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of any insurance contract or in placing risk or taking out insurance, on behalf of an insured other than himself, shall be an insurance broker within the intent of this Code, and shall thereby become liable to all the duties, requirements, liabilities and penalties to which an insurance broker is subject. Sec. 306 The premium, or any portion thereof, which an insurance agent or insurance broker collects from an insured and which is to be paid to an insurance company because of the assumption of liability through the issuance of policies or contracts of insurance, shall be held by the agent or broker in a fiduciary capacity and shall not be misappropriated or converted to his own use or illegally withheld by the agent or broker. Any insurance company which delivers to an insurance agent or insurance broker a policy or contract of insurance shall be deemed to have authorized such agent or broker to receive on its behalf payment of any premium which is due on such policy or contract of insurance at the time of its issuance or delivery or which becomes due thereon.
The Insurer is the party who assumes or accepts the

THE POLICY: PARTIES AND RIGHTS a. Parties 1. Immediate Parties i. The insurer
Sec.6 Every person, partnership, association or corporation

duly authorized to transact insurance business as elsewhere provided in this Code, may be an insurer. Sec. 184 For purposes of this Code, the term "insurer" or "insurance company" shall include all individuals, partnerships, associations, or corporations, including government-owned or controlled corporations or entities, engaged as principals in the insurance business, excepting mutual benefit associations. Unless the context otherwise requires, the terms shall also include professional reinsurers defined in section two hundred eighty. "Domestic company" shall include companies formed, organized or existing under the laws of the Philippines. "Foreign company" when used without limitation shall include companies formed, organized, or existing under any laws other than those of the Philippines.
Sec. 185 Corporations formed or organized to save any person or persons or other corporations harmless from loss, damage, or liability arising from any unknown or future or contingent event, or to indemnify or to compensate any person or persons or other corporations for any such loss, damage, or liability, or to guarantee the performance of or compliance with contractual obligations or the payment of debt of others shall be known as "insurance corporations". Sec. 299 No insurance company doing business in the

Philippines, nor any agent thereof, shall pay any commission or other compensation to any person for services in obtaining insurance, unless such person shall have first procured from the Commissioner a license to act as an insurance agent of such company or as an insurance broker as hereinafter provided. No person shall act as an insurance agent or as an insurance broker in the solicitation or procurement of applications for insurance, or receive for services in obtaining insurance, any commission or other compensation from any insurance company doing business in the Philippines, or any agent thereof, without first procuring a license to act from the Commissioner, which must be renewed annually on the first day of January, or within six months thereafter. Such license shall be issued by the Commissioner only upon the written application of the person desiring it, such application if for a license to act as insurance agent, being approved and countersigned by the company such person desires to represent, and shall be upon a form prescribed by the Commissioner giving such information as he may require, and upon payment of the corresponding fee hereinafter prescribed. The Commissioner shall satisfy himself as to competence and trustworthiness of the applicant and shall have the right to refuse to issue or renew and to suspend or revoke any such license in his discretion. No such license shall be valid after the thirtieth day of June of the year following its issuance unless it is renewed. (As amended by Presidential Decree No. 1455) Sec. 300. Any person who for compensation solicits or obtains insurance on behalf of any insurance company or transmits for a person other than himself an application for a policy or contract of insurance to or from such company or offers or assumes to act in the negotiating of such insurance shall be an insurance agent within the intent of this section and shall thereby become liable to all the duties, requirements, liabilities and penalties to which an insurance agent is subject. Sec. 301. Any person who for any compensation, commission or other thing of value acts or aids in any manner in soliciting, negotiating or procuring the making

risk of loss and undertakes for a consideration to indemnify the insured or to pay him a certain sum on the happening of a specified contingency or event. The business of insurance may be carried on by individuals just as much as by corporations and associations. The state itself may go into insurance business. They must have a license in order to transact insurance business. Who may be an insurer? A foreign or domestic insurance company may transact business in the Philippines but must first obtain a certificate of authority for that purpose from the Insurance Commissioner who has the discretion to refuse to issue such certificate if it will best promote the interests of the people of this country. (Sec. 187) An individual may also be an insurer, provided he holds a certificate of authority from the Insurance Commissioner, and provided further that he is possessed of the capital assets required of an insurance corporation doing the same kind of business in the Philippines and invested in the same manner. (Secs. 184-186) An insurance corporation is one formed or organized to save any person or persons or other corporations harmless from loss, damage, or liability arising from any unknown or future or contingent event, or to indemnify or to compensate any person or persons or other corporations for any such loss, damage, or liability, or to guarantee the performance of or compliance with contractual obligations or the payment of debts of others. (Sec. 185) The last part of the statement refers to suretyship. (Sec. 175) The terms insurer and insurance company include individuals, partnerships, associations or corporations, including GOCCs or entities, engaged as principals in the insurance business, except mutual benefit associations. It shall also include professional reinsurers as defined in Sec. 280 (Sec. 184)
White Gold Marine Services v. Pioneer Insurance & Steamship Mutual

Section 2(2) of the Insurance Code enumerates what constitutes doing an insurance business or transacting an insurance business. These are: (a) making or proposing to make, as insurer, any insurance contract; (b) making, or proposing to make, as surety, any contract of suretyship as a vocation and not as

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or that he belongs to the class of persons comprehended in the policy. Example: If the policy is payable to the children, you must show that you are a child of the deceased. Not a grand-child, nor a great-grand-child. As regards Sec. 57, this is not usually done as the insurer is deprived of the choice of whom to insure. Capacity Art. 1327. The following cannot give consent to a
contract: (1) Unemancipated minors; (2) Insane or demented persons, and deaf-mutes who do not know how to write. Art. 1328. Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of drunkenness or during a hypnotic spell are voidable. Art. 1390. The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties: (1) Those where one of the parties is incapable of giving consent to a contract; (2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. RA 6809 Sec 3, Par. 3 Contracting marriage shall require parental consent until the age of twentyoneContracting marriage shall require parental consent until the age of twenty-one Juridical Person insurance on the property it owns Art. 44. The following are juridical persons: (1) The State and its political subdivisions; (2) Other corporations, institutions and entities for public interest or purpose, created by law; their personality begins as soon as they have been constituted according to law; (3) Corporations, partnerships and associations for private interest or purpose to which the law grants a juridical personality, separate and distinct from that of each shareholder, partner or member. Art. 45. Juridical persons mentioned in Nos. 1 and 2 of the preceding article are governed by the laws creating or recognizing them. Private corporations are regulated by laws of general application on the subject. Partnerships and associations for private interest or purpose are governed by the provisions of this Code concerning partnerships. Art. 46. Juridical persons may acquire and possess property of all kinds, as well as incur obligations and bring civil or criminal actions, in conformity with the laws and regulations of their organization. Public Enemy - subject or citizen of a country with

merely incidental to any other legitimate business or activity of the surety; (c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of this Code; (d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this Code. . . . The same provision also provides, 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 preclude the existence of an insurance business.
Pandiman v. Marine Manning Mgmt. Corp & Singhid

ii.

Payment for claims arising from the peril insured against, to which the insurer is liable, is definitely not one of the liabilities of an insurance agent. Thus, there is no legal basis whatsoever for holding petitioner solidarily liable with insurer OMMIAL for Rositas claim for death benefits on account of her husbands demise while under the employ of MMMCs principal, Fullwin The Insured
Sec. 7 Anyone except a public enemy may be insured. Sec. 54 When an insurance contract is executed with an agent or trustee as the insured, the fact that his principal or beneficiary is the real party in interest may be indicated by describing the insured as agent or trustee, or by other general words in the policy. Sec. 55. To render an insurance effected by one partner or part-owner, applicable to the interest of his co-partners or other part-owners, it is necessary that the terms of the policy should be such as are applicable to the joint or common interest. Sec. 56. When the description of the insured in a policy is so general that it may comprehend any person or any class of persons, only he who can show that it was intended to include him can claim the benefit of the policy. Sec. 57. A policy may be so framed that it will inure to the benefit of whomsoever, during the continuance of the risk, may become the owner of the interest insured.

Cestui que vie person whose life is subject of the policy Requisites: Insured must be competent to enter into a contact Insured must possess an insurable interest in the subject of insurance Insured must not be a public enemy An insurance may be taken by a person, personally or through his agent or trustee. Since the insurance is to be applied exclusively to the interest of the person in whose name and for whose benefit it is made, the agent or trustee when making an insurance contract for or on 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. When the insurance is effected by a partner or a partowner, the partner or part-owner who insures partnership property in his own name limits the contract to his individual share UNLESS the terms of the policy clearly show that the insurance was meant to cover also the shares of the other partners. When the description of the insured is general, in order that the insurance may be applied to the interest of the person claiming the benefit of the policy, he must show that he is the person named or described

whom the Philippines is at war

Effect of war on existing insurance contracts: (a) With respect to property insurance > policy ceases to be valid and enforceable as soon as insured becomes a public enemy. (b)With respect to life insurance > policy is not merely suspended but is abrogated by reason of non-payment of premiums. However, the insured is entitled to the cash or reserve value of the policy, which is the excess of the premiums paid over the actual risk carried during the years when the policy had been in force. (c) Where loss occurs after end of war > still does not revive the contract. Filipinas Cia. De Seguros v Christern Huenefeld & Co.

As the Philippine Insurance Law (Act No. 2427, as amended), in its section 8, provides that "anyone except a public enemy may be insured," an

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insurance policy ceases to be allowable as soon as an insured becomes a public enemy. Where an insurance policy ceases to be effective by reason of war, which has made the insured an enemy, the premiums paid for the period covered by the policy from the date war is declared, should be returned.
death of the insured; in which event, the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified.

Constantino v. Asia Life Insurance Co.

When the life insurance policy provides that nonpayment of premiums will cause its forfeiture, war does not excuse non-payment, and does not avoid forfeiture. 2. Other Parties Affected i. The Beneficiary
Sec. 53 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 A beneficiary is a person whether natural or juridical for whose benefit the policy is issued and is the recipient of the proceeds in the insurance. Kinds of beneficiary: 1. The insured himself 2. Third person who paid consideration (such as a creditor) 3. Third person through mere bounty of the insured In a life insurance contract, the agreement states that the Insurer will pay the proceeds of the insurance to a person named by the insured, upon the death of the insured contracting party. The recipient is the beneficiary, who is the recipient of the proceeds as indicated by the insured. And under Sec. 53, 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. GR: Any person in general can be a beneficiary. E: Persons disqualified from being a beneficiary are those not qualified to receive donations under Art. 739. They cannot be named beneficiaries of a life insurance policy by the person who cannot make any donation to him. Sec. 11 Right to Change
The insured shall have the right to change the beneficiary he designated in the policy, unless he has expressly waived his right in the said policy. GR: The designation of a beneficiary is revocable.

If the beneficiary kills the insured, the proceeds are forfeited in favor of the nearest relative for the insured. Who are the nearest relatives mentioned here? Those related to the decedent in the order mentioned under the rules of intestate succession such as: (the order of the following relatives is as follows) 1. The legitimate children; 2. The father and mother, if living; 3. The grandfather and grandmother; or ascendants nearest in degree, if living; 4. The illegitimate children; 5. The surviving spouse; and 6. The collateral relatives, to wit: a. Brothers and sisters of the full blood; b. Brothers and sisters of the half-blood; and c. Nephews and nieces In default of the above, the STATE shall be entitled to receive the insurance proceeds. Forfeiture of interest to receive proceeds: 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. Limitations
Art. 739. The following donations shall be void: (1) Those made between persons who were guilty of adultery or concubinage at the time of the donation; (2) Those made between persons found guilty of the same criminal offense, in consideration thereof; (3) Those made to a public officer, or his wife, descendants and ascendants by reason of his office.*

*The designation of the public officer MUST be by reason of his office and NOT all public officers are disqualified from being beneficiaries of a life insurance policy, as long as the designation was not made in consideration of an act done by the public officer by reason of his office in favor of the insured. Art. 2011. The contract of insurance is governed by
special laws. Matters not expressly provided for in such special laws shall be regulated by this Code.

E: It is expressly stated to be irrevocable.

When the right to change the beneficiary is

expressly waived in the policy, the insured has no power to make such change without the consent of the beneficiary. If the beneficiary dies before the insured and the insured did not change the designation, the general trend is to give it to the estate of the beneficiary. Upon the death of the insured, the proceeds become the exclusive property of the beneficiary. Thus, if insured declared insolvent prior to death, the proceeds go to the beneficiary, not the assignee in insolvency. Sec. 12 Forfeiture
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

(Basically, the Civil Code provisions apply to insurance contracts suppletorily.) Art. 2012. Any person who is forbidden from receiving
any donation under Art. 739 cannot be named beneficiary of a life insurance policy by a person who cannot make any donation to him, according to said article. Insular v. Ebrado

-In essence, a life insurance policy is no different from a civil donation insofar as the beneficiary is concerned. Both are founded upon the same consideration: liberality. A beneficiary is like a donee, because from the premiums of the policy which the insured pays out of liberality, the beneficiary will receive the proceeds or profits of said insurance. As a consequence, the proscription

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in Article 739 of the new Civil Code should equally operate in life insurance contracts. The mandate of Article 2012 cannot be laid aside: any person who cannot receive a donation cannot be named as beneficiary in the life insurance policy of the person who cannot make the donation. -Conviction for adultery or concubinage for those barred from receiving donations or life insurance not required as only preponderance of evidence is necessary. - Requisite proof of common-law relationship between insured and beneficiary supplied by stipulations of parties at pre-trial conference; Considered judicial admissions, of which judgment may be validly rendered without rigors of trial to prove illicit relationship. not applicable to the proceeds of an insurance policy made payable to one of the heirs of the insured by name, nor can the proceeds of such a policy be considered a gift under article 819 of the Civil Code. Gercio v. Sun Life -The beneficiary has an absolute vested interest in the policy from the date of its issuance and delivery. -When a policy of life insurance is taken out by the husband in which the wife is named as beneficiary, she has a subsisting interest in the policy. And this applies to a policy to which there attached the incidents of a loan value, cash surrender value, and automatic extension by premiums paid, and to an endowment policy, as well as to an ordinary life insurance policy. -If the policy contains no provision authorizing a change of beneficiary without the beneficiary's consent, the insured cannot make such change. -A life insurance policy of a husband made payable to the wife as beneficiary, is the separate property of the beneficiary and beyond the control of the husband. -In the absence of a statute to the contrary, if a policy is taken out upon a husband's life and the wife is named as beneficiary therein, a subsequent divorce does not destroy her rights under the policy. -The insuredthe husbandhas no power to change the beneficiarythe former wifeand to name instead his actual wife, where the insured and the beneficiary have been divorced, and where the policy of insurance does not expressly reserve to the insured the right to change the beneficiary. Philamlife v. Pineda -In the absence of a statute to the contrary, if a policy is taken out upon a husband's life and the wife is named as beneficiary therein, a subsequent divorce does not destroy her rights under the policy. - Based on the provision of the contract and the law applicable it is only with the consent of all the beneficiaries that any change or amendment in the policy concerning the irrevocable beneficiaries may be legally and validly effected. Heirs of Loreto Maramag v. de Guzman -Article 2011 of the Civil Code expressly provides that insurance contracts shall be governed by special laws; i.e., the Insurance Code; The only persons entitled to claim the insurance proceeds are either the insured, if still alive or the beneficiary if the insured is already deceased upon the maturation of the policy; Exception is where the insurance contract was intended to benefit third persons who are not parties to the same in the form of favorable stipulations or indemnity. - No legal proscription exists in naming as beneficiaries the children of illicit relationships by the insured. - It is only in cases where the insured has not designated any beneficiary, or when the designated beneficiary is disqualified by law to receive the proceeds, that the insurance policy

Consuegra v. GSIS -The beneficiary named in the life insurance does not automatically become the beneficiary in the retirement insurance unless the same beneficiary in the life insurance is so designated in the application for retirement insurance. -In the case of the proceeds of a life insurance, the same are paid to whoever is named the beneficiary in the life insurance policy. As in the case of life insurance provided for in the Insurance Act (Act 2427, as amended), the beneficiary in a life insurance under the GSIS may not necessarily be an heir of the insured. The insured in a life insurance may designate any person as beneficiary unless disqualified to be so under the provisions of the Civil Code. And in the absence of any beneficiary named in the life insurance policy, the proceeds of the insurance will go to the estate of the insured. [Vda. de Consuegra vs. Government Service Insurance System, 37 SCRA 315(1971)] - If the employee reaches the age of retirement, he gets the retirement benefits even to the exclusion of the beneficiary or beneficiaries named in his application for retirement insurance. The beneficiary of the retirement insurance can only claim the proceeds of the retirement insurance if the employee dies before retirement. If the employee failed or -overlooked to state the beneficiary of his retirement insurance, the retirement benefits will accrue to his estate and will be given to his legal heirs in accordance with law, as in the case of a life insurance if no beneficiary is named in the insurance policy. Del Val v. Del Val -Where a life-insurance policy is made payable to one of the heirs of the person whose life is insured, the proceeds of the policy on the death of the insured belong exclusively to the beneficiary and not to the estate of the person whose life was insured; and such proceeds are his individual property and not the property of the heirs of the person whose life was insured. - Article 1035 of the Civil Code, providing that "an heir by force of law surviving with others of the same character to a succession must bring into the hereditary estate the property or securities he may have received from the deceased during the life of the same, by way of dowry, gift, or for any good consideration, in order to compute it in fixing the legal portions and in the account of the division," is

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the property insured will NOT extinguish the mortgage debt. What is the extent of the insurable interest of the mortgagee? -The mortgagee or his assignee has an insurable interest in the mortgaged property to the extent of the debt secured (or the amount of the unpaid balance of the loan), such interest continues until the mortgage debt is extinguished. (San Miguel v Law Union) Up to what extent can each recover? -The mortgagor cannot recover upon the insurance beyond the full amount of the loss, and the mortgagee cannot recover in excess of the credit at the time of the loss. Also, where the mortgagee has already foreclosed the property, it may no longer collect the proceeds, as the mortgage contract already being extinguished, it no longer has interest under the insurance contract. (Grepalife v CA) -This is an example of a mortgagor-mortgagee insurance, where the mortgagor pays the premiums under the group insurance policy, with loss payable to the mortgagee (up to the amount owed), and the insurance is on the mortgagors interest, thus, the mortgagor continues to be a party to the contract,as the insured is the real party in interest. When the mortgage is foreclosed, the mortgagee may no longer collect the proceeds (he has no interest therein as he has already been paid.) Under Sec. 8, what are the effects of insurance when the mortgagor effects insurance in his own name and provides that the loss be payable to the mortgagee? -The legal effects of this are: (1) The contract is deemed to be upon the interest of the mortgagor, hence he does NOT cease to be a party to the contract; (2) Any action of the mortgage prior to the loss which would otherwise avoid the insurance affects the mortgagee even if the property is in the hands of the mortgagee; (3) Any act which under the contract of insurance is to be performed by the mortgagor, may be performed by the mortgagee; (4) In case of loss, the mortgagee is entitled to the proceeds to the extent of his credit; and (5) Upon recovery by the mortgagee to the extent of his credit, the debt is extinguished. What is the effect if the mortgagee effects insurance on behalf of the mortgagor? -Practically the same rules apply. Upon the destruction of the property, then the mortgagee is entitled to receive the proceeds equal to the amount of the mortgage credit. Such payment operates to discharge the debt. Under Art. 2127 of the Civil Code provides that the security of mortgage extends to the indemnity from the insurance.

ii.

proceeds shall redound to the benefit of the estate of the insured. Mortgagor/Mortgagee
Sec. 8 Unless the policy otherwise provides, where a mortgagor of the property effects insurance in his own name providing that a loss shall be payable to the mortgagee, or assigns a policy of insurance to a mortgagee, the insurance is deemed to be upon the interest of the mortgagor, who does not cease to be a party to the original contract, and any act of his, prior to the loss, which would otherwise avoid the insurance, will have the same effect, although the property is in the hands of the mortgagee, but any act which, under the contract of insurance, is to be performed by the mortgagor, may be performed by the mortgagee therein named, with the same effect as if it had been performed by the mortgagor. Sec. 9 If an insurer assents to the transfer of an insurance from a mortgagor to a mortgagee, and, at the time of his assent, imposes further obligations on the assignee, making a new contract with him, the acts of the mortgagor cannot affect the rights of said assignee. Under this section, 3 contracts are involved:

1) The insurance contract between the insurer and the insured. 2) The mortgage contract between the mortgagor and the mortgagee. 3) The loan contract between the debtor and the creditor. The party to the insurance here is the mortgagor, and is the insured thereunder. This is what is called a mortgagor-mortgagee insurance, whereby the mortgagee requires the mortgagor to insure the property given as security for the loan. The proceeds therefrom shall first be for the benefit of the mortgagee up to the extent of his unpaid credit, with the remaining amount, if any, going to the mortgagor. Instances contemplated by this section: -The mortgagor insured the property in his own name, and: 1) Institutes the mortgagee as the recipient of the proceeds; or 2) Assigns the policy to the mortgagee. - in these instances, the mortgagors acts still affect the contract, but, the mortgagee may perform acts obligatory upon the mortgagor, and such shall have the effect as if they were performed by the mortgagor. Is it alright if both the mortgagor and the mortgage insure the same property? -YES. The mortgagor and the mortgagee have each an insurable interest in the property mortgaged, and this interest is separate and distinct from the other. Consequently, insurance taken by one in his own name only and in his favor alone does not inure to the benefit of the other. And in case both of them take out separate insurance policies on the same property, or one policy covering their respective interests, the same is not open to the objection that there is double insurance. What is the extent of the insurable interest of the mortgagor? -The mortgagor of the property, as owner has an insurable interest to the extent of the value of the property, even if the mortgage debt is equal to such value. The reason is that the loss or destruction of

A mortgagor and a mortgagee have a SEPARATE and DISTINCT insurable interest in the same mortgage property such that each of them may insure the same property for his own sole benefit. Insurance by one in his own name only and in his favour alone > does not inure to the benefit of the other.

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i. when there is a stipulation that (1) insurer shall be subrogated upon payment and that (2) debt will not be extinguished OR ii. mortgagee insures only his interest INSURANCE TAKEN BY DEBTOR-MORTGAGOR, 2 cases: i) 1st Insurance by mortgagor of his own interest or own benefit: In case of loss/damage to property, effects: > insurance proceeds will only inure to the benefit of the mortgagor alone! > mortgagee cannot collect and is in equal footing as unsecured creditors. ii) 2nd Insurance by mortgagor for benefit of mortgagee, OR policy assigned to mortgagee (mortgagor pays the premium, making the loss payable to the mortgagee). Effects: (1) The insurance is deemed to be upon the interest of the mortgagor, who does not cease to be a party to the original contract, (2) Any act of the mortgagor, prior to the loss, which would otherwise a will have the same effect (will also affect the mortgagee) although the property is in the hands of the mortgagee (3) Any act which, under the contract of insurance, performed by the mortgagee therein named, with the same effect as if it had been performed by the mortgagor. the proceeds to the extent of his credit (5) Upon recovery by the mortgagee to the extent extinguished! (6) There is NO SUBROGATION by the insurer to the right of the mortgagee. b. The Policy 1. Definition
Section 49. The written instrument in which a contract of insurance is set forth, is called a policy of insurance.

i) Extent of mortgagors interest as owner, he has an insurable interest to extent of the value of the property. * Interest continues even if the debt has been paid. ii) Extent of mortgagees interest as creditor with security, has an insurable interest in the mortgaged property to the extent of the debt secured and does not exceed beyond the value of the mortgaged property. Mortgagee is not insuring the property itself but his interest or lien thereon as security of the mortgagors debt. * Interest continues only until the mortgage debt is extinguished. Extent of amount of recovery i) Mortgagor cannot recover that which exceeds the full amount of loss ii) Mortgagee cannot recover that which: (1) exceeds the amount of credit at the time of loss AND (2) exceeds the value of the property mortgaged
Example: i) Debtor borrowed 500k from Creditor. Debtor also owns a house worth 1M which he mortgage to Creditor to secure the loan. (1) The insurable interest of debtor-mortgagor is 1M (2) Insurable interest of creditor-mortgagee is 500k

INSURANCE TAKEN BY CREDITOR-MORTGAGEE, 2 cases: i) Where the mortgagee INDEPENDENT of the mortgagor, insures his own interest in the mortgaged property > he is entitled to the proceeds of the policy in case of loss BEFORE payment of the mortgage debt. > Mortgagee may collect from insurer upon occurrence of loss to the extent of his credit. (1) If the insurer pays the mortgagee in case of loss (a) the mortgagee is not allowed to retain his claim against the debtor-mortgagor. Mortgagee can no longer collect the mortgagors debt after receiving full payment of his credit. (b) does not discharge debt of the mortgagor (c) the insurer becomes SUBROGATED to the rights of the mortgagee against the mortgagor and may collect the debt of the mortgagor to the extent of amount paid to the mortgagee. (d) In other words, there is a change of creditor. Mortgagor is still not released from indebtedness and is liable to pay amount of debt to the insurer instead of the mortgagee. ii) Where mortgagee insures property FOR THE collect from insurer upon occurrence of loss to the extent of his credit. (1) If insurer pays the mortgagee in case of loss (a) such payment discharges debt of the debtor-mortgagor if equal to it. mortgagee holds the excess as trustee for the mortgagor (c) GEN: the rule on subrogation does not apply EX:

i.

ii.

iii.

iv.

v.

vi.

What is a policy of insurance? -Sec. 49 defines a policy of insurance as a written instrument in which the contract of insurance is set forth. Who signs the policy of insurance: -Generally, only the insurer or his duly authorized agent signs the policy. It need not be singed by the insured EXCEPT where the express warranties are contained in a separate instrument forming part of the policy, in which case, Sec. 70 requires that the instrument be so signed. Why are the terms of the policy important? -They are important because they measure the liability of the insurer on one hand, and the other hand, strict compliance with the terms are required for the recovery on the part of the insured. Is the policy and the Contract one and the same thing? NOPE. A contract is a meeting of the minds of the insured and the insurer. (Remember CLV?) The policy is ONLY the formal written instrument evidencing the contract. What is usually the best evidence that a contract has been entered into between the insurer and the insured? -Delivery of the policy by the insurer to the insured. What are the effects of the delivery of the policy?

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Section 51. A policy of insurance must specify: (a) The parties between whom the contract is made; (b) The amount to be insured except in the cases of open or running policies; (c) The premium, or if the insurance is of a character where the exact premium is only determinable upon the termination of the contract, a statement of the basis and rates upon which the final premium is to be determined; (d) The property or life insured; (e) The interest of the insured in property insured, if he is not the absolute owner thereof; (f) The risks insured against; and (g) The period during which the insurance is to continue.

-If the delivery is conditional, non-fulfillment of the condition bars the contract from taking effect. -If the deliver is unconditional, the insurance becomes effective at the time of delivery. 2. Form
Section 50, par. 1 The policy shall be in printed form which may contain blank spaces; and any word, phrase, clause, mark, sign, symbol, signature, number, or word necessary to complete the contract of insurance shall be written on the blank spaces provided therein. Par. 4 Group insurance and group annuity policies, however, may be typewritten and need not be in printed form. Sec. 226 No policy, certificate or contract of insurance shall be issued or delivered within the Philippines unless in the form previously approved by the Commissioner, and no application form shall be used with, and no rider, clause, warranty or endorsement shall be attached to, printed or stamped upon such policy, certificate or contract unless the form of such application, rider, clause, warranty or endorsement has been approved by the Commissioner.

3. Riders and Endorsements i. Sec. 50, par. 2 Any rider, clause, warranty or endorsement
purporting to be part of the contract of insurance and which is pasted or attached to said policy is not binding on the insured, unless the descriptive title or name of the rider, clause, warranty or endorsement is also mentioned and written on the blank spaces provided in the policy. Par. 3 Unless applied for by the insured or owner, any rider, clause, warranty or endorsement issued after the original policy shall be countersigned by the insured or owner, which countersignature shall be taken as his agreement to the contents of such rider, clause, warranty or endorsement.

ii.

What is a rider? -It is a printed or typed stipulation contained on a slip of paper attached to the policy and forming an integral part of the policy. Riders are usually attached to the policy because they constitute additional stipulations between the parties. iv. What happens if there is an inconsistency between the policy and the rider? -RIDER prevails, as being a more deliberate expression of the agreement of the contracting parties. v. What are the requirements in order that a rider be binding upon the insured? 1) Descriptive title or name of the rider which is pasted or attached to a policy MUST be mentioned and written on the blank spaces provided for in the policy; and 2) Unless applied for by the insured or owner, said insured or owner MUST countersign the rider. vi. Do the preceding requirements apply only to riders? -NO, they apply also to warranties, clauses and endorsements. vii. What is an endorsement? -An endorsement is any provision added to an insurance contract altering its scope or application. Examples would be those additions to the contract changing the amount, the rate or the term of the same. -It is a well settled rule that in case of repugnance exists between written and printed portions of a policy, the written portion prevails. There can be no question as far as any inconsistency exists, a rider prevails over the printed clause it covers. When an instrument consists partly of written words and partly of a printed form and the 2 are inconsistent, the former controls the latter. (New Life Ent. v CA) 4. Contents

iii.

A policy must contain: 1. Names of the parties 2. Amount of insurance > to easily and exactly determine the amount of indemnity to be paid in case of loss or damage. This requirement however can be dispensed with in cases of open or running policies. 3. Rate of premium > Because the premium represents the consideration of the contract; these rates are developed on the basis of the nature and character of the risk assumed. > As the risk increases, the rate of premium also increases. 4. Property or life or thing insured (Subject Matter) 5. Interests of the insured in the property > In order to determine actual damage. Remember, an owner gets the full value of the loss while a mortgagee gets only the value of his credit. 6. Risks insured against > In order to know when the insurer is called to indemnify the insured, because if this is NOT stated, and you hold the insurer liable for any loss due to any cause whatsoever, it will result to a big loss on the part of the insurer. 7. Duration of the insurance > This period signifies the life of the policy. If the duration of insurance has already ended, it can no longer be revived. ii. Void Stipulations
Sec. 25. Every stipulation in a policy of insurance for the payment of loss whether the person insured has or the payment of loss whether the person insured has or has not any interest in the property insured, or that the policy shall be received as proof of such interest, and every policy executed by way of gaming or wagering, is void.

This section avoids two types of stipulations in an insurance policy. What are they? 1. Stipulation for the payment of loss whether or not the person insured has any interest in the subject matter of the insurance (exception: life insurance) 2. Stipulation that the policy will be received as proof of insurable interest Specifically, the following are void: 1) Stipulation in a policy of insurance for the payment of loss whether insurable interest exists or not; 2) A stipulation that a policy shall be received as proof of such interest; or 3) A policy executed by way of gaming or wagering. This provision is the authority for voiding a contract for lack of insurable interest.

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Thus, in case of loss, this value (the value of the thing insured) is conclusive between the parties in the absence of fraud or mistake The AGREED VALUE of the thing insured will be paid in case of total loss of the property even if the actual value is lesser or higher. o Unless there exist fraud or mistake or so grossly excessive as to indicative of fraud o The insurance is for a lower amount. In a life policy > the liability of insurer is measured by the face value of the policy. It is always a valued policy. Harding v. Commercial Union The valuation in a policy of fire insurance is conclusive in the absence of fraud. iv. Running or Successive
Section 62. A running policy is one which contemplates successive insurances, and which provides that the object of the policy may be from time to time defined, especially as to the subjects of insurance, by additional statements or indorsements.

If the policy exceeds beyond the extent of you being damnified, the excess is void. What is the reason for voiding such stipulations? 1) As to the 1st stipulation, we must remember that insurable interest is a requisite of a valid contract of insurance. Lack of this requisite avoids the contract. 2) As to the 2nd stipulation, the law permits the insurer to show lack of insurable interest on the part of the insured, even after the issuance of a policy of insurance to avoid liability. (Sec. 83)
Sec. 63. A condition, stipulation, or agreement in any policy of insurance, limiting the time for commencing an action thereunder to a period of less than one year from the time when the cause of action accrues, is void.

iii. Sun Insurance v. CA Review 5. Cover Notes 6. Kinds of Policies

Section 59. A policy is either open, valued or running.

Thus, there are 3 kinds of policies: 1) Open, 2) Valued, or 3) Running. ii. Open Section 60. An open policy is one in which the value of the thing insured is not agreed upon, but is left to be ascertained in case of loss. What is an open policy? IT is one where: 1) The value of the thing insured is not agreed upon, 2) But is left to be ascertained in case of loss. Thus, total or actual loss will represent total indemnity due the insured form the insurer, except only that the total indemnity shall not exceed the face value of the policy. The agreed sum written on the face of the policy is only the maximum limit of insurers liability (aka face value) and NOT the value of the property insured. Development Ins. v IAC: It was said: In the event of loss, whether total or partial, it is understood that the amount of the loss shall be subject to appraisal and the liability of the company, if established, shall be limited to the actual loss, subject to the applicable terms, conditions, warranties and clauses of this Policy, and in no case shall exceed the amount of the policy. iii. Valued
Section 61. A valued policy is one which expresses on its face an agreement that the thing insured shall be valued at a specific sum.

A running policy is sometimes called floating, adjustable, blanket or declaration policy. It is a policy that contemplates successive insurances, and provides that the subject of policy may be defined from time to time as to: 1) The subject of insurance; or 2) By additional statements or indorsements. Denotes insurance which contemplates that the risk is shifting or varying and which covers a class of property rather than a particular thing. Advantages: (1) Insured is neither over nor under insured bec premiums are based on the monthly values reported. (2) Rate is adjusted to 100% insurance, whereas valued policies requiring insurance to only less than a 100% (3) Avoids cancellations to keep adjusting to the value (4) Saved the trouble of watching his insurance. 7. Unilateral Cancellation of Non-Life Policies i. By the insurer
Section 64. No policy of insurance other than life shall be cancelled by the insurer except upon prior notice thereof to the insured, and no notice of cancellation shall be effective unless it is based on the occurrence, after the effective date of the policy, of one or more of the following: (a) non-payment of premium; (b) conviction of a crime arising out of acts increasing the hazard insured against; (c) discovery of fraud or material misrepresentation; lawphi1.net (d) discovery of willful or reckless acts or omissions increasing the hazard insured against; (e) physical changes in the property insured which result in the property becoming uninsurable; or (f) a determination by the Commissioner that the continuation of the policy would violate or would place the insurer in violation of this Code.

What is a valued policy? It is one where on its face is expressed an agreement that the thing insured is valued at a specified amount. Here 2 values are involved: 1) The face value of the policy; and 2) The value of the property you are insuring. N.B. Do not mistake this with the amount of insurance, which is sometimes called the amount of the policy, as these are 2 different values. The face amount of the policy refers to the maximum amount of the insurers liability while the value referred to in a valued policy refers to the value of the thing insured.

o How can a policy (non-life) be cancelled? Cancellation of a policy by the insurer to be effective requires: 1) There must be prior notice; and 2) The such cancellation must be based on the occurrence of the following causes:

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- non-payment of premiums - conviction of crime increasing the hazard insured against - discovery of fraud or material misrepresentation - discovery of acts or omissions increasing the hazard insured against - physical changes in the property insured making it uninsurable - if the Insurance Commissioner determines continuing the policy or if the insurer, would violate the Code. the cancellation was done before the loss, the policy is no longer in effect at such time and therefore the liability of the insurer was also deemed extinguished. Non-renewal by insurer Section 66. In case of insurance other than life, unless
the insurer at least forty-five days in advance of the end of the policy period mails or delivers to the named insured at the address shown in the policy notice of its intention not to renew the policy or to condition its renewal upon reduction of limits or elimination of coverages, the named insured shall be entitled to renew the policy upon payment of the premium due on the effective date of the renewal. Any policy written for a term of less than one year shall be considered as if written for a term of one year. Any policy written for a term longer than one year or any policy with no fixed expiration date shall be considered as if written for successive policy periods or terms of one year.

iii.

Section 65. All notices of cancellation mentioned in the preceding section shall be in writing, mailed or delivered to the named insured at the address shown in the policy, and shall state (a) which of the grounds set forth in section sixty-four is relied upon and (b) that, upon written request of the named insured, the insurer will furnish the facts on which the cancellation is based.

ii.

o What are these requirements? Notices of cancellation of policies (other than life) must be: 1. In writing, stating: - the grounds for cancellation; and - the facts on which the cancellation is based, if requested it must be in writing. 2) Mailed or delivered to insured at the address shown in the policy. o Why must notice be sent in such a manner? -The purpose of the notice of cancellation, is to allow the insured ample opportunity to negotiate for other insurance, in place of that cancelled. (Saura v Phil. International Co.) By the insured Section 79. A person insured is entitled to a return of
premium, as follows: XXX b) Where the insurance is made for a definite period of time and the insured surrenders his policy, to such portion of the premium as corresponds with the unexpired time, at a pro rata rate, unless a short period rate has been agreed upon and appears on the face of the policy, after deducting from the whole premium any claim for loss or damage under the policy which has previously accrued; Provided, That no holder of a life insurance policy may avail himself of the privileges of this paragraph without sufficient cause as otherwise provided by law.

o If the insurance is for a definite period and the insured surrenders his policy before the termination thereof -> to such portion of the premium as corresponds with the unexpired time, at a pro rata rate, o This will not apply if: (1) The insurance is not for a definite period or (2) A short period rate has been agreed upon (3) The policy is a life insurance policy - Why? Because life insurance is not a divisible contract Paulino v. Capital Insurance FACTS: Policy stipulates that both insured and insurer may have the option to unilaterally cancel the policy at any time. Insured availed of this option to cancel. While waiting for the return of the premiums, the property insured was gutted by fire. //Insured can no longer recover the proceeds but is still entitled to recover the premiums paid. RATIO: Pursuant to the unilateral cancellation, the insurance contract was deemed terminated. Since

Basically, in non-life insurance policies, the insured is entitled to renew the contract by payment of the premium, unless notified by the insurer 45 days prior to expiry date; otherwise, the policy is renewed automatically. Note: Non-life insurance is valid for 1 year, and is renewed thereafter, and such is done automatically, unless there has been non-renewal by the insurer. Rules on RENEWAL OF INSURANCE POLICY [Sec. 66] o In case of insurance other than life: the named insured shall be entitled to renew the policy upon payment of the premium due on the effective date of the renewal. UNLESS: i) NOTICE of its intention not to renew the policy OR ii) NOTICE to condition its renewal upon reduction of limits or elimination of coverage which the insurer must mail or deliver: (1) at least 45 DAYS IN ADVANCE of the end of the policy period (2) to the named insured (3) at the address shown in the policy o Period for giving notice of non-renewal by insurer: i) Any policy written for a term of less than one year shall be considered as if written for a term of one year. ii) Any policy written for a term longer than one year or any policy with no fixed expiration date shall be considered as if written for successive policy periods or terms of one year. o Example: i) Insurance Policy for the period of October 5, 2010 to Oct 5 2011 > insurer must notify at least 45 days before Oct 5, 2011 its intent of non-renewal or renewal ii) Insurance Policy for the period of April 8, 2010 to December 8, 2010 > insurer must notify at least 45 days before April 8, 2011 iii) Insurance Policy starting January 15, 2010 with no expiration date > insurer must notify at least 45 days before every year of expiration 1. 45 days before 2011 2. 45 days before 2012 and so on... o GR: renewal of insurance by payment of new premium and the issuance of receipt therefor where there is no

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Example: X insured his life naming his estate as beneficiary. He assigned the policy to Y who has no insurable interest. (1)When notice required in the policy - If assigned without the consent of insurer: 1. Insurer may pay the BENEFICIARY-Estate which shall become trustee of the amount received in favor of Y. 2. Insurer may waive notice requirement and pay Y instead. - If assigned with the consent of the insurer, insurer is obligated to pay Y-transferee. (2)When notice NOT required in the policy - insurer is obligated to pay Y-transferee Sun Life v. Ingersoll An assignee in bankruptcy acquires no beneficial interest in a policy of insurance on the bankrupt's life, payable to himself or his legal representativ0065, if it has no cash surrender value at the time of the commencement of the proceedings in bankruptcy; and if the bankrupt dies thereafter the proceeds of the policy go to the bankrupt's estate as represented by his administrator, not to the estate in bankruptcy. Grepalife v. CA - Court held that a policy of insurance upon the life or death may pass by transfer, will or succession to any person who whether or not such person has insurable interest (ex. Wife of the insured), and such person may recover whatever the insured may recover. - Insured may be regarded as the real party in interest, although he has assigned the policy for the purpose of collection, or has assigned as collateral security any judgment he may obtain. 2. Right to Borrow Section 227. In the case of individual life or endowment
insurance, the policy shall contain in substance the following conditions: xxx (g) A provision that at any time after a cash surrender value is available under the policy and while the policy is in force, the company will advance, on proper assignment or pledge of the policy and on sole security thereof, a sum equal to, or at the option of the owner of the policy, less than the cash surrender value on the policy, at a specified rate of interest, not more than the maximum allowed by law, to be determined by the company from time to time, but not more often than once a year, subject to the approval of the Commissioner; and that the company will deduct from such loan value any existing indebtedness on the policy and any unpaid balance of the premium for the current policy year, and may collect interest in advance on the loan to the end of the current policy year, which provision may further provide that such loan may be deferred for not exceeding six months after the application therefor is made;

contract on the same terms as the old one. o Except: when renewal is in pursuance of a provision to that effect not a new contract but an extension of the old one. c. Rights of the Insured 1. Right to Assign/Change Section 11. The insured shall have the right to change the
beneficiary he designated in the policy, unless he has expressly waived his right in the said policy. Section 181. A policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he has an insurable interest or not, and such person may recover upon it whatever the insured might have recovered.

o A life insurance policy may pass by transfer (Ex. By assignment), will or succession, whether the transferee has insurable interest of not. o Right of Insured to ASSIGN life insurance policy [Sec. 181.] A policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he has an insurable interest or not, and such person may recover upon it whatever the insured might have recovered. Interest in the LIFE OR HEALTH of a person insured must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs. [Sec 19] Can owner of policy assign without the consent of the beneficiary? IF with waiver of right to change beneficiary consent of the beneficiary needed! The beneficiary acquires a vested interest which cannot be divested without his consent if the policy contains an express waiver. If without such waiver insured may assign the policy WITHOUT the consent. Since beneficiary has mere expectancy. Section 182. Notice to an insurer of a transfer or bequest
thereof is not necessary to preserve the validity of a policy of insurance upon life or health, unless thereby expressly required.

o Is notice to the insurer of the transfer or bequest necessary? No. Such is not required for its validity, unless it is expressly stipulated. This means that if notice to the insurer is stipulated, it will not be bound by the assignment or transfer unless it was previously notified. o NOTICE to insurer of transfer [Sec. 182.] GR: Notice to insurer NOT NEEDED! Notice to an insurer of a transfer or bequest thereof is not necessary to preserve the validity of a policy of insurance upon life or health, UNLESS thereby expressly required. If such notice was required and policy was assigned W/O notice i) Policy remains valid ii) transfer/assignment becomes ineffective in so far as the insurer is concerned. *UNLESS there was a subsequent waiver of notice by the insurer. WON policy stipulates that consent is needed for transfer > an assignment with the consent of the insurer constitute a novation.

3. Right to Dividends Section 227. In the case of individual life or endowment

insurance, the policy shall contain in substance the following conditions: xxx (e) If the policy is participating, a provision that the company shall periodically ascertain and apportion any divisible surplus accruing on the policy under conditions specified therein;

Participating policy = dividends and benefits in the policy. (Profit sharing)