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0 CHARACTERISTICS OF AN INSURANCE CONTRACT (The Insurance Code of The Philippines Annotated
0 CHARACTERISTICS OF AN INSURANCE CONTRACT (The Insurance Code of The Philippines Annotated
INSURANCE CODE
(P.D. No. 1460)
I. GENERAL CONCEPTS
CONTRACT OF INSURANCE
An agreement whereby one undertakes for a consideration to indemnify another against loss, damage or
liability arising from an unknown or contingent event. (Sec. 2, par. 2, IC)
REQUISITES OF A CONTRACT OF INSURANCE (The Insurance Code of the Philippines Annotated, Hector de
Leon, 2002 ed.)
0 A subject matter which the insured has an insurable interest.
1 Event or peril insured against which may be any future contingent or unknown event, past or future and a
duration for the risk thereof.
2 A promise to pay or indemnify in a fixed or ascertainable amount.
3 A consideration known as “premium”.
4 Meeting of the minds of the parties.
Most of the terms of the contract do not result from mutual negotiations between the parties as they are
prescribed by the insurer in final printed form to which the insured may “adhere” if he chooses but which he
cannot change. (Rizal Surety and Insurance Co., vs. CA, 336 SCRA 12)
5. Principle of Subrogation
It is a process of legal substitution where the insurer steps into the shoes of the insured and he avails of the
latter’s rights against the wrongdoer at the time of loss.
The principle of subrogation is a normal incident of indemnity insurance as a legal effect of payment; it
inures to the insurer without any formal assignment or any express stipulation to that effect in the policy. Said
right is not dependent upon nor does it grow out of any private contract. Payment to the insured makes the
insurer a subrogee in equity. (Malayan Insurance Co., Inc. v. CA, 165 SCRA 536; see also Art. 2207, NCC)
Purposes: (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.)
0 To make the person who caused the loss legally responsible for it.
1 To prevent the insured from receiving a double recovery from the wrongdoer and the insurer.
2 To prevent tortfeasors from being free from liabilities and is thus founded on considerations of public
policy.
Rules:
1. Applicable only to property insurance.
2
0 The insurer can only recover from the third person what the insured could have recovered.
1 There can be no subrogation in cases:
5888 Where the insured by his own act releases the wrongdoer or third party liable for the loss or damage;
5889 Where the insurer pays the insured the value of the loss without notifying the carrier who has in good
faith settled the insured’s claim for loss;
5890 Where the insurer pays the insured for a loss or risk not covered by the policy. (Pan Malayan Insurance
Company v. CA, 184 SCRA 54)
5891 In life insurance
5892 For recovery of loss in excess of insurance coverage
Binding Receipt
A mere acknowledgment on behalf of the company that its branch office had received from the applicant the
insurance premium and had accepted the application subject to processing by the head office.
Riders
Printed stipulations usually attached to the policy because they constitute additional stipulations between
the parties. (Ang Giok Chip vs. Springfield, 56 Phil. 275)
In case of conflict between a rider and the printed stipulations in the policy, the rider prevails, as being a
more deliberate expression of the agreement of the contracting parties. (C. Alvendia, The Law of Insurance in
the Philippines, 1968 ed.)
Clauses
An agreement between the insurer and the insured on certain matter relating to the liability of the insurer in
case of loss. (Prof. De Leon, p.188)
Endorsements
Any provision added to the contract altering its scope or application. (Prof. De Leon, p.188)
POLICY OF INSURANCE
The written instrument in which a contract of insurance is set forth. (Sec. 49)
Persons entitled to recover on the policy (sec. 53): The insurance proceeds shall be applied exclusively
to the proper interest of the person in whose name or to whose benefit it is made, unless otherwise specified in
the policy.
Kinds:
0 OPEN POLICY – value of thing insured is not agreed upon, but left to be ascertained in case of loss. (Sec.
60)
The actual loss, as determined, will represent the total indemnity due the insured from the insurer
except only that the total indemnity shall not exceed the face value of the policy. (Development Insurance
Corp. vs. IAC, 143 SCRA 62)
1 VALUED POLICY – definite valuation of the property insured is agreed by both parties, and written on the
face of policy. (Sec. 61)
In the absence of fraud or mistake, the agreed valuation will be paid in case of total loss of the
property, unless the insurance is for a lower amount.
2 RUNNING POLICY – contemplates successive insurances and which provides that the object of the policy
may from time to time be defined (Sec. 62)
Insured cannot:
0.0 Assign the policy
0.1 Take the cash surrender value of the policy
0.2 Allow his creditors to attach or execute on the policy;
0.3 Add new beneficiary; or
0.4 Change the irrevocable designation to revocable, even though the change is just and reasonable.
4
The insured does not even retain the power to destroy the contract by refusing to pay the premiums for the
beneficiary can protect his interest by paying such premiums for he has an interest in the fulfillment of the
obligation. (Vance, p. 665, cited in de Leon, p. 101, 2002 ed.)
C. Property
Every interest in property whether real or personal, or any relation thereto, or liability in respect thereof, of
such nature that the contemplated peril might directly damnify the insured (Sec. 13), which may consist in:
0 an existing interest;
1 any inchoate interest founded on an existing interest; or
2 an expectancy coupled with an existing interest in that out of which the expectancy arises. (Sec.
14)
When it should exist: When the insurance takes effect and when the loss occurs, but need not exist in the
meantime.
Amount: The measure of insurable interest in property is the extent to which the insured might be
damnified by loss or injury thereof. (Sec. 17)
The beneficiary need not have an insurable interest over the life of The beneficiary must have insurable
the insured if the insured himself secured the policy. However, if the interest over the thing insured.
life insurance was obtained by the beneficiary, the latter must have
insurable interest over the life of the insured.
SPECIAL CASES
0 In case of a carrier or depositary
A carrier or depository of any kind has an insurable interest in a thing held by him as such, to the extent of
his liability but not to exceed the value thereof (Sec. 15)
0 In case of a mortgaged property
The mortgagor and mortgagee each have an insurable interest in the property mortgaged and this interest
is separate and distinct from the other.
0 Mortgagor – As owner, has an insurable interest therein to the extent of its value, even though the
mortgage debt equals such value. The reason is that the loss or destruction of the property insured will not
extinguish the mortgage debt.
1 Mortgagee – His interest is only up to the extent of the debt. Such interest continues until the mortgage
debt is extinguished.
The lessor cannot be validly a beneficiary of a fire insurance policy taken by a lessee over his merchandise,
and the provision in the lease contract providing for such automatic assignment is void for being contrary to
law and public policy. (Cha vs. Court of Appeals, 227 SCRA 690)
5
Subsequent acts of the mortgagor cannot Acts of the mortgagor affect the mortgagee. Reason: Mortgagor
affect the rights of the assignee does not cease to be a party to the contract. (Secs. 8 and 9)
In case a mortgagee insures his own interest and a loss occurs, he is entitled to the proceeds of the
insurance but he is not allowed to retain his claim against the mortgagor as the claim is discharged but it
passes by subrogation to the insurer to the extent of the money paid by such insurer. (Palileo vs. Cosio)
VIII. RISK
What may be insured against:
0.0 Future contingent event resulting in loss or damage – Ex. Possible future fire
0.1 Past unknown event resulting in loss or damage – Ex. Fact of past sinking of a vessel unknown to the
parties
0.2 Contingent liability – Ex. Reinsurance
GENERAL RULE: No policy issued by an insurance company is valid and binding until actual payment of
premium. Any agreement to the contrary is void. (Sec. 77)
EXCEPTIONS:
0 In case of life or industrial life insurance, when the grace periods applies; (Sec. 77)
1 When the insurer makes a written acknowledgment of the receipt premium; (Sec. 78)
2 Section 77 may not apply if the parties have agreed to the payment of the premium in installments and
partial payment has been made at the time of the loss. (Makati Tuscany Condominium Corp. v. CA, 215
SCRA 462)
3 Where a credit term has been agreed upon. (UCPB vs. Masagana Telemart, 308 SCRA 259)
4 Where the parties are barred by estoppel. (UCPB vs. Maagana Telemart, 356 SCRA 307)
Section 77 merely precludes the parties from stipulating that the policy is valid even if the premiums are not
paid. (Makati Tuscany Condominium Corp. v. CA, 215 SCRA 462)
Effect of Acknowledgment of Receipt of Premium in Policy: Conclusive evidence of its payment, so far as
to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the
premium is actually paid. (Sec. 78)
5888 Who
le:
If the thing insured was never exposed to the risks insured against; (Sec. 79)
1. If contract is voidable due to the fraud or misrepresentation of insurer or his agents; (Sec.
2.
81)
23 If contract is voidable because of the existence of facts of which the insured was ignorant
without his fault; (Sec. 81)
24 When by any default of the insured other than actual fraud, the insurer never incurred
liability; (Sec. 81)
25 When rescission is granted due to the insurer’s breach of contract. (Sec. 74)
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B. Pro rata:
5888 When the insurance is for a definite period and the insured surrenders his policy before the
termination thereof;
Exceptions:
5888 policy not made for a definite period of time
5889 short period rate is agreed upon
5890 life insurance policy
5889 When there is over-insurance (Sec. 82);
PREMIUM ASSESSMENT
Levied and paid to meet anticipated losses. Collected to meet actual losses.
Not a debt. It becomes a debt once properly levied unless otherwise agreed.
X. TRANSFER OF POLICY
1. Life Insurance
It can be transferred even without the consent of the insurer except when there is a stipulation requiring the
consent of the insurer before transfer. (Sec. 181)
Reason: The policy does not represent a personal agreement between the insured and the insurer.
2. Property insurance
It cannot be transferred without the consent of the insurer.
Reason: The insurer approved the policy based on the personal qualification and the insurable interest of the
insured.
3. Casualty insurance
It cannot be transferred without the consent of the insurer. (Paterson cited in de Leon p.
82) Reason: The moral hazards are as great as those of property insurance.
EXCEPTIONS:
0 In life, health and accident insurance.(Sec. 20);
1 Change in interest in the thing insured after occurrence of an injury which results in a loss.
(Sec. 21);
2 Change in interest in one or more of several distinct things separately insured by one policy.
(Sec. 22);
3 Change of interest, by will or succession, on the death of the insured. (Sec. 23);
4 Transfer of interest by one of several partners, joint owners, or owners in common, who are
jointly insured, to others. (Sec. 24);
5 When a policy is so framed that it will inure to the benefit of whomsoever, during the
continuance of the risk, may become the owner of the interest insured. (Sec. 57);
6 When there is an express prohibition against alienation in the policy, in case of alienation, the
contract of insurance is not merely suspended but avoided. (Art. 1306, NCC).
Test of Materiality: Determined not by the event, but solely by the probable and reasonable influence of the
facts upon the party to whom the communication is due, in forming his estimate of the advantages of the
proposed contract, or in making his inquiries (Sec. 31).
Exception to Sec. 31:
a. Incontestability clause
b. Matters under Sec.110 (marine insurance)
The waiver of medical examination in a non-medical insurance contract renders even more material the
information required of the applicant concerning the previous conditions of health and diseases suffered.
(Sunlife v. Sps. Bacani, 246 SCRA 268).
The right to information of material facts may be waived, either by the terms of the insurance or by neglect
to make inquiries as to such facts where they are distinctly implied in other facts of which information is
communicated. (Sec.33)
Where matters of opinion or judgment are called for, answers made in good faith and without intent to
deceive will not avoid the policy even though they are untrue. Reason: The insurer cannot rely on those
statements. He must make further inquiry. (Philamcare Health Systems vs. CA, G.R. No. 125678, March 18,
2002).
5888 Representations – Factual statements made by the insured at the time of, or prior to, the issuance
of the policy to give information to the insurer and induce him to enter into the insurance contract. They are
considered an active form of concealment.
Requisites of a false representation (misrepresentation):
5888 The insured stated a fact which is untrue.
5889 Such fact was stated with knowledge that it is untrue and with intent to deceive or which he
states positively as true without knowing it to be true and which has a tendency to mislead.
5890 Such fact in either case is material to the risk.
Characteristics:
a. It is not a part of the contract but merely a collateral inducement to it.
b. It may be oral or written.
c. It is made at the same time of issuing the policy or before but not after.
d. It may be altered or withdrawn before the insurance is effected but not afterwards.
e. It always refers to the date the contract goes into effect.
Kinds:
a. AFFIRMATIVE – affirmation of a fact when the contract begins; and
b. PROMISSORY – promise to be performed after policy was issued.
Effect of Misrepresentation: the injured party is entitled to rescind from the time when the representation
becomes false.
Where the insured merely signed the application form and made the agent of the insurer fill the same for
him, it was held that by doing so, the insured made the agent of the insurer his own agent and he was
responsible for his acts for that purpose. (Insular Life Assur. Co. vs. Feliciano, 74 Phil. 469)
0 Warranties – Statement or promise by the insured set forth in the policy or by reference incorporated
therein, the untruth or non-fulfillment of which in any respect, and without reference to whether insurer was in
fact prejudiced by such untruth or non-fulfillment, renders the policy voidable by the insurer.
Purpose: To eliminate potentially increasing hazards which may either be due to the acts of the insured or to
the change to the condition of the property.
Kinds:
a. EXPRESS – an agreement expressed in a policy whereby the insured stipulates that certain facts relating to
the risk are or shall be true, or certain acts relating to the same subject have been or shall be done.
8
b. IMPLIED - it is deemed included in the contract although not expressly mentioned. Example: In marine
insurance, seaworthiness of the vessel.
Effects of breach of warranty:
a. Material
GENERAL RULE: Violation of material warranty or of a material provision of a policy will entitle the other
party to rescind the contract. (Sec. 74)
EXCEPTIONS:
0 Loss occurs before the time of performance of the warranty.
1 The performances becomes unlawful at the place of the contract.
2 Performance becomes impossible. (Sec. 73)
b. Immaterial (ex. Other insurance clause)
GENERAL RULE: It will not avoid the policy.
EXCEPTION: When the policy expressly provides or declares that a violation thereof will avoid it. (Sec. 75)
WARRANTY REPRESENTATION
Part of the contract Mere collateral inducement
Written on the policy, actually or by May be written in the policy or may be oral.
reference
Must be strictly complied with Requires only substantial truth and compliance
23 Conditions – Events signifying in its broadest sense either an occurrence or a non-occurrence that alters
the previously existing legal relations of the parties to the contract. They may be conditions precedent or
conditions subsequent.
Effect of breach:
23 Condition precedent – prevents the accrual of cause of action
24 Condition subsequent – avoids the policy or entitles the insurer to rescind
The insurer may also protect himself against fraudulent claims of loss and this he attempts to do by
inserting in the policy various conditions which take the form of conditions precedent. For instance, there are
conditions requiring immediate notice of loss or injury and detailed proofs of loss within a limited period.
5888 Exceptions – Provisions that may specify excepted perils. It makes more definite the coverage
indicated by the general description of the risk by excluding certain specified risk that otherwise would be
included under the general language describing the risks assumed.
Effect: Limit the coverage of the contract.
RESCISSION
Grounds:
23 Concealment
24 Misrepresentation
25 Breach of material warranty
26 Breach of a condition subsequent
Waiver of the right to rescind: Acceptance of premium payments despite the knowledge of the ground for
rescission. (Sec. 45)
Limitations on the right of the insurer to rescind:
5888 Non-life – such right must be exercised prior to the commencement of an action on the contract;
5889 Life – such right must be availed of during the first two years from the date of issue of policy or its
last reinstatement; prior to “incontestability.” (Sec. 48)
Incontestability only deprives the insurer of those defenses which arise in connection with the formation and
operation of the policy prior to loss. (Prof. De Leon, p. 173 citing Wyatt and Wyatt, p. 878)
XIII.
A. OVER-INSURANCE – results when the insured insures the same property for an amount greater than the
value of the property with the same insurance company.
Effect in case of loss:
23 The insurer is bound only to pay to the extent of the real value of the property lost;
24 The insured is entitled to recover the amount of premium corresponding to the excess in value of the
property;
B. DOUBLE INSURANCE – exists where same person is insured by several insurers separately in respect to
same subject and interest. (Sec. 93)
Requisites:
Person insured is the same;
Two or more insurers insuring separately;
Subject matter is the same;
Interest insured is also the same;
Risk or peril insured against is likewise the same.
Effects: Where double insurance is allowed, but over insurance results: (Sec. 94)
1. The insured, unless the policy otherwise provides, may claim payment from the insurers in such order
as he may select, up to the amount for which the insurers are severally liable under their respective
contracts;
2. Where the policy under which the insured claims is a valued policy, the insured must give credit as
against the valuation for any sum received by him under any other policy without regard to the actual
value of the subject matter insured;
3. Where the policy under which the insured claims is an unvalued policy he
must give credit, as against the full insurable value, for any sum received by him under any policy;
4. Where the insured receives any sum in excess of the valuation in the case
of valued policies, or of the insurable value in the case of unvalued policies, he must hold such sum in
trust for the insurers, according to their right of contribution among themselves;
5. Each insurer is bound, as between himself and the other insurers, to contribute ratably to the loss in
proportion to the amount for which he is liable under his contract.
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C. REINSURANCE – a contract by which the insurer procures a third person to insure him against loss or
liability by reason of an original insurance (also known as “Reinsurance Cession”). (Sec. 95)
In every reinsurance, the original contract of insurance and the contract of reinsurance are covered by
separate policies.
TERMS:
Reinsurance treaty – Merely an agreement between two insurance companies whereby one agrees to cede
and the other to accept reinsurance business pursuant to provisions specified in the treaty. (Prof. De Leon, p.
306)
Automatic reinsurance – The reinsured is bound to cede and the reinsurer is obligated to accept a fixed
share of the risk which has to be reinsured under the contract. (Prof. De Leon, p. 305)
Facultative reinsurance – There is no obligation to cede or accept participation in the risk each party having
a free choice. But once the share is accepted, the obligation is absolute and the liability thereunder can be
discharged only by payment. (Equitable Ins. & Casualty Co. vs. Rural Ins. & Surety Co., Inc. 4 SCRA 343)
Retrocession – A transaction whereby the reinsurer in turn, passes to another insurer a portion of the risk
reinsured. It is really the reinsurance of reinsurance. (Prof. De Leon, p. 305)
XIV.
A. LOSS, IN INSURANCE
Injury or damage sustained by the insured in consequence of the happening of one or more of the accidents
or misfortune against which the insurer, in consideration of the premium, has undertaken to indemnify the
insured. (Bonifacio Bros. Inc. vs. Mora, 20 SCRA 261)
Proximate Cause – An event that sets all other events in motion without any intervening or independent
case, without which the injury or loss would not have occurred.
NOTICE OF LOSS
Failure to give notice will defeat the Failure to give notice will not exonerate the insurer, unless there is
right of the insured to recover. a stipulation in the policy requiring the insured to do so.
B. CLAIMS SETTLEMENT
The indemnification of the loss of the insured.
a. Maturing upon the expiration of the term – The proceeds shall be paid within 30 days after the receipt
The proceeds are immediately payable to the by the insurer of proof of loss, and ascertainment of the
insured, unless they are made payable in loss or damage by agreement of the parties or by
installments or as annuity, in which case, the arbitration but not later than 90 days from such receipt of
installments or annuities shall be paid as they proof of loss whether or not ascertainment is had or
become due. made.
b. Maturing at the death of the insured,
occurring prior to the expiration of the term
stipulated – The proceeds are payable to the
beneficiaries within 60 days after presentation
and filing of proof of death.
In case of an unreasonable delay in the payment of the insured’s claim by the insurer, the insured can
recover: 1) attorney’s fees; 2) expenses incurred by reason of the unreasonable withholding; 3) interest at
double the legal interest rate fixed by the Monetary Board; and 4) the amount of the claim. (Zenith Insurance
Corp. vs. CA, 185 SCRA 398)
4. Floater – provides insurance to follow the insured property wherever it may be located, subject
always to the territorial limits of the contract.
Insurable interest:
A.
1Shipowner
0.0 Over the vessel to the extent of its value, except that if chartered, the insurance is only up to
the amount not recoverable from the charterer. (Sec. 100).
0.1 He also has an insurable interest on expected freightage. (Sec. 103).
0.2 No insurable interest if he will be compensated by charterer for the value of the vessel, in case
of loss.
ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀ ĀЀЀĀȀĀ⸀ĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀ1 Cargo owner
Over the cargo and expected profits (Sec. 105).
Charterer
Over the amount he is liable to the shipowner, if the ship is lost or damaged during the voyage
(Sec. 106).
B.
In loans on bottomry and respondentia
Repayment of the loan is subject to the condition that the vessel or goods, respectively, given as a security,
shall arrive safely at the port of destination.
0 Owner/Debtor
Difference between the value of vessel or goods and the amount of loan. (Sec. 101)
1 Creditor/lender
Amount of the loan
Note: If a vessel is hypothecated by bottomry, only the excess is insurable, since a loan on bottomry partakes
of the nature of an insurance coverage to the extent of the loan accommodation. The same rule would apply to
the hypothecation of the cargo by respondentia. (Pandect of Commercial Law and Jurisprudence, Justice Jose
Vitug, 1997 ed.)
PERILS OF THE SEA PERILS OF THE SHIP
Includes only those casualties due to A loss which in the ordinary course of events, results from the:
the: 1. natural and inevitable action of the sea
1. unusual violence; or 2. ordinary wear and tear of the ship or
2. extraordinary action of wind and 3. Negligent failure of the ship’s owner to provide the vessel with
wave; or proper equipment to convey the cargo under ordinary conditions.
3. Other extraordinary causes
connected with navigation.
Note: It is only perils of the sea which may be insured against unless perils of the ship is covered by an all-risk
policy.
B. Barratry Clause
A clause which provides that there can be no recovery on the policy in case of any willful misconduct on the
part of the master or crew in pursuance of some unlawful or fraudulent purpose without consent of owners,
and to the prejudice of the owner’s interest. (Roque vs. IAC, 139 SCRA 596)
C. Inchamaree Clause
A clause which makes the insurer liable for loss or damage to the hull or machinery arising from the:
Negligence of the captain, engineers, etc.
Explosions, breakage of shafts; and
Latent defect of machinery or hull. (Bar Review Materials in Commercial Law, Jorge Miravite, 2002 ed.)
MATTERS ALTHOUGH CONCEALED, WILL NOT VITIATE THE CONTRACT EXCEPT WHEN THEY CAUSED
THE LOSS (Sec. 110)
National character of the insured;
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MARINE INSURANCE
While the payment by the insurer for the insured value of the lost cargo operates as a waiver of the insurer’s
right to enforce the term of the implied warranty against the assured under the marine insurance policy, the
same cannot be validly interpreted as an automatic admission of the vessel’s seaworthiness by the insurer as
to foreclose recourse against the common carrier for any liability under the contractual obligation as such
common carrier. (Delsan Transportation Lines vs. CA, 364 SCRA 24)
Seaworthiness
A relative term depending upon the nature of the ship, voyage, service and goods, denoting in general a
ship’s fitness to perform the service and to encounter the ordinary perils of the voyage, contemplated by the
parties to the policy (Sec. 114).
GENERAL RULE: The warranty of seaworthiness is complied with if the ship be seaworthy at the time of the
commencement of the risk. Prior or subsequent unseaworthiness is not a breach of the warranty nor is it
material that the vessel arrives in safety at the end of her voyage.
EXCEPTIONS:
1. In the case of a time policy, the ship must be seaworthy at the commencement of every voyage she may
undertake
2. In the case of cargo policy, each vessel upon which the cargo is shipped or transshipped, must be
seaworthy at the commencement of each particular voyage
3. In the case of a voyage policy contemplating a voyage in different stages, the ship must be seaworthy at
the commencement of each portion
Deviation
A departure from the course of the voyage insured, or an unreasonable delay in pursuing the voyage or the
commencement of an entirely different voyage. (Sec.123)
Instances:
ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀЀЀ ĀĀȀ
⸀ ĀĀ ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀ0 Departure of vessel from the course of the
sailing fixed by mercantile usage
ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀЀЀ ĀĀȀ
⸀ ĀĀ ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀ1 Departure of vessel from the most
natural, direct and advantageous route if not fixed by mercantile usage
1.0 Unreasonable delay in pursuing voyage
1.1 Commencement of an entirely different voyage (Secs. 121-123)
Kinds:
1.2 Proper -
When caused by circumstances outside the control of the ship captain or ship owner;
When necessary to comply with a warranty or to avoid a peril;
When made in good faith to avoid a peril;
When made in good faith to save human life or to relieve another vessel in distress (Sec. 124)
Effect: In case of loss, the insurer is still liable.
Improper - Every deviation not specified in Sec. 124 (Sec. 125).
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Effect: In case of loss or damage, the insurer is not liable. (Sec. 126)
LOSS
Total:
0 Actual -
ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀЀЀ
Ā ĀȀ
⸀ ĀĀ ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀ0 Total destruction;
ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀЀЀ
Ā ĀȀ
⸀ ĀĀ ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀ1 Irretrievable loss by sinking;
ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀЀЀ
Ā ĀȀ
⸀ ĀĀ ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀ2 Damage rendering the thing valueless; or
ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀЀЀ
Ā ĀȀ
⸀ ĀĀ ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀ3 Total deprivation of owner of possession of
thing insured. (Sec. 130)
1 Constructive -
0.0 Actual loss of more than ¾ of the value of the object;
0.1 Damage reducing value by more than ¾ of the value of the vessel and of cargo; and
0.2 Expense of transshipment exceed ¾ of value of cargo. (Sec. 131, in relation to Sec. 139)
In case of constructive total loss, insured may:
256 Abandon goods or vessel to the insurer and claim for whole insured value (Sec. 139), or
257 Without abandoning vessel, claim for partial actual loss. (Sec. 155)
Partial: That which is not total (Sec. 128).
AVERAGE
Any extraordinary or accidental expense incurred during the voyage for the preservation of the vessel,
cargo, or both, and all damages to the vessel and cargo from the time it is loaded and the voyage commenced
until it ends and the cargo unloaded.
GENERAL PARTICULAR
Has inured to the common benefit and profit of all Has not inured to the common benefit and profit of all
persons interested in the vessel and cargo persons interested in the vessel and her cargo.
To be borne equally by all of the interests To be borne alone by the owner of the cargo or the
concerned in the venture. vessel, as the case may be.
Requisites for the right to claim contribution:
Common danger to the vessel or cargo;
Part of the vessel or cargo was sacrificed
deliberately;
Sacrifice must be for the common safety or for
the benefit of all;
Sacrifice must be made by the master or upon
his authority;
It must be not be caused by any fault of the
party asking the contribution;
It must be successful, i.e. resulted in the
saving of the vessel or cargo; and
Necessary.
7. The notice of abandonment must be explicit and must specify the particular cause of the abandonment
(Sec. 144).
Effects:
It is equivalent to a transfer by the insured of his interest to the insurer with all the chances of recovery and
indemnity (Transfer of Interest)(Sec.146)
Acts done in good faith by those who were agents of the insured in respect to the thing insured, subsequent to
the loss, are at the risk of the insurer and for his benefit. (Transfer Of Agency)(Sec.148)
If an insurer refuses to accept a valid abandonment, he is liable upon an actual total loss, deducting form
the amount any proceeds of the thing insured which may have come to the hands of the insured. (Sec.154)
CO-INSURANCE
A marine insurer is liable upon a partial loss, only for such proportion of the amount insured by him as the
loss bears to the value of the whole interest of the insured in the property insured. (Sec. 157)
When the property is insured for less than its value, the insured is considered a co-insurer of the difference
between the amount of insurance and the value of the property.
Requisites:
The loss is partial;
The amount of insurance is less than the value of the property insured.
Rules:
Co-insurance applies only to marine insurance
Logically, there cannot be co-insurance in life insurance.
Co-insurance applies in fire insurance when expressly provided for by the parties.
CO-INSURANCE REINSURANCE
A percentage in the value of the insured property which the Situation where the insurer procures a 3rd
insured himself assumes to act as insurer to the extent of the party called the reinsurer to insure him against
deficiency in the insurance of the insured property. In case of liability by reason of an original insurance.
loss or damage, the insurer will be liable only for such Basically, reinsurance is an insurance against
proportion of the loss or damage as the amount of the liability which the original insurer may incur in
insurance bears to the designated percentage of the full favor of the original insured.
value of the property insured. (Bar Review Materials in
Commercial Law, Jorge Miravite, 2002 ed.)
Prerequisites to recovery:
Notice of loss – must be immediately given, unless delay is waived expressly or impliedly by the insurer
Proof of loss – according to best evidence obtainable. Delay may also be waived expressly or impliedly by the
insurer
Measure of Indemnity
Open policy: only the expense necessary to replace the thing lost or injured in the condition it was at the time
of the injury
Valued policy: the parties are bound by the valuation, in the absence of fraud or mistake
Note: It is very crucial to determine whether a marine vessel is covered by a marine insurance or fire
insurance. The determination is important for 2 reasons:
1. Rules on constructive total loss and abandonment – applies only to marine insurance;
2. Rule on co-insurance – applies primarily to marine insurance;
3. Rule on co-insurance applies to fire insurance only if expressly agreed upon. (Commercial
Law Reviewer, Aguedo Agbayani, 1988 ed.)
16
Fall-of-building clause
A clause in a fire insurance policy that if the building or any part thereof falls, except as a result of fire, all
insurance by the policy shall immediately cease.
Classifications:
Insurance against specified perils which may affect the person and/or property of the insured. (accident or
health insurance)
Examples: personal accident, robbery/theft insurance
Insurance against specified perils which may give rise to liability on the part of the insured for claims for
injuries to or damage to property of others. (third party liability insurance)
Insurable interest is based on the interest of the insured in the safety of persons, and their property, who
may maintain an action against him in case of their injury or destruction, respectively.
Examples: workmen’s compensation, motor vehicle liability
In a third party liability (TPL) insurance contract, the insurer assumes the obligation by paying the injured
third party to whom the insured is liable. Prior payment by the insured to the third person is not necessary in
order that the obligation may arise. The moment the insured becomes liable to third persons, the insured
acquires an interest in the insurance contract which may be garnished like any other credit. (Perla Comapnia
de Seguro, Inc vs. Ramolete, 205 SCRA 487)
Aside from compulsory motor vehicle liability insurance, the Insurance Code contains no other provisions
applicable to casualty insurance. Therefore, such casualty insurance are governed by the general provisions
applicable to all types of insurance, and outside of such statutory provisions, the rights and obligations of the
parties must be determined by their contract, taking into consideration its purpose and always in accordance
with the general principles of insurance law.
In burglary, robbery and theft insurance, the opportunity to defraud the insurer – the moral hazard – is so
great that insurer have found it necessary to fill up the policies with many restrictions designed to reduce the
hazard. Persons frequently excluded are those in the insured’s service and employment. The purpose of the
exception is to guard against liability should theft be committed by one having unrestricted access to the
property. (Fortune Insurance vs. CA, 244 SCRA 208)
The insurer is not solidarily liable with the insured. The insurer’s liability is based on contract; that of the
insured is based on torts. Furthermore, the insurer’s liability is limited by the amount of the insurance coverage
(Pan Malayan Insurance Corporation v. CA, 184 SCRA 54).
NO ACTION CLAUSE
A requirement in a policy of liability insurance which provides that suit and final judgment be first obtained
against the insured; that only thereafter can the person injured recover on the policy. (Guingon vs. Del Monte,
20 SCRA 1043)
17
Method of coverage
Insurance policy
Surety bond
Cash deposit
Passenger – Any fare-paying person being transported and conveyed in and by a motor vehicle for
transportation of passengers for compensation, including persons expressly authorized by law or by the
vehicle’s operator or his agents to ride without fare. (Sec. 373[b])
Third Party – Any person other than the passenger, excluding a member of the household or a member of the
family within the second degree of consanguinity or affinity, of a motor vehicle owner or land transportation
operator, or his employee in respect of death or bodily injury arising out of and in the course of employment.
(Sec. 373[c])
“No-Fault” Clause
A clause that allows the victim (injured person or heirs of the deceased) to an option to file a claim for death
or injury without the necessity of proving fault or negligence of any kind.
Purpose: To guarantee compensation or indemnity to injured persons in motor vehicle accidents.
Rules:
Total indemnity - maximum of P5,000
Proofs of loss -
0 Police report of accident;
1 Death certificate and evidence sufficient to establish proper payee;
2 Medical report and evidence of medical or hospital disbursement.
Claim may be made against one motor
vehicle only
Proper insurer from which to claim -
0 In case of an occupant: Insurer of the vehicle in which the occupant is riding, mounting or
dismounting from;
1 In any other case: Insurer of the directly offending vehicle. (Sec. 378)
The claimant is not free to choose from which insurer he will claim the “no fault indemnity” as the law makes
it mandatory that the claim shall lie against the insurer of the vehicle in which the occupant is riding, mounting
or dismounting from. That said vehicle might not be the one that caused the accident is of no moment since
the law itself provides that the party paying may recover against the owner of the vehicle responsible for the
accident. (Perla Compania de Seguros, Inc. v. Ancheta, 169 SCRA 144)
This no-fault claim does not apply to property damage. If the total indemnity claim exceeds P5,000 and
there is controversy in respect thereto, the finding of fault may be availed of by the insurer only as to the
excess. The first P5,000 shall be paid without regard to fault. (Prof. De Leon, p. 716)
The essence of the no-fault indemnity insurance is to provide victims of vehicular accidents or their heirs
immediate compensation although in limited amount, pending final determination of who is responsible for the
accident and liable for the victims injuries or death. (Ibid.)
SPECIAL CLAUSES
A. Authorized Driver Clause
A clause which aims to indemnify the insured owner against loss or damage to the car but limits the use of
the insured vehicle to the insured himself or any person who drives on his order or with his permission
(Villacorta v. Insurance Commissioner)
The requirement that the person driving the insured vehicle is permitted in accordance with the licensing
laws or other laws or regulations to drive the motor vehicle (licensed driver) is applicable only if the person
driving is other than the insured.
B. Theft Clause
A clause which includes theft as among the risks insured against.
Where the car is unlawfully and wrongfully taken without the owner’s consent or knowledge, such taking
constitutes theft, and thus, it is the “theft clause” and not the “authorized driver clause that should apply
(Palermo v. Pyramids Ins., 161 SCRA 677).
18
C. Cooperation Clause
A clause which provides in essence that the insured shall give all such information and assistance as the
insurer may require, usually requiring attendance at trials or hearings.
XX. SURETYSHIP
An agreement whereby a surety guarantees the performance by the principal or obligor of an obligation or
undertaking in favor of an obligee. (Sec. 175)
It is essentially a credit accommodation.
It is considered an insurance contract if it is executed by the surety as a vocation, and not incidentally. (Sec.
20
When the contract is primarily drawn up by 1 party, the benefit of doubt goes to the other party
(insured/obligee) in case of an ambiguity following the rule in contracts of adhesion. Suretyship, especially in
fidelity bonding, is thus treated like non-life insurance in some respects.
Surety can recover from principal Insurer has no such right; only right of subrogation
Bond can be cancelled only with consent of obligee, May be cancelled unilaterally either by insured or insurer
Commissioner or court on grounds provided by law
Requires acceptance of obligee to be valid No need of acceptance by any third party
Risk-shifting device; premium paid being in the Risk-distributing device; premium paid as a ratable
nature of a service fee contribution to a common fund
XXI. LIFE INSURANCE
Insurance on human lives and insurance appertaining thereto or connected therewith which includes every
contract or pledge for the payment of endowments or annuities. (Sec. 179)
Kinds: (Bar Review Materials in Commercial Law, Jorge Miravite, 2002 ed.)
1. Ordinary Life, General Life or Old Line Policy - Insured pays a fixed premium every year until he dies.
Surrender value after 3 years.
2. Group Life – Essentially a single insurance contract that provides coverage for many individuals.
Examples: In favor of employees, “mortgage redemption insurance”.
3. Limited Payment Policy – insured pays premium for a limited period. If he dies within the period, his
beneficiary is paid; if he outlives the period, he does not get anything.
4. Endowment Policy – pays premium for specified period. If he outlives the period, the face value of the
policy is paid to him; if not, his beneficiaries receive the benefit.
5. Term Insurance – insurer pays once only, and he is insured for a specified period. If he dies within the
period, his beneficiaries benefits. If he outlives the period, no person benefits from the insurance.
6. Industrial Life - life insurance entitling the insured to pay premiums weekly, or where premiums are
payable monthly or oftener.
It is one of the risks assumed by the insurer under a life insurance policy in the absence of a valid policy
exception. (Vance,p.572 cited in de Leon, p. 107)
Note: Justice Vitug believes that death by suicide (if the insured is sane) or at the hands of the law obviates
against recovery as being more in consonance with public policy and as being implicit under Section 87, ICP.
(Pandect of Commercial Law and Jurisprudence, 1997 ed. P. 191)
3. Killing by the beneficiary
GENERAL RULE: The interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary
is the principal accomplice or accessory in willfully bringing about the death of the insured, in which event, the
nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified. (Sec.
12)
EXCEPTIONS:
3 Accidental killing
4 Self-defense
3. Insanity of the beneficiary at the time he killed the insured
If the premiums paid came from conjugal funds, the proceeds are considered conjugal. If the beneficiary is
other than the insured’s estate, the source of premiums would not be relevant. (Del Val v. Del Val, 29 Phil 534)
The measure of indemnity in life or health insurance policy is the sum fixed in the policy except when a
creditor insures the life of his debtor. (Sec. 183)
IS THE CONSENT OF THE BENEFICIARY NECESSARY TO THE ASSIGNMENT OF A LIFE INSURANCE
POLICY?
It depends. If the designation of the beneficiary is irrevocable, the beneficiary’s consent is essential because
of his vested right. If the designation is revocable, the policy may be assigned without such consent because
the beneficiary only has a mere expectancy to the proceeds. (The Insurance Code of the Philippines Annotated,
Hector de Leon, 2002 ed.)
2. ADMINISTRATIVE/REGULATORY
20
INSURANCE CODE
(PD 1460)
Who is the officer in charged with the implementation of laws of the Insurance Code? The
officer charged is the Insurance Commissioner of the Insurance Commission
The fact that no profit is derived from the making of insurance contracts, agreements or
transactions or that no separate or direct consideration is received therefor, shall not
be deemed conclusive to show that the making thereof does not constitute the doing or
transacting of an insurance business.
Note that Drawing of any lottery, or for/against any chance or ticket in a lottery drawing a prize
may not be insured. A contract of insurance is a contract of indemnity and not a wagering or gambling
contract
22
Insurer – is the person, natural or juridical, who holds a certificate of authority from the
Insurance Commissioner and who undertakes to indemnify another by a contract of insurance
o Banks cannot be insurers
o Paid-up capital requirement for insurance companies
P2M and a contributed surplus of
0.0 P1M for life insurance
0.1 P500k for non-life insurance
P5M in case of reinsurance co.
ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀЀЀ ĀĀȀ
⸀ ĀĀ ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀ1 For Insurance Cooperative,
recommendation from the Cooperative Development Authority is required
ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀЀЀ ĀĀȀ
⸀ ĀĀ ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀ2 An Insurance agent should
perform the function for a compensation
Insured
1 Generally, any person with capacity to contract and having an insurable interest in he life
property insured may be the insured
2 A married woman may take insurance on her life or on that of her children without need of
her husband’s consent
3 A public enemy cannot be insured.
4 Public enemy means any citizen or juridical entity of the country with which the Philippines
may be at war
BENEFICIARY
The insurance proceeds shall be applied exclusively to the proper interest of the person in
whose name or for whose benefit it is made unless otherwise specified in the policy
Beneficiary
ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀЀЀ ĀĀȀ⸀ ĀĀ ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀ0 The beneficiary is the person designated
to receive the proceeds of the policy when the risk attaches.
ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀЀЀ ĀĀȀ⸀ ĀĀ ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀ1 He may be the (1) insured himself in
the property insurance or (2) the insured or (3)a third person in life insurance
ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀЀЀ ĀĀȀ⸀ ĀĀ ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀ2 The father or mother of a minor who is
an insured or beneficiary of a life policy, may exercise, for said minor, all rights under the policy up to
P20k without the need of a court authority or a bond (sec 180)
The Insured has the right to change the designation of the beneficiary, unless he has expressly
designated an irrevocable beneficiary in his policy
As a general rule: the proceeds of a life insurance policy belong to the designated beneficiary to the
exclusion of the heirs of the insured (Picar vs GSIS 33 SCRA 324)
Exception: Persons Disqualified as Beneficiaries
A beneficiary in life insurance is like a donee, hence, the civil code provision on the disqualifications of
a donee shall apply. Donations made between the following persons are void
0 Donation between persons guilty of adultery or concubinage
1 Donations between persons found guilty of the same criminal offense, in consideration
thereof
2 Donations made to a public officer or his wife, descendants and ascendants, by reason of his
office.
When does the interest of the beneficiary forfeited
The interest of the beneficiary in a life insurance policy shall be forfeited when the beneficiary is the
Principal, Accomplice, or accessory in willfully bringing about the death of the insured
In this event, he nearest relative of the insured shall receive the proceeds of said
insurance if not otherwise disqualified
The nearest relatives of the insured in the order of enumeration are the following:
Legitimate children
Parents
Grandparents illegitimate children
Surviving spouse
Brothers and sisters of the full blood
Brothers and sisters of the half blood
Nephews and nieces.
NOTES:
0 Where a specified person is beneficiary, the proceeds will inure to the beneficiary.
Q: A took out a life insurance policy and designated his wife, B, as the sole beneficiary. All the
premiums of the policy were paid out from his salaries. A died intestate leaving B and 3 children.
Divide the proceeds of the policy (1961 Bar)
A: All of the proceeds of the policy will go to the designated policy, B. The source of the premium
here is immaterial (Miravite, 2002ed., p200)
1 If the premiums are paid from (1) salaries of the insured or (2) other conjugal
properties or funds, and the beneficiary is the estate of the insured, the proceeds of the life
insurance policy is considered conjugal.
Rule: No contract or policy of insurance on property shall be enforceable except for the benefit of some person
having insurable interest in the property insured
Insurable interest
Life insurance Property Insurance
Insurable interest must exist only at the time Insurable interest must exist at the time the policy is taken
the policy is taken and at the time the loss occurs
The beneficiary need not have an insurable The beneficiary must have an insurable interest in the
interest on the insured’s life property insured
There is no limit to the amount of insurable Insurable interest is limited to the actual value of the
interest interest in the property
Note: A mere contingent or expectant interest in anything, not founded on an actual right to the thing, nor
upon any valid contract for it, is not insurable (e.g. property which one expects to inherit or that of a
general or unsecured creditor insuring the property of his debtor who is alive even though destruction of
such property would render worthless any judgment he might obtain note further in the latter case, the
creditor can insure the property of a deceased debtor since all personal liability ceases with the death of
the debtor. The proceedings to subject the estate to the payment of the debt of the deceased are against
all who have an interest in the property. Of course, an unsecured creditor has an insurable interest in the
life of his debtor )
The vendee-consignee of goods in transit under a perfected contract of sale is vested with an equitable title to
the goods even before receipt by him of the goods to constitute an insurable interest in the property (Fil
Merchants vs CA 179 SCRA 638)
A carrier or depositary of any kind has an insurable interest in a thing held by him as such, to the extent of his
liability but not exceed the value thereof.
NOTE: Each may take separate insurances over the same property up to the extent of their
respective insurable interests.
Where the mortgagee independently of the mortgagor insured his won interest in the mortgaged
property, he is entitled to the proceeds of the policy in case of loss before payment of the mortgage. But
in such case, the mortgagee is not allowed to retain his claim against the mortgagor but it passes by
subrogation to the insurer to the extent of the insurance paid. In other words, the payment of the
insurance to the mortgagee does not relieve the mortgagor form his principal obligation but only
changes the creditor.
The insurance is on the mortgagor’s interest where the mortgagor takes insurance on the property in his
own right making the loss payable to the mortgagee
How?
The mortgagor may:
Take insurance on the property, and assign the same to the mortgagee (this operates merely as an
equitable transfer of the policy so as to enable the assignee to recover the proceeds)
Constitute the mortgagee as beneficiary as his interest may appear
NOTE: In case of fire, marine and casualty insurance, the assignment must be with the consent of the
insurer because it is a personal contract. (Note that life insurance may be freely assigned before or
after loss occurs to any person whether he has an insurable interest or not)
What are the effects of insurance taken in the on the interest of thee mortgagor? The
effects are:
0 Mortgagor continues to be a party to the contract
1 Any act by the mortgagor prior to the loss which would avoid the policy, will thus avoid the
policy, even if the property is in the hands of the mortgagee
2 Any act which under the contract of insurance is to be performed by the mortgagor (e.g.
payment of premium) may be performed by the mortgagee with the same effect, as if performed by
the mortgagor.
3 In case of loss, the mortgagee is entitled to the proceeds to the extent of his credit,
consequently, the debt is extinguished.
What is the effect If the mortgagor assigns the policy to the mortgagee with the insurer’s consent,
but the latter imposes new conditions on the assignee?
If at the time of the assent, the insurer imposes further obligations on the assignee making a new
contract with him, the act of the mortgagor cannot affect the rights of said assignee.
Ratio: To prevent a person from taking out an insurance policy on property upon which he has no
insurable interest and collecting the proceeds of said policy in case of loss of the property. In such a case,
the contract of insurance is a mere wager which is void. (Cha vs CA 277 SCRA 690)
Note: Mere transfer of a thing insured does not transfer the policy but suspends it until the same person
becomes the owner of both the policy and the thing insured. For a transferee to have an insurable interest
over a policy undertaken by the transferor, the insurance policy should be assigned to him, when he
bought the property.
A change of interest in a thing insured, after the occurrence of an injury which results in a loss, does
not affect the right of the insured to indemnity for the loss
A change of interest, by will or succession, on the death of the insured, does not avoid an insurance;
and his interest in the insurance passes to the person taking his interest in the thing insured.
Otherwise stated, the insurance on property passes automatically, on the death of the insured , to the
heir, legatee or devisee who acquires interest in the thing insured.
A transfer of interest by one of several partners, joint owners etc. who are jointly insured, will not
avoid the insurance even though it has been agreed that the insurance shall cease upon an alienation
of the thing insured.
A change of interest where there are several things separately insured by one policy, does not avoid
the insurance as to the others
Example: A insured his car for P100k and jeep for P85k under the single policy, the sale of one
will not affect the insurance of the car.
BUT if the car and jeep were not separately valued in the policy , the sale of the jeep without
the insurer’s consent affects also the insurance of the car
26
In cases where the property is insured for less than its true or market value, what are the rules to
be followed?
In case of total loss: The property owner is entitled to receive the face value of the policy but in
no case exceeding the market value of the property.
In case of partial loss: The property owner is entitled only the amount in proportion to his loss
and the market value of the property as against the to face value of the policy. Ratio An owner of
property who insures the same for less that its true value is co-insurer for the uninsured portion of the
property if the policy is a valued one.
HOWEVER if the policy is an open one, the owner can collect the actual partial loss not exceeding
the face value of the policy
Example:
X has a property worth P10,000. He insures it against fire for P8,000. How much shall he collect from then
insurance in case of total loss? If there is Partial loss in the amount of P6,000?
In case of total loss – P 8,000 – face value of the policy
In case of partial loss - open policy – P6,000 – the actual partial loss not exceeding the face value of the
policy
In case of partial loss – valued policy – 6/10 of P8,000 or P4,800- the amount in proportion to his loss and
the market value of the property as against the to face value of the policy.
III CONCEALMENT
What is Concealment?
Concealment is a neglect to communicate that which a party knows and ought to communicate to the other
party.
Note:
Matters relating to the health of the insured are material and relevant to the approval and issuance of the
life insurance policy as they definitely affect the insurer’s action on the application (Sunlife vs CA 245 SCRA
268)
It is well-settled that the insured need not die of the disease he had failed to disclose to the insurer, as it
is sufficient that his non-disclosure misled the insurer in forming his estimates of the risk of proposed
insurance policy or in making inquiries (ibid)
Lack of understanding by the illiterate insured of the statements and her application as to her state of
good health does not negate the insurer’s right to rescind (Tang vs CA 90 SCRA 236)
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 to the assured, but he designedly and
intentionally withholds the same.
Neither party to a contract of insurance is bound to communicate information of the matters following,
except in answer to the inquiries of the other:
Those which are already known to the insurer
Those which, in the exercise of ordinary care, are ought to be known to the insurer or his agent,
Those undisclosed facts which are not material
Those which each party is bound to know:
0 general causes – eg. public events; and
1 general usages of trade - eg. rules of navigation all risks connected with navigation)
Information or the nature or amount of the interest of one insured except if insured is a lessee or a
mortgagee (read sec 51)
Those of which the insurer waives communication
The right to information of material facts may be waived, either:
ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀЀЀ ĀĀȀ
⸀ ĀĀ ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀ0 Expressly – by the terms of the
insurance
ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀЀЀ ĀĀȀ
⸀ ĀĀ ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀ1 Impliedly – by neglect to make
inquiry as to such facts, where they are distinctly implied in other facts of which information
is communicated (Fact disclosed that one was confined in the hospital. The insurer did not
inquire as to the cause of confinement, the latter is in estoppel)
1 Judgment upon the matters in question – eg. Opinion, speculation or expectation (How long will you
live?)
Exceptions:
Incontestability clause:
In life insurance, after a policy has been in force for at least two years, the insurer cannot rescind the
policy due to fraudulent concealment or misrepresentation of the insured.
If the insured dies within two years from the effectivity of the policy, rescission due to concealment or
misrepresentation of material matters may still be invoked by the insurer, provided done within two
years from the effectivity of the policy
IV REPRESENTATION
What is representation?
A representation is an oral or written statement of a fact or condition made by the insured at the time of or
prior to the issuance of the policy, affecting the risk made by the insured to the insurer, tending to induce the
insurer to assume the risk
It is any promise to be fulfilled after the contract has come into existence or any statement concerning what is
to happen during the existence of the insurance. A promissory representation is substantially a condition or a
warranty.
Note:
A representation must be presumed to refer to the date on which the contract goes into effect
Hence:
1. There is NO FALSE representation it is true at the time the contract takes effect although false
at the time it was made.
2. There is FALSE representation if it is true at the time it was made but false at the time the
contract takes effect – in this case the insurer is entitled to rescind
What is misrepresentation?
NOTE:
An insured who has no personal knowledge of a fact may communicated such information which he has,
and believes it to be true, upon the subject matter with the explanation that said information was obtained
from 3rd persons. In this case he is not responsible if the information turns out to be false.
Except if the information proceeds from an agent of the insured whose duty is to give information to his
principal. This is so because knowledge of the agent is also knowledge of the principal
HOWEVER, the right to rescind given to the insurer is waived by the acceptance of premium payments despite
knowledge of the ground of rescission
NOTE:
When the original contract of insurance was modified by reason of concealment or misrepresentation on
the part of the insured especially when modification pertains to material points, upon discovery of such
concealment or misrepresentation, the insurer is allowed to rescind said modification.
Incontestability clause
Incontestability means that after the requisites are shown to exist, the insurer shall be estopped from
contesting the policy or setting up any defense, except as is allowed of the ground of public policy.
Requisites:
0 The policy is a life insurance policy
1 It is payable on the death of the insured
2 It has been in force during the lifetime of the insured for at least 2 years from its date of issue or of
its last reinstatement
NOTE: The period of two years for contesting a life insurance policy may be shortened but it cannot
be extended by stipulation
V. WARRANTIES
What is a warranty?
A warranty is a statement or promise stated in the policy itself or incorporated therein by reference, whereby
the insured expressly contracts as to the present or future existence or certain facts, circumstances or
conditions, the literal truth of which is essential to the validity of the contract of insurance
Note:
A statement in a policy, of a matter relating to the person or thing insured, or to the risk as a fact is an
express warranty. A statement which is in the nature of an opinion or belief is not a warranty
As a general rule: the non-performance of a promissory warranty entitles the other party to rescind the
contract:
Exceptions to the rule are:
0 Loss occurs before the time arrives for the performance of the promissory warranty
1 Performance becomes unlawful before the time arrives for the performance of the promissory
warranty
2 Performance becomes impossible before the time arrives for the performance of the promissory
warranty
What happens when there is violation of material warranty or to other material provisions of the
policy?
All breaches of warranty give to the insurer the right to rescind the contract. This rule is true even if the
violation of the material warranty did not contribute to the loss.
If fraud intervenes in the breach, the insurer is freed from liability form the start, as the contract is fraud
ab initio. The insured is not entitled to the return of the premiums paid.
If there is no fraud in the breach, the insurer is freed from the contract the moment the breach occurs,
and is entitled to retain the premiums corresponding to the period up to the time of the breach. But if the
breach was done at the time of the inception of the policy, the insured cannot recover for any loss arising
thereafter, but all premiums should be returned to the insured
What is the effect of a rider, clause, warranty or endorsement purporting to be a part of the
contract and pasted on the policy?
As a general rule, these attached papers becomes part of a contract of insurance. However it will not bind the
insured unless it is properly referred to therein in the policy. If the rider etc is issued after the original policy
was in force shall not bind the insured unless it countersigned by the insured.
Yes. The agent or trustee when making an insurance contract for and in behalf of his principal should indicate
that he is merely acting in a representative capacity by signing as such agent or trustee, or by other general
terms in the policy
In Cebu vs William 306 SCRA 762 the Supreme Court held: “although in this jurisdiction, contracts of
adhesion have been consistently upheld as valid per se as binding as an ordinary contract, the court
recognizes instances when reliance on such contracts cannot be favored especially where the facts and
circumstances warrant that subject stipulations be disregarded. The facts and circumstances vis-à-vis
the nature of the provision sought to be enforced should be considered, bearing in mind the principles of
equity and fair play.”
In Rizal vs CA 336 SCRA 12, Supreme court said: “ it is settled that the terms in an insurance policy,
which are ambiguous, equivocal, or uncertain are to be construed strictly and most strongly against the
insurer, and liberally in favor of the insured so as to effect the dominant purpose of indemnity or
payment to the insured, especially where forfeiture is involved, and the reason for this is that the
insured usually has no voice in the selection or arrangement of the words employed and that the
language of the contract is selected with great care and deliberation by experts and legal advisers
employed by and acting exclusively in the interest of the insurance company.
VII PREMIUM
Define premium.
Premium is the consideration paid an insurer for undertaking to indemnify the insured against a specified peril
Written acknowledgment in a policy or contract of insurance of the receipt or premium is conclusive evidence of
its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be
binding until the premium is actually paid
Effect on nonpayment
0 Of First premium – prevents the inception of the policy
1 Of subsequent premiums- it does not affect the validity of the contract unless, by express stipulation,
it is provided that the policy shall in any event be suspended or shall lapse.
If the thing insured was never exposed to the risk insured against
When the contract is voidable due to the fraud or misrepresentation of the insurer or his agent
When the contract is voidable because of the existence of facts of which the insured is ignorant without his
fault
When the insurer never incurred any liability under the policy because of the default of the insured other
that actual fraud
Where the insurance is made for a definite period of time and the insured surrenders policy before
termination
Where there is over-insurance by several insurers
NOTES
Where the insurance is for a definite period of time and the insured cancels his policy by surrendering the
policy, the insured is entitled to recover the premiums already paid equivalent to the unexpired term at a pro
rata rate
Exception to this rule:
0 Where the insurance is not for a definite period
1 Where the policy is a life policy
2 Where a short period rate has been agreed upon
Short period rate is that percentage, as agreed upon by the parties and appearing on the face of the
policy, which the insurer shall retain from the premium in the event that the policy is surrendered
by the insured for cancellation.
The premiums to be returned where there is over-insurance by several insurers shall be proportioned to the
amount by which the aggregate sum insured in all the policies exceeds the value of the thing
Example:
X insures his house which has an insurable value of P1,500,000 as follows:
Insurer Amt of Insurance Premiums paid
A Co. P 1,200,000 P 24,000
B. Co 600,000 12,000
Aggregate sum P1,800,000.
In this case, there is an over insurance of P300,000, the amount by which the aggregate sum insured in
the two policies exceeds the insurable value of the house. The proportion is P300k to P1800k or 1/6.
Hence, 1/6 of P24k or P4k is what A co must return; and 1/6 of P12k or P2k is what B co must return
IX. REINSURANCE
Reinsurance is where the insurer procures a third party, called the reinsurer, to insure him against liability
by reason of such original insurance. Basically, a reinsurance is an insurance against liability which the original
insurer may incur in favor of the original insured
Reinsurance Treaty
A reinsurance treaty is merely an agreement between
two insurance companies where one agrees to cede and
the other to accept reinsurance business pursuant to
provisions specified in the treaty.
It is a contract for
insurance
Distinguish Reinsurance and Reinsurance Treaty
Reinsurance
A reinsurance policy is a contract of indemnity
one insurer makes with another to protect the
first insurer from a risk it has already assumed
It is a Contract of insurance
What are the matters which the reinsured must communicate to the reinsurer?
The insurer who obtains reinsurance, except under automatic reinsurance treaties, must communicate the
following to the reinsurer:
All the representations of the original insured
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The term “facultative” is used in reinsurance contracts and it is so used in this particular case merely to define
the right of the reinsurer to accept or not to accept participation in the risk insured. But once the share is
accepted, the obligation is absolute and the liability assumed thereunder can be discharged by the one and
only way – payment of the share of losses. There is neither alternative nor substitute prestation (Equitable
Insurance vs Rural Insurance 4 SCRA 343)
NOTE:
A reinsurer is entitled to avail of every defense which the reinsured may avail of against the original
insured (Gibson vs Revilla 38 SCRA 219)
X. LOSS
What are the prerequisites for the recovery for loss in insurance against fire?
0 Notice of loss which must be immediately given unless delay is waived expressly or impliedly by the
insurer
1 Proof of loss according to the best evidence obtainable. Delay may be also waived expressly or
impliedly by the insurer
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, within reasonable time, as grounds of
objection, are waived.
When no notice is given by the insured or by any other person entitled to the benefit of the insurance, within a
reasonable time.
Life Insurance
1. Where insured outlives maturity due, the claim is payable immediately on maturity of the
policy. This is true in endowment insurance
2. Where policy matures by Insured’s death, the claim is payable within 60 days after
presentation of the claim and filing of proof of death of the insured. In case of unreasonable
delay, the insured is entitled to (1) Attorney’s fees (2) expenses incurred by reason of the
unreasonable withholding (3) interest at the legal interest rate (6%) per annum as fixed by
the monetary board (4)amount of the claim., (5) moral damages if bad faith or fraud is
present and (6) exemplary damages if the act is wanton and oppressive.
3. Please note that for cases involving loss or injury, any person having any claim upon the
policy shall, without delay present a written notice of claim within six (6) months from date of
accident to the insured, otherwise, the claim shall be deemed waived. Action or suit for
recovery of damages due to loss or injury must be brought, in proper cases, with the
Commissioner of the Courts within one (1) year from denial of claim, otherwise, the
claimant’s right of action shall prescribe
Property Insurance
1. If amount of loss is determined by agreement or by arbitration, the claim is payable
within 30 days after proof of loss is received by the insurer.
2. If ascertainment of loss is not made within 60 days, the claim is payable within 90 days
from receipt of proof of loss by the insurer, if not paid, unreasonable delay is presumed
(Cathay vs CA 174 SCRA 11)
3. Please note the 1 year prescriptive period to file an action after denial of claim.
The prescriptive period is not suspended by the filing of a request for reconsideration after
denial of claim (Sun vs CA 195 SCRA 193)
As a general rule: Payment by the insurer to the insured for loss under the policy entitles the insurer to be
subrogated to the rights of the insured against the wrongdoer.
The exceptions are:
Where the insured releases the wrongdoer from liability
Where the insurer pays without notifying the carrier, which in good faith had already paid the insured, and
Where the insurer pays the insured for a loss which is not included in the risk insured against, by the
policy
(Pan Malayan vs. CA 184 SCRA 54)
Where the insured was paid by the insurer, the latter is subrogated to all rights of the former against the
wrongdoer. If the insured after being paid by the insurer, releases the wrongdoer without the insurer’s consent,
the insurer loses his right of subrogation against the wrongdoer. The insurer will however be entitled to recover
from the insured what the insured originally received from the insurer as the proceeds of the policy (Manila vs.
CA 154 SCRA 650)
36
CLASSES OF INSURANCE
MARINE INSURANCE
-Insurance against risks connected with navigation, to which a ship, cargo, freightage, profits or
others insurable interest in movable property, may be exposed during a certain voyage or a fixed period of
time.
Perils of Navigation
-perils in making landings in river navigation and damage from rain in consequence of improper
stowage.
War risks
-perils due directly to some hostile action, military maneuver, operational war danger
Builders risks
-damage to ways from launching as well as damage to the ship.
Inchmaree clause
-provision in the policy that the insurance shall cover loss of, damage to, the hull or machinery
through negligence of the master, charterers, engineers, or pilots, or through explosions, bursting of boilers,
breakage of shafts, or through any latent defect in the machinery or hull not resulting from want of due
diligence.
Cargo owner
0 over the cargo & expected profits
Charterer
0 over the amount he is liable to the shipowner, if the ship is lost or damaged during the voyage.
Loan on Bottomry/Respondentia
-loan in which under any condition whatever, the repayment of the sum loaned, and of the premium
stipulated, depends upon the safe arrival in port of the goods on which it is made, or of the price they may
receive in case of accident.
value of what may be saved/salvaged shall be divided between the lender & insurer, in proportion to the
legitimate interest of each one.
Freightage
benefits derived by the owner, either from:
0 chartering of the ship
1 its employment for the carriage of his own goods or those of others.
In Marine Insurance, insured is required to reveal all information which he possesses material to the risk.
CONCEALMENT THAT DOES NOT VITIATE THE CONTRACT EXCEPT WHEN THEY CAUSED THE
Seaworthiness
relative term depending of the NATURE of the ship, the VOYAGE, & the SERVICE in which she is at the
time engaged.
Reasonable fitness to perform the service & to encounter the ordinary perils of the voyage contemplated
by the parties.
Exceptions:
0 insurance is made for a specified length of time
1 insurance is upon the cargo required to be transshipped at an immediate port
DEVIATION IS PROPER:
when caused by circumstances over which neither the master nor the owner of the ship has any control
38
when necessary to comply with warranty, or to avoid a peril, whether or not the peril is insured against
when made in good faith, & upon reasonable grounds of belief in its necessity to avoid a peril
when made in good faith, for the purpose of saving human life, or relieving another vessel in distress.
Loss
TOTAL
Actual total loss ( exists when the subject matter of the insurance is wholly destroyed or lost or when it is so
damaged as no longer to exist in its original charter) is caused by:
0 total destruction of the thing insured
1 irretrievable loss of the thing by sinking, or by leaving broken up
2 any damage to the thing which renders it valueless
3 other event which effectively deprives the owner of the possession
PARTIAL LOSS
- loss other than a total loss
Average
0 extraordinary/accidental expense incurred during the voyage for the preservation of the vessel, cargo,
or both and all damages to the vessel & cargo from the time it is loaded and the voyage commenced
until it ends & the cargo unloaded.
KINDS OF AVERAGE:
GROSS/GENERAL AVERAGES
0 include all the damages & expenses which are deliberately caused in order to save the vessel, its
cargo, or both at the same time, from real & known risk.
SIMPLE/PARTICULAR AVERAGE
ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀЀЀ Ā
ĀȀ⸀ ĀĀ ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀ0 includes all the expenses & damages
caused to the vessel or to her cargo which have not inured to the common benefit & profit of all the
persons interested in the vessel & her cargo.
ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀЀЀ Ā
ĀȀ⸀ ĀĀ ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀ1 Partial loss caused by a peril insured
against, which is not a general average loss
''FPA CLAUSE"
1 a situation wherein the insured & insurer stipulated in the policy that the vessel/cargo insured shall be
free from particular average
2 effects:
ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀЀЀ Ā
ĀȀ⸀ ĀĀ ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀ0 if damage to the thing insured is a
PARTICULAR average, the insured shall not be liable UNLESS the loss suffered is total
ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀЀЀ Ā
ĀȀ⸀ ĀĀ ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀ1 if damage to the thing insured is a
GENERAL average, insurer shall be liable whether the loss is partial or total or for the condition of
the insured for his proportion of all general average losses assessed upon the thing insured which
was saved.
There is an ACTUAL TOTAL LOSS if the insured is effectively deprived of the use & possession of the property,
whether by seizure/capture followed by condemnation/theft.
Abandonment
0 act of the insured by which, after a constructive total loss, he declares the relinquishment to the
insurer of his interest in the thing insured
39
1 effect: insured is surrendering to the insurer whatever is left of the property insured, & resorting to the
policy for indemnity, insurer then becomes the owner of whatever may remain of the insured thing &
the insured may recover a total loss.
no abandonment
0 recovery only of ACTUAL LOSS
EFFECT OF VALUATION:
conclusive between the parties provided
0 the insured has some interest at the risk
1 there is no fraud on his party
Co-insurance
- form of insurance in which the person who insures his property for less than the entire value is
understood to be his own insurer for the difference which exists between value of property & amount
of insurance
Fire insurance
ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀЀЀ Ā
ĀȀ⸀ ĀĀ ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀ0 a contract by which the insurer for a
consideration agrees to indemnify the insured against loss, or damage to, property by fire, but may include loss
by lightning, windstorm, tornado & earthquake & other allied risks, when such risks are covered by extension
to fire insurance policies/ under separate policies
Alteration
0 alteration in the use or condition of thing insured will entitle the insurer to rescind the contract provided
following requisites are present:
1 a) use or condition of the thing is specifically limited/stipulated in the policy.
2 b) such case/condition as limited by the policy is altered
3 c) the alteration is made without the consent of the insurer
4 d) alteration is made by means within the control of the insured
5 e) the alteration increases the risk
6 f) violation of a policy provision
Co-insurance clause
0 clause requiring the insured to maintain insurance to an amount equal to a specified percentage of the
value of the insured property under penalty of becoming co-insurer to the extent of such deficiency
Casualty Insurance
0 includes all forms of instrument against loss or liability arising from accident/mishap other than those
within the scope of other types of insurance
insurance against specified hazards which may give rise to liability on the part of the insured for claims for
injuries to others/damages to their property
0 e.g. workmen's compensation, motor vehicle liability
Suretyship
0 contract whereby a person binds himself solidarily with principal debtor for the fulfillment of an
obligation
SURETY GUARANTOR
insurer of debt insurer of solvency of debtor
Undertakes to pay if Binds himself to pay if principal is unable to pay
principal dies not pay
primary Secondary
No such rights Can not be compelled to pay the creditor unless the latter has exhausted
all the properties of the debtor
and obligee
Credit accommodation Contract of Indemnity
Surety can recover form No such right, only right of subrogation
principal
Bond can be cancelled only May be cancelled unilaterally either by insured or insurer on grounds
with consent of the oblige, provided by law
commissioner or the court
Risk-shifting device Risk-distributing device, premium paid as a ratable contribution to a
premium paid being in the common fund
nature of a service fee
Requires acceptance of the No need for acceptance by any third party
oblige to be valid
Life Insurance
0 insurance payable on the death of a person or on his surviving a specified period or otherwise
contingently on the continuance or cessation of life.
1 Nature:
ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀЀЀ Ā
ĀȀ⸀ ĀĀ ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀ0 liability absolutely certain
ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀЀЀ
Ā ĀȀ
⸀ ĀĀ ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀ1 amount of insurance generally no limit
ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀЀЀ
Ā ĀȀ
⸀ ĀĀ ᜀĀᜀĀᜀĀᜀĀᜀĀᜀĀᜀ2 direct pecuniary loss not required
ENDOWMENT INSURANCE
0 contract to pay a certain sum to the insured if he lives a certain length of time, or if he dies before that
time, to some other person indicated as beneficiary
ADVANCE INSURANCE
0 contract which provides for the payment to the insured of a lump sum immediately, in consideration of
his agreement to make certain periodical payments to the insurer for a specified period, or for that
end of the period, the performance of insured's obligation being secured by mortgage or deed of trust
TONTINE INSURANCE
0 form of life insurance by which the policyholder under the same plan, that no dividends, return
premium, or surrender value shall be received for a term of years called the "tontine period," the
entire surplus from all sources being allowed to accumulate to the end of that period, and then divided
among all who have maintained their insurance in force and who have survived.
"No-fault" Clause
any claim for death or injury shall be paid up to p5,000 without necessity of proving negligence or fault,
provided the following proofs of loss under oath are submitted:
0 police report of accident
1 death certificate and evidence sufficient to establish proper payee
2 medical report and evidence of medical or hospital disbursement
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Cooperation Clause
0 clause in an automobile insurance policy which provides in essence that the insured shall give all such
information and assistance as the insurer may require, usually requiring attendance at trials or
hearings