San Beda College of Law: Insurance Code

San Beda College of Law 30
MEMORY AID IN COMMERCIAL LAW
INSURANCE CODE
(P.D. No. 1460)
I. GENERAL CONCEPTS 7. Personal – each party having in view the character, credit and
conduct of the other.
CONTRACT OF INSURANCE
 An agreement whereby one undertakes for a consideration to REQUISITES OF A CONTRACT OF INSURANCE (The Insurance Code
indemnify another against loss, damage or liability arising from an of the Philippines Annotated, Hector de Leon, 2002 ed.)
unknown or contingent event. (Sec. 2, par. 2, IC) 1. A subject matter which the insured has an insurable interest.
2. Event or peril insured against which may be any future contingent
“DOING AN INSURANCE BUSINESS OR TRANSACTING AN INSURANCE or unknown event, past or future and a duration for the risk
BUSINESS” (Sec. 2, par. 4) thereof.
1. Making or proposing to make, as insurer, any insurance contract; 3. A promise to pay or indemnify in a fixed or ascertainable amount.
2. Making or proposing to make, as surety, any contract of 4. A consideration known as “premium”.
suretyship as a vocation, not as a mere incident to any other 5. Meeting of the minds of the parties.
legitimate business of a surety;
3. Doing any insurance business, including a reinsurance business; 5 CARDINAL PRINCIPLES IN INSURANCE
4. Doing or proposing to do any business in substance equivalent to 1. Insurable Interest
any of the foregoing 2. Principle of Utmost Good Faith
 An insurance contract requires utmost good faith (uberrimae fidei)
II. CHARACTERISTICS OF AN INSURANCE CONTRACT (The Insurance between the parties. The applicant is enjoined to disclose any
Code of the Philippines Annotated, Hector de Leon, 2002 ed.) material fact, which he knows or ought to know.
1. Consensual – it is perfected by the meeting of the minds of the  Reason: An insurance contract is an aleatory contract. The insurer
parties. relies on the representation of the applicant, who is in the best
2. Voluntary – the parties may incorporate such terms and position to know the state of his health.
conditions as they may deem convenient. 3. Contract of Indemnity
3. Aleatory – it depends upon some contingent event.  It is the basis of all property insurance. The insured who has
4. Unilateral – imposes legal duties only on the insurer who insurable interest over a property is only entitled to recover the
promises to indemnify in case of loss. amount of actual loss sustained and the burden is upon him to
5. Conditional – It is subject to conditions the principal one of establish the amount of such loss (Reviewer on Commercial Law,
which is the happening of the event insured against. Professors Sundiang and Aquino)
6. Contract of indemnity – Except life and accident insurance, a Rules:
contract of insurance is a contract of indemnity whereby the a. Applies only to property insurance except when the creditor
insurer promises to make good only the loss of the insured. insures the life of his debtor.
COMMERCIAL LAW COMMITTEE

 CHAIRPERSON: Garny Luisa Alegre  ASST. CHAIRPERSON:Jayson O’S Ramos  EDP: Beatrix I. Ramos  SUBJECT HEADS:
Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario (Transportation Laws);
Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John Lemuel Gatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)
b. Life insurance is not a contract of indemnity. b. Where the insurer pays the insured the value of the loss without
c. Insurance contracts are not wagering contracts. (Sec. 4) notifying the carrier who has in good faith settled the insured’s
4. Contract of Adhesion (Fine Print Rule) claim for loss;
 Most of the terms of the contract do not result from mutual c. Where the insurer pays the insured for a loss or risk not covered
negotiations between the parties as they are prescribed by the by the policy. (Pan Malayan Insurance Company v. CA, 184 SCRA
insurer in final printed form to which the insured may “adhere” if 54)
he chooses but which he cannot change. (Rizal Surety and Insurance d. In life insurance
Co., vs. CA, 336 SCRA 12) e. For recovery of loss in excess of insurance coverage
5. Principle of Subrogation
 It is a process of legal substitution where the insurer steps into the CONSTRUCTION OF INSURANCE CONTRACT
shoes of the insured and he avails of the latter’s rights against the  The ambiguous terms are to be construed strictly against the
wrongdoer at the time of loss. insurer, and liberally in favor of the insured. However, if the terms
 The principle of subrogation is a normal incident of indemnity are clear, there is no room for interpretation. (Calanoc vs. Court of
insurance as a legal effect of payment; it inures to the insurer Appeals, 98 Phil. 79)
without any formal assignment or any express stipulation to that
effect in the policy. Said right is not dependent upon nor does it III. DISTINGUISHING ELEMENTS OF AN INSURANCE CONTRACT
grow out of any private contract. Payment to the insured makes the 1. The insured possesses an insurable interest susceptible of
insurer a subrogee in equity. (Malayan Insurance Co., Inc. v. CA, 165 pecuniary estimation;
SCRA 536; see also Art. 2207, NCC) 2. The insured is subject to a risk of loss through the destruction or
 Purposes: (The Insurance Code of the Philippines Annotated, impairment of that interest by the happening of designated
Hector de Leon, 2002 ed.) perils;
1. To make the person who caused the loss legally responsible for 3. The insurer assumes that risk of loss;
it. 4. Such assumption is part of a general scheme to distribute actual
2. To prevent the insured from receiving a double recovery from losses among a large group or substantial number of persons
the wrongdoer and the insurer. bearing somewhat similar risks; and
3. To prevent tortfeasors from being free from liabilities and is 5. The insured makes a ratable contribution (premium) to a general
thus founded on considerations of public policy. insurance fund.
 Rules:  A contract possessing only the first 3 elements above is a risk-
1. Applicable only to property insurance. shifting device. If all the elements, it is a risk-distributing device.
2. The insurer can only recover from the third person what the (The Insurance Code of the Philippines Annotated, Hector de Leon,
insured could have recovered. 2002 ed.)
3. There can be no subrogation in cases:
a. Where the insured by his own act releases the wrongdoer or third
party liable for the loss or damage; IV. PERFECTION OF AN INSURANCE CONTRACT

 An insurance contract is a consensual contract and is therefore Clauses

perfected the moment there is a meeting of minds with respect to  An agreement between the insurer and the insured on certain
the object and the cause or consideration. matter relating to the liability of the insurer in case of loss. (Prof.
 What is being followed in insurance contracts is what is known as De Leon, p.188)
the “cognition theory”. Thus, “an acceptance made by letter shall
not bind the person making the offer except from the time it came Endorsements
to his knowledge”. (Enriquez vs. Sun Life Assurance Co. of Canada,  Any provision added to the contract altering its scope or
41 Phil. 269) application. (Prof. De Leon, p.188)
Binding Receipt POLICY OF INSURANCE

 A mere acknowledgment on behalf of the company that its branch  The written instrument in which a contract of insurance is set
office had received from the applicant the insurance premium and forth. (Sec. 49)
had accepted the application subject to processing by the head
office.  Contents: (Sec. 51)
1. Parties
Cover Note (Ad Interim) 2. Amount of insurance, except in open or running policies;
 A concise and temporary written contract issued to the insurer 3. Rate of premium;
through its duly authorized agent embodying the principal terms of 4. Property or life insured;
an expected policy of insurance. 5. Interest of the insured in the property if he is not the absolute
Purpose: It is intended to give temporary insurance protection owner;
coverage to the applicant pending the acceptance or rejection of 6. Risk insured against; and
his application. 7. Duration of the insurance.
 Duration: Not exceeding 60 days unless a longer period is approved
by Insurance Commissioner (Sec. 52).  Persons entitled to recover on the policy (sec. 53): The
insurance proceeds shall be applied exclusively to the proper
Riders interest of the person in whose name or to whose benefit it is
 Printed stipulations usually attached to the policy because they made, unless otherwise specified in the policy.
constitute additional stipulations between the parties. (Ang Giok  Kinds:
Chip vs. Springfield, 56 Phil. 275) 1. OPEN POLICY – value of thing insured is not agreed upon, but left
 In case of conflict between a rider and the printed stipulations in to be ascertained in case of loss. (Sec. 60)
the policy, the rider prevails, as being a more deliberate expression  The actual loss, as determined, will represent the total
of the agreement of the contracting parties. (C. Alvendia, The Law indemnity due the insured from the insurer except only that the
of Insurance in the Philippines, 1968 ed.) total indemnity shall not exceed the face value of the policy.
(Development Insurance Corp. vs. IAC, 143 SCRA 62)

2. VALUED POLICY – definite valuation of the property insured is  A public enemy- a nation with whom the Philippines is at
agreed by both parties, and written on the face of policy. (Sec. 61) war and it includes every citizen or subject of such nation.
 In the absence of fraud or mistake, the agreed valuation will 3. Beneficiary - A person designated to receive proceeds of policy
be paid in case of total loss of the property, unless the when risk attaches.
insurance is for a lower amount.  Rules in the designation of the beneficiary:
3. RUNNING POLICY – contemplates successive insurances and which a. LIFE
provides that the object of the policy may from time to time be i. A person who insures his own life can designate any
defined (Sec. 62) person as his beneficiary, whether or not the
beneficiary has an insurable interest in the life of the
V. TYPES OF INSURANCE CONTRACTS insured subject to the limitations under Art. 739 and
1. Life insurance Art. 2012 of the NCC.
a. Individual life (Secs. 179–183, 227)  Reason: in essence, a life insurance policy is no
b. Group life (Secs. 50, last par., 228) different form a civil donation insofar as the beneficiary
c. Industrial life (Secs. 229–231) is concerned. Both are founded on the same
2. Non-life insurance consideration of liberality. (Insular Life vs. Ebrado, 80
a. Marine (Secs. 99–166) SCRA 181)
b. Fire (Secs. 167–173) ii. A person who insures the life of another person and
c. Casualty (Sec. 174) name himself as the beneficiary must have an insurable
3. Contracts of bonding or suretyship (Secs. 175–178) interest in such life. (Sec. 10)
Note: iii. As a general rule, the designation of a beneficiary is
1. Health and accident insurance are either covered under life (Sec. revocable unless the insured expressly waived the right
180) or casualty insurance. (Sec. 174). to revoke in the policy. (Sec. 11)
2. Marine, fire, and the property aspect of casualty insurance are iv. The interest of a beneficiary in a life insurance policy
also referred to as property insurance. shall be forfeited when the beneficiary is the principal
accomplice or accessory in willfully bringing about the
VI. PARTIES TO INSURANCE CONTRACT death of the insured in which event, the nearest
1. Insurer - Person who undertakes to indemnify another. relative of the insured shall receive the proceeds of said
 For a person to be called an insurance agent, it is necessary insurance if not otherwise disqualified. (Sec. 12)
that he should perform the function for compensation. b. PROPERTY
(Aisporna vs. CA, 113 SCRA 459)  The beneficiary of property insurance must have an
2. Insured - The party to be indemnified upon the occurrence of the insurable interest in such property, which must exist not
loss. He must have capacity to contract, must possess an insurable only at the time the policy takes effect but also when the
interest in the subject of the insurance and must not be a public loss occurs. (Sec. 13 and 18).
enemy.

GENERAL RULE: There is no limit in the amount the insured can

Effects of Irrevocable Designation Of Beneficiary insure his life.
 Insured cannot: EXCEPTION: In a creditor-debtor relationship where the creditor
1. Assign the policy insures the life of his debtor, the limit of insurable interest is equal
2. Take the cash surrender value of the policy to the amount of the debt.
3. Allow his creditors to attach or execute on the policy; Note: If at the time of the death of the debtor the whole debt has
4. Add new beneficiary; or already been paid, the creditor can no longer recover on the policy
5. Change the irrevocable designation to revocable, even because the principle of indemnity applies.
though the change is just and reasonable.
 The insured does not even retain the power to destroy the C. Property
contract by refusing to pay the premiums for the beneficiary can  Every interest in property whether real or personal, or any relation
protect his interest by paying such premiums for he has an interest thereto, or liability in respect thereof, of such nature that the
in the fulfillment of the obligation. (Vance, p. 665, cited in de contemplated peril might directly damnify the insured (Sec. 13),
Leon, p. 101, 2002 ed.) which may consist in:
1. an existing interest;
VII. INSURABLE INTEREST 2. any inchoate interest founded on an existing interest; or
A. In General 3. an expectancy coupled with an existing interest in that
 A person has an insurable interest in the subject matter if he is so out of which the expectancy arises. (Sec. 14)
connected, so situated, so circumstanced, so related, that by the  When it should exist: When the insurance takes effect and when
preservation of the same he shall derive pecuniary benefit, and by the loss occurs, but need not exist in the meantime.
its destruction he shall suffer pecuniary loss, damage or prejudice.  Amount: The measure of insurable interest in property is the
B. Life extent to which the insured might be damnified by loss or injury
 Every person has an insurable interest in the life and health: thereof. (Sec. 17)
a. of himself, of his spouse and of his children;
b. of any person on whom he depends wholly or in part for INSURABLE INSURABLE
education or support; INT INTEREST IN
c. of any person under a legal obligation to him to pay money ER PROPERTY
or respecting property or services, of which death or illness ES
might delay or prevent performance; and T
d. of any person upon whose life any estate or interest vested IN
in him depends. (Sec. 10) LIF
 When it should exist: When the insurance takes effect; not E
thereafter or when the loss occurs. Must exist only at the Must exist at the
 Amount: time the policy takes time the policy

effect and need not takes effect and 2. In case of a mortgaged property
exist at the time of when the loss  The mortgagor and mortgagee each have an insurable interest in
loss occurs the property mortgaged and this interest is separate and distinct
Unlimited except in Limited to actual from the other.
life insurance value of interest in
a. Mortgagor – As owner, has an insurable interest therein to the
effected by creditor property insured.
on life of debtor. extent of its value, even though the mortgage debt equals such
The expectation of An expectation of a value. The reason is that the loss or destruction of the property
benefit to be derived benefit to be insured will not extinguish the mortgage debt.
from the continued derived from the b. Mortgagee – His interest is only up to the extent of the debt.
existence of life need continued Such interest continues until the mortgage debt is extinguished.
not have any legal existence of the
basis whatever. A property insured  The lessor cannot be validly a beneficiary of a fire insurance
reasonable must have a legal policy taken by a lessee over his merchandise, and the provision in
probability is basis.
the lease contract providing for such automatic assignment is void
sufficient without
more. for being contrary to law and public policy. (Cha vs. Court of
The beneficiary need The beneficiary Appeals, 227 SCRA 690)
not have an insurable must have
interest over the life insurable interest STANDARD OR OPEN OR LOSS
of the insured if the over the thing UNION PAYABLE
insured himself insured. MORTGAGE MORTGAGE
secured the policy. CLAUSE CLAUSE
However, if the life
Subsequent acts Acts of the
insurance was
obtained by the of the mortgagor mortgagor affect
beneficiary, the cannot affect the the mortgagee.
latter must have rights of the Reason:
insurable interest assignee Mortgagor does
over the life of the not cease to be a
insured. party to the
contract. (Secs. 8
SPECIAL CASES and 9)
1. In case of a carrier or depositary
 A carrier or depository of any kind has an insurable interest in a Effects of Loss Payable Clause
thing held by him as such, to the extent of his liability but not to a. The contract is deemed to be upon the interest of the mortgagor;
exceed the value thereof (Sec. 15) hence, he does not cease to be a party to the contract.

b. Any act of the mortgagor prior to the loss, which would otherwise
avoid the insurance affects the mortgagee even if the property is in EXCEPTIONS:
the hands of the mortgagee. 1. In case of life or industrial life insurance, when the grace
c. Any act, which under the contract of insurance is to be periods applies; (Sec. 77)
performed by the mortgagor, may be performed by the mortgagee 2. When the insurer makes a written acknowledgment of the
with the same effect. receipt premium; (Sec. 78)
d. In case of loss, the mortgagee is entitled to the proceeds to the 3. Section 77 may not apply if the parties have agreed to the
extent of his credit. payment of the premium in installments and partial payment
e. Upon recovery by the mortgagee to the extent of his credit, the has been made at the time of the loss. (Makati Tuscany
debt is extinguished. Condominium Corp. v. CA, 215 SCRA 462)
4. Where a credit term has been agreed upon. (UCPB vs.
 In case a mortgagee insures his own interest and a loss occurs, Masagana Telemart, 308 SCRA 259)
he is entitled to the proceeds of the insurance but he is not allowed 5. Where the parties are barred by estoppel. (UCPB vs. Maagana
to retain his claim against the mortgagor as the claim is discharged Telemart, 356 SCRA 307)
but it passes by subrogation to the insurer to the extent of the
money paid by such insurer. (Palileo vs. Cosio)  Section 77 merely precludes the parties from stipulating that the
policy is valid even if the premiums are not paid. (Makati Tuscany
VIII. RISK Condominium Corp. v. CA, 215 SCRA 462)
 What may be insured against:
1. Future contingent event resulting in loss or damage – Ex. Effect of Acknowledgment of Receipt of Premium in Policy:
Possible future fire Conclusive evidence of its payment, so far as to make the policy
2. Past unknown event resulting in loss or damage – Ex. Fact of binding, notwithstanding any stipulation therein that it shall not be
past sinking of a vessel unknown to the parties binding until the premium is actually paid. (Sec. 78)
3. Contingent liability – Ex. Reinsurance
IX. PREMIUM PAYMENTS

 Consideration paid an insurer for undertaking to indemnify the ENTITLEMENT OF INSURED TO RETURN OF PREMIUMS PAID
insured against a specified peril.
 Basis of the right of the insurer to collect premiums: Assumption A. Whole:
of risk. 1. If the thing insured was never exposed to the risks insured
against; (Sec. 79)
GENERAL RULE: No policy issued by an insurance company is valid 2. If contract is voidable due to the fraud or misrepresentation
and binding until actual payment of premium. Any agreement to the of insurer or his agents; (Sec. 81)
contrary is void. (Sec. 77) 3. If contract is voidable because of the existence of facts of
which the insured was ignorant without his fault; (Sec. 81)

4. When by any default of the insured other than actual fraud, once properly levied
the insurer never incurred liability; (Sec. 81) unless otherwise
5. When rescission is granted due to the insurer’s breach of agreed.
contract. (Sec. 74)
B. Pro rata: X. TRANSFER OF POLICY
1. When the insurance is for a definite period and the insured 1. Life Insurance
surrenders his policy before the termination thereof;  It can be transferred even without the consent of the insurer
 Exceptions: except when there is a stipulation requiring the consent of the
a. policy not made for a definite period of time insurer before transfer. (Sec. 181)
b. short period rate is agreed upon  Reason: The policy does not represent a personal agreement
c. life insurance policy between the insured and the insurer.
2. When there is over-insurance (Sec. 82); 2. Property insurance
 It cannot be transferred without the consent of the insurer.
Instances when premiums are not recoverable:  Reason: The insurer approved the policy based on the personal
1. When the risk has already attached and the risk is entire and qualification and the insurable interest of the insured.
indivisible. 3. Casualty insurance
2. In life insurance.  It cannot be transferred without the consent of the insurer.
3. When the contract is rescindable or rendered void ab initio (Paterson cited in de Leon p. 82)
by the fraud of the insured.  Reason: The moral hazards are as great as those of property
4. When the contract is illegal and the parties are in pari insurance.
delicto.
CHANGE OF INTEREST IN THE THING INSURED
PREMIUM ASSESSMENT  The mere (absolute) transfer of the thing insured does not transfer
the policy, but suspends it until the same person becomes the
Levied and paid to Collected to meet owner of both the policy and the thing insured. (Sec. 58)
meet anticipated actual losses.
 Reason: Insurance contract is personal.
losses.
GENERAL RULE: A change of interest in any part of a thing insured
Payment is not Payment is unaccompanied by a corresponding change of interest in the
enforceable against enforceable once insurance suspends the insurance to an equivalent extent, until the
the insured. levied unless interests in the thing and the interest in the insurance are vested in
otherwise agreed the same person. (Sec. 20)
upon.
Not a debt. It becomes a debt

EXCEPTIONS: c. Such party concealing makes no warranty as to the fact

1. In life, health and accident insurance.(Sec. 20); concealed.
2. Change in interest in the thing insured after occurrence of d. The other party has not the means of ascertaining the fact
an injury which results in a loss. (Sec. 21); concealed.
3. Change in interest in one or more of several distinct things e. Material
separately insured by one policy. (Sec. 22);  Effects: Entitles insurer to rescind, even if the death or loss is due
4. Change of interest, by will or succession, on the death of to a cause not related to the concealed matter (Sec. 27).
the insured. (Sec. 23); Note: Good Faith is not a defense in concealment. Sec. 27 clearly
5. Transfer of interest by one of several partners, joint provides that, “the concealment whether intentional or
owners, or owners in common, who are jointly insured, to unintentional entitles the injured party to rescind the contract of
others. (Sec. 24); insurance.”
6. When a policy is so framed that it will inure to the benefit
of whomsoever, during the continuance of the risk, may Test of Materiality: Determined not by the event, but solely by the
become the owner of the interest insured. (Sec. 57); probable and reasonable influence of the facts upon the party to
7. When there is an express prohibition against alienation in whom the communication is due, in forming his estimate of the
the policy, in case of alienation, the contract of insurance is advantages of the proposed contract, or in making his inquiries
not merely suspended but avoided. (Art. 1306, NCC). (Sec. 31).
 Exception to Sec. 31:
XI. ASCERTAINMENT AND CONTROL OF RISK AND LOSS a. Incontestability clause
b. Matters under Sec.110 (marine insurance)
A. Four Primary Concerns of the Parties:
1. Correct estimation of the risk;  The waiver of medical examination in a non-medical insurance
2. Precise delimitation of the risk; contract renders even more material the information required of
3. Control of the risk; the applicant concerning the previous conditions of health and
4. Determining whether a loss occurred and if so, the amount of diseases suffered. (Sunlife v. Sps. Bacani, 246 SCRA 268).
such loss.
 The right to information of material facts may be waived, either
B. Devices used for ascertaining and controlling risk and loss: by the terms of the insurance or by neglect to make inquiries as to
1. Concealment – A neglect to communicate that which a party such facts where they are distinctly implied in other facts of which
knows and ought to communicate (Sec. 26) information is communicated. (Sec.33)
 Requisites:
a. A party knows a fact which he neglects to communicate or  Where matters of opinion or judgment are called for, answers
disclose to the other. made in good faith and without intent to deceiver will not avoid the
b. Such party concealing is duty bound to disclose such fact to policy even though they are untrue. Reason: The insurer cannot rely
the other.

on those statements. He must make further inquiry. (Philamcare  Where the insured merely signed the application form and made
Health Systems vs. CA, G.R. No. 125678, March 18, 2002). the agent of the insurer fill the same for him, it was held that by
doing so, the insured made the agent of the insurer his own agent
2. Representations – Factual statements made by the insured at and he was responsible for his acts for that purpose. (Insular Life
the time of, or prior to, the issuance of the policy to give Assur. Co. vs. Feliciano, 74 Phil. 469)
information to the insurer and induce him to enter into the
insurance contract. They are considered an active form of 3. Warranties – Statement or promise by the insured set forth in
concealment. the policy or by reference incorporated therein, the untruth or non-
 Requisites of a false representation (misrepresentation): fulfillment of which in any respect, and without reference to
a. The insured stated a fact which is untrue. whether insurer was in fact prejudiced by such untruth or non-
b. Such fact was stated with knowledge that it is untrue and fulfillment, renders the policy voidable by the insurer.
with intent to deceive or which he states positively as true  Purpose: To eliminate potentially increasing hazards which may
without knowing it to be true and which has a tendency to either be due to the acts of the insured or to the change to the
mislead. condition of the property.
c. Such fact in either case is material to the risk.  Kinds:
 Characteristics: a. EXPRESS – an agreement expressed in a policy whereby the
a. It is not a part of the contract but merely a collateral insured stipulates that certain facts relating to the risk are or shall
inducement to it. be true, or certain acts relating to the same subject have been or
b. It may be oral or written. shall be done.
c. It is made at the same time of issuing the policy or before but not b. IMPLIED - it is deemed included in the contract although not
after. expressly mentioned. Example: In marine insurance, seaworthiness
d. It may be altered or withdrawn before the insurance is effected of the vessel.
but not afterwards.  Effects of breach of warranty:
e. It always refers to the date the contract goes into effect. a. Material
 Kinds: GENERAL RULE: Violation of material warranty or of a material
a. AFFIRMATIVE – affirmation of a fact when the contract begins; provision of a policy will entitle the other party to rescind the
and contract. (Sec. 74)
b. PROMISSORY – promise to be performed after policy was issued. EXCEPTIONS:
 Effect of Misrepresentation: the injured party is entitled to rescind a. Loss occurs before the time of performance of the warranty.
from the time when the representation becomes false. b. The performances becomes unlawful at the place of the
contract.
Test of Materiality: Same as that in concealment. c. Performance becomes impossible. (Sec. 73)
b. Immaterial (ex. Other insurance clause)
GENERAL RULE: It will not avoid the policy.

EXCEPTION: When the policy expressly provides or declares that a  Effect: Limit the coverage of the contract.
violation thereof will avoid it. (Sec. 75)
RESCISSION
WARRANTY REPRESENTATION  Grounds:
Part of the contract Mere collateral A. Concealment
inducement B. Misrepresentation
Written on the May be written in C. Breach of material warranty
policy, actually or by the policy or may D. Breach of a condition subsequent
reference be oral.  Waiver of the right to rescind: Acceptance of premium payments
Presumed material Must be proved to despite the knowledge of the ground for rescission. (Sec. 45)
be material  Limitations on the right of the insurer to rescind:
Must be strictly Requires only 1. Non-life – such right must be exercised prior to the
complied with substantial truth commencement of an action on the contract;
and compliance 2. Life – such right must be availed of during the first two years
4. Conditions – Events signifying in its broadest sense either an from the date of issue of policy or its last reinstatement; prior to
occurrence or a non-occurrence that alters the previously existing “incontestability.” (Sec. 48)
legal relations of the parties to the contract. They may be
conditions precedent or conditions subsequent. CANCELLATION OF NON-LIFE INSURANCE POLICY
 Effect of breach:  Right of the insurer to abandon the contract on the occurrence of
a. Condition precedent – prevents the accrual of cause of certain grounds after the effectivity date of a non-life policy.
action  Grounds:
b. Condition subsequent – avoids the policy or entitles the 1. Non-payment of premium;
insurer to rescind 2. Conviction of a crime out of acts increasing the hazard insured
 The insurer may also protect himself against fraudulent claims of against;
loss and this he attempts to do by inserting in the policy various 3. Discovery of fraud or material misrepresentation;
conditions which take the form of conditions precedent. For 4. Discovery of willful or reckless acts of omissions increasing the
instance, there are conditions requiring immediate notice of loss or hazard insured against;
injury and detailed proofs of loss within a limited period. 5. Physical changes in property making the property uninsurable;
and
5. Exceptions – Provisions that may specify excepted perils. It 6. Determination by the Insurance Commissioner that the
makes more definite the coverage indicated by the general continuation of the policy would violate the Insurance Code.
description of the risk by excluding certain specified risk that (Sec. 64)
otherwise would be included under the general language describing  Requirements:
the risks assumed. 1. Prior notice of cancellation to the insured;

2. Notice must be in writing, mailed or delivered to the named misrepresentation of insured is an

insured at the address shown in the policy; the insured or his excepted risk;
3. Notice must state which of the grounds set forth in Sec. 64 agent 3. That the
is relied upon and upon request of the insured, the insurer premiums have not
been paid (Secs. 77,
must furnish facts on which the cancellation is based;
227[b], 228[b],
4. Grounds should have existed after the effectivity date of 230[b]);
the policy. 4. That the
conditions of the
XII. INCONTESTABILITY CLAUSE policy relating to
 Clause in life insurance policy that stipulates that the policy shall military or naval
be incontestable after a stated period. service have been
 Requisites: violated (Secs.
227[b], 228[b]);
1. Life insurance policy
5. That the fraud is
2. Payable on the death of the insured of a particularly
3. It has been in force during the lifetime of the insured for a vicious type;
period of at least two years from the date of its issue or of its 6. That the
last reinstatement beneficiary failed to
Note: The period of 2 years may be shortened but it cannot be furnish proof of
extended by stipulation. death or to comply
with any condition
imposed by the
policy after the loss
 Incontestability only deprives the insurer of those defenses which has happened; or
arise in connection with the formation and operation of the policy 7. That the action
prior to loss. (Prof. De Leon, p. 173 citing Wyatt and Wyatt, p. 878) was not brought
within the time
BARRED DEFENSES NOT specified.
DEFENSES BARRED
OF THE INSURER XIII.
1. Policy is void ab 1. That the person A. OVER-INSURANCE – results when the insured insures the same
initio taking the insurance property for an amount greater than the value of the property with
2. Policy is lacked insurable the same insurance company.
rescindable by interest as required  Effect in case of loss:
reason of the by law;
1. The insurer is bound only to pay to the extent of the real value
fraudulent 2. That the cause of
concealment or the death of the of the property lost;

2. The insured is entitled to recover the amount of premium in proportion to the amount for which he is liable under his
corresponding to the excess in value of the property; contract.
B. DOUBLE INSURANCE – exists where same person is insured by Additional or “Other Insurance” Clause
several insurers separately in respect to same subject and interest.  A condition in the policy requiring the insured to inform the
(Sec. 93) insurer of any other insurance coverage of the property insured. It is
 Requisites: lawful and specifically allowed under Sec. 75 which provides that
1. Person insured is the same; “(a) policy may declare that a violation of a specified provision
2. Two or more insurers insuring separately; thereof shall avoid it, otherwise the breach of an immaterial
3. Subject matter is the same; provision does not avoid it.”
4. Interest insured is also the same;  A stipulation against double insurance.
5. Risk or peril insured against is likewise the same.  Purposes:
1. To prevent an increase in the moral hazard
 Effects: Where double insurance is allowed, but over insurance 2. To prevent over-insurance and fraud.
results: (Sec. 94)  To constitute a violation of the clause, there should have been
1. The insured, unless the policy double insurance.
otherwise provides, may claim payment from the insurers in
such order as he may select, up to the amount for which the C. REINSURANCE – a contract by which the insurer procures a third
insurers are severally liable under their respective contracts; person to insure him against loss or liability by reason of an original
2. Where the policy under which the insurance (also known as “Reinsurance Cession”). (Sec. 95)
insured claims is a valued policy, the insured must give credit as  In every reinsurance, the original contract of insurance and the
against the valuation for any sum received by him under any contract of reinsurance are covered by separate policies.
other policy without regard to the actual value of the subject
matter insured; DOUBLE REINSURANCE
3. Where the policy under which the INSURANCE
insured claims is an unvalued policy he must give credit, as Involves the same Involves different
against the full insurable value, for any sum received by him interest interest
under any policy; Insurer remains in Insurer becomes the
4. Where the insured receives any sum such capacity insured in relation
in excess of the valuation in the case of valued policies, or of to reinsurer
the insurable value in the case of unvalued policies, he must Insured is the party Original insured has
hold such sum in trust for the insurers, according to their right in interest in the 2 no interest in the
of contribution among themselves; contracts reinsurance
5. Each insurer is bound, as between contract.
Subject of Subject of insurance
himself and the other insurers, to contribute ratably to the loss

insurance is is the original 1. Loss the 1. Loss by

property insurer’s risk proximate cause of insured’s willful
Insured has to give Insured’s consent which is the peril act;
his consent not necessary insured against 2. Loss due to
(Sec. 84); connivance of the
TERMS: 2. Loss the insured (Sec. 87);
immediate cause of and
1. Reinsurance treaty – Merely an agreement between two
which is the peril 3. Loss where the
insurance companies whereby one agrees to cede and the other to insured against excepted peril is
accept reinsurance business pursuant to provisions specified in the except where the proximate
treaty. (Prof. De Leon, p. 306) proximate cause is cause.
an excepted peril;
2. Automatic reinsurance – The reinsured is bound to cede and the 3. Loss through
reinsurer is obligated to accept a fixed share of the risk which has negligence of
to be reinsured under the contract. (Prof. De Leon, p. 305) insured except
3. Facultative reinsurance – There is no obligation to cede or where there was
gross negligence
accept participation in the risk each party having a free choice. But
amounting to willful
once the share is accepted, the obligation is absolute and the acts; and
liability thereunder can be discharged only by payment. (Equitable 4. Loss caused by
Ins. & Casualty Co. vs. Rural Ins. & Surety Co., Inc. 4 SCRA 343) efforts to rescue the
thing from peril
4. Retrocession – A transaction whereby the reinsurer in turn, insured against;
passes to another insurer a portion of the risk reinsured. It is really 5. If during the
the reinsurance of reinsurance. (Prof. De Leon, p. 305) course of rescue,
the thing is exposed
to a peril not
XIV.
insured against,
A. LOSS, IN INSURANCE which permanently
 Injury or damage sustained by the insured in consequence of the deprives the insured
happening of one or more of the accidents or misfortune against of its possession, in
which the insurer, in consideration of the premium, has undertaken whole or in part
to indemnify the insured. (Bonifacio Bros. Inc. vs. Mora, 20 SCRA (Sec. 85).
261)
Proximate Cause – An event that sets all other events in motion
Loss for which Loss for which without any intervening or independent case, without which the
insurer is liable insurer is not injury or loss would not have occurred.
liable

REQUISITES FOR RECOVERY UPON INSURANCE NON-LIFE

1. The insured must have insurable interest in the subject matter; LIFE POLICIES POLICIES
2. That interest is covered by the policy;
3. There must be a loss; and a. Maturing The proceeds shall
4. The loss must be proximately caused by the peril insured against. upon the be paid within 30
expiration of the days after the
NOTICE OF LOSS term – The receipt by the
proceeds are insurer of proof of
In fire insurance In other types of immediately loss, and
insurance payable to the ascertainment of
insured, unless the loss or damage
Required Not required they are made by agreement of the
payable in parties or by
Failure to give Failure to give installments or as arbitration but not
notice will defeat notice will not annuity, in which later than 90 days
the right of the exonerate the case, the from such receipt of
insured to recover. insurer, unless installments or proof of loss
there is a annuities shall be whether or not
stipulation in the paid as they ascertainment is
policy requiring the become due. had or made.
insured to do so. b. Maturing at
the death of the
insured, occurring
B. CLAIMS SETTLEMENT prior to the
 The indemnification of the loss of the insured. expiration of the
term stipulated –
The proceeds are
TIME FOR PAYMENT OF CLAIMS payable to the
beneficiaries
within 60 days
after presentation
and filing of proof
of death.
 In case of an unreasonable delay in the payment of the insured’s

claim by the insurer, the insured can recover: 1) attorney’s fees; 2)
expenses incurred by reason of the unreasonable withholding; 3)

interest at double the legal interest rate fixed by the Monetary 1. Vessels, goods, freight, cargo, merchandise, profits, money,
Board; and 4) the amount of the claim. (Zenith Insurance Corp. vs. valuable papers, bottomry and respondentia, and interest in
CA, 185 SCRA 398) respect to all risks or perils of navigation;
2. Persons or property in connection with marine insurance;
XV. PRESCRIPTIVE PERIOD (Secs. 63 & 384) 3. Precious stones, jewels, jewelry and precious metals whether in
 Rules: the course of transportation or otherwise; and
1. In the absence of an express stipulation in the policy, it being 4. Bridges, tunnels, piers, docks and other aids to navigation and
based on a written contract, the action prescribes in 10 years. transportation. (Sec. 99)
2. However the parties may validly agree on a shorter period  Cargo can be the subject of marine insurance, and once
provided it is not less than one year from the time the cause of it is entered into, the implied warranty of seaworthiness
action accrues. immediately attaches to whoever is insuring the cargo,
3. The cause of action accrues from the rejection of the claim of whether he be the shipowner or not. (Roque v. IAC, 139
the insured and not from the time of loss. SCRA 596)
It shall commence from the denial of the claim, not from the B. Marine Protection and Indemnity Insurance
resolution of the motion for reconsideration, otherwise it can be  Classes of inland marine insurance: (Prof. De Leon, p. 325)
used by the insured as a scheme or device to waste time until the 1. Property in transit – provides protection to property
evidence which may be used against him is destroyed. (Sun frequently exposed to loss while it is transportation form
Insurance Office, Ltd. v. CA, 195 SCRA) one location to another.
4. In CMVLI, the written notice of claim must be filed within 6 2. Bailee liability - insurance for those who have temporary
months from the date of the accident otherwise the claim is custody of the goods.
deemed waived. The suit for damages either with the proper court 3. Fixed transportation property – they are so insured because
or with the Insurance Commissioner should be filed within 1 year they are held to be an essential part of the transportation
from the date of the denial of the claim by the insurer, otherwise system such as bridges, tunnels, etc.
claimant’s right of action shall prescribe. (Sec. 384) 4. Floater – provides insurance to follow the insured property
wherever it may be located, subject always to the
PARTICULAR KINDS OF INSURANCE CONTRACTS territorial limits of the contract.
 Insurable interest:
XVI. MARINE INSURANCE A.
 Insurance against risks connected with navigation, to which a ship, 1.Shipowner
cargo, freightage, profits or other insurable interest in movable a. Over the vessel to the extent of its value, except that
property, may be exposed during a certain voyage or a fixed period if chartered, the insurance is only up to the amount
of time. (Sec. 99) not recoverable from the charterer. (Sec. 100).
 Coverage: b. He also has an insurable interest on expected
A. freightage. (Sec. 103).

c. No insurable interest if he will be compensated by Includes only those A loss which in the
charterer for the value of the vessel, in case of loss. casualties due to ordinary course of
2. Cargo owner the: events, results
1. unusual from the:
 Over the cargo and expected profits (Sec. 105).
violence; or 1. natural and
3. Charterer 2. extraordinary inevitable action of
 Over the amount he is liable to the shipowner, if the ship action of wind and the sea
is lost or damaged during the voyage (Sec. 106). wave; or 2. ordinary wear
3. Other and tear of the ship
B. extraordinary causes or
In loans on bottomry and respondentia connected with 3. Negligent
 Repayment of the loan is subject to the condition that the vessel navigation. failure of the ship’s
owner to provide
or goods, respectively, given as a security, shall arrive safely at the
the vessel with
port of destination. proper equipment
1. Owner/Debtor to convey the cargo
 Difference between the value of vessel or goods and the under ordinary
amount of loan. (Sec. 101) conditions.
2. Creditor/lender
 Amount of the loan Note: It is only perils of the sea which may be insured against unless
perils of the ship is covered by an all-risk policy.
Note: If a vessel is hypothecated by bottomry, only the excess is
insurable, since a loan on bottomry partakes of the nature of an SPECIAL MARINE INSURANCE CONTRACTS AND CLAUSES
insurance coverage to the extent of the loan accommodation. The A. All Risks Policy – insurance against all causes of conceivable loss
same rule would apply to the hypothecation of the cargo by or damage, except: 1) as otherwise excluded in the policy; or 2) due
respondentia. (Pandect of Commercial Law and Jurisprudence, to fraud or intentional misconduct on the part of the insured.
Justice Jose Vitug, 1997 ed.)  The insured has the initial burden of proving that the cargo was
PERILS OF THE PERILS OF THE in good condition when the policy attached and that the cargo was
SEA SHIP damaged when unloaded from the vessel; thereafter, the burden
then shifts to the insurer to show the exception to the coverage.
(Filipinas Merchants Insurance vs. Court of Appeals, 179 SCRA 638)
B. Barratry Clause
 A clause which provides that there can be no recovery on the
policy in case of any willful misconduct on the part of the master or
crew in pursuance of some unlawful or fraudulent purpose without

consent of owners, and to the prejudice of the owner’s interest. of 3rd persons is is not material and
(Roque vs. IAC, 139 SCRA 596) material and must be need not be
communicated communicated
C. Inchamaree Clause unless it proceeds
form an agent of
 A clause which makes the insurer liable for loss or damage to the the insured whose
hull or machinery arising from the: duty it is to give
1. Negligence of the captain, engineers, etc. information
2. Explosions, breakage of shafts; and The concealment of Concealment of any
3. Latent defect of machinery or hull. (Bar Review Materials in any fact in relation to material fact will
Commercial Law, Jorge Miravite, 2002 ed.) any of the matters vitiate the entire
stated in Sec. 110 contract, whether
D. Sue and Labor Clause does not vitiate the or not the loss
entire contract but results for the risk
 A clause under which the insurer may become liable to pay the
merely exonerates the concealed.
insured, in addition to the loss actually suffered, such expenses as insurer from a risk
he may have incurred in his efforts to protect the property against a resulting from the fact
peril for which the insurer would have been liable. (Sec. 163) concealed
IMPLIED WARRANTIES
MATTERS ALTHOUGH CONCEALED, WILL NOT VITIATE THE 1. Seaworthiness of the ship at the inception of the insurance (Sec.
CONTRACT EXCEPT WHEN THEY CAUSED THE LOSS (Sec. 110) 113);
1. National character of the insured; 2. Against improper deviation (Sec. 123, 124, 125);
2. Liability of the thing insured to capture or detention; 3. Against illegal venture;
3. Liability to seizure from breach of foreign laws; 4. Warranty of neutrality: the ship will carry the requisite
4. Want of necessary documents; and documents of nationality or neutrality of the ship or cargo
5. Use of false or simulated papers. where such nationality or neutrality is expressly warranted;
Note: This should be related to the general rule regarding material (Sec. 120)
concealment. 5. Presence of insurable interest.
DISTINCTIONS ON CONCEALMENT (Commercial Law Reviewer, A.F.  While the payment by the insurer for the insured value of the lost
Agbayani, 1988 ed.) cargo operates as a waiver of the insurer’s right to enforce the term
of the implied warranty against the assured under the marine
MARINE INSURANCE OTHER insurance policy, the same cannot be validly interpreted as an
PROPERTY automatic admission of the vessel’s seaworthiness by the insurer as
INSURANCE to foreclose recourse against the common carrier for any liability
The information of the The information or
belief or expectation belief of a 3rd party

under the contractual obligation as such common carrier. (Delsan  Instances:

Transportation Lines vs. CA, 364 SCRA 24) 1. Departure of vessel from the course of the sailing fixed by
mercantile usage
Seaworthiness 2. Departure of vessel from the most natural, direct and
 A relative term depending upon the nature of the ship, voyage, advantageous route if not fixed by mercantile usage
service and goods, denoting in general a ship’s fitness to perform 3. Unreasonable delay in pursuing voyage
the service and to encounter the ordinary perils of the voyage, 4. Commencement of an entirely different voyage (Secs. 121-
contemplated by the parties to the policy (Sec. 114). 123)
GENERAL RULE: The warranty of seaworthiness is complied with if  Kinds:
the ship be seaworthy at the time of the commencement of the 1. Proper -
risk. Prior or subsequent unseaworthiness is not a breach of the a. When caused by circumstances outside the control of the ship
warranty nor is it material that the vessel arrives in safety at the captain or ship owner;
end of her voyage. b. When necessary to comply with a warranty or to avoid a peril;
EXCEPTIONS: c. When made in good faith to avoid a peril;
1. In the case of a time policy, the ship must be seaworthy at the d. When made in good faith to save human life or to relieve another
commencement of every voyage she may undertake vessel in distress (Sec. 124)
2. In the case of cargo policy, each vessel upon which the cargo is  Effect: In case of loss, the insurer is still liable.
shipped or transshipped, must be seaworthy at the 2. Improper - Every deviation not specified in Sec. 124 (Sec.
commencement of each particular voyage 125).
3. In the case of a voyage policy contemplating a voyage in  Effect: In case of loss or damage, the insurer is not liable.
different stages, the ship must be seaworthy at the (Sec. 126)
commencement of each portion
 Applicability of implied warranty of seaworthiness to cargo LOSS

owners: It becomes the obligation of a cargo owner to look for a 1. Total:
reliable common carrier, which keeps its vessels in seaworthy a. Actual -
conditions. The shipper may have no control over the vessel but he i. Total destruction;
has control in the choice of the common carrier that will transport ii. Irretrievable loss by sinking;
his goods (Roque v. IAC, 139 SCRA 596). iii. Damage rendering the thing valueless; or
iv. Total deprivation of owner of possession of thing
Deviation insured. (Sec. 130)
 A departure from the course of the voyage insured, or an b. Constructive -
unreasonable delay in pursuing the voyage or the commencement of i. Actual loss of more than ¾ of the value of the object;
an entirely different voyage. (Sec.123)

ii. Damage reducing value by more than ¾ of the value of vessel or cargo
the vessel and of cargo; and was sacrificed
iii. Expense of transshipment exceed ¾ of value of cargo. deliberately;
(Sec. 131, in relation to Sec. 139) 3. Sacrifice must
 In case of constructive total loss, insured may: be for the
1. Abandon goods or vessel to the insurer and claim common safety
for whole insured value (Sec. 139), or or for the
2. Without abandoning vessel, claim for partial benefit of all;
actual loss. (Sec. 155) 4. Sacrifice must
2. Partial: That which is not total (Sec. 128). be made by
the master or
AVERAGE upon his
 Any extraordinary or accidental expense incurred during the authority;
voyage for the preservation of the vessel, cargo, or both, and all 5. It must be not
damages to the vessel and cargo from the time it is loaded and the be caused by
voyage commenced until it ends and the cargo unloaded. any fault of
the party
GENERAL PARTICULAR asking the
Has inured to the Has not inured to the contribution;
common benefit and common benefit and 6. It must be
profit of all persons profit of all persons successful, i.e.
interested in the interested in the resulted in the
vessel and cargo vessel and her cargo. saving of the
To be borne equally To be borne alone by vessel or
by all of the interests the owner of the
cargo; and
concerned in the cargo or the vessel,
venture. as the case may be.
Necessary.
Requisites for the
right to claim RIGHT OF INSURED IN CASE OF GENERAL AVERAGE
contribution: GENERAL RULE: The insured may either hold the insurer directly
1. Common liable for the whole of the insured value of the property sacrificed
danger to the for the general benefit, subrogating him to his own right of
vessel or contribution or demand contribution from the other interested
cargo; parties as soon as the vessel arrives at her destination
2. Part of the EXCEPTIONS:

1. After the separation of interests liable to contribution the risk of the insurer and for his benefit. (Transfer Of Agency)
2. When the insured has neglected or waived his right to (Sec.148)
contribution
 If an insurer refuses to accept a valid abandonment, he is liable
FPA Clause (Free From Particular Average) upon an actual total loss, deducting form the amount any proceeds
A clause agreed upon in a policy of marine insurance in which it is of the thing insured which may have come to the hands of the
stated that the insurer shall not be liable for a particular average, insured. (Sec.154)
such insurer shall be free therefrom, but he shall continue to be
liable for his proportion of all general average losses assessed upon CO-INSURANCE
the thing insured. (Sec. 136)  A marine insurer is liable upon a partial loss, only for such
ABANDONMENT proportion of the amount insured by him as the loss bears to the
 The act of the insured by which, after a constructive total loss, he value of the whole interest of the insured in the property insured.
declared the relinquishment to the insurer of his interest in the (Sec. 157)
thing insured. (Sec. 138)  When the property is insured for less than its value, the insured is
 Requisites for validity: considered a co-insurer of the difference between the amount of
1. There must be an actual relinquishment by the person insured insurance and the value of the property.
of his interest in the thing insured (Sec. 138);
2. There must be a constructive total loss (Sec. 139);  Requisites:
3. The abandonment be neither partial nor conditional (Sec. 140); 1. The loss is partial;
4. It must be made within a reasonable time after receipt of 2. The amount of insurance is less than the value of the property
reliable information of the loss (Sec. 141); insured.
5. It must be factual (Sec. 142);
6. It must be made by giving notice thereof to the insurer which  Rules:
may be done orally or in writing (Sec. 143); and 1. Co-insurance applies only to marine insurance
7. The notice of abandonment must be explicit and must specify 2. Logically, there cannot be co-insurance in life insurance.
the particular cause of the abandonment (Sec. 144). 3. Co-insurance applies in fire insurance when expressly provided
for by the parties.
 Effects:
1. It is equivalent to a transfer by the insured of his interest to the CO-INSURANCE REINSURANCE
insurer with all the chances of recovery and indemnity (Transfer A percentage in the Situation where the
of Interest)(Sec.146) value of the insured insurer procures a 3rd
2. Acts done in good faith by those who were agents of the insured property which the party called the
in respect to the thing insured, subsequent to the loss, are at insured himself reinsurer to insure
assumes to act as him against liability
insurer to the extent by reason of an

of the deficiency in original insurance. HOSTILE FIRE FRIENDLY FIRE

the insurance of the Basically, reinsurance One that escapes One that burns in a
insured property. In is an insurance from the place place where it was
case of loss or against liability where it was intended to burn
damage, the insurer which the original intended to burn and ought to be
will be liable only for insurer may incur in and ought to be.
such proportion of favor of the original Insurer is liable Insurer is not liable
the loss or damage as insured.
the amount of the
Measure of Indemnity
insurance bears to
the designated 1. Open policy: only the expense necessary to replace the thing lost
percentage of the or injured in the condition it was at the time of the injury
full value of the 2. Valued policy: the parties are bound by the valuation, in the
property insured. absence of fraud or mistake
(Bar Review
Materials in Note: It is very crucial to determine whether a marine vessel is
Commercial Law, covered by a marine insurance or fire insurance. The determination
Jorge Miravite, 2002 is important for 2 reasons:
ed.)
1. Rules on constructive total loss and abandonment – applies
only to marine insurance;
2. Rule on co-insurance – applies primarily to marine
XVII. FIRE INSURANCE insurance;
 A contract by which the insurer for a consideration agrees to 3. Rule on co-insurance applies to fire insurance only if
indemnify the insured against loss of, or damage to, property by expressly agreed upon. (Commercial Law Reviewer, Aguedo
hostile fire, including loss by lightning, windstorm, tornado or Agbayani, 1988 ed.)
earthquake and other allied risks, when such risks are covered by
extension to fire insurance policies or under separate policies. (Sec. ALTERATION AS A SPECIAL GROUND FOR RESCISSION BY INSURER
167)  Requisites:
1. The use or condition of the thing is specifically limited or
stipulated in the policy;
 Prerequisites to recovery: 2. Such use or condition as limited by the policy is altered;
1. Notice of loss – must be immediately given, unless delay is waived 3. The alteration is made without the consent of the insurer;
expressly or impliedly by the insurer 4. The alteration is made by means within the control of the
2. Proof of loss – according to best evidence obtainable. Delay may insured;
also be waived expressly or impliedly by the insurer 5. The alteration increases the risk; (Sec. 168) and
6. There must be a violation of a policy provision. (Sec. 170)

moment the insured becomes liable to third persons, the insured

Fall-of-building clause acquires an interest in the insurance contract which may be
 A clause in a fire insurance policy that if the building or any part garnished like any other credit. (Perla Comapnia de Seguro, Inc vs.
thereof falls, except as a result of fire, all insurance by the policy Ramolete, 205 SCRA 487)
shall immediately cease.  Aside from compulsory motor vehicle liability insurance, the
Insurance Code contains no other provisions applicable to casualty
Option to rebuild clause insurance. Therefore, such casualty insurance are governed by the
 A clause giving the insurer the option to reinstate or replace the general provisions applicable to all types of insurance, and outside
property damaged or destroyed or any part thereof, instead of of such statutory provisions, the rights and obligations of the parties
paying the amount of the loss or the damage. must be determined by their contract, taking into consideration its
 The insurer, after electing to rebuild, cannot be compelled to purpose and always in accordance with the general principles of
perform this undertaking by specific performance because this is an insurance law.
obligation to do, not to give. Remedy: Art. 1167, NCC.
 In burglary, robbery and theft insurance, the opportunity to
XVIII. CASUALTY OR ACCIDENT INSURANCE defraud the insurer – the moral hazard – is so great that insurer have
 Insurance covering loss or liability arising from accident or mishap, found it necessary to fill up the policies with many restrictions
excluding those falling under other types of insurance such as fire or designed to reduce the hazard. Persons frequently excluded are
marine. (Sec. 174) those in the insured’s service and employment. The purpose of the
exception is to guard against liability should theft be committed by
 Classifications: one having unrestricted access to the property. (Fortune Insurance
1. Insurance against specified perils which may affect the person vs. CA, 244 SCRA 208)
and/or property of the insured. (accident or health insurance)
 Examples: personal accident, robbery/theft insurance Right of a third party injured to sue the insurer
2. Insurance against specified perils which may give rise to liability 1. Indemnity against liability – A third party injured can directly sue
on the part of the insured for claims for injuries to or damage to the insurer.
property of others. (third party liability insurance) 2. Indemnity for actual loss or reimbursement after actual payment
 Insurable interest is based on the interest of the insured in the by the insured – A third party has no cause of action against the
safety of persons, and their property, who may maintain an action insurer (Sec. 53, Bonifacio Bros. v. Mora, 20 SCRA 261).
against him in case of their injury or destruction, respectively.
 Examples: workmen’s compensation, motor vehicle liability  The insurer is not solidarily liable with the insured. The insurer’s
liability is based on contract; that of the insured is based on torts.
 In a third party liability (TPL) insurance contract, the insurer
Furthermore, the insurer’s liability is limited by the amount of the
assumes the obligation by paying the injured third party to whom
insurance coverage (Pan Malayan Insurance Corporation v. CA, 184
the insured is liable. Prior payment by the insured to the third
SCRA 54).
person is not necessary in order that the obligation may arise. The

 Claimants/victims may be a “passenger” or a “3rd party”

 It applies to all vehicles whether public and private vehicles.
Note: It is the only compulsory insurance coverage under the
Insurance Code.
“INTENTIONAL” vs. “ACCIDENTAL” AS USED IN INSURANCE
POLICIES
1. Intentional – Implies the exercise of the reasoning faculties,
consciousness and volition. Where a provision of the policy excludes
intentional injury, it is the intention of the person inflicting the
injury that is controlling. If the injuries suffered by the insured
clearly resulted from the intentional act of the third person, the Method of coverage
insurer is relieve from liability as stipulated. (Biagtan v. the Insular 1. Insurance policy
Life Assurance Co. Ltd., 44 SCRA 58, 1972) 2. Surety bond
2. Accidental – That which happens by chance or fortuitously, 3. Cash deposit
without intention or design, which is unexpected, unusual and
unforeseen. Passenger – Any fare-paying person being transported and conveyed
in and by a motor vehicle for transportation of passengers for
NO ACTION CLAUSE compensation, including persons expressly authorized by law or by
 A requirement in a policy of liability insurance which provides that the vehicle’s operator or his agents to ride without fare. (Sec.
suit and final judgment be first obtained against the insured; that 373[b])
only thereafter can the person injured recover on the policy.
(Guingon vs. Del Monte, 20 SCRA 1043) Third Party – Any person other than the passenger, excluding a
member of the household or a member of the family within the
XIX. COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE (CMVLI) second degree of consanguinity or affinity, of a motor vehicle owner
 A species of compulsory insurance that provides for protection or land transportation operator, or his employee in respect of death
coverage that will answer for legal liability for losses and damages or bodily injury arising out of and in the course of employment.
for bodily injuries or property damage that may be sustained by (Sec. 373[c])
another arising from the use and operation of motor vehicle by its
owner. “No-Fault” Clause
 Purpose: To give immediate financial assistance to victims of  A clause that allows the victim (injured person or heirs of the
motor vehicle accidents and/or their dependents, especially if they deceased) to an option to file a claim for death or injury without
are poor regardless of the financial capability of motor vehicle the necessity of proving fault or negligence of any kind.
owners or operators responsible for the accident sustained (Shafer  Purpose: To guarantee compensation or indemnity to injured
v. Judge, RTC, 167 SCRA 386). persons in motor vehicle accidents.

 Rules: determination of who is responsible for the accident and liable for
1. Total indemnity - maximum of P5,000 the victims injuries or death. (Ibid.)
2. Proofs of loss -
a. Police report of accident; SPECIAL CLAUSES
b. Death certificate and evidence sufficient to establish proper A. Authorized Driver Clause
payee;  A clause which aims to indemnify the insured owner against loss or
c. Medical report and evidence of medical or hospital damage to the car but limits the use of the insured vehicle to the
disbursement. insured himself or any person who drives on his order or with his
3. Claim may be made against one motor permission (Villacorta v. Insurance Commissioner)
vehicle only  The requirement that the person driving the insured vehicle is
4. Proper insurer from which to claim - permitted in accordance with the licensing laws or other laws or
a. In case of an occupant: Insurer of the vehicle in which the regulations to drive the motor vehicle (licensed driver) is applicable
occupant is riding, mounting or dismounting from; only if the person driving is other than the insured.
b. In any other case: Insurer of the directly offending vehicle.
(Sec. 378) B. Theft Clause
 A clause which includes theft as among the risks insured against.
 The claimant is not free to choose from which insurer he will  Where the car is unlawfully and wrongfully taken without the
claim the “no fault indemnity” as the law makes it mandatory that owner’s consent or knowledge, such taking constitutes theft, and
the claim shall lie against the insurer of the vehicle in which the thus, it is the “theft clause” and not the “authorized driver clause
occupant is riding, mounting or dismounting from. That said vehicle that should apply (Palermo v. Pyramids Ins., 161 SCRA 677).
might not be the one that caused the accident is of no moment
since the law itself provides that the party paying may recover
against the owner of the vehicle responsible for the accident. (Perla C. Cooperation Clause
Compania de Seguros, Inc. v. Ancheta, 169 SCRA 144)  A clause which provides in essence that the insured shall give all
such information and assistance as the insurer may require, usually
 This no-fault claim does not apply to property damage. If the requiring attendance at trials or hearings.
total indemnity claim exceeds P5,000 and there is controversy in XX. SURETYSHIP
respect thereto, the finding of fault may be availed of by the  An agreement whereby a surety guarantees the performance by
insurer only as to the excess. The first P5,000 shall be paid without the principal or obligor of an obligation or undertaking in favor of an
regard to fault. (Prof. De Leon, p. 716) obligee. (Sec. 175)
 It is essentially a credit accommodation.
 The essence of the no-fault indemnity insurance is to provide  It is considered an insurance contract if it is executed by the
victims of vehicular accidents or their heirs immediate surety as a vocation, and not incidentally. (Sec. 20
compensation although in limited amount, pending final

 When the contract is primarily drawn up by 1 party, the benefit XXI. LIFE INSURANCE
of doubt goes to the other party (insured/obligee) in case of an  Insurance on human lives and insurance appertaining thereto or
ambiguity following the rule in contracts of adhesion. Suretyship, connected therewith which includes every contract or pledge for
especially in fidelity bonding, is thus treated like non-life insurance the payment of endowments or annuities. (Sec. 179)
in some respects.  Kinds: (Bar Review Materials in Commercial Law, Jorge Miravite,
2002 ed.)
Nature of liability of surety 1. Ordinary Life, General Life or Old Line Policy - Insured pays a
1. Solidary; fixed premium every year until he dies. Surrender value after 3
2. Limited to the amount of the bond; years.
3. It is determined strictly by the terms of the contract of 2. Group Life – Essentially a single insurance contract that provides
suretyship in relation to the principal contract between the coverage for many individuals. Examples: In favor of employees,
obligor and the obligee. (Sec. 176) “mortgage redemption insurance”.
3. Limited Payment Policy – insured pays premium for a limited
SURETYSHIP PROPERTY period. If he dies within the period, his beneficiary is paid; if
INSURANCE he outlives the period, he does not get anything.
Accessory contract Principal contract 4. Endowment Policy – pays premium for specified period. If he
3 parties: surety, 2 parties: insurer and outlives the period, the face value of the policy is paid to him;
obligor and oblige insured if not, his beneficiaries receive the benefit.
Credit Contract of 5. Term Insurance – insurer pays once only, and he is insured for a
accommodation indemnity specified period. If he dies within the period, his beneficiaries
Surety can recover Insurer has no such benefits. If he outlives the period, no person benefits from the
from principal right; only right of
insurance.
subrogation
6. Industrial Life - life insurance entitling the insured to pay
Bond can be May be cancelled
cancelled only with unilaterally either by premiums weekly, or where premiums are payable monthly or
consent of obligee, insured or insurer on oftener.
Commissioner or grounds provided by
court law Mortgage Redemption Insurance
Requires No need of  A life insurance taken pursuant to a group mortgage redemption
acceptance of acceptance by any scheme by the lender of money on the life of a mortgagor who, to
obligee to be valid third party secure the loan, mortgages the house constructed from the use of
Risk-shifting device; Risk-distributing the proceeds of the loan, to the extent of the mortgage
premium paid being device; premium paid
in the nature of a as a ratable indebtedness such that if the mortgagor dies, the proceeds of his
service fee contribution to a life insurance will be used to pay for his indebtedness to the lender
common fund assured and the deceased’s heirs will thereby be relieved from

paying the unpaid balance of the loan. (Great Pacific Life Assurance  If the premiums paid came from conjugal funds, the proceeds are
Corp. vs. Court of Appeals, 316 SCRA 677) considered conjugal. If the beneficiary is other than the insured’s
estate, the source of premiums would not be relevant. (Del Val v.
LIABILITY OF INSURER IN CERTAIN CAUSES OF DEATH OF INSURED Del Val, 29 Phil 534)
1. Suicide
 Insurer is liable in the following cases:  The measure of indemnity in life or health insurance policy is the
1. If committed after two years from the date of the policy’s sum fixed in the policy except when a creditor insures the life of his
issue or its last reinstatement; debtor. (Sec. 183)
2. If committed in a state of insanity regardless of the date of IS THE CONSENT OF THE BENEFICIARY NECESSARY TO THE
the commission unless suicide is an excepted peril. (Sec. ASSIGNMENT OF A LIFE INSURANCE POLICY?
180-A)  It depends. If the designation of the beneficiary is irrevocable, the
3. If committed after a shorter period provided in the policy beneficiary’s consent is essential because of his vested right. If the
 Any stipulation extending the 2-year period is null and void. designation is revocable, the policy may be assigned without such
2. At the hands of the law (E.g. by legal execution) consent because the beneficiary only has a mere expectancy to the
 It is one of the risks assumed by the insurer under a life insurance proceeds. (The Insurance Code of the Philippines Annotated,
policy in the absence of a valid policy exception. (Vance,p.572 cited Hector de Leon, 2002 ed.)
in de Leon, p. 107)
Note: Justice Vitug believes that death by suicide (if the insured is Cash Surrender Value
sane) or at the hands of the law obviates against recovery as being  As applied to a life insurance policy, it is the amount the insured
more in consonance with public policy and as being implicit under in case of default, after the payment of at least 3 full annual
Section 87, ICP. (Pandect of Commercial Law and Jurisprudence, premiums, is entitled to receive if he surrenders the policy and
1997 ed. P. 191) releases his claims upon it.
3. Killing by the beneficiary
GENERAL RULE: The interest of a beneficiary in a life insurance LIFE INSURANCE FIRE INSURANCE
policy shall be forfeited when the beneficiary is the principal
accomplice or accessory in willfully bringing about the death of the Contract of Contract of indemnity
insured, in which event, the nearest relative of the insured shall investment not of
indemnity
receive the proceeds of said insurance if not otherwise disqualified. Valued policy Open or valued policy
(Sec. 12) May be transferred The insurable
EXCEPTIONS: or assigned to any interest of the
1. Accidental killing person even if he transferee or
2. Self-defense has no insurable assignee is essential
3. Insanity of the beneficiary at the time he killed the insured interest
Consent of insurer is Consent of insurer
not essential to must be secured in the

validity of absence of waiver 416), except in case of maritime insurance which is within the
assignment exclusive jurisdiction of the RTC. (BP 129; admiralty & maritime
Contingency that is Contingency insured jurisdiction)
contemplated is a against may or may
certain event, the not occur  Where the amount exceeds P100,000, the RTC has
only uncertainty jurisdiction.
being the time when
it will take place
A long-term May be cancelled by
contract and cannot either party and is
be cancelled by the usually for a term of
insurer one year
Beneficiary is under Insured is required to
no obligation to submit proof of his
prove actual actual pecuniary loss
financial loss as a condition
precedent to
collecting the
insurance.
XXII. VARIABLE CONTRACT

 Any policy or contract on either a group or individual basis issued
by an insurance company providing for benefits or other contractual
payments or values thereunder to vary so as to reflect investment
results of any segregated portfolio of investment.
XXIII. INSURANCE COMMISSIONER

 Main agency charged with the enforcement of the Insurance Code
and other related laws.
 Functions:
1. ADJUDICATORY/QUASI-JUDICIAL
a. Exclusive original jurisdiction – Any dispute in the
enforcement of any policy issued pursuant to Chapter VI (CMVLI).
(Sec. 385, par. 2)  The Insurance Commissioner has no jurisdiction to decide the
b. Concurrent original jurisdiction (with the RTC) – Where the legality of a contract of agency entered into between an insurance
maximum amount involved in any single claim is P100,000 (Sec. company and its agent. The same is not covered by the term “doing

or transacting insurance business” under Sec 2, ICP, neither is it

covered by Sec. 416 of the same Code which grants the
Commissioner adjudicatory powers (Philippine American Life
Insurance Co. v. Ansaldo, 234 SCRA 509).
2. ADMINISTRATIVE/REGULATORY
a. Enforcement of insurance laws
b. Issuance, suspension or revocation of certificate of authority
c. Power to examine books and records, etc.
d. Rule-making authority
e. Punitive


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San Beda College of Law 30

MEMORY AID IN COMMERCIAL LAW

COMMERCIAL LAW COMMITTEE

COMMERCIAL LAW COMMITTEE

 An insurance contract is a consensual contract and is therefore Clauses

Binding Receipt POLICY OF INSURANCE

COMMERCIAL LAW COMMITTEE

COMMERCIAL LAW COMMITTEE

GENERAL RULE: There is no limit in the amount the insured can

COMMERCIAL LAW COMMITTEE

COMMERCIAL LAW COMMITTEE

IX. PREMIUM PAYMENTS

COMMERCIAL LAW COMMITTEE

Not a debt. It becomes a debt

COMMERCIAL LAW COMMITTEE

EXCEPTIONS: c. Such party concealing makes no warranty as to the fact

COMMERCIAL LAW COMMITTEE

COMMERCIAL LAW COMMITTEE

COMMERCIAL LAW COMMITTEE

2. Notice must be in writing, mailed or delivered to the named misrepresentation of insured is an

COMMERCIAL LAW COMMITTEE

COMMERCIAL LAW COMMITTEE

insurance is is the original 1. Loss the 1. Loss by

COMMERCIAL LAW COMMITTEE

REQUISITES FOR RECOVERY UPON INSURANCE NON-LIFE

 In case of an unreasonable delay in the payment of the insured’s

COMMERCIAL LAW COMMITTEE

COMMERCIAL LAW COMMITTEE

COMMERCIAL LAW COMMITTEE

COMMERCIAL LAW COMMITTEE

under the contractual obligation as such common carrier. (Delsan  Instances:

 Applicability of implied warranty of seaworthiness to cargo LOSS

COMMERCIAL LAW COMMITTEE

COMMERCIAL LAW COMMITTEE

COMMERCIAL LAW COMMITTEE

of the deficiency in original insurance. HOSTILE FIRE FRIENDLY FIRE

COMMERCIAL LAW COMMITTEE

moment the insured becomes liable to third persons, the insured

COMMERCIAL LAW COMMITTEE

 Claimants/victims may be a “passenger” or a “3rd party”

COMMERCIAL LAW COMMITTEE

COMMERCIAL LAW COMMITTEE

COMMERCIAL LAW COMMITTEE

COMMERCIAL LAW COMMITTEE

XXII. VARIABLE CONTRACT

XXIII. INSURANCE COMMISSIONER

COMMERCIAL LAW COMMITTEE

or transacting insurance business” under Sec 2, ICP, neither is it

COMMERCIAL LAW COMMITTEE

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