PART THREE

NON-LIFE INSURANCE

Topics

• What may be insured against• Insurable interest• Non-life insurance policy• Premiums• Parties• Double insurance v reinsurance• Different kinds of non-life insurance

WHAT MAY BE INSURED AGAINST

Requirement for recovery

• Peril insured against must be the PROXIMATE CAUSE of the loss or damage (sec. 86)

• NO liability if insured risk is only a remote cause or if proximate cause is an excepted peril

• Concept of loss - injury, damage, liability, loss of income or profits sustained by the insured in consequence of the happening of one or more perils insured against (Bonifacio Bros. V. Mora, 20 SCRA 261)

Proximate Cause

• That which in the natural and continuous sequence, unbroken by any NEW INDEPENDENT cause, produces an event without which the event would not have occurred.

• Also called the EFFICIENT CAUSE, or one that sets the others in motion

• NOT equivalent to IMMEDIATE CAUSE

Proximate Cause: Examples

• Fire causes an explosion which results in loss. Fire is the proximate cause of the loss. If fire is a covered peril, the insurer is liable.

• A house is insured against fire. The house is destroyed due to the falling of a wall. The wall fell due to fire. The insurer is liable

Immediate Cause v. Proximate Cause

○ Immediate cause – cause or peril which appears closest in time to the loss

○ Immediate cause is NOT necessarily the proximate cause and vice versa

Bar 2007

• Alfredo took out a policy to insure his commercial building against fire. A fire broke out and destroyed the building. It was found that the proximate cause of the fire was explosion but fire was the immediate cause of the loss. There is no excepted peril in the policy. Can there be recovery under the policy.

ANSWER

• Alfredo cannot recover from the policy. Section 84 of the Insurance Code provides that before there can be recovery under property insurance, the proximate cause of the loss must be the covered peril. In the instant case, the proximate cause of the loss was not the peril insured against. Hence, there can be no recovery under the policy.

Hostile v. Friendly Fire

• Friendly - fire burns in a place where it is intended to burn

• Hostile - occurs outside the confines or begins as a friendly fire and becomes hostile by escaping from the place where it ought to be

• Hostile fire is the one covered by fire insurance

Section 87: Loss in the course of rescue

• Insurer is liable if the thing is rescued from peril insured against if in the course of rescue, the thing is exposed to a peril not insured against

Illustration

• An owner gets fire insurance for his house and all furniture inside.

• In the course of rescuing the furniture from fire, the furniture is damaged due to water.

• The insurer is liable to the owner although the damage is not due to fire since it was in the course of rescuing the furniture from fire that it suffered some damage.

If loss due to willful act or connivance of insured

• Section 89 - insurer is not liable if insured, through his willful act or connivance caused the loss

• Ex. Arson, owner hiring other people to rob his property

If loss due to willful act or connivance of insured

• Section 89 - if loss is through SIMPLE negligence of insured or his agents, insurer is STILL LIABLE

• Insurer is NOT liable if loss is caused by GROSS negligence of insured

Bar 2007

• If the fire was found to have been caused by Alfredo’s own negligence, can he still recover from the policy?

ANSWER

• I qualify. If the negligence was simple in nature then Alfredo can still recover under the policy. However, if there was gross negligence on the part of Alfredo then he is barred from recovering under the policy.

Bar 2014

• On February 21, 2013, Barrack entered into a contract of insurance with Matino Insurance Company (Matino) involving a motor vehicle. The policy obligates Matino to pay Barrack the amount of Six Hundred Thousand Pesos (P600,000.00) in case of loss or damage to said vehicle during the period covered, which is from February 26, 2013 to February 26, 2014.

• On April 16, 2013, at about 9:00 a.m., Barrack instructed his driver, JJ, to bring the motor vehicle to a near by auto shop for tune-up. However, JJno longer returned and despite diligent efforts to locate the said vehicle, the efforts proved futile. Resultantly, Barrack promptly notified Matino of the said loss and demanded payment of the insurance proceeds of P600,000.00.

Unknown Event- time of occurrence is unknown

Contingent Event- may or may not happen

Which will damnify a person OR create a liability against him

Bar 2014

• In a letter dated July 5, 2013. Matino denied the claim, reasoning as stated in the contract that "the company shall not be liable for any malicious damage caused by the insured, any member of his family or by a person in the insured’s service. Is Matino correct in denying the claim? (4%)

Suggested Answer

• No, Matino is wrong in denying the claim.

• Under the Insurance Code, an insurance policy is intended to cover losses due to acts of simple negligence. It is only when the insured is guilty of willfull connivance in bringing about the risk insured against or gross negligence that an insurer can deny compensation.

• In this case, the act of Barrack of allowing his driver to bring the car for tune up is simple negligence, which should be covered by an insurance policy.

Suggested Answer

• Further, the act of JJ, Barrack’s driver in running away with the vehicle, cannot be considered as malicious damage. It is a crime, which is an act covered by an insurance policy. Hence, Matino cannot use this exlusionary clause to defeat payment of proceeds.

INSURABLE INTEREST

Concept, Section 13

➢ Every interest in property, whether real or personal (owner)

➢ Any relation thereto (lessee, agent)

➢ Liability in respect of property (carrier, depositary)

➢ Which will directly damnify the insured when a contemplated peril happens

Forms, Sec. 14

➢ Existing interest (owner)

➢ Inchoate interest founded on an existing interest (shareholder)

➢ Expectancy coupled with an existing interest (usufructuary, expected profit)

Factual Expectation

• Mere factual expectation of loss not arising from any legal right or duty in connection with the SM does NOT constitute an insurable interest.

• NOTE: Factual expectation is enough basis in life insurance.

Beneficiary is required to have insurable interest

• Insurable interest is required before a person can benefit from a property insurance (Sec. 18)

Bar 2000

• A is an elderly bachelor. He insured his house against fire. He named his companion-friend as beneficiary. A died in a fire which also destroyed his home. The insurer refused payment to B due to absence of insurable interest on the life of A. Is the insurer correct?

ANSWER

• The insurer is correct. The beneficiary in property insurance must have insurable interest on the property. The companion-friend of A does not have insurable interest on the house of A. Hence, he cannot recover from the fire insurance policy.

Bar 2001

• JQ, the owner of a condominium insured the same against fire with XYZ Company and made the loss payable to his brother MLQ. In case of loss by fire, who can recover from the policy. State the reason for your answer (5%)

ANSWER

• JQ can recover since he has insurable interest over his own condominium unit. MLQ cannot recover since it is required that a beneficiary must have insurable interest over the property.

Bar 2014

• A person is said to have an insurable interest in the subject matter insured where he has a relation or connection with, or concern in it that he will derive pecuniary benefit or advantage from its preservation. Which among the following subject matters is not considered insurable? (1%)

1) A partner in a firm on its future profits2) A general creditor on debtor’s property3) A judgment creditor on debtor’s property4) A mortgage creditor on debtor’s mortgaged property

• Suggested answer

(B) A general creditor on debtor’s property

Insurable interest in a mortgaged property (Sec. 8)

• Both the mortgagor and the mortgagee have insurable interest on the mortgaged property

• The II of the mortgagor is to the full value of the SM

• The II of the mortgagee is only up to the extent of the indebtedness

Bar 2012

A house and lot is covered by a real estate mortgage (REM) in favor of ZZZ Bank. The bank required that the house be insured. The owner of the policy failed to endorse nor assign the policy to the bank. However, the Deed of Real Estate Mortgage has· an express provision which says that the insurance policy is also endorsed with the signing of the REM. Will this be sufficient?

A. No, insurance policy must be expressly endorsed to the bank so that the bank will have a right in the proceeds of such insurance in the event of loss.

B. The express provision contained in the Deed of Real Estate Mortgage to the effect that the policy is also endorsed is sufficient.

C. Endorsement of Insurance Policy in any form is not legally allowed.

D. Endorsement of the Insurance Policy must be in a formal document to be valid.

Bar 1999

• A businessman obtained a fire insurance policy on his stocks for P5 M. Three months later, a fire broke out and destroyed the grocery and stocks. The insurer denied the claim since the stocks were mortgaged to another person who also insured the same stocks for P5 M. May the

businessman and the creditor obtain different insurance policies on the same stocks?

ANSWER

• Yes. The businessman, as the owner and the creditor, as the mortgagee have insurable interest over the stocks. Hence, they may obtain separate policies on the same stocks.

Measure

➢ Measure of insurable interest is the extent the insured might be damnified by loss or injury (Sec. 17)

➢ Section 25: Void stipulations – payment of loss whether insured has insurable interest or not or that policy shall be proof of interest

INSURABLE INTEREST: jurisprudence

• Fire insurance taken on a property belonging to another is VOID, although the insurer had full knowledge of fact of ownership and even if insured subsequently acquired insurable interest (Cha v. CA, 277 SCRA 690)

• Where the real intention of insured was to insure his goods for P15,000 but insurer mistakenly insured the building where the goods were contained and not owned by insured, in case of loss of goods insured was allowed to recover (Garcia v. Hongkong, 45 Phil 122)

When insurable interest must exist in property insurance

• Time the insurance takes effect and when the loss occurs, but NEED NOT exist in the meantime

Bar 2002

• Distinguish insurable interest in property insurance from insurable interest in life insurance (5%)

ANSWER

• In property insurance, the expectation of benefit must have a legal basis. In life insurance, insurable interest can be based on mere factual expectation.

• In property insurance, the actual value of the interest is the limit of the insurance. There is no such limit in life insurance except if insurable interest is capable of pecuniary estimation.

• In property insurance, insurable interest must exist when the insurance takes effect and at the time of the loss but not in the meantime. In life insurance, insurable interest must exist only at the time the insurance takes effect.

Bar 2012

For both the Life Insurance and Property Insurance, the insurable interest is required to be -

A. existing at the time of perfection of the contract and at the time of loss.

B. existing at the time of perfection and at the time of loss for property insurance but only at the time of perfection for life insurance.

C. existing at the time of perfection for property insurance but for life insurance both at the time of perfection and at the time of loss.

D. existing at the time of perfection only.

ANSWER

• B. existing at the time of perfection and at the time of loss for property insurance but only at the time of perfection for life insurance.

Change of ownership of property

❖ Section 20 and 58: A change of interest in any part of a thing insured unaccompanied by a corresponding change of interest suspends the insurance until the interest in the thing and interest in the insurance are vested on the same person

Illustration

• A owns a car which is insured against theft

• A sells the car to B. The policy was not included in the sale.

• If the car is carnapped, neither A nor B can recover under the policy.

• A cannot recover because he does not own the car at the time of the theft.

• B cannot recover because he does not own the policy

Transfer of property by succession

• When the insured dies, and the subject matter is transferred by succession, the new owner of the thing will also own the insurance. (Sec. 23)

Illustration

• A owns a car which has theft insurance

• A bequeath the car to B under his will

• A dies

• B now owns the car, together with the insurance policy

POLICYKINDS

➢ Open – Value of thing is not agreed upon but is to be ascertained at time of loss. The amount of the insurance merely represents the insurer’s maximum liability.

➢ Valued – expresses on its face an agreement that the thing shall be valued at a specific sum

➢ Running – successive insurances

TWO KINDS OF VALUES

• Face value – maximum amount which may be recovered under the policy

• Valuation- value of the subject matter agreed on by the parties

Open v. Valued

• Open - has a face value but has NO valuation of the thing. Valuation is done after the loss

• Valued - has both face value and valuation of the thing

Illustration: Open

Value of the building: to be determined at time of loss

Face Value: P10 Million

If the valuation is more than the face value, recovery is limited to the face value

Illustration: Valued

Valuation of the car : P15 Million

Face Value : P 10 Million

GENERAL RULE: Recovery will be based on valuation

EXCEPTION: If valuation is obtained through fraud or misrepresentation. Recovery is limited to the face value or insurer may deny the claim

Illustration: Running

As of June 1, 2014 – value of goods – P1 Million

As of June 10, 2014 - value of goods – P500,000

PREMIUM• Cash and carry basis rule is followed

• Section 77 - insurer is entitled to premium as soon as the thing insured is exposed to the peril insured against

• Premium - is the agreed price for assuming and carrying the risk

➢ General Rule: Cash and carry basis – nonpayment of the first premium prevents the contract from becoming binding

➢ Premium must be paid in cash as a condition precedent for non-life insurance policy to be valid and binding

• In Suretyship, payment of premium is also necessary for the contract to be binding

• EXCEPT: if obligee has accepted the bond, suretyship is binding even if premium has not been paid, subject to the right of the insurer to recover the premium from its principal (SEC. 177)

Exceptions to Cash and Carry Basis, Sec. 77

• Life/industrial life when the grace period applies

• whenever under the broker and agency agreements with duly licensed intermediaries, a ninety (90)-day credit extension is given. No credit extension to a duly licensed intermediary should exceed ninety (90) days from date of issuance of the policy.

• An acknowledgment in a policy or contract of insurance or the receipt of premium is conclusive evidence of its payment, so far as to make the policy binding, notwithstanding any stipulation therein that it shall not be binding until the premium is actually paid.

• When the parties have agreed on installment payment (Makati Tuscany case)

• When the insurer has renewed the insurance over the years under a clear credit term arrangement (UCPB case)

• In Suretyship where the obligee accepts the bond even if premium has not been paid (Sec. 177)

When there is a credit scheme

• UCPB v. Masagana April 4, 2001 - insured is entitled to proceeds even if he has not fully paid premiums when:

• for years, insurer has been issuing fire insurance policies to insured and the policies were renewed

• insurer has been granting 60-90 day credit extension

• no valid notice of non-renewal

• premium was paid by insured within credit extension period

Bar 2007

• Alfredo took out a policy to insure his commercial building. The broker agreed to give a 15-day credit to Alfredo within which to pay the premium. Upon delivery of the policy on May 15, 2006, Alfredo issued a postdated check dated May 30, 2006. On May 28, 2006, fire destroyed the building. May Alfredo recover from the policy?

ANSWER

• Alfredo can recover from the policy. In a decided case by the Supreme Court, it was held that parties may agree on a credit extension in paying the premium. The happening of the peril during the credit extension will entitle the insured to proceeds, less the unpaid premiums.

Premium by installment: Makati Tuscany v. CA

• Makati and American Assurance agreed that premiums will be paid via three installments

• Makati paid premiums for 3 consecutive years in three installments

• On the 4th year, Makati paid only the 1st 2 installments.

• American collected the 3rd installment

• Makati’s defense: Section 77 provides that no policy will be effective unless the premium has been paid. Since premiums were paid on installments, there was no valid policy.

• Makati and American Assurance agreed that premiums will be paid on three installments

• After paying premiums for 3 consecutive years, Makati refused to pay the third installment on the 4th year

• American sought to collect the balance from Makati

• SC: Section 77 merely precludes the parties from stipulating that the policy is valid even if premiums are not paid, but does not expressly prohibit an agreement granting credit extension, and such an agreement is not contrary to morals, good customs, public order or public policy (De Leon, the Insurance Code, at p. 175). So is an understanding to allow insured to pay premiums in installments not so proscribed. At the very least, both parties should be deemed in estoppel to question the arrangement they have voluntarily accepted

Bar 2006

• A Insurance Company issued an policy on the new car of B. The premium of P60,000 was to be paid in 6 months. B paid only the 1st two months installments. Despite demands, B failed to pay the rest of the installments. Five months after the issuance of the policy, the vehicle was carnapped. A denied the claim of B since B did not pay the premium

resulting to cancellation of the policy. Can B recover from A?

ANSWER

• B can recover from A the proceeds of the policy less the unpaid premiums. In a decided case by the Supreme Court, it was held that when the parties agreed on payment of premiums by installment, the policy becomes effective upon payment of first installment. Absent any provision that non-payment of subsequent installments will cause cancellation, the policy between A and B continue to exist.

Bar 2010

• Enrique obtained from Seguro Insurance Company a comprehensive motor vehicle insurance to cover his top of the line Aston Martin. The policy was issued on March 31, 2010 and, on even date, Enrique paid the premium with a personal check postdated April 6, 2010.

• On April 5, 2010, the car was involved in an accident that resulted in its total loss.

• On April 10, 2010, the drawee bank returned Enrique’s check with the notation "Insufficient Funds." Upon notification, Enrique immediately deposited additional funds with the bank and asked the insurer to redeposit the check.

• Enrique thereupon claimed indemnity from the insurer. Is the insurer liable under the insurance coverage? Why or why not? (3%)

Suggested Answer

• Enrique cannot recover. In a decided case, the Supreme Court said that an insurer and the insured may agree on a credit scheme for payment of premiums, which will give rise to a perfected contract of insurance. However, the insurer must make payment within the period agreed on (UCPB v. Masagana).

• In this case, Enrique’s check bounced on April 6. He only funded the check on April 10 or 4 days late than the date of the check. Thus, there was no perfected contract of insurance which can cover the April 5 accident. Enrique cannot recover under the policy.

Bar 2014

• On September 25, 2013, Danny Marcial (Danny) procured an insurance on his life with a face value of P5,000,000.00 from RN Insurance Company (RN), with his wife Tina Marcial(Tina) as sole beneficiary. On the same day, Danny issued an undated check to RN for the full amount of the premium.

• On October 5, 2013, Danny met a tragic accident and died. Tina claimed the insurance benefit, but RN was quick to deny the claim because at the time of Danny’s death, the check was not yet encashed and therefore the premium remained unpaid.

• Is RN correct? Will your answer be the same if the check is dated October 15, 2013? (4%)

Suggested Answer

• RN is correct in denying the claim.

• Based on jurisprudence, an insurer can be held liable for loss if the insurer and the insured agreed on a credit scheme where is a definite period when premium should be fully paid.

• In this case, there was no clear credit extension period or scheme since the check issue by Danny was undated. Since there was no payment of premiums or even a definite

time when payment should be made, there was no valid insurance policy at the time of Danny’s death. Hence, there can be no recovery of proceeds.

• My answer will not be the same if the check was dated October 15, 2014.

• If the check was properly dated, this means that there was a valid credit extension scheme or period between the parties. Hence, there was a valid policy and there should be payment of proceeds, less the amount of premiums.

When is insured entitled to return of premium?

➢ Whole premium – if object was never exposed to peril, unless it is an indivisible policy

➢ E.g. insured pays in advance the annual premium, loss occurs before date of effectivity. Insured is entitled to reimbursement of whole premium

➢ Pro- rated premium – surrender policy before period is up

➢ E.g. A insures his house for 1 year but returns the policy after 3 months. A is entitled to ¾ of the premiums.

➢ If the contract is voidable and subsequently annulled under the provisions of the Civil Code or on account of fraud / misrepresentation of insure/agent, facts insured was ignorant of, default of insured other than fraud

➢ E.g. Agent represents that A can be insured even if his age disqualifies him. Insured is entitled to return of premium.

➢ Over – insurance by several insurers, other than life

➢ ratable return of premium

ADDITIONAL PREMIUMS

• Section 84. An insurer may contract and accept payments, in addition to regular premium, for the purpose of paying future premiums on the policy or to increase the benefits thereof.

NOTE!

• A person insured is not entitled to a return of premium if the policy is annulled, rescinded or if a claim is denied by reason of fraud.

RATABLE RETURN OF PREMIUM IN CASE OF OVERINSURANCE

• Sec. 82 – premiums to be returned when there is over insurance by several insurers shall be proportioned to the amount by which the aggregate sum insured in all policies exceeds the insurable value of the thing at risk

• Illustration: P1.5M house

How to compute:

Insurer Amount of insurance

Premiums Paid

A company P1,200,000.00

P24,000.00

B company P600,000.00

P12,000.00

TOTAL P1,800,000.00

P36,000.00

STEP 1: Determine amount overinsured

Amount overinsured =

Amount of insurance – value of property

• P1.8 – P1.5M = P300,000

STEP 2: Get the ratio of overinsurance with the total amount of insurance

P300,000/P1,800,000.00 = 1/6

Ratable Return

STEP 3: Multiply the ratio to the amount of premium paid to every insurer

A= 1/6 of P24,000 = P4,000 from A Company

B= 1/6 of P12,000 = P2,000 from B Company

Bar 2000

• Name at least three instances when an insured is entitled to a return of the premium paid.

PARTIES

The beneficiary

• Section 18 - no contract or policy on property shall be enforceable except for the benefit of some person having an insurable interest in the property insured

Compare with Life Insurance

• Where the beneficiary is not required to have insurable interest over the cestui que vie

• It is only the insured who must have insurable interest over the cestui que vie

Insurer

• Before issuing such certificate of authority, the Commissioner must be satisfied that the name of the company is not that of any other known company transacting a similar business in the Philippines, or a name so similar as to be calculated to mislead the public. The Commissioner may issue rules and regulations on the use of names of insurance companies and other supervised persons or entities.

Insurer- Bancassurance

• Section 375. The term bancassurance shall mean the presentation and sale to bank customers by an insurance company of its insurance products within the premises of

the head office of such bank duly licensed by the Bangko Sentral ng Pilipinas or any of its branches under such rules and regulations which the Commissioner and the Bangko Sentral ng Pilipinas may promulgate.

• To engage in bancassurance arrangement, a bank is not required to have equity ownership of the insurance company. No insurance company shall enter into a bancassurance arrangement unless it possesses all the requirements as may be prescribed by the Commissioner and the Bangko Sentral ng Pilipinas.

• No insurance product under this section, whether life or non-life, shall be issued or delivered unless in the form previously approved by the Commissioner.

• Section 376. Personnel tasked to present and sell insurance products within the bank premises shall be duly licensed by the Commissioner and shall be subject to the rules and regulations of this Act.

• "Section 377. The Commissioner and the Bangko Sentral ng Pilipinas shall promulgate rules and regulations to effectively supervise the business of bancassurance.

Insurer-Mutual Benefit Association and Trusts for Charitable Uses

• Section 403. Any society, association or corporation, without capital stock, formed or organized not for profit but mainly for the purpose of paying sick benefits to members, or of furnishing financial support to members while out of employment, or of paying to relatives of deceased members of fixed or any sum of money, irrespective of whether such aim or purpose is carried out by means of fixed dues or assessments collected regularly from the members, or of providing, by the issuance of certificates of insurance, payment of its members of accident or life insurance benefits out of such fixed and regular dues or assessments, but in no case shall include any society, association, or corporation with such mutual benefit features and which shall be carried out purely from voluntary contributions collected not regularly and /or no fixed amount from whomsoever may contribute, shall be known as a mutual benefit association within the intent of this Code.

Mutualization and Demutualization

• Mutualization – A a shareholder-owned company is converted into a mutual organization, typically through takeover by an existing mutual organization. A mutual organization is customer-owned.

• Demutualization -customer-owned mutual organization or cooperative changes form to a joint, stock company, sometimes called stocking for privatization.

Mutualization

• Section 280. A domestic mutual life insurance company doing business in the Philippines may convert itself into an incorporated stock life insurance company by demutualization. To that end, it may provide and carry out a plan for the conversion by complying with the requirements of this title.

• "The conversion of a domestic mutual life insurance company to an incorporated stock life insurance company shall be carried out pursuant to a conversion plan duly approved by the Commissioner.

• "The Commissioner shall promulgate such rules and regulations as he or she may deem necessary to carry out the provisions of this title, after due consultation with representatives of the insurance industry.

• "All converted insurers under the provisions of this title shall be subject to all other applicable provisions of this Code.

Insured

Beneficiary

Insurer

The provisions of the Corporation Code shall apply in a suppletory manner.

Mutual Benefit Association

• Section 408. "A mutual benefit association shall only maintain free and unassigned surplus of not more than twenty percent (20%) of its total liabilities as verified by the Commissioner. Any amount in excess shall be returned to the members by way of dividends, enhancing the equity value or providing benefits in kind and other relevant services. In addition, subject to the approval of the Commissioner, a mutual benefit association may allocate a portion for capacity building and research and development such as developing new products and services, upgrading and improving operating systems and equipment and continuing member education.

Trust Business

• TRUST BUSINESS IN GENERAL

• "Section 429. An insurance company may engage in limited trust business, consisting of managing funds pertaining only to retirement and pre-need plans, provided it has secured a license to do so from the Bangko Sentral ng Pilipinas. This trust business shall be separate and distinct from the general business of the insurance company and shall be subject to rules and regulations as may be promulgated by the Bangko Sentral ng Pilipinas in consultation with the Commissioner.

Self-Regulatory Organizations

• CHAPTER IX REGISTRATION, RESPONSIBILITIES ANDOVERSIGHT OF SELF-REGULATORY ORGANIZATIONS

• Section 430. The Commissioner shall have the power to register as a self-regulatory organization, or otherwise grant licenses, and to regulate, supervise, examine, suspend or otherwise discontinue, as a condition for the operation of organizations whose operations are related to or connected with the insurance market such as, but not limited to, associations of insurance companies, whether life or non-life, reinsurers, actuaries, agents, brokers, dealers, mutual benefit associations, trusts, rating agencies, and other persons regulated by the Commissioner, which are engaged in the business regulated by this Code.

• The Commissioner may prescribe rules and regulations which are necessary or appropriate in the public interest or for the protection of investors to govern self-regulatory organizations and other organizations licensed or regulated pursuant to the authority granted hereunder including, but not limited to, the requirement of cooperation within and among all participants in the insurance market to ensure transparency and facilitate exchange of information.

Double Insurance v. Over-insurance

Double Insurance

• Same person is insured by several insurers in respect of the same subject and interest (Sec. 95)

➢ Requisites:

1. insured is the same2. two or more insurers insuring separately 3. same subject matter4. interest insured is the same5. risk or peril insured against is the same

Bar 2005

• When does double insurance exist? (2%)

Bar 1999

• A businessman obtained a fire insurance policy on his stocks for P5 M. Three months later, a fire broke out and destroyed the grocery and stocks. The insurer refused to pay claiming that double insurance is contrary to law. Is this contention tenable?

ANSWER

• The contention of the insurer is untenable. First, there is no law prohibiting double insurance. Second, there was no double insurance here because the insured in the two policies are different. The two insured also have different interests on the property.

Bar 2012

• X borrowed from CCC Bank. She mortgaged her house and lot in favor of the bank. X insured her house. Tt1e bank also got the house insured.

A. Is this double insurance? Explain your answer. (3%)B. Is this legally valid? Explain your answer. (3%)C. In case of damage, can X and CCC Bank separately

claim for the insurance proceeds? (4%)Answer

A. No, this is not double insurance. Double insurance exists when the same person is insured by several insurers in respect of the same subject and interest The insured in the two policies are different and they have different interests. X’s interest is as the owner of the house and lot while CCC’s interest is as the mortgagee and is limited to the amount of the debt.

B. Yes, this is legally valid. Both the mortgagee and the owner have insurable interests over the property. Either party may obtain a property insurance policy on the same property because both stand to suffer loss in case the house and lot is destroyed or damaged.

C. Yes, both X and CCC can claim under their insurance policies. X can claim to the extent of the value of the property. CCC can claim to the extent of the unpaid debt in favor of X, that is secured by the property.

Over-insurance

OVER- INSURANCE – amount of insurance is beyond the value of insured’s insurable interest

How to collect in case of over-insurance by double insurance, Sec. 96

• The insured, unless the policy otherwise provides, may claim payment from the insurers in such order as he may select, up to the amount for which the insurers are severally liable under their respective contracts;

• Valued Policy- any sum received by him under any other policy shall be deducted from the value of the policy without regard to the actual value of the subject matter insured;

• Unvalued Policy- any sum received by him under any policy shall be deducted against the full insurable value, for any sum received by him under any policy;

➢ Policy is unvalued, determine actual loss and collect from insurance in such order as he may select

➢ If insured receives amount more than loss, hold sum in trust according to the right of contribution

➢ Each insurer must contribute ratably to the loss in proportion to the amount for which he is liable

Bar 2005

• What is the nature of liability of several insurers in double insurance (2%)

ANSWER

• In double insurance, the insurers are considered as co-insurers. Each one is bound to contribute ratably to the loss in proportion to the amount for which he is liable under his contract (Sec. 96e)

Bar 2012

X insured the building she owns with two (2) insurance companies for the same amount. In case of damage, -

A. X can not claim from any of the two (2) insurers because with the double insurance, the insurance coverage becomes automatically void.

B. the two (2) insurers will be solidarily liable to the extent of the loss.

C. the two (2) insurers will be proportionately liable.D. X can choose who he wants to claim against.

ANSWER: D

Reinsurance

Contract by which an insurer procures a third person to insure him against loss or liability by reason of an original insurance

• Illustration

• A gets B to insure his building against fire for P10 Million.

• B (insurer) can get C (reinsurer) to reinsure him for P5 Million out of the P10 Million insurance in favor of A. Thus, B’s liability shall be limited to P5 Million. While C, the reinsurer has to give the insurer the other P5 M.

• Reinsurance v. Double Insurance

insurer becomes the insured

Insurer remains the insurer

subject of insurance is the original insurer’s risk

subject of insurance is property

insurance of a different interest

insurance of the same interest

original insured is not a party

insured is the party in interest in all contracts

consent of original insured is not necessary

Insured has to give his consent

Kinds of Non-Life Insurance

MARINE

• Sections 99 and 100 – concept

• Peril covered – perils of the sea or perils of navigation – casualties due to unusual violence or extraordinary action of wind and wave or other extraordinary causes connected with navigation – must be the PROXIMATE CAUSE

• Peril of the ship is NOT covered

Peril of the Ship v. Peril of the Sea

• Roque v. IAC – sinking of barge without extra-ordinary circumstances (SHIP)

• Go Tiaco v. Union – loss results from natural and inevitable action of the sea, from the ordinary wear and tear of the ship or from negligence of owner to provide with proper equipment (SHIP)

• Cathay v. CA – rusting of steel pipes in the course of the voyage in view of the toll on cargo of wind, water and salt conditions (SEA)

Bar 2011

Perils of the ship, under marine insurance law, refer to loss which in the ordinary course of events results from

A. natural and inevitable actions of the sea.B. natural and ordinary actions of the sea.C. unnatural and inevitable actions of the sea. D. unnatural and ordinary actions of the sea.

Answer

• A. natural and inevitable actions of the sea.

Is ship owner’s insurer liable in case of loss if:

• vessel is chartered (Sec. 102)

• YES. liable only for part of the loss which insured cannot recover from charterer

• Insurance of owner – full value of property but recovery shall be limited to amount not paid by charterer

• Insurance of charterer – extent of his liability in case of loss

Illustration

• A and B enter into a charter agreement. • A's vessel is valued at P1 Million. • Per agreement, B’s insurer shall be liable up to P500,000 in

case of loss. A has an insurance of P1 M.• In case of loss:

• A’s insurer = P500,000

• B’s insurer = P500,000

Can ship owner get insurance for:

• Expected freightage (Sec. 105)

• Expected freightage which in the ordinary and probably course of things he would have earned but for the intervention of the peril insured against

• Important that insured must have an inchoate right to freightage which cannot be defeated

• Expected profits (Sec. 107) – YES.

FIRE

• Fire Insurance insurance against loss by fire, lightning, windstorm, tornado or earthquake and other allied risks,

when such risks are covered by extension to fire insurance policies or under separate policies

• Fire must be the proximate cause, and must be hostile in nature

Measure of Indemnity

• If there is a valuation – shall be conclusive as between parties in adjusting partial or total loss in the absence of FRAUD

• If there is NO valuation - the expense it would be to the insured to REPLACE the thing lost or injured in the condition in which it was at the time of injury

• Loss and its amount may be determined on the basis of such proof as may be offered by insured which need not be of such persuasiveness as is required in judicial proceedings (Malayan v. Cruz Arnaldo)

How valuation is made

• Sec. 174 – independent appraiser examines the property and fixes the value

• Valuation shall be inserted in the policy

GENERAL RULE: Valuation shall be the basis for indemnity in case of total loss

• EXCEPT: If there is a change increasing the risk without the consent of insurer or if there's fraud on the part of insured.

• Partial loss – full amount of the partial loss

• Parties may agree that instead of payment, insurer may repair, rebuild or replace property

Illustration

• Subject matter is a house• Independent appraiser values it at P10 Million• The valuation is attached to the policy• If house is totally destroyed by fire, the valuation of P10

M will be given• If the house is half-destroyed, the indemnity will be half

of P10 Million or P5 M.• If the valuation is based on some fraud on the part of

the insured, e.g. adding fixtures which are not part of the house OR there is an alteration increasing the hazard such as converting in to an ammunition factory, the valuation is not used.

• Parties may agree that instead of paying the amount, insurer will rebuild the house.

When alteration can exonerate insurer

• The use or condition of a thing is altered• Policy prohibits or limits the alteration• Made without the consent of the insurer, by means

within the control of the insured• increasing the risks = Insurer can rescind the K

When alteration does not affect policy

• The use or condition of a thing insured is altered• Policy prohibits it or limits it • It does not increase the risk

Act which does not violate the policy

• any act of the insured subsequent to the execution of the policy

• Act does not violate its provisions, even though it increases the risk and is the cause of the loss

• No effect on policy

Bar 2014

• On May 13, 1996, PAM, Inc. obtained a P15,000,000.00 fire insurance policy from Ilocano Insurance covering its machineries and equipment effective for one (1) yearor until May 14, 1997. The policy expressly stated that the insured properties were located at "Sanyo Precision Phils. Building, Phase III, Lots 4 and 6, Block 15, PEZA, Rosario, Cavite." Before its expiration, the policy was renewed on "as is" basis for another year or until May 13, 1998. The subject properties were later transferred to Pace Factory also in PEZA. On October 12, 1997, during the effectivity of the renewed policy, a fire broke out at the Pace Factory which totally burned the insured properties.

• The policy forbade the removal of the insured properties unless sanctioned by Ilocano. Condition 9(c) of the policy provides that "the insurance ceases to attach as regards the property affected unless the insured, before the occurrence of any loss or damage, obtains the sanction of the company signified by endorsement upon the policy x x x (c) if the property insured is removed to any building or place other than in that which is herein stated to be insured." PAM claims that it has substantially complied with notifying Ilocano through its sister company, the RBC, which, in fact, referred PAM to Ilocano for the insurance coverage. Is Ilocano liable under the policy? (4%)

Suggested Answer

• Ilocano is liable under the policy.

• Under the Insurance Code, any alteration in the use or condition of a thing insured which is limited by the policy, but does not increase the risk will not affect the validity of the policy.

• In this case, although the policy forbade the transfer of the goods without the consent of the insurer, the transfer of the goods did not increase the risk of fire. Hence, the transfer will not exonerate Ilocano.

• Further, PAM should be deemed to have substantially complied with the consent requirement when it notified the agent of Ilocano. Hence, Ilocano was wrong in denying the claim.

CASUALTY INSURANCE

• Sec. 176 – insurance covering loss or liability arising from accident or mishap excluding certain types of loss which fall exclusively within the scope of other types of insurance such as fire or marine

• Casualty Insurance

• Employers liability

• Motor Vehicle Liability

• Plate glass insurance

• Burglary and theft insurance

• Personal accident and health insurance (when death is NOT one of the risks insured against)

Motor Vehicle Liability Insurance

• Motor vehicle – any vehicle propelled by any power other than muscular power using the public highways, with certain exceptions

• Section 387 – unlawful for any land transportation owner or operator to operate the same in public highways unless there is a policy of insurance or guaranty in cash or bond to indemnify the death or bodily injury of a third party or passenger

At a glance

• Insurable interest is property insurance must exist at the time of the issuance and at the time of the loss although it need not exist in between these times

• A beneficiary in property insurance must have insurable interest over the property

• It is possible that two or more persons may have insurable interest over the same object. As in the case of owner and lessee, mortgagor and mortgagee.

• In such cases, two or more separate insurance policies may be obtained. This is not double insurance since they don’t have the same insured and they have different interests.

• The covered peril must be the proximate cause before there can be recovery under the policy.

• Instances when there can be return of premiums.

• Payment of premiums must be on cash and carry basis.

• Important exceptions to cash and carry: credit extension and installment payment

• Marine insurance covers only perils of the sea and NOT perils of the ship.

• In marine, the following persons can get insurance policies: owner, charterer, for freightage, for expected profits.

• Fire insurance covers hostile fire

• Failure to give written notice of loss in fire with unreasonable delay will exonerate the insurer.

• Indemnity in fire may either be based on valuation OR payment of cost to restore the object at the time of loss

PART FOUR: PAYMENT OF PROCEEDS

AND FILING OF CLAIMS

Basic Rule in Recovery

• Sec. 89. An insurer is not liable for a loss caused by the willful act or through the connivance of the insured; but he is not exonerated by the negligence of the insured, or of the insurance agents or others.

Bar 2010

• To secure a loan of P10 million, Mario mortgaged his building to Armando. In accordance with the loan arrangements, Mario had the building insured with First Insurance Company for P10 million, designating Armando as the beneficiary.

• Armando also took an insurance on the building upon his own interest with Second Insurance Company for P5 million.

• The building was totally destroyed by fire, a peril insured against under both insurance policies. It was subsequently determined that the fire had been intentionally started by Mario and that in violation of the loan agreement, he had been storing inflammable materials in the building.

• How much, if any, can Armando recover from either or both insurance companies? (2%)

• What happens to the P10 million debt of Mario to Armando? Explain. (3%)

Suggested Answer

• Armando cannot recover from either policy. Under Section 89 of the Insurance Code, an insurer is exonerated when the loss is caused by the willful act of the insured.

• The loan will remain, but it will be considered as unsecured.

In Life Insurance

• WHEN

➢ General Rule: Paid immediately upon maturity of the policy (death, survival, cessation or continuance of life)

➢ Exceptions:

➢ proceeds are payable in installments

➢ annuity

If maturity is due to death

❖ Proceeds are paid within 60 days from presentation of the claim and proof of death

❖ Delay = interest unless due to fraudulent claim

Proof of death v. Notice of Death

• Notice of death is not enough, there must be proof of death

• Proof of death - death certificate

TO WHOM

➢ General rule: paid to designated beneficiaries

➢ Exception: Facility of payment clause in group life and industrial life

Facility of Payment : Group Life

✓ There is no designated beneficiary

✓ pay not exceeding P500.00

✓ to any person equitably entitled for incurring funeral or other expenses incident to the last illness or death of the insured

Facility of Payment: Industrial

✓ If beneficiary:

✓ does not surrender policy with proof of death during period stated in the policy OR

✓ is the estate of insured OR

✓ is a minor OR

✓ dies before the insured OR

✓ is legally incompetent to give valid release

✓ proceeds may be given to:

✓ the executor or administrator of insured OR

✓ any of insured’s relative by blood as legal adoption or by marriage OR

✓ any person who incurred expenses for maintenance, medical attention or burial

NON-LIFE INSURANCE

WHEN

• within 30 days after proof of loss is received by insurer and ascertainment of loss is made

• Ascertainment of loss

• made either by agreement between parties or by arbitration

• If no ascertainment is made or can be had within 60 days from receipt of proof of loss, insurer must pay within 90 days after receipt of proof

Refusal to pay within period unless due to a fraudulent claim = interest

ILLUSTRATION

• A presents proof of loss of car by theft and insurer ascertains amount of loss on January 1, 2000

• Proceeds must be paid 30 days after January 1, 2000. Otherwise, interest must be paid.

• A presents proof of theft on January 1, 2000 but parties cannot agree on amount of loss by March 1, 2000 (within 60 days from Jan.1).

• Proceeds must be paid within 90 days from January 1, 2000. Otherwise, interest will accrue.

MOTOR VEHICLE LIABILITY

• Procedure for filing claims

No fault Indemnity Clause: Section 391

➢ death or injury of 3rd party

➢ without necessity of proving fault or negligence of any kind

➢ if total indemnity of one person shall not exceed P15,000.

➢ Proofs of loss are submitted under oath.

▪ police report of accident ; and

▪ Death certificate and evidence to establish payee OR medical report and evidence of medical and hospital disbursement.

▪ Claim against one motor vehicle only

➢ if occupant of a vehicle, claim against insurance of vehicle

➢ otherwise, claim against offending vehicle

Bar 2012

X is a passenger of a jeepney for hire being driven by Y. The jeepney collided with another passenger jeepney being driven by Z who was driving recklessly. As a result of the collision, X suffered injuries. Both passenger jeepneys are covered by Comprehensive Motor Vehicular Insurance Coverage. If X wants to claim under the "no fault indemnity clause", his claim will lie -

A. against the insurer of the jeepney being driven by Z who was the one at fault.

B. the claim shall lie against the insurer of the passenger jeepney driven by Y because X was his passenger.

C. X has a choice against whom he wants to make his claim.

D. None of the above.

Bar 2014

• On May 26, 2014, Jess insured with Jack Insurance (Jack) his 2014 Toyota Corolla sedan under a comprehensive motor vehicle insurance policy for one year. On July 1, 2014, Jess’ car was unlawfully taken. Hence, he immediately reported the theft to the Traffic Management Command (TMC) of the Philippine National Police (PNP), which made Jess accomplish a complaint sheet as part of its procedure. In the complaint sheet, Jess alleged that a certain Ric Silat(Silat) took possession of the subject vehicle to add accessories and improvements thereon.

• However, Silat failed to return the subject vehicle within the agreed 3-day period. As a result, Jess notified Jack of his claim for reimbursement of the value of the lost vehicle under the insurance policy. Jack refused to pay claiming that there is no theft as Jess gave Silat lawful possession of the car. Is Jack correct? (4%)

Suggested answer

• Jack is wrong.

• Jeff obtained a comprehensive motor vehicle insurance policy, which should cover all kinds of losses for whatever reason, except gross negligence.

• The policy should cover the loss of the car, although it was not really unlawfully taken by Silat. The fact remains that there was loss of vehicle and the proceeds for the loss should be paid to Jeff.

Delay, Proof, Subrogation

Reasonable Delay in Payment

➢ delay due to investigation to ascertain the truth of information it received that insured was not insurable at time of application (Chuy v. Philamlife)

➢ delay caused by determination of actual beneficiary and claims of creditors (RCBC v. CA)

Preliminary Proof of Loss

• best evidence which insured has

❖ not evidence in ordinary courts

❖ purpose : Apprise insurer of loss and make proper investigation while evidence is still fresh and to prevent further loss

If no agreement is reached

• Insurer must pay under no-fault indemnity clause

Insurer gets notice• Ascertain nature and truth of claim• If parties agree, pay claim within 5

calendar days

Accident• Within six months, file written notice of claim.• Filed after six months = waived claim• Notice must contain nature, extent, duration of injuries certified

by a licensed physician

NOTICE OF LOSS IN FIRE

• Must be written

• Must be given without unnecessary delay

• Otherwise, the insurer is exonerated

NOTICE IN OTHER NON-LIFE POLICIES

• The Commissioner may specify the period for the submission of the notice of loss.

Subrogation

• when insurer pays for the loss

• payment to insured operates as an equitable assignment to the insurer of all remedies which insured may have for the recovery

• subrogation is limited to the amount recoverable by the insured

Marine

• What may be insured against

• Only covers loss due to perils of the sea and not perils of the ship

• In case there is a bottomry, insurable interest of the ship owner is limited to excess of its value over the amount secured by bottomry.

Bar 2010

• Paolo, the owner of an ocean-going vessel, offered to transport the logs of Constantino from Manila to Nagoya. Constantino accepted the offer, not knowing that the vessel was manned by an irresponsible crew with deep-seated resentments against Paolo, their employer.

• Constantino insured the cargo of logs against both perils of the sea and barratry. The logs were improperly loaded on one side, thereby causing the vessel to tilt on one side. On the way to Nagoya, the crew unbolted the sea valves of the vessel causing water to flood the ship hold. The vessel sank.

• Constantino tried to collect from the insurance company which denied liability, given the unworthiness of both the vessel and its crew.

• Constantino countered that he was not the owner of the vessel and he could therefore not be responsible for conditions about which he was innocent.

• Is the insurance company liable? Why or why not? (3%)

• What is "barratry" in marine insurance? (2%)

Suggested Answer

• The insurer is not liable because the vessel violated the implied warranty of seaworthiness. The loss was also caused by a peril of the ship and not peril of the sea.

• Barratry includes every wrongful act committed by a vessel master or crew, to the prejudice of the owner or the charterer.

Bar 2011

• T Shipping, Co. insured all of its vessels with R Insurance, Co. The insurance policies stated that the insurer shall answer for all damages due to perils of the sea. One of the insured's ship, the MV Dona Priscilla, ran aground in the Panama Canal when its engine pipes leaked and the oil seeped into the cargo compartment. The leakage was caused by the extensive mileage that the ship had accumulated. May the insurer be made to answer for the damage to the cargo and the ship?

A. Yes, because the insurance policy covered any or all damage arising from perils of the sea.

B. Yes, since there appears to have been no fault on the part of the shipowner and shipcaptain.

C. No, since the proximate cause of the damage was the breach of warranty of seaworthiness of the ship.

D. No, since the proximate cause of the damage was due to ordinary usage of the ship, and thus not due to a peril of the sea.

Answer

• D. No, since the proximate cause of the damage was due to ordinary usage of the ship, and thus not due to a peril of the sea.

Who can insure?

• Freightage – all benefits derived by the owner either from chartering the ship or its employment for the carriage of his own goods or those of others (102)

• Charterer of the ship has insurable interest on the ship to the extent that he is damnified by the loss (106)

Average

• General – insurer is liable for proportion of the loss assessed (136)

• Particular – insurer is liable unless there is a stipulation exempting the insurer (136)

General Average

• Goods of A valued at 1 M are disposed

• Disposition saves the goods of B (1 M) and C (1 M)

• The 1 M loss of A will be shared by B and C in proportion to the value of the goods belonging to them which are saved. The 1 M loss will be divided by three

Particular Average

• If the goods of A are disposed

• But disposition did not inure to the common benefit of other owners of goods

• Only A and his insurer will suffer the loss

• Other owners and their insurers will not contribute in A’s loss

Reshipment

• Insured peril prevents a ship from completing voyage at an intermediate port, liability of the marine insurer continues

after reshipment without prejudice to insurer's right to collect more premiums (133)

• In case of reshipment, the insurer of goods is liable for damages, expenses of discharging, storage, reshipment and other expenses (134)

Kinds of loss in marine

Total v Partial Loss

• Every loss which is not total is partial (128)

• Total loss may either be actual or constructive

• Actual loss may be presumed from the continued absence of a ship without being heard of (132)

Actual Loss, 130

• total destruction of the thing

• irretrievable loss of thing by sinking or being broken up

• damage which renders thing valueless for the purpose it is held

• other event which effectively deprives owner of possession of the thing at the port of destination

Constructive Total Loss, 133

• Also called technical total loss

• Loss which gives the person the right to abandon under Section 141

When there can be abandonment - SECTION 141

• >3/4 of the value is actually lost or would have to be spent to recover it from peril

• If the vessel is injured to such an extent as to reduce its value to >3/4

• If the thing is a ship, and the voyage cannot be performed without incurring either expense to the insured of >3/4 the value of the thing abandoned or a risk which a prudent man would not take under the circumstances

• If the thing is cargo or freightage, voyage cannot be performed, nor another ship be procured within a reasonable time and with reasonable diligence to forward the cargo, without incurring like expenses or risk >3/4 of the value of the vessel.

Abandonment

• Neither partial nor conditional (140)

• Must be made within a reasonable time after receipt of reliable information of loss (141)

• If information on loss is incorrect or thing is restored and there is no total loss, abandonment is ineffectual (141)

Bar 2011

• For a constructive total loss to exist in marine insurance, it is required that the person insured relinquish his interest in the thing insured. This relinquishment must be

A. actual.B. constructive first and if it fails, then actual. C. either actual or constructive.D. constructive.

Answer: A. actual.

Abandonment

• It is made orally or in writing. If orally, written notice shall be submitted within 7 days from oral notice (143)

• Has the effect of transferring by the insured of his interest, to the insurer with all chances of recovery and indemnity (146)

Bar 2011

• X Shipping, Co., insured its vessel MV Don Teodoro for Php100 Million with ABC Insurance, Co. through T, an agent of X Shipping. During a voyage, the vessel accidentally caught fire and suffered damages estimated at Php80 Million. T personally informed ABC Insurance that X Shipping was abandoning the ship.

• Later, ABC insurance denied X Shipping’s claim for loss on the ground that a notice of abandonment through its agent was improper. Is ABC Insurance right?

A. Yes, since X Shipping should have ratified its agent’s action.B. No, since T, as agent of X Shipping who procured the

insurance, can also give notice of abandonment for his principal.

C. Yes, since only the agent of X Shipping relayed the fact of abandonment.

D. No, since in the first place, the damage was more than 3⁄4 of the ship's value.

Answer

• B. No, since T, as agent of X Shipping who procured the insurance, can also give notice of abandonment for his principal.

If insurer pays for loss as if there was actual total loss, BUT there was no formal abandonment,Insurer is entitled to whatever may remain of the thing insured or its proceeds of salvage (147)

Who is entitled to freightage in case of abandonment?

❖ freightage earned before the loss belongs to the insurer of the freightage

❖ Freightage earned after the loss belongs to the insurer of the ship

Insurer refuses valid abandonment

• the rights of the insured are not prejudiced by refusal of insurer to accept abandonment

• Insurer is still liable for actual total loss deducting any amount given to the insured

• Acceptance of abandonment may be express or implied. Mere silence is acceptance

Insured refuses to abandon

• If insured fails to abandon, he can recover actual loss

Illustration

Partial

ConstructiveActual

Total

Loss in marine

• A insures a vessel with B for P1 Million• The vessel's value is reduced to P200,000 due to a

peril of the SEA• TWO CHOICES OF A: Abandon or claim actual loss

o If A abandons A must immediately give a written

notice of abandonment to B• If B accepts the abandonment, it

must give A P1 Million• B now has all the right with respect to

the vessel

• HOWEVER, freightage earned before loss will belong to the insurer of the goods

• Freightage earned after the loss will belong to the insurer of the vessel

If A does not abandon BUT

• B still gives A P1 Million

• B will now have the right over the vessel, what remains of it and proceeds of salvage

• A can recover ACTUAL loss or P800,000 since the vessel is reduced to 20% of its former value of P1 Million

Measure of Indemnity

• Valuation is conclusive between parties in determining total or partial loss EXCEPT if there is fraud

• Marine insurer is liable for partial loss only for such proportion of the amount insured by him as the loss bears to the value of the whole interest.

How to estimate loss in open policy (161)

• Value of the ship – value at the beginning of risk including articles which adds to its value or to prepare it for the voyage

• Value of the cargo – actual cost to insured when laden on board OR market value at the time and place of lading

• Value of the freightage is the gross freightage, exclusive of primage

• Cost of insurance shall be added to the estimated value

Effect of an Other Insurance Policy Clause

• Generally allowed

• Only subject to possible stipulation that insurer must be informed or must consent to additional insurance policies on the same property

Bar 2011

• If an insurance policy prohibits additional insurance on the property insured without the insurer's consent, such provision being valid and reasonable, a violation by the insured

A. reduces the value of the policy.B. avoids the policy.C. offsets the value of the policy with the additional

insurances’s value. D. forfeits premiums already paid.

Answer B. avoids the policy.

Insured gets full amount

Actual

Insured must abandon to get full amount

>3/4 rule

Constructive

Total

Litigation of Claims

• Powers of the Commissioner

• Insurance Commissioner

• Section 437. The Insurance Commissioner shall be appointed by the President of the Republic of the Philippines for a term of six (6) years without reappointment and who shall serve as such until the successor shall have been appointed and qualified. If the Insurance Commissioner is removed before the expiration of his term of office, the reason for the removal must be published.

• Adjudicatory Powers

• Single claims of P5 Million or below (excluding cost, attorney’s fees and interest)

• This jurisdiction is concurrent with the regular courts

• Adjudicatory Powers

• does not cover the relationship between the insurance company and its agents/brokers but is limited to adjudicating claims and complaints filed by the insured against the insurance company.

• Administrative Powers

To see that all laws relating to insurance, insurance companies and other insurance matters, mutual benefit associations, and trusts for charitable uses are faithfully executed and to perform the duties imposed upon him by this Code

• Administrative Powers

has sole and exclusive authority to regulate the issuance and sale of variable contracts as defined in Section 238 hereof and to provide for the licensing of persons selling such contracts, and to issue such reasonable rules and regulations governing the same.

• Administrative Powers

Issue such rulings, instructions, circulars, orders and decisions as may be deemed necessary to secure the enforcement of the provisions of this Code to ensure the efficient regulation of the insurance industry in accordance with global best practices and to protect the insuring public. Except as otherwise specified, decisions made by the Commissioner shall be appealable to the Secretary of Finance.

• Administrative Powers

• (a) Formulate policies and recommendations on issues concerning the insurance industry, advise Congress and other government agencies on all aspects of the insurance industry and propose legislation and amendments thereto;

• (b) Approve, reject, suspend or revoke licenses or certificates of registration provided for by this Code;

• Administrative Powers

(c) Impose sanctions for the violation of laws and the rules, regulations and orders issued pursuant thereto;

• (d) Prepare, approve, amend or repeal rules, regulations and orders, and issue opinions and provide guidance on and supervise compliance with such rules, regulations and orders;

• (e) Enlist the aid and support of, and/or deputize any and all enforcement agencies of the government in the implementation of its powers and functions under this Code;

• Administrative Powers

• (f) Issue cease and desist orders to prevent fraud or injury to the insuring public;

• (g) Punish for contempt of the Commissioner, both direct and indirect, in accordance with the pertinent provisions of and penalties prescribed by the Rules of Court;

• (h) Compel the officers of any registered insurance corporation or association to call meetings of stockholders or members thereof under its supervision;

• Administrative Powers

• (i) Issue subpoena duces tecum and summon witnesses to appear in any proceeding of the Commission and, in appropriate cases, order the examination, search and seizure of all documents, papers, files and records, tax returns, and books of accounts of any entity or person under investigation as may be necessary for the proper disposition of the cases before it, subject to the provisions of existing laws;

• (j) Suspend or revoke, after proper notice and hearing, the license or certificate of authority of any entity or person under its regulation, upon any of the grounds provided by law;

• Administrative Powers

• (k) Conduct an examination to determine compliance with laws and regulations if the circumstances so warrant as determined by appropriate rules and regulations;

• (l) Investigate not oftener than once a year from the last date of examination to determine whether an institution is conducting its business on a safe and sound basis: Provided, That, the deficiencies/irregularities found by or discovered by an audit shall be immediately addressed;

• Administrative Powers

• (m) Inquire into the solvency and liquidity of the institutions under its supervision and enforce prompt corrective action;

• (n) To retain and utilize, in addition to its annual budget, all fees, charges and other income derived from the regulation of insurance companies and other supervised persons or entities;

• (o) To fix and assess fees, charges and penalties as the Commissioner may find reasonable in the exercise of regulation; and

• (p) Exercise such other powers as may be provided by law as well as those which may be implied from, or which are necessary or incidental to the express powers granted the Commission to achieve the objectives and purposes of this Code.

• Administrative Powers

• To impose penalties on insurers:

• Fines not less than Five thousand pesos a (P5,000.00) and not more than Two hundred thousand pesos (P200,000.00); and

• Suspension, or after due hearing, removal of directors and/or officers and/or agents.

• Administrative Powers

• At least once a year to examine the affairs, financial condition and method of business of insurers

• To issue licenses/registrations/authority to the ff:

• Domestic or foreign insurer (247)

• Reinsurance Broker (license) (Sec. 310)

• Insurance Agent and Broker (license) (Sec. 299)

• To issue licenses/registrations/authority to the ff:

• Resident agent of a foreign insurer (certificate of registration)

• Non-life company underwriter (certificate of registration)

• Adjusters Actuary

• Grounds to revoke agent’s license

• Has willfully violated any provision of this Code; or

• Has intentionally made a material misstatement in the application to qualify for such license; or

• Has obtained or attempted to obtain a license by fraud or misrepresentation; or

• Has been guilty of fraudulent or dishonest practices; or

• Grounds to revoke agent’s license

• Has misappropriated or converted to his own use or illegally withheld moneys required to be held in a fiduciary capacity; or

• Has not demonstrated trustworthiness and competence to transact business as an insurance agent or insurance broker in such manner as to safeguard the public; or

• Has materially misrepresented the terms and conditions of policies or contracts of insurance which he seeks to sell or has sold; or

• Grounds to revoke agent’s license

• Has failed to pass the written examination prescribed, if not otherwise exempt from taking the same.

• "In addition to the foregoing causes, no license to act as insurance agent or insurance broker shall be renewed if the holder thereof has not been actively engaged as such agent or broker in accordance with such rules as the Commissioner may prescribe.

• Administrative Powers

• Suspension or Revocation of certificate of authority on the ff grounds:

• Insurer is in an unsound condition

• Insurer failed to comply with the provisions of law or regulations obligatory upon it

• Administrative Powers

• Insurer's condition or method of business is hazardous to the public or its policyholders

• Insurer's paid up capital or available assets or security deposits is impaired or is deficient

• Margin of solvency is deficient

• Commission of any of unfair settlement practices

• Unfair Claims Settlement Practices

➢ Knowingly misrepresenting to claimants pertinent facts or policy provisions relating to coverage at issue

➢ Failing to acknowledge with reasonable promptness pertinent communications with respect to claims arising under its policies

• Unfair Claims Settlement Practices

• Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under its policies

• Unfair Claims Settlement Practices

Not attempting in good faith to effectuate prompt, fair and equitable settlement of claims submitted in which liability has become reasonably clean; or

• Unfair Claims Settlement Practices

➢ Compelling policyholders to institute suit to recover amounts due under its

policies by offering without justifiable reason substantially less than the amounts ultimately recovered in suits brought by them

• Unlawful Claims

SECTION 251. It is unlawful to:

(a) Present or cause to be presented any fraudulent claim for the payment of a loss under a contract of insurance; and

(b) Fraudulently prepare, make or subscribe any writing with intent to present or use the same, or to allow it to be presented in support of any such claim. Any person who violates this section shall be punished by a fine not exceeding twice the amount claimed or imprisonment of two (2) years, or both, at the discretion of the court.

• Appeal of Insurance Commission cases

• If Administrative functions- File a Memorandum of Appeal within 15 days to the Secretary of Finance (Rule IX, Section 1 of Insurance Memorandum Circular 1-93)

• If Adjudicatory functions- Court of Appeals (depending on mode of appeal)

• At a glance

Period to pay claims in life and non-life (60 days; 30-60-90 rule)

Facility of payment clause

Notice of loss in fire insurance

• At a glance

• Actual loss

• Constructive loss- >¾ rule on abandonment

• At a glance

○ Jurisdiction of the insurance commissioner

○ Jurisdiction of regular courts

○ Unfair claims settlement practices

• Framework

• PART FIVE

GROUNDS FOR RESCISSION

PDIC LAW

• GROUNDS

• Concealment

• Misrepresentation

• Breach of warranty, express or implied

• Other grounds - Section 64-65

• CONCEALMENT

• CONCEALMENT

➢ neglect to communicate that which a party knows and ought to communicate.

➢ May be intentional or unintentional

• Requisites of Concealment

➢ party knows the fact which he neglects to communicate or disclose

(b) party concealing is duty bound to disclose such fact to the other

• Requisites of Concealment

a) party concealing makes no warranty as to concealed fact

b) other party has no means of ascertaining the fact concealed

• WHAT MUST BE COMMUNICATED

➢ All facts within his knowledge

➢ Material to the contract

➢ Other party has no means of ascertaining

➢ He makes no warranty

➢ Information which prove or tend to prove falsity of warranty

• WHAT NEED NOT BE COMMUNICATED

➢ Those which the other knows

➢ Those which, in the exercise of ordinary case, the other ought to know and which the other has no reason to suppose him ignorant

• WHAT NEED NOT BE COMMUNICATED

➢ Those of which the other waives communication

➢ Those which prove or tend to prove the existence of a risk excluded by a warranty, and which are not otherwise material; and

➢ Those which relate to a risk excepted from the policy, and which are not otherwise material

• What need not be communicated

➢ General causes open to his inquiry which may affect the political or material perils contemplated (32)

➢ General usages of trade (32)

• What need not be communicated

➢ Nature or amount of interest, except in answer to an inquiry (34)

➢ Information of his own judgment (35)

• TEST OF MATERIALITY

➢ Determined not by event

➢ Probable and reasonable influence of facts upon the party to whom communication is due in forming his estimate of the disadvantages of the proposed contract OR in making his inquiries

• TEST OF MATERIALITY

• Assessment of risk, in making/omitting further inquiries, cause him to reject the risk or accept it at higher premium rate/different terms

• Materiality

• Sunlife v. CA, 245 SCRA 268 - where the applicant concealed prior medical history and he died in a plane crash, there was still concealment notwithstanding the apparent lack of relation between the fact concealed and the cause of death

• Bar 2001

• A applied for non-medical life insurance. He did not inform the insurer that he was examined and confined at St. Luke’s Hospital where he was diagnosed for lung cancer. A died in a plane crash. Is the insurer liable considering that the fact concealed had no bearing with the cause of death of A?

• Answer

• The insurer is not liable. The concealed fact is material to the approval and issuance of the policy. According to a decided case, the insured need not die of the disease he failed to disclose to the insurer. It is sufficient that his non-disclosure misled the insurer in forming his estimate of the risks of the proposed insurance policy or in making further inquiries.

• Bar 2011

• An insured, who gains knowledge of a material fact already after the effectivity of the insurance policy, is not obliged to divulge it. The reason for this is that the test of concealment of material fact is determined

• Bar 2011

• A. at the time of the issuance of the policy.B. at any time before the payment of premium.C. at the time of the payment of the premium.D. at any time before the policy becomes effective.

• Answer

• D. at any time before the policy becomes effective.

• WAIVER OF RIGHT TO INFORMATION

➢ By terms of insurance OR

➢ Neglect to make inquiries

❖ concealment entitles the unguilty party to rescind

• CONCEALMENTIn Marine Insurance

in addition to Section 28

all information he possesses material to the risk except those in Section 30

• CONCEALMENTIn Marine Insurance

state exact and whole truth in relation to all matters that he represents

information of belief or expectation of a third person as to a material fact is MATERIAL

insured is presumed to know prior loss at time of insuring

• Concealment in Marine Insurance

• General Rule: Concealment entitles the innocent party to rescind

• Exception: Section 110

• Section 110

Concealment as to following does NOT vitiate the entire contract but exonerates the insurer from loss resulting from risk concealed.

(a) national character of insured

(b) liability of thing insured to capture and detention

• Section 110

c) liability to seizure from breach of foreign laws of trade

(d) the want of necessary document

(e) the use of false and simulated papers

• INCONTESTABILITY CLAUSE IN LIFE INSURANCE

Section 48, 2nd par – if life insurance has been in force during the lifetime of the insured for a period of 2 years from DATE OF ISSUE or LAST REINSTATEMENT

the insurer cannot prove that the policy is void ab initio or is rescindible

by reason of fraudulent concealment or misrepresentation of the insured or his agent.

• Illustration

• A is issued a life insurance policy on April 2, 2000

• He conceals the fact that he has tuberculosis

• A dies on April 3, 2002.

• Insurance company must pay. Although there was concealment, the policy has been in force during the lifetime of A for 2 years from April 2, 2000.

• When Incontestability Clause DOES NOT apply

• Person has no insurable interest

• Cause of death is an excepted peril

• Premiums have not been paid

• Conditions of the policy relating to military or naval service have been violated

• When Incontestability Clause DOES NOT apply

• Fraud of a vicious type is present when policy was taken out

• Beneficiary failed to furnish proof of death or to comply with any condition imposed by the policy after the loss has happened

• That the action was not brought within time specified

• Bar 2012

• The "incontestability clause" in a Life Insurance Policy means ---

A. that life insurance proceeds cannot be claimed two (2) years after the death of the insured.

B. that two (2) years after date of issuance or reinstatement of the life insurance policy, the insurer cannot anymore prove that the policy is void ab initio or rescindable by reason of fraudulent concealment or misrepresentation of the insured.

C. that the insured can still claim from the insurance policy after two (2) years even though premium is not paid.

D. that the insured can only claim proceeds in a life insurance· policy two (2) years after death.

• Bar 2014

• On July 3, 1993, Delia Sotero (Sotero) took out a life insurance policy from Ilocos Bankers Life Insurance Corporation (Ilocos Life) designating Creencia Aban(Aban), her niece, as her beneficiary. Ilocos Life issued Policy No. 747, with a face value of P100,000.00, in Sotero’s favor on August 30, 1993, after the requisite medical examination and payment of the premium.

• On April 10, 1996, Sotero died. Aban filed a claim for the insurance proceeds on July 9, 1996. Ilocos Life conducted

an investigation into the claim and came out withthe following findings:

• 1. Sotero did not personally apply for insurance coverage, as she was illiterate.

• 2. Sotero was sickly since 1990.

• 3. Soterodid not have the financial capability to pay the premium on the policy.

• 4. Sotero did not sign the application for insurance.

• 5. Aban was the one who filed the insurance application and designated herself as the beneficiary.

• Bar 2014

• For the above reasons and claiming fraud, Ilocos Life denied Aban’s claim on April 16, 1997, but refunded the premium paid on the policy. (6%)

• (A) May Sotero validly designate her niece as beneficiary?

• (B) May the incontestability period set in even in cases of fraud as alleged in this case?

• (C) Is Aban entitled to claim the proceeds under the policy?

• Suggested Answer

• (B) May the incontestability period set in even in cases of fraud as alleged in this case?

• The incontestability clause shall not apply because the niece did not have insurable interest on the life of her aunt. Hence, she cannot use the clause to recover.

• Suggested Answer

• (c) Is Aban entitled to claim the proceeds under the policy?

• No Aban is not entitled to the proceeds because she was the one who obtained the policy on the life of her aunt and she does not have insurable interest. Hence, the policy is void.

• MISREPRESENTATION

• MISREPRESENTATION

• Representations – factual statements made by the insured at the time of, or prior to the issuance of the policy

• MISREPRESENTATION

Statement

(a) as a fact of something which is untrue

(b) which the insured stated with knowledge that it is untrue and with an intent to deceive, or which he

states positively as true without knowing it to be true and which has a tendency to mislead, and

(c) where such fact in either case is material to the risk

• Test of Falsity & Materiality

Sec. 44 – when the facts fail to correspond with its assertion or stipulations

Sec. 45 – materiality is determined using the same test in concealment (Sec. 31)

• Misrepresentation as a ground to rescind

entitled to rescind from the time the representation becomes false

right to rescind by insurer is waived by acceptance of premiums despite knowledge of ground to rescind

• Misrepresentations as to Age in Life Insurance

no rescission

proceeds shall be such as the premium would have purchased at the correct age

• Misrepresentationin Marine Insurance

entitles the insurer to rescind

eventual falsity of a representation as to expectation without fraud, does NOT avoid a marine insurance contract

• Bar 2011

• Shipowner X, in applying for a marine insurance policy from ABC, Co., stated that his vessel usually sails middle of August and with normally 100 tons of cargo. It turned out later that the vessel departed on the first week of September and with only 10 tons of cargo. Will this avoid the policy that was issued?

• Bar 2011

• A. Yes, because there was breach of implied warranty.B. No, because there was no intent to breach an implied warranty. C. Yes, because it relates to a material representation.D. No, because there was only representation of intention.

• Answer

• D. No, because there was only representation of intention.

• Breach of Warranty

• Warranty

• Either express or implied

• May relate to the past, present or future

• Implied Warranties in Marine Insurance

Seaworthiness - 113

Nationality or neutrality – 120

Improper deviation -121

Illegal ventures

• Bar 2000

• What warranties are implied in marine insurance? (2%)

• Seaworthiness

• Section 114 - a ship is seaworthy if reasonably fit to perform the service, and to encounter the ordinary perils of the voyage contemplated by the parties to the policy

• Seaworthiness

• Section 116 - extends not only to the seaworthiness of the ship itself but requires that it be properly laden, provided with competent master, sufficient number of competent officers and seamen, requisite appurtenances and equipment and other implements for the voyage

•

Improper Deviation

• Section 123 - deviation is a departure from the course of the voyage insured or unreasonable delay in pursuing the voyage or the commencement of an entirely different voyage

• Proper Deviation, 124

• caused by circumstances outside the control of the master or owner

• when necessary to comply with a warranty or to avoid peril

• Proper Deviation, 124

• when made in good faith upon reasonable grounds to avoid a peril

• in good faith to save human life or to relieve another vessel

• Bar 2011

• T, the captain of MV Don Alan, while asleep in his cabin, dreamt of an Intensity 8 earthquake along the path of his ship. On waking up, he immediately ordered the ship to return to port. True enough, the earthquake and tsunami struck three days later and his ship was saved. Was the deviation proper?

• Bar 2011

• A. Yes, because the deviation was made in good faith and on a reasonable ground for believing that it was necessary to avoid a peril.

• B. No, because no reasonable ground for avoiding a peril existed at the time of the deviation.

• C. No, because T relied merely on his supposed gift of prophecy.

• D. Yes, because the deviation took place based on a reasonable belief of the captain.

• Answer

• B. No, because no reasonable ground for avoiding a peril existed at the time of the deviation.

• Nationality

• Section 120 - where the nationality or neutrality of the ship is expressly warranted, it is impliedly warrantied that the ship will carry the requisite documents to show such nationality or neutrality and it will not carry any document which will cast suspicion thereon.

• Other Ground for Rescission innon – life insurance

non- payment of premium

conviction of a crime arising out of acts increasing the hazard insured against

discovery of fraud / material misrepresentation

• Other Ground for Rescission in non – life insurance

discovery of willful or reckless acts or omissions increasing the hazard insured against

physical changes in the property becoming uninsurable

Discovery of other insurance coverage that makes the total insurance in excess of the value of the property insured

determination by Insurance Commissioner that continuation of the policy would violate or would place the insurer in violation of the Insurance Code

• Notice of Cancellation

In writing

Mailed or delivered to named insured at address shown in the policy OR

or to his broker provided the broker is authorized in writing by the policy owner to receive the notice of cancellation on his behalf

• Notice of Cancellation

Shall state

➢ grounds relied on

➢ upon written request, insurer will furnish fact on which cancellation is based

• Rescission must be exercised

Before the commencement of any action on the contract

In which motor vehicle liability insurance notice of cancellation must be sent to the land transportation owner/operator and the LTO at least 15 days before date of effectivity