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5 CARDINAL PRINCIPLES IN INSURANCE 1. Insurable Interest 2. Principle of Utmost Good Faith An insurance contract requires utmost good faith (uberrimae fidei) between the parties. The applicant is enjoined to disclose any material fact, which he knows or ought to know. Reason: An insurance contract is an aleatory contract. The insurer relies on the representation of the applicant, who is in the best position to know the state of his health. 3. Contract of Indemnity It is the basis of all property insurance. The insured who has insurable interest over a property is only entitled to recover the amount of actual loss sustained and the burden is upon him to establish the amount of such loss (Reviewer on Commercial Law, Professors Sundiang and Aquino) Rules: a. Applies only to property insurance except when the creditor insures the life of his debtor. b. Life insurance is not a contract of indemnity. c. Insurance contracts are not wagering contracts. (Sec. 4) d. 4. Contract of Adhesion (Fine Print Rule) Most of the terms of the contract do not result from mutual negotiations between the parties as they are prescribed by the insurer in final printed form to which the insured may adhere if he chooses but which he cannot change. (Rizal Surety and Insurance Co., vs. CA, 336 SCRA 12) 5. Principle of Subrogation It is a process of legal substitution where the insurer steps into the shoes of the insured and he avails of the latters rights against the wrongdoer at the time of loss. The principle of subrogation is a normal incident of indemnity insurance as a legal effect of payment; it inures to the insurer without any formal assignment or any express stipulation to that effect in the policy. Said right is not dependent upon nor does it grow out of any private contract. Payment to the insured makes the insurer a subrogee in equity. (Malayan Insurance Co., Inc. v. CA, 165 SCRA 536; see also Art. 2207, NCC) Purposes: (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.) 1. To make the person who caused the loss legally responsible for it. 2. To prevent the insured from receiving a double recovery from the wrongdoer and the insurer.
CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS 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)
31 MEMORY AID IN COMMERCIAL LAW Binding Receipt A mere acknowledgment on behalf of the company that its branch office had received from the applicant the insurance premium and had accepted the application subject to processing by the head office. Cover Note (Ad Interim) A concise and temporary written contract issued to the insurer through its duly authorized agent embodying the principal terms of an expected policy of insurance. Purpose: It is intended to give temporary insurance protection coverage to the applicant pending the acceptance or rejection of his application. Duration: Not exceeding 60 days unless a longer period is approved by Insurance Commissioner (Sec. 52). Riders Printed stipulations usually attached to the policy because they constitute additional stipulations between the parties. (Ang Giok Chip vs. Springfield, 56 Phil. 275) In case of conflict between a rider and the printed stipulations in the policy, the rider prevails, as being a more deliberate expression of the agreement of the contracting parties. (C. Alvendia, The Law of Insurance in the Philippines, 1968 ed.) Clauses An agreement between the insurer and the insured on certain matter relating to the liability of the insurer in case of loss. (Prof. De Leon, p.188) Endorsements Any provision added to the contract altering its scope or application. (Prof. De Leon, p.188) POLICY OF INSURANCE The written instrument in which a contract of insurance is set forth. (Sec. 49) Contents: (Sec. 51) 1. Parties 2. Amount of insurance, except in open or running policies; 3. Rate of premium; 4. Property or life insured; 5. Interest of the insured in the property if he is not the absolute owner; 6. Risk insured against; and 7. Duration of the insurance. Persons entitled to recover on the policy (sec. 53): The insurance proceeds shall be applied exclusively to the proper interest of the person in whose name or to whose benefit it is made, unless otherwise specified in the policy. Kinds: 1. OPEN POLICY value of thing insured is not agreed upon, but left to be ascertained in case of loss. (Sec. 60)
1. The insured possesses an insurable interest susceptible of pecuniary estimation; 2. The insured is subject to a risk of loss through the destruction or impairment of that interest by the happening of designated perils; 3. The insurer assumes that risk of loss; 4. Such assumption is part of a general scheme to distribute actual losses among a large group or substantial number of persons bearing somewhat similar risks; and 5. The insured makes a ratable contribution (premium) to a general insurance fund. A contract possessing only the first 3 elements above is a risk-shifting device. If all the elements, it is a risk-distributing device. (The Insurance Code of the Philippines Annotated, Hector de Leon, 2002 ed.) IV. PERFECTION OF AN INSURANCE CONTRACT An insurance contract is a consensual contract and is therefore perfected the moment there is a meeting of minds with respect to the object and the cause or consideration. What is being followed in insurance contracts is what is known as the cognition theory. Thus, an acceptance made by letter shall not bind the person making the offer except from the time it came to his knowledge. (Enriquez vs. Sun Life Assurance Co. of Canada, 41 Phil. 269)
32 MEMORY AID IN COMMERCIAL LAW form a civil donation insofar as the beneficiary is concerned. Both are founded on the same consideration of liberality. (Insular Life vs. Ebrado, 80 SCRA 181) ii. A person who insures the life of another person and name himself as the beneficiary must have an insurable interest in such life. (Sec. 10) iii. As a general rule, the designation of a beneficiary is revocable unless the insured expressly waived the right to revoke in the policy. (Sec. 11) iv. The interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary is the principal accomplice or accessory in willfully bringing about the death of the insured in which event, the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified. (Sec. 12) b. PROPERTY The beneficiary of property insurance must have an insurable interest in such property, which must exist not only at the time the policy takes effect but also when the loss occurs. (Sec. 13 and 18). Effects of Irrevocable Designation Of Beneficiary Insured cannot: 1. Assign the policy 2. Take the cash surrender value of the policy 3. Allow his creditors to attach or execute on the policy; 4. Add new beneficiary; or 5. Change the irrevocable designation to revocable, even though the change is just and reasonable. The insured does not even retain the power to destroy the contract by refusing to pay the premiums for the beneficiary can protect his interest by paying such premiums for he has an interest in the fulfillment of the obligation. (Vance, p. 665, cited in de Leon, p. 101, 2002 ed.) VII. INSURABLE INTEREST A. In General A person has an insurable interest in the subject matter if he is so connected, so situated, so circumstanced, so related, that by the preservation of the same he shall derive pecuniary benefit, and by its destruction he shall suffer pecuniary loss, damage or prejudice. B. Life Every person has an insurable interest in the life and health: a. of himself, of his spouse and of his children;
CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS 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)
The beneficiary need not have an insurable interest over the life of the insured if the insured himself secured the policy. However, if the life insurance was obtained by the beneficiary, the latter must have insurable interest over the life of the insured.
The beneficiary must have insurable interest over the thing insured.
SPECIAL CASES 1. In case of a carrier or depositary A carrier or depository of any kind has an insurable interest in a thing held by him as such, to the extent of his liability but not to exceed the value thereof (Sec. 15) 2. In case of a mortgaged property The mortgagor and mortgagee each have an insurable interest in the property mortgaged and this interest is separate and distinct from the other. a. Mortgagor As owner, has an insurable interest therein to the extent of its value, even though the mortgage debt equals such value. The reason is that the loss or destruction of the property insured will not extinguish the mortgage debt. b. Mortgagee His interest is only up to the extent of the debt. Such interest continues until the mortgage debt is extinguished. The lessor cannot be validly a beneficiary of a fire insurance policy taken by a lessee over his merchandise, and the provision in the lease contract providing for such automatic assignment is void for being contrary to law and public policy. (Cha vs. Court of Appeals, 227 SCRA 690) STANDARD OR UNION MORTGAGE CLAUSE Subsequent acts of the mortgagor cannot affect the rights of the assignee OPEN OR LOSS PAYABLE MORTGAGE CLAUSE Acts of the mortgagor affect the mortgagee. Reason: Mortgagor does not cease to be a party to the contract. (Secs. 8 and 9)
Effects of Loss Payable Clause a. The contract is deemed to be upon the interest of the mortgagor; 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 the hands of the mortgagee.
CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS 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)
34 MEMORY AID IN COMMERCIAL LAW ENTITLEMENT OF INSURED TO RETURN OF PREMIUMS PAID A. Whole: 1. If the thing insured was never exposed to the risks insured against; (Sec. 79) 2. If contract is voidable due to the fraud or misrepresentation of insurer or his agents; (Sec. 81) 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, the insurer never incurred liability; (Sec. 81) 5. When rescission is granted due to the insurers breach of contract. (Sec. 74) B. Pro rata: 1. When the insurance is for a definite period and the insured surrenders his policy before the termination thereof; Exceptions: a. policy not made for a definite period of time b. short period rate is agreed upon c. life insurance policy 2. When there is over-insurance (Sec. 82); Instances when premiums are not recoverable: 1. When the risk has already attached and the risk is entire and indivisible. 2. In life insurance. 3. When the contract is rescindable or rendered void ab initio by the fraud of the insured. 4. When the contract is illegal and the parties are in pari delicto. PREMIUM
Levied and paid to meet anticipated losses. Payment is not enforceable against the insured.
EXCEPTIONS:
1. 2. 3. In case of life or industrial life insurance, when the grace periods applies; (Sec. 77) When the insurer makes a written acknowledgment of the receipt premium; (Sec. 78) Section 77 may not apply if the parties have agreed to the payment of the premium in installments and partial payment has been made at the time of the loss. (Makati Tuscany Condominium Corp. v. CA, 215 SCRA 462) Where a credit term has been agreed upon. (UCPB vs. Masagana Telemart, 308 SCRA 259) Where the parties are barred by estoppel. (UCPB vs. Maagana Telemart, 356 SCRA 307)
ASSESSMENT
Collected to meet actual losses. Payment is enforceable once levied unless otherwise agreed upon. It becomes a debt once properly levied unless otherwise agreed.
4. 5.
Not a debt.
Section 77 merely precludes the parties from stipulating that the policy is valid even if the premiums are not paid. (Makati Tuscany Condominium Corp. v. CA, 215 SCRA 462) Effect of Acknowledgment of Receipt of Premium in Policy: Conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid. (Sec. 78)
COMMERCIAL LAW COMMITTEE
X. TRANSFER OF POLICY 1. Life Insurance It can be transferred even without the consent of the insurer except when there is a stipulation requiring the consent of the insurer before transfer. (Sec. 181) Reason: The policy does not represent a personal agreement between the insured and the insurer.
CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS 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)
35 MEMORY AID IN COMMERCIAL LAW Requisites: a. A party knows a fact which he neglects to communicate or disclose to the other. b. Such party concealing is duty bound to disclose such fact to the other. c. Such party concealing makes no warranty as to the fact concealed. d. The other party has not the means of ascertaining the fact concealed. e. Material Effects: Entitles insurer to rescind, even if the death or loss is due to a cause not related to the concealed matter (Sec. 27). Note: Good Faith is not a defense in concealment. Sec. 27 clearly provides that, the concealment whether intentional or unintentional entitles the injured party to rescind the contract of insurance. Test of Materiality: Determined not by the event, but solely by the probable and reasonable influence of the facts upon the party to whom the communication is due, in forming his estimate of the advantages of the proposed contract, or in making his inquiries (Sec. 31). Exception to Sec. 31: a. Incontestability clause b. Matters under Sec.110 (marine insurance) The waiver of medical examination in a nonmedical insurance contract renders even more material the information required of the applicant concerning the previous conditions of health and diseases suffered. (Sunlife v. Sps. Bacani, 246 SCRA 268). The right to information of material facts may be waived, either by the terms of the insurance or by neglect to make inquiries as to such facts where they are distinctly implied in other facts of which information is communicated. (Sec.33) Where matters of opinion or judgment are called for, answers made in good faith and without intent to deceiver will not avoid the policy even though they are untrue. Reason: The insurer cannot rely on those statements. He must make further inquiry. (Philamcare Health Systems vs. CA, G.R. No. 125678, March 18, 2002). 2. Representations Factual statements made by the insured at the time of, or prior to, the issuance of the policy to give information to the insurer and induce him to enter into the insurance contract. They are considered an active form of concealment. Requisites of a false representation (misrepresentation): a. The insured stated a fact which is untrue. b. Such fact was stated with knowledge that it is untrue and with intent to
EXCEPTIONS:
1. In life, health and accident insurance.(Sec. 20); 2. Change in interest in the thing insured after occurrence of an injury which results in a loss. (Sec. 21); 3. Change in interest in one or more of several distinct things separately insured by one policy. (Sec. 22); 4. Change of interest, by will or succession, on the death of the insured. (Sec. 23); 5. Transfer of interest by one of several partners, joint owners, or owners in common, who are jointly insured, to others. (Sec. 24); 6. When a policy is so framed that it will inure to the benefit of whomsoever, during the continuance of the risk, may become the owner of the interest insured. (Sec. 57); 7. When there is an express prohibition against alienation in the policy, in case of alienation, the contract of insurance is not merely suspended but avoided. (Art. 1306, NCC). XI. ASCERTAINMENT AND CONTROL OF RISK AND LOSS A. Four Primary Concerns of the Parties: 1. Correct estimation of the risk; 2. Precise delimitation of the risk; 3. Control of the risk; 4. Determining whether a loss occurred and if so, the amount of such loss. B. Devices used for ascertaining and controlling risk and loss: 1. Concealment A neglect to communicate that which a party knows and ought to communicate (Sec. 26)
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS 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)
36 MEMORY AID IN COMMERCIAL LAW 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 violation thereof will avoid it. (Sec. 75) WARRANTY
Part of the contract Written on the policy, actually or by reference Presumed material Must be strictly complied with
REPRESENTATION
Mere collateral inducement May be written in the policy or may be oral. Must be proved to be material Requires only substantial truth and compliance
Where the insured merely signed the application form and made 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 and he was responsible for his acts for that purpose. (Insular Life Assur. Co. vs. Feliciano, 74 Phil. 469) 3. Warranties Statement or promise by the insured set forth in the policy or by reference incorporated therein, the untruth or nonfulfillment of which in any respect, and without reference to whether insurer was in fact prejudiced by such untruth or non-fulfillment, renders the policy voidable by the insurer. Purpose: To eliminate potentially increasing hazards which may either be due to the acts of the insured or to the change to the condition of the property. Kinds: a. EXPRESS an agreement expressed in a policy whereby the insured stipulates that certain facts relating to the risk are or shall be true, or certain acts relating to the same subject have been or shall be done. b. IMPLIED - it is deemed included in the contract although not expressly mentioned. Example: In marine insurance, seaworthiness of the vessel. Effects of breach of warranty: a. Material GENERAL RULE: Violation of material warranty or of a material provision of a policy will entitle the other party to rescind the contract. (Sec. 74) EXCEPTIONS: a. Loss occurs before the time of performance of the warranty. b. The performances becomes unlawful at the place of the contract.
COMMERCIAL LAW COMMITTEE
4. Conditions Events signifying in its broadest sense either an occurrence or a nonoccurrence that alters the previously existing legal relations of the parties to the contract. They may be conditions precedent or conditions subsequent. Effect of breach: a. Condition precedent prevents the accrual of cause of action b. Condition subsequent avoids the policy or entitles the insurer to rescind The insurer may also protect himself against fraudulent claims of loss and this he attempts to do by inserting in the policy various conditions which take the form of conditions precedent. For instance, there are conditions requiring immediate notice of loss or injury and detailed proofs of loss within a limited period. 5. Exceptions Provisions that may specify excepted perils. It makes more definite the coverage indicated by the general description of the risk by excluding certain specified risk that otherwise would be included under the general language describing the risks assumed. Effect: Limit the coverage of the contract. RESCISSION Grounds: A. Concealment B. Misrepresentation C. Breach of material warranty D. Breach of a condition subsequent Waiver of the right to rescind: Acceptance of premium payments despite the knowledge of the ground for rescission. (Sec. 45) Limitations on the right of the insurer to rescind: 1. Non-life such right must be exercised prior to the commencement of an action on the contract; 2. Life such right must be availed of during the first two years from the date of issue of policy or its last reinstatement; prior to incontestability. (Sec. 48)
CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS 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)
XIII. A. OVER-INSURANCE results when the insured insures the same property for an amount greater than the value of the property with the same insurance company. Effect in case of loss: 1. The insurer is bound only to pay to the extent of the real value of the property lost; 2. The insured is entitled to recover the amount of premium corresponding to the excess in value of the property; B. DOUBLE INSURANCE exists where same person is insured by several insurers separately in respect to same subject and interest. (Sec. 93) Requisites: 1. Person insured is the same; 2. Two or more insurers insuring separately; 3. Subject matter is the same; 4. Interest insured is also the same; 5. Risk or peril insured against is likewise the same. Effects: Where double insurance is allowed, but over insurance results: (Sec. 94) 1. The insured, unless the policy otherwise provides, may claim payment from the insurers in such order as he may select, up to the amount for which the insurers are severally liable under their respective contracts; 2. Where the policy under which the insured claims is a valued policy, the insured must give credit as against the valuation for any sum received by him under any other policy without regard to the actual value of the subject matter insured; 3. Where the policy under which the insured claims is an unvalued policy he must give credit, as against the full insurable value, for any sum received by him under any policy;
38 MEMORY AID IN COMMERCIAL LAW 3. Facultative reinsurance There is no obligation to cede or accept participation in the risk each party having a free choice. But once the share is accepted, the obligation is absolute and the liability thereunder can be discharged only by payment. (Equitable Ins. & Casualty Co. vs. Rural Ins. & Surety Co., Inc. 4 SCRA 343) 4. Retrocession A transaction whereby the reinsurer in turn, passes to another insurer a portion of the risk reinsured. It is really the reinsurance of reinsurance. (Prof. De Leon, p. 305) XIV. A. LOSS, IN INSURANCE Injury or damage sustained by the insured in consequence of the happening of one or more of the accidents or misfortune against which the insurer, in consideration of the premium, has undertaken to indemnify the insured. (Bonifacio Bros. Inc. vs. Mora, 20 SCRA 261) Loss for which insurer is liable
1. Loss the proximate cause of which is the peril insured against (Sec. 84); 2. Loss the immediate cause of which is the peril insured against except where proximate cause is an excepted peril; 3. Loss through negligence of insured except where there was gross negligence amounting to willful acts; and 4. Loss caused by efforts to rescue the thing from peril insured against; 5. If during the course of rescue, the thing is exposed to a peril not insured against, which permanently deprives the insured of its possession, in whole or in part (Sec. 85).
REINSURANCE
Involves different interest Insurer becomes the insured in relation to reinsurer Original insured has no interest in the reinsurance contract. Subject of insurance is the original insurers risk Insureds consent not necessary
TERMS: 1. Reinsurance treaty Merely an agreement between two insurance companies whereby one agrees to cede and the other to accept reinsurance business pursuant to provisions specified in the treaty. (Prof. De Leon, p. 306) 2. Automatic reinsurance The reinsured is bound to cede and the reinsurer is obligated to accept a fixed share of the risk which has to be reinsured under the contract. (Prof. De Leon, p. 305)
COMMERCIAL LAW COMMITTEE
Proximate Cause An event that sets all other events in motion without any intervening or independent case, without which the injury or loss would not have occurred. REQUISITES FOR RECOVERY UPON INSURANCE 1. The insured must have insurable interest in the subject matter; 2. That interest is covered by the policy; 3. There must be a loss; and
CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS 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)
39 MEMORY AID IN COMMERCIAL LAW XV. PRESCRIPTIVE PERIOD (Secs. 63 & 384) Rules: 1. In the absence of an express stipulation in the policy, it being based on a written contract, the action prescribes in 10 years. 2. However the parties may validly agree on a shorter period provided it is not less than one year from the time the cause of action accrues. 3. The cause of action accrues from the rejection of the claim of the insured and not from the time of loss. It shall commence from the denial of the claim, not from the resolution of the motion for reconsideration, otherwise it can be used by the insured as a scheme or device to waste time until the evidence which may be used against him is destroyed. (Sun Insurance Office, Ltd. v. CA, 195 SCRA) 4. In CMVLI, the written notice of claim must be filed within 6 months from the date of the accident otherwise the claim is deemed waived. The suit for damages either with the proper court or with the Insurance Commissioner should be filed within 1 year from the date of the denial of the claim by the insurer, otherwise claimants right of action shall prescribe. (Sec. 384) PARTICULAR CONTRACTS KINDS OF INSURANCE
B. CLAIMS SETTLEMENT The indemnification of the loss of the insured. TIME FOR PAYMENT OF CLAIMS NON-LIFE LIFE POLICIES POLICIES
a. Maturing upon the expiration of the term 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. b. 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 and filing of proof of death. The proceeds shall be paid within 30 days after the receipt 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.
In case of an unreasonable delay in the payment of the insureds claim by the insurer, the insured can recover: 1) attorneys fees; 2) expenses incurred by reason of the unreasonable withholding; 3) interest at double the legal interest rate fixed by the Monetary Board; and 4) the amount of the claim. (Zenith Insurance Corp. vs. CA, 185 SCRA 398)
XVI. MARINE INSURANCE Insurance against risks connected with navigation, to which a ship, cargo, freightage, profits or other insurable interest in movable property, may be exposed during a certain voyage or a fixed period of time. (Sec. 99) Coverage: A. 1. Vessels, goods, freight, cargo, merchandise, profits, money, valuable papers, bottomry and respondentia, and interest in respect to all risks or perils of navigation; 2. Persons or property in connection with marine insurance; 3. Precious stones, jewels, jewelry and precious metals whether in the course of transportation or otherwise; and 4. Bridges, tunnels, piers, docks and other aids to navigation and transportation. (Sec. 99) Cargo can be the subject of marine insurance, and once it is entered into, the implied warranty of seaworthiness immediately attaches to whoever is insuring the cargo, whether he be the shipowner or not. (Roque v. IAC, 139 SCRA 596) B. Marine Protection and Indemnity Insurance Classes of inland marine insurance: (Prof. De Leon, p. 325) 1. Property in transit provides protection to property frequently exposed to loss while it is transportation form one location to another.
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. SPECIAL MARINE INSURANCE CONTRACTS AND CLAUSES A. All Risks Policy insurance against all causes of conceivable loss or damage, except: 1) as otherwise excluded in the policy; or 2) due to fraud or intentional misconduct on the part of the insured. 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. (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 owners interest. (Roque vs. IAC, 139 SCRA 596) C. Inchamaree Clause A clause which makes the insurer liable for loss or damage to the hull or machinery arising from the: 1. Negligence of the captain, engineers, etc. 2. Explosions, breakage of shafts; and 3. Latent defect of machinery or hull. (Bar Review Materials in Commercial Law, Jorge Miravite, 2002 ed.) D. Sue and Labor Clause A clause under which the insurer may become liable to pay the insured, in addition to the loss actually suffered, such expenses as he may have incurred in his efforts to protect the property against a peril for which the insurer would have been liable. (Sec. 163)
41 MEMORY AID IN COMMERCIAL LAW denoting in general a ships fitness to perform the service and to encounter the ordinary perils of the voyage, contemplated by the parties to the policy (Sec. 114). GENERAL RULE: 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. EXCEPTIONS: 1. In the case of a time policy, the ship must be seaworthy at the commencement of every voyage she may undertake 2. 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 3. In the case of a voyage policy contemplating a voyage in different stages, the ship must be seaworthy at the commencement of each portion Applicability of implied warranty of seaworthiness to cargo owners: It becomes the obligation of a cargo owner to look for a reliable common carrier, which keeps its vessels in seaworthy conditions. The shipper may have no control over the vessel but he has control in the choice of the common carrier that will transport his goods (Roque v. IAC, 139 SCRA 596). Deviation A departure from the course of the voyage insured, or an unreasonable delay in pursuing the voyage or the commencement of an entirely different voyage. (Sec.123) Instances: 1. Departure of vessel from the course of the sailing fixed by mercantile usage 2. Departure of vessel from the most natural, direct and advantageous route if not fixed by mercantile usage 3. Unreasonable delay in pursuing voyage 4. Commencement of an entirely different voyage (Secs. 121-123) Kinds: 1. Proper a. When caused by circumstances outside the control of the ship captain or ship owner; b. When necessary to comply with a warranty or to avoid a peril; c. When made in good faith to avoid a peril; d. When made in good faith to save human life or to relieve another vessel in distress (Sec. 124) Effect: In case of loss, the insurer is still liable. 2. Improper - Every deviation not specified in Sec. 124 (Sec. 125). Effect: In case of loss or damage, the insurer is not liable. (Sec. 126)
The concealment of any fact in relation to any of the matters stated in Sec. 110 does not vitiate the entire contract but merely exonerates the insurer from a risk resulting from the fact concealed
IMPLIED WARRANTIES 1. Seaworthiness of the ship at the inception of the insurance (Sec. 113); 2. Against improper deviation (Sec. 123, 124, 125); 3. Against illegal venture; 4. Warranty of neutrality: 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. 120) 5. Presence of insurable interest. While the payment by the insurer for the insured value of the lost cargo operates as a waiver of the insurers right to enforce the term of the implied warranty against the assured under the marine insurance policy, the same cannot be validly interpreted as an automatic admission of the vessels seaworthiness by the insurer as to foreclose recourse against the common carrier for any liability under the contractual obligation as such common carrier. (Delsan Transportation Lines vs. CA, 364 SCRA 24) Seaworthiness A relative term depending upon the nature of the ship, voyage, service and goods,
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS 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)
42 MEMORY AID IN COMMERCIAL LAW 5. It must be 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 or cargo; and Necessary. RIGHT OF INSURED IN CASE OF GENERAL AVERAGE GENERAL RULE: 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 the vessel arrives at her destination EXCEPTIONS: 1. After the separation of interests liable to contribution 2. When the insured has neglected or waived his right to contribution FPA Clause (Free From Particular Average) A clause agreed upon in a policy of marine insurance in which it is stated that the insurer shall not be liable for a particular average, such insurer shall be free therefrom, but he shall continue to be liable for his proportion of all general average losses assessed upon the thing insured. (Sec. 136) ABANDONMENT The act of the insured by which, after a constructive total loss, he declared the relinquishment to the insurer of his interest in the thing insured. (Sec. 138) Requisites for validity: 1. There must be an actual relinquishment by the person insured of his interest in the thing insured (Sec. 138); 2. There must be a constructive total loss (Sec. 139); 3. The abandonment be neither partial nor conditional (Sec. 140); 4. It must be made within a reasonable time after receipt of reliable information of the loss (Sec. 141); 5. It must be factual (Sec. 142); 6. It must be made by giving notice thereof to the insurer which may be done orally or in writing (Sec. 143); and 7. The notice of abandonment must be explicit and must specify the particular cause of the abandonment (Sec. 144). Effects: 1. It is equivalent to a transfer by the insured of his interest to the insurer with all the chances of recovery and indemnity (Transfer of Interest)(Sec.146)
PARTICULAR
Has not inured to the common benefit and profit of all persons interested in the vessel and her cargo. To be borne alone by the owner of the cargo or the vessel, as the case may be.
Requisites for the right to claim contribution: 1. Common danger to the vessel or cargo; 2. Part of the vessel or cargo was sacrificed deliberately; 3. Sacrifice must be for the common safety or for the benefit of all; 4. Sacrifice must be made by the master or upon his authority;
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS 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)
43 MEMORY AID IN COMMERCIAL LAW allied risks, when such risks are covered by extension to fire insurance policies or under separate policies. (Sec. 167) Prerequisites to recovery: 1. Notice of loss must be immediately given, unless delay is waived expressly or impliedly by the insurer 2. Proof of loss according to best evidence obtainable. Delay may also be waived expressly or impliedly by the insurer HOSTILE FIRE
One that escapes from the place where it was intended to burn and ought to be. Insurer is liable
FRIENDLY FIRE
One that burns in a place where it was intended to burn and ought to be Insurer is not liable
Measure of Indemnity 1. Open policy: only the expense necessary to replace the thing lost or injured in the condition it was at the time of the injury 2. Valued policy: the parties are bound by the valuation, in the absence of fraud or mistake Note: It is very crucial to determine whether a marine vessel is covered by a marine insurance or fire insurance. The determination is important for 2 reasons: 1. Rules on constructive total loss and abandonment applies only to marine insurance; 2. Rule on co-insurance applies primarily to marine insurance; 3. Rule on co-insurance applies to fire insurance only if expressly agreed upon. (Commercial Law Reviewer, Aguedo Agbayani, 1988 ed.) ALTERATION AS A SPECIAL GROUND FOR RESCISSION BY INSURER Requisites: 1. The 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; (Sec. 168) and 6. There must be a violation of a policy provision. (Sec. 170) Fall-of-building clause A clause in a fire insurance policy that if the building or any part thereof falls, except as a result of fire, all insurance by the policy shall immediately cease. Option to rebuild clause A clause giving the insurer the option to reinstate or replace the property damaged or
REINSURANCE
Situation where the insurer procures a 3rd party called the reinsurer to insure him against liability by reason of an original insurance. Basically, reinsurance is an insurance against liability which the original insurer may incur in favor of the original insured.
XVII. FIRE INSURANCE A contract by which the insurer for a consideration agrees to indemnify the insured against loss of, or damage to, property by hostile fire, including loss by lightning, windstorm, tornado or earthquake and other
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS 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)
44 MEMORY AID IN COMMERCIAL LAW Right of a third party injured to sue the insurer 1. Indemnity against liability A third party injured can directly sue the insurer. 2. Indemnity for actual loss or reimbursement after actual payment by the insured A third party has no cause of action against the insurer (Sec. 53, Bonifacio Bros. v. Mora, 20 SCRA 261). The insurer is not solidarily liable with the insured. The insurers liability is based on contract; that of the insured is based on torts. Furthermore, the insurers liability is limited by the amount of the insurance coverage (Pan Malayan Insurance Corporation v. CA, 184 SCRA 54). 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 insurer is relieve from liability as stipulated. (Biagtan v. the Insular Life Assurance Co. Ltd., 44 SCRA 58, 1972) 2. Accidental That which happens by chance or fortuitously, without intention or design, which is unexpected, unusual and unforeseen. NO ACTION CLAUSE A requirement in a policy of liability insurance which provides that suit and final judgment be first obtained against the insured; that only thereafter can the person injured recover on the policy. (Guingon vs. Del Monte, 20 SCRA 1043) XIX. COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE (CMVLI) A species of compulsory insurance that provides for 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 motor vehicle by its owner. Purpose: To give immediate financial assistance to victims of motor vehicle accidents and/or their dependents, especially if they are poor regardless of the financial capability of motor vehicle owners or operators responsible for the accident sustained (Shafer v. Judge, RTC, 167 SCRA 386). 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.
CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS 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)
45 MEMORY AID IN COMMERCIAL LAW The essence of the no-fault indemnity insurance is to provide victims of vehicular accidents or their heirs immediate compensation although in limited amount, pending final determination of who is responsible for the accident and liable for the victims injuries or death. (Ibid.) SPECIAL CLAUSES A. Authorized Driver Clause A clause which aims to indemnify the insured owner against loss or damage to the car but limits the use of the insured vehicle to the insured himself or any person who drives on his order or with his permission (Villacorta v. Insurance Commissioner) The requirement that the person driving the insured vehicle is permitted in accordance with the licensing laws or other laws or regulations to drive the motor vehicle (licensed driver) is applicable only if the person driving is other than the insured. B. Theft Clause A clause which includes theft as among the risks insured against. Where the car is unlawfully and wrongfully taken without the owners consent or knowledge, such taking constitutes theft, and thus, it is the theft clause and not the authorized driver clause that should apply (Palermo v. Pyramids Ins., 161 SCRA 677). C. Cooperation Clause A clause which provides in essence that the insured shall give all such information and assistance as the insurer may require, usually requiring attendance at trials or hearings. XX. SURETYSHIP An agreement whereby a surety guarantees the performance by the principal or obligor of an obligation or undertaking in favor of an obligee. (Sec. 175) It is essentially a credit accommodation. It is considered an insurance contract if it is executed by the surety as a vocation, and not incidentally. (Sec. 20 When the contract is primarily drawn up by 1 party, the benefit of doubt goes to the other party (insured/obligee) in case of an ambiguity following the rule in contracts of adhesion. Suretyship, especially in fidelity bonding, is thus treated like non-life insurance in some respects. Nature of liability of surety 1. Solidary; 2. Limited to the amount of the bond; 3. It is determined strictly by the terms of the contract of suretyship in relation to the principal contract between the obligor and the obligee. (Sec. 176)
CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS 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)
PROPERTY INSURANCE
Principal contract 2 parties: insurer and insured Contract of indemnity Insurer has no such right; only right of subrogation May be cancelled unilaterally either by insured or insurer on grounds provided by law No need of acceptance by any third party
Risk-distributing device; premium paid as a ratable contribution to a common fund
assured and the deceaseds heirs will thereby be relieved from paying the unpaid balance of the loan. (Great Pacific Life Assurance Corp. vs. Court of Appeals, 316 SCRA 677) LIABILITY OF INSURER IN CERTAIN CAUSES OF DEATH OF INSURED 1. Suicide Insurer is liable in the following cases: 1. If committed after two years from the date of the policys issue or its last reinstatement; 2. If committed in a state of insanity regardless of the date of the commission unless suicide is an excepted peril. (Sec. 180-A) 3. If committed after a shorter period provided in the policy Any stipulation extending the 2-year period is null and void. 2. At the hands of the law (E.g. by legal execution) It is one of the risks assumed by the insurer under a life insurance policy in the absence of a valid policy exception. (Vance,p.572 cited in de Leon, p. 107) Note: Justice Vitug believes that death by suicide (if the insured is sane) or at the hands of the law obviates against recovery as being more in consonance with public policy and as being implicit under Section 87, ICP. (Pandect of Commercial Law and Jurisprudence, 1997 ed. P. 191) 3. Killing by the beneficiary GENERAL RULE: The interest of a beneficiary in a life insurance policy shall be forfeited when the beneficiary is the principal accomplice or accessory in willfully bringing about the death of the insured, in which event, the nearest relative of the insured shall receive the proceeds of said insurance if not otherwise disqualified. (Sec. 12) EXCEPTIONS: 1. Accidental killing 2. Self-defense 3. Insanity of the beneficiary at the time he killed the insured If the premiums paid came from conjugal funds, the proceeds are considered conjugal. If the beneficiary is other than the insureds estate, the source of premiums would not be relevant. (Del Val v. Del Val, 29 Phil 534) The measure of indemnity in life or health insurance policy is the sum fixed in the policy except when a creditor insures the life of his debtor. (Sec. 183) IS THE CONSENT OF THE BENEFICIARY NECESSARY TO THE ASSIGNMENT OF A LIFE INSURANCE POLICY? It depends. If the designation of the beneficiary is irrevocable, the beneficiarys consent is essential because of his vested right. If the designation is revocable, the policy may be assigned without such consent because the beneficiary only has a mere expectancy to the
XXI. LIFE INSURANCE Insurance on human lives and insurance appertaining thereto or connected therewith which includes every contract or pledge for the payment of endowments or annuities. (Sec. 179) Kinds: (Bar Review Materials in Commercial Law, Jorge Miravite, 2002 ed.) 1. Ordinary Life, General Life or Old Line Policy - Insured pays a fixed premium every year until he dies. Surrender value after 3 years. 2. Group Life Essentially a single insurance contract that provides coverage for many individuals. Examples: In favor of employees, mortgage redemption insurance. 3. Limited Payment Policy insured pays premium for a limited period. If he dies within the period, his beneficiary is paid; if he outlives the period, he does not get anything. 4. Endowment Policy pays premium for specified period. If he outlives the period, the face value of the policy is paid to him; if not, his beneficiaries receive the benefit. 5. Term Insurance insurer pays once only, and he is insured for a specified period. If he dies within the period, his beneficiaries benefits. If he outlives the period, no person benefits from the insurance. 6. Industrial Life - life insurance entitling the insured to pay premiums weekly, or where premiums are payable monthly or oftener. Mortgage Redemption Insurance A life insurance taken pursuant to a group mortgage redemption scheme by the lender of money on the life of a mortgagor who, to secure the loan, mortgages the house constructed from the use of the proceeds of the loan, to the extent of the mortgage indebtedness such that if the mortgagor dies, the proceeds of his life insurance will be used to pay for his indebtedness to the lender
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS 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)
47 MEMORY AID IN COMMERCIAL LAW The Insurance Commissioner has no jurisdiction to decide the legality of a contract of agency entered into between an insurance 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
FIRE INSURANCE
Contract of indemnity Open or valued policy The insurable interest of the transferee or assignee is essential Consent of insurer must be secured in the absence of waiver Contingency insured against may or may not occur
May be cancelled by either party and is usually for a term of one year Insured is required to submit proof of his actual pecuniary 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) b. Concurrent original jurisdiction (with the RTC) Where the maximum amount involved in any single claim is P100,000 (Sec. 416), except in case of maritime insurance which is within the exclusive jurisdiction of the RTC. (BP 129; admiralty & maritime jurisdiction) Where the amount exceeds P100,000, the RTC has jurisdiction.
COMMERCIAL LAW COMMITTEE
CHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS 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)