INSURANCE

PD 1460
PRELIMINARIES
A.
Definition of Contract of
Insurance
B. Requisites of Insurance Contract
C. Concealment and Representation
D. Kinds of Policy
E. Warranties in Insurance Contract
F. Double Insurance
G. Reinsurance Contract
H. Marine Insurance
I .Losses
J .Abandonment
K. Kinds of Insurance
L. Motor Vehicle Insurane
-----------------------------------WHAT LAWS GOVERN INSURANCE
(a)
Insurance Code (PD 1460
whose affectivity date is 11 June
1978)
(b)
In
absence
of
applicable
provisions, the Civil Code;
(c)
In
absence
of
applicable
provisions in the Insurance
Code and Civil Code, the
general
principles
on
the
subject in the United States
(Constantino vs. Asia Life
Insurance, 87 Phil 248)
WHAT IS A CONTRACT OF INSURANCE
- It is an agreement whereby
one
undertakes
for
a
consideration to indemnify
another
against
loss,
damage, or liability arising
from
an
unknown
or
contingent event;
- A contract of suretyship
shall also be deemed an
insurance contract if made
by a surety who or which is
doing an insurance business;
Doing an insurance business or
transacting an insurance business is:
(a) making or proposing to make
as
insurer
any
insurance
contract;
(b) making or proposing to make
as surety contract of suretyship
as a vocation and not merely
incidental
to
any
other
legitimate business or activity
of the surety;
(c) doing any business including a
reinsurance
business,

specifically
as
doing
an
insurance business within the
hearing of the Code;
(d) doing or proposing to do any
business
in
substance
equivalent to any of the
foregoing in a manner designed
to evade the provisions of the
Code (section 2);
NATURE AND CHARACTERISTICS OF A
CONTRACT OF INSURANCE
1. It is an ALEATORY contract
2. It is a contract of INDEMNITY for
Non-Life recovery is commensurate
to the loss. It is an investment in
life insurance secured by the
insured as a measure of economic
security for him during his lifetime and
for his beneficiary upon his death
except one secured by the creditor
on the life of the debtor;
3. It is a PERSONAL contract
4. It
is
EXECUTORY
and
CONDITIONAL on part of the
insurer
5. It is one of PERFECT GOOD FAITH
6. It is a contract of ADHESION
insurance companies manage to
impose upon the insured prepared
contracts, which the insured cannot
change. Consequently, they are to
construed as follows:
(a) In case there is no doubt as to
the terms of the insurance
contract, it is to be construed in
its
plain,
ordinary,
and
popular sense;
(b) If
doubtful,
ambiguous,
certain, it is to be construed
strictly against the insurer and
liberally in favor of the insured
because the latter has no voice in
the selection of the words used,
and the language used is
selected by the lawyers of the
Insurer (Qua Chee Gan vs. Law
Union Rock Ins. Co. Ltd. 52 OG
1982)
Illustrations:
a. P Bank obtained insurance against
robbery, which excluded loss by
any criminal act of the insured or
any
authorized
representative.
While transferring funds from one
branch to another, the insureds
armored truck was robbed. The
driver was assigned by a labor
contractor with the insured, while
the security guard was assigned by
an agency contracted by the
insured. Both driver and guard
were found to be involved. Can the
loss be excluded? HELD: The loss
is excluded , the driver/guard

although assigned by labor

contractors are authorized
representatives. The terms are
clear and unambiguous. (Fortune
Insurance vs. CA, 244 SCRA 308).
b. Personal
Accident
policies
providing payment for loss of
hand. The insurance policy
defines it as amputation. The
insured has an accident resulting
in a temporary total disability but
hand is not amputated. HELD:
Insurer is not liable. (Ty vs. First
National Surety and Assurance
Company 17 SCRA 364) But In
case where the policy provided
loss of both, legs by amputation, a
claim against the policy was
allowed for a total paralysis to
exclude total paralysis is contrary
to public policy, public good and
sound morality, as it would force
the insured to have his legs
amputated to be able to claim on
the policy. (Panaton vs. Malayan
2 Court of Appeals 783)
c. Warranty in a fire insurance policy
prohibited storage of oils having a
flash
point
of
below
300
Fahrenheit. Gasoline is stored. Is
there a policy violation? HELD:
The clause is ambiguous. In
ordinary parlance oils means
lubricants not gasoline. There is
no reason why gasoline could not
be expressed clearly in the
language
public
can
readily
understand. (Qua Chee Gan)
d. An action to recover the amount of
PHP 2,000.00 due to death by
drowning
where
the
policy
provided for indemnity in the
amount of PHP 1,000.00 to PHP
3,000.00
HELD:
The
interpretation of the obscure
stipulation in contract must
not favor the one who caused
the obscurity. Hence, judgment
for additional PHP 2,000.00 was
affirmed. (Del Rosario vs. Equitable
Insurance and Casualty Company,
8 SCRA 343)
e. Denial of a claim on the ground
that the insured vehicle was a
private type vehicle on the
ground that the policy issued to
the insured was a common
carriers liability, Insurance policy
which covers a public vehicle for
hire. HELD: Insurer is liable as
it was aware all along that the
vehicle of the insured was a
private
vehicle.
(Fieldman

Insurance vs. Mercedes Vargas vda

De Songco, 25 SCRA 70)
f. Denial of a claim for benefit due to
the death of Flaviano Landicho in a
plane crash under the GSIS policy
on the ground of non payment of
the premium. HELD: The policy
contained a provision that the
application
for
insurance
is
authority for GSIS to cause the
deduction of premium from the
insureds salary. (Landicho vs.
GSIS, 44 SCRA 7)
Other
case
reference:
New
Life
Enterprises vs. CA, 207 SCRA 669
MARINE RISK NOTE IS NOT AN INSURANCE
POLICY Certainly it would be obtuse for
us to even to entertain the idea that the
insurance contract between Malayan and
ABB Koppel was actually constituted by
the Marine Risk Note alone. (Malayan
Insurance Co. vs. Regis Brokerage
Corporation Nov. 23 2007 G.R. No.
172156)
WHAT ARE THE ELEMENTS OF AN
INSURANCE CONTRACT
1. The insured should possess an
interest of some kind, susceptible
of pecuniary estimation known
as
insurable
interest.
Generally a person has insurable
interest in the subject matter
insured when:
- He has such a relation or
connection
with
or
concern in, such subject
matter that he will derive
pecuniary
benefit
or
advantage
from
its
preservation or will suffer
pecuniary loss or damage
from
its
destruction,
termination or injury by the
happening of the event
insured against.
- It is necessary because its
absence
renders
the
contract void. This is based
on
the
principle
that
insurance is a contract of
indemnity. If the insured
has no interest, he will
not stand to suffer loss or
injury by the happening
of the event insured
against.
INSURANCE CONTRACT [Loss covered
by the insurance policy; Burden of proof
to prove that same] Any loss or damage
happening during the existence of
abnormal conditions (whether physical or
otherwise) which are occasioned by or

through in consequence directly or

indirectly, of any of the said occurrences
shall be deemed to be loss or damage
which is not covered by the insurance,
except to the extent that the insured shall
prove the loss or damage, happened
independently of the existence of such
abnormal conditions.
An Insurance contract, being a
contract of adhesion, should be so
interpreted as to carry out the purpose
for which the parties entered into the
contract which is to insure against risks of
loss or damage to the goods. Limitations
of liability should be regarded with
extreme jealousy and must be construed
in such a way as to preclude the insurer
from noncompliance with its obligations.
(DBP Pool of Accredited Insurance
Companies v. Radio Mindanao Network,
Inc. Jan. 27, 2006, G.R. No. 147039)
ETERNAL GARDENS MEMORIAL PARK
CORPORATION vs. THE PHILIPPINE
AMERICAN
LIFE
INSURANCE
COMPANY (G.R. No. 166245, April 9,
2008)
Philamlifes assumption of risk of
loss
without
approving
the
application. - The question arises as to
whether Philamlife assumed the risk of
loss without approving the application.
This question must be answered in the
affirmative.
It must be remembered that an insurance
contract is a contract of adhesion which
must be construed liberally in favor of the
insured and strictly against the insurer in
order to safeguard the latters interest.
Thus, in Malayan Insurance Corporation v.
Court of Appeals, this Court held that:
Indemnity and liability insurance
policies
are
construed
in
accordance with the general rule of
resolving any ambiguity therein in
favor of the insured, where the
contract or policy is prepared by
the
insurer. A
contract
of
insurance, being a contract of
adhesion, par excellence, any
ambiguity therein should be
resolved against the insurer; in
other words, it should be construed
liberally in favor of the insured and
strictly
against
the
insurer.
Limitations of liability should be
regarded with extreme jealousy
and must be construed in such a
way as to preclude the insurer from
noncompliance with its obligations.
In the more recent case of Philamcare
Health Systems, Inc. v. Court of
Appeals, we reiterated the above ruling,
stating that:

When the terms of insurance

contract contain limitations on
liability, courts should construe
them in such a way as to preclude
the insurer from non-compliance
with his obligation. Being a
contract of adhesion, the terms of
an insurance contract are to be
construed strictly against the party
which prepared the contract, the
insurer. By reason of the exclusive
control of the insurance company
over the terms and phraseology of
the insurance contract, ambiguity
must be strictly interpreted against
the insurer and liberally in favor of
the insured, especially to avoid
forfeiture.20
GULF RESORTS, INC., vs. PHILIPPINE
CHARTER INSURANCE CORPORATION
(G.R. No. 156167 May 16, 2005)
Provisions of insurance policy; no
piecemeal
construction
or
segregation of certain stipulations
allowed;
all
parts
should
be
reflective of clear intent of parties.The
policy
cannot
be
construed
piecemeal. Certain stipulations cannot be
segregated and then made to control;
neither do particular words or phrases
necessarily determine its character.
Petitioner cannot focus on the earthquake
shock endorsement to the exclusion of
the other provisions. All the provisions
and riders, taken and interpreted
together, indubitably show the intention
of the parties to extend earthquake shock
coverage to the two swimming pools only.
Contract of insurance; payment of
premium
by
the
insured,
an
important element of the contract;
Courts finding that no premium
payments with regard to earthquake
shock coverage, except on the two
swimming pools.- A careful examination
of the premium recapitulation will show
that it is the clear intent of the parties to
extend earthquake shock coverage only
to the two swimming pools. Section 2(1)
of the Insurance Code defines a contract
of insurance as an agreement whereby
one undertakes for a consideration to
indemnify another against loss, damage
or liability arising from an unknown or
contingent event. Thus, an insurance
contract exists where the elements
concur.
IN WHAT DOES A PERSON HAVE
INSURABLE INTEREST IN (LIFE)
Every person has an insurable
interest in the Life and Health of:
1.himself, his spouse and of his
children;

2.any person on whom he depends

wholly or in fact for education or support
or in whom he has pecuniary interest
(Note article 195 of the Family Code
specifying the persons obligated to
support each other. Example pecuniary
interest-partners, employees);
3.any person under legal obligation
to him for the payment of money,
respecting property or services of which
death or illness might delay or prevent
performance. Example Mortgagors,
Debtors.
4.Any person upon whose life, any
estate or interest vested in him depends
(Example Usufructuary X allows Y to
receive fruits of the land of the former as
long as he is alive. Y has insurable
interest in life of X, because the death of
X will terminate his right and cause him
damage. (Section 10)
WHAT IS THE BASIS OF INSURABLE
INTEREST IN LIFE
- It exist when there is reasonable
ground founded on the relation of
the parties, either pecuniary or
contractual or by blood or by
affinity to expect some benefit
from the continuance of life of the
insured;

beneficiary, he must have an

insurable interest in the life of the
insured;
INSURABLE INTEREST The insurable
interest of every member of petitioners
health care program in obtaining the
health care agreement is his own health.
Under the agreement, petitioner is bound
to indemnify any member who incurs
hospital, medical or any other expense
asising from sickness, injury or other
stipulated contingency to the extent
agreed
upon
under
the
contract.
(Philippine Health Care Providers Inc. V.
Commissioner of Internal Revenue, Jun.
12 2008 G.R. 167330)
IS THE CONSENT OF THE INSURED
REQUIRED WHEN INSURANCE IS TAKEN
-

The law does not require the

consent of the person insured and
such has been considered as not
essential to the validity of the
contract as long as there is
insurable
interest
at
the
beginning;

IN WHAT DOES A PERSON HAVE

INSURABLE INTEREST IN PROPERTY

WHEN MUST INSURABLE INTEREST IN

LIFE EXIST
- Insurable interest in life must exist
at the time of the effectivity of
the policy and need not exist at
the time of the death of the
insured as life insurance is not a
contract of indemnity. It is meant
to give financial security to the
insured or his beneficiaries
(Section 19). However, insurable
interest of a creditor on the life of
the debtor must exist only at the
time of effectivity but also at the
time of the death of the debtor as
in this instance it is a contract of
indemnity.
His
interest
is
capable of exact pecuniary
measurement.
WHAT IS THE EXTENT OF INSURABLE
INTEREST IN ONES LIFE
- He has unlimited interest in his
own life or that of another person
regardless of whether or not the
latter
has
insurable
interest.
Provided, that if the beneficiary
has no insurable interest, there is
no fore or bad faith. But if he takes
out a policy on the life of another
and
names
himself
as
the

A person has insurable interest in

property as every interest in
property, whether real or
personal,
or
any
relation
thereto, or liability in respect
thereof, of such nature that a
contemplated
peril
might
directly damnify the insured is
an insurable interest (section
13). It may consist of:

(a)

An existing interest

(b)

An inchoate interest founded

on an existing interest
(Defined: Interest in real estate
which is not a present interest
but which may ripen into a
vested interest if not barred,
extinguished, or divested.)
An expectancy coupled with an
existing interest in that out of
which the expectancy arises;

(c)

Note:
- Expectancy must be founded on an
actual right to the thing or a valid
contract for it;
- A carrier or depository of any kind
has insurable interest in the thing
held by him such to the extent of his

liability but not to exceed the value

thereof (Sections 13, 14, and 15);
But, a mere contingent or
expectant interest in anything,
not founded on contract or
actual right to the thing is not
insurable as there is no
insurable interest (Section 16);

WHO IS BOUND BY A CONTRACT OF

INSURANCE The insurance contract
between the insurer and the insured,
under Article 1311 of the Civil Code is
binding only upon the parties (and their
assigns and heirs) who execute the same.
INCHOATE RIGHT The right to
lay claim on the fun is dependent on the
solvency of the insurer and is subject to
all other obligations of the company
arising from its insurance contracts. Thus,
the respondents interest is merely
inchoate. Being a mere expectancy, it has
no attribute of property. At this time, it is
nonexistent and may never exist. Hence,
it would be premature to make the
security deposit answerable for CISCOs
present obligation to Del Monte Motors.
(Republic of the Philippines v. Del Monte
Motors, Inc., Oct.9, 2006 G.R. No.
156956)
WHAT IS THE TEST OR MEASURE OF
INSURABLE INTEREST IN PROPERTY
-

Whether
one
will
derive
pecuniary
benefit
or
advantage
from
its
preservation or will suffer
pecuniary loss or damage from
its destruction; (Section 17)

INSURABLE
DEPOSITS

INTEREST

IN

BANK

2000 BAR EXAM (VIII - b)

Q: BD has bank deposit of half a
million pesos.Since the limit of trhe
insurance coverage of the Philippine
Deposit Insurance Corp Act ( 3591) is only
one tenth of BDs deposit, he would like
some protection for the excess by taking
out an insurance against all risks or
contingencies of loss arising from any
unsound or unsafe banking practices
including unforeseen adverse effects of
the continuing crisis involving the banking
and financial sector in Asia. Does BD have
insurable interest within the meaning of
the Insurance Code?
A: Yes, BD has insurable interest in
his bank deposit. In case of loss of said
deposit, more particularly to the extent of
the amount in excess of the limit covered

by the Philippine Deposit Insurance

Corporation Act, BD will be damnified. He
will suffer pecuniary loss of P400,000.00,
that is, his bank deposit of half a million
pesos minus P100,000.00 which is the
maximum amount recoverable from the
PDIC.
MUST
THE
BENEFICIARY
IN
PROPERTY
HAVE
INSURABLE
INTEREST
ON
THE
PROPERTY
INSURED?
- YES, as no contract or policy of
insurance on property shall be
enforceable.
Except
for
the
benefit of some person having
insurable interest in the property
insured;
WHEN MUST INSURABLE INTEREST IN
PROPERTY EXIST
- must exist at the time the
insurance takes effect and when
the loss occurs but need not exits
in the meantime (Section 19);
COMPARE WITH INSURABLE INTEREST IN
LIFE: 2002 BAR EXAM (N0.XVII)
PROPERTY
LIFE
- not necessary
- based
on
can be based
pecuniary
on
interest
consanguinity
or affinity
- only
at - exist at the time
effectivity
of
effectivity
except
that
and loss
taken
by
a
creditor in the
life
of
the
debtor
- no limit exist if - limited to actual
based
on
volume insured
debtor

IN RELATION TO THE NEED FOR THE

EXISTENCE OF INSURABLE INTEREST,
PLEASE NOTE:
-

That a change in interest in any

part
of
a
thing
insured
accompanied by a corresponding
change in the insurance suspends
the insurance to an equivalent
extent until interest in the thing
and interest in the insurance is
vested in the same person;
No claim in insurance contract
while it is suspended because it

can happen that the insurable

interest will be returned;

EXCEPTIONS TO THE REQUIREMENTS OF

INSURABLE INTEREST:

CHANGE OF INTEREST IN PROPERTY

INSURED (Transfer or Sale of insured
property) (1994 & 200 Bar Exams)
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 interests
in the thing and the interest in the
insurance are vested in the same
person. (Sec. 20)
Exceptions: 1) change of
interest after the loss; 2) change of
interest in one or more of several
things separately insured; 3) change
of interest by will or succession; and
4) transfer of interest by a partner,
joint owner, or common owner, to
another partner, joint owner or
common owner.
1980 Bar Exam:
A insures his house for P 10, 000
commencing January 1, 1952. On
February 15, 1952, A sells the house
to B for P15,000 without endorsing
or transferring the fire policy to B.
On April 20, 1952, the house is
completely destroyed on account of
the accidental fire.
Can A or B
collect the proceeds of the policy
from the insurer? Explain and give
reasons for your answer. (1952,
1959, 1980 Bar)
ANSWER:
Neither A, the seller, nor B, the
buyer, can collect under the policy.
A transfer of interest in property
without any transfer of interest in
the insurance suspends the latter
until the interest in the property and
in the insurance is vested in the
same person. A has transferred his
interest in the object of the
insurance (the house) to B without a
transfer of his interest in the
insurance to B. As the interests in
the object and in the insurance are
in different persons at the time of
the loss, none can recover under the
policy.

WHAT CHANGE IS CONTEMPLATED

An absolute transfer of the
property not life, a lease/mortgage;

(1)

Life, health
or
accident
insurance
because
they
are
not
contracts of indemnity and
insurable interest is not
required at the time of loss;
(2)
A change of
interest after occurrence of
an injury and results in loss
does not affect the right of
the insured to indemnity;
- After a loss, the liability of
the insurer is fixed
(3)
A change of
interest in one or more
several
distinct
things,
separately insured by one
policy, does not avoid as to
the others (Section 22);
(4)
A change of
interest in one or more
several
distinct
things,
separately insured by one
policy, does not avoid the
insurance as to the insured;
(Section 23)
(5)
A transfer of
interest by one or several
partners, joint owners, or
owners in common, who are
jointly insured to the others,
does not avoid insurance
even though it has been
agreed that the insurance
shall lease upon an allocation
of the thing insured;
Note:
- There must be no stipulation
against it otherwise it is
avoided;
- Transfer to strangers avoid
the policy
(6)

When notwithstanding a
prohibition, the consent of
the insurer is obtained;
(7) When the policy is so framed
that it will insure to the
benefit of whomsoever may
become the owner during the
continuance of the risk;
CONTINUATION OF ELEMENTS
1. Insurable interest;
2. The insured is subject to risk of
loss through the destruction or
impairment of that interest by the
happening of the designated risk;
3. The insurer assumes the risk of
loss;
4. Such assertion is part of a general
scheme to distribute actual loss

among a large group of persons

bearing somewhat similar risk;
5. As a consideration for the insurers
promise, the insured makes a
ratable
contribution
called
a
premium to the general insurance
fund;
WHAT MAY BE INSURED AGAINST
- Any unknown or contingent event,
whether past or future, which may
damnify a person having insurable
interest or create a liability against
him, may be insured against
(Section 3);
Example: Insurance against damage,
liability, unknown past event (in
marine insurance insurance is over
the vessel against perils of the sea,
lost or not lost), or future event like
loss or theft of the object;
In relation to the insurance so
secured, note:
1. The consent of the husband is not
necessary for the validity of an
insurance policy taken by a
Married woman on her life and
that of her children. Under art.
145 of the family code, she can
also insure her separate property
without the consent of the
husband;
-

2. A minor may take out a contract

for life, health and accident
insurance with any company
authorized to do business in the
Philippines, provided it be taken
out on his own life and the
beneficiary named is his estate,
father, mother, husband, wife,
child, brother or sister. In so
doing, the married woman/minor
may exercise all the rights or
privileges under the policy;
But What is the effect of the death of
the original owner of a policy, which
covers the life of a minor, ahead of the
minor all rights, title and interest in the
policy shall automatically vest in the
minor unless otherwise provided in the
policy;

WHAT CANNOT BE INSURED

An insurance for or against
the drawing of any lottery or for or
against any chance or ticket in a
lottery drawing or prize. Because
gambling results in profit and
insurance
only
seeks
to

indemnify the insured against

loss (Section 4)

WHO ARE THE PARTIES TO A

CONTRACT OF INSURANCE
1. INSURER

every
person,
partnership,
association
or
corporation duly authorized to
transact insurance business as
provided in the code may be an
insurer. It is the party who agrees
to indemnify another upon the
happening
of
specified
contingency;
2. INSURED

party
to
be
indemnified in case of loss (section
6). Anyone except a public enemy
(a nation at war with Philippines
and every citizen subject of such
nation. Reason: the purpose of
war is to cripple the power and
exhaust the resources of the
enemy, and it is inconsistent to
destroy its resources then pay it
the value of what has been
destroyed) may be insured;
2000 BAR EXAM (VIII - a)
Q: May a member of the MORo
Islamic Liberation Front ( MILF ) or its
breakawy group, the Abu Sayaff, be
insured with a company licensed to do
business under the Insurance Code of the
Philippines? Explain?
A: A member of the MILF or the Abu
Sayyaf may be insured with a company
licensed to do business under the
Insurance Code of the Philippines. What
is prohibited to be insured is a public
enemy. A public enemy is a citizen or
national of a country with which the
Philippines is at war. Such member if the
MILF or the Abu Sayyaf is not a citizen or
national of another country, but of the
Philippines.

WHO MAY INSURE A MOrTGAGED

PROPERTY
- Both the mortgagor and the
mortgagee may take out separate
policies with the same or different
companies. The mortgagor to
the extent of his property, the
mortgagee to the extent of his
credit; (section 8)
INSURANCE INTEREST ON
MORTGAGED PROPERTY (2005 BAR
EXAM (N0. X - 2- a)
Armando Geagonia v. CA 241 SCRA
154

SC RULING
Condition 3 is what is known as other
insurance clause which is a valid
provision allowed by the insurance code
in order to prevent in an increase in the
moral hazard and to serve as a warranty
that no other insurance exists. Its
incorporation in fire policies prevents over
insurance and adverts the perpetration of
fraud. Its violation will thus avoid the
policy. However, in order to constitute a
violation, the other insurance must be
upon the same subject matter, the same
interest therein, and the same risk.
Double insurance exists where
the same person is insured by several
insurers separately in respect of the same
subject and interest.
The court ruled that since the
stocks in trade insured with PFIC were
mortgaged property, separate insurances
covering different insurable interests
maybe obtained by the mortgagor and
mortgagee. The insurable interests of a
mortgagor and mortgagee are separate
and distinct, thus no double insurance
exists since the policies of PFIC do not
cover the same interest as that covered
under the policy of Country Bankers
Insurance Corp. The non-disclosure of the
policies with PFIC was not fatal to
Armandos right to recover on his policy
with Country Bankers Insurance Corp.

has
been
performed
by
the
mortgagor. Example: If notice of
loss is required, the mortgagee may
give it;
d. Upon the occurrence of the loss, the
mortgagee is entitled to recover to
the extent of his credit and the
balance if any to be paid to the
mortgagor, since such is for both
their benefits;
e. Upon recovery by the mortgagee,
his credit is extinguished;
If on the other hand, (section 9), the
insurer assents to the transfer of the
insurance from the mortgagor to the
mortgagee, and at the time of his assent,
imposes further qualifications on the
assignee, making a new contract with
him, the acts of the mortgagor cannot
affect the rights of the assignee Note
the Union Mortgage Clause creates
the relation of insured and insurer
between mortgagee and the insurer
independent of the contract of the
mortgagor. In such case, any act of the
mortgagor can no longer affect the rights
of the mortgagee the insurance contract
is now independent of that with the
mortgagor;
WHAT IS THE EFFECT OF INSURANCE
PROCURED
BY
THE
MORTGAGEE
WITHOUT REFERENCE TO THE RIGHT OF
THE MORTGAGOR
a. The mortgagee may collect from
the insurer upon the occurrence
of the loss to the extent of his
credit;
b. Unless otherwise stated, the
mortgagor cannot collect the
balance of the proceeds after the
mortgagee is paid;
c. The insurer, after payment to the
mortgagee, becomes subrogated
to the rights of the mortgagee
against the mortgagor and may
collect the debt to the extent paid
to the mortgagee;
d. The mortgagee after payment
cannot collect anymore from the
mortgagor BUT if he is unable to
collect in full from insurer, he can
recover from the mortgagor;
e. The mortgagor is not released
from the debt because the
insurer is subrogated in place of
the mortgagee;

WHAT ARE THE CONSEQUENCES

WHERE THE MORTGAGOR
INSURES THE PROPERTY
MORTGAGED IN HIS OWN NAME
BUT MAY THE LOSS PAYABLE TO
THE MORTGAGEE OR ASSIGNS
THE POLICY TO HIM.

UNLESS THE POLICY PROVIDES

OTHERWISE
a. The insurance is still deemed to be
upon the interest of the mortgagor
who does not cease to be a party to
the original contract. Hence, if the
policy is cancelled, notice must be
given to the mortgagor;
b. Any act of the mortgagor, prior to
loss, which would otherwise avoid
the policy or insurance, will have the
same effect although the property is
in the hands of the mortgagee.
Hence, if there is a violation of the
policy by the mortgagor, the
mortgagee cannot recover;
c. Any act required to be done by the
mortgagor may be performed by the
mortgagee with the same effect if it

3.

BENEFICIARY the person who

receives the benefits of an insurance
policy upon maturity;

property insurance yes the

insured himself but cant assign the
proceeds;
life insurance not required to
have insurable interest;
WHO MAY BE BENEFICIARIES IN LIFE
INSURANCE
- Anyone, except who are prohibited
by law to receive donations from
the insured. Note art. 739 of the
Civil Code, hence the following
cannot
be
designated
as
beneficiaries;
1. Those made between persons
guilty
of
adultery
or
concubinage at the time of the
designation;
2. Those guilty of the same
criminal
offense
in
consideration thereof;
2008 BAR EXAM
On January 1, 2000, Antonio Rivera
secured a life insurance from SOS
Insurance Corp. for P1 Million with
Gemma Rivera, his adopted daughter, as
the beneficiary. Antonio Rivera died on
March 4, 2005 and in the police
investigation, it was ascertained that
Gemma Rivera participated as an
accessory in the killing of Antonio Rivera.
Can SOS Insurance Corp. avoid liability by
setting up as a defense the participation
of Gemma Rivera in the killing of Antonio
Rivera? Discuss with reasons. (4%)
Answer: Section 12. The interest of a
beneficiary in a life insurance policy shall
be forfeited when the beneficiary is the
principal, accomplice, or accessory in
willfully bringing about the death of the
insured; in which event, the nearest
relative of the insured shall receive the
proceeds of said insurance if not
otherwise disqualified.Thus, the insurance
company must still pay out the proceeds
of the life insurance policy to the nearest
qualified relative of the insured.
3. Those made to a public officer
or
his
wife,
descendants/ascendants
by
reasons of his office;
-

A
prior
conviction
for
adultery/concubinage is not
required, it can be proven by
proponderance of evidence in the
same
action
nullifying
the
designation. Note the cases of
Insular Life vs. Ebrado, 80 SCRA
181, where a common law wife of
the insured who is married could
not be named as a beneficiary and

SSS vs. Davac, 17 SCRA 863,

where the insured designated his
second wife as a beneficiary was
upheld as the latter was not aware
of the first marriage;
The disqualification does not
extend to the children of the
adultery or concubinage in view of
the express recognition of the
successional rights of illegitimate
children (Art. 287, NCC and Art.
176, Family Code);

MUST
THE
BENEFICIARY
HAVE
INSURABLE INTEREST ON THE LIFE
OF THE INSURED
- It is recognized that the insured
may name anyone he chooses
except
those
disqualified
to
receive donations as a beneficiary
in his life insurance, even if he is a
stranger and has no insurable
interest in the life of the insured.
The designation, however, must be
in GOOD FAITH AND WITHOUT
FRAUD OR INTENT TO ENTER INTO
A WAGERING CONTRACT.
Beneficiary in life and property
insurance (2005 bar exams)
Philippine American Life Insurance
Company v. Pineda (175 SCRA 416)
SC Ruling:
Under the law, the beneficiary designated
in a life insurance contract cannot be
changed without his or her consent
because of the beneficiarys vested
interest in the policy. In this regard, it is
worth nothing that the beneficiary
designation indorsement which forms
part of the policy in the name of Rodolfo
Dimayuga states that the designation of
the beneficiaries is irrevocable and no
right or privilege under the policy may be
exercised, or agreement made with the
insurance company to any change in or
amendment to the policy without the
consent
of
the
said
beneficiary.
Accordingly, based on the provisions of
the contract and the law applicable, it is
only with the consent of all the
beneficiaries
that
any
change
or
amendment to the policy concerning the
irrevocability of beneficiaries may be
legally and validly effected.
Insurable interest on property
Spouses Nilo Cha v. CA Aug.
18, 1997 2009 bar exams
SC RULING:
1. The lessor cannot validly be a
beneficiary of the fire insurance
policy taken by the spouses Cha. It
has no insurable interest on the

merchandize insured because it

remains with the spouses.
2. The automatic assignment of the
policy to the lessor is void for being
contrary to law and public policy.
The proceeds of the fire insurance
policy rightfully belong to the
spouses cha.
3. The insurer cannot be compelled to
pay the proceeds of the policy to the
lessor who has no insurable interest
on the property insured.

surrender value. (Grogorio v. Sun Life

Assurance Company of Canada, 48 Phil.
53 [1925])
2005 BAR EXAM (NO. IX- 2)
Q: Jacob obtained a life insurance policy
for P1 Million designating irrevocably
Diwata, a friend, as his beneficiary. Jacob,
however, changed his mind and wants
Yob and Jojo, his other friends, to be
included as beneficiaries considering that
the proceeds of the policy are sufficient
for the three friends.Can Jacob still add
Yob and Jojo as his beneficiaries? Explain.
(2%)

CAN THE BENEFICIARY BE CHANGED

- The insured shall have the right to
change
the
beneficiary
he
designated unless he has
expressly waived the right in the
policy (Section 11);
- If he has waived the right, the
effect is to make the designation
as irrevocable. Note that the
designation of the guilty spouse as
irrevocable
beneficiary
is
revocable as the instance of the
innocent spouse in cases of
termination of:
(1) a subsequent marriage;
(2) nullification of marriage;
(3) annulment of marriage; and
(4) legal separation (Art. 34, (4)
Family Code
WHAT IS THE EXTENT OF THE
INTEREST OF THE IRREVOCABLE
BENEFICIARY IN A LIFE INSURANCE
CONTRACT

A: The insured cannot add other

beneficiaries as this would diminish the
interest of Diwata who is the irrevocably
designated beneficiary. The insured can
only do so with the consent of Diwata.
WHAT IS THE INTEREST OF AN
IRREVOCABLE BENEFICIARY IN AN
ENDOWMENT POLICY

The beneficiary has a vested right

that cannot be taken away without his
consent. In fact should the insured
discontinue payment of the premium, the
beneficiary may continue paying. Neither
can the insured get a loan or obtain the
cash surrender value of the policy without
his consent (Nario vs. Philamlife, 20
SCRA 434).

WHO RECOVERS IF BENEFICIARY

PREDECEASES THE INSURED

WHAT IS THE EFFECT OF FAILURE TO

DESIGNATE OR BENEFICIARY IS
DISQUALIFIED
-

Note: where the wife and minor

children were named irrevocable
beneficiaries, wife dies, the husband
seeks to change the beneficiaries with the
consent of the children. The consent is
not valid due to minority. (Philamlife vs.
Pineda, 170 SCRA 416).
2005 BAR EXAM (NO. IX -1)
Q: What are the effects of an irrevocable
designation of a beneficiary under the
Insurance Code? Explain. (2%)
A: The irrevocable beneficiary has a
vested interest in the policy, including its
incident such as the policy loan and cash

His interest is contingent as

benefits are to be paid only if the
assured dies before the specified
period. If the insured outlives the
period, the benefits are paid to
the insured;

The benefits of the policy shall

accrue to the estate of the
insured;

If
the
designation
is
irrevocable,
the
legal
representatives
of
the
beneficiary may recover unless it
was stipulated that the benefits
are payable only if living. If
designation is revocable, and
no change is made, the benefits
passes to the estate of the
insured. The rule holds also if
benefits were payable only if
living or if surviving and
the beneficiary dies before the
insured;

WHAT HAPPENS TO INTEREST OF THE

BENEFICIARY IN LIFE INSURANCE
WHERE HE WILLFULLY KILLS THE
INSURED
-

If the killing is willful, the

interest is forfeited, if he is the
principal, an accomplice, or an
accessory. The nearest relative
of insured gets the proceeds

if not otherwise disqualified

(Section 12). If not willful or
felonious, the provision does not
apply;

WHO MUST PROVE KNOWLEDGE OF

THE FACT CONCEALED?
-

CONCEALMENT
WHAT IS CONCEALMENT?
-

Concealment is a neglect to
communicate that which a party
knows and ought to communicate
(Section 26);

AS OF WHAT TIME MUST THE PARTY

CHARGED WITH CONCEALMENT HAVE
KNOWLEDGE OF THE FACT
CONCEALED?
-

WHAT IS THE EFFECT OF

CONCEALMENT?
-

Whether intentional or not, it entitles

the injured party to rescind the
contract of insurance (Section 27).
Examples:
(1) The insured does not disclose
sickness but dies of another
cause. There is concealment
because it is material to a
determination of the assumption
of risk by the insurer;
(2) The father of the insured
obtained an insurance policy
over his daughter, but did not
disclose
that
she
was
a
mongoloid child, the child dies of
influenza,
the
concealment
relieves the insurer of liability
(Grepalife vs. CA 89 SCRA 543)

BASIS OF PROVISIONS ON
CONCEALMENT/REPRESENTATION
-

Fundamental characteristic of a
contract of insurance that it is one
of perfect/utmost good faith;

2001 BAR EXAM (N0.XVI): A applied for

a non-medical life insurance. The insured
did not inform the insurer that one week
prior to his application for insurance, he
was examined and confined at St. Lukes
hospital where he was diagnosed for lung
cancer. The insured soon thereafter died
in a plane crash. Is the insurer liable
considering that the fact concealed had
no bearing with the cause of death of the
insured? Why?
A: No. The concealed fact is
material to the approval and issuance of
the insurance policy. It is well settled
that the insured need not die of the
disease he failed to disclose to the
insurer.
It is sufficient that his nondisclosure misled the insurer in forming
his estimate of the risks of the proposed
insurance policy or in making inquiries.

The party claiming existence of

concealment must prove that
there was knowledge on the part
of
the
party
charged
with
concealment;

Generally, a party must

have knowledge of the fact
concealed at the time of the
effectivity of the policy. Note that
even if a party did not know of the
existence
at
the
rime
of
application
but
before
its
effectivity, there is concealment;
Information acquired after
effectivity is not concealment and
does not constitute ground to
rescind the policy, as after the
policy
is
issued,
information
subsequently acquired is no longer
material as it will not affect or
influence the party to enter into
contract. However, in case of the
reinstatement of a lapsed policy,
facts known after effectivity but
before reinstatement must be
disclosed;

HOW IS THE MATERIALITY OF THE

CONCEALMENT OR REPRESENTATION
DETERMINED?
Materiality is determined not by
the event, but solely by the probable and
reasonable influence of the facts upon the
party to whom the communication is due,
in forming his estimate of the
disadvantages of the proposed contract
or in making his inquiries (Section 31);

WHAT IS THE TEST OF MATERIALITY?

The test of materiality is whether
knowledge of the true facts could have
influence a prudent insurer in determining
whether to accept the risk or in fixing the
premiums;
MUST THERE BE A CAUSAL
CONNECTION BETWEEN THE FACT
CONCERNED AND THE CAUSE OF THE
LOSS? Not necessary
Concealment need not be material,
be of facts which about or contribute to or
are connected of the insureds loss. It is

immaterial that there is no causal

relationship between the fact concealed
and the loss sustained. It is sufficient that
the non-revelation has misled the insurer
in forming its estimate of disadvantage of
fixing the premium.
Examples: Insured concealed kidney
disease and enlarged liver later he died
of thrombosis, is the insurer liable? No,
since the fact concealed was material
though the insured did not die therefrom
(Henson vs. Philam 50 OG 73428).
Insured had concealed that he had kidney
disease. He dies in plane crash. The
insurer is not liable (Sunlife vs. CA, 245
SCRA 269);
WHAT FACTS MUST BE
COMMUNICATED?
Each party to an insurance contract is
bound to communicate to the other all
facts that meet the following requisites:
(a)

(b)

(c)
(d)

Such fact that must be

within his knowledge as
concealment
requires
knowledge
of
the
fact
concealed by the party charged
with concealment;
Fact/s must be material to
the contract it must be of
such nature that had the
insurer known of it, it would not
have accepted the risk or
demanded a higher premium;
That the other party had no
means of ascertaining such
fact/s;
That the party with a duty
to communicate makes no
warranty (Section 28) as
the existence of a warranty
make
the
requirement
to
disclose superfluous but an
intentional fraudulent omission
on the part of the one insured
to communicate information on
a matter proving or tending to
prove falsity of a warranty
entitles the insurer to rescind
(Section 29).

WHAT MATTER NEED NOT BE

COMMUNICATED?
Except in answer to the inquiries of the
other:
(1) Those which the other knows
as the insurer cannot say that it has
been deceived or misled;

Example: Insured discloses that he

has tuberculosis to he agent of the
insurer, who in turn omits to state
the same in the application of the
insured was deemed knowledge of
the insurer (Insular Life Assurance
Co. vs. Feliciano, 74 Phil 468).
Insurer had surveyed the location
and surrounding area of a building
that it is to be insured against fire,
an omission to state that there are
neighboring buildings will not avoid
policy;
(2) Those which in the exercise of
ordinary care, the other ought to
know, and of which, the former has
no reason to suppose him to be
ignorant. The facts that the other
ought to know as per section 32 are:
(3) Those of which the other waives
communication. A waiver takes
place either, by the terms of the
insurance or by he neglect to make
inquiries as to such facts where they
are distinctly implied in other facts
of
which
information
is
communicated (section 33).
(4) Those which prove or tend to prove
the existence of a risk excluded by a
warranty, and which are not
otherwise material.
(5) Those which relate to the risk
exempted from the policy, and
which are not otherwise material
(section 30).
SUNLIFE
ASSURANCE
CO.
OF
CANADA VS. CA, JUNE 22, 1995
(1996, 1997, and 2001 Bar
Exams)
Robert Bacani was issued life
insurance
non-medical
policy
for
P100,000.00
with
his
mother
as
beneficiary. In his application, he
concealed his confinement at the Lung
Center of the Philippines for certain
illness. He died of a plane crash. The
insurance company refused to pay for
breach of the insurance contract.RTC
and CA granted the claim of the
beneficiary because the concealed facts
were not material or irrelevant to the
cause of death.
SC RULING:
The SC reversed the ruling and
held that the information which the
insured failed to disclose was material
and relevant to the approval and

issuance of the policy. The facts

concealed would have affected the
insurers action on the application either
by charging a higher rate of premium or
rejecting the same. The insured need not
die of the disease he concealed. It is
sufficient that his non-disclosure misled
the insurer in forming his estimate of the
risk involved or in making inquiries. The
contract of insurance can be rescinded
by reason of concealment and this has to
be exercised within the two year
contestability period.

(b)

Promissory which is a
statement by the insured
concerning what is to happen
during
the
term
of
the
insurance;

IS A REPRESENTATION PART OF THE

CONTRACT
No, it cannot qualify as an express
provision in a contract (it is a collateral
inducement to the contract but it may
qualify an implied warranty (section 40);

REPRESENTATION
WHAT IS REPRESENTATION?
Oral or written statement of a fact
or a condition affecting the risk made by
the insured to the insurance company,
tending to induce the insurer to take the
risk (Section 36);
WHEN MAY REPRESENTATION BE
MADE
Since it is an inducement to
entering a contract it must ordinarily be
made at the same time as or before the
insurance of the policy (section 37). Note
that it can also be made after the
issuance of the policy when the purpose
thereof is to induce the insurer to modify
an existing insurance contract as the
provisions also apply to a modification
(Same with concealment)
HOW SHOULD REPRESENTATION BE
CONSTRUED
The language of a representation is
to be interpreted by the same rules as the
language of the contracts in general
(section 38). Hence, it need not be
literally true and correct/accurate in every
respect, rather, it is sufficient if it is
substantially or materially true. In case of
a promissory representation, it is
sufficient if it is substantially complied
with;

WHAT ARE THE FORMS AND KINDS

OF REPRESENTATION
Representations may be Oral or
Written and can either be:
(a)

Affirmative which is an
affirmation of a fact existing
when the contract begins;

CAN A REPRESENTATION BE
WITHDRAWN OR ALTERED
Yes, as long as the insurance has
not yet been effected and the insurer has
not yet been induced to issue the policy.
If withdrawn or altered afterwards, the
contract can be rescinded as the insurer
has already been led to issue the policy
(section 41);
TO WHAT DATE DOES A
REPRESENTATION REFER
It must be presumed to refer to the
date on which the contract goes into
effect (section 42);
Note: There is no false
representation if it is true at the time
the contract takes effect although false
at the time it is made;
WHEN IS A REPRESENTATION SAID
TO BE FALSE
When the facts fail to correspond
with its assertions or stipulations (Section
44);
MUST THE INSURED COMMUNICATE
INFORMATION OF WHICH HE HAS NO
PERSONAL KNOWLEDGE BUT MERELY
RECEIVES THE SAME FROM OTHERS?
When a person has no personal
knowledge of facts he may or may not
communicate such information to the
insurer. If he does communicate, he is not
responsible for its truth (section 43).
Hence, there can be no
misrepresentation;
WHEN IS THE INSURED REQUIRED TO
DISCLOSE INFORMATION FROM A
3RD PERSON
When the information material to
the transaction was acquired by an agent

of the insured, as knowledge of the agent

is also knowledge of the principal;

WHAT IS THE EFFECT OF

MISREPRESENTATION ON A
MATERIAL POINT?
If it is false on material point,
whether affirmative or promissory the
injured party is entitled to rescind the
contract from the time the representation
becomes false. However, the right to
rescind is considered waived by the
acceptance of premium payments despite
knowledge of the ground to rescind
(section 45);

misrepresentation of the insured or his

agent (known as the incontestability
clause);
WHAT IS THE THEORY AND OBJECT
BEHIND THE INCONTESTABILITY
CLAUSE
(a)

(b)

Examples:
(a)

(b)

Insurer was aware of the

lack of the extinguishers
required by the policy. But
there is no waiver if the
insurer had no knowledge of
the ground at the time of
the
acceptance
of
the
premium;
Unauthorized driver (Strokes
vs. Malayan, 127 SCRA 766)

HOW IS MATERIALITY DETERMINED?

The same as concealment (Section
46) probable and reasonable influence of
the facts upon the party to whom the
representation is made in forming his
estimate of the advantage/disadvantages
of the contract or I making inquiries;
WHEN IS THE RIGHT TO RESCIND
SUPPOSED TO BE EXERCISED (SEC
48)
The right to rescind must be
exercised previous to the commencement
of an action on the contract (section 48).
Note the case of Tan Chay Hing vs. West
Coast Life Insurance Co., 51 Phil 80,
where an insurer interposed the defense
in an action to claim the proceeds that
the contract is null and void. Section 48
was held to apply only when there is a
contract to rescind.
It is also qualified by 2nd
paragraph of section 48 which
provides that after a policy of life
insurance payable on the death of the
insured shall have been in force during
the lifetime of the insured for a period of
2 years from the date of issue or its last
reinstatement, the insurer cannot prove
that the policy is void ab initio or is
subject to rescission by reason of a
fraudulent concealment or

On the part of the insurer

an insurer has/should have a
reasonable
opportunity
to
investigate
the
statements
which are made by the
applicant an that after a
definite period, it should no
longer be permitted to question
its validity;
On part of the insured its
object is to give the greatest
possible assurance that the
beneficiaries
would
receive
payment
of
the
proceeds
without question as to validity
or the policy;

REQUISITES OF INCONTESTABILITY
CLAUSE
The requisites are:
(1)
(2)

It is a life insurance policy;

It is payable on the death of the
insured;
(3)
It has been in force during the
lifetime of the insured for at
least two years from date of
issue/or last reinstatement;
Tan vs. CA, 174 SCRA 403 during
the lifetime of the insured means that the
policy is no longer in force if the insured
dies. Facts: Philam issued policy on
November 6, 1973. On April 26, 1975 the
insured died. The beneficiaries claimed
but the insurer denied the claim on
September 11, 1975 and rescinded the
policy on the ground of misrepresentation
and concealment. Held: Insurer has two
years from date of issue/reinstatement
within which to contest the policy
whether or not the insured still lives
within the period;
WHAT DEFENSES ARE NOT BARRED
BY INCONTESTABILITY EVEN AFTER
THE LAPSE OF 2 YEARS?
(1)
(2)
(3)
(4)

non-payment of premiums;
lack of insurable interest;
that the cause of death was
excepted or not covered by the
terms of the policy;
that the fraud was of a
particular vicious type such as:
a. policy
was
taken
in
furtherance of a scheme to
murder the insured;

(5)
(6)
(7)

b. where
the
insured
substituted another for the
medical examination;
c. where
the
beneficiary
feloniously
killed
the
insured;
violation of a condition in the
policy relating to military or
naval service in time of war;
the necessary notice or proof of
death was not given;
action is not brought within
time specified in the policy,
which in no case should be less
than 1 year as per section 63;

WHAT ARE THE EFFECTS OF

INCONTESTABILITY?
The insurer can no longer escape
liability, tender the policy or be allowed to
prove that the policy is void ab initio or
may be rescinded by reason of
concealment or misrepresentation by the
agent of the insured or the insured;

DISTINGUISH CONCEALMENT FROM

REPRESENTATION
Concealment is the neglect of one
party to communicate to the other
material facts. The information he gives
in compliance with his duty to reveal
information is representation.
Representation therefore is the
communication required to comply with
the prohibition against concealment;
Concealment is the passive and
misrepresentation is the active form of
the same bad faith;
CONCEALMENT AND
REPRESENTATION COMPARED
1. In concealment the insured
withholds information of material
facts, while in representation the
insured
makes
erroneous
statements;
2. In
concealment
and
misrepresentation both give the
insurer the right to rescind the
contract of insurance;
3. The materiality of concealment
and representation are determined
by the same rules;
4. Whether the concealment or
representation is intentional or
not, the injured party can rescind;
5. Since insurance contracts are of
utmost good faith the insurer is
also covered by the rules;

POLICY
DEFINE POLICY
It is the written instrument in which
a contract of insurance is set forth
(Section 49.);
HOW IS IT CONSTRUED, WHAT IF THE
INSURED DOES NOT UNDERSTAND
THE CONTENTS OF THE POLICY?
Generally in favor of the insured
and against the insurer. The burden of
proving that the terms of the policy have
been explained is upon the party seeking
to enforce it. The claim of the beneficiary
that since the insured was illiterate and
spoke Chinese only, she could not be held
guilty of concealment because the
application and policy was in English
(Tang vs. CA, 90 SCRA 236);
FORM OF THE POLICY
It shall be printed and may contain
blank spaces and any word, phrase,
clause or mark, sign, symbol, signature,
or number necessary to complete it shall
be written in the blank spaces (Section
50). If there are riders, clauses,
warranties or endorsements purporting to
be part of the contract of insurance and
which are pasted or attached to the policy
is not binding on the insured unless the
descriptive title of the same is also
mentioned and written on the blank
spaces provided in the policy. Note: if
pasted or attached to the original policy
at the time it was issued the signature
of the insured is not necessary to make it
binding. If after the original policy is
issued, it must be counter-signed by the
insured unless applied for by the insured;
No rider, clauses, or warranties, or
endorsements shall be attached, printed
or stamped on the policy unless the form
of such application has been approved by
the insurance commissioner;
Riders are forms attached to the policy
when the company finds it necessary to
alter or amend the applicants answer to
any question in the application;
Clauses are forms containing additional
stipulations;
Warranties are written
statement/stipulations inserted on the
face of the contract or incorporated by
proper words or reference where the
insured contracts as to the existence of

facts, circumstances or conditions the

truth of which are essential to the validity
of the contract;
Endorsements are agreements not
contained but may be written or attached
to policy to change or modify a part
thereof;

WHAT MUST A POLICY SPECIFY?

A policy must specify:
(1)
(2)
(3)

(4)
(5)
(6)
(7)

The parties whom the contract

is made;
The amount to be insured
except in open or running
policies;
The premium, or if the premium
is to be determined at the
termination of the contract, a
statement of the basis and
rates upon which the final
premium is to be determined;
The property or life insured;
The interest of the insured in
the property insured, if not the
absolute owner;
The risks insured against;
The period during which the
insurance
is
to
continue
(Section 51);

FGU INSURANCE CORPORATION vs.

CA ( G.R. No. 137775. March
31,
2005)
Fortuitous event; Definition. Caso
fortuito or force majeure (which in law are
identical insofar as they exempt an
obligor from liability) by definition, are
extraordinary events not foreseeable or
avoidable, events that could not be
foreseen, or which though foreseen, were
inevitable. It is therefore not enough that
the event should not have been foreseen
or anticipated, as is commonly believed
but it must be one impossible to foresee
or to avoid.
The fortuitous event should be the
proximate and only cause of the loss;
While the loss of the cargoes was
admittedly caused by the typhoon Sisang,
a natural disaster, ANCO could not escape
liability to respondent SMC. The records
clearly show the failure of petitioners
representatives
to
exercise
the
extraordinary
degree
of
diligence
mandated by law. To be exempted from
responsibility, the natural disaster should
have been the proximate and only cause
of the loss. There must have been no
contributory negligence on the part of the

common carrier. As held in the case of

Limpangco Sons v. Yangco Steamship
Co.:
.
Carelessness and negligence of
the insured or his agents constitute
no defense on the part of the
insurer.
One of the purposes for taking out
insurance is to protect the insured against
the consequences of his own negligence
and that of his agents. Thus, it is a basic
rule in insurance that the carelessness
and negligence of the insured or his
agents constitute no defense on the part
of the insurer.
When the insureds negligence
is gross as to constitute a willful act,
the insurer must be exonerated.- The
question now is whether there is a certain
degree of negligence on the part of the
insured or his agents that will deprive him
the right to recover under the insurance
contract. We say there is. However, to
what extent such negligence must go in
order to exonerate the insurer from
liability must be evaluated in light of the
circumstances surrounding each case.
When evidence show that the insureds
negligence or recklessness is so gross as
to be sufficient to constitute a willful act,
the insurer must be exonerated.
The United States Supreme Court has
made a distinction between ordinary
negligence and gross negligence or
negligence amounting to misconduct and
its effect on the insureds right to recover
under the insurance contract. According
to the Court, while mistake and
negligence of the master or crew are
incident to navigation and constitute a
part of the perils that the insurer is
obliged to incur, such negligence or
recklessness must not be of such gross
character as to amount to misconduct or
wrongful acts; otherwise, such negligence
shall release the insurer from liability
under the insurance contract.
WHAT ARE COVER NOTES?
It is a written memorandum of the
most important terms of a preliminary
contract of insurance intended to give
protection pending investigation by the
insurer of the risk or until the insurance of
the formal policy (Section 52). It is also
known as binding slip or receipt or
binder;
EFFECTIVITY OF A COVER NOTE
The effectivity of a cover note is 60
days as within such period, a policy
shall be issued including in its terms the
identical assurance found under the cover
rate and the premium therefore. It may

however, be extended beyond 60 days

and with the written approval of the
Insurance Commissioner if he determines
that it does not violate the Insurance
Code;
NOTE THE FOLLOWING RULES HAVE
BEEN PROMULGATED BY THE
INSURANCE COMMISSIONER:
(1)

A cover note is valid for 60 days

whether or not a premium is
paid but may be cancelled by
either party upon at least 7 day
notice to the other party;

(2)

If the other note is not

cancelled, a regular policy must
be issued within 60 days from
the date of issue of the cover
note including within its terms
the identical insurance;

(3)

It may be extended with the

written
approval
of
the
commissioner but may be
dispensed
with
by
a
certification of the President,
Vice-President
or
General
Manager of the insurer that the
risks
involved
and
the
extension do not violate the
code;

(4)

Insurance
companies
may
impose a deposit premium
equivalent to at least 25% of
the estimated premium but in
no case less than Php500.00;

WHEN WILL A COVER NOTE GIVE

ADEQUATE INSURANCE PROTECTION?
It gives adequate insurance
protection when it is a preliminary
contract of present insurance and not a
mere agreement to insure a future time,
as on acceptance of the application or
issuance/delivery of the policy. (44 CJS
958)
Example:
(1)

Agent issued a provisional

policy acknowledging receipt of
premiums and stating that the
insurance shall be effective
upon approval and issuance of
the policy by the head office.
There is no protection as it is a
mere acknowledgement of the
payment of premiums as the
effectivity of the insurance is
expressly provided (Lim vs.
Sunlife, 41 Phil 265);

(2)

In life insurance, a binding slip

does not insure by itself as it
was stated that it was subject
to the approval of the insurer
and the same was subsequently
disapproved (Grepalife vs. CA,
89 SCRA 546);

IS PAYMENT OF A PREMIUM
PAYMENT FOR THE COVER NOTE
NECESSARY TO BE PROTECTED
AGAINST RISK INSURED AGAINST?
Cover note held to be binding
despite the absence of a premium
payment for its issuance. No separate
premiums are intended or required to be
paid on a cover note because they do
not contain particulars of the
property insured that would serve as
the basis for the computation of
premiums such being the case no
premium can be fixed. The cover notes
should not be treated as a separate policy
but should be integrated in the regular
policy subsequently issued so that
premiums on the regular policy should
include that for the cover note (Pacific
Timber vs. CA, 112 SCRA 199);
2009 BAR EXAM (IV)
Antarctica
Life
Assurance
Corporation (ALAC) publicly offered a
specially designed
insurance
policy
covering persons between the ages of 50
to 75 who may be afflicted with serious
and debilitating illnesses. Quirico applied
for insurance coverage, stating that he
was already 80 years old. Nonetheless,
ALAC approved his application.Quirico
then requested ALAC for the issuance of a
cover note while he was trying to raise
funds to pay the insurance premium.
ALAC granted the request. Ten days after
he received the cover note, Quirico had a
heart seizure and had to be hospitalized.
He then filed a claim on the policy.
a. Can ALAC validly deny the
claim on the ground that the
insurance coverage, as publicly
offered, was available only to
persons 50 to 75 years of age?
Why or why not? (2%)
b. Did ALACs issuance of a
cover note result in the perfection
of an insurance contract between
Quirico and ALAC? Explain. (3%)
Answer:
a.
no.
there
was
no
concealment on the part of quirico
as to his age.
b. yes, one of the exception of
the cash and carry rule is in life
insurance when the grace period
applies. in the case at bar, the

issuance of the cover note shows

that the insurer granted a grace
period.
WHOSE INTEREST IS INSURED
(1) 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 (Section 53).
Example:
(a) In the case of Del Val vs. Del
Val, 29 Phil 534,
the
designation of a sister as a
sole
beneficiary
in
life
insurance cannot be defeated
by the contention of the
plaintiff that the proceeds
belong to the estate of the
insured was disregarded as
insurance is to be governed by
special law, not by the law
covering
donations
or
succession;
(b) In the case of Bonifacio Bros.
vs. Mara, G.R. No. 20853,
29 May 1967, action to
recover cost of repairs and
labor to a motor vehicle where
the policy states loss is
payable to H.S. Reyes, the
mortgagee of the vehicle who
had no knowledge of the fact
that Mara had it repaired with
Bonifacio Bros., where the
court ruled that H.S. Reyes is
the one entitled to the
proceeds because a policy of
insurance is a separate and
independent contract between
the insured and the insurer,
and that third persons have no
right to the proceeds of the
insurance.

while driving the insured motor

vehicle met an accident and died.
His heirs were allowed to sue the
insurer, the policy being considered
in the nature of a contract pour
autrui and therefore the
enforcement thereof may be
demanded by a 3rd party whose
benefit it was made;
(b)The insurance contract provides
for indemnity against liability
to 3RD persons.
Example: In the case of Guingon vs.
Del Monte, 20 SCRA 1043, the
insured procured insurance that
would indemnify him against any
and all sums, which he may be
legally liable to pay in respect to the
death or bodily injury to any person.
A jeepney covered by the insurance
had bumped Guingon and had
caused his death. The insurance
was held to be one for indemnity for
liability to third persons (Third
Party Liability), and therefore,
such third person is entitled to sue
the insurer. The test to
determine whether a 3rd person
may directly sue the insurer of
the wrongdoer is: if the contract
provides indemnity against liability
to 3RD persons, then the latter to
whom the insured is liable may
directly sue the insurer, on the
other hand, if the insurance if for
the indemnity against actual loss or
payment then the 3rd person
cannot sue the insurer recourse is
against the insured alone.
(2)

If the contract is executed with

an agent or trustee as the
insured, the fact that his
principal or beneficiary is the
real party in interest may be
indicated by describing the
insured as the agent/trustee or
by general words in the policy
(Section 54). If not indicated, it
is as if the insurance is the
taken out by the agent/trustee
alone,
consequently
the
principal has no right against
the insurer;

(3)

If a partner or part owner

effects
insurance,
it
is
necessary that the terms of the
policy should be such as are
applicable to the joint or
common interest so that it may
be applicable to the interest of

MAY A 3RD PERSON SUE THE INSURER

No, in general rule unless there is
stipulation. Unless otherwise specified in
the policy, a 3RD person may sue if:
(a)The insurance contract contain
stipulation in favor of a 3RD
person, the latter though not a
party may sue to enforce before the
contract is revoked by the parties;
Example: In case of Coquia vs.
Fieldmens Insurance Co. 26
SCRA 179, the insurance company
undertook to indemnify any
authorized driver who was driving
the motor vehicle insured. Coquia,

his co-partners/owners (Section

55). Consequently, the policy
must state that the interest of
all is insured, if not, it is only
the interest of the one getting
the policy that is insured;
(4)

When the description of the

insured in the policy is so
general
that
it
may
comprehend any person or any
class of persons, only he who
can show that it was intended
to include him can claim the
benefit of the policy (Section
56).

(5)

When a policy is 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 (Section 57).
The proceeds become payable
to who may be the owner at the
time the loss or injury occurs.
This is an exception to section
20.

(6)

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 (Section 58).
Note the exceptions to this rule
as found in sections 20-24 and
57;

WHAT ARE KINDS OF INSURANCE

POLICIES
The kinds of policies are (1) Open,
(2) Valued, or (3) Running (Section 59);

An Open Policy is one in which

the value of the thing insured is
not agreed upon, but is left to be
ascertained in case of loss
(Section 60). What is mentioned,
as the amount is not the value
of the property but merely the
maximum limit of the insurers
liability. In case of loss, the
insurer only pays the actual
cash value at the time of loss;
A Valued Policy is one, which
expresses on its face that the
thing insured shall be valued at
a specified sum (Section 61).
The valuation of the property
insured is conclusive between
the parties. In the absence of

fraud or mistake, such value will

be paid in case of a total loss;

A Running Policy (Floating

Policy)
is
one
which
contemplates
successive
insurances and which provides
that the object of the policy may
be from time to time defined
especially as to the subjects of
insurance,
by
additional
statements
or
indorsements
(Section 62). This is also known
as a Floating Policy usually
issued to provide indemnity for
property, which cannot be
covered by specific insurance
because of a frequent change in
location and quantity.

Example: Insurance procured by a

retail establishment to cover its
inventory that fluctuates in
quantity, or is located in several
areas;
VALUED POLICY DISTINGUISHED
FROM AN OPEN POLICY
(1)

(2)

In a valued policy, proof of

value of the thing after the loss
is not necessary. In an open
policy, the insured must prove
the value of the thing insured;
In a valued policy, the parties
have conclusively stipulated
that the property insured is
valued at a specified sum. In an
open policy, the value is not
agreed
but
left
to
be
ascertained upon loss;
Note: this does not violate the
principle that a contract of
insurance is a contract of
indemnity as long as the
valuation is reasonable and is
bonafide).

OPEN AND VALUED POLICIES

PROBLEM
Suppose A constructed a
house in 1990 at a cost of P
200,000.00 which he insured against
fire to the said amount. The policy
for P 200,000.00 was renewed every
year. In 1995, when the said house
was already P 400,000.00, of the
house was burned or destroyed by
fire. How much can he recover from
the insurer?
ANSWER:

It depends. If the policy is a

valued policy, A can recover only P
50,000.00. If a policy is an open
policy, A can recover his actual loss
of P 100,000.00.
CAN THERE BE AGREEMENTS AS TO
PRESCRIPTION OF AN ACTION OR
LIMITATIONS ON THE PERIOD OF
TIME TO BRING AN ACTION
Yes, provided the period agreed
upon should not be less than one year
(Section 63). If less than one year, the
agreement is void. The period so agreed
shall be considered as having
commenced from the time the cause of
action accrues. Usually, the cause of
action accrues from the date of the
insurers rejection of the claim of the
beneficiary or of the insured since
before rejection there is no necessity to
bring suit. When no period is
stipulated or if the stipulation is
void, the period is within 10 years under
article 1144, New Civil Code, it being a
written contract (Eagle Star vs. Chia Yu
96 Phil 696, ACCFA vs. Alpha Insurance,
24 SCRA 151). If the insured asks for a
reconsideration of the denial, the
period is still counted from the time the
claim is denied at the first instance not
reconsideration - as it gives the
insured a scheme or devise to waste time
until evidence that may be considered
against him can be destroyed (Sun Life
Office Ltd. Vs. CAR, 195 SCRA 193). The
period does not run if action is brought
against an agent of the insurer;
WHAT IS THE PRESCRIPTIVE PERIOD
OF MOTOR VEHICLE INSURANCE
One year from denial of the claim
not date of accident (Summit
Guaranty vs. De Guzman, 15 SCRA 389);

CANCELLATION OF THE POLICY

If policy other than life shall be
cancelled by the insurer except upon
prior notice thereof to the insured.
No notice of cancellation shall be
effective if not based on the
occurrence, after effective date of
one or more grounds: (Section 64)
(1)

Non payment of premium;

(2)

Conviction of a crime arising

out of acts increasing the
hazard insured against

(3)

Discovery
of
representation;

(4)

Discovery of willful or reckless

acts or omissions increasing the
hazard insured against;

(5)

Physical
changes
in
the
property insured which the
result in the property being
uninsurable;

(6)

Determination by the insurance

commissioner that continuation
of the policy would place the
insurer in violation of the code:

FORM OF NOTICE OF CANCELLATION

It must be in writing, mailed or
delivered to the name insured at the
address shown in the policy which shall
state:
(1)
(2)

WHERE IS THE ACTION FILED

The action may be filed in the
following:
(1)
(2)

Courts;
Insurance Commissioner, who
has concurrent jurisdiction with
courts for claims not exceeding
Php100,000.00;
(3)
POEA/DOLE have the power to
compel a surety to make good
on a solidary undertaking in the
same proceeding where the
liability of the principal obligor
is determined.
Note that the claim becomes
action upon filing with the court;

material

The grounds relied upon as per

section 64, and;
That upon written request of
the named insured, the insurer
will furnish the facts on which
cancellation is based (Section
65).

Notes:
(1)

A fire insurance policy is

cancelled on October 15, 1981.
The insurers clerk allegedly got
notice of cancellation by mail
but there was no proof that it
was
actually
mailed
and
received. Insurer relies on the
presumption
of
regularity.
Held: Considering the strict
language of the law that no
policy can be cancelled without

prior notice it behooved on

the insurer to make sure that
cancellation was actually sent
and received by the insured
(Malayan vs. Arnaldo, 156 SCRA
762);
A insured his building against
fire and made the loss payable
to
mortgagee.
Upon
cancellation notice was sent to
the mortgagee. Held: There
was
no
valid
notice
of
cancellation. The notice is
personal to the insured and not
to any unauthorized person
(Saura
Import
Export
vs.
Philippine International Surety
Co., Inc., 8 SCRA 143);

(2)

(2)

WHAT ARE THE KINDS OF

WARRANTIES
(1)

(2)

IS THE INSURED HAVE THE RIGHT TO

RENEW HIS POLCY
Yes, in insurance other than life,
the named insured, may renew the
policy upon payment of the premium
due on the effective date of the renewal,
if, he has not been given notice by the
insurer of the intention not to renew
or to condition renewal upon
reduction of limits or elimination of
coverages by mail or delivery at least
forty five days in advance of the end of
the policy;

(3)

WARRANTIES
Defined
It is a statement or promise stated
in the policy or incorporated
therein by reference, whereby the
insured expressly or impliedly
(Section 67) contracts as to the
past, present or future (Section
68) existence of certain facts,
conditions or circumstances the
literal truth of which is essential
to the validity of the contract;

Note:
(1)

Whether a warranty is
constituted or not depends
upon the intention of the
parties, the nature of the

Affirmative those that relate

to matters that exist at or
before the issuance of the
policy;
Promissory those where the
insured promises or undertakes
that certain matters shall exist
or will be done or will be
omitted after the policy takes
effect. It is a statement in the
policy, which imparts that it is
intended to do or not to do a
thing which materially affects
the risk, is a warranty that such
act or omission shall take place
(Section 72);
Note that unless the contrary
intention appears, the courts
will presume that the warranty
is merely an affirmative
warranty.
Express a statement in a
policy of a matter relating to
the person or thing insured or
to the risk as a fact (Section 71)
and where the assertion or
promise is clearly set forth in
the policy or incorporated
therein by reference. They can
be affirmative or promissory
warranties;
An express warranty made
at or before the execution of
the policy should be
contained (a) in the policy
itself (b) in another instrument
signed by the insured and
referred to in the policy as
making a part of it (Section 70).
This includes a rider it is a
part of the policy, it need not be
signed unless the rider was
issued after the original policy
took effect;

FORM
No particular form of words is
necessary to create a warranty (Section
69). What is essential is what the parties
intend a statement to be and if so
intended as a warranty it must be
included as part of the contract;

contract, or the words used

thereto;
In case of doubt, the
statement is presumed to be
a representation not a
warranty;

(4)

Implied where the assertion

or promise is not expressly set
forth in the policy but because
of the general tenor of the
terms of the policy or from the
very nature of the insurance
contract,
a
warranty
is
necessarily
inferred
or

understood. Note that the law

only
provides
for
implied
warranties in contracts of
marine insurance. See section
113 (seaworthiness) and 126
(deviation);
EFFECT OF VIOLATION OF A
WARRANTY
The violation of a material
warranty, or other material provision of
the policy, on the part of either party
thereto, entitles the other to rescind
(Section 74) Note that the insured can
exercise the right also when the insurer
violates a warranty, like when it refuses
to grant a loan on the policy. But as far
as the insured, Note also that:
(1)

(2)

While a policy may declare that

a violation of a specified
provisions thereof shall avoid it,
otherwise the breach of an
immaterial provision does not
avoid the policy (Section 75).
Meaning ordinarily a breach
of an immaterial provision
does not avoid a policy,
however, if stipulated that any
breach avoids the policy, the
policy is avoided;
A breach of a warranty without
fraud, merely exonerates an
insurer from the time it occurs,
or where it is broken at its
inception, prevents the policy
from attaching to the risk
(Section 76). Meaning that if
the breach is without fraud
the policy is avoided only from
the time of the breach it is still
effective. Consequently, the
insured is entitled to a pro-rate
return of the premium paid
under section 79 (b) or all
premiums, if the breach occurs
at the inception of the contract,
as such is void ab initio and had
never become binding;

Note that a causal connection between

the violation of the warranty is not
necessary So, even if the violation did
act contribute in the loss the other party
may still rescind.
Example: A insured building
against fire. A warranty stated that no
hazardous goods should be stored. A
stored fireworks. The building was burned
and the fireworks were discovered stored
in the area not affected by the fire. The
insurer was not held liable as the storage

had increased the risk (Young vs.

Midland Textiles Ins. 30 Phil 617);
THE NON PERFORMANCE OF A
PROMISSORY WARRANTY DOES NOT
AVOID THE POLICY WHEN BEFORE
THE ARRIVAL OF THE TIME FOR
PERFORMANCE (Section 73)
(1)

The
loss
happens;

(2)

The
performance
becomes
unlawful at the place of the
contract;
The
performance
becomes
impossible;

(3)

insured

against

DISTINGUISHING IT FROM
REPRESENTATIONS
WARRANTY

REPRESENTATIO
N

- A warranty is
part
of
the
contract;
- A warranty is
expressly
set
forth
in
the
policy
or
incorporated
therein
by
reference;

-Representation
is
merely
a
collateral
inducement
thereto;
-A Representation
my be oral or
written
in
another
statement;

- A
warranty
must
strictly
and
literally
performed;

- Representation
must
be
substantially
true;

- A warranty
presumed
material;

is

- A representation
must be shown
to be so;

- A
breach
of
warranty is a
breach of the
contract itself

- (mis)representati
on is a ground to
rescind
the
contract;

PREMIUM
DEFINED
The agreed price for assuming and
carrying the risk;

WHEN IS THE INSURER ENTITLED TO

A PREMIUM?
The insurer is entitled to the
payment of a 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 is paid
except in:
(1)

(2)

(3)

In case of life or industrial life

(life insurance policy where the
premium is payable monthly or
oftener) whenever the grace
period applies (Section 77);
When the insurer makes a
written acknowledgement of
the receipt of premium, such is
conclusive evidence of the
payment of the premium to
make
it
binding
notwithstanding any stipulation
therein that it shall not be
binding until the premium is
paid (Section 78) HENCE, the
effect
of
an
acknowledgement in a policy
or contract of insurance of the
receipt of the premium is that
it is conclusive evidence of
payment so far as to make
the policy binding. However, it
is conclusive only to make the
policy binding and not for the
purpose of collecting premium,
and;
Where
the
obligee
has
accepted
the
bond
or
suretyship contract in which
case such bond or suretyship
contract becomes valid and
enforceable
irrespective
of
whether or not the premium
has been paid by the obligor to
the surety (Section 177);

4.

5.

Condominium Corp. v. CA, 215 SCRA

462)
If the insurer granted the insured a
credit term for the payment of the
premium and loss occurs before the
expiration of the term, recovery
should be allowed even the premium
is paid after the loss but within the
credit term.
Where the parties are barred by
estoppel.

UCPB GENERAL INSURANCE CO. VS.

MASAGANA TELEMART, APRIL 24,
2001
Ruling
.
It was established that UCPB
had been issuing fire policies to
Masagana and these policies were
annually renewed. UCPB had been
granting Masagana a 60 to 90-day
credit term within which to pay the
premium on the renewed policies.
There was no valid notice of nonrenewal of the policies. The premium
were paid within the 60 to 90 day
credit term and duly accepted by
UCPB. It would be unjust and
inequitable if Masagana cannot
recover on the policies.
UCPB is
estopped from taking refuge under
Section 77 since Masagana had
relied in good faith on such practice.
AMERICAN HOME ASSURANCE
CO. VS. ANTONIO CHUA, JUNE
28, 1999
SC RULING:
SC
sustained/affirmed
the
decision of the RTC and CA because
there was a valid check payment by
Chua to the insurer. The renewal
certificate issued to Chua contained
the acknowledgment that premium
has been paid.

EXCEPTIONS TO SECTION 77:

VIRGINIA A. PEREZ vs. CA (G.R. No.

112329
January 28, 2000)

UCPB GENERAL INSURANCE CO., INC.

vs.MASAGANA TELAMART, INC. (G.R.
No. 137172 April 4, 2001)

Only when the applicant pays the

premium and receives and accepts
the policy while he is in good health
that the contract of insurance is
deemed to have been perfected.
-Insurance is a contract whereby, for a
stipulated
consideration,
one
party
undertakes to compensate the other for
loss on a specified subject by specified
perils.7 A contract, on the other hand, is a
meeting of the minds between two
persons whereby one binds himself, with
respect to the other to give something or
to render some service.8Under Article
1318 of the Civil Code,

1. In case of life or industrial life

insurance, when the grace periods
applies; (Sec. 77)
2. When the insurer makes a written
acknowledgment
of
the
receipt
premium; (Sec. 78)
3. Section 77 may not apply if the
parties have agreed to the payment
of the premium in installments and
partial payment has been made at
the time of the loss. (Makati Tuscany

When Primitivo filed an application for

insurance, paid P2,075.00 and submitted
the results of his medical examination, his
application was subject to the acceptance
of private respondent BF Lifeman
Insurance Corporation. The perfection of
the contract of insurance between the
deceased and respondent corporation
was further conditioned upon compliance
with the following requisites stated in the
application form:
there shall be no contract of
insurance unless and until a policy
is issued on this application and
that the said policy shall not take
effect until the premium has been
paid and the policy delivered to
and accepted by me/us in person
while I/We, am/are in good health.9
The assent of private respondent BF
Lifeman Insurance Corporation therefore
was not given when it merely received
the application form and all the requisite
supporting papers of the applicant. Its
assent was given when it issues a
corresponding policy to the applicant.
Under the abovementioned provision, it is
only when the applicant pays the
premium and receives and accepts the
policy while he is in good health that the
contract of insurance is deemed to have
been perfected.
In the case at bar, the following
conditions
were
imposed
by
the
respondent company for the perfection of
the contract of insurance:
(a) a policy must have been issued;
(b) the premiums paid; and
(c) the policy must have been
delivered to and accepted by the
applicant while he is in good
health.
The condition imposed by the corporation
that the policy must have been delivered
to and accepted by the applicant while he
is in good health can hardly be
considered as a potestative or facultative
condition. On the contrary, the health of
the applicant at the time of the delivery
of the policy is beyond the control or will
of the insurance company. Rather, the
condition is a suspensive one whereby
the acquisition of rights depends upon the
happening of an event which constitutes
the condition. In this case, the suspensive
condition was the policy must have been
delivered and accepted by the applicant
while he is in good health. There was nonfulfillment of the condition, however,
inasmuch as the applicant was already
dead at the time the policy was issued.
Hence, the non-fulfillment of the condition
resulted in the non-perfection of the
contract.

No contract of insurance, unless

unless the minds of the parties have
met in agreement.- A contract of
insurance, like all other contracts, must
be assented to by both parties, either in
person or through their agents and so
long as an application for insurance has
not been either accepted or rejected, it is
merely a proposal or an offer to make a
contract. The contract, to be binding from
the date of application, must have been a
completed contract, one that leaves
nothing to be done, nothing to be
completed, nothing to be passed upon, or
determined, before it shall take effect.
There can be no contract of insurance
unless the minds of the parties have met
in agreement.
Delay in acting on the application
not unreasonable so as to constitute
gross negligence for which the
insurance
corporation
may
be
penalized. - Respondent corporation
cannot
be
held
liable
for
gross
negligence. It should be noted that an
application is a mere offer which requires
the overt act of the insurer for it to ripen
into a contract. Delay in acting on the
application
does
not
constitute
acceptance even though the insured has
forwarded his first premium with his
application. The corporation may not be
penalized for the delay in the processing
of the application papers. Moreover, while
it may have taken some time for the
application papers to reach the main
office, in the case at bar, the same was
acted upon less than a week after it was
received. The processing of applications
by respondent corporation normally takes
two to three weeks, the longest being a
month.12 In this case, however, the
requisite
medical
examination
was
undergone by the deceased on November
1, 1987; the application papers were
forwarded to the head office on
November 27, 1987; and the policy was
issued on December 2, 1987. Under these
circumstances, we hold that the delay
could not be deemed unreasonable so as
to constitute gross negligence.
WHAT IS THE EFFECT OF PARTIAL
PAYMENT?
Ordinarily, the obligation to pay
premium when due is considered an
indivisible obligation. Hence, forfeiture
is not prevented by a part payment
unless, payment by installment has been
agreed upon or is the established practice
the basic principles of equity and
fairness would not allow the insurer to
collect and accept installments and later
deny liability as premiums were not paid
in full. (See Philippine Phoenix Surety and

Ins. vs. Woodworks 20 SCRA 1270,

Makati Tuscany Condominium
Corporation vs. CA, - payment by
installment was agreed upon, note also
Tibay vs. CA 257 SCRA 126 any partial
payment when there is an agreement
that the policy shall not be effective
pending payment of full premium was in
the concept of deposit.)
PAYMENT TO INSURANCE AGENT OR
BROKER is payment to the insurance
company;

(3)

When the contract is voidable

on
account
of
fraud
or
misrepresentation
of
the
insurer or the agent (Section
81);

(4)

Where the contract is voidable

on account of facts, the
existence of which the insured
was ignorant without his fault
(Section 81);

(5)

When by any default of the

insured other than actual fraud,
the insurer never incurred any
liability
under
the
policy;
(Section 81);

(6)

In case of over insurance. Here

the insurance is in excess of the
amount
of
the
insurable
interest of the insured and it is
insured by several insurers, the
insured
is
entitled
to
a
RATABLE
RETURN
OF
PREMIUM, proportional to the
amount by which the aggregate
sum insured in all the policies
exceeds the insurable value;

WILL PAYMENT BY PROMISORY NOTE

OR CHECK BE SUFFICIENT TO MAKE
THE POLICY BINDING?
No, art. 1249 2ND paragraph of the
Civil Code, that such produces payment
only when it is ENCASHED;
WHEN IS THE INSURED ENTITLED TO
A RETURN OF THE PREMIUMS PAID?
2000 BAR EXAM (IX a)
The insured is entitled to a return
when:
(1)

(2)

To the whole premium, when

no part of the interest in the
thing insured is exposed to any
of the perils insured against
(Section 79 A);
Where the insurance is made
for a definite period of time and
the insured surrenders his
policy before the expiration of
the period, here the insured
only recovers a portion of the
policy premiums corresponding
with the unexpired time but it
does not apply if:
(a)
the policy is not so
definite;
(b)
a
short
period
rate
(insurance is for a period
of less than a year and a
rate has been agreed to
if
the
policy
is
surrendered; Example:
If the policy is in force for
a month the insurer
retains
20%
of
the
premium)
has
been
agreed upon;
(c)
the policy is a life
insurance policy it is
indivisible but he has a
cash surrender value;

WHOM ARE THE PREMIUMS

RETURNED
Unless otherwise stated, they shall
be returned to the insured who paid
them;
WHEN ARE THEY NOT RECOVERABLE
Premiums cannot be recovered:
(1)

If the peril insured against has

existed, and the insurer has
been liable for any period, the
period
being
entire
and
indivisible (Section 80);

(2)

In life insurance (Section 79b) cash surrender value;

When the insured is guilty of
fraud
or
misrepresentation
(Section 81);

(3)

LOSS AND NOTICE OF LOSS

WHAT ARE THE RULES TO DETERMINE
WHETHER THE INSURER IS LIABLE FOR
THE LOSS OF THE THING INSURED?
1. Loss of which a peril insured is the
proximate cause. Although a peril
not contemplated by the contract
may have been a remote cause but

the insurer is not liable for a loss of

which the peril insured against was
only a remote cause. (Section 84)
Proximate cause- that which in natural
and continuous sequence, unbroken by
any efficient intervening cause, produces
an injury and without which the injury
would not have occurred)
Example: In life insurance that covers
death by accident, if the insured sustains
an accident that renders him weak, while
in said state, he contracts a cold that
develops into pneumonia. The proximate
cause is the accident, while the remote
cause is the pneumonia, the insurer is
liable;
2. Loss caused by efforts to rescue
the thing insured from a peril
insured
against
that
would
otherwise have caused a loss, if in
the course if such rescue, the thing
is exposed to peril not insured
against,
which
permanently
deprives
the
insured
of
its
possession in whole or in part, or
where a loss is caused by efforts to
rescue the thing insured from a
peril insured against (Section 85).
Here the principle of proximate
cause is extended to loss incurred
while saving the thing insured.
Examples: (a) When the
thing
insured
is
water
damaged due to efforts to
put out a fire, the fire being
a peril insured against
(b) Theft by 3RD persons
while the goods are brought
out in the course of rescuing
them from a fire, which is
the peril insured against BUT
no loss if the goods are left
out and are lost it is now
due to lack of reasonable
care and vigilance;
(C) A insures the contents of
his house against fire. A fire
breaks out, while removing
the contents, they were
stolen or they were broken
or
damaged,
theft
or
breakage not being perils
insured against;
3. Where
a
peril
is
especially
excepted in a contract of insurance
a loss, which would not have
occurred but for such peril, is
thereby excepted although the
immediate cause of the loss was a
peril which was not excepted
(Section 86). The immediate cause

is the CAUSE OR CONDITION

NEAREST THE TIME AND PLACE OF
THE INJURY. Here, the insurer will
be liable if both the immediate
cause and the proximate cause are
not excepted. If the proximate
cause
is
excepted
and
the
immediate cause is not, the insurer
is not liable.
4. An insurer is not liable for loss
caused by the willful act or through
the convenience of the insured; but
he is not exonerated by the
negligence of the insured, or of the
insureds agent or others (Section
87). Consequently, if the insured
was merely negligent, the insurer
is still liable as one of the principal
reasons of procuring insurance is to
protect
himself
against
the
consequences
of
his
own
negligence or that of his agents.
2007 BAR EXAM (IV)
Alfredo took out a policy to
insure
his commercial
building against fire. The broker for
the insurance company agreed to
give a 15-day credit within which to
pay the insurance premium. Upon
delivery of the policy on May 15,
2006, Alfredo issued a postdated
check payable on May 30, 2006. On
May 28, 2006, a fire broke out and
destroyed the building owned by
Alfredo.Reason briefly in (a), (b) and
(c).
a. May Alfredo recover on the
insurance
policy?
Yes, Alfredo can recover on the
insurance policy. Although Section 77 of
the Insurance Code provides that in fire
insurance, payment of premium is
necessary for validity of the policy (also
known as cash and carry provision),
nonetheless, the rule has been modified
by the decisions of the Supreme Court
after the promulgation of the Insurance
Code. Thus, in UCPB General Insurance v.
Masagana Telemart, G.R. No. 137172,
April 4, 2001, it was held that the insured
should be allowed to recover on losses
sustained even when premium was paid
after the fact of loss, provided payment
was received by the insurer during the
credit period given to the insured. (See
also South Sea Surety v. Court of Appeals,
G.R. No. 102253, June 2, 1995; American
Home Assurance v. Chua, G.R. No.
130421, June 28, 1999) where the
Supreme Court ruled that is the check
payment for premium was received by
the insurer prior to the loss or within the

credit period, the insured was allowed to

recover.
b. Would your answer in (a) be the
same if it was found that the
proximate cause of the fire was an
explosion and that fire was but the
immediate cause of loss and there is
no excepted peril under the policy?
Yes, recovering under an insurance
contract is allowed if the cause of the loss
was either the proximate or the
immediate cause as long as an expected
peril was not the proximate cause of the
loss. (Section 86, Insurance Code of the
Philippines.) The fire being the immediate
cause for the loss of the commercial
building, would warrant recovery under
the
policy.
c. If the fire was found to have been
caused by Alfredo's own negligence,
can he still recover on the policy?
Yes, he can still recover. The doctrine of
contributory negligence does not in any
way apply to rights under a contract of
insurance, unless it is a case of willful act.
(Section 87, Insurance Code of the
Philippines)
ADMISSION OF PRIVATE DOCUMENTS
AS EVIDENCE Before a private
document is admitted in evidence, it must
be authenticated either by the person
who executed it, the person before whom
its execution was acknowledged, any
person who was present and saw
executed, or who after its execution, saw
it and recognized the signatures, or the
person to whom the parties to the
instruments had previously confessed
execution thereof. (sec.20 Rule 132 ROC
as cited in Malayan Insurance Co., Inc. V.
Philippine Nails and Wires Corporation,
Apr.10, 2002 G.R. No. 138084)

ISSUANCE OF CLAIM FOR LOSS; FILING OF

CLAIM WITHIN THE PERIOD A CONDITION
PRECEDENT The issuance of claim for
loss or damages to cargo should be filed
within 24 hours from the time the goods
were received.
The filing of a claim with the carrier within
the time limitation therefore actually
constitutes a condition precedent to the
accrual of a right of action against a
carrier for loss of, or damage to, the
goods. The shipper or consignee must
allege and prove the fulfillment of the
condition. If it fails to do so, no right of
action against the carrier can accrue in
favor of the former. The aforementioned
requirement is a reasonable condition
precedent; it does not constitute a
limitation of action. (Philippine Charter

Insurance
Corp.
v.
Chemoil
Lighterage Corp., Jun. 29, 2005 G.R.
No. 136888)
RECOGNIZING
THAT
THERE
ARE
PROBLEMS IN DETERMINING PROXIMATE
CAUSE NOTE THE FOLLOWING RULES:
(a) If there is a single cause which is
an insured peril, clearly it is the
proximate cause and there is
liability;

(b) If there are concurrent causes

(those happening together) with no
excluded perils, there if liability if
one of the causes is an insured
peril, the others may be ignored;
(c) If there are concurrent causes with
an excepted peril (insured peril
operate together to produce the
loss) the claim will be outside the
scope of the policy;
(d) But if the results of the operation
of the insured peril can be clearly
separated from the effects of the
excepted peril, the insurer is liable;
(e) Where a number of causes operate
one from the other, the original
cause happens to be a peril, the
insurer is liable.
TRANSFER OF CLAIMS
An agreement not to transfer the
claim of the insured after the loss
happens is VOID if MADE BEFORE THE
LOSS except as otherwise provided in
case of life insurance (Section 33).
This means that the insured has
an absolute right to transfer his claim
against the insurer AFTER THE LOSS
occurs, what is prohibited is a transfer
prior to the loss.
This is so because such stipulation
after the loss occurs shall hinder the
transmission of property. Neither does it
affect the insurer as its liability is already
fixed and what is actually assigned is the
money claim, not the contract itself.
The exception in section 173 that
provides that the transfer of a fire
insurance policy to any person or
company who acts as an agent for or
otherwise
represents
the
issuing
company is prohibited and is void insofar
as it affects other creditors of the insured;

NOTICE AND PROOF OF LOSS

Notice of loss must be given
without unnecessary delay by the insured
or some person entitled to the benefit of
the insurance. IF NOT THEN, the insurer is
exonerated (Section 88).
WITHOUT UNNECESSARY DELAY
is within a reasonable time, depending on
circumstances of a peculiar case,
although courts have construed the
requirement liberally in favor of the
insured.
PROOF OF LOSS
If the policy requires Preliminary
Proof of Loss (evidence given the insurer
of the occurrence of the loss, its
particulars, and data necessary to enable
it to determine liability and the amount
thereof) IT IS NOT NECESSARY that the
insured give such proof AS MAY OR
WOULD BE NECESSARY IN A COURT OF
JUSTICE WHAT IS SUFFICIENT is the BEST
EVIDENCE which he has in his power at
that time (Section 89)

WHEN ARE DEFECTS IN THE NOTICE

OR PROOF LOSS DEEMED WAIVED
BY THE INSURER
1. When the insurer fails to specify to
the insured any defect which the
insured can remedy without delay;
2. When the insurer denies liability on
a ground other than that defect in
the notice or proof of loss;
Example: Denial is based on
nullity of the contract (Section 90)
WHEN IS DELAY IN THE GIVING OF
NOTICE WAIVED
1. If it is caused by any act of the
insurer.
2. If the insurer omits to make an
objection promptly and specifically
on that ground. despite delay, the
insurer does not object (Section
91);

REQUIREMENT OF CERTIFICATION OR
TESTIMONY OF A THIRD PERSON
In the giving of preliminary proof of
loss, a certification or testimony of a third
person other than the insured is required,
it is sufficient for the insured to use
REASONABLE DILIGENCE to procure it. In
case of REFUSAL to give it, the insured
can 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 ONCE SHOWN or
GIVEN the requirement may be dispensed
with (Section 92).
WHAT HAPPENS AFTER PAYMENT BY THE
INSURER SUBSEQUENT TO GIVING OF
NOTICE OF LOSS
In property insurance, after the insured
has received payment from the insurer of
the loss covered by the policy, the
insurance company is SUBROGATED to
the rights of the insured against the
wrongdoer or the person who has violated
the contract. The right of subrogation
accrues upon payment of the insurance
claim.
NOTE: Subrogation takes effect by
operation of law and does not require the
consent of the wrong doer (Firemans Fire
Insurance vs. Jamilla & Company, 70
SCRA 323).
THERE IS NO SUBROGATION IN:
(a) Life insurance as it is not a
contract of indemnity
(b) When proximate cause of the loss
is the insured himself
(c) When the insurer pays to the
insured a loss not covered by the
policy;
The insured is no longer to
collect from the wrongdoer if
the amount that he received
from the insurer has fully
compensated for the loss;
SUBROGATION (ART. 2207, NEW
CIVIL CODE)
PHILIPPINE AMERICAN GEN.
INSURANCE CO. VS. CA & FELMAN
SHIPPING LINES, JUNE 11,1997.
SC RULING:
It
ordered
Felman
to
pay
Phialamgen P 755, 250.00 plus interest
pursuant to Art. 2207 0f the Civil Code
which provides:

Art. 2207. If the plaintiffs property

has been insured, and he has
received
indemnity
from
the
insurance company for the injury or
loss arising out of the wrong or
breach of contract, the insurance
company shall be subrogated to the
right of the insured against the
wrongdoer or the person who
violated the contract.

Answer:
A.
Taking
out
insurance covering the same
property, same insurable interest
and same risk with three insurance
companies is double insurance
recognized under sec 93 of ICP.
However,
in
American
Home
Assurance Corp vs. Chua June 28,
1999, the court referred to the
common inclusion of the other
insurance clause in the fire
insurance
policies
requiring
disclosure of co-insurance of the
same property with other insurers.

DOUBLE INSURANCE
When does double insurance exist?
- Where the same person is
insured by several insurers
separately in respect to the
same
subject
or
interest
(Section 91).

Answer: B Insured can recover

from Eastern Inssurance Corp up to
the extent of his loss. However,
Eastern may refuse to pay if the
policy
contains
an

other
insurance clause stipulating that
non-disclosure of double insurance
will avoid the policy. ( Geagonia v.
Country Bankers Insurance )6
February, 1995. As there is no
indication
of
a
contractual
prohibition on double or other
insurance, all insurance contracts
over the building are deemed valid
and enforceable.

2005 BAR EXAM (N0. X 2 -b)

Q: What is the nature of the liability of the
several insurers in double insurance?
Explain. (2%)
A: In double insurance, the insurers
considered as co-insurers. Each one is
bound to contribute ratably to the loss in
proportion to the amount for which he is
liable under his contract. (Section 94(e),
Insurance Code.
REQUISITES OF DOUBLE INSURANCE
1. Same person is insured;
2. There are several insurers;
3. Subject insured is the same;
4. Interest insured is the same;
5. Risk of peril insured against
is the same;
There is prohibition TO PREVENT
OVER-INSURANCE,
thus
preventing fraud.

2008 BAR EXAM

Terrazas
de
Patio
Verde,
a
condominium building, has a value of P50
Million. The owner insured the building
against fire with three (3) insurance
companies
for
the
following
amounts:Northern
Insurance
Corp.
20M,Sounthern
Insurance
Corp.30M,
Eastern Insurance Corp.50M.
a. Is the owner's taking of
insurance for the building with
three (3) insurers valid? Discuss.
(3%)
b. The building was totally
razed by fire. If the owner decides
to claim from Eastern Insurance
Corp. only P50 Million, will the
claim prosper? Explain. (2%)

The law prohibits double or

over-recovery,
not
double
insurance. Since eastern insured
the property up 50% the total
coverage, it is liable for only 50%
of the total actual loss. Eastern
Insurance Corp, is liable to the
extent of its coverage but may
recover one half of the total
indemnity from the co-insurers in
the proportion of 60% ( Southern
Insurance)- 40 % ( northern
Insurance)
EFFECTS OF OVER-INSURANCE BY
DOUBLE INSURANCE
1. Insured,
unless
the
policy
otherwise provide, may claim
payment from the insurers in such
order as he may select up to the
amount for which the insurers are
severally
liable
under
their
respective contracts.
2. Where the policy under which the
insured claims is a valued policy,
the insured must give credit as
against the valuation for any sum
received by him under any policy
without regard to the actual value
of the subject matter insured.
3.

Where the policy under which the

insured claims is an unvalued
policy, he must give credit, as
against the full insurable value, for

any sum received by him under the

policy.
4. Where the insured receives any
sum in excess of the valuation in
case of a valued policy or the
insurable value in case of an
unvalued policy, he must hold such
sum in trust for the insurers,
according
to
their
right
of
contribution among them;
5. In relation paragraph (4) Each
insurer is bound, as between
himself and the other insurers to
contribute ratably to the loss in
proportion to the amount for which
it is liable under his contract. ALSO
REFERRED TO AS THE PRINCIPLE
OF CONTRIBUTION WHICH HAS
ALREADY BEEN INCOPORATED IN
ALMOST ALL POLICIES that should
there be other insurances covering
the same property, the liability of
the company would be limited to
its ratable proportion of the loss or
damage
(Also
known
as
CONTRIBUTION CLAUSE)
TEST TO DETERMINE EXISTENCE OF
DOUBLE INSURANCE
- Whether the insured, in case of
happening of the risk, can
directly benefited by recovering
on both policies? If yes there
is double insurance.
IS DOUBLE INSURANCE VALID?
- It
depends,
if
there
is
prohibition in the policy then it
is not valid, but if there is no
prohibition, it is valid provided it
must follow the provisions of
the law.
- If there is an OTHER INSURANCE
CLAUSE one that prevents
other insurance on the property
except without the consent of
the company THEN IT WILL
PREVENT ENFORCEMENT OF
THE POLICY, the policy will be
NULL and VOID. If there is no
OTHER INSURANCE CLAUSE,
then
double
insurance
is
allowed but the provisions of
Section 94 must be followed
because property insurance is a
contract of indemnity.
DISTINGUSHING OVER INSURANCE
FROM DOUBLE INSURACE
DOUBLE
INSURANCE

OVER
INSURANCE

- there must be
two or more
insurers;

- one insurer
sufficient;

is

- the
total
amount of the
policies
need
not exceed the
value of the
insurable
interest;

- the value must

always be in
excess of the
insurable
interest;

REINSURANCE
- occurs
when
an
insurer
procures a 3RD person to insure
him against loss or liability by
reason
of
such
original
insurance. (Section 95)
WHEN IS REINSURANCE
COMPULSORY?
1. When a non-life insurer insured in
any one risk or hazard an amount
exceeding 20% of its net worth, the
insurer needs reinsurance of the
excess over such limit (Section 215
(1))
2. When a foreign insurance company
withdraws from the Philippines, it
should cause its primary liabilities
under policies insuring residents of
the Philippines to be reinsured by
another company authorized to
transact an insurance business in
the Philippines;
DOUBLE INSURANCE VS. REINSURANCE
DOUBLE
REINSURANCE
INSURANCE
- the
insurer
- insurer
remains an insurer
becomes
the
insured
- subject matter is
property
- same interest and
risk is insured with
another

- the
subject
matter is the
insurers
risk
or liability
- different
interest
and
risk
are
insured

DIFFERENTIATE DOUBLE INSURANCE,

REINSURANCE
&
MUTUAL
INSURANCE (for further discussion)
NEW LIFE ENTERPRISES VS. CA , 207
SCRA 669 (1992)
SC RULING:

The terms of the contract are clear

and unambiguous. The insured is
specifically required to disclose to the
insurer any other insurance and its
particulars which he may have
effected on the same subject matter.
The parties must abide by the terms of
the contract because such terms
constitute the measure of the insurers
liability and compliance therewith is a
condition precedent to the insureds right
of recovery from the insurer.
WHAT MUST BE COMMUNICATED WHEN
THE ORIGINAL INSURER OBTAINS
REINSURANCE?
Except in automatic
reinsurance treaties (when two or
more insurance companies agree in
advance that they will reinsure a
part of any line of insurance taken by
the other. Since such contracts are
self-executing and the obligation
attaches automatically, the
information required to be
communicated herein could not
influence the reinsurer in deciding
whether or not to accept the
reinsurance because it is automatZ
representations of the original
insured;all information or knowledge
he possesses whether previously or
subsequently acquired, which are
material to the risk (Section 96);
WHAT KIND OF CONTRACT IS
REINSURANCE?
-

It is presumed to be a
contract of indemnity against
liability, and merely against
damage (Section 97).
As a RULE, the reinsurer is
not liable to the reinsured
for a loss under an original
policy if the reinsured is not
liable
to
the
original
policyholder.

Note: The subject of the reinsurance

contract is the insurers risk not the
property insured in the original
policy Thus, it is not necessary that
the insurer first pay on the claim on
the original policy before claiming
from the insurer;
WHAT IS THE EXTENT OF LIABILITY OF
THE REINSURER?
-

The liability of the reinsurer

is measured by the liability
of the reinsured to the
original
policy
holder

PROVIDED,
it
does
not
exceed
the
amount
of
reinsurance;
Example: A insures his house valued
at 1 million to X insurance for 1.5
Million. X insurance reinsured with Z
insurance for 1.2 million. The house
burns. The liability of Z insurance is
only up to 1 million, which is the
liability of X Insurance. What if the
original insured and insurance
company settles for less, the liability
of Z Insurance is still only up to what
is paid by X Insurance OTHERWISE,
the original insurer profits and thus
violates that the principle that is a
contract of indemnity.
WHAT IS THE INTEREST OF THE ORIGINAL
INSURED IN THE CONTRACT OF
REINSURANCE?
-

The original insured has no

interest in the contract of
reinsurance (section 98).
Hence only the reinsured
can
claim
against
the
reinsurer;

CLASSES OF INSURANCE
MARINE

INSURANCE

WHAT IS MARINE INSURANCE?

- Insurance
against
damage to:

loss

or

(a)
Vessels, craft, aircraft,
vehicles,
goods
freight,
cargoes, merchandise effects,
disbursements, profits, moneys,
securities,
loses
in
action,
evidences of debt, valuable
papers,
bottomry
or
respondentia interest and all
other kind of property and
interests therein, in respect to,
appertaining to or in connection
with any and all risks or perils
of
navigation,
transit
or
transportation or while being
assembled,
packed,
crated,
baled, compressed, or similarly
prepared for shipment or while
awaiting shipment or during
any
delays,
storage,

transshipment or reshipment
incident thereto,
(b) Person
or
property
in
connection with or appertaining
to marine, island marine, transit
or
transportation
insurance,
including liability for loss or in
connection
with
the
construction, repair, operation,
maintenance, use of the subject
matter of the insurance. (But
not including life insurance, or
surety bonds nor insurance
against loss by reason of bodily
injury to any person arising out
of the ownership, maintenance,
use of automobiles)
(c)
Precious
stones,
jewels, jewelry, precious metals
whether in the course of
transportation or otherwise;
(d) Bridges, tunnels or other
instrumentalities
of
transportation
and
communications
(excluding
buildings, their furniture and
furnishings, fixed contents,
and supplies held in storage),
piers, wharves, docks, slips,
and other aids to navigation
and transportation including
dry docks, marine railways,
dams
and
appurtenant
facilities for the control of
waterways;
AND Marine Protection and
Indemnity Insurance meaning
insurance against, or against
legal liability of the insured for
loss, damage or expense
incident to ownership,
operation, chartering,
maintenance, use, repair, or
construction of any vessel,
craft or instrumentality in use
in ocean or island waterways,
including liability of the
insured for personal injury,
illness or death or for loss or
damage to the property of
another person (section 99).
NOTE: That marine insurance is
really TRANSPORTATION INSURANCE
that is a kind of insurance that is
concerned with the perils of property
in (or incidental to) transit as
opposed to property perils at a
generally fixed location. But does not
include normal motor vehicle
insurance which is treated
separately by law;

INSURANCE POLICY [effect of failure to

present insurance policy] since the
Marine insurance policy was never
presented in evidence before the trial
court or the Court of Appeals even, there
is no legal basis to consider such
document in the resolution of this case, x
x x (Malayan Insurance Co. vs. Regis
Brokerage Corporation Nov. 23 2007 G.R.
No. 172156)
MARINE RISK NOTE IS NOT AN
INSURANCE POLICY Certainly it would
be obtuse for us to even to entertain the
idea that the insurance contract between
Malayan and ABB Koppel was actually
constituted by the Marine Risk Note
alone. (Malayan Insurance Co. vs. Regis
Brokerage Corporation Nov. 23 2007 G.R.
No. 172156)

WHAT ARE THE DIVISIONS OF

TRANSPORTATION INSURANCE?
1. Ocean
Marine
Insurance

pertaining primarily to sea

perils of ships and cargoes;
2. Inland
Marine
Insurance

pertaining primarily to land or

overland
(but
sometimes)
transportation
of
property
shipped by railroads, motor
trucks, airplanes, and other
means
of
transportation.
Includes four basic principles that
are:
(a)
Property in transit
providing
protection
to property frequently
exposed to loss while
in transport from one
place to another;
(b)
Bailee
liability

providing
protection
to persons who have
temporary custody of
goods
or
personal
property of others;
(c)
Fixed
transportation
property providing
protection
to
fixed
property
considered
aids to the movement
of
property,
like
bridges and tunnels,
and
(d)
Floater

providing
protection to personal
property
(such
as
precious
stones,
jewelry, works of art)
whenever it may be
located subject always

to territorial limits of
the contract and need
not necessarily be in
the
course
of
transportation.
NOTE: Marine Insurance may be in
form of property insurance,
indemnifying the insured for loss or
damage to property (Par.1, Section 99)
or liability insurance, protecting the
insured against the consequences of
legal liability for loss or damage to
property or for personal injury,
illness or death of a person (Par.2,
Section 99);
WHAT RISKS ARE INSURED AGAINST?
-

The
basic
risk
insured
against is commonly known
as PERILS OF THE SEA (all
kinds of marine casualties
and damages done to the
ship or goods at sea by the
violent action of the winds
or waves, one that could not
be foreseen and is not
attributable to the fault of
anybody.

WHAT ARE NOT COVERED?

Generally, perils of the ship
are not covered losses that
result from:
(a)
natural and inevitable
action of the sea;
(b)
ordinary wear and tear of
the ship;
(c)
negligent failure of the
ship owner to provide the
vessel with the proper
equipment to convey the
cargo
under
ordinary
conditions;
-

WHO MUST CHECK ON THE SEA

WORTHINESS OF A VESSEL?
-

Since there is an implied

warranty of seaworthiness,
it becomes the obligation of
the cargo owner or the
insured to look for a reliable
common
carrier,
which
keeps it vessels seaworthy.
The insured may have no
control on the vessel but
has full control in the choice
of common carrier;

2008 BAR EXAM (IX b)

Q: On October 30, 2007, M/V Pacific, a
Philippine registered vessel owned by
Cebu Shipping Company (CSC), sank on
her voyage from Hong Kong to Manila.
Empire Assurance Company (Empire) is
the insurer of the lost cargoes loaded on
board the vessel which were consigned to
Debenhams
Company.
After
it
indemnified Debenhams, Empire as
subrogee filed an action for damages
against CSC.
b) Assume that the vessel was not
seaworthy as in fact its hull had leaked,
causing flooding in the vessel. Will your
answer be the same? Explain. (2%)
A: When the vessel is not seaworthy, it is
an exception to the hypothecary principle
in maritime commerce.
To limit its
liability to the amount of the insurance
proceeds, the carrier has the burden of
proving that the unseaworthiness of its
vessel was not due to its fault or
negligence. The failure to discharge such
a heavy burden precludes application of
the limited liability rule and the carrier is
liable to the full extent of the claims of
the cargo owners (Aboitiz Shipping v. New
India Assurance Company, G.R. No.
156978, 02 May 2006).
2008 EXAM (IX c)
Q:c)
Assume the facts in
question (b). Can the heirs of the three
(3) crew members who perished recover
from CSC? Explain fully. (3%)
A: Yes, because the crew members died
while performing their assigned duties,
aggravated by the failure of the ship
owner to ensure that the vessel is
seaworthy.
Workmens compensation
has been classified by jurisprudence as
an exception to the hypothecary nature of
maritime commerce, Abueg v.San Diego,
77 Phil. 730 (1948), especially in this case
where the vessel was not seaworthy at
the time it sank.

WHAT PERILS ARE INSURED IN AN ALL

RISK POLICY
-

It is to be construed as
creating a special insurance
and extending to all risk
than
are
usually
contemplated and will cover
all losses except such that
may arise from intentional
fraud,
intentional
misconduct,
or
that
otherwise excluded. It may
include all losses whether

arising from a marine peril

or not to include pilferage
during
a
war
(Filipino
Merchant Insurance Co. vs. CA,
179 SCRA 638).

BOTTOMRY/RESPONDENTIA

is a loan payable only if the

vessel given as a security for
said loan arrives safely at port
from
contemplated
voyage
(bottomry) or a loan payable
only upon the safe arrival in
port of the goods given as a
security (respondentia).

this contracts are in the nature

of a mortgage as the owner
borrows money for the use,
equipment or repair of the
vessel for a definite term with
the ship as security with
maritime
or
extraordinary
interest on account of the risks
borne by the lender, it being
stipulated that if a ship be lost
during the voyage or within a
limited period, the lender also
loses his money (Note that the
lender has insurable interest
to the extent of loan);

DEFINITION OF TERMS
(a)

Barratry is willful act of

the master and crew in
pursuance
of
some
fraudulent
or
unlawful
purpose without the consent
of the owner and to the
prejudice of his interest.
Example: Burning of the ship
or unlawfully selling the
cargo;

(b)

Inchamaree Clause one

that covers any loss other
than a willful and fraudulent
act of the insured and
avoids putting upon the
insured
the
burden
of
establishing that a loss was
due to a peril within the
policys coverage, whether
arising from a marine peril
or not provided the risk is
not excluded;

WHAT CONSTITUTES INSURABLE

INTEREST IN OCEAN MARINE INSURANCE?
1. The owner of a vessel has
insurable interest in the
vessel
such
shall
continue even if the
vessel
has
been
chartered by one who
covenants to pay the
owner the value of the
vessel upon loss but in
case of loss, the owner is
liable only for the part of
the
loss
which
the
insured cannot recover
from
the
charterer.
(Section 100);
2. 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. (Section 101);

3. The owner of a vessel

also
has
insurable
interest
in
expected
freightage,
which
according to the ordinary
course of things he would
have earned but for the
intervention of a peril
insured against or other
peril
incident
to
the
voyage. (Section 102)
Freightage are the benefits derived
by the owner from:
(a)
(b)

chartering of a ship;
its employment for the
carriage of his own goods
or
those
of
others
(Section 102)

IT EXIST (a) In case of a charter party

when the ship has broken ground
on the intended voyage (b) if a price
is to be paid for the carriage of
goods, when they are actually on
board or there is contract to put
them on board AND the vessel and
goods are ready for specified voyage
(Section 104);
ARE THERE PERSONS/PARTIES OTHER
THAN THE OWNER WHO HAS INSURABLE
INTEREST? YES;

1. One who has an interest in

thing from which profits
expected
to
proceed,
insurable
interest
on
profits (Section 105);

the
are
has
the

Example: Owner of a cargo

transported on a vessel not only
has insurable interest on the
cargo but also on the expected
profits from a future sale;
2. The charterer of a ship has
insurable
interest
to
the
extent that he is liable to be
damnified by its loss (Section
106).

but ignorant thereof, secured

insurance lost or not lost, the
insurance will be void due to
concealment;
A party is also bound to communicate,
the information belief or expectation
of a 3rd person, in reference to a
material fact, is material. Note: under
section 35 such is not required to be
communicated in ordinary insurance
(section 108);
PRESUMPTION OF A PRIOR LOSS
-

Example: A charters Bs vessel on

condition that A would pay B in
case of loss the amount
300,000.00. A has insurable
interest to the extent of
300,000.00
CONCEALMENT IN MARINE INSURANCE

Insured in marine insurance

is
presumed
to
have
knowledge, at the time of
insuring,
or
prior,
if
information might possibly
reached him in the usual
mode of transportation and
the
usual
rate
of
communication
(section
109)

EFFECT OF CONCEALMENT
While concealment as a rule
entitles the injured party to
rescind, the rule must yield
to section 110 as it does
not vitiate the contract but
merely
exonerates
the
insurer from a loss resulting
from the risks concealed as
related to:
(a)
the national character of
the insured;
(b)
the liability of the thing
insured to capture and
detention;
(c)
the liability to seizure
from breach of laws of
foreign laws of trade;
(d)
the want of necessary
documents ;
(e)
the use of false/simulated
documents
-

A
party
is
bound
to
communicate, in addition to
what is required by section
28
(facts
within
his
knowledge, material to the
contract, other party has
not
the
means
of
ascertaining, as to which
party
with
a
duty
to
communicate
makes
no
warranty) information that he
possesses, that are material
to the risk AND, to state the
EXACT and WHOLE TRUTH in
relation to all matters that he
represents, or upon inquiry
discloses or assumes to
disclose EXCEPT those that
the insurer knows or those
in the exercise of ordinary
care, the other ought to
know, and which the former
has no reason to suppose
him to be ignorant under
Section 30 (Section 107);

NOTE: That the rules on concealment

in marine insurance are stricter as it
is sufficient that the insured is in
POSSESSION OF THE MATERIAL FACT,
ALTHOUGH HE IS UNAWARE OF IT.
Example: If an agent fails to
notify principal of the loss of the
cargo and the latter, after the loss

Example: The vessel is seized

due to lack of documents, the
insurer is exonerated. If the
vessel is lost due to storm, the
insurer is liable despite
concealment due to lack of;
DISTINGUISHING ORDINARY
CONCEALMENT FROM THAT IN MARINE
INSURANCE
Ordinary Insurance
- Opinion

or

Marine Insurance
-

Belief

or

belief of a 3RD
person
or
own
judgment
of
the insured is
not material
and need not
be
communicate
d
(section
35);

expectation
of 3RD person
in reference
to a material
fact
is
material and
has
to
be
communicate
d;

The
concealment
of any of the
matters
stated
in
section
110
merely
exonerates
the
insurer
from loss, if
the
results
from the fact
concealed;
REPRESENTATION IN MARINE INSURANCE
- A
causal
connection
between the
fact
concealed
and cause of
loss
is
not
necessary for
the insurer to
rescind;

If the representation 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 (Section 111).
But the eventual falsity of a
representation as to an
expectation does not in the
absence of fraud avoid the
contract (section 112).

Example: statement as to time

of sailing, nature of the cargo
or amount of profits;
WHAT ARE THE IMPLIED WARRANTIES IN
MARINE INSURANCE?

Example: The voyage will

pass thru rivers then seas
the warranty is not
complied with if at the time
it goes out to sea it is not
seaworthy to encounter the
perils of the sea;

2000 BAR EXAM (IX b)

1. In every contract of marine
insurance upon a ship or freight,
freightage or upon anything which
is
the
subject
of
marine
insurance, there is an implied
warranty that the ship is sea
worthy (section 113);

A ship is sea worthy when it is

reasonably fit to perform
the service and encounter
the ordinary perils of the
voyage, contemplated by
the parties (section 114).

Note that it is relative and is

made to depend on the
circumstances.
The
implied
warranty
of
seaworthiness complied with as
a general rule when it is
seaworthy at the time of the
commencement of the risk
except:
(a)
when the insurance is
made for a specified
length of time, it must
be seaworthy at the
commencement
of
every
voyage
it
undertakes
at
that
time;
(b)
when the insurance is
upon cargo, which by
the terms of the policy
description
of
the
voyage, or established
custom of trade, it is
required
to
be
transshipped
at
an
immediate
port
in
which case each
vessel upon which the
cargo is shipped or
transshipped must be
seaworthy
at
the
commencement
of
each particular voyage
(section 115);
(c)
where
different
portions of the voyage
contemplated in the
policy differ in respect
to the things requisite
to
make
the
ship
seaworthy,
I
which
case
it
must
be
seaworthy
at
the
commencement
of
each portion (section
117);

TO WHAT DOES THE WARRANTY OF

SEAWORTHINESS EXTEND TO:

The
warranty
of
seaworthiness extends not
only to the condition of the
structure of the ship, but it
requires that:

(a)
(b)

(c)

it be properly laden or
loaded with cargo;
is
provided
with
a
competent
master,
sufficient
number
of
officers and seamen;
it must have the requisite
equipment
and
appurtenances
like
ballast, cables, anchors,
cordage,
sails,
food,
water, fuel, lights and
other
necessary
and
proper
stores
and
implements
for
the
voyage (section 116);
Note that when a ship becomes
unseaworthy during the voyage
it will not avoid the policy
as long as there is no
unreasonable delay in repairing
the defect. Otherwise the
insurer is exonerated on the
ship or the ship owners
interest from any liability
from
any
loss
arising
therefrom
(section
118).
Hence, if loss is not one due
to the defect or peril was
not increased by the defect
insurer is liable;
Also, while a ship may be
seaworthy for purposes of
insurance on it, it may by
reason of being unfitted to
receive
cargo,
be
unseaworthy
for
the
purpose of insurance on the
cargo (section 119).

Example: A cargo of wheat was

laden on a ship which had a
port hole insecurely fastened
at the time of lading. The port
hole was foot above the water
line, and in the course of the
voyage, water entered the
cargo area and damaged the
wheat. The ship was deemed
unworthy with reference to the
cargo, hence the insurer of the
cargo was not liable (Steel vs.
Stateline Steamship, cited Go Tiaco
vs. Union Society of Canton, 40 Phil
40);
2. It shall carry the requisite
documents
to
show
its
nationality or neutrality and
that it shall not carry any
document
that
will
cast
reasonable suspicion on the

vessel
(section
120).
This
warranty
arises
only
when
nationality or the neutrality of the
vessel or cargo is expressly
warranted;
3. That the vessel shall not make
any improper deviation from
the intended voyage;
HOW IS THE INTENDED VOYAGE
DETERMINED
(a)

When its is described by

places of beginning and ending,
the voyage is the course of
sailing fixed by mercantile
usage between those places
(section 121);
When its is not fixed by mere
usage, the voyage is the way
between
the
places
specified which to a master
of
ordinary
will
and
discretion would seem the
most natural, direct and
advantageous (section 122);

(b)

WHAT IS DEVIATION
is a departure from the
course of the voyage as
defined by section 121 and
122 or an unreasonable
delay
in
pursuing
the
voyage
or
the
commencement
of
an
entirely different voyage
(section 123);
WHEN IS DEVIATION PROPER
-

(a)

When
it
is
caused
by
circumstances over which
neither the master nor the
owner of the ship has any
control;
Example: An ailment strikes
the crew of the vessel;

(b)

When necessary to comply

with warranty, or to avoid a
peril, whether or not the
peril is insured against;
Example: When repairs are
necessary or to avoid
getting caught in a conflict;

(c)

When made in good faith,

for the purpose of saving
human
life
or
relieving
another vessel in distress;
Example: When assistance is
given

2005 BAR EXAM (N0. XIV -1- b)

insured subsequent to an
improper deviation (section
126). This applies whether
the risk has been increased
or diminished.

Q: Under what circumstances can a

vessel properly proceed to a port other
than its port of destination? Explain. (4%)
A: A vessel can properly proceed to a
port other than its port of destination in
the following cases:
1. When
caused
by
circumstances over which neither
the master or the owner of the ship
has any control;
2. When necessary to comply
with a warranty, or to avoid a peril,
whether or not the peril is insured
against;
3. When made in good faith,
and upon reasonable grounds of
belief In the necessity to avoid
peril;
4. When made in good faith for
the purpose of saving human life or
relieving another vessel in distress.
(Section 124, Insurance Code)
*** ANY DEVIATION THAT IS NOT
INCLUDED IS NOT PROPER (SECTION 124
AND 125)

2005 BAR EXAM (N0. XIV -1 - a)

Q: On a clear weather, M/V Sundo,
carrying insured cargo, left the port of
Manila bound for Cebu. While at sea, the
vessel encountered a strong typhoon
forcing the captain to steer the vessel to
the nearest island where it stayed for
seven days. The vessel ran out of
provisions
for
its
passengers.
Consequently, the vessel proceeded to
Leyte to replenish its supplies.
a) Assuming that the cargo was
damaged
because
of
such
deviation,
who
between
the
insurance company and the owner
of the cargo bears the loss?
Explain.
A:
The Insurance company
should bear the loss. Since the
deviation was cured by a strong
typhoon,
it
was
caused
by
circumstances beyond the control
of the captain, and also to avoid a
peril whether or not insured
against. Deviation is therefore
proper. (Section 145(a), Insurance
Code)
CONSEQUENCE OF IMPROPER DEVIATION

Insurer is not liable for any

loss happening to the thing

4. That the vessel does not or will

not engage in any illegal
venture;
LOSS IN MARINE INSURANCE
-

Losses in marine insurance

may be partial or total
(section 127). A loss that is
not total is partial (section
128);

BURDEN OF PROOF AS TO LOSS OR

DAMAGE The burden of proof
contemplated by the aforesaid provision
actually refers to the burden of
evidence (Burden of going forward). As
applied in this case it refers to the duty of
the insured to show that the loss or
damage is covered by the policy. The
foregoing clause notwithstanding, the
burden of proof still rests upon petitioner
to prove that the damage or loss was
caused by an excepted risk in order to
escape any liability under the contract.
(DBP Pool of Accredited Insurance
Companies v. Radio Mindanao Network,
Inc. Jan. 27, 2006, G.R. No. 147039)
KINDS OF TOTAL LOSSES
-

a total loss may be actual or

constructive (section 129)

(1) If it is an Actual Total Loss it

may be caused by:
a. total destruction of
the thing insured;
b. the irretrievable loss
of the thing which
renders it valueless to
the owner for the
purpose that he held
it;
c. any other event which
effectively
deprives
the owner of the
possession at the port
of destination of the
thing insured (section
130)
Example: When palay was
rendered valueless
because they began to
germinate, thus it no
longer remains as the
same thing, it was an

actual total loss. (Pan

Malayan vs. CA 201 SCRA
382)

An actual total loss can also be

presumed from the continued
absence of the ship without
being heard of (section
132). The length of time
which is sufficient to raise
these presumption depends
on the circumstances of the
case;

If the vessel be prevented, at an

immediate
port,
from
completing the voyage, by the
perils insured against, the
liability
of
the
marine
insurer
on
the
cargo
continues after they are
reshipped (section 133) and
the
liability
extends
to
damages,
expenses
of
discharging,
storage,
shipment, extra freightage
and
all
other
expenses
incurred in saving the cargo
reshipped up to the amount
insured nothing shall render
the insurer liable for an amount
in excess of the insured value or
if none, of the insurable value
(section 134);

Upon actual total loss, the

insured
is
entitled
to
payment without notice of
abandonment (section 135)
and if the insurance is
confined to an actual loss it
will not cover a constructive
loss, but will cover any loss,
which necessarily results in
depriving the insured of
possession, at the port of
destination of the entire
thing insured (section 137);

(2) It is a constructive total loss

when the person insured is
given a right to abandon
under section 139 (section
131);
ORIENTAL ASSURANCE CORP., VS.
CA AND PANAMA SAWMILL CO., INC.
200 SCRA 459 (1991)
SC RULING:
The policy in question shows
that the subject matter insured was
the entire shipment of apitong logs.
The fact that the logs were loaded on

two different barges

did
not
make the contract several and
divisible as to the terms insured.
The logs on the two barges were not
separately valued or separately
valued or separately insured. Only
one premium was paid for the entire
shipment, making only one cause or
consideration.
The insurance contract should
be considered indivisible. Under the
Insurance Code, a total loss may
either be an actual loss or a
constructive
total
loss.
The
appellate court treated the loss
suffered
by
Panama
as
a
constructive total loss, and for the
purpose of computing the more than
three-fourths value of the logs
actually lost, considered the cargo in
one barge as separate from the logs
in the other. The logs having been
insured as one inseparable unit, the
correct basis for determining the
existence of constructive total loss is
the totality of the shipment of logs.
Of the entirety of 1,208 pieces of
logs, only 497 pieces thereof were
lost or 41.45% of the
entire
shipment. Since the cost of those
497 pieces does not exceed 75% of
the value of all 1,208 pieces of logs,
the shipment cannot be said to have
sustained a constructive total loss
under
Section
139(a)
of
the
Insurance Code. In the absence of
either actual or constructive
total loss, there can be no recovery
by Panama against
Oriental
Assurance.
2005 BAR EXAM (N0. X -1- a)
Q: M/V Pearly Shells, a passenger and
cargo
vessel,
was
insured
for
P40,000,000.00 against constructive
total loss. Due to a typhoon, it sank near
Palawan.
Luckily,
there
were
no
casualties, only injured passengers. The
shipowner sent a notice of abandonment
of his interest over the vessel to the
insurance company which then hired
professionals to afloat the vessel for
P900,000.00. When re-floated, the vessel
needed
repairs
estimated
at
P2,000,000.00. The insurance company
refused to pay the claim of the
shipowner, stating that there was no
constructive total loss.
a) Was there constructive total loss to
entitle the shipowner to recover from the
insurance company? Explain.
A:
There was constructive total loss.
When the vessel sank, it was likely that it
would be totally lost because of the
improbability of recovery. (Arnolds Law

of Marine Insurance and Average, 16 th

ed., Vol. II, pp. 954-955)
Suggested Alternative Answer:
There was no constructive total loss.
The loss is not more than the value of
the vessel which was insured for
P40,000,000.00. The cost of refloating is
P900,000.00 and the needed repairs
amount P2,000,000.00, or a total of only
P2,900,000.00 which does not constitute
more than the value of the vessel.
THE DOCTRINE OF LIMITED LIABILITY
[when not applicable] The doctrine of
limited liability under Article 587 of the
Code of Commerce is not applicable to
the present case. This rule does not apply
to situations in which the loss or the
injury is due to the concurrent negligence
of the ship owner and the captain. It has
already been established that the sinking
of the M/V Central Bohol had been caused
by the fault or negligence of the Ship
Captain and the crew, as shown by the
improper stowage of the cargo logs.
Closer supervision on the part of the ship
owner could have prevented this fatal
miscalculation. As such, the ship owner
was equally negligent. It cannot escape
liability by virtue of the limited liability
rule. (Central Shipping Company, Inc. v.
Insurance Company of North America,
Sept. 20, 2004, G.R. No. 150751)
ABANDONMENT is the act of the
insured by which, after a constructive
total loss, he desires to the insurer
the relinquishment in its favor his
interest in the thing insured (section
138);
A person insured by a contract of
marine insurance may abandon the
thing insured, or any particular
portion thereof separately valued by
the policy, or otherwise separately
insured and recover a total loss when
the cause of loss is a peril insured against
if:
1 .more than thereof in value
is actually lost or would have to be
expended to recover it form the peril
insured against;
2 .if it is injured to such extent
as to reduce its value by more than
of value;
3 .if the thing injured is a ship
and contemplated voyage cannot
lawfully be performed without
incurring either an expense to the
insured of more than the value of

the thing abandoned or a risk which

a prudent man would not take under
the circumstances;
4 .if the insured is freightage or
cargo and the voyage cannot be
performed nor another ship cannot
be procured by the master within a
reasonable time with reasonable diligence
to forward the cargo without
incurring the like expense or risk
mentioned in item (c) but, freightage
cannot be abandoned unless the ship
is abandoned (section 139);
Abandonment must neither be
partial nor conditional (section 140).
Hence, it must be total and absolute;
Abandonment must be made
within a reasonable time after
receipt of reliable information of the
loss but, where the information is of
doubtful character, the insured is
entitled to a reasonable time to
make an inquiry (section 141). This is
to enable the insurer to take steps to
preserve the property;

If the information proves

incorrect or thing insured is
restored
when
the
abandonment
was
made
that there was then in fact
no
total
loss

the
abandonment
becomes
ineffectual (section 142);

HOW NOTICE OF ABANDONMENT IS MADE

-

By giving notice, oral or

written notice to the insurer
but if orally given, a written
notice of such must be
submitted within seven days
from
giving
oral
notice
(section 143). The notice
must be explicit and specify
the particular cause of the
abandonment but need start
only enough to show that
there
is
probable
cause
therefore and need not be
accompanied by proof of
interest or of loss (section
144). The requirement as
the
explicitness
of
the
notice is due to the fact that
abandonment can only be
sustained upon the cause
specified
in
the
notice
(section 145);

acceptance and upon its

being made unless the ground
upon which is made proves to
be unfounded (section 152).
Thus, if the insurer accepts
the abandonment, it cannot
raise any question as to
insufficiency of the form
under section 143, time for
giving notice under section
141, or right to abandon
under 139. The only exception
the is under section 152 when
the ground is unfounded
which is defined in section
142 and/or as related to
section 145;

2005 BAR EXAM (N0. X - 1- b)

Q: b) Was it proper for the shipowner to
send a notice of abandonment to the
insurance company? Explain. (5%)
A: It was proper for the shipowner to
send a notice of abandonment to the
insurance company, because there was
reliable information of the loss of the
vessel.(Section 141, Insurance Code)
EFFECTS OF ABANDONMENT
(1)

(2)

It is equivalent to a transfer
by the insured of his
interest to the insurer, with
all the chances of recovery
and indemnity (section 146)
Note though, if the insurer
pays for a loss as if it were
an actual total loss, he is
entitled to whatever may
remain of the thing insured,
or its proceeds or salvage
as if there has been a
formal abandonment. Here
the insurer has opted to pay for
total
actual
loss
notwithstanding
the
absence
on
actual
abandonment;
Acts done in good faith by
those who were agents of
the insured in respect to
the thing insured subsequent
to the loss are at the risk of
the insurer and for his
benefit (section 148). The
agents of the insured become
agents of the insurer. This
retroacts to the date of the
loss when abandonment is
effectively made;

EFFECTIVITY OF ABANDONMENT
(1)

Abandonment
becomes
effective
upon
the
acceptance of the insurer.
Acceptance may either be
express or implied from the
conduct of the insurer. The
mere silence of the insurer for
an unreasonable length of time
after notice shall be construed
acceptance
(section
150).
Once accepted, it is conclusive
between the parties. The loss
is admitted together with the
sufficiency
of
the
abandonment (section 151). It
is
also
irrevocable
upon

(2)

No
abandonment
of
freightage unless ship is
also abandoned;
On an accepted abandonment
involving a ship, freightage
earned previous to the loss
belongs to the insurer of the
freightage, that subsequently
earned belongs to the insurer
of the ship (section 153).
Example: The contemplated
voyage of the transport of
cargo is from point X to point
Y. In between, a loss occurs
and the ship is abandoned.
The freightage already
earned from point X until the
point of loss, belongs to the
insurer of the freightage. If
the ship is subsequently
repaired, and continues on to
point Y the freightage due
belongs to the insurer of the
ship;

(3)

If abandonment is not accepted

despite
its
validity,
the
insurer is liable upon an
actual total loss, deducting
from
the
amount
any
proceeds of the thing insured
that may have come to the
hands of the thing insured
(section 154). This is due the
fact that under section 149,
which provides that if notice
is properly given, it does not
prejudice the insured, if the
insurer refuses to accept the
abandonment;

IF ABANDONMENT IS NOT MADE OR

OMMITTED

The fact that abandonment

is not made or is omitted
does
not
prejudice
the
insured
as
he
may
nevertheless
recover
his
actual loss (section 155);

LIABILITY FOR AVERAGES

AVERAGE DEFINED is any
extraordinary or accidental expense
incurred during the voyage for the
preservation of the vessel, cargo, or
both and all damages to the vessel or
cargo from the time it is loaded and
the voyage commenced until it ends
and the cargo is unloaded;
KINDS OF AVERAGES
(a)

Particular or simple average is

a
damage
or
expense
caused to the vessel, cargo,
or which has not inured to the
common benefit and profit of
all persons interested in the
cargo or the vessel. This
damage or expense is borne
ordinarily by the owner of
the vessel or cargo that
gives rise to the expenses or
suffered the damage;
Example: Damage sustained
by a cargo from the time it
is loaded to the time it is
unloaded or additional
expenses that are incurred
by the vessel from the time
it puts out to the sea until it
reaches its destination

(b)

General or gross average is an

expense or damage suffered
deliberately in order to save
the vessel or its cargo or
both from real and known risk.
Thus, all persons having an
interest in the vessel and
cargo
or
both
at
the
occurrence of the average
shall contribute.
Example: Jettisoning of
cargo;

As a rule when it has been agreed that an

insurance upon a particular thing or class
of things shall be free from particular
average, a marine insurer is not liable
for a particular average loss not

depriving the insured of the possession,

at the port of destination, of the whole
such thing, or class of things, even
though it becomes entirely
worthless, but such insurer is liable
for his proportion of all general
average loss assessed upon the
thing insured (section 136);
2009 BAR EXAM (VII)
Global Transport Services, Inc. (GTSI)
operates a fleet of cargo vessels plying
interisland routes. One of its vessels, MV
Dona Juana, left the port of Manila for
Cebu laden with, among other goods,
10,000 television sets consigned to
Romualdo, a TV retailer in Cebu.
When the vessel was about ten
nautical miles away from Manila, the ship
captain heard on the radio that a typhoon
which, as announced by PAG-ASA, was on
its way out of the country, had suddenly
veered back into Philippine territory. The
captain realized that MV Dona Juana
would traverse the storms path, but
decided to proceed with the voyage. True
enough, the vessel sailed into the storm.
The captain ordered the jettison of the
10,000 television sets, along with some
other cargo, in order to lighten the vessel
and make it easier to steer the vessel out
of the path of the typhoon. Eventually,
the vessel, with its crew intact, arrived
safely in Cebu.
a. Will you characterize the
jettison of Romualdos TV sets as
an average? If so, what kind of an
average, and why? If not, why not?
(3%)
b. Against
whom
does
Romualdo have a cause of action
for indemnity of his lost TV sets?
Explain. (3%)
IN CASE OF GENERAL AVERAGE LOSS
-

The insurer is liable for the

loss
falling
upon
the
insured,
though
a
contribution in respect to
the thing insured when
required to be made by him
towards a general average
loss called for a peril
insured against but liability
is limited to the proportion
of
the
contribution
attaching to his policy value
where this is less than the
contributing value of the
thing insured (section 164).
Meaning that the insured can
hold his insurer liable for
contribution up to the value of
the policy;

RIGHT OF SUBROGATION
-

(a)

When a person injured in a

contract of marine insurance
has a demand against the
others for contribution, he
may claim the whole loss from
his insurer subrogating the
insurer to his own right to
contribution but no such
claim can be made upon the
insurer if:
there is separation of the
interest
liable
to
contribution;
Example: When the cargo
liable for contribution has
been removed from the
vessel

(b)

when the insured having

the right and opportunity
to enforce contribution
from others, has neglected
or waived the exercise of
the right (section 165).
Meaning that the insured
has a choice of recovery
on the happening of a
general average loss. They
are:
(1)Enforcing
the
contribution
against
interested
parties; or
(2)Claiming
from
the insurer. If it
be the latter,
subrogation
takes place;

SUBROGEE x x x right to recovery

derives from the contractual subrogation
as
an
incident
to
an
insurance
relationship and not from any proximate
injury to it inflicted by the respondents x
x x (Malayan Insurance Co. vs. Regis
Brokerage Corporation Nov. 23 2007 G.R.
No. 172156)
SUBROGATION [meaning] Subrogation is
the substitution of one person in the
place of another with reference to a
lawful claim or right, so that he who is
substituted succeeds to the rights of the
other in relation to a debt or claim,
including its remedies or securities. The
principle covers the situation under which
an insurer that has paid loss under an
insurance policy is entitled to all the

rights and remedies belonging to the

insured against a third party with respect
to any loss covered by the policy. It
contemplates full substitution such that it
places the party subrogated in the shoes
of the creditor, and he may use all means
which the creditor could employ to
enforce payment. (Lorenzo Shipping Corp.
v. Chubb and Sons, Inc. Et Al. Jun 8, 2004
G.R. No. 147724)
SUBROGEE The rights to which the
subrogee succeeds the same as, but not
greater than, those of the person for
whom he is substituted he cannot
acquire any claim, security, or remedy
the subrogor did not have. In other words,
a subrogee cannot succeed to a right not
possessed by the subrogor. A subrogee in
effect steps into the shoes of the insured
and can recover only if insured likewise
could have recovered.
However
when
the
insurer
succeeds to the rights of the insured, he
does so only in relation to the debt. The
person substituted (the insurer) will
succeed to all the rights of the
creditor(the insured), having reference to
the debt due the latter. (Lorenzo Shipping
Corp. v. Chubb and Sons, Inc. Et Al. Jun 8,
2004 G.R. No. 147724)
DELSAN TRANSPORT LINES, INC.
vs.
CA
and
AMERICAN
HOME
ASSURANCE CORPORATION (G.R. No.
127897 November 15, 2001)
Common Carriers; Failure to deliver
cargo;
Payment
by
insurance
company of insurable value of the
goods;
Insurance
company
subrogated to the rights of the
assured against the common carrier.
-The payment made by the private
respondent for the insured value of the
lost cargo operates as waiver of its
(private respondent) right to enforce the
term of the implied warranty against
Caltex under the marine insurance policy.
However, the same cannot be validly
interpreted as an automatic admission of
the vessels seaworthiness by the private
respondent as to foreclose recourse
against the petitioner for any liability
under its contractual obligation as a
common carrier. The fact of payment
grants
the
private
respondent
subrogatory right which enables it to
exercise legal remedies that would
otherwise be available to Caltex as owner
of the lost cargo against the petitioner
common carrier.8 Article 2207 of the New
civil Code provides that:
Art. 2207. If the plaintiffs property
has been insured, and he has

received
indemnity
from
the
insurance company for the injury or
loss arising out of the wrong or
breach of contract complained of,
the insurance company shall be
subrogated to the rights of the
insured against the wrongdoer or
the person who has violated the
contract. If the amount paid by the
insurance company does not fully
cover the injury or loss, the
aggrieved party shall be entitled to
recover the deficiency from the
person causing the loss or injury.

effect is that the insured is deemed a

co-insurer if the value of the
insurance is less than the value of
the property. This applies even in
the absence of a stipulation in the
contract and is also known as the
average clause.
I
The two requisites
for the application of
the average clause:
(1)
(2)

Presentation of marine insurance

policy not necessary for insurance
company to go after the vesselowner.- The presentation in evidence of
the marine insurance policy is not
indispensable in this case before the
insurer may recover from the common
carrier the insured value of the lost cargo
in the exercise of its subrogatory right.
The subrogation receipt, by itself, is
sufficient to establish not only the
relationship of herein private respondent
as insurer and Caltex, as the assured
shipper of the lost cargo of industrial fuel
oil, but also the amount paid to settle the
insurance claim. The right of subrogation
accrues simply upon payment by the
insurance company of the insurance
claim.
MEASURE OF INDEMNITY IN MARINE
INSURANCE

insurance is for less

than actual value;
the loss is partial

Note: That co-insurance exist in

Marine Insurance: In Fire
Insurance, there is no coinsurance unless expressly
stipulated (sections 171-172). In
life insurance, there is none also
as value is fixed in the policy
(section 183)
4.In case profits are separately
insured in a contract of marine
insurance (see section 105) , the
insured can recover in case of a loss
(and under section 160, there is a
conclusive presumption of a loss
from the loss of the property out of
which they were expected to arise,
and the valuation fixes their
amount), a proportion of such profits
equivalent to proportion of the value
of the property lost bears to the
value of the whole (section 158).

IF THE POLICY IS VALUED;

1.A valuation in the policy of
marine insurance is exclusive
between the parties thereto in the
adjustment of either a partial or total
loss, if the insured has some interest
at risk and there is no fraud on his
part. If there is fraud in valuation, it
entitles the insurer to rescind as it is
an exception as to conclusiveness
(Section 156);
2.If however, hyphotecated by
the bottomry or respondentia
before insurance and without
knowledge of the person securing it
he may show the real value:
3.An insurer is liable upon a
partial loss only for such proportion
of the amount insured by him as
the loss bears to the whole interest
of the insured (section 157). The

(1)

IF

THE

POLICY IS OPEN
(a) The value of the ship is the
value at the beginning of
the
risk,
including
all
articles or charges which
add to its permanent value
or which are necessary to
prepare it for the voyage
insured;
(b) The value of the cargo is its
actual cost to the insured,
when laden on board where
the
cost
cannot
be
ascertained,
its
Market
Value at the time and place
of
lading.
Adding
the
charges
incurred
in
purchasing and placing it on
board

but
without
reference
to
any
loss
incurred in raising money

for its purchase or any

DRAWBACK
on
its
EXPROPRIATION
or
FLUCTUATION of the market
at the port of destination or
expenses incurred on the
way or on arrival;
Drawback government
allowance upon duties on
imported merchandise when the
importer re-exports instead of
selling it;
(c)

Value of freightage is the

gross freightage, exclusive or
primage without reference to
the cost of earning it;

Primage compensation paid by

the shipper to the master of the
vessel for his care and trouble
bestowed on the goods of the
shipper, which he retains in the
absence of a contrary stipulation
with the owner of the vessel;
(d) The cost of insurance is in
each case to be added to
the value thus estimated
(section 161);
IF THE CARGO INSURED AGAINST
PARTIAL LOSS
If it 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
(section 162). Meaning if
reduction in value is 1/5, then
amount of recovery on the
insurance is also 1/5.
The formula is:

FIRE INSURANCE
COVERAGE IN FIRE INSURANCE
Insurance against fire includes
loss or damage due to lightning,
windstorm, tornado, earthquake or other
allied risks when such risks are
covered by extensions to the fire
insurance policy or under separate
policies (section 167). Hence, while it
is not limited to loss or damage due
to fire, coverage as to other risks is
not automatic;
2001 BAR EXAM (N0.XVII)
Q: JQ, owner of the condominium
unit, insured the same against fire with
XYZ Insurance Corp. and made the loss
payable to his brother. MLQ. In case of
loss by fire of the said condominium unit,
who may recover on the fire insurance
policy? State the reasons for your
answer?
A: JQ can recover on the fire
insurance policy for the loss of the said
condominium unit. He has the insurable
interest as owner-insured. As beneficiary
in the fire insurance policy, MLQ cannot
recover on the fire insurance policy. For
the beneficiary to recover on the fire or
property insurance policy, it is required
that he must have insurable interest in
the property insured. In this case, MLQ
does not have insurable interest in the
condominium unit.
FIRE DEFINED
In insurance, it is defined as
the active principle of burning,
characterized by heat and light
combustion. Combustion without
visible light or glow is not fire.
Example: Damage caused by smoke
from a lamp when no ignition
occurred outside the lamp.
To allow recovery, it must be
the proximate of the damage or loss
and fire must be hostile if it:
a.

(a) Market price in sound state

less
market
price
in
damaged
state
equals
reduction in value;
(b) Reduction in value divided
by market price in sound
state multiplied with the
amount of insurance equals
the amount of recovery;

b.

c.

burns at a piece where

it is not intended to
burn;
starts as a friendly fire
but becomes hostile if
it should escape from
the place where it is
intended to burn and
becomes
uncontrollable;
is a friendly fire which
becomes HOSTILE by not
escaping
from
its

proper
place
but
because
of
the
unsuitable
material
used to light it and it
becomes
inherently
dangerous
and
uncontrollable;
-as opposed to friendly fire one
that burns in a place where it is
intended to burn and employed for
the ordinary purpose of lighting,
heating, or manufacturing. But the
policy itself may limit or restrict
coverage to losses under ordinary
conditions but not those due to
extra-ordinary circumstances or
abnormal conditions like war,
invasion, rebellion, civil war or
similar case. In these cases recovery
is still possible;
ALTERATION DEFINED
Is a change 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 risk, which entitles
the insurer to rescind the contract of
insurance (section 168);
-From the foregoing definition,
the REQUISITES must be present to
constitute an alteration so as to
allow the rescission of the contract
to wit:
(a)

The use or condition of

the
thing
insured
is
specifically
limited
or
stipulated in the policy
but under section 170,
the contract of insurance
is not affected by an act
of
the
insured
subsequent
to
the
execution of the policy,
which does not violate its
provisions even though it
increases the risk and is
the cause of the loss;

Example: (1) If the insured stored

thinner, paints and varnish. A fire
subsequently occurs and there is no
express prohibition as to storage of
such items, even if the risk is
increased, the insurer is still liable
(Bachrach vs. British Assurance, 17
Phil 555);
(2) The policy states that the 1st floor
is unoccupied, it is later occupied.

There is no alteration that entitles

the insurer to rescind, the
description of the house cannot be
said to be a limitation as to use
(Hodges vs. Capital Insurance 60
O.G. 2227)
(b)

There is an alteration in
the said use or condition;
(c)
The alteration is without
the
consent
of
the
insurer;
(d)
The alteration is made by
means
within
the
insureds control. If the
alteration be by accident
or means beyond the
control of the insured,
the requisite is not met.
Example: The alteration is made by a
tenant with the consent or
knowledge of the insured, the
insurer cannot rescind;
(e)

The alteration increases

the risk of loss but under
section
169
any
alteration in the use or
condition of the thing
insured from that to
which is limited by the
policy, which does not
increase the risk does not
affect the contract;

BUT THERE MUST NOT BE ANY VIOLATION

OF THE CONTRACT OTHERWISE
-

The basis for rescission is

that
payment
of
the
premium is based on the
risk as assessed at the time
of the issuance of the policy
when the risk is increased
without
a
corresponding
increase in premium is paid;

MEASURE OF INDEMNITY IN FIRE

INSURANCE
-

In an open policy, it 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 in
which it was at the time of
the injury.
In a valued policy, it is the
same
as
in
marine
insurance, the valuation as
agreed upon by the parties
is
conclusive
in
the
adjustment
of
either
a
partial or total loss in the
absence of fraud (section
171).

public
liability,
motor
vehicle liability, plate glass
liability, burglary and theft,
personal
accident
and
health insurance as written
by non-life companies and
other substantially similar
insurance (section 174);

HOW IS VALUATION MADE

(1) Whenever the insured would
like to have a valuation
stated in a policy insuring a
building or structure against
fire, it may be made by an
independent appraiser, who
is paid by the insured and the
value may be fixed between
the insurer and the insured;
(2) Subsequently, the clause is
then inserted in the policy
that said valuation has thus
been fixed;
(3) In case of loss, provided
there is no change increasing
the risk without the consent
of the insured or fraud on the
part of the insured, the
insurer will pay the whole
amount so insured and stated
in the policy is paid. If it is a
partial loss, the whole amount
of the partial loss is paid. In
case there are 2 or more
policies, each shall contribute
pro-rata to the total or partial
loss but the liability of the
insurers cannot be more than
the amount stated in the
policy;
(4) Or the parties may stipulate
that instead of payment, the
option to repair, rebuild or
replace the property wholly
or
partially
damaged
or
destroyed shall be exercised.
(Section 172).

No policy of fire insurance

shall
be
pledged,
hypothecated or transferred
to any person, firm or
company that acts as agent
for or otherwise represents
the issuing company, such
shall be void and of no
effect insofar as it may
affect other creditors of the
insured (section 173)

DEFINITIONS
EMPLOYERS LIABILITY
-

WORKMENS COMPENSATION
-

Generally, it is one that

covers
loss
or
liability
arising from an accident or
mishap excluding those that
fall exclusively within other
types of insurance like fire
or
marine.
It
includes
employers
liability,
workmens
compensation,

is insurance secured by an
employer for the benefit of
his employees and laborers
for
loss
resulting
from
injuries,
disablement,
or
death
through
industrial
accident,
casualty,
or
disease in connection with
their employment. Note that
most if not all types of this
insurance is underwritten by
the GSIS or the SS.

PUBLIC LIABILITY
-

is insurance against liability

of the insured to pay
damages
for
accidental
bodily injury or damage to
property arising from an
activity
of
the
insured
defined in the policy;

MOTOR VEHICLE LIABILITY

-

CASUALTY INSURANCE
CASUALTY INSURANCE DEFINED

is insurance obtained by the

employer against liability to
an employee for damages
caused
or
arising
from
injuries by reason of his
employment;

is insurance against loss or

injury arising from the use
of a motor vehicle by its
owner as opposed loss or
damage to the vehicle itself.
Coverage for both may
however be contained in the
policy;

PLATE GLASS
-

is
insurance
that
indemnifies
the
insured
against loss caused by the
accidental breaking of plate
glass, windows, doors or
show cases;

BURGLARY AND THEFT

is insurance against loss of

property through burglary
and theft;

WHAT IS THE LIABILITY OF THE SURETY

-

PERSONAL ACCIDENT
-

is
insurance
against
expense, loss of time and
suffering
from
accidents
that cause a physical injury;

SUN INSURANCE OFFICE vs. CA July

17, 1992 (1993 and 1994 Bar exams)
X was issued a personal accident
insurance for P200,000. Two months
later, he died of a bullet wound in his
head. He was playing with his hand gun
from which he removed the magazine. He
pointed his gun to his temple and fired.
The insurance company refused to pay
the beneficiary. Was there suicide or
accident?
SC Ruling:
1. X was negligent but it should not
prevent the beneficiary from
recovery because there is nothing
in the policy that exempts the
insurer of the responsibility to pay
indemnity if the insured is shown
to have contributed to his own
accident.t
2. The death is accidental. Accident
happens
by
chance
without
intention or design and which is
unexpected or unforeseen.

IS A SURETYSHIP CONTRACT VALID AND

BINDING WHERE THE PREMIUM HAS NOT
YET BEEN PAID?
-

In the absence of specific

provisions,
civil
code
provisions
apply
in
a
suppletory
character
if
necessary to interpret the
contract provisions (Section
178);
DISTINGUISHED WITH GUARANTY
-

is insurance for indemnity

for
expenses
or
loss
occasioned by sickness or
disease;

SURETYSHIP

(2)

DEFINITION

(3)

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 3RD party called
the obligee (section 175);
Includes

official
recognizances, bonds or
undertakings issued by any
company under act no. 536,
as amended by act no. 2206
(government transactions
by authorized companies)

Generally, payment of the

premium is a condition
precedent. Hence the bond
is not valid. An exception is
when it is issued and
accepted by the obligor, it is
valid despite non payment
of the premium (Section
177);

WHAT OTHER LAWS GOVERN A

SURETYSHIP CONTRACT?

(1)

HEALTH

It is joint and several

(solidary) with the obligor
but limited to the amount of
the bond and determined
strictly by the terms of the
contract in relation to the
principal contract between
obligor obligee (section
176);

A surety assumes liability as

a regular party to the
agreement, a guarantors
liability
depends
on
an
independent agreement to
pay if primary debtor fails to
pay;
A surety is primarily liable, a
guarantor
is
secondarily
liable;
A surety is not entitled to
exhaustion, a guarantor is
entitled to exhaustion;

NON-NECESSITY OF A DEMAND ON THE

SURETY Demand on the surety is not
necessary before bringing the suit against
them. On this point, it may be worth
mentioning that a surety is not even
entitled, as a matter of right, to be given
notice of the principals default. (IntraStrata Assurance Corporation, Et Al. v.
Republic of the Philippines, Etc., Jul. 9,
2008 G.R. No. 156571)
REPUBLIC vs. CA and R & B SURETY
AND INSURANCE COMPANY, INC.
(G.R. No. 103073
March 13, 2001)

Surety of Sureties; Liability of; Joint

and several with the obligor; Limited
to the total amount of the bond.
-Section 176 of the Insurance Code
provides:
"SECTION 176. The liability of the
surety of 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 P.D. No. 1455)."

ENDOWMENT
-

ANNUITY
-

LIFE INSURANCE
DEFINITION
-

Is insurance on human lives

and insurance appertaining
thereto
or
connected
therewith (section 179);

protection is for a limited

period, if the insured is still
alive at the end of the
period, the value of the
policy is paid to him. If he
dies before the end period,
it
is
paid
to
the
beneficiaries;

where the insured or a

named person/s is paid a
sum or sums periodically
during life or a certain
period (note that contracts
for
the
payment
of
endowment or annuities are
considered as life insurance
contracts);

DISTINGUISHING LIFE INSURANCE FROM

PAYMENT OF ANNUITY

WHEN IS IT PAYABLE
An insurance upon life may
be made payable upon:
(a)
death of the person; or
(b)
his surviving a specified
period; or
(c)
otherwise,
contingently
on the continuance or
cessation of life;
-

(1)

In life insurance, it is payable

upon the death of the
insured, while in annuity, it is
payable during the lifetime
of the annuitant;

(2)

In life insurance, the premium

is paid in installments, while
in annuity, annuitant pays a
single premium;

(3)

In life insurance, there is lump

sum payment upon death,
while in annuity, annuities
are paid until death;

COMMON KINDS
WHOLE LIFE/ORDINARY LIFE/STRAIGHT
LIFE
-

premiums are payable for

life and the insurer agrees
to pay the face value upon
the death of the insured;

WHAT RISKS ARE COVERED?

LIMITED PAYMENT LIFE
-

insured pays premiums for a

limited period after which
he stops with a guarantee
by the insurer that upon
death the face amount is to
be paid if death occurs
while
payment
is
not
complete beneficiary acts
face amount;

TERM POLICY
-

insurer is liable only upon

death of the insured within
the agreed term or period. If
insured survives the insurer
is not liable;

(1)

Generally - all causes of

death are covered unless
excluded by law, by policy
or public policy.
Examples:
a. By law beneficiary is the
principal, accomplice or
accessory
in
bringing
death of the insured;
b. By policy when it does
not cover assault, murder
or
injuries
inflicted
intentionally by a 3RD
person but where the

insured
is
not
the
intended victim, insurer
is liable (Calanoc vs. CA,
98 Phil 79). What must be
considered is that death
or injury is not the
natural or probable result
of the insureds voluntary
act
(Finman
General
Assurance
Corporation
vs. CA, 213 SCRA 493) as
opposed to an act of the
insured
to
confront
burglars (Balagtan vs.
Insular Life Assurance
Company, 44 SCRA 58).
c. By public policy when the
insured is executed for a
crime committed;
(2)

Suicide, if committed after

the policy has been in force
for a period of two years
from date of issue or last
reinstatement unless policy
provides a shorter period
but
it
is
nevertheless
compensable if committed
in the state of insanity
regardless
of
date
of
commission (Section 180-A)

IS A LIFE INSURANCE POLICY

TRANSFERABLE OR ASSIGNABLE?
-

Yes, it may pass by transfer,

will or succession to any
person, whether he has
insurable interest or not.
(Section 181);
Effect, the person to whom
it is transferred may recover
upon
it
whatever
the
insured
might
have
recovered;
Note while there is no need
for the assignee/transferee
to have insurable interest, it
should not be used to
circumvent
the
law
prohibiting
insurance
without insurable interest.
Thus,
an
assignment
contemporaneous with issuance
may invalidate the policy
unless made in good faith;

IS NOTICE TO THE INSURER OR TRANSFER

OR BEQUEST REQUIRED?
-

It is not necessary to
preserve the validity of the
policy
unless
thereby

expressly required (Section

181);
IS THE CONSENT OF THE BENEFICIARY
REQUIRED?
-

Yes, if he designated as an
irrevocable beneficiary as
he has acquired a vested
right;

WHAT IS THE MEASURE OF INDEMNITY IN

LIFE INSURANCE?
-

Unless the interest of a

person
insured
is
susceptible
of
pecuniary
estimation,
the
amount
stated or specified in the
policy is the measure of
indemnity
(section
183).
Hence a life insurance policy
has been held to be a valued
policy;

BUSINESS INSURANCE
ORGANIZATION, CAPITALIZATION AND
AUTHORIZATION
REQUIREMENTS FOR A CERTIFICATE OF
AUTHORITY FROM THE INSURANCE
COMMISSION
(a) Qualified by Philippines Laws to
transact insurance business;
(b) Has a name that is not in
anyway
similar
to
another
company;
(c) If
organized
as
a
stock
corporation, it should have a
paid up capital of no less that
Php5,000,000.00;
(d) If it is organized as a mutual
company (one whose capital
funds are not contributed by
stockholders
but
by
policy
holders) it must have available
cash
assets
of
at
least
Php5,000,000.00
above
all
liabilities for losses reported,
expenses, taxes, legal reserves
of all outstanding risks, and the
contributed surplus fund equal
to the amounts required of
stock
corporations
(Php1,000,000.00
if
a
life
insurance
company
or
Php500,000.00, if a non life
insurance company).
(e) If a foreign insurance company,
it must appoint a resident
agent, deposit securities and

maintain
a
legal
(Section 184-193);

reserve

MARGIN OF SOLVENCY
-

The margin of solvency is the

excess of the value of insurance
companys
admitted
assets
exclusive of its paid up capital.
In case of a domestic insurance
company and the excess of the
value of its admitted assets in
the Philippines exclusive of
security
deposits
over
the
amount
of
its
liabilities,
unearned
premiums,
and
reinsurance reserves in the
Philippines (Section 194);
The required margin is in case
of life insurance companies is
two percent (2%) of the total
amount of its insurance in force
as of the preceding calendar
year on all policies except term
insurance and in case of non life
insurance companies, at least
ten percent (10%) of total
amount of its net premium
during the preceding calendar
year but in no case to be less
than Php500,000.00. If not met,
the insurance company is (a)
not permited to take on any risk
and
no
dividends
can
be
declared (section 195).

COMPULSORY
CLE
LIABILITY

MOTOR

VEHI

INSURANCE

CONCEPT OF COMPULSORY MOTOR

VEHICLE LIABILITY INSURANCE
It is to provide protection or
coverage to answer for bodily injury
or property damage that may be
sustained by another arising from
the use of motor vehicle. Please note
though that what is now compulsory
is death of bodily injury arising from
motor vehicle accidents as per
amendment to the insurance code by
PD 1814 and PD 1455 brought about
by insurance losses due to padded
claims for property damage. Hence,
property damage is now optional;
HOW IS ITS COMPULSORY NATURE
ENFORCED?
-The compulsory nature of the
insurance
is
enforced
by
prescribing
that
any
land
transportation
operator
(owner/s or motor vehicles for

transportation of passengers
for
compensation,
including
school buses) or owner of a
motor vehicle (actual legal
owner of a motor vehicle in
whose name the vehicle is
registered with the LTO) would
be considered as unlawfully
operating a motor vehicle (is
any vehicle as defined in
Section (3) RA 4136 which is
propelled by any power other
than muscular power using
public
high
ways
with
exceptions:
(a)road rollers, holley cars,
street sweepers, sprinkles,
lawn movers, bulldozers,
graders,
forklifts,
amphibian trucks or cranes
not
used
on
public
highways;
(b)Those that run on rails or
trucks;
(c) Tractor,
trailers
(when
propelled or intended to be
propelled
by
an
attachment to a motor
vehicle is classified as a
motor
vehicle
without
power
rating),
traction
engines of all kinds used
exclusively for agricultural
purposes) Unless there is:
(1) policy
of
insurance
(contract of insurance
against passenger or
3RD party liability for
death or body injury
arising
from
motor
vehicle accidents); or
(2) guaranty in cash; or
surety bond
Compliance by the motor vehicle
owner or the land transportation
operator is monitored as the Land
Transportation Office shall not allow
registration or renewal of
registration without compliance with
section 374 (section 376);
DISTINGUISHED FROM OWN DAMAGE
COVERAGE AND COMPREHENSIVE MOTOR
VEHICLE INSURANCE
(a)

(b)

Third party liability answers

for liabilities arising from
death or bodily injury to 3 RD
persons or passengers;
Own
damage
insurance
answers for reimbursement
of the cost of repairing the

damage to vehicle of the

insured;
Comprehensive
insurance
answers
for
all
liabilities/damages
arising
from the use/operation of a
motor vehicle it includes
third party own damage,
theft and property damage;

(c)

commissioner,
but
the
authority of the insurance
company
to
engage
in
casualty or surety lines of
business shall be withdrawn
immediately (section 379);
CANCELLATION OF THE POLICY
(a)

WHEN DOES THE LIABILITY OF THE

INSURER ACCRUE?
-

in an insurance policy that

directly
insures
against
liability,
the
insurers
liability accrues immediately
upon the occurrence of the
injury upon which liability
depends,
and
does
not
depend on the recovery of
judgment by the injured
party against the insured.
Hence, there is no need for
the insured to wait for a
decision of the court finding
him
guilty
of
reckless
imprudence. The occurrence
of an injury for which the
insured
may
be
liable
immediately gives rise to
insurer liability (Shafer vs.
Judge, 167 SCRA 386). In
fact a third party can bring a
claim or an action directly
against the insurer as the
general purpose of the
statute is to protect the
injured
against
the
insolvency of the insured;

NATURE OF THE LIABILITY OF THE

INSURER
-

It is not solidary with the

insured. The liability of the
insurer is based on contract,
while that of the insured is
based on tort. (Malayan
Insurance vs. CA, 165 SCRA
536);

WHO CAN ISSUE POLICY OR SURETY

BOND?
-

Those authorized by the

commissioner in the list
furnished
to
the
Land
Transportation
Office
(Section 375). If the Motor
Vehicle Owner or the Land
Transportation Operator is
unable to obtain or is
unreasonably
denied
the
policy of insurance, they will
be required to show proof of
a cash deposit with the

(b)

By the insurer requires

written notice to motor
vehicle
owner/land
transportation operator at
least 15 days prior to
intended effective date. If
so
canceled,
the
Land
Transportation Office may
order
the
immediate
confiscation
of
license
plates unless it receives a
new
valid
insurance/surety/proof
of
cash deposit or revival by
endorsement
of
the
cancelled
policy
(Section
130);
By the insured the motor
vehicle
owner/land
transportation
operator
shall secure a similar policy
or
surety
before
the
cancelled
policy/surety
ceases to be effective or
make a cash deposit and file
the same or proof thereof
with
the
Land
Transportation
Office
(Section 381);

EFFECT OF CHANGE IN OWNERSHIP OR

CHANGE IN ENGINE
There is no need to issue a new
policy until the next date of
registration provided the insurer
shall agree to continue the policy
and such change shall be indicated in
a second duplicate which is filed the
Land Transportation Office;
OTHER PROHIBITED ACTS
(1) The motor vehicle owner or
the
Land
Transportation
Operator
cannot
require
driver/s/employees
to
contribute to the payment
of the premium (section
385);
(2) Any government office or
agency having the duty to
implement the provisions,
official or employee thereof
shall not act as an agent in
procuring
the
policy
or
surety bond and in no case
shall the commission of the

procuring agent exceed 10%

of
the
premiums
paid
(section 387);

must nevertheless pay the

no fault indemnity (Section
378) without prejudice to a
further pursuit of the clam
in which case he shall not be
required or compelled to
execute a quit claim or
release from liability. Note
though that in case of
dispute as to enforcement
of policy provisions, the
adjudication shall be within
the original and exclusive
jurisdiction
of
the
commissioner
subject
to
section 416, which provides
for concurrent jurisdiction
but the filing with the
insurance
commissioner
shall preclude filing with the
court (Section 385);

PENALTIES FOR VIOLATION

-

The penalties for a violation

by the Motor Vehicle Owner
or the Land Transportation
Operator is a fine of not less
than Php500.00 nor more
than
Php1,000.00
and/or
imprisonment for not more
than 6 months. If a Land
Transportation
Operator
violates
section
377
(minimum
limits
of
coverage) it is sufficient
cause for revocation of a
certificate
of
public
convenience (section 388);
If the violation is committed
by a corporation/association
or government office/entity,
the executive officer/s who
shall
have
knowingly
permitted
or
failed
to
prevent the violation shall
be held liable as principals
(Section 389);

WHAT IS NO FAULT INDEMNITY?

-

PAYMENT OF CLAIMS
-

A claim for payment must be

filed
without
any
unnecessary delay, within 6
month from the date of
accident by giving written
notice setting forth the
nature, extent and duration
of the injuries as certified by
a duly licensed physician
(section 384);

EFFECT OF FAILURE TO FILE CLAIM

WITHIN PERIOD
-

The failure to file a claim

will be deemed a waiver. If a
claim is filed but denied, an
action must be brought
within 1 year from date of
denial with the Insurance
Commissioner or the Court,
otherwise the right of action
will be deemed as having
prescribed;

WHAT SHALL INSURANCE COMPANY DO

UPON FILING OF THE CLAIM?
-

It shall forthwith ascertain

the truth and extent of the
claim and make payment
within 5 working days after
reaching an agreement. If
no agreement is reached, it

A no fault indemnity claim is

a claim for payment for
death
or
injury
to
a
passenger of third party
without necessity of proving
fault or negligence. This is
payable
by
the
insurer
provided:
(a)
indemnity in respect
of one person shall not
exceed Php5,000.00;
(b)
the necessary proof of
loss under oath to
substantiate the claim
is submitted, these
are: police report of
accident and either
the death certificate
and
sufficient
evidence to establish
the payee or medical
report and evidence of
medical or hospital
disbursement
in
respect
of
which
refund is made;

AGAINST WHOM IS THE PAYMENT

CLAIMED
a claim under the no fault
indemnity clause may be
made against one motor
vehicle
insurer
only
as
follows:
(a)
in case of an occupant of
a vehicle against the
insurer of the vehicle in
which the occupant is
riding,
mounting
or
dismounting from;
(b)
in any other case, from
the insurer of the directly
offending vehicle;
-

(c)

in all cases, the right of

the party paying the
claim to recover against
the owner of the vehicle
responsible
for
the
accident
shall
be
maintained;

INTERPRETATION OF THE AUTHORIZED

DRIVER CLAUSE
-

The authorized driver clause

is interpreted to refer to the
insured
or
any
person
driving on the order of the
insured
or
with
his
permission provided, such
person
is
permitted
to
operate a motor vehicle in
accordance
with
our
licensing laws or regulations
and who is not otherwise
disqualified;

NOTE THE FOLLOWING JURISPRUDENCE

(1) If license is expired, person
is not authorized to operate
a motor vehicle (Tarco Jr.
vs. Phil Guaranty, 15 SCRA
313);
(2) Issued
a
temporary
operators
permit
or
a
temporary vehicle receipt, a
person is authorized to
operate a motor vehicle, but
if it has expired, it is as if
he has no license (Guiterez
vs. Capital Insurance, 130
SCRA
618,
PEZA
vs.
Alikpala, 160 SCRA 31);
(3) A tourist with license but in
the country for more than
90 days, is not authorized
to operate a motor vehicle
because it is as if he has no
license
(Strokes
vs.
Malayan, 127 SCRA 766);
(4) A drivers license that bears
all the earmarks of a duly
issued license is presumed
genuine;
(5) A license is not necessary,
where the insured himself is
the driver (Paterno vs.
Pyramid
Insurance,
161
SCRA 677, 1986 BAR)
COMPULSORY
MOTOR
VEHICLE
LIABILITY
INSURANCE(ThirdPartyLiability
Insurance)
The purpose of this kind of
insurance is to indemnify the death or

injury of a third person or passenger from

the use of the motor vehicle. The injured
party can sue immediately and directly
the insurance company. This will protect
the injured person against the insolvency
of the insured. It allows the passenger to
recover from the insurer of the vehicle
where he was riding.
1996 BAR EXAM
PROBLEM
1.While
driving
his
car,
X
sideswiped A causing injuries to the
latter. A sued X and the third party
liability insurer for the damage sustained
by A.
2. The insurance company moved
to dismiss the complaint contending that
theliability of X has not yet been
determined with finality.
Is the contention of the insurance
company correct? May the insurer be
held solidarily liable with X
ANSWER:
No.
When an insurance policy
insures directly against liability, the
insurers liability accrues immediately
upon the occurrence of the injury.
No. The insurer cannot be held
solidarily liable with X because its liability
is based on a contract while that of X is
based on torts. (Vda. De Maglana vs.
Consolacion, August 6, 1992)
VDA.
DE
CONSOLACION

MAGLANA

VS.

SC RULING:
Where an insurance policy insures
directly against liability, the insurers
liability accrues immediately upon the
occurrence of the injury or even upon
which the liability depends, and does not
depend upon the recovery of judgment by
the insured party against the insured.
The underlying reason behind the third
party liability of the Compulsory Motor
Vehicle Liability Insurance is to protect
the injured person against the insolvency
of the insured who causes such injury,
and to give such injured person a certain
beneficial interest in the proceeds of the
policy.
However, the direct liability
of the insurer under the indemnity
contracts 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. The
liability of the insurer is based on contract
and the liability of the
insured
is
based on tort. If the insurer was to be

held solidarily liable with the insured

under the indemnity contract against
third party liability, then this would
violate the principles underlying solidary
obligation and insurance contracts. In
fine, the court concludes that the liability
of AFISCO based on the insurance
contract is direct, but not solidary with
that of Destrajo which is based on Article
2180 of the Civil Code.
As such,
petitioners have the option either to claim
the 15, 000 from AFISCO , the P 5,000
had already been paid under the no-fault
clause, and the
balance from Destrajo
or enforce the entire judgment from
Destrajo subject to reimbursement
from AFISCO to the extent of the
insurance coverage.

3. AUTHORIZED DRIVER RULE

(1991 Bar Exams)

2.COMPREHENSIVE MOTOR VEHICLE

INSURANCE ( 1993 & 2000 Bar Exam)

Since the driver of the insured

motor vehicle at the time of the accident
was the
insured himself, he was an
authorized driver under the policy. Any
infraction of the Motor Vehicle Law which
prohibits a person from operating a motor
vehicle on the highway without a license
or with an expired license, subjects him to
penal sanctions under the Motor Vehicle
Law but does not bar recovery under the
insurance contract. The requirement that
the driver be permitted in accordance
with law and regulations to drive
the motor vehicle and is not
disqualified from driving such vehicle by
order of a Court of law or by reason of
any enactment or regulation applies only
when the driver is driving on the insureds
order or permission, such as a regular
driver, a friend, a member of the
family, or the employee of a car
service or repair shop. It doe not apply
when the person driving is the insured
himself.

The liability of the insurance

company s direct and solidary with the
operator but only up to the amount stated
in the policy and accrues immediately
upon the occurrence of the accident. Any
amount awarded beyond the amount
stated in the policy is the sole
responsibility of the carrier.
PERLA COMPANIA DE SEGUROS, INC.
VS. COURT OF APPEALS
208 SCRA 487 (1992)
SC RULING:
Where a car is admittedly, as in
this case, unlawfully and wrongfully taken
without
the owners consent or
knowledge, such taking constitutes theft,
and therefore it is the theft
clause
and not the authorized driver clause that
should apply. Clearly, the risk against
accident is distinct from the risk against
theft. The authorized driver clause in a
typical
insurance
policy
is
in
contemplation or anticipation of accident
in the legal sense in which it should be
understood, and not in contemplation or
anticipation of an event such as theft. In
the present case the loss of the insured
vehicle did not result from accident where
intent was involved; the loss was
caused by theft, the commission of which
was attended by intent. It is worthy to
note that there is no casual connection
between the possession of
a
valid
drivers license and the loss of the
vehicle. To rule otherwise would render
car insurance practically a sham since the
insurance company can easily escape
liability by citing restrictions which are
not applicable or germane to the claim,
thereby reducing indemnity to a shadow.

For purposes of recovery, the

driver of the vehicle must be in
possession of a valid, subsisting and
professional drivers license. But this rule
will not apply if the one driving the
vehicle at the time of the accident was
the owner of the vehicle. (Palermo v.
Pyramids Ins., 161 SCRA 677)
PALERMO V. PYRAMIDS INSURANCE
CO., INC.,
MAY 31, 1988
SC RULING:

4.
NON-FAULT
CLAUSE
IN
COMPULSORY MOTOR
VEHICLE
INSURANCE POLICY (2000 Bar
Exam)
Proof of fault or negligence is not
necessary for the payment of any claim
for death or injury to a passenger or to a
third party. The maximum amount of
indemnity is P 10, 000.00 upon
submission of death certificate, medical
certificate and police report.
The
purpose is in order to give immediate
assistance to the victim of motor vehicle
accidents and/or the dependents specially
if they are poor, regardless of the
financial capability of the owner of the
motor vehicle or operator responsible for
the accident.
This does not include
property damage.
- The claim is collected from
the insurer of the vehicle where the

claimant is riding, mounting

or
dismounting. In all other cases, the
claim is against the insurer
of
the offending vehicle.
- The insurer who pays the
claim can ask reimbursement from
the offending vehicle.
The recovery by the
insured from the insurer is direct
and not dependent on the recovery
against the insurer by the insured
party.
NECESSITY TO REGULATE INSURANCE
COMPANIES
COVERING
PUBLIC
UTILITY VEHICLES The present case
shows a clear public necessity to regulate
the proliferation of such insurance
companies.
Because
of
the
PUV
operators complaints, the LTFRB thus
assessed the situation. It found that in
order to protect the interests of the riding
public and to resolve problems involving
the passenger insurance coverage of
PUVs, it had to issue Memorandum
Circular No. 2001-001 accrediting PAMI
and PAIC II as the two groups allowed to
participate in the program.
Memorandum Circular No. 2001-001
required that [a]ll public utility vehicles
whose LTO license plate, as per latest
LTO Official Receipt, with an EVEN middle
number (0, 2, 4, 6 and 8) shall be insured
with UCPB insurance (PAMI) while those
with an ODD middle number (1, 3, 5, 7
and 9) shall be insured with Great
Domestic Insurance (PAIC II) x x x .
It should be stressed that PUVs, as
common carriers, are engaged in a
business affected with public interest.
Under Article 1756 of the Civil Code, in
cases of death or injuries to passengers,
common carriers are presumed to be at
fault and are required to compensate the
victims,
unless
they
observed
extraordinary diligence. To assure this
compensation, PUVs are required to
obtain
insurance
policies.
(Eastern
Assurance and Surety Corporation [easco]
v. Land Transportation Franchising and
Regulatory Board, Oct. 7, 2003 G.R. No.
149717)
OTHER PROVISIONS
1.Chapter VII Mutual Benefit
Associations (Section 390. Any
society, association or corporation,
without capital stock, formed or
organized not for profit but mainly
for the purpose of paying sick
benefits to members, or of furnishing
financial support to members while
out of employment, or of paying to
relatives of deceased members of
fixed or any sum of money,

irrespective of whether such aim or

purpose is carried out by means of
fixed dues or assessments collected
regularly from the members, or of
providing, by the issuance of
certificates of insurance, payment of
its members of accident or life
insurance benefits out of such fixed
and regular dues or assessments,
but in no case shall include any
society, association, or corporation
with such mutual benefit features
and which shall be carried out purely
from voluntary contributions
collected not regularly and or no
fixed amount from whomsoever may
contribute, shall be known as a
mutual benefit association within the
intent of this Code. Any society,
association, or corporation
principally organized as labor union
shall be governed by the Labor Code
notwithstanding any mutual benefit
feature provisions in its charter as
incident to its organization.) and
trust for charitable institutions (Sec.
410. The term "trust for charitable
uses", within the intent of this Code,
shall include, all the real or personal
properties or funds, as well as those
acquired with the fruits or income
therefrom or in exchange or
substitution thereof, given to or
received by any person, corporation,
association, foundation, or entity,
except the National Government, it
instrumentalities or political
subdivisions, for charitable,
benevolent, educational, pious,
religious, or other uses for the
benefit of the public at large or a
particular portion thereof or for the
benefit of an indefinite number of
persons.) (Sections 396 to 413);
2.Chapter VIII Insurance
Commissioner (Section 414
Administrative Functions, Section
415 Power to impose
fines/suspensions Section 415,
Adjudicatory Powers Note: it is
concurrent with courts but the filing
with the commissioner shall preclude
civil courts from taking cognizance of
a suit over the same subject matter.
Decisions are appealable to the CA
within 30 days by notice of appeal
(Section 416);
WHITE GOLD MARINE SERVICES,
INC., vs. PIONEER INSURANCE AND
SURETY CORPORATION AND THE
STEAMSHIP MUTUAL UNDERWRITING
ASSOCIATION (BERMUDA) LTD., .
[G.R. No. 154514. July 28, 2005]

Relatedly, a mutual insurance

company is a cooperative enterprise
where the members are both the insurer
and insured. In it, the members all
contribute, by a system of premiums or
assessments, to the creation of a fund
from which all losses and liabilities are
paid, and where the profits are divided
among themselves, in proportion to their
interest.[17] Additionally, mutual insurance
associations, or clubs, provide three types
of coverage, namely, protection and
indemnity, war risks, and defense costs. A
P & I Club is a form of
insurance against third party liability,
where the third party is anyone other
than the P & I Club and the members. By
definition then, Steamship Mutual as a P
& I Club is a mutual insurance association
engaged in the marine insurance
business.
The records reveal Steamship
Mutual is doing business in the country
albeit without the requisite certificate of
authority mandated by Section 187[20] of
the Insurance Code. It maintains a
resident agent in the Philippines to solicit
insurance and to collect payments in its
behalf. We note that Steamship Mutual
even renewed its P & I Club cover until it
was cancelled due to non-payment of the
calls. Thus, to continue doing business
here, Steamship Mutual or through its
agent Pioneer, must secure a license from
the Insurance Commission.
Since a contract of insurance involves
public interest, regulation by the State is
necessary. Thus, no insurer or insurance
company is allowed to engage in the
insurance business without a license or a
certificate of authority from the Insurance
Commission.
The test to determine if a contract is
an insurance contract or not, depends on
the nature of the promise, the act
required to be performed, and the exact
nature of the agreement in the light of
the
occurrence,
contingency,
or
circumstances
under
which
the
performance becomes requisite. It is not
by what it is called.