INSURANCE AND PRE-NEED

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2
Insurance and Pre-need –
Insurance commission = regulator of
the whole insurance industry
Dela Cruz vs Capital Insurance – death
arising from a boxing match is an
accident
On the designation of a beneficiary in
insurance policies:
Art 2012 – any person who is
forbidden from receiving any donation
under Art 739 cannot be named
beneficiary of a life insurance policy by
the person who cannot make any
donation to him
Quantum of evidence =
preponderance of evidence
LGBTQ+ community partners as
beneficiary: there is no legal
impediment to the designation as
beneficiary of the domestic partner of
an insured who has secured a life
insurance policy on his or her own life
The insurable interest upon the life of
another under the aforesaid provision
need not be based on kinship or legal
obligation to give support
Who can be insured?
Sec 7 – anyone except a public enemy
may be insured
Public enemy – designates a nation in
a state of war with the Philippines and
includes every member or citizen of
such nation
Filipinas Compañia De Seguros vs
Christern, Huenefeld & Co, Inc., - it
stands to reason that an insurance
policy ceases to be allowable as soon
as an insured becomes a public enemy
RA No 11166 – Philippine HIV and
AIDS Policy Act = a health
maintenance organization (HMO)
cannot decline an application of person
living with HIV on the sole basis of his
or her HIV status
Fortune Medicare Inc vs Amorin – for
purposes of determining the liability of
a health care provider to its members,
a health care agreement is in the
nature of non-life insurance which is
primarily a contract of indemnity
Concept of Insurance
Insurance – risk-distributing device, a
mechanism of a group exposed to a
particular risk contribute premiums to
an insurer
Contract of insurance – agreement
whereby one undertakes for a
consideration to indemnify another
against loss, damage or liability arising
from an unknown or contingent event
Unknown or contingent event = must
be the risk insured against
Gaisano vs Development Insurance
and Surety Corporation – insurance
policy is not valid and binding unless
the premium is paid
Contract of Suretyship – deemed to be
an insurance contract, within the
meaning of this code, only if made by
a surety who or which, as such, is
doing an insurance business as
hereinafter provided
Milagros Enriquez vs Mercantile
Insurance Co Inc – surety bond
remains effective until the action or
proceeding is finally decided, resolved
or terminated, regardless of whether
the applicant fails to renew the bond
3
Insurance and Pre-need –
People/s Trans-East Asia Insurance
Corporation vs Doctors of New
Millennium Holdings, Inc – liabilities of
an insurer under the surety bond are
not extinguished when the
modifications in the principal contract
do not substantially or materially alter
the principal’s obligations
The extent of the surety’s liability is
determined by the language of the
suretyship contract or the bond itself
Such non compliance by the creditor
impacts not on the validity or legality
of the surety contract but on the
creditor’s right to demand performance
Doing an insurance business or
transacting an insurance business shall
include:
1. making or proposing to make, as
insurer, any insurance contract
2. making or proposing to make, as
surety, any contract of surety
3. doing any kind of business including
a reinsurance business
4. doing or proposing to do any
business in substance equivalent to
any of the foregoing in a manner
designed to evade the provisions of
this code
The fact that no profit is derived from
the making of insurance contracts,
agreements or transactions or that no
separate or direct consideration is
received therefor, shall not be deemed
conclusive to show that the making
thereof does not constitute the doing
or transacting of an insurance business
Test to determine if contract is an
insurance contract or not:
1. depends on the nature of the
promise
2. act required to be performed
3. exact nature of the agreement in
the light of the occurrence,
contingency or circumstances under
which the performance becomes
requisite
* it is not by what it is called or
labeled
Mutual Insurance Company
- cooperative enterprise where the
members are both the insurer and
insured
- members all contribute, by a system
of premiums or assessments, to the
creation of a fund from which all losses
and liabilities are paid, and where the
profits are divided among themselves,
in proportion to their interest
Governing Laws on Insurance
a. the new civil code (RA 386)
Title XIII – aleatory contracts = one of
the parties or both reciprocally bind
themselves to give or to do something
in consideration of what the other shall
give or do upon the happening of an
event which is uncertain, or which is to
occur at an indeterminate time
b. special laws
Insurance Code – Article 2011
Subrogation
- payment is the operative fact in
subrogation
- property insurance
- insurance company shall be
subrogated to the rights of the insured
against the wrongdoer of the person
who has violated the contract
Subrogation to the marine insured’s
rights cannot occur in the absence of
total loss
Elements of an insurance contract:
1. existence of an insurable interest
susceptive of pecuniary estimation
2. risk of loss
4
Insurance and Pre-need –
3. insurer assumes the risk of loss
4. such assumption is part of the
general scheme to distribute actual
losses among a large group or
substantial number of persons bearing
somewhat similar risks
5. payment of premiums
* if first 3 elements only = risk shifting
device
* if all elements = risk distributing
device
Risk distributing device – device of
insurance serves to distribute the risk
of economic loss among as many as
possible of those who are subject to
the same kind of risk
Since insurance is a contract, as such,
it is property in legal contemplation
Marine Insurance – codal provision
Marine Protection and Indemnity
Insurance – insurance against or
against legal liability of the insured for
loss, damage or expense incident to
ownership, operation, chartering,
maintenance, use, repair or
construction of any vessel, craft or
instrumentality in use of ocean or
inland waterways, including liability of
the insured for personal injury, illness
or death or for loss of or damage to
the property of another person
Risk or losses covered:
a. perils of the sea (perils of
navigation) – only those casualties due
to the unusual violence or
extraordinary action of wind and wave
or to other extraordinary causes
connected with navigation
b. perils of the ship – loss which in the
ordinary course of events result from
the:
1. natural and inevitable action of the
sea
2. ordinary wear and tear of the ship
3. negligent failure of the ship’s owner
to provide the vessel with proper
equipment to convey the cargo under
extraordinary conditions
Only perils of the sea may be insured
against unless perils of the ship is
covered by an all-risk policy
All risk policy – insurance against all
causes of conceivable loss or damage,
except:
1. otherwise excluded in the policy
2. due to fraud or intentional
misconduct on the part of the insured
Burden of proof: insured has the initial
burden of proving that the cargo was
in good condition when the policy
attached and that the cargo was
damaged when unloaded from the
vessel; thereafter the burden then
shifts to the insurer to show the
exception to the coverage
Barratry clause – clause which
provides that there can be no recovery
in case of any willful misconduct on
the part of the master or crew in
pursuance of some unlawful or
fraudulent purpose without consent of
owners, and to the prejudice of the
owner’s interest
Implied warranties:
a. ship is seaworthy at the inception of
the insurance
b. ship will not deviate from agreed
voyage unless deviation is proper
c. ship will not engage in an illegal
venture
d. warranty of neutrality: that the ship
will carry the requisite documents of
nationality or neutrality of the ship or
cargo where such nationality or
neutrality is expressly warranted
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Insurance and Pre-need –
e. presence of insurable interest
Seaworthiness – relative term,
depending upon the nature of the
ship, voyage, service and goods,
denoting in general a ship’s fitness to
perform the service and to encounter
the ordinary perils of the voyage
contemplated by the parties to the
policy
Components: not only to the condition
of the structure of the ship itself but…
a. properly laden
b. provided with a competent master
c. sufficient number of competent
officers and seamen
d. requisite appurtenances and
equipment
e. other necessary or proper stores
and implements for the voyage
A ship which is seaworthy for the
purpose of an insurance upon the ship
may, nevertheless, by reason of being
unfitted to receive the cargo, be
unseaworthy for the purpose of the
insurance upon the cargo
An implied warranty of seaworthiness
is complied with if the ship be
seaworthy at the time of the
commencement of the risk
Warranty that necessary documents
are carried:
Where the nationality or neutrality of a
ship or cargo is expressly warranted, it
is implied that the ship will carry the
requisite documents to show such
nationality or neutrality and that it will
not carry any documents which cast
reasonable suspicion thereon
Deviation:
a. departure from the course of the
voyage insured
b. unreasonable delay in pursuing the
voyage
c. commencement of an entirely
different voyage
Improper deviation is not prohibited
however there will be repercussions
Instances:
a. deviation from the agreed voyage
b. departure of vessel from the course
of sailing fixed by mercantile usage
c. departure of the vessel from the
most natural, direct and advantageous
rout is not fixed by mercantile usage
d. unreasonable delay in pursuing
voyage
Proper deviation:
1. when caused by circumstances over
which neither the master nor the
owner of the ship has any control
2. when necessary to comply with a
warranty, or to avoid a peril, whether
or not the peril is insured against
3. when made in good faith, and upon
reasonable grounds of belief in its
necessity to avoid a peril
4. when made in good faith, for the
purpose of saving human life or
relieving another vessel in distress
Effect of a proper deviation = insurer
is liable
Effect of improper deviation = insurer
is not liable for any loss happening to
the thing insured subsequent to an
improper deviation
Loss as an Insurance Law Concept:
a. death or injury of the person
insured or the loss/destruction
b. damage to the property insured
brought about by the happening of the
event insured against
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Insurance and Pre-need –
Total Loss:
1. actual loss
- total destruction of the thing insured
- irretrievable loss by sinking, or by
being broken up
- any damage to the thing which
renders it valueless to the owner for
the purpose for which he held it
actual total loss = entitled to payment
without notice of abandonment
2. constructive total loss = technical
total loss
- actual loss of more than ¾ of the
value of the thing insured
- damage reducing value by more than
¾ of the value of the vessel and of
cargo
- expense of transshipment exceed ¾
of the value of the cargo
totality rule = use all the time for
constructive total loss
In case of constructive total loss,
insured may:
- abandon the goods or vessel to the
insurer and claim for the whole insured
value
- without abandoning vessel, claim for
partial actual loss
Partial Loss = loss that is not total
Co-insurance – marine insurer is liable
upon a partial loss, only for such
proportion of the amount insured by
him as the loss bears to the value of
the whole interest of the insured in the
property insured
Insured for less than its value =
insured is considered a co-insurer of
the difference between the amount of
insurance and the value of the
property
Requisites:
1. loss is partial
2. amount of insurance is less than the
value of the property insured
Rules:
1. applies only to marine insurance
2. cannot be in life insurance
3. applies in fire insurance when
expressly provided for by the parties
Abandonment – act of the insured by
which, after a constructive total loss,
he declared the relinquishment to the
insurer of his interest in the thing
insured
Requisites:
1. there must be an actual
relinquishment by the person insured
of his interest in the thing insured
2. there must be a constructive total
loss
3. the abandonment be neither partial
nor conditional
4. it must be made within a reasonable
time after receipt of reliable
information of the loss
5. it must be factual
6. it must be made by giving notice
thereof to the insurer which may be
done orally or in writing
7. notice of abandonment must be
explicit and must specify the particular
cause of the abandonment
Effects of a valid abandonment:
1. equivalent to a transfer by the
insured of his interest to the insurer
with all the chances of recovery and
indemnity
2. acts done in good faith by those
who were agents of the insured in
respect to the thing insured,
subsequent to the loss, are at the risk
of the insurer and for his benefit
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Insurance and Pre-need –
Acceptance of abandonment, whether
express or implied, is conclusive upon
the parties and admits the loss and the
sufficiency of the abandonment
Once made and accepted,
abandonment is irrevocable unless the
ground upon which it was made
proves to be unfounded
If a marine insurer pays for a loss as if
it were an actual total loss, he is
entitled to whatever may remain of the
thing insured, or its proceeds or
salvage, as if there had been a formal
abandonment
The mere silence of the insurer for an
unreasonable length of time after
notice shall be construed as an
acceptance
Fire Insurance – includes
(LLEWTOA) loss by fire, lightning,
earthquake, windstorm, tornado and
other allied risks
Risks or losses covered:
1. direct losses
2. indirect or consequential losses
- physical damage
- loss of earnings
- extra expense
GR: liability of the insurer is to pay for
direct loss only
EX: insurer may be liable to pay for
consequential losses if covered by
extension to such fire policies or
insured under separate policy
Prerequisites to recovery:
1. notice of loss – must be
immediately given, unless delay is
waived expressly or impliedly by the
insurer
2. proof of loss – according to best
evidence obtainable
You can only claim for damages as a
result of hostile fire and not friendly
fire
Hostile fire Friendly fire
One that escapes One that burns in
from the place a place where it
where it was was intended to
intended to burn burn and ought
and ought to be to be
Insurer is liable Insurer is not
liable
It is very crucial to determine whether
a marine vessel is covered by a marine
insurance or fire insurance because:
a. rule on constructive total loss and
abandonment = applied only to marine
insurance
b. rule on co-insurance = applies
primarily to marine insurance
c. rule on co-insurance applies to fire
insurance only if expressly agreed
upon
alteration in the thing insured =
entitles an insurer to rescind a contract
of fire insurance
Requisites:
1. use or condition of the thing is
specifically limited or stipulated in the
policy
2. such use or condition as limited by
the policy is altered
3. alteration is made without the
consent of the insurer
4. alteration is made by means within
the control of the insured
5. alteration increases the risk
6. must be a violation of a violation of
a policy provision
Casualty Insurance – covering loss
or liability arising from accident or
mishap except to those falling
exclusively within the scope of other
8
Insurance and Pre-need –
types of insurance such as fire or
marine
Plate glass insurance – accidental
breakage of and damage to glass on
business premises
Classifications of casualty insurance:
1. against specified perils which may
affect the person and/or property of
the insured (accident or health
insurance)
2. against specified perils which may
give rise to liability on the part of the
insured for claims for injuries to or
damage to the property of others
(third party liability insurance)
Fortune Insurance vs CA – in burglary,
robbery and theft insurance, the
opportunity to defraud the insurer
(moral hazard) is so great that insurers
have found it necessary to fill up the
policies with many restrictions
designed to reduce the hazard
Insurable liability:
1. liability for quasi-delict of non-
fulfillment of contract
2. liability for criminal negligence
Liabilities arising out of acts of
negligence which are also criminal =
insurable on the ground that such acts
are accidental
Liability consequences of deliberate
criminal acts = not insurable
Intentional – implies the exercise of
the reasoning faculties, consciousness
and volition
Biagtan vs Insular Life Assurance Co.
Ltd – if the injuries suffered by the
insured clearly resulted from the
intentional act of the third person, the
insurer is relieved from liability as
stipulated
Accidental – happens by chance or
fortuitously, without intention or
design, which is unexpected, unusual
and unforeseen
Right of a third party injured to sue
the insurer of party at fault – depends
on whether the contract of insurance
is intended to benefit third persons
also or only the insured
Test applied:
1. indemnity against third party liability
– third party injured can directly sue
the insurer
Purpose: to protect injured persons
against the insolvency of the insured
who causes such injury
2. indemnity against actual loss or
payment – third party has no cause of
action against the insurer. The third
person’s recourse is limited to the
insured alone
The insurer is not solidarily liable with
the insured
Why?
- insurer’s liability is based on contract;
that of the insured is based on torts
- insurer’s liability is limited by the
amount of the insurance coverage
Suretyship – 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 oblige
Act No 536, as amended by Act No.
2206 – it shall be unlawful for a
government office when they require
the filing of a surety to demand that a
particular surety be used (government
office has no right to choose who the
surety be because it opens corruption)
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Insurance and Pre-need –
Suretyship is considered an insurance
contract if it is executed by the surety
as a vocation and not incidentally
Fidelity bond
- contract of insurance against loss
from misconduct
- form of insurance protection that
covers policyholders for losses that
they incur as a result of fraudulent
acts by specified individuals
- insures a business for losses caused
by the dishonest acts of its employees
- protect against monetary or physical
losses
Suretyship
Accessory contract
Parties: surety, obligor and obligee
Credit accommodation
Surety can recover from principal
Bond can be cancelled only with
consent of oblige, commissioner or
court
Requires acceptance of obligee to be
valid
Risk-shifting device, premium paid being Risk-distributing device, premium paid
in the nature of a service fee
Life Insurance
- insurance on human lives and
insurance appertaining thereto or
connected therewith
- payment of annuities including
contracts for the payment of lump
sums under a retirement program
where a life insurance company
manages
- trustee for such retirement program
shall be considered a life insurance
contract
Liability of insurer in certain causes of
death of the insured:
1. suicide – liable if:
Performance bond – issued to one
party of a contract as a guarantee
against the failure of the other party to
meet obligations in the contract
Nature of liability of surety:
1. solidary
2. limited to the amount of the bond
3. determined strictly by the terms of
the contract of suretyship in relation to
the principal contract between the
obligor and the obligee
Property Insurance
Principal contract
Parties: insurer and insured
Contract of indemnity
Insurer has no such right; only right of
subrogation
May be cancelled unilaterally either by
insured or insurer on grounds provided
by law
No need of acceptance by any third
party
as a ratable contribution to a common
fund
a. committed after 2 years from the
date of the policy’s issue or its last
reinstatement
b. committed after a shorter period
provided in the policy
c. committed in a state of insanity
regardless of the date of the
commission unless suicide is an
excepted peril
Any stipulation extending the 2 year
period is void
2. at the hands of the law (legal
execution)
- it is one of the risks assumed by the
insurer under a life insurance policy in
the absence of a valid policy exception
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Insurance and Pre-need –
3. killing by the beneficiary
GR: interest of a beneficiary in a life
insurance policy shall be forfeited
when the beneficiary is the principal,
accomplice or accessory in willfully
bring about the death of the insured,
in which event, the nearest relative of
the insured shall receive the proceeds
of said insurance if not otherwise
disqualified
EX:
a. accidental killing
b. self-defense
c. insanity of the beneficiary at the
time he killed the insured
Right to assign life insurance policy
1. pass by transfer, will or succession
to any person, whether he has an
insurable interest or not
2. notice to an insurer of a transfer or
bequest thereof is not necessary
The measure of indemnity in life or
health insurance policy = sum fixed in
the policy except when a creditor
insures the life of his debtor
Cash surrender value – amount the
insured, after the payment of at least
3 full annual premiums, is entitled to
receive if he surrenders the policy and
releases his claim
Microinsurance – financial product
or service that meets the risk
protection needs of the poor
1. Agriculture Microinsurance or Micro
Agri = Circular Letter No 2015-53
2. Health Microinsurance or
MicroHealth = Circular Letter No 2016-
22
Compulsory Motor Vehicle
Liability Insurance (only
compulsory insurance) – protection
coverage that will answer for legal
liability for losses and damages, for
bodily injuries, or property damage
that may be sustained by another
arising from the use and operation of
motor vehicle by its owner
Purpose:
Shafer vs Judge – to give immediate
financial assistance to victims of motor
vehicles accidents and/or their
dependents regardless of the financial
capability of motor vehicle owners or
operators responsible for the injury
sustained
Method of coverage
1. insurance policy
2. surety bond
3. cash deposit
No-fault indemnity claim – clause that
gives the victim (injured person or
heirs of the deceased) an option to file
a claim for death or injury without the
necessity of proving fault or negligence
Rules:
1. maximum of 15,000 – if higher
claim file “in addition to” not “in lieu
of”
2. proof of loss
3. claim may be made against one
motor vehicle only = insurer of vehicle
you are mounting; dismounting or
alighting from
4. proper insurer from which to claim:
- occupant = claim against the insurer
of the vehicle in which the occupant is
riding, mounting or dismounting from
- any other case: claim shall lie against
the insurer of the directly offending
vehicle
5. in all cases, the right of the party
paying the claim to recover against the
owner of the vehicle responsible for
the accident shall be maintained
11
Insurance and Pre-need –
The claimant is not free to choose
from which insurer he will claim the
“no fault indemnity”
No-fault claim does not apply to
property damage
The essence of the no fault indemnity
insurance is to provide victims of
vehicular accidents or their heirs
immediate compensation although in
limited amount, pending final
determination of who is responsible for
the accident and liable for the victim’s
injuries or death
Special clauses:
1. authorized driver clause – aims to
indemnify the insured owner against
loss or damage to the car but limits
the use of the insured vehicle to the
insured himself or any person who
drives on his order or with his
permission
2. theft clause – clause which includes
theft as among the risks insured
against
3. cooperation clause – clause in an
automobile insurance policy which
provides in essence that the insured
shall give all such information and
assistance as the insurer may require,
usually requiring attendance at trials or
hearings
Compulsory Insurance Coverage
for Agency Hired Workers
- mandatory for agency-hired OFWs
- not mandatory for direct-hired,
name-hired, or re-hired OFWs
Suicide is covered = starts at the
enforcement of the insurance coverage
The usual 2-year contestability period
in insurance contracts is not applicable
for the Agency-Hired OFW Compulsory
Insurance
In no case should the OFW pay for the
said premium whether directly or as a
deduction from his/her salary
Variable contracts
- variable life insurance is a permanent
life insurance policy with an
investment component
- policy has a cash-value account,
which is invested in a number of sub-
accounts available in the policy
- sub-account acts similar to a mutual
fund, except it is only available within
a variable life insurance policy
- these contracts are riskier than the
typical contract because they depend
on the value of a separate account
that serves as the backing for the
contract
Insurance Interest (insurable
interest)
1. in life/death
2. in property
3. double insurance and over
insurance
4. multiple or several interest on same
property
In general
- he is so connected, so situated, so
circumstanced, so related, that by the
preservation of the property he shall
derive pecuniary benefit and by its
destruction he shall suffer pecuniary
loss, damage or prejudice
- policy issued to a person without the
requisite insurable interest in the
subject matter is a mere wager policy
or contact, hence it is void
In life/death:
a. of himself, of his spouse and of his
children
12
Insurance and Pre-need –
b. of any person on whom he depends
wholly or in part for education or
support or in whom he has a pecuniary
interest
c. of any person under a legal
obligation to him for the payment of
money, or respecting property or
services of which death or illness
might delay or prevent the
performance
d. of any person upon who life any
estate or interest vested in him
depends
When? exist only at the time of
perfection of the contract and need
not exist thereafter or when the loss
occurs
Amount: no limit except in a creditor-
debtor relationship where the creditor
insures the life of his debtor (equal to
the amount of the debt)
When the debt becomes legally
unenforceable = reason of being
barred by the statute of limitations or
a debtor’s discharge of insolvency
Reason: moral or equitable obligation
of a debtor to pay his debt is not
destroyed by the discharge which
affects only the legal obligation to pay
Consent of a person whose life is
insured is not essential to the validity
of the insurance taken by another as
long as the insured has a legal
insurable interest at the inception of
the policy, the insurance contract is
VALID
Insurable Interest in Life
Must exist only at the time the policy
takes effect and need not exist at the
time of loss
In property:
Whether real or personal, or any
relation thereto, or liability in respect
thereof, of such nature that a
contemplated peril might directly
damnify the insured, is an insurable
interest
a. existing interest – legal or equitable
title
b. inchoate interest founded on an
existing interest
c. expectancy, coupled with an existing
interest in that out of which the
expectancy arises
Philippine Associated Smelting and
Refining Corporation vs Pablito O. Lim
- stockholder’s right of inspection of
the corporation’s books and records is
based upon their ownership of the
assets and property of the corporation
- therefore, an incident of ownership
of the corporate property, whether this
ownership or interest be termed an
equitable ownership a beneficial
ownership or a quasi-ownership
When? insurance takes effect and
when the loss occurs, but need not
exist on the meantime
Amount: extent to which the insured
might be damnified by loss or injury
thereof
Reason: contract of property insurance
that gives the insured more than the
indemnity of his actual loss suffered by
reason of the designated perils is a
wagering policy contrary to public
policy, hence, VOID
Insurable Interest in Property
Must exist at time the policy takes effect
and when the loss occurs
13
Insurance and Pre-need –
Insurable interest unlimited except un Insurable interest limited to actual value
life insurance effected by creditor on life of interest in property insured
of debtor
The expectation of benefit to be derived An expectation of a benefit to be
from the continued existence of life derived from the continued existence of
need not have any legal basis whatever. the property insured must have a legal
A reasonable probability is sufficient basis
without more
The beneficiary need not have an The beneficiary must have insurable
insurable interest over the life of the interest over the thing insured
insured if the insured himself secured
the policy. However, if the life insurance
was obtained by the beneficiary, the
latter must have an insurable interest
over the life of the insured

Insurable Interest in case of 4. interest insured is also the same

mortgaged property
Mortgagor – as the owner, has an
insurable interest to the extent of its
value, even though the mortgage debt
equals such value
Reason: loss or destruction of the
property insured will not extinguish the
mortgage debt
5. risk or peril insured against is
likewise the same
Over-insurance – results when the
insured insures the same property for
an amount greater than the value of
the property with the same insurance
company

Mortgagee – hi interest is only up to Effect in case of loss:

the extent of the debt. Such interest 1. insurer is bound only to pay to the
continues until the mortgage debt is extent of the real value of the property
extinguished lost
2. insured is entitled to recover the
Reason: property relied on as amount of premium corresponding to
mortgaged is only a security. In the excess in value of the property
insuring the property, he is not
insuring the property itself but only his
interest or lien thereon Over-insurance Double insurance
One insurer is Two or more
Double insurance – exists where the sufficient insurers
same person is insured by several Insurance taken Total amount of
insurers separately in respect to the must be more policies taken
same subject and interest than the amount need not exceed
of insurable the amount of
Requisites: interest the insurable
1. person insured is the same interest
2. two or more insurers insuring
separately
3. subject matter is the same
14
Insurance and Pre-need –
Where double insurance is allowed,
but over insurance results:
1. claim payment from the insurers in
such order as he may select, up to the
amount for which the insurers are
severally liable under their respective
contracts
2. where the policy under which the
insured claims is a valued policy, the
insured must give credit as against the
valuation for any sum received by him
under any other policy without regard
to the actual value of the subject
matter insured
Principle of contribution or contribution
clause – required that each insurer
contribute ratably to the loss or
damage considering insurances to
cover the same subject matter and
interest against the same peril
FORMULA:
Liability of Insurer = amount of
policy/total insurance loss X loss
You get insurance to protect you not
from the event but from the effects of
the event
Additional or other insurance clause –
stipulation against double insurance
A condition in the policy requiring the
insured to inform the insurer of any
other insurance coverage of the
property insured is lawful and
specifically allowed
Purpose:
a. prevent an increase in the moral
hazard
b. prevent over insurance and fraud
To constitute a violation of the clause,
there must have been double
insurance
Multiple or several interests on same
property
Gaisano Cagayan Inc vs Insurance
Company of North America – anyone
has an insurable interest in property
who derives a benefit from its
existence or would suffer loss from its
destruction
Perfection of insurance contract –
moment there is meeting of the minds
with respect to the object and the
cause or consideration
Mere submission of the application
without the corresponding approval of
the policy does not result in the
perfection of the contract of insurance
We follow the Cognition Theory
Enriquez vs Sun Life Assurance Co. of
Canada – acceptance made by letter
shall not bind the person making the
offer except from the time it came to
his knowledge
Offer and acceptance/consensuality
a. delay in acceptance
- not perfected in case there is only an
offer to enter into an insurance
contract in the form of an insurance
application
- mere delay by the insurer, although
unreasonable, in acting upon the
application raises no implication of
acceptance
- implied acceptance of an offer can be
established only if there are other
circumstances that will indicate such
acceptance other than inaction or
delay
b. delivery of policy
- evidence of the making of the
contract and of its terms and as
communication of the insurer’s
acceptance of the insured’s offer
15
Insurance and Pre-need –
- delivery may affect the term of the
coverage
- contract may be completed prior to
the delivery of the policy depending on
the intention of the parties, which may
be shown by their acts or words
Premium payments
Concept: consideration paid to an
insurer for undertaking to indemnify
the insured against a specified peril
The basis of the right of the insurer to
collect premiums is the assumption of
risk
When entitled? As soon as the thing
insured is exposed to the peril insured
against
Cash and Carry Rule
GR: no policy or contract of insurance
issued by an insurance company is
valid and binding unless and until the
premium thereof has been paid
EX:
a. in the case of a life or industrial life
policy whenever the grace period
provision applies
2. when the insurer makes a written
acknowledgement of the receipt
premium
3. when the parties have agreed to the
payment of the premium in
installments and partial payment has
been made at the time of the loss
4. when a credit term has been agreed
upon
5. where the parties are barred by
estoppel
Any agreement to the contrary is void
Effect of acknowledgement or receipt
of premium in policy: conclusive
evidence of its payment, so far as to
make the policy binding,
notwithstanding any stipulation therein
that it shall not be binding until the
premium is actually paid
Reason: when the policy contains such
written acknowledgment, it is
presumed that the insurer has waived
the condition of the payment
The conclusive presumption extends
only to the question on the binding
effect of the policy
As far as the payment of the premium
itself is concerned the
acknowledgment is only prima facie
evidence of the fact of such payment
Premium payment for government
employees - payment of insurance
premiums and loan obligations allowed
through salary deduction
Non-default options in life insurance –
within the grace period of 90 days
Reinstatement of lapsed policy of life
insurance – anytime within 3 years
from the date of default
Refund of premiums – yes if it is
provided in the policy
a. whole
1. thing was never exposed to the
risks insured against
2. contract is voidable due to the fraud
or misrepresentation of insurer or his
agents
3. contract is voidable because of the
existence of facts of which the insured
was ignorant without his fault
4. when by any default of the insured
other than actual fraud, the insurer
never incurred liability
5. rescission is granted due to the
insurer’s breach of contract
16
Insurance and Pre-need –
b. pro-rata
1. when the insurance is for a definite
period and the insured surrenders his
policy before the termination thereof
Exceptions:
- policy not made for a definite period
of time
- short period rate is agreed upon
- life insurance policy
2. there is over-insurance
3. in case of over insurance by double
insurance, the insurer is not liable for
the total amount of the insurance
taken, his liability being limited on the
property insured
4. in case of over insurance by several
insurers, the insured is entitled to a
ratable return of the premium,
proportioned to the amount by which
the aggregate sum insured in all
policies exceeds the insurable value of
the thing insured
Rescission of insurance contracts
1. concealment
2. misrepresentation/omissions
3. breach of warranties
The right to rescind is waived by the
acceptance of premium payments
despite the knowledge of the ground
for rescission
Limitations:
1. non-life policy – such right must be
exercised prior to the commencement
of an action on the contract
2. life insurance – such right must be
availed of during the first 2 years from
the date of issue of policy or its last
reinstatement
Incontestability clause
- clause in life insurance policy that
stipulates that the policy shall become
incontestable after a stated period
- creates a kind of contractual statute
of limitations on certain defenses that
may be raised by the insurer
Requisites:
1. life insurance policy
2. payable on the death of the insured
3. has been in force during the lifetime
of the insured for at least 2 years from
its date of issue or of its last
reinstatement
2 year period may be shortened but it
cannot be extended by stipulation
Effect when policy becomes
incontestable:
a. barred defenses of the insurer:
- policy is void ab initio
- rescissible by reason of the
fraudulent concealment or
misrepresentation of the insured or his
agent
b. defenses not barred:
- person taking the insurance lacked
insurable interest as required by law
- cause of the death of the insured is
an excepted risk
- premiums have not been paid
- conditions of the policy relating to
military or naval service have been
violated
- fraud is of a particularly vicious type
- beneficiary failed to furnish proof of
death or to comply with any condition
imposed by the policy after the loss
has happened
- action was not brought within the
time specified
Manila Bankers Life Insurance Corp vs
Aban
- business of insurance is a highly
regulated commercial activity in the
country and is imbued with public
interest
- insurance contract is a contract of
adhesion that must be construed
liberally in favor of the insured and
17
Insurance and Pre-need –
strictly against the insurer in order to
safeguard the public’s interest
Concealment
- neglect to communicate that which a
party knows and ought to
communicate
Requisites:
1. a party knows of a fact which he
neglects to communicate or disclose to
the other
2. such party is duty bound to disclose
such fact to the other
3. such party concealing makes no
warranty as to the fact concealed
4. other party has not the means of
ascertaining the fact concealed
Test of materiality
Determined not by the event, but
solely by the probable and reasonable
influence of the facts upon the party to
whom the communication is due, in
forming his estimate of the
disadvantage of the proposed contract,
or in making his inquiries
Exceptions:
1. incontestability clause
2. matters under Sec 110 (marine
insurance)
The waiver of medical examination in a
non-medical insurance contract
renders even more material the
information required of the applicant
concerning the previous conditions of
health and diseases suffered
The right to information of material
facts may be waived, either by the
terms of the insurance or by neglect to
make inquiries as to such facts where
they are distinctly implied in other
facts of which information is
communicated
Where matters of opinion or judgment
are called for matter made in good
faith and without intent to deceive will
not avoid the policy even though they
are untrue
Matters that must be communicated
even if the absence of inquiry:
1. material to the contract
2. which the other has no means of
ascertaining the said facts
3. as to which the party with duty to
communicate makes no warranty
No duty to make a disclosure on the
following instances:
1. which the other knows
2. which, in the exercise of ordinary
care, the other ought to know, and of
which the former has no reason to
suppose him ignorant
3. which the other waives
communication
4. which prove or tend to prove the
existence of a risk excluded by a
warranty, and which are not otherwise
material
5. which relate to a risk excepted from
the policy and which are not otherwise
material
Representation/Omission
Representation – factual statements
made by the insured at the time of or
prior to, the issuance of the policy to
give information to the insurer and
induce him to enter into the insurance
contract
Requisites of false representation
(misrepresentation):
1. insured stated a fact which is untrue
2. such fact was stated with
knowledge that it is untrue and with
intent to deceive or which he states
positively as true without knowing it to
be true and which has a tendency to
mislead
18
Insurance and Pre-need –
3. such fact in either case is material
to the risk Basis: insurer took into consideration
the condition of the property at the
Misrepresentation by the insured = time of effectivity of the warranty
voidable at the option of the insurer
Warranty Representation
Kinds: Part of the Mere collateral
1. affirmative – affirmation of a fact contract inducement
when the contract begins Written on the May be written in
2. promissory – promise to be policy, actually or the policy or may
performed after policy was issued by reference be oral
Falsity or non- Falsity renders
A representation may be made at the compliance the policy void
time of, or before, issuance of the operates as a on the ground of
policy breach of fraud
contract
A representation as to the future is to Must be strictly Requires only
be deemed a promise, unless it complied with substantial truth
appears that it was merely a statement and compliance
of belief or expectation
Kinds:
Test of materiality = same as that in a. express – expressed in a policy
concealment b. implied – deemed included in the
contract though not expressly
Insular Life Assurance Co. vs Feliciano mentioned
– where the insured merely signed the c. affirmative – asserts the existence
application form and made the agent of the fact or condition at the time it is
of the insurer fill the same for him, it made
was held that by doing so, the insured d. promissory – insured stipulates that
made the agent of the insurer his own certain facts or conditions shall exist or
and he was responsible for his acts for thing shall be done or omitted
that purpose
Effects:
Breach of warranties a. violation of material warranty
Warranties – statement or promise by GR: rescind contract
the insured set forth in the policy or by EX:
reference incorporated therein, the - loss occurs before the time of
untruth or non-fulfillment of which in performance of the warrant
any respect and without reference to - performance becomes unlawful at
whether insurer was in fact prejudiced the place of the contract
by such untruth or non-fulfillment, - performance becomes impossible
renders the policy voidable by the
insurer b. violation of immaterial provision
GR: not avoid the policy
Purpose: eliminate potentially EX: policy expressly provides or
increasing hazards which may either declares that a violation thereof will
be due to the acts of the insured or to avoid it
charge to the condition of the property
19
Insurance and Pre-need –
Claims settlement and
subrogation
Notice and proof of loss
a. in case of loss upon an insurance
against fire = an insurer is exonerated,
if written notice thereof be not given
to him by an insured, or some person
entitled to the benefit of the insurance,
without unnecessary delay
b;. other non-life insurance =
commissioner may specify the period
for the submission of the notice of loss
Preliminary proof of loss
When a preliminary proof of loss is
required by a policy, the insured is not
bound to give such proof as would be
necessary in a court of justice; but it is
sufficient for him to give the best
evidence which he has in his power at
the time
Unfair claims settlement;
sanctions
Sanction: ground for revocation of
license of insurance companies
Practices:
1. knowingly misrepresenting to
claimants pertinent facts or policy
provisions relating to coverage at issue
2. failing to acknowledge with
reasonable promptness pertinent
communications with respect to claims
arising under its policies
3. failing to adopt and implement
reasonable standards for prompt
investigation of claims arising under its
policies
4. not attempting in good faith to
effectuate prompt, fair and equitable
settlement of claims submitted in
which liability has become reasonably
clear
5. compelling policyholders to institute
suits to recover amounts due under its
policies by offering without justifiable
reason substantially less than the
amounts ultimately recovered in suits
brought by them
Prescription of action:
1. written contract = 10 years
2. parties may validly agree on a
shorter period provided it is not less
than 1 year from the time the cause of
action accrues
3. cause of action accrues from the
rejection of the claim of the insured
and not from the time of the loss
Commencement: from the initial denial
of the claim, not from the resolution of
the motion for reconsideration filed by
the insured
4. CMVLI = written notice of claim
must be filed within 6 months from the
date of the accident
5. suit for damages = within 1 year
from the date of the denial of the
claim by the insurer
Subrogation – process of legal
substitution where the insurer steps
into the shoes of the insured and he
avails of the latter’s rights against the
wrongdoer at the time of the loss
Purpose:
1. make the person who caused the
loss responsible for it
2. prevent the insured from receiving
double recovery from the wrongdoer
and the insurer
- method of implementing the principle
of indemnity
3. prevent tortfeasors from being free
from liability and is thus founded on
public policy
Rules:
1. applicable only to property
insurance
20
Insurance and Pre-need –
2. insurer can only recover from the
third person what the insured could
have recovered
Business of Insurance
Every entity receiving any such
certificate of authority shall be subject
to the insurance and other applicable
laws of the Philippines and to the
jurisdiction and supervision of the
Commissioner
No person shall concurrently be a
Director and/or Officer of an insurance
company and an adjustment company
= conflict of interest
Validity = renewable every 3 years
(last day of December)
Pre-need
It is a policy of the State to regulate
the establishment of pre-need
companies and to place their operation
on sound, efficient and stable basis to
derive the optimum advantage from
them in the mobilization of savings
and to prevent and mitigate, as far as
practicable, practices prejudicial to
public interest and the protection of
planholders
Pre-need plans – contract,
agreements, deeds or plans for the
benefit of the planholders which
provide for the performance of future
service/s, payment of monetary
considerations or delivery of other
benefits at the time of actual need or
agreed maturity date
Pre-need company – any corporation
registered with the Commission and
authorized/licensed to sell or offer to
sell pre-need plans
No sales counselor shall be allowed to
solicit, sell or offer to sell pre-need
plans under this Code without being
licensed as such by the Commission
Grounds for
denial/suspension/revocation of
license:
1. materially misrepresented
statements in the application
requirements
2. obtained or attempted to obtain a
license by fraud or misrepresentation
3. materially misrepresented the terms
and conditions of pre-need plan which
he sold or offered to sell
4. solicited, sold or attempted to solicit
or sell a pre-need plan by means of
false or misleading representation and
other fraudulent means
5. terminated for cause from another
pre-need company
6. similar grounds
7. willfully allowing the use of one’s
license by a non-licensed or barred
individual
8. analogous circumstances
Reinstatement of policy = 60 days
within which to pay accrued
installments, counted from the due
date of the first unpaid installment