Commercial Law Review: Maria Zarah Villanueva - Castro

Commercial Law Review
Law on Insurance
Maria Zarah Villanueva - Castro

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INSURANCE CODE (P.D. 1460 as amended)
INTRODUCTION:
A. Laws governing Insurance
Insurance Code primary law
New Civil Code applied suppletorily
specifically on law on obligations and contracts
GSIS Act
Property Insurance Law
Act 1498

B. General Concept of Insurance
Contract of Insurance is an agreement whereby
one undertakes for a consideration to
indemnify another against loss, damage or
liability arising from an unknown or contingent
event. (Sec. 2 par. 2)
*It is a contract of assumption of risk
Q: Who will take the risk?
A: Insurer
Q: Who will be exposed to the risk?
A: Insured

C. Characteristics
1. Risk Distributing Device the device of
insurance serves to distribute the risk of
economic loss among as many as possible
to those who are subject to the same kind
of risk.
*The risk is distributed to the group of
persons having the same risk.
Q: Why is it a risk distribution device?
A: Insurer has different policyholders that
contribute to a common fund for the same
risk. The common fund will indemnify the
person who suffers loss for the same risk.
Catch: not all policyholders will suffer the
same risk at the same time.
2. Contract of Adhesion Insurance is a
contract of adhesion considering that most
of the terms of the contract do not result
from mutual negotiations between the
parties as they are prescribed by the insurer
in printed form to which the insured may
adhere if he chooses but which he cannot
change.
*Insurer always comes up with already
made contract.
Q: Is there a contract?
A: YES.
Importance of knowing whether the
contract is one of adhesion: In case of
doubt, the contract shall be interpreted
strictly against the insurer and liberally in
favor of the insured.
Q: is this rule unfair?
A: NO. Because the contract was already
prepared by the insurer, the only thing that
the insured can do is either take it wholly or
leave it.
3. Aleatory The obligation of the insurer to
pay the proceeds of the insurance arises
only upon the happening of an event which
is uncertain, or which is to occur at an
indeterminate time. (Article 2010 NCC)
*The insurer becomes liable upon the
happening of the peril insured against.
*One or both parties are reciprocally bound
to give or do something for consideration
upon the happening of an event which is
uncertain or to which is to occur at an
indeterminate time.
4. Contract of Indemnity - The insured who
has insurable interest over a property is
only entitled to recover the amount of
actual loss sustained and the burden is
upon him to establish the amount of such
loss.
*It is the basis of all property insurance.
*Life insurance is not a contract of
indemnity. Life is not subject to pecuniary
estimation; Life is precious.
General Rule: Insurance contract is a
contract of indemnity.
Exception: Life insurance
5. Uberrimae Fides Contract/Utmost Good
Faith The contract of insurance is one of
perfect good faith not for the insured alone
but equally so for the insurer; in fact, it is
more so for the latter since its dominant
bargaining position carries with it stricter
responsibility.
*Since there was an assumption of risk on
the part of the insurer, it is their duty to
make an intelligent estimates that is the
reason why it requires the parties to the
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contract of insurance to disclose conditions
affecting the risk of which he is aware, or
material fact, which the applicant knows,
and those, which he ought to know.
*Material facts are facts needed by the
insurer for the determination of whether he
will assume or not the risk.

D. Elements of Insurance
1. Existence of an insurable interest
Sec. 12 of the Insurance Code provides
that: 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.
that: Every interest in property, whether
real or personal, or any relation thereto, or
liability in respect thereof, of such nature
that a contemplated peril might directly
damnify the insured, is an insurable
interest.
that: An insurable interest in property may
consist in:
(a) An existing interest;
(b) An inchoate interest founded on an
existing interest; or
(c) An expectancy, coupled with an existing
interest in that out of which the expectancy
arises.
2. Risk of loss
Sec. 51 paragraph g of the Insurance Code
provides that: A policy of insurance must
specify: x x x (g) The period during which
the insurance is to continue.
3. Assumption of risks
Sec. 2 of the Insurance Code states that:
xxx (1) A contract of insurance is an
agreement whereby one undertakes for a
consideration to indemnify another against
loss, damage or liability arising from an
unknown or contingent event.
4. Scheme to distribute losses
5. Payment of premiums
An insurer is entitled to payment of the
premium as soon as the thing insured is
exposed to the peril insured against.
Notwithstanding any agreement to the
contrary, no policy or contract of insurance
issued by an insurance company is valid and
binding unless and until the premium
thereof has been paid, except in the case of
a life or an industrial life policy whenever
the grace period provision applies.

E. Right of Subrogation
*This principle is a normal incident of indemnity
property insurance as a legal effect of payment;
it inures to the insurer without any formal
assignment or any express stipulation to that
effect in the policy. Said right is not dependent
upon nor does it grow out of any privity of
contract. Payment to the insured makes the
insurer an assignee in equity.
*The insurer can only recover from the third
person what the insured could have recovered.
Thus, there can be no recovery if the insurer
voluntarily paid even if the loss is not covered
by the policy.
*The insured can no longer recover from the
offending party what was paid to him by the
insurer but he can recover any deficiency, that
is, if his damages is more than what was paid.
The deficiency is not covered by the right of
subrogation.
Cases when there is no right of subrogation:
1. The insured by his own act releases the
wrongdoer/third person liable for the loss
2. Where the insurer pays the insured for a
loss or risk not covered by the policy
3. In life insurance
4. For recovery of loss in excess of insurance
coverage
CONTRACT OF INSURANCE:
A. Requisites of a contract of Insurance
1. A subject matter in which the insured has
an insurable interest
2. Event or peril insured against which may be
any future contingent or unknown event,
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past or future and a duration for the risk
thereof
3. A promise to pay or indemnify in a fixed or
ascertainable amount
4. A consideration known as premium
5. Meeting of the minds of the parties

B. Perfection
*An insurance contract is consensual contract
and is therefore perfected the moment there is
a meeting of minds with respect to the object
and the cause or consideration.
*What is being followed in insurance contracts
is what is known as the Cognition Theory.
Q: What is the crucial point?
A: The point wherein there must be an actual
communication to the insured of the approval
of the application.
*In Great Pacific Life Assurance Corporation v
CA, the SC held that the insured is the one
making the offer by submitting an application to
the insurer and the latter accepts the offer by
approving the application. Thus, mere
submission of the application without the
corresponding approval of the policy does not
result in the perfection of the contract of
insurance.

C. Parties to a contract of Insurance
Sec. 6 of the Insurance Code states that: Every
person, partnership, association, or corporation
duly authorized to transact insurance business
as elsewhere provided in this code, may be an
insurer.
Anyone except a public enemy may be
insured.
Beneficiary person designated to receive
proceeds of policy when risk attaches.
General Rule: When one insures his own life, he
may designate any person as the beneficiary,
whether or not the beneficiary has an insurable
interest in the life of the insured.
Exceptions: Persons specified in Article 739 in
re Article 2012 of the New Civil Code.
*The designation of persons mentioned in
Article 739 is void but the policy is binding.
*In property insurance, the beneficiary must
have insurable interest on the property.
Sec. 11 of the Insurance Code states that: The
insured shall have the right to change the
beneficiary he designated in the policy, unless
he has expressly waived this right in said
policy. *The designation is revocable unless
the right to revoke is expressly waived in the
policy.
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.
*In life or health insurance, the insured cannot
assign the policy if the designation of the
beneficiary is irrevocable. Reason: The
irrevocable beneficiary has vested right.
*If the insured refuses to pay the premiums, the
designated irrevocable beneficiary may
continue the policy by paying premiums that
are due. (Article 1236 NCC)
Q: Despite irrevocable designation, may the
insured revoke the beneficiary?
A: YES. Under Article 42 of the Family Code,
Article 43 (4) of the Family Code, Article 50 of
the Family Code and Article 64 of the Family
Code.
1. Rule on minors
Any minor of the age of eighteen years or
more, may, notwithstanding such minority,
contract for life, health and accident
insurance, with any insurance company duly
authorized to do business in the Philippines,
provided the insurance is taken on his own
life and the beneficiary appointed is the
minor's estate or the minor's father,
mother, husband, wife, child, brother or
sister.
*This portion is repealed by RA 6809. Under
RA 6809, minors are no longer allowed to
enter into insurance contracts. This rule is
absolute.
2. Rule on married women
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Sec. 3 of the Insurance Code provides that:
The married woman or the minor herein
allowed to take out an insurance policy may
exercise all the rights and privileges of an
owner under a policy.
*Under RA 7192, married women can enter
into insurance contracts without the
assistance of their husbands.

D. Subject matter of Insurance
Sec. 3 of the Insurance Code states that: Any
contingent or unknown event, whether past or
future, which may damnify a person having an
insurable interest, or create a liability against
him, may be insured against, subject to the
provisions of this chapter.
preceding section does not authorize an
insurance for or against the drawing of any
lottery, or for or against any chance or ticket in
a lottery drawing a prize.

E. Insurance not a wagering contract
preceding section does not authorize an
insurance for or against the drawing of any
lottery, or for or against any chance or ticket in
a lottery drawing a prize.
*Wagering contract is not allowed because it is
against public policy.
Reason: The insured should not be happy
because of the loss he suffered.
Q: What prevents insurance policy from being a
wagering contract?
A: Insurable interest.
INSURABLE INTEREST:
A. Concept of Insurable Interest in General
*A person has an insurable interest in the
subject matter if he is so connected, so
situated, so circumstanced, so related, that by
the preservation of the same he shall derive
pecuniary benefit, and by its destruction he
shall suffer pecuniary loss, damage or
prejudice.
*Insurable interest does not exist by legal
relationship or by virtue of law.

B. Reason for the requirement of insurable
interest
*A policy issued to a person without the
requisite insurable interest in the subject
matter is a mere wager policy or contract,
hence, it is VOID.
Evil sought to be avoided: Temptation to
destroy the thing insured.
Reason: He has nothing to lose but everything
to gain.

C. Insurable interest in Life Insurance
Every person has an insurable interest in the
life and health:
(a) Of himself, of his spouse and of his children;
(b) Of any person on whom he depends wholly
or in part for education or support, or in whom
he has a pecuniary interest;
(c) Of any person under a legal obligation to him
for the payment of money, or respecting
property or services, of which death or illness
might delay or prevent the performance; and
(d) Of any person upon whose life any estate or
interest vested in him depends.
Q: May warehouseman insure the goods
deposited in his warehouse?
A: YES. In case of loss of the goods the
warehouseman is liable to the owner of the
goods.
Q: May bottomry lender insures the
hypothecated vessel?
A: YES. There is an insurable interest up to the
amount covered by the bottomry.
Q: Who gets the proceeds of the insurance?
A: The insured and the beneficiary.
*In life insurance, persons prohibited to make
donation to each other are also prohibited to
become beneficiaries of each other.
*For disqualification purposes, what is needed
is only a preponderance of evidence.

D. Insurable interest in Property Insurance
Every interest in property, whether real or
personal, or any relation thereto, or liability in
respect thereof, of such nature that a
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contemplated peril might directly damnify the
insured, is an insurable interest.
Sec. 14 of the Insurance Code states that: An
insurable interest in property may consist in:
(a) An existing interest;
(b) An inchoate interest founded on an existing
interest; or
(c) An expectancy, coupled with an existing
interest in that out of which the expectancy
arises.
*In general, a person has an insurable interest
in the property, if he derives pecuniary benefit
or advantage from its preservation or would
suffer pecuniary loss, damage or prejudice by its
destruction whether he has or has no title in, or
lien upon, or possession of the property.
*Existence of insurable interest is a matter of
public policy, hence, the principle of estoppels
cannot be invoked.
*In order for hope or expectancy to be
insurable, it must be coupled with existing
interest out of which the expectancy arises. It
must be founded on an actual right to the thing
or upon a valid contract.
interest in property insured must exist when
the insurance takes effect, and when the loss
occurs, but not exist in the meantime; and
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.
Except in the cases specified in the next four
sections, and in the cases of life, accident, and
health insurance, a change of interest in any
part of a thing insured unaccompanied by a
corresponding change in interest in the
insurance, suspends the insurance to an
equivalent extent, until the interest in the thing
and the interest in the insurance are vested in
the same person.
Every stipulation in a policy of insurance for
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.
1. Insurable interest in case of mortgaged
property
Unless the policy otherwise provides,
where a mortgagor of property effects
insurance in his own name providing that
the 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.
a. Standard or Union Mortgage Clause
subsequent acts of the mortgagor
cannot affect the rights of the assignee.
b. Open or Loss Payable Clause acts of
the mortgagor affect the mortgagee.
Reason: Mortgagor does not cease to
be a party to the contract.
Basis: Sec. 8 of the Insurance Code
states that: Unless the policy
otherwise provides, where a mortgagor
of property effects insurance in his own
name providing that the 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
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named, with the same effect as if it had
been performed by the mortgagor.
Sec. 9 of the Insurance Code states
that: 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
obligation on the assignee, making a
new contract with him, the act of the
mortgagor cannot affect the rights of
said assignee.
2. Effect of change of interest in the thing
insured
Except in the cases specified in the next
four sections, and in the cases of life,
accident, and health insurance, a change of
interest in any part of a thing insured
unaccompanied by a corresponding change
in interest in the insurance, suspends the
insurance to an equivalent extent, until the
interest in the thing and the interest in the
insurance are vested in the same person.
A change in interest in a thing insured,
after the occurrence of an injury which
results in a loss, does not affect the right of
the insured to indemnity for the loss.
A change of interest in one or more several
distinct things, separately insured by one
policy, does not avoid the insurance as to
the others.
*This is a divisible policy.
A change on interest, by will or succession,
on the death of the insured, does not avoid
an insurance; and his interest in the
insurance passes to the person taking his
interest in the thing insured.
*This is by operation of law.
A transfer of interest by one of several
partners, joint owners, or owners in
common, who are jointly insured, to the
others, does not avoid an insurance even
though it has been agreed that the
insurance shall cease upon an alienation of
the thing insured.
that: 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.
*The policy follows where the interest is.
that: The mere transfer of a thing insured
does not transfer the policy, but suspends it
until the same person becomes the owner
of both the policy and the thing insured.
Article 1306 of the New Civil Code provides
that: The contracting parties may establish
such stipulations, clauses, terms and
conditions as they may deem convenient,
provided they are not contrary to law,
morals, good customs, public order, or
public policy.

Insurable
Interest in
Property
Insurable
Interest in
Life
As to
measure
Limited to
the actual
value of the
interest in
the
property.
General
Rule:
Insurable
Interest in
life is
unlimited.
Exception: In
life
insurance
effected by a
creditor on
the life of
the debtor.
As to time
when
insurable
interest must
exist
The
insurable
interest
exists when
the
insurance
takes effect
and when
the loss
occurs but
not need
exist in the
meantime.
General
Rule: It is
enough that
the insurable
interest
exists at the
time the
policy takes
effect and
need not
exist at the
time of the
loss.
Exception:
Obligee
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must have
insurable
interest at
the time the
policy took
effect and at
the time of
loss.
As to
expectation
of benefit to
be derived
There must
be a legal
basis.
The
expectation
of the
benefit to be
derived need
not have any
legal basis.
As to the
beneficiarys
interest
The
beneficiary
must have
insurable
interest
over the
thing
insured.
The policy is
still valid,
only the
designation
was avoided
because the
beneficiary
has no
insurable
interest.
General
Rule: The
beneficiary
need not
have
insurable
interest over
the life of
the insured
if the
insured
himself
secured the
policy.
Exception: If
the life
insurance
was
obtained by
the
beneficiary,
the latter
must have
insurable
interest over
the life of
the insured.
Q: In case where the designated beneficiary
cannot claim the proceeds due to the fact
that such designation was void, who can
claim the proceeds?
A: Insured.
DEVICES FOR ASCERTAINING AND CONTROLLING RISK
AND LOSS:
*Concealment and representation are devices that are
related to the formation of the contract whereas
warranties and condition are devices that are related to
the execution of the contract.
A. Concealment
1. Concept
Q: When is there concealment?
that: A neglect to communicate that which
a party knows and ought to communicate,
is called a concealment.
2. Duty to Communicate
Each party to a contract of insurance must
communicated to the other, in good faith,
all facts within his knowledge which are
material to the contract and as to which he
makes no warranty, and which the other
has not the means of ascertaining.
3. Test of Materiality
that: Materiality is to be determined not
by the event, but solely by the probable and
reasonable influence of the facts upon the
party to whom the communication is due,
in forming his estimate of the disadvantages
of the proposed contract, or in making his
inquiries.
*The fact disclosed may not be the
proximate cause of the loss still there is
breach because there is a vitiation of
consent, the contract is voidable.
4. Effect of Concealment
that: A concealment whether intentional
or unintentional entitles the injured party
to rescind a contract of insurance.
that: An intentional and fraudulent
omission, on the part of one insured, to
communicate information of matters
proving or tending to prove the falsity of a
warranty, entitles the insurer to rescind.
*It vitiates the contract and entitles the
insurer to rescind, even if the death or loss
is due to a cause not related to the
concealed matter.
5. Matters which need not be communicated
that: Neither party to a contract of
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insurance is bound to communicate
information of the matters following,
except in answer to the inquiries of the
other:
(a) Those which the other knows;
(b) Those which, in the exercise of ordinary
care, the other ought to know, and of which
the former has no reason to suppose him
ignorant;
(c) Those of which the other waives
communication;
(d) Those which prove or tend to prove the
existence of a risk excluded by a warranty,
and which are not otherwise material; and
(e) Those which relate to a risk excepted
from the policy and which are not
otherwise material.
*Things need not be disclosed.
that: Each party to a contract of insurance
is bound to know all the general causes
which are open to his inquiry, equally with
that of the other, and which may affect the
political or material perils contemplated;
and all general usages of trade.
that: Information of the nature or amount
of the interest of one insured need not be
communicated unless in answer to an
inquiry, except as prescribed by section
fifty-one.
that: Neither party to a contract of
insurance is bound to communicate, even
upon inquiry, information of his own
judgment upon the matters in question.
6. Waiver of Information
that: The right to information of material
facts may be waived, either by the terms of
the insurance or by neglect to make inquiry
as to such facts, where they are distinctly
implied in other facts of which information
is communicated.

B. Representation
1. Concept
Representations are factual statements
made by the insured at the time of or prior
to the issuance of the policy to give
information to the insurer and otherwise
induce him to enter into the insurance
contract.
*Representation per se is not wrong as long
as such representation is true.
*The false representation may still be
corrected as long as it is made before the
issuance of the policy.
2. Kinds of Representation
that: A representation may be oral or
written.
that: representation may be made at the
time of, or before, issuance of the policy.
that: A representation as to the future is to
be deemed a promise, unless it appears
that it was merely a statement of belief or
expectation.
that: . A representation must be presumed
to refer to the date on which the contract
goes into effect.
3. Test of Materiality
that: The materiality of a representation is
determined by the same rules as the
materiality of a concealment.
*Facts that may probably and reasonably
influence the other party in forming his
estimate.
4. Effect of Alteration or Withdrawal
that: A representation may be altered or
withdrawn before the insurance is effected,
but not afterwards.
5. Time to which representation refers
A representation must be presumed to
refer to the date on which the contract goes
into effect.
6. Effect when representation is obtained
from third persons
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that: When a person insured has no
personal knowledge of a fact, he may
nevertheless repeat information which he
has upon the subject, and which he believes
to be true, with the explanation that he
does so on the information of others; or he
may submit the information, in its whole
extent, to the insurer; and in neither case is
he responsible for its truth, unless it
proceeds from an agent of the insured,
whose duty it is to give the information.
7. When presumed false; effect of falsity
that: A representation is to be deemed
false when the facts fail to correspond with
its assertions or stipulations.
If a representation is false in a material
point, whether affirmative or promissory,
the injured party is entitled to rescind the
contract from the time when the
representation becomes false. The right to
rescind granted by this Code to the insurer
is waived by the acceptance of premium
payments despite knowledge of the ground
for rescission.

C. Remedies available in case of Concealment or
False Representation
1. When rescission by the insurer may be
exercised
Whenever a right to rescind a contract of
insurance is given to the insurer by any
provision of this chapter, such right must be
exercised previous to the commencement
of an action on the contract.
After a policy of life insurance made
payable on the death of the insured shall
have been in force during the lifetime of the
insured for a period of two years from the
date of its issue or of its last reinstatement,
the insurer cannot prove that the policy is
void ab initio or is rescindible by reason of
the fraudulent concealment or
misrepresentation of the insured or his
agent.
General Rule: Prescriptive period: Any time
before the commencement of a court
action on the contract.
Exception: In case of life insurance made
payable on the death of the insured.
Q: How rescission is made?
A: By sending notice of cancellation or
rescission to the insured.
Even if there is a court action, the insurer
may raise concealment or representation as
an affirmative defense.
2. When Life insurance policy becomes
incontestable
Whenever a right to rescind a contract of
insurance is given to the insurer by any
provision of this chapter, such right must be
exercised previous to the commencement
of an action on the contract.
payable on the death of the insured shall
have been in force during the lifetime of the
insured for a period of two years from the
date of its issue or of its last reinstatement,
the insurer cannot prove that the policy is
void ab initio or is rescindible by reason of
the fraudulent concealment or
agent.
a. Requisites for incontestability
1. The insurance is a life insurance
policy payable on the death of the
insured.
2. It has been in force during the
lifetime of the insured for at least 2
years from its date of issue or of its
last reinstatement. The period of 2
years may be shortened but it
cannot be extended by stipulation.
*The defense should be misrepresentation
or concealment only.
*If the insured dies within 2 year period,
the insurer may still rescind the contract. If
the insured died after the 2 year period, the
insurer cannot rescind the contract.
b. Theory and Object of incontestability
payable on the death of the insured
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shall have been in force during the
lifetime of the insured for a period of 2
years from the date of its issue or of its
last reinstatement, the insurer cannot
prove that the policy is void ab initio or
is rescindable by reason of the
fraudulent concealment or
agent.
c. Defenses not barred by
incontestability
1. The person taking the insurance
lacked insurable interest as
required by law
2. The cause of the death of the
insured is an excepted risk
3. The premiums have not been paid
4. The conditions of the policy relating
to military or naval service have
been violated
5. The fraud is of a particularly vicious
type
6. The beneficiary failed to furnish
proof of death or to comply with
any condition imposed by the policy
after the loss has happened
7. The action was not brought within
the time specified.
8.
D. Warranties
1. Concept; distinguished from
representation
Warranty is a statement or promise set
forth in the policy or by reference
incorporated therein, the untruth or non-
fulfillment of which in any respect, and
without reference to whether insurer was
in fact prejudiced by such untruth or non-
fulfillment , renders the policy voidable.
Condition is a provision wherein certain
things are mandated by the insurer to be
complied with by the insured in order for
the latter to recover.
Examples:
1. Filing of the claim on time
2. Notice of loss
3. Proof of loss
*The condition may be complied with
before or after the loss.

Warranty Representation
Part of the contract A collateral
inducement
Written on the
policy or in a valid
rider or attachment
Need not be written
Generally
conclusively
presumed to be
material
Should be
established to be
material
The fact warranted
must be strictly
complied with
Requires only to be
substantially true

2. Kinds of Warranties
1. Express
2. Implied warranties that are deemed
included in the contract although not
expressly mentioned.
3. Affirmative asserts the existence of a
fact or condition at the time it is made.
4. Promissory the insured stipulates that
certain facts or conditions shall exists or
thing shall be done or omitted.
3. Time to which warranty refers
that: A warranty may relate to the past,
the present, the future, or to any or all of
these.
4. Effect of Breach
The violation of a material warranty, or
other material provision of a policy, on the
part of either party thereto, entitles the
other to rescind.
A policy may declare that a violation of
specified provisions thereof shall avoid it,
otherwise the breach of an immaterial
provision does not avoid the policy.
A breach of warranty without fraud merely
exonerates an insurer from the time that it
occurs, or where it is broken in its inception,
prevents the policy from attaching to the
risk.
Law on Insurance

11

POLICY OF INSURANCE:
A. Definition and Form
written instrument in which a contract of
insurance is set forth, is called a policy of
insurance.
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. 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. 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. Group insurance and
group annuity policies, however, may be
typewritten and need not be in printed form.
*Contract of insurance may be made in any
form but the policy of insurance must be in
writing.

B. Fine Print Rule
Insurance is a contract of adhesion considering
that most of the terms of the contract do not
result from mutual negotiations between the
parties as they are prescribed by the insurer in
printed form to which the insured may
adhere if he chooses but which he cannot
change.

C. Contents of the Policy
Sec. 51 of the Insurance Code provides that: 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.

D. Papers attached to the policy and their binding
effect (rider, warranties, clause, endorsement)
Rider is an attachment to an insurance policy
that modifies the conditions of the policy by
expanding or restricting its benefits or excluding
certain conditions from the coverage.
*Riders, together with other attachments to the
policy like clause, warranty or endorsements,
are not binding on the insured unless the
descriptive title or name thereof is mentioned
and written on the blank spaces provided in the
policy.
Purpose: To modify the conditions or
provisions.
Interpretation: In case of doubt, riders prevail
over the policy.
*Riders and the like shall be countersigned by
the insured or owner unless he was the one
who applied for the rider, clause, and warranty.
*When the requirements for a rider are
complied with including clause, warranty or
endorsement, it is considered part of the policy.
*It is a part of the original policy which is in the
nature of a conditional obligation.

E. Kinds of Policy
1. Open
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.
*To put a threshold for purposes of
premium.
Advantage: actual valuation; the final
valuation is accurate value of the property
Law on Insurance

12

Disadvantage: hassle
Example:
Warehouse valued for P1M
At the time of loss the actual valuation of
the warehouse is P800,000
The insured can only recover P800,000
2. Valued
that: A valued policy is one which
expresses on its face an agreement that the
thing insured shall be valued at a specific
sum.
Example:
a. Warehouse valued for P1M
Agreed valuation is P1M
The insured can recover the whole P1M
without proving the actual value of the
property.
b. Warehouse valued for P1.5M
Agreed valuation is P1M
The insurer can only recover P1M
3. Running
that: 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.
*Usually covers stock and goods in
warehouse
Purpose: Avoidance of over and under
insurance.

F. Cover Notes
Cover notes may be issued to bind insurance
temporarily pending the issuance of the policy.
Within sixty days after the issue of the cover
note, a policy shall be issued in lieu thereof,
including within its terms the identical
insurance bound under the cover note and the
premium therefor. Cover notes may be
extended or renewed beyond such sixty days
with the written approval of the Commissioner
if he determines that such extension is not
contrary to and is not for the purpose of
violating any provisions of this Code. The
Commissioner may promulgate rules and
regulations governing such extensions for the
purpose of preventing such violations and may
by such rules and regulations dispense with the
requirement of written approval by him in the
case of extension in compliance with such rules
and regulations.
*This is a preliminary contract of insurance.
*The protection is temporary; limited to 60 days
only
*In Pacific Timber Export Corporation v CA, the
SC held that no separate premium is required
for the cover note. As an exception, the parties
may agree otherwise.

G. Cancellation of Policy
Sec. 64 of the Insurance Code states that: 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;
(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.
Prescriptive Period:
Oral = 6 years; written= 10 years
Sec. 65 of the Insurance Code states that: 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.
Law on Insurance

13

Sec. 66 of the Insurance Code states that: 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.

H. Time to commence action on the policy; effect
of stipulation
Q: When cause of action accrues?
A: From the denial of the claim.
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.
PREMIUM:
A. Concept
Premium is the consideration paid to an insurer
for undertaking to indemnify the insured
against a specified peril.
Q: Who pays the premium?
A: Insured
Q: What is the consideration?
A: Insured: premium; Insurer: Assumption of
risk

B. Effect of non-payment of premium; exceptions
Sec. 77 of the Insurance Code states that: . An
insurer is entitled to payment of the premium
as soon as the thing insured is exposed to the
peril insured against. Notwithstanding any
agreement to the contrary, no policy or
contract of insurance issued by an insurance
company is valid and binding unless and until
the premium thereof has been paid, except in
the case of a life or an industrial life policy
whenever the grace period provision applies.
*This is called as Cash and Carry Rule
acknowledgment in a policy or contract of
insurance or the receipt of premium is
conclusive evidence of its payment, so far as to
make the policy binding, notwithstanding any
stipulation therein that it shall not be binding
until the premium is actually paid.
General Rule: No insurance policy issued or
renewal is valid and binding until actual
payment of premium. Any agreement to the
contrary is void. (Cash and Carry Rule)
Exceptions:
1. In case of life and industrial life whenever
the grace period provision applies (Sec. 77);
Requisites:
a. Life and industrial life insurance
b. There is a grace period
c. Grace period still exists
2. Where there is an acknowledgment in the
contract or policy of insurance that the
premium had already been paid (Sec. 78);
Conclusive effect: the validity of the
contract/policy and its binding effect.
*No conclusive effect as to the payment of
premium.
*Acknowledgment results to estoppel
3. The rule laid down in Makati Tuscany
Condominium v CA to the effect that Sec.
77 may not apply if the parties have agreed
to the payment of the premium in
installments and partial payment has been
made at the time of the loss;
*By express agreement
Q: What was agreed upon?
A: Payment by instalment plan
4. Where a credit term was agreed upon like
the agreement in UCPB General Insurance,
Inc. v Masagana Telemart where the
insurer granted a 60-90 day credit term for
the payment of the premiums despite full
awareness of Sec.77;
*By previous conduct/practice
*Insured = principle of equity; insurer =
estoppel.
Law on Insurance

14

5. Where the parties are barred by estoppels
Article 1306 of the : New Civil Code states
that: The contracting parties may establish
such stipulations, clauses, terms and conditions
as they may deem convenient, provided they
are not contrary to law, morals, good customs,
public order, or public policy.

C. When insured entitled to return of premiums
Sec. 79 of the Insurance Code states that: A
person insured is entitled to a return of
premium, as follows:
(a) To the whole premium if no part of his
interest in the thing insured be exposed to any
of the perils insured against;
(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.
Sec. 80 of the Insurance Code states that: If a
peril insured against has existed, and the
insurer has been liable for any period, however
short, the insured is not entitled to return of
premiums, so far as that particular risk is
concerned.
person insured is entitled to return of the
premium when the contract is voidable, on
account of fraud or misrepresentation of the
insurer, or of his agent, or on account of facts,
the existence of which the insured was ignorant
without his fault; or when by any default of the
insured other than actual fraud, the insurer
never incurred any liability under the policy.
case of an over-insurance by several insurers,
the insured is entitled to a ratable return of the
premium, proportioned to the amount by which
the aggregate sum insured in all the policies
exceeds the insurable value of the thing at risk.
PERSONS ENTITLED TO RECOVER ON THE POLICY AND
CONDITIONS TO RECOVERY:
A. Beneficiary
The insured shall have the right to change the
beneficiary he designated in the policy, unless
he has expressly waived this right in said
policy.
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.
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.
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.
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.
Q: Who receives the proceeds?
A: General Rule: Beneficiary
Exception: In case the designated beneficiary is
disqualified, it is the insured who receive the
proceeds.
General Rule: The designation of the
beneficiary is revocable.
Exception: Irrevocable
In irrevocable designation, the general rule is
that the designated beneficiary cannot be
changed.
Exceptions:
1. The beneficiary consented to the change
Law on Insurance

15

2. Under Art. 45 of the Family Code which
substantially provides that the innocent
spouse has the authority to revoke the
designation of his beneficiary
3. In cases where the marriage is declared
void ab initio
4. In cases of annulment
5. In cases of legal separation

B. Limitations on the appointment of beneficiary
Article 2012 of the New Civil Code states that:
Any person who is forbidden from receiving
any donation under Article 739 cannot be
named beneficiary of a life insurance policy by
the person who cannot make any donation to
him, according to said article.
*The prohibition applies only to life insurance
policy.
*Under Article 1236 of the New Civil Code, the
beneficiary may pay the premium even against
the will of the insurer.
Reason: Beneficiary has interest over the
insurance policy.
Article 739 of the New Civil Code states that:
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.
In the case referred to in No. 1, the action for
declaration of nullity may be brought by the
spouse of the donor or donee; and the guilt of
the donor and donee may be proved by
preponderance of evidence in the same action.

C. Rule where insurance is made by an agent or
trustee
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.

D. Rule where insurance if made by partner or
part owner
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.
E. Notice and proof of loss
case of loss upon an insurance against fire, an
insurer is exonerated, if notice thereof be not
given to him by an insured, or some person
entitled to the benefit of the insurance, without
unnecessary delay.
When a preliminary proof of loss is required by
a policy, the insured is not bound to give such
proof as would be necessary in a court of
justice; but it is sufficient for him to give the
best evidence which he has in his power at the
time.
All defects in a notice of loss, or in preliminary
proof thereof, which the insured might remedy,
and which the insurer omits to specify to him,
without unnecessary delay, as grounds of
objection, are waived.
Delay in the presentation to an insurer of
notice or proof of loss is waived if caused by any
act of him, or if he omits to take objection
promptly and specifically upon that ground.
Sec. 92 of the Insurance Code provides that: If
the policy requires, by way of preliminary proof
of loss, the certificate or testimony of a person
other than the insured, it is sufficient for the
insured to use reasonable diligence to procure
it, and in case of the refusal of such person to
give it, then to furnish reasonable evidence to
the insurer that such refusal was not induced by
any just grounds of disbelief in the facts
necessary to be certified or testified.
DOUBLE INSURANCE:
Law on Insurance

16

A. Definition and requisites
double insurance exists where the same person
is insured by several insurers separately in
respect to the same subject and interest.
Requisites:
1. The person insured is the same
2. There are two or more insurers insuring
separately
3. The subject matter is the same
4. The interest insured is also the same
5. The risk or peril insured against is likewise
the same

B. Distinguished from Over-insurance
Distinctions:
Double Insurance Over-Insurance
There may be no over-
insurance as when the
sum total of the
amounts of the
policies issued does
not exceed the
insurable interest of
the insured
When the amount of
the insurance is
beyond the value of
the insureds insurable
interest
There are always
several insurers
There may only be one
insurer involved

*There is over-insurance if the total amount
exceeds the value of the thing insured.
Example:
In Fire Insurance, A insured his property to X for
500,000, to Y for 1M and to Z for 1M totalling to
P2.5M. The property valued only for 1M. In this
situation there is over-insurance.

C. Stipulation against double insurance
Q: Is double insurance legally prohibited?
A: General Rule: NO.
Exception: If prohibited by an other insurance
clause.
Basis: Sec. 75 of the Insurance Code which
provides that: A policy may declare that a
violation of specified provisions thereof shall
avoid it, otherwise the breach of an immaterial
provision does not avoid the policy.

D. Rules for payment where there is over-
insurance by double insurance
Where the insured is over-insured by double
insurance:
(a) The insured, unless the policy otherwise
provides, may claim payment from the insurers
in such order as he may select, up to the
amount for which the insurers are severally
liable under their respective contracts;
(b) Where the policy under which the insured
claims is a valued policy, the insured must give
credit as against the valuation for any sum
received by him under any other policy without
regard to the actual value of the subject matter
insured;
(c) Where the policy under which the insured
claims is an unvalued policy he must give credit,
as against the full insurable value, for any sum
received by him under any policy;
(d) Where the insured receives any sum in
excess of the valuation in the case of valued
policies, or of the insurable value in the case of
unvalued policies, he must hold such sum in
trust for the insurers, according to their right of
contribution among themselves;
(e) Each insurer is bound, as between himself
and the other insurers, to contribute ratably to
the loss in proportion to the amount for which
he is liable under his contract.
Formula:
Insurance Policy
--------------------------- x Amount of loss
Total of Policy taken

500000
X = --------- x 1M = 200,000
2.5M

1M
Y = -------- x 1M = 400,000
2.5M

1M
Z = -------- x 1M = 400,000
2.5M

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17

*The balance shall be returned.
*As far as the excess payment is concern, the
excess shall be held in trust by the insured.

REINSURANCE:
*This is called a Liability Insurance
A. Definition
contract of reinsurance is one by which an
insurer procures a third person to insure him
against loss or liability by reason of such original
insurance.
Example:
In fire insurance, A insured his property against
fire to X, X reinsured his obligation to Y.
Q: Can A recover to the reinsurer?
A: General Rule: NO
Reason: No privity of contract
Exception: Stipulation stating that the policy is
taken for the benefit of the insured of the first
contract of insurance. (Stipulation pour autrui)
Q: Can X recover from Y even if X has not yet
pay A?
A: YES. Immediately arises from the time the
liability of X has occur.

B. Nature
reinsurance is presumed to be a contract of
indemnity against liability, and not merely
against damage.
The original insured has no interest in a
contract of reinsurance.
Q: Is reinsurance mandatory?
A: General Rule: NO
Exceptions:
1. Sec. 215 of the Insurance Code which
provides that: No insurance company
other than life, whether foreign or
domestic, shall retain any risk on any one
subject of insurance in an amount
exceeding twenty per centum of its net
worth. For purposes of this section, the
term "subject of insurance" shall include all
properties or risks insured by the same
insurer that customarily are considered by
non-life company underwriters to be
subject to loss or damage from the same
occurrence of any hazard insured against.
Reinsurance ceded as authorized under the
succeeding title shall be deducted in
determining the risk retained. As to surety
risk, deduction shall also be made of the
amount assumed by any other company
authorized to transact surety business and
the value of any security mortgage,
pledged, or held subject to the surety's
control and for the surety's protection.
2. Sec. 275 of the Insurance Code which
provides that: Every foreign insurance
company desiring to withdraw from the
Philippines shall, prior to such withdrawal,
discharge its liabilities to policyholders and
creditors in this country. In case of its
policies insuring residents of the
Philippines, it shall cause the primary
liabilities under such policies to be
reinsured and assumed by another
insurance company authorized to transact
business in the Philippines. In the case of
such policies as are subject to cancellation
by the withdrawing company, it may cancel
such policies pursuant to the terms thereof
in lieu of such reinsurance and assumption
of liabilities.

C. Distinguished from double insurance
Distinctions:
Reinsurance Double Insurance
Insurance of different
interests
Involves same interest
Insurer becomes an
insured in relation to
reinsurer
Insurer remains in
such capacity
Original insured has no
interest in reinsurance
contract
Insured in the 1
st

contract is a party in
interest in the 2
nd

contract
Subject of insurance is
the original insurers
risk
Subject of insurance is
property
Consent of original
insured, not necessary
Insured has to give his
consent

D. Duty of reinsured to disclose facts
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18

Where an insurer obtains reinsurance, except
under automatic reinsurance treaties, he must
communicate all the representations of the
original insured, and also all the knowledge and
information he possesses, whether previously
or subsequently acquired, which are material to
the risk.
MARINE INSURANCE:
A. Definition
Marine Insurance includes policies that covers
risks connected with navigation, to which a
ship, cargo, freightage, profits or other
insurable interest in movable property, may be
exposed during a certain voyage or a fixed
period of time.
Basis: Sec. 99 of the Insurance Code.

B. Scope of marine insurance
Marine Insurance includes:
(1) Insurance against loss of or damage to:
(a) Vessels, craft, aircraft, vehicles, goods,
freights, cargoes, merchandise, effects,
disbursements, profits, moneys, securities,
choses in action, evidences of debts, valuable
papers, bottomry, and respondentia interests
and all other kinds of property and interests
therein, in respect to, appertaining to or in
connection with any and all risks or perils of
navigation, transit or transportation, or while
being assembled, packed, crated, baled,
compressed or similarly prepared for shipment
or while awaiting shipment, or during any
delays, storage, transhipment, or reshipment
incident thereto, including war risks, marine
builder's risks, and all personal property floater
risks;
(b) Person or property in connection with or
appertaining to a marine, inland marine, transit
or transportation insurance, including liability
for loss of or damage arising out of or in
connection with the construction, repair,
operation, maintenance or use of the subject
matter of such insurance (but not including life
insurance or surety bonds nor insurance against
loss by reason of bodily injury to any person
arising out of ownership, maintenance, or use
of automobiles);
(c) Precious stones, jewels, jewelry, precious
metals, whether in course of transportation or
otherwise;
(d) Bridges, tunnels and other instrumentalities
of transportation and communication
(excluding buildings, their furniture and
furnishings, fixed contents and supplies held in
storage); piers, wharves, docks and slips, and
other aids to navigation and transportation,
including dry docks and marine railways, dams
and appurtenant facilities for the control of
waterways.
(2) "Marine protection and indemnity
insurance," meaning insurance against, or
against legal liability of the insured for loss,
damage, or expense incident to ownership,
operation, chartering, maintenance, use, repair,
or construction of any vessel, craft or
instrumentality in use of ocean or inland
waterways, including liability of the insured for
personal injury, illness or death or for loss of or
damage to the property of another person.
*In Roque v IAC, the SC held that cargo can be
the subject of marine insurance, and once it is
entered into, the implied warranty of
seaworthiness immediately attaches to
whoever is insuring the cargo, whether he be
the shipowner or not. Although he has no
control over the vessel, the shipper has control
in the choice of vessel.

C. Risks or losses covered in marine insurance
1. Perils of the sea vs. perils of the ship
Perils of the Sea Perils of the Ship
Include only those
casualties due to
the unusual
violence or
extraordinary
causes connected
with navigation. It
has been said to
include only such
losses as are of
extraordinary
nature or arise
from some
overwhelming
Is a loss which is in
the ordinary course
of events, results:
1. From the
ordinary,
natural and
inevitable
action of the
sea;
2. From
ordinary
wear and
tear of the
ship; and
Law on Insurance

19

power which
cannot be guarded
against by the
ordinary exertion of
human skill or
prudence, as
distinguished from
the ordinary wear
and tear of the
voyage and from
injuries suffered by
the vessel in
consequence of her
not being
unseaworthy.
3. From the
negligent
failure of the
ships owner
to provide
the vessel
with the
proper
equipment to
convey the
cargo under
ordinary
conditions.
Extraordinary perils Usual perils
attendant to
navigation
*Only perils of the sea are assumed by the
insurer.
2. all risks marine insurance policy means
that all risks are covered unless expressly
excepted. The burden rests on the insurer
to prove that the loss is caused by a risk
that is excluded.

D. Insurable interest in marine insurance
1. Ship owners insurable interest
that: The owner of a ship has in all cases
an insurable interest in it, even when it has
been chartered by one who covenants to
pay him its value in case of loss: Provided,
That in this case the insurer shall be liable
for only that part of the loss which the
insured cannot recover from the charterer.
*The insurable interest of the shipowner is
over the value of the vessel and over
expected freightage.
Measurement: Ownership
*It does not matter whether the ship was
mortgaged or chartered.
a. Rule where vessel is chartered
that: The owner of a ship has in all
cases an insurable interest in it, even
when it has been chartered by one who
covenants to pay him its value in case of
loss: Provided, That in this case the
insurer shall be liable for only that part
of the loss which the insured cannot
recover from the charterer.
Q: What is a charter party?
A: A contract where the owner lends his
whole vessel to a charterer for a
particular voyage.
*Indemnity Principle applies
b. Rule where vessel hypothecated by
bottomry
Sec. 101 of the Insurance Code which
provides that: The insurable interest of
the owner of the ship hypothecated by
bottomry is only the excess of its value
over the amount secured by bottomry.
*Principle of Indemnity applies.
Q: What is bottomry?
A: it is a contract of loan which said
loan is used for the repair of the vessel.
The payment of which is conditional.
*The owners insurable interest is the
amount in excess of the value of the
ship over the amount secured by the
bottomry
*Owner incurs loss due to the damage
of the vessel but at the same time he
receives gain due to the extinguishment
of his loan obligation.
c. Insurable interest in freightage
that: Freightage, in the sense of a
policy of marine insurance, signifies all
the benefits derived by the owner,
either from the chartering of the ship or
its employment for the carriage of his
own goods or those of others.
Sec. 103 of the Insurance Code
provides that: The owner of a ship has
an insurable interest in expected
freightage which according to the
ordinary and probable course of things
he would have earned but for the
intervention of a peril insured against or
other peril incident to the voyage.
*Supposed earnings may be subject to
marine insurance.
2. Charterers insurable
that: The charterer of a ship has an
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insurable interest in it, to the extent that he
is liable to be damnified by its loss.

E. Concealment
1. Meaning of concealment in marine
insurance
*Definition of concealment in marine
insurance is the same as what defined in
Sec. 26 of the Insurance Code.
*However, concealment under the marine
insurance is more strict than the ordinary
insurance
Reason: Unpredictable risk
*In marine insurance, opinions and
expectations of third persons are
considered, whereas in ordinary insurance
as a general rule, opinions of third persons
are not necessary. Exception: expert
opinion.
2. Duty to communicate
provides that: In marine insurance each
party is bound to communicate, in addition
to what is required by section twenty-eight,
all the information which he possesses,
material to the risk, except such as is
mentioned in Section thirty, and to state
the exact and whole truth in relation to all
matters that he represents, or upon inquiry
discloses or assumes to disclose.
3. Opinions or expectations of third persons
provides that: In marine insurance,
information of the belief or expectation of a
third person, in reference to a material fact,
is material.
4. When concealment does not vitiate the
entire contract
A concealment in a marine insurance, in
respect to any of the following matters,
does not vitiate the entire contract, but
merely exonerates the insurer from a loss
resulting from the risk concealed:
(a) The national character of the insured;
(b) The liability of the thing insured to
capture and detention;
(c) The liability to seizure from breach of
foreign laws of trade;
(d) The want of necessary documents;
(e) The use of false and simulated papers.

F. Representations
1. Effect of false representation by the
insured
If a representation by a person insured by
a contract of marine insurance, is
intentionally false in any material respect,
or in respect of any fact on which the
character and nature of the risk depends,
the insurer may rescind the entire
contract.
2. Effect of false representation as to
expectation
that: The eventual falsity of a
representation as to expectation does not,
in the absence of fraud, avoid a contract of
marine insurance.
G. Implied warranties in marine insurance
1. Seaworthiness
that: In every marine insurance upon a
ship or freight, or freightage, or upon any
thing which is the subject of marine
insurance, a warranty is implied that the
ship is seaworthy.
*Charterer is also subject to warranty on
seaworthiness because he has control in the
selection of the ship to be leased.
*Bottomry lender is also subject to
warranty on seaworthiness because he has
also the control in the selection of the
vessel.
a. What constitutes seaworthiness
that: A ship is seaworthy when
reasonably fit to perform the service
and to encounter the ordinary perils of
the voyage contemplated by the parties
to the policy.
Q: What makes a vessel seaworthy?
A: Sec. 114. Fitness of the vessel is the
general test.
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*Warranty on the condition of the ship
Example:
Shipowner insured his vessel with X
insurer.
On the part of the insurer, the inured
warrants that his vessel is ship worthy.
The burden falls on the
shipowner/insured of proving
otherwise.
*Seaworthiness depends on the
transaction entered into or undertaken
by the ship.
that: A warranty of seaworthiness
extends not only to the condition of the
structure of the ship itself, but requires
that it be properly laden, and provided
with a competent master, a sufficient
number of competent officers and
seamen, and the requisite
appurtenances and equipment, such as
ballasts, cables and anchors, cordage
and sails, food, water, fuel and lights,
and other necessary or proper stores
and implements for the voyage.
Requisites:
1. Condition of the structure of the
ship
2. Properly laden and provided with a
competent master
3. Sufficient number of competent
officers and seamen
4. Requisite appurtenances and
equipment
*In Delsan Transport case, the SC held
that the issuance of certificate of
seaworthiness is not enough to prove
seaworthiness of the ship.
Example:
Cargo owner insured his cargo
Q: Does that implied warranty on
seaworthiness apply to cargo owner?
A: YES. The cargo owner has the control
in the selection of the vessel where his
cargoes to be shipped.
provides that: A ship which is
seaworthy for the purpose of an
insurance upon the ship may,
nevertheless, by reason of being
unfitted to receive the cargo, be
unseaworthy for the purpose of the
insurance upon the cargo.
b. When complied with; exceptions
provides that: An implied warranty of
seaworthiness is complied with if the
ship be seaworthy at the time of the of
commencement of the risk, except in
the following cases:
(a) When the insurance is made for a
specified length of time, the implied
warranty is not complied with
unless the ship be seaworthy at the
commencement of every voyage it
undertakes during that time; (Time
Policy)
Example:
The transaction is covered for one
year from January 1, 2007 to
December 31, 2007.
The ship will undertake 5 different
voyages.
The ship must be seaworthy at the
commencement of each and every
voyage.
(b) When the insurance is upon the
cargo which, by the terms of the
policy, description of the voyage, or
established custom of the trade, is
to be transhipped at an
intermediate port, the implied
warranty is not complied with
unless each vessel upon which the
cargo is shipped, or transhipped, be
seaworthy at the commencement
of each particular voyage. (Cargo
Policy)
Controlling: There must be
transhipment
*The ship must be seaworthy in
each particular voyage.
provides that: Where different
portions of the voyage contemplated by
a policy differ in respect to the things
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requisite to make the ship seaworthy
therefor, a warranty of seaworthiness is
complied with if, at the commencement
of each portion, the ship is seaworthy
with reference to that portion.
(Voyage Policy)
*There is a single ship that completes
the voyage however, the ship will
undergo different degree of perils.
*The ship must be seaworthy upon
commencement of each level of peril.
General Rule: The ship must be
seaworthy at the time of the
commencement of the risk.
Exceptions:
1. Time policy
2. Cargo policy
3. Voyage policy
*In time policy, seaworthiness
commenced in every voyage.
*In voyage policy, no transhipment. The
voyage has different stages to go
through. Every stage of voyage the ship
must be seaworthy.
c. Rule where ship becomes unseaworthy
in the course of the voyage
provides that: When the ship becomes
unseaworthy during the voyage to
which an insurance relates, an
unreasonable delay in repairing the
defect exonerates the insurer on ship or
shipowner's interest from liability from
any loss arising therefrom.
2. Warranty that necessary documents are
carried
Where the nationality or neutrality of a
ship or cargo is expressly warranted, it is
implied that the ship will carry the requisite
documents to show such nationality or
neutrality and that it will not carry any
documents which cast reasonable suspicion
thereon.
3. Warranty against improper deviation
a. Meaning of deviation
that: Deviation is a departure from the
course of the voyage insured,
mentioned in the last two sections, or
an unreasonable delay in pursuing the
voyage or the commencement of an
entirely different voyage.
*Deviation is either proper or improper.
*There is breach of warranty if the
deviation is improper.
b. When proper
provides that: A deviation is proper:
(a) When caused by circumstances over
which neither the master nor the owner
of the ship has any control;
(b) When necessary to comply with a
warranty, or to avoid a peril, whether or
not the peril is insured against;
*Whether or not the peril is covered by
the policy is immaterial.
(c) When made in good faith, and upon
reasonable grounds of belief in its
necessity to avoid a peril; or
(d) When made in good faith, for the
purpose of saving human life or
relieving another vessel in distress.
*Warranty is against improper
deviation.
*Whether or not improper deviation
contributed to the loss is immaterial
because there was already a breach of
implied warranty.
that: An insurer is not liable for any
loss happening to the thing insured
subsequent to an improper deviation.

H. Loss
1. Kinds of losses
a. Actual
provides that: An actual total loss is
cause by:
(a) A total destruction of the thing
insured;
(b) The irretrievable loss of the thing by
sinking, or by being broken up;
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(c) Any damage to the thing which
renders it valueless to the owner for the
purpose for which he held it; or
(d) Any other event which effectively
deprives the owner of the possession,
at the port of destination, of the thing
insured.
that: An actual loss may be presumed
from the continued absence of a ship
without being heard of. The length of
time which is sufficient to raise this
presumption depends on the
circumstances of the case.
b. Constructive
provides that: A constructive total loss
is one which gives to a person insured a
right to abandon, under Section one
hundred thirty-nine.
2. Right to payment upon an actual total loss
Upon an actual total loss, a person insured
is entitled to payment without notice of
abandonment.
3. Scope of insurance against actual total loss
An insurance confined in terms to an
actual loss does not cover a constructive
total loss, but covers any loss, which
necessarily results in depriving the insured
of the possession, at the port of
destination, of the entire thing insured.
4. When constructive total loss/partial loss
exists
that: A person insured by a contract of
marine insurance may abandon the thing
insured, or any particular portion thereof
separately valued by the policy, or
otherwise separately insured, and recover
for a total loss thereof, when the cause of
the loss is a peril insured against:
(a) If more than three-fourths thereof in
value is actually lost, or would have to be
expended to recover it from the peril;
(b) If it is injured to such an extent as to
reduce its value more than three-fourths;
(c) If the thing insured is a ship, and the
contemplated voyage cannot be lawfully
performed without incurring either an
expense to the insured of more than three-
fourths the value of the thing abandoned or
a risk which a prudent man would not take
under the circumstances; or
(d) If the thing insured, being cargo or
freightage, and the voyage cannot be
performed, nor another ship procured by
the master, within a reasonable time and
with reasonable diligence, to forward the
cargo, without incurring the like expense or
risk mentioned in the preceding sub-
paragraph. But freightage cannot in any
case be abandoned unless the ship is also
abandoned.
Test: The loss is more than but less than
1.
*If there is partial loss, only partial can be
claimed.
*The extent of damage in constructive loss
is so severe.
*This is not automatic.
*There is an option either to abandon it or
to recover only the partial loss.
5. Concept of abandonment and its requisites
Definition:
Abandonment, in marine insurance, is the
act of the insured by which, after a
constructive total loss, he declares the
relinquishment to the insurer of his interest
in the thing insured.
*It is necessary to abandon the surviving
part of the thing.
Formula:
Constructive total loss + Abandonment =
Total loss
If there is only constructive total loss there
is only partial loss.
Requisites:
1. There must be an actual relinquishment
by the person insured of his interest in
the thing insured.
2. There must be a constructive total loss
3. The abandonment be neither partial
nor conditional
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4. It must be made within a reasonable
time after receipt of reliable
information of the loss
5. It must be factual and reasonable
6. It must be made by giving notice
thereof to the insurer which may be
done orally or in writing
7. The notice of abandonment must be
explicit and must specify the particular
cause of the abandonment
*The residual part is abandoned. Reason:
Principle of Indemnity
*If the requisites are satisfied the insurance
company cannot refuse to accept the
abandonment.
6. Average
Average is any extraordinary or accidental
expense incurred during the voyage for the
preservation of the vessel, cargo, or both,
and all damages to the vessel and cargo
from the time it is loaded and the voyage
commenced until it ends and the cargo
unloaded.
*Expenses for maritime transaction.
a. Kinds of average:
i. Particular
provides that: Where it has
been agreed that an insurance
upon a particular thing, or class
of things, shall be free from
particular average, a marine
insurer is not liable for any
particular average loss not
depriving the insured of the
possession, at the port of
destination, of the whole of
such thing, or class of things,
even though it becomes
entirely worthless; but such
insurer is liable for his
proportion of all general
average loss assessed upon the
thing insured.
- Includes all damages and
expenses caused to the
vessel or to her cargo which
have not inured to the
common benefit and profit
of all persons interested in
the vessel and her cargo.
- It refers to those losses
which occur under such
circumstances as do not
entitle the unfortunate
owners to receive
contribution from other
owners concerned in the
venture as where a vessel
accidentally runs aground
and goes to pieces after the
cargo is saved.
Recourse: Go after the insurer
*Stipulation exempting the insurer for a
particular average loss is possible and
valid.
ii. General
- Includes damages and
expenses which are
deliberately caused by the
master of the vessel or
upon his authority, in order
to save the vessel, her
cargo, or both at the same
time from a real or known
risk.
- It must be borne equally by
all of the interests
concerned in the venture.
b. Requisites of general average
1. There must be a common danger to
the vessel or cargo
2. Part of the vessel or cargo was
sacrificed deliberately
3. The sacrifice must be for the
common safety of for the benefit of
all
4. It must be made by the master or
upon his authority
5. It must be successful, i.e., resulted
in the saving of the vessel or cargo
6. It must be necessary
c. Insurers liability for general average
The insurer of the vessel or cargo that
are saved is liable for general average
contribution and not for particular
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average. Only the insurer of the
damaged cargo or vessel is liable for
particular average if covered by the
policy.
Q: If there is a stipulation exempting
the insurer for a particular average loss,
does it extend to general average loss?
A: NO.
Basis: Article 859 of the Code of
Commerce; Article 812 of the Code of
Commerce
Reason: Equity
Q: Are there a mandatory co-insurance in marine
insurance?
A: YES.
Basis: Sec. 157 of the Insurance Code provides that: A
marine insurer is liable upon a partial loss, only for such
proportion of the amount insured by him as the loss
bears to the value of the whole interest of the insured
in the property insured.
*There is a co-insurance when the property is insured
for less than its value, the insured is considered a co-
insurer for the difference between the amount of
insurance and the value of the property.
Requisites:
1. The loss is partial
2. The amount of insurance is less than the value
of the property insured.
Formula:
Loss
------- x Insurance = Insurers Liability
Value
Example:
As insurable interest = P500,000
Insured Amount = P300,000
Loss = P300,000
Q: Would the whole P300,000 be recovered from the
insurer?
A: NO. Only 180,000 will be recovered and the balance
of 120,000 will be suffered by the insured as a co-
insurer.
Computation:
300,000
----------- x 300,000 = 180,000
500,000
If the loss is 500,000, the insured can recover the whole
300,000 because there is a total loss and not partial
loss.
*In fire insurance, there has to be an express stipulation
to that effect.

FIRE INSURANCE:
A. Definition and scope of fire insurance
As used in this Code, the term "fire insurance"
shall include insurance against loss by fire,
lightning, windstorm, tornado or earthquake
and other allied risks, when such risks are
covered by extension to fire insurance policies
or under separate policies.

B. Risks or losses covered
Q: What are allied risks?
A: lightning, windstorm, tornado or earthquake,
tsunami.
Q: What are direct losses?
A: Direct losses are losses that pertain to the
physical destruction of the thing insured.
Q: What are indirect losses?
A: Indirect losses pertain to consequential
losses.
Q: Are consequential losses compensable?
A: General Rule: NO in standard fire policy
Except: If there is an agreement
*The liability of the insurer is to pay for direct
losses only
Friendly Fire fire that burns in a place where it
is supposed to burn.
Hostile Fire fire that escapes and burns in a
place where it is not supposed to be.

C. Effect of alteration in the thing
An alteration in the use or condition of a thing
insured from that to which it is limited by the
policy made without the consent of the insurer,
by means within the control of the insured, and
increasing the risks, entitles an insurer to
rescind a contract of fire insurance.
alteration in the use or condition of a thing
insured from that to which it is limited by the
policy, which does not increase the risk, does
not affect a contract of fire insurance.
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Q: If the policy is silent as to the use or
condition of the thing insured, are there implied
warranty in fire insurance?
A: General Rule: YES. The insured has the
insurable interest in the thing insured.
Exception: If the policy expressly provides for
the use of condition of the thing insured.

D. Measure of indemnity
If there is no valuation in the policy, the
measure of indemnity in an insurance against
fire is the expense it would be to the insured at
the time of the commencement of the fire to
replace the thing lost or injured in the condition
in which at the time of the injury; but if there is
a valuation in a policy of fire insurance, the
effect shall be the same as in a policy of marine
insurance.
1. Open Policy: only the expense necessary to
replace the thing lost or injured in the
condition it was at the time of the injury.
2. Valued Policy: the parties are bound by the
valuation, in the absence of fraud or
mistake.

E. Co-insurance clause
General Rule: Applies primarily to marine
insurance.
Exception: Co-insurance applies to fire
insurance if expressly agreed upon.
CASUALTY INSURANCE:
A. Concept
Casualty insurance is insurance covering loss or
liability arising from accident or mishap,
excluding certain types of loss which by law or
custom are considered as falling exclusively
within the scope of other types of insurance
such as fire or marine. It includes, but is not
limited to, employer's liability insurance, motor
vehicle liability insurance, plate glass insurance,
burglary and theft insurance, personal accident
and health insurance as written by non-life
insurance companies, and other substantially
similar kinds of insurance.
Q: What is the subject matter of the casualty
insurance?
A: Life, property, liability and health brought by
accident.

B. Third Party Liability Insurance
*Casualty insurance ay provide for third party
liability in the nature of stipulation pour autrui
for personal injury and even damage to
property, in which case, the third party may
directly sue the insurer upon the occurrence of
the loss. However, the insurer is not solidarily
liable with the insured or the tortfeasor for the
latters obligation.
*Insurance against specified perils which may
give rise to liability on the part of the insured
for claims for injuries to or damage to property
of others.
*If there is no stipulation in favor of third
person but the insurance is an insurance against
liability to third persons, any third person who
might be injured may not sue the insurer.
- Liable for actual loss, the third party has no
direct recourse with the insurer but only to the
insured. The insured has recourse to the
insurer.

C. Insurable interest
*Insurable interest is based on the interest of
the insured in the safety of persons and their
property, who may maintain an action against
him in case of their injury or destruction,
respectively.

D. Meaning of accident and accidental in
casualty insurance
*The terms accident and accidental as used
in insurance contracts, have not acquired any
technical meaning. They are construed by the
courts in the ordinary and common acceptation.
Thus, the terms have been taken to mean that
which happens by chance or fortuitously,
without intention or design, which is
unexpected, unusual and unforeseen. The
terms do not, without qualification, exclude
events resulting in damage or loss due to fault,
recklessness or negligence of third parties.
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*It is something that the insured did not foresee
or though foreseen cannot be avoided.
*Accident or not, it must be taken from the
viewpoint of the victim.

E. Basis and extent of insurers liability
*The beneficiary is not designated, the
proceeds will be given to the victims.
*The third party has direct recourse against the
insurer. The insurer is purely liable.
SURETYSHIP:
A. Definition
contract of suretyship is an agreement whereby
a party called the surety guarantees the
performance by another party called the
principal or obligor of an obligation or
undertaking in favor of a third party called the
obligee. It includes official recognizances,
stipulations, bonds or undertakings issued by
any company by virtue of and under the
provisions of Act No. 536, as amended by Act
No. 2206.

B. Nature of Liability of surety
The liability of the surety or sureties shall be
joint and several with the obligor and shall be
limited to the amount of the bond. It is
determined strictly by the terms of the contract
of suretyship in relation to the principal
contract between the obligor and the obligee.

C. Distinctions between suretyship and property
insurance
Suretyship Property Insurance
Accessory contract Principal Contract
There are three
parties: surety, obligor
and oblige
There are two parties:
insurer and insured
Credit accommodation Contract of indemnity
Surety can recover
from principal
Insurer has no such
right; only right of
subrogation
Bond can be cancelled
only with consent of
obligee, Commissioner,
or court
May be cancelled
unilaterally either by
insured or insurer on
grounds provided by
law
Requires acceptance of
obligee to be valid
No need of
acceptance by any
third party
Risk-shifting device,
premium paid being in
the nature of a service
fee
Risk-distributing
device, premium paid
as a ratable
contribution to a
common fund

LIFE INSURANCE:
A. Definition
Sec. 179 of the Insurance Code provides that: .
Life insurance is insurance on human lives and
insurance appertaining thereto or connected
therewith.
insurance upon life may be made payable on
the death of the person, or on his surviving a
specified period, or otherwise contingently on
the continuance or cessation of life.
Every contract or pledge for the payment of
endowments or annuities shall be considered a
life insurance contract for purpose of this Code.
In the absence of a judicial guardian, the father,
or in the latter's absence or incapacity, the
mother, or any minor, who is an insured or a
beneficiary under a contract of life, health or
accident insurance, may exercise, in behalf of
said minor, any right under the policy, without
necessity of court authority or the giving of a
bond, where the interest of the minor in the
particular act involved does not exceed twenty
thousand pesos. Such right may include, but
shall not be limited to, obtaining a policy loan,
surrendering the policy, receiving the proceeds
of the policy, and giving the minor's consent to
any transaction on the policy.

B. Kinds of Life Insurance
1. Ordinary Life, General Life or Old Line
Policy insured pays a fixed premium every
year until he dies. Surrender value after 3
years.
2. Group Life essentially a single insurance
contract that provides courage for money
individuals.
3. Limited Payment Policy insured pays
premium for a limited period. If he dies
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within the period, his beneficiary is paid; if
he outlives the period, he does not get
anything.
4. Endowment Policy pays premium for
specified period. If he outlives the period,
the face value of the policy is paid to him; if
not, his beneficiaries receive the benefit.
5. Term Insurance insurer pays once only,
and he is insured for a specified period. If
he dies within the period, his beneficiaries
benefits. If he outlives the period, no
person benefits from the insurance.
6. Industrial Life life insurance entitling the
insured to pay premiums weekly, or where
premiums are payable monthly or oftener.

C. Liability of insurer in case of suicide
Sec. 180-A of the Insurance Code states that:
The insurer in a life insurance contract shall be
liable in case of suicides only when it is
committed after the policy has been in force for
a period of two years from the date of its issue
or of its last reinstatement, unless the policy
provides a shorter period: Provided, however,
That suicide committed in the state of insanity
shall be compensable regardless of the date of
commission.
*Recovery of the proceeds depends on the
commission of the suicide.
*In case of suicide, the insured may recover
only after two years from the date the policy
was issued or last reinstatement.
*In case of suicide committed in the state of
insanity, it is compensable regardless of the
date of the commission.

D. Right to assign life insurance policy
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.
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.

E. Measure of indemnity
Unless the interest of a person insured is
susceptible of exact pecuniary measurement,
the measure of indemnity under a policy of
insurance upon life or health is the sum fixed in
the policy.
General Rule: Life policy is always valued
Exception: If the creditor insured the life of the
debtor.
COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE:
A. Reason for the requirement
Purpose: To give immediate financial assistance
to victims of motor vehicle accidents and/or
their dependents, especially if they are poor
regardless of the financial capability of motor
vehicle owners or operators responsible for the
accident sustained.
Q: What is the mandatory reason for this type
of insurance?
A: To allow the registration or renewal of
registration of any motor vehicle.

B. Scope of coverage required
Sec. 374 of the Insurance Code states that: It
shall be unlawful for any land transportation
operator or owner of a motor vehicle to
operate the same in the public highways unless
there is in force in relation thereto a policy of
insurance or guaranty in cash or surety bond
issued in accordance with the provisions of this
chapter to indemnify the death, bodily injury,
and/or damage to property of a third-party or
passenger, as the case may be, arising from the
use thereof.
The Land Transportation Commission shall not
allow the registration or renewal of registration
of any motor vehicle without first requiring
from the land transportation operator or motor
vehicle owner concerned the presentation and
filing of a substantiating documentation in a
form approved by the Commissioner evidencing
that the policy of insurance or guaranty in cash
or surety bond required by this chapter is in
effect.
Law on Insurance

29

C. Persons subject to the requirement
Every land transportation operator and every
owner of a motor vehicle shall, before applying
for the registration or renewal of registration of
any motor vehicle, at his option, either secure
an insurance policy or surety bond issued by
any insurance company authorized by the
Commissioner or make a cash deposit in such
amount as herein required as limit of liability
for purposes specified in section three hundred
seventy-four.
(1) In the case of a land transportation
operator, the insurance guaranty in cash or
surety bond shall cover liability for death or
bodily injuries of third-parties and/or
passengers arising out of the use of such vehicle
in the amount not less than twelve thousand
pesos per passenger or third party and an
amount, for each of such categories, in any one
accident of not less than that set forth in the
following scale:
(a) Motor vehicles with an authorized capacity
of twenty-six or more passengers: Fifty
thousand pesos;
(b) Motor vehicles with an authorized capacity
of from twelve to twenty-five passengers: Forty
thousand pesos;
(c) Motor vehicles with an authorized capacity
of from six to eleven passengers: Thirty
thousand pesos;
(d) Motor vehicles with an authorized capacity
of five or less passengers: Five thousand pesos
multiplied by the authorized capacity.
Provided, however, That such cash deposit
made to, or surety bond posted with, the
Commissioner shall be resorted to by him in
cases of accidents the indemnities for which to
third-parties and/or passengers are not settled
accordingly by the land transportation operator
and, in that event, the said cash deposit shall be
replenished or such surety bond shall be
restored with sixty days after impairment or
expiry, as the case may be, by such land
transportation operator, otherwise, he shall
secure the insurance policy required by this
chapter. The aforesaid cash deposit may be
invested by the Commissioner in readily
marketable government bonds and/or
securities.
(2) In the case of an owner of a motor vehicle,
the insurance or guaranty in cash or surety
bond shall cover liability for death or injury to
third parties in an amount not less than that set
forth in the following scale in any one accident:
I. Private Cars
(a) Bantam : Twenty thousand pesos;
(b) Light : Twenty thousand pesos;
(c) Heavy : Thirty thousand pesos;
II. Other Private Vehicles
(a) Tricycles, motorcyles, and scooters : Twelve
thousand pesos;
(b) Vehicles with an unladen weight of 2,600
kilos or less : Twenty thousand pesos;
(c) Vehicles with an unladen weight of between
2,601 kilos and 3,930 kilos : Thirty thousand
pesos;
(d) Vehicles with an unladen weight over 3,930
kilos : Fifty thousand pesos.
The Commissioner may, if warranted, set forth
schedule of indemnities for the payment of
claims for death or bodily injuries with the
coverages set forth herein.

D. No-Fault indemnity claim
Any claim for death or injury to any passenger
or third party pursuant to the provisions of this
chapter shall be paid without the necessity of
proving fault or negligence of any kind;
Provided, That for purposes of this section:
(i) The total indemnity in respect of any
person shall not exceed fifteen
thousand pesos;
(ii) The following proofs of loss, when
submitted under oath, shall be
sufficient evidence to substantiate the
claim: (a) Police report of accident; and
(b) Death certificate and evidence
sufficient to establish the proper payee;
or (c) Medical report and evidence of
medical or hospital disbursement in
respect of which refund is claimed;
(iii) Claim may be made against one motor
vehicle only. In the case of an occupant
Law on Insurance

30

of a vehicle, claim shall lie against the
insurer of the vehicle in which the
occupant is riding, mounting or
dismounting from. In any other case,
claim shall lie against the insurer of the
directly offending vehicle. In all cases,
the right of the party paying the claim
to recover against the owner of the
vehicle responsible for the accident
shall be maintained.
Q: How does the law protects the victim?
A: By the provision under the NO FAULT
INDEMNITY CLAUSE.
*No fault clause applies only to bodily physical
injuries or death not to property damage.
Q: From whom should the injured recover?
A: (a) In the case of an occupant of a vehicle,
claim shall lie against the insurer of the vehicle
in which the occupant is riding, mounting or
dismounting from; (b) If not an occupant, claim
shall lie against the insurer of the directly
offending vehicle; (c) In all cases, the right of
the party paying the claim to recover against
the owner of the vehicle responsible for the
accident shall be maintained.
Examples:
a. A passenger rode Y taxi cab. The taxi cab is
insured by X company under the
compulsory motor vehicle liability
insurance. The taxi collided against a
MERALCO post.
The passenger can claim against X company
without proving fault or negligence. Only
documents that prove the happening of the
incident.
b. Passenger 1 received P15,000 under the no
fault clause. His actual expenses amount to
P50,000.
Q: Can he still recover the balance? From
whom?
A: YES. Against the offending vehicle but
this time he is required to prove fault or
negligence.

E. Notice of claim
Any person having any claim upon the policy
issued pursuant to this Chapter shall, without
any unnecessary delay, present to the insurance
company concerned a written notice of claim
setting forth the nature, extent and duration of
the injuries sustained as certified by a duly
licensed physician. Notice of claim must be filed
within six months from date of accident,
otherwise, the claim shall be deemed waived.
Action or suit for recovery of damage due to
loss or injury must be brought, in proper cases,
with the Commissioner or the Courts within one
year from denial of the claim, otherwise, the
claimant's right of action shall prescribe.
CLAIMS SETTLEMENT:
A. Unfair claim settlement practices
Sec. 241 of the Insurance Code states that: (1)
No insurance company doing business in the
Philippines shall refuse, without just cause, to
pay or settle claims arising under coverages
provided by its policies, nor shall any such
company engage in unfair claim settlement
practices. Any of the following acts by an
insurance company, if committed without just
cause and performed with such frequency as to
indicate a general business practice, shall
constitute unfair claim settlement practices:
(a) knowingly misrepresenting to claimants
pertinent facts or policy provisions relating to
coverage at issue;
(b) failing to acknowledge with reasonable
promptness pertinent communications with
respect to claims arising under its policies;
(c) failing to adopt and implement reasonable
standards for the prompt investigation of claims
arising under its policies;
(d) not attempting in good faith to effectuate
prompt, fair and equitable settlement of claims
submitted in which liability has become
reasonably clear; or
(e) compelling policyholders to institute suits to
recover amounts due under its policies by
offering without justifiable reason substantially
less than the amounts ultimately recovered in
suits brought by them.
(2) Evidence as to numbers and types of valid
and justifiable complaints to the Commissioner
against an insurance company, and the
Commissioner's complaint experience with
Law on Insurance

31

other insurance companies writing similar lines
of insurance shall be admissible in evidence in
an administrative or judicial proceeding brought
under this section.
(3) If it is found, after notice and an opportunity
to be heard, that an insurance company has
violated this section, each instance of non-
compliance with paragraph (1) may be treated
as a separate violation of this section and shall
be considered sufficient cause for the
suspension or revocation of the company's
certificate of authority.
General Rule: Upon maturity of the policy
Exception: Annuities payment

B. Claims for life insurance policies
The proceeds of a life insurance policy shall be
paid immediately upon maturity of the policy,
unless such proceeds are made payable in
installments or as an annuity, in which case the
installments, or annuities shall be paid as they
become due: Provided, however, That in the
case of a policy maturing by the death of the
insured, the proceeds thereof shall be paid
within sixty days after presentation of the claim
and filing of the proof of the death of the
insured. Refusal or failure to pay the claim
within the time prescribed herein will entitle
the beneficiary to collect interest on the
proceeds of the policy for the duration of the
delay at the rate of twice the ceiling prescribed
by the Monetary Board, unless such failure or
refusal to pay is based on the ground that the
claim is fraudulent.
The proceeds of the policy maturing by the
death of the insured payable to the beneficiary
shall include the discounted value of all
premiums paid in advance of their due dates,
but are not due and payable at maturity.

C. Claims for non-life insurance policies
The amount of any loss or damage for which
an insurer may be liable, under any policy other
than life insurance policy, shall be paid within
thirty days after proof loss is received by the
insurer and ascertainment of the loss or
damage is made either by agreement between
the insured and the insurer or by arbitration;
but if such ascertainment is not had or made
within sixty days after such receipt by the
insurer of the proof of loss, then the loss or
damage shall be paid within ninety days after
such receipt. Refusal or failure to pay the loss or
damage within the time prescribed herein will
entitle the assured to collect interest on the
proceeds of the policy for the duration of the
delay at the rate of twice the ceiling prescribed
by the Monetary Board, unless such failure or
refusal to pay is based on the ground that the
claim is fraudulent.

D. Delay in payment of claims
In case of any litigation for the enforcement of
any policy or contract of insurance, it shall be
the duty of the Commissioner or the Court, as
the case may be, to make a finding as to
whether the payment of the claim of the
insured has been unreasonably denied or
withheld; and in the affirmative case, the
insurance company shall be adjudged to pay
damages which shall consist of attorney's fees
and other expenses incurred by the insured
person by reason of such unreasonable denial
or withholding of payment plus interest of twice
the ceiling prescribed by the Monetary Board of
the amount of the claim due the insured, from
the date following the time prescribed in
section two hundred forty-two or in section two
hundred forty-three, as the case may be, until
the claim is fully satisfied; Provided, That the
failure to pay any such claim within the time
prescribed in said sections shall be considered
prima facie evidence of unreasonable delay in
payment.

Commercial Law Review: Maria Zarah Villanueva - Castro

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