INSURANCE CODE

(P.D. No. 1460)

I. GENERAL CONCEPTS
CONTRACT OF INSURANCE
An agreement whereby one undertakes for a
consideration to indemnify another against
loss, damage or liability arising from an
unknown or contingent event. (Sec. 2, par. 2,
IC
DOING AN INSURANCE BUSINESS OR
TRANSACTING AN INSURANCE BUSINESS (Sec.
2, !". 4)
!. "aking or proposing to make, as insurer,
any insurance contract#
2. "aking or proposing to make, as surety,
any contract of suretyship as a vocation,
not as a mere incident to any other
legitimate business of a surety#
$. %oing any insurance business, including a
reinsurance business#
&. %oing or proposing to do any business in
substance e'uivalent to any of the
foregoing
II. C#ARACTERISTICS OF AN INSURANCE
CONTRACT (The Insurance Code of the
Philippines Annotated, Hector de Leon, 2002
ed.)
!. Consensual ( it is perfected by the meeting
of the minds of the parties.
2. Voluntary ( the parties may incorporate
such terms and conditions as they may
deem convenient.
$. Aleatory ( it depends upon some contingent
event.
&. nilateral ( imposes legal duties only on the
insurer who promises to indemnify in case
of loss.
). Conditional ( It is sub*ect to conditions the
principal one of which is the happening of
the event insured against.
+. Contract of inde!nity ( ,-cept life and
accident insurance, a contract of insurance
is a contract of indemnity whereby the
insurer promises to make good only the
loss of the insured.
7. Personal ( each party having in view the
character, credit and conduct of the other.
RE$UISITES OF A CONTRACT OF INSURANCE
(The Insurance Code of the Philippines
Annotated, Hector de Leon, 2002 ed.)
!. A sub*ect matter which the insured has an
insurable interest.
2. ,vent or peril insured against which may be
any future contingent or unknown event, past
or future and a duration for the risk thereof.
$. A promise to pay or indemnify in a fi-ed or
ascertainable amount.
&. A consideration known as .premium/.
). "eeting of the minds of the parties.
% CARDINAL PRINCIPLES IN INSURANCE
!. Insurable Interest
2. 0rinciple of 1tmost 2ood 3aith
An insurance contract re'uires utmost good
faith (u"erri!ae fidei between the parties.
4he applicant is en*oined to disclose any
material fact, which he knows or ought to
know.
#eason$ An insurance contract is an aleatory
contract. 4he insurer relies on the
representation of the applicant, who is in the
best position to know the state of his health.
$. Contract of Indemnity
It is the basis of all property insurance. 4he
insured who has insurable interest over a
property is only entitled to recover the amount
of actual loss sustained and the burden is upon
him to establish the amount of such loss
(#e%ie&er on Co!!ercial La&, Professors
'undian( and A)uino)
#ules$
a. Applies only to property insurance
e-cept when the creditor insures the
life of his debtor.
b. 5ife insurance is not a contract of
indemnity.
c. Insurance contracts are not wagering
contracts. (Sec. &
&. Contract of Adhesion (3ine 0rint 6ule
"ost of the terms of the contract do not
result from mutual negotiations between the
parties as they are prescribed by the insurer in
final printed form to which the insured may
.adhere/ if he chooses but which he cannot
change. (6i7al Surety and Insurance Co., vs.
CA, $$+ SC6A !2
). 0rinciple of Subrogation
It is a process of legal substitution where the
insurer steps into the shoes of the insured and
he avails of the latter8s rights against the
wrongdoer at the time of loss.
4he principle of subrogation is a normal
incident of indemnity insurance as a legal
effect of payment# it inures to the insurer
without any formal assignment or any e-press
stipulation to that effect in the policy. Said
right is not dependent upon nor does it grow
out of any private contract. 0ayment to the
insured makes the insurer a subrogee in e'uity.
("alayan Insurance Co., Inc. v. CA, !+) SC6A
)$+# see also Art. 229:, ;CC
Purposes$ (The Insurance Code of the
Philippines Annotated, Hector de Leon, 2002
ed.)
!. 4o make the person who caused the loss
legally responsible for it.
2. 4o prevent the insured from receiving a
double recovery from the wrongdoer and
the insurer.
$. 4o prevent tortfeasors from being free
from liabilities and is thus founded on
considerations of public policy.
#ules$
!. Applicable only to property insurance.
2. 4he insurer can only recover from the third
person what the insured could have recovered.
$. 4here can be no subrogation in cases<
a. =here the insured by his own act releases
the wrongdoer or third party liable for the
loss or damage#
b. =here the insurer pays the insured the value
of the loss without notifying the carrier who
has in good faith settled the insured8s claim
for loss#
c. =here the insurer pays the insured for a loss
or risk not covered by the policy. (0an
"alayan Insurance Company v. CA, !>& SC6A
)&
d. In life insurance
e. 3or recovery of loss in e-cess of insurance
coverage
CONSTRUCTION OF INSURANCE CONTRACT
4he ambiguous terms are to be construed
strictly against the insurer, and liberally in
favor of the insured. ?owever, if the terms are
clear, there is no room for interpretation.
(Calanoc vs. Court of Appeals, @> 0hil. :@
III. DISTINGUIS#ING ELE&ENTS OF AN
INSURANCE CONTRACT
!. 4he insured possesses an insura"le interest
susceptible of pecuniary estimation#
2. 4he insured is sub*ect to a ris* of loss
through the destruction or impairment of
that interest by the happening of designated
perils#
$. 4he insurer assu!es that ris* of loss#
&. Such assumption is part of a (eneral sche!e
to distri"ute actual losses among a large
group or substantial number of persons
bearing somewhat similar risks# and
). 4he insured makes a ratable contribution
(pre!iu! to a general insurance fund.
A contract possessing only the first $
elements above is a ris*+shiftin( de%ice. If all
the elements, it is a ris*+distri"utin( de%ice.
(The Insurance Code of the Philippines
Annotated, Hector de Leon, 2002 ed.)
I'. PERFECTION OF AN INSURANCE CONTRACT
An insurance contract is a consensual
contract and is therefore perfected the
moment there is a meeting of minds with
respect to the ob*ect and the cause or
consideration.
=hat is being followed in insurance contracts
is what is known as the ,co(nition theory-.
4hus, .an acceptance made by letter shall not
bind the person making the offer e-cept from
the time it came to his knowledge/. (,nri'ue7
vs. Sun 5ife Assurance Co. of Canada, &! 0hil.
2+@
B()*()+ Rece(,
A mere acknowledgment on behalf of the
company that its branch office had received
from the applicant the insurance premium and
had accepted the application sub*ect to
processing by the head office.
Co-e" No,e (A* I),e"(.)
A concise and temporary written contract
issued to the insurer through its duly
authori7ed agent embodying the principal
terms of an e-pected policy of insurance.
Purpose$ It is intended to give temporary
insurance protection coverage to the applicant
pending the acceptance or re*ection of his
application.
.uration$ ;ot e-ceeding +9 days unless a
longer period is approved by Insurance
Commissioner (Sec. )2.
R(*e"/
0rinted stipulations usually attached to the
policy because they constitute additional
stipulations between the parties. (Ang 2iok
Chip vs. Springfield, )+ 0hil. 2:)
In case of conflict between a rider and the
printed stipulations in the policy, the rider
prevails, as being a more deliberate e-pression
of the agreement of the contracting parties.
(C. Al%endia, The La& of Insurance in the
Philippines, /012 ed.)
C0!1/e/
An agreement between the insurer and the
insured on certain matter relating to the
liability of the insurer in case of loss. (Prof. .e
Leon, p./22)
E)*o"/e.e),/
Any provision added to the contract altering
its scope or application. (Prof. .e Leon, p./22)
POLIC2 OF INSURANCE
4he written instrument in which a contract of
insurance is set forth. (Sec. &@
Co),e),/3 (Sec. %1)
!. Parties
2. Amount of insurance, e-cept in open or
running policies#
$. Rate of premium#
&. Property or life insured#
). Interest of the insured in the property if he
is not the absolute owner#
+. Risk insured against# and
:. Duration of the insurance.
Pe"/o)/ e),(,0e* ,o "eco-e" o) ,4e o0(c5
(/ec. %6)3 4he insurance proceeds shall be
applied e-clusively to the proper interest of
the person in whose name or to whose benefit
it is made, unless otherwise specified in the
policy.
7()*/3
!. A0,; 0A5ICB ( value of thing insured is not
agreed upon, but left to be ascertained in case
of loss. (Sec. +9
4he actual loss, as determined, will
represent the total indemnity due the
insured from the insurer e-cept only that
the total indemnity shall not e-ceed the
face value of the policy. (%evelopment
Insurance Corp. vs. IAC, !&$ SC6A +2
2. CA51,% 0A5ICB ( definite valuation of the
property insured is agreed by both parties, and
written on the face of policy. (Sec. +!
In the absence of fraud or mistake, the
agreed valuation will be paid in case of
total loss of the property, unless the
insurance is for a lower amount.
$. 61;;I;2 0A5ICB ( contemplates successive
insurances and which provides that the ob*ect
of the policy may from time to time be defined
(Sec. +2
'. T2PES OF INSURANCE CONTRACTS
!. Life insurance
a. Individual life (Secs. !:@(!>$, 22:
b. 2roup life (Secs. )9, last par., 22>
c. Industrial life (Secs. 22@(2$!
2. 3on+life insurance
a. "arine (Secs. @@(!++
b. 3ire (Secs. !+:(!:$
c. Casualty (Sec. !:&
$. Contracts of "ondin( or suretyship (Secs.
!:)(!:>
No,e3
!. ?ealth and accident insurance are either
covered under life (Sec. !>9 or casualty
insurance. (Sec. !:&.
2. "arine, fire, and the property aspect of
casualty insurance are also referred to as
property insurance.
'I. PARTIES TO INSURANCE CONTRACT
1. Insurer + 0erson who undertakes to
indemnify another.
3or a person to be called an insurance
agent, it is necessary that he should
perform the function for compensation.
(Aisporna vs. CA, !!$ SC6A &)@
2. Insured 8 4he party to be indemnified upon
the occurrence of the loss. ?e must have
capacity to contract, must possess an insurable
interest in the sub*ect of the insurance and
must not be a public enemy.
A public enemy+ a nation with whom
the 0hilippines is at war and it includes
every citi7en or sub*ect of such nation.
6. Beneficiary D A person designated to
receive proceeds of policy when risk attaches.
6ules in the designation of the beneficiary<
a. 5I3,
i. A person who insures his o&n life
can designate any person as his
beneficiary, whether or not the
beneficiary has an insurable
interest in the life of the insured
sub*ect to the limitations under
Art. :$@ and Art. 29!2 of the ;CC.
#eason$ in essence, a life
insurance policy is no different
form a civil donation insofar as the
beneficiary is concerned. Eoth are
founded on the same consideration
of liberality. (Insular 5ife vs.
,brado, >9 SC6A !>!
ii. A person who insures the life of
another person and name himself
as the beneficiary must have an
insurable interest in such life. (Sec.
!9
iii. As a general rule, the designation
of a beneficiary is revocable unless
the insured e-pressly waived the
right to revoke in the policy. (Sec.
!!
iv. 4he 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 dis'ualified. (Sec. !2
b. 06A0,64B
4he beneficiary of property insurance
must have an insurable interest in such
property, which must e-ist not only at
the time the policy takes effect but
also when the loss occurs. (Sec. !$ and
!>.
E99ec,/ o9 I""e-oc!:0e De/(+)!,(o) O9
Be)e9(c(!"5
Insured cannot<
1. Assign the policy
2. Take the cash surrender value of the
policy
3. Allow his creditors to attach or e-ecute
on the policy#
4. Add new beneficiary# or
5. Change the irrevocable designation to
revocable, even though the change is
*ust and reasonable.
4he insured does not even retain the power
to destroy the contract by refusing to pay the
premiums for the beneficiary can protect his
interest by paying such premiums for he has an
interest in the fulfillment of the obligation.
(Vance, p. 114, cited in de Leon, p. /0/, 2002
ed.)

'II. INSURABLE INTEREST
A. In General
A person has an insurable interest in the
sub*ect 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
pre*udice.
B. Life
,very 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#
c. of any person under a legal obligation
to him to pay money or respecting
property or services, of which death or
illness might delay or prevent
performance# and
d. of any person upon whose life any
estate or interest vested in him
depends. (Sec. !9
;4e) (, /4o10* e<(/,3 =hen the insurance
takes effect# not thereafter or when the loss
occurs.
A.o1),3
5636#AL #L6$ 4here is no limit in the
amount the insured can insure his life.
67C6PTI83$ In a creditorDdebtor relationship
where the creditor insures the life of his
debtor, the limit of insurable interest is e'ual
to the amount of the debt.
No,e3 If at the time of the death of the debtor
the whole debt has already been paid, the
creditor can no longer recover on the policy
because the principle of indemnity applies.
C. Property
,very interest in property whether real or
personal, or any relation thereto, or liability in
respect thereof, of such nature that the
contemplated peril might directly damnify the
insured (Sec. !$, which may consist in<
!. an e-isting interest#
2. any inchoate interest founded on
an e-isting interest# or
$. an e-pectancy coupled with an
e-isting interest in that out of
which the e-pectancy arises. (Sec.
!&
;4e) (, /4o10* e<(/,3 =hen the insurance
takes effect and when the loss occurs, but
need not e-ist in the meantime.
A.o1),3 4he measure of insurable interest in
property is the e-tent to which the insured
might be damnified by loss or in*ury thereof.
(Sec. !:
INSURABLE
INT
ER
ES
T
IN
LIF
E
INSURABLE
INTEREST IN
PROPERT2
"ust e-ist only at the
time the policy takes
effect and need not
e-ist at the time of
loss
"ust e-ist at the
time the policy
takes effect and
when the loss
occurs
1nlimited e-cept in
life insurance
effected by creditor
on life of debtor.
5imited to actual
value of interest in
property insured.
4he e-pectation of
benefit to be derived
from the continued
e-istence of life need
not have any legal
basis whatever. A
reasonable
probability is
sufficient without
more.
An e-pectation of a
benefit to be
derived from the
continued
e-istence of the
property insured
must have a legal
basis.
4he beneficiary need
not have an insurable
interest over the life
of the insured if the
insured himself
secured the policy.
?owever, if the life
insurance was
obtained by the
beneficiary, the
latter must have
insurable interest
over the life of the
insured.
4he beneficiary
must have
insurable interest
over the thing
insured.
SPECIAL CASES
/. In case of a carrier or depositary
A carrier or depository of any kind has an
insurable interest in a thing held by him as
such, to the e-tent of his liability but not to
e-ceed the value thereof (Sec. !)
2. In case of a !ort(a(ed property
4he mortgagor and mortgagee each have an
insurable interest in the property mortgaged
and this interest is separate and distinct from
the other.
a. "ortgagor ( As owner, has an insurable
interest therein to the e-tent of its value,
even though the mortgage debt e'uals such
value. 4he reason is that the loss or
destruction of the property insured will not
e-tinguish the mortgage debt.
b. "ortgagee ( ?is interest is only up to the
e-tent of the debt. Such interest continues
until the mortgage debt is e-tinguished.
4he lessor cannot be validly a beneficiary of
a fire insurance policy taken by a lessee over
his merchandise, and the provision in the lease
contract providing for such automatic
assignment is void for being contrary to law
and public policy. (Cha vs. Court of Appeals,
22: SC6A +@9
STANDARD OR
UNION
&ORTGAGE
CLAUSE
OPEN OR LOSS
PA2ABLE
&ORTGAGE
CLAUSE
Subse'uent acts
of the mortgagor
cannot affect the
rights of the
assignee
Acts of the
mortgagor affect
the mortgagee.
#eason$
"ortgagor does
not cease to be a
party to the
contract. (Secs. >
and @
E99ec,/ o9 Lo// P!5!:0e C0!1/e
a. 4he contract is deemed to be upon the
interest of the mortgagor# hence, he does not
cease to be a party to the contract.
b. Any act of the mortgagor prior to the loss,
which would otherwise avoid the insurance
affects the mortgagee even if the property is in
the hands of the mortgagee.
c. Any act, which under the contract of
insurance is to be performed by the mortgagor,
may be performed by the mortgagee with the
same effect.
d. In case of loss, the mortgagee is entitled to
the proceeds to the e-tent of his credit.
e. 1pon recovery by the mortgagee to the
e-tent of his credit, the debt is e-tinguished.
In case a mortgagee insures his own interest
and a loss occurs, he is entitled to the
proceeds of the insurance but he is not allowed
to retain his claim against the mortgagor as the
claim is discharged but it passes by subrogation
to the insurer to the e-tent of the money paid
by such insurer. (0alileo vs. Cosio
'III. RIS7
=hat may be insured against<
!. 3uture contingent event resulting in loss or
damage ( ,-. 0ossible future fire
2. 0ast unknown event resulting in loss or
damage ( ,-. 3act of past sinking of a
vessel unknown to the parties
$. Contingent liability ( ,-. 6einsurance
I=. PRE&IU& PA2&ENTS
Consideration paid an insurer for undertaking
to indemnify the insured against a specified
peril.
Easis of the right of the insurer to collect
premiums< Assumption of risk.
5636#AL #L6$ ;o policy issued by an
insurance company is valid and binding until
actual payment of premium. Any agreement to
the contrary is void. (Sec. ::
67C6PTI83'$
!. In case of life or industrial life insurance,
when the grace periods applies# (Sec. ::
2. =hen the insurer makes a written
acknowledgment of the receipt premium#
(Sec. :>
$. Section :: 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. ("akati 4uscany Condominium
Corp. v. CA, 2!) SC6A &+2
&. =here a credit term has been agreed
upon. (1C0E vs. "asagana 4elemart, $9>
SC6A 2)@
). =here the parties are barred by estoppel.
(1C0E vs. "aagana 4elemart, $)+ SC6A
$9:

Section :: merely precludes the parties
from stipulating that the policy is valid even if
the premiums are not paid. ("akati 4uscany
Condominium Corp. v. CA, 2!) SC6A &+2
E99ec, o9 Ac>)o?0e*+.e), o9 Rece(, o9
P"e.(1. () Po0(c53 Conclusi%e e%idence of its
payment, so far as to make the policy binding,
notwithstanding any stipulation therein that it
shall not be binding until the premium is
actually paid. (Sec. :>
ENTITLE&ENT OF INSURED TO RETURN OF
PRE&IU&S PAID
A. 9hole$
!. If the thing insured was never e-posed
to the risks insured against# (Sec. :@
2. If contract is voidable due to the fraud
or misrepresentation of insurer or his
agents# (Sec. >!
$. If contract is voidable because of the
e-istence of facts of which the insured
was ignorant without his fault# (Sec.
>!
&. =hen by any default of the insured
other than actual fraud, the insurer
never incurred liability# (Sec. >!
). =hen rescission is granted due to the
insurer8s breach of contract. (Sec. :&
E. Pro rata$
!. =hen the insurance is for a definite
period and the insured surrenders his
policy before the termination thereof#
,-ceptions<
a. policy not made for a
definite period of time
b. short period rate is agreed
upon
c. life insurance policy
2. =hen there is overDinsurance (Sec. >2#
I)/,!)ce/ ?4e) "e.(1./ !"e )o,
"eco-e"!:0e3

!. =hen the risk has already attached and
the risk is entire and indivisible.
2. In life insurance.
$. =hen the contract is rescindable or
rendered void ab initio by the fraud of the
insured.
&. =hen the contract is illegal and the
parties are in pari delicto.
PRE&IU& ASSESS&ENT
5evied and paid to
meet anticipated
losses.
Collected to meet
actual losses.
0ayment is not
enforceable against
the insured.
0ayment is
enforceable once
levied unless
otherwise agreed
upon.
;ot a debt. It becomes a debt
once properly levied
unless otherwise
agreed.
=. TRANSFER OF POLIC2
1. Life Insurance
It can be transferred even without the
consent of the insurer e-cept when there is a
stipulation re'uiring the consent of the insurer
before transfer. (Sec. !>!
#eason$ 4he policy does not represent a
personal agreement between the insured and
the insurer.
2. Property insurance
It cannot be transferred without the consent
of the insurer.
#eason$ 4he insurer approved the policy
based on the personal 'ualification and the
insurable interest of the insured.
3. Casualty insurance
It cannot be transferred without the consent
of the insurer. (Paterson cited in de Leon p.
22)
#eason< 4he moral ha7ards are as great as
those of property insurance.
C#ANE OF INTEREST IN T#E T#ING INSURED
4he mere (absolute transfer of the 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.
(Sec. )>
#eason< Insurance contract is personal.
5636#AL #L6$ A change of interest in any
part of a thing insured unaccompanied by a
corresponding change of interest in the
insurance suspends the insurance to an
e'uivalent e-tent, until the interests in the
thing and the interest in the insurance are
vested in the same person. (Sec. 29
67C6PTI83'$
!. In life, health and accident insurance.
(Sec. 29#
2. Change in interest in the thing insured
after occurrence of an in*ury which
results in a loss. (Sec. 2!#
$. Change in interest in one or more of
several distinct things separately
insured by one policy. (Sec. 22#
&. Change of interest, by will or
succession, on the death of the
insured. (Sec. 2$#
). 4ransfer of interest by one of several
partners, *oint owners, or owners in
common, who are *ointly insured, to
others. (Sec. 2&#
+. =hen a policy is so framed that it will
inure to the benefit of whomsoever,
during the continuance of the risk, may
become the owner of the interest
insured. (Sec. ):#
:. =hen there is an e-press prohibition
against alienation in the policy, in case
of alienation, the contract of insurance
is not merely suspended but avoided.
(Art. !$9+, ;CC.
=I. ASCERTAIN&ENT AND CONTROL OF RIS7
AND LOSS
A. Fo1" P"(.!"5 Co)ce")/ o9 ,4e P!",(e/3
!. Correct estimation of the risk#
2. 0recise delimitation of the risk#
$. Control of the risk#
&. %etermining whether a loss occurred and if
so, the amount of such loss.
B. De-(ce/ 1/e* 9o" !/ce",!()()+ !)*
co),"o00()+ "(/> !)* 0o//3
1. Co)ce!0.e), ( A neglect to communicate
that which a party knows and ought to
communicate (Sec. 2+
6e'uisites<
a. A party knows a fact which he neglects
to communicate or disclose to the
other.
b. Such party concealing is duty bound to
disclose such fact to the other.
c. Such party concealing makes no
warranty as to the fact concealed.
d. 4he other party has not the means of
ascertaining the fact concealed.
e. "aterial
,ffects< ,ntitles insurer to rescind, even if
the death or loss is due to a cause not related
to the concealed matter (Sec. 2:.
No,e3 2ood 3aith is not a defense in
concealment. Sec. 2: clearly provides that,
.the concealment whether intentional or
unintentional entitles the in*ured party to
rescind the contract of insurance./
Te/, o9 &!,e"(!0(,53 %etermined not by the
event, but solely by the probable and
reasonable influence of the facts upon the
party to whom the communication is due, in
forming his estimate of the advantages of the
proposed contract, or in making his in'uiries
(Sec. $!.
,-ception to Sec. $!<
a. Incontestability clause
b. "atters under Sec.!!9 (marine insurance
4he waiver of medical e-amination in a nonD
medical insurance contract renders even more
material the information re'uired of the
applicant concerning the previous conditions of
health and diseases suffered. (Sunlife v. Sps.
Eacani, 2&+ SC6A 2+>.
4he right to information of material facts
may be waived, either by the terms of the
insurance or by neglect to make in'uiries as to
such facts where they are distinctly implied in
other facts of which information is
communicated. (Sec.$$
=here matters of opinion or *udgment are
called for, answers made in good faith and
without intent to deceiver will not avoid the
policy even though they are untrue. #eason$
4he insurer cannot rely on those statements.
?e must make further in'uiry. (0hilamcare
?ealth Systems vs. CA, 2.6. ;o. !2)+:>, "arch
!>, 2992.
2. Re"e/e),!,(o)/ ( 3actual statements made
by the insured at the time of, or prior to, the
issuance of the policy to give information to
the insurer and induce him to enter into the
insurance contract. 4hey are considered an
active form of concealment.
6e'uisites of a false representation
(misrepresentation<
a. 4he insured stated a fact which is
untrue.
b. Such fact was stated with knowledge
that it is untrue and with intent to
deceive or which he states positively as
true without knowing it to be true and
which has a tendency to mislead.
c. Such fact in either case is material to
the risk.
Characteristics<
a. It is not a part of the contract but merely a
collateral inducement to it.
b. It may be oral or written.
c. It is made at the same time of issuing the
policy or before but not after.
d. It may be altered or withdrawn before the
insurance is effected but not afterwards.
e. It always refers to the date the contract
goes into effect.
Finds<
a. A33I6"A4IC, ( affirmation of a fact when
the contract begins# and
b. 06A"ISSA6B ( promise to be performed after
policy was issued.
,ffect of "isrepresentation< the in*ured party
is entitled to rescind from the time when the
representation becomes false.
Te/, o9 &!,e"(!0(,53 Same as that in
concealment.
=here the insured merely signed the
application form and made the agent of the
insurer fill the same for him, it was held that
by doing so, the insured made the agent of the
insurer his own agent and he was responsible
for his acts for that purpose. (Insular 5ife Assur.
Co. vs. 3eliciano, :& 0hil. &+@
6. ;!""!),(e/ ( Statement or promise by the
insured set forth in the policy or by reference
incorporated therein, the untruth or nonD
fulfillment of which in any respect, and
without reference to whether insurer was in
fact pre*udiced by such untruth or nonD
fulfillment, renders the policy voidable by the
insurer.
0urpose< 4o eliminate potentially increasing
ha7ards which may either be due to the acts of
the insured or to the change to the condition
of the property.
Finds<
a. ,G06,SS ( an agreement e-pressed in a
policy whereby the insured stipulates that
certain facts relating to the risk are or shall be
true, or certain acts relating to the same
sub*ect have been or shall be done.
b. I"05I,% 8 it is deemed included in the
contract although not e-pressly mentioned.
,-ample< In marine insurance, seaworthiness of
the vessel.
,ffects of breach of warranty<
a. "aterial
5636#AL #L6$ Ciolation of material
warranty or of a material provision of a policy
will entitle the other party to rescind the
contract. (Sec. :&
67C6PTI83'$
a. 5oss occurs before the time of
performance of the warranty.
b. 4he performances becomes unlawful at
the place of the contract.
c. 0erformance becomes impossible. (Sec.
:$
b. Immaterial (e-. Ather insurance clause
5636#AL #L6$ It will not avoid the policy.
67C6PTI83$ =hen the policy e-pressly
provides or declares that a violation thereof
will avoid it. (Sec. :)
;ARRANT2 REPRESENTATION
0art of the contract "ere collateral
inducement
=ritten on the
policy, actually or by
reference
"ay be written in
the policy or may
be oral.

0resumed material "ust be proved to
be material
"ust be strictly
complied with
6e'uires only
substantial truth
and compliance
4. Co)*(,(o)/ ( ,vents signifying in its
broadest sense either an occurrence or a nonD
occurrence that alters the previously e-isting
legal relations of the parties to the contract.
4hey may be conditions precedent or
conditions subse'uent.
,ffect of breach<
a. Condition precedent ( prevents the
accrual of cause of action
b. Condition subse'uent ( avoids the
policy or entitles the insurer to rescind
4he insurer may also protect himself against
fraudulent claims of loss and this he attempts
to do by inserting in the policy various
conditions which take the form of conditions
precedent. 3or instance, there are conditions
re'uiring immediate notice of loss or in*ury
and detailed proofs of loss within a limited
period.
%. E<ce,(o)/ ( 0rovisions that may specify
e-cepted perils. It makes more definite the
coverage indicated by the general description
of the risk by e-cluding certain specified risk
that otherwise would be included under the
general language describing the risks assumed.
,ffect< 5imit the coverage of the contract.
RESCISSION
G"o1)*/3
A. Concealment
E. "isrepresentation
C. Ereach of material warranty
%. Ereach of a condition subse'uent
;!(-e" o9 ,4e "(+4, ,o "e/c()*3 Acceptance
of premium payments despite the knowledge of
the ground for rescission. (Sec. &)
L(.(,!,(o)/ o) ,4e "(+4, o9 ,4e ()/1"e" ,o
"e/c()*3
!. 3on+life ( such right must be e-ercised prior
to the commencement of an action on the
contract#
2. Life ( such right must be availed of during
the first two years from the date of issue of
policy or its last reinstatement# prior to
.incontestability./ (Sec. &>
CANCELLATION OF NON8LIFE INSURANCE
POLIC2
6ight of the insurer to abandon the contract
on the occurrence of certain grounds after the
effectivity date of a nonDlife policy.
G"o1)*/3
!. NonDpayment of premium#
2. Conviction of a crime out of acts increasing
the ha7ard insured against#
$. Discovery of fraud or material
misrepresentation#
&. Discovery of willful or reckless acts of
omissions increasing the ha7ard insured
against#
). Physical changes in property making the
property uninsurable# and
+. Determination by the Insurance
Commissioner that the continuation of the
policy would violate the Insurance Code.
(Sec. +&
Re@1("e.e),/3
1. 0rior notice of cancellation to the
insured#
2. ;otice must be in writing, mailed or
delivered to the named insured at the
address shown in the policy#
3. ;otice must state which of the grounds
set forth in Sec. +& is relied upon and
upon re'uest of the insured, the
insurer must furnish facts on which the
cancellation is based#
4. 2rounds should have e-isted after the
effectivity date of the policy.
=II. INCONTESTABILIT2 CLAUSE
Clause in life insurance policy that stipulates
that the policy shall be incontestable after a
stated period.
Re@1(/(,e/3
!. 5ife insurance policy
2. 0ayable on the death of the insured
$. It has been in force during the lifetime of
the insured for a period of at least two
years from the date of its issue or of its
last reinstatement
No,e< 4he period of 2 years may be shortened
but it cannot be e-tended by stipulation.
Incontestability only deprives the insurer of
those defenses which arise in connection with
the formation and operation of the policy prior
to loss. (Prof. .e Leon, p. /:; citin( 9yatt and
9yatt, p. 2:2)
BARRED
DEFENSES
OF T#E INSURER
DEFENSES NOT
BARRED
!. 0olicy is void ab
initio
2. 0olicy is
rescindable by
reason of the
fraudulent
concealment or
misrepresentation of
the insured or his
agent
!. 4hat the person
taking the insurance
lacked insurable
interest as re'uired
by law#
2. 4hat the cause of
the death of the
insured is an
e-cepted risk#
$. 4hat the
premiums have not
been paid (Secs. ::,
22:HbI, 22>HbI,
2$9HbI#
&. 4hat the
conditions of the
policy relating to
military or naval
service have been
violated (Secs.
22:HbI, 22>HbI#
). 4hat the fraud is
of a particularly
vicious type#
+. 4hat the
beneficiary failed to
furnish proof of
death or to comply
with any condition
imposed by the
policy after the loss
has happened# or
:. 4hat the action
was not brought
within the time
specified.
=III.
A. O'ER8INSURANCE A results when the insured
insures the same property for an amount
greater than the value of the property with the
same insurance company.
E99ec, () c!/e o9 0o//3
!. 4he insurer is bound only to pay to the
e-tent of the real value of the property
lost#
2. 4he insured is entitled to recover the
amount of premium corresponding to the
e-cess in value of the property#
B. DOUBLE INSURANCE A e-ists where same
person is insured by several insurers separately
in respect to same sub*ect and interest. (Sec.
@$
Re@1(/(,e/3
!. 0erson insured is the same#
2. 4wo or more insurers insuring separately#
$. Sub*ect matter is the same#
&. Interest insured is also the same#
). 6isk or peril insured against is likewise the
same.
E99ec,/3 =here double insurance is allowed,
but over insurance results< (Sec. @&
!. 4he insured,
unless the policy otherwise provides, may
claim payment from the insurers in such
order as he may select, up to the amount
for which the insurers are severally liable
under their respective contracts#
2. =here 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
sub*ect matter insured#
$. =here 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#
&. =here the
insured receives any sum in e-cess 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#
). ,ach 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.
A**(,(o)!0 o" O,4e" I)/1"!)ce C0!1/e
A condition in the policy re'uiring the insured
to inform the insurer of any other insurance
coverage of the property insured. It is lawful
and specifically allowed under Sec. :) which
provides that .(a policy may declare that a
violation of a specified provision thereof shall
avoid it, otherwise the breach of an immaterial
provision does not avoid it./
A stipulation against double insurance.
0urposes<
!. 4o prevent an increase in the moral
ha7ard
2. 4o prevent overDinsurance and fraud.
4o constitute a violation of the clause, there
should have been double insurance.
C. REINSURANCE ( a contract by which the
insurer procures a third person to insure him
against loss or liability by reason of an original
insurance (also known as ,#einsurance
Cession-. (Sec. @)
In every reinsurance, the original contract of
insurance and the contract of reinsurance are
covered by separate policies.
DOUBLE
INSURANCE
REINSURANCE
Involves the same
interest
Involves different
interest
Insurer remains in
such capacity
Insurer becomes the
insured in relation
to reinsurer
Insured is the party
in interest in the 2
contracts
Ariginal insured has
no interest in the
reinsurance
contract.
Sub*ect of
insurance is
property
Sub*ect of insurance
is the original
insurer8s risk
Insured has to give
his consent
Insured8s consent
not necessary
TER&S3
1. Re()/1"!)ce ,"e!,5 A "erely an agreement
between two insurance companies whereby
one agrees to cede and the other to accept
reinsurance business pursuant to provisions
specified in the treaty. (Prof. .e Leon, p. ;01)
2. A1,o.!,(c "e()/1"!)ce ( 4he reinsured is
bound to cede and the reinsurer is obligated to
accept a fi-ed share of the risk which has to be
reinsured under the contract. (Prof. .e Leon,
p. ;04)

6. F!c10,!,(-e "e()/1"!)ce ( 4here is no
obligation to cede or accept participation in
the risk each party having a free choice. Eut
once the share is accepted, the obligation is
absolute and the liability thereunder can be
discharged only by payment. (,'uitable Ins. J
Casualty Co. vs. 6ural Ins. J Surety Co., Inc. &
SC6A $&$
4. Re,"oce//(o) ( A transaction whereby the
reinsurer in turn, passes to another insurer a
portion of the risk reinsured. It is really the
reinsurance of reinsurance. (Prof. .e Leon, p.
;04)
=I'.
A. LOSS, IN INSURANCE
In*ury or damage sustained by the insured in
conse'uence of the happening of one or more
of the accidents or misfortune against which
the insurer, in consideration of the premium,
has undertaken to indemnify the insured.
(Eonifacio Eros. Inc. vs. "ora, 29 SC6A 2+!
Lo// 9o" ?4(c4
()/1"e" (/ 0(!:0e
Lo// 9o" ?4(c4
()/1"e" (/ )o,
0(!:0e
!. 5oss the
pro-imate cause of
which is the peril
insured against
(Sec. >&#
2. 5oss the
immediate cause of
which is the peril
insured against
e-cept where
pro-imate cause is
an e-cepted peril#
$. 5oss through
negligence of
insured e-cept
where there was
gross negligence
amounting to willful
acts# and
&. 5oss caused by
efforts to rescue the
thing from peril
insured against#
). If during the
course of rescue,
the thing is e-posed
to a peril not
insured against,
which permanently
deprives the insured
of its possession, in
whole or in part
(Sec. >).
!. 5oss by
insured8s willful
act#
2. 5oss due to
connivance of the
insured (Sec. >:#
and
$. 5oss where the
e-cepted peril is
the pro-imate
cause.
P"o<(.!,e C!1/e ( An event that sets all other
events in motion without any intervening or
independent case, without which the in*ury or
loss would not have occurred.
RE$UISITES FOR RECO'ER2 UPON INSURANCE
!. 4he insured must have insurable interest in
the sub*ect matter#
2. 4hat interest is covered by the policy#
$. 4here must be a loss# and
&. 4he loss must be pro-imately caused by the
peril insured against.
NOTICE OF LOSS
I) 9("e ()/1"!)ce I) o,4e" ,5e/ o9
()/1"!)ce
6e'uired ;ot re'uired
3ailure to give
notice will defeat
the right of the
insured to recover.
3ailure to give
notice will not
e-onerate the
insurer, unless
there is a
stipulation in the
policy re'uiring the
insured to do so.
B. CLAI&S SETTLE&ENT
4he indemnification of the loss of the
insured.
TI&E FOR PA2&ENT OF CLAI&S
LIFE POLICIES
NON8LIFE
POLICIES
a. <aturin(
upon the
e=piration of the
ter! ( 4he
proceeds are
immediately
payable to the
insured, unless
they are made
payable in
installments or as
annuity, in which
case, the
installments or
annuities shall be
paid as they
become due.
b. <aturin( at
the death of the
insured, occurrin(
prior to the
e=piration of the
ter! stipulated (
4he proceeds are
payable to the
beneficiaries
within +9 days
after presentation
and filing of proof
of death.
4he proceeds shall
be paid within $9
days after the
receipt by the
insurer of proof of
loss, and
ascertainment of
the loss or damage
by agreement of the
parties or by
arbitration but not
later than @9 days
from such receipt of
proof of loss
whether or not
ascertainment is
had or made.
In case of an unreasonable delay in the
payment of the insured8s claim by the insurer,
the insured can recover< ! attorney8s fees# 2
e-penses incurred by reason of the
unreasonable withholding# $ interest at double
the legal interest rate fi-ed by the "onetary
Eoard# and & the amount of the claim. (Kenith
Insurance Corp. vs. CA, !>) SC6A $@>
='. PRESCRIPTI'E PERIOD (Sec/. 66 B 6C4)
#ules$
!. In the absence of an e-press stipulation in
the policy, it being based on a written
contract, the action prescribes in !9 years.
2. ?owever the parties may validly agree on a
shorter period provided it is not less than one
year from the time the cause of action
accrues.
$. 4he cause of action accrues from the
re>ection of the clai! of the insured and not
from the time of loss.
It shall commence from the denial of the
claim, not from the resolution of the motion
for reconsideration, otherwise it can be used
by the insured as a scheme or device to waste
time until the evidence which may be used
against him is destroyed. (Sun Insurance Affice,
5td. v. CA, !@) SC6A
&. In C"C5I, the written notice of claim must
be filed within + months from the date of the
accident otherwise the claim is deemed
waived. 4he suit for damages either with the
proper court or with the Insurance
Commissioner should be filed within ! year
from the date of the denial of the claim by the
insurer, otherwise claimant8s right of action
shall prescribe. (Sec. $>&
PARTICULAR 7INDS OF INSURANCE
CONTRACTS
='I. &ARINE INSURANCE
Insurance against risks connected with
navigation, to which a ship, cargo, freightage,
profits or other insurable interest in movable
property, may be e-posed during a certain
voyage or a fi-ed period of time. (Sec. @@
Co-e"!+e3
A.
!. Cessels, goods, freight, cargo,
merchandise, profits, money, valuable
papers, bottomry and respondentia, and
interest in respect to all risks or perils of
navigation#
2. 0ersons or property in connection with
marine insurance#
$. 0recious stones, *ewels, *ewelry and
precious metals whether in the course of
transportation or otherwise# and
&. Eridges, tunnels, piers, docks and other
aids to navigation and transportation. (Sec.
@@
Cargo can be the sub*ect of marine
insurance, and once it is entered into,
the implied warranty of seaworthiness
immediately attaches to whoever is
insuring the cargo, whether he be the
shipowner or not. (6o'ue v. IAC, !$@
SC6A )@+
E. "arine 0rotection and Indemnity Insurance
C0!//e/ o9 ()0!)* .!"()e ()/1"!)ce3 (Prof.
.e Leon, p. ;24)
!. Property in transit ( provides
protection to property fre'uently
e-posed to loss while it is
transportation form one location to
another.
2. ?ailee lia"ility + insurance for those
who have temporary custody of the
goods.
$. @i=ed transportation property A they
are so insured because they are held to
be an essential part of the
transportation system such as bridges,
tunnels, etc.
&. @loater A provides insurance to follow
the insured property wherever it may
be located, sub*ect always to the
territorial limits of the contract.
I)/1"!:0e (),e"e/,3
A.
1. 'hipo&ner
a. Aver the vessel to the e-tent of
its value, e-cept that if
chartered, the insurance is only
up to the amount not
recoverable from the charterer.
(Sec. !99.
b. ?e also has an insurable interest
on e-pected freightage. (Sec.
!9$.
c. ;o insurable interest if he will be
compensated by charterer for
the value of the vessel, in case of
loss.
2. Car(o o&ner
Aver the cargo and e-pected profits
(Sec. !9).
;. Charterer
Aver the amount he is liable to the
shipowner, if the ship is lost or
damaged during the voyage (Sec. !9+.
E.
In loans on bottomry and respondentia
6epayment of the loan is sub*ect to the
condition that the vessel or goods,
respectively, given as a security, shall arrive
safely at the port of destination.
/. 8&nerB.e"tor
%ifference between the value of
vessel or goods and the amount of
loan. (Sec. !9!
2. CreditorBlender
Amount of the loan
No,e3 If a vessel is hypothecated by bottomry,
only the e-cess is insurable, since a loan on
bottomry partakes of the nature of an
insurance coverage to the e-tent of the loan
accommodation. The sa!e rule &ould apply to
the hypothecation of the car(o "y
respondentia. (Pandect of Co!!ercial La&

and Curisprudence, Custice Cose Vitu(, /00:
ed.)
PERILS OF T#E
SEA
PERILS OF T#E
S#IP
Includes only those
casualties due to
the<
!. unusual
violence# or
2. e-traordinary
action of wind and
wave# or
$. Ather
e-traordinary causes
connected with
navigation.
A loss which in the
ordinary course of
events, results
from the<
!. natural and
inevitable action of
the sea
2. ordinary wear
and tear of the ship
or
$. ;egligent
failure of the ship8s
owner to provide
the vessel with
proper e'uipment
to convey the cargo
under ordinary
conditions.
No,e< It is only perils of the sea which may be
insured against unless perils of the ship is
covered by an allDrisk policy.
SPECIAL &ARINE INSURANCE CONTRACTS AND
CLAUSES
A. A00 R(/>/ Po0(c5 ( insurance against all
causes of conceivable loss or damage, e-cept<
! as otherwise e-cluded in the policy# or 2
due to fraud or intentional misconduct on the
part of the insured.
4he insured has the initial burden of proving
that the cargo was in good condition when the
policy attached and that the cargo was
damaged when unloaded from the vessel#
thereafter, the burden then shifts to the
insurer to show the e-ception to the coverage.
(3ilipinas "erchants Insurance vs. Court of
Appeals, !:@ SC6A +$>
B. B!""!,"5 C0!1/e
A clause which provides that there can be no
recovery on the policy in case of any willful
misconduct on the part of the master or crew
in pursuance of some unlawful or fraudulent
purpose without consent of owners, and to the
pre*udice of the owner8s interest. (6o'ue vs.
IAC, !$@ SC6A )@+
C. I)c4!.!"ee C0!1/e
A clause which makes the insurer liable for
loss or damage to the hull or machinery arising
from the<
!. ;egligence of the captain, engineers, etc.
2. ,-plosions, breakage of shafts# and
$. 5atent defect of machinery or hull. (?ar
#e%ie& <aterials in Co!!ercial La&,
Cor(e <ira%ite, 2002 ed.)
D. S1e !)* L!:o" C0!1/e
A clause under which the insurer may become
liable to pay the insured, in addition to the loss
actually suffered, such e-penses as he may
have incurred in his efforts to protect the
property against a peril for which the insurer
would have been liable. (Sec. !+$

&ATTERS ALT#OUG# CONCEALED, ;ILL NOT
'ITIATE T#E CONTRACT E=CEPT ;#EN T#E2
CAUSED T#E LOSS (Sec. 110)
!. ;ational character of the insured#
2. 5iability of the thing insured to capture or
detention#
$. 5iability to sei7ure from breach of foreign
laws#
&. =ant of necessary documents# and
). 1se of false or simulated papers.
No,e3 4his should be related to the general
rule regarding material concealment.
DISTINCTIONS ON CONCEAL&ENT (Co!!ercial
La& #e%ie&er, A.@. A("ayani, /022 ed.)
&ARINE INSURANCE OT#ER
PROPERT2
INSURANCE
4he information of the
belief or e-pectation
of $
rd
persons is
material and must be
communicated
4he information or
belief of a $
rd
party
is not material and
need not be
communicated
unless it proceeds
form an agent of
the insured whose
duty it is to give
information
4he concealment of
any fact in relation to
any of the matters
stated in Sec. !!9
does not vitiate the
entire contract but
merely e-onerates the
insurer from a risk
resulting from the fact
concealed
Concealment of any
material fact will
vitiate the entire
contract, whether
or not the loss
results for the risk
concealed.
I&PLIED ;ARRANTIES
!. Seaworthiness of the ship at the inception
of the insurance (Sec. !!$#
2. Against improper deviation (Sec. !2$, !2&,
!2)#
$. Against illegal venture#
4. =arranty of neutrality< the ship will carry
the re'uisite documents of nationality or
neutrality of the ship or cargo where such
nationality or neutrality is e=pressly
warranted# (Sec. !29
). 0resence of insurable interest.
=hile the payment by the insurer for the
insured value of the lost cargo operates as a
waiver of the insurer8s right to enforce the
term of the implied warranty against the
assured under the marine insurance policy, the
same cannot be validly interpreted as an
automatic admission of the vessel8s
seaworthiness by the insurer as to foreclose
recourse against the common carrier for any
liability under the contractual obligation as
such common carrier. (%elsan 4ransportation
5ines vs. CA, $+& SC6A 2&
Se!?o",4()e//
A relative term depending upon the nature of
the ship, voyage, service and goods, denoting
in general a ship8s fitness to perform the
service and to encounter the ordinary perils of
the voyage, contemplated by the parties to the
policy (Sec. !!&.
5636#AL #L6$ 4he warranty of
seaworthiness is complied with if the ship be
seaworthy at the time of the commencement
of the risk. 0rior or subse'uent
unseaworthiness is not a breach of the
warranty nor is it material that the vessel
arrives in safety at the end of her voyage.
67C6PTI83'$
!. In the case of a time policy, the ship must
be seaworthy at the commencement of
every voyage she may undertake
2. In the case of cargo policy, each vessel
upon which the cargo is shipped or
transshipped, must be seaworthy at the
commencement of each particular voyage
$. In the case of a voyage policy
contemplating a voyage in different stages,
the ship must be seaworthy at the
commencement of each portion
A0(c!:(0(,5 o9 (.0(e* ?!""!),5 o9
/e!?o",4()e// ,o c!"+o o?)e"/3 It becomes
the obligation of a cargo owner to look for a
reliable common carrier, which keeps its
vessels in seaworthy conditions. 4he shipper
may have no control over the vessel but he has
control in the choice of the common carrier
that will transport his goods (6o'ue v. IAC, !$@
SC6A )@+.
De-(!,(o)
A departure from the course of the voyage
insured, or an unreasonable delay in pursuing
the voyage or the commencement of an
entirely different voyage. (Sec.!2$
Instances<
!. %eparture of vessel from the course of
the sailing fi-ed by mercantile usage
2. %eparture of vessel from the most
natural, direct and advantageous route
if not fi-ed by mercantile usage
$. 1nreasonable delay in pursuing voyage
&. Commencement of an entirely
different voyage (Secs. !2!D!2$
Finds<
!. 0roper D
a. =hen caused by circumstances outside the
control of the ship captain or ship owner#
b. =hen necessary to comply with a warranty or
to avoid a peril#
c. =hen made in good faith to avoid a peril#
d. =hen made in good faith to save human life
or to relieve another vessel in distress (Sec.
!2&
,ffect< In case of loss, the insurer is
still liable.
2. Improper D ,very deviation not
specified in Sec. !2& (Sec. !2).
,ffect< In case of loss or damage, the
insurer is not liable. (Sec. !2+
LOSS
!. Total$
a. Actual D
i. 4otal destruction#
ii. Irretrievable loss by sinking#
iii. %amage rendering the thing
valueless# or
iv. 4otal deprivation of owner of
possession of thing insured. (Sec.
!$9
b. Constructive D
i. Actual loss of more than L of the
value of the ob*ect#
ii. %amage reducing value by more
than L of the value of the vessel
and of cargo# and
iii. ,-pense of transshipment e-ceed
L of value of cargo. (Sec. !$!, in
relation to Sec. !$@
In case of constructive total
loss, insured may<
!. Abandon goods or vessel to
the insurer and claim for whole
insured value (Sec. !$@, or
2. =ithout abandoning vessel,
claim for partial actual loss.
(Sec. !))
2. Partial$ 4hat which is not total (Sec. !2>.
A'ERAGE
Any e-traordinary or accidental e-pense
incurred during the voyage for the preservation
of the vessel, cargo, or both, and all damages
to the vessel and cargo from the time it is
loaded and the voyage commenced until it
ends and the cargo unloaded.
GENERAL PARTICULAR
?as inured to the
common benefit and
profit of all persons
interested in the
vessel and cargo
?as not inured to the
common benefit and
profit of all persons
interested in the
vessel and her cargo.
4o be borne e'ually
by all of the interests
concerned in the
venture.
4o be borne alone by
the owner of the
cargo or the vessel,
as the case may be.
6e'uisites for the
right to claim
contribution<
!. Common
danger to the
vessel or
cargo#
2. 0art of the
vessel or cargo
was sacrificed

deliberately#
$. Sacrifice must
be for the
common safety
or for the
benefit of all#
&. Sacrifice must
be made by
the master or
upon his
authority#
). It must be not
be caused by
any fault of
the party
asking the
contribution#
+. It must be
successful, i.e.
resulted in the
saving of the
vessel or
cargo# and
;ecessary.
RIG#T OF INSURED IN CASE OF GENERAL
A'ERAGE
5636#AL #L6$ 4he insured may either hold
the insurer directly liable for the whole of the
insured value of the property sacrificed for the
general benefit, subrogating him to his own
right of contribution or demand contribution
from the other interested parties as soon as
the vessel arrives at her destination
67C6PTI83'$
!. After the separation of interests liable to
contribution
2. =hen the insured has neglected or waived
his right to contribution
FPA C0!1/e (F"ee F"o. P!",(c10!" A-e"!+e)
A clause agreed upon in a policy of marine
insurance in which it is stated that the insurer
shall not be liable for a particular average,
such insurer shall be free therefrom, but he
shall continue to be liable for his proportion of
all general average losses assessed upon the
thing insured. (Sec. !$+
ABANDON&ENT
4he act of the insured by which, after a
constructive total loss, he declared the
relin'uishment to the insurer of his interest in
the thing insured. (Sec. !$>
Re@1(/(,e/ 9o" -!0(*(,53
!. 4here must be an !ctual relin'uishment by
the person insured of his interest in the
thing insured (Sec. !$>#
2. 4here must be a constructive total loss
(Sec. !$@#
$. 4he abandonment be neither artial nor
conditional (Sec. !&9#
&. It must be made within a reasonable ,ime
after receipt of reliable information of the
loss (Sec. !&!#
). It must be 9actual (Sec. !&2#
+. It must be made by giving )otice thereof to
the insurer which may be done orally or in
writing (Sec. !&$# and
:. 4he notice of abandonment must be
e-plicit and must specify the particular
cause of the abandonment (Sec. !&&.
E99ec,/3
!. It is e'uivalent to a transfer by the insured
of his interest to the insurer with all the
chances of recovery and indemnity
(4ransfer of Interest(Sec.!&+
2. Acts done in good faith by those who were
agents of the insured in respect to the
thing insured, subse'uent to the loss, are
at the risk of the insurer and for his
benefit. (4ransfer Af Agency(Sec.!&>
If an insurer refuses to accept a valid
abandonment, he is liable upon an actual total
loss, deducting form the amount any proceeds
of the thing insured which may have come to
the hands of the insured. (Sec.!)&
CO8INSURANCE
A marine insurer is liable upon a partial loss,
only for such proportion of the amount insured
by him as the loss bears to the value of the
whole interest of the insured in the property
insured. (Sec. !):
=hen the property is insured for less than its
value, the insured is considered a coDinsurer of
the difference between the amount of
insurance and the value of the property.
Re@1(/(,e/3
!. 4he loss is partial#
2. 4he amount of insurance is less than the
value of the property insured.
R10e/3
!. CoDinsurance applies only to marine
insurance
2. 5ogically, there cannot be coDinsurance in
life insurance.
$. CoDinsurance applies in fire insurance when
e-pressly provided for by the parties.
CO8INSURANCE REINSURANCE
A percentage in the
value of the insured
property which the
insured himself
assumes to act as
insurer to the e-tent
of the deficiency in
the insurance of the
insured property. In
case of loss or
damage, the insurer
will be liable only for
such proportion of
the loss or damage as
the amount of the
Situation where the
insurer procures a $
rd

party called the
reinsurer to insure
him against liability
by reason of an
original insurance.
Easically, reinsurance
is an insurance
against liability which
the original insurer
may incur in favor of
the original insured.
insurance bears to
the designated
percentage of the
full value of the
property insured.
(?ar #e%ie&
<aterials in
Co!!ercial La&,
Cor(e <ira%ite, 2002
ed.)
='II. FIRE INSURANCE
A contract by which the insurer for a
consideration agrees to indemnify the insured
against loss of, or damage to, property by
hostile fire, including loss by lightning,
windstorm, tornado or earth'uake and other
allied risks, when such risks are covered by
e-tension to fire insurance policies or under
separate policies. (Sec. !+:
P"e"e@1(/(,e/ ,o "eco-e"53
!. ;otice of loss ( must be immediately given,
unless delay is waived e-pressly or impliedly by
the insurer
2. 0roof of loss ( according to best evidence
obtainable. %elay may also be waived e-pressly
or impliedly by the insurer
#OSTILE FIRE FRIENDL2 FIRE
Ane that escapes
from the place
where it was
intended to burn
and ought to be.
Ane that burns in a
place where it was
intended to burn
and ought to be
Insurer is liable Insurer is not liable
&e!/1"e o9 I)*e.)(,5
!. 8pen policy$ only the e-pense necessary to
replace the thing lost or in*ured in the
condition it was at the time of the in*ury
2. Valued policy$ the parties are bound by the
valuation, in the absence of fraud or mistake
No,e3 It is very crucial to determine whether a
marine vessel is covered by a marine insurance
or fire insurance. 4he determination is
important for 2 reasons<
!. #ules on constructi%e total loss and
a"andon!ent ( applies only to marine
insurance#
2. #ule on co+insurance ( applies primarily
to marine insurance#
$. #ule on co+insurance applies to fire
insurance only if e-pressly agreed
upon. (Co!!ercial La& #e%ie&er,
A(uedo A("ayani, /022 ed.)
ALTERATION AS A SPECIAL GROUND FOR
RESCISSION B2 INSURER
Re@1(/(,e/3
!. 4he use or condition of the thing is
specifically limited or stipulated in the
policy#
2. Such use or condition as limited by the
policy is altered#
$. 4he alteration is made without the
consent of the insurer#
&. 4he alteration is made by means within
the control of the insured#
). 4he alteration increases the risk# (Sec.
!+> and
+. 4here must be a violation of a policy
provision. (Sec. !:9
F!008o98:1(0*()+ c0!1/e
A clause in a fire insurance policy that if the
building or any part thereof falls, e-cept as a
result of fire, all insurance by the policy shall
immediately cease.
O,(o) ,o "e:1(0* c0!1/e
A clause giving the insurer the option to
reinstate or replace the property damaged or
destroyed or any part thereof, instead of
paying the amount of the loss or the damage.
4he insurer, after electing to rebuild, cannot
be compelled to perform this undertaking by
specific performance because this is an
obligation to do, not to give. 6emedy< Art.
!!+:, ;CC.
='III. CASUALT2 OR ACCIDENT INSURANCE
Insurance covering loss or liability arising
from accident or mishap, e-cluding those
falling under other types of insurance such as
fire or marine. (Sec. !:&
C0!//(9(c!,(o)/3
!. Insurance a(ainst specified perils &hich !ay
affect the person andBor property of the
insured. (accident or health insurance
,-amples< personal accident, robberyMtheft
insurance
2. Insurance a(ainst specified perils &hich !ay
(i%e rise to lia"ility on the part of the insured
for clai!s for in>uries to or da!a(e to
property of others. (third party liability
insurance
Insurable interest is based on the interest of
the insured in the safety of persons, and their
property, who may maintain an action against
him in case of their in*ury or destruction,
respectively.
,-amples< workmen8s compensation, motor
vehicle liability
In a third party liability (405 insurance
contract, the insurer assumes the obligation by
paying the in*ured third party to whom the
insured is liable. 0rior payment by the insured
to the third person is not necessary in order
that the obligation may arise. 4he moment the
insured becomes liable to third persons, the
insured ac'uires an interest in the insurance
contract which may be garnished like any other
credit. (0erla Comapnia de Seguro, Inc vs.
6amolete, 29) SC6A &>:

Aside from compulsory motor vehicle
liability insurance, the Insurance Code contains
no other provisions applicable to casualty
insurance. 4herefore, such casualty insurance
are governed by the general provisions
applicable to all types of insurance, and
outside of such statutory provisions, the rights
and obligations of the parties must be
determined by their contract, taking into
consideration its purpose and always in
accordance with the general principles of
insurance law.
In burglary, robbery and theft insurance, the
opportunity to defraud the insurer ( the moral
ha7ard ( is so great that insurer have found it
necessary to fill up the policies with many
restrictions designed to reduce the ha7ard.
0ersons fre'uently e-cluded are those in the
insured8s service and employment. 4he purpose
of the e-ception is to guard against liability
should theft be committed by one having
unrestricted access to the property. (3ortune
Insurance vs. CA, 2&& SC6A 29>
R(+4, o9 ! ,4("* !",5 ()D1"e* ,o /1e ,4e
()/1"e"
!. Indemnity against liability ( A third party
in*ured can directly sue the insurer.
2. Indemnity for actual loss or reimbursement
after actual payment by the insured ( A third
party has no cause of action against the insurer
(Sec. )$, Eonifacio Eros. v. "ora, 29 SC6A 2+!.
4he insurer is not solidarily liable with the
insured. 4he insurer8s liability is based on
contract# that of the insured is based on torts.
3urthermore, the insurer8s liability is limited by
the amount of the insurance coverage (0an
"alayan Insurance Corporation v. CA, !>& SC6A
)&.
INTENTIONAL -/. ACCIDENTAL AS USED
IN INSURANCE POLICIES
/. Intentional A Implies the e-ercise of the
reasoning faculties, consciousness and volition.
=here a provision of the policy e-cludes
intentional in*ury, it is the intention of the
person inflicting the in*ury that is controlling.
If the in*uries suffered by the insured clearly
resulted from the intentional act of the third
person, the insurer is relieve from liability as
stipulated. (Eiagtan v. the Insular 5ife
Assurance Co. 5td., && SC6A )>, !@:2
2. Accidental ( 4hat which happens by chance
or fortuitously, without intention or design,
which is une-pected, unusual and unforeseen.
NO ACTION CLAUSE
A re'uirement in a policy of liability
insurance which provides that suit and final
*udgment be first obtained against the insured#
that only thereafter can the person in*ured
recover on the policy. (2uingon vs. %el "onte,
29 SC6A !9&$
=I=. CO&PULSOR2 &OTOR 'E#ICLE LIABILIT2
INSURANCE (C&'LI)
A species of compulsory insurance that
provides for protection coverage that will
answer for legal liability for losses and
damages for bodily in*uries or property damage
that may be sustained by another arising from
the use and operation of motor vehicle by its
owner.
0urpose< 4o give immediate financial
assistance to victims of motor vehicle
accidents andMor their dependents, especially
if they are poor regardless of the financial
capability of motor vehicle owners or operators
responsible for the accident sustained (Shafer
v. Nudge, 64C, !+: SC6A $>+.
ClaimantsMvictims may be a .passenger/ or a
.$
rd
party/
It applies to all vehicles whether public and
private vehicles.
;ote< It is the only compulsory insurance
coverage under the Insurance Code.
&e,4o* o9 co-e"!+e
!. Insurance policy
2. Surety bond
$. Cash deposit
P!//e)+e" A Any fareDpaying person being
transported and conveyed in and by a motor
vehicle for transportation of passengers for
compensation, including persons e-pressly
authori7ed by law or by the vehicle8s operator
or his agents to ride without fare. (Sec. $:$HbI
T4("* P!",5 ( Any person other than the
passenger, e-cluding a member of the
household or a member of the family within
the second degree of consanguinity or affinity,
of a motor vehicle owner or land transportation
operator, or his employee in respect of death
or bodily in*ury arising out of and in the course
of employment. (Sec. $:$HcI
No8F!10, C0!1/e
A clause that allows the victim (in*ured
person or heirs of the deceased to an option
to file a claim for death or in*ury without the
necessity of proving fault or negligence of any
kind.
0urpose< 4o guarantee compensation or
indemnity to in*ured persons in motor vehicle
accidents.
6ules<
!. 4otal indemnity D ma-imum of 0),999
2. 0roofs of loss D
a. 0olice report of accident#
b. %eath certificate and evidence
sufficient to establish proper payee#
c. "edical report and evidence of medical
or hospital disbursement.
$. Claim may be made against one motor
vehicle only
&. 0roper insurer from which to claim D
a. In case of an occupant< Insurer of the
vehicle in which the occupant is riding,
mounting or dismounting from#
b. In any other case< Insurer of the
directly offending vehicle. (Sec. $:>
4he claimant is not free to choose from
which insurer he will claim the .no fault
indemnity/ as the law makes it mandatory that
the claim shall lie against the insurer of the
vehicle in which the occupant is riding,
mounting or dismounting from. 4hat said
vehicle might not be the one that caused the
accident is of no moment since the law itself
provides that the party paying may recover
against the owner of the vehicle responsible
for the accident. (0erla Compania de Seguros,
Inc. v. Ancheta, !+@ SC6A !&&
4his noDfault claim does not apply to
property damage. If the total indemnity claim
e-ceeds 0),999 and there is controversy in
respect thereto, the finding of fault may be
availed of by the insurer only as to the e-cess.
4he first 0),999 shall be paid without regard
to fault. (Prof. .e Leon, p. :/1)
4he essence of the noDfault indemnity
insurance is to provide victims of vehicular
accidents or their heirs immediate
compensation although in limited amount,
pending final determination of who is
responsible for the accident and liable for the
victims in*uries or death. (I"id.)
SPECIAL CLAUSES
A. A1,4o"(Ee* D"(-e" C0!1/e
A clause which aims to indemnify the insured
owner against loss or damage to the car but
limits the use of the insured vehicle to the
insured himself or any person who drives on his
order or with his permission (Cillacorta v.
Insurance Commissioner
4he re'uirement that the person driving the
insured vehicle is permitted in accordance with
the licensing laws or other laws or regulations
to drive the motor vehicle (licensed driver is
applicable only if the person driving is other
than the insured.
B. T4e9, C0!1/e
A clause which includes theft as among the
risks insured against.
=here the car is unlawfully and wrongfully
taken without the owner8s consent or
knowledge, such taking constitutes theft, and
thus, it is the .theft clause/ and not the
.authori7ed driver clause that should apply
(0alermo v. 0yramids Ins., !+! SC6A +::.
C. Cooe"!,(o) C0!1/e
A clause which provides in essence that the
insured shall give all such information and
assistance as the insurer may re'uire, usually
re'uiring attendance at trials or hearings.
==. SURET2S#IP
An agreement whereby a surety guarantees
the performance by the principal or obligor of
an obligation or undertaking in favor of an
obligee. (Sec. !:)
It is essentially a credit accommodation.
It is considered an insurance contract if it is
e-ecuted by the surety as a vocation, and not
incidentally. (Sec. 29
=hen the contract is primarily drawn up by
! party, the benefit of doubt goes to the other
party (insuredMobligee in case of an ambiguity
following the rule in contracts of adhesion.
Suretyship, especially in fidelity bonding, is
thus treated like nonDlife insurance in some
respects.
N!,1"e o9 0(!:(0(,5 o9 /1"e,5
!. Solidary#
2. 5imited 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. (Sec. !:+
SURET2S#IP PROPERT2
INSURANCE
Accessory contract 0rincipal contract
$ parties< surety,
obligor and oblige
2 parties< insurer and
insured
Credit
accommodation
Contract of
indemnity
Surety can recover
from principal
Insurer has no such
right# only right of
subrogation
Eond can be
cancelled only with
consent of obligee,
Commissioner or
court
"ay be cancelled
unilaterally either by
insured or insurer on
grounds provided by
law
6e'uires
acceptance of
obligee to be valid
;o need of
acceptance by any
third party
6iskDshifting device#
premium paid being
in the nature of a
service fee
6iskDdistributing
device# premium paid
as a ratable
contribution to a
common fund
==I. LIFE INSURANCE
Insurance on human lives and insurance
appertaining thereto or connected therewith
which includes every contract or pledge for the
payment of endowments or annuities. (Sec.
!:@

7()*/3 (?ar #e%ie& <aterials in Co!!ercial
La&, Cor(e <ira%ite, 2002 ed.)
1. 8rdinary Life, 5eneral Life or 8ld Line
Policy D Insured pays a fi-ed premium every
year until he dies. Surrender value after $
years.
2. 5roup Life ( ,ssentially a single insurance
contract that provides coverage for many
individuals. ,-amples< In favor of
employees, .mortgage redemption
insurance/.
3. Li!ited Pay!ent Policy ( insured pays
premium for a limited period. If he dies
within the period, his beneficiary is paid# if
he outlives the period, he does not get
anything.
4. 6ndo&!ent 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. Ter! 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 D life insurance entitling the
insured to pay premiums weekly, or where
premiums are payable monthly or oftener.
&o",+!+e Re*e.,(o) I)/1"!)ce
A life insurance taken pursuant to a group
mortgage redemption scheme by the lender of
money on the life of a mortgagor who, to
secure the loan, mortgages the house
constructed from the use of the proceeds of
the loan, to the e-tent of the mortgage
indebtedness such that if the mortgagor dies,
the proceeds of his life insurance will be used
to pay for his indebtedness to the lender
assured and the deceased8s heirs will thereby
be relieved from paying the unpaid balance of
the loan. (2reat 0acific 5ife Assurance Corp.
vs. Court of Appeals, $!+ SC6A +::
LIABILIT2 OF INSURER IN CERTAIN CAUSES OF
DEAT# OF INSURED
!. Suicide
Insurer is liable in the following cases<
!. If committed after t&o years from the
date of the policy8s issue or its last
reinstatement#
2. If committed in a state of insanity
regardless of the date of the
commission unless suicide is an
e-cepted peril. (Sec. !>9DA
$. If committed after a shorter period
provided in the policy
Any stipulation e-tending the 2Dyear period
is null and void.
2. At the hands of the law (,.g. by legal
e-ecution
It is one of the risks assumed by the insurer
under a life insurance policy in the absence of
a valid policy e-ception. (Vance,p.4:2 cited in
de Leon, p. /0:)
No,e3 Nustice Citug believes that death by
suicide (if the insured is sane or at the hands
of the law obviates against recovery as being
more in consonance with public policy and as
being implicit under Section >:, IC0. (Pandect
of Co!!ercial La& and Curisprudence, /00:
ed. P. /0/)
$. Killin !y the !eneficiary
5636#AL #L6$ 4he 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
dis'ualified. (Sec. !2
67C6PTI83'$
!. Accidental killing
2. SelfDdefense
$. Insanity of the beneficiary at the time
he killed the insured
If the premiums paid came from con*ugal
funds, the proceeds are considered con*ugal. If
the beneficiary is other than the insured8s
estate, the source of premiums would not be
relevant. (%el Cal v. %el Cal, 2@ 0hil )$&
4he measure of indemnity in life or health
insurance policy is the sum fi-ed in the policy
e-cept when a creditor insures the life of his
debtor. (Sec. !>$
IS T#E CONSENT OF T#E BENEFICIAR2
NECESSAR2 TO T#E ASSIGN&ENT OF A LIFE
INSURANCE POLIC2F
It depends. If the designation of the
beneficiary is irrevocable, the beneficiary8s
consent is essential because of his vested right.
If the designation is revocable, the policy may
be assigned without such consent because the
beneficiary only has a mere e-pectancy to the
proceeds. (The Insurance Code of the
Philippines Annotated, Hector de Leon, 2002
ed.)
C!/4 S1""e)*e" '!01e
As applied to a life insurance policy, it is the
amount the insured in case of default, after
the payment of at least $ full annual
premiums, is entitled to receive if he
surrenders the policy and releases his claims
upon it.
LIFE INSURANCE FIRE INSURANCE
Contract of
investment not of
indemnity
Contract of indemnity
Calued policy Apen or valued policy
"ay be transferred
or assigned to any
person even if he
has no insurable
interest
4he insurable
interest of the
transferee or
assignee is essential
Consent of insurer is
not essential to
validity of
assignment
Consent of insurer
must be secured in the
absence of waiver
Contingency that is
contemplated is a
certain event, the
only uncertainty
being the time when
it will take place
Contingency insured
against may or may
not occur
A longDterm
contract and cannot
be cancelled by the
insurer
"ay be cancelled by
either party and is
usually for a term of
one year
Eeneficiary is under
no obligation to
prove actual
financial loss
Insured is re'uired to
submit proof of his
actual pecuniary loss
as a condition
precedent to
collecting the
insurance.
==II. 'ARIABLE CONTRACT
Any policy or contract on either a group or
individual basis issued by an insurance
company providing for benefits or other
contractual payments or values thereunder to
vary so as to reflect investment results of any
segregated portfolio of investment.
==III. INSURANCE CO&&ISSIONER
"ain agency charged with the enforcement of
the Insurance Code and other related laws.
F1)c,(o)/3
!. A%N1%ICA4A6BMO1ASIDN1%ICIA5
a. ,-clusive original *urisdiction ( Any
dispute in the enforce!ent of any policy issued
pursuant to Chapter CI (C"C5I. (Sec. $>), par.
2
b. Concurrent original *urisdiction (with
the 64C ( =here the ma-imum amount
involved in any single claim is 0!99,999 (Sec.
&!+, e-cept in case of maritime insurance
which is within the e-clusive *urisdiction of the
64C. (E0 !2@# admiralty J maritime
*urisdiction
=here the amount e-ceeds
0!99,999, the 64C has *urisdiction.
4he Insurance Commissioner has no
*urisdiction to decide the legality of a contract
of a(ency entered into between an insurance
company and its agent. 4he same is not
covered by the term .doing or transacting
insurance business/ under Sec 2, IC0, neither is
it covered by Sec. &!+ of the same Code which
grants the Commissioner ad*udicatory powers
(0hilippine American 5ife Insurance Co. v.
Ansaldo, 2$& SC6A )9@.
2. A%"I;IS46A4IC,M6,215A4A6B
a. ,nforcement of insurance laws
b. Issuance, suspension or revocation of
certificate of authority
c. 0ower to e-amine books and records,
etc.
d. 6uleDmaking authority
e. 0unitive