Maid Beda

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MEMORY AID IN COMMERCIALLAW
INSURANCE CODE
(P.D. No. 1460)
I. GENERAL CONCEPTS 7. Personal – each party having in view

the character, credit and conduct of
CONTRACT OF INSURANCE the other.
 An agreement whereby one
undertakes for a consideration to REQUISITES OF A CONTRACT OF
indemnify another against loss, damage INSURANCE (The Insurance Code of the
or liability arising from an unknown or Philippines Annotated, Hector de Leon,
contingent event. (Sec. 2, par. 2, IC) 2002 ed.)
1. A subject matter which the insured
“DOING AN INSURANCE BUSINESS OR has an insurable interest.
TRANSACTING AN INSURANCE 2. Event or peril insured against which
BUSINESS” (Sec. 2, par. 4) may be any future contingent or
1. Making or proposing to make, as unknown event, past or future and a
insurer, any insurance contract; duration for the risk thereof.
2. Making or proposing to make, as 3. A promise to pay or indemnify in a
surety, any contract of suretyship as fixed or ascertainable amount.
a vocation, not as a mere incident to 4. A consideration known as “premium”.
any other legitimate business of a 5. Meeting of the minds of the parties.
surety;
3. Doing any insurance business, 5 CARDINAL PRINCIPLES IN INSURANCE
including a reinsurance business; 1. Insurable Interest
4. Doing or proposing to do any 2. Principle of Utmost Good Faith
business in substance equivalent to  An insurance contract requires utmost
any of the foregoing good faith (uberrimae fidei) between
the parties. The applicant is enjoined to
II. CHARACTERISTICS OF AN INSURANCE disclose any material fact, which he
CONTRACT (The Insurance Code of the knows or ought to know.
Philippines Annotated, Hector de Leon,  Reason: An insurance contract is an
2002 ed.) aleatory contract. The insurer relies on
1. Consensual – it is perfected by the the representation of the applicant, who
meeting of the minds of the parties. is in the best position to know the state
2. Voluntary – the parties may of his health.
incorporate such terms and 3. Contract of Indemnity
conditions as they may deem  It is the basis of all property
convenient. insurance. The insured who has insurable
3. Aleatory – it depends upon some interest over a property is only entitled
contingent event. to recover the amount of actual loss
4. Unilateral – imposes legal duties only sustained and the burden is upon him to
on the insurer who promises to establish the amount of such loss
indemnify in case of loss. (Reviewer on Commercial Law,
5. Conditional – It is subject to Professors Sundiang and Aquino)
conditions the principal one of Rules:
which is the happening of the event a. Applies only to property
insured against. insurance except when the
6. Contract of indemnity – Except life creditor insures the life of his
and accident insurance, a contract debtor.
of insurance is a contract of b. Life insurance is not a contract
indemnity whereby the insurer of indemnity.
promises to make good only the loss c. Insurance contracts are not
of the insured. wagering contracts. (Sec. 4)
4. Contract of Adhesion (Fine Print Rule)
COMMERCIALLAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson O’S Ramos EDP: Beatrix I. Ramos SUBJECT HEADS:
Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del R osario (Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel Gatdula (Banking La ws);
Robespierre CU (Law on Intellectual Property)
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 Most of the terms of the contract do e. For recovery of loss in excess of

not result from mutual negotiations insurance coverage
between the parties as they are
prescribed by the insurer in final printed CONSTRUCTION OF INSURANCE
form to which the insured may “adhere” CONTRACT
if he chooses but which he cannot  The ambiguous terms are to be
change. (Rizal Surety and Insurance Co., construed strictly against the insurer,
vs. CA, 336 SCRA 12) and liberally in favor of the insured.
5. Principle of Subrogation However, if the terms are clear, there is
 It is a process of legal substitution no room for interpretation. (Calanoc vs.
where the insurer steps into the shoes of Court of Appeals, 98 Phil. 79)
the insured and he avails of the latter’s
rights against the wrongdoer at the time III. DISTINGUISHING ELEMENTS OF AN
of loss. INSURANCE CONTRACT
 The principle of subrogation is a 1. The insured possesses an insurable
normal incident of indemnity insurance interest susceptible of pecuniary
as a legal effect of payment; it inures to estimation;
the insurer without any formal 2. The insured is subject to a risk of loss
assignment or any express stipulation to through the destruction or
that effect in the policy. Said right is not impairment of that interest by the
dependent upon nor does it grow out of happening of designated perils;
any private contract. Payment to the 3. The insurer assumes that risk of loss ;
insured makes the insurer a subrogee in 4. Such assumption is part of a general
equity. (Malayan Insurance Co., Inc. v. scheme to distribute actual losses
CA, 165 SCRA 536; see also Art. 2207, among a large group or substantial
NCC) number of persons bearing somewhat
 Purposes: (The Insurance Code of the similar risks; and
Philippines Annotated, Hector de Leon, 5. The insured makes a ratable
2002 ed.) contribution (premium) to a general
1. To make the person who caused the insurance fund.
loss legally responsible for it.  A contract possessing only the first 3
2. To prevent the insured from elements above is a risk-shifting device.
receiving a double recovery from the If all the elements, it is a risk-
wrongdoer and the insurer. distributing device. (The Insurance Code
3. To prevent tortfeasors from being of the Philippines Annotated, Hector de
free from liabilities and is thus Leon, 2002 ed.)
founded on considerations of public
policy. IV. PERFECTION OF AN INSURANCE
 Rules: CONTRACT
1. Applicable only to property insurance.  An insurance contract is a consensual
2. The insurer can only recover from the contract and is therefore perfected the
third person what the insured could have moment there is a meeting of minds with
recovered. respect to the object and the cause or
3. There can be no subrogation in cases: consideration.
a. Where the insured by his own act  What is being followed in insurance
releases the wrongdoer or third party contracts is what is known as the
liable for the loss or damage; “cognition theory”. Thus, “an
b. Where the insurer pays the insured the acceptance made by letter shall not bind
value of the loss without notifying the the person making the offer except from
carrier who has in good faith settled the time it came to his knowledge”.
the insured’s claim for loss; (Enriquez vs. Sun Life Assurance Co. of
c. Where the insurer pays the insured for Canada, 41 Phil. 269)
a loss or risk not covered by the policy.
(Pan Malayan Insurance Company v. Binding Receipt
CA, 184 SCRA 54)  A mere acknowledgment on behalf of
d. In life insurance the company that its branch office had
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received from the applicant the 5. Interest of the insured in the

insurance premium and had accepted property if he is not the absolute
the application subject to processing by owner;
the head office. 6. Risk insured against; and
7. Duration of the insurance.
Cover Note (Ad Interim)
 A concise and temporary written  Persons entitled to recover on the
contract issued to the insurer through its policy (sec. 53): The insurance proceeds
duly authorized agent embodying the shall be applied exclusively to the proper
principal terms of an expected policy of interest of the person in whose name or
insurance. to whose benefit it is made, unless
Purpose: It is intended to give otherwise specified in the policy.
temporary insurance protection coverage  Kinds:
to the applicant pending the acceptance 1. OPEN POLICY – value of thing insured
or rejection of his application. is not agreed upon, but left to be
 Duration: Not exceeding 60 days ascertained in case of loss. (Sec. 60)
unless a longer period is approved by  The actual loss, as determined,
Insurance Commissioner (Sec. 52). will represent the total indemnity
due the insured from the insurer
Riders except only that the total indemnity
 Printed stipulations usually attached shall not exceed the face value of
to the policy because they constitute the policy. (Development Insurance
additional stipulations between the Corp. vs. IAC, 143 SCRA 62)
parties. (Ang Giok Chip vs. Springfield, 2. VALUED POLICY – definite valuation
56 Phil. 275) of the property insured is agreed by both
 In case of conflict between a rider parties, and written on the face of
and the printed stipulations in the policy. (Sec. 61)
policy, the rider prevails, as being a  In the absence of fraud or
more deliberate expression of the mistake, the agreed valuation will be
agreement of the contracting parties. paid in case of total loss of the
(C. Alvendia, The Law of Insurance in property, unless the insurance is for
the Philippines, 1968 ed.) a lower amount.
3. RUNNING POLICY – contemplates
Clauses successive insurances and which provides
 An agreement between the insurer that the object of the policy may from
and the insured on certain matter time to time be defined (Sec. 62)
relating to the liability of the insurer in
case of loss. (Prof. De Leon, p.188) V. TYPES OF INSURANCE CONTRACTS
1. Life insurance
Endorsements a. Individual life (Secs. 179–183, 227)
 Any provision added to the contract b. Group life (Secs. 50, last par., 228)
altering its scope or application. (Prof. c. Industrial life (Secs. 229–231)
De Leon, p.188) 2. Non-life insurance
a. Marine (Secs. 99–166)
POLICY OF INSURANCE b. Fire (Secs. 167–173)
 The written instrument in which a c. Casualty (Sec. 174)
contract of insurance is set forth. (Sec. 3. Contracts of bonding or suretyship
49) (Secs. 175–178)
Note:
 Contents: (Sec. 51) 1. Health and accident insurance are
1. Parties either covered under life (Sec. 180) or
2. Amount of insurance, except in open casualty insurance. (Sec. 174).
or running policies; 2. Marine, fire, and the property aspect
3. Rate of premium; of casualty insurance are also referred to
4. Property or life insured; as property insurance.
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VI. PARTIES TO INSURANCE CONTRACT beneficiary is the principal

1. Insurer - Person who undertakes to accomplice or accessory in
indemnify another. willfully bringing about the
 For a person to be called an death of the insured in which
insurance agent, it is necessary event, the nearest relative
that he should perform the of the insured shall receive
function for compensation. the proceeds of said
(Aisporna vs. CA, 113 SCRA 459) insurance if not otherwise
2. Insured - The party to be indemnified disqualified. (Sec. 12)
upon the occurrence of the loss. He must b. PROPERTY
have capacity to contract, must possess 
The beneficiary of property
an insurable interest in the subject of insurance must have an insurable
the insurance and must not be a public interest in such property, which
enemy. must exist not only at the time
 A public enemy - a nation with the policy takes effect but also
whom the Philippines is at war when the loss occurs. (Sec. 13
and it includes every citizen or and 18).
subject of such nation. Effects of Irrevocable Designation Of
3. Beneficiary - A person designated to Beneficiary
receive proceeds of policy when risk  Insured cannot:
attaches. 1. Assign the policy
 Rules in the designation of the 2. Take the cash surrender value of
beneficiary: the policy
a. LIFE 3. Allow his creditors to attach or
i. A person who insures his own execute on the policy;
life can designate any person 4. Add new beneficiary; or
as his beneficiary, whether 5. Change the irrevocable
or not the beneficiary has an designation to revocable, even
insurable interest in the life though the change is just and
of the insured subject to the reasonable.
limitations under Art. 739  The insured does not even retain the
and Art. 2012 of the NCC. power to destroy the contract by
 Reason: in essence, a life refusing to pay the premiums for the
insurance policy is no beneficiary can protect his interest by
different form a civil paying such premiums for he has an
donation insofar as the interest in the fulfillment of the
beneficiary is concerned. obligation. (Vance, p. 665, cited in de
Both are founded on the Leon, p. 101, 2002 ed.)
same consideration of
liberality. (Insular Life vs. VII. INSURABLE INTEREST
Ebrado, 80 SCRA 181) A. In General
ii. A person who insures the life  A person has an insurable interest in
of another person and name the subject matter if he is so connected,
himself as the beneficiary so situated, so circumstanced, so
must have an insurable related, that by the preservation of the
interest in such life. (Sec. same he shall derive pecuniary benefit,
10) and by its destruction he shall suffer
iii. As a general rule, the pecuniary loss, damage or prejudice.
designation of a beneficiary B. Life
is revocable unless the  Every person has an insurable interest
insured expressly waived the in the life and health:
right to revoke in the policy. a. of himself, of his spouse and of
(Sec. 11) his children;
iv. The interest of a beneficiary b. of any person on whom he
in a life insurance policy depends wholly or in part for
shall be forfeited when the education or support;
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c. of any person under a legal exist at the time of when the loss
obligation to him to pay money loss occurs
or respecting property or Unlimited except in Limited to actual
services, of which death or life insurance value of interest in
illness might delay or prevent effected by creditor property insured.
on life of debtor.
performance; and
The expectation of An expectation of
d. of any person upon whose life
benefit to be derived a benefit to be
any estate or interest vested in from the continued derived from the
him depends. (Sec. 10) existence of life need continued
 When it should exist: When the not have any legal existence of the
insurance takes effect; not thereafter or basis whatever. A property insured
when the loss occurs. reasonable must have a legal
 Amount: probability is basis.
GENERAL RULE: There is no limit in the sufficient without
amount the insured can insure his life. more.
EXCEPTION: In a creditor-debtor The beneficiary need The beneficiary
not have an insurable must have
relationship where the creditor insures
interest over the life insurable interest
the life of his debtor, the limit of of the insured if the over the thing
insurable interest is equal to the amount insured himself insured.
of the debt. secured the policy.
Note: If at the time of the death of the However, if the life
debtor the whole debt has already been insurance was
paid, the creditor can no longer recover obtained by the
on the policy because the principle of beneficiary, the
indemnity applies. latter must have
insurable interest
over the life of the
C. Property insured.
 Every interest in property whether
real or personal, or any relation thereto,
or liability in respect thereof, of such SPECIAL
1. CASES
In case of a carrier or depositary
nature that the contemplated peril  A carrier or depository of any kind has
might directly damnify the insured (Sec. an insurable interest in a thing held by
13), which may consist in: him as such, to the extent of his liability
1. an existing interest; but not to exceed the value thereof
2. any inchoate interest (Sec. 15)
founded on an existing 2. In case of a mortgaged property
interest; or  The mortgagor and mortgagee each
3. an expectancy coupled with have an insurable interest in the
an existing interest in that property mortgaged and this interest is
out of which the expectancy separate and distinct from the other.
arises. (Sec. 14) a. Mortgagor – As owner, has an
 When it should exist: When the
insurable interest therein to the
insurance takes effect and when the loss extent of its value, even though the
occurs, but need not exist in the mortgage debt equals such value.
meantime. The reason is that the loss or
 Amount: The measure of insurable
destruction of the property insured
interest in property is the extent to will not extinguish the mortgage
which the insured might be damnified by debt.
loss or injury thereof. (Sec. 17) b. Mortgagee – His interest is only up
to the extent of the debt. Such
INSURABLE INSURABLE interest continues until the mortgage
INTEREST IN LIFE INTEREST IN debt is extinguished.
PROPERTY
Must exist only at the Must exist at the  The lessor cannot be validly a
time the policy takes time the policy
beneficiary of a fire insurance policy
effect and need not takes effect and
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taken by a lessee over his merchandise, 2. Past unknown event resulting in loss
and the provision in the lease contract or damage – Ex. Fact of past sinking
providing for such automatic assignment of a vessel unknown to the parties
is void for being contrary to law and 3. Contingent liability – Ex. Reinsurance
public policy. (Cha vs. Court of Appeals,
227 SCRA 690) IX. PREMIUM PAYMENTS
 Consideration paid an insurer for
STANDARD OR OPEN OR LOSS undertaking to indemnify the insured

UNION PAYABLE against a specified peril.
MORTGAGE MORTGAGE  Basis of the right of the insurer to
CLAUSE CLAUSE collect premiums: Assumption of risk.

Subsequent acts Acts of the
of the mortgagor mortgagor affect GENERAL RULE: No policy issued by an
cannot affect the the mortgagee. insurance company is valid and binding
rights of the Reason: until actual payment of premium. Any
assignee Mortgagor does agreement to the contrary is void. (Sec.
not cease to be a 77)
party to the
contract. (Secs. EXCEPTIONS:
8 and 9) 1. In case of life or industrial life
insurance, when the grace periods
Effects of Loss Payable Clause applies; (Sec. 77)
a. The contract is deemed to be upon 2. When the insurer makes a written
the interest of the mortgagor; hence, he acknowledgment of the receipt
does not cease to be a party to the premium; (Sec. 78)
contract. 3. Section 77 may not apply if the
b. Any act of the mortgagor prior to the parties have agreed to the payment
loss, which would otherwise avoid the of the premium in installments and
partial payment has been made at
insurance
the propertyaffects
is the mortgagee
in the hands even
of theif the time of the loss. (Makati
mortgagee. Tuscany Condominium Corp. v. CA,
c. Any act, which under the contract of 215 SCRA 462)
insurance is to be performed by the 4. Where a credit term has been
mortgagor, may be performed by the agreed upon. (UCPB vs. Masagana
mortgagee with the same effect. Telemart, 308 SCRA 259)
d. In case of loss, the mortgagee is 5. Where the parties are barred by
entitled to the proceeds to the extent of estoppel. (UCPB vs. Maagana
his credit. Telemart, 356 SCRA 307)
e. Upon recovery by the mortgagee to
the extent of his credit, the debt is  Section 77 merely precludes the
extinguished. parties from stipulating that the policy is
valid even if the premiums are not paid.
 In case a mortgagee insures his own (Makati Tuscany Condominium Corp. v.
interest and a loss occurs, he is entitled CA, 215 SCRA 462)
to the proceeds of the insurance but he
is not allowed to retain his claim against Effect of Acknowledgment of Receipt
the mortgagor as the claim is discharged of Premium in Policy: Conclusive
but it passes by subrogation to the evidence of its payment, so far as to
insurer to the extent of the money paid make the policy binding,
by such insurer. (Palileo vs. Cosio) notwithstanding any stipulation therein
that it shall not be binding until the
VIII. RISK premium is actually paid. (Sec. 78)
 What may be insured against:
1. Future contingent event resulting in
loss or damage – Ex. Possible future
fire
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ENTITLEMENT OF INSURED TO RETURN

OF PREMIUMS PAID Payment is not Payment is
enforceable against enforceable once
A. Whole: the insured. levied unless
otherwise agreed
1. If the thing insured was never
upon.
exposed to the risks insured
against; (Sec. 79)
2. If contract is voidable due to the Not a debt. It becomes a debt
fraud or misrepresentation of once properly
insurer or his agents; (Sec. 81) levied unless
3. If contract is voidable because of otherwise agreed.
the existence of facts of which
the insured was ignorant without X. TRANSFER OF POLICY
his fault; (Sec. 81) 1. Life Insurance
4. When by any default of the  It can be transferred even without the
insured other than actual fraud, consent of the insurer except when
the insurer never incurred there is a stipulation requiring the
liability; (Sec. 81) consent of the insurer before transfer.
5. When rescission is granted due (Sec. 181)
to the insurer’s breach of  Reason: The policy does not represent
contract. (Sec. 74) a personal agreement between the

B. Pro rata: insured and the insurer.
1. When the insurance is for a 2. Property insurance
definite period and the insured  It cannot be transferred without the
surrenders his policy before the consent of the insurer.

termination thereof;  Reason: The insurer approved the
 Exceptions: policy based on the personal

a. policy not made for a qualification and the insurable interest
definite period of time of the insured.
b. short period rate is 3. Casualty insurance
agreed upon  It cannot be transferred without the
c. life insurance policy consent of the insurer. (Paterson cited in

2. When there is over-insurance de Leon p. 82)
(Sec. 82);  Reason: The moral hazards are as
great as those of property insurance.
Instances when premiums are not
recoverable: CHANE OF INTEREST IN THE THING
1. When the risk has already INSURED
attached and the risk is entire and  The mere (absolute) transfer of the
indivisible. thing insured does not transfer the

2. In life insurance. policy, but suspends it until the same
3. When the contract is rescindable person becomes the owner of both the
or rendered void ab initio by the policy and the thing insured. (Sec. 58)
fraud of the insured.  Reason: Insurance contract is
4. When the contract is illegal and personal.
the parties are in pari delicto. GENERAL RULE: A change of interest in
any part of a thing insured
PREMIUM ASSESSMENT unaccompanied
change of interest
by ina the
corresponding
insurance
Levied and paid to Collected to meet suspends the insurance to an equivalent
meet anticipated actual losses. extent, until the interests in the thing
losses. and the interest in the insurance are
vested in the same person. (Sec. 20)
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EXCEPTIONS: c. Such party concealing makes no

1. In life, health and accident warranty as to the fact
insurance.(Sec. 20); concealed.
2. Change in interest in the thing d. The other party has not the
insured after occurrence of an means of ascertaining the fact
injury which results in a loss. concealed.
(Sec. 21); e. Material
3. Change in interest in one or  Effects: Entitles insurer to rescind,
more of several distinct things even if the death or loss is due to a
separately insured by one policy. cause not related to the concealed
(Sec. 22); matter (Sec. 27).
4. Change of interest, by will or Note: Good Faith is not a defense in
succession, on the death of the concealment. Sec. 27 clearly provides
insured. (Sec. 23); that, “the concealment whether
5. Transfer of interest by one of intentional or unintentional entitles the
several partners, joint owners, injured party to rescind the contract of
or owners in common, who are insurance.”
jointly insured, to others. (Sec.
24); Test of Materiality: Determined not by
6. When a policy is so framed that the event, but solely by the probable
it will inure to the benefit of and reasonable influence of the facts
whomsoever, during the upon the party to whom the
continuance of the risk, may communication is due, in forming his
become the owner of the estimate of the advantages of the
interest insured. (Sec. 57); proposed contract, or in making his
7. When there is an express inquiries (Sec. 31).
prohibition against alienation in  Exception to Sec. 31:
the policy, in case of alienation, a. Incontestability clause
the contract of insurance is not b. Matters under Sec.110 (marine
merely suspended but avoided. insurance)
(Art. 1306, NCC).
 The waiver of medical examination in
XI. ASCERTAINMENT AND CONTROL OF a non-medical insurance contract
RISK AND LOSS renders even more material the
information required of the applicant
A. Four Primary Concerns of the concerning the previous conditions of
Parties: health and diseases suffered. (Sunlife v.
1. Correct estimation of the risk; Sps. Bacani, 246 SCRA 268).
2. Precise delimitation of the risk;
3. Control of the risk;  The right to information of material
4. Determining whether a loss occurred facts may be waived, either by the terms
and if so, the amount of such loss. of the insurance or by neglect to make
inquiries as to such facts where they are
B. Devices used for ascertaining and distinctly implied in other facts of which
controlling risk and loss: information is communicated. (Sec.33)
1. Concealment – A neglect to
communicate that which a party knows  Where matters of opinion or judgment
and ought to communicate (Sec. 26) are called for, answers made in good
 Requisites: faith and without intent to deceiver will
a. A party knows a fact which he not avoid the policy even though they
neglects to communicate or are untrue. Reason: The insurer cannot
disclose to the other. rely on those statements. He must make
b. Such party concealing is duty further inquiry. (Philamcare Health
bound to disclose such fact to Systems vs. CA, G.R. No. 125678, March
the other. 18, 2002).
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2. Representations – Factual untruth or non-fulfillment of which in

statements made by the insured at the any respect, and without reference to
time of, or prior to, the issuance of the whether insurer was in fact prejudiced
policy to give information to the insurer by such untruth or non-fulfillment,
and induce him to enter into the renders the policy voidable by the
insurance contract. They are considered insurer.
an active form of concealment.  Purpose: To eliminate potentially
 Requisites of a false representation increasing hazards which may either be
(misrepresentation): due to the acts of the insured or to the
a. The insured stated a fact which change to the condition of the property.
is untrue.  Kinds:
b. Such fact was stated with a. EXPRESS – an agreement expressed in
knowledge that it is untrue and a policy whereby the insured stipulates
with intent to deceive or which that certain facts relating to the risk are
he states positively as true or shall be true, or certain acts relating
without knowing it to be true to the same subject have been or shall
and which has a tendency to be done.
mislead. b. IMPLIED - it is deemed included in the
c. Such fact in either case is contract although not expressly
material to the risk. mentioned. Example: In marine
 Characteristics: insurance, seaworthiness of the vessel.
a. It is not a part of the contract but  Effects of breach of warranty:
merely a collateral inducement to it. a. Material
b. It may be oral or written. GENERAL RULE: Violation of material
c. It is made at the same time of issuing warranty or of a material provision of a
the policy or before but not after. policy will entitle the other party to
d. It may be altered or withdrawn before rescind the contract. (Sec. 74)
the insurance is effected but not EXCEPTIONS:
afterwards. a. Loss occurs before the time of
e. It always refers to the date the performance of the warranty.
contract goes into effect. b. The performances becomes
 Kinds: unlawful at the place of the
a. AFFIRMATIVE – affirmation of a fact contract.
when the contract begins; and c. Performance becomes
b. PROMISSORY – promise to be impossible. (Sec. 73)
performed after policy was issued. b. Immaterial (ex. Other insurance
 Effect of Misrepresentation: the clause)
injured party is entitled to rescind from GENERAL RULE: It will not avoid the
the time when the representation policy.
becomes false. EXCEPTION: When the policy expressly
provides or declares that a violation
Test of Materiality: Same as that in thereof will avoid it. (Sec. 75)
concealment.
WARRANTY REPRESENTATION
 Where the insured merely signed the Part of the contract Mere collateral
application form and made the agent of inducement
the insurer fill the same for him, it was Written on the May be written in
held that by doing so, the insured made policy, actually or by the policy or may
the agent of the insurer his own agent reference be oral.
and he was responsible for his acts for Presumed material Must be proved to
that purpose. (Insular Life Assur. Co. vs. be material
Feliciano, 74 Phil. 469)
Must be strictly Requires only
complied with substantial truth
3. Warranties – Statement or promise and compliance
by the insured set forth in the policy or
by reference incorporated therein, the
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4. Conditions – Events signifying in its CANCELLATION OF NON-LIFE

broadest sense either an occurrence or a INSURANCE POLICY
non-occurrence that alters the  Right of the insurer to abandon the
previously existing legal relations of the contract on the occurrence of certain
parties to the contract. They may be grounds after the effectivity date of a
conditions precedent or conditions non-life policy.
subsequent.  Grounds:
 Effect of breach: 1. Non-payment of premium;
a. Condition precedent – prevents 2. Conviction of a crime out of acts
the accrual of cause of action increasing the hazard insured
b. Condition subsequent – avoids against;
the policy or entitles the insurer 3. Discovery of fraud or material
to rescind misrepresentation;
 The insurer may also protect himself 4. Discovery of willful or reckless acts
against fraudulent claims of loss and this of omissions increasing the hazard
he attempts to do by inserting in the insured against;
policy various conditions which take the 5. Physical changes in property making
form of conditions precedent. For the property uninsurable; and
instance, there are conditions requiring 6. Determination by the Insurance
immediate notice of loss or injury and Commissioner that the continuation
detailed proofs of loss within a limited of the policy would violate the
period. Insurance Code. (Sec. 64)
 Requirements:
5. Exceptions – Provisions that may 1. Prior notice of cancellation to
specify excepted perils. It makes more the insured;
definite the coverage indicated by the 2. Notice must be in writing,
general description of the risk by mailed or delivered to the
excluding certain specified risk that named insured at the address
otherwise would be included under the shown in the policy;
general language describing the risks 3. Notice must state which of the
assumed. grounds set forth in Sec. 64 is
 Effect: Limit the coverage of the relied upon and upon request of
contract. the insured, the insurer must
furnish facts on which the
RESCISSION cancellation is based;
 Grounds: 4. Grounds should have existed
A. Concealment after the effectivity date of the
B. Misrepresentation policy.
C. Breach of material warranty
D. Breach of a condition subsequent XII. INCONTESTABILITY CLAUSE
 Waiver of the right to rescind:  Clause in life insurance policy that
Acceptance of premium payments stipulates that the policy shall be
despite the knowledge of the ground for incontestable after a stated period.
rescission. (Sec. 45)  Requisites:
 Limitations on the right of the 1. Life insurance policy
insurer to rescind: 2. Payable on the death of the insured
1. Non-life – such right must be 3. It has been in force during the
exercised prior to the commencement of lifetime of the insured for a period
an action on the contract; of at least two years from the date
2. Life – such right must be availed of of its issue or of its last
during the first two years from the date reinstatement
of issue of policy or its last Note: The period of 2 years may be
reinstatement; prior to shortened but it cannot be extended by
“incontestability.” (Sec. 48) stipulation.
40
 Incontestability only deprives the corresponding to the excess in value

insurer of those defenses which arise in of the property;
connection with the formation and
operation of the policy prior to loss. B. DOUBLE INSURANCE – exists where
(Prof. De Leon, p. 173 citing Wyatt and same person is insured by several
Wyatt, p. 878) insurers separately in respect to same
subject and interest. (Sec. 93)
BARRED DEFENSES NOT  Requisites:
DEFENSES BARRED 1. Person insured is the same;

OF THE INSURER 2. Two or more insurers insuring
1. Policy is void ab 1. That the person separately;
initio taking the insurance 3. Subject matter is the same;
2. Policy is lacked insurable 4. Interest insured is also the same;
rescindable by interest as required 5. Risk or peril insured against is
reason of the by law; likewise the same.
fraudulent 2. That the cause of
concealment or the death of the
misrepresentation of insured is an  Effects: Where double insurance is
the insured or his excepted risk; allowed, but over insurance results:
agent 3. That the (Sec. 94)
premiums have not 1. The insured, unless the policy
been paid (Secs. 77, otherwise provides, may claim
227[b], 228[b], payment from the insurers in such
230[b order as he may select, up to the
4. That the amount for which the insurers are
conditions of the
severally liable under their
policy relating to
military or naval respective contracts;
service have been 2. Where the policy under which the
violated (Secs. insured claims is a valued policy, the
227[b], 228[b insured must give credit as against
5. That the fraud is the valuation for any sum received
of a particularly by him under any other policy
vicious type; without regard to the actual value of
6. That the the subject matter insured;
beneficiary failed to
3. Where the policy under which the
furnish proof of
death or to comply insured claims is an unvalued policy
with any condition he must give credit, as against the
imposed by the full insurable value, for any sum
policy after the loss received by him under any policy;
has happened; or 4. Where the insured receives any sum
7. That the action in excess of the valuation in the case
was not brought of valued policies, or of the
within the time insurable value in the case of
specified.
unvalued policies, he must hold such
sum in trust for the insurers,
XIII. according to their right of
A. OVER-INSURANCE – results when the contribution among themselves;
insured insures the same property for an 5. Each insurer is bound, as between
amount greater than the value of the
property with the same insurance himself and the other insurers, to
contribute ratably to the loss in
company. proportion to the amount for which
 Effect in case of loss:
he is liable under his contract.
1. The insurer is bound only to pay to
the extent of the real value of the
Additional or “Other I nsurance” Clause
property lost;  A condition in the policy requiring the
2. The insured is entitled to recover insured to inform the insurer of any
the amount of premium other insurance coverage of the property
41
insured. It is lawful and specifically reinsured under the contract. (Prof. De

allowed under Sec. 75 which provides Leon, p. 305)
that “(a) policy may declare that a 3. Facultative reinsurance – There is no
violation of a specified provision thereof obligation to cede or accept
shall avoid it, otherwise the breach of an participation in the risk each party
immaterial provision does not avoid it.” having a free choice. But once the share
 A stipulation against double is accepted, the obligation is absolute
insurance. and the liability thereunder can be
 Purposes: discharged only by payment. (Equitable
1. To prevent an increase in the Ins. & Casualty Co. vs. Rural Ins. &
moral hazard Surety Co., Inc. 4 SCRA 343)
2. To prevent over-insurance and
fraud. 4. Retrocession – A transaction whereby
 To constitute a violation of the the reinsurer in turn, passes to another
clause, there should have been double insurer a portion of the risk reinsured. It
insurance. is really the reinsurance of reinsurance.
(Prof. De Leon, p. 305)
C. REINSURANCE – a contract by which
the insurer procures a third person to XIV.
insure him against loss or liability by A. LOSS, IN INSURANCE
reason of an srcinal insurance (also  Injury or damage sustained by the
known as “Reinsurance Cession”). (Sec. insured in consequence of the happening
95) of one or more of the accidents or
 In every reinsurance, the srcinal misfortune against which the insurer, in
contract of insurance and the contract of consideration of the premium, has
reinsurance are covered by separate undertaken to indemnify the insured.
policies. (Bonifacio Bros. Inc. vs. Mora, 20 SCRA
261)
DOUBLE REINSURANCE
INSURANCE Loss for which Loss for which
Involves the same Involves different insurer is liable insurer is not
interest interest liable
Insurer remains in Insurer becomes the 1. Loss the 1. Loss by
such capacity insured in relation proximate cause of insured’s willful
to reinsurer which is the peril act;
Insured is the party Original insured has insured against 2. Loss due to
in interest in the 2 no interest in the (Sec. 84); connivance of the
contracts reinsurance 2. Loss the insured (Sec. 87);
contract. immediate cause of and
Subject of Subject of insurance which is the peril 3. Loss where the
insurance is is the srcinal insured against excepted peril is
property insurer’s risk except where the proximate
Insured has to give Insured’s consent proximate cause is cause.
his consent not necessary an excepted peril;
3. Loss through
TERMS: negligence of
insured except
1. Reinsurance treaty – Merely an
where there was
agreement between two insurance gross negligence
companies whereby one agrees to cede amounting to willful
and the other to accept reinsurance acts; and
business pursuant to provisions specified 4. Loss caused by
in the treaty. (Prof. De Leon, p. 306) efforts to rescue the
thing from peril
2. Automatic reinsurance – The insured against;
reinsured is bound to cede and the 5. If during the
course of rescue,
reinsurer is obligated to accept a fixed
the thing is exposed
share of the risk which has to be
42
to a peril not annuity, in which later than 90 days

insured against, case, the from such receipt of
which permanently installments or proof of loss
deprives the insured annuities shall be whether or not
of its possession, in paid as they ascertainment is
whole or in part become due. had or made.
(Sec. 85). b. Maturing at
the death of the
Proximate Cause – An event that sets all insured, occurring
other events in motion without any prior to the
expiration of the
intervening or independent case,
without which the injury or loss would term stipulated –
The proceeds are
not have occurred. payable to the
beneficiaries
REQUISITES FOR RECOVERY UPON within 60 days
INSURANCE after presentation
1. The insured must have insurable and filing of proof
interest in the subject matter; of death.
2. That interest is covered by the policy;
3. There must be a loss; and
4. The loss must be proximately caused  In case of an unreasonable delay in
by the peril insured against. the payment of the insured’s claim by
the insurer, the insured can recover: 1)
NOTICE OF LOSS attorney’s fees; 2) expenses incurred by
reason of the unreasonable withholding;
In fire insurance In other types of
3) interest at double the legal interest
insurance
rate fixed by the Monetary Board; and 4)
Required Not required
the amount of the claim. (Zenith
Insurance Corp. vs. CA, 185 SCRA 398)
Failure
notice willto defeat
give Failure
notice willto give
not XV. PRESCRIPTIVE PERIOD (Secs. 63 &
the right of the exonerate the 384)
insured to recover. insurer, unless  Rules:
there is a 1. In the absence of an express
stipulation in the stipulation in the policy, it being based
policy requiring the
on a written contract, the action
insured to do so.
prescribes in 10 years.
2. However the parties may validly agree
on a shorter period provided it is not less
B. CLAIMS SETTLEMENT
than one year from the time the cause of
 The indemnification of the loss of the
action accrues.
insured.
3. The cause of action accrues from the
rejection of the claim of the insured and
TIME FOR PAYMENT OF CLAIMS
not from the time of loss.
NON-LIFE
It shall commence from the denial of
LIFE POLICIES POLICIES
the claim, not from the resolution of the
a. Maturing The proceeds shall
motion for reconsideration, otherwise it
upon the be paid within 30 can be used by the insured as a scheme
expiration of the days after the or device to waste time until the
term – The receipt by the evidence which may be used against him
proceeds are insurer of proof of is destroyed. (Sun Insurance Office, Ltd.
immediately loss, and v. CA, 195 SCRA)
payable to the ascertainment of 4. In CMVLI, the written notice of claim
insured, unless the loss or damage must be filed within 6 months from the
they are made by agreement of the
date of the accident otherwise the claim
payable in parties or by
installments or as arbitration but not
is deemed waived. The suit for damages
either with the proper court or with the
43
Insurance Commissioner should be filed of the transportation system

within 1 year from the date of the denial such as bridges, tunnels, etc.
of the claim by the insurer, otherwise 4. Floater – provides insurance to
claimant’s right of action shall prescribe. follow the insured property
(Sec. 384) wherever it may be located,
subject always to the territorial
PARTICULAR KINDS OF INSURANCE limits of the contract.
CONTRACTS  Insurable interest:
A.
XVI. MARINE INSURANCE 1.Shipowner
 Insurance against risks connected with a. Over the vessel to the
navigation, to which a ship, cargo, extent of its value, except
freightage, profits or other insurable that if chartered, the
interest in movable property, may be insurance is only up to the
exposed during a certain voyage or a amount not recoverable
fixed period of time. (Sec. 99) from the charterer. (Sec.
 Coverage: 100).
A. b. He also has an insurable
1. Vessels, goods, freight, cargo, interest on expected
merchandise, profits, money, freightage. (Sec. 103).
valuable papers, bottomry and c. No insurable interest if he
respondentia, and interest in respect will be compensated by
to all risks or perils of navigation; charterer for the value of
2. Persons or property in connection the vessel, in case of loss.
with marine insurance; 2. Cargo owner
3. Precious stones, jewels, jewelry and  Over the cargo and expected
precious metals whether in the profits (Sec. 105).
course of transportation or 3. Charterer
otherwise; and  Over the amount he is liable
4. Bridges, tunnels, piers, docks and to the shipowner, if the ship is
other aids to navigation and lost or damaged during the
transportation. (Sec. 99) voyage (Sec. 106).
 Cargo can be the subject of
marine insurance, and once it is B.
entered into, the implied In loans on bottomry and respondentia
warranty of seaworthiness  Repayment of the loan is subject to
immediately attaches to the condition that the vessel or goods,
whoever is insuring the cargo, respectively, given as a security, shall
whether he be the shipowner or arrive safely at the port of destination.
not. (Roque v. IAC, 139 SCRA 1. Owner/Debtor
596)  Difference between the value
B. Marine Protection and Indemnity of vessel or goods and the
Insurance amount of loan. (Sec. 101)
 Classes of inland marine insurance: 2. Creditor/lender
(Prof. De Leon, p. 325)  Amount of the loan
1. Property in transit – provides
protection to property Note: If a vessel is hypothecated by
frequently exposed to loss while bottomry, only the excess is insurable,
it is transportation form one since a loan on bottomry partakes of the
location to another. nature of an insurance coverage to the
2. Bailee liability - insurance for extent of the loan accommodation. The
those who have temporary same rule would apply to the
custody of the goods. hypothecation of the cargo by
3. Fixed transportation property – respondentia. (Pandect of Commercial
they are so insured because they Law and Jurisprudence, Justice Jose
are held to be an essential part Vitug, 1997 ed.)
44
PERILS OF THE PERILS OF THE 1. Negligence of the captain,

SEA SHIP engineers, etc.
Includes only those A loss which in the 2. Explosions, breakage of shafts; and
casualties due to ordinary course of 3. Latent defect of machinery or hull.
the: events, results (Bar Review Materials in Commercial
1. unusual from the: Law, Jorge Miravite, 2002 ed.)
violence; or 1. natural and
2. extraordinary inevitable action of
D. Sue and Labor Clause
action of wind and the sea
 A clause under which the insurer may
wave; or 2. ordinary wear
3. Other and tear of the become liable to pay the insured, in
extraordinary causes ship or addition to the loss actually suffered,
connected with 3. Negligent such expenses as he may have incurred
navigation. failure of the in his efforts to protect the property
ship’s owner to against a peril for which the insurer
provide the vessel would have been liable. (Sec. 163)
with proper
equipment to
MATTERS ALTHOUGH CONCEALED, WILL
convey the cargo
under ordinary NOT VITIATE THE CONTRACT EXCEPT
conditions. WHEN THEY CAUSED THE LOSS (Sec.
110)
Note: It is only perils of the sea which 1. National character of the insured;
may be insured against unless perils of 2. Liability of the thing insured to
the ship is covered by an all-risk policy. capture or detention;
3. Liability to seizure from breach of
SPECIAL MARINE INSURANCE foreign laws;
CONTRACTS AND CLAUSES 4. Want of necessary documents; and
A. All Risks Policy – insurance against all 5. Use of false or simulated papers.
causes of conceivable loss or damage, Note: This should be related to the
general rule regarding material
except: 1) 2)
policy; or asdue
otherwise excluded
to fraud in the
or intentional concealment.
misconduct on the part of the insured.
 The insured has the initial burden of
DISTINCTIONS ON CONCEALMENT
proving that the cargo was in good (Commercial Law Reviewer, A.F.
condition when the policy attached and Agbayani, 1988 ed.)
that the cargo was damaged when
unloaded from the vessel; thereafter, MARINE INSURANCE OTHER
the burden then shifts to the insurer to PROPERTY
show the exception to the coverage. INSURANCE
(Filipinas Merchants Insurance vs. Court The information of the The information or
of Appeals, 179 SCRA 638) belief or expectation belief of a 3rd party
of 3rd persons is is not material and
material and must be need not be
B. Barratry Clause communicated communicated
 A clause which provides that there
unless it proceeds
can be no recovery on the policy in case form an agent of
of any willful misconduct on the part of the insured whose
the master or crew in pursuance of some duty it is to give
unlawful or fraudulent purpose without information
consent of owners, and to the prejudice The concealment of Concealment of any
of the owner’s interest. (Roque vs. IAC, any fact in relation to material fact will
139 SCRA 596) any of the matters vitiate the entire
stated in Sec. 110 contract, whether
does not vitiate the or not the loss
C. Inchamaree Clause entire contract but results for the risk
 A clause which makes the insurer merely exonerates the concealed.
liable for loss or damage to the hull or insurer from a risk
machinery arising from the: resulting from the fact
concealed
45
IMPLIED WARRANTIES 3. In the case of a voyage policy

1. Seaworthiness of the ship at the contemplating a voyage in different
inception of the insurance (Sec. stages, the ship must be seaworthy
113); at the commencement of each
2. Against improper deviation (Sec. portion
123, 124, 125);
3. Against illegal venture;  Applicability of implied warranty of
4. Warranty of neutrality: the ship will seaworthiness to cargo owners: It
carry the requisite documents of becomes the obligation of a cargo owner
nationality or neutrality of the ship to look for a reliable common carrier,
or cargo where such nationality or which keeps its vessels in seaworthy
neutrality is expressly warranted; conditions. The shipper may have no
(Sec. 120) control over the vessel but he has
5. Presence of insurable interest. control in the choice of the common
carrier that will transport his goods
 While the payment by the insurer for (Roque v. IAC, 139 SCRA 596).
the insured value of the lost cargo
operates as a waiver of the insurer’s Deviation
right to enforce the term of the implied  A departure from the course of the
warranty against the assured under the voyage insured, or an unreasonable
marine insurance policy, the same delay in pursuing the voyage or the
cannot be validly interpreted as an commencement of an entirely different
automatic admission of the vessel’s voyage. (Sec.123)
seaworthiness by the insurer as to  Instances:
foreclose recourse against the common 1. Departure of vessel from the
carrier for any liability under the course of the sailing fixed by
contractual obligation as such common mercantile usage
carrier. (Delsan Transportation Lines vs. 2. Departure of vessel from the
CA, 364 SCRA 24) most natural, direct and
advantageous route if not fixed
Seaworthiness by mercantile usage
 A relative term depending upon the 3. Unreasonable delay in pursuing
nature of the ship, voyage, service and voyage
goods, denoting in general a ship’s 4. Commencement of an entirely
fitness to perform the service and to different voyage (Secs. 121-123)
encounter the ordinary perils of the  Kinds:
voyage, contemplated by the parties to 1. Proper -
the policy (Sec. 114). a. When caused by circumstances outside
GENERAL RULE: The warranty of the control of the ship captain or ship
seaworthiness is complied with if the owner;
ship be seaworthy at the time of the b. When necessary to comply with a
commencement of the risk. Prior or warranty or to avoid a peril;
subsequent unseaworthiness is not a c. When made in good faith to avoid a
breach of the warranty nor is it material peril;
that the vessel arrives in safety at the d. When made in good faith to save
end of her voyage. human life or to relieve another vessel
EXCEPTIONS: in distress (Sec. 124)
1. In the case of a time policy, the ship Effect: In case of loss, the
must be seaworthy at the insurer is still liable.
commencement of every voyage she 2. Improper - Every deviation not
may undertake specified in Sec. 124 (Sec. 125).
2. In the case of cargo policy, each  Effect: In case of loss or
vessel upon which the cargo is damage, the insurer is not liable.
shipped or transshipped, must be (Sec. 126)
seaworthy at the commencement of
each particular voyage
46
LOSS vessel or
1. Total: cargo;
a. Actual - 2. Part of the
i. Total destruction; vessel or cargo
ii. Irretrievable loss by sinking; was sacrificed
iii. Damage rendering the thing deliberately;
valueless; or 3. Sacrifice must
iv. Total deprivation of owner of be for the
possession of thing insured. common safety
(Sec. 130) or for the
b. Constructive - benefit of all;
i. Actual loss of more than ¾ 4. Sacrifice must
of the value of the object; be made by
ii. Damage reducing value by the master or
more than ¾ of the value of upon his
the vessel and of cargo; and authority;
iii. Expense of transshipment 5. It must be not
exceed ¾ of value of cargo. be caused by
(Sec. 131, in relation to Sec. any fault of
139) the party
 In case of constructive asking the
total loss, insured may: contribution;
1. Abandon goods or 6. It must be
vessel to the insurer and successful, i.e.
claim for whole insured resulted in the
value (Sec. 139), or saving of the
2. Without abandoning vessel or
vessel, claim for partial cargo; and
actual loss. (Sec. 155) Necessary.
2. Partial: That which is not total (Sec.
128). RIGHT OF INSURED IN CASE OF
GENERAL AVERAGE
AVERAGE GENERAL RULE: The insured may
 Any extraordinary or accidental either hold the insurer directly liable for
expense incurred during the voyage for the whole of the insured value of the
the preservation of the vessel, cargo, or property sacrificed for the general
both, and all damages to the vessel and benefit, subrogating him to his own right
cargo from the time it is loaded and the of contribution or demand contribution
voyage commenced until it ends and the from the other interested parties as soon
cargo unloaded. as the vessel arrives at her destination
EXCEPTIONS:
GENERAL PARTICULAR 1. After the separation of interests
Has inured to the Has not inured to the liable to contribution
common benefit and common benefit and 2. When the insured has neglected or
profit of all persons profit of all persons waived his right to contribution
interested in the interested in the
vessel and cargo vessel and her cargo.
FPA Clause (Free From Particular
To be borne equally To be borne alone by
by all of the interests the owner of the Average)
A clause agreed upon in a policy of
concerned in the cargo or the vessel,
venture. as the case may be. marine insurance in which it is stated
Requisites for the that the insurer shall not be liable for a
right to claim particular average, such insurer shall be
contribution: free therefrom, but he shall continue to
1. Common be liable for his proportion of all general
danger to the average losses assessed upon the thing
insured. (Sec. 136)
47
ABANDONMENT a co-insurer of the difference between

 The act of the insured by which, after the amount of insurance and the value of
a constructive total loss, he declared the the property.
relinquishment to the insurer of his
interest in the thing insured. (Sec. 138)  Requisites:
 Requisites for validity: 1. The loss is partial;
1. There must be an actual 2. The amount of insurance is less than
relinquishment by the person insured the value of the property insured.
of his interest in the thing insured
(Sec. 138);  Rules:
2. There must be a constructive total 1. Co-insurance applies only to marine
loss (Sec. 139); insurance
3. The abandonment be neither partial 2. Logically, there cannot be co-
nor conditional (Sec. 140); insurance in life insurance.
4. It must be made within a reasonable 3. Co-insurance applies in fire insurance
time after receipt of reliable when expressly provided for by the
information of the loss (Sec. 141); parties.
5. It must be factual (Sec. 142);
6. It must be made by giving notice CO-INSURANCE REINSURANCE
thereof to the insurer which may be A percentage in the Situation where the
done orally or in writing (Sec. 143); value of the insured insurer procures a 3rd
and property which the party called the
7. The notice of abandonment must be insured himself reinsurer to insure
explicit and must specify the assumes to act as him against liability
insurer to the extent by reason of an
particular cause of the abandonment
of the deficiency in srcinal insurance.
(Sec. 144). the insurance of the Basically,
insured property. In reinsurance is an
 Effects: case of loss or insurance against
1. It is equivalent to a transfer by the damage, the insurer liability which the
insured of his interest to the insurer will be liable only for srcinal insurer may
with all the chances of recovery and such proportion of incur in favor of the
indemnity (Transfer of the loss or damage as srcinal insured.
Interest)(Sec.146) the amount of the
insurance bears to
2. Acts done in good faith by those who
the designated
were agents of the insured in respect percentage of the
to the thing insured, subsequent to full value of the
the loss, are at the risk of the property insured.
insurer and for his benefit. (Transfer (Bar Review
Of Agency)(Sec.148) Materials in
Commercial Law,
 If an insurer refuses to accept a valid Jorge Miravite, 2002
abandonment, he is liable upon an ed.)
actual total loss, deducting form the
amount any proceeds of the thing
insured which may have come to the XVII. FIRE INSURANCE
 A contract by which the insurer for a
hands of the insured. (Sec.154)
consideration agrees to indemnify the
insured against loss of, or damage to,
CO-INSURANCE property by hostile fire, including loss by
 A marine insurer is liable upon a
partial loss, only for such proportion of lightning, windstorm, tornado or
the amount insured by him as the loss earthquake and other allied risks, when
bears to the value of the whole interest such risks are covered by extension to
of the insured in the property insured. fire insurance policies or under separate
(Sec. 157) policies. (Sec. 167)
 When the property is insured for less
than its value, the insured is considered
48
 Prerequisites to recovery: 6. There must be a violation of a

1. Notice of loss – must be immediately policy provision. (Sec. 170)
given, unless delay is waived expressly or
impliedly by the insurer Fall-of-building clause
2. Proof of loss – according to best  A clause in a fire insurance policy that
evidence obtainable. Delay may also be if the building or any part thereof falls,
waived expressly or impliedly by the except as a result of fire, all insurance
insurer by the policy shall immediately cease.
HOSTILE FIRE FRIENDLY FIRE Option to rebuild clause

One that escapes One that burns in a  A clause giving the insurer the option
from the place place where it was to reinstate or replace the property
where it was intended to burn damaged or destroyed or any part
intended to burn and ought to be thereof, instead of paying the amount of
and ought to be. the loss or the damage.
Insurer is liable Insurer is not liable
 The insurer, after electing to rebuild,
cannot be compelled to perform this
Measure of Indemnity undertaking by specific performance
1. Open policy: only the expense because this is an obligation to do, not
necessary to replace the thing lost or to give. Remedy: Art. 1167, NCC.
injured in the condition it was at the
time of the injury XVIII. CASUALTY OR ACCIDENT
2. Valued policy: the parties are bound INSURANCE
by the valuation, in the absence of fraud  Insurance covering loss or liability
or mistake arising from accident or mishap,
excluding those falling under other types
Note: It is very crucial to determine of insurance such as fire or marine. (Sec.
whether a marine vessel is covered by a 174)
marine insurance or fire insurance. The
determination is important for 2 reasons:  Classifications:
1. Rules on constructive total loss 1. Insurance against specified perils
and abandonment – applies only which may affect the person and/or
to marine insurance; property of the insured. (accident or
2. Rule on co-insurance – applies health insurance)
primarily to marine insurance;  Examples: personal accident,
3. Rule on co-insurance applies to robbery/theft insurance
fire insurance only if expressly 2. Insurance against specified perils
agreed upon. (Commercial Law which may give rise to liability on the
Reviewer, Aguedo Agbayani, part of the insured for claims for
1988 ed.) injuries to or damage to property of
others. (third party liability insurance)
ALTERATION AS A SPECIAL GROUND  Insurable interest is based on the
FOR RESCISSION BY INSURER interest of the insured in the safety of
 Requisites:
persons, and their property, who may
1. The use or condition of the thing maintain an action against him in case of
is specifically limited or their injury or destruction, respectively.
stipulated in the policy;  Examples: workmen’s compensation,
2. Such use or condition as limited
by the policy is altered; motor vehicle liability
 In a third party liability (TPL)
3. The alteration is made without insurance contract, the insurer assumes
the consent of the insurer; the obligation by paying the injured
4. The alteration is made by means third party to whom the insured is liable.
within the control of the Prior payment by the insured to the third
insured; person is not necessary in order that the
5. The alteration increases the risk; obligation may arise. The moment the
(Sec. 168) and insured becomes liable to third persons,
49
the insured acquires an interest in the “INTENTIONAL” vs. “ACCIDENTAL” AS

insurance contract which may be USED IN INSURANCE POLICIES
garnished like any other credit. (Perla 1. Intentional – Implies the exercise of
Comapnia de Seguro, Inc vs. Ramolete, the reasoning faculties, consciousness
205 SCRA 487) and volition. Where a provision of the
 Aside from compulsory motor vehicle policy excludes intentional injury, it is
liability insurance, the Insurance Code the intention of the person inflicting the
contains no other provisions applicable injury that is controlling. If the injuries
to casualty insurance. Therefore, such suffered by the insured clearly resulted
casualty insurance are governed by the from the intentional act of the third
general provisions applicable to all types person, the insurer is relieve from
of insurance, and outside of such liability as stipulated. (Biagtan v. the
statutory provisions, the rights and Insular Life Assurance Co. Ltd., 44 SCRA
obligations of the parties must be 58, 1972)
determined by their contract, taking into 2. Accidental – That which happens by
consideration its purpose and always in chance or fortuitously, without intention
accordance with the general principles or design, which is unexpected, unusual
of insurance law. and unforeseen.
 In burglary, robbery and theft NO ACTION CLAUSE

insurance, the opportunity to defraud  A requirement in a policy of liability
the insurer – the moral hazard – is so insurance which provides that suit and
great that insurer have found it final judgment be first obtained against
necessary to fill up the policies with the insured; that only thereafter can the
many restrictions designed to reduce the person injured recover on the policy.
hazard. Persons frequently excluded are (Guingon vs. Del Monte, 20 SCRA 1043)
those in the insured’s service and
employment. The purpose of the XIX. COMPULSORY MOTOR VEHICLE
exception is to guard against liability LIABILITY INSURANCE (CMVLI)
should theft be committed by one having  A species of compulsory insurance
unrestricted access to the property. that provides for protection coverage
(Fortune Insurance vs. CA, 244 SCRA 208) that will answer for legal liability for
losses and damages for bodily injuries or
Right of a third party injured to sue the property damage that may be sustained
insurer by another arising from the use and
1. Indemnity against liability – A third operation of motor vehicle by its owner.
party injured can directly sue the  Purpose: To give immediate financial
insurer. assistance to victims of motor vehicle
2. Indemnity for actual loss or accidents and/or their dependents,
reimbursement after actual payment by especially if they are poor regardless of
the insured – A third party has no cause the financial capability of motor vehicle
of action against the insurer (Sec. 53, owners or operators responsible for the
Bonifacio Bros. v. Mora, 20 SCRA 261). accident sustained (Shafer v. Judge,
RTC, 167 SCRA 386).
 The insurer is not solidarily liable with  Claimants/victims may be a
the insured. The insurer’s liability is “passenger” or a “3 rd party”
based on contract; that of the insured is  It applies to all vehicles whether
based on torts. Furthermore, the public and private vehicles.

insurer’s liability is limited by the Note: It is the only compulsory insurance
amount of the insurance coverage (Pan coverage under the Insurance Code.
Malayan Insurance Corporation v. CA,
184 SCRA 54).
50
Method of coverage or dismounting from. That said vehicle

1. Insurance policy might not be the one that caused the
2. Surety bond accident is of no moment since the law
3. Cash deposit itself provides that the party paying may
recover against the owner of the vehicle
Passenger – Any fare-paying person responsible for the accident. (Perla
being transported and conveyed in and Compania de Seguros, Inc. v. Ancheta,
by a motor vehicle for transportation of 169 SCRA 144)
passengers for compensation, including
persons expressly authorized by law or  This no-fault claim does not apply to
by the vehicle’s operator or his agents to property damage. If the total indemnity
ride without fare. (Sec. 373[b]) claim exceeds P5,000 and there is
controversy in respect thereto, the
Third Party – Any person other than the finding of fault may be availed of by the
passenger, excluding a member of the insurer only as to the excess. The first
household or a member of the family P5,000 shall be paid without regard to
within the second degree of fault. (Prof. De Leon, p. 716)
consanguinity or affinity, of a motor
vehicle owner or land transportation  The essence of the no-fault indemnity
operator, or his employee in respect of insurance is to provide victims of
death or bodily injury arising out of and vehicular accidents or their heirs
in the course of employment. (Sec. immediate compensation although in
373[c]) limited amount, pending final
determination of who is responsible for
“No-Fault” Clause the accident and liable for the victims
 A clause that allows the victim injuries or death. (Ibid.)
(injured person or heirs of the deceased)
to an option to file a claim for death or SPECIAL CLAUSES
injury without the necessity of proving A. Authorized Driver Clause
fault or negligence of any kind.  A clause which aims to indemnify the
 Purpose: To guarantee compensation insured owner against loss or damage to
or indemnity to injured persons in motor the car but limits the use of the insured
vehicle accidents. vehicle to the insured himself or any
 Rules: person who drives on his order or with
1. Total indemnity - maximum of P5,000 his permission (Villacorta v. Insurance
2. Proofs of loss - Commissioner)
a. Police report of accident;  The requirement that the person
b. Death certificate and evidence driving the insured vehicle is permitted
sufficient to establish proper payee; in accordance with the licensing laws or
c. Medical report and evidence of other laws or regulations to drive the
medical or hospital disbursement. motor vehicle (licensed driver) is
3. Claim may be made against one motor applicable only if the person driving is
vehicle only other than the insured.
4. Proper insurer from which to claim -
a. In case of an occupant: Insurer B. Theft Clause
of the vehicle in which the occupant is  A clause which includes theft as
riding, mounting or dismounting from; among the risks insured against.
b. In any other case: Insurer of the  Where the car is unlawfully and
directly offending vehicle. (Sec. 378) wrongfully taken without the owner’s
consent or knowledge, such taking
 The claimant is not free to choose constitutes theft, and thus, it is the
from which insurer he will claim the “no “theft clause” and not the “authorized
fault indemnity” as the law makes it driver clause that should apply (Palermo
mandatory that the claim shall lie v. Pyramids Ins., 161 SCRA 677).
against the insurer of the vehicle in
which the occupant is riding, mounting
51
C. Cooperation Clause XXI. LIFE INSURANCE

 A clause which provides in essence  Insurance on human lives and
that the insured shall give all such insurance appertaining thereto or
information and assistance as the insurer connected therewith which includes
may require, usually requiring every contract or pledge for the
attendance at trials or hearings. payment of endowments or annuities.
XX. SURETYSHIP (Sec. 179)
 An agreement whereby a surety  Kinds: (Bar Review Materials in
guarantees the performance by the Commercial Law, Jorge Miravite, 2002
principal or obligor of an obligation or ed.)
undertaking in favor of an obligee. (Sec. 1. Ordinary Life, General Life or Old
175) Line Policy - Insured pays a fixed
 It is essentially a credit premium every year until he dies.
accommodation. Surrender value after 3 years.
 It is considered an insurance contract 2. Group Life – Essentially a single
if it is executed by the surety as a insurance contract that provides
vocation, and not incidentally. (Sec. 20 coverage for many individuals.
 When the contract is primarily drawn Examples: In favor of employees,
up by 1 party, the benefit of doubt goes “mortgage redemption insurance”.
to the other party (insured/obligee) in 3. Limited Payment Policy – insured
case of an ambiguity following the rule pays premium for a limited period.
in contracts of adhesion. Suretyship, If he dies within the period, his
especially in fidelity bonding, is thus beneficiary is paid; if he outlives the
treated like non-life insurance in some period, he does not get anything.
respects. 4. Endowment Policy – pays premium
for specified period. If he outlives
Nature of liability of surety the period, the face value of the
1. Solidary; policy is paid to him; if not, his
2. Limited to the amount of the bond; beneficiaries receive the benefit.
3. It is determined strictly by the terms 5. Term Insurance – insurer pays once
of the contract of suretyship in only, and he is insured for a
relation to the principal contract specified period. If he dies within
between the obligor and the obligee. the period, his beneficiaries
(Sec. 176) benefits. If he outlives the period,
no person benefits from the
SURETYSHIP PROPERTY insurance.
INSURANCE 6. Industrial Life - life insurance
Accessory contract Principal contract entitling the insured to pay
3 parties: surety, 2 parties: insurer premiums weekly, or where
obligor and oblige and insured premiums are payable monthly or
Credit Contract of oftener.
accommodation indemnity
Surety can recover Insurer has no such Mortgage Redemption Insurance
from principal right; only right of  A life insurance taken pursuant to a
subrogation
group mortgage redemption scheme by
Bond can be May be cancelled
the lender of money on the life of a
cancelled only with unilaterally either by
consent of obligee, insured or insurer on
mortgagor who, to secure the loan,
Commissioner or grounds provided by mortgages the house constructed from
court law the use of the proceeds of the loan, to
Requires No need of the extent of the mortgage indebtedness
acceptance of acceptance by any such that if the mortgagor dies, the
obligee to be valid third party proceeds of his life insurance will be
Risk-shifting device; Risk-distributing used to pay for his indebtedness to the
premium paid being device; premium paid lender assured and the deceased’s heirs
in the nature of a as a ratable
will thereby be relieved from paying the
service fee contribution to a
common fund unpaid balance of the loan. (Great
52
Pacific Life Assurance Corp. vs. Court of  The measure of indemnity in life or
Appeals, 316 SCRA 677) health insurance policy is the sum fixed
in the policy except when a creditor
LIABILITY OF INSURER IN CERTAIN insures the life of his debtor. (Sec. 183)
CAUSES OF DEATH OF INSURED IS THE CONSENT OF THE BENEFICIARY
1. Suicide NECESSARY TO THE ASSIGNMENT OF A
 Insurer is liable in the following cases: LIFE INSURANCE POLICY?
1. If committed after two years  It depends. If the designation of the
from the date of the policy’s beneficiary is irrevocable, the
issue or its last reinstatement; beneficiary’s consent is essential
2. If committed in a state of because of his vested right. If the
insanity regardless of the date of designation is revocable, the policy may
the commission unless suicide is be assigned without such consent
an excepted peril. (Sec. 180-A) because the beneficiary only has a mere
3. If committed after a shorter expectancy to the proceeds. (The
period provided in the policy Insurance Code of the Philippines
 Any stipulation extending the 2-year Annotated, Hector de Leon, 2002 ed.)
period is null and void.
2. At the hands of the law (E.g. by legal Cash Surrender Value
execution)  As applied to a life insurance policy,
 It is one of the risks assumed by the it is the amount the insured in case of
insurer under a life insurance policy in default, after the payment of at least 3
the absence of a valid policy exception. full annual premiums, is entitled to
(Vance,p.572 cited in de Leon, p. 107) receive if he surrenders the policy and
Note: Justice Vitug believes that death releases his claims upon it.
by suicide (if the insured is sane) or at
the hands of the law obviates against LIFE INSURANCE FIRE INSURANCE
recovery as being more in consonance
with public policy and as being implicit Contract of Contract of indemnity
under Section 87, ICP. (Pandect of investment not of
indemnity
Commercial Law and Jurisprudence,
Valued policy Open or valued policy
1997 ed. P. 191) May be transferred The insurable
3. Killing by the beneficiary or assigned to any interest of the
GENERAL RULE: The interest of a person even if he transferee or
beneficiary in a life insurance policy has no insurable assignee is essential
shall be forfeited when the beneficiary is interest
the principal accomplice or accessory in Consent of insurer is Consent of insurer
not essential to must be secured in
willfully bringing about the death of the
validity of the absence of waiver
insured, in which event, the nearest assignment
relative of the insured shall receive the Contingency that is Contingency insured
proceeds of said insurance if not contemplated is a against may or may
otherwise disqualified. (Sec. 12) certain event, the not occur
EXCEPTIONS: only uncertainty
being the time when
1. Accidental killing
it will take place
2. Self-defense A long-term May be cancelled by
3. Insanity of the beneficiary at the contract and cannot either party and is
time he killed the insured be cancelled by the usually for a term of
insurer
Beneficiary is under one yearis required to
Insured
 If the premiums paid came from
conjugal funds, the proceeds are no obligation to submit proof of his
prove actual actual pecuniary loss
considered conjugal. If the beneficiary is financial loss as a condition
other than the insured’s estate, the precedent to
source of premiums would not be collecting the
relevant. (Del Val v. Del Val, 29 Phil 534) insurance.
53
XXII. VARIABLE CONTRACT  The Insurance Commissioner has no

 Any policy or contract on either a jurisdiction to decide the legality of a
group or individual basis issued by an contract of agency entered into between
insurance company providing for benefits an insurance company and its agent. The
or other contractual payments or values same is not covered by the term “doing
thereunder to vary so as to reflect or transacting insurance business” under
investment results of any segregated Sec 2, ICP, neither is it covered by Sec.
portfolio of investment. 416 of the same Code which grants the
Commissioner adjudicatory powers
XXIII. INSURANCE COMMISSIONER (Philippine American Life Insurance Co.
 Main agency charged with the v. Ansaldo, 234 SCRA 509).
enforcement of the Insurance Code and
other related laws. 2. ADMINISTRATIVE/REGULATORY
 Functions: a. Enforcement of insurance laws
1. ADJUDICATORY/QUASI-JUDICIAL b. Issuance, suspension or
a. Exclusive original jurisdiction – revocation of certificate of
Any dispute in the enforcement of any authority
policy issued pursuant to Chapter VI c. Power to examine books and
(CMVLI). (Sec. 385, par. 2) records, etc.
b. Concurrent srcinal jurisdiction d. Rule-making authority
(with the RTC) – Where the maximum e. Punitive
amount involved in any single claim is
P100,000 (Sec. 416), except in case of
maritime insurance which is within the
exclusive jurisdiction of the RTC. (BP
129; admiralty & maritime jurisdiction)
 Where the amount exceeds
P100,000, the RTC has
jurisdiction.

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30

MEMORY AID IN COMMERCIALLAW

I. GENERAL CONCEPTS 7. Personal – each party having in view

MEMORY AID IN COMMERCIALLAW

 Most of the terms of the contract do e. For recovery of loss in excess of

MEMORY AID IN COMMERCIALLAW

received from the applicant the 5. Interest of the insured in the

MEMORY AID IN COMMERCIALLAW

VI. PARTIES TO INSURANCE CONTRACT beneficiary is the principal

MEMORY AID IN COMMERCIALLAW

MEMORY AID IN COMMERCIALLAW

STANDARD OR OPEN OR LOSS undertaking to indemnify the insured

CLAUSE CLAUSE collect premiums: Assumption of risk.

MEMORY AID IN COMMERCIALLAW

ENTITLEMENT OF INSURED TO RETURN

contract. (Sec. 74) a personal agreement between the

surrenders his policy before the consent of the insurer.

 Exceptions: policy based on the personal

c. life insurance policy consent of the insurer. (Paterson cited in

indivisible. thing insured does not transfer the

MEMORY AID IN COMMERCIALLAW

EXCEPTIONS: c. Such party concealing makes no

MEMORY AID IN COMMERCIALLAW

2. Representations – Factual untruth or non-fulfillment of which in

MEMORY AID IN COMMERCIALLAW

4. Conditions – Events signifying in its CANCELLATION OF NON-LIFE

MEMORY AID IN COMMERCIALLAW

 Incontestability only deprives the corresponding to the excess in value

DEFENSES BARRED 1. Person insured is the same;

MEMORY AID IN COMMERCIALLAW

insured. It is lawful and specifically reinsured under the contract. (Prof. De

MEMORY AID IN COMMERCIALLAW

to a peril not annuity, in which later than 90 days

MEMORY AID IN COMMERCIALLAW

Insurance Commissioner should be filed of the transportation system

MEMORY AID IN COMMERCIALLAW

PERILS OF THE PERILS OF THE 1. Negligence of the captain,

MEMORY AID IN COMMERCIALLAW

IMPLIED WARRANTIES 3. In the case of a voyage policy

MEMORY AID IN COMMERCIALLAW

MEMORY AID IN COMMERCIALLAW

ABANDONMENT a co-insurer of the difference between

MEMORY AID IN COMMERCIALLAW

 Prerequisites to recovery: 6. There must be a violation of a

HOSTILE FIRE FRIENDLY FIRE Option to rebuild clause

MEMORY AID IN COMMERCIALLAW

the insured acquires an interest in the “INTENTIONAL” vs. “ACCIDENTAL” AS

 In burglary, robbery and theft NO ACTION CLAUSE

based on torts. Furthermore, the public and private vehicles.

MEMORY AID IN COMMERCIALLAW

Method of coverage or dismounting from. That said vehicle

MEMORY AID IN COMMERCIALLAW

C. Cooperation Clause XXI. LIFE INSURANCE

MEMORY AID IN COMMERCIALLAW

MEMORY AID IN COMMERCIALLAW

XXII. VARIABLE CONTRACT  The Insurance Commissioner has no

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