INSURANCE

banks entitled to the benefits of insurance

under the Act.

CHAPTER I: CONTRACT OF INSURANCE

General Provisions

PERFECTION OF INSURANCE CONTRACTS:

Like any other contracts, a contract of insurance
must be assented to by both parties either in person
or by their agents.
There can be no contract of insurance unless the
minds of the parties have met in agreement,
It is only when the insurer accepts the application
and communicates the same to the applicant that
the contract of insurance is perfected.
If the offer and acceptance are made by
correspondence (thru mail), the acceptance shall not
be binding until it has been made known to the one
making the offer.
Premium on the policy must be paid before the
contract can be valid and binding.

Section 1. This decree shall be known as the Insurance

Code of 1978
ORIGIN OF INSURANCE:
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Modern insurance started with marine insurance

and from there, the law of insurance has gradually
taken form and developed until at present when
every conceivable form or kind of risk seems to be
covered.

PHILIPPINE INSURANCE LAW:

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Insurance law in the Philippines was formerly

included in the Code of Commerce until the
Insurance Act took effect on July 1, 1915.

INTERPRETATION OF INSURANCE CONTRACTS:

If there is no doubt as to the terms of an insurance
contract, it must be construed in its plain and
ordinary meaning.
If the terms of the policy are ambiguous, uncertain
or doubtful, it must be construed STRICTLY against
the insurer and LIBERALLY in favor of the insured.
(since this is a contract of adhesion)

To consolidate and codify all the insurance laws of

the Philippines, P.D. 1460 (Insurance Code of 1978)
was enacted.

LAWS GOVERNING INSURANCE:

1.
2.
3.

4.

Insurance Code
In the absence of applicable provision in the
Insurance Code, the Civil Code applies
Special Laws
a. Insurance Code of 1978
b. Revised Government Service Insurance Act
of 1977 (PD 1146, as amended)
c. Social Security Act of 1954 (RA 1161, as
amended)
Others insofar as the Civil Code is concerned, the
Code of Commerce is considered a special law.
a. Property Insurance Law (PD 245)
b. Life, Disability and Accident Insurance
coverage to barangay officials (RA 4898 as
amended by RA 5756)
c. Increases, integrates and rationalizes the
insurance benefits of barangay officials
under RA 4898 (EO 250)
d. Philippine Deposit Insurance Corporation
(RA 3591), which insures the deposits of all

Note: the courts are inclined to consider or follow what was

intended to be insured; even the description of the thing
being insured is inaccurate.
STIPULATIONS CAN NOT BE SEGRAGATED:
Provisions in an insurance contract must be read in
its entirety and the stipulations cannot be
segregated in determining the intention of the
parties.
All provisions of the insurance policy should be
examined and interpreted in consonance with each
other.
JUDICIAL CONSTRCTION CAN NOT ALTER TERMS:
If the terms of the contract are clear and
unambiguous, there is no room for construction and
such terms cannot be enlarged or diminished by
judicial construction.

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The terms of the policy constitute the measure of

the insurers liability.
In the absence of statutory prohibition to the
contrary, insurance companies have the same rights
as individuals to limit their liability and impose
whatever conditions they deem best upon their
obligations not inconsistent with public policy.

A contract of insurance is an agreement whereby

one undertakes for a consideration to indemnify
another against loss, damage or liability arising from
an unknown or contingent event.

ELEMENTS OF INSURANCE CONTRACT:

1. Insured possesses an insurable interest.
2. Insured is subject to a risk of loss through
destruction or impairment of interest by the
happening of designated peril.
3. Insurer assumes that risk of loss
4. Assumption of such risk is part of a general scheme
to distribute actual loses among a large group of
persons bearing the same risk. (Risk-Distributing
Device)
5. Payment of premium to a general insurance fund.

Section 2.Whenever used in this Code, the following terms

shall have the respective meanings hereinafter set forth or
indicated, unless the context otherwise requires:
(1) A Contract of Insurance is an agreement whereby one
undertakes for a consideration to indemnify another against
loss, damage or liability arising from an unknown or
contingent event.
A contract of suretyship shall be deemed to be an insurance
contract, within the meaning of this Code, only if made by a
surety who or which, as such, is doing an insurance business
as hereinafter provided.

SCHEME TO DISTIBURE LOSSES:

The business of insurance is founded on the law of
averages and intended to spread risks over a large
number of persons insured.
The danger and adventure of goods and persons are
divided and borne by many persons consenting and
agreeing to pay any loss.
Also called as Risk Distributing Device

(2) The term doing an insurance business or transacting

an insurance business withing the meaning of this Code,
shall include:
(a) Making or proposing to make, as insurer, any insurance
contract;
(b) Making, or proposing to make, as surety, any contract of
suretyship as a vocation and not as merely incidental to any
other legitimate business or activity of the surety;
(c) Doing any kind of business including a reinsurance
business, specifically recognized as constituting the doing of
an insurance business within the meaning of this Code;
(d) Doing or proposing to do any business in substance
equivalent to any of the foregoing in a manner designed to
evade the provisions of this code.

SURETYSHIP:
Suretyship is an agreement whereby a party called
the surety, guarantees the performance by another
party (called principal or obligor) of an obligation in
rd
favor of a 3 party (obligee).
Also defined as: a person binds himself solidarily
with the principal debtor for the fulfillment of an
obligation.

In the application of the provisions of this Code, the fact

that no profit is derived from the making of insurance
contracts, agreements or transactions or that no separate or
distinct consideration is received therefor, shall not be
deemed conclusive to show that the making thereof does
not constitute the doing or transacting of an insurance
business.
(3) As used in this Code, the term Commissioner means
the Insurance Commissioner.

WHEN SURETYSHIP DEEMED AN INSURANCE:

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Will any suretyship agreement amount to an

insurance contract?
A: No. In order for a suretyship agreement to come
under the purview of the Insurance Code, the Surety
undertaking to ensure the performance of the
obligations must be registered with the Insurance
Commissioner and must have been issued by the latter
with a certificate of authority. Furthermore, the person
acting as a surety is habitually engaged as such for a
livelihood.

INSURANCE CONTRACT DEFINED:

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3.
Ex.)
Q: A borrowed money from the Bank of Commerce. His
cousin, B, acted as a surety for the payment of the load.
Was Bs contract of suretyship deemed to be a contract
of insurance?
A: It must be qualified.
1. No. If B, acting as a surety did not appear that it
is his vocation, and it was merely an isolated
transaction incidental to the legitimate activity
of B.
2. Yes. If it was Bs vocation to act as surety and
therefore, the suretyship contract was part of
the general scheme to distribute losses among a
large group of persons bearing the same risk,
then such contract is deemed to be a contract of
insurance.

The exact nature of the agreement in the light of

the occurrence, contingency or circumstances
under which the performance becomes
requisite.

Note: The title of the contract is not a controlling

factor to determine a contract of insurance, but the
intention of the parties in insuring the thing.
CHARACTERISTICS OF INSURANCE:
1. Aleatory and not wagering contract one or
both parties reciprocally bind themselves to give
or do something in consideration of what the
order shall give or to do upon the happening of
an event, which is uncertain, or which is to occur
at an indeterminate time.
2. Contract of Indemnity means that the party
insured is entitled to compensation for such loss
as has been occasioned by the perils insured
against; the purpose of insurance is merely to
reimburse the insured for the actual loss
suffered nit exceeding the amount agreed in the
policy.
3. Personal Contract the insurance taken by one
person will not apply to the interest of another
person in the same property insured. The
assignment or transfer of the property insured
does not transfer the insurance, instead the
policy is suspended.
4. Executory Contract after payment of premiums
means that it is executed on the part of the
insured upon payment of premium and wholly
executor on the part of the insurer.
5. Conditional Contract means that the insurer is
not obliged to pay unless the loss arises from
the specified perils.
a. In property insurance - loss may or may
not occur, and when it occurs, it may
be total or partial.
b. In life insurance death will definitely
occur so that the time of the happening
is the only contingent element.

WHAT DOING AN INSURANCE BUSINESS INCLUDES?:

1. Making or proposing to make, as insurer, any
insurance contract
2. Making or proposing to make, as surety, any
contract of suretyship as a vocation, and not as
merely incidental to any other legitimate business or
activity of the surety
3. Doing any kind of business, including reinsurance
business, specifically recognized as constituting the
doing of an insurance business
4. Doing or proposing to do any business in substance
equivalent to any of the foregoing in a manner
designed to evade the provisions of the Insurance
Code.
Q: Does the fact that no profit was derived from the
transaction nor a separate consideration received
therefore mean that no insurance business was
transacted?
A: No. Fact that no profit is derived from the contract or
transaction or that no separate or direct consideration is
received for such contract or transaction is NOT deemed
conclusive to show that no insurance business was
transacted.
TEST TO DETERMING IF CONTRACT IS AN INSURANCE
CONTRACT:
1. It depends on the nature of the promise
2. The act required to be performed

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c.

TITLE I: WHAT MAY BE INSURED

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Section 3.Any contingent or unknown event, whether past

or future, which may damnify a person having an insurable
interest, or create a liability against him, may be insured
against, subject to the provisions of this chapter.

thing insured is a fortuitous event, where such event

is among the risks included in the policy.
The nature of the obligation of the insurer requires
the assumption of risk, thus, the insurer is still
responsible even if the event could not be foreseen
or though foreseen is inevitable.

INSURANCE BY MARRIED WOMEN:

A married woman may insure her own life and of her
children without the consent of the husband
She may also insure her separate properties without
the consent of the husband

The consent of the husband is not necessary for the validity

of an insurance policy taken out by
the married woman on her life or that of her children.
Any minor of the age of eighteen years or more, may
notwithstanding such minority, contract for life, health and
accident insurance, with any insurance company duly
authorized to do business in the Philippines, provided the
insurance is taken on his own life and the beneficiary
appointed is the minors estate or the minors father,
mother, husband, wife, child, brother or sister.

INSURANCE BY A MINOR:
A person 18-above may enter into any kind of
insurance contract.
A minor cannot enter into a contract of insurance,
however if he does, such contract is Voidble.
The insurance company with which a minor
contracted cannot raise the defense of minority
(incapacity to contract), thus, the contract is
Voidable at the option of the insured.

The married woman or the minor herein allowed to take out

an insurance policy may exercise all the rights and privileges
of an owner under a policy.
All rights, title and interest in the policy of insurance taken
out by an original owner on the life or health of a minor
shall automatically vest in the minor upon the death of the
original owner, unless otherwise provided in the policy.

EFFECT OF DEATH OF POLICYS ORIGINAL OWNER:

1. If the original owner of a policy taken on the life of a
minor, predecease the latter, all rights, title and
interest in the policy shall automatically vest in the
minor, unless otherwise provided.
2. If the original owner of the policy designated himself
as beneficiary insuring the life of a minor, the death
of the original policy owner shall automatically vest
title on the policy of the minor.
3. XPN: if another person was designated as a
beneficiary, it is tantamount to a provision in the
policy that the rights, title and interest in the policy
should not vest in the insured minor.

INSURABLE RISK:
The risks that may be insured may either be:
a. Insurance against damage
b. Insurance against liability
Said risks may be insured against events which are
contingent or unknown, whether part or future.
WHEN INSURER IS LIABLE FOR PAST EVENT:
Past events causing the loss must be: (a) unknown to
both parties; (b) must be expressly stipulated
Such stipulation including a prior loss within the
coverage of the policy is usually expressed by the
use of the phrase lost or not lost

Note: the express provision of Section 3, where the

policy provides otherwise, the death of the original policy
owner shall not transfer the rights, title, and interest on
the policy to the minor whose life was insured.

LIABLE FOR FORTUITOUS EVENT:

Insurer cannot exempt himself from liability by
claiming that the cause of the loss or damage to the

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Section 4.The preceding section does not authorize an

insurance for or against the drawing of any lottery, or for
against any chance or ticket in a lottery drawing a prize.

to pay, a stipulated amount by the other party to the

contract.
In either case, one party may receive more, much
more, than he paid or agreed to pay.

Example: A provincial Governor reputed to be a jueteng

operator obtained an insurance policy covering his possible
losses in case someone with a large bet would win.

TITLE II: PARTIES TO A CONTRACT

Section 6.Every person, partnership, association or
corporation duly authorized to transact insurance business
as elsewhere provided in this Code, may be an insurer.

Q: is the insurance valid?

A: No. because gambling cannot be covered by insurance.

PARTIES TO INSURANCE CONTRACTS:

REASON FOR PROHIBITION: gambling courts fortune; the

insured seeks to avoid misfortune. Gambling tends to
increase the inequality of fortune; contract of insurance tends
to equalize fortune.

1.
2.
3.

Section 5.All kinds of insurance are subject to the provisions

of this chapter so far as the provisions can apply.
(please see applicable provisions in the civil code and special
laws)
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Note: Assured means the person on whose application the

policy was issued, who is the beneficiary and who pays the
premiums.

Q: Is a contract of insurance a wagering or gambling

contract?
NO. A contract of insurance is a contract of
indemnity and not a wagering or gambling contract.

Section 7.Anyone except a public enemy may be insured

PUBLIC ENEMY DEFINED:
Public enemy is a nation at war with the Philippines
Every citizen of such enemy nation is deemed as
public enemy.
The term does not include robbers, thieves or
riotous mobs (or MILF, Abu Sayyaf, etc)
a. Natural Person follows the citizenship of the
person to become a public enemy
b. Juridical Person follows the citizenship of the
controlling stockholder (someone who holds the
majority of shares)

Although it is true that an insurance contract is also

based on a contingency, it is not a contract of
chance.

Insurer a person who undertakes to indemnify

another by a contract of insurance
Insured a person to be indemnified
Beneficiary a person who receives a benefit or who
is entitled to the benefit of the contract

REASON FOR PROHIBITION:

A public enemy may not be insured because the
purpose of war is to cripple the power and resources
of the enemy.

Q: What are the similarities between an insurance

contract and a gambling contract?
They are similar in only one respect. In both, one
party promises to pay a given sum to the other upon
the occurrence of a given future event, the promise
being condition upon the payment of, or agreement

Q: What are the requisites in order that a person

may be insured in a contact of insurance?
There are 3 requisites namely:

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a) He must be competent to enter into a contract.

b) He must possess an insurable interest in the
subject of insurance.
c) He must NOT be a public enemy.
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We follow the US Rule.

Section 8.Unless the policy otherwise provides, where a
mortgagor of the property effects insurance in his own
name providing that a loss shall be payable to the
mortgagee, or assigns a policy of insurance to a mortgagee,
the insurance is deemed to be upon the interest of the
mortgagor, who does not cease to be a party to the original
contract, and any act of his, prior to the loss, which would
otherwise avoid the insurance, will have the same effect,
although the property is in the hands of the mortgagee, but
any act which, under the contract of insurance, is to be
performed by the mortgagor, may be performed by the
mortgagee therein named, with the same effect as if it had
been performed by the mortgagor.

Q: What is the effect of war on the existing

insurance contracts between the Philippines and a
citizen or subject of a public enemy, with respect to
property insurance?
With respect to property insurance, the rule adopted
in the Phil is that an insurance policy ceases to be
valid and enforceable as soon as the insured
becomes a public enemy.

Q: What is the effect of war on the existing

insurance contracts between the Philippines and a
citizen or subject of a public enemy, with respect to
life insurance?

WHO MAY INSURE MORTGAGED PROPERTY?:

When the property is mortgaged, the mortgagor and
mortgagee may take out separate policies with the
same or different insurance companies.
a. Mortgagor may insure the property
mortgaged in its full value.
b. Mortgagee may only insure the property
mortgaged to the extent of his credit.

Three doctrines have arisen.

(1) Connecticut Rule there are two elements in the
consideration for which the annual premium is paid:
a. The mere protection for the year; and
b. The privilege of renewing the contract for each
succeeding year by paying the premium for that year
at the time agreed upon.

INSURANCE BY MORTGAGOR WITHOUT ASSIGNING LOSS TO

MORTGAGEE:
Where the mortgagor insures the property
mortgaged without making the loss payable to the
mortgagee, upon occurrence of the loss, only the
mortgagor may recover from the insurer since the
policy taken by the mortgagor shall be applied
exclusively to his interest.

Accdg.to this view, the payments of the premiums

are a condition precedent, the non-performance of
which (as when the performance would be illegal)
necessary defeats the right to renew the contract.
(2) New York Rule apparently followed by the
number of decisions. War between the states in
which the parties reside merely suspends the
contracts of life insurance and that upon the tender
of premiums due by the insured or his
representatives after the war has terminated revives
the contract which becomes fully operative.

INSURANCE BY MORTGAGOR MAKING LOSS PAYABLE TO

MORTGAGEE:
Where the mortgagor insures the property
mortgaged in his own name, providing that the loss
shall be payable to the mortgagee or assigns the
policy to the mortgagee, the effects are as follows:

(3) US Rule declared the contract not merely

suspended but is abrogated by reason of
nonpayment of premiums, since the time of the
payment is peculiarly of the essence of the contract.

(1) The contract is deemed to be upon the interest of

the mortgagor, hence he does NOT cease to be a
party to the contract;
(2) Any action of the mortgage prior to the loss
which would otherwise avoid the insurance affects
the mortgagee even if the property is in the hands of
the mortgagee;

However, the insured is entitled to the cash or

reserve value of the policy (if any) which is the
excess of the premiums paid over the actual risk
carried during the years when the policy had been in
force.

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(3) Any act which under the contract of insurance is

to be performed by the mortgagor, may be
performed by the mortgagee;
(4) In case of loss, the mortgagee is entitled to the
proceeds to the extent of his credit; and
(5) Upon recovery by the mortgagee to the extent of
his credit, the debt is extinguished.

TITLE III: INSURABLE INTEREST

ASSIGNMENT OF POLICY TO MORTGAGEE NOT A PAYMENT:

In case the mortgagor insures the mortgaged
property and assigns the policy to the mortgagee,
such assignment is merely to afford the mortgagee a
greater security for the settlement of the obligation
and should not be construed as payment.
The mortgage indebtedness is not extinguished until
such time as the mortgagee has collected the
proceeds of the policy from the insurer after the
occurrence of the loss. (property insurance)

Section 10.Every person has an insurable interest in the life

and health:
(a) Of himself, of his spouse and of his children;
(b) Of any person on whom he depends wholly in part for
education or support, or in whom he has a pecuniary
interest;
(c) Of any person under a legal obligation to him for the
payment of money, or respecting property or services, Of
which death or illness might delay or prevent the
performance; and
(d) Of any person upon whose life any estate or interest
vested in him depends.

EFFECTS OF MORTGAGE REDEMPTION INSURANCE

PROCURED BY THE MORTGAGOR:
Mortgage Insurance simply means a kind of life
insurance procured by the mortgagor with the
mortgagee as the beneficiary up to the extent of the
debt.
a. If mortgagor-insured dies proceeds of the
insurance will apply to the payment of debt in
favor of the mortgagee.
b. If mortgagor pays the insurance premium, the
insurance is still in the mortgagors interest and
the mortgagee is simply a beneficiary up to the
extent of his credit and does not become a party
to the contract.
Section 9.If an insurer assents to the transfer of
insurance from a mortgagor to a mortgagee, and, at
time of his assent, imposes further obligations on
assignee, making a new contract with him, the acts of
mortgagor cannot affect the rights of said assignee.

The mortgagee shall not be affected or prejudiced by

any act or neglect of the mortgagor since the
purpose of the union mortgage clause is to provide
an independent contract between the mortgagee
and the insurer, so that the mortgagee will be
responsible only for his own acts.

INSURABLE INTEREST DEFINED:

In general, a person is deemed to have insurable
interest in the subject matter insured where he has a
relation or connection with or concern in it that he
will derive pecuniary benefit or advantage from its
preservation and will suffer pecuniary loss or
damage from its destruction, termination or injury
by the happening of the event insured against.
NECESSITY OF INSURABLE INTEREST:
Q: Why must there be an insurable interest?
A: It is essential for validity and enforceability of the
contract or policy. A policy issued to a person
without interest in the subject matter is a mere
wager policy or contract.

an
the
the
the

INSURABLE INTEREST IN LIFE:

UNION MORTGAGE CLAUSE:

It created the relation of insured and insurer
between the mortgagee and the insurance company
independent of the contract with the mortgagor.

EFFECT OF UNION MORTGAGE CLAUSE:

In life insurance, Insurable interest exists where

there is reasonable ground founded on the relations
of the parties whether pecuniary, contractual or by
blood or affinity, and to expect some benefit or
advantage from the continuance of the life of the
insured.

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TIME WHEN INSURABLE INTEREST IN LIFE MUST EXIST:

Insurable interest must exist at the time of the
effectivity of the policy, and need not exist at the
time of death of the insured, as life insurance is not a
contract of indemnity.

Insurance on the life of the debtor to be valid must

for an amount which is not grossly disproportionate
to the amount of the obligation
If the debt is so small as to be out of proportion to
the amount of insurance, the creditor lacks insurable
interest and the contract is just a wagering scheme.

ESTATE DEPENDENT ON LIFE INSURED:

Example: A allows B to use his land as long aA is
alive. B has insurable interest in the life of A since As
death will terminate the right of B over the land and
consequently cause damage to B.

BENEFICIARY NEED NOT HAVE INSURABLE INTEREST:

Person procuring insurance on his own life may
name anyone he wants as beneficiary, even though
he is a stranger and has no insurable interest in the
life insured.
a. Life Insurance a person who cannot
receive donation from the insured
under Art. 739 C.C. cannot be
designated as beneficiary
b. Property Insurance where the law
requires that the beneficiary must have
an insurable interest in the property
insured.

Section 11.The insured shall have the right to change the

beneficiary he designated in the policy, unless he has
expressly waived his right in the said policy.
BENEFICIARY:
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A beneficiary is a person whether natural or juridical

for whose benefit the policy is issued and is the
recipient of the proceeds in the insurance.

WHO MAY BE BENEFICIARY:

CONSENT OF INSURED NECESSARY:

SUPPORT, A SOURCE OF INSURABLE INTEREST:

A person who has an insurable interest in the life
and health of any person on whom he depends
wholly or in part for education or support.
1. Spouse
2. Legitimate ascendants and descendants
3. Parent and acknowledged natural
children or the legitimate or
illegitimate descendants of the latter
4. Parents and natural children by legal
fiction and the legitimate and
illegitimate descendants of the latter
5. Parents and illegitimate children who
are not natural
6. Brothers and sisters

General Rule: Any person in general can be a

beneficiary.
Exception: those not qualified to receive donations
under Art. 739. They cannot be named beneficiaries
of a life insurance policy by the person who cannot
make any donation to him.

CONVICTION FOR ADULTERY OR CONCUBINAGE NOT

REQUIRED:
Criminal conviction for the disqualifying offense is
not required.
The guilt of the insured and beneficiary may be
proved by preponderance of evidence in the same
action for declaration of nullity of marriage.
ADULTEROUS CHILDREN NOT DISQUALIFIED:
Disqualification under Art 739 C.C. does not extend
to the illegitimate children born out of the illicit
relation between the parties to the adultery or
concubinage.

INSURABLE INTEREST ON DEBTORS LIFE:

A creditor has an insurable interest in the life of his
debtor at least to the extent of the indebtedness.

ABSENCE OF DESIGNATION:

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In case of failure to designate a beneficiary, or where

such designation was not valid, the proceeds should
accrue to the estate of the insured.

from its destruction or injury by the peril insured

against.

DESIGNATION IN BAD FAITH:

The policy is invalid (void without force and effect)
since it amounts to perpetration of massive fraud
against the insurance company or equates to a
wagering contract.

Section 14.An insurable interest in property may consist in:

(a) An existing interest;
(b) An inchoate interest founded on an existing interest; or
(c) An expectancy, coupled with an existing interest in that
out of which the expectancy arises.

EFFECTS OF INTEREST OF IRREVOCABLE BENEFICIARY:

1. Should the insured discontinue paying the
premiums, the beneficiary may continue paying it
and be entitled to automatic extended terms of the
insurance.
2. An irrevocable beneficiary cannot be changed
without his consent.
3. Consent of the irrevocable beneficiary is necessary in
obtaining loans or cash surrender value on the policy

Section 15.A carrier or depository of any kind has an

insurable interest in a thing held by him as such, to the
extent of his liability but not to exceed the value thereof.
Section 16.A mere contingent or expectant interest in
anything, not founded on an actual right to the thing, nor
upon any valid contract for it, is not insurable.
WHAT CONSISTS INSURABLE INSTEREST IN PROPERTY?
1. Existing Interest
2. Inchoate Interest founded on an existing interest
3. An expectancy coupled with an existing interest in
that out of which expectancy arises

BENEFICIARYS INTEREST IN ENDOWMENT POLICY:

WHERE BENEFICIARY PREDECEASES THE INSURED:

There is a divergence of opinion, but the general
trend is to give it to the estate of the beneficiary.

EXISTING INTEREST:
Existing interest in property is the legal or equitable
title on the property.

Section 12.The interest of a beneficiary in a life insurance

policy shall be forfeited when the beneficiary is the
principal, accomplice or accessory in willfully bringing about
the death of the insured; in which event, the nearest
relative of the insured shall receive the proceeds of said
insurance if not otherwise qualified.

INCHOATE INTEREST:
It is an interest which has not yet ripened, such as
the interest of a stockholder in the property of the
corporation which he owns stocks. (an interest in
real estate which is not a present interest)
EXPECTANCY:
Expectancy to be insurable must be coupled with an
existing interest or founded on an actual right to the
thing or upon any valid contact for it, otherwise, it
does not constitute insurable interest.

WHERE BENEFICIARY KILLS INSURED:

If the beneficiary is the principal accomplice in
willfully bringing about the death of the insured, the
interest of the beneficiary is forfeited and the
nearest relative of the insured shall receive the
proceeds of the insurance.

INSURABLE INTEREST OF CARRIER OR DEPOSITARY:

Any person having custody of the property of
another and responsible for it may insure such
property in his own name as he may suffer pecuniary
loss from its destruction or damage.

Section 13.Every interest in property, whether real or

personal, or any relation thereto, or liability in respect
thereof, of such nature that a contemplated peril might
directly damnify the insured, is an insurable interest.

DISTINCTION BETWEEN INSURABLE INTEREST IN PROERTY

AND LIFE:

TEST OF INSURABLE INTEREST IN PROPERTY:

The test is whether the insured has such a right, title
or interest or relation that he will be benefited by its
preservation and continued existence or suffer loss

PROPERTY
1. Insurable interest is
based
on

LIFE
2.

Interest need not

necessarily be a

INSURANCE

PECUNIARY
INTEREST

3.

5.

Interest must exist

at the time the
policy takes effect
and at the time of
loss

Insurable interest is
limited to the actual
amount of damage

4.

6.

And interest in life or health of a person insured must exist

when the insurance takes effect, but need not exist
thereafter or when the loss occurs.

pecuniary one, as in
case
of
consanguinity
or
affinity
Interest need exist
only at the time the
insurance
takes
effect
XPN:
when
insurance was taken
by the creditor on
the life of the
debtor (loss must
also exist)
There is no limit on
the amount of
insurable interest
XPN:
creditordebtor relationship

at the time of the

effectivity of the
contract

at the time of the loss

Reason: required to
prevent speculative
insurances which are
against public policy

Reason: because such

kind of insurance is
contract of indemnity
and where the
insured has no
insurable interest at
the time of loss, he
does not suffer any
damage for which he
should be indemnified

Property

Life

Section 17.The measure of an insurable interest in the

property is the extent to which the insured might be
damnified by loss or injury thereof.

except when the

insurance is procured by
a creditor on the life of
the debtor

CONTRACT OF INDEMNITY:
Insurance is a contract of indemnity, hence, measure
of insurable interest is the extent who which the
insured might be damnified by the loss or injury of
the property insured. It only applies to property
insurance.

Section 20. Except in cases specified in the next for sections,

and in the cases of life, accident, and health insurance, a
change of interestin any part of a thing insured
unaccompanied by a corresponding change of interest in the
insurance, suspends the insurance to an equivalent extent,
until the interest in the thing and the interest in the
insurance are vested in the same person.

Section 18.No contract or policy of insurance on property

shall be enforceable except for the benefit of some person
having an insurable interest in the property insured.

Section 21. A change of interest in a thing insured, after the

occurrence of injury which results in a loss does not affect
the right of the insured to indemnify for the loss.

NO INSURABLE INTEREST, NO CONTRACT OF INSURANCE:

The beneficiary must have an insurable interest in
the property insured.
A stranger having no insurable interest in the
property insured could not be made a beneficiary in
a policy covering the said property.
This does not apply to life insurance, since insurable
interest on the part of the beneficiary is not
necessary,

Section 22. A change of the interest in one or more of

several distinct things, separately insured by one policy,
does not avoid the insurance as to others.
Section 23. A change of interest, by will or succession, on
the death of the insured, does not avoid the insurance, and
his interest in the insurance passes to the person taking his
interest in the thing insured.

Section 19. An interest in the property insured must exist

when the insurance takes effect, and when the loss occurs,
but not exist in the meantime;

Section 24. A transfer of interest by one of the several

partners, joint owners, or owners in common, who are
jointly insured, to the others, does not avoid the insurance,

10

INSURANCE

even though it has been agreed that the insurance shall

cease upon as alienation of the thing insured.
Effect of change of interest: it suspends the insurance to an
equivalent extent, until the interest in the thing and the
interest in the insurance are vested in the same person. And
where the loss occurs during the period the policy is under
suspension, the insurer is not liable.

2.

Reason: Because the life insurance is a personal contract and

while the insurer may be willing to insure the property while
owned by the insured, it may not be willing to insure the
same property if owned by another person.

3.
4.

Meaning of Change of Interest: It is an absolute transfer of

the insureds entire interest in the property insured to one
not previously interested or insured.

5.

Policy not transferred by alienation of property: A transfer,

assignment or conveyance of the property insured does not
transfer ay right with respect to the insurance, unless the
insured makes an express assignment thereof, with the
insurers consent.

6.

7.
A purchaser of the insured property cannot recover from the
insurer in a case of loss, unless and until the policy is
transferred to him.
In the ff. cases a transfer of the interest in the insured carries
with it a transfer of the policy:
1. Where by express stipulation of the parties, the
policy is made to run with the subject-matter, or the
contract is so framed as to attach the risk
inseparably to the property, as where the insurance
is on account of the owners, or for whom it may
concern or where the loss is payable to the bearer.
2. A change of the interest, by will or by succession, on
death of the insured passes the interest in the
insurance to the person taking his interest in the
thing insured.
3. Transfer of the interest by one of several partners,
joint owners, or owners in common who are jointly
insured, to the others.

property before the loss will not revive the policy

unless the alienation is merely temporary as when
the purchaser or grantee at the same time and as
part of the same transaction reconveys the property
to the insured.)
In case of life, accident, and health insurance.
(reason: such kind of policies are not regarded as
contract of indemnity, therefore, insurable interest
need exist only at the time the insurance is affected.)
A change of interest in a thing insured, after the
occurrence of an injury which results in a loss.
A change of interest in a thing in one or more several
distinct things, separately insured passes the interest
in the insurance to the person taking the interest in
the things insured.
A change of interest, by will or succession, on the
death of the insured passes the interest in the
insurance to the person taking the interest in the
things insured.
A transfer of interest by one of several partners,
joint owners, or owners in common, who are jointly
insured, to the others.( a transfer to a stranger or
third person that will avoid the policy)
When the policy is so framed that it will insure to the
benefit of whomsoever, during the continuance of
the risk, may become the owner of the interest
insured.

Section 25. Every stipulation in the policy of insurance for

the payment of loss whether the person insured has or has
not any interest in the property insured, or that the policy
shall be received as proof of such interest, and every policy
executed by way of gaming or wagering, is void.
Void stipulations: The following stipulations are void:
a) For the payment of loss whether the person insured
has or has no insurable interest in the subject matter
of the insurance, or
b) That the policy shall be received as proof of such
interest, and
c) Every policy executed by way of gaming or wagering.
Gaming or wagering: it is one which the persons for whose
benefit it was issued had no
pecuniary interest in the subject
matter insured.

Revival of POLICY: it is when the interest in the thing and

the interest in the insurance are vested in the same
person again.
When the POLICY NOT SUSPENDED:
1. There is prohibition against alienation or change of
interest without the consent of the insurer in which
case the policy is not merely suspended but avoided.
(Prohibition against ALIENATION: it is valid and
enforceable and violation thereof is a ground for
avoiding the policy. A subsequent reacquisition of the

Reason: because they have tendency to create a desire for

the event insured against to happen and furnish
strong temptations to the party interested to bring
about, if possible, the event insured against.

11

INSURANCE

Objection cannot be waived: absence fteh insurable terest

on teh part of the person procuring the insurance,
as ground of objection, cannot be waived by the
insurer.

-It has the duty to establish such defence by

satisfactory and convincing evidence.
Section 28: Each party to a contract of insurance must
communicate to the other, in good faith, all facts within his
knowledge which are material to the contract and as to
which he makes no warranty, and which the other has not
the means of ascertaining.

CONCEALMENT
Section 26.A neglect to communicate that which a party
knows and ought to communicate, is called concealment.

Requisites of facts that must be communicated: KMAW

a) Such facts must be within his knowledge,
b) Must be material to the contract,
c) The other party has not the means of ascertaining
such fact, and
d) He makes no warranty as to such facts.

Uberrimaefidei: means most abundant good faith; absolute

and perfect candor or openness and
honesty; the absence of any concealment
or deception, however slight.
Time of knowledge: to be guilty of concealment, at the time
of the effectivity of the policy.
Known changes in the conditions material to the risks which
occur between the opening of negotiation for insurance and
the issuance of the policy must be revealed.

The test is: if the applicant is aware of the existence of

some circumstances which he knows would influence the
insurer acting upon his application, good faith requires him
to disclose that circumstance, though unasked.

XPN: a) while the policy provides that if the application is

approved and the policy is issued, it shall be in force from the
date of the application, and
b) where the change occurs after the consummation of the
insurance orally although the formal policy has not been issue
yet.
Knowledge after the effectivity: a failure to communicate the
same to the other will not entitle the latter to rescind the
contract on the ground of material fact. Reason: the policy
has taken effect, info subsequently acquired could no longer
be material as it will not influence any party anymore to enter
into such contract.

Insurers investigation: the fact that the insurer makes

investigation of its own relative to the insurability of the
applicant does not absolve the latter from speaking the truth
or lessen the right of the insurer to rely on insureds
statement as to his physical condition, especially where the
investigation failed to disclose falsity or any suspicious
circumstances.
FACTS covered by WARRANTY: that facts that a party is
bound to communicate are those of which he makes no
warranty.
Section 29.an intentional and fraudulent omission, on the
part of one insured, to communicate information of matters
proving or tending to prove the falsity or warranty, entitles
the insurer to rescind.

Section 27.A concealment whether intentional or

unintentional entitles the injured party to rescind the
contract of insurance.

The non-disclosure must be intentional and fraudulent in

order that contract may be rescinded.

Insureds duty: to answer all the questions concerning facts

material to the risk.
Effect of concealment: a policy will be vitiated by the
suppression of known material facts by a
party and the insurer may rescind a policy
on the ground of concealment.
Basis of the rule: it misleads or deceives the insurer into
accepting the risk, or accepting it at the
rate of premium agreed upon.
Concealment must be proven:
-Concealment as a defense of the insurer to avoid
liability is an affirmative.

Note: the omission is on the part of the insured and the party
entitled to rescind is the insurer.
Section 30. Neither party to a contract of insurance is bound
to communicate information of the matters following,
except in answer to the inquiries of the other:
a) Those which the other knows;
b) Those which, in the exercise of the ordinary care,
the other ought to know, and of which the former
has no reason to suppose him ignorant;
c) Those of which the other waives communication;

12

INSURANCE

d) Those which prove or tend to prove the existence

of risk excluded by a warranty, and which are not
otherwise material; and
e) those which relate to a risk excepted from the
policy and which are not otherwise material.

accept the risk or in fixing the amount

of premiums.
From de Leons book: The test is it eh effect which the
knowledge of the fact in question would
have on the making of the contract. To
me material, a fact need not increase
the risk or contribute to ay loss or
damage suffered. It is sufficient if the
knowledge of it would influence the
parties in making the contract. Te
matter must be determined ultimately
by the court.

When there is no duty to make disclosure:

1. Matters known to, or right to be known by insurer,
or of which he waives disclosure;
2. Risks excepted from the policy;
3. Nature or amount of insureds policy.
Facts other party knows: a party is under no duty to disclose
to the other what the latter already knows or ought to know.

Material Fact: A fact is material where the knowledge or

ignorance of it will naturally influence the
judgement of the insurer in deciding
whether he will enter into the contract, or in
estimating the degree and character of the
risks, or in fixing the rate of premium.
Operates as an inducement to the insurer to enter
into contract, except for such inducement, it would
not have done so. Or would have charged a higher
premium.

Facts other party ought to know: matters supposed to be

known by the other party need not be communicated.
The facts that each party ought to know are: a) all the general
causes which are open to his inquiry, equally with that of the
other, and which may affect either the political or material
perils contemplated, or
b) all general usages of trade.
- public knowledge or so notorious-need not be disclosed.
Communication waived: waiver of theinfo may be either:
a) Express when made by the terms of the insurance or
contained in the policy, or
b) Implied when there was neglect to make inquiries as
to such facts distinctly implied in other facts of which
info was communicated.

Casual connection not necessary: concealment need not, in

order to be material, be of facts which bring
about, or contribute to, or are connected
with, insureds loss.
Section 32. Each party to a contract of insurance is bound to
know all the general causes which are open to his inquiry,
equally with that of the other, and which may affect the
political or material perils contemplated; and all general
usages of trade.

Implied waiver: where the application is in writing, and the

questions therein as to material facts are unanswered or
incompletely answered, and the insurer without further
inquiry, issues the policy, it thereby waives all right to a
disclosure, or to a more complete answer with respect to the
fact to which the unanswered question relates, and the policy
cannot thereafter be avoided on the ground of concealment.

De Leons:public events-need not be communicated to the

insurer.
The insurer is charged with the knowledge of the general
trade usages and rules of navigation, kind of seasons, ad all
the risks connected with navigation.

Waiver of medical exam: it is made where the insured

represents himself to be of good health.

Section 33. The right to information of material facts may be

waived, either by terms of insurance or by neglect to make
inquiry as to such facts, where they are distinctly implied in
other facts of which information is communicated.

Section 31. Materiality is to be determined not by the event,

but solely by the probable and reasonable influence of the
facts upon the party to whom the communication is due, in
forming his estimate of the estimate of the disadvantages of
the proposed contract, or in making his inquiries.

De Leons:
The right to information of material facts may be waived:
1) Expressly, by the terms of insurance or
2) Impliedly- by neglect to make inquiry as to the facts
already communicated.
A waiver is a type of estoppel.

Test of materiality: it is whether knowledge of the true facts

would have influenced a prudent
insurer in determining whether to

13

INSURANCE

Section 34. Information of the nature or amount of the

interest of one insured need not e communicated unless in
answer to an inquiry, except as prescribed by Section 51.
Nature and amount of the interest: the insured need not
communicate the nature or amount of is interest except:
a) When the insurer makes an inquiry thereon, and
b) Where the insured is not the absolute owner of the
property insured.

A collateral inducement for the insurer to enter into

a contract of insurance.

TIME: ordinarily, be made at the time of issuing the policy, or

before it.
- Rep may likewise be made after the issuance of the
policy when the purpose is to induce the insurer to
modify the existing insurance contract.
FORMS: it may be:
a) Oral, or
b) Written
*It should not be part of the contract, otherwise it shall
be considered a warranty and not a rep.

Section 35. Neither party to a contract of insurance is bound

to communicate, even upon inquiry, information of jis own
judgment upon the matters in question.
The duty to disclose is confined to FACTS.
Theres no duty to disclose mere opinion, speculation or
expectation even if the insured is asked.

KINDS:
a) Affirmative which is an affirmation of a fact existing
when the contract begins, or
b) Promissory which is a statement by the insured
concerning what is to happen during the term of the
insurance.

When OPINION must be communicated: In marine

insurance, info of the belief or expectation of a
third person, in reference to material fact, is
material and must be communicated.
REPRESENTATION

Section 38. The language of the representation is to be

interpreted by the same rules as the language of contracts
in general.
Construction of Rep:

Section 36. A representation may be oral or written.

Section 37. A representation may be made at the time of, or
before issuance of the policy.

De Leons: Reps are construed liberally in favour of the

insured, and are required to be substantially true. Warranties,
by contrast, must be literally true, or the contract will fail.

Representation- is an oral or written statement of a fact or

condition affecting the risk made by the
insured to the insurance company, tending
to induce the insurer to assume the risk.

Perez: A rep need not be literal true and accurate in every

respect, rather it is sufficient if they are substantially or
materially true and in case of promissory reps, it is sufficient
if they are substantially complied with.

Misrepresentation- is a statement of something as a fact

which is untrue and material to the risk, and
which the insured states knowing to be
untrue in an attempt to deceive, or which
he states positively as true without knowing
it to be true, and which has tendency to
deceive.

Section 39. A representation as to the future is to be

deemed a promise, unless it appears that it was merely a
statement of belief or expectation.
De Leons:
A rep may be:
1) Oral or written- Sec 36;
2) Made at the time of issuing the policy or before-Sec
37;
3) Affirmative or promissory-Sec 39, 42.

De Leons:such a misrepresentation by the insured renders the

insurance contract voidable at the option of the
insurer, even though innocently made and without
wrongful event.
It may be viewed as the active form or concealment.

Statement of belief or expectation not a promissory

representation.
Distinguished:
Reps of expectation or
Promissory rep is a promise
belief are statements of
to be performed after the
future facts or events
contract has come into
which are in their nature
existence.

Nature of rep: It is a collateral matter which induces the

execution of the contract of insurance.
areprimarily statements of facts or, circumstances
relating to the proposed adventure, made for the
info of the insurer.

14

INSURANCE

responsible for its truth, unless it proceeds from an agent of

the insured, whose duty is to give the information.

contingent and which the

insurer is bound to know
the insured could not have
intended to state as
known facts, but as
intentions merely, they
are not susceptible of
present, actual knowledge
Unless made with
fraudulent intent, the
eventual falsity on nonfulfilment of a rep of
expectation or belief will
not avoid the policy

No personal knowledge: the insured is given discretion to

communicate to the insurer what he knows of a
matter of which he has no personal knowledge. If
the representation turns out to be false, he is not
responsible therefor, provided he gives explanation
that he does so on the info of others.
Falsity of promissory rep on
a material point entitles the
injured party to rescind the
contract from the time the
representation becomes
false.

GEN RULE: Info received from others and of which the

insured has no personal knowledge need not be
communicated to te insurer.
XPN: the insured must disclose the info received from
another person in the following cases:
1) When the info material to the transaction was
acquired by the agent of the insured, since
knowledge of the agent is also knowledge of the
principal. Thus, the insured must not only reveal the
info acquired from his agent but is likewise
responsible for its truth provided that it is the duty
of the agent to give the info.
2) In marine insurance, the info as to the belief or
rd
expectation of a 3 person in reference to material
fact, is material, and must be communicated to the
insurer.

Section 40. A representation cannot qualify an express

provision in a contract of insurance, but it may qualify an
implied warranty.
De Leons: This is because a rep is not part of the contract but
only as a collateral inducement to it. A rep may qualify an
implied warranty, not being part of the contract.
Section 41. A representation may be altered, or withdrawn
before the insurance is effected, but not afterwards.
Reason: Rep is an inducement for the other arty to enter into
a contract of insurance and therefore, after the other party is
so induced, such inducement may no longer be altered or
withdrawn.

Section 44. A representation is to be deemed false when the

facts fail to correspond with its assertions or stipulations.
It being SUFFICIENT that the representation is
SUBSTANTIALLY T
RUE AND ACCURATE.

Section 42. A representation must be presumed to refer to

the date on which the contract goes in effect.
Time to which the rep refers: it refesr only to the time of
making the contract.
Statements promissory of conditions to exist
subsequent to the completion of the contract may
be conditions or warranties and cannot be
representations.

Section 45. If a representation is false in a material point,

whether affirmative or promissory, the injured party is
entitled to rescind the contract from the time when the
representation became false. The right to rescind granted by
this Code to the insurer is waived by the acceptance of
premium payments despite knowledge of the ground of
rescission.

No false rep: if it is true at the time the contract takes effect

although false at the time it was made and vice versa.

Effect of misrepresentation: Insurance maybe avoided where

the insured made false statements as to matters that
are material to the risk for the purpose of obtaining
the insurance and thereby induce the insurance
company to issue the policy.
To constitute misrepresentation, the statement
must be substantially untrue. Thus, the policy cannot
be avoided where the statements are substantially
true although not strictly and literally true.

There is false rep: f it is true at the time it was made but false
at the time the contract takes effect.
Section 43. When a person insured has no personal
knowledge of a fact, he may nevertheless repeat
information which he has upon the subject, and which he
believes to be true, with the explanation that he does so on
the information of others; or may submit the information, in
its whole extent, to the insurer; and neither case is he

Where the TRUTRHFUL statement are given to agent:

15

INSURANCE

-Where the applicant for insurance made truthful statements

of material facts to the agent of the insurer and merely
signed a blank application, but the agent filled in the answers
negativing or misrepresenting the facts, the insurer cannot
avoid the policy as the latter must assume responsibility for
the acts of its agent.
-where there is connivance between the insured and the
insurance agent, the insurer may still be absolved from
liability although the info in the application was filled in by its
agent.

Section 47. The provision of this Chapter apply as well to a

Section 46. The materiality of representation is determined

by the same rules as the materiality of a concealment.
Materiality- is to be determined not by the event, but solely
by the probable and reasonable influence of the facts upon
the party to whom the representation is made in forming his
estimate of the disadvantage of the proposed contract, or in
making his inquiries.

Concealment
-The insured withholds info
of material facts from the
insurer

Misrepresentation
-the
insured
makes
erroneous statements of
facts with teh intent of
inducing the insurer to enter
into contract of insurance.

-The
materiality
is
determined by the same
rules as applied in case of
misrepresentation.

-same

-A concealment on the part

of the insured has the same
effect as a misrepresentation
and gives the insurer a right
to rescind the contract.
-Whether intentional or not,
the injured party is entitled
to rescind a contract of
insurance on ground of
concealment
or
false
representation.
-Since the contract of
insurance is said to be one of
utmost GF on the part of
both
parties
to
the
agreement, the rules on
concealment
and
representation apply likewise
to the insurer.

Failure to communicate
material facts to the others,
he is guilty of concealment
and the info he gives in
compliance with his duty to
reveal facts is representation.

The active form of the same

act of BF.

The passive
modification of a contract of insurance as to its original
formation.
The provisions of Section 26 to 35 (concealment) and
Sections 36 to 48 (representations) apply not only to the
original formation but also to the modification of the same
during the time it is in force.

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INSURANCE

GR: Concealment and representation are made at or before

the effectivity of the policy and that any info acquired after
the policy is issued and made effective is not covered by the
rule on concealment.

Effects when policy becomes Incontestabille: the insurer

may not refuse to pay the same by claiming
that:
1) The policy is void ab initio; or
2) It is rescissible by reason of the fraudulent
concealment of the insured or his agent, no matter
how patent or well-founded; or
3) It is rescissible by reason of the fraudulent
misrepresentation of the insured or his agent.

HOWEVER: where the parties are modifying or amending

their contract, said rules on concealment and representation
are likewise applicable.
Section 48. Whenever a right to rescind a contract of
insurance is given to the insurer by any provision of this
chapter, such right must be exercised previous to the
commencement of an action on the contract.
After a policy of life insurance made payable on the death of
the insured shall have been in force during the lifetime of
the insured for a period of 2 years from the date of its issue
or of its last reinstatement, the insurer cannot prove that
the fraudulent concealment or misrepresentation of the
insured or his agent.
TIME to RESCIND: it must exercised precious
thecommencement of an action on the contract.

*Policy must be in force at least two years.

* the lifetime of the insured-means the policy is no longer in
force after the insured died.
Defenses not barred by incontestable clause:
1) The insurer may raise the defense that the
premiums were not paid.
2) Te insurer may raise the defense that the insured
violated the condition in the policy relating to
military or naval service in times of war.
3) The insurer may raise the defense that the insured
has no insurable interest in the subject-matter of the
insurance.
4) The insurer may raise the defense that the cause of
death was expected or not covered by the terms of
the policy.
5) The insurer may raise the defense that the fraud
committed was of a particular vicious type such as:
a) Where the policy was taken in furtherance of a
scheme to murder the insured;
b) Where the insured substituted another person
for the medical examination; and
c) Where the beneficiary feloniously killed the
insured.
6) The insurer may raise the defense that the necessary
notice or proof of insureds death was not given.

to

Action- means an ordinary suit in court justice and it

commenced by filling a complaint with the court.
Rescind- means to abrogate, annul, avoid or cancel a
contract.
It presupposes the existence of a contract to be
rescinded.
Effect of Failure to Rescind before commencement of the
action: it can no longer cancel the policy bur may
raise the same as a defense, not to abrogate the
contract but to defeat recovery.
Waiver of right to rescind: its inaction amounted to a waiver
of teh right of rescission.
Assignee affected by insureds fraud: cannot be entitled to
proceeds of the policy.

Period of contestability in reinstated policies: should be

computed from the date of last reinstatement and not from
the date of issuance of the policy. Reason: it should be
viewed as a new contract.

INCOSTESTABALE CLAUSE: is an agreement by which the

insurance company limits the period of time within
which it will interpose objections to the validity of
the policy or set up any defense.
REQUISITES OF IC:
1)
2)
3)

Must be life insurance policy;

Must be payable on the death of the insured; and
Must have been in force during the lifetime of the
insured for a period of 2 years.

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THE POLICY

-Necessity for the riders, etc- It saves the trouble and expense
of making an entirely new contract.
-Rule on case of conflict between a rider, etc and printed
stipulations-the rider prevails, as being more
deliberate expression of the agreement of the
contracting parties.
Restriction on the use of rider under Insurance Code:
Section 226: states that no rider, etc shall be attached to,
printed or stamped upon a policy of insurance unless
the form of such rider, etc has been approved by the
Insurance Commissioner.

Section 49. A written instrument in which a contract of

insurance is set forth, is called a policy of insurance.
FORM:
1. Verbal
2. Written- usual form
3. Partly writing or partly verbal
POLICY OF INSURANCE: written instrument in which a
contract of insurance is set
forth
It is the written document embodying the terms and
stipulations of the contract of insurance between
the insured and the insurer. (De Leon)
It must be submitted to the Insurance Commissioner for the
approval or disapproval to determine whether or not it
violates any law or principle of equity.
Failure to obtain approval: does not affect the validity of the
terms of the contract, the policy may still be enforced.
Insurer: will be liable to prosecution for having used an
unapproved form.
Insurance by correspondence: acceptance shall not give rise
to a valid contract until the acceptance is made
known to the applicant.

WHEN SIGNATURE ON RIDER IS NECESSARY:

-After the original policy took effect: the said rider must be
countersigned by the insured or the owner unless
applied for by the latter.
-Where the rider was pasted or attached to the original policy
at the time it was issued: signature is not necessary
but the descriptive title or name of the rider must be
written on the blank spaces provided in the policy.
Section 51. A policy of insurance must specify:
a) The parties between whom te contract is made;
b) The amount to be insured except in the case of
open or running policies;
c) The premium, or if the insurance is of a character
where the exact premium is only determinable
upon the termination of the contract, a statement
of the basis and rates upon which the final
premium is to be determined;
d) The property or life insured;
e) The interest of the insured in property insured, if he
is not the absolute owner thereof;
f) The risks insured against; and
g) The period during which the insurance is to
continue.

Section 50. The policy shall be in printed form which may

contain blank spaces; and any word, phrase, clause, mark,
sign, symbol, signature, number; or word necessary to
complete the contract of insurance shall be written on the
blank spaces provided therein.
Any rider, clause, warranty or endorsement
purporting to be part of the contract of insurance and which
is pasted or attached to said policy is not binding on the
insured, unless the descriptive title or name of the rider,
clause, warranty or endorsement is also mentioned and
written on the blank spaces provided in the policy. Unless
applied for by the insured or owner, anhy rider, clause,
warranty or endorsement issued after the original policy
shall be countersigned by the insured or owner, which
countersignature shall be taken as his agreement to the
contents of such rider, clause, warranty or endorsement.
Group insurance and group policies, however, may
be typewritten and need not be in printed form.

----Section 52. Covers notes may be issued to bind insurance

temporarily pending the issuance of the policy. Within 60
days after issue of a cover note, a policy shall be issued in
lieu thereof, including within its terms the identical
insurance bound under the cover note and the premium
therefor.
Cover note may be extended or renewed beyond
such 60 days with the approval of the Commissioner if he
determines that such extension is not contrary to and is not
for the purpose of violating any provisions of this Code. The
Commissioner may promulgate rules and regulations
governing such extensions for the purpose of preventing
such violations and may by such rules and regulations
dispense with the requirement of written approval by him in

(Explanation is from De Leons)

Rider- is a small printed or typed stipulation contained on a
slip of paper attached to the policy and forming an
integral part of the policy.
-Addl binding stipulations between the parties: They
constitute addl stipulations between the parties.

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INSURANCE

the case of extension in compliance with such rules and

regulations.

Application for insurance- an offer to enter into a contract

until it is accepted by the insurer.
*Unreasonable delay in returning the premium raises the
presumption of acceptance of insurance application

Cover notes or a binding slip- is a merely a written

memorandum of the most important terms
of a preliminary contract of insurance,
intended to give temporary protection
pending the investigation of the risk by the
insurer or until the issuance of a formal
policy.
Preliminary contract of insurance- is one intended to afford
protection pending the investigation of the
risk and formal issuance of the policy.

Section 53
Q: Whose interest is insured?
A: All persons specifically named as persons insured in a
policy insuring against loss of or damage to property are
covered or protected by the policy
Where several persons have distinct interest in the same
property, the insurance taken by one in his own right does
not insure the interest of the other.

2 kinds of pre.Contract of insurance (De Leonss)

1.

2.

By a preliminary contracts of present insurancethe insurer insures the subject matter usually by
what is known as the binding slip or binder or cover
noten the contract to be effective until the formal
policy is issued or the risk rejected.
By a preliminary executory contract of insurance,
the insurer makes a contract to insure the subject
matter at some subsequent time which may be
definite or indefinite. Under this, the right acquired
by the insured is merely to demand the delivery of
the policy in accordance with the terms agreed upon
and the obligation assumed by the insurer is to
deliver such policy.

GR: The insurer shall be liable only to the insured or the

beneficiary named in a contract of insurance because the
insurance proceeds shall be applied exclusively to the proper
interest of the person in whose name or for whose benefit it
is made.
rd
XPN: Insurance contract intended to benefit 3 persons, the
latter may directly claim from the insurer.

Test to determine right of third persons to sue

1. Contract provides for indemnity against liability to third
rd
persons- 3 persons, to whom the insured is liable, can sue
the insurer
2. Contract is for the indemnity against actual loss or
rd
payment- 3 persons cannot proceed against the insurer,
because the contract is solely to reimburse the insured for
rd
liability actually discharged by him through payment to 3
persons.

Rules on binding receipt issued by agent(Perez)

Mr. Joseph A. Joyce stated the general rules concerning
the issuance of the insurance agent of a receipt pending
approval or issuance of the policy, as follows:
1) If the act of the acceptance of the risk by the agent
and the giving by him of a receipt, are within the
scope of the agents authority, and nothing remains
but to issue a policy, the receipt will bind the
company.
2) Where an agreement is made between the applicant
and the agent whether by signing an application
containing such condition, or otherwise, no liability
shall attach until the principal approves the risk and
a receipt is given by the agent, such acceptance is
merely conditional and is subordinated to the act of
the company in approving or rejecting.
3) Where the acceptance by the agent is within the
scope of his authority a receipt containing a contract
for insurance for a specified time which is not
absolute but conditional, upon acceptance or
rejection by the principal, covers the specified period
unless the risk is declined within that period.

Remedy: limited to the insured.

An insurer is not solidarily liable with insured carrier. The
liability of the insurer is based on a contract while that of the
insured carrier or vehicle owner is based on tort.
Section 54
Insurance procured by Agent. When a property is in the
possession of an agent, the principal may insure the same as
owner while the agent who is responsible for such property
may likewise insure the same.
If agent intends to cover the interest of the principal, that fact
must be stated in the policy.

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INSURANCE

If the agent secures the policy in his name alone, it is deemed

to cover only the interest of the agent and the principal has
no right of action against the insurer.

Eg. Life insurance

Open
Value of the thing
insured is not agreed
upon
Occurrence of loss, the
insured must prove the
value of the thing
insured

Section 55
Insurance procured by Partner. When a partner takes a policy
on the partnership property in his own name, it is deemed to
include his separate interest alone, unless the terms of the
policy should be such as are applicable to the joint or
common interest.
The policy procured by an agent/partner in his name alone
will not include the interest of the principal/co-partners
because the policy shall be applied exclusively to the proper
interest of the person in whose name or for whose benefit it
is made unless otherwise specified in the policy and also
because an insurance is a personal contract.

Valued
The parties have stipulated in the
policy that the thing insured is
valued at a specified time
Proof of value of the thing
insured after the loss is no longer
necessary

Section 62. Running Policy

One which contemplates successive insurances, and which
provides that the object of the policy may be defined from
time to time, especially as to the subject of insurance, by
additional statements or indorsements.
Also called Floating Policy, it is intended to supplement
specific insurance and to provide indemnity for property
which cannot be covered by specific insurance because of its
frequent change in location and quantity.
eg. Stock-in trade

Section 56
General description of the insured, it may comprehend any
person or any class of persons, the person claiming the
proceeds of the policy must prove that such description was
intended to include him.

Section 63
Limitation of action by agreement. Parties may validly agree
that an action on the policy should be brought within a
limited period of time, provided that such period is not less
than one year from the time the cause of action accrues. If
the period agreed upon should be less than one year from the
time the cause of action accrues, such agreement is VOID.

Section 57
XPN to Sec 20. When the policy is framed to inure to the
benefit of whomsoever, during the continuance of the risk,
may become the owner of the interest insured, the transfer
of the property will not suspend the insurance and, instead,
the insurance is deemed transferred together with the
property.

Computation of one-year period. The prescriptive period run

from the date of the insurers rejection of the claim filed by
the insured, the beneficiary or any person claiming under an
insurance contract. The prescriptive period must be counted
from the accrual of the cause of action.

Section 58
The transfer of 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.
Kinds of Policy

When no period for bringing the action has been agreed upon
in the policy, or when such agreement is void, the insured
may bring the action within the prescriptive period provided
for in the Civil Code.
10 years- written
6 years- oral contract

Section 60. Open Policy

One in which the value of the things insured is not agreed
upon, but is left to be ascertained in case of loss.

In case the claim was denied by the insurer but the insured
filed a petition for reconsideration, the prescriptive period
should be counted from the date the claims was denied at
the first instance and from the denial of the petition for
reconsideration.
Prescription in compulsory motor vehicle insurance is
counted from denial of the claim and not from the date of
accident.

Section 61. Valued Policy

One which expresses on its face an agreement that the things
insured shall be valued at a specified sum.
Effect. It is conclusive between the parties thereto in the
adjustment of either a partial or total loss, if the insured has
some interest at risk, and there is no fraud on his part.

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INSURANCE

Effect of Carriage of Goods by Sea Act Section 3(6), under

the said provision, only the carriers liability is extinguished if
no suit is brought within one year from delivery of goods. The
liability of the insurer is not extinguished because the
insurers liability is based not on the contract of carriage but
on the contract of insurance. The provision defines the
obligations of the carrier under the contract of carriage. It
does not affect the relationship between the shipper and the
insurer.
Under the same provision, the suit against the carrier must be
filed within one year after the delivery of the goods or the
date when goods should have been delivered, otherwise the
action shall prescribe. It also applies to an action filed by an
insurer against the carrier.
The insurer, like the shipper, may no longer file a claim
against the carrier beyond the one-year period provided in
the law. But the shipper can still file a claim against the
insurer because the basis of the insurers liability is the
insurance contract and not the contract of carriage of goods.

policy, the insurer gives notice of its intention not to renew

the policy.
Title 7: Warranties
Warranty- a written statement or stipulation inserted on the
face of the contract itself, or clearly incorporated therein as a
part thereof by proper words of reference, whereby the
insured expressly contracts as to the existence of certain
facts, circumstances, or conditions, the literal truth of which
is essential to the validity of the contract of insurance.
Kinds of Warranties
1. Affirmative warranty- relates to matters which exist at or
before the insurance if the policy
2. Promissory warranty- the insured undertakes that
something shall be done or omitted after the policy takes
effect and during its continuance
3. Express warranty- is a statement in a policy, of a matter
relating to the person or thing insured, or to the risk, as a fact
4. Implied warranty- an agreement or stipulation not
expressed in the policy but the existence of which is admitted
or presumed from the fact that the contract of insurance has
been executed.

Section 64
The cancellation of policies by the insurer upon prior notice
and should be based on the occurrence of the following, after
the effective date of policy, otherwise the same would be
ineffective:
a. Non-payment of premium
b. Conviction of a crime arising out of facts increasing the
hazard insured against
c. Discovery of fraud or material misinterpretation
d. Discovery of willful or reckless acts or omissions increasing
the hazard insured against
e. Physical changes in the property insured which result in the
property becoming uninsurable
f. A determination by the Commissioner that the continuation
of the policy would violate or would place the insurer in
violation of the Code.

Affirmative
Consist of statements in
the policy of some fact or
state of things at, or
previous to, the time of
making the policy.

Section 65
Notice should be in writing, mailed or delivered to the named
insured at the address shown in the policy stating the
grounds:
a. grounds under Sec 64
b. that, upon written request of the name insured, the insurer
will furnish the facts on which the cancellation is based.
When noticed mailed but not received, is ineffective, there
must be an actual receipt of the notice of cancellation.
Personal notice is necessary, notice must be sent to the
insured himself, if not the cancellation is not valid.

Promissory
Refers to the happening of
some future event, or the
performance of some act in
the future.

Express

Implied

Must be contained in the

policy or in another
instrument signed by the
insured and referred to in the
policy as making a part of it

Its existence is presumed

by the mere fact that the
contract is entered into

Specifically agreed upon by

the parties

Need not be agreed upon

as its existence is presumed

Construction of Warranties
Is strictly construed against the insurer and is reasonably
interpreted in favor of the insured. The reasonableness is to
be ascertained in the light of the factual considerations.
No particular form of words is necessary to create a warranty.

Section 66
The insured is given the option to renew property insurance
by the payment of the premium due on the effective date of
renewal unless at least forty-five days prior to the end of the

Section 70

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INSURANCE

Every express warranty made at or before the execution of a

policy, must be contained either:
a. in the policy itself, or
b. in another instrument signed by the insured and referred
to in the policy as making a part of it.
* The signature of the insured is necessary only when the
warranty is contained in another instrument and not when it
is contained in the policy itself.
A rider is a part of the policy and, therefore, a warranty
contained in a rider need not be signed by the insured unless
such rider was issued after the original policy took effect.
A Promissory warranty is in the nature of a condition
subsequent, and a breach thereof invalidates the policy from
the time of breach.

is paid, the policy shall not be valid and binding

notwithstanding any agreement to the contrary.
XPNs:
1. In case the insurance coverage relates to life or industrial
life (health) insurance when grace period applies. (Section 77)
2. When the insurer makes written acknowledgement being a
conclusive evidence of payment of premium. (Section 77-78)
3. When a bond or suretyship contract is issued and already
accepted by the obligee or creditor, such bond or suretyship
is enforceable notwithstanding the non-payment of
premiums. (Section 177)
4. The premium must be paid before an insurance policy
becomes effective.
5. Payment of the premium to the agent of the insurer is
sufficient to make the policy binding.

GR: Non-performance of promissory warranty entitles the

insurer to rescind the contract.
XPN:
1. When before the time arrives for the performance of a
promissory warranty, the loss insured against happens.
2. When before the time arrives for the performance of a
promissory warranty, the performance becomes unlawful at
the place of the contract.
3. When before the time arrives for the performance of
promissory warranty, the performance becomes impossible.

Effect of non-payment of premiums

Puts an end to an insurance contract since time of payment is
peculiarly of the essence of the contract. The burden is on the
insured to keep a policy in force by the payment of
premiums.
Effect of payment by installment
In case payment by installments is not an established practice
by the parties, a part payment will not keep the policy in
force for even such a proportionate of the new period as the
sum paid bears to the whole premium due.
In case the parties agreed to have the premiums paid by
installments, acceptance of the payment of premiums by
installments would suffice to make the policy binding because
it reveals an intention on the part of the insurer to honor the
policy.

Section 74
Violation of a material warranty, or any other material
provision of the policy, entitles the other party to rescind the
contract. A causal connection between the violation and the
loss is not necessary.
Section 75
GR: A violation of immaterial provision shall not avoid the
policy.
XPN: The parties may stipulate that a violation of any
provision of the policy, material or immaterial, shall avoid it,
thereby converting an immaterial provision in a policy into a
material provision.

Velasco v Apostol
The policy is not valid and binding unless and until the
premium is paid. If the insurer wants to favor the insured by
making the policy binding notwithstanding the non-payment
of premium, a mere credit agreement would not be
sufficient.
Remedy: For the insurer to acknowledge in the policy that
premiums were paid although they were not, in which case
the policy becomes binding because such acknowledgement
is a conclusive evidence of payment of premium.

Section 76
The effect of a breach of warranty without fraud depends on
the time such breach is committed.
a. At effectivity of the policy- prevents the policy from
attaching to the risk
- the insurer is not liable from the beginning.
b. after effectivity of the policy- the insurer is exempted from
liability for losses incurred after such breach.

Non-payment of premiums cannot be excused by sickness or

incapacity of the insured, or by war, since the time of
payment of premium is peculiarly of the essence of the
contract, neither the failure of the insurer to notify the
insured of its change of address.
Effect of payment of overdue premiums after the loss will
depend on whether the insurer was aware of the loss or not
at the time of the acceptance of payment.

Title 8: Premium
GR: The payment of premium is a condition precedent to, and
essential for, the efficacy of the contract. Unless the premium

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INSURANCE

*Reinstatement is discretionary on the part of the insurer,

which has the right to deny reinstatement if it is not satisfied
as to the insurability of the insured, and if the latter does not
pay all overdue premiums and all other indebtedness to the
company.

If aware- the acceptance and retention by the insurer of the

overdue premium with knowledge of the fact, evidences a
waiver of the right to forfeit the policy and the insurer is
bound under the policy.
If unaware- and subsequently returned the premium to the
insured, the insurer may still raise the defense of nonpayment of premiums.

Section 78
When a policy was issued with an acknowledgement that
premiums were paid, such acknowledgement is conclusive to
make the policy binding although the policy contained a
stipulation that it shall not be binding until the premiums are
paid. In such case, the insurer cannot deny the payment of
the loss to the insured on the ground of non-payment of
premiums.

The act of insurer or agent in refusing the tender of payment

of a premium properly made will necessarily estop the insurer
from claiming a forfeiture of the policy for non-payment of
premium.
Devices to avoid forfeiture of life insurance:
a. Period of grace- after the payment of the first premium the
insured is entitled to a grace period of thirty days or one
month within which to pay the succeeding premiums.
b. Cash surrender value- it is the sum of money the company
agrees to pay to the holder of the policy if he surrenders it
and releases his claim upon it.
Source: arises from the fact that the fixed annual premium is
much in excess of the annual risk during the earlier years of
the policy.
c. Options available- required by law to which the insured is
entitled to the event of default in a premium payment after
three full annual premiums shall have paid.

Extended insurance- the insurance originally

contracted for is continued for such period as the amount
available therefore will pay when it will terminate. Usually
the cash surrender value is designated as the fund to be
used in purchasing an extended insurance.

Paid-up insurance- no more payments are required,

and consists of insurance for life in such an amount as the
sum available therefore, considered as single and final
premiums will purchase.
d. Automatic loan clause- a stipulation in the policy providing
that upon default in the payment of premium, the same
shall be paid from the loan value of the policy until that
value is consumed.
e. Reinstatement- every life insurance policy must contain a
provision that the holder of the policy shall be entitled to
reinstatement of the contract at any time within three years
from the date of default in the payment of premium, unless
the cash value has been duly paid, or the extension period
expired, upon production of evidence of insurability
satisfactory to the company and the payment of all overdue
premiums and any indebtedness to the company upon said
policy.

The policy acknowledging premium payment is delivered

without requiring actual payment of premium, the
presumption is that the policy is valid for it should not be
envisioned that the insurer would issue a policy that is void
by its own terms.
The insured is entitled to a return of the premium paid in the
following instances:
1. Where no part of the interest in the thing insured is
exposed to any of the perils insured against.
If no policy is ever issued or delivered as contracted
for, the applicant for insurance having acted in good
faith, may recover any premium that he has paid.
Likewise, when no valid contract was effected due to
the absence of any one of the essential requisites of
a contract (eg. consent and subject matter) the
whole premium paid may be recovered.
2. Where the insurance is made for a definite period of time
and the insured surrenders his policy before the expiration of
that period
For the unexpired portion of the period
Premiums at short-time rate- the amount
recoverable upon surrender of the policy will be the
balance after deducting the percentage to be
retained by the insurer as stated in the short period
rate table.
In the event that the insured suffered a loss during
the existence of the policy and before the surrender
thereof, the amount of the loss paid by the insurer
shall be deducted from the whole premium and only
the balance shall be the basis of the return of
premium.
3. When the contract is voidable on account of the fraud or
misrepresentation of the insurer or his agent

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INSURANCE

4. When the contract is voidable on account of facts, the

existence of which the insured was ignorant without his fault

3. Loss caused by a peril not insured against to which the

thing insured was exposed in the course of rescuing the same
from the peril insured against
4. Loss, the immediate cause of which was the peril insured
against unless the proximate cause thereof was excepted in
the contract
Immediate cause- the cause or condition nearest to
the time and place of injury.
5. Loss caused by negligence of the insured

5. When by any default of the insured than actual fraud, the

insurer never incurred any liability under the policy
6. In case of over-insurance
The insured is entitled to a ratable return of the premium,
proportioned to the amount by which the aggregate sum
insured in all policies exceeds the insurable value of the thing
at risk

PROXIMATE CAUSE that event which in a natural and

continuous sequence, unbroken by any efficient intervening
cause, produces the injury, would not have occurred; that
which sets others in motion

Q: To whom returned?
A: To the insured that paid the premium

EXPOSED TO ANOTHER PERIL an insurer is liable where the

thing is rescued from a peril insured against, that would
otherwise have caused a loss if in the course of such rescue
the thing is exposed to a peril not insured against, which
permanently deprives the insured of its possession, in whole
or in part.

Q: When premium not recoverable?

A:
1. If the peril insured against has existed, and the insurer has
been liable for any period, the peril being entire and
indivisible
Based on the principle of just and equity
The danger incurred may be greater in any one
moment than during the entire remaining period of
insurance, and it would be extremely difficult fairly
to apportion the premium

PERIL INSURED IS IMMEDIATE CAUSE cause or condition

nearest to the time and place of injury.
EXCEPTED RISK AS PROXIMATE CAUSE MUST BE PROVEN
the insurer has the burden of proving by a preponderance of
evidence the facts upon which its defense of exemption or
exception clause in the fire insurance policy is based.
BURDEN OF PROOF IN ACCIDENT INSURANCE initially,
insureds beneficiary has the burden of proof in
demonstrating that the cause of death is due to the covered
peril.
ACCIDENT INSURANCE
LIFE INSURANCE
- there must be evidence
- compensable regardless if
showing that the insured
the cause
suffered from accidental
death covered by the policy.

2. In life insurance
Because it is indivisible.
3. When the insured is guilty of fraud or misrepresentation
Title 9: Loss
Section 83
While a prohibition against the transfer of the interest
insured before the loss is binding, an agreement not to
transfer the claim of the insured against the insured after the
loss has happened is void.
The prohibition against the transfer of the claim after the loss
is against public policy since the rights of the parties are fixed
after the loss and the assignment is merely a transfer of
action against the insurer.

SECTION 87
GR: insurer is not liable for a loss caused by the wilful act or
through the connivance of the insured
XPN: liable even when due to negligence of the insured, or of
the insureds agent or others
XPN to XPN: negligence is so gross

Losses for which the insurer is liable

1. Loss of which a peril insured against was the proximate
cause
2. Loss caused by efforts to rescue the thing insured from a
peril insured against

GR: Fraud in statement of loss with intent to deceive or

defraud means no recovery upon any part of the policy policy is avoided by false and material misrepresentation

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INSURANCE

XPN: honest over-evaluation eg. it is common that a man

values his property higher than that of others

SECTION 91
Waiver of delay in the presentation to an insurer of
notice/proof of loss
1. Where delay was caused by an act of the insurer
2. Where the insurer failed to object to the delay
promptly and specifically upon such ground

TITLE 10: NOTICE OF LOSS

SECTION 88 89
After the occurrence of loss, for the insured to recover, he
must:
a. Give notice of loss without unnecessary delay
b. When required by the policy, submit a preliminary
proof of loss

SECTION 92.if the policy requires the certificate or testimony

rd
of a 3 person, it is sufficient for the insured to use
reasonable diligence to procure it.
In case of the refusal of such person to give it, furnish
reasonable evidence that such refusal was not induced by any
just grounds or disbeliefs in the facts necessary to be certified
or testified.

*Notice may be oral unless policy requires written but must

be given with a reasonable time

Payment of the proceeds of life insurance policy:

a. If the policy matures by the expiration of the terms
(other than death), payment shall be made
immediately upon maturity except when the
proceeds are payable in instalment or as an annuity
which shall be paid when they become due
b. If policy matures by the death of the insured,
payment should be made within 60 days from the
presentation of the claim and filing of proof of death

Purpose of Notice:
So that insurer may make proper investigation and
take such action as may be necessary to protect its
interest
In marine insurance, to afford carrier reasonable
opportunity and facilities to check the validity of
claims while facts are still fresh
* Stipulating the period for filing a claim is valid UNLESS the
intent is to give insured less than a reasonable time within
which to file

Effect of non-payment within period prescribed by law:

Insurer shall be liable for interest on the sum due at
the rate of twice the ceiling prescribed by the
Monetary Board, from the time payment is
supposed to be made UNLESS such failure to pay is
based on the ground that the claim is fraudulent.

*Non-compliance may be excused where circumstances

render strict compliance as impossible and the insured has
not failed to use due diligence
Eg.insanity, absence

ARBITRATION
PROOF OF LOSS evidence given to the insurer of the
occurrence of the loss and the data necessary to determine
liability & the amount thereof.
Substantial compliance with the requirements is
sufficient.

SUBROGATION
Substitution of the insured in the place insurer upon
payment of the insurance claim so that the latter
rd
succeeds to the rights of the former against a 3
party with respect to any loss covered by the policy.
Limitation: cannot recover more than what the
insured may recover from the wrongdoer
Based on the principle of natural justice to afford
relief to those required to pay a legal obligation
which ought to have been met by another person
Arises from the very nature of insurance as contract
of indemnity
Lack of capacity of the insured to sue does not affect
the capacity of insurer to sue
Discretionary

*Death certificates and notes by municipal health officer

prepared in regular performance of his duties are prima facie
evidence
SECTION 90
Waiver of defects in the notice/proof of loss
1. When the insurer fails to specify to the insured any
defect on the notice/proof of loss which the insured
might remedy without unnecessary delay
2. When the insurer denied liability on a ground other
than the defect in notice/proof of loss
3. When the insurer already made partial payment of
the loss of the property insured

Subrogation NOT APPLICABLE:

1. In life insurance not a contract of indemnity

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INSURANCE

2.
3.
4.

When proximate cause of the damage was the

negligence of the insured himself
When the insurer pays to the insured a loss not
covered by the policy
When the insured failed to comply with the legal or
stipulated condition precedent prior to the filing of
an action against the wrongdoer

OVER-INSURANCE
- one insurer is sufficient
- insurance taken is always
more than the amount of
insurable interest

DOUBLE INSURANCE
- there are several insurers
- total amount of policies
taken need not exceed the
value of the insurable
interest

Effects of Over-Insurance by Double Insurance:

1. The insured may claim payment from the insurers in
any order he may select, upto the amount for which
the insurers are individually liable under their
respective contracts UNLESS the policy provides
2. He must credit the amount he received from any
insurers against the valuation agreed upon and
against the full insurable value
3. In case the insured received any sum in excess of the
valuation in case of valued policy and the insurable
value in case of unvalued policy, he must hold the
excess in trust for the insurers accdg to their right of
contribution
4. Among themselves, the insurers are bound to
contribute ratably to the loss in proportion to the
amount for which they are liable under yjeir policies.
FORMULA:

*If the proceeds of the insurance were not sufficient to cover

the loss suffered, the insured may recover deficiency from
the wrongdoer.
*If the insured releases wrongdoer from liability BEFORE
payment by the insurer, the insured thereby destroys his
right to collect from the insurer.
* If the insured releases wrongdoer from liability AFTER
payment by the insurer, the insurer may recover from the
insured the insurance proceeds paid.

TITLE 11: DOUBLE INSURANCE

SECTION 93
Requisites of Double Insurance
1. Same person insured
2. Several insurers
3. Same subject-matter insured
4. Same interest insured
5. Same risk insured against

SHARE OF INSURER =

Test of Double Insurance WON the insured, in case of

happening of the risk insured against, can be directly
benefited by recovering on both policies.

INSURERS POLICY
------------------------ X AMT OF LOSS
TOTAL AMOUNT OF
POLICIES ISSUED

SECTION 95:
rd

CONTRACT OF REINSURANCE an insurer procures a 3

person to insure them against loss or liability by reason of
such original insurance
Serves as a guaranty especially when the risk insured
against is so great that its happening might render
him insolvent or seriously crippled

GR: In Double Insurance, the insurers may still be liable up to

the extent of the value of the thing insured but not to exceed
the amount of the policies issued.
XPN: stipulation in the policy like:
a. That which would render policy void if insured
has, or subsequently, any other insurance on
the property without the consent of the insurer
b. That which nullifies the policy if notice was
required but was not given to the insurer of the
existence of other policies upon the same
property
Ratio: to prevent over-insurance and thus, avert
perpetration of fraud

When Reinsurance Necessary:

a. In non-life insurance risk is on an amount
exceeding 20% of net worth insurer needs
reinsurance of the excess over said limit so that
retention of the insurer will be reduced to the max.
20% net worth
b. An insurance company withdrawing from Phils

*Insurance of Stock-in-Trade no double insurance bec

stocks are cannot be specified

nd

RETROCESSION reinsurance made on a 2 and subsequent

level, concerning the same original risks written by first
ceding company

SECTION 94.

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INSURANCE

REINSURANCE POLICY
- contract of indemnity one
insurer makes with another
st
to protect the 1 insurer
from risk it had already
assumed
- upon execution of
reinsurance policy, premiums
are paid

SECTION 98
GR: Original insured has no interest in a contract of
reinsurance
XPN:
a. Contract of insurance is made directly for the benefit
of the reinsureds policy holder
b. Reinsurer assumes and agrees to perform
reinsureds contract
REQUISITES: (1) original insured accepted such benefit &
(2) communicated his acceptance to the reinsurer before
being revoked

REINSURANCE TREATY
- mere agreement between 2
insurance companies
whereby one agrees to cede
& the other to accept
reinsurance business
pursuant to provisions of the
treaty

BORDEREAU list of statement of policies issued, amounts

reinsured, and other particulars called for by a reinsurance
treaty
DOUBLE INSURANCE
- insurer remains as insurer
- subj.matter property
- same interest and risk are
insured with another insurer

CHAPTER II: Classes of Insurance

Marine Insurance

REINSURANCE
- insurer becomes insured
- subj.matter insurers risk
-different risk and interest

Coverage:
Sec. 99 Other marine insurance risks not connected with
marine navigation:
a. Insurance against loss of or damage to aircraft.
Aircraft- any contrivance now known or hereafter
invented, used, or designed for navigation of, or flight in the
air.

SECTION 96
Obligation of insurer when obtained reinsurance:
GR: communicate all the representations of (1) original
incurred and (2) knowledge and facts material to the risk
Otherwise, policy will be avoided
XPN: no obli under automatic reinsurance treaties an
automatic and self-executing contract so any knowledge
cannot influence in deciding WON to enter into treaty

b. Insurance against loss of or damage to goods and

merchandise in the course of transportation and also
including any risks to which said goods and merchandise may
be exposed while being assembled, packed crated, baled
compressed or similarly prepared for shipment.
When purpose of assembly, packing etc.i.e., if the purpose is
for shipment, then the insurance is classified as marine.

SECTION 97
Reinsurance is presumed to be a contract of indemnity not
merely against damage

c. Insurance against loss of or injury to person in connection

with marine transit or transportation insurance, it includes
the liability of the ship owner or aircraft operator for injury to
its passengers but doesnt include the liability of a land
transportation operator for injuries to its passengers.

* Extent of Liability of REInsurer measured by the liability of

the reinsured to the original policy holder provided this does
not exceed the amount of insurance
Effect of Settlement with Original Insured
2 views:
FIRST View settlement of liability of the original insurer to
the original insured for a sum which is less than the amount
of the original policy, does not affect the liability of the
insurer to pay the full amount of the policy of reinsurance

d. Insurance against loss of or damage to precious stones,

jewels, jewelry, precious metals, whether in the course of
transportation or otherwise.
e. Insurance against loss of or damage bridges, tunnels and
other instrumentalities of transportation and communication.

SECOND view (better view) where the insured has

discharged its liability by the payment a less than that in the
original policy, the amount so paid in the measure f the
reinsurers liability

Protection and Indemnity Club- an association composed of

ship owners in general who band together for the specific
purpose of providing insurance cover on a mutual basis
against liabilities incidental to ship owning that the members
incur in favor of third persons.

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INSURANCE

Mutual Insurance Company- a cooperative enterprise where

the members are both the insurer and the insured.
Coverage:
a. protection and indemnity
b. war risks
c. defense costs

construed as creating a special insurance and extending to

other risks than are usually contemplated, and covers all
losses except such as may arise from the fraud of the insured,
intentional misconduct on the part of the insured or
otherwise excluded in the policy.
The insurer can avoid coverage upon demonstrating
that a specific provision expressly excludes the loss
from coverage.

Peril of navigation- includes perils in making landings in rivers

navigation, and damage from rain in consequence of
improper stowage, unless such improper stowage was
occasioned or acquiesced in by the insured.

Insurable Interest

War risks extends only to perils due directly to some hostile

action, military maneuver, or operational war danger, and
does not include the aggravation or increase of a maritime
risks because of war operations.

Charter Party- the owner or the agent of a vessel binds

himself to transport merchandise or person for a fixed price.
Owner of Chartered Vessel- owner still has insurable interest
on the vessel. However, in case of loss the owner may
recover from the insurer only that part of the loss which he
cannot obtain from the charterer.

Builders risks- damage to ways from launching as well as

damage to the ship.
Perils of the sea- embrace all kinds of marine casualties and
damages done to the ship or goods at sea by the violent
action off the winds or waves, one that could not be foreseen
and not attributable to the fault of anybody.

Sec. 101
Bottomry or respondentia- a loan in which under any
condition whatever, the repayment of the sum loaned, and of
the premium stipulated, depends upon the safe arrival in port
of the goods on which it is made or of the price they may
receive in case of accident.
A loan with things exposed to maritime risks as
collaterals to be paid if the collaterals are safely
transported and the lender shall lose his money if
the latter are lost.

Perils of the ship- losses or damages resulting from:

a. natural and inevitable action of the sea
b. ordinary wear and tear of the ship
c. negligent failure of the ships owner to
provide the vessel with proper equipment to convey the
cargo under ordinary condition
* Unless otherwise stated in the policy, loss due to perils of
the ship is not within the coverage of marine insurance.

Bottomry- security is a vessel

Respondentia- security is cargo

It is the obligation of a cargo owner or insured to look for a

reliable common carrier which keeps its vessels in seaworthy
condition.

Vessel hypothecated on bottomry- the insurable interest

thereon by the owner is only the excess of its value over the
amount secured by bottomry. In case of loss, the owner need
not pay the loan on bottomry and he is benefited to the
extent of the amount of the loan obtained and actually the
loss he suffers is only the difference between the actual value
of the vessel and the loan on bottomry.

Barratry- is any willful misconduct on the part of the master

or crew in pursuance of some unlawful or fraudulent purpose
without the consent of the owners, and to the prejudice of
the owners interest.

When vessel be the object of bottomry and marine insurance,

after a loss, the value of what may be saved or salvaged shall
be divided between the lender and the insurer, in proportion
to the legitimate interest of each one, taking into
consideration, for this purpose only the principal with respect
to the loan.

Inchmaree clause- a provision in the policy that the insurance

shall cover loss of, or damage to, the hull or machinery
through the negligence of the master, charterers, mariners,
engineers, or pilots, or through explosions, bursting of
boilers, breakage of shafts, or through any latent defect in
the machinery or hull not resulting from want of due
diligence.

Lender on bottomry or respondentia- has an insurable

interest in the ship or cargo to the extent of the amount of
the loan granted.

All Risk Policy- all risks whatsoever and covering all losses by
an accidental cause of any kind. In marine insurance, it is

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INSURANCE

Ratio: Loss of the vessel or cargo extinguishes the loan, the

lender stands to suffer damage by the loss of the vessel or
cargo.

have reached him in the usual mode of transmission and at

the usual rate of communication.
Sec. 11 A concealment in a marine insurance in respect to any
of the following matters exonerates (absolves) the insurer
from a loss resulting from the risk concealed:
a. the national character of the insured
b. liability of the thing insured to capture and detention
c. liability to seizure from breach of foreign laws of trade
d. want of necessary documents
e. use of false and simulated papers

Freightage- signifies all the benefits derived by the owner,

either from:
a. chartering of the ship
b. it employment for the carriage of his own goods or of
those others.
The owner of a ship has an insurable interest on expected
freightage which, according to ordinary and probable course
of things, he would have earned but for the intervention of
the peril insured against or other peril incident to the voyage.
Where freightage is payable in any event whether
the vessel is lost or not, the ship owner has no
insurable interest in such freightage.

Effect: Insurer will still be liable if the cause of the loss is not
the fact concealed but will be exempted from liability should
the fact concealed be the cause of the loss.
Representation
Sec. 111 Misrepresentation in Marine Insurance
To entitle the insurer to rescind the contract, it must
be intentionally false in any material respect, or in
respect of any fact on which the character and
nature of the risk depends.

Insurable interest on Freightage exists:

a. In case of a charter party, from the time the vessel has
broken ground on the chartered voyage
b. when there is no charter party and the price is to be paid
for the carriage of goods, from the time said goods are
actually on board the vessel, or if there is some contact for
putting them on board, from the time both ship and goods
are ready for the specific voyage.

Sec. 112 Falsity or representation as to expectation

In the absence of fraud, it does not avoid the
contract of insurance.

Sec. 105 Insurable interest in profits

Requires interest in the thing from which profits are
expected to come from which either may be legal or
equitable

Implied Warranties
I. the ship is seaworthy
II. No improper deviation from the agreed voyage will be
made
III. The vessel will not engage in illegal venture, and
IV. Where the nationality or neutrality of a ship or cargo is
expressly warranted, it is implied that the ship will carry the
requisite documents which casts reasonable suspicion
thereon. (Sec 120)

Sec. 106 Insurable interest of ship charterer

To the extent that he is liable to be damnified by its
loss
Concealment
It is the duty of the insured in marine insurance, as required
of an insured in any kind of insurance, i.e., to reveal all
information which he possesses which is material to the risk.
Insured must also reveal to the insurer information of the
belief or expectation of a third person, in reference to a
material fact. Therefore, if the insured at the time of effecting
the insurance receives, or has intelligence or information or
knowledge of facts which affect the condition and safety of
the ship on her voyage, and which, in the mind of a prudent
and rational underwriter, would increase the hazard or
liability to loss, it ought to be disclosed

Sec 114
Seaworthiness depends on circumstances.
Reasonable fitness to perform the service and to encounter
the ordinary perils of the voyage contemplated by the parties
is required to satisfy the warranty of seaworthiness.
Effect of Violation of Implied Warranty of Seaworthiness
The insurer will not be liable for a loss occasioned thereby
whether such fact was known to the insured or not.
Waiver of Implied Warranties by the Insurer
It could only be done in writing, in the policy and in the
clearest language. And where the policy stipulates that the

Sec. 109 Presumption of knowledge of prior loss

A person insured is presumed to have knowledge, at the time
of insuring, of a prior loss, if the information might possibly

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seaworthiness of the vessel as between the insured and the

insurer is admitted, the question of seaworthiness cannot be
raised by the insurer without showing concealment or
misrepresentation of the insured.

XPN: Where the damage was not caused by the particular

defect that made the ship unseaworthy, the insurer is still
liable.
Sec 119 Seaworthines for Purpose of Receiving Cargo
A ship which is seaworthy for the purpose of an insurance
upon the ship may, nevertheless, by reason of being unfitted
to receive the cargo, be unseaworthy for the purpose of
insuranceupon cargo.

Delsan Transport Lines v CA

Payment made by the insurer of the insured value of the lost
cargo operates as a waiver of its right to enforce the term of
the implied warranty against the insured under the marine
insurance policy.
The fact of payment grants the insurer subrogatory right
which enables it to exercise legal remedies that would
otherwise be available to the insured as owner of the lost
cargo against the common carrier.

Voyage and Deviation

Sec 121- 122
Course of the Voyage Insured
When the voyage contemplated by a policy is described by
the places of beginning and ending, the course of the voyage
insured is:
a. the one agreed upon by the parties
b. in the absence of agreement, the course of sailing fixed by
mercantile usage
c. if the course of sailing is not fixed by mercantile usage, one
which to a master of ordinary skill and direction would seem
the most natural, direct and advantageous.

When seaworthiness is waived by the insurer:

a. the warranty of seaworthiness is to be taken as fulfilled; or
b. the risk of unseaworthiness is assumed by the insurer
Sec. 115 When requirement of Seaworthiness is satisfied
GR: Seaworthiness of the vessel is required only at the
commencement of the risk.
XPNs:
a. When the insurance is for a specific period, in which case,
the vessel must be seaworthy at the commencement of every
voyage she may undertake during such period.
b. When the insurance is upon cargo required to be
transshipped at an intermediate port, in which case each
vessel upon which the cargo is shipped, or transshipped, must
be seaworthy at the commencement of each particular
voyage; and
c. Where the different portions of the voyage contemplated
by the policy differ in respect to things requisite to make the
ship seaworthy, in which case the ship must be seaworthy at
the commencement of each portion with reference to that
portion.

Sec 123 Deviation

a. a departure from the course of the voyage insured
b. an unreasonable delay in pursuing the voyage
c. the commencement of an entirely different voyage
DEVIATION
2 kinds of Deviation:
1. Proper (Sec. 124)
2. Improper those not included in Sec. 124 (Sec. 125)
Sec. 124.A deviation is proper when:
(a) caused by circumstances beyond the control of master or
owner of the ship
(b) made to comply with a warranty, or avoid a peril
(c) made in good faith, to avoid a peril; or
(d) made in good faith, to save human life or relieve another
vessel in distress.

Sec 116 Warranty of Seaworthiness extends to:

a. structure of the ship itself
b. be properly laden
c. with a competent master
d. sufficient number of competent officers and seamen
e. requisite appurtenances and equipment (ballasts, cables
and anchors, cordage and sails, food, water, fuel and lights,
and other necessary or proper stores and implements)

Sec. 126. An insurer is not liable for any loss happening to the
thing insured subsequent to an improper deviation.

Sec 118 Unseaworthiness during the Voyage

GR: It is the duty of the owner or ship captain to have the
defect repaired without unreasonable delay; otherwise the
insurer will be exonerated from liability for any loss arising
therefrom.

Effect of Improper deviation:

In case of deviation without just cause, insurer is
absolved from liability due to losses that occurred
after the deviation
LOSS

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Sec. 127-31. A LOSS may be:

1. TOTAL
a. ACTUAL total loss is caused by:
i. Total destruction of the thing
insured
ii. Irretrievable loss of the thing
iii. Damage which renders the thing
valueless
iv. Event which deprives the owner of
the possession
b. CONSTRUCTIVE total loss making
abandonment in case provided by law
2. PARTIAL loss that is not a total loss

* Nothing in this or in the preceding section shall render a

marine insurer liable for any amount in excess of the insured
value or, if there be none, of the insurable value.
gives the insurer the right to require payment of
additional premium in case of delay in prosecuting
the voyage
there is actually no extension of liability on the
insurer but what arises is a novated contract with an
increased rate of premium.
Sec. 135.
Actual Total Loss = notice of abandonment is NOT necessary
for the insured to be entitled to payment
Constructive Total Loss = abandonment is NECEssary for the
insured to be entitled to payment

Q: When is a marine insurance an indivisible contract?

A: contract covers a single shipment under one policy and
one premium, notwithstanding that subject matter is loaded
on different vessels.
Q: Determination of loss
A: Constructive total loss will be determined on the basis of
the total shipment not on the loaded on one vessel one.

Sec. 136. Where it has been agreed that an insurance upon a

particular thing, or class of things, shall be free from
particular average, a marine insurer is not liable for any
particular average loss not depriving the insured of the
possession, at the port of destination, of the whole of such
thing, or class of things, even though it becomes entirely
worthless; but such insurer is liable for his proportion of all
general average loss assessed upon the thing insured.

Sec. 132.Presumption of actual loss due to continued absence

of a ship without being heard of.
The length of time which is sufficient to raise this
presumption depends on the circumstances of the
case.

Kinds of Averages
1. SIMPLE OR PARTICULAR Average
o Includes all the expenses and damages
caused to the vessel or to her cargo which
have not inured to the common benefit and
profit of all persons interested in the vessel
and her cargo
o It is partial loss caused by a peril insured
against, which is not a general average loss
2. GENERAL or GROSS Average
o Includes all the damages and expenses
which are deliberately caused in order to
save the vessel, its cargo, or both, from real
and known risk.
o All persons having an interest in the vessel
and cargo at the same time of the
occurrence of the average shall contribute
to the average

Sec. 133. When a ship is prevented, at an intermediate port,

from completing the voyage, by the perils insured against, the
liability of a marine insurer on the cargo continues after they
are thus reshipped.
Nothing in this section shall prevent an insurer from requiring
an additional premium if the hazard be increased by this
extension of liability.
Sec. 134. In addition to the liability mentioned in the last
section, a marine insurer is bound for
a. Damages
b. expenses of discharging
c. storage
d. reshipment
e. extra freightage
f. and all other expenses incurred in saving cargo
reshipped pursuant to the last section, up to the
amount insured.
*Continuation of liability*
- insurance of the cargo shall continue and insurer is
liable even though the ship upon which the cargo insured was
loaded cannot continue the voyage due to peril insured
against and such is loaded on another vessel

Procedural and formal requirements:

Damages and expenses are deliberately caused in
order to save the vessel, its cargo, or both, from real
and known risk
There must be a resolution, entered of the captain
and after hearing the persons interested in the cargo

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If not complied, no right to claim

contribution for a general or gross average
loss

(d) If the thing insured, being cargo or freightage, and the

voyage cannot be performed, nor another ship procured by
the master, within a reasonable time and with reasonable
diligence, to forward the cargo, without incurring the like
expense or risk mentioned in the preceding sub-paragraph.
But freightage cannot in any case be abandoned unless the
ship is also abandoned.

FREE from PARTICULAR AVERAGE Clause (FPA Clause)

Stipulation by the insured and the insurer
EFFECTS:
a. If the damage is a particular average:
GR: insurer is NOT liable
XPN: in case of TOTAL loss
b. If damage is a general average:
Insurer is liable (either total or
partial loss), or for the contribution
of the insured for his proportion of
all general average losses assessed
upon the thing insured which was
saved

Effects of Abandonment in the above cases:

a. insured may recover a total loss
b. insurer acquires all the interest of the insured with
all chances of recovery and indemnity
* if insured omits to abandon, he may recover only his actual
loss

Sec. 140 - 41.

REQUISITES OF VALID ABANDONMENT:
1. total and unconditional
2. made within reasonable time after receipt of reliable
information of the loss
o information is of a doubtful character, the
insured is entitled to a reasonable time to
make inquiry
3. an explicit notice of abandonment specifying the
particular cause of abandonment must be given to
the insurer
4. proper and legal cause for abandonment
5. coupled with an actual abandonment or
relinquishment of claim of ownership by the insured
in favor of the insurer

Sec. 137.Actual Total Loss defined:

does not cover a constructive total loss
covers any loss that results in depriving the insured
of the possession or use of the entire thing insured
at the port of destination
Sec. 138.
ABANDONMENT- the act of the insured by which he declares
the relinquishment to the insurer of his interest in the thing
insured AFTER A CONSTRUCTIVE TOTAL LOSS
Effects:
Insured is surrendering to the insurer whatever is left of the
property insured and resorting to the policy for indemnity
Insurer becomes the owner of whatever remains
Insured may recover a total loss

Sec. 142.
WhenAbandonment becomes ineffectual:
a. information upon which an abandonment has been
made proves incorrect
b. the thing insured was so far restored when the
abandonment was made that there was then in fact
no total loss

Sec. 139.
What to abandon:
a. the thing insured
b. any particular portion of the thing insuredseparately
valued by the policy
c. any particular portion of the thing insuredseparately
insured

Sec. 143-44.Notice of Abandonment to insurer:

a. may oral or written.
o BUT if notice is oral, a written notice of
abandonment shall be submitted within 7
days from such oral notice.
o Unless, policy requires it to be in writing
b. must be explicit, and must specify the particular
cause of the abandonment
o need to state only that which is enough to
show that there is probable cause
o does not need to be accompanied with
proof of interest or of loss.

When to abandon in order to recover a total loss:

(a) If more than 3/4 thereof in value is actually lost, or would
have to be expended to recover it from the peril;
(b) If it is injured to such an extent as to reduce its value more
than 3/4;
(c) If the thing insured is a ship, and the contemplated voyage
cannot be lawfully performed without incurring either an
expense to the insured of more than 3/4 the value of the
thing abandoned or a risk which a prudent man would not
take under the circumstances; or

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Sec. 145.An abandonment can be sustained only upon the

cause specified in the notice thereof.

MEASURE OF INDEMNITY

Sec. 146-48.Effects of Abandonment:

a. equivalent to a transfer by the insured of
his interest to the insurer, with all the
chances of recovery and indemnity. (sec.
146)
b. If a marine insurer pays for an actual total
loss, he is entitled to whatever may remain
of the thing insured, or its proceeds or
salvage, as if there had been a formal
abandonment. (sec. 147)
c. acts done in good faith by agents of the
insured in respect to the thing insured,
subsequent to the loss, are at the risk of the
insurer and for his benefit.
Q: after abandonment of the vessel insured, the master of
ship incurred reasonable expenses to save the vessel, who is
liable for such expenses?
A: Insurer since its title over the thing abandoned became
vested as of the time of loss

Sec. 156. A valuation in a policy of marine insurance is

conclusive between the parties thereto in the adjustment of
either a partial or total loss PROVIDED:
1. the insured has some interest at risk, and
2. there is no fraud on his part;
o in case of fraud, insurer can rescind the
contract
GR: insured does not have to prove the value of the
thing insured
XPNS:
a. when a thing has been hypothecated by bottomry
or respondentia, before its insurance, and
b. without the knowledge of the person actually
procuring the insurance
(additionallang) c. thing has not been valued in the
policy, value mist be proven at the time of loss
Effect of Over-Valuation
if fraudulent, it entirely avoids the insurance
over-valuation and fraud must be alleged and clearly
proven by the insurer
honest valuation does NOT avoid the policy

Sec. 149 - 53.

Effect of properly given notice of abandonment:
rights of the insured are not prejudiced even though
insurer refuses to accept the abandonment. (sec.
149)
o Notwithstanding refusal, insurer is still
liable, as upon an actual loss, deducting
from the amount any proceeds of the thing
insured which may have come to the hands
of the insured (sec. 154)

Sec. 157. 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.
CO-INSURANCE a form of insurance in which the person
who insures his property for less than the entire value is
understood to be his own insurer for the difference which
exists between the true value of the property and the
amount of the insurance.
Always exists in marine insurance

ACCEPTANCE OF AN ABANDONMENT :
a. may be either express or implied from the conduct
of the insurer. Mere silence of insurer for an
unreasonable length of time after notice is an
acceptance (Sec. 150)
b. conclusive upon the parties (sec. 151)
c. admits the loss and the sufficiency of the
abandonment (sec. 151)
d. irrevocable UNLESS the ground upon which it was
made proves to be unfounded. (sec. 152)
e. On an accepted abandonment of a ship, freightage
earned previous to the loss belongs to the insurer of
said freightage; but freightage subsequently earned
belongs to the insurer of the ship. (sec. 153)

Requisites:
1. insurance taken is less than the actual value of the
thing insured (UNDER-INSURANCE) and
2. loss is partial
Effect:
proportionate division of risk between the insured
and the insurer
o 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 insure in the property
insured.

Sec. 155. If a person insured omits to abandon, he may

nevertheless recover his actual loss.

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(c) The value of freightage is the gross freightage, exclusive of

primage, without reference to the cost of earning it; and

Loss
Liability of insurer = ____ X Insurance
Value

(d) The cost of insurance is in each case to be added to the

value thus estimated.

*Under-insurance must be proven insurer must prove that

the value of the property insured is more than the amount of
the policy
Sec. 158. Where profits are separately insured in a contract of
marine insurance, the insured is entitled to recover, in case of
loss, a proportion of such profits equivalent to the proportion
which the value of the property lost bears to the value of the
whole.

DRAWBACK
- allowance made by the
govt upon the duties due on
imported merchandise when
the importer re-exports it
- OR the refunding such
duties if already paid

*Presumption of loss of expected profits in case of

insurance of expected profits the loss of the cargo or
property out of which profits are expected to arise

- not included in determining

the loss in marine open
policy

Sec. 159. In case of a valued policy of marine insurance on

freightage or cargo, if a part only of the subject is exposed to
the risk, the evaluation applies only in proportion to such
part.

PRIMAGE
- small allowance or
compensation payable to the
master or owner of the vessel
for the use of his cables and
ropes to discharge the goods,
and to the mariners for lading
and unlading
- not included in determining
the loss in marine open policy

Sec. 162. If cargo insured against partial loss arrives at the

port of destination in a damaged condition, the loss of the
insured is deemed to be the same proportion of the value
which the market price at that port, of the thing so damaged,
bears to the market price it would have brought if sound.

Sec. 160. When profits are valued and insured by a contract

of marine insurance, a loss of them is conclusively presumed
from a loss of the property out of which they are expected to
arise, and the valuation fixes their amount.

Sec. 163. A marine insurer is liable for all the expenses

attendant upon a loss which forces the ship into port to be
repaired; and where it is stipulated in the policy that the
insured shall labor for the recovery of the property, the
insurer is liable for the expense incurred thereby, such
expense, in either case, being in addition to a total loss, if that
afterwards occurs.

*insurer is liable to a proportion of profits equivalent to the

proportion which the value of the property lost bears to the
value of the whole when:
a. profits are separately insured, and
b. property out of which profits are expected to arise
is partially lost

SUE and LABOR CLAUSE

permitting the insured to take every means for the
recovery of property without waving his right to
abandon and to bind the insurer to reimburse the
insured for the reasonable amount of the expenses
incurred
a separate and distinct contract
Effect when included in marine policy insurer is
liable for the expense incurred by the insured in
recovering the property, which expense is an
addition to a total loss

Sec. 161.RULES in estimating a loss under an open policy of

marine insurance:
(a) The value of a ship is its value at the beginning of the risk,
plus articles or charges which add to its permanent value or
which are necessary to prepare it for the voyage insured;
(b) The value of the cargo is its actual cost to the insured,
when laden on board, or where the cost cannot be
ascertained, its market value at the time and place of lading,
adding the charges incurred in purchasing and placing it on
board, but without reference to any loss incurred in raising
money for its purchase, or to any drawback on its
exportation, or to the fluctuation of the market at the port of
destination, or to expenses incurred on the way or on arrival;

Extent of liability of insurer:

1. Actual loss and
2. All expenses, caused by a loss which forces the ship
into port to be repaired

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INSURANCE

Sec. 164. A marine insurer is liable for a loss falling upon the
insured, through a contribution in respect to the thing
insured, required to be made by him towards a general
average loss called for by a peril insured against;
PROVIDED, that the liability of the insurer shall be limited to
the proportion of contribution attaching to his policy value
where this is less than the contributing value of the thing
insured.

Sec. 166. In the case of a partial loss of ship or its equipment,

the old materials are to be applied towards payment for the
new. Unless otherwise stipulated in the policy, a marine
insurer is liable for only two-thirds of the remaining cost of
repairs after such deduction, except that anchors must be
paid in full.

FIRE INSURANCE

Sec. 165. When a person insured by a contract of marine

insurance has a demand against others for contribution, he
may claim the whole loss from the insurer, subrogating him
to his own right to contribution. But no such claim can be
made upon the insurer after the separation of the interests
liable to the contribution, nor when the insured, having the
right and opportunity to enforce the contribution from
others, has neglected or waived the exercise of that right.

Sec. 167. As used in this Code, the term "fire insurance"

shall include insurance against loss by fire, lightning,
windstorm, tornado or earthquake and other allied risks,
when such risks are covered by extension to fire insurance
policies or under separate policies.

GENERAL AVERAGE caused deliberately to save the vessel or

cargo or both from real and known risk. All persons having an
interest in the vessel and cargo at the same time of the
occurrence of the average shall contribute to the average.
If the insured is the person liable to contribute to a general
average, he may hold the insurer liable for his contribution up
to the value of the policy.

Fire Insurance-it now includes insurance against lightning,

windstorm, tornado, earthquake and other allied risks.
FIRE INSURED AGAINST: the insured is entitles to recover the
loss suffered where the cause of the damage is a hostile fire_

*Owner of the insured property that suffered a general

ave.loss may:
a. claim from other persons interested in the vessel or other
cargoes to contribute to the gen.ave.loss he suffered OR
b. demand the whole amount of the gen.ave.loss from his
insurer, in which case, the insurer shall be subrogated to the
right of the insured to contribution from the others.

One which burns at a place where it is not intended

to be
-breaks out from where it is intended to be and
becomes uncontrollable

NO RECOVERY: The fire caused the loss is friendly fire, one

which is confined within the place where it was intended to
be and employed for the ordinary purpose of lightning,
heating or manufacturing, recovery cannot be had for loss or
damage caused thereby.

GR: Insurer is NOT liable for Gen.Ave.Loss when:

a. Insured neglected or waived the right to demand
contribution from others OR
b. The insurer is being made liable after the separation
of the interests liable to contribution

Sec. 168. An alteration in the use or condition of a thing

insured from that to which it is limited by the policy made
without the consent of the insurer, by means within the
control of the insured, and increasing the risks, entitles an
insurer to rescind a contract of fire insurance.

Effects of waiver / negligence:

1. Persons liable for contribution are released from
liability
2. Insurer is deprived the right to be subrogated to the
right of the insured against the persons liable for the
contribution
3. Insurer is no longer liable on the policy

Sec. 169. An alteration in the use or condition of a thing

insured from that to which it is limited by the policy, which
does not increase the risk, does not affect a contract of fire
insurance.

*Liability of every portion of the cargo to contribute to

general average continues until it has been completely
separated from the rest of the cargo, and from the whole
adventure, so as to leave no community of interest
remaining.

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INSURANCE

Sec. 170. A contract of fire insurance is not affected by any

act of the insured subsequent to the execution of the policy,
which does not violate its provisions, even though it
increases the risk and is the cause of the loss.

There must be violation of the provisions of the

policy;
The alteration was made without the consent of the
insurer;
The alteration as made by means within the control
of the insured; and
The alteration increased the risk of loss.

policy stating substantially that the value of the insured's

interest in such building or structure has been thus fixed. In
the absence of any change increasing the risk without the
consent of the insurer or of fraud on the part of the insured,
then in case of a total loss under such policy, the whole
amount so insured upon the insured's interest in such
building or structure, as stated in the policy upon which the
insurers have received a premium, shall be paid, and in case
of a partial loss the full amount of the partial loss shall be so
paid, and in case there are two or more policies covering the
insured's interest therein, each policy shall contribute pro
rata to the payment of such whole or partial loss. But in no
case shall the insurer be required to pay more than the
amount thus stated in such policy. This section shall not
prevent the parties from stipulating in such policies
concerning the repairing, rebuilding or replacing of buildings
or structures wholly or partially damaged or destroyed.

VIOLATION OF POLICY NECESSARY: *there must be a

corresponding violation of the provision of the policy with an
increase of the risk of loss, otherwise there is no right to
rescind the policy.

MEASURE OF INDEMNITY: The expense it would be to the

insured to replace the thing lost or insured in the condition in
which it was at the time of the injury.

Alteration in the USE or CONDITION of the thing insured:

-An alteration in the use/condition of the thing insured will
entitle the insurer to RESCIND the contract of insurance
provided the ff requisites are present:
a.
b.
c.
d.

Reason: the object of prop insurance is the INDEMNITY of the

insures, thus, the insured may recover the value of the
damage at the time of loss, but in NO CASE EXCEEDING THE
MAXIMUM amount of recovery stipulated in the policy.

INCREASE IN RISK OF LOSSS NECESSARY:

When the risk was increased, the insured should pay a
premium based upon the increased risk.
When the insured does not pay the premium upon the
increased risk, the insurer is entitled to rescind the contract.

In VALUE POLCY-the valuation agreed is the conclusive

between the parties in the adjustment of loss.
INSURERS LIABILITY IN VALUED POLICY:

Sec. 171. If there is no valuation in the policy, the measure

of indemnity in an insurance against fire is the expense it
would be to the insured at the time of the commencement
of the fire to replace the thing lost or injured in the
condition in which at the time of the injury; but if there is a
valuation in a policy of fire insurance, the effect shall be the
same as in a policy of marine insurance

Total
loss
Partial
loss

the insurer shall

pay the whole
amount
full amount of
the partial loss
shall be paid

When co-insurance is provided in the fir insurance police, the

loss shall be ratably distributed between the insured and the
insurer with the following formula:

Sec. 172. Whenever the insured desires to have a valuation

named in his policy, insuring any building or structure
against fire, he may require such building or structure to be
examined by an independent appraiser and the value of the
insured's interest therein may then be fixed as between the
insurer and the insured. The cost of such examination shall
be paid for by the insured. A clause shall be inserted in such

Loss/Value x Insurance = Insurers Liability

OPTION TO REBUILD CLAUSE: The law expressly allows the
parties to agree on the repairing, rebuilding, or replacing of

36

INSURANCE

the buildings or structures, wholly or partially damaged or

destroyed.

withdrawn from the premises except in the ordinary

course of business.

When Option to Rebuild is stipulated- the insurer may

either pay the amount of loss or rebuild the building
damaged. The insurer must give notice of election to rebuild,
otherwise, it must pay the amount of the loss.

7.

Sec. 173. No policy of fire insurance shall be pledged,

hypothecated, or transferred to any person, firm or
company who acts as agent for or otherwise represents the
issuing company, and any such pledge, hypothecation, or
transfer hereafter made shall be void and of no effect
insofar as it may affect other creditors of the insured.

CASUALTY INSURANCE

Sec. 174. Casualty insurance is insurance covering loss or

liability arising from accident or mishap, excluding certain
types of loss which by law or custom are considered as
falling exclusively within the scope of other types of
insurance such as fire or marine. It includes, but is not
limited to, employer's liability insurance, motor vehicle
liability insurance, plate glass insurance, burglary and theft
insurance, personal accident and health insurance as
written by non-life insurance companies, and other
substantially similar kinds of insurance.

Any of the ff. circumstances shall constitute prima facie

evidence of arson:
1.

If the fire started simultaneously in more than one

part of the building or establishment;

2.

If the substantial amount of flammable substance or

materials stored within the building neither
necessary in the business of the offender nor for
household use.

3.

If gasoline, kerosene, petroleum or other flammable

or combustible substance or material soaked
therewith or containers thereof, or nay mechanical,
electrical chemical, or electric contrivance designed
to start a fire, or ashes or traces of any of the
foregoing are found int he ruins or premises of the
insured biding or prop.

4.

If the building or property is insured for substantially

more than its actual value at the time of the issuance
of the policy.

5.

If during the lifetime of the corresponding fir

insurance policy more than two fires have occurred
in the same or other premises owned or under
control of the offender and/or insured.

6.

If a demand for money or other valuable

consideration was made before the fire in exchange
for the desistance of the offender or for safety of the
person or property of the victim.

Casualty insurance includes insurance covering loss or liability

arising from accident or mishap other than those within the
scope of other types of insurance. It includes the ff:

If shortly before the fire, a substantial portion of the

effects insured and a building or property had been

37

1.

Employers liability and workmens insurance in

which the risk insured against is the liability of the
assured to make compensation or pay damages for
an accident, injury, or death, occurring to a servant
or other employee, in the course of his employment
under statues imposing such liability on employees.

2.

Public utility insurance which indemnifies against

liability on account of injuries to the person or
property of another. It may extend to automobiles,
elevators, fly wheels, libel, theatres, and vessels.

3.

Motor vehicle liability insurance which is a contract

of insurance against assenger and third-party liability
for death or bodily injures and damage to property
srising from, motor vehicle accidents.

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4.

Plate glass insurance which is an insurance against

loss from accidental breaking of plate-glass, doors,
show-cases, etc.

5.

Burglary and theft insurance which is an insurance

against loss of property by the depredations of
burglars and thieves.

6.

Personal accident insurance which is a form of

insurance which undertakes to indemnify the
assured against expense, loss of time, and suffering
resulting from accidents causing him physically
injury, usually by payment at a fixed rate per week
while the consequent disability lasts, and sometimes
including the payment of a fixed sum to his heirs in
case by his death by accident within the term of the
policy.

7.

SURETYSHIP

Sec. 175. A contract of suretyship is an agreement whereby

a party called the surety guarantees the performance by
another party called the principal or obligor of an obligation
or undertaking in favor of a third party called the obligee. It
includes official recognizances, stipulations, bonds or
undertakings issued by any company by virtue of and under
the provisions of Act No. 536, as amended by Act No. 2206.

SURETY
Is the insurer of the debt
Undertakes to pay if
principal does not pay
Does not have such right

the

Health insurance which is an indemnity to persons

for expense and loss of time occasioned by disease.
Comparison:
Life insurance
Object: to provide a fund
for the benefit of the
estate or the heirs or
beneficiaries
of
the
insured after the latters
death

Accident and Health

Insurance
Usual
purpose:
to
protect against not a
loss of life but a loss of
time, earning capacity
and expenses.

When one of the risks insured in an accident

insurance is the death of the insurance by
accident, then such insurance may also be
regarded as life insurance.

Motor vehicle insurance: it should also cover the

liability for death of, or bodily injuries to,
rd
passengers and 3 parties.

The obligation of the surety is

primary

GUARANTOR
Is the insurer of the
solvency of the debtor
Binds himself to pay if the
principal is unable to pay
Cannot be compelled to
pay the creditor unless the
latter has exhausted all the
property of the debtor and
has resorted o all the legal
remedies
against
the
debtor
The obligation of the
guarantor is secondary

Alike: that each promises to answer for the debt or default of

another
Sec. 176. The liability of the surety or sureties shall be joint
and several with the obligor and shall be limited to the
amount of the bond. It is determined strictly by the terms of
the contract of suretyship in relation to the principal
contract between the obligor and the obligee. (As amended
by Presidential Decree No. 1455).
Obligation: joint and several liability
INTERPRETATION in CASE OF DOUBT: a surety contained in a
form prepared by the compensated surety must be construed
against the surety and in favour of the promisee or construed
in the same manner as contracts of insurance.

Accidental bodily injury: death due to

gastroenteritis or gastrointestinal allergy, or
unknowingly eating food harmful to the insured
comes within the coverage of an insurance
policy providing for death from accidental bodily
injury.

Rationale of this doctrine:

1.

38

Unlike the private surety, the corporate surety signs

for cash and not for friendship. The private surety is

INSURANCE

regarded as someone doing a rather foolish act for

praiseworthy motives; the corporate surety, to the
contrary, is in business to make profit and charges a
premium depending upon the amount of guaranty
and the risk involved.
2.

The corporate surety, like an insurance company,

prepares the instrument, which is a type of contract
of adhesion, whereas the private surety usually does
not prepare the note or bond which he signs.

3.

The obligation of the private surety is often assumed

on the basis of the debtors representations and
without legal advice, while the corporate surety does
not bind itself a full investigation.

GR: payment of premium is a condition precedent for the

validity of suretyship contract or bond and, therefore, unless
and until the premium is paid, the suretyship contract or
bond is not valid.
XPN: when a bond or suretyship contract is issued, and
accepted by the oblige or creditor, said bond or contract shall
be valid and binding notwithstanding the non-payment of
premium.
WHEN SURETY ENTITLED TO SERVICE FEE ONLY:

SURETYS RIGHT TO COLLECT:

The surety can demand payment from the principal
upon the latters default even before the former has
paid the creditor.
Sec. 177. The surety is entitled to payment of the premium
as soon as the contract of suretyship or bond is perfected
and delivered to the obligor. No contract of suretyship or
bonding shall be valid and binding unless and until the
premium therefor has been paid, except where the obligee
has accepted the bond, in which case the bond becomes
valid and enforceable irrespective of whether or not the
premium has been paid by the obligor to the surety:
Provided, That if the contract of suretyship or bond is not
accepted by, or filed with the obligee, the surety shall
collect only reasonable amount, not exceeding fifty per
centum of the premium due thereon as service fee plus the
cost of stamps or other taxes imposed for the issuance of
the contract or bond: Provided, however, That if the nonacceptance of the bond be due to the fault or negligence of
the surety, no such service fee, stamps or taxes shall be
collected.

The surety shall be entitled only to a reasonable

service fee in an amount not exceeding 50% of the
premium due, plus the cost of stamps and other
taxes imposed for the issuance of the bond, in the ff
cases:

a.

When the contract of suretyship or bond is not

accepted by the oblige; or

b.

When the contract of suretyship or bond is not filed

with the oblige.

*If it is due to negligence or fault of the surety, no service fee,

stamps or taxes can be collected.
Sec. 178. Pertinent provisions of the Civil Code of the
Philippines shall be applied in a suppletory character
whenever necessary in interpreting the provisions of a
contract of suretyship.
LIFE INSURANCE

Sec. 179. Life insurance is insurance on human lives and

insurance appertaining thereto or connected therewith.
Sec. 180. An insurance upon life may be made payable on
the death of the person, or on his surviving a specified
period, or otherwise contingently on the continuance or
cessation of life.

In the case of a continuing bond, the obligor shall pay the

subsequent annual premium as it falls due until the contract
of suretyship is cancelled by the obligee or by the
Commissioner or by a court of competent jurisdiction, as the
case may be.

Every contract or pledge for the payment of endowments or

annuities shall be considered a life insurance contract for
purpose of this Code.

39

INSURANCE

insurer for a specified period, or for the end of

the period, the performance of the insureds
obligation being secured by mortgage or deed of
trust.

In the absence of a judicial guardian, the father, or in the

latter's absence or incapacity, the mother, or any minor,
who is an insured or a beneficiary under a contract of life,
health or accident insurance, may exercise, in behalf of said
minor, any right under the policy, without necessity of court
authority or the giving of a bond, where the interest of the
minor in the particular act involved does not exceed twenty
thousand pesos. Such right may include, but shall not be
limited to, obtaining a policy loan, surrendering the policy,
receiving the proceeds of the policy, and giving the minor's
consent to any transaction on the policy.

f.

COURT AUTHORITY NOT NECESSARY-when the amount does

not exceed 20,000, in order that the minors father, or in his
absence or incapacity, the mother may exercise any right in
behalf of the minor, suach as obtaining a policy loan, or given
the minors consent to any transaction on the policy.

Tontine insurance is a form of life insurence by

which the policyholder agrees, in common with
the other policyholders under the same plan,
that no dividends, return premium, or surrender
value shall be received for a term of years called
the tontine period. The entire surplus from all
sources being allowed to accumulate to the end
that period, and then divided among all who
have maintained their insurance in force and
who survived.

ANNUITY-is a contract to pay insured, or a named person/s a

sum periodically during a life or a certain period.

USUAL KIND OF LIFE INSURANCE:

a.

General, ordinary or old line life insurance is

that in which for a fixed premium payable,
without condition, at stated intervals, a sum
certain is to be paid on death, without
condition.

b.

Limited payment life insurance is that form

under which specified premiums are to be paid
for a specified period or until the death of
insured it it occurs before the expiration of such
period, and of the insured.

c.

Endowment insurance is a contract to pay a

certain sum to the insured if he lives a certain
length of time, or if he dies before that time, to
some other person indicated as beneficiary

d.

Term life insurance is insurance for a term of

years only, or until insured shall have arrived at
a certain age.

e.

ANNUITY
Payable during the lifetime
of the annuitant
Pays a single premium
The insurer undertakes to
pay annuities until the death
of the annuitant

LIFE INSURANCE
Payable upon the death of
the insured
Pays premium by instalment
The insurer pays a lump sum
upon death of the insured

LIFE INSURANCE WHILE IN MILITARY SERVICE: The insurer

may be validly exempt when the insured dies while engaged
in naval or military service in the time of war.
WHERE ASSAULT OR MURDER EXCLUDED: when the death of
the insured is by assault or murder or intentional killing is
excepted from its coverage, the mere fact that the insured
suffered a violent death by the hands of another person will
not necessary relieve the insurer liability.
Insurers liability: will depend on whether the insureds death
was intended or not.
If intentionally killed by another person= insurer is not liable.
If the insured was not an intended victim of felonious
assault= the insurer is still liable.
WHERE INSURED EXCECUTED FOR CRIME: a policy of life
insurance does not insure against the legal execution of the
insured for a crime even though he may in fact have been

Advance insurance is a contract which provides

for the payment to the insured of a lump sum
immediately, in consideration of his agreement
to make certain periodical payments to the

40

INSURANCE

innocent, and therefore unjustly convicted and executed, and

furthermore, it is against public policy.

has no application to his self-destruction due to the

misfortune of insanity.

Sec. 180-A. The insurer in a life insurance contract shall be

liable in case of suicides only when it is committed after the
policy has been in force for a period of two years from the
date of its issue or of its last reinstatement, unless the policy
provides a shorter period: Provided, however, That suicide
committed in the state of insanity shall be compensable
regardless of the date of commission. (As amended by
Batasang Pambansa Blg. 874).

-Still liable when suicide is committed while insane.

-If the policy covers suicide after the lapse of the
incontestable clause either in express terms or by
implication from the terms of the IC, the insurer is
still liable for suicide committed after expiration of
the period of incontestability, but not for suicide
committed within the stated period of contestability.

SUICIDE: The views then may be viewed as follows:

1.

BURDEN OF PROOF: The party alleging suicide as a defence,

especially in actions involving insurance policies to prove it by
clear and convincing proof.

Not expressly stated whether suicide is excepted in

the policy or covered therein, a distinction should be
made whether suicide was committed while the
insured is:

WHEN PROCEEDS ARE CONJUGAL:

Insane---- the insurer is liable on his contract as insanity is

one of the diseases to which the insurer must have known
that the insured was susceptible.

-Premiums were paid thru conjugal partnership, thus, the

proceeds of the life insurance payable to the insureds estate
constitute a conjugal property and belong to to the
husband exclusively and the other half to the wife.

Sane------the following views must have been advances:

a.

b.

2.

- If paid partly with conjugal funds, the proceeds are like in

proportion paraphernal or separate property and conjugal.

st

1 view: LIABLE since the suicide is one

of the risks assumed by the insured
unless it is by express terms excepted;
nd
2 view: the insurer is not liable
because:
i.
Even in the absence of an
express exception of sane
suicide in any contract of the
insurance, such as exception is
to be implied. It inherent and
fundamental apart of every
such contract that the insured
shall not intentionally take his
own life.
ii.
It is against public policy to
allow recovery in case of
suicide while sane.

- if proceeds are payable to an irrevocable beneficiary,

proceeds shal belong exclusively to the beneficiary even if
paid out of conjugal funds.
Sec. 181. A policy of insurance upon life or health may pass
by transfer, will or succession to any person, whether he has
an insurable interest or not, and such person may recover
upon it whatever the insured might have recovered.
Sec. 182. Notice to an insurer of a transfer or bequest
thereof is not necessary to preserve the validity of a policy
of insurance upon life or health, unless thereby expressly
required.

Expressly stated that suicide is excepted from the

coverage, such exception is generally considered to
refer only to suicide of the insured while sane, and

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ASSIGNMENT
Rest on contract
Must be supported by a
consideration
With the consent of the
beneficiary where the latter
was designated irrevocably
or even without consent of
the revocable beneficiary,
extinguishes the interest of
the beneficiary since the
assignment has the effect of
change of beneficiary

insurance procured by a creditor on the life of the debtor, life

insurance of such nature is a contract of indemnity.

CHANGE OF BENEFICIARY
Exercise of a power of
appointmnet
Must not be based on a valid
consideration

COMPULSORY MOTOR VEHICLE LIABILITY

INSURANCE

Section 373. For purposes of this chapter:

(a) "Motor Vehicle" is any vehicle as defined in section three,
paragraph (a) of Republic Act Numbered Four Thousand One
Hundred Thirty-Six, Otherwise known as the "Land
Transportation and Traffic Code."

Notice not required by the policy: if the policy does not

expressly required the insured to give notice of an
assignment or transfer to the insurer, such notice is not
essential to the validity of the assignment.

(b) "Passenger" is any fare paying person being transported

and conveyed in and by a motor vehicle for transportation of
passengers for compensation, including persons expressly
authorized by law or by the vehicle's operator or his agents to
ride without fare.

Notice required by the policy: an assignment without such

notice, in the absence of waiver, shall have no effect so far as
the insurer is concerned. Thus, the insurer without notice is
relieved of any responsibility in case of payment is made to
the beneficiary before receipt by the insurer of the notice.

(c) "Third-Party" is any person other than a passenger as

defined in this section and shall also exclude 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, as likewise defined herein, or
his employee in respect of death, bodily injury, or damage to
property arising out of and in the course of employment. (As
amended by Presidential Decree No. 1814 and 1981)

However, without notice, the assignment is still binding

between the assignee and the assignor (insured).

(d) "Owner" or "Motor vehicle owner" means the actual legal

owner of a motor vehicle, in whose name such vehicle is duly
registered with the Land Transportation Commission;

Sec. 183. Unless the interest of a person insured is

susceptible of exact pecuniary measurement, the measure
of indemnity under a policy of insurance upon life or health
is the sum fixed in the policy.

(e) "Land transportation operator" means the owner or

owners of motor vehicles for transportation of passengers for
compensation, including school buses;

Life insurance is valued policy in the sense that the sum

payable to the beneficiary is the amount specified in the
policy.

(f) "Insurance policy" or "Policy" refers to a contract of

insurance against passenger and thirty-party liability for
death or bodily injuries and damaged to property arising from
motor vehicle accidents. (As amended by Presidential Decree
No. 1455 and 1814)

This is a consequence of the rule that life insurance is not a

contract of indemnity and since the value of life lost could not
be ascertained, the amount of the policy should be paid.

Section 374. It shall be unlawful for any land transportation

operator or owner of a motor vehicle to operate the same in
the public highways unless there is in force in relation thereto
a policy of insurance or guaranty in cash or surety bond
issued in accordance with the provisions of this chapter to
indemnify the death, bodily injury, and/or damage to
property of a third-party or passenger, as the case may be,

When the insurable interest is susceptible of pecuniary

estimation of measurement, then the amount of the loss
suffered should be the basis of payment, as in the case of

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arising from the use thereof. (As amended by Presidential

Decree No. 1455 and 1814)

depend on the recovery of judgment by the injured

party against the insured.

Section 375. The Commissioner shall furnish the Land

Transportation Commissioner with a list of insurance
companies authorized to issue the policy of insurance or
surety bond required by this chapter. (As amended by
Presidential Decree No. 1814)

Note: SC held that there is no need for the insured to

wait for the decision of the court finding the person
guilty of reckless imprudence before filing a case
against the insurer. The occurrence of the injury to
the third party immediately gives rise to the liability
of the insurer under its policy.

COMPULSORY MOTOR VEHICLE LIABILITY INSURACE:

INSURER NOT SOLIDARILY LIABLE WITH INSURED:
-

It is unlawful for any land transportation operator or

owner of a motor vehicle to operate the same in
highways unless there is:

GR: While it is true that where the insurance

rd
contract provides for indemnity against liability to 3
persons can directly sue the insurer

a.
b.
c.

XPN: the direct liability of the insurer under the

contract does not mean that the insurer can be held
solidarily liable with the insured and/or other parties
found at fault. Liability of the insured is based on
contract.

Note: SC held that the insurer cannot be held liable

in solidum with the insured or other parties found at
fault. The liability of the insurer is based on contract;
that of the insured carrier or vehicle owner is based
on tort.

Policy insurance
Guaranty in cash
Surety bond to indemnify the death or injured
rd
3 person or passenger
rd
Property damage to 3 parties is no longer included
in the compulsory motor vehicle liability insurance
Motor vehicle cannot be registered nor the
registration renewed with the LTO office unless such
motor vehicle is covered by insurance, cash deposit
or surety bond.

RIGHT TO SUE INSURER:

-

The injured party to whom the contract of insurance

is intended can directly sue the insurer

The general purpose of the statute is to protect

injured persons against the insolvency of the insured
who causes such injury and to give such injured
person a certain beneficial interest in the proceeds
of the policy and the statute are to be LIBERALLY
construes so that their intended person may be
accomplished.

Section 376. The Land Transportation Commission shall not

allow the registration or renewal of registration of any motor
vehicle without first requiring from the land transportation
operator or motor vehicle owner concerned the presentation
and filing of a substantiating documentation in a form
approved by the Commissioner evidencing that the policy of
insurance or guaranty in cash or surety bond required by this
chapter is in effect. (As amended by Presidential Decree No.
1455)
Section 377. Every land transportation operator and every
owner of a motor vehicle shall, before applying for the
registration or renewal of registration of any motor vehicle,
at his option, either secure an insurance policy or surety bond
issued by any insurance company authorized by the
Commissioner or make a cash deposit in such amount as
herein required as limit of liability for purposes specified in
section three hundred seventy-four.

rd

Liability of the insurer to 3 person is based on

rd
CONTRACT, while liability of the insured to the 3
party is based on TORT.

WHEN LIABILITY ACCRUES:

-

(1) In the case of a land transportation operator the insurance

guaranty in cash or surety bond shall cover liability for death
or bodily injuries of third-parties and/or passengers arising
out of the use of such vehicle in the amount not less than

It accrues immediately upon the occurrence of the

injury upon which the liability depends, and does not

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twelve thousand pesos per passenger or third party and an

amount, for each of such categories, in any one accident of
not less than that set forth in the following scale

I. Private Cars

(a) Motor vehicles with an authorized capacity of

twenty-six or more passengers: Fifty thousand
pesos;

(a) Bantam

20k pesos

(b) Light

20k pesos

(c) Heavy

30k pesos

II. Other Private Vehicles

(a) Tricycles,
scooters

(b) Motor vehicles with an authorized capacity of

from twelve to twenty-five passengers: Forty
thousand pesos;

motorcyles,

and : 12k pesos;

(b) Vehicles with an unladen : 20k pesos;

weight of 2,600 kilos or less
(c) Vehicles with an unladen : 30k pesos;
weight of between 2,601 kilos and
3,930 kilos

(c) Motor vehicles with an authorized capacity of

from six to eleven passengers: Thirty thousand
pesos;

(d) Vehicles with an unladen

weight over 3,930 kilos

(d) Motor vehicles with an authorized capacity of

five or less passengers: Five thousand pesos
multiplied by the authorized capacity.

: 50k pesos.

The Commissioner may, if warranted, set forth schedule of

indemnities for the payment of claims for death or bodily
injuries with the coverages set forth herein. (As amended by
Presidential Decree No. 1455 and 1814)

Provided, however, That such cash deposit made to,

or surety bond posted with, the Commissioner shall be
resorted to by him in cases of accidents the indemnities for
which to third-parties and/or passengers are not settled
accordingly by the land transportation operator and, in that
event, the said cash deposit shall be replenished or such
surety bond shall be restored with sixty days after
impairment or expiry, as the case may be, by such land
transportation operator, otherwise, he shall secure the
insurance policy required by this chapter. The aforesaid cash
deposit may be invested by the Commissioner in readily
marketable government bonds and/or securities.

Section 378. Any claim for death or injury to any passenger or

third party pursuant to the provisions of this chapter shall be
paid without the necessity of proving fault or negligence of
any kind; Provided, That for purposes of this section
(i) The total indemnity in respect of any person shall
not exceed five thousand pesos;
(ii) The following proofs of loss, when submitted
under oath, shall be sufficient evidence to
substantiate the claim:
(a) Police report of accident and
(b) Death certificate and evidence sufficient
to establish the proper payee or
(c) Medical report and evidence of medical
or hospital disbursement in respect of
which refund is claimed;

(2) In the case of an owner of a motor vehicle, the insurance

or guaranty in cash or surety bond shall cover liability for
death or injury to third parties in an amount not less than
that set forth in the following scale in any one accident:

(iii) Claim may be made against one motor vehicle

only. In the case of an occupant of a vehicle, claim
shall lie against the insurer of the vehicle in which
the occupant is riding, mounting or dismounting
from. In any other case, claim shall lie against the
insurer of the directly offending vehicle. In all cases,
the right of the party paying the claim to recover
against the owner of the vehicle responsible for the
accident shall be maintained.

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NO FAULT INDEMNITY:
-

not occupants of the bus, they cannot claim such

indemnity from the insurer of the bus.

An insurer may be held liable under the no fault

indemnity provision without the necessity of
proving fault or negligence of any kind provided the
following requisites are present:

SUFFICIENT PROOF OF LOSS:

-

a.
b.
c.

The claim is for DEATH or INJURY to any

rd
passenger or 3 party
The total indemnity in respect of any one person
does not exceed 50,000
The necessary PROOF OF LOSS under oath to
substantiate the claim must be submitted

The following proofs of loss when submitted under

oath shall be sufficient evidence to substantiate the
claim.
a.
b.
c.

RULES ON CLAIMS UNDER THIS PROVISION:

-

Proof of fault or negligence is not necessary for

payment of any claim for death or injury to a
passenger or a third person are established:
a.
b.

c.

d.

Police report of the accident

Death certificate and evidence sufficient to
establish the proper payee
Medical
Report
and
evidence
of
medical/hospital disbursement of which refund
is claimed

Note: Where claim exceeds 5,000, the insurance

company shall pay only 5,000 without prejudice to
claimant from pursuing further claims.

Claim may be made against one motor vehicle

only.
If victim is an occupant of a vehicle, claim shall
be against the insurer of the vehicle in which he
is riding, mounting or dismounting from.
In other case (victim is not an occupant of a
vehicle), claim shall lie against the insurer of the
directly offending vehicle
In all cases, right of the party paying the claim to
recover against the owner of the vehicle
responsible for the accident shall be maintained.

RIGHT OF INSURER PAYING NO FAULT INDEMNITY:

-

Right of the party paying the claim to recover against

the owner of the vehicle responsible for the accident
shall be maintained.

It is of no moment that the vehicle insured is not the

one that caused the accident, since the law provides
that the insurer paying the claim may recover from
the owner of the vehicle responsible for the
accident.

Purpose of No fault indemnity: to provide the victims

or their heirs immediate compensation, although in
a limited amount, pending final determination of
who is responsible for the accident and liable for the
victims injury or death.

DISTINGUISH: Occupant, Third Party and Passenger

a.

b.

c.

rd

Occupant includes both a passenger and a 3

party, so long as they are riding in or mounting or
dismounting from a motor vehicle.
Passenger any fare paying person being
transported and conveyed in and by a motor vehicle
for transportation of passengers for compensation
and those authorized by law to ride without fare (eg.
Operator or his agent)
Third party any person other than a passenger is a
rd
3 person.

Section 379. No land transportation operator or owner of

motor vehicle shall be unreasonably denied the policy of
insurance or surety bond required by this chapter by the
insurance companies authorized to issue the same,
otherwise, the Land Transportation Commission shall require
from said land transportation operator or owner of the
vehicle, in lieu of a policy of insurance or surety bond, a
certificate that a cash deposit has been made with the
Commissioner in such amount required as limits of indemnity
in section three hundred seventy-seven to answer for the
passenger and/or third-party liability of such land
transportation operator or owner of the vehicle.

Note: SC held that plaintiffs are not free to choose from

which insurer they will claim the no fault indemnity. By
using the word shall the law makes it mandatory that
the claim be made against the insurer of the vehicle in
which the occupant is riding, mounting or dismounting
from. Irrespective whether or not fault or negligence lies
with the driver of the Superlines bus, as plaintiffs were

45

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Section 383. In the settlement and payment of claims, the

indemnity shall not be availed of by any accident victim or
claimant as an instrument of enrichment by reason of an
accident, but as an assistance or restitution insofar as can
fairly be ascertained.

No insurance company may issue the policy of insurance or

surety bond required under this chapter unless so authorized
under existing laws.
The authority to engage in the casualty and/or surety lines of
business of an insurance company that refuses to issue or
renew, without just cause, the insurance policy or surety
bond therein required shall be withdrawn immediately. (As
amended by Presidential Decree No. 1455 and 1814)

DRIVERS LICENCE USUALLY REQUIRED:

-

Section 380. No cancellation of the policy shall be valid unless

written notice thereof is given to the land transportation
operator or owner of the vehicle and to the Land
Transportation Commission at least fifteen days prior to the
intended effective date thereof.

It is a common practice of the insurers to provide in

the policy that the authorized drivers of the vehicle
insured are the insured himself, or a person
permitted or ordered by him to drive who has a
license to do so.

DRIVERS LICENSE PRESUMED GENUINE:

Upon receipt of such notice, the Land Transportation

Commission, unless it receives evidence of a new valid
insurance or guaranty in cash or surety bond as prescribed in
this chapter, or an endorsement of revival of the cancelled
one, shall order the immediate confiscation of the plates of
the motor vehicle covered by such cancelled policy. The same
may be re-issued only upon presentation of a new insurance
policy or that a guaranty in cash or surety band has been
made or posted with the Commissioner and which meets the
requirements of this chapter, or an endorsement or revival of
the cancelled one. (As amended by Presidential Decree No.
1455)

A drivers license that bears all the earmarks of duly

issued license is a public document which is
presumed genuine.

NOTE: SC held that the insurance policy shall be

liberally interpreted in favor of the insured and
against the insurer. A driver license that bears all the
earmarks of duly issued license is a public document
which is presumed genuine. Mere certification by an
agency of the Motor Vehicle Office does not
disprove the presumption.

PURPOSE OF AUTHORIZED DRIER CLAUSE:

Section 381. If the cancellation of the policy or surety bond is

contemplated by the land transportation operator or owner
of the vehicle, he shall, before the policy or surety bond
ceases to be effective, secure a similar policy of insurance or
surety bond to replace the policy or surety bond to be
cancelled or make a cash deposit in sufficient amount with
the Commissioner and without any gap, file the required
documentation with the Land Transportation Commission,
and notify the insurance company concerned of the
cancellation of its policy or surety bond. (As amended by
Presidential Decree No. 1455)

To assure that the persons other than the insured

owner, who drive the car on the insureds order,
such as family member, employee, agent are duly
licensed drivers and have no disqualification to drive
a motor vehicle.

EFFECT OF EXPIRED DRIVERS LICENSE:

Section 382. In case of change of ownership of a motor

vehicle, or change of the engine of an insured vehicle, there
shall be no need of issuing a new policy until the next date of
registration or renewal of registration of such vehicle, and
provided that the insurance company shall agree to continue
the policy, such change of ownership or such change of the
engine shall be indicated in a corresponding endorsement by
the insurance company concerned, and a signed duplicate of
such endorsement shall, within a reasonable time, be filed
with the Land Transportation Commission.

46

The insurer is not liable where it is shown that the

drivers license has already expired at the time of the
accident.

Renewal of the license one week after the accident

does not cure the deficiency or revalidate the license
which already expired.

NOTE: SC held that insurer is not liable because the

drivers permit to drive under the Traffic Violation
Report (ticket) had expired. The expiration bars
recovery under the policy as the driver is not
considered an authorized driver

INSURANCE

AUTHORITY OF DRIVER NOT AFFECTED BY UNAUTHORIZED

TRIP:
When the driver is authorized to drive, the fact that
the purpose of the trip was not authorized will not
affect the right of the owner-insured to recover from
the insurer should the vehicle be damaged during
the unauthorized trip.

WHEN LICENSE TO DRIVE NOT NECESSARY:

-

If the insured himself is the driver of the vehicle

insured, he has the right to recover the damage,
even if he has no license or the same had expired at
the time of the accident.

NOTE: SC held that the driver of the insured vehicle

at the time of the accident was the insured himself,
hence, an authorized driver under the policy. While
it is true that the law prohibits a person from driving
without a license or an expired license, an infraction
of the Motor Vehicle Law on the part of the insured,
is not a bar to recovery under the insurance
contract.

LIABILTY FOR FRANCHISE AND DEPRECIATION COSTS:

-

The insurer may not impose upon the owner the

payment of the policy franchise and a percentage on
the depreciation cost of the damaged car covered by
the insurance, in the absence of a provision in the
policy stipulating such payment.

DECLARATION OF INSURED CAR AS TOTAL LOSS:

-

Also, when a motor vehicle is covered by a

comprehensive policy that includes theft, the insurer
is liable for the damage to the motor vehicle in case
such damage is sustained on the occasion of or while
the theft is being committed even if thief is not
licensed to drive.

When the thief had expired license when the car

insured was stolen, the insurer is still liable because
there is no casual connection between the
possession of a valid license and the loss of a vehicle.

NOTE: SC, the taking of the vehicle by another

person without the permission of the owner is
sufficient to place it within the word theft as
contemplated in the policy, thus, compensable.

NOTE: The act of the gasoline boy in taking the car

for a joy ride constitutes theft and recovery of the
damage to the car is not barred by the illegal use of
it. Thus, insurer is liable.

NOTE: SC held that the declaration of the car as a

total loss is legal and valid considering the
unreasonable delay in the settlement of plaintiffs
claim under the policy. If the insured cannot use his
car because of the insurers act, then the car is as
good as lost and consequently, the latters liability
under the insurance contract arises.

When the insured accepts settlement, the insurer

could no longer be subrogated to the rights of the
insured as against the tortfeasor.

Section 384. Any person having any claim upon the policy
issued pursuant to this chapter shall, without any
unnecessary delay, present to the insurance company
concerned a written notice of claim setting forth the amount
of his loss, and/or the nature, extent and duration of the
injuries sustained as certified by a duly licensed physician.
Notice of claim must be filed within six months from date of
the accident, otherwise, the claim shall be deemed waived.
Action or suit for recovery of damage due to loss or injury
must be brought, in proper cases, with the Commissioner or
the Courts within one year from date of accident, otherwise,
the claimant's right of action shall prescribe. (As amended by
Presidential Decree 1814)

UNAUTHORIZED USE:
Unauthorized use of a motor vehicle for a joy-ride
constitutes theft and prior criminal conviction is not
necessary to enable the insured in a comprehensive
policy to recover from the insurer.

The insured may declare the car insured as a total

loss where there is an unreasonable delay in the
settlement of his claim.

EFFECT OF SETTLEMENT BETWEEN INSURED AND GUILTY

PARTY:

In case the insurance does not include theft, then

the driver of the vehicle, if a person other than the
owner must be duly licensed to drive, otherwise,
insurer is not liable.

47

As amended by BP 874, by providing that the period

of prescription should be counted from the date of

INSURANCE

denial of the claim by the insurer instead counting

the period from the date of the accident.

vehicle liability insurance where the amount

involved does not exceed 100,000.

Section 385. The insurance company concerned shall

forthwith ascertain the truth and extent of the claim and
make payment within five working days after reaching an
agreement. If no agreement is reached, the insurance
company shall pay only the "no-fault" indemnity provided in
section three hundred seventy-eight without prejudice to the
claimant from pursuing his claim further, in which case, he
shall not be required or compelled by the insurance company
to execute any quit claim or document releasing it from
liability under the policy of insurance or surety bond issued.
(As amended by Presidential Decree No. 1455)

b.

Action to enforce Claim must be filed within 1

year from denial of the claim.

Failure to submit the notice of claim with the period

provided by law shall release the insurer from
liability.
a.

If notice of claim is not filed within 6 months

from date of accident = claim shall be deemed
WAIVED.

b.

If action to enforce claim is not filed within 1

year from date of denial of the claim = right of
action shall PRESCRIBE.

Section 389. Whenever any violation of the provisions of this

chapter is committed by a corporation or association, or by a
government office or entity, the executive officer or officers
of said corporation, association or government office or
entity who shall have knowingly permitted, or failed to
prevent, said violation shall be held liable as principals.

Sec.384 has been applied to a personal accident

insurance and hence, the claim must be filed within
6 months from date of the accident.

JURISDICTION:
-

Such original jurisdiction is concurrent with that of

the MeTC, MTC and MCTC.

Section 388. Any land transportation operator or owner of

motor vehicle or any other person violating any of the
provisions of the preceding sections shall be punished by a
fine of not less than five hundred pesos but not more than
one thousand pesos and/or imprisonment for not more than
six months. The violation of section three hundred seventyseven by a land transportation operator shall be a sufficient
cause for the revocation of the certificate of public
convenience issued by the Board of Transportation covering
the vehicle concerned.

EFFECT OF ABSENCE OR DELAY IN FILING CLAIMS OR

ACTIONS:
-

Section 387. No government office or agency having the duty

of implementing the provisions of this chapter nor any official
or employee thereof shall act as agent in procuring the
insurance policy or surety bond provided for herein. The
commission of an agent procuring the said policy or bond
shall in no case exceed ten per centum of the amount of the
premiums therefor.

PERIOD TO FILE CLAIMS AND ACTIONS:

Notice of Claim must be filed within 6 months
from date of the accident.

Insurance Commission has ORIGINAL jurisdiction to

adjudicate and settle insurance claims and
complaints where the claims amount does not
exceed 100,000.

Section 386. It shall be unlawful for a land transportation

operator or owner of motor vehicle to require his or its
drivers or other employees to contribute in the payment of
premiums.

In case of any dispute in the enforcement of the provisions of

any policy issued pursuant to this chapter, the adjudication of
such dispute shall be within the original and exclusive
jurisdiction of the Commissioner, subject to the limitations
provided in section four hundred sixteen.

a.

Insurance Commissioner and the courts have

CONCURRENT jurisdiction over action for recovery of
damage due to loss or injury covered by motor

48