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INSURANCE LAW Atty. Villanueva
I. A. INTRODUCTION Laws governing insurance a. Insurance Code of 1978 (PD 1460) as amended by PD 1814 and BP 874 b. Civil Code c. Revised Government Service Insurance Act of 1977 d. Social Security Act of 1954 (RA 1161) e. Property Insurance Law (RA 656) f. Philippine Deposit Insurance Corp (RA 3591) g. Executive Order 250 h. RA 4898 General Concept of Insurance – Sec 2 of the Insurance Code, “A contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event.” Characteristics a. Risk distributing device – the device of insurance serves to distribute the risk of economic loss among as many as possible to those who are subject to the same kind of risk. By paying a pre-determined amount into a general fund out of which payment will be made for an economic loss of a defined type, each member contribute to a small degree toward compensation for losses suffered by any member of the group. This broad sharing of economic risk is the principle of risk-distribution. b. Contract of adhesion – most of the terms of the contract do not result from mutual negotiations between the parties as they are prescribed by the insurer in printed form to which the insured may “adhere” if he chooses but which he cannot change. Hence, in case of doubt, the contract shall be interpreted strictly against the insurer and liberally in favor of the insured. However, of the terms of the contract are clear, there is no room for interpretation and the courts are bound to abide by the provisions of the insurance contract although the contract may be rather onerous. c. Aleatory – the obligation of the insurer to pay the proceeds of the insurance arises only upon the happening of an event which is uncertain, or which is to occur at an indeterminate time. In a sense, however, the contract of insurance is commutative bec there is still exchange of equivalents – the amount paid by the insured is deemed the equivalent of the protection given by the insurer based on the insurance contract. d. Contract of indemnity – it is the basis of all property insurance. It simply means that the insured who has insurable interest over a property is only entitled to recover the amount of actual loss sustained and the burden is upon him to establish the amount of loss. i. Applicable only to property insurance, except creditor insuring the life of his debtor ii. Life insurance is not a contract of indemnity. There is no over insurance in life insurance. There is over insurance only in property insurance and if this is present, the insurer is only liable up to the extent of the loss. iii. Insurance contracts are not wagering contracts e. Uberrimae Fides – the contract of insurance is one of perfect or utmost good faith not for the insured alone, but equally so for the insurer, in fact, it is more so for the latter since its dominant bargaining position carries with it stricter responsibility. It requires the parties to the contract of insurance to disclose conditions affecting the risk of which he is aware, or material fact, which the applicant knows, and those, which he ought to know. This doctrine is essential on account of the fact that the full circumstances of the subject matter of insurance are, as a rule, known to the insured only and the insurer in deciding whether or not to accept a risk, must rely primarily upon the information supplied to him by the applicant. Elements of insurance a. Existence of an insurable interest b. Risk of loss c. Assumption of risk d. Scheme to distribute losses e. Payment of premiums Subrogation a. There is no need for a formal assignment or an express stipulation in the policy. It is a legal effect of payment. b. The insurer can only recover from the third person what the insured could have recovered. Thus, there can be no recovery if the insurer voluntarily paid even if the loss is not covered by the policy. The insured can no longer recover from the offending party what was paid to him the by insurer but he can recover any deficiency, that is, if his damages is more than what was paid. The deficiency is not covered by the right of subrogation. c. The insurer must present the policy as evidence to determine the extent of its coverage. d. Cases when there is no right of subrogation i. The insured by his own act releases the offending party liable for the loss ii. In life insurance iii. Where the insurer pays the insured for a loss or risk not covered by the policy. iv. For recovery of loss in excess of insurance coverage. Contract of Insurance
2 A. Requisites of a contract of insurance a. Subject matter in which the insured has an insurable interest - anything having an appreciable pecuniary value, which is subject to loss or deterioration or of which one may be deprived so that his pecuniary interest is or may be prejudiced, may properly constitute the subject matter of insurance b. Event or peril insured against which may be any future contingent or unknown event, past or future, and a duration for the risk thereof - Sec 3 par 1 states, the contingency or unknown event must be such that its happening will damnify or cause loss to a person having insurable interest or create a liability against him. c. A promise to pay or indemnify in a fixed or ascertainable amount d. A consideration for the promise, known as the premium e. A meeting of the minds of the parties upon all the foregoing essentials - cognition theory; mere submission of the application without the corresponding approval of the policy does not result in the perfection of the contract of insurance; Art 1319 of the Civil Code provides that acceptance of an offer by letter does not bund the offerer except from the time the acceptance is made known to both parties. f. Parties must be competent to enter into the contract Parties a. Married women can enter into insurance contracts without the assistance of their husbands b. Minors can no longer enter into insurance contracts bec the age of majority has already been lowered to 18. Insurance not a wagering contract a. In a gambling contract, the parties contemplate gain through mere chance while in a contract of insurance, the parties seek to distribute possible loss by reason of mischance b. The gambler courts fortune, while the insured seeks to avoid misfortune c. The contract of gambling tends to increase the inequality of fortune, while the contract of insurance tends to equalize fortune d. The essence of gambling is this: whatever one person wins from a wager is lost by the other wagering party. In a contract of insurance, what one insured gains is not at the expense of another insured. Basically, it can be said that the entire group of insured provides through the premiums paid, the funds which make possible the payment of all claims e. As soon as a party makes a wager, he creates a risk of loss to himself where no such risk existed previously. On the other hand, the purchase of insurance does not create a new and, therefore, nonexistent risk of loss to the purchaser. Instead, the only intelligent reason for purchasing insurance is that the purchaser faces an already existing risk of economic loss. Similarity of contract of insurance and wagering a. One party promises to pay a given sum to the other upon the occurrence of a given future event, the promise being conditioned upon the payment, or agreement to pay, a stipulated amount by the other party to the contract.
III. Insurable Interest – In general, a person is deemed to have an insurable interest in the subject matter insured where he has a relation or connection with or concern in it that he will derive pecuniary benefit or advantage from its preservation and will suffer pecuniary loss or damage from its destruction, termination, or injury by the happening of the event insured against. - interest does not necessarily imply a right to the whole or a part of the thing. To have an interest in the preservation of a thing is to be circumstanced with respect to it as to have benefit from its existence and prejudice from its destruction. - A policy issued to a person without interest in the subject matter is a mere wager policy or contract ad is void. - The requirement of an insurable interest to support a contract of insurance is based upon considerations of public policy which render wager policies invalid. A wager policy is obviously contrary to public interest. It is demoralizing in that: o It allows the insured to have an interest in the destruction of the subject matter rather than its preservation o It affords a temptation or an inducement to the insured, having nothing to lose and everything to gain, to bring to pass the event upon the happening of which the insurance becomes payable. - Insurance should not provide the insured with the means of making a net profit from the happening of the event insured against. The requirement is enforced and the defense permitted not in the interest of the insurer but of a sound public policy. A. Life Insurance a. Insurance upon one’s own life - taken out by the insured upon his own life for the benefit of himself, or of his estate, in case it matures only at his death, or for the benefit of a third person who may be designated as beneficiary. An application for insurance on one’s own life does not usually present an insurable interest question. o Every person has an unlimited insurable interest in his own life whether the insurance is for the benefit of himself or another; and it is not at all necessary that the beneficiary designated in the policy should have any interest in the life of the insured. o An exception to the general rule exists in cases in which the court finds that a wagering policy has been taken out by the insured on his life at the behest of a third person who is named as beneficiary. Evidence of a wagering policy is usually found in such facts as: That the original proposal to take out insurance was that of the beneficiary; That premiums are paid by the beneficiary
3 That the beneficiary has no interest, economic or emotional in the continued life of the insured. o On finding that such a policy is primarily a wager, the court will generally void the policy entirely. o In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is concerned. As a consequence, the proscription in Art 739 of the Civil Code (people prohibited from receiving donations – people engaged in adultery or concubinage[only preponderance of evidence]; people guilty of the same offense as principal, accomplice or accessory; made to a public officer or his wife, ascendants, descendants by reason of his office) should equally operate in life insurance contracts. b. Insurance upon the life of another – When one applies for insurance on the life of another for the former’s benefit, he must have an insurable interest in the life of that person. o There is no need for pecuniary benefit in the ff cases bec theses are required to support each other: Spouse; legitimate ascendants and descendants; Parents and their legitimate children and the legitimate or illegitimate children of the latter Parents and their illegitimate children and the legitimate or illegitimate children of the latter Legitimate brothers and sisters, whether full or half-blood Brothers and sisters not legitimately related whether full or half-blood are likewise bound to support each other except only when the need for support of the brother or sister, being of age, is due to a cause imputable to the claimant’s fault or negligence. o When pecuniary benefit is essential: Relationship by affinity The assumption of parental relations when a man sends a girl to school and pays her expenses A corporation in the life of an officer whose services the corporation depends for its prosperity, and whose death will be the cause of substantial pecuniary loss to it On the life of a business partner In the case of employees, insurable interest is dependent upon the value of the employee to the business. One who could be easily replaced would hardly be one in whom the employer could reasonably claim insurable interest o Insurable interest of creditor in life of his debtor A creditor may insure his debtor’s life for the purpose of protecting his debt but only to the extent of the amount of the debt and the cost of carrying the insurance on the debtor’s life. The insurance does not inure to the benefit of the debtor unless, the contrary is expressly stipulated. It follows that the insuring creditor could only recover such amounts as remain unpaid at the time of the death of the debtor. If the whole debt has already been paid, then recovery on the policy is no longer permissible. o It seems under our law, the consent of the person insured is not essential to the validity of the policy so long as it could be proved that the assured has a legal insurable interest at the inception of the policy. The presence of insurable interest takes the contract out of the class of forbidden wages. Insurable interest in property – that anyone has an insurable interest in property who derives benefit from its existence or would suffer loss from its destruction. Insurable interest in a property is not necessarily an interest in property in the sense of title, but a concern in the preservation of the property and such a relation to or connection with it as will necessarily entail a pecuniary loss in case of its destruction or injury. As a general rule however, the expectation of benefit to be derived from the continued existence of property must have a basis of legal right, although the person insured has no title, either legal or equitable to the property insured. a. Existing interest – under legal or equitable title (purchaser of property before delivery; mortgagee, etc) b. An inchoate interest founded on an existing interest – stockholder as to the property of the corporation, partner as to the property of the partnership c. Expectancy, coupled with an existing interest in that out of which the expectancy arises – farmer as to future crops to be grown on land owned by him at the time of the issuance of the policy; owner of a business against a contingency which may cause loss of profits resulting from the cessation of business or its interruption; workman as to any building he may be contracted to repair. A person has no insurable interest in a property he expects to inherit under Sec 16 of the ICP An insurance taken out by a person on property in which he has no insurable interest is void. In Cha v. CA, the contract of lease provides that any fire insurance policy obtained by the lessee over his merchandise inside the lease premises without the consent of the lessor is deemed assigned or transferred to the lessor. It was held that such automatic assignment is void for being contrary to law and public policy, hence, the insurer cannot be compelled to pay the proceeds of the policy to the lessor who has no interest in the property insured. Where there is no insurable interest, the premium is ordinarily returned to the insured unless he is in pari delicto with the insured. The doctrine of waiver or estoppel cannot be invoked since the public has an interest in the matter independent of the consent or concurrence of the parties. An owner whose property was levied upon by a judgment creditor and who lost the same in an execution sale retains insurable interest thereon during the redemption period for he is still the owner of that property for that period. However, the buyer during the auction sale also has an interest over the subject property subject to the condition that the property will not be redeemed. Hence, the purchaser acquires insurable interest at the time of the purchase.
4 C. Time when insurable interest must exist – 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 or health of a person must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs. A decree of legal separation does not remove the insurable interest of a spouse over the other whether or not one insures the life of a spouse before or after legal separation. But if in case of annulment, the policy must have existed before the declaration of annulment, otherwise, there is no insurable interest. Insurable interest over mortgaged property – both the mortgagor and the mortgagee have an insurable interest in the property mortgaged and this interest is separate and distinct from the other. They may take out separate policies at the same time or at separate times. a. Mortgagor – the mortgagor of a property, as owner, has an insurable interest to the extent of its value, even though the mortgage debt equals such value. The reason is that the loss or destruction of the property insured will not extinguish his mortgage debt. In Geagonia vs. CA, it was ruled that when the mortgagor secures insurance, the mortgagee may be the beneficial payee in the ff ways: - He may become the assignee of the policy with the consent of the insurer - He may be the pledge without the consent of the insurer - The original policy may contain a mortgage clause - A rider making the policy payable to the mortgagee as his interest may appear, may be attached. - A standard mortgage clause containing a collateral independent contract between the mortgagor and the insurer, may be attached - The policy, though by its terms is absolutely payable to the mortgagor, may have been procured by a mortgagor under a contract duty to insure for the mortgagee’s benefit, in which case the mortgagee acquires an equitable lien upon the proceeds. b. Mortgagee – as such has an insurable interest in the mortgaged property to the extent of the debt secured; such interest continues until the mortgaged debt is extinguished. o It has been noted that although the mortgagee is himself the insured, as where he applies for a policy, fully informs the authorized agent of his interest, pays premiums, and obtains the policy on the assurance that it insures him, the policy is in fact in the form used to insure a mortgagor with “loss payable clause” c. Standard or union mortgage clause – the subsequent acts of the mortgagor cannot affect the rights of the mortgagee. d. Open or loss payable mortgage clause – the mortgagor does not cease to be a party to the contract. - In the policy obtained by the mortgagor with loss payable clause in favor of the mortgagee as his interest may appear, the mortgagee is only a beneficiary under the contract, and recognized as such by the insurer but not made a party to the contract itself. This kind of policy covers only such interest as the mortgagee has at the issuance of the policy. e. An insurance procured by either the mortgagor or the mortgagee will not inure to the benefit of the other bec an insurance contract is a personal contract and just like any other contract, it takes effect only between the contracting parties, their heirs and successors and assignees , unless it contains a stipulation in favor of a third person. f. Where the mortgagor takes out an insurance over the mortgaged property and endorsed the same to the mortgagee, Sec 53 of the ICP ordains that the insurance proceeds of the endorsed policy shall be applied exclusively to the proper interest of the person for whose benefit it was made, the mortgagee. Hence, creditors of the mortgagor cannot garnish or levy upon the proceeds up to the extent of the debt to the mortgagee. Effect of change of interest in thing insured – 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. Thus, a purchaser of insured property who does not take the precaution to obtain a transfer of the policy of insurance, cannot, in case of loss, recover upon such contract, as the transfer has the effect of suspending the insurance until the purchaser becomes the owner of the policy as well as the property insured. The purchaser cannot recover bec he has no contract with the insurer. The seller (insured) cannot also recover bec having sold the property, he has no more insurable interest in the same. a. Except: - In life, health and accident insurance - A change of interest in the thing insured after the occurrence of an injury which results in the loss - A change of interest in one or more of several distinct things, separately insured by one policy 1. suppose D is the owner of a car an a jeep. He insured the car for P500,000 and the jeep for P200,000 under a single policy for which he paid a total premium of P15,000. Under Sec 22 the sale of the jeep will not affect the insurance of the car. But if the car and the jeep were not separately valued in the policy and D paid P15,000 as the premium for the insurance of both the car and jeep, the sale of the jeep without the insurer’s consent affects also the insurance on the car. Hence, if after the sale of the jeep, the car was lost or destroyed, C cannot recover on the insurance of the car. - A change of interest by will or succession on the death of the insured - A transfer of interest by one of several partners, joint owners, or owners in common, who are jointly insured, to the others - When a policy is so framed that I will inure to the benefit of whomsoever, during the continuance of the risk, may become the owner of the interest insured b. When there is an express prohibition against alienation in the policy, in case of alienation, the contract of insurance is not merely suspended but avoided.
Sec 20 refers to a change of interest in the thing insured before the loss.Where matters of opinion or judgment are called for. unless in an answer to an inquiry. Concealment – Sec. and which are not otherwise material. It is sufficient if the knowledge of it would influence the parties in making the contract. changes in his health occurring or coming to his knowledge between the date of submitting his application after satisfactory medical examination and the date the policy is delivered.Ex. general trade usage and rules of navigation. 26 of ICP – “A neglect to communicate that which a party knows and ought to communicate. 6) Those each party is bound to know all the general causes which are open to his inquiry such as public events. After a loss has happened. It would wholly be at the mercy of one who wished to apply for insurance. answers made in good faith and without intent to deceive will not avoid the policy even though they are untrue(Philamcare Health Sys Inc. c. Matters which need not be communicated: 1) Those which the other knows.5 c. Cause of loss – the matter concealed need not be the cause of the loss. .” a. CA). Materiality – Sec. Indeed. 2) Such party concealing is duty bound to disclose such fact to the other (even w/o inquiry). REPRESENTATION A. 8) Information of his own judgment upon matters of question. for instance is under the duty to disclose to the insurer. d. 7) Information of the nature or amount of the interest of one insured. the same would not have affected its decision to insure the deceased. The duty of disclosure ends with the completion and effectivity of the contract. . even if the test was related to the insurer. 2) Those. IV. . as it would be impossible to show actual fraud except in the extremest cases. and which are not otherwise material. 3) Those which the other waives communication. . WARRANTIES. 4) Those which prove or tend to prove the existence of a risk excluded by a warranty.The test is in the effect which the knowledge of the fact in question would have on the making of the contract. v. The insured has also the absolute right to transfer the thing insured after the occurrence of the loss. The insured underwent an electrocardiogram which resulted negative and he gave a negative answer to the question whether he had such test. in forming his estimate of the disadvantages of the proposed contract. which in the exercise of ordinary care.” . 3) Such party concealing makes no warranty of the fact concealed. or in making his inquiries.If the contract is to be effective only upon the issuance of the policy. It is enough that the nondisclosure misled the insurer in forming his estimates of the risks of the proposed insurance policy or in making inquiries. the materiality of the facts concealed does not depend on the state of mind of the insured but rather to the probable and reasonable influence of the facts upon the party to whim communication should have been made. The matter must of course be ultimately determined by the court. then it is plain that it would be impossible for it to protect itself and its honest policy holders against fraudulent and improper claims. 27 of ICP – “A concealment whether intentional or unintentional entitles the injured party to rescind a contract of insurance. .” . Since the result of the test was negative. CONCEALMENT. Such change of interest does not affect his right to indemnify for the loss. and of which the former has no reason to suppose him ignorant.Good faith is no defense in concealment. Requisites: 1) A party knows the fact which he neglects to communicate or disclose to the other. kind of seasons. Matters relating to the health would affect the insurer either by approving it with the corresponding adjustment for a higher premium or rejecting the same(Sunlife Assurance Co.Waiver of a medical examination in a non-medical insurance contract renders even more material the information required of the applicant concerning previous conditions of health and disease suffered. but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due. 31 of ICP – “Materiality is to be determined not by the event. 5 . 5) Those which relate to a risk excepted from the policy. e. of Canada v.Rational – If it were necessary for the insurance company to show actual fraud on the part of the insured. a fact need not increase the risk or contribute to any loss or damage suffered. the other ought to know. This right is absolute and cannot be delimited by agreement. d. 4) The other party has not the means of ascertaining the fact concealed. . 5) They are material to the contract b. even upon inquiry – because the duty to disclose is confined to facts. 51(if absolute owner). except as prescribed by Sec. The insured has a right to assign his claim against the insurer as freely as any other money claim. There is no duty to communicate mere opinion or speculation. an applicant for life insurance. CA).The concealment must take place at the time the contract entered into in order that the policy may be avoided and not afterwards. To be material. the liability of the insurer becomes fixed. Effect of concealment – Sec.
or upon inquiry discloses or assumes to disclose. That he is temporarily ill bec of some passing malady does not render his representation substantially untrue. failure of insured to include an illness occasioned by a fall from a tree which he had completely recovered. X did not disclose his having been sick with pneumonia. Kinds: 1) Made at the time of the issuance of the policy 2) Made before the issuance of the policy 3) Affirmative – affirmation of a fact when the contract begins.Construction – when possible. to the insurer. substantial truth of a representation is not sufficient. and in neither case is he responsible for the truth.In marine insurance. . a representation relied upon must be false in a substantial and material respect. 6 . 4) Promissory – promise to be performed after the policy was issued.Ex. 45 of ICP – “If a representation is false in a material point. risks and premium. A representation must be presumed to refer to the date on which the contract goes into effect. Ex.It must be borne in mind that the same principle applies to the insurer e. 1. d. .However. any allegation as to the existence or non-existence of a fact when the contract begins. . B. When presumed false – Sec. 44 of ICP . was held not to avoid the policy. At the time X applied for a life insurance policy on June 10 he had never suffered from any of the enumerated diseases including pneumonia. made by insured to insurer. not being a part of the contract of insurance may be altered or withdrawn before the contract actually takes effect but not afterwards since the insurer already had been led by the representation in assuming the risk contemplated in the contract. The insured states that a building is used for a certain purpose or that no smoking is allowed on the premises. or he may submit the information. . Sec. in forming his estimate of the contract. unless it proceeds from an agent of the insured. in its whole extent. as an affirmative representation of a personal fact in order to save the policy from avoidance. the insurer is not estopped from raising concealment as a defense if there was connivance between the insured and the soliciting insurance agent as well as the medical examiner Representation An oral or written statement of a fact or condition affecting the risk. a statement that the applicant is in good health is held not to mean that he is in perfect health. The right to rescind granted by this Code to the insurer is waived by the acceptance of premium payments despite knowledge of the ground for rescission. There is here misrepresentation and the insurer is entitled to rescind the policy. Requisites: 1) As a fact of something which is untrue 2) Which the insured stated with knowledge that it is untrue and with an intent to deceive. Here. f.Confinement in childbirth is not personal ailment. a. 43 of ICP – “When a person insured has no personal knowledge of a fact. the injured party is entitled to rescind the contract from the time when the representation becomes false. Such misrepresentation renders the contract rescindable at the option of the insurer. any promise to be fulfilled after the contract has come into existence or any statement concerning what is to happen during the existence of the insurance. e.” .” .The statement of the insured that the house to be insured is used only for residential purposes is an affirmative representation. c. f. Waivers and Estoppel – An insurer may be deemed to be estopped from raising concealment (as well as exclusionary conditions or warranties) as a defense if it accepts the premium payments and issued the policy even if the insured already supplied the insurer such facts or information which could hardly be overlooked in the application form considering its prominence and its materiality to the coverage applied for. Effect of alteration or withdrawal – A representation. In order that a policy be avoided. On July 12 he became ill with pneumonia and completely recovered on July 25. he may nevertheless repeat information which he has upon the subject. Test of materiality – it is determined by the probable and reasonable influence of the facts on the party on whom communication is due. they need only be substantially true. with the explanation that he does so on the information of others.When the facts fail to correspond with its assertions or stipulations. tending to induce insurer to assume risk. The insured is required to state the exact whole truth in relation to all matters that he represents. . whether affirmative or promissory. and which he believes to be true. whose duty it is to give the information. .6 f. This may also be true if the insured already supplied such information that requires further inquiries from the insurer but it failed to do so.Unlike in the case of warranties. . but that he is not aware of any disease of such serious nature as to impair his health permanently. When the policy was delivered on July 30 and premium paid on July 30.It is not misrepresentation for the insured to state that he did not drink beer or other intoxicants if he drank very seldom. The truth of the representation at the time of the contract takes effect is sufficient to validate the insurance which will not be affected by a subsequent change in the use to which the building is put or in the practice as to smoking in the premises. Sec. representations are not required to be literally true. the representation is false but not in a material point. or which he states positively as true without knowing it to be true and which has a tendency to mislead 3) Where such fact in either case is material to the risk b.
the untruth or nonfulfillment of which in any respect and without reference to whether the insurer was in fact prejudiced by such untruth or nonfulfillment.Warranties are presumed material.The period of 2 years for contesting a life insurance by the insurer may be shortened but it cannot be extended b y stipulation. c. it was held that by doing so. substantial truth is only required . Sec. except as is allowed.Incontestability – after the requisites are shown to exist. That the fraud is of a particularly vicious type. The phrase “during the lifetime” simply means that the policy is no longer considered in force after the insured has died. where the insured merely signed the application form and made the agent of the insurer fill the same for him.” . 6. as where the policy was taken out in furtherance of a scheme to murder the insured. the insurer should not be permitted to question the validity of the policy. .The insurer is liable when his agent writes false answer into the application form without the knowledge of the insured.The theory is that an insurer should have a reasonable opportunity to investigate the statements which the applicant makes in procuring his policy and that after a definite period. whereas in misrepresentation. That the premiums have not been paid 4.Requisites: 1. . whole in representations. Warranty – a statement or promise by the insured set forth in the policy itself or incorporated in it by proper reference. Warranties distinguished from representations .7 Collusion between the agent and the insured in misrepresenting the facts will vitiate the policy even though the agent is acting within the apparent scope of his authority. 7. the insured withholds information of material facts from the insurer. the insured makes erroneous statement of facts with the intent of inducing to enter into the insurance contract. That the beneficiary failed to furnish proof of death or to comply with any condition imposed by the policy after the loss has happened.Warranties are always written on the face of the policy actually or by reference. while falsity of a representation renders the policy void ab initio e on the ground of fraud .Since the contract of insurance is said to be one of utmost good faith on the part of both parties.The clause has as its object to give the greatest possible assurance to a policy holder that his beneficiaries would receive payment without question as to the validity of the policy or the existence of the coverage once the period of contestability has lapsed.Whether intentional or not. That the conditions of the policy relating to military or naval service have been violated 5. 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 years from the date of its issue or of its last reinstatement. h. That the person taking the insurance lacked insurable interest 2.Likewise. That the cause of death of the insured is an excepted risk 3. Before a representation will be considered a warranty. 7 . while representations may be written in a totally disconnected paper or oral . it must be expressly included or incorporated by clear reference in the policy and the contract must clearly show that the parties intended that the rights of the insured would depend on the truth or fulfillment of the warranty. . . b. on the ground of public policy. A warranty may also be made by the insurer. g.The falsity or nonfulfillment of a warranty operates as a breach of contract. It has been in force during the lifetime of the insured for at least 2 years from its date of issue or of its last reinstatement. while representations are but collateral inducements to it. the insurer shall be estopped from contesting the policy or setting up any defense. Concealment and representation compared: . That the action was not brought within the time specified. renders the policy voidable by the insurer.In concealment. 48 of ICP – “Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter.Warranties must be strictly complied with. while the insurer must show the materiality of a representation in order to defeat an action on the policy.Warranties are considered parts of the contract. . It is payable on the death of the insured 3. . the rules on concealment and representation apply likewise to the insurer. or where the beneficiary feloniously kills the insured. . The policy is a life insurance policy 2. where a statement is true. . the insurer cannot prove that the policy is void ab ignition or is rescindable by reason of the fraudulent concealment or misrepresentation of the insured or his agent. Kinds of warranty: - C. . Obviously. the injured party is entitled to rescind a contract of insurance on ground of concealment or false representation .Defenses not barred by incontestable clause: 1. or where the insured substitutes another person for the medical examination. a. it is immaterial whether it is a warranty or representation. the insured made the agent of the insurer his own agent. such right must be exercised previous to the commencement of an action on the contract. .No prescriptive period unless provided for in the second paragraph or by stipulation of parties.
may be typrewritten and need not be in printed form. purporting to be part of the contract of insurance and which is pasted or attached to said policy is not binding on the insured. clause. e. Any rider. Policy different from the contract itself i. therefore. except when the parties stipulate that the violation of a particular provision though normally immaterial. warranty. 50 of the ICP – “The policy shall be in printed form which may contain blank spaces. cannot claim he did not know its terms. clause. the future. or endorsement. no policy of insurance shall be issued or delivered within the Philippines unless in the form previously approved by the Insurance Commissioner. the policy is avoided only from the time of breach and the insured is entitled to the return of premium paid at a pro rata from the time of breach if it occurs after the inception of the contract or. A. sign. In the latter case. 76 of ICP – “A breach of warranty without fraud. shall avoid the policy.Sec.” . or to any or all of these. or endorsement issued after the original policy shall be countersigned by the insured or owner which countersignature shall be taken as his agreement to the contents of such rider. except: 1) Loss occurs before the time of performance of the warranty 2) The performance becomes unlawful 3) The performance becomes impossible . 49 of the ICP – “The written instrument in which a contract of insurance is set forth. warranty. ii. to all the premiums if it is broken during the inception of the contract. h. prevents the policy from attaching to the risk. 2) Implied – deemed included in the contract. or endorsement. or endorsement is also mentioned and written on the blank spaces provided in the policy.” d. Under Sec. 8 . The courts will only rule out blind adherence to terms where facts and circumstances will show that they are basically one-sided. g.Where there is no fraud. however. f. the parties converted the immaterial provision to a material one. 68 of ICP – “A warranty may relate to the past. THE POLICY Definition and Form a. one that leaves nothing to be done.8 1) Express – an agreement contained in the policy or clearly incorporated therein as part thereof whereby the insured stipulates that certain facts relating to the risk are or shall be true or certain acts relating to the same subjects have been or shall be done. the present. or determined. phrase. There can be no contract of insurance unless the minds of the parties have met in agreement. or word necessary to complete the contract of insurance shall be written on the blank spaces provided therein. In effect. 226 of the ICP. or where it is broken in its inception. by finding a waiver for such a forfeiture. clause. It is the law between them. The contract. warranty. there is no room for construction and such terms cannot be enlarged or diminished by judicial construction. nothing to be completed. e. clause. The mere signing of an application for life insurance and the payment of the first premium do not bind the insurer to issue a policy where there is no evidence of any contract between the parties that such acts should constitute a contract of insurance. symbol. The policy is not necessary for the perfection of the contract. The policy is signed only by the insurer or his duly authorized agent. V. although not expressly mentioned. It is the nature of a condition subsequent. Effects of breach of warranty – insurer has right to rescind. ii. f. It is also a cardinal principle of law that forfeitures are not favored and that any construction which would result in the forfeiture of the policy benefits for the person claiming thereunder will be avoided if it is possible to construe the policy in a manner which would permit recovery.” c. 3) Affirmative – asserts the existence of a fact or condition at the time it is made 4) Promissory – the insured stipulates that certain facts or conditions shall exist or thing shall be done or omitted. mark. is called a policy of insurance. any rider. Immaterial provisions do not avoid the policy.” b. Unless applied for by the insured or owner. They are found only in marine insurance (shipworthiness). number. Sec. It need not be signed by the insured except where express warranties are contained in a separate instrument forming part of the policy in which case the law requires that the instrument must be signed by the insured. to be binding from the date of the application must be a completed contract. d. the contract is void ab initio and never becomes binding. warranty. merely exonerates an insurer from the time that it occurs. unless the descriptive title or name of the rider. Group insurance and group annuity policies. and any word. The policy is the formal written instrument evidencing the contract of insurance entered into between the insured and the insurer. signature. clause. as for example. The “fine print” or contract of adhesion rule does not apply where the petitioner is an acute businessman of experience who is presumed to have assented to the assailed provisions of the policy with full knowledge and. It goes without saying that if the terms of the contract are clear and unambiguous. Perfection of an insurance contract i. nothing to be passed upon. before it shall take effect. Sec. Sec.
provided that the identity of the party can be sufficiently established. iv. a stipulation that the policy shall not become operative unless the applicant is in good health at the time of the delivery of the policy is valid. iii. Where no further conditions are to be fulfilled. vi. j. Usual condition precedents: 1. In life and health insurance – 1. and even if such presumption may be inferred. unless there is a stipulation to the contrary. as evidence of the making of a contract and of its terms 2. a policy of insurance may be constructively delivered when it is deposited in the mail duly directed to the insured or his agent. Amount of insurance. Delivery may be made to the insured in person or to his duly constituted agent 2. the policy will lapse if the premium is not paid. as communication of the insurer’s acceptance of the insured’s offer ii. 9 . a conditional acceptance by the insurer. Where the application for insurance constitutes an offer by the insured. i. viii. Parties – the mere fact that the name of the insured was incorrectly spelled is of no importance whatever. if the insurer determines later that the applicant was insurable on that date. that that insurer shall be satisfied that the applicant was insurable. Offer and acceptance in insurance contract – It is usually the applicant that makes the offer. The possession by the insured of the policy raises the presumption that the policy was delivered to the insured. Until the condition precedents are fulfilled. Contents of the policy i. provides that the coverage terminates 1 year after delivery. v. which he must then accept before the contract goes into effect. The delivery of the policy is important in 2 ways: 1. the policy is of no binding effect. i. but it need not be by formal act. while possession by the insurer is prima facie evidence that no delivery was made. vii. If the application contains a provision that the insurance shall not be effective until the delivery of the policy. at the time and in the manner specified in the policy. Instead. v. i. the insurance applied for shall not be in force and the premium paid shall be returned to the applicant. except in open or running policies – This requirement is necessary in order to easily and exactly determine the amount of indemnity to be paid the insured incase of loss or damage especially if it is only partial and not total. his application will be considered an offer. There is no valid and binding insurance contract where no premium is paid unless credit is given or there is a waiver or some agreement obviating the necessity for prepayment of the premium. it is an offer to the insured which he may accept or reject. Constructive delivery may be sufficient. If the applicant pays the premium with his application. Nor is it essential to the effectiveness of the contract that the name of the insured should appear therein. and the insurer disapproves the application. 2. however. vi. Thus. In the absence of any clear agreement granting credit extension. Life and health insurance agents. his application is considered an invitation to the insurer to make an offer. for the benefit of “whom it may concern” or contains words of similar import. there must be a clear and express acceptance by the insured of the insurer’s offer to extend credit. Where the parties so intend. If the applicant does not pay the premium. that if the applicant is not insurable. the insurance becomes effective at the same time of the delivery of the policy. or (2) the date of the medical examination. that if the insurer does not accept the application but offers another plan. Actual manual transfer of the policy is not a prerequisite to its validity unless the parties have so agreed in clear language. where a policy for example. doe not have the authority to bind immediately the insurers they represent. Reception and retention of the policy without objection beyond a reasonable time may be deemed to be an acceptance. Delivery still has significance as the decisive act that ordinarily marks the end of the insurer’s opportunity to decline coverage. delivery is essential to the consummation of the contract. The acceptance of an insurance policy must be unconditional. ii. Delivery may also affect the term of the coverage. But where the premium has been previously paid. as he may be described in other ways than by name. a policy issued strictly in accordance with the offer is an acceptance of the offer that perfects the contract. binding and enforceable.9 iii. such as where the policy is “for the owner” of specified property. Importance of delivery – Delivery is the act of putting the insurance policy (the physical document) into the possession of the insured. the contract is perfected upon approval of the application although the policy has not yet been issued. If the policy issued does not conform to the insured’s application. they customarily issue a binding receipt that makes the coverage effective on (1) the date of the application. therefore. non-performance of the condition precedent prevents the contract from taking effect. The sum insured is a basis for B. iv. 1. The binding receipt is. 2. the insurance contract shall not take effect unless the applicant accepts the same 3. But the insurer cannot be presumed to have extended credit from the mere fact of unconditional delivery of the insurance policy without the prepayment of premium. Where there is conditional delivery of an insurance policy.
As a general rule. 10 . most courts hold that the insured’s acceptance and retention of the policy unread is not such laches as will defeat his right to reformation. 226 which states that no rider. it often becomes necessary to add a new term to a policy. The necessity for riders is found in the fact that in the conduct of insurance business. When there is an inconsistency between a rider and the printed stipulations in the policy. The duration may be expressed in terms of dates. Many endorsements are merely typrewritten additions to the contract. printed or stamped upon a policy of insurance unless the form of such rider. This principle applies to the interpretation of clauses. which countersignature shall be taken as his agreement to the contents of the matter so attached. is also mentioned and written on the blank spaces provided in the policy. iv. i. warranty. As a general rule. as being a more deliberate expression of the agreement of the contracting parties. ii. If the endorsement is already attached to the policy at the time of its issue. b. Any rider. iii. or endorsements which are attached to policies to vary their terms. Property or life insured v. damage. ii. It is obvious that the insurer cannot complain of the failure of the insured to read his policy where the insured could not have discovered the erroneous statement by such reading. v. Errors may be corrected in the same manner.. b. etc. clause. or to modify or waive an existing term. Rider – An attachment to an insurance policy that modifies the conditions of the policy by expanding or restricting its benefits or excluding certain conditions from the coverage. need not be specified in the cases of open or running policies. But the countersignature of the insured or owner is required to any rider. where the rider. slip. Effect of failure of insured to read policy i. in terms of distance. The basis for the decisions is that insurance contracts are contracts of adhesion. vii. the contract would be incomplete. what the insured pays the insurer to assume the risk of loss. strictly speaking. has been approved by the Insurance Commissioner. Policies issued for a term of 12 months are known as annual policies while those for a less period are known as short term policies. Thus.10 calculating the premium. Exceptions to the minority rule – 1. a rider. or other paper becomes part of a contract or policy of insurance if properly and sufficiently attached or referred to therein in a manner as to leave no doubt as to the intention of the parties in such respect. etc. it is not an endorsement. iii. The period during which the insurance is to continue – the period during which the insurance is to continue must also be stated bec although the loss suffered by the insured was caused by the risk insured against. Interest of the insured in the property if he is not the absolute owner – so a mortgagee must disclose his particular interest in the property insured by him. etc. changing its amount. warranties. This saves the trouble and expense of making an entirely new contract. vi. The lack of description will not affect the other provisions of the policy except where without such rider. is physically attached to a policy of insurance contemporaneously with its execution and delivered to the insured so attached. or endorsement purporting to be part of the contract of insurance and which is pasted or attached to said policy is not binding on the insured unless the descriptive title or name of the rider. Minority rule – 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. the fact that it is customary for insured persons to accept policies without reading is judicially recognized. Examples of endorsements are those extending the perils covered. where a copy of the application containing the false statements was not attached to the policy or where the copy attached was illegible. C. not applied for by him if issued after the delivery of the policy. Rate of premium – This requirement is also essential considering that the premium represents the consideration of the contract. Any rider properly attached to a policy is a part of the contract to the same extent and with like effect as if actually embodied in the policy ii. An endorsement may be in the nature of a permit such as one authorizing the removal of the insured property and providing for coverage in another location. iii. and sufficient reference is made in the policy. is Sec. shall be attached to. Majority rule – In most jurisdictions. the fact that it is without the signature of the insurer or of the insured will not prevent its inclusion and construction as a part of the insurance contract. rate or term. or liability caused or created only by the risks insured against. especially where the insured is a businessman and the contract concerns indemnity in case of loss in his money-making trade (fine print rule). It however. etc. The period of time during which the insurer assumes the risk of loss is known as the life of the policy. Risk insured against – the necessity for the requirement becomes obvious when it is considered that the insurer’s undertaking is to indemnify the insured for loss. He may not thereafter be heard to say that he did not read the policy or know its terms since it is his duty to read his policy and it will be assumed that he did so. It follows that such acceptance is not negligence per se and in proceeding to reform insurance contracts. Another provision of the Insurance Code which imposes a restriction on the use of riders. the rider prevails. etc. the insurer would not be liable unless it occurred during such duration of the insurance. Attached papers on insurance policy i. An endorsement is any provision added to an insurance contract altering its scope or application. the insured cannot be charged with any duty to read the application. etc. iv. iii.
Where the terms of policy are clear – the insurer has no affirmative duty to explain the policy or its exclusions to the insured ii. of course. For the purposes of construction. and at the same time the insurer’s own administrative costs are markedly reduced. Contractual rights of insured after denial of coverage – When the insured disputes a denial of coverage. in effect. Group Insurance – Generally speaking. the insured’s expectations of different coverage would have been rendered unreasonable. Constituent parts of contract – when group insurance is effected. the insurer also enjoys significant advantages from the rearrangement. the court said. It affects four parties – the insurer. the individual certificate being no part of such contract but only an instrument reciting the employee’s right to protection under the terms of the group policy. c. In its original and most common form. the employee is in the position of a real party to the master policy. both the master policy and the certificate are to be considered together as parts of the same contract. group insurance is the coverage of a number of individuals by means of a single or blanket policy. Employees are real parties in interest – although the employer may be the titular or named insured. 2. it may not be reasonable to expect people to take the time to read the contracts before manifesting intent to be bound by them. It is generally held then that an employee’s contract of insurance under the group plan consists of the parent or master policy. In settings where the contracts are long. Information expected by insured from insurer’s agent – this duty encompasses in many situations an obligation to explain to the customer the kinds of coverage available and to help the insured in choosing an appropriate coverage. 11 . complicated and difficult to understand even if read. thereby effecting economies which frequently enable the insurer to sell its services at lower premium rates than are ordinarily obtainable for the same type of insurance protection on life policies sold to individuals. courts have sometimes imposed a duty on the insurer to explain the options to the insured. vi. they have been held liable for loss despite the fact that the policy issued did not provided the coverage. however. Such contracts are generally construed as creating a contract between the employer and the insurance company but for the benefit of the insured employees. and this. Collection and payment of premiums – a group insurance plan is considered to be “contributory” if each member pays all or some part of the premiums and “non-contributory” if the representative (employer) pays all of the premiums. The insured’s failure to read the policy should be overlooked if the insured is illiterate or unable to read English. is advantageous to both the employer and the employees. group insurance provides life or health insurance coverage for the employees of one employer. Form and nature – It is essentially a single insurance contract that provides coverage for many individuals. within limits. 3. Insurer’s duty to explain the policy i. In other words. 4. a group or “master” policy is customarily issued by the insurer to the employer or analogous policyholder and certificates of participation are issued to the individual employees or participants. The most persuasive rationale for adopting the view that the employer acts as the agent of the insurer. Options available to the insured – In the area of motor vehicle insurance where legislations have made certain kinds of coverage optional. usually uninsured or underinsured motorist insurance. Important caveats: 1. Indeed. iv. Where the insurers have failed to do so. however. While a reduced premium may result if the employer relieves the insurer of these tasks. Not all courts however agree with this result. It is not indemnity for the benefit of the employer but insurance upon the life of the employee for his personal benefit and the protection of those depending upon him and is in addition to and distinct from workmen’s compensation insurance. if the insurer had provided an explanation of the coverage. The reduction in premium which results from the employer-administration permits the insurer to realize a large volume of sales. i. and even in an non-contributory 2. the employer.11 Likewise it has been held that the insured’s failure to read the policy us excused where he is induced by the fraud of the agent of the insurer not to read his policy. 1. ii. a duty to explain coverage is effectively imposed upon the insurer. is that the employee has no knowledge of or control over the employer’s actions in handling the policy or its administration. 2. d. 4. Employer acts as agent of insurer – It cannot be said that the employer acts entirely for its own benefit or for the benefit of its employees in undertaking administrative functions. The insurer must instead take affirmative steps to make sure that the insurer is informed of his remedial rights. To the extent agents and the insurers who retain them are held liable for the negligence of agents in performing their professional duties. the insured and the beneficiary. One reason for the attractiveness of group insurance as a fringe benefit to employees is that the amounts of premiums paid by the employer are tax deductible. Reasonable expectations of insured – the doctrine of “reasonable expectations” can operate to impose de facto a duty on the insurer to explain the policy’s coverage despite policy language to the contrary. v. the duty of good faith and fair dealing may impose an obligation on the insurer to alert the insured to his rights. the insurance is actually related to the life and health of its employee. 3. while the premiums paid by the employee are not considered taxable income to the employee. iii. that the insurer must pay for the loss bec the insurer failed to explain the limitations on coverage to the insured.
3. The sum total of hazards constitute the perils which cause the risk.. Requirements for risks to be insurable 1. the employer creates goodwill with his employees. iii. or for property of such a nature as not to admit of a gross valuation. Importance – for instance. Moral hazards – the term is applied to those factors that have their inception in mental attitudes. Peril – the contingent or unknown event which may cause a loss. Risk – the chance of loss. to meet the losses arising. perils.” or “blanket” policies. a blanket policy is one covering by a single amount of insurance the same kind of property at different locations or different kinds of property at a single location. time. ii. Running policies are in reality open policies. occupancy.” In other words. Ordinarily.12 plan. especially as to the subjects of insurance. Valued policy – Sec. by additional statements or indorsements. Calculability – if the incidence of loss cannot be calculated statistically. insanity. It also denotes insurance which contemplates that the risk is shifting. but as the maximum limit of the insurer’s liability.” 1. enable them to carry a larger amount of insurance than they could otherwise and helps to attract and hold a permanent class of employees. there are two values – the face value of the policy and the value of the thing insured. No catastrophic loss – it is an obvious deviation from the principle that the losses of the few are borne by the contributions of the many who do not suffer loss. and which provides that the object of the policy may be from time to time defined. ii. in case of destruction by the peril insured against. hazards i. He is neither underinsured nor overinsured at any time the premium being based on the monthly values reported D. and payment for them would be against public policy. 3. only pays the actual cash value of the property as determined at the time of loss. Advantages: a. 60 of the ICP – “An open policy is one which the value of the thing insured is not agreed upon. structure. 2. carelessness… iv. Wear and tear are examples. 4. It has been stated that every problem concerning group insurance presented to a court should be approached with the purpose of giving to it every legitimate opportunity of becoming a social agency of real consequence considering that the primary aim is protection for his employees and their families at the lowest possible cost. gasoline. Included in this second group are the hazards created by dishonesty. Intentional losses caused by the insured are usually uninsurable bec they cannot be reasonably predicted. Running policy – Sec. Hazard – the condition or factor. for otherwise. place. estimates of possible loss are difficult. Risks. the labor of the employees is the true source of the benefits. no risk is involved. Put differently. unless the insurance is for a lower amount. exposure and the like such as waste paper piled under a staircase. which are a form of additional compensation to them. 5. Under such circumstances. it is one in which a certain agreed sum is written on the face of the policy not as the value of the property insured. v. 12 . fluctuating or varying. The insurer however. Its existence creates the risk. and in so doing. In the US. it is impossible to determine the amount of premiums that would be required to accumulate a common fund or pool. Accidental nature – Insurable risks must also normally be accidental in nature. The above requirements are not absolute.” “running. the nature of the property insured. This kind of policy is intended to provide indemnity for property which cannot well be covered by a valued policy bec of its frequent change of location and quantity. In some cases. 4. but is left to be ascertained in case of loss. Open or unvalued policy – Sec. the payment by the employer of the entire premium is a part of the total compensation paid for the services of the employee. the agreed value of the thing insured will be paid in case of total loss of the property. 5. 62 of the ICP – “A running policy is one which contemplates successive insurances. tangible or intangible. Definiteness of loss – The losses should be fairly definite as to cause. 2. which may create or increase the chance of loss from a given peril. and amount. e.” Thus. The liability of the insurer under a life policy is measured by the face value of the policy. Is fire caused by carelessness? Aren’t typhoons catastrophic in nature? Kinds of policy i. Physical hazards – this term includes everything related to location. there are many separate hazards that attach to any particular object or persons. 61 of the ICP – “A valued policy is one which expresses on its face an agreement that the thing insured shall be valued at a specified sum. as such as to make it impossible to designate the subject matter of insurance with certainty and particularity. a person may not insure against the loss of his pen or breaking of his eyeglasses 2. iii. In the absence of fraud or mistake. 1. It is the contingency that one insures against. and which covers a class of property rather than any particular thing. these policies are usually known as “floating. or the circumstances of the granting of the insurance. If a loss is absolutely certain to happen or not to happen. Other losses are common as to be expected rather than unexpected.
a. including within its terms the identical insurance bound under the cover note and the premium therefore. the right acquired by the insured is merely to demand the delivery of a policy in accordance with the terms agreed upon and the obligation assumed by the insurer is to deliver such policy. In this case.” the contract to be effective until the formal policy is issued or the risk rejected. The fact that no separate premium was paid on the cover note before the loss insured against occurred. Being of temporary in nature. A cover note shall be valid and binding for a period not exceeding 60 days from the date of its issue. Rules on cover notes: a. By a preliminary contract of present insurance – the insurer insures the subject mater usually by what is known as the “binding slip. b. If a cover note is not so cancelled. and for which cancellations he would be charged the expensive shortage rate c. Thus. Example: Suppose in the same example. a policy of insurance shall. yet the insurer may show the contrary by proving. A cover note shall be deemed to be a contract of insurance within the meaning of Sec. The insurer accepted the application and issued a cover note for the insurance. does not militate against its binding effect as an insurance contract. Here. While the issuance of a binder is ordinarily conclusive evidence of the making of a contract.” or “binder. say 80% of the value. give either a small or no reduction for amounts of insurance above this figure. pending the issuance of the policy b. it is subject to all the conditions in the policy expected even though that policy may never issue. Under such an executory contract. be issued in lieu thereof. a policy shall be issued in lieu thereof. the house was burned. whereas valued policies requiring insurance only to. in life insurance. 13 . cover notes do not contain particulars that would serve as basis for the computation of the premiums and consequently. Example: X signed an application for a fire insurance of his house. f. b. 5. through oversight or mistake d. or until formal issuance of the policy. provided it is later determined that the applicant was insurable at the time it was given. that he delivered the binder with an oral understanding . Cover notes – Sec. the agreement of the insurer is to issue the policy within a certain date and the house was destroyed by fire before such date. The Commissioner may promulgate rules and regulations governing such extensions for the purpose of preventing such violations and may by such rules and regulations dispense with the requirement of written approval by him in the case of extension in compliance with such rules and regulations. c. This is usually issued after the applicant pays the first premium.” i. no separate premiums are intended or required to be paid therefore. 2. whether or not the premium therefore has been paid. By a preliminary executory contract of insurance – the insurer makes a contract to insure the subject matter at some subsequent time which may be definite or indefinite. 4. In life insurance. Within 60 days after issue of a cover note. 52 of the ICP – “Cover notes may be issued to bind insurance temporarily pending the issuance of the policy. a binding slip does not insure by itself. Such policy shall include within its terms the identical insurance bond under the cover note and the premium therefore. that it was not to take effect until other insurers had taken part of the risk. No cover note shall be issued or renewed unless in the form previously approved by the Insurance Commission d. e. Insurance companies doing business in the Philippines may issue cover notes to bind insurance temporarily. no liability shall attach until the insurer approves the risk. a. within 60 days after the issuance of the cover note. the insurer would not be liable on a claim for loss ass there was merely an executory contract of insurance. for example. A cover note is merely a written memorandum of the most important terms of a preliminary contract of insurance.” or “cover note. By its nature.13 He avoids cancellations that would otherwise be necessary to keep insurance adjusted to value at each location. it is sufficient. Kinds of preliminary contract of insurance: 1. but such cover note may be cancelled by either party upon at least 7 days notice to the other party. A cover note may be extended or renewed beyond the aforementioned period of 60 days with the written approval of the Insurance Commission provided that such written approval may be dispensed with upon certification of the b. where an agreement is made between an applicant and the insurer’s agent. By their nature. the insurer would have to reimburse X for his loss. Before the policy could be issued. for example that the cover note shows by necessary implication an agreement to pay whatever rate may be fixed. 1(1) of the Code c. 3. The rate is adjusted to 100% insurance. Cover notes may be extended or renewed beyond such 60 days with the written approval of the Commissioner if he determines that such extension is not contrary to and is not for the purpose of violating any provisions of this Code. E. intended to give temporary protection pending investigation of the risk by the insurer. He is saved the trouble of watching his insurance and the danger of being underinsured in spite of his care.
and no notice of cancellation shall be effective unless it is based on the occurrence. a resolutory cause. is to prevent the cancellation of the policy. Stipulated prescriptive period begins from happening of the loss – Where the policy provided that no suit or action thereon “for the recovery of any claim shall be sustainable in any court of law or equity unless the insured shall have fully complied with all the terms and conditions of the policy or unless commenced within 12 months next after the happening of the loss. There is no proof that the notice. the cause of action in an insurance contract does not accrue until the insured’s claim is finally rejected by the insurer. or general manager of the insurance company concerned that the risks involved. effect of stipulation – Sec. where the policy provided that if a claim be made and rejected. However. the values of such risks and/or the premiums therefore have not as yet been determined or established and that such extension or renewal is not contrary to and is not for the purpose of violating any provisions of the Code. It is in the nature of a condition precedent to the liability of the insurer. it would reduce the period allowed the insured for bringing his action to less than 1 yr. by the insurer. bec it speaks of non-payment after the effective date of the policy iii. Sec. (e) physical changes in the property insured which result in the property becoming uninsurable. (f) a determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation of this Code. G. The bringing of such action against the agent cannot have any legal effect except that of notifying the agent of the claim. The premium referred to in Sec. or agreement.14 president. vice-president. In other words. g. in other terms. without allowing the insured ample opportunity to negotiate for other insurance in its stead for his own protection. of one or more of the grounds mentioned 3. after the effective date of the policy. Cancellation of policy – Sec.” it has been held that the above stipulation is void bec if given effect. mailed or delivered to the named insured at the address shown in the policy 4. The purpose of provisions or stipulations in insurance policies for notice to the insured. in any policy of insurance. h. (b) conviction of a crime arising out of acts increasing the hazard insured against. the Court interpreting the words “action or suit” in the policy as referring to a claim or demand in a court of justice. The right of the insured to the payment of loss accrues from the happening of the loss. 63 of the ICP – “A condition. g. it was held that an action filed 17 months after the rejection had already prescribed although the insured. 64 of the ICP – “No policy of insurance other tan life shall be cancelled by the insurer except upon prior notice thereof to the insured. was actually mailed to and received by the insured. d. In case of a policy of industrial life insurance.” a. Stipulated prescriptive period begins from rejection of claim – On the other hand. 64 (a) must be a premium subsequent to the first. the period for commencing an action under a policy of insurance under Sec. assuming it complied with the other requisites or conditions mentioned. stipulation. There is no law giving any effect to such action upon the principal. of one or more of the ff: (a) non-payment of premium. Time to commence action on the policy. It must state which of the grounds set forth is relied upon ii. b. limiting the time for commencing an action thereunder to a period less than 1 year from the time when the cause of action accrues. (c) discovery of fraud or material misrepresentation. the filing of the action serves no purpose. upon written request of the named insured. the purpose of which is to terminate all liabilities in case the action is not filed by the insured within the period stipulated. and shall state (a) which of the grounds set forth in section 64 is relied upon and (b) that. the time limit is 10 yrs from the time the cause of action accrues. as it demands that insurance suits be brought by the insured while the evidence as to the origin and cause of the loss or destruction has not yet disappeared. It must be in writing. The court cannot. 14 . Nature of condition limiting period for filing claim – the condition is an important matter essential to prompt settlement of claims against insurance companies. e. extend the clear scope of the agreement beyond what is agreed upon the parties.” a. the insurer will furnish the facts on which the cancellation is based. after the effective date of the policy. f. The notice must be based on the occurrence. F. or. had filed a complaint with the Insurance Commissioner. c. 63 is to be computed not from the time when the loss actually occurs but from the time when the insured has a right to bring an action against the insurer.” i. 65 of the ICP – “All notices mentioned in the preceding section shall be in writing. There must be prior notice of cancellation to the insured 2. is void. where all that the insurer offers to show that the cancellation was communicated to the insured is its employee’s testimony that the said cancellation was sent “by mail through our mailing section” without more. Form and sufficiency of notice of cancellation: 1. an “action or suit” should be commenced within 12 months after such rejection otherwise the claim would prescribe. iv. by interpretation. mailed or delivered to the named insured at the address shown in the policy. Beyond such notification. 1 month after his claim was rejected. the period cannot be less than 6 years after the cause of action accrues. As the stipulation is upon a written contract. (d) discovery of willful or reckless acts or omissions increasing the hazard insured against. Insurance companies may impose on cover notes a deposit premium equivalent to at least 25% of the estimated premium of the intended insurance coverage but in no case less than P500.
No premium was paid: Suppose no partial payment of the premium was made. Inc. Did the non-payment cancel the policy? No. the completion of the payment of the premium due or sue for rescission of the contract. however. b. otherwise. is a debt. To avoid liability. C.” a. the question of the supposed inadequate payment was never raised.15 i. and may be brought within the statutory period of limitation of 10 yrs for written contracts. so that no recovery can be had upon a lapsed policy. properly levied. Dissenting opinion: Not only is there an insurance perfected but also a partially performed contract. The insurer is bound by its agent’s acknowledgment of receipt of payment of premium. or divisible. May the insured recover the unpaid premium from the insured? No. CA cases. the condition of the bond is subject to the provisions of Sec. while an assessment is collected to meet actual losses. Inc. Most significant to point. with the Commissioner or the Courts within 1 year from denial of the claim. 1960. As it chose to demand specific performance of the insured’s obligation to pay the balance. The premium of said policy amounted to P6. and Makati Tuscany v.000. would be sufficient even if it remains unencashed at the time of the loss. Where an insurer authorizes an insurance agent or broker to deliver a policy to the insured. Balance of premium was not paid: On April 1. Consequently. which the petitioner cited. In Phil. 77 of the ICP. The payment of a premium by a post-dated check at a stated maturity subsequent to the loss is insufficient to put the insurance into effect. As the contract had become perfected. in effect. Where only 1 premium is paid for several things not separately valued or separately insured. while premium is not a debt. by means of a check or a note. v. when the issues to be resolved in the trial court were formulated at the pre-trial proceedings. f. Y Co. Is the petitioner’s argument tenable? No. 1960. Notwithstanding any agreement to the contrary. the parties could demand from each other the performance of whatever obligations they had assumed.) 15 . CA. 77 of the ICP – “An insurer is entitled to payment of the premium as soon as the thing insured is exposed to the peril insured against. (American Homes Assurance Co. The payment of premium. accepted by the insurer. upon a fixed and definite plan. unless otherwise agreed. Phil Phoenix Surety v. are legally enforceable once levied. bearing a date prior to the loss. h. the insurance contract is entire or indivisible. The deficiency. On Sept. in accordance with Sec. 63. Hence. From the admission of respondent’s own witness. the claimant’s right of action shall prescribe. the former paid only P75. PREMIUM – The consideration paid to an insurer for undertaking to indemnify the insured against a specified peril. Woodworks. if the peril insured against had occurred. making for only one cause or consideration. it had the right to demand from the insured. Under Sec. See Tibay v. it is deemed to have authorized said agent to receive the premium in its behalf. d.147. The subsequent effects of encashment would retroact to the date of the instrument and its acceptance by the creditor.20. Borja. A policy is sued on the assessment plan has been defined as one where the payment for the benefit is in any manner or degree dependent upon the collection of an assessment upon persons holding similar policies. suffices to invalidate the policy. to pay losses and expenses.” Stipulated prescriptive period beings from filing of claim – A fidelity bond is. while assessments. as to the items insured. Petitioner’s answer contains no specific and definite allegation of non-payment. Payment. Tantoco Enterprises. it was held that nonpayment of the balance of the premiums due does not produce the cancellation of the contract of insurance in the sense that it can no longer be enforced. j. is not enforceable against the insured. Premium distinguished from assessment – the chief distinction lies in the fact that premiums are levied and paid to meet anticipated losses. 384. an assessment. g. The risk attached upon the issuance and delivery of the fire policy. VI.000. In fact. Woodworks. the latter’s duty to pay is indubitable.623. e. paid P3. leaving a difference of P14. during the whole course of the trial. 22. Likewise. Contractual limitations contained in insurance policies are regarded with extreme jealousy by courts and will be strictly construed against the insurer and should not be permitted to prevent a recovery when their just and honest application would not produce that result. in the nature of a contract of insurance against loss from misconduct and is governed by the same principle of interpretation. petitioner argues. The continuance of the insurer’s obligation is conditioned upon the payment of the premium. i. Mr. unless otherwise expressly agreed. It is immaterial that they are shipped or transported separately. assuming an availability of the funds thereof. A. the contractual relation between the parties having ceased. k. It must be remembered that the witness was called to the stand basically to demonstrate that an existing policy issued by the petitioner covers the burned building. insurer claims that insured forfeited the renewal policy for failure to pay the full amount of premium: The amount of the premium stated on the face of the policy was P89. after the first. the insurer issued and delivered a fire policy for the amount of P300. Inc. In the case of the insurer. was paid only after the loss had occurred: Is the fire insurance policy valid and enforceable upon mere partial payment of the premium? No. Assessment – a sum specifically levied by mutual insurance companies or associations. c. any witness to testify that respondent indeed failed to pay the full amount of the premium. Sec. no policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid. B.000. v. except in the case of a life or an industrial life policy whenever the grace period provision applies. the insurer would have a valid defense against recovery under the policy. The balance of the premium which was only partially paid. petitioner fatally neglected to present.770. “an action or suit for recovery of damage due to loss or injury must be brought in proper cases. Phoenix Surety & Insurance Co. not severable.20.
The insurer must have some efficient means of enforcing punctuality. a. so far as to make the policy binding. g. rendering the payment of the premium by the insured wholly impossible. When there is an acknowledgment in a policy or contract of insurance of receipt of premium even if there is a stipulation therein that it shall not be binding until the premium is actually paid iii. $Be that as it may. estoppel cannot create a contract of insurance. the Court held that the insurance policies were valid and binding bec there was partial payment of the premiums and a clear understanding between the parties that they had intended the insurance policies to be binding and effective notwithstanding the staggered payment of the premiums – equity and fairness. b. As far as the payment of the premium itself is concerned. the time specified for the payment of the premiums is of the essence of the contract. the acknowledgment being declared by law to be conclusive evidence of premium payment. as against the insured who relied in good faith of such extension. But the insurer will not be deemed to have waived his privilege of forfeiture by mere inaction or silence if the ground be default in the payment of premiums.” a. 77 to avoid recover on a policy providing a credit term for the payment of such premiums. while the insured has the privilege of continuing the policy in force by making premium payments. notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid. once a policy has been issued. nor can it give validity to what the law so proscribes as a matter of public policy. Subsequent premiums – Nonpayment of subsequent premiums does not affect the validity of the contract unless. Excuses for nonpayment of premiums: i. In the case of a life or an industrial policy whenever the grace period applies ii. The insurer therefore cannot compel the insured to pay the premium bec the insured is by no means a debtor of the insurer. the policyholder is entitled to a grace period of either 30 days or 1 month within which the payment of any premium after the first may e made. Exceptions Sec. Recovery of premium if unpaid – It must be noted however. neither can it be successfully invoked to create a primary liability. CA.16 In life insurance – the premium becomes a debt only when in the case of the first premium. the insurer cannot ordinarily force the insured to make these payments. In other i. When there is an agreement to grant the insured credit extension for the payment of the premium and loss occurs before the expiration of the credit term v. no excuse whatsoever will avail to prevent a forfeiture except only when the nonpayment has in some way been induced by the condition. prevents the contract from becoming binding notwithstanding the acceptance of the application nor the issuance of the policy.As a general principle. by express stipulation. Furthermore. conduct or default of the insurer. D. in consideration of the insured’s express or implied promise to pay. d. the contract has become binding. So essential is the premium payment to the creation of the vinculum juris between the insured and the insurer than it would be doubtful to have that payment validly excused even for a fortuitous event. the grace period is 4 weeks. In the case of Makati Tuscany Condominium Corp v. the insured is entitled to recover in case of loss. The reason for the rule is founded on the fact that when the policy contains such written acknowledgment. and where the nonpayment of the premium is attributable to the fault or misrepresentation of the insurer. the presumption lies that the premium has been duly paid. it is presumed that the insurer has waived the condition of prepayment. ii. or where the insurer has in any wise waived his rights to demand payment. Fortuitous events – even the act of God. In the case of industrial life insurance. When estoppel bars the insurer from invoking Sec. E. hence. 78 of the ICP – “An acknowledgment in a policy or contract of insurance of receipt of premium is conclusive evidence of its payment. c. i. iii. b. insurance contracts usually provides for the forfeiture of the policy upon default of prompt payment of premiums. The fact that the insurance policy contains an automatic premium payment clause does not divest such policy of its contractual nature for the result of such failure would only be for him to pay the premium plus the corresponding interest depending upon the condition of the policy. 16 . or where the failure to pay was due to the wrongful conduct of the insurer as when the insurer induced the beneficiary under a policy to surrender it for cancellation by falsely representing that the insurance was illegal and void. and where premiums are payable monthly. Condition. nonpayment is excused: where the insurer has become insolvent and has suspended business or has refused without justification a valid tender of premiums. that the conclusive presumption extends only to the question of the binding effect of the policy. premiums will not be punctually paid. When there is an agreement allowing the insured to pay the premium in installments and partial payment has been made at the time of the loss iv. If the insured can neglect payment at maturity and yet suffer no loss or forfeiture. Thus. e. 77 of the ICP: i. the acknowledgment is only a prima facie evidence of the fact of such payment. In case of individual life or endowment insurance and group life insurance. will not prevent the forfeiture of the policy when the premium remains unpaid. Dissenting opinion: By weight of authority. going as it does to the whole consideration inducing the insurer to enter into the contract. conduct or default of the insurer – indeed. First premium – Non-payment of the first premium unless waived. and returning the premiums paid. nor is the insurer creditor of the insured. Sec. But nonpayment of the balance of the premium due does not produce the cancellation of the contract. either 30 days or 1 month. and in the case of subsequent premiums. Waiver of condition of prepayment – The law establishes a legal fiction of payment. it is provided that the policy shall in that even be suspended or shall lapse. when the insurer has continued the insurance after maturity of the premium. f. Effect of Non-payment of premium .
Where credit is given by an insurance company for the payment of the credit is given by an insurance company for the payment of the premium it has no right to cancel the policy for nonpayment except by putting the insured in default and giving him personal notice. ii.000 shall be deducted from P16. Whether payment was indeed made is a question of fact. War abrogates insurance contracts between citizens of belligerent states. Thus.000. Sec. the insurer may still dispute its acknowledgment but only for the purpose of recovering the premium due and unpaid.000.60% f. The payment of the premium is an independent obligation the nonfulfillment of which would entitle the insurer to recover.000 which is ¾ of P12. 7 months .70% g. 6 months .80% i. waived the provision therein that it would only pay for the loss or damage in case the same occurs after the payment of the premium. no portion of the premium is returnable bec the thing insured has already been exposedto the perils insured against. a. however short.17 words. According to the SC. Where the parties in a contract of insurance have become public enemies bec of the existence of a state of war. 2. notwithstanding the payment of premiums. By accepting the promise of the insured to pay the insurance policy. In this case. and therefore cannot be apportioned in case the risk terminates before the end of the term for which the insurance was granted. 1 month or less .20% of the annual rate b.000 corresponding to the premium for 1 yr. to indemnity for loss occurring after such declaration of war. When insured entitled to return (or recover) of premiums: a. 11 months . in the absence of any agreement to the contrary.95% 4. 17 . When the insurance is for a definite period and the insured surrenders his policy before the termination thereof (Sec. When risk has never attached: 1. The general rule is that the insurance granted is the entire consideration for the premium received. X will thus be entitled to a return of P9.75% h. the insured is not entitled. 10 months .50% e. if the risk has attached by reason of the contract’s becoming binding upon the insurer. the insurer is deemed to have accepted the promissory note as payment instead of cash. if the contract of insurance is divisible.000 representing the portion of the premium for the unexpired period of the policy. some of which were burned prior to the cancellation of the policy and the insured paid the amount of P4. consisting of several distinct risks for which different amounts premiums have been paid. b. the premium paid for any particular risk is not earned until that risk has attached. or where a short period rate has been agreed upon or. X surrenders his policy.85% j. the insured is not entitled to return of premiums so far as that particular risk is concerned. 77. 8 months . 9 months . a. Ex: Suppose the insurance procured by X upon his vessel contemplates a voyage in 3 different stages – from Port A to Port B.40% d.000 thereby leaving a balance of P12. but only with a privilege of renewal from year to year. ii. 2 months . if a peril insured against has existed. iii. Recovery of premiums is not allowed in life insurance if the insured surrenders his policy bec life insurance is not a divisible contract. in the absence of an express stipulation threreon to that effect. justice requires that premiums paid after the declaration of war between the belligerent states be returned to the insured. 3 months . When risk has never attached: 1. and the insurer has been liable for any period. then to Port C and finally to Port D – and X paid a different amount of premium as regards each portion. Does not apply where the insurance is not for a definite period. Ex: X procures insurance for a vessel against perils of the sea for a voyage from Manila to London. where the policy is a life insurance policy.30% c. the insurer implicitly agreed to modify the tenor of the insurance policy and.000 for the damage. The fact that the check was later on dishonored did not in any way operate as a forfeiture of the insured’s right under the policy. the sum of P4. Where the insured pays in advance the annual premiums on a certain property insured by him. X insures his house for 1 yr and pays the amount of P16. Where short period rate has been stipulated: a. Where insurance divisible – Of course. hence. 78 should be interpreted as an exception to Sec. the insured is entitled to a return of the whole premium 2. in effect. 3. c. d. the whole premium must be considered as earned. F. he shall be entitled to collect ¾ of the premium paid or P12. 79 [b]) i. 4 months .90% k. the voyage to last for 5 days. IF after the lapse of 3 months. and therefore. If X cancels the policy 2 days after the voyage has commenced. When no part of the thing insured has been exposed to any of the perils insured against (Sec. 79[a]) i. the insurance to take effect on a certain date and the loss occurs before the said date. 5 months . Considering that the policy is silent as to the mode of payment. Now suppose that the insurance of the house also covers furniture.
b. – P1.00 (premiums paid). If on the other hand. P12.00 (amount of insurance).000.00 (premiums paid). 82) – In case of overinsurance by double insurance. g.500.000.000. and under any conceivable circumstances.000. 81) i. he can recover back the premiums so paid in the absence of stipulation in the policy that the insurer will remain liable even if the vessel is already lost. B Insurance Co.00 (amount of insurance). Ex. 18 .000 (total insurance amount) or 1/6.00.000 or P2.800. Suppose X insures his house which has an insurable value of P1. i. The premiums to be returned where there is overinsurance by several insurers shall be proportioned to the amount by which the aggregate sum insured in all the policies exceeds the insurable value of the thing at risk. P24. The proportion is P300. 1/6 of P24. When the insurance is void bec illegal. he could never in any event have thus been called on to pay the whole. 81) i. in such cases the whole premium is earned and there shall be no return.000 is what A Insurance Co. 81). The insured is not entitled to a return of the premium paid of the policy is annulled by reason of the fraud or misrepresentation of the insured (Sec. there is an over insurance of P300. and 1/6 of P12. c. When the insurer never incurred any liability under the policy bec of the default of the insured other than actual fraud (Sec. the general rule is that the premiums cannot be recovered.00 as follows: A Insurance Co. When rescission is granted due to the insurer’s breach of contract G. When there is overinsurance (Sec. ii.000 to P1. Hence. the parties are not in pari delicto. d. Basis of the right to recover premium: a. his liability being limited to the amount of the insurable interest on the property insured.18 When the contract is voidable bec of the fraud or misrepresentations of the insurer or his agent (Sec. 81) f.000 is what B Insurance Co. Where the insured pays insurance premiums on his vessel not knowing that it has already been lost. In this case. H. the law will allow an innocent insured to take again his premiums as when the insured was ignorant of the facts which rendered the insurance illegal.000. – P600. must return. the insurer is not liable for the total amount of insurance taken. must return. he is not entitled to that portion of the premium corresponding to the excess of the insurance over the insurable interest of the insured.200. Where the insured is induced to take out an insurance upon the representation of the insurer’s agent that the policy will be issued to him within 1 month.000 or P4. have been called on to pay the whole sum on which he has received premium. But if in fact. the insured may refuse the contract and recover the premiums paid by him if the policy is not issued within said period.500. Hence. he cannot recover the whole of the amount insured in case of loss. Insurer could have been called to pay the whole sum insured – if the insurer could at any time.000. Since the insurable interest of X is only P1.000. ii. e. but only a part of the amount of his subscription – say a half – he ought to retain a larger portion than a half of the premium and must return the residue. When the contract is voidable be of the existence of facts of which the insured was ignorant without his fault (Sec.
d. during the continuance of the risk. Where insurance policies on the mortgaged property has been endorsed by the mortgagor to the mortgagee. in which event. when in sound mind. or accessory in willfully bringing about the death of the insured. To avoid liability. the proceeds being exclusively payable to the mortgagee by reason of the endorsement. was intended to be left to the insured’s option. But if the bailee secures insurance covering his own goods and goods stored with him. Suicide of an insane insured does not discharge the insurer from his liability on his contract.” i. was judicially declared insolvent. In all three cases. Sec. iii. The insured himself ii.” i. only he who can show that it was intended to include him can claim the benefit of the policy. it is quite clear that the insurer is not liable in case the insured commits suicide intentionally. The mere fact that the insured died while he was committing a felony or violating a law would not warrant denial of liability. e. it has been held that the warehouseman is liable to the owner of such stored goods for his share in the insurance money (Lopez v. 53 of the ICP – “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. iii. unless he has expressly waived his right in said policy.” b.” g. Sec. with whatever motive. before dying. 57 of the ICP – “A policy may be so framed that it will inure to the benefit of whomsoever. Under Sec. the beneficiary is not a party to the contract. f. upon the happening of which the insurer undertook to pay.19 VII A. 56 of the ICP – “When the description of the insured in a policy is so general that it may comprehend any person or any class of persons. accomplice. Limitations on the appointment of beneficiary B. these policies cannot be attached by the mortgagor’s other creditors. Third person through mere bounty of insured c. Sec. where the insured.” i. PERSONS ENTITLED TO RECOVERY ON THE POLICY AND CONDITIONS TO RECOVERY Beneficiary a. In the second and third cases. 11 of the ICP – “The insured shall have the right to change the beneficiary he designated in the policy. 19 . Therefore. That view is against the very essence of the contract. Such insanity is one of the diseases to which the insurer must have known that the insured was subject and the unwitting act of self-destruction is as much the consequence of that disease as if some vital organs were totally affected. even if the owner of the stored goods did not request or know of the insurance and did not ratify it before payment of the loss. the insurance taken by one in his own right and his own interest does not in any way inure to the benefit of the other. the insurer must further establish that the commission of the felony or the violation of law was the cause or had a casual connection with the accident resulting in the death of the insured. Sec. 12 of the ICP – “The interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary is the principal. the proceeds should be paid to the beneficiary and not to the assignee in insolvency. ii. Sec. may become the owner of the interest insured. To hold otherwise is to say that the occurrence of the event. Del Rosario). 87 of the ICP. the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified. Third person who paid the consideration iii. Where different persons have different interests in the same property. ii. the proceeds of the life insurance policy become the exclusive property of the beneficiary upon the death of the insured. Kinds of beneficiary: i.
2) Those made between persons found guilty of the same criminal offense. that. Sec. the proceeds of the insurance will go to the estate of the deceased insured. Del Rosario). Sec. it is manifest that the general rules of construction require that they shall be construed with much less strictness than those conditions that operate prior to loss. 3) Those made to a public officer or his wife. descendants and ascendants. The purpose of notice of loss is to apprise the insurance company with the occurrence of the loss. In the case referred to in no. In the absence of any beneficiary named in the life insurance policy or where the designated beneficiary is disqualified. the insured is not bound to give such proof as would be necessary in a court of justice. f. to prevent further loss to the property. according to said article. substantial. ii. ii.” a. in the case of property insurance.” i. The insurance contract may provide that the notice of loss shall be given within a stated time after the loss occurs and that failure to give the notice within such time shall preclude recover. the plaintiff cannot claim the benefit of the agency without sharing in the expenses (Lopez v. not strict compliance with the requirements will always be deemed sufficient. Form – The law does not make any requirement as to the form in which notice or proof of loss must be given. 739 cannot be named beneficiary of a life insurance policy by the person who cannot make any donation to him. Where the right to change is waived i. applicable to the interest of his co-partners or other part-owners. 2012 of the NCC – “Any person forbidden from receiving any donation under Art. The beneficiary’s right then becomes completely fixed. Sec. Redfern). But a partner who insures partnership property in his own name limits the contract to his individual share unless the terms of the policy clearly show that the insurance was meant to cover also the share of the other partners. Notice of loss is more or less formal notice given the insurer by the insured under a policy of the occurrence of the loss insured against. if notice thereof be not given to him by an insured. The notice must be given without unnecessary delay. vi. so that it may gather information and make proper investigation while the evidence is still fresh. or assigns.” vii. or by other general words in the policy. and cannot be exercised by his personal representative or assignee. the action for declaration of nullity may be brought by the spouse of the donor or donee.” c. the fact that his principal or beneficiary is the real party in interest may be indicated by describing the insured as agent or trustee. The insured does not even retain the power to destroy the contract by refusing to pay premiums for the beneficiary can protect his interest by paying the premiums for the reason that the fulfillment of an obligation may be made by a third person even against the will of the debtor and if he has an interest in the fulfillment of the obligation even against the will of the creditor. where the defendant acted as plaintiff’s agent for the insurance of goods stored with the defendant. Such being the nature of these conditions. The right of the insured to change beneficiary in life insurance must be exercised specifically in the manner provided in the policy. 55 of the ICP – “To render an insurance effected by one partner or part-owner.20 a. by reason of his office. as regards the submission of documents to prove loss. It has been held however. Art. D. in the absence of any stipulation in the policy. Notice will be considered as given immediately or without unnecessary delay if it has been given “as soon as circumstances permitted the insured. 739 of the NCC – “The ff donations shall be void: 1) Those made between persons who were guilty of adultery or concubinage at the time of the donation. notice or proof may C. 1. View that estate of insured entitled to insurance proceeds – However. It has been held that a requirement of the policy that notice of loss be given immediately or forthwith requires that giving of notice within a reasonable time.” b. 54 of the ICP – “When an insurance contract is executed with an agent or trustee as the insured. Sec. Indeed. It has been held that formal notice of loss is not necessary if the insurer already has actual notice (Fidelity-Phoenix F. most but not all courts hold that the mere fact that such a policy is made payable to the designated beneficiary. but it is sufficient for him to give the best evidence which he has in his power at the time. administrators. viii.” is sufficient to negative the implied condition that death of the beneficiary before the maturity of the policy terminates all his rights to it. Where beneficiary dies before the insured i. iii. e. View that beneficiary’s representative entitled to insurance proceeds ii.” a. “his executors. E. But the insured’s power to extinguish the beneficiary’s interest ceases at his death. an insurer is exonerated. in consideration thereof. Art. in the exercise of reasonable diligence. and the guilt of the donor and donee may be proved by preponderance of evidence in the same action. Such provision is valid provided the time so fixed is not unreasonably short. Accordingly. Notice and Proof of Loss a. Neither can a new beneficiary be added to the irrevocably designated beneficiary for this would in effect reduce the latter’s vested rights (Go v. 89 of the ICP – “When a preliminary proof of loss is required by a policy. it is necessary that the terms of the policy should be such as are applicable to the joint or common interest. Insurance Co v.” b. v. Construction – All those conditions in the policy-making requirements of the insured after the loss are intended merely for evidential purposes and do not properly form any part of the conditions of liability. d. 88 of the ICP – “In case of loss upon an insurance against fire. Friedman). 20 . to communicate. or some other person entitled to the benefit of the insurance. and take such action as may be necessary to protect its interest from fraud or imposition. without unnecessary delay. iv.
The statement of loss. The notice of loss may be in the form of an informal or provisional claim containing a minimum of information as distinguished from a formal claim which contains the full details of the loss. the insurer did not raise the defense of delay to avoid liability when it should have done so. His retention of the defective proofs constitutes a waiver of his objections. From April 1963 to July 1963. But even on the assumption that there was delay. Furthermore. ix.” i. Sec.” (Pacific Timber Export Corp. Loss through the negligence of the insured except where there was gross negligence amounting to willful act iv. a much more formal requirement. together with a demand or request for payment. Thus. which permanently deprives the insured of its possession. it is advisable to give the notice or proof of loss in writing for the protection of the insured or his beneficiary. is however. 91 of the ICP – “Delay in the presentation to an insurer of notice or proof of loss is waived if caused by any act of his. Testimony or evidence must be given to sustain the correctness of the claim. and which the insurer omits to specify to him. there is waiver where the insurer: 1. In an action on a fire insurance policy to recover the value of goods alleged to have been destroyed by fire. The insurer is NOT liable if: F. it took steps clearly indicative that this particular ground for objection to the claim was never in his mind. the purpose of which is to avoid collusion between the insured and the claimant. Loss caused by efforts to rescue the thing from peril insured against – if during the course of rescue. and supporting evidence. Loss and claims settlement a. computations of the amounts claimed. the certificate or testimony of a person other than the insured. the thing is exposed to a peril not insured against. which the insured might remedy. enough time was available for the insurer to determine that the insured was guilty of delay in communicating the loss to the insurer. 5. in the proceedings that took place in the Office of the Insurance Commissioner. are waived. d. x. But an inventory of goods destroyed by fire is a mere claim for loss. Sec. Loss the proximate cause of which is the peril insured against ii. Notice of loss is distinct from proof of loss. and in case of the refusal of such person to give it. “Instead of invoking the ground of delay. 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. 92 of the ICP – “If the policy required. It has been held that a general statement that proofs are defective is not sufficient to impose on the insured the duty to supply defects not pointed out. is estopped from claiming that notice of the fire was not given forthwith to the insurer by the insured as required by the terms of the policy. An insurance company. it devolves upon the plaintiff to prove the amount of his loss by a preponderance of evidence. However. Loss the immediate cause of which is the peril insured against except where proximate cause is an excepted peril iii. The insurer is liable if: i. and to operate as a check upon extravagant claims. as grounds of objection. It is the duty of the dissatisfied insurer to indicate the defects in the proofs of loss as given. making no objection on account of notice and preliminary proof. Recognizes his liability to pay the claim 3. so that the deficiencies may be supplied. Makes objection on any ground other than a formal defect in the preliminary proof ii. c. indicating that it did not find any delay. without unnecessary delay. The stipulation is valid. to afford him a means of detecting any fraud that may have been practiced upon him. or if he omits to take objection promptly and specifically upon that ground. CA) e. Is a stipulation in a policy of insurance requiring that the consent of the insurer must be first obtained before any payment by the person responsible for the loss in the settlement of the claim against the insured can be made valid? Yes. Writes to the insured that he considers the policy null and void as the furnishing of the notice or proof of loss would be in vain and useless 2.” i. v. Denies all liability under the policy 4. or in preliminary proof thereof.” i. The requirement of notice is intended merely to give the insurer information upon which he may act promptly in protecting the property from further loss for which he may be liable or to enable him to take any other immediate steps that his interests may require. by way of preliminary proof of loss. and intended not only to give the insurer information by which he may determine the extent of his liability but also. and where the insurer denies liability. by accepting payment of premium with full knowledge that the premises had been injured or destroyed by fire.21 be given orally or in writing. xi. Joins in the proceedings for determining the amount of the loss by arbitration. it is sufficient for the insured to use reasonable diligence to procure it. does not certainly constitute evidence of loss. It has been held that such requirement in the policy must be liberally construed in favor of the insured. Sec. in whole or in part b. waiver can be successfully raised against the insurer. ii. Failure to give notice and proof of loss will be excused when it is due to the death or incapacity of the insured or the fact that the beneficiary had no knowledge of the existence of the policy of the insured who died before the loss. f. The nature of this specific ground for resisting a claim places the insurer on duty to require when the loss took place so that it could determine whether delay would be a valid ground upon which to object to a claim against it. 90 of the ICP – “All defects in a notice of loss. 21 .
in over-insurance. unless the policy otherwise provides. he must hold such sum in trust for the insurers. The public. to contribute ratably to the loss in proportion for which he is liable under his contract.” (see page 48-49 of Commercial Law Reviewer of Dean Sundiang) C. The purpose of the prohibition against double insurance is to prevent over-insurance and thus avert the perpetration of fraud.” Sec. the thing is exposed to a peril not insured against. or where a loss is caused by efforts to rescue the thing insured from a peril insured against. Obviously. Where the insured receives any sum in excess of the valuation in the case of valued policies. D. Loss where the excepted peril is the proximate cause Sec. or of the insurable value in case of unvalued policies. A policy which contains no stipulation against additional insurance is not invalidated by the procuring of such insurance. 22 . in whole or in part. 100 – The owner of a ship has in all cases an insurable interest in it. 94 of the ICP a. Requisites: i. Sec. but he does secure immunity from payment of the loan. many of the elements of an insurance contract are present in a bottomry loan as well as in the respondentia loan. as well as the insurer. the insured must give credit as against the valuation for any sum received by him under any other policy without regard to the actual value of the subject matter insured. if. according to their right of contribution among themselves. The person insured is the same ii.” a. b. as against the full insurable value. is interested in preventing the situation in which a loss would be profitable to the insured. an insurer is liable for a loss of which a peril insured against was the proximate cause. a. Loss by insured’s willful act or gross negligence ii. Each insurer is bound. The risk or peril insured against is likewise the same Double Insurance distinguished from over-insurance a. but he is not liable for a loss of which the peril insured against was only a remote cause. DOUBLE INSURANCE Sec. d. “Where the insured is over-insured by double insurance: i. 101 – The insurable interest of the owner of a ship hypothecated by bottomry is only the excess of its value over the amount secured by bottomry. The lender in bottomry is entitled to receive a high rate of interest to compensate him for the risk of losing his loan. VIII A. ii. Sec. although a peril not contemplated by the contract may have been a remote cause of the loss. iv. His interest over the goods is based on the perfected contract of sale between him and the shipper of the goods which operates to vest in him an equitable title even before the delivery or before he performed the conditions of the sale. The interest insured is also the same v. up to the amount for which the insurers are severally liable under their respective contracts. as between himself and the other insurers. 84 of the ICP – “Unless otherwise provided by the policy. Where the policy under which the insured claims is a valued policy. for any sum received by him under any other policy.22 i. There is over-insurance when the amount of the insurance is beyond the value of the insured’s insurable interest. that in this case the insurer shall be liable for only that part of the loss which the insured cannot recover from the charter. Sec. there may be no over-insurance as when the sum total of the amounts of the policies issued does not exceed the insurable interest of the insured. While in double insurance there are always several insurers. 85 of the ICP – “An insurer is liable where the thing insured is rescued from a peril insured against that would otherwise have caused a loss. The subject matter is the same iv. v. The insured. In the case of a vendee/consignee of goods in transit – The vendee/consignee has such existing interest therein as may be the subject of a valid contract of insurance. The owner of the vessel receives in case of loss no indemnity for his loss. which is secured in similar manner on the cargo or some part thereof. may claim payment from the insurers in such order as he may select. iii. in the course of such rescue. In double insurance. Where the policy under which the insured claims is an unvalued policy he must give credit. 93 of the ICP – “A double insurance exists where t he same person is insured by several insurers separately in respect to the same subject and interest. Loan on bottomry – one which is payable only if the vessel given as security for the loan completes in safety the contemplated voyage. Two or more insurers insuring separately iii. even when it has been chartered by one who covenants to pay him its value in case of loss. Loss due to connivance of the insured iii.” c. The insurable interest of the lender on bottomry in the Bessel given as security is to the extent of the loan. there may be only one insurer involved. B. which permanently deprives the insured of its possession. Provided. E.
who then undertakes to provide crew and victuals and supplies and fuel for her during the term of the charter. he is alkso liable for the expenses of the voyage including the wages of the seamen. b) Where the inchoate right to freight accrues as soon as the goods are actually put on board and where part of the goods have been loaded and the balance is ready. c) Where the shipowner has made a binding contract for the freight and the ship is in readiness to receive the goods. in its ordinary acceptation. there is no insurable interest in freight although there are goods ready for shipment or the master is provided with funds for the purpose of purchasing a cargo. payable by the charter. However. he must be in such position with regard to freight that nothing could prevent him from ultimately having a perfect right to it but the intervention of the perils insured against. As such. c) The benefit accruing to the owner from the use of his vessel in the way of profits upon carriage of his own goods The owner of a ship has an insurable interest in expected freightage which he may not earn as a result of the intervention of a peril insured against or other peril incident to the voyage. 102 – Freightage. Sec. Bareboat or demise charter – the shipowner turns over full possession and control of his vessel to the charterer. Freight money may be: a) Freight. 103 – The owner of a ship has an insurable interest in expected freightage which according to the ordinary and probable course of things he would have earned but for the intervention of a peril insured against or other peril incident to the voyage. Charterer becomes pro hac vice of the ship. from one or more ports of loading to one or more ports of unloading. b) Where the vessel is a mere “seeking ship” or a vessel looking for cargo to be transported. to the extent that he is liable to be damnified by its loss. one or on a series of voyages.23 Sec. in case of a charter party. the owner has no insurable interest in freight to be earned on goods not loaded. is customarily payable in advance. The charterer becomes in effect. Under such circumstances. 23 . Owner of the vessel likewise remain the employer of the master and the crew. Sec. in the sense of a policy of marine insurance.a contract by which an entire ship or some principal part thereof is lent by the owner to another person for a specified time or use. whether the vessel is lost or not. it cannot be recovered if the vessel is lost before the completion of the passage. a) Voyage charter – contract for the carriage of goods. If a price is to be paid for the carriage of goods. that is. Sec. has an insurable interest on the same. Sources of freightage: 1) The chartering of the ship 2) Its employment for the carriage of his own goods. the passenger can clearly insure his advances of passage money but the shipowner may not insure it unless it is payable only upon the completion of the voyage. Passage money. And both ship and goods are ready for the specified voyage. has an insurable interest in the profits. 105 – One who has an interest in the thing from which profits are expected to proceed. subject to liability for damages caused by negligence. it exists when they are actually on board. When none exists a) Where there is no contract and no part of the good expected to be carried are on board. The rule is the same although the freight has been paid in advance. where the agreement is that the freight is payable in any event. the shipowner has an inchoate right to freight as soon as there is an inception of performance by the ship under the charter party. either from the chartering of the ship or its employment for the carriage of his own goods or those of others. Affreightment – owner of the vessel leases part or all of the space to haul goods for others. unlike freight. the insured must have an inchoate right to freight. Master and crew remain in the employ of the owner of the vessel b) Time charter – contract for the use of a vessel for a specified period of time or for the duration of one or more specified voyages. 106 – The charterer of a ship has an insurable interest in it. the owner for the voyage or service stipulated. there is an insurable interest in the whole freight. when the ship has broken ground on the chartered voyage. When it exists – To give an insurable interest in expected freightage. the ship-owner no insurable interest in such freight. or there is some contract for putting them on board. signifies all the benefits derived by the owner. a) Where freight is the price to be paid for the hire of the ship under a charter party. he has an insurable interest. b) The hire of the vessel. 104 – The interest mentioned in the last section exists. to be earned and payable upon the completion of the voyage. 3) Its employment for the carriage of the goods of others Sec. But the shipper who has prepaid the freightage under such condition. A charter party .
and to encounter the ordinary perils of the voyage. of a prior loss.24 Sec. except in the ff cases: a) When the insurance is made for a specified length of time. and the requisite appurtenances and equipment. Sec. to use all accessible means of information at the very last instant of time to ascertain the condition of the property insured. in reference to a material fact. 2) deviates from the agreed voyage 3) engages in an illegal venture 4) that the ship will carry the requisite documents of nationality or neutrality of the ship or cargo where such nationality or neutrality is expressly warranted. b) When the insurance is upon the cargo which. 116 – A warranty of seaworthiness extends not only to the condition of the structure of the shi itself. Sec. 110 – A concealment in a marine insurance. by the terms of the policy. d) The want of necessary documents. e) The use of false and simulated papers. each party is bound to communicate. or in respect of any fact on which the character and nature of the risk depends. Securing a certificate of seaworthiness. avoid a contract of marine insurance. a warranty is implied that the ship is seaworthy. of the information might possibly have reached him in the usual mode of transmission and that the usual rate of communication. fuel and lights. 107 – In marine insurance. or freightage. of the condition of the vessel or her stowage does not satisfy the vessel owner’s obligation nor does it establish due diligence if the vessel was. however. There is concealment where the insured at the time of the application for insurance did not disclose the opinion of marine experts who inspected the vessel insured that it was unseaworthy. or upon anything which is the subject of marine insurance. is to be transshipped at an intermediate port. 109 – A person insured by a contract of marine insurance is presumed to have knowledge. information of the belief or expectation of a third person. water. all the information which he possesses. Sec. Sec. or upon inquiry discloses assumes to disclose. in addition to what is required by section 28. be seaworthy at the commencement of each particular voyage. material to the risk. When rule not applicable – The insured is not bound. or established customs of the trade. in fact. except such is mentioned in section 30 and to state the exact and whole truth in relation to all matters that he represents. or his surveyor. but merely exonerates the insurer from a loss resulting from the risk concealed: a) The national character of the insured. Sec. does not vitiate the entire contract. is material. Sec. contemplated by the parties to the policy. 113 – In every marine insurance upon a shi or freight. but requires that it be properly laden. he is not guilty of negligence which will vitiate the policy. and provided with a competent master. for the cargo owner has no obligation in relation to seaworthiness. by a person insured by a contract of marine insurance. b) The liability of the insured to capture and detention. when reasonably fit to perform the service. containing the material information. Sec. the implied warranty is not complied with unless each vessel upon which the cargo is shipped. description of the voyage. When rule applicable – Sec 109 establishes a rebuttable presumption of knowledge of a prior loss on the part of the insured if the information might possibly have reached him in the usual mode of transmission and at the usual rate of communication. 112 – The eventual falsity of a representation as to expectation does not. The issuance of the certificate neither negates the presumption of unseaworthiness triggered by an unexplained sinking or established seaworthiness. a sufficient number of competent officers and seamen. the implied warranty is not complied with unless the ship be seaworthy at the commencement of every voyage it undertakes during that time. and other necessary or proper stores and implements for the voyage. The unexplained sinking of a vessel creates the presumption of unseaworthiness. Thus. Sec. such as ballasts. the insurer may rescind the entire contract. or the approval of the shipper of the cargo. unseaworthy. 115 – An implied warranty of seaworthiness is complied with if the ship be seaworthy at the time of the commencement of the risk. or transshipped. 24 . at the time of insuring. cordage and sails. Sec. 114 – A ship is seaworthy. when having no cause to expect information the insured omits to call at the post office where a letter was received on the morning of the day the insurance was effected. is intentionally false in any material respect. in the absence of fraud. The insurer will not be liable for any loss under his policy in case the vessel is: 1) unseaworthy at the inception of the insurance. food. 108 – In marine insurance. The warranty of seaworthiness is not absolute guaranty that the vessel will safely meet all possible perils. 111 – If a representation. in respect to any of the ff matters. cables and anchors. c) The liability to seizure from breach of foreign laws of trade.
123 – Deviation is a departure from the course of the voyage insured. The effect is as if there were no deviation. c) When made in good faith. Sec. or to avoid a peril. b) When necessary to comply with a warranty. Sec. the voyage insured by a marine insurance policy is that way between the places specified. which to a master of ordinary skill and discretion. the voyage insured is one which conforms to the course of sailing fixed by mercantile usage between those places. a warranty of seaworthiness is complied with if. 130 – An actual total loss is cause by: a) A total destruction of the thing insured. The stages must be separate and distinct in order to have a different degree of seaworthiness for particular parts. b) The irretrievable loss of the thing by sinking. by reason of being unfitted to receive the cargo. be unseaworthy for the purpose of insurance upon the cargo. Sec. it is implied that the ship will carry the requisite documents to show such nationality or neutrality and that it will not carry any document which cast reasonable suspicion thereon. 118 – When a ship becomes unseaworthy during the voyage to which an insurance relates. 121 – When the voyage contemplated by a marine insurance policy is described by the places of beginnings and ending. and upon reasonable grounds of belief in its necessity to avoid a peril. An actual total loss exists when the subject matter of the insurance is wholly destroyed or lost or when it is so damaged as no longer to exist in its original character. Sec. Sec. but the warranty is not broken by a contract for sale and transfer to an alien at a future date. A warranty of nationality does not mean that the vessel was built in such country. Sec. Sec. Sec. any unexcused departure from the regular course or route of the insured voyage or any other act which substantially alters the risk constitutes a deviation. direct and advantageous. Sec. A warranty of neutrality requires that the insured property shall be accompanied by documentary evidence of its neutral character. of the thing insured. 120 – Where the nationality or neutrality of a ship or cargo is expressly warranted. 128 – Every loss which is not total is partial. Deviation may be proper or improper. c) Any damage to the thing which renders it valueless to the owner for the purpose for which he held it. an unreasonable delay in repairing the defect exonerates the insurer on ship or shipowner’s interest from liability from any loss arising therefrom. 122 – If the course of sailing is not fixed by mercantile usage.25 It is settled that carrying cargo on deck raises the presumption of unseaworthiness unless it can be shown that the deck cargo will not interfere with the proper management of the ship. or by being broken up. or an unreasonable delay in pursuing the voyage or the commencement of an entirely different voyage. and such production is not excused because the papers were lost by the fault of the master. the ship is seaworthy with reference to that portion. mentioned in the last 2 sections. 119 – A ship which is seaworthy for the purpose of an insurance upon the ship may. for the purpose of saving human life or relieving another vessel in distress. 124 – A deviation is proper: a) When caused by circumstances over which neither the master nor the owner of the ship has any control. In other words. would mean the most natural. 125 – Every deviation not specified in the last section is improper. It refers to the beneficial ownership rather than to the legal title. 129 – A total loss may be either actual or constructive. The proper papers must be produced when necessary to prove ownership. 127 – A loss may be either total or partial. or d) Any other even which effectively deprives the owner of the possession. nevertheless. 117 – Where different portions of the voyage contemplated by a policy differ in respect to the things requisite to make the ship seaworthy therefore. A ship may not be designed to carry substantial amount of cargo on deck and the inordinate loading of cargo on deck may result in the decrease of the vessel’s metacentric height thus making it unstable. whether or not the peril is insured against. 25 . The warranty is a continuing one and a change of nationality is a breach of the warranty. but that the property belongs to a subject thereof. The insurer is not exonerated from liability for loss happening after proper deviation. Sec. at the port of destination. at the time of the commencement of each portion. Sec. or d) When made in good faith. and not by any other papers which compromise such character. Sec. Sec.
the liability of a marine insurer on the cargo continues after they are thus reshipped. In case of an actual total loss. Sometimes called “technical total loss. 132 – An actual loss may be presumed from the continued absence of a ship without being heard of. Hence. Kinds of average: 1) Gross or general average – which included damages and expenses which are deliberately caused by the master of the vessel or upon his authority. even though it becomes entirely worthless. if he thinks fit. a marine insurer is bound for damages. In any case. for upon then depends the whole doctrine of abandonment. the right of the insured to claim the whole insurance is absolute. an abandonment becomes necessary ion order to recover as for a total loss. she was bound on the voyage insured. an abandonment by the insured is necessary in order to recover for a total loss in the absence of any provision to the contrary in the policy. or for a reasonable time after she was last seen. reshipment. cargo. at the port of destination. under section 139. constitute actual total loss of the vessel. It is highly important that the two kinds of total loss be carefully differentiated. no abandonment is necessary. from completing the voyage. The above section contemplates an insurance upon cargo. storage. 135 – Upon an actual total loss. Sec. to treat it as total by abandonment.. expenses of discharging. It depends upon the circumstances of the case. and all other expenses incurred in saving cargo reshipped pursuant to the last section. up to the amount insured. but such insurer is liable for his proportion of all general average loss assessed upon the thing insured. 136 – Where it has been agreed that an insurance upon a particular thing. of the whole of such thing. In cases of actual total loss. of the insurable value. The length of time which is sufficient to raise this presumption depends on the circumstances of the case. by the perils insure against.26 The fact that insured vessel which sank and was finally raised was in such condition that much further time would be required to make the necessary repairs and install the new machinery before it could be placed in commission and the further fact that the cost of salvage. a person insured is entitled to payment without notice of abandonment. There is also an actual total loss if the insured is effectively deprived of the use and possession of the property as where the property insured passes into the possession of captors or salvors. Where a vessel is not heard of at all within a reasonable time after sailing. But plaintiff must prove that when the vessel left her port of outfit. as the agent of the merchant and the shipowners. the loss must be borne equally by all of the interests concerned in the venture. or class of things. In constructive total loss. is of such a character that the insured is entitled. or both at the same time from a real and known risk. such necessary and justifiable change of ship will not discharge the underwriter on the goods from liability for any loss which may take place on goods subsequently to such reshipment. repair and construction was more than the original cost of the vessel or its value at the time the policy was issued. Sec. extra freightage. Sec. Sec. If the original ship be disabled.” – one although not actually total. a marine insurer is not liable for any particular average loss not depriving the insured of the possession. but if the loss is merely constructively total. in order to save the vessel. shall be free from particular average. There is no fixed rule with regard to the time after which a missing vessel will be presumed to be lost. Nothing in this section shall prevent an insurer from requiring an additional premium if the hazard be increased by this extension of liability. she will be presumed to have been lost from a peril insured against. if there be none. 133 – When a ship is prevented. In a general average. the insurer may require an additional premium if the hazard be increased by the extension of liability. Sec. and the master. acting with a wise discretion. 2) Simple or particular average – includes all damages and expenses caused to the vessel or to her cargo which have not inured to the benefit and profit of all the persons interested in the vessel and her cargo. Sec. her cargo. or a class of things. Average – any ordinary or accidental expense incurred during the voyage for the preservation of the vessel. To lay a foundation for the presumption. They refer to 26 . or both and all damages to the vessel and cargo from the time it is loaded and the voyage commenced until it ends and the cargo is unloaded. 134 – In addition to the liability mentioned in the last section. forwards the cargo on another ship. provided the owners cannot in either case recover the possession except by disproportionate exertions. and the owners are thus in fact dispossessed. 131 – A constructive total loss is one which gives to a person insured a right to abandon. at an intermediate port. expenses or hazard. Nothing in this or the preceding section shall render a marine insurer liable for any amount in excess of the insured value or. he need not give notice of abandonment nor formally abandon to the insurer anything that may remain of the insured property. it is enough to prove that the vessel was not heard of at her port of departure after she sailed without calling witnesses from her port of destination to show that she never arrived there.
27 those losses which occur under such circumstances as do not entitle the unfortunate owners to receive contribution from other owners concerned in the venture as where a vessel accidentally runs aground and goes to pieces after the cargo is saved. C. the insurer is liable because the permanent non-arrival thereof is really an actual total loss. 1/10 of P1M or P100K. but covers any loss. after a constructive total loss. unless the particular average loss has the effect of depriving the insured of the possession at the port of destination of the whole of the thing insured. If the insured is deprived of the possession of the entire thing insured at the port of destination. 4) IT must be made by the master or upon his authority 5) It must not be caused by any fault of the party asking the contribution. The ratable contribution of the parties will be as follows: Y Co. 27 . Requisites to the right to claim general average contribution: 1) There must be a common danger to the vessel or to the cargo. 136 which states “but he is liable for his proportion of all general average loss assessed upon the thing insured. Reason for need for timely notice – the underwriter may by prompt action be able to save some portion of the insured property. As a result of the jettison. is the act of the insured by which. which necessarily results in depriving the insured of the possession. 138 – Abandonment. In this case. 137 – An insurance confined in terms to an actual total loss does not cover a constructive total loss. The total value involved is P10M consisting of the value of the cargo sacrificed and that of the vessel and cargo saved. the damage and expense suffered by the vessel from the time it is put to sea from the port of departure until it anchors in the port of destination. It may be agreed by the parties that the insurance shall be free from particular average. the vessel was saved together with the cargo belonging to C valued at P600K and to D valued at P400K. If he omits to abandon. 7) The notice of abandonment must be explicit and must specify the particular cause of the abandonment. cannot exceed the contributing value of the vessel. 2) Part of the vessel or cargo was sacrificed deliberately. the insurer shall only be liable for the general average and not for particular average.” Amount of insurance Total amount or value x General Average Loss = Proportion of GAL for which insurer is liable Ex: A is the owner of a vessel worth P8M insured against absolute total loss only with Y Co. Sec. It is a matter of his own election. although there is authority to the contrary. 3) The abandonment be neither partial nor conditional 4) It must be made within a reasonable time after receipt of reliable information of the loss 5) It must be factual 6) It must be made by giving notice thereof to the insurer which may be done orally or in writing. In the absence of any stipulation to the contrary. at the port of destination. 2/5 of P1M or P40K. of the entire thing insured. Requisites for valid abandonment: 1) There must be an actual relinquishment by the person insured of his interest in the thing insured.. An insurance against “total loss only” will cover any total loss whether it is actual or constructive. in marine insurance. 2) There must be a constructive total loss. A particular average loss is suffered by and borne alone by the owner of the cargo or of the vessel as the case may be. The vessel ran into very heavy sea and it became necessary to jettison the cargo belonging to B valued at P1M. The liability of Y Co. wages and victuals of the crew when the vessel is detained or embargoed by legitimate order or force majeure. he elects to take the amount of the insurance in the place of the subject thereof. 3/50 of P1M or P60K. is liable to contribute to the indemnity of the general average although the policy makes it liable only upon actual total loss of the vessel. Here. the insurer will not be liable for constructive or technical loss. Note that B contributes P100K as his part of the indemnity for the general average brought about by the jettison of his cargo. Y Co. D. Where the insurance is against “absolute” total loss or “actual” total loss. he declared the relinquishment to the insurer of his interest in the thing insured. the insurer is liable for particular average loss. There is no obligation upon the insured to abandon. Examples of particular average: The damage suffered by the cargo from the time of its embarkation until it is unloaded. 4/5 of P1M or P800K. 3) The sacrifice must be for the common safety or for the benefit of all. he may nevertheless recover his actual loss. Sec. the remnant of which he cedes to the insurer. The liability of the insurer for general average is clearly provided for in Sec. B. It has also been defined as the act of an insured in notifying the insurer that owing to damage done to the subject of the insurance. 6) It must be successful 7) It must be necessary Jettison – intentional casting overboard of any part of a venture exposed to a peril in the hope of saving the rest of the venture.
But the facts and the information need not be the same. the insured cannot abandon when the thing insured is safe. In determining the extent of loss. makes a sale of the insured property. The grounds for the abandonment must be stated with such particularity as to enable the underwriter to determine whether or not he is bound to accept the offer. Sec. he must give notice thereof. But there is no abandonment although the insured may have given notice of an intention to abandon. 139 – A person insured by a contract of marine insurance may abandon the thing insured. the insured property was recovered. and recover for a total loss thereof. or detention of the ship or cargo. and the invalidity of the abandonment is not cured by the subsequent loss of the thing insured. he must elect within a reasonable time whether he will abandon to the insurer. The intelligence which authorized the insured to abandon need not be direct or positive information. as from an unjustifiable sale. Sec. 141 – An abandonment must be made within a reasonable time after the receipt of reliable information of the loss. Sec. when the cause of the loss is a peril insured against: a) If more than ¾ thereof in value is actually lost. a written notice of such abandonment shall be submitted within 7 days from such oral notice. or otherwise separately insured. or in writing. and need not be accompanied with proof of interest or of loss. within a reasonable time and with reasonable diligence to forward the cargo. nor is it required that it be accompanied with proof of interest or of loss. an abandonment is too late. or where under urgent necessity. seizure. and facts sufficient to constitute a total loss must exist. 144 – A notice of abandonment must be explicit. but need state only enough to show that there is probable cause therefore. and must specify the particular cause of the abandonment. 142 – Where the information upon which an abandonment has been made proved incorrect. at the time of his offer to abandon. but where the information is of a doubtful character the insured is entitled to a reasonable time to make inquiry. the master of the vessel at an intermediate port. What is a reasonable time is a question depending on the facts and circumstances of each case. Sec. and may take immediate steps for the preservation of such of the property insured as may remain in existence. where the voyage is absolutely lost.28 Sec. or any particular portion thereof separately valued by the policy. or a letter from an official or an agent. The protest of the master. 140 – An abandonment must be neither partial nor conditional. and if he elects to abandon. or the thing insured was so far restored when the abandonment was made that there was then in fact no total loss. it is sufficient if the notice shows probable cause for the abandonment. that the vessel has been repaired and is successfully pursuing her voyage. if he continues to claim and use the property as his own. b) It is injured to such an extent as to reduce its value more than 3/4. the report of a pilot. However. Instances of justifying abandonment – It has been held that the insured may abandon for a total loss under a marine insurance in case of capture. is sufficient. or d) If the thing insured is cargo or freightage. The use of the word “abandon” is not necessary. or when he knew. and the contemplated voyage cannot be lawfully performed without incurring either an expense to the insured of more than ¾ the value of the thing abandoned or a risk which a prudent man would not take under the circumstances. the expenses incurred or to be incurred by the insured recovering the thing insured (refloating) are taken into account. After the property passes beyond the control of the insured. the insured cannot withdraw the abandonment. nor another ship procured by the master. and an agent having an authority to insure has prima facie an authority to abandon. c) If the thing insured is a ship. which may be done orally. When the insured has received notice of a loss. The information must be of such facts and circumstances as to render it highly probable that a constructive total loss has occurred. But freightage cannot in any case be abandoned. without incurring the like expense or risk mentioned in the preceding sub-paragraph. But if. The extent of the injury to the vessel is to be considered with reference to its general market value immediately before the disaster. 28 . or would have to be expended to recover it from the peril. where through no fault of the owner. after a valid abandonment has been made. and the voyage cannot be performed. The abandonment may be made to an agent of the underwriter and abandonment to a broker who is agent for both parties is sufficient. it is sufficient if expressions are used which inform the insurer that it is the intention of the insured to give up the property insured. 143 – Abandonment is made by giving notice thereof to the insurer. restraint by blockade or embargo. This is in order that the insurer may not be prejudiced by the delay. unless the ship is also abandoned. Accordingly. Sec. Provided. funds for repair cannot be raised. a newspaper report. The abandonment need not be necessarily be made by the insured but may be made by an authorized agent. the abandonment becomes ineffectual. That if the notice be done orally.
where the insurer refused the abandonment of the ship but took possession of the same for the purpose of making repairs and retained it for an unreasonable length of time. The only exception provided by law is the case where the ground upon which the abandonment was made proves to be unfounded. is absolute when justified by the circumstances and no acceptance is necessary to validate the abandonment. the insured may nevertheless recover to the extent of the damage proved. and for his benefit. The insured must state sufficient grounds for the abandonment to make it valid and he cannot avail himself of any ground of abandonment other than that stated at the time thereof. is absolute when justified by the circumstances. 146 – An abandonment is equivalent to a transfer by the insured of his interest.29 Sec. the acceptance of the abandonment stops the insurer to rely on any insufficiency in the form. together with all its incidents. 148 – Upon an abandonment. has all the effects which the most carefully drawn assignment would accomplish. The effect of abandonment retroacts to the time of the loss. 151 – The acceptance of an abandonment. the act of abandonment when accepted. including rights of action which the insured has against third persons for the injury. he is liable as upon an actual total loss less any proceeds the insured may have received on account of the damaged property as when the insured succeeds in selling the property damaged. If he assigns an insufficient cause or causes which do not in fact exist. but take free from any lien or liability for wages earned prior thereto. Therefore. 147 – If a marine insurer pays for a loss as if it were an actual loss. unless the ground upon which it was made was proved to be unfounded. 154 – If an insurer refuses to accept a valid abandonment. time. but from the moment of valid abandonment. Acceptance is in no case necessary if the abandonment is properly made. deducting from the amount any proceeds of the thing insured which may have come to the hands of the insured. are at the risk of the insurer. 145 – An abandonment can be sustained only upon the cause specified in the notice thereof. The captain or master continues to be the agent of the insured until abandonment. or its proceeds or salvage. as if there had been formal abandonment. Sec. with all the chances of recovery and indemnity. 153 – On an accepted abandonment of a ship. The execution of a formal instrument is not necessary to effect an abandonment for. acts done in good faith by those who were agents of the insured in respect to the thing insured. is conclusive upon the parties. or right of abandonment. Sec. he is liable as upon an actual total loss. in marine insurance. If the insurer declines to accept a proper abandonment. 152 – An abandonment once made and accepted is irrevocable. The acceptance by the insured of the payment is deemed an offer of abandonment on his part. he is entitled to whatever may remain of the thing insured. 150 – The acceptance pf an abandonment may either express or implied from the conduct of the insurer. proof of other causes will not be admitted in suing for a total loss. whether expressed or implied. Sec. Thus. in a policy of marine insurance. An election and notice of abandonment is a condition precedent to a claim for a constructive total loss. and the latter becomes responsible for all their acts in connection with the insured property and for all the expenses and liabilities in respect thereof. Sec. freightage earned previous to the loss belongs to the insurer of said freightage. and admits the loss and the sufficiency of the abandonment. Sec. Whether or not the insured has a right to abandon is immaterial where the abandonment is accepted and there is no fraud. If the abandonment was improper. The mere silence of the insurer for an unreasonable length of time after notice shall be construed as an acceptance. The insurer acquires thereby the entire interest insured. The insured’s right to abandon. 149 – Where notice of abandonment is properly given. but the freightage subsequently earned belong to the insurer of the ship. subsequent to the loss. the master of the vessel and the agents of the insured become the agents of the insurer. by Sec 146. 29 . to the insurer. Sec. he will be deemed to have accepted the abandonment. the rights of the insured are not prejudiced by the fact that the insurer refuses to accept the abandonment. Sec. Sec. The insured’s right to abandon. Sec. Insurers are also liable for the wages of seamen earned subsequent to the loss.
and where it is stipulated in the policy that the insured shall labor for the recovery of the property. of the thing is damages. the 30 . Measure of Indemnity Sec. 162 – If cargo insured against partial loss arrives at the port of destination in a damaged condition. The policy of marine insurance may be valued or open. a proportion of such profits equivalent to the proportion which the value of the property lost bears to the value of the whole. in case of loss. Partial Loss Value of the thing insured x Amount of insurance = Amount of recovery If a vessel valued at P500. pro tanto the total profits are also lost.000. 161 – In estimating a loss under an open policy of marine insurance. he may show the real value. including all articles or charges which add to its permanent value or which are necessary to prepare it for the voyage insured.000. When profits are separately insured from the property out of which they are expected to arise.000 80. or P200.000 Sec. Sec. This section refers to open policies. 157 – A marine insurer is liable upon a partial loss only for such proportion of the amount insured by him s the loss bears to the value of the whole interest of the insured in the property insured. its market value at the time and place of lading. 163 – A marine insurer is liable for all the expenses attendant upon a loss which forces the ship into port to be repaired. c) The value of the freightage is the gross freightage. the insured is entitled to recover. the value of the whole cargo from which such profits are expected to be realized is P80. Sec. Sec. Sec. exclusive of primage. But a valuation fraudulent in fact. if a part of the subject is exposed to risk. but without reference to any loss incurred in raising money for its purchase.000 computed as follows: 48. the valuation applies only in proportion to such part. or to the fluctuation of the market at the port of destination. if the insured has some interest at risk.000. Market price in sound state – Market price in damaged state = Reduction in value Reduction in value Market price in sound state x Amount of insurance = Amount of recovery Sec. 158 – Where profits are separately insured in a contract of marine insurance. the insured. adding the charges incurred in purchasing and placing it on board. In a valued marine policy. the insurer will be required to pay only 80% of the loss suffered. and there is no fraud on his part. and without the knowledge of the person actually procuring the insurance.000 or 3/5 x 200. he may nevertheless recover his actual loss. the other 20% or P50. and the valuation fixes their amount. the ff rules are to be observed: a) The value of the ship is its value at the beginning of the risk. or where that cost cannot be ascertained. Sec.000 being borne by the insured himself.000 and is damaged to the extent of P250. except that when a thing has been hypothecated by bottomry or respondentia before its insurance. entitles the insurer to rescind the contract. is entitled merely to partial indemnity for the profits lost. then the insured is entitled to recover P12.30 Sec. 159 – In case of a valued policy of marine insurance on freightage or cargo. or to the expenses incurred on the way or on the arrival.000 is insured for onlyP400. 155 – If a person inured omits to abandon. a loss of them is conclusively presumed from a loss of the property out of which they were expected to arise.000.000 = 12. If the property is totally lost. 160 – When profits are valued and insured by a contract of marine insurance. incase of partial loss of the property. or to any drawback on its exportation. and the value of the goods lost is P48. Value of property lost Value of whole property insured x Amount of profit = Amount of recovery Assuming the amount of the profits insured is P20.000. bears to the market price it would have brought if sound. d) The cost of insurance is in each case to be added to thte value thus estimated. 156 – A valuation in a policy of marine insurance is conclusive between the parties thereto in the adjustment of either a partial or a total loss. the loss of the insured is deemed to be the same proportion of the value which the market price at that port. b) The value of the cargo is its actual cost to the insured when laden on board. neither party can thus give evidence of the real value of the thing insured. without reference to the cost of earning it.
As a general rule. the term “fire insurance” shall include insurance against loss by fire. for a consideration. are items to be borne by the insurer in addition to a total loss if that afterwards takes place. Indirect loss: 1) Physical damage caused to other property such as spoiling of food inside a cooler or refrigerator that is insured by fire insurance and which is damaged. marine insurance even though insures against fire risks only): 1) In marine insurance. Sec. a marine insurer is liable for only 2/3 of the remaining cost of repairs after such deduction. Exceptions: a) After the separation of interests liable to contribution. such expenses. 166 – In the case of a partial loss of a ship or its equipment. The standard fire contract is an agreement to repay for a direct loss. Unless otherwise stipulated in the policy. in either case. General rule – The insurer is liable for any general average loss. But no such claim can be made upon the insurer after the separation of the interests liable to contribution. That the liability of the insurer shall be limited to the proportion of contribution attaching to his policy value where this is less than the contributing value of the thing insured. windstorm. the old materials are to be applied towards payment for the new. if that afterwards occurs. Fire – oxidation which is so rapid as to produce either flame or a glow. if expressly agreed upon by the parties. lightning. FIRE INSURANCE Sec. In determining whether a risk or cause of loss is written. the scope and coverage of a fire insurance policy and the intention of the parties. or damage to. it includes “allied lines” that protect against loss by lightning. expenses incurred in repairing the damage suffered by a vessel bec of the perils insured against as well as those incurred for saving the vessel from such perils. b) When the insured has neglected or waived his right to contribution.31 insurer is liable for the expense incurred thereby. 31 . but only when such risks are covered by extension to fire insurance policies or under separate policies subject to the payment of additional premiums. etc. after the cargo liable for contribution has been removed from the vessel. required to be made by him towards a general average loss called for by a peril insured against: Provided. 167 – As used in this Code. It cannot be an act of God unless caused by lightning or a natural disaster or casualty not attributable to human agency. nor when the insured. the rules on constructive total loss and abandonment apply but not in fire insurance. that is to say. Under Sec 163. except that achors must be paid in full. 165 – When a person insured by a contract or marine insurance has a demand against others for contribution. Importance of distinction between fire insurance on vessels and marine insurance (as long as ship is engaged in navigation. he may claim the whole loss form the insurer. The coverage may be attached by endorsements. having the right and opportunity to enforce contribution from others. Liability of the insurer: Amount of insurance Value of the thing insured x Proportion of general average loss assessed = upon the thing insured Limit of liability of insurer Sec. Fire insurance – a contract of indemnity by which the insurer. In our jurisprudence. has neglected or waived the exercise of that right. tornado or earthquake and other allied risks. windstorm. 2) Loss of earnings due to the interruption of business by damage to the insured’s property 3) Extra expenses such as cost of doing business at another location. As used in this Code. subrogating him to his own right to contribution. the insured in a marine policy is a coinsurer of the uninsured portion. such as the expense of launching or raising the vessel or of towing or navigating it into port for her safety. Sec. however. while the insured may only become a co-insurer in a fire insurance. 164 – A marine insurer is liable for a loss falling upon the insured through a contribution in respect to the thing insured. being in addition to a total loss. a property by hostile fire. fire may not be considered a natural disaster or calamity since it almost always arises from some act of man or by human means. as indicated by their contract controls. Such expense is called “port of refuge” expense. when such risks are covered by extension to fire insurance policies or under separate policies. agrees to indemnify the insured against loss of. 2) In case of a partial loss of a thing insured for less than its actual value. a marine insurer is not liable for more than the amount of the policy.
the property may be exposed to some additional risk. or replacing of buildings or structures wholly or partially damaged or destroyed. This section shall not prevent the parties from stipulating in such policies concerning the repairing. or a cause over which the insured has no control. as stated in the policy upon which the insurers have received a premium. the policy will not be avoided by a violation of these provisions if the articles are necessary or ordinarily used in the business conducted in the insured premises. then in case of a total loss under such policy.32 Sec. an alteration in said use or condition does not constitute a violation of the policy. does not affect a contract of fire insurance. but if there is a valuation in a policy of fire insurance. which does not increase the risk. The cost of such examination shall be paid for by the insured. entitles an insurer to rescind a contract of fire insurance. painting or doing other acts of similar character on the thing insured are not to be regarded acts of increasing the risk since the property would be useless to the insured if such acts were prohibited even though by reason therof. Where insured has no control or knowledge of alteration – The insurer is not relieved from liability if the acts or circumstances by which the risk is increased are occasioned by accident. to protect themselves expressly provide in every policy of fire insurance that it shall be avoided by any part of the insured which increases the risk. 5) The alteration increases risk. by means within the control of the insured and increasing the risks. the measure of indemnity in an insurance against fire is the expense it would be to the insured at the time of the commencement of the fire to replace the thing lost or injured in the condition which it was at the time of the injury. 171 – If there is no valuation in the policy. 169 – An alteration in the use or condition of a thing insured from that to which it is limited by the policy. 170 – A contract of fire insurance is not affected by any act of the insured subsequent to the execution of the policy. 168. 169 applies to policies which are silent upon the subject. which does not violate its provisions. It would seem however that every act of the insured’s tenant substantially and permanently affecting the conditions of the property so as to constitute an increase in risk. the effect shall be the same as in a policy of marine insurance. keeping in the house of a small quantity of gasoline for removing old paint during the course of making repairs does not increase the risk. Sec. Increase in risk – when the insured property is put to some new use. even though it increases the risk and is the cause of a loss. Sec 170 may be considered as an exception to the rule in Sec. In the absence of express valuation in a fire insurance. If the policy does not contain any prohibition limiting the use or condition of the thing insured. However. Even though the policy contains certain provisions prohibiting specified articles from being kept in the insured premises. rebuilding. and the new use increases the chance of loss. like benzene kept in a furniture factory for purposes of operating or for cleaning machinery. 172 – Whenever the insured desires to have a valuation named in his policy. 2) Such use or condition as limited by the policy is altered 3) The alteration is made without the consent of the insurer 4) The alteration is made by means within the control of the insured. A clause shall be inserted in such policy stating substantially that the value of the insured’s interest in such building or structure has been thus fixed. Sec. the insured is only entitled to recover the amount of actual loss sustained and the burden is upon him to establish the amount of such loss by preponderance of evidence. 32 . 168 – An alteration in the use or condition of a thing insured from that to which it is limited by the policy made without the consent of the insurer. Sec. most insurance companies. In the case of goods or personal property having a market value which can readily be determined. insuring any building or structure against fire. The insurer would still be liable if the increase in hazard was no longer existing at the time of the loss as when the firecrackers in the insured dwelling house had already been removed and in no way contributed to the loss unless there is a breach of warranty that no hazardous goods should be stored or kept in the property insured. each policy shall contribute pro rata to the payment of such whole or partial loss but in no case shall the insurer be required to pay more than the amount thus stated in such policy. the whole amount so insured upon the insured’s interest in such building or structure. In the absence of any change increasing the risk without the consent of the insurer or of fraud on the part of the insured. Sec. When alteration entitles insurer to rescind: 1) The use or condition of the thing is specially limited or stipulated in the policy. Making repairs. Hence. such market value may be applied in determining the actual loss sustained. Sec. Thus. and in case of a partial loss. would be presumptively known to the insured. the contract is not affected by such alteration even though it increases the risk and is the cause of the loss. and in case there are two or more policies covering the insured’s interest therein. shall be paid. he may require such building or structure to be examined by an independent appraiser and the value of the insured’s interest therein may then be fixed as between the insurer and the insured. the full amount of the partial loss shall be so paid. Sec 170 is now practically of no importance since at present.
marine. firm. suretyship and life. it is not the contract that is being assigned but the right of action on the policy. It includes. damage to or loss of motor vehicle. and any such pledge. hypothecation. hypothecated. will not be void as against public policy. the measure of indemnity is the sum fixed in the policy. This he may do even without the consent or notice to the insurer. the insurer is liable. or company who acts as agent for or otherwise represents the issuing company.000. To prevent property owners from taking out such small amount of insurance. is not the rule in marine insurance. as already pointed out earlier. The choice by the insurer shall produce no effect except from the time it has been communicated to the insured. but is not limited to. 173 – No policy of fire insurance shall be pledged. or theft. In such a case. or transfer the fire insurance or rights thereunder. In life insurance. Sec. is required to give full indemnity for such loss up to the amount written in the policy event though the property be very inadequately insured.000. or those to whom the law upon the grounds of public policy extends the indemnity against liability. Thus. Example: If a house valued at 500. the insurer is liable for the full amount of 300.000 necessary to repair the loss. the insurer. the insured is considered a co-insurer for the amount determined by the difference between the insurance taken out and the value of the property insured. Unless the policy has limited the cost of rebuilding to the amount of the insurance. within a reasonable time. or transfer hereafter made shall be void and of no effect insofar as it may affect other creditors of the insured. This difference is assumed to be the personal risk of the insured. After a loss has occurred. or in the proof of loss. The insurer must exercise his option to rebuild within the time stipulated in the policy or in the absence of a stipulation. robbery. Liability insurable 1) Liability for quasi-delict or non-fulfillment of contract 2) Liability for criminal negligence – liabilities arising out of acts of negligence which are also criminal are also insurance on the ground that such acts are accidental. can be compelled to perform his undertaking. Option to rebuild clause – reserved by the insurer in order to protect himself against unfairness un the appraisal and award rendered by a Packard board of arbitrators. The principle of indemnity does not apply. such as workmen’s compensation. Thus. each policy shall contribute pro rata to the payment of such whole or partial loss. products liability. the insurer will be compelled to pay the entire 50. professional liability. personal accident and health insurance as written by non-life insurance companies. If the thing is insured under 2 or more policies. where there is a co-insurance clause in the policy. This. motor vehicle liability. after electing to rebuild. the insured may pledge. Casualty insurance includes all forms of insurance against loss or liability arising from accident or mishap excluding certain types of loss or liability which are not within the scope of other types of insurance. however. for 3/5 of the loss or only 280. In case of a total loss. a motor vehicle insurance policy covering the insured’s liability for accidental injury caused by his negligence. and other substantially similar kinds of insurance. in case of a partial loss of the subject of the contract. even though gross and attended by criminal consequences such as homicide through reckless imprudence.000.000 and is damaged to the extent of 300.000 is insured for only 300. employer’s liability insurance. public liability insurance. 2 General divisions of casualty insurance: 1) Insurance against specified perils which may affect the person and/or property of the insured such as personal accident.000 and is damaged by fire to the extent of ½ of its value. Thus. and thereby reducing the premium payments and thereby increasing the rates of premiums for all. Under the usual contract of fire insurance.000 being borne by the insured himself. But a similar result is now frequently obtained in fire insurance by the insertion of a co-insurance clause in the policy. insolvency of debtors. Liability insurance – a contract of indemnity for the benefit of the insured and those in privity with him. Thus. excluding certain types of loss which by law or custom are considered as falling exclusively within the scope of other types of insurance such as fire or marine. or transferred to any person. it was held that a motorist guilty of 33 . motor vehicle liability insurance. even though the cost may exceed the original amount of insurance. 174 – Casualty insurance is insurance covering loss or liability arising from accident or mishap. namely: fire. defalcation or employees 2) Insurance against specified perils which may give rise to liability on the part of the insured for claims for injuries to others or for damage to their property. But liability consequences of deliberate criminal acts are not insurable. 2/5 of the loss or 120. hypothecate. if property which is valued at 100.000 is insure for 50. workmen’s compensation insurance. the insurer. CASUALTY INSURANCE Sec. the insurers often insert the co-insurer’s clause.33 A total loss of insured building exists when the result of the fire is such as to render the property wholly unfit for use as a building however valuable it may be as mere material. Co-insurance clause – requiring the insured to maintain insurance to an amount equal to the value or specified percentage of the value of the insured property under the penalty of becoming a co-insurer to the extent of such deficiency: the difference between the value or percentage insured and the amount of insurance.
or in the freedom from damage of property which may become the basis of suits against him in case of their injury or destruction. causing damage to the insured vehicle and injuries to C. collided with a passenger bus belonging to P Co. while being driven by C. It is as if such person were specially named in the policy.. regardless of the cause thereof. Where the contract is one of indemnity against liability.000 shall be subrogated to whatever rights S has against D Co. the insurer assumes the obligation of paying the injured third parties to whom the insured is liable. must be supported by an insurable interest in the insured. and T. Answer: Only S and D Co. said third persons’ recourse being thus limited to the insured alone. Ex. An accident insurance is thus not to be likened to an ordinary life insurance where the insured’s death. but upon whether he may be charged by law with the liability against which insurance is taken out. The interest does not depend upon whether the insured has a legal or equitable interest in property. Once that fact is established. can sue directly the insurer upon the occurrence of the injury or event upon which the liability depends. upon paying T the amount of P20. questions of insurable interest are not particularly important. liability insurance is always supported by insurable interest. such third persons are entitled to sue the insurer. 34 . To make the insurer solidarily liable with the insured’s entire obligation beyond the sum limited in the insurance contract would result in evident breach of the concept of solidary obligations. The policy is one whereby the insurer agreed to indemnify the insured against all sums…which the insured shall become legally liable to pay in respect of a death of or bodily injury to any person. the basis of M Co. The concept accident is not necessarily synonymous with the concept of no fault.000. On the other hand. Test: 1) Indemnity against third party liability – where the contract provides for indemnity against liability to third persons. are the principal tortfeasors who are primarily liable to T. It may be utilized simply to distinguish intentional or malicious acts from negligent or careless acts of man. like other forms of insurance. the insured’s beneficiary has the burden of proof in demonstrating that the cause of death is due to the covered peril. an employee of D Co. the contract being solely to reimburse the insured for liability actually discharged by him through payment to third persons. From the moment that the insured becomes liable to the third person. then third persons to whom the insured is liable. The insured jeep. issued in favor of S. The terms of an accident insurance do not. The purpose is to protect the injured person against the insolvency of the insured who causes the injury. such a rule would have no significant adverse implications. while the basis of liability of D Co. Insurable interest in liability insurance In liability insurance. it becomes operative as soon as the liability of the person indemnified arises irrespective of whether or not he has suffered actual loss. As a general rule. the insured acquires an interest in the insurance contract which may be garnished like any other credit. Burden of proof – In accident insurance. From the fact that the insured is liable to third persons. the burden then shifts to the insurer to show any excepted peril that may have been stipulated by the parties. If one were to conclude that an insurable interest is not required in liability insurance. It thus appears that S and D Co. are solidarily liable to T. who was riding the ill-fated jeep. Indemnity against actual loss or payment – where the contract is for indemnity against actual loss or payment. Accident – an event that takes place without one’s foresight or expectation – an event that proceeds from an unknown cause or is an unusual effect of a known cause and. S is made liable to T pursuant to Article 2184 of the Civil Code. would normally be compensable. then third persons cannot proceed against the insurer. Prior payment by the insured is necessary in order that the obligation of the insurer may arise. in accordance with Article 1217 of the Civil Code which gives to a solidary debtor who has paid the entire obligation the right to be reimbursed by his co-debtor for the share which corresponds to each. The insurable interest is to be found in the interest the insured has in the safety of persons who may maintain. therefore is not expected.. insurer. exclude events resulting in damage or loss due to the fault. M Co. the class into which particular policy falls depends on the intention of the parties as evidenced by the phraseology of the agreement in such respect in the policy. without qualification. The liability of the insurer to the third party is based on contract. M Co. although there is some authority to the contrary. When liability insurance in policy payable In a third party liability insurance contract. that of the insured is based on tort. 2) Basis and extent of the insurer’s liability The direct liability of the insurer under indemnity contract against third party liability does not mean that the insurer can be held solidarily liable with the insured and/or the other parties found at fault. Right of the injured person to sue insurer of party at fault The right of the person injured to sue the insurer of the party at fault depends on whether the contract of insurance is intended to benefit the third person also or only the insured. recklessness or negligence of third parties.34 deliberate crime resulting in payment of damages to an injured third party is not entitled to recover on the policy. Ex. a private comprehensive policy for own damage not to exceed P6. The law states that the responsibility of two or more persons who are liable for a quasi-delict is solidary. is Article 2180. insured. Is the policy for indemnity against liability? Yes.’s liability is its insurance contract existing between it and S at the time of the complained vehicular accident. liability insurance. Thus.000 and a third party liability in the amount of P20. In general.
the resulting death is within the protection of policies insuring against death or injury from accident. it is contrary to all reason and logic to say that his injuries were not intentionally inflicted. If the injuries suffered by the insured clearly resulted from the intentional act of a third person. The insured was unquestionably negligent but it should not prevent his beneficiary from recovering from the insurance policy he obtained precisely against accident where there is nothing in the policy that relieves the insurer of the responsibility to pay the indemnity agreed upon if the insured is shown to have contributed to his own accident. The contract of a surety is evidenced by a writing called surety bond which is essentially a promise to guarantee the debt or obligation of the obligor. Insured stabbed by escaping robbers – The house of the insured was robbed by a band of robbers. or undertakings issued by any company by virtue and under provisions of Act. under specified terms and conditions. Effect of “no action” clause in policy of liability insurance In Guingon v. Distinctions between suretyship and property insurance: 35 . It includes official recognizances. that only thereafter can the person injured recover on the policy. was held as an accident. independent and unforeseen happening occurs which produces or brings about the result of injury or death. The Act provides that such recognizances be approved by the head of Department. the cause and the result are both accidental. is not covered by the policy. unaccompanied by anything unforeseen except the death or injury. and coming fact to fact with the owner. or if something unforeseen occurs in the doing of the act which produces the injury. stabbed him repeatedly. in favor or a third party.35 Rule as to death or injury resulting from accidental or accidental means General rule – death or injury does not result from accident or accidental means within the terms of an accident policy if it is the natural result of the insured’s voluntary act. A surety is merely a collateral contract. Nature of liability of surety: 1) Solidary 2) Limited or fixed – it is limited to the amount of the bond 3) Contractual – it is determined strictly by the terms of the contract of suretyship in relation to the principal contract between the obligor and the obligee. Here. believing that the gun was not loaded and the gun fired when he pulled the trigger resulting in his death. Surety – It is an agreement whereby one undertakes to answer. Its basis is the principal contract which it secures. It is determined strictly by the terms of the contract of suretyship in relation to the principal contract between the obligor and the obligee. SURETYSHIP Sec. In other words. negligence and the like. where the death or injury is not the natural and probable result of the insured’s voluntary act. 176 – The liability of the surety or sureties shall be joint and several with the obligor and shall be limited to the amount of the bond. or for breach of trust. It was held that “no action” clause in the policy cannot prevail over the Rules of Court provisions aimed at avoiding multiplicity of suits. most accidents are caused by negligence. For a claim to be payable under an accident policy. at least with respect to third persons not a party to the contract by “no action” clause on the contract of insurance. such as failure to perform a contract or certain duties. it expressly disallows suing the insurer as a co-defendant of the insured in a suit to determine the latter’s liability to the third person. Sec 5 of Rule 2 on joinder of causes of action and Sec 6 of Rule 3 on permissive joinder of causes of parties cannot be superseded. Where a provision of the policy excludes intentional injury. On the other hand. in committing the robbery the robbers rushed towards the door of the second floor. even if unexpectedly. 536. No. it is the intention of the person inflicting the injury that is controlling. His injury is covered by the policy. the policy requires that a suit and final judgment be first obtained against the insured. stipulations bonds. Meaning of “intentional” as used in accident policy Intentional – implies the exercise of the reasoning faculties. if D slips and falls while lifting the heavy objects. 175 – A contract of suretyship is an agreement whereby a party called the surety guarantees the performance by another party called the principal or obligor of an obligation or undertaking in favor of a third party called the oblige. D (insured) lifted heavy objects all day as a result of which he suffered injury to his back. Suicide and willful exposure to needless peril Both are in pari matere because they both signify a disregard for one’s life. Under the circumstances. Exception – There is no accident when a deliberate act is performed unless some additional unexpected. judge. for the debt. Ex. causing wounds on the body resulting in his death. But the mere act of the insured of pointing the gun to his temple. board or body required to approve or accept the same. The injury therefore. the cause was the heavy work – which was intentional. default or miscarriage of another. officer. Del Monte. The query is which procedure to follow – that of the insurance policy or the Rules of Court. and volition. Sec. consciousness. court. Indeed. both the cause and the result of the death or injury must be accidental. the insurer is relieved from liability as stipulated.
there is no right of recovery for the loss the insurer may sustain except when the insurer is entitled to subrogation. in which case the bond becomes valid and enforceable irrespective of whether or not the premium has been paid by the obligor to the surety. 36 . or filed with the oblige. the obligor shall pay the subsequent annual premium as it falls due until the contract is cancelled. or otherwise contingently on the continuance or cessation of life. For the purpose of underwriting. no such service fee. a. men and subcontractors. there are always three parties: the surety. the obligor shall pay the subsequent annual premium as it falls due until the contract of suretyship is cancelled by the oblige or by the Commissioner or by a court of competent jurisdiction. while in the second. Rules in payment of premiums: 1) The premium becomes a debt as soon as the contract for suretyship or bond is perfected and delivered to the obligor 2) The contract of suretyship or bonding shall not be valid and binding unless and until the premium therefore has been paid 3) Where the oblige has accepted the bond. while the second is generally a contract of indemnity In the first. Generally.36 1) 2) 3) 4) Suretyship is an accessory contract. The position of a surety is to answer for a failure of the principal to perform in accordance with the terms and specifications of the contract. the obligation of the employee to be honest with his employer is implied rather than contractual. attachment bonds. obligates the surety to hold himself responsible for the performance of an express obligation of the principal 3) Judicial bonds – they are those which are required in connection with judicial proceedings. not exceeding fifty per centum of the premium due thereon as service fee plus the cost of stamps or other taxes imposed for the issuance of the contract or bond. Some of the most common kinds are injunction bonds. stamps or taxes shall be collected. while a contract of insurance is a principal contract In the first. In the case of a continuing bond. Sec. except where the oblige has accepted the bond. that if the non-acceptance of the bond be due to the fault of the surety. while the second does not need the acceptance of any third party The first is a risk-shifting device. the surety is entitled to reimbursement from the principal and his guarantors for the loss it may suffer under the contract. there are only two parties. stamp. they are classified as: a. the premium paid being considered a ratable contribution to a common fund. on the other hand. no service fee. replevin bonds and appeal bonds. while a contract of insurance may be cancelled unilaterally either by the insured or by the insurer on grounds provided by law. Provided however. the surety shall collect only a reasonable amount 5) If the non-acceptance of the bond be due to the fault or negligence of the surety. while the second is a riskdistributing device. Note that in the case of fidelity bond. The first is more of a credit accommodation with the surety assuming primary liability. or taxes imposed shall be collected by the surety 6) In the case of a continuing bond (for a longer term than one year or with no fixed expiration date). it shall be valid and enforceable notwithstanding that the premium has not been paid 4) If the contract of suretyship or bond is NOT accepted by. a bond can only be cancelled by or with the consent of the oblige or by the Commissioner or by a court of competent jurisdiction. while in the second. Performance bond – one covering the faithful performance of the contract b. 5) 6) 7) Sec. The ordinary surety bond. They are for the protection of the owner against possible default by the contractor to comply with his contract or his possible failure top pay material. In case of subrogation. No contract of suretyship or bonding shall be valid and binding unless and until the premium therefore has been paid. 180 – An insurance upon life may be made payable on the death of the person. The first requires the acceptance of the oblige before it becomes valid and enforceable. 179 – Life insurance is insurance on human lives and insurance appertaining thereto or connected therewith. Provided. Types of surety bonds: 1) Contractual bonds – these bonds are connected with construction and supply contracts. Industrial bond – one required by private employers to cover loss through dishonesty of employees b. Payment bond – one covering the payment of laborers and material men 2) Fidelity bonds – they pay an employer for loss growing out of a dishonest act of his employee. the third party against whom the insurer may proceed is not a party to a contract. however. 177 – The surety is entitled to payment of the premium as soon as the contract of suretyship or bond is perfected and delivered to the obligor. LIFE INSURANCE Sec. or on his surviving a specified period. the surety shall collect only a reasonable amount. that if the contract of suretyship or bond is not accepted by. the principal debtor and the creditor. or filed with the oblige. Public official bond – one required of public officers for the faithful performance of their duties and as a condition of entering upon the duties of their offices. the insurer and the insured. the premium being in the nature of a service fee. as the case may be.
whose ownership is transferred to him at once with the burden of the income. This type of policy is thus useful in retirement planning. whereas under an annuity contract. under a life insurance contract.37 Every contract or pledge for the payment of endowments or annuities shall be considered a life insurance contract for purposes of this Code. which may or may not turn out to be profitable while life insurance has a characteristic akin to indemnity. In the absence of a judicial guardian. whether he has an insurable interest or not. the purchaser of an annuity expects his insurer to pay him a periodic income as long as he lives. receiving the proceeds of the policy. An alternative form of payment. For the purpose of the Insurance Code. Annuity has been called the “upside-down application of life insurance principle” because it is based on the notion that the purpose of life insurance is the scientific creation of an estate. It is an insurance for a fixed or specified term. the insurer starts paying upon death of the insured. If the insured should die within the specified period. while annuity. who is an insured or beneficiary under a contract of life. insures against economic problems resulting from a long life rather than an early death 2) From the insurer’s point of view. surrendering the policy. 3) Term insurance policy – one which provides coverage only if the insured dies during a limited period. the policy is paid to the beneficiary. five or ten years. If the insured dies within the period specified. whereas the purpose of an annuity is the scientific liquidation of an estate. the insured pays to the insurer an annuity and his beneficiary receives at the insured’s death the lump sum payment. Provided. death may be: a) Actual death – “casket death” b) Living death – permanent disability c) Retirement death – living beyond the period of earning capacity. Thus. Annuity distinguished from ordinary life policies: 1) An annuity contract. or any minor. the insurance is fully paid for. the lump sum is paid to the insurer immediately and the annuitant receives the annuity payments as long as he lives. It is like ordinary life policies in that it is payable only at the death of the insured. It carries the lowest rate of premium. the insurer stops paying upon death of the insured. Sec. the ultimate payment of the insurance proceeds is as certain as death itself. 2) Limited payment life policy – one under the terms of which the premiums are payable only during limited period of years usually ten to twenty. This policy is for the whole duration of life. Kinds of life insurance policies: 1) Ordinary life policy – one under the terms of which the insured is required to pay a certain fixed premium annually or at more frequent intervals throughout life and the beneficiary is entitled to receive payment under the policy only after the death of the insured. This kind of policy is also called limited premium insurance policy. Under the usual form of annuity. endowment contracts shall be considered life insurance policies. unless the policy provides for a shorter period. 180-A – The insurer in a life insurance contract shall be liable in case of suicide only when it is committed after the policy has been in force for a period of two years from the date of its issue or of its last reinstatement. For his premium. to some other person indicated. 4) Endowment policy – one under the terms of which the insurer binds himself to pay a fixed sum to the insured if he survives for a specified period. Note that the policy cannot provide for a period longer than 2 years. the insurer is liable. health or accident insurance. the contract terminates. if a policy provides for a 3 year period and the suicide is committed within said period but after two years. Scope of life insurance From the economic standpoint. 37 . however. such as two. will or succession to any person. 181 – A policy of insurance upon life or health may pass by transfer. but shall not be limited to obtaining a policy loan. regular life or straight life policy. can come about by the inclusion of an investment feature through the payment of the “cash surrender value” of the policy in case it is cancelled by the owner or it lapses through nonpayment of premiums. Contract of life annuity – the debtor binds himself to pay an annual pension or income during the life of one or more determinate persons in consideration of a capital consisting of money or other property. Thus. or if he dies within such period. This is also called whole life. Such right may include. the father. without necessity of court authority or the giving of a bond. and such person may recover upon it whatever the insured might have recovered. Thus. to transiency 3) Under the ordinary life insurance policy. or in the latter’s absence or incapacity. When the specified number of premiums have been made. the mother. in behalf of said minor. 4) An annuity appears more like an investment instead of an insurance. If he survives the period. where the interest of the minor in the particular act involved does not except 20.000 pesos. This is also called temporary insurance. may exercise. Sec. any right under the policy. it permits the insured to borrow against the value without surrender of the policy. insurance looks to longevity. his beneficiary is entitled to all the proceeds of the policy without any liability for the unpaid premiums. that suicide committed in the state of insanity shall be compensable regardless of the date of commission. unlike life insurance contract. and giving the minor’s consent to any transaction on the policy. Sometimes.
to pay or settle claims arising under coverages provided by its policies. Sec. he assigned the policy to Y who has no insurable interest in his life. than an insurance company has violated this section. X died without notifying the insurer of the transfer. 182. An assignment is to be distinguished from a change in the designated beneficiary (see Sec 11). after notice and an opportunity to be heard. the measure of the indemnity under a policy of insurance upon life or health is the sum fixed in the policy. or reinsured. 38 . the beneficiary has acquired a vested right and the insured cannot assign such policy without the consent of the beneficiary. Where a policy gives the insurer control of the decision to settle claim or litigate it. Claims settlement – is the indemnification of the loss suffered by the insured. When the right to change the beneficiary is waived by the insured. 183 – Unless the interest of a person insured is susceptible of exact pecuniary measurement. If the policy does not expressly require the insured to give notice of an assignment or transfer of the policy to the insurer. naming his estate as his beneficiary. the insurer who is entitled to subrogation. Strictly speaking. permit the process of assignment to be used as a cloak to hide an illegal intent to make contracts on human life. Later. The exception is when a person insures the life of another. the assignment with the consent of the insurer creates. such notice is not essential to the validity of the assignment. Sec. May Y collect from the insurer? In view of Sec. Any of the ff acts by an insurance company. (3) If it is found. if committed without just cause and performed with such frequency as to indicate a general business practice. CLAIMS SETTLEMENT Sec. there could be no exact pecuniary measurement of a person’s interest in his life or the life of another. the insurer is under the obligation to pay Y after acquiring knowledge of the assignment. A provision in a contract of life insurance denying the insured his right to assign without the consent of the insurer will be void. The courts will not. The claimant may be the insured. the insurer nevertheless is required to observe a certain measure of consideration for the interest of the insured. a novation. a person can purchase life insurance for any amount as long as he can pay the premium. Ex. Hence. The usual evidence of this scheme is the fact that the assignment occurred almost immediately after the policy was issued. The assignee takes the newly formed contract free of defenses available to the insurer against the insured under the old contract. nor shall any such company engage in unfair claim settlement practices. 241 – (1) No insurance company doing business in the Philippines shall refuse . b) failing to acknowledge with reasonable promptness pertinent communications with respect to claims arising under its policies c) failing to adopt and implement reasonable standards for the prompt investigation of claims arising under its policies d) not attempting in good faith to effectuate prompt. in effect.38 All life insurance policies are declared by law to be assignable regardless of whether the assignee has an insurable interest in the life of the insured. Where such notice is not required by the policy. the interest of the creditor in the life of the debtor is susceptible of exact pecuniary measurement or estimation. as where a creditor insures the life of his debtor. without just cause. unless thereby expressly required. 182 – Notice to an insurer of a transfer or bequest thereof is not necessary to preserve the validity of a policy of insurance upon life or health. fair and equitable settlement of claims submitted in which liability has become reasonably clear e) 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 against them (2) Evidence as to numbers and types of valid and justifiable complaints to the Commissioner against an insurance company. each instance of non-compliance with paragraph (1) may be treated as a separate violation of this section and shall be considered sufficient cause for the suspension or revocation of the company’s certificate of authority. the insurer may legally pay the beneficiary which shall become the trustee of the amount received in favor of Y. and the Commissioner’s complaint experience with other insurance companies writing similar lines of insurance shall be admissible in evidence in an administrative or judicial proceeding brought under this section. This is so because life insurance is not a contract of indemnity. Whether or not the policy expressly requires that notice of an assignment or transfer must be given to the insurer. A clause in the policy expressly provides that no assignment shall be effective until the insurer has been notified in writing. however. However. In this case. or a third party who has a claim against the insured. the insurer may waive the requirement as to notice and pay Y. shall constitute unfair claim settlement practice: a) knowingly misrepresenting to claimants pertinent facts of policy provisions relating to coverages at issue. X insured his life.
under any policy other than life insurance policy. Obligations of the insured: File notice of loss and file proof of loss. Provided. Refusal or failure to pay the claim within the time prescribed herein will entitle the beneficiary to collect interest on the proceeds of the policy for the duration of the delay at the rate twice the ceiling prescribed by the Monetary Board. the amount in excess of the policy limits? It depends. Is R also liable for the P5. While the cost of repair may serve as a measure of damage. Effect where claim is fraudulent Under policies. particularly against fire. The insurer’s liability may arise on a presumption of death. 242 – The proceeds of a life insurance policy shall be paid immediately upon maturity of the policy. The death of the insured may be sufficiently established by the death certificate issued by the Civil Registrar of the place where the insured died. in which case. unless such failure or refusal to pay is based on the ground that the claim is fraudulent. 243 – The amount of any loss or damage for which an insurer may be liable. and also to enable the insurer to verify or check on the fact of death which it may even validly waive. evidently. For example. the insured us required to do everything reasonable to prevent further damage to the property insured. unless they are made payable in installments or as annuity. such as loss of profits or rents. unless such failure or refusal to pay is based on the ground that the claim is fraudulent. as to indicate that the false statements were made willfully and intentionally. 60 day period is procedural in nature The 60 day period fixed by law within which to pay the proceeds after presentation of proof of death is merely procedural in nature. the installments or annuities shall be paid as they become due 2) In policies maturing at the death of the insured occurring prior to the expiration of the term stipulated. if the verdict resulted from R’s negligence or bad faith. The proceeds of the policy maturing by the death of the insured payable to the beneficiary shall include the discounted value of all premiums paid in advance of their due dates. Yes. a serious discrepancy between the actual loss and that claimed in the proof of loss. the proceeds thereof shall be paid within 60 days. Sec. presentation of the claim and filing of the proof of death of the insured. but if such ascertainment is not had or made within 60 days after such receipt by the insurer of the proof of loss. Also. is worth a claim for the value of the car before the accident less its salvage value. but are not due and payable at maturity. an old automobile virtually demolished. to determine the exact amount to be paid and the interest thereon to which the beneficiaries may be entitled to collect in case of unwarranted refusal of the company to pay.000. the proceeds are payable to the beneficiaries within 60 days after presentation of the claim and filing of proof of death.000. there is no legal obligation to restore a property in its original condition if the cost for repair exceeds the value of the property before the damage. unless such proceeds are made payable in installments or as an annuity. if R acted honestly under the circumstances. that in the case of policy maturing by the death of the insured. R (insurer) refused the offer and elected to go with the trial of the case. which contains a provision to the effect that all benefits under the policy shall be forfeited if the claim for loss be in any respect fraudulent. The measure of loss is the difference in value between the property undamaged and the property in its damaged condition. for example. or if any false declaration be made by the insured or his agent to obtain any benefit under the policy. It is the happening of the suspensive condition of death that renders the life policy matured and NOT the filing of proof of death. No. the proceeds are immediately payable to the insured.39 Ex.000. D offered to settle for a sum that was within the policy limits of P10. Refusal or failure to pay the loss or damage within the time prescribed herein will entitle the assured to collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the calling prescribed by the Monetary Board. 39 . A fire claim. in which case the installments or annuities shall be paid as they become due. T obtained a verdict for P15. An insured who fails to protect his property adequately from further loss after the fire. then the loss or damage shall be paid within 90 days after such receipt. shall avoid it as when the claim exceeds the true value of property lost by 50%. shall be paid within 30 days after proof of loss is received by the insurer and ascertained of the loss or damage is made either by agreement between the insured and the insurer or by arbitration. cannot collect for the additional loss thus occasioned. Sec. One point in respect to property damage liability claims must first be differentiated from direct loss insurance claims. Time for payment of claims in life policies: 1) In policies maturing upon the expiration of the term set forth therein. The insurer has the right to refuse an offer of settlement which it believes to be unreasonably excessive. however. In the suit for personal injuries filed by T against D (insured). Substantial compliance with the proof of loss requirement will always be deemed sufficient. usually includes only payment for the direct damage to the property unless additional coverage is purchased to provide for the indirect results of the loss of use of the property.
the enforcement of the undisputed liability on the part of one of the parties. subrogated to the rights of the insured who is not divested of his right file the suit. The burden of proving fraud is on the insurer. It is generally agreed that an insurer may. Sec. entertain a difference of opinion as to its liability. Effect of false statement innocently made The rights of the insured. from the date following the time prescribed in section 242 or in section 243. until the claim is fully satisfied.40 The same is true of a claim for loss of articles and goods not existing at the time of the fire. that the failure to pay any such claim within the time prescribed in said sections shall be considered prima facie evidence of unreasonable delay in payment. as for example. at any time during said negotiations. But if in the course of the settlement of the loss. in fact. as the case may be. it will be deemed to have waived the condition precedent with reference to arbitration. a misstatement regarding the details of an accident or in reference to the cause of the loss. in good faith and honesty. 244 – In case of any litigation for the enforcement f any policy or contract of insurance. as a condition precedent to a right of action or suit upon the policy. most of them were destroyed by water. Where delay in payment was due to the investigation the insurer conducted to ascertain the truth of the information it received that the insured was not insurable at the time of his application. the company should in any case refuse to pay. in the absence of fraud or mistake. is estopped and bound by the award. Accordingly. counsel for the both parties stipulated in the trial court that none of them had. namely. This rule has been applied to the overvaluation of the property insured.e. in order to save the right to their assureds and to promptly place them in funds. Such losses are not payment of insurance. so that their business might continue without embarrassment. 4) Where settlement by arbitration not invoked – A clause in a policy concerning reference of dispute to an arbitrator. 40 . the statutory penalty for vexatious refusal of an insurer to pay a claim should not be imposed unless the evidence and the circumstances show that the refusal was willful and without reasonable cause as the facts appear to a reasonable and prudent man. recovery should not be denied merely because the insured received such loan from the insurer. to make a finding as to whether the payment of the claim of the insured has been reasonably denied or withheld. to lend to their assureds the amount of the loss payable only out of money collected on account of the loss. the delay was held justifiable. the insured can recover for his loss. it shall be the duty of the Commissioner or the Court. and suit upon the policy will lie. are however. 3) Where arbitration required only when there is dispute – Where there is an agreement to arbitrate and one party puts up a claim which the other disputes. even suggested the settlement of the issue between them by arbitration. or made any reference to arbitration during the negotiations preceding the institution of the action against the insurer. and in fact. in a suit by the insured against the party indisputably liable for the loss. in no way prejudiced by false statements inadvertently and innocently made in his proofs of loss despite a clause in the policy providing for its forfeiture in the event of any false swearing and although the false statements are as to a material matter to the insurer’s liability. 2) Where arbitration limited to amount of insurer’s liability – If any dispute shall arise as to the amount of the company’s liability under the policy…was held to apply only as to disputes regarding the amount of the insurer’s liability but not as to any dispute as to the existence or non-existence of liability i. Loan repayable from collection and deemed payment of insurance It is customary for insurers. As the advancement does not constitute payment of loss. subject to his obligation to the insurer. when. Reference to arbitration 1) Where arbitration not required should insurer deny liability – A stipulation in a fire insurance policy that in the event of a loss unless the company should deny liability. Consequently. The insured’s inventory of stocks is NOT binding on the insurer where it was prepared without the latter’s intervention. therefore. Provided. was deemed waived where none of the parties to the contract invoked the same. as provided in said clause. would avoid unnecessary delay and multiplicity f suits in the attainment of the same result. There may be honest mistake in valuation without fraud being involved. the need to arbitrate is imperative. 5) Where insured voluntarily submitted to arbitration – On the other hand. Numerical precision should not be expected. the insurer is not. and the inclusion in the proofs of property not destroyed or not insured. no action can be brought. the insurance company shall be adjudged to pay damages which shall consist of attorney’s fees and other expenses incurred by the insured person by reason of such unreasonable denial or withholding of payment plus interest twice the ceiling prescribed by the Monetary Board of the amount of the claim due to the insured. and in the affirmative case. is one valid at law and unless it be first complied with. to permit the insured to recover. The principle of subrogation does not apply to life and accident policies as they are not contracts of indemnity. where the insurer completely denies any liability. the latter should first submit to an arbitration. a misstatement regarding the insured’s title or ownership of the insured property. Furthermore. as a condition precedent to bringing an action on the policy by the insured. where the insured commenced an action to recover an insurance policy and then voluntarily agrees to an arbitration and submits his proofs to the arbitrator. a statement that goods were destroyed by fire. as the case may be.
Death certificate and evidence sufficient to establish the proper payee c. 378 – Any claim for death or injury to any passenger or third party pursuant to the provisions of this Chapter shall be paid without the necessity of proving fault or negligence of any kind. Spirit behind or need for compulsory third party liability insurance The overriding consideration in compelling motor vehicle owners or operators to have TPL insurance or surety bond is to assure victims of motor vehicle accidents. Notice of claim must be filed within 6 months from the date of the accident. 384 – Any person having any claim upon the policy issued pursuant to this Chapter shall. 2) Make a cash deposit with the Insurance Commission in such amount required as limits of indemnity also or the same purpose. Sec. In case a private motor vehicle is being used to transport passengers for compensation.41 Conflicting resolutions of trial court and the Commission Due to the difference in the quantum of evidence required to base a decision. without any unnecessary delay. in addition include passenger liability. claim shall lie against the insurer of the directly offending vehicle. present to the insurance company concerned a written notice of claim setting forth the nature. Provided. especially when they are poor. Action or suit for recovery for damage due to loss or injury must be brought. 2) Land transportation operator or one who is the owner of a motor vehicle or vehicles being used for conveying passengers for compensation including school buses. otherwise. In all cases. extent and duration of the injuries sustained as certified by a duly licensed physician. The finding or conclusion of one would not necessarily be binding on the other. Police report of the accident b. mounting or dismounting from. In any other case. otherwise. Damage recoverable: 1) Attorney’s fees 2) Other expenses incurred by the insured person by reason of such unreasonable denial or withholding of payment 3) Interest at twice the ceiling prescribed by the Monetary Board of the amount of claim due the insured 4) The amount of the claim COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE Sec. the right of the party paying the claim to recover against the owner of the vehicle responsible for the accident shall be maintained.000 pesos 2) The following proofs of loss. Persons subject to CMVLI: 1) Motor vehicle owner or one who is the actual legal owner of a motor vehicle in whose name such vehicle is registered with the LTO. Substitutes for CMVLI: 1) Post a surety bond with the Insurance Commissioner who shall be made the obligee or creditor in the bond in such amount required as limits of indemnity to answer for the same losses sought to be covered by the CMVLI policy. the coverage must be comprehensive against third party liability for death or bodily injuries. Medical report and evidence of medical or hospital disbursement in respect of which funds were claimed 3) Claim may be made against one motor vehicle only. the insurer to escape liability by interposing the defense that the owner of the insured motor vehicle has violated the contract would be to defeat the very purpose of the law. that for purposes of this section: 1) The total indemnity in respect of any one person shall not exceed 5. In the case of an occupant of a vehicle. when submitted under oath. the claim shall be deemed waived. shall be sufficient evidence to substantiate the claim: a. it is not far-fetched that they be different in these two tribunals. The injured or the heirs of the injured may directly sue the insurer of the vehicle. 41 . Scope of coverage required: 1) For owners of private motor vehicles. the claimant’s right of action shall prescribe. in proper cases with the Commissioner or the Courts within 1 year from denial of the claim. The insurer’s liability is primary and accrues immediately upon the occurrence of the injury or event upon which the liability depends. To allow therefore. such coverage shall. claim shall lie against the insurer of the vehicle in which the occupant is riding. immediate financial assistance or indemnity regardless of the financial capacity of the motor vehicle owners or operators responsible. Effect of insured’s violation of policy condition on insurer’s liability to third party claimant The insurer’s liability to any party attaches during the effectivity of the policy in the absence of any showing that the same has been cancelled with proper notice to all parties concerned. and does not depend on the recovery of judgment by the injured party against the insured.
The fundamental purpose of no-fault provision is to guarantee compensation or indemnity to persons suffering loss in motor vehicle accidents 1) Claim subject to certain conditions – Under Sec 378. the coverage must also be comprehensive against both passenger and third party liabilities for death and bodily injuries. the victim is not an occupant of a vehicle). * the term “occupant” includes both passenger and a third party so long as they are riding in or mounting or dismounting from a motor vehicle. No fault indemnity claim – connotes that the victim of a tort can recover for his loss from his insurer without regard to his own contributory fault or the fault of the tortfeasor.000 should be paid without regard to fault. The claimant is not free top choose from which insurer e will claim the no-fault indemnity as the law makes it mandatory that the claim be made against the insurer of such vehicle. The insurer may extend additional other risks at its option. such excess should be deemed as to have been taken on voluntary basis and not compulsory. the claim shall lie against the insurer of the directly offending vehicle. This no-fault claim does not apply to property damage. If total indemnity claim exceeds 5. mounting. The first 5. the insurance company concerned shall pay any claim for death or bodily injuries sustained by a passenger or third party without the necessity of proving fault or negligence of any kind subject to certain conditions.e. In case of excess over the minimum limit of coverage. 3) Claim against insurer of vehicle responsible for accident – In any other case (i.42 2) For operators of land transportation. 42 . the finding of fault may be availed of by the insurer only as to the excess.000 and there is controversy in respect thereto. even if such vehicle is not the one at fault. or dismounting from. 2) Claim against insurer of vehicle in which victim is an occupant – Sec 378 (3) is very clear that the claim shall lie against the insurer of the vehicle in which the occupant is riding.
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