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Title 11.

Double Insurance
Sec. 95. A double insurance exists where
the same person is insured by several
insurers separately in respect to the same
subject and interest.
Double insurance
-

exists where the same person is


insured
by
several
insurers
separately in respect to the same
subject and interest.
There in co-insurance by 2 or more
insurers; hence, also known as coinsurance.

insurer, a breach thereof will


prevent a recovery on the policy.
- In order to constitute a violation,
the other insurance must be upon
the same subject
matter, the
same interest, and the same risk.
2. Additional insurance obtained by a third
person
- Good or bad faith of the insured is
usually immaterial.
- Insurance obtained by a third
person w/o knowledge or consent
of the insured will not affect his
rights under the policy in the
absence of ratification.

Requisites of double insurance


1.
2.
3.
4.

The person insured is the same;


2 or more insurers insuring separately;
There is identity of the subject matter;
There is identity in the interest insured;
and
5. There is identity or risk or peril insured
against.
Double insurance vs. Over-insurance
Over-insurance
amount
of
the
insurance is beyond the
value of the insureds
insurable interest.

Double insurance
There may be no overinsurance as when the
sum
total
of
the
amounts of the policies
issued does not exceed
the insurable interest of
the insured.
There may be only 1 There
are
always
insurer involved.
several insurers.
May exist at the same time or neither may exist
at all.
Over-insurance by double insurance- when the
sums insured exceed the insurable interest.
Binding effect of
double insurance

stipulation

against

1. Additional insurance obtained by the


insured
- Provision is commonly known as
the Additional or other insurance
clause
- Intended to prevent an
increase in the moral
hazard.
- Valid and reasonable, and in the
absence of consent, waiver or
stopper; on the part of the

Purpose of
insurance
-

prohibition

against

double

To prevent over-insurance and thus avert


the perpetration of fraud.
The public, as well as the insurer, is
interested in preventing the situation in
which a loss would be profitable to the
insured.

Sec.
96.
Where
the
insured
is overinsured by double insurance:
(a) The insured, unless the policy
otherwise provides, may claim
payment from the insurers in such
order as he may select, up to the
amount for which the insurers are
severally
liable
under
their
respective contracts;
(b) Where the policy under which
the insured claims is a valued
policy, the insured must give credit
as against the valuation for any
sum received by him under any
other policy without regard to the
actual value of the subject matter
insured;
(c) Where the policy under which
the insured claims is an unvalued
policy he must give credit, as
against the full insurable value, for
any sum received by him under
any policy;
(d) Where the insured receives any
sum in excess of the valuation in
the case of valued policies, or of
the insurable value in the case of
unvalued policies, he must hold
such sum in trust for the insurers,
according
to
their
right
of
contribution among themselves;

(e) Each insurer is bound, as


between himself and the other
insurers, to contribute ratably to
the loss in proportion to the
amount for which he is liable under
his contract.
Rules for payment of claims where there is
over-insurance by double insurance
Principle of contribution
-

Requires each insurer to contribute


ratably
to
the
loss
or
damage
considering that the several insurances
cover the same subject matter and
interest against the same peril.
Apply only where there is over-insurance
by double insurance, that is, the
insurance is contained in several policies
the total amount of which is in excess of
the insurable interest of the insured.
Par. (e)
o Governs the liability of the
insurers
among
themselves
where the total insurance taken
exceeds the loss.
o Is the loss is greater than the sum
total of all the policies issued,
each insurer is liable for the
amount of his policy.

1. Several or solidary liability of insurers under


their respective contracts
-

EXN: where the policy contains a


Contribution clause
Which stipulates that the
insurance company shall
not be liable to pay or
contribute more than its
ratable proportion of the
loss or damage.

2. Where the insured claims under a valued


policy (par. b)
-

If insured has been fully indemnified for


his loss by 1 insurer, he cannot file
subsequent claims against the others.

3. When insured claims under an unvalued


policy (par.c)
-

The value
ascertained.

of

the

loss

must

be

4. Liability of each insurer to contribute ratably


to the loss (par.e)

Each insurer is bound to contribute


ratably to the loss in proportion to the
amount for which he is liable under his
contract.
Formula:
Amount of Policy
x Loss = Liability
of insurer
Total Insurance Taken

5. Where sum received by insured exceeds total


insurance taken (par.d)
-

Insured must hold the excess amount in


trust for the insurers.
He cannot recover more than the full
indemnity.

Title 12 REINSURANCE
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.
Reinsurance
-

one by which an insurer procures a


third person to insure him against
loss or liability by reason of such
original insurance.
An insurance of an insurance.
Sometimes referred to as treaties.

Retrocession
-

Reinsurance of a reinsurance.

Reinsurance vs. Double Insurance


Double Insurance
Insurer remains as the
insurer of the original
insured
Subject of insurance is
property
An insurance of the
same interest
Insured is the party in
interest in all the
contracts

Insured has to give his


consent

Value of reinsurance

Reinsurance
Insurer becomes the
insured, insofar as the
insurer is concerned
Subject
is
Original
insurers risk
An
insurance
of
different interest
Original insured has no
interest in the contract
of reinsurance which is
independent
of
the
original
contract
of
insurance.
Consent of the original
insured
is
not
necessary.

1. From the standpoint of the insurer

Reinsuring companies benefit from the


contracts of insurance.
Retention
o A limit on the maximum claim it
wishes to pay out of its own
resources.
Thru the use of reinsurance, an
insurer is able to issue policies for
amounts in excess of its retention
limit or beyond the capacity of its
financial resources in case of a loss.
Insurance
protection
will
be
distributed to a greater proportion of
those needing protection.
Underwriters benefit thru the placing
of additional
insurance in an
expanded market.
The knowledge of the industry regarding
classification of impaired is increased in
the most economical manner.
Reinsurer benefits thru the acquisition of
business which is expected to prove
profitable in the long run.

2. From the standpoint of the insured

It gives insurance companies that


practice in greater financial stability and
thus makes the insureds individual
policy more reliable;
If a large amount of insurance is needed,
the insured ma obtain it w/o negotiating
with numerous companies;
It enables the insured to obtain
protection promptly, w/o the delay that
would be required to divide and
distribute the amount among many
companies;
All the insurance can be written under
identical contract provisions, whereas
otherwise these might vary with the
different companies among whom the
insurance is divided; and
Small companies are encouraged to
divide large exposures for safety and
enabled to accept a wide variety of
applicants.

3. From the standpoint of the insuring public.

Promote both efficiency and stability in


the conduct of the reinsurance business.

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.

Duty of reinsured to disclose facts.


Automatic and facultative
ceding reinsurance.

methods

of

Reinsurance may be placed in effect either:


a. Automatically or
b. Facultatively
1. Share or participation in risk insured

The rule in Sec. 98 does not apply in


case of AUTOMATIC REINSURANCE
TREATIES
o The ceding company (reinsured)
is bound to cede (give off by way
of reinsurance) and the reinsurer
is obligated to accept a fixed
share of the risk which has to be
reinsured under the contract.
Facultative insurance
o Covers liability on individual risk
o There is no obligation either to
cede or to accept participation in
the risk insured, each party
having a free choice.
o But once the share is accepted,
the obligation is absolute and the
liability assumed thereunder can
be discharged by one and only
way- payment of the share of the
losses.

2. Advantage to insurer

Automatic method
o Avoidance of any delay in issuing
its policy.
Facultative method
o It
receives
the
insurers
underwriting opinion before the
policy is issued.

3. Protection to reinsurer

The reinsurer is protected by the


requirement that the original insurer
retains its full retention limit, which
assures a measure of self-interest.

Reinsurance treaty vs. Reinsurance policy

Reinsurance treaty
Merely an agreement
between 2 insurance
companies whereby 1
agrees to cede and the
other
to
accept
reinsurance
business
pursuant to provisions
specified in the treaty.
Lumping
of
the
different
agreements
under a contract.
An agreement between
insurance companies to
cover
the
different
situations described.
Contracts
FOR
insurance

Reinsurance policy
A contract of indemnity
whereby
1
insurer
makes with another to
protect the 1st insurer
from risk it has already
assumed.

Contracts OF insurance

Subject: Primary insurers risk and not


the property insured under the original
policy.

1. Contract, one of indemnity against liability.

The reinsurer agrees to indemnify the


insurer, not against actual payment
made but against liabilities incurred.
It Is by no means necessary that the
insurer shall have first paid a loss
accruing, as a condition precedent to his
demanding payment of the reinsurer.

2. Contract, separate from original insurance


policy.

Nature of contract of reinsurance

Independent of and separate from the


contract of insurance.
The practice is to pay the insured even
before the latter has indemnified the
original insured.

While of course, fixed by the terms and


conditions of the policy of reinsurance
are yet greatly affected by the terms and
conditions of the original policy upon
which the reinsurance contract is based.
The reinsured risk must be the same as
that covered by the original insurance
policy.

In general, a reinsurer, on payment of a


loss, acquires the same rights by
subrogation as acquired in similar cases
where the original insurer pays a loss.

Sec. 100. The original insured has


interest in a contract of reinsurance.

no

Rights of original insured in contract of


reinsurance.
1. The insured, unless the contract so provides,
has no concern with the contract of reinsurance,
and the reinsurer is not liable to the insured
either as surety or otherwise.
2. There is no privity of contract between the
original reinsured and the reinsurer. A contract
of reinsurance rarely explicitly permits direct
action by the original insured against the
reinsurer.

Liability of reinsurer to reinsured.


GR: The reinsurer is entitled to avail itself of
every defense which the reinsured might urge
in an action by the person originally insured.

3. Contract based on original policy.

The primary insurer is not entitled to


contract for reinsurance exceeding the
limits of the policy ceded to the
reinsurer.
The reinsurer cannot provide coverage
for risks beyond the scope of the
coverage provided by the primary
insurer.

5. Rule on subrogation applicable.

Sec. 99. A reinsurance is presumed to be a


contract of indemnity against liability, and
not merely against damage.

4. Insurable interest requirement applicable.

Thus, the reinsurer is not liable to the


reinsured for a loss under an original
policy if the latter is not liable to the
original insured or for an amount more
than the sum actually paid to the
insured.

Liability of reinsurer to original insured.

The original insured may stand in any 3


relations towards the reinsurer in
accordance with the terms of the
particular contract of reinsurance.

1.
Contract of reinsurance solely between
insurer and reinsurer

Unless the reinsurance contract contains


a stipulation assigning the right of the
insurer in favor of the insured, the latter,
not being a privy to the contract, has no
cause of action against the reinsurer, but
only against the insurer.

2. Contract of reinsurance with stipulation in


favor of original insured.

The COR may contain a provision


whereby the reinsurer binds himself to
pay to the policyholder any loss for
which the insurer may become liable.
The remedy of the insured is both
against the insurer and the reinsurer.

3. Contract of reinsurance
novation of original contract.

amounting

to

The original insured may also maintain


an action directly against the reinsurer in
those cases in which the circumstances
attending the making of the contract of

reinsurance amount to a novation of the


original contract.
Hence, operate to discharge that
contract and the original insurer from all
obligations thereunder.
The original insurer, however, will be
released only when the insured agrees
the insurer and reinsurer to the novation.
Such an agreement is ordinarily carried
into effect by a surrender of the original
policy and issuance of a new one
including the same terms and conditions,
by the so-called reinsurer.
However, such a transaction is not one
of technical reinsurance, for here, the so
called reinsurer is but substituted for the
original insurer and hence, becomes the
immediate insurer of the subject of the
original policy.