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FAR EASTERN UNIVERSITY INSTITUTE OF LAW

INSURANCE OUTLINE1
DY
2ND TRIMESTER, SY 2009-2010
2009

ATTY. ALEXANDER C.
THURSDAY, 17 SEPTEMBER

I. GENERAL CONCEPTS
A. INSURANCE
1. Definition Sec. 2(1), I.C.2
2. Elements Philamcare Health Systems, Inc. v. Court of Appeals, 379
SCRA 356 (2002); xGulf Resorts Inc. v. Philippine Charter Insurance
Corporation, 458 SCRA 550 (2005)
a. The insured has an insurable interest xSecs. 12-14, I.C.;
b. The insured is subject to a risk of loss by the happening of the
designated peril Sec. 3, par. 1, I.C.;
c. The insurer assumes the risk xSec. 2, I.C.;
d. Such assumption of risk is part of a general scheme to distribute actual
losses among a large group of persons bearing a similar risk; and
e. In consideration of the insurers promise, the insured pays a premium
xSec. 77, I.C.
3. Characteristics
a. Aleatory (but not wagering) Art. 2010, Civil Code3; Sec. 25, I.C.
b. Indemnity (except life and accident insurance where the result is death,
and valued policies) Sec. 17, I.C.
c. Personal
d. Unilateral (executed as to insured and executory as to insurer upon
payment of premiums)
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The Outline presents the manner by which Insurance will be taken up in class. The
cases preceded by s and the codal provisions in bold typeface shall be extensively
discussed. The items preceded by x's and those footnoted in the Outline represent cases
or topics which need no extended discussions, either because the essence of the rulings
are already summarized in the Outline or they contain similar rulings or doctrines as other
cases to be discussed.
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Presidential Decree No. 1460, as amended, otherwise known as the Insurance Code of the
Philippines (I.C.).
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The New Civil Code of the Philippines.

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e. Conditional (distinguish between property insurance, where loss may
or may not occur and may be total or partial, and life insurance, where
death will occur so that time of happening is the contingent element)
4. Perfection Arts. 1318-1319, Civil Code; Secs. 77 and 226, I.C.;
Enriquez v. Sun Life Assurance Co. of Canada, 41 Phil. 269 (1920);
But See Eternal Gardens Memorial Park Corporation v. Philippine
American Life Insurance Corporation, 551 SCRA 1 (2008)
5. xKinds of Insurance

B. INSURANCE DISTINGUISHED FROM OTHER CONTRACTS


1. Suretyship Art. 2047, Civil Code; Sec. 2(1), par. 2, I.C.
2. Pre-Need Plans Sec. 3.9, SRC4
3. Variable Contracts Sec. 232, I.C.

C. INSURANCE BUSINESS
1. Doing an Insurance Business Sec. 2(2), I.C.; Phil. American Life
Insurance Company v. Ansaldo, 234 SCRA 509 (1994)
2. Mutual Insurance Companies White Gold Marine Services, Inc. v.
Pioneer Insurance Surety Corporation, 464 SCRA 448 (2005)

D. LAWS GOVERNING INSURANCE


1. I.C. See Sec. 5, I.C.
2. Civil Code Art. 2011, Civil Code; The Insular Life Assurance
Company, Ltd. V. Ebrado, 80 SCRA 181 (1977)
a. Revocation of irrevocable beneficiaries in terminated marriages
xArts. 43(4), 50, and 64, Family Code5
b. Void donations xArts. 739, 2012, Civil Code
c. Life annuity contracts xArts. 2021-2027, Civil Code
d. Compulsory motor vehicle liability insurance xArt. 2186, Civil Code
e. Insurers right of subrogation xArt. 2207, Civil Code
3. General Principles on Insurance Constantino v. Asia Life
Insurance Co., 87 Phil. 248 (1950)
4. xSpecial Laws
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Republic Act No. 8799, otherwise known as the Securities Regulations Code.
Executive Order No. 209, as amended, otherwise known as the Family Code of the
Philippines.
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a. Revised Government Service Insurance Act of 1977 6 covers
insurance of government employees
b. Social Security Act of 19547 covers insurance of employees in private
employment;
c. Property Insurance Law8 covers insurance of government property;
d. R.A. No. 48989 provides life, disability and accident insurance
coverage to barangay officials;
e. E.O. No. 25010 provides increased insurance benefits for barangay
officials under R.A. No. 4898, as well as members of Sangguniang
Panalalawigan, Panglungsod, and Bayan; and
f. PDIC Charter11 insures deposits of all banks entitled to benefits of
insurance thereunder.
5. Corporation Code12 for insurance corporations; Sec. 185, par. 2, I.C.

E. INTERPRETATION OF INSURANCE CONTRACTS


1. Clear Provision Given Ordinary Meaning Union Manufacturing Co.,
Inc. v. Phil. Guaranty Co., 47 SCRA 271 (1972); Ty v. First National
Surety & Assurance Co., Inc., 1 SCRA 1324 (1961)13;
2. Ambiguous Provision Interpreted Against Insurer Qua Chee Gan v.
Law Union and Rock Insurance Co., Ltd., 98 Phil. 85 (1955); Del
Rosario v. Equitable Ins. And Casualty Co., Inc., 8 SCRA 343 (1963);
But SeeVerendia v. Court of Appeals, 217 SCRA 417 (1993)
3. Stipulations Cannot Be Segregated Gulf Resorts Inc. v. Philippine
Charter Insurance Corporation, 458 SCRA 550 (2005)
4. Judicial Construction Cannot Alter Terms Misamis Lumber Corp.
v. Capital Ins. & Surety Co., Inc., 17 SCRA 228 (1966); Fortune
Insurance and Surety Co., Inc. v. Court of Appeals, 244 SCRA 308
(1995)

Presidential Decree No. 1146, as amended.


Republic Act No. 1161, as amended.
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Republic Act No. 656, as amended by Presidential Decree No. 245.
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Republic Act No. 4898, as amended by Republic Act No. 5756.
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Executive Order No. 250.
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Republic Act No. 3591, as amended.
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Batas Pambansa Blg. 68, otherwise known as the Corporation Code of the Philippines.
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See also Ty v. Filipinas Compania de Seguros, et al., 17 SCRA 364 (1966); But See
Panaton v. Malayan Insurance Co., Inc. 2 Court of Appeals Report 78.
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II. PARTIES
A. INSURED
1. Definition the person to be indemnified; the person who applied for and
to whom an insurance policy is issued.
2. Capacity Art. 1390, Civil Code
a. Married women Sec. 3, pars. 2 and 4, I.C.; Art. 73, Family Code
b. Minors Sec. 3, pars. 3-5, I.C.; Art. 38, Civil Code; xR.A. No. 680914
3. Disqualification: Public Enemy Sec. 7, I.C.; Filipinas Compania de
Seguros v. Christern Henefeld & Co., 89 Phil. 4\54 (1951); xConstantino
v. Asia Life Insurance Co., 87 Phil. 248 (1950)
4. Trustee or Agent Sec. 54, I.C.
5. Partner Sec. 55, I.C.

B. INSURER
1. Definition the person who undertakes to indemnify another by a
contract of insurance; Sec. 184, I.C.
a. Insurance Corporations xSec. 185, par. 1, I.C.
b. Mutual Insurance Companies xSec. 262, I.C.
c. Professional Reinsurers xSec. 280, I.C.
d. Mutual Benefit Associations (excluded from definition, but still subject
to I.C. regulation) xSec. 390, I.C.
2. Capitalization/Certificate of Authority Secs. 6, 186-187, I.C.
3. Prohibited Acts Secs. 361-362, I.C.

C. BENEFICIARY
1. Definition the person who receives a benefit or advantage, or who is
entitled to the benefit of the contract, i.e., the one to whom the insurance
is payable or who is entitled to the proceeds of the policy on the
occurrence of the event designated.
2. To Whom Insurance Proceeds Payable Secs. 53 and 56, I.C.;
a. Stipulation Pour Autrui Art. 1311, Civil Code; Bonifacio Bros., Inc.
v. Mora, 20 SCRA 261 (1967); Coquia v. Fieldmens Insurance Co.,

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Republic Act No. 6809 amended Article 234 of the Family Code by reducing the age of
majority from 21 years to 18 years.

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Inc., 26 SCRA 178 (1968); Guingon v. Del Monte, 20 SCRA 1043
(1967)
b. Estate Del Val v. Del Val, 29 Phil. 534 (1915)
c. Assignee Rizal Commercial Banking Corporation v. Court of
Appeals, 289 SCRA 292 (1998)
3. Designation of Beneficiary
a. No Designation In Re: Mario V. Chanliongco, 79 SCRA 364
(1977); Vda. de Consuegra v. Governments Service Insurance
System, 37 SCRA 315 (1971);
b. Invalid Designation Art. 2012 in relation to Art. 739, Civil Code;
The Insular Life Assurance Company, Ltd. V. Ebrado, 80 SCRA
181 (1977); Southern Luzon Employees Ass. V. Golpeo, et al., 96
Phil. 83 (1954); Social Security System v. Davac, et al., 17 SCRA
863 (1966);
c. Revocable Designation Sec. 11, I.C.; Gercio v. Sun Life
Assurance Co. of Canada, 48 Phil. 53 (1925)
d. Irrevocable Designation Nario v. Philippine American Life Ins.
Co., 20 SCRA 434 (1967); Philippine American Life Insurance
Company v. Pineda, 175 SCRA 416 (1989)
e. Exceptions to Irrevocable Designation Arts. 43(4), 50, 64, Family
Code;
5. Forfeiture Sec. 12, I.C.
6. Insured Outlives Policy Sec. 180, I.C.; Villanueva v. Oro, 81 Phil.
464 (1948)

D. INSURANCE AGENT AND INSURANCE BROKER


1. Insurance Agent Sec. 300, I.C.; Aisporna v. Court of Appeals, 113
SCRA 459 (1982)
2. Insurance Broker Sec. 301, I.C.; Philippine Health-Care Providers,
Inc. v. Estrada, 542 SCRA 616 (2008)
3. Authority to Receive Payment/Effect of Payment Sec. 306, I.C.;
Malayan Insurance Co., Inc. v. Arnaldo, 154 SCRA 672 (1987); South
Sea Surety and Insurance Co., Inc. v. Court of Appeals, 244 SCRA 744
(1995)

III.INSURABLE INTEREST
A. CONCEPT
1. Definition In general, a person has an insurable interest in the subject
matter insured where he has such a relation or connection with, or
concern in, such subject matter that he derive pecuniary benefit or
advantage from its preservation or will suffer pecuniary loss or damage
from its destruction, termination or injury by the happening of the event
insured against.
2. Necessity of Insurable Interest; Consequence of Lack of Secs. 3, 4,
18, and 25, I.C.

B. IN LIFE AND HEALTH INSURANCE


1. Who Has Insurable Interest Sec. 10, I.C.
a. Blood relationship Sec. 10(a), I.C.; Philamcare Health Systems,
Inc. v. Court of Appeals, 379 SCRA 356 (2002); Gercio v. Sun Life
Assurance Co. of Canada, 48 Phil. 53 (1925)
b. Education or support Sec. 10(b), I.C.; Art. 195, Family Code
c. Creditor Sec. 10(c), I.C.; Great Pacific Life Assurance Corp. v.
Court of Appeals, 316 SCRA 677 (1999)
d. Pecuniary Interest Sec. 10(d), I.C.; El Oriente, Fabrica de
Tabacos, Inc., v. Posadas, 56 Phil. 147 (1931);
2. When Insurable Interest Must Exist Sec. 19, I.C.
3. Transfer by Will or Succession Upon Death of Insured Sec. 181, I.C.

C. IN PROPERTY INSURANCE
1. Who Has Insurable Interest15 Secs. 13 and 14, I.C.
a. Existing Interest Sec. 14(a), I.C.; Traders Insurance & Surety Co.
v. Golangco, et al., 95 Phil. 824 (1954); Filipino Merchants
Insurance Co., Inc. v. Court of Appeals, 179 SCRA 638 (1989);
Gaisano Cagayan, Inc. v. Insurance Company of North America,
490 SCRA 286 (2006); Ong Ling Sing v. FEB Leasing & Finance
Corporation, 524 SCRA 333 (2007); Lampano v. Jose, 30 Phil. 537
(1915)
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The test of insurable interest in property is whether the insured has such a right, title, or
interest therein, or relation thereto that he will be benefited by its preservation and continued
existence, or suffer a direct pecuniary loss from its destruction or injury by the peril insured
against (Suter v. Union Surety & Ins. Co., Inc., 51 O.G. 1905 [1954]).

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b. Inchoate Interest Sec. 14(b), I.C.
c. Expectancy Secs. 14(c) and 16, I.C.
d. Mortgagor Secs. 8 and 9, I.C.; Art. 2127, Civil Code; San Miguel
Brewery v. Law Union and Rock Insurance Co., 40 Phil. 674 (1920);
Saura Import & Export Co., Inc. v. Philippine International Surety
Co., Inc., 8 SCRA 143 (1963); Palileo v. Cosio, 97 Phil. 919 (1955);
Great Pacific Life Assurance Corp. v. Court of Appeals, 316 SCRA
677 (1999)
e. Carrier or Depositary Sec. 15, I.C.; Sec. 6, General Bonded
Warehouse Act16; Lopez v. Del Rosario and Quiogue, 44 Phil. 98
(1922)
2. Measure of Insurable Interest Secs. 17 and 14(a), I.C.; San Miguel
Brewery v. Law Union and Rock Insurance Co., 40 Phil. 674 (1920);
Ong Ling Sing v. FEB Leasing & Finance Corporation, 425 SCRA 333
(2007);
3. Effect of Lack of Insurable Interest Sec. 18, I.C.; Sharuff & Co. v.
Baloise Fire Insurance Co., 64 Phil. 258 (1937); Garcia v. Hongkong
Fire & Marine Insurance Co., 45 Phil. 122 (1923); Cha v. Court of
Appeals, 277 SCRA 690 (1997)
4. When Insurable Interest Must Exist Sec. 19, I.C.; Tai Tong Chuache
& Co. v. Insurance Commission, 158 SCRA 366 (1988)
5. Effect of Change of Interest in Thing Insured
a. General rule: suspended Sec. 20, I.C.; San Miguel Brewery v. Law
Union and Rock Insurance Co., 40 Phil. 674 (1920); Bachrach v.
British American Assurance Co., 17 Phil. 555 (1910)
b. Exceptions
i. Life, accident, and health insurance Sec. 20, I.C.
ii. Change of interest after occurrence of loss Sec. 21, I.C.
iii. Change of interest in things separately insured Sec. 22, I.C.
iv. Transfer of interest by will or succession upon death of insured
Sec. 23, I.C.
v. Transfer of interest by one of partners, joint owners, or common
owners jointly insured, to the others Sec. 24, I.C.
vi. Insurance policy framed to insure to benefit of whomsoever
becomes owner of thing insured Sec. 57, I.C.
6. Effect of Transfer of Thing Insured Sec. 58, I.C.; San Miguel
Brewery v. Law Union and Rock Insurance Co., 40 Phil. 674 (1920)
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Act No. 3893.

IV. PREMIUM
A. PAYMENT REQUIRED
1. Binding Effect of Payment Secs. 77 and 306, par. 2, I.C.; South Sea
Surety and Insurance Co., Inc. v. Court of Appeals, 244 SCRA 744
(1995); Areola v. Court of Appeals, 236 SCRA 643 (1994)
3. Effect of Non-Payment Sec. 64(a), I.C.; National Leather Co. Inc. v.
U.S. Life Insurance Co., 87 Phil. 410 (1950); Sales de Gonzaga v.
Crown Life Insurance Co., 91 Phil. 10 (1952); Valenzuela v. Court of
Appeals, 191 SCRA 1 (1990);
2. Statutory Exceptions
a. Grace period Sec. 77, I.C.
i. For individual life or endowment insurance Sec. 227(a), I.C.
ii. For group life insurance Sec. 228(a), I.C.
iii. For industrial life insurance Sec. 230(a), I.C.
b. Acknowledgment receipt Sec. 78, I.C.; American
Assurance Company v. Chua, 309 SCRA 250 (1999)

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c. Acceptance by obligee of surety bond Sec. 177, I.C.; Philippine


Pryce Assurance Corp. v. Court of Appeals, 230 SCRA 164 (1994)
d. Rules on cover notes (if premium cannot yet be computed) Sec. 52,
I.C.; Pacific Timber v. Court of Appeals, 112 SCRA 199 (1982)
e. Non-lapse of individual life or endowment insurance
i. Automatic policy loan Sec. 227(g), I.C.
ii. Application of dividend Sec. 227(e), I.C.
iii. Reinstatement clause Sec. 227(j), I.C.
3. Jurisprudential Exceptions
a. Estoppel and credit extension Philippine Phoenix Surety &
Insurance Company v. Woodworks, Inc., 92 SCRA 419 (1979);
Capital Insurance & Surety Co., Inc. v. Plastic Era Co., Inc., 65
SCRA 134 (1975); Arce v. Capital Insurance & Surety Co., Inc., 117
SCRA 63 (1982); Malayan Insurance Co., Inc. v. Arnaldo, 154
SCRA 672 (1987); UCPB General Insurance Co., Inc. v. Masagana
Telemart, Inc., 356 SCRA 307 (2001); UCPB General Insurance
Co., Inc. v. Masagana Telemart, Inc., 356 SCRA 307 (2001)
b. Installments and partial payment Philippine Phoenix Surety &
Insurance, Inc. v. Woodworks, Inc., 20 SCRA 1270 (1967); Tibay v.

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Court of Appeals, 257 SCRA 126 (1996); Makati Tuscany v. Court
of Appeals, 215 SCRA 462 (1992)

B. RETURN OF PREMIUM
1. Grounds
a. No exposed to peril insured against Secs. 79(a) and 80, I.C.;
Makati Tuscany v. Court of Appeals, 215 SCRA 462 (1992)
b. Time policy surrendered before expiration Sec. 79(b), I.C.
c. Voidable policy Sec. 81, I.C.
d. When by default of insured (other than actual fraud), insurer never
incurred liability under the policy Sec. 81, I.C.; Great Pacific Life
Insurance Corporation v. Court of Appeals, 184 SCRA 501 (1990)
e. Over-insurance by several insurers Sec. 82, I.C.
2. Rebate of Premium Sec. 361, I.C.

V. THE POLICY
A. POLICY OF INSURANCE
1. Definition; Contract of Insurance Sec. 49, I.C.; Enriquez v. Sun Life
Assurance Co. of Canada, 41 Phil. 269 (1920); Perez v. Court of
Appeals, 323 SCRA 613 (2000); Lucero Vda. de Singayen v. Insular
Life Assurance Co., 62 Phil. 9 (1935); Tang v. Court of Appeals, 90
SCRA 236 (1979)
2. Form Sec. 50, I.C.
3. Necessity of Approval of Form Sec. 226, I.C.
4. Basic Provisions Sec. 51, I.C.
a. Parties to the contract;
b. Amount of insurance (except in open or running policies);
c. Premium;
d. Property or life insured;
e. Interest of insured in property insured if he is not the owner;
f. Risks insured against; and
g. Period of insurance.
5. Additional Matters Secs. 227, 228, 230, I.C.

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6. Designation of Beneficiaries Secs. 54-57, I.C.
7. Rider, Clause, Warranty or Endorsement Sec. 50, I.C.;
Commissioner on Internal Revenue v. Lincoln Philippine Life
Insurance Company, Inc., 379 SCRA 423 (2002)
8. Interpretation and proof Art. 1377, Civil Code

B. COVER NOTES
1. Binding Effect Sec. 52, I.C.; De Lim v. Sun Life Assurance Co. of
Canada, 41 Phil. 263 (1920); Great Pacific Life Assurance Company
v. Court of Appeals, 89 SCRA 543 (1979)
2. Separate Premium Not Required Pacific Timber v. Court of
Appeals, 112 SCRA 199 (1982)

C. KINDS OF PROPERTY INSURANCE POLICY


1. Classification Sec. 59, I.C.
2. Open Policy Secs. 60, 161, and 171, I.C.; Development Insurance
Corporation v. Intermediate Appellate Court, 143 SCRA 62 (1986)
3. Valued Policy Secs. 61, 156, and 171, I.C.
4. Running Policy Sec. 62, I.C.

D. CANCELLATION, RENEWAL, REFORMATION


1. Cancellation
a. By Insurer Sec. 64, I.C.; Philamcare Health Systems, Inc. v.
Court of Appeals, 379 SCRA 356 (2002)
i. non-payment of premiums
ii. conviction of crime increasing hazard insured against
iii. discovery of fraud or material misrepresentation
iv. discovery of acts or omissions increasing hazard insured against
v. physical changes in property insured making it uninsurable
vi. Insurance Commissioner determines policy or insured may violate
I.C.
b. By insured Sec. 79(b), I.C.
c. For compulsory motor vehicle liability insurance Secs. 380-381, I.C.
d. Notice Sec. 65, I.C.; Paulino v. Capital Insurance, 105 Phil. 1315
(1959); Saura Import & Export Co., Inc. v. Philippine International

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Surety Co., Inc., 8 SCRA 143 (1963); Malayan Insurance Co., Inc.
v. Arnaldo, 154 SCRA 672 (1987)
2. Renewal Sec. 66, I.C.
3. Reformation San Miguel Brewery v. Law Union and Rock
Insurance Co., 40 Phil. 674 (1920)

VI. ASCERTAINING AND CONTROLLING RISKS


A. CONCEALMENT
1. Definition Sec. 26, I.C.
2. What Must Be Communicated; Requisites Sec. 28, I.C.;
a. Facts within his knowledge
b. Facts material to the contract Secs. 31 and 107, I.C.; Saturnino v.
Philippine American Life Ins. Co., 7 SCRA 316 (1963); Sunlife
Assurance Company of Canada v. Court of Appeals, 245 SCRA
268 (1995)
c. Other party has no means of ascertaining such facts; and
d. He makes no warranty as to such facts; exception Sec. 29, I.C.
3. What Need Not Be Communicated
a. Facts other party knows Sec. 30(a), I.C.; Insular Life Assurance v.
Feliciano, 73 Phil. 201 (1941); Insular Life Assurance Co. v.
Feliciano, 74 Phil. 468 (1943);
b. Facts other party ought to know Secs. 30(b) and 32, I.C.
c. Facts of which other party waives communication Secs. 30(c) and
33, I.C.; Ng Gan Zee v. Asian Crusader Life Assurance Corp., 122
SCRA 461 (1983)
d. Facts which prove or tend to prove existence of risk excluded by a
warranty, and which are not otherwise material Sec. 30(d), I.C.
e. Facts relating to a risk excepted from the policy and which are not
otherwise material Sec. 30(e), I.C.
f. Nature and amount of interest Secs. 34 and 51(e), I.C.
g. Opinion or judgment Secs. 35 and 108, I.C.
4. Effect Secs. 27 and 29, I.C.; Argente v. West Coast Life Insurance
Co., 51 Phil. 725 (1928); Yu Pang Cheng v. Court of Appeals, 105 Phil.
930 (1959); Saturnino v. Philippine American Life Ins. Co., 7 SCRA
316 (1963);Great Pacific Life Assurance Company v. Court of

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Appeals, 89 SCRA 543 (1979); Gen. Insurance & Surety Corp. v. Ng
Hua, 106 Phil. 1117 (1960); Vda de Canilang v. Court of Appeals, 233
SCRA 443 (1993); Sunlife Assurance Company of Canada v. Court of
Appeals, 245 SCRA 268 (1995)

B. REPRESENTATION
1. Definition and Characteristics
a. Form Sec. 36, I.C.
b. When Made Sec. 37, I.C.
i. at time of issuance of policy
ii. before issuance of policy Secs. 41 and 42, I.C.
c. Interpretation Sec. 38, I.C.
d. Promissory representation; statement of belief or expectation Sec.
39, I.C.
e. Modification of warranty Sec. 40, I.C.
2. Falsity Secs. 43 and 44, I.C.; Harding v. Commercial Union
Assurance Company, 38 Phil. 464 (1918);
3. Materiality Sec. 46 in rel. to Sec. 31, I.C.
4. Effect of False and Material Representation Sec. 45, I.C.; Saturnino
v. Philippine American Life Ins. Co., 7 SCRA 316 (1963); Musgi v.
West Coast Life Insurance Co., 61 Phil. 864 (1935); Edillon v. Manila
Bankers Life Insurance Corp., 117 SCRA 187 (1982); Gonzalez LaO v.
Yek Tong Lin Fire & Marine Insurance Co., Ltd., 55 Phil. 386 (1930);
Tan Chay Heng v. West Coast Life Insurance Co., 51 Phil. 80 (1927);
Qua Chee Gan v. Law Union and Rock Insurance Co., Ltd., 98 Phil.
85 (1955)