The Insurance Code of the Philippines
GENERAL PROVISIONS Right of subrogation of insurer to rights of insured against
SEC. 1
Historical Origin of Insurance
1. Mutual insurance as old as society itself-
a. Insurance is based upon the principle of aiding
another from a loss caused by an unfortunate
event.
2. Origin of present day insurance to merchants of Italian
cities-
a. In its early forms, the law of insurance was
derived from the maritime law and, as such,
was part of the general law merchant, and
international in its character
3. Development of insurance in England-
a. Page 2
4. Development of insurance in the US
a. English decisions have little influence in the
US
5. Development of insurance in the Philippines
a. During the pre-Spanish times-mutual benefit
societies and fraternal associations were
organized for the purpose of rendering
assistance, in money or in kind, to their
members
b. Insurance, in its present concept, was first
introduced in the Philippines sometime in
1829when Lloyd’s of London appointed
Starcham, Murray & co., inc. as its
representative here. Sometime in 1939, the
Union Insurance Society of Canton appointed
Russel & Sturgis as its agent in Manila. The
business transacted in the Philippines then
was limited to non-life insurance. It was only in
1898 that life insurance was introduced in this
country with the entry of Sun Life Assurance of
Canada in the local insurance market.
The first domestic non-life insurance company,
the Yek Tong Lin Fire and Marine Insurance
Company, was organized on June 08, 1906,
while the first domestic life insurance
company, the Insular Life Assurance co., Ltd.,
was organized in 1910.
c. Social insurance was established in 1936, with
the enactment of C.A. no. 186 which created
GSIS which started its operations in 1937.
Followed much later in 1954 by RA 1161
which provided for the organization of SSS.
Sources of Insurance Law in the Philippines
1. During Spanish period- code of commerce and civil
code of 1889
2. During the American regime, act 2474(enacted on Dec.
11, 1914) otherwise known as the insurance act took
effect on July 1, 1915
3. Civil code of 1950, provisions in the old civil code and
insurance act were expressly repealed
4. PD 612 which ordained and instituted “The Insurance
Code” was promulgated and became effective on
Dec18, 1974.
5. PD 1460 consolidated all insurance laws into a single
code known as “the insurance code of 1978” which was
issued and took effect on June 11, 1978.
6. RA 10607 provided that all laws inconsistent with the
insurance code shall be deemed repealed.
Laws governing insurance
1. Insurance code of 1978
2. Civil code
3. Special laws
a. GSIS act
b. SSS act
4. Others
a. Property insurance law
b. RA 4898, Insurance to brgy officials
c. EO 250
d. RA 3591, insurance to bank deposits
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wrongdoer
1. Basis of right- Subrogation; the substitution of one
person in place of another with reference to a lawful
claim or right, so that he who is substituted succeeds to
the rights of the other in relation to a debt or claim,
including its remedies and securities.
2. Purpose of subrogation condition in policy- to make the
person who caused the loss, legally responsible for it
and at the same time prevent the insured from receiving
a double recovery from the wrongdoer and the insurer.
3. Right of subrogation applicable only to property
insurance- value of human life regarded as unlimited
4. Privity of contract or assignment by insured of claim not
essential
5. Loss or injury for risk must be covered by the policy to
entitle the insurer to subrogation.
6. The right of subrogation given to the insurer prevents
the insured from obtaining more than the amount of his
loss. It is a method of implementing the principle of
indemnity that is at the heart of all insurance.
7. The exercise of the right of subrogation is discretionary
upon the insurer.
Construction of the Insurance Code
When a statute has been adopted from some other state or
country and said statue has previously been construed by the
courts of such state or country, the statute is usually deemed to
have been adopted with the construction so given.
SEC. 2
Determination of the existence of the contract
1. Elements of the contract
a. Subject matter- refers to the thing insured
b. Consideration- premium paid by the insured
c. Object and purpose- transfer and distribution of risk
Nature and characteristics of an insurance contract
1. Consensual
2. Voluntary
3. Aleatory
4. Executed as to the insured after the payment of the
premium, and executory on the part of the insurer in the
sense that it is not executed until payment for a loss.
5. Conditional
6. Contract of indemnity
7. Personal- between the insurer and insured
Distinguishing elements of the contract of insurance.
1. The CONTRACT OF INSURANCE made between the
parties usually called the insured and the insurer, is
distinguished by the presence of five elements
a. The insured possesses an interest of some
kind susceptible of pecuniary estimation,
known as insurable interest
b. The insured is subject to a risk of loss through
the destruction or impairment of that interest
by the happening of designated perils
c. The insurer assumes that risk of loss
d. Such assumption of risk is part of a general
scheme to distribute actual losses among a
large group or substantial number of persons
bearing similar risk
e. As consideration for the insurer’s promise, the
insured makes a ratable contribution called
“premium” to a general insurance fund.
Economic effects of the transfer and distribution of risk
1. Benefit to society as a whole- transactions beneficial to
parties
2. Undesirable effects- the moral hazard; the perverse
effect of increasing the probability of loss
3. Problem regarding measurement of amount of risk
transferred-
4. Sharing by insured of some responsibility for the risk- to
deal with the moral hazard phenomenon in most
insurance transactions, the insured retains some
responsibility for the risk through either a deductible or
coinsurance

a. With deductible, the insured bears any loss up
to some stated amount with the insurer
bearing the rest.
b. With coinsurance, the insured bears some
stated percentage of the loss regardless of its
amount, with the insurer bearing the rest.
Fields of insurance
1. In general
a. Social
b. Voluntary
2. Social (government) insurance
3. Voluntary (private) insurance
a. Commercial
i. Personal insurance- based on the
nature of the perils; that is, whether
they are more directly concerned with
losses due to loss of earning power of
a person.
ii. Property insurance
b. Cooperative insurance
c. Voluntary government insurance
Classifications of contracts of insurance
1. In general- marine, fire, life, and accident
2. Three main classifications
a. Insurance against loss or impairment of
property interest- which may be either in
existence or merely expected; that is, present
rights or profit yet to accrue
b. Insurance against contingent liability to make
payment to another
3. Modernized classification
a. Marine
b. Property
c. Personal
d. Liability
Classification by interest protected
1. First-party versus third-party insurance- in the first party
insurance; the contract between the insurer and the
insured for a loss suffered directly by the insured.
a. Property insurance, is first party insurance, the
damage to property is an immediate, direct
diminution of the insured’s assets. The
proceeds are paid to the insured to redress the
insured’s loss.
b. Liability insurance, on the other hand is
sometimes described as third party insurance
because the interests protected by the contract
are ultimately those of third parties injured by
the insured’s conduct.
2. All- risk versus specified risk
a. Distinction- all risk insurance reimburses the
insured for damage to the subject matter of the
policy from all causes except those specifically
excepted in the policy. Specified risk insurance
covers damage to the subject matter of the
policy only if it results from specifically
identified causes listed in the policy.
Classification under the code
Under the insurance code, insurance contracts are classified
according to the nature of the risk involved as follows:
1. Life insurance contracts which may be:
a. Individual life
b. Group life
c. Industrial life
2. Non-life insurance contracts which may be
a. Marine
b. Fire
c. Casualty
3. Contracts of suretyship or bonding
Construction of insurance contracts
1. Where there is ambiguity
- As a general rule, contracts of insurance are to
be construed or interpreted in favor of the
insured and strictly against the insurer
resolving all ambiguities against the latter
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The Insurance Code of the Philippines
- Should be so interpreted as to carry out the
purpose for which the parties entered into the
contract
- Insurance is a contract of adhesion
2. Where terms are clear
- The terms of an unambiguous insurance policy
cannot be enlarged or diminished by judicial
construction since the court cannot make a new
contract for the parties where they themselves
have employed express and unambiguous words
Functions of insurance
1. Principal function
a. The main function of insurance is risk bearing.
Financial losses of the few are equitably
distributed over the many out of a fund
contributed by all.
2. Subsidiary functions
a. Stimulates business enterprise
b. Encourages business efficiency and enterprise
c. Promotes loss prevention
d. Encourages savings
e. Solves social problems
3. Indirect functions
a. Investment of funds
b. Use of reserve funds
c. Effect on prices
d. As a basis of credit.
CHAPTER I. – THE CONTRACT OF INSURANCE
TITLE 1 – WHAT MAY BE INSURED
SEC. 3
REQUISITES of a contract of insurance
1. A subject matter in which the insured has an insurable
interest
2. Event or peril insured against which may be any (future)
contingent or unknown event, past or future, and a
duration for the risk thereof
3. A promise to pay or indemnify in a fixed or
ascertainable amount
4. A consideration for the promise, known as the
“premium”
5. Meeting of the minds of the parties upon all the
foregoing essentials
Of course, the parties must be competent to enter into the
contract
Subject matter of contract of insurance
1. In general- anything that has an appreciable pecuniary
value
2. Property insurance- both persons and property may be
the subject of insurance, but the term “subject matter’ is
ordinarily used in reference to the insurance of property.
3. Life, health, and accident insurance- person becomes
the subject of insurance
4. Casualty insurance-against perils which may affect the
person and/or property of the insured and give rise to
liability on his part to pay damages to others, the
subject matter is the risks involved in its use, or the
insured’s risk of loss or liability, that he may suffer loss
or be compelled to indemnify for the loss suffered by a
third person
Event or peril insured against
The contingency or unknown event must be such that its
happening will
1. Damnify or cause loss to a person having an insurable
interest or
2. Create liability against him.
In a contract of insurance, the insurer is liable for a fortuitous
event if it is the event or peril insured against and is the
proximate cause of the loss.

Insurance by a married woman
▪ A married woman may take out an insurance oh her life
or that of her children without the consent of her
husband or that her of her husband, she having an
insurable interest
▪ Also on her paraphernal or separate property, or on
property given to her by her husband
Insurance by a minor
▪ A contract of insurance entered into by a minor is not
entirely void but is merely voidable (valid until annulled
by in a proper action in court by the minor or his legal
representative
▪ If the contract is not disaffirmed by the minor, the
insurer cannot escape liability by pleading minority as a
defense because “persons who are capable cannot
allege the incapacity of those whom they
contracted”
▪ If the contract is fair and no fraud or undue influence
was practiced by the insurer, the minor cannot recover
the premiums paid, if he cannot return the benefits
received
▪ The result is that an insurance company contracting
with a minor is bound by the contract; the minor
ordinarily is not
▪ Where the minor is insured or a beneficiary under a
contract of life, health, or accident insurance, the
judicial or natural guardian, as the case may be, may
exercise in behalf of the minor any right under the policy
Ownership of insurance policy
1) Ownership divided between insured and beneficiaries
▪ Ownership of a modern life insurance policy is
divided between the insured who insured his
own life and the beneficiary
▪ The insured being the owner of its various
marketing and sales features, such as the loan
and cash surrender values, and the beneficiary
being the owner of a promise to pay the
proceeds at the death of the insured subject to
the insured’s right of revocation
2) Interest of insured and beneficiary-One who takes a
policy of insurance on his own life becomes, in so
doing, a party to the contract, even though the
benefits of the insurance are to accrue to someone else
known as the beneficiary. Such contract remains his, at
least, in part, and may be maintained by suit, if
necessary, for the protection of those in whose favor it
is made. In general, the nature of the interest of the
beneficiary depends on the terms of the insurance
contract, including the existing statutes by which the
insurer and its policyholders are bound
3) Transfer of rights to minor insured upon death of
original owner of policy- Upon death of the original
owner of a policy of insurance taken out by him on the
life or health of a person, all rights, title and interest in
the policy shall automatically vest in the latter unless
otherwise provided for in the policy. This contemplates
a case where X took a life insurance on the life or
health of Y, appointing himself (X) as beneficiary, and
later, X died.
SEC. 4
Concept of lottery
▪ “Lottery” extends to all scheme for the distribution of
prizes by chance, such as policy playing, gift exhibition,
prize concerts, raffles at fairs, and various forms of
gambling
▪ Elements of lottery: 1) consideration; 2) prizes; and 3)
chance
▪ There is consideration of price paid if it appears that the
prizes offered by whatever name they may be called
came out of the fund raised by the sale of chances
among the participants in order to win the prizes
▪ If the prizes do not come out of the fund or contributions
by the participants, no consideration has been paid and
consequently, there is no lottery
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The Insurance Code of the Philippines
▪ The failure to win a prize could not damnify or create
liability against him (e.g. sweepstake holder)
Contract of insurance not a wagering contract
A contract of insurance is a contract of indemnity and is not
a wagering or gambling contract. While it is based on a
contingency, it is not a contract of chance and is not used
for profit. The very purpose of insurance is the
reimbursement of the holder of insurance for actual loss
suffered from specified risks.
The distinctions are the following:
1) In a gambling contract, the parties contemplate
gain through mere chance, while in a contract of
insurance, the parties seek to distribute possible
loss by reason of mischance
2) The gambler courts fortune, while the insured
seeks to avoid misfortune
3) The contract of gambling tends to increase the
inequality of fortune, while the contract of insurance
tends to equalize fortune
4) The essence of gambling is this: whatever one
person wins from a wager is lost by the other
wagering party. In a contract of insurance, what
one insured gains is not at the expense of another
insured
5) As soon as a party makes a wager, he creates risk
of loss to himself where no such risk existed
previously. On the other hand, the purchase of
insurance does not create a new and, therefore,
non-existing risk of loss to the purchaser
Similarity between insurance and gambling-one party
promises to pay a given sum to the other upon the occurrence of
a given future event, the promise being conditioned upon the
payment of, or agreement to pay a stipulated amount by the
other party to the contract
SEC. 5
All kinds of insurance are subject to the provisions of this
chapter as far as the provisions can apply
TITLE 2 - PARTIES TO THE CONTRACT
SEC. 6
Parties to a contract of insurance
1) The insurer or the party who assumes or accepts the
risk of loss and undertakes for a consideration to
indemnify the insured or to pay him a certain sum on
the happening of a specified contingency or event
2) The insured or the second party to the contract, the
person in whose favor the contract is operative and who
is indemnified against, or is to receive a certain sum
upon the happening of a specified contingency or event.
He is the person whose loss is the occasion for the
payment of the insurance proceeds of the insurance to
someone else.
The insured is not however, always the person to whom
the proceeds are paid. This person may be the
beneficiary designated in the policy. It is also possible
that the insured may assign the proceeds of the
insurance to someone else.
It is said that the relation between the insurer and the
insured is that of a contingent debtor and creditor,
subject to the conditions of the policy and not that of
trustee and ceste que trust.
Terms used
Insured-owner of the property insured or the person whose life
is the subject of the contract of insurance
Assured-person whose benefit the insurance is granted
Beneficiary-person designated by the terms of the policy as the
one to receive the proceeds of the insurance
Who may be an insurer
1) Foreign or domestic insurance company or corporation-
before they can transact business, they must first obtain
a certificate of authority for that purpose from the

Insurance Commission who may refuse to issue such
certificate of authority, if in his judgment “such refusal
will best promote the interests of the people of this
country”
2) Individual, partnership, or association-only requirement:
he holds a certificate of authority from the Insurance
Commissioner. Is “possessed of the capital assets
required of an insurance corporation doing the same
kind of business in the Philippines and invested in the
same manner (sec 190-192)
a) Insurance Corporation-formed or organized to save
any person or persons or other corporations
harmless from loss, damage, or liability arising from
any unknown or future or contingent event, or to
indemnify or to compensate any persons or
persons or other corporations for any such loss,
damage, or liability, or to guarantee the
performance of or compliance with contractual
obligations or the payment of debts of others
b) Insurer and insurance company-include all
individuals, partnerships, associations, or
corporations, including GOCC or entities engaged
as principals in the insurance business, excepting
mutual benefit associations. Unless the context
otherwise requires, the terms shall also include
professional reinsurers defined in Section 288
SEC. 7
Capacity of party insured
1) Natural person- 2 essential requisites must be present:
a) he must be competent to make a contract; b) he
must possess an insurable interest in the subject of the
insurance; c) the insured must not be a public
enemy(aaplies to juridical persons)
2) Juridical peson-they may take out insurance on
property owned by it
Public enemy; a nation with whom the Philippines is at war and it
includes every citizen or subject of such nation
Effect of war on existing insurance contracts
1) Where parties rendered enemy aliens-all intercourse
between citizens of belligerent powers which is
inconsistent with a state of war is prohibited
a) With respect to property insurance-it ceases to be
valid and enforceable as soon as insured becomes
a public enemy
b) With respect to life insurance- abrogated by reason
of nonpayment of premiums
2) Where loss occurs after end of war-it does not revive
the contract
SEC. 8
Insurable interest of mortgagee and mortgagor
1) Separate insurable interest
2) Extent of insurable interest of mortgagor-to the extent of
its value
3) Extent of insurable interest of mortgagee-to the extent
of the debt secured
4) Extent of amount of recovery-mortgagor cannot recover
beyond the full amount of his loss; mortgagee in excess
of the credit at the time of the loss nor the value of the
property mortgaged
SEC. 9
A distinction must be made between the assignment or transfer
a) of the policy itself which transfers the rights to the contract to
another insured, b) of the proceeds of the policy after a loss has
happened, which involves a money claim under, or a right of
action on, the policy, and c) of the subject matter of the
insurance.
TITLE 3 INSURABLE INTEREST
SEC. 10
1) Pecuniary in nature-he has a relation or connection with
or concern in it that he will derive pecuniary or financial
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The Insurance Code of the Philippines
benefit or advantage from its preservation and will
suffer pecuniary loss or damage from its destruction,
termination, or injury by the happening of the event
insured against.
2) Exception-in life insurance, the expectation of benefit
from the continued life of that person need not
necessarily be of a pecuniary nature.
Two general classes of life policies
1) Insurance upon one’s life-an application for insurance
on one’s own life does not usually present an insurable
interest question
2) Insurance upon life of another-the person applying for
the insurance of another must have an insurable
interest in the life of that person
Insurable interest in one’s own life
1) Insurance taken out by insured on his life for the benefit
of another-The presence of insurable interest is really
required only as evidence of the good faith of the
parties
2) When the insurance is regarded a wagering policy
Evidence of a wagering policy is usually in such facts
as:
a) That the original proposal to take out insurance
was that of the beneficiary
b) That the premiums are paid by the beneficiary
c) That the beneficiary has no interest, economic or
emotional, in the continued life of the insured
Insurable interest of a person in life of another under a legal
obligation to former
1) Related by contract or commercial relation
2) Risk that performance of obligation might be delayed or
prevented
Insurable interest in life of person upon which an estate or
interest depends
It means that one may insure the life of a person where the
continuation of the estate or interest vested in him who takes the
insurance depends upon the life insured
SEC. 11
Beneficiary defined
1) Referring to the person who is named or designated in
a contract of life, health or accident insurance as the
one who is to receive the benefits which become
payable, according to the terms of the contract, upon
the death of the insured.
2) Those persons, whether natural or juridical, who,
though not parties to the contract, are mentioned in it as
the intended recipients of the proceeds or benefits of
the insurance if the insured risk occurs.
3) Those who, upon a proper basis of insurable interest,
secure insurance for their own benefit upon the lives of
others.
Kinds of beneficiary
1) Insured himself-Such a person is thus an immediate
party to the contract and is ordinarily called the assured
2) Third person who paid the consideration
3) Third person through mere bounty of insured
Designation of beneficiary
1) Children
2) Husband; wife or widow
3) Husband and children; wife and children
4) Family
5) Heirs or legal heirs
6) Estate or legal representative of the deceased
SEC. 12
Nearest relatives of the insured-In the order of enumeration,
they are the following:
a) The legitimate children;
b) The father and the mother, if living;
c) The grandfather and grandmother, or ascendants
nearest in degree, if living;
d) The illegitimate children;

e) The surviving spouse; and
f) The collateral relatives, to wit:
1) Brothers and sisters of the full blood;
2) Brothers and sisters of the half-blood; and
3) Nephews and nieces
g) In default, the State shall be entitled to receive the
insurance proceeds
SEC. 13-17
*Please read book as it gives examples to the provisions
SEC. 18
1) Principle of indemnity applicable
2) Doctrine of waiver or estoppel not applicable-This
doctrine cannot be invoked since the public has an
interest in the matter independent of the consent or
concurrence of the parties.
SEC. 19
Time when insurable interest must exist
1) When insurance takes effect and loss occurs-Insurable
interest in property must exist at two (2) distinct times:
on the date of the execution of contract of insurance
and on the date of the occurrence of the risk insured
against, otherwise, the policy is void.
2) When insurance takes effect-In life insurance, the
insurable interest requirement is satisfied at the time the
policy is procured or took effect, even if it has ceased to
exist at the time of the insured’s death.
3) When liability attaches-It necessarily exists when the
liability of the insured to a third party attaches
4) Need not exist during intervening period
Existence of insurable interest when risk attaches is sufficient
Insurable interest in life and property distinguished
1) As to extent of insurable interest-Insurable interest in
life is unlimited; in property, insurable insurance is
limited to the actual value of the interest thereon.
2) As to time when insurable interest must exist-In life
insurance, it is enough the insurable interest exists at
the time the policy takes effect and need not exist at the
time of the loss; in property insurance, it is necessary
that insurable interest “must exist when insurance takes
effect and when the loss occurs, but need not exist at
the meantime.
3) As to expectation of benefit derived-In life insurance,
the expectation of benefit to be derived from the
continued existence of life need not have any legal
basis whatever. In property insurance, an expectation
benefit, to be derived from the continued existence of
the property insured, however likely and morally certain
of realization it may be, will not afford a sufficient
insurable interest unless that expectation has a basis of
legal right. If such legal basis exists, an expected
benefit however remote, constitutes an insurable
interest
SEC. 20
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. However, this has
exceptions which will be discussed in the next sections.
SEC. 21-24
Please read book as it discusses examples only (p. 129-134)
SEC. 25
Stipulations prohibited in an insurance policy (void)
a. Payment of loss whether the person insured has or has not
any interest in the subject matter of the insurance
– mere wager policy or contract and is void.
Wager policy - pretended insurance where the insured has no
interest in the thing insured and can sustain no loss by the
happening of the misfortunes insured against.
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The Insurance Code of the Philippines
Exn: section 181 on life insurance
b. Policy shall be received as proof of insurable interest
– WON insurable interest exists does not depend upon
the contract of insurance of the stipulations.
Defense of absence of insurable interest is available only to the
insurer being the only party who has legitimate interest in raising
such defense.
Wagering or gaming policies void.
A contract of insurance is void for illegality unless the insured
has an insurable interest in the subject matter insured.
a. A mere bet upon a future event
- disapproved or condemned
- against public policy
- detrimental to society
b. Non-existence of loss from occurrence of event
- wagers suffer no loss but profit from it from the
occurrence of the contingent event.
TITLE 4 - CONCEALMENT
SEC. 26
Four primary concerns of the parties to an insurance
contract
1. Correct estimation of the risk
- enables the insurer to decide if he is willing to assume it
and the rate of the premium
2. Precise delimitation of the risk
- determines the extent of the contingent duty to pay
undertaken by the insurer
3. Such control of the risk after it is assumed
- enable insurer to guard against the increase of the risk
because of change in conditions
4. Determining whether a loss occurred and if so, the amount of
such loss.
Devices for ascertaining and controlling risk and loss
1. Devices of concealment and representations
- enabling the insurer to secure the same information
with respect to the risk that was possessed by the
applicant for insurance
- capable of equally forming a just estimate of quality
2. Warranties and conditions
- affirmative – dealing with conditions existing at the
inception of the contract
- exceptions – making a more definite and certain the
general words used to describe the risk the insurer
undertook to bear.
2 parts of general descriptions:
a. Designation of the specific property interest to be covered
b. Specification of such of the perils to which that property
interest would be exposed
3. Exceptions
- similar function in making more definite the coverage
indicated by the general description of the risk by
excluding certain specified risks that otherwise would
have been included under the general language
describing the risks assumed.
4. Executory Warranties and conditions
- undertaking that certain conditions should or should not
exist in the future, are used to enable the insurer to
rescind the contract in case subsequent events
increased the risk to such an extent that he is no longer
willing to bear.
- Exceptions also used for the purpose of controlling risks
5. Conditions precedent
- Various conditions inserted in the policy to protect the
insurer against fraudulent claims of loss
- in ascertaining amount of loss, insurer inserts various
conditions providing for appointment of appraisers, and
for arbitration if no agreement can be reached.
Concealment defined.
Concealment – neglect to communicate that which a party
knows and ought to communicate.
- Intentional withholding by the insured of any fact
material to the risk

Requisites of concealment
1. A party knows the fact which he neglects to communicate or
disclose to the other;
2. Such party concealing is duty bound to disclose such fact to
the other;
3. Such party concealing makes no warranty of the fact
concealed; and
4. The other party has not the means of ascertaining the fact
concealed.
SEC. 27
Effect of concealment
1. By the insured
- As a rule, failure on the party insured to disclose
conditions affecting the risk, of which he is aware,
makes the contract voidable at the insurer’s option.
- Contracts uberrimae fidae – utmost good faith
2. By the insurer
- Dominant bargaining position carries with it stricter
responsibility
Duty of utmost good faith is breached by concealment or
misrepresentation.
Proof of fraud in concealment
Insurer need not prove fraud in order to rescind a contract on
the ground of concealment.
1. Existence of fraud not required – The duty to communicate is
independent of the intention and is violated by the fact of
concealment, even when there is no design to deceive.
Reason: Impossible to show actual fraud except in extreme
cases.
Basis and criterion: misleads or deceives the insurer into
accepting the risk, or accepting it at the rate of premium agreed
upon.
Rules as to marine insurance
a. United States
b. Philippines - Fraud is not essential (rule applicable to every
kind of insurance)
SEC. 28
Matters that must be communicated even in the absence of
inquiry
Duty of each party to a contract to communicate in good faith all
the facts within his knowledge only when:
a. they are material to the contract
b. the other has not the means of ascertaining the said facts
c. as to which the party with the duty to communicate makes no
warranty
TEST: If the applicant is aware of the existence of some
circumstances which he knows would influence the insurer in
acting upon his application, good faith requires him to disclose
that circumstance, though unasked.
Effect of failure to insurer to verify
The effect of material concealment cannot be avoided by the
allegation that the insurer could have known and discovered the
illness or disease which the insured concealed.
SEC. 29
When fraudulent intent necessary
Under Sec 29, the non-disclosure must be intentional and
fraudulent in order the contract may be rescinded. The omission
is on the part of the insured and the party entitled to rescind is
the insurer.
SEC. 30
Matters made the subject of special inquiries material
General Proposition: Matters made the subject of inquiry must be
deemed material, even though otherwise they might not be so
regarded and the insured is required to make full and true
disclosure to the questions asked.
Failure of an apparently complete answer to make full disclosure
– avoid the policy
Answer incomplete in its face – will not defeat the policy in the
absence of bad faith
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The Insurance Code of the Philippines
When there is no duty to make disclosure
a. Matters known to, or right to be known by insurer, or of which
he waives disclosure
b. Risks excepted from the policy
c. Nature or amount of insured’s interest
SEC. 31
Determination of materiality
a. Test of materiality: The effect of knowledge of the fact in
question would have on the making of the contract.
It is sufficient if the knowledge of it would influence the parties in
making the contract.
b. From the standpoint of the insurer – a fact is material if the
knowledge of it would have a “ probable and reasonable
influence upon the insurer in assessing the risk involved and in
making or omitting further inquiries, and cause him either to
reject the risk or accept it only at a higher premium rate or on
different terms though that fact may not even remotely contribute
to the contingency upon which the insurer would be liable, or in
any wise affect the risk.
c. When concealment regarded as intentional – the nature of the
facts not conveyed to the insurer may be such that the failure of
the insured to communicate must have been intentional rather
than inadvertent.
d. Where fact concealed not material – Insured not guilty
Time when information required
a. After contract has become effective - no duty resting upon the
insured to disclose even though the policy is yet to issue
Concealment must take place at the time the contract is entered
into in order that the policy may be avoided and not afterwards.
Duty of disclosure ends with the completion and effectivity of
the contract.
b. Before contract becomes effective – there is a duty to disclose
to insurer
SEC. 32
Matters each party bound to know.
The insured need not communicate public events where the
sources of information being equally open to the insurer.
SEC. 33
Right to information may be waived.
- expressly or impliedly
SEC. 34
Disclosure of nature and extent of interest of insured
Refer to Section 51
There is no need to disclose the interest in the property insured if
it is absolute.
SEC. 35
Disclosure of judgment upon the matters in question.
The duty to disclose is confined to facts. There is no duty to
disclose mere opinion, speculation, intention or expectation.
TITLE 5 - REPRESENTATION
SEC. 36
A representation may be oral or written.
Representation defined.
Representation is a statement made by the insured at the time
of, or prior to, the issuance of a policy, relative to the risk to be
insured, as to an existing or past fact or state of facts, or
concerning a future happening, to give information to the insurer
and otherwise induce him to enter into the insurance contract.
Misrepresentation defined.
Misrepresentation in insurance is a statement:
a. as a fact of something which is untrue
b. which the insured stated with knowledge that it is untrue and
with an intent to deceive, or which he states positively as true

without knowing it to be true and which has a tendency to
mislead
c. where such fact in either case is material to the risk
- insurance contract is voidable at the option of the insurer
- active form of concealment
Form and nature of representation.
a. Information given concerning risk – it is the duty of the person
applying to give the insurer all such information concerning the
risk as will be of use in estimating the character and in
determining WON to assume it, and the terms on which it will
accept.
- may be given orally or written
b. Forms basis of contract – describes, marks out, and defines
the risk assumed.
c. Intended as collateral inducements – communicated in any
manner whatsoever that is intelligible but not part of the contract
unless expressly made so.
SEC. 37
Time when representation may be made.
- precede the execution of the contract
- insurer must be induced by the misrepresentation
A misrepresentation may be performed after the issuance of the
policy.
SEC. 38
Construction of representations.
Representations - liberally in favor of the insured and are
required to be only substantially true
Warranties – must be literally true or the contract will fail
SEC. 39
Kinds of representation
a. oral or written
b. made at the time of issuing the policy or before
c. affirmative or promissory
Affirmative representation – any allegation as to the existence
or non-existence of a fact when the contract begins.
Promissory representation – any promise to be fulfilled after
the contract has come into existence or any statement
concerning what is to happen during the existence of the
insurance.
Nature of promissory representations.
2 senses:
1. It is used to indicate a parol or oral promise made in
connection with the insurance but not incorporated in the policy.
- non-performance of such promise cannot be shown by the
insurer in defense to an action on the policy, but proof that
promise was made with fraudulent intent will serve to defeat
insurance
2. An undertaking by the insured, inserted in the policy, but not
specifically made a warranty.
- merely an executor term of the contract and not properly a
representation.
A promissory representation is substantially a condition or a
warranty.
Effect on policy of expressions of opinion or expectation.
a. Good faith or bad faith of the insured - a representation of the
expectation, intention, although false, will not avoid a policy of
insurance if there is no actual fraud in inducing the acceptance of
the risk, or its acceptance at a lower rate of premium.
b. Liability of insurer – To avoid liability, the insurer must prove
both materiality of the insured’s opinion and the latter’s intent to
deceive. If representation is one of fact, all the insurer need to
prove is its falsity and materiality.
When representation deemed a mere expression of opinion.
An oral representation as to a future event or condition, over
which insured has no control, will be deemed a mere expression
of opinion which avoids the contract only if made in bad faith.
SEC. 40
Effect of representation on express provisions of policy
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The Insurance Code of the Philippines
Representation is not part of the contract but only collateral
inducement to it. It may, however, qualify an implied warranty.
SEC. 41
When representation may be altered or withdrawn
Representation, not part of the contract, may be altered or
withdrawn before the contract takes effect but not afterwards
since the insurer has already been led by the representation in
assuming the risk.
SEC. 42
Time to which representation refers
Representations refer only to the time of making the contract.
There is no false representation if it is true at the time the
contract takes effect although it was false at the time it was
made and vice versa. There is false representation if it is true at
the time it was made but false at the time the contract takes
effect.
SEC. 43
Effect where information obtained from third persons
1. Agent of the insured – duty is in the ordinary course of
business to communicate such information to his principal, and it
was possible for the agent under such circumstances in the
exercise of due diligence to have made such communication
before the making of the contract, the insured will be liable for
the truth.
2. Agent of insurer – same principle
SEC. 44
When representation deemed false.
Representations – not required to be literally true; only
substantially true.
Policy to be avoided – representation must be false in substantial
and material respect
Substantially true – true in every particular material to the risk, or
is so far true that the conduct of the insurer would not have been
different if the exact truth had been alleged.
Marine insurance – substantial truth is not sufficient. Insured is
required to state the exact and whole truth in relation to all
matters.
Construction if representation as affirmative
A representation written in the policy will rather be construed,
when possible, as an affirmative representation of a present fact
in order to save the policy from avoidance.
SEC. 45
Effect of falsity of representation
Fraud or intent to misrepresent facts is not essential to entitle the
injured party to rescind a contract of insurance on the ground of
false representation.
To be deemed false, it is sufficient if the representation fails to
correspond with facts in a material point.
Effect of collusion or fraud of agent of insurer
1. Collusion with insured – collusion between the insured and the
agent in misrepresenting the facts will vitiate the policy even
though the agent is acting within the scope of its authority.
If there is collusion, agent ceases to represent his principal and
represents himself; so insurer is not estopped from avoiding
the policy.
2. Principal of agent – The insurer is liable when its agent writes
a false answer into the application without knowledge of insured.
SEC. 46
Materiality of representation
1. Test of materiality - solely by the probable and reasonable
influence of the facts upon the party to whom the representation
is made, in forming his estimates of the disadvantages of the
proposed contract or in making his inquiries.
2. Materiality, judicial question – the matter misrepresented must
be of that character which the court can say would reasonably
affect the insurer’s judgment.
 The Insurance Code of the Philippines
Concealment and misrepresentation compared. a. Person taking the insurance lacked insurable interest as
Concealment Misrepresentation required by law;
Role of Insured Withholds makes erroneous b. That the cause of death of the insured is an excepted risk;
information of statements of facts c. That the premiums have not been paid;
material facts with the intent of d. That the conditions of the policy relating to military or naval
from insurer inducing the insurer service have been violated;
to enter into the e. That the fraud is of a particularly vicious type;
insurance contract f. That the beneficiary failed to furnish proof of death or to
Materiality Same rules Sec 36 - 48 comply with any condition imposed by the policy after the loss
as misrep happened; or
same as Sec 36 - 48 g. That the action was not brought within the time specified.
misrep and
insurer has
right to rescind TITLE 6 - THE POLICY
Injured party Entitled to Entitled to
rescind rescind SEC. 49-50
Rules as to insurer Same rules as Same rules as
insured insured Policy of insurance defined.
Sec 49 defines policy of insurance.
- written document embodying the terms and stipulations of the
SEC. 47 contract of insurance between the insured and the insurer.

Applicability of Sections 26 to 48. Signature of the parties

Sections 26 to 35 – concealment
Sections 36 to 48 – representation
= apply to original formation and modification of the contract
during the time it is in force
SEC. 48
When an insurer must exercise his right to rescind.
1. In general – A contract of insurance may be rescinded on the
ground of concealment, or false representation, or breach of
warranty.
2. In non-life policy – Right to rescind must be exercised prior to
the commencement of an action on the contract. The insurer is
no longer entitled to rescind a contract of insurance after the
insured has filed an action to collect the amount of the insurance.
3. In life policy – defenses mentioned in the second paragraph
are available only during the first two (2) years of a life
insurance policy.
Incontestability of life policies
Incontestable clauses
– stipulates that the policy shall be incontestable after a stated
period.
- contractual statute of limitations on certain defenses that may
be raised by the insurer.
Incontestability – after the requisites are shown to exist, the
insurer shall be stopped from contesting the policy or setting up
the defense, except as is allowed, on the ground of public policy.
Theory and object of incontestable clause
a. As to insurer – reasonable opportunity to investigate the
statements of the applicant makes in procuring his policy and
that after a definite period, the insurer shall not be permitted to
question the validity of the policy, either affirmative action or by
defense to a suit brought on the life policy by the beneficiary.
b. As to insured – greatest possible assurance to a policyholder
that his beneficiaries would receive payment without question as
to validity of the policy or existence of the coverage once the
period of contestability passes.
Requisites for incontestability
1. The policy is a life insurance policy.
2. Payable on the death of the insured.
3. It has been in force during the lifetime of the insured for at
least 2 years from its date of issue or of its last reinstatement.
Effect when policy becomes incontestable
Insurer cannot refuse to pay the policy by claiming that:
1. Policy is void ab initio (voidable); or
2. It is rescissible by reason of fraudulent concealment, not
matter how patent or well-founded; or
3. It is rescissible by reason of the fraudulent misrepresentations
by insured or agent.
Defenses not barred by incontestable clause
Insurer may still contest the policy on any of the ff grounds:
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-signed only by the insurer or his duly authorized agent.
The standard practice is to have the prospective insured fill out
and sign an application prepared by the insurer.
Policy controls terms of insurance contract
1. Measure of insurer’s liability – terms constitute the measure of
the insurer’s liability, and in order to recover, the insured must
show himself within the terms
2. Presence of requisites for validity – to create enforceable
agreement, all requisites for necessary for validity must be
present.
3. Compliance of insured with conditions of policy – The
compliance by the insured with the terms of the policy is a
condition precedent to the right of recovery.
Policy, a contract of “adhesion”
1. Terms drafted and imposed by insurer – A policy of insurance
is a contract of “adhesion,” par excellence.
“Adhesion contract” – description by which the contract is
formed: one party having superior bargaining power imposes its
choice of terms on the other party.
2. Ambiguity resolved against insurer – Where the language
used in an insurance contract or application is such as to create
ambiguity, it should be resolved liberally in favor of the
insured and strictly against the party responsible (insurer).
(also applies to suretyship agreements)
Cardinal principle of law that forfeitures are not favored and that
any construction which would result in the forfeiture of the policy
benefits for the person claiming thereunder will be avoided if it is
possible to construe the policy in a manner which would permit
recovery.
3. When terms contract are clear – there is no room for
construction and cannot be enlarged or diminished by judicial
construction.
Policy different from contract itself
1. Written instrument evidencing the contract – The policy is the
formal written instrument evidencing the contract of insurance
entered into between the insured and the insurer. It is the LAW
between the parties.
2. Form thereof previously approved by Insurance Commissioner
– generally required in standard forms.
Form of contract of insurance
- evidenced by electronic form or by writing
- policy must be in printed form under the code
- any word, phrase, clause, mark, sign, symbol, signature,
number or word necessary to complete the contract shall be
written on the blank space provided.
In case of conflict, the written portion prevails.
Perfection of insurance contract
The assent or consent of a party, under the law, is manifested by
the meeting of the offer and the acceptance upon the thing and
the cause which are to constitute the contract.
1. Acceptance of application – if application has not been either
accepted or rejected, there is still no contract yet as it is merely
an offer or proposal.

2. Compliance with conditions precedent – parties may impose
additional conditions precedent to the validity of the policy as a
contract as they see fit. Until the conditions are fulfilled, the
policy is of no binding effect.
Binding slip or binding receipt – merely a provisional or
temporary insurance contract and to be binding only upon
compliance with said conditions
3. Cover notes – may be issued to bind the Insurance
temporarily pending the issuance of the policy. Coverage can
then begin depending upon the terms.
Offer and acceptance in insurance contract
Applicant – usually makes the offer to the insurer through an
application for insurance which is usually attached to policy and
made a part of the insurance contract.
a. In property and liability insurance – insured who technically
makes an offer to insurer, who accepts, rejects, or makes a
counter-offer.
b. In life and health insurance – depends upon whether the
insured pays the premium at the time he applies for insurance.
• If he does not pay the premium – application is
considered an invitation to insurer to make an offer,
which he must accept before the contract goes into
effect.
• If he pays the premium with application, his application
is considered an offer.
• Life and health insurance agents do not have the
authority to bind immediately the insurers they
represent. Instead, they issue binding receipt
(conditional acceptance by insurer) which makes the
coverage effective on
o Date of application or
o Date of medical examination
If the offer was made by the insured, a policy strictly issued in
accordance with the offer is an acceptance that perfects the
contract.
Importance of delivery of policy
Delivery is the act of putting the insurance policy – the physical
document – into possession of the insured.
1. Process of forming a contract – delivery policy is important in
at least 2 ways:
a. Evidence of the making of a contract and of its terms
b. Communication of the insurer’s acceptance of the insured’s
offer
2. Determination of the policy period – Delivery may affect the
term of the coverage. E.g. terminates 1 yr after delivery
3. Absence of delivery – The delivery is not a prerequisite to a
valid contract of insurance. It may be completed prior to delivery
or even without delivery depending on the intention of the
parties.
Modes of delivery of policy
1. Actual/constructive delivery
2. Delivery, primarily a matter of intention – depends upon the
intention off the parties which may be shown by their acts or
words.
Possession by the insured raises the presumption that the
policy was delivered while possession by the insurer is prima
facie evidence that no delivery was made.
Delivery to insurer’s agent as delivery to insured
Conflict of views
a. Beneficiary cannot recover – insurance agent is not his agent
b. Beneficiary can recover – deemed complete when the policy
has been delivered to the insurance agent with the insured
having complied with every condition required.
Effect of delivery of policy
1. Where delivery conditional – non-performance if the condition
precedent prevents the contract from taking effect
2. Where delivery unconditional – ordinarily consummates the
contract and policy becomes the final contract between the
parties.
3. Where premium still unpaid after unconditional delivery –
insurer cannot be presumed to have extended credit from the
mere fact of unconditional delivery of the insurance policy
without the prepayment of premium. There must be a clear and
express acceptance by the insured of insurer’s offer to extend
credit.
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The Insurance Code of the Philippines
Rider in a contract of insurance
Rider – small printed or typed stipulation contained on a slip of
paper attached to the policy and forming an integral part of the
policy,
a. Additional binding stipulation between the parties – riders
constitute as additional stipulations between the parties. Any
rider properly attached to a policy is part of the contract to the
same extent and with like effect as if actually embodied in the
policy
b. Necessity for riders, etc – often becomes necessary to add a
new provision to a policy, or modify, or waive an existing
provision or make desired changes.
c. Rule in case of conflict – the rider prevails, being a more
deliberate expression of the agreement of the contracting
parties.
Attached papers on insurance policy
1. Binding effect – As a GR, a rider, slip, or other paper becomes
a part of a contract or policy of insurance if properly and
sufficiently attached or referred to therein in a manner as to
leave no doubt as to the intention of the parties in such respect.
Sec 50 states requirements which must be observed to make a
rider, etc. binding. (sec 226)
2. Effect of lack of description – not binding on the insured
unless the descriptive title or name is also mentioned and written
on the blank spaces provided on the policy. Lack of description
will not affect the other provisions.
a. Warranties – inserted or attached to eliminate specific
potential increases of hazard during the policy term owing to
1. Actions of the insured; or
2. Condition of the property
b. Clause – agreement between the insurer and the insured on
certain matter relating to the liability of the insurer in case of loss.
c. Endorsement – any provision added to an insurance contract
altering its scope or application. Errors may be corrected in the
same manner.
3. Effect of lack of signature
GR: where the rider, etc is physically attached to a policy of
insurance contemporaneously with its execution and delivered to
the insured so attached, and sufficient reference is made to the
policy, the fact that it is without signature of the insurer or insured
will not prevent its inclusion and construction as a part of the
contract.
- Same rule applies if the rider was applied for by the insured or
owner.
- Countersignature is required if such rider, etc was not applied
for by him if issued after delivery.
Effect of failure of insured to read policy
1. Majority rule
The fact that it is customary for insured persons to accept
policies without reading is judicially recognized. It is not
negligence per se and is not such laches as will defeat insured’s
right to reformation.
2. Minority rule
The one who accepts a contractual instrument is conclusively
presumed, in the absence of fraud of mutual mistake, to know
and assent to its contents. The insured has the duty to read his
policy and is bound by it.
3. Exceptions to the minority rule
a. Insured could not have discovered the erroneous statement by
such reading.
b. He is induced by fraud of the agent of the insurer not to read
the policy.
c. Insured is illiterate or unable to read in English.
d. Contracts are long, complicated and difficult to understand
even if read, it may not be reasonable to expect people to take
the time to read the contracts before manifesting intent to be
bound.
4. Trend in modern cases
“duty to read” has less significance
Insurer’s duty to explain the policy
a. Where terms of policy are clear – no affirmative duty to explain
or its exclusions to the insured
b. Important caveats
1. Reasonable expectations of insured - The doctrine of
“reasonable expectations” can operate to impose de facto a duty
on the insurer to explain the policy’s coverage.

2. Options available to insured – courts have sometimes
imposed a duty on the insurer to explain the options to the
insured. If he failed to do so, they have been held liable despite
the fact that the policy did not provide the coverage.
3. Information expected by insured from insurer’s agent – agents’
professional obligation to explain to the customers the kinds of
coverage available and to help the insured in choosing the
appropriate coverage. Agent can be held liable for negligence in
performing their professional duties.
3. Contractual rights of insured after denial of coverage – the
duty of good faith and fair dealing may impose an obligation on
the insurer to alert the insured to his rights.
SEC. 51
Content of the policy
1. Names of the parties
2. Amount of insurance – easily and exactly determine the
amount of indemnity to be paid especially if it is only partial and
not total.
- Amount of the insurance is the maximum limit on the insurer’s
liability which is not necessarily the value of the property insured
nor extent of liability of insurer in the event of loss, unless
otherwise stipulated.
- Life and health insurance and accidental death and injury, a
fixed sum is payable.
- ECC – imposed by law
- The amount insured is the amount fixed in the policy. (e.g.
automatic increase clause)
- deductible – stated amount to be deducted from any loss,
which is shouldered by the Insured making the insurer liable only
for the excess of said amount.
3. Premium – represents the consideration of the contract; what
the insured pays the insurer to assume the risk of or the value
loss.
- developed in the basis of the nature and character of the risk
assumed and also on the value of the property or other interest
insured.
a. life insurance – average life span
b. fire insurance – structure or construction, occupancy or use,
location, and loss-prevention or protection facilities
4. Property or life insured – subject matter if the contract; “thing
insured”
5. Interest of insured in property – determine actual damage
suffered by the insured in case of loss if he is not the absolute
owner of the property
6. Risks insured against – insurer’s undertaking is to indemnify
the insured for loss, damage or liability caused or created only by
the risks insured against
7. Term or duration of insurance – period during which the
insurance is to continue.
Life of the policy – period of time during which the insurer
assumes the risk of loss
Annual policies – term of 12 months
Short period policies – less period
Kinds of insurable risks
3 classifications:
1. Personal risks – involving the person
- time of death or disability
- life and health risks
2. Property risks – loss or damage to property
- destruction of property
a. Direct losses – fire, lighting, windstorm, flood and other forces
of nature
b. Indirect losses – loss of profits, rents or favourable leases
3. Liability risks – liability for the injury to the person or property
of others
- occasioned by operation of law of liability (tort)
- third party risks
- bodily injury and property damage risks
Risk, peril, and hazards distinguished
1. Risk – chance of loss, or the possibility of the occurrence of
loss, based on known and unknown factors.
2. Peril – contingent or unknown event which may cause a loss.
- it is the contingency that one insures against.
- existence creates the risk, and its occurrence results in
loss.
- may be covered or excluded by a policy of insurance
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3. Hazard – condition or factor, tangible or intangible, which may
create or increase the chance of loss from a given peril.
- -the sum total of the hazards constitute the perils which
cause the risk.
2 major classifications of hazards:
a. physical hazards – everything relating to location, structure,
occupancy, exposure and the like
b. moral hazards – factors that have their inception in mental
attitudes.
- Psychological in nature
- Requires the study of the character of the person under
consideration in the light of his reputation
- Consideration of personal character
4. Use of term to mean another – terms are given more than
one meaning, in practice.
Requirements for risks to be insurable
1. Importance – loss to be insured against should be
important enough to warrant the existence of an
insurance contract. To cover every small loss would
increase greatly the cost of protection.
2. Calculability – risk must permit a reasonable estimate
of the chance of loss and possible variations from the
estimate
3. Definiteness of loss – loss should be fairly estimate as
to cause, time, place, and amount; otherwise, estimates
of possible loss are difficult
4. No catastrophic loss – exclude political and war risks
although these risk may sometimes be shouldered by
the State
5. Accidental nature – insurance is intended to cover
fortuitous or unexpected losses
Requirements not absolute
The above requirement for an insurable risk are not absolute.
Insurability is a relative matter. In other words, what is “insurable”
varies among insurers and may change over time and with the
use of these limitations.
SEC. 52
Preliminary contracts of insurance
1. Preliminary contract of present insurance
-The insurer insures the subject matter usually by what
is known as the “binding slip”, or “binder” or “cover
note”, the contract to be effective until the formal policy
is issued or the risk rejected.
-Cover note is intended to give temporary protection
pending the investigation of the risk by the insurer or
until the issue of a formal policy.
-In life insurance a “binding slip” does not insure by
itself.
-Binders serve the needs of commercial convenience
and yet are more definite and reliable than oral
agreement.
2. Preliminary executor contract of insurance
-The insurer makes a contract to insure the subject
matter at some subsequent time which may be definite
or indefinite.
-The right acquired by the insured is merely to demand
the delivery of a policy and the obligation assumed by
the insurer is to deliver such policy.
Insurance and renewal of cover notes
Cover notes (or binder) are short-term insurance policies that
may be issued to afford immediate provisional protection to the
insured until the insurer can inspect or evaluate the risk in
question and issue the proper policy or until the risk is declined
and notice thereof given.
a. Being temporary in nature, it is sufficient that the
cover note shows an agreement to pay whatever
rate may be fixed
b. The fact that no separate premium was paid on the
cover note before the loss insured against occurred
does not militate against its binding effect as an
insurance contract.
c. A cover note is in a real sense a contract, not a
mere application for insurance which is a mere
offer.

Rules on cover notes
1. Insurance companies doing business in the Philippines
may issue cover notes to bind insurance temporarily
2. A cover not is a contract of insurance within the
meaning of Section 1 (1) of the Code
3. No cover note shall be issued or renewed unless in the
form previously approved by the Insurance Commission
4. A cover note shall be valid and binding for a period not
exceeding 60 days from the date of its issuance,
whether or not the premium has been paid, but such
cover note may be cancelled by either party upon at
least seven (7) days notice to the other party.
5. If a cover note is not so cancelled, a policy of insurance,
shall, within 60 days after the issuance of such cover
note, be issued in lieu thereof.
6. A cover note may be extended or renewed beyond the
period of 60 days with the written approval of the
Insurance Commission
7. Insurance companies may impose on cover notes a
deposit premium equivalent to at least 25% of the
estimated premium of the intended insurance coverage
but in no case less than P500.
SEC. 53
Persons entitled to recover on policy
1. As against the insured
-Third persons have no right either in a court of equity
or in a court of law to the proceeds of the police unless
there be some contract of trust, express or implied,
between the insured and third persons.
- The insurance taken by one in his own right and in his
own interest does not in any way inure to the benefit of
the other.
2. As against the insurer
-A third person, in the absence of any provision in the
policy, has no right to the proceeds thereof. A policy of
insurance is a distinct and independent contract
between the insured and the insurer.
-Only the insured, if still alive, or the beneficiary, if the
insured is already deceased, is entitled to claim the
insurance proceeds upon the maturity of the policy.
*A third person has no right to the proceeds of an insurance
unless there is a contract or trust, express or implied, between
the insured and the third person or the insurance contract was
intended to benefit third persons who are not parties to the
contract in the form of reasonable stipulations. (Refer to pages
209-210 for examples)
SEC. 54
Where insurance made by an agent or trustee
An insurance may be taken by a person personally or through
his agent or trustee. The insurance is to be applied exclusively to
the interest of the person in whose name or whose benefit it is
made. The agent or trustee when making an insurance contract
for or on behalf of the principal should indicate that he is merely
acting in a representative capacity by signing as such agent or
trustee, or by the other general terms in the policy.
SEC. 55
Where insurance effected by partner of part owner
Insurable interest in the property of a partnership exists in both
the partnership and the partners. A partner has an insurable
interest in the firm property which will support a policy taken out
thereon for his own benefit. But a partner who insures
partnership property in his own name limits the contract to his
individual share unless the terms of the policy clearly show that
the insurance was meant to cover also the shares of the other
partners.
SEC. 56-57
Where description of insured general
-The policy of insurance must specify the parties between whom
the contract is made.
-He must show that he is the person named or described or that
he belongs to the class of persons comprehended in the policy in
order that the insurance may be applied to the interest of the
person claiming the benefit of the policy
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The Insurance Code of the Philippines
SEC. 58
Effect of transfer of thing insured
Since a contract of insurance is a personal contract, it does not
attach or run with the property insured. A purchaser of property
who does not take the precaution to obtain a transfer of the
policy of insurance cannot, in case of loss, recover upon such
contract as the transfer or property had the effect of suspending
the insurance until the purchaser becomes the owner of the
policy as well as of the property insured.
SEC. 59-62
Section 59. A policy is either open, valued or running.
Kinds of policies
1. Open or unvalued policy (Section 60)
– It does not predetermine the value of the insured
property but establishes a maximum amount the insurer
will pat in case of a total loss of the property insured.
2. Valued policy (Section 61)
– The value of the insured property is predetermined
and the value is the amount to be used in case of a total
loss. The insured and the insurer expressly agree in
advance in the value of the subject matter of the
insurance.
-There are 2 values: The face value of the policy and
the value of the thing insured
-The value of the property insured is not agreed upon,
although the parties may agree on the maximum
amount of recovery or limit to the liability of the insurer.
3. Running policy (Section 62)
-It is intended to provide indemnity for property which
cannot well be covered by a valued policy because of
its frequent change of location and quantity, or for
property of such a nature as not to admit of grass
valuation
-It also denotes insurance which contemplates that the
risk is shifting fluctuating, or varying, and which covers
a class of property rather than any particular thing.
Advantages of a running policy
1. He is neither underinsured nor overinsured at any time,
the premium being based on the monthly values
reported;
2. He avoids cancellations that would otherwise be
necessary to keep insurance adjusted to value at each
location and for which cancellations he would be
charged the expensive short rate
3. He is saved the trouble of watching his insurance and
the danger of being underinsured in spite of his care
through oversight or mistake
4. The rate is adjusted to 100% insurance, whereas
valued policies requiring insurance only to, sat 80% of
the value, give either a small or no reduction for
amounts of insurance above this figure.
SEC. 63
Validity of agreement limiting time for commencing action
1. General rule – a clause in an insurance policy to the
effect that an action upon the policy by the insured must
be brought within a certain period is valid and will
prevail over the general law on limitations of actions as
prescribed by the Civil Code if not contrary to Section
63.
2. Period limitation – if the period is less than 1 year from
the time the cause of action accrues, the stipulation
would be void.
Nature of condition limiting period for filing claim
-The condition in an insurance policy the claims must be
presented within a certain period after rejection is not merely a
procedural requirement.
-The condition is an important matter essential to 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 the loss or destruction
has not yet disappeared.

Where action brought against the insurer’s agent
-The bringing of the action against the agent of the insurance
company is not
“merely a procedural mistake of no significance or consequence
which may be overlooked” where there is no condition in the
policy that the action must be filed against the agent.
-The court cannot, by interpretation extend the clear scope of the
agreement beyond what is agreed upon by the parties.
When cause of action accrues
-The cause of action does not accrue until the insurer refuses,
expressly or impliedly, to comply its duty to the insured to pay
the amount of the insurance.
-The period for commencing an action under a policy of
insurance under Section 63 is to be computed not from the time
when the loss actually occurs but from the time when the insured
has a right to bring an action against the insurer.
1. Stipulated prescriptive period begins from the happening
of the loss
-As the stipulation is upon a written contract, the time limit is 10
years from the time the cause of action accrues (Art. 1144, Civil
Code)
2. Stipulated prescriptive period begins from the rejection of
claim
-Where the policy provided that if a claim be made and rejected,
an action or suit should be commenced within 12 months after
such rejection otherwise the claim would prescribe, it was held
that an action filed 17 months after the rejection had already
prescribed although the insured, 1 month after his claim was
rejected by the Commissioner, the court interpreting the words
“action or suit” in the policy as referring to a acclaim or demand
in a court of justice.
-An action of suit for recovery of damage due to loss or injury
must be brought in proper cases, with the Commissioner or the
Courts within 1 year from the denial or the claim, otherwise the
claimant’s right of action shall prescribe.
3. Stipulated prescriptive period begins from filing of claim
-Where a fidelity bond requires action to be filed within 1 year
from the filing of the claim of loss, such condition contradicts the
public policy of discouraging unnecessary litigation expressed in
Section 63.
-Consequently, the condition of the bond is subject to the
provisions of Sec. 63, is null and void, and action may be
brought within the statutory period of limitation (10 years) for
written contracts.
SEC. 64-65
Cancellation of non-life insurance policy
The right of the insurer to the cancellation of a policy of
insurance other than life is covered by Sections 64 and 65. The
insured can cancel an insurance contract at his election by
surrendering the policy.
Form and sufficiency of notice of cancellation by the insurer
1. Prior notice of cancellation to the insured
2. Notice must be based on the occurrence, after the effective
date of the policy, of one or more of the grounds mentioned
3. Must be in writing, mailed, or delivered to the named insured
at the address shown in the policy or to his authorized brother
4. State which of the grounds set forth is relied upon
It is the duty of the insurer upon written request of the named
insured to furnish the facts on which the cancellation is based.
Prior notice of cancellation to be insured
The purpose of provisions or stipulations in insurance policies for
notice to the insured, is to prevent the cancellation of the policy,
without allowing the insured ample opportunity to negotiate for
other insurance in its stead for his own protection.
1. Notice given to insured himself – notice should be
personal to the insured and not to and/or through any
unauthorized person by the policy.
2. Notice delivered personally or sent by mail – notice
need not be delivered personally to the insured. It may
be mailed.
SEC. 66
Renewal of non-life insurance policy
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The Insurance Code of the Philippines
1. As a new contract or extension of old one – as a
general rule, a renewal of insurance by the payment of
a new premium and the issuance of a receipt therefor
where there is no provision in the policy for its renewal,
is a new contract on the same terms as the old one. But
where the renewal is in pursuance of a provision to that
effect, it is not a new contract but an extension of the
old one.
2. Rights of parties – the general rule is that an
insurance company is bound by the greater coverage in
an earlier policy where the renewal policy is issued
without calling to insured’s attention a reduction in the
policy coverage
3. Period for giving notice of non-renewal by insurer –
for the purpose of determining whether or not the
insurer has given such notice within the period
prescribed, policy written for a term of less than 1 year
is considered as if written for a term of 1 year while a
policy written for a longer term or with no fixed
expiration fate is considered as if written for successive
policy periods terms of 1 year.
*Unless the insurer complies himself with the requirements of
Sec. 65 and 66, he has to renew the policy whether he likes it or
not.
TITLE 7 - WARRANTIES
SEC. 67
Warranty defined
-Warranty is a statement or promise by the insured contained in
the policy or incorporated in or attached to it by proper reference,
the falsity or nonfulfillment of which and regardless of whether or
not the insurer has suffered loss or prejudice as a result of the
falsity or nonfulfillment, renders the policy voidable at the
election of the insurer.
Kinds of warranties
1. Express warranty – an agreement contained in the
policy or clearly incorporate therein as part thereof
2. Implied warranty – a warranty which from the very
nature of the contract or from the general tenor of the
words is necessarily embodied in the policy as part
thereof
3. Affirmative warranty – one which asserts the
existence of a fact or condition at the time it is made
4. Promissory warranty – one where the insured
stipulates that certain facts or conditions pertaining to
the risk shall exist or that certain things with reference
thereto shall be done or omitted
Warranty presumed affirmative
-Unless the contrary intention appears, the courts will presume
that the warranty is merely affirmative.
SEC. 68
Time to which the warranty refers
-Although the provision employs the term “warranty” in general,
in the case of a promissory warranty, the same may refer only to
future events.
SEC. 69
Intention of parties governs
In case of doubt, a statement will be construed as a
representation rather than a warranty especially if such
statement is contained in any instrument other than the policy
like an application which is, in itself, collateral merely to the
contract of insurance. The parties must intend a statement to be
a warranty and it must be included as a part of the contract.
Warranties distinguished from representations
Warranties Representations
Parts of the contract Collateral inducements to it
Always written on the face of May be written in a totally
the policy disconnected paper or may be
oral
Must be strictly complied with Substantial truth only is
 The Insurance Code of the Philippines
required the full amount of the premiums paid by him up to the
Falsity of nonfulfillment Falsity renders the policy filing of the action
operates as a breach of voidable or rescissible on the 2. Rescission by the insurer – the insurer is entitled to
contract ground of fraud rescind for violation of a warranty only if said warranty is
Presumed material Insurer must show the material; otherwise, the breach will not avoid the policy.
materiality in order to defeat
an action on the policy SEC. 75

*Where the representation is true, it is ordinarily immaterial
whether it is a warranty or a representation
SEC. 70
Express warranty, where contained
1. In a policy itself, or another instrument – it must form
part of the contract itself or if contained in another
instrument, it must be signed by the insured and
referred to in the policy as making a part of it. Mere
reference alone is not sufficient to give this effect.
2. Validity of construed in a rider – the rider attached to
a policy is a part of the contract, to the same extent and
with like effect as if actually embodied therein. It need
not be signed by the insured nor referred to in the policy
as making a part of it.
SEC. 71
Express warranty regarding person, thing, or risk
1. Statement must refer to a fact – statement of the
policy relating to the thing or person insured must be as
a fact and not as an opinion, or belief, to constitute an
express warranty thereof
2. Where statement in the nature of an opinion – a
statement in the policy which, from the very nature of
the subject matter of the inquiry, can only be an
expression of an opinion is not, strictly speaking, a
warranty of its truthfulness.
SEC. 72
When violation of immaterial provisions shall avoid policy
The law makes a distinction between provisions that are material
and immaterial. The breach of any provision which is not material
will not avoid the policy. (Sec. 74) However, the parties may
expressly stipulate that the violation of a particular provision
(although immaterial) in the policy shall avoid it. (Sec. 75)
SEC. 76
Effect of breach of warranty by insured
1. Fraud not essential for breach – the breach referred
to under Sec. 76 is one without fraud
2. Effect if without fraud – the policy is avoided only from
the time of breach
3. Effect if with fraud – the policy is avoided ab initio, and
the insured is not entitled to the return of the premium
paid
Conditions in insurance policy
-Insurers may impose whatever conditions they please upon
their obligations as long as they are not contrary to law, morals,
good customs, public order, or public policy.
2 kinds:
1. Condition precedent – calls for the happening of some event
of the performance of some act after the terms of the contract
have been agreed upon, before the contract shall be binding on
the parties
2. Condition subsequent – pertains not to the attachment of the
risk and the inception of the policy, but to the contact of
insurance after the risk has attached and during the existence
thereof.

Warranty of facts or omissions which materially affect the Warranties and conditions distinguished
risk Warranty Condition
Section 72 refers to a promissory warranty. Breach of promises Precedent
or agreements as to future acts will not avoid a policy unless the As to effect Does not suspend Without the
promises are material to the risk. or defeat the performance of
operation of the which, the contract,
SEC. 73 contract although in form
executed by the
When breach of warranty does not avoid policy parties and
The general rule is that a violation of a warranty avoids a delivered, does not
contract of insurance. Section 73 provides 3 exceptions: spring into life
1. When loss occurs before time of performance As to nature Promissory -if the insured
2. When performance becomes unlawful warranties are person contracts
3. When performance becomes impossible conditions and warrants that if
subsequent to be the representations
Where insurer barred by waiver or estoppel performed after made by him in his
Breach of warranty operates to discharge the insurer from the policy has application for
liability unless the insurer is liable because of a waiver of the become a valid insurance are not
warranty or an estoppel. contract true, the policy shall
1. The omission to fulfill a warranty or condition will -Non-performance be null and voice
likewise be excused where there is a waiver on the part of which will work -such statements
of the insurer. a defeasance are not conditions
2. Under estoppel, the insurer is precluded, because of precedent but
some action or inaction on its part, from relying on an rather of the nature
otherwise valid defense as against the insured who has of a defeasance
been induced to enter into the contract by the insurer’s
representation or conduct. Exceptions in insurance policy
3. Estoppel is different from waiver. In the former, the -Exceptions are inserted in a contract of insurance for the
conduct of the insurer prevents it from avoiding liability, purpose of withdrawing from the coverage of the policy, as
while in the latter, the failure of the insurer to assert a delimited by the general language describing the risk assumed,
defense prevents it from asserting the defense in the some specific risks which the insurer declares himself unwilling
event of a claim filed by the insured. to undertake.

SEC. 74 Exceptions distinguished from warranties and conditions

Right to rescind for violation of a material warranty
1. Rescission by the insured – the insured can sue for
rescission for breach of contract due to the refusal of
the insurer to grant a loan applied for although this was
expressly agreed upon in the policy and he can recover
-Refer to example in p.242
Effects of breach on legal relations of parties
1. On binding force of contract – the occurrence of a
breach or warranty or condition even though such
breach be temporary renders the entire contact

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defeasible or voidable and even though such breach
may not have affected the risk or contributed to the loss
in any way. But the occurrence of an expected peril
does not in the least affect the binding force of the
contract.
2. On liability where there is a waiver – such a breach
of warranty or condition may be waived without
consideration; but the insurer does not become liable
for an expected loss by waiver unless such waiver
amounts to a new contract on valuable consideration.
TITLE 8 - PREMIUM
SEC. 77-78
Premium defined
-the agreed price for assuming and carrying the risk – that is, the
consideration paid an insurer for undertaking to indemnify the
insured against a specified peril.
Assessment defined
-a sum specifically levied by mutual insurance companies or
associations, upon a fixed and definite plan, to pay losses and
expenses.
Premium distinguished from assessment
a. Premiums
-levied and paid to meet anticipated losses
-payment of premium, after the first, is not enforceable
against the insured
-premium is not a debt
b. Assessments
-collected to meet actual losses
-unless otherwise agreed, they are legally enforceable
once levied
-assessment is a debt unless otherwise expressly
agreed
Payment of premium ordinarily not a debt or obligation
1. In fire, casualty, and marine insurance – refer to
examples in pages 245-252
2. In life insurance – the premium becomes a debt only
when in the case of the first premium, the contract has
become binding, and in the case of subsequent
premiums, when the insurer has continued the
insurance after maturity of the premium, in
consideration of the insured’s express or implied
promise to pay.
Effect of non-payment of premium
The general rules of law applicable to the payment of
money obligations are, of course, applicable to the
payment of insurance premiums. As a general principle,
the time specified for the payment of premiums is of the
essence of the contract.
a. First premium – nonpayment of the first premium
unless waived, prevents the contract from
becoming binding notwithstanding the acceptance
of the application nor the issuance of the policy.
But nonpayment of the balance of the premium due
does not produce the cancellation of the contract.
b. Subsequent premiums – nonpayment of
subsequent premiums does not affect the validity if
the contract unless, by express stipulation, it is
provided that the policy shall in that event be
suspended or shall lapse.
Excuses for nonpayment of premiums
1. Fortuitous event – even the act of God, rendering
the payment of the premium by the insured wholly
impossible will not prevent the forfeiture of the
policy when the premium remains unpaid. If the
insured can neglect payment at maturity and yet
suffer no loss or forfeiture, premiums will not be
punctually paid.
2. Condition, conduct or default of insurer – no
excuse will avail to prevent a forfeiture except only
when the nonpayment has in some way been
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The Insurance Code of the Philippines
induced by the condition, conduct, or default of the
insurer. (refer to examples in p. 255)
Validity of policy where credit extension granted to insured
-An insurance policy other than life issued originally or
on renewal is not valid and binding until actual payment
of the premium.
-A credit extension agreement is valid.
When policy valid and binding notwithstanding nonpayment
of premium
The following are exceptions to Section 77:
1. In the case of a life or industrial policy, whenever
the grace period provision applies
2. Whenever under the broker and agency
agreements with duly licensed intermediaries, a 90-
day extension is given
3. When there is an acknowledgement in a policy or
contract of insurance of receipt of premium even if
there is a stipulation therein that it shall not be
binding until the premium is actually paid
4. When there is an agreement allowing the insured
to pay the premium in installments and partial
payment has been made at the time of loss
5. When there is an agreement to grant the insured
credit extension for the payment of the premium
and loss occurs before the expiration of the credit
tem
6. When estoppel bars the insurer from invoking Sec.
77 to avoid recovery on a policy providing a credit
term for the payment of the premiums, as against
the insured who relied in good faith on such
extension.
*If the credit extension exceeds 90 days from the date if
the issuance of the policy, it should be deemed for only
90 days. The receipt by the insurer of the premium even
after the expiration of the credit term but before the
loss, renders the insurance valid and binding. (See
examples in pp.259-272)
SEC. 79
Effect of acknowledgment of receipt of premium in policy.
(1) Waiver of condition of prepayment. — Where the policy
orcontract of insurance contains an acknowledgment of receipt
of premium, the insurer cannot deny the truth of the receipt of the
premium in an action against him on the policy even if it is
actually unpaid and notwithstanding any stipulation making
prepayment of the premium a condition precedent to the binding
effect of the policy. The law establishes a legal fiction of
payment. The reason for the rule is founded on the fact that
when the policy contains such written acknowledgment, it is
presumed that the insurer has waived the condition of
prepayment, the acknowledgmentbeing declared by law to be
conclusive evidence of premium payment.
(2) Recovery of premium if unpaid. — It must be noted, however,
that the conclusive presumption extends only to the question of
the binding effect of the policy. As far as the payment of the
premium itself is concerned, the acknowledgment is only a prima
facie evidence of the fact of such payment. In other words, the
insurer may still dispute its acknowledgment but only for the
purpose of recovering the premium due and unpaid. Whether
payment was indeed made is a question of fact.
According to the Supreme Court, Section 79 should be
interpreted as an exception to Section 77.
Effect of acceptance of premium.
Acceptance of premium within the stipulated period for payment
thereof, including the agreed period of grace, merely assures
continued effectivity of the insurance policy in accordance with
its terms. Such acceptance does not stop the insurer
frominterposing any valid defense under the terms of the
insurance policy, where such insurer is not guilty of any
inequitable act or representation.
There is nothing inconsistent between acceptance of
premiumdue under an insurance policy and the enforcement of
theseterms.
CASES WHEN INSURED ENTITLED TO RECOVER:

(1) When no part of the thing insured has been exposed to
any of the perils insured against
(2) When the insurance is for a definite period and the
insured surrenders his policy before the termination thereof
(3) When the contract is voidable because of the fraud or
misrepresentations of the insurer or his agent (Sec. 81.);
(4) When the contract is voidable because of the existence
of facts of which the insured was ignorant without his fault
(ibid.);
(5) When the insurer never incurred any liability under the
policy because of the default of the insured other than
actual fraud (ibid.);
(6) When there is over-insurance (Sec. 82.); and
(7) When rescission is granted due to the insurer's breach of
contract.
NOTE: In nos. 1, 3, 4, and 5, the insured is entitled to a return
of the entire premium paid. The insured cannot recover
premiums unless they have actually been paid. Payment to
insurer's agent is sufficient. The Code speaks of the return or
refund of premium payments. Fees like documentary stamps
tax and other taxes are not covered.
WHERE RISK HAS NEVER ATTACHED.
If the risk insured against does not or cannot attach, or if no
part of the interest is subject to any of the specified perils,
the insurer cannot claim or retain the premium thus paid, in
the absence of any fraud or fault on the part of the insured.
Reason: contrary honesty and fair dealing to allow the insurer to
treat the policy as valid long enough to get the premium on it and
leave it at liberty to renounce it the next moment.
Specific instances:
(1) Approval of application or acceptance of policy is absent
• Where the application for a policy was not approved
• With respect to a policy requiring acceptance, insured
cannot be held liable for accruing
(2) Loss occurs before effective date
Where the insured pays in advance the annual premium
on a certain property, the insurance to take effect on a certain
date and the loss occurs before said date, the insured is entitled
to a return of the whole premium.
(3) Insured and insurer become public enemies
i.e. State of war, justice requires that premiums paid
after the declaration of war between the belligerent states be
returned to the insured.
WHERE INSURED SURRENDERS POLICY BEFORE
TERMINATION.
The insured is entitled to recover the premiums already
paid equivalent to the unexpired term at a pro rata rate. Insurer
shall refund the unearned premium in proportion to the unexpired
period, retaining only the earned portion corresponding to the
portion expired. However, any claim for loss or damage accrued
under the policy shall be deducted from the whole premiums.
WHERE SHORT PERIOD RATE HAS BEEN STIPULATED.
An insurance policy is often cancelled either by the insurer or
by the insured before its expiration.
• IF BY INSURER: retains only a proportion of the annual
premium that the expired time bears to the entire time.
• IF BY INSURED: if the policy stipulates a short period
rate, the insured is entitled to return of the premium in
the proportion stipulated, not the pro rata scheme
RIGHT TO RECOVER PREMIUMS AS TO LIFE INSURANCE.
Recovery of premiums paid is not allowed in life insurance if
the insured surrenders his policy.
REASON: Life insurance is NOT a divisible contract.
It is an entire contract of insurance for life subject to
discontinuance and forfeiture for nonpayment of any of the
stipulated premiums. However, the insured will be entitled to
receive the "cash surrender value" of his policy "after three
full annual premiums shall have been paid."
WHERE RISK HAS ATTACHED.
(1) Whenwhole premium considered as earned.
The insurance granted is the entire consideration for the
premium received.
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The Insurance Code of the Philippines
"If a peril insured against has existed, and the insurer has been
liable for any period, however short, the insured is not entitled to
return of premiums so far as that particular risk is concerned."
(2) Where insurance divisible.
The premium paid for any particular risk is not earned
until that risk has attached.
WHERE THE CONTRACT IS VOIDABLE.
(1) Fraud of the insurer or his agent.
(2) Other grounds. - "on account of facts, the existence of which
the insured was ignorant without his fault; or when, by any
default of the insured other than actual fraud, the insurer never
incurred liability…”
(3) Fraud of the insured.
WHERE THERE IS OVER-INSURANCE.
The insurer is NOT liable for the total amount of
insurance taken. His liability is only limited to the amount of the
insurable interest on the property insured. Ergo, he is not entitled
to the portion of the premium corresponding to the excess of the
insurance over the insurable interest of the insured. The
premiums to be returned shall be proportioned to the amount by
which the aggregate sum insured in all the policies exceeds the
insurable value of the thing at risk.
WHERE INSURANCE IS ILLEGAL
General rule: Premiums which are illegal cannot be
recovered.
XPN: When the insured was ignorant of the facts which
rendered the insurance illegal
BASIS OF RIGHT TO RECOVER PREMIUMS.
(1) Insurer could have been called to pay the whole sum
insured.
In such case the whole premium is earned and there
shall be no return.
(2) Insurer could have been called to pay only part of the
whole sum insured.
He ought not to retain a larger proportion than one-half
or one-fourth of the premium and must return the remaining
amount.
TITLE 9 - LOSS
SEC. 83
CLAIM, defined
It is the demand for the satisfaction of a loss suffered
within an insured's policy. It may be made by the party insured,
the insurer (with right of subrogation), or a non-party but (with a
right against the insured).
EFFECT OF AGREEMENT NOT TO TRANSFER CLAIM OF
INSURED
(1) Before a loss has occurred:
An insurance policy is not assignable without the consent of the
insurer; XPN: life insurance
(2) After a loss has occurred:
An insured has an absolute right to transfer or assign his claim
against the insurer.
(A stipulation to the contrary is void).
SEC. 84
LOSS, defined
The injury, damage, or liability sustained by the insured
in consequence of the happening of one or more of the perils
against which the insurer has undertaken to indemnify the
insured.
LOSS, scope
Bodily injury,(including death), or property damage or
destruction, loss of income
or profits and legal liability to a third party
LIABILITY OF INSURER FOR LOSS.
(1) Extent of loss.
• Loss may be total, partial, or constructive total

• Satisfied by payment, reinstatement (repair or
restoration) of the property, or its replacement
(substitution) with another similar property
(2) Cause of loss.
The insurer assumes liability only for a loss
proximately caused by the perils insured against although a
peril not insured against may have been a remote cause of the
loss. However, insurer is still liable even if the proximate cause is
not the peril insured against if the immediate cause is the peril
insured against.
(3) Burden of proof where loss has occurred.
The burden is upon the insurer to prove by a
preponderance of evidence, that the loss arose from a cause
with is excepted or for which it is not liable, or from a cause
which limits its liability.
PROXIMATE CAUSE, defined
The cause that which in a natural and continuous
sequence, unbroken by any new independent cause, produces
an event and without which the event would not have occurred. It
is the efficient causethat sets others in motion although other
and incidental causes may be nearer in time to the result and
operate more immediately in producing the loss.
The question that needs to be asked is: If the event did
not happen, could the injury have resulted? If NO, the event IS
the proximate cause.
HOSTILE AND FRIENDLY FIRES EXPLAINED.
(1) When fire is friendly.
A fire bums in a place where it was INTENDED to burn.
(i.e. fire in a stove, furnace, or lamp, etc.)
(2) When fire is hostile
The fire occurs outside of the usual confines or begins
as a friendly fire and becomes hostile by escaping from the place
where it ought to be to some place where it ought not to be.
SEC. 85
EXTENSION OF PRINCIPLE OF PROXIMA TE CAUSE. (p.
283)
Accdg. To Sec. 85, Insurer is liable under two cases:
(1) Where the loss took place while being rescued from the
peril insured against.
E.g. loss of goods by theft during the removal of the
goods to save them from loss by fire is covered by a policy
against fire unless the policy itself contains a stipulation
exempting the insurer from liability for such loss.
(2) Where the loss is caused by efforts to rescue the thing
insured from a peril insured against.
E.g. damages to goods by being trampled on or thrown
about in the efforts to put out the fire are covered by the policy of
fire insurance.
NOTE: The insured is bound to exercise a reasonable degree of
care in removing the goods.
SEC. 86
WHERE PROXIMATE CAUSE IS AN EXCEPTED PERIL.
The insurer is NOT LIABLE if the proximate cause is a
peril excepted from the policy. The insurance company has the
burden of proving that the loss is caused by the risks excepted.
SEC. 87
LOSS BY WILLFUL ACT OR THROUGH CONNIVANCE OF
INSURED.
The insurer is NOT LIABLE for a loss caused by the
intentional act (e.g., suicide) of the insured or through his
connivance. Thus for example, when the insured intentionally
bums the insured goods and submits fraudulent proof of loss, the
policy is VOID.
(Illustrative case found in p. 285 of Reference Book.)
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The Insurance Code of the Philippines
LOSS CAUSED BY NEGLIGENCE OF INSURED.
(1) Ordinary Negligence.
The carelessness and negligence of the insured or his
agents constitute no defense on the part of the insurer.
(a) Mere negligence or carelessness on the part of
the insured or of his servants does notrelieve the company from
liability.
(b) “The law requires the insurer to assume the risk of
negligence of the insured and permit recovery by an insured
whose negligence proximately caused the loss."
(2) Gross Negligence.
Gross negligence or recklessness on the part of the
insured will relieve the insurer from liability. (E.g. the insured
sees a small fire start and makes no attempt to put it out).
TITLE 10 - NOTICE OF LOSS
SEC. 88
In case of loss upon an insurance against fire, an insurer is
exonerated, if notice thereof be not given to him by an insured,
or some person entitled to the benefit of the insurance, without
unnecessary delay, (a)
SEC. 89
CONDITIONS BEFORE LOSS.
The insured MUST comply with the terms of the policy.
Otherwise, s/he cannot recover.
CONDITIONS AFTER LOSS.
(1) Notice and proof of loss
Conditions that must be fulfilled: notice of loss must
be given to the insurer
(Sec. 88.) and when required by the policy, apreliminary proof
of loss must be given.
(2) Nature
They are in nature conditions subsequent the breach of
which affects a right that has already accrued. Until a loss
occurs, the insurer's liability is contingent, but with the
happening of of loss, his liability arises and becomes properly
fixed.
(3) Construction
They shall be construed with much less strictness
than those conditions that operate prior to the loss. Substantial
(NOT strict) compliance with the requirements will suffice.
NOTICE OF LOSS, Meaning, Purpose, and Necessity (p. 291)
MEANINING
It is the formal notice given to the insurer by the insured
or claimant under a policy of the occurrence of the loss insured
against.
PURPOSE
To apprise the insurance company with the occurrence
of the loss, so that it may gather information and make proper
investigation while the evidence is still fresh, and take such
action as may be necessary to protect its interest from fraud or
imposition. In cases of property insurance, it is to prevent further
loss to the property.
NECESSITY OF NOTICE
The insurer cannot be held liable to pay a claim without
a notice of that claim. If notice of loss is not given to the insurer,
the latter is discharged from liability even though the loss is one
the policy was designed to protect against.
Formal notice of loss is NOT NECESSARY if the
insurer already has actual notice.
TIME FOR GIVING NOTICE OF LOSS
Notice must be given "without unnecessary delay." It
must be given at a reasonable time. It is considered “without
unnecessary delay” if it has been given "as soon as
circumstances permitted the insured, in the exercise of
reasonable diligence, to communicate." (Reasonableness
depends on the circumstances)
PROOF OF LOSS, Meaning, Nature, Form, and Purpose

MEANING:
It is the formal evidence given to the insurance
company by the insured or claimant of the occurrence of the
loss, the particulars and the data necessary for the company to
determine its liability and the amount thereof.
NATURE:
Loss and its amount may be determined on the basis of
such proof offered by the insured. It does not need to be of such
persuasiveness that is required in judicial proceedings.
FORM:
Form AND Proof of loss may be given orally or in
writing in the absence of any explicit stipulation in the policy.
However, it is advisable to give the notice or proof in writing
for the protection of the insured or his beneficiary.
It may be in the form of an informal or provisional
claim containing minimum information.
PURPOSE:
• To give the insurer information upon which he may act
promptly in protecting the property from further loss for
which he may be liable
• To enable him to take any other immediate steps that
his interests may require.
Statement of loss, purpose:
(1) to give the insurer information by which he may
determine the extent of his liability but
also;
(2) to afford him a means of detecting any fraud that
may have been practiced upon him; and
(3) to operate as a check upon extravagant claims.
BURDEN OF PROOF OF LOSS IN COURT ACTION.
If the insured has the burden of proving that he has
suffered a loss and in life insurance, death of the insured must
be proven.
EXCUSES FOR NONCOMPLIANCE WITH CONDITIONS.
Substantial compliance with the terms of the insurance
policy shall be excused when the circumstances make such
compliance impossible. (i.e. Heirs did not know about the fire
policy. Ergo, their delay in giving notice of loss to the insurer and
furnishing proof of loss should not defeat their right to recover on
the policy).
SEC. 90
WHEN DEFECTS IN NOTICE OR PROOF DEEMED WAIVED.
There is waiver where the insurer:
(1) Writes to the insured that he considers the
policy null and void as the furnishing of the notice or proof
of loss would be vain and useless; or
(2) Recognizes his liability to pay the claim; or
(3) Denies all liability under the policy; or
(4) Joins in the proceedings for determining the
amount of the loss by arbitration, making no objections on
account of notice and preliminary proof; or
(5) Makes objection on any ground other than a
formal defect in the preliminary proof.
NOTE: A general statement that proofs are defective is not
sufficient to impose on the insured the duty to supply defects
not pointed out.
SEC. 91
WHEN DELAY IN PRESENTATION OF NOTICE OR PROOF
DEEMED WAIVED
Waiver of delay may be made:
(1) By an act of the insurer; or
(2) By failure to take objection promptly and
specifically upon that ground.
If the insured has attempted to comply with the
stipulations of the policy and the company makes
objections, the insured is allowed a reasonable time after he
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The Insurance Code of the Philippines
is made known thereof within which to remedy the defects
regardless of the time prescribed.
SEC. 92
EFFECT OF FAILURE TO SECURE CERTIFICATE OR
TESTIMONY OF THIRD PERSON.
The insured must furnish reasonable evidence to
the insurer that the person's refusal was not induced by any
just grounds of disbelief of said person in the truth of the
facts necessary to be certified or testified but, because of other
grounds.
Such requirement in the policy must be liberally
construed in favor of the insured.
TITLE 11 – DOUBLE INSURANCE
SEC. 93
DOUBLE INSURANCE, Defined
(Refer to Section 93 above)
In double insurance, there is co-insurance (Sec. 157) by
two or more insurers; hence, it is also known as "co-insurance."
DOUBLE INSURANCE, Requisites. (P-S-S-I-P)
(1) The person insured is the same;
(2) Two or more insurers insuring separately;
(3) The subject matter is the same;
(4) The interest insured is also the same; and
(5) The risk or peril insured against is likewise the same.
DOUBLE INSURANCE VS. OVER INSURANCE.
DOUBLE INSURANCE OVER INSURANCE
The sum total of the amounts The amount of the insurance
of the policies issued does not is beyond the value of the
exceed the insurable interest of insured's insurable interest.
the insured.
There are always several There may be only one
insurers. insurer.
NOTE: Double insurance and overinsurance may exist at the
same time or neither may exist at all. When the sums insured
exceed the insurable interest, the term “Double insurance” is
used instead of "co-insurance". In such case, there is "over-
insurance" by "double insurance."
BINDING EFFECT OF STIPULATION AGAINST DOUBLE
INSURANCE.
(1) Additional insurance obtained by the insured.
It is intended to prevent an increase in the moral
hazard. It is valid and reasonable. In the absence of the
insurer’s consent, waiver or estoppel, a breach thereof will
PREVENT a recovery on the policy.
To constitute a violation, the other insurance must
be upon the samesubject matter, the same interest therein,
and the same risk. (S-I-R)
(2) Additional insurance obtained by a third person.
Insurance obtained by a third person without the
knowledge or consent of the insured WILL NOT affect his rights
under the policy in the absence of ratification.
PROHIBITION AGAINST DOUBLE INSURANCE, Purpose.
To prevent over-insurance and thus avert the perpetration of
fraud.
SEC. 94
RULES FOR PAYMENT OF CLAIMS WHERE THERE IS
OVER-INSURANCE BY DOUBLE INSURANCE.
According to the Principle of Contribution enunciated by
Sec. 94, EACH INSURER IS REQUIRED TO CONTRIBUTE
 The Insurance Code of the Philippines
RATABLY to the loss or damage since several insurances cover (c) The reinsurer benefits through the acquisition of
the same subject matter and interest against the same peril. business which is expected to prove profitable in the long run.

They apply only where there is over-insurance by (2) From the standpoint of the insured.
double insurance (insurance is contained in several policies the The practice of reinsurance is beneficial to the insured for the
total amount of which is in excess of the insurable interest of the following reasons:
insured). a) It gives insurance companies that practice in greater
financial stability and thus makes the insured's individual policy
Paragraph (e) governs the liability of the insurers more reliable;
among themselves where the total insurance taken exceeds (b) If a large amount of insurance is needed, the
the loss. If the loss is greater than the sum total of all the insured may obtain it without negotiating with numerous
policies issued, each insurer is liable for the amount of his companies;
policy. (c) It enables the insured to obtain protection promptly,
without the delay that would be required to divide and
(1) Several or solidary liability of insurers under their distribute the amount among many companies;
respective contracts (par. a). (d) All the insurance can be written under identical
(2) Where insured claims under a valued policy (par. b). contract provisions, whereas otherwise these might vary
(3) Where insured claims under an unvalued policy (par. c). with the different companies among whom the insurance
(4) Liability of each insurer to contribute ratably to the loss is divided; and
(par. e). (e) Small companies are encouraged to divide large
(5) Where sum received by insured exceeds total insurance exposures for safety and enabled to accept a wide variety of
taken (par. d). applicants.

(3) From the standpoint of the insuring public.

TITLE 12 - REINSURANCE
SEC. 95
REINSURANCE, Defined
A contract whereby one party (the reinsurer) agrees to
indemnify another, the reinsured (original insurer), either in
whole or in part, against loss or liability which the latter may
sustain or incur under a separate and original contract of
insurance with a third party (the original insured).
They promote both efficiency and stability in the
conduct of the reinsurance business.
SEC. 96
DUTY OF REINSURED TO DISCLOSE FACTS.
The duty is one of thestrictest good faith. A policy
may be AVOIDED where the reinsured conceals the fact that
a loss has taken place or that the property is over-insured
where he has knowledge thereof.

Referred to simply as "an insurance of an insurance" or EXAMPLE:

"treaties." X insurance company issued a fire policy covering a building
owned by Y. Z insurance company accepted reinsurance
REINSURANCE DISTINGUISHED FROM DOUBLE coverage under the policy. Thereafter, Y married H, an ex-
INSURANCE. (p. 307) convict for arson. All the members of the board of directors of X
REINSURANCE DOUBLE INSURANCE were invited as guests at the wedding and knew who H was.
The insurer becomes the The insurer remains as the Subsequently, the building was completely destroyed by fire.
insured, insofar as the reinsurer insurer of the original insured.
is concerned. Q: May X recover from Z notwithstanding that X did not disclose
Subject is the ORIGINAL Subject of the insurance is H's previous conviction for arson?
INSURER'S RISK PROPERTY
An insurance of a DIFFERENT An insurance of the SAME A: No. Generally, when a contract of insurance has been entered
INTEREST INTEREST into, the insured cannot be charged with fraudulent concealment
The original insured has no The original insured is the by reason of the fact that he fails to disclose matters material to
interest in the contract of party in interest in all the the risk arising thereafter.
reinsurance which is contracts
independent of the original AUTOMATIC AND FACULTATIVE METHODS OF CEDING
contract of insurance REINSURANCE.
The CONSENT of the original The INSURED HAS TO GIVE Reinsurance may be placed in effect either
insured is NOT NECESSARY. HIS CONSENT automatically or facultatively.
(1) Share or participation in risk insured.
VALUE OF REINSURANCE. This does not apply in case of automatic reinsurance
(1) From the standpoint of the insurer. treaties. In a facultative insurance, there is no obligation either to
REINSURING COMPANIES BENEFIT FROM cede or to accept participation in the risk insured since each
CONTRACTS OF REINSURANCE. party having a free choice. But once the share is accepted, the
REASONS: obligation is absolute and the liability can be discharged
(a) Every insurance company, in accordance with its only by PAYMENT of the share of the losses.
financial strength, establishes a limit on the maximum claim it
wishes to pay out of its own resources. This limit is called (2) Advantage to insurer.
“RETENTION." At the same time, a company wants its salesmen Main advantage is avoidance of any delay in issuing its
to be able to take an application for any amount the applicant is policy.
willing to seek. When such applications are for a sum over the
company's retention, it handles the excess by means of (3) Protection to reinsurer.
reinsurance. The reinsurer is protected by the requirement that the
original insurer retains its full retention limit, which assures a
(b) The knowledge of the industry regarding measure of self-interest.
classification of impaired risks is increased in the most
economical manner. Reinsuring companies serve as a focal REINSURANCE TREATY DISTINGUISHED FROM
point for the collection of such risks where statistically significant REINSURANCE POLICY.
volumes of consistently underwritten substandard business are REINSURANCE TREATY REINSURANCE POLICY
accumulated and subjected to extensive analyses by an It is merely an agreement It is a contract of indemnity
experienced staff. Improved underwriting standards are between two insurance one insurer makes with
promulgated as a result of such analyses. This process is more companies whereby one another to protect the first
efficient than if each insuring company found it necessary to agrees to cede and the other insurer from a risk it has
attempt to perform its own underwriting research. to accept reinsurance already assumed.

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business pursuant to
provisions specified in the
treaty.
Contract FOR insurance Contract OF insurance
SEC. 97
CONTRACT OF REINSURANCE, Nature.
The subject of the contract of reinsurance is the PRIMARY
INSURER'S RISK and NOT THE PROPERTY INSURED under
the original policy.
(1) Contract, one of indemnity against liability.
The reinsurer agrees to indemnify the insurer, not
against actual payment made but against liabilities incurred.
(2) Contract, separate from original insurance policy.
The practice is for the reinsurer to pay the insurer even
before the latter has indemnified the original insured.
(3) Contract based on original policy.
(4) Insurable interest requirement applicable.
The doctrine of insurable interest also applies to
reinsurance. Ergo, the primary insurer is NOT entitled to contract
for reinsurance beyond the limits of the policy conceded to the
reinsurer.
(5) Rule on subrogation is applicable.
GR: a reinsureracquires the same rights by subrogation
like those acquired in similar cases where the original insurer
pays a loss.
SEC. 98
RIGHTS OF ORIGINAL INSURED IN CONTRACT OF
REINSURANCE.
(1) The INSURED, unless provided, has NO CONCERNwith the
contract of reinsurance, and the REINSURER is NOT LIABLE
to the insured either as surety or otherwise.
(2) There is NO privity of contract between the original
reinsured and the reinsurer. A contract of reinsurance
RARELY explicitly permits direct action by the original insured
against the reinsurer.
LIABILITY OF REINSURER TO REINSURED.
GR: The reinsurer is entitled to avail itself of every
defense which the reinsured might urge in an action by the
person originally insured. Ergo, the reinsurer is not liable to the
reinsured for a loss under an original policy if the latter is not
liable to the original insured or for an amount more than the sum
actually paid to the insured.
LIABILITY OF REINSURER TO ORIGINAL INSURED.
(1) Contract of reinsurance solely between insurer and
reinsurer.
The original insured has absolutely no interest in the
contract and is a total stranger to it. The insured has no cause of
action against the reinsurer, but only against the insurer.
(2) Contract of reinsurance with stipulation in favor of
original insured.
The reinsurer will be liable to a suit by the original
insured under the contract of reinsurance. The remedy of the
insured is both against the insurer and the reinsurer.
(3) Contract of reinsurance amounting to novation of
original contract.
The original insured may also maintain an action
directly against the reinsurer in the cases in which the
circumstances attending the making of the contract of
reinsurance amount to a novation of the original contract. Hence,
it operates to discharge the contract and the original insurer from
all obligations. The original insurer, however, will be released
only when the insured agrees with the insurer and reinsurer to
the novation.
Such an agreement is ordinarily carried into effect by a
surrender of the original policy and issuance of a new one
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The Insurance Code of the Philippines
including the same terms and conditions, by the so called
"reinsurer." However, such a transaction is not one of technical
reinsurance, for here, the so-called "reinsurer" is but substituted
for the original insurer and hence, becomes the immediate
insurer of the subject of the original policy.
Chapter II. - CLASSES OF INSURANCE
Title I – MARINE INSURANCE
SUBTITLE 1-A: DEFINITION
SEC. 101
TRANSPORTATION INSURANCE, Defined
It is concerned with the perils of property IN TRANSIT
as opposed to property perils at a generally fixed location.
(DOES NOT include normal motor vehicleinsurance which is
treated separately)
TRANSPORTATION INSURANCE, Major Divisions
(1) Ocean marine insurance.
• It deals primarily with the insurance of sea perils.
• Defined by the old law as “An insurance against risk
connected with navigation, to which a ship, cargo,
freightage, profits or other insurable interest in movable
property, maybe exposed during a certain voyage or a
fixed period of time.”
(2) Inland marine insurance.
• It covers primarily the land or over the land
transportation perils of property shipped by railroads,
motor trucks, airplanes, and other means of
transportation.
• It covers risks of lake, or other inland waterway
transportation and other waterborne perils outside of
those risks that fall definitely within the ocean marine
category
NOTE: Insurance may be in the form of property insurance or
liability insurance.
SCOPE OF OCEAN MARINE INSURANCE.
(1) Ships or hulls;
(2) Goods or cargoes;
(3) Earnings such as freight, passage money, commissions, or
profits; and
(4) Liability (known as "PROTECTION AND INDEMNITY
INSURANCE") incurred by the owner orany party interested
in or responsible for the insured property by reason of maritime
perils.
RISKS OR LOSSES COVERED IN OCEAN MARINE
INSURANCE.
• ALL RISKS AND LOSSES may be insured against
(EXCEPT those repugnant to public policy or positively
prohibited)
• A general marine insurance policy which does not
state the risks assured is VALID and covers the usual
marine risks.
• In a marine policy, the general enumeration of "all other
perils" etc., extends only to marine damage
• To sustain a recovery on a marine policy, the loss must
have been occasioned by a risk or peril insured against.
(1) The contract of insurance on freight
- Perils insured against shall not prevent the ship from
earning full freight for the insured in that voyage;
- Does not undertake that the goods shall be delivered
in sound or merchantable state NOR that the vessel
shall be safe from the dangers of the sea.
(1) The underwriter of a vessel DOES NOT
undertake for the cargo. It engages only for the
ability of the vessel to perform her voyage and
to bear damage which the vessel may sustain in
the voyage.

(2) Insurance on time - contains an engagement that
any particular voyage undertaken by the insured
within the prescribed period shall be performed
before the expiration of the policy but only that the
ship shall be capable of performing the voyage
undertaken regardless of any loss or injury which
may occur to her (the vessel) during the time it is
insured.
(3) The insurer may exempt itself liability from certain
causes. Thus, a marine policy excluding coverage
for breakage UNLESS caused by an accident, bad
weather causing the damage is NOT an accident
within the policy.
(4) Goods are presumed to be shipped under deck
(below the weather deck of the vessel). If the
goods are shipped on deck, they are not covered
by the policy UNLESS the underwriter was notified
and s/he accepts the additional risk. Reason for the
presumption: the deck of a vessel is not designed
to carry goods.
“PERILS OF THE SEA,” AS USED IN OCEAN MARINE
INSURANCE,Explained.
(1) Perils covered.
• Casualties due to the unusual violence or extraordinary
action of wind and wave
(I.e. shipwreck, foundering, stranding, collision, and
every species of damage done to the ship or goods at
sea,losses occasioned by the jettisoning of cargo while
saving a vessel rendered unworthy during the voyage
without the captain’s fault)
• Other extraordinary causes connected with navigation
• Extends to BARRATRY - "any willful misconduct by the
master or crew in pursuance of an unlawful or
fraudulent purpose without the consent of the owners,
and to the prejudice of the owner's interest."
(2) Perils not covered.
• DOES NOT include losses resulting from ordinary
wear and tear or other damage usually incident to
the voyage.
• If an injury is due to the violence of some marine force
which was not unusual not unexpected, it does not
necessarily bring it within the protection of the policy
(I.e. Tempests are neither unusual nor unexpected thus
injury suffered because of it does not fall within the protection of
the policy)
(3) A relative term.
The meaning of "Perils of the sea" may vary with the
circumstances.
(I.e. vessel designed for inland waters was insured
while being towed in the Gulf of Mexico and the insurer
was fully aware of the hazardous nature of the journey
and charged an extra premium, the loss was held to be
due to perils of the sea although a sea-going vessel would
not have been damaged by the moderate waves
encountered.)
PERILS OF THE SEA vs. PERILS OF THE SHIP.
PERILS OF THE SEA PERILS OF THE SHIP
(a) losses of extraordinary (a) The natural and inevitable
nature; or action of the sea;
(b) those that arise from some (b) The ordinary wear and
overwhelming power which tear of the ship; or
cannot be guarded against by (c) The negligent failure of the
the ordinary exertion of human ship's owner to provide the
skill or prudence vessel with proper equipment
to convey the cargo under
ordinary conditions
The insurer undertakes to The insurer does not
insure undertake to insure
PERILS OF THE SEA MUST BE THE PROXIMATE CAUSE OF
LOSS.
The insurer is liable only for losses or damages proximately
caused by the perils insured against.
E.g. Suppose a perishable cargo is greatly damaged by the
perils of the sea, and it should, has become gradually so
putrescent as to be required to be thrown overboard for the
safety of the crew; the immediate cause of the loss would be the
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The Insurance Code of the Philippines
act of the master and crew; but there is no doubt that the insurer
would be liable for a total loss upon the ground that the operative
cause was the perils of the sea.
“AIL RISKS”MARINE INSURANCE POLICY.
It is an insurance policy insures against all causes of conceivable
loss or damage, EXCEPT as otherwise excluded in the policy
OR due to FRAUD or INTENTIONAL MISCONDUCT on the part
of the insured.
(1) Scope.
It COVERS ALL LOSSES during the voyage whether arising
from a marine peril or not, including pilferage during times of war.
(2) The BURDEN OF PROOF is on the part of the INSURER
to establish damage or loss that has occurred.
NOTE: Damage or losses caused by delay or inherent vice or
nature of the cargo insured are excluded from the insurance
policy.
An "all risks" provision of a marine policy creates a
special type of insurance which extends coverage to risks not
usually contemplated.
(3) INITIAL BURDEN ON THE PART OF THE INSURED to
establish damage or loss occurred.
Under an "all risks insurance policy", the INSURED
HAS THE INITIAL BURDEN of proving that the cargo was in
good condition when the policy attached and that the cargo was
damaged when unloaded from the vessel; thereafter, THE
BURDEN THEN SHIFTS TO THE INSURER to show the
exception to the coverage.
The insurance company has the burden of proving that
the loss is caused by the risks NOT included. In the absence of
proof, the insurance IS liable.
Development of inland marine insurance in the United
States (NOT IMPORTANT)
1. Need for inland transportation insurance - The development of
the landforms of transportation — the railroads, motor trucks,
and airplanes — called for insurance against the perils of land
transportation only. Thus, inland marine insurance, as separate
from ocean marine insurance, originated.
2. Extension of inland marine use - As business and commerce
grew, many activities seemed to be served best by extension of
land marine insurance to cover property while awaiting shipment,
while being processed, and while in storage after shipment. New
inland marine insurance protection next came to apply when to
apply when the act of transportation itself became incidental to
the true use of the property involved.
3. Flexibility of inland marine rates and coverages – As the
demand for inland marine insurance increased, this attracted the
fire and casualty insurers to the business. Because of the
flexibility of the transportation policy, much broader coverage
was available under the inland marine contracts than the old fire
or casualty contracts.
4. Broadening of inland marine coverage – Originally, the policy
only covered perils of transportation, the scope was broadened
to an “all risk policy,” with a very free description of
transportation.
5. Present status of inland marine business – Although the
Nationwide Definition does not distinguish marine and inland
marine insurance, it is still important to define marine insurance,
because of some distinctive characteristics, and under some
state laws, is treated differently.
Under the Nationwide Definition, inland marine insurance
includes at least the following classes:
(a) Property insurance on goods in transit by railroad, express,
mail, motor truck, aircraft and (partly by) water.
(b) Property insurance on goods of certain specified types,
wherever they may be, against any peril, even though not in the
course of transportation. An example is a jewelry floater covering
"all risks."
(c) Property insurance on fixed property such as bridges, tunnels
and the like; on aids to navigation, such as piers, dry docks and
marine railways; and on aids to communication, such as radio
and television commercial equipment;
(d) Property insurance on a few of the means of transportation,
such as small boats, railroad cars, and the like. The more
important exposures of this character are insured by other
agencies, such as vessels by the ocean marine departments,
airplanes by aviation insurers, and motor vehicles by automobile
insurers; and
(e) Liability insurance, to protect transportation carriers,
warehousemen, processors, and other bailees from the

consequences of legal responsibility for property of customers
while in their custody.
Classes (scope) of inland marine insurance
To be eligible for inland marine contract, the risk must involve an
element of transportation.
(1) Property in transit. —The insurance provides protection for
property frequently exposed to loss while it is in transportation
from one location to another;
(2) Bailee liability. — The insurance provides protection to
persons who have temporary custody of the goods or personal
property of others, such as carriers, laundrymen,
warehousemen, and garagekeepers;
(3) Fixed transportation property. — The insurance covers
bridges, tunnels, and other instrumentalities of transportation and
communication, although as a matter of fact they are fixed
property. They are so insured because they are held to be an
essential part of the transportation system.
(4) Floater. — In inland marine insurance, the term is used in the
sense that it provides insurance to follow the insured property
wherever it may be located, subject always to the territorial limits
of the contract. Floater policies may be issued for such items as
jewelry, furs, works contractor's equipment, salesmen samples,
and others,
SUBTITLE 1-B: INSURABLE INTEREST
SEC. 102
Insurable Interest of insured in marine insurance
Marine insurance is invalid unless supported by an insurable
interest in the thing insured. But it is held that if an insurance is
taken upon a ship or cargo "lost or not lost," that is, the insurer
expressly agrees that he will be bound in any event, even though
the vessel be already lost, the contract is binding and the insurer
must pay, even though it be proved that the insured had nothing
to insure when the contract was made.
Insurable interest of owner of a ship.
The owner of a vessel undoubtedly has an insurable interest on
the vessel to the extent of its value and this is true, even if hehas
mortgaged the same (Higginson vs. Dali, 13 Mass. 96.); or has
chartered it to a third person who agrees to pay him its value in
case of loss.
The charterer of a ship has an insurable interest in it to the
extent that he is liable to be damnified by its loss.
Insurable interest and sale contracts.
(1) In the case of a vessel. — The insurable interest is commonly
possessed by the owner, and also if money has been borrowed,
by one who holds mortgage on the vessel. One who leases a
vessel may agree to assume responsibility for its insurance, in
which case he has an insurable interest.
(2) In the case of cargo. — The insurable interest is in the
shipper or the consignee depending upon the terms of sale.
(a) F.O.B. (free on board):
1) F.O.B. factory. —The buyer assumes responsibility when the
goods leave the factory; or
2) F.O.B. point of destination. — The buyer does not assume
responsibility until the goods are received from the carrier.
(b) C.I.F. (cost, insurance, and freight) — The seller assumes
complete responsibility for securing all necessary insurance; and
(c) C. & F. (cost and freight) — The buyer procures his own
insurance.
(3) In the case of a vendee/consignee of goods in transit. —The
contract of shipment, whether under F.O.B., C.I.F., or C. & F., is
immaterial in the determination of whether the vendee has an
insurable interest or not in the goods in transit. The perfected
contract of sale even without delivery vests in the vendee an
equitable title, an existing interest over the goods sufficient to be
the subject of insurance.
SEC. 103
A loan on bottomry is one which is payable only if the vessel,
given as a security for the loan, completes in safety the
contemplated voyage. Where a vessel is bottomed, the owner
has an insurable interest only in the excess of its value over the
amount of the bottomry loan. The insurable interest of the lender
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on bottomry in the vessel given as security is to the extent of the
loan.
SEC. 104
Freightage or freight is the benefit which is to accrue to the
owner of the vessel from its use in the voyage contemplated or
the benefit derived from the employment of the ship.
Sources of freightage:
(1) the chartering of the ship;
(2) its employment for the carriage of his own goods; and
(3) its employment for the carriage of the goods of others.
SEC. 105
The owner of a ship has an insurable interest in expected
freightage which he may not earn in case of the intervention of a
peril insured against or other peril incident to the voyage. The
rule is the same although the freight has been paid in advance.
However, where the agreement is that the freight is payable in
any event, whether the vessel is lost or is not lost, the shipowner
has no insurable interest in such freight. But the shipper who has
prepaid the freightage under such condition, has an insurable
interest on the same.
Insurable interest in passage money.
Passage money is customarily payable in advance; it cannot be
recovered if the vessel is lost before the completion of the
passage. Under such circumstances, the passenger can clearly
insure his advances of passage money but the shipowner may
not insure it unless it is payable only upon the completion of the
voyage.
SEC. 106
Insurable interest in expected freightage in a charter party.
(1) When it exists. — To give an insurable interest in expected
freightage, the insured must have an inchoate right to freight,
that is, he must be in such position with regard to freight that
nothing could prevent him from ultimately having a perfect right
to it but the intervention of the perils insured against.
(a) Where freight is the price to be paid for the hire of the ship
under a charter party, the ship owner has an inchoate right to
freight as soon as there is an inception of performance by the
ship under the charter party.
(b) Where the inchoate right to freight accrues as
soon as the
goods are actually put on board and where part
of the goods
has been loaded and the balance is ready, there is an insurable
interest in the whole freight.
(c) Where the ship owner has made a binding contract for freight
and the ship is in readiness to receive the goods, he has an
insurable interest.
(2) When none exists. — There is no insurable interest in freight:
(a) Where there is no contract and no part of the goods expected
to be carried are on board, although there are goods ready for
shipment or the master is provided with funds for the purpose of
purchasing a cargo.
(b) Where the vessel is a mere "seeking ship" or a vessel looking
for cargo to be transported, the owner has no insurable interest
in freight to be earned on goods not loaded
SEC. 107
Insurable interest in expected profits.
(1) Interest in thing involved based on some legal right. - The
interest in the goods or adventure out of which the profits are
expected to be realized should be a legal interest although such
interest may be contingent like commission to an agent or
consignee. Thus, the owner of a cargo to be carried on a trading
voyage has an insurable interest not only on the value of the
cargo but also on the expected profit from the sale of the cargo
which is liable to be affected by the perils of the sea.
(2) Interest in thing involved based on a valuable
consideration.
— The insured has sufficient interest if it is based
on a valuable consideration paid. For instance, one who has
made a contract for purchase of property which has been made
ready for shipment, although not loaded and who has contracted
to sell it at a profit, has an insurable interest in the profits.

SEC. 108
Insurable interest of the charterer.
(1) One who charters a vessel, with a stipulation to pay its value
in case of loss, has an insurable interest to the extent of its
value.
(2) The charterer has also an insurable interest in the profits he
expects to earn by carrying the goods in excess of the amount
he agreed to pay for the charter of the vessel.
2 Types of charter parties.
A charter party is a contract by which an entire ship or
some
principal part thereof is lent by the owner to another
person for a specified time or use.
(1) A bareboat or demise charter is a demise of a vessel, much
as a lease of an unfurnished house. The shipowner turns over
full possession and
control of his vessel to the charterer, who
then undertakes to provide a crew and victuals and supplies and
fuel for her during the term of the charter. The shipowner is not
normally required by the terms of a demise charter to provide a
crew, and so the charterer gets the"bareboat," i.e., without a
crew. The charterer becomes, in effect, the owner for the voyage
or service
stipulated, subject to liability for damages caused by
negligence.
Sometimes, the demise charter might provide that the shipowner
is to furnish a master and crew to man the vessel under the
charterer's direction, such that the master and crew provided by
the shipowner become the agents and servants or employees of
the charterer, and the charterer (and not the owner) through the
agency of the master, has possession and control of the vessel
during the charter period.
(2) Under a contract of affreightment, the owner of the vessel
leases part or all of its space to haul goods for others. It is a
contract of special service to be rendered by the owner of the
vessel who retains the possession, command and navigation of
the ship, the charterer or freighter merely having use of the
space in the vessel in return for the payment of the charter hire
or freight. The contract may be either voyage charter or time
charter. The charterer is free from liability to third persons in
respect to the ship.
(a) A voyage charter or trip charter is a contract for the carriage
of goods, from one or more ports of loading to one or more ports
of unloading, on one or on a series of voyages. In a voyage
charter, master and crew remain in the employ of the owner of
the vessel. The ship owner supplies the ship's store, pays for the
wages of the master and the crew and defrays the expenses for
the maintenance of the ship. A voyage charter being a private
carriage, the parties may fully contract respecting liability for
damage to the goods and other matters. The basic principle is
that the "responsibility for cargo loss falls on the one who agreed
to perform the duty involved" in accordance with the terms of
most voyage charters.
(b) A time charter is a contract for the use of a vessel
for a
specified period of time or for the duration of one or more
specified voyages. In this case, the owner of the time- chartered
vessel also retains possession and control through the master
and crew who remain his employees. What
time charterer
acquires is the right to utilize the carrying capacity and facilities
of the vessel and to designate her destinations during the term of
the charter.
In a demise or bareboat charter, the charterer is treated as
owner pro hac vice of the vessel, the charterer assuming in large
measure the customary rights and liabilities of the shipowner in
relation to third persons who have dealt with him or with the
vessel. In such case, the master of the vessel is the agent of the
charterer and not of the shipowner. The charterer or owner pro
hac vice, and not the general owner of the vessel, is held liable
for the expenses of the voyage including the wages of the
seamen.
SUBTITLE 1-C: CONCEALMENT
SEC. 109
Concealment in marine insurance is the failure to disclose any
material fact or circumstance which in fact or law is within, or
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which ought to be within the knowledge of one party and of
which the other has no actual or presumptive knowledge.
Under Section 107, to constitute concealment, it is sufficient that
the insured is in possession of the material fact concealed
although he may not be aware of it. Thus, if the agent failed to
notify his principal of the loss of a cargo and the latter, after the
loss but ignorant thereof, secured insurance "lost or not" on the
venture, such insurance will be void on the ground of
concealment.
SEC. 110
A party to a contract of insurance need not communicate
information of his own judgment to the insurer much less what he
learns from a third person. In marine insurance, however, the
rule is quite strict because the insured is bound to communicate
to the insurer not only facts but also (1) beliefs or opinions of
third persons or (2) expectations of third persons. The only
requirement is that the information be in reference to a material
fact. Thus, there is concealment where the insured at the time of
application for insurance did not disclose the opinion of marine
experts who
inspected the vessel insured that it was
unseaworthy.
SEC. 111
Presumptive knowledge by insured of prior loss.
(1) When rule applicable. — Section 111 establishes a rebuttable
presumption of knowledge of a prior loss on the part of the
insured "if the information might possibly have reached him in
the usual mode of transmission and at the usual rate of
communication."
(2) Reason for presumption. — The reason for the presumption
is the quickness in the transmission of news
by means of
modem communications. Inasmuch as at present, the means of
transportation have rapidly advanced due to the urgent needs of
commerce, the presumption that the loss of a vessel due to the
disaster of the seas was duly communicated to the insured
becomes stronger.
(3) When rule not applicable. — The insured is not bound,
however, to use all accessible means of information at the very
last instant of time to ascertain the condition of the property
insured. Thus, when having no cause to expect information the
insured omits to call at the post office where a letter was
received on the morning of the day the insurance was effected,
containing the material information, he is not guilty of negligence
which will vitiate the policy.
SEC. 112
When concealment does not vitiate entire contract.

As a rule, the concealment of a material fact entitles the injured
party to rescind the entire contract of insurance. However,
concealment of any of the matters indicated from paragraphs
(a)
to (e) of Section 112 does not avoid the policy ab initio. If the
vessel be lost due to any of the causes mentioned in Section
112, which was concealed, the insurer is not liable; but if the
vessel be lost due to other perils of the sea, like a storm, the
insurer is not exonerated from liability.
Generally, the national character of the vessel is not a material
fact; but facts lying peculiarly within the knowledge of the
insured, which will expose the property to belligerent risks or
seizure and condemnation for violation of the trade or navigation
laws of another country, must be disclosed.
SUBTITLE 1-D: REPRESENTATIONS
SEC. 113
Applicability of rules on representation to marine insurance
The rules governing representations with respect to insurance
policies generally have been held to apply to marine insurance
policies. Thus, the general rules have been applied to marine
insurance with respect to the distinctions between
representations and warranties and to the construction of
representations, and a substantial misrepresentation of any
material fact or circumstance relating to marine insurance avoids
the policy.
The general rule that a representation is material where it would
influence the judgment of a prudent insurer in fixing the premium

or in determining whether he would take the risk, is applicable to
marine insurance.
Effect of false representation by insured.
1. Intentional - Any misrepresentation of a material fact made
with fraudulent intent avoids the policy.
2. Not Intentional — If the misrepresentation is not intentional
or fraudulent but the fact misrepresented is material to the risk,
the insurer may also rescind the contract from the time the
representation becomes false. Section 111 qualifies the general
provision in Section 45 under which the injured party may
rescind the contract only "from the time when the representation
becomes representation is intentionally false.
3. Materiality of representations – Representations as to age,
equipment and particularcondition
repaired at a certain place;
that she has arrived at her port of destination, or was at a certain
place at a certain time; that other underwriters had insured her at
a certain rate; or as to anything which concerns the state of the
vessel at any particular period of her voyage, have been held to
be material. But statements of the nature and amount of the
cargo, where she was not overloaded or where the underwriter
did not rely thereon, have been held to be immaterial.
SEC. 114
Effect of falsity of representation as to expectation.
Representations of expectation or intention are to be carefully
distinguished from promissory representations. The former are
statements of future facts or events which are in their nature
contingent and which the insurer is bound to know that the
insured could not have intended to state as known facts, but as
intentions or expectations merely. Hence, unless made with
fraudulent intent, their failure of fulfillment is not a ground for
rescission. This rule applies to statements of the time a vessel
will sailor is expected to sail, the nature of the cargo to be
shipped, the amount of profits expected, the destination of the
vessel, or that the insured has no doubt that he can get
insurance effected for a certain premium.
SUBTITLE 1-E: IMPLIED WARRANTIES
SEC. 115
Warranty in marine insurance defined.
In marine insurance, a warranty has been defined as a
stipulation, either expressed or implied, forming part of the policy
as to some fact, condition or circumstance relating to the risk.
Implied warranties in marine insurance.
In every insurance upon any marine venture whether of vessel,
cargo, or freight, there are conditions upon the underwriter's
liability for the risks assumed, usually termed as implied
warranties. That is, the insurer will not be liable for any loss
under his policy in case the vessel:
(1) is
unseaworthy at the inception of the insurance (Sec. 115.);
or
 reasonably capable of safely carrying the cargo to its port of
(2) deviates from the agreed voyage (see Secs. 125,126,127.);
or
(3) engages in an illegal venture. (Vance, op. cit., p. 920.)
(4) the ship will carry the requisite documents of nationality or
neutrality of the ship or cargo where such nationality or neutrality
is expressly warranted. (Sec. 122.)
Of course, it is also impliedly warranted that the insured has an
insurable interest in the subject matter insured.
1. Implied warranty of seaworthiness.
In every voyage policy of marine insurance, there is an implied
warranty that the vessel is in all respects seaworthy, and such
warranty can be excluded only by clear provisions of the policy.
(1) Where seaworthiness admitted by policy provides that
the seaworthiness of insurer. — If the vessel as between
insured and insurer
issue of seaworthiness cannot be raised by
the insurer without showing concealment or misrepresentation by
the insured. The admission of seaworthiness by the insurer may
mean one or two things: (a) that the warranty of seaworthiness is
to be taken as fulfilled; or (b) that the risk of unseaworthiness is
assumed by the insurer. The insertion of such waiver clauses in
cargo policies is in recognition of the realistic fact that cargo
owners cannot control the state of the vessel.
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(2) Where unseaworthiness unknown to owner of cargo
insured. — Where cargo (see Sec. 99[1, a].) is the subject of
marine insurance, the implied warranty of seaworthiness
attaches to whoever is insuring the cargo, whether he be the
shipowner or not. The fact that the unseaworthiness of the ship
was unknown to insured is immaterial in ordinary marine
insurance and may not be used by him as a defense in order to
recover on the marine insurance policy.
(3) Where vessel found unseaworthy. —
As a general rule, common carriers are presumed to have been
at fault or to have acted negligently for the loss, destruction, or
determination of goods, unless they prove that they observed
diligence. (Arts. 1733, 1734,1735, Civil Code.) Where a vessel is
found unseaworthy, a shipowner is also presumed to be
negligent since it is tasked with the maintenance of its vessel.
Though its duty can be delegated, still, the shipowner must
exercise close supervision over its men. An exception to the
limited liability doctrine which limits the insurer's liability to it pro
rata share in the insurance proceeds, is when the damage is due
to the fault of the shipowner and the captain. In such case, the
shipowner, unless it overcomes the presumption of negligence,
is liable to the total value of the damage or loss.
SEC. 116
Generally, for a vessel to be seaworthy, it must be adequately
equipped for
the voyage and manned with a sufficient number of
competent officers and crew. The failure of a common carrier to
maintain in seaworthy condition the vessel involved in the
contract of carriage is a clear breach of its duty prescribed in
Article 1755 of the Civil Code.
(1) Nature of ship. — To comply with the implied warranty of
seaworthiness, the vessel must be in a fit state as to repair,
equipment, and crew and in all other respects to perform the
voyage insured and to encounter the ordinary perils of
navigation. She must also be in a suitable condition to carry the
cargo put on board or intended to be put on board, It is not
necessary that the cargo itself shall be seaworthy, (see Sec.
121.)
(2) Nature of voyage.—What is reasonable fitness to encounter
the perils expected to arise in the course of the voyage vary,
naturally, with the character of the particular voyage. A vessel
well fitted for the navigation of the
Mississippi might be wholly
unfit for a voyage on the Great Lakes, while a lake streamer
would scarcely be seaworthy in the Atlantic. A crew that could be
quite adequate for a vessel while passing through a canal might
be insufficient for the proper handling of the same vessel on the
high seas. (Vance, op. cit., pp. 922- 923.)
(3) Nature of service. — The seaworthiness of a vessel is also to
be determined with regard to the nature of the cargo which she
undertakes to transport, the requirement being that she shall be
destination.
Criterion of seaworthiness.
The warranty of seaworthiness is not an absolute guaranty that
the vessel will safely meet all possible perils. A perfect vessel or
one impervious to the assaults of the elements is not required;
nor is the best and most skillful form of construction required, but
only such as is sufficient for the kind of vessels insured with
reference to their physical and mechanical condition, the extent
of its fuel and provisions supply, the quality of its officers and
crew, and its adaptability for the service in which they are
employed.
SEC. 117
When seaworthiness is complied with.
(1) Commencement of risk. — The general rule is that the
warranty of seaworthiness is complied with if the ship be
seaworthy at the time of the commencement of the risk. Prior or
subsequent unseaworthiness is not a breach of the warranty; nor
is it material that the vessel arrives in safety at the end of her
voyage. There is no implied warranty that the vessel will remain
in seaworthy condition throughout the life of the policy, (see
Sec.120.)

(2) Exceptions. — There are three exceptions to the rule,
namely:
(a) In the case of time policy, the ship must be seaworthy at the
commencement of every voyage she may undertake (Sec.
117[a].);
(b) In the case of cargo policy, each vessel upon which the
cargo is shipped or transshipped, must be seaworthy at the
commencement of each particular voyage
(c) In the case of a voyage policy contemplating a voyage in
different stages, the ship must be seaworthy at the
commencement of each portion. (Sec. 119.)
(3) Ship’s actual condition at commencement of voyage - the
presumption of unseaworthiness. The
cannot escape liability by
presenting in evidence a certificate that tends to show that at the
time of dry-docking and inspection (by the Philippine Coast
Guard),the vessel was fit for voyage.
Time and voyage policies.
A time policy provides coverage for a fixed period of time, at the
expiration of which the insurance will lapse, while a voyage
policy covers the subject matter for the voyage named in the
policy until the specified voyage ends, regardless of the time it
takes to complete the voyage.
SEC. 118
As a general rule, the implied warranty of seaworthiness is
complied with if the ship be seaworthy at the time of the
commencement of the risk. (Sec. 117.) There is no implied
warranty that the vessel will remain in a seaworthy condition
throughout the life of the policy.
However, when the vessel becomes unseaworthy during the
voyage, it is the duty of the master, as the shipowner's
representative, to exercise due diligence to make
it seaworthy
again, and if loss should occur because of his negligence in
repairing the defect, the insurer is relieved of liability but the
contract of insurance is not affected as to any other risk or loss
covered by the policy and not caused or increased by such
particular defect.
Note that the benefit of exoneration is given only to an "insurer
on ship or shipowner's interest."
SEC. 121-122
Express warranty as to nationality or neutrality.
(1) A warranty of national character may be gathered from the
language of the policy describing the vessel as the "Philippine,"
"American," "British," or "Spanish" ship, etc., although an
exception has been made where the fact recited could have no
relation to the risk. A warranty of nationality does not meant hat
the vessel was built in such country, but that the property
belongs to a subject thereof. It refers to the beneficial
ownership rather than to the legal title.
(2) A warranty of neutrality imports that the property insured is
neutral in fact, and shall be so in appearance and conduct, that
the property shall belong to neutrals, and that no act of insured
or his agent shall be done which can legally compromise its
neutrality. The warranty extends to insured's interest in all the
property intended to be covered by the policy, but not to
the
interest of a third person not covered by the policy. (Ibid.)
Implied warranty to carry requisite documents.
 insurance is wholly destroyed or lost or when it is so damaged as
(1) The warranty of nationality also requires that the vessel be
conducted and documented as of such nation, and a breach of
warranty in either particular will avoid the policy. The warranty is
a continuing one and a change of nationality is a breach of
the warranty, but the warranty is not broken by a contract
for sale and transfer to an alien at a future date.
(2) A warranty of neutrality requires that the insured property
shall be accompanied by documentary evidence of its neutral
character, and not by any other papers which compromise such
character.. The proper papers must be produced when
necessary to prove ownership, and such production is not
excused because the papers were lost by the fault of the master.
SUBTITLE 1-F: THE VOYAGE AND DEVIATION
SEC. 123 -125
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Any unexcused departure from the regular course or route of the
insured voyage or any other act which substantially alters the
risk constitutes deviation.
Cases of deviation in marine insurance.
There are four (4) cases of deviation in marine insurance,
namely:
(1) Departure from the course of sailing fixed by mercantile
usage between the places of beginning and ending specified in
the policy (Sec. 123.);
(2) Departure from the most natural, direct, and advantageous
route between the places specified if the course of sailing is not
fixed by mercantile usage (Sec. 124.);
(3)
Unreasonable delay in pursuing the voyage (Sec. 125.); and
(4) The commencement of an entirely different voyage,
SEC. 126-127
Deviation may be proper or improper. Deviation is proper in the
cases enumerated in Section 126. Every deviation not specified
in Section 126 is improper. (Sec. 127.) The insurer is not
exonerated from liability for loss happening after proper
deviation. The effect is as if there were no deviation.
When deviation is proper. (Important)
(1) Deviation from the course of the voyage will not vitiate a
policy of marine insurance if the deviation is justified or caused
by actual necessity which is equal in importance to such
deviation.
Thus, the insurance is not affected:
(a) Where the ship is compelled to head for another port by
stress of weather or
(b) Where a departure from the course is made to take on a pilot
when necessary to the safety of the adventure or in order to
proceed to a place where the ship will meet a convoy if the policy
warrants that the
ship will not proceed from one port to another
without convoy or to escape capture or
(c) Where the master seeks another port of discharge when the
water of the river to the port in which he is supposed to
discharge is too shallow for his vessel to enter.
(2) Such compulsory deviations are risks impliedly assumed by
the underwriter. But while deviation to save property is not
justified, unless it is to save another vessel in, a deviation for the
purpose of saving life does not constitute a breach of warranty.
(Sec. 126[d].) In this case, the justification rests on ground of
humanity.
SEC. 128
SUBTITLE 1-G: LOSS
SEC. 129-131
The law classifies loss into either total or partial. There are two
kinds of total loss: actual or absolute; (Sec. 131.) and
constructive or technical. (Sec. 133.) When the loss is total,
the underwriter is liable for the whole of the amount insured.
SEC. 132
An actual total loss exists when the subject matter of the
no longer to exist in its original character
Complete physical destruction not essential to constitute
actual total loss
Under Section 132, the complete physical destruction of the
subject matter as in the case of fire is not essential to constitute
an actual total loss. (pars, [b], [c], [d].) Such a loss may exist
where the form and specie of the thing is destroyed although the
materials of which it consisted still exist
Limited liability rule.
The shipowner's or ship agent's liability is usually co-extensive
with his interest in the vessel such that a total lost thereof results
in its extinction. In our jurisdiction, the limited liability rule is
embodied in Articles 587, 590 and 837 under Book III of the
Code of Commerce, thus:
Art. 587. The ship agent shall also be civilly liable for the
indemnities in favor of third persons which may arise from the

conduct of the captain in the care of the goods which he loaded
on the vessel; but he may exempt himself therefrom by
abandoning the vessel with all her equipment and the freight it
may have earned during the voyage.
Art. 590. The co-owners of the vessel shall be civilly liable in the
proportion of their interests in the common fund for the results of
the acts of the captain referred to in Article 587.
Each co-owner may exempt himself from this liability by the
abandonment, before a notary, of the part of the vessel
belonging to him.
Art. 837. The civil liability incurred by shipowners in the case
prescribed in this section, shall be understood as limited to the
value of the vessel with all its appurtenances and freightage
served during the voyage.
These articles precisely intend to limit the liability of the
shipowner or agent to the value of the vessel, its appurtenances
and freightage earned in the voyage, provided that the owner or
agent abandons the vessel. When the vessel is totally lost in
which case there is no vessel to abandon, abandonment is not
required. Because of such total loss, the liability of the shipowner
or agent for damages is extinguished.
As an exception to the limited liability doctrine, a shipowner or
ship agent may be held liable for damages when the sinking of
the vessel is attributable to the actual fault or negligence of the
shipowner or its failure to ensure the seaworthiness of the
vessel.
 "The underwriters of the vessels, of the freightage and of the
SEC. 133
A constructive total loss, or, as it is sometimes called, a
"technical total loss," is one in which the loss, although not
actually total, is of such a character that the insured is entitled, if
he thinks fit, to treat it as total by abandonment. In cases of
actual total loss, no abandonment is necessary; but if the loss is
merely constructively total, abandonment becomes necessary in
order to recover as for a total loss.
SEC. 134-136
SEC. 137
(1) In constructive total loss, an abandonment by the insured is
necessary in order to recover for a total loss (Sec. 138.) in the
absence of any provision to the contrary in the policy.
(2) In case of actual total loss, the right of the insured to claim
the whole insurance is absolute. Hence, he need not give notice
of abandonment nor formally abandon to the insurer anything
that may remain of the insured property.
SEC. 138
Average is defined by the Code of Commerce as any
extraordinary or accidental expense incurred during the voyage
for the preservation of the vessel, cargo, or both and all
damages to the vessel and cargo from the time it is loaded and
the voyage commenced until it ends and the cargo unloaded.
(Art. 806 thereof.)
Averages are of two kinds.
1) Gross or general averages which include damages and
expenses which are deliberately caused by the master of the
vessel or upon his authority, in order to save the vessel, her
cargo, or both at the same time from a real and known risk.
(Art. 811, ibid.) A general average loss must be borne equally
by all of the interests concerned in the venture; and
(2) Simple or particular averages which include all damages
and expenses caused to the vessel or to her cargo which have
not inured to the common benefit and profit of all the
persons interested in the vessel and her cargo. (Art. 809,
ibid.) A particular average loss is suffered by and borne alone by
the owner of the cargo or of the vessel, as the case may be. The
terms "partial loss," "particular average," and "average, unless
general" are generally regarded as synonymous in marine
insurance.
Principle of general average contribution.
General average is a principle of customary law, independent of
contract, whereby, when it is decided by the master of a vessel,
acting for all the interests concerned, to sacrifice any part of a
venture exposed to a common and imminent peril in order to
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save the rest, the interests so saved are compelled to contribute
ratably or proportionately to the owner of the interest
sacrificed,
so that the cost of the sacrifice shall fall equally upon
all.
Right of a party to claim general average contribution.
The requisites to the right to claim general average contribution
are:
(1) There must be a common danger to the vessel or cargo;
(2) Part of the vessel or cargo was sacrificed deliberately;
(3) The sacrifice must be for the common safety or for the benefit
of all;
(4) It must be made by the master or upon his authority;
(5) It must not be caused by any fault of the party asking the
contribution;
(6) It must be successful, i.e., resulted in the saving of the vessel
and/ or cargo; and
(7) It must be necessary.
Liability of insurer for general average.
The liability of the insurer for general average is clearly provided
in the clause of Section 136 which states "but he is liable for his
proportion of all general average loss assessed upon the thing
insured." (see Secs. 164-165.) It has been held by our Supreme
Court that Article 859 of the Code of Commerce which reads:
cargo shall be obliged to pay for the indemnity of the gross
average in so far as is required of each one of these objects
respectively."
Is still in force.
Article 859 is mandatory in terms, and insurers, whether for
the vessel or for the freightage or for the cargo, are bound
to contribute to the indemnity of the general average. And
there is nothing unfair in the provision; it simply places the
insurer on the same footing as other persons who have an
interest in the vessel, or the cargo therein, at the time of the
occurrence of the general average and who are compelled to
contribute. (Ibid.,Art. 812, Code of Commerce; see Sec. 164 on
limit of insurer's liability.)
Formula for liability of insurer for general average: (GAL =
General Average LOSS)
𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑖𝑛𝑠𝑢𝑟𝑎𝑛𝑐𝑒
∗ 𝐺𝐴𝐿
𝑇𝑜𝑡𝑎𝑙 𝑎𝑚𝑜𝑢𝑛𝑡 𝑜𝑟 𝑣𝑎𝑙𝑢𝑒 𝑖𝑛𝑣𝑜𝑙𝑒𝑣𝑒𝑑
= 𝑃𝑜𝑟𝑡𝑖𝑜𝑛 𝑜𝑓 𝐺𝐴𝐿 𝑓𝑜𝑟 𝑤ℎ𝑖𝑐ℎ 𝑖𝑛𝑠𝑢𝑟𝑒𝑟 𝑖𝑠 𝑙𝑖𝑎𝑏𝑙𝑒
Liability of insurer for particular average.
Policies of marine insurance frequently contain stipulations with
respect to certain class of goods which are perishable or
peculiarly subject to damage under which the insurer will not be
liable for loss, partial or total, arising from perils of the sea. The
purpose of such stipulation is to protect the insurer. In addition, it
may be agreed by the parties that the insurance shall be free
from particular average. In such case, the marine insurer is liable
only for general average and not for particular average unless
such particular average loss has the effect of "depriving the
insured of the possession at the port of destination of the whole"
of the thing insured. (Sec. 136.) In the absence of any contrary
stipulation, the insurer is liable for particular average loss.
SEC. 139
SUBTITLE 1-H: ABANDONMENT
SEC. 140
Abandonment, Marine Insurance
It has also been defined as the act of an insured in notifying the
insurer that owing to damage done to the subject of the
insurance, he elects to take the amount of the insurance in the
place of the subject thereof, the remnant of which he cedes to
the insurer.
Requisites for valid abandonment.
The requisites for a valid abandonment in marine insurance are:
(1) There must be an actual relinquishment by the person
insured of his interest in the thing insured (Sec. 140.);
(2) There must be a constructive total loss (Sec. 141.);

(3) The abandonment be neither partial nor conditional (Sec.
142.);
(4) It must be made within a reasonable time after receipt of
reliable information of the loss (Sec. 143.);
(5) It must be factual (Sec. 144);
(6) It must be made by giving notice thereof to the insurer which
may be done orally or in writing (Sec. 145.); and
(7) The notice of abandonment must be explicit and must specify
the particular cause of the abandonment. (Sec. 146.)
The international rule is to the effect that the right of
abandonment of vessels, as a legal limitation of a shipowner's
liability, does not apply to cases where the injury or average was
occasioned by the shipowner's own fault. Article 587 (supra.) of
the Code of Commerce speaks only of situations where the fault
or negligence is committed solely by the captain. Where the
shipowner is likewise to be blamed, Article 587 will not apply and
such situation will be covered by the provisions of the Civil Code
on Common Carriers.
Necessity for abandonment.
(1) When the loss is only technically total, the insured cannot
claim the whole insurance without showing due regard to the
interest which the underwriter may take in the abandoned
property. Therefore, whenever the underwriter by prompt action
might be able to save some portion of the insured property, he is
entitled to timely notice of abandonment by the insured and he
cannot be made liable for a total loss without it. But there is no
obligation upon the insured to abandon. It is a matter of his own
election. If he omits to abandon, he may nevertheless recover
his actual loss.
(2) When the vessel is totally lost, abandonment is not required
as there is no vessel to abandon. By reason of such total loss,
the liability of the ship's owner or agent for damages
extinguished in the absence of any finding of fault on other part.
However, the insurer answers for the damages from which the
shipowner or agent may be held liable.
SEC. 141
When constructive total loss exists.
As to when a constructive total loss exists, three (3) rules may be
mentioned.
(1) According to the English rule, when the subject matter of the
insurance, while still existent in specie, is so damaged as not to
be worth, when repaired, the cost of the repairs.
(2) According to the American rule, when it is so damaged that
the cost of repairs would exceed one-half of the value of the
thing as required. The American rule is ordinarily spoken of as
the "fifty percent rule."
(3) In the Philippines, the insured may not abandon the thing
insured unless the loss or damage is more than three-fourths of
its value as indicated in Section 139.
Abandonment where insurance divisible and where
indivisible.
Under the first paragraph of Section 139, any
particular portion
of the thing insured separately valued by the policy deemed
severable employed by the parties. It is not correct to say that
the word ‘may; in Section 141 (1st par.) is merely permissive.
The word is intended to grant the insured the option or discretion
make the choice. This option is a right in section 133.
Criterion as to extent of loss.
The extent of the injury to the vessel is to be considered with
reference to its general market value immediately before the
disaster. This has been held to be the proper rule, even
thoughthe policy is valued. It has also been held, however, that
the valuation of the policy is the proper criterion; and this
will, of course, apply where the policy expressly provides
that the value stated therein shall be taken as the basis of
estimate.
In determining the extent of the loss, the expenses incurred or to
be incurred by the insured recovering the thing insured {e.g.,
expenses of refloating a vessel) are taken into account.
SEC. 142
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Abandonment must be absolute. However, if only a part of a
thing is covered by the insurance, the insured need only
abandon that part.
SEC. 143
Abandonment must be made within a reasonable time.
(1) Reliable information of loss. —When the insured has
received notice of a loss, he must elect within a reasonable time
whether he will abandon to the insurer, and if he elects to
abandon, he must give notice thereof. This is in order that the
insurer may not be prejudiced by the delay, and may take
immediate steps for the preservation of such of the property
insured as may remain in existence.
(2) Double character of information of loss.—What is a
reasonable time is a question depending on the facts and
circumstances in each case. Thus, if from information first
received, the character of the loss is not made clearly to appear,
the insured is entitled to a sufficient interval to ascertain its real
nature, but he cannot wait an undue length of time to see
whether it will be more profitable to abandon or to claim for a
partial loss. After the property passes beyond the control of the
insured, as from an unjustifiable sale, an abandonment is too
late.
SEC. 144
Abandonment must be factual.
(1) Existence of loss at time of abandonment. — The right of the
insured to abandon and recover for a total loss depends upon
the state of facts at the time of the offer to abandon, and not
upon the state disclosed by the information received, or
upon the state of loss at a prior or subsequent time.
(2) Effect of subsequent events. — If the abandonment when
made is good, the rights of the parties are definitely fixed, and do
not become changed by any subsequent events. If, on the other
hand, the abandonment, when made, is not good, subsequent
circumstances will not affect it so as retroactively, to impart
to it a validity which it has not at its origin.
Accordingly, the insured cannot abandon when the thing insured
is safe; or when he knew, at the time of his offer to abandon, that
the vessel has been repaired and is successfully pursuing her
voyage; and the invalidity of the abandonment is not cured by
the subsequent loss of the thing insured. But if, after a valid
abandonment has been made, the insured property was
recovered, the insured cannot withdraw the abandonment.
(3) Instances justifying abandonment. — It has been held that
the insured may abandon for a total loss under a marine
insurance policy in case of capture, seizure, or detention of the
ship or cargo; restraint by blockade or embargo; where through
no fault of the owner, funds for repair cannot be raised; where
the voyage is absolutely lost; or where under urgent necessity,
the master of a vessel at an intermediate port, makes a sale of
the insured property.
Information need not be
direct or positive.
The protest of the master, a newspaper report, the report of a
pilot, or a letter from an official or an agent, is sufficient. The
information must be of such facts and circumstances as to
render it highly probable that a constructive total loss has
occurred, and facts sufficient to constitute a total loss must
exist. But the facts and the information need not be the same.
SEC. 145-146
The notice of abandonment must be explicit, and not left open as
a matter of inference from some equivocal acts. There must
bean intention to abandon, apparent from the communication to
the insurer, and a relinquishment of all rights to the insurer. But
there is no abandonment although the insured may have given
notice of an intention to abandon, if he continues to claim and
use the
property as his own.
The grounds for the abandonment must be stated with such
particularity as to enable the underwriter to determine whether or
not he is bound to accept the offer. It is sufficient if the notice
shows probable cause for the abandonment; nor is it required
that it be accompanied with proof of interest or of loss.
SEC. 147-158

Effect of valid abandonment.
A valid abandonment transfers to the insurer the interests in the
subject matter covered by the policy subject to the rights and
interests, if any, of third persons. The insurer acquires thereby
the entire interest insured, together with all its incidents,
including rights of action which the insured has against third
persons for the injury.
The execution of a formal instrument is not necessary to effect
an abandonment for, by Section 148, the act of abandonment,
when accepted (Secs. 152,162.), has all the effects which the
most carefully drawn assignment would accomplish. The effect
of the abandonment retroacts to the time of the loss. (Sec. 150.)
SEC. 149
Under Section 147, the interest of the insured over the thing
covered by the policy will be transferred to the insurer,
notwithstanding the lack of abandonment, as if there had been a
formal abandonment, in case the insurer pays for a loss as if it
were an actual total loss. The acceptance by the insured of the
payment is deemed an offer of abandonment on his part. Hence,
the insurer is entitled to whatever may remain of the thing
insured, or its proceeds or salvage.
SEC. 150
Transfer of agency to insurer.
The captain or master continues to be the agent of the insured
until abandonment, but from the moment of a valid
abandonment, the master of the vessel and agents of the
insured become the agents of the insurer, and the latter
becomes responsible for all their acts in connection with the
insured property and for all the expenses and liabilities in respect
thereof. (45 C.J.S. 1160.)
Liability of insurer for expense s and wages.
The abandonment when made relates back to the time of the
loss and if effectual, the title of the insurer becomes vested as of
that date and he is responsible for the reasonable expenses
incurred by the master after that date in an attempt to save the
vessel. Insurers are also liable for the wages of seamen earned
subsequent to the loss, but take free from any lien or liability for
wages earned prior thereto
SEC. 151
Acceptance is in no case necessary if the abandonment is
properly made. The insured's right to abandon, in a policy of
marine insurance, is absolute when justified by the
circumstances.
SEC. 152
Form of acceptance of abandonment.
(1) An insurer’s acceptance of an offered abandonment need not
be express.
(2) It may be implied by conduct, as by an act of the insurer in
consequence of an abandonment, which can be justified only
under a right derived from the abandonment.
Thus, where the insurer refused the abandonment of a ship but
took possession of the same for the purpose of making repairs
and retained it for an unreasonable time, he will be deemed to
have accepted the abandonment.
(3) Mere silence after notice would not operate as an
acceptance, if it is not "for an unreasonable length of time." (Sec.
152.) Nor would steps taken by the insurer to preserve the
property from further loss for the benefit of all the parties amount
to an acceptance.(45C.J.S.1158.)
SEC. 153-154
Effect of acceptance of abandonment.
(1) Upon receiving notice of abandonment, the insurer may
accept or reject the abandonment. If he accepts, he becomes at
once liable for the whole amount of the insurance, and also
becomes entitled to all rights which insured possessed in the
thing insured, (see Sec. 148.)
(2) The acceptance of an abandonment fixed the rights of the
parties (Vance, op. cit., pp. 938-939.); whether expressed or
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implied, is conclusive upon them (Sec. 153.), and irrevocable.
(Sec. 154.)
(3) Therefore, the acceptance of an abandonment stops the
insurer to rely on any insufficiency in the form (see Sec. 145.),
time (see Sec. 143.), or right (see Sec. 141.), of abandonment.
Whether or not the insured has a right to abandon is immaterial
where the abandonment is accepted and there is no fraud.
The only exception provided by law is the case where the
ground upon which it was made proves to be unfounded. (Sec.
154.) Under Section 147, abandonment can be sustained only
upon the ground specified in the notice thereof.
SEC. 155
Right of insurer to freightage.
When abandonment is validly made, the interest of the insured in
the thing covered passes to the insurer. The insurer of the ship
becomes the owner thereof after an abandonment, and his title
becomes vested as of the time of loss. Hence, freightage earned
subsequent to the loss belongs to the insurer of said ship. But
freightage earned previously belongs to the insurer of said
freightage who is subrogated to the rights of the insured up to
the time of loss.
SEC. 156
Effect of refusal to accept a valid abandonment on insurer’s
liability.
The insured's right to abandon, in a policy of marine insurance,
is absolute when justified by the circumstances and no
acceptance is necessary to validate the abandonment, (see Sec.
151.)
(1) If the insurer declines to accept a proper abandonment, he is
liable as upon an actual total loss less any proceeds the insured
may have received on account of the damaged property as when
the insured succeeds in selling the property as damaged.
(2) If the abandonment was improper, the insured may
nevertheless recover to the extent of the damage proved.
SEC. 157
Effect of insured’s failure to make abandonment
The insured has an election to abandon or not, and cannot be
compelled to abandon although abandonment is proper. He may
await the final event, and recover accordingly for a total or a
partial loss, as the case may be.
Note that under Section 157, the insured fails to make an
abandonment. On the other hand, Section 156 applies where a
valid abandonment has been made but the insurer refuses to
accept the same without any valid reason.
SUBTITLE 1-I: MEASURE OF INDEMNITY
SEC. 158
Valuation in a marine policy.
(1) Object of valuation. — A policy of marine insurance may be
valued or open, (see Sec. 61.) Section 156 refers to a valued
marine policy. The object of a valuation in a policy is to fix in
advance the value of the property and thus avoid the necessity
of proving its actual value in case of loss.
(2) Effect of valuation. — It may happen when a vessel, for
example, is insured for a long time or for a long voyage, her
value at the end of the voyage, may not be the same as at the
beginning. But, in general, the insured value must be taken to be
that which is stated in the policy. It is conclusive upon the parties
provided that
(a) the insured has some interest at risk and
(b) there is no fraud on his part. If the valuation is fraudulent in
fact, the insurer is entitled to rescind the contract.
(3) Right to give evidence of value. — In a valued marine policy,
neither party can thus give evidence of the real value of the thing
insured. However, when the thing has been hypothecated by
bottomry or respondentia (see Sec. 103.) before its insurance
and without the knowledge of the person who actually procured
the insurance, the insurer may show the real value but he is not
entitled to rescind the contract unless he can prove that the
valuation was in fact fraudulent.
SEC. 159

When insured a co-insurer in marine insurance.
In every marine insurance, the insured is expected to cover by
insurance the full value of the property insured. If the value of his
interest exceeds the amount of insurance, he is considered the
co-insurer for an amount determined by the difference between
the insurance taken out and the value of the property. The rule is
different in fire insurance, (see Sec.174.)
The law determines the amount recoverable according to the
following formula:
(𝑃𝑎𝑟𝑡𝑖𝑎𝑙)𝐿𝑜𝑠𝑠
∗ 𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑖𝑛𝑠𝑢𝑟𝑎𝑛𝑐𝑒
𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑡ℎ𝑖𝑛𝑔 𝑖𝑛𝑠𝑢𝑟𝑒𝑑
= 𝐴𝑚𝑜𝑢𝑛𝑡 𝑅𝑒𝑐𝑜𝑣𝑒𝑟𝑦
SEC. 160
Loss of profits separately insured.
If the profits to be realized are separately insured from
the
vessel or cargo, the insured is entitled to recover, in case of
loss, such proportion of the profits as the value of the property
lost bears to the value of the whole property.
The formula may be stated thus:
𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑃𝑟𝑜𝑝𝑒𝑟𝑡𝑦 𝐿𝑜𝑠𝑠
𝑥 𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑖𝑛𝑠𝑢𝑟𝑎𝑛𝑐𝑒
𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑤ℎ𝑜𝑙𝑒 𝑝𝑟𝑜𝑝𝑒𝑟𝑡𝑦 𝑖𝑛𝑠𝑢𝑟𝑒𝑑
= 𝐴𝑚𝑜𝑢𝑛𝑡 𝑅𝑒𝑐𝑜𝑣𝑒𝑟𝑦
SEC. 161
Where only part of a cargo or freightage insured exposed to
risk.
Where cargo is insured under a valued policy but only a portion
of the cargo is actually carried by the vessel at the time of loss,
the valuation will be reduced proportionately. The insurer is
bound to return such portion of the premium as
corresponds
with the portion of the cargo which had been
exposed to the risk.
SEC. 162
Presumption of loss of profits.
Where profits are separately insured from the property out of
which they are expected to arise, the insured, in case of partial
loss of the property, is entitled merely to partial indemnity for the
profits lost. (Sec. 160.) If the property is
totally lost, pro tanto the
total profits are also lost. Thus, under Section 162, such loss of
the profits is conclusively presumed from the loss of the property
and the valuation agreed upon in the policy fixes the amount of
recovery.
SEC. 163
Rules for estimating loss under an open policy of marine
insurance.
Section 163 refers to an open policy while Section 156 refers to
valued policies.
In determining the loss under an open policy of marine
insurance, the real value of the thing insured must be proved by
the insured in each case. Section 163 lays down the value to be
used for indemnity purposes.
(1) Value of vessel. — Under paragraph (a), in ascertaining the
value of a vessel, the value is to be taken as of the
commencement of the risk and not its value at the time she was
built.
(2) Value of cargo. — Under paragraph (b), the value of the
cargo is its actual cost to the insured, when laden on board, or
where that cost cannot be ascertained, its market value at the
time and place of shipment. The expected profits from the cargo
are not considered since they can be covered by a separate
insurance, (see Secs. 101, 160 ,162.)
(3) Value of freightage. — Under paragraph (c), the gross
freightage and not the net freightage is the basis for determining
the value of the freightage. The reason is that the gross amount
of the freightage, as the measure of indemnity, can be easily and
exactly determined. On the other hand, to take the net amount of
the freightage as the basis, would lead to lawsuits over the
deductions which should be made.
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Primage is excluded from gross freightage. It is a small
compensation paid by a shipper to the master of the vessel for
his care and trouble bestowed on the shipper's goods and which
the master is entitled to retain in the absence of an agreement to
the contrary with the owners of the vessels. (Ballantine's Law
Dictionary [1948 ed.], p. 64.)
(4) Cost of insurance. — Under paragraph (d), the cost of the
insurance is always added in calculating the value of the ship,
cargo, or freightage or other subject matter in an open policy.
SEC. 164
Where cargo insured against partial loss is damaged.
The foregoing provision applies if the cargo is insured against
partial loss and it suffers damage as a result of which its market
value at the port of destination is reduced, (see Sec. 159.)
The formula may be stated as follows:
(Market price in sound state) – (Market price in damaged state) =
Reduction in value (depreciation)
𝑅𝑒𝑑𝑢𝑐𝑡𝑖𝑜𝑛 𝑖𝑛 𝑣𝑎𝑙𝑢𝑒
𝑥 𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑖𝑛𝑠𝑢𝑟𝑎𝑛𝑐𝑒
𝑀𝑎𝑟𝑘𝑒𝑡 𝑝𝑟𝑖𝑐𝑒 𝑖𝑛 𝑠𝑜𝑢𝑛𝑑 𝑠𝑡𝑎𝑡𝑒
= 𝐴𝑚𝑜𝑢𝑛𝑡 𝑅𝑒𝑐𝑜𝑣𝑒𝑟𝑦
SEC. 165
Liability of insurer for expenses incurred for repair and
recovery.
As a general rule, a marine insurer is not liable for more than the
amount of the policy. Under Section 165, however, expenses
incurred in repairing the damages suffered by a vessel because
of the perils insured against as well as those incurred for saving
the vessel from such perils, such as the expenses of launching
or raising the vessel or of towing or navigating it into port for her
safety, are items to be
borne by the insurer in addition to a total
loss if that afterwards takes place, Such expenses are known as
"Port of refuge" expenses.
SEC. 166-167
Rights of insured in case of general average.
(1) General rule. — The insurer is liable for any general average
loss (see Sec. 138.) where it is payable or has been paid by the
insured in consequence of a peril insured against. The insured
may either hold the insurer directly liable for the whole of the
insured value of the property sacrificed for the general benefit,
subrogating him to his own right of contribution or demand
contribution from the other interested parties as soon as he
vessel arrives at her destination. In other words, the vessel need
not wait for an adjustment
(2) Exceptions. — However, there can be no recovery for
general average loss against the insurer:
(a) after the separation of the interests liable to contribution, that
is to say, after the cargo liable for contribution has been removed
from the vessel; or
(b) when the insured has neglected or waived his right to
contribution.
Limit as to liability of insurer.
The liability of the marine insurer for any general average loss is
limited to the proportion of contribution attaching to his policy
value where this is less than the contributing value of the thing
insured. (Sec. 164.) In other words, the liability of the insurer
shall be less than the proportion of the general average loss
assessed upon the thing insured (see Sec. 138.) where its
contributing value is more than the amount of the insurance. In
such case, the insured is liable to contribute ratably with the
insurer to the indemnity of the general average.
𝐴𝑚𝑜𝑢𝑛𝑡 𝑜𝑓 𝑖𝑛𝑠𝑢𝑟𝑎𝑛𝑐𝑒
𝑥 𝑃𝑟𝑜𝑝𝑜𝑡𝑖𝑜𝑛 𝑜𝑓 𝑔𝑒𝑛𝑒𝑟𝑎𝑙 𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑙𝑜𝑠𝑠
𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑡ℎ𝑖𝑛𝑔 𝑖𝑛𝑠𝑢𝑟𝑒𝑑
= 𝐿𝑖𝑚𝑖𝑡 𝑜𝑓 𝑙𝑖𝑎𝑏𝑖𝑙𝑖𝑡𝑦 𝑜𝑓 𝑖𝑛𝑠𝑢𝑟𝑒𝑟
SEC. 168
Liability of insurer in 
 case of partial loss of ship or its
equipment.
In case of a partial loss of a vessel, by common usage
which
has the sanction of law, there is deducted from the cost of
repairs "one-third new for old," on the theory that the new

materials render the vessel much more valuable than it was
before the loss. When repairs are thus made, one-third of the
cost of the repair is laid upon the insured as his burden, and the
implied agreement under the policy is that in case of damage to
the ship by a peril within the policy, the loss shall be estimated at
two-thirds of the cost of repairs fairly executed or one-third new
for old, as is commonly expressed. (44 Am. Jur. 2d 527.)
Section 166 prescribes the deductions to be made from such
cost subject to other conditions stipulated in the policy.
Title 2 Fire Insurance
SEC. 169
Fire Insurance – contact of indemnity by which the insurer, for
a stipulated premium, agrees to indemnify the insured against
loss of, or damage to, a property caused by hostile fire (Sec 86)
located at the place stated in the policy.
Fire-and-extended coverage – insurance against loss by fire,
and also “allied lines” that protect against loss by lighting,
windstorm, etc. but only when such risks are covered by
extension to fire insurance policies or under separate policies
(subject to payment of additional premiums; it may be attached
by endorsements)
Nature
• Indemnity – sole purpose
• Any contract that contemplates a possible gain to the
insured by the happening of the event upon which the
liability becomes fixed is contrary to it proper nature and
is not allowed
Fire
• Rapid oxidation as to produce a flame, glow or
incandescence
• Caused by combustion but combustion does not produce
fire (spontaneous combustion may result to fire but does not
necessarily mean that combustion is said to be fire)
• The presence of heat, stem, or even smoke is evidence of
fire, but taken by itself will not prove the existence of fire
• Heat sufficient to cause charring or scorching does not
constitute fire, unless it is accompanied by ignition
• Not a natural disaster or calamity
• Not an act of God unless caused by lightning or natural
disaster or casualty not attributable to human agency
Risks or losses covered
• Scope and coverage of a fire insurance policy and
intention of the parties, as indicated by their contract
controls
• Fire insurance policies frequently contain “extended
coverage” provisions – to account for additional risks or all
other risks not excluded w/n the coverage of the policy
o in some cases it is expressed in addition to fire
• they may also extend the coverage to indirect or
consequential losses
Indirect loss coverage
• standard fire contract – repay for direct loss
• when consequences of a direct loss may be greater than the
damage itself
• this special coverage is known as loss of profits insurance
or business interruption insurance
Kinds of indirect losses
• Physical damage caused to other property which is not
usually covered by the basic insurance policy
• Loss of earnings due to the interruption of business by
damage to insured’s property
• Extra expense or additional expenditure or charges incurred
by the insured following damage or destruction of buildings
or contents by an insured peril (ex. Expenses of doing
business at another location)
Ocean marine and fire policies DISTINCTION
• Contract of Ocean Marine Insurance – policy of insurance
on a vessel engaged in navigation; insures against fire risks
only
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The Insurance Code of the Philippines
• Fire policies – where to hazard is fire alone and the subject
is an unfinished vessel, never float for a voyage
o absence of an agreement that it shall have incidents of
marine policy
o insures materials in a shipyard for use in constructing the
vessel
o also when a vessel while moored and in sue as a hospital
Importance of distinction
1. in marine insurance, the rules on constructive total loss
and abandonment apply but not in fire insurance
2. in case of partial loss of a thing insured for less than its
actual value, the insured in a marine policy is a co-
insurer of the uninsured portion, while the insured may
only become a co-insurer in fire insurance if expressly
agreed upon by the parties
SEC. 170-171
When alteration in thing insured entitles insurer to rescind
(requisites)
1. use or condition of the thing is specifically limited or
stipulated in the policy
2. such use or condition as limited by the policy is altered
3. the alteration is made without the consent of the insurer
4. the alteration is made by means within the control of the
insured
5. the alteration increases the risk
• but a contract of fire insurance is not affected by any act of
the insured subsequent to the execution of the policy, which
does not violate its provisions even though it increases the
risk and is the cause of the loss
Increase of risk or hazard in general
• implied undertaking of insured – since every contract of
insurance is made with reference to the conditions
surrounding the subject matter of the risk and the premium
is fixed with reference thereto, there is an implied promise or
undertaking on the part of the insured that he will not
change the premises or character of the business
• character of the increase in risk – an increase of hazard
takes place whenever the insured property is put to some
new use, and the new use increases the chance of loss
o There must be an actual increase of risk and while it is not
necessary that the increased risk should have caused or
contributed to the loss, still it is necessary that the
increase be of substantial character
Alterations avoiding policy
• Where risk of loss increased – policy is avoided by any
alteration in the use or condition of the property insured
increasing the risk. Under such circumstances, the basis
upon which the contract of insurance rests is changed and
therefore, there can be no recovery
• Where the increase is no longer existing at time of loss –
insurer is still liable
Alterations not avoiding policy
• Where risk of loss not increased – different use is not of
dangerous character and does not differ materially from the
use specified in the policy, even though an additional or
increased premium may be demanded therefore
• Where questioned articles required by insured’s business
(even though the policy contains certain provisions
prohibiting specified articles from being kept in the inured
premises)
• Where insured property would be useless if questioned acts
were prohibited – ex. Repairs, painting, etc.
When insured has no control or knowledge of alteration
• Insurer’s liability unaffected – not avoid the policy unless
actually known to the insured or from the act of the insured’s
tenant provided the act is not known to the insured
• Insured’s knowledge presumed
Application of Sections 77 and 171
• Sec. 171 is consistent with sec. 77 that the breach of an
immaterial provision does not avoid the policy
• Sec 77 – insurer is given the right to insert terms and
conditions in the policy which if violated would avoid it. Thus

an alteration would avoid the policy if the alteration is
expressly prohibited although it does not increase the risk
• Sec 171 applies to polices which are silent upon the subject
SEC. 172
Where act of insured not in violation of policy
• If the policy does not contain any prohibition limiting the use
or condition of the thing insured, an alteration in said use
does not constitute a violation of the policy
• Considered as an exception to Sec. 170
SEC. 173-174
Measure of indemnity under an open policy
• Amount of actual loss sustained – in absence of express
valuation, the insured is only entitled to recover the amount
of actual loss sustained and the burden is upon him to
establish the amount of such loss by preponderance of
evidence. The insured is entitled to receive the amount
necessary to indemnify him or to have the thing insured in
the same condition in which it was at the time of the loss
• Limit to amount – liability of the insurer shall not exceed
what it would cost the insured to repair, or replace the thing
insured with materials of like kind and quality with proper
deduction for depreciation considering the age or condition
of the thing before the loss
• Market value in case of personal property – MV applied in
determining actual loss sustained
Measure of indemnity under a valued policy (the effect of
valuation in a policy of fire insurance is the same as in policy of
marine insurance)
• Valuation conclusive between the parties (in the adjustment
of either partial or total loss if the insured had an insurable
interest and was not guilty of fraud
o In ordinary fire insurance policy, liability of insurer cannot
exceed the amount of insurance nor actual loss suffered
• Amount stated in policy/amount of partial loss – the
valuation of a building or structure may be fixed
• Pro rata contribution to payment of loss – if the thing is
insured under two or more policies
Insured not a co-insurer under fire policies in the absence of
stipulation
• Co-insurance clause – a clause requiring the insured to
maintain insurance to an amount equal to the value or
specified percentage of the value of the insured property
under penalty of becoming co-insurer to the extent of such
deficiency, i.e. the difference between the value or
percentage insured and the amount of the insurance
o This results in reducing the recovery in case of partial loss
to but a portion of the sum named in the policy though in
case of total loss, the insurer is liable for the amount
named in the policy
o Ex. When only a portion or percentage of the property is
insured, in case of loss insurer is liable for the loss.
However, when there is a co-insurance clause, insurer is
liable only for a portion or percentage of the loss
(depending on the amount insured). Thus, the insured
becomes a co-insurer for the difference
Option to rebuild clause
• The insurer may be given the option to reinstate or replace
the property damaged or destroyed or any part thereof,
instead of paying the amount of the loss or damage
• In order to protect the insurer against unfairness in the
appraisal and award rendered by a packed board of
arbitrators, or in the proof of loss
• Insurer must exercise his option to rebuild w/n the time
stipulated in the policy or w/n reasonable time
• The choice of the insurer shall produce no effect except
from the time it has been communicated to the insured
SEC. 175
Pledge, etc. of fire insurance policy after loss
• After a loss, the insured may pledge, hypothecate, or
transfer a fire insurance policy or rights thereunder, even
without the consent of or notice to the insurer
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The Insurance Code of the Philippines
• What is being assigned is a claim under or right of action on
the policy against the insurer
• GR – assignee acquires no greater rights against the insurer
than had the one to whom the policy was issued
• LIMITATION: transfer if a policy of fire insurance to any
person or company who acts as agent or otherwise
represents the insurer. Otherwise, it shall be void and of no
effect insofar as it may affect other creditors of the insured
(sec. 175)
Title 3: CASUALTY INSURANCE
SEC. 176
Casualty insurance
• Includes all forms of insurance against loss or liability arising
from accident or mishap excluding certain types of loss or
liability which are not within the scope of other types of
insurance, namely: marine, fire, suretyship, and life
Risks or losses covered
• Accident – violent mishap proceeding from an unknown or
unexpected cause
o Casualty insurance presumed to include any loss or
damage when an accident is the cause of the loss (thus, it
excludes loss arising from accident which are within the
coverage of other types of insurance mentioned
• In burglary, robbery and theft insurance , the opportunity to
defraud the insurer – the moral hazard – is there are
restrictions designed to reduce the hazard
Two general divisions of casualty insurance
1. Insurance against specified perils which may affect the
person and/or property of the insured
2. Insurance against specified perils which may give rise
to liability on the part of the insured for claims for
injuries to others or for damage to their property
Liability insurance
• Contract of indemnity for the benefit of the insured and
those in privity with him, or to those to whom the law upon
the grounds of public policy extends the indemnity against
liability
• An indemnity is provided to the insured in respect of his
legal liability to pay damages, usually arising out of
negligence or nuisance and occasionally, under contract
Liability insurable
1. Liability for quasi-delict or non-fulfillment of contract –
financial responsibility that one party has to another party
as a consequence of doing or failing to do something
- liability is civil injury and not a felony or crime which is a
public injury
2. Liability for criminal negligence – liabilities arising out of
acts of negligence which are also criminal are also
insurable on the ground that such acts are accidental
Insurable interest in liability insurance
• Found in the interest the insured has in the safety of
persons who may maintain, or in the freedom from damage
of property which may becomes the basis of suits against
him in case of their injury or destruction
• Interest does not depend upon whether the insured has a
legal or equitable interest in property, but upon whether he
may be charged by law with the liability against which
insurance is taken out
• Liability insurance always supported by insurable interest
When liability insurance in policy payable
• Distinction b/n insurance against liability and one against
actual loss
o Under the first – coverage or liability of the insurer
attaches when the liability of the insured to the injured
third party attaches, regardless of actual loss at that time
o Under the second – an action against the insurer does not
lie until an actual loss is sustained by the insured
• Third party liability insurance contract – the insurer assumes
the obligation of paying the injured third parties to whom the
insured is liable

Right of injured person to sue insurer of party at fault
• Depends on whether the contract of insurance is intended to
benefit third persons also or only the insured
• Test applied
1. Indemnity against third party liability – protect injured
person against insolvency of the insured who caused
the injury
2. Indemnity against actual loss or payment – reimburse
the insured for liability actually discharged by him
through payment to third persons, said third person’s
recourse is thus limited to the insured alone
Basis and extent of insurer’s liability
• Contract of insurance –the liability of the insurer to the third
party is based on contract particularly, the insurance policy
while that of the insured is based on tort in accordance with
the provisions of the Civil Code
• Sum limited in the contract –third party liability of the insurer
is only up to the extent of the insurance policy and that
required by law. Any award beyond the insurance coverage
would already be the sole liability of the insured and/or the
other parties, if any, at fault
The Insurance Code of the Philippines
• Section 5 of Rule 2 on “joinder of causes of action” and Sec
6 of Rule 3 on “permissive joinder of causes of parties”
cannot be superseded, at least with respect to third persons
not a party to the contract by “no action” clause on the
contract of insurance
TITLE 4: SURETYSHIP
SEC. 177
Surety defined
• An agreement whereby one (usually an insurance company)
undertakes to answer, under specified terms and conditions,
the debt, default or miscarriage of another (principal or
obligor), such as failure to perform a contract or certain
duties, or for breach of trust, negligence and the like, in
favor of a third party (obligee)
Undertakings within the scope of suretyship
• Includes official recognizances, stipulations, bonds, or
undertakings issued by any company by virtue of an under
the provisions of Act No. 536, as amended by Act No. 2206

Accident and health insurance Corporate Suretyship

• Closely related purposes of coverages • Suretyship is treated like (non-life) insurance in some
o Accident insurance reimburses the insured for pecuniary respects
loss suffered as a result of injuries sustained in an
accident SEC. 178
o Health insurance reimburses the insured for pecuniary
loss arising out of disease-related illness Nature of liability of surety
o In both, the insured is reimbursed for medical and hospital • Surety bond – a promise to guarantee the debt or obligation
expenses and earnings as a result of the incapacity of the obligor
• Combination of coverages – often combined and thereby • The liability of the surety or sureties under a bond is joint
protect the insured from loss from either kind of disability and several, or solidary
• Burden of proof • It is limited to the amount of the bond
o In accident – insured beneficiary demonstrate that the • Contractual – determined by the terms of the contract in
cause of death is due to the covered peril relation to the principal contract between the obligor and the
o Once established, the burden then shifts to the insurer to oblige
show any expected peril that may have been stipulated by • To indemnify the surety against loss, the obligor executes a
the parties third contract in favor of the surety. This is called the
INDEMNITY AGREEMENT
Meaning of accident and accidental • The original surety issuing the prime bond may cede a
• Which happens by chance or fortuitously, without intention portion or portions of the bond to one or more insurers or
or design, and which is unexpected, unusual and sureties under a bond reinsurance contract
unforeseen
• Lack of intention to commit the wrong Distinctions between suretyship and property insurance
• Happening from known or unknown cause unusual and Suretyship Property Insurance
unexpected Accessory contract Principal contract
• Cause may be attributable to fault or negligence – may be 3 parties: surety; principal 2 parties: insurer and insured
utilized to distinguish intentional or malicious acts from debtor/obligor;
negligent or careless acts of man creditor/obligee
More of a credit Contract of indemnity
Rule as to death or injury resulting from accidental or accommodation with the
accidental means surety assuming primary
• GR: death or injury does not result from accident or liability
accidental means within the terms of an accident policy if it Surety is entitled to No right of recovery for the
is the natural result of the insured’s voluntary act, reimbursement from the loss the insurer may sustain
unaccompanied by anything unforeseen except death or principal and hi guarantors for except when the insurer is
injury the loss it may suffer under entitled to subrogation. In
• Exception: where the death or injury is not the natural or the contract case of subrogation, third
probable result of the insured’s voluntary act, or if something party against whome the
unforeseen occurs in the doing of the act which produces insurer may proceed is not a
the injury, the resulting death is within the protection of party to a contract
policies insuring against death or injury from accident Bond can only be cancelled May be cancelled unilaterally,
by or with the consent of the under the grounds provided
Suicide and willful exposure to needless peril oblige or Commissioner or by law
• Both are in pari matere because they both signify a court of competent jurisdiction
disregard for one’s life Requires the acceptance of Does not need acceptance of
• Difference is in degree, suicide imports a positive act of the oblige before it becomes any third party
ending such life whereas the second act indicates a reckless valid and enforceable
risking of it that is almost suicidal in intent Risk-shifting device, the Risk-distributing device, the
premium paid being in the premium paid being
Meaning of intentional nature of a service fee considered a ratable
• Implies the exercise of the reasoning facilities, contribution to a common
consciousness, and volition fund

Effect of no action clause in policy of liability insurance Distinctions between suretyship and guaranty
• “no action” clause in the policy cannot prevail over the Rules Suretyship Guaranty
of Court Provisions aimed at avoiding multiplicity of suits
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 The Insurance Code of the Philippines
Surety assumes liability as a Liability depends upon an • Life policy is a valued policy – no way to measure the value
regular pary to the independent agreement to of human life
undertaking pay if the primary debtor fails o Value placed on the insured is basically decided by the
to do so amount the purchaser who is willing to pay the requisite
Primarily liable Secondarily liable premiums.
Not entitled to the benefit of Has the right to have all the o The amount is determined by the factors affecting the life
exhaustion of debtor’s assets property of the debtor and of the insured such as age, health, and occupation
legal remedies against the • Direct pecuniary loss not required
debtor first exhausted before o It is sufficient that the purchaser of a life insurance policy
he can be compelled to pay had an insurable interest in the life of the insured at the
the creditor time the policy was issued
• Surety undertakes to pay if the principal does not pay, the o Life policy – contract to pay the beneficiary a certain sum
guarantor binds himself to pay if the principal cannot pay of money to meet the financial crisis which may be caused
in the event of death of the insured or any disability
SEC. 179 resulting in loss of earning power provided certain
conditions are performed by the insured
Payment of Premiums o Measure of recovery is the face amount of the policy and
• Premium becomes a debt not the value of the insured’s life
• Not valid and binding unless and until the premium therefore
has been paid Life insurance distinguished from fire and marine insurance
• When obligee accepted the bond, it is valid and enforceable Life Fire and Marine
notwithstanding that the premium has not been paid Not a contract of indemnity, Contracts of indemnity
• If not accepted, the surety shall collect only a reasonable but a contract of investment
amount Regarded as valued policy Open or valued
• If the non-acceptance of the bond be due to the fault or Transferred or assigned to Transferee or assignee must
negligence of the surety, no service fee, stamps, or taxes any person even if he has no have an insurable interest in
imposed shall be collected by the surety insurable interest the thing insured
• In case of continuing bond (term longer than 1 year or with Consent of the insurer is not In absence of waiver by the
no fixed expiration date), the obligor shall pay the essential to the validity of the insurer, consent is essential in
subsequent annual premium as it falls due until the contract assignment of a life policy the assignment of a fire or
is cancelled marine policy
Insurable interest in the life or Insurable interest in the
Types of surety bonds health of the person insured property insured must exist
• Contract bonds – for the protection of the owner against a need not exist after the not only when the insurance
possible default by the contractor to comply with his contract insurance takes effect or takes effect but also when the
or his possible failure to pay material men, laborers, and when the loss occurs loss occurs
sub-contractors Insurable interest need not Must have legal basis
o Performance bond have any legal basis
o Payment bond Contingency that is Contingency insured against
• Fidelity bonds – pay employer for loss growing out of a contemplated is a certain may or may not occur
dishonest act of his employee event, the only uncertain
o Industrial bond being the time when it will
o Public official bond take place
• Judicial bonds – in connection with judicial proceedings Liability of the insurer to make Liability is uncertain because
o Ex. Injunction bonds, attachment bonds, replevin bonds, payment is certain, the only the happening of the peril
bail bonds, and appeal bonds uncertain element being when insured against is uncertain
such payment must be made (may not have to be paid)
SEC. 180 (amount paid sooner or later)
• Pertinent provisions of the Civil Code are applicable in a Cannot be cancelled by the Canceled by either party and
suppletory character insurer and is usually a long is usually for a term of 1 year
term contract
Loss of beneficiary can The reverse is true
TITLE 5: LIFE INSURANCE seldom be measured
accurately in terms of cash
SEC. 181-182 value
Beneficiary has no obligation Insured is required to prove
Life insurance defined to prove actual financial loss his actual pecuniary loss
• Insurance payable on the death of a person, or on his
surviving a specified period, or otherwise contingently on the • Any person who is forbidden from receiving any donation
continuance or cessation of life under art. 739 cannot be named beneficiary of a life
insurance policy by the person who cannot make nay
Parties involved in a policy of life insurance donation to him (art 2012)
• Owner of the policy – has the power to name or change the
beneficiary, to assign the policy, cash it in for its surrender Exemption of life insurance policies from execution
value, or use it as collateral in obtaining a loan; and the • Exempted from execution regardless of the amount of the
obligation to pay the premiums annual premiums paid
• Cestui qui vie – person whose life is the subject of the policy
• Beneficiary Application of exemption to accident insurance
* one person may occupy all three by naming his estate as • When one of the risks insured in the latter is the death of the
beneficiary insured by accident, then such accident insurance may also
be regarded as a life insurance (thus, exemption also
Nature of life insurance applies)
• Liability absolutely certain – payment of a specified sum at • Accident insurance is not to be likened to an ordinary life
an uncertain time; and the premiums are so calculated that insurance where the insured’s death, regardless of the
in accordance with the insured’s expectancy of life under a cause thereof, would normally be compensable
specified mortality table • In accident insurance, claimant must prove that the loss is
• Amount of insurance generally without limit – difficulty in caused by the covered peril
fixing a pecuniary value upon life
Kinds of life insurance policies

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• Ordinary life policy – insured pays a fixed premium
throughout his entire life and the beneficiary is entitled to
receive payment under the policy only after the death of the
insured
o Lowest rate of premium
o aka whole life or regular life or straight life or cash-value
insurance. Also an investment policy
• Limited payment life policy – premiums are payable only
during limited period of years
o No cash surrender value
o Premiums are proportionately higher
o aka limited premium insurance policy. It has investment
aspects
• Endowment policy – insurer binds himself to pay a fixed sum
to the insured if he survives for a specified period, or if he
dies within such period, to some other person indicated
o Premium is higher because the cash values of the policy
grow more rapidly
o Insured stands a chance of being paid the proceeds of the
policy while still alive
o After receiving the face amount, all coverage will
terminate
o Useful in retirement planning
o Also has investment aspect
• Term insurance policy – provides coverage only if the
insured dies during a limited period
o Insurance for a fixed or specified term
o If he survives, contract terminates or expires at the end of
the time period
o Premium is lower than in the case of straight life
insurance because of the possibility that the insurer may
not be obliged to pay anything in proceeds whatsoever if
the insured survives the term
o Insured may be given the option to convert the policy to
one of whole life or endowment life
o aka temporary insurance
o essentially pure insurance, provides life insurance alone;
no investment value
Scope of life insurance
• undertakes to protect the insured’s family, creditors, or
others against pecuniary loss which may be the outgrowth of
the death of the insured
o cessation of the current earning power of the insured
o death may be: actual death, living death, retirement death
• health, accident and disability insurance – benefits for
hospital or medical expenses, or for loss of time or earning
power because of injury or illness
o not contracts of indemnity
o but those that cover medical expenses are contracts of
indemnity
Contract of life annuity defined
• aleatory contract of life annuity – debtor binds himself to pay
an annual pension or income during the life of one or more
determinate persons in consideration of a capital consisting
of money or other property, whose ownership is transferred
to him at once with the burden of the income
Annuity concept
• upside-down application of the life insurance principle
Annuity Life insurance
Purpose: scientific liquidation Scientific creation of an estate
of an estate
Estate is full liquidated by Estate is created at death
death
Insurer starts paying upon the Insurer stops paying upon the
death of the insured death of the insured
Annuity contracts distinguished from ordinary life policies
Annuity Life insurance
Insures against economic
problems resulting from long
life rather than early death
transiency Longevity
Lump sum is paid to the Insured pays insurer an
insurer immediately and the annuity and his beneficiary
annuitant receives the annuity receives at the insured’s
payments as long as he loves death the lump sum payment
More of an investment instead Indemnity character
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The Insurance Code of the Philippines
of an insurance, which may or
may not be profitable
• both provides protection from substantial risk
SEC. 183
Liability of insurer in case of suicide
• insurer is liable in the following cases:
o suicide is committed after the policy has been in force for
a period of 2 years from the date of its issue or of its last
reinstatement
o suicide is committed after a shorter period provided in the
policy although within 2-year period
o suicide is committed in a state of insanity regardless of
the date of commission, unless suicide is an excepted risk
• when not liable:
o suicide is not by reason of insanity and is committed w/n
2-year period
o suicide is by reason of insanity but is not among the risks
assumed by the insurer regardless of the date of
commission
o insurer can show that the policy was obtained with the
intention to commit suicide even in the absence of any
suicide exclusion in the policy
SEC. 184
Right of insured to assign life insurance policy
• all life insurance policies are assignable regardless of
whether the assignee has an insurable interest in the life of
the insured or not
• by requiring an incipient insurable interest, the law restricts
the class of person who may profit from the death of the
insured
• no insurable interest is necessary where the policy is
procured by the person whose life is insured on his own
initiative
• where assignment used as a cloak to hide an illegal scheme
– not permitted
Necessity of consent of beneficiary to assignment
• with waiver of right to change beneficiary – insured cannot
assign such policy without the consent of the beneficiary
• without such waiver – insured may assign the policy without
the consent of the beneficiary
o in this case, beneficiary has a mere expectancy and he
cannot make an assignment of the policy until his interest
in the proceeds thereof becomes absolutely fixed by the
death of the insured
SEC. 185
Notice of insurer of transfer
• notice not required, unless required by the provisions of the
policy. without such notice, in the absence of a waiver, shall
have no effect so far as the insurer is concerned
• insurer without notice is relieved of any responsibility in case
payment is made to the beneficiary before receipt ny the
insurer of the notice
• even w/o notice, receipt is binding upon the assignor
(insured) and the assignee
• assignment with the consent of the insurer creates, in effect,
a novation
SEC. 186
Measure of indemnity under life policy
• amount fixed in the policy
TITLE 6: MICROINSURANCE
SEC. 187-188
Microinsurance defined
• activity providing specific insurance, insurance-like and
other similar products and services that meet the needs of
the low-income sector for risk protection and relief against
distress, misfortune, and other contingent events

Features of microinsurance
1. premiums, contributions, fees or charges are
collected/deducted prior to the occurrence of contingent
event
2. guaranteed benefits are provided upon occurrence of a
contingent event
Requirements for the product
1. Amount of premiums contributions, fees or charges,
computed on a daily basis does not exceed 7.5% of the
current daily minimum wage rate for non-agricultural
workers in Metro Manila
2. The maximum sum of guaranteed benefits is not more
than 1,000 times the daily minimum wage rate for non-
agricultural workers in Metro Manila
• The maximum coverage can provide 33 mos (1,000 days) of
lost income resulting from an unforeseen or contingent
event happening to the insured
• The maximum amount of premiums and guaranteed benefits
shall apply on a per product or per policy basis
Performance standards
• Set of performance standards that consists of performance
indicators is necessary for the Commission to determine
whether micro-insurance entities are being conducted in a
viable and sustainable manner
Chapter II-A Financial Reporting Framework
SEC. 189
Statutory financial statements and reports
• Statements and reports required by law to be submitted by
insurance companies to the Insurance Commission should
comply with the financial reporting framework adopted by
the commission
• Not the same as those required by the SEC
• Main purpose: present important information about the level
of risk and solvency situation of insurers
• Most essential statement is the balance sheet
Differences between Insurance accounting and generally
accepted accounting procedures.
Among the major differences between them include the following
points:
1) Commissions and other costs of acquiring premium income
are charged to corporations as they are incurred, rather than
being deferred and charged to operations over the entire period
that the premium income is received. This practice differs from
generally accepted accounting principles because revenue and
costs are not matched.
2) The asset values used for bonds are amortized values rather
than cost or current market values.
3) “The non-admitted” assets are excluded from the assets.
4) Contrary to GAAP, the mandatory securities valuation reserve
is set up as a liability.
5) No deferred liability is set up for future income tax liability on
deferred income items such as:
a) Unrealized net capital gains.
b) Accelerated depreciation.
c) Deferment of taxable income because of election to
use net level premium reserves for tax purposes.
d) Untaxed income built up in the “policyholders surplus
account” in stock life insurance companies.
CHAPTER III
THE BUSINESS OF INSURANCE
TITLE 1
INSURANCE COMPANIES, ORGANIZATION,
CAPITALIZATION, AND AUTHORIZATION
SEC. 190-199
Power of state to regulate insurance business.
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1) Basic reasons for governmental regulation. – The insurance
business is heavily regulated by law because of public policy
considerations to insure that every insurance company comply
with the applicable laws in conducting its business and in its
dealing with the Insured.
The insurance business possesses peculiar characteristics
justifying governmental control and provision.
(a) The chief characteristic is that an insurance contract is an
aleatory contract.
(b) Inequality of values to be exchanged.
(c) The technical character of the insurance contract.
1) While some insurance contracts can be written
mostly in ordinary laymen's language, virtually all of
them require either some trade terms or, what is likely
to mislead, some special meanings given to simple
terms.
2) The various conditions of the insurer's promise and
of settlement, and the promises of services or benefits
are likely to add up to a pretty involved contract that
very few insureds can understand without the
explanations given by a competent and honest
insurance agent or broker.
3) An insurance cannot succeed unless it makes a large
number of contracts and mass production of contracts
means that the insured must ordinarily take the
insurer's printed form, or do without. Because of this,
the contract of insurance is sometimes called a
"contract of adhesion."
(d) All of these result in inequality of bargaining of power as
between insured and insurer.
(2) Involves an exercise of police power. — It is generally
recognized that the business of insurance is one that is affected
with a public interest, and that it is a proper subject of regulation
and control by the state by virtue of the exercise of its police
power, in the interest of public convenience and the general
good of the people.
(3) Scope. —The power is very broad.
(a) It extends to all persons seeking to engage in the
transaction of insurance business.
(b) The state may regulate the relations between
insurer and insured in various respects as well as the
affairs of an insurance company without violating due
process.
(c) It has the right to prescribe reasonable conditions
prerequisite to the carrying of insurance business,
provided there is no discrimination between citizens of
equal merit within or without the State.
(4) State regulating agencies. — The State controls the
insurance business through all departments of the government,
(a) The judicial department exercises control by
deciding controversies between litigants.
(b) The legislative department has broad powers to
enact all legislations, necessary or expedient for the
public good limited only by the provisions of the
Constitution.
(c) The executive department through a particular
official or office, i.e., the Insurance Commission, is
charged with the duty of seeing that the insurance laws
and regulations are enforced.
(5) Stages of regulation. — The State may regulate insurance
enterprises at three stages: when they are launched; while they
are successfully doing business; and when they have gotten into
financial difficulties.
(a) The first stage is controlled by the granting of
charters under general laws and by the granting of
licenses to new enterprises;
(b) The second, by the power to revoke (or refuse
renewal of) licenses, by the power to examine a
company, and by the criminal penalties for various
infractions of its laws; and
(c) The third, through the power of the Insurance
Commissioner to appoint a conservator or receiver to
take charge of the management of the company or
administer its assets, or a liquidator to wind the
company's business and distribute its assets.

Thus, from the cradle to the grave, an insurer is under official
surveillance.
Business of insurance conducted almost exclusively by
corporations.
The various corporations, in whose hands most of the insurance
business now lies, differ very greatly in their nature and
organization and in their charter powers. A company may be
empowered by its charter and the laws to grant only certain
types of insurance coverages.
(1) A life insurance company is usually empowered to write
personal accident and health insurance and annuities as well as
life insurance.
(2) A fire insurance company customarily is empowered to write,
in addition to fire insurance, marine insurance, both ocean and
inland, and certain minor lines.
(3) A casualty company may usually also write workmen's
compensation insurance and accident and health insurance as
well as relatively minor lines such as fidelity, surety and plate
glass coverage.
(4) There is now a growing tendency to break down the sharp
barriers in the fire and casualty field so as to permit one
company to write most types of fire and casualty coverages —
referred to as "multiple line" underwriters.
In case of conflict between the Corporation Code of the
Philippines and the Insurance Code, the latter shall prevail.
General requirements before an insurance company may
transact insurance business.
(1) Domestic insurance companies. — Before a domestic
insurance company may transact any insurance business in the
Philippines except as agent of a person or corporation
authorized to do the business of insurance in the Philippines, it
must comply with the following requirements:
(a) It is possessed of the required paid-up capital and
assets;
(b) It shall have obtained a certificate of authority for
that purpose from the Insurance Commissioner upon
application therefor and payment of the fees prescribed;
and
(c) It shall have filed with the Insurance Commissioner
the documents required under Section 195;
(2) Foreign insurance companies. — In addition, if the insurer is
a foreign company, it shall have filed with the Insurance
Commissioner a written power of attorney designating some
person who shall be resident of the Philippines as its agent and
deposited with the Insurance Commissioner for the benefit of its
policyholders and creditors satisfactory securities required under
Section 197.
Minimum capitalization requirements for new insurance and
reinsurance companies and those to be rehabilitated.
The new capitalization requirements are as follows:
(1) Effective July 1, 2006, no new life or non-life insurance
company shall be allowed to do business in the Philippines
unless it has a capitalization of P1 Billion, paid in cash, of which
at least 50% consists of paid-up capital and the remaining
portion thereof as contributed surplus, which in no case shall be
less than P200 Million.
(2) Effective July 1, 2006, no new reinsurance company shall be
allowed to do business in the Philippines unless it has a
capitalization of P2 Billion, paid in cash, of which at least 50%
consists of paid-up capital and the remaining portion thereof as
contributed surplus, which in no case shall be less than P400
Million.
(3) Effective July 1, 2006, no life or non-life insurance companies
under conservation or receivership or for liquidation may be
rehabilitated unless it has a net worth of P1 Billion Pesos,
computed in accordance with the Insurance Code, and of which
at least 50% consists of paid-up capital and the remaining
portion thereof as contributed surplus, which in no case shall be
less than P200 Million.
(4) Effective July 1, 2006, no reinsurance companies under
conservation or receivership or for liquidation may be
rehabilitated unless it has a net worth of P2 Billion, computed in
accordance with the Insurance Code, and of which at least 50%
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consists of paid-up capital and the remaining portion thereof as
contributed surplus, which in no case shall be less than P400
Million.
(5) The above requirements are without prejudice to other
requirements that are to be imposed under any risk-based
capital method that may be adopted by the Insurance
Commission.
Deposits and withdrawal of securities by foreign insurance
companies.
(1) It is within the power of a State to require companies doing
an insurance business within its boundaries to file or deposit
security for the performance of their obligations before they can
issue policies within the State.
(a) Such deposit constitutes a trust fund for the benefit
of policyholders.
(b) The actual market value of the securities required to
be deposited with the Insurance Commissioner must
not be less than the minimum paid-up capital required
of domestic insurance companies.
(c) At least 50% of the total security deposit shall
consist of bonds or other evidences of debt of the
government of the Philippines, its political subdivisions
and instrumentalities, or of GOCCs and entities,
including the Bangko Sentral ng Pilipinas.
(2) On withdrawing from a State, a foreign insurance company is
entitled, after having paid all liabilities, to withdraw its deposits
with the State and they may not be attached by a foreign
creditor.
TITLE 6
LIMIT OF SINGLE RISK
SEC. 221
Retention limit.
(1) Factors in setting retention limit. — The maximum amount of
insurance which an insurer will carry on a policy at its own risk
without reinsurance protection is called the retention limit of the
insurer. Fundamentally, the retention limit is set so as to avoid
inconvenient fluctuations in earnings because of claims involving
large amounts.
(a) Significant factors in setting a retention limit in life
insurance are the amount of the insurer's surplus, the
expected mortality, the distribution of insurance in force
per life, the distribution of new issues of insurance by
size, the distribution of in-force insurance and new
issues by age at issue and underwriting classification
underwriting skill, the degree of earning stability
desired, and the cost of the reinsurance ceded.
(b) Reinsurance agreements provide that the ceding
company may increase its limit of retention on new
business and also specify the conditions under which
amounts of existing reinsurance may be reduced
because of the increased limit of retention. Amounts of
reinsurance so reduced are said to be "recaptured."
(2) Maximum retention allowed. – Under Sec. 221 (par.1), if the
net worth of a non-life insurance company is P20,000,000.00,
and it insures a building for P4,500,000.00 it must reinsure the
P500,000.00, the amount exceeding 20% of its net worth.
Without the retention capacity requirement, an insurance
company could easily become insolvent if hit by a series of big
losses.
In actual practice, insurance companies seldom, if ever, utilize
their maximum retention limit but would adopt a self-imposed
schedule of limits based on their estimate of the insured risk.
TITLE 7
REINSURANCE TRANSACTIONS
SEC. 222-228
General rule:
A corporation authorized in general terms to engage in
the insurance business may issue policies of reinsurance.

Sec. 2(2) expressly states that "doing an insurance business"
includes "reinsurance business."
Exception:
Mutual insurance companies not given the specific
power to reinsure risks, which power is expressly given to stock
companies, have no power to reinsure.
Ceding of excess risks.
Sections 226 and 225 are designed to curb the activities of
foreign reinsurers. They also insure the retention of the
premiums in the Philippines, and consequently, provide for
conservation of foreign exchange.
The cession of excess risks may be done “under the terms and
conditions which the Commissioner may prescribe.”
Rules and regulations on life reinsurancee transactions.
The following rules and regulations promulgated and adopted by
the Insurance Commission govern life reinsurance transactions
in the Philippines:
(1) The retention of a life insurance company on any one
standard life insured shall not be less than the amount equal to
one-half (1/2) of 1% of the latest verified stockholders equity.
(2) The minimum retention on substandard lives shall be graded
downwards from standard in accordance with sound underwriting
practice.
(3) No reinsurance shall be placed abroad where the amount of
risk is P3 million or less, per life standard risk, graded down for
substandard lives.
(4) No reinsurance shall likewise be placed abroad on accident
riders where the accident risk does not exceed PI.5 million per
standard risk.
(5) Reinsurance treaties abroad shall be on the yearly renewable
term plan (amount of risk) only.
(6) Reinsurance abroad on other life insurance riders, group
insurance and all other life insurance business may be only after
it has been shown by the ceding company that such risk cannot
be absorbed by the Philippine market.
Rules and regulations on non-life reinsurance transactions.
1) Non-life insurance companies whose treaty limits and
premiums cessions as of Dec. 31 of the preceding yr. on the ff.
lines of business do not exceed the corresponding limits
hereunder indicated:
Lines of Treaty Limit Premium
Business Cession
a) Fire P 10,000,000 P 5,000,000
b) Marine P 5,000,000 P 2,000,000
c)Other lines P 3,000,000 P 1,000,000
(except motor
car)
2) Reinsurance abroad of Motor Car Business shall not be
allowed except on an excess of loss basis, where such coverage
could not be available locally.
3) Every insurance company shall report to the Commisssion on
forms prescribed by it to determine the company’s compliance
with the pertinent laws, rules, and regulations on reinsurance.
4) The rules set forth in Sec. 225 of the Insurance Code.
5) Facultative reinsurance placements are still subject to prior
approval by the Commissioner.
Glossary of important reinsurance terms.
The glossary of selected reinsurance terms below will give us an
overview of reinsurance terminology.
(1) Assumption reinsurance. — An agreement between two
insurers under which one insurer disposes of its entire in-force
portfolio, or a specific block thereof, and the other insurer
assumes the functions and all obligations to the insured
connected with the policies involved.
(2) Automatic reinsurance treaty. — An agreement between an
insurer and a reinsurer under which the insurer is obligated to
c6de and the reinsurer is obligated to accept as reinsurance the
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amounts written by the insurer in excess of its retention limits,
within prescribed limits outlined in the agreement. The
reinsurer's liability commences simultaneously with the insurer.
(3) Catastrophe reinsurance. — A form of
nonproportional reinsurance under which a reinsurer indemnifies
an insurer for losses in excess of a pre-established deductible
arising from a single catastrophic occurrence.
(4) Coinsurance. — A plan of indemnity reinsurance under which
the reinsurer assumes the obligation on the amount reinsured in
the same fashion as the insurer is obligated to the insured
(excluding policy loans).
(5) Excess of loss. – A form of nonproportional reinsurance
under which the reinsurer indemnifies the insurer for its share of
a loss occurrence only after the loss to the insurer exceeds a
stipulated amount or percentage, the reinsurer paying only the
portion of the loss exceeding such amount or percentage.
(6) Facultative reinsurance treaty. – An indemnity reinsurance
agreement under which there is no obligation on the part of the
insurer to cede or the reinsurer to accept individual risks. The
reinsurer retains the “faculty” to accept or reject each risk offered
by the insurer. The reinsurer’s liability commences after definite
approval or acceptance of the risk.
(7) Modified coinsurance. – Same as coinsurance except the
reinsurer lends the mean reserve to the insurer each year. (Each
year the current year’s mean reserve on the reinsured portion
less the preceding year’s mean reserve, plus interest thereon, is
paid to the insurer, if this amount is positive, or returned to the
insurer, if negative.)
(8) Net amount at risk. – This term is associated with the risk
premium reinsurance (RPR) plan. (infra) It is the reinsurer’s
liability in the event of death, determined by deducting from the
face amount reinsured the terminal reserve thereon, according to
the insurer’s valuation basis for the plan of insurance issued to
the insured.
(9) Nonproportional reinsurance. – A plan of reinsurance under
which the reinsurer provides protection in any one occurrence
beyond the stipulated loss, deductible, or retention accepted by
the reinsured regardless of the number of risks involved. The
retention is stated in terms of the loss, either as a percentage or
absolute amount, and as a function of either one event or a
period of time during which several events producing losses take
place, and is not proportionate or directly related to the risk
assumed in the original policy issued to the insured.
Catastrophe, stop-loss, excess of loss, or aggregate
excess of loss reinsurance are examples of nonproportional
reinsurance.
(10) Proportional reinsurance. – A plan of reinsurance under
which the reinsurer provides protection in any one occurrence
when the loss exceeds the retention or risk assumed by the
reinsured. The retention is stated in terms of the risk assumed,
either as a percentage or absolute amount, is the function of one
event, and is proportionate or related to the risk assumed in the
original policy issued to the insured.
Risk premium reinsurance, coinsurance, and modified
coinsurance are examples of proportional reinsurance.
(11) Quota share. – A plan of reinsurance under which an insurer
and a reinsurer are liable for a stipulated percentage of each risk
written under the defined category of business on a pro rata
basis (e.g. 60%, insurer and 40%, reinsurer). This plan of
reinsurance is particularly applicable to group-underwritten
business.
(12) Reinsurance (or indemnity reinsurance). – A business
transaction under which one party, called the reinsurer, in
consideration of a premium paid to him, agrees to indemnify
another party, called the reinsured, for part or all of the liability
assumed by the latter party under a policy or policies of
insurance which it has issued. The reinsured may also be
referred to as the reassured, original company, insurer, primary
insurer, direct writing company, or ceding company.

(13) Reinsurance cession. – Individual policies of reinsurance
issued by the reinsurer to the reinsured setting out the
administrative details of the reinsurance. One might consider the
reinsurance cession as the counterpart of the policy issued by
the insurer to the reinsured.
(14) Reinsurer. – The party to a reinsurance agreement who
agrees to indemnify the other party to the agreement for losses
arising out of an insurance policy written by the latter party.
(15) Retention limit. – The maximum amount of liability which a
company will carry on one life or one event at its own risk without
reinsurance protection.
(16) Retrocession. – A reinsurance transaction between
reinsurers. Example:
Company B accepts reinsurance from Company A; Company B
then obtains reinsurance from Company C for a portion of the
business it has assumed from Company A. Company C is called
a retrocessionaire – one who accepts reinsurance from a
reinsurer. Company B, the ceding reinsurer, is called a
“retrocedant.”
(17) Risk premium reinsurance (RPR). – A plan of reinsurance
under which an insurer purchases reinsurance for the net
amount at risk allocable to amounts of insurance for which the
insurer requires reinsurance.
(18) Surplus share. – A plan of reinsurance in which the
reinsurer does not participate in every risk of the original insurer
but accepts only that part of the risks that go over certain limits.
The reinsurer does not participate unless the insurance exceeds
the net retention limit. The amount of retention is conveniently
referred to as a “line.”
TITLE 9
POLICY FORMS
SEC. 232
Power to prescribe insurance contracts and standard
policies.
(1) Part of power to regulate. – Strong public policy
considerations demand that insurance contracts and the b.
operation of reinsurance companies be regulated by law. c.
(2) Different types of control. – The legislation to standardized
insurance contracts has resulted in four different types of
control over the contents of such contracts:
a. Complete and compulsory standard policies;
b. Required standard provisions;
c. Prohibited provisions;
d. Optional forms filed in connection with rate filing and
approval.
(3) Object. – The object of statutes prescribing standard policies
has been stated to be, practically, to have but one form of
policy instead of a different form for each company doing
business with each company changing its form in order to
escape the consequences of any new decision made by the
court.
(4) Effect of noncompliance with standard policy statutes. –
Under some statutes, policies varying from the standard
form are unenforceable by the insurers issuing them and
subject the insurers to penalties, but are binding upon them.
Submission of policies for approval
(1) Forms of policies. – Every insurance company doing
business in the Philippines is, therefore, required to submit
first to the Insurance Commissioner for approval the policy,
certificate or contract of insurance from which it intends to
issue in the Philippines, as well as the application, rider, a.
clause, warranty, or endorsement form which will be used b.
with, attached to, or printed or stamped upon, such policy, c.
certificate or contract of insurance form.
SEC. 233
General form of a life insurance policy
(1) No standard form but must include certain standard
provisions.
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(2) Important options and privileges given to policyholder. –
The owner of the contract, or sometimes beneficiary, has
the right to:
a. Stop or change premium payments;
b. Change the recipients of the benefits;
c. Assign the contract rights;
d. Change use of the dividends;
e. Change to a different policy;
f. Reinstate coverage;
g. Take cash or loan values;
h. Cancel the policy and receive accumulated benefits in a
variety of ways;
i. Use the policy proceeds by receiving lump sum or
installment payments.
j.
Major classes of life insurance.
(1) Individual insurance. – The protection is issued on the basis
of individual application and involves a separate policy
contract for each purchase. Under the method falls ordinary
life insurance (Sec.233.) and industrial life insurance
(Secs.235-236)
(2) Group insurance. – In this method, the unit of selection is
the group rather than the individual. (Sec.234)
Special characteristics of life insurance contract.
The life insurance contract has a number of unique features that
contribute to its flexibility as an instrument through which savings
and financial planning are enhanced.
(1) Loan privilege. – The availability of cash values gives rise to
the policy loan privilege, under which the insurance
company will advance on the security of the contract an
amount that, with interest as specified in the contract, will
not exceed the guaranteed cash value.
Automatic premium loans – this provision protects against the
unintentional lapse of the contract by advancing, in the form of
policy loan, the unpaid amount of a premium due.
(2) Policy dividend options. – Life insurance contracts may be
a. Participating – are characterized by higher annual premiums
based on relatively conservative mortality, investment
earnings, and expense assumptions. If actual results are
better than assumed, the difference is reflected in surplus.
This surplus is available for return to policyowners. The
amount returned to the policyowner is determined annually
and is called a “policy dividend.”
Non-participating
Policy dividend – these dividends are a means for the insurance
company to refund the premium redundancy and should not be
confused with dividends payable to corporate stockholders.
Usually made available on the anniversary date of the
participating life insurance contract. The dividend may be taken
in one of four basic forms at the option of the policy-owner:
(a) In cash;
(b) Applied toward the payment of the next premium under
the contracts;
(c) Applied to the purchase of a paid-up addition to the
contracts; or
(d) Left on deposit with the company to accumulate at
interest.
In addition, many companies offer a fifth option, under which all
or part of the dividend may be used to buy one-year term
insurance.
(3) Surrender options. – The savings feature in cash value life
insurance also gives rise to the availability of surrender
benefits should the policyowner wish or need to
discontinue his insurance coverage. Surrender benefits
may be received at the option of the policyowner in one of
three forms:
Cash;
Paid-up insurance for a reduced amount;
Extended term insurance.
(4) Supplementary benefits. – The waiver of premium benefit,
a form of disability insurance, is offered for a modest
additional charge by virtually all companies in connection
with the life insurance contracts they issue. The waiver of
premium provision becomes operative whenever the
insured becomes totally and permanently disabled as
defined in the contract. He then becomes entitled to have
waived (by the insurer) any premium falling due after the

disability commences. The waiver of premium does not
affect any other provision of the policy.
(5) Exemption from claims of creditors. – Protection against
the claims of the insured’s creditors or the beneficiary’s
creditors, or both, is available through the life insurance
contract itself or through state legislation. Although the
nature of non-statutory protection varies, the avoidance of
claims of creditors can be of great practical importance in
preserving saving for the purposes intended.
(6) Income tax treatment. – proceeds of life insurance paid by
reason of death generally are income tax exempt.
Endowment proceeds and cash surrender values,
received other than by reason of death, are to be included
in gross income to the extent that they exceed the
aggregate net premiums or other considerations paid.
Dividends on participating life insurance policies are
regarded as a return of premium. Such dividends are not
includable in gross income for income tax purposes.
However, interest earned on dividend deposits is taxable.
Life insurance as property.
(1) Compared with other property. – one’s “life insurance” does
not transfer to heirs or beneficiaries. Death transforms the
life insurance into cash which is left to them.
(2) Guaranteed value at death. – the value of the life insurance
policy is always guaranteed to be its maximum (the face of
the policy) at the moment the death of the insured occurs.
(3) Significance. – The insured can count on his life insurance.
Protection functions of life insurance
(1) Pooling of risks. – all insurance is a matter of pooling, of
group-sharing of losses.
(2) Prediction of number of death claims.-
a. Operation of law of large numbers. – while the life
insurers cannot predict the time of death of any single
insured, they are able to predict the approximate
number of deaths in a certain period from a given
large number of insureds.
b. Use of mortality statistics table. – life insurers make
use of widely and carefully compiled mortality
statistics.
c. Application of principle of probability. – by using
probabilities based upon sufficiently conservative
mortality statistics and by insuring enough lives for
the law of large numbers to be relied upon, insurers
are able to do the apparently impossible.
Saving functions of life insurance.
-through the medium of life insurance, hundreds of thousands of
individuals have accumulated savings while providing financial
protection for their families.
Apportionment and distribution of policy owner dividends.
Dividend – a refund of that portion of the premium paid that is in
excess of the amount necessary for current benefit payments,
expenses, and reserves required to cover future policy
guarantees.
(1) Apportionment. –
a. First, a policy providing for payment of dividends is called
a participating policy; a policy which does not provide for
payment of dividends is a non-participating policy.
b. A mutual company is owned entirely by its policyowners
and normally writes only participating policies.
(2) Distribution. – once the dividend fund has been determined,
the next step is distribution on individual policy owners.
A dividend class would be defined by some or all of the following
common characteristics; the same type of coverage, the same
year of issue, the same age of issue, the same number of
premium payments made, and the same attained age.
Misstatement of age
-since age misinterpretation is covered by a special clause, it
cannot fall within the scope of the incontestable clause.
Regardless of the time of discovery, the amount due under the
policy is adjusted to coincide with the amount the premium would
have purchased had the age been correctly stated.
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The Insurance Code of the Philippines
Rights of insured under a lapsed life policy.
-the usual consequences of a lapsed policy are: forfeiture of all
rights; extension of insurance for a certain period; or granting
paid-up insurance for a certain amount.
(1) Nonforfeiture. – insurers found it polite as well as just to
give the policyholders the benefit of some or all of the
reserve value of their policies at the time of default.
(2) Extended insurance – where a term insurance is
“extended,” the insured is given the right, upon default,
after the payment of at least three full annual premiums,
to have the policy continued in force from the date of
default for a time either stated or equal to the amount
as the net value of the policy taken as a single
premium, will purchase. Sometimes called “term
insurance,” “temporary insurance,” or “paid-up extended
insurance.”
(3) Paid-up insurance. – the insured is given the right, upon
default, after the payment of at least three annual
premiums to have the policy continued in force from the
date of default for the whole period of the insurance
without further payment of premiums.
Options available to insured in life insurance.
-in addition to extended insurance and paid-up insurance usually
granted to the insured, insurers also make provision for the so-
called “case surrender value option.”
-it is required by the Insurance Commission that no life insurance
policy shall be issued or delivered in the Philippines unless its
provisions on Premium Loan and Automatic Option in case of
default in premium payment conform with the following
conditions:
(1) In the event of default in premium payment, the Premium
Loan provision shall only apply if requested in writing by the
policyholder either in the application or at any time before the
expiration of the grace period.
(2) The moment there is default in premium payment and no
option has been elected either in the application or within the
time specified in the policy, one of the paid-up options specified
therein shall automatically take effect.
Cash surrender value defined.
-as applied to a life insurance policy, is the amount that the
insured, in case of default, after the payment of at least three full
annual premiums, is entitled to receive if he surrenders the policy
and releases his claims upon it. This built-up cash value of the
policy is investment value based on the premiums paid.
Nature of cash surrender value.
-The cash surrender value arise from the fact that the fixed
annual premium is much in excess of the annual risk during the
earlier years of the policy.
-this excess of the premium paid over the annual cost of
insurance, with accumulations of interest, constitutes the
surrender value.
-it is the net reserve required by law to be kept by the company
for the benefit of the assured and to be maintained to the credit
of the policy.
-so long as the policy remains in force, the company has
practically no beneficial interest in it except as its custodian, with
the obligation to maintain it unimpaired and suitably invested for
the benefit of the insured.
Other required policy provisions.
1. Grace period provision. – the purpose of the provision is to
give the policyholder an additional period of time within
which to pay a premium he has not paid on or before the
due date, keeping the policy in effect.
2. Entire contract provision. – the policy is also required to
provide specifically that the policy, and also if desired by the
insurance company, the application, a copy of which is
attached to the policy, shall constitute the entire contract
between the insurance company and the policy owner.
3. Misstatement of age provision. – such errors could be
corrected either by appropriate premium adjustment or by
adjusting the amount of insurance.
4. Reinstatement provision. – the law requires that the policy
owner be permitted to reinstate the policy, subject to the
violations specified, any time within 3 years from the date of
default of premium payment.

Optional policy provisions.
(1) Suicide provision. - an illustrative provision reads as follows:
“If within 2 years from the date of issue the insured shall die by
suicide, whether sane or insane, the amount payable by the
company shall be the premiums paid.” Section 183 requires that
the exclusion be limited to 2 years.
(2) Assignment provision. – in the absence of a specific policy
provision to the contrary, a policyowner is assumed to have the
right to assign his life insurance policy if and as he wishes.
(3) Ownership provision. – the provision is intended to clarify the
rights of the owner and the circumstances under which those
rights may be exercised.
(4) War clauses.- Policy provisions that exclude war deaths from
the coverage provided by the policy generally are referred to as
“war clauses.”
(a) Status clause – which provides that if the insured’s
death occurs while he is in military service, the company’s
liability would be limited to the amount of the premium paid or the
policy reserve, if larger.
(b) Result clause – which limit’s the company’s liability
to the larger of the amount of premiums paid or the reserve, if
the insured’s death occurs as the result of war.
(5) Payor clause. – such a clause provides that the premium on
the child’s insurance will be waived in the event premium payor
(usually a parent of the insured child) dies or becomes totally
disabled (as defined in the coverage) prior to the child’s
attainment of a specified age.
(6) Policy change provision. – the purpose of such provisions is
to set forth the conditions governing such changes.
SEC. 235-237
Industrial life insurance.
-although it is essentially whole life, term, or endowment
insurance, it is distinguished by certain common characteristics
that make it worthy of special treatment.
(1) Written in small amount. – in contrast to ordinary life
insurance, industrial life insurance is written in small amounts.
Premiums are payable either monthly or oftener and collected by
company representatives at the home of the policyholders.
(2) Sold through individual solicitation. – most industrial
insurance is sold through individual solicitation without a medical
examination, the insurer relying upon statements in the
application by the applicant and the agent.
(3) Adopted to a particular market. - industrial life insurance is, in
the strict sense, not a different form of insurance protection but
rather is a plan adapted to a particular market.
Non-payment of premiums by buyers of industrial life
policies.
-under Section 235, industrial life policies shall not lapse for non-
payment of premium during a period of 3 months or 12 weeks
after the expirations of the grace period if such nonpayment were
due to the failure of the company to send its representative to the
insured to collect such premium.
-these policies are usually bought by those who do not have
fixed income such as market vendors. They would certainly
welcome an arrangement whereby the premiums would be
payable weekly if such premiums are collected from them
directly. It would therefore be unfair to buyers of industrial life
policies if their policies should lapse for non-payment if such was
due to the failure of the company to send its representative to the
insured to collect such premium.
Existence of insurable interest.
-the usual rules regarding insurable interest have frequently
been held not to apply to industrial life insurance for several
reasons. They are:
(1) Since the proceeds of industrial life policies are typically
small, they present little danger as an inducement to murder.
(2) The investigation and processing of the potential defense in
each case would be time-consuming and nullify the advantage of
speedy payment of proceeds for funeral and burial expenses
under the facility of payment clause.
(3) In view of the diminutive size of the proceeds, the addition of
pointless administrative costs for either the insurer or the
beneficiary could destroy the current usefulness of this type of
insurance.
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The Insurance Code of the Philippines
TITLE 11
CLAIMS SETTLEMENT
SEC. 247
Unfair claims settlement practices.
-Claims settlement is the indemnification of the loss suffered by
the insured. The claimant may be the insured or reinsured, the
insurer who is entitled to subrogation, or a third party who has a
claim against the insured.
Insurer’s obligation to respect insured’s decision to
compromise third party claim.
-where a policy gives the insurer control of the decision to settle
claim or litigate it, the insurer nevertheless is required to observe
a certain measure of consideration for the interest of the insured.
SEC. 248
Life insurance losses.
(1) Definiteness of death. – the settlement of life claims usually is
take care of by the life insurance agent.
(2) Proof of death. – technically, the life insurance policy does
not provide for payment upon death but rather for payment upon
submission of proof of death to the insurer. This notice may be
given by a beneficiary or the legal representative of the insured.
(3) Nature of claim. – since life insurance in its simplest form
pays a lump sum (called a “face value”) upon the death of the
insured, money claims are death claims.
(4) Income benefit provision. – endowment contracts and
annuities may provide an income benefit upon the survival of the
insured to a fixed date or age. The choice as to the method of
payment may be made by the insured or by the beneficiary if the
insured has not made a choice.
Time for payment of claims in life policies.
-it depends.
(1) In policies maturing upon the expiration of the term set forth
therein, the proceeds are immediately payable to the insured,
unless they are made payable in installments or as annuity, in
which case, the installments or annuities shall be paid as they
become due.
(2) In policies maturing at the death of the insured occurring prior
to the expiration of the term stipulated, the proceeds are payable
to the beneficiaries within 60 days after presentation of the claim
and filing of proof of death.
60 day period procedural in nature.
-it is the happening of the suspensive condition of death that
renders the life policy matured and not the filing of proof of
death, for even if such proof were presented, but it turns out later
that the insured is alive, such filing does not give maturity to the
policy.
SEC. 249
Fire insurance losses.
(1) Obligations of the insured. – the fire insurance contract
imposes definite obligations upon the insured immediately upon
the occurrence of a loss.
(a) Two of these, the requirement of the notice of loss
and obligation to file a proof of loss, are conditions with which the
insured must comply before there is any liability on the part of
the insurer.
(b) After a fire, the insured is required to do everything
reasonable to prevent further damage to the property insured. An
insured who fails to protect his property adequately from further
loss after the fire, cannot collect for the additional loss thus
occasioned.
(2) Options of settlement by the insurer. – the fire insurance
contract usually provides for 2 options of settlement by the
insurer: the payment of damages for the loss; or the restoration
of the subject matter of the insurance to its former condition.
(3) Sufficiency of proof of loss. – while the insurer, and the
Insurance Commissioner for that matter, have the right to reject
proofs of loss if they are unsatisfactory, they may not set up for
themselves an arbitrary standard of satisfaction. Substantial
compliance with the requirements will always be deemed
sufficient.

Liability insurance losses.
(1) Difference from other losses. – the adjustment of liability
claims differs from direct damage claims in that the claimant is
not insured. In representing the insurer, the adjuster is not
dealing with a customer of the insurer as is the case in settling
the usual direct damage property loss.
(2) Claim for personal injuries. – determining an adequate
amount to compensate for a personal injury is not a simple
process. In no other area of claim settlement are there so many
uncertain factors where the measure of damages will, to a large
degree, be influenced by the fallibilities and prejudices that are
characteristics of human nature.
(3) Direct property damage claims. – the extent of a claim for
damages to property is measured by the amount of the loss
occasioned the property owner. The measure of loss is the
difference in value between the property undamaged and the
property in its damaged condition.
(4) Property damage liability claim. – one point in respect to
property liability claims must be differentiated from direct loss
insurance claims. A fire claim, for example, usually includes only
payment for the direct damage to the property unless additional
coverage is purchased to provide for the indirect results of the
loss of use of the property, such as loss of profits or rents. In
property damage liability claims, however, the loss of use may
be included. The rental cost of a similar automobile, for instance,
would be included in a liability claim against the person causing
damage serious enough to prevent its use for a length of time.
Time for payment of claims in non-life policies.
-Sections 249 refers to insurance policies other than life. The
proceeds shall be paid within 30 days after recept by the insurer
of proof of loss, and ascertainment of the loss or damage by
agreement of the parties or by arbitration but not later than 90
days from such receipt of proof of loss whether or not
ascertainment is had or made.
Effect where claim is fraudulent.
-Fraud in any part of the claim taints the whole. The mere filing of
such a claim will exonerate the insurer.
-The burden of proving fraud rests on the insurer.
Effect of false statements innocently made.
-the rights of the insured are, however, in no way prejudiced by
false statements inadvertently and innocently made in his proofs
of loss despite a clause in the policy providing or its forfeiture in
the event of any false swearing; and although the false
statements are as to a material matter to the insurer’s liability,
the insured can recover for his loss.
Reference to arbitration.
(1) Where arbitration not required should insurer deny liability. –
A stipulation in a fire insurance policy that in the event of a loss,
unless the company should deny liability, as a condition
precedent to bringing an action on the policy by the insured, the
latter should first submit to an arbitration, is one valid at law and
unless it be first complied with, no action can be brought. But, if
in the course of the settlement of the loss, the company should in
any case refuse to pay, it will be deemed to have waived the
condition precedent with reference to arbitration, and suit upon
the policy will lie.
RIGHT OF INSURER TO SUBROGATION
(1) Subrogation, a normal incident of indemnity insurance
Subrogation – the right of the insurer in certain cases to
take over the rights of the insured against the party
responsible for his injury, loss or damage.
(2) Limit of recovery
A subrogee cannot succeed to a right not possessed by
the subrogor. The rights to which the subrogee
succeeds are the same as, but not greater than the
subrogor. Thus, as subrogee, as insurer, after paying
the claim of the insured for damages under the
insurance, is subrogated merely to the rights of the
insured.
LOAN REPAYABLE FROM COLLECTION NOT DEEMED
PAYMENT OF INSURANCE
It is customary for insurers, in order to save the rights to their
assueds and to promptly place them in funds, so that their
business might be continued without embarrassment, to lend to
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The Insurance Code of the Philippines
their assureds the amount of the loss payable only out of money
collected on account of the loss. Such losses are not payment of
insurance.
SEC. 250-251
LIABILITY OF INSURER TO PAY DAMAGES AND
INTERESTS
(1) Finding of unreasonable delay – Under Sections 248,
249 and 250, the Commissioner or the Court must still
make a finding that the payment of the claim has been
unreasonably denied or withheld before the insured
shall be entitled to collect damages and the interest
provided which has been increased from 12% to 24%.
They apply only when the Commissioner or the Court
finds an unreasonable delay or refusal in the payment
of the clauses. In the absence of such express finding,
the judgment should bear only the legal rate of 12% for
the delay in the payment of the claim.
(2) Presumption of unreasonable delay – There is prima
facie presumption of unreasonable delay, however, if
the insurer fails to pay any such claim within the time
prescribed in Sections 248 and 249.
(3) Conflicting resolutions of trial court and Commission -
(read Sec.438)
The findings of the trial court will not necessarily
foreclose the administrative case before the
Commission, or vice versa. True, the parties are the
same, and both actions are predicated on the same set
of facts, and will require the identical evidence, the
procedure to be followed, and the reliefs to be adjudged
by these two (2) bodies are different (Civil case =
preponderance of evidence, Administrative case =
substantial evidence). In terms of procedure, the trial
court follows the rules provided under the Rules of
Court while the Commission has its own set of rules
and is not bound by the rigidities of technical rules of
procedure.
(4) Damages, recoverable – The damages to be awarded
are:
(a) Attorney’s fees
(b) Other expenses incurred by the insured person by
reason of such unreasonable denial or withholding
of payment
(c) Interest at twice the ceiling prescribed by the
Monetary Board of the amount of the claim due the
insured; and
(d) The amount of the claim
(5) Propriety of award of moral and exemplary damages
and attorney’s fees – In the case of Sun Insurance
Office Ltd. Vs. CA, the Court ruled that the rules under
the Civil Code of the Philippines shall govern as regards
the award of moral and exemplary damages.
TITLE 13
SUSPENSION OR REVOCATION OF AUTHORITY
SEC. 254
CHAPTER IV
SALES AGENCIES AND TECHNICAL SERVICES
TITLE 1
INSURANCE AGENST AND INSURANCE BROKERS
SEC. 312-313
Qualifications for insurance agent's license:
1. A resident of the Philippines
2. Trustworthy

3. Pass the written examination prescribed, if not
otherwise exempt from taking the same.
In case the applicant is a partnership, association, or
corporation, such applicant must be:
1. Domiciled in the Philippines
2. Empowered under its articles of incorporation to
transact the kind of business applied for.
Qualifications for insurance or reinsurance broker's license
1. He must be a Filipino citizen. Exception : if he has been
licensed and been doing business as broker since August 8,
1985, provided that he has a permanent resident status
2. He must have atleast 10 years experience as:
a. Sales and underwriting executive in an insurance
brokerage firm or insurance company
b. A general agent
3. He must have no history of unprofessional conduct known to
The Insurance Commissioner, other brokers and insurance
companies
Qualifications for authorization of life insurance agents to
sell or offer for sale variable contracts
1.He has been duly licensed to act as a life insurance agent for
atleast three (3) years
2. He has satisfactorily completed a training program on variable
contracts
3. He has passed the written examination prescribed by the
Commission for such purpose, unless exempted from taking the
same.
Qualifications for authorization of life insurance companies
to issue, deliver, sell, or use variable contracts
Any life insurance company authorized to transact business in
the Philippines requesting authority to issue, deliver, sell, or use
variable contracts must show to the satisfaction of the
Commission that it has satisfied, in addition to the requirements
of the Code relative to variable contracts, the following
qualifications:
1. The company, during each of any 3 or last 2 of the 5
fiscal years next preceding the date of authorization to
issue, deliver, sell, or use variable contracts, shall not
have experienced a net loss from operations;
2. The company, during each of any 3 including the last 2
of the 5 fiscal years next preceding the date of
authorization, shall have maintained surplus accounts in
excess of the minimum margin of solvency required of
not less than 1M.
3. The company shall initially transfer and allocate to the
designated separate variable contract account in cash
or other acceptable investment or a combination of
both, an amount equal to at least 1M from the
unassigned surplus of the company
4. The company shall at all times maintain in the
designated separate variable contract account a surplus
which shall be an excess of the value of the admitted
assets of such account over its liabilities and reserves
of atleast 2 per mille of the total amount of the
insurance in force of its variable contracts as of the
preceding year, or 10% of the total value of the
admitted assets in the variable contract account as of
the preceding year, whichever is greater.
Examination required of applicant
1. The applicant for license shall qualify himself in a
written examination for the kind of license applied for, if
not otherwise exempt from taking the same.
2. He must be of good moral character and not having
been convicted of a crime involving moral turpitude.
3. He must satisfactorily show that he has been trained in
the kind or kinds of insurance contemplated in the
license applied for.
4. A grade of 70% shall be necessary to pass the
examination.
No examination is required of the following:
1. One who presently holds or previously held at anytime
during the last 10 years, a license.
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The Insurance Code of the Philippines
2. One who has successfully completed the Insurance
Agent's Course conducted by the Insurance Institute for
Asia and the Pacific or an academic course/training
program
3. One who has been connected to any insurance
company, or with any other office or firm handling
insurance matters, is found by the Insurance
Commissioner to be trustworthy and competent to
transact the business contemplated in the license
applied for.
SEC. 314-318
Denial, suspension, or revocation of license
The grounds are already enumerated in Section 314 of this
Code.
Actively engaged requirement
The terms means that the license holder shall have earned,
during the year following the issuance of the license, commission
or other compensation for services rendered as such agent,
insurance broker, or reinsurance broker, amounting to atleast
P3600.
TITLE 5- ADJUSTERS
SEC 332-343
Kinds of adjusters
1. Agents as adjusters- agency involved a principal who
authorizes a second party, an agent, to create, modify,
or terminate contractual relations between himself and
a third party. To create an agency relationship need not
to reduce it in writing, however, in the business of
insurance, a written document, the agency contract, or
commission of authority is required.
2. Staff or company adjusters- they are salaried
employees of an insurance company for the adjustment
of claims filed under policies issued by such insurance
company. No license is required of them by law.
3. Independent adjusters- they are experts who have
made loss- adjusting a business. They work for the
insurers who request for their services.
4. Adjustment bureaus- these are separate corporations
supported by many insurers that regularly use their
services. Their sole business is to claim adjustments.
5. Public adjusters-represents the public in contrast to the
adjusters who represent insurers. They are retained by
the insured to represent the latter in negotiating loss
settlement.
Liability of settling or claim agent under an insurance policy
The scope and extent of the functions of an adjustment and
settlement agent do not include personal liability. His functions
are merely to to settle and adjust claims in behalf of his principal
if those claims are proven and undisputed, and if the claim is
disputed or is disapproved by the principal, the agent does not
assume any personal responsibility.
Section 190 of the Insurance Code provides that such agent, as
a representative of the foreign insurance company, is tasked
only to receive legal processes on behalf of its principal and not
to answer personally for any insurance claims
Also, being a mere agent and representative, such agent is also
not a real party in interest.
Services of adjusters
1. Furnishing of prompt aid and advise following a loss, for
an adjuster usually arrives very promptly after the loss.
2. Aids in preventing further damage
3. Examination of policies and explanation of contract
terms to the insured
4. Aids in securing promptness of settlement by supplying
the formation and assistance of repairs, replacements,
engineering service, salvage, and the like.
5. Appraisal of value
6. Assistance in making inventories, securing expert
opinions, and preparing necessary documents.

Licensing of adjusters
Qualifications- A person, partnership, association, or corporation
shall act as an adjuster if authorized so to act by virtue of a
license issued or renewed by the Commissioner pursuant to the
provisions of this Code: Provided, That in the case of a natural
person, he must be a Filipino citizen and in the case of a
partnership, association or corporation, at least sixty per centum
of its capital must be owned by citizens of the Philippines.
Natural person- in addition:
1. Must be of good moral character and not having been
convicted of a crime involving moral turpitude.
2. Atleast having 10 years experience in the line of
adjustment; or must have successfully completed the
insurance adjuster's course conducted by the Insurance
Institute for Asia and The Pacific
3. He must have a paid up capital of atleast P250K.
Juridical person- in addition:
1. The President, General Manager, or Chief Operating
Officer of the applicant shall be of good moral character
and not having convicted of any crime involving moral
turpitude.
2. The President, General Manager, or Chief Operating
Officer of the applicant shall have alteast 10 years
experience in the line of adjustment; or must have
successfully completed the insurance adjuster's course
conducted by the Insurance Institute for Asia and The
Pacific
3. Applicant must have atleast a paid-up capital of P500k.
Common requirements
1. Submission of a 3-year business plan
2. That the application of an adjuster may be referred to
the Association of Philippine Adjustment Companies
and Insurance and Surety Association of the Philippines
for comment as to the applicant's moral integrity,
honesty, and trustworthiness.
CHAPTER V- SECURITY FUND
CHAPTER VI
COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE
SEC. 386-402
Meaning of motor vehicle.
Motor vehicle - any vehicle propelled by any power
other than muscular power using the public highways,
but excepting road rollers, trolley cars, street sweepers,
sprinklers, lawn mowers, bulldozers, graders, forklifts,
amphibian trucks, and cranes if not used in public
highways, vehicles which run only on rails or tracks,
and tractors, trailers and traction engines of all kinds
used exclusively for agricultural purposes (RA 4136,
Sec. 3(a)).
Trailers having any number of wheels, when propelled
or intended to be propelled by attachment to a motor
vehicle shall be classified as separate motor vehicle
with no power rating.
Meaning of motor vehicle liability insurance.
Motor vehicle liability insurance - protection coverage
that will answer for legal liability for losses and
damages for bodily injuries or property damage that
may be sustained by another arising from the use and
operation of a motor vehicle by its owner.
How protection is obtained.
At present, motor vehicle liability insurance must, to a
certain extent, be taken on compulsory basis by a motor
vehicle owner.
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The Insurance Code of the Philippines
Prerequisite regarding the operation and registration of
motor vehicles.
Section 387 of the Insurance Code enjoins a land
transportation operator (LTO) or a motor vehicle owner
(MVO) not to operate his vehicle in public highways
unless there is in force in relation thereto a policy
insurance or guaranty in cash or surety bond to
indemnify the death or bodily injury of the third party or
passenger, as the case may be, arising from the use
thereof what the law mandates is third party liability
coverage for such death or bodily injury.
The Land Transportation Office will register or renew
the registration of a motor vehicle only if there is in force
in relation thereto such insurance or guaranty in cash or
surety bond. (Sec. 376)
Spirit behind or need for compulsory third party liability
insurance.
To assure victims of motor vehicle accidents and / or
their dependents, especially when they are poor,
immediate financial assistance or indemnity regardless
of the financial capability of motor vehicle owners or
operators responsible for the accident sustained. The
insurer's liability is primary and accrues immediately
upon the occurrence of the injury or event upon which
the liability depends, and does not depend on the
recovery of judgment by the injured party against the
insured.
The injured or the heirs of a deceased victim of a
vehicular accident may sue directly the insurer of the
vehicle.
Note: Presidential Decree No. 1814 which amended
Chapter VI deleted property damage from compulsory
coverage under the CMVLI. Thus, the compulsory
insurance only covers death of or bodily injuries to
persons involved in vehicular accidents. The
amendment was effected because of alleged
tremendous losses encountered by the insurance
industry under the scheme arising from padded and
sometimes non-existent third party property damage
claims even involving personnel of insurance
companies. "Own damage" coverage to the insured
motor vehicle is not also required by law. The parties,
however, may agree upon a separate insurance to
cover damage to property. The deletion of property
damage makes possible substantial increase of the
amounts in the schedule of indemnities for professional
fees and hospital charges to approximate the present
rates of medical costs.
Effect of insured’s violation of policy condition on insurer’s
liability to third-party claimant.
The primary purpose of compulsory third party liability
insurance is to afford protection to third persons who
are not parties to the contract and who might suffer loss
or injury on account of the accident. To allow, therefore,
the insurer to escape liability by interposing the defense
that the owner of the insured motor vehicle has violated
the contract would be to defeat the very purpose of the
law.
Persons subject to the CMVLI requirement.
Owners of motor vehicles subject are those who are generally
classified either as a:
(1)Motor Vehicle Owner (MVO) or one who is the actual legal
owner of a motor vehicle in whose name such vehicle is
registered with the Land Transportation Office; or
(2)Land Transportation Operator (LTO) or one who is the owner
of a motor vehicle or vehicles being used for conveying
passengers for compensation including school buses. (Sec.
390.)
Substitutes for a CMVLI policy.
MVOs or LTOs, instead of a CMVLI policy, may either:
(1)Post a surety bond with the Insurance Commissioner who
shall be made the obligee or creditor in the bond in such amount
or amounts required as limits of indemnity to answer for the
same losses sought to be covered by a CMVLI policy; or
(2)Make a cash deposit with the Insurance Commission in such
amount or amounts required as limits of indemnity also for the
same purpose.

Scope of coverage required.
(1) For owners of private motor vehicles, the coverage must be
comprehensive against third party liability for death or bodily
injuries. In case a private motor vehicle is being used to transport
passengers for compensation, such coverage shall, in addition,
include passenger liability; and
(2) For operators of land transportation, the coverage must also
be comprehensive against both passenger and third-party
liabilities for death or bodily injuries. The insurer may extend
additional other risks at its option.
Section 390 prescribes the minimum limits of indemnity
of the comprehensive coverage for different kinds of
private motor and public utility vehicles.
In case of excess over the minimum limit of coverage,
such excess should be deemed as to have been taken
on voluntary basis and not compulsory. (Sec. 391)
LTO contemplating cancellation of his cover.
(1) Give to the insurance or surety company concerned a written
notice of his intention to cancel;
(2)Secure, before the insurance policy or surety bond ceases to
be effective, another similar policy or bond to replace that one
cancelled; or
(3) Without making any such replacement, make a cash deposit
in sufficient amount with the Insurance Commissioner and
secure a certification from the Insurance Commissioner
regarding the deposit made for presentation to and filing with the
Land Transportation Office.
Effect of cancellation of cover.
The Office shall order the confiscation of the plates of the motor
vehicle concerned, unless it receives any of the following:
(1) an evidence or proof of a new and valid CMVLI cover which
may be either an insurance policy or guaranty in cash or surety
bond;
(2) a signed duplicate of an endorsement or addendum issued
by the insurance company concerned showing revival or
continuance of the CMVLI cover; or
(3) a certification issued by the Insurance Commissioner to the
effect that a cash deposit in the amount required as limit of
indemnity has been made with him by the MVO or LTO.
No-fault indemnity claim.
“No fault” - the victim of a tort can recover for his loss
from his insurer without regard to his own contributory
fault or the fault of the tortfeasor. To guarantee
compensation or indemnity to persons suffering loss in
motor vehicle accidents.
Claim subject to certain conditions - Under Section 391,
the insurance company concerned shall pay any claim
for death or bodily injuries sustained by a passenger or
third party without the necessity of proving fault or
negligence of any kind subject to certain conditions.
This no-fault claim does not apply to property damage.
The finding of fault may be availed of by the insurer only
as to the excess.
Claim against insurer of vehicle in which victim is an
occupant - The claimant is not free to choose from
which insurer he will claim the "no-fault indemnity" as
the law, by using the word "shall," makes it mandatory
that the claim be made against the insurer of such
vehicle. That said vehicle might not be the one that
caused the accident is of no moment since the law itself
provides that the party paying the claim may recover
against the owner of the vehicle responsible for the
accident.
Claim against insurer of vehicle responsible for accident
- the claim shall lie against the insurer of the directly
offending vehicle. "Occupant" includes both a
"passenger" and a "third party" so long as they are
riding in or mounting or dismounting from a motor
vehicle.
Certificate of cover.
Certificate of Cover - serve as the substantiating
documentation that will be accepted by and filed with
the LTC during registration of motor vehicles as proof of
insurance upon such motor vehicle. It is also a
secondary proof of such coverage and may be
presented in the investigation of traffic accident by the
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The Insurance Code of the Philippines
MVO or in the investigation of traffic accident by the
MVO or LTO, or his representative, to Government
agents charged with the duty to enforce traffic laws,
rules and regulations.
Limitations with respect to CMVLI cover solicitation.
(1) No government office or agency having the duty of
implementing the provisions of the Insurance Code on
CMVLI shall act as agent in procuring the insurance policy or
surety bond required;
(2) No official or employee of such office or agency shall similarly
act as such agent; and
(3) The commission of an agent procuring the corresponding
insurance policy or surety bond shall in no case exceed 10% of
the amount of premiums therefor.
Limitations as to use of insured vehicle under the master
private vehicle policy.
Under the master private motor vehicle policy, it is provided that
the policy does not cover:
(1) Use for the hauling and/or carrying of logs, lumber, sand,
gravel, bottled beverages, gasoline products, and/or other
inflammable articles or materials;
(2) Use for racing, pacemaking, reliability trial or speed testing,
or use for any purpose in connection with the
motor trade; or
(3) Use for the carriage of passengers or for hire or reward.
Limitations as to use of insured vehicle under the master
commercial vehicle policy.
The master commercial vehicle policy does not cover:
(1) Use for the hauling and/or carrying of logs, lumber, sand,
gravel, bottled beverages, gasoline products, and/or other
inflammable articles or materials if actual use of the vehicle
relating to any of the said object be different from that declared in
the proposal or declaration in the application for insurance;
(2) Use for racing, pacemaking, reliability trial, or speed testing;
(3) Use for the carriage of passengers or for hire or reward; or
(4) Use for any purposes in connection with the motor trade.
Limitations (1) and (2) may be deleted and the risks
named therein covered by the policy upon agreement
and payment of 205 additional premium to the
company.
Limitations as to use of insured vehicle under the master
land transportation operators policy.
The master land transportation operators policy does not cover:
(1) Use for hauling and/or carrying of logs, lumber, sand, gravel,
bottled beverages, gasoline products, and/or other inflammable
articles ormaterials; or
(2) Use for racing, pacemaking, reliability trial or speed testing;
or use for any purpose in connection with the motor trade.
Limitations as to use of the insured vehicle under the
master motorcycle policy.
The master motorcycle policy does not cover:
(1) Use for the hauling and/or carrying of logs, lumber, sand,
gravel, bottled beverages, gasoline products,
and/or other inflammable articles or materials;
(2) Use for racing, pacemaking, reliability trial, or speed testing;
(3) Use for the carriage of passengers or for hire or reward; or
(4) Use for any purpose in connection with the motor trade.
The malus system under CMVLI.
“Malus system” - a vehicle owner who suffered an
accident resulting in a loss during the immediately
preceding policy period, is required to pay a surcharge
upon renewal of his coverage in addition to the basic
premium equivalent to the product of the amount of loss
paid multiplied by the rate of premium for the vehicle.
The surcharge shall in no case be less than P30.00.
Where insured himself or his driver without license or with
expired license.
“Authorized driver clause” - The clause limits the use of
the insured vehicle to two (2) persons only, namely, the
insured himself or any person on his (insured's)
permission.
“Any person” - qualified by the phrase "x x x on the
insured's order or with his permission." Thus, if the
person driving is other than the insured, he must have

been duly authorized by the insured to drive the vehicle,
to make the insurance company liable for the driver's
negligence.
Main purpose of “authorized driver clause” - a person
other than the insured owner, who drives the vehicle on
the insured's order or with his permission, must be a
duly licensed driver and has no disqualification to drive
as motor vehicle.
The requirement of a license does not apply where the
person driving is the insured himself. While the motor
vehicle law prohibits a person from operating a motor
vehicle on the highway without a license or with an
expired license, an infraction of the law on the part of
the insured is a bar to recovery under the insurance
contract. It, however, renders him subject to the penal
provisions of the motor vehicle law.
“Theft clause” - Where a car is unlawfully and
wrongfully taken without the owner's consent or
knowledge.
The "authorized driver clause" is in contemplation or
anticipation of accident in the legal sense and not of an
event such as theft. There is no causal connection
between the possession of a valid driver's license and
the loss of a vehicle.
Pertinent provisions of the Civil Code.
Art. 2176 - Whoever by act or omission causes damage
to another, there being fault or negligence, is obliged to
pay for the damage done. Such fault or negligence, if
there is no pre-existing contractual relation between the
parties, is called quasi-delict and is governed by the
provisions of this Chapter.
Art. 2177 - Responsibility for fault or negligence under
the preceding article is entirely separate and distinct
from the civil liability arising from negligence under the
Penal Code. But the plaintiff cannot recover damages
twice for the same act or omission of the defendant.
Art. 2180 – The obligation imposed by Article 2176 is
demandable not only for one's own acts or omissions,
but also for those of person for whom one is
responsible. Employers shall be liable for damages
caused by their employees and household helpers
acting within the scope of their assigned tasks, even
though the former are not engaged in any business or
industry. The responsibility treated of in this article shall
cease when the persons herein mentioned prove that
they observed all the diligence of a good father of a
family to prevent damage.
Art. 2184 – In motor vehicle mishaps, the owner is
solidarity liable with his driver, if the former, who was in
the vehicle, could have, by the use of due diligence,
prevented the misfortune. It is disputably presumed that
a driver was negligent, if he had been found guilty of
reckless driving or violating traffic regulations at least
twice within the next preceding two months. If the owner
was not in the motor vehicle, the provisions of Article
2180 are applicable.
Art. 2185 - Unless there is proof to the contrary, it is
presumed that a person driving a motor vehicle has
been negligent if at the time of the mishap, he was
violating any traffic regulation.
Art. 2186 - Every owner of a motor vehicle shall file with
the proper government office a bond executed by a
government-controlled corporation or office, to answer
for damages to third persons. The amount of the bond
and other terms shall be fixed by the competent public
official.
CHAPTER VII
MUTUAL BENEFIT ASSOCIATIONS AND
TRUSTS FOR CHARITABLE USES
CHAPTER VIII
TRUST BUSINESS IN GENERAL
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The Insurance Code of the Philippines
CHAPTER IX
REGISTRATION, RESPONSIBILITIES AND
OVERSIGHT OF SELF-REGULATORY
ORGANIZATIONS
CHAPTER X
THE INSURANCE COMMISSIONER
TITLE l
ADMINISTRATIVE AND ADJUDICATORY POWERS
SEC. 437-439
Government regulation of insurance.
Included in his regulatory responsibilities is the duty to
hold the security deponents under Sections 191 and
203 for the benefit and security of all policyholders.
The general purpose of insurance regulation is to
protect the public against insolvency or unfair treatment
by insurers. Insurance is generally classed as a
business which is "affected with public interest."
Three basic methods of providing insurance regulation
are available to the government:
Legislation - The insurance law is now
embodied in the Insurance Code as amended
by RA 10607.
Administrative action
(a) Licensing - check on the insurer's financial
condition to ascertain that it has the required
capital and surplus for the kinds of insurance
permitted in the license. The Commissioner
has considerable power to refuse to issue a
renewal license as well as the power of
suspension or revocation. He also conducts
examinations through his Office which
determine the issuance of agent's or broker's
licenses.
(b) Examination - The checking of assets,
liabilities, and reserves is part of this
procedure, as well as a review of almost all
underwriting, investment, and claim practices
of the insurers. The basic idea of continual
regulations is that most obligations of insurers
extend years into the future, and the state
should provide supervision to see that the
promises in the contract are fulfilled.
(c) Investigation - to determine whether or not
insurers or their representatives are meeting
the requirements of the law. Free access to
records and books of the insurers and
hearings on such matters as rate violations or
unfair trade practices are examples of his
authority. Commissioner may issue
administrative rulings or advisory opinions with
regard to the business conduct of insurers or
their agents. In extreme cases, he may declare
the insolvency of an insurer in liquidation or
rehabilitation proceedings.
Court action
(a) The notice and hearing procedures which
are conducted by the Commissioner in order to
arrive at official rulings may be reviewed by the
courts to determine if he has carried out his
duties in conformity with law.
(b) His discretionary power is also subject to
mandamus (relief against breach or abuse of
official power) and injunction (to prevent
irreparable injury) actions by aggrieved parties.
(c) The Commissioner may petition the courts
to enforce compliance with the law or his
rulings.
Powers and duties, generally, of an Insurance
Commissioner.
The general duty and function of the Insurance
Commissioner is to regulate and supervise the
transaction of insurance business so as to protect the

interest of the public, to execute the insurance laws,
and to see that violations of the insurance laws are
properly dealt with or punished.
Conferred by law - Statutes which provide that an
insurance board or official shall have powers have
generally been upheld or recognized as a proper
delegation of administrative or ministerial duties, rather
than of legislative powers.
Exercise generally not subject to judicial review - Where
provision has been made for an appeal to the court
from any regulation, order, or rate adapted by an
insurance board or official, such a provision gives a
speedy and adequate remedy, and an injunction will not
lie to restrain such board or official from proceeding in a
matter within its or his jurisdiction. As an application of
the nature of exhaustion of remedies, a court will refuse
to take jurisdiction of a matter while it is still pending
before the board or official, since the administrative
remedy has not been fully exhausted at that point.
Nature of powers of the Insurance Commission.
Regulatory or non-quasi-judicial - the authority to issue,
or refuse issuance of, a certificate of authority to a
person or entity desirous of engaging in insurance
business in the Philippines, and to revoke or suspend
such certificate of authority upon a finding of the
existence of statutory grounds for such revocation or
suspension. Authority to which a decision of the
Insurance Commissioner rendered in the exercise of his
regulatory function may be appealed. Such authority is
limited to the business of insurance.
Adjudicatory or quasi-judicial - authority to which appeal
may be taken from a final order or decision of the
Commissioner given in the exercise of his adjudicatory
or quasi-judicial power.
Commissioner’s decisions, regulations, and rulings.
The Insurance Commissioner's official acts are of two
general types:
(1)Adjudications or decisions in individual cases - he acts like a
judge and is required, in some instances to give interested
parties a formal hearing.
o Section 439 empowers the Commission to adjudicate
claims and complaints involving any loss, damage or
liability being claimed or sued upon any kind of
insurance, bond, reinsurance contract, or membership
certificate where the amount thereof, excluding
interests, cost and attorney's fees, does not exceed in
any single claim P100,000.00. Any decision, order, or
ruling rendered by the Commissioner after a hearing
has the force and effect of a judgment appealable to the
Court of Appeals.
o Under Section 439, the power of the Commissioner
does not cover the relationship affecting the insurance
company and its agents but is limited to adjudicating
claims and complaints filed by the insured against the
insurance company.
o Section 2 of the Insurance Code cannot be invoked to
give jurisdiction over the same to the Insurance
Commissioner. Expressio unius est exclusio alterius.
(2)Issuance in the form of regulations, rulings, etc.
(a) Formal promulgation of official regulations – The
Insurance Commissioner is authorized by law to make
regulations, which are the general rules applicable to
classes of insurers, agents or other persons subject to
the statute. Such official regulations are, in effect,
subordinate legislation and should be officially
promulgated so as to bring them to the attention of all
persons subject to them. However, official regulations
that conflict with the statute, or that go beyond the
scope of the Commissioner's powers are invalid.
(b) Making of rulings - Because of the informality of his
procedure, the Commissioner often makes "rulings" that
express his views as to the meaning of the insurance
law without being clearly either an adjudication or a
regulation. The Commissioner, unlike a court of law, is
not bound by precedents. He is free to disregard rulings
previously made by himself or by his predecessors. In
practice, he generally adheres to his prior rulings.
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The Insurance Code of the Philippines
Creation and organizational history of the Insurance
Commission.
The Insurance Commission was formerly referred to as
the Office of the Insurance Commissioner.
The law that created the Office of the Insurance
Commissioner as an independent office is Republic Act
No. 275/ which took effect upon the formal opening of
the Central Bank of the Philippines on January 3, 1949.
Under Act No. 2427, which took effect on July 1, 1915,
the Insular Treasurer, in addition to his official title, was
designated Insurance Commissioner ex-officio. The
government agency which supervised insurance
business in this country was therefore only a division,
called the Insurance Division, of the Bureau of the
Treasury.
During the Japanese occupation of the Philippines, the
Insurance Division was separated from the Bureau of
Treasury and became a part of the pre-war Bureau of
Banking, then called the Bureau of Financing. The latter
name was changed to Bureau of Credits and
Investments near the end of the enemy occupation.
On December 18,1974, the insurance laws were
codified with the promulgation of Pres. Decree No. 612,
otherwise known as the Insurance Code.
The present Insurance Code is now embodied RA No.
10607.
The Insurance Commission is presently attached to the
Department of Finance.
Objectives of insurance regulation.
(1) To make insurance available to all who want and need it;
(2) To assure that the insurance product is of high quality and
reliability; and
(3) To ensure that the price of insurance be not excessive,
inadequate, discriminatory or destructive of competition.
Historically, the principal objective has been to preserve
the solvency of insurance companies.
Duties and functions of the Insurance Commission.
The Insurance Commission exercises under the
Insurance Code the following specific duties and functions:
(1)To insure the solvency of insurance companies.
(a) To issue certificates of authority to insurance
companies that meet the minimum legal requirements;
(b) To suspend or revoke the certificates of authority of
companies;
(c) To require insurance companies to keep books,
records, accounts and vouchers;
(d) To require the setting up of reserves;
(e) To require the filing of annual statements showing
the exact condition of the affairs of the insurance
company;
(f) To require adequate rates;
(g) To pass upon and approve certain classes of
investments;
(h) To cause an examination, at least once a year and
as often as the public interest so demands, to be made
into the financial conditions of insurance companies;
(i) To act as depository of securities required of
insurance companies for the benefit and security of
their policyholders and creditors;
(j) To see that no non-life insurance company shall
retain any risk on any one subject of insurance in an
amount exceeding 20% of its net worth;
(k) To rehabilitate or liquidate insolvent insurance
companies; and
(l) To maintain and administer the P10 million
Security Fund for the payment of allowed claims against
insolvent insurance companies, as well as the Guaranty
Fund to answer for any valid benefit claim of benevolent
association members.
(2)To assure fair trade practices of insurance companies and
their agents.
(a) To approve policy forms;
(b) To require that rates be equitable and reasonable;
(c) To adjudicate claims and complaints involving any
insurance loss, damage or liability where the amount
involved does not exceed P100,000.00 in any single
claim;
(d) To prohibit unfair claims settlement practices; and
 The Insurance Code of the Philippines
(e) To accept service of notice, proof of loss, summons
or other legal process for foreign insurance companies
without an agent on whom such notice of loss, proof of
loss, summons or other legal process may be served.

(3)To assure reasonable insurance service.

(a) To license agents, brokers, adjusters, resident
agents, non-life company underwriters, actuaries and
rating organizations.

(4)To promote national interest.

(a) To pass upon and approve investments of
insurance companies' funds to insure that technical
reserves arising from insurance and reinsurance
operations are invested locally;
(b) To require insurance companies to increase their
retention of local risks and/or reinsure locally before
ceding to unauthorized foreign companies whenever
technically feasible;
(c) To pass upon and approve reinsurance
Treaties; and
(e) To pass upon remittances of reinsurance premium
on risks ceded abroad and of claims for losses
payable abroad.

TITLE 2
FEES AND OTHER SOURCES OF FUNDS

MISCELLANEOUS PROVISIONS

SEC. 442-448

Sec. 442. Any person, company or corporation subject to the

supervision and control of the Commissioner who violates any
provision of this Code, for which no penalty is provided, shall be
deemed guilty of a penal offense, and upon conviction be
punished by a fine not exceeding Two hundred thousand pesos
(P200,000.00) or imprisonment of six (6) months, or both, at the
discretion of the court.
If the offense is committed by a company or corporation, the
officers, directors, or other persons responsible for its operation,
management, or administration, unless it can be proved that they
have taken no part in the commission of the offense, shall
likewise be guilty of a penal offense, and upon conviction be
punished by a fine not exceeding Two hundred thousand pesos
(P200,000.00) or imprisonment of six (6) months, or both, at the
discretion of the court.
Sec. 443. All criminal actions for the violation of any of the
provisions of this Code shall prescribe after three (3) years from
the discovery of such violation: Provided, That such actions shall
in any event prescribe after ten (10) years from the commission
of such violation.
Sec. 444. Any person, partnership, association or corporation
heretofore authorized, licensed or registered by the
Commissioner shall be deemed to have been authorized,
licensed or registered under the provisions of this Code and shall
be governed by the provisions thereof: Provided, however, That
where any such person, partnership, association or corporation
is affected by the new requirements of this Code, said person,
partnership, association or corporation shall, unless otherwise
herein provided, be given a period of one (1) year from the
effectivity of this Code within which to comply with the same.
Sec. 445. Transitory Provision. – Renewal of existing licenses,
certificates of authority or accreditation which will expire on June
30, 2013 shall be valid until December 31, 2015. Thereafter,
renewal shall be filed on the last day of December every third
year following the date of expiry of the license, certificate of
authority or accreditation.
Sec. 446. Repealing Clause. – Except as expressly provided by
this Code, all laws, decrees, orders, rules and regulations or
parts thereof, inconsistent with any provision of this Code shall
be deemed repealed, amended or modified accordingly.
Sec. 447. Separability Clause. – If any provision of this Code or
any part hereof be declared invalid or unconstitutional, the
remainder of the law or other provisions not otherwise affected
shall remain valid and subsisting.
Sec. 448. This Code shall take effect fifteen (15) days following
its publication in a newspaper of general circulation.”

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