire, but taken by itself will not prove the existence of fie. Unless accompanied by ignition, heat sufficient to cause charring or scorching does not constitute fire. To constitute fire, combustion ‘must proceed at arate suficiently fast to produce a flame, a glow, or incandescence. Regardless of the amount of heat, there can be zo fire until ignition takes place. The loss resulting from a sizable hole burned in a couch even though no one was there to see the fire probably would be covered. A small scorch on a table by a cigarette would not meet the definition of fire. (DLL. Bickelhaupt, 478) ‘our jurisprudence, fire may not be considered a natural disaster or calamity since it almost always arises from some act of man or by human means. It cannot be an act of God unless caused by lightning or a natural disaster or casualty not attributable to human agency. ‘Assurance Corp. vs. Court of Appeals, 257 SCRA 468 [ "For dsinaio between hose ae end irs, see notation under Section 86410. THEINSURANCE CODE OF THE PHILIPPINES ANNOTATED Sec. 169, Risks or losses covered. In determining whether a risk or cause of loss is writen, the scope and coverage of a fire insurance policy and the intention of the parties, as indicated by their contract conti coverage” provisions bring other risks notexcluded within th policies, damage or loss by explosion, . typhoon, flood, riot and other special perils may be expressly insured against in addition to that caused by fire. As thus used, these terms are given practically the same meaning as when used in exceptions in such respect from the risk insured against. (see 44 Am. Jur. 2d 546.) @) They may also extend the coverage to indirect or consequential losses. Indirect loss coverage. contracts are six (6) months during the period of repair, the owner may lose rents during that period. The attachment of a consequential loss form to the standard fire policy extends the coverage to such consequential losses, (Riegel, Miller & Wiliams, Jr, op. cy P is special coverage is known asl ir 316) This spac coverages known ass of profs insuanc oF Kinds of indirect losses. Indirect or consequential losses may consist of: (1) Physical damage caused to other ‘hich is not usually covered by the basic insurance policy). ‘hase stem sec. 168 CLASSES OF INSURANCE an ‘Tie2 — Fie Insurance interfere with heating, cooling, air conditioning, or furnishing power, and as a result goods are spoiled, or result in the loss of valuable records or papers that cannot be recopied, or decrease in value the undamaged member of a pair (Ibid, p. (2) Loss of earnings due to the interruption of business by damage to insured’s property; and (Q) Extra expense or additional expenditure or charges incurred by the insured following damage or destruction of buildings or contents by an insured peril. Examples are the cost ‘of doing business at a location other than the usual premises of the insured, the expense of maintaining a home on a temporary basis elsewhere, and the expense of demolition when required by ance or law regulating construction or repair of buildings. Ocean marine and fire policies ‘A policy of insurance on a vessel engaged in navigation is a contract of ocean marine insurance although it insures against fire risks only. However, where the hazard is fire alone and the subject is an unfinished vessel, never afloat for a voyage, the contract to insure is a fire risk, especially in the absence of an express agreement that it shall have the incidents of marine policy, or where it insures materials in a shipyat vessel while moored and in use as a hospi Importance of the distinction. highly important to determine whether an insurance against risk of fire upon a vessel is a marine insurance or just an ordinary fire insurance for two (2) reasons: (1) In marine insurance, the rules on constructive total loss (Gecs, 133, 141.) and abandonment (Sec. 140.) apply but not in fire insurance; and (2) In case of partial loss of a thing insured for less than its actual value, the insured in a marine policy is a co-insurer ofiz THEINSURANCECODE OF THEPHILIPPINES ANNOTATED Seay, insured portion (Sec. 159.), the insured may te arp inserin fire insurance if expressly agreed upent, the parties. (see Sec. 174.) SEC. 170. An alteration thing insured from that to whi made without the consent of ‘the control of the insured, and ‘an insurer to rescind a contract of fire insurance, the use oF condition of a which itis limited by the policy, risk, does not affect a contract of fie insurance. ion in thing insured condition of the thing insured, the following requisites must be present: (1) The use or condition of the thing is specifically limited stipulated in the policy; eae : (2) Such use or condition as limited by the policy is altered; (3) The alteration is made without the consent of . 9) hi alteration is made by means within the control ofthe The alteration increases the risk. insurance is not affected by any act of to the execution of the policy, which does thease a BS sen hough itinceases the risk andi Increase of risk or hazard in general. ; I. undertaking of insured, — 3 to r i — Every contra made with reference tothe conditions surroundité latter of the risk and the premium is fixed with ete secs, 170471 (CLASSES OF INSURANCE 43 Til 2— Fire Insurance reference thereto, (25 CS. 199.) Theres thus an implied promise cor undertaking on the part ofthe insured that he will not change the premises or the character of the business carried there, or to be carried on there, so as se the risk of loss by fire although most fire insurance policies contain a specific provision against an increase of risk or hazard, (44 Am, Jur. 2d 138.) (2) Character ofthe increase in risk. — An increase of hazard takes place whenever the insured property is put to some new use, and the new use increases the chance of loss. (Graley v. ‘American Eagle Tire Co., 257 N.¥S. 5668.) Mere negligent acts temporarily endangering the property folate the policy (Vance, op. cit, p. 846.) nor the temporary acts or conditions which have ceased prior to the occurrence of the loss (e.g, smoking in bed, using kerosene to gasoline). There must be necessary that the increased risk should have caused or contributed to the loss, still it is necessary that the increase be of substantial character. (45 CJS.313314) .Co., 65 Pac. 158.); or as a retail liquor store, (Western Assur. Co. v. MeDike, 62 Miss. 740.) Under such circumstances, the basis upon which the contract of insurance rests is changed and, therefore, there can be no recov« (2) Where the increase no longer insurer would stil be lable ifthe Ince longer existing at the time of the loss as w! the insured dwelling house had already been removed and in no way contributed to the loss unless there is a breach of warranty that no hazardous goods should be stored or kept in the property insured. (see Sec. 78.)si INSURANCE CODE OFTHE PHTLIPINES ANNOTATED Se. 7347 a Aiterations not avoiding policy. oss not increased. — r 0) Whe fies not avoided where a diferent use i i dan; the insured premises, which use is not of a dangerous charocter an does at differ materially from the use specified in the policy, even though an additional or increased premium may be demanded therefor. (Monteleone v. Royal Ins. Co., 50 LRA 784) (2) Where questioned articles required by insured’s business, — Even though the policy contains certain provisions prohibiting specified articles from being kept in the insured premises, the policy will not be avoided by a violation of these provisions ifthe inarily used in the business conducted vs. British American Assur. Co, (3) Where insured property wo prokibited. — The making of repairs, painting or doing other acts id are not to be regarded as increasing the risk since the property would be useless to the insured if such acts were prohibited (Vance, op. cit, p. 848.) even though by reason thereof, the property may be expo: additional risk. (Thompson v. US. Products and Shippers Ins. Co, 160 N.E. 668.) Thus, keeping in the house a small quantity of gasoline, needed for removing old paint during the course of making repairs, does not increase the risk. (Smith v. Insurance Co, 65 N.W. 256.) Where insured has no control or knowledge of alteration. Acts or circumstances by which the risk is ae are occasioned by accident, or a cause 0\ shich ‘ a hhas no control. Thus, increase in risk resulting from saiet at premises over which the insured has no control will ot pie policy (State Ins, Co. y, Taylor, 24 P. 333.) unless actually wn to the insured (Hartford Fire Ins. Co, v. Borroh, 133 .W. sec 172 (CLASSES OF INSURANCE as Tile2— Fire insurance 465.); oF from act of the insured’s tenant provided the act is not known to the insured. (2) Insured’s knowledge presumed. — It would seem, however, that every act of the insured’s tenant substantially and permanently affecting the conditions of the property so as to constitute an increase in risk, would be presumptively known to the insured. (Liverpool, ete, Inc. Co. v. Grunther, 116 US. 113.) Application of Section 77 and Section 171. An alteration in the risk or condition of the thing insured which does not increase the risk will not affect a contract of fire insurance. This is the rule embodied in Section 171, and it is logical as the basis upon which the contract rests is not changed. Furthermore, itis consistent with the provision of Section 77 that the breach of an immaterial provision does not avoid the policy. However, under Section 77, the insurer is given the right to silent upon the subject. ‘SEC. 172. contract of fire insurance is not affected by e insured subsequent to the execution of the es not violate its provisions, even though itinereases the risk and isthe cause of a loss. Where act of insured not in violation of poli If the policy does not contain any prohibition limiting the use or condition of the thing insured (Sec. 170.), an alteration in said use or condition does not constitute a violation of the policy. Hence, the contract isnot affected by such alteration even though it increases the risk and is the cause of the loss. Section 172 may be considered as an exception to the rule laid down in Section 170.416 THEINSURANCE CODE OF THE PHILIPPINES ANNOTATED Secs, 1734174 However, Section 172 is now practically of no importance since at present, most insurance companies, to protect themselves, expressly provide in every policy of fire insurance that it shall be avoided by any act of the insured which increases the risk, SEC. 173, If there is no valuation in the policy, the ‘measure of indemnity in an insurance against fire is of the ‘commencementof the fire to replact In the condition in which it was at so insured upon the or structure, as stated rreitag robeiinng onvoolenn concerning the J replacing of buildings or structures wholly or partial 198 or structure: “ection TEA ofthe Insurance Act (Act ried by Republic fed by the former ‘tid section makes it ‘ase embodying the 5 oF the policy, the Secs 173174 ‘CLASSES OF INSURANCE ar Tide2— Fire Insurance Measure of indemnity under an open policy. (1) Amount ofactual valuation in a fire insurz sustained. —In the absence of express the amount necessary to indemnify him, or to have the thing, insured in the same condition in which it was at the time of the loss. it to amount. — The liability of the insurer shall in replace the thing insured with materials of like kind and quality with proper deduction for depreciation considering the age or condition of the thing before the loss. “Treamstances and the presumption mentioned therein, exept in eases of insurance of residential | or bulings used purely forester purposes. ‘An ina ible fora os caused by the wil ato through the connivance 1), 28 when arson i commited bythe insured or in conspiracy svth another, Under Presidential Dacre No, 1613 which amends the I = Contained in Ailes 20 to 326 of the Revised Penal Code418 THEINSURANCE CODEOF THE PHILIPPINES ANNOTATED Secs. 173174 ,. — In the cas (3) Market value in ease of personal property. — In the case of a ot personal property having a market value which can readily be determined, such market value may be applied in determining the actual loss sustained. Measure of indemnity under a valued policy. ‘The effect of a valuation in a policy of fire insurance is the same as in a policy of marine insurance. (see Secs. 63, 158.) (1) Valuation conclusive between the parties. —In other words, the vé in a policy of fire insurance is conclusive between the parties in the adjustment of either partial i insured had an insurable interest and was not (Harding vs. Commercial Union Ins. Co,, 38 Phil. 484 [1918]; Malayan Insurance Co, Inc. vs. Cruz-Amaldo, 154 SCRA 672 {1987}.) Under an ordinary fire insurance policy, the liability of the insurer in case of fire losses cannot exceed the amount of insurance nor the actual loss suffered. EXAMPLE: X insured his house for P500,000. A fire broke out causing ‘damage in the amount of P300,000. X can recover the entire loss of F300,000. However, if the housed was, insured for only 'P200,000, that would be the limit of his recovery. The maximum recovery isthe amount of insurance or the actual loss suffered, whichever is lower. result ofthe fire is such as to render the property wholly unfit for ‘use as a building however valuable it may be as mere material- (ance, op. cit, p. 886.) secs 73174 (CLASSES OF INSURANCE a9 “Tie? — Fie neurance (8) Pro rata contribution to payment of loss. — If the thing is insured under two or more policies, each policy shall contribute pro rata to the payment of such In life insurance, the measure of indemnity is the sum fixed in the policy. The principle of indemnity does not apply. (see Sec. EXAMPLE: About ten (10) years ago, X constructed a house for which he spent P300,000 which he insured against fire for the same amount, He renewed the insurance for the same amount every year. This year, when the house was already worth P6O0,000. if it is rebuilt) on account of inflationary prices, 1/5 of the house was destroyed by accidental fire. How much can X recover from the insurer? It depends. If the policy isan open policy, X can recover his actual loss cof P120,000, which is 1/5 of 600,00, the value ofthe property at the time of the loss. (Sec. 173.) If the policy isa valued policy andthe house was valued at 300,000, X can recover only 1/5 of P30 000, or P60,000. Insured not a co-insurer under fire policies in the absence of stipulation. Under the usual contract of fire insurance, the insurer, in case of a partial loss of the subject of the contract, is required to give full indemnity for such loss up to the amount written in the policy even though the property be very inadequately insured. ‘Thus, if property which is valued at P100,000 is insured for 50,000 and is damaged by fire to the extent of one-half of its value, the insurer will be compelled to pay the entire P50,000 repair the loss. This, however, as already pointed not the rule in marine insurance. (Sec. 159.) But a of a standard provision known as “co-insurance clause” in the fire insurance policy (see Sec. 95.) to encourage property owners to insure their property for an amount as close to full value as Possible,{29 THEINSURANCE CODE OF THE PHILIPPINES ANNOTATED Sees 173.17 Reason for co-insurance clause In fire policies. surance clause is a clause requiring the insured to mains ncetate isan amount equal tothe Value or specified percentage of the value of the insured property under penalty of rer to the extent of such deficiency (see Vance, difference between the value or percentage sunt ofthe insurance. It divides the potential wred and the insurer in case of partial loss or destruction of the insured property. Only a small percentage of fires result in the total destruction of the property insured. This is especially true where the goods ildings insured are widely separate and where the fire Il percentage of the value of the building or goods. If they y insuring the property f =p this partial coverage required for complete coverage. To prevent the property owners from taking out such small amount of insurance, and thereby reducing the premium payments and thereby increasing the rates of premium for all, the insurers often insert as a rider to the standard fire policy a so-called “co-insurance” clause. This rest nthe ofcourse value of the property insu ed tothe actual fire ae insurance is mu the insurer isl EXAMPLE: Ifa house valued at PS million is insured or and is damaged to the extent of P3 million, the loss or only P1.8 million, 1 en ailion, 2/5 ofthe loss or PL.2 ‘Thus, the insured is considered the smount determined by the difernce Betvees tenranaee ‘ec.175 (CLASSES OF INSURANCE a “Tile? — Fie nsuranee taken out and the value ofthe property insured. is assumed to be the personal taker he ‘insured. toss, t iable for the full amount ce carried is more than PS million, the value ofthe property, only PS milion, the actual i loss, willbe paid Option to rebuild clause. Under Section 174, the mere fact that the parties have fixed a valuation in the policy does not prevent them from stipulating in the policy concerning the r ilding or replacing of or structures wholly or partially damaged or destroyed. Thus, the insurer may be given the option to reinstate or replace the property damaged or destroyed or any part thereof, instead of paying the amount of the loss or damage. This option given to the insurer is called the option to rebuild clause. Itis reserved by the insurer in order to protect him against unfaimess in the appraisal and award rendered by a packed Joss. The insurer must 3 time stipulated in the n, within a reasonable time. ‘The choice by the insurer shall produce no effect except from the time it has been communicated to the insured. (Art. 1201 Code.) surance, the insurer, after electing to rebuild, led to perform his undertaking, even though cost may exceed the original amount of insurance. (Vance, op. ci, P. 883.) SEC. 176, No policy of fire insurance shall be pledged, hypothecated, or transferred to any person, firm or ‘company who acts as agent for or otherwise represents the issuing company, and any such pledge, hypothecation, or transfer hereafter made shall be void and of no effect, insofar as it may affect other creditors ofthe insured. Pledge, . of fire insurance policy loss. (1) Consent of or notice to, insurer not required. — After a loss has occurred, the insured may pledge, hypothecate, or transfer aea THEINSURANCE CODE OFTHE PHILIPPINES ANNOTATED Se. 175 fire insurance policy or rights thereunder. This he may do even without the consent of, or notice to, the insurer. (see Secs, 21, 83) In such case, it is not the personal contract which is being assigned, but a claim under ot a right of action on the policy against the insurer. As a general rule, the assignee acquires no greater rights against the insurer than had the one to whom the jon. — The right of the insured to assign his claim against the insurer after a loss has occurred, is subject to the prohibition in Section 175 against the transfer of a policy of fire insurance to any person or company who acts as agent or otherwise represents the insurer. Any such pledge, etc. shall be vei ane of oft ior nit may fet other creditors ofthe insure 052 TITLE 3 CASUALTY INSURANCE personal accident and health insurance jondlife insurance companies, and other rance includes all forms of insurance against loss ing from accident or mishap excluding certain Yy ability which are within the scope of other types of insurance, namely: marine; fire; suretyship; and life, Risks o losses covered. Section 176 defines casualty insurance by a process of elimination. Without the exclusion of the other types of insurance, casualty insurance would apply to almost any kind of insurance. (1) Accepting “casualty” to mean “accident” — that is, a violent mishap proceeding from an unknown or unexpected cause — casualty insurance might be presumed to include any loss or damage when an accident is the cause of the loss. (DL, Bickelhaupt, op. cit, p. 71.) Thus, a casualty insurance policy excludes losses arising from accident which are within the coverage of the other types of insurance mentioned. (2) In burglary, robbery and theft insurance, the opportunity to defraud the insurer — the moral hazard — is so great that oe424 THEINSURANCECODE OF THE PHILIPPINES ANNOTATED Sec. 175 insurer have found it necessary to fill up their policies with may restrictions designed to reduce the hazard. 6 frequenty excluded under such provisions are those in the insured’s service and employment, The purpose of the exception is to guard against liability should the theft be committed by one having unrestricted access to the property. (Fortune Insurance & Surety Co, Inc. vs. Court of Appeals, 244 SCRA 308 [1995].) Except with respect to compulsory motor vehicle liabil inauranee (Chap. ID) the Insurance Code contains no oh, provisions applicable to casualty insurance or to robbery insurance in particular. These contracts are, therefore, governed by the general provisions applicable to all types of insurance Outside of these, the rights and obligations of the partes must be determined by the terms of their contract, taking into consideration its purpose and always in accordance with the ‘general purpose of insurance. (Ibid, citing Ma. Clara M. Campos, (1) Insurance against specified perils which may affect the person and /or property of the insured such as personal accident, robbery or theft, damage to or loss of motor vehicle, insolvency of debtors, defalcation of employees, etc.; and irance against specified perils which may give rise con the part of the insured for claims for injuries to ty, such as workmen's ity, professional trance has boen said tobe a contract it insured and those in privi or those to whom the law upon the ground. of pa extends the indemnity against li ‘American Title & Under poli s type, an indemnity is e h Z provided to the insured in respect of his legal liability to pay damages, usual sec 176 GLASSES OFMsuRAN es Tae3— Cay eran arising out of negligence or nuisance and occasionally, under contract. (see Dinsdale & MeMurdie, op. cit, p. 83.) ity insurable, Liability for quasi-delict or non-fulfillment of contract. — Liability, as we deal in this work, is financial responsibility that one party has to another party as a consequence of doing or failing to do something. The doing or failing to do may involve negligence, or the terms of an existing contractual agreement between two (2) or more parties. (Riegel, Miller & Williams, Jr, op. cit., pp. 425-426.) Liability involving the commission of a quasi-delict or tort (see Arts. 2176, 2177, Civil Code.) is a civil injury, and not a felony or crime which is a public injury. The fist is remedied by civil action instituted by the injured party, while the State takes action with respect to the second to punish the offender. (2) Liability for eriminal negligence. — Liabilities arising out of acts of negligence which are also criminal are also insurable on the ground that such acts are accidental. Thus, a mot policy covering the insured’ liability for accidental injury caused by his negligence, even though gross and attended by criminal consequences such as homicide through reckless imprudence, will not be void as against public policy. Liability for deliberatecriminalacts.—Liability consequences of deliberate criminal acts are not insurable. Thus, it was held i r Insurers’ Bureau, 2 All ER. 742 [1964].) that fa deliberate crime resulting in payment of sd third party is not entitled to recover on the policy. However, if he does not pay the damages, the injured third party can recover against the insurer: (Dindsdale & McMurdie, op. cit,, 83.) Tit, al ability insurance was considered of doubtful legality because it the insured to be carlos and because It equres the insurer to ieee in|e THEINSURANCECODE OF THEPHILIPPINES ANNOTATED Ser. 175 In insurance, questions icularly important. Asa general 2 pay ip on et ey ne interest in the insured, although there is some authority to the contrary. (1) The insurable interest is to be found in the interest the insured has in the safety of persons who may maintain, or in the freedom from damage of property which may become the basis of suits against him in case of their injury or destruction, ‘The interest does not depend upon whether the insured has a legal or equitable interest in property, but upon whether he may be charged by law with the liability against which insurance is taken out. (Ibid, 554-555.) (2) Therefore, liability insurance — assuming one qualifies as an insured — is always supported by an insurable interest. ‘Thus, even if one were to conclude that an insurable interest is not required for liability insurance, such a rule woul significant adverse implications. (R. Distinction between insurance against I and one against actual loss. The general distinction betwé an insurance against one of strict indemnity the insurer under the the second, an action against the insurer does actual loss is sustained by the insured. sal y sured. (see E.W. Patterson, op. In a third-party. ability insurance contact the insurer assume ligation of paying the injured third parties to whom the eae is liable. From the moment thatthe insured becomes liable to the third person, the insured acquires an insurance contract which may be garnished like i Compania de Seguros, Inc. vs. Ramolete, ec. 17% ‘CLASSES OF INSURANCE a “Tile 3— Casualty insurance In general, the class into which a particular policy falls depends on the intention of the partis as evidenced by the shraseology of the agreement in such in the policy. (43 ‘qm. Jur. 2470-771.) a Right of injured person to sue insurer of party at fault. ‘The right ofthe person injured to sue the insurer of the party at fault (insured) depends on whether the contract of insurance is intended to benefit third persons also or only the insured. provides for indemnity again third persons to whom the insured is lal insurer upon the occurrence of the injury or event upon which the liability depends. The liability of the insurer in direct. The ‘purpose is to protect the injured person against the insolvency of the insured who causes such injury and to give him a certain beneficial interest in the proceeds of the pol injured person were especially named in the Judge, RTC, 167 SCRA 386 [1986] Where the contract is one of indemnity against liability, it becomes operative as soon as the liability of the person indemnified arises irrespective of whether or not he has suffered actual loss. (Republic Glass Corporation vs. Qua, 435 SCRA 480 sociated Insurance & Surety Co, Inc. vs. Chua, 7 SCRA. ity against actual loss or payment. — Where the indemnity againstactuallossor payment, then third cannot proceed against the insurer, the contract being for liability actually discharged recourse being thus vs. Del Monte, 20 insured is necessary in order that the obligation of the insurer may arise.|f28THEINSURANCECODEOF THE PHILIPPINES ANNOTATED Sec. Basis and extent of insurer's liability. Contract of insurance. — The direct li under indemnity contract against third party mean that the insurer can beheld solidarily liable with insurance Co,, Inc. vs. Court of Appeals, Integrated Bonding & Insurance Co,, (2) Sum limited in the contract. — While ina solidary obligation the creditor may enforce the entire obligation against one of the insurance contract, the insurer solidary obligations.” (Vda. de Maglana vs. Consolacion, 212 SCRA 268 [1992].) ‘The third-party liability of the insurer is only up to the extent of the insurance policy and that required by law. Any award beyond the insurance coverage would already be lity of the insured and /or the other p: Court of Appeals, 308 SCRA 559 [1999].) EXAMPLE: ‘The policy is one whereby the insu cy isc rer agreed to indemnify the insured “against all sums x x x which the insured shall, become legally liable to pay in respect of a death of or bodily injury to any person xx x." Is the policy for indemnity agai the fact that the insured is liable persons are entitled to sue the insure ‘ec. 176 (CLASSES OF INSURANCE. co Tie3— Casualty surance ILLUSTRATIVE CASE: the rights ofthe insured ures ibility under the Facts: MCo, insurer, issued in favor ofS, insured, a private car comprehensive policy for “own damage” not to exceed P6,000 and a “third party lability” in the amount of P20,000. ‘The insured jeep, while being driven by C, an employee of D Co, collided with a passenger bus belonging to P Co. causing 0 the vehicle and injuries to C, and T, who fated jeep. Held: No. Only $ and D Co. are solid ‘made liable to T pursuant to Article 2 while the basis of liability of D Co. is appears that $ and D Co. are the principal tortie are primarily liable to T. The law states thatthe responsibility of two or more persons who are liable for a quasi-delict is solidarys ein two mone reste or was oot inte moe vic, the provisos of Arie 2180 are applicable SRC hn. The tigtion mgs by Aride76 is demande not ony for ones comm oct orbs Eat alo forte pees for hem oes spose Employers shallbe ble forthe damages caused by their employees and household helpers Sting iin the cope oftheir signed tasks eventhough the former are not engaged inany busines idan “The responsiblity tented of in ths atl hall case when the perio herein mented on at hy cued al he gece of» god fate of fay to revent damage. (1938) “art 2194INOTATED 490 THEINSURANCE CODE OF THE PHILIPPINES AN! See. 176 see. 176 ‘CLASSES OF INSURANCE. cy ‘Tile3— Casualty Insurance ‘On the other hand, the basis of M Co.’ lized health insurance exist. “Major medical” is expanded oe and $ at es cal Hospitaliza insurance contract “existing between it ans coverage for catastrophic expenses. Hospitalization i Co, upon paying T the ‘ rs the complained vehicular accident. M Co, upon Paying {insurance is also widely oun! of P2000, shal be Ae ight S supplementary coverages. (R1 Code ahich gives toa solidary debtor who has paid the entire (3) Burden of proof. — In accident insurance, the insured’s ‘obligation the right to be reimbursed by his co-debtors for the beneficiary has the burden of proof in demonstrating that the share which corresponds to each’ (Malayan Insurance Co. vs, cause of death is due to the covered peril. Once that fact is Court of Appeals, supra.) established, the burden then shifts ‘Accident and health insurance. “accident insurance” is not thus to be : life insurance where the insured’s death, (1) Closely related purposes of coverages. — Accident and health thereof, would normally be com coverages have closely related purposes. Accident Court of Appeals, 264 SCRA 137 [19 reimburses the insured for pecuniary loss suffered as, injuries sustained in an accident. Health insurance;* on the other Meaning of “accident” and “accidental” hand, reimburses the insured for pecuniary loss as used in accident policy. disease-related illness. In both kinds of i Ordinary and common acceptation. — The terms “accident” reimbursed for medical and hos} mnses and, in the case of idental,” as used in insurance contracts, have not i insurance, earnings as acquired any technical meaning, They are construed by the courts in their ordinary and common acceptation. Thus, the terms have (Vda. de Gabriel vs. a result of the incapacity. (2) Combination of coverages. — Accident and health coverages been taken to mean that which happens by chance or fortuitously, are often combined in the same policy thereby protecting the without intention or design, and which is unexpected, unusual ticuraid fioen lea fea efther bird of loa and unforeseen. This presupposes the lack of intention to commit insurance a frequently Betas «ep the wrong resulting from the occurrence of the event that could If death is caused by accident, many life not be reasonably anticipated. (see Sunga vs. Virjen Shipping indecuiy:” mwaning procesds twice theo Corporation, 723 SCRA 596 [2014].) face value. The cost of the additional coverage 2) Happening from known or unknown cause unusual, and Accident insurance is also provided with other coverages, eestmeg o ooeete cleerna pee cara most prominently with motor vehicle insurance. Various kinds of unknown cause, or is an unusual effect of a known cause and, ee therefore, not expected. It is an event which happens without "Sen annotations under Scions ta any human agency or, if happening through human agency, an event which, under the circumstances, is unusual to and not expected by the person to whom it happens. It has also been. defined as an injury which happens by reason of some violence or casualty to the insured without his design, consent, or voluntary cooperation. (De La Cruz vs. Capital Insurance & Surety Co, Inc,, 17 SCRA 559 [1966]; Filipino Merchants Insurance Co., Inc. vs. Court of Appeals, 179 SCRA 638 [1989]; GSIS vs. Angel, 654 and the effectivity of the4x2 THEINSURANCECODEOFTHEPHILIPPINES ANNOTATED Ses. 1 SCRA 142 [2011]; 43 Am. Jur. 2d 627-628.) It need not be an event that is “sudden.” . a (3) Cause may be attributable to fault or negligence. — The terms do a ‘without qualification, exclude events resulting in damage or loss due to the fault, recklessness or negligence’ of third parties, ‘The concept “accident” is not necessarily synonymous with the concept of “no fault.” It may be utilized simply to distinguish intentional or malicious acts from negligent or careless acts of Malayan Insurance Corp. vs. Court of Appeals, 184 (1) Terms considered as legally synonymous. — The tendency of court decisions in the United States in recent years is to eliminate the fine distinction between the terms “accidental” and “accidental means” and to consider them as legally synonymous’ ! Protective Association v. Stephens, 185 Ark. 660, 49 Equitable Life Assurance Co. v. Hemenover, 100 have reached the conclusior two (2) concepts are s0 difficult to distinguish that they will be treated as essentially the same in their jurisdictions. (J.E. Greider & W-T. Beadless, op. cit, p.218.) A distinction between the tw by the average man and he is t tainly not understood me for whom the policy is ~"Foreseaityisan element oetabching negligence; 5, “cciden” may embrace events that could have been foreseen, — f the cause and the result are accidental. In the former, the result injury) is unintended oF — — so eet orinjury could bea result of accident, but the ater does nt necessarily result ‘ee. 176 (CLASSES OF INSURANCE 433 Tile 3 — Casual Insurance written. (B [2d] 124 [1946]. (2) General rule. — The generally accepted rule is that death or injury does not result from accident or accidental means within the terms of an accident policy if it is the natural result of the insureds voluntary act, unaccompanied by anything unforeseen except the death or injury. (3) Exception. — There is no accident when a deliberate act is performed unless some additional, unexpected, independent and unforeseen happening occurs which produces or brings about the result of injury or death. In other words, where the death v. Commercial Travellers Mut. Ecc. Ass'n., 7 N.E. voluntary act, or if something unforeseen occurs in the doing of the ich produces the injury, the resulting death is within ion of policies insuring against death or injury from accidl ‘Thus, in a case where the participation of the insured in a boxing contest was voluntary, but the injury was sustained when he slid, giving occasion to the infliction by his opponent of the blow that threw him to the ropes of the ring and without this unfortunate incident, that is, the intentional slipping of the deceased, perhaps he could not have died, the court held that his death may be regarded as accidental although boxing is attended. with some risk of external injuries. In boxing, or in other equally physically vigorous sports such as basketball or baseball, death is not ordinarily anticipated to result. If, therefore, it ever does, the injury or death can only be accidental. Of course, if the policy specifically excludes death resulting from a boxing match, the insurer is not liable for such death. (De La Cruz vs. Capitol Insurance & Surety Co., Inc. supra.) ILLUSTRATIVE CASE: The injury suffered by « seafarerilaimant resulted from the performance of a duty on board 2 vessel, for which he asked for disability compensation under the provision of collective bargaining ‘agreement Facts: Respondent ECI was employed by NFD as a Third officer of a vessel of a foreign principal. When ECI was on a aaa431 THEINSURANCE CODEORTHEPHILIFPINES ANNOTATED Sec. 175 ‘board the vessel for seven months, its captain and chief officer ordered him to carry 25 fire hydrants from the deck to the engine workshop, then back tthe deck to refit he os Te carrying a heavy basketful of Ses “onap on his back, with pain his hips. He immediately condition, and he was the pain was initially fer a few days, the difficulty walking. informed the ship captain ak advised to take pain relievers. tolerable, he ae in Became severe, and E50 pan tea see nd neo dog Pee reyes rom luinboge and spain. The doctor gave went inetaton and ase im to wea cose, avoid lifing heavy objects and get futher examination and treatment Habe apupions penis Despite the lighter igued to respondent, he continned fo expetenceexructing pain. He was refered toa doctor whe declared that respondent was unt 1 work, land recommended that respondent return home for further suas, “Pelidners contend that respondent did act sult « Cc al trl suman agency, an ‘unusual or unexpected by the person to whom it happens.’ Petitioners point out thatthe above definition of the word ‘accident’ subscribed to by states that it pertains to a Petitioners argue that in this fortuitous, unexpected or unforeseen event took place or was reported. Respondent merely went about his normal duis ®, no such unusual, a ‘ee.175 CLASSES OF INSURANCE ‘Tile 3— Casualty Insurance when he transported fire hydrant caps from the deck to the engine workshop, then back to the deck to refit the caps. The sudden snap respondent felt on his back while carrying the fire hhydrant caps cannot, by itself, qualify as an accident. Hence, petitioners assert that respondent isnot entitled to the benefits provided under the CBA.” Issue: Among the issues raised is whether or not the inability suffered by the respondent was caused by an accident. Hild: Respondent's disability was not the result of an accident. (1) Meaning of accident. — "Black's Law Dictionary defines ‘accident’ as ‘ajn unintended and unforeseen injurious ‘occurrence; something that does not occur in the usual course ts or that could not be reasonably anticipated, x x x unforeseen and injurious occurrence not attributable to ke, negligence, neglect or misconduct.” agency, an event which under the circumstances is unusual and unexpected by the person to whom it happens x xx. ‘The word may be employed as a calamity, casualty, catastrophe, disaster, an undesir nap onthe back of respondent snapon the back of respondent wasnot anacci sustained by respondent from carrying the fire hydrant caps, which injury injury cannot be said to be the resul ‘unlooked for mishap, occurrence, or fortuitous event, because the injury resulted from the performance of a duty. Although{66 THEINSURANCE CODEOFTHEPHTLIFPINES ANNOTATED See 175 injury, yet itis common respondent may not have expected the injury ye Por at carrying heavy objets can cause backinjuy, as = ‘Hence, the injury cannot be viewed verunueeeT under the circumstances, and is not synonymous ‘with the term ‘accident as defined above. disabled as a esult of any nur, and who nae ae than tanently disabled, but permanently unfit for feahe erie a eu any capac, hall lobe ented ta 100% compensation” ‘The Court notes that the CBA states that the degree of disability, which the company is liable to pay, shall be determined by a doctor appointed by the company. xx x. In HES Philippines, nc. vs. Pilar, the Court held that a claimant may dispute the company-designated physician's report by seasonably consulting another doctor. In such a case, the medical report issued by the latter shall be evaluated by the labor tribunal and the court based on its inherent merit. In this case, petitioners never questioned the weight given by the Labor Arbiter and the Court of Appeals to the findings of respondent's independent doctor in regard to th ‘of respondent.” (NED International Manning Agencies, seas, 631 SCRA 629 [2010] lity iL. Both are in pari matere because they both signify a disregard for one's life. The only difference is in degree, as. ma positive act of ending such life whereas the secon: a reckless risking of it that is almost suicidal in intent. (Sun Insurance Office, Ltd. vs. Court of Appeals, 211 SCRA 554 [1992].) “Voluntary exposure to a known danger” is generally held tonegate the accidental character of whatever followed from the known danger. To illustrate: A person who walks a tightro a tightrope 1,000 meters above the ground and without any safety device may not actually sec 78 (CLASSES OF INSURANCE 7 Tile 3—Casualy Insurance is nonetheless suicidal. ly exposing himself to ly, 1red’s death as a result Russian roulette” (pulling the trigger of a revolver spinning the cylinder with one cartridge in it) was held not within the coverage of an accident insurance. pp. 245-246, citing Thompson v. Prudential Ins. Co. of America, 66 SE. 2d, 19 (6a. App. 1951.) the mere act of the insured of pointing the gun to his policy he obtained precisely against accident where “there is nothing in the policy that relieves th have contributed to his own accid caused by negligence,” the firing of unexpected, independent and unforeseen happening” that led to the insured’s death. (Sun Insurance Office, Ltd. vs. Court of Appeals, supra.) Meaning of “intentional” as used in accident policy. “Intentional,” as used in an accident policy excepting intentional injuries inflicted by the insured or any other person, etc, implies the exercise ofthe reasoning faculties, consciousness, and volition. Where a provision ofthe policy excludes intentional injury, itis the intention of the person inflicting the injury that is controlling. If the injuries suffered by the insured clearly resulted from the intentional act of a third person, the insurer is relieved from lability as stipulated. (Biagtan vs. The Insular Life Assurance Co, Li EXAMPLE: D (insured) lifted heavy objets all day as a result of which he suffered injury to his back. For a claim to be payable under ‘an accident policy, both the cause and the result of the death or498 THEINSURANCE CODE OF THE PHILIPPINES ANNOTATED Sec. 176 injury must be accidental. Here, the cause was the heavy work — which was intentional. The injury, therefor, is not covered by the policy. On the other hand, if D slips and falls while lifting the heavy objects, the cause ( ) and the result (injured bback) are both accidental covered by the policy. ILLUSTRATIVE CASES: 1. Insured stabbed by escaping robbers. — The house of the insured was robbed by a band of robbers; in committing the robbery the robbers rushed towards the doorof the second floor, and coming face to face with the owner, even if unexpectedly, stabbed him repeatedly, causing wounds on the body resulting inhis death, Under the circumstances, it is contrary to all reason and. logic to say that his injuries were not intentionally inflicted. (bid) 2. Insured was Killed for the purpose of robbery. — The insured was waylaid and assassinated for the purpose of robbery. While the assassination ofthe insured was to him an ‘unforeseen event and, therfore, clause of the case death or injury is intentional person, applies in the dee’ ie : ony 30 8 S.W. 570, cited im the Biagtan case; see, however, Finman case infra) 3. Insured was shot while approaching place of robbery. —The insured was a watchman in a certain company, who happened tote invited by a pliceman tocome along as the ater was on way to investigate a reported robbery hous. As the two of them approached sl the main gate of the house, a shot was fired and out afterwards that the insured was hit in the abdomen, the wound causing his death. Under the circumstances, the court held that it could not be said that the killing was intentional for there was the possibility that the malefactor had fired the shot to scare the people around for his own protection and not necessarily to kill se 175 ‘CLASSES OF INSURANCE 9 TWe3— Casa Irseance or hit the victim. (Calanoe vs, Court of Appeals? 98 Pil. 79 [1955], cited in the Biagtan case.) are died inthe course ofan assault or murder. — The insured and his companion were on their way home from attending a festival when they were confronted by unidentified persons. The insured died from a stab wound. The insurer denied the insurance claim on the ground that the insured’s death was committed with deliberate intent which, by the very nature of a personal accident insurance policy cannot be indemnified. According to the Supreme Court: “x x x the happening was a pure accident on the part of the victim. The insured bbe said that there was a capricious desire on the part of the insured to expose his life to danger considering that he was Corp. vs. Court of Appeals, 213 SCRA Effect of “no action” clause in policy of liability insurance. 1gon 2. Del Monte (20 SCRA 1043 {1967}.), the policy requires that suit and final judgment be first obtained against the insured; that only “thereafter” can the person injured recover “Comparing te Caen nd the Bayon aes, the Supreme Court said: “A similar pony a ey red out asin te Bien eve now bles For wile ‘gl thot ed fom diane cul inded have Bon fie ith nett ll oF inj nie wounds nied wih ded espns at cose range cannot conceivably Te crutaed os oct rata esi ets concred The anes of execution UF ne rm perm oer ercson Ge, however, disenting pion fuse “echoed440 THEINSURANCE CODE OF THE PHILIPPINES ANNOTATED See. 176 expressly disallows suing the insurer as a co- insured ina suit to determine the latter's liability to the third person. ‘The query is which procedure to follow — that of the ‘of Court. It was held that “no Rule 3 on “permissive joinder of causes of parties”" cannot be superseded, at least with respect to third persons not a party to the contract by a “no action” clause on the contract of insurance, (lbid.; Shafter vs. Judge, RTC, supra.) obo (b)Thejoinder shall not ncude special cv actions or actions governed by speci (0) Where the causes faction are between the same partiesbut pertain to differnt TITLE 4 SURETYSHIP SEC. 177. A contract of suretyship Is an agreement whereby a party called the surety guarantees the performance by another party called the principal or obligor of an obligation or undertaking in favor of a third party called the obligee. It includes official recognizances, Stipulations bonds or undertakings issued by any company by virtue of and under the provisions of Act No. 536, a8 amended by Act No. 2206. ‘Suretyship defined. Section 177 defines the contract of suretyship. Itis an agreement whereby one! (usually an insurance company) undertakes to answer, under specified terms and conditions, for the debt, default or miscarriage of another (principal or obligor), such as to perform a contract or certain duties, or for breach of ligence and the like, in favor of a third party (obligee). Undertakings within the scope of suretyship. ‘A contract of suretyship includes official recognizances, stipulations, bonds, or undertakings issued by any company by virtue of and under the provisions of Act No. 536, as amended by Act No. 2206, entitled “An Act relative to recognizances, stipulations, bonds, and undertakings, and to allow certain corporations to be accepted as surety thereon.” reyship whereby two 2) 0¢ more partes become co-sureties in ed when each cosurety assumes slidary bility and limite, "oun Gee Ars 1217 1208 Civil Code) Under Section 178 the ete solday. a42 THEINSURANCECODEOF THE PHILIPPINES ANNOTATED Se. 177 Under Act No. 536, whenever any recognizance, stipulation, bond, of undertaking conditioned for the faithful performance of any duty or of any contract made with public authority (ie, government), or for doing or refraining from doing anything in such recognizance, etc. specified is required or permitted by law tobe given with one surety or with two (2) or more sureties, the ‘execution of the same or the guaranteeing of the performance of the condition thereof shall be sufficient when executed or guaranteed by any corporation organized under the laws of the Philippines and authorized to become a surety upon official recognizances, etc, The Act requires that such recognizance, etc. be approved by the head of Department, court, judge, officer, board or body, executive, legislative, or judicial, equired to approve or accept the same: (Sec. 1 thereof.) Corporate suretyship. (1) Background, — In very ancient times, it was the practice to take hostages, by treaty or force, from tribes who were under obligation, as a guarantee of good conduct or fulfillment of promises. Biblical references show that suretyship was common in those days, and in England, it reached such proportion by the time of Cromwell'sadminis togive rise toa burdensome number of court cases, Pers es were used exclusively Memorandum Circular No, 2 ofthe Office of Cana the President ofthe Philippines, see. 178 (CLASSES OF INSURANCE “3 “Tie ¢ —Suretyship until a society was formed in 1720 to insure masters against loss through the dishonesty of their servants. Jn 1853, New York authorized the formation of companies to fidelity and surety risks, but no company took advantages ‘until 1876, Corporate sureties were found superior in many respects and thus corporate bonding (fidelity) and surety grew to a big business. (Riegel, Miller & Williams, Jr, op. cit., pp. 385-396.) In the early days when personal sureties were utilized, co- suretyship was common. With the rise of corporate sureties, reinsurance (Sec. 95,)is considered asimpler and moreconvenient device for spreadi , par. 2.) Personal sureties in property bond are currently allowed for bail bonds under the Rules of Court. (see Rule 114, Secs. 12, 13.) Treated like insurance. — With the change to surety bonds sued ions, the court began to change the Gradually, the insurance rule which applied to f adhesion” was adopted. When the contract is, drawn up by one party, the benefit of the doubt goes tyship, especially fidelity bonding, is thus treated insurance in some respects. The bonds look like (DL. Bickelhaupt, op. cit, p. 743.) ‘SEC. 178. The liability of the surety or sureties shall be Joint and several with the obligor and shall be limited to the amount of the bond. It is determined strictly by the terms. of the contract of suretyship in relation to the principal ‘contract between the obligor and the obliges. Nature of liability of surety. The contract of a surety is evidenced by a writing called “surety lly a promise to guarantee the debt or obligation of the obligor.‘ua THEINSURANCE CODEOF THEPHILIPPINES ANNOTATED Sey — The liability of the surety or sureties ‘under ab joint and several, or solidary: This means that upon default by the obligor in complying with hi ion as, secured by the bond, the surety becomes Primarily liable to the obligee who has right to demand payment under the bond. (see Arts. 1207-1208, 2407, Civi (2) Limited or fixed. — Its limited to the amount ublic vs. Court of Appeals, 354 SCRA 285 [20 Contractual, — It is determined strictly by the terms of contract of suretyship in relation to the (b) principal contract between the obligor and the ; Zenith Insurance Corp. vs. Court of Appe: [1982}.) A surety contract is merely a colla is the principal contract or undertaking which Lepanto-Taisho Insurance Corp. vs. Chevron Phil 5, Inc, 663 SCRA 309 [2012], citing Hector S. de Leon and Hector M. De Leon, Jr, The Insurance Code of the pines, 2010 Ed, p. 424.) ‘The obligee does not particip of the bond application the m« surety to investigate and a approved. Any misrepresentation made by the bond applicant cannot, therefore, defeat the rights of the obligee. To indemnify the surety against loss, thé li (0 thed contin avr of surety This contract called Indemnity Agreement.”* The (original) surety issuing the prime bond may cede a portion or portions of the bond to one or more insurers or sureties under a bond reinsurance contract. ILLUSTRATIVE CASE: Bond makes surety i eae ty liable to obligee for failure of obligor to collect an (CLASSES OF IN Tilt Soeyip : that it shall be liable in case of nonpayment of any De Luxe Products Marketing (DLPM) account in favor of d in favor of Cand the non- remittance ‘of any collections due from any acount booked by to collect from P for purchases made by DLPM which the ater aed to py Saeed a2 Stes at he bond of DLPM was issued in favor of P and not The condition of the bond explicit in case of ni oy DLPM a for S's lit (Edward Ke 378, Aug. Distinctions between suretyship and property insurance. They are the following: (1) Suretyship isan accessory contractbecause itis dependent for its existence on a principal contract, while a contract of insurance is a principal contract (2) In the first, there are always three parties: the surety; the principal debtor or obligor; and the creditor or obligee, while in the second, there are only two parties, the insurer and the insured; (3) The first is more of a credit accommodation with the (4) In the first, the surety is entitled to reimbursement from incipal and his guarantors for the loss it may suffer under in the second, there is no right of recovery 35 the insurer may sustain except when the insurer is to subrogation. In case of subrogation, however, the party against whom the insurer may proceed is not a party (5) Generally, a bond can only be cancelled by or with the of the obligee or by the Commissioner or by a court of risdiction, while a contract of insurance may be446 THEINSURANCE CODE OF THE PHILIPPINES ANNOTATED See 199 cancelled unilaterally either by the insured or by the insurer on grounds provided by law (Sec. 64.); (6) The first requires the acceptance of the obligee before it becomes valid and enforceable, while the second does not need the acceptance of any third party; and (7) The first is a risk-shifting device, the premium paid being in the nature of a service fee, while the second is a risk-distributing device, the premium paid being considered a ratable contribution toa common fund. (see Sec. 2.) Distinctions between suretyship and guaranty, By guaranty, a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal the latter should fail to do so. distinctions between a surety (1) The surety ass ity as a regular party to the undertaking, while the liability of the guarantor depends upon an independent agreement to pay if the primary debtor fails to do s0; Q) The surety is primarily secondarily liable; and (3) The surety is not entitled to the benef the debtor's assets, while the guarantor has this the property of the debtor and legal remedi first exhausted before he can be compel (Art. 2058, ibid.) It would then follow that “while a surety undertakes to pay if the principal does not pay, the guarantor binds him: i the principal cannot pay.” (Machette vs, Hospicio de Fidelity & Surety Co, 49 Phil 297 (1922, In short, the surety s considered in law as same the pri in relation tothe later’s obligation. > Ne Peal debtor SEC, 178, The surety is entitled to payment of the premium as soon as the contract of suretyship or bond 's perfected and delivered to the obligor. No contract of 56.179 (CLASSES OF INSURANCE “7 Tiled —Suretyship oF bonding shall be valid and binding unless and until the premium therefor has been pald, except where the obligee has accepted the bond, in which case the bond becomes valid and enforceable irrespective of whether ‘or not the premium has been paid by the obligor to the surety; Provided, That f the contract of suretyship or bond is not accepted by, or filed with the obligee, the surety shall collect only a reasonable amount, not exceeding fifty percent (50%) of the premium due thereon as service fee plus the cost of stamps or other taxes imposed for the of the contract or bond; Provided, however, onacceptance of the bond be due to the fault or hall be collected, In the case of a continuing bond, the obligor shall pay the subsequent annual premium as it falls due until the Suretyship is cancelled by the obligee or by the ner or by a court of competent jurisdiction, as Payment of premiums. The rules are as follows: (1) The premium becomes a debt as soon as the contract of suretyship or bond is perfected and delivered to the obligor (see Sec. 79.); (2) The contract of suretyship or bonding shall not be valid and binding unless and until the premium therefor has been. paid; has accepted the bond, it shall be valid and enforceable notwithstanding that the premium has not been ine Pryce Assurance Corp. vs. Court of Appeals, (4) If the contract of suretyship or bond is not accepted by, or filed with the obligee, the surety shall collect only a reasonable amount; “Secs Gh and 77 refer to insurance in general. Sec. 179 specifically governs ‘suretyships. (AFP General insurance Corp Molina, $56 SCRA 630 [208]M8 ‘THEINSURANCE CODEOFTHEPHILIPPINES ANNOTATED See. 199 (6) If the non-acceptance of the bond be due to the fault or negligence of the surety, no service fee, stamps, or taxes imposed shall be collected by the surety; and (6) In the case of a continuing bond (for a term longer than cone (1) year or with no fixed expiration date), the obligor shall pay the subsequent annual premium as it falls due until the contract is cancelled. (See. 179.) ‘The premium is the consideration for furnishing the bond or the guaranty and the obligation to pay the same subsists for as long as the liability of the surety shall exist. (Reparations ‘Commission vs. Universal Deep-Sea Fishing Corp,, 83 SCRA 764 [1978]; Arranz vs, Manila Fidelity & Surety Co., 101 Phil. 272 1957}) ILLUSTRATIVE CASES: 1. Right of principal not 10 pay premium where surety fails or refuses to pay loan and interest Issue: Can D excuse hi premium on the bond upon the Joan and interest? from the payment of the or refusal ofS to pay the Held: No, $ did not promise D that ‘implied by law either. D, therefore, cannot bbeen a breach on the part of § of any obli, ‘undertaking under the suretyship contract. ‘The failure or refusal of S to pay the debt for D’s account did not have the effect of relieving D of his obligation to pay the premiums on the bond furnished. As long as the loan and interest remain unpaid, § continues to be bound to C. and a5 a corollary, its right to collect the premiums on the bond also continues. (Arranz 0s, Manila Fidelity & Surety Co, supra.) $e0.173 (CLASSES OF INSURANCE “ Tile 4— Sureyship. 2._Liahilty of principal for renal premiums ae termination of contract of suretyship, Ltatcaenlcets Facts: Sisoued a surety bond in behalf of D and in favor of im consideration of which D and E exeuted an indemnity agreement whereby, among other things, they severally promised to pay in advance the premium foreach period of 2 months while the surety bond or any renewal thereof wasn effect. About five () days before the expiration of the ability fon the bond, C led a vil caseapainct Sand D fr the loss © allegedly suffered asa direct consequence ofthe failure of D to comply with ts contac, Upon the expiration ofthe 12-month life ofthe bond, S made'a demand forthe payment ofthe renewal premiums. ‘According oS, aslongas the bond sinful force and effect, the principal (D) should pay the coresponding renewal premium, forif the case is decided against, t must pay the face vale of its bond, and yetitis bared from collecting any consideration dl during the pendency of the case. ible to pay the renewal premiums? Issue Held: No, since D opted not to renew the contract. More specifically, where a contract of surety is terminated under its terms, the liability of the principal for premiums after such ‘termination ceases notwithstanding the pendency of a lawsuit to enforce a liability that accrued during its stipulated lifetime. (Capital Ins. & Surety Co,, Inc. vs. Ronquillo Trading, 123 SCRA 526 [19831,) ‘Types of surety bonds. Some of the major types of surety bonds’ are: (1) Contract bonds, — These bonds are connected with construction and supply contracts. They are forthe protection of the owner against a possible default by the contractor to comply with his contract or his possible failure to pay material men, laborers, and sub-contractors. The position of surety, therefore, is to answer for a failure ofthe principal to perform in accordance with the terms and specifications of the contract. "For rales and regulation governing the swan of bods se Appendix “C."450 THEINSURANCE CODE OF THE PHILIPPINES ANNOTATED Sec. 179 There may be two (2) bonds: (a) Performance bond, — One covering the faithtu) performance of the contract; and (b) Payment bond, — One covering the payment of laborers and material men (Wyatt & Wyatt, Business Law: Principles and Cases, 2nd Ed. [1903], pp. 895-896.); (2) Fidelity bonds. — They pay an employer for loss growing ‘out of a dishonest act of his employee. For the purposes of underwriting, they are classified as: (a) Industrial bond. — One required by private employers for the faithful performances of their duties ( Bickelhaupt, op. cit. pp. 748-749.) and as a therefore, is to protect public funds. (Wyatt & Wyatt, op. cit, p. 896 an of the principal (D.L. Bickelhaupt, op. cit, p. is. — They are those which are required in m levin bonds, bail bonds,*and appeal bonds. The purpose of requiring a litigant “in a Memorandum to all Clerks of Coat ae Slr 9 te Gt apes ach Gs cna low sly apenas zene Co peed the proliferation of issued by the sec. 180 (CLASSES OF INSURANCE s Tile —Suretyship to furnish a judicial bond is to indemnify the adverse party ling’ (see Wyatt and It is a settled doctrine that the conditions of a bond specified in the provisions of the statute or regulation the submission of the bond are incorporated or bonds tendered under that statute or regulation, even though not there set out in printer’s ink. (Fis Assurance Corp. vs. Inocencio, 179 SCRA 480 | ‘nly be sued by he head offic or the duly registered with the Insurance Commission) branches and distr ofces of insurance companies 1 the exclusion of ober (2) The ig rules gover the suance oficial bonds by all none insurance orzed to become surety upon ofa cognizance, stipulations, bonds can only be sued by the head office or branches and district ce companies, duly registered with the Insurance Commission to sical bonds company has isued for a follvring month, a penalty of P500.00 day invoke ha he bond in question ia fake bond and hence, shall beable to pay its obligation under the bond (ns. Meme, Ci No.1-2000, Now. 13,2000.)‘62 THEINGURANCECOOEOF THEPHILIPPINES ANNOTATED Seg) Pertinent Civil Code provisions applicable in a suppletory character. [Article 2047 of the Civil Code provides: “By guaranty, called the guarantor binds himsey y Busta Al the obligation of the principal debioe (0 50. If a person binds himself solidarily with the principa debtor, the provisions of Section 4, Chapter 3, Title 1 of this, Book shall be observed. In such case, the contract is called a suretyship.” ‘The second paragraph states the law applicable to the 1207 to 1222 of Section (Different Kinds of ‘The above provisions of the Civil Code shall be applied in a suppletory character whenever necessary in interpreting the provisions of a contract of suretyship. (Sec. 180.) Saas TITLE 5 ‘LIFE INSURANCE* SEC. 181. Life insurance is insurance on human lives and Insurance appertaining thereto or connected therewith. Every contract or undertaking for the payment of annuities including contracts for the payment of lump ‘sums under a retirement program where a life insurance ‘company manages or acts as a trustee for such retirement program shall be considered a life insurance for purposes of this Code. (n) ‘SEC. 182. An insurance upon life may be made payable ‘on the death of the person, or on his surviving a specified period, or otherwise contingently on the continuance or cessation of life. Every contractor pledge! ‘or annuities shall be consid for purposes of this Code. In the absence of a judicial guardian, the father, or in the latter's absence or incapacity, the mother, of any ‘who is an insured or a beneficiary under a contract of life, health, or accident insurance, may exercise, in behalf of said minor, any right under the policy, without necessity of court authority or the giving of a bond, where the interest of the minor in the particular act Involved does not exceed fiva hundred thousand pesos (P500,000) ‘or In such reasonable amount as may be determined by the Commission. Such right may include, but shall not be limited to, obtaining a policy loan, surrendering the policy, ntofendowments. wurance contract Life and Heath Insurance” under te Insurance Act (Act NO. 2427) 44454 THEINSURANCE CODE OF THE PHILIPPINES ANNOTATED Secs. 161.4, receiving the proceeds of the policy, and giving the minor's ‘consent to any transaction on the policy. (a) In the absence or in case of the incapacity of the father ‘or mother, the grandparent, the eldest brother or sister at least elghtoon (18) years of age, or any relative who has actual custody of the minor insured or beneficiary, shall act as a guardian without need of a court order or judicial appointment as such guardian, as long as such person is not otherwise disqualified or incapacitated. by the insurer pursuant to this Section shal insurer of any lability under the contract. (n Life insurance defined. (1) Based on Section 182, may be defined as insurance payable on the death’ of a on his surviving ‘a specified period, or otherwise contingently on the continuance ‘or cessation of life. (2) Ithas also been defined as a mutual agreement by whicha party agrees to pay a given sum on the happening of a particular event contingent on the duration of human of the payment of a smaller sum imme payments by the other party. (44 CJS. 484, (3) Essentially, life insurance is a contract to make , wake specific payments to pay to a certain person, the beneficiary, upon the death of a person whose life has been insured Under Section 181, every contract or undertal ) king for the Payment of annuities including contracts for the payment of Saeco secs, 181-182 CLASSES OF INSURANCE 455 “TileS — Life ineurance Jump sums under a retirement program shall be considered a life insurance. Parties involved in a policy of life insurance. ‘The cast of characters involved in a policy of life insurance other than the insurer includes: (1) The owner of the policy, who has the power to name or change the beneficiary, to assign the policy (under certain cor cask 1 its surrender value, or use it as collateral in obtaining a loan; and the obligation to pay the premiums; (2) The person whose life is the subject of the policy, also known as the cestui que vie; and (3) The beneficiary to whom the proceeds are paid. ‘One person might occupy all three positions by naming his estate as beneficiary; or each of the three positions may be held by a separate party. (J.F. Dobyns, op. cit, p. 71.) Nature of life insurance. The nature of an insurance contract as one of indemnity is not, or is not altogether, true as to life insurance. lity absolutely certain. — The ordinary life insurance lates the certain payment of a specified sum at an time; and the premiums are so calculated that in insured’ expectancy of life under a specified ,? there will be paid to the insurer in premiums and interest thereon, a sum equal to an amount to become due on the death of the insured plus the expense of administration. (a) In case of fire and marine insurance, the insurer takes merely a risk that a loss may take place within a given term, it being known by experience that such losses do not occur in a great majority of cases. The use of mertality tables helps insurance companies determine the likelihood ‘of death for any particular insured and to calculate the rate or amount of premium.456 _THEINSURANCE CODE OF THE PHILIPPINES ANNOTATED Sees 161.5) (b) In ordinary life insurance, the event upon which the paymentis tobe made is absolutely certain to happen at some future time, provided that the policy remains in effect. In the average case, the insurer only pays back the money that has been given to him to hold in quasi trust for the insured plus interest and less expenses. Only in the case of premature death does the insurance payment embrace the element of indemnity. (Vance, op. cit,, pp. 105-106.) (2) Amount of insurance generally without limit. — Another reason why life insurance may not be regarded as a contract of indemnity exists in the difficulty to be encountered in fixing any sort of pecuniary value upon life. Itis a well-recognized principle that, granting the existence of an actual interest, except when the interest grows out of an obligation to pay a fixed sum of money, there is no limit as to the amount of insurance which may legal be placed upon the life of any person even though that person might be one whose life was rather a burden upon the party in interest than a benefit possessing a pecuniary value. (Ibid.) When the insured dies, the insurer must pay face the amount of the Policy (or more) to the named beneficiary. (3) Life policy is a valued policy. — A policy of life insurance is treated substantially as a valued policy (see Sec. 183.) it being regarded a misnomer to ‘speak of death as a “loss” in sense in which the buming of a building is spoken of as a “loss” (Wabl v. Interstate Businessmen’s Aci. Assn., 297 N.W. 395) because there is no way to measure the value of a human life “valued” by the purchaser when the policy i d Policy is purchased and the value placed on the insured is basically decided by the amount she purchaser who is willing to pay the requisite premiums «aroun is determined by the factors affecting the life of the Insured such as his age, health, and occupation. (4) Direct pecuniary tos not required rade, the beneficiaries are vate — When settlement is Secs. 181-182 CLASSES OF INSURANCE 47 TileS~ Lie Isarance (@) A life policy is not a mere contract of indemnity, but is more accurately characterized as a form of investment? in contrast to the indemnity purpose of property insurance. As a result, itis sufficient that the purchaser a life insurance policy had an insurable interest in the life of the insured at the time the policy is issued, Alife policy is a contract to pay the beneficiary a certain 61 S.E. 648.) The measure of recovery is, therefore, the amount of the policy and not the value of the insured’ (b) Here, itis the dlficulty of determining precise values that prevents life insurance contracts from being, strictly 50,000, or P100,000, or P1,000,000. Thus, the contract agrees to pay a certain stated amount rather than an amount determined after the loss to be a repayment for the loss. There can be no question raised by the insurer paying the loss as to whether or not the loss of life actually resulted in an equivalent economic loss to the insured or his family.* (DL. Bickelhaupt, op. cit, pp. 89-90.) TE a oy! mina py gh of rien sino, we pon toes pea er pov yw tes et a Seer gneaarcntyvern ngcat wn ‘ng measured in eeaom lene Th ie nranc ent pare indemitynsrance, tnd propery isan as more indent Gurus than le weatance. (2H emit cts 181) . oe individual may procure insrance on anther’ efor he purpose of himself against actual loss or damage anticipated from the Iater's death, romise to pay los or damage but a promise to pay ie, tobe weimbursed by a wrongdoer who caused the death ofthe person insured, (E.W. Patterson op cl PP458 THEINSURANCE CODE OF THE PHILIPPINES ANNOTATED Secs. 1619p (c) It is frequently the case that at the time the pol deck payebebecase ofthe desth ofthe insuredhisvat, as a producer has ceased. This circumstance has no bear ‘whatever upon the right ofthe beneficiary to participate fal in the poligy in accordance with its terms. The contract of life insurance pays a certain sum of money on the los. (bi, 224,) There is no attempt to put a monetary value on life, Life insurance distinguished from fire and marine insurance. (1) The formerisnotacontract ofindemnity (save thateffected by a creditor on life of debtor) but a contract of investment, while the latter are contracts of indemnity (supra.); (2) The former is always regarded as a valued policy (Sec. 186), while the latter may be open or valued; (3) Alife policy may be transferred or assi even if he has no insurable interest (Sec. 184. of a fire or marine policy, the transferee or assignee must have an insurable interest in the thing insured; ot tess expressly require, the consent ofthe i essential to the validity of the assignment of a life 185.) while such consent, in the absence of waiver by the insurer {s essential inthe assignment of a fire or marine policy; (6) In the former, insurable interest need not have any legal latter, insurable interest must have a legal the former, the contin; a certain _*SREIESEEEISHEE re secs, 181-182 (CLASSES OF INSURANCE 19 Tile5— Lie feurance latter, the amount insured may not have to be paid; (9) The former, although it may be terminated by the insured, cannot be cancelled by the insurer, and, therefore, is usually a long-term contract while the latter may be cancelled by either party and is usually for a term of one (1) year (see Secs. 65, 66.); former, the “loss” to the beneficiary caused by the sured can seldom be measured accurately in terms while the reverse is generally true of the loss of property; and (11) In the former, the beneficiary is under no obligation to prove actual financial loss as a result of the death of the insured in order to collect the insurance, while in the latter, the insured is required to submit proof of his actual pecuniary loss as a condition precedent to collecting the insurance, (see Title 10.) Under Article 2012 of the Civil Code, “any person who is forbidden from receiving any donation under Article 739 cannot benamed beneficiary ofa life insurance policy by the person who ‘cannot make any donation to him, according to said article.” (see Sec. 11.) Exemption of life insurance policies from execution. In an action against the insured under a life insurance policy, may the policy be attached and sold at public auction? Under the Rules of Court, all moneys, benefits, privileges ‘or annuities accruing or in any manner growing out of any life insurance are exempt from execution (Rule 39, Sec. 12{k] “Tenuate penne tbe towing ce cane the insured death and payment of benef: expiration of term of poly and defel ‘Premium payment casing te poly to lape (no cach surrender al).“ko WHEINSURANCE CODE OF THEPHILIPPINES ANNOTATED Sec. 19 regard the annual premiu thereof.) regardless ofthe amount of a Before the emendment of the provision, if they exceed P509 », ik exemption stl xs which shall ear the same proporig oneys, benefits, privileges, or annuities so accra to the mi i peg f the premiums paig insurance benefits has been held that statutes exempting insurance from claims of creditors are regarded provide a fund after his death for from the claims of creditors. (Gallardo vs. Morales, 107 [1960], citing 35 C).5.53-54.) ion of exemption to accident insurance. (1) When accident insurance regarded as life insurance. — is the death of the insured by insurance may also be regarded asa lent, then such accident life insurance.+ For this reason, and because the Rules of Court makes refer exemption there contracts, as well. to indemnify for risks arisi i is r ing from accident, likewise, insure against loss of life due either to sdenad hase, or to the a omit ie oe, th! as So; Proved, That the terms “na on ea eient ad diy eA Ses, 181-182 (2) Burden of proof. — beneficiary has the burden of due to the covered peril. Once then shifts to the insurer to show any excepted peril that may have been stipulated by the parties. An “accident insurance” is not thus to be likened to an ordinary life insurance where the insured’s death, regardless of the cause thereof, would normally be compensable. ‘The ordinary life insurance is akin to an “all-risks” coverage in property insurance, where the insurer, on the aspect of burden is specified as in an accider injury caused solely by violent accident le means resulting in death or d Appeals, 264 SCRA 137 [1996] Kinds of life insurance policies. The kinds of individus icles are limited in number only by the ingenuity of the actuaries and other officials of th numerous competing companies insuring against loss of life, and only the four (4) more important and usual kinds need be mentioned? (1) Ordinary life policy is one under the terms of which the insured is required to pay a certain fixed premium annually or at more frequent intervals throughout his entire life time and the fssued after cons personal statement inthe proposal oringurance, without Tie ofthe insured. (se Cc Letter, Oct. 2, 1985.)462. THEINSURANCE CODE OF THEPHILIPPINES ANNOTATED Sec ph beneficiary is entitled to receive fixed payment under the po only after the death of the insured. Many insurance come? consic i the 0. Thus the alemate payment ofthe insurance proce death) is as certain as death itself, only during a limited period of years, 1r 20. When the specified number of premium been made, the insurance is paid up and fully effective during the insured’ ordinary life in that itis payable only at the death of the insured. can take advantage of the investment aspect ofthe p insured should die within the specified period, his beneficiary is ‘entitled to all the proceeds of the policy without any liability for theunpaid premiums, Because ofthe limited number of payments to be made by the insured, the premiums are proportionately higher. This insurance does have a cash surrender value. _This kind of policy is also called limited premium insurance policy. It has investment aspects, (3) Endowment policy is one providing for remium Payments for a definite term, a eesre the insurer binds himself to pay a fixed sum to the insured if he 7S Pag Pty ambiente = of emma an ings pn A oto pean pa ena ie en eerie (CLASSES OF INSURANCE 463 Secs 181-182 Tile 5 ~ Lie nsurance survives for a specified period (maturity date stated in the policy), or, if he dies within such period, to some other person grow more rapidly. This kind of policy differs from Payment life policy in that in the case of the latter, aid only upon the death of the insured. Here, the is a chance of being paid the proceeds of the policy Alter receiving the face amount of the policy, all coverage will terminate. It has an increasing cash surrender value but premiums are high, as pa the end of the term if the insured is st ‘maturity can be paid either in a lump sum or as an annuity. This type represents both term insurance and a form of annuity (right is to receive, for a definite term, fixed, periodical payments). This type of policy is thus useful in retirement planning. It has also an investment aspect. For the purpose of the Insurance Code, endowment contracts shall be considered life insurance contracts. (Sec. 182, par. 2.) (4) Term insurance policy is one also providing for fixed premium payments for a specified term. It provides coverage only if the insured dies during the limited perio for a fixed or a specific term, such as two (2), five (5), ) years. Ifthe insured dies within the period specified, paid to the beneficiary. Ifhe survives the period, the srminates or expires at the end of the time period. The premium paid is levied during the specified terms and increases with each renewal term (43 Am. Jur. 2d. 67.) or the amount of coverage declines, and this is because as a person ages, the risk of death increases. ‘The premiumislower than in the case of straight life insurance because of the possibility that the insurer may not be obliged to Pay anything in proceeds whatsoever if the insured survives the term. Consequently, this form of life insurance is not considered to carry with it the element of i as no loan value. There is generally no provision for payment of a cash surrender value or investment value upon surrender or lapse of the policy. ‘The insured may be given the option to convert the policy to one of whole life or endowment life. aeot THEINSURANCE CODE OF THE PHILIPINES ANNOTATED Sec “This kind of insurance i also known as femporary insurance | is essentially pure insurance ie, it provides life insurance along, Ithas no investment value. oe Code contains special provisions governing ume (Gee See. 236,) and industrial life insurance (Secs. 235, 236, 237.) ‘Scope of life insurance. life insurance attemptsto ‘current earning powerof pretation to the concept of death, the permanent loss of current earning capacity amounts to an “economic death.” From the economic standpoint, death may be: (2) Actual death, called “casket death” ‘This classification represents the So- o Living death. — This involves permanent disability; (c) Retirement death. — Living beyond the period of | earning capacity represents this classification of death. Another pe of Insurance i anes! fe that combines some aspects f | Insurance and some aspects of whole fe inaucince Secs 181-182 CLASSES OF INSURANCE “5 Tile — Life trsurance expenses, or for loss of time or earning or illness. While health insurance is provide a specific periodic income to disabled persons are not contracts of indemnity. But those that cover medical expenses are contracts of indemnity. (see Secs. 176, 184, 186.) In these contracts, the insured are paid. (Riegel, ». 58.) Health, accident and law as both life and non-life. disability insurance is (see Art. 293, par. 8.) Contract of life annuity defined. “By the aleatory contract oflife annuity, the debtor binds himself to pay an annual pension or income during the life of one or more determinate persons in consideration of a capital consisting of money or other property, whose ownership is transferred to him at once with the burden of the income.” (Art. 2021, Civil Code.")465 THEINSURANCE CODE OF THEPHILIPPINES ANNOTATED Sea gp The annuity concept. ‘The annuity has been called the “upside-down application, of the life insurance principle.” This concept is based on the ion that the purpose of life insurance is the scientific creatige ‘whereas the purpose of the annuity is the scientigy an estate. fe insurance contract, the estate is created at death ty contract, the estate is fully liquidated by death, Reduced to its ultimate simplicity, the idea can be expressed by comparing the nature of the two (2) types of agreements, In «exchange for his premium, the purchaser of life insurance expects his insurer to pay his beneficiary a specified sum upon his death For his premium, the purchaser of an annuity expects his insurer to pay him a periodic income as lon; lives. Thus, under a life insurance contract, the insurers \g upon the death of the insured, whereas under an ann ract, the insurer slops paying upon the death of the insured. (“Contracts-Annuities” by Robert I. Mehr, in LHIH, p. 78.) fer materially from ordinary life regarded as such. But under c endowment contracts, as life insurance contracts. (Sec. 180, par. 2.) The fact remains, however, that annuity and insurance are opposites; in this combination, ‘one neutralizes the risk customarily inherent in the other. (2) From the insurer’s viewpoint, insurance looks 10 longevity, while annuity to transiency, See 183, (CLASSES OF INSURANCE. “7 ‘Tie5— Life Insurance (3) Under the ordinary life insurance policy, the insured pays to the insurer an annuity and his beneficiary receives at the insured’s death the lump sum payment. Under the usual form of annuity, the annul ives the annuity payments as long as he lives. (Vance, op. cit. p. 1020.) (4) An annuity appears more like an “investment” instead of an insurance, which may or may not turn out to be profitable, while rance has a characteristic akin to “indemnity,” i, the insu reimburse the insured’s beneficiaries a large sum upon the insured’s death. Both provide protection from a substantial risk. A person ‘may take life insurance and at the same time enter into a contract to provide security both against the risk of premature death and against the risk of lon, The special provisions of the such contracts. Code govern primarily ‘SEC. 183. The insurer in a life insurance contract shall bbe liable in case of suicide only when it is committed after liable in case of suicide in the following cases: (a) The suicide is committed after the policy has been in force is committed after a shorter period (eg, ‘one year) provided in the policy although within the two- ‘year period; and4468 THEINSURANCE CODEOF THEPHILIPPINES ANNOTATED gy (© The suicide is committed in the state of insanity regardless of the date of commission, unless suicide is an excepted risk, Note that the policy cannot provide a period longer than two years. Thus, i the policy provides for a three-year period and the Suicide is committed within said period but after two years, the insurer is liable. (2) When not liable. —In fine, the insurer shall not be liable in three cases: (a) The suicide is not by reason of insanity and is ‘committed within the two-year period; (b) The suicide is by reason of insanity but is not among the risks assumed by the insurer regardless of the date of commission; and (©) The insurer can show that the policy was obtained with the intention to commit suicide even in the absence of any suicide exclusion in the policy. SEC. 184. A policy of insurance upon life or health ‘may pass by transfer, will or succession to any person, whether he has an insurable interest or not, and such Person may recover upon it whatever the insured might hhave recovered, Right of insured to assign life ssurable interest of assignee in life insurance not required. — fe insurance policies are declared by law to be assignable regardless of whether the assignee has an insurable interest in the life of the insured or not. (Sun Life Assur. Co. of Canada vs. Ingersoll on a [1921}.) A provision in a contract of life ae : i cst erib"BN@e to H (@) The contract, not being eee Z 18 one of indemnity, does not require the insurable interest to continue as in iets of fire insurance. (see Sec, 19, ‘Life insurance has become in our Sec. 184 (CLASSES OF INSURANCE o TileS — Life Insurance desirable to give life policies the ordinary characteristics of property.” (Grigsby v. Russel, 222 US.A. 49.) To deny the right surance policy except to a person having an is to diminish appreciably the investment value of the contract to the owner. (see D.L. Bickelhaupt, op. (©) By requiring an incipient insurable interest, the law restricts the class of persons who may profit from the death of the insured thereby reducing to a reasonably safe minimum the dangers of wagering and of murder. (E.W. Patterson, i The owner of the policy having an insurable of the person insured by the discreet selection of an assignee. (©) No insurable interest is where the policy insured on his own: the policy by him would not be invalidated by the lack of insurable interest of the assignee. (2) Where assignment used as a cloak to hide an illegal scheme, — The courts will not, however, permit the process of assignment to be used as a cloak to hide an illegal intent to make contracts on human life. (Mutual Aid Union v. White, 204.W. 137.) The usual evidence of this scheme is the fact assignment occurred almost immediately after the policy was issued to the insured. ‘An assignment is to be distinguished from a change in the designated beneficiary. (see Sec. 11.) Necessity of consent of beneficiary sssignment. With waiver of right to change beneficiary. — In accordance the rule that a beneficiary of an ordinary life insurance policy which contains an express waiver ofthe right to change the beneficiary acquires a vested and absolute interest which cannot be divested without his consent (see Sec. is consequently{90 THEINSURANCECODEOFTHEPHILIPFINES ANNOTATED Sec, true that the insured cannot assign such a policy without the consent of the beneficiary. (2) Without such waiver. — On the other hand, where the policy contains no such waiver, the insured may assign the policy without the consent ofthe beneficiary. The beneficiary in the latter case, has a mere expectancy and he cannot make an assignment of the policy until his interest in the proceeds thereo becomes absolutely fixed by the death of the insured. (see Mutual Ben. Life Ins. Co. v. Sweet, 222 F. 200.) SEC. 185, Notice to an insurer of a transfer or bequest thereof is not necessary to preserve the validity of a policy of eee ‘upon life or health, unless thereby expressly required. Notice to insurer of transfer. fotice not required by policy. — If the policy does not lity of the assignment. ___ (2) Notice required by policy. — Of course, where notice to the insurer is required by the provisions of the policy, an assignment (not the policy itself) without such noti This meane jeved of any responsibility in case payment is made to the benefici : ix ary before receipt by the insurer of the notice. Even without a6 to the a Ri : insures, the assignment is binding upon the assignor (insured) 3) Assignment with consent of insur | rer. — Whether or not the policy expressly requires that notice of an assignment or transfer aoe = Ce peereenean SSS Sire mato Amig Tame Serpe ake fee sory affect the validity. ‘itself. A cont ara io See ro al pap —_ (CLASSES OF INSURANCE mn sec. 186 ‘The S— Lie lsurance must be given to the insurer, the assignment with the consent of the insurer creates, in effect, a novation. (see Art. 1291, Civil Code.) The assignee takes the newly formed contract free of defenses available to the insurer against the insured (assignor) under the old contract. EXAMPLE: X insured his life, naming his estate as the beneficiary. Later, he assigned the policy to Y who has no insurable interest in X died without notifying the insurer of the transfer. A ‘clause inthe policy expressly provides that no assignment shall bbe effective until the insurer has been notified in writing May ¥ collect from the insurer the value ofthe policy? In view of Section 185, the insurer may legally pay the beneficiary which shall become the trustee of the amount received in favor of Y. However, the insurer may waive the requirement as to notice and pay Y. Where such notice is not required by the policy, the insurer is under obligation to pay Y after acquiring knowledge of the assignment. ‘SEC. 186, Unless the interest of a person insured Is susceptible of exact pecuniary measurement, the measure of insurance upon life or health is the sum fixed in the policy. Measure of indemnity under life policy. ) Amount fixed in policy. — The extent or amount of indemnity payable on the death of the insured under a policy of insurance upon life or heal 1e amount fixed in the policy. In effect, life policies are v insurance which is fundamentally a contract of indemnity, the ity depends on whether the policy is an open 1 (see Sec. 173.) Strictly speaking, there could be no exact pecuniary ‘measurement of a person's interest in his life or the life of another. Hence, a person can purchase life insurance for any amount as long as he can pay the premium. Rett472 THEINSURANCECODEOF THE PHILIPPINES ANNOTATED 5. yy (2) Where if insured that of another. — The exception is when 1 person insures the life of another, as where a creditor insures In this case, the interest s susceptible of exact TITLE 6 MICROINSURANCE ee ‘SEC. 187. Microinsurance is a financial product or service that meets the risk protection needs of the poor where: (2) The amount of contributions, premiums, fees or charges, computed on a dally basis, does not exceed seven and a half percent (7.5%) of the current daily minimum wage rate for nonagricultural workers in Metro Manila; and (b) The maximum sum of guaranteed benofits is not more than one thousand (1,000) times of the current daily minimum wage rate for nonagricultural workers in Metro unless it possesses all prescribed by the Commissi shall issue such rules and regi insurance. (n) Microinsurance defined. respect to coverage, he micreirsurance fat his/her option, may include his/her immediate family (e, his/her spouse and/or ‘hildren and in the ease of single persons, his/her parents and siblings, and his/her set, 1”404 THEINSURANCE CODE OF THE PHILIPPINES ANNOTATED Secs. 187195 Features of microinsurance. : Microinsuranceisa financial product or service that meets the risk protection needs ofthe poor: It has the following features (1) Premiums, contributions, fees or charges are collected deducted prior to the occurrence of a contingent event; and (2) Guaranteed benefits are provided upon occurrence of a contingent event. (bid) Requirements for the product. ‘A microinsurance product is a financial product or service that ‘meets the risk protection needs of the poor where: (1) The amount of premiums, contributions, fees or charges, ‘computed on a daily basis, does not exceed 7.5% of the current daily minimum wage rate for non-agricultural workers in Metro Manila; and (2) The maximum sum of guaranteed benefits is not more than 1,000 times the daily minimum wage rate for non- agricultural workers in Metro Manil ‘Since microinsurance is inten meet the needs of the poor for risk protection, affordability of premium payments is 4 major consideration. The 7.5% ceiling for premium considers the increased number of the insured thereby spreading risks to a greater number and lower costs of insurance delivery. The maximum coverage can provide 33 months (1,000) days of Jost income resulting from an unforeseen or contingent event happening to the insured. This is deemed sufficient to augment the needs of the family of the insured. This insurance can be provided withthe maximum 75% ceiling. The premiums may lected daily, weekly, monthly quarterly, semi- m annually, whichever is applicable,” Semen oF "This also fers andi used ited marginalized o the less pilleyed seen eee ith Jow income, disadvantaged *vihen undenniting risks ae tinimum mating possible ora preatenunbesel gate ere ye EL Soviet nd vk pet rb pa emo sec 169 CLASSES OF INSURANCE as Tile6 — Microiasurance ‘The maximum amount of premiums and guaranteed benefits shall apply on a per product or per policy basis. In the case of a bundled product (eg., life i insurance, health and/or pre-need bundled with memorial plan, mortuary or burial benefits) this shall apply to ‘each component of the bundled product. (bid.) All microinsurance contracts shall clearly state the benefits and terms of coverage. Performance standards. A set of performance standards for microinsurance that if performance indicators covering the areas of solvency efficiency, governance, understanding of the product | risk management, outreach (at and development of the microinsurance industry, is necessary for the Commission to determine whether microinsurance entities are being conducted in a viable and sustainable manner. Under Insurance Circular Letter No. 005-11 (Jan. 31, 2011.), microinsurance entities shall submit to the Commission on or before April 30 of every year the resulting indicators covering the previous year’s operations by using the set of Performance Standards (Annex 1 thereof.) and the corresponding Annual Statements submitted by each reporting microinsurance entity. The Insurance Commission shall establish the Performance Standards to identify as early as possible entities whose financial conditions and/or performance on the microinsurance opera- tions are concerns and if warranted, recommend appropriate remedial measures. CHAPTER I-A FINANCIAL REPORTING FRAMEWORK ‘SEC. 189, All companies regulated by the Commission, unless otherwise required by law, should comply with the financial reporting frameworks adopted by the Commission for purposes of creating the statutory financial reports and476 THEINSURANCE CODE OFTHE PHILIPPINES ANNOTATED 4. yp tatements to be submitted to the Commission, etal porting ‘framework means a set of accounting and reporting principles, standards, interpretations anq pronouncements that must be adopted in the preparation ‘and submission of the statutory financial statements ‘and reports required by the Commission. This financial reporting framework is not the same as the finan reporting framework used to prepare the fin statements that the Securities and Exchange Commi may require. The main purpose of the statutory state to present important information about the I isk and solvency situation of insurers. In presci icable statutory financial reporting frames ‘the Commissioner shail take into account international standards concerning solvency and insurance company ‘The assets and investment discussed in Sections 204 to 215 shall be accounted for in accordance with this Section. The valuation of reserves shall be accounted for in accordance with Title § of this Code. (n) ‘Statutory financial statements and reports. (1) The statements and reports required by law to be ‘submitted by insurance companies to the Insurance Commission should comply with the financial reporting framework adopted by the Commission which under Section 189, is “a set of accounting and reporting les, standards, interpretations, and pronouncements that must be adopted in the preparation and submission of the (samel. (2) Itisnot: ifficulttounderstand why “the financial reporting. t the same as that used to prepare the financial statements that the Securities and Exchange Commission may Fequire.” Since insurance companies are fundamentally different from most other forms of business enterprise, their financial Statements differ considerably from those of other companies As stated in Section 189, “the main purpose of the statutory sec. 189) CLASSES OF INSURANCE. a “Tide 6— Mironsurance statements is to present important information about the level of risk and solvency situation of insurers.” (see Secs. 200-201, 222.) (3) The most essential statement or report required is probably the statement of financial condition or balance sheet which consists of a statement of the assets of the insurance company and a statement of its liabilities and its surplus. The relation of the capital and surplus to the li often a good indicator of the financial soundness or sta company. (see Secs. 229-231,) Differences between insurance accounting and generally accepted accounting procedures. Financial analysis of insurance companies, particularly life and health, differ considerably from those of most other corporations largely because insurance companies have unique accounting problems, arising from the long-term nature of their insurance policies and from the assumption which must be made with respect, for example, to levels of risk, mortality, and investment return Among the major differences between them include the wing points: (1) Commissions and other costs of acquiring premium income are charged to corporations as they are incurred, rather than being deferred and charged to operations over the entire f icy sold (particularly if reserves [see Secs. 216-220] are set up on the net level premium basis). Consequently, an increase in the amount of new insurance sold may produce the result ofa decrease in the net gain from operations, and a decrease in the new insurance sold ™ay result in an increase in the net gain from operations. This practice differs from generally accepted accounting, principles because revenue and costs are not matched. The asset values used for bonds are amortized values than cost or current market values. (3) “The non-admitted assets” (see Secs. 202-203.) are ‘excluded from the assets as shown in the standard form of statements and reports.(7% THEINSURANCE CODE OF THE PHILIPPINES ANNOTATED Sa gy (4) Contrary to generally accepted accounting practices, which would possibly restrict a portion of the total surplus fo, future value fluctuations, the mandatory securities valuation reserve is set up as a liability. Moreover, the amount of the mandatory securities valuation reserve is not related to the quality and current value of the securities. (5) No deferred is set up for future income tax liability on deferred income items such as: (@) Unrealized net capital gains. (b) Accelerated depreciation. (©) Deferment of taxable income because of election to ‘use net level premium reserves purposes rather than the preliminary term reserv standard form, (@) Untaxed income account” in stock life y Financial Statements” by B. Franklin Blair in LHTH, pp. 1048- 1049.) — 000 — CHAPTER Ill THE BUSINESS OF INSURANCE TITLE 1 INSURANCE COMPANIES, ORGANIZATION, CAPITALIZATION, AND AUTHORIZATION ‘SEC. 190. For purposes of this Code, the term “insurer” or “insurance company” shall include all partnerships, associations, cooperatives or corporations including ‘mutual benefit associations. Unless the context otherwise ‘requires, the term shall alsoinclude professional reinsurers defined in Section 288. “Domestic company” shall include ranted a certificate to the effect that it has complied with all the provisions of this Code. ”