insurance review

7/29/2019 insurance review

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San Beda College of Law30

MEMORYAIDIN COMMERCIAL LAW

,INSURANCE CODE(P.D. No. 1460)

I. GENERAL CONCEPTS

CONTRACT OF INSURANCE

An agreement whereby oneundertakes for a consideration toindemnify another against loss, damageor liability arising from an unknown orcontingent event. (Sec. 2, par. 2, IC)

DOING AN INSURANCE BUSINESS ORTRANSACTING AN INSURANCEBUSINESS (Sec. 2, par. 4)1. Making or proposing to make, as

insurer, any insurance contract;2. Making or proposing to make, assurety, any contract of suretyship asa vocation, not as a mere incident toany other legitimate business of asurety;

3. Doing any insurance business,including a reinsurance business;

4. Doing or proposing to do anybusiness in substance equivalent toany of the foregoing

II. CHARACTERISTICS OF AN INSURANCE

CONTRACT (The Insurance Code of thePhilippines Annotated, Hector de Leon,2002 ed.)1. Consensual it is perfected by the

meeting of the minds of the parties.2. Voluntary the parties may

incorporate such terms andconditions as they may deemconvenient.

3. Aleatory it depends upon somecontingent event.

4. Unilateral imposes legal duties onlyon the insurer who promises to

indemnify in case of loss.5. Conditional It is subject to

conditions the principal one ofwhich is the happening of the eventinsured against.

6. Contract of indemnity Except lifeand accident insurance, a contractof insurance is a contract ofindemnity whereby the insurerpromises to make good only the lossof the insured.

7. Personal each party having in

view the character, credit andconduct of the other.

REQUISITES OF A CONTRACT OFINSURANCE (The Insurance Code of thePhilippines Annotated, Hector de Leon,2002 ed.)1. A subject matter which the insuredhas an insurable interest.2. Event or peril insured against whichmay be any future contingent orunknown event, past or future and a

duration for the risk thereof.3. A promise to pay or indemnify in afixed or ascertainable amount.4. A consideration known as premium.5. Meeting of the minds of the parties.

5 CARDINAL PRINCIPLES IN INSURANCE1. Insurable Interest2. Principle of Utmost Good Faith

An insurance contract requires utmostgood faith (uberrimae fidei) betweenthe parties. The applicant is enjoined todisclose any material fact, which he

knows or ought to know. Reason: An insurance contract is analeatory contract. The insurer relies onthe representation of the applicant, whois in the best position to know the stateof his health.3. Contract of Indemnity

It is the basis of all propertyinsurance. The insured who has insurableinterest over a property is only entitledto recover the amount of actual losssustained and the burden is upon him toestablish the amount of such loss

(Reviewer on Commercial Law,Professors Sundiang and Aquino)

Rules:a. Applies only to property

insurance except when thecreditor insures the life of hisdebtor.

b. Life insurance is not a contractof indemnity.

c. Insurance contracts are notwagering contracts. (Sec. 4)

4. Contract of Adhesion (Fine Print Rule)

COMMERCIAL LAW COMMITTEECHAIRPERSON: Garny Luisa Alegre ASST. CHAIRPERSON:Jayson OS Ramos EDP: Beatrix I. Ramos SUBJECT HEADS:

Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario(Transportation Laws);Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John LemuelGatdula (Banking Laws); Robespierre CU (Law on Intellectual Property)


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Most of the terms of the contract donot result from mutual negotiationsbetween the parties as they areprescribed by the insurer in finalprinted

form to which the insured may adhereif he chooses but which he cannotchange. (Rizal Surety and Insurance Co.,vs. CA, 336 SCRA 12)5. Principle of Subrogation

It is a process of legal substitutionwhere the insurer steps into the shoes ofthe insured and he avails of the lattersrights against the wrongdoer at the timeof loss.

The principle of subrogation is anormal incident of indemnity insuranceas a legal effect of payment; it inures to

the insurer without any formalassignment or any express stipulation tothat effect in the policy. Said right is notdependent upon nor does it grow out ofany private contract. Payment to theinsured makes the insurer a subrogee inequity. (Malayan Insurance Co., Inc. v.CA, 165 SCRA 536; see also Art. 2207,NCC)

Purposes: (The Insurance Code of thePhilippines Annotated, Hector de Leon,2002 ed.)1. To make the person who caused the

loss legally responsible for it.2. To prevent the insured from

receiving a double recovery from thewrongdoer and the insurer.

3. To prevent tortfeasors from beingfree from liabilities and is thusfounded on considerations of publicpolicy.

Rules:1. Applicable only to property insurance.2. The insurer can only recover from thethird person what the insured could have

recovered.3. There can be no subrogation in cases:a. Where the insured by his own act

releases the wrongdoer or third partyliable for the loss or damage;

b. Where the insurer pays the insured thevalue of the loss without notifying thecarrier who has in good faith settledthe insureds claim for loss;

c. Where the insurer pays the insured fora loss or risk not covered by the policy.(Pan Malayan Insurance Company v.CA, 184 SCRA 54)

d. In life insurance

e. For recovery of loss in excess ofinsurance coverage

CONSTRUCTION OF INSURANCE

CONTRACT The ambiguous terms are to beconstrued strictly against the insurer,and liberally in favor of the insured.However, if the terms are clear, there isno room for interpretation. (Calanoc vs.Court of Appeals, 98 Phil. 79)

III. DISTINGUISHING ELEMENTS OF ANINSURANCE CONTRACT1. The insured possesses an insurable

interest susceptible of pecuniaryestimation;

2. The insured is subject to a risk of lossthrough the destruction orimpairment of that interest by thehappening of designated perils;

3. The insurer assumes that risk of loss;4. Such assumption is part of a general

scheme to distribute actual lossesamong a large group or substantialnumber of persons bearing somewhatsimilar risks; and

5. The insured makes a ratablecontribution (premium) to a generalinsurance fund.

A contract possessing only the first 3elements above is a risk-shifting device.If all the elements, it is a risk-distributing device. (The Insurance Codeof the Philippines Annotated, Hector deLeon, 2002 ed.)

IV. PERFECTION OF AN INSURANCECONTRACT

An insurance contract is a consensualcontract and is therefore perfected themoment there is a meeting of minds with

respect to the object and the cause orconsideration.

What is being followed in insurancecontracts is what is known as thecognition theory. Thus, anacceptance made by letter shall not bindthe person making the offer except fromthe time it came to his knowledge.(Enriquez vs. Sun Life Assurance Co. ofCanada, 41 Phil. 269)

Binding Receipt

A mere acknowledgment on behalf of

the company that its branch office had




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received from the applicant theinsurance premium and had acceptedthe application subject to processing bythe head office.

Cover Note (Ad Interim)

A concise and temporary writtencontract issued to the insurer through itsduly authorized agent embodying theprincipal terms of an expected policy ofinsurance.

Purpose: It is intended to givetemporary insurance protection coverageto the applicant pending the acceptanceor rejection of his application.

Duration: Not exceeding 60 daysunless a longer period is approved by

Insurance Commissioner (Sec. 52).

Riders

Printed stipulations usually attachedto the policy because they constituteadditional stipulations between theparties. (Ang Giok Chip vs. Springfield,56 Phil. 275)

In case of conflict between a riderand the printed stipulations in thepolicy, the rider prevails, as being amore deliberate expression of the

agreement of the contracting parties.(C. Alvendia, The Law of Insurance inthe Philippines, 1968 ed.)

Clauses

An agreement between the insurerand the insured on certain matterrelating to the liability of the insurer incase of loss. (Prof. De Leon, p.188)

Endorsements

Any provision added to the contractaltering its scope or application. (Prof.

De Leon, p.188)

POLICY OF INSURANCE

The written instrument in which acontract of insurance is set forth. (Sec.49)

Contents: (Sec. 51)1. Parties2. Amount of insurance, except in open

or running policies;3. Rate of premium;4. Property or life insured;

5. Interest of the insured in theproperty if he is not the absoluteowner;

6. Risk insured against; and

7. Duration of the insurance.

Persons entitled to recover on thepolicy (sec. 53): The insurance proceedsshall be applied exclusively to the properinterest of the person in whose name orto whose benefit it is made, unlessotherwise specified in the policy.

Kinds:1. OPEN POLICY value of thing insuredis not agreed upon, but left to beascertained in case of loss. (Sec. 60)

The actual loss, as determined,

will represent the total indemnitydue the insured from the insurerexcept only that the total indemnityshall not exceed the face value ofthe policy. (Development InsuranceCorp. vs. IAC, 143 SCRA 62)

2. VALUED POLICY definite valuationof the property insured is agreed by bothparties, and written on the face ofpolicy. (Sec. 61)

In the absence of fraud ormistake, the agreed valuation will bepaid in case of total loss of theproperty, unless the insurance is fora lower amount.

3. RUNNING POLICY contemplatessuccessive insurances and which providesthat the object of the policy may fromtime to time be defined (Sec. 62)

V. TYPES OF INSURANCE CONTRACTS1. Life insurance

a. Individual life (Secs. 179183, 227)

b. Group life (Secs. 50, last par., 228)

c. Industrial life (Secs. 229231)

2. Non-life insurancea. Marine (Secs. 99166)b. Fire (Secs. 167173)c. Casualty (Sec. 174)

3. Contracts of bonding or suretyship(Secs. 175178)

Note:1. Health and accident insurance areeither covered under life (Sec. 180) orcasualty insurance. (Sec. 174).2. Marine, fire, and the property aspectof casualty insurance are also referred toas property insurance.




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VI. PARTIES TO INSURANCE CONTRACT

1. Insurer-Person who undertakesto indemnify another.

For a person to be called aninsurance agent, it is necessarythat he should perform thefunction for compensation.(Aisporna vs. CA, 113 SCRA 459)

2. Insured- The party to be indemnifiedupon the occurrence of the loss. He musthave capacity to contract, must possessan insurable interest in the subject ofthe insurance and must not be a publicenemy.

A public enemy- a nation withwhom the Philippines is at war

and it includes every citizen orsubject of such nation.

3. Beneficiary- A person designated toreceive proceeds of policy when riskattaches.

Rules in the designation of thebeneficiary:

a. LIFEi. A person who insures his

own life can designate anyperson as his beneficiary,whether or not the

beneficiary has an insurableinterest in the life of theinsured subject to thelimitations under Art. 739and Art. 2012 of the NCC.

Reason: in essence, a lifeinsurance policy is nodifferent form a civildonation insofar as thebeneficiary is concerned.Both are founded on thesame consideration ofliberality. (Insular Life vs.

Ebrado, 80 SCRA 181)ii. A person who insures the life

of another person and namehimself as the beneficiarymust have an insurableinterest in such life. (Sec.10)

iii. As a general rule, thedesignation of a beneficiaryis revocable unless theinsured expressly waived theright to revoke in the policy.(Sec. 11)

iv. The interest of a beneficiaryin a life insurance policy shall beforfeited when the beneficiary is theprincipal accomplice or accessory in

willfully bringing about the death ofthe insured in which event, thenearest relative of the insured shallreceive the proceeds of saidinsurance if not otherwisedisqualified. (Sec. 12)

b. PROPERTY

The beneficiary of propertyinsurance must have an insurableinterest in such property, whichmust exist not only at the timethe policy takes effect but alsowhen the loss occurs. (Sec. 13

and 18).Effects of Irrevocable Designation OfBeneficiary

Insured cannot:1. Assign the policy2. Take the cash surrender value of

the policy3. Allow his creditors to attach or

execute on the policy;4. Add new beneficiary; or5. Change the irrevocable

designation to revocable, eventhough the change is just and

reasonable.

The insured does not even retain thepower to destroy the contract byrefusing to pay the premiums for thebeneficiary can protect his interest bypaying such premiums for he has aninterest in the fulfillment of theobligation. (Vance, p. 665, cited in deLeon, p. 101, 2002 ed.)

VII. INSURABLE INTERESTA. In General

A person has an insurable interest inthe subject matter if he is so connected,

so situated, so circumstanced, sorelated, that by the preservation of thesame he shall derive pecuniary benefit,and by its destruction he shall sufferpecuniary loss, damage or prejudice.B.Life

Every person has an insurable interestin the life and health:

a. of himself, of his spouse and ofhis children;




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b. of any person on whom hedepends wholly or in part foreducation or support;

c. of any person under a legal

obligation to him to pay moneyor respecting property orservices, of which death orillness might delay or preventperformance; and

d. of any person upon whose lifeany estate or interest vested inhim depends. (Sec. 10)

When it should exist: When theinsurance takes effect; not thereafter orwhen the loss occurs.

Amount:

GENERAL RULE: There is no limit in the

amount the insured can insure his life.EXCEPTION: In a creditor-debtorrelationship where the creditor insuresthe life of his debtor, the limit ofinsurable interest is equal to the amountof the debt.Note: If at the time of the death of thedebtor the whole debt has already beenpaid, the creditor can no longer recoveron the policy because the principle ofindemnity applies.

C. Property

Every interest in property whetherreal or personal, or any relation thereto,or liability in respect thereof, of suchnature that the contemplated perilmight directly damnify the insured (Sec.13), which may consist in:

1. an existing interest;2. any inchoate interest

founded on an existinginterest; or

3. an expectancy coupled withan existing interest in that

out of which the expectancyarises. (Sec. 14)

When it should exist: When theinsurance takes effect and when the lossoccurs, but need not exist in themeantime.

Amount: The measure of insurableinterest in property is the extent towhich the insured might be damnified byloss or injury thereof. (Sec. 17)

INSURABLEINTERES

TINLIFE

INSURABLEINTEREST INPROPERTY

Must exist only at thetime the policy takeseffect and need notexist at the time ofloss

Must exist at thetime the policytakes effect andwhen the lossoccurs

Unlimited except inlife insuranceeffected by creditoron life of debtor.

Limited to actualvalue of interest inproperty insured.

The expectation of

benefit to be derivedfrom the continuedexistence of life neednot have any legalbasis whatever. Areasonableprobability issufficient withoutmore.

An expectation of a

benefit to bederived from thecontinuedexistence of theproperty insuredmust have a legalbasis.

The beneficiary neednot have an insurableinterest over the lifeof the insured if theinsured himself

secured the policy.However, if the lifeinsurance wasobtained by thebeneficiary, thelatter must haveinsurable interestover the life of theinsured.

The beneficiarymust haveinsurable interestover the thinginsured.

SPECIAL CASES1. In case of a carrier or depositary

A carrier or depository of any kind hasan insurable interest in a thing held byhim as such, to the extent of his liabilitybut not to exceed the value thereof(Sec. 15)2. In case of a mortgaged property

The mortgagor and mortgagee eachhave an insurable interest in theproperty mortgaged and this interest isseparate and distinct from the other.

a. Mortgagor As owner, has aninsurable interest therein to theextent of its value, even though themortgage debt equals such value.

The reason is that the loss or




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destruction of the property insuredwill not extinguish the mortgagedebt.b. Mortgagee His interest is only up

to the extent of the debt. Suchinterest continues until themortgage debt is extinguished.

The lessor cannot be validly abeneficiary of a fire insurance policytaken by a lessee over his merchandise,and the provision in the lease contractproviding for such automatic assignmentis void for being contrary to law andpublic policy. (Cha vs. Court of Appeals,227 SCRA 690)

STANDARD ORUNION

MORTGAGECLAUSE

OPEN OR LOSSPAYABLE

MORTGAGECLAUSE

Subsequent actsof the mortgagorcannot affect therights of theassignee

Acts of themortgagor affectthe mortgagee.Reason:Mortgagor doesnot cease to be aparty to thecontract. (Secs. 8and 9)

Effects of Loss Payable Clausea. The contract is deemed to be uponthe interest of the mortgagor; hence, hedoes not cease to be a party to thecontract.b. Any act of the mortgagor prior to theloss, which would otherwise avoid theinsurance affects the mortgagee even ifthe property is in the hands of themortgagee.c. Any act, which under the contract of

insurance is to be performed by themortgagor, may be performed by themortgagee with the same effect.d. In case of loss, the mortgagee isentitled to the proceeds to the extent ofhis credit.e. Upon recovery by the mortgagee tothe extent of his credit, the debt isextinguished.

In case a mortgagee insures his owninterest and a loss occurs, he is entitledto the proceeds of the insurance but he

is not allowed to retain his claim against

the mortgagor as the claim is dischargedbut it passes by subrogation to theinsurer to the extent of the money paidby such insurer. (Palileo vs. Cosio)

VIII. RISK

What may be insured against:1. Future contingent eventresulting in loss or damage Ex.Possible future fire2. Past unknown event resulting inloss or damage Ex. Fact of pastsinking of a vessel unknown to theparties3. Contingent liability Ex.Reinsurance

IX. PREMIUM PAYMENTS Consideration paid an insurer forundertaking to indemnify the insuredagainst a specified peril.

Basis of the right of the insurer tocollect premiums: Assumption of risk.

GENERAL RULE: No policy issued by aninsurance company is valid and bindinguntil actual payment of premium. Anyagreement to the contrary is void. (Sec.77)

EXCEPTIONS:1. In case of life or industrial life

insurance, when the grace periodsapplies; (Sec. 77)

2. When the insurer makes a writtenacknowledgment of the receiptpremium; (Sec. 78)

3. Section 77 may not apply if theparties have agreed to the paymentof the premium in installments andpartial payment has been made atthe time of the loss. (Makati

Tuscany Condominium Corp. v. CA,215 SCRA 462)4. Where a credit term has been

agreed upon. (UCPB vs. MasaganaTelemart, 308 SCRA 259)

5. Where the parties are barred byestoppel. (UCPB vs. MaaganaTelemart, 356 SCRA 307)

Section 77 merely precludes theparties from stipulating that the policy isvalid even if the premiums are not paid.




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(Makati Tuscany Condominium Corp. v.CA, 215 SCRA 462)

Effect of Acknowledgment of Receipt

of Premium in Policy: Conclusiveevidence of its payment, so far as tomake the policy binding,notwithstanding any stipulation thereinthat it shall not be binding until thepremium is actually paid. (Sec. 78)

ENTITLEMENT OF INSURED TO RETURNOF PREMIUMS PAID

A. Whole:

1. If the thing insured wasnever exposed to the risksinsured against; (Sec. 79)2. If contract is voidabledue to the fraud ormisrepresentation of insurer orhis agents; (Sec. 81)3. If contract is voidablebecause of the existence of factsof which the insured wasignorant without his fault; (Sec.81)4. When by any default of the insured other than actualfraud, the insurer never incurredliability; (Sec. 81)5. When rescission isgranted due to the insurersbreach of contract. (Sec. 74)

B. Pro rata:1. When the insurance is for a

definite period and the insuredsurrenders his policy before thetermination thereof;

Exceptions:

a. policy not made for adefinite period of timeb. short period rate isagreed upon

c. life insurance policy2. When there is over-insurance

(Sec. 82);

Instances when premiums are notrecoverable:

1. When the risk has alreadyattached and the risk is entire andindivisible.

2. In life insurance.

3. When the contract is rescindableor rendered void ab initio by thefraud of the insured.4. When the contract is illegal and

the parties are in pari delicto.

PREMIUM ASSESSMENT

Levied and paid tomeet anticipatedlosses.

Collected to meetactual losses.

Payment is notenforceable againstthe insured.

Payment isenforceable oncelevied unlessotherwise agreedupon.

Not a debt. It becomes a debtonce properly leviedunless otherwiseagreed.

X. TRANSFER OF POLICY1. Life Insurance

It can be transferred even without theconsent of the insurer except whenthere is a stipulation requiring theconsent of the insurer before transfer.(Sec. 181)

Reason: The policy does not representa personal agreement between theinsured and the insurer.2. Property insurance

It cannot be transferred without theconsent of the insurer.

Reason: The insurer approved thepolicy based on the personalqualification and the insurable interestof the insured.3. Casualty insurance

It cannot be transferred without theconsent of the insurer. (Paterson citedin de Leon p. 82)

Reason: The moral hazards are asgreat as those of property insurance.

CHANE OF INTEREST IN THE THINGINSURED

The mere (absolute) transfer of thething insured does not transfer thepolicy, but suspends it until the sameperson becomes the owner of both thepolicy and the thing insured. (Sec. 58)

Reason: Insurance contract is

personal.




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GENERAL RULE: A change of interest inany part of a thing insuredunaccompanied by a correspondingchange of interest in the insurance

suspends the insurance to an equivalentextent, until the interests in the thingand the interest in the insurance arevested in the same person. (Sec. 20)

EXCEPTIONS:1. In life, health andaccident insurance.(Sec. 20);2. Change in interest in thething insured after occurrence ofan injury which results in a loss.

(Sec. 21);3. Change in interest in oneor more of several distinct thingsseparately insured by one policy.(Sec. 22);4. Change of interest, bywill or succession, on the deathof the insured. (Sec. 23);5. Transfer of interest byone of several partners, jointowners, or owners in common,who are jointly insured, toothers. (Sec. 24);

6. When a policy is soframed that it will inure to thebenefit of whomsoever, duringthe continuance of the risk, maybecome the owner of theinterest insured. (Sec. 57);7. When there is an expressprohibition against alienation inthe policy, in case of alienation,the contract of insurance is notmerely suspended but avoided.(Art. 1306, NCC).

XI. ASCERTAINMENT AND CONTROL OFRISK AND LOSS

A. Four Primary Concerns of theParties:1. Correct estimation of the risk;2. Precise delimitation of the risk;3. Control of the risk;4. Determining whether a loss occurred

and if so, the amount of such loss.

B. Devices used for ascertaining and

controlling risk and loss:

1. Concealment A neglect tocommunicate that which a party knowsand ought to communicate (Sec. 26)

Requisites:

a. A party knows a fact which heneglects to communicate ordisclose to the other.

b. Such party concealing is dutybound to disclose such fact tothe other.

c. Such party concealing makes nowarranty as to the factconcealed.

d. The other party has not themeans of ascertaining the factconcealed.

e. Material

Effects: Entitles insurer to rescind,even if the death or loss is due to acause not related to the concealedmatter (Sec. 27).Note: Good Faith is not a defense inconcealment. Sec. 27 clearly providesthat, the concealment whetherintentional or unintentional entitles theinjured party to rescind the contract ofinsurance.

Test of Materiality: Determined not bythe event, but solely by the probable

and reasonable influence of the factsupon the party to whom thecommunication is due, in forming hisestimate of the advantages of theproposed contract, or in making hisinquiries (Sec. 31).

Exception to Sec. 31:a. Incontestability clauseb. Matters under Sec.110 (marineinsurance)

The waiver of medical examination in

a non-medical insurance contractrenders even more material theinformation required of the applicantconcerning the previous conditions ofhealth and diseases suffered. (Sunlife v.Sps. Bacani, 246 SCRA 268).

The right to information of materialfacts may be waived, either by the termsof the insurance or by neglect to makeinquiries as to such facts where they aredistinctly implied in other facts of whichinformation is communicated. (Sec.33)




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Where matters of opinion or judgmentare called for, answers made in goodfaith and without intent to deceiver willnot avoid the policy even though they

are untrue. Reason: The insurer cannotrely on those statements. He must makefurther inquiry. (Philamcare HealthSystems vs. CA, G.R. No. 125678, March18, 2002).

2. Representations Factualstatements made by the insured at thetime of, or prior to, the issuance of thepolicy to give information to the insurerand induce him to enter into theinsurance contract. They are consideredan active form of concealment.

Requisites of a false representation(misrepresentation):

a. The insured stated a fact whichis untrue.

b. Such fact was stated withknowledge that it is untrue andwith intent to deceive or whichhe states positively as truewithout knowing it to be trueand which has a tendency tomislead.

c. Such fact in either case ismaterial to the risk.

Characteristics:a. It is not a part of the contract butmerely a collateral inducement to it.b. It may be oral or written.c. It is made at the same time of issuingthe policy or before but not after.d. It may be altered or withdrawn beforethe insurance is effected but notafterwards.e. It always refers to the date thecontract goes into effect.

Kinds:

a. AFFIRMATIVE affirmation of a factwhen the contract begins; andb. PROMISSORY promise to be

performed after policy was issued.

Effect of Misrepresentation: theinjured party is entitled to rescind fromthe time when the representationbecomes false.

Test of Materiality: Same as that inconcealment.

Where the insured merely signed theapplication form and made the agent ofthe insurer fill the same for him, it washeld that by doing so, the insured made

the agent of the insurer his own agentand he was responsible for his acts forthat purpose. (Insular Life Assur. Co. vs.Feliciano, 74 Phil. 469)

3. Warranties Statement or promiseby the insured set forth in the policy orby reference incorporated therein, theuntruth or non-fulfillment of which inany respect, and without reference towhether insurer was in fact prejudicedby such untruth or non-fulfillment,renders the policy voidable by the

insurer. Purpose: To eliminate potentiallyincreasing hazards which may either bedue to the acts of the insured or to thechange to the condition of the property.

Kinds:a. EXPRESS an agreement expressed ina policy whereby the insured stipulatesthat certain facts relating to the risk areor shall be true, or certain acts relatingto the same subject have been or shallbe done.b. IMPLIED - it is deemed included in thecontract although not expresslymentioned. Example: In marineinsurance, seaworthiness of the vessel.

Effects of breach of warranty:a. Material

GENERAL RULE: Violation of materialwarranty or of a material provision of apolicy will entitle the other party torescind the contract. (Sec. 74)

EXCEPTIONS:a. Loss occurs before thetime of performance of the

warranty.b. The performancesbecomes unlawful at the placeof the contract.c. Performance becomesimpossible. (Sec. 73)

b. Immaterial (ex. Other insuranceclause)

GENERAL RULE: It will not avoid thepolicy.

EXCEPTION:When the policy expresslyprovides or declares that a violationthereof will avoid it. (Sec. 75)




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WARRANTY REPRESENTATIONPart of the contract Mere collateral

inducement

Written on thepolicy, actually or byreference

May be written inthe policy or maybe oral.

Presumed material Must be proved tobe material

Must be strictlycomplied with

Requires onlysubstantial truthand compliance

4. Conditions Events signifying in itsbroadest sense either an occurrence or anon-occurrence that alters thepreviously existing legal relations of theparties to the contract. They may beconditions precedent or conditionssubsequent.

Effect of breach:a. Condition precedent prevents

the accrual of cause of actionb. Condition subsequent avoids

the policy or entitles the insurerto rescind

The insurer may also protect himselfagainst fraudulent claims of loss and thishe attempts to do by inserting in thepolicy various conditions which take the

form of conditions precedent. Forinstance, there are conditions requiringimmediate notice of loss or injury anddetailed proofs of loss within a limitedperiod.

5. Exceptions Provisions that mayspecify excepted perils. It makes moredefinite the coverage indicated by thegeneral description of the risk byexcluding certain specified risk thatotherwise would be included under thegeneral language describing the risks

assumed. Effect: Limit the coverage of thecontract.

RESCISSION

Grounds:A. ConcealmentB. MisrepresentationC. Breach of material warrantyD. Breach of a condition subsequent

Waiver of the right to rescind:Acceptance of premium payments

despite the knowledge of the ground forrescission. (Sec. 45)

Limitations on the right of theinsurer to rescind:

1. Non-life such right must beexercised prior to the commencement ofan action on the contract;2. Life such right must be availed ofduring the first two years from the dateof issue of policy or its lastreinstatement; prior toincontestability. (Sec. 48)

CANCELLATION OF NON-LIFEINSURANCE POLICY

Right of the insurer to abandon thecontract on the occurrence of certain

grounds after the effectivity date of anon-life policy.

Grounds:

1. Non-payment of premium;

2. Conviction of a crime out of actsincreasing the hazard insuredagainst;

3. Discovery of fraud or materialmisrepresentation;

4. Discovery of willful or reckless actsof omissions increasing the hazardinsured against;

5. Physical changes in property makingthe property uninsurable; and

6. Determination by the InsuranceCommissioner that the continuationof the policy would violate theInsurance Code. (Sec. 64)

Requirements:1. Prior notice of cancellation to

the insured;2. Notice must be in writing,

mailed or delivered to thenamed insured at the address

shown in the policy;3. Notice must state which of the

grounds set forth in Sec. 64 isrelied upon and upon request ofthe insured, the insurer mustfurnish facts on which thecancellation is based;

4. Grounds should have existedafter the effectivity date of thepolicy.

XII. INCONTESTABILITY CLAUSE




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Clause in life insurance policy thatstipulates that the policy shall beincontestable after a stated period.

Requisites:

1. Life insurance policy2. Payable on the death of the insured3. It has been in force during the

lifetime of the insured for a periodof at least two years from the dateof its issue or of its lastreinstatement

Note: The period of 2 years may beshortened but it cannot be extended bystipulation.

Incontestability only deprives the

insurer of those defenses which arise inconnection with the formation andoperation of the policy prior to loss.(Prof. De Leon, p. 173 citing Wyatt andWyatt, p. 878)

BARREDDEFENSES

OF THE INSURER

DEFENSES NOTBARRED

1. Policy is void abinitio

2. Policy isrescindable by

reason of thefraudulentconcealment ormisrepresentation of theinsured or hisagent

1. That the persontaking theinsurancelacked insurable

interest asrequired bylaw;

2. That the cause ofthe death of theinsured is anexcepted risk;

3. That thepremiums havenot been paid(Secs. 77,227[b], 228[b],230[b]);

4. That the

conditions ofthe policyrelating tomilitary ornaval servicehave beenviolated (Secs.227[b], 228[b]);

5. That the fraud isof a particularlyvicious type;

6. That thebeneficiaryfailed to furnish

proof of death

or to complywith anyconditionimposed by thepolicy after the

loss hashappened; or

7. That the actionwas not broughtwithin the timespecified.

XIII.A.OVER-INSURANCE results when theinsured insures the same property for anamount greater than the value of theproperty with the same insurancecompany.

Effect in case of loss:1. The insurer is bound only to pay to

the extent of the real value of theproperty lost;

2. The insured is entitled to recoverthe amount of premiumcorresponding to the excess in valueof the property;

B. DOUBLE INSURANCE exists wheresame person is insured by severalinsurers separately in respect to samesubject and interest. (Sec. 93)

Requisites:1. Person insured is the same;2. Two or more insurers insuring

separately;3. Subject matter is the same;4. Interest insured is also the same;5. Risk or peril insured against is

likewise the same.

Effects: Where double insurance isallowed, but over insurance results:(Sec. 94)

1. Theinsured, unless the policy otherwiseprovides, may claim payment fromthe insurers in such order as he mayselect, up to the amount for whichthe insurers are severally liableunder their respective contracts;2. Wherethe policy under which the insuredclaims is a valued policy, the insuredmust give credit as against thevaluation for any sum received byhim under any other policy without




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regard to the actual value of thesubject matter insured;3. Wherethe policy under which the insured

claims is an unvalued policy he mustgive credit, as against the fullinsurable value, for any sumreceived by him under any policy;4. Wherethe insured receives any sum inexcess of the valuation in the case ofvalued policies, or of the insurablevalue in the case of unvaluedpolicies, he must hold such sum intrust for the insurers, according totheir right of contribution amongthemselves;

5. Eachinsurer is bound, as between himselfand the other insurers, to contributeratably to the loss in proportion tothe amount for which he is liableunder his contract.

Additional or Other Insurance Clause

A condition in the policy requiring theinsured to inform the insurer of anyother insurance coverage of the propertyinsured. It is lawful and specificallyallowed under Sec. 75 which provides

that (a) policy may declare that aviolation of a specified provision thereofshall avoid it, otherwise the breach of animmaterial provision does not avoid it.

A stipulation against doubleinsurance.

Purposes:1. To prevent an increase in the

moral hazard2. To prevent over-insurance and

fraud.

To constitute a violation of the

clause, there should have been doubleinsurance.

C. REINSURANCE a contract by whichthe insurer procures a third person toinsure him against loss or liability byreason of an original insurance (alsoknown as Reinsurance Cession). (Sec.95)

In every reinsurance, the originalcontract of insurance and the contract ofreinsurance are covered by separatepolicies.

DOUBLEINSURANCE

REINSURANCE

Involves the sameinterest

Involves differentinterest

Insurer remains insuch capacity Insurer becomes theinsured in relationto reinsurer

Insured is the partyin interest in the 2contracts

Original insured hasno interest in thereinsurancecontract.

Subject of insurance isproperty

Subject of insuranceis the originalinsurers risk

Insured has to givehis consent

Insureds consentnot necessary

TERMS:

1. Reinsurance treaty Merely anagreement between two insurancecompanies whereby one agrees to cedeand the other to accept reinsurancebusiness pursuant to provisions specifiedin the treaty. (Prof. De Leon, p. 306)

2. Automatic reinsurance Thereinsured is bound to cede and thereinsurer is obligated to accept a fixedshare of the risk which has to bereinsured under the contract. (Prof. DeLeon, p. 305)

3. Facultative reinsurance There is noobligation to cede or acceptparticipation in the risk each partyhaving a free choice. But once the shareis accepted, the obligation is absoluteand the liability thereunder can bedischarged only by payment. (EquitableIns. & Casualty Co. vs. Rural Ins. &Surety Co., Inc. 4 SCRA 343)

4. Retrocession A transaction wherebythe reinsurer in turn, passes to anotherinsurer a portion of the risk reinsured. It

is really the reinsurance of reinsurance.(Prof. De Leon, p. 305)

XIV.A. LOSS, IN INSURANCE

Injury or damage sustained by theinsured in consequence of the happeningof one or more of the accidents ormisfortune against which the insurer, inconsideration of the premium, hasundertaken to indemnify the insured.(Bonifacio Bros. Inc. vs. Mora, 20 SCRA

261)




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Loss for whichinsurer is liable

Loss for whichinsurer is not

liable

1. Loss theproximatecause of whichis the perilinsured against(Sec. 84);

2. Loss theimmediatecause of whichis the perilinsured againstexcept whereproximatecause is an

excepted peril;3. Loss throughnegligence ofinsured exceptwhere therewas grossnegligenceamounting towillful acts; and

4. Loss caused byefforts torescue the thingfrom perilinsured against;

5. If during thecourse of rescue, thething is exposedto a peril notinsured against,whichpermanentlydeprives theinsured of itspossession, inwhole or in part(Sec. 85).

1. Loss byinsuredswillful act;

2. Loss due toconnivance ofthe insured(Sec. 87); and

3. Loss where theexcepted perilis theproximatecause.

Proximate Cause An event that sets allother events in motion without anyintervening or independent case,without which the injury or loss wouldnot have occurred.

REQUISITES FOR RECOVERY UPONINSURANCE1. The insured must have insurableinterest in the subject matter;2. That interest is covered by the policy;3. There must be a loss; and4. The loss must be proximately caused

by the peril insured against.

NOTICE OF LOSS

In fire insurance In other types ofinsurance

Required Not required

Failure to givenotice will defeatthe right of theinsured to recover.

Failure to givenotice will notexonerate theinsurer, unlessthere is astipulation in thepolicy requiring theinsured to do so.

B. CLAIMS SETTLEMENT

The indemnification of the loss of theinsured.

TIME FOR PAYMENT OF CLAIMS

LIFE POLICIESNON-LIFEPOLICIES

a. Maturingupon theexpiration of theterm Theproceeds areimmediately

payable to theinsured, unlessthey are madepayable ininstallments or asannuity, in whichcase, theinstallments orannuities shall bepaid as theybecome due.

b. Maturing atthe death of theinsured, occurring

prior to theexpiration of theterm stipulated The proceeds arepayable to thebeneficiarieswithin 60 daysafter presentationand filing of proofof death.

The proceeds shallbe paid within 30days after thereceipt by theinsurer of proof ofloss, and

ascertainment ofthe loss or damageby agreement of theparties or byarbitration but notlater than 90 daysfrom such receipt ofproof of losswhether or notascertainment ishad or made.

In case of an unreasonable delay inthe payment of the insureds claim by

the insurer, the insured can recover: 1)




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attorneys fees; 2) expenses incurred byreason of the unreasonable withholding;3) interest at double the legal interestrate fixed by the Monetary Board; and 4)

the amount of the claim. (ZenithInsurance Corp. vs. CA, 185 SCRA 398)

XV. PRESCRIPTIVE PERIOD (Secs. 63 &384)

Rules:1. In the absence of an express

stipulation in the policy, it being basedon a written contract, the actionprescribes in 10 years.2. However the parties may validly agreeon a shorter period provided it is not lessthan one year from the time the cause of

action accrues.3. The cause of action accrues from therejection of the claim of the insured andnot from the time of loss.

It shall commence from the denial ofthe claim, not from the resolution of themotion for reconsideration, otherwise itcan be used by the insured as a schemeor device to waste time until theevidence which may be used against himis destroyed. (Sun Insurance Office, Ltd.v. CA, 195 SCRA)4. In CMVLI, the written notice of claim

must be filed within 6 months from thedate of the accident otherwise the claimis deemed waived. The suit for damageseither with the proper court or with theInsurance Commissioner should be filedwithin 1 year from the date of the denialof the claim by the insurer, otherwiseclaimants right of action shall prescribe.(Sec. 384)

PARTICULAR KINDS OF INSURANCECONTRACTS

XVI. MARINE INSURANCE

Insurance against risks connected withnavigation, to which a ship, cargo,freightage, profits or other insurableinterest in movable property, may beexposed during a certain voyage or afixed period of time. (Sec. 99)

Coverage:A.1. Vessels, goods, freight, cargo,

merchandise, profits, money,valuable papers, bottomry and

respondentia, and interest in respectto all risks or perils of navigation;

2. Persons or property in connectionwith marine insurance;

3. Precious stones, jewels, jewelry andprecious metals whether in thecourse of transportation orotherwise; and

4. Bridges, tunnels, piers, docks and

other aids to navigation andtransportation. (Sec. 99)

Cargo can be the subject ofmarine insurance, and once it isentered into, the impliedwarranty of seaworthinessimmediately attaches towhoever is insuring the cargo,

whether he be the shipowner ornot. (Roque v. IAC, 139 SCRA596)

B. Marine Protection and IndemnityInsurance

Classes of inland marine insurance:(Prof. De Leon, p. 325)

1. Property in transit

provides protection to propertyfrequently exposed to loss whileit is transportation form onelocation to another.

2. Bailee liability -insurance for those who havetemporary custody of the goods.

3. Fixed transportation

property they are so insuredbecause they are held to be anessential part of thetransportation system such asbridges, tunnels, etc.

4. Floater provides

insurance to follow the insuredproperty wherever it may belocated, subject always to theterritorial limits of the contract.

Insurable interest:A.

1. Shipowner

a. Over the vessel to the

extent of its value, exceptthat if chartered, theinsurance is only up to theamount not recoverablefrom the charterer. (Sec.100).




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b. He also has an insurableinterest on expectedfreightage. (Sec. 103).

c. No insurable interest if he

will be compensated bycharterer for the value ofthe vessel, in case of loss.

2. Cargo owner

Over the cargo and expectedprofits (Sec. 105).3. Charterer

Over the amount he is liableto the shipowner, if the ship islost or damaged during thevoyage (Sec. 106).

B.

In loans on bottomry and respondentia Repayment of the loan is subject tothe condition that the vessel or goods,respectively, given as a security, shallarrive safely at the port of destination.

1. Owner/Debtor

Difference between the valueof vessel or goods and theamount of loan. (Sec. 101)

2. Creditor/lender

Amount of the loan

Note: If a vessel is hypothecated bybottomry, only the excess is insurable,since a loan on bottomry partakes of thenature of an insurance coverage to theextent of the loan accommodation. Thesame rule would apply to thehypothecation of the cargo byrespondentia. (Pandect of CommercialLaw and Jurisprudence, Justice JoseVitug, 1997 ed.)

PERILS OF THESEA

PERILS OF THESHIP

Includes only thosecasualties due tothe:1. unusualviolence; or

2. extraordinaryaction of wind andwave; or3. Otherextraordinary causesconnected withnavigation.

A loss which in theordinary course ofevents, resultsfrom the:

1. natural

andinevitableaction ofthe sea

2. ordinarywear andtear of theship or

3. Negligentfailure of the shipsowner to providethe vessel withproper equipmentto convey the cargo

under ordinaryconditions.

Note: It is only perils of the sea whichmay be insured against unless perils ofthe ship is covered by an all-risk policy.

SPECIAL MARINE INSURANCECONTRACTS AND CLAUSESA. All Risks Policy insurance against allcauses of conceivable loss or damage,except: 1) as otherwise excluded in thepolicy; or 2) due to fraud or intentional

misconduct on the part of the insured. The insured has the initial burden ofproving that the cargo was in goodcondition when the policy attached andthat the cargo was damaged whenunloaded from the vessel; thereafter,the burden then shifts to the insurer toshow the exception to the coverage.(Filipinas Merchants Insurance vs. Courtof Appeals, 179 SCRA 638)

B. Barratry Clause

A clause which provides that therecan be no recovery on the policy in caseof anywillful misconduct on the part ofthe master or crew in pursuance of someunlawful or fraudulent purpose withoutconsent of owners, and to the prejudiceof the owners interest. (Roque vs. IAC,139 SCRA 596)

C. Inchamaree Clause

A clause which makes the insurerliable for loss or damage to the hull ormachinery arising from the:




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1. Negligence of the captain,engineers, etc.

2. Explosions, breakage of shafts; and

3. Latent defect of machinery or hull.

(Bar Review Materials inCommercial Law, Jorge Miravite,2002 ed.)

D. Sue and Labor Clause

A clause under which the insurer maybecome liable to pay the insured, inaddition to the loss actually suffered,such expenses as he may have incurredin his efforts to protect the propertyagainst a peril for which the insurerwould have been liable. (Sec. 163)

MATTERS ALTHOUGH CONCEALED,WILL NOT VITIATE THE CONTRACTEXCEPT WHEN THEY CAUSED THE LOSS(Sec. 110)1. National character of the insured;2. Liability of the thing insured to

capture or detention;3. Liability to seizure from breach of

foreign laws;4. Want of necessary documents; and5. Use of false or simulated papers.Note: This should be related to thegeneral rule regarding materialconcealment.

DISTINCTIONS ON CONCEALMENT(Commercial Law Reviewer, A.F.

Agbayani, 1988 ed.)

MARINE INSURANCE OTHER PROPERTYINSURANCE

The information of thebelief or expectationof 3rd persons ismaterial and must be

communicated

The information orbelief of a 3rd partyis not material andneed not be

communicatedunless it proceedsform an agent ofthe insured whoseduty it is to giveinformation

The concealment ofany fact in relation toany of the mattersstated in Sec. 110does not vitiate theentire contract butmerely exonerates theinsurer from a risk

Concealment of anymaterial fact willvitiate the entirecontract, whetheror not the lossresults for the riskconcealed.

resulting from the factconcealed

IMPLIED WARRANTIES1. Seaworthiness of the ship at the

inception of the insurance (Sec.113);2. Against improper deviation (Sec.

123, 124, 125);3. Against illegal venture;

4. Warranty of neutrality: the shipwill carry the requisitedocuments of nationality orneutrality of the ship or cargowhere such nationality orneutrality is expresslywarranted; (Sec. 120)

5. Presence of insurable interest.

While the payment by the insurer forthe insured value of the lost cargooperates as a waiver of the insurersright to enforce the term of the impliedwarranty against the assured under themarine insurance policy, the samecannot be validly interpreted as anautomatic admission of the vesselsseaworthiness by the insurer as toforeclose recourse against the commoncarrier for any liability under thecontractual obligation as such common

carrier. (Delsan Transportation Lines vs.CA, 364 SCRA 24)

Seaworthiness

A relative term depending upon thenature of the ship, voyage, service andgoods, denoting in general a shipsfitness to perform the service and toencounter the ordinary perils of thevoyage, contemplated by the parties tothe policy (Sec. 114).

GENERAL RULE: The warranty of

seaworthiness is complied with if theship be seaworthy at the time of thecommencement of the risk. Prior orsubsequent unseaworthiness is not abreach of the warranty nor is it materialthat the vessel arrives in safety at theend of her voyage.

EXCEPTIONS:

1. In the case of a time policy, the ship

must be seaworthy at thecommencement of every voyage shemay undertake




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2. In the case of cargo policy, each

vessel upon which the cargo isshipped or transshipped, must beseaworthy at the commencement of

each particular voyage3. In the case of a voyage policy

contemplating a voyage in differentstages, the ship must be seaworthyat the commencement of eachportion

Applicability of implied warranty ofseaworthiness to cargo owners: Itbecomes the obligation of a cargo ownerto look for a reliable common carrier,which keeps its vessels in seaworthyconditions. The shipper may have nocontrol over the vessel but he hascontrol in the choice of the commoncarrier that will transport his goods(Roque v. IAC, 139 SCRA 596).

Deviation

A departure from the course of thevoyage insured, or an unreasonabledelay in pursuing the voyage or thecommencement of an entirely differentvoyage. (Sec.123)

Instances:

1. Departure of vessel from thecourse of the sailing fixed bymercantile usage

2. Departure of vessel from themost natural, direct andadvantageous route if not fixedby mercantile usage3. Unreasonable delay inpursuing voyage4. Commencement of anentirely different voyage (Secs.121-123)

Kinds:

1. Proper -a. When caused by circumstances outside

the control of the ship captain or shipowner;

b. When necessary to comply with awarranty or to avoid a peril;

c. When made in good faith to avoid aperil;

d. When made in good faith to savehuman life or to relieve another vesselin distress (Sec. 124)

Effect: In case of loss, theinsurer is still liable.

2. Improper - Everydeviation not specified in Sec.124 (Sec. 125).

Effect: In case of loss or

damage, the insurer is not liable.(Sec. 126)

LOSS1. Total:

a. Actual -i. Total destruction;

ii. Irretrievableloss by sinking;

iii. Damage rendering the thingvalueless; or

iv. Total deprivation of owner ofpossession of thing insured.

(Sec. 130)b. Constructive -

i. Actual loss of morethan of the value of theobject;ii. Damage reducingvalue by more than of thevalue of the vessel and ofcargo; andiii. Expense of transshipment exceed ofvalue of cargo. (Sec. 131, inrelation to Sec. 139)

In case of constructivetotal loss, insured may:

1. Abandon goods orvessel to the insurer andclaim for whole insuredvalue (Sec. 139), or2. Without abandoningvessel, claim for partialactual loss. (Sec. 155)

2. Partial: That which is not total (Sec.128).

AVERAGE Any extraordinary or accidentalexpense incurred during the voyage forthe preservation of the vessel, cargo, orboth, and all damages to the vessel andcargo from the time it is loaded and thevoyage commenced until it ends and thecargo unloaded.

GENERAL PARTICULARHas inured to thecommon benefit andprofit of all persons

interested in the

Has not inured to thecommon benefit andprofit of all persons

interested in the




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vessel and cargo vessel and her cargo.

To be borne equallyby all of the interestsconcerned in theventure.

To be borne alone bythe owner of thecargo or the vessel,as the case may be.

Requisites for theright to claimcontribution:

1. Commondanger tothe vesselor cargo;

2. Part of thevessel orcargo wassacrificeddeliberatel

y;3. Sacrificemust befor thecommonsafety orfor thebenefit ofall;

4. Sacrificemust bemade bythe master

or upon hisauthority;

5. It must benot becaused byany faultof thepartyasking thecontribution;

6. It must besuccessful,

i.e.resulted inthe savingof thevessel orcargo; and

Necessary.

RIGHT OF INSURED IN CASE OFGENERAL AVERAGE

GENERAL RULE: The insured mayeither hold the insurer directly liable forthe whole of the insured value of the

property sacrificed for the generalbenefit, subrogating him to his own rightof contribution or demand contributionfrom the other interested parties as soon

as the vessel arrives at her destinationEXCEPTIONS:1. After the separation of interests

liable to contribution2. When the insured has neglected or

waived his right to contribution

FPA Clause (Free From ParticularAverage)

A clause agreed upon in a policy ofmarine insurance in which it is statedthat the insurer shall not be liable for aparticular average, such insurer shall be

free therefrom, but he shall continue tobe liable for his proportion of all generalaverage losses assessed upon the thinginsured. (Sec. 136)ABANDONMENT

The act of the insured by which, aftera constructive total loss, he declared therelinquishment to the insurer of hisinterest in the thing insured. (Sec. 138)

Requisites for validity:1. There must be an actual

relinquishment by the person insuredof his interest in the thing insured(Sec. 138);

2. There must be a constructive totalloss (Sec. 139);

3. The abandonment be neither partialnor conditional (Sec. 140);

4. It must be made within a reasonabletime after receipt of reliableinformation of the loss (Sec. 141);

5. It must be factual (Sec. 142);6. It must be made by giving notice

thereof to the insurer which may bedone orally or in writing (Sec. 143);

and7. The notice of abandonment must be

explicit and must specify theparticular cause of the abandonment(Sec. 144).

Effects:1. It is equivalent to a transfer by the

insured of his interest to the insurerwith all the chances of recovery andindemnity (Transfer of Interest)(Sec.146)

2. Acts done in good faith by those who

were agents of the insured in respect




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to the thing insured, subsequent tothe loss, are at the risk of theinsurer and for his benefit.(Transfer Of Agency)(Sec.148)

If an insurer refuses to accept a validabandonment, he is liable upon anactual total loss, deducting form theamount any proceeds of the thinginsured which may have come to thehands of the insured. (Sec.154)

CO-INSURANCE

A marine insurer is liable upon apartial loss, only for such proportion ofthe amount insured by him as the lossbears to the value of the whole interest

of the insured in the property insured.(Sec. 157)

When the property is insured for lessthan its value, the insured is considereda co-insurer of the difference betweenthe amount of insurance and the value ofthe property.

Requisites:1. The loss is partial;2. The amount of insurance is less thanthe value of the property insured.

Rules:1. Co-insurance applies only to marineinsurance2. Logically, there cannot be co-insurance in life insurance.3. Co-insurance applies in fire insurancewhen expressly provided for by theparties.

CO-INSURANCE REINSURANCEA percentage in thevalue of the insured

property which theinsured himselfassumes to act asinsurer to the extentof the deficiency inthe insurance of theinsured property. Incase of loss ordamage, the insurerwill be liable only forsuch proportion ofthe loss or damage asthe amount of theinsurance bears tothe designated

Situation where theinsurer procures a 3rd

party called thereinsurer to insurehim against liabilityby reason of anoriginal insurance.Basically, reinsuranceis an insuranceagainst liabilitywhich the originalinsurer may incur infavor of the originalinsured.

percentage of thefull value of theproperty insured.(Bar ReviewMaterials in

Commercial Law,Jorge Miravite, 2002ed.)

XVII. FIRE INSURANCE

Acontract by which the insurer for aconsideration agrees to indemnify theinsured against loss of, or damage to,property by hostile fire, including loss bylightning, windstorm, tornado orearthquake and other allied risks, whensuch risks are covered by extension tofire insurance policies or under separatepolicies. (Sec. 167)

Prerequisites to recovery:1. Notice of loss must be immediatelygiven, unless delay is waived expresslyor impliedly by the insurer2. Proof of loss according to bestevidence obtainable. Delay may also bewaived expressly or impliedly by theinsurer

HOSTILE FIRE FRIENDLY FIREOne that escapesfrom the placewhere it wasintended to burnand ought to be.

One that burns in aplace where it wasintended to burnand ought to be

Insurer is liable Insurer is not liable

Measure of Indemnity1. Open policy: only the expensenecessary to replace the thing lost orinjured in the condition it was at thetime of the injury2. Valued policy: the parties are boundby the valuation, in the absence of fraudor mistake

Note: It is very crucial to determinewhether a marine vessel is covered by amarine insurance or fire insurance. Thedetermination is important for 2 reasons:

1. Rules on constructive

total loss and abandonment applies only to marine insurance;




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2. Rule on co-insurance

applies primarily to marineinsurance;

3. Rule on co-insurance

applies to fire insurance only ifexpressly agreed upon.(Commercial Law Reviewer,

Aguedo Agbayani, 1988 ed.)

ALTERATION AS A SPECIAL GROUNDFOR RESCISSION BY INSURER

Requisites:1. The use or condition of the thing is specifically limitedor stipulated in the policy;2. Such use or condition aslimited by the policy is altered;3. The alteration is madewithout the consent of theinsurer;4. The alteration is madeby means within the control ofthe insured;

5. The alteration increases

the risk; (Sec. 168)and

6. There must be a

violation of a policy provision.(Sec. 170)

Fall-of-building clause A clause in a fire insurance policy thatif the building or any part thereof falls,except as a result of fire, all insuranceby the policy shall immediately cease.

Option to rebuild clause

A clause giving the insurer the optionto reinstate or replace the propertydamaged or destroyed or any partthereof, instead of paying the amount ofthe loss or the damage.

The insurer, after electing to rebuild,cannot be compelled to perform thisundertaking by specific performancebecause this is an obligation to do, notto give. Remedy: Art. 1167, NCC.

XVIII. CASUALTY OR ACCIDENTINSURANCE

Insurance covering loss or liabilityarising from accident or mishap,excluding those falling under other typesof insurance such as fire or marine. (Sec.174)

Classifications:1. Insurance against specified perilswhich may affect the person and/or

property of the insured. (accident or

health insurance) Examples: personal accident,robbery/theft insurance2. Insurance against specified perilswhich may give rise to liability on the

part of the insured for claims forinjuries to or damage to property ofothers. (third party liability insurance)

Insurable interest is based on theinterest of the insured in the safety ofpersons, and their property, who maymaintain an action against him in case oftheir injury or destruction, respectively.

Examples: workmens compensation,motor vehicle liability

In a third party liability (TPL)insurance contract, the insurer assumesthe obligation by paying the injuredthird party to whom the insured is liable.Prior payment by the insured to the thirdperson is not necessary in order that theobligation may arise. The moment theinsured becomes liable to third persons,the insured acquires an interest in theinsurance contract which may be

garnished like any other credit. (PerlaComapnia de Seguro, Inc vs. Ramolete,205 SCRA 487)

Aside from compulsory motor vehicleliability insurance, the Insurance Codecontains no other provisions applicableto casualty insurance. Therefore, suchcasualty insurance are governed by thegeneral provisions applicable to all typesof insurance, and outside of suchstatutory provisions, the rights andobligations of the parties must bedetermined by their contract, taking into

consideration its purpose and always inaccordance with the general principlesof insurance law.

In burglary, robbery and theftinsurance, the opportunity to defraudthe insurer the moral hazard is sogreat that insurer have found itnecessary to fill up the policies withmany restrictions designed to reduce thehazard. Persons frequently excluded arethose in the insureds service andemployment. The purpose of the




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exception is to guard against liabilityshould theft be committed by one havingunrestricted access to the property.(Fortune Insurance vs. CA, 244 SCRA 208)

Right of a third party injured to sue theinsurer1. Indemnity against liability A thirdparty injured can directly sue theinsurer.2. Indemnity for actual loss orreimbursement after actual payment bythe insured A third party has no causeof action against the insurer (Sec. 53,Bonifacio Bros. v. Mora, 20 SCRA 261).

The insurer is not solidarily liable with

the insured. The insurers liability isbased on contract; that of the insured isbased on torts. Furthermore, theinsurers liability is limited by theamount of the insurance coverage (PanMalayan Insurance Corporation v. CA,184 SCRA 54).

INTENTIONAL vs. ACCIDENTAL ASUSED IN INSURANCE POLICIES

1. Intentional Implies the exercise ofthe reasoning faculties, consciousnessand volition. Where a provision of thepolicy excludes intentional injury, it isthe intention of the person inflicting theinjury that is controlling. If the injuriessuffered by the insured clearly resultedfrom the intentional act of the thirdperson, the insurer is relieve fromliability as stipulated. (Biagtan v. theInsular Life Assurance Co. Ltd., 44 SCRA58, 1972)2. Accidental That which happens bychance or fortuitously, without intentionor design, which is unexpected, unusualand unforeseen.

NO ACTION CLAUSE

A requirement in a policy of liabilityinsurance which provides that suit andfinal judgment be first obtained againstthe insured; that only thereafter can theperson injured recover on the policy.(Guingon vs. Del Monte, 20 SCRA 1043)

XIX. COMPULSORY MOTOR VEHICLELIABILITY INSURANCE (CMVLI)

A species of compulsory insurancethat provides for protection coverage

that will answer for legal liability forlosses and damages for bodily injuries orproperty damage that may be sustainedby another arising from the use andoperation of motor vehicle by its owner.

Purpose:To give immediate financialassistance to victims of motor vehicleaccidents and/or their dependents,especially if they are poor regardless ofthe financial capability of motor vehicleowners or operators responsible for theaccident sustained (Shafer v. Judge,RTC, 167 SCRA 386).

Claimants/victims may be apassenger or a 3rd party

It applies to all vehicles whetherpublic and private vehicles.Note: It is the only compulsory insurancecoverage under the Insurance Code.

Method of coverage1. Insurance policy2. Surety bond3. Cash deposit

Passenger Any fare-paying personbeing transported and conveyed in andby a motor vehicle for transportation ofpassengers for compensation, includingpersons expressly authorized by law orby the vehicles operator or his agents toride without fare. (Sec. 373[b])

Third Party Any person other than thepassenger, excluding a member of thehousehold or a member of the familywithin the second degree of consanguinity or affinity, of a motorvehicle owner or land transportationoperator, or his employee in respect ofdeath or bodily injury arising out of andin the course of employment. (Sec.373[c])

No-Fault Clause

A clause that allows the victim

(injured person or heirs of the deceased)




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to an option to file a claim for death orinjury without the necessity of provingfault or negligence of any kind.

Purpose: To guarantee compensation

or indemnity to injured persons in motorvehicle accidents.

Rules:1. Total indemnity - maximum of P5,0002. Proofs of loss -

a. Police report of accident;b. Death certificate and evidencesufficient to establish proper payee;c. Medical report and evidence ofmedical or hospital disbursement.

3. Claim may be made against one motorvehicle only4. Proper insurer from which to claim -

a. In case of an occupant: Insurerof the vehicle in which the occupant isriding, mounting or dismounting from;

b. In any other case: Insurer of thedirectly offending vehicle. (Sec. 378)

The claimant is not free to choosefrom which insurer he will claim the nofault indemnity as the law makes itmandatory that the claim shall lieagainst the insurer of the vehicle inwhich the occupant is riding, mountingor dismounting from. That said vehiclemight not be the one that caused theaccident is of no moment since the lawitself provides that the party paying mayrecover against the owner of the vehicleresponsible for the accident. (PerlaCompania de Seguros, Inc. v. Ancheta,169 SCRA 144)

This no-fault claim does not apply toproperty damage. If the total indemnityclaim exceeds P5,000 and there iscontroversy in respect thereto, the

finding of fault may be availed of by theinsurer only as to the excess. The firstP5,000 shall be paid without regard tofault. (Prof. De Leon, p. 716)

The essence of the no-fault indemnityinsurance is to provide victims ofvehicular accidents or their heirsimmediate compensation although inlimited amount, pending finaldetermination of who is responsible forthe accident and liable for the victimsinjuries or death. (Ibid.)

SPECIAL CLAUSESA. Authorized Driver Clause

A clause which aims to indemnify theinsured owner against loss or damage to

the car but limits the use of the insuredvehicle to the insured himself or anyperson who drives on his order or withhis permission (Villacorta v. InsuranceCommissioner)

The requirement that the persondriving the insured vehicle is permittedin accordance with the licensing laws orother laws or regulations to drive themotor vehicle (licensed driver) isapplicable only if the person driving isother than the insured.

B. Theft Clause A clause which includes theft asamong the risks insured against.

Where the car is unlawfully andwrongfully taken without the ownersconsent or knowledge, such takingconstitutes theft, and thus, it is thetheft clause and not the authorizeddriver clause that should apply (Palermov. Pyramids Ins., 161 SCRA 677).

C. Cooperation Clause

A clause which provides in essencethat the insured shall give all suchinformation and assistance as the insurermay require, usually requiringattendance at trials or hearings.XX. SURETYSHIP

An agreement whereby a suretyguarantees the performance by theprincipal or obligor of an obligation orundertaking in favor of an obligee. (Sec.175)

It is essentially a credit

accommodation. It is considered an insurance contractif it is executed by the surety as avocation, and not incidentally. (Sec. 20

When the contract is primarily drawnup by 1 party, the benefit of doubt goesto the other party (insured/obligee) incase of an ambiguity following the rulein contracts of adhesion. Suretyship,especially in fidelity bonding, is thustreated like non-life insurance in somerespects.




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Nature of liability of surety1. Solidary;2. Limited to the amount of thebond;

3. It is determined strictly by theterms of the contract of suretyshipin relation to the principal contractbetween the obligor and the obligee.(Sec. 176)

SURETYSHIP PROPERTYINSURANCE

Accessory contract Principal contract

3 parties: surety,obligor and oblige

2 parties: insurer andinsured

Creditaccommodation

Contract of indemnity

Surety can recoverfrom principal Insurer has no suchright; only right ofsubrogation

Bond can becancelled only withconsent of obligee,Commissioner orcourt

May be cancelledunilaterally either byinsured or insurer ongrounds provided bylaw

Requiresacceptance ofobligee to be valid

No need ofacceptance by anythird party

Risk-shifting device;premium paid beingin the nature of aservice fee

Risk-distributingdevice; premium paidas a ratablecontribution to a

common fund

XXI. LIFE INSURANCE

Insurance on human lives andinsurance appertaining thereto orconnected therewith which includesevery contract or pledge for thepayment of endowments or annuities.(Sec. 179)

Kinds: (Bar Review Materials inCommercial Law, Jorge Miravite, 2002ed.)

1. Ordinary Life, General Life or Old

Line Policy - Insured pays a fixedpremium every year until he dies.Surrender value after 3 years.

2. Group Life Essentially a single

insurance contract that providescoverage for many individuals.Examples: In favor of employees,mortgage redemption insurance.

3. Limited Payment Policy insured

pays premium for a limited period.If he dies within the period, hisbeneficiary is paid; if he outlives theperiod, he does not get anything.

4. Endowment Policy pays premium

for specified period. If he outlivesthe period, the face value of thepolicy is paid to him; if not, his

beneficiaries receive the benefit.5. Term Insurance insurer pays once

only, and he is insured for aspecified period. If he dies withinthe period, his beneficiariesbenefits. If he outlives the period,no person benefits from theinsurance.

6. Industrial Life - life insurance

entitling the insured to paypremiums weekly, or wherepremiums are payable monthly or

oftener.

Mortgage Redemption Insurance

A life insurance taken pursuant to agroup mortgage redemption scheme bythe lender of money on the life of amortgagor who, to secure the loan,mortgages the house constructed fromthe use of the proceeds of the loan, tothe extent of the mortgage indebtednesssuch that if the mortgagor dies, theproceeds of his life insurance will beused to pay for his indebtedness to the

lender assured and the deceaseds heirswill thereby be relieved from paying theunpaid balance of the loan. (GreatPacific Life Assurance Corp. vs. Court ofAppeals, 316 SCRA 677)

LIABILITY OF INSURER IN CERTAINCAUSES OF DEATH OF INSURED1. Suicide

Insurer is liable in the following cases:1. If committed after two years

from the date of the policysissue or its last reinstatement;

2. If committed in a state ofinsanityregardless of the date ofthe commission unless suicide isan excepted peril. (Sec. 180-A)

3. If committed after a shorterperiod provided in the policy

Any stipulation extending the 2-yearperiod is null and void.2.At the hands of the law(E.g. by legalexecution)

It is one of the risks assumed by theinsurer under a life insurance policy in




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the absence of a valid policy exception.(Vance,p.572 cited in de Leon, p. 107)Note: Justice Vitug believes that deathby suicide (if the insured is sane) or at

the hands of the law obviates againstrecovery as being more in consonancewith public policy and as being implicitunder Section 87, ICP. (Pandect ofCommercial Law and Jurisprudence,1997 ed. P. 191)3. Killing by the beneficiary

GENERAL RULE: The interest of abeneficiary in a life insurance policyshall be forfeited when the beneficiary isthe principal accomplice or accessory inwillfully bringing about the death of theinsured, in which event, the nearest

relative of the insured shall receive theproceeds of said insurance if nototherwise disqualified. (Sec. 12)

EXCEPTIONS:1. Accidental killing2. Self-defense3. Insanity of the beneficiary at the

time he killed the insured

If the premiums paid came fromconjugal funds, the proceeds areconsidered conjugal. If the beneficiary isother than the insureds estate, thesource of premiums would not berelevant. (Del Val v. Del Val, 29 Phil 534)

The measure of indemnity in life orhealth insurance policy is the sum fixedin the policy except when a creditorinsures the life of his debtor. (Sec. 183)IS THE CONSENT OF THE BENEFICIARYNECESSARY TO THE ASSIGNMENT OF ALIFE INSURANCE POLICY?

It depends. If the designation of thebeneficiary is irrevocable, the

beneficiarys consent is essentialbecause of his vested right. If thedesignation is revocable, the policy maybe assigned without such consentbecause the beneficiary only has a mereexpectancy to the proceeds. (TheInsurance Code of the Philippines

Annotated, Hector de Leon, 2002 ed.)

Cash Surrender Value

As applied to a life insurance policy,it is the amount the insured in case ofdefault, after the payment of at least 3

full annual premiums, is entitled toreceive if he surrenders the policy andreleases his claims upon it.

LIFE INSURANCE FIRE INSURANCE

Contract of investment not ofindemnity

Contract of indemnity

Valued policy Open or valued policy

May be transferredor assigned to anyperson even if hehas no insurableinterest

The insurableinterest of thetransferee orassignee is essential

Consent of insurer isnot essential tovalidity ofassignment

Consent of insurermust be secured in theabsence of waiver

Contingency that iscontemplated is acertain event, theonly uncertaintybeing the time whenit will take place

Contingency insuredagainst may or maynot occur

A long-termcontract and cannotbe cancelled by theinsurer

May be cancelled byeither party and isusually for a term ofone year

Beneficiary is underno obligation toprove actualfinancial loss

Insured is required tosubmit proof of hisactual pecuniary lossas a conditionprecedent to

collecting theinsurance.

XXII. VARIABLE CONTRACT

Any policy or contract on either agroup or individual basis issued by aninsurance company providing for benefitsor other contractual payments or valuesthereunder to vary so as to reflectinvestment results of any segregatedportfolio of investment.

XXIII. INSURANCE COMMISSIONER Main agency charged with theenforcement of the Insurance Code andother related laws.

Functions:1.ADJUDICATORY/QUASI-JUDICIAL

a. Exclusive original jurisdiction Any dispute in the enforcement of anypolicy issued pursuant to Chapter VI(CMVLI). (Sec. 385, par. 2)

b. Concurrent original jurisdiction(with the RTC) Where the maximum

amount involved in any single claim is


Marichelle De Vera (Negotiable Instruments Law); Jose Fernando Llave (Insurance); Aldrich Del Rosario(Transportation Laws);Shirley Mae Tabangcura, Bon Vincent Agustin (Corporation Law); Karl Steven Co (Special Laws); John LemuelGatdula (Banking Laws); Robespierre

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