Insurasgfgsnce San Beda

8/12/2019 Insurasgfgsnce San Beda

1/30

INSURANCE CODE(P.D. No. 1460)

I. GENERAL CONCEPTS

CONTRACT OF INSURANCE An agreement whereby one undertakesfor a consideration to indemnify anotheragainst loss, damage or liability arisingfrom an unknown or contingent event.(Sec. 2, par. 2, IC)

DOING AN INSURANCE BUSINESS ORTRANSACTING AN INSURANCEBUSINESS (Sec. 2, par. 4)

1. Making or proposing to make, asinsurer, any insurance contract;

2. Making or proposing to make, assurety, any contract of suretyship asa vocation, not as a mere incident toany other legitimate business of asurety;

3. Doing any insurance business,including a reinsurance business;

4. Doing or proposing to do anybusiness in substance equivalent toany of the foregoing

II. CHARACTERISTICS OF ANINSURANCE CONTRACT (TheInsurance Code of the Philippines

Annotated, Hector de Leon, 2002ed.)1. Consensual it is perfected by

the meeting of the minds of theparties.

2. Voluntary the parties

may incorporate such termsand conditions as they maydeem convenient.

3. Aleatory it depends uponsome contingent event.

4. Unilateral imposes legalduties only on the insurer whopromises to indemnify in caseof loss.

5. Conditional It is subject toconditions the principal one of

which is the happening of theevent insured against.

6. Contract of indemnity Except lifeand accident insurance, a contract ofinsurance is a contract of indemnitywhereby the insurer promises tomake good only the loss of theinsured.

7. Personal each party having in viewthe character, credit and conduct ofthe other.

REQUISITES OF A CONTRACT OFINSURANCE (The Insurance Code of thePhilippines Annotated, Hector de Leon,2002 ed.)1. A subject matter which the insured hasan insurable interest.2. Event or peril insured against whichmay be any future contingent or unknownevent, past or future and a duration forthe risk thereof.3. A promise to pay or indemnify in afixed or ascertainable amount.4. A consideration known as premium.5. Meeting of the minds of the parties.

5 CARDINAL PRINCIPLES IN INSURANCE1. Insurable Interest

2. Principle of Utmost Good Faith An insurance contract requiresutmost good faith (uberrimae fidei) between the parties. Theapplicant is enjoined to discloseany material fact, which he knows

or ought to know.Reason: An insurance contract is

an aleatory contract. The insurerrelies on the representation of theapplicant, who is in the bestposition to know the state of hishealth.3. Contract of Indemnity It is the basis of all property insurance.The insured who has insurable interestover a property is only entitled to recover


2/30

the amount of actual loss sustained andthe burden is upon him to establish theamount of such loss (Reviewer onCommercial Law, Professors Sundiang

and Aquino)Rules:

a. Applies only to propertyinsurance except when thecreditor insures the life of hisdebtor.

b. Life insurance is not a contract ofindemnity.

c. Insurance contracts are notwagering contracts. (Sec. 4)

4. Contract of Adhesion (Fine Print Rule) Most of the terms of the contract do not

result from mutual negotiations betweenthe parties as they are prescribed by theinsurer in finalprinted form to which theinsured may adhere if he chooses butwhich he cannot change. (Rizal Suretyand Insurance Co., vs. CA, 336 SCRA 12)5. Principle of Subrogation

It is a process of legalsubstitution where the insurersteps into the shoes of the insuredand he avails of the latters rightsagainst the wrongdoer at the timeof loss.

The principle of subrogation is anormal incident of indemnityinsurance as a legal effect ofpayment; it inures to the insurerwithout any formal assignment orany express stipulation to thateffect in the policy. Said right isnot dependent upon nor does itgrow out of any private contract.

Payment to the insured makes theinsurer a subrogee in equity.(Malayan Insurance Co., Inc. v. CA,165 SCRA 536; see also Art. 2207,NCC) Purposes: (The Insurance Codeof the Philippines Annotated,Hector de Leon, 2002 ed.)1. To make the person who caused the

loss legally responsible for it.2. To prevent the insured from receiving

a double recovery from thewrongdoer and the insurer.

3. To prevent tortfeasors from being freefrom liabilities and is thus founded on

considerations of public policy.Rules:

1. Applicable only to propertyinsurance.2. The insurer can only recoverfrom the third person what theinsured could have recovered.3. There can be no subrogation incases:

a. Where the insured by his own actreleases the wrongdoer or third partyliable for the loss or damage;

b. Where the insurer pays the insured thevalue of the loss without notifying thecarrier who has in good faith settled theinsureds claim for loss;

c. Where the insurer pays the insured fora loss or risk not covered by the policy.(Pan Malayan Insurance Company v.CA, 184 SCRA 54)

d. In life insurancee. For recovery of loss in excess of

insurance coverage

CONSTRUCTION OF INSURANCECONTRACT

The ambiguous terms are to beconstrued strictly against the insurer, andliberally in favor of the insured. However,if the terms are clear, there is no room forinterpretation. (Calanoc vs. Court ofAppeals, 98 Phil. 79)

III. DISTINGUISHING ELEMENTS OF ANINSURANCE CONTRACT

1. The insured possesses an insurableinterest susceptible of pecuniaryestimation;

2. The insured is subject to a risk of lossthrough the destruction or impairmentof that interest by the happening ofdesignated perils;

3. The insurer assumes that risk of loss;4. Such assumption is part of a general

scheme to distribute actual lossesamong a large group or substantialnumber of persons bearing somewhatsimilar risks; and


3/30

5. The insured makes a ratablecontribution (premium) to a generalinsurance fund.

A contract possessing only thefirst 3 elements above is arisk-shifting device. If all theelements, it is a risk-distributingdevice. (The Insurance Code of thePhilippines Annotated, Hector deLeon, 2002 ed.)

IV. PERFECTION OF ANINSURANCE CONTRACT An insurance contract is a

consensual contract and istherefore perfected the momentthere is a meeting of minds withrespect to the object and thecause or consideration. What is being followed ininsurance contracts is what isknown as the cognition theory.Thus, an acceptance made byletter shall not bind the person

making the offer except from thetime it came to his knowledge.(Enriquez vs. Sun Life AssuranceCo. of Canada, 41 Phil. 269)

Binding Receipt A mere acknowledgment onbehalf of the company that itsbranch office had received fromthe applicant the insurance

premium and had accepted theapplication subject to processingby the head office.

Cover Note (Ad Interim) A concise and temporary writtencontract issued to the insurerthrough its duly authorized agentembodying the principal terms ofan expected policy of insurance.Purpose: It is intended to give

temporary insurance protectioncoverage to the applicant pendingthe acceptance or rejection of his

application.Duration: Not exceeding 60 days

unless a longer period is approvedby Insurance Commissioner (Sec.52).

Riders Printed stipulations usuallyattached to the policy becausethey constitute additional

stipulations between the parties.(Ang Giok Chip vs. Springfield, 56Phil. 275) In case of conflict between a riderand the printed stipulations in thepolicy, the rider prevails, as being amore deliberate expression of theagreement of the contractingparties. (C. Alvendia, The Law ofInsurance in the Philippines, 1968ed.)

Clauses An agreement between theinsurer and the insured on certainmatter relating to the liability ofthe insurer in case of loss. (Prof.De Leon, p.188)

Endorsements Any provision added to the

contract altering its scope orapplication. (Prof. De Leon, p.188)

POLICY OF INSURANCE The written instrument in which acontract of insurance is set forth.(Sec. 49)

Contents: (Sec. 51)1. Parties


4/30

2. Amount of insurance, except inopen or running policies;

3. Rate of premium;

4. Property or life insured;5. Interest of the insured in the

property if he is not theabsolute owner;

6. Risk insured against; and7. Duration of the insurance.

Persons entitled to recover onthe policy (sec. 53): The insuranceproceeds shall be applied

exclusively to the proper interestof the person in whose name or towhose benefit it is made, unlessotherwise specified in the policy.Kinds:

1. OPEN POLICY value of thing insuredis not agreed upon, but left to beascertained in case of loss. (Sec. 60)

The actual loss, as determined, willrepresent the total indemnity due theinsured from the insurer except onlythat the total indemnity shall not

exceed the face value of the policy.(Development Insurance Corp. vs.IAC, 143 SCRA 62)

2. VALUED POLICY definite valuation ofthe property insured is agreed by bothparties, and written on the face of policy.(Sec. 61)

In the absence of fraud or mistake,the agreed valuation will be paid incase of total loss of the property,unless the insurance is for a loweramount.

3. RUNNING POLICY contemplatessuccessive insurances and whichprovides that the object of the policy mayfrom time to time be defined (Sec. 62)

V. TYPES OF INSURANCE CONTRACTS

1. Life insurancea. Individual life (Secs. 179183, 227)b. Group life (Secs. 50, last par., 228)c. Industrial life (Secs. 229231)

2. Non-life insurancea. Marine (Secs. 99166)

b. Fire (Secs. 167173)

c. Casualty (Sec. 174)

3. Contracts of bonding orsuretyship (Secs. 175178)

Note:1. Health and accident insurance areeither covered under life (Sec. 180) orcasualty insurance. (Sec. 174).2. Marine, fire, and the property aspect ofcasualty insurance are also referred to asproperty insurance.

VI. PARTIES TO INSURANCE CONTRACT1. Insurer - Person who undertakes toindemnify another.

For a person to be called an

insurance agent, it isnecessary that he shouldperform the function forcompensation. (Aisporna vs.CA, 113 SCRA 459)

2. Insured - The party to beindemnified upon the occurrenceof the loss. He must have capacityto contract, must possess aninsurable interest in the subject ofthe insurance and must not be apublic enemy.

A public enemy- a nationwith whom the Philippinesis at war and it includesevery citizen or subject ofsuch nation.

3. Beneficiary - A persondesignated to receive proceeds ofpolicy when risk attaches. Rules in the designation of the

beneficiary:a. LIFE

i. A person who insureshis own life candesignate any person ashis beneficiary, whetheror not the beneficiaryhas an insurable interestin the life of the insuredsubject to the


5/30

limitations under Art.739 and Art. 2012 of theNCC.

Reason: in essence, alife insurance policy isno different form a civildonation insofar as thebeneficiary isconcerned. Both arefounded on the sameconsideration ofliberality. (Insular Lifevs. Ebrado, 80 SCRA

181)ii. A person who insuresthe life of anotherperson and namehimself as thebeneficiary must havean insurable interest insuch life. (Sec. 10)

iii. As a general rule, thedesignation of abeneficiary is revocableunless the insuredexpressly waived theright to revoke in thepolicy. (Sec. 11)

iv. The interest of abeneficiary in a lifeinsurance policy shallbe forfeited when thebeneficiary is theprincipal accomplice or

accessory in willfullybringing about the deathof the insured in whichevent, the nearestrelative of the insuredshall receive theproceeds of saidinsurance if nototherwise disqualified.(Sec. 12)

b. PROPERTY The beneficiary of propertyinsurance must have an

insurable interest in suchproperty, which must existnot only at the time thepolicy takes effect but alsowhen the loss occurs. (Sec.13 and 18).

Effects of Irrevocable DesignationOf Beneficiary Insured cannot:

1. Assign the policy

2. Take the cash surrendervalue of the policy3. Allow his creditors to attach

or execute on the policy;4. Add new beneficiary; or5. Change the irrevocable

designation to revocable,even though the change is

just and reasonable. The insured does not even retain thepower to destroy the contract by refusing

to pay the premiums for the beneficiarycan protect his interest by paying suchpremiums for he has an interest in thefulfillment of the obligation. (Vance, p.665, cited in de Leon, p. 101, 2002 ed.)

VII. INSURABLE INTERESTA. In General A person has an insurableinterest in the subject matter if heis so connected, so situated, so

circumstanced, so related, that bythe preservation of the same heshall derive pecuniary benefit, andby its destruction he shall sufferpecuniary loss, damage orprejudice.B.Life Every person has an insurableinterest in the life and health:

a. of himself, of his spouse

and of his children;


6/30

b. of any person on whom hedepends wholly or in partfor education or support;

c. of any person under a legalobligation to him to paymoney or respectingproperty or services, ofwhich death or illnessmight delay or preventperformance; and

d. of any person upon whoselife any estate or interestvested in him depends.

(Sec. 10) When it should exist: When theinsurance takes effect; notthereafter or when the loss occurs.Amount:

GENERAL RULE: There is no limitin the amount the insured caninsure his life.EXCEPTION: In a creditor-debtorrelationship where the creditorinsures the life of his debtor, thelimit of insurable interest is equalto the amountof the debt.Note:If at the time of the death ofthe debtor the whole debt hasalready been paid, the creditor canno longer recover on the policybecause the principle of indemnityapplies.

C. Property

Every interest in property whetherreal or personal, or any relationthereto, or liability in respectthereof, of such nature that thecontemplated peril might directlydamnify the insured (Sec. 13),which may consist in:

1. an existing interest;2. any inchoate interest

founded on an existing

interest; or3. an expectancy coupled

with an existing interest

in that out of which theexpectancy arises. (Sec.14)

When it should exist: When theinsurance takes effect and whenthe loss occurs, but need not existin the meantime. Amount: The measure ofinsurable interest in property is theextent to which the insured might

be damnified by loss or injurythereof. (Sec. 17)

INSURABLEINTEREST IN

LIFE

INSURABLEINTEREST INPROPERTY

Must exist only atthe time the policytakes effect andneed not exist at thetime of loss

Must exist at thetime the policytakes effect andwhen the lossoccurs

Unlimited except in

life insuranceeffected by creditoron life of debtor.

Limited to actual

value of interest inproperty insured.

The expectation ofbenefit to be derivedfrom the continuedexistence of life neednot have any legalbasis whatever. Areasonableprobability issufficient withoutmore.

An expectation ofa benefit to bederived from thecontinuedexistence of theproperty insuredmust have a legalbasis.

The beneficiary neednot have aninsurable interestover the life of theinsured if the insuredhimself secured thepolicy. However, ifthe life insurancewas obtained by thebeneficiary, the lattermust have insurableinterest over the lifeof the insured.

The beneficiarymust haveinsurable interestover the thinginsured.


7/30

SPECIAL CASES1. In case of a carrier or depositary A carrier or depository of any kind hasan insurable interest in a thing held by

him as such, to the extent of his liabilitybut not to exceed the value thereof (Sec.15)2. In case of a mortgaged property

The mortgagor and mortgageeeach have an insurable interest inthe property mortgaged and thisinterest is separate and distinctfrom the other.

a. Mortgagor As owner, hasan insurable interest therein tothe extent of its value, eventhough the mortgage debtequals such value. The reasonis that the loss or destructionof the property insured will notextinguish the mortgage debt.b. Mortgagee His interest isonly up to the extent of thedebt. Such interest continuesuntil the mortgage debt is

extinguished.

The lessor cannot be validly abeneficiary of a fire insurance policytaken by a lessee over his merchandise,and the provision in the lease contractproviding for such automatic assignmentis void for being contrary to law andpublic policy. (Cha vs. Court of Appeals,227 SCRA 690)

STANDARD OR

UNIONMORTGAGE

CLAUSE

OPEN OR

LOSSPAYABLE

MORTGAGECLAUSE

Subsequentacts of themortgagorcannot affectthe rights ofthe assignee

Acts of themortgagoraffect themortgagee.Reason:Mortgagor

does notcease to be aparty to the

contract.(Secs. 8 and9)

Effects of Loss Payable Clausea. The contract is deemed to beupon the interest of themortgagor; hence, he does notcease to be a party to the contract.b. Any act of the mortgagor prior

to the loss, which would otherwiseavoid the insurance affects themortgagee even if the property isin the hands of the mortgagee.c. Any act, which under thecontract of insurance is to beperformed by the mortgagor, maybe performed by the mortgageewith the same effect.d. In case of loss, the mortgagee is

entitled to the proceeds to theextent of his credit.e. Upon recovery by the mortgagee to theextent of his credit, the debt isextinguished.

In case a mortgagee insures hisown interest and a loss occurs, heis entitled to the proceeds of theinsurance but he is not allowed toretain his claim against the

mortgagor as the claim isdischarged but it passes bysubrogation to the insurer to theextent of the money paid by suchinsurer. (Palileo vs. Cosio)

VIII. RISK What may be insured against:1. Future contingent event

resulting in loss or damage Ex. Possible future fire


8/30

2. Past unknown event resultingin loss or damage Ex. Fact ofpast sinking of a vessel

unknown to the parties3. Contingent liability Ex.

Reinsurance

IX. PREMIUM PAYMENTS Consideration paid an insurer forundertaking to indemnify the insuredagainst a specified peril.

Basis of the right of the insurer tocollect premiums: Assumption ofrisk.

GENERAL RULE: No policy issued by aninsurance company is valid and bindinguntil actual payment of premium. Anyagreement to the contrary is void. (Sec.77)

EXCEPTIONS:1. In case of life or industrial life

insurance, when the grace periodsapplies; (Sec. 77)

2. When the insurer makes a written

acknowledgment of the receiptpremium; (Sec. 78)3. Section 77 may not apply if the

parties have agreed to the paymentof the premium in installments andpartial payment has been made atthe time of the loss. (MakatiTuscany Condominium Corp. v. CA,215 SCRA 462)

4. Where a credit term has been agreedupon. (UCPB vs. MasaganaTelemart, 308 SCRA 259)

5. Where the parties are barred by

estoppel. (UCPB vs. MaaganaTelemart, 356 SCRA 307)

Section 77 merely precludes the parties

from stipulating that the policy is valideven if the premiums are not paid.(Makati Tuscany Condominium Corp. v.CA, 215 SCRA 462)

Effect of Acknowledgment ofReceipt of Premium in Policy:

Conclusive evidence of its

payment, so far as to make thepolicy binding, notwithstandingany stipulation therein that it shall

not be binding until the premium isactually paid. (Sec. 78)

ENTITLEMENT OF INSURED TORETURN OF PREMIUMS PAID

A. Whole:1. If the thing insured was never

exposed to the risks insuredagainst; (Sec. 79)

2. If contract is voidable due to thefraud or misrepresentation ofinsurer or his agents; (Sec. 81)

3. If contract is voidable because ofthe existence of facts of whichthe insured was ignorant withouthis fault; (Sec. 81)

4. When by any default of theinsured other than actual fraud,the insurer never incurredliability; (Sec. 81)

5. When rescission is granted dueto the insurers breach ofcontract. (Sec. 74)

B. Pro rata:1. When the insurance is for a

definite period and the insuredsurrenders his policy before thetermination thereof; Exceptions:

a. policy not made for adefinite period of time

b. short period rate is

agreed uponc. life insurance policy2. When there is over-insurance

(Sec. 82);

Instances when premiums are notrecoverable:

1. When the risk has alreadyattached and the risk is entireand indivisible.2. In life insurance.3. When the contract is


9/30

rescindable or rendered voidab initio by the fraud of theinsured.

4. When the contract is illegaland the parties are in paridelicto.

PREMIUM ASSESSMENT

Levied and paid tomeet anticipatedlosses.

Collected to meetactual losses.

Payment is notenforceable against

the insured.

Payment isenforceable once

levied unlessotherwise agreedupon.

Not a debt. It becomes a debtonce properlylevied unlessotherwise agreed.

X. TRANSFER OF POLICY

1. Life Insurance It can be transferred even withoutthe consent of the insurer exceptwhen there is a stipulationrequiring the consent of theinsurer before transfer. (Sec. 181) Reason: The policy does notrepresent a personal agreementbetween the insured and theinsurer.2. Property insurance It cannot be transferred without

the consent of the insurer. Reason:The insurer approved thepolicy based on the personalqualification and the insurableinterest of the insured.3. Casualty insurance It cannot be transferred withoutthe consent of the insurer.(Paterson cited in de Leon p. 82) Reason: The moral hazards are as great

as those of property insurance.

CHANE OF INTEREST IN THETHING INSURED

The mere (absolute) transfer ofthe thing insured does not transferthe policy, but suspends it until thesame person becomes the ownerof both the policy and the thinginsured. (Sec. 58) Reason: Insurance contract ispersonal.GENERAL RULE: A change ofinterest in any part of a thing

insured unaccompanied by acorresponding change of interestin the insurance suspends theinsurance to an equivalent extent,until the interestsin the thing andthe interest in the insurance arevested in the same person. (Sec.20)

EXCEPTIONS:1. In life, health and accident

insurance.(Sec. 20);2. Change in interest in the

thing insured afteroccurrence of an injurywhich results in a loss.(Sec. 21);

3. Change in interest in one ormore of several distinct

things separately insuredby one policy. (Sec. 22);

4. Change of interest, by willor succession, on the deathof the insured. (Sec. 23);

5. Transfer of interest by oneof several partners, jointowners, or owners incommon, who are jointlyinsured, to others. (Sec. 24);


10/30

6. When a policy is so framedthat it will inure to thebenefit of whomsoever,

during the continuance ofthe risk, may become theowner of the interestinsured. (Sec. 57);

7. When there is an expressprohibition againstalienation in the policy, incase of alienation, thecontract of insurance is notmerely suspended but

avoided. (Art. 1306, NCC).XI. ASCERTAINMENT AND CONTROL OFRISK AND LOSS

A. Four Primary Concerns of theParties:1. Correct estimation of the risk;2. Precise delimitation of the risk;3. Control of the risk;4. Determining whether a loss

occurred and if so, the amountof such loss.

B. Devices used for ascertainingand controlling risk and loss:1. Concealment A neglect tocommunicate that which a partyknows and ought to communicate(Sec. 26) Requisites:

a. A party knows a factwhich he neglects tocommunicate or disclose tothe other.

b. Such party concealing isduty bound to disclosesuch fact to the other.

c. Such party concealingmakes no warranty as tothe fact concealed.

d. The other party has not

the means of ascertainingthe fact concealed.

e. Material

Effects: Entitles insurer torescind, even if the death or loss isdue to a cause not related to theconcealed matter (Sec. 27).Note: Good Faith is not a defensein concealment. Sec. 27 clearlyprovides that, the concealmentwhether intentional orunintentional entitles the injuredparty to rescind the contract of

insurance.

Test of Materiality: Determinednot by the event, but solely by theprobable and reasonable influenceof the facts upon the party towhom the communication is due,in forming his estimate of theadvantages of the proposedcontract, or in making his inquiries(Sec. 31).Exception to Sec. 31:

a. Incontestability clauseb. Matters under Sec.110 (marineinsurance)

The waiver of medicalexamination in a non-medicalinsurance contract renders evenmore material the informationrequired of the applicant

concerning the previousconditions of health and diseasessuffered. (Sunlife v. Sps. Bacani,246 SCRA 268).

The right to information ofmaterial facts may be waived,either by the terms of theinsurance or by neglect to makeinquiries as to such facts where


11/30

they are distinctly implied in otherfacts of which information iscommunicated. (Sec.33)

Where matters of opinion orjudgment are called for, answersmade in good faith and withoutintent to deceiver will not avoid thepolicy even though they areuntrue. Reason: The insurercannot rely on those statements.He must make further inquiry.(Philamcare Health Systems vs.

CA, G.R. No. 125678, March 18,2002).

2. Representations Factualstatements made by the insured atthe time of, or prior to, theissuance of the policy to giveinformation to the insurer andinduce him to enter into theinsurance contract. They areconsidered an active form ofconcealment. Requisites of a falserepresentation(misrepresentation):

a. The insured stated afact which is untrue.

b. Such fact was statedwith knowledge that it isuntrue and with intent todeceive or which he states

positively as true withoutknowing it to be true andwhich has a tendency tomislead.

c. Such fact in either caseis material to the risk.

Characteristics:a. It is not a part of the contractbut merely a collateral inducementto it.

b. It may be oral or written.c. It is made at the same time ofissuing the policy or before but not

after.d. It may be altered or withdrawnbefore the insurance is effectedbut not afterwards.e. It always refers to the date thecontract goes into effect. Kinds:a. AFFIRMATIVE affirmation of a

fact when the contract begins;and

b. PROMISSORY promise to beperformed after policy wasissued.

Effect of Misrepresentation: theinjured party is entitled to rescindfrom the time when therepresentation becomes false.

Test of Materiality: Same as thatin concealment.

Where the insured merely signedthe application form and made theagent of the insurer fill the samefor him, it was held that by doingso, the insured made the agent ofthe insurer his own agent and hewas responsible for his acts forthat purpose. (Insular Life Assur.Co. vs. Feliciano, 74 Phil. 469)

3. Warranties Statement orpromise by the insured set forth inthe policy or by referenceincorporated therein, the untruthor non-fulfillment of which in anyrespect, and without reference towhether insurer was in factprejudiced by such untruth ornon-fulfillment, renders the policyvoidable by the insurer.


12/30

Purpose:To eliminate potentiallyincreasing hazards which mayeither be due to the acts of the

insured or to the change to thecondition of the property.Kinds:

a. EXPRESS an agreementexpressed in a policy whereby theinsured stipulates that certainfacts relating to the risk are orshall be true, or certain actsrelating to the same subject havebeen or shall be done.

b. IMPLIED- it is deemed includedin the contract although notexpressly mentioned. Example: Inmarine insurance, seaworthinessof the vessel. Effects of breach of warranty:a. MaterialGENERAL RULE: Violation ofmaterial warranty or of a materialprovision of a policy will entitle theother party to rescind the contract.(Sec. 74)EXCEPTIONS:

a. Loss occurs before the timeof performance of thewarranty.

b. The performances becomesunlawful at the place of thecontract.

c. Performance becomesimpossible. (Sec. 73)

b. Immaterial (ex. Other insuranceclause)

GENERAL RULE: It will not avoidthe policy.

EXCEPTION: When the policyexpressly provides or declaresthat a violation thereof will avoidit. (Sec. 75)

WARRANTY REPRESENTA

TIONPart of the contract Mere collateral

inducement

Written on thepolicy, actually or byreference

May be written inthe policy or maybe oral.

Presumed material Must be proved tobe material

Must be strictlycomplied with

Requires onlysubstantial truthand compliance

4. Conditions Events signifyingin its broadest sense either anoccurrence or a non-occurrencethat alters the previously existinglegal relations of the parties to thecontract. They may be conditionsprecedent or conditionssubsequent. Effect of breach:

a. Condition precedent prevents the accrual ofcause of action

b. Condition subsequent avoids the policy or entitles

the insurer to rescind The insurer may also protecthimself against fraudulent claimsof loss and this he attempts to doby inserting in the policy variousconditions which take the form ofconditions precedent. Forinstance, there are conditionsrequiring immediate notice of lossor injury and detailed proofs of

loss within a limited period.

5. Exceptions Provisions thatmay specify excepted perils. Itmakes more definite the coverageindicated by the generaldescription of the risk byexcluding certain specified riskthat otherwise would be includedunder the general language

describing the risks assumed.


13/30

Effect: Limit the coverage of thecontract.

RESCISSION Grounds:

A. ConcealmentB. MisrepresentationC. Breach of material warrantyD. Breach of a condition

subsequent Waiver of the right to rescind:Acceptance of premium paymentsdespite the knowledge of the

ground for rescission. (Sec. 45)Limitations on the right of theinsurer to rescind:1. Non-life such right must beexercised prior to thecommencement of an action onthe contract;2. Life such right must beavailed of during the first twoyears from the date of issue ofpolicy or its last reinstatement;prior to incontestability. (Sec. 48)

CANCELLATION OF NON-LIFEINSURANCE POLICY Right of the insurer to abandonthe contract on the occurrence ofcertain grounds after theeffectivity date of a non-life policy.Grounds:

1. Non-payment of premium;

2. Conviction of a crime out of actsincreasing the hazard insuredagainst;

3. Discovery of fraud or materialmisrepresentation;

4. Discovery of willful or reckless acts ofomissions increasing the hazardinsured against;

5. Physical changes in property makingthe property uninsurable; and

6. Determination by the InsuranceCommissioner that the continuation

of the policy would violate the

Insurance Code. (Sec. 64)Requirements:

1. Prior notice of cancellation to theinsured;

2. Notice must be in writing, mailedor delivered to the named insuredat the address shown in thepolicy;

3. Notice must state which of thegrounds set forth in Sec. 64 isrelied upon and upon request ofthe insured, the insurer mustfurnish facts on which thecancellation is based;

4. Grounds should have existedafter the effectivity date of the

policy.

XII. INCONTESTABILITY CLAUSEClause in life insurance policy

that stipulates that the policy shallbe incontestable after a statedperiod. Requisites:1. Life insurance policy2. Payable on the death of the

insured3. It has been in force during thelifetime of the insured for aperiod of at least two yearsfrom the date of its issue or ofits last reinstatement

Note: The period of 2 years maybe shortened but it cannot beextended by stipulation.

Incontestability only deprives theinsurer of those defenses whicharise in connection with theformation and operation of thepolicy prior to loss. (Prof. De Leon,p. 173 citing Wyatt and Wyatt, p.878)

BARREDDEFENSES

DEFENSESNOT BARRED


14/30

OF THEINSURER

1. Policy is void

ab initio2. Policy isrescindable byreason of thefraudulentconcealment ormisrepresentationof the insured or hisagent

1. That the

person taking theinsurance lackedinsurable interestas required by law;2. That the causeof the death of theinsured is anexcepted risk;3. That thepremiums have notbeen paid (Secs. 77,227[b], 228[b],230[b]);4. That the

conditions of thepolicy relating tomilitary or navalservice have beenviolated (Secs.227[b], 228[b]);5. That the fraudis of a particularlyvicious type;6. That thebeneficiary failed tofurnish proof ofdeath or to comply

with any conditionimposed by thepolicy after the losshas happened; or7. That the actionwas not broughtwithin the timespecified.

XIII.

A. OVER-INSURANCE resultswhen the insured insures the

same property for an amountgreater than the value of theproperty with the same insurancecompany. Effect in case of loss:1. The insurer is bound only to

pay to the extent of the realvalue of the property lost;

2. The insured is entitled torecover the amount ofpremium corresponding to the

excess in value of the property;

B. DOUBLE INSURANCE exists wheresame person is insured by severalinsurers separately in respect to samesubject and interest. (Sec. 93)Requisites:

1. Person insured is the same;2. Two or more insurers insuring

separately;3. Subject matter is the same;4. Interest insured is also the same;5. 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 claimpayment from the insurers in suchorder as he may select, up to theamount for which the insurers areseverally liable under their respectivecontracts;

2. Where the policy under which theinsured claims is a valued policy, theinsured must give credit as against

the valuation for any sum received byhim under any other policy withoutregard to the actual value of thesubject matter insured;

3. Where the policy under which theinsured claims is an unvalued policyhe must give credit, as against thefull insurable value, for any sumreceived by him under any policy;

4. Where the insured receives any sumin excess of the valuation in the caseof valued policies, or of the insurablevalue in the case of unvalued

policies, he must hold such sum intrust for the insurers, according totheir right of contribution amongthemselves;

5. Each insurer is bound, as betweenhimself and the other insurers, tocontribute ratably to the loss inproportion to the amount for whichhe is liable under his contract.

Additional or Other Insurance Clause

A condition in the policy requiring


15/30

the insured to inform the insurer ofany other insurance coverage ofthe property insured. It is lawful

and specifically allowed underSec. 75 which provides that (a)policy may declare that a violationof a specified provision thereofshall avoid it, otherwise the breachof an immaterial provision doesnot avoid it. A stipulation against doubleinsurance. Purposes:

1. To prevent an increasein the moral hazard2. To prevent

over-insurance and fraud. To constitute a violation of theclause, there should have beendouble insurance.

C. REINSURANCE a contract by whichthe insurer procures a third person toinsure him against loss or liability by

reason of an original insurance (alsoknown as Reinsurance Cession). (Sec.95)

In every reinsurance, theoriginal contract of insurance andthe contract of reinsurance arecovered by separate policies.

DOUBLEINSURANCE

REINSURANCE

Involves the same

interest

Involves different

interestInsurer remains insuch capacity

Insurer becomesthe insured inrelation to reinsurer

Insured is the partyin interest in the 2contracts

Original insured hasno interest in thereinsurancecontract.

Subject ofinsurance isproperty

Subject ofinsurance is theoriginal insurersrisk

Insured has to give

his consent

Insureds consent

not necessary

TERMS:

1. Reinsurance treaty Merely an

agreement between two insurancecompanies whereby one agrees tocede and the other to acceptreinsurance business pursuant toprovisions specified in the treaty.(Prof. De Leon, p. 306)

2. Automatic reinsurance The reinsuredis bound to cede and the reinsurer isobligated to accept a fixed share of therisk which has to be reinsured under the

contract. (Prof. De Leon, p. 305)3. Facultative reinsurance There is noobligation to cede or accept participationin the risk each party having a freechoice. But once the share is accepted,the obligation is absolute and the liabilitythereunder can be discharged only bypayment. (Equitable Ins. & Casualty Co.vs. Rural Ins. & Surety Co., Inc. 4 SCRA343)

4. Retrocession A transaction wherebythe reinsurer in turn, passes to anotherinsurer a portion of the risk reinsured. It isreally the reinsurance of reinsurance.(Prof. De Leon, p. 305)

XIV.A. LOSS, IN INSURANCE Injury or damage sustained by theinsured in consequence of the happeningof one or more of the accidents ormisfortune against which the insurer, inconsideration of the premium, hasundertaken to indemnify the insured.

(Bonifacio Bros. Inc. vs. Mora, 20 SCRA261)

Loss for whichinsurer is liable

Loss for whichinsurer is not

liable1. Loss theproximate cause ofwhich is the perilinsured against(Sec. 84);2. Loss theimmediate cause of

1. Loss byinsureds willfulact;2. Loss due toconnivance of theinsured (Sec. 87);and


16/30

which is the perilinsured againstexcept whereproximate cause is

an excepted peril;3. Loss throughnegligence ofinsured exceptwhere there wasgross negligenceamounting to willfulacts; and4. Loss caused byefforts to rescue thething from perilinsured against;5. If during thecourse of rescue,the thing is exposedto a peril notinsured against,which permanentlydeprives theinsured of itspossession, inwhole or in part(Sec. 85).

3. Loss wherethe excepted perilis the proximatecause.

Proximate Cause An event that sets allother events in motion without anyintervening or independent case, withoutwhich the injury or loss would not haveoccurred.

REQUISITES FOR RECOVERY UPONINSURANCE1. The insured must have insurableinterest in the subject matter;2. That interest is covered by the policy;3. There must be a loss; and4. The loss must be proximately causedby the peril insured against.

NOTICE OF LOSSIn fire insurance In other types of

insurance

Required Not required

Failure to givenotice will defeatthe right of theinsured to recover.

Failure to givenotice will notexonerate theinsurer, unlessthere is astipulation in thepolicy requiring

the insured to doso.

B. CLAIMS SETTLEMENT The indemnification of the loss ofthe insured.

TIME FOR PAYMENT OF CLAIMS

LIFEPOLICIES

NON-LIFEPOLICIES

a. Maturingupon theexpiration of theterm Theproceeds areimmediatelypayable to theinsured, unlessthey are madepayable ininstallments or asannuity, in whichcase, theinstallments orannuities shall be

paid as theybecome due.

b. Maturing atthe death of theinsured, occurringprior to theexpiration of theterm stipulated The proceeds arepayable to thebeneficiarieswithin 60 daysafter presentationand filing of proofof death.

The proceeds shallbe paid within 30days after thereceipt by theinsurer of proof ofloss, andascertainment ofthe loss or damageby agreement of theparties or byarbitration but notlater than 90 daysfrom such receiptof proof of losswhether or not

ascertainment ishad or made.

In case of an unreasonable delayin the payment of the insuredsclaim by the insurer, the insuredcan recover: 1) attorneys fees; 2)expenses incurred by reason ofthe unreasonable withholding; 3)interest at double the legal interest

rate fixed by the Monetary Board;


17/30

and 4) the amount of the claim.(Zenith Insurance Corp. vs. CA,185 SCRA 398)

XV. PRESCRIPTIVE PERIOD (Secs. 63 &384) Rules: 1. In the absence of an expressstipulation in the policy, it being based ona written contract, the action prescribesin 10 years.2. However the parties may validly agreeon a shorter period provided it is not lessthan one year from the time the cause ofaction accrues.3. The cause of action accrues from therejection of the claim of the insured andnot from the time of loss.It shall commence from the denial of theclaim, not from the resolution of themotion for reconsideration, otherwise itcan be used by the insured as a schemeor device to waste time until the evidencewhich may be used against him isdestroyed. (Sun Insurance Office, Ltd. v.CA, 195 SCRA)4. In CMVLI, the written notice of claimmust be filed within 6 months from the

date of the accident otherwise the claimis deemed waived. The suit for damageseither with the proper court or with theInsurance Commissioner should be filedwithin 1 year from the date of the denialof the claim by the insurer, otherwiseclaimants right of action shall prescribe.(Sec. 384)

PARTICULAR KINDS OFINSURANCE CONTRACTS

XVI. MARINE INSURANCE Insurance against risks connected withnavigation, to which a ship, cargo,freightage, profits or other insurableinterest in movable property, may beexposed during a certain voyage or afixed period of time. (Sec. 99) Coverage:A.1. Vessels, goods, freight, cargo,

merchandise, profits, money, valuablepapers, bottomry and respondentia,

and interest in respect to all risks or

perils of navigation;2. Persons or property in connection

with marine insurance;3. Precious stones, jewels, jewelry and

precious metals whether in thecourse of transportation or otherwise;and

4. Bridges, tunnels, piers, docks andother aids to navigation andtransportation. (Sec. 99)

Cargo can be the subject ofmarine insurance, and once it isentered into, the implied warrantyof seaworthiness immediatelyattaches to whoever is insuringthe cargo, whether he be the

shipowner or not. (Roque v. IAC,139 SCRA 596)

B. Marine Protection and IndemnityInsurance Classes of inland marine insurance:(Prof. De Leon, p. 325)

1. Property in transit providesprotection to property frequentlyexposed to loss while it istransportation form one locationto another.

2. Bailee liability - insurance forthose who have temporarycustody of the goods.

3. Fixed transportation property they are so insured because theyare held to be an essential part ofthe transportation system suchas bridges, tunnels, etc.

4. Floater provides insurance tofollow the insured propertywherever it may be located,subject always to the territoriallimits of the contract.

Insurable interest:

A.1. Shipowner

a. Over the vessel to theextent of its value, exceptthat if chartered, theinsurance is only up to theamount not recoverablefrom the charterer. (Sec.100).

b. He also has an insurableinterest on expectedfreightage. (Sec. 103).

c. No insurable interest if he


18/30

will be compensated bycharterer for the value ofthe vessel, in case of loss.

2. Cargo owner

Over the cargo and expectedprofits (Sec. 105).

3. Charterer Over the amount he is liable tothe shipowner, if the ship is lostor damaged during the voyage(Sec. 106).

B.In loans on bottomry and respondentia Repayment of the loan is subject to thecondition that the vessel or goods,

respectively, given as a security, shallarrive safely at the port of destination.

1. Owner/Debtor Difference between the value ofvessel or goods and the amountof loan. (Sec. 101)

2. Creditor/lender Amount of the loan

Note: If a vessel is hypothecated bybottomry, only the excess is insurable,since a loan on bottomry partakes of thenature of an insurance coverage to theextent of the loan accommodation. Thesame rule would apply to thehypothecation of the cargo byrespondentia. (Pandect of CommercialLaw and Jurisprudence, Justice JoseVitug, 1997 ed.)

PERILS OFTHE SEA

PERILS OFTHE SHIP

Includes only thosecasualties due tothe:1. unusual

violence; or2. extraordinaryaction of wind andwave; or3. Otherextraordinarycauses connectedwith navigation.

A loss which in theordinary course ofevents, resultsfrom the:

1. natural andinevitable action ofthe sea2. ordinary wearand tear of theship or3. Negligentfailure of theships owner toprovide the vesselwith properequipment toconvey the cargo

under ordinary

conditions.

Note: It is only perils of the seawhich may be insured againstunless perils of the ship is coveredby an all-risk policy.

SPECIAL MARINE INSURANCECONTRACTS AND CLAUSESA. All Risks Policy insurance against allcauses of conceivable loss or damage,

except: 1) as otherwise excluded in thepolicy; or 2) due to fraud or intentionalmisconduct on the part of the insured. The insured has the initial burden ofproving that the cargo was in goodcondition when the policy attached andthat the cargo was damaged whenunloaded from the vessel; thereafter, theburden then shifts to the insurer to showthe exception to the coverage. (FilipinasMerchants Insurance vs. Court ofAppeals, 179 SCRA 638)

B. Barratry Clause A clause which provides that there canbe no recovery on the policy in case ofanywillful misconduct on the part of themaster or crew in pursuance of someunlawful or fraudulent purpose withoutconsent of owners, and to the prejudiceof the owners interest. (Roque vs. IAC,139 SCRA 596)

C. Inchamaree Clause A clause which makes the insurer liablefor loss or damage to the hull ormachinery arising from the:1. Negligence of the captain, engineers,

etc.2. Explosions, breakage of shafts; and3. Latent defect of machinery or hull.

(Bar Review Materials in CommercialLaw, Jorge Miravite, 2002 ed.)

D. Sue and Labor Clause A clause under which the insurer maybecome liable to pay the insured, in


19/30

addition to the loss actually suffered,such expenses as he may have incurredin his efforts to protect the propertyagainst a peril for which the insurer

would have been liable. (Sec. 163)MATTERS ALTHOUGH CONCEALED, WILLNOT VITIATE THE CONTRACT EXCEPTWHEN THEY CAUSED THE LOSS (Sec.110)1. National character of the insured;2. Liability of the thing insured to

capture or detention;3. Liability to seizure from breach of

foreign laws;4. Want of necessary documents; and

5. Use of false or simulated papers.Note: This should be related to thegeneral rule regarding materialconcealment.

DISTINCTIONS ON CONCEALMENT(Commercial Law Reviewer, A.F.

Agbayani, 1988 ed.)

MARINEINSURANCE

OTHERPROPERTYINSURANCE

The information of thebelief or expectationof 3rd persons ismaterial and must becommunicated

The information orbelief of a 3rdpartyis not material andneed not becommunicatedunless it proceedsform an agent ofthe insured whoseduty it is to giveinformation

The concealment ofany fact in relation toany of the mattersstated in Sec. 110does not vitiate theentire contract butmerely exonerates theinsurer from a riskresulting from the factconcealed

Concealment ofany material factwill vitiate theentire contract,whether or not theloss results for therisk concealed.

IMPLIED WARRANTIES1. Seaworthiness of the ship at the

inception of the insurance (Sec. 113);2. Against improper deviation (Sec. 123,

124, 125);3. Against illegal venture;

4. Warranty of neutrality: the ship will

carry the requisite documents ofnationality or neutrality of the ship orcargo where such nationality orneutrality is expressly warranted;

(Sec. 120)5. Presence of insurable interest.

While the payment by the insurer for theinsured value of the lost cargo operatesas a waiver of the insurers right toenforce the term of the implied warrantyagainst the assured under the marineinsurance policy, the same cannot bevalidly interpreted as an automaticadmission of the vessels seaworthinessby the insurer as to foreclose recourse

against the common carrier for anyliability under the contractual obligationas such common carrier. (DelsanTransportation Lines vs. CA, 364 SCRA24)

SeaworthinessA relative term depending upon the

nature of the ship, voyage, service andgoods, denoting in general a shipsfitness to perform the service and toencounter the ordinary perils of thevoyage, contemplated by the parties tothe policy (Sec. 114).GENERAL RULE: The warranty ofseaworthiness is complied with if theship be seaworthy at the time of thecommencement of the risk. Prior orsubsequent unseaworthiness is not abreach of the warranty nor is it materialthat the vessel arrives in safety at the endof her voyage.EXCEPTIONS:1. In the case of a time policy, the ship

must be seaworthy at the

commencement of every voyage shemay undertake

2. In the case of cargo policy, eachvessel upon which the cargo isshipped or transshipped, must beseaworthy at the commencement ofeach particular voyage

3. In the case of a voyage policycontemplating a voyage in differentstages, the ship must be seaworthyat the commencement of eachportion


20/30

Applicability of implied warranty ofseaworthiness to cargo owners: Itbecomes the obligation of a cargo ownerto look for a reliable common carrier,

which keeps its vessels in seaworthyconditions. The shipper may have nocontrol over the vessel but he has controlin the choice of the common carrier thatwill transport his goods (Roque v. IAC,139 SCRA 596).

Deviation A departure from the course of thevoyage insured, or an unreasonable delayin pursuing the voyage or thecommencement of an entirely different

voyage. (Sec.123) Instances:

1. Departure of vessel from thecourse of the sailing fixed bymercantile usage

2. Departure of vessel from themost natural, direct andadvantageous route if not fixedby mercantile usage

3. Unreasonable delay in pursuingvoyage

4. Commencement of an entirelydifferent voyage (Secs. 121-123)

Kinds:1. Proper -

a. When caused by circumstancesoutside the control of the ship captainor ship owner;

b. When necessary to comply with awarranty or to avoid a peril;

c. When made in good faith to avoid aperil;

d. When made in good faith to savehuman life or to relieve another vesselin distress (Sec. 124)

Effect: In case of loss, theinsurer is still liable.

2. Improper - Every deviation notspecified in Sec. 124 (Sec. 125).

Effect: In case of loss ordamage, the insurer is not liable.(Sec. 126)

LOSS1. Total:

a. Actual -

i. Total destruction;

ii. Irretrievableloss by sinking;iii. Damage rendering the thing

valueless; oriv. Total deprivation of owner of

possession of thing insured.(Sec. 130)

b. Constructive -i. Actual loss of more than of

the value of the object;ii. Damage reducing value by

more than of the value ofthe vessel and of cargo; and

iii. Expense of transshipmentexceed of value of cargo.(Sec. 131, in relation to Sec.139)

In case of constructive totalloss, insured may:

1. Abandon goods orvessel to the insurer andclaim for whole insuredvalue (Sec. 139), or2. Without abandoningvessel, claim for partialactual loss. (Sec. 155)

2. Partial: That which is not total (Sec.128).

AVERAGE Any extraordinary or accidental expenseincurred during the voyage for thepreservation of the vessel, cargo, or both,and all damages to the vessel and cargofrom the time it is loaded and the voyagecommenced until it ends and the cargounloaded.

GENERAL PARTICULARHas inured to thecommon benefit andprofit of all personsinterested in the

vessel and cargo

Has not inured to thecommon benefit andprofit of all personsinterested in thevessel and her

cargo.

To be borne equallyby all of the interestsconcerned in the

venture.

To be borne alone bythe owner of thecargo or the vessel,

as the case may be.

Requisites for theright to claimcontribution:1. Common

danger to the


21/30

vessel orcargo;

2. Part of thevessel or

cargo wassacrificeddeliberately;

3. Sacrifice mustbe for thecommonsafety or forthe benefit ofall;

4. Sacrifice mustbe made bythe master or

upon hisauthority;

5. It must be notbe caused byany fault of theparty askingthecontribution;

6. It must besuccessful, i.e.resulted in thesaving of thevessel orcargo; and

Necessary.

RIGHT OF INSURED IN CASE OFGENERAL AVERAGEGENERAL RULE: The insured mayeither hold the insurer directlyliable for the whole of the insuredvalue of the property sacrificed forthe general benefit, subrogating

him to his own right ofcontribution or demandcontribution from the otherinterested parties as soon as thevessel arrives at her destinationEXCEPTIONS:1. After the separation of

interests liable to contribution2. When the insured has

neglected or waived his right to

contribution

FPA Clause (Free From Particular

Average)A clause agreed upon in a policyof marine insurance in which it isstated that the insurer shall not beliable for a particular average,such insurer shall be freetherefrom, but he shall continue tobe liable for his proportion of allgeneral average losses assessedupon the thing insured. (Sec. 136)

ABANDONMENT The act of the insured by which,after a constructive total loss, hedeclared the relinquishment to theinsurer of his interest in the thinginsured. (Sec. 138) Requisites for validity:1. There must be an actual

relinquishment by the personinsured of his interest in thething insured (Sec. 138);

2. There must be a constructivetotal loss (Sec. 139);

3. The abandonment be neither partial nor conditional (Sec.140);

4. It must be made within areasonable time after receipt ofreliable information of the loss(Sec. 141);

5. It must be factual (Sec. 142);

6. It must be made by giving notice thereof to the insurerwhich may be done orally or inwriting (Sec. 143); and

7. The notice of abandonmentmust be explicit and mustspecify the particular cause ofthe abandonment (Sec. 144).

Effects:


22/30

1. It is equivalent to a transfer bythe insured of his interest tothe insurer with all the chances

of recovery and indemnity(Transfer of Interest)(Sec.146)

2. Acts done in good faith bythose who were agents of theinsured in respect to the thinginsured, subsequent to theloss, are at the risk of theinsurer and for his benefit.(Transfer Of Agency)(Sec.148)

If an insurer refuses to accept avalid abandonment, he is liableupon an actual total loss,deducting form the amount anyproceeds of the thing insuredwhich may have come to thehands of the insured. (Sec.154)

CO-INSURANCE A marine insurer is liable upon apartial loss, only for suchproportion of the amount insuredby him as the loss bears to thevalue of the whole interest of theinsured in the property insured.(Sec. 157) When the property is insured forless than its value, the insured isconsidered a co-insurer of thedifference between the amount ofinsurance and the value of the

property.

Requisites:1. The loss is partial;2. The amount of insurance is lessthan the value of the propertyinsured.

Rules:1. Co-insurance applies only to

marine insurance2. Logically, there cannot beco-insurance in life insurance.

3. Co-insurance applies in fireinsurance when expresslyprovided for by the parties.

CO-INSURANCE

REINSURANCE

A percentage in thevalue of the insuredproperty which theinsured himselfassumes to act asinsurer to the extentof the deficiency inthe insurance of theinsured property. Incase of loss ordamage, the insurerwill be liable only forsuch proportion ofthe loss or damageas the amount of theinsurance bears tothe designatedpercentage of the fullvalue of the property

insured. (Bar ReviewMaterials inCommercial Law,Jorge Miravite, 2002

ed.)

Situation where theinsurer procures a 3rdparty called thereinsurer to insurehim against liabilityby reason of anoriginal insurance.Basically,reinsurance is aninsurance againstliability which theoriginal insurer mayincur in favor of the

original insured.

XVII. FIRE INSURANCE A contract by which the insurerfor a consideration agrees toindemnify the insured against loss

of, or damage to, property byhostile fire, including loss bylightning, windstorm, tornado orearthquake and other allied risks,when such risks are covered byextension to fire insurancepolicies or under separatepolicies. (Sec. 167)

Prerequisites to recovery:


23/30

1. Notice of loss must be immediatelygiven, unless delay is waived expressly orimpliedly by the insurer2. Proof of loss according to best

evidence obtainable. Delay may also bewaived expressly or impliedly by theinsurer

HOSTILE FIRE FRIENDLYFIRE

One that escapesfrom the placewhere it wasintended to burnand ought to be.

One that burns in aplace where it wasintended to burnand ought to be

Insurer is liable Insurer is not liable

Measure of Indemnity1. Open policy: only the expensenecessary to replace the thing lost orinjured in the condition it was at the timeof the injury2. Valued policy:the parties are bound bythe valuation, in the absence of fraud ormistake

Note: It is very crucial to determinewhether a marine vessel is covered by a

marine insurance or fire insurance. Thedetermination is important for 2 reasons:1. Rules on constructive total loss

and abandonment applies onlyto marine insurance;

2. Rule on co-insurance appliesprimarily to marine insurance;

3. Rule on co-insurance applies tofire insurance only if expresslyagreed upon. (Commercial LawReviewer, Aguedo Agbayani, 1988ed.)

ALTERATION AS A SPECIAL GROUNDFOR RESCISSION BY INSURER Requisites:

1. The use or condition of the thingis specifically limited orstipulated in the policy;

2. Such use or condition as limitedby the policy is altered;

3. The alteration is made withoutthe consent of the insurer;

4. The alteration is made by meanswithin the control of the insured;

5. The alteration increases the risk;

(Sec. 168)and6. There must be a violation of a

policy provision. (Sec. 170)

Fall-of-building clause A clause in a fire insurance policy that ifthe building or any part thereof falls,except as a result of fire, all insurance bythe policy shall immediately cease.

Option to rebuild clause A clause giving the insurer the option toreinstate or replace the propertydamaged or destroyed or any partthereof, instead of paying the amount ofthe loss or the damage.

The insurer, after electing to rebuild,cannot be compelled to perform thisundertaking by specific performancebecause this is an obligation to do, not togive. Remedy: Art. 1167, NCC.

XVIII. CASUALTY OR ACCIDENTINSURANCE Insurance covering loss or liabilityarising from accident or mishap,excluding those falling under other typesof insurance such as fire or marine. (Sec.174)

Classifications:1. Insurance against specifiedperils which may affect the personand/or property of the insured.(accident or health insurance) Examples: personal accident,robbery/theft insurance2. Insurance against specifiedperils which may give rise to

liability on the part of the insuredfor claims for injuries to ordamage to property of others.(third party liability insurance) Insurable interest is based on theinterest of the insured in the safetyof persons, and their property, whomay maintain an action againsthim in case of their injury ordestruction, respectively.


24/30

Examples: workmenscompensation, motor vehicleliability

In a third party liability (TPL)insurance contract, the insurerassumes the obligation by payingthe injured third party to whom theinsured is liable. Prior payment bythe insured to the third person isnot necessary in order that theobligation may arise. The momentthe insured becomes liable to thirdpersons, the insured acquires an

interest in the insurance contractwhich may be garnished like anyother credit. (Perla Comapnia deSeguro, Inc vs. Ramolete, 205SCRA 487) Aside from compulsory motorvehicle liability insurance, theInsurance Code contains no otherprovisions applicable to casualtyinsurance. Therefore, suchcasualty insurance are governedby the general provisionsapplicable to all types ofinsurance, and outside of suchstatutory provisions, the rightsand obligations of the partiesmust be determined by theircontract, taking into considerationits purpose and always inaccordance with the generalprinciples of insurance law.

In burglary, robbery and theftinsurance, the opportunity todefraud the insurer the moralhazard is so great that insurerhave found it necessary to fill upthe policies with many restrictionsdesigned to reduce the hazard.Persons frequently excluded arethose in the insureds service and

employment. The purpose of theexception is to guard againstliability should theft be committed

by one having unrestricted accessto the property. (Fortune Insurancevs. CA, 244 SCRA 208)

Right of a third party injured tosue the insurer1. Indemnity against liability Athird party injured can directly suethe insurer.2. Indemnity for actual loss or

reimbursement after actualpayment by the insured A thirdparty has no cause of actionagainst the insurer (Sec. 53,Bonifacio Bros. v. Mora, 20 SCRA261).

The insurer is not solidarily liablewith the insured. The insurersliability is based on contract; thatof the insured is based on torts.Furthermore, the insurers liabilityis limited by the amount of theinsurance coverage (Pan MalayanInsurance Corporation v. CA, 184SCRA 54).

INTENTIONAL vs. ACCIDENTAL

AS USED IN INSURANCE POLICIES1. Intentional Implies theexercise of the reasoning faculties,consciousness and volition.Where a provision of the policyexcludes intentional injury, it is theintention of the person inflictingthe injury that is controlling. If theinjuries suffered by the insuredclearly resulted from the


25/30

intentional act of the third person,the insurer is relieve from liabilityas stipulated. (Biagtan v. the

Insular Life Assurance Co. Ltd., 44SCRA 58, 1972)2. Accidental That whichhappens by chance or fortuitously,without intention or design, whichis unexpected, unusual andunforeseen.

NO ACTION CLAUSE A requirement in a policy of

liability insurance which providesthat suit and final judgment befirst obtained against the insured;that only thereafter can the personinjured recover on the policy.(Guingon vs. Del Monte, 20 SCRA1043)

XIX. COMPULSORY MOTOR VEHICLELIABILITY INSURANCE (CMVLI)

A species of compulsory

insurance that provides forprotection coverage that willanswer for legal liability for lossesand damages for bodily injuries orproperty damage that may besustained by another arising fromthe use and operation of motorvehicle by its owner. Purpose: To give immediatefinancial assistance to victims of

motor vehicle accidents and/ortheir dependents, especially if theyare poor regardless of thefinancial capability of motorvehicle owners or operatorsresponsible for the accidentsustained (Shafer v. Judge, RTC,167 SCRA 386). Claimants/victims may be apassenger or a 3rdparty

It applies to all vehicles whether

public and private vehicles.Note: It is the only compulsoryinsurance coverage under the

Insurance Code.

Method of coverage1. Insurance policy2. Surety bond

3. Cash deposit

Passenger Any fare-payingperson being transported andconveyed in and by a motorvehicle for transportation ofpassengers for compensation,including persons expresslyauthorized by law or by thevehicles operator or his agents toride without fare. (Sec. 373[b])

Third Party Any person otherthan the passenger, excluding amember of the household or amember of the family within thesecond degree of consanguinity oraffinity, of a motor vehicle owneror land transportation operator, orhis employee in respect of deathor bodily injury arising out of and

in the course of employment. (Sec.373[c])

No-Fault Clause A clause that allows the victim (injuredperson or heirs of the deceased) to anoption to file a claim for death or injurywithout the necessity of proving fault ornegligence of any kind. Purpose: To guarantee compensation orindemnity to injured persons in motorvehicle accidents.


26/30

Rules:1. Total indemnity - maximum of P5,0002. Proofs of loss -

a. Police report of accident;

b. Death certificate andevidence sufficient to establishproper payee;c. Medical report and evidenceof medical or hospital disbursement.

3. Claim may be made against one mvehicle only4. Proper insurer from which to claim

a. In case of an occupant:Insurer of the vehicle in which theoccupant is riding, mounting or

dismounting from;b. In any other case:

Insurer of the directly offendingvehicle. (Sec. 378)

The claimant is not free tochoose from which insurer he willclaim the no fault indemnity asthe law makes it mandatory thatthe claim shall lie against the

insurer of the vehicle in which theoccupant is riding, mounting ordismounting from. That saidvehicle might not be the one thatcaused the accident is of nomoment since the law itselfprovides that the party paying mayrecover against the owner of thevehicle responsible for theaccident. (Perla Compania de

Seguros, Inc. v. Ancheta, 169SCRA 144)

This no-fault claim does notapply to property damage. If thetotal indemnity claim exceedsP5,000 and there is controversy inrespect thereto, the finding of faultmay be availed of by the insureronly as to the excess. The firstP5,000 shall be paid without

regard to fault. (Prof. De Leon, p.716)

The essence of the no-faultindemnity insurance is to providevictims of vehicular accidents ortheir heirs immediatecompensation although in limitedamount, pending finaldetermination of who isresponsible for the accident andliable for the victims injuries ordeath. (Ibid.)

SPECIAL CLAUSESA. Authorized Driver Clause A clause which aims to indemnify theinsured owner against loss or damage tothe car but limits the use of the insuredvehicle to the insured himself or anyperson who drives on his order or withhis permission (Villacorta v. InsuranceCommissioner) The requirement that the person drivingthe insured vehicle is permitted in

accordance with the licensing laws orother laws or regulations to drive themotor vehicle (licensed driver) isapplicable only if the person driving isother than the insured.

B. Theft Clause A clause which includes theft as amongthe risks insured against. Where the car is unlawfully andwrongfully taken without the ownersconsent or knowledge, such takingconstitutes theft, and thus, it is the theft

clause and not the authorized driverclause that should apply (Palermo v.Pyramids Ins., 161 SCRA 677).

C. Cooperation Clause A clause which provides in essence thatthe insured shall give all such informationand assistance as the insurer mayrequire, usually requiring attendance attrials or hearings.XX. SURETYSHIP

An agreement whereby a surety


27/30

guarantees the performance by theprincipal or obligor of an obligation orundertaking in favor of an obligee. (Sec.175)

It is essentially a credit accommodation. It is considered an insurance contract ifit is executed by the surety as a vocation,and not incidentally. (Sec. 20 When the contract is primarily drawn upby 1 party, the benefit of doubt goes tothe other party (insured/obligee) in caseof an ambiguity following the rule incontracts of adhesion. Suretyship,especially in fidelity bonding, is thustreated like non-life insurance in somerespects.

Nature of liability of surety1. Solidary;2. Limited to the amount of the bond;3. It is determined strictly by the terms

of the contract of suretyship inrelation to the principal contractbetween the obligor and the obligee.(Sec. 176)

SURETYSHIP PROPERTYINSURANCE

Accessory contract Principal contract

3 parties: surety,obligor and oblige

2 parties: insurerand insured

Creditaccommodation

Contract ofindemnity

Surety can recoverfrom principal

Insurer has no suchright; only right ofsubrogation

Bond can becancelled only withconsent of obligee,Commissioner orcourt

May be cancelledunilaterally either byinsured or insurer ongrounds provided bylaw

Requiresacceptance ofobligee to be valid

No need ofacceptance by anythird party

Risk-shifting device;premium paid beingin the nature of aservice fee

Risk-distributingdevice; premium paidas a ratablecontribution to acommon fund

XXI. LIFE INSURANCE Insurance on human lives and insuranceappertaining thereto or connectedtherewith which includes every contractor pledge for the payment of endowmentsor annuities. (Sec. 179)

Kinds: (Bar Review Materials inCommercial Law, Jorge Miravite, 2002ed.)1. Ordinary Life, General Life or Old Line

Policy - Insured pays a fixedpremium every year until he dies.Surrender value after 3 years.

2. Group Life Essentially a singleinsurance contract that providescoverage for many individuals.Examples: In favor of employees,mortgage redemption insurance.

3. Limited Payment Policy insuredpays premium for a limited period. Ifhe dies within the period, hisbeneficiary is paid; if he outlives the

period, he does not get anything.4. Endowment Policy pays premium

for specified period. If he outlives theperiod, the face value of the policy ispaid to him; if not, his beneficiariesreceive the benefit.

5. Term Insurance insurer pays onceonly, and he is insured for a specifiedperiod. If he dies within the period,his beneficiaries benefits. If heoutlives the period, no personbenefits from the insurance.

6. Industrial Life - life insuranceentitling the insured to pay premiumsweekly, or where premiums arepayable monthly or oftener.

Mortgage Redemption Insurance A life insurance taken pursuant toa group mortgage redemptionscheme by the lender of money onthe life of a mortgagor who, tosecure the loan, mortgages the

house constructed from the use ofthe proceeds of the loan, to theextent of the mortgageindebtedness such that if themortgagor dies, the proceeds ofhis life insurance will be used topay for his indebtedness to thelender assured and thedeceaseds heirs will thereby berelieved from paying the unpaidbalance of the loan. (Great Pacific


28/30

Life Assurance Corp. vs. Court ofAppeals, 316 SCRA 677)

LIABILITY OF INSURER IN CERTAINCAUSES OF DEATH OF INSURED1. Suicide Insurer is liable in the following cases:

1. If committed after two yearsfromthe date of the policys issue orits last reinstatement;

2. If committed in a state of insanityregardless of the date of thecommission unless suicide is anexcepted peril. (Sec. 180-A)

3. If committed after a shorterperiod provided in the policy

Any stipulation extending the 2-yearperiod is null and void.2. At the hands of the law (E.g. by legalexecution) It is one of the risks assumed by theinsurer under a life insurance policy in theabsence of a valid policy exception.(Vance,p.572 cited in de Leon, p. 107)Note:Justice Vitug believes that death bysuicide (if the insured is sane) or at thehands of the law obviates againstrecovery as being more in consonance

with public policy and as being implicitunder Section 87, ICP. (Pandect ofCommercial Law and Jurisprudence,1997 ed. P. 191)3. Killing by the beneficiary

GENERAL RULE:The interest of abeneficiary in a life insurancepolicy shall be forfeited when thebeneficiary is the principalaccomplice or accessory inwillfully bringing about the death

of the insured, in which event, thenearest relative of the insuredshall receive the proceeds of saidinsurance if not otherwisedisqualified. (Sec. 12)EXCEPTIONS:

1. Accidental killing2. Self-defense3. Insanity of the beneficiary at

the time he killed the

insured

If the premiums paid came fromconjugal funds, the proceeds are

considered conjugal. If thebeneficiary is other than theinsureds estate, the source ofpremiums would not be relevant.(Del Val v. Del Val, 29 Phil 534)

The measure of indemnity in life orhealth insurance policy is the sum fixedin the policy except when a creditorinsures the life of his debtor. (Sec. 183)IS THE CONSENT OF THE BENEFICIARYNECESSARY TO THE ASSIGNMENT OF A

LIFE INSURANCE POLICY? It depends. If the designation of thebeneficiary is irrevocable, thebeneficiarys consent is essentialbecause of his vested right. If thedesignation is revocable, the policy maybe assigned without such consentbecause the beneficiary only has a mereexpectancy to the proceeds. (TheInsurance Code of the Philippines

Annotated, Hector de Leon, 2002 ed.)

Cash Surrender Value As applied to a life insurancepolicy, it is the amount the insuredin case of default, after thepayment of at least 3 full annualpremiums, is entitled to receive ifhe surrenders the policy andreleases his claims upon it.

LIFE

INSURANCE

FIRE INSURANCE

Contract ofinvestment not ofindemnity

Contract of indemnity

Valued policy Open or valued policyMay be transferredor assigned to anyperson even if hehas no insurableinterest

The insurableinterest of thetransferee orassignee is essential

Consent of insureris not essential tovalidity ofassignment

Consent of insurermust be secured inthe absence of waiver

Contingency that is Contingency insured


29/30

contemplated is acertain event, theonly uncertaintybeing the timewhen it will takeplace

against may or maynot occur

A long-termcontract and cannotbe cancelled by theinsurer

May be cancelled byeither party and isusually for a term ofone year

Beneficiary is underno obligation toprove actualfinancial loss

Insured is required tosubmit proof of hisactual pecuniary lossas a conditionprecedent tocollecting theinsurance.

XXII. VARIABLE CONTRACT Any policy or contract on either a groupor individual basis issued by aninsurance company providing for benefitsor other contractual payments or valuesthereunder to vary so as to reflectinvestment results of any segregatedportfolio of investment.

XXIII. INSURANCE COMMISSIONER Main agency charged with theenforcement of the Insurance Code and

other related laws. Functions:1.ADJUDICATORY/QUASI-JUDICIAL

a. Exclusive original jurisdiction Any dispute in the enforcementof anypolicy issued pursuant to Chapter VI(CMVLI). (Sec. 385, par. 2)

b. Concurrent originaljurisdiction (with the RTC) Where the maximum amountinvolved in any single claim is

P100,000 (Sec. 416), except incase of maritime insurance whichis within the exclusive jurisdictionof the RTC. (BP 129; admiralty &maritime jurisdiction)

Where the amountexceeds P100,000, the RTChas jurisdiction.

The Insurance Commissioner has nojurisdiction to decide the legality of acontract of agencyentered into betweenan insurance company and its agent. Thesame is not covered by the term doing ortransacting insurance business underSec 2, ICP, neither is it covered by Sec.416 of the same Code which grants theCommissioner adjudicatory powers(Philippine American Life Insurance Co. v.Ansaldo, 234 SCRA 509).

2.ADMINISTRATIVE/REGULATORYa. Enforcement of

insurance lawsb. Issuance, suspension or

revocation of certificate ofauthority

c. Power to examine books andrecords, etc.

d. Rule-making authoritye. Punitive


30/30

Documents

Insurasgfgsnce San Beda