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A2015 | Prof. D. M.

Sanchez

Chapter I
Introduction
By Claire

A. Concept
- A contract of insurance is any contract by which one
of the parties, for a valuable consideration, known as
a premium, assumes a risk of loss or liability that rests
upon the other, pursuant to a plan for the distribution
of such risk.
- It is usually an agreement by which one party, for a
consideration, promises to pay money or its
equivalent, or to do an act valuable to the insured,
upon the destruction, loss, or injury of something in
which the other party has an interest.
- Contracts by which indemnity is promised under a
distributive scheme against loss or detriment that may
be suffered by reason of specified contingencies

B. Function and Purpose

Indemnity for loss
The main function of insurance is to provide
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compensation or indemnity for a loss which a person
may suffer due to the happening of a designated
event, which may be either contingent or uncertain as
to the time of its occurrence.
It is based on the concept of pooling the resources of a
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big group of persons to compensate the few among
them who may suffer some loss from the accidental
occurrence of disastrous events.
The effect is to spread, in an equitable manner, the
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loss which would normally fall upon a single individual
among the members of a large group exposed to the
same risks.

Risk Distributing Device
A contract of insurance is fundamentally a risk-
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distributing device.
It equitably distributes losses out of a general fund
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contributed by all.
The device of insurance serves to distribute the risk of
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economic loss among as many possible of those who
are subject to the same kind of risk.
Each
member contributes toward compensation for
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losses suffered by any member, by paying a pre-
determined amount into a general fund, out of which
payment will be made.
It provides protection against absorbing ones losses
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alone.
The member has no way of knowing in advance
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whether he will receive compensation more than he

contributes or whether he will merely be paying for


the losses of others in the group.
The primary goal is to exchange the gamble of doing it
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alone (whereby one could either escape all the losses
or suffer a loss that might be devastating) to pay a
fixed amount into the fund, knowing that the amount
is the maximum he will lose on account of the
particular type of risk insured against.

Functions (DE LEON)
1. Principal Function
The main Function of insurance is risk-bearing. The
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financial losses of the few a equitably distributed over
the many out of a fund contributed by all.

2. Subsidiary Functions
a. Stimulates business enterprises
Insurance has made possible, and helps to maintain,
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the present-day large-scale commercial and industrial
organizations.
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Encourages business efficiency and enterprise
The natural result of the elimination of risk is an
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increase in business efficiency.

b. Promotes loss-prevention
The community would suffer much greater economic
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impoverishment through material losses if it were not
for he loss-prevention measures of insurers.

c. Encourages savings
By protecting the individual against unforeseen events,
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insurance provides a climate in which savings are
encouraged.

d. Solves Social Problems
The effect of the concurrent operation of social
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(government) insurance and free enterprise insurance
is that compensation is available to victims of loss or
injuries, while the financial difficulties arising from old
age, disability, or death are mitigated.

3. Indirect Functions

a. Investment of funds
Insurers accumulate large funds which they hold as
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custodians out of which claims and losses are met.
b. Use of reserve funds
Because of the investment policy, the reserve funds
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are not static, but are used productively. This results in
the reduction of the cost of insurance to the insuring
public.
e. Effect on prices
The cost of insurance to the businessman is passed on
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to the consumers, along with other production costs,
but the existence of insurance benefits the consumer
public, in terms of reduced prices.
f. As a basis of credit
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Credit extension is the most important phase of
modern business, and is contributed to by all forms of
insurance.

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

INSURANCE
FINALS REVIEWER

The earliest policy form was written in Genoa in 1347,


and a statutory form was prescribed in Florence in
1523.

5.

Development of Insurance (from marine to present


day varieties)
Italy
From the Italian republics, the custom of making
mutual contracts of insurance spread to the rest of
Europe.
Contracts were however confined to merchants
engaged in international commerce, thus necessitating
uniformity of regulations among countries.
Rules grew out of customs of merchants (law
merchant). This then became part of international law,
although applicable only as recognized in civilized
nations.

England
Admiralty and common law courts proved inadequate
in handling insurance cases. The first English Insurance
Act was passed, under which, a special court was
created to try maritime insurance cases
Lord Mansfield introduced principles of the law
merchant as would render common law suitable for
dispensing justice in cases involving insurance
contracts.
In Lloyds Coffee House in London, merchants
gathered and arranged mutual contracts to insure
their ventures against perils of the sea.
i. A description of the vessel and cargo was
written in a slip of paper, and those willing to
insure would sign the slip, indicating the
amount each was willing to be liable for.
Lloyds
policy was adopted as the standard
ii.
form of insurance, despite criticisms.

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Fire Insurance
It did not assume importance until the great fire of
London in 1666.
The oldest fire insurance company, Sun Fire Office was
established in England, in 1770.
Life Insurance
It is one of the newest kinds of insurance.
Religious and moral reasons hindered its development.
It was considered as wagers on life, and was thus
prohibited in many countries.
The first society formed for insuring against loss of life
was Equitable Assurance Society of London,
established in 1762.

8.
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Accident Insurance
It was derived from life insurance.
At first, accident insurance companies granted
indemnity against railway accidents only, but
eventually expanded to include accidents of all kinds.

9.
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The insurance business in the Philippines


Prior to 19th century, insurance in its modern sense
did not exist.

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

C. Origin and Growth of Insurance (VANCE)



1. Early Maritime or Marine Insurance
The origin of the practice of insurance is found in the
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mutual agreements made among merchants, for
distributing among the mutual contractors the loss
falling upon any one by reason of the perils of
navigation.
The invention of the practice of insurance is attributed
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o the merchants of the Italian cities in the early Middle
Ages. The practice then extended to the other
maritime states of Europe.
The Lombard merchants who came to London in the
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13th century brought the custom of insuring against
hazards of trade. All questions of insurance were
determined in accordance with the customs of the
merchants.

2. Insurance among the Ancients
Merchants who engaged in the commerce carried on
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upon the Mediterranean Sea did not have a method of
providing against the hazards that must have attended
commercial enterprise at the time.
With the exception of references to bottomry and
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respondentia bonds, there were no traces of insurance
contracts in Roman treatises.

3. The earliest traces of insurance
Benevolent societies organized primarily for social and
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religious uses also extended aid to their unfortunate
members from a fund contributed by all.
This existed among the Egyptians, Chinese, Hindus,
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and Greeks.
Among the Romans, societies were developed, and it
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became important to provide strict regulatory
legislation.
They performed fictions of modern mutual benefit
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society, providing funeral rites for the dead and aid for
sick and aged members.
Medieval guilds developed throughout Europe, and
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assumed to their members many obligations which
can now be classified as life, accident, or health
insurance contracts. Some also provided indemnity for
losses by fire and shipwreck, from death of cattle, and
from theft.

4. The beginning of the modern mercantile insurance
contract appears to have been the transaction
evidenced by the bottomry or respondentia bond,
together with the practice of general average
contribution.
Many elements of an insurance contract are present in
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the bottomry bond and respondentia bond.


Insurance as Practice by the Italian Cities
First evidence of extensive use of contracts of
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insurance is in the history of medieval maritime states
of Italy.
It was among Italian merchants that the contract of
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insurance first received attention which the benefits of
its use would justify.

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Pre-Spanish - Death or misfortune was borne by the


family, as it was the political unit considered.
When communities, such as barangays developed,
assistance was extended accordingly.
Eventually, mutual benefit societies and fraternal
associations were organized for the purpose of
rendering assistance to its members.
Aside from economic reasons, one reason that might
have hindered the early development of insurance was
the philosophy of bahala na.
Insurance was first introduced in the Philippines in
1829. Lloyds of London appointed Stracham, Murray
& Co., Inc as its representatives.
In 1939. Union Insurance Society of Canton appointed
Russel & Sturgis as its agent in Manila. It was then
limited to non-life insurance.
In 1898, life insurance was introduced with the entry
of Sun Life Assurance of Canada in the local insurance
market.
Yek Tong Lin Fire and Marine Insurance Company was
the first domestic non-life insurance company,
organized in 1906.
Insular Life Assurance Co., Ltd., was the first domestic
life insurance company, established in 1910.
In 1950, reinsurance was introduced with Reinsurance
Company of the Orient writing treaties for both life
and non-life.
The first workmens compensation pool was organized
in 1951 as the Royal Group Incorporated.
In 1949, a government agency was formed to handle
insurance affairs.
Social insurance was established in 1936, with the
enactment of CA 186, creating the GSIS. It started its
operations in 1937.
This was followed in 1954 by RA 1161, providing for
the SSS.


Aboitiz Shipping v New India Assurance
F: SFDC loaded a cargo of textiles and auxiliary chemicals on a
vessel owned by FBSI. Cargo was consigned to General Textile
Inc. and insured by New India Assurance Ltd. In HK, the cargo
was transferred to M/V P. Aboitiz for transhipment to Manila.
Japanese Meteorological Center advised that it was safe to
travel but while at sea, a report said that a typhoon was moving
to the ships general path. The vessel changed its course
however, its hull leaked, and the vessel sank.
H: Doctrine of limited liability does not apply. From the nature
of their business and for reasons of public policy, common
carriers are bound to observe extraordinary diligence over the
goods they transport according to all the circumstances of each
case. In the event of loss, destruction, or deterioration of the
insured goofs, common carriers are responsible and are
presumed to have been at fault, unless they can prove that it
was brought about by causes under CC 1734. Aboitiz failed to
overcome the burden of showing that it exercised extraordinary
diligence in the transport of goods. Both TC and CA found that
the sinking was due to the vessels unseaworthiness, and that
the weather was moderate when it sank.

D. Laws Governing Insurance
1. The Insurance Code

It primarily governs the different types of the


insurance contracts and those engaged in insurance
business in the Philippines.
PD 1460 took effect on June 11, 1978.
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2. Civil Code
Insurance contracts are governed primarily by the
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Insurance Code and subsidiarily by the Civil Code. If
the Insurance Code does not specifically provide for a
particular matter in question, the provisions of the
Civil Code on contracts and other special laws shall
govern.
a. Art 2011 on the applicability of the Civil Code
b. Art 739 and 2012 on void donations
c. Art 2021-2027 on life annuity contracts
d. Art 2186 on compulsory motor vehicle liability insurance
e. Art 2207 on the insurers right of subrogation

3. Special Laws
PD 1460 - The Insurance Code of 1978
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PD 1146 - The Revised Government Service Insurance
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Act of 1977 with respect to insurance of
government employees
RA 1161 - The Social Security Act of 1954 with
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respect to insurance of employees in private
employment
RA 656 (as amended by PD 245) - Property Insurance
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Law deals with government property
RA
4898 (as amended by RA 5756) provides life,
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disability, and accident insurance coverage to
barangay officials
EO No. 250 (July 1987) in relation to RA 4898 and PD
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1147 increases, integrates, and rationalizes the
insurance benefits of barangay officials and members
of Sangguniang Panlalawigan, Sangguniang
Panlungsod, and Sangguniang Bayan.
The insurance benefits are extended by the GSIS.
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RA 3591 - Philippine Deposit Insurance Corporation
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insures the deposits of all banks which are entitled
to the benefits of insurance under the Act
4. Cases
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Ang Giok Chip v Springfield
F: Ang Giok Chip was the owner of a warehouse, the contents
of which were insured with 3 companies for the total of P60k.
The warehouse was destroyed by fire, while the policy issued
by Springfield worth P10k was in force. P seeks to recover a
proportional part of the loss. D claimed a violation of warranty
F, fixing the amount of hazardous goods which might be stored
in the insured building to a maximum of 3%. More than 3% of
the total value of the merchandise constituted hazardous goods
(39%).
H: Warranty F is valid. The applicable law is Sec 65 of the
Insurance Act: Every express warranty, made at or before the
execution of a policy, must be contained in the policy itself, or
in another instrument signed by the insured and referred to in
the policy, as making part of it. A rider attached to a policy is a
part of the contract, to the same extent and with like effect as if
actually embodied therein. An express warranty must appear
upon the face of the policy, or be clearly incorporated therein

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

Chapter II
The Contract of Insurance
By Claire

A. Definitions

Sec. 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.
(2) The term "doing an insurance business" or
"transacting an insurance business", within the
meaning of this Code, shall include:
making or proposing to make, as insurer, any insurance
contract;
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;
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;
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.
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 direct 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.
As used in this code, the term "Commissioner" means
the "Insurance Commissioner".
Sec. 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.


Contract of Insurance
An agreement whereby one undertakes for a
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consideration to indemnify another against loss,
damage or liability arising from an unknown or
contingent event.
A contract of insurance is an agreement by which one
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party (insurer), for a consideration (premium) paid by
the other party, promises to pay money or its
equivalent or to do some act valuable to the latter (or
his nominee(, upon the happening of a loss, damage,

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

and made a part thereof by explicit reference, or by words


clearly evidencing such intention. Warranty F, a rider attached
to the face of the insurance policy, and referred to in the
contract of insurance, is valid and sufficient.

Republic v Del Monte Motors
F: RTC rendered a decision finding Vilfran Liner liable to pay Del
Monte Motors P11M. It ordered the execution of the decision
against the counterbond posted by Vilfran Liner, issued by
CISCO. CISCO opposed claiming that the bond was not
valid/enforceable. RTC granted the Motion for Execution.
Sheriff proceeded to levy on the properties of CISCO. He issued
a Notice of Garnishment on several depository banks of the
insurance company, and served a similar notice on the
Insurance Commission, so as to enforce the Writ on the security
deposit filed by CISCO with the Commission in accordance with
Section 203 of the Insurance Code.
H: security deposit held by the Insurance Commissioner may
not be levied or garnished in favor of only one insured. Section
203 of the Insurance Code provides that the security deposit
shall be (1) answerable for all the obligations of the depositing
insurer under its insurance contracts; (2) at all times free from
any liens or encumbrance; and (3) exempt from levy by any
claimant. Securities required by the Insurance Code to be
deposited with the Insurance Commissioner are intended to
answer for the claims of all policy holders in the event that the
depositing insurance company becomes insolvent or otherwise
unable to satisfy their claims.

Philippine Health Products v CIR (2009)
F: CIR wrote a letter of demand to PhilHealth for the payment
of deficiency taxes. DST was imposed on PhilHealths members
pursuant to Section 185 of the 1997 Tax Code. Sec 185 states
that on all policies of insurance or obligations made by
corporations transacting in the business of insurance must pay
a DST of 50 centavos on each 4 pesos of the premium charged.
PhilHealth claims that it is not an insurance company but
merely a Health Maintenance Organization, therefore not
subject to DST. Due to CIRs inaction, it brought the case to the
CTA. CTA cancelled DST payment. CA held that PhilHealths
agreement was in the nature of non-life insurance subject to
DST. The SC affirmed the CA.
H: PhilHealth is not an insurance company and therefore not
subject to DST. PhilHealth provides preventive, diagnostic, and
curative medical services for its enrolled members., who pay
annual membership fees. Medical services will be dispensed to
members by accredited practitioners or hospitals, which are
then paid by PhilHealth. The principal object and purpose test
provides that if the assumption of risk and indemnification of
loss are the principal object and purpose of the organization,
and not merely incidental to it, then it is in the business of
insurance. PhilHealth is merely a health care provider whose
primary purpose is to provide medical services to its subscribers
by providing them with physicians and hospital services at a
lower price. The incidental presence of risk is not sufficient to
make it an insurance company.


Art. 2010. By an aleatory contract, one of the parties or


both reciprocally bind themselves to give or to do
something in consideration of what the other shall give

or do upon the happening of an event which is


uncertain, or which is to occur at an indeterminate
time. (1790)


Aleatory
The liability of the insurer depends upon some event
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which is uncertain, or which though certain is to occur
at some undetermined time
It is however not gambling, wagering, or a contract of
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chance. The risk is created by the contract itself.
Both parties must take a risk.
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Insurer - to pay entire sum upon happening of
event
Insured - to part with the amount required as
premium, without receiving anything if the
contingency does not happen.

Executory and Conditional
Executory and conditional as to the insurer
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The insurer has no obligation to pay until and unless
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the peril insured against takes place.
If the peril does not take place, the insurers obligation
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will never arise, and the insured will have no right to
the return of the premium paid by him,

Executed as to the insured
The contract becomes effective after the payment of
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the premium.

Synallagmatic
Highly reciprocal contract where the rights and
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obligations of the parties correlate and mutually
correspond
The insurer assumes the risk of the loss which an
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insured might suffer in consideration of premium
payments under a risk-distributing scheme.

Consensual and voluntary
Consensual
It is perfected by the meeting of the minds. Unless
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application for insurance has been accepted, there is
no contract yet.
Consensual contracts are perfected at meeting of
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minds. On the other hand, formal/real requires
formality or solemnity before it is perfected.

Voluntary
It is not compulsory and the parties may incorporate
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terms and conditions as they may deem convenient,
which will be binding, provided that they are not
against any provision of law or public policy.

Contract of Adhesion
Insurance companies impose upon the insured
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prepared agreements (policy) in printed form which
the insured may not change.
The policy is presented to the insured on a take it or
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leave it basis.

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

liability, or disability arising from an unknown or


contingent event.
The event insured against must be (1) designated in
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the contract and (2) must be either unknown or
contingent, part or future.
i. contingent - not certain to take place
ii. unknown - certain to happen but time
unknown
iii. past event - in cases where it has
already happened but the parties do
not know about it.
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Doing an insurance businessThere are 4 main
categories of acts or transactions which are construed
to comprise insurance business.
making or proposing to make, as insurer, any insurance
contract;
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;
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;
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.

B. Elements
Insurance contract is a special contract with risk
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distribution and indemnity as distinguishing elements.

Insurable interest (object/subject matter)
The insured has insurable interest in the life or thing
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insured. The interest must be susceptible of pecuniary
estimation.

Risk of loss or damage
The insured is subject to a risk of loss through the
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destruction or impairment of the interest, by the
happening of designated perils.

Designated peril as cause
The cause of the damage or loss must be the perils
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expressly indicated in the contract.

Consideration: premium
As consideration for the insurers promise to assume
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the risk of loss, the insured makes a ratable
contribution (premium) to the general fund.

Risk distributing scheme
The assumption of risk is a part of the general schemes
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to distribute actual losses among a large group of
persons bearing somewhat similar risks.

C. Characteristics / Nature of Insurance Contracts

H: Philamcare is liable. The Health Care Agreement is an


insurance contract (elements: insurable interest - Hs health,
subject - expenses, premiums paid, insurer assumes risk -
health care must pay for the expenses, risk-distribution
scheme). There was likewise no concealment, since the
representation was based on Hs opinion, and Philamcare did
not make further inquiry but just relied on the opinion.
Assuming there was concealment, insurer is entitled to rescind,
but no rescission was made.

Blue Cross Health Care v Olivares
F: Neomi applied for health care program with Blue Cross fro
the period of Oct 2002-Oct 2003. All amounts were paid in full.
The agreement stipulated that ailments due to pre-existing
conditions were excluded from the coverage. Less than 2
months from the effectivity of the agreement, she suffered a
stroke and was admitted to one of the hospitals accredited by
Blue Cross. Blue Cross refused to pay the bills.
H:Blue Cross was not able to prove that the stroke was caused
by a pre-existing condition. A health care agreement is in the
nature of a non-life insurance (PhilHealth 2008 doctrine).
Therefore, s in insurance contracts, their terms shall be
construed strictly against the insurer.Blue cross was not able to
present evidence, but merely speculated that the doctors
report, which was not disclosed because of doctor-patient
privilege, would be adverse to Neomi.

PhilHealth v CIR (2008)
F: supra
H: Health care agreements are in the nature of an insurance
contract, and therefore subject to documentary stamp tax.
PhilHealths health care agreement is primarily a contract of
indemnity. The court previously held that a health care
agreement is in the nature of a non-life insurance policy. It is
not a contract for the provision of medical services, because
they do not actually provide the services but merely arranges
for the same and pays for them. The term loss or damage is
broad enough to cover monetary expense a member will incur
in case of illness/injury.

E. General Classification of Insurance under the code

Two general classes: life and non-life
1.Life
Mutual agreement by which a party agrees to pay a
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given sum upon the happening of a particular event
contingent on the duration of human life, in
consideration of payment of a smaller sum, or in
periodical payments by the other party.
Insurance payable on the death of a person, or on his
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surviving a specified period, or contingently on the
continuance or cessation of life
Contract to make specific payments to pay a certain
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person, the beneficiary, upon the death of a person
whose life has been insured

a. Individual Life

Sec. 179. Life insurance is insurance on human lives
and insurance appertaining thereto or connected

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

Personal and of highest degree of good faith


Personal - Each party has in view the character, credit, and
conduct of the other.
Regardless of category, all insurance contracts share
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the trait of personalness.
In
health/accident/disability insurance, the insurance
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applies only to a particular individual.
In liability insurance, each person purchases coverage
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for his own potential liability to others.
Property insurance is also personal in that the
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insurance is on the insures interest in the property,
not on the property itself.
Good faith
Each party is required by law o deal with each other in
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good faith.

Indemnity
Insurance is a contract of indemnity, except for life and
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accident insurance where the result is death.
The promise of the insurer is to make good only the
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loss of the insured.
Any contract contemplating possible gain to the
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insured by the happening of the event is contrary to
the nature of insurance.

D. Contracts for Contingent Services
Contract for contingent personal services
contract whereby one party undertakes to render
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services upon the happening of a contingent event

Warranties covering goods sold or services rendered
focused in inherent quality of goods, not insurance
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Pre-need plans and similar agreements
Pre-need plans are not insurance, thus not governed
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by the Insurance Code.
RA 9829 - Pre-need Code
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3 Types of Pre-need Plans
a. Educational Plans
b. Memorial Plans - Memorial Service
c. Pension Plans - Retirement Plans
Person plans pays for services which will be rendered
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in the future, or for monetary consideration.
Payment
today for something to be received in the
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future.

Cases

Philamcare v CA
F: Husband applied for a health care coverage with Philamcare.
Under the agreement he was entitled to hospitalization
benefits, as well as out-patient benefits. During the period, he
suffered a heart attack and was confined. Wife tried to claim
benefits, but was denied. Philamcare claimed that the
agreement was void due to medical history (doctors discovered
that he was hypertensive, diabetic and asthmatic, when he
answered he hasnt been treated for these). Wife had to pay for
the hospitalization expenses. H was discharged, admitted to
another hospital, sent back home, and then hospitalized again.
He then died, while the agreement was supposedly still in force.


b. Group Life


Sec. 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, any rider,
clause, warranty or endorsement issued after the
original policy shall be countersigned by the insured or
owner, which countersignature shall be taken as his
agreement to the contents of such rider, clause,
warranty or endorsement.
Group insurance and group annuity policies, however,
may be typewritten and need not be in printed form.
Sec. 228. No policy of group life insurance shall be
issued and delivered in the Philippines unless it
contains in substance the following provisions, or
provisions which in the opinion of the Commissioner
are more favorable to the persons insured, or at least

as favorable to the persons insured and more favorable


to the policy-holders:
xxx
The provisions of paragraphs (f) to (j) shall not apply to
policies issued to a creditor to insure his debtors. If a
group life policy is on a plan of insurance other than
term, it shall contain a non-forfeiture provision or
provisions which in the opinion of the Commissioner is
or are equitable to the insured or the policyholder:
Provided, That nothing herein contained shall be so
construed as to require group life policies to contain
the same non-forfeiture provisions as are required of
individual life policies.



NOTES:
Members would usually be a cohesive group. (ex.
-
employees of a particular company)
Members
would pay a uniform premium. The death of
-
a member will give rise to the liability of the insurer,
that is to pay the beneficiaries of the deceased.
Unlike in individual life insurance, no medical
-
examination is required for each of the insured.
Based on the theory that by law of averages, only a
-
percentage of members of a group would die within a
specific period.

Pineda v CA and Insular Life
F: PMSI procured a group policy from Insular Life to provide life
insurance coverage for its sea-based employees. While the
policy was in effect, 6 employees perished at sea when their
vessel sank. Beneficiaries executed special powers of attorney
authorizing Capt Nuval, PMSI president, to follow up, collect, or
receive the indemnities for their benefit. Unknown to them
PMSI, as employer and policy holder, filed with Insular Life
formal claims for and in behalf the beneficiaries. Insular life
drew checks payable to the order of the beneficiaries, but Capt
Nuval endorsed and deposited them in his own bank account.
H: Insular life is liable due to the misconduct of the employer.
The employer is an agent of the insurer. Therefore the insurer,
as the principal, is liable for Nuvals misappropriation, and
should pay the beneficiaries. Group insurance is a contracts
where a group of individuals are covered under one master
contract between the policy holder/employer and the insurer.
However, while the employer is the titular insured, the real
party or beneficiary is the employee. Thus, the employer acts
merely as agent of the insurer.

c. Industrial Life
This is aimed at protecting lower income group.
-
The main purpose is to cover the expenses for the last
-
sickness of the insured, and those for his burial.
Premiums are payable weekly, bi-weekly, or monthly.
-

Sec. 229. The term "industrial life insurance" as used in
this Code shall mean that form of life insurance under
which the premiums are payable either monthly or
oftener, if the face amount of insurance provided in
any policy is not more than five hundred times that of

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

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


2. Non-life
Includes policies covering risks to which property may
-
be exposed, as well as those which cover the risk of
liability to third persons.
This may be open, valued, or running.
-
These are mostly time policies, such that they have a
-
definite period of coverage.

a. Marine

Sec. 99. Marine Insurance includes:
xxx
(2) "Marine protection and indemnity insurance,"
meaning insurance against, or against legal liability of
the insured for loss, damage, or expense incident to
ownership, operation, chartering, maintenance, use,
repair, or construction of any vessel, craft or
instrumentality in use of ocean or inland waterways,
including liability of the insured for personal injury,
illness or death or for loss of or damage to the property
of another person.



b. Fire

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.

c. Casualty

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.


d. 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.



3. Other modes of classification

a. private and pubis (voluntary and compulsory
Private (voluntary)
Person takes insurance out himself.
-
Pubis (compulsory)
Insurance is required. (ex. SSS, GSIS)
-
-
first party insurance and third party insurance
In first party insurance, the contract between the
-
insurer and the insured is designed to indemnify the
insured for a loss suffered directly by the insured.
In third party insurance, the interests protected by the
-
contract are those of third parties injured by the
insured.
If the insured negligently causes injury to a third party,
-
the third party will posses a claim against the insured.
The loss is indirect in that it is the third party who
suffer the direct loss.

4. Some life insurance plans in the market
a. whole life plan
Insured agrees to pay premiums while he lives.
-
Insurer agrees to pay face value upon death of the
-
insured.
b. limited payment plan
Insured agrees to pay premiums only for a specified
-
number of years.
Should he survive that period, he would stop paying.
-
Insurer pays the proceeds upon his death.
Should he die before the expiration of the period, the
-
beneficiary is entitled to the proceeds without having
to pay the remainder.
c. term plan
Insurers liability arises upon the death of the insured,
-
within the agreed period.
If
the insured survives, the insurer is not liable for
-
anything.

d. pure endowment plan
Insured pays premiums for a specified period.
-
Should he survive, the insurer pays the face value of
-
the policy.
Should he die within the period, the insurer is released
-
from liability, unless otherwise provided.
e. endowment plan
Whether insured lives or dies, insurer is liable.
-

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

the current statutory minimum daily wage in the City of


Manila, and if the words"industrial policy" are printed
upon the policy as part of the descriptive matter.
An industrial life policy shall not lapse for non-payment
of premium if such non-payment was due to the failure
of the company to send its representative or agent to
the insured at the residence of the insured or at some
other place indicated by him for the purpose of
collecting such premium: Provided, That the provisions
of this paragraph shall not apply when the premium on
the policy remains unpaid for a period of three months
or twelve weeks after the grace period has expired.

Should insured outlive specified period, insurer pays


the face value of the policy.
Should he die within the period, the insurer pays the
proceeds to the beneficiaries.


f. others


D. Construction/Interpretation of Insurance Contracts

1. Basis/Rationale
Where terms are clear
The cardinal principle of insurance law in interpreting
-
contracts favorably to the insured is applicable only in
cases of doubt. When the intention of the policy is
clear or the language is sufficiently clear to convey the
meaning of the parties, no interpretation may be
done.
The court is bound to adhere to the insurance contract
-
as the authentic expression of the intention of the
parties, and it must be construed and enforced
according to the sense and meaning of the terms
which the parties themselves have used.
-
Where there is ambiguity or doubt
General Rule: Contracts of insurance are to be construed
liberally in favor of the insured, and strictly against the insurer,
resolving all ambiguities against the latter, so as to effect its
dominant purpose of indemnity or payment to the insured.
An insurance policy is a contract of adhesion. The
-
insurer is under the duty to make its meaning clear if it
desires to limit or restrict the operation of the general
provisions of its contract.

Cases

Cebu Shipyard v William Line
F: William Lines insured its M/V Manila City under Prudential
Guarantee for hull and machinery. The policy contained a clause
providing that loss/damage caused by negligence or charterers
or repairers are excluded from the coverage. William Lines
brought the vessel to Cebu Shipyard for annual dry-docking and
repair. The two executed contracts stipulating the liabilities of
both parties, including that the insurance on the vessel should
be maintained by the owner during the period of the contract.
After the vessel was transferred to the docking quay, it caught
fire and sank. Cebu Shipyard claims that it is a co-assured by
virtue of the clause, therefore no subrogation can be made by
Prudential.
H: Cebu Shipyard is not a co-assured in the policy. William lines
merely undertook to maintain the insurance while under dry-
docking and repair. The intention of the parties to make each
other co-assured is to be gleaned from the insurance contract
or the polity, and not from any other contract or agreement.

New Life Enterprises v CA
F: New Life acquired insurance for their stock in trade
(construction materials) from three companies. A fire, electrical
in nature, destroyed the building and stocks in trade. The
company claimed for payment, but all three denied the claim
for breach of policy condition, which required the insured to
give notice to the insurer if any other insurances are effected or

will be effected on the covered properties. New Life claims that


the companies were aware of the other insurances.
H: New Life violated the other-insurance clause. Policies are to
be construed liberally in favor of the insured and strictly against
the insurer, but they are to be construed according to the sense
and meaning of the terms. Knowledge of the insurance
companies is not the notice required by the stipulation.

First Quezon City Insurance v CA
F: Jose was waiting at the bus stop. A DMTC slowed down with
all doors open. A few men managed to board the bus, Jose
being the last one. He was still on the bus running boards with
his hand on he handle, when the bus sped forward. Jose clung
to the handle and was dragged by the bus for a few seconds.
The driver stopped the bus and immediately fled the scene. Jose
was brought to the hospital, underwent surgeries, and was
confined for more than a month. He filed complaint against
DMTC, which then filed a third party complaint against First QC.
The insurance policy had a limit of P12k per passenger or P50
per accident.
H: Insurer is liable for P12k only. Only one passenger was
injured. The P50k limit per accident means that the insurers
liability for any single accident, regardless of number of injured,
will not exceed P50k. The bus company may not recover more
than P12k per passenger or P50k per accident, even if the
judgement required payment of indemnity greater than such.

Ty v First National
F:Ty applied for personal accident insurance policies in 18
companies. A fire broke out in the factory where he was
working. A heavy object hell on him, causing injuries to his left
hand (three fingers were fractured.) He tried to recover
indemnities, but First National denied claim alleging that the
policy only covers loss through amputation.
H: The insurer is not liable. Cannot go beyond the clear and
express terms of the policies (that only amputation will give rise
to liability). SC did not accept Tys contention that actual
amputation is not necessary as long as there was disability to
perform his usual work.

Misamis Lumber v Capital Insurance
F: Misamis Lumber insured its Ford Falcon with Capital
Insurance. It is provided in the policy that Insured may
authorize repair of damage for which the insurer may be liable,
provided that the authorized repair limit is P150. One evening,
the car passed over a water hole. The crankcase and flywheel
housing of the car broke when it hit a hollow block lying
alongside the waterhole. Misamis had it towed and repaired.
Capital Insurance refused to pay the entire amount, but
admitted liability of only P150.
H: Capital Insurance is liable only for P150 which is the
authorized repair limit as stated in the terms of the policy. The
literal meaning of the stipulation must control.

Sun Insurance v CA
F: Tan bought an insurance policy from Sun Insurance to cover
his interests in his brothers electrical supply store. Four days
after the policy was issued, the store burned down. Tan filed his
claim but was denied. Tan wrote to Sun Insurance, seeking
reconsideration of the denial. Months after, Sun Insurances
denial remained unchanged He then filed a civil case. Sun

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

Fieldmans Inc v Vda de Songco


F: Songco, owner of a private jeepney, was induced by FIC agent
to apply for a Common Carriers Liability Insurance Policy. While
the vehicle was being driven by his son, it collided with a car
causing death of the two men, and injuries sustained by
Songcos wife and a family friend.
H: The insurer is liable. They cannot escape liability when it
knew of the fact that it was insuring a private vehicle under a
common carriers policy. It is estopped from claiming that the
insured is ineligible under the policy.

Malayan Ins v CA
F: TKC Marketing owned soya bean meal shipment loaded on
ship for carriage from Brazil to Manila. The cargo was insured
against risk of loss by Malayan. While in South Africa, civil
authorities arrested and detained the vessel. Due to its
perishable nature, the cargo was sold in S Africa, at a loss. TKC
notified malayan of the arrest of the vessel and made a formal
claim. Malayan denied, claiming that arrest was not covered by
the policies.
H:Insurer is liable. The Free from Capture and Seizure Clause
was deleted from the policies. With the incorporation of
Institute of War Clauses which includes in the coverage, risks
excluded from the standard form of English Marine Policy,
arrest cause by ordinary judicial process is deemed included
among the covered risks. Although the FC&S Clause may have
originally been inserted to protect risks of war, its interpretation
in the recent years to include seizure by civil authorities is
consistent with the general purposes of the clause.

Western Guaranty v CA
F: Bus, owned by De Dios Transportation, was insured by
Western Guaranty. The policy included liability for claims from
employees, passengers, or any 3rd party, resulting from death
or injuries. Rodriguez was hit by a passenger bus owned by De
Dios. As a result, she was hospitalized and her face was
permanently disfigured. Rodriguez filed complaint - TC rendered
decision in her favor. Western claims that it cannot be held
liable to pay loss of earnings, moral damages, and atty fees.
H: Insurer is liable. THe policy stipulates that the P50k limit per
person covers all kinds of damages allowable by law, as long as
the court has held the insured to be liable. Also, the types of
injuries enumerated, which Western claims Rodriguezs injuries
do not belong, is not an exclusive list.

Qua Chee Gan v Law Union
F: Qua Chee Gan owned 4 bodegas used as storage for copra
and hemp. These were covered by a fire insurance policy with
LAw Union. Fire broke out, destroying 3 bodegas and their
contents. Law Union refused to make payment, claiming
violations of warranties and conditions (memo warranty and
hemp warranty), and that the fire was deliberate.
H: Insurer is liable. Law Union estopped from claiming violation
of hydrant requirement. They knew that the number of hydrant
required never existed from the beginning. The hemp warranty,
being ambiguous must be construed liberally in favor of insured.
The mention of oils is ambiguous. In the ordinary sense, oils
would mean lubricants, not gasoline.


A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

Insurance filed motion to dismiss n the ground that it


prescribed. It is provided in the policy that the claim is deemed
abandoned if action not be commenced within 12 months from
receipt of rejection.
H: It has prescribed. The filing of an MR (letter) does not
interrupt the 12 mo prescriptive period. The condition of the
policy is clear and free from any doubt or ambiguity, therefore
must be understood in its plain and ordinary meaning.

Fortune Insurance v CA
F: An armored car of Producers Bank was robbed wile in the
process of transferring cash under custody of its teller. The
driver and the guard, along with other men were charged with
violation of the Anti-Highway Robbery Law. Demands were
made, but Fortune denied claims, as the loss is excluded from
the the coverage. A stipulation in the policy excludes any loss
caused by dishonest/fraudulent/criminal act of authorized
representative of the insured.
H: Fortune is not liable. The driver and the security guard are
considered authorized representatives of the Bank. The
insurance policy is a theft or robbery insurance. In such, the
opportunity to defraud insurer is so great that insurers found it
necessary to put restrictions designed to reduce such hazard.
The Court considered the driver and the guard as authorized
representatives because they were entrusted with the duty to
safely transfer the money.

Verendia v CA
F: Verendia applied for a fire insurance policy from Fidelity
Insurance. A stipulation in the policy prohibits fraudulent claim
or the use of false declarations to support such. His residential
building was also insured with by two other insurance
companies. Fidelity was not informed of these other insurance.
After a fire razed the building, Verendia sought to recover
indemnity. Fidelity declined, alleging that the building is over-
insured, and that Verendia used a fake lease agreement to
support his claim. It indicated in the policy that a Roberto (who
conveniently disappeared after the fire) was leasing the
property, when it was actually a Marcelo who was occupying
the building.
H: Fidelity is not liable. Verendia used a false lease contract to
support his claim from Fidelity. The Court also found that
Verendia inflated the value of the building. Verendia forfeited
all his benefits by violating the term of the policy which
prohibits fraudulent claim or the use of false declarations to
support it. Despite the general rule of liberal construction,
finding of fraud perpetuated by the insured will cause the
construction to be against him.

Oriental Assurance v CA
F: Panama Sawmill bought logs and hired Transpacific Towage
to transport it. The logs were insured with Oriental Assurance.
The policy stipulated that the insurance is only against total
loss. The logs were loaded on two barges. Barge B was damaged
in the shipment. Panama demanded payment, but Oriental
denied, as the liability is for total loss only.
H: Oriental Assurance is not liable. The logs were insured as one
inseparable unit. The contract is indivisible. That the logs were
loaded on two barges does not make the contract divisible.

10

payment shall be made without the written consent of the


insurer. The bus got into an accident, injuring passengers. One
passenger sued for damages; the others entered into a
settlement with Milagros. TC ordered Milagros to compensate
the passenger, as she did not exercise due diligence when she
hired the driver.
H: The insurance policy explicitly limits liability to P12k per
person and P50k per accident. Cayas is precluded from seeking
reimbursement from payments made in the settlements, as
Perlass written consent was required before any offer/promise
of payment. Perla shall pay Milagros P12k and atty fees.

American Home Assurance v Tantuco
F: Tantuco Enterprises owned two oil mills, separately covered
by fire insurance policies issued by American Home. A fire broke
out and gutted the new oil mill. Tantuco immediately notified
insurer, but claim was denied on the ground that no policy was
issued covering the burned mill, as the description referred to
another bldg.
H: Insurer is liable. The burned oil mill is covered by any
insurance policy. Notwithstanding the misdescription, the
parties manifestly intended to insure the new oil mill.

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

Del Rosario v Equitable


F: Del Rosario was covered by personal accident policy issued by
Equitable. Enumerated in the policy is the amount Equitable
shall pay, depending on cause of death or injury. Another
stipulation states that drowning will not be covered, but a rider
removes this exception. Del Rosario died by drowning. Equitable
paid 1k; lawyer claims payment should be 3k.
H: The terms of the policy are ambiguous. It explains amounts
to be paid, but does not include amount in case death resulting
from drowning. Equitable should pay 3k, as ambiguity should be
resolved against the party who caused it.

Geagonia v CA
F: Geagonia owned Normans Mart, which was insured against
fire by Country Bankers Insurance. He declared that the
property was co-insured by Mercantile Insurance. The policy
contained an other-insurance clause. Fire broke out and the
insured stock-in trade were destroyed. Geagonia filed claim but
was denied. It was found that the property was likewise
covered by 2 fire insurance policies issued by Philippine First
Insurance, for the insurable interest of Geagonias creditors.
H: Geagonia did not violate the condition. He did not know of
the prior policies, as the creditors procured such without
informing him. The mortgagor and mortgagee each have
independent insurable interest. The prohibition applies only to
double insurance, and the nullity shall only be to the extent
exceeding the amount limit.

Sun Insurance v CA (1992)
F: Lim acquired a personal accident policy from Sun Insurance.
He died from a gunshot wound, after he pointed a supposedly
unloaded gun to his temple and shot himself. Sun insurance
refused to award insurance on the ground that the death was
not an accident, as Lim willfully exposed himself to the peril.
H: Insurer is liable. It was an accident. Accident mean that which
happens by chance or fortuitously, without intention or design.
While Lim was admittedly negligent, he acted in an honest
belief that the gun was no longer loaded.

Rizal Surety v CA
F: Rizal Surety issued a fire insurance policy on buildings owned
by Transworld Knitting Mills. It covered property stored in the
premises occupied by them forming part of the building
situated within own compound. A fire broke out partly
damaging the four span building, containing fun and
amusement machines and spare parts. Rizal Surety claims that
the fire insurance covers only the four span bldg, not the two-
storey annex.
H: The coverage includes the two-storey annex. The policy did
not limit its coverage to the 4-span bldg, as the stipulations
provided that the property must be contained in areas occupied
by Transworld and areas form part of the building described in
the policy. The 2-storey bldg was not merely an annex but was
adjoined and interconnected with the first span of the area, and
therefore forms an integral part of it. It was likewise already
existing when the insurance was constituted.

Perla v CA
F: Milagros owned a passenger bus, which was insured with
Perla Compania Seguros. The policy stipulated the limits of
liability. It is also stipulated that no admission, offer, promise of

11

2.

Chapter III
INSURABLE INTEREST

Sec 2 (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.

Notes:
The loss, damage or liability will arise only if the
insured has an interest over the person or thing
insured. To determine if one has an insurable interest,
the determinant is WON he will incur a loss/damage
from the death/destruction of the person/thing.

2. May not be waived

Sec 25 - Every stipulation in a policy of insurance for the
payment of loss whether the person insured has or has
not any interest in the property insured, or that the
policy shall be received as proof of such interest, and
every policy executed by way of gaming or wagering is
void.

Notes:
2 stipulations in an insurance policy declared VOID under
this section:
1. Stipulation for payment of loss whether the person
insured HAS OR HAS NOT ANY INTEREST in the subject
matter of the insurance.
Wager policy: a pretended insurance where the
insured has no interest in the thing insured and
can sustain no loss by the happening of the
misfortunes insured against.
The law, however, makes an exception in the
cases mentioned in Sec 181 on life insurance


B. Insurable interest in life/health

Sec 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 or in
part for education or support, or in whom he has
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.

1.

Insurable interest of the insured in his own life


compared to that on the life of other.


Notes:
2 general classes of life policies:
1. Insurance upon one's life - for the benefit of himself,
or of his estate or for the benefit of a third person
designated as beneficiary.
-
Does not usually present an insurable interest
question, only requires good faith
-
The mere fact that a man on his own motion
insures his life for the benefit of either himself
or of another is sufficient evidence of good
faith.
-
If taken out for the benefit of another, it is
similar to a donation in that it is made out of
the liberality of the insured.
2. Insurance upon the life of another - must have
insurable interest in the life of that person.
-
The insurable interest in the life of another
must be a pecuniary one and it exists whenever
the relation between the assured and the
insured, whether by blood, marriage or
commercial intercourse, is such that the
assured shall have an interest to preserve the
life insured in spite of the insurance, rather
than destroy it because of the insurance.
-
When the insurance is on the life of another
and for the benefit of a third party beneficiary,
both the owner and beneficiary must have an
insurable interest in the life of the subject
person (cestui que vie). If such requirement is
satisfied, the life policy is assignable even
without further satisfying the requirement.
-
Generally, blood or material relationships fit
the concept of insurable interest.

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

By Kaye

A. Definition & Purpose

An interest of some kind susceptible of pecuniary
estimation
It is that interest which the law requires to owner of an
insurance policy to have in the person or thing insured.
Pecuniary in nature - where the insured will derive
financial benefit or advantage from its preservation
and will suffer pecuniary loss or damage from its
destruction
Exception: in life insurance, the benefit need not
be pecuniary in nature
The requirement that a person must have an interest
over the property in order that he may legally insure
the same is a matter of public policy. It affords
temptation or an inducement to the insured, having
nothing to lose and everything to gain, to bring to pass
the event upon he happening of peril insured against.

1. Recall definition of an insurance contract:

Stipulation that the policy shall be received as proof of


insurable interest
Even after the insurance policy is issued, the
insurer may still prove lack of insurable interest.
The defense of lack of insurable interest is
available only to the insurer.

12

Those who are mandated by the law to support


each other have insurable interest on one
another's life:
ARTICLE 195 CC. Subject to the provisions
of the succeeding articles, the following
are obliged to support each other to the
whole extent set forth in the preceding
article:
(1) The spouses;
(2) Legitimate ascendants and descendants;
(3) Parents and their legitimate children and
the legitimate and illegitimate children of the
latter;
(4) Parents and their illegitimate children and
the legitimate and illegitimate children of the
latter; and
(5) Legitimate brothers and sisters, whether
of full or half-blood.
Even if two persons are not related, if one is
bound to or is in fact in support of another, the
recipient of support has an insurable interest
on the life of his benefactor.


1.

Insurable interest in health


-
The insurable interest is one's own health or
that of his family pursuant to Sec 10.


Sec 11 - The insured shall have the right to change the
beneficiary he designated in the policy, unless he has
expressly waived his right in said policy.

Notes:
-
General rule: insured has he right to change the
beneficiary without the consent of the latter.
Exception: when such right is expressly waived. In
such case, insured may change beneficiary only
with the consent of the latter.
-
Beneficiary - the person who is named or designated in
a contract of life, health, or accident as the one who is
to receive the benefits upon the death of the insured.

Kinds of beneficiary:
1. The insured himself
2. Third person who paid a consideration
3. Third person through mere bounty of the insured (no
consideration)

Limitations in the appointment of beneficiary:

Art. 2012. Any person who is forbidden from receiving
any donation under Article 739 cannot be named
beneficiary of a life insurance policy by the person who
cannot make any donation to him, according to said
article.

Art. 739. The following donations shall be void:
(1) Those made between persons who were guilty of
adultery or concubinage at the time of the donation;
(2) Those made between persons found guilty of the

same criminal offense, in consideration thereof;


(3) Those made to a public officer or his wife,
descedants and ascendants, by reason of his office.
In the case referred to in No. 1, the action for
declaration of nullity may be brought by the spouse of
the donor or donee; and the guilt of the donor and
donee may be proved by preponderance of evidence in
the same action.

Note: Art 739 (1) applies even without a previous conviction.

Sec 12 - The interest of the beneficiary in a life
insurance policy shall be forfeited when the beneficiary
is the principal, accomplice or accessory in wilfully
bringing about the death of the insured; in which event,
the nearest relative of the insured shall receive the
proceeds of said insurance if not otherwise disqualified.

C. Insurable Interest in Property

1. Definition

Sec 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.

Notes:
-
Anyone has an insurable in property who derives
benefit from its existence or would suffer loss from its
destruction.
-
Title or right to possession is not essential in order that
insurable interest in property may exists.
-
"Factual Expectation of a loss" will not suffice to justify
an insurable interest in property. An example of
factual expectation of a loss is that of a gasoline
station owner whose place of business is located in
front of a hotel. The destruction of the hotel will surely
result in diminished income for the gasoline station.
However, such interest merely being a factual
expectation does not establish an insurable interest
for the gasoline station owner on the preservation of
the hotel.
Factual expectation, though insufficient to
constitute an interest in property will be enough
in life insurance.

2. In what it may consist of; expectancy

Sec 14 - An insurable interest in property may consist
in:
(a) An existing interest;
(b) An inchoate interest founded on an existing
interest; or
(c) Expectancy, coupled with an existing interest in that
out of which the expectancy arises.

Forms of insurable interests in property:

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An existing interest - may be a legal title or an


equitable title.
Legal title:
a. Trustee of a property yet to be delivered
b. Mortgagor of a property mortgaged
c. Lessor of the property leased
Equitable title (one that will be perfected in to a
legal title upon the happening an event)
a. Purchaser of property before delivery
b. Mortgagee of a property before its
foreclosure
c. Mortgagor after foreclosure but before
period for redemption expires
2. An inchoate interest - whose unperfected interest is
founded on an existing interest.
A stockholder on the properties of the
corporation (existing interest-ownership of
shares; inchoate interest-share in the liquidation
of assets in case of dissolution of the company)
- The stockholder does not have interest/title
to the specific properties of the company rather
to their values such that a reduction of which
would mean a decrease in dividends or in their
liquidation values)
3. An expectancy - must be coupled with an existing
interest out if which such expectation arises.
A farmer may insure future crops (expectation of
ownership of the crops)
An owner of a business can insure against a
contingency from loss of profits

c. Expectancy
Insurable interest may either be in the form of a benefit
expected from the goods OR an expected loss if the goods be
subject to risks. In this case, when goods are damaged, the
consignee may be held liable for the value of such damage.

Gaisano Cagayan v. Insurance Co. of North America
F: Insured took out a book debts insurance policy on its
accounts receivables so long as the debts appear on the books
of the insured within 45 days from the time of loss. Fire broke
out in Gaisanos (dealer-debtor) warehouse destroying
readymade goods. Insured claimed against the insurer which
the latter paid and thus now claim that it had been subrogated
to the rights of the insured for collection against the petitioner.
Gaisano claims that there cannot be insurance over a credit and
insured did not have insurable interests over the goods because
ownership had been transferred upon delivery of the goods to
them.
H: Insurable interest exists when the insured either derives
benefit from the existence of the property OR incurs a loss upon
its destruction. For as long as there is an economic interest over
the property, regardless of ownership, one has an insurable
interest. In this case, the insurable interest is the payment of
the credit due to the companies.

3. Measure of insurable interest in property

Sec 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.


Sec 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.

Notes:
-
A son cannot insure specific properties of his father
upon expectancy of inheriting.
-
A creditor cannot insure specific properties of the
debtor who is alive.
But an unsecured creditor may insure the
property of the deceased debtor.
An unsecured may also insure the specific
property of the debtor if after obtaining a
judgment he is able to prove that the debtor has
no other properties which may satisfy the
judgment.

Cases:
Filipino Merchants Ins. Co. v. CA
F: A consignee is the insured in an "all risks" insurance policy
that it took over goods on board and to be delivered in Manila.
Upon arrival at destination, goods were found to be damaged.
Insurer refused to pay among the grounds of which is that
allegedly the consignee has no insurable interest over the
goods.
H: A consignee of the goods has an insurable interest. Insurable
interest may either be:
a. Existing
b. Inchoate interest derived from an existing interest


Sec 17 - The measure if an insurable interest in
property is the extent to which the insured might be
damnified by loss or injury thereof.

Notes:
-
The mortgagor has insurable interest to the extent of
the value of the property.
-
The mortgagee has insurable interest only to the
extent of the credit due to him.
-
Going back to the purpose of an insurance, it is an
indemnity for loss suffered and is intended to place
the insured in its status before the occurrence of the
peril. It should not result to a profit on the part of the
insured.

Measure of indemnity in specific contracts
1. Marine or Fire insurance - either fixed or open. If
fixed, the amount of indemnity cannot exceed the
amount of total loss despite a higher fixed value of the
policy.
2. Liability insurance - does not become payable unless
the insured suffers a loss from the liability. Thus, if the
liability is unenforceable, insurer incurs no obligation.
3. Life insurance - the amount id always fixed and
payable upon death. Such amount does not
necessarily approximate the value of the life of the
person rather it is merely the amount that the insurer
bound itself to pay.

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5.
6.

Personal accident insurance - like a life insurance


policy, the amount of indemnity is fixed and does not
approximate the value of the limb lost.
Health insurance - if it takes the form of an insurance
(not HMO) shall indemnify to the extent of the
medical expenses.
Healthcare agreement - (HMO) entitles the person
who paid for the medical expenses to reimbursement
up to the agreed amount.

Sec 21 - A change if interest in a thing insured, after the


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

Note: After a loss has happened, the liability of the insurer
becomes fixed and the insured's claim becomes assignable even
without the consent of the insurer.

Sec 22 - A change of interest in one or more if several
distinct things, separately insured by one policy, does
not avoid the insurance as to the others.


4.

When should insurable interest exist


Sec 19 - An interest in property insured must exist
when the insurance takes effect, and when the loss
occurs, but need not exist in the meantime; 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.

Notes:
-
Insurable interest on PROPERTY:
a. At the time the policy takes effect (at the time
procured), and
b. At the time of loss
- Otherwise, the policy is void
-
Insurable interest in LIFE
a. At the time the policy takes effect
- "need not exist in the meantime" means need not
exist in the intervening period

Sec 20 - Except in the cases specified in the next four
sections, and in cases of life, accident, and health
insurance, a change of interest in any part of a thing
insured unaccompanied by a corresponding change of
interest in the insurance, suspends the insurance to an
equivalent extent, until the interests in the thing and
the interest in the insurance are vented in the same
person.

Notes:
-
Mere transfer of the property does not transfer the
policy but suspends it until the same person becomes
the owner of both the policy and the thing insured.
-
When insurance contracts are not suspended:
1. Life, health and accident insurance
2. Change in interest after the occurrence of the peril
3. Change of interest in one or more of several things
separately insured by one policy
4. Change of interest by will or succession on death of
insured
5. Transfer of interest by one of several partners, joint
owners, or owners in common, who are jointly
insured
6. When the policy provides that the policy shall inure to
the benefit of whoever owns the interest insured
7. When there is express prohibition against alienation
of policy in which case alienation shall AVOID instead
of suspend the policy


Note: If separately insured in one policy, then it is divisible thus
the change in interest in one does not affect the other. But if
they are insured under one policy with a gross sum and for an
entire premium, the policy is indivisible.

Sec 23 - A change of interest, by will or succession, on
the death of the insured, does not avoid an insurance;
and his interest in the insurance passes to the person
taking his interest in the thing insured.

Note: An insurance on property passes automatically to the heir
or legatee or devisee who acquired the property upon the
death of the insured.

Sec 24 - A transfer of interest by one of several
partners, joint owners, or owners in common, who are
jointly insured, to the others, does not avoid an
insurance even though it has been agreed that the
insurance shall cease upon an alienation of the thing
insured.

Notes:
-
If interest is transferred to other partners/co-owners,
contract is not avoided since the hazard is not
increased by the fact that one owner gained a greater
interest in the property than he used to have.
But if the policy contains a specific prohibition, it
shall be avoided if made without the consent of
the insurer.
-
If interest is transferred to strangers, policy is avoided.

Sec 53 - The insurance proceeds shall be applied
exclusively to the proper interest of the person in
whose name or for whose benefit it is made unless
otherwise specified in the policy.

Note: The benefits of a contract of insurance, such agreement
being personal to the insurer and the insured, cannot inure to
the benefit of a third person even if the insured and such third
person both have interests in the same property except if the
contract is one of an express or implied trust.

Sec 57 - A policy may be so framed that it will inure to
the benefit of whomsoever, during the continuance of
the risk, may become the owner of the interest insured.

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Note: The person claiming the benefit must at least prove that
he is the person named in the contract if insurance as the
proper recipient of the proceeds.

D. Double insurance and over insurance


Notes:
-
There is co-insurance by two or more insurers.
-
Requisites:
1. The person insured is the same
2. Two or more insurers insuring separately
3. The subject matter is the same
4. The interest insured is also the same
5. The risk or peril insured against is likewise the same

*Double insurance vs. Over-insurance
Over Insurance
Double Insurance
Amount of insurance is Does not necessarily result in
beyond the value of
over insurance as when the
the insured's insurable total amount of the indemnity
interest
provided by the co-insurers do
not exceed the value of the
interest.
May involve only one
Always more than one insurer
insurer

-
"Other insurance" clause-provided for in contracts
which expressly prohibit procuring of other insurance
contracts which have for their subject the same
insurable interest without the consent of the insurer.
Without this stipulation, additional insurance obtained
shall not invalidate the contract except if it results in
an over-insurance.
Purpose: to prevent perpetration of fraud and
over-insurance.

Sec 94 - Where the insured is over-insured by double
insurance:

(a) The insured, unless the policy otherwise provides,
may claim payment from the insurers in such order as
he may select, up to the amount for which the insurers
are severally liable under their respective contracts;
(b) Where the policy under which the insured claims is
a valued policy, the insured must give credit as against
the valuation for any sum received by him under any
other policy without regard to the actual value of the
subject matter insured;
(c) Where the policy under which the insured claims is
an unvalued policy he must give credit, as against the
full insurable value, for any sum received by him under
any policy;
(d) Where the insured receives any sum in excess of the
valuation in the case of valued policies, or of the
insurable value in the case of unvalued policies, he


Notes:
-
Contribution Principle-requires each insurer to
contribute rateably to the loss or damage. This applies
only when there is over-insurance because otherwise,
each insurer shall indemnify for the total amount of
policy that they bound themselves to pay.

E. Multiple or several interests on same property; special
provisions on mortgagor & mortgagee

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

Sec 9 - If an insurer assents to the transfer of an
insurance from a mortgagor to a mortgagee, and, at the
time of his assent, imposes further obligation on the
assignee, making a new contract with him, the act of
the mortgagor cannot affect the rights of said assignee.

Notes:
-
General Rule: Policy take out by the mortgagor does
not inure to the benefit of the mortgagee.
Except: If the policy provides that the proceeds
shall be payable to the mortgagee.

In this case, despite such assignment by
the mortgagor, he shall remain to be a party to the
contract and his acts prior to loss shall produce the
same effects as if he is the named insured of the
insurance contract. Any act of the mortgagee
pertaining to the mortgagor shall produce the same
effect as if it was performed by the mortgagor himself.

If the mortgagee procures an insurance,
the destruction of the mortgaged property makes the
insurer liable to the insured but it shall not extinguish
the liability of the mortgagor, instead there is
subrogation of the insurer to rights of the insured to
collect from the mortgagor.

>> Exception: if mortgagee

procures the insurance policy for the

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

Sec 93 - A double insurance exists where the same


person is insured by several insurers separately in
respect to the same subject and interest.

must hold such sum in trust for the insurers, according


to their right of contribution among themselves;
(e) Each insurer is bound, as between himself and the
other insurers, to contribute ratably to the loss in
proportion to the amount for which he is liable under
his contract.

16

benefit of the mortgagor (debt is


extinguished)


Different ways where a mortgagee may become the beneficial
payee in a policy (Geogina vs CA):
1. Assignment - as an assignee of the policy with the
consent of the insurer
2. As a pledgee of the thing without such consent (by
designation in the policy)
3. The original policy contains an open mortgage clause
4. A rider making the policy payable to the mortgagee
"as his interest may appear"
5. A "standard mortgage clause" containing a collateral
independent contract between the mortgagee and the
insurer
6. If the policy names the mortgagor the payee but the
procurement of such insurance is under a contract
duty to insure the mortgagee's benefit.

Mortgage clauses:
1. Standard or Union mortgage clause - acts of the
mortgagor does not affect the mortgagee
2. Open or loss-payable mortgage clause - acts of the
mortgagor affect the mortgagee

-
Where a new and distinct consideration passes from
the mortgagee to the insurer, a new contract is
created between them (novation).

Cases:
Geogina v. CA
F: Insured secured a fire insurance policy from insurer for his
business. Policy provided that the petitioner is obliged to notify
the insurer of any other policy obtained it over the property and
failure to do so shall mean forfeiture (other insurance clause).
However, the clause shall not apply if the total insurance is not
more than 200,000. The property was caught in a fire and thus
insured claimed for the indemnity. Respondent denied the
claim alleging violation of the condition.
H: Although the provision of the policy is a valid stipulation,
such was not violated by the insured despite its knowledge of
another insurance policy over the same property. In this case,
the other policies over the property were obtained by the
mortgagee. As a mortgagee, he holds a different insurable
interest over the property from that of the mortgagor. It may
therefore not be said that there is double insurance over the
property.

Tai Tong Chuache & Co. v. Insurance Commission
F: AP obtained a loan from TTC secured by a mortgage on a land
and building. Insured1 insured its interest as mortgagor over
said properties with the insurer1. Insured2 its interest as
mortgagee over the building with insurer2. Building and its
contents were totally razed by fire. Insurer2 paid its share of the
loss. Insurer1 refused to pay alleging that when the fire
occurred, debt had already been paid by the mortgagor thus
insured1 had lost interest over the property.
H: Insured 1 is entitled to indemnity for loss of the property due
to fire. A mortgagor does not lose its right/interest over a
mortgaged property upon payment of the debt which act was
not even substantiated by the insurer. (Not explicit in the case

but I guess the import of it is that: The interest sought to be


protected by the mortgagor is different from the interest
secured by the mortgagee. Mortgagors interest in the property
is the preservation of the property given as security.
Mortgagees interest is on the payment of the debt. In this case,
mortgagees claim has been satisfied by its insurer. The
satisfaction of the claim of the mortgagee does not carry with it
the satisfaction of the claim of the mortgagee which is the value
of the property insured and not the payment of the debt.)


Chapter IV
PERFECTION OF THE CONTRACT OF INSURANCE
By Kaye


A. Offer and acceptance; consensuality

Art. 1319 CC - Consent is manifested by the meeting of
the offer and the acceptance upon the thing and the
cause which are to constitute the contract. The offer
must be certain and the acceptance absolute. A
qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind
the offerer except from the time it came to his
knowledge. The contract, in such a case, is presumed to
have been entered into in the place where the offer
was made.

Notes:
-
In an insurance contract, the potential insured is the
one who makes the offer and the insurer is the one
who shall signify an acceptance. It is the insurer who is
responsible to asses whether the risk is probable or
improbable to happen. The insurance company
represents the policy holders to which risk is
distributed and therefore they should ensure that in
accepting a new insured, the risk they maintain is not
increased (public policy interest).
-
If an application has not been either accepted or
rejected, there is no contract yet as it is merely an
offer or proposal.

1. Delay in acceptance; tort theory

Art. 2176 CC - Whoever by act or omission causes
damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or
negligence, if there is no pre-existing contractual
relation between the parties, is called a quasi-delict and
is governed by the provisions of this Chapter.

Note: Acceptance by the insurer should be made the earliest
time possible so as not to jeopardize the interest of the insured
not getting an indemnity just because the insurer delayed in
assenting to the contract.

2. Delivery of policy

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17

acceptance was allegedly not sent to the insured. The policy


was issued on Dec 4. On Dec 18, insured communicated his
intention to withdraw application and insurer replied saying
that the application has previously been approved and sent the
copy of the policy the next day (Dec 19). Insured died on Dec
20.
H: There was no perfected life insurance policy. Civil code
provides that acceptance shall not bind the person making the
offer (potential insured) except from the time it came to his
knowledge. In this case, it was not proven that acceptance was
made known to the potential insured prior to his withdrawal of
application thus, his withdrawal is effectual.

B. Premium payment

Sec 77 - An insurer is entitled to payment of the
premium as soon as the thing insured is exposed to the
peril insured against. Notwithstanding any agreement
to the contrary, no policy or contract of insurance
issued by an insurance company is valid and binding
unless and until the premium thereof has been paid,
except in the case of a life or an industrial life policy
whenever the grace period provision applies.

Sec 78 - An acknowledgment in a policy or contract of
insurance or the receipt of premium is conclusive
evidence of its payment, so far as to make the policy
binding, notwithstanding any stipulation therein that it
shall not be binding until the premium is actually paid.

Notes:
-
Insurance premium - the agreed price for assuming
and carrying risk; the consideration paid to the insurer
for undertaking to indemnify the insured against a
specified peril.
-
In fire, casualty and marine insurance, the premium
becomes payable as soon as the risk attaches.
-
General Rule: Payment of the full premium shall
perfect the contract of insurance.
Exception: Upon partial payment of the premium,
the insurance contract becomes perfectly binding
and nonpayment of the balance does not produce
the cancellation of the contract when the case
falls under any of the following instances:
1. Life insurance or industrial insurance (sec 77)
2. Issuance of acknowledgment receipt of premium
which is a conclusive evidence of payment (section 78)
3. Agreement to pay in instalments
4. Agreement to grant credit extension
5. Estoppel (such that if it has been a practice of the
insurer to grant extension of several days for payment
of renewed contracts, insurer cannot allege that a
payment made within such period is not acceptable)

Sec 64 - No policy of insurance other than life shall be
cancelled by the insurer except upon prior notice
thereof to the insured, and no notice of cancellation
shall be effective unless it is based on the occurrence,
after the effective date of the policy, of one or more of

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

Notes:
-
Policy - the written document embodying the terms
and stipulations of the contract of insurance between
the insured and the insurer.
-
Delivery is the act of putting the insurance policy into
the possession of the insured. It is the communication
of the insurer's acceptance of the offer of the
applicant-insured.
-
Delivery is not, however, a prerequisite to a valid
insurance contract. The delivery of a binding receipt
may take the substitute of delivery if policy for
purposes of reckoning the time of commencement of
contract.
-
Binding receipt - a conditional acceptance/receipt by
the insurer which is dependent upon the happening of
a future event.
-
Where premium remains unpaid despite delivery of
the policy, insurer cannot be presumed to have
extended credit.
-
There is no binding insurance contract where no
premium is paid unless credit is given or there is a
waiver or some agreement obviating the necessity for
prepayment of the premium. But where premium has
been previously paid, the contract is perfected upon
approval although the policy has not yet been issued.

Cases:
Perez v. CA
F: Insured filled out the application for the upgrade of policy
and paid for the premium partially. However, the agent took
the form to the the Gumaga office which he failed to turn over
to Manila office. Prior to the approval of the policy insured died
and wife thus claim for the indemnity. Insurer grants the
original policy but denies the upgraded one saying that at the
time the additional policy was approved, insured had died.
H: Insurers acceptance is signified by approval and delivery of
policy by the insurance company and NOT upon the filing of the
application form. There has to be a meeting of the offer and
acceptance for the insurer to be bound.

Vda. De Sindayen v. Insular
F: Insured and his wife made a written application to insurer,
through the latters agent, for a life insurance policy. It was
agreed with the agent that the policy would be delivered to his
aunt who shall also tender the balance of the first premium.
Agent did as agreed and also asked if the insured was in good
health. Aunt replied that she has not any idea of any sickness of
the insured. Day after delivery of policy, insured suffered severe
headache and died a few days after thus insured reclaimed the
policy and forfeited premiums.
H: Beneficiaries of the insured are entitled to indemnity. The
delivery to the aunt of the insured, which was constituted in the
application as agent of the insured, is sufficient to bind the
parties into the contract. When the policy was delivered and
accepted, the insured was not yet sick and therefore he was still
in good health (condition in the policy) when the policy took
effect.

Enrique v. Sun Life
F: Insured applied for an insurance policy which was approved
in the insurers head office in Montreal on Nov 26 but letter of

18


Sec 66 - In case of insurance other than life, unless the
insurer at least forty-five days in advance of the end of
the policy period mails or delivers to the named insured
at the address shown in the policy notice of its
intention not to renew the policy or to condition its
renewal upon reduction of limits or elimination of
coverages, the named insured shall be entitled to
renew the policy upon payment of the premium due on
the effective date of the renewal. Any policy written for
a term of less than one year shall be considered as if
written for a term of one year. Any policy written for a
term longer than one year or any policy with no fixed
expiration date shall be considered as if written for
successive policy periods or terms of one year.


Notes:
-
Another exception to Sec 77 is the provisions on
renewal of the contract of insurance.
-
In such case, the insured is allowed to pay the
premium for the renewal of the policy even after the
lapse of the original term if the insurer fails to notify
the insured of its intention not to renew the contract
at least 45 days prior to the expiration of the such
term and such date of payment shall be considered
the date of effectivity of the renewed policy.
If the original policy contains a provision
regarding renewal, such renewal shall be
considered an extension of the original one. But if
the contract is silent as to renewal and this
provision applies, the renewal shall be considered
a new contract independent of the first.

Cases:
Velasco v. Apostol
F: Petitioners claim indemnity from the insurer of the
defendant. The court, however, exonerated the insurer on the
ground that at the time of accident, the policy has not been
paid and was thus not in force. Petitioners assert that there is
an implied agreement to grant credit extension and that the
acceptance of late payment and delivery of the policy shows
estops the insurer.
H: There is no proof of implied agreement to grant credit
extension. Unless there is a clear proof of such grant of credit
extension, it cannot be deemed agreed upon. Also, the
subsequent payment was accepted without knowledge that the
risk insured against had already happened.

Valenzuela v. CA
F: Valenzuela was an agent of Philamgen in soliciting and selling
non-life insurances and was paid on commission basis. Because
of his reluctance to agree on a proposal by Philamgen to share
with his commissions, V was terminated and was held liable to
pay half of the unpaid and uncollected premiums he contracted
with policyholders.

H: V cannot be held liable to pay the unpaid premiums since


such non-payment rendered the policies ineffective and
inexistent. Sec 77 provides that the remedy for the non-
payment of premiums is to put an end to and render the
insurance policy not binding. It is inconsistent for the company
to hold such policies invalid for recovering indemnity and to
collect the unpaid premiums of the policies.

Tibay v. CA
F: Petitioners property, which was insured but premiums only
partially paid, was completely destroyed by fire. 2 days after,
petitioner tendered the full payment of the premiums and on
the same day filed a claim for indemnity.
H: Insurer is not liable because the policy became effective only
upon full payment of the premiums which happened 2 days
after the occurrence of the risk insured against.
Dissent, J. Vitug: Sec 77 does not provide that full payment
should be tendered in order that the policy be rendered
effective. An acknowledgement receipt issued by the insurer is
conclusive proof of payment and evidence of effectivity of
policy. Since the insurer received partial payment prior to the
happening of the peril, the insurance is effective and the
insured should be allowed to recover indemnity.

Makati Tuscany v. CA
F: Insured obtained 3 policies, the second and third policies as
renewals, all of which are paid for in installments. On the third
policy, the insured refused to pay the last few installments
alleging that the policy provided that acceptance of installment
payments are not conclusive evidence of effectivity of the policy
and the company may still deny liability on such contracts.
H: It is clearly showed that the intention of the parties was that
the premiums are payable on installments and therefore
policies were rendered effective upon payment of the first
installment. Sec 77 does not prohibit any agreement between
the parties to an installment arrangement. Such agreement may
be express or implied from the conduct of the parties.

South Sea Surety v. CA
F: Insured issued a check in the name of the insurer which was
received by its agent, Mr. Chua. Mr. Chua received such check
but was able to remit the same only after the risk insured
against happened. Insurer thus claim exception from the
liability alleging that at the time of loss, the policy has not been
paid for and was not in force.
H: The receipt of the agent of the insurer is considered receipt
by the latter and therefore renders the policy immediately
effective. In this case, since the agent received payment before
the time of loss, the policy is deemed effective when the risk
insured against happened making the insurer liable to the
insured.

Areola v. CA
F: Insured paid the premiums in full through the branch
manager who failed to remit (and actually misappropriated) the
same to the main office. The insurer, not knowing of the
complete payment, cancelled the policy. Upon learning of the
payment made by the insured, insurer reinstated the contract.
H: Payment to the branch manager is considered as payment to
the insurer the former acting as its agent. Cancellation of the
policy was erroneous and thus entitles the insured to damages.

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

the following:
(a) non-payment of premium;
xxx

19

Sec 227 - In the case of individual life or endowment


insurance, the policy shall contain in substance the
following conditions:

xxx

(f) A provision specifying the options to which the
policyholder is entitled to in the event of default in a
premium payment after three full annual premiums
shall have been paid. Such option shall consist of:

(1) A cash surrender value payable upon surrender of
the policy which shall not be less than the reserve on
the policy, the basis of which shall be indicated, for the
then current policy year and any dividend additions
thereto, reduced by a surrender charge which shall not

be more than one-fifth of the entire reserve or two and


one-half per centum of the amount insured and any
dividend additions thereto;

(2) One or more paid-up benefits on a plan or plans
specified in the policy of such value as may be
purchased by the cash surrender value;

xxx

(h) A table showing in figures cash surrender values and
paid-up options available under the policy each year
upon default in premium payments, during at least
twenty years of the policy beginning with the year in
which the values and options first become available,
together with a provision that in the event of the failure
of the policyholder to elect one of the said options
within the time specified in the policy, one of said
options shall automatically take effect and no
policyholder shall ever forfeit his right to same by
reason of his failure to so elect;

xxx

Notes:
1. Cash Surrender Value - the amount the insured is
entitled to receive if he surrenders the policy after 3
full annual premiums, the value of which is always
lesser than the total amount of premiums paid.
- The excess of the premium paid over the annual cost
of insurance, with accumulations of interest,
constitutes the surrender value. (Total premiums paid
+ interests - annual cost of insurance = CSV)
2. Extended insurance - the insured is given the right,
upon default, after he payment of at least three full
annual premiums, to have the policy continued to the
amount as the CSV will purchase
3. Paid-up insurance - the insured is given the right, upon
default, after he payment of at least three full annual
premiums, to have the policy continued in force from
the date of default for the whole period of the
insurance without furtherbpayment of premiums
Illustration of extended and paid-up: Let's say I have
a life insurance policy worth P3M which I took out 3
years ago and for which I have paid 3 full annual
premiums of P100,000 each year. At the beginning of
the 4th year I defaulted in payment of the premium.
The current CSV of my policy is P50,000. 2 possible
scenarios:
a. If the policy contains an extended insurance
clause, I will have a full coverage of P3M for 6
months because that is the term of policy
that my CSV could purchase.
b. If the policy contains a paid-up insurance
clause, I will have a policy with a term of 1
full year without the need to pay additional
premiums but the coverage will only be for
P1.5M which shows that the P3M coverage
that my CSV could buy for 6 months is spread

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez


UCPB General Insurance v. Masagana Telamart
F: Despite a previous notice by the insurer of its intention not to
renew, insured paid for the premiums for the renewal of the
policies and the same was accepted by the cashier of the
insurer. Premium payments were returned by the insurer to the
insured saying that the policies were not renewed and that the
payment was made after the fire occurred. Insured insists on
paying the policies on saying that it paid within the usual credit
period granted to him by the insurer (60-90-day credit term).
H (1999 decision): Sec 77 does not allow any agreement to an
extension of credit. Payment beyond the date of effectivity is
not valid. In as much as payment was made after the fire and
the credit term being void, such payment does not produce a
binding effect and so insurer is not liable.
H (2001 decision): Reversing the 1999 decision, the court held
that an agreement to grant credit extension is valid as it is not
expressly prohibited by the code. Such grant is made an
exception to the rule on Sec 77. A payment within such term
binds the insurer and renders the policy effective.
Dissent to 2001 decision: The majority was in error when it
applied the Makati Tuscany case in deciding the present case. In
the Makati Tuscany case, there was a partial payment which
made the contract effective. In the present case, first payment
was made after the fire. Also, there was no clear and express
agreement as to the grant of credit extension in the policy.
Estoppel cannot lie to allow what is expressly prohibited by law.
The requirement for payment of premiums is a mandate of
public policy which cannot be bypassed by invoking estoppel.

American Home Insurance v. Chua
F: Insured deposited the check in payment of premiums for the
policy one day before the fire razed the property of the insured.
Upon deposit of check, insurer issued an acknowledgement
receipt. Insurer claims exception from liability on the ground
that when the risk insured against occurred, the check was yet
to be cashed and therefore has yet to produce the effect of
payment.
H: The receipt issued is conclusive evidence of payment.
Payment by check produces the effect of payment when cashed
but effectivity is reckoned from time of tendering of check.

C. Non-default options in life insurance

20


Case:
Manufacturer's Life Insurance v. Meer
F: Policy contains a provision that after 3 years of being in force,
the same shall not lapse despite non-payment of premiums for
renewal and the cash surrender value and dividends shall
automatically answer for such premiums (automatic premium
loan). Commissioner if Internal Revenue assesses such CSVs and
dividends as applied to be taxable collections of the insurer.
H: CIR is correct. Th CSVs and dividends due to the insured,
when applied as an automatic premium loan, takes the form of
premium payments from the insured and are thus properly
considered as collections by the insurer. They are removed from
the books of the insurer as liabilities to the insured and are
recorded as cash receipts/collections/revenues.

D. Reinstatement of a lapsed policy of life insurance

Sec 227 - In the case of individual life or endowment
insurance, the policy shall contain in substance the
following conditions:
xxx
(j) A provision that the policyholder shall be entitled to
have the policy reinstated at any time within three
years from the date of default of premium payment
unless the cash surrender value has been duly paid, or
the extension period has expired, upon production of
evidence of insurability satisfactory to the company
and upon payment of all overdue premiums and any
indebtedness to the company upon said policy, with
interest rate not exceeding that which would have been
applicable to said premiums and indebtedness in the
policy years prior to reinstatement.

xxx

Case:
Andres v. Crown Life Insurance
F: Insureds life is covered under a policy for which the first and
second premiums were paid but the last two were not. Insurer
informed the insured and her husband that the policy had
lapsed and that they had 60 days to file for reinstatement.
Spouses filed for reinstatement. Upon initial payment for the
balance, policy was issued but the insured died even before
they completed payment. Husband tendered the balance at the
same instance that he filed for a claim for the proceeds of the
policy which the insurer denied.
H: There was no perfected/reinstated policy. The tender of
payment for overdue premiums after the death of the insured
cannot produce the effect of reinstatement. After the death of
the insured, insurer cannot be compelled to accept payment for
reinstatement of the policy.

E. Refund of Premiums


Sec 79 - A person insured is entitled to a return of
premium, as follows:
(a) To the whole premium if no part of his interest in
the thing insured be exposed to any of the perils
insured against;

(b) Where the insurance is made for a definite period of
time and the insured surrenders his policy, to such
portion of the premium as corresponds with the
unexpired time, at a pro rata rate, unless a short period
rate has been agreed upon and appears on the face of
the policy, after deducting from the whole premium
any claim for loss or damage under the policy which has
previously accrued; Provided, That no holder of a life
insurance policy may avail himself of the privileges of
this paragraph without sufficient cause as otherwise
provided by law.

Sec 80 - If a peril insured against has existed, and the
insurer has been liable for any period, however short,
the insured is not entitled to return of premiums, so far
as that particular risk is concerned.

Sec 81 - A person insured is entitled to return of the
premium when the contract is voidable, on account of
fraud or misrepresentation of the insurer, or of his
agent, or on account of facts, the existence of which
the insured was ignorant without his fault; or when by
any default of the insured other than actual fraud, the
insurer never incurred any liability under the policy.

Sec 82 - In case of an over-insurance by several
insurers, the insured is entitled to a ratable return of
the premium, proportioned to the amount by which
the aggregate sum insured in all the policies exceeds
the insurable value of the thing at risk.

When may premiums be refunded:
1. Return of the whole premium if no part of his interest
is exposed to peril (where risk never attached)
2. If policy is for a definite period, upon surrender of the
unexpired portion (not available to life insurance)
3. If the contract if insurance is voidable through fraud
committed by the insurer
4. Over insurance




A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

4.

into 1 year. That is why this is often called


"reduced paid-up insurance".
Automatic premium loan - protects the insured against
unintentional lapse of the contract by advancing, in
the form of policy loan, the unpaid amount of the
premium due but with interest.

21

Chapter V
THE POLICY, PARTIES THERETO AND RIGHTS THEREON

c)
d)

By Phimie

A.
1. Definition of a Policy of Insurance

e)
f)
g)

Sec. 49 The written instrument in which a contract of


insurance is set forth, is called a policy of insurance.

Sec. 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 to 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 insure or owner, any
rider, clause, warranty or endorsement issued after the
original policy shall be countersigned by the insured or
owner, which countersignature shall be taken as his
agreement to the contents of such rider, clause,
warranty or endorsement.

Group insurance and group annuity policies,
however, may be typewritten and need not be in
printed form.

Sec. 226. No policy, certificate or contract of insurance
shall be issued or delivered within the Philippines
unless in the form previously approved by the
Commissioner, and no application form shall be used
with, and no rider, clause, warranty or endorsement
shall be attached t, printed or stamped upon such
policy, certificate or contract unless the form of such
application, rider, clause, warranty or endorsement has
been approved by the Commissioner.


Sec. 51. A policy of insurance must specify:
a) The parties between whom the contract is
made;
b) The amount to be insured except in the cases
of open or running policies;


Sec. 228. No policy of group life insurance shall be
issued and delivered in the Philippines unless it
contains in substance the following provisions, or
provisions which in the opinion of the Commissioner
are more favorable to the persons insured, or at least
as favorable to the persons insured and more favorable
to the policy-holders:
(Very long provision, for enumeration, please check the
Insurance Code) Ed


Form:

The Insurance Code does not require a particular form


for the validity of the contract. However, the policy
must contain the enumeration in Sec. 51
The policy must be in printed form and must be
approved by Commissioner. Group insurance and
group annuity policies, however, may be typewritten.
Printed policy is the best evidence of contract.


Contents:
Enumerated in Sec. 51
Other stipulations not required by law may be
included as long as they are not prohibited or are
inconsistent with the law.
Missing provisions required does not void the while
policy. Missing provisions will be read into the policy
and will substitute those which are in conflict with the
law
Stipulations not in the exact terms of the statute, if
more favorable to the insured, will be enforced.


3. Riders and Endorsements; Rules on Formalities and
Effectivity (Sec. 50, par. 2)

Rider a printed or typed stipulation contained on a slip of
paper attached to the policy and forming an integral part of the
policy.
In case of conflict between rider and stipulations of
the policy: the rider prevails, as being a more
deliberate expression of the agreement of the
contracting parties.
The code states that the rider needs to be attached or
pasted to the policy and descriptive title or name of
the rider, clause, warranty, or endorsement is
mentioned and written on the blank spaces provided
in the policy

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez


Definition of a Policy:
It is the written document embodying the terms and
stipulations of the contract of insurance between the
insured and the insurer.
It is a contract of adhesion
It is different from the contract itself

2. Forms and Contents

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;
The property or life insured;
The risks insured against; and
The period during which the insurance is to
continue.

22

No countersignature by the insured is necessary,


unless such has been added after the policy is issued.


Warranty inserted or attached to a policy to eliminate specific
potential increases of hazard during the policy
term owing to: 1) actions of the insured or 2) conditions of the
property


Sec. 52. Cover notes may be issued to bind insurance
temporarily pending the issuance of the policy. Within
sixty (60) days after the issue of the cover note, a policy
shall be issued in lieu thereof, including within its terms
the identical insurance bond under the cover note and
the premium thereof.

Cover notes may be extended or renewed
beyond such sixty (60) days with the written approval
of the Commissioner if he determines that such
extension id not contrary to and is not foe the purpose
of violating any provisions of this Code. The
Commissioner may promulgate rules and regulations
governing such extensions for the purpose of
preventing such violations and may by such rules and
regulations dispense with the requirement of written
approval by him in the case of extension in compliance
with such rules and regulations.

Clause an agreement between the insurer and the insured on
certain matters relating to the liability of the insurer in case of
loss

Endorsement any provision added to an insurance contract
altering its scope and application.


4. Cover Notes

Cover note is 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 issue of a
formal policy, provided it is later determined that the applicant
was insurable at the time it was given.

It is also called a binding slip or a binder
t is a temporary contract usually issued after the first
premium has been paid, pending the approval of the
contract
It shall be deemed to be a contract of insurance

Effectivity of a cover note:
A cover note shall be valid and binding for a period not
exceeding (60) days from the date of its issuance,
whether or not the premium has been paid, but such
cover note may be cancelled by either party upon at
least seven (7) days notice to the other party.
If it is not cancelled, a policy of insurance shall be
issued in place of the cover note within sixty (60) days
after its issuance.

It may be renewed or extended with the written


approval of the Insurance Commission and with the
certification of the president, vice-president or
general manager of the insurance company that the
risks, its value and/or the premium has not been
determined and that it does not violate any provisions
of the Insurance Code or any laws related to it.


Lim v Sun Life Insurance
F: L applied for a life insurance with SL, naming his wife as the
beneficiary. L died after the issuance of the provisional policy
but before approval of the application. P (insureds wife)
brought an action to recover. Provisional policy stated that L is
to be assured with the terms and conditions of the insurance
policy, which may be granted, for 4 months only. Provided, That
said insurance policy would be approved.
I: WoN there was a perfected contract of insurance
H: No. There shall be no perfected contract of insurance even if
premium was already paid if there is a condition which states
that no liability shall attach until the principal approves the risk
and a receipt is given by the agent.

Great Pacific Life v CA (1979)
F: Ngo Hing applied for a 20-year endowment for his daughter
under petitioner, GP. Upon Ns payment of the premium, agent
of GP gave him a binding deposit receipt pending (BDRP) the
applications approval. GP rejected the approval but such was
not communicated to N. Ns daughter died 2 months later and
he files a claim for recovery.
I: WoN BDRP was a temporary contract of life insurance
H: Where an agreement is made between the applicant and the
agent, no liability shall attach until the principal approves the
risk and a receipt is given by the agent. The acceptance is
merely conditional and is subordinated to the act of the
company in approving or rejecting the application. In life
insurance, a binding slip or binding receipt does not insure
by itself.

Pacific Timber Export v CA
F: PT secured temporary insurance from Workmens Insurance
Co. for its exportation of logs. After the issuance of the cover
note but before the issuance of the two marine policies, some
of the logs were lost during the loading operations. PT
demanded payment of the loss. WI denied the claim on the
ground that the cover note is null and void for lack of valuable
consideration.
I: WoN the cover note was null and void for lack of valuable
consideration
H: The fact that no separate premium was paid on the cover
note does not affect its validity. Cover notes do not contain
particulars as basis for the computation of premiums, and as a
consequence, no separate premium was intended to be paid on
a cover note.

B. Types of Non-Life Insurance Policies

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

Sec. 60. An open policy is one in which the value of the
thing insured is not agreed upon, but is left to be

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

23


2.


Sec. 161. In estimating a loss under an open policy of
marine insurance the following rules are to be
observed:
1) The value of a ship is its value at the
beginning of the risk, including all articles or
charges which add to its permanent value or
which are necessary to prepare it for the
voyage insured;
2) 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

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.

Sec. 156. A valuation in a policy of marine insurance in
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; except that when a thing has been
hypothecated by bottomry or respondentia, before its
insurance, and without the knowledge of the person
actually procuring the insurance, he may show the real
value. But a valuation fraudulent in fact, entitles the
insurer to rescind the contract.

1.

Open Policy
-
it is one in which a certain agreed sum is written
on the face of the policy not as the value of the
property insured, but as the maximum limit of the
insurers liability.
Insurer only pays the actual cash value of the property
as determined at the time of loss.
Amount recoverable is determined by the amount of
the loss but not exceeding the face amount of the
policy

Valued Policy
-
it is one in which the parties expressly agree on
the value of the subject matter of insurance.
Face value of the policy is the max amount insurer
pays in case of loss
Value of the thing insured
Liability of the insurer under a life policy is measured
by the face value of the policy
In the absence of fraud or mistake, the agreed value of
the thing insured will be paid in case of total loss of
the property, unless the insurance is for a lower
amount.


3.

Running Policy
-
it is intended to provide indemnity for property
which cannot well be covered by a valued policy
because of its frequent change of location and
quantity, or for property of such a nature as not
to admit of a gross valuation.
It also denotes insurance which contemplates that the
risk is shifting, fluctuating, or varying, and which
covers a class of property rather than any particular
thing.


Development Insurance v IAC
F: A fire occurred in the building of Philippine Union Realty
Corp. (herein Respondent) and it sued for recovery of damages
against Development Insurance Corp. (herein Petitioner) on
basis of an insurance contract.
I: WoN elevators considered part of the insured interest.
WoN Respondent should share pro-rata in the loss sustained.
C: The court held that the policy in this case is an open policy. It
is one in which the value of the thing insured is not agreed upon
but is left to be ascertained in case of loss. This means that the
actual loss, as determined, will represent the total indemnity
due the insured from the insurer except only that the total
indemnity shall not exceed the face value of the policy.

Harding v Commercial Union Assurance
F: H insured her car under CUA. In the proposal it was indicated
that the price paid for the car was 3.5k, but after the companys
mechanic examined the car he said that the present value was
3k. The policy stated that CUA would indemnify H up to the
value of the car or 3k, whichever is higher. The car was
subsequently destroyed by fire and H filed a claim. CUA refused
to pay, claiming that there was misrepresentation as to the
value of the car.
H: Since there was agreement the insured and insurer as to be
the value of the car, such valuation shall bind both parties. It is
not right to say that the validity of all valued policies must
depend upon absolute correctness of such estimated value.
Thus, in the absence of fraud or misrepresentation, the agreed
price between parties shall control.

C. Parties

Essential requisites for a person to be a party in an insurance
contract:

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

ascertained in case of loss.



Sec. 61. A valued policy is one which expresses on its
face an agreement that the thing insured shall be
valued at a specific sum.

Sec. 62. A running policy is one which contemplates
successive insurances, and which provides that the
object of the policy may be from time to time defined,
especially as to the subjects of insurance, by additional
statements or endorsements.

24

Natural person:
1) Must be competent to enter into a contract
2) Must possess insurable interest
3) Must not be a public enemy
Juridical Person

b)

Parties to an Insurance Contract:
Insurer the party who assumes or accepts the risk of loss and
undertakes for a consideration to indemnify the insured or to
pay him a certain sum on the happening of a specified
contingency or event
Insured the person in whose favor the contract is operative
and who is indemnified against, or is to receive a certain sum
upon the happening of a specified contingency or event. He is
the person whose loss is the occasion for the payment of the
insurance proceeds by the insurer.
Beneficiary the person designated by the terms of the policy
as the one to receive the proceeds of the insurance.


1. Insurer

Sec. 6. Every person, partnership, association, or
corporation duly authorized to transact insurance
business as elsewhere provided in this code, may be an
insurer.
Sec. 184. For purposes of this Code, the
term "insurer" or "insurance company" shall include all
individuals, partnerships, associations, or corporations,
including government-owned or controlled
corporations or entities, engaged as principals in the
insurance business, excepting mutual benefit
associations. Unless the context otherwise requires, the
terms shall also include professional reinsurers defined
in section two hundred eighty."Domestic
company" shall include companies formed, organized
or existing under the laws of the Philippines. "Foreign
company" when used without limitation shall include
companies formed, organized, or existing under any
laws other than those of the Philippines.

Sec. 185. Corporations formed or organized to save any
person or persons or other corporations harmless from
loss, damage, or liability arising from any unknown or
future or contingent event, or to indemnify or to
compensate any person or persons or other
corporations for any such loss, damage, or liability, or
to guarantee the performance of or compliance with
contractual obligations or the payment of debt of
others shall be known as "insurance corporations".
The provisions of the Corporation Law shall
apply to all insurance corporations now or hereafter
engaged in business in the Philippines insofar as they
do not conflict with the provisions of this chapter.

Insurer:
Types are enumerated in Sec. 6
Engaged as principals in the insurance business
Does not include mutual benefit organizations



Sec. 299. No insurance company doing business in the
Philippines, nor any agent thereof, shall pay any
commission or other compensation to any person for
services in obtaining insurance, unless such person shall
have first procured from the Commissioner a license to
act as an insurance agent of such company or as an
insurance broker as hereinafter provided.
No person shall act as an insurance agent or
as an insurance broker in the solicitation or
procurement of applications for insurance, or receive
for services in obtaining insurance, any commission or
other compensation from any insurance company
doing business in the Philippines, or any agent thereof,
without first procuring a license to act from the
Commissioner, which must be renewed annually on the
first day of January, or within six months thereafter.
.Such license shall be issued by the Commissioner only
upon the written application of the person desiring it,
such application if for a license to act as insurance
agent, being approved and countersigned by the
company such person desires to represent, and shall be
upon a form prescribed by the Commissioner giving
such information as he may require, and upon payment
of the corresponding fee hereinafter prescribed. The
Commissioner shall satisfy himself as to competence
and trustworthiness of the applicant and shall have the
right to refuse to issue or renew and to suspend or
revoke any such license in his discretion. No such
license shall be valid after the thirtieth day of June of
the year following its issuance unless it is renewed.
(As amended by Presidential Decree No. 1455).

Insurance Agent:
There is need to procure from the Commissioner a
license to act as an insurance agent of a company or as
an insurance broker
Such license must be renewed annually
Application filed to the Commissioner must be
approved and countersigned by the company

White Gold Marine Services v Pioneer Insurance
F: WG procured a protection and indemnity coverage for its
vessels from The Steamship Mutual Underwriting Association
through P. WG failed to fully pay its accounts, SMUA refused to
renew the coverage. SMUA thereafter filed a case against WG
for collection of sum of money to recover the latters unpaid
balance. WG filed a complaint before the Insurance Commission
claiming that SMUA and P for violating. According to WG SMUA
violated Secs. 186 &187, and that P violated Secs. 299, 300, and
301 in relation to Secs. 302 and 303.
H: No insurer or insurance company is allowed to engage in the
insurance business without a license or a certificate of authority
from the Insurance Commission.

Pandiman v Marine Manning Mngt. Corp.
F: Benito Singhid was hired by Fullwin Maritime Limited
(Fullwin), through its local agent, Marine Manning and
Management Corporation (MMMC), as chief cook on board the

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

a)

25

Section 3. Article 236 of the same Code is also hereby


amended to read as follows:
"Art. 236. Emancipation shall terminate
parental authority over the person and
property of the child who shall then be
qualified and responsible for all acts of civil
life, save the exceptions established by
existing laws in special cases.
"Contracting marriage shall require parental
consent until the age of twenty-one.



FC Art. 110. The spouses retain the ownership,
possession, administration and enjoyment of their
exclusive properties.
Either spouse may, during the marriage,
transfer the administration of his or her exclusive
property to the other by means of a public instrument,
which shall be recorded in the registry of property of
the place the property is located.

FC Art. 111. A spouse of age may mortgage, encumber,
alienate or otherwise dispose of his or her exclusive
property, without the consent of the other spouse, and
appear alone in court to litigate with regard to the
same.

Sec. 7. Anyone except a public enemy may be insured.



Sec. 54. When an insurance contract is executed with
an agent or trustee as the insured, the fact that his
principal or beneficiary is the real party in interest may
be indicated by describing the insured as agent or
trustee, or by other general words in the policy.

Sec. 55. To render an insurance effected by one partner
or part-owner, applicable to the interest of his co-
partners or other part-owners, it is necessary that the
terms of the policy should be such as are applicable to
the joint or common interest.

Sec. 56. When the description of the insured in a policy
is so general that it may comprehend any person or any
class of persons, only he who can show that it was
intended to include him can claim the benefit of the
policy.

Sec. 57. A policy may be so framed that it will inure to
the benefit of whomsoever, during the continuance of
the risk, may become the owner of the interest insured.

Republic Act No. 6809 December 13, 1989
AN ACT LOWERING THE AGE OF MAJORITY FROM
TWENTY-ONE TO EIGHTEEN YEARS
Section 1. Article 234 of Executive Order No. 209, the
Family Code of the Philippines, is hereby amended to
read as follows:
"Art. 234. Emancipation takes place by the
attainment of majority. Unless otherwise
provided, majority commences at the age of
eighteen years."
Section 2. Articles 235 and 237 of the same Code are
hereby repealed.


NCC Art. 1390. The following contracts are voidable or
annullable, even though there may have been no
damage to the contracting parties:
(1) Those where one of the parties is incapable of
giving consent to a contract;
(2) Those where the consent is vitiated by mistake,
violence, intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled
by a proper action in court. They are susceptible of
ratification.


3.

Beneficiaries (life insurance)



a. Designation and Right to Change
Kinds of Beneficiaries:
1. Insured himself
2. Third person who paid a consideration
3. Third person through mere bounty of insured

Beneficiary:
Beneficiary may be a stranger and has no insurable
interest in the insureds life.
If no beneficiary is designated in the life insurance
policy, the proceeds thereof will go to his legal heirs in
accordance with law.
Designation of Beneficiary must be done in good faith
and not merely to circumvent the law.

Right to Change:

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

vessel MV Sun Richie Five for a term of twelve (12) months. The
vessel and its crew were insured with Ocean Marine Insurance
Association Limited (OMMIAL), a Protection and Indemnity Club
(P&I Club) of which Sun Richie Five Bulkers S.A., owner of the
vessel Sun Richie Five, is a member. OMMIAL transacted
business in the Philippines through its local correspondent,
Pandiman Philippines, Inc. (PPI) Benito suffered a heart attack,
and subsequently died. Rosita, widow of Benito, filed a claim for
death benefits with MMMC, which, however, referred her to
PPI. PPI approved but R was still not paid.
H: The insurance contract between the insurer and the insured
shall be binding only upon the parties (and their assigns and
heirs) who execute the same.


2. Insured (cf. cestui que vie in life insurance)
Cestui que vie the person upon whose life the insurance is
made

Public Enemy a nation with whom the Philippines is at war
and it includes every citizen or subject of such nation.

26

The insured has the right to change the beneficiary


designated unless such right was waived in the policy.
Insured is presumed to have the right to change his
beneficiary even if the policy is silent on the matter.
Once the right to change the beneficiary is waived,
then the beneficiary is irrevocable.


Sec. 11. The insured shall have the right to change the
beneficiary he designated in the policy, unless he has
expressly waived this right in said policy.

b. Statutory Limitations
Limitations in the Appointment of Beneficiary:
Insurance is in a concept of a donation if the
beneficiary is a third person since they are founded on
the same consideration of liberality
General rule: conviction is necessary for a person to be
disqualified as a beneficiary under the second item in
Art. 739
For cases of adultery and concubinage, there is no
need for a conviction. Preponderance of evidence is
enough.

NCC Article 739. The following donations shall be void:
(1) Those made between persons who were guilty of
adultery or concubinage at the time of the donation;
(2) Those made between persons found guilty of the
same criminal offense, in consideration thereof;
(3) Those made to a public officer or his wife,
descendants and ascendants, by reason of his office.
In the case referred to in No. 1, the action for
declaration of nullity may be brought by the spouse of
the donor or donee; and the guilt of the donor and
donee may be proved by preponderance of evidence in
the same action.

NCC Article 2011. The contract of insurance is governed
by special laws. Matters not expressly provided for in
such special laws shall be regulated by this Code.

NCC Article 2012. Any person who is forbidden from
receiving any donation under article 739 cannot be
named beneficiary of a life insurance policy by the
person who cannot make any donation to him,
according to said article.

Insular v Ebrado
F: E acquired a whole-life insurance from Insular. rider for
Accidental Death for the same amount E designated wife C as
his wife, as the revocable beneficiary in his policy. P, claiming to
be Es wife, also filed her claim as the widow of the deceased
insured. She asserts that she is the one entitled to the insurance
proceeds, not the common-law wife, C. In doubt as to whom
the insurance proceeds shall be paid, the insurer, The Insular
Life Assurance Co., Ltd. commenced an action for Interpleader
before the Court of First Instance
H: The bar in donations between legitimate spouses and those
between illegitimate ones should be enforced in life insurance
policies since the same are based on similar consideration,

which is pure beneficence analogous to a civil donation. Any


person who cannot receive a donation cannot be named as
beneficiary in the life insurance policy of the person who cannot
make the donation.

Consuguera v GSIS
F: C contracted 2 marriages, to D and B. After his death, GSIS
life insurance proceeds went to B as his beneficiary. However,
he did not designate any beneficiary for his GSIS retirement
insurance.
H: If no beneficiary is designate din the policy, benefits will
accrue to the estate, hence both families are entitled to half of
the retirement benefit. The beneficiary named in the life
insurance does NOT automatically become the beneficiary in
the retirement insurance.

SSS v Davac
F: D was a member of SSS and named Candelaria Davac as his
beneficiary because according to him she was his wife. Upon his
death, one Lourdes Tuplano also claimed for the death benefits
under SSS. D actually contracted 2 marriages. SSS decided to
suspend payment and subsequently resolve the claim in favor of
Davac. Not satisfied with the resolution, respondent Lourdes
Tuplano brought appeal to the SC.
H: Article 739 is not applicable to herein appellee Candelaria
Davac because she was not guilty of concubinage there being
no proof that she had knowledge of the previous marriage. If
there is a named beneficiary and the designation is not invalid,
it is not the heirs of the employee to receive the benefits unless
they are the ones designated. Therefore, SSS did not err in
awarding the benefits to Candelaria.

Del Val v Del Val
F: The Plaintiff and defendant in this case are brother and
sisters. G del Val died intestate and an administrator was
appointed for his estate. When the children of G reached
majority, the administration was closed (without Gs estate
being partitioned). During his lifetime, G took out a life
insurance policy and named the defendant as the beneficiary.
After the death of G, the defendant collected the face of the
policy (Php40,000). The defendant used 18,000 to repurchase
land (in the name of plaintiffs and defendants) which was
earlier sold (but with option to repurchase) by G to a third
person. The plaintiffs now contend that the value of the policy
(as well as the land bought with it) should be partitioned among
them.
H: The life-insurance policy belongs exclusively to the defendant
(as beneficiary). The policy was clear that it belongs exclusively
to the beneficiary and not to the estate. It is consistent with the
wording of the Code of Commerce which says that The amount
which the underwriter must deliver to the person insured, in
fulfillment of the contract, shall be the property of the latter,
even against the claims of the legitimate heirs or creditors of
any kind whatsoever of the person who effected the insurance
in favor of the former.

Gercio v Sun Life Assurance
F: SL issued a life insurance policy a twenty-year endowment
policy on the life of G. The policy did not include any provision
reserving to the insured the right to change the beneficiary. His
wife, Z committed adultery and they got divorced. G requested

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

27

Sec. 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 disqualified.

For the protection of the insured: when beneficiary wilfully
brings about the death of insured, heirs of insured shall receive
proceeds of said policy.


D. Rights of Insured over a Life Insurance Policy

1. Right to Assign (cf. change of beneficiary)



Assignment v. Change of Beneficiary:
Upon assignment, assignee becomes the owner of the
policy. What are assigned are the rights available t o
the insured under the policy as the considered assets
of the policy
In change of beneficiary, the insured is still the owner

Sun Life Assurance of Canada v Ingersoll
F: Dy Poco had a 20 year endowment period, a life insurance,
under Sun Life. Before he died, he was declared insolvent and
his rights were assigned to Ingersoll. Upon his death, both his
assignee and Tan Sit, administratrix of his estate filed claims to
the proceeds of his life insurance.
H: Tan Sit as administratrix has a better right. In this
jurisdiction, assignee in insolvency can only have title over
policies with cash surrender value, and this acquisition of the
title is only so that they can have a claim on the realizable cash
surrender value. Since the policy in this case has no cash
surrender value, Ingersoll, the assignee, has no beneficial
interest in said policy. The proceeds of the policy should
therefore be delivered to Tan Sit

Great Pacific Life v CA (1999)
H: Where the mortgagor (Leuterio) pays the insurance
premium under the group insurance policy, making the loss
payable to the mortgagee (DBP), the insurance is on the
mortgagor's interest, and the mortgagor continues to be a party
to the contract.

2. Right to Borrow

Sec. 227. In the case of individual life or endowment
insurance, the policy shall contain in substance the
following conditions:
(g) A provision that at anytime after a cash surrender
value is available under the policy and while the policy
is in force, the company will advance, on proper
assignment or pledge of the policy and on sole security
thereof, a sum equal to, or at the option of the owner
of the policy, less than the cash surrender value on the
policy, at a specified rate of interest, not more than the
maximum allowed by law, to be determined by the
company from time to time, but not more often than
once a year, subject to the approval of the
Commissioner; and that the company will deduct from
such loan value any existing indebtedness on the policy
and any unpaid balance of the premium for the current
policy year, and may collect interest in advance on the
loan to the end of the current policy year, which
provision may further provide that such loan may be
deferred for not exceeding six months after the
application therefor is made

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.

Assignment of Policy:
Upon assignment of his policy, insured ceases to be a
party to the insurance contract and all his rights and
obligations under it pass to his assignee who thereby
becomes the owner of the policy
If assignee wants to keep policy effective, he must
continue paying the premiums as stipulated therein

At any time after CSV becomes available, policyholder


id given the right or privilege to secure a loan from the
insurance company, on proper assignment or pledge
of policy and on the sole security thereof.

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

the insurance company to eliminate Z as beneficiary and name


his new wife A as his new beneficiary. The insurance company
refused.
H: In Philippine law, there is no provision permitting change of
the beneficiary in a policy for the benefit of the actual wife of
the husband after a divorce. It follows that in the absence of a
statute to the contrary, a subsequent divorce does not destroy
the former wifes rights under the policy. Therefore, G cannot
compel the insurance company to change the beneficiary in
favor of his actual wife.

Philippine American Life v Pineda
F: Dimayuga (private respondent) took out an ordinary life
policy from Philippine American Insurance (petitioner) and
designated his wife and kids as irrevocable beneficiaries. D filed
a petition to amend the designation from irrevocable to
revocable.
H: All six children beneficiaries were still minors and could not
validly give their consent; their father could not act for them
because their interests are divergent from one another. And
according to IC Sec. 11 the designation cannot be amended
without the irrevocable beneficiaries consent.

c. Forfeiture of Benefits by the Beneficiary

28

Every individual life or endowment policy must contain


a provision granting the insured the right to borrow on
the sole security of his policy an amount not exceeding
it CSV, at a specified rate of interest
An unjust refusal of insurer to grant the loan is a
violation of a material warranty and will give insured
the right to demand rescission of contract.
Loan is not really a loan, because there is no obligation
of repayment on part of the insured. It is rather an
advancement of the cash value of the policy,
repayment of which will reinstate the depleted
insurance without issuance of new policy.



Right to Dividends

Sec. 227. In the case of individual life or endowment


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

Life insurance contracts may be participating or non-


participating at choice of the policy-holder.
Participating the insured have right to share in the
surplus profits of the insurer under the conditions
specified in the policy
In the absence of such express provision, the insured
has no right to participate in the dividends.

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

3.

29

By Cielo

A. Basis/ Rationale

1. Insurance is of utmost good faith (Uberrimae fiddae)
-
An insurance contract is imbued with public interest
-
It is based on good faith because both parties rely
(particularly the insurer) mainly on the information
each party provides

Four primary concerns of parties to an insurance contract:
a. Correct estimation of risk w/n the insurer will
assume the risk
b. Precise delimitation of the risk to determine the
duty to pay of insurer
c. Control of risk by the insurer to guard against
increase of risk and change of conditions
d. Determining whether loss occurred, and if so, the
amount of loss

2. As risk management devices

Devices for ascertaining and controlling risk and loss:
a. Concealment and representations developed to
enable the insurer to secure the same information
from the applicant so that he can form a just estimate
of its quality
b. Warranties and conditions created to make more
definite the general words to describe the risk as to
designation of specific property interest to be covered
and the specification of the perils
c. Exception also makes more definite the coverage by
excluding certain specified risks that otherwise would
have been included under the general language
d. Executory warranties and conditions conditions that
should not exist in the future, otherwise, the insurer
can rescind the contract because he is no longer to
bear the risk
e. Conditions precedent used by insurer to protect
himself from fraudulent claims of loss

B. Concealment

1. Definition
-
An act of holding back information pertinent to the
insurance contract (applies even if not asked by the
insurer)

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

Sec. 27. A concealment whether intentional or
unintentional entitles the injured party to rescind a
contract of insurance. (As amended by Batasang

Pambansa Blg. 874)



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

Sec. 29. An intentional and fraudulent omission, on the
part of one insured, to communicate information of
matters proving or tending to prove the falsity of a
warranty, entitles the insurer to rescind.


Requisites of Concealment:
a. A party knows the fact which he neglects to
communicate of disclose to another
b. Such party concealing has a duty to disclose such fact
c. The party concealing made no warranty of the fact
concealed and
d. The other party has no means of ascertaining the fact
concealed

NOTES:
-
Failure of the insured to disclose conditions affecting
the risk, of which he is aware, makes the contract
voidable at the insurers option the ratio behind this
rule is the good faith doctrine
-
Although this may also apply to insurer, that is why
section 27 entitles the injured party to rescind
-
Fraud or deceit is not necessary to rescind the contract
on the ground of concealment because it would be
difficult for the insurer to prove actual fraud
-
But if the allegation could have been verified by the
insurer, he cannot avoid the policy
-
Note that Sec 27 refers to ORDINARY concealment
which does not require fraud this is different from
sec 29 which requires fraud
-
Unlike sec 27 which refers to concealment of material
facts, sec 29 refers to omission of the insured of facts
which would prove falsity of a warranty (e.g. failure to
disclose that ship is not seaworthy in marine
insurance)

Matters that must be communicated even in the absence of
inquiry (Sec 28):
a. Material to the contract
b. The other party has no means of ascertaining said
facts
c. The party who fails to communicate makes no warrant
TEST: 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

2. Matters which need not be disclosed
Sec. 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 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

Chapter VI
RESCISSION OF INSURANCE CONTRACTS:
CONCEALMENT, MISREPRESENTATION AND BREACH
OF WARRANTIES

30


Sec. 35. Neither party to a contract of insurance is
bound to communicate, even upon inquiry, information
of his own judgment upon the matters in question.

No duty to make disclosure:
a. Matters known to, or right to be known by insurer, or
of which he waives disclosure (in estoppel)
b. Risks excepted form policy but the undisclosed fact
must not be material
c. Nature or amount of insureds interest
d. Where fact concealed not material
e. If party is bound to know the fact as public and general
usages of trade (32) includes public events like wars
and general trade usages and rules of navigation
f. If the interest of the person being insured is absolute,
there is no necessity to disclose the extent of his
interest
g. Matters of opinion, speculation, intention or
expectation


3. Test of Materiality

Sec. 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
disadvantages of the proposed contract, or in making
his inquiries.

TEST: The effect which the knowledge of the fact would have in
making the contract. The fact need not increase the risk or
contribute to any loss or damage suffered
It is sufficient that the fact would INFLUENCE the
party in making the contract.

NOTES:
-
Concealment must take place at the time the contract
is entered into The duty of disclosure ends with the
completion or effectivity of the contract (cf
reinsurance)
-
For life insurance, an applicant should inform the
insurer of changes in his health between the date of
submission and the date of delivery

C. Misrepresentation

1. The active form of concealment
2. Concepts Sections 36 to 47
(a) Form and when made

Sec. 36. A representation may be oral or written.

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

Sec. 41. A representation may be altered or withdrawn
before the insurance is effected, but not afterwards.

Sec. 42. A representation must be presumed to refer to
the date on which the contract goes into effect.


Representation statement made by the insured at the time or,
or prior to, the issuance of the policy (may be about a past,
existing fact, or future happening)

Misrepresentation:
a. Statement of a fact which is untrue
b. Which the insured stated with knowledge that such is
untrue and with an intent to deceive, or when he
states something positively as true without knowing it
to be true
c. Material to the risk
will render the contract of insurance voidable at the option of
the insurer

Form and nature of representation:
a. The information given concerns risk used in
estimating the character and assumption of risk
b. Forms basis of contract describes and defines the
risk assumed
c. Intended as collateral inducements for the insurer to
accept the risk

NOTES:
-
Because the representation is not part of the contract,
it may be altered or withdrawn before the contract
actually takes place but not after the insurer has
agreed to assume risk due to that representation

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

(a) Those which the other knows;


(b) Those which, in the exercise of ordinary care,
the other ought to know, and of which the former
has no reason to suppose him ignorant;
(c) Those of which the other waives
communication;
(d) Those which prove or tend to prove the
existence of a risk excluded by a warranty, and
which are not otherwise material; and
(e) Those which relate to a risk excepted from the
policy and which are not otherwise material.

Sec. 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.

Sec. 33. The right to information of material facts may
be waived, either by the terms of the insurance or by
neglect to make inquiry as to such facts, where they are
distinctly implied in other facts of which information is
communicated.

Sec. 34. Information of the nature or amount of the
interest of one insured need not be communicated
unless in answer to an inquiry, except as prescribed by
section fifty-one.

31

Representation refers only to the time of making the


contract, hence promissory affirmations may be
considered as implied warranties or conditions

-
(b) Representation as to future

Sec. 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.


Affirmative Representation existence or non-existence of a
fact when the contract begins

Promissory Representation any promise to be fulfilled after
the contract has come into existence or any statement
concerning the happening of an event
-
Similar to a warranty or condition
-
It may be incorporated in the policy itself (although
not specifically made a warranty)

(c) Representation as to information

Sec. 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 he may submit
the information, in its whole extent, to the insurer; and
in neither case is he responsible for its truth, unless it
proceeds from an agent of the insured, whose duty it is
to give the information.

NOTES:
-
The insured is allowed to give information of which he
has no personal knowledge about if the info turns
out to be false, he is not held responsible therefor
-
This situation occurs in the case of agents (either of
the insured or the insurer)

(d) Effect of misrepresentation


Sec. 44. A representation is to be deemed false when
the facts fail to correspond with its assertions or
stipulations.

Sec. 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 becomes false. The right to rescind
granted by this Code to the insurer is waived by the
acceptance of premium payments despite knowledge
of the ground for rescission. (As amended by Batasang
Pambansa Blg. 874).


NOTES:
-
In order to avoid the policy, a representation must be
false in a material and substantial aspect

A representation is deemed substantially true (and will


not avoid policy if it is true in every particular material
to risk
Fraud or intent to misrepresent is not essential to
entitle the injured party to rescind the contract on the
ground of false misrep


(e) Misrepresentation as to age

Sec. 227. In the case of individual life or endowment
insurance, the policy shall contain in substance the
following conditions:
(d) A provision that if the age of the insured is
considered in determining the premium and the
benefits accruing under the policy, and the age of the
insured has been misstated, the amount payable under
the policy shall be such as the premium would have
purchased at the correct age;

(f)

Test of materiality


Sec. 46. The materiality of a representation is
determined by the same rules as the materiality of a
concealment.

NOTE: Materiality is judicial question and not left to the
insurance companys sole discretion

Other provisions on Misrepresentation

Sec. 38. The language of a representation is to be
interpreted by the same rules as the language of
contracts in general.

Sec. 40. A representation cannot qualify an express
provision in a contract of insurance, but it may qualify
an implied warranty.

Sec. 42. A representation must be presumed to refer to
the date on which the contract goes into effect.

NOTES:
-
Construction should be liberally in favor of the insured
-
Representations are required to be only
SUBSTANTIALLY true while warranties must be
LITERALLY true or the contract will fail
-
A representation is not an express provision or
warranty because it is not part of the contract but only
a collateral inducement it may qualify as an implied
warranty


D. Cases on concealment and misrepresentations

Ng v. Asian Crusader
F: In the insurance policy, insurer claims that K (insured) gave
false info re question as to his ailment or previous operation. K
said he was operated on for a tumor associated with ulcer of

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

32

circumstances of the death but the probable and reasonable


INFLUENCE that the concealed facts may have on the approval
by the insurer of the application. If the renal failure was
revealed, the insurer might not have accepted the risk or
increased the premium to be paid.

Eguaras v. Great Eastern
F: a life insurance was issued in the name of one Dominador
Albay where his mother-in-law was named the beneficiary.
Upon As death, insurer refused to award benefits due to fraud
and deceit. The signatures in the application were found to be
forged and the doctor who examined testified that the person
examined was not A.
H: Deceit was employed when procuring the contract, hence,
policy is void.

Qua Chee Gan v. Law Union
F: Q insured 4 of his bodegas with a fire policy. When a fire
razed the bodegas, insurer denied the claims on the ground of
violation of warranties and conditions including one on the
requirement of 11 hydrants.
H: Insurer is estopped because when it inspected the
compound, it had knowledge that only two hydrants are
available. Despite this knowledge, insurer approved the policy
and accepted premiums from Q.

Argente v. West Coast Life
F: Spouses A applied for a joint insurance policy. When
answering the application form and the inquiries by the doctors
in the medical examinations, the spouses gave false
information. They did not reveal that W (wife) was diagnosed to
be suffering from psycho-neurosis and was an alcoholic. W died
and H filed for claims.
H: Insurer has right to deny Hs claims after the spouses falsely
represented Ws state of health.

Great Pacific Life v. CA
F: DBP obtained a group life policy for its debtor-mortgagor. L
was one of them. He died from massive cerebral hemorrhage.
Insurer refused to honor the claims of Ls widow due to alleged
concealment of Ls illness.
H: No concealment here. L answered in the application that he
was in good health and had not consulted a doctor for any of
the enumerated ailment. No sufficient proof was given by the
insurer that L knew that he was suffering from hypertension.
The burden of proving the affirmative defense of
misrepresentation through satisfactory and convincing evidence
rests upon the insurer.

Edillon v. Manila Bankers Life
F: In 1969, L applied for an accident policy. In the application
form, she indicated that her date of birth was July 11, 1904. L
died from a vehicular accident due to which her sister E filed a
claim. Insurer denied liability on the ground that policy excludes
those under 16 years of age and above 60.
H: Insurer is in estoppel. L did not conceal her age as it was
indicated in the application that she was already 65 at the time
of the application.

Harding v. Commercial Union Insurance

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stomach but it was shown that he was operated on for peptic


ulcer, not tumor.
H: It is shown that K said he was operated on a tumor
associated with the ulcer of stomach, he must have no
sufficient knowledge to differentiate peptic ulcer from a tumor.
This info must have prodded the insurer to make further
inquiries as to the ailment and operation of the insured.

Canilang v. CA
F: Days before the C applied for the insurance policy, he was
diagnosed with sinus tachycardia and acute bronchitis, but he
failed to disclose these diagnoses in his application. Insurer
refused to honor his wifes claims.
H: J could not have been unaware of his ailments because he
consulted a doctor days before his application. The information
concealed is material because they have probable and
reasonable influence to insurers decision to assume risk.

Yu Pa Cheng v. CA
F: Months before Ys application for insurance policy, he was
confined in the Chinese General Hospital and was shown to
have peptic ulcer. But in the application, he answered no on
questions regarding illnesses (including a question on ulcer).
H: Y concealed his confinement in CGH which has direct
connection to the questions propounded in the policy. He
deprived insurer of chance to make further inquiry as to his
health conditions and to make an intelligent assessment of the
risk. Insurer would never have consented to the policy had it
known Ys confinement.

Great Pacific Life v. CA
F: N, an insurance agent, applied for a 20-endowment policy for
his one year old daughter Helen. N did not disclose that his child
was a mongoloid. G disapproved the application because the
plan was not available to minors below 7 years old, G instead
offered him another plan. N would later claim that this was not
informed of Gs disapproval. Helen died from influenza.
H: Concealment was committed by N because he was fully
aware of his daughters condition and yet withheld such from
Grepalife.

Pacific Banking v. CA
F: Paramount Shirt obtained a fire policy from Oriental
Assurance for its equipments and materials in the factory.
Pacific Banking was PSs creditor so the policy was held in trust
for the bank EXCEPT if it was found that PS committed fraud,
misrepresentation or arson. PS declared that the goods were
also insured by 3 companies but failed to disclose 3 other co-
insurers.
H: The bank cannot recover from O after fire. The contract in
favor of the creditor bank is invalidated by the fraud and
misrepresentation (as to co-insurers) committed by PS.

Sun Life v. CA
F: Two weeks prior to the issuance of Bs insurance policy, he
was diagnosed with a renal failure, was confined and
underwent tests. He did not disclose such facts to the insurer.
He died in a plane crash.
H: Refusal of insurer to award benefits due to concealment is
valid. Even if the renal failure was not related to Bs death,
materiality of the fact concealed is determined not by the

33

Sec. 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 two
years from the date of its issue or of its last
reinstatement, the insurer cannot prove that the policy
is void ab initio or is rescindible by reason of the
fraudulent concealment or misrepresentation of the
insured or his agent.

Sec. 227. In the case of individual life or endowment
insurance, the policy shall contain in substance the
following conditions: xxx
(b) A provision that the policy shall be
incontestable after it shall have been in force
during the lifetime of the insured for a period of
two years from its date of issue as shown in the
policy, or date of approval of last reinstatement,
except for non-payment of premium and except
for violation of the conditions of the policy relating
to military or naval service in time of war; xxx


When should the insurer exercise the right to rescind:
-
Note that an insurance contract may be rescinded on
the ground of concealment, or false representation, or
breach of warranty
-
But the action contemplated in sec 40 PRESUPPOSES
the existence of an insurance contract. Hence, if the
defense is that the contract is non-existent because of
false misrepresentations, deceit and fraud, they are
not within the ambit of this provision.
-
In non-life policy action must be exercised prior to
an action in the contract (e.g. an action to collect)
-
In a life policy the defenses are available only for
the first two years of the policy; computed from the
date of issuance shown in the policy

Incontestability clause stipulates that the policy shall be
incontestable after a stated period or after certain requisites
had been satisfied

Requisites for incontestability:

a.
b.
c.

Policy is a life insurance policy


Payable upon the death of the insured (not if payable
upon maturity by lapse of time)
Has been in force during the lifetime of the insured for
at least 2 years from its date of issue or of its last
reinstatement


Effect of incontestability: The insurer cannot refuse payment
claiming that:
a. the policy is void ab initio (void ab initio here should
be understood as voidable as contemplated by the
Civil Code; fraud is in the inducement)
b. rescissible by reason of fraudulent concealment
c. rescissible by reason of fraudulent misrepresentation

Defenses not barred by incontestable clause
a. the person taking the insurance has no insurable
interest as required
b. cause of death is an excepted risk
c. the premiums had not been paid
d. the conditions of the policy relating to military or naval
service have been violated
e. fraud is of a particularly vicious type like in
pursuant of a scheme to murder the insured
f. the beneficiary failed to furnish proof of death or to
comply with any condition by the policy
g. the action was not brought within the time specified
DIONNE: pertains to the essential elements of the contract so,
they are not time-bound

Tan v. CA
F: T obtained a life insurance and died of hepatoma. Insurer
denied the claims of the heir on the ground of
misrepresentation by T. Heirs claimed that the defense by
insurer is already barred.
H: Policy was only in force for one year and five months from
issuance, hence the insurer is not barred from proving that the
policy is void (remember that void here is not void as defined in
CC) by reason of the fraudulent concealment or
misrepresentation.

Tan Chay v. West Coast Life
F: T obtained a life insurance from W. When T died, W refused
to honor the claims on the ground that there was no contract
because it was obtained thru fraud and deceit. T allegedly
colluded with the medical examiner to conceal Ts usage of
morphine and cocaine which eventually aggravated his
tuberculosis, the cause of his death.
H: Ts beneficiary claims that Ws action is barred by the
commencement of action to collect. But SC upheld Ws
argument that it was not rescinding the contract, instead, W is
asserting that there was no contract to begin with due to the
fraud and deceit employed by T and the doctor.


F. Warranties
Definition: a statement or promise by the insured set forth in
the policy, the untruth or non-fulfillment of which in any
respect renders the policy voidable by the insurer.
-
Presumed to be affirmative

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

F: Mrs. H obtained an insurance policy for her car (a gift from


her husband). The car was valued at 3,000 after Mrs. H
consulted an experienced automobile mechanic. At the same
time, the insurers agent examined the automobile. The car was
totally destroyed by fire.
H: There is no showing that the valuation was false, in fact
based on the evidence, the car cost more than the amount
mentioned. Mrs. H did not commit a fraudulent representation
as she only consulted her mechanic as to the value of the car.
The insurer also inspected the car before approving the
application!

E. The Incontestable Clause in life insurance policies

34

-
-

Sec. 68. A warranty may relate to the past, the present,


the future, or to any or all of these.

-
-
-
-


2.
-
-
-
-
-

Materiality and fraud


Warranty must be material to allow the insurer to
rescind (but even if not direct cause of loss)
For immaterial provisions, it must be declared that
violation thereof shall avoid the policy
Falsity, not fraud, is the basis of liability on warranty
If without fraud policy is avoided from the time of
breach (return of premium pro rata is allowed)
If with fraud policy avoided ab initio and not
entitled to return of the premiums paid

Sec. 74. The violation of a material warranty, or other


material provision of a policy, on the part of either
party thereto, entitles the other to rescind.

Sec. 75. A policy may declare that a violation of
specified provisions thereof shall avoid it, otherwise the
breach of an immaterial provision does not avoid the
policy.

Sec. 76. A breach of warranty without fraud merely
exonerates an insurer from the time that it occurs, or
where it is broken in its inception, prevents the policy
from attaching to the risk.


(b) Implied warranty (marine only)
Implied from the very nature of the policy or from the
general tenor of the words, the warranty can be
surmised even if not necessarily embodied in the
policy binds the insured just like in expressed
In marine insurance, there is an IMPLIED warranty that
the ship is seaworthy

(d) Promissory
Also called executory warranty must be material to
the risk (it is material if it increases the risk)
The insured stipulates that certain facts or conditions
pertaining to the risk shall exist or that certain things
with reference thereto shall be done or omitted
In the nature of condition subsequent
Sec 73 provides the exceptions when contracts are
voided due to breach of warranties (1)when loss
occurs before time for performance; (2) performance
becomes unlawful; (3) performance becomes
impossible

Sec. 72. A statement in a policy which imparts that it is


intended to do or not to do a thing which materially
affects the risk, is a warranty that such act or omission
shall take place.

Sec. 73. When, before the time arrives for the
performance of a warranty relating to the future, a loss
insured against happens, or performance becomes
unlawful at the place of the contract, or impossible, the
omission to fulfill the warranty does not avoid the
policy.

Sec. 67. A warranty is either expressed or implied.



Sec. 70. Without prejudice to section fifty-one, every
express warranty, made at or before the execution of a
policy, must be contained in the policy itself, or in
another instrument signed by the insured and referred
to in the policy as making a part of it.

Sec. 71. A statement in a policy of matter relating to
the person or thing insured, or to the risk, as a fact, is
an express warranty thereof.

(c) Affirmative warranty


Insured asserts the existence of a fact or condition at
the time it is made
The warranty is continuing if it is one that must be
satisfied during the entire coverage period

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Not necessary that it is explicity stated to be a


warranty, what is important is the intention
-
Non-fulfillment of a warranty may be waived if the
insurer, with knowledge thereof, fails to assert
forfeiture of policy upon breach may be expressed
or implied
-
By estoppel, the insurer is precluded from using
breach as a defense

Warranties
Representations
Part of the contract
Collateral inducements only
Always written on the fact of
May be written ina totally
the policy, actually or by
disconnected paper or may be
reference
oral
Must be strictly complied with Substantial truth is only
required
Falsity or non-fulfillment
Falsity renders the policy void
operates as a breach
on the ground of fraud
Presumed material
Insurer must show the
materiality in order to defeat
the action of insured

1. Kinds

(a) Express
-
An agreement contained or clearly incorporated in the
policy where the insured stipulated that certain facts
relating to the risk are or shall be true or certain acts
shall be done or had been done
-
If the warranty is in another instrument, it must be
signed by the insured, mere reference alone is not
sufficient a rider is not another instrument but is
included in the contract itself so it need not be signed
by the insured
-
Another instrument could be a mere slip or paper akin
to the policy itself
-
The warranty must refer to a statement of fact, not an
opinion or belief only

35

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.

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.

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.


4. Cases

Pioneer v. Yap
F: Y insured his building. He obtained another insurance without
notice and without the consent of Pioneer.
H: Y violated the co-insurance clause of the policy. The purpose
of such condition is to prevent over-insurance and perpetration
of fraud.

New Life Enterprises v. CA
F: Brothers Sy insured their construction business from three
insurance companies but without declaring such to their
applications.
H: The insurers can refuse their claim for violating the
statement or warranty titled Other Insurance clause which
specifically required them to reveal other co-insurers.

Young v. Midland Textile Insurance


F: Y insured his residence and bodega with M. Warranty B
declared that no hazardous goods should be stored or kep for
sale in the building. 3 boxes filled with fireworks were stored in
the place to be used in the celebration of Chinese New Year.
H: Y violated the warranty prohibiting hazardous goods. There
was no claim that the fireworks will be for present or daily use,
but for future use or consumption, hence, they are stored
within the contemplation of the warranty. There was in increase
of risk here which is substantial and caused a direct and certain
injury to the insurer.


G. Ground and Exercise of rights of rescission
Sec 48, supra

Sec. 63. A condition, stipulation, or agreement in any
policy of insurance, limiting the time for commencing
an action thereunder to a period of less than one year
from the time when the cause of action accrues, is
void.

Sec. 64. No policy of insurance other than life shall be
cancelled by the insurer except upon prior notice
thereof to the insured, and no notice of cancellation
shall be effective unless it is based on the occurrence,
after the effective date of the policy, of one or more of
the following:
(a) non-payment of premium;
(b) conviction of a crime arising out of acts
increasing the hazard insured against;
(c) discovery of fraud or material
misrepresentation;
(d) discovery of willful or reckless acts or
omissions increasing the hazard insured against;
(e) physical changes in the property insured which
result in the property becoming uninsurable; or
(f) a determination by the Commissioner that the
continuation of the policy would violate or would
place the insurer in violation of this Code.

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

NOTES:
-
The right of the insured to the payment of his loss
accrues from the happening of the loss
-
The cause of action in the contract does not accrue
until the claim has been FINALLY REJECTED by the
insurer condition precedent for the liability
-
The cause of action requires not only the legal right
(i.e. the benefits) but also the violation thereof (i.e. by
the insurer by rejecting the claim)

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

3. Warranties in fire insurance


Requisite for rescission due to alteration:
a. The use or condition of the thing is specifically limited
or stipulated in the policy
b. Such use or condition id altered
c. Without the consent of the insurer
d. By means within the control of the insured
e. Increases the risk there is an implied promise that
the insured will not change the character of business
so as not to increase risk of loss by fire
-
Not temporarily endangering the property, there must
be an actual increase in loss

Alterations:
-
Will not avoid the policy if the articles introduced are
necessary in the business or if the alteration is not of a
dangerous character
-
Also, alterations without which the insured property
would be useless if prohibited like making repairs,
painting the place or using a small amount of gasoline
to remove paint etc. will not avoid the policy
-
Note that the knowledge of insured is presumed
-
But it the policy does not contain a limitation as to
use, an alteration will not violate the policy

36

-
-

The period is to be computed not from the time the


loss actually occurred but when the insured has a right
to bring an action against the insurer
The parties can stipulate the period to bring the action
BUT such will not be less than one year (for industrial
life insurance, not less than 6 years)
The stipulated prescriptive period may commence
from happening of loss or from rejection of claim,
depending on the stipulation


Sec. 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.
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. (Amended
by PD 1455).

Sec. 227. xxx (b) A provision that the policy shall be
incontestable after it shall have been in force during the
lifetime of the insured for a period of two years from its
date of issue as shown in the policy, or date of approval
of last reinstatement, except for non-payment of
premium and except for violation of the conditions of
the policy relating to military or naval service in time of
war;

Filipinas Compania de Seguros v. Nava
F: Before the war, N obtained 18 insurance policies. Pursuant to
the policy loan clause in the policies (which allows insured to
borrow money from insurer after 3 years from approval of
policy), N applied for a 5,000-peso loan. Insurers refused due to
alleged adjustment of currency after the war. N filed a case for
rescission due to these refusals.
H: Rescission is valid. Using the Haw Pia case, the SC ruled that
payment made during the Japanese occupation in lieu of pre-
war contractual obligation shall be valid. Insurance contracts
are also in the nature of an ordinary obligation, hence, payment
made by N shall be valid and he should have been entitled to
the loan.

Areola v. CA
F: supra
H: Insurer is still liable to the insured for unilaterally cancelling
the policy. Even if non-payment of premium was due to the
fault of insurers agent, such is imputable to the principal.

Tan Chay v. CA
F: supra

H: There is no action to rescind here. Ws action is based on the


claim that there is no contract to begin with so there is no
contract to rescind.


Chapter VII
RISK AND COVERAGES
By Cielo

A. In General: Risks and causation

1. Insurable risks

Sec. 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.
The consent of the spouse is not necessary for
the validity of an insurance policy taken out by a
married person on his or her life or that of his or her
children.
All rights, title and interest in the policy of
insurance taken out by an original owner on the life or
health of the person insured shall automatically vest in
the latter upon the death of the original owner, unless
otherwise provided for in the policy. 1

NOTES:
-
Event or peril insured against may be any (future) or
contingent or unknown event, past or future which
can either:
(a) cause damage or cause loss to a person having an
insurable interest an example is a marine insurance
against damage that may be suffered by the vessel and
its owner
(b) create a liability against the person insured an
example is a third party liability taken by the owner of
a car or common carrier
-
A married woman may take out insurance on her life
or children without the consent of her husband; she
may also insure her paraphernal properties
-
A minor may also enter into a valid contract of
insurance for life, health and accident; other contracts
of insurance entered into by the minor shall be
voidable (cf CC)

2. Specified risks and all risks policies
Specified the policy specifies what risks are covered
-
Generally, policies are of this kind
-
BoP to prove that the risk is covered is on the insured

Deleted: Any minor of the age of eighteen years or more, may, notwithstanding such
minority, contract for life, health and accident insurance, with any insurance company
duly authorized to do business in the Philippines, provided the insurance is taken on
his own life and the beneficiary appointed is the minor's estate or the minor's father,
mother, husband, wife, child, brother or sister.
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.

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

37

Sec. 86. Unless otherwise provided by the policy, an


insurer is liable for a loss of which a peril insured
against was the proximate cause, although a peril not
contemplated by the contract may have been a remote
cause of the loss; but he is not liable for a loss of which
the peril insured against was only a remote cause.

Sec. 88. Where a peril is especially excepted in a
contract of insurance, a loss, which would not have
occurred but for such peril, is thereby excepted
although the immediate cause of the loss was a peril
which was not excepted.

Loss the injury, damage or liability sustained by the insured
due to the happening of the perils against which the insurer has
insured him
-
Scope of loss bodily injury, including death or
property damage or destruction; loss of income or
profits and legal liability to a third party
-
In reinsurance loss refers to reinsurers share of the
loss on risks ceded either automatically or facultatively
-
Extent of loss or how much the insured will pay will
depend upon the extent of loss; may either be total,
partial, or constructive total
-
Cause of loss The insurer assumes liability only for
loss proximately caused by perils insured against even
though the peril not insured against may have been a
remote cause of loss
o Insurer is still liable even if proximate cause is
not insured IF the immediate cause is a peril
insured against
-
Burden of proof where loss has occurred The
insurer has the BoP that it is not liable
-
Where proximate cause is an excepted peril The
insurer may not be liable for a loss where the
proximate cause is a peril not insured against even if
the immediate cause is not excepted (e.g. an
explosion, which is excepted, caused a fire which is
insured against insurer not liable)

5. Meaning of Proximate cause

Proximate Cause that which, in a natural and continuous
sequence, unbroken by any new independent cause, produces
an event and without which the event would not have occurred

-
-

It is the efficient cause to which the loss can be


attributed although other immediate causes are
nearer in time to the loss
Proximate cause has a different meaning in insurance
case than it has in tort cases
o Torts involves question of culpability or why
the injury occurred
o Insurance concerned only with the nature of
the injury and how it happened
If the nearest efficient cause of the loss is
one of the perils insured against, the
courts look no further; if it is not a peril
insured against, recovery may nevertheless
be had if the dominant cause is a risk or
peril insured against.


Vda de Bataclan v. Medina
F: B rode a bus from Manila. It was speeding along a slippery
highway when its front tires burst, causing the bus to turn
turtle. B was trapped inside the bus while the driver called for
help. It was nighttime and because there was no electricity in
the area, rescuing villagers brought with them brought torches.
Unbeknownst to them, the gasoline from the bus strated to
leak. When the villagers approached the bus, the gas ignited
and the bus exploded. B died.
H: B can recover from the driver and the company. The
proximate cause of Bs death was the negligence of the driver
(he was speeding and it was discovered that he failed to change
the tires despite the reminder by the owner) which brought
about a series of events leading to his death.

6. Rescue from covered peril

Sec. 87. An insurer is liable where the thing insured 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; or where a loss is
caused by efforts to rescue the thing insured from a
peril insured against.

Two situations:
a. The loss took place while being rescued from the peril
insured against
-
The loss was caused by a peril not insured against after
it was exposed to such peril DURING rescue efforts
from a peril insured against
-
E.g. during a fire (insured) rescue efforts, furniture
were taken out of the house which were later stolen
(not insured against) insurer liable
b. The loss is caused by the efforts to rescue the thing
from the peril insured against
-
The rescue effort itself became the peril
-
E.g. an insured machine was being taken out during a
fire thru a small hole causing damage to it



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All-risk insurance covers any and all risks that may imperil the
insurers property
-
BoP is on the insurer to prove that risk is excluded

3. Exceptions and Exclusions
-
Both pertain to risks not covered
-
Strictly construed against the insurer
Exceptions apply in all-risk policies all are covered EXCEPT
the following
Exclusions apply in specified policies those not included in
the specified risks are excluded

4. Causes

38

Sec. 89. An insurer is not liable for a loss caused by the


willful act or through the connivance of the insured; but
he is not exonerated by the negligence of the insured,
or of the insurance agents or others.

B. Life Insurance

1. Death or survival

Life insurance is an insurance payable either upon:
(a) Death of the person;
(b) His surviving a specified period; or
(c) On the continuance or cessation of life
-
But essentially, it is the contract where a beneficiary
shall be paid, upon the death of the insured

Parties involved life insurance: (may be one person only if
beneficiary is estate upon death)
a. The owner of the policy with the power to name or
change the beneficiary, assign it, cash it in or use as
collateral, with the obligation to pay premiums
b. The cestui que vie whose life is insured
c. Beneficiary to whom the proceeds may be paid

Nature of a life insurancenot one of indemnity; more
accurately characterized as a form of investment
a. Liability is absolutely certain
-
Ordinary life insurance contemplates the certain
payment of a specified sum at an uncertain time;
and the premiums are so calculated that in
accordance with the insureds expectancy of life
-
Event upon which payment is to be made is
absolutely certain, provided that the policy
remains in effect
b. Amount of insurance generally without limit
-
No limit as to the amount of insurance which may
legally be placed upon the life of any person
c. Life policy is a valued policy
-
Valued by the purchaser when the policy is
purchased and the value placed on the insured is
decided by the amount the purchaser who is
willing to pay the requisite premiums

d.

Direct pecuniary loss is not required


-
Measure of recovery is the dace amount of the
policy and not the value of the insureds life
-
Life insurance contract agrees to pay a certain
stated amount rather than an amount
determined after the loss

Sec. 181. Life insurance is insurance on human lives and


insurance appertaining thereto or connected therewith.
Every contract or undertaking for the payment of
annuities including contracts for the payment of lump
sums under a retirement program where a life
insurance company manages or acts as a trustee for
such retirement program shall be considered a life
insurance contract for purposes of this Code.

Sec. 182. 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.
Every contract or pledge for the payment of
endowments or annuities shall be considered a life
insurance contract for purposes of this Code.
In the absence of a judicial guardian, the father, or
in the latters absence or incapacity, the mother, of 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 Five hundred
thousand pesos (P500,000.00) or in such reasonable
amount as may be determined by the Commissioner.
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
minors consent to any transaction on the policy.
In the absence or in case of the incapacity of the
father or mother, the grandparent, the eldest brother
or sister at least eighteen (18) years of age, or any
relative who has actual custody of the minor insured or
beneficiary, shall act as a guardian without need of a
court order or judicial appointment as such guardian, as
long as such person is not otherwise disqualified or
incapacitated. Payment made by the insurer pursuant
to this section shall relieve such insurer of any liability
under the contract.

Additional Notes from De Leon:

Kinds of Life Insurance Policies
1) Ordinary Life Policy insured is required to pay a certain
fixed premium annually or at more frequent intervals
throughout his entire life and the beneficiary is entitled to
receive proceeds only after death of insured
-
Aka whole life or regular life, or straight life, or cash-
value insurance
2) Limited Payment Life Policy premiums are payable only
during a limited period of years

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

7. Loss due to negligence (cf with willful)


If there is ordinary negligence
-
insured is still protected the doctrine of
contributory negligence does not apply to insurance
contracts
-
otherwise, an insurance will be of little value because
almost every loss will be exempted

If there is gross negligence
-
and if the consequence of such is so manifest to the
insured, the insurer will be relieved from liability
-
the extent of negligence will be evaluated in light of
circumstances of the case

If there is connivance or thru willful act
-
the insurer is not liable

39

3)

4)

When specified number of premium payments have


been made, insurance is fully paid for
-
If insured should die within the specified period,
beneficiary is entitled to all proceeds of the policy
without any liability for unpaid premiums
-
Aka limited premium insurance policy
Endowment Policy insurer binds himself to pay a fixed
sum to the insured if he survives a specified period or if he
dies within such period, to some other person indicated
-
Unlike in limited payment life policy, the insured
stands a chance of being paid the proceeds of the
policy while still alive
Term Insurance Policy provides coverage only if the
insured dies during a limited period
-
If insured dies within the period specified, policy is
paid to the beneficiary
-
If he survives the period, contract terminates or
expires at the end of the time period
-
No investment value
-
Aka temporary insurance


2.

Suicide

Sec. 183. The insurer in a life insurance contract shall


be liable in case of suicide only when it is committed
after the policy has been in force for a period of two (2)
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.

Insurer is liable in case of suicide if:
a. It is committed after the policy has been in force for a
period of 2 years from the date of issuance the ratio
says DIONNE: the period will decrease the moral
hazard because the person might not be as bent into
committing suicide as he was two years ago (as if the
person will wait for the maturity of the insurance if he
really wants to die!)
b. Suicide is committed after a shorter period provided in
the policy policy cannot provide a period longer than
2 years
c. Suicide is committed in the state of insanity regardless
of the date of commission unless it is an excepted risk

3. Accidental death v. Death by accidental means
-
DIONNE: No actual difference, what is important is
that the loss is caused by accident
-
Accident an event which is unforeseen
-
De Leon: Accidental death death was unforeseen
and unexpected, by whatever means; Death by
accidental means the means must be by accident
-
Insurer is not liable if something unexpected
proceeded from a deliberate or voluntary act

Finman v. CA
F: After attending a festival, F and his cousin were accosted by
armed men and stabbed to death.

H: Fs beneficiaries can claim the insurance because he died by


accident the event takes place without his expectation and
not a probable reulst of his voluntary act. Death due to murder
and assault were not among those excepted.

Calanoc v. CA
F: B, a watchman, accompanied a lawyer to his house which he
suspected was being robbed. A shot was fired and B was killed.
H: He died by accident. The gunshot was not even directed at
him, it might have been fired to scare them away and B was
only accidentally hit.

Biagtan v. Insular
F: A band of robbers entered Bs house and he was stabbed to
death (9 stab wounds).
H: B did not die due to an accident. The stab wounds were
inflicted to kill him (unlike in Calanoc).
Dissent: Calanoc should have been followed; also the accidental
death benefit insured him from death by violent and external
means.

Sun Life Insurance v. CA
F: L was playing with his handgun with his secretary. He pointed
the gun to his head and accidentally pulled the trigger.
H: He died by accident because he wasnt expecting that the
gun was loaded, otherwise, he wouldnt point it to his head. An
accident is an event which happens without any human agency
or if with human agency, the result is unusual and was not
expected by the person.

Dela Cruz v. Capital Insurance
F: D, a boxer, was the holder of an accident insurance policy. In
a fight, he slipped and was hit by his opponent on the back of
his head, causing his head to fall and hit the rope of the ring. He
subsequently died.
H: Ds death was covered by the policy. While the participation
in the boxing contest was voluntary, the injury he sustained
when he slipped and fell was unexpected.

4. Group Life Insurance
-
Concerned with the payment of a benefit upon the
death of the person insured. It can be either group
term (or renewable in one year under a group contract
with employers etc.), group permanent or group
accidental death

Sec. 50. DELETED.

Sec. 234. xxx If a group life policy is on a plan of
insurance other than term, it shall contain a non-
forfeiture provision or provisions which in the opinion
of the Commissioner is or are equitable to the insured
or the policyholder: Provided, That nothing herein
contained shall be so construed as to require group life
policies to contain the same non-forfeiture provisions
as are required of individual life policies.



A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

40

Sec. 235. The term industrial life insurance as used in


this Code shall mean that form of life insurance under
which the premiums are payable either monthly or
oftener, if the face amount of insurance provided in any
policy is not more than five hundred times that of the
current statutory minimum daily wage in the City of
Manila, and if the words industrial policy are printed
upon the policy as part of the descriptive matter.
An industrial life policy shall not lapse for
nonpayment of premium if such nonpayment was due
to the failure of the company to send its representative
or agent to the insured at the residence of the insured
or at some other place indicated by him for the purpose
of collecting such premium: Provided, That the
provisions of this paragraph shall not apply when the

premium on the policy remains unpaid for a period of


three (3) months or twelve (12) weeks after the grace
period has expired.

6.

Mutual Life Insurance Companies

Sec. 268. Any domestic stock life insurance company


doing business in the Philippines may convert itself into
an incorporated mutual life insurer. To that end it may
provide and carry out a plan for the acquisition of the
outstanding shares of its capital stock for the benefit of
its policyholders, or any class or classes of its
policyholders, by complying with the requirements of
this chapter.

-

-
-

A cooperative enterprise, wherein the members


constitute both insurer and insured, where the
members all contribute, by a system of premiums and
assessments to the creating of a fund from which all
losses and liabilities are paid, and wherein profits are
divided among themselves in proportion to their
interest
Kinds:
o Non-assessable mutual one that charges a
fixed premium and the policyholders cannot
be assessed. Legal reserves and surpluses are
maintained to provide payment of all claims
o Assessable premium mutual one that
charges an initial fixed premium and if that is
not sufficient, may assess the policyholders
to meet losses in excess of the premiums
that have been changed
Only a domestic stock life insurance company doing
business in the Philippines may convert itself into an
incorporated mutual life insurer
In the event that company itself fails before the terms
of the policies expire, the member-policyholders do
not acquire status of creditors. They simply become
debtors for whatever premiums that they have
originally agreed to pay the company
Dividends are not profits but are overpaid premiums
which the member-policy is equitably entitled


C. Fire Insurance
1. What fire insurance includes

Sec. 169. 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.

Fire insurance a contract of indemnity by which the insurer
agrees to indemnify the loss caused by hostile fire
-
Also involves loss from allied lines like lightning if
such risks are covered by fire and extended coverage
-
The standard fire contract pertains to payment of
direct loss but it may also extend to indirect or
consequential losses

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

Pineda v. CA
F: PMSI procured a group life insurance policy for its
employees. When a vessel sank, 6 of its employees died. The
beneficiaries allowed the PMSI president to process the claims
but the latter misappropriated the benefits.
H: Insurer is still liable to the beneficiaries. In a group life
insurance policy, the employer acts as the agent of the insurer
in collecting the premium. Although the policy is in the name of
the insurer, the real policy holders are the employees. After all,
the premiums paid came from their labor.

Eternal Gardens v. Philamlife
F: E procured a group life insurance policies for its clients. E
submitted a list of its clients with their insurable balances. One
of Es clients, C, died. E filed a claim but P did not act on it. E
sued P.
F: P is liable to E. Upon the purchase by Es client of a memorial
lot, he is covered by the insurance policy subject to approval/
disapproval of P. Because of Ps inaction, C shall be deemed
covered by the policy.

5. Industrial Life
-
Tailored to the needs of majority of its purchasers
the urban industrial class or blue collar workers
-
The policy shall not lapse after non-payment of
premiums in 3 months after the expiration of the
grace period if such non-payment is due to the failure
of the company to send its representatives to the
insured to collect premium
-
The usual rule on insurable interest does not apply
here:
o The proceeds are typically small, hence,
lesser inducement for murder
o Investigation and processing would be time-
consuming and nullify the advantage of
speedy payment of proceeds for funeral and
burial expenses under the facility of payment
clause
o Addition of pointless administrative costs for
the insurer or beneficiary could destroy the
current usefulness of this type of insurance
-
Unlike ordinary life insurance, the premiums and
proceeds are smaller
-
Sold thru individual solicitation without med exam

41

b.
c.

Physical damage caused to other property not


covered by the policy
Loss of earning due to interruption of business
by the damage to insureds property
Extra expense additional expenditure following
the damage like charges on demolition


Friendly fire if it burns in a place where it was intended to
burn, and ought to be, and regarded as an agency for the
accomplishment of some purpose and not as a hostile peril

Hostile fire the fire occurs outside the usual confines or begins
as a friendly fire and becomes hostile by escaping from the
place where it ought to be

Philippine Home Assurance v. CA
F: Various insured goods were loaded in E vessel en route from
Japan to Manila. While on voyage, a small flame was discovered
in an acetylene cylinder in the accommodation area. An
explosion followed which caused a fire that razed the ship. A
salvage company towed the cargoes and loaded them to
another vessel which were eventually delivered to their
destination. PHAC paid the vessel, in behalf of the consignee,
for the salvage charges.
H: The carrier, not PHAC, should be liable. Liability from fire may
not be considered a natural disaster if it arise from some act of
man or thru human means. In this case, the fire was caused by
the crews negligence (the acetylene should have been in the
storage room, not near the engine room) so they should be held
liable.

2. Increase or risks and moral hazards clauses
See warranties in fire insurance, supra

Increase of risks and moral hazard clauses
-
Every contract of insurance is made with reference to
the conditions surrounding the subject matter of the
risk and the premium is fixed with reference thereto
-
There is an implied promise or undertaking on the part
of the insured that he will not change the premises or
the character of the business carried there so as to
increase the risk of loss by fire
-
Most fire insurance policies contain a specific
provision against an increase risk or hazard
-
An increase of hazard takes place whenever insured
property is put to some new use, and the new use
increases the chance of loss
-
Increase shall be substantial in character
-
Moral Hazard clauses clauses to prevent insured
from defrauding insurer

Requisite for rescission due to alteration:
-
The use or condition of the thing is specifically limited
or stipulated in the policy
-
Such use or condition is altered
-
Without the consent of the insurer
-
By means within the control of the insured
-
Increases the risk there is an implied promise that
the insured will not change the character of business
so as not to increase risk of loss by fire

Not temporarily endangering the property, there must


be an actual increase in loss


Alterations:
-
Will not avoid the policy if the articles introduced are
necessary in the business or if the alteration is not of a
dangerous character
-
Also, alterations without which the insured property
would be useless if prohibited like making repairs,
painting the place or using a small amount of gasoline
to remove paint etc. will not avoid the policy
-
Note that the knowledge of insured is presumed
-
But it the policy does not contain a limitation as to
use, an alteration will not violate the policy

Where insured has no control or knowledge of alteration:
-
Insurers liability unaffected when increase of risk
occasioned by accident, adjacent premises, acts of a
tenant, or other causes over which insured has no
control
-
Insureds knowledge is presumed in case of increase of
risk caused by his tenant


3. Measures of indemnity
Measures of indemnity
-
In the absence of express valuation in the policy, the
insured is entitled to recover the amount of actual loss
sustained BoP is to the insured
-
For open policies, the expenses incurred by the
insured at the time f the commencement of the fire or
the value of the damaged property in the condition it
was in at the time of the fire
but their liability shall be limited to the face value
of the policy
-
For valued policies, the valuation agreed upon will be
conclusive upon the parties
-
In case of personal property, the market value may be
used as the value of the actual loss sustained

Sec. 173. 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 it was 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.

Sec. 174. 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 insureds 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 policy stating
substantially that the value of the insureds interest in
such building or structure has been thus fixed. In the
absence of any change increasing the risk without the

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

a.

42


Co-insurance clause some fire insurer requires the insured to
maintain an insurance to an amount equal to the value or
specified percentage of the value of the property
-
This is to divide the potential risk between the insured
and the insurer in case of partial loss or destruction of
the property
-
For example, if a house which has a value of 1M is
insured for 500,000. If there is a co-insurance clause,
the insurer is liable for while the other half is to be
borne by the insured himself. Hence, in case of partial
loss, the insurer will pay 250k only. But in case of total
loss, all the 500k will be paid.


D. Casualty and liability insurance

Casualty insurance includes all forms of insurance or liability
arising from accident or mishap excluding certain types of loss
within the scope of other insurance: marine, fire, suretyship and
life
-
It covers those losses not included in other policies like
insurance against accident (if not in life), burglary,
robbery and theft in the robbery insurance,
restrictions are higher so as to prevent fraud
-
Accepting casualty to mean accident a violent
mishap proceeding from an unknown or unexpected
cause; casualty insurance might be presumed to
include any loss or damage when an accident is the
cause of the loss
-
Casualty insurance excludes losses arising from
accident which are within the coverage of the other
types of insurance mentioned

Liability insurance contract of indemnity for the benefit of the
insured and those in privity with him, or to those to whom the
law extends the indemnity against liability
-
Indemnity is provided to the insured in respect of his
legal liability to pay damages, usually arising out of
negligence or nuisance and occasionally, under
contract
-
Liability for quasi-delict or non-fulfillment of contract
liability is financial responsibility that one party has to

-
-

another party as a consequence of doing or failing to


do something
Liability for criminal negligence liabilities arising out
of acts of negligence which are also criminal are also
insurable on the ground that such acts are accidental.
Liability consequences of deliberate criminal acts not
insurable
Coverage or liability of insurer attaches when liability
of insured to injured third party attaches, regardless of
actual loss that time
Right of person injured depends on whether the
contract of insurance is intended to benefit third
persons also or only the insured
o Indemnity against third party liability where
contract provides for indemnity against
liability to third persons, third persons to
whom insured is liable can sue directly the
insurer upon the occurrence of the injury or
event upon which liability depends. Liability
of insurer is direct
Basis and extent of insurers liability direct liability of
insurer does not mean that it can be held solidarily
liable with the insured; liability of insurer is the sum
limited in the contract


Sec. 176. 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, employers 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.

Two general divisions of casualty insurance:
a. Against specified perils which may affect the persons.
Property such as personal accident, robbery or theft
b. Against specified perils which may give rise to liability
on the part of the insured such as motor vehicle
liability, products liability

Fortune Insurance v. CA
F: An armoured car of Producers Bank was robbed while
transferring money; the driver and guard of the van were
indicted. F denies liability alleging that the incident was
excepted because it was perpetuated by the banks
employees.
H: F is relieved from liability because the driver and the guard
are deemed to be employees of the bank. In cases of robbery
and theft, the opportunity to defraud the insurer is so great that
the insurer are allowed to include all sorts of restrictions to
reduce the hazard.

E. Suretyship

1. Definition and extent of liability

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

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 insureds
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 (2) or more policies covering the
insureds 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.

43

Sec. 177. 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.

Sec. 178. 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).

Suretyship
An accessory contract
Three parties
In the nature of credit
accommodation
Surety is entitled to
reimbursement from from
principal or his guarantors
Can only be cancelled by or
with the consent of oblige or
by the Commissioner or by a
court
Requires acceptance of oblige
to be valid
Risk-shifting device (premium
as service fee)

Property Insurance
Principal contract in itself
Two parties
Contract of indemnity
No right of recovery (but
insurer may be subrogated to
the rights of the insured)
May be cancelled unilaterally
by the insured or by the
insurer on proper grounds
Does not need acceptance by
third party
Risk-distributing device
(premium as contribution to
common fund)

Suretyship
Surety assumes liability as a
regular party to undertaking
Primarily liable
Not entitled to the benefit of
exhaustion of debtors assets
(if the debtor does not pay)

Guaranty
Liability depends upon an
independent agreement
Secondarily liable
The guarantor can exhaust all
of the debtor property and
legal remedies before he will
be compelled to pay
(if debtor cannot pay)


Suretyship, especially fidelity bonds, is treated like (non-life)
insurance.
-
The rule on contracts of adhesion apply; the terms
of the surety is contrued in favor of the obligee.

National Power Corporation v. CA
F: NPC entered into a contract with F for the building of the
Angat-Balintawak transmission lines. Philamgen issued a surety
bond for a year for Fs faithful performance. F abandoned the
project; NPC wrote to P that F reneged on its obligation and
NPC will continue the project. Thereafter, P refused to honor
NPCs claim because the period has expired.
H: the letter NPC sent to P is enough notice of Fs
abandonment, thereby making P liable to NPC.

Zaragoza v. FIdelino
F: Z filed a suit for replevin against F due to the latters non-
payment of a car she bought from Z. The car was returned to F
because of a surety bond posted by Mabini Insurance. Upon
judgment in favor of Z, M refused to pay.
H: Ms liability to pay the oblige, Z, attached upon the
promulgation of verdict against F.

Eastern Assurance v. IAC
F: In a public bidding by DAR Cebu for the repair of 7 eisehower
jeeps, M won. E issued a proposal bond as Ms surety for the
faithful performance of the obligation. Only 6 units were
repaired, E refused to pay DAR alleging that it entered into a
proposal bond only.
H: The proposal bond covers the actual performance of the
undertaking. The bond is not limited to the concluding of the
contract but also its implementation.

Prudential Guarantee v. Equinox
F: J entered into a contract with E for the construction of
Eastgate Center. P issued two surety bonds in favor of J for the
faithful performance of the obligation. J did not adhere to the
conditions (failure to submit report and delayed the work on
the project). P denied solidary liability.
H: The insurance code and the civil code provides that the
surety is solidary bound.

The surety assumes liability as a regular party in the
contract and shall be principally liable to the principal or the
obligee.


2. Premium Payment

Sec. 179 The surety is entitled to payment of the
premium as soon as the contract of suretyship or bond

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

Suretyship an agreement whereby one (i.e. an insurance


company) undertakes to answer, under specified terms, for the
debt, default and miscarriage of another (principal or obligor),
such as failure to perform a contract or certain duties, or for
breach of trust, negligence and the like, in favor of a third party
(oblige)
-
It may be in the form of recognizance, stipulation bond
or undertaking conditioned upon the faithful
performance of any duty or contract
-
They are also contracts of adhesion and look like
insurance contracts, and hence, treated like non-life
insurance contracts
-
Regulation of bonds falls under the Office of Insurance
Commissioner

Nature of liability the contract of surety or surety bond is a
promise or guarantee of anothers obligation
-
The liability is joint and several, or solidary upon
default by the obligor, the surety becomes primarily
liable to the oblige
-
Limited to the amount of the bond
-
It is merely a collateral or accessory contract, the
principal being the undertaking which it secures
-
To indemnify the surety, an Indemnity Agreement may
be executed by the obligor

44


Types of Surety Bonds
Contract Bonds these are bonds usually connected with
construction and supply contracts. They function to protect the
owner against a possible default by the contractor to comply
with his contract or to pay material men, laborers and sub-
contractors. There are two kinds of contract bonds:
-
Performance bond covers the faithful performance
of the contract
-
Payment bond covers the payment of the laborers
and material men
Fidelity Bonds serves to pay the employer for loss caused by a
dishonest act of his employee. They can be classified further
into:
-
Industrial bond usually required by private
employers to cover possible loss through dishonesty of
employees
-
Public official bond usually required of public officers
for the faithful performance of their duties and as a
condition upon the assumption of their offices. It
ordinarily includes all officers who have custody of
public funds. It functions to protect such public funds.
Judicial Bonds commonly required in judicial
proceedingsExamples are replevin bonds, injuction bonds,
appeal bonds, and bail bonds, among others. The general rule is
that the conditions of a bond specified and required in the
provisions of the law/regulation requiring the submission of the
bond are deemed incorporated into the bond even if not
expressly written thereon.

Rules in payment of premiums:
a. The premium becomes a debt as soon as the contract
of suretyship or bond is perfected and delivered to the
obligor
b. The contract shall not be valid until premium has been
paid

c.
d.
e.
f.

Where the oblige has accepted the bond, it shall be


valid and enforceable notwithstanding that the
premium has not been paid
If the contract has not been accepted by obligee, the
surety shall collect only a reasonable amount
If the non-acceptance was due to fault of surety, no
tax, service fee or stamps shall be collected
In the case of a continuing bond (with term longer
than a year or with no expiration date), the obligor
shall pay the subsequent annual premium as it falls
due until contract is cancelled


3.

Applicability of the Civil Code


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.


F. Motor Vehicle Insurance

1. Compulsory Motor Vehicle Insurance

Sec. 386. 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."

(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.

(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).

(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;

(e) "Land transportation operator" means the owner or
owners of motor vehicles for transportation of passengers
for compensation, including school buses;

(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).

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

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 non-acceptance
of the bond be due to the fault or negligence of the
surety, no such service fee, stamps or taxes shall be
collected.
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.

45

Sec. 387. It shall be unlawful for any land transportation


operator or owner of a motor vehicle to operate the
same in the public highways unless there is in force in
relation thereto a policy of insurance or guaranty in cash
or surety bond issued in accordance with the provisions
of this chapter to indemnify the death, bodily injury,
and/or damage to property of a third-party or
passenger, as the case may be, arising from the use
thereof. (As amended by Presidential Decree No. 1455
and 1814).

Sec. 388. 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
PD No. 1814).

Substitutes for a CMVLI Policy
-
Post a surety bond with the Insurance Commissioner
who shall be made the obligee/creditor in the bond in
such amounts required as limits of indemnity to
answer for the same losses a CMVLI policy might cover
-
Make a cash deposit with the Insurance Commission in
such amount(s) required as limits of indemnity also for
the same purpose as above.
NOTE: After such cash deposit/surety bond has been
proceeded against, such cash deposit/surety bond
should be replenished/replaced withiin 60 days.

Scope of the CMVLI Coverage
-
For private motor vehicle owners (MVOs), the
coverage must be comprehensie against third party
liability for death or bodily injuries.
-
For operators of land transportation (LTOs), the
coverage must also be comprehensive against both
passenger and third party liabilites fpr death or bodily
injuries.

Duty of MVO or LTO when Cancelling CMVLI Coverage
1. Give to the insurance or surety company concerned a
written notice of intention to cancel the CMVLI policy.

2.

Before the current CMVLI ceases to be effective or is


cancelled, secure a new similar policy or bond to
replace the current one OR make a cash deposit to the
Insurance Commission and secure a certification
evidencing that such a deposit was made.


Standard Driver Clause and Drivers License Requirement
-
Standard authorized driver clause this clause is a
staple in CMVLI policies:

AUTHORIZED DRIVER
Any of the following:
(a) the insured
(b) any person driving on the insureds order or
with his permission; provided, that the person
driving is permitted in accordance with licensing or
other laws or regulations to drive the motor
vehicle and is not disqualified from driving such
motor vehicle by order of a court of law or by
reason of any enactment or regulation in that
behalf.

-
Drivers License When it is the insured himself who is
driving, possessing the license is not required for the
coverage to apply nor will having an expired license
defeat the claim. It merely renders him subject to the
proper penalties for violation of the relevant
regulations. However, if the one driving is another
person who had permission or was under the orders of
the insured, possessing a valid license is a requisite for
the claim to lie.


2. The No Fault clause


NOTES:
-
The term no-fault connotes that the victim can recover
without regard to his contributor fault
-
The ratio is to guarantee indemnity to the victims
-
This applies to death and injury sustained by third
party but not to property damage
-
The insurer shall also be liable if the victim is an
occupant or passenger regardless of his own fault
-
The insurer liable is the not necessarily the insurer of
the vehicle that caused the accident BUT the insurer of
vehicle which the occupant is riding, mounting, or
dismounting from.

Sec. 391. 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

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

Motor Vehicle any vehicle propelled by any power other than


muscular power using the public highways (note exceptions like
lawn mowers, bulldozers, cranes, trolley cars, tractors etc.)

Motor vehicle insurance an insurance coverage that will
answer for legal liability for losses and damages for bodily injury
or property damage sustained arising from the use or operation
of the motor vehicle
-
Although it is obtained on voluntary basis by the
owner, this type of insurance is to a certain extent,
compulsory because the IC enjoins the owner to
obtain a Compulsory Motor vehicle Liability Insurance
(CMVLI), guaranty or surety bond before it can operate
-
RATIO: to assure the victims of accidents that they will
have financial assistance regardless of the financial
capability of motor vehicle owner (MVO)
-
This is also because the toll of death and injury due to
vehicular accidents has been so high! (tomo!)

46


CASES for motor vehicle insurance:
Perla Companie de Seguros v. CA
F: Car was carnapped but insurer refused to pay because license
was expired, hence, the insured was not an authorized driver.
H: The theft clause and not the authorized driver clause
shall apply. Theft is a different legal concept from that of
accidents where the authorized driver clause usually applies.

Shafer v. Judge
F: S obtained a car policy for his Ford from M (for third party
liability). The car figured in an accident and a passenger was
injured. S was charged with criminal negligence.
H: S can implead the insurance company as a third party
defendant in the criminal action when civil liability ex delicto is
also tried. The liability of the insurer accrues immediately upon
the occurrence of the loss or accident.

Far Eastern Surety v. Misa
F: M hired a taxicab operated by L. The cab collided with a truck
(the truck was at fault). M was injured so she filed a case against
L which filed a third party complaint against F as the insurer.
H: F is not liable. Indemnity was predicated on the
representation that the cab insures the passengers to accidents.
In this case, because L has not legal liability (it was not at fault),
F also has no liability. But using the doctrine of estoppel, L is still
liable to M.

Peza v. Alikpala
F: Employee of a company drove the company car without a
license and runs two kids over. Insurer refused to reimburse the
company using the authorized driver clause.
H: SC upheld insurer. Employee is not an authorized driver.

Perla v. Ancheta
F: A collision of a car and a bus in Bicol resulted to injury to the
passengers of the bus. They filed against the insurer, claims for
passenger liability and third party liability.
H: The insurer is liable for passenger liability only. It is
mandatory for the insurer of the bus to pay such even without
any showing which vehicle was at fault. In any case, the insurer
can recover from the vehicle responsible for the accident. The
ratio for the no-fault indemnity clause is to provide the victims
with immediate compensation after the accident.

G. Reinsurance
-
one party (the reinsurer) indemnify another (the
reinsured or the original insurer) against loss or

liability it may sustain under a separate contract of


insurance with a third party (original insured)
an insurance of an insurance


Sec. 97. A contract of reinsurance is one by which an
insurer procures a third person to insure him against
loss or liability by reason of such original insurance.

Sec. 98. Where an insurer obtains reinsurance, except
under automatic reinsurance treaties, he must
communicate all the representations of the original
insured, and also all the knowledge and information he
possesses, whether previously or subsequently acquired,
which are material to the risk.

Sec. 99. A reinsurance is presumed to be a contract of
indemnity against liability, and not merely against
damage.

Sec. 100. The original insured has no interest in a
contract of reinsurance.

Reinsurance
The original insurer
becomes the insured
The subject is the original
insurers risk
There is a different interest
The original insured has no
interest in the reinsurance
The consent of the original
insured is not necessary

Double Insurance
The original insurer remains
the insurer
The property of the insured
Insurance of the same
interest
The original insured is a
party in all contracts
The insured has to give his
consent



NOTES:
Importance: it is valuable in the economy strengthen the
insurance company which has its own retention limit as to
awards (now it can insure amounts exceeding its limit)
-
results to improved undertaking analysis which is
more efficient because it will be undertake by one
company over many insurers
-
as to the insured, it is valuable in making his policy
more stable
-
similar to the original contract of insurance, the
original insurer has the duty to disclose material facts
relating to the insurance contract
-
share in the insurance may be automatic (reinsurer is
obligated to accept a fixed share of the risk) or
facultative (liability on individual risk where each party
has a free choice to accept)
-
this is a contract against liability (under the original
insurance contract) and not against damage the
original insurer should pay the insured first before the
reinsurer can pay
-
rule on subrogation is applicable
-
the original insured has no privity of contract between
the reinsurer and the original insurer EXCEPT if there is
a provision in the reinsurance contract allowing the
reinsurer to become liable OR if there a novation in

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

(c) Medical report and evidence of medical or


hospital disbursement in respect of which refund
is claimed;
(iii) Claim may be made against one motor vehicle
only. In the case of an occupant 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.

47



Automatic vs. Facultative
-
Automatic Under an automatic reinsurance treaty,
the ceding company (reinsured) is bound to cede (i.e.,
give off by way of reinsurance) and the reinsurer is
obligated to accept a fixed share of the risk which has
to be reinsured.
-
Facultative - there is no obligation to cede on the part
of the reinsured nor an obligation to accept on the
part of the reinsurer, as each party has a free choice.
However, once the risk that the reinsured cedes is
accepted by the reinsurer, the obligation is absolute
and the liability assumed thereafter may only be
discharged by one way: payment of the share of the
losses.

Reinsurance Treaties vs. Reinsurance Policies
-
Reinsurance treaty the agreement between two
insurance companies that one (reinsurer) will
indemnify the other (reinsured) against loss or liability
it may sustain under the original contract of insurance
it entered into. Simply stated, it is not yet the
insurance policy per se but just an understanding
between the two parties to engage in reinsurance. It
is a contract FOR reinsurance.
-
Reinsurance policy the actual contract that came as a
result of the agreement/reinsurance treaty. The
reinsurer is now bound to indemnigy the reinsured for
the loss/liability it may incur, as stated in the policy. It
is a contract OF insurance.

The subject of a reinsurance contract is NOT the property
insured by the reinsured under the original insurance policy but
the reinsureds risk of sustaining liability under that said original
insurance policy.

Liability of the Reinsurer to the Original Insured
-
Contract of Reinsurance solely between reinsurer and
reinsured the original insured is considered a
stranger to this contract of reinsurance and has
absolutely no interest thereto.
-
Contract of Reinsurance with stipulation pour autrui in
favor of the original insured the original insured may
now proceed against both the reinsured (insurer in the
original insurance policy) and the reinsurer.
-
Contract of reinsurance amounting to novation this is
not, technically, a reinsurance because what happens
is that the reinsurer replaces the reinsured as the
insurer in a new insurance policy in favor the original
insured.

Philam v. Auditor
F: P claims that its insurance treaty with Airco was in fact an
insurance policy, and as such, should be exempted from the
Margin Law.
H: A reinsurance policy is a contract of indemnity one insurer
makes with another to protect the first insurer from risk the
latter has already assumed. A reinsurance treaty is merely an

agreement between two insurers whereby one agrees to cede a


reinsurance business. They are not synonymous. Treaties are
contract for insurance while reinsurance policies are contracts
of insurance.

Fieldman v. Asian Surety
F:A entered into reinsurance treaties with F, the parties were to
take effect from certain dates and were to be in force until
cancelled by either party upon previous notice to the other
party, the cancellation to take effect as of the last day of the
year in which notice was given. F gave several notices, no reply
from A. One risks reinsured with F in favor of GSIS was burned.
H: The cancellation did not have the effect of terminating the
liability of F as reinsurer with respect to policies or cessions
issued prior to the termination of the principal reinsurance
contracts. Especially if those contracts contain provisions
providing for continuing effectivity of policies until the
respective dates of expiration and notwithstanding the
cancellation of the contracts themselves. F is still liable for the
GSIS policy.


Equitable Insurance v. Rural Insurance
F: E and R entered into a reciprocal insurance agreement
whereby they agreed to cede to each other, policies of
insurance or reinsurance issued by their fire insurance
departments for risk in the PHL. E reinsured 2 fire policies with
R which the latter accepted. The stocks covered by the policies
were burned. E filed a claim with R. R refused to pay.
H: R cannot choose an alternative remedy, that is to not pay E.
Although the obligation was facultative, once R accepted the
obligation, it has absolute liability to pay the original insured.

Artex Development v. Wellington
H: A third party not privy to a contract that contains no
stipulations pour autrui in its favor may not sue enforcement of
the contract. Unless there is a specific grant in, or assignment
of, reinsurance contract in favor of the insured or a manifest
intention of the contracting parties to the insurance contrary to
grant such benefit or favor to the insured, not It is expressly
provided in section being privy to the reinsurance contract, has
no cause of action against the reinsurer. 91 the Insurance Act 1
that "(T)he original insured has no interest in a contract of
insurance."
Article 1311 of the CC "Contracts take effect only between
the parties, their assigns and heirs" and provides for the
exception of stipulations pour autrui or in favor of a third
person not a party to the contract The Court has ruled since
the early case of Uy Tam vs. Leonard that the "intent of the
contracting parties to benefit third party by means of such
stipulations pour autrui must be clearly expressed.

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

the original insurance contract making the reinsurer


liable to the original insured

48


A. Definition & Risks Covered
Marine protection and indemnity insurance"(Sec 99 par 2)
insurance against, or against legal liability of the insured for
loss, damage, or expense incident to ownership, operation,
chartering, maintenance, use, repair, or construction of any
vessel, craft or instrumentality in use of ocean or inland
waterways, including liability of the insured for personal injury,
illness or death or for loss of or damage to the property of
another person.

Risks covered (Sec 99 par 1)
a. Vessels, craft, aircraft, vehicles, goods, freights,
cargoes, merchandise, effects, disbursements, profits,
moneys, securities, choses in action, evidences of
debts, valuable papers, bottomry, and respondentia
interests and all other kinds of property and interests
therein, in respect to, appertaining to or in connection
with any and all risks or perils of navigation, transit or
transportation, or while being assembled, packed,
crated, baled, compressed or similarly prepared for
shipment or while awaiting shipment, or during any
delays, storage, transhipment, or reshipment incident
thereto, including war risks, marine builder's risks, and
all personal property floater risks;
b. Person or property in connection with or appertaining
to a marine, inland marine, transit or transportation
insurance, including liability for loss of or damage
arising out of or in connection with the construction,
repair, operation, maintenance or use of the subject
matter of such insurance (but not including life
insurance or surety bonds nor insurance against loss
by reason of bodily injury to any person arising out of
ownership, maintenance, or use of automobiles);
c. Precious stones, jewels, jewelry, precious metals,
whether in course of transportation or otherwise;
d. Bridges, tunnels and other instrumentalities of
transportation and communication (excluding
buildings, their furniture and furnishings, fixed
contents and supplies held in storage); piers, wharves,
docks and slips, and other aids to navigation and
transportation, including dry docks and marine
railways, dams and appurtenant facilities for the
control of waterways.

All risks Marine Insurance Policy
-
insures against all causes of conceivable loss or
damage, except as otherwise excluded in the policy or
due to fraud or intentional misconduct on the part of
the insured.

The burden of proof is on the part of the insurer to


eastablish that the damage or loss that has occurred is
excluded from the coverage.


B. General & Particular Average

Sec 136. Where it has been agreed that an insurance
upon a particular thing, or a class of things, shall be free
from a 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.

Average
-
Any extraordinary or accidental expense incurred
during the voyage for the preservation of the vessel,
cargo, or both; and
-
All damages to the vessel and cargo from the time it is
loaded and the voyage commenced until it ends and
the cargo unloaded

KINDS
1. Gross/General Averages
-
Damages and expenses deliberately caused by the
master of the vessel or upon his authority, in order to
save the vessel, cargo, or both at the same time from a
real and known risk
-
Borne equally by all of the interests concerned in the
venture
Requisites to the right to claims the General Avergage
Contribution
a. There must be a common danger to the vessel or
cargo
b. Part of the vessel or cargo was sacrificed deliberately
c. The sacrifice must be for the common safety or for the
benefit of all
d. It must be made by the master or upon his authority
e. It must not be caused by any fault of the party asking
the contribution
f. It must be successful
g. It must be necessary

2. Simple/Particular Averages
-
All damages and expenses caused to the vessel or to
her cargo which have not inured to the common
benefit and profit of all the persons interested in the
vessel and her cargo
-
Loss is suffered by and borne by the owner of the
cargo or vessel

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

Chapter VIII
Marine Insurance

49

Section 1 of the Institute War Clauses provided that "this


insurance covers the risks excluded from the Standard Form of
English Marine Policy by the clause 'Warranted free of capture,
seizure, arrest, etc. x x x'" or the F.C. & S. Clause.

Mayer Steel v CA
Ruling: The Carriage of Goods by Sea Act, stating that the carrier
and the ship shall be discharged from all liability for loss or
damage to the goods if no suit is filed within one year after
delivery of the goods or the date when they should have been
delivered, is not applicable in this case. The insurer's liability is
based not on the contract of carriage but on the contract of
insurance, which is governed by the Insurance Code.

D. Insurable Interest in Marine Insurance

1. Parties with insurable interest
Owner of the ship
Has insurable interest on the vessel to the extent of its
value.
Even if he has:
a. Mortgaged the vessel (Higginson v. Dall, 13 Mass.
96.)
b. Chartered the vessel to a third person who agrees
to pay him its value in case of loss (Sec. 100)

Charterer of a ship
Has insurable interest on the vessel to the extent that
he is liable to be damnified by its loss (Sec. 106).

Insurable interest and sale contracts
A person has an insurable interest if he will suffer in the
event of loss of, or damage to, the subject matter insured

a. In the case of a vessel:
i. Owner
ii. One who holds mortgage on the vessel
iii. One who leases

b. In the case of cargo:
Insurable interest is in the shipper or the consignee
depending upon the terms of sale.
F.O.B.
i. F.O.B. factory Buyer assumes responsibility when
the goods leave the factory;
ii. F.O.B. point of destination Buyer assumes
responsibility when the goods are received from the
carrier.

C.I.F. Seller assumes complete responsibility for securing all
the necessary insurance; and
C. & F. Buyer procures his own insurance. (Riegel, Miller, &
Williams, Jr., op cit., pp. 274-275)

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez


C. Perils of the Sea/Perils of the Ship
Perils of the sea
-
includes only those casualties due to the unusual
violence or extraordinary action of wind and wave, or
to other extraordinary causes connected with
navigation; these arise from some overwhelming
power which cannot be guarded against by the
ordinary exertion of human skill or prudence (ex:
shipwreck, foundering, stranding, collision) ->
COVERED BY MARINE INSURANCE

Perils of the ship
-
includes losses which result
a. from the natural and inevitable action of the
sea
b. from the ordinary wear and tear of the ship,
or
c. from the negligent failure of the ships owner
to provide the vessel with proper equipment
to convey the cargo under ordinary
conditions -> NOT COVERED BY MARINE
INSURANCE

Cathay Insurance v CA
Ruling: The rusting of steel pipes in the course of a voyage is a
peril of the sea in view of the toll on the cargo of wind, water,
and salt conditions.

Roque v IAC
Ruling: Section 113 of the Insurance Code provides that in every
marine insurance upon anything, a warranty is implied that the
ship is seaworthy. The loss having been caused by ordinary
strong waves and wind, a normal condition in the open sea,
coupled by negligence and mistake on the part of the vessel
crew, the same does not fall under a peril of the sea and not
covered by the insurance contract.

La Razon v Union Insurance
Ruling: In the present case the entrance of the sea water into
the ship's hold through the defective pipe already described
was not due to any accident which happened during the
voyage, but to the failure of the ship's owner properly to repair
a defect of the existence of which he was apprised. The loss was
therefore more analogous to that which directly results from
simple unseaworthiness than to that which results from perils
of the sea.

Malayan Insurance v CA
Ruling: With the incorporation of subsection 1.1 of Section 1 of
the Institute War Clauses, "arrest" caused by ordinary judicial
process is deemed included among the covered risks. This
interpretation becomes inevitable when subsection 1.1 of

50

2.
b.

In the case of a vendee/consignee of goods in transit:


Vendee/consignee has such interest therein
as may be the subject of a valid contract of
insurance.


Shipowners and lenders insurable interest where vessel
hypothecated by bottomry
! Owner - has insurable interest only in the excess of its
value over the amount of the bottomry loan (Sec.
101).
! Lender has insurable interest in the vessel given as
security for the loan up to the amount thereof

Meaning of freightage
Freightage is the benefit which is to accrue to the owner of the
vessel from its use in the voyage contemplated or the benefit
derived from the employment of the ship.

Sources of freightage
1) Chartering of the ship;
2) Its employment for the carriage of his own goods; and
3) Its employment for the carriage of the goods of others
(Sec. 102).

Insurable interest in expected or anticipated freightage
1. Freight money assured to the shipowner may be:
a. freight in its ordinary acceptance;
b. the hire of the vessel; and
c. the benefit accruing to the owner from the
use of his vessel in the way of profits upon
carriage of his own goods.
2. Owner of the ship has insurable interest in expected
freightage which he may not earn in case of the
intervention of a peril insured against or other peril
incident to the voyage.
However, where the agreement is that the
freight is payable in any event, the
shipowner has no insurable interest in such
freight. But shipper who has prepaid the
freightage under such condition, has an
insurable interest on the same.

Insurable interest in passage money
1) Passenger can insure his advances of passage
money.
2) Shipowner may not insure passage money unless it
is payable only upon completion of the passage.

Insurable interest in expected freightage in a charter party
1. When it exists. Insured must have an inchoate right
to freight

3.

4.

Where freight is the price to be paid for the hire of the


ship under a charter party. Shipowner has inchoate
right to freight as soon as there is an inception of
performance by the ship under the charter party.
Where the inchoate right to freight accrues as soon as
the goods are actually put on board and where part of
the goods has been loaded and the balance is ready.
There is insurable interest in the whole freight.
Where the shipowner has made a binding contract for
freight and ship is ready to receive goods. He has an
insurable interest.


Insurable interest in expected profits
a. Interest in thing involved based on some legal right.
One having reasonable expectation of profits from
marine adventure may take out insurance to protect
such profits.
However, interest should be legal interest
although it may be contingent.
b. Interest in thing involved based on a valuable
consideration. The insured has sufficient interest if it
is based on a valuable consideration paid.


2. Kinds of charter parties
a. Bareboat or demise charter
Shipowner turns over full possession and control of his
vessel to the charterer, who then undertakes to
provide a crew and victuals and supplies and fuel for
her during the term of the charter. Charterer
becomes, in effect, the owner for the voyage or
service stipulated (owner pro hac vice), subject to
liability for damages caused by negligence.
b. Contract of affreightment
Owner of the vessel leases part or all of its space to
haul goods for others. Owner of the vessel retains
possession and control of the vessel, the charterer
merely having use of the space.
c. Voyage charter
A contract for the carriage of goods, master and crew
remain in the employ of the owner of the vessel.
Parties may fully contract respecting liability for
damage to the goods and other matters. Basic
principle: Responsibility for cargo loss falls on the one
who agreed to perform the duty involved.
d. Time charter
A contract for the use of a vessel for a specified period
of time or for the duration of one or more specified
voyages. Owner of the vessel retains possession and
control through the master and crew who remain his
employees. Time charterer acquires right to utilize the
carrying capacity and facilities of the vessel and to
designate her destinations.

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

51

Sec. 107. In marine insurance each party is bound to


communicate, in addition to what is required by section
twenty-eight, all the information which he possesses,
material to the risk, except such as is mentioned in
Section thirty, and to state the exact and whole truth in
relation to all matters that he represents, or upon
inquiry discloses or assumes to disclose.

Concealment: Effect: Policy is VOIDABLE
Failure to disclose any material fact or circumstance
which
a. Is within or ought to be within the knowledge
of one party
b. The other has no actual or presumptive
knowledge
c. All facts within his knowledge that
Are material to the contract
The other doesnt have the means of
ascertaining
Party with a duty to communicate makes no
warranty
d. Disclose facts even if not inquired
TEST: applicant is aware of some circumstances and facts which
he knows would influence the insurer in acting on the
application
except such is mentioned in Sec.30
e. No duty to disclose the following:
-
Those which the other knows
-
Those the other ought to know
-
When other waives communication
-
Those which prove the existence of a risk
excluded by warranty; not material
-
Those which relate to a risk excepted by a
policy

Rules as to misrepresentations and concealments, stricter in M.I.
-
Character of the insurable property
-
Insurers difficulty in obtaining information about the
insurable property (as opposed to life, buildings, etc.)
-
Sufficient that the insured is in possession of the fact,
although he may not be aware of it

1. Opinions or Expectations Material

Sec. 108. In marine insurance, information of the belief
or expectation of a third person, in reference to a
material fact, is material.

GENERALLY:

Information of his own judgment or from third persons are


IMMATERIAL (see Secs. 35, 43)
IN M.I.:
-
beliefs, opinions, expectations of third persons are
MATERIAL (see Sec. 109)
-
Must be in reference to a material fact
-
E.g. Non-disclosure of expert opinion that the vessel is
unseaworthy

2. Insured Presumed to know Prior Loss

Sec. 109. A person insured by a contract of marine
insurance is presumed to have knowledge, at the time
of insuring, of a prior loss, if the information might
possibly have reached him in the usual mode of
transmission and at the usual rate of communication.

A disputable presumption exists that the insured
knows of a prior loss at the time of insuring when
information as to the loss could plausibly reach him
-
Due to quickness of transmission of news of loss
through modern communication
-
BUT, insured is not bound to use all means of
information at the very last instant of time
Situation:
An owner took out an insurance for a ship, not knowing
that it had been wrecked. He did not know of the fact of
loss because his agent only wrote him a letter when the
latter could have cabled him the news. Policy is void.
-


3.

Concealment

Sec. 110. A concealment in a marine insurance, in


respect to any of the following matters, does not vitiate
the entire contract, but merely exonerates the insurer
from a loss resulting from the risk concealed:
(a) The national character of the insured;
(b) The liability of the thing insured to capture and
detention;
(c) The liability to seizure from breach of foreign laws of
trade;
(d) The want of necessary documents;
(e) The use of false and simulated papers.


GENERALLY: Concealment of material facts entitles the injured
party to rescind
IN M.I.:
- Concealment of matters in 110 (a-e) does not avoid the entire
policy
- If there is such concealment, loss due to matters in 110 (a-e)
does not make insurer liable; but loss due to other causes does
not exonerate insurer.

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez



E. Concealment & Misrepresentation

52

Misrepresentation

Sec. 111. If a representation by a person insured by a


contract of marine insurance, is intentionally false in
any material respect, or in respect of any fact on which
the character and nature of the risk depends, the
insurer may rescind the entire contract.
GENERALLY: substantial truth is enough; true enough when the
conduct of the insurer would not have been different if it be
true or not

IN M.I.: The insured is required to state the exact and whole
truth in relation to ALL matters he represents(see Sec. 107)

Examples of material fact representation for M.I.
a. As to age, equipment, earnings, condition or rating of
a vessel
b. Repaired at a certain place
c. Arrived at a certain destination
d. State of the vessel at any particular point in time

5. Representation of expectation

Sec. 112. The eventual falsity of a representation as to
expectation does not, in the absence of fraud, avoid a
contract of marine insurance.


NOTES:
Statements of future facts or events which are
contingent
Insurer is bound to know that the insured did not
intend to state them as facts, but as intentions or
expectations merely
E.g. statements as to ETA, ETD, nature of the cargo to
be shipped, profits expected, destination
Without fraud, failure of fulfilment is not a ground for
rescission

F. Implied Warranties

1. Seaworthiness of Vessel

Section 113. In every marine insurance upon a ship or
freight or freightage, or upon any thing which is the
subject of marine insurance, a warranty is implied that
the ship is seaworthy.

Section 114. A ship is seaworthy when reasonably fit to
perform the service and to encounter the ordinary
perils of the voyage contemplated by the parties to the
policy.


Section 115. An implied warranty of seaworthiness is complied
with if the ship be seaworthy at the time of the commencement
of the risk except in the following cases:
a. When the insurance is made for a specified length of time,
the implied warranty is not complied with unless the ship be
seaworthy at the commencement of every voyage it undertakes
during that time.
b. When the insurance upon the cargo which, by the terms of
the policy, description of the voyage or established custom of
the trade, is to be transhipped at an intermediate port, the
implied warranty is not complied with unless each vessel upon
which the cargo is shipped or transhipped be seaworthy at the
commencement of each particular voyage.

Section 116. A warranty of seaworthiness extends not only to
condition of the structure of the ship itself, but requires that it
be properly laden, and provided with competent master, a
sufficient number of competent officers and seamen, and the
requisite appurtenances and equipment, such as ballasts, cables
and anchors, cordage and sails, food, water, fuel and lights, and
other necessary or proper stores and implements for the
voyage.

Section 117. Where different portions of the voyage
contemplated by a policy differ in respect to the things requisite
to make ship seaworthy therefore, a warranty of seaworthiness
is complied with if, at the commencement of each portion, the
ship is seaworthy with reference to that portion.
Section 118. When the ship becomes unseaworthy during the
voyage to which an insurance relates, an unreasonable delay in
repairing the delay exonerates the insurer on ship or
shipowners interest from liability from any loss arising
therefrom.

Section 119. A ship which is seaworthy for the purpose of an
insurance upon the ship may, nevertheless, by reason of being
unfitted to receive the cargo, be unseaworthy for the purpose
of the insurance upon the cargo.

Cases
Roque vs. IAC
F: February 29, 1972, the petitioners loaded on the barge, 811
pieces of logs at Malampaya Sound, Palawan for carriage and
delivery to North Harbor, Port of Manila, but the shipment
never reached its destination because Mable 10 sank with the
811 pieces of logs somewhere off Cabuli Point in Palawan on its
way to Manila. As alleged by the petitioners in their complaint
and as found by both the trial and appellate courts, the barge
where the logs were loaded was not seaworthy such that it
developed a leak. The appellate court further found that one of
the hatches was left open causing water to enter the barge and
because the barge was not provided with the necessary cover

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

4.

53


G. Losses Covered by Marine Insurance
The law classifies loss into either total or partial:
Every loss which is not total is partial
There are two kinds of total loss: actual or absolute
and constructive or technical.
When the loss is total, the insurer is liable for the
whole of the amount insured.

1. Actual Total Loss
-
Actual loss exists when the subject matter of the
insurance is wholly destroyed or lost or when it is so
damaged as no longer to exist in its original character
-
Under Sec 130, an actual total loss is cause by:
! A total destruction of the thing insured;
! The irretrievable loss of the thing by sinking,
or by being broken up;
! Any damage to the thing which renders it
valueless to the owner for the purpose for
which he held it; or
! Any other event which effectively deprives
the owner of the possession, at the port of
destination, of the thing insured
-
Actual loss may be presumed from the continued
absence of a ship without being heard of. The length
of time which is sufficient to raise this presumption
depends on the circumstances of the case. (Sec. 132)

2. Constructive Total Loss
-
A constructive or technical loss is one in which the loss
is such a character that the insured is entitled, if he
thinks fit, to treat it as total by abandonment.
-
In actual loss, no abandonment is necessary, but if the
loss is merely constructively total, an abandonment is
necessary in order to recover as for a total loss.

Choa v CA
H: An all risk insurance policy insures against all causes of
conceivable loss or damage, except as otherwise excluded in
the policy or due to fraud or intentional misconduct on the part
of the insured.
An "all risks" provision of a marine policy creates a special
type of insurance which extends coverage to risks not usually
contemplated and avoids putting upon the insured the burden
of establishing that the loss was due to peril falling within the
policy's coverage. The insurer can avoid coverage upon
demonstrating that a specific provision expressly excludes the
loss from coverage.
In this case, the damage caused to the cargo has not been
attributed to any of the exceptions provided for. Thus, the
liability of respondent insurance company is clear.

Filipino Merchants v CA

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

or tarpaulin, the ordinary splash of sea waves brought more


water inside the barge.
Held: What is covered by Marine Insurance under Section 113 is
perils of the sea. Extends only to losses caused by sea damage,
or by the violence of the elements, and does not embrace all
losses happening at sea. They insure against losses
from EXTRAORDINARY OCCURRENCES only, such as stress of
weather, winds and waves, lightning, tempests, rocks and the
like. These are understood to be the "perils of the sea" referred
in the policy, and not those ordinary perils which every vessel
must encounter. "Perils of the sea" has been said to include
only such losses as are of extraordinarynature, or arise from
some overwhelming power, which cannot be guarded against
by the ordinary exertion of human skill and prudence. Damage
done to a vessel by perils of the sea includes every species of
damages done to a vessel at sea, as distinguished from the
ordinary wear and tear of the voyage, and distinct from
injuries suffered by the vessel in consequence of her not being
seaworthy at the outset of her voyage (as in this case).

2. Implied Warranties Against Improper Deviation

Section 121. When the voyage contemplated by a marine
insurance policy is described by the places of beginning and
ending, the voyage insured in one which conforms to the course
of sailing fixed by the mercantile usage between those places.

Section 122. If the course of sailing is not fixed by mercantile
usage, the voyage insured by a marine insurance policy is that
way between the places specified, which to a master of
ordinary skill and discretion would mean the most natural,
direct and advantageous.

Section 123. Deviation is a departure from the course of the
voyage insured mentioned in the last two sections, or an
unreasonable delay in pursuing the voyage or the
commencement of an entirely different voyage.

Section 124.A deviation is proper
a. When caused by circumstances over which neither the
master nor owner of the ship has any control;
b. When necessary to comply with a warranty or to avoid a
peril, whether or not the peril is insured against;
c. When made in good faith and upon reasonable grounds of
belief in its necessity to avoid a peril; or;
d. When made in good faith for the purpose of saving human
life or relieving another vessel in distress

Section 125. Every deviation not specified in the last section is
IMPROPER.

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

54

which a prudent man would not take under the


circumstances. But freightage cannot be abandoned
unless the ship is also abandoned.

Oriental Assuarance v. CA
H: In this case, the Court held that there was an improper basis
for the abandonment, where the 3/4 was computed on the
basis of one of the barges, where the logs, although loaded in
two separate barges, were neither insured separately nor
separately valued in the policy.

How is Abandonment done?
Abandonment is made by giving notice thereof to the insurer,
which may be done orally, or in writing; Provided, That if the
notice be done orally, a written notice of such abandonment
shall be submitted within seven days from such oral notice.
must be made within a reasonable time after receipt
of reliable information of the loss, but where the
information is of a doubtful character, the insured is
entitled to a reasonable time to make inquiry
must be explicit, and must specify the particular cause
of the abandonment, but need state only enough to
show that there is probable cause therefor, and need
not be accompanied with proof of interest or of loss.
can be sustained only upon the cause specified in the
notice thereof.

Acceptance of Abandonment
! The acceptance of an abandonment may be either
express or implied from the conduct of the insurer.
The mere silence of the insurer for an unreasonable
length of time after notice shall be construed as an
acceptance.
! The acceptance of an abandonment, whether express
or implied, is conclusive upon the parties, and admits
the loss and the sufficiency of the abandonment.

Non-Acceptance
! Where notice of abandonment is properly given, the
rights of the insured are not prejudiced by the fact
that the insurer refuses to accept the abandonment.
! If an insurer refuses to accept a valid abandonment,
he is liable as upon actual total loss, deducting from
the amount any proceeds of the thing insured which
may have come to the hands of the insured.

Abandonment Ineffectual
! Where the information upon which an
abandonment has been made proves incorrect, or the
thing insured was so far restored when the
abandonment was made that there was then in fact
no total loss, the abandonment becomes ineffectual.

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

H: Under an "all risks" clause of the marine insurance policy, the


insurer is liable for the partial loss of the cargo, notwithstanding
the clear absence of proof of some fortuitous event, casualty, or
accidental cause to which the loss is attributable.
Coverage under an "all risks" provision of a marine
insurance policy creates a special type of insurance which
extends coverage to risks not usually contemplated, and covers
all losses except such as arise from the fraud of the insured.
It avoids putting upon the insured the burden of
establishing that the loss was due to the peril falling within the
policy's coverage. The burden of the insured is to prove merely
that the goods he transported have been lost, destroyed or
deteriorated. The burden is then shifted to the insurer to prove
that the loss was due to excepted perils.

3. What is Abandonment?
! It is the act of the insured by which, after a
constructive total loss, he declares the relinquishment
to the insurer of his interest in the thing insured.

Pan Malayan v. CA
H: In this case, the Court ruled that it was academic to rule on
the issue of the validity of the abandonment made by the
insured because there was a finding that actual loss has been
suffered.

Total and Partial Abandonment
An abandonment must neither be partial nor conditional.
But abandonment may be partial if either:
a) The particular portion sought to be abandoned is
separately valued in the policy
b) It is otherwise separately insured

Rule (Requisites Abandonment)
The insured may abandon the thing insured when the cause of
the loss is a peril insured against if:
a) More than 3/4 thereof in value is actually lost, or
would have been expended to recover it from the
peril;
b) It is injured to such an extent as to reduce its value
more than 3/4;
c) The thing insure is a ship, and the contemplated
voyage cannot be lawfully performed without
incurring 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
d) The thing insured, being cargo or freightage, and the
voyage cannot be performed, or another ship
procured by the master, within a reasonable time and
with reasonable diligence, to forward the cargo,
without incurring an expense to the insured of more
than 3/4 the value of the thing abandoned or a risk

55


Other Effects of Abandonment
Main Effect:
Recover for a total loss of the thing Abandoned!
! is equivalent to a transfer by the insured of his interest
to the insurer, with all the chances of recovery and
indemnity.
! acts done in good faith by those who were 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.
! 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.

No Abandonment
If a person insured omits to abandon, he may nevertheless
recover his actual loss.

H. Measure of Indemnity: Open and Valued Policies
Valued Policies
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, if the insured has some interest at
risk, and there is no fraud on his part; except that when a thing
has been hypothecated by bottomry or respondentia, before its
insurance, and without the knowledge of the person actually
procuring the insurance, he may show the real value. But a
valuation fraudulent in fact, entitles the insurer to rescind the
contract.

Proportional Recovery : Cargo
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.

Presumption of Total Loss
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.

Open Policies
Sec. 161. In estimating a loss under an open policy of marine
insurance the following rules are to be observed:

NOTE: The value of a ship is its value at the beginning of the
risk, including all articles or charges which add to its permanent

value or which are necessary to prepare it for the voyage


insured;
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;
The value of freightage is the gross freightage,
exclusive of primage, without reference to the cost of
earning it; and
The cost of insurance is in each case to be added to
the value thus estimated.

Liability for Recovery of Property
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.

Liability for General Average Loss
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.

Liability for Ship Repairs
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.


A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

! An abandonment once made and accepted is


irrevocable, unless the ground upon which it was
made proves to be unfounded.

56


A. Notice and Proof of Loss

SECTION 88 Insurance Code
In case of loss upon an insurance against fire, an insurer
is exonerated, if notice thereof be not given to him by
an insured, or some person entitled to the benefit of
the insurance, without unnecessary delay.



Conditions before loss
-
Insured must comply with the terms of the policy
-
Terms of contract measure of insurers liability
-
Non-compliance bars right of recovery
-
Examples:
a. Notice requirement when another insurance policy
covers same property
b. Prohibition on procurement of another insurance
policy covering same property
-
Notice and proof or loss (Sec. 88 & 89) are conditions
concerning matters after loss that must be fulfilled
before insured becomes entitled to the benefit of the
policy
Example: Certificate of attending physician (life and
accident policies)
-
Nature: Conditions subsequent to breach
-
Construction: Substantial compliance necessary

Notice of Loss: NOTICE OF LOSS MUST BE GIVEN TO INSURER
Fire insurance Loss No notice within reasonable time
Insurer exonerated

DEFINITION: Formal notice given to the insurer by the insured
or claimant under a policy of the occurrence of the loss insured
against.

PURPOSE: To apprise the insurance company with the
occurrence of the loss, so that it may gather information and
make proper investigation while the evidence is still fresh, and
take such action as may be necessary to protect its interest
from fraud or imposition.
Property insurance: to prevent further loss

IMPORTANCE: Without notice of loss given to the insurer
without unnecessary delay, insurer may be exonerated or
discharged from liability.
-
In the absence of specific requirements as stipulated in
the policy, no particular form of notice is necessary

TIME FOR GIVING NOTICE OF LOSS: without unnecessary


delay (Sec. 88)
-
Must be within REASONABLE TIME
-
REASONABLE TIME: as soon as circumstances
permitted the insured to communicate the loss in the
exercise of reasonable diligence
-
When insurance contract provide for a period: valid
provided time fixed is not unreasonably short

Proof of Loss

SEC. 89. When a preliminary proof of loss is required by
a policy, the insured is not bound to give such proof as
would be necessary in a court of justice; but it is
sufficient for him to give the best evidence which he
has in his power at the time.

Proof of loss = best evidence available
DEFINITION: Formal evidence given to the company by the
insured or claimant under a policy of the occurrence of loss, the
particulars thereof and the date necessary to enable the
company to determine its liability and the amount thereof.

NATURE: Such proof offered by insured which need not be as
persuasive as is required in judicial proceedings
-
Not similar to proof or evidence in the law of
evidence
-
BEST EVIDENCE

FORM OF NOTICE OF PROOF OF LOSS: May be given orally or in
writing, in the absence of any stipulation in the policy.
-
May be in form of informal or provisional claim
containing certain information.

PURPOSE:
(1) To give insurer information by which he may
determine the extent of his liability
(2) To afford him of means of detecting any fraud that
may have been practiced upon him
(3) To operate as a check upon extravagant claims

EXCUSE FOR NON-COMPLIANCE WITH CONDITIONS: When
circumstances make strict compliance impossible Example:
Death or incapacity of insured; Beneficiaries had no knowledge
of existence of policy of insured before peril occurred


SECTION 90
All defects in a notice of loss, or in preliminary proof
thereof, which the insured might remedy, and which
the insurer omits to specify to him, without
unnecessary delay, as grounds of objection are waived.

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

Chapter IX
Claims Settlement & Subrogation

57

SECTION 91. Delay in the presentation to an insurer of


notice or proof of loss is waived if caused by any act of
him, or if he omits to take objection promptly and
specifically upon that ground.
Thus there are three (3) cases when delay is excused:
a. When delay is attributable to the insurer
b. When there was no prompt objection
c. There was an objection but not specifically on
the ground that there was delay of notice or
proof of loss

SECTION 92. If the policy requires, by way of
preliminary proof of loss, the certificate or testimony of
a person other than the insured, it is sufficient for the
insured to use reasonable diligence to procure it, and in
case of the refusal of such person to give it, then to
furnish reasonable evidence to the insurer that such
refusal was not induced by any just grounds of disbelief
in the facts necessary to be certified or testified.


Requirement of certification or testimony of third person:
-
If policy requires by way of preliminary proof, the
certificate or testimony of a person (like a notary
public) other than the insured, such requirement must
be complied with by the insured as part of the
contract.
-
This may be dispensed with if the insured cannot
obtain the certification or testimony
-
In case of refusal of the third person in giving
certification or testimony, the insured must furnish
reasonable evidence that such refusal was not induced
by any just grounds of disbelief in the facts necessary
to be certified or testified



B. Guidelines on claims settlement

SECTION 241. 1) No insurance company doing business
in the Philippines shall refuse, without just cause, to
pay or settle claims arising under coverages provided
by its policies, nor shall any such company engage in
unfair claim settlement practices. Any of the following
acts by an insurance company, if committed without
just cause and performed with such frequency as to
indicate a general business practice, shall constitute
unfair claim settlement practices:
(a) knowingly misrepresenting to claimants pertinent
facts or policy provisions relating to coverage at issue;
(b) failing to acknowledge with reasonable promptness
pertinent communications with respect to claims
arising under its policies;
(c) failing to adopt and implement reasonable
standards for the prompt investigation of claims arising
under its policies;
(d) not attempting in good faith to effectuate prompt,
fair and equitable settlement of claims submitted in
which liability has become reasonably clear; or
(e) compelling policyholders to institute suits to recover
amounts due under its policies by offering without
justifiable reason substantially less than the amounts
ultimately recovered in suits brought by them.
(2) Evidence as to numbers and types of valid and
justifiable complaints to the Commissioner against an
insurance company, and the Commissioner's complaint
experience with other insurance companies writing
similar lines of insurance shall be admissible in
evidence in an administrative or judicial proceeding
brought under this section.
(3) If it is found, after notice and an opportunity to be
heard, that an insurance company has violated this
section, each instance of non-compliance with
paragraph (1) may be treated as a separate violation of
this section and shall be considered sufficient cause for
the suspension or revocation of the company's
certificate of authority.

Claims Settlement Article 241
Prohibition on unjustified refusal to pay or settle
covered claims
Prohibition on unfair claim settlement practices

Unfair Claim Settlement Practices
General Characteristics:
a. Lack of just cause

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There is a waiver where the insurer:
a. Writes the insured that he considers the policy null
and void as the furnishing of the notice or proof of loss
would be vain and useless (Bachrach v British Am. Ins.
Co.)
b. Recognizes his liability to pay the claim (45 C.J.S. 1209)
c. Denies all liability under the policy. (Vance, op. cit. p.
894)
d. Joins in the proceedings for determining the amount
of loss by arbitration, making no objections on account
of notice and preliminary proof (Carol v Gerard Fire
Ins. Co.)
e. Makes objection on any ground other than a formal
defect in the preliminary proof (McMasters & Bruce vs
Westchester County Mut. Ins.)

58

Frequency sufficient to indicate a general business


practice


Acts:
a. Knowing misrepresentations
b. Failure to acknowledge communications
c. Failure to adopt and implement standards
d. Lack of good faith in settlements
e. Suits

Administrative/Judicial Proceeding:
Evidence:
Numbers and types of valid and justifiable complaints
Commissioners complaint experience with other
similar insurance companies
NOTE: Each act = 1 count of violation

PENALTY:
Suspension
Revocation of certificate of authority


SECTION 242. The proceeds of a life insurance policy
shall be paid immediately upon maturity of the policy,
unless such proceeds are made payable in installments
or as an annuity, in which case the installments, or
annuities shall be paid as they become due: Provided,
however, That in the case of a policy maturing by the
death of the insured, the proceeds thereof shall be paid
within sixty days after presentation of the claim and
filing of the proof of the death of the insured. Refusal
or failure to pay the claim within the time prescribed
herein will entitle the beneficiary to collect interest on
the proceeds of the policy for the duration of the delay
at the rate of twice the ceiling prescribed by the
Monetary Board, unless such failure or refusal to pay is
based on the ground that the claim is fraudulent.

The proceeds of the policy maturing by the death of the
insured payable to the beneficiary shall include the
discounted value of all premiums paid in advance of
their due dates, but are not due and payable at
maturity.

Life Insurance Article 242
Time of payment of claims
General rules:
a. Policy with stipulated expiration: immediately upon
maturity; exception: installments or as annuity: when
due
b. Policy maturing upon death prior to expiration: 60
days from presentation of claim and filing of proof


Refusal or failure to pay within time prescribed = interest
Amount of interest is 2x the ceiling c/o the Monetary Board
Exception: Grounded on fraudulent claim

SECTION 243. The amount of any loss or damage for
which an insurer may be liable, under any policy other
than life insurance policy, shall be paid within thirty
days after proof loss is received by the insurer and
ascertainment of the loss or damage is made either by
agreement between the insured and the insurer or by
arbitration; but if such ascertainment is not had or
made within sixty days after such receipt by the insurer
of the proof of loss, then the loss or damage shall be
paid within ninety days after such receipt. Refusal or
failure to pay the loss or damage within the time
prescribed herein will entitle the assured to collect
interest on the proceeds of the policy for the duration
of the delay at the rate of twice the ceiling prescribed
by the Monetary Board, unless such failure or refusal to
pay is based on the ground that the claim is fraudulent.

NOTE:
-

Time for Payment of Claims in Non-Life Policies


Regardless of whether ascertainment has been made
or not not later than ninety (90) days after receipt
by the insurer of proof of loss
If with ascertainment of the loss or damage by
agreement of the parties or by arbitration within
thirty (30) days after the receipt by the insurer of
proof of loss


Reference to Arbitration
1) Where arbitration not required should insurer deny
liability
2) Where arbitration limited to amount of insurers
liability
3) Where arbitration required only when there is dispute
4) Where settlement by arbitration not invoked
5) Where insured voluntarily submitted to arbitration

Sanction for Refusal or Failure to Pay Loss or Damage within the
Time Prescribed
Would entitle the assured to collect interest on the
proceeds of the policy for the duration of the delay at the rate
of twice the ceiling prescribed by the Monetary Board
The term ceiling prescribed by the Monetary Board means the
legal rate of interest of 12% per annum provided in Central Bank
Circular 416, pursuant to Presidential Decree 116. (New World
International Devt., Inc. vs. Seaboard Insurance Co., Inc.)

Effect where Claim is Fraudulent:

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

b.

59

If any false declaration be made by the insured or his


agent to obtain any benefit under the policy, a serious
discrepancy between the actual loss and that claimed
in the proof of loss, shall avoid it as when the claim
exceeds the true value of property lost by 50% as to
indicate that the false statements were made willfully
and intentionally.
-
The insureds inventory of stocks is not binding on the
insurer where it was prepared without the insurers
intervention
-
Fraud in any part of the claim taints the whole.
-
The mere filing of such a claim will exonerate the
insurer.
NOTE: Burden of proof: rests on the insurer

Effect of False Statements Innocently Made
Rights of the insured are in no way prejudiced by false
statements inadvertently and innocently made in his proofs of
loss.
-
There may be honest mistake in valuation without
fraud being involved
-
Numerical precision should not be expected


SECTION 244. In case of any litigation for the
enforcement of any policy or contract of insurance, it
shall be the duty of the Commissioner or the Court, as
the case may be, to make a finding as to whether the
payment of the claim of the insured has been
unreasonably denied or withheld; and in the affirmative
case, the insurance company shall be adjudged to pay
damages which shall consist of attorney's fees and
other expenses incurred by the insured person by
reason of such unreasonable denial or withholding of
payment plus interest of twice the ceiling prescribed by
the Monetary Board of the amount of the claim due the
insured, from the date following the time prescribed in
section two hundred forty-two or in section two
hundred forty-three, as the case may be, until the claim
is fully satisfied; Provided, That the failure to pay any
such claim within the time prescribed in said sections
shall be considered prima facie evidence of
unreasonable delay in payment.

C. Prescription of Action

SECTION 63. A condition, stipulation, or agreement in
any policy of insurance, limiting the time for
commencing an action thereunder to a period of less
than one year from the time when the cause of action
accrues, is void.

General Rule: The rights of the parties flow from the insurance
contract; hence, they are not bound by the statute of
limitations nor by exemptions thereto (Ang vs Fulton Fire
Insurance Co.)
-

thereon should be brought within 10 years from the


time the right of the action accrues, which period may
be lengthened or shortened subject to Sec. 63.
In connection to Art. 1144, an insurance policy being a
written contract, any action based

Period Limitation: As per Sec 63, if the period fixed is less than
one year from the time the cause of action accrues, the
stipulation would be void. However, based on Art. 231 (d), a
policy of industrial life insurance, the period cannot be less than
6 years after the cause of action accrues.

When Cause of Action Accrues: The period of commencing an
action under a policy of insurance under Sec 63 is to be
computed not from the time when the loss actually occurs but
from the time when the insured has a right to bring an action
against the insurer.
The right of the insured to the payment of his loss accrues
from the happening of the loss. However, the cause of action in
an insurance cotnract does not accrue until the insured's claim
is finally rejected by the insurer. This is because before such
final rejection, there is no real necessity for bringing suit.
(Eagle Star Insurance vs Chia Yu)

Scenarios:
1. Stipulated prescriptive period begins from happening
of the loss
This kind of stipulation is repugnant to Sec. 63 because if
given effect would reduce the period allowed the insured
for bringing his action to less than one year
2. Stipulated prescriptive period begins from rejection of
claim
The new Insurance Code,Sec. 416, empowers the Insurance
Commissioner to adjudicate disputes relating to an
insurance company's liability to an insured under a policy
issued by the former to the latter.
3. Stipulated prescriptive period begins from filing of
claim
Where a fidelity bond requires action to be filed within 1
year from the filing of the claim of loss, such condition
contradicts the public policy of discouraging unnecessary
litigation expressed in Sec 63.


SECTION 384. Any person having any claim upon the
policy issued pursuant to this Chapter shall, without

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

60



SECTION 416. The Commissioner shall have the power
to adjudicate claims and complaints involving any loss,
damage or liability for which in insurer may be
answerable under any kind of policy or contract of
insurance, or for which such insurer may be liable
under a contract of suretyship, or for which a reinsurer
may be sued under any contract of reinsurance it may
have entered into; or for which a mutual benefit
association may be held liable under the membership
certificates it has issued to its members, where the
amount of any such loss, damage or liability, excluding
interest, cost and attorney's fees, being claimed or sued
upon any kind of insurance, bond, reinsurance contract,
or membership certificate does not exceed in any single
claim one hundred thousand pesos.
The insurer or surety may, in the same action file a
counterclaim against the insured or the obligee.
The insurer or surety may also file a cross-claim against
a party for any claim arising out of the transaction or
occurrence that is the subject matter of the original
action or of a counterclaim therein.

With leave of the Commissioner, an insurer or surety
may file a third-party complaint against its reinsurers
for indemnification, contribution, subrogation or any
other relief, in respect of the transaction that is the
subject matter of the original action filed with the
Commissioner.
The party filing an action pursuant to the provisions of
this section thereby submits his person to the
jurisdiction of the Commissioner. The Commissioner
shall acquire jurisdiction over the person of the
impleaded party or parties in accordance with and
pursuant to the provisions of the Rules of Court.

The authority to adjudicate granted to the
Commissioner under this section shall be concurrent
with that of the civil courts, but the filing of a complaint

with the Commissioner shall preclude the civil courts


from taking cognizance of a suit involving the same
subject matter.

Any decision, order or ruling rendered by the
Commissioner after a hearing shall have the force and
effect of a judgment. Any party may appeal from a final
order, ruling or decision of the Commissioner by filing
with the Commissioner within thirty days from receipt
of copy of such order, ruling or decision a notice of
appeal to the Intermediate Appellate Court in the
manner provided for in the Rules of Court for appeals
from the Regional Trial Court to the Intermediate
Appellate Court. (As amended by Batas Pambansa Blg.
874).
As soon as a decision, order or ruling has
become final and executory, the Commissioner shall
motu proprio or on motion of the interested party,
issue a writ of execution requiring the sheriff or the
proper officer to whom it is directed to execute said
decision, order or award, pursuant to Rule thirty-nine
of the Rules of Court.
For the purpose of any proceeding under this
section, the Commissioner, or any officer thereof
designated by him, empowered to administer oaths
and affirmation, subpoena witnesses, compel their
attendance, take evidence, and require the production
of any books, papers, documents, or contracts or other
records which are relevant or material to the inquiry. In
case of contumacy by, or refusal to obey a subpoena
issued to any person, the Commissioner may invoke the
aid of any court of first instance within the jurisdiction
of which such proceeding is carried on, where such
person resides or carries on his own business, in
requiring the attendance and testimony of witnesses
and the production of books, papers, documents,
contracts or other records. And such court may issue an
order requiring such person to appear before the
Commissioner, or officer designated by the
Commissioner, there to produce records, if so ordered
or to give testimony touching the matter in question.
Any failure to obey such order of the court may be
published by such court as a contempt thereof.
A transcribed copy of the evidence and
proceeding, or any specific part thereof, of any hearing
taken by a stenographer appointed by the
Commissioner, being certified by such stenographer to
be a true and correct transcript of the testimony on this
hearing of a particular witness, or of a specific proof
thereof, carefully compared by him from his original
notes, and to be a correct statement of evidence and
proceeding had in such hearing so purporting to be

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

any unnecessary delay, present to the insurance


company concerned a written notice of claim setting
forth the nature, extent and duration of the injuries
sustained as certified by a duly licensed physician.
Notice of claim must be filed within six months from
date of accident, otherwise, the claim shall be deemed
waived. Action or suit for recovery of damage due to
loss or injury must be brought, in proper cases, with the
Commissioner or the Courts within one year from
denial of the claim, otherwise, the claimant's right of
action shall prescribe. (As amended by Presidential
Decree 1814 and Batas Pambansa Blg. 874).

61


NOTES:
1. Any decision,order or ruling rendered by the
Commissioner after a hearing shall have the force and
effect of a judgment. Any party may appeal from a
final order, ruling or decision by filing with the
Commissioner within thirty days from receipt of copy
of such order, ruling or decision, a notice of appeal to
the Intermediate Appellate Court.

Appeals period: 30 days from receipt of the order, ruling or
decision
-
A notice of appeal to the IAC must be filed
-
Otherwise, the order becomes final and executory.
-
The Commissioner shall motu proprio or on the
motion of an interested party cause the execution of
the order.

2. The following actions must be brought within ten
years from the time the right of action accrues:
a. Upon a written contract;
b. Upon an obligation created by law;
c. Upon a judgment.

CLARIFICATION: Notice of claim must be filed within six months
from the date of accident but the actions in Article 1144 have to
be brought within ten year from the time the right of action
accrues

D. Subrogation

ARTICLE 1236 Civil Code
The creditor is not bound to accept payment or
performance by a third person who has no interest in
the fulfillment of the obligation, unless there is a
stipulation to the contrary.
Whoever pays for another may demand from the
debtor what he has paid, except that if he paid without
the knowledge or against the will of the debtor, he can
recover only insofar as the payment has been beneficial
to the debtor. (1158a)

ARTICLE 2207 Civil Code
If the plaintiff's property has been insured, and he has
received indemnity from the insurance company for the
injury or loss arising out of the wrong or breach of
contract complained of, the insurance company shall be

subrogated to the rights of the insured against the


wrongdoer or the person who has violated the
contract. If the amount paid by the insurance company
does not fully cover the injury or loss, the aggrieved
party shall be entitled to recover the deficiency from
the person causing the loss or injury.

Exercise of Subrogation
1. Right of subrogation accrues in favor of the insurance
company upon payment by the insurer to the insured.
(Philamgen vs CA)
(Coastwise vs CA)
(Cebu Shipyard vs William Lines)

2. Insurer can only claim liability limited to that which the
insured can claim from the party at-fault. (St. Paul Fire
& Marine Insurance vs Macondray)
3. Insurance Company cannot be held solidarily liable
with the tortfeasors.
(Malayan Insurance Co vs CA)
(Maglana vs Consolacion)
4. No cause of action will arise in favor of the insurance
company as against the tortfeasor when a notice of
claim was not filed by either the insured or the insurer
(FEDEX vs American Home Assurance)
5. Foreign insurance company has the capacity to sue
because the law does not prohibit foreign
corporations from performing single acts of business.
(Lorenzo Shipping vs Chubb & Sons Inc)
6. Insurance company may be exonerated from liability
because of the blatant negligence of the shipper. (FGU
Insurance Corp vs CA)
7. A reinsurer, on payment of a loss acquires the same
rights by subrogation as are acquired in similar cases
where the original insurer pays a loss. (Pioneer
Insurance vs CA)
8. The right of subrogation as the legal effect of payment
inures to the insurer without any formal assignment or
an express stipulation to that effect in the policy.
(Firemans Fund vs Jamila)

Cases
(Special thanks to Cari and Dee)

Roque v IAC
F: Roque agreed to carry Manila Bay Lighterage's logs from
Manila to Palawan. Roque insured the logs with Pioneer
Insurance. The boat sank; Pioneer refused to pay because of
breach of implied warranty of seaworthiness.
H: Pioneer not liable. Logs lost due to perils of ship, not of sea
(crew negligent, left hatch open, allowing water to come in).
Peril of ship: loss resulting from wear and tear of ship or
negligent failure of shipowner to provide vessel with proper
cargo-carrying equipment.

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

taken and subscribed, may be received as evidence by


the Commissioner and by any court with the same
effect as if such stenographer were present and
testified to the facts so certified. (As amended by
Presidential Decree No. 1455).

62

shipment. The giving of notice of loss or injury is a condition


precedent to the action for loss or injury or the right to enforce
the carrier's liability. This was complied with in this case.

Londres v Natl Life
F: WWII setting. Londres had life insurance with National Life.
Londres died while the policy was in effect. National refused his
widow's claim because of failure to show sufficient proof of
death, and that payment should be adjusted using the
Ballantyne scale.
H: Death was sufficiently proved. Payment should be made in
the currency prevailing at the time. Although the policy became
due upon L's death, it only became payable after the war, when
National Life reopened.

Fernandez v National Life
F: Fernandez insured his life with National Life. He died in 1944
while the policy was in force. His beneficiaries tried to claim
after 7 years.
H: Policy matured upon his death, which is the suspensive
condition required to claim benefits. 60 day period to pay
proceeds is only procedural. Because he died in 1944 when the
Japanese occupied the country, policy proceeds should be
adjusted using the Ballantyne scale.

Tio v CA
F: Insurer refused to pay insured because of unpaid premiums.
TC ruled for insured, imposed an interest rate of 12% instead of
6%.
H: Proper interest rate is 6%. CC 2209 applies. 12% only applies
if there has been unreasonable delay or refusal, both of which
were not present in this case.

Cathay v CA
F:Fire destroyed Emilia's press. 8 years passed and she still was
not paid insurance proceeds, even if she indicated her co-
insurers in each of the policies she applied for, and even if she
submitted proofs of loss. 10 months later, she filed suit to
collect.
H: Unreasonable delay. Payment should have been made within
90 days. Emilia is lawfully entitled to double interest.

Noda v Cruz-Arnaldo
F: Noda had 2 fire insurance policies. Fire destroyed his
properties. The first policy was completely paid for, while the
second was only partially paid because the insurer alleged that
Noda failed to prove the value of some of the items because he
only relied on the insurer's adjuster.
H: Noda sufficiently proved his loss. Insurance Commissioner
and insurer may not set up an arbitrary standard of satisfaction.
Substantial compliance is sufficient.



Coastwise vs CA
F: Molasses were to be shipped, and it arrived in bad condition.
Insurer then paid the consignee its claim of P700,000, then
insurer sued the carrier.

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez


Choa v CA
F: Choa's company ordered bags of Lactose crystals from
Holland. Some of the bags arrived in bad order. Insurer refused
to pay proceeds. The insurance policy included an "all risks"
provision.
H: Insurer liable because an all risk policy insures against all
possible causes of loss or damage, except those excluded or due
to the insured's fraud or intentional misconduct. An insurer may
avoid liability by showing that a specific provision expressly
excludes an incident from the coverage - this was not done.

Filipino Merchants v CA
F: Bags of fishmeal were insured in an all risks policy. Upon
unloading from the boat, some bags were discovered to be in
bad order.
H: Insurer liable for bags that were in bad order, even if there
was no proof of a fortuitous event. An all risks policy gives
greater protection than a perils clause because it protects
against all losses attributable to outside causes. Burden of
insured = prove that the goods have been
lost/destroyed/deteriorated. Burden of insurer = prove loss was
because of excepted perils.

Oriental Assurance v CA
F: Oriental insured apitong logs under a marine insurance
policy. The logs were loaded on 2 boats. Part of the logs were
lost when 1 boat sank.
H: Oriental not liable because the policy only covered total loss.
The fact that 1 of the boats sank cannot be considered
constructive total loss because the logs were not separately
valued.

Pan Malayan v CA
F: Boat carrying UN's rice seedlings to be shipped to Kampuchea
sank. Boat was refloated, recovering the seedlings, although
they were no longer usable because they were wet. Insurer
refused to pay, saying the loss was partial and not covered by
the policy, which covered actual loss.
H: There was actual loss. Complete physical destruction not
necessary for actual loss. Since the seedlings were made so that
they would germinate upon contact with water, they may be
considered lost.

PHILAM v CA
F: PHILAM issued Pulido a nonmedical life insurance policy. It
denied the claim of Pulido's beneficiary, saying that P was dead
at the time the policy was applied for.
H: PHILAM was within its rights to deny the claim. Death
certificates are public documents, and entries found in such
documents are presumed correct unless the beneficiary can
produce positive evidence disproving such.

Aboitiz v Insurance CO of North America
F: Wooden work tools and workbenches were insured under an
all risk policy. Aboitiz was the shipping company that the
insured hired to move the cargo from Manila to Cebu. The cargo
arrived rusted. Insurer sued Aboitiz because it refused to settle
the claim.
H: The insurer's cause of action is founded on it being
subrogated to the rights of the consignee of the damaged

63

F: 218 cartons of meds were to be shipped and was insured


with St. Paul. Upon arrival, goods were in bad condition. Hence,
insurer paid the consignee its $1,134 claim. Insurer in turn sued
the insurance company.
H: Insurer, as subrogee, can only recover the amount
recoverable by the insured from the carrier. Since the contract
of carriage (between insured and carrier) limited the liability of
the carrier to P500/package, the insurance company can only
recover as much.

Malayan Insurance Co vs CA
F: In this case of collision between a jeep and a bus, the TC held
(1) the owner of jeep, (2) employer of jeepney driver and (3)
insurer of jeep solidarily liable to the passenger of the bus.
H: TC erred in holding the insurer solidarily liable with the
tortfeasors. Solidarily liability means that the entire obligation
can be enforced against any of those adjudged which is contrary
to the nature of insurance.

Fedex vs CA
F: Cartons were shipped from US to Mla. Upon arrival, they
were in bad condition. Hence, insurer paid the consignee its
claim of $39,339. Insurer then sued Fedex, the carrier.
H: Insurer cannot recover from carrier Fedex because right of
action was barred because neither the insured, nor the insurer
filed a written notice/complaint within the period required in
the Airway Bill.

Lorenzo Shipping vs Chubb & Sons, Inc.
F: Steel pipes were to be shipped. Upon arrival, they were in
bad condition, hence insurer paid the claim of the consignee of
$104,151. Insurer then sued the carrier. Defense of carrier:
insurance company is foreign, therefore no capacity to sue as
they are not allowed to do business in the Phils.
H: While foreign companies are prohibited to maintain actions
in Courts, they are not prohibited from doing single acts of
business. Hence, they have cause of action in this case arising
from 1 insurance policy.







May this reviewer help you pass (and ace) the Final exam.

Good luck! J



A2015 Insurance Agents
Cielo, Kaye, Claire, Phimie

A 2015 Insurance Agents: Cielo Goo, Kaye De Chavez, Claire De Leon, Phimie Soriano | Prof. Dionne Sanchez

H: Payment by the insurer to the insured operated as an


equitable assignment to the former of all remedies which the
latter may have against the third party whose negligence or
wrongful act caused the loss. The right of subrogation is not
dependent upon, nor does it grow out of, any private of
contract or upon written assignment of, claim.

Maglana vs Consolacion
(same doctrine as Malayan below)

Cebu Shipyard vs William Lines
(same doctrine as Coastwise vs CA above)

Pioneer Insurance vs CA
F: Lim (insured) bought aircrafts from JDA (payable in
installments). Pioneer (insurer) is its surety in its acquisition of
aircrafts. Pioneer then had its surety contract reinsured with
another insurance company. Upon default, the reinsurer paid
Pioneer.
H: A reinsurer, on payment of a loss acquires the same rights by
subrogation as are acquired in similar cases where the original
insurer pays a loss. In this case, Pioneer has no more cause of
action against Lim because the reinsurer is subrogated to the
rights of Pioneer (insurer) upon payment to Pioneer its claims.

Manila Mahogany vs CA
F: Insureds car got into an acceded with a San Miguel truck.
Insurer paid insureds claim. Insurer then sued San Miguel.
Defense of San Miguel: it paid the insured P4,500 and insured
executed release of claim in favor of San Miguel.
H: should the insured, after receiving payment from the
insurer, release the wrongdoer who caused the loss, the insurer
loses his rights against the latter. But in such a case, the insurer
will be entitled to recover from the insured whatever it
has paid to the latter, unless the release was made with the
consent of the insurer

Firemans Fund vs Jamila
(same doctrine as Coastwise vs CA above)

Philamgen vs CA
F: Coca-Cola (insured) loaded cases of coke bottled on a vessel
owned by Felman. The vessel sank. Philamgen (insurer) paid
coke P744,250, then sued Felman. Defense of Felman: the
insured breached implied warranty when it stated that ship is
seaworthy, when in fact it was not.
H: Even if the insured breached the implied warranty in the
insurance policy that the ship is seaworthy, once the insurer
pays the insured, the right of subrogation attaches in favor of
the insurer.

St. Paul Fire & Marine Insurance vs Macondray

64