Subrogation - substitution of one person in place of another with reference

to a lawful claim or right, so that he who is substituted succeeds to the

rights of the other in relation to a debt or claim, including its remedies and
securities.
Doctrine of subrogation is a process of legal substitution. The Insurer, after
paying the amount covered by the insurance policy, is now stepping into
the shoes of the insured and availing himself of the latters rights that exist
against the wrongdoer at the time of the loss.
Purpose: 1. To make the person who caused the loss to be legally
responsible for it. 2. To prevent the insured from receiving a double
recovery from the wrong doer and the insurer
Right of subrogation under Art. 2207 applies only to property and NOT to
life insurance. Why? - The value of human life is unlimited and no
recovery from a 3rd party can be deemed adequate to compensate the
insureds beneficiary. A pecuniary value of a human life can seldom be
determined with accuracy EXCEPT when the insurance is taken by a
creditor o the life of a debtor to secure a debt.
Life insurance contracts are not ordinarily contracts of indemnity.
Art. 2207 If the plaintiff's property has been insured, and he has
received indemnity from the insurance company for the injury or loss
arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. If the
amount paid by the insurance company does not fully cover the injury or
loss, the aggrieved party shall be entitled to recover the deficiency from
the person causing the loss or injury.
Payment of the insurer serves as an EQUITABLE ASSIGNMENT of all the
remedies w/c the insured may have against the third party whose
negligence or wrongful act caused the loss.
Subrogation receipt is sufficient to establish the existence of a insurer
insured relationship and the amount paid to settle the insurance.
Loss or injury must be covered under the insurance policy. In case the
insurer pays the insured for the loss not covered by it, he may not recover
from the latter what he has paid as it is treated as voluntary payment

Sec 1. This Decree shall be known as The

Insurance Code.
History & Origin
Insurance is based upon the principle of aiding another from a loss caused
by an unfortunate event; with the purpose of extending aid to their
unfortunate members from a fund contributed by all.
First domestic non-life insurance company Yek Tong Line Fire and Marine
Insurance Company.
First domestic life insurance company Insular Life Assurance Co. Ltd
C.A 186 created GSIS which covers govt employees
RA 1161 created SSS which covers employees of the private sector.
Laws governing insurance
1. Insurance Code
primarily governs the different types for insurance contracts and those
engaged in insurance business in the Phil.
2. Special Laws
Insurance Code
Revised Govt Service Insurance Act of 1977
The Social Security Act of 1954
3. Civil Code : Art. 739 & 2012, 2011, 2021-2027 and 2207
4. Others:
Code of Commerce
RA 656 Property Insurance Act dealing with govt property.
RA 4898 providing life, disability and accident insurance coverage to
barangay officials
EO 250 which increases, integrates and rationaizes the insurance
benefits of barangay officials & members of the Sangguniang
Panlalawigan, Panlungsod and Bayan
RA 3591 which creates PDIC that insures the deposits of all banks
Rights of subrogation of insurer to rights of insured against wrongdoer

Code, only if made by a surety who or which, as

such, is doing an insurance business as
hereinafter provided.
(2) The term "doing an insurance business" or
"transacting an insurance business", within the
meaning of this Code, shall include:
(a) making or proposing to make, as insurer, any
insurance contract;
(b) making or proposing to make, as surety, any
contract of suretyship as a vocation and not as
merely incidental to any other legitimate business
or activity of the surety;
(c) doing any kind of business, including a
reinsurance business, specifically recognized as
constituting the doing of an insurance business
within the meaning of this Code;
(d) doing or proposing to do any business in
substance equivalent to any of the foregoing in a
manner designed to evade the provisions of this
Code.
In the application of the provisions of this Code
the fact that no profit is derived from the making
of insurance contracts, agreements or
transactions or that no separate or direct
consideration is received therefore, shall not be
deemed conclusive to show that the making
thereof does not constitute the doing or
transacting of an insurance business.
Legal concept of insurance
Assurance - referring to an event like death w/c must happen
Insurance - a contingent w/c may or may not occur
Insurance covers Assurance

however the insurer may recover from the third party for damages under
Art. 1236 of the CC.
The insured can only recover once however if the amount paid by the
insurance company does not fully cover the loss/injury, the insured is
entitled to recover the deficiency from the person responsible of such.
Insurer can not compel the insured to seek indemnity from a 3rd person or
somewhere.
The insurer can only recover the amount recoverable by the insured from
the party responsible for the loss. Also the insurer can not recover the full
amount it paid if it is greater than that to which the insured could lawfully
lay claim against the person causing the loss.
Exercise of right of subrogation lies solely under the insurers discretion.
Limitation of the right of subrogation:
A. both the insurer and the consignee are bound by the contractual
stipulations under the bill of lading.
B. Insurer can be surrogated only to the rights as the insured may have
against the wrongdoer.
In a case where the insured release by his own act the wrongdoer or 3rd
party responsible for the loss/damage, the insurer loses his right against the
wrongdoer because the latter can only be subrogated to the rights of the
former. However, the insured is under obligation to return to the insurer the
amount paid thereby entitling the the latter to recover the same.

Sec 2. Whenever used in this Code, the following

terms shall have the respective meanings
hereinafter set forth or indicated, unless the
context otherwise requires:
(1) A "contract of insurance" is an agreement
whereby one undertakes for a consideration to
indemnify another against loss, damage or
liability arising from an unknown or contingent
event.
A contract of suretyship shall be deemed to be an
insurance contract, within the meaning of this
2

*In short, it is plan by w/c the losses of the few are paid out of the
contributions of all members of a group.
Determination of the existence of the contract
The character of insurance is to be determined by the exact nature of the
contract actually entered into whatever the form it takes or by whatever
name it may be called.
A contract of suretyship is different from a contract of insurance however
the former shall be deemed like the latter when the surety is doing an
insurance business within the the meaning of the Code
Elements:
Subject - thing insured
Fire & Marine insurance, the thing is the property
Life, Health & Accident, the thing is the life or health of the person
Casualty Insurance, it is the insureds risk of loss or liability
Consideration - the premium paid; its amount is based on the probability
of loss and extent of liability for w/c the insurer nay become liable under
the contract.
Object and purpose - the transfer and distribution of risk of loss, damage
or liability arising from an unknown or contingent event through the
payment of consideration by the insured to the insurer under a legally
binding contract to reimburse the insured for losses suffered on the
happening of the stipulated event.
* There must be an 1. offer and acceptance 2. parties have the legal capacity
to enter into such contract 3. all requisites of a binding must be present
(enforceable).

Definition
1. Contract of insurance an agreement by w/c one party(insurer) for a consideration(premium)
paid by other party(insured), promises to pay money or its equivalent or
to do some act valuable to the latter(or his nominee), upon the happening
of a loss, damage, liability, or disability arising from an unknown or
contingent event.
is a promise by one person to pay another, money or any other thing of
value upon the happening of a fortuitous event beyond the effective
control of either party in w/c the promisee has an interest apart from the
contract.
2. Policy - a written insurance

Insurance

Economic

Business

reduces risk by a transfer and

combination of uncertainty in
regard to financial loss

plan by w/c large #s of p

associate themselves &
transfer to the shoulders
risks that attach to individ

Nature & Characteristics of an insurance contract

1. Characteristics of a contract of insurance
1. Consensual - perfected by the meeting of the minds of the parties
2. Voluntary - not compulsory however they must not contravene any
provision of law and are not opposed to public policy
In particularly liability insurance, may be required by law in certain
instances
Insurance may also arise by operation of law.

 He possesses an interest of some kind susceptible of pecuniary estimation

known as Insurable Interest

He is subject to a risk of loss

The insured makes a eatable contribution called premium to a general
insurance fund

* Even if all the elements are present, there is still no contract of insurance if
the primary purpose of the parties is the rendering of service and not the
indemnification of a party for loss, damages or liability incurred by the latter.
Insurance, a risk-distributing device
1. A contract possessing only the first 3 elements shall be a risk-shifting
device but not a contract of insurance w/c is fundamentally a risk
distributing device.
2. The device of insurance serves to distribute or spread the risk of financial
or economic loss faced by the insured among as many as possible of those
who are subject to the same or similar kind of risk.
Coping with risk
1. Various way to cope with risk
1. Limiting the probability of loss
2. Limiting the effects of loss
Diversification is a particularly important way of limiting the effects
of loss
3. Self-insurance or self-financing
Special funds set aside for loss
4. Ignoring risk
engage in the activity w/o doing anything further with regards to the
risk
5. Transferring risk to another
transferring or sharing it to someone else by a contractual
arrangement

Social Insurance - GSIS & SSS

3. Aleatory
depends upon some contingent event.
one of the parties or both reciprocally bind themselves to give or to
do something in consideration of what the other shall give or do
upon the happening of an event w/c is uncertain, or w/c is to occur
at an indeterminate time
4. Unilateral contract - imposing legal duties only on the insurer who
promises to indemnify in case of loss
5. Conditional - because it is subject to conditions the principal one of
which is the happening of the event insured against.
6. Contract of Indemnity
because the promise of the insurer is to make good only the loss of
the insured.
No person may secure insurance upon property in w/c he has no
interest. If the insured has no insurable interest, the contract is void
and unenforceable by reason that it is contrary to public policy.
7. Personal Contract
between the insurer and the insured each party having in view the
character, credit and conduct of the other.
Insured cannot assign his rights under a property policy to others
without the consent of the insurer.
With regards to life insurance policies, they are generally
transferable or assignable
8. Property in legal contemplation
Distinguishing elements of the contract of insurance
Insured

Valuation of transferring risk

 includes major category of commercial insurance w/c divided into

personal & property types of protection, and traditionally in property
insurance, the major groupings of fire-marine and casualty-surety are
important.
Not based upon govt compulsion and is sought by the insured to meet
a recognised need for protection.
It is divided into 3 groups
1. Commercial insurance - usually what people have in mind when
they refer to insurance business. 2 classifications
1. Personal insurance - based on the nature of the perils; whether
they are more directly concerned with losses due to loss of
earning power of a person.
2. Property insurance - includes every form that has for its
purpose the protection against loss arising from the ownership
or use of property. 2 general classifications
1st - the insured in the event of loss growing out of
damages to, or destruction of his own property; Includes
fire and marine insurance
2nd - pays damages for which the insured is legally liable,
the consequence of negligent acts that result in injuries to
other persons or damage to their property; casualty and
surety insurance.
2. Cooperative insurance
applied to associations usually operating under hospital,
medical, fraternal, employee or trade-union auspices.
organized without regard to the profit motive and represent an
effort to accomplish the ends of social insurance by private
enterprise
non-profit cooperative objective of the insurance is emphasized
3. Voluntary govt insurance
no element of compulsion
designed to benefit the entire community but are used only by
those persons who wish to use the available benefits.
such plans as the insurance of mortgage loans and insurance of
growing crops

1. An individuals attitude towards risk is influenced by several factor

1. probability of loss
2. potential magnitude of the loss
3. persons ability to absorb loss
2. With respect to loss, people are either
1. risk preferring - those people would choose to forego the certain loss
in the hope of incurring no loss, despite the equal probability of
suffering a large loss
2. risk neutral - indifferent to the alternatives
3. risk averse - would choose to lose 500Php with certainty instead of
confronting the 50% chance of losing twice as much
Economic effects of the transfer and distribution of risk
1. Moral hazard - Since Xs risk is completely eliminated through transfer to
Y, X might not take measures that prevent the loss from occurring or
minimising the effect of loss once it occurs. (take for granted na yung
thing since insured naman)
2. Remedy is to monitor the insureds behaviour and adjust the premium
based on the extent to w/c the insured takes adequate steps to safeguard
his property. (not feasible); SOLUTION: insured retains some
responsibility for the risk through either DEDUCTIBLE or
COINSURANCE.
3. Deductible - insured bears any loss up to some stated amount with the
insurer bearing the rest.
4. Coinsurance - insured bears some stated percentage of the loss regardless
of its amount, with the insurer bearing the rest.
5. Amount to be paid - the amount of the fee or premium should equal the
insureds expected loss + pro rate share of the insurers admin costs.
6. They classified the risks by grouping similar risks together and charging
each member of the group the same premium.
7. Adverse selection - any group will have a higher proportion of less
desirable risks since more applications for the insurance will tend to come
from those who get a better bargain.
The field of insurance
1. Basic classification emphasizes on
1. Voluntary insurance (private)

 Property insurance - 1st party

Liability insurance - 3rd party because the interests protected by the

2.

contract are ultimately those of 3rd parties injured by the insureds

conduct
ALL insurance are 1st party except liability
Life insurance - 1st party because the loss is suffered by the insured; it
is the insured who loses his life.
Health insurance - 1st party because loss is suffered directly by the
insured.
No fault insurance - 1st party because of the substitution for tort
liability
No fault - victims recovers for his loss from his own insurer, w/o
regard to the fault of the 3rd party or his own contributory fault
All-risk/specified-risk reduction
All risk

Distinction

reimburses the
insured for damages
to the subject matter
of the policy from all
causes EXCEPT
those specifically
excepted in the policy

Specified risk

covers damage to the

subject matter of the
policy only if it results
from specifically
identified causes
listed in the policy

all those not excluded

are automatically
included
Language of the policy

Marine insurance &

Jewelers block
insurance

homeowners
insurance

2. Social insurance (govt)

compulsory and is designed to provide a minimum of economic
security for large groups of persons, particularly those in the lower
income groups.
Primarily concern with the unfavorable losses resulting from the
perils of accidental injury, sickness, old age, unemployment and the
premature death of family earner.
Limited to that insurance w/x are required by the govt and have for
their object the provision of a minimum standard of living.
3. Multiple line insurance - denotes not just several kinds of insurance
but the combination of at least 2 kinds of insurance, specifically the
traditional fire and casualty lines.
4. All lines insurance - used rather to describe the broadening nature of
insurance operations w/x combines at least most of the basic types of
insurance including the traditional fire, casualty, life and health lines.
Classifications of contracts of insurance
1. Principal and older forms of insurance are Marine, Fire, Life and
Accident.
2. 3 main classifications
1. Insurance against loss or impairment of property interests
2. Insurance against loss of earning power due to death
3. Insurance against contingent liability to make payment to another
insured is protected against his loss with regards to claims for
damages
3. Modernized classfication
1. Marine
2. Property
3. Personal
4. Liability
Classification by interest protected
1. 2 methods to classify according to the interest
1. 3rd party/1st party distinction
contract between the insurer and the insured is designed to indemnify
the insured for a loss suffered directly by the insured.

Other advantages

coverage is
presumably simpler
to understand

duplication of

coverages &
premiums from
separate

specified risk policies

is avoided

pressures toward
adverse selection are
minimised

policies are easier

Burden of Proof

once the insured

establishes that a
loss occurred through
some event other
than an inherent
defect or normal
depreciation,
ORDINARILY placed
on the insurer to
prove that the loss
falls within an explicit
exception to
coverage

Ordinarily placed on
the insured to initially
prove that the loss
falls within the
policys provisions on
coverage

and less expensive

for the insurer to
administer

most advantageous
-avoidance of gap in
coverage

HOWEVER NOT
ABSOLUTE, if a loss
is certain to occur,
such as wear and
tear therefore not
being fortuitous, it is
not insurable

COVERS ALL KINDS

OF LOSS but not
those due to wilful &
fraudulent act of the

3. industrial life
2. Non life insurance contracts
1. marine
2. fire
3. casualty
3. Contracts of suretyship or bonding
covers any kind of loss, damage or liability arising from an
unknown or contingent event
possible for an insurance company to insure against any risk
whatever associated with any lawful activity as long as there is no
prohibition by a statue or violation of public policy

inusured

Contracts written by guaranty or surety companies

Contracts written by guaranty or suretyship companies and those generally
designated as guaranty insurance comprises generally principally of
fidelity, title, bond ans security guaranty.
Construed against the insurer
GR: bonds of guaranty and surety companies who engage in the business
for profit are essentially insurance contracts and are governed by the rules
of construction applicable thereto applies to bonds guaranteeing the
carrying out or performance of contracts to do a particular act or carry out a
particular project.
A contract of suretyship shall be deemed be an insurance contract if made by
surety who or w/c is doing an insurance business w/in the meaning of the
code
Construction of insurance contracts
2. When there is ambiguity or doubt
Contracts of insurance are to be construed or interpreted liberally in
favour of the insured and strictly against the insurer resolving all
ambiguities against the latter so as to effect its dominant purpose of
indemnity or payment to the insured, especially where a forfeiture in
involved.

Classification under the Code

Classified according to the nature of risk involved
1. Life insurance contracts
1. individual life
2. group life

2. Encourages business efficiency and enterprise

3. Promotes loss-prevention
4. Encourages savings
5. Solves social problems
3. Indirect function - there are various indirect functions some of which may
be regarded as benefits rather than functions proper
1. Investment of funds
2. Use of reserve funds
3. Effect on prices
4. As a basis of credit

Sec. 3 Any contingent or unknown event, whether

past or future, which may damnify a person
having an insurable interest, or create a liability
against him, may be insured against, subject to
the provisions of this chapter.
The consent of the spouse is not necessary for the
validity of an insurance policy taken out by a
married woman on her life or that of her children.
All rights, title and interest in the policy of
insurance taken out by an original owner on the
life or health of a minor shall automatically vest in
the minor upon the death of the original owner,
unless otherwise provided for in the policy.
Requisites of a contract of insurance
1. Subject matter w/c the insured has an insurable interest
anything that has an appreciable pecuniary value w/c is subject to loss
or deterioration or w/c one may be deprived so that his pecuniary
interest is or may be prejudiced, may properly constitute the subject
matter of insurance.
3 insurances Property; Life, health and accident; Casualty
2. Event or peril insured against w/c may be any contingent or unknown
event, past or future and a duration for the risk thereof

It should be interpreted to carry out the purpose for w/c the parties
entered into the contract w/c is to insure against risks of loss, damage or
liability n the part of the insured.
Limitations of liability must be construed in such a way as to preclude
the Insurer from non-compliance with its obligations
Be Construed strictly against the insurer
A policy of insurance is a contract of adhesion - the insurer is under the
duty to make its meaning clear if it desires to limit or restrict the
operation of the general provisions of its contract by special proviso,
exception or exemption.
Bargaining contract - both parties participate in drawing up its terms
and conditions or determining its wording
Any ambiguity be resolved in favor of the beneficiary.
A policy of insurance w/c contains exceptions or conditions tending to
work a forfeiture of the policy shall be interpreted most favourably
towards those against whom they are intended to operate and most
strictly against the insurance company or the party for whose benefit
they are inserted.
If the restrictive provisions are open to 2 interpretations most
favorable to the insured is adopted.
If there is a resolutory condition mere inaction of the insurer on the
insurance application must not work to prejudice the insured.
3. When the terms are clear
The principle of favourably to the insured only applies to cases of doubt
but not when the intention of the policy is clear or the language is
sufficiently clear to convert the mening of the parties although the
contract may be rather onerous.
If such terms are clear and certain they must be taken in their plain and
ordinary sense.
Function of Insurance
1. Principal function risk-bearing
2. Subsidiary function
1. Stimulates business enterprises

1. consideration
2. prizes
3. chance
No lottery where a company, to promote the sale of certain products,
resorts to a scheme w/c envisions the giving away for free of certain prizes
for the purchase of said products, for the participants are not required to
pay more than the usual price of the products.
Only similarity of gambling and insurance one party promises to pay a
given sum to the other upon the occurence of a given future event, the
promise being conditioned upon the payment of, or agreement to pay, a
stipulated amount by the other party to the contract.
Sec 5. All kinds of insurance are subject to the
provisions of this chapter so far as the provisions can
apply
Sec 6. Every person, partnership, association, or
corporation duly authorized to transact insurance
business as elsewhere provided in this code, may be
an insurer
1. Insurer - the party who assumes or accepts the risk of loss and undertakes
for a consideration to indemnify the insured or to pay him a certain sum
on the happening of a specified contingency or event.
2. Insured - the person in whose favour the contract is operative and who is
indemnified against, or is to receive a certain sum upon the happening of
a specified contingency or event. The person whose loss is the occasion
for the payment of the insurance proceeds by the insurer.
3. Beneficiary - person designated by the terms of the policy as the one to
receive the proceeds of the insurance

Who may be an insurer

1. Individual, partnership or association AS LONG AS IT HOLDS A
CERTIFICATE OF AUTHORITY FROM THE INSURANCE
COMMISSIONER.

the contingent or unknown event will 1. damnify or cause loss to a

person having an insurable interest or 2. create a liability against him.

Unknown event may be past or future.

Insurer is liable for a fortuitous event if it is the event or peril insured
against and is the proximate cause of the loss.
3. Promise to pay or indemnify in a fixed or ascertainable amount
4. Consideration for the promise known as premium
5. Meeting of the minds of the parties upon all the foregoing essentials
Insurance by a married woman
May take out an insurance on her life or of her children or that of her
husband without the consent of the latter, she having an insurable interest
Insurance by a minor
Not void, only voidable
Ownership of life insurance policy
Divided between the insured and the beneficiary
Insured being the owner of its various marketing & sales features
Beneficiary is the owner of the promise to pay the proceeds at the death of
the insured subject to the insureds right of revocation
GR: the nature of the interest of the beneficiary depends on the terms if the
insurance contract, including the existing statutes by w/c the insurer and its
policyholders are bound.
At the death of the original owner of a policy of insurance taken out by him
on the life or health of a person, all rights, title and interest in the policy
shall automatically vest in the latter unless otherwise provided for in the
policy.

Sec 4. The preceding section does not authorize

an insurance for or against the drawing of any
lottery, or for or against any chance or ticket in a
lottery drawing a prize.

3 elements of lottery
10

1. Where parties rendered enemy aliens

All intercourse between citizens of belligerent powers which is
inconsistent with a state of war is prohibited.
If the parties are not rendered enemy aliens by the intervention of war,
he policy continues to be enforceable according to its terms and the laws
governing insurance and the general rules regarding contracts.
Property insurance - an insurance policy ceases to be valid and
enforceable as soon as an insured becomes a public enemy.
Life insurance - contract is not merely suspended but is abrogated by
reason of nonpayment of premiums, however the insured is entitled to
the cash or reserve value of the policy, which is the excess of the
premiums paid over the actual risk carried during the years when the
policy had been in force.
2. Where loss occurs after end of war
termination of war does not revive the contract.
Insurer is not liable even if the loss is suffered by the insured after the
end of the war.

Sec 8. Unless the policy otherwise provides,

where a mortgagor of property effects insurance
in his own name providing that the loss shall be
payable to the mortgagee, or assigns a policy of
insurance to a mortgagee, the insurance is
deemed to be upon the interest of the mortgagor,
who does not cease to be a party to the original
contract, and any act of his, prior to the loss,
which would otherwise avoid the insurance, will
have the same effect, although the property is in
the hands of the mortgagee, but any act which,
under the contract of insurance, is to be
performed by the mortgagor, may be performed
by the mortgagee therein named, with the same
effect as if it had been performed by the
mortgagor.

2. In order to possess such, IT MUST POSSESS THE REQUIRED

CAPITAL ASSETS.
3. Insurance Corporation - one that is formed or organised to save any
person or persons or other corporations harmless from loss, damage or
liability arising from any unknown or future or contingent event, or to
indemnify or to compensate any person or persons or other corporations
for any such loss, damage, liability or to guarantee the performance of or
compliance with contractual obligations or the payment of debts of others.
Business of insurance affected with public interest
Insurance companies are instrumentalities w/c gather funds upon the basis
of equality of risk from a greater number of persons, sufficient;y large in
number to arouse the element of chance to step out and the law of averages
to step in as the controlling factor and hold the numerous amounts so
collected as general fund to be paid out to those who shall suffer losses.

Sec 7. Anyone except a public enemy may be

insured.
Capacity of party insured
1. Natural Person - in order that a person may be the party insured n a
contract of insurance, 2 essential requisites are necessary
1. competent to make a contract
2. possess an insurable interest in the subject of the insurance
3. insured must not be a public enemy
public enemy - a nation with whom the Phil is at war and it
includes every citizen or subject of such nation.
alien enemy
during wartime, a private corp controlled by enemy aliens are
considered to be public enemy despite organised under the Phil
law. The corporation is deemed to have the same citizenship as the
controlling stockholders in time of war.
2. Juridical Person - corporations or partnership
Effects of war on existing insurance contracts

11

3. When there is a change of creditor, the payment of the insurance to the

mortgagee by reason of the loss does not relieve the mortgagor from his
principal obligation but only changes the creditor.
Insurance by mortgagor of his own interest
1. Mortgagor may insure his own interest as owner for his benefit that in
case of loss the proceeds do not inure to the benefit of the mortgagee who
has no greater right than unsecured creditors in the same.
2. However it is competent for the mortgagor to take out in ursine for the
benefit of the mortgagee, where he pays the insurance premiums, making
the loss payable to the mortgagee which it is the usual practice.
3. The mortgagee may be made the beneficial payee in several ways:
becomes the assignee of the policy with the consent of the insurer
be the mere pledgee without such consent
a rider making the policy payable to the mortgagee as his interest may
appear may be attached
a standard mortgage clause containing a collateral independent
contract between the mortgagee and the insurer may be attached
the policy by its terms payable absolutely to the mortgagor; may have
been procured by a mortgagor under a contract duty to insure for the
mortgagees benefit, in which case the mortgagee acquires an equitable
lien upon the proceeds
Insurance by mortgagor for benefit of mortgagee, or policy assigned to
mortgagee
Effects when the mortgagor effects insurance in his own name making it
payable to the mortgagee or assigned a policy to the mortgagee:
1. contract is deemed to be upon the interest of the mortgagor hence he
does not cease to be party to the contract
2. Any act of the mortgagor prior to the loss, that will avoid the
insurance affects the mortgagee even if the property is in the hands of
the mortgagee
3. Any act which is to be performed by the mortgagor may be performed
by the mortgagee with the same effect

Insurable interest of mortgagor and mortgagee

1. Separable insurable interest
The mortgager and the mortgagee have each an insurable interest in the
property mortgaged and this interest is separate and distinct from the
other.
Insurance taken by one in his own name only and in his favour alone,
does not inure to the benefit of the other.
2. Extent of insurable interest of
1. Mortgagor
Being the owner, he has an insurable interest therein to the extent of
its value, even though the mortgage debt equals such value.
Loss or destruction will not extinguish his mortgage debt.
2. Mortgagee
He has an insurable interest in the mortgaged property to the extent of
the debts secured since the property is relied upon as security thereof
and in insuring he is not insuring the property itself but his interest or
lien thereon.
His insurable interest is considered prima facie the value mortgaged
and extends only to the amount of the debt, not exceeding the value of
the mortgaged property.
3. Extent of amount of recovery
The mortgagor cant recover the full amount of his loss.
The mortgagee cant recover in excess of the credit at the time of the
loss nor the value of the property mortgaged.
Insurance by mortgagee of his own interest.
1. When the mortgagee, independently of the mortgagor, insures his own
interest in the mortgaged property, he is entitled to the proceeds of the
policy in case of loss before payment of the mortgage.
2. In case of subrogation of insurer to right of mortgage, the mortgagee is
not allowed to retain his claim against the mortgagor but it passes by
subrogation to the insurer to the extent of the insurance money paid.

12

 loss happens after the credit has matured, the mortgagee may apply
the proceeds to the extent of his credit
Effect of insurance by mortgagee on behalf of mortgagor
1. Discharge of debt
Mortgagee is entitled to receive payment from the insured if the debt is
equal to it. If greater than debt, the mortgagee holds the excess as trust
for the mortgagor.
2. Right to subrogation
if there is a stipulation that the insurer shall be surrogated to the rights of
the mortgagee payment of the policy will not discharge the debt even
though the mortgagee may have procured the policy by arrangement
with the mortgagor.
if none, rule on subrogation does not apply EXCEPT where the
mortgage insures only his interest.

Sec 9. If an insurer assents to the transfer of an

insurance from a mortgagor to a mortgagee, and,
at the time of his assent, imposes further
obligation on the assignee, making a new contract
with him, the act of the mortgagor cannot affect
the rights of said assignee.
Assignment or transfer of insurance policy
The assignee acquires no greater right under the insurance than the assignor
had, subject to insurers defences UNLESS he makes a new contract with
the insurer.
1. fire policy - being strictly a personal contract, the insurer is natural
concerned about the moral character of the insured and should not be
compelled to become an insurer to an assignee to whom he would have
declined to issue a policy and who could mentally alter the risks assumed
by the insurer w/o his consent.
2. marine policy - assignable even w/o the consent of the insurer unless
required by the terms of the policy.

4. In case of loss, mortgagee is entitle to the proceeds to the extent of his

credit
5. Upon recovery by the mortgagee to the extent of his credit, the debt is
extinguished
* Rule on subrogation by the insurer to the right of the mortgagee does not
apply
Effect of standard and open clause in fire insurance policy
1. Standard or Union mortgage clause - the acts of the mortgagor do not
affect the mortgagee. (if a fire insurance policy contains it)
Purpose: make a separate and distinct contract of insurance on the
interest of the mortgagee.
mortgagee may procure a policy by which the mortgagor is top ay upon
such insurance
2. Open or loss-payable mortgage clause - merely provides for the payment
of loss, if any, to the mortgagee as his interest may appear and under it the
acts of the mortgagor affect the mortgage.
If a policy is obtained by the mortgagor with a loss-payable clause in
favour of the mortgagee as his interest may appear, the mortgagee is
only a beneficiary to the insurer and not made party to the contract. Any
act of the mortgagor w/c defeats his right will also defeat the right of the
mortgagee. This kind of policy covers only such interest as the
mortgagee has at the issuing the policy.
Right of mortgage under mortgagors policy
The contract of indemnity under such policy is primarily with the
mortgagor but the mortgagee is a third party beneficiary
Before loss - mortgagee is a conditional appointee of the mortgagor
entitled to receive so much of any sum that may become due under the
policy as does not exceed his interest as mortgagee.
Such right becomes absolute upon the occurrence of the loss
After loss - loss happens when the credit is not due, the mortgagee is
entitled to receive the money to apply to the extinguishment of the debt
as fast as it becomes due

13

 it is believed however that a marine policy just like a fire policy is not
assignable w/o the consent of the insurer
3. casualty policy - insurers consent is also required since it involves moral
hazards therefore such policies are not freely assignable without insurers
consent.
4. life policy - it may be freely be assigned before or after the loss occurs, to
any person whether he has an insurable interest or not. HOWEVER, an
assignment of a life policy to a person without an insurable interest will
not be upheld.
* A distinction must be made between the assignment or transfer:
A. of the policy itself w/c transfers the rights to the contract to another
insured
B. of the proceeds of the policy after a loss has happened, w/c involves a
money claim under, or a right of action on, the policy
C. of the subject matter of the insurance, such as a house insured under a
fire policy w/c has the effect of suspending the insurance until the sae
person becomes the owner of both the policy and the thing insured
Right of mortgagor to assign insurance policy to mortgagee
Sec only gives effect if the insurer agrees to the transfer of the policy at the
time of his assent, imposes new obligations on the assignee

SEC. 10. Every person has an insurable interest in the life and health:
(a) Of himself, of his spouse and of his children;

Effect of new contract between insurer and mortgagee-assignee

Assignment of a fire policy by the mortgagor to the mortgagee w/ the
consent of the insurer does not convert the contract into one of indemnity to
the mortgagee.
Contract remains with the mortgagor as it is his interest alone that is
covered.
Assignment operates merely as an equitable transfer of the policy so as to
enable the mortgagee to recover the amount due in case of loss subject to
the conditions of the policy.
BUT where a new & distinct consideration passes between the mortgagee
and the insurer a new contract is created therefore acts of the mortgagor
cant affect the right of the mortgagee, the assignee.

14

The beneficiary has no interest, economic,

emotional in the continued life of the insured

There must be insurable interest in that life of another

(c) Of any person under a legal obligation to him for the payment of money, or respecting
property or services, of which death or illness might delay or prevent the performance;
and

Insurance for the benefit of the insured

(d) Of any person upon whose life any estate or interest vested in him depends.

Life of another

o
o

Pecuniary
Relation by blood, marriage or commercial intercourse
Must have interest to preserve the life of the insured in spite of
the insurance rather than destroy it
Both owner and beneficiary must have insurable interest in the
life of the cestui que vie

Insurable interest in the life of a person upon whom one depends upon for education or
support or in whom he has pecuniary interest
When blood relationship sufficient

Natural affection in the following cases is sufficient, if not more powerful to

protect the life of the insured than any other consideration

Father child

Under art. 195 of the Family Code

Spouses

Brother sister

Persons obliged to support each other

o
o

Pecuniary in nature
E life insurance

Benefit need not be pecuniary

Necessity of insurable interest

Gives a legal right to insure

Necessary for the validity of an insurance contract, without which, it is a mere
wagering policy

Requirement a matter of public policy

As a deterrence to the insured

As a measure of limit of recovery

General classes of life policies

Upon ones life

Unlimited insurable interest

Legitimate ascendants and descendants

Parents and their legitimate children and the legitimate children
of the latter

Parents and their illegitimate children and the legitimate or

illegitimate children of the latter

Unlikely that a person will insure his own life for the benefit of another or
for speculation

Insurance of own life

Selection of beneficiary of the insured sufficient to guaranty existence of

good faith and confidence

When regarded upon as a wagering policy

Brothers and sisters not legitimately related, whether of the full

or half-blood

Uncle-aunt
Nephew-neice
By affinity

Not necessary that the beneficiary designated should have any interest in
the life of the insured

Legitimate brothers and sisters, whether of the full or half-blood

Lesser degree of kinship

One of the most basic of all requirements

o
o

Where pecuniary benefit essential

Insurable interest

Insurance for the benefit of a third party

(b) Of any person on whom he depends wholly or in part for education or support, or in
whom he has a pecuniary interest;

Evidence of good faith

At the behest of a third person named as a beneficiary

Evidences

Original proposal to take out insurance was

that of the beneficiary

The premiums are paid by the beneficiary

15

o
o

Amounts which remain unpaid at the time of the death of the debtor

o
o
o

If whole debt paid none

Where insurance taken by debtor for the benefit of the creditor

Extent of the amount which may be recovered by the insuring creditor

Full payment by the debt does not invalidate the policy, the proceeds
should go to the estate of the debtor

When debt becomes legally unenforceable

The expectation need not have legal basis, it is sufficient that it is actual

Assumption of parental relations when a man sends a girl to

school

Woman who takes a girl from an orphan asylum and gives her a
home

o
o

Moral or equitable obligation to pay the debt is not destroyed

The creditor may not insure the life of his debtor unless the latter has a
legal obligation to him for payment

Corporation has insurable interest over the life of an officer

whose services the corporation depends for its prosperity

On a business partner on the theory that his death may

adversely affect the business operations

On the reasonable expectation of substantial future benefits of

employees

One may insure the life of the person where the continuation of the estate or interest
vested in him who takes the insurance depends upon the life of the insured
Ex A receives as legacy the usufruct of a house. The ownership of which
is vested in B. In the legacy, should B first die, both the usufruct and
ownership will pass to C. A has an insurable interest in the life of B

Consent of person whose life is insured

Not essential

There is insurable interest at the inception of the policy

o
o

Both founded upon LIBERALITY

Recipient of the profits or proceeds

SEC. 11. The insured shall have the right to change the beneficiary he designated in the
policy, unless he has expressly waived this right in said policy. Notwithstanding the
foregoing, in the event the insured does not change the beneficiary during his lifetime, the
designation shall be deemed irrevocable.
Beneficiary defined

Must show that the death or illness of the insured might delay or prevent
its performance

Insurable interest of a creditor on the life of his debtor

Beneficiary is like a done

That the right possessed by him will be extinguished or impaired by the

death or illness of the other may lawfully procure an insurance on the
others life

Risk that performance of obligation might be delayed or prevented

Donation
Act of liberality whereby a person disposes gratuitously a thing or right in
favor of another who accepts it

Executive officers

Related by contract or commercial relation

Similarity between a life insurance policy and a civil donation

President

Dept heads
Insurable interest of a person in life of another under a legal obligation to former

Provided, it can be proved that

There must be dependence on the insured for support and care

Does not cut off the insurable interest of the creditor although there is no
reasonable expectation of the debtor becoming solvent

Brother-in-law

There must be expectation of pecuniary benefit

Insurable interest in the life of person upon which an estate or interest depends

Son-in-law

Extent

Only to the amount of the debt AND the cost of carrying the insurance on
the debtors life

Amount must not be so disproportionate to the amount of the debts and

liens plus cost of the insurance speculative/wagering

Right of the debtor in insurance taken by creditor

o
o
o

Creditor not an agent of the debtor

Contract is purely between the insurer and the creditor
Does not inure to the benefit of the creditor unless the contrary is
expressly stipulated

16

Effect of death of the insured

Where right is waived

o
o
o
o

Person named or designated in a contract of life, health or accident insurance as the

one who is to receive the benefits which become payable according to the terms of
the contract

Intended recipients of the proceeds or benefits of the insurance or benefits of the

insurance if the risks occurs

Those who upon a proper basis of insurable interest, secure insurance for their own
benefit upon the lives of others

Insured himself

Beneficiaries designation deemed irrevocable

Beneficiary acquires absolute and vested interest to all benefits accruing
to the policy from the date of its issuance and delivery, including that of
obtaining a policy loan to the extent stated in the schedules of values
attached to the policy
New beneficiary cannot be added
Insured does not have power to destroy the contract by refusing to pay
premiums for the beneficiary can protect his interest by paying the
premiums

Kinds

Measurement of vested interest

In case the insured discontinues paring for the premiums, the beneficiary may
continue paying it and is entitled to automatic extended term or paid up insurance
options and vested right cannot be divisible at any given time

Third person through mere bounty of the insured

o
o

In full face value and not in cash surrender value

Incase of death, beneficiary is paid on full face value

Third person who paid a consideration

2nd and 3rd cases

o
o

When beneficiary dies before the insured

View that beneficiaries representative is entitled to insurance proceeds

When the right to change the beneficiary is expressly waived

The benefits should pass to his representatives and not to the

estate of the insured

View that estate of the insured is entitled to the insurance proceeds

Especially if the designation is subject to the express condition

to pay if surviving

Most but not all courts hold beneficiaries executors,

administrators, or assigns, sufficient to negative the implied
condition that the death of the beneficiary before maturity of the
policy terminated all his rights to it

Designation of beneficiary

Construed broadly in order that the benefit shall be received by those intended by
the insured as the object of his bounty

Children include;

Adopted child
Adult child not forming part of the household
After born children even of a marriage subsequently contracted
X include grandchildren

No valuable consideration
Beneficiary may be the estate of the insured or third party
The beneficiary is not a party of the contract
In all three cases

The proceeds become the exclusive property of the beneficiary

upon the death of the insured

Therefore, where the insured before dying became insolvent,

the proceeds should be paid to the beneficiary and not the
assignee

Limitations on the appointment of beneficiary

Any person forbidden from receiving any donation (Art. 739. CC)

o
o

Those guilty of adultery or concubinage at the time of donation

Those made to a public officer or his wife, descendants and ascendants,

by reason of his office

Those made between persons found guilty of the same criminal offense in
consideration thereof

Beneficiary is like a done Art. 739 of CC should likewise apply

Right of the insured to change beneficiary

GR: power to change even without the consent of the beneficiary who has no vested
right but only an expectancy of receiving the proceeds

Insured may without the consent of the insured

o
o
o

Retain the right to receive cash value

Assign the policy
Surrender the police

17

unless otherwise disqualified. In the absence of other beneficiaries, the proceeds shall be
paid in accordance with the policy contract. If the policy contract is silent, the proceeds
shall be paid to the estate of the insured.

Husband, wife, widow

Description personae

Forfeiture of interest of the beneficiary in a life insurance policy

Other qualified beneficiaries

Nearest relatives not otherwise disqualified of the insured shall inherit the
proceeds in accordance with the rules of intestate succession

Order (Refer to p.110 of De Leon)

Liability of insurer on death of insured

Death at the hands of the law

o
o

Ex. Legal execution

Note: X extend to those forbidden to receiving a donation i.e. common law

spouse, etc.

Husband and children, wife and children

Their children

Insurer not liable in case committed intentionally with whatever motive

when in sound mind

Insurer liable

Purely accidental even though due to negligence if not excluded

from the coverage by words such as death by his own had,
self destruction and the like

o
o

Insurer liable in the absence of express conditions to the contrary

Insanity is one of the diseases the insurer must have known

Intentional amounting to a felony

Nearest relative shall receive the proceeds if not otherwise

disqualified

Rights of the beneficiary under the policy not affected

Not intentional but amounting to a felony

Murder of the insured in all cases

Heirs at law and persons who would take the property in case
the insured died intestate
Strict legal sense
Executors or administrators unless

Interest forfeited on the ground of public policy

Circumstances not amounting to a felony, beneficiary insane, self-defense,

accidental

Court will ascertain. If was so regarded, the court may include

him though by no way related to the insured

Estate or legal representatives of the deceased

Death caused by beneficiary

Beneficiaries interest in the policy not forfeited

Forfeiture of interest

Insurance money divided per capita

Heirs or legal heirs

Death by suicide wile insane

All children of the insured

Family

Includes children by another wife but prevailing view is

children common to both

Wife and children, Husband and children

No recovery
Death caused by voluntary act

Legal husband or wife ascertained at time of death

One of the risks in the absence of a valid policy exception

Not named but designated merely by status

Death by self destruction

Answers the description but does not have the legal

status of wife does not prevent her from taking as
beneficiary as when she is designated by name
although the words his wife are added

It appears that the insured intended to use these

expressions in the sense of heirs or next of kin

If no beneficiary

Legal heirs in accordance with law

E

2 women innocently in good faith

Each family entitled to one half of the

insurance benefits

SEC. 12. The interest of a beneficiary in a life insurance policy shall be forfeited when the
beneficiary is the principal, accomplice, or accessory in willfully bringing about the death
of the insured. In such a case, the share forfeited shall pass on to the other beneficiaries,

18

Insufficient in strict indemnity insurance but will suffice

in life insurance

Death caused by violation of law

SEC. 14. An insurable interest in property may consist in:

(a) An existing interest;
(b) An inchoate interest founded on an existing interest; or
(c) An expectancy, coupled with an existing interest in that out of which the expectancy
arises.

SEC. 13. Every interest in property, whether real or personal, or any relation thereto, or
liability in respect thereof, of such nature that a contemplated peril might directly damnify
the insured, is an insurable interest.
Insurable interest in property

Existing interest

Legal title

Equitable title

Purchaser of property before delivery

Mortgagee of property mortgaged

Any relation thereto (interest of a trustee or a commission agent)

Liability in respect thereof (interest of a carrier or depositary)

Anyone who derives benefit from its existence or would suffer loss from its
destruction

Occurrence of loss may be uncertain

Sufficient that the interest might be subject to loss

Title or right to possession not essential

Mortgagor after foreclosure but before expiration of the

redemption period

Insured has insurable interest if he is so situated with respect to the

property that he will suffer loss as the proximate result of its damage or
destruction

Founded on an existing interest

Stockholder in the property of the corporation of which he is a

stockholder which is founded on an existing interest from his
ownership of shares in he corporation

Insurable interest is limited to the value of his interest or to his

share in the distribution of the corporate assets upon dissolution

A stockholder has neither legal nor equitable tittle to assets of

the corporation

A partner has insurable interest in the firm property which will

support a separate policy for his benefit

An expectancy

Property itself

Inchoate interest

Trustee as in the case of a seller of property not yet delivered,

mortgagor of the property mortgaged, lessor of the property
leased

May be the

o
o
o

Insurable interest in property in particular cases

Must be coupled with an existing interest in that out of which such

expectancy arises

Farmer may insure future crops if they are to be grown on a land

owned by him at the time of the issuance of the policy

An owner of a business can insure against a contingency which

may cause loss of profits resulting from the cessation or
interruption of his business

Insurer must establish that the violation of the law was the cause
of had a causal connection with the accident resulting in death
of the insured to avoid liability

Legal expectation of loss or benefit

Mortgagor sold interests to vendee and thus parted with all his
interests still has an insurable interest in the property because of
his personal liability for the debt and his right to be subrogated
to the mortgage security.

Not necessarily the interest in property in the sense of title but the concern
in the preservation of the property and such a relation to or connection
with it as will necessarily entail a pecuniary loss in case od its injury or
destruction

Mere factual expectation of loss or benefit

Such expectation arising from any legal right or duty in connection with the
property does not constitute insurable interest

Ex

Owner of a gasoline station near a hotel has no sufficient

insurable interest in the hotel simply becase its burning or
destruction though it leaves the gasoline station physically
unharmed, will lessen his income from guests of the hotel

Also known as factual expectation

19

SEC. 17. The measure of an insurable interest in property is the extent to which the
insured might be damnified by loss or injury thereof.

SEC. 15. A carrier or depository of any kind has an insurable interest in a thing held by
him as such, to the extent of his liability but not to exceed the value thereof.

Measure of insurable interest in property

Only on the actual loss and not more

Purpose is indemnity

Mortgagor has insurable interest equal to the value of the mortgaged property and
the mortgagee, only to the extent of the credit secured by the mortgage

SEC. 18. No contract or policy of insurance on property shall be enforceable except for
the benefit of some person having an insurable interest in the property insured.
Effect of absence of insurable interest

Principle of indemnity available

o
o

Basis of all contracts

No insurable interest void premiums ordinarily returned to insured
unless in pari delicto with the insurer

In fire insurance, void if no insurable interest even if the insurer

knew and insurable interest was subsequently acquired.

A contract of lease which provides that any fire insurance policy

obtained by the lessee over his merchandise inside the leased
premises without the consent of the lessor shall automatically
assign the proceeds of the policy to the lessor who has no
interest in the property insured void

Insurable interest of a carrier or depository

Loss of the thing may cause liability to the carrier or depository to the extent of the
value

Bailee may insure merely his interest in the chattels to protect himself against loss of
the benefits to which he is entitled, or insure himself against the liability which may
incur upon the destruction of the chattels

SEC. 16. A mere contingent or expectant interest in any thing, not founded on an actual
right to the thing, nor upon any valid contract for it, is not insurable.
Mere contingent or expectant interest not insurable

A mere hope or expectation of benefit which may be frustrated by the happening of

some event uncoupled with any present legal right will not support a contract of
insurance

A father cannot insure the property of his son or vice versa that he expects
to inherit the same

Life of parents, children, spouses may be insured since they are under
mutual obligation to support each other and to save the party entitled to
support from being the subject of public charity.

A general or unsecured creditor cannot insure the specific property of his

debtor who is alive even though destruction of such property would render
worthless any judgment he may obtains

Doctrine of waiver or estoppel not applicable

X invoked since the public has an interest in the matter independent of

consent or concurrence of the parties

But where the real intention of the insured was to insure his goods for 15K
but through error or mistake of the insurer the policy issued for 15K is the
building in which the goods were stored which was never owned by the
insured nor had ay insurable interest, it was held that in case of loss the
insured can recover

Measure of indemnity

Marine or fire insurance

Valued policies

Valuation of the thing insured conclusive between the parties

thereto in the adjustment of loss, the insured has some interest
at risk and there is no fraud on his part although it might be
proved that the actual value of the thing is less
Principle of indemnity cannot be invoked by the insurer who
agreed to repair or replace the thing insured with a new one

But an unsecured creditor may insure the property of a

deceased debtor since all personal liability ceases with the
death of the debtor

Proceedings are in rem

An unsecured creditor has an insurable interest in the life of his

debtor to the extent of the amount of the debt

Also an unsecured creditor who obtains a judgment in his favor

becomes a judgment creditor and has been held to have an
insurable interest in the property as he has a right to levy on
such property as may be necessary to satisfy the judgment

Property of testator still alive

One named as beneficiary in a will has no insurable interest in a

property before the testators death

Expectation has no legal basis since it will pass no

legal effect before the death of the testator

Can be revoked at any time before the death unless

the right has been expressly waived

20

of a person insured must exist when the insurance takes effect, but need not exist
thereafter or when the loss occurs.

Time when insurable interest must exist

GR: applicable only to insurance on property and not to life insurance except that on
the life of the debtor

In property

o
o

When insurance takes effect and loss occurs

Insurable interest must exist in 2 distinct times
Date of execution of the contract AND
Date of the occurrence of the risk

Otherwise void
Why? Suffered no loss

When insurance takes effect

Must exist at the time the policy is procured or took effect

Need not exist during intervening period

o
o
o
o

Not contracts of indemnity

o
o

More of an investment that indemnification

When liability attaches

Need not exist in the meantime

It must be noted that notwithstanding the great volume of authority, the existence of
insurable interest at the inception of the contract, unless made so by statute, is not
all necessary to its validity. It is sufficient that insurable interest exists at the time the
risk attaches.

Insurable interest in life and property distinguished

Life

Property

Not contracts of indemnity

Principle of indemnity not applicable
If insurance on the life of another person

Amount recoverable is the loss sustained by the person who

effected the policy

In theory, it becomes a contract of indemnity

A policy with fixed benefits may be effected

Contracts which provide for specific periodic income to disabled

persons

Contracts of indemnity

Almost impossible to assess extent of injury

Not contracts of indemnity

Those which cover medical expenses

Health care agreement

Agreement with a health maintenance organization is the nature of a nonlife insurance which is primarily a contract of indemnity

Once a member incurs hospital, medical or any other expense arising

from sickness or injury or other stipulated contingent, the health care
provider must pay for the same to the extent agreed upon under a
contract

Payment should be made to the party who pad all the hospital and
medical expenses

Existence of insurable interest when risk attaches

Amount is governed by the amount of premium he contracted to pay

Health insurance

To prevent the issue of wagering policies

In the absence of a special provision to the contrary, the alienation of a
property will not defeat a recovery if the insured has subsequently
reacquired the property and possess an insurable interest at the time of
the loss

Amount fixed payable is not the true value of the thing insured because
the life of a person is priceless

Personal accident insurance

Debtor whose life was insured by the creditor who subsequently pays the
debt remains in force provided the former creditor continues to pay the
premiums although there is no longer insurable interest

Liability insurance

Proceeds are paid to the third person to whom the insured is liable

o
o

Even if it ceased to exist at the time of the insureds death

Contracts of indemnity against liability not against loss

Life insurance contracts

o
o
o

In life

o
o
o
o

Liability insurance contracts

o
o

even though the cost of the undertaking may exceed the

original amount of the insurance

SEC. 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

21

Unlimited

Limited to the actual value of the interest

SEC. 21. A change of interest in a thing insured, after the occurrence of an injury which
results in a loss, does not affect the right of the insured to indemnity for the loss.

Enough that it exists at the time the

policy takes effect

Must exist at the time the policy takes

effect and when the loss occurs

Change of interest in a thing insured after a loss

Expectation of benefit need not have a

legal basis whatever

Expectation must have a basis of a legal

right

Liability of insurer becomes fixed

Absolute and cannot be delimited by agreement

Does not affect his right of indemnity for the loss

Insured has a right to assign hi claim against the insurer as freely as any
other money claim
Insured has absolute right to transfer the thing insured after the
occurrence of the loss

SEC. 22. A change of interest in one or more of several distinct things, separately insured
by one policy, does not avoid the insurance as to the others.
Change of interest where several things separately insured in the policy

Divisible contract

o
o

Effect in general of change of interest

GR: mere transfer of a thing insured does not transfer the policy but suspends it
until the same person becomes both the owner of the policy and the thing insured

Cause or consideration made up of several parts

Violation of a condition which avoids a policy with respect to one or more
thins does not affect the others

Indivisible

o
o

SEC. 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 interest in the thing and the interest in the
insurance are vested in the same person.

Cause or consideration for a gross sum or for an entire premium

Change of interest in one or more of the things will also avoid the
insurance

Divisibility

Determined by the intention by the language employed by the parties

SEC. 23. A change of interest, by will or succession, on the death of the insured, does not
avoid an insurance; and his interest in the insurance passes to the person taking his
interest in the thing insured.
Change of interest by death of insured

Insurance on property passes automatically to the heir, legatee or devisee who

acquired interest in the thing insured, on the death on the insured

Rights to succession are transmitted from the moment of the deat of the decedent

SEC. 24. A transfer of interest by one of several partners, joint owners, or owners in
common, who are jointly insured, to the others, does not avoid an insurance even though
it has been agreed that the insurance shall cease upon an alienation of the thing insured.
Transfer of interest by one of the several partners, etc., jointly insured

o
o

Life, health an accident insurance

Change of interest in one or more of several things separately insured by

one policy

o
o

Change of interest by will or succession on the death of the insured

When a policy is so framed that it will inure to the benefit of whomsoever,

during the continuance of the risk, may become the owners of the interest
insured

When there is express prohibition against alienation In the policy in case

of alienation the contract is avoided

Change of interest in the thing insured after the occurrence of an injury

which results to a loss

Transfer of interest by one of several partners, joint owner or owners in

common who are jointly insures to the others

Object of rule against alienation

To provide against changes which might supply a motive to destroy the property or
might lessen the interest of the insured in protecting and guarding it

Change of interest covered by law

Means absolute transfer of the property insured such as conveyance of the property
by means of absolute deed of sale

Interest does not pass by mere execution of a pledge or a chattel mortgage

No alienation within the meaning of insurance law

22

Will not avoid the insurance

o
o

Each partner is interested in the whole property

Hazard is not increased because the purchasing partner has acquired a

greater interest in the property by a transfer of his co-partners share

When done without the consent of the insurer and before the
loss occurs where the policy contains the condition that in case
of ANY sale, transfer, or change of title of any property insured
by this company, or of any undivided interest therein such
insurance will be void and cease

Transfer to strangers

Avoid the policy

SEC. 25. Every stipulation in a policy of insurance for the payment of loss whether the
person insured has or has not any interest in the property insured, or that the policy shall
be received as proof of such interest, and every policy executed by way of gaming or
wagering, is void.
Stipulations prohibited in an insurance policy

2 stipulations declared void

Stipulation for the payment of loss whether the person insured has or has
not any interest in the subject matter of insurance

Mere wager policy

Pretended insurance where the insured has no

interest in the thing insured and can sustain no loss by
the happening of the misfortunes insured against

E Sec 181

Stipulation that the policy shall be received as proof of insurable interest

Existence of insurable interest does not depend upon the

stipulations in a contract of insurance

Defense of absence is available only to the insurer

who has a legitimate interest in raising the defense

May be raised by and for the benefit of the insurer

alone

Wagering or gaming policies void

A mere bet upon a future event

Non-existence of loss from occurrence of event

o
o

Void on the ground of public policy

Wager

No loss but profit from it

23

4. Executory warranties and conditions

undertakings the certain conditions should or should not exist in the
future, are used to enable the insurer to rescind the contract in case
subsequent events increased the risk to such an extent that he is no
longer willing to bear.
Exceptions are also used for the purpose of controlling risk.
5. Conditions precedent
Insurer must also protect himself against fraudulent claims of loss, this
he attempts to do by inserting in the policy various conditions.
Conditions requiring immediate notice of loss or injury and detailed
proofs of loss within a limited period and in many great many policies
there is found a condition requiring that any action thereon shall be
brought within a limited time.
It is necessary for the insurer to ascertain not only that fact of loss, but
also the amount of any loss that may in fact have occurred.
Secure such protection, the insurer inserts the various conditions
providing for the appointment of appraisers and for arbitration in case no
agreement can be reached as to the amount of loss

Concealment a neglect to communicate that w/c a party knows and

ought to communicate.
It is the intentional withholding by the insured of any fact material to the
risk.
Requisites:
1. A party knows the fact w/c he neglects to communicate or disclose to
the other
2. Such party concealing is duty bound to disclose such fact to the other
3. Such party concealing makes no warranty of the fact concealed
4. The other party has not the means of ascertaining the fact concealed.
A warranty is made of the fact concealed, the non-disclosure of such fact is
not concealment but constitutes a violation of warranty.

Sec. 27. A concealment whether intentional or

unintentional entitles the injured party to rescind

Sec. 26. A neglect to communicate that which a

party knows and ought to communicate, is called
a concealment.

In making a contract, the parties have 4 primary concerns

1. Correct estimation of the risk w/c enables the insurer to decided
whether he is willing to assume it, and if so, at what rate of premium
2. The precise delimitation of the risk w/c determines the extent of the
contingent duty to pay undertaken by the insurer
3. Such control of the risk after it is assumed as will enable the insurer to
guard against the increase of the risk because of change in conditions
4. Determining whether a loss occurred and if so, the amount of such
loss.
Devices for ascertaining and controlling risk & loss
1. The devices of concealment and representative were originally developed
for the purpose of enabling the insurer to secure the same info with
respect to the risk that was possessed by the applicant for insurance, so
that he might be equally capable of forming a just estimate of its quality.
2. Warranties and condition affirmative; deals with conditions existing at
the inception of the contract, and exceptions are used for the purpose of
making more definite and certain the general words used to describe the
risk the insurer undertook to bear
General description of risk has 2 parts
1. Designation of the specific property interest to be covered.
2. Specification of such of the perils to w/c that property interest
would be exposed.
3. Exceptions
perform a similar function in making more definite the coverage
indicated by the general description of the risk by excluding certain
specified risks that otherwise would have been included under the
general language describing the risks assumed.
It may be of certain property or of certain peril within the general
coverage.

24

 It misleads or deceives the insurer into accepting the risk or accepting it

at the rate of premium agreed upon.

Insurer is mixed into a belief that the circumstance withheld does not
exist, he is thereby induced to estimate the risk upon a false basis that it
does not exist.
Rules as to marine insurance
1. In the Phil
Fraud in not necessary in order that the insured may be guilty of
concealment the PRESENCE or ABSENCE of an INTENT TO
DECEIVE IS IMMATERIAL

Sec. 28. Each party to a contract of insurance

must communicated to the other, in good faith, all
facts within his knowledge which are material to
the contract and as to which he makes no
warranty, and which the other has not the means
of ascertaining.
Effect that must be communicated even in the absence of inquiry
It is the duty of each party to a contract of insurance to communicate in
good faith all facts within his knowledge only when
1. Material to the contract
2. Other has not the means of ascertaining the said facts
3. To w/c the party with the duty to communicate makes no warranty.
Test it: If the applicant is aware of the existence of some circumstances w/c
he knows would influence the insurer in acting upon his application, good
faith requires him to disclose that circumstance, though unasked.
Effect of failure of insure to verify
Argument postulates an obligation of the insurance company before issuing
the policy to verify the statements made by the insured in his application.
Insurance company has the right to rely on the statements of the insured as
to material facts such as his previous sickness and the matter is not one of
w/c disclosure is excused by law.

a contract of insurance. (As amended by Batasang

Pambansa Blg. 874)
Effect of concealment
1. By the insured
Failure on the part of the insured to disclose conditions affecting the
risk, of w/c he is aware, makes the contract VOIDABLE at the insurers
option.
Contracts of the utmost good faith.
Rely primarily upon the info supplied by to him by the applicant
Not limited to material facts but extends to those w/c he ought to know
necessary for the insurer to evaluate the risk therefore no defense
to plead mistake or forgetfulness.
2. By the insurer
Dominant bargaining position carries with it stricter responsibility
Sec 27 entitles the rescind of the contract, implying that it is optional on
his part WON to exercise such right.
Proof of fraud in concealment
Insurer need not prove fraud in order to rescind a contract on the ground of
concealment
1. Existence of fraud not required
legal effect of concealment, whether intentional or unintentional is the
same, it entitles the insurer to rescind the contract of insurance,
concealment being defined as negligence to communicate that w/c a
party knows and ought to communicate
2. Reason for the rule
If it were necessary for the insurance company to show actual fraud on
the part of the insured, it would then be impossible for it to protect itself
and its honest policyholders against fraudulent and improper claims. As
it wold be impossible to show actual fraud except in the extremest
cases.
3. Basis and criterion for provision

25

Matters made the subject of special inquiries material

General proposition, matters made the subject of inquiry must be deemed
material, even though otherwise they might not be so regarded
Insured is required to make full and true disclose to questions asked.
Failure of an apparently complete answer to make full disclosure will avoid
the policy.
Answer incomplete on its face will not defeat the policy in the absence of
good faith.
When there is no duty to make disclosure
1. Matters known to, or right to be known by insurer, or w/c he waives
disclosure
Insured cannot be penalised for failure to disclose matters already
known to the insurer insurer cant say there is deception; ought to be
known to the insurer or his agent for to hold otherwise would be to
charge the insured with the default of the insurer or his agent; or of w/c
the insurer waives communication for the insurer is in estopped.
2. Risks excepted from the policy
Insurer cannot complain of the insureds failure to disclose facts that
concern only risks excepted from the policy, either expressly or
warranty, from the liability assumed under the policy
The undisclosed fact must not be material for otherwise THE RULE
WILL NOT APPLY.
3. Nature or amount of insureds interest
Info of the nature or amount of the interest of one insured need not be
communicated UNLESS in answer to an inquiry EXCEPT as prescribed
by Sec 51.

Sec. 31. Materiality 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
communication is due, in forming his estimate of

Sec. 29. An intentional and fraudulent omission,

on the part of one insured, to communicate
information of matters proving or tending to
prove the falsity of a warranty, entitles the insurer
to rescind.
When fraudulent intent necessary
Non-disclosure under Sec 29 must be INTENTIONAL & FRAUDULENT
in order that the contract may be rescinded.
Omission is on the part of the insured and partly entitled to rescind is the
insurer.
In every contract of marine insurance, the warranty is implied that the ship
is seaworthy the intentional and fraudulent omission on the part of the
insured when applying for a policy to communicate info that his ship is
industries or in special peril would entitle the insurer to rescind because the
concealment refers to matters proving or tending to prove the falsity of the
warranty that the ship seaworthy.

Sec. 30. Neither party to a contract of insurance is

bound to communicate information of the matters
following, except in answer to the inquiries of the
other:chanroblesvirtuallawlibrary
(a) Those which the other knows;
(b) Those which, in the exercise of ordinary care,
the other ought to know, and of which the former
has no reason to suppose him ignorant;
(c) Those of which the other waives
communication;
(d) Those which prove or tend to prove the
existence of a risk excluded by a warranty, and
which are not otherwise material; and
(e) Those which relate to a risk excepted from the
policy and which are not otherwise material.
26

 There is concealment could not have been unaware that his heart beat
would at times rise to high & alarming levels and that he had consulted a
doctor 2x in 2 months before applying for non-medical insurance.
In absence of evidence, concealment thereof is no ground for annulment
of the policy.
4. Where fact concealed not material
Insured cannot be guilty of concealment where the fact concealed is not
material.
Time when info acquired
No info possessed by one party can be material, in the sense of requiring
disclosure UNLESS it is possible that it may influence the other in making
of the contract
1. After contract has become effective
No duty resting upon the insured to disclose it, even though the policy is
yet to issue.
Concealment must take place at the time the contract is entered into in
order that the policy may be avoided and not afterwards.
Duty of disclosure ends with the completion and effectivity of the
contract.
2. Before contract becomes effective
Contract is to be effective only upon the issuance of the policy, an
applicant for life insurance, is under a duty to disclose to the insurer,
changes in his health occurring or coming to his knowledge between the
date of submitting his application after satisfactory medical examination
and the date the policy is delivered.

Sec. 32. Each party to a contract of insurance is

bound to know all the general causes which are
open to his inquiry, equally with that of the other,
and which may affect the political or material
perils contemplated; and all general usages of
trade.
Matters each party bound to know

the disadvantages of the proposed contract, or in

making his inquiries.
Determination of materiality
1. Test of materiality
To be material a fact need not increase the risk or contribute to any
loss or damage suffered.
It is sufficient if the knowledge of it would influence the parties in
making the contract.
Matter must be determined ultimately by the court.
2. From the standpoint of the INSURER
Fact is material knowledge of it is probably and reasonable influence
upon the insurer in assessing the risk involved and in making or omitting
further inquiries & cause him either to reject the risk or to accept it only
at a higher premium rate or on different terms though that fact nay not
even reeky contribute to the contingency upon w/c the insurer would
become liable or in any wise affect the risk
Sufficient that his non-disclosure misled the insurer in forming his
estimates of the risks of the proposed insurance policy or in making
inquiries.
Its disclosure is one of the conditions specified in the fire insurance
policy, is not open to doubt.
Waiver by the insurance company of medical examinations renders more
material, the info required of the applicant concerning the previous
condition of health and disease suffered, for such info necessarily
constitutes an important factor w/c the insurer takes into consideration in
deciding whether to issue the policy or not.
The insurer accepted his application as a standard risk where only the
insured died of hypertension insurer may rescind the contract of
insurance and delay payment on the ground of concealment /
misrepresentation.
3. Concealment regarded as intentional
Nature of the facts not conveyed to the insurer may be such that the
failure of the insured to communicate must have been intentional rather
than INADVERTENT.

27

Sec. 35. Neither party to a contract of insurance is

bound to communicate, even upon inquiry,
information of his own judgment upon the matters
in question.
Disclosure of judgment upon the matters in question
Duty to disclose is confined to facts.
Hence, no duty to disclose mere opinion, speculation, intention or
expectation.
This is true even if the insured is asked.

Sec 36 A representation may be oral or written.

1. Representation - a statement made by the insured at the time of, or prior
to, the issuance of the policy, relative to the risk to be insured, as to an
existing or past fact or state of facts, or concerning a future happening, to
give information to the insurer and otherwise induce him to enter ito the
insurance contract.
2. Misrepresentation - a statement w/c
1. as a fact of something w/c is untrue
2. the insured stated with knowledge that it is untrue & with an intent to
deceive, or w/c he states positively as true w/o knowing it to be true
and w/c has a tendency to mislead
3. such face in either case is material to the risk
* Misrepresentation by the insured renders the insurance contract voidable at
the option of the insurer, even though innocently made & without wrongful
intent.
* Misrepresentation = concealment
Form & nature of representation
1. Info given concerning risk
Duty of the person applying for insurance to give to the insurer all such
info concerning the risk as will be of use to the latter in estimating its
character and in determining WON to assume it & terms on w/c it will
accept in case it wishes to do so.

Insured need not communicate public events, such as that a nation is at war
or the laws and political conditions in other countries or the allegiance of
particular countries, the SOURCES of his info being equally open to the
insurer who is presumed to know them.
Insurer is charged with the knowledge of the general trade usages and rules
of navigation, kind f seasons and all the risks connected with navigation.

Sec. 33. The right to information of material facts

may be waived, either by the terms of the
insurance or by neglect to make inquiry as to such
facts, where they are distinctly implied in other
facts of which information is communicated.
Right to info may be waived
Right to info of material facts may be waived, either EXPRESSLY by
the terms of insurance; or IMPLIEDLY by neglect to make inquiry as to
the facts already communicated.
If the applicant has answered the questions asked in the application, he is
justified in assuming that no further info is desired.

Sec. 34. Information of the nature or amount of

the interest of one insured need not be
communicated unless in answer to an inquiry,
except as prescribed by section fifty-one.
Disclosure of nature and extent of interest of insured
It is required that a policy of insurance just specify The interest of the
insured in property insured, if he is not the absolute oner thereof.
A mortgagee must disclose his particular interest even if no inquiry is made
by the insurer in relation thereto.
Requirement is made so that the insurer may determine the extent if the
insureds insurable interest.
NO need to disclose the inters in the property insured if it is absolute.

28

Sec. 39 A representation as to the future is to be

deemed a promise, unless it appears that it was
merely a statement of belief or expectation.
Kinds of representation
1. Oral or Written
2. Made at the time of issuing the policy or before
3. Affirmative or Promissory
1. Affirmative representation - any allegation as to the existence or nonexistence of a fact when the contract begins
2. Promissory representation - any promise to be fulfilled after the
contract has come into existence or any statement concerning what is
to happen during the existence of the insurance
Nature of PR
It used to indicate a parol or oral promise made in connection
with the insurance but not incorporated in the policy.
Non-performance of such a promise cannot be shown by the
insurer in defence to an action on the policy, but proof that the
promise was made w/ fraudulent intent will serve to defeat the
insurance.
Effect on policy of expression or opinion or expectation
1. Good faith / Bad faith of the insured
A representation of the insured, although false, will not avoid a policy of
insurance if there is NO ACTUAL FRAUD IN INDUCING THE
ACCEPTANCE of the risk or its acceptance at a lower rate of premium.
Such statement is obviously of the foregoing character since in such case
the insurer is not justified in relying upon such a statement BUT IS
OBLIGATED TO MAKE FURTHER INQUIRY.
2. Liability of the insurer
To avoid liability, the insurer must prove both materiality of the insureds
opinion and the latters intent to deceive.
If representation is one of fact, all the insurer need to prove is its falsity
and materiality.

Info may be given orally or written in papers not connected w/ the

contract or in the application or examiners report or it may appear in the
policy itself.
2. Form basis of contract
Info thus given forms the basis of the contract as made.
Description as relied on by the insurer, proved to be untrue in material
aspect, insurer may deny liability.
Material misrepresentation -> will avoid the contract whether innocent
or fraudulent
3. Intended as collateral inducements
Representation nay be communicated in any manner whatsoever that is
intelligible.
Not part of the contract UNLES EXPRESSLY MADE SO.

Sec. 37 A representation may be made at the

time of, or before, issuance of the policy.
Time when representation may be made
Very nature of representation requires that it precede the execution of the
contract.
A representation made after the policy is issued could not have influenced
either party to enter into the contract. HOWEVER, a representation may be
performed after the issuance of the policy.

Sec. 38 The language of a representation is to be

interpreted by the same rules as the language of
contracts in general.

The representation is written in the policy, the language in which it is

expressed was chosen by the insurer, if in answer to an inquiry, the agent of
the insurer usually phrases the answer to a question worded by the insurer.

29

 No false representation if it is true at the time the contract takes effect

although false at the time it was made & vice versa
False representation if it is true at the time of the it was made but false
at the time the contract takes effect.

Sec. 43 When a person insured has no personal

knowledge of a fact, he may nevertheless repeat
information which he has upon the subject, and
which he believes to be true, with the explanation
that he does so on the information of others; or he
may submit the information, in its whole extent,
to the insurer; and in neither case is he
responsible for its truth, unless it proceeds from
an agent of the insured, whose duty it is to give
the information.
Effect where info obtained from 3rd person
Insured is given the discretion to communicate to the insurer what he
knows of a matter of w/c he has no personal knowledge.
Representation turns out to be false, he is not responsible Provided he
gives explanation that he does so on the info of others.
Effect where info obtained from agent of insured/insurer
1. Agent of the insured - has the duty its ordinary course of business to
communicate such info to his principal & it was possible for the agent
under such in the exercise of due diligence to have made such
communication before the making of the contract, the insured will be
liable for the truth.
Insured cannot recover on the policy
2. Agent of the insurer - Same principle applies to the insure though in the
nature of things, the question does not occur so frequently.
Insurance would be void

Intent to deceive is presumed.

When representation deemed a mere expression or opinion
Oral representation as to future even or condition w/c the insured has no
control will be deemed a mere expression of opinion w/c will avoid a
contract only when made in bad faith.

Sec. 40 A representation cannot qualify an

express provision in a contract of insurance, but it
may qualify an implied warranty.

It cant qualify an express provision because it is not part of the contract

BUT ONLY A COLLATERAL INDUCEMENT.

It may qualify an implied warranty.

Sec. 41 A representation may be altered or
withdrawn before the insurance is effected, but
not afterwards.

A representation may be altered or withdrawn before the contract actually

takes effect but not afterwards since the insurer has already been led by the
representation in assuming the risk contemplated in the contract.

Sec. 42 A representation must be presumed to

refer to the date on which the contract goes into
effect.

Representation refer only to the tie of making the contract.

Conditions represented as existing must be so during the making of the
contract but not necessarily afterwards

Representation found to be untrue may be withdrawn prior to the

completion of the contract but not afterwards

30

Effect of falsity of representation

To be deemed false it is sufficient if the representation fails to correspnd
with the facts in a MATERIAL POINT.
Representation of fact are the foundation of the contract; if the foundation
does not exist, the superstructure does not arise.
Effect of collusion or fraud of agent of insurer
1. Collusion with insured
It will vitiate the policy.
Agent ceases to represent his principal & represents himself insurer is
not estopped form avoiding the policy.
2. Principal of agent
Insurer is liable when its agent writes a false answer into the application
w/o knowledge of the insured.
Insured merely signed the application & let the agent of the insurer filled
the blanks made the agent as insureds agent

Sec. 46 The materiality of a representation is

determined by the same rules as the materiality of
a concealment.
1. Test of materiality - Materiality of the representation is determined by th e
probable and reasonable influence of the facts upon the arty to whom the
representation is made, in forming his estimates of the disadvantages of
the proposed contract or in making his inquiries.
2. Materiality, a judicial question - The matter of misrepresentation must be
of the that character w/c the court can say would reasonably affect the
insurers judgment.
Concealment

Insured withholds info of material facts from the insurer

Sec. 44 A representation is to be deemed false

when the facts fail to correspond with its
assertions or stipulations.

Representation only need to be SUBSTANTIALLY TURE.

To be avoided, a representation relied upon must be false in a substantial

and material respect.

Representation is substantially true it is true in every particular material
to the risk, or is so far true that the conduct of the insurer would not have
been different if the exact truth had been alleged.
Representation partly fails but is true or is complied with so far as is seen
tail to the risk insured against, the policy remains in force.
In marine insurance, substantially true is not sufficient. Insured is
required to state the exact and whole truth in relation to all matters that he
represents, or upon inquiry discloses or assume to disclose.
Insurer generally relies to a large degree on the statements of the applicant
regarding the risk.

Construction of representation as affirmative

A representation written in the policy even in such form as t admit of its
being construed as an executory agreement or promissory representation
will rather be construed when possible, as an affirmative representation of a
present fact in order to save the policy from avoidance.

Sec. 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).
31

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

Materiality of concealment - determined by the same rules as applied in cases

Whenaninsurermustexercisehisrighttrescind
1. Ingeneral
Acontractofinsurancemayberescindedonthegroundof
CONCEALMENT,FALSEREPRESENTATIONorBREACHOF
WARRANTY.
Adefensetoanactiontorecoverinsurancethatthepolicywasobtained
throughfalserepresentation,fraudanddeceitisnotinthenatureofan
actiontorescindandisthereforenotbarredbytheprovision.
Notimelimitimposedforinterposingthisdefense.
2. Innonlifepolicy
Insurermayrescindacontractofinsurance,suchrightmustbeexercise
priortothecommencementofanactiononthecontract.
Insurerisnolongerentitledtorescindacontractofinsuranceafterthe
insuredhasfiledanactiontocollecttheamountoftheinsurance.
Anyofthematerialrepresentationsisfalse,theinsurerstenderofthe
premiumsandnoticethatthepolicyiscancelledbeforecommencement
ofthesuithereon,operatestorescindacontractofinsurance.
3. Inlifepolicy
Defensesmentionedareamiableonlyduringthefirst2yearsofalife
insurancepolicy.

Whether international or not, the injured party is entitled to rescind a contract

Incontestabilityoflifepolicies
1. Incontestableclausesstipulatingthatthepolicyshallbeincontestable
afterastatedperiodareingeneraluse,andarenowrequiredbystatuesin
forceinmystates

of misrepresentation

Same effect as a misrepresentation and gives the insurer a right to rescind

the contract

of insurance on ground of concealment or false representation

Contract of insurance is said to be one of utmost good faith on the part of both
parties to the agreement, the rules on concealment and representation apply
likewise to the insurer

Sec. 47 The provisions of this chapter apply as

well to a modification of a contract of insurance as
to its original formation.

Sec2648applynotonlytotheoriginalformationofthecontractbutalso
toamodificationthesameduringthetimeitisinforce.

Sec. 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
32

2. Itisrescissiblebyreasonofthefraudulentbyreasonofthefraudulent
concealmentoftheinsuredorhisagent,nomatterhowpatentorwell
founded
3. Itisrescissiblebyreasonofthefraudulentmisrepresentationsofthe
insuredorhisagent.
* Voidabinito voidable
* Fraud Fraudbyinducement
* Periodofcontestabilityshouldbecountedfromthedateofreinstatement
andnotfromthedateoftheissuanceofthepolicy.
* Apolicyofinsuracemayberevivedorreinstatedpursuanttoaprovision
containedinthepolicyortheagreementoftheparties.

Defensesnotbarredbyincontestableclause
Incontestabilityofapolicyunderhelawisnotabsolute
Abeneficiaryofanypersonwhohasprocuredalifepolicymorethan2
yearsbeforehisdeathwouldautomaticallybeentitledtotheproceedsupon
thatpersonsdeath.
Incontestabilityonlydeprivestheinsurerofthosedefencesw/carisein
connectionwiththeformation&operationofthepolicypriortoloss.
Insurermaystillcontestthepolicyonanyoftheffgrounds:
1. Thepersontakingtheinsurancelackedinsurableinterestasrequired
bylaw.
2. Causeofthedeathoftheinsuredisanexceptedrisk.
3. Premiumshavenotbeenpaid
4. Conditionsofthepolicyrelatingtomilitaryornavalservicehave
beenviolated
5. Fraudisofaparticularlyvicioustype,thepolicywastakenoutin
furtheranceofaschemetomurdertheinsured,orwheretheinsured
substitutesanotherpersonforthemedicalexaminationorwherethe
beneficiaryfeloniouslykisstheinsured.
6. Beneficiaryfailedtofurnishproofofdeathortocomplywithany
conditionimposedbythepolicyafterthelosshashappened,
7. Actionwasnotbroughtw/inthetimespecified.

2. Incontestabilityaftertherequisitesareshowntoexist,theinsurershall
beestoppedfromcontestingthepolicyorsettingupanydefense,
EXCEPTASISALLOWEDONTHEGROUNDOFPUBLICPOLICY.
Theory&objectoftheincontestableclause
1. AstotheinsurerInsurershouldhaveareasonableopportunityto
investigatethestatementsw/ctheapplicantmakesinprocuringhispolicy
andthatafteradefiniteperiod,theinsurershouldnotbepermittedto
questionthevalidityofthepolicy,eitherbyaffirmativeactionorby
definestoasuitbroughtonthelifepolicybythebeneficiary.
2. Astotheinsuredtogivethegreatestpossibleassurancetoa
policyholderthathisbeneficiarieswouldreceivepaymentw/oquestionas
tothevalidityofthepolicyortheexistenceofthecoverageoncethe
periodofcontestabilitypasses.
Protectthepolicyholderorbeneficiaryfromalawsuitcontestingthe
validityofhepolicyafteraconsiderabletimehaspassedandevidenceof
thefactssurroundingthepurchasemaybeunavailable.
Itisasufficientanswertothevarioustacticsemployedbyinsurance
companiestoavoidliability.
Requisitesforincontestability
1. Policyisalifeinsurancepolicy.
2. Itispayableonthedeathoftheeinsured.
3. Ithasbeeninforceduringthelifetimeoftheinsuredforatleast2years
fromitsdateofissueorofitslastreinstatement.
* Periodof2yearsmaybeshortenbutitcannotbeextendedbystipulation
* Duringthelifetime meansthatthepolicyisnolongerconsideredinforce
aftertheinsuredhasdied.
Effectwhenpolicybecomesincontestable
1. Policyoflifeinsurancebecomesincontestable,theinsuremaynotrefuse
topaythesamebyclaimingthat;
1. Policyisvoidabinitio

33

Notwithstanding the forgoing, the policy may be

in electronic form subject to the pertinent
provisions of RA # 8792, otherse known as the
Electronic Commerce Act and to such rules and
regulations as may be prescribed by the
Commissioner.
2. Policy of Insurance written document embodying the terms and
stipulations of the contract of insurance between the insured and the
insurer.
3. Policy / Insurance policy / Policy of Insurance signed ONLY by the
INSURER or his DULY AUTHORIZED AGENT.
Need not to be signed by the insured EXCEPT where express warranties
are contained in a separate instrument forming part of the policy in w/c
case the law requires that the instrument must be signed by the insured.
Standard practice is to have the prospective insured FILLED OUT and
SIGN an application prepared by the insurer.
Policy controls terms of insurance contract.
1. Measure of insurers liability
Its terms measures the insurers liability and in order to recover, insured
must show himself within the terms.
2. Presence of requisites for validity
All requisites necessary for a valid contract must be present only then
it will constitute a valid & binding contract, superseding all preliminary
agreements and negotiations.
3. Compliance of insured with conditions of the policy
Absence of statutory to the contrary, insurance company have the same
rights as individual to limit their liability and to impose whatever
conditions they deem best upon their obligations not inconsistent with
public policy.
Compliance by the insured with the terms of the policy is a condition
precedent to the right of recovery.

Sec. 49. The written instrument in which a

contract of insurance is set forth, is called a policy
of insurance.
Sec. 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.
34

 If an application for insurance by the person seeking insurance has not

been either accepted or rejected by the insurer, there is n contract yet as
it is merely an offer or proposal.
Mere signing of an application do not bind the insurer to issue a policy
No evidence to constitute that there was a contract
Applicant dies before its approval NO
Acceptance must be UNCONDITIONAL
Reception & retention of the policy without objection YES
2. Compliance with conditions precedent
Parties may impose additional conditions precedent to the validity of the
policy as a contract as they see fit.
No valid & binding insurance contract where NO PREMIUM is PAID
UNLESS CREDIT IS GIVEN OR THERE IS A WAIVER OR SOME
AGREEMENT.
In life insurance, a BINDING SLIP or BINDING RECEIPT does not
insure by itself.
3. Cover notes
Maybe issued to bind the Insurance temporarily pending the issuance of
the policy.
Coverage then can begin depending upon their terms.

Policy, a contract of adhesion

1. Term drafted & imposed by insurer
A description of the manner by w/c the contract is formed: 1 party
having superior bargaining power imposes its choice of terms on the
other party.
Ordinarily, contracts are freely negotiated by parties with roughly
equivalent bargaining power.
2. Ambiguity resolved against insurer
Parties do not bargain on equal footing, the weaker partys participation
is reduced to the alternative take it or leave it
Liberally in favour of the insured and strictly against the party
responsible therefor.
Cardinal principle of law that forfeiture are not favoured and that any
construction w/c would result in the forfeiture of the policy benefits for
the person claiming thereunder will be avoided if it is possible to
construe the policy in a manner w/c would permit recovery by finding a
waiver for such a forfeiture.
3. When terms of contract clear
No room for construction and such term cannot be enlarged or
diminished by judicial construction.

Offer & acceptance in insurance contract

Applicant usually takes the offer to the insurer through an application for
insurance w/c is usually attached to policy and made a part of the insurance
contract.
1. In property & liability insurance
Insured who makes the offer and accepted by the insurer.
Offer s usually accepted by an agent of the insurer.
2. In life and health insurance
Depends if the insured pays the premium at the time he applies for
insurance.
Does not pay the premium it is just an invitation

Form of contract of insurance

Writing may be informal
Written application informally accepted
Formal being carefully drawn written policy in customary use.
Everything must be in the blank space provided in the policy.
In case of conflict between the written & printed portions written shall
prevail.
Perfection of insurance contract
1. Acceptance of application

35

 If the application contains provision that the insurance shall not be

effective until the delivery of the policy that condition is essential to
the consummation of the contract.

Delivery to insurers agent as delivery to insured

Applicant dies when the policy has been given to the agent of the insurance
company but before its delivery to the applicant beneficiaries can
recover? 2 conflicting views
1. Beneficiaries can recover
Actual delivery to him is not essential to give the policy a binding effect
Insured already paid a premium for a period during w/c e did not
actually receive protection.
Insurer can simply consider the contract perfected upon actual delivery
of the policy to the agent if the insured had not died.
2. Beneficiaries cannot recover
Only by the reason that insurance agent is not his agent.
Effect of delivery of policy
1. Where delivery conditional
non-performance of the condition precedent prevents the contract from
taking effect
A stipulation that the policy shall not become operative unless the
applicant is in good health at the time of the delivery of the policy is
valid, binding and enforceable
2. Where delivery unconditional
Unconditional delivery of an insurance policy corresponding to the
terms of the application ordinarily consummates the contract & the
policy as delivered becomes the final contract between the parties.
Parties so intend, the insurance becomes effective at the same time of the
delivery of the policy.
3. Where premium still unpaid after unconditional delivery

Importance of delivery of policy

Delivery the act of putting the insurance policy the physical
document into the possession of the insured.
1. Process of forming a contract
1. Delivery of the policy is important in at least 2 ways
1. As evidence of the making of a contract and of its terms
2. As communication of the insurer's acceptance of the insureds
offer
2. Determination of policy period
Where a policy provides that the coverage terminates 1 year after
delivery, therefore becomes the important fact for determining when the
policy period ends.
3. Absence pf delivery
Delivery of a policy is not a prerequisite to a valid contract of insurance.
The contract may be completed prior to delivery of the policy or even
w/o the delivery of the policy depending on the intention of the parties.
Policy may contain a provision that states that the insurance is not
effective until the delivery of the policy.
Modes of delivery of policy
1. Actual/ Constructive delivery
No contract of insurance unless the minds of the parties have meet
Actual mutual transfer of policy is not a prerequisite to its validity
UNLESS the parties have so agreed in clear language.
Constructive delivery may be sufficient.
Delivery may be made to the insured in person or to his duty constituted
agent or some person for the benefit of the insured.
No further conditions are to be fulfilled there is constructive delivery
when it is deposited in the mail duly directed to the insured or his agent.
2. Delivery, primarily a matter of intention
Possession by the insured raises the presumption that the policy was
delivered to the insured, while possession by the insurer is prima facie
evidence that no delivery was made.

36

 Despite being attached in the insurance policy it has no binding

UNLESS descriptive title or name of the rider is also mentioned and

written on the blank space provided in the policy.
Lack of description will NOT affect the other provisions of the policy
ECEPT where without such rider, contract would be incomplete.
Clause an agreement between the insurer and the insured on certain
matter relating to the liability of the insurer in case of loss.
Three-fourth Clause liability of the insurer shall not exceed 3/4 of the
loss or damage.
Loss payable Clause loss if any is payable to a named party or parties
as their interest may appear.
Change of Ownership Clause it will inure to the benefit of
whomsoever, during the continuance of the risk, may become the owner of
the interest insured, the insurer gives its written consent to the assignment
of the thing insured.
Endorsement any provision added to an insurance contract altering its
scope or application.
It may be in a nature of PERMIT
It varies the terms of an original insurance contract.
GR: If a rider is physically attached to a policy of insurance
contemporaneously with its execution and delivered to the insured so
attached, and sufficient reference is ade in the policy, that fact that it is w/o
the SIGNATURE of the insurer or of the insured WILL NOT PREVENT its
inclusion and construction as a part of the insurance contract.
Same goes for no countersignature

Effect of failure of insured to read policy

1. Majority Rule not reading the policy before accept is not negligence
per so nor laches by reason that insurance contract are contracts of
adhesion
2. Minority Rule Many courts however apply One who accepts a
contractual instrument is conclusively presumed, in the absence of fraud
or mutual mistake, to know and assent to its contents.
duty bound to read the content.

Insurer cannot be presumed to have extended credit from the insurer

from the mere fact of unconditional delivery of the insurance policy
without the prepayment of premium; & even if such presumption may be
inferred, there must be a clear and express acceptance by the noised of
the insurers offer to extend credit.
Absence of a clear agreement granting credit extension, policy will lease
if the premium is not pad, at the time and in the manner specified in the
policy.
Rider in a contract of insurance
Rider a small printed or typed stipulation contained on a slip of paper
attached to the policy and forming an integral part of the policy.
1. Additional binding stipulation between the parties
Riders are usually attached to the policy because they constitute
additional stipulations therefore if properly attached it will have the
effect as if actually embodied in the policy.
2. Necessity for riders, etc
found in the fact that in the conduct of insurance business, it often
becomes necessary to add a new provision to a policy, or to modify or
waive an existing provision, or to make any desired change in the policy.
3. Rule in case of conflict between a rider, etc & printed stipulations of a
policy
Rider prevails more deliberate expression of the agreement.
Applies to the interpretation of clauses, warranties or indorsements w/c
are attached to policies to very their terms.
Attached papers on insurance policy
GR: A rider, slip or other paper becomes a part of a contract or policy of
insurance if properly & sufficiently attached or referred to therein in a
manner as to leave no doubt as to the intention of the parties in such
respect.
Sec 226: NO rider etc shall be attached to, printed or stamped upon a policy
of insurance UNLESS the form of such rider has been approved by the
Insurance Commissioner.

37

because he repeatedly protested the denial of coverage w/o requesting

review by an impartial panel of physicians.

Sec. 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.
Content of the policy
1. Name
incorrectly spelled is of no importance as long as identity can be
sufficiently established
Name of the insured is essential to be effective
2. Amount
life, health and accidental death fixed sum is payable
automatic increase clause depends upon the happening of an event
deductible amount to be deducted from any loss w/c is shouldered by
the insured making the insurer liable only for the excess of said amount
3. Premium
rate of premiums are developed on the basis of the nature and character
of the risk assumed & also o the value of the property or other interest
insured.

3. Exception of the Minority Rule

Insured could not have discovered the erroneous statement by such
reading
induced by fraud
illiterate or unable to read
long, complicated & difficult to understand policies
4. Trend in modern cases
Insured relies not upon the text of the policies but on the general
description of the coverage provided by the insurer and its agents door
the time he is considering whether to submit an application.
Absent a special request, an insured will not see the text of the policy
until after the application has been submitted and the 1st premium paid.
duty to read has less significance in modern case.
Insurers duty to explain the policy
1. Where terms of policy are clear
2. Important caveats
reasonable expectations operate to impose de facto a duty on the
insurer to explain the policys coverage to the insured.
if court holds that an insureds RE entitle him to coverage despite
policy language to the contrary insurer has to pay for the loss
because the insurer failed to explain the limitations.
if insurer had provided an explanation, the insureds expectation of
different coverage would have been rendered unreasonable.
Insurers have failed to explain the option to the insured liable for loss
Agents of the insurer and insurer are held liable for negligence of agents
in performing their professional duties to explain the coverage.
When the insured disputes a denial of coverage, the duty of good faith
and faire dealing ma impose an obligation on the insurer to alert the
insured to his rights.
Sarchett case, the arbitration clause was prominently displayed with a
bold-face hearing. Nevertheless the court reasoned that the insurer
had reason to know that the insured was unaware of his rights,

38

2. Peril contingent or unknown event w/c may cause a loss

3. Hazard condition or factor, tangible or intangible, w/c may create or
increase the chance of loss form a given peril
1. Physical location, structure, occupancy, exposure
2. Moral mental attitudes
Requirements for risk to be insurable
1. Importance
2. Calculability reasonable statistical estimate
3. Definiteness of loss fairly definite as to cause, time, lace and amount
4. No catastrophic loss not a large numbers of people are subject to the
same risk at the same time
5. Accidental nature fortuitous & unexpected losses
*** Requirement NOT ABSOLUTE

Sec. 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. chanrobles virtual law library
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

Life insurance average life span at any given age

Fire insurance structure and construction, occupancy or use, location
4.
5.
6.
7.

and loss-prevention or protection facilities & exposure to risk

Property or life insured subject matter of the contract
Interest of insured in property
Risks insured against
Term or duration of insurance
Life of the policy period of time during w/c the insurer assumes the
risk of loss
Annual policies - 12months
Short period policies - less period than 12months

Kinds of insurable risks

1. Personal person time of death or disability, also with life and health
risk

Reinsurance policy

Reinsurance treaty

A contract of indemnity one insurer makes

It is merely an agreement between 2
with another to protect the first insurer
insurance companies whereby one agrees
from a risk it has already assumed.
to cede & the other to accept reinsurance
business pursuant to provisions specified
in the treaty

2. Property destruction of property

1. Direct losses fire, lightning, windstorm, flood & other forces of
nature
2. Indirect losses may occur, rents or favourable leases
3. Liability liability for the injured person (tort)

Risk, peril and hazards distinguished

1. Risk chance of loss or possibility of the occurrence of a loss, based on
known or unknown factors.

39

6. Insurance companies may impose on cover notes a deposit premium

equivalent to at least 25% of the estimated premium of the intend
insurance coverage but in no case less than Php 500

Sec. 53. The insurance proceeds shall be applied

exclusively to the proper interest of the person in
whose name or for whose benefit it is made unless
otherwise specified in the policy.

3rd parties have no right UNLESS there be some contract of trust, express
or implied between the insured and the 3rd party.

Sec. 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.
Where insurance made by an agent or trustee
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 singing as such agent or trustee or by other general terms in the
policy.

Sec. 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.

As long as it is not on his own name

case of extension in compliance with such rules

and regulations.
1. Preliminary contract of present insurance
Insure insures the subject matter usually by what is known as the
binding slip or binder or cover note, the contract to be effective
until the formal policy is issued or the risk rejected
Cover Note merely a written memo of the most important terms of
a preliminary contract of insurance, intended to give temporary
protection pending the investigation of the risk by the insurer, or until
the issue of a formal policy, provided it is later determined that the
applicant was insurable at the time it was given.
Serves as commercial convenience
2. Preliminary contract of executory insurance
Insurer makes a contract to insure the subject matter at some subsequent
time w/c may be definite or indefinite.
Right acquired by the insured is merely to demand the delivery of a
policy in accordance with the terms agreed upon and the obligation
assumed by the insure is to deliver such policy.
Issuance and renewal of cover notes
1. Cover Notes short-term insurance policies that may be issued to afford
mediate provisional protection to the insured until the insurer can inspect
or evaluate the risk in question and issue the proper policy or until the risk
is declined and notice is given.
not to be treated separately
Rules on cover notes
1. It is a contact of insurance
2. It must be approved by the Insurance Comm.
3. Valid not exceeding 60 days from the date of its issuance WON premium
has been paid may cancel by either party upon at least 7 days notice to
the other party
4. Not cancelled, within 60 days be issued in lieu thereof
5. Maybe renewed & extended

40

Sec. 59. A policy is either open, valued or running.

Sec. 60. An open policy is one in which the value
of the thing insured is not agreed upon & the
amount of insurance merely represents the
insurers maximum liability. The value of such
thing insured shall be ascertained at the time of
loss.
Sec. 61. A valued policy is one which expresses on
its face an agreement that the thing insured shall
be valued at a specific sum.
Sec. 62. A running policy is one which
contemplates successive insurances, and which
provides that the object of the policy may be from
time to time defined, especially as to the subjects
of insurance, by additional statements or
indorsements.
Kinds of policies
1. Open or Unvalued policy
it does not predetermine the value of the insured property but establishes
a maximum amount the insurer will pay in case of a total loss of the
property insured.
a certain agree sum is written on the dace of the policy not as the value
of the property insured but as the maximum limit of the insurers liability
in case of destruction by the peril insured against.
Insured must establish Fair Marker Value of the insured property at the
time of the loss. If FMV exceeds the mac latter will control if below,
the former will control
2. Valued Policy

It is in the terms of the policy clearly show that the insurance was meant to
cover also the shares of the other partners.

Sec. 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.
Sec. 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.
Where description of insured general
It must specify the parties between whom the contract is made.
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 person comprehended
in the policy.

Sec. 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.
Effect of transfer of thing insured
Since a contract of insurance is a personal contract, it does not attach to or
run with the property insured.
A purchaser of property who does not take the precaution to obtain a
transfer of the policy of insurance cannot recover upon such 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 of the property
insured.

41

will prevail over the general lawn limitations of actions as prescribed by

the CC if not contrary to Sec 63.
Rights of the parties flow from the IC hence they are not bound by the
statute of limitations nor by exemptions thereto.
2. Period limitation
If period is fixed less than 1 year from the time the case of action
accrues, the stipulation would be void.
In the case, of a policy of industrial life insurance, the period cannot be
less than 6 years after the cause of action accrues.
Nature of condition limiting period for filing claim
Condition in an insurance policy that claims must be presented within a
certain period after rejection is not merely a procedural requirement.
Condition is an important matter essential to prompt settlement of claims
against insurance companies, as it demands that insurance suits be brought
by the insured while the evidence as to the origin and cause of the loss or
destruction has not yet disappeared.
It is in the nature of a condition precedent to the liability of the insurer,
resolutory cause the purpose of w/c is to terminate all liabilities in case the
actin is not filed by the insured within the period stipulated.
Where action brought against insurers agent
Bringing of such action against the agent cannot have any legal effect
EXCEPT that of notifying the agent of the claim.
When cause of action accrues
it does not accrue until the insureds claim is finally rejected by the insurer.
Period for commencing an action under a policy of insurance under Sec 63
is to be computed not form the time when loss actually occurs BUT from
the TIME WHEN TEH INSURED HAS A RIGHT TO BRING AN
ACTION AGAINST THE INSURER.
1. Stipulated prescriptive period begins from the happening of the loss
2. Stipulated prescriptive period begins from the rejection of claim
3. Stipulated prescriptive period begins from the filling of claim

value of the insured property is predetermined and the value is the

amount to be used in case of a total loss.

insured and insurer expressly agree in advance on the value pf the

subject matter of the insurance.

2 values 1. Face value of the policy 2. Value of the thing insured

3. Running Policy
intended to provide indemnity for property w/c cannot well be covered
by a valued policy because of its frequent change of location and
quantity or for property os much nature as not to admit of a gross
valuation.
It denotes insurance w/c contemplates that the risk is shifting, fluctuating
or varying and w/c covers a class of property rather than any particular
thing.
Advantage of a running policy
1. either underinsured nor overinsured at any time
2. Avoids cancellations that would otherwise be necessary to keep insurance
adjusted to value at each location and for w/c cancellations he would be
charged the expensive short rate
3. Save the trouble of watching his insurance and the danger of being
underinsured in spite of his care, through oversight or mistake.
4. Rate is adjusted to 100% insurance, where as valued policies requiring
insurance only to say 80 % of the value, give wither small or no reduction
for amounts of insurance above this figure.

Sec. 63. A condition, stipulation, or agreement in

any policy of insurance, limiting the time for
commencing an action thereunder to a period of
less than one year from the time when the cause
of action accrues, is void.
Validity of agreement limiting time for commencing action
1. GR: A clause in an insurance policy to the effect than an action upon the
policy by the insured must be brought within a certain period is valid and

42

 A contract of insurance is permitted to lapse when the insured fails to

take some action to keep contract in force.

Insured can cancel an insurance contract at his election by surrendering

the policy. entitles him to the return of the premiums on the
customary share-rate basis.
Form and sufficiency of notice of cancellation by the insurer
1. Prior notice of cancellation to the insured.
2. Notice must be based on the occurrence, after the effective date of the
policy, of one or more of the grounds mentioned
3. Must be in writing, mailed or delivered to the named insured at the
address shown in the policy, or to his authorized broker.
4. Must state w/c o the grounds set forth is relied upon
duty of the insurer upon written request of the named insured to furnish the
facts on w/c the cancellation is based.
Prior notice of cancellation to insured
Prevent cancellation of the policy w/o allowing the insured ample
opportunity to negotiate for other insurance in its stead for his own
protection
1. Notice given to insured himself
not to & through any unauthorised person of the policy notice of
cancellation by the insurer, given to the mortgage of the insured but not
to the insured with w/c the insurer had direct dealing w/o the prior
authority of the insured, is not effective notice as to the insured owner.
2. Notice delivered personally or sent by mail
It may be mailed.
No proof that the notice was actually mailed to and received by the
insured, where all that the insurer offers to show that the cancellation
was communicated to the insured is its employees testimony that the
said cancellation was sent by mail through our mailing section w/o
more

Sec. 66. In case of insurance other than life,

unless the insurer at least forty-five days in

Sec. 64. No policy of insurance other than life

shall be cancelled by the insurer except upon prior
notice thereof to the insured, and no notice of
cancellation shall be effective unless it is based on
the occurrence, after the effective date of the
policy, of one or more of the following
(a) non-payment of premium;
(b) conviction of a crime arising out of acts
increasing the hazard insured against;
(c) discovery of fraud or material
misrepresentation;
(d) discovery of willful or reckless acts or
omissions increasing the hazard insured against;
(e) physical changes in the property insured which
result in the property becoming uninsurable; or
(f) a determination by the Commissioner that the
continuation of the policy would violate or would
place the insurer in violation of this Code.
Sec. 65. All notices of cancellation mentioned in
the preceding section shall be in writing, mailed
or delivered to the named insured at the address
shown in the policy, and shall state (a) which of
the grounds set forth in section sixty-four is relied
upon and (b) that, upon written request of the
named insured, the insurer will furnish the facts
on which the cancellation is based.
1. Cancellation
right to rescind, abandon or cancel a contract of insurance.
Termination either by the insurer or the insured of a policy of insurance
before its expiration.

43

 A policy written for a term of less than 1 year is considered as if written

for a term of 1 year while a policy written for a longer term or with no
fixed expiration date is considered as if written for successive policy
periods term of 1 year.
if term of the policy is 5 years, notice must be given at least 45 days
before the anniv date 45 days not complied with, insurer may not
refuse to renew a policy upon payment of the premium due.
Unless the insurer complies with the requirement of Sec 65 & 66, he has
to renew the policy whether he likes it or not.

Sec. 67 A warranty is either expressed or

implied.
1. Warranty

advance of the end of the policy period mails or

delivers to the named insured at the address
shown in the policy notice of its intention not to
renew the policy or to condition its renewal upon
reduction of limits or elimination of coverages, the
named insured shall be entitled to renew the
policy upon payment of the premium due on the
effective date of the renewal. Any policy written
for a term of less than one year shall be
considered as if written for a term of one year.
Any policy written for a term longer than one year
or any policy with no fixed expiration date shall be
considered as if written for successive policy
periods or terms of one year.
Renewal of non-life insurance policy
1. As a new contract or extension of old one
GR: a renewal of insurance by the payment of a new premium and the
issuance of a receipt therefor where there is no provision in the policy of
for its renewal, is anew contract on the same terms as the old one.
Renewal is in pursuance of a prison to that effect, it is not a new contract
but an extension of the old.
2. Rights of parties
Insurance other than life named insured is given the right to renew
upon the same terms and conditions the original policy upon payment of
the premium due on the effective date of the renewal UNLESS the
insurer at least 45 days in advance of the end of the period mails or
delivers to the unused notice of its intention not to renew the policy or to
condition its renewal upon reduction of its amount or elimination of
some coverages.
GR: An insurance company is bound by the greater coverage in an
earlier policy where the renewal policy is issued w/o calling to insureds
attention a reduction in the policy coverage.
3. Period for giving notice of non-renewal by insurer

44

Sec. 68 A warranty may relate to the past, the

present, the future, or to any or all of these.

Although the provision employs the term warranty in general, in case of

PROMISSORY WARRANTY, the same may refer only to FUTURE
EVENTS.

Sec. 69 No particular form of words is necessary

to create a warranty.
Intention of the parties
Warranty does not mean warranty it depends upon the intention of the
parties in regards thereto.
In case of doubt, a statement will be construed as a representation rather
than a warranty especially if such statement is contained in any instrument
other than the policy like an application w/c is collateral merely to the
contract of insurance.
Parties must intend a statement to be a warranty and it must be included as
a part of the contract.
gratuitous answer (answer not responsive to any questions ask) are not
warranties even though the policy makes the statement in the application
warranties.
Warranties
considered part of the contract
always written on the face of the policy, actually or by reference
strictly compiled with
falsity or nonfulfillment of a warranty operates as a breach of contract

a statement or promise by the insured contained in the policy itself or

incorporated in or attached to it by property reference, the falsity or
nonfulfillment of w/c & regardless of WON the insurer has suffered loss
or prejudice as a result of the falsity or nonfulfillment, renders the policy
voidable at the election of the insurer.
The contract of insurance is rendered voidable by the insurer w/o
reference to the materially of the statement or promise and to whether
the insurer was prejudiced by such breach.
Kind of warranties
1. Express warranty - an agreement contained in the policy r clearly
incorporated therein as part thereof whereby the insured stipulates that
certain facts relating to the risk are or shall be true or certain acts relating t
the same subjects have been or shall be done
2. Implied warranty - a warranty w/c from the very nature of the contract or
fro the general tenor of the words, although no express warranty is
mentioned, is necessarily embodied in the policy as part thereof & which
binds the insured as though expressed in the contract.
In every policy in marine insurance there is an implied warranty that
the ship is seaworthy when the policy attaches. (ONLY IN MARINE
INSURANCE)
3. Affirmative warranty - one w/c asserts the existence of a fact or condition
at the time it is made.
It is continuing if it is one that must be satisfied during the entire
coverage period of the insurance.
4. Promissory warranty - one where the insured stipulates that certain facts
or conditions pertaining to the risk shall exist or that certain things with
reference thereto shall be done or omitted.
Warranty presumed affirmative

GR: Courts will presume that the warranty is merely affirmative UNLESS
the contrary intention appears.

45

 If another instrument construed as excluding a rider a rider

attached to a policy is a part of the contract, it need not be signed
by the insured nor referred to in the policy as making a part of it.
Another Instrument could not mean a mere slip of paper like a
rider, but something akin to the policy itself as a written instrument
in w/c a contract of insurance is set forth.

Sec. 71 A statement in a policy of matter relating

to the person or thing insured, or to the risk, as a
fact, is an express warranty thereof.
Express warranty regarding person, thing or risk
1. Statement must refer to a fact
Statement in the policy relating to the person or thing insured or the risk
must be A FACT to constitute an express warranty.
2. Where statement in the nature of an opinion
A statement in the policy can only be an expression of an opinion is not
a warranty of truthfulness.
Statement if deemed a warranty at all is merely a limited warranty as to
the honest good faith of the insured a warranty that the statement is
his honest opinion or judgment.

Sec. 72 A statement in a policy which imparts

that it is intended to do or not to do a thing which
materially affects the risk, is a warranty that such
act or omission shall take place.
Warranty of facts or omissions w/c materially affect the risk
This article refers to a promissory warranty.
Breach of promises or agreements as to future acts will not avoid a policy
UNLESS the promises are material to the risk.

presumed material

insurer m

* Before a representation will be considered a warranty, it must be

EXPRESSLY included or incorporated by clear reference in the policy and
the contract must clearly show that the parties intended that the right of the
insured would depend on the truth or fulfilment of the warranty.
* Statements are to be considered representation UNLESS it is clear intended
them to be warranties
* Where a statement is true, it is ordinarily immaterial whether it is a
warranty or a representation.

Sec. 70 Without prejudice to section fifty-one,

every express warranty, made at or before the
execution of a policy, must be contained in the
policy itself, or in another instrument signed by
the insured and referred to in the policy as
making a part of it.
Express warranty, where contained
1. in a policy, or another instrument
For a stipulation to be considered a warranty It must not only be
clearly shown that the parties intended it as such but it must also form
part of the contract itself or if contained in another instrument be
signed by the insured & referred to in the policy as making a part if it.
Mere reference alone is not sufficient to give this effect.
2. Validity of construed in a rider
a warranty contained in a rider to the policy is null android rider
was not signed by the insured & not referred in the policy as making a
part of it.

46

 If waiver is to be implied from conduct mainly conduct must be

clearly indicative of a clear intent of the insurer to waive its right
under the policy.
3. Under estoppel
insurer is precluded because of some action or inaction on its part, form
relying on an otherwise valid defines as against the insured who has
been induced to enter into the contract by the insurers representation or
conduct.
4. Estoppel - conduct of the insurer presents it from avoiding liability
5. Waiver - failure of the insurer to assert a defense prevents it from
asserting that defines in the event of a claim filed by the insured

Sec. 74 The violation of a material warranty, or

other material provision of a policy, on the part of
either party thereto, entitles the other to rescind.
Right to rescind for violation of a material warranty
1. Rescission by the insured
violation of the terms of a contract of insurance entitles either party to
terminate the contractual relations.
Insured can sue for rescission for breach of contract due t the refusal
of the insurer to grant a loan applied for although this was expressly
agreed upon in the policy and he can recover the full amount of the
premiums paid by him up to the filing of the actions
2. Rescission by the insurer
Insurer is entitled to rescind a contract of insurance for violation of a
warranty only if said warranty is MATERIAL otherwise it will not be
avoid the policy.
It maybe rescind even though the violation was not the direct cause of
the loss as long as material.

Sec. 75 A policy may declare that a violation of

specified provisions thereof shall avoid it,
otherwise the breach of an immaterial provision
does not avoid the policy.

The act or omission is material to the risk if it increases the risk, only
substantial increase of risk works forfeiture of the policy w/ is avoided for
increase in hazard.

Sec. 73 When, before the time arrives for the

performance of a warranty relating to the future,
a loss insured against happens, or performance
becomes unlawful at the place of the contract, or
impossible, the omission to fulfill the warranty
does not avoid the policy.
When breach of warranty does not avoid policy
GR: Violation of a warranty avoids a contract of insurance. This article
provides for 3 exceptions:
1. When loss occurs before time for performance
2. When performance becomes unlawful
3. When performance becomes impossible - failure to comply with a
promissory warranty may be due not only to legal impossibility but
also to physical impossibility
Where insurer barred by waiver or estoppel
Breach of warranty operates to discharge the insurer from liability
UNLESS the insurer is liable because of a waiver of the warranty or a
estoppel.
Doctrines of waiver & warranty have been used to modify the harsh
operation of the rules on concealment & warranty.
1. The omission to fulfil a warranty or condition will be excused where there
is a waiver on the pat of the insurer.
2. Waiver - an intentional relinquishment of a known right
may be EXPRESS or IMPLIED
Failure on the part of the insurer to assert a forfeiture upon breach of
warranty or condition, after knowledge thereof, amounts to a waiver
or estoppel.

47

3. Conditions in an insurance policy are 2 kinds

1. Condition precedent - happening of some event or the performance of
some act after the terms of the contract have been agreed upon, before
the contract shall be binding on the parties, such as that the policy
shall not take effect until delivery and payment of the 1st premium
during the good health of the applicant.
2. Condition subsequent - w/c pertains to the contract of insurance after
the risk has attached and during the existence thereof, such as the
condition requiring notice and proof of loss in case of loss upon an
insurance against fire.
Warranty & condition distinguished
Warranty does not suspend nor defeat the operation of the contract but a
breach affords either remedy expressly provided in the contract of that
furnished by law
Condition precedent is one without the performance of w/c the contract,
although in for executed by the parties & delivered, does not spring into
life.
A condition precedent is a limitation to the attachment of the risk
warranty does not necessarily have that effect.
Exceptions in insurance policy
Exception are inserted in a contract of insurance for the purpose
WITHDRAWING FROM THE COVERAGE OF THE POLICY, as
delimited by the general language describing the risk assumed, some
specific risks w/c the insurer declares himself unwilling to undertake
Effects of breach on legal relations of parties
1. on binding force of contract
Occurrence of a breach or warranty or condition even though such
breach be but temporary renders the entire contact defeasible or voidable
and even though such breach may not have affected the risk or
contributed to the loss in any way
But occurrence of an excepted peril does not in the least affect the
binding force of the contract.
2. liability where there is waiver

When violation of immaterial provisions shall avoid policy

Every warranty is conclusively presumed material.
Parties may EXPRESSLY STIPULATE that the violation of a particular
provision in the policy shall avoid it.
To constitute a violation, the other insurance must be upon the same
subject-matter, the same interest therein and the same risk.

Sec. 76 A breach of warranty without fraud

merely exonerates an insurer from the time that it
occurs, or where it is broken in its inception,
prevents the policy from attaching to the risk.
Effect of breach of warranty by insured
1. Fraud not essential for breach - Falsity is the basis of liability on a
warranty; breach is one without fraud.
2. Effect if w/o fraud
No fraud, policy is avoided only from the time of breach & the insured is
entitled to
return of premium paid at a pro rata rate from the time of breach if it
occurs after the inception of the contract
all the premiums if it is broken during the inception of the contract
contract is void ab initial and never becomes binding
3. Effect if with fraud
Policy is avoided ab init & the insured IS NOT entitled to the return of
the premium paid.
Conditions in insurance policy
1. Condition - an event signifying in its broadest sense either an occurrence
or a non-occurrence that alters the previously existing legal relations of
the parties to the contract.
2. Insurers may impose whatever conditions they please upon their
obligations, as long as they are not contrary to law, morals, good customs,
public order or public policy.

48

 Insurer does not become liable for an excepted loss by waiver UNLESS
such waiver amounts to a new contract on valuable consideration

Insurer cannot, by a naked waiver, assume a non-existent duty. Nor is the

defense that the loss is expected barred by the incontestable clause.

Sec. 77. An insurer is entitled to payment of the

premium as soon as the thing insured is exposed
to the peril insured against. Notwithstanding any
agreement to the contrary, no policy or contract of
insurance issued by an insurance company is valid
and binding unless and until the premium thereof
has been paid, except in the case of a life or an
industrial life policy whenever the grace period
provision applies or whenever under the broker
and agency agreements with duly licensed
intermediaries a ninety day 90 credit extension is
given. No credit extension to a duly licensed
intermediary should exceed ninety days 90 fro
date of issuance of the policy.
Sec 78. Employees of the Republic of the
Philippines, including its political subdivisions &
instrumentalities, and govt-owned or controlled
corporations, may pay their insurance premiums
and loan obligations through salary deduction:
Provided, that the insurer, cashier, paymaster or
official of the entity employing the govt employee
is authorized, notwithstanding the provisions of
49

 The thing insured is exposed to the peril insured against assumes that

3.

the contract is perfected w/c takes place when the applicants offer is
accepted by the insurer.
Where there was not only a perfected contract but a partially performed one
it is binding.
Remaining premium shall be demandable.
Nonpayment of the balance of the premium due DOES NOT product the
CANCELLATION of the contract of insurance.
Premiums are the ELIXIR VITAE of the insurance business strength of
the vinculum juris is not measured by any specific amount of the premium
payment.
In life insurance becomes a debt only when:
1st premium the contract has become binding
subsequent premiums insurer has continued the insurance after maturity
of the premium, in consideration of the insureds express or implied
promise to pay.
A life insurance policy involves a contractual obligation wherein the
insured becomes duty bound to pay the premium agreed upon lest he runs
the risk of having his insurance policy lapse if he fails to pay such
premiums.
No duty assumed by the insured to pay any premiums subsequent to the
first.
Contract is executory ordinary life insurance is purely UNILATERAL.
Insurer cannot compel the insured to pay the premium because the insured
is by no means a debtor of the insurer, nor is the insurer the creditor of the
insured.

Effect of nonpayment of premium

1. First premium
Nonpayment of the first premium prevents the contract from becoming
binding notwithstanding the acceptance of the application nor premium due
does not produce cancellation of the contract UNLESS WAIVED.
2. Subsequent premium

any existing law, rules & regulations to the

contrary, to make deductions from the salary,
wage or income of the latter pursuant to the
agreement between the insurer & the govt
employee & to remit such deductions to the
insurer concerned, & collect such reasonable free
for its service.
1. Insurance premium - agreed price for assuming and carrying the risk it
is the consideration paid an insurer for undertaking to indemnify the
insured against a specified
* Only 1 premium is paid for several things the insurance contract is entire
or indivisible as to the items insured.
2. Assessment - a sum specifically levied by mutual insurance companies or
associations, upon a fixed and definite plan, to pay losses & expenses.
3. A policy issued on the assessment plan - one where the payment of the
benefit is in any manner or degree dependent upon the collection of an
assessment upon persons holding similar policies.
4.
Premium
It is levied and paid to meet anticipated losses
It is not enforceable against the insured
not a debt

0.
Payment of premium ordinarily not a debt
1. In fire, casualty and marine insurance premium payable becomes a
debt as soon as the risk attaches.
2. In suretyship as soon as the contract or bond is perfected and delivered
to the obligor

50

premiums, going as it does to the whole consideration inducing the inure to

enter into the contract.
Insured has the privilege of continuing the policy in force by making
premium payments, the insurer cannot ordinarily force the insured to make
these payments.
Valid of policy where credit extension granted to insured
When policy valid & binding notwithstanding nonpayment of premium
1. Exceptions to Sec 77
1. Life or an industrial policy, whenever the grace period provisions
applies
2. Whenever under the broker and agency agreements with duly license
intermediaries, a 90-day extension is given.
3. An acknowledgement in a policy or contract of insurance of receipt of
premium even if there is a stipulation therein that it shall not be
binding until the premium is actually paid.
4. An agreement allowing the insured to pay the premium in instalments
and partial payment has been made at the time of loss
5. Agreement to grant the insured credit extension for the payment of
the premium and loss occurs before the expiration of the credit term
6. Estoppel bars the insurer from invoking Sec 77 to avoid recovery on a
policy providing a credit term for the payment of the premiums, as
against the insured who relied in good faith on such extensions.
* Credit extension EXCEEDS 90 days from the date of the issuance of the
policy, it should be deemed only for 90 days however receipt of the insurer
of the premiums even after the expiration of the credit term but before the
loss, under the insurance valid & binding.
* ***ONCE THE POLICY HAS BEEN ISSUED, THE PRESUMPTION
LIES THAT THE PREMIUM HAS BEEN DULY PAID &
NONPAYMENT OF THE PREMIUM IS ATTRIBUTABLE TO THE
FAULT OR MISREPRESENTATION OF THE INSURER, THE
INSURED IS ENTITLE OT RECOVER IN CASE OF LOSS.

Nonpayment of subsequent premium does not affect the validity of the

contract UNLESS by express stipulation, it is provided that the policy shall
in that event be suspended or shall lapse.
* For individual life, endowment insurance & group life insurance
policyholder is entitled to a grace period of either 30 days or 1 month within
w/c the payment of any premium after the first may be made
* Industrial life insurance grace period is 4 weeks, & where premiums are
payable monthly, either 30 days or 1 month.
* Payment of the insurance premiums & loan obligations of govt employees
through salary deduction.
Excuses for nonpayment of premiums
1. Fortuitous events
Even the act of God will not prevent the forfeiture of the policy when the
premium remains unpaid.
If the insured can neglect payment at maturity & yet suffer no loss
forfeiture, premiums will not be punctually paid.
Insurer must have some efficient means of enforcing punctuality; hence
insurance contracts usually provide for the forfeiture of the policy upon
default of prompt payment of premiums.
2. Condition, conduct or default of insurer
No excuse whatever will avail to prevent a forfeiture EXCEPT only when
the nonpayment has in some way been induced by the condition, conduct or
default of the insurer.
Nonpayment is excused;
1. Insurer has become insolvent & has suspended business or has
refused w/o justification a valid tender of premiums.
2. Failure top y was due to the wrongful conduct of the insurer as when
the insurer induced the beneficiary under a policy to current it for
cancellation by falsely representing that the insurance was illegal &
void, & returning the premiums paid.
3. Insurer has in any wise waive his right to demand payment.
Insurer will not be deemed to have waived his privilege of forfeiture by
mere inaction or silence if the ground be default in the payment of

51

(a)To the whole premium if no part of his interest

in the thing insured be exposed to any of the
perils insured against;
(b) Where the insurance is made for a definite
period of time and the insured surrenders his
policy, to such portion of the premium as
corresponds with the unexpired time, at a pro rata
rate, unless a short period rate has been agreed
upon and appears on the face of the policy, after
deducting from the whole premium any claim for
loss or damage under the policy which has
previously accrued; Provided, That no holder of a
life insurance policy may avail himself of the
privileges of this paragraph without sufficient
cause as otherwise provided by law.
Sec. 81. If a peril insured against has existed, and
the insurer has been liable for any period,
however short, the insured is not entitled to
return of premiums, so far as that particular risk
is concerned.
Sec. 82. A person insured is entitled to return of
the premium when the contract is voidable, on
account of fraud or misrepresentation of the
insurer, or of his agent, or on account of facts, the
existence of which the insured was ignorant
without his fault; or when by any default of the
insured other than actual fraud, the insurer never
incurred any liability under the policy.

Sec. 79. An acknowledgment in a policy or

contract of insurance or the receipt of premium is
conclusive evidence of its payment, so far as to
make the policy binding, notwithstanding any
stipulation therein that it shall not be binding
until the premium is actually paid.
Effect of acknowledgement of receipt of premium in policy
1. Waiver of condition of prepayment
When a policy contains such written acknowledgment, it is presumed
that the insurer has waived the condition of prepayment, the
acknowledgement being declared by law to be conclusive evidence of
premium payment
2. Recovery of premium if unpaid
Conclusive presumption extends only to the question of the binding
effect of the policy.
Acknowledgement is only a prima facie evidence of the fact of such
payment.
Insure may still dispute its acknowledgement but only for the purpose of
recovering the premium due & unpaid
Sec 79 is an exception to Sec 77
Effect of acceptance of premium
Acceptance of premium within the stipulated period for payment thereof,
including the agreed period of grace, merely assures continued effectivity
of the insurance policy in accordance with its terms.
Acceptance does not stop the insurer from interposing any valid defense
under the terms of the insurance policy, where such insurer is not guilty of
any inequitable actor representation.

Sec. 80. A person insured is entitled to a return of

premium, as follows:
52

When risk has never attached

Since premiums are paid in consideration f the assumption of specified
risks by insurers, if the risk insured against does not or cannot attach or if
no part of the interest is subject to any of the specified perils, the insurer
cannot claim or retain the ore mum thus paid, in the absence of any fraud or
fault on the part of the insured.
1. Approval of application or acceptance of policy absent
Application not approved no premium can be recovered
If premium has previously been paid, it must be returned as no risk
whatsoever has ever attached.
If no risk attaches r contract results, there is no meeting of the minds
of the parties on the subject matter of the insurance.
2. Loss occurs before effective date
Insured pays in advance the annual premium, the insurance take effect
on a c retain date and the loss occurs before said date, the insured is
entitled to a return of the whole premium.
3. Insured & insurer become public enemies
Premiums paid after the declaration of war between the belligerent
states be returned to the insured.
Insured is not entitled to indemnity for loss occurring after such
declaration of war.
Where insured surrenders policy before termination
Sec 80 (b) does not apply to
1. Insurance not for a definite period
2. Short period rate has been agreed upon
3. Policy is a life insurance policy
Insurance is for a definite period + insured cancels policy by surrendering
(provided it is allowed in the policy) = Insured is entitled to recover the
premiums already paid equivalent to the UNEXPIRED term pro rata.
Insurer shall refund UNEARNED PREMIUMS in proportion to the
UNEXPIRED PERIOD.
Where short period rate has been stipulated

A person insured is not entitled to a return of

premium if the policy is annulled, rescinded or if a
claim is denied by reason of fraud.
Sec. 83. In case of an over-insurance by several
insurers other than life, the insured is entitled to
a ratable return of the premium, proportioned to
the amount by which the aggregate sum insured
in all the policies exceeds the insurable value of
the thing at risk.
When insured entitled to recover premiums
Insured has the right to recover premiums already paid or a portion thereof
in the ff cases
1. No part of the thing insured has been exposed to any of the perils
insured against.
2. Insurance is for a definite period and the insured surrenders his policy
before the termination thereof.
3. Contract is voidable because the existence of facts of w/c the insured
was ignorant without his fault
4. Insurer never incurred any liability under the policy because of the
default of the insured other than actual fraud
5. Contract is voidable & subsequently annulled because of the fraud or
misrepresentation of the insurer or his agent.
6. There is over-insurance
7. Rescission is granted due to the insurers breach of contract.
#1, 3, 4 & 5 the insured is entitled to a return of the entire premium
paid.
Insured cannot recover premiums UNLESS they have actually been paid.
Payment to insurers agent is sufficient.
Documentary stamps tax & other taxes are not covered.
A person insured is not entitled to a return of premium if the policy is
annulled, rescind or if a claim is denied by reason of fraud.

53

 voidable on account of facts, the existence of w/c the insured was

ignorant w/o his fault; by any default of the insured other than actual
fraud, the insurer never incurred liability under the policy.
3. Fraud of the insured
Insured is not entitled to a return of the premium paid if the policy is
annulled by reason of FRAUD or MISREPRESENTATION of the
insured.
Sec 82 impliedly prohibits the return of the premium where the policy
is annulled by reason if the fraud of the insured.
Where there is over-insurance
In case of over-insurance by double insurance, the insurer is not liable for
the total amount of insurance taken, his liability being limited to the
amount of the insurable interest on the property insured. He is not entitled
to the excess of the insurance over the insurable interest of the insured
The premiums to be returned where there is over-insurance by several
insurers shall be proportioned to the amount by w/c the AGGREGATE
SUM insured in all the policies exceeds the insurable value of the thing at
risk.
X insures his house w/ insurable value of 1.5M
Insurer
B. Co
C. Co
Total

Amount of Insurance
1.2M
600k
1.8M

Premium paid
24,000
12,000
36,000

* there was an over-insurance of 300k (1.5M - 1.2M) so the proportion is

300k/1.8M = 1/6 therefore 1/6 of 24k & 1/6 of 12k shall be recovered.
Where insurance is illegal
Insurance is void because it is illegal Premiums cannot be recovered
If parties are not in pari delicto the law will allow an innocent insured to
take again his premiums as when he is ignorant that the insurance is illegal.

An insurance policy may be cancelled even if before its expiration by:

(premiums have been paid for a year)
Insurer it retains only a proportion of the annual premium that the
expired time bears to the entire time
Insured the pro rata return of premium will not be followed if the
policy stipulates a short period rate w/c insured is entitled to return of
the premium in the proportion stipulated.
Right to recover premiums as to life insurance
Recovery of premiums paid is not allowed if the insured surrendered his
policy life insurance is not a divisible contract.
Insured will be entitled to receive the cash current value of his policy
after 3 full annual premiums shall have been paid.
Where risk has attached
1. Whole premium considered as earned
GR: insurance granted in the entire consideration for the premium
received; if the risk attached by reason of the contracts becoming
binding upon the insurer whole premium must be considered earn
therefore cannot be apportioned in case the risk terminates before the
end of the term for w/c the insurance was granted. (cargo ship sailed in
the middle withdrew the policy)
2. Where insurance divisible
Premium paid for any particular risk is not earned until that risk has
attached.
Where the contract is voidable
1. Fraud of the insurer of his agent
Policy is induced by the fraud or misrepresentation of the insurer or
his agent, the insured may reside the contract and demand the return
of the premiums paid by him by a timely action.
2. Other grounds

54

 One where has no insurable interest in the life insured, paid premiums in
the bona fide belief induced by the fraudulent statement of the insurer that
such insurance is valid he amy recover the premiums paid
It will not be the same if the insured was a conscious party to the wrong.

Sec. 85. An agreement not to transfer the claim of

the insured against the insurer after the loss has
happened, is void if made before the loss except
as otherwise provided in the case of life
insurance.
1. Claim - a demand for the satisfaction of a loss suffered within the purview
of an insureds policy
May be made by the party insured, the insurer with right of
subrogation, or non-party but with a right against the insured.
Effect of agreement not to transfer claim of insured after a loss
1. Before a loss has occurred, an insurance policy is not assignable
WITHOUT the consent of the insurer
2. After a loss, the insured has an absolute right to transfer or assign his
claim against the insurer.
3. A stipulation w/c attempts to prohibit such transfer of policy is void by
reason that:
1. It hinders agreement from being free transmission of property
2. Transfer involves but money claim or right of action
3. Transfer involves no question of moral hazard
because it cannot increase the insurers risk for a loss that has
already occurred.
Sec 173 prohibits the transfer of a policy of fire insurance to any person or
company who acts as an agent for or otherwise represents the issuing

Basis of right to recover premiums

Return of premiums for short interest, over-insurance and double insurance
basis is
1. Insurer could have been called to pay the whole sum instead
Insurer could at any time & under any conceivable circumstance,
have been call on to pay the whole sum on w/c he has received
premium, in such case the whole premium is earned & there shall be
no return.
2. Insurer could have been called to pay only part of the whole sum
insured Never in any event have thus been called on to pay the
whole but only a part of the amount of his subscription, he ought not
retain a larger proportion of the premium & must return the residue

Sec 84 An insurer may contract & accept

payments, in addition to regular premium, for the
purpose of paying future premiums on the policy
or to increase the benefits thereof.
Payments in addition to regular premiums
Insured is duty bound to make prompt payment of only the insurance
premiums due under the policy.
Insurer may contract with the insured whereby the insured may make and
the insurer accept payments in addition to regular premiums for the
purpose of paying future premiums on the policy or to increase the benefit
thereof.

55

 Proximate cause a natural & continuous sequence, unbroken by any new

independent cause, produces an event and w/o w/c the event would not
have occurred.
it is the EFFICIENT CAUSE
the one that SETS OTHERS IN MOTION
LOSS is ATTRIBUTED

1. Hostile Fire It occurs outside of the usual confines or beings as a

friendly fire & because
2. Friendly Fire So long as a fire burns in a place where it was intended
to burn & ought to be, it is to be regarded as merely an agent for the
accomplishment of some purpose & not as a hostile peril
Fire insurance providers indemnification protection for losses caused by a
hostile fire but NOT for damage or loss due to a friendly fire.

Sec. 87. An insurer is liable where the thing

insured is rescued from a peril insured against
that would otherwise have caused a loss, if, in the
course of such rescue, the thing is exposed to a
peril not insured against, which permanently
deprives the insured of its possession, in whole or
in part; or where a loss is caused by efforts to
rescue the thing insured from a peril insured
against.
Extension of principle of proximate cause
1. Insure is liable when:
1. The loss took place while being rescued from the evil insured against.
Insured if permanently deprived of the possession of the thing insured
by a peril not insured against, provided it is shown that said property
would have been lost by the peril insured against had there been no
attempt to rescue it.

company and declares such transfer void insofar as it ay affect other

creditors of the insured.

Sec. 86. Unless otherwise provided by the policy,

an insurer is liable for a loss of which a peril
insured against was the proximate cause,
although a peril not contemplated by the contract
may have been a remote cause of the loss; but he
is not liable for a loss which the peril insured
against was only a remote cause.
1. Loss - an injury, damage or liability sustained by the insured in
consequence of the happening of one or more of the perils against w/c the
insurer, in consideration of the premium, has undertaken to indemnify the
insured.
It includes death, property damage or destruction.
It includes income or profits & legal liability to a third party.
In reinsurance loss refers to the reinsurers share of the loss on
risks ceded either automatically or facultatively.
Liability of insurer for loss
1. Extent of loss depends whether the insured suffers a loss & the extent
of that loss; it may be TOTAL, PARTIAL or CONSTRUCTIVE TOTAL.
It can be satisfied by PAYMENT OF THE LOSS, REINSTATEMENT or
REPLACEMENT.
2. Cause of loss Insurer assume liability only for a loss proximately
caused by he perils insured against although a peril not insured against
may have been a remote cause of the loss.
Insure is still liable even if the proximate cause is not the peril insured
against if the IMMEDIATE cause is the peril insured against.
3. Burden of proof where loss has occurred Insurer has the burden of
proof to show that he not liable.

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2. Where there is gross negligence will obviously relieve the insurer from
liability

2. The loss is caused by effort to rescue the thing insured from a peril
insured against
It is the efforts to rescue the thing that caused the loss
However the insured is bound to exercise a reasonable degree of care
in removing the goods.
The necessity for removal is to be determined not by the result alone
but by the circumstance as they appear to the interest persons at the
time of the fire.

Sec. 88. Where a peril is especially excepted in a

contract of insurance, a loss, which would not
have occurred but for such peril, is thereby
excepted although the immediate cause of the
loss was a peril which was not excepted.

Insurer is not liable if the proximate cause of the loss is a peril excepted

from the policy although the immediate cause is a peril not excepted.
Ex. Explosion not excepted but caused fire

Sec. 89. An insurer is not liable for a loss caused

by the willful act or through the connivance of the
insured; but he is not exonerated by the
negligence of the insured, or of the insurance
agents or others.

Insurer is not liable for a loss caused by the intentional act of the insured or
through his connivance.

Loss is not within the contemplation of a contract of insurance one of the

requisites of w/c is that the risk should not be subject in any wise to the
control of the parties.
Loss caused by negligence of insured
1. Where there is ordinary negligence will not relieve insurer from
liability

57

1. Notice of loss more or less formal notice given the insure by the
insured or claimant under a policy of the occurrence of the loss insured
against.
2. Purpose: Aprrise the insurance company with the occurrence of the loss,
so that it may gather info & make proper investigation while the evidence
is still fresh & take such action as may be necessary to protect its interest
from fraud or imposition to prevent further loss to the property
Necessity of notice of loss
Insurer cannot be held liable to pay claim UNLESS he receives notice of
that claim.
Not given in a timely manner insurer is exonerated
Formal notice of loss is not necessary if the insurer already has actual
notice.
Time for giving notice of loss
W/o unnecessary delay
Non-life insurance, other than fire insurance Commissioner may specify
the period for the submission of the notice of loss.
Given within a stated time after the loss occurs and that failure to give the
notice within such time shall preclude recovery. It is valid provided the
time so fixed is not reasonably short.
Meaning & nature of proof of loss
1. Proof of loss - more or less formal evidence given the company by the
insured or claimant under a policy of the occurrence of the loss, the
particulars thereof and the data necessary to enable the company to
determine its liability & the amount thereof.
2. However it does not stand in court as evidence or proof.
Form of notice or proof of loss
In case of loss upon an insurance against fire, the law requires a written
notice thereof.
The law does not make any requirement as to the form in w/c notice or
proof os loss must be given in case of other non-life insurance.

Sec. 90. In case of loss upon an insurance against

fire, an insurer is exonerated, if notice thereof be
not given to him by an insured, or some person
entitled to the benefit of the insurance, without
unnecessary delay.
Sec. 91. When a preliminary proof of loss is
required by a policy, the insured is not bound to
give such proof as would be necessary in a court
of justice; but it is sufficient for him to give the
best evidence which he has in his power at the
time.
Condition before loss
There must be compliance on the part of the insured with the terms of the
policy.
If he has violated or failed to perform the conditions of the contract
insured cannot recover UNLESS it has been waived by the insurer
Condition after loss
1. Notice & proof of loss
Conditions after the loss that must be fulfilled before the insured
becomes entitled to the benefit of a fire insurance policy: written notice
of loss must be given to the insurer
Attending physician in case of death
2. Nature
Until a loss occurs, the insurers liability under his contract is altogether
contingent, but with the happening of the capital fact of loss, his liability
arises and becomes properly fixed.
3. Construction
GR: they must be construed with much less strictness than those
conditions that operate prior to the loss.
Meaning & purpose of notice of loss

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 It is duty of the dissatisfied insurer to indicate the defects on the proofs of

loss as given, so that the deficiencies may be supplied.

Retention of the defective proofs constitute a waiter of his objections

There is waiver where the insurer
1. Writes to the insured that he considers the policy null & void as the
furnishing of the notice or proof of loss would be vain & 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 & preliminary
proof
5. Makes no objection on any ground other than a formal defect in the
preliminary proof.
Proof are defective is not sufficient to impose on the insured the duty to
supply defects not pointed out.

Sec. 93. Delay in the presentation to an insurer of

notice or proof of loss is waived if caused by any
act of him, or if he omits to take objection
promptly and specifically upon that ground.
When delay in presentation of notice or proof deemed waived
Waiver of delay in the presentation of notice of proof of loss may be made
6. By an act of the insurer
7. By failure to take objection promptly and specifically upon that
ground
An insurance company is estopped from claiming that notice of the fire was
not given forthwith to the insurer by the insured as required by the terms of
the policy when it still accept payment of the premium with full knowledge
that the place was damaged by fire.

Sec. 94. If the policy requires, by way of

preliminary proof of loss, the certificate or
testimony of a person other than the insured, it is
sufficient for the insured to use reasonable
diligence to procure it, and in case of the refusal

In absence thereof of any stipulation in the policy, notice or proof may be

Orally or in Writing.
Purpose of proof of loss
Requirement of notice is intended merely to give the insurer information
upon w/c he may act promptly in protecting the property from further loss
for w/c he may be liable or to enable him to take any other immediate steps
that his interests may require
Statement of loss is a very formal requirement & intended not only for:
give the insurer information by w/c he may determine the extent of his
liability
But also: Afford him a means of detecting any fraud that may have been
practiced upon upon him
Operate as a check upon extravagant claims
Burden of proof of loss in court action
Insured has the burden of proving that he has suffered a loss & in life
insurance, death of the insured must be proven.
Once the insured makes a prima facie case in his favor, the burden is shifts
to the insurer to controvert the insureds prima facie case.
Excuses for non-compliance with conditions
Failure on the part of the insured to comply strictly with their terms will be
excused when the circumstances were such as to make strict compliance
impossible.

Sec. 92. All defects in a notice of loss, or in

preliminary proof thereof, which the insured might
remedy, and which the insurer omits to specify to
him, without unnecessary delay, as grounds of
objection, are waived.
When defects in notice or proof deemed waived

59

3. Identity of subject matter

4. Identity of interest insured
5. Identity of risk or peril insured against.
Over-Insurance
Amount of the insurance is beyond the value of the insureds insurable interest

There may be only one insurer

There is Over-insurance by double insurance.

Binding effect of stipulation against double insurance
A policy w/c contains no stipulation against additional insurance is not
invalidated by the procuring of such insurance
1. Additional insurance obtained by the insured
It is valid & reasonable, & in the absence of consent, waiver or
estoppel on the part of the insurer, a breach thereof will precent a
recovery on the policy.
In order to constitute a violation, It must be upon the SAME
SUBJECT MATTER, SAME INTEREST THEREIN, SAME RISK.
2. Additional insurance obtained by a third person
Good or bad faith of the insured usually is immaterial.
Insurance obtained by a 3rd person w/o knowledge or consent of the
insured will not affect his rights under the policy in the absence of
ratification.
Purpose of prohibition against double insurance
Purpose: to prevent over-insurance & thus avert the perpetration of fraud.
The public is interested in preventing the situation in w/c a loss would be
profitable to the insured.

of such person to give it, then to furnish

reasonable evidence to the insurer that such
refusal was not induced by any just grounds of
disbelief in the facts necessary to be certified or
testified.
Effect of failure to secure certificate or testimony of 3rd person
IF the policy requires, the certificate or testimony of a person other than the
insured, such requirement must be complied with by the insured as part of
the contract.
Insured is only required to exercise due diligence to procure it.
Insured must furnish reasonable evidence to the insurer that the persons
refusal was not induced by any just grinds of disbelief of said person in the
truth of the facts necessary to be certified or resifted but because of other
grounds.
It has been held that such requirement in the policy must be literally
construed on favour of the insured.

Sec. 95. A double insurance exists where the same

person is insured by several insurers separately in
respect to the same subject and interest.
1. Double insurance Co-insurance
2. Requisites
1. Person insured is the same
2. 2 or more insurers insuring separately

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 Principle of Contribution requires each insurer to contribute rateably to

the loss or damages considering that the several insurance cover the same
subject matter & interest against the same peril.
They apply only where there is over-insurance by double insurance that is
thee insurance is contained in several policies the total amount of w/c is in
excess of the insurable interest of the insured.
Part (e) governs the liability of the insurers among themselves where the
total insurance taken exceeds the loss. If the loss is greater than the sum
total of all the policies issued, each insurer is liable for the amount of his
policy.

Sec. 97. A contract of reinsurance is one by which

an insurer procures a third person to insure him
against loss or liability by reason of such original
insurance.
2. Contract of Reinsurance a contract whereby one party, the reinsurer,
agrees to indemnify another, the reinsured, either in whole or in part,
against loss or liability w/c the latter may sustain or incur under a separate
& original contract of insurance with a 3rd party, the original insured.
An insurance of an insurance ; treaties
3. Reinsurance of a reinsurance is Retrocession
Double Insurance
Insurer remains as the insurer of the original insured
Subject of the insurance is property
Insured is the party in interest in all the contracts

Insured has to give his consent

Sec. 96. Where the insured is overinsured by

double insurance:chanroblesvirtuallawlibrary
(a) The insured, unless the policy otherwise
provides, may claim payment from the insurers in
such order as he may select, up to the amount for
which the insurers are severally liable under their
respective contracts;
(b) Where the policy under which the insured
claims is a valued policy, the insured must give
credit as against the valuation for any sum
received by him under any other policy without
regard to the actual value of the subject matter
insured;
(c) Where the policy under which the insured
claims is an unvalued policy he must give credit,
as against the full insurable value, for any sum
received by him under any policy;
(d) Where the insured receives any sum in excess
of the valuation in the case of valued policies, or
of the insurable value in the case of unvalued
policies, he must hold such sum in trust for the
insurers, according to their right of contribution
among themselves;
(e) Each insurer is bound, as between himself and
the other insurers, to contribute ratably to the
loss in proportion to the amount for which he is
liable under his contract.
Rules for payment of claims where there is over-insurance by double
insurance
Insured can recover no more than the amount of his insurable interest
whether the insurance is contained in one policy or in several policies.

61

subsequently acquired, which are material to the

risk.

Value of reinsurance
1. From the standpoint of the INSURER
Reinsuring companies benefit from contracts of reinsurance
Retention every insurance company establishes a limit on the
maximum claim it wishes to pay out of its own resources
Distribution of risks
Greater proportion
Reducing the waste arising out of policies w/c are applied for but not
issued.
2. From the standpoint of the INSURED
Practice of reinsurance is also beneficial to the insured
1. Gives insurance companies that practice in greater financial
stability and thus make the insureds individual policy more
Automatic
reliable.
2. A large amount of insurance is needed, the insured may obtain it
w/o negotiating w/ numerous companies
3. It enables the insured to obtain protection promptly, w/o delay
Art 98 does not apply
that would be required to divide and distribute the amount among
many companies
4. All the insurance can be written under identical contract proviso,
whereas otherwise there might vary with the different companies
among whom the insurance is divided
5. Small companies are encourage to divide large exposures for
safety & enabled to accept a wide variety of applicants.
3. From the standpoint of the INSURING PUBLIC
Plainly beneficial to the public inasmuch as they promote both efficiency
& stability in the conduct of the reinsurance business.

Duty of reinsured to disclose facts

An underwriter is seeking to insure his risks, his day to disclose all material
facts is no less than the similar duty imposed on a person seeking an
original insurance, the duty in both cases is one of the strictest good faith
since the risk insured against in a contract of reinsurance is the probability
that the original insurer may be compelled to indemnify for the loss under
the policy issued by him.
A policy may be avoided where the reinsured cancels the fact that a loss
has taken place or that the property is over-insured where he has
knowledge thereof
Automatic & facultative methods of ceding reinsurance

Share or participation in risk insured

Sec. 98. Where an insurer obtains reinsurance,

except under automatic reinsurance treaties, he
must communicate all the representations of the
original insured, and also all the knowledge and
information he possesses, whether previously or
62

 Insolvency of the insurer does not in any wise affect the right of the
2.

3.

4.

5.

insure to demand payment in full under the policy of reinsurance.

Contract, separate from original insurance policy
Independent of & separate from the contract of reinsurance.
Practice is for the reinsurer to pay the insurer even before the latter has
indemnified the original insured.
Contract based on original policy
Necessarily based upon the original policy and the rights of the parties
while fixed by the terms and conditions of the policy of reinsurance are
yet greatly affected by the terms and conditions of the original policy
upon w/c the reinsurance contract is based
Reinsurance risk must be the same as that covered by the original
insurance policy.
Insurable interest requirement applicable
Doctrine of insurable interest applies to reinsurance just as it does to any
insurance contract.
Rule on subrogation applicable
A reinsurer acquires the same rights by subrogation as are acquired in
similar cases where the original insurer pays a loss.

Advantages to insurer

Avoidance of any delay in issu

Protection to reinsurer

The reinsure is relying on the

judgment of the insurer & is bo

case even though it may not a
underwriting decis

Reinsurer is protected by the req

original insurer retains its full re

assures a measure of sel

Sec. 100. The original insured has no interest in a

contract of reinsurance.

It is only after reinsurance cession is made that the obligation of the insure

Rights of original insured in contract of reinsurance

1. Insured has no concern with the contract of reinsurance & the reinsurer is
not liable to the insured either as surety or otherwise UNLESS the
contract so provides.
2. No privity of contract between the original reinsured and the reinsurer.
3. A contract of reinsurance rarely explicitly permits direct acton by the
original insured against the reinsurer.

Sec. 99. A reinsurance is presumed to be a

contract of indemnity against liability, and not
merely against damage.

Liability of reinsurer to reinsured

GR: Insurer is entitled to avail itself of every defines w/c the reinsured
might urge in an action by the person originally insured.

to pay the reinsurance premium arises.

Nature of contract of reinsurance

Primary insurers risk & not the property insured under the original policy
1. Contract, one of indemnity against liability
No means necessary that the insurer shall first have paid a loss accruing,
as a condition precedent to his demanding payment of the reinsurer.

63

2. Contract of reinsurance with stipulation in favor of original insured

Reinsure who has promised to pay the losses accruing under the original
policy will be liable to a suit by the original insured under the contract of
reinsurance.
Remedy of the insured is both against the insure and the reinsurer.
3. Contract of reinsurance amounting to novation of original contract
The original insurer may also maintain an action directly against the
reinsurer in those cases in w/c the circumstances attending the making of
the contract of reinsurance amount to a novation of the original contract
& hence operate to discharge that contract and the original insurer form
all obligations thereunder.
The original insurer will be released only when the insured agrees with
the insurer and reinsure to the novation
Such an agreement is ordinarily carried into effect by a current of the
original policy and issuance of a new one including the same terms and
conditions reinsurer
Such a transaction is not one of technical reinsurance reinsurer is
but substituted for the original insurer hence becomes the immediate
insurer of the subject of the original policy.

Reinsurer is not liable to the reinsured for a loss under the original policy if
the latter is not liable to the original insured or for an amount more than the
sum actually paid to the thereon.
To pay as may be paid thereon does not preclude the reinsurer from
insisting upon proper proof that a loss within the terms of the original
policy has taken place
It does not enable the reinsured to recover from his reinsurer to an extent
beyond the subscription of the latter under the contract of reinsurance.
Liability of reinsurer to original insured
Original insured may stand in any of 3 relations towards the reinsurer in
accordance with the terms of the particular contract of reinsurance.
1. Contract of reinsurance sole between insurer & reinsurer
Original insured has absolutely no interest in the contract & is a total
stranger to it
UNLESS the reinsurance contract contains a stipulation assigning the
right of the insurer in favour of the insured, the latter, not being a privy
to the contract, has no cause of action against the reinsurer but only
against the insurer.

64