Ins Rev 2

LAW 139 – INSURANCE LAW
C2017 FINALS REVIEWER

Prof. Ernestine CJ Desiderio Villareal-Fernando
Galvez | Mortell | Sulit
Inside:
De Leon and Campos annotations
Case summaries
Class lecture notes
This is a continuation of the Midterm Reviewer. Happy studying! !

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CHAPTER VI – RESCISSION OF INSURANCE • Requisites of Concealment

CONTRACTS: CONCEALMENT, MISREPRESENTATION & o A party knows a fact which he neglects to communicate or disclose to
BREACH OF WARRANTIES the other;
o Such party concealing is duty bound to disclose such fact to the other;
A. Basis/Rationale o Such party concealing makes no warranty of the fact concealed; and
o The other party has no means of ascertaining the fact concealed.
1. Insurance is of utmost good faith
• Effect of Concealment
2. As risk management devices
o By the insured – voidable at the insurer’s option, because 1) insurance
3. As grounds for rescission contracts are to be executed in utmost good faith; 2) the full
circumstances are known to the insured only; and 3) the insurer relies
B. Concealment upon disclosed information.
o By the insurer – duty of disclosure not required to be in utmost good
1. Definition
faith, but dominant bargaining position carries stricter responsibility.
Sec. 26. A neglect to communicate that which a party knows and ought to communicate, is
called a concealment. • Proof of Fraud in Concealment
o Existence of fraud not required
Sec. 27. A concealment whether intentional or unintentional entitles the injured party to rescind
a contract of insurance.
• Duty to disclose facts within knowledge only when:
Sec. 28. Each party to a contract of insurance must communicate to the other, in good faith, all o They are material to the contract
facts within his knowledge which are material to the contract and as to which he makes no o The other has no means of ascertaining
warranty, and which the other has not the means of ascertaining. o The party with the duty to communicate makes no warranty
Sec. 29. An intentional and fraudulent omission, on the part of one insured, to communicate
information of matters proving or tending to prove the falsity of a warranty, entitles the insurer • Test: If the applicant is aware of the existence of some circumstances
to rescind. which he knows would influence the insurer in acting upon his
application, good faith requires him to disclose such circumstances,
• 4 Primary Concerns of Parties though unasked.
o The correct estimation of the risk which enables the insurer to decide
whether he is willing to assume it, and if so, at what rate of premium; 2. Matters which Need Not be Disclosed
o The precise delimitation of the risk which determines the extent of the
contingent duty to pay undertaken by the insurer; Sec. 30. Neither party to a contract of insurance is bound to communicate information of the
o Such control of the risk after it is assumed as will enable the insurer to matters following, except in answer to the inquiries of the other:
(a) Those which the other knows;
guard against the increase of the risk because of change in conditions; (b) Those which, in the exercise of ordinary care, the other ought to know, and of which the
o Determining whether a loss occurred and if so, the amount of loss. former has no reason to suppose him ignorant;
(c) Those of which the other waives communication;
• Devices for ascertaining and controlling risk and loss (d) Those which prove or tend to prove the existence of a risk excluded by a warranty, and
which are not otherwise material; and
o Concealment (Sec. 26) and representations (Sec. 36) – enables insurer (e) Those which relate to a risk excepted from the policy and which are not otherwise material.
to secure same information possessed by the applicant in order to
estimate risk Sec. 32. Each party to a contract of insurance is bound to know all the general causes which are
open to his inquiry, equally with that of the other, and which may affect the political or material
o Warranties (Sec. 67, 68) and conditions perils contemplated; and all general usages of trade.
o Exceptions – to make the coverage more definite
o Executory warranties and conditions – undertakings that certain Sec. 33. The right to information of material facts may be waived, either by the terms of
conditions should or should not exist in the future; rescission in case of insurance or by neglect to make inquiry as to such facts, where they are distinctly implied in
other facts of which information is communicated.
increased risk.
o Conditions precedent – to protect insurer against fraudulent claims of Sec. 34. Information of the nature or amount of the interest of one insured need not be
loss communicated unless in answer to an inquiry, except as prescribed by Section 51.
(
LAW 139 – INSURANCE LAW C2017 Finals Reviewer

Prof. Ernestine CJ Desiderio Villareal-Fernando Galvez | Mortell | Sulit
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Sec. 35. Neither party to a contract of insurance is bound to communicate, even upon inquiry, o Where such fact is material to the risk (in either case)
information of his own judgment upon the matters in question.
b) Representation as to Future
• No Duty to Make Disclosure:
o Matters known to, or right to be known by insurer, or of which he Sec. 39. A representation as to the future is to be deemed a promise, unless it appears that it was
waives disclosure merely a statement of belief or expectation.
o Risks excepted from the policy
o Nature or amount of insured’s interest • Kinds of Representation
o Affirmative – allegation as to existence or non-existence of fact when
3. Test of Materiality the contract begins
o Promissory – promise to be fulfilled after the contract has come into
Sec. 31. Materiality is to be determined not by the event, but solely by the probable and existence
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.
! Indicates oral promise not incorporated in policy
! Undertaking not specifically made a warranty
C. Misrepresentation
c) Representation as to Information
1. The Active Form of Concealment
Sec. 43. When a person insured has no personal knowledge of a fact, he may nevertheless repeat
information which he has upon the subject, and which he believes to be true, with the
Sec. 38. The language of a representation is to be interpreted by the same rules as the language explanation that he does so on the information of others; or he may submit the information, in its
of contracts in general. whole extent, to the insurer; and in neither case is he responsible for its truth, unless it proceeds
from an agent of the insured, whose duty it is to give the information.
Sec. 40. A representation cannot qualify an express provision in a contract of insurance, but it
may qualify an implied warranty.
d) Effect of Misrepresentation
Sec. 47. The provisions of this chapter apply as well to a modification of a contract of insurance
as to its original formation. Sec. 44. A representation is to be deemed false when the facts fail to correspond with its
assertions or stipulations.
a) Form and When Made Sec. 45. If a representation is false in a material point, whether affirmative or promissory, the
injured party is entitled to rescind the contract from the time when the representation becomes
Sec. 36. A representation may be oral or written. false.
Sec. 37. A representation may be made at the time of, or before, issuance of the policy.
e) Misrepresentation as to Age
Sec. 41. A representation may be altered or withdrawn before the insurance is effected, but not
afterwards. Sec. 233. In the case of individual life or endowment insurance, the policy shall contain in
substance the following conditions:
Sec. 42. A representation must be presumed to refer to the date on which the contract goes into xxx
effect. (d) A provision that if the age of the insured is considered in determining the premium and the
benefits accruing under the policy, and the age of the insured has been misstated, the amount
payable under the policy shall be such as the premium would have purchased at the correct age;
• Representation – a statement made by the insured at the time of, or prior
to, the issuance of the policy, relative to the risk to be insured, as to an
existing or past fact or state of facts, or concerning a future happening, to f) Test of Materiality
give information to the insurer and otherwise induce him to enter into the
insurance contract. Sec. 46. The materiality of a representation is determined by the same rules as the materiality of
a concealment.
• Misrepresentation (renders contract voidable) – a statement:

o As a fact of something which is untrue • Test of Materiality – to be determined solely by the probable and
o Which the insured stated with knowledge that it is untrue and with an reasonable influence of the facts upon the party to whom the
intent to deceive, or which he states positively as true without representation is made, in forming his estimates of the disadvantages of
knowing it to be true and which has a tendency to mislead, and the proposed contract or in making his inquiries.
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• Concealment vs. Misrepresentation (misrepresentation) was not applicable here (concealment). SC ruled that Jaime
concealed a material fact.
Concealment Misrepresentation
One party withholds information One party makes erroneous Held: The information which Canilang failed to disclose was material to the ability of
of material facts from the the statement of facts with the intent insurer to estimate the probable risk he presented as a subject of life insurance. Had
other party. of inducing the other to enter into he disclosed his visits to his doctor, the diagnosis made and medicines prescribed, it
the contract. may be reasonably assumed that insurer would have made further inquiries and
Both entitles the injured party to rescind the contract. would have probably refused to issue a non-medical insurance policy, or at the very
Both are governed by the same rules in determining materiality. least, required a higher premium. Test of materiality in Sec. 31, IC: “Materiality is to
Both need not to be proven to be intentional for rescission to arise. be determined not by the event, but solely by the probable and reasonable influence of
the facts upon the party to whom the communication is due, in forming his estimate
D. Cases of the disadvantages of the proposed contract, or in making his inquiries.”
Ng Gan Zee v. Asian Crusader Life Assurance Corp. (1983) Yu Pang Cheng v. CA, et. al. (1959)
Facts: Kwong Nam applied for a 20-year endowment insurance on his life for P20K Facts: In 1950, Yu Pang submitted his application for life insurance and was issued
with his wife Ng Gan Zee as beneficiary. Asian Crusader denied the claim because policy after payment of the premium. In Dec. 1950, medical treatment at St. Luke’s.
In 1951, he died of “infiltrating medullary carcinoma, Grade 4, advanced cardiac and
the answers he gave in his application were untrue.
of lesser curvature, stomach metastases spleen.” Yu Pang Cheng, brother and
Q: Operated on for a Tumor [mayoma] of the stomach. Claims that Tumor has been associated with ulcer beneficiary of the insured, demanded payment of the proceeds; defendant refused.
of stomach. Tumor taken out was hard and of a hen's egg size. Operation was two [2] years ago in Chinese
General Hospital by Dr. Yap. Now, claims he is completely recovered. Q: Have you ever had any of the following diseases or symptoms? Each question must be read and
answered "Yes" or "No." | Gastritis, Ulcer of the Stomach or any disease of that organ? No. | Vertigo,
Dizziness, Painting spells or Unconsciousness? No. | Cancer, Tumors or Ulcers of any kind? No. | Have
IC found no concealment. Asian Crusader contends that Kwong Nam’s statement you ever consulted any physician, not included in any of the above answers? Give names and address or
that a tumor “hard and of a hen’s egg size” was removed constituted material physicians list ailments or accidents and date. No.
concealment. SC ruled that there was no concealment.
TC ordered defendant to pay P10K. CA reversed; insured guilty of concealment of
Held: Concealment exists when the assured had knowledge of a fact material to the material facts which relieves defendant from liability. SC affirmed.
risk, and honesty, good faith, and fair dealing requires that he should communicate it
to the assurer, but he designedly and intentionally withholds the same. Kwong Nam Held: Yu Pang’s negative answers deprived defendant of the opportunity to make the
had informed Asian Crusader's medical examiner that the tumor for which he was necessary inquiry as to the nature of his past illness so that it may form its estimate
operated on was "associated with ulcer of the stomach." In the absence of evidence relative to the approval of his application; defendant would probably had never
that the insured had sufficient medical knowledge as to enable him to distinguish consented to the issuance of the policy. Sec. 26, IC: “Whether intentional or
between "peptic ulcer" and "a tumor", his statement should be construed as an unintentional, the concealment entitles the insurer to rescind, the contract of
expression made in good faith of his belief as to the nature of his ailment and insurance.”
operation and without any deliberate intent on his part to mislead AC.
Great Pacific Life v. CA (1979)
Canilang v. CA & Great Pacific Life Assurance Corp. (1993) Facts: Ngo Hing, an agent of Grepalife, applied for a 20-year endowment policy for
Facts: Jaime Canilang applied for a non-medical insurance policy with his wife the life of his one-year old daughter Helen. Grepalife rejected the application, saying
Themla as his beneficiary. He died of congestive heart failure, anemia and chronic the 20-year endowment policy is not available to minors, and offered another plan,
anemia. Great Pacific denied Thelma’s claim upon the ground that the insured had the Juvenile Triple Action Plan. However, the non-acceptance of Grepalife was not
concealed material information. IC ruled that the ailment was not so serious that, communicated to Ngo Hing. While in this state of the application process, Helen died
even if it had been disclosed, it would not have affected its decision to insure Jaime; it of influenza. Ngo Hing tried to collect from insurance; then filed a case against
had waived its right to inquire into the health condition of the applicant by the Grepalife. SC exonerated the two from liability, as there was no binding contract.
issuance of the policy despite the lack of answers to some questions; there was no Held: Ngo Hing concealed the state of health and physical condition of Helen. He
intentional concealment on the part of the insured as he had thought that he was was aware that his daughter is a mongoloid child. Such a congenital physical defect
merely suffering from a minor ailment and simple cold. CA reversed IC ruling; could never be ensconced nor disguised. Ngo Hing, in apparent bad faith, withheld
failure of Canilang to disclose previous medical consultation and treatment the fact material to the risk to be assumed by the company. As an agent, he ought to
constituted material information which should have been communicated to Great know his duty and responsibility to such a material fact. The contract of insurance is
Pacific to enable the latter to make proper inquiries; and that the Ng Gan Zee case one of perfect good faith; absolute and perfect candor or openness and honesty.
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Concealment is a neglect to communicate that which a party knows and out to application and the favorable medical exam made by Dr. Jose Vidal. Dominador died
communicate. Whether intentional or unintentional, concealment entitles the insurer of intestinal occlusion. Great Eastern refused to pay Francisca’s claim; the policy had
to rescind the contract. been obtained through fraud and deceit known and consented to by the interested
parties and is therefore illegal, void and ineffective. TC ruled in favor of Francisca.
Pacific Banking v. CA & Oriental Assurance Corp. (1988) SC reversed, there was fraud.
Facts: Oriental issued a fire insurance policy to Paramount Shirt Mfg. Co. to
indemnify the insured for any loss or damage, not exceeding P61K caused by fire to Held: It is proven that the signatures on the applications are false and forged; the
its property consisting of stocks, materials and supplies usual to a shirt factory. person who presented himself to Dr. Vidal to be examined was not the real
Pacific was then a creditor of Paramount (not less than P800K). Policy was duly Dominador (a healthy and robust person, Castor Garcia, was substituted in place of
endorsed to Pacific as mortgagee/trustor, with the knowledge and consent of the insured during the physical examination, for the real Dominador was in bad
Oriental. Fire broke out destroying the goods. Pacific filed its claim but Oriental health on and before the date of executing the insurance contract, of which facts the
denied the claim for failure of the insured to declare other insurances over the same insured Dominador and agent Ponciano had full knowledge); at the time of the
property. TC held Oriental liable. CA reversed. SC affirmed. application and the issuance of the policy, the real Dominador was informed of all
those machinations, thus the insurance contract between Great Eastern and
Held: Paramount failed to reveal before the loss three other insurances; guilty of a Dominador is null and void because it is false, fraudulent and illegal.
false declaration; a clear misrepresentation and a vital one because where the insured
had been asked to reveal but did not, that was deception. Had Oriental known that Qua Chee Gan v. Law Union (1955)
there were many coinsurers, it could have hesitated or plainly desisted from entering Facts: QCG insured warehouses in Albay, which stocked copra and hemp with Law
into such contract. The whole foundation of the contract fails, the risk does not attach Union. Fire broke out and engulfed 3 of the 4 bodegas. Law Union resisted payment,
and the policy never becomes a contract between the parties. Concealment of the claiming violation of warranties and conditions, for having only 2 fire hydrants near
coinsurances can easily be fraud, or in the very least, misrepresentation. the building.
Sunlife Assurance v. CA & Sps. Rolando & Bernarda Bacani (1995) Provision: QCG should provide an ample and constant water supply with sufficient pressure available,
Facts: Robert Bacani procured a life insurance contract for himself for P100K with and that there should be a fire hydrant for each 150 feet of external wall measurement of building. The
total external perimeter of the buildings being 1,640 meters. QCG was expected to provide 11 hydrants.
double indemnity in case of accidental death; beneficiary – his mother, Bernarda.
Robert died in a plane crash. Bernarda filed a claim. Sunlife denied claim; that Held: Law Union is estopped from resisting payment on account of the insufficient
Roberto did not disclose material facts. number of fire hydrants. It knew that QCG only had 2 hydrants when it issued the
contract of insurance, and it did so without asserting the requirements provided in
Q: Within the past 5 years, have you: a) consulted any doctor or other health practitioner? b) submitted to
ECG, x-rays, blood tests and other tests? c) attended or been admitted to any hospital or other medical the contract. QCG did not conceal such fact from Law Union.
facility? – Yes. | Have you ever had or sought advice for xxx b) urine, kidney or bladder disorder? – No.
Argente v. West Coast Life Insurance (1928)
Sunlife discovered that 2 weeks prior to his application, Roberto was confined at the Facts: Bernard signed an application for joint insurance with his wife, Vicenta de
Lung Center; diagnosed with renal failure. His parents filed an action for specific Ocampo, for P2K. Both of them were examined; they furnished the information to the
performance against Sunlife. TC ruled in favor of the sps. CA affirmed. SC reversed. agent (thru Q&A) and simply signed the application. Bernardo did not disclose that
on three occasions, he was confined in PGH and was treated for cerebral congestion
Held: The matters concealed would have definitely affected Sunlife's action on his and Bell’s Palsy. Vicenta did not disclose that she was diagnosed of psycho-neurosis.
application, either by approving it with the corresponding adjustment for a higher
premium or rejecting the same. A disclosure may have warranted a medical Held: In an action on a life insurance policy where the evidence conclusively shows
examination of Robert by Sunlife in order for it to reasonably assess the risk involved that the answers to questions concerning diseases were untrue, the truth or falsity of
in accepting the application. Good faith is no defense in concealment. Roberto’s the answers become the determining factor. If the policy was procured by fraudulent
failure to disclose raises grave doubts about his bonafides. It appears that representations, the contract of insurance was never legally existent. It can fairly be
concealment was deliberate on his part. assumed that had the true facts been disclosed by the assured, the insurance would
never have been granted.
Eguaras v. Great Eastern Life Assurance Co. & West Smith (1916)
Facts: Dominador applied for life insurance of P5K; beneficiary – his mother-in-law, Great Pacific Life v. CA (1999)
Francisca Eguaras. Great Eastern, after compliance with the requisites and the Facts: Group life insurance was executed between Grepalife and DBP, with former
investigation, and satisfied with the physical condition of the applicant, accepted the insuring lives of eligible housing loan mortgagors of DBP. Dr. Leuterio, a physician,
application based on representations and statements made by Dominador in his applied for eligibility, who answered in his forms that he is indeed in good health.
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Grepalife issued insurance coverage to the extent of his indebtedness of his DBP of agent was the one who set the value of the policy at P3K. The applicant merely gave
P86,200. Less than a year from the issuance of his certificate, Dr. Leuterio died of an estimate of the value of the car in good faith. It is presumed that the insurance
massive cerebral hemorrhage. DBP then tried to recover from Grepalife, but the latter company, when it issues a policy, does not make the absolute correctness of such
refused on account of Leuterio alleged non-disclosure of hypertension. SC favored estimated value a condition precedent to any insurance.
Leuterio, and ordered orders Grepalife to pay Leuterio’s heirs upon proof of
settlement of Leuterio’s debt with DBP. E. “Incontestability Clause” in Life Insurance Policies; Defenses Not
Barred
Held: Concealment exists where the assured had knowledge of a fact material to the
risk, and honesty, good faith, and fair dealing requires that he should communicate it Sec. 48. Whenever a right to rescind a contract of insurance is given to the insurer by any
to the assured, but he designedly and intentionally withholds the same. Contrary to provision of this chapter, such right must be exercised previous to the commencement of an
Grepalife’s allegations, there was no sufficient proof that the insured had suffered action on the contract.
After a policy of life insurance made payable on the death of the insured shall have been in force
from hypertension. Aside from the statement of the insured’s widow who was not during the lifetime of the insured for a period of two (2) years from the date of its issue or of its
even sure if the medicines taken by Dr. Leuterio were for hypertension, Grepalife had last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindable by
not proven nor produced any witness who could attest to Dr. Leuterio’s medical reason of the fraudulent concealment or misrepresentation of the insured or his agent.
history. It failed to establish that there was concealment made by the insured, hence,
Sec. 233. In the case of individual life or endowment insurance, the policy shall contain in
it cannot refuse payment of the claim. The fraudulent intent on the part of the substance the following conditions:
insured must be established to entitle the insurer to rescind the contract. xxx
Misrepresentation as a defense of the insurer to avoid liability is an affirmative (b) A provision that the policy shall be incontestable after it shall have been in force during the
defense and the duty to establish such defense by satisfactory and convincing lifetime of the insured for a period of two (2) years from its date of issue as shown in the policy,
or date of approval of last reinstatement, except for nonpayment of premium and except for
evidence rests upon the insurer. violation of the conditions of the policy relating to military or naval service in time of war;
Edillon v. Manila Bankers Life Insurance Corp. (1982)

Facts: In 1969, Carmen Lapuz applied with Manila Bankers for insurance coverage • Exercise of Right to Rescind
against accident and injuries; filled up blank form and filed with Manila Bankers; o In general: concealment, false representation, breach of warranty
indicated date of birth: July 11, 1904. She died in a vehicular accident in the same o Non-life policy – insured is no longer entitled to rescind after the
year. Regina Edillo, sister and beneficiary, filed her claim but was rejected because insured has filed an action to collect the amount of the insurance.
Carmen was over 60 years old when she applied for insurance. Manila Bankers relied o Life policy – Defenses only available in the first 2 years
on a provision in the certificate of insurance, excluding its liability to pay claims
under the policy in behalf of "persons who are under the age of 16 or over 60." • Incontestability
o Clauses in life insurance policies stipulating that the policy shall be
Held: Carmen’s age was not concealed to Manila Bankers. Her application which incontestable after a stated period are for general use, creating a kind
was on a printed form and which contained very few items of the information clearly of contractual statute of limitations on certain defenses that may be
indicated her age at the time of filing to be almost 65. Despite such information, raised by the insurer.
Manila Bankers received her payment of premium and issued the certificate of o After the requisites are shown to exist the insurer shall be estopped
insurance without question. The accident occurred 45 days after the insurance was from contesting the policy or setting up any defense, except as
applied for; there was sufficient time for Manila Bankers to process the application allowed, on the ground of public policy.
and to notice that the applicant was over 60yo and thereby cancel the policy.
• Theory of Incontestability
Harding v. Commercial Union Assurance (1918) o Insurer – should have reasonable opportunity to investigate statements
Facts: Harding insured her pre-owned Studebaker car through Smith Bell & Co. The made by applicant in procuring policy, and should not be permitted to
car caught on fire. When Harding tried to claim from Commercial, the company question validity after a definite period, either by affirmative action or
alleged misrepresentation of the price paid by Hardin for the car, the actual value of as a defense.
the car, and the ownership of the car at time of the application for insurance. o Insured – given the greatest possible assurance that his beneficiaries
However, evidence shows that an agent of the insurance company examined the car would receive payment without question as to validity of policy.
and appraised its value at P3K, which became the basis of the insurance policy. SC
ruled that Commercial Union is liable for the full amount of damages. • Requisites for Incontestability
o The policy is a life insurance policy
Held: Insurance company is bound by the estimated value of the automobile upon o Payable on the death of the insured
which the policy was issued. It is estopped from asserting a different value since their
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o Been in force during the lifetime of the insured for at least two years the contract. West Coast does not seek to have the alleged insurance contract
from date of issue or last reinstatement. rescinded. It denies that it ever made any contract of insurance on the life of Tan
Caeng, or that any such a contract ever existed. Thus, there is no contract to rescind
• Defenses still available: and Sec. 47 would not apply.
o Lack of insurable interest
o Cause of death is an excepted risk F. Warranties
o Premiums not paid
o Conditions relating to military/naval service have been violated Sec. 69. No particular form of words is necessary to create a warranty.
o Fraud is particularly vicious, as where policy was taken out in
Sec. 70. Without prejudice to Section 51, every express warranty, made at or before the execution
furtherance in scheme (to murder, etc.) of a policy, must be contained in the policy itself, or in another instrument signed by the insured
o Beneficiary’s failure to furnish proof of death or compliance to and referred to in the policy as making a part of it.
condition
o Action not brought within specified time • Warranty – statement or promise by the insured contained in the policy
itself, or incorporated in or attached to it by proper reference, whose
Tan v. CA & Phil. American Life Insurance Co. (1989) falsity or non-fulfillment renders the policy voidable at the election of the
Facts: Tan Lee Siong, father of petitioners, applied for life insurance for P80K with insurer, regardless of whether or not he has suffered loss or prejudice as a
PhilAm; policy was issued with petitioners as beneficiary. Tan Lee Siong died of result of the falsity or non-fulfillment
hepatoma. Petitioners filed their claim but PhilAm denied the claim and rescinded
the policy by reason of the alleged misrepresentation and concealment of material
facts by Tan Lee Siong in his application; premiums paid were refunded. IC • Warranties distinguished from Representations
dismissed the complaint. CA dismissed the appeal. Petitioners contend that PhilAm
no longer had the right to rescind the policy as rescission must allegedly be done Warranties Representations
during the lifetime of the insured within 2 years and prior to the commencement of Considered part of the contract Mere collateral inducements to a
the action. contract (happens before contract exists)
Always written on the face of the May be written in a totally disconnected
Held: The "incontestability clause" precludes the insurer from raising the defenses of policy, actually or by reference paper; may even be oral
false representations or concealment of material facts insofar as health and previous Must be strictly complied with Substantial truth only is required
diseases are concerned if the insurance has been in force for at least 2 years during Falsity or non-fulfillment Falsity renders the policy voidable or
the insured's lifetime. The phrase "during the lifetime" simply means that the policy operates as a breach of contract rescissible on the ground of fraud
is no longer considered in force after the insured has died. The key phrase in the 2nd Presumed material Injured party has the burden of proving
par. is "for a period of 2 years." Policy was in force only for 1 year and 5 months. the materiality of a representation in
Considering that the insured died before the 2-year period had lapsed, PhilAm is not order to defeat an action on the policy
barred from proving that the policy is void ab initio by reason of the insured’s Incontestability clause does not Incontestability clause applies
fraudulent concealment or misrepresentation. apply
Tan Chay Heng v. West Coast Life Insurance Co. (1927) 1. Kinds
Facts: Tan Chay Heng applied for a life insurance policy on Tan Caeng for P10K in
which he is the sole beneficiary. Without any premium being due or unpaid, Tan • Express – contained in policy or clearly incorporated, whereby insured
Caeng died of pulmonary tuberculosis. West Coast refused to pay Tan Chay Heng’s stipulates that certain facts relating to the risk are or shall be true or
claim; that the policy was obtained thru fraud and deceit; that Tan Chay Heng was certain acts relating to the same subjects have been or shall be done.
not really Tan Caeng’s nephew and that the latter was a not a businessman; that Tan • Implied – warranty from the very nature of the contract or the general
Caeng was seriously ill, suffering from pulmonary tuberculosis of about 3 years’ tenor of the words.
duration, incurable and was well known to Tan Chay Heng and his co-conspirators. • Affirmative – asserts the existence of a fact or condition at the time it is
TC ruled in favor of Tan Chay Heng. made. Continuing if it is one that must be satisfied during the entire
coverage period of the insurance.
Held: Sec. 47, IC is not applicable in this case. It provides that whenever a right to
rescind a contract of insurance is given to the insurer by any provision of this • Promissory – executory; Where the insured stipulates that certain facts or
chapter, such right must be exercised previous to the commencement of an action on conditions pertaining to the risk shall exist or that certain things with
reference thereto shall be done or omitted.
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a) Express • If the person contracts and warrants that if the representations made by
him in his application for insurance are not true, the policy shall be null
Sec. 67. A warranty is either expressed or implied. and void, such statements are not conditions precedent but rather of the
nature of a defeasance.
Sec. 71. A statement in a policy, of a matter relating to the person or thing insured, or to the risk,
as fact, is an express warranty thereof.
• Exceptions – purpose of withdrawing from the coverage of the policy, as
b) Implied (Marine Only) delimited by the general language, some specific risks which the insurer
declares himself unwilling to undertake.
• In marine insurance, there is an implied warranty that the vessel being
3. Warranties in Fire Insurance Policies; Standard Clauses
insured is seaworthy.
Sec. 170. An alteration in the use or condition of a thing insured from that to which it is limited
c) Affirmative by the policy made without the consent of the insurer, by means within the control of the
insured, and increasing the risks, entitles an insurer to rescind a contract of fire insurance.
Sec. 68. A warranty may relate to the past, the present, the future, or to any or all of these.
Sec. 171. An alteration in the use or condition of a thing insured from that to which it is limited
by the policy, which does not increase the risk, does not affect a contract of fire insurance.
d) Promissory
Sec. 172. A contract of fire insurance is not affected by any act of the insured subsequent to the
Sec. 72. A statement in a policy, which imparts that it is intended to do or not to do a thing execution of the policy, which does not violate its provisions, even though it increases the risk
which materially affects the risk, is a warranty that such act or omission shall take place. and is the cause of the loss.
Sec. 73. When, before the time arrives for the performance of a warranty relating to the future, a
loss insured against happens, or performance becomes unlawful at the place of the contract, or
• Requisites for Rescission for Alteration:
impossible, the omission to fulfill the warranty does not avoid the policy. o The use or condition of the thing is specifically limited or stipulated in
the policy;
2. Materiality and Fraud o Such use or condition as limited by the policy is altered;
o The alteration is made without the consent of the insurer;
Sec. 74. The violation of a material warranty, or other material provision of a policy, on the part o The alteration is made by means within the control of the insured; and
of either party thereto, entitles the other to rescind. o The alteration increases the risk.
Sec. 75. A policy may declare that a violation of specified provisions thereof shall avoid it,
otherwise the breach of an immaterial provision does not avoid the policy.
• Storage of hazardous materials
• Alteration in use or condition
Sec. 76. A breach of warranty without fraud merely exonerates an insurer from the time that it
• Sole ownership clause
occurs, or where it is broken in its inception, prevents the policy from attaching to the risk.
• “Other insurance” clause
• Condition – an event signifying either an occurrence or a non-occurrence • Chattel mortgage clause
that alters the existing legal relations of the parties to the contract. • Alienation clause
o Condition precedent – before contract is binding • Unoccupancy and vacancy clause
o Condition subsequent – after risk has attached and during its existence o The insurer may opt for a higher premium on unoccupied houses since no
one would be able to immediately report the fire or minimize the loss arising
• Warranties and Conditions distinguished out of it.
Warranties Conditions
Does not suspend or defeat the Condition precedent is one whose Pioneer Insurance v. Yap (1974)
operation of the contract, but a performance makes the contract Facts: Oliva Yap took out fire insurance policy from Pioneer with a face value of
breach of the warranty affords demandable, even if the contract has P25K covering her stocks, office furniture, fixtures and fittings of every kind and
either the remedy provided by the already been perfected and delivered description in her store in a two-storey building in Manila. The policy contains a
contract or by the law condition that the insured shall give notice to the insurer of any insurances already
effected, or which may subsequently be effected, covering any of the property already
insured, otherwise all benefits shall be forfeited. Oliva took out another policy

8
without notice to and written consent of Pioneer. Fire broke out and the store was Held: Law Union is estopped from resisting payment on account of the insufficient
burned. She filed a claim but was denied on the ground of “breach and/or violation of number of fire hydrants. It knew that QCG only had 2 hydrants when it issued the
any and/or all terms and conditions of the policy.” TC ruled in favor of Oliva. CA contract of insurance, and it did so without asserting the requirements provided in
affirmed. SC reversed the decision. the contract. QCG did not conceal such fact from Law Union.
Held: The purpose of the co-insurance clause is to prevent over insurance and thus Young v. Midland Textile Insurance
avert the perpetration of fraud. The public, as well as the insurer, is interested in Facts: Midland issued a P3K insurance policy to Young. Warranty B of the policy
preventing the situation in which a fire would be profitable to the insured. states that during the pendency of the policy, no hazardous goods should be stored or
kept for sale, and no hazardous trade or process be carried on in the building to which
New Life Enterprises v. CA (1992) the insurance applies, or in any building connected therewith. Young placed 3 boxes
Facts: New Life Enterprises stocks were insured with three insurance companies. Its of fireworks inside the building (back story: fireworks given to him by the former
building was set on fire due to electrical misconnections. When he was claiming owner of Luneta Candy Store; intended to use them in the Chinese New Year
insurance benefits, none of the three would pay up because all contracts did not celebration; Manila City Hall prohibited the use of fireworks so he placed them inside
indicate that they were co-insured, as required in all insurance contracts. the bodega). The building and contents were partially destroyed by fire; fireworks
were found in a part of the building not destroyed by fire and in no way contributed
Held: In Pacific Banking v. CA, it was held that by reason of the unrevealed to the fire or to the loss. Lower court ruled in favor of Young.
insurances, the insured had been guilty of a false declaration; a clear
misrepresentation and a vital one because where the insured had been asked to reveal Held: Young violated Warranty B of the policy. Young paid the premium based
but did not, that was deception. Otherwise stated, had the insurer known that there upon the risk at the time the policy was issued, and placing the fireworks inside the
were many coinsurers, it could have hesitated or plainly desisted from entering into building increased the risk, and no additional premium was paid nor a new policy
such contract. Hence, the insured was guilty of clear fraud. issued to cover such increased risk. An increase of risk which is substantial and
which is continued for a considerable period of time, is a direct and certain injury to
Pacific Banking v. CA & Oriental Assurance Corp. (1988) the insurer, and changes the basis upon which the contract of insurance rests.
Facts: Oriental issued a fire insurance policy to Paramount Shirt Mfg. Co. to
indemnify the insured for any loss of or damage to its property consisting of stocks, G. Grounds & Exercise of Rights of Rescission
materials and supplies usual to a shirt factory not exceeding P61K caused by fire.
Pacific was then a creditor of Paramount (not less than P800K). Policy was duly Sec. 48. Whenever a right to rescind a contract of insurance is given to the insurer by any
endorsed to Pacific as mortgagee/trustor, with the knowledge and consent of provision of this chapter, such right must be exercised previous to the commencement of an
Oriental. Fire broke out destroying the goods. Pacific filed its claim but Oriental action on the contract.
After a policy of life insurance made payable on the death of the insured for a period of two (2)
denied the claim for failure of the insured to declare other insurances over the same years from the date of its issue or of its last reinstatement, the insurer cannot prove that the
property. TC held Oriental liable. CA reversed. SC affirmed. policy is void ab initio or is rescindable by reason of the fraudulent concealment or
misrepresentation of the insured or his agent.
Held: Paramount failed to reveal before the loss three other insurances; guilty of a
Sec. 63. A condition, stipulation, or agreement in any policy of insurance, limiting the time for
false declaration; a clear misrepresentation and a vital one because where the insured commencing an action thereunder to a period of less than one (1) year from the time when the
had been asked to reveal but did not, that was deception. Had Oriental known that cause of action accrues, is void.
there were many coinsurances, it could have hesitated or plainly desisted from
entering into such contract. The whole foundation of the contract fails, the risk does Sec. 64. No policy of insurance other than life shall be cancelled by the insurer except upon prior
notice thereof to the insured, and no notice of cancellation shall be effective unless it is based on
not attach and the policy never becomes a contract between the parties. the occurrence, after the effective date of the policy, of one or more of the following:
(a) Nonpayment of premium;
Qua Chee Gan v. Law Union (1955) (b) Conviction of a crime arising out of acts increasing the hazard insured against;
Facts: QCG insured warehouses in Albay, which stocked copra and hemp with Law (c) Discovery of fraud or material misrepresentation;
(d) Discovery of willful or reckless acts or omissions increasing the hazard insured against;
Union. Fire broke out and engulfed 3 of the 4 bodegas. Law Union resisted payment, (e) Physical changes in the property insured which result in the property becoming
claiming violation of warranties and conditions, for having only 2 fire hydrants near uninsurable;
the building. (f) Discovery of other insurance coverage that makes the total insurance in excess of the value
Provision: QCG should provide an ample and constant water supply with sufficient pressure available, of the property insured; or
and that there should be a fire hydrant for each 150 feet of external wall measurement of building. The (g) A determination by the Commissioner that the continuation of the policy would violate or
total external perimeter of the buildings being 1,640 meters. QCG was expected to provide 11 hydrants. would place the insurer in violation of this Code.
Sec. 65. All notices of cancellation mentioned in the preceding section shall be in writing, mailed
or delivered to the named insured at the address shown in the policy, or to his broker provided
9
the broker is authorized in writing by the policy owner to receive the notice of cancellation on
his behalf, and shall state:
(a) Which of the grounds set forth in Section 64 is relied upon; and • Insurance may cover any contingent or unknown event which may cause
(b) That, upon written request of the named insured, the insurer will furnish the facts on which loss, damage or liability to the insured, provided he has insurable interest.
the cancellation is based. o Future, contingent event – e.g., fire
o Past unknown event – e.g., previous loss of the ship
Sec. 393. No cancellation of the policy shall be valid unless written notice thereof is given to the
land transportation operator or owner of the vehicle and to the Land Transportation Office at
least fifteen (15) days prior to the intended effective date thereof. Upon receipt of such notice, the 2. “Specified Risks” and “All Risks” Policies
Land Transportation Office, unless it receives evidence of a new valid insurance or guaranty in
cash or surety bond as prescribed in this chapter, or an endorsement of revival of the cancelled
one, shall order the immediate confiscation of the plates of the motor vehicle covered by such • Policy will specify what risks the insurer has agreed to grant coverage for,
cancelled policy. The same may be reissued only upon presentation of a new insurance policy or and beyond these, it may not be held liable.
that a guaranty in cash or surety bond has been made or posted with the Commissioner and
which meets the requirements of this chapter, or an endorsement or revival of the cancelled one.
3. Exceptions / Exclusions
• Cancellation – term generally used with regard to insurance, is broadly 4. Causes mentioned in the Code
regarded as the right to rescind, abandon, or cancel a contract of a. Proximate
insurance. It is the termination by either party before expiration. b. Remote
• Conditions (form and sufficiency): • An event preceding another in a causal chain, but separated from it by
o There must be prior notice of cancellation to the insured other events
o The notice must be based on the occurrence, after the effective date of c. Immediate
the policy, of one or more of the grounds mentioned
• The cause immediately preceding the loss, which is not proximate cause
o Must be in writing, mailed or delivered to the named insured at the
address shown in the policy, or to his authorized broker; and
Sec. 86. Unless otherwise provided by the policy, an insurer is liable for a loss of which a peril
o Must state which of the grounds in Sec 64 is relied upon (PC-FRU-OIc) insured against was the proximate cause, although a peril not contemplated by the contract may
o Nonpayment of premium have been a remote cause of the loss; but he is not liable for a loss of which the peril insured
o Conviction of a crime increasing the hazard insured against against was only a remote cause.
o Discovery of fraud or material misrepresentation
o Discovery of willful or reckless acts or omissions increasing Loss – the injury, damage, or liability sustained by the insured as a
the hazard insured against consequence of the happening of one or more of the perils against which the
o Physical changes in the property insured which result in the insurer has undertaken to indemnify the insured.
property becoming uninsurable Scope of Loss – the word “loss” in insurance law embraces bodily injury,
o Discovery of other insurance coverage that makes the total including death, or property damage or destruction. It also included loss of
insurance in excess of the value of the property insured income or profits and legal liability to a third party.
o A determination by the Insurance Commissioner that the
continuation of the policy would violate the Insurance Code Liability of Insurer for Loss
• Extent of Loss – Loss may be total, partial, or constructive total. It is
CHAPTER VII – RISKS AND COVERAGES satisfied by payment of the loss, reinstatement (repair or restoration) of
the property lost or damaged, or its replacement (substitution) with
A. In General: Risks and Causation another similar property.
• Cause of Loss – The insurer assumes liability only for a loss proximately
1. Insurable Risks caused by the perils insured against although a peril not insured against
may have been a remote cause of the loss. But the insurer is still liable
Sec. 3. Any contingent or unknown event, whether past or future, which may damnify a person even if the proximate cause is not the peril insured against if the
having an insurable interest, or create a liability against him, may be insured against, subject to immediate cause is the peril insured against.
the provisions of this chapter.
The consent of the spouse is not necessary for the validity of an insurance policy taken out
• Burden of Proof where Loss has occurred – Insurer has the burden of
by a married person on his/her life or that of his/her children. proof to show that he is not liable. Where the insurer denies liability for a
All rights, title and interest in the policy of insurance taken out by an original owner on the loss alleged to be due to a risk not insured against, but fails to establish
life or health of the person insured shall automatically vest in the latter upon the death of the the truth of such fact by concrete proofs, the insurer is liable under the
original owner, unless otherwise provided for in the policy.
terms and conditions of the policy by which it has bound itself.
10
Cf. with other terms used: o Insurer still liable, even if the actual cause of the loss (damage by
a. Legal water) was not a peril insured against in the insurance contract.
b. Efficient • Other example: Where the insured property is removed from a burning
c. Predominant building, and is stolen in the resulting confusion, the insurer is liable for
their value, unless the policy expressly excludes such loss.
5. Proximate Cause
7. Loss due to Negligence
Vda. de Bataclan v. Mariano Medina (1957)
Facts: When one of its tires burst, the bus fell into a canal and turned turtle, leaving • One of the main purposes why a person takes out insurance is to protect
4 passengers stuck inside. Eventually, a group of men came to help get them out. himself against the consequences of his own and his agents’ negligence.
Upon approaching the vehicle, one of them carrying a lit torch, a fierce fire started, • Negligence of the insured does not exonerate the insurer from liability.
burning the bus and the passengers trapped inside it. Apparently, gasoline leaked out • Negligence of subordinates, many of whom must often be employed
of the tank, permeating the bus and the ground around it. TC held that the proximate without much knowledge of them by employers, is one of the perils
cause of Bataclan’s death was the fire for at the time the fire started, Bataclan was insured against.
still alive, albeit with serious physical injuries. SC reversed. • Examples:
o Insured lighted some straw under his barn in order to smoke out bees
Held: The proximate cause was the overturning of the bus. When the vehicle and the fire spread rapidly and destroyed the property insured, the
insurer is liable.
overturned, the leaking of the gasoline was not unnatural or unexpected; the coming
o Insured carelessly used kerosene in kindling a fire in a stove, and in so
of the men with a torch was also to be expected and was a natural sequence of the doing caused the house to catch fire, the insurer is liable.
overturning of the bus, the trapping of some of its passengers and the call for outside • But where the insured’s negligence is so gross as to be sufficient evidence
help. The burning of the bus can also be attributed to the driver and conductor who of fraudulent intent, or his act was so reckless as to be equivalent to a
should have warned the rescuers not to bring the lit torch too near the bus. willful act, as when the insured could have extinguished the fire but
refused to do so, the insurer will be exonerated.
• Definition of Proximate Cause: “That which, in a natural and continuous
sequence, unbroken by any new, independent cause, produces that event, Cf. Willful Act
and without which that event would not have occurred; the one that sets
others in motion – to which the loss is to be attributed, although other and Sec. 87. Supra
incidental causes may be nearer in time to the result and operate more
immediately in producing the loss; not equivalent to “immediate cause.” • Sec. 87, IC exonerates the insurer from liability for a loss caused by the
willful act or through the connivance of the insured.
6. Rescue from Covered Peril • Examples:
o Insurer not liable on a fire policy where it is proven that the insured
Sec. 87. An insurer is liable where the thing insured is rescued from a peril insured against that had masterminded the intentional burning of the insured property.
would otherwise have caused a loss, if, in the course of such rescue, the thing is exposed to a o If the insured who is in full possession of his mental faculties, should
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
take his own life, the insurer cannot be held liable on his life policy.
against. • But the mere fact that the insured had in his possession keys to the
unoccupied burned building is not sufficient basis in itself to attribute the
• Under Sec. 87, insurer will still be liable if: fire to his willful act.
o Thing is insured against a peril (ex: painting was insured against fire)
o Thing would have been lost or damaged by the peril insured against, FGU Ins. Corp. v. CA, San Miguel Corp. & Estate of Ang Gui (2005)
had it not been rescued. (ex: building where painting is enclosed caught Facts: San Miguel Corporation (SMC) shipped cases of beer, using the tugboat
in flames, but was immediately doused with water) owned by ANCO Enterprises Co. and the D/B Lucio barge. When the vessels arrived
o Thing was damaged by the rescue efforts (ex: painting was damaged by at Antique, the arrastre workers complained of the difficulty in unloading the cargoes
the water used in dousing the flames) due to the worsening weather. Despite dark clouds and big waves, ANCO did not
transfer the barge to a safer place even if at that time, it was the only vessel left at the
11
wharf. Eventually, the crew abandoned the vessel and it ran aground and broke. The in consideration of the payment of a smaller sum immediately, or in
cargoes of beer were swept away and ANCO failed to deliver the cases of beer to periodical payments by the other party
SMC’s consignee—20,000 of these cases were insured with FGU, from which • Contract to make specific payments to pay to a certain person, the
ANCO is seeking reimbursement for the amount it will be required to pay SMC. beneficiary, upon the death of a person whose life has been insured
Application of Exemption to Accident Insurance

Held: FGU is not liable under the marine insurance policy. It is a basic rule in
• Generally speaking, a life insurance is distinct and different from an
insurance that carelessness and negligence of the insured is not a defense on the part accident insurance. However, when one of the risks insured in the latter is
of insurer. However, in this case, ANCO failed to exercise the extraordinary the death of the insured by accident, then such accident insurance may
diligence required of common carriers in the shipment of the cargo and this was also be regarded as a life insurance
considered negligence “so gross as to be sufficient to constitute a willful act.” The • In an accident insurance, the insured’s beneficiary has the burden of
court took into account the fact ANCO’s employees left the vessel engine-less, at the proving that the cause of death is due to the covered peril. Once that fact
mercy of the storm and did not transfer the barge to a safer place notwithstanding is established, the burden then shifts to the insurer to show any excepted
SMC’s requests, these acts of negligence/recklessness certainly amount to peril that may have been stipulated by the parties
misconduct or wrongful acts, thus FGU must be exonerated from liability.
Ordinary or Whole Life Policy – covers the risk of death alone; all causes of
death are covered, except those which are expressly excluded by the law, by
B. Life Insurance policy or by reasons of public policy.
1. Death or Survival Pure Endowment Policy – insurer will pay only if the insured survives a
specified period.
Sec. 181. Life insurance is insurance on human lives and insurance appertaining thereto or
connected therewith.
Every contract or undertaking for the payment of annuities including contracts for the Endowment Policy – combination of the above two; pay the beneficiary
payment of lump sums under a retirement program where a life insurance company manages or should the insured die within a designated period, or pay the insured
acts as a trustee for such retirement program shall be considered a life insurance for purposed of himself should he survive the period.
this Code.
Sec. 182. An insurance upon life may be made payable on the death of the person, or on his Death of the insured (the cestui que vie) must be proven by the beneficiary
surviving a specified period, or otherwise contingently on the continuance or cessation of life. before the insurer is made to pay; death certificate, affidavit of a disinterested
Every contract or pledge for the payment of endowments or annuities shall be considered a person identifying the deceased as the person covered by the policy
life insurance contract for purposes of this Code.
In the absence of a judicial guardian, the father, or in the latter’s absence or incapacity, the
mother, of any minor, who is an insured or a beneficiary under a contract of life, health, or Presumption of Death – instances where the beneficiary may not be able to
accident insurance, may exercise, in behalf of said minor, any right under the policy, without prove the fact of death, as when the insured has disappeared and has been
necessity of court authority or the giving of a bond, where the interest of the minor in the absent for a long period of time, the insurer’s liability may arise on a
particular act involved does not exceed five hundred thousand pesos (P500,000) or in such presumption of death.
reasonable amount as may be determined by the Commission. Such right may include, but shall
not be limited to, obtaining a policy loan, surrendering the policy, receiving the proceeds of the
policy, and giving the minor’s consent to any transaction on the policy. • Art. 390-391, CC – presumption may arise only after the insured has been
In the absence or in case of the incapacity of the father or mother, the grandparent, the eldest absent for:
brother or sister at least eighteen (18) ears of age, or any relative who has actual custody of the
minor insured or beneficiary, shall act as a guardian without need of a court order or judicial o 7 years – if it’s unknown whether he is still alive.
appointment as such guardian, as long as such person is not otherwise disqualified or o 4 years – if he is on board a vessel lost during a sea voyage or a plane
incapacitated. Payment made by the insurer pursuant to this Section shall relieve such insurer of which has been missing, or where he was in the armed forces and has
any liability under the contract. taken part in war, or where he has been in danger of death under other
circumstances and his existence has not been known.
Life Insurance defined • Presumption may be rebutted by evidence tending to show a motive or
• Based on Sec.182, life insurance may be defined as insurance payable on motives for the disappearance of the insured.
the death of a person, or on his surviving a specified period, or otherwise o Insured was a fugitive from justice or his domestic relations were
contingently on the continuance or cessation of life unhappy giving him sufficient reason to leave his abode and keep his
• Mutual agreement by which a party agrees to pay a given sum on the whereabouts a secret.
happening of a particular event contingent on the duration of human life,
12
o In such a case, court would be justified in refusing recovery of the 3. Accidental Death (Cf. Death by Accidental Means)
insurance proceeds on the ground that the insured must have
intentionally absented himself. Rule as to Death or Injury Resulting From “Accidental” or “Accidental
• Presumption can never become conclusive and the reappearance of the Means”
insured, no matter how long, will necessarily overturn it. • Terms considered as legally synonymous – distinction between the two is
• Problem: Insured reappears after the insurer has paid the proceeds based certainly not understood by the average man and he is the one for whom
on the presumption of death. the policy is written
o If insurer paid voluntarily, no fraud on the part of the beneficiary – • General Rule – The generally accepted rule is that the death or injury does
recovery based on mistake cannot be had since both parties know that not result from accident or accidental means within the terms of an
payment was made merely on the basis of the presumption; neither accident policy if it is the natural result of the insured’s voluntary act,
can recovery be granted where the insurer paid not voluntarily but by unaccompanied by anything unforeseen except the death or injury
virtue of a final judgment rendered against it, unless the insured • Exception – Accident if a deliberate act is performed and some additional,
reappears and recovery is claimed within the period allowed for relief unexpected, independent and unforeseen happening occurs which
from judgments. produces or brings about the result of injury or death.
2. Suicide “Intentional”
• Implies the exercise of the reasoning faculties, consciousness, and volition.
Sec. 183. The insurer in a life insurance contract shall be liable in case of suicide only when it is
committed after the policy has been in force for a period of two (2) years from the date of its
issue or of its last reinstatement, unless the policy provides a shorter period; Provided, however,
Finman Gen, Assurance Corp. v. CA & Julia Surposa (1992)
that suicide committed in the state of insanity shall be compensable regardless of the date of Facts: Carlie Surposa, while waiting for a ride home with his cousin after the
commission. Maskara Festival, was suddenly stabbed, without warning or provocation, by one of
Sec. 89. An insurer is not liable for a loss caused by the willful act or through the connivance of three unidentified men. Carlie was insured with Finman at the time of his death, so
the insured; but he is not exonerated by the negligence of the insured, or of the insured’s agents his beneficiaries filed a written notice of claim with Finman. It denied the claim,
or others.
contending that murder and assault are not covered by the deceased’s personal
accident insurance policy.
Liability of insurer in case of suicide
• When Liable – In a life insurance contract, the insurer is liable in case of
Held: It is a generally accepted rule that death or injury does not result from
suicide in the following cases:
a) Suicide is committed after the policy has been in force for a period of two accident or accidental means if it is the natural result of the insured’s voluntary act,
(2) years from the date of its issue or of its last reinstatement; unaccompanied by anything unforeseen except the death or injury. Thus, where the
b) Suicide is committed after a shorter period provided in the policy death or injury is not the natural or probable result of the insured’s voluntary act or
although within the two-year period; and if something unforeseen occurs in the doing of the act which produces the injury, the
c) Suicide is committed in the state of insanity regardless of the date of resulting death is within the protection of the policies insuring against death or
commission, unless suicide is an excepted risk
injury from accident. In this case, the stabbing incident was a pure accident on the
* Policy cannot provide a period longer than two years. part of the victim, Carlie.
• When Not Liable Definition of Accident: “Event that happens without the victim’s foresight or
a) Suicide is not by reason of insanity and is committed within the two-year expectation and which proceeds from an unusual effect of a known cause;
period; unexpected, unusual and unforeseen.”
b) Suicide is by reason of insanity but is not among the risks assumed by
the insurer regardless of the date of commission; Virginia Calanoc v. CA & Phil, American Life Ins. Co. (1955)
c) Insurer can show that the policy was obtained with the intention to Facts: Atty. Ojeda, upon seeing his house well-lit and windows closed, was
commit suicide even in the absence of any suicide exclusion in the policy. suspicious that there were people inside his house. He asked Basilio, a watchman, to
accompany him. Basilio initially refused to go, but eventually, he, along with Ojeda
and a policeman, went to the residence. While standing outside the gate, Ojeda was

13
shot in the abdomen and he died. Philam Life refused to pay the proceeds of the life gun was not loaded, he pointed it to his temple. The gun went off and he died
policy because it claims Basilio died of assault or murder and while making an arrest instantly. Sun Insurance, although agreeing that there was no suicide, contended
as an officer of the law, circumstances expressly excluded in the contract. that there was no accident either—Lim willfully exposed himself to needless peril and
this comes under the exception.
Held: There is no proof that Basilio died of either assault or murder as there is no
record of how the fatal shot was fired. It cannot be said that the killing was Held: The firing of the gun was an accident, it was an additional unexpected,
intentional for: 1) there is a possibility that the shot was fired just to scare away the independent and unforeseen occurrence that led to the Lim’s death. Lim did not
willfully expose himself to needless peril because he pointed the gun to his temple
people, and not necessarily to kill or hit the victim, 2) the victim could have been any
precisely because he thought it was not unsafe to do so.
of the three men, no showing that the malefactor aimed at the deceased precisely.
Basilio also cannot be blamed for doing what he believed was his duty as a watchman Simon de la Cruz v. Capital Insurance & Surety Co. (1966)
and as a citizen. He cannot be considered as making an arrest as an officer of the law, Facts: Itogon-Suyoc Mines, Inc. sponsored a boxing contest and De la Cruz
as he did not go there for that purpose nor was he asked to do so by the policeman. It participated. During his match, he slipped, hit by his opponent on the left part of the
should not be taken as a desire on his part to expose his life to danger, considering back of the head and he fell, his head hitting the rope of the ring. He died the next day
that he was tasked to guard a place a block away, he might have thought that it was from an intracranial hemorrhage. The insurance company denied the claim as the
death was caused by insured’s participation in a boxing contest, thus it was not
in the interest of his employer as it involved the security of the neighborhood.
accidental and not covered by insurance.
Emilia Biagtan, et. al. v. Insular Life Assurance Co. Ltd. (1972) Held: General accepted rule is that death or injury does not result from accident or
Facts: Biagtan’s house was robbed, and in the course of the robbery, he was stabbed accidental means if it is the natural result of the insured’s voluntary act,
nine times with sharp pointed instruments, causing his death. Insular Life unaccompanied by anything unforeseen except the death or injury. While the
Assurance refused to pay the additional sum under the “Accidental Death Benefit participation of the insured in the boxing contest is voluntary, the injury was
Clause” as it claims the insured’s death resulted from injuries intentionally inflicted sustained when he slid, allowing his opponent to hit him. Without the unintentional
by third parties and thus was not covered. slipping, perhaps he would not have died. The fact that boxing is attended with some
risks of injuries, does not make any injuries received in boxing not accidental.
Held: Whether the robbers had the intent to kill or merely to scare the victim or to 4. Group Life Insurance
ward off any defense he might offer, it cannot be denied that the act itself of inflicting
the injuries was intentional. The exception in the clause invoked by the beneficiaries Sec. 50. The policy shall be in printed form which may contain blank spaces, and any word,
does not speak of the purpose of a third party in causing the injuries, but only of the phrase, clause, mark, sign, symbol, signature, number, or word necessary to complete the
contract of insurance shall be written on the blank spaces provided therein.
fact that such injuries have been “intentionally” inflicted, in order to distinguish Any rider, clause, warranty, or endorsement purporting to be part of the contract of
them from injuries which, although received at the hands of a third party, are purely insurance and which is pasted or attached to said policy is not binding on the insured, unless the
accidental. “Intentional” implies the exercise of the reasoning faculties, descriptive title or name of the rider, clause, warranty or endorsement is also mentioned and
written on the blank spaces provided in the policy.
consciousness and volition. Unless applied for by the insured of owner, any rider, clause, warranty, or endorsement
issued after the original policy shall be countersigned by the insured or owner, which
countersignature shall be taken as his agreement to the contents of such rider, clause, warranty,
Dissent: Where the killing does not amount to murder, it must be held to be a “pure or endorsement.
accident” on the part of the victim, even though the malefactor is criminally liable for Notwithstanding the foregoing, the policy may be in electronic form subject to the pertinent
provision of Republic Act No. 8792, otherwise known as the “Electronic Commerce Act” and to
his act. The double indemnity policy covers the insured against accidental death, such rules and regulations as may be prescribed by the Commissioner.
whether caused by fault, negligence or intent of a third party, which is unforeseen
Sec. 234. No policy of group life insurance shall be issued and delivered in the Philippines
and unexpected by the insured. All the associated words in the policy plainly exclude unless it contains in substance the following provisions, or provisions which in the opinion of
accidental death only where the injuries are self-inflicted or attended by act of the the Commissioner are more favorable to the persons insured, or at least as favorable to the
insured, or incurred in an expressly excluded calamity. persons insured and more favorable to the policyholders:
(a) A provision that the policyholder is entitled to a grace period of either thirty (30) days or
of one (1) month for the payment of any premium due after the first, during which grace
Sun Insurance v. CA (1992) period the death benefit coverage shall continue in force, unless the policyholder shall
Facts: Lim was in a happy mood (but not drunk) and was playing with his handgun, have given the insurer written notice of discontinuance in advance of the date of
discontinuance and in accordance with the terms of the policy. The policy may provide
from which he had previously removed the magazine. To assure his secretary that the
14
that the policyholder shall be liable for the payment of a pro rata premium for the time the policy and that any death benefit paid thereunder by reason of his death shall be applied
policy is in force during such grace period; to reduce or extinguish indebtedness.
(b) A provision that the validity of the policy shall not be contested, except for nonpayment of The provisions of paragraph (f) to (j) shall not apply to policies issued to a creditor to insure his
premiums after it has been in force for two years from its date of issue; and that no debtors, if a group life policy is on a plan of insurance other than term, it shall contain a non-
statement made by any insured under the policy relating to his insurability shall be used forfeiture provision or provisions which in the opinion of the Commissioner is or are equitable
in contesting the validity of the insurance with respect to which such statement was made to the insured or the policyholder; Provided, that nothing herein contained shall be so construed
after such insurance has been in force prior to the contest for a period of two years during as to require group life policies to contain the same non-forfeiture provisions as are required of
such person’s lifetime nor unless contained in a written instrument signed by him; individual life policies.
(c) A provision that a copy of the application, if any, of the policyholder shall be attached to
the policy when issued, that all statements made by the policyholder or by persons
insured shall be deemed representations and not warranties, and that no statement made Group Insurance and Individual Insurance Contrasted
by any insured shall be used in any contest unless a copy of the instrument containing the 1) First, and probable foremost, is the group selection of risks as contrasted to
statement is or has been furnished to such person or to his beneficiary. individual selection. With few exceptions, group insurance is issued
(d) A provision setting forth the conditions, if any, under which the insurer reserves the right without medical examination or any evidence of individual insurability.
to require a person eligible for insurance to furnish evidence of individual insurability
satisfactory to the insurer as a condition to part or all of his coverage. 2) Another characteristic of group insurance is the coverage of a number of
(e) A provision specifying an equitable adjustment of premiums or of benefits or of both to be persons under a single contract. Persons insured are not actually parties
made in the event that the age of a person insured has been misstated, such provision to to the contract, since legally, the contract is between the insurer and the
contain a clear statement of the method of adjustment to be used. group policyholder, most commonly an employer.
(f) A provision that any sum becoming due by reason of death of the person insured shall be
payable to the beneficiary designated by the insured, subject to the provisions of the policy 3) A third characteristic of group insurance is that is essentially low-cost mass
in the event that there is no designated beneficiary, as to all or any part of such sum, living protection. A number of economies of large volume operation are
at the death of the insured, and subject to any right reserved by the insurer in the policy obtained through mass distribution and mass administration methods.
and set forth in the certificate to pay at its option a part of such sum not exceeding five
hundred pesos to any person appearing to be the insurer to be equitably entitled thereto
4) Another special feature of group insurance lies in the fact that premiums
by reason of having incurred funeral or other expenses incident to the last illness or death usually are subject to experience rating. Except for small groups, the actual
of the person insured. experience of an individual group may figure heavily in the
(g) A provision that the insurer will issue to the policyholder for delivery to each person determination of dividends or premium rates of adjustment. The larger
insured a statement as to the insurance protection to which he is entitled, to whom the the group, the greater the significance attached to its own claims and
insurance benefits are payable, and the rights set forth in paragraphs (h) and (j) following.
(h) A provision that if the insurance, or any portion of it, on a person covered under the policy expenses in any policy year.
ceases because of termination of employment or of membership in the class or classes
eligible for coverage under the policy, such person shall be entitled to have issued to him Group insurance contracts are of a continuing nature, in that the contract
by the insurer without evidence of insurability, an individual policy of life insurance
without disability or other supplementary benefits, provided application for the
and the plan may last long beyond the lifetime, or membership in the plan, of
individual policy and payment of the first premium to the insurer shall be made within any one individual. New persons are added to the group from time to time
thirty days after such termination, and provided further that: and other terminate their coverage. However, it is relatively rate for group
(1) The individual policy shall be on any one of the forms, except term insurance, then coverage to be discontinued by an employer, since normally it is part of his
customarily issued by the insurer at the age and for an amount not in excess of the
coverage under the group policy; and
overall employee benefit plan. It is less rare for group plans to be changed
(2) The premium on the individual policy shall be at the insurer’s then customary rate from one insurer to another
applicable to the form and amount of the individual policy, to the class of risk to
which such person then belongs, and to his age attained on the effective date of the Group Insurance Contract
individual policy. 1) Advantage of contract/policy – Group insurance is the coverage of a
(i) A provision that if the group policy terminates or is amended so as to terminate the
insurance of any class of insured person, every person insured thereunder at the date of number of individuals by means of a single or blanket policy, thereby
such termination whose insurance terminates and who has been so insured for five years effecting economies which frequently enable the insurer to sell its
prior to such termination date shall be entitled to have issued to him by the insurer and services at lower premium rates than are ordinarily obtainable for the
individual policy of life insurance subject to the same limitations as set forth in paragraph
(h), except that the group policy may provide that the amount of such individual policy
same type of insurance protection on life policies sold to individuals.
shall not exceed the amount of the person life insurance protection ceasing;
(j) A provision that if a person insured under the group policy dies during the thirty-day 2) Form and nature of contract – Essentially a single insurance contract that
period within which he would been entitled to an individual policy issued to him in provides coverage for many individuals. In its original and most
accordance with paragraphs (h) and (i) above and before such individual policy shall have common form, group insurance provides life or health insurance
become effective, the amount of life insurance which he would have been entitled to have
issued to him as an individual policy shall be payable as a claim under the group policy coverage for the employees of one employer.
whether or not application for the individual policy or the payment of the first premium • Ordinarily takes the form of insurance whereby the employees’ lives
has been made. are insured by the employer in consideration of a flat premium based
(k) In the case of a policy issued to a creditor to insure debtors of such creditor, a provision
that the insurer will furnish to the policyholder for delivery to each debtor insured under upon the average age and such premiums are generally paid by
the policy a form which contain a statement that the life of the debtor is insured under the employer.
15
• Not indemnity insurance for the benefit of the employer but to illness, injury or preventive care. Under this type are group disability
insurance upon the life of the employee for his personal benefit and income and group medical expense insurance
the protection of those depending upon him and is in addition to and
distinct from workmen’s compensation insurance. Pineda, et. al. v. CA and Insular Life Assurance Co. (1993)
• Generally construed as creating a contract between the employer and Facts: PMSI availed of a group life insurance policy from Insular life to provide life
the insurer, but for the benefit of the insured employees. insurance for sea-based employees. Six employees died when M/V Nemos sank. Their
respective beneficiaries sought to claim death benefits due them, they executed special
3) Collection and payment of premiums – A group insurance is considered powers of attorney authorizing Capt. Nuval to follow up, ask, demand, collect and
to be “contributory” if each member pays all or part of the premiums receive the benefits in their behalf. Insular Life then issued 6 checks, which Capt.
and “non-contributory” if the representative pays all of the premiums. Nuval subsequently deposited in his bank account. Upon discovering that they were
• One of the reason for the attractiveness of group insurance as a also entitled to life insurance benefits under group policy, beneficiaries sought to
fringe benefit: amounts of premiums paid by employer are tax
recover from Insular. Insular denied their claim, saying that its liability was
deductible (within limits), while the premiums paid by the employee
are not considered taxable income to the employee. extinguished upon delivery to and receipt by PMSI of the 6 checks issued. SC says
Insular is still liable to the employees.
4) Constituent parts of contract – When group insurance is effected, a
group or “master” policy is customarily issued by the insurer to the Held: Group insurance is essentially a single insurance contract that provides
employer or analogous policyholder, and certificates of participation are coverage for many individuals. In its original and most common form, group
issued to the individual employees or participants; Generally held that insurance provides life or health insurance coverage for employees of one employer.
an employee’s contract of insurance under the group plan consists of the Although the employer may be the one named insured, the insurance is actually
“parent” or master policy, the individual certificate being no part of such related to the life and health of the employee. The employee is the real party to the
contract but only an instrument reciting employee’s right to protection master policy, and the labor of the employees is the true source of the benefits, which
under the terms of the group policy. are a form of additional compensation to them.
5) Employer acts as agent of insurer – Most persuasive rationale: employee Eternal Gardens Memorial Park Corp. v. Phil. Am. Life Ins. Co. (2008)
has no knowledge of or control over the employer’s actions in handling Facts: PHILAMLIFE entered into a Creditor Group Life Policy with Eternal
the policy or its administration. Gardens Memorial Park Corp., where clients of Eternal who purchased burial lots on
installment basis would be insured by PHILAMLIFE. Eternal was required under
6) Employees are real parties in interest – Although the employer may be the policy to submit a list of all new lot purchasers, a copy of the application of each
the titular or named insured, the insurance is actually related to the life purchaser and amounts of unpaid balances of all those insured. Eternal filed a claim
and health of the employee; Employee is in the position of a real party to with PHILAMLIFE when John Chuang, one of the purchasers in the list, died but
the master policy; Labor of the employees is the true source of the the company denied the claim, alleging that no application for group insurance was
benefits, which are a form of additional compensation to them. submitted prior to Chuang’s death.
Types of Group Insurance Held: Letter from Eternal which PHILAMLIFE stamped as received, states that the
1) Group Life Insurance – Fundamentally, all forms of group life insurance insurance forms for the list of burial lot buyers were attached to the letter. The stamp
are concerned with payment of a benefit upon the death of the insured of receipt has the effect of acknowledging receipt of the letter and its attachments are
a) Group Term – One-year renewable term life insurance issued under a tantamount to an admission by PHILAMLIFE. It failed to prove that the letter did
group contract to employers, creditors, unions, associations, and not contain Chuang’s insurance application.
other entities
b) Group Permanent – Life insurance under a group contract that Great Pacific Life v. CA (1999)
provides for some form of accumulation of permanent or cash value Facts: Group life insurance was executed between Grepalife and DBP, with former
units insuring lives of eligible housing loan mortgagors of DBP. Dr. Leuterio, a physician,
c) Group Accidental Death – A form of life insurance payable upon applied for eligibility, who answered in his forms that he is indeed in good health.
death as a consequence of accidental bodily injury Grepalife issued insurance coverage to the extent of his indebtedness of his DBP of
P86,200. Less than a year from the issuance of his certificate, Dr. Leuterio died of
2) Group Health Insurance – Concerned with the provision of benefits for massive cerebral hemorrhage. DBP then tried to recover from Grepalife, but the latter
the loss of earning power due to disability, or for medical expenses due refused on account of Leuterio alleged non-disclosure of hypertension. SC favored
16
Leuterio, and ordered orders Grepalife to pay Leuterio’s heirs upon proof of Mutual Insurance Company
settlement of Leuterio’s debt with DBP. • A cooperative enterprise, wherein the members constitute both insurer
and insured, where the members all contribute, by a system of premiums
Held: The rationale of a group insurance policy of mortgagors, “Mortgage and assessments, to the creation of a fund from which all losses and
Redemption Insurance”, is a device for the protection of both the mortgagee and the liabilities are paid, and wherein the profits are divided among themselves
mortgagor. Where the mortgagor pays the insurance premium under the group in proportion to their interest
insurance policy, making the loss payable to the mortgagee, the insurance is on the
mortgagor’s interest, and the mortgagor continues to be a party to the contract. The Status of Members of Mutual Life Insurance Companies
mortgagee is simply an appointee of the insurance fund. 1) Rights and Liabilities, generally – Contract of insurance with a mutual
insurance company is a peculiar contract, for although in terms a
5. Industrial Life contract with the company, it is in substance a contract between the
insured and all other member of the company; Members sustain a dual
Sec. 235. The term “industrial life insurance” as used in this Code shall mean that form of life relationship and their interests are twofold: they are both insurers and
insurance under which the premiums are payable either monthly or oftener, if the face amount insured; Each person insured becomes subject to the same obligations
of insurance provided in any policy is not more than five hundred times that of the current
statutory minimum daily wage in the City of Manila, and if the words “industrial policy” are toward the other members that they bear toward him.
printed upon the policy as part of the descriptive matter.
An industrial life policy shall not lapse for nonpayment of premium if such nonpayment 2) Duration of Membership – If charter contains no provisions on the
was due to the failure of the company to send its representative or agent to the insured at the subject, membership commences only with the taking out of a policy
residence of the insured or at some other place indicated by him for the purpose of collecting
such premium; Provided, That the provisions of this paragraph shall not apply when the and lasts only for the policy period; Ceases with the expiration of the
premium on the policy remains unpaid for a period of three months or twelve weeks after the member’s policy and payment of the liabilities incurred while the policy
grace period has expired. was in force.
Industrial Life Insurance 3) Relationship of Members to Company – The policyholder is not a

• Term derives from the fact that it is tailored to suit the needs of the class partner of the company, but his relation with the company is one of
that still accounts for the majority of its purchasers—the urban industrial contract and is measure by the terms thereof.
class of blue-collar workers. • In the events that the company itself fails before the terms of the
policies expire, the member-policyholders do not acquire the status
1) Written in small amounts – Premiums are payable either monthly or of creditors, they become debtors for whatever premiums that they
oftener and collected by company representatives at the home of have originally agreed to pay the company, if they have not yet paid
policyholders. those amounts in full.
2) Sold through individual solicitation – The method of individual • Only when premiums will have accumulated to a sum larger than
solicitation per policy and collecting the premiums and the expense of that required to pay for company losses will the member-
handling small sums which add materially to the cost, lack of a medical policyholders be entitled to a “pro rata” division thereof as “profits.”
screening, and the high-than-average death rate among low-income
groups account for the rate of industrial life insurance to be higher than 4) Right to Share in the Common Fund – Sharing in the common fund, any
ordinary life insurance. member-policyholder may choose to withdraw dividends in cash or to
3) Adopted to a particular market – There are now few differences apply them in order to reduce a subsequent premium, purchase
between the provisions in an industrial life insurance policy and that in additional insurance, or accelerate the payment period.
most ordinary policies. Industrial life insurance is, in the strict sense, not • So-called “dividend” that is received by member-policyholders is not
a different form of insurance protection but rather is a plan adapted to a a portion of profits set aside for distribution to the stockholders in
particular market. proportion to their subscription to the capital stock: a mutual
company has no capital stock; there are no stockholders but only
6. Mutual Life Insurance Companies – Sec. 268 members; the amount they receive does not partake of the nature of a
profit or income, remains an overpayment, a benefit to which the
Sec. 268. Any domestic stock life insurance company doing business in the Philippines may member-policyholder is equitably entitled.
convert itself into an incorporated mutual life insurer. To that end it may provide and carry out
a plan for the acquisition of the outstanding shares of its capital stock for the benefit of its
policyholder, or any class or classes of its policyholder, by complying with the requirements of 5) Rights to Company Property – While the title to the property is in the
this chapter. company, the equitable interests therein are vested in the members the
17
same as in the case of a stock corporation; Upon dissolution of the Hostile Fire Friendly Fire
company, its general creditors are entitled to priority over the claims of Fire occurs outside of the usual Fire burns in a place where it was
the members for the reason that the members are, generally speaking, confines or begins as a friendly fire intended to burn, and ought to be, it
the debtors; The assets belong only to members at the time of and becomes hostile by escaping is to be regarded as merely an agency
dissolution, which includes only present policyholders. from the place where it ought to be for the accomplishment of some
to place where it ought not to be purpose and not as a hostile peril
Republic of the Phils. v. Sunlife Assurance Co. of Canada (2005) Insurer is liable Insurer is not liable
Facts: Sun Life filed with the Commissioner of Internal Revenue its insurance
premium tax return for the third quarter of 1997 and paid premium tax, it also filed Nature of Fire Insurance
with the CIR its documentary stamp tax declaration returns and paid the amount • Essentially a contract of indemnity. Any contract that contemplates a
due. Following the CTA decision which declared mutual life insurance companies as possible gain to the insured by the happening of the event upon which the
purely cooperative companies exempt from payment of premium tax and DST, Sun liability becomes fixed is contrary to its proper nature and is not allowed.
Life filed for tax credit of what it erroneously paid. CIR argued that Sun Life ought to
Concept of Fire
have registered before it could enjoy the exemptions.
• The presence of heat, steam, or even smoke is evidence of fire, but taken
by itself will not prove the existence of fire. Unless accompanied by
Held: A mutual life insurance company is a cooperative that promotes the welfare of ignition, heat sufficient to cause charring or scorching does not constitute
its own members, and does not operate for profit, but for the mutual benefit of its fire. To constitute fire, combustion must proceed at a rate sufficiently fast
member-policyholders, who pay into its capital by way of premiums. They are to produce a flame, a glow, or incandescence.
responsible for the payment of all its losses. Under the Tax Code, although Sun Life • In our jurisprudence, fire may not be considered a natural disaster or
is a cooperative, registration with the CDA is not necessary in order for it to be calamity since it almost always arises from some act of man or by
exempt from the payment of taxes on insurance premiums and DST on insurance human means. It cannot be an act of God unless caused by lightning or a
policies or annuities. Thus, it is entitled to the exemptions and the tax credit it seeks. natural disaster or casualty not attributable to human agency.
Risks or Losses Covered

Requisites of a cooperative, applying it to mutual life insurance companies
• Scope and coverage of a fire insurance policy and the intention of the
1. Conducted by the members thereof
parties, as indicated by their contract controls.
• The management and affairs of mutual life insurance companies o Now frequently contains “extended coverage” provisions bring certain
(MLIC’s) are conducted by their member-policyholders. additional risks or all other risks not excluded within the coverage of
2. With the money collected from among themselves the policy ex. Damage or loss by explosion, lightning, earthquakes,
• MLIC’s are operated with premiums collected from its members. typhoon, flood, riot and other special perils may be expressly insured
3. Solely for their own protection and not for profit. against in addition to that caused by fire.
• They are licensed for the mutual protection of their members, not for
anyone’s profit. Kinds of Indirect Losses
1) Physical damage caused to other property
C. Fire Insurance 2) Loss of earnings due to the interruption of business by damage to
insured’s property
1. What “Fire Insurance” Includes 3) Extra expenses or additional expenditures or charges incurred by the
insured following damage or destruction if buildings or contents by an
Sec. 169. As used in this Code, the term “fire insurance” shall include insurance against loss by insured peril
fire, lightning, windstorm, tornado or earthquake and other allied risks, when such risks are
covered by extension to fire insurance policies or under separate policies. Phil. Home Assurance v. CA (1996)
Facts: Eastern Shipping Lines, Inc. (ESLI) loaded on board SS Eastern Explorer
Fire Insurance Defined internal combustion engine parts, liquid substances such as ammonium chloride and
• A fire insurance is a contract of indemnity by which the insurer, for a garments. While the vessel was in Japan, a small flame was detected on the acetylene
stipulated premium, agrees to indemnify the insured against loss of, or cylinder located in the accommodation area. When the crew was trying to extinguish
damage to, a property caused by hostile fire located at the place stated in
the fire, the acetylene cylinder exploded, causing death and injuries and setting the
the policy.
18
entire vessel on fire. The master and crew of the vessel abandoned the ship. The 2) Character of the increase in risk – An increase of hazard takes place
cargoes saved were loaded onto another vessel for delivery to their original ports of whenever the insured property is put to some new use, and the new use
destination. ESLI charged the consignees several amounts corresponding to increases the chance of loss.
additional freight and salvage charges, which were all paid under protest by
Mere negligent acts temporarily endangering the property will not violate
Philippine Home Assurance Corp. PHAC filed a complaint to recover, saying the the policy nor the temporary acts or conditions which have ceased prior to
damages were brought about by the fault and negligence of ESLI. the occurrence of the loss.
Held: In our jurisprudence, fire may not be considered a natural disaster or calamity There must be an actual increase of risk and while it is not necessary that the
since it almost always arises from some act of man or by human means. It cannot be increased risk should have cause or contributed to the loss, still it is
an act of God unless caused by lightning or a natural disaster or casualty not necessary that the increase be of substantial character.
attributable to human agency. In this case, there is strong evidence indicating that
Alterations Avoiding Policy
the acetylene cylinder caught fire because of the fault and negligence of ESLI: 1) 1) Where risk of loss increased – The policy is avoided by any alteration in the
Should not have been placed near the engine room where heat could cause the use or condition of the property insured increasing the risk.
cylinder to explode; 2) Should not have unnecessarily exposed its passengers to grave 2) Where the increase no longer existing at time of loss – Insurer would still be
danger by storing it in the accommodation area, open to everyone; 3) The acetylene liable even if the increase in hazard no longer existed at the time of loss.
was certified as having complied with safety measures and standards before it was
loaded in the vessel. Alterations Not Avoiding Policy
1) Where risk of loss not increased – Where a different use is made of the
insured premises which use is not of a dangerous character and does not
2. “Increase of Risks” and “Moral Hazard” Clauses
differ materially from the use specified in the policy, even though an
additional or increased premium may be demanded therefore.
Alteration of Insured Property 2) Where questioned articles required by insured’s business – Even though the
policy contains certain provisions prohibiting specified articles from
Sec. 170. An alteration in the use or condition of a thing insured from that to which it is limited being kept in the insured premises, the policy will not be avoided by a
by the policy made without the consent of the insurer, by means within the control of the
insured, and increasing the risks, entitles an insurer to rescind a contract of fire insurance. violation of these provisions if the articles are necessary or ordinarily
used in the business conducted in the insured premises.
Sec. 171. An alteration in the use or condition of a thing insured from that to which it is limited 3) Where insured property would be useless if questioned acts were prohibited.
by the policy, which does not increase the risk, does not affect a contract of fire insurance.
Sec. 172. A contract of fire insurance is not affected by any act of the insured subsequent to the Where Insured Has No Control or Knowledge of Alteration
execution of the policy, which does not violate its provisions, even though it increases the risk 1) Insurer’s liability unaffected – Insurer is not relieved from liability if the
and is the cause of a loss. acts or circumstances by which the risk is increased are occasioned by
accident, or a cause over which the insured has no control.
When Alteration in Thing Insured Entitles Insurer to Rescind 2) Insured’s knowledge presumed – It would seem, however, that every act of
1) The use or condition of the thing is specifically limited or stipulated in the insured’s tenant substantially and permanently affecting the
the policy; conditions of the property so as to constitute an increase in risk would be
2) Such use or condition as limited by the policy is altered; presumptively known to the insured.
3) The alteration is made without the consent of the insurer;
4) The alteration is made by means within the control of the insured; 3. Measure of Indemnity
5) The alteration increases the risk.
Sec. 173. If there is no valuation in the policy, the measure of indemnity in an insurance against
Increase of Risk or Hazard In General fire is the expense it would be to the insured at the time of the commencement of the fire to
1) Implied undertaking of insured – There is an implied promise or replace the thing lost or injured in the condition in which it was at the time of the injury; but if
there is a valuation in a policy of fire insurance, the effect shall be the same as in a policy of
undertaking on the part of the insured that he will not change the marine insurance.
premises or the character of the business carried there, or to be carried on
there, so as to increase the risk of loss by fire. Sec. 174. Whenever the insured desires to have a valuation named in his policy, insuring any
building or structure against fire, he may require such building or structure to be examined by
an independent appraiser and the value of the insured’s interest therein may then be fixed as

19
between the insurer and the insured. The cost of such examination shall be paid for by the • Reserved by the insurer in order to protect him against unfairness in the
insured. A clause shall be inserted in such policy stating substantially that the value of the
insured’s interest in such building or structure has been thus fixed. In the absence of any change appraisal and award rendered by a packed board of arbitrators or in the
increasing the risk without the consent of the insurer or of fraud on the part of the insured, then proof of loss.
in case of a total loss under such policy, the whole amount so insured upon the insured’s interest • Insurer must exercise his option to rebuild within the time stipulated in
in such building or structure, as stated in the policy upon which the insurers have received a
premium, shall be paid, and in case of a partial loss the full amount of the partial loss shall be so the policy or in the absence of stipulation, within a reasonable time.
paid, and in case there are two (2) or more policies covering the insured’s interest therein, each
policy shall contribute pro rata to the payment of such whole or partial loss. But in no case shall D. Casualty and Liability Insurance
the insurer be required to pay more than the amount thus stated in such policy. This section
shall not prevent the parties from stipulating in such policies concerning the repairing,
rebuilding or replacing of buildings or structures wholly or partially damaged or destroyed. Sec. 176. Casualty insurance is insurance covering loss or liability arising from accident or
mishap, excluding certain types of loss which by law or custom are considered as falling
exclusively within the scope of other types of insurance such as fire or marine. It includes, but is
Measure of Indemnity Under Open Policy not limited to, employer’s liability insurance, motor vehicle liability insurance, plate glass
1) Amount of actual loss sustained – In the absence of express valuation in a insurance, burglary and theft insurance, personal accident and health insurance as written by
non-life insurance companies, and other substantially similar kinds of insurance.
fire insurance policy, the insured is only entitled to recover the amount
of actual loss sustained and the burden is upon the insured to establish
the amount of such loss by a preponderance of evidence. Casualty Insurance Defined
2) Limit to amount – Liability of the insurer shall in no event exceed what it • Casualty insurance includes all forms of insurance against loss or liability
would cost the insured to repair, or replace the thing insured with arising from accident or mishap, excluding certain types of loss or liability
materials of like kind and quality with proper deduction for depreciation which are not within the scope of other types of insurance, namely:
considering the age or condition of the thing before the loss. marine, fire, suretyship, and life.
3) Market value in case of personal property – In the case of goods or personal
property having a market value which can readily be determined, such Two General Divisions of Casualty Insurance
market value may be applied in determining the actual loss sustained. 1) Insurance against specified perils which may affect the person and/or
property of the insured such as: personal accident, robbery or theft,
Measure of Indemnity Under Valued Policy damage to or loss of motor vehicles, insolvency of debtors
1) Valuation conclusive between the parties – Under an ordinary fire insurance 2) Insurance against specified perils which may give rise to liability on the
policy the liability of the insurer in case of fire losses cannot exceed the part of the insured for claims for injuries to others or for damage to their
amount of insurance nor the actual loss suffered. property, such as: workmen’s compensation, motor vehicle liability,
2) Amount stated in policy/amount of partial loss – In case of a total loss, the professional liability, product liability
insured can recover the whole amount so insured as stated in the policy
and in case of partial loss, the amount of the partial loss Liability Insurance Defined
• Total loss of the insured building – When the result of the fire is such as • Liability insurance has been said to be a contract of indemnity for the
to render the property wholly unfit for use as a building however benefit of the insured and those in privity with him, or those to whom the
valuable it may be as mere material. law upon the grounds of public policy extends the indemnity against
3) Pro-rata contribution to payment of loss – If the thing is insured under two liability
or more policies, each policy shall contribute pro rata to the payment of
such whole or partial loss. Under policies of this type, an indemnity is provided to the insured in
respect of his legal liability to pay damages, usually arising out of negligence
Option to Rebuild Clause or nuisance and, occasionally, under contract
• Mere fact that the parties have fixed a valuation in the policy does not
prevent them from stipulating in the policy concerning the repairing, Liability Insurable
rebuilding or replacing of buildings or structures, wholly or partially 1) Liability for quasi-delict or non-fulfillment of contract – Liability is financial
damages or destroyed. responsibility that one party has to another party as a consequence of
• Insurer may be given the option to reinstate or replace the property doing or failing to do something.
damaged or destroyed or any part thereof, instead of paying the amount 2) Liability for criminal negligence – Liabilities arising out of acts of
of the loss or damage. negligence which are also criminal are also insurable on the ground that
such acts are accidental; Liability consequences of deliberate criminal
acts are not insurable.

20
Fortune Insurance v. CA (1995)

Facts: An armored car of Producers Bank, while in the process of transferring cash, Nature of Liability of Surety
was robbed. After the investigation, the driver and the guard, present during the • Contract of surety is evidence by a writing called “surety bond” which is
supposed transfer, were charged with violation of P.D.532 or Anti-Highway Robbery essentially a promise to guarantee the debt or obligation of the obligor.
Law. Demands were made by Producers upon Fortune to pay the amount lost, but
the latter refused as the loss is excluded from the insurance coverage since the 1) Solidary – The liability of the surety or sureties under a bond is joint and
several, or solidary. This means that upon default by the obligor in
robbery was caused by the criminal act of “…employee, partner, director, trustee or complying with his obligation as secured by the bond, the surety
authorized representative of the insured” becomes primarily liable to the oblige who has right to demand payment
under the terms and conditions of the bond.
Held: The insurance policy entered into by the parties is a theft or robbery insurance 2) Limited or fixed – Limited to the amount of the bond.
policy which is a form of casualty insurance. Except for compulsory motor vehicle 3) Contractual – Determined strictly by the terms of the a) contract of
liability insurance, the Insurance Code contains no other provisions applicable to suretyship in relation to the b) principal contract between the obligor and
casualty insurance thus these are governed by the general provisions applicable to all the oblige.
types of insurance. The rights and obligations of the parties must be determined by
the terms of the contracts, taking into consideration its purpose. Fortune’s intention A surety contract is merely a collateral contract, its basis is the principal
was to exclude and exempt from protection and coverage losses arising from contract or undertaking which it secures.
dishonest, fraudulent, or criminal acts of persons granted or having unrestricted
access to Producers’ money. In this case, the driver and guard, in respect of the Types of Surety Bonds
transfer of the money, were the bank’s “authorized representatives”, thus Fortune is 1) Contract Bonds – Connected with construction and supply contracts;
exempt from liability under the general exceptions clause.. They are for the protection of the owner against a possible default by the
contractor to comply with his contract or his possible failure to pay
E. Suretyship material men, labourers, and sub-contractors; Position of surety is to
answer for a failure of the principal to perform in accordance with the
Sec. 177. A contract of suretyship is an agreement whereby a party called the surety guarantees terms and specifications of the contract.
the performance by another party called the principal or obligor of an obligation or undertaking a) Performance Bond – Covers the faithful performance of the contract.
in favor of a third party called the obligee. It includes official recognizances, stipulations, bonds
or undertakings issued by any company by virtue of and under the provisions of Act No. 536, as
b) Payment Bond – Covers the payment of laborers and material men.
amended by Act No. 2206. 2) Fidelity Bonds - Pay an employer for loss from dishonest act of employee
a) Industrial Bond – One required by private employers to cover loss
Sec. 178. The liability of the surety or sureties shall be joint and several with the obligor and shall through dishonestly of employees.
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.
b) Public Official Bond – One required of public officers for the faithful
performances of their duties and as a condition of entering upon the
Sec. 179. The surety is entitled to payment of the premium as soon as the contract of suretyship duties of their offices; ordinarily includes officers who have custody
or bond is perfected and delivered to the obligor. No contract of suretyship or bonding shall be of public funds.
valid and binding unless and until the premium therefor has been paid, except where the
obligee has accepted the bond, in which case the bond becomes valid and enforceable
3) Judicial Bonds – Those which are required in connection with judicial
irrespective of whether or not the premium has been paid by the obligor to the surety: Provided, proceedings, i.e. injunction bonds, attachment bonds, replevin bonds,
That if the contract of suretyship or bond is not accepted by, or filed with the obligee, the surety bail bonds and appeal bonds; purpose is indemnify the adverse party
shall collect only a reasonable amount, not exceeding fifty percent (50%) of the premium due against damages resulting from the proceeding.
thereon as service fee plus the cost of stamps or other taxes imposed for the issuance of the
contract or bond:Provided, however, That if the nonacceptance of the bond be due to the fault or
negligence of the surety, no such service fee, stamps or taxes shall be collected. NPC v. CA (1986)
In the case of a continuing bond, the obligor shall pay the subsequent annual premium as it falls Facts: NPC entered into a contract with Far Eastern Electric, Inc. for the erection of
due until the contract of suretyship is cancelled by the obligee or by the Commissioner or by a
court of competent jurisdiction, as the case may be.
transmission lines for the Angat Hydroelectic Project. PHILAMGEN issued a surety
bond for the faithful performance of the undertaking by FEEI, with the conditions
Sec. 180. Pertinent provisions of the Civil Code of the Philippines shall be applied in a that its liability under the bond will expire one year from the completion and final
suppletory character whenever necessary in interpreting the provisions of a contract of
suretyship. acceptance of the work, and bond will be cancelled 30 days after its expiration, unless
notified of any existing obligation. FEEI eventually gave up the construction due to
1. Definition and Extent of Liability financial difficulties. The work was completed by NPC, but it held PHILAMGEN

21
and FEEI liable for damages and the amount of the surety bond to answer for the cost Proposal Bond Performance Bond
of completion. PHILAMGEN claimed that its liability had already expired and no To assure the owner of the project To afford project owner the security
notice of any obligation was made within 30 days after its expiration. SC ruled in of the good faith of the bidder and that bidder will faithfully comply with
favor of NPC. that bidder will enter into a the requirements of the contract and
contract with the project owner pay for damages sustained by the
Held: PHILAMGEN was duly informed of the failure of FEEI to comply with its should proposal be accepted owner if the contractor fails to perform
undertaking, the notice of failure was even signed by its Asst. VP. When FEEI
informed NPC of its abandonment of the job, it informed PHILAMGEN on the same Stronghold Insurance v. CA (1992)
date. As to the 30-day notice adverted to, it applies to the completion of the work by Facts: Leisure Club, Inc. filed a case against Northern Motors, Inc, seeking the
the contractor, which never materialized. recovery of office furniture and equipment. Lower court ordered the delivery of the
Zaragoza v. Fidelino (1988) subject property to LCI, subject to the posting of the requisite bond. LCI posted a
Facts: Zaragoza brought a suit for the replevin of the car bought by Fidelino. replevin bond issued by Stronghold and it regained possession of the properties.
Allegedly, the car had been sold to Fidelino but she had failed to pay the price in the Northern Motors filed a counterbond to recover them but it proved futile as LCI was
manner stipulated. The car was returned to her when a surety bond for the car’s never heard from again. Stronghold was found liable, under the surety bond it
release was posted in her behalf by Mabini Insurance. TC ruled in favor of Zaragoza, issued, for damages awarded to Northern Motors.
and the latter moved to include the surety company as a party solidarily liable for
payment of sums awarded. SC ruled in favor of Zaragoza. Held: Stronghold is liable. Under the terms of the bond, Stronghold and Leisure
Club solidarily bound themselves for the prosecution of the action, for the return of
Held: Mabini should be held solidarily liable. The surety’s liability attached upon the the property, for the payment of such sum as may be recovered against the plaintiff
promulgation of the verdict against Fidelino. All that was necessary to enforce the and the costs of the action. All the necessary conditions for proceeding against the
judgment against it was an application with the court, with due notice to the surety bond are present: LCI, in bad faith, failed to prosecute the action, and after retrieving
and a proper hearing, and an opportunity to show the Court why it should not be the property, it promptly disappeared together with the subject property, despite
adjudged responsible. A separate action was not necessary, in fact proscribed. In this court order for their return/ A reasonable sum was adjudged to be due to Northern
case, substantial compliance with the requirements was met. Motors by way of actual and exemplary damages, atty’s fees and costs of suit.
Eastern Assurance v. IAC (1989) Prudential v. Equinox (2007)

Facts: DAR put up for public bidding a job for repairing 7 jeeps. Motor City was the Facts: Equinox Land Corp. decided to construct 5 additional floors to its existing
winning bidder, and its bid was accompanied by a Proposal Bond issued by Eastern building. Equinox awarded to J’Marc the contract to build the extension as its bid
Assurance. DAR and Motor City entered into a Contract for Repair of Jeeps. Only 6 was the most advantageous. J’Marc submitted to Equinox two bonds issued by
out of the 7 jeeps were repaired fully and delivered to DAR. Despite several Prudential: 1) a surety bond to guarantee the unliquidated portion of the advance
extensions, the 7th jeep remained undelivered and DAR commenced suit for specific payment payable to J’Marc, and 2) performance bond to guarantee J’Marc’s faithful
performance and damages against Motor City and Eastern, as co-defendant. performance. J’Marc only accomplished 19.0537% of the work and Equinox had
overpaid for the costs, the latter filed complaint for sum of money and damages
Held: Eastern may be held liable for Motor City’s contractual nreach. Its argument against J’Marc and Prudential.
relying on the difference, in conceptual terms, between a proposal bond and a
performance bond was not taken. Liability under a surety bond is determined not Held: While a contract of surety is secondary only to a valid principal obligation, the
upon the basis of its title or caption but in accordance with the particular terms and surety’s liability to the creditor is direct, primary and absolute. Prudential is directly
conditions set out in the bond. When viewed in its entirety, the Proposal Bond issued and equally bound with the principal and is barred from disclaiming that its liability
by Eastern may be seen to be not merely a proposal/bid bond but also a performance with J’Marc is solidary.
bond for it covers not just the acceptance of the award and conclusion of the contract
but also the carrying out or performance of the provisions of the contract. Intra-Strata v. Republic (2008)
Facts: Grand Textile Manufacturing Corporation imported articles such as
dyestuffs, spare parts for textile machinery, polyester filament yarn etc and these
22
were transferred to a customs bonded warehouse. To secure the payment of the in pairs), the parties executed a Contract of Conditional Purchase and Sale of
customs duties, taxes and other charges, Intra-Strata and PhilHome each issued Reparations Goods. To guarantee the faithful compliance with obligations under the
general warehousing bonds, which provided that the goods shall be withdrawn from contract, a performance bond was executed with Manila Surety. An indemnity
the warehouse on payment of the charges. Without paying any amount, Grand agreement was also executed to indemnify Manila Surety for any damage, loss,
Textile withdrew the imported goods from storage, causing the government to file a charges which it may sustain. Reparations Commission filed an action against
collection suit against Grand Textile, Intra-Strata and PhilHome Universal and Manila Surety to recover sums of money due under the contract.
Manila Surety set up a cross-claim against Universal for reimbursement of whatever
Held: Under the terms of the surety bonds, the fact that a withdrawal has been made amount it may have to pay and for collection of accumulated and unpaid premiums
without notice to Intra-Strata and PhilHome is not material to the sureties’ liability. on the bonds it issued.
The solidary obligation subsists for as long as the amounts due on the importations
have not been paid. A surety is released from its obligation when there is a material Held: Universal should pay Manila Sure the premium in the performance bonds as
alteration of the contract in connection with which the bond is given. A surety is not this was expressly undertaken by Universal in the indemnity agreement it executed
released by a change in the contract which does not have the effect of making its in favor of Manila Surety. The premium is the consideration for furnishing the bonds
obligation more onerous. The surety also does not earn the right to intervene in the and the obligation to pay subsists for as long as the liability of the surety shall exist.
principal creditor-debtor relationship, its role becomes alive only upon the debtor’s
default, at which time it can be directly held liable by the creditor for payment as a Phil. Pryce Assurance v. CA (1994)
solidary obligor. The surety is not entitled to a separate notice of default, nor to the Facts: Gegroco, Inc. filed complaint for collection of sum of money against
benefit of excussion and may be sued separately or together with principal debtor. Interworld Assurance Corp. (now Phil. Pryce Assurance), alleging that PPA issued
2 surety bonds in behalf of Sagum General Merchandise. PPA denied liability
2. Premium Payment because: 1) Checks which were issued to pay for the premiums were dishonored and
thus there is no contract between it and its supposed principal; 2) the bonds were
Sec. 177. Supra merely to guarantee payment of its principal’s obligation so excussion is necessary
Payment of Premiums Held: Just because checks bounced and were dishonored does not mean that there
1) The premium becomes a debt as soon as the contract of suretyship or was no contract. Sec. 177, IC: “…no contract of suretyship or bonding shall be valid
bond is perfected and delivered to the obligor;
and binding unless and until the premium therefor has been paid, EXCEPT where
2) The contract of suretyship or bonding shall not be valid and binding
unless and until the premium therefor has been paid; the obligee has accepted the bond, in which case the bond becomes valid and
3) Where the oblige has accepted the bond, it shall be valid and enforceable enforceable irrespective of whether or not the premium has been paid by the obligor to
notwithstanding that the premium has not been paid; the surety.” PPA admitted to having issued the bonds. Delivery invoices addressed
4) If the contract of suretyship or bond is not accepted by, or filed with the to Sagum also prove that the spare parts were purchased, delivered and received—
oblige, the surety shall collect only a reasonable amount; disproving PPA’s defense that the respondent did not accept the surety bond and
5) If the non-acceptance of the bond be due to the fault or negligence of the could not have delivered the goods to Sagum.
surety, no service fee, stamps, or taxes imposed shall be collected by the
surety; and
3. Applicability of the Civil Code
6) In the case of a continuing bond, the obligor shall pay the subsequent
annual premium as it falls due until the contract is cancelled.
Sec. 180. Supra
* The premium is the consideration for furnishing the bond or the guaranty
and the obligation to pay the same subsists for as long as the liability of the F. Motor Vehicle
surety shall exist. • May be so comprehensive as to cover practically all risks to which its use
may be exposed; e.g., theft, fire, accidents causing damage to the car,
Reparations Commission v. Universal Deep Sea Fishing Corp. (1979) injuries to the insured and his family, or liability to third persons for
Facts: Universal Deep-Sea Fishing Corp. was awarded 6 trawl boats by the damages to property, physical injuries or death.
Reparations Commission as end-user of reparations goods. For each delivery (made • But such policy may be limited in its coverage to only certain specified
risks thereby excluding all others.
23
1. Compulsory Motor Vehicle Insurance Shafer v. Judge (1988)

Facts: Shafer obtained a private car policy over his Ford Laser Car from Makati
Sec. 386. For purposes of this chapter: Insurance Co. Inc., for third party liability. While the policy was effective, an
(a) Motor Vehicle is any vehicle as defined in Section 3, paragraph (a) of Republic Act No. 4136,
otherwise known as the ‘Land Transportation and Traffic Code’.
information for reckless imprudence resulting in damage to property and serious
(b) Passenger is any fare paying person being transported and conveyed in and by a motor physical injuries was filed against Shafer. The owner of the other car filed a separate
vehicle for transportation of passengers for compensation, including persons expressly civil action for damages while the injured passenger did not reserve his right to file a
authorized by law or by the vehicle’s operator or his agents to ride without fare.
(c) Third party is any person other than a passenger as defined in this section and shall also separate action for damages. The Court dismissed Shafer’s third party complaint
exclude a member of the household, or a member of the family within the second degree of against Makati Insurance on the ground that it was premature: unless Shafer is
consanguinity or affinity, of a motor vehicle owner or land transportation operator, as
likewise defined herein, or his employee in respect of death, bodily injury, or damage to found guilty and sentenced to pay the offended party indemnity or damages, the 3rd
property arising out of and in the course of employment. party complaint is without cause of action.
(d) Owner or motor vehicle owner means the actual legal owner of a motor vehicle, in whose
name such vehicle is duly registered with the Land Transportation Office;
(e) Land transportation operator means the owner or owners of motor vehicles for Held: The liability of the insurance company under the Compulsory Motor Vehicle
transportation of passengers for compensation, including school buses.
(f) Insurance policy or Policy refers to a contract of insurance against passenger and third-party
Liability Insurance is for loss or damage. Where an insurance policy insures directly
liability for death or bodily injuries and damage to property arising from motor vehicle against liability, the insurer’s liability accrues immediately upon the occurrence of
accidents. the injury or event upon which the liability depends, and does not depend on the
Sec. 387. It shall be unlawful for any land transportation operator or owner of a motor vehicle to recovery of judgment by the injured party against the insured. There is no need on
operate the same in the public highways unless there is in force in relation thereto a policy of the part of the insured to wait for the decision of the TC finding him guilty of reckless
insurance or guaranty in cash or surety bond issued in accordance with the provisions of this
chapter to indemnify the death, bodily injury, and/or damage to property of a third-party or imprudence before being able to claim from the insurer. The injured for whom the
passenger, as the case may be, arising from the use thereof. contract of insurance is intended can also sue the insurer directly.
Sec. 388. The Commissioner shall furnish the Land Transportation Office with a list of insurance
companies authorized to issue the policy of insurance or surety bond required by this chapter. Vda. de Maglana v. Consolacion (1992)
Facts: When Maglana was on his way to work riding his motorcycle, he was hit by a
Sec. 389. The Land Transportation Office shall not allow the registration or renewal of jeep overtaking another vehicle. This accident resulted in his death and his heirs filed
registration of any motor vehicle without first requiring from the land transportation operator or
motor vehicle owner concerned the presentation and filing of a substantiating documentation in an action for damages against the owner and operator of the jeep, Destrajo, and
a form approved by the Commissioner evidencing that the policy of insurance or guaranty in AFISCO Insurance Corporation. TC found that Destrajo had not exercised sufficient
cash or surety bond required by this chapter is in effect.
diligence. Heirs filed an MR, contending that AFISCO should not be held as only
Perla Compania de Seguros v. CA (1992) secondarily liable, as the Insurance Code provides that the insurer’s liability is
Facts: Sps. Lim executed a promissory note in favor of Supercars, Inc. payable in “direct and primary and /or jointly and severally with the operator of the vehicle
monthly installments and secured by a chattel mortgage over a brand-new Ford although only up to the extent of the insurance coverage”
Laser 1300 5DR Hatchback, insured with Perla for comprehensive coverage. The
vehicle was carnapped while it was parked and Evelyn filed a claim for loss. This Held: The liability of AFISCO based on the insurance contract is direct and not
was denied on the ground that Evelyn, who was using the vehicle before it was solidary with that of Destrajo which is based on Art. 2180, CC. Petitioners may only
carnapped, was in possession of an expired driver’s license at the time of the loss, in go after AFISCO up to the amount of the insurance coverage, and not for the entire
violation of the Authorized Driver Clause damages they are owed. Malayan Insurance v. CA: “The direct liability of the
insurer under indemnity contracts against third party liability does not mean that
Held: Where a car is unlawfully and wrongfully taken without the owner’s consent the insurer can held solidarily liable with the insured found at fault. The liability of
or knowledge, such taking constitutes theft, and it is the Theft Clause and not the the insurer is based on contract, that of the insured is based on tort.”
Authorized Driver Clause that should apply as the risk against accident is distinct
from the risk against theft. There is no causal connection between the possession of a Far Eastern Surety v. Misa (1968)
Facts: Socorro Vda. De Misa and Araceli Pinto hired a taxicab operated by La
valid driver’s license and the loss of a vehicle. To rule otherwise would render car
Mallorca and on their way to the south, the taxicab collided with a truck. The two
insurance a sham since insurer can easily escape liability by citing restrictions which
passengers were injured and they filed suit for damages against the taxicab company.
are not applicable or germane to the claim.
Operator denied liability but instituted a third party complaint against Far Eastern
24
Surety to claim from the latter any damages that might be recovered by the 2. The “No Fault” Clause
passengers, based on its Common Carrier’s Accident Insurance policy. Far Eastern
denied responsibility. Sec. 391. Any claim for death or injury to any passenger or third-party pursuant to the
provisions of this chapter shall be paid without the necessity of proving fault or negligence of
any kind: Provided, That for purposes of this section:
Held: The indemnity awarded to the passengers was not because of the accident but (a) The total indemnity in respect of any person shall not be less than Fifteen thousand pesos
(P15,000.00);
was exclusively predicated on the representation made by the taxicab company to its (b) The following proofs of loss, when submitted under oath, shall be sufficient evidence to
passengers that they were insured against accidents. Had it not been for this substantiate the claim:
representation, the taxicab company would not have been liable at all, since the cause (1) Police report of accident; and
(2) Death certificate and evidence sufficient to establish the proper payee; or
of the accident was the other driver’s negligence. Far Eastern is not liable as there is (3) Medical report and evidence of medical or hospital disbursement in respect of which
no showing that it authorized or consented to, or even knew of, the representation refund is claimed;
(c) Claim may be made against one motor vehicle only. In the case of an occupant of a vehicle,
made by the taxicab to its passengers. The source of the award of damages was claim, shall lie against the insurer of the vehicle in which the occupant is riding, mounting or
beyond the contemplation of the parties with regard to their insurance contract. dismounting from. In any other case, claim shall lie against the insurer of the directly
offending vehicle. 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.
Peza v. Alikpala (1988)
Facts: Two children ran across the path of a vehicle, a Chevrolet owned by Diman &
Perla v. Ancheta
Co. and driven by its driver Amar, and they were killed. The vehicle was insured Facts: In a collision between the IH Scout, in which respondents were riding, and a
with Empire Insurance under a “comprehensive coverage” policy, excluding only Superlines bus, respondents sustained physical injuries. They filed a complaint for
loss by theft. Diman’s managing partner filed a claim with the insurance company damages against Superlines, the bus driver and Perla Compania de Seguros, the
for payment of compensation to the family of the two victims but Empire refused to insurer of the bus. Even before summons was served, Judge ordered Perla to pay
pay on the ground that the driver had no authority to operate the vehicle, excepting it P5,000 immediately under the “no fault clause.” Perla refused to pay as under
from liability under the policy. Sec.378 of Insurance Code, the insurer liable to pay the P5,000 is the insurer of the
vehicle in which respondents were riding, mounting or dismounting from.
Held: The driver was not an “authorized driver” as defined in the policy, namely, a)
the insured, or b) any person driving on the insured’s order or with his permission, Held: It is Malayan, the insurer of respondents’ car, which is liable. The law is clear
provided that “the person driving is permitted in accordance with the licensing or that the claim shall lie against the insurer of the vehicle in which the “occupant” is
other laws or regulations to drive the Motor Vehicle…”At the happening of the riding. The claimant is not free to choose from which insurer he will claim from. The
accident, Amar only had a temporary operator’s permit, an expired one at that, No Fault Indemnity Insurance was made part of our laws in order to provide victims
because his driver’s license had been confiscated for an alleged violation of of vehicular accidents or their heirs immediate compensation, although in a limited
transportation and traffic rules. Thus, he was not permitted by law, and was in fact amount, pending final determination of who is responsible for the accident and liable
disqualified, to operate any motor vehicle. Empire is relieved from any liability. for injuries or death.
Western Guaranty v. CA (1990) G. Reinsurance

Facts: While crossing on a pedestrian lane, Rodriguez was struck by a De Dios
passenger bus due to the driver disregarding the stop signal. Bus company was Sec. 97. A contract of reinsurance is one by which an insurer procures a third person to insure
insured with Western Guaranty for protection against third party liability. Western him against loss or liability by reason of such original insurance.
however, denied liability as loss of earnings, moral damages and attorney’s fees were Sec. 98. Where an insurer obtains reinsurance, except under automatic reinsurance treaties, he
not included in the Schedule of Indemnities. must communicate all the representations of the original insured, and also all the knowledge
and information he possesses, whether previously or subsequently acquired, which are material
to the risk.
Held: The schedule of indemnities does not purport to limit, or to enumerate
exhaustively, the kinds of bodily injury, occurrence of which generate liability for Sec. 99. A reinsurance is presumed to be a contract of indemnity against liability, and not merely
against damage.
Western. It merely meant to set limits to the amounts it would be liable for and not
necessarily exclude claims against the policy for other kinds of damages. Sec. 100. The original insured has no interest in a contract of reinsurance.

25
Reinsurance defined. it only after PHILAMLIFE seeks to remit that reinsurance premium that the
• Contract of reinsurance is a contract whereby one party, the reinsurer, obligation to pay the margin fee arises.
agrees to indemnify another, the reinsured (original insurer), either in
whole or in part, against loss or liability which the latter may susain or Reinsurance Policy Reinsurance Treaty
incur under a separate and original contract of insurance with a third
Contract of indemnity one Merely an agreement between two
party, the original insured. It has been referred to as an “insurance of an
insurance”; the insurance business is transferred from one insurance insurer makes with another to insurance companies, whereby one agrees
company to another protect the first insurer from a to cede and the other to accept
risk it already assumed reinsurance business pursuant to
Sometimes referred to as “treaties” and is required by law in certain cases provisions specified in the treaty
Reinsurance Distinguished From Double Insurance Fieldmen’s Ins. Co. v. Asian Surety (1970)
Reinsurance Double Insurance Facts: Asian Surety and Insurance Co., Inc. and Fieldmen’s Insurance Co., Inc.
Insurer becomes the insured, as far as the Insurer remains as the insurer of entered into 7 reinsurance agreements or treaties. Eventually, Fieldmen’s served
reinsurer is concerned; the original insured.
notice to Asian of its desire to be relieved from all its various treaties, effective
Subject of the insurance is the original Subject of the insurance is
insurer’s risk; property December 31, 1961, but Asian did not reply. One of the risks reinsured with
Insurance of a different interest Insurance of the same interest Fieldmen’s issued in favor of GSIS became a liability when the insured property was
The original insured has no interest in the Insured is the party in interest in burned. Asian immediately notified Fieldmen’s of the loss and expressed in the same
contract of reinsurance which is all the contracts letter that it was willing to waive the provision that treaties may be cancelled on
independent of the original contract of December 31 of any year, and will consider them cancelled at the end of three months
insurance from December 7, 1961. Fieldmen’s seeked declaration that all the reinsurance
The consent of the original insured (who Insured has to give his consent contracts between them had terminated as of December 31, 1961.
is hardly even aware of the reinsurance for double insurance to be
transaction) is not necessary. allowed.
Held: Even with the cancellation of the reinsurance treaties, Fieldmen’s is still liable
PHILAM v. Auditor General (1968) as two of the six reinsurance contracts contained provisions which clearly and
Facts: PHILAMLIFE and American International Reinsurance Co. (AIRCO) expressly recognize the continuing effectivity of policies ceded under them
entered into a reinsurance treaty. More than nine years later, or on July 16, 1959, notwithstanding the cancellation of the contracts themselves. Since it was under one
the Margin Law was approved, subjecting all sales of foreign exchange by the of said agreements, namely the Facultative Obligatory Reinsurance Treaty-Fire, that
Central Banks and its authorized agent banks to a 25% margin over the banks’ the reinsurance cession corresponding to GSIS policy had been made, Fieldmen’s
selling rates. Central Bank collected foreign exchange margin on PHILAMLIFE cannot avoid liability.
remittances to AIRCO. PHILAMLIFE filed a claim for refund of the margin fee,
alleging that the reinsurance premiums so remitted were paid pursuant to January Equitable Insurance v. Rural Insurance (1962)
1,1950 reinsurance treaty, and thus “pre-existing obligations expressly exempt from Facts: Equitable Insurance and Rural Insurance entered into a reciprocal facultative
the margin fee.” Auditor refused to grant claim for refund. reinsurance agreement, wherein they agreed to cede to each other, by way of
facultative reinsurance on policies of insurance or reinsurance issued by respective
Held: The agreement between the parties is a reinsurance treaty, not a reinsurance fire insurance departments. Equitable reinsured with Rural certain stocks covered by
policy. The determining factor is the payment of premiums. Nothing in the treaty fire insurance issued by Equitable in behalf of two companies. These stocks burned
obligates PHILAMLIFE to remit to AIRCO a fixed, certain and obligatory sum as and Rural’s share of the loss was computed at more than P4,000. Despite repeated
reinsurance premiums; all it provides it that PHILAMLIFE “agrees to reinsure.” demands, Rural refused to pay.
The reinsurance treaty per se cannot give rise to a contractual obligation calling for
the payment of foreign exchange (which is what the Margin Law exempted.) For Held: Under the Reinsurance Agreement, the requirement of submitting for decision
exemption to come into play, there must be a reinsurance cession. It is only after a to two arbitrators or an umpire the matter of losses by fire or the liability of the
reinsurance cession is made that payment of reinsurance premium may be exacted, as parties arises only if and when the same is disputed by one of the parties. It does not
appear that Rural disputed Equitable’s claims. Thus, Rural may not invoke that
26
provision in avoidance of liability. As for the use of the term “facultative”, in 1) The amount of premiums, contributions, fees or charges, computed on a
reinsurance contracts it is used to define the right of the reinsurer to accept or not to daily basis, does not exceed 7.5% of the current daily minimum wage rate
accept participation in the risk, but once the share is accepted, the obligation is for non-agricultural workers in Metro Manila; and
absolute and liability can be discharged only by payment of the share of losses. 2) The maximum sum of guaranteed benefits is not more than 1000 times the
daily minimum wage rate for non-agricultural workers in Metro Manila.
Artex Devt. Co. v. Wellington Insurance Co. (1973) Since microinsurance is intended to meet the needs of the poor for risk
Facts: Wellington Insurance Co., Inc. insured the building, stocks and machinery of protection, affordability of premium payments is a major consideration. The
Artex Dev’t Co., Inc. against loss or damage by fire or lightning. It also insured premiums may be collected daily, weekly, monthly, quarterly, semi-
Artex against business interruption (use and occupancy). Months later, the annually, or annually, whichever is applicable.
buildings, stocks and machineries were burned and notice was given to Wellington.
Wellington refused to pay the balance of more than P5M, claiming that Artex’s The maximum amount of premiums and guaranteed benefits shall apply on
cause of action was against Wellington’s reinsurers, and it should look to the a per product or per policy basis. All microinsurance contracts shall clearly
state the benefits and terms of coverage.
reinsurers for indemnity.
Performance Standards
Held: Artex, not being a party or privy to insurer’s reinsurance contracts, could not • Consists of performance indicators covering the areas of solvency and
directly demand enforcement of such contracts. Assuming that Artex could avail of stability, efficiency, governance, understanding of the product by the
the reinsurance contracts and directly sue the reinsurers for payment of the loss, it client, risk-based capital, risk management, outreach and such other areas
would still not affect or cancel out Wellington’s direct contractual liability to Artex deemed by the Insurance Commissioner to be critical to the continuing
under the insurance policy, this is without prejudice to Wellington in turn filing a viability, growth, and development of the microinsurance industry
third party complaint or separate suit against its reinsurers. • Necessary for the Commission to determine whether microinsurance
entities are being conducted in a viable and sustainable manner.
H. Microinsurance • Microinsurance entities shall submit to the Commission on or before April
30 of every year the resulting indicators covering the previous year’s
Sec. 187. Microinsurance is a financial product or service that meets the risk protection needs of operations by using the set of Performance Standards and the
the poor where: corresponding Annual Statements submitted by each reporting
(a) The amount of contributions, premiums, fees or charges, computed on a daily basis, does microinsurance entity.
not exceed seven and a half percent (7.5%) of the current daily minimum wage rate for
nonagricultural workers in Metro Manila; and • Insurance Commission shall establish the Performance Standards to
(b) The maximum sum of guaranteed benefits is not more than one thousand (1,000) times of identify. as early as possible. entities whose financial conditions and/or
the current daily minimum wage rate for nonagricultural workers in Metro Manila. performance on the microinsurance operations are concerns and if
warranted, recommend appropriate remedial measures.
Microinsurance defined.
• Microinsurance is an activity providing specific insurance, insurance-like Industrial Life Microinsurance
and other similar products and services that meet the needs of the low- TARGET: Low-income sector; Those without the capacity to pay large
income sector for risk protection and relief against distress, misfortune premiums as in ordinary policies; those who do not have fixed income
and other contingent events. PREMIUM: Affordable/small amounts, could be collected irregularly
(monthly or oftener, depending on the insured)!
Features of Microinsurance PURPOSE: For profit (still PURPOSE: Solidarity and mutual aid
1) Premiums, contributions, fees or charges are collected/deducted prior to commercial insurance, just
the occurrence of a contingent event; and adapted to a particular market)
2) Guaranteed benefits are provided upon occurrence of a contingent event. INSURED: Aimed at INSURED: Aimed at whole family of the
individuals (maximum member (That’s why maximum coverage
Requirements for the Product coverage is 500 times of can provide for 33 months or 1000 days of
A microinsurance product is a financial product or service that meets the risk minimum daily wage only) lost income, deemed sufficient to augment
protection needs of the poor where: the needs of the family of the insured)
SCOPE: Still restrictive; there SCOPE: Broadly inclusive ; aim is to

27
are only a few differences provide more viable social protection Major Divisions of Transportation Insurance
between provisions in an coverage for the informal sector; eligibility 1) Ocean Marine Insurance – one of the oldest written forms of insurance
industrial life insurance policy is defined broadly and exclusions are kept and has to do primarily with the insurance of sea perils; Old law: “as
and that in most ordinary to a minimum insurance against risk connected with navigation, to which a ship, cargo,
policies freightage, profits or other insurable interest in movable property, may
OWNER: proprietors or OWNER: members (of Mutual Benefit be exposed during a certain voyage or a fixed period of time.
stockholders (of stock Associations or cooperatives or mutual 2) Inland Marine Insurance – of comparatively recent origin and covers
corporations) aid organizations) primarily the land or over the land transportation perils of property
FORM: Could be complex, like FORM: As imple as possible, both in shipped by railroads, motor trucks, airplanes, and other means of
ordinary insurance policies concept and execution, assumes transportation; Covers risks of lake, river, or other inland waterway,
customers are generally poorly educated, transportation and other waterborne perils outside of those risks that fall
even illiterate definitely within the ocean marine category.
CHAPTER VIII – MARINE INSURANCE Scope of Ocean Marine Insurance

Provides protection for:
A. Definition and Risks Covered 1) Ships or hulls;
2) Goods or cargoes;
3) Earnings such as freight, passage money, commissions, or profits;
Sec.101. Marine Insurance includes:
(a) Insurance against loss of or damage to: 4) Liability (“protection and indemnity insurance”) incurred by the
(1) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise, effects, owner or any party interested in or responsible for the insured
disbursements, profits, moneys, securities, choses in action, instruments of debts, property by reason of maritime perils.
valuable papers, bottomry, and respondentia interests and all other kinds 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, Risks or Losses Covered in Ocean Marin Insurance
crated, baled, compressed or similarly prepared for shipment or while awaiting Under a marine insurance policy, all risks or losses may be insured against,
shipment, or during any delays, storage, transhipment, or reshipment incident thereto, except such as are repugnant to public policy or positively prohibited
including war risks, marine builder’s risks, and all personal property floater risks;
(2) Person or property in connection with or appertaining to a marine, inland marine, • A general marine insurance policy which does not state the risks assured
transit or transportation insurance, including liability for loss of or damage arising out of is valid and covers the usual marine risks
or in connection with the construction, repair, operation, maintenance or use of the • In a marine policy, the general enumeration of “all other perils” extends
subject matter of such insurance (but not including life insurance or surety bonds nor
insurance against loss by reason of bodily injury to any person arising out of ownership, only to marine damage of like kind to those enumerated
maintenance, or use of automobiles); • To sustain recovery on a marine policy, the loss must have been
(3) Precious stones, jewels, jewelry, precious metals, whether in course of transportation or occasioned by a risk or peril insured against:
otherwise; and
(4) Bridges, tunnels and other instrumentalities of transportation and communication
1) The contract of insurance on freight is that the perils insured against
(excluding buildings, their furniture and furnishings, fixed contents and supplies held in shall not prevent ship from earning full freight for the insured in that
storage); piers, wharves, docks and slips, and other aids to navigation and voyage; contract does not undertake that the goods shall be
transportation, including dry docks and marine railways, dams and appurtenant delivered in a sound or merchantable state or that the vessel shall be
facilities for the control of waterways.
safe from dangers of the sea
(b) Marine protection and indemnity insurance, meaning insurance against, or against legal 2) The underwriter of a vessel does not undertake for the cargo but
liability of the insured for loss, damage, or expense incident to ownership, operation, engages only for the ability of the vessel to perform her voyage and
chartering, maintenance, use, repair, or construction of any vessel, craft or instrumentality in to bear damage which the vessel may sustain in making the voyage.
use of ocean or inland waterways, including liability of the insured for personal injury,
illness or death or for loss of or damage to the property of another person.
An insurance on cargo does not insure the ship.
3) An insurance on time contains only an engagement that the ship shall
be capable of performing the voyage undertaken notwithstanding
Transportation Insurance Defined
any loss or injury which may occur to her during the time for which
• Concerned with the perils of property in (or incidental to) transit as the vessel is insured.
opposed to property perils at a generally fixed location; the term does not 4) In marine policies, the insurer may except liability from certain causes
include motor vehicle insurance which is treated separately by law. 5) It is a well-understood and well-established rule of marine insurance
that goods are presumed to be shipped under deck, that is, below the
weather deck of the vessel. If the goods are shipped on deck, they are
28
not covered by the policy unless special notice of the stowage is upon the insured the burden of establishing that the loss was due to a
given to the underwriter and he accepts the enhanced risk. peril falling within the policy’s coverage. Insurer can avoid coverage
• Reason for presumption: Deck of a vessel is not designed to carry upon proof of an express exclusion from coverage.
goods. Primary function is to make the holds water tight and to 3) Initial burden on part of insured to establish damage or loss occurred –
protect the cargo laden in the holds. Goods carried on deck are Under an “all risks” insurance policy, insured has the initial burden of
subject to weather damage, sea damage, and the hazard of being proving that the cargo was in good condition when the policy attached
washed overboard. Shipowners have legal right to load goods on and that the cargo was damaged when unloaded from the vessel; then,
deck, and if they do, goods are at shipowner’s risk unless he had burden shifts to the insurer to show the exception to the coverage.
obtained consent of the cargo owner to such stowage
Classes (Scope) of Inland Marine Insurance
“Perils of the Sea” as used in Ocean Marine Insurance • To be eligible for inland marine contract, the risk must involve an element
1) Perils covered – Ocean marine insurance protects ships at sea and the of transportation. Either the property is actually in transit held by persons
cargo or freight on such ships from standard perils of the sea — includes who are not its owners, or at a fixed location but an important instrument
only those casualties due to the unusual violence or extraordinary action of transportation, or is a movable type of goods which is often at different
of wind and wave, or other extraordinary causes connected to navigation locations.
a) Phrase embraces all kinds of marine casualty such as shipwreck,
foundering, stranding, collision, and every specie of damage done to 1) Property in transit – insurance provides protection for property
the ship or goods at sea by the violent action of the wind and waves frequently exposed to loss while it is transpored between locations
or losses occasioned by the jettisoning of cargo if it is made for the 2) Bailee liability – insurance provides protection to persons who have
purpose of saving a vessel rendered unworthy during the voyage, temporary custody of the goods or personal property of others, such as
not through the fault of the captain. carriers, laundrymen, warehousemen, and garagekeepers;
2) Perils not covered – Does not include losses resulting from ordinary 3) Fixed transportation property – the insurance covers bridges, tunnels,
wear and tear or other damage usually incident to the voyage; Mere fact and other instrumentalities of transportation and communication,
that an injury is due to the violence of some marine force does not although as a matter of fact they are fixed property—insured because
necessarily bring it within the protection of the policy if such violence they are held to be essential parts of the transportation system.
was not unusual or unexpected. Marine policies must exclude buildings, their furniture, fixtures, fixed
3) A relative term – the meaning of “perils of the sea” may vary with the contents, and supplies held in storage, invariably extend to cover more
circumstance. perils than those included in the usual fire policy; In order for a risk to
qualify for a marine contract, there must definitely be included some
Perils of the Sea Must Be the Proximate Cause additional marine peril.
• Insurer is liable only for such losses or damages proximately caused by 4) Floater – Term is used in the sense that it provides insurance to follow
the perils insured against the insured property wherever it may be located, subject always to the
territorial limits of the contract. Floater policies may be issued for such
“All Risks” Marine Insurance Policy items as jewelry, furs, works of art, contractor’s equipment, etc.
An all risks marine insurance policy insures against all causes of Although the basis for eligibility is the fact that transportation of
conceivable loss or damage, except as otherwise excluded in the policy or property is often present, the condition need not necessarily occur.
due to fraud or intentional misconduct on the part of the insured Floaters have been issued covering property that is seldom moved.
1) Scope of Protection – has been evolved to grant greater protection than B. General and Particular Average
that afforded by the “perils clause”; Covers all losses during the voyage
whether arising from a marine peril or not, including pilferage losses Sec. 138. Where it has been agreed that an insurance upon a particular thing, or class of things,
during the war shall be free from particular average, a marine insurer is not liable for any particular average loss
not depriving the insured of the possession, at the port of destination, of the whole of such thing,
2) Burden of proof on part of insurer to establish damage or loss that has or class of things, even though it becomes entirely worthless; but such insurer is liable for his
occurred, excluded from coverage – Duty of the insurance company to proportion of all general average loss assessed upon the thing insured.
establish that said loss or damage falls within the exceptions provided
for by law, otherwise it is liable therefor Meaning of Average
o An “all risks” provision creates a special type of insurance which Average – any extraordinary or accidental expense incurred during the
extends coverage to risks not usually contemplated and avoids putting voyage for the preservation of the vessel, cargo, or both and all damages to
29
the vessel and cargo from the time it is loaded and the voyage commenced insured.” SC has held that Art. 859 of the Code of Commerce which reads:
until it ends and the cargo unloaded. “The underwriters of the vessels, of the freightage and of the cargo shall be
obliged to pay for the indemnity of the gross average in so far as is required of
Kinds of Average each one of these objects respectively” is still in force. The provision is not
1) Gross or General averages – include damages and expenses which are unfair. It simply places the insurer on the same footing as other persons
deliberately caused by the master of the vessel or upon his authority, in with interest in the vessel or the cargo at the time of the occurrence of the
order to save the vessel, the cargo, or both at the same time from a real general average and who are compelled to contribute.
and known risk;
2) Simple or Particular averages – include all damages and expenses Formula for Computing Liability of the Insurer: Proportion of
caused to the vessel or to the cargo which have not inured to the Amount of Insurance x General Average Loss (GAL) =
GAL for which
common benefit and profit of all the persons interested in the vessel and
cargo. Refers to those losses which occur under such circumstances not Total Amount or value involved insurer is liable
entitling the unfortunate owners to receive contribution from other
owners concerned in the venture as where a vessel accidentally runs
aground and goes to pieces after the cargo is saved Liability of Insurer for Particular Average
• It may be agreed by the parties that the insurance shall be free from
General average loss must be borne equally by all of the interests concerned particular average. In such case, the marine insurer is liable only for
in the venture in proportion to the value of the property saved. A particular general average and not for particular average unless such particular
average loss is borne alone by the owner of the cargo or of the vessel. average loss has the effect of “depriving the insured of the possession at
the port of destination of the whole” of the thing insured
“Partial loss”, “particular average”, and “average, unless general” are • In the absence of any contrary stipulation, the insurer is liable for
generally regarded as synonymous when used in marine insurance particular average loss.
• Examples of particular average. The damage suffered by the cargo from
Principle of General Average Contribution
the time of its embarkation until it is unloaded; the damage and expenses
• General average is a principle of customary law, independent of contract, suffered by the vessel from the time it is put to sea from the port of
whereby it is decided by the master or captain of a vessel, acting for all departure until it anchors in the port of destination; wages and victuals of
the interests concerned, to sacrifice any part of a venture exposed to a the crew when the vessel is detained or embargoed by legitimate order or
common and imminent peril in order to save the rest. The interests so force majeure.
saved are compelled to contribute ratably or proportionately, based on
the value of the said interests, to the owner of the interest sacrificed, so A. Magsaysay Inc. v. Anastacio Agan (1955)
that the cost of the sacrifice shall fall equally upon all. Facts: SS San Antonio carried general cargo belonging to different shippers. While
• Practice of “general average” contribution is a device for a limited still in port, it ran aground at the mouth of the Cagayan River, and it had to be
distribution of loss; the loss is pro tanto made up by proportionate or
refloated. On the theory that the expenses incurred constitute general average,
“general average” contributions from the owners of the other interests
benefited by the sacrifice. plaintiff brought action to make a cargo owner pay his contribution, the latter refused
alleging that it was due to fault and negligence of the master of the vessel.
Requisites to to Claim General Average Contribution (CSB-M-FSN)
1) There must be a common danger to the vessel or cargo; Held: The stranding of the vessel was due to the sudden shifting of the sandbars at
2) Part of the vessel or cargo was sacrificed deliberately; the mouth of river which the port pilot did not anticipate. It was therefore accidental.
3) The sacrifice must be for the common safety or for the benefit of all; The expenses incurred did not constitute general average as the following requisites
4) It must be made by the master or upon his authority;
were not met: 1) There must be a common danger, and the peril must be certain and
5) It must not be caused by any fault of the party asking the contribution;
6) It must be successful (resulted in the saving of the vessel and/or cargo); imminent; 2)That for the common safety, part of the vessel or of the cargo or both is
7) It must be necessary. sacrificed deliberately; 3) That from the expenses or damages caused follows the
successful saving of the vessel and the cargo; 4) That the expenses or damages should
Liability of Insurer for General Average have been incurred or inflicted after taking proper legal steps and authority.
• Clearly provided in the clause of IC Sec. 136 which states that the insurer
“is liable for his proportion of all general average loss assessed upon the thing Francisco Jarque v. Smith Bell & Co., et. al. (1930)
30
Facts: The motorboat Pandan ran into very heavy sea and it became necessary to • “Perils of the Sea” – has been said to include only such losses as are of
jettison a portion of the cargo. National Union Fire Insurance Co. refused to pay extraordinary nature or arise from some overwhelming power which
contribution to the general average, insisting its obligation did not extend beyond the cannot be guarded against by the ordinary exertion of human skill or
insurance of “absolute total loss of the vessel only.” prudence, as distinguished from the wear and tear of the voyage and
from injuries suffered as a consequence of the vessel not being seaworthy
o General Rule: Everything which happens through the inherent vice of
Held: Liability for contribution in general average is not based on the express terms the thing, or by the act of the owner, master, or shipper, shall not
of the policy, but rest upon theory that from the relation of the parties and for their repute a peril if not otherwise borne in the policy
benefit, a quasi-contract is implied by law. The ship was in grave peril and thus, the
jettison of part of the cargo was necessary. If the cargo was in peril to the extent of Cathay Insurance Co. v. CA & Remington Industrial Sales Corp. (1987)
call for general average, the ship must also have been in great danger, possibly Facts: Remington Industrial Sales Corp. filed a complaint against Cathay Insurance
sufficient to cause its absolute loss. Jettison was as much to the benefit of the insurer seeking collection for losses and damages incurred in a shipment of seamless steel
as to the cargo owner pipes, which rusted during the voyage from Japan to the Philippines.
Phil. Home Assurance v. CA (1996) Held: The rusting of steel pipes in the course of a voyage is a “peril of the sea” in
Facts: Eastern Shipping Lines, Inc. (ESLI) loaded on board SS Eastern Explorer view of the toll on the cargo of wind, water, and salt conditions
internal combustion engine parts, liquid substances such as ammonium chloride and
garments. While the vessel was in Japan, a small flame was detected on the acetylene Isabela Roque & Ong Chiong v. IAC & Pioneer Ins. (1985)
cylinder located in the accommodation area. When the crew was trying to extinguish Facts: 811 pieces of logs were loaded on the barge but the shipment never reached its
the fire, the acetylene cylinder exploded, causing death and injuries and setting the destination because Mable 10 sank. Petitioners contend that the barge where logs
entire vessel on fire. The master and crew of the vessel abandoned the ship. The were loaded was not seaworthy—one of the hatches was open causing water to enter
cargoes saved were loaded onto another vessel for delivery to their original ports of the barge and since it was not provided with the necessary cover or tarpaulin, the sea
destination. ESLI charged the consignees several amounts corresponding to waves brought more water inside the vessel.
additional freight and salvage charges, which were all paid under protest by
Philippine Home Assurance Corp. PHAC filed a complaint to recover, saying the Held: Unmistakable that the loss of the cargo was due to the perils of the ship rather
damages were brought about by the fault and negligence of ESLI. than perils of the sea. A loss which, in the ordinary course of events, results from the
negligent failure of the ship’s owner to provide the vessel with proper equipment to
Held: General or gross averages include all damages and expenses which are convey the cargo under ordinary conditions, is a ‘peril of the ship.’
deliberately caused in order to save the vessel, its cargo, or both, from a real and
known risk. In this case, the formalitiesin order to incur the expenses and cause the La Razon Social “Go Tiaoco y Hermanos” v. Union Insurance Society (1919)
FACTS: Upon discharging the rice, it was discovered that 1,473 sacks had been
damage corresponding to gross average were not complied with. Cargo consignees
damaged by sea water. The inflow of sea water during the voyage was due to a defect
cannot be made liable for additional freight and salvage charges.
in one of the drain pipes of the ship and it was held that the opening in the pipe
C. “Perils of the Sea” and “Perils of the Ship” resulted from ordinary wear and tear and not from the straining of the ship in rough
weather during the voyage.
• “Perils of the Ship” – a loss which, in the ordinary course of events,
results (a) from the natural and inevitable action of the sea, (b) from the HELD: The entrance of sea water into the ship’s hold through the defective pipe was
ordinary wear and tear of the ship, or (c) from the negligent failure of the not due to any accident which happened during the voyage, but to the failure of the
ship’s owner to provide the vessel with proper equipment to convey the ship’s owner to properly repair a defect, the existence of which he was apprised. The
cargo under ordinary conditions loss could be attributed more to simple unseaworthiness than to perils of the sea.
o The insurer does not undertake to insure against perils of the ship. The
purpose of an ocean marine policy is to secure an indemnity against
Malayan Insurance v. CA & TKC Marketing Corp. (1997)
accidents which may happen not against event which must happen
Facts: Soya bean meal was loaded on board the MV Al Kaziemah for transport from
Brazil to Manila. While docked in South Africa, civil authorities arrested and

31
detained it because of a lawsuit on a question of ownership and possession. Malayan, Sec. 105. The owner of a ship has an insurable interest in expected freightage which according to
the ordinary and probable course of things he would have earned but for the intervention of a
the insurer of the cargo, refused to grant the claim as arrest of the vessel by civil peril insured against or other peril incident to the voyage.
authorities was an excepted risk under the marine insurance policies
Sec. 106. The interest mentioned in the last section exists, in case of a charter party, when the
ship has broken ground on the chartered voyage. If a price is to be paid for the carriage of goods
Held: Marine insurance developed as an all-risk coverage, using the phrase “perils of it exists when they are actually on board, or there is some contract for putting them on board,
the sea” to encompass wide and varied range of risks that were covered. The and both ship and goods are ready for the specified voyage.
limitation to the “perils” clause is the “Free from Capture & Seizure Clause,” whose Sec. 107. One who has an interest in the thing from which profits are expected to proceed has an
interpretation in recent years has included seizure or detention by civil authorities, insurable interest in the profits.
consistent with the general purposes of the clause. Since what was excluded in the
deleted FC&S Clause was “arrest” occasioned by ordinary judicial process, such Insurable Interest of Insured in Marine Insurance
“arrest” would now become a covered risk, regardless of whether or not “arrest” by • Marine insurance is invalid unless supported by an insurable interest in
the thing insured. There can be no valid insurance unless there is
civil authorities occurred in a state of war.
something to insure.
o Exception: If an insurance is taken upon a ship or cargo “lost or not
Mayer Steel & HK Govt. v. CA, South Sea Surety & Charter Ins. (1997) lost,” meaning the insurer expressly agrees that he will be bound in
Facts: HK Government Supplies Department contracted Mayer Steel to any event, even though the vessel be already lost; the contract is
manufacture and supply steel pipes and fittings, Mayer insured these against all binding and the insurer must pay, even though it be proved that the
risks with South Sea Surety and Insurance when it shipped them to HK. When the insured had nothing to insure when the contract was made.
goods reached their destination, it was discovered that a substantial portion was
damaged. Mayer filed against insurer for indemnity, but this did not succeed as CA Insurable Interest of Owner of a Ship
dismissed the complaint on the ground of prescription. • Owner of a vessel has insurable interest on the vessel to the extent of its
value. This is true even if he has mortgaged the same or has chartered it to
a third person who agrees to pay him its value in case of loss. In the latter
Held: Only carrier’s liability is extinguished if no suit is brought within one year case, the insurer is liable only for that part of the loss which the insured
but liability of insurer is not extinguished because the insurer’s liability is based not cannot recover from the charterer.
on the contract of carriage, but on the contract of insurance. Also, an “all risks” • The charterer of a ship has an insurable interest in it to the extent that he
insurance policy covers all kinds of loss other than those due to willful and is liable to be damnified by its loss.
fraudulent acts of the insured. Thus when the insurer issued the “all risks” policies,
it bound itself to indemnify Mayer in case of loss or damage to the goods insured, Insurable Interest and Sale Contracts
this obligation prescribes in ten years. • A person has insurable interest if he will suffer in the event of loss of, or
damage to, the subject matter insured.
D. Insurable Interest in Marine Insurance
1) In the case of a vessel – Insurable interest is commonly possessed by the
owner, and also if money has been borrowed, by one who holds
1. Parties with Insurable Interest
mortgage on the vessel. One who leases a vessel may agree to assume
responsibility for its insurance, in which case he has an insurable interest
Sec. 102. The owner of a ship has in all cases an insurable interest in it, even when it has been
chartered by one who covenants to pay him its value in case of loss: Provided, That in this case
2) In the case of cargo – Insurable interest is in the shipper or the consignee
the insurer shall be liable for only that part of the loss which the insured cannot recover from the depending upon the terms of sale. Some common terms of sale:
charterer. a) F.O.B. (Free On Board)
i. FOB Factory – Buyer assumes responsibility when the goods
Sec. 103. The insurable interest of the owner of the ship hypothecated by bottomry is only the
excess of its value over the amount secured by bottomry.
leave the factory
ii. FOB Point of Destination – Buyer does not assume responsibility
Sec. 104. Freightage, in the sense of a policy of marine insurance, signifies all the benefits until the goods are received from the carrier
derived by the owner, either from the chartering of the ship or its employment for the carriage of b) C.I.F. (Cost, Insurance, and Freight) – Seller assumes complete
his own goods or those of others.
responsibility for securing all necessary insurance
c) C & F (Cost and Freight) – Buyer procures his own insurance

32
3) In the case of a vendee/consignee of goods in transit – Vendee/consignee against or other peril incident to the voyage. The rule is the same
has such existing interest therein as may be the subject of a valid contract although the freight has been paid in advance. However, where the
of insurance; his interest over the goods is based on the perfected agreement is that the freight is payable in any event, whether the vessel
contract of sale between him and the shipper of the goods which is lost or is not lost, the shipowner has no insurable interest in such
operates to vest in him an equitable title even before delivery or before freight. But the shipper who has prepaid the freightage under such
he performed the conditions of the sale condition, has an insurable interest on the same.
o The contract of shipment, whether under FOB, CIF or C&F, is
immaterial in the determination of whether the vendee has an Insurable Interest in Passage Money
insurable interest or not in the goods in transit. Perfected contract of • Passage money is customarily payable in advance; it cannot be recovered
sale even without delivery vests in the vendee an equitable title, an if the vessel is lost before the completion of the passage. Under such
existing interest over the goods sufficient to be the subject of insurance circumstances, the passenger can clearly insure his advances of passage
money but the shipowner may not insure it unless it is payable only upon
Shipowner’s and lender’s Insurable Interest Where Vessel Hypothecated the completion of the voyage.
by Bottomry
• A loan on bottomry is one which is payable only if the vessel, given as a Insurable Interest in Expected Freightage in a Charter Party
security for the loan, completes in safety the contemplated voyage 1) When it exists – To give an insurable interest in expected freightage, the
• Lender in bottomry is entitled to receive a high rate of interest to insured must have an inchoate right to freight, that is, he must be in such
compensate him for the risk of losing his loan position with regard to freight that nothing could prevent him from
• The owner of the vessel receives in case of loss no indemnity for his loss, ultimately having a perfect right to it but the intervention of the perils
but he does secure immunity from payment of the loan insured against.
a) Where freight is the price to be paid for the hire of the ship under a
• Where a vessel is bottomed, the owner has an insurable interest only in
charter party, the shipowner has an inchoate right to freight as soon
the excess of its value over the amount of the bottomry loan; The
as there is an inception of performance by the ship under the charter
insurable interest of the lender on bottomry in the vessel given as security
party.
is to the extent of the loan
b) Where the inchoate right to freight accrues as soon as the goods are
actually put on board and where part of the goods has been loaded
Meaning of Freightage
and the balance is ready, insurable interest is on the whole freight.
• Benefit accruing to the owner of the vessel from its use in the voyage c) Where the shipowner has made a binding contract for freight and the
contemplated or the benefit derived from the employment of the ship ship is in readiness to receive the goods, he has an insurable interest.
2) When none exists – There is no insurable interest in freight.
Sources of Freightage a) Where there is no contract and no part of the goods expected to be
1) Chartering of the ship; carried are on board, there is no insurable interest in freight although
2) Its employment for the carriage of his own goods; there are goods ready for shipment or the master is provided with
3) Its employment for the carriage of the goods of others. funds for the purpose of purchasing a cargo.
b) Where the vessel is a mere “seeking ship” or a vessel looking for
Insurable Interest in Expected or Anticipated Freightage cargo to be transported, the owner has no insurable interest in freight
• Under this provision, the owner of a ship includes not only the legal to be earned on goods not loaded.
owner but also the charterer who expects to earn in the transportation of
goods of others. Insurable Interest in Expected Profits
1) Interest in thing involved based on some legal right – One having a
1) The freight (or freightage) covered by an ordinary marine policy is reasonable expectation of profits from a marine adventure may take out
something more than the interest indicated ordinarily by the use of the insurance to protect such profits. However, the interest in the goods or
word “freight.” Freight money assured to the shipowner may be: a) adventure out of which the profits are expected to be realized should be
freight, in its ordinary acceptation, to be earned and payable upon the a legal interest although such interest may be contingent like commission
completion of the voyage; b) the hire of the vessel, payable by the to an agent or consignee.
charterer; or c) the benefit accruing to the owner from the use of his • Example: Owner of a cargo to be carried on a trading voyage has
vessel in the way of profits upon carriage of his own goods. an insurable interest not only on the value of the cargo but also
2) The owner of a ship has an insurable interest in expected freightage
which he may not earn in case of the intervention of a peril insured
33
on the expected profit from the sale of the cargo which is liable to 2) Under a contract of affreightment, the owner of the vessel leases part or
be affected by the perils of the sea. all of its space to haul goods for others. It is a contract of special service
2) Interest in thing involved based on a valuable consideration – Insured to be rendered by the owner of the vessel who retains the possession,
has sufficient interest if it is based on a valuable consideration paid. command, and navigation of the ship, the charterer or freighter merely
• Example: One who has made a contract for purchase of property having use of the space in the vessel in return for the payment of the
which has been made ready for shipment, although not loaded charter hire or freight. Charterer is free from liability to third persons
and who has contracted to sell it at a profit has an insurable with respect to the ship.
interest in the profits. a) A voyage charter or trip charter is a contract for the carriage of
goods, from one or more ports of loading to one or more ports of
2. Kinds of “Charter Parties” unloading, on one or on a series of voyages. In a voyage charter,
master and crew remain in the employ of the owner of the vessel.
Sec. 108. The charterer of a ship has an insurable interest in it, to the extent that he is liable to be
The shipowner supplies the ship’s store, pays for the wages of the
damnified by its loss. master and the crew and defrays the expenses for the maintenance of
the ship. Parties may fully contract respecting liability for damage to
Insurable interest of a charterer of a ship is up to the extent that he is liable the goods and other matters. Basic principle: “responsibility for cargo
to be damnified by its loss: loss falls on the one who agreed to perform the duty involved.”
1) One who charters a vessel, with a stipulation to pay its value in case of A time charter is a contract for the use of a vessel for a specified
loss, has an insurable interest to the extent of its value. period of time or for the duration of one or more specified voyages.
2) The charterer has also an insurable interest in the profits he expects to Owner of the time-chartered vessel also retains possess and control
earn by carrying the goods in excess of the amount he agreed to pay for through the master and crew who remain his employees. What time
the charter of the vessel charterer acquires is the right to utilize the carrying capacity and
facilities of the vessel and to designate her destinations during the
Types of Charter Parties term of the charter
• Charter party is a contract by which an entire ship or some principal part
Coastwise Lighterage Corp. v. CA & Phil. Gen. Ins. Co. (1995)
thereof is lent by the owner to another person for a specified time or use.
Facts: Pag-asa Sales entered into a contract to transport molasses with Coastwise
In modern maritime law and usage, there are two distinguishable types of
charter parties: Lighterage, using the latter’s barges and tugboat. While approaching the pier, one of
the barges struck an unknown object and water gushed in through the hole created.
1) In a bareboat or demise charter, the shipowner turns over full possession Molasses in the cargo tanks were contaminated and rendered unfit for use.
and control of his vessel to the charterer, who then undertakes to provide
a crew and victuals and supplied and fuel for her during the term of the Held: Pagasa Sales leased three of petitioner’s vessels, but the possession, command
charter. The shipowner is not normally required by the terms of a demise and navigation of the vessel remained with Coastwise. Coastwise, by the contract of
charter to provide a crew, and so the charterer gets the “bareboat” i.e. affreightment, remained a common carrier (was not converted into a private carrier).
without a crew. Charterer becomes the owner for the voyage or service The presumption of negligence that attaches to common carriers, once the goods it
stipulated, subject to liability for damages caused by negligence. transports are lost, destroyed or deteriorated, applies to petitioner. This presumption,
o Demise charter might provide that the shipowner is to furnish a overcome only by proof of exercise of extraordinary diligence, was not rebutted.
master and crew to man the vessel under the charterer’s direction,
such that the master and crew provided by the shipowner become the Lea Mer Industries v. Malayan Insurance (2005)
agents and servants or employees of the charterer, and the charterer Facts: Ilian Silica Mining entered into a contract of carriage with Lea Mer for
through the agency of the master, has possession and control of the shipment of silica sand. The silica sand was placed on board Judy VII, barge leased by
vessel during the charter period.
Lea Mer. During the voyage, the vessel sank, resulting in the loss of the cargo.
o In a demise or bareboat charter, charterer is treated as owner pro have
vice of the vessel, the charterer assuming in large measure the
customary rights and liabilities of the shipowner in relation to third Held: The contract was one of affreightment, as shown by the fact that it was Lea
persons who have dealt with him or with the vessel. The master of the Mer’s crew that manned the tugboat and controlled the barge. Lea Mer was thus a
vessel is the agent of the charterer. The charterer is held liable for the common carrier. It bore the burden of proving it observed extraordinary diligence in
expenses of the voyage including the wages of the seamen. its vigilance over the goods it was contracted to transport. In this case, Lea Mer
failed to overcome the presumption of fault and should be liable for the loss of cargo.
34
Loadstar Shipping v. Pioneer Asia Ins. Corp. (2006) (c) The liability to seizure from breach of foreign laws of trade;
Facts: Loadstar Shipping Co., Inc. entered into a voyage charter with Northern (d) The want of necessary documents; and
(e) The use of false and simulated papers.
Mindanao for carriage of 65,000 bags of cement, insured by Pioneer Asia Insurance.
The vessel left in good weather, but the master of the vessel ordered the vessel to be Sec. 113. If a representation by a person insured by a contract of marine insurance, is
intentionally false in any material respect, or in respect of any fact on which the character and
forced aground. The entire shipment of cement was as good as gone due to exposure nature of the risk depends, the insurer may rescind the entire contract.
to sea water.
Sec. 114. The eventual falsity of a representation as to expectation does not, in the absence of
fraud, avoid a contract of marine insurance.
Held: Despite the voyage charter executed, petitioner remained a public carrier since Sec. 28. Each party to a contract of insurance must communicate to the other, in good faith, all
charter was limited to the ship only. As decided in a prior case, a public carrier shall facts within his knowledge which are material to the contract and as to which he makes no
warranty, and which the other has not the means of ascertaining.
remain as such provided the charter is limited to the ship only (time or voyage
charter), it is only when the charter includes both the vessel and its crew (bareboat or
Meaning of Concealment in Marine Insurance
demise charter) that a common carrier becomes private. Petitioner, as a common
• Concealment in marine insurance is the failure to disclose any material
carrier, has the burden of proving it observed extraordinary diligence in order to fact or circumstance which in fact or law is within, or which ought to be
avoid responsibility. It was unable to discharge such burden as records reveal it took within the knowledge of one party and of which the other has no actual or
a shortcut route which exposed the voyage to unexpected hazard—it only had itself to presumptive knowledge.
blame for its misjudgment. o Rule applies to both the assured and the underwriter, and rests upon
the doctrine of good faith as well as the prevention of fraud
Cebu Salvage v. Phil. Home Assurance (2007)
Facts: Cebu Salvage Corp. (carrier) and MCCII (charterer) entered into a voyage Rules as to Misrepresentations and Concealments Stricter in Marine
Insurance
charter, wherein petitioner was to load 800 to 1,100 metric tons of silica quartz on
board M/T Espiritu Santo for transport to a consignee. Shipment never reached its • Rules are more strict in cases of marine than of fire insurance
destination as the vessel sank, resulting in the total loss of cargo. • Due to the difference in the character of the property, and the greater
facility the insurer possesses in obtaining information as to its conditions
and surrounding circumstances in cases of insurance on buildings, etc
Held: Cebu Salvage is liable. It was the one that contracted with MCCII for the than on vessels, which are often insured when absent or afloat
transport of cargo, it had control over what vessel it would use, and all throughout • Under Sec 107, to constitute concealment, it is sufficient that the insured is
its dealings with MCCII, it represented itself as a common carrier. The fact that it possesses the material fact concealed although he may not be aware of it.
did not own the vessel it decided to use to consummate the contract of carriage did
not negate its character and duties as common carrier. Opinions or Expectations of Third Persons
• General Rule (in insurance): A party to a contract of insurance need not
E. Concealment and Misrepresentation communicate information of his own judgment to the insurer much what
he learns from a third person
Sec. 109. In marine insurance, each party is bound to communicate, in addition to what is o Exception (in marine insurance): The insured is bound to
required by Section 28, all the information which he possesses, material to the risk, except such communicate to the insurer not only facts but also beliefs, opinions,
as is mentioned in Section 30, and to state the exact and whole truth in relation to all matters that or expectations of third persons
he represents, or upon inquiry discloses or assumes to disclose.
o The only requirement is that the information be in reference to a
Sec. 110. In marine insurance, information of the belief or expectation of a third person, in material fact
reference to a material fact, is material.
Sec. 111. A person insured by a contract of marine insurance is presumed to have knowledge, at
Presumptive Knowledge By Insured of Prior Loss
the time of insuring, of a prior loss, if the information might possibly have reached him in the 1) When rule applicable – Section 109 establishes a rebuttable presumption
usual mode of transmission and at the usual rate of communication. of knowledge of a prior loss on the part of the insured “if the information
might possibly have reached him in the usual mode of transmission and
Sec. 112. A concealment in a marine insurance, in respect to any of the following matters, does
not vitiate the entire contract, but merely exonerates the insurer from a loss resulting from the at the usual rate of communication.”
risk concealed: 2) Reason for presumption – The quickness in the transmission of news by
(a) The national character of the insured; means of modern communications; Means of transportation have rapidly
(b) The liability of the thing insured to capture and detention; advanced due to the urgent needs of commerce, the presumption that the
35
loss of a vessel due to the disaster of the seas was duly communicated to • Representations of expectation or intention are to be carefully
the insured, becomes stronger. distinguished from promissory representations:
3) When rule not applicable – Insured is not bound, however, to use all o Representations of expectation are statements of future facts or
accessible means of information at the very last instant of time to events which the insurer is bound to know that the insured could not
ascertain the condition of the property insured. have intended to state as known facts, but only merely as
expectations or intentions, unless made with fraudulent intent.
When Concealment Does Not Vitiate Entire Contract o Their failure of fulfilment is not a ground for rescission.
• Concealment of any of the matters indicated from paragraphs (a) to (e) of • Rule applies to statements of the time a vessel will sail or is expected to
Section 112 does not avoid the policy ab initio. sail, the nature of the cargo to be shipped, the amount of profits expected,
• If the vessel be lost due to any of the causes mentioned in Section 112, the destination of the vessel, or that the insured has no doubt that he can
which was concealed, the insurer is not liable; but if the vessel be lost due get insurance effected for a certain premium.
to other perils of the sea, like a storm, the insurer is not exonerated from
liability. F. Implied Warranties
Applicability of Rules on Representation to Marine Insurance 1. Seaworthiness of the Vessel

• Rules governing representations with respect to insurance policies
generally have been held to apply to marine insurance policies. Sec. 115. In every marine insurance upon a ship or freight, or freightage, or upon anything
• General rules with respect to the distinctions between representations and which is the subject of marine insurance, a warranty is implied that the ship is seaworthy.
warranties and to the construction of representations apply to marine Sec. 116. A ship is seaworthy when reasonably fit to perform the service and to encounter the
insurance. A substantial misrepresentation of any material fact or ordinary perils of the voyage contemplated by the parties to the policy.
circumstance relating to marine insurance avoids the policy.
Sec. 117. An implied warranty of seaworthiness is complied with if the ship be seaworthy at the
• Generali Rule: A representation is material where it would influence the time of the commencement of the risk, except in the following cases:
judgment of a prudent insurer in fixing the premium or in determining (a) When the insurance is made for a specified length of time, the implied warranty is
whether he would take the risk — also applicable to marine insurance. not complied with unless the ship be seaworthy at the commencement of every voyage it
undertakes during that time;
(b) When the insurance is upon the cargo which, by the terms of the policy,
Effect of False Representation by Insured description of the voyage, or established custom of the trade, is to be transhipped at an
1) Intentional – Any misrepresentation of a material fact made with intermediate port, the implied warranty is not complied with unless each vessel upon which the
fraudulent intent avoids the policy. cargo is shipped, or transhipped, be seaworthy at the commencement of each particular voyage.
2) Not intentional – If the misrepresentation is not intentional or fraudulent Sec. 118. A warranty of seaworthiness extends not only to the condition of the structure of the
but the fact misrepresented is material to the risk, the insurer may also ship itself, but requires that it be properly laden, and provided with a competent master, a
rescind the contract from the time the representation becomes false. sufficient number of competent officers and seamen, and the requisite appurtenances and
equipment, such as ballasts, cables and anchors, cordage and sails, food, water, fuel and lights,
and other necessary or proper stores and implements for the voyage.
Materiality of representations – The following have been held to be material:
• Representations as to the age, equipment, earnings, and particular Sec. 119. Where different portions of the voyage contemplated by a policy differ in respect to the
condition or rating of a vessel; things requisite to make the ship seaworthy therefor, a warranty of seaworthiness is complied
with if, at the commencement of each portion, the ship is seaworthy with reference to that
• That the vessel is to be repaired at a certain place; portion.
• That the vessel has arrived at the port of destinations, or was at a certain
Sec. 120. When the ship becomes unseaworthy during the voyage to which an insurance relates,
place at a certain time; an unreasonable delay in repairing the defect exonerates the insurer on ship or shipowner’s
• That other underwriters had insured the vessel at a certain rate; interest from liability from any loss arising therefrom.
• As to anything which concerns the state of the vessel at any particular Sec. 121. A ship which is seaworthy for the purpose of an insurance upon the ship may,
period of her voyage, nevertheless, by reason of being unfitted to receive the cargo, be unseaworthy for the purpose of
insurance upon the cargo.
Statements of the nature and amount of the cargo, where the vessel was not
overloaded or where the underwriter did not rely thereon, have been held to Warranty in Marine Insurance Defined
be immaterial. • Warranty has been defined as a stipulation, either expressed or implied,
forming part of the policy as to some fact, condition or circumstance
Effect of Falsity of Representations as to Expectation relating to the risk
36
Implied Warranties in Marine Insurance • Failure of a common carrier to maintain in seaworthy condition the
• Insurer will not be liable for any loss under his policy in case: vessel is a clear breach of its duty.
1. the vessel is unseaworthy at the inception of the insurance;
2. the vessel deviates from the agreed voyage; 1) Nature of ship – Vessel must be in a fit state as to repair, equipment,
3. the vessel engages in an illegal venture; crew and in all other respects to perform the voyage insured and to
4. the vessel will carry the requisite documents of nationality or encounter the ordinary perils of navigation; She must also be in a
neutrality of the ship or cargo where such nationality or neutrality is suitable condition to carry the cargo put on board or intended to be put
expressly warranted; on board; Not necessary that the cargo itself shall be seaworthy.
5. the insured has an insurable interest in the subject matter insured; 2) Nature of voyage – What is reasonable fitness to encounter the perils
expected to arise in the course of the voyage vary with the character of
Implied Warranty of Seaworthiness the particular voyage.
• Implied warranty that the vessel is in all respects seaworthy, and such 3) Nature of service – Seaworthiness of a vessel is also to be determined
warranty can be excluded only by clear provisions of the policy. with regard to the nature of the cargo which she undertakes to transport,
the requirement being that she shall be reasonably capable of safely
1) Where seaworthiness admitted by insurer – If the policy provides that carrying the cargo to its port of destination.
the seaworthiness of the vessel as between insured and insurer is
admitted, the issue of seaworthiness cannot be raised by the insurer Criterion of Seaworthiness
without showing concealment or misrepresentation by the insured; • Warranty of seaworthiness is not an absolute guaranty that the
Admission of seaworthiness may mean: a) that the warranty of vessel will safely meet all possible perils.
seaworthiness is to be taken as fulfilled; or b) that the risk of • Perfect vessel or one impervious to the assaults of the elements is not
unseaworthiness is assumed by the insurer. required; nor is the best and most skilful form of construction
2) Where unseaworthiness unknown to owner of cargo insured – Where required, but only such as is sufficient for the kind of vessels insured
cargo is the subject of marine insurance, the implied warranty of with reference to their physical and mechanical condition, the extent
seaworthiness attaches to whoever is insuring the cargo, whether he be of its fuel and provisions supply, the quality of its officers and crew,
the shipowner or not; Fact that the unseaworthiness of the ship was and its adaptability for the service in which they are employed.
unknown to the insured is immaterial in ordinary marine insurance and
may not be used by him as a defense in order to recover on marine When Seaworthiness is Complied With
insurance policy. 1) Commencement of risk – General rule is that the warranty of
• Since law provides for implied warranty of seaworthiness, it seaworthiness is complied with if the ship be seaworthy at the time of the
becomes the obligation of a cargo owner to look for a reliable commencement of the risk; Prior or subsequent unseaworthiness is not a
common carrier which keeps its vessels in seaworthy condition. breach of the warranty, nor is it material that the vessel arrives in safety
3) Where vessel found unseaworthy – general rule: common carriers are at the end of her voyage; There is no implied warranty that the vessel
presumed to have been at fault or to have acted negligently for the loss, will remain in seaworthy condition throughout the life of the policy.
destruction, or determination of goods, unless they prove that they 2) Exceptions:
observed diligence; Where a vessel is found unseaworthy, a shipowner is a) Time policy – the ship must be seaworthy at the commencement of
also presumed to be negligent since it is tasked with the maintenance of every voyage she may undertake.
its vessel; Exception to the limited liability doctrine which limits the b) Cargo policy – each vessel upon which the cargo is shipped or
insurer’s liability to its pro rata share in the insurance proceeds, is when transhipped, must be seaworthy at the commencement of each
the damage is due to the fault of the shipowner and the captain – particular voyage.
shipowner is liable for the total value of the damage or loss. c) Voyage policy contemplating a voyage in different stages – ship
must be seaworthy at the commencement of each portion.
What Constitutes Seaworthiness 3) Ship’s actual condition at commencement of voyage – Unexplained
• Seaworthiness is a relative term depending upon the nature of the sinking of a vessel creates the presumption of unseaworthiness.
ship, the voyage, and the service in which she is at the time engaged.
• Generally, for a vessel to be seaworthy, it must be adequately Time and Voyage Policies
equipped for the voyage and manned with a sufficient number of • Marine insurance policies are usually valued policies; policy will
competent officers and crew. also either be a time policy or voyage policy.

37
1) Time policy provides coverage for a fixed period of time, at the • When the vessel becomes unseaworthy during the voyage, it is the
expiration of which the insurance will lapse; This policy gives protection duty of the master, as the shipowner’s representative, to exercise due
for a stipulated period and avoids the annoyance of constant attention to diligence to make it seaworthy again.
the termination of voyages and the renewal of policies; On hulls • If loss should occur because of his negligence in repairing the defect
(vessels), they are the common type; Insured avoids the necessity of the insurer is relieved of liability but the contract of insurance is not
continually describing separate voyages many of which are over similar affected as to any other risk or loss covered by the policy and not
routes. caused or increased by such particular defect.
2) Voyage policy covers the subject matter for the voyage named in the
• The benefit of exoneration is given only to an “insurer on ship or
policy until the specified voyage ends, regardless of the time it takes to
shipowner’s interest.”
complete the voyage; Policy is particularly adapted to tramp steamers
and sailing vessels, inasmuch as these do not move over fixed routes and
Seaworthiness as to Cargo
their travel may be more easily described by separate voyage policies;
Because cargoes are subject to sea risk for comparatively short periods, • The vessel shall be reasonably capable of safely conveying the cargo
the voyage policy is frequently used. to its port of destination.
• Ship which is seaworthy for the purpose of insurance upon the ship
Scope of Seaworthiness of Vessel may be unseaworthy for the purpose of insurance upon the cargo.
1) Seaworthiness requires:
a. that the vessel must have equipment and appliances appropriate Roque v. IAC (1985)
to the voyage in which it is engaged and the cargo it carries; Facts: 811 pieces of logs were loaded on the barge but the shipment never reached its
b. it must have sufficient fuel, stores, and provisions to last for the destination because Mable 10 sank. Petitioners contend that the barge where logs
entire voyage; were loaded was not seaworthy—one of the hatches was open causing water to enter
c. it must have sufficient number of competent officers and men; the barge and since it was not provided with the necessary cover or tarpaulin, the sea
d. if the insurance is on cargo, the same must be properly loaded, waves brought more water inside the vessel.
stowed, dunnaged and secured so as not to imperil the
navigation of the vessel or to cause injury to the vessel or cargo.
2) A ship is not unseaworthy because of some defect in loading or stowage Held: Fact that the unseaworthiness of the ship was unknown to the insured is
which is easily curable by those on board, and was cured before the loss; immaterial in ordinary marine insurance and may not be used as a defense in order
But carrying a deck cargo raises a presumption of unseaworthiness to recover on the policy. Since the law provides for an implied warranty of
which can be overcome only by showing affirmatively that the deck seaworthiness in every contract of ordinary marine insurance, it becomes the
cargo was not likely to interfere with the due management of the vessel; obligation of a cargo owner to look for a reliable common carrier which keeps its
and when, by a jettison or otherwise, the vessel can be made seaworthy,
vessels in seaworthy condition. The shipper may have no control over the vessel, but
the warranty is satisfied.
he has full control in the choice of common carrier that will transport his goods.
Seaworthiness During Voyage in Stages
• Where the policy contemplates a voyage in different stages during 2. Implied Warranty Against Improper Deviation
which the subject matter insured will be exposed to different degrees
or kinds of perils, or the ship will require different kinds of Sec. 123. When the voyage contemplated by a marine insurance policy is described by the places
of beginning and ending, the voyage insured is one which conforms to the course of sailing fixed
equipment, the vessel must be seaworthy at the commencement of by mercantile usage between those places.
each stage, but it is sufficient if at the commencement of each stage
the vessel is seaworthy for the purpose of that stage. Sec. 124. If the course of sailing is not fixed by mercantile usage, the voyage insured by a marine
• The stages must be separate and distinct in order to have a different insurance policy is that way between the places specified, which to a master of ordinary skill and
discretion, would mean the most natural, direct and advantageous.
degree of seaworthiness for particular parts.
Sec. 125. Deviation is a departure from the course of the voyage insured, mentioned in the last
Where Ship Becomes Unseaworthy During Voyage two (2) sections, or an unreasonable delay in pursuing the voyage or the commencement of an
entirely different voyage.
• No implied warranty that the vessel will remain in a seaworthy
condition throughout the life of the policy. Sec. 126. A deviation is proper:
(a) When caused by circumstances over which neither the master nor the owner of the ship has
any control;

38
(b) When necessary to comply with a warranty, or to avoid a peril, whether or not the peril is
insured against;
(c) When made in good faith, and upon reasonable grounds of belief in its necessity to avoid a Sec. 122. Where the nationality of neutrality of a ship or cargo is expressly warranted, it is
implied that the ship will carry the requisite documents to show such nationality or neutrality
peril; or
(d) When made in good faith, for the purpose of saving human life or relieving another vessel in and that it will not carry any documents which cast reasonable suspicion thereon.
distress.
Express Warranty as to Nationality or Neutrality
Sec. 127. Every deviation not specified in the last section is improper.
1) Warranty of national character may be gathered from the language of
Sec. 128. An insurer is not liable for any loss happening to the thing insured subsequent to an the policy describing the vessel as “Philippine,” “American,” etc.,
improper deviation. although an exception has been made where the fact recited could have
no relation to the risk. This warranty does not mean that the vessel was
Meaning of Deviation built in such country, but that the property belongs to a subject thereof. It
• Any unexcused departure from the regular course or route of the refers to the beneficial ownership rather than to the legal title.
insured voyage or any other act which substantially alters the risk. 2) Warrant of neutrality imports that the property insured is neutral in fact,
and shall be so in appearance and conduct, that the property shall belong
Cases of Deviation in Marine Insurance to neutrals, and that no act of insured or his agent shall be done which
1) Departure from the course of sailing fixed by mercantile usage between can legally compromise its neutrality. Warranty extends to insured’s
the places of beginning and ending specified in the policy; interest in all the property intended to be covered by the policy, but not
2) Departure from the most natural, direct, and advantageous route to the interest of a third person not covered by the policy.
between the places specified if the course of sailing is not fixed by
mercantile usage; Implied Warranty to Carry Requisite Documents
3) Unreasonable delay in pursuing the voyage; 1) The warranty of nationality also requires that the vessel be conducted
4) Commencement of an entirely different voyage. and documented as of such nation, and a breach of warranty in either
particular will avoid the policy. Warranty is a continuing one and a
Kinds of Deviation change of nationality is a breach of the warranty, but the warranty is not
broken by a contract for sale and transfer to an alien at a future date.
• Deviation may be proper or improper.
2) Warranty of neutrality requires that the insured property shall be
• Sec. 127: Every deviation not specified in Section 126 is improper. accompanied by documentary evidence of its neutral character, and not
• Insurer is not exonerated from liability for loss happening after proper by any other papers which compromise such character. Proper papers
deviation, effect is as if there were no deviation. must be produced when necessary to prove ownership, and production
is not excused because the papers were lost by the fault of the master.
When Deviation is Proper
1) Deviation from the course of the voyage will not vitiate a policy of G. Kinds of Losses covered by Marine Insurance
marine insurance if the deviation is justified or caused by actual necessity
which is equal in importance to such deviation. Insurance is not affected. Sec. 129. A loss may be either total or partial.
2) Such compulsory deviations are risks impliedly assumed by the
underwriter. But while deviation to save property is not justified (unless Sec. 130. Every loss which is not total is partial.
it is to save another vessel in distress), deviation for the purpose of
Sec. 131. A total loss may be either actual or constructive.
saving life does not constitute a breach of warranty.
Sec.132. An actual total loss is caused by:
Effect of Improper Deviation (a) A total destruction of the thing insured;
(b) The irretrievable loss of the thing by sinking, or by being broken up;
• Insurer becomes immediately absolved from further liability under the (c) Any damage to the thing which renders it valueless to the owner for the purpose
policy for losses occurring subsequent (not prior) to the deviation. for which he held it; or
(d) Any other event which effectively deprives the owner of the possession, at the port
• Marine underwriter is entitled to be discharged if the risk assumed is of destination, of the thing insured.
changed by a deviation from the voyage insured; and the fact that the
deviation did not increase the risk, or in any wise contribute to the loss Sec. 134. An actual loss may be presumed from the continued absence of a ship without being
suffered is wholly immaterial. heard of. The length of time which is sufficient to raise this presumption depends on the
circumstances of the case.
3. Implied Warranty of Proper Documentation

39
Kinds of Losses Presumption of Actual Total Loss

• Two kinds of loss: total and partial; • Where a vessel is not heard of at all within a reasonable time after sailing,
o Two kinds of total loss: actual/absolute and constructive/technical. or for a reasonable time after it was last seen, it will be presumed to have
• Upon total loss, the insurer is liable for the whole of the amount insured been lost from a peril insured against.
• To lay foundation for the presumption, it is enough to prove that the
1. Actual Total Loss vessel was not heard of at its port of departure after it sailed without
calling witnesses from the port of destination to show that it never arrived
Meaning of Actual Total Loss • But plaintiff must prove that when vessel left her port of outfit, she was
• Actual total loss exists when the subject matter of the insurance is bound on the voyage insured.
wholly destroyed or lost or when it is so damaged as no longer to • No fixed rule with regard to the time after which a missing vessel will be
exist in its original character presumed to be lost – depends on circumstances of each case.
Complete Physical Destruction Not Essential for Actual Total Loss 2. Constructive Total Loss
• Such loss may exist where the form and specie of the thing is
destroyed although the materials of which it consisted still exist Meaning of Constructive Total Loss
• Constructive total loss, or as it is sometimes called, a “technical total
Limited Liability Rule loss” is one in which the loss, although not actually total, is of such
• Shipowner’s or ship agent’s liability is usually co-extensive with his character that the insured is entitled, if he thinks fit, to treat it as total
interest in the vessel such that a total loss thereof results in its extinction by abandonment.
• In our jurisdiction, the limited liability rule which has been explained to
be that of the real and hypothecary doctrine in maritime law is embodied Importance of Distinction Between Actual and Constructive Total Loss
in Art. 587, 590 and 837 under Book III of the Code of Commerce. • Upon them depends the whole doctrine of abandonment, so
important in the law of marine insurance.
Art. 587, CoC. The ship agent shall also be civilly liable for the indemnities in favour of third • In cases of actual total loss, no abandonment is necessary; but if the
persons which may arise from the conduct of the captain in the care of the goods which he loss is merely constructively total, an abandonment becomes
loaded on the vessel; but he may exempt himself therefrom by abandoning the vessel with all
her equipment and the freight it may have earned during the voyage. necessary in order to recover as for a total loss.
Art. 590, CoC. The co-owners of the vessel shall be civilly liable in the proportion of their 3. Concept of Abandonment
interests in the common fund for the results of the acts of the captain referred to in Article 587.
Each co-owner may exempt himself from this liability by the abandonment, before a notary,
of the part of the vessel belonging to him. Sec. 140. Abandonment, in marine insurance, is the act of the insured by which, after a
constructive total loss, he declares the relinquishment to the insurer of his interest in the thing
Art. 837, CoC. The civil liability incurred by shipowners in the case prescribed in this section, insured.
shall be understood as limited to the value of the vessel with all its appurtenances and freightage
served during the voyage. Sec. 141. 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 for a total loss thereof, when the cause of the loss is a peril insured against:
• Such articles precisely intend to limit the liability of the shipowner or (a) If more than three-fourths (¾) thereof in value is actually lost, or would have to be expended
agent to the value of the vessel, its appurtenances and freightage earned to recover it from the peril;
(b) If it is injured to such an extent as to reduce its value more than three-fourths (¾);
in the voyage, provided that the owner or agent abandons the vessel. (c) If the thing insured is a ship, and the contemplated voyage cannot be lawfully performed
• When vessel is totally lost, in which case there is no vessel to abandon, without incurring either an expense to the insured of more than three-fourths (¾) the value
abandonment is not required (liability of the shipowner or agent for of the thing abandoned or a risk which a prudent man would not take under the
circumstances; or
damages is extinguished). (d) If the thing insured, being cargo or freightage, and the voyage cannot be performed, nor
• Exception to limited liability doctrine: Shipowner or ship agent may be another ship procured by the master, within a reasonable time and with reasonable
held liable for damages when the sinking of the vessel is attributable to diligence, to forward the cargo, without incurring the like expense or risk mentioned in the
preceding subparagraph. But freightage cannot in any case be abandoned unless the ship is
the actual fault or negligence of the shipowner or its failure to ensure the also abandoned.
seaworthiness of the vessel.
Sec. 142. An abandonment must be neither partial nor conditional.

40
Sec. 143. An abandonment must be made within a reasonable time after receipt of reliable Requisites for Valid Abandonment (RC-Npc-TFNX)
information of the loss, but where the information is of a doubtful character, the insured is 1) There must be an actual relinquishment by the person insured of his
entitled to a reasonable time to make inquiry.
interest in the thing insured;
Sec. 144. Where the information upon which an abandonment has been made proves incorrect, 2) There must be a constructive total loss;
or the thing insured was so far restored when the abandonment was made that there was then in 3) The abandonment be neither partial nor conditional;
fact no total loss, the abandonment becomes ineffectual. 4) It must be made within a reasonable time after receipt of reliable
Sec. 145. Abandonment is made by giving notice thereof to the insurer, which may be done information of the loss;
orally, or in writing: Provided, That if the notice be done orally, a written notice of such 5) It must be factual;
abandonment shall be submitted within seven (7) days from such oral notice. 6) It must be made by giving notice thereof to the insurer which may be
done orally or in writing;
Sec. 146. A notice of abandonment must be explicit, and must specify the particular cause of the
abandonment, but need state only enough to show that there is probable cause therefor, and 7) Notice of abandonment must be explicit and must specify the particular
need not be accompanied with proof of interest or of loss. cause of the abandonment.
• The right of abandonment of vessels, as a legal limitation of a
Sec. 147. An abandonment can be sustained only upon the cause specified in the notice thereof.
shipowner’s liability, does not apply to cases where the injury or
Sec. 148. An abandonment is equivalent to a transfer by the insured of his interest to the insurer, average was occasioned by the shipowner’s own fault
with all the chances of recovery and indemnity.
Necessity for Abandonment
Sec. 149. If a marine insurer pays for a loss as if it were an actual total loss, he is entitled to
whatever may remain of the thing insured, or its proceeds or salvage, as if there had been a 1) When the loss is only technically total, the insured cannot claim the
formal abandonment. whole insurance without showing due regard to the interest which the
underwrite may take in the abandoned property. Whenever the
Sec. 150. Upon an abandonment, acts done in good faith by those who were agents of the underwriter by prompt action might able to save some portion of the
insured in respect to the thing insured, subsequent to the loss, are at the risk of the insurer, and
for his benefit. insured property, he is entitled to timely notice of abandonment by the
insured and he cannot be made liable for total loss without it.
Sec. 151. Where notice of abandonment is properly given, the rights of the insured are not But there is no obligation upon the insured to abandon, matter of his
prejudiced by the fact that the insurer refuses to accept the abandonment. own election. If he omits to abandon, he may recover his actual loss.
Sec. 152. The acceptance of an abandonment may be either express or implied from the conduct 2) When the vessel is totally lost, abandonment is not required as there is
of the insurer. The mere silence of the insurer for an unreasonable length of time after notice no vessel to abandon. By reason of such total loss, the liability of the
shall be construed as an acceptance. ship’s owner or agent for damages extinguished in the absence of any
finding of fault on other part. Insurer answers for the damages from
Sec. 153. The acceptance of an abandonment, whether express or implied, is conclusive upon the
parties, and admits the loss and the sufficiency of the abandonment. which the shipowner or agent may be held liable.
Sec. 154. An abandonment once made and accepted is irrevocable, unless the ground upon When Constructive Total Loss Exists
which it was made proves to be unfounded. 1) According to the English rule, when the subject matter of the insurance,
Sec. 155. On an accepted abandonment of a ship, freightage earned previous to the loss belongs while still existent in specie, is so damaged as not to be worth the cost of
to the insurer of said freightage; but freightage subsequently earned belongs to the insurer of the the repairs.
ship. 2) According to the American rule (aka the fifty percent rule), when it is so
damaged that the cost of repairs would exceed one-half of the value of
Sec. 156. If an insurer refuses to accept a valid abandonment, he is liable as upon an actual total
loss, deducting from the amount any proceeds of the thing insured which may have come to the the thing as required.
hands of the insured. 3) In the Philippines, the insured may not abandon the thing insured unless
the loss or damage is more than three-fourths of its value as indicated in
Sec. 157. If a person insured omits to abandon, he may nevertheless recover his actual loss. this section.
Meaning of Abandonment Abandonment Where Insurance Divisible and Where Indivisible

• It has also been defined as the act of an insured in notifying the insurer • Any particular portion of the thing insured separately valued by the
that owing to damage done to the subject of the insurance, he elects to policy may be separately abandoned as it is deemed separately insured.
take the amount of the insurance in the place of the subject thereof, the • Whether a contract is entire or severable is a question of intention to be
remnant of which he cedes to the insurer. determined by the language employed by parties.

41
• “May” in Sec 141 does not mean it is merely permissive, rather, it insured. If after a valid abandonment has been made, the insured
intends to grant the insured the option or discretion to make the choice. property was recovered, the insured cannot withdraw abandonment.
3) Instances justifying abandonment – the insured may abandon for a total
Criterion as to Extent of Loss loss under a marine insurance policy in case of:
• Extent of the injury to the vessel is to be considered with reference to its • capture, seizure, or detention of the ship or cargo;
general market value immediately before the disaster. • restraint by blockade or embargo;
• The valuation of the policy is the proper criterion, and this will apply • where without owner’s fault, funds for repair cannot be raised;
where the policy expressly provides that the value stated therein shall • where the voyage is absolutely lost; or
be taken as the basis of estimate. • where under urgent necessity, the master of a vessel at an
• Expenses incurred or to be incurred by the insured recovering the thing intermediate port, makes a sale of the insured property.
insured are taken into account.
Information Need Not be Direct or Positive
Abandonment Must Be Absolute • Intelligence which authorized the insured to abandon need not be direct
• Abandonment must be entire and cover the whole interest insured. It or positive information.
must be unconditional, unfettered by contingencies and limitations. • Protest of the master, a newspaper report, the report of a pilot, or a letter
• If only a part of a thing is covered by the insurance, the insured need from an official or an agent, is sufficient.
only abandon that part. • Information must be of such facts and circumstances as to render it highly
probable that a constructive total loss has occurred and facts sufficient to
Abandonment Must Be Made Within a Reasonable Time constitute a total loss must exist (fact and information need not be same)
1) Reliable information of loss – when the insured has received notice of a
loss, he must elect within a reasonable time whether he will abandon to Form of Notice of Abandonment
the insurer, and if he elects to abandon, he must give notice thereof. This Law requires no particular form for giving notice of abandonment.
is so that the insurer may not be prejudiced by the delay, and may take 1) Notice may be made orally unless the policy requires it to be in writing,
immediate steps for preservation of such of the property insured as may and even then a notice by telegraph is sufficient if it otherwise complies
remain in existence. with the requirements.
2) Double character of information of loss – What is a reasonable time is a 2) If the notice be done orally, insured must submit to the insurer within 7
question depending on the facts and circumstances in each case. If from days from such oral notice, a written notice of the abandonment.
the information received, the character of the loss is not made clearly to
appear, the insured is entitled to a sufficient interval to ascertain its real By Whom and To Whom Notice is Made
nature, but he cannot wait an undue length of time to see if abandoning 1) Abandonment need not necessarily be made by the insured but may be
is more profitable than claiming for partial loss. After property passes made by an authorized agent, and an agent having an authority to insure
beyond the control of the insured, an abandonment is too late. has prima facie an authority to abandon.
2) Abandonment may be made to an agent of the underwriter and
Abandonment Must Be Factual abandonment to a broker who is agent for both parties is sufficient.
1) Existence of loss at time of abandonment – Right of the insured to
abandon and recover for a total loss depends upon the state of facts at Notice of Abandonment Must Be Explicit
the time of the offer to abandon, not upon the state disclosed by the
• Must not be left open as a matter of inference from some equivocal acts.
information receiver, nor upon the state of loss at a prior or later time.
2) Effect of subsequent events – If the abandonment when made is good, the • There must be intention to abandon, apparent from the communication
rights of the parties are definitely fixed, and do not become changed by to the insurer, and a relinquishment of all rights to the insurer.
any subsequent event. If the abandonment, when made, is not good, • Use of the word “abandon” is not necessary, it is sufficient if expressions
subsequent circumstances will not affect it so as retroactively, to impart are used which inform the insurer that it is the intention of the insured
to it a validity which it did not have at its origin. to give up the property insured.
• Insured cannot abandon when the thing insured is safe; or when he • No abandonment if insured continues to claim and use the property.
knew, at the time of his offer to abandon, that the vessel has been
repaired and is successfully pursuing her voyage. The invalidity of
the abandonment is not cured by the subsequent loss of the thing

42
Notice of Abandonment Must Specify Particular Cause Thereof Liability of Insurer for Expenses and Wages
• Grounds for the abandonment must be stated with such particularity as • Abandonment when made relates back to the time of the loss and if
to enable the underwriter to determine whether or not he is bound to effectual, the title of the insurer becomes vested as of that date. He is
accept the offer. responsible for the reasonable expenses incurred by the master after that
• Sufficient if the notice shows probable cause for the abandonment. It is date in an attempt to save the vessel.
not required that it be accompanied with proof of interest or of loss. • Insurers are also liable for the wages of seamen earned subsequent to
the loss, but take free from any lien or liability for wages earned prior.
Proof of Other Causes Not Admissible
• Insured must state sufficient grounds for the abandonment to make it Effect of Insurer’s Refusal to Accept Abandonment on Insured’s Rights
valid and he cannot avail himself of any ground of abandonment other • Acceptance is in no case necessary if the abandonment is properly made.
than that stated at the time thereof. • Insured’s right to abandon, in a policy of marine insurance, is absolute
• If he assigns an insufficient cause or causes which do not exist, proof of when justified by the circumstances.
other causes will not be admitted in suing for a total loss.
Form of Acceptance of Abandonment
Effect of Valid Abandonment 1) Insurer’s acceptance of an offered abandonment need not be express.
• Transfers to the insurer the interests in the subject matter covered by the 2) It may be implied by conduct, by an act of the insurer in consequence of
policy subject to the right and interests, if any, of third persons. an abandonment which can be justified only under a right derived from
• Insurer acquires the entire interest insured, together with all its the abandonment. If insurer refused abandonment of a ship, but still took
incidents, including rights of action which the insured has against third possession to make repairs and retained it for an unreasonable time, he
persons for the injury. will be deemed to have accepted the abandonment.
3) Mere silence after notice would not operate as an acceptance (if it is not
• Insurer becomes entitled to all the rights which the insured possessed in
“for an unreasonable length of time”) nor would steps taken by the
the thing insured.
insurer to preserve the property from further loss for the benefit of all the
• Execution of a formal instrument is not necessary to effect an parties amount to an acceptance.
abandonment for the act of abandonment, when accepted, has all the
effects which the most carefully drawn assignment would accomplish. Effect of Acceptance of Abandonment
• Effect of abandonment retroacts to time of the loss. 1) Upon receiving notice of abandonment, insurer may accept or reject the
abandonment. If he accepts, he becomes at once liable for the whole
Rights of Insurer Who Pays Partial Loss as Actual Total Loss amount of the insurance, and also becomes entitled to all rights which
• Election and notice of abandonment is a condition precedent to a claim insured possessed in the thing insured
for a constructive total loss. 2) Acceptance of abandonment fixed the rights of the parties, whether
• Interest of the insured over the thing covered by the policy will be expressed or implied, is conclusive upon them and irrevocable
transferred to the insurer, notwithstanding the lack of abandonment, as 3) Acceptance of an abandonment stops the insurer to rely on any
if there had been a formal abandonment, in case the insurer pays for a insufficiency in the form of abandonment. Whether or not the insured
loss as if it were an actual total loss. has a right to abandon is immaterial where the abandonment is accepted
• Acceptance by the insured of the payment is deemed an offer of and there is no fraud.
abandonment on his part.
Exception: where the ground upon which the abandonment was made is
• Insurer is entitled to whatever may remain of the thing insured, or its
proved to be unfounded. Abandonment can be sustained only upon the
proceeds or salvage.
ground specified in the notice thereof
Transfer of Agency to Insurer
Right of Insurer to Freightage
• Captain or master continues to be the agent of the insured until
• Insurer of the ship becomes the owner thereof after an abandonment,
abandonment, but from the moment of a valid abandonment, master of
and his title becomes vested as of the time of loss.
the vessel and agents of the insured become the agents of the insurer.
The latter becomes responsible for all their acts in connection with the • Freightage earned subsequent to the loss belongs to the ship’s insurer.
property and for all the expenses and liabilities in respect thereof. • Freightage earned prior belongs to the freightage’s insurer who is
subrogated to the rights of the insured up to the time of loss.

43
transported have been lost, destroyed or deteriorated. The burden then shifts to the
Effect of Refusal to Accept a Valid Abandonment of Insurer’s Liability insurer to prove that the loss was due to excepted perils. No showing here that loss
• Insured’s right to abandon, in a policy of marine insurance, is absolute was caused by any of the exceptions.
when justified by the circumstances and no acceptance is necessary to
validate the abandonment. Oriental Assurance Corp. v. CA & Panama Sawmill Co. Inc. (1991)
1) If the insurer declines to accept a proper abandonment, he is liable as FACTS: Panama Sawmill Inc. bought 1208 pieces of apitong logs from Palawan to
upon an actual total loss, less any proceeds the insured may have be shipped to Manila, it insured these against loss with Oriental Assurance. The logs
received on account of the damaged property as when the insured
succeeds in selling property as damaged. were separated into 2 barges and towed by a tugboat. The voyage met rough seas and
2) If the abandonment was improper, the insured may nevertheless recover strong winds and this resulted in the loss of 497 out of 598 logs of one of the barges.
to the extent of the damage proved. Panama demanded payment from Oriental Assurance but the latter refused, saying
its liability is only for total loss.
Effect of Insured’s Failure to Make Abandonment
• Insured has the option to abandon or not, and cannot be compelled to HELD: Constructive total loss is one which gives to the insured a right to abandon,
abandon although abandonment is proper. under Sec.139, IC. Under this provision, the insured may abandon the thing insured,
• He may await the final event, and recover for total or partial loss. or any particular portion thereof separately valued by the policy or otherwise
• Under Sec. 157, the insured fails to make an abandonment while Sec. 156 separately insured, and recover for a total loss if more than ¾ in value is actually lost
applies where a valid abandonment has been made but the insurer or if it is injured to such an extent as to reduce value more than ¾. The logs in this
refuses to accept the same without any valid reason.
case, although placed in two barges, were not separately valued by the policy, nor
Choa Tiek Seng v. CA (1990) separately insured. Thus, the logs lost in the damaged barge, in relation to the total
Facts: Choa Tiek Seng imported lactose crystals from Holland packed in 6-ply paper number of logs, cannot be made the basis for determining constructive total loss. The
bags with polythelene innet back. The goods were insured by Filipino Merchants logs were insured as one inseparable unit, the correct basis for determining existence
(insurer) against all risks under the terms of the insurance cargo policy. Upon of constructive total loss is the totality of the shipment of logs.
discharge, it was discovered that 403 out of 600 bags were in bad order. Filipino
Merchants rejected claim for loss. Pan Malayan Ins. Corp. v. CA & Food & Agricultural Org. of the UN (1991)
FACTS: Luzon Stevedoring (Luzteveco) offered to ship FAO’s rice seeds to Vietnam,
Held: An “all risks” provision of a marine policy creates a special type of insurance and this was accepted by the latter and it insured the shipment with Pan Malayan.
which extends coverage to risks not usually contemplated and avoids putting upon FAO was subsequently advised of the sinking of the barge and it filed its claim under
the insured the burden of establishing that the loss was due to peril falling within the the policy. A month after, FAO was informed of the recovery of the lost shipment ,
policy’s coverage. The insurer can avoid coverage upon demonstrating that a specific for which FAO filed claim with Luzteveco for compensation of damage to its cargo
provision expressly excludes loss from coverage. In this case, damage caused to the
cargo has not been attributed to any of the exceptions provided. Insurer is liable. HELD: There was actual total loss, petitioner is liable for the entire amount of the
insurance coverage. The rice seeds were treated and would germinate upon mere
Filipino Merchants Ins. Co. v. CA & Choa Tiek Seng (1989) contact with water. The rule is that where the cargo by the process of decomposition
Facts: Choa Tek Sieng insured with Filipino Merchants shipment of fishmeal in new or other chemical agency, no longer remains the same kind of thing as before, an
gunny bags, to be transported from Thailand to Manila, against all risks under actual total loss has been suffered. Complete physical destruction of subject matter is
warehouse to warehouse terms. When the bags were unloaded from the ship, 105 not essential to constitute actual total loss, such a loss may exist where the form and
bags were found to be in bad order condition. On a second survey, it was stated that specie of the thing is destroyed, although the materials of which it consisted still
a total of 227 bags were in bad order condition. exist. Upon the finding that there was actual total loss of goods insured, the right of
the insured to claim the whole insurance is absolute, without need of a notice of
Held: A marine insurance policy providing that the insurance was to be “against all abandonment (explicitly provided by Sec.135, IC)
risks” must be construed as creating a special insurance and extending to other risks
than are usually contemplated, and covers all losses except such that arise from the
fraud of the insured. Burden of the insured is to prove merely that the goods he
44
H. Measure of Indemnity
Sec. 168. In the case of a partial loss of ship or its equipment, the old materials are to be applied
towards payment for the new. Unless otherwise stipulated in the policy, a marine insurer is
Sec. 158. A valuation in a policy of marine insurance is conclusive between the parties thereto in liable for only two-thirds (2/3) of the remaining cost of repairs after such deduction, except that
the adjustment of either a partial or total loss, if the insured has some interest at risk, and there is anchors must be paid in full.
no fraud on his part; except that when a thing has been hypothecated by bottomry or
respondentia, before its insurance, and without the knowledge of the person actually procuring
the insurance, he may show the real value. But a valuation fraudulent in fact, entitles the insurer Valuation in a Marine Policy
to rescind the contract. 1) Object of valuation – Policy of insurance may be valued or open; The
object of a valuation in a policy is to fix in advance the value of the
Sec. 159. A marine insurer is liable upon a partial loss, only for such proportion of the amount
insured by him as the loss bears to the value of the whole interest of the insured in the property property and thus avoid the necessity of proving its actual value in case
insured. of loss.
2) Effect of valuation – In general, the insured value must be taken to be
Sec. 160. Where profits are separately insured in a contract of marine insurance, the insured is that which is stated in the policy; it is conclusive upon the parties
entitled to recover, in case of loss, a proportion of such profits equivalent to the proportion
which the value of the property lost bears to the value of the whole. provided that a) insured has some interest at risk and b) there is no fraud
on his part (if fraudulent, insurer is entitled to rescind the contract).
Sec. 161. In case of a valued policy of marine insurance on freightage or cargo, if a part only of 3) Right to give evidence of value – In valued marine policy, neither party
the subject is exposed to risk, the valuation applies only in proportion to such part. can give evidence of the real value of the thing insured; However, when
Sec. 162. When profits are valued and insured by a contract of marine insurance, a loss of them thing has been hypothecated by bottomry or respondentia before its
is conclusively presumed from a loss of the property out of which they are expected to arise, and insurance and without the knowledge of the person who actually
the valuation fixes their amount. procured the insurance, insurer may show the real value but he is not
entitled to rescind the contract unless he can prove that the valuation
Sec. 163. In estimating a loss under an open policy of marine insurance the following rules are to
be observed: was fraudulent.
(a) The value of a ship is its 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 When Insured a Co-Insurer in Marine Insurance
insured;
(b) The value of the cargo is its actual cost to the insured, when laden on board, or where the • If value of insured’s interest exceeds the amount of insurance, he is
cost cannot be ascertained, its market value at the time and place of lading, adding the considered the co-insurer for an amount determined by the difference
charges incurred in purchasing and placing it on board, but without reference to any loss between the insurance taken out and the value of the property.!
incurred in raising money for its purchase, or to any drawback on its exportation, or to the
fluctuation of the market at the port of destination, or to expenses incurred on the way or on • Law determines the amount recoverable according to the formula:
arrival;
(c) The value of freightage is the gross freightage, exclusive of primage, without reference to the
(Partial) Loss Amount of Amount of
cost of earning it; and
x =
Value of thing insured Insurance Recovery
(d) The cost of insurance is in each case to be added to the value thus estimated.
Sec. 164. If cargo insured against partial loss arrives at the port of destination in a damaged Loss of Profits Separately Insured
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 • If profits to be realized are separately insured from vessel or cargo,
brought if sound. insured is entitled to recover, in case of loss, the proportion of the profits
of the value of the property lost to the value of the whole property.
Sec. 165. A marine insurer is liable for all the expenses attendant upon a loss which forces the
ship into port to be repaired; and where it is stipulated in the policy that the insured shall labor
for the recovery of the property, the insurer is liable for the expense incurred thereby, such
Value of property lost Amount of Amount of
expense, in either case, being in addition to a total loss, if that afterwards occurs.
x! = insurance
Recovery
Value of whole property insured !
Sec. 166. A marine insurer is liable for a loss falling upon the insured, through a contribution in
respect to the thing insured, required to be made by him towards a general average loss called =!!!!!!!!!!
for by a peril insured against: Provided, That the liability of the insurer shall be limited to the
proportion of contribution attaching to his policy value where this is less than the contributing =! to Risk
Where Only Part of a Cargo or Freightage Insured Exposed
value of the thing insured.
• Value will be reduced proportionately.
Sec. 167. When a person insured by a contract of marine insurance has a demand against others • Insurer is bound to return such portion of the premium as corresponds
for contribution, he may claim the whole loss from the insurer, subrogating him to his own right with the portion of the cargo which had been exposed to the risk.
to contribution. But no such claim can be made upon the insurer after the separation of the
interests liable to contribution, nor when the insured, having the right and opportunity to
enforce contribution from others, has neglected or waived the exercise of that right.
45
Presumption of Loss of Profits Liability of Insurer for Expenses Incurred for Repair and Recovery
• Where profits are separately insured from the property out of which • General rule: Marine insurer is not liable for more than the amount of
they are expected to arise, the insured, in case of partial loss of the the policy.
property, is entitled merely to partial indemnity for the profits lost. • However, expenses incurred in repairing the damages suffered by a
• If property is totally lost, pro tanto the total profits are also lost. vessel because of the perils insured against as well as those incurred for
• Such loss of the profits is conclusively presumed from the loss of the saving the vessel from such perils (i.e. expenses of launching or raising
property and the valuation agreed upon in the policy fixes the amount the vessel, or of towing or navigating it into port for safety) are items to
of recovery. be borne by the insurer in addition to a total loss if that afterwards takes
place – Port of refuge expenses.
Rules for Estimating Loss Under an Open Policy of Marine Insurance
• Real value of the thing must be proved by the insured in each case. Rights of Insured In Case of General Average
1) Value of vessel – In ascertaining the value of a vessel, the value is to be 1) General rule – Insurer is liable for any general average loss where it is
taken as of the commencement of the risk and not its value at the time payable or has been paid by the insured in consequence of a peril insured
she was built. against; Insured may either hold the insurer directly liable for the whole
2) Value of cargo – Value of the cargo is its actual cost to the insured, when of the insured value of the property sacrificed for the general benefit,
laden on board, or where the cost cannot be ascertained, its market value subrogating him to his own right of contribution or demand contribution
at the time and place of shipment; Expected profits from the cargo are from other interested parties as soon as the vessel arrives at destination;
not considered since they can be covered by a separate insurance. Insured need not wait for an adjustment of the average.
3) Value of freightage – Gross freightage and not the net freightage is the 2) Exceptions – No recovery for general average loss against the insurer: a)
basis for determining the value of the freightage; Reason is that the gross After the separation of the interests liable to contribution, that is to say,
amount of the freightage, as the measure of indemnity, can be easily and after the cargo liable for contribution has been removed from the vessel;
exactly determined; To take the net amount of the freightage would lead or b) when the insured has neglected or waived his right to contribution.
to lawsuits over the deductions which should be made.
Limit as to Liability of Insurer
• Primage is excluded from the gross freightage; Small compensation
paid by a shipper to the master of the vessel for his care and trouble • Liability of marine insurer for any general average loss is limited to the
bestowed on the shipper’s goods and which the master is entitled to proportion of contribution attaching to his policy value where this is
retain in the absence of an agreement to the contrary with the owners less than the contributing value of the thing insured.
of the vessels. • Liability of the insurer shall be less than the proportion of the general
4) Cost of insurance – Cost of the insurance is always added in calculating average loss assessed upon the thing insured when its contributing
the value of the ship, cargo, or freightage or other subject matter in an value is more than the amount of the insurance (Insured is liable to
open policy. contribute ratably with the insurer to the indemnity of the general
average).
Where Cargo Insured Against Partial Loss is Damaged Amount of insurance Proportion of Limit of liability
• Applies if the cargo is insured against partial loss and it suffers x! general average loss = of insurer
damage as a result of which its market value at the port of Value of thing insured
destination is reduced. !
Liability of Insurer In Case of Partial Loss of Ship or Its Equipment
Market price in sound state
=!!!!!!!!!!
• There is deducted from the cost of repairs “one-third new for old,” on
minus Market price in damaged state the theory that the new materials render the vessel much=! more valuable
= Reduction in value (depreciation) than it was before the loss.
• When repairs are made, one-third of the cost of the repairs is laid upon
the insured as his burden, and the implied agreement under the policy
Reduction in Value is that in case of damage to the ship by a peril within the policy, the loss
x! Amount of =! Amount of shall be estimate at two-thirds of the cost of repairs fairly executed or
Market price in sound state insurance Recovery one-third new for old.
=!!!!!!!!!!
• Section 168 prescribes the deductions to be made from such cost subject
=!
to other conditions stipulated in the policy.
46
CHAPTER IX: CLAIMS SETTLEMENT & SUBROGATION Time of giving notice – must be without unnecessary delay, depending on
the circumstances of each case. Insurer may provide a stated time, valid
A. Notice and Proof of Loss unless unreasonably short.
Sec. 90. In case of loss upon an insurance against fire, an insurer is exonerated, if written notice Meaning and nature of proof
thereof be not given to him by an insured, or some person entitled to the benefit of the 1) Proof of loss – more or less formal evidence given the company by the
insurance, without unnecessary delay. For other non-life insurance, the Commissioner may insured or claimant under a policy of the occurrence of the loss, the
specify the period for the submission of the notice of loss. particulars thereof and the data necessary to enable the company to
Sec. 91. When a preliminary proof of loss is required by a policy, the insured is not bound to determine its liability and the amount thereof.
give such proof as would be necessary in a court of justice; but it is sufficient for him to give the 2) Not the same as evidence for the consideration of the trial court.
best evidence which he has in his power at the time.
Form of notice or proof of loss
Sec. 92. All defects in a notice of loss, or in preliminary proof thereof, which the insured might
remedy, and which the insurer omits to specify to him, without unnecessary delay, as grounds • Fire: law requires a written notice.
of objection, are waived. • Other: no requirement as to form. In the absence of stipulation in the
Sec. 93. Delay in the presentation to an insurer of notice or proof of loss is waived if caused by
policy, may be orally or in writing. Better if in writing for the
any act of him, or if he omits to take objection promptly and specifically upon that ground. protection of the insured or his beneficiary.
Sec. 94. If the policy requires, by way of preliminary proof of loss, the certificate or testimony of Purpose of proof of loss – Notice of loss is different from proof of loss. The
a person other than the insured, it is sufficient for the insured to use reasonable diligence to
procure it, and in case of the refusal of such person to give it, then to furnish reasonable
requirement of notice is intended merely to give the insurer information
evidence to the insurer that such refusal was not induced by any just grounds of disbelief in the upon which he may act promptly in protecting the property from further loss
facts necessary to be certified or testified. for which he may be liable or to enable him to take any other immediate
steps that his interests may require. The statement of loss is a much more
• As a condition precedent to the right of recovery, there must be formal requirement and intended to: (1) give the insurer information by
compliance on the part of the insured with the terms of the policy. which he may determine extent of liability; (2) afford him a means of
detecting fraud; and (3) operate as a check upon extravagant claims.
• If he has violated or failed to perform the conditions, and such
violation has not been waived by insurer, the insured cannot recover.
Burden of proof
• Terms of the contract – measure of the insurer’s liability, and
noncompliance therewith by the insured bars his right of recovery. • Insured has the burden of proving that he has suffered a loss. In life
insurance, death of the insured must be proven.
Conditions after loss • Once proven, the burden of evidence shifts to insurer to controvert
1) Notice and proof of loss the insured’s prima facie (of death) case.
2) Nature – conditions subsequent the breach of which affects a right that • Fire insurance policy – burden on insured to prove amount of loss by
has already accrued. preponderance of evidence.
3) Construction – construed with less strictness; documents: substantial
compliance sufficient. It is the duty of the dissatisfied insurer to indicate the defects in the proofs of
loss as given so that the deficiencies may be supplied.
Notice of loss
1) Notice – more or less formal, given by insured of the occurrence of the Insurer’s retention of defective proofs – waiver of objections where the
loss insured against insurer:
2) Purpose – to apprise the insurance company with the occurrence, so that 1) Writes to the insured that he considers the policy null and void as
it may gather info and make proper investigation while the evidence is furnishing of the notice or proof of loss would be vain and useless
still fresh, and take necessary action to protect its interest from fraud or 2) Recognizes his liability to pay the claim
imposition; in the case of property insurance, to prevent further loss. 3) Denies all liability under the policy
4) Joins in the proceedings for determining amount of loss by arbitration,
Necessity of notice of loss – insurer cannot be held liable to pay a claim making no objections on account of notice and preliminary proof
unless he receives notice 5) Makes objection on any ground other than a formal defect in the
preliminary proof.

47
Philam v. CA (2000) (c) If it is found, after notice and an opportunity to be heard, that an insurance company has
Facts: Florence Pulido applied for a non-medical life-insurance policy which did not violated this section, each instance of noncompliance with paragraph (a) may be treated as a
separate violation of this section and shall be considered sufficient cause for the suspension or
require a medical examination. Upon her sister’s claim that Florence died of acute revocation of the company’s certificate of authority.
pneumonia, Philam refused to pay – claiming that the Florence was already dead
when an application for her insurance was submitted to Philam, despite the death Sec. 248. The proceeds of a life insurance policy shall be paid immediately upon maturity of the
certificate stating otherwise. SC ruled in favor of insured, ordered Philam to pay. policy, unless such proceeds are made payable in installments or as an annuity, in which case
the installments, or annuities shall be paid as they become due: Provided, however, That in the
case of a policy maturing by the death of the insured, the proceeds thereof shall be paid within
Held: Death certificates are by prima facie evidence of facts stated therein. As public sixty (60) days after presentation of the claim and filing of the proof of death of the insured.
documents, they enjoy the presumption of regularity, disputable only by positive Refusal or failure to pay the claim within the time prescribed herein will entitle the beneficiary
evidence proving otherwise. Mere allegations of fraud will not be enough to overcome to collect interest on the proceeds of the policy for the duration of the delay at the rate of twice
the ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is based on
the proof of death as it could not substitute for the full and convincing evidence the ground that the claim is fraudulent.
required to prove it.
The proceeds of the policy maturing by the death of the insured payable to the beneficiary shall
Aboitiz Shipping v. Insurance Co. of North America (2008) include the discounted value of all premiums paid in advance of their due dates, but are not due
and payable at maturity.
Facts: Shipment of wooden work tools and workbenches for Don Bosco Cebu, whose
representative received already damaged due to being soaked by water. ICNA Sec. 249. The amount of any loss or damage for which an insurer may be liable, under any policy
(insurer) paid, but Aboitiz (shipper) refused to reimburse because there was no other than life insurance policy, shall be paid within thirty (30) days after proof of loss is
written notice to them that the goods were damaged within the 24-hour period received by the insurer and ascertainment of the loss or damage is made either by agreement
between the insured and the insurer or by arbitration; but if such ascertainment is not had or
allotted by the Code of Commerce. SC, ruling pro hac vice considering circumstances made within sixty (60) days after such receipt by the insurer of the proof of loss, then the loss or
of case, held that notice requirement was complied with in this case. damage shall be paid within ninety (90) days after such receipt. Refusal or failure to pay the loss
or damage within the time prescribed herein will entitle the assured to collect interest on the
Held: The giving of notice of loss or injury is a condition precedent to the action for proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by
the Monetary Board, unless such failure or refusal to pay is based on the ground that the claim is
loss or injury or the right to $enforce the carrier's liability. But stipulations requiring fraudulent.
such notice must be given a reasonable and practical construction, adapted to the
circumstances of the case under adjudication, and their application is limited to cases Sec. 250. In case of any litigation for the enforcement of any policy or contract of insurance, it
falling fairly within their object and purpose. shall be the duty of the Commissioner or the Court, as the case may be, to make a finding as to
whether the payment of the claim of the insured has been unreasonably denied or withheld; and
in the affirmative case, the insurance company shall be adjudged to pay damages which shall
B. Guidelines on Claims Settlement consist of attorney’s fees and other expenses incurred by the insured person by reason of such
unreasonable denial or withholding of payment plus interest of twice the ceiling prescribed by
1. Unfair Claims Settlement; Sanctions the Monetary Board of the amount of the claim due the insured, from the date following the time
prescribed in Section 248 or in Section 249, as the case may be, until the claim is fully satisfied:
Provided, That failure to pay any such claim within the time prescribed in said sections shall be
Sec. 247. (a) No insurance company doing business in the Philippines shall refuse, without just considered prima facie evidence of unreasonable delay in payment.
cause, to pay or settle claims arising under coverages provided by its policies, nor shall any such
company engage in unfair claim settlement practices. Any of the following acts by an insurance
company, if committed without just cause and performed with such frequency as to indicate a Claims settlement – indemnification of the loss suffered by the insured. The
general business practice, shall constitute unfair claim settlement practices: claimant may be the insured or reinsured, the insurer who is entitled to
(1) Knowingly misrepresenting to claimants pertinent facts or policy provisions relating to subrogation, or a third party who has a claim against the insured.
coverage at issue;
(2) Failing to acknowledge with reasonable promptness pertinent communications with respect
to claims arising under its policies; Life insurance losses:
(3) Failing to adopt and implement reasonable standards for the prompt investigation of claims 1) Definiteness of death – settlement of claim is usually taken care of by the
arising under its policies; life insurance agent.
(4) Not attempting in good faith to effectuate prompt, fair and equitable settlement of claims 2) Proof of death – payment is technically upon submission of proof of
submitted in which liability has become reasonably clear; or
(5) Compelling policyholders to institute suits to recover amounts due under its policies by death, which may be given by a beneficiary or the legal representative of
offering without justifiable reason substantially less than the amounts ultimately recovered in the insured.
suits brought by them. 3) Nature of claim – since life insurance in its simplest form pays a lump
sum upon the death of the insured, money claims are death claims.
(b) Evidence as to numbers and types of valid and justifiable complaints to the Commissioner
against an insurance company, and the Commissioner’s complaint experience with other 4) Income benefit provision – endowment contracts and annuities may
insurance companies writing similar lines of insurance shall be admissible in evidence in an provide an income benefit upon the survival of the insured to a fixed
administrative or judicial proceeding brought under this section.

48
date or age. The choice as to the method of payment may be made by the Fernandez v. National Life Ins. Co. (1959)
insured or by the beneficiary if the insured has not made a choice. Facts: Fernandez died during the Japanese occupation (1944), but it took 8 years
after his death (1952) for the beneficiaries to claim the P10,000.00 proceeds of the
Fire insurance losses: insurance. Upon filing of claim, National Life paid them the proceeds of P500.00 in
1) Obligations of the insured accordance with the Ballantyne scale of values. SC affirms this amount.
a. Notice and proof of loss
b. Do everything reasonable to prevent further damage to the property Held: The rule is that where a debtor could have paid his obligation at any time
insured, or else he cannot collect for the additional loss. during Japanese occupation, payment after liberation must be adjusted to the
2) Options of settlement by the insurer Ballantyne scale. Since National Life was open until Jan 1945, the policy could have
a. Damages for loss been processed during the Japanese occupation, eliminating fault on the part of the
b. Restoration of subject matter insurer for the delay At any rate, the policy matured and was payable during
3) Sufficiency of proof of loss – substantial compliance Japanese occupation therefore the Ballantyne scale of values must be used, since it
was claimed after liberation.
Liability insurance losses:
1) Difference from other losses – the claimant is not the insured. Tio Khe Chio v. CA (1991)
2) Claim for personal injuries – many uncertain factors Facts: Tio imported 1000 bags of fishmeal from Dallas to Manila with Far Eastern,
3) Direct property damage claim – measured by the amount of loss and insured with EASCO. Upon reaching Manila, the cargo was found to be
occasioned the property owner; difference in value between the property damaged by seawater, rendering the fishmeal useless – but both Far Eastern and
undamaged and the property in its damaged condition. EASCO refused to pay. RTC ruled both should pay, but the issue is whether or not
4) Property damage liability claim – loss of use may be included the rate of interest shall be 6% (as legal interest in the Civil Code) or 12% (as twice
• Burden of proving fraud rests on insurer. the legal interest provided for in Art 243 and 244 of the old Insurance code – now
• Rights of insured not prejudiced by false statements innocently 248 and 249). SC says 6%.
made.
Held: Secs. 243 and 244 of the Insurance Code are not pertinent to this case because
• Subrogation – the right of the insurer, in certain cases, to take over
they apply only when the court finds an unreasonable delay or refusal in the payment
the rights of the insured against the party responsible for his injury,
of the claims. Refusal to pay due to a genuine issue of the interpretation of the terms
loss or damage. The loss in the first instance is that of the insured but
of the policy is not unreasonable to merit the penalty of double interest rate.
after reimbursement or compensation, it becomes the loss of the
insurer who is entitled to be subrogated pro tanto to any right of
Cathay v. CA (1989)
action which the insured may have against the third person. A
Facts: Cebu Filipina Press destroyed by fire. Owner submitted formal claims to the 6
subrogee cannot succeed to a right not possessed by the subrogor.
insurers of the property, but no one would pay up. After 10 months of waiting, she
filed a suit for collection of money. SC ordered them to pay with double interest.
Londres v. National Life Ins. Co. (1954)
Facts: Jose Londres insured himself during the Japanese occupation, wherein
Held: Payment should have been made within 90 days of the insured’s compliance
National Life undertook to pay his beneficiary P3,000.00 upon his death. Londres
with the insurer’s request to submit additional documents. This was not met here,
died while occupation was on going. After liberation, National refused to pay his
thus a prima facie evidence of unreasonable delay was created in light of the failure to
beneficiaries, saying that the policy was issued under abnormal circumstances; and
pay the claims within the time period fixed. Because of the unreasonable delay, double
instead offered to pay P2,400.00 in accordance with the Ballantyne scale of values.
interest is proper.
SC ordered National Life to pay P3000.00 in present currency.
Noda v. Cruz-Arnaldo (1987)
Held: The policy matured when the insurer was not in a position to pay. Thus, the
Facts: Noda insured his 1) goods and stocks in Mangagoy Market and 2) building in
policy would only become payable after the liberation (when insurer is already in a
Barreda St (used as a store and family quarters) with Zenith Insurance. Both caught
position to pay). Where the parties have agreed that the payment of the obligation
on fire on separate dates (Sept and November 1977, respectively), but Zenith refused
will be made in the currency that would prevail by the end of the stipulated period
to pay. Noda filed claim, but during pendency, Zenith paid P15K for furniture and
(after liberation), the obligation shall be paid in accordance with the prevailing
personal belongings under Policy 2. IC ordered to Zenith to pay under Policy 1 but
currency (Philippine currency). Also, in an insurance contract, with risk being one
discharged Zenith of liability under Policy 2 in light of Noda’s “insufficiency of
of the elements, the insurer cannot claim, if it suffers loss, that the beneficiary cannot
evidence” (despite the fact that the testimony of Noda and the adjuster’s report show
enrich herself at its expense.
that around P590,000.00 was lost). SC says Zenith it is liable for P60K (due to
presence of co-insurers) under Policy 2 (less the P15K it already paid).
49
otherwise, the claim shall be deemed waived. Action or suit for recovery of damage due to loss
Held: The Court held that while the insurer and the Insurance Commissioner have or injury must be brought, in proper cases, with the Commissioner or the courts within one (1)
year from denial of the claim, otherwise, the claimant’s right of action shall prescribe.
the right to reject proofs of loss if they are unsatisfactory, they may not set up an
arbitrary standard of satisfaction. There must still be substantial compliance with the Sec. 439. The Commissioner shall have the power to adjudicate claims and complaints involving
requirements. any loss, damage or liability for which an insurer may be answerable under any kind of policy
or contract of insurance, or for which such insurer may be liable under a contract of suretyship,
or for which a reinsurer may be sued under any contract of reinsurance it may have entered into;
Finman General Assurance v. CA (2001) or for which a mutual benefit association may be held liable under the membership certificates it
Facts: Usiphil’s properties, which were insured with Finman, caught on fire. Usiphil has issued to its members, where the amount of any such loss, damage or liability, excluding
and Finman agreed that Finman would pay P842K, but Finman never paid, saying interest, cost and attorney’s fees, being claimed or sued upon any kind of insurance, bond,
that it failed to comply with a stipulation requiring submission of certain documents reinsurance contract, or membership certificate does not exceed in any single claim Five million
pesos (P5,000,000.00).
to prove the loss. SC ordered Finman to pay, together with 24% legal interest rate.
The power of the Commissioner does not cover the relationship between the insurance company
Held: Substantial (not strict) compliance with the requirements will always be and its agents/brokers but is limited to adjudicating claims and complaints filed by the insured
deemed sufficient for liability to incur. Double interest is proper if there is no against the insurance company.
payment made within 30 days after the proof and ascertainment of the loss (herein The Commissioner may authorize any officer or group of officers under him to conduct
made in agreement by Usiphil and Finman). investigation, inquiry and/or hearing and decide claims and he may issue rules governing the
conduct of adjudication and resolution of cases. The Rules of Court shall have suppletory
Delsan Transport v. CA (2001) application.
Facts: Delsan carried Caltex’s oil being shipped from Batangas to Zamboanga, The party filing an action pursuant to the provisions of this section thereby submits his person to
which was insured with AHAC. Delsan’s vessel sank, and the entire cargo was lost the jurisdiction of the Commissioner. The Commissioner shall acquire jurisdiction over the
(later attributed to be due to the fault of Delsan as common carrier). AHAC paid person of the impleaded party or parties in accordance with and pursuant to the provisions of
Caltex, but Delsan would not reimburse AHAC, claiming sinking was due to force the Rules of Court.
majeure and that the policy was not presented before a case was filed against it. SC The authority to adjudicate granted to the Commissioner under this section shall be concurrent
ordered Delsan to reimburse. with that of the civil courts, but the filing of a complaint with the Commissioner shall preclude
the civil courts from taking cognizance of a suit involving the same subject matter.
Held: The presentation in evidence of the marine insurance policy is not
Any decision, order or ruling rendered by the Commissioner after a hearing shall have the force
indispensable before the insurer may recover from the shipper. The subrogation and effect of a judgment. Any party may appeal from a final order, ruling or decision of the
receipt, by itself, is sufficient to establish: 1) the relationship of the insurer and the Commissioner by filing with the Commissioner within thirty (30) days from receipt of copy of
consignee; and 2) the amount paid to settle claim. The right of subrogation accrues such order, ruling or decision a notice of appeal to the Court of Appeals in the manner provided
simply upon payment by the insurance company of the insurance claim. for in the Rules of Court for appeals from the Regional Trial Court to the Court of Appeals.
For the purpose of any proceeding under this section, the Commissioner, or any officer thereof
2. Fine and Imprisonment for Fraudulent Claim designated by him is empowered to administer oaths and affirmation, subpoena witnesses,
compel their attendance, take evidence, and require the production of any books, papers,
documents, or contracts or other records which are relevant or material to the inquiry.
Sec. 251. It is unlawful to:
(a) Present or cause to be presented any fraudulent claim for the payment of a loss under a
A full and complete record shall be kept of all proceedings had before the Commissioner, or the
contract of insurance; and
officers thereof designated by him, and all testimony shall be taken down and transcribed by a
(b) Fraudulently prepare, make or subscribe any writing with intent to present or use the same,
stenographer appointed by the Commissioner.
or to allow it to be presented in support of any such claim. Any person who violates this section
shall be punished by a fine not exceeding twice the amount claimed or imprisonment of two (2)
In order to promote party autonomy in the resolution of cases, the Commissioner shall establish
years, or both, at the discretion of the court. a system for resolving cases through the use of alternative dispute resolution.
C. Prescription of Action Art. 1144, CC. The following actions must be brought within ten years from the time the right of
action accrues:
(1) Upon a written contract;
Sec. 63. A condition, stipulation, or agreement in any policy of insurance, limiting the time for (2) Upon an obligation created by law;
commencing an action thereunder to a period of less than one (1) year from the time when the (3) Upon a judgment. (n)
cause of action accrues, is void.
Sec. 397. Any person having any claim upon the policy issued pursuant to this chapter shall, Ang v. Fulton Fire Ins. (1961)
without any unnecessary delay, present to the insurance company concerned a written notice of Facts: Sept 1953: P&S Department Store was insured with Fulton Fire Insurance
claim setting forth the nature, extent and duration of the injuries sustained as certified by a duly Co with stipulation that “if the claim is made and rejected but no action is
licensed physician. Notice of claim must be filed within six (6) months from the date of accident,
50
commenced within 12 months after such rejection, all benefits under the policy Eagle Star Ins. v. Chia Yu (1955)
would be forfeited.” Dec 1954: fire consumed the store and Ang filed claims. April Facts: 14 bales of underwear (owned by Chia Yu as consignee) insured with Eagle
1956: Fulton denied claims. May 1956: Ang filed case against Fulton’s agent. Sept Star were shipped through Atkin Kroll & Co. Only 10 were delivered to Yu, which
1957: case was dismissed without prejudice. May 1958: Ang filed case against was also damaged to the extent of 50%. Yu filed claim, but was denied. It then filed
Fulton. TC says 12-month prescription period (from insurer’s denial of claim) was action against both the shipper and the insurer, more than 2 years after the delivery
toiled by the case against the agent). SC says no, period was not tolled, and action of the damaged products. SC said action against the shipper has prescribed, because
has already prescribed. of a stipulation in the bull of lading saying that if no suit is brought within one year
after the delivery of goods, shipper is discharged from liability. However, the action
Held: The condition contained that claims must be presented within one year after against insurer has not yet prescribed.
rejection is not merely a procedural requirement, but is essential to a prompt
settlement of claims against insurance companies. It demands that insurance suits be Held: Examining the policy, the prescriptive clause would limit the time for
brought by the insured while the evidence as to the origins and causes of destruction commencing an action to a period less than one year from the time when the cause of
have not yet disappeared. Its purpose is to terminate all liabilities in case the action is action accrues. The policy provides that no suit shall be sustainable in any court
not filed by the insured within the period stipulated. The action against the agent unless the insured shall have first fully complied with all the terms and conditions of
cannot have any other legal effect except that of notifying the agent of the claim. The the policy, but also starts the 12-month prescription period from the moment of the
contract is the law between the parties, and their agreement that an action on a claim happening of the loss. Since this is a void condition, the period of prescription for this
denied by the insurer must be brought within one year from the denial governs. claim shall be the one upon a written contract, which is 10 years from when the cause
of action accrues. However, in order to harmonize the law and the policy, it is now
Travellers Insurance v. CA (1997) interpreted to mean that the 12-month period is the period for bringing the suit after
Facts: July 20, 1980: 78-year old Feliza de Mendoza was bumped by a taxi driver the cause of action accrues – which, essentially, is when the insurer denied his claim.
and died. Vicente (her son) sued owner of cab and the Travellers Insurance
(compulsory insurer). SC absolved Travellers from liability because Vicente failed to ACCFA v. Alpha Insurance (1968)
file a written notice of claim, which was required by the Insurance Code. Facts: Alpha issued P5000.00 bond to guarantee FACOMA against loss on account
of “personal dishonesty, amounting to larceny or estafa” of its officer, Ladines. True
Held: The one year prescription period to bring suit in court against the insurer enough, Ladines misappropriated P11K of FACOMA funds, P6K of which belongs to
should be counted from the time that the insurer rejects the written claim filed ACCFA. Oct 10, 1958: ACCFA discovered loss and immediately notified Alpha,
therewith by the insured, the beneficiary or the third person interested under the which refused to pay despite repeated demands. May 30, 1960: ACCFA filed suit,
insurance policy. There was no claim filed by the third person therefore there was no which Alpha moved to dismiss since it was filed more than one year after ACCFA
rejection by the insurer. Thus there is no cause of action because under the law, the filed claim (contrary to contractual condition than no action shall be maintained
third person has deemed to have waived his rights to the insurance proceeds. unless commenced within year from time of making claim). SC says such contractual
condition is void.
Lopez v. Filipinas Compania de Seguros (1966)
Facts: Lopez applied for insurance with Filipinas of truck tractor and trailer, both of Held: Since a cause of action requires not only a legal right of the plaintiff and a
which figured in an accident. Aug. 30, 1959: Lopez gave notice to Filipinas, which correlative obligation of the defendant but also an act omission of the defendant in
the latter rejected because of a concealment of a material fact during Lopez’s violation of said legal right, the cause of action does not accrue until the party
application. May 27, 1960: Lopez filed complaint vs. Filipinas with the Ins. Comm., obligated refuses, expressly or impliedly, to comply with its duty (in this case, to pay
but didn’t result to anything because Filipinas was not willing to submit the claim the amount of the bond). A fidelity bond is in the nature of a contract of insurance,
for arbitration. Sept 19, 1961: Lopez filed complaint vs. Filipinas with CFI-Manila, thus the Insurance Code provision nullifying a condition that limits the time for
which dismissed the action on the ground of prescription. SC affirmed CFI decision. commencing an action to a period of less than one year applies. $The period for
instituting action in court must be reckoned from the time of Alpha's refusal to
Held: An “action or suit” is essentially “for the enforcement or protection of a right, comply with its bond; not from the filing of the claim of loss, since it does not import
or the prevention or redress of a wrong. There is nothing in the Insurance Law, Act that the surety company will not pay.
No. 2427 which empowers the Insurance Commissioner to adjudicate on disputes
relating to an insurance company’s liability to an insured under a policy issued by Sun Insurance v. CA (1991)
the former to the latter. This involved the interpretation and construction of the Facts: Tan insured his interest in his brother’s electrical supply store, which later on
insurance policy, which only a regular court of justice may resolve and settle. The burned. Tan filed claim with Sun Insurance, but was denied and he receive the denial
filing of a case before the Ins. Comm. does not toll the one-year prescription period of on April 2, 1984. Tan filed MR, but still dismissed. Nov 20, 1985: Tan filed case for
filing for claims after denial. collection of money. SC dismissed the case on the ground of prescription.

51
Held: The filing of a motion for reconsideration does not interrupt the 12 months Art. 2207, CC. If the plaintiff's property has been insured, and he has received indemnity from
prescriptive period to contest the denial of the insurance claim. The denial referred to 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
should be construed as the rejection in the first instance, for if what is being referred the wrongdoer or the person who has violated the contract. If the amount paid by the insurance
to is a reiterated rejection conveyed in a resolution of a petition for reconsideration, company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover
such should have been expressly stipulated. the deficiency from the person causing the loss or injury.
Mayer Steel v. CA (1997) Coastwise v. CA (1995)

Facts: Mayer insured steel pipes and fittings (all-risk policy) with South Sea Surety Facts: Pag-asa Sales, as consignee, insured the molasses being transported by
and Charter Insurance for shipping to Hong Kong Supplied Dept. Inspector certified Coastwise from Negros to Manila. Upon reaching Manila Bay, one of the barges hit a
all goods to be in good order condition before being loaded in the vessel. When goods sunken derelict vessel, which led to the contamination of the molasses and rendered it
reached HK, a substantial portion was damaged. Mayer filed claim against SS / unfit for use. Upon demand by Pag-as, Philgen paid Pag-asa, but Coastwise denied
Charter. Both refused to pay since the surveyor’s report allegedly showed the damage the claim. Philgen filed an action against Coastwise
is a factory defect. CA ruled that the action is barred by prescription since it was filed
more than two years from the time the goods were unloaded from the vessel. SC Held: Upon payment by insurer to the insured, the insurer became subrogated into
reverses. all the rights; which the insured may have against the carrier. Based on article 2207,
payment by the insurer to the assured operated as an equitable assignment to the
Held: Section 3(6) of the Carriage of Goods by Sea Act states that the carrier and the former of all remedies, which the latter may have against the third party whose
ship $shall be discharged from all liability for loss or damage to the goods if no suit is negligence or wrongful act caused the loss. The right of subrogation is not dependent
filed within one year after delivery of the goods or the date when they should have upon, nor does it grow out of, any privity of contract or upon written assignment of
been delivered. $Under this provision, only the carrier's liability is extinguished if no claim. It accrues simply upon payment of the insurance claim by the insurer.
suit is brought within one year. But the liability of the insurer is not extinguished
because the insurer's liability is based not on the contract of carriage but on the Vda. de Maglana v. Consolacion (1992)
contract of insurance. Facts: Destrajo’s jeepney bumped Maglana’s motorcycle, killing the latter. Heirs of
Maglana sued AFISCO (insurer). AFISCO was ordered to reimburse Destrajo of
Vda. de Gabriel v. CA (1996) whatever amount the latter shall have paid to the extent of the insurance coverage
Facts: Gabriel, insured by a P100K personal accident insurance under a group (P20K). Heirs opposed, saying that AFISCO should be directly and solidary liable
policy with Fortune, died in Iraq. His employer (ECDC) reported his death to with Destrajo (not merely ordered to reimburse). SC says liability is direct, but not
Fortune one year later (July 12, 1983). Sept 22: 1983: Fortune denied the claim of solidary.
ECDC due to prescription. Vda de Gabriel filed case. SC affirmed that the case has
not yet prescribed. Held: Where an insurance policy insures directly against liability, the insurer's
liability accrues immediately upon the occurrence of the injury, and does not depend
Held: The notice of death was given to the insurer, concededly, more than a year on the recovery by the injured party against the insured. However, while it is true
after the death of petitioner's husband. The insurer, in invoking prescription, was that third persons can directly sue the insurer if the contract provides for such
not referring to the one-year period from the denial of the claim within which to file indemnity, this liability does not mean that the insurer can be held solidarily liable
an action against an insurer but obviously to the written notice of claim that had to with the insured and/or the other parties found at fault. The liability of the insurer is
be submitted within six months from the time of the accident, also under IC Sec 384 based on contract; that of the insured is based on tort. The heirs have the option
(“Notice of claim must be filed within six months from date of the accident, either to claim the P15,000 from AFISCO (since AFISCO already gave them P5,000)
otherwise, the claim shall be deemed waived.”) and the balance from Destrajo, or enforce the entire judgment from Destrajo, subject
to reimbursement from AFISCO to the extent of the insurance coverage.
D. Subrogation
Cebu Shipyard v. William Lines (1999)
Art. 1236, CC. The creditor is not bound to accept payment or performance by a third person Facts: William Lines brought its vessel to Cebu Shipyard (at that time insured with
who has no interest in the fulfillment of the obligation, unless there is a stipulation to the Prudential for P45M) for dry-docking and repairs, stipulating that the total liability
contrary. of Cebu Shipyard to William Lines shall be imited in respect of any defect or event to
Whoever pays for another may demand from the debtor what he has paid, except that if he paid the sum of P1M only. After the vessel was transferred to the docking quay, it caught
without the knowledge or against the will of the debtor, he can recover only insofar as the fire and sank, resulting to total loss. William Lines filed complaint against Cebu
payment has been beneficial to the debtor. (1158a) Shipyard, and later amended the complaint to include Prudential as co-plaintiff after
Prudential had paid William Lines. SC says Prudential entitled to be subrogated to
the rights of William Lines.
52
Held: Legal subrogation does not require debtor’s consent. Subrogation under Art
Held: When Prudential, after due verification of the merit and validity of the 2207 (CC) is not novation by change of creditors as contemplated in Arts 1291,
insurance claim of William Lines, Inc., paid the latter the total amount covered by its 1300-1303.
insurance policy, it was subrogated to the right of the latter to recover the insured
loss from the liable party. Philamgen v. CA (1997)
Facts: Coca-Cola Bottlers insured 7,500 cases of 1L Coke softdrink bottles with
Pioneer Insurance v. CA (1989) Philamgen to be shipped from Zamboanga to Cebu through Felman Shipping. Vessel
Facts: Pioneer issued surety bond in favor of Japan Domestic Airlaines for the sank. Philamgen paid Coca-Coal P755,250. Philamgen demanded reimbursement
balance price of the aircrafts and spare parts Lim is buying from JDA. Bormacheo, from Felman, but was denied. Philamgen sued. SC found that Philamgen was
Cervantes, and Maglana contributed some funds too as they bound themselves properly subrogated in the rights and actions of Coca-Cola.
jointly to indemnify Pioneer. Lim executed a chattel mortgage over the aircrafts in
favor of Pioneer. When Lim defaulted in paying the installments, Pioneer paid JDA Held: The marine policy issued by the insurer to the consignee has dispensed with
P298,626.12. Pioneer then foreclosed the aircrafts but Cervantes and Maglana the usual warranty of seaworthiness. It can be said that with such categorical waiver,
objected, saying they are co-oweners. Pioneer then filed for judicial foreclosure. SC the insurer has accepted the risk of unseaworthiness so that if the ship should sink by
ruled against the foreclosure. unseaworthiness, the insurer is still liable. But, the insurer is not without remedy,
since payment by the assurer to the assured operates as an equitable assignment to
Held: In general, a reinsurer, on payment of a loss, acquires the same rights by the assurer of all the remedies which the assured may have against the third party
subrogation as are acquired in similar cases where the original insurance pays a loss. whose negligence or wrongful act caused the loss.
Note that if a property is insured and the owner receives the $indemnity from the
insurer, it is provided in Article 2207 (NCC) that the insurer is deemed subrogated St. Paul v. Macondray (1976)
to the rights of the insured against the wrongdoer and if the amount paid by the Facts: Wintrhop Products (NY) shipped 218 cartons and drums of drugs and
insurer does not fully cover the loss, then the aggrieved party is the one entitled to medicine from New York to Manila through Wilhelm Wilhelmsen’s vessel. Products
recover the deficiency. Evidently, under this legal provision, the real party in interest were consigned to Winthrop-Stearns and were insured by the shipper with St. Paul
with regard to the portion of the indemnity paid is the insurer and not the insured. Fire. Upon reaching Manila, the shipment was discharged completely except for one
drum and several cartons which were in bad order condition. Consignee then filed
Manila Mahogany v. CA (1987) the claim against the carrier and the Manila Port Service. Because both refused to
Facts: Manila Mahogany’s 4-dorr Mercedes Benz sedan insured with Zenith pay, consignee filed claim with St Paul, and paid US$1,134.46 to the consignee. St
Insurance was bumped by SMC’s truck. Zenith paid P5K in exchange for a Release Paul then filed case against the shippers for the reimbursement of what it paid
Claim, subrogating Zenith to all MM’s rights to action against SMC. Upon demand consignee. SC ruled that St Paul should be paid, but at the rate of P2.00 per $1
for reimbursement by Zenith, SMC denies, saying it already paid P4,500.00 to MM. (contrary to St. Paul’s claim of P3.90 per $1).
Zenith filed suit against MM to recover the P4,500.00. SC rules that MM should
return the P5K Zenith paid. Held: The stipulation in the bill of lading limiting the common carrier's liability to
the value of the goods appearing in the bill, unless the shipper or owner declares a
Held: Since the insurer can be subrogated to only such rights as the insured may greater value, is valid and binding. This limitation of the carrier's liability is
have: should the insured, after receiving payment from the insurer, release the sanctioned by the freedom of the contracting parties to establish such stipulations,
wrongdoer who caused the loss, the insurer loses his rights against the latter. But in clauses, terms, or conditions as they may deem convenient, provided they are not
such a case, the insurer will be entitled to recover from the insured whatever it has contrary to law, morals, good customs and public policy. A stipulation fixing or
paid to the latter, unless the release was made with the consent of the insurer. limiting the sum that may be recovered from the carrier on the loss or deterioration of
the goods is valid, provided it is (a) reasonable and just under the circumstances, and
Fireman’s Fund v. Jamila (1976) (b) has been fairly and freely agreed upon. The insurer, after paying the claim of the
Facts: Jamila assumed responsibility for the acts of its security guards contracted to insured for damages under the insurance, is subrogated merely to the rights of the
Firestone, with First QC executing a P20,000 bond as guaranty. May 18, 1963: assured. As subrogee, it can recover only the amount that is recoverable by the latter.
Firestone’s property valued at P11,925 were lost, allegedly due to a Firestone Since the right of the assured, in case of loss or damage to the goods, is limited or
employee conniving with one of the security guards. Fireman’s Fund, as insurer of restricted by the provisions in the bill of lading, a suit by the insurer as subrogee
Firestone, paid Firestone the amount of the loss, thus Fireman’s Fund was necessarily is subject to like limitations and restrictions.
subrogated to Firestone’s right to get reimbursement form Jamila. However, Jamila
and First QC refused to pay, so Fireman’s Fund sued them. TC says no subrogation Malayan Insurance v. CA (1988)
because Jamila did not consent. SC reverses. Facts: Malayan issued a comprehensive MV policy covering Sio Choy’s WIllys jeep,
stipulating that own damage must not exceed P600, and third party liability in the
53
amount of P20K. Jeep, driven by an employee of San Leon Rice Mill, collided with Held: Subrogation is the substitution of one person in the place of another with
PANTRANCO bus. The jeep’s passengers filed an action against Choy, Malayan, reference to a lawful claim or right, so that he who is substituted succeeds to the
and PANTRANCO. Choy filed cross-claim against Malayan for the P5K it already rights of the other in relation to a debt or claim, including its remedies or securities.
paid the passengers. SC ordered reimbursement of Malayan by San Leon Rice Mill. The principle covers the situation under which an insurer that has paid a loss under
an insurance policy is entitled to all the rights and remedies belonging to the insured
Held: The insurer, upon paying claimant of the proceeds of insurance, shall become against a third party with respect to any loss covered by the policy. In effect, the
the subrogee of the insured. As such, it is subrogated to whatever rights the latter has insurer became the creditor of the shipper when it paid the insured what was due to it
against the employer of the driver of the jeep. Article 1217 of the Civil Code gives to a under their contract of insurance. The shipper’s liability to the insured by reason of
solidary debtor who has paid the entire obligation the right to be reimbursed by his its negligent handling of the pipes could be claimed by the insurer because of
co- debtors for the share which corresponds to each. (Thus, in this case, Choy and subrogation. Notwithstanding the fact that it did not have license to operate in the
San Leon were solidary liable for P29K+. If Malayan, as insurer of Choy, is Philippines, the foreign insurer could still bring court action for an isolated
compelled to pay the P20K of the solidary obligation, then it would be entitled to transaction. As repeatedly held by the Court the purpose of restricting a foreign
reimburse against San Leon in the amount of P14,500+ (comprising the share of company’s ability to conduct business in the Philippines was to prevent it from
Choy in the solidary obligation). dealing with clients while, simultaneously, remaining out of court’s reach. Clearly, it
did not aim to proscribe single acts.
Fedex v. American Home Assurance (1989)
Facts: Smithkline (Nebraska) shipped 109 cartons of veterinary vaccines to FGU v. CA (2005)
Smithkline Makati through Fedex with words “REFRIGERATE WHEN NOT IN Facts: San Miguel (SMC) shipped cases of beer from Cebu to Antique through
TRANSIT” and “PERISHABLE”. The goods were insured with AHAC in the ANCO. Upon reaching Antique, SMC requested ANCO to transfer barge (which
amount of $39,339. The cartons were divided in two separate flights – the first had no engine) to a safer place, but was denied. Barge ran aground and was broken
containing 92 cartons, the second containing 17. Upon arrival, both sets were with the cases of beer swept away. SMC filed case against ANCO, and ANCO filed
immediately stored at Cargohaus, in rooms which were not refrigerated. The Dept of 3rd party complaint against FGU for reimbursement of the damages it paid to SMC.
Agriculture held the vaccines to be below the positive reference serum, so Smithkline SC ruled FGU shall not pay.
abandoned the shipment and declared it a total loss. AHAC was made to pay the
amount of cargoes. AHAC then filed an action vs. FedEx and Cargohaus. SC says Held: One of the purposes of taking out insurance is to protect the insured against
AHAC subrogated to the rights to file complaint, but cannot claim from FedEx for the consequences of his own negligence and that of his agents. Thus, it is a basic rule
failure to comply with the requisite notice of loss and provisions of the airway bill. in insurance that the carelessness and negligence of the insured or his agents
constitute no defense on the part of the insurer. This rule, however, presupposes that
Held: Upon payment to the consignee of an indemnity for the loss of or damage to the loss has occurred due to causes which could not have been prevented by the
the insured goods, the insurer’s entitlement to subrogation pro tanto - being of the insured, despite the exercise of due diligence. When evidence shows that the insured’s
highest equity -- equips it with a cause of action in case of a contractual breach or negligence or recklessness is so gross as to be sufficient to constitute a willful act, the
negligence. In the exercise of its subrogatory right, an insurer may proceed against insurer must be exonerated.
an erring carrier. To all intents and purposes, it stands in the place and in
substitution of the consignee. Both the insurer and the consignee are bound by the Aboitiz Shipping v. Insurance Co. of North America (2008)
contractual stipulations under the bill of lading. However, since the notice is a Facts: Shipment of wooden work tools and workbenches for Don Bosco Cebu, whose
condition precedent, and the carrier is not liable if notice is not given in accordance representative received already damaged due to being soaked by water. ICNA
with the stipulation. Failure to comply with such a stipulation bars recovery for the (insurer) paid, but Aboitiz (shipper) refused to reimburse, claiming there was no
loss or damage suffered. While insurer may file action after subrogation, it still needs cause of action. SC ruled that cause of action is founded on ICNA being subrogated
to meet the requisites for the exercise of the cause of action. to the rights of the consignee.
Lorenzo Shipping v. Chubb & Sons Inc., et. al. (2004) Held: Upon payment to the consignee of indemnity for damage to the insured goods,
Facts: Sumitomo Corp ordered steel pipes from Mayer Steel Corp, insuring them the insurer’s entitlement to subrogation equipped it with a cause of action against
with Chubb & Sons Inc (CSI). The pipes were shipped from Manila to Davao by petitioner in case of a contractual breach or negligence. This right of subrogation,
Lorenzo Shipping, but upon arrival in Davao, it was discovered that seawater in however, has its limitations. First, both the insurer and the consignee are bound by
Lorenzo’s ship caused the steel pipes to rust. Sumitomo rejected the steel pipes and the contractual stipulations under the bill of lading. Second, the insurer can be
claimed from CSI, who paid &105,151.00. CSI then filed a suit to collect from subrogated only to the rights as the insured may have against the wrongdoer. If by
Lorenzo. its own acts after receiving payment from the insurer, the insured releases from
liability the wrongdoer who caused the loss, insurer loses its claim against the latter.


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LAW 139 – INSURANCE LAW

C2017 FINALS REVIEWER

This is a continuation of the Midterm Reviewer. Happy studying! !

CHAPTER VI – RESCISSION OF INSURANCE • Requisites of Concealment

LAW 139 – INSURANCE LAW C2017 Finals Reviewer

• Misrepresentation (renders contract voidable) – a statement:

Edillon v. Manila Bankers Life Insurance Corp. (1982)

LAW 139 – INSURANCE LAW C2017 Finals Reviewer

Application of Exemption to Accident Insurance

LAW 139 – INSURANCE LAW C2017 Finals Reviewer

Industrial Life Insurance 3) Relationship of Members to Company – The policyholder is not a

Risks or Losses Covered

LAW 139 – INSURANCE LAW C2017 Finals Reviewer

LAW 139 – INSURANCE LAW C2017 Finals Reviewer

Fortune Insurance v. CA (1995)

LAW 139 – INSURANCE LAW C2017 Finals Reviewer

Eastern Assurance v. IAC (1989) Prudential v. Equinox (2007)

1. Compulsory Motor Vehicle Insurance Shafer v. Judge (1988)

Western Guaranty v. CA (1990) G. Reinsurance

LAW 139 – INSURANCE LAW C2017 Finals Reviewer

LAW 139 – INSURANCE LAW C2017 Finals Reviewer

CHAPTER VIII – MARINE INSURANCE Scope of Ocean Marine Insurance

LAW 139 – INSURANCE LAW C2017 Finals Reviewer

LAW 139 – INSURANCE LAW C2017 Finals Reviewer

Applicability of Rules on Representation to Marine Insurance 1. Seaworthiness of the Vessel

LAW 139 – INSURANCE LAW C2017 Finals Reviewer

LAW 139 – INSURANCE LAW C2017 Finals Reviewer

3. Implied Warranty of Proper Documentation

LAW 139 – INSURANCE LAW C2017 Finals Reviewer

Kinds of Losses Presumption of Actual Total Loss

LAW 139 – INSURANCE LAW C2017 Finals Reviewer

Meaning of Abandonment Abandonment Where Insurance Divisible and Where Indivisible

LAW 139 – INSURANCE LAW C2017 Finals Reviewer

LAW 139 – INSURANCE LAW C2017 Finals Reviewer

LAW 139 – INSURANCE LAW C2017 Finals Reviewer

LAW 139 – INSURANCE LAW C2017 Finals Reviewer

LAW 139 – INSURANCE LAW C2017 Finals Reviewer

LAW 139 – INSURANCE LAW C2017 Finals Reviewer

Mayer Steel v. CA (1997) Coastwise v. CA (1995)

LAW 139 – INSURANCE LAW C2017 Finals Reviewer

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