Atty. DARWIN R.

BAWAR

INSURANCE LAWS
 Insurance is like marriage. You pay,
pay, pay, and you never get anything
back.
Law on Insurance, as
amended by R.A.
10607 of 2012
Governing Laws

Insurance Code (P.D. 1460, as

amended by R.A. 10607)
New Civil Code, Article 2011 and other
articles
Family Code (e.g. Article 739)
Other special laws
A. The concept of
Insurance Contract

A contract of insurance is an
agreement whereby one undertakes, for
consideration, to indemnify another
against loss, damage or liability arising
from an unknown or contingent event.
A contract of insurance, to be binding from
the date of application, must have been a
completed contract (Perez vs. CA, GR No.
112329, January 28, 2000). Thus, it must
have all the essential elements of a valid
contract as under the New Civil Code:
1. Subject matter in which the insured has an
insurable interest;
2. Consideration, which is the premium paid by
the insured, for the insurers promise to
indemnify the former upon the happening of
the event or peril insured against;
3. Meeting of minds of the parties.
 Three types of Insurance Contracts
1. Policy the written instrument in which a
contract of insurance is set forth (Sec. 49, IC);
it is the formal insurance contract.
2. Binding Receipt Merely an
acknowledgment on behalf of the insurer that
its branch office had received from applicant
the insurance premium and had accepted the
application subject to processing by the head
office (Great Pacific Life v. CA, No. L-31845,
30 April 1979) In life insurance, a "binding
slip" or "binding receipt" does not insure by
itself (De Lim vs. Sun Life Assurance
Company of Canada, 41 Phil. 264)
3. Cover Note It is a written
acknowledgment whereby the
insurance company agrees to
temporarily insure the applicant before
the issuance of the policy; it is good
only for 60 days pending the issuance
of a regular policy. (Sec. 52, IC)
 Doing or transacting an
Insurance Business
NOTE: In the application of the provisions
of the Insurance Code, the fact that no
profit is derived from the making of the
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.
Q: Philippine Health Care Providers, Inc. is
engaged in operating a prepaid group practice
health care delivery system or a health
maintenance organization (HMO) to take care of
the sick and disabled persons enrolled in the
health care plan. Individuals enrolled in its
health care programs pay an annual
membership fee and are entitled to various
medical services provided by its duly licensed
physicians, specialists and other professional
technical staff participating in the group
practice health delivery system at a hospital or
clinic operated or accredited by it. Is Philippine
Health Care Providers, Inc. a health
maintenance organization or an insurance
company?
Answer: HMOs are not engaged in insurance
business.

Philippine Health Care Providers appears to

provide insurance-type benefits to its members (with
respect to its curative medical services), but these are
incidental to the principal activity of providing them
medical care. The "insurance-like" aspect of Philippine
Health Care Providers business is miniscule compared
to its noninsurance activities. Therefore, since it
substantially provides health care services rather than
insurance services, it cannot be considered as being in
the insurance business (Philippine Health Care
Providers, Inc., v. Commissioner Of Internal
Revenue, G.R. No. 167330, 18 September 2009).
Principal Object & Purpose
Test
HMOs are not engaged in insurance business. One test
that they have applied is whether the assumption of risk
and indemnification of loss (which are elements of an
insurance business) are the principal object and purpose
of the organization or whether they are merely incidental
to its business. If these are the principal objectives,
the business is that of insurance. But if they are
merely incidental and service is the principal purpose,
then the business is not insurance. (Philippine Health
Care Providers, Inc., v. Commissioner Of Internal
Revenue, G.R. No. 167330, 18 September 2009).
 Absence or presence of assumption of
risk is not the sole test to be applied in
determining its status. The question,
more broadly, is whether, looking at the
plan of operation as a whole, service
rather than indemnity is its principal object
and purpose. (Philippine Health Care
Providers, Inc., v. Commissioner Of
Internal Revenue, G.R. No. 167330, 18
September 2009).
 The main difference between an HMO and an
insurance company is that HMOs undertake
to provide or arrange for the provision of
medical services through participating
physicians while insurance companies simply
undertake to indemnify the insured for medial
expenses incurred up to a pre-agreed limit.
(Philippine Health Care Providers, Inc., v.
Commissioner Of Internal Revenue, G.R.
No. 167330, 18 September 2009).
B. Elements of Insurance
1. The insured possess insurable interest
capable of pecuniary estimation.
2. The insured is subject to a risk or loss
upon the happening of the designated peril.
3. The insurer assumes the risk of loss.
4. The assumption of risk is part of a general
scheme to distribute the actual losses
among a large group bearing similar risk.
5. Insured pays a premium.
 It does not necessarily follow however,
that the contract containing all the four
elements mentioned above would be an
insurance contract. The primary
purpose of the parties in making the
contract may negate the existence of an
insurance contract. (Philippine Health
Care Providers, Inc., v. Commissioner
Of Internal Revenue, G.R. No. 167330,
18 September 2009).
Business Risk v. Actuarial Risk
An HMO undertakes a business risk when it
offers to provide health services: the risk that it
might fail to earn a reasonable return on its
investment. But it is not he risk of the type peculiar
only to insurance companies. Insurance risk, also
known as actuarial risk, is the risk that the cost of
insurance claims might be higher than the
premiums paid. The amount of premium is
calculated on the basis of assumptions made
relative to the insured. (Philippine Health Care
Providers, Inc., v. Commissioner Of Internal
Revenue, G.R. No. 167330, 18 September 2009).
 Insurance an ingenious modern
game of chance in which the player is
permitted to enjoy the comfortable
conviction that he is beating the man
who keeps the table.
- Ambrose Bierce
Assumption of Loss - Causal
Relation
An insured building was totally razed by
fire brought about by an explosion.
Insurance either against fire or
explosion;
Insurance against fire, with explosion as
excepted peril;
Insurance against explosion, with fire as
excepted peril (Vitug, 262-263)
C. Nature and characteristics of a Contract
of Insurance

Aleatory
Bilateral
Contract of Indemnity
Onerous
Formal
Not a WAGERING contract
synallagmatic
Concept of Contract of Adhesion (Fine Print Rule)

While generally, stipulations in a contract come about

after deliberate drafting by the parties thereto, there are
certain contracts almost all the provisions of which have
been drafted only by one party, usually a corporation.
Such contracts are called contracts of adhesion,
because the only participation of the other party is the
signing of his signature or his 'adhesion' thereto.
Insurance contracts fall into this category (Sweet Lines,
Inc. vs. Teves, GR No. L-37750, 19 May 1978). An
illustration of a contract of adhesion is when the insurer
used fine print letters in conditions stated in a contract
of insurance.
Rules in the construction or
interpretation of insurance
contracts
By reason of the exclusive control of the insurance
company over the terms and phraseology of the
contract, the ambiguity must be held strictly against
the insurer and liberally in favor of the insured (Qua
Chee Gan vs. Law Union and Rock Insurance, Co.
Ltd., No. L-4611, 17 December 1955). However, if
the terms, which the parties themselves have used,
are clear and unambiguous, they must be taken
and understood in their plain, ordinary and popular
sense (Sun Life Office, Ltd. vs. CA, 195 SCRA
193).
Insurance as a Uberrimae
Fidei contract
The contract of insurance is one of perfect good faith
(uberrimae fidei) not for the insured alone, but equally so for
the insurer; in fact, it is more so for the latter, since its
dominant bargaining position carries with it stricter
responsibility (Qua Chee Gan vs. Law Union and Rock
Insurance, Co. Ltd., No. L-4611, 17 December 1955). It
requires the parties to the contract to communicate that
which a party knows and ought to communicate, that is, the
duty to disclose in good faith all facts material to the
contract. This doctrine is essential on account of the fact
that the full circumstances of the subject matter of insurance
are, as a rule, known to the insured only and the insurer, in
deciding whether or not to accept a risk, must rely primarily
upon the information supplied to him by the applicant.
Parties to the contract of
insurance

1. Insurer

2. Insured

3. Assured/Beneficiary
Insurer
Every corporation, partnership, or
association duly authorized (by the
Insurance Commission) to transact
insurance business may be an insurer
(Sec. 6, Insurance Code, as amended by
RA 10607).
The term insurer no longer includes individuals under RA
10607. Hence, an individual natural person is no longer allowed
to be an insurer. However, it includes the following:

Professional reinsurer as any person, partnership, association or

corporation that transacts solely and exclusively reinsurance business
in the Philippines.
Mutual Insurance Companies are also included. The law also provides
for the procedure for mutualization of domestic stock life insurance
companies. A new provision on RA 10607 is on demutualization or
conversion of mutual insurance companies into stock corporations
(Sec. 280, Insurance Code, as amended).
Cooperatives are now expressly included in the term insurer or
insurance company. However, the cooperative must:
Have sufficient capital and asset required under the Insurance Code
and the pertinent regulations issued by the Commission (Sec. 192,
Insurance Code, as amended).
Have a certificate of authority to operate issued by the Commission
which should be renewed every year (Sec. 193, Insurance Code, as
amended) (Sundiang & Aquino, 2014).
Insured
Anyone except a public enemy may be
insured (Sec. 7).
A public enemy is a nation at war with
the Philippines and every citizen or
subject of such nation. It does not
include mobs, thieves or robbers
(Bouviers Law Dictionary).
Beneficiary
In his life insurance, Loreto designated Eva, his
concubine, and their illegitimate children as
beneficiaries. Loreto was killed with Eva as suspect.
Vicenta, the legitimate wife of Loreto, and their
legitimate children contend that: Eva is disqualified to
receive any proceeds from the insurance policies; the
illegitimate children of Loreto - Odessa, Karl Brian, and
Trisha Angelie - were entitled only to one-half of the
legitime of the legitimate children, thus, the proceeds
released to Odessa and those to be released to Karl
Brian and Trisha Angelie were inofficious and should be
reduced; and they could not be deprived of their
legitimes, which should be satisfied first.
 The revocation of Eva as a beneficiary in one policy and her
disqualification as such in another are of no moment
considering that the designation of the illegitimate children as
beneficiaries in Loretos insurance policies remains valid.
Because no legal proscription exists in naming as
beneficiaries the children of illicit relationships by the
insured, the shares of Eva in the insurance proceeds must be
awarded to the said illegitimate children, the designated
beneficiaries, to the exclusion of petitioners. It is only in cases
where the insured has not designated any beneficiary, or when
the designated beneficiary is disqualified by law to receive the
proceeds, that the insurance policy proceeds shall redound to
the benefit of the estate of the insured (Heirs of Loreto
Maramag v. Maramag, G.R. No. 181132, 05 June 2009).
Subject matter of a contract
of insurance

Anything having an appreciable

pecuniary value, which is subject to loss
or deterioration or of which one may be
deprived so that his pecuniary interest is
or may be prejudiced.
Events covered by Insurance

It is any contingent or unknown event,

whether past or future, which may damnify
a person having an insurable interest, or
create a liability against him subject to the
provisions of Chapter I of the Insurance
Code (Sec. 3).
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
authorized (Sec. 4).
D. Classes
1. Marine
2. Fire
3. Casualty
4. Suretyship
5. Life
6. Compulsory Motor Vehicle Liability
Insurance
D.1. Marine Insurance
1. Ocean marine insurance covers primarily sea
perils of ships and cargoes. Scope:
a. Goods or cargoes
b. Earnings such as freight, passage money
c. Liability incurred by reason of maritime
perils
d. Ships or hulls

NOTE: The insurer is liable only for such losses or

damages proximately caused by the perils insured
against (De Leon, pg. 312.).
2. Inland marine insurance Covers
primarily the land or over the land
transportation perils of property shipped
by railroads, motor trucks, airplanes,
and other means of transportation. It
also covers risks of lake, river, or the
other inland waterway transportation
and other waterborne perils outside of
those risks that fall definitely within the
ocean marine category.
 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
ship owner or not (Roque v. IAC, No. L-
66935, 11 November 1985).
 Is non-presentation of the insurance
contract fatal to the claim of the
insurer/subrogee for the proceeds of
insurance?
As a general rule, the marine insurance policy needs to be
presented in evidence before the insurer may recover the value
of the lost/damaged cargo in the exercise of its subrogatory
right since it is the legal basis of the insurers right to
subrogation. Nevertheless, a marine insurance policy is
dispensable evidence in reimbursement claims instituted by the
insurer especially when a subrogation receipt has been
executed between the insured and the insurer.

Thus, where the Certificate of Insurance and the Release of

Claim presented as evidence sufficiently established the
insurers right to collect reimbursement as the subrogee of the
consignee. To strictly require the presentation of the insurance
contract will run counter to the principle of equity upon which
the doctrine of subrogation is premised. (Asian Terminals, Inc.
v. First Lepanto-Taisho Insurance Corporation, G.R. No.
185964, 16 June 2014)
Risk insured against in marine
insurance

In the usual form of a marine policy, the risks insured

against are only perils of the sea.

NOTE: The insured is bound to prove that the cause of

the loss is a peril of the sea.

Exceptions: When the insurance is an all risk policy

and thus covers even perils of the ship.

Exceptions to the Exception: When the risks are

expressly excepted by the all risk policy.
 Perils of the sea or perils of
navigation includes only those
casualties due to:

1. Unusual violence or extraordinary

action of wind and wave, or
2. Other extraordinary causes
connected with Navigation (De Leon,
2010).
 Perils of the ship is 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 proper equipment to
convey the cargo under ordinary conditions.
 Question: Remington Industrial Sales Corporation
(Remington) shipped on board a vessel seamless
steel pipes from Japan to the Philippines and
insured the shipment with Cathay Insurance Co.
(Cathay). Upon receipt of said shipment, losses
and damages were discovered. Upon demand
under the insurance contract, it was denied by
Cathay. Remington contends that the rust on the
seamless steel pipes is not an inherent vice of the
shipment, thus the same is considered as a peril
of the sea. Cathay, on the other hand claims that
the loss was occasioned by an inherent defect or
vice in the insured article. Is the rusting of the
seamless steel pipes considered as a peril of the
sea?
 Answer: Yes. The rusting of steel pipes in the
course of a voyage is a peril of the sea in
view of the toll on the cargo of wind, water, and
salt conditions. Moreover, it is a cardinal rule in
the interpretation of contracts that any
ambiguity therein should be construed against
the maker/issuer/drafter thereof, namely, the
insurer. Besides the precise purpose of
insuring cargo during a voyage would be
rendered fruitless (Cathay Insurance Co., v.
CA, et al., No. L-76145, 30 June 1987).
 All risks marine insurance policy

It is that which insures against all causes of conceivable loss or damage.

Exceptions:
1. As otherwise excluded in the policy; or
2. Due to fraud or intentional misconduct on the part of the insured
(Choa Tiek Seng v. CA, G.R. No. 84507, 15 March 1990).

The insured under an "all risks insurance policy" 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 (Filipino Merchants Insurance Co. vs. CA, 179 SCRA 638).
 Extent of the insurable interest

1. Ship owner
a. Over the value of the vessel, even when it has
been chartered by one who covenants to pay him its
value in case of loss. In such a case, the insurer
shall be liable for only that part of the loss which the
insured cannot recover from the charterer (Sec. 102,
Insurance Code).
b. If hypothecated by a bottomry loan, the insurable
interest is only the excess of the value of the vessel
over the amount secured by bottomry (Sec. 103,
Insurance Code).
c. He also has an insurable interest on expected
freightage (Sec. 104, Insurance Code).
 Extent of the insurable interest

2. Cargo owner over the cargo and expected

profits (Sec. 107, Insurance Code).
3. Charterer
a. Over the vessel, to the extent of the amount
he is liable to the shipowner, if the ship is lost or
damaged during the voyage (Sec. 108,
Insurance Code).
b. Over his expected profits or freightage if he
accepts cargoes from other persons for a fee.
c. Over his own cargo or his clients cargo.
4. Creditor/lender over the amount of the loan.
MARINE INSURANCE
The concealment of any fact in relation to any of the
following does not vitiate the entire contract but merely
exonerates the insurer from a risk resulting from the fact
concealed:

1. National character of the insured;

2. The liability of the thing insured to capture and
detention;
3. The liability to seizure from breach of foreign laws of
trade;
4. The want of necessary documents; and
5. The use of false and simulated papers (Sec. 112,
Insurance Code).
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.
Concealment of any material fact will
vitiate the entire contract, whether or not
the loss results from the risk concealed.
Implied warranties in marine insurance

1. Seaworthiness (Sec. 115 to 121).

2. Non-engagement from Illegal venture.
3. Warranty of Neutrality The ship will carry the requisite
documents too show the nationality or neutrality of the ship
or its cargo and will not carry any documents that cast
reasonable suspicion on it if the nationality or neutrality of
the ship or its cargo is expressly warranted (Sec. 122).
4. Non-deviation from the Agreed voyage (Secs. 125, 126,
127).
5. Presence of Insurable interest.
 Kinds of losses

1. Total, which may be:

a. Actual total loss
b. Constructive total loss
2. Partial
 Actual total loss

The following constitutes actual total loss:

1. A total destruction of the thing insured;
2. The irretrievable loss of the thing by
sinking, or by being broken up;
3. Any damage to the thing which renders it
valueless to the owner for the purpose for
which he held it; or
4. Any other event which effectively deprives
the owner of the possession, at the port of
destination, of the thing insured (Sec. 132)
 Complete physical destruction is not
essential to constitute actual total loss.
An insurance confined in terms to an
actual loss does not cover a constructive
total loss, but covers any loss, which
necessarily results in depriving the
insured of the possession, at the port of
destination, of the entire thing insured
(Sec. 139).
Constructive total loss:

1. More than thereof in value is actually lost, or would have

to be expended to recover it from the peril;
2. The thing insured is injured to such extent as to reduce its
value more than ;
3. The thing insured is a ship, and the contemplated voyage
cannot be lawfully performed without incurring either an expense
to the insured of more than the value of the thing abandoned
or a risk which a prudent man would not take under the
circumstances; or
4. The thing insured, being cargo or freightage, and the
voyage cannot be performed, nor another ship procured by the
master, within a reasonable time and with reasonable diligence,
to forward the cargo, without incurring the like expense or risk
mentioned in no. (3). But freightage cannot in any case be
abandoned (and thus declared constructively lost) unless the
ship is also abandoned (Sec. 141).
 What is barratry in marine insurance?
(2010 Bar Question)
Barratry, is any willful misconduct on
the part of the master or crew in
pursuance of some unlawful or
fraudulent purpose without the consent
of the owner and to the prejudice of the
interest of the owner. (Roque v.
Intermediate Appellate Court, 139
SCRA 596[1985])
D.2. Fire Insurance

Love is the only kind of fire which is

never covered by insurance.
D.2. Fire Insurance

It is a contract of indemnity by which the insurer, for a

consideration, agrees to indemnify the insured against
loss of or damage by fire, lightning, windstorm, tornado or
earthquake and other allied risks, when such risks are
covered by extension to fire insurance policies or under
separate policies (Sec. 169).

NOTE: The liability of an insurer is to pay for direct loss

only. The insurer may be liable to pay for consequential or
indirect losses if covered by extension to such fire policies
or insured under separate policy (De Leon, 2010).
 Reason or importance for the distinction between
marine and fire insurance

1. In marine insurance, the rules on constructive total

loss (Secs. 133, 141) and abandonment (Sec. 140) apply
but not in fire insurance;

2. In case of partial loss of a thing insured for less than

its actual value, the insured in a marine policy is a co-
insurer of the uninsured portion (Sec. 159), while the
insured may only become a co-insurer in fire insurance if
expressly agreed upon by the parties (Sec. 174) (De Leon,
2010).
 Question: United Merchants Corporation (UMC)s General
Manager Alfredo Tan insured UMCs stocks in trade of
Christmas lights against fire with Country Bankers
Insurance Corporation (CBIC). Unfortunately, a fire gutted
the warehouse rented by UMC. When UMC demanded for
payment under the insurance policy, CBIC rejected its
claim due to breach of Condition No. 15 of the policy
which states that if the claim be in any respect fraudulent,
or if any false declaration be made or used in support
thereof, all the benefits under the policy shall be forfeited.
CBIC contends that because arson and fraud attended the
claim, UMC is not entitled to recover under Condition No.
15 of the insurance policy. Is UMC entitled to claim from
CBIC the full coverage of its fire insurance policy?
 Answer: No. The Insurance Code provides that
a policy may declare that a violation of specified
provisions thereof shall avoid it. Thus, in fire
insurance policies, which contain provisions such
as Condition No. 15 of the insurance policy, a
fraudulent discrepancy between the actual loss
and that claimed in the proof of loss voids the
insurance policy. Mere filing of such a claim will
exonerate the insurer (United Merchants
Corporation v. Country Bankers Insurance
Corporation, G.R. No. 198588, 11 July 2012).
 Question: On 13 May 2014, Freedom Insurance Company
(Freedom) issued Fire Insurance Policy to BCP Corporation
for the latters machineries and equipment located at Tower
1 Building located in Concepcion, Tarlac which was used as
a factory for automotive parts. The insurance, which was
for 10 million and effective for a period of one year, was
procured by BCP Corporation for Rizal Commercial Banking
Corporation (RCBC), the mortgagee of the insured
machineries and equipment. On 12 October 2014, the
insured machineries were totally lost by fire. BCP
Corporation filed a fire insurance claim with Freedom which
denied the claim upon the ground that at the time of loss,
the insured machineries and equipment were transferred by
BCP Corporation to a location different from that indicated
in the policy. The insured machineries were transferred
from the Tower 1 Building to the Tower 2 Building also
found in Concepcion, Tarlac which was used as a
warehouse for storing old and unused machineries of the
corporation. Was the refusal of Freedom justified?
 Yes. The policy stipulated that the insured
properties were located at the Tower1 Building but BCP
Corporation transferred the machineries without the
consent of Freedom. The alteration of the location
increased the risk of loss. The transfer affected
Freedoms ability to control the risk by guarding against
the risk brought about by the change in condition,
specifically the change in the location of the risk. Tower
2 Building was not the location stipulated in the policy.
There being an unconsented removal, the transfer was
at BCPs own risk and it must suffer the consequences
of the fire (Malayan Insurance Company, Inc. v. PAP
Co., Ltd. G.R. No. 200784, 7 August 2013).
 Co-insurance clause in fire policies

The co-insurance clause is a clause requiring the insured

to maintain insurance to an amount equal to the value or
specified percentage of the value of the insured property
under penalty of becoming co-insurer to the extent of such
deficiency. This is to prevent the property owners from
taking out such small amount of insurance, and thereby
reducing the premium payments and thereby increasing
the rates of premium for all (De Leon, 2010).

NOTE: A co-insurance cannot exist in fire insurance if

there is no stipulation to that effect.
D.3. Casualty
Insurance
It is an insurance covering loss or
liability arising from accident or mishap,
excluding certain types of loss which by
law or custom are considered as falling
exclusively within the scope of other
types of insurance such as fire or marine
(Sec. 176).
Divisions of Casualty Insurance

1. Accident or health insurance

Insurance against specified perils which
may affect the person and/or property of
the insured. (e.g. personal accident,
robbery/theft insurance)
2. Third party liability insurance (TPL)
Insurance against specified perils which
may give rise to liability on the part of the
insured of claims for injuries or damage to
property of others.
 Rules in accident insurance

1. For death or injury to be covered by the

policy, such should not be the natural or
probable result of the insureds voluntary
act, or if something unforeseen occurs in
the doing of the act which produces the
injury, which may result to death (Dela
Cruz v. Capital Insurance & Surety Co.,
No. L-21574, 30 June 1966).
2. Suicide and willful exposure to needless
peril are in pari materia because they
both signify a disregard for ones life.
Voluntary exposure to a known danger
is generally held to negate the
accidental character of whatever
followed from the known danger (Sun
Insurance Office Ltd. v. CA, G.R. No.
92383, 17 July 1992).
3. The insureds beneficiary has the
burden of proof in demonstrating that
the cause of death is due to the covered
peril. Once that fact is established, the
burden shifts to the insurer to show any
excepted peril that may have been
stipulated by the parties (Vda. De
Gabriel v. CA, 264 SCRA 137 [1996]).
Accidental & Accidental Means
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.
Accidental & Accidental Means
It is argued that to be considered within the protection of the
policy, what is required to be accidental is the means that
caused or brought the death and not the death itself. The
tendency of court decisions in the United States in recent years
is to eliminate the fine distinction between the terms "accidental"
and "accidental means" and to consider them as legally
synonymous. While the participation of the insured in the boxing
contest is voluntary, the injury was sustained when he slid,
giving occasion to the infliction by his opponent of the blow that
threw him to the ropes of the ring. Without this unfortunate
incident, that is, the unintentional slipping of the deceased,
perhaps he could not have received that blow in the head and
would not have died. (Dela Cruz v. Capital Insurance & Surety
Co., No. L-21574, 30 June 1966)
Question: Sun Insurance Co. issued to Felix a personal accident
policy having this provision: the company shall not be liable in
respect of bodily injury consequent upon the insured person who
willfully exposes himself to needless peril except in an attempt to
save human life". Felix designated his wife, Nerissa as beneficiary.

One evening, Felix, while playing with his hand gun, suddenly stood
in front of his secretary, Pilar, and pointed the gun at her. Startled, she
pushed the gun aside and said that it may be loaded. Thus, Felix, to
assure her that it was not loaded, pointed it at his temple. The next
moment, there was an explosion and Felix slumped to the floor
lifeless.

Nerissa, then claimed the proceeds from Sun Insurance, but the latter
rejected her claim on the ground that the death of Felix was not
accidental. Nerissa sued the insurer. Will Nerissas claim prosper?
 Answer: Nerissa can recover the proceeds of the policy
from the insurer. The death of the insured was not due to
suicide or willful exposure to needless peril which are
excepted risks. The insureds act was purely an act of
negligence which is covered by the policy and for which
the insured got the insurance for his protection. In fact, he
removed the magazine from the gun and when he pointed
the gun to his temple he did so because he thought that it
was safe for him to do so. He did so to assure his
secretary that the gun was harmless. There is none in the
policy that would relieve the insurer of liability for the
death of the insured since the death was an accident (Sun
Insurance v. CA, G.R. No. 92383, 17 July 1992).
D.4. Surety
Contract of suretyship

It is an agreement whereby a party called the

surety guarantees the performance by another
party called the principal or obligor of an
obligation or undertaking in favor of a third party
called the obligee. It includes official
recognizances, stipulations bonds or
undertakings issued by any company by virtue
and under the provisions of Act No. 536, as
amended by Act No. 2206 (Sec. 177).
 May a surety be held liable to the
creditor in the absence of a written
contract with the principal?

NOTE: This was an issue of first

impression.
Question: Fumitechniks Corporation, represented by Ma. Lourdes Apostol,
had applied for and was issued a surety bond by First Lepanto-Taisho
Insurance Corporation (First Lepanto-Taisho) for the amount of
P15,700,000.00. As stated in the attached rider, the bond was in compliance
with the requirement for the grant of a credit line with the Chevron
Philippines, Inc. (Chevron) to guarantee payment of the cost of fuel
products withdrawn within the stipulated time in accordance with the
terms and conditions of agreement between Chevron and Fumitechniks.
When Fumitechniks defaulted on its obligation, Chevron notified First
Lepanto-Taisho of Fumitechniks unpaid purchases. First Lepanto-Taisho
thereafter demanded to Fumitechniks the submission of a copy of the
agreement secured by the bond, together with copies of documents such
as delivery receipts. Fumitechniks, however, denied that it executed such
an agreement with Chevron, thus no copy of such agreement could be
submitted. Because of this, Chevron Philippines, Inc. sued First Lepanto-
Taisho for the payment of unpaid oil and petroleum purchases made by
Fumitechniks. Is the surety liable to the creditor in absence of a written
contract with the principal?
Answer: No. Section 176 of the Insurance Code is clear that a
surety contract should be read and interpreted together with the
contract entered into between the creditor and the principal. A
surety contract is merely a collateral one, its basis is the principal
contract or undertaking which it secures. Necessarily, the
stipulations in such principal agreement must at least be
communicated or made known to the surety. Having accepted the
bond, Chevron as creditor must be held bound by the recital in the
surety bond that the terms and conditions of its distributorship
contract be reduced in writing or at the very least communicated in
writing to the surety. Such non-compliance by the Chevron
impacts not on the validity or legality of the surety contract but on
the creditors right to demand performance (First Lepanto-Taisho
Insurance v. Chevron Philippines, Inc., G.R. No. 177839, January
18, 2012).
Rules of payment of premiums in suretyship

1. The premium becomes a debt as soon as

the contract of suretyship or bond is perfected
and delivered to the obligor (Sec. 77);
2. The contract of suretyship or bonding
shall not be valid and binding unless and until
the premium therefor has been paid;
3. Where the obligee has accepted the
bond, it shall be valid and enforceable
notwithstanding that the premium has not been
paid (Philippine Pryce Assurance Corp. v. CA,
G.R. No. 107062, 21 February 1994);
Rules of payment of premiums in suretyship

4. If the contract of suretyship or bond is not

accepted by, or filed with the obligee, the surety
shall collect only a reasonable amount;
5. If the non-acceptance of the bond be due to
the fault or negligence of the surety, no service
fee, stamps, or taxes imposed shall be collected
by the surety; and
6. In the case of continuing bond (for a term
longer than one year or with no fixed expiration
date), the obligor shall pay the subsequent annual
premium as it falls due until the contract is
cancelled (Sec. 179) .
 Nature of liability of surety

The liability of the surety or sureties shall be:

1. Solidary Joint and several with the obligor.
2. Limited or fixed Limited to the amount of the
bond (It cannot be extended by implication).
3. Contractual 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. 178, ibid).
D. 5. Life Insurance

I dont call it Life Insurance, I call it

LOVE INSURANCE. We buy it
because we want to leave a legacy for
those we love.
- Farshad Asl
D. 5. Life Insurance
It is insurance on human lives and insurance appertaining thereto or
connected therewith (Sec. 181). It is made payable on the death of the
person, or on his surviving a specified period, or otherwise contingently
on the continuance or cessation of life (Sec. 182).

Every contract or undertaking for the payment of annuities

including contracts for the payment of lump sums under a retirement
program where a life insurance company manages or acts as a trustee
for such retirement program shall be considered a life insurance
contract for purposes of the Insurance Code (Sec. 181).

Every contract or pledge for the payment of endowments or

annuities shall also be considered a life insurance contract under the
Insurance Code (Sec. 182).
Who may exercise any right under the policy

In the absence of a judicial guardian, the father, or in the

latters absence or incapacity, the mother, of any minor,
who is an insured or a beneficiary under a contract of
life, health, or accident insurance, may exercise, in
behalf of said minor, any right under the policy, without
necessity of court authority or the giving of a bond,
where the interest of the minor in the particular act
involved does not exceed Five hundred thousand
pesos (P500,000.00) or in such reasonable amount
as may be determined by the Commissioner. Such
right may include, but shall not be limited to, obtaining a
policy loan, surrendering the policy, receiving the
proceeds of the Policy, and giving the minors consent to
any transaction on the minors consent to any
transaction on the policy.
Who may exercise any right under the policy

In the absence or in case of the incapacity of

the father or mother, the grandparent, the
eldest brother or sister at least eighteen (18)
years of age, or any relative who has actual
custody of the minor insured or beneficiary,
shall act as a guardian without need of a
court order or judicial appointment as such
guardian, as long as such person is not
otherwise disqualified or incapacitated.
Payment made by the insurer pursuant to
this section shall relieve such insurer of any
liability under the contract (Sec. 182)
David Robert was a cardholder/member of Fortune Medicare, Inc. , an
HMO. The terms of his medical coverage were provided in a
Corporate Health Program Contract. While on vacation in Hawaii,, he
underwent an emergency surgery, specifically appendectomy, causing
him to incur professional and hospitalization expenses of
US$7,242.35 and US$1,777.79, respectively. He attempted to recover
from Fortune Care the full amount thereof upon his return to Manila,
but the company merely approved a reimbursement of P12,151.36, an
amount that was based on the average cost of appendectomy, net of
medicare deduction, if the procedure were performed in an accredited
hospital in Metro Manila. He received under protest the approved
amount, but asked for its adjustment to cover the total amount of
professional fees which he had paid, and 80% of the approved
standard charges based on "American standard", considering that the
emergency procedure occurred in the U.S.A.
 For purposes of determining the liability of a
health care provider to its members, a health
care agreement is in the nature of non-life
insurance, which is primarily a contract of
indemnity. Once the member incurs hospital,
medical or any other expense arising from
sickness, injury or other stipulated contingent,
the health care provider must pay for the same
to the extent agreed upon under the contract.
(Fortune Medicare Inc. v. Amorin, G.R. No.
195872, 12 March 2014).
 A health care agreement is in the nature of a
non-life insurance. It is an established rule in
insurance contracts that when their terms
contain limitations on liability, they should be
construed strictly against the insurer. These are
contracts of adhesion the terms of which must
be interpreted and enforced stringently against
the insurer which prepared the contract. This
doctrine is equally applicable to health care
agreements (Fortune Medicare Inc. v. Amorin,
G.R. No. 195872, 12 March 2014).
The measure of indemnity under a
policy of insurance upon life or health is
the sum fixed in the policy.

Exception: The interest of a person

insured is susceptible of exact pecuniary
measurement (Sec. 186).
 A life insurance policy may be taken by the creditor on the life
of the debtor to the extent of the debt owed by the debtor.

On the other hand, no contract of policy of insurance on

property shall be enforceable except for the benefit of some
person having an insurable interest in the property insured.
The lessor cannot be validly a beneficiary of an insurance
policy taken by a lessee over his merchandise, and the
provision in the lease contract for such automatic assignment
is void for being contrary to law and/or public policy the
insurer cannot be compelled to pay the proceeds of the policy
to a person who has no insurable interest in the property
insured (Cha v. Court of Appeals, 277 SCRA 690 [1997]).
 Liability of the insurer in case of suicide

The insurer shall be liable in case of suicide by

the insured if:
1. The suicide is committed after the policy has
been in force for a period of 2 years from the date of
its issue or of its last reinstatement.
2. The suicide is committed within a shorter period
as provided in the policy.
3. The suicide is committed in the state of insanity
regardless of the date of commission (Sec. 183)
Compulsory Motor Vehicle
Liability Insurance
It is unlawful to operate a motor vehicle
on the public highways unless there is in
force a policy of insurance or guarantee
in cash or surety bond to indemnify the
death or bodily injury of a third party or
passenger arising from the use thereof.
E. INSURABLE INTEREST

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 (Violeta R. Lalican v.
The Insular Life Assurance Company Limited, G.R. No.
183526, 25 August 2009).

The existence of insurable interest is a matter of public policy

and is not susceptible to the principle of estoppel. The
existence of an insurable interest gives a person the legal right
to insure the subject matter of the policy of insurance (ibid).
Insurable interest in Life
Insurance
Every person has an unlimited insurable interest in
his own life .
- Exception: Where life insurance is taken out by a
creditor on the life of the debtor, insurable interest is
limited to the amount of debt
Must exist at the time the policy takes effect and
need not exist thereafter (Sec. 19).
The beneficiary need not have 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
Two general classes of
life policies
1. Insurance upon ones life are those taken out by the
insured upon his own life (Section 10[a], Insurance Code)

The question of insurable interest is immaterial where the

policy is procured by the person whose life is insured. A
person who insures his own life can designate any
person as his beneficiary, whether or not the beneficiary
has an insurable interest in the life of the insured subject
to the limits under Articles 739 and 2012 of the New Civil
Code.
2. Insurance upon life of another are those taken out by the insured
upon the life of another. Where a person names himself beneficiary
in a policy he takes on the life of another, he must have insurable
interest in the life of the latter. This class includes the following:
a. His spouse and of his children.
b. 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.
d. Of any person upon whose life any estate or interest vested
in him depends (Sec. 10).

NOTE: In paragraph (a) of Section 10 of the Insurance Code, mere

relationship is sufficient while the rest (pars. b, c, and d) requires
pecuniary interest. Thus, the interest of the creditor over the life of
the debtor ceases upon full payment.
 Extent of the creditors recovery from the
insurance he procured upon the life of the
debtor, if the latter dies is limited only to
the extent of the amount of the debt at the
time of debtors death and the cost of
carrying the insurance on the debtors life.
Consent of the person insured is not
essential to the validity of the policy so
long as it could be proved that the insured
has an insurable interest at the inception
of the policy, the insurance is valid even
without such consent (Sec. 10).
 GOYU applied for credit facilities and accommodations
with Rizal Bank. As security for its credit facilities with
Rizal Bank, GOYU executed two real estate mortgages
and two chattel mortgages in favor of Rizal Bank, which
were registered with the Registry of Deeds. Under the
four mortgages, GOYU committed itself to insure the
mortgaged property with MICO, an insurance company
approved by Rizal Bank, and subsequently to endorse
and deliver the insurance policies to Rizal Bank.
Alchester, MICOs underwriter, from whom GOYU
secured the insurance prepared the endorsements but it
turned out that the endorsements do not bear the
signature of any officer of GOYU.
Who could recover on the insurance claim ?
 Answer: Rizal Bank could recover up to the extent
of its interest on the mortgage.
While it is settled that a mortgagor and a mortgagee
have separate and distinct insurable interests in the
same mortgaged property, such that each one of them
may insure the same property for his own sole benefit,
the intention of the parties should govern. In the case at
bar the endorsements made in favor of Rizal Bank,
clearly indicate that Rizal Bank is truly the entity for
whose benefit the policies were clearly intended. (Rizal
Commercial Banking Corporation, et al., v. Court of
Appeals, et al., and companion cases. 289 SCRA 1292)
Effect if the beneficiary willfully
brought about the death of the insured

GR: 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
such a case, the share forfeited shall pass on to the other
beneficiaries, unless otherwise disqualified. In the absence of
other beneficiaries, the proceeds shall be paid in accordance
with the policy contract. If the policy contract is silent, the
proceeds shall be paid to the estate of the insured (Sec. 12).
Exceptions:
1. The beneficiary acted in self-defense;
2. The insureds death was not intentionally caused (e.g., thru
accident);
3. Insanity of the beneficiary at the time he killed the insured.
Insurable interest in property

Limited to the actual value of the

property
GR: Must exist both at the time the
policy takes effect and the time of loss,
but need not exist in the period in
between (Sec. 19).
Exception: Secs. 21-24; 25,
The beneficiary must have insurable
interest over the thing insured
Insurable interest in property
may consist:
1. An existing interest The existing interest in
the property may be legal or equitable title,
2. An inchoate interest founded on an existing
interest or
3. An expectancy coupled with an existing
interest in that out of which the expectancy
arises.
NOTE: Existence of insurable interest is a matter
of public policy. Hence, the principle of estoppel
cannot be invoked.
Measure of insurable interest
in property

The extent to which the insured might be

damnified by loss or injury thereof (Sec. 17).

Extent of insurable interest of a common

carrier or depository in a thing held by him
To the extent of his liability but not to exceed the
value thereof (Sec. 15) because the loss of the
thing by the carrier or depository may cause
liability against him to the extent of its value.
 Mere hope or expectancy is not
insurable
A mere contingent or expectant
interest in any thing, not founded on an
actual right to the thing, nor upon any
valid contract for it, is not insurable(Sec.
16).
Effect of change of interest in any
part of a thing insured
unaccompanied by a corresponding
change of interest in the insurance
GR: A change of interest in any part of a thing insured
unaccompanied by a corresponding change in 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 (Sec. 20; Sec.58, ibid).

NOTE: Change of interest contemplated by law is an absolute

transfer of the insureds entire interest in the property insured
to one not previously interested or insured.

NOTE: 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 (Sundiang, 2014 citing
Article 1306, NCC).
Exceptions;
1. When there is a prohibition against alienation or change of interest without
the consent of the insurer in which case the policy is not merely suspended
but avoided (ibid., citing Curtis vs. Girard Fire and Marine Ins., 11 SE 3, 190
Ga. 954).
2. In life, accident, and health insurance (Sec. 20).
3.A change of 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 loss (Sec. 21).
4.A change of interest in one or more distinct things, separately insured by one
policy does NOT avoid the insurance as to the others (Sec. 22).
5.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 (Sec. 23).
6. 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 (Sec. 24).
7. When the 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).
E.3. Double Insurance and Over Insurance

Double insurance exists where the

same person is insured by several
insurers separately, in respect to the
same subject and interest (Sec. 95).

There is over insurance whenever the

insured obtains a policy in an amount
exceeding the value of his insurable
interest.
Requisites of double insurance

1. Subject matter is the same

2. Two or more insurers insuring separately
3. Risk or peril insured against is the same
4. Interest insured is the same
5. Person insured is the same
Double insurance is not prohibited by law
It is not contrary to law and hence, in case of double
insurance, the insurers may still be made liable up to the
extent of the value of the thing insured but not to exceed the
amount of the policies issued.

NOTE: A provision in the policy that prohibits double

insurance is valid. However, in the absence of such
prohibition, double insurance is allowed.

Nature of the liability of the several insurers in double

insurance
In double insurance, the insurers are considered as co-
insurers. Each one is bound to contribute ratably to the loss
in proportion to the amount for which he is liable under his
contract. This is known as the principle of contribution or
contribution clause (Sec. 96 [e]).
 Additional or other insurance clause
A clause in the policy that provides that the
policy shall be void if the insured procures
additional insurance without the consent of
the insurer (Pioneer Insurance and Surety
Corp vs. Yap, 61 SCRA 426).
 An insurer may provide that the insured
may not procure additional insurance
The insurer may insert an other insurance
clause which will prohibit double insurance.
The rationale is to prevent the danger that the
insured will over insure his property and thus
avert the possibility of perpetration of fraud. It is
lawful and specifically allowed under Sec. 75 of
the Insurance Code which provides that a
policy may declare that a violation or a
specified provision thereof shall avoid it,
otherwise the breach of an immaterial provision
does not avoid it.
 Cancellation of policy of insurance by reason of over insurance
Sec. 64 of the Insurance Code of 2013 provides that upon discovery of
other insurance coverage that makes the total insurance in excess of
the value of the property insured, the insurer may cancel such policy of
insurance; provided there is prior notice and such circumstance
occurred after the effective date of the policy.

Waiver of violation
When the insurer, with the knowledge of the existence of other
insurances, which the insurer deemed a violation of the contract,
preferred to continue the policy, its action amounted to a waiver of
annulment of the contract (Perez, 2006 citing Gonzales Lao v. Yek
Tong Lin Fire & Marine Ins. Co., 55 Phil. 386).
E.4. Multiple or several
interest on the same property
1. In trust, both trustor and trustee have insurable interest
over the property in trust.
2. In a corporation, both the corporation and its
stockholders have insurable interest over the assets.
3. In partnership both the firm and partners have insurable
interest over its assets.
4. In assignment both the assignor and assignee have
insurable interest over the property assigned.
5. In lease, the lessor, lessee and sub-lessees have
insurable interest over the property in lease.
6. In mortgage, both the mortgagor and mortgagee have
insurable interest over the property mortgaged.
 The insurable interest of mortgagor and
mortgagee in case of a mortgaged
property are NOT the same
Each has an insurable interest in the
property mortgaged and this interest is
separate and distinct from the other.
Therefore, insurance taken by one in his
name only and in his favor alone does not
inure to the benefit of the other. The same
is not open to objection that there is double
insurance (RCBC vs. CA, 289 SCRA 292
[1989], Sec. 8, Insurance Code).
Extent of insurable interest of
mortgagor and mortgagee
1. Mortgagor The mortgagor of property,
as owner, has an insurable interest to
the extent of its value even though the
mortgage debt equals such value.
2. Mortgagee The mortgagee as such
has an insurable interest in the
mortgaged property to the extent of the
debt secured; such interest continues
until the mortgage debt is extinguished.
The mortgagee may be made a beneficial
payee through any of the following:

1. He may become the assignee of the policy with the consent

of the insurer
2. He may be the mere pledgee without such consent
3. A rider making the policy payable to the mortgagee as his
interest may appear may be attached
4. A standard mortgage clause containing a collateral
independent contract between the mortgagee and the insurer
may be attached
5. The policy, though, by its terms payable absolutely to the
mortgagor; may have been procured by a mortgagor under a
contract duty to insure for the mortgagees benefit, in which
the mortgagee acquires an equitable lien upon the proceeds.
 Standard or union mortgage clause
It is a clause that states that the acts of the
mortgagor do not affect the mortgagee. The
purpose of the clause is to make a separate
and distinct contract of insurance on the
interest of the mortgagee.
 Open or loss-payable mortgage clause
It is a clause which provides for the payment of loss, if any,
to the mortgagee as his interest may appear and under it,
the acts of the mortgagor affect the mortgagee.

In a policy obtained by the mortgagor with loss payable

clause in favor of the mortgagee as his interest may
appear, the mortgagee is only a beneficiary under the
contract, and recognized as such by the insurer but not
made a party to the contract itself. This kind of policy
covers only such interest as the mortgagee has at the
issuance of the policy (Geagonia v. CA, G.R. No. 114427,
6 February 1995).
F. PERFECTION OF A
CONTRACT
The contract of insurance is perfected when the assent
or consent is manifested by the meeting of the offer and
the acceptance upon the thing and the cause which are
to constitute the contract. Mere offer or proposal is not
contemplated (De Lim v. Sun Life Assurance Co., No. L-
15774, 29 Nov. 1920).

Insurance contracts through correspondence follow the

cognition theory wherein an acceptance made by
letter shall not bind the person making the offer except
from the time it came to his knowledge (Enriquez v. Sun
Life Assurance Co. of Canada, No. L-15895, 29
November 1920).
Until quite recently, all of the provisions concerning life insurance in the Philippines were found in the
Code of Commerce and the Civil Code. In the Code of the Commerce, there formerly existed Title VIII of
Book III and Section III of Title III of Book III, which dealt with insurance contracts. In the Civil Code there
formerly existed and presumably still exist, Chapters II and IV, entitled insurance contracts and life
annuities, respectively, of Title XII of Book IV. On the after July 1, 1915, there was, however, in force the
Insurance Act. No. 2427. Chapter IV of this Act concerns life and health insurance. The Act expressly
repealed Title VIII of Book II and Section III of Title III of Book III of the code of Commerce. The law of
insurance is consequently now found in the Insurance Act and the Civil Code.

While, as just noticed, the Insurance Act deals with life insurance, it is silent as to the methods to be
followed in order that there may be a contract of insurance. On the other hand, the Civil Code, in article
1802, not only describes a contact of life annuity markedly similar to the one we are considering, but in
two other articles, gives strong clues as to the proper disposition of the case. For instance, article 16 of
the Civil Code provides that "In matters which are governed by special laws, any deficiency of the latter
shall be supplied by the provisions of this Code." On the supposition, therefore, which is incontestable,
that the special law on the subject of insurance is deficient in enunciating the principles governing
acceptance, the subject-matter of the Civil code, if there be any, would be controlling. In the Civil Code is
found article 1262 providing that "Consent is shown by the concurrence of offer and acceptance with
respect to the thing and the consideration which are to constitute the contract. An acceptance made by
letter shall not bind the person making the offer except from the time it came to his knowledge. The
contract, in such case, is presumed to have been entered into at the place where the offer was made."
This latter article is in opposition to the provisions of article 54 of the Code of Commerce (Enriquez v.
Sun Life Assurance Co. of Canada, No. L-15895, 29 November 1920).
 Policy of insurance
It is the written instrument in which the
contract of insurance is set forth (Sec. 49,
Insurance Code.). It is the written
document embodying the terms and
stipulations of the contract of insurance
between the insured and insurer.

NOTE: The policy is not necessary for the

perfection of the contract.
Forms of an insurance contract
1. The policy shall be in printed form which may contain
blank spaces to be filled in;
2. Any rider, clause, warranty or endorsement purporting to
be part of the contract of insurance and which is pasted or
attached to said policy is not binding on the insured,
unless the descriptive title or name of the rider, clause,
warranty or endorsement is also mentioned and written on
the blank spaces provided in the policy.
3. Unless applied for by the insured or owner, any rider,
clause, warranty or endorsement issued after the original
policy shall be countersigned by the insured or owner.
NOTE: Notwithstanding the foregoing, the policy may be in electronic form subject to the
pertinent provisions of Republic Act No. 8792, otherwise known as the Electronic
Commerce Act and to such rules and regulations as may be prescribed by the
Commissioner (Sec. 50).
 Types of policy of insurance
Open one in which the value of the thing insured is not
agreed upon, and the amount of the insurance merely
represents the insurers maximum liability. The value of
such thing insured shall be ascertained at the time of the
loss (Sec. 60).
Valued is one which expresses on its face an
agreement that the thing insured shall be valued at a
specific sum (Sec. 61).
Running one which contemplates successive
insurances, and which provides that the object of the
policy may be from time to time defined, especially as to
the subjects of insurance, by additional statements or
indorsements (Sec. 62).
 Rider
An attachment to an insurance policy that modifies
the conditions of the policy by expanding or restricting
its benefits or excluding certain conditions from the
coverage (Blacks Law Dictionary).

Riders are not binding on the insured unless the

descriptive title or name thereof is mentioned and
written on the blank spaces provided in the policy
(Sec. 50). It should be countersigned by the insured
or owner unless he was the one who applied for the
same (Sec. 50).
F.1. OFFER AND
ACCEPTANCE/CONSENSUAL
Offer in property and liability insurance
It is the insured who makes an offer to the insurer, who
accepts the offer, rejects it, or makes a counter-offer. The
offer is usually accepted by an insurance agent on behalf of
the insurer.

Offer in life and health insurance

It depends upon whether the insured pays the premium at the
time he applies for insurance.
1. If he does not pay the premium, his application is considered an
invitation to the insurer to make an offer, which he must then accept
before the contract goes into effect.
2. If he pays the premium with his application, his application will be
considered an offer.
 Question: On June 1, 2011, X mailed to Y
Insurance Co. his application for life
insurance. On July 21, 2011, the insurance
company accepted the application and
mailed, on the same day, its acceptance
plus the cover note. It reached X's
residence on August 11. On August 4, 2011,
X figured in a car accident. He died a day
later.
May X's heirs recover on the insurance
policy?
 Answer: No, since X had no knowledge of the
insurer's acceptance of his application before he
died. What is being followed in insurance
contracts is what is known as the cognition
theory.

NOTE: Where the applicant died before he

received notice of the acceptance of his
application for the insurance, there is no
perfected contract (Perez v. Court of Appeals,
323 SCRA 613).
 Question: In 2005, Primitivo was insured with BF Lifeman Insurance
Corporation for P20,000.00. On October 20, 2013, he applied for an
additional insurance coverage of P50,000.00. His wife paid P2,075.00 as
premiums to the agent who issued a receipt indicating that the amount was
merely a deposit. The application form was lost, so Primitivo
accomplished another one. On November 1, 2013, he underwent a physical
examination which he passed.
As is the procedure, all of Primitivos papers were then sent to the Manila
office of BF Lifeman Insurance Corporation which received the papers on
November 27, 2013. On December 2, 2013, the insurer then approved the
policy and issued the corresponding policy not knowing that in the
meantime, Primitivo drowned and died on November 25, 2013.
The insurer now disclaims liability on the additional P50,000.00 coverage
because of failure to comply with the following requisites stated in the
application form for the perfection of the contract of insurance: There shall
be no contract of insurance unless and until a policy is issued on this
application and that the said policy shall not take effect until the premium
has been paid and the policy delivered to and accepted by me/us in person
while I/We, am/are in good health.
Is Primitivos beneficiary entitled to the proceeds additional P50,000.00
additional insurance which amounts to P150,000.00 in view of a triple
indemnity rider on the policy?
 No. Primitivos beneficiary is not entitled to the insurance proceeds for the following
reasons:
a. The filing of the insurance application, payment of the premium, and submission to
the insurer, were all subject to the acceptance of the insurer. There was no acceptance
by the insurance as of the date when Primitivo died on November 25, 2013.
The conditions imposed by the insurer for the protection of the contract is not a
potestative or facultative condition, but is a suspensive one whereby the acquisition of
rights depends upon the happening of an event which constitutes the condition. In this
case, the suspensive condition was the policy must have been delivered and accepted
by the applicant while he is in good health. There was non-fulfillment of the condition,
however, inasmuch as the applicant was already dead at the time the policy was issued.
Hence, the non-fulfillment of the condition resulted in the non-perfection of the contract.
b. A contract of insurance, like other contracts, must be assented to by both parties
either in person or by their agents. So long as an application for insurance has not been
either accepted or rejected, it is merely an offer or proposal to make a contract. The
contract, to be binding from the date of application, must have been a completed
contract, one that leaves nothing to be done, nothing to be completed, nothing to be
passed upon, or determined, before it shall take effect. There can be no contract of
insurance unless the minds of the parties have net in agreement.
c. The insurer cannot be held for gross negligence. It should be noted that an
application is a mere offer which requires the overt act of the insurer for it to ripen into a
contract. Delay in acting on the application does not constitute acceptance even though
the insured has forwarded his first premium with his application. The corporation may
not be penalized for the delay in the processing of the application papers. (Perez v.
Court of Appeals, et al., G.R. No. 11239, January 28, 2000)
F.1.a. Delay in Acceptance
Kind of acceptance that must be given
The acceptance of an insurance policy must be unconditional,
but it need not be by a formal act.

Effect of delay
Unreasonable delay in returning the premium raises the
presumption of acceptance of the insurance application (Gloria
v. Philippine American Life Ins. Co., CA 73 O.G. [No.37] 8660).

Mere delay in acceptance of the insurance application will not

result in a binding contract. Court cannot impose upon the
parties a contract if they did not consent. However, in proper
cases, the insurer may be liable for tort (Sundiang, 2014).
F.1.b. Delivery of Policy

Delivery of the policy is not necessary for its perfection.

Two types of delivery

1. Actual delivery to the person of the insured.
2. Constructive
a. By mail If policy was mailed already and premium was paid and nothing is left to
be done by the insured, the policy is considered constructively delivered if insured
died before receiving the policy.
b. By agent If delivered to the agent of the insurer, whose duty is ministerial, or
delivered to the agent of the insured, the policy is considered constructively
delivered (De Leon, 2010).

Importance of delivery
1. It becomes the evidence of the making of a contract and of its terms;
2. It is considered as communication of the insurers acceptance of the insureds
offer;
3. It becomes the determination of policy period;
4. It marks the end of insurers opportunity to decline coverage (De Leon, 2010).
F.2. Premium Payment

Premium
It is an agreed price for assuming and
carrying the risk that is, the
consideration paid an insurer for
undertaking to indemnify the insured
against a specified peril.
 Payments in addition to regular premium
An insurer may contract and accept
payments, in addition to regular premium, for
the purpose of paying future premiums on
the policy or to increase the benefits thereof
(Sec. 84).

NOTE: This is a new provision under the

Insurance Code of 2013.
 Instances when payment of premium become a
debt or obligation
1. In fire, casualty and marine insurance, the
premium payable becomes a debt as soon as the
risk attaches.
2. In life insurance, the premium becomes a debt
only when, in the case of the first premium, the
contract has become binding, and in the case of
subsequent premiums, when the insurer has
continued the insurance after maturity of the
premium, in consideration of the insureds express
or implied promise to pay.
 Non-payment of balance of premiums
does not cancel the policy
A contrary rule would place
exclusively in the hands of the insured
the right to decide whether the contract
should stand or not. (Philippine Phoenix
Surety & Insurance, Co., Inc., v.
Woodworks, Inc., No. L-22684, 31 Aug.
1967).
Effects of non-payment of premiums

Non-payment of the first premium unless waived, prevents the contract

from becoming binding notwithstanding the acceptance of the
application or the issuance of the policy. But nonpayment of the balance
of the premium due does not produce the cancellation of the contract.

Non-payment of the subsequent premiums does not affect the validity of

the contracts unless, by express stipulation, it is provided that the policy
shall in that event be suspended or shall lapse.

NOTE: In case of individual life or endowment insurance and group life

insurance, the policyholder is entitled to a grace period of either 30 days
or 1 month within which the payment of any premium after the first may
be made (Secs. 233[a], 234[a], Insurance Code).

In case of industrial life insurance, the grace period is 4 weeks, where

premiums are payable monthly, either 30 days or 1 month (Sec. 236 [a]).
If the applicant failed to pay premium and instead executed a
promissory note in favor of the insurer payable within 30 days
which was accepted by the latter, is the insurer liable in case of
loss?

Yes, the insurer is liable because there has been a perfected insurance contract.
The insurer accepted the promise of the applicant to pay the insurance premium
within thirty 30 days from the effective date of policy. By so doing, it has implicitly
agreed to modify the tenor of the insurance policy and in effect, waived any
provision therein that it would only pay for the loss or damage in case the same
occurs after the payment of the premium.

Considering that the insurance policy is silent as to the mode of payment, insurer
is deemed to have accepted the promissory note in payment of the premium. This
rendered the policy immediately operative on the date it was delivered (Capital
Insurance & Surety Co. Inc. v. Plastic Era Co., Inc., No. L-22375, 18 July 1975).
Rule on non-payment of premiums by reason
of fortuitous event
Non-payment of premiums does not merely suspend but put an
end to an insurance contract since the time of the payment is
peculiarly of the essence of the contract.

Exceptions:
1. The insurer has become insolvent and has suspended
business, or has refused without justification a valid tender of
premiums (Gonzales v. Asia Life Ins. Co., No. L-5188, 29 Oct.
1952).

2. Failure to pay was due to the wrongful conduct of the insurer.

3. The insurer has waived his right to demand payment.

 Effect of acceptance of premium
Acceptance of premium within the stipulated period for payment
thereof, including the agreed grace period, merely assures continued
effectivity of the insurance policy in accordance with its terms (Stoke
v. Malayan Insurance Co., Inc., No. L-34768, 28 Feb. 1984).
Payment of the premium to agent of the insurance company is
binding on it (Malayan Insurance v. Arnalo 154 SCRA 672 and Areola
v. CA 236 SCRA 643). If an insurance company delivers a policy to
an insurance broker, it is deemed to have authorized him to receive
the payment of the premium (Sec. 306, South Sea v. CA 244 SCRA
744; American Home Assurance v. Chua 309 SCRA 250).

An acknowledgment in a policy of the receipt of the premium is

conclusive evidence of its payment for the purpose of making the
policy binding despite a stipulation that it will not be binding until the
premium is actually paid (Sec. 78; American Home v. Chua, supra).
 Effect of payment of premium by post-
dated check
Delivery of a promissory note or a check will not be
sufficient to make the policy binding until the said note or
check has been converted into cash. This is consistent
with Article 1249 of the New Civil Code.

NOTE: Payment by means of a check or note, accepted by

the insurer, bearing a date prior to the loss, assuming
availability of the funds thereof, would be sufficient even
if it remains unencashed at the time of the loss. The
subsequent effects of encashment would retroact to the
date of the instrument and its acceptance by the creditor.
 Non-payment of the premium will not entitle
the insurer to recovery of such premium from
the insured

The continuance of the insurers obligation is

conditioned upon the payment of the premium,
so that no recovery can be had upon a lapsed
policy, the contractual relation between the
parties having ceased. If the peril insured against
had occurred, the insurer would have had a valid
defense against recovery under the policy.
 The Peninsula Insurance Company offered to insure
Francis' brand new car against all risks in the sum of P1
Million for 1 year. The policy was issued with the premium
fixed at P60,000.00 payable in 6 months. Francis only paid
the first two months installments. Despite demands, he
failed to pay the subsequent installments. Five months after
the issuance of the policy, the vehicle was carnapped.
Francis filed with the insurance company a claim for its
value. However, the company denied his claim on the
ground that he failed to pay the premium resulting in the
cancellation of the policy.

Can Francis recover from the Peninsula Insurance

Company? (2006 Bar Question)
A: Yes, when insured and insurer have agreed
to the payment of premium by installments and
partial payment has been made at the time of
loss, then the insurer becomes liable. When
the car loss happened on the 5th month, the
six months agreed period of payment had not
yet elapsed. The owner may recover from
Peninsula Insurance Company, but the latter
has the right to deduct the amount of unpaid
premium from the insurance proceeds.
Effect of acknowledgment of receipt of premium in policy

Conclusive evidence of its payment, in 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. 79, Insurance Code).

When the policy contains such written acknowledgment, it is presumed

that the insurer has waived the condition of prepayment. It hereby
creates a legal fiction of payment. The presumption is however,
extended only to the question of the binding effect of the policy.

As far as the payment of the premium itself is concerned, the

acknowledgment is only a prima facie evidence of the fact of such
payment. The insurer may still dispute its acknowledgment but only for
the purpose of recovering the premium due and unpaid. Whether
payment was indeed made is a question of fact.
F.3. Non-Default Options in
Life Insurance
Devices used to prevent the forfeiture of a life
insurance after the payment of the first premium

1. Grace period After the payment of the first

premium, the insured is entitled to a grace period of
30 days within which to pay the succeeding premiums
(Sec. 233 [a], ibid).

2. Cash surrender value The amount the insurer

agrees to pay to the holder of the policy if he
surrenders it and releases his claim upon it
(Cyclopedia Law Dictionary, 3rd ed., pg. 1077).
F.3. Non-Default Options in
Life Insurance
3. Extended insurance It is where the insured is given a
right, upon default, after payment of at least three full annual
premiums (see Sec. 233 [f], Insurance Code) to have the
policy continued in force from the date of default for a time
either stated or equal to the amount as the net value of the
policy taken as a single premium, will purchase (De Leon,
2010).
4. Paid up Insurance The insured is given a right, upon
default, after the payment of at least three annual premiums
to have the policy continued in force from the date of default
for the whole period of the insurance without further payment
of premiums (ibid). It results to a reduction of the original
amount of insurance, but for the same period originally
stipulated (6 Couch 2d., 355; 37 C.J.S. 364).
5. Automatic Loan Clause A stipulation in the policy
providing that upon default in payment of premium, the
same shall be paid from the loan value of the policy
until that value is consumed. In such a case, the policy
is continued in force as fully and effectively as though
the premiums had been paid by the insured from funds
derived from other sources (6 Couch 2d., 383).
6. Reinstatement Provision that the holder of the policy
shall be entitled to reinstatement of the contract at
anytime within 3 years from the date of default in the
payment of premium, unless the cash surrender value
has been paid, or the extension period expired, upon
production of evidence of insurability satisfactory to the
company and the payment of all overdue premiums
and any indebtedness to the company upon said policy
(Sec. 233 [j]).
F.4. Reinstatement of a Lapsed
Policy of Life Insurance
Purpose of the reinstatement provision
Period within which the holder of the
policy is entitled to reinstatement of
the contract
The law requires that the policy owner be
permitted to reinstate the policy, subject to the
violations specified, any time within three (3)
years from the date of default of premium
payment. A longer period, being more favorable
to the insured, may be used.
 Reinstatement is not an absolute right of
the insured, but discretionary on the part
of the insurer, which has the right to deny
reinstatement if it were not satisfied as to
the insurability of the insured, and if the
latter did not pay all overdue premiums
and other indebtedness to the insurer
(McGuire vs. Manufacturers Life Ins.
Co., 87 Phil. 370).
 A life insurance policy lapsed. The insured
applied for reinstatement of the policy and
paid only a part of the overdue premiums.
Subsequently, the insured died. Was the
insurer liable?

The insurer is not liable as the policy was not

reinstated. The failure to pay the balance of the
overdue premiums prevented reinstatement and
recovery of the face value of the policy (Andres
vs. Crown Life Ins. Co., 55 O.G. 3483).
F.5. Refund of
Premiums
Insurer is entitled to recover the whole premium already paid :
a. When no part of the thing insured has been exposed to any of
the perils insured against (Sec. 80).
b. When the contract is voidable because of the fraud or
misrepresentations of the insurer of his agent (Sec. 82, Insurance
Code).
c. When the insurance is voidable because of the existence of facts
of which the insured was ignorant without his fault (Sec. 82, ibid).
d. When the insurer never incurred any liability under the policy
because of the default of the insured other than actual fraud (Sec.
82, ibid).
e. When rescission is granted due to insurers breach of contract
(Sec. 74, ibid).
NOTE: When the contract is voidable, a person
insured is entitled to a return of the premium
when such contract is subsequently annulled
under the provisions of the New Civil Code.

A person insured is not entitled to a return of

premium if the policy is annulled, rescinded
or if a claim is denied by reason of fraud
(Sec. 82).
 Insurer is entitled to recover pro-rata the premium paid :
a. When the insurance is for a definite period and the insured surrenders
his policy before the termination thereof; (Sec. 80 [b], ibid); except:
i. Policy not made for a definite period of time;
ii. Short period rate is agreed upon;
iii. Life insurance policy.

b. When there is over-insurance. The premiums to be returned shall be

proportioned to the amount by which the aggregate sum insured in all the
policies exceeds the insurable value of the thing at risk (Sec. 83).
i. In case of over-insurance by double insurance, the insurer is not
liable for the total amount of the insurance taken, his liability being
limited to the property insured. Hence, the insurer is not entitled to
that portion of the premium corresponding to the excess of the
insurance over the insurable interest of the insured.
ii. In case of 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 insured (Sec. 83).
Instances when the insured is not entitled
to return of premiums paid
1. If the peril insured against has existed, and
the insurer has been liable for any period, the
peril being entire and indivisible (Sec. 81);
2. In life insurance policies (Sec. 80 [b]);
3. If the policy is annulled, rescinded or if a
claim is denied by reason of fraud (Sec.
82);
4. If contract is illegal and the parties are in
pari delicto.
 Q: Teodoro Cortez, applied for a 20-year endowment
policy with Great Pacific Insurance Corporation
(Great Pacific). His application, with the requisite
medical examination, was accepted and approved by
the Great Pacific and in due course, an endowment
policy was issued in his name. Thereafter, Great
Pacific advised Cortez that the policy was not in
force. To make it enforceable and operative, Cortez
was asked to remit the balance to complete his initial
annual premium and to see Dr. Felipe V. Remollo for
another full medical examination at his own expense.
Because of this, Cortez informed Great Pacific that he
was cancelling the policy and he demanded the return
of his premium plus damages. Great Pacific ignored
his demand. Is Cortez is entitled to a refund of his
premium?
 Answer: Yes. Great Pacific should have informed Cortez
of the deadline for paying the first premium before or at
least upon delivery of the policy to him, so he could have
complied with what was needful and would not have been
misled into believing that his life and his family were
protected by the policy, when actually they were not. And,
if the premium paid by Cortez was unacceptable for being
late, it was the company's duty to return it. Since his
policy was in fact inoperative or ineffectual from the
beginning, the company was never at risk, hence, it is not
entitled to keep the premium (Great Pacific Life Insurance
Corporation v. CA, et al., G.R. No. L-57308, 23 April
1990).
G. Rescission of Insurance
Contracts
Instances wherein a contract of
insurance may be rescinded

1. Concealment
2. Misrepresentation/ omission
3. Breach of warranties
Instances wherein a contract of insurance may be
cancelled by the insurer

1. Nonpayment of premium;
2. Conviction of a crime arising out of acts increasing the
hazard insured against;
3. Discovery of fraud or material misrepresentation;
4. Discovery of willful or reckless acts or omissions increasing
the hazard insured against;
5. Physical changes in the property insured which result in the
property becoming uninsurable;
6. Discovery of other insurance coverage that makes the total
insurance in excess of the value of the property insured; or
7. A determination by the Commissioner that the continuation of
the policy would violate or would place the insurer in violation
of the Insurance Code. (Sec. 64)
 No policy of insurance other than life shall be cancelled by the
insurer except upon prior notice thereof to the insured, and no
notice of cancellation shall be effective unless it is based on
the occurrence, after the effective date of the policy, of one or
more of the abovementioned instances (Sec. 64).

Notice of cancellation of the contract

All notices of cancellation shall be in writing, mailed or

delivered to the named insured at the address shown in the
policy, or to his broker provided the broker is authorized in
writing by the policy owner to receive the notice of
cancellation on his behalf, and shall state:
1. Which of the grounds set forth in Section 64 is relied upon; and
2. That, upon written request of the named insured, the insurer will
furnish the facts on which the cancellation is based (Sec. 65).
G.1. Concealment
Concealment is a neglect to
communicate that which a party knows
and ought to communicate (Sec. 26).
 On 13 May 1996, PAP obtained a Php15M fire
insurance policy from Malayan covering its machineries
and equipment effective for 1 year or until May 13, 1997.
The policy expressly stated that the insured properties
were located at "Sanyo Precision Phils. Building, Phase
III, Lots 4 & 6, Block 15, EPZA, Rosario, Cavite. Before
its expiration, the policy was renewed on an "as is" basis
for another year or until 13 May 1998. The subject
properties were later transferred to the Pace Factory also
in PEZA. On 12 October 1997, during the effectivity of
the renewal policy, a fire broke out at the Pace Factory
which totally burned the insured properties. Was there
concealment?
 It can also be said that with the transfer of the location of
the subject properties, without notice and without
Malayans consent, after the renewal of the policy, PAP
clearly committed concealment, misrepresentation and a
breach of a material warranty.
Under Section 27 of the Insurance Code, a
concealment entitles the injured party to rescind a
contract of insurance. Moreover, under Section 168 of
the Insurance Code, the insurer is entitled to rescind the
insurance contract in case of an alteration in the use or
condition of the thing insured (Malayan Insurance
Company vs. PAP Co. (Phil. Branch), G.R. No. 200784,
07 August 2013)
Requisites of Concealment

1. A party knows a fact which he neglects to

communicate or disclose to the other party
2. Such party concealing is duty bound to
disclose such fact to the other
3. Such party concealing makes no warranty
as to the fact concealed
4. The other party has no means of
ascertaining the fact concealed
5. The fact must be material
Test of materiality
It is 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 disadvantages of the proposed contract, or
in making his inquiries (Sec. 31).

As long as the facts concealed are

material, concealment, whether intentional or
not, entitles the injured party to rescind
(Sec.27).
 Concealment in marine insurance

Rules on concealment are stricter since the insurer

would have to depend almost entirely on the matters
communicated by the insured. Thus, in addition to
material facts, each party must disclose all the
information he possesses which are material or the
information of the belief or expectation of a third person,
in reference to a material fact. But concealment in a
marine insurance in any of the following matters
enumerated under Section 112 Insurance Code does not
vitiate the entire contract, but merely exonerates the
insurer from a loss resulting from the risk concealed.
Matters relating to the health of the insured are material and
relevant to the approval of the issuance of the life insurance
policy as these definitely affect the insurers action to the
application. It is well-settled that the insured need not die of
the disease he had failed to disclose to the insurer, as it is
sufficient that his non-disclosure misled the insurer in forming
his estimates of the risks of the proposed insurance policy or
in making inquiries (Sunlife Assurance Company of Canada
v. CA, G.R. No. 105135, 22 June 1995).

Information as to the nature of interest need not be disclosed

except in property insurance, if the insured is not the owner. If
somebody is insuring properties of which he is not the owner,
he must disclose why he has insurable interest that would
entitle him to ensure it, and the extent thereof (Secs. 34 & 51
[e], Insurance Code).
 Question: Ngo Hing filed an application with the
Great Pacific Life Assurance Company (Pacific Life)
for a twenty-year endownment policy on the life of
his one-year old daughter, Helen Go. Ngo Hing
supplied the essential data and filed the application
to Mondragon, the branch manager. After sometime,
Helen Go died of influenza with complication of
bronchopneumonia. Thereupon, Ngo Hing sought
the payment of the proceeds of the insurance, but
having failed in his effort, he filed the action for the
recovery of the same. Did Ngo Hing concealed the
state of health and physical condition of Helen Go,
which rendered void the binding receipt?
Answer: Ngo Hing intentionally concealed the state of health
of his daughter Helen Go. He was fully aware that his child was
a typical mongoloid child upon filling out the application form. It
is evident that he withheld a fact material to the risk to be
assumed by the insurance company had the plan be approved.

The contract of insurance is one of perfect good faith, uberrima

fides, absolute and perfect candor; the absence of any
concealment or demotion. Concealment is a neglect to
communicate that which needs to be communicated whether
intentional or unintentional. In case of concealment, the insurer
is entitled to rescind the contract of insurance. In the case at
bar, the respondent is guilty of such concealment. Ultimately,
there was no perfected contract of insurance since the
conditions in the binding receipt were not complied with by the
applicant (Great Pacific Life Assurance Company v. CA, G.R.
No. L-31845, April 30, 1979).
 Benny applied for life insurance for Php1.5Million. The
insurance company approved his application and
issued an insurance policy effective 06 November 2008.
Benny named his children as his beneficiaries. On 06
April 2010, Benny died of hepatoma, a liver ailment. The
insurance company denied the children's claim for the
proceeds of the insurance policy on the ground that
Benny failed to disclose in his application two previous
consultations with his doctors for diabetes and
hypertension, and that he had been diagnosed to be
suffering from hepatoma. The insurance company also
rescinded the policy and refunded the premiums paid.
Was the insurance company correct? (2013 Bar
Question)
 Yes, the insurance company correctly
rescinded the policy because of concealment
(Sec. 27 of Insurance Code).
Benny did not disclose that he was suffering
from diabetes, hypertension, and hepatoma.
The concealment is material, because these
are serious ailments (Florendo v. Philam Plans,
Inc., G.R. No. 186983, 22 February 2012).
Benny died less than two years from the
date of the issuance of the policy (Sec. 48).
 On 30 October 1997, Philam Plans issued Pension Plan
Agreement to Manuel, with Ma. Lourdes, his wife, as beneficiary. It
contains a one-year incontestability period. While Manuel signed
the application, he left to Perla the task of supplying the information
needed in the application. The comprehensive pension plan also
provided life insurance coverage to Manuel under Philam Life. In
time, Manuel paid his quarterly premiums. On 15 September 1998,
Manuel died of blood poisoning. Philam Life found that Manuel was
on maintenance medicine for his heart and had an implanted
pacemaker; that he suffered from diabetes mellitus and was taking
insulin. Lourdes pointed out that, seeing the unfilled spaces in
Manuels pension plan application relating to his medical history,
Philam Plans should have returned it to Manuel for completion.
Since Philam Plans chose to approve the application just as it was,
it cannot cry concealment on Manuels part.
 Since Manuel signed the application without filling in
the details regarding his continuing treatments for heart
condition and diabetes, the assumption is that he has
never been treated for the said illnesses in the last five
years preceding his application. This is implicit from the
phrase If your answer to any of the statements above
(specifically, the statement: I have never been treated for
heart condition or diabetes) reveal otherwise, please give
details in the space provided for. But this is untrue since
he had been on Coumadin, a treatment for venous
thrombosis, and insulin, a drug used in the treatment of
diabetes mellitus, at that time. (Florendo v. Philam Plans,
Inc., G.R. No. 186983, 22 February 2012)
 Is the property encumbered? YES. In
whose favor? ____.
Is the property encumbered? YES. In
whose favor? ABC Bank. (mortgaged
also to Banco DEF)
Has applicant been hospitalized? YES.
Where? ____.
Has applicant been hospitalized? YES.
Where? S. Emeterio Hospital.
 Has the applicant contracted serious
ailment within two years preceding
application? ____.

State if applicant contracted serious

ailment within two years preceding
application? ____. (Vitug, 273-274)
 Right to information of material facts
may be waived

1. By the terms of the contract

2. By the failure to make an inquiry as to
such facts, where they are distinctly
implied in other facts from which
information is communicated (Sec. 33).
Rules on concealment

1. If there is concealment under Section 27, the remedy of

the insurer is rescission since concealment vitiates the
contract of insurance.
2. The party claiming the existence of concealment must
prove that there was knowledge of the fact concealed on
the part of the party charged with concealment.
3. Good faith is not a defense in concealment. Concealment,
whether intentional or unintentional entitles the injured party to
rescind the contract of insurance (Sec. 27, ibid).
4. The matter concealed need not be the cause of loss
(Sec. 31, ibid).
5. To be guilty of concealment, a party must have
knowledge of the fact concealed at the time of the
effectivity of the policy.
 Concealment should take place at the
time the contract is entered into and not
afterwards in order that the policy may
be avoided.
 Instances whereby concealment made by an agent
procuring the insurance binds the principal

1. Where it was the duty of the agent to acquire and

communicate information of the facts in question;
2. Where it was possible for the agent, in the exercise of
reasonable diligence to have made such communication
before the making of the insurance contract.

NOTE: Failure on the part of the insured to disclose such

facts known to his agent, or wholly due to the fault of the
agent, will avoid the policy, despite the good faith of the
insured.
 Question: Joanna applied for a non-
medical life insurance. Joanna did not
inform the insurer that one week prior to
her application for insurance, she was
examined and confined at St. Lukes
Hospital where she was diagnosed for lung
cancer. The insured soon thereafter died in
a plane crash. Is the insurer liable
considering that the fact concealed had no
bearing with the cause of death of the
insured? Why?
 Answer: No. The concealed fact is
material to the approval and issuance of
the insurance policy. It is well settled that
the insured need not die of the disease
she failed to disclose to the insurer. It is
sufficient that his nondisclosure misled
the insurer in forming his estimate of the
risks of the proposed insurance policy or
in making inquiries (Sun Life v. CA,
supra).
G.2. Misrepresentation/
Omission
Representation

An oral or written statement of a fact or condition

affecting the risk made by the insured to the
insurance company, tending to induce the insurer to
assume the risk.

NOTE: Representation should be made, altered or

withdrawn at the time of or before the issuance of the
policy. (Sec. 37). It may be altered or withdrawn
before the insurance is effected, but not afterwards
(Sec.41).
Kinds of representation

1. Oral or written (Sec. 36);

2. Affirmative (Sec. 42); or
3. Promissory (Sec. 39).
 Misrepresentation

Misrepresentation is an affirmative
defense. To avoid liability, the insurer
has the duty to establish such a defense
by satisfactory and convincing evidence
(Ng Gan Zee v. Asian Crusader Life
Assn. Corp., No. L- 30685, 30 May
1983).
 In the absence of evidence that the insured has
sufficient medical knowledge to enable him to
distinguish between peptic ulcer and tumor, the
statement of deceased that said tumor was
associated with ulcer of the stomach should be
considered an expression in good faith. Fraudulent
intent of insured must be established to entitle
insurer to rescind the insurance contract.
Misrepresentation, as a defense of insurer, is an
affirmative defense which must be proved (Ng Gan
Zee v. Asian Crusader Life Assn. Corp., No. L-
30685, 30 May 1983).
Requisites of misrepresentation

1. The insured stated a fact which is untrue;

2. Such fact was stated with knowledge that it is untrue
and with intent to deceive or which he states positively
as true without knowing it to be true and which has a
tendency to mislead;
3. Such fact in either case is material to the risk.

NOTE: A representation cannot qualify an express

provision in a contract of insurance but it may qualify an
implied warranty (Sec. 40).
 Test of materiality

It is to be determined not by the event, but

solely by the probable and reasonable
influence of the facts upon the party to
whom the representation is made, in
forming his estimates of the disadvantages
of the proposed contract or in making his
inquiries (similar with concealment) (Sec.
46).
 Representation as to a future undertaking

A representation as to the future is to be deemed a promise

unless it appears that it was merely a statement of belief or
an expectation that is susceptible to present, actual
knowledge (Sec. 39).

An erroneous opinion or belief will not avoid the

insurance policy

The statement of an erroneous opinion, belief or

information, or of an unfulfilled intention, per se, will not
avoid the contract of insurance, unless fraudulent.
 Effects of misrepresentation

1. It renders the insurance contract voidable at the option

of the insurer, although the policy is not thereby rendered
void ab initio. The injured party entitled to rescind from the
time when the representation becomes false;
2. When the insurer accepted the payment of premium
with the knowledge of the ground for rescission, there is
waiver of such right;
3. There is no waiver of the right of rescission if the
insurer had no knowledge of the ground therefor at the
time of acceptance of premium payment.
 Effect of collusion between the
insurers agent and the insured

It vitiates the policy even though the

agent is acting within the apparent
scope of his authority. The agent ceases
to represent his principal. He, thus,
represents himself; so the insurer is not
estopped from avoiding the policy.
 Similarities of concealment and representation

1. Both refer to the same subject matter and both take place
before the contract is entered.
2. Concealment or representation prior to loss or death gives
rise to the same remedy; that is rescission or cancellation.
3. The test of materiality is the same (Secs. 31, 46).
4. The rules of concealment and representation are the
same with life and non-life insurance.
5. Whether intentional or not, the injured party is entitled to
rescind a contract of insurance on ground of concealment
or false representation.
6. Since the contract of insurance is said to be one of utmost
good faith on the part of both parties to the agreement, the
rules on concealment and representation apply likewise to
the insurer.
 Incontestability clause

After the 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 (2) years from the date of
its issue or its last reinstatement, the insurer
cannot prove that the policy is void ab initio or
is rescindible by reason of the fraudulent
concealment or misrepresentation of the
insured or his agent (Florendo v. Philam
Plans, G.R. No. 186983, 22 February 2012).
The Incontestability Clause under Section 48 of
the Insurance Code regulates both the actions of
the insurers and prospective takers of life
insurance. It gives insurers enough time to inquire
whether the policy was obtained by fraud,
concealment, or misrepresentation; on the other
hand, it forewarns scheming individuals that their
attempts at insurance fraud would be timely
uncovered thus deterring them from venturing into
such nefarious enterprise (Manila Bankers Life
Insurance Corporation v. Cresencia-Aban, G.R.
No. 175666, 29 July 2013).
 On 03 July 1993, Delia took out a life insurance policy from
Manila Bankers Life Insurance Corporation (Bankers Life),
designating Cresencia, her niece, as her beneficiary. The policy
was issued on 30 August 1993, after the requisite medical
examination and payment of the insurance premium. On 10 April
1996, Delia died. Cresencia filed a claim for the insurance
proceeds on 09 July 1996. Bankers Life conducted an
investigation into the claim, and found out that Delia did not
personally apply for insurance coverage, as she was illiterate; she
was sickly since 1990; she did not have the financial capability to
pay the insurance premiums; she did not sign the application for
insurance; and Cresencia was the one who filed the insurance
application, and designated herself as the beneficiary. Bankers
Life denied the claim on 16 April 1997 and refunded the
premiums paid on the policy.
 After two years, the defenses of concealment or
misrepresentation, no matter how patent or well-founded,
will no longer lie.
As borne by the records, the policy was issued on 30 August
1993, the insured died on 10 April 1996, and the claim was
denied on 16 April 1997. The insurance policy was thus in
force for a period of 3 years, 7 months, and 24 days.
Considering that the insured died after the two-year period,
the plaintiff-appellant is, therefore, barred from proving that
the policy is void ab initio by reason of the insureds
fraudulent concealment or misrepresentation or want of
insurable interest on the part of the beneficiary, herein
defendant-appellee (Florendo v. Philam Plans, G.R. No.
186983, 22 February 2012).
 Defenses that are not barred by incontestability clause

1. That the person taking the insurance lacked insurable

interest as required by law;
2. That the cause of the death of the insured is an excepted
risk;
3. That the premiums have not been paid (Secs. 77, 233[b],
236[b], Insurance Code);
4. That the conditions of the policy relating to military or
naval service have been violated (Secs. 233[b], 234[b], ibid);
5. That the fraud is of a particularly vicious type;
6. That the beneficiary failed to furnish proof of death or to
comply with any condition imposed by the policy after the loss
has happened; or
7. That the action was not brought within the time specified
(Sundiang Sr. & Aquino, 2014).
G.3. Breach of
Warranties
Warranties

Statements or promises by the insured set

forth in the policy itself or incorporated in it by
proper reference, the untruth or non-fulfillment
of which in any respect, and without reference
to whether the insurer was in fact prejudiced
by such untruth or non-fulfillment render the
policy voidable by the insurer.
 Kinds of warranties

1. Affirmative warranty
2. Promissory warranty
3. Express warranty
4. Implied warranty
 Effects of breach of material warranty

Entitles the other party to rescind the contract.

Exceptions:(with regard to promissory

warranties)
1. Loss occurs before the time of performance
of the warranty;
2. The performance becomes unlawful at the
place of the contract; and
3. Performance becomes impossible (Sec. 73).
 Effects of breach of immaterial warranty

It will not avoid the policy.

Exception: When the policy expressly provides or

declares that a violation thereof will avoid it.

For instance, an Other Insurance Clause which is a

condition in the policy requiring the insured to inform the
insurer of any other insurance coverage of the property.
A violation of the clause by the insured will not constitute
a breach unless there is an additional provision stating
that the violation thereof will avoid the policy (Sec. 75).
 Effect of a breach of warranty without
fraud

The policy is avoided only from the time of

breach (Sec. 76) and the insured is
entitled:
1. To the return of the premium paid at a pro
rata from the time of breach or if it occurs
after the inception of the contract; or
2. To all premiums if it is broken during the
inception of the contract.
Question: Section III of the insurance policy
states that the Insurer shall not be liable for any
malicious damage caused by the Insured, any
member of his family or by a person in the
Insureds service. It turned out that the Insurer
instructed her driver to bring the said vehicle to
a nearby auto shop for tune up. However, her
driver never returned and despite diligent
efforts of finding the vehicle, the same could
not be found. Is the Insurer still liable?
 Answer: Yes. Section III refers to the liability of the Insurer
for loss of or damage to the vehicle in the enumerated
cases which includes theft. The exception only pertains to
any malicious damage caused by the Insured, any
member of his family or by a person in the Insureds
service. The words loss and damage mean different
things. The word loss refers to act or fact of losing, while
the word damage means deterioration or injury to
property. The exception clearly refers to malicious
damage and does not contemplate loss of property. Theft
perpetrated by the driver is not an exception to the
coverage of the policy. (Alpha Insurance v. Castor,
G.R. No. 198174, 02 September 2013)
 On 26 May 1994, Yves and Teresa insured with
Paramount Insurance their 1994 Toyota Corolla sedan
under a comprehensive motor vehicle insurance policy
for one year. Ricardo took possession of the subject
vehicle to add accessories and improvements thereon,
however, Ricardo failed to return it within the agreed
three-day period. They immediately reported the theft
to the PNP. Yves and Teresa claimed for
reimbursement but from Paramount Insurance refused
to pay. It argued that it is not liable for the loss, since
the car cannot be classified as stolen as they
entrusted the possession thereof to another person.
 Records would show that respondents entrusted
possession of their vehicle only to the extent that Ricardo
will introduce repairs and improvements thereon, and not
to permanently deprive them of possession thereof. Since,
Theft can also be committed through misappropriation, the
fact that Ricardo failed to return the subject vehicle to
respondents constitutes Qualified Theft. Hence, since
respondents car is undeniably covered by a
Comprehensive Motor Vehicle Insurance Policy that allows
for recovery in cases of theft, petitioner is liable under the
policy for the loss of respondents vehicle under the theft
clause. (Paramount Insurance Corporation v. Sps.
Remondeulaz, G.R. No. 173773, 28 November 2012)
H. Claims Settlement and Subrogation
H.1. Notice and Proof of Loss

Loss in insurance
The injury, damage or liability
sustained by the insured in
consequence of the happening of one or
more of the perils against which the
insurer, in consideration of the premium,
has undertaken to indemnify the
insured. It may be total, partial, or
constructive in marine insurance.
 Conditions before the insured may recover on the
policy after the loss

1. The insured or some person entitled to the benefit of the

insurance, without unnecessary delay, must give written
notice to the insurer (Sec. 90);
2. When required by the policy, insured must present a
preliminary proof loss which is the best evidence he has in
his power at the time (Sec. 91).

NOTE: For other non-life insurance, the Commissioner may

specify the period for the submission of the notice of loss
(Sec. 90).
 Notice of loss

It is the more or less formal notice

given the insurer by the insured or
claimant under a policy of the
occurrence of the loss insured against.
 Effect of failure to give notice of loss
in fire insurance
-defeats the right of the insured
to recover.
Effect of failure to give notice of loss
in other types of insurance
-will not exonerate the insurer,
unless there is a stipulation in the
policy requiring the insured to do
so.
 Proof of loss

It is the more or less formal evidence

given the company by the insured or
claimant under a policy of the
occurrence of the loss, the particulars
thereof and the data necessary to
enable the company to determine its
liability and the amount thereof.
H.2. Guidelines on Claims
Settlement
Claim Settlement
Claim settlement is the indemnification of the
suffered by the insured. The claimant may be
the insured or reinsured, the insurer who is
entitled to subrogation, or a third party who
has a claim against the insured.

Purpose of the rule

To eliminate unfair claim settlement practices
 Rules in claim settlement

1. No insurance company doing business in the

Philippines shall refuse, without justifiable cause, to
pay or settle claims arising under coverages
provided by its policies, nor shall any such company
engage in unfair claim settlement practices.
2. Evidence as to numbers and types of valid and
justifiable complaints to the Commissioner against
an insurance company, and the Commissioners
complaint experience with other insurance
companies writing similar lines of insurance shall be
admissible in evidence in an administrative or
judicial proceeding brought under this section (Sec.
247 (b)).
 Claims settlement in life insurance

1. The proceeds shall be paid immediately

upon the maturity of the policy if there is
such a maturity date.
2. If the policy matures by the death of the
insured, within sixty (60) days after
presentation of the claim and filing of the
proof of the death of the insured (Section
248).
 Claims settlement in property insurance

1. Proceeds shall be paid within thirty (30) days

after proof of loss is received by the insurer
and ascertainment of the loss or damage is
made either by agreement or by arbitration.
2. If no ascertainment is made within sixty (60)
days after receipt of proof of loss, it shall be
paid within ninety (90) days after such
receipt (Sundiang, 2014; Sec. 249).
H.2.a. Unfair Claims
Settlement; Sanctions
Unfair settlement practices

1. Knowingly misrepresenting to claimants pertinent facts or policy

provisions relating to coverage at issue;
2. Failing to acknowledge with reasonable promptness pertinent
communications with respect to claims arising under its policies;
3. Failing to adopt and implement reasonable standards for the prompt
investigation of claims arising under its policies;
4. Not attempting in good faith to effectuate prompt, fair and equitable
settlement of claims submitted in which liability has become
reasonably clear; or
5. Compelling policyholders to institute suits to recover amounts due
under its policies by offering without justifiable reason substantially
less than the amounts ultimately recovered in suits brought by them.
 Sanction for the insurance
companies which engaged to unfair
settlement practices
The suspension or revocation of
an insurance companys certificate
of authority (Sec 247).
 Effect of refusal or failure to pay the claim within the time
prescribed

The insurer shall be liable to pay interest twice the ceiling prescribed
by the Monetary Board on the proceeds of the insurance from the
date following the time prescribed under the Insurance Code, until the
claim is fully satisfied (Prudential Guarantee and Assurance, Inc. v.
Trans-Asia Shipping Lines, Inc. G. R. No. 151890, June 20, 2006).

NOTE: Refusal or failure to pay the loss or damage will entitle the
assured to collect interest UNLESS such refusal or failure to pay is
based on the ground that the claim is fraudulent.

Where the mortgagor and the mortgagee were both claiming the
proceeds of a fire insurance policy and the creditors of the mortgagor
also attached the proceeds, the insurance company cannot be held
liable for damages for withholding payment since the delay was not
malevolent (Rizal Commercial Bank Corporation v. Court of Appeals,
289 SCRA 293).
H.2.b. Prescription of
Action
Rules on the prescriptive period for filing an insurance claim

1. The parties to a contract of insurance may validly agree that an

action on the policy should be brought within a limited period of time,
provided such period is not less than 1 year from the time the cause
of action accrues. If the period agreed upon is less than 1 year from
the time the cause of action accrues, such agreement is void (Sec.
63, Insurance Code).
a. The stipulated prescriptive period shall begin to run from the date
of the insurers rejection of the claim filed by the insured or
beneficiary and not from the time of loss.
b. In case the claim was denied by the insurer but the insured filed
a petition for reconsideration, the prescriptive period should be
counted from the date the claim was denied at the first instance
and not from the denial of the reconsideration (Sun Life Office,
Ltd. vs. CA, GR. No. 89741, 13 March 1991).
2. If there is no stipulation or the stipulation is void, the insured
may bring the action within 10 years in case the contract is
written.
3. In a comprehensive motor vehicle liability insurance
(CMVLI), the written notice of claim must be filed within 6
months from the date of the accident; otherwise, the claim is
deemed waived even if the same is brought within 1 year
from its rejection (Vda. De Gabriel vs. CA, GR No. 103883,
14 November 1996).
4. 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. 397).
 In case the claim was denied by the insurer
but the insured file a petition for
reconsideration, the prescriptive period
should be counted from the date the claim
was denied at the first instance and not from
the denial of the reconsideration. To rule
otherwise would give the insured a scheme or
devise to waste time until any evidence which
may be considered against him is destroyed
(Sun life Office, Ltd. vs. CA, 195 SCRA 193).
H.2.c. Subrogation
If the plaintiffs property has been
insured, and he has received indemnity
from the insurance company for the
injury or loss arising out of wrong or
breach of contract complained of, the
insurance company shall be subrogated
to the rights of the insured against the
wrongdoer or the person who has
violated the contract (Art. 2207, NCC).
 The principle of subrogation 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, No. L-36413, 26 September 1988).

Incapacity of the insured will not affect the capacity

of the subrogee because capacity is personal to the
holder (Lorenzo Shipping v. Chub and Sons, Inc.,
G.R. No. 147724, June 8, 2004).
 Rules on subrogation

1. Applicable only to property insurance the value of

human life is regarded as unlimited and therefore, no
recovery from a third party can be deemed adequate to
compensate the insureds beneficiary.
Exception: when the creditor insures the life of his
debtor.

2. The right of insurer against a third party is limited to the

amount recoverable from latter by the insured.
 Under the collateral source rule, if an injured person receives
compensation for his injuries from a source wholly
independent of the tortfeasor, the payment should not be
deducted from the damages which he would otherwise collect
from the tortfeasor. It finds no application to cases involving
no-fault insurances under which the insured is indemnified for
losses by insurance companies, regardless of who was at
fault in the incident generating the losses. Here, it is clear that
MMPC is a no fault insurer. Hence, it cannot be obliged to pay
hospitalization expenses of the dependents of its employees
which had already been paid by separate health insurance
providers of said dependents. (Mitsubishi Motors Philippines
Salaried Employees Unionvs. Mitsubishi Motors Corporation
G.R. No. 175773, 17 June 2013)
 When amount paid by the insurance
company does not fully cover the
injury or loss the aggrieved party shall
be entitled to recover the deficiency
from the person causing the loss or
injury (Art. 2207, NCC).
Instances where the right of subrogation does not apply

1. Where the insured by his own act releases the wrongdoer or third
party liable for loss or damage from liability
2. The insurer loses his rights against the wrongdoer since the
insurer can only be subrogated to only such rights as the insured
may have
3. Where the insurer pays the insured the value of the loss without
notifying the carrier who has in good faith settled the insured
claim for loss
4. Where the insurer pays the insured for a loss or risk not covered
by the policy
5. Life insurance
6. For recovery of loss in excess of insurance coverage
 The payment by the insurer to the insured
operates as an equitable assignment to the
insurer of all the remedies that the insured may
have against the third party whose negligence
or wrongful act caused the loss. The right of
subrogation is not dependent upon, nor does it
grow out of, any privity of contract. It accrues
simply upon payment by the insurance
company of the insurance claim (Malayan
Insurance Co., Inc., v. Alberto, et al., G.R. No.
194320, 01 February 2012).