Philomatheia Insurance Finals Tips

8/22/2019 Philomatheia Insurance Finals Tips

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INSURANCE FINALS TIPS

1 | P I E R R E M A R T I N R E Y E S , S T A R R W E I G A N D & B U T C H R A M I R O

DISCLAIMER: The use, misuse, and nonuse of this reviewer shall be borne solely by th e user.

MULTIPLE CHOICE QUESTIONS

1. The Philippine Insurance Law is based principally on:

a. Connecticut insurance Law

b. California Insurance Law

c. Insurance provisions of the Spanish Code of Commerce

d. New York Insurance Law

2. Insurance claim disputes PhP100,000 and below fall under:

a. exclusive jurisdiction of the Insurance Commissioner

b. concurrent jurisdiction of the Insurance Commissioner and the civil courts

c. exclusive jurisdiction of the RTC

d. exclusive jurisdiction of the MTC

3. An insurance contract where the insured has no insurable interest is:

a. Void

b. Rescissible

c. Voidable

d. Valid and binding until cancelled

4. A concealment, whether intentional or unintentional entitled the insured to:

a. Annul the contract.

b. Rescind the contract

c. Declare the same void.

5. The incontestable clause is required to be part of:

a. All insurance contracts

b. All non-life insurance contracts

c. All personal accident insurance contracts

d. All life insurance contracts

6. The parties in an insurance contract are:

a. The insured and the insurerb. The insured, the insurer and the Insurance Commissioner

c. The insured, the insurer and the beneficiaries

d. The insured, the insurer and the reinsurer

7. Concealment of a disease as a ground for the rescission of an insurance contract must

be:

a. Intentionalb. Fraudulent

c. Intentional or unintentional

d. Concealment of a disease that caused the death of the insured.

8. Fire Insurance as understood in the Insurance Code includes:

a. Fire only

b. Fire or Lightning only

c. Fire, lightning and earthquake only

d. Fire, Lightning, thunderstorm, tornado, earthquake and other allied risks if they

are extensions of the fire insurance policy or are taken separately

9. An example of an insurance contract falling under the category of casualty insurance is:

a. Marine protection and indemnity insurance policy

b. Fire insurance policy

c. Motor car insurance policy

d. Life insurance policy

10. An insurance contract is necessarily:

a. An open policy

b. A valued policy

c. A running policy

d. A contract of adhesion

11. A public enemy who may not be insured is:

a. A notorious person declared by the PNP as a public enemy

b. A terrorist declared as such by the government like the Abu Sayyaf who kidnapped

innocent victims

c. A criminal duly convicted by the co urts

d. A citizen of a country at war with the Philippines


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12. An insurance contract is a contract of adhesion because:

a. The insured cannot understand the technical terms in the co ntract.

b. The insured did not have a hand in the preparation of the contractc. The contract must be interpreted in favor o f the insured

d. The Insurance Commissioner pre-approved all insurance contracts

13. In his life insurance application, Juan concealed the fact that he had diabetes. He died in

an accident. The materiality of the concealment is determined solely by:

a. The cause of Juans death

b. The contribution to the accident that caused the death

c. The existence of other diseases that Juan concealed

d. The acceptability of Juan for insurance coverage by the insurer had it known he

had diabetes.

14. Juan owns a Mercedes Benz which was insured for 1 year by Seguro Co. under a motor

car policy. During the year, he sold the car to Pedro. A week after t he sale was registered

in Pedros name, the car was stolen. Who is entitled to the insurance proceeds, if any?

a. Juan, because he owns the insurance policy

b. Pedro, because he owns the car when it was lost

c. Juan and Pedro should split the insurance proceeds, 50-50.

d. Neither Juan nor Pedro can claim under Juans policy.

15. If Juan sold the Benz to Pedro, insured by Seguro Co., under a compulsory third party

liability insurance (CTPL) and prior to registration and renewal of the registration with

the LTO, the car hit a pedestrian. Can Pedro claim the proceeds?

a. No, Pedro is still not the owner of the policy.

b. Yes, Change in ownership will not affect the mot or car policy.c. Yes, provided proper endorsement is made on the policy of the ownership change

and the insurer agrees thereto, and a signed duplicate of such endorsement shall,

within a reasonable time, be filed with the Land Transportation Commission.

d. No. no insurable interest exists in his favor.

16. If a vehicle insured under a CMVLI, may the injured party claim the proceeds of the

insurance, including damages, attorneys fees and costs adjudicated by the Court from

the insurer?

a. Yes. The liability of the insurer is direct and thus, upon the happening of the

accident giving rise to the liability, the insured may be made to pay.

b. No, the insurer is not the person who caused the insjuries.

c. No, because although it is now established that the injured or the heirs of a

deceased victim of a vehicular accident may sue directly the insurer of the vehicle,

the third party liability is only up to the extent of the insurance policy and those

required by law.

17. Insurance is said to be a contract of utmost good faith. This means, in entering into thecontract:

a. The insurer must possess good faith.

b. The insured must have good faith.

c. The insurer, the insured and the beneficiary must have good faith.

d. The insured and the insurer must possess good faith.

18. Juan has 3 cars which are separately valued and insured under 1 motor car insurance

policy. Juan sold 1 of the cars.

a. The insurance coverage continues for the 3 cars until the expiry date of the policy.

b. The insurance coverage becomes void for the car sold.

c. The insurance coverage becomes void for the 2 remaining cars.d. The insurance coverage becomes void for the 3 cars.

19. A marine insurance policy covers a vessel for total loss only. This means that under

Philippine law, the insurer is liable:

a. Only when the vessel sinks and cannot be salvaged.

b. When the vessel is damaged to the extent of more than 75% of its value and is

abandoned.

c. When the vessel is damaged to t he extent of 85% of its value and is abandoned.

d. When the vessel is damaged to the extent of more than 50% of its value and is

abandoned.

20. Under a fire insurance policy, the sale of an insured house after its kitchen was burned:

a. Affects the right of the insured to claim on the loss of the kitchen.

b. Does not affect the right of the insured to claim for the loss of the kitchen.

c. Does not affect the right of the insured on future loss of the same house.

d. Does not affect the right of the new owner on the loss of the kitchen.

21. The insurable interest of the owner of an apartment leased to his tenants consists of:

a. The value of the house only.

b. The value of the house and its rentals.


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c. The value of the house minus the value of the lease.

d. The value of the lease.

22. A representation may be made:

a. At the time of the issuance of an insurance policy only.

b. After an insurance policy takes effect only.c. At the time of issuance of an insurance policy or before its ef fectivity.d. At any time during the effectivity of the policy.

23. A representation may be altered or withdrawn before the effectivity of an insurance

contract but not afterwards because:

a. Representations are presumed to refer to the date of effectivity of the contract.b. An oral representation cannot qualify any express provision of the contract.

c. A representation cannot qualify a warranty

d. Representations are not part of the insurance contract.

24. In 2010, Juan, a married man, took a PhP10 million policy on his own life. On his death,

several persons claimed to be entitled to a share in the insurance proceeds. Who is notentitled to a share in the proceeds?

a. Maria, Juans legal wife, because she was not named as beneficiary.

b. Junior, illegitimate son of Juan and Nita, because although an irrevocable

beneficiary he is disqualified for being an illegitimate child.

c. Juanito, legitimate son of Juan and Maria, because he is just a revocable beneficiary.

25. Alex was issued a life insurance policy in 1991. 2 years and 3 months later, his policy

lapsed but he had the same reinstated in 1993. Upon his death by accident in 1994, the

insurer discovered that he concealed his confinement in a hospital for dengue before he

applied for his insurance policy. Can the insurer st ill contest the claim?

a. No, the policy is already incontestable having been originally issued 3 years ago.

b. No, because the policy was not caused by the disease he concealed.

c. Yes, because the policy is still contestable, having been reinstated 1 year ago.

26. Pedro insured under a Loss or Damage Co verage his car-financed BMW under a motorcar

policy with a mortgage clause payable to Bata Financing Co. as its interest may appear. 6

months later, after he fully paid his car loan, he died leaving the car to his favorite son,

Junior, in accordance with his will. A week after his death, the insured BMW was stolen

and never recovered. Is the claim of Junior, Pedros son payable under Pedros motorcar

insurance policy?

a. Yes, because a change of interest by will or succession on the death of the insured

does not avoid an insurance.

b. Yes, because Pedros car loan was already fully liquidated.

c. No, because Junior did not have insurable interest in the BMW at the time the

policy took effect.

27. Seguro Insurance Co. issued a PhP100 million single marine insurance policy on ashipment by sea from USA to Manila against total loss only, actual or constructive. The

following amounts were stated in the policy:

1 container of laptop computers - PhP 70 million

1 container of cellphones - PhP20 million

1 container office supplies - PhP10 million

____________

Total PhP100 million

While at sea, the insured abandoned the laptop computers because of damages which

rendered them entirely useless to him. Is the insurer liable?

a. Yes, it is liable because the laptop computers were separately valued, and thus,were separately insured.

b. No it is not liable because, the laptop computers were worth only PhP70 million,

less than of the entire shipment of PhP100 million needed for constructive total

loss.

c. No, because there was no total loss amounting to PhP100 million.

28. Juan owns a house valued at PhP10 million and he insured the same for PhP5 million

under a fire insurance policy with a co-insurance clause in case of underinsurance. The

house was partially burned to the extent of PhP1 million. How much is payable under the

policy?

a.

The entire PhP1 million partial loss is payable because in fire insurance the full

amount of the partial loss is payable as long as it does not exceed the amount of

insurance.

b. Only of the partial loss of PhP1 million or PhP500,000 is payable because co-

insurance was stipulated and the insured consequently became his own insurer

for the difference between the value of the property insured and the amount of

the insurance.

c. Nothing is payable because partial losses in case of underinsurance can be collected

only in marine insurance.


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29. An insurance company got into a dispute with its agents. The insurance company filed a

case before the insurance commissioner to settle the dispute. The Insurance

Commissioner should:

a. Dismiss the case, as he only has jurisdiction over matters involving insurance

contracts, and disputes between the insured and the insurer.

b. Take cognizance of the case as he is authorized to see that all laws relating toinsurance, insurance companies and other insurance matters, are faithfully

executed.

c. Refer the matter to the Secretary of Finance.

30. A was insured under a life insurance contract with ABC Insurance. Upon his d eath during

the effectivity of the policy, his heirs filed a formal claim with the insurer for the

proceeds of the policy, along with the proof of death. The insurance company failed to

act on the claim within 60 days from the filing of the claim and the proof of death. Upon

a finding by the court that there was unreasonable delay in the settlement of the claim,

ABC Insurance will be liable for:

a. The insurance proceeds only.

b. The insurance proceeds plus interest at twice the ceiling rate provided by the BSP.c. They are not liable for anything, as they can validly deny claims.


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ESSAY

1. Mike owns a Honda CRV and he obtained a PhP50,000 compulsory motor vehicle

liability insurance coverage from Tagal Bayad Ins. Co. While driving his CRV, he

bumped a RAV 4 insured by Segurista Insurance Co. with the same insurance coverage

as Mikes policy. Cesar, a passenger of the RAV 4, suffered bodily injuries amounting to

PhP10,000. The RAV 4 was likewise damaged amounting to PhP15,000.

a. Suppose the claimants want immediate payment but the responsibility for the

accident cannot yet be established, which insurance company should pay the

proper damages and how much should be paid? Explain.

SUGGESTEDANSWER:

For the immediate payment of bodily injuries suffered by Cesar as passenger of the RAV 4, he

can claim from the 3rd

party liability ofSegurista Insurance Co. under the no fault indemnity

clause and for compensation ofonly up to PhP5,000.

The no fault indemnity clause is a provision under the CMVLI which allows 3rd

party claimants

to claim damages from insurers without first proving the fault or negligence of the insured.

The law provides, under Section 378, the requirements for claims under the no-fault

indemnity clause:

1. The total indemnity in respect of any person shall not exceed five thousand pesos;

2. The following proofs of loss, when submitted under oath, shall be sufficient

evidence to substantiate the claim:

(a) Police report of accident; and

(b) Death certificate and evidence sufficient to establish the proper payee; or

(c) Medical report and evidence of medical or hospital disbursement in respect of

which refund is claimed;

3. Claim may be made against one motor vehicle only. In the case of an occupant of

a vehicle, claim shall lie against the insurer of the vehicle in which the occupant isriding, mounting or dismounting from. In any other case, claim shall lie against the

insurer of the directly offending vehicle.

4. In all cases, the right of the party paying the claim to recover against the owner of

the vehicle responsible for the accident shall be maintained.

Hence, Cesar, as passenger of the RAV 4 insured by Segurista Insurance may claim indemnity

for his injuries under the no fault indemnity clause, which may be filed against the insurer of

the vehicle in which he was a passenger, in an amount not exceeding PhP5,000, and provided

he submit the requisite proofs required by t he law.

However, no immediate payment may be made for the damages of the RAV 4. Thedamages

to the RAV 4may not be claimed under the no fault indemnity clause, since such clause only

covers physical injuries or death resulting from vehicular accidents. The clause does not cover

damage to property, but only damage to 3rd

persons.

b. Assuming that no payment had been advanced, and Mike was ultimately held

responsible for Cesars injuries and damage to the RAV 4, which insurancecompany is liable and for how much? Explain.

SUGGESTEDANSWER:

Tagal BayadInsurance should be held liable only for the physical injuries sustained by Cesar,

and not for the damage to the RAV 4. Being the insurer of Mike under CMVLI, it had

assumed liability for Mikes liability to 3rd

persons arising from bodily injuries or death

resulting from motor vehicle mishaps. Cesar may thus recover from Tagal Bayad the full

amount of PhP10,000 as the amount he had to expend as a result of his injuries. The full

amount of the expenses may be claimed as it had now been conclusively determined and

proved that the negligent driver at fault is Mike and, his insurer may be held liable for the

fault or negligence of the insured pursuant to damages caused which are covered by the

policy it issued.

On the other hand, compensation claimed for the damages caused to the RAV 4 may not be

made the liability of Tagal Bayad, as CMVLI only covers bodily injuries and death to third

persons, not including damage to property. Thus, no liability attached to Tagal Bayad for the

damages sustained by the RAV 4, and it may not be held liable therefore.

2. Juan owns a house worth PhP 3 million and he insured the same under 3 fire insurance

open policies, allowing double insurance but with co-insurance clause in case of under-

insurance:

Co. A PhP1 million

Co. B PhP3 million

Co. C PhP6 million

Suppose the house burned and the claim adjusters determined the value of the house

as 3 million.

a) Against what insurance company may Juan claim his loss? Explain.

SUGGESTED ANSWER:

Section 94 of the Insurance Code provides that the insured may claim from the insurers in

the order he selects up to the limits of the individual policies. Thus, Juan can claim the whole


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Php 3 million from Co. B or get PhP1 million form Co. A and the remaining PhP2 million from

Co. B, or get only PhP3 million from Co. C, or any other combination he desires, as long as the

insurance companies cannot be held liable for more than what their respective policies

provide. In any case, if the insured received any sum in excess, he must hold it in trust for the

insurers according to their right of contribution amongst themselves.

Section 94 also provides that if the policy is undervalued, the insured shall give credit asagainst the full insurable value for sum received by him. In this case, the value of the

property shall be determined by the amount needed to replace the property, at the time for

the loss. Such amount, which has been here determined to be PhP3 million, will then be made

the basis for crediting the amounts received by the insured from the different insurers. Thus,

Juan can claim from any one of the insurers only up to the extent of PhP3 million, determined

to be the value of the property at the time of the loss. After claiming from such insurers as he

chooses, Co. A, B and C are then bound to contribute as between themselves the insurance

paid in proportion to the insurable interest under their separate policies.

b) How much is each insurer bound to contribute as between him and the other

insurers? Show computation and explain.

SUGGESTED ANSWER:

Section 94 provides that each insurer is bound to contribute ratably to the loss. Thus:

For Co. A

For Co. B

For Co. C

Hence, since the three companies must contribute ratably to the loss: Co. A having a 1/10

share in the liability must pay PhP300,000; Co. B with a share of 3/10 must contribute

PhP900,000; and Co. C with the biggest share of 3/5, must contribute PhP1.8 million.

3. Suppose in the case above, the 3 million house is partially burned to the extent of only

1 million, as determined by the adjusters.

a. How much is Juan entitled to if he filed his claim with Co. A only. Show

Computation and explain.

Co. A will only be held liable for PhP333,333 of the partial loss. Section 172 of the Insurance

Code provides that the full amount of partial loss is payable unless co-insurance is

stipulated. In this case, there is under insurance of Php 2 million, derived from deducting the

PhP1 million worth of insurance policy of Co. A from the PhP3 million value of the house.

Hence, the co-insurance clause will apply.The insurer is bound to contribute in proportion

to the amount of interest insured as the loss bears to the value of the property lost , thus:

Because the co-insurance clause applies due to underinsurance, the insured will

consequently become his own insurer for the difference between the value of the property

insured and the amount of the insurance. Hence, Juan will have to bear the remaining

amount of partial loss from the PhP1 million, which is PhP666,666.66.

b. If he files a claim against Co. B only? Explain.

SUGGESTED ANSWER:

Co. B will be liable for the full amount of the partial loss which is Php 1 million. In this case,

since the amount of insurance is Php 3 million is equal to the value of the house, there is no

under insurance. Hence, the co-insurance clause will not apply. The insurer is bound tocontribute in proportion to the amount of interest insured as the loss bears to the value of the

property lost, thus,


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Thus, Co. B may be held liable for the full amount of the partial loss worth PhP1 million, which

is the exact amount of the insurable interest covered in its insurance policy issued to Juan.

4. Pedro has a PhP10 million life insurance policy issued by XYZ Co. on June 1, 2001 which

was in force at the time he deliberately killed himself on January 15, 2004, after having

reinstated his policy barely 6 months earlier. How much is XYZ Co.s liability for his

death, if any?

SUGGESTED ANSWER:

XYZ Co. may not be held liable under the life insurance policy issued in favor of Pedro. Under

Section 87 of the Insurance Code, it is provided that the insurer may not be held liable for

the willful act of the insured which causes damage or injury. However, under Section 180-Aof the same Code, it is provided that the insurer is liable for suicide by the insured if:

1. when the suicide is committed after the policy has been in force for at least 2

years from the date of its issue or last reinstatement unless a shorter period is

stipulated

2. Even within the said 2 year period, if the insured was insane when he committed

suicide.

In this case, when Pedro committed suicide, barely 6 months had passed from the last

reinstatement of the policy. Thus, the case does not fall under the first exception. There is

also no indication that it falls under the second exceptions are the facts do not show that

Pedro was insane. Although generally, the basic instinct for self-preservation would militate

against the presumption of suicide, once it is proven that suicide was deliberately made and

not among the exceptions provided by the law to make an insurer liable for suicide, then the

insurer may not be held liable. Thus, XYZ Co. may not be held liable for the suicide of Pedro

which was deliberately made, well within the 2 year period from its last reinstatement.

5. Explain the Grace Period Clause in the proper insurance contract.

SUGGESTEDANSWER:

A grace period clause is a provision which must be included in life, group life or industrial

life insurance contract, whereby the insured is provided a period or 30 days or 1 month

from failure to pay his premiums upon due date. Such is an exception to the general rule

that the insurance policy shall be considered without effect or to have lapsed due to non-

payment of premiums. During the 30 day-1 month period, the policy shall remain in force and

effect. If the insured dies within this period, or the risk insured against happens, then the

amount due, the interest on such amounts, and any indebtedness of the insured to the

insurer, will be subtracted from the proceeds of the policy. Thus, the grace period allows the

insured policy holders of life insurance policies to pay their premiums within the 30-day/1-month period after due date, after the first premiums have been paid, and for the same

policyholders to have the protection of their policies within the said period, despite non-

payment of the premium.

6. Enumerate the valid reasons which an insurer may use for cancelling a non-life

insurance policy.

SUGGESTED ANSWER

A non-life insurance policy may be cancelled by the insurer, upon prior notice, for the one or

more of the following:

1. non-payment of premium;2. conviction of a crime arising out of acts increasing the hazard insured against;

3. discovery of fraud or material misrepresentation; lawphi1.net

4. discovery of willful or reckless acts or omissions increasing the hazard insured

against;

5. physical changes in the property insured which result in the property becoming

uninsurable; or

6. a determination by the Commissioner that the continuation of the policy would

violate or would place the insurer in violation of this Code.

7. Seguro Insurance Co. issued a PhP100 million single marine insurance policy on a

shipment by sea from USA to Manila against total loss only, actual or constructive.

The following amounts were stated in the policy:

1 container of car parts - PhP 70 million

1 container of computers - PhP20 million

1 container medical supplies - PhP10 million

____________

Total PhP100 million

The 3 container vans were loaded in the S.S. President Kennedy. Because of the rough

seas, damage resulted in the complete loss of the car parts. The owner of the shipment

filed a claim against the insurance company but Seguro Insurance Company denied the

claim.


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Is the insurance company liable under its policy? Explain using the applicable law

provision.

SUGGESTED ANSWER:

Yes, Seguro Insurance is liable because the car parts were separately valued, and thus, wereseparately insured.

Section 139 of the Insurance Code provides that abandonment may be done when more

than (more than 75%) of the value is lost or will be suffered or spent by the insured to

recover the thing insured or its equivalent. The insured may abandon the thing insured, the

particular portion separately valued or the thing separately insured and such abandonment

entitles the insured to recover a constructive total loss.

In this case, if we take the whole shipment as a whole, the value of the loss would not be

more than which would entitle the insured to recover a constructive total loss. However,

the car parts, computers and medical supplies here were separately valued and separately

insured. Hence, abandonment may be done since there was complete loss of the car parts

(100% of the value) and the insured may recover for total loss from Seguro Insurance.

8. What acts constitute unfair claims settlement practices of insurance companies? Under

what conditions do they become unfair practices? What are the legal sanctions

imposed on erring insurance companies for engaging in these practices?

SUGGESTED ANSWER:

Any of the following acts constitute unfair claim settlement practices:

1. Knowingly misrepresenting to claimants pertinent facts or policy provisions relating

to coverages

2. Failure to acknowledge with reasonable promptness communications with respect

to claims

3. Failure to adopt and implement reasonable standards for prompt investigation of

claims

4. Not attempting in good faith to effect prompt, fair, and equitable settlement of

claims where liability has become reasonably clear

5. Compelling policyholders to institute suits to recover amounts due by offering

substantially less than the amounts ultimately due them

In order for the aforementioned acts to be considered unfair claim settlement practices, they

must be:

1. Committed without just cause

2. Committed with such frequency as to constitute a general practice

The sanctions imposed against erring insurance companies shall be

1. Sanctions; or

2. Revocation of the insurance companys certificate of authority

9. What is deviation and what is its relevance in a marine insurance contract? When is

deviation proper and when is it improper?

SUGGESTED ANSWER:

Deviation is the departure from the course of the voyage, unreasonable delay in pursuing the

voyage or the commencement of an entirely different voyage. It is relevant because under

Section 126, an insurer is not liable for any loss happening to the thing insured subsequent to

an improper deviation.

A deviation is proper when:

1. When caused by circumstances beyond the control of the master or shipowner

2. To comply with a warranty o r to avoid a peril when necessary

3. To avoid a peril insured or not, when made in good faith or reasonable belief in its

necessity

4. To save human life or save a ship in distress when made in goo d faith.

The abovementioned enumeration is exclusive. If it is not enumerated in Section 124, the

deviation is improper.

10. In 1986, Juan constructed a house worth P5 million which he insured for that amount

under a fire insurance policy with a co-insurance clause. The insurance coverage for the

same amount was renewed every year. In 1996, when the house was already worth

P10 million on account of inflation, 1/5 of the house was destroyed by fire. Assuming

that Juan was completely blameless and that there was nothing illegal about the

contract how much, if any, can Juan successfully recover from the insurance company.

a. If Juans fire assurance policy is a valued policy? Please explain.


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SUGGESTED ANSWER

Section 171 of the Insurance Code provides that if there is a valuation (valued policy), the

valuation stated on the face of the policy is conclusive between the parties. In this case, the

valuation stated on the policy is P5 million and the loss is 1/5 of the house. Thus,

Thus, Juan can recover Php 1 million pesos.

b. If the fire policy is an open policy? Please explain

Section 171 of the Insurance Code provides that if there is no valuation in the policy (open

policy), the measure of indemnity is its replacement cost at the commencement of the fire.

In this case, the value of the house (replacement cost) at the time of the commencement of

the fire is Php 10 million and the loss is 1/5 of the house. Thus,

Thus, Juan can recover Php 2 million pesos.

11. A business man in the grocery business obtained from First Insurance a fire insurance

policy for P5 million to fully cover his stocks-in-trade. Three months thereafter, a fire of

accidental origin broke out and completely destroyed the grocery including his stocks-

in-trade. The businessman filed with First Insurance a claim for P5 million representing

the full value of his goods. First Insurance denied the claim because it discovered that

at the time of the loss, the stocks-in-trade were mortgaged to a creditor who likewiseobtained from Second Insurance Company fire insurance coverage for the stocks at

their full value of Php5 million.

1. First Insurance refused to pay claiming that double insurance is contrary to law. Is

this contention tenable? Please explain.

SUGGESTED ANSWER:

No, First insurances contention that double insurance is contrary to law must fail. There is no

law which provides that double insurance is illegal per se. In fact, the Insurance Code, under

Section 93 and 94, clearly recognizes its existence by providing for the instances when a

double insurance exists and the consequences of over insurance in case of double insurance.

Moreover, in this case, there is no double insurance to begin with. Section 93 provides that a

double insurance exists when:

1. The same person is insured2. By several insurers, separately

3. Subject insured is the same

4. The interest insured is the same

5. The peril insured against is the same

Here, the person insured in the insurance policy with First Insurance is t he businessman while

with Second Insurance, the person insured is the creditor. Also, the insurance policy with First

insurance was on the interest as an owner while the policy with Second Insurance was on the

interest as a creditor.

6. Suppose you are the judge, how much, if any, would you allow the businessman

and/or the creditor to recover from their respective insurers. Please explain.

SUGGESTED ANSWER

As the Judge, I would allow the businessman to recover his total loss of Php 5 million

representing the full value of his goods which were lost through fire and I would allow the

creditor to recover the amount to the extent of the credit he extended to the businessman

for the stocks-in-trade which were mortgaged by the businessman to him.

This decision is based upon the finding that since no double insurance exists in this case as the

interest insured here are not the same, one being interest as an owner and the other interest

as creditor, the basic rules in insurance will apply. Hence, since insurance on property is a

contract of indemnity, the insured is entitled to recover the amount of loss he actually

suffered. In this case, the businessman lost Php 5 million worth of goods. On the other hand,

a mortgagor may only recover up to the extent of his credit. In this case, the creditor may

only recover what portion of the Php 5 million he actually loaned to the businessman or if the

full amount was loaned, then he may recover the full value.


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12. Suppose that Fortune owns a house valued at P600,000 and insured the same against

fire with three (3) insurance companies as follows:

X P400,000

Y P200,000

Z P600,000

a. In the absence of any stipulation in the policies, from which insurance company or

companies may Fortune recover in case fire should destroy his house completely?

Please explain

SUGGESTED ANSWER:

Fortune may recover from X, Y, and Z insurance companies. Section 94 provides

that, as a consequence of over-insurance in case of double insurance, unless otherwise

provided in the policy, the insured may claim from the insurers in the order he selects up to

the limits of the individual policies. In this case, Fortune may recover from X, Y, and Z up to

the amount for which they are severally liable under their respective contracts. Fortune may

recover from any of them up to the extent of their maximum liability under their respective

contracts and among the insurers, each insurer is bound to contribute ratably to the loss inproportion to the amount for which he is liable under his contract.

b. If each of the fire insurance policies obtained by Fortune in problem a) is a valued

policy and the value of his house was fixed in each of the policies at P1 million,

how much would Fortune recover from X if he has already obtained full payment

on the insurance policies issued by Y and Z? Please explain

Section 171 of the Insurance Code provides that if there is a valuation (valued policy), the

valuation stated on the face of the policy is conclusive between the parties. And in Section

172, it states that if there are 2 or more policies, each policy contribute pro-rata to the

payment of such loss. In this case, the valuation of Php 1 million is conclusive upon X, Y and Z

and each of the insurers must contribute pro-rate to the loss. Thus,

For X

For Y

For Z

Hence, out of Xs maximum liability of Php 400,000 (the face amount of the policy), Fortune

may recover Php 333,333.33.

c. If each of the policies obtained by Fortune in problem a) above is an open policy

and it was immediately determined after the fire that the value of Fortunes

house was P2.4 million, how much may he collect from X, Y and Z? Please explain

Section 171 of the Insurance Code provides that if there is no valuation in the policy (open

policy), the measure of indemnity is its replacement cost at the commencement of the fire.

And in Section 172, it states that if there are 2 or more policies, each policy contribute pro-rata to the payment of such loss. In this case, the ascertained value of the house at the

commencement of the fire was P2.4 million and each of the policy must contribute pro-rata

to this loss. Thus,

For X

For Y

For Z


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However, Fortune cannot recover the abovementioned pro-rata contributions. Section 172

provides that in no case shall the insurer be required to pay more than the amount stated in

the policy. The face amount of the policy is the maximum amount of the insurers liability.

Hence, Fortune can only recover Php 400,000 from X, Php 200,000 from Y and Php 600,000

from Z.

d. In problem a), what is the extent of liability of the insurance companies amongthemselves?

SUGGESTED ANSWER:

Section 94 provides that among themselves, each insurer should contribute ratably to the

loss or in proportion to the amount for which he is liable under his contract, thus:

For X

For Y

For Z

Since the three companies must contribute ratably to the loss: X will be liable for Php

199,999.99, Y will be liable for Php 99,999.999 and Z will be liable for Php 300,000.

e. Supposing in problem a) above, Fortune was able to collect from both Y and Z,

may he keep the entire amount he was able to collect from the said two insurance

companies? Please explain

SUGGESTED ANSWER:

Nom Fortune may not keep the entire amount he was able to collect from Y and Z insurance

companies. Section 94 provides that if the insured received any sum in excess, he must hold

it in trust for insurers according to their right of contribution among themselves. Hence,

Fortune is obliged to hold in trust the following:

Amount to be held in trust For Y

Amount to be held in trust for Z

Hence, Fortune cannot keep the full amount of Php 200,000 from Y and Php 600,000 from Z

but is instead bound to hold in trust Php 100,000.01 for Y and Php 300,000 for Z in

accordance with their right of contribution.

13. Ricardo insured his brand new car with Beta Insurance Company for comprehensive

coverage wherein the Insurance Company undertook to indemnify him against loss or

damage to the car (a) by accidental collision xxx; (h) by tire, external explosion,

burglary, or theft, and (c) by malicious act. The car was carnapped while parked in

front of the Intercontinental Hotel in Makati. Ricardos wife, who was driving the said

car before it was carnapped, reported immediately the incident to various government

agencies in compliance with Insurance requirements. Because the car could not be

recovered, Ricardo filed a claim for the loss of the car with the insurance company. It


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was denied on the ground that his wife had an expired driver s license, a violation of

the authorized driver clause of the motor car insurance policy

a. May the Insurance company be held liable to indemnify Ricardo for the loss of the

insured vehicle? Please explain

SUGGESTED ANSWER

Yes. Under the authorized driver clause, the driver must be permitted by the insured to

drive the motor car and it is likewise essential that the driver is permitted by law and

regulations to drive the motor vehicle and is not disqualified from doing so under any

regulation. The insurance company denies liability because, in this case, the wife drove the

vehicle with an expired drivers license a violation of the authorized drivers clause. This

contention must fail as jurisprudence provides that the authorized driver clause is not

applicable in case of theft. When a car is admittedly unlawfully and wrongfully taken without

the owners consent or knowledge, such taking constitutes theft and it is the theft clause and

not the authorized driver clause that should apply. Hence, Beta Insurance is liable to

indemnify Ricardo for the loss of the vehicle.

14. Explain the following using the proper insurance contracts:

a. Incontestable clause

SUGGESTED ANSWER

Sec. 48, Par. 2: After a policy of life insurance made payable on the death of the insured shall

have been in force during the lifetime of the insured for a period of two years from the date

of its issue or of its last reinstatement, the insurer cannot prove that the policy is void ab

initio or is rescindable by reason of the fraudulent concealment or misrepresentation of the

insured or his agent.

The so-called incontestability clause precludes the insurer from raising the defense of false

representations or concealment of material facts insofar as health and previous diseases are

concerned if the insurance has been in force for at least 2 years during the insureds life time.

The phrase during the lifetime simply means that the policy is no longer considered in force

after the insured has died. The key phrase is for a period of 2 years. (Tan v CA)

b. Suicide Clause

SUGGESTED ANSWER

The insurer in a life insurance contract shall be liable in case of suicide by the insured only

when it is committed after the policy has been in force for a period of 2 years form the date

of its issue or its last reinstatement, unless the policy provides a shorter period. Provided,

however, that suicide committed in a state of insanity shall be compensable regardless of the

date of commission. (Sec. 180-A, IC)

c. No Fault indemnity clause

SUGGESTED ANSWER

The no fault indemnity clause applies in Compulsory Motor Vehicle Liability Insurance, or

CMVLI. Sec. 378 of the IC provides that, any claim for death or injury to any passenger of 3rd

party pursuant to the provisions of the IC on CMVLI, shall be paid without the necessity of

proving the fault or negligence of any kind. Provided, however, that for purposes of the said

provision, that:

1. The total indemnity in respect of any person shall not exceed PhP5,000

2. The following proofs, when submitted under oath, shall be sufficient evidence to

substantiate the claim:

- Police report of the accident, or

- Death certificate and evidence sufficient to establish the proper

payee; or- Medical report and evidence of medical or hospital confinement in

respect of which the refund is claimed.

3. The claim may be made against one motor vehicle only. In case of an occupant of

the vehicle, the claim shall lie against the insurer of the vehicle he/she is riding,

mounting or dismounting from. In any other case, the claim shall lie against the

insurer of the directly offending vehicle. In all cases, the right of the party paying

the claim to recover against the owner of the vehicle responsible for the accident

shall be maintained.

d. Security Fund

Chapter V of the IC created what is now called the security fund, which shall be used in the

payment of allowed claims against an insurance company authorized to transact business in

the Philippines remaining unpaid by reason of the solvency of such company. The said Fund

may also be used to reinsure the policy of the insolvent insurer in any solvent insurer

authorized to do business in the Philippines as provided in section two hundred forty-nine. In

the event of national emergency or calamity, the Fund may likewise be used to pay insured

claims which otherwise would not be compensable under the provisions of the policy. No

payment from the Security Fund shall, however, be made to any person who owns or controls

ten per centum or more of the vot ing shares of stock of the insolvent insurer and no payment

on any one claim shall exceed twenty t housand pesos.


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15. Insurance is contract uberrimae fidei. Please explain.

SUGGESTED ANSWER

A contract of insurance is said to be a contract of utmost good faith or uberrimae fidei, not

just on the part of the insurer, but also on the part of the insured. Sec. 28 o f the IC provides

that each party to a contract of insurance must communicate to the other, in good faith, allfact within his knowledge which are material to the contract and as to which he makes no

warranty, and which the other has no means of ascertaining.

16. Property insurance is strictly a contract of indemnity, but life insurance is not strictly a

contract of indemnity. Please explain.

SUGGESTED ANSWER:

The measure of insurable interest in property is the extent to which the insured might be

damnified by the loss or peril insured against, as provided by Sec. 17 of the IC. On the other

hand, Sec. 28 of the same Co de provides that the measure of indemnity in life insurance is the

amount fixed in the policy, unless the interest of one insured is measurable, such as in the

cases of life insurance taken out by the creditor on the life of his creditor, which in such case,the creditor may claim a specific amount which is the debt of the insured debtor. Thus, in life

insurance there is really no actual measure of indemnity, except for the amount of stated in

the policy, which may or may not be the amount of the loss. thus, though property insurance

is strictly a contract of indemnity, such that the insured may recover the amount of loss,

provided it does not exceed the amount in the policy, in life insurance, the amount stated in

the policy which is recoverable upon the happening of the risk insured against, may not even

be equal to the amount of the loss suffered, thus making it one which is not strictly a contra ct

of indemnity.

17. An insurance contract is contra preferentem. Please explain.

SUGGESTED ANSWER

An insurance contract is similar to other contracts, which, in case of ambiguity therein, would

be interpreted against the person causing the ambiguity. Most insurance contracts are

contracts of adhesion, which are prepared by the insured, for signature or conformity only of

the insurer. Thus, any ambiguity resulting form such contract would be interpreted against

the person causing such ambiguity, which is the insurer. (Art. 1377 of the Civil Code) Art. 2011

of the Civil Code provides that The contract of insurance is governed by special laws. Matters

not expressly provided for in such special laws shall be regulated by this Code, thus, in case of

absence of any provision in the IC, the Civil Code will govern. And in case of ambiguities in the

contract, the provision under Art. 1377 o f the CC may be applied.

18. Enumerate those disqualified by law from becoming beneficiaries in a life insurance

policy

SUGGESTED ANSWER

As a general rule, any person may be a beneficiary under an insurance policy. However, as an

exception, since the Civil Code provisions apply suppletorily to Insurance contracts in theabsence of a provision in the IC which is resolutory of the issue at hand, the provisions of the

Civil Code may apply such that the only persons disqualified from being a beneficiary are

those not qualified to receive donations under Art. 739 of the Civil Code. They cannot be

named beneficiaries of a life insurance policy by the person who cannot make any donation

to him. This is so because, Art. 2011 of the same Code provides: Any person who is forbidden

from receiving any donation under Art. 739 cannot be named a beneficiary of a life insurance

policy by the person who cannot make any donation to him, according to said article. Art. 739

provides the following as unqualified from receiving the proceeds of a life insurance policy

taken out by the person who may not give a donation to him/her:

(1) Those persons who were guilty of adultery or concubinage at the time of the donation (or

designation as a beneficiary);

(2) Those persons found guilty of the same criminal offense, in consideration thereof;(3) A public officer, or his wife, descendants and ascendants by reason of his office.

19. A convicted murderer, and acknowledged by the NBI as public enemy No. 1, insured his

life with Y Insurance Co. 4 months later, he was shot dead. After identifying his

identity, Y Insurance refused to give the insurance proceeds to the beneficiary on the

ground that it is not within the Insurance Code, and the contract is void ab initio. Is Y

Insurance correct? Please explain.

SUGGESTED ANSWER

If the contention of Y Insurance is that the contract is void, as the Insuarance Code provides ,

under Sec. 7 that anyone who is not a public enemy may be insured, and under such

provision, being public enemy no. as classified by the NBI amounts to being a public enemy,

then such contention is incorrect. As explained in the case of Filipinas Cia. De Sguros v

Chirstern Huenefeld, a public enemy is a nation with whom the Philippines is at war, and

includes the citizens and subjects of such nation. In this case, since B is only classified as

public enemy no. 1, and not a subject of a nation with whom the Philippines is at war, then an

insurance contract may be properly taken out o n his life.

However, if the claim of Y Insurance was that the insurance policy is rescindable by reason of

the fraudulent concealment or misrepresentation of the insured, then such defense may be

raised against the claim for the proceeds, as the policy is not yet incontestable. Sec. 48 of the

IC provides that after a policy of life insurance made payable upon the death of the insured


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has been in force during the lifetime of the insured for a period of 2 years from the date of

issue or its last reinstatement, the insurer cannot prove that such contract is void, of that is it

rescindable by reason of the fraudulent concealment or misrepresentation of the insured.

Such provision is not applicable in this case, as the policy was only in force for 4 months from

its issuance until the time the insured was shot dead. Thus, the insurer may still contest the

validity of the policy, however, it may not raise the defense of the contract being void as A is

not a public enemy.

20. A took a life insurance policy and named B, a BIR examiner as his sole beneficiary as a

reward for his help in lowering his tax liabilities. Is the life insurance policy valid?

Explain.

SUGGESTED ANSWER

The life insurance policy is not void, but the designation of B as beneficiary is void. It is

provided that in case of absence of a provision relating to an issue between the parties to an

insurance contract, then the provisions of the Civil Code will apply. Since the IC failed to

designate who are qualified to be beneficiaries, the Civil Code provisions on such will apply.

Sec 2011 provides that any person who is forbidden from receiving any donation under Art.

739 cannot be named a beneficiary of a life insurance policy by the person who cannot makeany donation to him, according to said article. Art. 739 provides that the following donations

are void:

(1) Those made between persons who were guilty of adultery or concubinage at the time

of the donation;

(2) Those made between persons found guilty of the same criminal offense, in

consideration thereof;

(3) Those made to a public officer, or his wife, descendants and ascendants by reason of

his office.

In this case, A cannot make B the beneficiary of his life insurance policy, since the de signation

of B as such is due to an act done by B by reason of his office, in favor of the insured A. thus, B

falls within the 3rd prohibition, and thus making the designation of B as a beneficiary as void.

In such a case, jurisprudence provides that if there are no other qualified beneficiarie, then

the proceeds of the policy will inure to the benefit of the estate of the deceased, which shall

be then be distributed to the heirs, along with his other properties.

21. Under an insurance policy, the insurer A undertook to pay among other disabilities, for

loss of a leg due to amputation. The insured B suffered injuries to his left leg on which

a heavy object had fallen. The leg was not amputated but the insured B was actually

disabled to perform his usual work for 12 months. Insurer A refused to pay claiming

that this type of disability was not payable within the policy terms while the insured B

insisted that what was insured against was disability and in case of doubt, it should be

resolved in his favor. Decide the case and explain.

SUGGESTED ANSWER

The insurer may validly deny the claim of the insured in this case. Since the provisions of the

Civil Code are suppletorily applicable to insurance contracts, the provisions of the Civil Codeon contracts may be used in this case. Art. 1377 of the Civil Code provides that the

interpretation of contracts, the court shall not favor the one who caused the obscurity. Thus,

for any ambiguities, which, by the exclusive control of the insurance company over the terms

and phraseology of the contract, the ambiguity must be strictly interpreted against the

insurer, most especially to avoid forfeiture of the proceeds thereof. (Qua Chee Can v Law

Union) On the other hand, if there is no ambiguity, and the insurance contract is clear, then

there is no room for interpretation, in line with the rules of statutory construction. ( Ty v

Filipinas Cia. De Seguros) Thus, in this case, the contract of insurance specifically and clearly

provided that the loss covered by the said contract would only involve loss of a leg due to

amputation. Since the contract is specific, and clearly provided for the coverage of the policy,

there is no room for interpretation, and the contract must be applied as it stands. Thus,

because the disability of B was not due to amputation, then such disability is not covered by

his policy, and the insurer A, may validly deny the claim.

22. X insured his house against fire for P1 million on Sept. 1, 1994. The house is now worth

Ph2 million. On said date, X obtained a loan of P500,000 from Y. On September 10,

1994, X sold the house to Z. On Sept. 27, 1991, the house was totally burned by fire of

accidental origin. What are the rights of X, Y and Z on the insurance policy? Please

explain.

SUGGESTED ANSWER

As to X, the insured, he may not file a claim due to the fire which occurred on Sept. 27, 1991,

as he had already sold the house to Z. this is so because, Under Sec. 19 of the insurance code,

an interest on the property insured must exist when the insurance takes effect, and when the

loss occurs, but not exist in the meantime. Thus, in order for him to be entitled to a claim he

must both have insurable interest therein at the time of issuance of the policy and at the time

of the loss. since he only had insurable interest at the time of the issuance of the policy being

the owner of the house at the time, and not at the time of the loss or fire for having sold it to

Z, then, according to Sec. 18, the contract of insurance on the said property is unenforceable

as to him, for having no insurable interest. Thus, since the contract is unenforceable as to

him, he may not claim proceeds o n the policy.

As to Y, he may not claim on the fire insurance policy on the burned house. This is so because

he has no insurable interest in the property. Sec. 17 provides that an insurable interest in the

property is the extent to which an insured may be damnified by loss or injury thereof. in this


15/17



case, even if the house is totally burned, Y will not suffer any loss or injury because, he has no

interest on such property, not being an owner, mortgagee, or any person having interest

thereon. Although Sec. 14 provides that insurable interest in property may consist of an

inchoate interest or an expectancy, such must be coupled with an existing interest, which Y

does not have, merely being a creditor of X. he has no existing interest on the property, as the

property was not even mortgaged to him to secure the unpaid loan of X.

As to Z, Z may also not claim the proceeds of the fire insurance policy. This is so because

insurable interest in property must exist both at the time of the issuance of the policy and at

the time of the loss. Sec. 20 provides that any change in interest in any part of the thing

insured unaccompanied by the corresponding change in interest in the insurance, suspends

the insurance to an equivalent extent, until the interest in the thing insured and the interest

in the insurance are vested in the same person. Since the ownership of the property was

transferred to the new owner Z, but the policy remained with X, the insurance is suspended,

and no claims may be brought against such policy. This is reiterated in sec. 58, whereby it is

provided that the transfer of a thing insured does not automatically transfer the policy. This

being the case, Z may not claim the proceeds of the policy issued in the name of X, in the

absence of any corresponding transfer of the policy in t he name of Z.

23. X applied for a life insurance policy on Oct. 12, 1990, stating at the time that he hadnever suffered from any typhoid fever. On Nov. 3, 1990, he became ill with typhoid

fever and completely recovered on Nov. 18, 1990. On Dec. 15, 1990, the date of issue,

the policy was delivered amid the first premium paid by him without disclosure of the

typhoid illness. On Dec. 15, 1992, X failed to pay the 3rd

annual premium and his policy

lapsed. In his application for reinstatement which was approved on March 15, 1993, he

answered truthfully all questions about his health since the date of issue, Dec. 15,

1990. X died from appendicitis on March 30, 1993. Can the insurer refuse to pay the

claim? Please explain.

SUGGESTED ANSWER

The claim is payable as the insurer had already waived the representation at the time of the

reinstatement. In this case, there was an admitted representation at the time of the issuance

of the policy, on Dec. 15, 1990. As stated in Sec. 37, a representation is made at the time of,

or before the issuance of a policy, thus, when X failed to disclose his typhoid fever after the

application and before the issuance of the policy, there was misrepresentation. But, the

misrepresentation, prior to the reinstatement may no longer be invoked by the insurer in

denying the claim on the reinstated policy. It is held by jurisprudence (Gua Chee Can v Law

Union) that where the insurer, at the time of the issuance of a policy of insurance, has

knowledge of existing facts which, if insisted on, would invalidate the contract form its

inception and fails to inquire thereon, such knowledge constitutes a waiver of conditions in

the contract inconsistent with the facts, and t he insurer is estopped from asserting t he breach

of such conditions. When the insurer in this case approved the reinstatement of the policy,

the insurer already had knowledge of the prior misrepresentation when X admitted in the

application of reinstatement all of his previous illnesses, including the typhoid fever.

Therefore, the insurer is estopped form asserting misrepresentation to deny the claim of X.

Also, the misrepresentation on the previous lapsed policy can no longer be used to invalidate

the reinstated policy, most especially since the insurer now had knowledge of facts, which the

insured failed to diclose at the time of the issuance of the previous policy.

24. Alpha Co. issued a single marine insurance policy covering a shipment by sea from USA

against total loss only, actual or constructive valued as follows:

1 box of textbooks 1 million

1 box of office supplies 2 million

1 box of med equipment 7 million

TOTAL = 10M

The boxes were loaded in 2 vessels, the first with textbooks and office supplies and the

second with the medical equipment. Because of the rough seas, damage was caused to

the second vessel, resulting in the loss of the box of medical equipment. The owner of

the shipment filed a claim against the insurance for total loss but Alpha company

denied the claim, on the ground that there was partial loss only. Is the insurance

company liable under this policy?

SUGGESTED ANSWER:

YES. In this case, there was constructive total loss of the medical equipment. Sec 131 of the

Insurance Code provides that a constructive total loss is one which gives to a person insured a

right to abandon. In relation to Sec 131, Sec 139 provides that a person insured by a contract

of marine insurance may abandon the thing insured, or any particular portion thereof

separately valued by the policy, or otherwise separately insured and recover for a total loss

thereof, when the cause of the loss is a peril insured against. Thus, in this case, the insurance

company is liable because the medical equipment were separately valued, and thus,

separately insured.


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25. GA Inc, a general agent of ABC Non-Life Insurance Co. was authorized to issue

insurance policies and collect the corresponding premiums in behalf of ABC. On Feb 15,

1991, ABC and GA mutually agreed to terminate their agency agreement. ABC

thereupon sent a statement of account to GA asking, among other things, the

remittance of 200,000 in overdue and uncollected premiums on fire insurance policies

issued to several clients by GA in behalf of ABC. GA refused to pay. How much can ABC

collect from GA, if any?

SUGGESTED ANSWER

Sec 77 provides that no policy or contract of insurance is valid and binding unless and until

the premium has been paid. Since the premiums have not been paid, the policies therefore

issued by ABC have lapsed. The insurance coverage did not go into effect and the obligation

of GA as insurer ceased. Hence, since GA would not be liable under the insurance policies, it

follows that it cannot ask from ABC for the unpaid premiums. It would also be the height of

injustice and unfair dealing [Valenzuela v. CA, G.R. 83122 in relation to Sec 77]

26. In 1990, Pedro insured his forbes park mansion under a fire insurance policy with Beta

Co. Three months later, he died and in accordance with his will, he left the mansion to

his son Junior. Unfortunately, fire burned down the mansion after a month. Is the

claim payable under Juans fire insurance policy? Can Juniors claim for the loss prosper

under said insurance policy?

SUGGESTED ANSWER

Yes. The insurance code provides that a change of interest by will or succession on the death

of the insured does not void an insurance. In this case, the policy remains to be valid even if

Junior inherited it by will as Ju nior has insurable interest in the mansion.

27. Pedro owns and operates several passengers jeeps in Metro Manila. He entered into a

contract with General Insurance Company insuring the operation of his jeepneys under

the CMVLI. During the effectivity of his policy, one of his jeepneys bumped Bert who

had just alighted from another passenger jeepney likewise insured with Okay

Insurance, whose driver unloaded passengers in the middle of the street. Bert suffered

injuries as a consequence and filed a claim for 10,000 against General Insurance. The

latter refused to pay on the ground that the driver of the jeepney from which Bert

alighted was guilty of negligence in unloading in the middle of the street and that the

driver of Pedro was not at fault.

a. Is General Insurance correct?

SUGGESTED ANSWER

Not entirely. Under Sec 378, a claim for death/bodily injuries shall be paid without necessity

of proving fault or negligence. However, the amount is limited to P5,000 per person. Thus,

General Insurance must pay the first PhP5,000 claim of Bert. With respect however, to the

other 5,000, the no-fault indemnity clause will not apply as General Insurance may avail of the

finding of fault/negligence.

b. What are other options open to Bert?

SUGGESTED ANSWER

It must be reiterated that Sec 378 provides that a claim may be made against one motor

vehicle only. Second, Bert preserves his right to after the owner o f the vehicle responsible for

the accident. In this case therefore, Bert can go after Okay Insurance, the insurer of the

vehicle which he was dismounting or alighting from. He can also go after General Insurance,

the insurer of the jeep which b umped him. However, going after one insurer will preclude him

from going after the other.

28. Pedro has a 1M life insurance policy issued by XYZ on June 1, 1990, which was in force

at the time he died in January 15, 1992. How much is XYZ Cos liab ility for his death, if

any,

a. If Pedro shot himself while insane?

SUGGESTED ANSWER

Sec 180-A provides that suicide while insane is compensable regardless of date of commission

of the suicide. Therefore, XYZ is liable for the full amount of the insurance policy.

b. If he hanged himself presuming he was sane?


17/17



SUGGESTED ANSWER

However, if he was not insane, the suicide clause provided by Sec 180-A, which must be

incorporated in life insurance contracts, provide that the insurer is liable only for suicide

when it is committed after the policy has been in force for a period of 2 years from issue or

from last reinstatement, unless a shorter period is stipulated. In this case therefore, XYZ is not

liable since the policy has not yet been in force for 2 years from its issue.

29. Pedro has a 50,000 life insurance policy which he has been paying religiously for the

past year. On January 15, 1990, Pedros first quarterly premium on the 2nd

year of the

policy was due but Pedro failed to pay it. He died in an accident on January 30, 1990,

without paying the premium due amounting to 1,000. What is the liability of the

insurance company, if any?

SUGGESTED ANSWER

The grace period rule will apply in this particular case. A grace period entitles the insured

either 30 days or 1 month within which the insurance contract shall still continue in full force

and effect notwithstanding the non-payment of premium (after the first). In the sample Life

Insurance Contract given in class, it is also provided that if death occurs within the grace

period, the unpaid premiums shall be deducted from the amount payable under the policy

Therefore, if that clause is present, then the liability of the insurance company is 49,000. If

not, then it is 50,000 (the whole amount)

GOOD LUCK!

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