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INSURANCE

I. INTRODUCTION

A. Origin and Growthof Insurance

1. Mutua insurance as o d as societ!itse f

Insurance is based upon theprinciple of aiding another from a losscaused by an unfortunate event. Somewriters have maintained that mutualassistance is as old as society itself. Itseems that benevolent societies organizedfor the purpose of extending aid to theirunfortunate members from a fund

contributed by all, have been in existencefrom the earliest times. They existed amongthe Egyptians, the Chinese, the indus, andthe !omans and are "nown to have beenestablished among the #ree"s as early asthe third century before Christ.

The origin of the modern mercantileinsurance contract appears to have been thetransaction evidenced by the bottomry orrespondentia bond, together with thepractice of $general average% contribution.In the latter, the owners of cargo benefitedby the deliberate sacrifice of some goods tosave the others from a sea peril, contributedto pay the losses suffered by such sacrifice.In the former, the lender on bottomry wasrepaid only if the vessel sub&ect of the loanarrived safely at its destination.

". Origin of #resent da! insuranceattri$uted to %erchants of Ita ian cities

The practice of insurance as we"now it today, as an important agency inpromoting commercial and industrialtransactions, is relatively of moderninvention. Its origin is to be found in themutual agreements among merchants of theItalian cities in the early middle agesengaged in common shipping ventures fordistributing among the mutual contractors,the loss falling upon any one by reason ofthe perils of navigation. It is thus apparentthat in its early forms, the law of insurancewas derived from the maritime law and assuch, was part of the general law merchant,and intentional in its character.

&. De'e o#%ent of insurance in Eng and'rom Italy, the practice of insuring

commercial ventures against disaster rapidlyextended to other maritime States of Europe.The Italian merchants coming from theflourishing commercial centers in (orthernItaly, and generally "nown as )ombards,founded trading houses in )ondon in the *+ th

Century and brought with them the custom ifinsuring against hazards of trade. ll-uestions of insurance, however, weredetermined in accordance with the customs ofmerchants, and by merchant courts, or rather,the custom of submitting all contractsinvolving mercantile rights to courts ofmerchants established among themselves.

It was not until the middle of the * th

Century that the common law courts ofEngland began to ta"e ade-uate cognizance ofinsurance cases with the passage in */0* ofthe first English Insurance ct by which aspecial court was established for the trial ofmarine insurance controversies. In *12/, withthe appointment of )ord 3ansfield as Chief4ustice of the Court of 5ing6s 7ench, therecame a new era in the common law withreference to -uestions involving the lawmerchant. In the s"illful hands of this great

&udge who is properly called the $'ather ofEnglish Commercial )aw,% the essentialprinciples of the law merchant wereincorporated into the common8law system ofEngland and the common8law courts therebyrendered competent to determine all -uestionsinvolving insurance.

)loyd6s of )ondon is "nown to havetriggered the early development of insurance.It began as a *1 th Century coffeehousecatering to merchants, vessel owners, ban"ersand the first underwriters. It is "nown that)loyd6s coffeehouse, an inn "ept by oneEdward )loyd on Tower Street in )ondon, was,as early as */ , a popular resort forseafaring men and merchants engaged inforeign trade.

It became the custom among thosewho gathered at )loyd6s to ma"e theirgathering an occasion for arranging theirmutual contracts of insurance against the seaperils to which their ventures were exposed.The method employed in ma"ing suchinsurance contracts was for the person

desiring the insurance to pass around amongthe company assembled a slip upon which waswritten a description of the vessel and itscargo, with the name of the master and thecharacter of his crew, and the voyagecontemplated. Those desiring to becomeinsurers of the ventures so described wouldwrite beneath the description on this slip their

9)orybeth:7aldrias. head ; 9(ayna:3alayang. de#ut! ; 9

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names or initials, and opposite thereto theamount which each was willing to shoulder.The term $underwriter% was believed to haveoriginated from such a practice.

*. De'e o#%ent of insurance in theUnited States

In general, the development of the

several "inds of insurance has followed thesame lines in the Anited States as inEngland. owever, the insurance industry ofthe Anited States has grown to such anextent that which the exception of oceanmarine insurance, the English practices andthe English decisions have little influence oninsurance in the Anited States.

+. De'e o#%ent of insurance in the,hi i##ines

Insurance in the >hilippines is rathera young institution. >rior to the *B th

century, insurance, in its modern sense, didnot exist. hilippines, aside fromeconomic reasons, that is, low per capitaincome of the people, was the fatalisticphilosophy behind our oft8-uoted expression

$bahala na.% Insurance, in its present concept,

was first introduced in the >hilippinessometime in * +B when )loyd6s of )ondonappointed Stracham, 3urray D Co., Inc. asits representative here. Sometime in *B B,the Anion Insurance Society of Cantonappointed !ussell D Sturgis as its agent in3anila. The business transacted in the>hilippines then was limited to non8lifeinsurance. It was only in * B that lifeinsurance was introduced in this countrywith the entry of Sun )ife ssurance ofCanada in the local mar"et.

The first domestic non8life insurancecompany, the =e" Tong )in 'ire and 3arineInsurance Company, was organized on 4une

, *B0/, while the first domestic life

insurance company, the Insular )ife ssuranceCo., )td., was organized in *B*0. In *B20,reinsurance was introduced with !einsuranceCompany of the Frient writing treaties forboth life and non8life. The first wor"men6scompensation >ool was organized in *B2* asthe !oyal #roup Incorporated. In *BGB, agovernment agency was formed to handleinsurance affairs. The Insular Treasurer was

appointed Commissioner ex8officio.Social insurance was established in*B / with the enactment of C. . (o. * /which created the #overnment ServiceInsurance System H#SIS which startedoperations in *B 1. The ct coversgovernment employees. It was followed muchlater in *B2G by !. . J **/* which providesfor the organization of the Social SecuritySystem HSSS covering employees of theprivate sector.

-. aws on Insurance

1. Sources of Insurance aw in the,hi i##ines hilippines were found in Title 1 of 7oo" +and Section of Title of 7oo" of theCode of Commerce, and in Chapters + andG of Title *+ of 7oo" G of the old CivilCode of * B.

hen ct J +G+1, enacted on

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Special lawsI. The Insurance Code of *B1

H>< *G/0II. The !evised #overnment

Service Insurance ct of*B11 H>< **G/, asamended , with respect toinsurance of governmentemployees

III. The S ocial Security ct o f*B2G H! **/*, asamended with respect toinsurance of employees inprivate employment

Fthers K insofar as the Civil Code isconcerned, the Code of Commerce isconsidered a special lawI. ! /2/ Has amended by >. A #ersona contract

Each party having in view the credit,character and conduct of another

s a rule, the insured cannot assign,before the happening of the loss, hisrights under a property policy withoutthe consent of the insurer. Theobligation of the insurer to pay doesnot attach or run with the propertywhether it be real property or

personalo If a person whose property is

insured sells it to another, thebuyer cannot be his successorin the contract of insuranceunless, of course, the sale iswith the consent of theinsurer or unless by expressstipulation of the parties, thecontract is made to run withthe property of the transferee

o here the insurance is $onaccount of the owner% or $forwhom it may concern% orwhere $the loss is payable tobearer,% the subse-uenttransferees or ownersbecome by the terms of thecontract, the real parties tothe contract of insurance.

ll insurance contracts share acommon trait of $personal8ness%

o >ersonal insurance Hincludeslife, health, accident, anddisability insurance K appliesonly to a particular individual,and it is not possible, forexample, for the insuredunilaterally declaring that his

health insurance policy shallnow be deemed to cover thehealth of someone else

o )iability insurance K eachperson purchases coveragefor his own Hor a group ofrelated persons potentialliability to others. The insurerprices the coveragedepending on thecharacteristics and traits ofthe particular insured

o >roperty insurance 8 theinsurance is on the insured6sinterest in the property, noton the property itself. It isthe damage to the personalinterest not the property thatis being reimbursed

o )ife insurance K #E(E! ))=SSI#( 7)E as they are in

the nature of property and do


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not represent a personalagreement between insuredand insurer

?. A contract of Adhesion >olicy is presented to the insured

already in its printed form $Ta"e it or leave it%

1@. Of highest degree of good faith Each party is en&oined by law to deal

with each other in good faith

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lthough all the elements of aninsurance contract may seem to bepresent, yet the furniture buyer and?orhis heirs did not, under thecircumstances, need the protectionwhich the law aims to give the insuringpublic by the re-uirement of a priorlicense.'irst of all, when the buyer purchased

the furniture, he must have seen andexamined it and must have believed thatit was worth the amount he agreed topay for it. Secondly, the furniture wasdelivered to him at the time of thecontract and used by him thereafter.Apon his death, his heirs continueden&oying the use of the furniture.Therefore, the buyer and?or his heirsstood to lose nothing by the -uestionedstipulation, and if at all, stood to gain byit.

&. ,re

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Insurance on human lives andinsurance appertaining thereto orconnected therewith

3ade payable on the death of aperson, or on his surviving aspecified period, or otherwisecontingently on the continuance orcessation of life

b #roup life

Sec. 20.The policy shall be in printed formwhich may contain blan" spacesN and anyword, phrase, clause, mar", sign, symbol,signature, number, or word necessary tocomplete the contract of insurance shall bewritten on the blan" spaces providedtherein.

ny rider, clause, warranty or endorsementpurporting to be part of the contract ofinsurance and which is pasted or attached tosaid policy is not binding on the insured,unless the descriptive title or name of therider, clause, warranty or endorsement isalso mentioned and written on the blan"spaces provided in the policy.

Anless applied for by the insured or owner,any rider, clause, warranty or endorsementissued after the original policy shall becountersigned by the insured or owner,which countersignature shall be ta"en as hisagreement to the contents of such rider,clause, warranty or endorsement.

#roup insurance and group annuity policies,however, may be typewritten and need notbe in printed form.

3ay be typewritten and need not bein printed form

3embers usually a cohesive groupo >ay a uniform premiumo Asually no medical

examinationo (ormally re-uires a

specified number of persons

insured before policy isissued

c Industrial life

Sec. ++B.The term Mindustrial life insuranceM as usedin this Code shall mean that form of life insuranceunder which the premiums are payable eithermonthly or oftener, if the face amount of insuranceprovided in any policy is not more than five hundredtimes that of the current statutory minimum dailywage in the City of 3anila, and if the wordsMindustrial policyM are printed upon the policy as partof the descriptive matter.

n industrial life policy shall not lapse for non8payment of premium if such non8payment was dueto the fai lure of the company to send i tsrepresentative or agent to the insured at theresidence of the insured or at some other placeindicated by him for the purpose of collecting suchpremiumN >rovided, That the provisions of thisparagraph shall not apply when the premium on thepolicy remains unpaid for a period of three monthsor twelve wee"s after the grace period has expired.

'orm of life insurance under which thepremiums are payable either monthlyor oftener

'ace amount of insurance provided in

any policy is not more than fivehundred times that of the currentstatutory minimum daily wage in theCity of 3anila

Shall not lapse for non8payment ofpremium if such non8payment wasdue to the failure of the company tosend its representative or agent to theinsured at the residence of theinsured or at some other placeindicated by him for the purpose ofcollecting such premium

o This shall not apply when thepremium on the policyremains unpaid for a period

of three months or twelvewee"s after the grace periodhas expired.

". Non< ife K include policies covering ris"sto which property may be exposed, as well asthose which cover the ris" of liability to thirdpersons. It covers a specified period of timeHnot more than * year and has a definiteperiod of coverage.

a 3arine

Sec. BB.3arine Insurance includesL

H* Insurance against loss of or damagetoL

Ha @essels, craft, aircraft, vehicles,goods, freights, cargoes, merchandise, effects,disbursements, profits, moneys, securities,choses in action, evidences of debts, valuablepapers, bottomry, and respondentia interests


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and all other "inds of property and intereststherein, in respect to, appertaining to or inconnection with any and all ris"s or perils ofnavigation, transit or transportation, or whilebeing assembled, pac"ed, crated, baled,compressed or similarly prepared forshipment or while awaiting shipment, orduring any delays, storage, transhipment, or

reshipment incident thereto, including warris"s, marine builderPs ris"s, and all personalproperty floater ris"sN

Hb >erson or property in connectionwith or appertaining to a marine, inlandmarine, transit or transportation insurance,including liability for loss of or damagearising out of or in connection with theconstruction, repair, operation, maintenanceor use of the sub&ect matter of suchinsurance Hbut not including life insurance orsurety bonds nor insurance against loss byreason of bodily in&ury to any person arisingout of ownership, maintenance, or use of

automobiles NHc >recious stones, &ewels, &ewelry,precious metals, whether in course oftransportation or otherwiseN

Hd 7ridges, tunnels and otherinstrumentalities of transportation andcommunication Hexcluding buildings, theirfurniture and furnishings, fixed contents andsupplies held in storage N piers, wharves,doc"s and slips, and other aids to navigationand transportation, including dry doc"s andmarine railways, dams and appurtenantfacilities for the control of waterways.

H+ M3arine protection and indemnityinsurance,M meaning insurance against, oragainst legal liability of the insured for loss,damage, or expense incident to ownership,operation, chartering, maintenance, use,repair, or construction of any vessel, craft orinstrumentality in use of ocean or inlandwaterways, including liability of the insuredfor personal in&ury, illness or death or forloss of or damage to the property of anotherperson.

Fcean marine insurance K aninsurance against ris" connectedwith navigation, to which a ship,cargo, freightage, profits or otherinsurable interest in movableproperty, may be exposed during acertain voyage or a fixed period oftime

Inland marine insurance K it is ofcomparatively recent origin and

covers primarily the land or over theland transportation perils of propertyshipped by railroads, motor truc"s,airplanes, and other means oftransportation. It also covers ris"s ofla"e, river, or other inland waterwaytransportation and other waterborneperils outside of those ris"s that falldefinitely within the ocean marinecategory

b 'ire

Sec. */1. s used in this Code, theterm Mfire insuranceM shall include insuranceagainst loss by fire, lightning, windstorm,tornado or earth-ua"e and other allied ris"s,when such ris"s are covered by extension tofire insurance policies or under separatepolicies.

Insurance against loss by fire,lightning, windstorm, tornado or

earth-ua"e and other allied ris"s,when such ris"s are covered byextension to fire insurance policies orunder separate policies

c Casualty or )iability Insurance

Sec. *1G. Casualty insurance isinsurance covering loss or liability arising fromaccident or mishap, excluding certain types ofloss which by law or custom are considered asfalling exclusively within the scope of othertypes of insurance such as fire or marine. Itincludes, but is not limited to, employerPsliability insurance, motor vehicle liability

insurance, plate glassinsurance, burglary andtheft insurance, personal accident and healthinsurance as written by non8life insurancecompanies, and other substantially similar"inds of insurance.

Insurance covering loss or liabilityarising from accident or mishap,excluding certain types of loss whichby law or custom are considered asfalling exclusively within the scope ofother types of insurance such as fireor marine

Includes, but is not limited to,employer6s liability insurance, motorvehicle liability insurance, plate glassinsurance, burglary and theftinsurance, personal accident andhealth insurance as written by non8lifeinsurance companies, and othersubstantially similar "inds ofinsurance


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d Suretyship

Sec. *12. contract of suretyship isan agreement whereby a party called thesurety guarantees the performance byanother party called the principal or obligorof an obligation or underta"ing in favor of athird party called the obligee. It includesofficial recognizances, stipulations, bonds orunderta"ings issued by any company byvirtue of and under the provisions of ct (o.2 /, as amended by ct (o. ++0/.

Sec. *1/. The liability of the surety orsureties shall be &oint and several with theobligor and shall be limited to the amount ofthe bond. It is determined strictly by theterms of the contract of suretyship inrelation to the principal contract between theobligor and the obligee. H s amended by>residential ertinent provisions of theCivil Code of the >hilippines shall be appliedin a suppletory character whenevernecessary in interpreting the provisions of acontract of suretyship.

n agreement whereby a suretyguarantees the performance by theprincipal or obligor of an obligationor underta"ing in favor of a thirdparty or obligee

Includes official recognizances,stipulations, bonds or underta"ingsissued by nay company by virtue of

ct J 2 /, as amended by ct J++0/

contract of suretyship shall bedeemed to be an insurance contract,only if made by a surety who orwhich is doing an insurance business

&. 8ariations in ife InsuranceContracts

a hole life plan The terms of which the insured is

re-uired to pay a certain fixedpremium annually or at morefre-uent intervals throughout lifeand the beneficiary is entitled toreceive payment under the policyonly after the death of the insured

The ultimate payment of theinsurance proceeds is as certain asdeath itself

b )imited payment plan The terms of which the premiums are

payable only during a limited period ofyears, usually ten, fifteen, or twenty

hen the specified number ofpremium payments have been made,

the insurance is fully paid for It is li"e whole life policies in that it is

payable only at the death of theinsured

If the insured should die within thespecified period, his beneficiary isentitled to all the proceeds of thepolicy without any liability for theunpaid premiums

7ecause of the limited number ofpayments to be made by the insured,the premiums are proportionatelyhigher

c Term plan Fne which provides coverage only of

the insured dies during a limitedperiod

It is an insurance for a fixed or aspecific term, such as two, five, or tenyears

If the insured dies within the periodspecified, the policy is paid to thebeneficiary

If he survives the period, the contractterminates

The premium paid is levied during thespecified terms and increases witheach renewal term or the amount ofthe coverage declines, and this isbecause as a person ages, the ris" ofdeath increases

The premium is lower than in the caseof whole life policies because of thepossibility that the insurer may not beobliged to pay anything in proceedswhatsoever if the insured survives theterm

d >ure endowment plan Insured pays premium for a specified

period and should he survive theperiod, the insurance company payshim the face value of the policy

If he should die within the period the

insurance company is released fromany liability and unless provided in thecontract, need not reimburse any partof the premiums paid

e Endowment plan The terms of which the insurer binds

himself to pay a fixed sum to the


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insured if he survives for a specifiedperiod Hmaturity date stated in thepolicy , or if he dies within suchperiod, to some other personindicated

The premium is higher because thecash values of the policy grow morerapidly.

This "ind of policy differs from the

limited payment life policy in that inthe case of the latter, the policy ispaid only upon the death of theinsured

The insured stands a chance ofbeing paid the proceeds of the policywhile still alive

The proceeds on maturity can bepaid either in a lump sum or as anannuity

0. Construction 6 Inter#retation ofInsurance Contracts

1. Bhere there is A%$iguit! or Dou$t Insurance is, in its nature, complex

and difficult for the layman tounderstand

s a general rule, contracts ofinsurance are to be construedliberally in favor of the insured andstrictly against the insurer resolvingall ambiguities against the latter, soas to effect its dominant purpose ofindemnity or payment to theinsured, especially were a forfeitureis involved

n insurance contract should be so

interpreted as to carry out thepurpose for which the partiesentered into the contract which is toinsure against ris" of loss, damageor liability on the part of the insured

policy of insurance is a contract ofadhesion, that is, most of the termsof the contracts do not result frommutual negotiation between theparties as they are prescribed by theinsurer in final printed forms whichthe insured may re&ect or to whichhe may adhere if he chooses butwhich he cannot change

The insurer is under the duty toma"e its meaning clear if it desiresto limit or restrict the operation ofthe general provisions of its contractby special proviso, exception orexemption

ny ambiguity in the insurancecontract should, therefore, beresolves in favor of the beneficiary

policy of insurance which containsexceptions or conditions tending towor" a forfeiture of the policy shall beinterpreted most favorably towardthose against whom they are intendedto operate and most strictly against

the insurance company or the partyfor whose benefit they are inserted

here restrictive provisions are opento two interpretations, that which ismost favorable to the insured isadopted. )imitations of liability mustbe construed in such a way as topreclude the insurer from noncompliance with its obligations

". Bhere Ter%s are C ear The cardinal principle of insurance law

of interpreting insurance contractsfavorably to the insured is applicableonly in cases of doubt, not when theintention of the policy is clear or thelanguage is sufficiently clear toconvey the meaning of the parties

The court is bound to adhere to theinsurance contract as the authenticexpression of the intention of theparties, and it must be construed andenforced according to the sense andmeaning of the terms which theparties themselves have used.

If such terms are clear and certain,they must be ta"en in their plain andordinary sense

The terms of an unambiguous

insurance policy cannot be enlargedor diminished by &udicial constructionsince the court cannot ma"e a newcontract for the parties where theythemselves have employed expressand unambiguous words

Fbligations arising from contractshave the force of law between thecontracting parties and should becomplied with in good faith

&. itera or Strict Inter#retation

First ue!on City "nsurance vs. CAFacts: ?el >osario fell off a ?e ?ios !arikina

Transportation Co. nc. bus. ?el >osario wasbrought to the hospital and stayed there for 0days. The cost for the hospitali+ation amounted to#6)% while unearned salary due to confinementamounted to #'%(00. ?el >osario filed a complaintagainst ?!TC and its insurance company% First

ue+on City nsurance Company.


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Held: The insurance company s liability shouldbe limited to #&7%000 only. The insurance policyclearly placed the ma*imum limit of First ue+onCity s liability for damages arising from death orbodily at #&7%000 per passenger and itsma*imum liability per accident at #(0%000. Thismeans that the insurer s ma*imum liability forany single accident will not e*ceed (0Kregardless of the number of the passengerskilled or inobbery 3aw. ?emands weremade by the bank upon the insurance company topay the amount of '7(K% but the latter refused topay as the loss is e*cluded from the co"erage ofthe insurance policy which reads- The companyshall not be liable under this policy in respect of . . .any loss caused by any dishonest% fraudulent orcriminal act of the insured or any officer% employee%partner% director% trustee or authori+edrepresentati"e of the insured whether acting aloneor in con

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conditions they deem best upon their obligationsnot inconsistent with public policy

*. i$era Inter#retation Reasona$ eE)#ectations

Fieldman(s "nc. vs. )da. *e SongcoFacts: ,ongco owned a pri"ate

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e*isted from the "ery beginning% the appellantne"ertheless issued the policies in 2uestionsubi+al s contention is that the policyco"ered only the contents of the four8span building


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which was only partly burned and not thedamage caused to the two8storey anne* building.Held: The anne* building and the contents areco"ered under the policy. The so called anne*1formed an integral and inseparable part of thefour8span building. t was a Opermanent structurewhich adi+alwho drafted the insurance policy contract. Thisis because the insured usually has no "oice inthe selection or arrangement of the wordsemployed and that the language of the contractis selected with great care and deliberation bye*perts and legal ad"isers employed by% andacting e*clusi"ely in the interest of the insurancecompanies.

III. ,ER0ECTION O0 T/E CONTRACT O0INSURANCE

A. Offer and Acce#tance consensua it!

pplicant usually ma"es the offer tothe insurer.

Submission of application, even w?payment is a mere offer on the partof the applicant, it does not bind theinsurer.

pproval of the application by theinsurer is necessary to perfectcontract. If madeL

8 w? payment of premium K policybecomes effective 8 w?o payment K effective uponpayment of premium

*.

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co"erage. 9e paid premium and was issued areceipt by the agent of BF 3ifeman. 9owe"er% hedied before his application papers were transmittedto the head office of BF 3ifeman.

,,= - 45H the insurance policy was perfected9 3?- Ho. There was no acceptance of the offer.The perfection of the contract was conditionedupon compliance with the pro"ision in theapplication form wJc stated that perfection only lieswhen the applicant pays and the premium andrecei"es and accepts the policy while still in goodhealth. Thus% the assent of BF 3ife was not gi"enwhen it merely recei"ed the application form of#ere+ in its pro"incial office. Also% deli"ery to #ere+would be impossible as he is already dead. ,o longas an application for insurance has not beenaccepted or re

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precedent for a non8life insurance policy tobe valid and binding, and an agreement togrant the insured credit extension of thepremium is void. owever, Makati Tuscanyv CA and the second UCPB case saysotherwise. ence, credit extensionagreements may be valid.

ERCE>TIF(S to Sec. 11L

*. In the case of a life or anindustrial policy whenever the graceperiod provision applies HSec. 11

+. rticle 1 Hsee below. greement to grant the

insured credit extension for thepayment of the premium

G. hen there is an agreementallowing the insured to pay premiumin installment and partial payment hasbeen made at the time of the lossHSee Makati Tuscany v CA)

Sec. => n ac"nowledgment in a policy orcontract of insurance of receipt of premiumis conclusive evidence of its payment, so faras to ma"e the policy binding,notwithstanding any stipulation therein thatit shall not be binding until the premium isactually paid

Effect of ac"nowledgment of receiptof premium in property K Insurer cannotdeny the truth of the receipt of thepremium even if it is unpaid.

)aw established a legal fiction ofpayment H prima facie evidence of

payment . Thus insurer presumed to havewaived the condition of prepayment. SC has decided that above is an

exception to Sec. 11

Sec. ;* (o policy of insurance other thanlife shall be cancelled by the insurer exceptupon prior notice thereof to the insured, andno notice of cancellation shall be effectiveunless it is based on the occurrence, afterthe effective date of the policy, of one ormore of the followingLHa non8payment of premiumN

Hb conviction of a crime arising outof acts increasing the hazard insuredagainstN

Hc discovery of fraud or materialmisrepresentation

Hd discovery of willful or rec"lessacts or omissions increasing the hazardinsured againstN

He physical changes in the propertyinsured which result in the propertybecoming uninsurableN or

Hf a determination by theCommissioner that the continuation of thepolicy would violate or would place theinsurer in violation of this Code

Cancellation K right to rescind, abandon orcancel a contract of insurance, terminationof policy before its expiration.

>remium referred to in /GHa refers topayment $after effective date of the policy%because Sec. 11 ordains that insurancepolicy is valid and binding unless and untilpremium has been paid.

Conditions under w?c above exercisedL* >rior notice of cancellation to insured+ (otice must be based on the occurrence, after the defective date of the policy, of one

or more of the grounds mentioned It must be in writing, mailed or deliveredto the named insured at the address shownin the policyG It must state w?c of the ground set forthis relied upon.

#i'ay v CAFACT, Fortune 3ife issued a fire insurance policyin fa"or of Tibay on a bldg in !akati% together wJ alltheir personal effects therein. ioleta paid part ofthe total premium. 7 mos. Afer% a fire completelydestroyed the bldg. 7 days after the fire% Tibay paidthe balance of the premium. Fortune deniedTibay s claim for "iolation of ,ec'' of nsurance

Code.,,= 45H a fire insurance policy is already"alid% binding and enforceable upon mere partialpayment of premium9 3? H5 ,ec. '' applies. ,ince acceptance ofpartial payment is not mentioned among thee*ceptions pro"ided in ,ec '' and '$ of the

nsurance Code% no policy of insurance can e"erpretend to be efficacious until premium has beenfully paid.8 The policy contained a condition wJc said that

The policy including any renewal thereof is not inforce until the premium has been fully paid * * *1Clearly% the #olicy pro"ides for payment ofpremium in full.

? ,, HT D !#TE The insurance co"erage shouldbecome effecti"e from the day that the partialpayment is accepted by the insurer% any stipulationin the policy to the contrary notwithstanding. #artialpayment is enough to establish the

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re2uire a specific amount of premium payment inorder to create the

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payment of premiums is a condition precedent tothe "alidity of an insurance contract other thanthe insurance policy. Any agreement to thecontrary is 5 ? as against the law and publicpolicy.

C. ,re%iu% defau t in ife insurance9Sec ""=2 h : o#tions a#sed #o ic!

Sec. ""= In the case of individual life orendowment insurance, the policy shall containin substance the following conditionsL x x xHh table showing in figures cash surrendervalues and paid8up options available under thepolicy each year upon default in premiumpayments, during at least twenty years of thepolicy beginning with the year in which thevalues and options first become available,together with a provision that in the event ofthe failure of the policy8holder to elect one ofthe said options within the time specified in thepolicy, one of the said opt ions shallautomatically ta"e effect and no policyholdershall ever forfeit his right to same by reason ofhis failure to so elect.x x x x x x x x x x x xH& provision that the policy shall be entitled tohave the policy reinstated at any time within years from the date of default of premiumpayment unless tha cash surrender value hasbeen duly paid, or the extension period hasexpired, upon production of evidence ofinsurablility satisfactory to the company andupon payment of all overdue premiums and anyindebtedness to the company upon said policy,with interest rate not exceeding that whichwould have been applicable to said premiumsand indebtedness in athe policy years prior toreinstatement x x x

NON< I0E H!efer to Sec.11 Seems to say that

policy is in effect as soon as the thing isexposed to ris" even if the premium hasnot been paid yet.

here contract covers a period of *year, there would normally be only onepremium payment for the period.

If parties agreed to pay in installments,and there is a failure to pay anyinstallment when it falls due insurermayL- cancel policy after due notice-

compel the payment of installmentsI0E

Intended to be in force f or a periodlonger than a yearN involves severalperiodical premium payments Hannual,semi8annual, etc

Contract not binding until first periodicalpremium payment. fter first payment,insured under no legal obligation to paysubse-uent premium.

Insurance Code grants grace period withinwhich to pay subse-uent premiums. Ifpolicy becomes a claim during the graceperiod but before overdue premium ispaid, overdue may be deducted from

proceeds of policy 'ailure to pay w?in grace period

automatic lapse ExceptionL Insured has paid three full

annual premiums. Entitled to the followingO#tions u#on defau t L

* Cash Surrender Value The amount the insured is entitled to

receive if he surrenders the policy andreleases his claims upon it. It is theportion of reserve on a life policy

(ature of CS@L >remium is uniformthroughout lifetime of policy, so duringthe earlier years of the policy, thepremium charges will be more than theactual cost of the protection against theris" in order to meet the higher cost ofris" during the latter years of the policywhen the insured is older. !eserve @alue8 Surrender Charge Cash Surrender@alue

The more premiums he has paid, thegreater will be the CS@ but the value isalways a lesser sum than the total amt ofpremiums paid.

CS@ is the amount company holds in trustfor insured deliverable upon demand.

E''ECTL Surrender policyN terminates the

contract of insurance

+ !tended "nsurance E''ECTL >olicy continues in force from

date of default, for a #eriod either statedor e-ual to the amount of the cashsurrender value, ta"en as a singlepremium, will purchase. lso called $terminsurance.%

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A%ount of Insurance that the CS@,applied as a single premium, canpurchase.

E''ECTL >olicy continues in force fromdate of default for the whole period andunder the same conditions of the originalcontract w?o further payment ofpremiums. owever, in case of death ofinsured, he may recover only the $paid8

up% value of the policy w?c is much lessthan the original amount agreed upon.HIn other words, na8reduce yung originalinsurance contract to one with a lowervalue

7etter option if insured is still young andin good health because unli"e extendedinsurance, he may later reinstate policyif he wishes.

G Automatic Premium $oan Apon default, insurer

ends6ad'ances to the insured without any need of application onhis part, a%ount necessar! to#a! o'erdue #re%iu% , but not toexceed the CS@ of the policy.

Fnly applies if re-uested in writingby the insured either in theapplication or at any time before theexpiration of the grace period.

E''ECTL Insurance continues inforce for period covered by thepayment. fter period, if insuredstill does not resume paying hispremiums, policy lapses, unlessthere remains CS@.

If there is still CS@, auto premiumloan continues until it is exhausted.

dvantageous to the insuredbecause it helps to continue thecontract and all its features in fullforce and effect.

Insured under no legal obligation torepay $loan%

2 %einstatement HSec & E''ECTL

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rates upon which the final premium is tobe determinedN

Hd The #ro#ert! or ife insured NHe The interest of the insured in

property insured, if he is not he absoluteowner thereofN

Hf The ris5s insured againstN andHg The #eriod during which the

insurance is to continue The Insurance Code does not

re-uire a particular form for thevalidity of the contract. owever,the policy must contain theenumeration in rt. 2* Hsee above

The policy is different from thecontract itself.

,o ic! 8 written instrumentembodying the terms andstipulations of a contract ofinsurance. (ot essential to thevalidity of the contract as long as allthe essential elements for theexistence of contract are present.HConsent, ob&ect, consideration,competent parties8 3ust be in printed form, w? blan"

spaces to accommodate any word,phrase, clause, mar" sign, symbol,signature, number or wordnecessary to complete the contract.

Fther stipulations not re-uired bylaw may be included as long asthey are not prohibited orinconsistent with the law.

3issing provisions re-uired doesnot void policy. 3issing provisions

will be read into the policy and willsubstitute those w?c are in conflictw? the law.

Stipulations not in the exact termsof the statute, if more favorable tothe insured, will be enforced.

SI! Hon oral contracts L In some &urisdictions of the AS, oral contractis valid, provided that all the termsare agreed upon. In our InsuranceCode, although written form notre-uired for validity, someprovisions say that a >!I(TEF)IC= is best evidence of contract.SC has not ruled categorically onthis matter.

*. !iders, clauses, endorsements If parties wish to include special

stipulations, may attach riders,endorsements, warranties.

Rider K a printed or typed stipulationcontained on a slip of paper attachedto the policy and forming an integralpart of the policy.

To be binding L83ust be attached?pasted to the policy8

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governing such violation and may be suchrules and regulations dispense with there-uirement of written approval by him inthe case of extension in compliance withsuch rules and regulations Hn

Cover notes?7inders K a writtenmemorandum intended to givetemporary protection Hto insuredpending the the investigation of the ris"by the insurer, or until the issue of theformal policy, provided it is laterdetermined that the applicant wasinsurable at the time it was given.

It is a binding contract and has fullforce and effect during its duration.

)aw re-uires that policy be issued/0 days after cover note is issued. Itmay be cancelled by either party bygiving, Hat least a 18day prior notice toother party.

Insurer not obliged to give covernotes but many do so in order to gain

goodwill. Asually contain only the bare

essentials of an insurance contractL i.e.the name of the parties, ris" insuredagainst, amount of insurance, premium,property?life insured.

3ay be extended?renewed beyond/0 days w? the written approval of theInsurance Commission.

. Fpen and @alued >olicies Hnon8life

Sec +?. policy is either open, valued orrunning.

Sec ;@. n open policy is one in which thevalue of the thing insured is not agreed upon,but is left to be ascertained in case of loss.

Sec ;1. valued policy is one whichexpresses on its face an agreement that thething insured shall be valued at a specifiedsum.

Sec. ;". running policy is one whichcontemplates successive insurances, andwhich provides that the ob&ect of the policymay be from time to time defined, especiallyas to the sub&ects of insurance, by additional

statements or indorsements.

5inds of insurance policiesL O#en or Un'a ued ,o ic! 8 Fne in which a certain agree sum is

written on the face of the policy not as thevalue of the property insured, butas the

maximum limit of the insurer6s liability Hi.e.face value in case of destruction by the perilinsured against.8 Insurer only pays the actual cash value ofthe property as determined at the time of loss.

8a ued ,o ic! 8 Fne in which the parties expressly agree onthe value of the sub&ect matter of the

insurance.8Two valuesL

* 'ace value of the policy w?c is the maxamt insurer pays in case of loss+ @alue of the thing insured

8 In the absence of fraud or mista"e, theagreed value of the thing insured will be paidin case of total loss of the property, unless theinsurance is for a lower amount8 In case of loss, parties may claim that valueof insured property is more or less thanagreed upon.

Running ,o ic!8 Intended to provide indemnity for propertyw?c cannot well be covered by a valued policybecause of its fre-uent change of location and-uantity, or for property of such a nature asnot to admit of a gross valuation. lso denotesinsurance over a class of property rather thanany particular thing. Ex. Insurance overconstantly changing stoc" of goods8 In reality, these are open policies.8 Contemplates successive insurances.

I8. ,ARTIES

Essential !e-uisites for a person to be

a party in an insurance contractLL*. 3ust be CF3>ETE(T to enter

Hhas capacity+. 3ust possess I(SA! 7)E

I(TE!EST. 3ust (FT be a >A7)IC

E(E3=A. Insurer

Sec. ;. Every person, partnership,association, or corporation duly authorized totransact insurance business as elsewhereprovided in this Code, may be an insurer. Ha

Sec 1>* 'or purposes of this Code, the term $insurer% or $insurance company% shall includeall individuals, partnerships, associations, orcorporations, including government8owned orcontrolled corporations or entities, engaged asprincipals in the insurance business, exceptingmutual benefit associations. Anless the


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context otherwise re-uires, the term shallalso include professional reinsurers, definedin Section + 0. $hilippines.

$'oreign company% when used withoutlimitation shall include companies formed,organized, or existing under any laws otherthan those in the >hilippines.

Sec 1>+ Corporations formed or organizedto save any person or persons or othercorporations harmless from loss, damage, orliability arising from any un"nown or futureor contingent event, or to indemnify or tocompensate any person or persons or othercorporations for any such loss, damage, orliability, or to guarantee the performance ofor compliance with contractual obligations orthe payment of debts or others shall be"nown as $insurance corporations%

The provisions of the Corporation)aw H7> 7lg / shall apply to all insurance

corporations now or hereafter engaged inbusiness in the >hilippines insofar as they donot conflict with the provisions of thisChapter.

Insurer K party who assumes oraccepts the ris" of loss and underta"esfor a consideration to indemnify theinsured or to pay him a certain sum onthe happening of a specified contingencyor event.

Summary of * G and * 2L* GL hat term $insurer% includes* 2L hat $Insurance Corporations% are!egulated by the StateL To engage inthe business of insurance, re-uired toget certificate of authority from theInsurance Commissioner, and mustpossess sufficient capital assets. H illnot include other re-uirements, medyotechnical. e only need to "now defn ofinsurer and insurance corporations7an"ing institutions are not allowed toengage in insurance business H#eneral7an"ing ct *1

-. Insured

Sec. = nyone except a public enemy must

be insured

Sec. +; hen the description of the insuredin a policy is so general that it maycomprehend any person or any class ofpersons, only he who can show that it was

intended to include him can claim the benefitunder the policy.

RA ;>@? 8 )owered the age ofE3 (CI> TIF( (< #E F' 3 4F!IT= Art. "&* . Emancipation ta"es place by theattainment of ma&ority. Anless otherwiseprovided, ma&ority commences at the age of

eighteen years. Has amended by ! / 0B

Art. "&;. Emancipation for any cause shallterminate parental authority over the personand property of the child who shall then be-ualified and responsible for all acts of civillife, save the exceptions established byexisting laws in special cases. x x x Hasamended by ! / 0B

Art. 11@ 90a%i ! Code The spouses retainthe ownership, possession, administration anden&oyment of their exclusive properties.

Either spouse may, during the marriage,transfer the administration of his or herexclusive property to the other by means of apublic instrument, which shall be recorded inthe registry of property of the place theproperty is located. H* 1a, */ a, */Ba

Art. 111 90a%i ! Code: spouse of agemay mortgage, encumber, alienate orotherwise dispose of his or her exclusiveproperty, without the consent of the otherspouse, and appear alone in court to litigatewith regard to the same. Hn

Art. 1&?@ 9Ci'i Code: . The followingcontracts are voidable or annullable, eventhough there may have been no damage tothe contracting partiesLH* Those where one of the parties isincapable of giving consent to a contractN

H+ Those where the consent is vitiated bymista"e, violence, intimidation, undueinfluence or fraud.

These contracts are binding, unless they areannulled by a proper action in court. They aresusceptible of ratification.

Insured K the party in whose favor thecontract is operative and who isindemnified against, or is to receive acertain sum upon the happening of aspecified contingency or event. e is the


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person whose loss is the occasion for thepayment of the proceeds by the insurer.

s in all other contracts, only personswho have the capacity to enter into acontract may be insured.

>olicy must specify the parties betweenwhom the contract is made. HSec. 2*

,u$ ic ene%! K citizen or sub&ect of anation at war with the >hilippines. TCdis2ualified Carponia from claiming benefits underthe policy

,,= - 45H Carponia dis2ualified from claiminginsurance proceeds because of her illicit relationwith the insured.9 3?- R ,. D,C applied CCE ,ince the nsuranceCode does not contain any specific pro"ision on

rules respecting who may be named beneficiary%the CC will apply. Art 70&7 states that any personforbidden from recei"ing donations under Art ' )cannot be named beneficiary of a life insurancepolicy1 Art. ' ) declares "oid donations madebetween persons who are guilty of adultery orconcubinage at the time of the donation. 9ence%


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Carponia is dis2ualified from being named abeneficiary.

)da. de Consuegra v GS"SFACT,- ose Consuegra contracted twomarriages% to ?ia+ and Berdin. After his death%the proceeds of his life insurance wJ the G, ,went to Berdin. 9owe"er% he was also entitled toretirement benefits to which he did not designateany beneficiary.

,,= - 45H Berdin should be considered thesole beneficiary of the retirement benefits beingthe beneficiary of the life insurance policy9 3?- H5. 3ife nsurance and retirementinsurance are separate and distinct funds. 3ife

nsurance is paid to whoe"er is named thebeneficiary and may not necessarily be the heirof the insured. >etirement benefits on the otherhand% are primarily intended for the benefit of theee Q to pro"ide for his old age% incapacity% etc. fthe ee reaches the age retirement% he gets thebenefits e"en to the e*clusion of the beneficiarynamed in the policy. The beneficiary of theretirement insurance can only claim the proceedsof the retirement insurance if the ee dies before

retirement. F there is no beneficiary designatedin the policy% benefits will accrue to the estate%hence ?ia+ is also entitled to the retirementbenefits.

*el )al v *el )alFACT,- #laintiff and ?efendant are siblings.#rior to their father s death% he took out a lifeinsurance policy and made the ?ef the solebeneficiary.

,,= - 45H the insurance proceeds belonge*clusi"ely to the ? F who was the solebeneficiary9 3?- R , The proceeds of an insurance policybelong e*clusi"ely to the beneficiary and not tothe estate of the person whose life was insured%and that such proceeds are the separate andindi"idual property of the beneficiary.

8. INSURA- E INTEREST

A. Definition and ,ur#ose

Sec "1 change on interest in a thinginsured, after the occurrence of an in&urywhich results in a loss does not affect theright of the insured to indemnity for the loss.

Sec "+ Every stipulation in a policy ofinsurances for the payment of loss whetherthe person insured has or has not anyinterest n the property insured, or that thepolicy shall be received as proof of suchinterest, and every policy executed by wayof gaining or wagering, is void.

Insura$ e interest K person is said to havean insurable interest in the sub&ect matterinsured where he has a relation or connectionwith, or concern in it that he will derivepecuniary benefit or advantage from itspreservation and will suffer pecuniary loss ordamage from its destruction, termination, orin&ury by the happening of the event insured

against. Essential element of an insurance

contract. (ot legally possible to waive re-uirement

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Sec 1" The interest of a beneficiary in a lifeinsurance policy shall be forfeited when thebeneficiary is the principal, accomplice, oraccessory in willfully bringing about thedeath of the insured, in which event, thenearest relative of the insured shall receivethe proceeds of said insurance if nototherwise dis-ualified.

Insured is the cestui ue 'ie The nearest relative of the insured shall

receive the proceeds of said insurance ifnot otherwise dis-ualified

#E(E! ) !A)EL 7eneficiary is thechoice of the insured regardless of o(beneficiary has an insurable interest ininsured6s life

ssumptionL Insured would notdesignate as his beneficiary a personwhom he would not trust with his ownlife

ERCE>TIF(S-

aiver- Irrevocable beneficiary Hright toproceed vests

". In the ife6hea th of others

Art 1?+ 90a%i ! Code: . Sub&ect to theprovisions of the succeeding articles, thefollowing are obliged to support each otherto the whole extent set forth in thepreceding articleLH* The spousesNH+ )egitimate ascendants and descendantsNH >arents and their legitimate children andthe legitimate and illegitimate children of thelatterNHG >arents and their illegitimate childrenand the legitimate and illegitimate childrenof the latterN andH2 )egitimate brothers and sisters, whetherof full or half8blood H+B*a

Insured is not the cestui ue 'ie $ut isthe $eneficiar! hen person names himself the

beneficiary in a policy ta"en out on thelife of another, he must have insurableinterest in the life of the other personHhis interest must show some pecuniaryinterest

3ere love and affection (FT insurableinterest

CESTUI UE 8IE7 person upon whose lifeinsurance is ta"en out on

3ust agree ot the ta"ing out ofinsurance

(o law saving you don6t need hisconsent public policy demandsconsent be obtained

ExceptionL >arent ta"ing policy out onminor child

(o amount of consent can ma"e upfor lac" on surable interest

C OSE RE ATI8ES Spouse and children Hminor or not,

married or unmarried dependent or not8 )aw presumes natural affection existing

between spouses, parents andchildren. Thus, )aw recognizes aparent6s insurable interest in child6slife but is silent as to whether or not achild has insurable interest in theparent6s life.

8 Child entitled to support re-uired bylaw, whether or not he?she isfinancially independent sufficient toconstitute pecuniary interest.

ther close relatives Hbrothers andsisters not expressly covered by law

7lood relationship or relationship byaffinity is I33 TE!I ) when relative issource of support Hwhere no legalobligation exists- There is insurable interest both ways

OT/ER RE ATI8ES and STRANGERSo 3ust prove that he has some pecuniary

interest in the life of the cestui -ue vieotherwise policy is void

o 3ere relationship will not sufficeo The re-uirements of insurable interest

cannot be circumvented by an agreementbetween the insured Hcestui -ue vie anda rd person who has no interest, wherebythe latter, having induced the insured tota"e out a policy, promises to pay ofpremiums is the policy is assigned to him.- The intention to ta"e out policy is clearly

not to insure l ife but rather tocircumvent the re-uirement

- Is different from ta"ing a policy out onself and then later assigning it tosomeone who has no insurable interest,because law allows policy to transferwhether or not there is insurableinterest

Sec 1>1 policy of insurance upon life orhealth may pass by transfer, will or successionto any person, whether he has an insurableinterest or not, and such person may recover


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upon it whatever the insured might haverecovered.

Sec 1>" (otice to an insurer of a transfer orbe-uest thereof is not necessary to preservethe validity of a policy of insurance upon lifeor health, unless thereby expressly re-uired.

7est forms of self compelled saving

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Sec 1& Every interest in property, whetherreal or personal, or any relation thereto, orliability in respect therof, of such nature thata contemplated peril might directly damnifythe insured, is an insurable interest.

Contract of inde%nit! 8 measure orinsurable interest in property is the extent towhich the insured might be indemnified byloss or in&ury.

". In what it %a! consist ofSec 1* n insurable interest in propertymay consist inLa an existing interestNb n inchoate interest founded on anexisting interestN orc n expectancy, coupled with an existinginterest in that out of which the expectancyarises

Sec 1; mere contingent or expectantinterest in anything, not founded on anactual right to the thing, nor upon any validcontract for it, is not insurable.

Insurable interest deemed to exist aslong as such interest, relation or liabilityis of such nature that a contemplatedpart might directly damnifty the insuredEven without legal or e-uitable title aslong as it can be shown that the insuredwill be benefited by property6s continuedexistence or wil suffer pecuniary loss byits destruction.'F!3S F! I(SA! 7)E I(TE!EST* . I(TE!EST in the property itself,

whether such property be real orpersonalex. Fwnership of or a lien on property+ . any !E) TIF( to such propertyex. interest of a commission agent ongoods he is selling

. )I 7I)IT= in respect thereof ex. interest of carrier on cargo which heought to carry safely to destination( TA!E F' I(SA! 7)E I(TE!EST

n e)isting interest- may arise from legal title Hex.

mortgagor of the propertymortgagedN lessor of theproperty leasedN assignee ofproperty for the benefit ofcreditors, etc.

- may also be from e-uitable titleHex. >urchaser of propertybefore deliveryN builders in thebuilding under construction orupon completion of building

n inchoate interest foundedon an existing interest

- must be founded on an existingcontract Ex. stoc"holder has aninchoate interest in the property ofthe corporation w?c is founded on anexisting interest arising from hisownership shares.

- partner has an insurable interest in

the firm6s property which will supporta separate policy for his benefit

n e)#ectanc! , coupled withan existing interest in that outof which the expectancy arises8 such must be coupled with an

existing interest in that our ofwhich such expectancy arises.Ex. 'armer insuring futurecrops if it be grown on landowned by him at the time ofthe issuance of the policy

&. Measure of interest in #ro#ert!Sec 1+ carrier or depository of any "ind hasan insurable interest in a thing held by him assuch, to the extent of his liability but not toexceed the value thereof.

Sec 1= mere contingent or expectantinterest in anything, not founded on an actualright to the thing, not upon any valid contractfor it, is not insurable.

Other Interests STFC5 F) !T(E! to 'I!3

8 as sufficient interest in propertyof corporation8 Interest does not rise to thedignity of a title yet he stands insuch a relation to such corporateproperty to vest him with aninchoate right to dividends in caseof profits and to share in the assetsupon li-uidation8 Interest not measured by valueof what is destroyed8 Interest is to share in thedistribution of the proceeds onlyafter payment of corporation6s debts8 3ust prove actual in&ury,otherwise cannot recover more thannominal damages

#E(E! ) C!E

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(o right to posses, no lien , norelation that would cause himdirect damage

Cannot ta"e out policy ondebtor6s property

Cannot recover as appointee orbeneficiary on policy ta"en outby debtor

4A

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Sec ? If an insurer assents to the transferof an insurance from a mortgagor to amortgagee, and at the time of this assentimposes further obligations on the assignee,ma"ing a new contract with him, the acts ofthe mortgagor cannot affect the rights ofsaid assignee.

H where a mortgagor of property effectsinsurance in his own name providing that theloss shall be payable to the mortgagee, orassigns a policy of insurance to a mortgagee,

the insurance is deemed to be uponthe interest of the mortgagor, whodoes not cease to be a party to theoriginal contractany act of mortgagor , prior to theloss, which would otherwise avoid theinsurance will have the same effect,although the property is in the handsof the mortgageeany act which, under the contract ofinsurance, is to be performed by the

mortgagor, may be performed by themortgagee therein named with thesame effect as if it had beenperformed by he mortgagor

a. Separate insurable interestN extentthereof

may separately mortgage same propertysince interest is differentmortgagorL owns propertymortgageeL credit property

b. Insurance by mortgagor for the benefit ofmortgagee )oss payable to mortgageeN excess

proceeds go to mortgagor mortgagorL interest is in the value of the

propertyN the property itself even ifevent does not happen, it does notextinguish the mortgage agreement

mortgageeL interest is the value of theloan or credit

8 in case subse-uently assigned tomortgagee any act of mortgagor canrender void the policy before the eventhappens

c. Insurance ta"en by mortgagee)oss payable to him, collects uponhappening of loss3ortgagor has not part in insuranceproceedsApon loss, 3ortgagor not released fromobligation to pay

8 Insurer subrogates mortgagee6sright and can collect from him

Covers only mortgagees interest

d. $Fpen mortgage clause% and $unionmortgage%

O#en Mortgage HSec K mortgage thatcan be paid8off to maturity w?o penaltyNmortgagee is the beneficiary for insuranceta"en by mortgagor

)enders generally do not li"e openmortgages because the early pay8offreduces the interest they earn

cts of mortgagor invalidates theinsurance

Union Mortgage K standard mortgageclause

3ortgagee may perform the acts ofmortgagor

Clause included wherein the insuranceinterest of mortgagee shall not beinvalidated by any act of themortgagor or owner of property at thetime.

>rotects mortgagee6s interest from

invalidation due to mortgagor6s acts

/. Change of interestN instances of automatictransfer of interest

Sec "1 change on interest in a thinginsured, after the occurrence of an in&urywhich results in a loss does not affect the rightof the insured to indemnity for the loss.

Sec "" change of interest in one or more ofseveral distinct things, separately insured byone policy, does not affect the right of theinsured to indemnity for the loss.

Sec "& change of interest, by will orsuccession, on the death of the insured, doesnot avoid an insuranceN and his interest in theinsurance passes to the person ta"ing hisinterest in the thing insured.

Sec "* transfer of interest by one ofseveral partners, &oint owners, or owners incommon, who are &ointly insured, to theothers, does not avoid an insurance eventhough it has been agreed that the insuranceshall cease upon an alienation of the thinginsured.

Sec +& The insurance proceeds shall beapplied exclusively to the proper interest ofthe person in whose name or for whosebenefit it is made unless otherwise specified inthe policy.


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Sec += policy may be so framed that itwill insure to the benefit of whomever,during the continuance of the ris", maybecome the owner of the interest insured.

#E(E! ) !A)E H In the cases of life,accident, and health insurance change ofinterest suspends insurance 88 Sec +0

ERCE>TIF( 888 Sec +* 8 +G

1. Several interestsN double insurance Hcf.over insurance

Sec ?& double insurance exists where thesame person is insured by several insurersseparately in respect in the same sub&ectand interest.

>rohibition against additional insurance Khen a policy contain s a prohibition

against additional insurance on theproperty insured without the insurer6sconsent, such provision being valid andreasonable, a violation thereof by theinsured avoids the policy. HSta. na vs.Commercial Anion ssurance Co. 22 >hil

+B .

Sec ?* here this insured is over insuredby double insuranceL

Ha The insured, unless the policy otherwiseprovides, may claim payment from theinsurers in such order as he may select, upto the amount for which the insurers areseverally liable under their respectivecontractsN

Hb here the policy under which the insuredclaims is a valued is a valued policy, theinsured must give credit as against, thevaluation for any sum received by himunder any other policy without regard tothe actual value of the sub&ect matterinsured.

Hc here the policy under which the insuredclaims is an unvalued policy he must givecredit , as against the full insurable value,for any sum received by him under anyother policy.

Hd here the insured receives any sum inexcess of the valuation in the case ofvalued policies, and the insurable value inthe case of unvalued policies, and theinsurable value in the case of unvaluedpolicies, he must hold such sum in trust forthe insurers, according to their right ofcontribution among themselves.

He Each insurer is bound, as between himselfand the other insurers, to contribute ratablyto the loss in proportion to the amount forwhich he is liable under the contract.

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UBERRIMAE FIDAE 8 CF(T! CT F'AT3FST #FF< ' IT

* ,RIMARH CONCERNS O0 ,ARTIES TO ANINSURANCE CONTRACT

*. Correct estimation of the ris" which

enables the insurer to decidewhether he is willing to assume it,and if so at what rate of premium

+. The precise delimitation of the ris"which determines the extent of thecontingent duty to pay underta"enby the insurer

. Control of the ris" after it isassumed as will enable the insurerto guard against the increase of theris" because of change in conditions

G. !ESE(T TIF( 7lg. 1G

The effect of concealment on thepart of the insured ma"es thecontract @FI< 7)E at theinsurer6s option

Insurer (EE< (FT >!F@E '! A>AHTRE bindingon both insurer and insured% that there were noother insurance on the property/.the annotationthen% must be deemed to be a warranty that theproperty was not insured by any other policy.

iolation thereof entitled the insured to rescind.1

1oung v %idland #e6tile "nsuranceFacts: The insured% an owner of a candy andfruit store took out a fire insurance policy fromthe defendant insurance company to insure hisresidence and his bodega. =nder the policy% acondition was set as Mwarranty BM whichstipulates that no ha+ardous goods be stored orkept for sale and no ha+ardous trade or processshall be carried in the building. ?uring theenforcement of the insurance policy% the insuredkept bo*es of fire crackers. ,ometime later afire broke out which partially destroyed thebuilding but it appeared that the fire crackerswere not the cause of the fire as they were foundin an area not burned. =pon claim insurer deniedpayment.

Ratio: The terms of the contract constitute themeasure of the insurerNs liability. f the contracthas been terminated by a "iolation of its terms onthe part of the insured% there can be no reco"ery.Compliance with the terms of the contract is acondition precedent to the right of reco"ery. A"iolation of the terms of a contract of insurance%by either party% will constitute the basis for atermination of the contractual relations% at theelection of the other Din this case the insurerE.The right to terminate the contractual relationse*ist e"en though the "iolation was not the directcause of the loss% since the deposit of the

ha+ardous goods1 in the building insured was a"iolation of the terms of the contract. The insureris relie"ed from his liability since the deposit ofthe ha+ardous materials created a new risk notincluded in the terms of the contract. The insurerhad neither been paid% nor had he entered into acontract to co"er the increased risk.

EJCE,TIONS6 EJC USION

Intends to limit the liability of theinsurer under certain circumstances.

%usngi v +est Coast "nsurance Co. "nc.Facts: The insured took out two life insurancepolicies with defendant insurer designating as hisbeneficiaries the plaintiffs in the case. n his

application the insured untruthfully answered2uestions regarding his health particularly aboutha"ing consulted any physician regarding anillness or ailment. t appeared that prior to hisapplication for insurance% the insured had beentreated for a number of ailments including pepticulcer% TB etc. The insured died% and upon hisdeath his beneficiaries filed a claim with

defendant insurance company who denied theclaim.Ratio: The insured is guilty of concealment andthus relie"es the insurer from paying the claim.The insured knew that he had suffered from anumber of ailment before subscribing theapplication% yet he concealed them and omitted thehospital where he was confined as well as thename of his physician who treated him. Theconcealment and false statement constituted fraud%since this caused the defendant insurer to acceptthe risk when it would ha"e otherwise refused.,uch concealment of the insured rendered thepolicy null and "oid Das held also in Argente " 4estCoastE.

Filipna cia de Seguros v $avaFacts: 5n February &) )% plaintiff Ha"a anddefendant Filipinas 3ife Assurance entered into &'separate contracts of life insurance for which theinsured issued &' life insurance policies for whichthe insurer issued &' life insurance policies% one ofsaid policies ha"ing a face "alue of #&0%000 whilethe rest a face "alue of #(%000 each% or a total of

#)0K. ach and e"ery policy contains a policyloan clause. 5n April &) $% plaintiff applied for aloan of #(%000 in line with the loan clause butdefendants refused citing certain regulations issedby the nsurance Commissioner on !ay &) 6.Held: ?efendant s refusal to gi"e the loan appliedfor by the plaintiff "iolated the loan clauseembodied in each of the life insurance policies.This "iolation of the loan clause in the policyentitled plaintiff to rescind all policies under ,ection6) of the nsurance Act% which pro"ides- the"iolation of a material warranty% or other materialpro"ision of a policy% on the part of either partythereto% entitles the other to rescind.1 5ur

nsurance 3aw does not contain an e*presspro"ision as to what the court should do in casesof rescission of an insurance policy under ,ection6)% the pro"ision that should apply is thatembodied in Art. &7)( of the old ci"il code% aspostulated in Art. &6 of the same Code% whichpro"ides that on matters which are not go"ernedby special laws the pro"ision of said Code shallsupplement its deficiency. The CA was correct inordering defendant to refund to plaintiff allpremiums paid by him up to the filing of the actionamounting to # %6 .60.

GROUNDS AND EJERCISE O0 RIG/T O0RESCISSION

Sec. G . henever a right to rescind acontract of insurance is given to the insurerby any provision of this chapter, such rightmust be exercised previous to thecommencement of an action on the contract.

fter a policy of life insurance made payable


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on the death of the insured shall have beenin force during the lifetime of the insured fora period of two years from the date of itsissue or of its last reinstatement, the insurercannot prove that the policy is void ab initioor is rescindable by reason of the fraudulentconcealment or misrepresentation of theinsured or his agent.

Sec. / . condition, stipulation, oragreement, in any policy of insurance,limiting the time for commencing an actionthereunder to a period of less than one yearfrom the time when the cause of actionaccrues is void.

Bhen Cause of Action Accrues The right of the insured to the

payment of his loss accrues from thehappening of the loss.

The cause of action in an insurancecontract does not accure A(TI) T EI(SA!E

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conditions of the policy relating to military ornaval service in time of war.

Sec. 0. (o cancellation of the policy shallbe valid unless written notice thereof is givento the land transportation operator or ownerof the vehicle and to the )and TransportationCommission at least fifteen days prior to theintended effective date thereof.Apon receipt of such notice, the )andTransportation Commission, unless it receivesevidence of a new valid insurance orguaranty in cash or surety bond as prescribedin this Chapter, or an endorsement of revivalof the cancelled one, shall order theimmediate confiscation of the plates of themotor vehicle covered by such cancelledpolicy. The same may be reissued only uponpresentation of a new insurance policy or thata guaranty in cash or surety bond has beenmade or posted with the Commissioner andwhich meets the re-uirements of thischapter, or an endorsement or revival of thecancelled one. H s amended by >< (o. *G22

MARINE INSURANCE

A. DE0INITION

Sec. BB.3arine Insurance includesLH* Insurance against loss of or damagetoLHa @essels, craft, aircraft, vehicles,

goods, freights, cargoes, merchandise,effects, disbursements, profits, moneys,securities, choses in action, evidences ofdebts, valuable papers, bottomry, andrespondentia interests and all other "inds ofproperty and interests therein, in respect to,appertaining to or in connection with anyand all ris"s or perils of navigation, transit ortransportation, or while being assembled,pac"ed, crated, baled, compressed orsimilarly prepared for shipment or whileawaiting shipment, or during any delays,storage, transhipment, or reshipmentincident thereto, including war ris"s, marinebuilderPs ris"s, and all personal propertyfloater ris"sNHb >erson or property in connectionwith or appertaining to a marine, inlandmarine, transit or transportation insurance,including liability for loss of or damagearising out of or in connection with theconstruction, repair, operation, maintenance

or use of the sub&ect matter of such insuranceHbut not including life insurance or suretybonds nor insurance against loss by reason ofbodily in&ury to any person arising out ofownership, maintenance, or use ofautomobiles NHc >recious stones, &ewels, &ewelry,precious metals, whether in course oftransportation or otherwiseNHd 7ridges, tunnels and otherinstrumentalities of transportation andcommunication Hexcluding buildings, theirfurniture and furnishings, fixed contents andsupplies held in storage N piers, wharves,doc"s and slips, and other aids to navigationand transportation, including dry doc"s andmarine railways, dams and appurtenantfacilities for the control of waterways.H+ M3arine protection and indemnityinsurance,M meaning insurance against, oragainst legal liability of the insured for loss,damage, or expense incident to ownership,operation, chartering, maintenance, use,

repair, or construction of any vessel, craft orinstrumentality in use of ocean or inlandwaterways, including liability of the insured forpersonal in&ury, illness or death or for loss ofor damage to the property of another person.

1. 3Na'igationa E)#osure4 $asicconce#t in defininition.

FSA!E is thecommon thread that runs through theenumeration in Sec. BB

!elated to (avigation of the ship

Definition of %arine insurance under theIC and under the Insurance Act 9 aw w6cIC a%ended:

CamposL the IC gives the terms ofmarine insurance a very widecoverage including property exposedto ris"s not connected withnavigation.

The simple clear definition in the Iwas betterL Marine insurance is aninsurance a+ainst risks connected

ith navi+ation to hich a ship,

car+o, frei+hta+e, profits, or otherinsura(le interest in mova(le propertymay (e e!posed durin+ a certainvoya+e or a fi!ed period of time/

Insurance Act 9o d Insurance Code


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definition: 9#resent defFn:3arine insurancecovers all "inds ofmovable property,but it operated onlyis such property isexposed to ris"sconnected withnavigation.

Covers propertyexposed to ris"s ofnavigation and eventhose exposed toris"s not connectedwith navigation, li"eris"s connected withall other means of

transportation,including overlandand perhaps even airtransportaion.

Criticism of IC def6nL It6s confusingimpractical and unrealistic to applyprovision intended specifically and onlyfor ris"s of navigation Hw?c came downto us from the usages and customs ofmerchants to ris"s connected with landand air transportation.

IC definition also didn6t serve any legalpurpose by widening the scope of thedefinition since most of the specialprovisions in the IC relating to marineinsurance can properly apply only toships or other property exposed tonavigational ris"s.

Everything covered by the new definitionwould anyway be necessarily governedby the general provisions of the IC, evenif the old definition had &ust beenretained.

,ro#ert! co'ered $! %arine #o ic! marine policy may cover any

property or interest therein whichmay be sub&ected to the ris"s of

navigation.

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of debt since there is nothingfortuitous about the situation.- Includes not only $arrests%

caused by political acts of aseizing state but also byordinary legal processes such asa lawsuit on ownership andpossession of goods. Hsee3alayan Insurance Corp v C

case A other #eri s2 osses and

%isfortunes 8 covers ris"s whichare of li"e "ind with the particularris"s which are enumerated in thepreceding part of the same clause ofthe contract

&a Ra!on Social 7Go #iaoco y Hermanos8 v-nion "nsurance Society of Canton &td.Facts - A drain pipe passing through the holdwhere the insured rice was stowed had becomecorroded in course of time% wJc created a hole in

the pipe. An attempt was made to cement thehole and co"er it with a strip of iron but due tothe loading of the ship% this part of the pipe wassubmerged in water during the trip and waswashed out. 4ater flowed into the hold anddamaged the rice.Issue - 45H the insurer was liableHeld - H5. A loss which in the ordinary course ofe"ents% results from the natural and ine"itableaction of the sea% from the ordinary wear andtear of the ship% or from the negligent failure ofthe ship s owner to pro"ide the "essel withproper e2uipment to con"ey the cargo underordinary conditions% is not a peril of the sea% butrather a peril of the ship.1 n such a case% theremedy of the insured shipper or consignee isnot against the insurer but against theshipowner.

Cathay "nsurance v CAFacts: >emington ndustrial ,ales filed for thereco"ery of losses incurred due to the rusting ofsteel pipes it imported from apan while it was intransit. Cathay nsurance refused paymentclaiming that the rusting was not due to a peril ofthe sea since it was not a casualty which couldnot be foreseen.Held: There is no 2uestion that rusting of steelpipes in the course of "oyage is a peril of thesea1 in "iew of the toll on the cargo by wind%water and salt conditions. D9AHG3AB5S But in

any case% the ,C decided through constructionE4e would fail to obser"e a cardinal rule in theinterpretation of contracts% namely% that anyambiguity therein should be construed againstthe issuerJdrafter% namely% the insurer.

%alayan "nsurance Corp v CA

Facts TKC !arketing was the ownerJconsignee ofsoya bean meal shipped from Bra+il to !anila. twas insured by !alayan nsurance. 4hile the"essel was in ,outh Africa it was arrested anddetained due to a lawsuit 2uestioning its ownershipand possession. As a result% TKC !arketing filed aclaim with !alayan for the non8deli"ery of thecargo.Issue 4oH the arrest of the "essel by the ci"ilauthority was a peril of the seaHeld The arrest1 caused by ordinary

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him its value in case of loss, it isonly liable for that part of the losswhich the insured cannot recoverfrom the charterer.

Sec. *0*. The insurable interest of theowner of the ship hypothecated by bottomryis only the excess of its value over theamount secured by bottomry.

Sec. *0+. 'reightage, in the sense ofa policy of marine insurance, signifies all thebenefits derived by the owner, either fromthe chartering of the ship or its employmentfor the carriage of his own goods or those ofothers.

Sec. *0 . The owner of a ship has aninsurable interest in expected freightagewhich according to the ordinary and probablecourse of things he would have earned butfor the intervention of a peril insured againstor other peril incident to the voyage.

Sec. *0G. The interest mentioned inthe last section exists, in case of a charterparty, when the ship has bro"en ground on

the chartered voyage. If a price is to be paidfor the carriage of goods it exists when theyare actually on board, or there is somecontract for putting them on board, and bothship and goods are ready for the specifiedvoyage.

Sec. *02. Fne who has an interest inthe thing from which profits are expected toproceed has an insurable interest in theprofits.

Sec. *0/. The charterer of a ship has aninsurable interest in it, to the extent that he isliable to be damnified by its loss.

s with other insurances, marineinsurance is invalid unless supportedby an insurable interest.

In Shi# -otto%r! oan K one given on the

security of the ship, on conditionthat the loan be repaid only if theship arrives safely at the port ofdestinationN money given inadvanceN is ship sin"s, bottomryloan extinguished and owner doesn6thave to pay it.

7ottomry loans and marineinsurance can share protection andcoverage of same ris"sN but cannotcoextend with each other.

here a vessel is hypothecated byway of bottomry, the owner has aninsurable interest only in the excessof the vessel6s value over theamount of the bottomry loan. This isso because when the vesselbottomed is lost, the owner need

not pay the loan and is thereforebenefited to the extent of the amountof the load obtained and the loss heactually suffers is only the differencebet the actual value of the vessel andthe bottomry.

C. CONCEA MENTSec. *01. In marine insurance each party is boundto communicate, in addition to what is re-uired bysection twenty8eight, a the infor%ation which he#ossesses , material to the ris", except such as ismentioned in Section thirty, and to state the exactand whole truth in relation to all matters that herepresents, or upon in-uiry discloses or assumes todisclose.

Sec. *0 . In marine insurance,information of the belief or expectation of athird person, in reference to a material fact, ismaterial.

9)orybeth:7aldrias. head ; 9(ayna:3alayang. de#ut! ; 9ayable uponthe Completion of voyage8F (E! has insurable interest

Charterer 6Shi##er

3ay ta"e out policycovering insurable interest,

which can be only to theextent that he may bedamnified by the loss

as insurable interest ingoods since they will suffer

damage in case of loss

'reight > I< in

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Sec. *0B. person insured by acontract of marine insurance is presumed tohave "nowledge, at the time of insuring, of aprior loss, if the information might possiblyhave reached him in the usual mode oftransmission and at the usual rate ofcommunication.

Sec. **0. concealment in a marineinsurance, in respect to any of the followingmatters, does not vitiate the entire contract,but merely exonerates the insurer from aloss resulting from the ris" concealedLHa The national character of theinsuredNHb The liability of the thing insured tocapture and detentionNHc The liability to seizure from breachof foreign laws of tradeNHd The want of necessary documentsNHe The use of false and simulatedpapers.

RE,RESENTATIONSec. ***. If a representation by aperson insured by a contract of marineinsurance, is intentionally false in anymaterial respect, or in respect of any fact onwhich the character and nature of the ris"depends, the insurer may rescind the entirecontract.

Sec. **+. The eventual falsity of arepresentation as to expectation does not, inthe absence of fraud, avoid a contract ofmarine insurance. H(oteL ill be void if thereis fraud

S#ecia Ru e in Marine Insurance Substantial truth of any material

statement is (FT sufficient )aw re-uires the insured to state

the exact and whole truth in relationto all matters that he represents, orupon in-uiry, discloses or assumesto disclose.

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+. The character and nature of the ris5de#ends on the fact%isre#resented

Effect7 Insurer may !ESCI(< the contractE)ce#tion7 Eventual falsity of arepresentation as to expectation, in theabsence of fraud, does not avoid thecontract.

Coast,ise v CAFacts: #ag8Asa ,ales had molasses transportedfrom Hegros to !anila using Coastwise3ighterage Corp s open barges. 9owe"er% one ofthe barges sank when it hit an unknown sunkenob

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#eneral provisions on warrantiesalso apply to marine insurance

F()= marine insurance has I3>)IE

a: Seaworthiness7Meaning

Ship is sea orthy hen reasona(lyfit to perform the services and to

encounter the ordinary perils of thevoya+e contemplated (y the partiesto the policy/

(FT absolute guarantee that vesselwill safely meet all possible perils

CI!CA3ST (CES determine F(vessel is reasonably seaworthy

Seaworthiness extends not only tocondition of ship6s structure, butre-uires8 ship to be properly laden8 competent master8 sufficient number of competentofficers8 re-uisite appurtenances ande-uipment Hballasts, cables,anchors, cordage, sails, food, water,fuel, lights, necessary?proper storesand implements for the voyage

Nature of Shi# K must be in a fit state as torepair, e-uipment, crew and in all otherrespects to perform the voyage insured andencounter the ordinary perilsN suitablecondition to carry cargo

Nature of 8o!age K determines F(vessel is well8fitted

Nature of Ser'ice K nature of cargo shouldbe determinedN the vessel should bereasonable capable of safely carrying thecargo to the port of destination.

Bhen warrant! dee%ed co%# ied withe)ce#tions

Implied warranty of seaworthiness isdeemed complied with if ship isseaworthy T T E TI3E F' T ECF33E(CE3E(T F' T E !IS5N

hat matters is that at the start ofthe voyage insured, ship isseaworthy. ssured ma"es nowarranty that vessel will continue tobe seaworthy, or that the crewwon6t be negligent8 >rinciple 7ehind thisL If vessel,crew, and e-uipment be originallysufficient, the assured has done allthat he contracted to do Hnot

anymore responsible for futuredeficiency .

ExceptionsL Secs. **2a, **2b, **1- H**2a In case of TIME policy K

insurance made for a specifiedlength of time, ship must beseaworthy at theco%%ence%ent of e'er!'o!age she may underta"e

- H**2b in case of Cargo policy KInsurance is upon the cargo whichby the terms of the policy,description of the voyage, orestablished

Documents

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