provide for the performance of FUTURE SERVICES,

PAYMENT OF MONETRAY CONSIDERATIONS or

INSURANCE DELIVERY OF OTHER BENEFITS at the time of ACTUAL
NEED or AGREED MATURITY DATE, as specified
I. GENERAL CONCEPTS therein, IN EXCHANGE FOR CASH OR INSTALLMENT
AMOUNTS with or without interest or insurance
CONTRACT OF INSURANCE coverage and includes LIFE, PENSION, EDUCATION,
(Sec.2(1), Insurance Code) INTERMENT and other plans, instruments, contracts
-it is an agreement whereby ONE UNDERTAKES or deeds as may be determined by Insurance Code.
for a consideration to INDEMNIFY another against
LOSS, DAMAGE or LIABILITY arising from an
UNKNOWN or CONTINGENT EVENT. VARIABLE CONTRACT
- any policy or contract on either a GROUP or an
INDIVIDUAL BASIS issued by an insurance company
TEST providing for BENEFITS or other CONTRACTUAL
-determine its PAYMENTS or values.
>PURPOSE
>EFFECT
>CONTENTS “DOING AN INSURANCE BUSINESS”
>IMPORT -Sec. 2(2) of the Insurance Code
(NOT NECESSARILY BY THE TERMINOLOGY USED) (a) making or proposing to make, as insurer, any
insurance contract;
NOTES: *A contract may be considered an (b) making or proposing to make, as surety, any
insurance even if it is referred to a HEALTH PLAN contract of suretyship as a vocation and not as
(Philamcare v. CA) merely incidental to any other legitimate business or
activity of the surety;
*A health plan is NOT ONE OF THE (c) doing any kind of business, including a
PRE-NEED PLANS expressly recognized reinsurance business, specifically recognized as
under the Pre-Need Code and its IRR. constituting the doing of an insurance business
within the meaning of this Code;
*A Pre-Need company may be (d) doing or proposing to do any business in
authorized to issue plans if it is any or all of substance equivalent to any of the foregoing in a
the ff. Types of plan: manner designed to evade the provisions of this
-EDUCATIONAL PLAN Code.
-PENSION PLAN In the application of the provisions of this Code
-LIFE/MEMORIAL PLAN the fact that NO PROFIT IS DERIVED FROM the
making of insurance contracts, agreements or
transactions or that NO SEPARATE OR DIRECT
CONTRACT OF SURETYSHIP CONSIDERATION IS RECEIVED THEREFORE, shall not
(Sec.2(1), Insurance Code) be deemed conclusive to show that the making
-it shall be deemed to be an insurance contract thereof does not constitute the doing or transacting
within the meaning of the Insuracnce Code WHEN of an insurance business.
MADE BY A SURETY WHO OR WHICH IS DOING AN
INSURANCE BUSINESS.
-it is an agreement whereby one binds himself BANCASSURANCE
SOLIDARILY with the pricipal debtor. -the PRESENTATION and SALE to BANK
CUSTOMERS by an insurance company of its
insurance producsts w/in the the premises of the
PRE-NEED PLANS head office of such banks duly licensed by the BSP or
- these are CONTRACTS, AGREEMENTS, DEED OR any of its branches by some rules an regulations
PLANS for the BENEFIT OF PLANHOLDERS which

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 1

 which the commisioner and the BSP
promulgate.
MUTUAL INSURANCE COMPANIES
-entities that are “doing an insurance business”
-a company OWNED BY POLICYHOLDERS
-designed to PROMOTE THE WELFARE OF ITS
MEMBERS and the money collected from among
them is solely for their own protection.
-the member is BOTH the INSURED and the
INSURED.
-it has NO CAPITAL STOCK.
-the PREMIUMS or contributions of the
members are the ONLY SOURCES OF FUNDS TO
MEET LOSSES AND EXPENSES.
APPLICABLE LAWS
- Insurance Code
-Civil Code
-Corporation Code
RIGHT OF SUBROGATION
(Article 2207, New Civil Code)
-If the plaintiff's PROPERTY has been INSURED,
and HE HAS RECEIVED INDEMNITY FROM THE
INSURANCE COMPANY for the INJURY OR LOSS
arising out of the WRONG OR BREACH OF CONTRACT
COMPLAINED OF, the insurance company shall be
SUBROGATED TO THE RIGHTS OF THE INSURED
against the WRONGDOER or the person who has
violated the contract. IF the AMOUNDT PAID by the
insurance company DOES NOT FULLY COVER THE
INJURY OR LOSS, the aggrieved party shall be
entitled to RECOVER the deficiency FROM THE
PERSON CAUSING THE LOSS OR INJURY.
ELEMENTS
1. The insured has an INSURABLE INTEREST
2. The insured is SUBJECT TO A RISK OF LOSS by
the happening of the DESIGNATED PERIL
3. The insurer ASSUMES THE RISK
4. Such assumption of risk is part of the
GENERAL SCHEME TO DISTRIBUTE ACTUAL LOSSES
AMONG A LARGE GROUP OF PERSONS BEARING A
SIMILAR RISK; and
5. In consideration of the insurer’s promise, the
INSURED PAYS A PREMIUM
may
RISK - uncertainty is a feature of insurance
business because it requires the presence of an
unknown or contingent event. THE LOSS MAY OR
MAY NOT HAPPEN.
*in the case of LIFE INSURANCE, the
uncertaity is with respect to the time death will
occur.
REQUIREMENTS OF INSURABLE RISK:
1. There must be a large number of
homogeneous exposure units.
2. The loss must be accidental and
unintentional.
3. The loss must be determinable and
measurable
4. The loss should not be catastrophic.
5. The chance of loss must be calculable.
6. The premium must be economically
feasible.
DISTINCTIONS:
PURE RISK SPECULATIVE RISK
-A situation where -results in either
the possibility is loss or gain. (ex:
either the person gambling).
involved will suffer a
loss or not.
-results in either loss
or no loss.
PERIL
-uncertainty that the -specific CAUSE of
property or person loss
insured will be lost
or damaged by
reason of the
designated or some
other peril.
PAST EVENT - It is peculiar to Marine
Insurance. For example, in a arine insurance
policy. At the time the policy was taken, the
parties are not aware is the ship is already lost.
THE INSURER WILL PAY EVEN IF THE SHIP TURNS
OUT TO BE ALREADY LOST AT THE TIME THE
POLICY WAS TAKEN.
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 2
 DISTINCTIONS:
FORTUITOUS
RISK
EVENT
-not the equivalent
of condition under
the NCC.
RISK HAZARD
-Circumstances or conditions that
create or increase the risk of loss.
-Hazards may either be:
1. PHYSICAL- refers to the physical
condition of the thing or the
person that increases the chance
of loss.
2. MORAL- involves dishonesty or
character defects in the individual
that increase the chance of loss.
3. MORALE- includes carelessness
or indifference to a loss because of
the existence of the insurance.
LOSS
-end result of the risk insured
against.
-involves diminution of value or
disappearance of value resulting
from a risk.
ASSUMPTION OF RISK - the insurer
promises to pay the insured if the risk insured
against occurred.
Note: The promise of the insurer MAY
INVOLVE THE PROMISE TO DELIVER THE
EQUIVALENT OF THE PROPERTY THAT WAS
LOST.
OPTION TO REBUILD CLAUSE - it is
allowed under Section 174 of the Insurance
Code. (Example: Fire Insurance Policy-
where the beneficiary is not automatically
entitled to cash but there is an option to
rebuild clause under which the parties
stipulate the repairing, rebuilding or
replacing of buildings or structures wholly
or partially damaged or destroyed.)
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 3
NATURE AND PURPOSE
-a plan for dealing with the risk of economic loss.
The insured sacrifices a present monetary loss in the
form of premium payment in order to avoid a
greater loss in the future.
HOW PEOPLE DEAL WITH RISK
a. Risk avoidance
b. Risk retention
c. Risk transfer
d. Loss control
e. Insurance
HOW INSURANCE DEALS WITH RISK
A. RISK DISTRIBUTING DEVICE- the risk of loss is
not actually transferred to the insurer but a number
of people constituting the clients of the insurer
contribute to a common fund by paying premiums.
B. LAW OF LARGE NUMBERS- the greater the
number of exposures, the more closely will the
actual results approach the probable results that are
expected from an infinite number of exposures.
CHARACTERISTICS
A. ALEATORY
-Article 2010, NCC
-It is in the sense that, what the
insured will pay in pesos is not equal to
what he will receive in case of loss.
B.UNILATERAL
-upon payment of the premium, there
is only one party who has the obligation,
that is, the insurer’s obligation to pay the
proceeds of the insurance in case of loss.
C. PERSONAL
-because the contract is entered into
with due consideration to the
circumstances of the parties.
D. CONSENSUAL
 -perfected by mere consent without
the need of delivery or any formality.
EFFECT OF NON-ACCEPTANCE
E. UBBERIMAE FIDAE -NO CONTRACT
-It is one of perfect good faith. Parties -Prof. Vance: A mere delay by the
must avoid material concealment or insurer, although unreasonable, in acting
misrepresentations. upon the application raises no implication
of acceptance nor does it estop the insurer
F. EXECUTORY AND CONDITIONAL to deny the existence of the contract.
-ACCEPTANCE OF AN OFFER CAN BE
IMPLIED. However, Implied Acceptance can
SOCIAL VALUE be established only if there are other
-far outweighs its social costs. circumstances that will indicate such
acceptance other than inaction or delay.

GENERAL BENEFITS OF INSURANCE

1. It gives peace of mind KINDS OF INSURANCE
2. It keeps families and businesses together 1. PRIVATE INSURANCE
3. It increases marginal utility if assets* 2. GOVERNMENT INSURANCE
4. It facilitates credit transactions
5. It stimulates savings Note: Government Insurance includes
6. It provides investment capital the insurance coverage provided by the SSS
7. It provides incentive to business and to employees of the private sector and the
individuals insurance coverage under the GSIS which
8. It helps in loss prevention. extends to the employees in the
government service. Thse are called
“SOCIAL INSURANCE” Contracts.
PERFECTION
-(Article, 1319, NCC) CLASSIFICATION ACCORDING TO OBJECT:
Consent is manifested by the meeting of the -PRIVATE INSURANCE can either be:
offer and the acceptance upon the thing and the 1. Life or Health Insurance
cause which are to constitute the contract. The offer 2. Property Insurance
must be certain and the acceptance absolute. A 3. Liability Insurance
qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not SPECIAL TYPES OF INSURANCE
bind the offerer except from the time it came to his 1. Marine Insurance
knowledge. The contract, in such a case, is presumed 2. Casualty Insurance
to have been entered into in the place where the 3. Fire Insurance
offer was made. 4. Life Insurance
5. Compulsory Third Party Liability
-Cognition Theory Insurance
-INSURED MAKES THE OFFER by submitting the 6. Microinsurance
application to the insurer or its authorized agent.
-It may be that the INSURER OFFERS a contract LIFE INSURANCE
which is accepted by the insured with or without -may be made:
writing; or the agent to whom the application for 1. According to the period when it
insurance is made may have authority to accept the is force
offer without reference, and this ACCEPTANCE may 2. According to its object
be WRITTEN or ORAL. 3. According to its special
-COURTS CANNOT IMPOSE A CONTRACT IN THE charactersistics.
ABSENCE OF A PERFECTED CONTRACT.

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 4

 -may be classified into:
1. TERM INSURANCE- life is
insured on a temporary basis or for a
limited period.
2. WHOLE LIFE INSURANCE- a
person is insured during his entire
lifetime.
3. ENDOWMENT POLICY- the
insured is paid a certain amount or the
face value of the policy if the insured
survives a certain period and the
beneficiary will get the proceeds if the
insured does not survive.
4. INDUSTRIAL LIFE- whic the
premiums are payable monthly or
oftener, IF the face amount is NOT
MORE THAN FIVE HUNDRED TIMES
OF THE CURRENT STATUTORY
MINIMUM DAILY WAGE IN THE CITY
OF MANILA, and IF THE WORDS
“INDUSTRIAL POLICY” ARE PRINTED
UPON THE POLICY AS PART OF THE
DESCRIPTIVE MATTER.
-this meant to prevent the insured from
profiting from insurance and to reduce moral hazard.
EXCEPTIONS:
1. Life Insurance- because the amount to
be paid by the insurer can never be equal to the
value of the life that is being insured.
2. Valued Policies- the insurer will pay thr
value fixed in the policy regardless of the actual
cash value in case of total loss.
MANIFESTATIONS:
1. Insurable interest is indispensable
2. The value of the interest destroyed or
damage is generally the measure of indemnity
(except in the cases above)
3. Co-insurance clause in marine insurance
4. Subrogation in property insurance.

PROPERTY INSURANCE
-includes:
1. FIRE INSURANCE and ALLIED
INSURANCE
2. MARINE INSURANCE
3. CASUALTY INSURANCE

MICROINSURANCE
-Section 187, Insurance Code
Microinsurance is a FINANCIAL
PRODUCT or SERVICE that meets the risk
protection needs of the poor where:
"(a) The AMOUNT of contributions,
premiums, 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
"(b) The maximum sum of guaranteed
benefits is NOT MORE THAN 1,000 times of
the current daily minimum wage rate for
non-agricultural workers in Metro Manila.

PRINCIPLE OF INDEMNITY
-this means that the insured should not collect
more than the actual cash value of the loss.

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 5

 II. THE PARTIES -”HIS OR HER CHILDREN”- does not
limit to an insurance taken on the common
childen of the spouses.
PARTIES EXCEPTION:
1. INSURER A. If the property regime of
-the party who promises to pay in case loss the spouses is ABSOLUTE
results because the peril insured against occurred. COMMUNITY.
- Hence, the taking of
2. INSURED the insurance policy should
-the owner of the policy whose property or life be JOINTLY made by the
is insured or who took out the insurance over the life spouses.
of persons in whom he has insurable interest. -IN CASE OF
DISAGREEMENT, it is the
3. BENEFICIARY (third person) husband that will
-the person in whose favor the insurance was prevail.
taken by the insured and who will receive the
proceeds of the insurance in case of loss. Note: If a spouse takes an
-in strict legal sense, the beneficiary is not a insurance policy on his own life and a
party to the contract unless he is the insured himself. 3rd perso who is TOTALLY UNRELATED
to them, is a made a beneficiary, then
it is believed that the taking of the
INSURED insurance and payment of the
-the person who applied for and to whom an premium is in the nature of a
insurance policy is issued to cover his life, property DONATION, that SHOULD BE
or the life or property of other person/s in whose life APPROVED by BOTH SPOUSES
or property he has insurable interest or liability to pursuant to Section 98 of the Family
other persons. Code.

ASSURED AND THE OWNER

-in LIFE INSURANCE, if a person insures the
LIFE OF ANOTHER, the person whose life is
insured is called the INSURED while the person
who took out an insurance is called the
ASSURED.
CAPACITY
-an insurance contract is VOIDABLE if the
INSURED is a minor, insane, or otherwise
incapacitated.
SPOUSES
-MARRIED WOMEN CAN enter into
insurance contract WITHOUT THE CONSENT
of their husbands (vice versa).
-Section 3(par. 2), Insurance Code:
The consent of the spouse is not
necessary for the validity of an insurance
policy taken out by a married person on his
or her life or that of HIS OR HER CHILDREN.
EFFECT OF DEATH OF OWNER
-Section 3(last par.), Insurance Code
All rights, title and interest in the policy of
insurance taken out by an original owner on the
life or health of the person insured shall
automatically vest in the latter upon the death
of the original owner, unless otherwise provided
for in the policy.
-EXAMPLE: When the parents who
insure the life of their minor child, will die,
all the rights, title and interest in the policy
shall be automatically vested in the minor.
PUBLIC ENEMY
-Section 7, Insurance Code
Anyone except a public enemy may be
insured.
EFFECT OF WAR
-if there is no war yet at the time
of the taking of the policy but war

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 6

 ensues between the Philippines and
the COUNTRY OF THE INSURED, the
insurance policy is deemed
ABROGATED.
Filipinas Compania v. Christern
-the purpose of war is to cripple
the power and exhaust the resources
of the enemy, and it is inconsistent
that one country should destroy its
enemy’s property and repay in
insurance the value of what has been
so destroyed, or that it should in such
manner increase the resources of the
enemy, or render it aid, and the
commencement of war determines,
for like reasons, all trading intercourse
with the enemy, which prior thereto
may have been lawful.
INSURER
-Section 6, Insurance Code
Every corporation, partnership, or association,
duly authorized to transact insurance business as
elsewhere provided in this Code, may be an insurer.
-Insurer or Insurance company shall include all
partnerships, associations, cooperatives, or
corporations, including GOCCs or entities, engaged
as principals in the insurance business, EXCEPTING
MUTUAL BENEFIT ASSOCIATIONS.
PROFESSIONAL REINSURER
-Section 288, Insurance Code
DOMESTIC AND FOREIGN COMPANY
-Domestic company shall include
companies formed, organized or existing under
the laws of the Philippines.
-Foreign company shall include companies
formed, organized or existing under any laws
other than those of the Philippines.
MUTUAL BENEFIT ASSOCIATIONS
-Section 403, Insurance Code
“Any society, association or corporation,
WITHOUT CAPITAL STOCK, formed or organized
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 7
not for profit but mainly FOR THE PRUPOSE OF
PAYING SICK BENEFITS TO MEMBERS, or of
FURNISHING FINANCIAL SUPPORT TO MEMBERS
WHILE OUT OF EMPLOYMENT, or of paying to
relatives of deceased members of fixed or any
sum of money, irrespective of whether such aim
or purpose is carried out by means of fixed dues
or assessments collected regularly from the
members, or of providing, by the issuance of
certificates of insurance, payment of its
members of accident or life insurance benefits
out of such fixed and regular dues or
assessments, but in no case shall include any
society, association, or corporation with such
mutual benefit features and which shall be
carried out purely from voluntary contributions
collected not regularly and/or no fixed amount
from whomsoever may contribute”.
MUTUAL INSURANCE COMPANIES
-Section 268, Insurance Code
Any domestic stock life insurance company
doing business in the Philippines may convert
itself into an incorporated mutual life insurer.
To that end it may provide and carry out a plan
for the acquisition of the outstanding shares of
its capital stock for the benefit of its
policyholders, or any class or classes of its
policyholders, by complying with the
requirements of this chapter.
CERTIFICATE OF AUTHORITY
-it is required for the insurance company to
transact any insurance business in the Philippines.
-required because contracts of insurance involve
public interest and regulation thereof by the State is
necessary.
BASIC QUALIFICATIONS:
-Section 192, Insurance Code
No corporation, partnership, or association
of persons shall transact any insurance
business in the Philippines except as agent
of a corporation, partnership or association
authorized to do the business of insurance
in the Philippines, UNLESS
1. possessed of the capital and assets
required of an insurance corporation doing
 the same kind of business in the Philippines
and invested in the same manner;
2. the Commissioner shall have granted it a
certificate to the effect that it has complied
with all the provisions of this Code.
TERM OF THE CERTIFICATE
-Section 193, Insurance Code
The certificate of authority issued by the
Commissioner shall *expire on the last day of
December, *three (3) years following its date of
issuance, and *shall be renewable every three
(3) years thereafter,
subject to the company’s continuing
compliance with the provisions of this Code,
circulars, instructions, rulings or decisions of the
Commission.
GROUNDS FOR DISAPPROVAL OF APPLICATION
-Section 193, Insurance Code
PROHIBITED ACTS OF THE INSURER
a. To transact in the PH both the business
of life and non-life insurance unless specifically
authorized to do so.
b. To have equity in an adjustment
company
c. To negotiate any contract of insurance
other than is plainly expressed in the policy
d. To directly or indirectly, pay or allow or
offer to pay or allow to the insured or to any
employee of such insured, either as an
inducement to the making of such insurance or
after such insurance has been effected, any
rebate from the premium or any special favor or
advantage in the dividends or other benefits to
accrue thereon.
e. To give or offer to give any valuable
consideration or inducement of any kind,
directly or indirectly, which is not specified
f. To make any discrimination
g. To issue or circulate or cause or permit
to be issued or circulated….misrepresenting the
terms of policy
h. Misrepresentation of the true nature of
the policy
i. To make any misleading
misrepresentation for the purpose of
inducement.
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 8
BENEFICIARY
-the beneficiary MAY BE A THIRD PERSON.
-UNLESS, he is the insured himself, the
beneficiary is not one of the contracting parties.
WHEN A BENEFICIARY IS DESIGNATED
-if designation is NOT INVALID, it is the
designated beneficiary who is entitled to receive the
proceed and NOT THE HEIRS OF THE INSURED.
Note: NO OTHER PARTY can recover the
proceeds other than the beneficiary.
THIRD PARTIES
-The insurer has NO OBLIGATION to turn over
the proceeds of the insurance to third persons even
if the third persons are immediate relatives IF THERE
IS A DESIGNATED BENEFICIARY.
WHEN THERE IS NO BENEFICIARY
-(when there is no beneficiary or when the
designation is VOID), the LAWS OF SUCCESSION are
applicable.
EFFECT OF USE OF CONJUGAL FUNDS
-if conjugal funds are used to pay for the
premium, the proceeds of the policy constitute
COMMUNITY PROPERTY if made payable to the
deceased’s estate. (One half of the proceeds belong
to the estate and the other half to the surviving
spouse).
VESTED INTEREST OF BENEFICIARY
-should be measured on its FULL FACE VALUE
and not on its cash surrender value.
REVOCABILITY
-Section 11, Insurance Code
-GENERAL RULE: the designation of the
beneficiary is REVOCABLE
-EXCEPTION: unless EXPRESSLY PROVIDED
 -EXCEPTION TO THE EXCEPTION: If the insured
does not change the beneficiary during his lifetime,
the designation shall be DEEMED IRREVOCABLE
-EXCEPTION TO THE EXCEPTION OF THE
EXCEPTION: Article 64, of the Family Code provides
that after the finality of the DECREE OF LEGAL
SEPARATION, the INNOCENT SPOUSE may revoke the
designation even if such is stipulated to be
irrevocable.
FORFEITURE OF RIGHTS OF BENEFICIARY
-Section 12, Insurance Code
The interest of a beneficiary in a life insurance
policy shall be forfeited when the beneficiary is the
PRINCIPAL, ACCOMPLICE, OR ACCESSORY in willfully
bringing about the death of the insured. In such a
case,
1. the share forfeited shall pass on to the OTHER
BENEFICIARIES, unless otherwise disqualified.
2. In the absence of other beneficiaries, the
proceeds shall be paid in accordance with the POLICY
CONTRACT.
3. If the policy contract is silent, the proceeds
shall be paid to the STATE OF THE INSURED.
DISQUALIFICATION OF BENEFICIARY
-Article 2012, Article 739, New Civil Code
1. Those made between persons who were
guilty of adultery or concubinage at the time of the
adoption.
2. Those made between persons found guilty of
the same criminal offense, in consideration thereof;
3. Those made to a public officer or his wife,
descendants and ascendants, by reason of his office.
Notes:
-this provision would not certainly apply to
children borne out of wedlock. The illegitimate
children are not covered by the prohibition.
-CONVICTION IS NOT NECESSARY in order
for one to be disqualified due to adultery or
concubinage.
-while the concubine is disqualified, the
illegitimate children of the insured are not
disqualified.
TRUSTEE OR AGENT
-when an insurance contract is executed with an
agent or trustee as the insured, the fact that his
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 9
principal or beneficiary is the REAL PARTY IN
INTEREST may be indicated by describing the insured
as agent or trustee, or by other general words in the
policy.
PARTNER
-it is NECESSARY that the terms of the policy
should be such as are applicable to the joint or
common interest.
Note: If the policy is SECURED FOR THE
BENEFIT OF A PARTNERSHIP, a change in the
name of the partnership DOES NOT AVOID the
policy.
ASSIGNEE OF LIFE INSURANCE
-A life or health insurance policy CAN BE
TRANSFERRED even WITHOUT THE CONSENT of the
insurer.
-Section 184, Insurance Code
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 have recovered.
HOW TO TRANSFER
-No formalities are required.
-Under the NCC, DELIVERY OF THE PROOF
OR EVIDENCE OF THE RIGHT as one of the
modes of transferring ownership.
Note: While notice to the insurer is not
required, it is more advantageous to the
assignee to give notice to the insurer of such
transfer.
DOUBLE ASSIGNMENT
-ENGLISH RULE- the assignee WHO FIRST
GIVES NOTICE is the one entitled to the
proceeds if he has no notice of any prior
assignment.
-AMERICAN RULE- the assignee UNDER THE
FIRST ASSIGNMENT has the preferable claim.
 *The AMERICAN RULE applies in this
jurisdiction.
(principle: prius tempore portior jure - first
in time, stronger in right)
ASSIGNEE OF PROPERTY INSURANCE
-Section 58, Insurance Code
The mere transfer of a thing insured does not
transfer the policy, but suspends it until the same
person becomes the owner of both the policy and
the thing insured.
GENERAL RULE: The policy can be transferred so
long as the TRANSFEREE HAS INSURABLE INTEREST in
the thing insured. NEVERTHELESS, THE INSURER’S
ASSENT IS NECESSARY FOR THE TRANSFER.
EXCEPTIONS:(Insurer’s consent is not necessary)
1. Transfer through will or succession
2. Other instances of transfer by operation
of law
3. Transfer among partners
INSURANCE AGENT
-Section 309, Insurance Code
Any person who for compensation solicits or
obtains insurance on behalf of any insurance
company or transmits for a person other than
himself an application for a policy or contract of
insurance to or from such company or offers or
assumes to act in the negotiating of such insurance.
-shall thereby become liable to all the duties,
requirements, liabilities and penalties to which an
insurance agent is subject.
-REPRESENTS THE INSURER
-An insurance agent is an INDEPENDENT
CONTRACTOR and NOT AN EMPLOYEE of the
company represented.
GENERAL AGENT
-must be empowered by a written POWER
OF ATTORNEY duly executed by such insurance
company, and REGISTERED WITH THE
INSURANCE COMMISSIONER to receive notices,
summons and legal processes for and in behalf
of the insurance company concerned in
connection with actions or other legal
proceedings against said insurance company.
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 10
CLASSES OF AGENTS
1. SALARIED EMPLOYEES- those who keep
definite hours and work under the control and
supervision of the company.
(governing laws:
- the Contract of Employment
- the provisions of the Labor
Code.)
2. INDEPENDENT CONTRACTOR- who work
on a commission basis.
(governing laws:
-the Contract of Agency
-the provisions of the NCC on
Agency.)
COLLUSION BETWEEN THE INSURED AND
THE AGENT
-although the insurance agent
represents the insurer, the insured cannot
escape the effect of the falsity that the
agent committed with his complicity.
NOTE: The provisions in the policy that
specifies and limits the powers and duties of an
agent is binding on the insured.
INSURANCE BROKER
-Section 310, Insurance Code
Any person who for any compensation,
commission or other thing of value acts or aids in any
manner in soliciting, negotiating or procuring the
making of any insurance contract or in placing risk or
taking out insurance, on behalf of an insured other
than himself.
-shall thereby become liable to all the duties,
requirements, liabilities and penalties to which an
insurance broker is subject.
-ACTS FOR AND IN BEHALF OF THE INSURED
EFFECT OF RECEIPT OF PREMIUM
-the premium of or any portion thereof
collected from the insured which is to be paid to an
insurance company, shall be held by the agent or
broker in a FIDUCIARY CAPACITY and SHALL NOT BE
MISAPPROPRIATED OR CONVERTED TO HIS OWN
USE OR ILLEGALLY WITHHELD.

Note: agent or broker must be authorized
to collect to receive on its behalf payment of
any premium which is due on such policy or
contract.
NO JURISDICTION OVER INSURER-AGENT RELATIONSHIP
- The power of the Commissioner does not
cover the relationship between the insurance
company and its agents/brokers.
Note: The insurance agents/brokers are under
the regulatory powers of the Insurance
Commissioner. Hence, the latter CAN REVOKE their
license in proper cases as well as imposition of
administrative sanctions.
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 11
III. INSURABLE INTEREST
CONCEPT
-It may be stated, generally to be such an
interest arising from the relation of the party
obtaining insurance, either as creditor of or surety
for the assured, or from ties of blood or marriage to
him, as will justify a reasonable expectation of
advantage or benefit from the continuance of his
life.
Notes:
-In LIFE INSURANCE, Section 10 provides for
an exclusive list who may have insurable
interest in the life of another.
-In PROPERTY INSURANCE, the basic
concept of insurable interest is provided for in
Section 13.
-LACK OF INSURABLE INTEREST is a
DEFENSE for the benefit of society, not for the
benefit of any insurance company.
PURPOSES:
1. the presence of insurable interest reduces
moral hazard.
2. Insurable interest likewise helps in measuring
the loss of the insured.
NOTE:
-IF THE INSURED HAS NO INSURABLE INTEREST
OVER THE LIFE OR PROPERTY HE INSURES, the
insurance contract is considered UNENFORCEABLE.
-IF IT CAN BE ESTABLISHED THAT THE
CONTRACT IS REALLY A WAGER, THE SAME CAN BE
CONSIDERED VOID FOR BEING AGAINST PUBLIC
POLICY.
-Section 25, Insurance Code
Every stipulation in a policy of
insurance for the payment of loss whether
the person insured has or has not any
interest in the property insured, or that the
policy shall be received as proof of such
interest, and every policy executed by way
of gaming or wagering, is VOID.
INSURABLE INTEREST IN LIFE INSURANCE
-Section 10, Insurance Code
Every person has an insurable interest in the life
and health:
"(a) Of himself, of his spouse and of his children;
"(b) Of any person on whom he depends wholly
or in part for education or support, 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; and
"(d) Of any person upon whose life any estate or
interest vested in him depends.
CLASSES OF INSURABLE INTEREST IN LIFE INSURANCE
1. Insurable interest in the insured’s own life.
2. Insurable interest in the life of another
person.
a) RELATIONSHIP BY BLOOD
-LIMITED to insurable interest
over the life of a SPOUSE or of one’s
children.
*Blood relationship alone would
not suffice in other cases.
b) BUSINESS RELATIONSHIP
-(Section 10(b),Insurance Code)
-Education or Support
*the law does NOT REQUIRE hat
the person on whom he depends
wholy or in part for education or
support is LEGALLY OBLIGATED to do
so.
c) OTHER PECUNIARY INTEREST
-Accordingly, one has insurable
interest over the life of his partner or
his employee.
-In case of a partner, it is
reasonable to conclude that the
continuance of partnership and the life
of of a partner furnished a reasonable
expectation of advantage to the other
partners.
-The loss of the life of the
employee will result in economic loss
on the part of the employer because of
the deprivation of service.
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 12
CREDITOR
-Section 10( c), Insurance Code
-A creditor SHALL HAVE insurable interest over
the life of the debtor who msy hve obligated to
deliver money or peroperty or to provide some
service.
-HOWEVER, THE DEBTOR CANNOT INSURE THE
LIFE OF THE CREDITOR, because he will not be
damnified by the loss of the creditor’s life.
MORTGAGE REDEMPTION INSURANCE
-Debtors may be insured into GROUP LIFE
INSURANCE known as mortgage redemption
insurance.
-It is a device for the PROTECTION of both the
mortgagee and the mortgagor.
-On the part of the MORTGAGEE, it has to enter
into some form of contract so that in the event of
the unexpected demise of the mortgagor during the
subsistence of the mortgage contract, the proceeds
from such insurance will be applied to the payment
of the mortgage debt.
-Where the NORTGAGOR PAYS THE INSURANCE
PREMIUM under the policy, making the LOSS
PAYABLE TO THE MORTGAGEE, the insurance is on
the MORTGAGOR’S INTEREST AND THE MORTGAGOR
CONTINUES TO BE A PARTY to the contract.
-Such loss payable clause does not make a
mortgagee a party to the contract.
-the mortgagee is simply an APPOINTEE of
the insurance fund.
INSURABLE INTEREST IN PROPERTY INSURANCE
-Section 18, Insurance Code
No contract or policy of insurance on property
shall be enforceable except for the benefit of some
person having an insurable interest in the property
insured.
-See. Sections 13,14,16,17, Insurance Code
TEST
-Whether one will derive PECUNIARY BENEFIT
OR ADVANTAGE from its preservation, or will SUFFER
PECUNIARY LOSS OR DAMAGE from its destruction,
termination, injury by the happening of the event -Cases where insurable interest in property
insured against. exists: (Harvardian Colleges of San Fernando
Pampanga v. CBIC)

KINDS OF INSURABLE INTEREST 1. When the insured possesses a legal title

-Section 13, Insurance Code to the property insured, whether vested or
1. existing interest contingent, defeasible or undefeasible.
2. Inchoated interest founded on an existing 2. When he has equitable title of whatever
interest character and in whatever manner acquired.
3. Expectancy, coupled with n existing interest 3. When he possesses a qualified property
out of which the expectancy arises. or possessory right in the subject.
4. When he has mere possession or right of
possession
EXISTING INTEREST 5. When he has neither possession nor any
-includes the interest of an owner. other legal interest BUT stands in such relation
HOWEVER, TITLE OR OWNERSHIP IS NOT that he may suffer from its destruction, loss of a
ESSENTIAL. legal right dependent upon its continued
existence.
-Following persons have insurable interest
over the property EVEN if they are not the
owner thereof: INCHOATE INTEREST
1. Lessee -MUST BE FOUNDED ON AN EXISTING
2. Depositary INTEREST, otherwise, the loss of the property
3. Usufructuary will not directly damnify the insured.
4. Borrower in commodatum

-a possessor who is holding the property EXPECTANCY

without consideration WITH THE CONSENT of -MUST BE COUPLED WITH AN EXISTING
the owner has insurable interest in the property INTEREST.
that he is occupying.
DISTINCTIONS:
-In sale of goods, an UNPAID SELLER INSURABLE INTEREST IN INSURABLE INTEREST IN
RETAINS INSURABLE INTEREST over the goods PROPERTY LIFE
even if ownership had already been transferred AS TO THE EXTENT:
-Unlimited EXCEPT if
to the vendee upon delivery. -Limited up to the value of
secured by the creditor.
-reason: an unpaid seller has a the property.
vendor’s lien and therefore he will be TIME WHEN IT MUST EXIST:
damnified by the loss of the goods even if -at the time of the
-at the time of the
after delivery. perfection of the insurance
perfection of the contract
contract.
and at the time of the loss.
-the vendee or BUYER HAS INSURABLE NEED FOR LEGAL BASIS:
INTEREST over the goods even while the goods -Expectation of benefit -need not
are still in transit. must have legal basis.
-The PERFECTED CONTRACT OF SALE -if the insured took out the
even without the delivery vests the vendee policy on his own life and
an EQUITABLE TITLE, an existing interest BENEFICIARY’S INTEREST:
designated another, NOT
over the goods sufficient to be the subject -beneficiary must have
NECESSARY, UNLESS took
of insurance. insurable interest.
out an insurance on the life
*The contract of shipment whether, of another.
FOB,CIF,.. is IMMATERIAL.

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 13

INSURABLE INTEREST OF BAILEE -USUAL PRACTICE: The mortgagor takes out an
-Section 15, Insurance Code insurance for the benefit of the mortgagee.
A carrier or depository of any kind has an WAYS WHERE THE MORTGAGEE MAY BE MADE
insurable interest in a thing held by him as such, to THE BENEFICIAL PAYEE:
the extent of his liability but not to exceed the value 1. With the consent of the insurer
thereof. 2. A mere pledgee without such consent, or
the original policy may contain a mortgage
-Reason: the carrier may be damnified by the clause.
loss of the goods because he may be obligated to 3. A rider making the policy payable to the
pay the shipper any damage to the property. mortgagee “as his interest may appear” my be
Similarly, a depositary is obligated to take care of the attached
thing deposited, otherwise liable for the damage. 4. A “standard mortgage clause” may be
Thus both of them have insurable interest over the attached.
property. 5. The policy, through by its terms payable
absolutely to the mortgagor…..
6. The policy may provide for a loss payable
INSURABLE INTEREST OF THE MORTGAGOR AND THE clause in favor of the mortgagee.
MORTGAGEE
-The mortgagor is the owner of the mortgaged Note: A “loss payable clause” should be
property, hence, he has an existing interest that may distinguished from a “union mortgage clause” where
be the subject of the insurance. there is a transfer of an insurance from the
mortgagor to the mortgagee with the assent of
-Section 8, Insurance Code insurer.
Unless the policy otherwise provides, where a
mortgagor of property effects insurance in his own -Sec. 9, Insurance Code
name providing that the loss shall be payable to the If an insurer assents to the transfer of an
mortgagee, or assigns a policy of insurance to a insurance from a mortgagor to a mortgagee, and, at
mortgagee, the insurance is deemed to be upon the the time of his assent, imposes further obligations on
interest of the mortgagor, who does not cease to be the assignee, making a new contract with him, the
a party to the original contract, and any act of his, acts of the mortgagor cannot affect the rights of said
prior to the loss, which would otherwise avoid the assignee.
insurance, will have the same effect, although the
property is in the hands of the mortgagee, but any UNION MORTGAGE
LOSS PAYABLE CLAUSE
act which, under the contract of insurance, is to be CLAUSE
(Sec. 9)
performed by the mortgagor, may be performed by (Sec. 8)
the mortgagee therein named, with the same effect -the mortgagee is made -creates collateral
as if it had been performed by the mortgagor. merely a beneficiary under independent contracts
the contract, recognized as between the insurer and
-the mortgagor and the mortgagee have such by the insurer BUT the mortgagee
each an independent insurable interest and NOT made a party to the
both may be covered by one policy or each may contract itself. -provide that the rights of
take out a separate policy. the mortgagee shall not be
-the MORTGAGOR’S insurable interest -any default on the part of defeated by the acts or
covers the FULL VALUE OF THE MORTGAGED the mortgagor, whch by default of the mortgagor.
PROPERTY, even the mortgage debt is the terms of the policy
equivalent to the full value of the property. defeat his rights, will also -GENERAL RULE:
-the MORTGAGEE’S insurable interest is to defeat all the rights of the mortgagee’s rights remain
the EXTENT OF THE DEBT, not exceeding the mortgagee, even though unaffected by any default
value of the property mortgaged. the latter may not have or breach of condition by
been in any fault. the mortgagor to which a
mortgagee is not a party.

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 14

INSURABLE INTEREST OF MORTGAGEE
-RULE: a mortgagee may, independently of
the mortgagor, insure the mortgaged property in his
own name and for his own interest.
HOWEVER, the mortgagee is not
allowed to retain his claim against the
mortgagor, but it passes by subrogation to
the insurer, to the extent of the insurance
money paid.
WHEN MUST INSURABLE INTEREST EXIST
-Section 19, Insurance Code
An INTEREST IN PROPERTY INSURED must exist
when the insurance takes effect, and when the loss
occurs, but need not exist in the meantime; and
INTEREST IN THE LIFE AND HEALTH OF A PERSON
INSURED must exist when the insurance takes effect,
but need not exist thereafter or when the loss
occurs.
-In LIFE INSURANCE, all that is required is that
the insured has insurable interest over the life that is
insured at the time the insurance takes effect.
-EXAMPLE: A spouse can insure the life of
the other spouse. The spouse who took out the
insurance can still recover IF at the time of the
death of the spouse whose life was insured,
their marriage was already annulled.
-In PROPERTY INSURANCE, the insured can
recover even if he lost his insurable interest AFTER
THE PERFECTION OF THE INSURANCE CONTRACT so
long as he recovers the same before the loss occurs.
-EXAMPLE: A, owner of the car, insured
with X Company. After the issuance of the policy,
A sold and delivered the car to B. Later, A
re-acquired the car to B. It was after the
re-acquisition, the car was destroyed.
- A can still recover even if there is
a period between the time of the
taking of the insurance and the time of
the loss that A had no insurable
interest over the car.
-the insurance is SUSPENDED
when B became the owner and
possessor of the car by virtue of
SECTION 58 of the Insurance Code. The
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 15
insurance is automatically reinstated
when A re-acquires the property.
-Section 20, Insurance Code
Except in the cases specified in
the next four sections, and in the cases
of life, accident, and health insurance,
a change of interest in any part of a
thing insured unaccompanied by a
corresponding change of interest in
the insurance, suspends the insurance
to an equivalent extent, until the
interest in the thing and the interest in
the insurance are vested in the same
person.
-Section 58, Insurance Code
The mere transfer of a thing
insured does not transfer the policy,
but suspends it until the same person
becomes the owner of both the policy
and the thing insured.
-Transfer or change of interest in the
property with the consent of the insurer WILL
NOT SUSPEND THE POLICY. In such a case, the
policy will inure to the benefit of anyone to
whom the property is insured.
-Section 57, Insurance Code
A policy may be so framed that it
will inure to the benefit of
whomsoever, during the continuance
of the risk, may become the owner of
the interest insured.
EXCEPTIONS TO SEC. 20 OF THE INSURANCE CODE,
WHERE THE CHANGE OF INTEREST WILL NOT SUSPEND
THE INSURANCE.
-See. Sections 21-24, Insurance Code
Note: In Sec. 22, two or more properties are
insured but they are insured separately. Thus, if two
buildings are insured in one policy but they are
insured separately, the change of interest in one
building does not suspend the insurance as to the
other building.
WHEN TRANSFER OF THE PROPERTY INSURANCE POLICY
IS MADE AFTER THE LOSS
-Beneficiary’s insurable interest is no longer
necessary. (See. Sec. 85, Insurance Code)
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 16
IV. PREMIUM
PREMIUM REQUIRED FOR POLICY TO BE BINDING
-Section 77, Insurance Code
An INSURER IS ENTITLED TO PAYMENT OF
PREMIUM as soon as the thing insured is exposed to
the peril insured against. Notwithstanding any
agreement to the contrary, no policy or contract of
insurance issued by an insurance company is valid
and binding unless and until the premium thereof
has been paid, EXCEPT IN THE CASE OF A LIFE OR AN
INDUSTRIAL LIFE POLICY, or WHENEVER UNDER THE
BROKER AND AGENCY AGREEMENTS WITH DULY
LICENSED INTERMEDIARIES, a ninety (90)-day credit
extension is given. No credit extension to a duly
licensed intermediary should exceed ninety (90) days
from date of issuance of the policy.
NOTES:
-Payment may be made to the insurer
himself or its agent having authority to receive
or collect. Such payment is equivalent to
payment to the principal himself.
-INDUSTRIAL LIFE POLICY- In this case,
insurance shall not lapse for non-payment of
premium if such non-payment was due to the
failure of the company to send its agent to the
insured at the latter’s residence or at some
other place indicated for the purpose of
collecting such premium (Section 235, Insurance
Code).
*Such rule DOES NOT APPLY when the
premium remains unpaid for 3 mos. Or 12
weeks after the grace period has expired.
EFFECT OF NON-PAYMENT
-The obligation of the insurer will not become
valid and binding, IF THE FIRST PREMIUM HAS NOT
BEEN PAID.
-IF THE SUBSEQUENT PREMIUMS HAVE NOT
BEEN PAID, The policies issued will be deemed to
have lapsed.
NOTES:
-The insured CANNOT BE SUED for
non-payment of the premium. The only effect of
non-payment being that the POLICY WILL NOT
GO INTO FORCE. AFTER THE INSURANCE COMES
 INTO FORCE AFTER THE PAYMENT OF PREMIUM,
IT IS ONLY THE INSURER THAT MAKES A LEGALLY
ENFORCEABLE PROMISE.
*(To give the insurer the right to
sue the insured would be the height of
INJUSTICE AND UNFAIR dealings.)
WEHN BINDING EVEN IF PREMIUM IS UNPAID
-(UCPB General Insurance Co., Inc. V. Masagana
Telemart, Inc.)
-GENERAL RULE:
The policy is NOT VALID AND BINDING
unless the premiums have been paid.
-EXCEPTIONS:
1. When the GRACE PEPRIOD applies in
case of LIFE AND INDUSTRIAL LIFE POLICY.
2. When there is an ACKNOWLEDGEMENT
in the policy or RECEIPT that the premium has
been paid.
3. When there is an AGREEMENT that the
premium shall be PAYABLE ON INSTALLMENT.
4. When there is a CREDIT EXTENSION.
5. When EQUITTABLE DOCTRINE OF
ESTOPPEL applies.
GRACE PERIOD
-The period after the date of the premium is due
during which the premium can be paid with no
interest charged and the policy remaining in force.
-Sec. 233(a), Insurance Code
In the case of individual life or endowment
insurance, the policy shall contain in substance the
following conditions:
"(a) A provision that the policyholder is entitled
to a grace period either of 3O DAYS or of 1 MONTH
within which the payment of any premium after the
first may be made, subject AT THE OPTION OF THE
INSURER to an interest charge not in excess of six
percent (6%) per annum for the number of days of
grace elapsing before the payment of the premium,
during which period of grace the policy shall
continue in full force, but in case the policy becomes
a claim during the said period of grace before the
overdue premium is paid, the amount of such
premium with interest may be deducted from the
amount payable under the policy in settlement.
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 17
-Section 234, Insurance Code
No policy of group life insurance shall be issued
and delivered in the Philippines unless it contains in
substance the following provisions, or provisions
which in the opinion of the Commissioner are more
favorable to the persons insured, or at least as
favorable to the persons insured and more favorable
to the policyholders:
"(a) A provision that the policyholder is entitled
to a grace period of either thirty (30) days or of one
(1) month for the payment of any premium due after
the first, during which grace period the death benefit
coverage shall continue in force, unless the
policyholder shall have given the insurer written
notice of discontinuance in advance of the date of
discontinuance and in accordance with the terms of
the policy. The policy may provide that the
policyholder shall be liable for the payment of a pro
rata premium for the time the policy is in force
during such grace period.
-Section 236(a), Insurance Code
In the case of industrial life insurance, the
policy shall contain in substance the following
provisions:
"(a) A provision that the insured is entitled to a
grace period of four (4) weeks within which the
payment of any premium after the first may be made,
except that where premiums are payable monthly,
the period of grace shall be either one (1) month or
thirty (30) days; and that during the period of grace,
the policy shall continue in full force, but if during
such grace period the policy becomes a claim, then
any overdue and unpaid premiums may be deducted
from any amount payable under the policy in
settlement;
ACKNOWLEDGEMENT
-Section 79, Insurance Code
An acknowledgment in a policy or contract of
insurance or the receipt of premium is 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.
 NOTE: - The insurer’s obligation will already be
in force if there is agreement, EVEN if, in fact, the
insured has not yet paid the premium.
HOWEVER, this doesn’t mean that the
insured is excused from paying the
premium that is due. The insurer can still
demand payment of the premium.
INSTALLMENT
-An undertaking to allow insured to pay
premium in installments not so proscribed.
CREDIT EXTENSION
-Section 77 as amended by RA 10607
“a ninety (90)-day credit extension is given. No
credit extension to a duly licensed intermediaries”.
-REQUISITES:
1. the credit extension must be provided
for under the broker and agency requirements.
2. The credit extension to a duly licensed
intermediary should exceed 90 days from date
of issuance of policy.
-Notes:
-the credt extension is extended to the duly
licensed intermediary which in turn can benefit
the insured. However, the 4th exception to Sec.
77means that if the insurer has granted the
insured a credit term for the payment of the
premium and loss occurs before the expiration
of the term, recovery on the policy should be
allowed even though the premium is paid after
the loss but within the credit term.
-Under the old law, the insurance policy
would be valid and binding notwithstanding the
non-payment of premium if there was a clear
agreement to grant to the insured credit
extension. Such agreement may be express or
implied.
-Under the present law, Sec. 77 has deleted
the clause “unless there is agreement to grant
the insured credit extension of the premium
due”.
-Velasco v. Apostol: credit transactons are
no longer allowed because the law-making body
deliberately made the deletion precisely to
remove the exception.
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 18
-When credit extensions were EXPRESSLY
ALLOWED, the policy is deemed
AUTOMATICALLY CANCELLED if the insured
signed a PN stating that the insured will pay the
premium on or before a fixed date and the
insured failed to pay on the stipulated date.
ESTOPPEL
-it may bar an insurer from taking refuge under
Section 77 if the insured relied in good faith on a
practice that they have been following with the
insurer.
SALARY DEDUCTIONS FOR GOVERNMENT
EMPLOYEES
-Section 78, Insurance Code
EMPLOYEES of the Republic of the Philippines,
including its political subdivisions and
instrumentalities, and GOCCs, MAY PAY THEIR
INSURANCE PREMIUMS AND LOAN OBLIGATIONS
THROUGH SALARY DEDUCTIONS: Provided, That the
treasurer, cashier, paymaster or official of the entity
employing the government employee is authorized,
notwithstanding the provisions of any existing law,
rules and regulations to the contrary, to make
deductions from the salary, wage or income of the
latter pursuant to the agreement between the
insurer and the government employee and to remit
such deductions to the insurer concerned, and
collect such reasonable fee for its services.
-REQUIREMENTS:
-There must be an AGREEMENT between
the insurer and the gov’t employee authorizing
salary deduction of the premium.
SURETY
-ANOTHER EXCEPTION ONLY WITH RESPECT TO
SURETYSHIP:
-the surety is already liable even if there is
non-payment of the premium IF THE OBLIGEE
HAS ALREADY ACCEPTED THE BOND (Sec. 177,
Insurance Code).
VALID TENDER OF PAYMENT
-The act of the insurer or his agent in REFUSING
THE TENDER OF PAYMENT of a premium properly
made, will necessarily STOP THE INSURER FROM
CLAIMING A FORFEITURE FROM NON-PAYMENT.

HOW TO PREVENT LAPSE OF LIFE INSURANCE POLICY
1. Grace period
2. Automatic policy loan
3. Application of dividend
4. Restatement clause
AUTOMATIC POLICY LOAN AND CASH SURRENDER
VALUE
-CASH SURRENDER VALUE (as applied in life
insurance) is the amount of money the company
agrees to pay to the holder of the policy if he
surrenders it and releases his claims upon it.
-surrender value is always a LESSER sum
than the total amount of premiums paid.
-the cash value or cash surrender value is
an amount which the insurance company holds
in trust for the insured to be delivered to him
upon demand.
-Section 233(f), Insurance Code
A provision specifying the OPTIONS TO
WHICH THE POLICYHOLDER IS ENTITLED TO IN
THE EVENT OF DEFAULT IN A PREMIUM
PAYMENT AFTER 3 FULL ANNUAL PREMIUMS
SHALL HAVE BEEN PAID. Such option shall
consist of:
"(1) A cash surrender value payable upon
surrender of the policy which shall not be less
than the reserve on the policy, the basis of
which shall be indicated, for the then current
policy year and any dividend additions thereto,
reduced by a surrender charge which shall not
be more than one-fifth (1/5) of the entire
reserve or two and one-half percent (2 陆%) of
the amount insured and any dividend additions
thereto; and
"(2) One or more paid-up benefits on a plan
or plans specified in the policy of such value as
may be purchased by the cash surrender value.
-Section 233(g), Insurance Code
A provision that at any time after a cash
surrender value is available under the policy and
while the policy is in force, the company will
advance, on proper assignment or pledge of the
policy and on sole security thereof, a sum equal
to, or at the option of the owner of the policy,
less than the cash surrender value on the policy,
at a specified rate of interest, not more than the
maximum allowed by law, to be determined by
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 19
the company from time to time, but not more
often than once a year, subject to the approval
of the Commissioner; and that the company will
deduct from such loan value any existing
indebtedness on the policy and any unpaid
balance of the premium for the current policy
year, and may collect interest in advance on the
loan to the end of the current policy year, which
provision may further provide that such loan
may be deferred for not exceeding six (6)
months after the application therefor is made;
-under an AUTOMATIC PREMIUM LOADN
CLAUSE, if at the end of the grace period the
premium due has not been paid, A POLICY LOAN
will automatically be made from the policy’s
cash value to pay the premium.
-PURPOSE: to prevent unintentional
lapse of the policy.
DIVIDENDS
-(The life insurance policy may be participating
or non-participating)
PARTICIPATING INSURANCE NON-PARTICIPATING
POLICY INSURANCE POLICY
-The insured is ENTITLED to the - not entitled
dividends that may be available.
-there must contain a provision
that the company shall
periodically ascertain and
apportion any divisible surplus
accruing on the policy under
conditions specified therein.
-it may be provided that the
dividend shall be applied to the
premiums that are due or
payable
REINSTATEMENT CLAUSE
-A life insurance policy must contain a provision
that the policyholder shall be entitled to have the
policy reinstated at any time within three (3) years
from the date of default of premium payment unless
the cash surrender value has been duly paid, or the
 extension period has expired (Section 233(j),
Insurance Code).
-The reinstatement will be made
*upon production of evidence of insurability
satisfactory to the company and
*upon payment of all overdue premiums and
any indebtedness to the company upon said policy.
-The insurer MAY DENY the application for
reinstatement if it is not satisfied as to the
insurability of the insured and if the insured does not
pay the overdue premium.
RETURN OF PREMIUM
-WHEN RETURN OF PREMIUM IS A MATTER OF
RIGHT?
-See. Sections 80-83, Insurance Code
1. when the thing was not exposed to the
peril insured
-HOWEVER, where the risk is
entire and the contract is
indivisible, the insured is NOT
ENTILED to a refund of the
premiums paid if the property
insured was exposed to the risk
insured for any period, however
brief or momentary.
2. “time policy” when the policy is
surrendered before the expiration of the
stipulated time (the refund is pro rata)
-the refund shall be on a pro
rata basis EXCEPT if a short time
rate has been agreed upon and
appears in the policy.
3. When the contract is voidable and
subsequently annulled under the provisions of
the NCC
-the ground that the contract
is voidable should be on account
of fraud or misrepresentation of
the INSURER or of his agent, or on
account of facts, the existence of
which the insured was ignorant
without his fault.
*a person insured is not
entitled to a return of premium if
the policy is annulled, rescinded
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 20
or if a claim is denied by reason of
fraud.(Sec. 82)
*the insurer CANNOT keep
the premium that was paid by the
insured if the insurer was never at
risk because the policy was
inoperative and innefectual from
the beginning.
4. When the contract is annulled on
account of the fraud or misrepresentation of the
insurer or of his agent or on account of facts, or
the existence of which the insured was ignorant
of without his fault.
5. When by any default of the insured
other than the actual fraud, the insurer never
incurred liability under the policy
6. When there is over-insurance by several
insurers
ADVANCE PAYMENT
-Section 84, Insurance Code
An insurer may contract and accept payments,
in addition to regular premium, for the purpose of
paying future premiums on the policy or to increase
the benefits thereof.
REBATE OF PREMIUM
-Section 370, Insurance Code
No insurance company doing business in the
Philippines or any agent thereof, no insurance broker,
and no employee or other representative of any such
insurance company, agent, or broker, shall make,
procure or negotiate any contract of insurance or
agreement as to policy contract, other than is plainly
expressed in the policy or other written contract
issued or to be issued as evidence thereof, or shall
directly or indirectly, by giving or sharing a
commission or in any manner whatsoever, pay or
allow or offer to pay or allow to the insured or to any
employee of such insured, either as an inducement
to the making of such insurance or after such
insurance has been effected, any rebate from the
premium which is specified in the policy, or any
special favor or advantage in the dividends or other
benefits to accrue thereon, or shall give or offer to
give any valuable consideration or inducement of
any kind, directly or indirectly, which is not specified
in such policy or contract of insurance; nor shall any
such company, or any agent thereof, as to any policy
or contract of insurance issued, make any
discrimination against any Filipino in the sense that
he is given less advantageous rates, dividends or
other policy conditions or privileges than are
accorded to other nationals because of his race.
-violation of Section 370 constitutes a
ground for the IMMEDIATE REVOCATION of the
license issued to the erring insurance company,
agent or broker and the imposition of a fine not
exceeding P25,000.
Notes:
-The purpose of these statutes is the
PREVENTION OF UNFAIR DISCRIMINATORY
PRACTICES by insurance companies, agents
and brokers in order to ensure that equal
terms are fixed for policyholders of the
same insurable class and eequal
expectation of life.
-the statutes prohibit such practices
involving rebates or preferential
treatment with respect to the cost of the
policy or the benefits allowed fo the
premium.
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 21
V. THE POLICY
CONSENSUAL
-an insurance contract is a consensual contract
-perfected by mere consent
-no formality is required
*an absence of a policy DOES NOT BAR the
contract from coming into existence
STATUTE OF FRAUDS INAPPLICABLE
-Article 1403, NCC (Statute of Frauds) -requires
a contract to be in a note or memorandum if it is one
of the cases covered by SoF. The include contracts
that CANNOT BE PERFORMED W/IN 1 YEAR after the
contract is made.
-Insurance contracts are NOT COVERED by
statute of frauds.
-For instance, life insurance contracts
may remain in force for decades, the
obligation of the insurance company to pay
the proceeds may likewise be performed
w/in 1 year because the future event
(death-insured) may occur w/in one year.
POLICY
-Section 49, Insurance Code
The written instrument in which a contract of
insurance is set forth, is called a policy of insurance.
-It is without prejudice to the no required form
for the perfection of the contract.
PRINTED FORM
-The policy shall be in printed form which
may contain blank spaces; and any word, phrase,
clause, mark, sign, symbol, signature, number,
or word necessary to complete the contract of
insurance shall be written on the blank spaces
provided therein (Sec. 50(1st par.), I.C).
ELECTRONIC DOCUMENT
- the policy may be in electronic form
subject to the pertinent provisions of Republic
Act No. 8792, otherwise known as the
‘Electronic Commerce Act’ and to such rules and
regulations as may be prescribed by the
Commissioner. (Sec. 50(4th par.), I.C).

APPROVAL OF INSURANCE COMPANY
-No policy, certificate or contract of
insurance shall be issued or delivered within the
Philippines UNLESS in the FORM PREVIOUSLY
APPROVED BY THE COMMISSIONER, and
-no application form shall be used with, and
-no rider, clause, warranty or endorsement
shall be attached to, printed or stamped upon
such policy, certificate or contract UNLESS THE
FORM OF SUCH APPLICATION, RIDER, CLAUSE,
WARRANTY OR ENDORSEMENT HAS BEEN
APPROVED BY THE COMMISSIONER (Sec. 232,
I.C).
CLASSIFICATION OF INSURANCE CONTRACTS
1. Declarations
2. Insuring agreements
3. Exclusions
4. Conditions
DECLARATIONS
-(See. Section 51, Insurance Code)
-declarations identify the insured;
-describe the property, activity, or life
insured
-state the types of coverage purchased
-applicable policy limits
-term of coverage
-indicate the premium paid for each
separate coverage purchases
Purpose: to give insurer sufficient information
to enable it, to issue the desired contract at a proper
price.
INSURING AGREEMENTS
-describe the characteristics of the events
covered.
-specify what the insurer promises to do
EXCLUSIONS
-these provisions exclude specified perils,
property, sources of liability, persons losses,
locations and time periods; impose limitations.
CONDITIONS
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 22
-conditions that must be complied before
the insurer can be made liable and may describe
the basis for computing the premium.
POLICY V. NOTES
-In Marine Insurance, the policy should be
distinguished in “Marine Risk Notes”----an
acknowledgment/ declaration confirming the specific
shipment covered by its Marine Open Policy, the
evaluation of the cargo, and the chargeable premium.
Such note is not the policy itself.
DESIGNATION OF BENEFICIARY
-should be made in unequivocal terms
-RULES: Section 53, Insurance Code
The insurance proceeds shall be applied
exclusively to the proper interest of the person in
whose name or for whose benefit it is made unless
otherwise specified in the policy.
IDENTIFICATION OF THE INSURED
-RULES ON THE DETERMINATION OF THE REAL
OWNER OF THE POLICY:
-Section 54. When an insurance contract is
executed with an AGENT OR TRUSTEE as the
insured, the fact that his principal or beneficiary
is the real party in interest may be indicated by
describing the insured as agent or trustee, or by
other general words in the policy.
-Section 55. To render an insurance
effected by ONE PARTNER OR PART-OWNER,
applicable to the interest of his co-partners or
other part-owners, it is NECESSARY that the
terms of the policy should be such as are
applicable to the joint or common interest.
-WHEN THE INSURED IS NOT SPECIFICALLY
IDENTIFIED:
-Section 56. When the description of the
insured in a policy is so general that it may
comprehend any person or any class of persons,
only he who can show that it was intended to
include him, can claim the benefit of the policy.
-Hence, it is a question of proof if the
person claims that he is one of those described
as insured in general terms.
 -Thus, an insurance over a car may
designate the registered owner as the insured.
In such case, it can easily be established by
presenting the COR of the car.
POLICY FORM
-The insurer is GENERALLY FREE TO PROVIDE for
the terms and conditions of the policies that it will
issue so long as the same are not contrary to Law,
Morals, Customs, and Public Policy.
-Subject to the approval of the
Insurance Commission
-(SEE. Section 226, Insurance Code)
-In some cases, the Insurance Commission
approved STANDARD POLICIES that should be used
by the insurers.
-(SEE. Circular Letter 14-93) - Standard
Fire Policy
-In certain cases, the law provides for the
MANDATORY PROVISIONS
-(SEE. Sections 233-235, I.C)
1. Individual life
2. Endowment insurance
3. Group life
4. Industrial life
RIDERS
-RULES REGARDING RIDERS, CLAUSES,
WARRANTIES OR ENDORSEMENTS THAT ARE NOT
PART OF THE ORIGINAL PRINTED FORM BUT ARE
MERELY ATTACHED TO THE POLICIES:
-(SEE. Section 50 (2nd,3rd par.), I.C)
-REQUISITES for a rider, clause warranty or
endorsement to be binding:
1. the rider, clause warranty or
endorsement is ATTACHED in the policy
2. the descriptive title or name of the rider,
clause, warranty or endorsement is MENTIONED
AND WRITTEN ON THE LANK SPACES PROVIDED
IN THE ORIGINAL PRINTED POLICY FORM.
3. If not applied for by the insured or
owner, the rider, clause, warranty or
endorsement issued after the original policy
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 23
shall be COUNTERSIGNED BY THE INSURED OR
OWNER.
-A rider is an endorsement to an insurance
policy that modifies clauses and provisions of the
policy, including or excluding coverage.
Note:
-if the requirements of
Section 50 of the Insurance Code
are complied with, they take
precedence over the original
policy provisions.
-IN CASE REPUGNANCE
EXISTS BETWEEN WRITTEN AND
PRINTED PORTIONS OF POLICY,
THE WRITTEN PORTION PREVAILS.
-A rider prevails over the
printed clause it covers
CONTRACT OF ADHESION
-Insurance policies are contracts of adhesion
because one one part(insurer) prepares the written
contract while the other party(insured) merely
adheres to the contract.
-The conformity of the insured to the
terms of the policy is implied from his
failure to express any disagreement with
what is provided for therein.
-RULE: injured persons may accept policies
without reading them, and that this is not negligence
per se. (Dura lex sed lex)
-NO EXCEPTIONS
INTERPRETATION AND PROOF
INTERPRETATION
-any doubt should be resolved against the
insurer and in favor of the insured. Since an
insurance contract is a contract of adhesion.
-Section 1377, I.C
The interpretation of obscure words or
stipulations in a contract shall not favor the party
who caused the obscurity.
PROOF
-if the terms and conditions of the policy is in
question in a case, THE PARTY WHO SEEKS TO PROVE
 SUCH TERMS AND CONDITIONS MUST PRESENT THE
POLICY during trial and formally offer it as evidence.
-the obligation to attach the policy to
the complaint as an actionable document
and to present and offer the same APPLIES
EVEN IF THE PLAINTIFF IS AN INSURANCE
COMOANY THAT IS TRYING TO RECOVER
BASED ON ITS RIGHT OF SUBROGATION.
COVER NOTES
-are interim or preparatory contracts of
insurance
-these are necessary because the insurer may
need more time to process the insurance
application.
-(SEE. Section 52, I.C.)
-REQUISITES:
1. the cover note shall be ISSUED OR
RENEWED ONLY UPON PRIOR APPROVAL OF
THE INSURANCE COMMISION.
2. Shall be VALID AND BINDING NOT MORE
THAN 60 days from the date of the issuance.
3. May be CANCELLED BY EITHER PARTY
upon prior notice to the other of at least 7 days
4. Should be ISSUED WITHIN 60 days after
the issuance of the cover note
5. The 60-day period MAY BE EXTENDED
upon written approval of the Insurance
Commission
CANCELLATION
-WHEN APPROVAL IS DISPENSED WITH
-upon the certification of the president,
vice president or general manager of the insurer
NOTE: NO SEPARATE PREMIUM is required
for the cover note.
KINDS OF PROPERTY INSURANCE POLICY
-(Sections 60-62, I.C.)
1. VALUED POLICY
-expresses the agreed valuation of the thing
insured on the face of the policy
-binding on the parties
-no part can establish a different valuation in
case of loss
-the measure of indemnity is the agreed
valuation and not the actual loss
-exception to the principle of indemnity
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 24
-A LIFE INSURANCE POLICY is always a valued
policy because the amount fixed in the policy is
always not related to the actual loss.
2. OPEN POLICY
-sometimes called an “unvalued policy” because
it is one in which the value is not fixed, but is
left to be definitely determined in case of loss.
-No valuation of property is stipulated in an
open policy.
-the insurer is only entitled to recover the
amount of the actual loss sustained by him as he
may be able to establish (there being no express
evaluation in the policy).
-the actual loss will represent the total
indemnity due the insures from the insurer
EXCEPT ONLY that the total indemnity shall not
exceed the face value of the policy.
3. RUNNING POLICY
-this policy is a typical running policy where the
extent of the property insured shall be defined from
time to time because of the nature of the business
that is being insured.
*read problems given in the book for
this topic. :)
-Cancellation of property insurance should be
made in accordance with Sections 64 and 65 of the
Insurance Code.
-REQUISITES OF CANCELLATION:
1. prior notice of cancellation to insured
2. Notice must be base on the occurrence
after effective date of the policy of one or more
of the grounds mentioned in Sec. 64.
3. Notice must e in writing, mailed or
delivered to the name insured at the address
shown in the policy or to his broker is
authorized in writing in the policy owner to
receive the notice of cancellation on his behalf.
4. Notice must state the grounds relied
upon provided in Section 64 of the Insurance
Code and upon request of insured, to furnish
facts on which cancellation is based.
NOTES:
 -SECTION 64 APPLIES ONLY TO PROPERTY
INSURANCE, however some of the grounds
stated may apply in life insurance such as the
cancellation of policy for non-payment of
premium, fraud or material misrepresentation.
-SECTION 65 requires a statement of the
grounds relied upon. NEVERTHELESS, so long as
the ground is stated, written notice to the
insured need not be in any particular form in
order to form the basis for the cancellation of a
policy.
-ACTUAL PERSONAL NOTICE to the insured
is ESSENTIAL it is a condition precedent to a
cancellation of the policy by the insurer.
Consequently, a letter containing a notice of
cancellation which is mailed by the insurer but
not received by the insured, is INEFFECTIVE AS
CANCELLATION.
REFORMATION OF THE POLICY
-It may happen that what was agreed upon is
different from what is written in the policy. In such
case, the Court would have the power to reform the
contracts and give effect to them in the sense in
which the parties intended to be bound.
Note: In order to justify this, it
must be clearly made to appear that
the minds of the contracting parties
did not actually meet in agreement
and they labored under some mutual
error or mistake in respect to the
expression of their purpose.
MISTAKE
-It is also possible for the insured to recover
even if there was a mistake. It is NOT NECESSARY
that there be reformation of the policy.

-RECEIPT OF NOTICE BY BROKER:

-GENERAL RULE: not binding on
the insured.
-EXCEPTION: notice can be given
to the broker PROVIDED that the
broker is authorized in writing by the
policy owner to receive the notice of
cancellation on his behalf.

-CANCELLATION OF THE INSURED

-while section 64 deals only with the
right of the insurer to cancel the policy, it
does not follow that the insured cannot
cancel the policy.
-RIGHT TO SURRENDER THE POLICY
(SEE. Sec. 80, Insurance Code).

RENEWAL OF POLICY
-The insured has the RIGHT TO RENEW A
NON-LIFE INSURANCE POLICY by simply PAYING THE
PREMIUM DUE ON THE EFFECTIVE DATE OF THE
RENEWAL.
-HOWEVER, the insured will not
have any right if NOTICE OF THE
INTENTION NOT TO RENEW IS GIVEN
BY THE INSURER AT LEAST 45 DAYS
PRIOR EXPIRATION OF THE POLICY.
(See. Sec. 45, insurance Code)

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 25

 VI. ASCERTAINING AND CONTROLLING RISK
FOUR PRIMARY CONCERNS
Prof. Vance:
1. The correct estimation of the risk which enables
the insurer to decide whether he is willing to
assume it, and if so at what rate of premium.
2. The precise delimitation of the risk which
determines the extent of the contingent duty to
pay undertaken by the insurer.
3. Such control of the risk after it is assumed as will
enable the underwriter to guard against the
increase of the risk because of change in
conditions.
4. Determining whether the loss has occurred, and if
so, the amount of the loss.
NOTES:
- Because of these concerns,
different DEVICES were developed
to ascertain and control risks such
as concealment, representation,
warranty, condition, and
exceptions.
- The correct estimation of the risk
may be made if all material
information are disclosed and if
the parties are certain that
disclosed information can be relied
upon.
CONCEALMENT
- Sections 26 and 28, I.C.
Sec. 26. A neglect to communicate that which a
party knows and ought to communicate, is called a
concealment.
Sec. 28. Each party to a contract of insurance must
COMMUNICATE to the other, IN GOOD FAITH, all
facts within his knowledge which are material to
the contract and as to which he makes no warranty,
and which the other has not the means of
ascertaining.
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 26
NOTES:
- The obligation to communicate is
the obligation of each party, both
the insurer and the insured.
- The duty to disclose is required
because insurance contracts are
described as contracts uberrimae
fidae, that is, of utmost good faith.
MATERIALITY
- Sec. 31, I.C.
Section 31. Materiality is to be determined not
by the event, but solely by the probable and
reasonable influence of the facts upon the party
to whom the communication is due, in forming
his estimate of the disadvantages of the
proposed contract, or in making his inquiries.
NOTES:
- ONLY MATERIAL FACTS are
required to be disclosed.
- In relation to the INSURED, the
matter he concealed are
considered material if such matter
will affect the insurer’s action on
his application.
- In relation to the INSURER, the
matters concealed re considered
material if they will affect the
decision of the insured to enter
into insurance contract.
- Generally, the matter concealed by the
INSURED is considered material IF IT RELATES
TO PHYSICAL HAZARD OR MORAL HAZARD.
- if the INSURER knows about the
circumstances relating to physical or
moral hazard, it will give him a chance
to make further inquiries and to decide
on the basis of such inquiry.
- If there’s nothing in the policy that makes it an
obligation of the party to make disclosure
during life of the contract, then THERE IS NO
 DUTY TO MAKE SUCH DISCLOSURE for facts
occurring after the insurance takes effect.
- SC: The basis of the rule vitiating the contract
in case of concealment is that it misleads or
deceives the insurer into the accepting the risk,
or accepting it at the rate of premium agreed
upon.
NOTES:
- The transfer of the location of the
insured machineries was
considered material concealment
that should have been disclosed
when the fire insurance policy was
renewed. [Malayan Insurance v.
PAP Co. Ltd]
- The SC ruled that there was
material fact in the event the
insured signed the insurance
application without filling in the
details regarding his continuing
treatments for heart condition and
diabetes. [Florendo v. Philam Plans,
Inc.].
CAUSATION NOT NECESSARY
- the matter concealed NEED NOT BE the
cause of the loss. It is well-settled that the
insured need not die of the disease if he had
failed to disclose to the insurer the existence
of such disease. [Sun Assurance Company of
Canada v. The Hon. CA and Spouses Bacani].
- it is SUFFICIENT that his non-disclosure
misled the insurer in forming his estimates of
the risks of the proposed insurance policy or
in making inquiries.
REQUISITES:
- requisites to justify one party to rescind the
policy on the ground of concealment.
1. The party involved must know the fact
concealed or at least he ought to know the
same
2. The fact concealed must be material
3. No warranty is extended by the party
regarding the fact concealed
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 27
4. The other party does not have the means
of ascertaining.
KNOWLEDGE OF AGENT OF INSURED
- Knowledge on the part of the agent of the
insured CAN BE IMPUTED ONLY IF THE FF.
CIRCUMASTANCES ARE PRESENT:
1. It was the duty of the agent to acquire
and communicate information of the
facts in question.
2. It was possible for the agent, in the
exercise of reasonable diligence, to
have made such communication
before the making of the insurance
contract.
[READ: Florendo v. Philam Plans, Inc.]
WHEN THERE IS NO CONCEALMENT
- Secs. 30, 32-35, I. C.
- There is no material concealment that
justifies the insurer to rescind the policy in
the fallowing cases:
1. When matters are KNOWN TO THE
OTHER PARTY;
2. When, in the exercise of ordinary care,
one party ought to know, and of which
the OTHER PARTY HAS NO REASON TO
SUPPOSE HIM IGNORANT;
3. When there is WAIVER of
communication;
4. When matters are those which PROVE
OR TEND TO PROVE THE EXISTENCE OF
A RISK excluded by a warranty;
5. When matters are those which RELATE
TO A RISK EXCEPTED FROM THE POLICY
and which are not otherwise material;
6. When the matter involves GENERAL
CAUSES that are OPEN TO INQUIRY of
each party and WHICH MAY AFFECT THE
POLITICAL OR MATERIAL;
7. When the matter is included in
GENERAL USAGES OF TRADE;
8. INFORMATION of the nature or amount
of the insured property, IS NOT
DISCLOSED UNLESS in answer to an
inquiry;
 9. When what is involved is information of
the party’s own judgment upon the
matters in question.
- FACTS THAT NEED NOT BE DISCLOSED:
o The reason for the rule which obliges
parties to disclose is to prevent fraud
and to encourage good faith.
HOWEVER, NOT ALL FACTS ARE TO BE
DISCLOSED TO THE OTHER PARTY:
§ The underwriter need not be told
what lessen the risk agreed and
understood to be run by the
express terms of the policy. HE
NEED NOT BE TOLD GENERAL
TOPICS OF SPECULATION.
§ OPINIONS OF THE INSURED NEED
NOT BE DISCLOSED- the duty of
disclosure-- and the duty not to
misrepresent requires that the
statement to be made by one party
relates to facts and NOT TO
OPINION. HOWEVER, there must
§ be good faith and there must be no
intent to deceive.
JUDGEMENT OR OPINION
NOTE:
- there would be NO CONCEALMENT so long
as the answers are made in good faith and
without intent to deceive even if the
answers which are in the nature of opinions
are untrue. [Philamcare health Systems, Inc.
v. CA and Julita Trinos].
[READ: Sunlife Insurance Company of
Canada v. CA and Spouses Bacani].
KNOWLEDGE OF THE INSURER
- Where the insurer, at the time of the
issuance of a policy of insurance, has
knowledge if existing facts which would
invalidate the contract from its very
inception, such knowledge would constitute
a WAIVER OF CONDITIONS IN THE
CONTRACT INCONSISTENT WITH THE FACTS,
AND THE INSURER IS ESTOPPED FROM
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 28
ASSERTING THE BREACH OF SUCH
CONDITIONS.
o REASON: it is contrary to the dictates
of honesty and fair dealing and so
closely related to positive fraud, as to
the abhorrent to fair-minded men.
INTENTIONAL AND UNINTENTIONAL CONCEALMENT
- Section 27, I.C.
A concealment whether intentional or
unintentional entitles the injured party to
rescind a contract of insurance.
- This rule is consistent with the definition of
concealment as “negligence to communicate
that which a party knows and ought to
communicate”.
- The BASIS OF THE RULE vitiating the contract
in cases of concealment is that it misleads or
deceives the insurer into accepting the risk,
or accepting it at the rate of the premium
agreed upon. [Argente v. West Coast Life
Insurance, Co.].
- Prof. Dover: concealment, or suppressio veri,
is nearly allied to allegatio falsi, and avoids a
contract upon principles of natural justice.
Every concealment, whether arising fro
accident, negligence, inadvertence, or
mistake, if material, will be equally fatal to
the contract as if it were intentional or
fraudulent.
NOTE:
- GOOD FAITH IS NO DEFENSE IN
CONCEALMENT- materiality of the
information withheld does not
depend on the state of mind of the
insured. Neither does it depend on
the actual or physical events which
ensue.
- Section 27 of the I.C. of 1978 is
properly read as referring to “any
concealment” without regard to
whether such concealment is
intentional or unintentional. The
restoration in 1985 by B.P. Blg. 874
 of the phrase “whether intentional
or unintentional” merely
underscored the fact that all
throughout (from 1914-1985), the
statute did not require proof that
concealment must be intentional
in order to authorize rescission by
the injured party.
- An exception to the rule that
- Concealment may be intentional
or unintentional is provided in
SECTION 29: An intentional and
fraudulent omission, on the part of
one insured, to communicate
information of matters proving or
tending to prove the falsity of a
warranty, entitles the insurer to
rescind… because the requirement
therein is that the omission is
intentional or fraudulent.
- There would still be material
concealment even if the insured
has no knowledge of the existence
of a duty to disclose.
- Concealment is present if the
insured has no knowledge of the
fact which he already knows. A
man may act in perfect good faith
within the meaning of the ordinary
term of the phrase, yet still be held
not to have acted in the utmost
good faith in the legal sense.
KNOWLEDGE OF THE FACT CONCEALED
- Under the majority view, absence of
knowledge of the fact concealed WILL NOT
DEPRIVE THE INSURER OF THE RIGHT TO
INVOKE CONCEALMENT because
unintentional concealment is still
concealment that is contemplated in Section
26.
o The majority view is consistent with
what Prof. Vance referred to as the
ENGLISH DOCTRINE.
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 29
- The minority view is to the effect that THE
CONTRACT CANNOT BE RESCINDE ON THE
GROUND OF CONCEALMENT IF THE
NON-DISCLOSING PARTY DOES NOT KNOW
THE FAC INVOLVED.
o This view is supported by the
definition of in section 26 of the
Insurance Code which states that
concealment is neglect to
communicate that which a party
“knows and ought to
communicate.”
§ According to this view, when the
law states that the concealment is
intentional or unintentional, the
intent refers to the intent to
deceive or “corrupt intent.
NOTES:
- it is required under Section 26 that the fact
allegedly concealed is known to the party or at
the very least, the fact is something that the
party who allegedly concealed ought to know.
EXCEPTIONS:
- There were cases when the SC did not
sustain the insurer’s position that the
insurance policies in question can be
avoided on the ground of concealment
or misrepresentation.
1. When the matter allegedly concealed
is a MATTER OF OPINION
2. When the insurer WAIVED HIS RIGHT
to the information as in the case
where the insured gave an imperfect
answer.
EXAMPLE:
a. The insurer was not informed
on the medical condition of
the insured. The court ruled
that the medical condition of
the insured is a matter of
opinion which cannot be
invoked SO LONG AS THERE
WAS NO INTENT TO DECEIVE.
Hence, if the insured stated
that he is in good health, such
statement is a matter of
 opinion and should not be
construed as material
concealment. [UCPB General
Insurance Case].
b. In life insurance, even if from
the viewpoint of a medical
expert, the information
communicated about the
ailment of the insured was
imperfect, there would be no
ground to avoid the policy on
the ground of concealment if
the imperfect answer or
information is nevertheless
sufficient to have induced
insurer to make further
inquiries about the ailment
and operation of the insured.
[READ: Ng Gan Zee v. Asian Crusader Life
Insurance Corporation]
A representation may be made AT THE TIME
OF, OR BEFORE, issuance of the policy.
NOTE:
- information statements made
after the policy takes effects
obviously will no longer have any
bearing on the decision of the
insurer or the decision of the
insured to enter into a contract.
MODIFICATION
- Section 47, I.C.
Note:
- The representation MAY ALSO BE ONE
THAT INDUCES THE PARTY TO AGREE
TO MODIFY THE CONTRACT.

REMEDY: DISTINCTIONS AND SIMILARITIES

- Section 27 provides that the
presence of concealment entitles CONCEALMENT REPRESENTTAION
the insurer to RESCIND the 1. it involves a
insurance contract. 1. It involves an
positive assertion or
omission- nondisclosure
o NOTE: affirmation
- the RIGHT TO RESCIND 2. CAN pertain to the
should be exercised 2. CANNOT refer to
future because it can
previous to the future acts
be a promissory
commencement of an
action on the contract. 3. Same test of materiality applies
- it is subject to the
incontestable clause. (read 4. A party can rescind.
problems in the book)

KINDS
REPRESENTATION
1. AS TO FORM
- It refers to statements made to give information to
a) ORAL
the insurer to induce him to enter into the insurance
b) WRITTEN
contract.
2. AS TO THE NATURE
- A representation is a COLLATERAL COMMUNICATION
a) AFFIRMATIVE
made to the other party in writing or by word of
§ Statements dealing with facts
mouth.
existing at the time the
contract is made.

b) PROMISSORY
TIME OF REPRESENTATION
- Sec. 37, Insurance Code

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 30

 § Statements made by the
insured concerning what is to
happen at the time the
insurance is already effective.
NOTE:
- Under Sec. 39, I.C.: A representation as to
the future is to be deemed a promise,
UNLESS it appears that it was merely a
statement of belief or expectation.
INTERPRETATION
- Construed liberally in favor of the insured
and are required to be only substantially
true.
NOTES:
- Section 38: the language of a
representation is to be interpreted
by the same rules as the language
of contracts in general.
o Arts. 1370-1379, NCC may
be applied.
- Section 42: a representation must
be presumed to refer to the date
on which the contract goes into
effect.
o Example: the
representation that the
house is not occupied
related to the time the
contract takes effect.
- Section 40: a representation
cannot qualify an express
provision in a contract of insurance
but it may qualify an implied
warranty.
TEST OF MATERIALITY
- The materiality of a representation is
determined by the same rules as the
materiality of a concealment.
o Thus, there is deemed to be material
misrepresentation if the knowledge of
one party thereof will affect the
insurer’s action on his application.
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 31
- EXAMPLES:
a. The representation is material if it
relates to health, freedom from disease,
habits and medical attendance. There
are instances when family relationships
and family history may also be
important.
b. Representations as to age in Life
Insurance. [Section 233(d)].
Note:
- A misstatement of the age of the
insured DOES NOT AVOID the policy.
The only result is that any amount
payable or benefit accruing under the
policy will be equal to to what the
premium paid by the insured would
have purchased if the age had been
correctly stated.
- the standard life insurance company
policy issued under Cir. Letter No.
14-93, June 25, 1993 includes that:
“ ….
If at the correct age, the insured
is not eligible for any coverage under
this policy or its riders, the company
will refund the corresponding
premiums actually received by the
company less any indebtedness under
this policy.”
- the correct age of the insured is the
CHIEF CORNER-STONE of the life
insurance structure. The prudent thing
for the insurer to do then is to require
the submission of the Certificate of
Live Birth of the insured.
- If such will not be required and
the insurer merely relied on the
representation of the insured, the
insurer’s only recourse is to make
adjustment regarding premium if there
was misstatement.
- it is believed that the misstatement
as to the age o the insured must be
done in GOOD FAITH.
 - [otherwise, a ground to rescind
for misrepresentation]
c. Erroneous description of building in fire
insurance.
- Misdescription of the building
without the fault of the insured
cannot be considered material
representation.
REMEDY
- RIGHT TO RESCIND under Sec. 45: If a
representation is false in a material point, whether
affirmative or promissory, the injured party is
entitled to rescind the contract from the time when
the representation becomes false.
WHEN RESCISSION IS UNAVAILABLE
1. When there is waiver
2. When an action has already been
commenced on the contract
3. When the incontestable clause applies
NOTE:
- ESTOPPEL IS NO LONGER
APPLICABLE
- Acceptance of the premium
will not estop the insurer from
rescinding the policy on the
ground of misrepresentation.
- In other words, the insurer can
still rescind the policy even if it
accepted the premium despite
knowledge of the ground for
rescission provided that other
defenses are not available like
the incontestability clause.
WARRANTIES
- It is an affirmation of fact or a promise that forms
part of the terms and conditions of the policy.
- It is a statement or promise set forth in the policy, or
by reference incorporated therein, the untruth or
non-fulfillment, renders the policy voidable by the
insurer.
KINDS
a. EXPRESS
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 32
- stated in the policy or any of its
attachments
b. IMPLIED
- natural element of the contract
imposed by law and are part of the
policy without the need that it be stated
in the policy
c. AFFIRMATIVE WARRANTY
- affirmation of fact that exist at the
TIME THEY ARE MADE.
d. PROMISSORY WARRANTY
- stipulates that certain things shall be
done or a specified condition shall exist
during the currency of life of the
insurance contract.
i. POSITIVE ACT
– [insured in a fire insurance may
warrant that the firewall of the building
will be modified to the height and
specifications stated in the policy
ii. OMISSION
- [where the insured warrants that he
will not store gasoline or kerosene in
the insured building].
NOTES:
- Promissory warranties are subject
to Sections 72 and 73 of the
Insurance Code:
Section 72. A statement in a policy, which
imparts that it is intended to do or not to
do a thing which materially affects the risk,
is a warranty that such act or omission
shall take place.
Section 73. When, before the time arrives
for the performance of a warranty relating
to the future, a loss insured against
happens, or performance becomes
unlawful at the place of the contract, or
impossible, the omission to fulfill the
warranty does not avoid the policy.
FORMALITIES OF EXPRESS WARRANTY
- No particular form of words (Sec. 69)
- HOWEVER, Section 70 states: Without
prejudice to Section 51, every express
 warranty, made at or before the execution of when compliance with the
a policy, (1) must be contained in the policy warranty is rendered unlawful by
itself, or (2) in another instrument signed by any subsequent law.
the insured and referred to in the policy as
making a part of it.
BREACH WITHOUT FRAUD
- Section 76, I.C.
NOTES:
(Examples) A breach of warranty without fraud merely
- A statement in a policy of a matter relating EXONERATES an insurer from the time that it
to the person or thing insured, or to the occurs, or where it is broken in its inception,
risk, as a fact, is an express warranty PREVENTS the policy from attaching to the
thereof. risk.
BREACH OF WARRANTY BY THE INSURED
- Breach of warranty by the insured renders
the CONTRACT DEFEASIBLE.
o In order to avoid the policy, the insurer
must prove such breach consistent DISTINCTIONS:
with the rule that any violation must
be established by the person who is WARRANTY REPRESENTATION
making such allegation. 1. Part of the 1. NOT PART but a
§ The insurer may elect to contract collateral inducement
waive his right to avoid the 2. Written on a 2. Can be oral or in
policy in case of breach by policy or its rider writing
the insured. 3. Presumed to be 3. Must be established
material to be material
REMEDY 4. There must be 4. it must be
- Section 74. The violation of a material strict compliance substantially true.
warranty, or other material provision of a
policy, on the part of either party thereto,
entitles the other to RESCIND.
OTHER DEVICES
- Section 75. A policy may declare that a - Risks can also be limited or controlled using
violation of specified provisions thereof shall ‘exceptions’, ‘exclusions’, and ‘conditions’.
avoid it, otherwise the breach of an
immaterial provision does not avoid the
policy. [AVOID THE POLICY] CONDITIONS
- They do not relate to the risk covered or
NOTES: statement of facts but are in the NATURE OF
- However, If the policy itself COLLATERAL PROMISES OR STIPULATIONS.
provides that breach of a warranty
or a provision avoids the policy, - An insurance contract with stipulated
the warranty is deemed to be conditions is the law between the parties. Its
material. terms and conditions constitute the measure
of the insurer’s liability and compliance
- HOWEVER, Non- compliance with therewith is a condition precedent to the
a warranty is excused when by insurer’s right to recovery from the insurer.
reason of a change of
circumstances, the warranty
ceases to be applicable to the
circumstances of the contract, or

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 33

 - The burden is on the insurer to prove that
the insured breached the condition that is
imposed.
EXCEPTION, EXLUSION OR EXEMPTION
- The insurer may provide for exemptions or
exceptions in the policy.
- HOWEVER, the rule is that, if the insurer
desires to Limit or RESTRICT the operation of
the general provisions of its contract by
special proviso, exception or exemption, the
policy should express such limitation in clear
and unmistakable language.
o The terms and phraseology of the
exception clause be clearly expressed
so as to be within the easy grasp and
understanding of the insured.
o Exceptions to the general coverage are
construed most strongly against the
company.
o The obligation to prove that the loss is
covered by the exception rests with
the insurer.
o The failure of the insurance company
to include death resulting from
murder or assault among the
prohibited risks leads inevitably to the
conclusion that it did not intend to
limit or exempt itself from liability of
such death.
INCONTESTABLE CLAUSE
- Section 48, I.C.
Whenever a right to rescind a contract of insurance
is given to the insurer by any provision of this
chapter, such right must be exercised previous to the
commencement of an action on the contract.
After a policy of life insurance made payable on the
death of the insured shall have been in force during
the lifetime of the insured for a period of two (2)
years from the date of its issue or of its last
reinstatement, the insurer cannot prove that the
policy is void ab initio or is rescindable by reason of
the fraudulent concealment or misrepresentation of
the insured or his agent.
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 34
MANDATORY INCOTESTABLE CLAUSE
- Section 233 requires the following
incontestable clause in an Individual Life or
Endowment Policy.
- Section 234 requires for group life insurance
policies
- Section 236 for industrial insurance policies.
RATIONALE
- The incontestable clause is upheld in law for
the purpose of shutting off harassing
defenses.
- The clause is designed to induce the insurer
to investigate and cat with reasonable
promptness if it wishes to aid the policy.
NOTES:
- The facts can be ascertained and
established if investigated within
the soonest possible time.
Investigation becomes harder
through the passage of time.
- The insurer has 2 YEARS from the
date of issuance of the insurance
contract or of its last
reinstatement within which to
contest the policy, whether or not,
the insured still lives within such
period.
- After 2 years, the defenses of
concealment or misrepresentation,
no matter how patent or well
founded, no longer lie.
WHEN INAPPLICABLE
- The incontestable clause cannot be invoked
in cases:
1. Non- payment of premium
2. Violations of he conditions of the
policy relating to military or naval
service in times of war
3. Property insurance
WAR LIMITATION RIDER OR WAR CLAUSE
- Section 227 requires a provision in the policy that
the INCONTESTABLE CLAUSE DOES NOT APPLY if
 there is a violation of the conditions of the policy
relating to military or naval service in times of war.
- The war clause itself is NOT REQUIRED by the
Insurance Code. However, the moment the parties
include a war clause in the policy, the beneficiaries
can no longer invoke the incontestable clause if the
war clause is violated.
- The war limitation clause or rider limits the liability
of the insurer in the event the insured looses his
life as a result of war.
- Hence, a war clause does not represent so much a
limitation on the coverage in the broad sense as a
practical way of issuing coverage that would not
otherwise be made available to a large number of
young men in times of war or when war is
imminent. It permits the issuance of the life
insurance policies that would not otherwise be
issued.
DEFENSES OF INSURED AGAINST REVOCATION
- Aside from incontestable clause
1. Guaranteed insurability clause
2. Failure to invoke before commencement of the
action
3. Waiver
4. Estoppel
GUARANTEED INSURABILITY CLAUS
- Under Section 228, statements that tend to
show that the insured is uninsurable cannot
be used against him in the ff. cases:
1. If the insurance has been in force prior
to the contest for a period of two years
during the person’s lifetime.
2. If the statement is not in writing and/or
not signed by the insured.
NOTES:
- The term “insurability” includes all matters
EXCEPT AGE OF THE INSURED. It includes
such elements as habits, occupation,
finances and good health.
- Good health is NOT THE SAME AS
INSURABILITY.
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 35
Example: a criminal that is
condemned to death may be in perfect
health but hardly insurable.
- The insurability clause may likewise be
stipulated upon by the parties for individual
life and endowment policies. This clause
becomes more important when the insured
is entitled to reinstatement or renewal of the
policy.
- Proof of insurability at the time of the
application for reinstatement is a proper risk
for insurance upon the basis of the original
contract.
TIMELINESS OF RESCISSION
- The provision requiring the right to rescind
to be exercised previous to the
commencement of an action is a copy of
section 47 in the old law.
- If an insurer cannot rescind the contract
because of the commencement of an action,
the insurer can still set up the ground for
rescission as a defense.
WAIVER
- It is the intentional relinquishment of a
known right.
- It always involves consent but it does not rise
to the level of contract.
- Waiver may be EXPRESS or IMPLIED.
NOTES:
- The right to information of material facts
may be waived, either by the terms of the
insurance or by neglect to make inquiry
as to such facts, where they are distinctly
implied in other facts of which
information is communicated.
- Waiver is also illustrated in Section 33: The
right to information of material facts may
be waived, either by the terms of
insurance or by neglect to make inquiry as
to such facts, where they are distinctly
implied in other facts of which
information is communicated.

ESTOPPEL
- Article 1431, NCC: Through estoppel an
admission or representation is rendered
conclusive upon the person making it, and
cannot be denied or disproved as against the
person relying thereon.
- Estoppel may be in pais or by deed.
- Unlike a waiver, there is element of consent
in estoppel.
[READ: Fieldmen’s Insurance Company v.
Mercedes Vargas Vda. De Songco]
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 36
VII. LOSS AND NOTICE OF LOSS
LOSS
- The injury or damage sustained by the injured in
consequence of the happening of one or more of
the accidents or misfortune against which the
insurer, in consideration of the premium, has
undertaken to indemnify the insured.
- [PROPERTY INSURANCE]
- it is the pecuniary detriment consisting of
the total cash value of the property IN CASE OF
TOTAL LOSS; or the reduction of the cash value IN
CASE OF PARTIAL LOSS.
- [LIFE INSURANCE]
- loss occurs when the person dies while in
health insurance; -
- loss occurs in case of injury to or disability
of the insured.
PROXIMATE CAUSE
- is that cause which, in natural and continuous
sequence, unbroken by any efficient intervening
cause, produces the injury and without which the
result would not have occurred.
REMOTE CAUSE
- that cause which some independent force
merely took advantage of to accomplish
something which is no the natural effect thereof.
- (CAUSA PROXIMA NON REMOTA SPECTATOR)
-THE INSURER WILL NOT BE LIABLE if a
peril insured is a mere remote cause.
NOTES:
- There must be a DIRECT and
UNINTERRUPTED sequence between the
proximate cause and the ultimate loss.
- The INTENTION of the parties comes
into play because of the element of the
perils insured against. UNLIKE IN TORT
CASES, there is a threshold question in
insurance if the peril is covered by the
insurance.
- INITIALLY, the policy should be
examined to determine WHAT
 ARE THE PERILS INSURED
AGAINST AND THE PERILS THAT
ARE EXCLUDED.
- Afterwards, another question is
WHETHER OR NOT THE EVENT
THAT TRANSPIRED FALLS WITHIN
THE CONTEMPLATION OF WHAT
IS EXPRESSLY PROVIDED FOR.
IMMEDIATE CAUSE
- It suggests proximity in time to the loss.
- What is usually contemplated is a situation
where 2 causes are occurred: One cause occurs
after the other.
- Example: an explosion occurs in a
building which was followed by fire which
destroyed the building. (immediate cause:
fire).
NOTES:
- The rules in QUASI-DELICT is that the
tortfeasor is liable only if his NEGLIGENT
act or omission IS THE PROXIMATE CAUSE
OF THE LOSS.
- In INSURANCE CASES, it would be
possible for the insured to recover even if
the insured against is not the proximate
cause the loss. The insurer may be liable
even if the peril insured against is just an
immediate cause and another cause is
the proximate cause.
SUMMARIZED [SECTIONS 86-88]
1. THE INSURER IS LIABLE if the peril insured
against is the proximate cause of the loss. (the
liability is present even if it is accompanied by a
remote cause or an immediate cause and whether
or not such causes are excepted perils).
2. THE INSURER IS NOT LIABLE if the peril insured
against is the remote cause.
3. THE INSURER IS LIABLE if the thing insured is
damaged because it was being rescued from the
peril insured against.
4. THE INSURER IS LIABLE for damages caused by a
peril not insured against to which the thing was
exposed while the same was being rescued from a
peril insured against.
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 37
5. THE INSURER IS LIABLE if the peril insured
against is the immediate cause of the loss if the
proximate cause is NOT an excepted peril.
6. THE INSURER IS NOT LIABLE if the peril insured
against is the immediate cause but the proximate
cause is an excepted peril.
Example:
- FIRE (proximate cause); EXPLOSION
(immediate cause)
- If fire is a peril insured against, even if
explosion is an excepted peril, the
INSURER IS LIABLE.
- If fire is an excepted peril and explosion is
the one insured against, the INSURER IS
NOT LIABLE.
CONCURRENT CAUSES
- (In tort law, where the negligent acts of 2 or
more persons concur in bringing about an injury
to another, the joint tortfeasors shall be solidarily
liable;
- solidary liability is present if the causes are
over-determined, that is, the acts or omissions
concur but can separately cause the same injury
even if only one occurs;)
- In insurance cases, the issue is WHETHER THE
INSURER IS LIABLE IF THE PERIL INSURED
AGAINST IS ONLY ONE OF THE CONCURRENT
CAUSES. When an insurance policy provides
coverage for losses produced by some causes,
and excludes coverage for losses from other
causes, courts frequently hold that coverage
extends to the loss even though an excluded
element is a contributory cause.
- An incidental peril outside the policy,
contributing to the risk insured against, will not
defeat recovery nor may the insurer defend by
showing that an earlier cause brought the loss
not within a peril insured against, where the
insured peril was the last step prior to loss.
- Where only concurring cause of loss is insured
against and damage and damage by each cause
cannot be distinguished, the party responsible for
 the dominating efficient cause has been held
liable for the loss.
- Where there are several concurring causes of loss,
and the damages by the respective perils can be
distinguished, each party must bear his
proportion.
- It has also been observed that California courts
have applied a rule that WHERE TWO PROXIMATE
CAUSES JOIN IN CAUSING AN INJURY ONE OF
WHICH IS INSURED AGAINST, THE INSURER IS
LIABLE UNDER THE POLICY irrespective of the
eventuality that there is another concurrent
proximate cause which constitute an uncovered
risk.
NEGLIGENT AND INTENTIONAL ACTS OR OMISSIONS
- Section 89, I.C.
An insurer is NOT liable for a loss caused by the
willful act or through the connivance of the
insured. BUT he(insurer) is not exonerated by the
negligence of the insured, or of insurance agents
or others.
- RULE:
1. The insurer is NOT LIABLE for losses caused
by intentional acts caused by the insured.
2. The insurer is LIABLE if the loss was caused
through negligence.
- It is a basic rule in insurance that the carelessness
and negligence of the insured or his agents
constitute no defense on the part of the insurer.
- NOTE: While mistake and negligence of the
insured or his agent constitute part of the perils
that the insurer is obliged to incur, such
negligence or recklessness MUST NOT BE OF
SUCH GROSS CHARACTER as to amount to
misconduct or wrongful acts; OTHERWISE, such
negligence shall release the insurer from liability
under the insurance contract.
NOTICE OF LOSS
- Note that this notice is different from the claim
itself although a claim within the period of giving
notice is already deemed compliance within the
requirement.
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 38
- The parties may agree on a stipulation in the
policy that notice should be given within a certain
period from the time of the loss.
- The parties may also agree that the absence of
notice of loss within the period agreed upon will
extinguish the loss.
- HOWEVER, in Fire Insurance, notice of loss is
mandatory under SECTION 90: Notice may be
given either by:
1. The insured
2. The person entitled to the benefit of
the insurance
- Under Section 90, the notice should be given
without UNNECESSARY DELAY. (it would depend
on the circumstances if there was unnecessary
delay in giving the notice of loss.)
- If the policy requires IMMEDIATE NOTICE: Notice
will be considered IMMEDIATE if it has been
given as soon as the circumstances permitted the
insured in the exercise of reasonable diligence, to
communicate it. (in another case, the SC ruled
that the words “immediate notice” can be
construed to mean only within a reasonable time.
NOTES:
- It is sufficient that there is substantial
compliance with the provision in the policy
requiring notice of loss.
- WAIVER OF NOTICE OF LOSS: there is a
waiver f the requirement of notice of loss if
the claim is denied on the ground that the
policy is null and void. (reason: furnishing of
such notice would be useless)
PROOF OF LOSS
- General rule: It is NOT REQUIRED for the insured
to submit a preliminary proof of loss.
- Exception: there is a stipulation in the policy
requiring submission of proof of loss.
NOTES:
- If there is a contractual stipulation,
compliance should be in accordance with
Sections 91 and 94 of the Insurance Code.
Section 91. 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.
Section 94. If the policy requires, by way of
preliminary proof of loss, the certificate or
testimony of a person other than the insured,
it is sufficient for the insured to use
reasonable diligence to procure it, and in
case of the refusal of such person to give it,
then to furnish reasonable evidence to the
insurer that such refusal was not induced by
any just grounds of disbelief in the facts
necessary to be certified or testified.
DEFECTS IN NOTICE AND PROOF
- Section 92, I.C.
All defects in a notice of loss, or in preliminary
proof thereof, which the insured might remedy,
and which the insurer omits to specify to him,
without unnecessary delay, as grounds of
objection, are waived.
- NOTE: There is no defect of proof even if an
adjuster’s report is not submitted. There in
nothing in the I.C. that makes the participation of
an adjuster in the assessment of the loss
imperative or indispensable.

- The law DOES NOT REQUIRE preponderance of EFFECT OF DELAY

evidence because the insured is not bound to
submit preliminary proof. Substantial evidence is
also NOT REQUIRED because the latter is required
only in quasi-judicial cases. ALL THAT THE LAW
REQUIRES is for the insured to give the best
evidence which he has in his power to submit at
that time.
- Section 93:
Delay in the presentation to an insurer of notice
or proof of loss is waived if caused by any act of
him, or if he omits to take objection promptly and
specifically upon that ground.

- If the policy is valued, the valuation fixed in fire
insurance policy is conclusive in case of total
loss.\
- If the policy is an open policy, the valuation is not
conclusive and the loss and its amount may be
determined on the basis of such proof as may be
offered by the insured, which need not be of such
persuasiveness as is required in the judicial
proceedings.
CASES WHEN DELAY IS EXCUSED
1. When delay is attributable to the insurer.
2. When there was no prompt objection.
3. There was an objection but not specifically
on the ground that there was delay of notice
or proof of loss.

- HOWEVER, if the claim is denied and the insured

is constrained to file a case in court, the burden
of proof is on the insured to prove his loss. If a
case is filed in court, the insured must prove his
cause of action by preponderance of evidence
- In an accident insurance, the insured’s
BENEFICIARY has the burden of proof in
demonstrating that the cause of death is due to
the covered peril. Once established, the burden
then shifts to the INSURER to show any excepted
peril that may have been stipulated by the parties.
HOWEVER, when the insured risk is specified it
lies with the claimant of the insurance proceeds
to initially proof that the loss is caused by the
covered peril.

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 39

 VIII. CLAIMS SETTLEMENT AND SUBROGATION
The expectation of payment for his loss is the primary
reason why the insured entered into the insurance
contract. For the insured, it is imperative that the insurer
effect a fair and prompt payment for his loss. For the
insured, it is imperative that the insurer effect a fair and
prompt payment for his loss.
CLAIMS SETTLEMENT
- Section 247, I.C.
No insurance company doing business in the
Philippines shall refuse, without just cause, to pay
or settle claims arising under coverages provided
by its policies, nor shall any such company engage
in unfair claim settlement practices. Any of the
following acts by an insurance company, if
committed without just cause and performed
with such frequency as to indicate a general
business practice, shall constitute unfair claim
settlement practices.
TERMS:
- Insurance Adjusting- the term used to denote the
function of loss payment.
- Adjuster- the person employed by the insurer in
property and casualty insurance to settle in
behalf of the insurer the claim of the insured. The
adjuster evaluates the insurance claim and makes
the proper recommendation to the insurer.
Under the insurance code, the adjuster may be
an Independent Adjuster or a Public Adjuster.
(NOTE: however, that the functions of an adjuster
are merely to settle and adjust claims in behalf of
his principal. The adjuster does not assume
personal liability.)
- Independent Adjuster- any person, partnership,
association or corporation which, for money,
commission or any other thing of value, acts for
or on behalf of an insurer in the adjusting of
claims arising under insurance contracts or
policies issued by such insurer.
- Public Adjuster- is any person, partnership,
association or corporation which, for money,
commission or any other thing of value, acts of an
insured in negotiating for, or effecting, the
settlement of a claim or claims of the said insure
arising under insurance contracts or policies, or
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 40
which advertises for or solicits employment as an
adjuster of such claims.
UNFAIR CLAIMS SETTLEMENT
1. Knowingly misrepresenting to claimants the
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 the 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.
LIFE INSURANCE POLICY
- In this policy, the proceeds shall be paid
immediately upon maturity of the policy.
- HOWEVER, the policy may provide that the
proceeds are made payable in installments or as
an annuity as they become due.
NOTES:
- In the case of a policy maturing by the death
of the insured, the proceeds shall be paid
within 60 days after presentation of the
claim and filing of the proof of death of the
insured.
- Refusal or failure to pay the claim within the
time prescribed therein will entitle the
beneficiary to collect interest on the
proceeds of the policy for the duration of the
delay at the rate of twice the ceiling
prescribed by the Monetary Board, unless it
is based on the ground that the claim is
fraudulent. (Section 249)
NON-LIFE INSURANCE POLICY
- The amount of any loss or damage for which an
insurer may be liable shall be paid with 30 days
after proof of loss is received by the insurer and
ascertainment of the loss or damage is made
either by agreement or by arbitration.
NOTES:
- If ascertainment of loss is not had or made
within 60 days after such receipt by the
insurer of the proof of loss, then the loss or
damage shall be paid within 90 days after
receipt of the proof of loss.
- Refusal or failure to pay the claim within the
time prescribed therein will entitle the
beneficiary to collect interest on the
proceeds of the policy for the duration of the
delay at the rate of twice the ceiling
prescribed by the Monetary Board (“double
interest” = 12% (6% x 2)), unless it is based
on the ground that the claim is fraudulent.
(Section 249)
- The insurer must settle the claim even
without the participation of an adjuster.
[there is nothing in I.C. that makes
participation of an adjuster imperative or
indispensable nor require as a prerequisite in
the settlement of the insurance claim].
UNREASONABLE DENIAL OR WITHHOLDING OF CLAIM
- It shall be the duty of the Commissioner or the
Court to make a finding as to whether the
payment of the claim of the insured has been
unreasonably denied or withheld.
- It should be noted that failure to pay any such
claim within the time prescribed in Sections 248
and 249 of the I.C. shall be considered prima facie
evidence of unreasonable delay in payment.
INTEREST AND DAMAGES
- The insurance company shall be adjudged to
pay the ff. if the claim has been
unreasonably denied or withheld:
1. Attorney’s fee
2. Other expenses incurred by the insured
by reason of such unreasonable denial or
withholding
3. Interest of 12%
4. Amount of the claim
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 41
NOTES:
- For an insurance company to be held liable
for unreasonable delaying and withholding
payment of insurance proceeds, the DELAY
must be WANTON, OPPRESSIVE, or
MALEVOLENT. However, an insurer may in
GOOD FAITH and HONESTY entertain a
difference of opinion as to its liability.
- The insurer cannot be deemed to be guilty
UNLESS the evidence and circumstances
show that such refusal was WILLFUL and
WITHOUT REASONABLE CAUSE as the facts
appear to a reasonable and prudent man.
- IF THERE IS NO UNREASONABLE DELAY OR
UNJUSTIFIED REFUSAL in settling the claim of the
insured, the interest is 6% per annum from the
time of demand.
o HOWEVER, even if the BSP will eventually
increase the rate of interest to a rate that
is higher than 6% for loan or forbearance
of money or goods, then the higher rate
is still not applicable to insurance claim
because the insurance claim is not a loan
or forbearance of money.
§ HOWEVER, in case such increase
of legal interest back to 12%
would be made, consistent with
the general rule under the NCC,
the interest of 12% should
already be applied from the time
the judgment of court ordering
the payment of the insurance
claim becomes final and
executory.
- Mere denial of the claim does not warrant of the
award of moral and exemplary damages and
attorney’s fees. In order that a person may be
made liable to the payment of moral damages,
the LAW REQUIRES THAT HIS ACT BE WRONGFUL.
The adverse result of an action does not per se
make the act wrongful and subject the act to the
payment of moral damages.
FRAUDULENT CLAIM
- The insurer may unjustifiable reject a claim that is
fraudulent. Similarly, the denial of the claim may
also be justified if the loss is grossly overvalued.

- Section 251, I.C.
It is unlawful to:
(a) Present or cause to be presented any
fraudulent claim for the payment of a loss
under a contract of insurance; and
(b) Fraudulently prepare, make or subscribe any
writing with intent to present or use the same,
or to allow it to be presented in support of
any such claim. Any person who violates this
section shall be punished by a fine not
exceeding twice the amount claimed or
imprisonment of two (2) years, or both, at
the discretion of the court.
- The first paragraph is clear that the person who
presented or caused to be presented any
fraudulent claim is criminally liable. However,
with respect to second paragraph, it is believed
that the same cannot be interpreted to mean
that mere preparation of a claim form is enough
to make one liable. If the form was prepared
with the intent to present or use the same BUT
the form was not submitted because the person
who prepared it changed his mind and kept it in
his drawer, then there should be NO LIABILITY.
Even if violation of Section 251 is mala prohibita,
it is absurd to make one liable just by preparing
the claim.
- It is believed that Section 251 (b) presupposes
that a claim was already presented since the
word “fraudulently” indicates that the insurer
was already aware of the claim.
- If a fraudulent claim was filed, the PERSONS WHO
MAY BE MADE CRIMINALLY LIABLE under Section
251 are as follows:
1. The person who presented the fraudulent
claim
2. The person who caused the filing of the the
fraudulent claim
3. The person who prepared or made the
fraudulent claims with intent to present or
use the same, or to allow it to be presented
in support of any such claim
4. The person who subscribed any writing with
intent to present or use the same, or to
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 42
allow it to be presented in support of any
such claim.
- Under Section 82, of the I.C.: “A person insured is
NOT ENTITLED to a return of premium if the policy
is annulled, rescinded or fi a claim is denied by
reason of fraud.” It follows, that the insurer is also
not liable to pay interest for its refusal to pay the
claim based on the ground that the claim is
fraudulent.
PRESCRIPTIVE PERIOD
- General Rule: I.C. provides no prescriptive period
for the filing of a complaint for the recovery of
the proceeds.
- Exception: 1-year period provided for in the case
of Compulsory Third Party Liability Insurance
under Sec. 397.
STIPULATION
- Parties may stipulate a prescriptive period in the
policy subject to the limitation under Sec. 63, I.C.:
A condition, stipulation, or agreement in any
policy of insurance, limiting the time for
commencing an action thereunder to a period of
less than one (1) year from the time when the
cause of action accrues, is void.
ACCRUAL
- The right of the insured to the payment of his loss
accrues from the happening of the loss.
HOWEVER, the cause of action in an insurance
contract does not accrue until the insured’s claim
is finally rejected by the insurer.
o The rejection referred to should be
construed as the rejection in the first
instance, for if what is being referred to is
a reiterated rejection conveyed in a
resolution of a petition for
reconsideration, such should have been
expressly stipulated.
- a stipulation in a policy that no action shall be
sustainable unless commenced within 12 months
after the loss, is binding, and bars a suit
commenced after that time, even though a prior
suit was commenced within 12 months, and
failed without fault on the part of the plaintiff.
 RULE IF THERE IS NO STIPULATION
- if none, the prescriptive period is 10 years from
the rejection of the claim by the insurer.
SUBROGATION
- Subrogation is an arm of equity that may guide or
even force one to pay a debt for which an
obligation was incurred but which was in whole
or in part paid by another.
- Subrogation is founded on the principle of justice
and equity and its operation is governed by
principles of equity.
- Under Article 2207, NCC: If the plaintiff's property
has been insured, and he has received indemnity
from the insurance company for the injury or loss
arising out of the wrong or breach of contract
complained of, the insurance company shall be
subrogated to the rights of the insured against
the wrongdoer or the person who has violated the
contract. If the amount paid by the insurance
company does not fully cover the injury or loss,
the aggrieved party shall be entitled to recover
the deficiency from the person causing the loss or
injury.
- If the insured property is destroyed or damaged
through the fault or negligence of a party other
than the assured, then the insurer, upon payment
to the assured, will be subrogated to the rights of
the assured to recover from the wrongdoer to
the extent that the insurer has been obligated to
pay. Payment by the insurer to the assured
operates as an equitable assignment to the
former of all remedies which the latter may have
against the third party whose negligence or
wrongful act caused the loss.
REQUISITES OF SUBROGATION
1. The insurance involved is PROPERTY INSURANCE
2. There is a loss arising from the risk insured
against
3. The insured received indemnity from the insurer
for the loss
4. The indemnity is covered by the face value of
the policy
WHEN THERE IS NO SUBROGATION (instances):
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 43
1. If the assured by his own act releases the
wrongdoer or third party liable for the loss or
damage, from liability, the insurer’s right of
subrogation is defeated.
2. Where the insurer pays the assured the value of
the lost goods without notifying the carrier who
has in good faith settled the assured’s claim for
loss, the settlement is binding on both the
assured and the insurer, and the latter cannot
bring an action against the carrier on his right of
subrogation.
3. Where the insurer pays the assured for a loss
which is not a risk covered by the policy, thereby,
effecting “voluntary payment,” the former has no
right of subrogation against the third party liable
for the loss.
4. When life insurance is involved.
LIMITATIONS
- If the claim of the insured against a third party is
limited, the right of subrogation of the insurer is
likewise limited. (An example would be in cases
where a common carrier is responsible for the
damage and there as a valid limitation in the bill
of lading as to the amount recoverable from the
carrier. If the insurer, after paying the claim of
the insured under the insurance is subrogated
merely to the rights of the assured. And as
subrogee, it can recover only the amount that is
recoverable by the latter.)
- If the amount recoverable by the insured from
the person who caused the loss is more than the
face value of the policy, the insurer can only
recover from the person who caused the loss the
amount that it actually paid to the insured.
- If the claim of the insured is subject to a
prescriptive period, the claim of the insurer by
virtue of its right of subrogation is also subject to
the same prescriptive period.
DISCRETION OF INSURER TO EXERCISE RIGHT
- Whether or not the insurer should exercise the
rights of the insured to which it has been
subrogated lies solely within the former’s sound
discretion. The insurer may opt not to exercise its
right of subrogation.
 IX. DOUBLE INSURANCE
When two or more insurers issue separate insurance
policies over the same subject, the inevitable conflict
results and the danger that fraud may permeate the
transactions becomes greater.
DEFINITION
Sec. 95, I.C.
A double insurance exists where the same person
is insured by several insurers separately in
respect to the same subject and interest.
REQUISITES
1. The same person is insured
2. There are two or more insurers that insured the
person separately
3. The insurance is over the same subject
4. The same interest is involved
5. The same peril is insured against
NOTES:
- There is double insurance if the owner of a house
will insure it with 2 insurers (if requisites are
present)
- There is NO double insurance if the owner and
the lessee of the same house insures the same
with two insurers. (there being 2 separate
interests are insured by different persons)
- There is NO double insurance if the mortgagor
and the mortgagee separately insures the
mortgaged property. (they do not involve the
same interest)
- There is NO double insurance because although
the same person and subject are involved in both
insurance policies, the peril insured against are
different.
- There is NO double insurance if the owner and
the carrier separately insured the same goods.
(the carrier’s insurance interest is recognized
under Section 15, I.C.)
DOUBLE INSURANCE IN LIFE INSURANCE
- It is possible BUT there can never be
over-insurance.
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 44
- The life of a person can be insured for any
amount and it would still be inadequate because
of the intrinsic value of life.
NO GENERAL PROHIBITION AGAINST DOUBLE
INSURANCE
- Exception: Section 64(f): Discovery of other
insurance coverage that makes the total
insurance in excess of the value of the property
insured
- It shows that policy can be rescinded if two
conditions are present: (1) another insurance
coverage is discovered; (2) the total insurance is
in excess of the value of the property insured.
- THUS, the general rule is that taking other
insurance coverage is NOT PROHIBITED provided,
that the total insurance is not in excess of the
value of the property insured.
OTHER INSURANCE CLAUSE
- Taking of another insurance policy over the same
property may also be prohibited by stipulation in
what is known as the “OTHER INSURANCE
CLAUSE”.
ALTERNATIVE FORMS
1. A condition that states that procurement of
additional insurance without the consent of the
insurer renders void the policy ipso facto.
2. A provision that requires the insured to disclose
the existence of any other insurance on the
property. (otherwise, the contract may be
avoided for material concealment).
3. A warranty that there is no other existing
insurance over the same property.
NOTE: the standard fire insurance policy usually
contains a condition that the insured shall give notice
to the insurer of any insurance or insurance already
effected,.. and unless such notice is given and the
particulars of such insurance or insurances is stated,
all benefits under the policy shall be forfeited.
RATIONALE
- To prevent over-insurance and thus avert the
perpetration of fraud.
 - The “other insurance clause” prevents the
increase of the moral hazard.
VALIDITY
- The validity of a clause in a fire insurance policy
to the effect that the procurement of additional
insurance without the consent of the insurer
render ipso facto the policy void is well-settled.
- The terms of the policy which required the
insured to declare other insurances, the
statement in question must be deemed to be a
statement (warranty) binding on both insurer and
insured, that there was no other insurance on the
property.
- Violation thereof entitled the insurer to rescind.
- Such misrepresentation is fatal.
- The materiality of non-disclosure of other
insurance policies is not open to doubt.
ADDITIONAL INSURANCE
- (*read cases in the book)
OVER-INSURANCE BY DOUBLE INSURANCE
- There is over-insurance if the insured takes out
an insurance over the property insured in an
amount which is in excess of the value of his
insurable interest.
NOTES:
- Over-insurance MAY EXIST even if there is only
one insurer and one policy.
- Over-insurance MAY EXIST if there is double
insurance.
o Example: Mr. x owns a house valued at
400k and he insures it with ABC Insurance
Corporation against fire for 300K and XYZ
I.C. against fire for 300K.
- It does not follow that there will be
over-insurance if there is double-insurance. In
fact, there can be under- insurance if there is
double insurance.
RULES IN CASE OF OVER-INSURANCE BY DOUBLE
INSURANCE
- In this case, it is necessary to determine from
whom and how much can the insured recover.
Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 45
- It is also necessary to determine the rights of the
insured. One indispensable consideration is that
an insurance contract is a contract of indemnity.
THUS, if there is over-insurance, he cannot
recover beyond his loss. [it is to emphasize,
however, that this is true only with respect to
property insurance because insurance over the
life of a person is not a contract of indemnity and
there cannot be over-insurance over the life of
any person.]
- Section 96, I.C.
Where the insured in a policy other than life is
over insured by double insurance:
(a) The insured, unless the policy otherwise
provides, may 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;
(b) Where the policy under which the insured
claims is a valued policy, any sum received by
him under any other policy shall be deducted
from the value of the policy without regard to
the actual value of the subject matter
insured;
(c) Where the policy under which the insured
claims is an unvalued policy, any sum
received by him under any policy shall be
deducted against the full insurable value, for
any sum received by him under any policy;
(d) Where the insured receives any sum in excess
of the valuation in the case of valued policies,
or of the insurable value in the case of
unvalued policies, he must hold such sum in
trust for the insurers, according to their right
of contribution among themselves;
(e) Each insurer is bound, as between himself and
the other insurers, to contribute ratably to the
loss in proportion to the amount for which he
is liable under his contract.
 X. REINSURANCE
DEFINITION
- Section 97, I.C.
A contract of reinsurance is one by which an
insurer procures a third person to insure him
against loss or liability by reason of such original
insurance.
- A reinsurance transaction is
“an agreement between two parties, called the
reinsured and reinsurer, whereby the the latter
agrees to accept a certain fixed share of the
reinsured’s risk upon terms set out in the
agreement.”
- The original insurer, who,
having issued a policy to an insured to cover a
certain risk, desires to relieve itself of part
thereof. It cannot exist without an original
insurance coverage.
- The original insured may be allowed to
directly sue the reinsurer if the reinsurance
policy contains a stipulation pour atrui in
favor of the original insured which is allowed
under Article 1311(2nd par.).
o The stipulation must be clear and
unmistakable.
o HOWEVER, such provision would not be
affected or curtailed in any way, without
prejudice to the insurer in turn filing a
third party complaint against the
reinsurer.
- Since the reinsurer is not a party to the
original insurance contract, the reinsurer
cannot intervene as a matter of right in an
action filed by the original insured against
the insurer.
- Assignment. The original insured may
likewise directly sue the reinsurer if the
insurer-reinsured assigns the proceeds of the
reinsurance policies to the original insured.

NATURE DISTINCTIONS:
- The peril insured against is
the risk that the insurer will suffer a loss when it
will be required to pay the original insured. DOUBLE- INSURANCE REINSURANCE
- The risk of damage to the - The insurer - The insurer
property insured by the insurer (reinsured) is not remains in such becomes an
assumed by the reinsurer although the same capacity only insured (reinsured)
damage triggers the liability of the reinsurer. in the reinsurance
policy
- Only 1 insured - 2 separate insured
PARTIES - the subject-matter - the subject-matter
- ORIGINAL INSURER (now called the: REINSURED) is the property is the liability of the
o [The reinsured is also called, the “ceding insured insured
company” or the “direct writing - the same interest is - involves separate
company” insured interest
- REINSURER - same peril is - different perils are
insured against in insured against in
NOTES: separate policies separate policies
- There is no privity between the original
insured and the reinsurer. “The original
insured has no interest in a contract of
REINSURANCE CO-INSURANCE
reinsurance”. Thus, the original insured
CANNOT FILE AN ACTION to recover from
- 2 separate - only 1 contract
the reinsurer even if he has difficulty in
contracts
recovering from the original insurer.
- the liability is fixed - the obligation on

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 46

 in a separate the part of the for insurance. The reinsurer is under NO
contract between insured is fixed by OBLIGATION TO ACCEPT THE INSURANCE.
different parties law or in a clause - The term” facultative” is used in insurance
stipulated upon contracts merely to define the right of the
- the insured will - the insured will reinsurer to accept or not to accept participation
not shoulder part share in the loss in the risk insured. But once accepted, the
of the loss contemplated by obligation is absolute and the liability assumed
contemplated by the original thereunder can be discharged by one and ONLY
the reinsurance contract WAY- payment of the share of the losses.
contract
- NOT MANDATED - PROVIDED by law in NOTE: A facultative reinsurance is not the
by law in marine marine insurance equivalent of facultative obligation under NCC, as
insurance there is no alternative nor substitute prestation
in reinsurance.

FUNCTIONS
- PRIMARY FUNCTION: to absorb those surplus
amounts on each risk accepted by the reinsured
which go beyond what it can safely retain for its
own account.
o It is a method whereby an ORIGINAL
INSURER distributes its risks by giving off
the whole or some portion thereof to
another insurer, with the object of
reducing the amount of its possible loss.
SIGNIFICANT FUNCTIONS:
1. It gives insurers the benefit of greater stability
resulting from a widespread business.
- “by accepting many risks and scaling down by
reinsurance, all those that are larger than the
normal carrying capacity of the ceding company
justifies, uncertainty is reduced through the
application of the law of large numbers”
2. it enables insurers to have a single risk capacity to
accommodate policies of large amounts, with the
knowledge that they can protect themselves
against staggering losses by adjusting risks in such
a manner as to reduce the probability of serious
inroad into their capital and surplus.
KINDS
1. FACULTATIVE REINSURANCE
2. AUTOMATIC TREATY
AUTOMATIC TREATY
- It involves a PRIOR AGREEMENT between the
insurer and the reinsurer that the latter is
compelled to accept what is being ceded by the
insurer.
- It may be “QUOTA-SHARE TREATY”,
“SURPLUS-SHARE TREATY”, “EXCESS-OF-LOSS
TREATY”, & “REINSURANCE POOL”.
1. “QUOTA-SHARE TREATY”- the insurer and the
reinsurer agree to share losses and premiums
based on some proportion.
2. “SURPLUS-SHARE TREATY”- the reinsurer accepts
in excess of the ceding company’s retention limit
up to a maximum account.
3. “EXCESS-OF-LOSS TREATY”- losses in excess of the
retention limit are paid by the reinsurer up to
some maximum limit. This is often used for
catastrophic loss.
4. “REINSURANCE POOL”- it is an organization of
insurers that underwrites reinsurance on a joint
basis.
INSURABLE INTEREST
- in reinsurance, the reinsured has no interest in
the property or life that is originally insured.
HOWEVER, THE REQUIREMENT OF INSURABLE
INTEREST IS COMPLIED WITH by the fact that the
reinsured has issued the original policy and
accepted liability to its original insured.

FACULTATIVE REINSURANCE OBLIGATION

- It is an OPTIONAL, CASE-BY-CASE METHOD used - the REINSURER is obligated to pay the insurer or
when the ceding company receives an application ceding company the moment the latter is
exposed to liability.

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 47

MEASURE OF LIABILITY the different areas from which the business is
- Measured by the extent of the liability of the derived.
reinsured under the original policy and the - BORDEREAU- the policy form shows loss history
amount of the reinsurance. and premium history with respect to specific
- The reinsurance CANNOT EXCEED the amount of risks.
the liability of the insurer under the original
policy.
CANCELLATION
GOOD FAITH - Reinsurance policies may be cancelled on the
- Reinsurance is also a contract uberrimae fidae. It same ground as ordinary insurance policies.
has been stated that the foundation of - Cancellation of treaty DOES NOT automatically
reinsurance are: result in the cancellation of the reinsurance
1. Full information, so far as possessed by the contracts.
reinsured, as to the risk on which the
reinsurance is requested
2. Full information as to the amount retained by
the reinsured on the identical property which
the reinsurance is requested.

DUTY TO COMMUNICATE
- Section 98, I.C.

Where an insurer obtains reinsurance, except

under automatic reinsurance treaties, he must
communicate
(1) all the representations of the original insured,
and also
(2) all the knowledge and information he
possesses, whether previously or
subsequently acquired, which are material to
the risk.

DUTY TO COMMUNICATE IN A TREATY

- representations or other information NEED NOT
BE DISCLOSED by the insurer because the
reinsurer is compelled to accept what is being
ceded.
- However, the duty of good faith remains in
automatic treaty. In the general operation of the
treaty, the reinsured is bound to exercise the
utmost good faith toward its reinsurer.
- Thus, before entering into a treaty, the reinsurer
is necessarily interested in acquiring general
knowledge of the reinsured and the latter must
give information that relates to: (i) the standing
and reputation of the insured; (ii) the experience
and quality of its management; (iii) the general
underwriting policy of the reinsured; (iv) the
company’s limit of retention and their
relationship with the total premium income; (v)

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 48

XI. MARINE INSURANCE

Source: Essentials of Insurance Law by Timoteo B. Aquino | CARRASCO 49