Is the occurrence of a typhoon a fortuitous event?

General Rule:
Yes, if all the elements of a natural disaster or calamity concur. This holds true especially if the vessel was
seaworthy at the time it undertook that fateful voyage and that it was confirmed with the Coast Guard that the
weather condition would permit safe travel of the vessel to its destination. (Philippine American General Insurance
Co., Inc. v. MGG Marine Services, Inc., G.R. No. 135645, Mar. 8, 2002)
Exception:
If a vessel sank due to a typhoon, and there was failure to ascertain the direction of the storm and the weather
condition of the path they would be traversing, it constitutes lack of foresight and minimum vigilance over its
cargoes taking into account the surrounding circumstances of the case. Thus, the common carrier will still be liable.
(Arada v. CA, G.R. No. 98243, July 1, 1992)
Are mechanical defects considered fortuitous events?
No. Mechanical defects in the carrier are not considered a caso fortuito that exempts the carrier from
responsibility. (Sweet Lines, Inc. v. CA, G.R. No. L-46340, Apr. 29, 1983)
1. Tire blowout of a jeep is not a fortuitous event where there exists a specific act of negligence by the carrier
consisting of the fact that the jeepney was overloaded and speeding at the time of the incident. (Juntilla v. Fontanar,
G.R. No. L-45637, May 31, 1985)
2. Defective brakes cannot be considered fortuitous in character. (Vergara v. CA, G.R. No. 77679, Sept. 30, 1987)

What are the instances when the defects in

the notice or proof of loss are considered
waived?
When the insurer:
1. Writes to the insured that he considers the policy null and void as the furnishing of notice or
proof of loss would be useless;
2. Recognizes his liability to pay the claim; 3. Denies all liability under the policy
4. Joins in the proceedings for determining the amount of the loss by arbitration, making no
objections on account of notice and preliminary proof; or
5. Makes Objection on any ground other than the formal defect in the preliminary proof.

What is misrepresentation?

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

What is the test of materiality?

It is determined not by the event, but solely by the probable and reasonable influence of the facts
upon the party to whom the communication is due, in forming his estimate of the advantages of
the proposed contract, or in making his inquiries. (Sec. 31)

When is the insurance contract perfected?

When the assent or consent is manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract. Mere offer or proposal is not
contemplated. (De Lim v. Sun Life Assurance Co., G.R. No. L-15774, Nov. 29, 1920)
Angela, owner of a condominium unit, insured the same against fire with the ELM Insurance
Co., and made the loss payable to his sister, Antonette. In case of loss by fire of the said
condominium unit, who may recover on the fire insurance policy?

Angela can recover on the fire insurance policy for the loss of said condominium unit. He has
the insurable interest as owner-insured. As beneficiary in the fire insurance policy, Antonette
cannot recover on the fire insurance policy. For the beneficiary to recover on the fire or property
insurance policy, it is required that she must have insurable interest in the property insured. In
this case, Antonette does not have insurable interest in the condominium unit. (2001 Bar
Question
When a passenger jeepney, insured but with an authorized drivers clause and was driven by
a driver who only holds a Traffic Violation report (TVR) because his license was confiscated,
met an accident, may the owner of the jeepney claim from the insurance company?

Yes. The fact that the driver was merely holding a TVR does not violate the condition that the
driver should have a valid and existing drivers license. Besides, such a condition should be
disregarded because what is involved is a passenger jeepney, and what is involved here is not
own damage insurance but third party liability where the injured party is a third party not privy
to the contract of insurance. (2003 Bar Question)

Differentiate insurable interest in life

insurance and insurable interest in property
insurance.
Insurable interest in life exists when there is reasonable ground founded on the relation of the
parties, either pecuniary or contractual or by blood or affinity, to expect some benefit or
advantage from the continuance of the life of the insured

What is a cooperation clause?

It is that which provides that the insured shall give all such information and assistance as the
insurer may require, usually including attendance at trials or hearings.

What is the theft clause?

It is that which includes theft as among the risks insured against. Where a car is unlawfully and
wrongfully taken without the knowledge and consent of the owner, such taking constitutes
theft and it is the theft clause, not the authorized driver clause which should apply. (Palermo v.
Pyramid Inc., G.R. No. L-36480, May 31, 1988)

What is the authorized driver clause?

It indemnifies the insured owner against loss or damage to the car but limits the use of the
insured vehicle to: 1. The insured himself; or 2. Any person who drives on his order or with his
permission. (Villacorta v. Insurance Commissioner, G.R. No. 54171, Oct. 28, 1980)
What is the main purpose of an authorized driver clause
Its main purpose is to require a person other than the insured, who drives the car on the insureds
order, such as, his regular driver, or with his permission, such as a friend or member of the
family or the employees of a car service or repair shop to be duly licensed drivers and have no
disqualification to drive a motor vehicle. (Villacorta v. Insurance Commission, G.R. No. L54171, Oct. 28, 1980)

What is a no fault indemnity clause?

It is a clause where the insurer is required to pay a third party injured or killed in an accident
without the necessity of proving fault or negligence on the part of the insured. There is a
stipulated maximum amount to be recovered. (1994 Bar Question)

What is the meaning of land transportation

operator?
It means the owner or owners of motor vehicles for transportation of a passenger for
compensation, including school buses. (Sec. 373, [e])

What is the meaning of a motor vehicle

owner?
It means the actual legal owner of a motor vehicle, whose name such vehicle is duly registered
with the Land Transportation Office.

Who is a third-party in insurance?

Any person other than a passenger as defined in this section and shall also exclude a member of
the household, or a member of the family within the second degree of consanguinity or affinity,
of a motor vehicle owner or land transportation operator, as likewise defined herein, or his
employee in respect of death, bodily injury, or damage to property arising out of and in the
course of employment.

Who is a passenger?
Any fare paying person being transported and conveyed in and by a motor vehicle for
transportation of passengers for compensation, including persons expressly authorized by law or
by the vehicles operator or his agents to ride without fare. (Sec.

What is the purpose of motor vehicle liability

insurance?
To give immediate financial assistance to victims of motor vehicle accidents and/or their
dependents, especially if they are poor regardless of financial capability of motor vehicle owners
of operators responsible for the accident sustained. (First Integrated Bonding Insurance Co., Inc.
v. Hernando, G.R. No. L-51221, July 31, 1991)

What is motor vehicle liability insurance?

It is a protection coverage that will answer for legal liability for losses and damages for bodily
injuries or property damage that may be sustained by another arising from the use and operation
of a motor vehicle by its owner

What is life insurance?

It is that which is payable on the death of a person or on his surviving a specified period, or
otherwise contingently on the continuance of cessation of life (Sec. 180). It is a mutual
agreement by which a party agrees to pay a given sum on the happening of a particular event
contingent on the duration of human life, in consideration of the payment of a smaller sum
immediately, or in periodical payments by the other party.

What is suretyship?
It is an agreement whereby the surety guarantees the performance by another of an undertaking
or an obligation in favor of a third party

What is a no action clause?

It is a requirement in a policy of liability insurance which provides that suit and final judgment
be first obtained against the insured, that only thereafter can the person injured recover on the
policy. (Guingon v. Del Monte, G.R. No. L-21806, Aug. 17, 1967)

De la Cruz v. Capital Insurance & Surety Co., G.R. No. L-21574, June 30, 1966
Details
Chris, a boxer, is a holder of an accident insurance policy. In a boxing match, he died after
being knocked out by the opponent. Can his father who is a beneficiary under said insurance
policy successfully claim indemnity from the insurance company?

Yes. Clearly, the proximate cause of death was the boxing contest. Death sustained in a boxing
contest is an accident. (De la Cruz v. Capital Insurance & Surety Co., G.R. No. L-21574, June
30, 1966)

What is casualty insurance?

It is that which covers loss or liability arising from accident or mishap, excluding those falling
under types of insurance as fire or marine. (Sec. 174)

What is fire insurance?

It is a contract of indemnity by which the insurer, for a consideration, agrees to indemnify the
insured against loss of or damage by fire, lightning, windstorm, tornado or earthquake and other
allied risks, when such risks are covered by extension to fire insurance policies or under separate
policies. (Sec. 167

What does the phrase port of refuge

expenses mean?
These are the additional expenses incurred in repairing the damages suffered by a vessel because
of the perils insured against as well as those incurred for saving the vessel from such perils, such
as the expense of launching or raising the vessel or of towing or navigating it into port for her
safety. These are items to be borne by the insurer in addition to a total loss if that afterwards
takes place. (Sec. 163)

What is the effect if unseaworthiness is

unknown to the owner of the cargo?
It is immaterial in ordinary marine insurance and may not be used by him as a defense in order
to recover on the marine insurance policy. It becomes the obligation of a cargo owner to look for
a reliable common carrier, which keeps its vessels in seaworthy conditions. The shipper may
have no control over the vessel but he has control in the choice of the common carrier that will
transport his goods. (Roque v. IAC, G.R. No. L-66935, Nov. 11, 1985

What is the effect of the admission of

seaworthiness by the insurer?
If the policy provides that the seaworthiness of the vessel as between insured and insurer is
admitted, the issue of seaworthiness cannot be raised by the insurer without showing
concealment or misrepresentation by the insured. (Phil. American General Insurance Co. v. CA,
G.R. No. 116940, June 11, 1997)
It may mean:
1. That the warranty of seaworthiness is to be taken as fulfilled; or

2. That the risk of unseaworthiness is assumed by the insurer. (Philippine American General
Insurance Co., Inc. v CA, GR No. 116940. June 11, 1997)

Right to Subrogation
Company X procured an open-policy marine insurance from Y Insurance, a foreign
corporation. The insurance was for a transshipment of certain wooden work tools and
workbenches purchased for consignee Z. The cargo, packed inside one container van was
shipped from Hamburg, Germany en route to Manila, Philippines. The ship arrived and docked
where cargo was received by Aboitiz Shipping Corporation, thereafter it issued a bill of lading
containing a notation grounded outside warehouse. It was then shipped to Cebu City and was
released to Z. Two days after its release, Aboitiz received a call from Z informing it that the
cargo sustained water damage. Z then informed the Philippine office of Y Insurance for
insurance claims. Y Insurance got an official weather report from PAGASA, it would appear that
heavy rains caused water damage to the shipment, noticeably the shipment was placed outside
the warehouse of Aboitiz based on the bill of lading containing an notation grounded outside
the warehouse. Aboitiz refused to settle the claim, Y Insurance paid the amount of Php 280,
176.92 to consignee Z, and a subrogation receipt was thereafter signed.
A case for collection of actual damages with interest and attorneys fees was filed with RTC.
Aboitiz disavowed any liability and asserted that the claim had no factual and legal bases, and
that complaint had no cause of action, plaintiff Y Insurance had no personality to sue, cause of
action was barred, suit was premature there being no claim made upon Aboitiz. RTC rendered
decision against Y Insurance and case was elevated to CA, which reversed RTC decision. Case
was then elevated to SC.
ISSUES:
a. Is Respondent Y Insurance the real party-in-interest that possesses the right of subrogation to
claim reimbursement from Aboitiz?
b. Is this right to subrogation an absolute right?
RESOLUTION:
a. YES. A foreign corporation not licensed to do business in the Philippines is not absolutely
incapacitated from filing a suit in local courts. Only when that foreign corporation is
transacting or doing business in the country will a license be necessary before it can institute
suits. It may, however, bring suits on isolated business transactions, which is not prohibited
under Philippine law. Thus, this Court has held that a foreign insurance company may sue in the
Philippine courts upon the marine insurance policies issues by it abroad to cover international-
bound cargoes shipped by a Philippine carrier, even if it has no license to do business in this
country. It is the act of engaging in business without the prescribed license, and not the lack of
license per se, which bars a foreign corporation from access to our courts. Thus, the payment by
the insurer to the assured operates as an equitable assignment of all remedies the assured may

have against the third party who caused the damage. Subrogation is not dependent upon, nor
does it grow out of, any privity of contract or upon written assignment of claim. It accrues
simply upon payment of the insurance by the insurer. (Aboitiz Shipping Corporation vs.
Insurance Company of North America, G.R. No. 168402, August6, 2008, [Reyes, R.T.,J.])
b. NO. This Right of Subrogation has its limitations, to wit:
1. Both the insurer and the consignee are bound by the contractual stipulations under the bill of
lading;
2. The insurer can be subrogated only to the rights as the insured may have against the
wrongdoer.
Sue and labor clause a clause under which the insurer may become liable to pay the insured in
addition to the loss actually suffered, such expenses as he may have incurred in his efforts to
protect the property against a peril for which the insurer would have been liable (Sec. 163)
Inchamaree clause a clause which makes the insurer liable for loss or damage to the hull or
machinery arising from the:

a. Negligence of the captain, engineers, etc.

b. Explosion, breakage of shafts; and
c. Latent defect of machinery or hull. (Thames and Mersey Marine Insurance Co v. Hamilton
Fraser and Co [1887] 12 AC 484)
Barratry clause a clause which provides that there can be no recovery on the policy in case of
any willful misconduct on the part of the master or crew in pursuance of some unlawful or
fraudulent purpose without the consent of the owner and to the prejudice of owners interest. It
requires an intentional and willful act in its commission. No honest error or judgment or mere
negligence, unless criminally gross, can be barratry. (Roque v. IAC, G.R. No. L- 66935, Nov. 11,
1985)
All-risks insurance policy insurance against all causes of conceivable loss or damage,
except:
a. Excluded risk stipulated in the policy, or
b. due to fraud or intentional misconduct on the part of the insured (Chao Tiek Seng v. CA, GR.
No. 84507, Mar. 15, 1990).

The insured has the initial burden of proving that the cargo was in good condition when the
policy attached and that the cargo was damaged when unloaded from the vessel; thereafter, the
burden shifts to the insurer to show the exception to the coverage.

What is a loan on bottomry?

It is one which is payable only if the vessel given as security for the loan completes in safety the
contemplated voyage

What is the risk insured against in marine

insurance?
General Rule: Only perils of the sea is insured against.
Exception: Unless perils of the ship are covered by an all-risks policy

What is an all risks marine insurance

policy?
General Rule:

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

Exception:
1. As otherwise excluded in the policy; or
2. Due to fraud or intentional misconduct on the part of the insured. (Choa Tiek v. CA, G.R. No.
84507, Mar. 15, 1990) This type of policy grants greater protection than that afforded by the
perils clause

What does perils of the ship mean?

It is a loss which, in the ordinary course of events, results from: 1. The natural and inevitable
action of the sea 2. The ordinary wear and tear of the ship 3. The negligent failure of the ships

owner to provide the vessel with proper equipment to convey the cargo under ordinary
conditions.

What does the phrase perils of the sea or

perils of navigation mean?
It includes only those casualties due to the unusual violence or extraordinary action of wind and
wave, or to other extraordinary causes connected with navigation.

Marine insurance includes:

1. Insurance against loss or damage to:

a. Vessels, goods, freight, cargo, merchandise, profits, money, valuable papers, bottomry and
respondentia, and interest in respect to all risks or perils of navigation;
b. Persons or property in connection with marine insurance;
c. Precious stones, jewels, jewelry and precious metals whether in the course of transportation or
otherwise; and
d. Bridges, tunnels, piers, docks and other aids to navigation and transportation (Sec. 99)
Note: Cargo can be the subject of marine insurance, and once it is entered into, the implied
warranty of seaworthiness immediately attaches to whoever is insuring the cargo, whether he be
the ship owner or not. (Roque v. IAC, G.R. No. L-66935, Nov. 11, 1985)

2. Marine protection and Indemnity insurance which means insurance against, or

against legal liability of the insured for loss, damage, or expense incident to ownership,
operation, chartering, maintenance, use, repair, or construction of any vessel, craft or
instrumentality in use of ocean or inland waterways, including liability of the insured for
personal injury, illness or death or for loss of or damage to the property of another person.
(Sec. 99) Measure of indemnity:

a. Valued policy the parties are bound by the valuation, if the insured had some interest at risk
and there is no fraud (Sec. 156)

b. Open policy the following rules shall apply in estimating a loss: i. value of the ship- value
at the beginning of the risk ii. value of the cargo- actual cost when laden on board or market
value at the time and place of lading iii. value of freightage- gross freightage exclusive of
primage iv. cost of insurance in each case to be added to the estimated value (Sec. 161)

What vessels are contemplated in marine

insurance?
Those used, or at least, intended for navigation. E.g., one for shipping, chartering, voyage and
the like. Vessels which are used as museums or those that are stationary are not entitled to be
insured under this a marine insurance.

What is marine insurance?

Insurance against risks connected with navigation, to which a ship, cargo, freightage, profits or
other insurable interest in movable property, may be exposed during a certain voyage or fixed
period of time.

What is the nature of a health care

agreement? What is the effect of limited
liability to health care agreements?
A health care agreement is in the nature of a non-life insurance. It is an established rule in
insurance contracts that when their terms contain limitations on liability, they should be
construed strictly against the insurer. These are contracts of adhesion the terms of which must be
interpreted andenforced stringently against the insurer which prepared the contract. This doctrine
is equally applicable to health care agreements. (Blue Cross Health Care, Inc. vs. Noemi and
Danilo Olivares, G.R. No. 169737, February 12, 2008 [Corona, J.], citing Philamcare Health
Systems, Inc. vs. CA)

What is the nature of a health care

agreement? What is the effect of limited
liability to health care agreements?

A health care agreement is in the nature of a non-life insurance. It is an established rule in

insurance contracts that when their terms contain limitations on liability, they should be
construed strictly against the insurer. These are contracts of adhesion the terms of which must be
interpreted andenforced stringently against the insurer which prepared the contract. This doctrine
is equally applicable to health care agreements. (Blue Cross Health Care, Inc. vs. Noemi and
Danilo Olivares, G.R. No. 169737, February 12, 2008 [Corona, J.], citing Philamcare Health
Systems, Inc. vs. CA)

What are pre-need plans?

They are contracts which provide for the performance of future services of the payment of future
monetary considerations at the time of actual need, for which planholders pay in cash or
installment at stated prices, with or without interest or insurance coverage and includes life,
pension, education, interment, and other plans which the Commission may from time to time
approve. (Sec. 3.9. R.A. 8799

What is a contract of insurance?

It is an agreement whereby one undertakes for a consideration to indemnify another against the
loss, damage or liability arising from an unknown or contingent event. (Sec. 2[1], Insurance
Code) Note: A contract of insurance is still a contract, thus it must have all the essential elements
of a valid contract as enumerated in Art. 1318 of the New Civil Code.
Section 54. When an insurance contract is executed with an agent or trustee as the insured, the
fact that his principal or beneficiary is the real party in interest may be indicated by describing
the insured as agent or trustee, or by other general words in the policy.

Who may take insurance?

An insurance may be taken by a person, personally or through his agent or trustee.

If the insurance is taken by an agent or trustee, what must the agent or trustee
do?
Since the insurance is to be applied exclusively to the interest of the person in whose name and
for whose benefit it is made, the agent or trustee when making an insurance contract for or on
behalf of his principal should, indicate that he is merely acting in a representative capacity by
signing as such agent or trustee, or by other general terms in the policy.
Section 55. To render an insurance effected by one partner or part-owner, applicable to the
interest of his co-partners or other part-owners, it is necessary that the terms of the policy should
be such as are applicable to the joint or common interest.

What happens when the insurance is effected by a partner or a part-owner?

A partner or part-owner who insures partnership property in his own name limits the contract to
his individual share UNLESS the terms of the policy clearly show that the insurance was meant
to cover also the shares of the other partners.
Section 56. When the description of the insured in a policy is so general that it may comprehend
any person or any class of persons, only he who can show that it was intended to include him can
claim the benefit of the policy.

What happens when the description of the insured is general?

In order that the insurance may be applied to the interest of the person claiming the benefit of the
policy, he must show that he is the person named or described or that he belongs to the class of
persons comprehended in the policy.
Example?
If the policy is payable to the children, you must show that you are a child of the
deceased. Not a grand-child, nor a great-grand-child.
Section 57. A policy may be so framed that it will inure to the benefit of whomsoever, during
the continuance of the risk, may become the owner of the interest insured.
Section 58. The mere transfer of a thing insured does not transfer the policy, but suspends it
until the same person becomes the owner of both the policy and the thing insured.
What is the reason behind Sec. 58?
Sec. 58 follows from the well established principle that a policy is a personal contract with the
insured and does NOT run with the insured property unless so expressly stipulated, and in the
absence of an assignment of the policy with the insurers consent, the purchaser of the interest of
the property requires no privity with the insurer.

In reading sec. 58, take note of Sec. 19 and 20.

Section 19. An interest in property insured must exist when the insurance takes effect, and when
the loss occurs, but need not exist in the meantime; and interest in the life or health of a person
insured must exist when the insurance takes effect, but need not exist thereafter or when the loss
occurs.
Section 20. Except in the cases specified in the next four sections, and in the cases of life,
accident and health insurance, a change of interest in any part of a thing insured, unaccompanied
by a corresponding change of interest in the insurance, suspends the insurance to an equivalent

extent, until the interests in the thing and the interest in the insurance are vested in the same
person.
Problem.
A borrowed 5,000 from B, and to secure payment of his obligation, he mortgaged his house to
B. B then insured the house for 5T. Subsequently, B assigned his mortgage credit to X, but did
not make the corresponding transfer of his right over the insurance policy. IF the house burns
down, is Paul entitled to collect the insurance money as assignee-mortgagee?
NO, since B did not assign his right over the insurance policy to X. A purchaser of insured
property who does Not take the precaution to obtain a transfer of the policy on the insurance,
cannot in case of loss, recover upon the contract, as the transfer of the property has the effect of
suspending the insurance until the purchaser becomes the owner of the policy as well as the
property insured.

RCBC v. CA - Insurance Proceeds

289 SCRA 292 (1998)
Facts:

> GOYU applied for credit facilities and accommodations with RCBC. After due evaluation, a
credit facility in the amount of P30 million was initially granted. Upon GOYU's application
increased GOYU's credit facility to P50 million, then to P90 million, and finally to P117 million
> As security for its credit facilities with RCBC, GOYU executed two REM and two CM in
favor of RCBC, which were registered with the Registry of Deeds at. Under each of these four
mortgage contracts, GOYU committed itself to insure the mortgaged property with an insurance
company approved by RCBC, and subsequently, to endorse and deliver the insurance policies to
RCBC.
> GOYU obtained in its name a total of 10 insurance policies from MICO. In February 1992,
Alchester Insurance Agency, Inc., the insurance agent where GOYU obtained the Malayan
insurance policies, issued nine endorsements in favor of RCBC seemingly upon instructions of
GOYU
> On April 27, 1992, one of GOYU's factory buildings in Valenzuela was gutted by fire.
Consequently, GOYU submitted its claim for indemnity.
> MICO denied the claim on the ground that the insurance policies were either attached pursuant
to writs of attachments/garnishments issued by various courts or that the insurance proceeds
were also claimed by other creditors of GOYU alleging better rights to the proceeds than the
insured.

> GOYU filed a complaint for specific performance and damages. RCBC, one of GOYU's
creditors, also filed with MICO its formal claim over the proceeds of the insurance policies, but
said claims were also denied for the same reasons that AGCO denied GOYU's claims.
> However, because the endorsements do not bear the signature of any officer of GOYU, the
trial court, as well as the Court of Appeals, concluded that the endorsements are defective and
held that RCBC has no right over the insurance proceeds.
Issue:

Whether or not RCBC has a right over the insurance proceeds.

Held:

RCBC has a right over the insurance proceeds.

It is settled that a mortgagor and a mortgagee have separate and distinct insurable interests in the
same mortgaged property, such that each one of them may insure the same property for his own
sole benefit. There is no question that GOYU could insure the mortgaged property for its own
exclusive benefit. In the present case, although it appears that GOYU obtained the subject
insurance policies naming itself as the sole payee, the intentions of the parties as shown by their
contemporaneous acts, must be given due consideration in order to better serve the interest of
justice and equity.

It is to be noted that 9 endorsement documents were prepared by Alchester in favor of RCBC.

The Court is in a quandary how Alchester could arrive at the idea of endorsing any specific
insurance policy in favor of any particular beneficiary or payee other than the insured had not
such named payee or beneficiary been specifically disclosed by the insured itself. It is also
significant that GOYU voluntarily and purposely took the insurance policies from MICO, a sister
company of RCBC, and not just from any other insurance company. Alchester would not have
found out that the subject pieces of property were mortgaged to RCBC had not such information
been voluntarily disclosed by GOYU itself. Had it not been for GOYU, Alchester would not
have known of GOYU's intention of obtaining insurance coverage in compliance with its
undertaking in the mortgage contracts with RCBC, and verify, Alchester would not have
endorsed the policies to RCBC had it not been so directed by GOYU.

On equitable principles, particularly on the ground of estoppel, the Court is constrained to rule in
favor of mortgagor RCBC. RCBC, in good faith, relied upon the endorsement documents sent to
it as this was only pursuant to the stipulation in the mortgage contracts. We find such reliance to
be justified under the circumstances of the case. GOYU failed to seasonably repudiate the
authority of the person or persons who prepared such endorsements. Over and above this, GOYU
continued, in the meantime, to enjoy the benefits of the credit facilities extended to it by RCBC.

After the occurrence of the loss insured against, it was too late for GOYU to disown the
endorsements for any imagined or contrived lack of authority of Alchester to prepare and issue
said endorsements. If there had not been actually an implied ratification of said endorsements by
virtue of GOYU's inaction in this case, GOYU is at the very least estopped from assailing their
operative effects.
To permit GOYU to capitalize on its non-confirmation of these endorsements while it continued
to enjoy the benefits of the credit facilities of RCBC which believed in good faith that there was
due endorsement pursuant to their mortgage contracts, is to countenance grave contravention of
public policy, fair dealing, good faith, and justice. Such an unjust situation, the Court cannot
sanction. Under the peculiar circumstances obtaining in this case, the Court is bound to recognize
RCBC's right to the proceeds of the insurance policies if not for the actual endorsement of the
policies, at least on the basis of the equitable principle of estoppel.

GOYU cannot seek relief under Section 53 of the Insurance Code which provides that the
proceeds of insurance shall exclusively apply to the interest of the person in whose name or for
whose benefit it is made. The peculiarity of the circumstances obtaining in the instant case
presents a justification to take exception to the strict application of said provision, it having been
sufficiently established that it was the intention of the parties to designate RCBC as the party for
whose benefit the insurance policies were taken out. Consider thus the following:
1.
It is undisputed that the insured pieces of property were the subject of mortgage contracts
entered into between RCBC and GOYU in consideration of and for securing GOYU's credit
facilities from RCBC. The mortgage contracts contained common provisions whereby GOYU, as
mortgagor, undertook to have the mortgaged property properly covered against any loss by an
insurance company acceptable to RCBC.
2.
GOYU voluntarily procured insurance policies to cover the mortgaged property from
MICO, no less than a sister company of RCBC and definitely an acceptable insurance company
to RCBC.
3.
Endorsement documents were prepared by MICO's underwriter, Alchester Insurance
Agency, Inc., and copies thereof were sent to GOYU, MICO and RCBC. GOYU did not assail,
until of late, the validity of said endorsements.
4.
GOYU continued until the occurrence of the fire, to enjoy the benefits of the credit
facilities extended by RCBC which was conditioned upon the endorsement of the insurance
policies to be taken by GOYU to cover the mortgaged properties.

This Court can not over stress the fact that upon receiving its copies of the endorsement
documents prepared by Alchester, GOYU, despite the absence written conformity thereto,
obviously considered said endorsement to be sufficient compliance with its obligation under the

mortgage contracts since RCBC accordingly continued to extend the benefits of its credit
facilities and GOYU continued to benefit therefrom. Just as plain too is the intention of the
parties to constitute RCBC as the beneficiary of the various insurance policies obtained by
GOYU. The intention of the parties will have to be given full force and effect in this particular
case. The insurance proceeds may, therefore, be exclusively applied to RCBC, which under the
factual circumstances of the case, is truly the person or entity for whose benefit the policies were
clearly intended

Insular Life vs. Ebrado

80 SCRA 181
Facts:

> Buenaventura Ebrado was issued al life plan by Insular Company. He designated Capriona as
his beneficiary, referring to her as his wife.
> The insured then died and Carponia tried to claim the proceeds of the said plan.
> She admitted to being only the common law wife of the insured.
> Pascuala, the legal wife, also filed a claim asserting her right as the legal wife. The company
then filed an action for interpleader.

Issue:

Whether or not the common law wife named as beneficiary can collect the proceeds.

Held:

NO.
The civil code prohibitions on donations made between persons guilty of adulterous concubinage
applies to insurance contracts. On matters not specifically provided for by the Insurance Law,
the general rules on Civil law shall apply. A life insurance policy is no different from a civil
donation as far as the beneficiary is concerned, since both are founded on liberality.

Why was the common law wife not ed to collect the proceeds despite the fact
that she was the beneficiary? Isnt this against Sec. 53?
It is true that SC went against Sec. 53. However, Sec. 53 is NOT the only provision that the SC
had to consider. Art. 739 and 2012 of CC prohibit persons who are guilty of adultery or
concubinage from being beneficiaries of the life insurance policies of the persons with whom
they committed adultery or concubinage. If the SC used only Sec. 53, it would have gone
against Art. 739 and 2012.

Del Val v. Del Val

29 Phil 535
Facts:

> Petitioners and private respondents are brothers and Sisters and are the only heirs and next of
kin of Gregorio del Val who died intestate.
> It was found out that the deceased took out insurance on his life for the sum of 40T and made
it payable to private respondents as sole beneficiary.
> After Gregorios death, Andres collected the proceeds of the policy.
> Of the said policy, Andres paid 18T to redeem some real property which Gregorio had sold to
third persons during his lifetime.
> Said redemption of the property was made by Andres laywer in the name of Andres and the
petitioners. (Accdg to Andres, said redemption in the name of Petitioners and himself was
without his knowledge and that since the redemption, petitioners have been in possession of the
property)
> Petitioners now contend that the amount of the insurance policy belonged to the estate of the
deceased and not to Andres personally.
> Pet filed a complaint for partition of property including the insurance proceeds
> Andress claims that he is the sole owner of the proceeds and prayed that he be declared:
> Sole owner of the real property, redeemed with the use of the insurance proceeds and its
remainder;
> Petitioners to account for the use and occupation of the premises.

Issue:

Whether or not the petitioners have a right to the insurance proceeds?

Held:

NOPE.
The contract of life insurance is a special contract and the destination of the proceeds thereof is
determined by special laws which deal exclusively with the subject. Our civil code has no
provisions which relate directly and specifically to life-insurance contracts of to the destination
of life-insurance proceeds that subject is regulated exclusively by the Code of Commerce. Thus,
contention of petitioners that proceeds should be considered as a dontation or gift and should be
included in the estate of the deceased is UNTENABLE.

Since the repurchase has been made n the names of all the heirs instead of the defendant alone,
petitioners claim that the property belongs to the heirs in common and not to the defendant
alone. The SC held that if it is established by evidence that that was his intention and that the
real estate was delivered to the plaintiffs with that understanding, then it is probable that their
contention is correct and that they are entitled to share equally with the defendant. HOWEVER,
it appears from the evidence that the conveyances were taken in the name of the plaintiffs
without the knowledge and consent of Andres, or that it was not his intention to make a gift to
them of real estate, when it belongs to him.

v. Del Monte
80 SCRA 181
Facts:

> The insured owned a fleet of jeepneys. He insured the operation of his jeepneys against
accidents with third part liability with Capital Insurance and Surety Co.
> One day, one of his jeepney dirivers, bumped and killed Guingon.
> An action for damages was then filed against the owner-insured, the driver and the company.
> The company sough to dismiss the charges against it on the ground of lack of cause of action
against it.

Issue:

Whether or not there is a cause of action against the company.

Held:

YES.
The right of a person injured to sue the insurer of the party at fault depends on whether the
contract of insurance was intended to benefit third persons. The test applied here is: Where the
contract provides for indemnity against liability to third persons, then third persons to whom the
insured is liable, can sue the insurer. On the other hand, where the contract is for indemnity
against actual loss or payment, then third persons cannot proceed against the insurer, the contract
being solely to reimburse the insured for liability actually discharged by him through payment to
third persons, said third persons' recourse being thus limited to the insured alone

The policy in the present case, is one whereby the insurer agreed to indemnify the insured
"against all sums . which the Insured shall become legally liable to pay in respect of: a. death of
or bodily injury to any person . . ." Clearly, therefore, it is one for indemnity against liability
from the fact then that the insured is liable to the third person, such third person is entitled to sue
the insurer.

Since the policy in questioned contained a stipulation pour autrui, then the insurance company
must deliver the proceeds to the claimants.

Coquia v. Fieldmens Insurance

26 SCRA 172
Facts:

> On Dec. 1, 1961, Fieldmens Insurance co. Issued in favor of the Manila Yellow Taxicab a
common carrier insurance policy with a stipulation that the company shall indemnify the insured
of the sums which the latter wmy be held liable for with respect to death or bodily injury to any
faire-paying passenger including the driver and conductor.

> The policy also stated that in the event of the death of the driver, the Company shall
indemnify his personal representatives and at the Companys option may make indemnity
payable directly to the claimants or heirs of the claimants.
> During the policys lifetime, a taxicab of the insured driven by Coquia met an accident and
Coquia died.
> When the company refused to pay the only heirs of Coquia, his parents, they institued this
complaint. The company contends that plaintiffs have no cause of action since the Coquias have
no contractual relationship with the company.

Issue:

Whether or not plaintiffs have the right to collect on the policy.

Held:

YES.
Athough, in general, only parties to a contract may bring an action based thereon, this rule is
subject to exceptions, one of which is found in the second paragraph of Article 1311 of the Civil
Code of the Philippines, reading: "If a contract should contain some stipulation in favor of a
third person, he may demand its fulfillment provided he communicated his acceptance to the
obligor before its revocation. A mere incidental benefit or interest of a person is not sufficient.
The contracting parties must have clearly and deliberately conferred a favor upon a third
person." This is but the restatement of a well-known principle concerning contracts pour autrui,
the enforcement of which may be demanded by a third party for whose benefit it was made,
although not a party to the contract, before the stipulation in his favor has been revoked by the
contracting parties

In the case at bar, the policy under consideration is typical of contracts pour autrui this character
being made more manifest by the fact that the deceased driver paid fifty percent (50%) of the
corresponding premiums, which were deducted from his weekly commissions. Under these
conditions, it is clear that the Coquias who, admittedly, are the sole heirs of the deceased
have a direct cause of action against the Company, and, since they could have maintained this
action by themselves, without the assistance of the insured it goes without saying that they could
and did properly join the latter in filing the complaint herein

Bonifacio Bros. v. Mora

20 SCRA 262
Facts:

> Enrique Mora mortgaged his Odlsmobile sedan car to HS Reyes Inc. with the condition that
Mora would insure the car with HS Reyes as beneficiary.
> The car was then insured with State Insurance Company and the policy delivered to Mora.
> During the effectivity of the insurance contract, the car figured in an accident. The company
then assigned the accident to an insurance appraiser for investigation and appraisal of the
damage.
> Mora without the knowledge and consent of HS Reyes, authorized Bonifacio Bros to fix the
car, using materials supplied by the Ayala Auto Parts Company.
> For the cost of Labor and materials, Mora was billed P2,102.73. The bill was sent to the
insurers appraiser. The insurance company drew a check in the amount of the insurance
proceeds and entrusted the check to its appraiser for delivery to the proper party.
> The car was delivered to Mora without the consent of HS Reyes, and without payment to
Bonifacio Bros and Ayala.
> Upon the theory that the insurance proceeds should be directly paid to them, Bonifacio and
Ayala filed a complaint against Mora and the insurer with the municipal court for the collection
of P2,102.73.
> The insurance company filed its answer with a counterclaim for interpleader, requiring
Bonifacio and HS Reyes to interplead in order to determine who has a better right to the
proceeds.

Issue:

Whether or not there is privity of contract between Bonficacio and Ayala on one hand and State
Insurance on the other.

Held:

NONE.

It is fundamental that contracts take effect only between the parties thereto, except in some
specific instance provided by law where the contract contains some stipulation in favor of a third
person. Such stipulation is known as a stipulation pour autrui; or a provision in favor of a third
person not a party to the contract.

Under this doctrine, a third person is ed to avail himself of a benefit granted to him by the terms
of the contract, provided that the contracting parties have clearly and deliberately conferred a
favor upon such person. Consequently, a third person NOT a party to the contract has NO action
against the aprties thereto, and cannot generally demand the enforcement of the same.

The question of whether a third person has an enforceable interest in a contract must be settled
by determining whether the contracting parties intended to tender him such an interest by
deliberately inserting terms in their agreement with the avowed purpose of conferring favor upon
such third person. IN this connection, this court has laid down the rule that the fairest test to
determine whether the interest of a 3rd person in a contract is a stipulation pour autrui or merely
an incidental interest, is to rely upon the intention of the parties as disclosed by their contract.

In the instant case the insurance contract does not contain any words or clauses to disclose an
intent to give any benefit to any repairmen or material men in case of repair of the car in
question. The parties to the insurance contract omitted such stipulation, which is a circumstance
that supports the said conclusion. On the other hand, the "loss payable" clause of the insurance
policy stipulates that "Loss, if any, is payable to H.S. Reyes, Inc." indicating that it was only the
H.S. Reyes, Inc. which they intended to benefit.

A policy of insurance is a distinct and independent contract between the insured and insurer, and
third persons have no right either in a court of equity, or in a court of law, to the proceeds of it,
unless there be some contract of trust, expressed or implied, by the insured and third person. In
this case, no contract of trust, express or implied. In this case, no contract of trust, expressed or
implied exists. We, therefore, agree with the trial court that no cause of action exists in favor of
the appellants in so far as the proceeds of insurance are concerned. The appellant's claim, if at all,
is merely equitable in nature and must be made effective through Enrique Mora who entered into
a contract with the Bonifacio Bros Inc. This conclusion is deducible not only from the principle
governing the operation and effect of insurance contracts in general, but is clearly covered by the
express provisions of section 50 of the Insurance Act (now Sec. 53).

The policy in question has been so framed that "Loss, if any, is payable to H. S. Reyes, Inc."
which unmistakably shows the intention of the parties.

Binding Receipt
What is a binding receipt according to Glora v. Philamlife?
A binding receipt or slip is ordinarily a document, slip or memorandum given to the insured,
which binds the insurance company to pay insurance should a loss occur pending action upon the
application and actual issuance of a policy.

The purpose of a binder is to provide temporary insurance pending an inquiry by the insurer as to
the character of the risk and to take the place of the policy until the latter can be issued.

The issuance of a binder evidences, a complete, temporary or preliminary contract of insurance

effective from that time until the issuance of the formal policy or until rejection of the
risk. Under a life policy, it would establish liability upon the insurer if death occurred prior to
the issuance of the policy.
A binder receipt would be misnamed if it does NOT bind the insurer. If the insurer issues a
binder receipt with terms which will negate, or neutralize the binding result of the receipt, then
the insurer would have actually practiced fraud on the applicant for insurance.

v. Philamlife Insurance Co.

73 OG 8660
Facts:

> In 1966, Roberto Narito applied for a 100T life insurance policy with Philamlife Insurance
Company. Narito was examined by Dra. Vergel de dios, the insurers medical examiner.
> She opined that Narito was insurable. Her opinion was confirmed by Dr. Orobia, the
Associate Medical Director of the insurer.
> On Oc. 31, 1966, an agent of the insured prepared an application for the life insurance whose
annual premium was P1,178. On the same date, the application was signed by Narito.
> Narito paid the first annual premium on the policy applied for. The insurers application form
contained a so-called Binding Receipt which was detachable.

> It is not sure whether or not Narito was given the Binding Receipt upon his payment of the
first premium, but what is certain that he was handed a Cashiers Receipt.
> From the time the insured received the application form its agent on Nov. 5, 1966, up to Dec.
6, 1966, it did not take any action with regard to the controverted insurance coverage.
> On Dec. 6, 1966, Narito was shot and killed. The beneficiaries submitted a claim to the
insurer. After an underwriting analysis conducted by the insurer, it found out that Narito was
unacceptable as an insurance risk. The claim was denied.

Issue:

Whether or not the beneficiaries can claim.

Held:

YES.
The application for insurance signed by the deceased contained the following stipulation: The
binding receipt must NOT be issued unless a binding deposit is paid which must be at least equal
to the first full premium. The preponderance of evidence is to the effect that the binding receipt
was not issued to the deceased when he paid the companys agent, the first annual premium of
P1,178. Hence the rights of the beneficiaries and the obligation of the company have to be
determined solely in the application for insurance an in the Cashiers receipt.

The application for insurance contained the following clause: There shall be no contract of
insurance unless a policy is issued on this application and the full first premium thereon actually
paid. It should be conceded that there shall be a contract of insurance once the first premium is
paid and a policy is issued. There is no question that the first premium was paid.

The problem is to resolve whether or not it can be said that the policy has been issued. IN this
connection, what may be noted is that, in contrast to the requirement of actual payment of the
premium, it was NOT required that the policy be actually issued. An assuming that no policy
had indeed been issued, it should still be held that the application for insurance was approved by
the company, with the actual issuance of the policy being a mere technicality. When an insurer
accepts and retains the first premium for an unreasonable length of time, it should be presumed
that the insurer had assumed the risk. It should therefore be liable for loss before the application
is subsequently rejected. In the case at bar, the company did NOT act on the application for

insurance, one way or the other, from Nov. 2 to Dec. 5, 1966, and no justification for the delay
had been proven.

Hence, it should be held that the application for insurance of the deceased had been approved
prior to his death, although the policy had not actually been issued, for which reason, the
company should be liable to the beneficiaries.

Pacific Timber v. CA
112 SCRA 199
Facts:

> On March 13, 1963, Pacific secured temporary insurance from the Workemens Insurance Co.
for its exportation of logs to Japan. Workmen issued on said date Cover Note 1010 insuring said
cargo.
> The regular marine policies were issued by the company in favor of Pacific on Apr 2,
1963. The 2 marine policies bore the number 53H01032 and 53H01033.
> After the issuance of the cover note but BEFORE the issuance of the 2 policies, some of the
logs intended to be exported were lost due to a typhoon.
> Pacific filed its claim with the company, but the latter refused, contending that said loss may
not be considered as covered under the cover note because such became null and void by virtue
of the issuance of the marine policies.

Issue:

Whether or not the cover not was without consideration, thus null and void.

Held:

It was with consideration.

SC upheld Pacifics contention that said cover not was with consideration. The fact that no
separate premium was paid on the cover note before the loss was insured against occurred does

not militate against the validity of Pacifics contention, for no such premium could have been
paid, since by the nature of the cover note, it did not contain, as all cover notes do not contain,
particulars of the shipment that would serve as basis for the computation of the premiums. As a
logical consequence, no separate premiums are required to be paid on a cover note.

If the note is to be treated as a separate policy instead of integrating it to the regular policies
subsequently issued, its purpose would be meaningless for it is in a real sense a contract, not a
mere application.

Grepalife v. CA
89 SCRA 543
Facts:

> On March 14, 1957, respondent Ngo Hing filed an application with Grepalife for a 20-yr
endowment policy for 50T on the life of his one year old daughter Helen Go.
> All the essential data regarding Helen was supplied by Ngo to Lapu-Lapu Mondragon, the
branch manager of Grepalife-Cebu. Mondragon then typed the data on the application form
which was later signed by Ngo.
> Ngo then paid the insurance premium and a binding deposit receipt was issued to him. The
binding receipt contained the following provision: If the applicant shall not have been
insurable xxx and the Company declines to approve the application, the insurance applied for
shall not have been in force at any time and the sum paid shall be returned to the applicant upon
the surrender of this receipt.
> Mondragon wrote on the bottom of the application form his strong recommendation for the
approval of the insurance application.
> On Apr 30, 1957, Mondragon received a letter from Grepalife Main office disapproving the
insurance application of Ngo for the simple reason that the 20yr endowment plan is not available
for minors below 7 yrs old.
> Mondragon wrote back the main office again strongly recommending the approval of the
endowment plan on the life of Helen, adding that Grepalife was the only insurance company
NOT selling endowment plans to children.
> On may 1957, Helen died of influenza with complication of broncho pneumonia. Ngo filed a
claim with Gepalife, but the latter denied liability on the ground that there was no contract
between the insurer and the insured and a binding receipt is NOT evidence of such contract.

Issue:

Whether or not the binding deposit receipt, constituted a temporary contract of life insurance.

Held:

NO.
The binding receipt in question was merely an acknowledgement on behalf of the company, that
the latters branch office had received from the applicant, the insurance premium and had
accepted the application subject for processing by the insurance company, and that the latter will
either approve or reject the same on the basis of whether or not the applicant is insurable on
standard rates.

Since Grepalife disapproved the insurance application of Ngo, the binding deposit receipt had
never became on force at any time, pursuant to par. E of the said receipt. A binding receipt is
manifestly merely conditional and does NOT insure outright. Where an agreement is made
between the applicant and the agent, NO liability shall attach until the principal approves the risk
and a receipt is given by the agent.

The acceptance is merely conditional, and is subordinated to the act of the company in approving
or rejecting the application. Thus in life insurance, a binding slip or binding receipt does NOT
insure by itself.

Lim v. Sun Life

41 PHIL 263
Facts:

> On July 6, 1917, Luis Lim Y Garcia of Zamboanga applied for a policy of life insurance with
Sunlife in the amount of 5T.
> He designated his wife Pilar Lim as the beneficiary. The first premium of P433 was paid by
Lim and company issued a provisional policy

> Such policy contained the following provisions xx the abovementioned life is to be assured
in accordance with the terms and conditions contained or inserted by the Company in the policy
which may be granted by it in this particular case for 4 months only from the date of the
application, PROVIDED that the company shall confirm this agreement by issuing a policy on
said application xxx. Should the company NOT issue such a policy, then this agreement shall be
null and void ab initio and the Company shall be held not to have been on the risk at all, but in
such case, the amount herein shall be returned.
> Lim died on Aug. 23, 1917 after the issuance of the provisional policy but before the approval
of the application by the home office of the insurance company.
> The instant action is brought by the beneficiary to recover from Sun Life the sum of 5T.

Issue:

Whether or not the beneficiary can collect the 5T.

Held:

NO.
The contract of insurance was not consummated by the parties. The above quoted agreement
clearly stated that the agreement should NOT go into effect until the home office of the
Company shall confirm it by issuing a policy. It was nothing but an acknowledgment by the
Company that it has received a sum of money agreed upon as the first years premium upon a
policy to be issued upon the application if it is accepted by the Company.

When an agreement is made between the applicant and the agent whether by signing an
application containing such condition or otherwise, that no liability shall attach until the principal
approves the risk and a receipt is given by the agent, such acceptance is merely conditional and is
subordinated to the companys act in approving or rejecting; so in life insurance a binding slip
or receipt does not insure itself.

What is a cover note?

The cover note is merely a written memorandum of the most important terms of the preliminary
contract of insurance, intended to give temporary protection pending the investigation of the risk
by the insurer, or until the issuance of a formal policy, provided that it is later determined that the
applicant was insurable at the time it was given.

By its nature, it is subject to all conditions in the policy expected even though that policy may
never issue. In life insurance, where an agreement is made between an applicant and the
insurers agent, no liability shall attach until the insurer approves the risk. Thus, in life
insurance, a binding slip or binding receipt DOES NOT insure itself.

Can you explain a preliminary executory contract of insurance?

By a preliminary executory contract of insurance, the insurer makes a contract to insure the
subject matter at some subsequent time which may be definite or indefinite. Under such an
executory contract, the right acquired by the insured is merely to demand the delivery of the
policy in accordance with the terms agreed upon and the obligation assumed by the insurer is to
deliver the said policy.

What are the rules governing cover notes?

1)
Insurance companies doing business in the Philippines may issue cover notes to bind
insurance temporarily pending the issuance of the policy

2)
A cover not shall e deemed to be a contract of insurance within the meaning of Sec. 1(1)
of IC.

3)
NO cover note shall be issued or renewed unless in the form previously approved by the
Insurance Commission.

4)
A cover not shall be valid and binding for a period NOT exceeding 60 days from the date
of its issuance, whether or not the premium therefore has been paid or not, BUT such cover note
may be canceled by either party upon at least 7 days notice to the other party.

5)
If a cover not is not so canceled, a policy of insurance shall, within 60 days after the
issuance of the cover not be issued in lieu thereof. Such policy shall include within its terms the
identical insurance bound under the cover note and the premiums therefore.

6)
A cover note may be extended or renewed beyond the aforementioned period of 60 days
with the written approval of the Insurance Commissioner, provided that such written approval
may be dispensed with upon the certification of the Pres, VP or General Mgr of the Insurance
company concerned, that the risks involved, the values of such risks, and the premiums therefore
have not as yet been determined or established and that such extension or renewal is NOT
contrary to and is not for the purpose of violating any provision of the Insurance Code.

7)
The insurance companies may impose on cover notes a deposit premium equivalent to at
least 25% of the estimated premium of the intended insurance coverage but in no case less than
P500.

Preliminary Contracts of Insurance

Section 52. Cover notes may be issued to bind insurance temporarily pending the issuance of the
policy. Within sixty days after the issue of the cover note, a policy shall be issued in lieu thereof,
including within its terms the identical insurance bound under the cover note and the premium
therefor.
Cover notes may be extended or renewed beyond such sixty days with the written approval of the
Commissioner if he determines that such extension is not contrary to and is not for the purpose
of violating any provisions of this Code. The Commissioner may promulgate rules and
regulations governing such extensions for the purpose of preventing such violations and may by
such rules and regulations dispense with the requirement of written approval by him in the case
of extension in compliance with such rules and regulations.

What are two types of preliminary contracts of insurance?

The preliminary contract of present insurance and the preliminary executory contract of
insurance.

What is a preliminary contract of present insurance?

By a preliminary contract of insurance, the insurer insures the subject matter usually by what is
known as a binding slip or binder or cover note which is the contract to be effective until
the formal policy is issued or the risk is rejected

What are the kinds of insurable risks?

1)

Personal risks life or health risks

2)

Property risks loss or damage to property

3)
Liability risks involve liability of the insured for an injury caused to the person or
property of another

What are the requirements in order that a risk be insurable?

1)
The loss to be insured against must be important enough to warrant the existence of an
insurance contract
2)
Risk must permit a reasonable statistical estimate of the chance of loss in order to
determine the amount of premium to be paid
3)

The loss should be definite as to cause, time, place and amount

4)

The loss is not catastrophic

5)

Risk is accidental in nature

Requirements of an Insurance Policy

Section 51. A policy of insurance must specify:
(a) The parties between whom the contract is made;
(b) The amount to be insured except in the cases of open or running policies;
(c) The premium, or if the insurance is of a character where the exact premium is only
determinable upon the termination of the contract, a statement of the basis and rates upon which
the final premium is to be determined;
(d) The property or life insured;
(e) The interest of the insured in property insured, if he is not the absolute owner thereof;
(f) The risks insured against; and
(g) The period during which the insurance is to continue.

What must a policy contain and what are the reason behind such
requirements?
A policy must contain:
1.

Names of the parties

2.

Amount of insurance

to easily and exactly determine the amount of indemnity to be paid in case of loss or
damage. This requirement however can be dispensed with in cases of open or running policies.
3.

Rate of premium

Because the premium represents the consideration of the contract; these rates are developed
on the basis of the nature and character of the risk assumed. Remember Atty. Quimsons famous
words? As the risk increases, the rate of premium also increases.
4.

Property or life or thing insured

Constitutes the Subject Matter

5.

Interests of the insured in the property

In order to determine actual damage. Remember, an owner gets the full value of the loss
while a mortgagee gets only the value of his credit.
6.

Risks insured against

In order to know when the insurer is called to indemnify the insured, because if this is NOT
stated, and you hold the insurer liable for any loss due to any cause whatsoever, it will result to a
big loss on the part of the insurer.
7.

Duration of the insurance

This period signifies the life of the policy. If the duration of insurance has already ended, it
can no longer be revived.

CIR v. Lincoln Phil Life - Automatic Increase

Clause

379 SCRA 423 (2002)

Facts:

> In the years prior to 1984, Lincoln issued a special kind of life insurance policy known as the
"Junior Estate Builder Policy," the distinguishing feature of which is a clause providing for an
automatic increase in the amount of life insurance coverage upon attainment of a certain age by
the insured without the need of issuing a new policy. The clause was to take effect in the year
1984.
> Documentary stamp taxes due on the policy were paid to the petitioner only on the initial sum
assured.
> Subsequently, petitioner issued deficiency documentary stamps tax assessment for the year
1984, corresponding to the amount of automatic increase of the sum assured on the policy issued
by respondent.
> Lincoln questioned the deficiency assessments and sought their cancellation in a petition filed
in the Court of Tax Appeals. CTA found no basis for the assessment. CA affirmed.

Issue:
Whether or not the automatic increase of the sum assured on the policy is taxable.

Held:
YES.
CIR claims that the "automatic increase clause" in the subject insurance policy is separate and
distinct from the main agreement and involves another transaction; and that, while no new policy
was issued, the original policy was essentially re-issued when the additional obligation was
assumed upon the effectivity of this "automatic increase clause" in 1984; hence, a deficiency
assessment based on the additional insurance not covered in the main policy is in order. The SC
agreed with this contention.

The subject insurance policy at the time it was issued contained an "automatic increase clause."
Although the clause was to take effect only in 1984, it was written into the policy at the time of
its issuance. The distinctive feature of the "junior estate builder policy" called the "automatic
increase clause" already formed part and parcel of the insurance contract, hence, there was no

need for an execution of a separate agreement for the increase in the coverage that took effect in
1984 when the assured reached a certain age.

It is clear from Section 173 of the NIRC that the payment of documentary stamp taxes is done at
the time the act is done or transaction had and the tax base for the computation of documentary
stamp taxes on life insurance policies under Section 183 of NIRC is the amount fixed in policy,
unless the interest of a person insured is susceptible of exact pecuniary measurement.

Logically, we believe that the amount fixed in the policy is the figure written on its face and
whatever increases will take effect in the future by reason of the "automatic increase clause"
embodied in the policy without the need of another contract.

Here, although the automatic increase in the amount of life insurance coverage was to take effect
later on, the date of its effectivity, as well as the amount of the increase, was already definite at
the time of the issuance of the policy. Thus, the amount insured by the policy at the time of its
issuance necessarily included the additional sum covered by the automatic increase clause
because it was already determinable at the time the transaction was entered into and formed part
of the policy.

The "automatic increase clause" in the policy is in the nature of a conditional obligation under
Article 1181, 8 by which the increase of the insurance coverage shall depend upon the happening
of the event which constitutes the obligation. In the instant case, the additional insurance that
took effect in 1984 was an obligation subject to a suspensive obligation, 9 but still a part of the
insurance sold to which private respondent was liable for the payment of the documentary stamp
tax.

Perez v. CA- Perfection of the Contract of

Insurance
323 SCRA 613 (2000)
Facts:

> Primitivo Perez had been insured with the BF Lifeman Insurance Corporation since 1980 for
P20,000.00.

> In October 1987, an agent of Lifeman, Rodolfo Lalog, visited Perez in Quezon and convinced
him to apply for additional insurance coverage of P50,000.00, to avail of the ongoing
promotional discount of P400.00 if the premium were paid annually.
> Primitivo B. Perez accomplished an application form for the additional insurance
coverage. Virginia A. Perez, his wife, paid P2,075.00 to Lalog. The receipt issued by Lalog
indicated the amount received was a "deposit."
> Unfortunately, Lalog lost the application form accomplished by Perez and so on October 28,
1987, he asked the latter to fill up another application form. On November 1, 1987, Perez was
made to undergo the required medical examination, which he passed.
> Lalog forwarded the application for additional insurance of Perez, together with all its
supporting papers, to the office of BF Lifeman Insurance Corporationn in Quezon which office
was supposed to forward the papers to the Manila office.
> On November 25, 1987, Perez died while he was riding a banca which capsized during a
storm.
> At the time of his death, his application papers for the additional insurance were still with the
Quezon office. Lalog testified that when he went to follow up the papers, he found them still in
the Quezon office and so he personally brought the papers to the Manila office of BF Lifeman
Insurance Corporation. It was only on November 27, 1987 that said papers were received in
Manila.
> Without knowing that Perez died on November 25, 1987, BF Lifeman Insurance Corporation
approved the application and issued the corresponding policy for the P50,000.00 on December 2,
1987
> Virginia went to Manila to claim the benefits under the insurance policies of the deceased. She
was paid P40,000.00 under the first insurance policy for P20,000.00 (double indemnity in case of
accident) but the insurance company refused to pay the claim under the additional policy
coverage of P50,000.00, the proceeds of which amount to P150,000.00 in view of a triple
indemnity rider on the insurance policy.
> In its letter of January 29, 1988 to Virginia A. Perez, the insurance company maintained that
the insurance for P50,000.00 had not been perfected at the time of the death of Primitivo Perez.
Consequently, the insurance company refunded the amount of P2,075.00 which Virginia Perez
had paid
> Lifeman filed for the rescission and the declaration of nullity. Perez, on the other hand,
averred that the deceased had fulfilled all his prestations under the contract and all the elements
of a valid contract are present.
> RTC ruled in favor of Perez. CA reversed.

Issue:

Whether or not there was a perfected additional insurance contract.

Held:

The contract was not perfected.

Insurance is a contract whereby, for a stipulated consideration, one party undertakes to
compensate the other for loss on a specified subject by specified perils. A contract, on the other
hand, is a meeting of the minds between two persons whereby one binds himself, with respect to
the other to give something or to render some service.

Consent must be manifested by the meeting of the offer and the acceptance upon the thing and
the cause which are to constitute the contract. The offer must be certain and the acceptance
absolute. When Primitivo filed an application for insurance, paid P2,075.00 and submitted the
results of his medical examination, his application was subject to the acceptance of private
respondent BF Lifeman Insurance Corporation. The perfection of the contract of insurance
between the deceased and respondent corporation was further conditioned upon compliance with
the following requisites stated in the application form:
"there shall be no contract of insurance unless and until a policy is issued on this application
and that the said policy shall not take effect until the premium has been paid and the policy
delivered to and accepted by me/us in person while I/We, am/are in good health."
The assent of private respondent BF Lifeman Insurance Corporation therefore was not given
when it merely received the application form and all the requisite supporting papers of the
applicant. Its assent was given when it issues a corresponding policy to the applicant. Under the
abovementioned provision, it is only when the applicant pays the premium and receives and
accepts the policy while he is in good health that the contract of insurance is deemed to have
been perfected.

It is not disputed, however, that when Primitivo died on November 25, 1987, his application
papers for additional insurance coverage were still with the branch office of respondent
corporation in Gumaca and it was only two days later, or on November 27, 1987, when Lalog
personally delivered the application papers to the head office in Manila. Consequently, there was
absolutely no way the acceptance of the application could have been communicated to the
applicant for the latter to accept inasmuch as the applicant at the time was already dead.

Tang v. CA- Insurance Fraud or Mistake

90 SCRA 236
Facts:

> On Sept. 25, 2965, Lee Su Guat, widow, 61 years old and illiterate who spoke only Chinese,
applied for life insurance for 60T with Philamlife. The application was in two parts, both in
English.
> The second part dealt with her state of health. Her answers having shown that she was health,
Philamlife issued her a policy effective Oct. 23, 1965 with her nephew Vicente Tang as
beneficiary.
> On Nov. 15, 1965, Lee again applied for additional insurance of her life for 40T. Since it was
only recent from the time she first applied, no further medical exam was made but she
accomplished Part 1 (which certified the truthfulness of statements made in Part. 2)
> The policy was again approved. On Apri 20 1966, Lee Su Guat died of Lung cancer.
> Tang claimed the amount o 100T but Philamlife refused to pay on the ground that the insured
was guilty of concealment and misrepresentation.
> Both trial court and CA ruled that Lee was guilty of concealment.
> Tangs position, however, is that because Lee was illiterate and spoke only Chinese, she could
not be held guilty of concealment of her health history because the application for insurance was
English, and the insurer has not proven that the terms thereof had been fully explained to her as
provided by Art. 1332 of CC.

Issue:

Whether or not Art. 1332 applies.

Held:

NO.

Art. 1332 is NOT applicable. Under said article, the obligation to show that the terms of the
contract had been fully explained to the party who is unable to read or understand the language
of the contract, when fraud or mistake is alleged, devolves on the party seeking to enforce
it. Here, the insurance company is NOT seeking to enforce the contract; on the contrary, it is
seeking to avoid its performance.

It is petitioner who is seeking to enforce it, even as fraud or mistake is NOT

alleged. Accordingly, Philamlife was under no obligation to prove that the terms of the
insurance contract were fully explained to the other party. Even if we were to say that the
insurer is the one seeking the performance of the cont contracts by avoiding paying the claim, it
has to be noted as above stated that there has been NO imputation of mistake of fraud by the
illiterate insured whose personality is represented by her beneficiary. In sum, Art. 1332 is
inapplicable, and considering the findings of both the trial court and the CA as to the
Concealment of Lee, the SC affirms their decisions.

Concurring: J., Antonio

In a contract of insurance, each party must communicate to the other, in good faith, all facts
within his knowledge which are material to the contract, and which the other has no means of
ascertaining. As a general rule, the failure by the insured to disclose conditions affecting the risk
of which he is aware makes the contract voidable at the option of the insurer.

The reason for this rule is that insurance policies are traditionally contracts uberrimae fidei,
which means most abundant good faith, absolute and perfect candor or openness and
honesty, absence of any concealment or deception however slight. Here the CA found that
the insured deliberately concealed material facts about her physical condition and history and/or
concealed with whoever assisted her in relaying false information to the medical
examiner. Certainly, the petitioner cannot assume inconsistent positions by attempting to
enforce the contract of insurance for the purpose of collecting the proceeds of the policy and at
the same time nullify the contract by claiming that it was executed through fraud or mistake.

NOTE: Art. 1332: When one of the parties is unable to read or if the contract is in a language
not understood by him, and mistake or fraud is alleged, the person enforcing the contract must
show that the terms thereof have been fully explained to him

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Enriquez v. SunLife- Insurance Policy

41 PHIL 269
Facts:

> On Sept. 24 1917, Herrer made an application to SunLife through its office in Manila for life
annuity.
> 2 days later, he paid the sum of 6T to the companys anager in its Manila office and was given
a receipt.
> On Nov. 26, 1917, the head office gave notice of acceptance by cable to Manila. On the same
date, the Manila office prepared a letter notifying Herrer that his application has been accepted
and this was placed in the ordinary channels of transmission, but as far as known was never
actually mailed and never received by Herrer.
> Herrer died on Dec. 20, 1917. The plaintiff as administrator of Herrers estate brought this
action to recover the 6T paid by the deceased.

Issue:

Whether or not the insurance contract was perfected.

Held:

NO.
The contract for life annuity was NOT perfected because it had NOT been proved satisfactorily
that the acceptance of the application ever came to the knowledge of the applicant. An
acceptance of an offer of insurance NOT actually or constructively communicated to the
proposer does NOT make a contract of insurane, as the locus poenitentiae is ended when an
acceptance has passed beyond the control of the party.

NOTE: Life annuity is the opposite of a life insurance. In life annuity, a big amount is given to
the insurance company, and if after a certain period of time the insured is stil living, he is entitled
to regular smaller amounts for the rest of his life. Examples of Life annuity are pensions. Life

Insurance on the other hand, the insured during the period of the coverage makes small regular
payments and upon his death, the insurer pays a big amount to his beneficiaries

Sindayen v. Insular Life- Policy of Insurance

62 PHIL 9
Facts:

> Arturo Sindayen was a linotype operator in the Bureau of Printing. He and his wife Fortunat
went to Camiling to spend Christmas with his aunt Felicidad Estrada.
> On Dec. 26, 1932, while still in Camiling, he made a written application to Insular Life,
through its agent, Cristobal Hendoza, for a policy of insurance on his life in the sum of 1,000.
> He paid the agent P15 as part of the first premium. It was agreed that the policy, when and if
issued, should be delivered to Felicidad with whom Sindayen left the sum P25.06 to complete
the payment of the first annual premium of P40.06.
> On Jan 1, 1933, Sindayen was examined by Insulars doctor who made a favorable report to
Insular.
> The next day, Sindayen returned to Manila and resumed his work. On Jan. 11, 1933, Insular
accepted the risk and issued a policy, and mailed the same to its agent for delivery to the insured.
> On Jan. 12, 1933, Sindayen complained of a severe headache. ON Jan. 15, 1933, he called a
physician who found that Sindayen was suffering from acute nephritis and uremia. His illness
did not yield to treatment and on Jan. 19, 1933, he died.
> The policy which the company issued and mailed in manila on Jan. 11 1933 was received by
its agent in Camilin on Jan. 16, 1933. On Jan 18, 1933, the agent, in accordance with his
agreement with the insured delivered the policy to Felicided upon her payment of the balance of
the 1st years premium.
> The agent asked Felicidad if her nephew was in good health and she replied that she believed
so because she had no information that he was sick, and thereupon , the policy was handed to her
by the agent.
> On Jan. 20, 1933, the agent learned of the death of Sindayen, afterwhich he called upon
Felicidad and asked her to return the policy. Felicidad did so.
> On Feb. 4, 1933, the company obtained from Sindayens widow Fortunata (also the
beneficiary), her signature on a legal document whereby in consideration of the sum 40.06
representing the amount of premium paid, Fortunata thereby releases forever and discharges
Insular from any and all claims and obligations she may have against the latter.

> A check for the above-mentioned amount was drawn in the name of Fortunata, but the same
was never encashed.
> Instead, it was returned to Insular and this complaint to enforce payment under the policy was
instituted.
> The application which Sindayen signed in Camiling contained the following provisions:
xxx
(3) That the said policy shall not take effect until the first premium has been paid and the policy
has been delivered to and accepted by me, while I am in good health.

> The main defense of the company is the policy never took effect because of par. 3 of the
application, since at the time of the delivery of the agent, the insured was not in good health.

Issue:

Whether or not the policy took effect.

Held:

YES.
There is one line of American cases which holds that the stipulation contained par. 3 is in the
nature of a condition precedent, that is to say, that there can be no valid delivery to the insured
unless he is in good health at that time; that this condition precedent goes to the very essence of
the contract and cannot be waived by the agent making delivery of the policy; HOWEVER, there
is also a number of American decision which state the contrary.

These decisions say that an agent to whom a life insurance policy (similar to the one at bar) was
sent with instruction to deliver it to the insured, has authority to bind the company by making
such delivery, ALTHOUGH the insured was NOT in good health at the time of delivery, on the
theory that the delivery of the policy being the final act to the consummation of the contract, the
condition as to the insureds good health was WAIVED by the company.

These same cases further hold that the delivery of the policy by the agent to the insured
consummates the contract even though the agent knew that the insured was NOT in good health
at the time, the theory being, that his knowledge is the companys knowledge; and his delivery is
the companys delivery; that when the delivery is made notwithstanding this knowledge of the
defect, the company is deemed to have WAIVED such defect.

The agent, Mendoza was duly licensed by the Insurance Commission to act for Insular Life. He
had the authority given by him by the company to withhold the delivery of the policy to the
insured until the first premium has been paid and the policy has been delivered to and accepted
by the insured while he is in good health. Whether that condition had been met or not plainly
calls for the exercise of discretion. Mendozas decision that the condition had been met by the
insured and that it was proper to make delivery of the policy to him is just as binding on the
company as if the decision had been made by its Board of Directors. Admittedly, Mendoza
made a mistake of judgment because he acted on insufficient evidence as to the state of health of
the insured, and this mistake cannot be said to be induced by any misconduct on the part of the
insured.

It is in the interest of not only of the applicant but of all insurance companies as well that there
should be some act which gives the applicant the definite assurance that the contract has been
consummated. This sense of security and of piece of mind that ones dependents are provided
for without risk of either loss or of litigation is the bedrock of life insurance.

A cloud will be thrown over the entire insurance business if the condition of health of the insured
at the time of the delivery of the policy may be inquired into years afterwards with the view of
avoiding the policy on the ground that it never took effect because of an alleged lack of good
health at the time of delivery.

It is therefore in the public interest that we are constrained to hold, as we do, that the delivery of
the policy to the insured by an agent of the company who is authorized to make delivery or
withhold delivery is the final act which binds the company and the insured, in the absence of
fraud or other legal grounds for rescission. The fact that the agent to whom it has entrusted this
duty is derelict or negligent or even dishonest in the performance of the duty which has been
entrusted to him would create an obligation based upon the authorized acts of the agent toward a
third party who was not in collusion with the agent

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Insurance Policy
Section 49. The written instrument in which a contract of insurance is set forth, is called a
policy of insurance.

Section 50. The policy shall be in printed form which may contain blank spaces; and any word,
phrase, clause, mark, sign, symbol, signature, number, or word necessary to complete the
contract of insurance shall be written on the blank spaces provided therein.

Any rider, clause, warranty or endorsement purporting to be part of the contract of insurance and
which is pasted or attached to said policy is not binding on the insured, unless the descriptive
title or name of the rider, clause, warranty or endorsement is also mentioned and written on the
blank spaces provided in the policy.

Unless applied for by the insured or owner, any rider, clause, warranty or endorsement issued
after the original policy shall be countersigned by the insured or owner, which countersignature
shall be taken as his agreement to the contents of such rider, clause, warranty or endorsement.

Group insurance and group annuity policies, however, may be typewritten and need not be in
printed form.

What is a policy of insurance?

Sec. 49 defines a policy of insurance as a written instrument in which the contract of insurance is
set forth.

Who signs the policy of insurance:

Generally, only the insurer or his duly authorized agent signs the policy. It need not be singed by
the insured EXCEPT where the express warranties are contained in a separate instrument
forming part of the policy, in which case, Sec. 70 requires that the instrument be so signed.

Why are the terms of the policy important?

They are important because they measure the liability of the insurer on one hand, and the other
hand, strict compliance with the terms are required for the recovery on the part of the insured.

Is the policy and the Contract one and the same thing?
NOPE. A contract is a meeting of the minds of the insured and the insurer. (Remember
CLV?) The policy ONLY the formal written instrument evidencing the contract.

What is usually the best evidence that a contract has been entered into
between the insurer and the insured?
Delivery of the policy by the insurer to the insured.

What are the effects of the delivery of the policy?

If the delivery is conditional, non-fulfillment of the condition bars the contract from taking
effect.
If the deliver is unconditional, the insurance becomes effective at the time of delivery.

What is a rider?
It is a printed or typed stipulation contained on a slip of paper attached to the policy and forming
an integral part of the policy. Riders are usually attached to the policy because they constitute
additional stipulations between the parties.

What happens if there is an inconsistency between the policy and the rider?
RIDER prevails, as being a more deliberate expression of the agreement of the contracting
parties.

What are the requirements in order that a rider be binding upon the insured?
1)
Descriptive title or name of the rider which is pasted or attached to a policy MUST be
mentioned and written on the blank spaces provided for in the policy; and
2)
Unless applied for by the insured or owner, said insured or owner MUST countersign the
rider.

Do the preceding requirements apply only to riders?

NO. they apply also to warranties, clauses and endorsements.

What are warranties?

Warranties are inserted or attached to a policy to eliminate specific potential increases of hazard
during the policy term owing to actions of the insured, or conditions of property.

What are clauses?

Clauses are agreements between the insurer and the insured on certain matters relating to the
laibiity of the insurer in case of loss.

What are examples of clauses:

1)

Clause where the insurer is liable for only of the loss or damage to the insured

2)
Loss Payable clause where the loss if any is payable to the party or parties named, as
their interests may appear.
3)
Change of Ownership clause where the insurance will insure to the benefit of
whomsoever, during the continuance of the risk, may become the owner of the interest insured.

What is an endorsement?
An endorsement is any provision added to an insurance contract altering its scope or
application. Examples would be those additions to the contract changing the amount, the rate or
the term of the same.

What does Sec. 226 say?

Section 226.
No policy, certificate or contract of insurance shall be issued or delivered
within the Philippines unless in the form previously approved by the Commissioner, and no
application form shall be used with, and no rider, clause, warranty or endorsement shall be
attached to, printed or stamped upon such policy, certificate or contract unless the form of such
application, rider, clause, warranty or endorsement has been approved by the

Tan v. CA - Rescission of the contract of

insurance
174 SCRA 403
Facts:

> Tan Lee Siong was issued a policy by Philamlife on Nov. 6, 1973.
> On Aprl 26, 1975, Tan died of hepatoma. His beneficiaries then filed a claim with Philamlife
for the proceeds of the insurance.
> Philamlife wrote the beneficiaries in Sep. 1975 denying their claim and rescinding the contract
on the ground of misrepresentation. The beneficiaries contend that Philamlife can no longer
rescind the contract on the ground of misrepresentation as rescission must allegedly be done
during the lifetime of the insured within two years and prior to the commencement of the
action following the wording of Sec. 48, par. 2.

Issue:

Whether or not Philamlife can rescind the contract.

Held:

YES.
The phrase during the lifetime found in Sec. 48 simply means that the policy is no longer in
force after the insured has died. The key phrase in the second paragraph is for a period of two
years.

What is a simpler illustration of the ruling in Tan v. CA?

The period to consider in a life insurance poiicy is two years from the date of issue or of the
last reinstatement. So if for example the policy was issued/reinstated on Jan 1, 2000, the insurer
can still exercise his right to rescind up to Jan. 1, 2003 or two years from the date of
issue/reinstatement, REGARDLESS of whether the insured died before or after Jan. 1, 2003

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Soliman v. US Life- Rescind Contract of

Insurance
104 PHIL 1046
Facts:

> US Life issued a 20 yr endowment life policy on the joint lives of Patricio Soliman and his
wife Rosario, each of them being the beneficiary of the other.
> In Mar. 1949, the spouses were informed that the premium for Jan 1949 was still unpaid
notwithstanding that the 31-day grace period has already expired, and they were furnished at the
same time long-form health certificates for the reinstatement of the policies.
> In Apr 1949, they submitted the certificates and paid the premiums.
> In Jan. 1950, Rosario died of acute dilation of the heart, and thereafter, Patricio filed a claim
for the proceeds of the insurance.
> US life denied the claim and filed for the rescission of the contract on the ground that the
certificates failed to disclose that Rosario had been suffering from bronchial asthma for 3 years
prior to their submission.

Issue:

Whether or not the contract can still be rescinded.

Held:

Yes.
The insurer is once again given two years from the date of reinstatement to investigate into the
veracity of the facts represented by the insured in the application for reinstatement. When US
life sought to rescind the contract on the ground of concealment/misrepresentation, two years had
not yet elapsed. Hence, the contract can still be rescinded

Right to Rescind a Contract of Insurance

Section 48. Whenever a right to rescind a contract of insurance is given to the insurer by any
provision of this chapter, such right must be exercised previous to the commencement of an
action on the contract.

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.

When must the insurer exercise his right to rescind?

In a non-life insurance policy, the insurer may rescind a contract of insurance prior to the
commencement of an action on the contract.

In a life insurance policy, the insurer may rescind the contract of insurance during the first two
years when the policy was in force during the lifetime of the insured from the date of its issue or
of its last reinstatement.

What are the requisites in order that the insurer may rescind a life insurance
policy?
1)
There must be a basis for the rescission (breach of warranty, concealment,
misrepresentation, etc.)
2)
The rescission must be coupled with a check for the amount of premiums already paid.
(without this, the rescission is not effective)
3)
The rescission must be exercised within the two years that the insurance is in force during
the lifetime of the insured.

What are the differences and similarities

between a concealment and
misrepresentation?
CONCEALMENT
MISREPRESENTATION
Insured withholds information of material facts Insured makes erroneous statements of facts
from the insurer
with the intent of inducing the insurer to enter
into the insurance contract.
Materiality is determined by the same rules applied in cases of misrepresentation.
Concealment on the part of the insured has the same effect as a misrepresentation and gives the
insurer the right to rescind the contract.
Whether intentional or not intentional, the injured party is entitled to rescind the contract of
insurance on ground of concealment or false representation.
Rules on concealment and representation apply likewise to the insurer since the contracts of
insurance is said to be one of utmost good faith on part of both parties to the agreement.

Test of Materiality
Section 46. The materiality of a representation is determined by the same rules as the materiality
of a concealment.

What is the test of materiality?

The materiality of the representation is to be determined NOT by the event, but solely by the
probable and reasonable influence of the facts upon the party to whom the representation is
made, in forming his estimates of the disadvantages of the proposed contract or in making his
inquiries.

Who determines materiality?

It is a judicial question. It is NOT left to the insurance company to say after the loss has
occurred that it would or would not have issued the policy had an answer been truly given. The
matter misrepresented must be of that character which the court can say would reasonably affect
the insurers judgment
Category: Law on Insurance

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Colado v. Insular Life - Tender of Overdue

Payments
51 OG (No 12) 6269
Facts:

> Vivencio Collado applied for an insurance contract with Insular life in 1948. His application
was approved and he began started making premium payments. However, he defaulted and the
insurance was cancelled.
> He then applied for the reinstatement of his insurance policy in Nov. of 1951 and tendered the
amount of premium for the years 1950-1951.
> He stated that he was as of Nov. 1951 of good health, and that he had no injuries, ailments or
illnesses and had not been sick for any case since 1948 (his medical check up when he applied
for insurance) and that he had not consulted any physician or practitioner for any case since the
date of such latest medical exam.
> However, when Vivencio applied for the reinstatement, he was already sick of a fatal disease
known as carcinoma of the liver and that 4 days prior to his application for insurance, he
consulted a doctor regarding his condition.

> The reinstatement was approved. Vivencio again failed to pay the premiums for the last
quarter of Nov. 1951 and as such, Insular life sent him a notice canceling the policy.
> Vivencio then died. The beneificiaries instituted the present action to recover from Insular life
the death benefits of a life insurance policy valued at 2T. Insular refused to pay claiming
concealment on the part of Vivencio.
> Collado contends that Insular life had waived the right to rescine the policy in view of its
repeated acceptance of the overdue premiums for the second and third years.
> Municipal court of Manila found for Collado and Insular filed an appeal with CFI of Manila.
CFI rendered judgment in favor of Insular and dismissed Collados complaint.

Issue:

Whether or nor Insular life was estopped and could no longer cancel the contract due to the fact
that it accepted the tender of overdue payments from Vivencio.

Held:
NO.

It is enormously clear that when the deceased applied for a reinstatement of his policy in Nov.
1951, he had already been afflicted with the fatal ailment for a period of about four
months. Furthermore, in submitting together with his application for reinstatement, a health
statement to the effect that he was in good health, Vivencio concealed the material fact that he
had consulted a doctor and was then found to be afflicted with the malady.

The acceptance of Insular life of the overdue premiums did not necessarily deprive it of the right
to cancel the policy in case of default incurred by the Insured in the payment of future
premiums. The case would be different had the insured died at any time after the payment of
overdue premiums but previous to the reinstatement of the policy, for the, Insular, by its
acceptance of its overdue premiums is deemed to have waived its right to rescind the policy.

The evidence at hand shows that insofar as the payment of the last quarterly premium for 1951
was concerned, Insular had availed of the right to rescind the policy by notifying the Insured that
the policy had lapsed

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Tan Chay Heng v. West Coast Life - Fraud

51 Phil 80
Facts:

> In 1926, Tan Chay Heng sued West Coast on the policy allegedly issued to his uncle, Tan
Caeng who died in 1925. He was the sole beneficiary thereof.
> West Coast refused on the ground that the policy was obtained by Tan Caeng with the help of
agents Go Chuilian, Francisco Sanchez and Dr. Locsin of West Coast.
> West Coast said that it was made to appear that Tan Caeng was single, a merchant, health and
not a drug user, when in fact he was married, a laborer, suffering form tuberculosis and addicted
to drugs.
> West Coast now denies liability based on these misrepresentations.
> Tan Chay contends that West Coast may not rescind the contract because an action for
performance has already been filed.
> Trial court found for Tan Chay holding that an insurer cannot avoid a policy which has been
procured by fraud unless he brings an action to rescind it before he is sued thereon.

Issue:
Whether or not West Coasts action for rescission is therefore barred by the collection suit filed
by Tan Chay.

Held:
NO.

Precisely, the defense of West Cast was that through fraud in its execution, the policy is void ab
initio, and therefore, no valid contract was ever made. Its action then cannot be fore rescission
because an action to rescind is founded upon and presupposes the existence of the
contract. Hence, West Coasts defense is not barred by Sec. 47.

In the instant case, it will be noted that even in its prayer, the defendant does not seek to have the
alleged insurance contract rescinded. It denies that it ever made any contract of insurance on the
life of Tan Caeng, or that any such a contract ever existed, and that is the question which it seeks
to have litigated by its special defense. In the very nature of things, if the defendant never made
or entered into the contract in question, there is no contract to rescind, and, hence, section 47
upon which the lower court based its decision in sustaining the demurrer does not apply.

As stated, an action to rescind a contract is founded upon and presupposes the existence of the
contract which is sought to be rescinded. If all of the material matters set forth and alleged in the
defendant's special plea are true, there was no valid contract of insurance, for the simple reason
that the minds of the parties never met and never agreed upon the terms and conditions of the
contract. We are clearly of the opinion that, if such matters are known to exist by a
preponderance of the evidence, they would constitute a valid defense to plaintiff's cause of
action. Upon the question as to whether or not they are or are not true, we do not at this time
have or express any opinion, but we are clear that section 47 does not apply to the allegations
made in the answer, and that the trial court erred in sustaining the demurrer

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Gonzalez Lao v. Yek Tong Lin Fire & Marine

Insurance - Insurance Premiums
55 PHIL 386
Facts:

> Gonzales was issued 2 fire insurance policies by Yek for 100T covering his leaf tobacco
prducts.
> They were stored in Gonzales building on Soler St., which on Jan. 11, 1928, burned down.
> Art. 3 of the Insurance policies provided that: Any insurance in force upon all or part of the
things unsured must be declared in writing by the insured and he (insured) should cause the

company to insert or mention it in the policy. Without such requisite, such policy will be
regarded as null and void and the insured will be deprived of all rights of indemnity in case of
loss.
> Notwithstanding said provision, Gonzales entered into other insurance contracts. When he
sought to claim from Yek after the fire, the latter denied any liability on the ground of violation
of Art. 3 of the said policies.
> Gonzales however proved that the insurer knew of the other insurance policies obtained by
him long efore the fire, and the insurer did NOT rescind the insurance polices in question but
demanded and collected from the insured the premiums.

Issue:

Whether or not Yek is still entitled to annul the contract.

Held:

NO.
The action by the insurance company of taking the premiums of the insured notwithstanding
knowledge of violations of the provisions of the policies amounted to waiver of the right to annul
the contract of insurance

Musngi v. West Coast Life Assurance Co.False Representation

61 PHIL 864
Facts:

> Arsenio Garcia was insured by West Coast twice in 1931. In both policies, he was asked to
answer the question: what physician or practitioners have you consulted or been treated by, and
for what illness or ailment?
> In both policies, he answered in the negative. It turned out that from 1929 to 1939, he went to
see several physicians for a number of ailments. So when he died in 1942, the company refused
to pay the proceeds of the insurance.

Issue:

Whether or not the answer given by Arsenio in the policies justifies the companys refusal to
pay?

Held:

YES.
Aresenio knew that he was suffering from a number of ailments, yet, he concealed this. Such
concealment and his false statements constituted fraud, because the insurance company by
reasons of such statement accepted the risk which it would otherwise have rejected

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Edillon v. Manila Bankers Life Insurance

Corp. - Concealment
117 SCRA 187
Facts:

> In Apr. 1969, Carmen Lapuz applied for insurance with Manila Bankers. In the application
she stated the date of her birth as July 11, 1904 (around 64 yrs old). The policy was thereafter
issued.
> Subsequently, in May 1969, Carmen died of a car accident. Her sister, as beneficiary claimed
the proceeds of the insurance.
> Manila Bankers refused to pay because the certificate of insurance contained a provision
excluding its liability to pay claims to persons under 16 or over 60.

Issue:

Whether or not the policy is void considering that the insured was over 60 when she applied.

Held:

NO.
The age of Carmen was not concealed to the insurance company. Her application form indicated
her true age. Despite such information, Manila Bankers accepted the premium and issued the
policy. It had all the time to process the application and notice the applicants age. If it failed to
act, it was because Manila Bankers was willing to waive such disqualifications or it simply
overlooked such fact. It is therefore estopped from disclaiming any liability

False Representation
Section 44. A representation is to be deemed false when the facts fail to correspond with its
assertions or stipulations.

What is the importance of Sec. 44?

This defines misrepresentation.

Must representation be literally true?

No. See Section 38. Representations are not required to be literally true unlike warranties which
must be literally true. It is sufficient that representations are substantially true.

Is the same true in cases of marine insurance?

NO. In marine insurance, the substantial truth of a representation is NOT sufficient. Accdg. to
Sec. 107, the insured is required to state the exact and whole truth in relation to all matters that
he represents, or upon inquiry, discloses or assumes to disclose.

When will a representation relied upon avoid a policy?

In order that a representation shall avoid a policy, it must be relied upon and be falise in a
substantial and material respect.

Section 45. If a representation is false in a material point, whether affirmative or promissory, the
injured party is entitled to rescind the contract from the time when the representation becomes
false. The right to rescind granted by this Code to the insurer is waived by the acceptance of
premium payments despite knowledge of the ground for rescission. (As amended by Batasang
Pambansa Blg. 874)

What does this section provide?

It provides that the falsity of a representation entitles the injured party to rescind the contract
from the time when the representation becomes false. And ordinarily, under this section,
fraudulent intent is IMMATERIAL. In other words, the injured party can rescind the contract of
insurance where there is a misrepresentation even without fraud. And not that the false
representation MUST be material

ment
Details
Category: Law on Insurance

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Harding v. Commercial Union Assurance

Company- Willful Misstatement
38 PHIL 464
Facts:

> Henry Harding bought a car for 2T in 1915. He then gave the car to his wife Mrs. Harding.
> While Mrs. Harding was having the car repaired at the Luneta Garage (Luneta was an agent of
Smith Bell and Co., which in turn is Commercial Unions agent), the latter induced Mrs. Harding
to insure the care with Commercial.

> Mrs. Harding agreed, and Smith Bell sent an agent to Luneta Garage, who together with the
manager of LUneta, appraised the car and declared that its present value was P3T. This amt was
written in the proposal form which Mrs. Harding signed.
> Subsequently, the car was damaged by fire. Commercial refused to pay because the cars
present value was only 2.8T and not 3T.

Issue:

Whether or not Commercial is liable.

Held:

Commercial is liable.
Where it appears that the proposal form, while signed by the insured was made out by the person
authorized to solicit the insurance (Luneta and Smith Bell) the facts stated in the proposal, even
if incorrect, will not be regarded as warranted by the insured, in the absence of willful
misstatement. Under such circumstances, the proposal is to be regarded as the act of the insurer