TITLE 6 THE POLICY

Sec. 49 the written instrument in which a contract of insurance set forth, is called a policy of insurance.
May be verbal, in writing, or partly in writing or partly verbal. Usual form is in writing

NECESSITY OF APROVAL OF FORM OF POLICY

Form of policy must be submitted to the Insurance commissioner for approval or disapproval--- to
determine whether or not it violates any law or principle of equity.
No policy of insurance shall be issued within the Philippine unless in the form approve by the Insurance
commissioner.
FAILURE TO OBTAIN APPROVAL
Does not affect the validity of the terms of the contract--- the policy may still be enforced.
Failure to comply, cannot be set up by the insurer as a defense.
The insurer may be liable to prosecution for having used an unapproved form.
When the terms of the policy, however contrary to law such provision shall of course, be void.

INUSURANCE BY CORRESPONDENCE (communication by letters) - An application and acceptance of

insurance contract shall not give rise to a valid contract until the acceptance is made known to the
applicant

LANGUAGE OF POLICY
Language of the policy which the insured cannot read or understand---- obligation to show that the terms
of the contract had been fully explained to the insured devolves on the party seeking to enforce the
contract.
( Lee See Guat, a 61 years old, illiterate, chinese who claims that didnt able to understand the language of the policy and that the insurer
failed to prove that the terms had been fully explained. Lee See Guat now seek to enforce the contract.
ANSWER: The obligation to show that the terms of the contract had been fully explained or not to the party who is unable to read or
understand the language of the contract, when fraud or mistake alleged, devolves on the party seeking to enforce it. The insurer was not
seeking to enforce the insurance but to avoid its performance)

Section 50
Par. 1
Policy in printed form which may contain blank spaces;
-Any word, phrases, clause, mark, sign, symbol, signature, number, or word necessary to complete the
contract of insurance shall be written on the blank spaces provided.

Par. 2
G.R. Any rider, clause, warranty or endorsement purporting to be part of the contract of insurance which is
pasted or attached to said policy is not binding on the insured

EXC. 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. (signature of the insured, not necessary)

EXC. To the EXC. Unless the rider, clause, warranty, or endorsement issued after the original policy took
effect is countersigned by the insured or owner or unless he applied for it.
-------- the countersignature shall be taken as his agreement to the contents of such rider, clause, warranty,
or endorsement.

R.A. 8792 the policy may be in electronic form

 Section 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;
c) The premium, or if the insurance is of a character where the exact premium is only determinable upon the termination of the
contract,( a statement of the basis and rates upon which the final premium is to be determined.)
d) The property or life insured
e) The interest of the insured in property insured, if he is not the absolute owner thereof.
f) The risks insured against
g) The period to which the insurance is to continue
ERROR IN THE NAME OF THE INSURED
In the absence of fraud or unless the insurer was misled as to the extent of the liability assumed, an
incorrect designation of the name of the insured shall not invalidate the policy---- Error not being due to
fraudulent intent or misleading the insurer as to the extent of liability assumed
LIMIT OF SINGLE RISK- No insurance company to retain risk on any one subject of insurance in an amount
exceeding 20% of its net worth (exc. Life insurance)

Sec. 52 Cover notes may be issued to bind insurance temporarily pending the issuance of the policy.

Within sixty days after the issue of the cover note, a policy shall be issued in lieu thereof, including within its terms the
identical insurance bound under the cover note and the premium therefor.

Cover notes may be extended or renewed beyond such sixty days with the written approval of the Commissioner if he
determines that such extension is not contrary to and is not for the purpose of violating any provisions of this Code.

The Commissioner may promulgate rules and regulations governing such extensions for the purpose of preventing
such violations and may by such rules and regulations dispense with the requirement of written approval by him in the
case of extension in compliance with such rules and regulations.

COVER NOTES AND BINDERS- written memorandum of the most important term of a preliminary contract
of insurance---intended to give temporary protection pending the investigation of the risk by the insurer or
until the issuance of a formal policy.
PRELIMNARY CONTRACT OF INSURANCE- One intended to afford protection pending the investigation of
the risk and formal issuance of the policy
- Must be preliminary contract of present insurance.
-Need not to contain all the essential terms, provided that the parties have agreed upon some method of
thereafter fixing such terms. Binders, binding slip, binding receipt or cover notes.

Memorandum of future insurance- when the parties did not agree on immediate protection and instead
stipulated that the insurance would be effective only upon approval and issuance of the policy by the head
office.
RULE ON BINDING RECEIPT ISSUED BY AGENT
1. Act of acceptance of the risk by the agent and giving of receipt, are within the scope of the agents
authority.
2. Any agreement made between the applicant and the agent will not attach any liability to the principal
until the latter approves the risk and a receipt is given by the agent (acceptance conditional and
subordinated to the act of the company
 3. Where the acceptance by the agent is within the scope of his authority a receipt containing a contract
for insurance for a specified time which is not absolute but conditional, upon acceptance or rejection by
the principal, covers the specified period unless the risk is declined within that period.

SEPARATE PREMIUMS NOT REQUIRED TO BE PAID ON A COVER NOTE

Do not contain particulars of the property insure that would serve as basis for the computation of
premiums.
Cover notes should not be treated as separate policies but should be integrated to the regular policies
subsequently issued---- so that the premiums on the regular policies include the consideration for the
cover notes.
Cover note was binding even if premium was not paid thereon. Otherwise, it will serve no practical
purpose in the realm of commerce
ACCEPTANCE
Nothing more than an offer to enter into a contract of insurance. (Acceptance is required to be effective)
Acceptance could not arise from a mere delay on the part of the insurer in passing on an application but can be
construed as a rejection of the application
WHEN ACCEPTANCE PRESUMED- When an insurer accepts and retains for an unreasonable length of time the first
premium covered by a cashiers receipt stating that the policy is effective on the date it is issued.
(Unreasonable delay in returning the premium raises a presumption of acceptance of the insurance applications)

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.

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.

WHOSE INTEREST IS INSURED?

All persons specifically named as persons insured in a policy insuring against loss of or damage to
property. UNLESS it is indicated in the policy the intent to cover the interest of another person other
than the named insured.
SEVERAL PERSONS HAVE DISTINCT INTEREST- The insurance taken by one in his own right does not in
any way insure the interest of the other.
A policy of insurance is a distinct and independent contract between the insured and the insurer, and
third persons have no right either in a court of equity or in a court of law to the proceeds
If the insurance contract was intended to benefit third persons, the latter may directly claim from
the insurer
a) If the insurance contract should contain some stipulation in favour of a third person.
b) When the contract provides for indemnity against liability to third persons, to whom the insured is
liable.
 TEST TO DETERMINE RIGHT OF THIRD PERSONS TO SUE
When the contract provides for indemnity against liability to third person. Obvious naman na yan diba
Where the contract is for the indemnity against actual loss or payment- third person cannot proceed
against the insurer---- solely to reimburse the insured for liability actually discharged by him through
payment to third persons.
INSURER NOT SOLIDARILY LIABLE WITH INSURED CARRIER (other parties found at fault)
The reason is that the liability of the insurer is based on contract while that of the insured carrier or
vehicle owner is based on tort.
INSURANCE PROCURED BY AGENT
Property in possession of an agent---- The principal may insure the same as owner while the agent who
is responsible for such property may likewise insure the same.
-Procured by agent, intended to cover interest of principal, the fact must be stated in the policy
INSURANCE PROCURED BY PARTNER
Partner takes a policy on the partnership property in his own name, it is deemed to include his
separate interest alone, unless the terms of the policy should be such as are applicable to the joint or
common interest
RATIO why insurance taken by an agent in his name alone will not include the interest of their co-
partners: Application of the insurance to the proper interest of the person in whose name or for whose
benefit it is made. (personal contract)

GENERAL DESCRIPTION OF THE INSURED

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.

POLICY MADE TO RUN WITH THE OBJECT (exc. to Sec. 20)

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.

Sec. 58. The mere transfer of a thing insured does not transfer the policy, but suspends it until the same
person becomes the owner of both the policy and the thing insured.

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

OPEN POLICY
Sec. 60. An open policy is one in which the value of the thing insured is not agreed upon, but is left to be
ascertained in case of loss.
VALUED POLICY
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.

EFFECT OF VALUATION
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.
 LIFE INSURANCE IS VALUED POLICY- The measure of indemnity under a policy of insurance upon life or
health is the sum fixed in the policy if the interest of a person insured is susceptible of exact pecuniary
measurement.

OPEN VS. VALUED POLICIES DISTINGUISHED

OPEN - the value of the thing insured is not agreed upon the policy
VALUED- The parties have stipulated in the policy that the thing insured is valued at a specified sum

OPEN- upon occurrence of the loss, the insured must prove the value of the thing insured
VALUED- proof of value of the thing insured after the loss is no longer necessary.

RUNNING POLICY
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 indorsements.

Floating policy
Intended to supplement specific insurance and to provide indemnity for property which cannot be covered
by specific insurance because of its frequent change in location and quantity. E.g. Stocks-in-trade

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.

If it is agreed that an action should be brought within a period of one year, the agreement is in the nature
of a condition precedent to the liability of the insurer. Failure to file within the agreed period will relieve
the insurer from any liability.
NOT A PROCEDURAL REQUIREMENT but an important matter essential to a prompt settlement of claims
against insurance companies as it demands that insurance suits be Brought by the insured while the
evidence as to the origin and cause of destruction have not yet disappeared.
Must be brought from the time of denial or insurers rejection of the claim filed by the insured---Must be
counted from the accrual of the cause of action

e.g. unless the insured shall have fully complied with all the terms and condition of the policy (within 12 months)
ANSWER: VOID, less than one year for it makes the prescriptive period begin from the happening of the loss and the
requirement of filling a claim after the loss against the carrier--- Will necessarily consume time.

WHEN NO PERIOD AGREED UPON OR WHEN THE AGREEMENT IS VOID

May bring the action within 10 years for written contract and within 6 years for oral contract.
WHERE RECONSIDERATION WAS FILED
Period should be counted from the date the claim was denied at the first instance and not from the denial
of the petition for reconsideration.
PRESCRIPTION IN COMPULSORY MOTOR VEHICLE INSURANCE
-1 year- period of prescription to be counted from the denial or rejection of the claim by the insurer not
from the time of the loss.
 EFFECT OF CARRIAGE OF GOODS BY SEA ACT
Carrier and ship shall be discharged from liability if no suit is filed within one year after delivery of the
goods or date when they should be delivered.
Only the carriers liability is extinguished. The insurer will still be liable because the insurers liability is
based not on the contract of carriage but on the contract of insurance
Governs relationship between the carrier and the shipper, the consignee and/or the insurer. (Does not
affect the relationship between the shipper and the insurer)
(The insurer like the shipper, may no longer file a claim against the carrier beyond the one-year period provided by law. But it
does not mean that the shipper may no longer file a claim against the insurer because the basis of the insurers liability is the
insurance contract.) (When insurer files a third party complaint against the carrier for reimbursement of the amount claimed by
the insured.)
GROUNDS FOR CANCELLATION
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.
NOTICE OF CANCELLATION
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.

Must be in writing and must state the grounds relied upon and, at the written request of the insured, the
facts on which the cancellation is based must be furnished.
Must be ACTUAL NOTICE, to produce the effect of terminating the contract.
Actual receipt of the notice of cancellation is essential and the insurer could not merely rely on
presumption of regularity in the performance of duty.
PERSONAL NOTICE NECESSARY- After cancelling the policy, notice of cancellation must be sent to the
insured himself or his authorized broker so as to enable the insured to procure insurance, otherwise the
cancellation is not valid.

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.

It gives the insured the option to renew property insurance by the payment of the premium due on the effective
date of renewal---- unless at least 45 days prior to the end of the policy, the insurer gives notice of its intention not
to renew the policy.
TITLE 7 WARANTIES

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

Sec. 68. A warranty may relate to the past, the present, the future, or to any or all of these.
Sec. 69. No particular form of words is necessary to create a warranty.

WARRANTY- is a written statement or stipulation on the face of the contract itself, or clearly incorporated
therein as a part thereof by words of reference, -----whereby the insured expressly contracts as to the
existence of certain facts, circumstances, or conditions, the literal truth of which is essential to the validity
of the contract of insurance.
KINDS OF WARRANTIES
1. Affirmative warranty- is one which relates to matters which exists at or before the issuance of the
policy. (relates to past or to present)

2. Promissory warranty- one which the insured undertakes that something shall be done or omitted after
the policy takes effect and during its continuance. (Future)

3. Express warranty- statement in a policy, of a matter relating to the person or thing insured, or to the
risk, as a fact. (Must be contained in the policy or in another instrument signed by the insured and referred
to in the policy as making part of it)

4. Implied warranty- agreement or stipulation not expressed in the policy but the existence of which
admitted or presumed from the fact that the contract of insurance has been executed. (Not contained in
the contract but its existence is presumed by the mere fact that the contract is entered into.)

In case of doubts, warranty is presumed to be affirmative only.

WARRANTY DISTINGUISHED FROM REPRESENTATION

REP: Collateral to the contract and not part thereof
WAR: Actually are and must be a part of the contract itself

REP: Materiality must be shown

WAR: Materiality is presumed

MISREPRESENTATION: Sets aside a policy on the ground of fraud

FALSITY OR NONFULFILLMENT OF POLICY: Operates as a breach of contract

REP: may be made by both the insured and the insurer, while warranty is made only by the insured.
WAR: made only by the insured

In case of doubt, the statement is presumed to be a mere representation and not warranty.

CONSTRUCTION OF WARRANTIES
Construed strictly against the insurer but must likewise be reasonably interpreted in favour of the insured.
Reasonableness is to be ascertained in the light of the factual considerations
NO PARTICULAR FORM OF WORDS.
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.
Signature of the insured is necessary only when the warranty is contained in another instrument and not when it is
contained in the policy itself.
WARRANT CONTAINED IN RIDERS- Rider is a part of the policy hence signature is not required, unless it was issued
after the original policy took effect.

PROMISSORY WARRANTY
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.

NON PERFORMANCE OF PROMISSORY WARRANTY

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 fulfil the
warranty does not avoid the policy.

G.R. Non-performance entitles the insurer to rescind the contract.

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

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.
A causal connection between the violation and the loss not necessary.
Even though the violation of material warranty did not in any way contribute to the loss, the other party may still
rescind the policy.
An increase risk which is substantial and which is continued for a considerable period of time, is a direct and certain
injury to the insurer, and changes the basis upon which the contract of insurance rests
WARRANTY NOT VIOLATED- Not violated by a deposit in small quantities in a building for daily use or when the
inflammable or hazardous goods are incidental to the business of the insured.

IMMATERIAL PROVISION CONVERTED TO MATERIAL ONE

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.

BREACH OF WARRANTY WITHOUT FRAUD

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.

Depends on the time the breach is committed.

At the effectivity of the policy- prevents the policy from attaching to the risk---insurer not liable form the
beginning
After the effectivity of the policy- Insurer is exempted from liability or losses after such breach
Loss is sustained before the breach- insurer is still liable for the loss.