INSURANCE LAW

(Presidential Decree no. 1460 )

Guiller B. Asido, Ll.M. Commercial Law Review Adamson University College of Law, A.Y.2011

Lecture Coverage
Nature and Definition of Insurance Contract Insurable Interest Parties to an insurance contract Change of Interest (Section 20, 21, 22, 23, 24, Insurance Code) Concealment (Sec.26-35, IC) Representation (Section 36-48, IC) Warranties (Section 67-76, IC) Losses, Claims and Proceeds Double Insurance (Section 93-94, IC) Reinsurance (Section 95-98) Classes of Insurance

Nature and Definition of Insurance Contract

A contract of insurance is an agreement whereby one undertakes for a consideration to indemnify another against loss, damage or liability arising from an unknown or contingent event (Section 2 [1], Insurance Code of 1978)

A contract of suretyship shall be deemed to be an insurance contract, only if made by a surety who or which, as such is doing an insurance business as hereinafter provided.

Nature and Definition of Insurance Contract

Doing an Insurance Business - shall include (a) making or proposing to make, as

insurer, any insurance contract; (b) making or proposing to make as surety, any contract of suretyship as a vocation and not as merely incidental to any other legitimate business or activity of the surety; (c) doing any kind of business, including a reinsurance business, specifically recognized as constituting the doing of an insurance business within the meaning of this Code; (d) doing or proposing to do any business in substance equivalent to any of the foregoing in a manner designed to evade the provisions of this Code. In the application of the provisions of this Code the fact that no profit is derived from the making of insurance contracts, agreements or transactions or that no separate or direct consideration is received therefor, shall not be deemed conclusive to show that the making thereof does not constitute the doing or transacting of an insurance business. (section 2 [a], Insurance Code)

Nature of Insurance Contract

Contract of Adhesion Contract of Indemnity Consensual Voluntary Unilateral Aleatory Conditional Personal Property

Insurance as contract of adhesion

A contract of insurance is a contract of adhesion, thus, any ambiguity should be resolved against the insurer, or it should be

construed liberally in favor of the insured and strictly against the insurer.

Insurance as a contract of adhesion

Rationale for the Rule:

Limitations of liability should be regarded with extreme jealousy and must be construed in such a way as to preclude the insurer from non-compliance with its obligations. [G.R. No. 119599. March 20, 1997.] MALAYAN INSURANCE CORPORATION, petitioner, vs. THE HON. COURT OF APPEALS and TKC MARKETING CORPORATION, respondents.

Insurance as a contract of adhesion

Rationale

Through the years, the courts have held that in these type of contracts, the parties do not bargain on equal footing, the weaker party's participation being reduced to the alternative to take it or leave it. Thus, these contracts are viewed as traps for the weaker party whom the courts of justice must protect. Consequently, any ambiguity therein is resolved against the insurer, or construed liberally in favor of the insured. [G.R. No. 156167. May 16, 2005.] GULF RESORTS, INC., petitioner, vs. PHILIPPINE CHARTER INSURANCE CORPORATION, respondent.

Insurance as contract of adhesion

Caveat - While it is to be liberally construed in favor of the insured, like other contracts, it must be construed according to the sense

and meaning of the terms which the parties themselves have used. If such terms are clear and unambiguous, they must be taken and understood in their plain, ordinary and popular sense.

Insurance as a contract of indemnity

Contracts of insurance are contracts of indemnity upon the terms and conditions specified in the policy. The parties have the

right to impose such reasonable conditions at the time of the making of the contract as they may deem wise and necessary.

Insurance as a contract of indemnity

The agreement has the force of law between the parties. The terms of the policy constitute the measure of the insurers liability, and in

order to recover, the insured must show himself within those terms.

Insurance as a contract of indemnity

If the insured cannot comply with the terms and conditions of the contract, he is not entitled as a rule to recover the loss or

damage suffered. This is a condition precedent to the right to recovery.

Other Nature of Contract of Insurance

Consensual Perfected by the meeting of the minds of the parties Voluntary The parties may incorporate such

terms and conditions as they may deem convenient Aleatory The liability of insurer is dependent on the happening of an event which is uncertain, or though certain, is to occur at some future undetermined time.

Other Nature of Contract of Insurance

Unilateral Imposes legal duties only on the insurer who promises to indemnify another in case of loss; executed as to the insured after

the payment of premium and executory on the part of the insurer until payment for a loss.

Other Nature of Contract of Insurance

Conditional It is subject to conditions, the principal one of which is the happening of the event insured against Personal Each party having in view the character, credit and conduct of the other.
Property Since an insurance is a contract, as

such it is property in legal contemplation

Contract of Insurance
What may be insured ?
Who are the parties ? What is insurable interest ?

Contract of Insurance
What may be insured ?

Any contingent or unknown event, whether past or future, which may damnify a person having insurable interest, or create a liability against him, may be insured against. (section 3, Insurance Code)

Contract of insurance

1.

What may be insured ?

Any contingent or unknown event, whether past or future, which may damnify a person having an insurable interest or creates a liability against him may be insured against; A past event may be insured, provided the loss is unknown to both parties and that they expressly stipulated that prior loss is insured by the policy; Contingent liability

2.

3.

Contract of Insurance
an insurance for or against the drawing of any lottery, or for or against any chance or ticket in a lottery drawing a prize is NOT allowed.

(section 4, Insurance Code)

Contract of Insurance
Consent of the husband is not necessary for the validity

of an insurance policy taken out by a married woman on her life and that of her children.
A minor of 18 years or more may contract for life, health

and accident insurance, provided that the insurance is taken on his own life and the beneficiary is the minors father, mother, husband, wife, child, brother or sister.

Contract of insurance
All rights, title and interest in the policy of insurance taken out by an original owner on the life or health of a minor shall

automatically vest in the minor upon the death of the original owner.

Parties to a Contract of Insurance

Insurer
Insured Cestui Que Vie/Beneficiary

Parties to the contract

Every person, partnership, association or corporation duly authorized to transact insurance business may be an insurer.

(section 6, Insurance Code)

Parties to a Contract of Insurance

Insurer Party who assumes or accepts the risk of loss and undertakes for a consideration to indemnify another on the happening of a

specified contingency or event.

Parties to the Contract of Insurance

Insurance Corporation - Corporations formed or organized to save

any person or persons or other corporations harmless from loss, damage, or liability arising from any unknown or future or contingent event, or to indemnify or to compensate any person or persons or other corporations for any such loss, damage, or liability, or to guarantee the performance of or compliance with contractual obligations or the payment of debt of others shall be known as "insurance corporations". The provisions of the Corporation Law shall apply to all insurance corporations now or hereafter engaged in business in the Philippines insofar as they do not conflict with the provisions of this chapter (section 185, Insurance Code)

Parties to a Contract of Insurance

INSURER

SECTION 186. No person, partnership, or association of persons shall transact any insurance business in the Philippines except as agent of a person or corporation authorized to do the business of insurance in the Philippines, unless possessed of the capital and assets required of an insurance corporation doing the same kind of business in the Philippines and invested in the same manner; nor unless the Commissioner shall have granted to him or them a certificate to the effect that he or they have complied with all the provisions of law which an insurance corporation doing business in the Philippines is required to observe. Every person, partnership, or association receiving any such certificate of authority shall be subject to the insurance laws of the Philippines and to the jurisdiction and supervision of the Commissioner in the same manner as if an insurance corporation authorized by the laws of the Philippines to engage in the business of insurance specified in the certificate.

Parties to a Contract of Insurance

SECTION 187. No insurance company shall transact any insurance business in the Philippines until after it shall have obtained a

certificate of authority for that purpose from the Commissioner upon application therefor and payment by the company concerned of the fees hereinafter prescribed.

Minimum Capital Requirements

Set by the Department of Finance upon recommendation by the Insurance Commissioner Department Order (DO) 27-06 requires all life, non-life insurance and reinsurance companies to raise their paid-up capital to P100 million

and a minimum statutory net worth at P200 million by Dec. 31, 2009.

Parties to a Contract of Insurance

Insured The person in whose favor the contract is operative and who is indemnified against, or is to receive a certain sum upon

the happening of a specified contingency or event. Anyone except a public enemy may be insured. (section 7, Insurance Code)

Parties to a Contract of Insurance

Public Enemy

There is no question that majority of the stockholders of the respondent corporation were German subjects. This being so, we have to rule that said respondent became an enemy corporation upon the outbreak of the war between the United States and Germany. G.R. No. L-2294. May 25, 1951. FILIPINAS COMPAIA DE SEGUROS, petitioner, vs. CHRISTERN, HUENEFELD & CO., INC., respondent.

Other Parties to a Contract of Insurance

Cestui Que Vie Person on whose life the insurance is written. Beneficiary Person designated to receive the proceeds of the policy when the risk attaches

Other Parties to a Contract of Insurance

Example:

Wife takes out a policy on husbands life, proceeds payable to daughter. Wife insured Husband Cestui que vie Daughter- Beneficiary

Other Parties to a Contract of Insurance

Kinds of Beneficiary

1. Insured himself 2. Third Person who paid consideration 3. Third person through mere bounty of

insured

Rules on Beneficiary
SECTION 11. The insured shall have the right to change the

beneficiary he designated in the policy, unless he has expressly waived this right in said policy.
SECTION 12. The interest of a beneficiary in a life insurance policy

shall be forfeited when the beneficiary is the principal, accomplice, or accessory in wilfully 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.

Rules on Beneficiary
Beneficiary acquires a vested right in the policy.
SECTION 181. A policy of insurance upon life

or health may pass by transfer, will or succession to any person, whether he has an insurable interest or not, and such person may recover upon it whatever the insured might have recovered.

Rules on Beneficiary
Note Articles 43 (4), 50 and 64 of the Family Code Innocent spouse may revoke the designation of the other spouse who acted in

bad faith as beneficiary, even if such designation be stipulated as irrevocable.

Rules in case beneficiary predeceases insured

Irrevocable designation of Beneficiary Beneficiary has acquired vested right; Legal representatives are entitled to the proceeds

as assets of his estate; Unless, the proceeds were made payable to the beneficiary only if living

Rules in case beneficiary predeceases insured

Revocable Proceeds past to the estate of the insured All rights, title and interest in the policy of insurance taken out by an original owner on the life or health of a minor shall

automatically vest in the minor upon the death of the original owner, unless otherwise provided for in the policy.

Insurable Interest

SECTION 10. Every person has an insurable interest in the life and health:
(a) Of himself, of his spouse and of his children; (b) Of any person on whom he depends wholly or in part for education or support, or in whom he has a pecuniary interest; (c) Of any person under a legal obligation to him for the payment of money, or respecting property or services, of which death or illness might delay or prevent the performance; and (d) Of any person upon whose life any estate or interest vested in him depends.

Definition of Insurable Interest

An insurable interest is one of the most basic and essential requirements in an insurance contract.
In general, an insurable interest is that interest which a person is deemed to have in the subject matter insured, where he has a relation or connection with or concern in it, such that the person will derive pecuniary benefit or advantage from the preservation of the subject matter insured and will suffer pecuniary loss or damage from its destruction, termination, or injury by the happening of the event insured against.

Insurable Interest
The existence of an insurable interest gives a person the legal right to insure the subject matter of the policy of insurance. Section 10 of the Insurance Code indeed provides that every person has an insurable interest in his own life. Section 19 of the same code also states that an interest in the life or health of a person insured must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs.
[G.R. No. 183526. August 25, 2009.] VIOLETA R. LALICAN, petitioner, vs. THE INSULAR LIFE ASSURANCE COMPANY LIMITED, AS REPRESENTED BY THE PRESIDENT VICENTE R. AVILON, respondent.

Insurable Interest
SECTION 13. Every interest in property, whether real or personal, or

any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured, is an insurable interest.
SECTION 14. An insurable interest in property may consist in:

(a) An existing interest; (b) An inchoate interest founded on an existing interest; or (c) An expectancy, coupled with an existing interest in that out of which the expectancy arises.

Insurable Interest
SECTION 15. 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.
SECTION 16. A mere contingent or expectant interest in anything,

not founded on an actual right to the thing, nor upon any valid contract for it, is not insurable.
SECTION 17. The measure of an insurable interest in property is the

extent to which the insured might be damnified by loss or injury thereof.

Insurable Interest
SECTION 18. No contract or policy of insurance on property shall be

enforceable except for the benefit of some person having an insurable interest in the property insured.
SECTION 19. An interest in property insured must exist when the

insurance takes effect, and when the loss occurs, but need not exist in the meantime; and interest in the life or health of a person insured must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs.

Definition of Insurable Interest

An insurable interest is one of the most basic and essential requirements in an insurance contract.
In general, an insurable interest is that interest which a person is deemed to have in the subject matter insured, where he has a relation or connection with or concern in it, such that the person will derive pecuniary benefit or advantage from the preservation of the subject matter insured and will suffer pecuniary loss or damage from its destruction, termination, or injury by the happening of the event insured against.

Insurable Interest
The existence of an insurable interest gives a person the legal right to insure the subject matter of the policy of insurance. Section 10 of the Insurance Code indeed provides that every person has an insurable interest in his own life. Section 19 of the same code also states that an interest in the life or health of a person insured must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs.
[G.R. No. 183526. August 25, 2009.] VIOLETA R. LALICAN, petitioner, vs. THE INSULAR LIFE ASSURANCE COMPANY LIMITED, AS REPRESENTED BY THE PRESIDENT VICENTE R. AVILON, respondent.

Insurable Interest Health

in Life and

General Rule : Must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs. (section 19, Insurance

Code)

Insurable Interest in Life and Health

Exceptions:

When the insurance is taken by the creditor on the life of the debtor, the creditor is required to have insurable interest not only at the contract but also at the time of the debtors death. 2. When the insurance is taken by the employer on the life of the employee.
1.

Insurable Interest in Property

SECTION 13. Every interest in property, whether real or personal, or

any relation thereto, or liability in respect thereof, of such nature that a contemplated peril might directly damnify the insured, is an insurable interest.
SECTION 14. An insurable interest in property may consist in:

(a) An existing interest; (b) An inchoate interest founded on an existing interest; or (c) An expectancy, coupled with an existing interest in that out of which the expectancy arises.

Insurable Interest in Property

SECTION 15. 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.
SECTION 16. A mere contingent or expectant interest in anything,

not founded on an actual right to the thing, nor upon any valid contract for it, is not insurable.
SECTION 17. The measure of an insurable interest in property is

the extent to which the insured might be damnified by loss or injury thereof.

Insurable Interest in Property

SECTION 18. No contract or policy of insurance on property shall be

enforceable except for the benefit of some person having an insurable interest in the property insured.
SECTION 19. An interest in property insured must exist when the

insurance takes effect, and when the loss occurs, but need not exist in the meantime; and interest in the life or health of a person insured must exist when the insurance takes effect, but need not exist thereafter or when the loss occurs.

Examples of Insurable Interest in Property

Existing Interest May be legal title or equitable title (e.g. Trustee/Mortgagor/Lessor/Mortgagee) Inchoate Interest* - Stockholders inchoate interest in properties of the corporation
* Inchoate a legal right or entitlement that is only partial and incomplete, which may later develop into a full property right.

Change of Interest
Sections 20 24, Insurance Code
Rules when insurable interest changes during

the course of an insurance policy What may be transferred or assigned: 1. Thing insured (section 20) 2. The Policy itself (section 58) 3. The claim itself (section 83)

Rules in Change of Interest

SECTION 20. Except in the cases specified in the next four sections,

and in the cases of life, accident, and health insurance, a change of interest in any part of a thing insured unaccompanied by a corresponding change of interest in the insurance, suspends the insurance to an equivalent extent, until the interest in the thing and the interest in the insurance are vested in the same person.
SECTION 21. A change in interest in a thing insured, after the

occurrence of an injury which results in a loss, does not affect the right of the insured to indemnity for the loss.

Rules in Change of interest

SECTION 22.

A change of interest in one or more several distinct things, separately insured by one policy, does not avoid the insurance as to the others.
A change of interest, by will or succession, on the death of the insured, does not avoid an insurance; and his interest in the insurance passes to the person taking his interest in the thing insured.

SECTION 23.

Rules in Change of interest

SECTION 24. A transfer of interest by one of several partners, joint

owners, or owners in common, who are jointly insured, to the others, does not avoid an insurance even though it has been agreed that the insurance shall cease upon an alienation of the thing insured.
SECTION 25. Every stipulation in a policy of insurance for the

payment of loss whether the person insured has or has not any interest in the property insured, or that the policy shall be received as proof of such interest, and every policy executed by way of gaming or wagering, is void.

Devices of insurer in ascertaining and controlling risk

1. Concealment
2. Representations 3. Warranties

Concealment and Representation

Concealment There is concealment where the insured has

knowledge of facts, material to the risk, and good faith and fair dealing require him to reveal them, and he fails to do so.
SECTION 26. A neglect to communicate that which a party knows and ought to communicate, is called a concealment.

Representation A statement incidental to the contract of insurance

relative to some fact having reference thereto and upon the faith of which the contract is entered into.
SECTION 44. A representation is to be deemed false when the facts fail to correspond with its assertions or stipulations.

Concealment and Representation

Relevant Provisions of Law

Sections 26 to 48, Insurance Code

Concealment and Representation

Both take place before the contract is entered into;
Both give rise to the same remedy: discovery of the

concealment or misrepresentation before loss or death will entitle the insurer to cancel the policy, except where there is an incontestability clause.
SECTION 27. A concealment whether intentional or unintentional entitles the injured party to rescind a contract of insurance.

Rules on Concealment and Representation

General Rule : If concealment or misrepresentation is discovered

before loss or death, then the insurer can cancel the policy. If it is discovered after death or loss, the company can refuse to pay.
SECTION 48. Whenever a right to rescind a contract of insurance is given to the insurer by any provision of this chapter, such right must be exercised previous to the commencement of an action on the contract. After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of two years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindable by reason of the fraudulent concealment or misrepresentation of the insured or his agent.

Rules on Concealment and Representation

Intentional or fraudulent omission to communicate information

Rationale: The basis of the rule vitiating the contract in cases of

concealment is that it misleads or deceives the insurer into accepting the risk, or accepting it at the rate of premium agreed upon. The insurer, relying upon the belief that the assured will disclose every material fact within his actual or presumed knowledge, is misled into a belief that the circumstance withheld does not exist, and he is thereby induced to estimate the risk upon a false basis that it does not exist.

Bernardo Argente vs. West Coast Life Insurance Co., G.R. No. 28499, March 19, 1928

Concealment and Representation

EXCEPTION

SECTION 48 (2nd paragraph)

After a policy of life insurance made payable on the death of the insured shall have been in force during the lifetime of the insured for a period of two years from the date of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab initio or is rescindable by reason of the fraudulent concealment or misrepresentation of the insured or his agent.

Concealment and Representation

Incontestability clause
The so-called "incontestability clause" precludes the

insurer from raising the defenses of false representations or concealment of material facts insofar as health and previous diseases are concerned if the insurance has been in force for at least two years during the insured's lifetime.

Emilio Tan vs. Court of Appeals, G.R. No. 48049, June 29, 1989

Incontestability Clause
Under Section 227 (j) of Insurance Code

The policyholder shall be entitled to have the policy reinstated at any time within three years from the date of default of premium payment unless the cash surrender value has been duly paid, or the extension period has expired, upon production of evidence of insurability satisfactory to the company and upon payment of all overdue premiums and any indebtedness to the company upon said policy, with interest rate not exceeding that which would have been applicable to said premiums and indebtedness in the policy years prior to reinstatement.

Concealment and Representation

1. 2.

Exceptions to the Exception:

Non-Payment of premiums (Section 227) Violation of condition re military/naval service in time of war (Section 227) 3. No insurable interest 4. Cause of death was excepted or not covered 5. Fraud of vicious type 6. Proof of death was not given

WARRANTIES
A statement in the policy, part of the contract, a condition on which the contract depends and is conclusively presumed

material, It is the essence of warranty that its breach bars recovery even though the breach has nothing to do with the loss. (sections 67 to 76, Insurance Code)

WARRANTIES
SECTION 67.

A warranty is either expressed or

implied.
SECTION 68.

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

SECTION 69.

WARRANTIES
SECTION 70.

Without prejudice to section fifty-one, every express warranty, made at or before the execution of a policy, must be contained in the policy itself, or in another instrument signed by the insured and referred to in the policy as making a part of it.
A statement in a policy of matter relating to the person or thing insured, or to the risk, as a fact, is an express warranty thereof.

SECTION 71.

WARRANTIES
SECTION 72. A statement in a policy, which imparts that it is intended to do or not to do a thing which materially affects the risk, is a

warranty that such act or omission shall take place.

WARRANTIES
[G.R. No. L-4611. December 17, 1955.] QUA CHEE GAN, plaintiff-appellee, vs. LAW UNION AND ROCK INSURANCE CO., LTD., represented by its agent, WARNER, BARNES AND CO., LTD., defendant-appellant.

WARRANTIES
The insurer is barred by estoppel to claim violation of the so-called fire hydrant warranty where, knowing fully well that the

number of hydrants demanded in the warranty never existed from the very beginning, it nevertheless issued the policies subject to such warranty, and received the corresponding premiums.

LOSSES, CLAIMS AND PROCEEDS

SECTION 83. An agreement not to transfer the claim of the insured against the insurer after the loss has happened, is void if made

before the loss except as otherwise provided in the case of life insurance.

LOSSES, CLAIMS AND PROCEEDS

SECTION 80. If a peril insured against has existed, and the insurer has been liable for any period, however short, the insured is not

entitled to return of premiums, so far as that particular risk is concerned.

LOSSES, CLAIMS AND PROCEEDS

Types of Losses Compensable

1. Actual Total Loss 2. Constructive Total Loss 3. Partial Loss

LOSSES, CLAIMS AND PROCEEDS

Actual Total Loss entitles insured to full recovery
Constructive Total Loss when insured exercised right of

abandoment. This right may be exercised when the property insured suffers a damage from a marine peril of at least if insured merely notifies insurer of his exercise of right of abandonment, immediately ownership over damaged property passes to insurer and it pays insured as if there actual total loss.
Partial Loss carries with it co-insurance; owner shall bear part of the

loss.

Over Insurance
SECTION 82. In case of an over-insurance by several insurers, the insured is entitled to a ratable return of the premium, proportioned

to the amount by which the aggregate sum insured in all the policies exceeds the insurable value of the thing at risk.

Over-Insurance
There is over insurance when the insured insures the

same property for an amount greater than the value of the property with the same insurance company.
In case of loss, the company is bound to pay only to the

extent of the real value of the property lost. The insured is entitled to recover the amount of premium corresponding to the excess in value of the property.

DOUBLE INSURANCE
SECTION 93. A double insurance exists where the same person is insured by several insurers separately in respect to the same

subject and interest.

EFFECTS OF DOUBLE INSURANCE

(1.) The insured can recover, before or after loss, from both insurers the excess premium he has paid;
(2.) In case of loss, the insurers are liable severally to the extent of their coverage. The insured can recover from any of them or all of them to the extent of his loss.

DOUBLE INSURANCE

SECTION 94.

Where the insured is over-insured by double insurance:

(a) 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; (b) 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; (c) 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; (d) Where the insured receives any sum in excess of the valuation in the case of valued policies, or of the insurable value in the case of unvalued policies, he must hold such sum in trust for the insurers, according to their right of contribution among themselves; (e) Each insurer is bound, as between himself and the other insurers, to contribute ratably to the loss in proportion to the amount for which he is liable under his contract.

REINSURANCE
SECTION 95. A contract of reinsurance is one by which an insurer procures a third person to insure him against loss or liability

by reason of such original insurance.

REINSURANCE
REINSURANCE TREATY AND REINSURANCE POLICY,

DISTINGUISHED. A reinsurance policy is a contract of indemnity one insurer makes with another to protect the first insurer from a risk it has already assumed, while a reinsurance treaty is 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.

Reinsurance treaties and reinsurance policies are not synonymous.

Treaties are contracts for insurance while reinsurance policies are contracts of insurance.
G.R. No. L-19255. January 18, 1968.] THE PHILIPPINE AMERICAN LIFE INSURANCE COMPANY, petitioner, vs. THE AUDITOR GENERAL, respondent.

REINSURANCE
SECTION 96. Where an insurer obtains reinsurance, except under

automatic reinsurance treaties, he must communicate all the representations of the original insured, and also all the knowledge and information he possesses, whether previously or subsequently acquired, which are material to the risk.

SECTION 97. A reinsurance is presumed to be a contract of

indemnity against liability, and not merely against damage.

SECTION 98. The original insured has no interest in a contract of

reinsurance.

CLASSES OF INSURANCE

 Fire Insurance
Casualty Insurance Marine Insurance Life Insurance

Discussion Points on Fire Insurance

Definition
Rules in alteration Measurement of Indemnity Rule on pledge, hypothecated or transfer fire

policy Option to Rebuild Clause

RELEVANT LEGAL PROVISIONS

Sections 167 173, Insurance Code

DEFINITION
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 lss by lighting, windstorm, tornado or earthquake, and other allied risks, when such risks are covered by extension to fire insurance policies or under separate policies. (Section 167)

 What kind of fire is covered ?

CONCEPT OF FIRE
The presence of heat, steam, or even smoke is evidence

of fire, but taken by itself it will not prove the existence of fire. Unless accompanied by ignition, heat sufficient to cause charring or scorching does not constitute fire. To constitute fire, combustion must proceed at a rate sufficiently fast to produce a flame, a glow or incandescence. Regardless of the amount of heat, there can be no fire until ignition takes place. (Miravite, The Insurance Code of the Philippines citing D.L.Bickelhauf, p.478)

 How do you recover ?

HOW DO YOU RECOVER?

1. Provide NOTICE OF LOSS this must be immediately given, unless delay is waived expressly or impliedly by the insurer; and
2. Provide PROOF OF LOSS based on best

evidence obtainable, unless delay is waived expressly or impliedly by the insurer.

 Rules in measurement of indemnity

MEASURE OF INDEMNITY (AMOUNT THAT CAN BE RECOVERED)

Depends on the kind of policy issued Section 171, Insurance Code

MEASURE OF INDEMNITY
1. OPEN POLICY entitled to recover 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.

Example of Measure Indemnity

X constructed a house for which he spent P300,000.00 which he insured against fire for the same amount. When built, the house was

already worth P600,000.00. However, one day, 1/5 of the house was destroyed by accidental fire.
How much can X recover ?

Example of Measure of Indemnity

If policy is an open policy, X can recover his actual loss of P120,000.00, which is 1/5 of P600,000.00, the value of the property at the

time of loss.
If the policy is a valued policy, and the house

was valued at P300,000.00, X can recover only 1/5 of P300,000.00 or P60,000.00.

 Rules in alteration

ALTERATION AS A GROUND FOR RESCISSION

Alteration in the use of the thing insured

made without the consent of the insurer entitles the latter to rescind the contract of insurance.

REQUISITES FOR EXERCISE OF RESCISSION IN CASE OF ALTERATION

1.
2. 3. 4.

5.
6.

The use or condition of the thing is specifically limited or stipulated in the policy; Such use or condition as limited by the policy is altered; The alteration is made without the consent of the insurer; The alteration is made by means within the control of the insured; The alteration increases the risk; (section 168); and There must be a violation of a policy provision.

APPLICATION OF SECTIONS 75 and 169

An alteration in the risk or condition of the thing insured which does not increase the risk will not affect a contract of fire insurance.
Under section 75, the insurer is given the right to insert terms and conditions in the policy which if violated would avoid it. An alteration made in the use or condition of the thing insured will thus avoid a policy under the same section if such alteration is expressly prohibited altough it does not increase the risk.

Rule on pledge, hypothecate or transfer fire policy

As a rule, after a loss has occured, insured may pledge, hypothecate or transfer a fire insurance policy or rights thereunder. This he

may even do so even without the consent of or notice to the insurer. In such case, it is not the personal contract which is being assigned, but a claim under or a right of action on the policy against the insurer.

Rule on pledge, hypothecated or transfer fire policy

This rule however is subject to the provisions of Section 173 of the Insurance Code.

Rule:
No policy of fire insurance shall be pledged, hyothecated, or transferred to any person, firm or company who acts as agent for or

otherwise represents the issuing company, and any such pledge, hypothecation, or transfer hereacter made shall be void and of no effect insofar as it may affect other creditors of the insured. (section 173, Insurance Code)

 OPTION TO REBUILD CLAUSE

Why ?

OPTION TO REBUILD CLAUSE

Section 172 of the Insurance Code.
Insurer may have the option to reinstate or

replace the property damaged or destroyed any part thereof, instead of paying the amount of the loss or damage.

Why?
Reserved by the insurer in order to protect himself from unfairness in the appraisal and award rendered by arbitrators, in case of loss.
This option must be exercised within a

stipulated period or within a reasonable time.

CASUALTY INSURANCE

Discussion Outline

Definitions Risk or Losses covered General Divisions Classifications Insurable Interest in Liability Insurance When liability insurance in policy payable Right of injured person to sue insurer of party at fault Effect of no action clause in policy of liability insurance

Relevant Provisions of the Law

Section 174, Insurance Code

Definitions
Casualty Insurance
Liability Insurance

CASUALTY INSURANCE DEFINED

Casualty Insurance includes all forms of insurance against loss or liability arising from accident or mishap which are not within the

scope of other types of insurance, namely: marine, fire, surety, ship and life.
Example : Robbery and theft insurance, accident insurance

Liability Insurance Defined

A contract of indemnity for the benefit of the insured and those in privity with him, or those to whom the law upon the grounds of public

policy extends the indemnity against liability.

 What kind of risk or losses are covered by casualty insurance ?

RISK OR LOSSES COVERED

Section 174 defines casualty insurance by process of elimination.
Applies to almost any kind of insurance

Includes therfore any loss or damage when an accident is the cause of loss

 How do you define accidents ?

SECOND DIVISION [G.R. No. 100970. September 2, 1992.] FINMAN GENERAL ASSURANCE CORPORATION, petitioner, vs. THE HONORABLE COURT OF APPEALS and JULIA SURPOSA, respondents.

The terms 'accident' and 'accidental', as used in insurance

contracts have not acquired any technical meaning, and are construed by the courts in their ordinary and common acceptation. Thus, the terms have been taken to mean that which happen by chance or fortuitously, without intention and design, and which is unexpected, unusual, and unforeseen. An accident is an event that takes place without one's foresight or expectation an event that proceeds from an unknown cause, or is an unusual effect of a known cause and, therefore, not expected."

Accident construed
There is no accident when a deliberate act is performed

unless some additional, unexpected, independent, and unforeseen happening occurs which produces or brings about the result of injury or death. In other words, where the death or injury is not the natural or probable result of the insured's voluntary act, or if something unforeseen occurs in the doing of the act which produces the injury, the resulting death is within the protection of the policies insuring against death or injury from accident." [De la Cruz vs. Capital Insurance & Surety Co., Inc., 17 SCRA 559 (1966)].

 What are :
Two general divisions of casualty insurance Classifications

Classifications
1. Accident or Health Insurance
2. Third Party Liability Insurance

Classifications
Accident or Health Insurance Insurance against specified perils which may affect the person and/or property of the insured
Examples - personal accident, robbery/theft

insurance

Classification
Third Party Liability Insurance against specified perils which may give rise to liability on the part of the insured for claims for

injuries or damage to property of others

Two General Divisions

1. Insurance against specified perils which may affect the person and/or property of the insured
2. Insurance against specified perils which may

give rise to liability on the part of the insured for claims for injuries to others or damage to their property.

 What is the insurable interest of insured in casualty insurance ?

Insurable Interest
The insurable interest is to be found in the interest of the insured has in the safety of the person or property who may maintain, or in the freedom from damage of property which may become the basis of suits against him in case of their injury or destruction.
The insurable interest does not depend upon whether the insured has a legal or equitable interest in property but upon whether he may be charged at law with liability against which insurance is taken out.

 When liability insurance in policy

payable

When liability insurance in policy payable

attaches when the liability of the insured

attaches, regardless of actual loss at that time.

 Does the injured person have the right to sue the insurer of the party in fault?

Right of injured person to sue insurer of party at fault

The right of the person injured to sue the

insurer of the party at fault (insured) depends on whether the contract of insurance is intended to benefit third persons also or only the insured.
Subject to two tests

Two tests
1. Where the contract provides for indemnity against liability to third persons, then third persons to whom the insured is liable, can sue the insurer.
2. Where the contract is for indemnity against actual loss or payment then third persons cannot proceed against the insurer , the

contract being solely to reimburse the insured for liability actually discharged by him through payment to third persons, said third persons recourse being limited to the insured alone.

NO ACTION CLAUSE
Requirement in a policy of liability insurance which provides that suit and final judgment be first obtained against the insured; that only thereafter

COMPULSORY MOTOR VEHICLE LIABILITY INSURANCE

Discussion Outline
Legal basis
Definitions Rationale Rules Jurisprudence

Legal Basis
Sections 373 389, Insurance Code of the Philippines

Definitions
Motor Vehicle Liability Insurance
- A protection coverage that will answer for legal liability for losses and damages for bodily injuries or property damage that may be sustained by another arising from the use and operation of a motor vehicle by its owner.

 What is the legal definition of motor vehicle?

What is a motor vehicle ?

SECTION 373. For purposes of this chapter:
(a) "Motor Vehicle" is any vehicle as defined in

section three, paragraph (a) of Republic Act Numbered Four Thousand One Hundred Thirty-Six, otherwise known as the "Land Transportation and Traffic Code;

What is a motor vehicle ?

RA 4136, as amended, provides:
SECTION 3. Words and phrases defined. As used in this Act: (a) "Motor Vehicle" shall mean any vehicle propelled by any power other than muscular power using the public highways, but excepting road rollers, trolley cars, street-sweepers, sprinklers, lawn mowers, bulldozers, graders, fork-lifts, amphibian trucks, and cranes if not used on public highways, vehicles which run only on rails or tracks, and tractors, trailers and traction engines of all kinds used exclusively for agricultural purposes. Trailers having any number of wheels, when propelled or intended to be propelled by attachment to a motor vehicle, shall be classified as separate motor vehicle with no power rating.

Other important definitions

SECTION 373. For purposes of this chapter

(b) "Passenger" is any fare paying person being transported and conveyed in and by a motor vehicle for transportation of passengers for compensation, including persons expressly authorized by law or by the vehicle's operator or his agents to ride without fare;

Other important definitions

Passenger
Third Party Owner Operator

Other important definitions

(c) "Third Party" is any person other than a passenger as defined in this section and shall also exclude a member of the household, or a member of the family within the second degree of consanguinity or affinity, of a motor vehicle owner or land transportation operator, as likewise defined herein, or his employee in respect of death or bodily injury, arising out of and in the course of employment;

Other important definitions

d) "Owner" or "Motor Vehicle Owner" means the actual legal owner of a motor vehicle, in whose name such vehicle is duly registered with the Land Transportation Commission;
(e) "Land transportation operator" means the owner or owners of motor vehicles for transportation of passengers for compensation, including school buses

RATIONALE
To assure victims of motor vehicle accidents and/or their dependents especially when they are poor, immediate financial assistance, or

indemnity regardless of the financial capability of motor vehicle owners or operators responsible for the accident sustained.

RATIONALE
The injured for whom the contract of insurance is

intended can sue directly the insurer. The general purpose of statutes enabling an injured person to proceed directly against the insurer is to protect injured persons against the insolvency of the insured who causes such injury, and to give such injured person a certain beneficial interest in the proceeds of the policy, and statutes are to be liberally construed so that their intended purpose may be accomplished. It has even been held that such a provision creates a contractual relation which inures to the benefit of any and every person who may be negligently injured by the named insured as if such injured person were specifically named in the policy. (S 449 7 Am. Jur., 2d, pp. 118-119)

RULES ON CMVLI
SECTION 374. It shall be unlawful for any land transportation operator or owner of a motor vehicle to operate the same in the

public highways unless there is in force in relation thereto a policy of insurance or guarantee in cash or surety bond issued in accordance with the provisions of this chapter.

RULES ON CMVLI
SECTION 375. The Commissioner shall furnish the Land Transportation Commissioner with a list of insurance companies authorized to issue the policy of insurance or surety bond required by this chapter.
SECTION 376. The Land Transportation Commission shall not allow the registration or renewal of registration of any motor vehicle without first requiring from the land transportation operator or motor vehicle owner concerned the presentation and filing of a substantiating documentation in a form approved by the Commissioner evidencing that the policy of insurance or guaranty in cash or surety bond required by this chapter is in effect.

RULES ON CMVLI
SECTION 377. Every land transportation operator and every owner of a motor vehicle shall, before applying for the registration or renewal of registration of any motor vehicle, secure an insurance policy issued by any insurance company authorized by the Commissioner.

RULES ON CMVLI
(1) In the case of a land transportation operator the insurance or guaranty in cash or surety bond shall cover liability for death or bodily injuries of third parties and/or passengers arising out of the use of such vehicle in the amount not less than twelve thousand pesos per passenger or third-party and an amount for each of such categories, in any one accident, of not less than that set forth in the following scale:
(a) Motor vehicles with an authorized capacity of twenty-six or more passengers: Fifty thousand pesos; (b) Motor vehicles with an authorized capacity of from twelve to twenty-five passengers: Forty thousand pesos; (c) Motor vehicles with an authorized capacity of from six to eleven passengers: Thirty thousand pesos; (d) Motor vehicles with an authorized capacity of five or less passengers: Five thousand pesos multiplied by the authorized capacity. Provided, however, That a transportation operator may be exempt from compulsory requirement of this section to secure passenger insurance upon his posting with the Commissioner a cash deposit or surety bond in the amount herein required as limits of indemnity to answer for passenger and/or third-party accident claims. Such cash deposits or surety bond may be resorted to by the Commissioner in cases of accidents which are not promptly settled transportation operator, but in that event said deposit of bond shall be replenished by such transportation operator within sixty days after impairment, otherwise, he shall become subject to the compulsory provision of this section. The aforesaid cash deposit may be invested by the Commissioner in readily marketable government bonds and/or securities.

RULES ON CMVLI
(2) In the case of an owner of a motor vehicle, the insurance or guaranty in cash or surety bond shall cover liability for death or injury to third-parties in an amount not less than that set forth in the following scale in any one accident: I. Private Cars (a) Bantam: Twenty Thousand Pesos; (b) Light: Twenty Thousand Pesos; (c) Heavy: Thirty Thousand Pesos;
II. Other Private Vehicles (a) Tricycles, motorcycles, and scooters: Twelve thousand pesos; (b) Vehicles with an unladen weight of 2,600 kilos or less: Twenty thousand pesos; (c) Vehicles with an unladen weight of between 2,601 kilos and 3,930 kilos: Thirty thousand pesos; (d) Vehicles with an unladen weight over 3,930 kilos: Fifty thousand pesos. The Commissioner may, if warranted, set forth schedule of indemnities for the payment of claims for death or bodily injuries with the coverages set forth herein.

RULES OM CMVLI
SECTION 378. Any claim for death or injury to any passenger or third party pursuant to the provisions of this chapter shall be paid without the necessity of proving fault or negligence of any kind; Provided, That for purposes of this section (i) (ii) The total indemnity in respect of any person shall not exceed five thousand pesos; The following proofs of loss, when submitted under oath, shall be sufficient evidence to substantiate the claim:

(a) (b) (c)

(iii)

Police report of accident; and Death certificate and evidence sufficient to establish the proper payee; or Medical report and evidence of medical or hospital disbursement in respect of which refund is claimed. Claim may be made against one motor vehicle only. In the case of an occupant of a vehicle, claim shall lie against the insurer of the vehicle in which the occupant is riding, mounting or dismounting from. In any other case, claim shall lie against the insurer of the directly offending vehicle. In all cases, the right of the party paying the claim to recover against the owner of the vehicle responsible for the accident shall be maintained.

RULES ON CMVLI ownership

Effect of change of

SECTION 382. In case of change of ownership of a motor vehicle, or change of the engine of an insured vehicle, there shall be no need of issuing a new policy until the next date of registration or renewal of registration of such vehicle, and provided that the insurance company shall agree to continue the policy, such change of ownership or such change of the engine shall be indicated in a corresponding endorsement by the insurance company concerned, and a signed duplicate of such endorsement shall, within a reasonable time, be filed with the Land Transportation Commission.

RULES ON CMVLI
SECTION 383. In the settlement and payment of claims, the indemnity shall not be availed of by any accident victim or claimant as an instrument of enrichment by reason of an accident, but as an assistance or restitution insofar as can fairly be ascertained.

RULES ON CMVLI
SECTION 384. Any person having any claim upon the policy issued pursuant to this Chapter shall, without any unnecessary delay, present to the insurance company concerned a written notice of claim setting forth the nature, extent and duration of the injuries sustained as certified by a duly licensed physician. Notice of claim must be filed within six months from date of accident, otherwise, the claim shall be deemed waived. Action or suit for recovery of damage due to loss or injury must be brought in proper cases, with the Commissioner or the Courts within one year from denial of the claim, otherwise the claimant's right of action shall prescribe.

RULES ON CMVLI
SECTION 385. The insurance company concerned shall forthwith ascertain the truth and extent of the claim and make payment within five working days after reaching an agreement. If no agreement is reached, the insurance company shall pay only the "no-fault" indemnity provided in section three hundred seventyeight without prejudice to the claimant from pursuing his claim further, in which case, he shall not be required or compelled by the insurance company to execute any quit-claim or document releasing it from liability under the policy of insurance or surety bond issued.
In case of any dispute in the enforcement of the provisions of any policy issued pursuant to this chapter, the adjudication of such dispute shall be within the original and exclusive jurisdiction of the commissioner subject to the limitations provided in section four hundred sixteen.

RULES ON CMVLI
SECTION 386. It shall be unlawful for a land transportation operator or owner of motor vehicle to require his or its drivers or other employees to contribute in the payment of premiums.

Jurisprudence
THIRD DIVISION [G.R. No. 60506. August 6, 1992.] FIGURACION VDA. DE MAGLANA, EDITHA M. CRUZ, ERLINDA M. MASESAR, LEONILA M. MALLARI, GILDA ANTONIO and the minors LEAH, LOPE, JR., and ELVIRA, all surnamed MAGLANA, herein represented by their mother, FIGURACION VDA. DE MAGLANA, petitioners, vs. HONORABLE FRANCISCO Z. CONSOLACION, Presiding Judge of Davao City, Branch II, and AFISCO INSURANCE CORPORATION, respondents.
ISSUE : WHEN DOES THE INSURERS LIABILITY IN A COMPREHENSIVE MOTOR VEHICLE LIABILITY INSURANCE ACCRUE ?

THIRD DIVISION [G.R. No. 60506. August 6, 1992.] FIGURACION VDA. DE MAGLANA, EDITHA M. CRUZ, ERLINDA M. MASESAR, LEONILA M. MALLARI, GILDA ANTONIO and the minors LEAH, LOPE, JR., and ELVIRA, all surnamed MAGLANA, herein represented by their mother, FIGURACION VDA. DE MAGLANA, petitioners, vs. HONORABLE FRANCISCO Z. CONSOLACION, Presiding Judge of Davao City, Branch II, and AFISCO INSURANCE CORPORATION, respondents.

"[W]here an insurance policy insures directly against liability, the insurer's liability accrues immediately upon the occurrence of the injury or event upon which the liability depends, and does not depend on the recovery of judgment by the injured party against the insured. The underlying reason behind the third party liability (TPL) of the Compulsory Motor Vehicle Liability Insurance is "to protect injured persons against the insolvency of the insured who causes such injury, and to give such injured person a certain beneficial interest in the proceeds of the policy. . . ." (Shafer vs. Judge, RTC of Olongapo City, Br. 75, G.R. No. 78848, Nov. 14, 1988, 167 SCRA 386, 391)

Jurisprudence
SECOND DIVISION
[G.R. No. 101439. June 21, 1999.] GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), petitioner, vs. COURT OF APPEALS (former Tenth Division), VICTORIA JAIME VDA. DE KHO, for herself and minor ROY ROLAND, GLORIA KHO VDA. DE CALABIA for herself and minors MARY GRACE, WILLIE, JR., VOLTAIRE, GLENN, and MAY, all surnamed CALABIA, DANIEL KHO, JOSEFINA KHO, EMERITA KHO APEGO, ANTONIO KHO and TERESITA KHO, respondents.

Facts:
A Chevrolet truck, driven by Guillermo Corbeta and owned by the National Food Authority (NFA), collided with a Toyota Tamaraw owned and operated by Victor Uy. The truck was insured with the GSIS against liabilities for death and injuries to third persons with the maximum indemnity for death of P12,000. Five passengers died and 10 others were injured in the accident. All were passengers of the Toyota Tamaraw. One of the three cases filed was for damages based on quasi-delict against GSIS, as insurer of the truck, NFA, the driver Corbeta, Uy and the insurer, Mabuhay Insurance and Guaranty Co., MIGC the insurer of the Toyota Tamaraw. Hospital charges and fees rendered to the victims were conclusively established at the trial.
Thereafter, judgment was rendered ordering MIGC, Corbeta, NFA and GSIS to pay jointly and severally private respondents, heirs and victims of the collision, damages after a finding that the negligence of Corbeta was the proximate cause of the collision. On appeal, the Court of Appeals rendered judgment affirming in toto the assailed decision. Hence, this recourse by GSIS challenging the adjudged solidary liability on the ground that its liability under the insurance contract is different from the liability of NFA arising from quasi-delict and the lack of cause of action for failure of respondents to file their insurance claim within six (6) months from date of accident.

G.R. No. 101439. June 21, 1999.] GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), petitioner, vs. COURT OF APPEALS (former Tenth Division), VICTORIA JAIME VDA. DE KHO, for herself and minor ROY ROLAND, GLORIA KHO VDA. DE CALABIA for herself and minors MARY GRACE, WILLIE, JR., VOLTAIRE, GLENN, and MAY, all surnamed CALABIA, DANIEL KHO, JOSEFINA KHO, EMERITA KHO APEGO, ANTONIO KHO and TERESITA KHO, respondents.

EXTENT OF LIABILITY OF INSURER. However, although the victim may proceed directly against the insurer for indemnity, the third party liability is only up to the extent of the insurance policy and those required by law. INSURER NOT SOLIDARILY LIABLE WITH INSURED AND/OR OTHER PARTY AT FAULT. While it is true that where the insurance contract provides for indemnity against liability to third persons, and such third persons can directly sue the insurer, the direct liability of the insurer under indemnity contracts against third party liability does not mean that the insurer can be held liable in solidum with the insured and/or the other parties found at fault. For the liability of the insurer is based on contract; that of the insured carrier or vehicle owner is based on tort. The liability of GSIS based on the insurance contract is direct, but not solidary with that of the NFA. The latter's liability is based separately on Article 2180 of the Civil Code.

G.R. No. 101439. June 21, 1999.] GOVERNMENT SERVICE INSURANCE SYSTEM (GSIS), petitioner, vs. COURT OF APPEALS (former Tenth Division), VICTORIA JAIME VDA. DE KHO, for herself and minor ROY ROLAND, GLORIA KHO VDA. DE CALABIA for herself and minors MARY GRACE, WILLIE, JR., VOLTAIRE, GLENN, and MAY, all surnamed CALABIA, DANIEL KHO, JOSEFINA KHO, EMERITA KHO APEGO, ANTONIO KHO and TERESITA KHO, respondents.

The requirement that notice of insurance claims must be filed within six (6) months from date of accident may be waived. The defense of laches or prescription in the case at bar was deem waived for failure of petitioner to promptly interpose the defense of delay in filing the notice of insurance claim.

Jurisprudence
G.R. No. 144274. September 20, 2004.]
NOSTRADAMUS VILLANUEVA, petitioner, vs. PRISCILLA R. DOMINGO and LEANDRO LUIS R. DOMINGO, respondents.

Facts
Petitioner Villanueva was a former owner who remained

to be the registered owner of a car that got involved in a traffic mishap. The incident caused damage to the car registered to Priscilla Domingo and driven by Leandro Luis Domingo, both respondents herein. The driver of the vehicle registered in petitioner's name was found to be at fault. As a result, a complaint was filed against several persons including petitioner. After trial, the trial court found the petitioner liable and ordered him to pay the respondent actual, moral and exemplary damages plus appearance and attorney's fees. The Court of Appeals affirmed the trial court's decision but deleted the appearance and attorney's fees.

Issue
Whether the registered owner of a motor vehicle may be held liable for damages arising from a vehicular accident involving his

motor vehicle which was being operated by the employee of the vehicle's buyer without the latter's consent?

G.R. No. 144274. September 20, 2004.] NOSTRADAMUS VILLANUEVA, petitioner, vs. PRISCILLA R. DOMINGO and LEANDRO LUIS R. DOMINGO, respondents.

We have consistently ruled that the registered owner of any

vehicle is directly and primarily responsible to the public and third persons while it is being operated. The rationale behind such doctrine was explained way back in 1957 in Erezo vs. Jepte: The principle upon which this doctrine is based is that in dealing with vehicles registered under the Public Service Law, the public has the right to assume or presume that the registered owner is the actual owner thereof, for it would be difficult for the public to enforce the actions that they may have for injuries caused to them by the vehicles being negligently operated if the public should be required to prove who the actual owner is.

G.R. No. 144274. September 20, 2004.] NOSTRADAMUS VILLANUEVA, petitioner, vs. PRISCILLA R. DOMINGO and LEANDRO LUIS R. DOMINGO, respondents.

Whether the driver is authorized or not by the actual owner is irrelevant to determining the liability of the registered owner who the law holds primarily and directly responsible for any accident, injury or death caused by the operation of the vehicle in the streets and highways. To require the driver of the vehicle to be authorized by the actual owner before the registered owner can be held accountable is to defeat the very purpose why motor vehicle legislations are enacted in the first place.

'We believe that it is immaterial whether or not the driver was actually employed by the operator of record. It is even not necessary to prove who the actual owner of the vehicle and the employer of the driver is. Granting that, in this case, the father of the driver is the actual owner and that he is the actual employer, following the well-settled principle that the operator of record continues to be the operator of the vehicle in contemplation of law, as regards the public and third person, and as such is responsible for the consequences incident to its operation, we must hold and consider such owner-operator of record as the employer, in contemplation of law, of the driver. And, to give effect to this policy of law as enunciated in the above cited decisions of this Court, we must now extend the same and consider the actual operator and employer as the agent of the operator of record.'

G.R. No. L-34768. February 24, 1984. JAMES STOKES, as Attorney-in-Fact of Daniel Stephen Adolfson and DANIEL STEPHEN ADOLFSON, plaintiffs-appellees, vs. MALAYAN INSURANCE CO., INC., defendant-appellant.

AUTHORIZED DRIVER" CLAUSE, MEANING. Under the "authorized driver" clause, an authorized driver must not only be permitted to drive by the insured. It is also essential that he is permitted under the law and regulations to drive the motor vehicle and is not disqualified from so doing under any enactment or regulation. At the time of the accident, Stokes had been in the Philippines for more than 90 days. Hence, under the law, he could not drive a motor vehicle without a Philippine driver's license. He was therefore not an "authorized driver" under the terms of the insurance policy in question, and MALAYAN was right in denying the claim of the insured.

 Can an insurance company deny a claim based on a finding that the motor vehicle when it was carnapped was being driven by

an unauthorized driver ?

G.R. No. 96452. May 7, 1992.] PERLA COMPANIA DE SEGUROS, INC., petitioner, vs. THE COURT OF APPEALS, HERMINIO LIM and EVELYN LIM, respondents.

Where a car is admittedly, as in this case, unlawfully and wrongfully taken without the owner's consent or knowledge, such taking constitutes theft, and, therefore, it is the "THEFT" clause, and not the "AUTHORIZED DRIVER" clause, that should apply.

". . . Theft is an entirely different legal concept from that of accident. Theft is committed by a person with the intent to gain or, to put it in another way, with the concurrence of the doer's will. On the other hand, accident, although it may proceed or result from negligence, is the happening of an event without the concurrence of the will of the person by whose agency it was caused. (Bouvier's Law Dictionary, Vol. I, 1914 ed., p. 101).

LIFE INSURANCE

DISCUSSION OUTLINE

Legal Basis Definition Nature Scope Kinds Concept of Annuity Liability of Insurer in case of suicide Right to assign Notice of Transfer Measure of Indemnity

Legal Basis
Sections 179-183, Insurance Code

Definitions
SECTION 179. Life insurance is insurance on human lives and insurance appertaining thereto or connected therewith.

Definition
Life Insurance may be defined as insurance payable on the death of a person, or on his surviving a

specified period, or otherwise contingently on the continuance or cessation of life. which a party agrees to pay a given sum on the happening of a particular event contingent on the duration of human life, in consideration of the payment of a smaller sum immediately, or in periodical payments by the other party. (44 C.J.S. 484)

It has also been defined as a mutual agreement by

Nature of Life Insurance

(1.) Liability absolutely certain The ordinary life insurance contemplates the certain payment of a specified sum at an uncertain time.
(2.) Amount of insurance generally without limit. No limit as to the amount of insurance which may be legally be placed upon the life of any person.

Nature of Life Insurance

(3.) Life Policy is a valued policy. It is not a mere contract of indemnity, but it is a contract to pay the beneficiary a certain sum of money in the event of death provided that certain conditions are performed by the insured.

 Difference between Life Insurance and Accident Insurance Difference between Life Insurance and Fire, Marine Insurance

Life Insurance vs. Accident Insurance

Reference As to amount

Life Insurance No limit as to amount, except the insureds health and his capacity to pay the premiums; exception: in case life of debtor is insured.

Accident Insurance Limit is to the value of the property to be insured

As to legal basis
As to time of insurable interest

No need for any legal basis

Must exist only at the time of the perfection of the contract

There must be legal basis

Must exist at the time of perfection and the time of loss.

Difference Life Insurance and Marine and Fire

Life Insurance
Not a contract of indemnity It is a valued policy May be transferred or assigned to another person even without insurable interest Consent of insurer is not essential to the validity of the assignment of contract Insurable interest in the life or health of the insured need not exist after the insurance takes effect Insurable interest need not have any legal basis The contingency that is contemplated is a certain event, the only uncertainty being when it will take place The liability is certain No need to present prove financial loss A long term contract

Marine and Fire Insurance

Contracts of Indemnity May be open or valued Must have an insurable interest Consent, in the absence of waiver is essential Insurable interest must exist at the time when it takes effect and when the loss occurs Insurable interest must have legal basis Contingency insured may or may not take place

Liability is uncertain Submit proof May be cancelled by either party and is usually only for 1 year

KINDS OF INSURANCE POLICIES

(1.) Ordinary Life Policy (2.) Limited Payment Life Policy (3.) Term Insurance Policy (4.) Endowment Policy

ORDINARY LIFE POLICY

Insured is required to pay a certain fixed premium annually or at more frequent intervals throughout life and the beneficiary

is entitled to receive payment under the policy only after the death of the insured
Also known as whole life, regular life, or straight life policy.

Limited Payment Life Policy

Payable only upon death of the insured
Premium is payable only during a limited

period

Term Insurance Policy

Coverage only if the insured dies during a limited period

Endowment Policy
Insurer binds himself to pay a fixed sum to the insured if he survives for a specified period, or if he dies within such period, to

some other person indicated.

SCOPE OF LIFE INSURANCE

(1.) Life Insurance
(a.) Actual death (b.) Living Death (c.) Retirement Death (2.) Health Insurance When health insurance is written by life insurers, injury or illness are also viewed as casualties.

CONTRACT OF LIFE ANNUITY

Refer to Article 2021, Civil Code
By the aleatory contract of life annuity, the

debtor binds himself to pay an annual pension or income during the life of one or more determinate persons in consideration of a capital consisting of money or other property, whose ownership is transferred to him at once with the burden of the income.

Difference between Life Insurance and Life Annuity

Life Insurance
The purchaser of a life insurance expects his insurer to pay his beneficiary a specified sum upon his death.

Life Annuity
The purchaser of a life annuity expects his insurer to pay him a periodic income as long as he lives.

Insurance Code on Life Annuity

Section 180 (2nd paragraph)

Every contract or pledge for the payment of endowments or annuities shall be considered a life insurance contract for purpose of this Code.

Rule on suicide
Sec. 180-A. The insurer in a life insurance contract shall be liable in case of suicides only when it is committed after the policy

has been in force for a period of two years from the date of its issue or of its last reinstatement, unless the policy provides a shorter period: Provided, however, That suicide committed in the state of insanity shall be compensable regardless of the date of commission.

Insurer is liable for suicide in the following cases:

1. Suicide is committed after the policy has been in force for a period of two (2) years from the date of its issue or of its last reinstatement; 2. Insurance policy provides for a shorter period instead of two years; and
3. Suicide is committed in the state of insanity

regardless of the date of commission, unless suicide is an excepted risk.

When is insurer not liable in cases of suicide

1.) suicide is not by reason of insanity and is
committed within the two year period; 2.) suicide is by reason of insanity but is not among the risks assumed by the insurer regardless of the date of commission; 3.) insurer can show that the policy was obtained with the intention to commit suicide even in the absence of any suicide exclusion in the policy.

Right of insured to assign life insurance policy

Sec. 181. A policy of insurance upon life or health may pass by transfer, will or succession to any person, whether he has

an insurable interest or not, and such person may recover upon it whatever the insured might have recovered.

Right of insured to assign life insurance policy

All life insurance policies are declared by law to be assignable regardless of whether the assignee has an insurable interest in the life of the insured or not.

Notice of transfer to insurer

Sec. 182. Notice to an insurer of a transfer or bequest thereof is not necessary to preserve the validity of a policy of insurance upon life or health, unless thereby expressly required.

Measure of indemnity under life insurance policy

Sec. 183. Unless the interest of a person insured is susceptible of exact pecuniary measurement, the measure of indemnity under a policy of insurance upon life or health is the sum fixed in the policy. - Valued policy

MARINE INSURANCE

Discussion Outline
1. Insurable Interest
2. Concealment 3. Implied Warranties 4. Deviation 5. Loss 6. Abandonment

Insurable Interest
Ship Owner
Cargo Owner Charterer Owner/Debtor Creditor/Lender

Insurable Interest
Ship Owner - Over the vessel to the extent of its value, provided that if chartered, the recovery is

only up to the amount not recoverable from the charterer - He also has insurable interest on the expected freightage (section 103) - No insurable interest if he will be compensated by charterer for the value of the vessel, in case of loss.

Insurable Interest
Cargo Owner

- Over the cargo and expected profits (section 105)

Insurable Interest
Charterer

- Over the amount he is liable to the shipowner, if the ship is lost or damaged during the voyage (section 106)

Insurable Interest
Owner/Debtor (where the vessel is hypothecated by bottomry or respondentia)
- Difference between the value of the vessel or good and the amount of loan (section 101) - If the vessel is hypothecated by bottomry, only

the excess is insurable, since a loan on bottomry partakes of the nature of an insurance coverage to the extent of a loan accomodation. The same rule would apply to the hypothecation of the cargo by respondentia.

Insurable Interest
Creditor/Lender

- Amount of the Loan

 WHAT KIND OF RISK CAN BE INSURED AGAINST ?

RISK INSURED AGAINST

Only Perils of the Sea, unless in case of an All Risk Policy where perils of the ship are covered as well.

 DISTINCTION BETWEEN PERIL OF THE SEA AND PERIL OF THE SHIP

PERILS OF THE SEA vs. PERILS OF THE SHIP

PERILS OF THE SEA Includes only those casualties due to the:
1. Unusual violence 2. Extraordinary action of the wind and wave 3. Other extraordinary causes connected with navigation

PERILS OF THE SHIP A loss which in the ordinary course of events, results from the:
1. Natural and inevitable action of the sea; 2. Ordinary wear and tear of the ship 3. Negligent failure of the ships owner to provide the vessel with the proper equipment to convey the cargo under ordinary conditions

CONCEALMENT
Sections 107 110, Insurance Code

 MATTERS ALTHOUGH CONCEALED WILL NOT VITIATE THE CONTRACT EXCEPT WHEN THEY CAUSED THE LOSS.
Section 110 of the Insurance Code

Section 110
1. National Character of the Insured
2. Liability of the thing insured to capture or

detention 3. Liability to seizure from breach of foreign laws of trade 4. Want of necessary documents 5. Use of false or simulated papers

 DISTINCTION ON CONCEALMENT IN

MARINE INSURANCE AND OTHER INSURANCE

ITEM
Information of 3rd persons

MARINE INSURANCE
The information or the belief or expection of 3rd persons in reference to a material fact is material and must be concealed.

OTHER PROPERTY INSURANCE

The information or belief of a 3rd party is not material and need not be communicated unless it proceeds from an agent of the insured whose duty is to give information

Effect of concealment

The concealment of any fact in relation to any of the matters stated in section 110 does not vitiate the entire contract but merely exonerates the insurer from a risk resulting from the fact concealed

Concealment of any material fact will vitiate the entire contract, whether the loss results from the risk concealed

 IMPLIED WARRANTIES

IMPLIED WARRANTIES
1. Seaworthiness of the ship
2. Against improper deviation 3. Against illegal venture 4. Warranty of neutrality 5. Presence of insurable interest

IMPLIED WARRANTIES
Seaworthiness

- ships fitness to perform the service and to encounter the ordinary perils of the voyage, contemplated by the parties to the policy.

Implied Warranties
General Rule on Seaworthiness

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.

Implied Warranties
Ex ceptions to the General Rule on seaworthiness :
1. In case of Time Policy , the ship must be seaworthy

at the commencement of every voyage she may undertake during the period of the coverage; 2. In the case of Cargo Policy, each vessel upon which the cargo is shipped or transhipped must be seaworthy at the commencement of each particular voyage; 3. In the case of Voyage Policy, contemplating a voyage at different stages, the ship must be seaworthy at the commencement of each stage of the voyage

DEVIATION
Definition
Instances Kinds of Deviation and its effect

Deviation
Departure from the course of the voyage insured, or an unreasonable delay in pursuing the voyage or, the commencement of an

entirely diffrerent voyage. (section 123)

Instances of Deviation
1.Deviation from the agreed voyage; 2. Departure of vessel from the course of the sailing fixed by mercantile usage; 3. Departure of vessel from the most natural, direct and advantegous route if not fixed by mercantile usage 4. Unreasonable delay in pursuing the voyage; 5. Commencement of an entirely different voyage. (sections 121-123, Insurance Code)

KINDS OF DEVIATION AND ITS EFFECT

1. PROPER
2. IMPROPER

PROPER DEVIATION
When caused by circumstances outside the control of the ship captain or ship owner When necessary to comply with a warranty or to avoid a peril (REAL PERIL) When made in good faith to avoid a peril (NONEXISTING/ASSUMED PERIL) When made in good faith to save human life or to relieve another vessel in distress (section 124)
Effect - In case of loss, the insurer is liable.

IMPROPER DEVIATION
Every deviation not specified in Section 124
Effect In case of loss or damage subsequent

to an improper deviation, the insurer is not liable. (section 124)

LOSS
Rules in case of Loss
A. Total

1. Actual 2. Constructive B. Partial that which is not total (section 128)

LOSS
A. Total

1. Actual 1.1 Total Destruction; 1.2 Irretrievable loss by sinking or being broken up; 1.3 Damage rendering the thing valueless to the owner for the purpose for which he held it; or 1.4 Other event which effectively deprives the owner of the possession, at the port of destination, of the thing insured.

LOSS
A. Total

2. Constructive 2.1 Actual loss of more than of the value of the object; 2.2 Damage reducing, by more than of the value of the vessel and of the cargo; and 2.3 Expense of the transshipment exceeds of the value of the cargo

IN CASE OF CONSTRUCTIVE TOTAL LOSS, INSUREDs REMEDIES ARE :

1. Abandon the goods or vessel to the insurer and claim for whole insured value; (section 139)
2. Without abandoning the vessel, claim for

partial actual loss (section 155)

ABANDONMENT
Definition
Requistes for validity

Abandonment
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. (section 138)

Abandonment
Requisites for validity 1. There must be actual relinquishment by the 2.

3.
4. 5.

person insured of his interest in the thing insured (section 138) There must be constructive total loss (section 139) The abandonment must be neither partual nor conditional (section 140) It must be made within a reasonable time after receipt of reliable information of the loss (section 141) It must be factual (section 142)

Abandonment
6. It must be made by giving notice thereof to the insurer which may be done orally or in writing (section 143)
7. The notice of abandonment must be explicit and must specify the particular cause of the abandonment.

Effects of Abandonment
Transfer of Interest
Transfer of Agency

-End-