Insurance Notes (Dizon)
Insurance Notes (Dizon)
Insurance Notes (Dizon)
Sec. 11. The insured shall have the right to change the
beneficiary in the policy, unless he has expressly waived this
right in said policy.
Beneficiary: those although not parties to the contract, are
mentioned in it as recipients of the proceeds of the insurance. A
limitation in the appointment of beneficiary is that a person who
is forbidden from receiving any donation under art. 739 cannot
be named beneficiary of a life insurance policy by the person
who cannot make any donation to him, according to said article.
CONCEALMENT
SEC. 26. A neglect to communicate that which a party
knows and ought to communicate, is called a concealment.
Act of holding back information that may be pertinent to the
issuance of an insurance policy even though the insured was not
asked about that particular subject.
Source: Dizon
MISREPRESENTATION
/CONCEALMENT
It is material if it affects the
underwriting decision of the
insurer
WARRANTY
A promise by the insured
party
that
statements
affecting the validity of the
contract are true
Source: Dizon
REPRESENTATION
Misrepresentation
Misrepresentation
is
a
statement of something as a
fact which is untrue and
material to the risk, and which
the insured states, knowing to
be untrue in an attempt to
deceive, or which he states
positively as true without
knowing it to be true, and
which has a tendency to
deceive.
Representation
Statement made by or on
behalf of an applicant for
insurance to induce an
insurer to enter into a
contract. The representation
is not a part of the insurance
contract.
Warranty
If the representation is
incorporated by reference into
the
contract,
the
representation becomes a
warranty.
Misrepresentation
Concealment
Source: Dizon
Statement
of
belief/expectation
Contingent and not intended
as a known fact but merely an
intention. Falsity of such will
not avoid the policy;
Promissory representation
Promise to be performed after
the effectivity of a contract.
Falsity of such entitles the
injured party to rescind the
contract.
Representation
Only a matter of collateral
information or intelligence on
the subject of the voyage
insured, and makes no part of
the policy.; sufficient if the
representation be true in
substance.
Warranty
A condition upon which the
contract is to take effect, is
always a part of the written
policy, and must appear on its
fact; it must be strictly and
literally complied with
Kinds of Misrepresentation:
A. Fraudulent
Misrepresentation:
One
makes
representation with intent to deceive and with the
knowledge that is false.
B. Negligent Misrepresentation at common law occurs
when defendant carelessly makes a representation
while having no reasonable basis to believe it to be
true.
C. Negligent misrepresentation under Statue. It is for the
person who made the negligent statement to prove that
the statement was either not one of fact but opinion and
that had reasonable ground to believe and did believe
up to the time the contract was made that the facts
represented were true the so-called innocent defense.
D. Innocent representation someone makes the
representation believing that what he/she is doing is
true or had reasonable grounds for believing that his or
her false statement was true.
Source: Dizon
Policy of Insurance
- contract of insurance, describing the term,
coverage, premiums and deductibles also called
policy
- contract detailing an insurance policy and outlining
what risks are insured, what insurance premiums
are to be paid by the policyholder, what deductibles
prevail and all the details associated with a policy
Sec. 50. The policy shall be in printed form which may contain
blank spaces; and any word, phrase, clause, mark, sign, symbol,
signature, number, or word necessary to complete the contract
of insurance shall be written on the blank spaces provided
therein.
Any rider, clause, warranty 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, clause, warranty or endorsement is also
mentioned and written on the blank spaces provided in the
policy.
Unless applied for by the insured or owner, any rider, clause,
warranty 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,
clause, warranty or endorsement.
Source: Dizon
Group Annuity
- contract providing a monthly income benefit to
members of a group of employees
- same characteristics as an individual annuity,
except that it is underwritten on a group basis
- ex. Pension/retirement plan in which one periodic
premium payment is made for an entire group
Group Insurance:
1. Members and Adverse selection
- Written on a group of people
- Underwriter focuses on the group as a whole,
rather than its singular members
Underwriting: RISK SELECTION PROCESS; Underwriting does
occur to prevent/avoid ADVERSE SELECTION
- Adverse selection tendency of those individuals
who would be considered poor risks to seek and be
covered for insurance more often than average-risk
persons.
- Underwriter considers: type of work being
performed, ages of the participants, probability of
the particular group being an adverse risk to the
insurance company
2. Turnover
- underwriter: concerned with the number of new
group entrants; they are not fond of groups that
have no turnover
3. Probationary Period
- individuals joining an insured group will be required
to serve a probationary period before becoming
eligible for the insurance coverage
A. Noncontributory: employer pays the entire
insurance premium; each individual becomes
immediately covered after the probationary period
Source: Dizon
Parties
-
*** Both have insurable interests in the same object BUT for
different reasons.
An agent, who has been supplied by the insurer with blank cover
note forms, has implied authority to bind the insurers by the
issue of a cover note.
Amount of Insurance
The most an insurer will pay for any single loss, the maximum
amount an insured can collect should be provided in terms of a
specific policy.
Premium
Sum paid by a policyholder to keep an insurance policy in force
Failure to pay = Lost of Insurance coverage
Property, Life or Liability Insured
The insurer is only liable to the loss of property or life stated in
the policy
Interest of the insured in property
- must be specified if the ownership is not absolute
- need not specify if ownership is absolute
- A special or qualified interest is equally the subject
of insurance
Risk Insured against
- must be stated in the contract
- the liability of the insurer is limited to losses,
damages or liabilities caused by the risks insured
against
Source: Dizon
Sec. 55. To render an insurance effected by one partner or partowner, applicable to the interest of his co-partners or other partowners, it is necessary that the terms of the policy should be
such as are applicable to the joint or common interest.
Prescription by agreement
They may agree on a prescriptive period which is less than 10
years provided it is not less than 1 year from the time the cause
of action accrues.
Sec. 57. A policy may be so framed that it will inure to the benefit
of whomsoever, during the continuance of the risk, may become
the owner of the interest insured.
Cause of action will start to accrue not from the date of loss but
from receipt by the insured of the notice of denial of the claim. If
insurer does not act on claim the cause of action will never
accrue.
Sec. 58. The mere transfer of a thing insured does not transfer
the policy, but suspends it until the same person becomes the
owner of both the policy and the thing insured.
Source: Dizon
1.
2.
3.
4.
5.
Sec. 66. In case of insurance other than life, unless the insurer at
least forty-five days in advance of the end of the policy period
mails or delivers to the named insured at the address shown in
the policy notice of its intention not to renew the policy or to
condition its renewal upon reduction of limits or elimination of
coverages, the named insured shall be entitled to renew the
policy upon payment of the premium due on the effective date of
the renewal. Any policy written for a term of less than one year
shall be considered as if written for a term of one year. Any
policy written for a term longer than one year or any policy with
no fixed expiration date shall be considered as if written for
successive policy periods or terms of one year.
Title 7 WARRANTIES
Sec. 67. A warranty is either expressed or implied.
Source: Dizon
concealment
representations
warranties
conditions
exceptions or exclusions
Warranty
Representation
implied
warranties
and underwriter
conditions on which it was
made
The effect of misrepresentation or concealment involves the
principle of an implied warranty or condition; it avoids the policy
because there is an implied agreement of the assured to make a
fair disclosure of the circumstances affecting the risk, and the
insurer subscribes upon the condition that he has complied with
this agreement.
Express warranty
Representation
An agreement expressed in
the policy, whereby the
assured stipulates that certain
facts relating to the risk are, or
shall be, true, or certain acts
relating to the same subject
have been, or shall be, done. It
is not required that the
circumstance or act warranted
should be material to the risk.
Materiality/immateriality
signifies NOTHING. The only
question is as to the mere fact.
Implied Warranty
Where by the mere act of
effecting
insurance,
the
assured is presumed to give
the underwriters to understand
that certain facts are true, or
certain acts shall be done,
relating to the risk;
It is made by the mere act of
effecting the insurance
Production of the policy by the
assured is a proof of all the
Source: Dizon
Representation
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Sec. 73. When, before the time arrives for the performance of a
warranty relating to the future, a loss insured against happens, or
performance becomes unlawful at the place of the contract, or
impossible, the omission to fulfill the warranty does not avoid the
policy.
Inc ase there is fraud, the policy is void ab initio and the insured
is not entitled to a return of premiums.
Title 8 PREMIUM
Sec. 77. An insurer is entitled to payment of the premium as
soon as the thing insured is exposed to the peril insured
against. Notwithstanding any agreement to the contrary, no
policy or contract of insurance issued by an insurance
company is valid and binding unless and until the premium
thereof has been paid, except in the case of a life or an
industrial life policy whenever the grace period provision
applies.
Source: Dizon
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Payment by Installments:
- must be approved by the insurer
- Sec. 77 merely precludes the parties from stipulating
that the policy is valid even if premiums are not paid,
but does not expressly prohibit an agreement granting
credit extension, and such an agreement is not contrary
to morals, good customs, public order or public policy
- If they have an understanding that the insured allows
the premium to be paid in installments, then such is not
prohibited.
Credit Agreement:
- Art. 1306: The contracting parties may establish such
stipulations clauses, terms and conditions as they may
deem convenient, provided they are not contrary to law,
morals, good customs, public order or public policy
- If insurance contract provide a credit term within which
to pay the premiums, such is valid. Thus, he can
recover even though the premium is paid after the loss
Source: Dizon
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Source: Dizon
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No Return of Premiums:
1. if a peril insured against has existed, and the insurer
has been liable for any period, however short, the
insured is not entitled to return of premiums, so far as
that particular risk is concerned
2. in life insurance unless there is sufficient cause; Life
insurance is indivisible; premium payments are
consideration for the entire insurance although made for
several periods.
3. If insured committed fraud or misrepresentation
Source: Dizon
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Source: Dizon
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Source: Dizon
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Source: Dizon
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fraud;
Contracts of insurance are contracts of indemnity upon the
terms and conditions specified in the policy.
If, with the knowledge of the existence of other insurances
which the defendant deemed violations of the contract, it
has preferred to continue the policy, its actions amounts to a
waiver of the annulment of the contract.
Source: Dizon
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Title 12
REINSURANCE
Sec. 95. A contract of reinsurance is one by which an insurer
procures a third person to insure him against loss or liability by
reason of such original insurance.
Functions:
1. Risk Transfer: Reinsurance allows an insurance company to
offer higher limits of protection to a policy holder than its
own assets would allow
2. Income Smoothing: Helps make insurance companys
results more predictable by absorbing larger losses and
reducing the amount of capital needed to provide coverage
3. Surplus relief:
Insurance companys writings are limited by its balance
sheets [solvency margin]. Once the limit is reached, its
either they stop writing new business or increase its capital
of buy surplus relief reinsurance.
o Basically, to raise additional capital.
4. Arbitrage: Insurance company may be motivated by
arbitrage in purchasing reinsurance coverage at a lower rate
than what they charge the insured for the underlying risk.
Types of Reinsurance:
1. Proportional
One of more reinsurers taking a stated percent share of each
policy that an insurer produces [writes]
a. Quota Share
b. Surplus reinsurance [Variable Quota Shares]
Importance of Reinsurance:
1. To protect against large claims to reinsure with other
insurance companies so that the loss is not so severe
for any one insurer
2. To avoid undue fluctuations in underwriting results
balanced set of results each year without peaks and
troughs
3. To obtain an intentional spread of risk to spread risk
to other countries
4. To increase the capacity of the direct insurer to
accept the risk by insuring the whole risk and then
reimbursing the part it cannot keep for itself to other
reinsurers
2. Non-proportional
It only responds if the loss suffered by the insurer exceeds a
certain amount, which is called the Retention or priority
Forms:
a. Excess of loss reinsurance
i. Per Risk XL [Working XL]
ii. Per Occurrence or Per Event XL
[Catastrophe or Cat XL]
iii. Aggregate XL
b. Stop loss reinsurance
REINSURANCE
Made by a former insurer, his
executors or assigns, to protect
himself and his estate from a
risk to which they were liable by
the first insurance.
Hector De Leon:
Reinsurance
Insurer becomes the insured,
insofar as the reinsurer is
concerned.
The subject of insurance is the
original insurers risk
An insurance of a different
interest
The original insured has no
interest in the contract of
reinsurance
which
is
Source: Dizon
DOUBLE INSURANCE
The insured makes 2
insurances on the same risk
and the same interest.
Double Insurance
Insurer remains as the insurer
The subject of the insurance
is property
It is an insurance of the same
interest
THe insured is the party in
interest in all the contracts
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Source: Dizon
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o
o
Coverage
Marine Insurance covers the loss or damage of ships, cargo,
terminals and any transport or property by which cargo is
transferred, acquired, or held between the points of origin
and final destination.
1. Loss or damage to any of the
properties enumerated in the
Insurance Code
2. Liability insurance pertaining to
marine protection and indemnity
insurance.
Insurer will be liable for any liability
that the insured may insure arising
from marine operations.
Generally, insurers are not liable for the loss of goods stowed on
deck, since the goods are exposed to greater perl if they were
stowed in the usual manner. But this seems to depend in some
decree upon usage.
General Principles:
There are two parties:
Source: Dizon
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assured who has parted with or lost his interest in the subjectmatter insured cannot ssign.
Assignment of Policy:
A marine policy is assignable by endorsement, or in any other
customary manner, and the assignee can sue on it in his own
name and subject to any defense which would have been
available against the person who effected the policy. The
assignment may be made either before or after the loss, but an
Source: Dizon
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Source: Dizon
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Sub-Title 1-B
INSURABLE INTEREST
Sec. 100. The owner of a ship has in all cases an insurable
interest in it, even when it has been chartered by one who
covenants to pay him its value in case of loss: Provided, That in
this case the insurer shall be liable for only that part of the loss
which the insured cannot recover from the charterer.
Charterers Liability
For time charter and voyage charter: the charterer
becomes liable as he occupies a position similar to
an owner towards the sub-contracting party [subcharterer or cargo owner]. He is also liable to third
parties, similar to those of a shipowner. He also
assumes liabilities towards the party he charters
the ship from the vessel owner or another
charterer.
Usually, the claimant has a freedom of choice to
claim compensation either from the charterer or the
owner
Charterers Interest:
Chartered vessel usually represents future income.
Hence, if the ship is lost, the charterer will not pay charter hire,
but it will be hard to secure a replacement vessel. Thus, the
charterer may not earn the future freight, as anticipated. Hence,
he can protect himself by a total loss insurance known as
Charterers Interest.
Charter Party
Insurable Interest
o A charter party is a contract of lease whereby the
owner or the agent leases the hull of the vessel or
part thereof, or the transportation of the tools or
passengers or both, for a fixed price
o The contracting parties will view the charterer as
the owner of the ship;
o the charterer assumes liabilities towards the vessel
owner
o charterer also have an insurable interest if the ship
sustains damage resulting in a particular average;
also lost earnings represent an insurable interest
Charter Party [Chartia Partita divided document]: Formal
contract drawn up between the shipowner and the charterer
Kinds of Charter
1. Time Charter: the ship is chartered as a functioning
operating unit for a period of time. The charterer pays
the hire money and the ship transport cargo wherever
the charterer wishes;
The entire ships capacity is let out. The
master and the crew are appointed by the
owners. But the owners do not act as carrier
2. Voyage Charter
The ship is chartered to carry cargo on
specified voyage between places. The
shipowner pays for everything except perhaps
the loading and discharging costs. Parties
have to agree on lay time.
The master is appointed by the owners.
Owners act as carriers.
Bottomry
Source: Dizon
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Sec. 105. One who has an interest in the thing from which profits
are expected to proceed has an insurable interest in the profits.
Source: Dizon
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Source: Dizon
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Sub-Title 1-D
REPRESENTATION
Sec. 111. If a representation by a person insured by a contract of
marine insurance, is intentionally false in any material respect, or
in respect of any fact on which the character and nature of the
risk depends, the insurer may rescind the entire contract.
Sec. 112. The eventual falsity of a representation as to
expectation does not, in the absence of fraud, avoid a contract of
marine insurance.
The marine insurance contract requires a high degree of good
faith
Representation can either be:
As to a matter of fact
As to a matter of expectation
or belief
It is true, if it be substantially It is true if it is made in good
correct, that is, if the difference faith
between what is represented
and what is actually correct
would not be considered
material by a prudent insurer
A representation may be withdrawn or corrected before the
contract is concluded. Whether a particular representation be
material or not is, in each case, a question of fact.
Source: Dizon
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Source: Dizon
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Source: Dizon
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Source: Dizon
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Source: Dizon
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Sec. 157. A marine insurer is liable upon a partial loss, only for
such proportion of the amount insured by him as the loss bears
to the value of the whole interest of the insured in the
property insured.
Sec. 162. If cargo insured against partial loss arrives at the port
of destination in a damaged condition, the loss of the insured is
deemed to be the same proportion of the value which the market
price at that port, of the thing so damaged, bears to the market
price it would have brought if sound.
Source: Dizon
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Losses:
a. direct or actual: generally, the insurer is
liable only for direct and actual losses [
provided fire is the proximate cause]
b. indirect or consequential
Lightning: discharge of atmospheric electricity. For loss to be
covered, item damaged by lightning must also burn as a result of
lightning
GR: Double Insurance is allowed.
Exception: A clause may be provided requiring the insured to
give notice of the existence of other insurance/s
Sec. 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, by means within the control of the
insured, and increasing the risks, entitles an insurer to rescind a
Source: Dizon
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Accidental Means:
A person is a victim of an accident when, from victims POV,
occurrence causing injury or death is not a natural and probable
result of victims own acts
Test: NOT WON the result is foreseeable; Rather WON IT IS
EXPECTED
Expected: High degree of certainty of the
outcome
Accidental: Unintended or unexpected
An effect which is the natural and probable
consequence of an act or course of action is
not an accident, nor is it produced by
accidental means. It is either the result of
actual design, or it falls under the maxim that
every man must be held to intend the natural
and probable consequence of his deeds.
IF the insured was assaulted/murdered, it is
still considered as accident which will render
the insurer liable
Source: Dizon
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Title 4 SURETYSHIP
Sec. 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 obligee. It includes
official recognizances, stipulations, bonds or undertakings issued
by any company by virtue of and under the provisions of Act No.
536, as amended by Act No. 2206.
Sec. 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. It is determined strictly by the terms of the contract of
suretyship in relation to the principal contract between the obligor
and the obligee. (As amended by Presidential Decree No. 1455).
3 Contracts:
Creditor Debtor:
Principal Obligation, 1st.
Surety Creditor: Contract of Suretyship; 2nd. To protect the
creditor.
Surety Debtor: Indemnity Agreement, 3rd. To Protect the
Surety.
Source: Dizon
Surety
DEF. An agreement whereby a
party
called
a
surety
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2. Beneficiary
He receives the proceeds of the policy upon the insureds death.
The owner designates the beneficiary, but the beneficiary is not
a party to the policy.
The owner can change the beneficiary unless the policy has an
irrevocable beneficiary designation
- If irrevocable beneficiary: beneficiary must agree to
any beneficiary changes, policy assignments or
cash value borrowing
If the policy owner is not the insured [Cestui Qui Vit or CQV],
insurance companies have sought to limit policy purchases to
those with an insurable interest in the CQV.
- Close family members
- Business partners
- Purchaser will actually suffer some kind of los if the
CQV dies; basically to prevent people from
benefiting from the purchase of purely speculative
policies on people they expect to die
Life policies are legal contracts and the terms of the contract
describe the limitations of the insured events. Exclusions are
usually written in the contract to limit the liability of the insurer,
such as:
- suicide
- fraud
- war
- riot
- civil commotion
Parties:
1. Insured/Policy Owners
Insured and Policy Owner may be 2 different persons, but
usually they are the same person.
- If X buys a policy on his own life, he is both the
insured and the policy owner
- But if Xs wife buys a policy on Xs life, Xs wife is
the Policy owner, and X is the insured
Source: Dizon
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c. Limited Pay
All premiums are paid over a specified period after
which no additional payment are due to keep the
policy in force.
Ex. 10 year, 20 year, paid up at age 65
d. Endowments
Cash value build up inside the policy, equals the
death benefit [face amount] at a certain age. This
age is known as the endowment age. Endowments
are considerable more expensive than either whole
life or universal life because the premium paying
period is shortened and the endowment date is
earlier.
e. Accidental Death
Limited life insurance that is designed to cover the
insured when they pass away due to an accident.
Include anything from an injury, but NOT those
resulting from serious health problems or suicide.
Less expensive than other life insurances
Commonly offered as accidental death and
dismemberment insurance [AD&D policy]: Covers
Accidental death and loss of limbs or bodily
functions such as sight, hearing etc.
Source: Dizon
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Source: Dizon
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