Insurance Transcriptions (Pre-Finals)

INSURANCE LAW DISCUSSION TRANSCRIPTIONS OF ATTY.
LAROBIS FINALS COMPILATION
August 14, 2010

F. INSURANCE POLICY
I. Definition
Sec. 49. The written instrument in which a contract of insurance is set forth, is called a policy of
insurance.
-
What is a policy?
- Evidence of the contract of insurance , it is a written instrument which contains the terms
and stipulations agreed between the insured and the insurer. It controls the contract of
insurance, it also serves as what? Measure of insurers liability. Under section 49 the following
needs to be in writing dba because it says a written instrument. Modern day insurance are in
writing, the policy is in writing; but the contract of insurance could either be formal or informal.
Formal, if you are issued a written policy gyud. It could be informal like your application form the
insurer approve the insurance, that could also be or it could be a cover note or a binding slip.
Ok?
II. Form of Insurance Policy; Riders, etc) / Contents (Sections 50-51)
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.
Group insurance and group annuity policies, however, may be typewritten and need not be in
printed form.
- Must the form of the policy be approved? Does it require approval from the insurance
commissioner?
o
YES, because the business of insurance is imbued with public interest. So thats why
the law requires that the policy should be in a form previously approved by the insurance
commissioner. To safeguard also the interest of the public, otherwise basig the insurer might
provides stipulation which are not beneficial or contrary to law morals, good customs, public
policy; or disadvantageous to the insured.
o What if the insurer issued a policy and the form is not previously approved by the insurance
commissioner? What is the effect?
o
For one, the insurer cannot raise his own failure to have the form previously approve
as a defense to defeat the recovery of the insured, so although the form was not previously
approved by the insurance commissioner it does not invalidate the policy. The insured can
still recover.
o
But what is the penalty for the insurer? Is he subject to penalty?

Yes, he would be penalized. In fact he is liable for prosecution, for having issued the
policy which was not previously approved. But as to the effect of the policy it does not
invalidate the contract of insurance, the insured can still enforce the policy.
o
o What about language of the policy, Is there a duty on the part of the insurer to explain to the
insured?
o
Jurisprudence states that if the language is clear, plain, and unambiguous there is no
affirmative duty on the part of the insurer to explain the policy.
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INSURANCE LAW DISCUSSION TRANSCRIPTIONS OF ATTY. LAROBIS FINALS COMPILATION
o But in case there is ambiguity, what is the effect? Can the insured now say to the insurer
that you did not explain to me the policy?
o
You have the case of Tang vs CA
Facts:
In this case the insured was a Chinese and at the same time illiterate. He
applied for an insurance policy and in the application form there was a question on
WON he is suffering from any illness and in his answer she stated there that she was
healthy. Later on he died of lung cancer and it was discovered that he concealed
some material facts concerning his health. The insurer now refused to pay on the
ground of concealment or misrepresentation, but the beneficiary alleged that since
the insured was illiterate and was Chinese he doesnt know how to speak or read the
English language. So therefore, she could not be guilt of concealment and also the
beneficiary also alleged that the insurer did not prove that he explained to the
insured the policy. (not sure if tang is a boy or a girl ^_^)
Issue: WON the insurer is liable?
Is there a duty, must the insurer prove to the court that he explained the
policy?
The court said applying the provisions of the civil code which states that if the
other party of the contract is unable to read or if the language is not understood by
him and mistake or fraud is alleged the person who seeks to enforce the contract has
the burden of proof. To prove that the terms thereof has been fully explained.
So in that case who was the party interested in enforcing the contract? Was it
the insured or the insurer?
It was the insured.
What about on the part of the insured? Is there a duty to read the policy?
o
There are two views:
First view was that the acceptance of the policy without reading it is not
necessarily negligence per se, the reason given is that the contract of insurance is a
contract of adhesion. Even if iya panang gi basa ka balik2x its not an insurance that
he would have understood it or comprehend what is writtend in the policy,
considering that the language used indrafting the policy is technical terms. So even if
wla niya gi basa its not negligence per se.
There was another view which says that the fact that you did not read it is
already negligence, but base on recent jurisprudence it tend to favour more on
the first view for the reason that the contract of insurance is a contract of
adhesion. Ok?
SEC. 50, the policy shall be in printed form but it may contain blank spaces, so in the blank
spaces pwde you can fill in the name, the name of the insured, the value of the policy, etc. It
does not affect the validity of the contract of insurance.
o
SEC 50, mentions about a rider, a clause, a warranty or an indorsement, what are
these animal?
o
Section 50 mentions about a rider, a clause, a warranty these are stipulations not
found in the policy but it is written on a separate paper, but this separate paper is attach to
the policy.
o
What is the purpose of this rider?

o
Like for example a rider in particular like if you want some modification or
amendment in the policy so instead of revising the entire policy you just add a rider. Like for
example in your original policy the coverage exclude damage arising from earthquake, but
the insured would like to have that risk included, ok, so ni apply siya for the amendment for
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modification. So instead of revising the entire policy they would just add a rider. Same as
clause a warranty or indorsement, this tends to modify what is written in the policy.
o
Now, in order for this rider this separate paper to have a binding effect para sya
maging valid while attach to the policy. This rider, a descriptive name or title to this rider
must be mentioned in the policy itself in order for this rider to be binding. Otherwise if there
is no description of that rider then this would no be binding, unsa raman gihapon mu govern
ang? Policy... although it would not affect the other provisions and dili lang ma binding ang
what is indicated in the rider.
o
Must the party sign in the rider?
Unless applied for by the owner or by the insured after the original policy shall
be countersigned by the insured which countersignature shall be taken as its
agreement. Now, it does not need his signature if the rider was issued
contemporaneous with the issuance of the policy. Dungan siyag issue. Or even it was
issued after the original policy was issued if the rider was applied for by the insured
or the owner.
When countersignature needed:
If it is not issued contemporaneous with the policy and it is not applied for by
the owner or the insured of the policy
No countersignature needed:
Even if it was applied after the policy but it was the owner or insured himself
who applied for the rider. Or was issued together with the policy.
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.
-
What are the informations contained in the policy? Sec. 51
What if there is a misspelling in the name does it affect?

o
It is not material, in the absent of fraud, incorrect designation misspelling of the
name shall not invalidate the policy. It does not affect your right to recover, unless of course
its entirely different person.
Amount of the insurance

But the amount reflected in the policy, the face value of the policy, it does not
necessarily mean that thats the amount for which the insurer would be liable. That only
serve as the ceiling or maximum limit of the insurance liability.
o
Premium
o
There are factors in fixing the premium

In life what are the factors in fixing the premium?
Age
Gender
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Occupation
Previous medical history

Property (factors)
Type of construction material used
Condition of the facility
Location
Use of the building
Moral hazard
Interest if not the absolute owner
III. Cover Notes (Section 52)

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 case of extension in
compliance with such rules and regulations.
- Cover notes are intended to provide temporary and immediate protection pending the
issuance of the formal policy. Like for example shipper ka, youre the owner of the goods gusto
nagyud nimong e ship, dli na pwde ka huwat og ugma; you intend to have protection for that
shipment. So pwde ka mu apply for an insurance coverage but in the meantime the insurer will
just issue you a cover note pending the issuance of the formal policy.
-
How come the formal policy cannot be issued?

o
Because maybe there are certain information that are not yet available.
o But take note you have to distinguish because cover notes could either be a preliminary
contract of present insurance or a preliminary contract of future insurance.
o
The preliminary contract of present insurance thats the kind that would already
provide immediate protection, so if the loss already happened but who havent been issued
a policy you are covered already. But ang katong isa, prelimnary contract of future
insurance, even if you have been issued a cover note or a binding slip it does not mean that
you are already covered, until the formal policy is issued.
o
How would you know if it is a preliminary contract of present insurance or a
preliminary contract of future insurance?
It depends on what is written on the cover slip or cover note.
Like in the case, MR. A applied for a coverage and he was issued a cover slip
or a cover note upon payment of premium the cover slip specifically states that it
was issued as an acknowledgement only for a receipt of premium that the insurance
is not yet effective until the application is approved by the insurer or until the formal
policy is issued. During the pendency of the policy ang iyang daughter died, ang
iyang daughter was the subject of the insurance. So the issued now is WON hes
entitled to recover. And the court said NO, because the nature of the cover note is
merely a preliminary contract of future insurance. ok?
If silent it means that it offers an immediate protection.

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Cover notes are usually issued for 60 days. Within 60 days dapat the insurer should already
issue you a formal policy but 60 days is subject to extension provided it is approved by the
insurance commissioner.
IV. Application of Insurance Proceeds (Section 53)
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.
-
We have this case of Bonifacio brothers vs Mora

o
Facts: Mora applied for coverage for accidental damage, theft on his car. He insured
actually his car. The lost was made payable actually to the mortgagee.ok? Now, after he had
the car repaired kay na daot man. It was repaired by bonifacio and the materials were
supplied by ayala. Now bonifacio and ayala filed the claim against the insurer to recover the
proceeds.
o
Issue: WON bonifacio and ayala are entitled to the proceeds of the insurance?
Held: No, under sec. 53 the proceed of the insurance shall accrue exclusively to the
interest of the person in whose name and for whose benefit it was made. For whose benefit
man ang proceeds? Mortagee. The contract of insurance is separate or independent from the
contract of repair, labor, supply and materials, that is different, they have no right to go after
the proceeds. K? The only exception where third party can go after the proceeds of the
insurance is if there is a stipulation in their favour, or if the policy is an indemnity against
third person.
o
In another case:
o
Mr. A insured ang iyang fleet of taxi cab. He insured it with xyz company. The policy
provides that the insurer shall indemnify the driver who is driving the motor vehicle of the
insured and in the event of the death of the driver. The insured shall indemnify the
representatives or the heirs of the driver. K? So one of the drivers of Mr.A sa iayng tax cab na
si Mr.B met an accident and he died. The heirs now or the representative of Mr.B sought
recovery from xyz.
o
Are they entitled to recover under the policy?
Yes, because the policy itself expressly provide that the insurer is liable to the
insured or to his driver or in the event of death of his driver to his representatives. K?
There is a stipulation in favour of third person.
Compusory TPL is this a stipulation in favour of third person? Can a third person, example
lang naa kay na ligsan. Can the heirs of the person na imong na ligsan go after you insurer?
o
Yes because that is an example of indemnity against third person. But take note that
is different from indemnity against actual loss or damage. In indemnity against actual loss or
damage the insurer binds himself to pay lang the insured or to reimburse the insured for
whatever the insured would be liable to third person.
o
So if it is only an indemnity for actual loss or damage the third person cannot go after
the insurer. The remedy is to go after the insured. But if its indemnity against third party
liability, the third person can go directly against the insurer.
Take note that the liability of the insurer is not solidary to that of the insured. Like for
example in torts nu, nka ligis. K?
o
Like youre the insured and you obtain a policy, motor vehicle policy, the policy
provides for a TPL. Assuming you were adjudged to pay 100,000 but your policy is only for
80,000 can the third person or victim go after your insurer to recover the 80,000?
o
Yes, but for how much will the insurer be liable? 100k or 80k? Only 80k,
because the liability of the insurer is only to the extent of the policy or coverage in
the insurance contract because his liability is not solidary to that of the insured.
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The liability of the insured is based on torts. But the liability of the insurer is
based on the contract of insurance. But if it is only an indemnity actual loss or
damage, kato imong victim cannot go after the insurer, only directly to the insured.
V. Section 54- 59
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.
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.
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.
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.
Sec. 59. A policy is either open, valued or running.
- SEC. 54 Talks about an insurance obtained by the agent but in behalf of the principal. The
real party in interest is actually the principal, so in this case the principal can recover the
proceeds because he is the real party in interest; provided that the interest of the principal is
specifically stated in the policy. If it is only in the name of the agent, then only the agent can
recover.
Now, can the agent himself insure the property belonging to the principal in his own
interest? YES
-
- Sec. 55 talks about an insurance obtained by a co-owner or a partner. Unless it is stated in

the policy that the insurance is for the interest of these other co-owners or co-partners, it is
understood to apply only to his own interest.
- Sec. 56 talks about the description of the insured in the policy. Now, if the description is too
general as it would mean to include a class of person like for example: the insured is described
as the heirs, or co-owners, or parang collective noun dba, class of 2009, etc. So for you to be
entitled to recover you must prove that you are part of that class mentioned in that policy.
-
Sec. 57 weve already discussed this when we discuss section 20.

o
Remember what happens if you transfer interest in the insurance policy what
happens to the insurance? It is suspended until the interest in the policy (basin THING iya
pasabot) and the interest in the insurance is vested in the same person. By way of
exception we have sec. 57, the policy is not suspended if the policy itself is so framed that it
will inure to the benefit of whoever during the continuance of the risk may be the owner of
the interest insured. Para siyang payable to bearer. Whoever is the bearer of the property
the interest in the policy likewise follows. So in that case the policy is not suspended.
Sec. 58 again is just a reiteration of principle under section 20.
Section 59, Types of policy

o
Open;
Valued; and
Running
VI. Open Policy (Section 60)

Sec. 60. An open policy is one in which the value of the thing insured is not agreed upon, but is left
to be ascertained in case of loss.
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- Open policy the value of the thing insured is not agreed upon, but it is only to be
determined at the time of loss.
- So do not be confused if in the policy has a face value. It is still considered an open policy.
Dba, lets say the face value of the policy is 5m, but this is an open policy. Open policy in the
sense that the parties did not agree as to the valuation of the property, but e determine lang
sya at the time of loss. The purpose of the face value will only serve as the cap or limit of the
insurers liability. So if at the time of the loss the insurer was able to submit or show evidence
that the value of the property, the house is only 4m. Then the insurer will only be liable for 4m.
But if at the time of the loss it was ascertain that the value diay of the property was 6m. How
much will the insurer be liable? Only for 5m.
VII. Valued Policy (Section 61)
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.
- Valued policy it is called valued because the parties agreed already as to the valuation of
the property and in absence of fraud that valuation is binding on the parties. So in a valued
policy duha ang amounts, we have the face value and the valuation or the agreed value.
- Example: If they agreed that the value of the house is 4m. If at the time of the loss it was
ascertain that the value of the property was only 3m, in a valued policy, for how much will the
insurer be liable? 4m, because the agreed valuation is binding between the parties. If it turned
out that the value of the property s 6m diay. For how much will the insurer be liable? 4m,
because the agreed valuation is binding between the parties.
VIII. Running Policy (Section 62)
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.
- Running policy - applies to retail store, supermarket dba, department store, because the
nature of the property insured is frequent ang iyang change sa iyang location or change in the
value like in a department store. It is difficult to obtain a valued policy gyud because if you
obtain a valued policy there is a tendency that in one particular month you will be over insured
or under insured. So what is application in that case is the running policy.
September 4, 2010
IX. Limitation to Commence Action (Section 63)
Section 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.
-
Okay lets continue with policy. I believe we are to continue on Sec. 63.
- Section 63 talks about the period within which the insured must commence an action. This is
the period within which the insured must file a complaint in court against the insurer.
-
Commencing an action here means what? It is the filing of a case in court.

o
But now it also includes filing a case before the insurance commissioner, because the
insurance commissioner is empowered to adjudicate insurance cases. And even a case filed
with POEA and DOLE, incase of insurance covering OFWS or workers.
o Commencement of action includes filing of case with (provided it relates to insurance

contract):
a. Court
b. Insurance Commissioner
c. POEA
d. DOLE
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- So under section 63, there is a period. It is valid for the insurer and insured to agree in the
insurance contract a certain period within which the insured must commence his action. Naay
time limit kanus.a siya dapat mo file ug case with court. And if that period agreed is valid, that
period would prevail over the general limitations provided under the Civil Code. Dba under the
civil code, unsay period of limitation for you to commence an action? Written contract, 10 years.
Oral contract, 6(sex) years.
- So if they agree in a different period that would be binding. So long as that period is NOT
LESS THAN ONE YEAR.
From when? When do you count one year?
From the time the cause of action accrues.
When does that cause of action accrue on the part of the insured?
From the time your claim against the insurer was REJECTED by the insurer. From the
time of the DENIAL of the claim. Because until your claim is denied, there is no reason for
you to go to court and sue the insurer.
- This period is very important for the prompt settlement of the insurance claim. Dapat dili
dugaydugayon, dapat the insured should comply with the period provided in the contract for
him to be entitled to recovery. If he does not comply with the proper period, then he could no
longer recover. The reason is for prompt or proper settlement of claims while the evidence or
circumstances surrounding the loss is still available.
- So it could be any period. They could agree for 5, 3, or 2 yrs, but in no case shall it be less
than one year from the time the cause of action accrues. So timan-i when does the cause of
action accrue, that is from the date of rejection of the claim.
Now what if there is no period agreed upon, the insurance contract does not provide for a period
kanus-a pwede, until when can the insured file a claim? What is the period then?
- That is 10 years, since the insurance contract is a written contract. Or if the period agreed
upon is not valid, then it is still 10 years.
- It should be date of receipt of denial, and not on the date of actual denial, because how
would you know if your claim was denied.
CASE: Eagle Star Ins. Vs Chia Yu
Atkins
(Shipper)
GOODS
S.S. Silverlight
(Carrier)
Yu
(Consignee
3/4/46 Good
Insured
Unloaded
With a stipulation: 1 year from happening of loss
with
4/22/48 Claim
---NOT ALLOWED
rejected
Eaglestan
- This
the inshipment of underwear. The shipper was Atkins, the consignee was Chia Yu. The
11/4/48
Case
Court
shipment was insured against all risks with Eagle Star Insurance Co., and it was later on
assigned to the consignee. With the 14 bales of underwear, only 10 were returned, and 3 of
these bales were damages. So Chia Yu claimed for indemnity for the missing and damaged
bales of underwear. However the claim was declined first by the carrier and afterwards by the
insurer. So Chia Yu brought the present action against both the Insurer and Carrier.
When did Yu file a case in court against the Carrier?
bales.
Only on November 16, 1948 or two years after the delivery of the damaged/missing
When did the goods arrive or when was it unloaded?

The goods were unloaded or arrived on March 4, 1946.
When was the claim of the consignee rejected?
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He filed a claim against the insurer first on April 2, 1948, and it was rejected on
4/22/48. So this is where you count the period, because this is the time when your
cause of action accrues.
- And the commencement of the action was on 11/4/48. And according to the insurer Eagle
Star the cause of action has already prescribed because there is a stipulation in the policy that
the one year prescriptive period should be counted from the happening of the loss. And at the
same time it provides that no action can be filed in court unless the insured had complied with
all the terms and conditions of the policy.
o
Is that a valid stipulation? One year from the happening of loss and after you have complied
with all the terms and conditions of the policy. Is this a valid stipulation? Why is this contrary
from the provision of the law?
This is not valid because the one year period should be counted from the time the
cause of action accrues, and that is the time the claim was rejected.
- If we were to count the period from the happening of the loss, it would in effect shorten the
period to less than one year. At the time of the happening of the loss you do not yet have a
cause of action and no reason for you to file a case in court because you have not yet been
denied by the insurer. Wala pa ka kahibaw whether your claim will be rejected. This stipulation is
not valid because it is against section 63 and in effect it reduces the period of one year. And by
that time you are not yet certain whether your time will be rejected, and also your cause of
action does not yet accrue. Dili man pwede upon happening of the loss mu diritsu dayon ka file
ug case in court, you will only file a case when your claim is denied.
- The period should not be less than one year from the date your cause of action accrues. And
since in this case the period stipulation is not valid, you will have ten years. So in this case, the
filing of the case is still within the ten year period. It was therefore still filed in time.
CASE: Ang vs Fulton Fire Insurance Co.
12/30/1954 Claim was filed and forwarded to
the adjuster
4/6/56 Claim was denied
4/19/56 Received Denial of Claim
5/5/58 Case in Court
Considered
NOT FILED on time because more than 2 years from denial of claim (consider date
received denial of claim).
- This case involves the spouses Paolo and Sally Ang against Fulton Fire. Fulton Insurance
issued an insurance policy in covering the department store which Ang owned. In that Dept
store there are general merchandise which were stocked. The store which stored the goods was
destroyed by fire. The spouses filed a claim with the adjuster of the insurance company. And on
April 6, 1956 the insurance company of Fulton Fire Insurance wrote to the spouses that their
claim was denied, and it was received by them on April 19, 1956. And on May 5, 1958 the
spouses instituted the present action.
-
Issue: Whether or not the case was filed within the prescriptive period.
- The claim was denied on April 6, 1956. The policy provided for the claim to be filed within 12
months after denial after denial or rejection. Is this valid?
- Yes. But since the cause of action accrued on April 6, 1958 and Ang filed the case only on
May 5, 1958 it was already beyond the stipulated period. But there was a contention here by
Ang that he filed a claim on 5/11/56 against the agent of the insurer. But the SC said that such
filing against the agent does not have any effect except notifying the agent of the claim. What is
required by commencement of action is filing a case in court, and filing a claim with the agent is
not equivalent to filing a case in court, not a commencement of action.
Sun Insurance Office Lt. vs CA
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o
The issue here is that after the denial of claim the insured filed a reconsideration with
the insurer, and it was still denied. So when do we count the period, from first denial or date
of reconsideration?
o
SC: The court said that it should be counted from the first denial otherwise it would
be used as a scheme by the insured to waste time. So it should be counted from the first
denial.
o
The next case calls for the application of COGSA. Carriage of Goods by the Sea Act.
What is the application of COGSA in relation to insurance?
Under the provisions of COGSA, the carrier and the ship shall be discharged
from liability for loss or damage to the goods if no suit/case is filed within one year
from delivery of goods or when the goods should have been delivered. COGSA
involves a case filed by the shipper against the carrier. Under COGSA, the liability of
the carrier towards the shipper or even to the insured shall be discharged if no claim
is filed within one year. The COGSA applies in relation to his liability to the shipper or
to the consignee or even to the insurer.
Shipper
GOODS
Carrier / Ship
Consignee
Insurer, in exercising the right of subrogation is bound

by COGSA
Insurer
o
Example: If the goods were damaged and the shipper filed a claim against the insurer
and the insurer paid the shipper, is there right of subrogation on the part of the insurer to go
after the carrier? Yes.
But in order for the insurer to exercise that right of subrogation, the insurer is
also bound by COGSA. (class:ahhhhhhh)
o
So after paying the shipper, the insurer exercises the right of subrogation. If the claim
is not filed within one year the carrier has the right to refuse payment to the insurer, in
effect pwede ma defeat ang right of subrogation sa insurer. Because when the insurer seeks
reimbursement, mo exercise sa iyang right to subrogation, it is not now based on the
contract of insurance but based on contract of carriage. Because the relationship between
shipper and carrier is contract of carriage. The insurer in exercising the right of subrogation,
he merely steps into the shoes of the shipper. So as far as the carrier is concerned, it is still
based on a contract of carriage.
Mayer Steel Pipe Corp vs CA
Mayer
GOODS
Filed a claim
2 years after
delivery of
goods
Mayer and South

Sea: Based on
Contract of
Insurance
Carrier /
Ship
Mayer and Carrier: Based on the Contract of

Carriage
South Sea liable!
South
Sea
(Insurer)
Take Note: Could have actually refused

payment by saying that Mayers act defeats his
right of subrogation
o
In this case Mayer the shipper, shipped the goods and was insured by South
Sea(insurer). When the goods arrived a portion of the goods were damaged. Mayer filed a
claim against the insurer, but it was brought two years after delivery of goods. Mayer the
shipper and carrier and South Sea was the insurer. South Sea refused to pay by saying that
the liability was already discharged because under COGSA the claim should have been filed
within one year from the delivery of the goods. WON insurer liable.
10 | P a g e
o
SC: The insurer is liable. The provision on COGSA applies only within a relationship
between shipper and carrier. The liability of South Sea as far as Mayer is considered is
concerned is based on a contract of Insurance.
Filipino Merchants Insurance Co vs CA
Shipper
GOODS
Carrier
Filed a 3rd Party

Complaint
Insurer
3rd Party Complaint against carrier

was filed more than 1 year from the
delivery of goods
Insurer cannot file a 3rd party complaint!

Cannot file anymore because it has already prescribed
based on COGSA.
We have a shipper and a carrier and the goods and the insurer. When the goods were
damaged the shipper filed a claim against the insurer, the insurer filed a third party
complaint against the carrier. The 3 rd party complaint was filed more than one year from
delivery of goods. The insurer can file a 3 rd party complaint because if he is made liable to
the insurer he can exercise right of subrogation. WON 3 rd party complaint filed by insurer
against carrier has already prescribed.
o
SC: The insurer can no longer file a case against the carrier. It has already prescribed.
Because the basis of claim by insurer is contract of Carriage and covered by the COGSA
provision which requires the filing of claim within one year from date of delivery of goods.
The filing of 3rd party complaint was beyond the one year period from delivery of goods.
o
o Compared with the prior case it was a case filed by the Shipper against the Insurance Co,
and the basis is contract of insurance, so we do not apply COGSA.
o But there is an issue actually here, if I was South Sea the insurer, I can refuse payment by
saying that the act of Mayer defeats his right of subrogation. But in this case SC said that Mayer
can still go after South Sea because of the failure of South Sea to raise the defense of the act of
Mayer defeating the right of South Sea to subrogation.
o So the act of the insured defeating the right of the insurer to subrogation will allow the
insurer to refuse payment to the insured. Note that the right to subrogation arises only after the
payment by insurer.
X. Cancellation of Policy ( Section 64-65)
Section 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.
Section 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.
11 | P a g e
- Section 64 talks about cancellation of insurance other than life. Applies only to property
insurance. So if the insurer would want to cancel an insurance contract involving property he
must comply with the requirements in order for it to be valid:
i.
prior notice of cancellation
ii.
based on the occurrence of the following grounds

a. nonpayment of subsequent premium(not initial premium, because if initial p is not paid,
not insurance contract)
b. conviction of a crime arising out of acts increasing the hazard insured against (ex. If the
insured was subsequently convicted for arson, the insurer now has basis for cancelling
the policy)
c. discovery of fraud or material misrepresentation
d. discovery of willful/reckless acts or omission increasing the hazard
e. physical changes in the property insured.
f.
determination by the Commissioner that the continuation of policy would violate the
provisions of Insurance code.
iii.
the notice of cancellation must be in writing
iv.
must state the grounds for cancellation

-
Relate this to Section 65.
What is the purpose of prior notice?

The purpose is to give opportunity to the insured to look for other insurance. Arbitrary cancellation
is not allowed, there should be prior notice.
Saura Import & Export Co vs Phil InterNational Surety Co
o
The notice of cancellation was given to the mortgagee and not mortgagor.
SC: notice of cancellation is not valid.
Another case wherein the notice of cancellation was simply delivered thru mail but it was not
received by insured. Which would prevail?
-
o
Presumption of regularity on due performance of employees in post office, if the
letter was duly mailed there is a presumption that nahatod jd na siya, na received jd na siya.
o
Or the contention of the insured that he did not received notice.
SC: it is the insureds contention that prevails.
XI. Renewal of Policy (Section 66)

Sec. 66. In case of insurance other than life, unless the insurer at least forty-five days in 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.
Section 66: Renewal.
- If the insurer does not want to renew the policy, the insurer must give notice of his intention
not to renew the policy or to condition the renewal within 45 days before the expiry or end of
12 | P a g e
the policy. If the insurer does not give that notice, the presumption is that the policy is
automatically renewed.
-
1 YEAR
45
days
45
days
45
days
45
days
45
days
- So if the policy is 5 years and I do not want to renew it, I must give notice of non renewal
within 45 days before the anniversary date. If an insurance contract is more than one year, it is
considered as if it is written for one year. So if you do not want to proceed in the third year you
give notice of nonrenewal 45 days before the anniversary date of the third year.
- If the insurer fails to give that notice of non renewal he must renew the policy whether he
likes it or not. He cannot raise the defense that his contract has expired because it is considered
as automatically renewed.
September 11, 2010
G. Warranty
-
What is a warranty?
o
A warranty is a statement or promise by the insured set forth in the policy itself or
incorporated in it by proper reference, the untruth or nonfulfillment of which in any respect
and without reference to whether the insurer was in fact prejudiced by such untruth or
nonfulfillment, renders the policy voidable by the insurer.
o
These are statements concerning the insured or the risks, actually its similar to
representation. The only difference is that it becomes a warranty if it is written in the policy
or if it is written in another instrument it is incorporated in the policy.
What are the kinds of warranty?

o
Express, Implied, Affirmative, Promissory
Sec. 67. A warranty is either express or implied.

-
Express warranty
is an agreement contained in the policy or 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 to the same subjects have been or shall be done
to be considered as an express warranty it must be a statement of fact, as
defined under section 71
Implied warranty
Those warranties which are not stated on the policy itself but based on the
fact that you entered into a contract of insurance itself, it is admitted that that
warranty exists, it is implied that such warranties are included, it is inherent in the
contract of insurance
Implied warranty applies only to marine insurance, it is only in marine

insurance wherein the law provides for an implied warranty for the seaworthiness of a
vessel. So even if it is not mentioned the moment that you get a marine insurance
contract, there is that implied warranty. Just like in a contract of sale, there is an
implied warranty, warranty against hidden defects or against eviction, even if it is not
stipulated by the parties, it is inherent in every contract of sale
o
Express warranties are clearly written on the policies as agreed by the parties,
whereas an implied warranty is not agreed by the parties but is presumed to exist.
Affirmative warranty
o
a statement which at the time the policy took effect, it already exists as a fact
13 | P a g e
o
same as affirmative representation, if it is true at the time it is made, it is a valid
representation
ex. When you warrant that the building is being used as a residence by the
insured.
if it is true at the time it is made, then it is a valid affirmative warranty
What if subsequently the use is no longer residential, but commercial, is there

a violation of the affirmative warranty?
No, so long as it is true and exists at the time it is made, it is a valid
affirmative warranty. It is not a continuing warranty that it will remain or be used
for residential purpose, because it is only an affirmative warranty. The same if you
make an affirmative warranty that the building has a fire hydrant, it is not a
continuing warranty that it will be kept in good working condition. Or if you make
a warranty that there are security guards assigned on the premises at night. It is
not a continuing guarantee that there will be security guards assigned on the
premises. In case of doubt, a warranty is presumed only to be an affirmative
warranty.
Promissory warranty
o
refers to the statement where the insured would warrant to exist in the future or
subsequent to the effectivity of the policy
o
facts or conditions to exist or things to be done or not to be done, after the effectivity
of the policy
Sec. 68. A warranty may relate to the past, the present, the future, or to any or all of these.
When section 68 mentions a warranty may relate to a past or present, that could refer to what kind
of warranty?
It refers to affirmative warranty.
If it relates to the future, it is a promissory warranty.
Ex.
Past: I was not confined in any hospital for any serious ailment
Present: That you are not confined in any hospital or suffering from any serious disease.
Sec. 69. No particular form of words is necessary to create a warranty.
Form - Is there a particular word to be used to constitute a warranty?
It is not necessary that you use the word warranty. Nor does it mean that fact of the use of
the word warranty would already constitute it a warranty. It depends on the intention of the
parties.
Warranties vs Representation
a) Warranties are part of the contract of insurance/policy, while representations are
mere collateral inducements to enter into the contract of insurance.
b) Warranties are always written on the policy or attached therein, while representations
can be oral or can be attached.
Like in the application form. If your statement remains in the application form
it remains as a representation, but the moment it is incorporated in the policy,
it then becomes a warranty.
c) Warranties are presumed material, while in representation there is no presumption of
materiality.
14 | P a g e
d) In warranties there must be strict compliance while in representation, substantial

compliance is enough.
e) In warranties, the falsity of such is a breach of contract thus you can rescind the
contract and fraud is not needed. While in representation the basis to rescind the
contract is fraud.
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.
Where must the express warranty be contained? Can it be contained in a separate instrument, the
rider?
Gen. Rule: The warranty must be written in the policy itself.
Exception: Even if it is not written in the policy itself, if written in another
instrument/separate paper, it is still valid so long as the separate paper/document is signed
by the insurer and it must be stated in the policy that that particular separate document is
incorporated in the contract.
In fact section 70 makes a reference to section 51, particularly on provisions of rider.
What is a rider?
o
A rider is any document/separate instrument wherein there are stipulations in
addition to the ones found in the original policy. Has the same effect and validity as if part of
the policy.
o
But in order for the rider to have binding effects, the following must be present:
a) Descriptive title of the rider must be mentioned in the policy
b) If it is not made or applied for by the insured, it must be signed by the insured if it is
issued after the issuance of the original policy
- If the warranty is contained in another instrument or contained in a rider, for that warranty
to have a binding effect it must be incorporated in the policy and there must be signature.
Otherwise it will not be binding.
Sec. 71. A statement in a policy, of a matter relating to the person or thing insured, or to the risk, as
a fact, is an express warranty thereof.
- Sec. 71, this is just a definition of what is an express warranty. It must be a statement of
fact. If it is just a statement of opinion, like if you add the words to the best of my knowledge
and belief, etc., it would not be considered a warranty but merely a representation. But even if
its just a representation pwede siya ma construe as a statement of opinion, the falsity of which
will not make the insured liable, unless you made that statement with fraudulent intent.
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.
- Sec. 72 talks about, or defines what is a promissory warranty. Something to be done in the
future or after the effectivity of the policy.
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.
Gen. Rule: The violation of a (promissory) warranty avoids a contract, or if you did not fulfill
a promissory warranty entitles the insurer to rescind the contract
-
Exceptions: (insurer not entitled to rescind the contract)

1. When the loss happened before the express time for the fulfillment of your
warranty to be performed
o
15 | P a g e
Ex. You are required to install fire extinguishers within 5 days from the
effectivity of the policy, if 3 days after the policy took effect, a loss occurred and you
have not yet installed fire extinguishers, are you still entitled to recover? Yes,
because the loss happened before the expiration of the period within which to fulfill
the promissory warranty. If the loss happened after, then we apply the general rule
o
2. When the performance of the warranty becomes unlawful
Ex. The policy contains an express warranty that the insured house which at
the time was rented to tenants shall cease to be rented and shall be used as private
dwelling for the family of the insured within three months from the date of the policy.
Subsequently, a law was passed prohibiting the ejectment of tenants without fixed
period of lease within a period of one year in view of an emergency existing. When
the loss occurs after three months the insured has not yet complied with the
warranty. In this case, the omission to fulfill said warranty does not avoid the policy.
But if the loss occurs after the one year period but still the insured does not
comply with the warranty, then the insurer will not be liable.
3. When the performance becomes impossible
Not only legal but also physical impossibility
Ex. When you warrant to build a firewall, however there is no availability of

cement, and then during the period where there is no available cement there is loss,
you can still recover. But if the loss occurred when the cement is already available,
then there is no longer physical impossibility, you cannot recover.
o
4. By waiver or estoppel
Ex. When the insurer knows fully well that you have not complied with your
promissory warranty but it did not exercise its right to rescind the contract but
continued to accept premium payments and renew the policy, there is waiver or
estoppel in that case.
Remember that case, katong PUV, insurer knowing fully well that subject of
the insurance is not qualified because it was a private vehicle, but it still renewed the
policy, then there is waiver or estoppel. Or that case wherein the coverage includes
only persons not beyond sixty years old, and the insured is beyond sixty years old,
since it was expressly stated in the policy, it was a warranty, but yet there was a
waiver or estoppel by the insurer.
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.
- Although it still mentions no, a violation of material warranty. Why, naa d i warranty nga dili
material? Diba warranty is presumed material?
- Okay so its either you violate a warranty, or if its not a warranty, but it is a material
provision in the policy, it entitles the injured party to rescind the contract.
- Take note, it is not necessary that there is a causal connection between the violation of the
warranty and the cause of the loss, same principle as in concealment and representation.
Remember? Katong concealment, it is not necessary that the fact concealed be related to the
cause of the loss. Like you died in a plane crash but you violated that you have a cancer, there
is still concealment.
Like in the case of Young vs Midland.
- It was about fire insurance policy and there was a provision in the policy that no hazardous
goods to be stored in the building. How do you define hazardous? Not necessarily flammable,
but that which increases the risk. In this case the insured stored fireworks in preparation for
Chinese new year and then the building was partially burned. But it was found out that the
fireworks were stored but were not, so in short, the fireworks was not the cause of the fire.
-
Was there a breach of warranty?

16 | P a g e
o
Yes. Fireworks are considered hazardous goods because they increase the risk
assumed by the insurer. Even if the fire was not attributable to the fireworks the court still
said that there was a violation of the warranty. Same as concealment, the cause of the loss
need not be related to the fact concealed. The reason is that because you store fireworks it
increases the risk and the insurer did not assume that degree of risk. Had he know of that
increased risk the insurer would have increased the premium or cancel the policy.
o But there are exceptions based on jurisprudence wherein the warranty is not considered
violated, particularly warranty in storing of flammable or hazardous materials, if:
o
a. It is incidental to the business
b. Deposit is only in small amounts or quantities for daily use
We have this case of Bachrach vs British American Ass. Co.

o
This case is about fire insurance policy obtained by the insured wherein he is
engaged in furniture for sale, and there was a stipulation not to store flammable materials.
However the insurer noticed that the insured stored alcohol and varnish.
o
Issue: Does the storing of alcohol and varnish violate the warranty against storing of
inflammable.
o
SC: The keeping of alcohol and varnish is not a violation because it is incidental to the
business of the insured. Because the alcohol is mixed with the varnish and the varnish is
used to maintain the quality of the furniture. No violation therefore of the warranty because
the alcohol and varnish is incidental to the business of the insured.
- In another case the insured obtained a fire insurance policy covering his warehouse which
was used as storage for copra and hemp (what is hemp? abaca? Marijuana mana oi :D) In the
warehouse he has delivery trucks used for distributing copra and hemp. In the warehouse he
also stored gasoline sufficient for two days supply for the vehicles, and in the policy there was a
stipulation against storing of inflammable materials.
-
Is there a violation of the warranty? (Qua Chee Gan vs Law union 98 Phil 85, 1955)
o
No violation because the storing of gasoline is incidental to the business.
o Another case, Yu Hun vs British Traders, what was insured was a drugstore and there is a
provision in the policy that you should not store inflammable materials and there were
naphthalene balls found in the drugstore. The SC held that there is no violation of warranty
because naphthalene balls are considered pharmaceutical products and therefore incidental to
the business of the insured.
o Or if manufacturer ka ug fireworks, mag store ka ug pulbora. Thats incidental to the
business. Or if a restaurant you have LPG etc., still incidental. Maintaning a lighter or fireworks
in a gasoline station is not incidental to the business. Or if daghan na kayo, super large
quantities, and it is not your business then it is not incidental to the business.
o
In Young vs Midland, would it fall under daily use? Or incidental? Noooooo.
o So general rule, if you store inflammable materials you commit a breach of warranty. The
only exception allowed based on jurisprudence wherein you are considered as to have not
committed a breach of warranty is if the storing is in small quantities for daily use or if it is
incidental to your business.
o Like for example lets take this case of Bachrach, he has to insure his property against fire
and that varnish is needed in his business. Does the stipulation prohibit him from keeping
varnish? Di nalang siya magkuha ug insurance? But the insurer would not also agree that the
provision would not be present because it is also intended to protect the insurer. Because if it
happens that the storing of varnish is no longer incidental to the business or other flammable
materials not incidental to the business, then there is a breach of warranty. Like for example, if
it was not varnish that was stored, but gasoline not necessary for furniture or fireworks, then
there is already a violation.
17 | P a g e
o If you say yes, there is a breach of warranty, you would say that it is not under the
exceptions. But if you answer that there is no breach then you have to support your answer that
the storing of that item is incidental for the business. That is the legal basis for saying yes or no,
whether there is breach of warranty or not.
o Just like materiality, it is not for the insurer to say that this is material or not material but for
the court to decide, your only basis or gauge would be that it has a probable or reasonable
influence on the insurer.
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.
- Breach of immaterial provision does not avoid a policy as a rule, unless it is expressly
stipulated. By express stipulation by the parties it converts an immaterial provision into a
material provision.
- Like for example on the giving of notice on other insurance clause, if the policy expressly
states that a violation of this condition entitles the party to rescind the contract, then it
becomes material.
Sec. 76. A breach of warranty without fraud, merely operates to 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.
What is the effect if there is a breach of warranty?
If the breach already exists at the effectivity of the contract and there is no fraud, the policy
is void ab initio, it prevents the policy from attaching to the risk, as if there is no policy or
contract of insurance.
-
Effect on the premiums - the insured is entitled to return of all premiums
But if the breach occurs after the effectivity of the policy, is the insurer exempted
from liability?
o
o
If loss happened before the breach, the insurer is liable. But if the loss happens after
the breach the insurer is exonerated from liability.
o
Effect on premiums pro-rated return of premiums for the unexpired portion or the
portion pertaining subsequent to the breach
o
o
Now what if there is fraud? The policy is void ab initio and the insured is not entitled
to a return of the premiums paid.
Example: You made express warranty that you have a drivers license, but it
turned out you do not have drivers license and you made it in fraud, in that case the
policy is void ab initio, and you are not entitled to return of any premium.
You made an express warranty that you have not been confined in any
hospital for any ailment, you say I have not suffered of the disease enumerated
below, but the truth is that prior to the effectivity of the policy you were already
confined in the hospital, and you know that fact. We can say that there is fraud here,
because you know for a fact you already suffered from a serious ailment. The policy
is void ab initio and not entitled to return of premiums.
Kanang concealment and misrepresentation, are you entitled to return of premiums? No,
because of the fraud. So just like here, there is fraud, then insured is not entitled to any return
of premiums.
What if without fraud? Example of without fraud?
o
You make a warranty that your vessel is safe at port in China, affirmative warranty of
a fact. But unknown to you the vessel is already lost or has already sunk and without fraud.
The policy is void ab initio therefore no policy to speak of but still you are entitled to return
18 | P a g e
of premiums. Exception; if the policy expressly states that the insurer is liable whether the
vessel is lost or not lost.
G. Premium
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.
-
When is the insurer entitled to payment of premium?

o
risk.
As soon as the thing insured is exposed to the peril insured against, exposed to the
o When is it considered as exposed to the peril/risk insured against? Kanusa mo assume ug

risk ang insurer?
o
o
The moment the policy took effect.
What is the effect if no premium is paid?

o
Then there is no contract of insurance.
o
Sec. 77, notwithstanding any agreement to the contrary, no policy or contract of
insurance shall be valid and binding until the premium thereof has been paid.
Gen. Rule: No premium, no contract. This is the Cash and Carry Rule, kung di ka mu bayad,
no policy to speak of.
o
What do you mean by notwithstanding any agreement to the contrary?

o
So even if the parties stipulate that the policy shall be valid even if the insured has
not yet paid the premium, that stipulation is null and void. And the effect is that there is no
policy to speak of. Under the new law it is very strict now, unlike in the old provision. So if
there is no payment of premium no policy to speak of.
o
By the way, we are talking about the initial premium here.
o What is the reason for requiring the payment of premium for the validity of the contract?
Why is a contrary agreement proscribed?
o
It is the elixir of vitae. Like in taxation, the premium is the lifeblood of the contract.
The prompt payment of the premium is the essence of the contract, because insurance
companies are required to maintain certain legal reserves for the prompt settlement of
insurance claims. So kung langay langayon na ug bayad, then the legal reserve is
threatened. The time for the payment of the premium is the essence of the contract.
o
In Philippine Phoenix vs Wood-works

o
The insured is Wood-works and it applied for a fire insurance policy. The insurer filed a
case against the insured to recover the unpaid premium. Take note in this case there was no
premium paid at all. The court held that there was no perfected contract of insurance.
Therefore no right for the insurer to recover premium.
o Please read the cases under topic ii of Premiums, because these are the jurisprudential
exceptions to the general rule that the non payment of premiums will prevent the insurance
policy from taking effect.
Acme Shoe Rubber vs Plastic Corp
The insured obtained a fire insurance policy for one year, from may 1963 to may 1964. He
did not right away pay the premiums but instead paid on January 8, 1964. The insurer
accepted the premium and insured was issued a renewal policy. So he renewed it for 19641965. The policy provides a credit agreement wherein it is provided that the premium may
be paid within the first 90 days of the policy.
19 | P a g e
A fire occurred on October 13, 1964. At the time of the loss the premiums on the policy were
not yet paid. From May to October is 5 months, and beyond the 90 days. So the insurer
refused the claim for insurance proceeds. The insured argued that the insurer had already
accepted premium payment beyond 90 days, like in the first payment in January 8, 1964, so
the insurer would still be liable.
SC: Insurer not liable because it is clear in the policy that the payment shall be made within
90 days. And since no payment was made at the time of loss which was already beyond 90
days, then the insurer is no longer liable.
Arce vs Capital Insurance
At the time of the loss no insurance was paid so the insurer was not liable because in effect
there is no policy.
Regarding down payment of premium, is it an excuse that you have not paid the premium because
you are sick, incapacitated, or because of war?
No, based on jurisprudence these are not valid excuses for nonpayment of premium.
- Payment of check or promissory note is no longer valid, it only produces the effect of
payment at the time encashed.
- So for the policy to be effected, the time is not reckoned from the payment of promissory
note or acceptance of the check but from the time the check were encashed.
-
Gen. Rule: No payment of premium, no insurance policy

o
Exceptions:
1. In case of Life Insurance or Industrial life insurance

Why, what about in life? Because after payment of the first premium, the
insured is entitled to one month grace period.
Also there are certain provisions or devices in the life insurance which avoid
forfeiture of the policy by non payment of premium. Like cash surrender value or
automatic loan.
Kung ang life insurance already a cash surrender value, pwede adto kuhaon
ang pangbayad sa premium.
In automatic loan clause, if di ka kabayad sa premium, the payment of the
subsequent premium will be considered as your loan from the insurance company
to be deducted later on from the insurance proceeds.
Sec. 78. An acknowledgement in a policy or contract of insurance of 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.
2. If in the policy there is an acknowledgement as to the receipt of premium,
the effect is that, that acknowledgement is conclusive evidence as to the payment of
the premium in so far as to make the policy valid and binding.
The fact that the insurer made/issued an acknowledgement in the policy of

the receipt of premium, it now makes the policy valid and binding,
notwithstanding the truth that there is no payment of premium. Kay conclusive
naman to siya nga evidence of payment. In effect he law creates a legal fiction of
payment.
But again that is only for the purpose of making the policy valid and binding.
Meaning later on, can the insurer collect the premium, can the insured say dili na,
naa nay payment? No. It is not conclusive evidence as to the payment itself, it is
only prima facie evidence. The insurer can later prove that in truth you have not
made payment. The reason is estoppel or waiver. By issuing an acknowledgment
20 | P a g e
receipt, in effect you waive the condition on the requirement of payment of

premium.
o
So those are the two statutory exceptions to the general rule that no premium no
contract of insurance, the rest of the exceptions we will discuss next meeting because this is
based on jurisprudence.
o By the way kanang mo ingon ang law na notwithstanding any agreement to the contrary it
refers to an agreement which states that the policy shall be valid and binding even if no
premium is paid.
But it does not refer to any agreement entered into by the parties with respect
to granting credit term/extension or agreement on the payment of premiums on
installments. Which in the cases we will discuss later on, if it is not contrary to law
morals good customs or public policy, then it is a valid agreement.
Sept. 18, 2010 Saturday
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.
Sec. 78. 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.
- Sec. 77 again provides that no policy or contract of insurance shall be valid and binding unless
and until the premium is paid. Its a cash-and-carry rule no premium, no policy. And the
insurer is entitled to the payment of premiums the moment the thing is exposed to the peril
insured against.
o
Example: A insured his vessel for a voyage from Manila to Cebu. The moment the vessel
imparts from Manila, the vessel is already exposed to a peril insured against. So from
that moment, the insurer is already entitled to the payment of premiums. And if no
premium is paid, then the policy shall not be valid and binding. And if at any point during
the voyage, the vessel is lost, then the insurer will not be held liable.
The requirement on the payment of premium is a condition precedent essential to the validity of
the insurance, notwithstanding any agreement to the contrary. So even if the parties would
stipulate in the insurance contract that the policy shall be valid and binding even if no premium
is paid, such stipulation is null and void.
The effect of nonpayment of premium is not merely to suspend the insurance but it puts an end
to the insurance contract or it does not give rise to an insurance contract. No risk is attached to
the policy.
Case: Phil. Phoenix Surety and Ins. Co. vs. Woodworks Inc. (1 st case)
Woodworks obtained a fire insurance policy from Phil. Phoenix. There was no payment of
premium by Woodworks whether partial or down payment wala jud!! So there was no
payment of premium at all. But the insurer nevertheless issued the policy. Then later on, the
insurer now demanded payment of the premium. In fact, Phil. Phoenix filed a case against
the insured to recover the premiums.
ISSUE: W/N the insurer is entitled to recover the unpaid premiums
The Court ruled that it is very clear in Sec. 77 that no policy or contract of insurance shall be
valid and binding unless and until the premium is paid. So in this case, since the insured did
not pay any premium, so therefore, the policy did not become valid and binding. Actually,
theres no policy to speak of. So therefore, since there is no policy, the insurer has no right to
recover the unpaid premium.
21 | P a g e
In this case, it is the insurer who filed a case against the insured for the recovery of
premium. If the facts were different, such as when the loss already occurred and it is now
the insured who filed a case against the insurer for recovery, so do you think the insured is
also entitled to recover? NO, same effect. If theres a loss, the insured would not also be
entitled to recover since there is no policy to speak of. The basis of the Phil. Phoenix case is
Sec. 77, which is the general rule no premium, no policy.
Case: Acme Shoe Rubber and Plastic Corp.
The same story no premium was paid also on the policy but in this case, Acme obtained an
insurance policy covering the year 1963-1964. But at the time the policy was issued, there
was no payment of premium. In fact, Acme paid the premium only on Jan. 8, 1964. Supposed
to be, the premium should have been paid on May 1963 or before at the time the policy was
issued. But in the policy, there was some sort of a credit extension agreement wherein the
insured was allowed to pay the premium within 90 days from the time the policy was issued.
If youre able to pay within 90 days, the policy is still considered as valid and binding. Here,
what happened is that regarding the policy in question wherein the premium was paid Jan. 8
nah, the insurer nevertheless accepted the payment of premiums. But later on, when the
policy was again renewed for another year, from 1964-1965, here, at the time the policy was
issued, no payment of premium was made. Then on October 30, 1964, a fire broke out. Loss
already occurred. And at the time of the loss, theres still no payment of premium.
ISSUE: W/N the insured is entitled to recover
The contention of the insured was that dba before you accepted man my late payment of
premiums. So in effect you grant me credit extension. So why not here nganu di naman ko
nimo dawaton. Why wont you accept my payment of premium?
The Court ruled that since at the time the policy was issued or even at the time of loss, there
was no payment of premiums so therefore, the policy did not become valid and binding.
Therefore, the insured is not entitled to recover. Even if we are to consider the 90-day credit
extension agreement, its already more than 90 days from the time the policy was issue and
at the time of loss and yet there is still no payment of premium.
But if this case is to be decided now under the provision of the Insurance Code, unlike the
old provision wherein there is that phrase unless a credit extension has been agreed upon,
in the new provision, such phrase has already been deleted. It was already replaced by the
phrase notwithstanding any agreement to the contrary.
Case: Arce vs. Capital Ins. & Surety Co., Inc.
Arce was the owner of a residential house which had been insured with Capital Insurance
under a Fire policy. The insurer requested payment of premium. Anticipating that the
premium could not be paid on time, the insured, thru his wife, promised to pay it on Jan. 4,
1966. The insurer accepted the promise but the premium was not paid on Jan. 4, 1966. On
Jan. 8, 1966, the house of the insured was totally destroyed by fire.
The Court ruled that the insured is not entitled to recover because at the time the loss
occurred, there was no payment of premiums so therefore, the policy did not become valid
and binding.
Case: Capital Insurance vs. Plastic Era
In this case, there was payment of premium but the manner of payment or the mode of
payment was in checks. The payment was through issuance of checks. When the check was
deposited by the insurer to the bank, such check was dishonored due to insufficiency of
funds. The loss happened before the check was deposited.
The Court ruled YES because such case was decided under the old provision of the Insurance
Code wherein there was the phrase unless a credit extension has been agreed upon. The
22 | P a g e
rationale of the Court why the policy is valid and binding was based on the old provision.
When it accepted the check as payment, in effect, the insurer granted credit extension.
But if this case is to be decided now, such phrase in the old provision has already been
deleted. So that under the new provision found in Sec. 77, at the time the policy was issued,
there was in effect no payment of premiums because the payment was made through
checks (or promissory notes) for such negotiable instruments have no effect of payment
until they are encashed. Therefore, the policy did not become valid and binding. So if this
case is to be decided now, if you paid through promissory notes or checks, such does not
produce the effect of payment unless and until the promissory notes or checks are encashed
or through the fault of the creditor (insurer), the check has been impaired (e.g. delay in
encashing or depositing the check by the insurer or his agent). So payment of check or
promissory note is not sufficient. However, if its a managers check then it is equivalent as
cash.
Case: American Home Assurance Co. vs. Chua
Chua paid through a check. The Court said that the policy was valid and binding but take
note: The very reason why the policy was valid and binding because in the renewal
certificate, there was an acknowledgement receipt. In this case, the insurer denied payment
of check but later on, it was proven that there was really payment of check. Even if there
was no payment of check, in the renewal certificate, there was acknowledgment of the
payment of premium and under Sec. 78, the effect of acknowledgement receipt is a
conclusive presumption of payment of premiums so as to make the policy valid and binding
even if no payment was really made at all. The fact that there was acknowledgement
receipt, the policy is valid and binding. But it doesnt mean that the insurer cannot ask
anymore for the payment of premiums. The acknowledgement receipt is only a conclusive
presumption so as to make the policy valid and binding.
Case: UCPB General Ins. Co. vs. Masagana Telemart
In this case, UCPB was barred by estoppel from raising that the policy was not valid and binding
because consistently granting credit extension for 60-90 days was already considered a
practice. In this case, the loss occurred before the expiration of the credit term. Although there
was no payment of premium yet, but the loss occurred before the expiration of the credit period.
So the Court said that since UCPB has been consistently granting the insured credit term of 6090 days, UCPB is barred by estoppel.
-
GR: No premium paid at the time the policy was issued, no policy or the policy shall not be valid
and binding.
o
Exceptions: (5 exceptions)
Statutory Exceptions
1. Sec. 77 life or industrial life insurance.
Reason: Life insurance there is a grace period of 30 days or 1 month

within which to pay the unpaid premiums. So even if you have not paid the
premium and the loss already occurred, so long as the loss happened
before the expiration of the 30-day grace period, you are still entitled to
recover. Also in life insurance, there are certain devices which prevent of
forfeiture of policy due to nonpayment of premiums such as cash
surrender value if you cannot pay, the unpaid premiums shall be taken
from the cash surrender value or theres what we call automatic loan. So
whatever is the value of the policy, dra kwaon and imong pambayad sa
premium.
2. Sec 78 if there is an acknowledgment
If in the policy, theres an acknowledgement of receipt of premiums, such

acknowledgement is already conclusive evidence of payment of premiums
23 | P a g e
for the purpose of making the policy valid and binding. So in effect, the law
creates a legal fiction of payment even if there is a stipulation that no
premium has been paid yet.
But, of course, even if there is an acknowledgement receipt, the insurer

can still recover the unpaid premiums.
The reason of the Court is that if the insurer issued an acknowledgment

receipt, in effect, the insurer waived the condition of payment of premiums
only to make the policy valid and binding.
Case: American Home Assurance: There was payment of check but

there was also an acknowledgment receipt in the renewal certificate so
therefore, the policy was valid and binding.
Other Exceptions
3. When there is an agreement allowing the insured to pay the premium in

installments and partial payment has been made at the time of loss (Makati
Tuscany Condominium Corp. vs CA)
Case: Makati Tuscany Condominium Corp. vs. CA
The insured here is Makati Tuscany. The insurer is American Home
Assurance. American issued Tuscany an insurance policy on the latters
building. The premium was paid on five installments. The policy was
renewed and the premium was again paid on installments. The policy was
again renewed and the premium paid on installments. However, after 2
installments, Tuscany refused to pay the balance of premium.
Consequently, American filed an action to recover the balance. In its
answer, Tuscany explained that it discontinued the payment of premiums,
claiming, among others, that the policy was never binding and valid, and
no risk attached to the policy.
ISSUE: W/N the insurer American is entitled to recover the unpaid
premiums
The Court ruled that the policies are valid even if the premiums were paid
on installments. The records clearly show that the insured and the insurer
intended the insurance policies to be binding and effective
notwithstanding the staggered payment of the premiums. In the three
years of renewing the contract, the insurer accepted all the installment
payments. Such acceptance of payment speaks loudly of the insurers
intention to honor the policies it issued to the insured. Certainly, basic
principles of equity and fairness would not allow the insurer to continue
collecting and accepting premiums, although paid on installments, and
later deny liability on the lame excuse that the premiums were not paid in
full. It appearing from the peculiar circumstances that the parties actually
intended to make the 3 insurance contracts valid, effective and binding,
insurer is entitled to recover the unpaid premiums.
For the last 3 years, the insurer renewed the policy by accepting payment
of premiums through installments. Therefore, it speaks loudly of the
intention of the insurer to honor the policy.
If the story were different such as when it is now the insured who filed the
claim against the insurer because the loss has occurred before he has paid
the full premiums, do you think the insurer would be held liable? YES. To
rule otherwise would in effect allow the insurer to deny its liability in the
event that the loss happened before the full payment of the premium has
been paid.
24 | P a g e
The phrase notwithstanding any agreement to the contrary in Sec. 77

means that the agreement referred to here is the agreement wherein it
stipulates that the policy shall be valid and binding even if no premium is
paid. But such Sec. 77 does not prohibit the parties from entering into
other agreements such as an agreement that the payment of premiums
can be made on installment basis or the agreement that the policy shall be
valid even if only the first premium has been paid. According to the Court,
these types of agreement are not contrary to law, good customs, or public
policy and not contrary to Sec. 77.
o
NOTE: Under Sec. 77, payment of premiums in installments, as a general rule, will not
make the policy valid and binding because payment of premium, as a general rule, is
indivisible. Meaning, you cannot prevent the forfeiture of the policy by making partial
payments unless it falls under the exception provided in Makati Tuscany case. So general
rule, payment of premiums in installments will not satisfy the requirement under Sec. 77
unless it falls under the exception in Makati Tuscany case.
Case: Phil. Phoenix Surety vs. Woodworks (2nd case)
There was partial payment of premiums and then Phil. Phoenix, this time,
again, filed a case to recover the unpaid balance. The ruling this time of the
Court is that YES, Phil. Phoenix is entitled to recover because the partial
payment of the premium renders the policy valid and binding and that there is
already a perfected contract. Its because here, it was Phil. Phoenix who filed a
case for recovery so in effect, Phil. Phoenix honored the policy. Thus, it falls
under the exception stated in the Makati Tuscany case that it allowed
payment of premium on installments. A partial payment of the premium made
the policy effective during the whole period of the policy.
This is different from the first case because in the first case of Phil. Phoenix,
there was really no payment of premium at all.
Case: Tibay vs CA
There was partial payment of premiums but the policy expressly stipulates
that the policy shall not be valid and binding until and unless full payment has
been made. So in this case, the loss occurred before Tibay has fully paid the
premium. So when he went to court, Tibay, in fact, raised a defense citing the
ruling in Phil. Phoenix (2nd case) and Makati Tuscany case. The Court said that
NO, Tibay you cannot cite such cases because the factual circumstances are
different. In Phil. Phoenix, it was Phil. Phoenix who filed a case for recovery of
unpaid premium. So it states clearly the intention of the insurer to honor the
policy. Second, in Makati Tuscany, there was an arrangement to allow payment
of premium on installment because it was done for 3 years already. And also
in this case, the policy expressly states that it will not be valid until there is
full payment.
4. When there is an agreement to grant the insured credit extension for the
payment of the premium and loss occurs before the expiration of the credit term.
5. When 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 extension (UCPB vs. Masagana)
Case: UCPB vs. Masagana
For several years, UCPB (insurer) granted the insured a 60-90-day credit term
and in this case, the loss occurred before the expiration of the credit term but
before payment of premium. Insured applied for renewal of the policy but
UCPB denied renewal of policy because of non-payment of premium on the
first policy.
Issue: Is the insured entitled to recover?
25 | P a g e
YES. This simply means that if the insurer has granted the insured a credit
term for the payment of the premium and loss occurs before the expiration of
the term, recovery on the policy should be allowed even though the premium
is paid after the loss but within the credit term. It would be unjust and
inequitable if recovery on the policy would not be permitted against the
insurer, which had consistently granted a 60-90-day credit term for the
payment of premiums despite its full awareness of Sec. 77. Estoppel bars it
from taking refuge under said Section, since insured relied in good faith on
such practice.
NOTE: The SC ruled that an insurance policy, other than life, issued
ORIGINALLY or ON RENEWAL, is not valid and binding until actual payment of the
premium, and any agreement to the contrary is void. However, there are 5
exceptions as already mentioned.
RETURN OF PREMIUMS
Sec. 79. A person insured is entitled to a return of premium, as follows:
(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. 80. 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. 81. 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. 82. In case of an over-insurance by several insurers, 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.
-
What are the instances wherein the insured is entitled to a return of the premium?
o
1. When no part of the thing insured has been exposed to any of the perils insured
against
Meaning, the insurer did not assume any liability.
Examples:
a. If you have already paid premiums in your application form and later on,
your application for insurance was rejected; or
b. Loss has already occurred before your application was approved; or
c. You withdraw your application before it was approved

o
In these cases, youre entitled to a return of premium whole of the

premium
26 | P a g e
2. When the insurance is for a definite period and the insured surrenders his policy
before the termination thereof
Example: The insurance policy is for 1 year. After 6 months, the insured returns
the policy for cancellation. The insured is entitled to the return of premium
corresponding to the unexpired portion.
Lets say the premium for 1 year was 10,000, he is entitled to a return of
premium pro rata of 5,000.
Exception wherein we do not apply the pro rata rate is when there is a
short period rate meaning, in the policy theres a table. If the policy was
effective only for 1 month, you need to pay only 1,000. 2 months, 2,000. 6
months, 6,000. So if theres a short period rate, you surrendered it within 6
months, you can only recover a premium of 4,000.
What if before you surrender the policy, a loss has already occurred? Lets
say partial loss wherein the insurer was liable for 3,000? How would you
compute now for the return of the premium assuming theres no short
period rate?
So 10,000 total premium, you deduct the loss of 3,000, so 7,000.

And then 7,000 x [6/12] = 3,500. So the insured is entitled to 3,500
as return of premium.
Here, its not the whole of the premium but only pro rata the
unexpired portion.
3. When the contract is voidable because of the fraud or misrepresentations of the

insurer or his agent.
Note: It is the insurers fault.
Here, the insured is entitled to the whole of the premium.
What if it is through the fraud or misrepresentation of the insured?
Insured is not entitled to the return of premium. But what is the effect on
the policy? Its void ab initio.
4. When the contract is voidable because of the existence of facts of which the insured
was ignorant without his fault
Example: If the insured believed that he has insurable interest but actually he has
no insurable interest. So the policy will not be valid. Its null and void. So
therefore, the insured is entitled to the return of premium whole of the premium.
Another example: He insured his vessel believing that the vessel still exists but
unknown to him, the vessel was already lost. He is entitled to a return of premium
unless the policy provides that the insurer is liable whether lost or not lost.
5. When the insurer never incurred any liability under the policy because of the default of
the insured other than actual fraud
This means default of the insured but without fraud.
Example: Where the insured takes a policy on a vessel under repair and pays the
premium in advance but for reasons not due to actual fraud on his part, the repair
of the vessel is not completed on the date when the voyage is to start, the
insured, in the absence of any contrary stipulation, may recover the premium
already paid.
6. When there is over-insurance
What do you mean by over-insurance? When is there over-insurance?
When there is an excess of the insurance over the insurable interest.

27 | P a g e
Note: Over-insurance here refers to over-insurance by reason of double

insurance.
When is there double insurance?

o
When you insured the same risk, insured the same insurable
interest, but several insurers.
Example: If you insure your house worth 750,000 with A Co., B Co. and C Co. You
insured the house as follows: 200,000 with A Co., 300,000 with B Co. and 500,000
with C Co. So you insure it for a total of 1,000,000. So theres over-insurance by
250,000. You paid premium of 20,000 with A, 30,000 with B, and 50,000 with C.
Under the law, if theres over-insurance, the insured is entitled to a return of
premium. How much premium can you recover from A, B or C? How do we
compute the return of premium?
The over-insurance is 250,000. How many percentage is 250,000 over

1,000,000? That is 25% or [250,000/1,000,000]. Therefore, you are
entitled to a return of premium equivalent to 25% to the extent of the
over-insurance.
So, A must return 5,000 [25% x 20,000]. B must return 7,500 [25% x
30,000]. C must return 12,500 [25% x 50,000].
Therefore, you are entitled to a total of 25,000 as return of premium.
Another example: If I am the insured. My house is 100% destroyed.

Against whom can I recover the 750,000? From all of the insurers or any of
the insurers? As a rule, I can recover from all of the insurers 200,000
from A, 300,000 from B and 250,000 only from C. I can recover from all of
them but in no case shall it exceed 750,000. Thats why you can only get
from C 250,000 and not the total face value of 500,000.
o
If I recover from C 500,000, can I still go after B? YES, but for

250,000 only.
Can I go after A to recover the 750,000? NO, because As liability is

only 200,000.
But what if I go after C to recover 500,000 and C paid me 500,000?

What happens to A and B? Are they exempted from their liability?
NO, because C, after paying me, has the right to get
reimbursement. But for how much? You have now to determine pila
jud ilang liability. So what are their respective liabilities of the
insurers? So how would you determine? Its not really 200,000 for
A, 400,000 for B, and 500,000 for C. Such values are only the
maximum limit. So pila man? That would be:
For A [(200,000/1,000,000) x 750,000] = 150,000
For B [(300,000/1,000,000) x 750,000] = 225,000
For C [(500,000/1,000,000) x 750,000] = 325,000
So 150,000 for A + 225,000 for B + 325,000 for C = a total

of 750,000.
So if you are asked in the problem, if the insurer opted to

recover from C 500,000 and 250,000 from B, for how much
is C entitled to recover from B and A? So you need to
determine pila jud ilang respective liabilities.
What if the problem further states that the policy is not a valued
policy but its an open policy and at the time of the loss, it was
determined that the value of the house was worth 700,000?
Determine how much are the respective liabilities of the insurers.
28 | P a g e
So here, you just change the 750,000 from the preceding

formula to 700,000.
The problems given under the topic over-insurance assume that the
policies issued by the insurers do not prohibit other insurances
because if it prohibit other insurances, expressly stipulated in the
policy, then, there would be a breach of the policy.
If theres over-insurance. Theres also what we call under-insurance or co-insurance.

o
Co-insurance arises if the face value of the policy is less than the value of your insurable
interest or you insure your property for less than its actual or full value. In that case, you
are considered as a co-insurer for the difference. You are a co-insurer if there is underinsurance.
Example: If the value of your house is 1,000,000 and the face value of the policy was
only 800,000. Theres under-insurance of 200,000. This under-insurance, you are
considered as a co-insurer. Who is considered as a co-insurer? The insured because the
insurer is liable only to the extent of 800,000. It is the insured who will be held
accountable or liable for the excess because the actual value of your property is
1,000,000 but you insure it only for 800,000 so you are considered as a co-insurer for the
difference. Now, whats the effect? So what? It will have an effect on the amount that you
are entitled to recover. But first, you have to distinguish between marine insurance and
fire insurance.
In marine insurance, its automatic that there is co-insurance because in marine

insurance, it is required that you must insure your property to its full value. If you
do not insure your property to its full value, you are considered as a co-insurer for
the difference.
Example: If your vessel, its valued at 5,000,000. But you insure it only, the
face value of the policy that you obtained was only for 4,000,000. So there
is under-insurance of 1,000,000. If the property is damaged. Lets say 50%
of the property is damaged or what if there is a 100% loss, how much are
you entitled to recover from the insurer?
o
To determine how much you are entitled to recover, determine first

to what extent did you insure? 4,000,000. How many percentage is
4,000,000 over 5,000,000? Thats 80% [4,000,000/5,000,000]. So
meaning you insure your property for only 80%. In that case, you
are only entitled to recover 80% of 2,500,000 [50% loss x
5,000,000], which is 2,000,000. So meaning, you are penalized.
Even if the property was damaged 50%, you cant recover
2,500,000 because you only insure it for 80%. So you can recover
only 80% and that is 2,000,000. But what if its not express in terms
of percentage? Lets say that the damage was for 3,000,000
partial lang ghapon. For how much can you recover? So 80% of
3,000,000, which is 2,400,000. But if it is 100% damage, how much
can you recover? 4,000,000 nah because 4,000,000 is already 80%
of the value of the property [5,000,000]. You are already a coinsurer to the extent of the 1,000,000 because in marine insurance,
co-insurance is automatic.
So simply determine to what percentage did you insure your

property. So you get 80%.
There is no problem if the damage is 100% because you get

whatever is the face value of the policy. But the problem is if there
is a partial damage. So here, you get only 80% of the value of the
partial damage.
But in fire insurance, theres a general rule and theres an exception. The general
rule is that there is no co-insurance, meaning, the insured is entitled to recover
whatever is the face value of the policy even if you under-insured it.
29 | P a g e
Example: Same example as above but its a house this time. The value of
the house is 5,000,000 but you insured it only for 4,000,000. General rule:
No co-insurance. So if the property is damaged for lets say 50%, for how
much can you recover? It would be 2,500,000 [50% x 5,000,000]. Lets say
it is damaged for 3,000,000, for how much can you recover? 3,000,000
jud. If its 100% loss? 4,000,000. So youre entitled to recover exactly kung
pila jud ang value but in no case shall it exceed that face value of the
policy.
But if theres now an exception such as when the policy itself provides for
what we call a co-insurance clause. Such clause means that if you insure
your property for less than its actual value, you are considered as a coinsurer for the difference. The reason why some policies provide for coinsurance clause because they notice that some insured would not insure
the entire value of the property and to protect the insurer, they insert a coinsurance clause. If they insert a co-insurance clause now, for how much
will the insured be entitled to recover if the property is damaged 50%? or
3,000,000? The answer would be the same as that given in marine
insurance. So it now would be 80% of 2,500,000 or 80% of 3,000,000. If
its 100%, then 4,000,000.
September 25, 2010

H. LOSS
(So this will be our last meeting before the prefinals, ms Escatron?not around..ms Escanan?
Escanan:YES! :>)
How is loss defined in relation to a contract of insurance? When is there a loss?
Loss may be defined as the injury, damage, or liability sustained by the insured in
consequence of the happening of one or more of the perils against which the insurer, in
consideration of the premium, has undertaken to indemnify the insured.
Sec. 83. 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 case of life insurance.
Now, under section 83, can I transfer or assign my claim against the insurer?
Yes, provided that the transfer is made after the loss.
What is being transferred?
Only the money claim, or the right of action against the insurer.
Unlike Sec. 20, di ba when you assign the policy, what is the effect? Before the loss has occurred?
Or you transfer interest in the thing insured without the corresponding transfer of policy?
It suspends the insurance.
But one of the exception under section 20, wherein even if the transfer of the policy was
made, is if the transfer was made after the loss.
Nganu man? What is the effect if the transfer was made after the loss? What is the significance that
the transfer is after the loss?
Because you are no longer assigning the insurance contract but you are already assigning
the claim, and when the loss already occurred the liabilities of the insurer is already fixed. It
is no longer a personal contract, the liabilities are already fixed and it does not increase the
moral hazard or the risk of the insurer. So long as the transfer is to be made after the loss.
- So any agreement which prohibits the transfer of the claim after the loss has occurred is null
and void.
o
Except in the case of life insurance.
Why? What about life insurance?

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Because as a general rule a life insurance policy can be assigned/transferred, even if the
loss has not yet occurred because a life insurance is not a contract of indemnity. So long as
the requirement of insurable interest is complied.
Sec. 84. 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 of which the peril insured
against was only a remote cause.
When is an insurer liable?
o
The insurer is liable if the proximate cause is the peril insured against. Even if ang
remote cause niya is not a peril insured against. What is important is the proximate cause.
What is proximate cause?
o
Is that which, in a natural and continuous sequence, unbroken by any new
independent cause, produces an event and without which the event would not have
occurred.
o
Dba you have the same definition in torts? But unlike torts wherein it is for the
purpose of determining liability who is culpable, in insurance it is for the purpose of
determining how the loss happened or the nature of the loss/injury.
o
So long as the proximate cause is the peril insured against, never mind the remote
cause or immediate cause, the insurer is liable.
But what if the proximate cause is not the peril insured against, wherein it was only a remote
cause?
The insurer would not be liable.
Example in fire insurance, you insured your boat against fire. Fire started in the engine of the
vessel, and as a result of the fire the boat exploded and was totally destroyed.
Is the insurer liable? Yes, because the proximate cause is the fire. The explosion is the
immediate cause.
What do you understand by immediate cause?
It is that which is nearest in time in relation to the damage/injury.
But here the proximate cause, the one that sets everything in motion that started it all was
the fire. There was no efficient intervening cause. Pagsugod sa fire ni explode. Therefore fire
was the proximate cause. Although the immediate cause was not a covered peril, never
mind, so long as the proximate cause was a peril insured against, the insurer is still liable.
- Another example, still on fire insurance. Assuming Mr. A insured his house against fire, but
the adjoining house was on fire. And as a result of the fire the building weakened and collapsed
into the house of the insured. So the house of Mr A was damaged but not on fire. Is the insurer
liable?
o
Yes. The proximate cause is the fire. The immediate cause is the collapse of the
building. Insurer still liable.
o Another example, what if your neighbors house collapsed into the house of the insured
because of defective structure, so fire started in the insured house. Is the insurer liable?
o
Yes. The proximate cause was the collapse. The immediate cause is the fire. Insurer
still liable.
What is your legal basis?
Sec. 86. 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.
- When the law says a loss which would not have occurred but for such peril, what kind of
peril?
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It talks about the proximate cause.
o
In short Sec. 86 means that when the proximate cause is an excepted peril it is
thereby excepted, the insurer is not liable. Although the immediate cause of the loss was not
an excepted peril.
o
So meaning under sec. 86, if the proximate cause is an excepted peril, even if the
immediate cause was not an excepted peril, or it was a covered peril, or the peril insured
against, the insurer is not liable.
o So in the example, the proximate cause is the collapse, the immediate cause is the fire, the
policy is for fire insurance, and we said yes the insurer is still liable, why?
o
Because the proximate cause is not an excepted peril.
o
So in short the insurer is liable if the immediate cause is a peril insured against
provided that the proximate cause is not an excepted peril.
When is it an excepted peril?
o
It is expressly stated in the policy that I do not assume risk arising from fire,
lightning, etc. This is different from not covered peril, because the insurer does not
assume risk for it, but the insurer did not also expressly except against it also.
o
So if the policy is silent as to excepted peril the insurer is still liable. Like the policy
simply states that the policy is for fire insurance, it did not mention any excepted risk, so
here the insurer is still liable. Kay we cannot say that the collapse of the building is an
excepted peril. Although it is not a covered peril it is not an excepted peril also.
o
But if the policy expressly states that the insurer shall not be liable for damage due
to collapse or weak structure of the building, it will become an excepted peril, and the
insurer will not be liable.
o
Lets go back to the example of the boat which was insured against fire. If the policy
expressly provides that the insurer shall not be liable for damage from explosion, will the
insurer still be liable?
o
Yes. Because the proximate cause was the fire. That is what is important. Even
though the immediate cause was the explosion which is an excepted peril, sec. 86 will not
apply because it is not the proximate cause.
o
But if nabali, if the proximate cause was the explosion, and the fire was the
immediate cause, then the insurer is no longer liable because the proximate cause is an
excepted peril. Sec. 86 applies.
o Another example. What if the insured building collapsed because of defective structure? It
was insured against fire. But the fire happened only after the collapse of the building. Is the
insurer liable?
o
Yes, because the proximate cause is not an excepted peril. Even if the fire was only
the immediate cause.
o
But what if ni collapse lang, and no fire? Is the insurer liable?
No, because both the proximate and immediate cause is the defective
structure. And therefore it is not covered under the fire policy.
What if the neighboring building was on fire and nag dungan sa building insured ug collapse
due to defective structure? Insurer liable?
o
No, not liable. Proximate cause and immediate cause is the defective structure. Fire is
not in anyway connected to the damage of the building.
o
What if the fire started from a defective electrical wiring, is insurer liable for fire?
o
Yes. Proximate cause is defective wiring. Immediate cause is fire.

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o What if the fire started because of an explosion due to a bomb, and there was fire, can you
recover?
o
The proximate cause is the explosion and the immediate cause is the fire. So you are
entitled to recover unless the explosion was an excepted peril. Like if the policy expressly
states that the insurer shall not be liable for acts of rebellion, riot, etc.
o There was this actual US case, involving accident and life insurance. The insured had an
accidental wound. The wound caused tetanus, and he developed delirium, and because of the
pain and delirium he committed suicide. Is he entitled to recover under accident and life
insurance policy?
o
US SC: Yes, because the proximate cause was the accident.
Would you change your answer if suicide is an excepted peril?
No, because the proximate cause was the accident. And it is not an excepted
peril. And even if the immediate cause was the excepted peril. The proximate cause
was still a covered case.
Another case (Phil), he suffered an injury because of the accident and he suffered hernia, an
enlargement of the reproductive organ. The last resort was to submit himself to surgery but it
was a failure and he died. Are the beneficiaries entitled to recover?
o
You can argue that the surgery is an efficient intervening cause. But he SC still said
that the proximate cause was the accident, so beneficiaries can recover. It was pointed out
that the reason why he submitted himself to surgery was it was a last resort due to his
condition. So surgery arose because of the accident. (Travelers Insurance vs Murray)
What if the insured met an accident and he lost his loved ones (awwwwwww ) so he
suffered depression and he committed suicide. Is the accident still considered a proximate
cause?
o
There is efficient intervening cause. No longer a proximate cause.
Sec. 85. An insurer is liable where the thing insured is rescued from the 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.
a. The loss is caused in the course of rescuing the object from the peril insured against. And as a
result it was exposed to another peril which is not insured against.
o
Ex. In fire insurance. You insured your house and appliances against fire. When there
is fire you brought out of the house the appliances. Pero sa sigi nimo ug hakot naa say lain
sigig hakot sa gawas. So in the course of rescuing it against a peril insured against, it is
exposed to another peril which is theft and not a peril insured against. Is the insurer liable?
o
Yes. Because Sec. 85 is an extension of the proximate cause.
o
But take note that it must be lost in the course of rescue. So if na ugmaan nana, and
gikawat kay gibyaan na nimo, the insurer is no longer liable, because it is no longer in the
course of rescue.
b. The loss is caused by efforts to save it against a peril insured against.
o
The second one, when there is fire, and you put water on it, so the goods were also
damaged because of efforts to rescue it from the peril insured against. So still the insurer is
liable.
o
An exception lang ani is that if it is exposed to another peril, and that peril is
excepted expressly in the policy. Kato ganiha, katong gikawat sa pag rescue nimo sa fire,
gen. rule is that insurer still liable, the exception is that if the policy excepts theft, so the
insurer is no longer liable.
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Sec. 87. 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 insureds agents or
others.
-
Loss by willful act or through connivance of insured cannot be recovered.
- I guess you have heard stories when the business is going down so as a last resort they burn
the property to recover the insurance policy. Like what Ive known no, based on actual situation.
In long term lease contract on land, normally there is a stipulation there that at the end of the
lease term whatever building improvement shall accrue to the lessor. And the lessee does not
want that, so he insures the property because he has insurable interest and burns it down at the
end of the lease term to recover the insurance. And wala na makuha ang lessor.
But the insurer is not exonerated arising from the negligence of the insured. Why not?
o
Since ordinary negligence is covered by the insurance contract. That is the very
reason why you pay insurance. To protect yourself from your own negligence or
carelessness. Provided that it is ordinary negligence and not gross negligence because it will
amount to willful or intentional.
o
Ex. of ordinary negligence. Like fire, for example nag brownout and then you light a
candle and natumba so nag fire. While cooking you left the fire it unattended and it started a
fire. Or you light a cigarette. So you are still entitled to recover. Like we have that case
where the insured played with a gun, he removed the magazine and pointed the gun at his
temple thinking it was empty but it fired, so he died but the SC still said that it was ordinary
negligence. Like the case where the insured was drunk, he thought a bottle of whisky but it
was a wood alcohol, so he died. It is still ordinary negligence. Like that promising medical
student who thought formalin was water, so he drank it by mistake and he died. Insurer still
liable because it is just ordinary negligence.
o
But in one case where there is gross negligence. Like the case involving tugboats
docked at the pier and there was a storm so he was advised to bring them to safety but he
did not do anything. The court said that it already amounts to gross negligence so the
insurer is not liable.
o
But gross or not gross it depends on the circumstances.
So to recap, let us summarize, what are the instances when the insurer is liable:
a) Proximate cause is the peril insured against
b) If the peril insured against was the immediate cause provided that the proximate cause is
not an excepted peril
c) When the insured acted only with ordinary negligence
d) If the loss arose in the course of rescuing it from the peril insured against or due to efforts to
save it from the peril insured against
What do you understand by hostile fire?
When it occurs outside the usual confines of where it should be. Where it is burning other
than the place that it should be burning or flaming.
When is a fire friendly?
When it is burning where it should be. Like fire in a lamp or stove or furnace. Maging hostile
siya if it is no longer burning where it should be. Or gikan sa friendly fire naging hostile fire.
For example a lamp, a friendly fire, pero kusug kayo ang kayo so ni itom imong kisame,
because of the soot. Are you entitled to recover from fire?
No, because it is still in the confines where it should be burning. It is still friendly fire. But if
kusug na kayo nga ni kalat na ang kayo, then hostile fire na. Like nagluto ka sa imo kitchen
and the curtain caught fire from the stove, so the friendly fire now becomes hostile fire.
I. Notice of Loss
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Sec. 88. 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. 89. 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.
Now after the loss has occurred what are the requirements or the conditions in order for the
insured to recover against the insurer?
He must give notice of loss.
Form, is there a particular form?
No particular form, unless the policy itself requires a particular form.
When must notice of loss be given?
Within reasonable time. Reasonable time depends on the circumstances of the case.
What if there was delay in the giving of notice of loss because the insured died and the
beneficiaries did not know of the existence of that policy, or the insured was incapacitated?
Beneficiaries can still recover because delay is excused.
Aside from the notice of loss you are required to give proof of loss. What kind of proof?
The best evidence you can acquire at that time. Need not be the evidence that would stand
on trial in court. Like pictures. Or in motor vehicle, accident report or police report. In life
insurance, death certificate or medical certificate.
Regarding the giving of notice of loss, note that if there is an express requirement in the policy that
the notice must be given within a certain period, that period must be complied with, otherwise the
insurer is relieved from liability.
Sec. 90. 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.
What if there are defects in the notice of loss or preliminary proof of loss?
The insurer must notify the insured of the defect in the notice or proof otherwise it is
deemed waived.
Sec. 91. Delay in the presentation to an insurer of notice or proof of loss is waived, if caused by an
act of his, or if he omits to take objection promptly and specifically upon that ground.
What are the other instances when the defects are considered waived by the insurer?
a. Failure to raise any objection. If there is a delay of the presentation to the insurer of the
notice or proof and the insurer fails to act on that. It is waiver.
b. If it is caused by insurers act.
c. Like for example I denied liability not because of the defect of notice or proof, but based on
other grounds. Like I say the policy is null and void. In that case the insurer is deemed to
have waived.
d. They recognize their liability on the claim by making partial payment. Defects are deemed
waived.
e. Also when they join the proceedings.. (?)
Sec. 92. If the policy required, 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 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.
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What if as a preliminary proof of loss the insurer requires you to submit a certificate/testimony from
a particular person, and you were not able to submit that, is that detrimental to your claim?
It is not an end to your claim. You submit proof that you exercised due diligence in obtaining
that certificate but to no avail.
Or if that doctor or person refused to testify, what should the insured do?
Submit reasonable evidence that the refusal was not because the doctor or person did not
believe in the facts that you testified or certified but on some other grounds. Like I was not
paid my doctors fee or conflict of interest. But it must not be on the basis that siya mismo
does not believe on the facts to be testified.
So in short it is not fatal to your claim.
Double Insurance
Sec. 93. A double insurance exists where the same person is insured by several insurers
separately in respect to the same subject and interest.
When is there double insurance? What are the requisites?

a.
b.
c.
d.
e.
same insured
same subject matter
same insurable interest
same risk/peril
several insurers
So if Mr. A insured his house with X, Y, and Z, for fire, there is double insurance. But if different
risks, then no double insurance.
Is double insurance contrary to law?

As a rule it is not contrary to law. It is allowed. So if there is double insurance each of the
insurer is liable to the extent of the value of the property of the insured but in no case shall
it exceed the respective face value of each policy.
The only time when double insurance is not allowed is where the policy itself expressly prohibits
double insurance. The reason why some insurers do not allow this is that it increases the moral
hazard, especially kung nay double insurance and over insurance.
Sec. 94. Where the insured is overinsured by double insurance:
(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;
36 | P a g e
(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.
Double insurance is not the same as over insurance.

a. in double insurance there are several insurers, while in over insurance it needs only one
insurer
b. in double insurance its not always that the total value of the policy exceeds the insurable
interest, but in over insurance the total value of the policy always exceeds the insurable
interest
What is the effect if there is double insurance? Against whom are you entitled to recover?
Unless the policy otherwise provides (what we call the contribution clause or pro rata clause)
it means that each of the insurer is liable only to the extent of its respective liability.
Because take note in double insurance as far as the insured is concerned the liability of the
insurers is solidary. But among themselves they are liable jointly.
Assuming if the problem is silent, no indication that there is contribution or pro rata clause,
what is the rule? The insured is entitled to recover from any of X, Y, and Z.
Do you still recall? Here we go again with those computation.
Just dont forget these mga clause2x, kay kalit lang nya mu ask about ani mga clause ang examiner
ani sa bar exam.
REINSURANCE
What do you understand about reinsurance?

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By the word itself it means that you insure again. It is actually a contract where the insurer
procures an insurance to insure against loss or liability arising from the original insurance. So
meaning we will have the insured, insurer, and reinsurer. Between the insured and insurer is
the contract of insurance. And between the insurer and reinsurer is the contract of
reinsurance.
Sometimes called insurance of an insurance. Like the famous Lloyds of London. But no more
re-reinsurance.
What is the purpose of reinsurance?

Because of the nature of the insurance business wherein there is a retention limit, which is
the maximum amount or risk that an insurance company could assume. In fact it is even
mandatory that if the risk assumed already exceeds 20% of your net worth, then you are
required to reinsure. Naa kay limit that kutub lang ka diri ha, if mulapas na gani ka ani, dili
naka pwede mo issue ug insurance. And its unlikely for business. Because if naa kay client,
imo nalang balibaran? Ayaw na kay exceed nako sa limit. So to remedy that situation you are
allowed to reinsure.
In effect, in reinsurance you are transferring a portion or whole of the risk to the reinsurer.
What is that risk? The risk arising from loss or liability arising from the original insurance.
Reinsurance vs Double Insurance

a. Insurer becomes the reinsured in reinsurance, while he remains the insurer in double
insurance
b. In reinsurance the subject matter is the insurers risk of loss or liability, while in double
insurance the subject matter is the property or fire
c. In reinsurance different risk or interest, while the same interest and risk is involved in double
insurance
Under the contract of reinsurance in Sec. 96, since this is still an insurance, the reinsured is
required to disclose to the reinsurer whatever representations made by the original insured or any
information within the knowledge of the reinsured concerning the original insured. Because after all
iyang gi assume na risk has something to do with the original contract of insurance.
An important principle in reinsurance: A reinsurance is a contract of indemnity against a
liability not just against damage.
This means that the reinsurer is not liable to the reinsured if the reinsured does not incur any
liability against the original insured. Or the reinsurer is liable to the reinsured even if the
reinsured has not yet paid the original insured so long as the reinsured has incurred liability.
Because it is not about damage but about liability. The moment the liability attaches to the
reinsured, the reinsurer is liable. But if wala sad liability and reinsured then no liability ang
reinsurer.
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Assuming a loss has occurred wherein B a reinsured is already liable to A the insured, but
cannot pay because he is insolvent. Can B go after C, the reinsurer, even if he has not paid
anything to A because he is insolvent?
Yes, because it is an indemnity for liability which has attached to B, even if he has not paid
anything to A. Or C cannot raise as a defense that B must pay first A before he can be made
liable.
But if B is not liable to A because the contract was void or misrepresentation, B cannot
recover from C because there is no liability.
What is the extent of the reinsurers liability as against the reinsured?
Like if the policy is for 1 million. Can I B, obtain a reinsurance with C for more than 1 million?
No. As a rule the reinsured cannot obtain a reinsurance more than that of the liability to the
original insured and because also it is a contract of indemnity.
Another principle: A contract of reinsurance is separate and distinct from the contract of
insurance.
Meaning that if B cannot pay, can A the original insured go after C?
No, because A is not a party to the contract of reinsurance.
Exception: If the contract of reinsurance itself provides that the original policy holders can
go after the reinsurer. Stipulation pour atrui, stipulation in favor of 3 rd persons.
But the reinsurer can raise defense as against the reinsured, the same defense which the
reinsured himself could raise against the original insured.
Like for example C is aware that there is a fraud or misrepresentation in the original
insurance, he can raise that defense against B, so that he will not be liable.
Right of subrogation still exists in reinsurance. So after paying the reinsured he can go after
whoever is the liable party. (not the original insured, laughter :] )
Insurance Law Atty. Larrobis
Carlo Salva Gwapo
October 9, 2010
Lets go now to classes of insurance, I will just include the important provisions
Marine Insurance
Sec. 99 provides for the coverage of marine insurance. Unlike the old law or provision that
traditional kayo ang marine insurance where it is limited only to risks arising from marine
navigation. But right now if you look at the coverage of marine insurance under Sec. 99, it
include risks that would otherwise have been classified as some other insurance and not
marine insurance.
Sec. 99. Marine Insurance includes:
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(1) Insurance against loss of or damage to:

(a) Vessels, craft, aircraft, vehicles, goods, freights, cargoes, merchandise,
effects, disbursements, profits, moneys, securities, choses in action, evidences of
debts, valuable papers, bottomry, and respondentia interests and all other kinds
of property and interests therein, in respect to, appertaining to or in connection
with any and all risks or perils of navigation, transit or transportation, or while
being assembled, packed, crated, baled, compressed or similarly prepared for
shipment or while awaiting shipment, or during any delays, storage,
transhipment, or reshipment incident thereto, including war risks, marine
builder's risks, and all personal property floater risks;
(b) Person or property in connection with or appertaining to a marine, inland
marine, transit or transportation insurance, including liability for loss of or
damage arising out of or in connection with the construction, repair, operation,
maintenance or use of the subject matter of such insurance (but not including life
insurance or surety bonds nor insurance against loss by reason of bodily injury to
any person arising out of ownership, maintenance, or use of automobiles);
(c) Precious stones, jewels, jewelry, precious metals, whether in course of
transportation or otherwise;
(d) Bridges, tunnels and other instrumentalities of transportation and
communication (excluding buildings, their furniture and furnishings, fixed
contents and supplies held in storage); piers, wharves, docks and slips, and other
aids to navigation and transportation, including dry docks and marine railways,
dams and appurtenant facilities for the control of waterways.
(2) "Marine protection and indemnity insurance," meaning insurance against, or against
legal liability of the insured for loss, damage, or expense incident to ownership,
operation, chartering, maintenance, use, repair, or construction of any vessel, craft or
instrumentality in use of ocean or inland waterways, including liability of the insured for
personal injury, illness or death or for loss of or damage to the property of another
person.
To mention a few, we have no. 1.
Marine insurance now covers loss or damage to aircraft. If you insure your aircraft pala, it is
now marine insurance. Because previously it is not covered under marine insurance because
its not connected to a marine peril.
Second one under the new law/provision.
Marine insurance also includes loss or damage to goods or merchandise while this
merchandise are being assembled, packed, crated, compressed or similarly prepared for
shipment. Unlike before where it covers only during the course of navigation. During the
course of the voyage. But karon, even if the goods wala pa na loaded sa vessel, but so long
this merchandise were assembled, packed, crated or similarly prepared for purposes of
shipment, they are covered by marine insurance. Therefore the determining factor is
whether or not they are assembled, packed, crated or similarly prepared for shipment. If
they are packed for shipment, even if they are not yet on the course of navigation, its still
covered by marine insurance. So if gi pack or gi assemble for shipping unya na wala or na
damage, even if not yet on navigation, covered na siya.
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Another thing
Loss or injury to person in connection with marine transit or transportation insurance. Except
lang loss by reason of bodily injury to a person arising out of ownership or use of automobile
because this is already covered by land transportation insurance or tpl.
Loss or damage to precious stones, metal or jewelry whether in the course of transportation or
otherwise.
This seems to be a misplaced provision no, kay even if naa ra sa inyo, ang jewelry sa inyo
safety deposit box, not in the course of transportation, that is still covered gihapon by
marine insurance because the law expressly uses the words in the course of transportation
or otherwise.
Another one
Insurance against loss or damage to bridges, tunnels or other instrumentalities of
transportation and communication, it is now covered by marine insurance.
So in addition to the traditional marine insurance where it covers only the vessel and the cargo it
now includes those things.
Now what are the risks covered by marine insurance.
We have war risks, builder risks
What are war risks?
Risks having a direct connection to war. Like gipabuto ang imo ship sa enemy during war.
But war risks does not include risks wherein it aggravates the maritime risks by reason of
war. Like for example a vessel is going to a port of destination and it receives information
that there is an ongoing war in the port of destination, so he goes back to the port of origin,
but it encountered another risk, and as a result there was a loss of the ship. That is not
covered by war risks because the loss is not directly due to war. Although it may be covered
by other risks.
Businessdictionary.com
Probability of loss of, or damage to, cargo, vessel, and/or passengers from derelict
torpedoes, floating mines, and from events such as armed rebellion, revolution, hostilities,
and civil unrest resulting from them. War risks are usually excluded from standard insurance
policies and have to be specifically included on payment of additional premium or a through
a separate policy.
Perils of the sea
Includes only those casualties due to the unusual violence or extraordinary action of the
wind and wave, or to other extraordinary causes connected with navigation, something not
foreseen or not attributable to the fault of the insured as compared to a peril of the ship
Peril of the ship
Ordinary action of wind and wave, ordinary wear and tear of ship, due to negligent failure of
ship owner to provide the vessel with the proper equipment, defective engine/pipes
41 | P a g e
Why is it important to distinguish perils of the sea vs perils of the ship?

Because as a general rule, marine insurance covers only perils of the sea. Unless it is an all
risk marine insurance policy.
All risk marine insurance policy
All types of risk whether related to marine peril or not. The burden of the insured is only to
prove that the vessel or the goods were lost or damage. After na niya ma prove, the burden
shifts to the insurer to prove that the cause of the loss is an excepted risk. We need not
prove that the cause of the loss was because of a specific risk, because it is an all risk
marine insurance policy.
Like for example, ordinarily if it is not an all risk marine insurance policy, like you insure your cargo
only against peril of the sea, and in the course of the voyage some of the cargo were stolen or
pilfered. Can you recover under perils of the sea?
No because the loss of the cargo were not due to the perils of the sea. It is not due to the
extraordinary action of the wind and the sea. But if it was an all risk marine insurance policy,
then it is covered.
Pirate attacks
Not perils of the sea according to mam, not also perils of the ship, you have to obtain an all
risk policy to cover that, but even then, nay uban policy mu specifically exclude that type of
sea
Includes damage from sea animals it could be extraordinary, something not foreseen, still covered
as peril of the sea.
Now what about a cargo insured against peril of the sea, And this cargo pertains to steel pipes and
in the course of the voyage ni rust ang steel pipes, can you recover under perils of the sea? Take
note marine insurance covers not only ship but also cargo. Like you insure your cargo against peril
of the sea and it consists of steel pipes, and ni taya siya, can you still recover? No mention of
negligence. Ni rust lang gyud siya in the course of the voyage.
In the case of Tatay Insurance Co. vs CA, the court said that it is still covered by perils of the
sea because the rusting of the steel pipes was caused by the wind water and salt conditions.
A cargo consisting of sacks of rice, and the sacks of rice were stored in the compartment but the
seawater entered the compartment through a defective pipe. Is the insured entitled to recover,
under a policy covering perils of the sea?
No. The insured cannot recover because it is no longer a peril of the sea but it is a peril of
the ship. The reason why the seawater entered the compartment was due to the defective
drain pipe. So kung naa gani mga defect whatsoever in the engine, etc., that is no longer
peril of the sea, but peril of the ship.
In order for the insured to recover under a marine insurance policy insuring perils of the sea, same
principle. Perils of the sea must be the proximate cause of the loss.
42 | P a g e
For example, a perishable cargo was loaded on the vessel and in the course of the voyage the
perishable cargo started to rot and started to smell. And for the safety of the passengers the
perishable goods need to be thrown overboard, so gilabay siya. The insured now filed a claim
against the insurer. Is the insured entitled to recover under perils of the sea?
What is the proximate cause? The condition of the wind and the salt
Immediate of the cause? Throwing of the goods overboard
The court said that it is still covered under perils of the sea.
Another case wherein the vessel was shipwrecked due to a storm and unfortunately it was
"shipwrick"to a barbarous coast. And it was burned by the natives. WON still covered under perils of
the sea?
Proximate cause Shipwrick
Immediate cause - Burning by the natives
Since the proximate cause is still peril of the sea, therefore the insured can still recover
Can you distinguish now peril of the sea against peril of the ship? (silence, blank faces)
Peril of ship basta ordinary wear and tear, something to do with the deffective engine/parts. Or in
case of cargo, deffective iyang pagka pack or store, etc.
Now, on to insurable interest. k?
Is the insurable interest of the owner of the vessel affected by the fact that it is chartered?
(Charter - you rent a vessel, either for a particular voyage or the whole vessel, demise or bareboat,
or voyage)
For example, the value of the chartered vessel is 10 million. Under the charter agreement the
charter undertakes to pay the owner of the vessel 6 million in the event that the vessel is lost.
Question, can the owner of the vessel still insure his vessel even though it is already subject to a
charter agreement? For how much?
Yes. 10 million, because it is the extent of the insurable interest.
Legal basis. The law says that the insurable interest of the owner of the vessel is not
affected by the fact that it is chartered.
Nganu man? It is still 10 million because you are not sure that you can recover 6 million from
the charterer. But! if you can recover 6 million then the liability of the insurer would only be
for four million.
Or assuming you recovered only 5 million from the charterer, then you can still recover from
the insurer 5 million. ok?
But kung ang pangutana, how much can you insure?
Then ang extent sa imong insurable interest, which is 10 million. Such that if you cannot
recover anything from the charterer then you can get 10 million from the insurer.
43 | P a g e
What is the right of the insurer? After paying 4 million to the insured? Can he go after the charterer?
Can he exercise right of subrogation and go after the charterer?
No. Because liability of the charterer is only 6 million.
So again, even if the vessel is chartered the insurable interest of the owner is not
affected.
What about the charterer? Can the charterer insure the vessel for his own interest? Does the
charterer have insurable interest over the vessel?
Yes. The basis is that it would create a liability against him.
So for how much can the charterer insure the vessel? He can insure it for 6 million. The
extent of his liability.
What about if the vessel is subject to a loan on bottomry or respondentia if cargo?
Loan on Bottomry(vessel is security), Respondentia(collateral is cargo) - The loan is payable
only if the vessel given as a security for the loan completes its voyage safely. Normally the
lender is entitled to higher rate of interest.
What if it does not complete its voyage? Or it does not return safely to the port of origin?
What happens to the loan?
The loan is extinguished.
If the vessel is subject to bottomry or the cargo is subject to respondentia, what is the extent
of the insurable interest of the owner of the vessel or cargo?
It is the value of the vessel or cargo less the amount of the loan on bottomry or
respondentia.
Like for example if the value of your vessel is 10m and it is subject to a loan on bottomry of
10 m, the extent of the insurable interest of the owner of the vessel is only 6m. So up to 6m
you can insure your vessel. So if the vessel is lost you can also recover from the insurer up
to 6m.
Nganu 6m raman? Nganu ganiha 10m?
Because you already benefited from the 4m loan, and if something happens to the vessel,
the loan is extinguished. So all in all, you still get 10m. (class: aaaaaahhhh)
This principle applies the same to the owner of a cargo.
What about on the part of the lender? Does he have insurable interest over the
vessel/cargo?
Yes. the extent is the amount of the loan.
So both the owner of the vessel/cargo and the lender have insurable interest. But lahi lang
ang extent sa ilang insurable interest.
Do not confuse that with insurable interest regarding charter agreement. OK?
44 | P a g e
Concealment.
Sec. 108. In marine insurance, information of the belief or expectation of a third person,
in reference to a material fact, is material.
Sec. 110. A concealment in a marine insurance, in respect to any of the following
matters, does not vitiate the entire contract, but merely exonerates the insurer from a
loss resulting from the risk concealed:
(a) The national character of the insured;
(b) The liability of the thing insured to capture and detention;
(c) The liability to seizure from breach of foreign laws of trade;
(d) The want of necessary documents;
(e) The use of false and simulated papers.
Same rules as in other types of insurance applies also to marine insurance except as to two things.
1. You are required to disclose information coming from third person provided that
information is material to the risk
2. If you conceal the facts mentioned in Section 110, as a general rule the insurer is liable.
The insurer will not be liable only if the fact concealed was the cause of the loss.
In ordinary insurance, are you required to disclose information coming from a third person?
No. But in marine insurance the insured needs to disclose that information to the insurer
provided that that information is material to the risk.
So the difference is that in marine insurance, even information coming from third persons,
expectation or belief coming from third persons which are material to the risk must be
disclosed by the insured to the insurer.
In ordinary insurance, even if you did not disclose that, there is no concealment. But in
marine insurance that is already concealment.
What is another difference?
When there is concealment of material fact the other party is entitled to rescind the contract
whether or not the fact concealed is the cause of the loss. But in marine insurance that is
not the rule.
Sec. 110, as a rule even if you conceal these things there is no concealment, you will only be
liable for concealment if the loss was due to the fact concealed. Therefore ma exonerate
lang ang insurer if the cause of the loss is because you concealed these facts. So if it is not
the cause of the loss, even if you concealed it, there is no concealment.
Example. You concealed the nationality of a vessel. You represented it as British but actually
it is american. And during the war it was captured by the enemies of america, and it was
destroyed by them.
In this case the insurer is not liable. Why? Because the fact concealed is the cause of the
loss.
But if the facts were different. Even if you concealed it as British even though it is American,
but the loss was due to a storm. The insurer is still liable.
45 | P a g e
But limited only to items mentioned in Section 110. If it is other things. The general rule on
concealment would apply.
Warranties
What are some of the implied warranties in marine insurance?
Seaworthiness, Carry their documents, etc.
What do you mean by seaworthiness? When do you consider a vessel as seaworthy?
It is defined under Section 114 and 116.
Sec. 114. A ship is seaworthy when reasonably fit to perform the service and to
encounter the ordinary perils of the voyage contemplated by the parties to the policy.
Sec. 116. A warranty of seaworthiness extends not only to the condition of the structure
of the ship itself, but requires that it be properly laden, and provided with a competent
master, a sufficient number of competent officers and seamen, and the requisite
appurtenances and equipment, such as ballasts, cables and anchors, cordage and sails,
food, water, fuel and lights, and other necessary or proper stores and implements for
the voyage.
Under Sec.114, the vessel to be considered as seaworthy it must be fit to perform the service and
encounter the ordinary peril contemplated by the parties in the policy
So meaning, a vessel may be seaworthy for a particular vessel but it is not seaworthy for another
voyage. Like it may be seaworthy for inter island shipping but it is no longer seaworthy if mo adto
na siya ug intl water.
So ang seaworthiness is determined kung unsa ang gi contemplate sa parties sa policy. If the
parties contemplate to assume a risk for inter-island shipping, it is enough that the vessel is
seaworthy for that contemplated risk.
In addition to that, seaworthiness means that it must be manned by a competent crew and must
have the necessary navigational equipment, etc. etc.
So kung walay compass(*smile dayun si mam ni carlo ;) - carlo: "gwapaha jud ni mam oi" with
matching smile :D*), it is not seaworthy, kung wala kay captain or ship engineer, it is not seaworthy.
Kung wala kay anchor, cables, not enough supply of food, light, water, etc. the vessel is not
considered as seaworthy.
When must the vessel be seaworthy? Kinahanglan ba the vessel be seaworthy all throughout the
voyage to comply with the implied warranty of seaworthiness? What if pag sugod seaworthy ko
pero in the middle of the voyage dili na? Is there a breach of implied warranty? (atty gwapa: May
lang ka sugod, hehehe, but sounds like, hmmhmmhmm) What are the requirements?
The general rule is the implied warranty of seaworthiness is complied provided
that vessel is seaworthy at the comencement of the voyage. Therefore prior or
subsequent un-seaworthiness does not affect the warranty.
46 | P a g e
For example, the voyage is from manila to cebu. So long as the vessel is seaworthy at the
time it left the port of manila, you already comply with the warranty of seaworthiness. Even
if subsequently during the voyage near mindoro, dili na siya seaworthy, there is no breach of
the implied warranty. That is the general rule.
Exceptions:
1. Time Policy - The insurance policy does not cover only from Manila to Cebu, but it covers a
certain period of time.
Lets say it covers a period of one year. And in the one year, it is estimated that you have 12
voyages. It is required that at the commencement of each voyage the vessel must be
seaworthy. Dili lang sugod sa tu-ig. But from the commencement of each voyage. First,
second, dapat in all of the commencement of the voyages, the vessel must be seaworthy.
Such that if at the commencement of the 3rd voyage, dili na siya seaworthy, then there is a
breach of implied warranty of seaworthiness.
2. Cargo Policy - What is insured here is not the vessel but rather the cargo. Take note that the
implied warranty does not only apply to the owner of the vessel but also to the owner of the cargo
insuring it against perils against the sea, or obtaining a marine insurance policy. What is the rule
here?
Because the owner of the cargo is required to look for a carrier or vessel who is seaworthy.
While the owner of a cargo may not have a control over the vessel but he certainly has
control over his choice of vessel that would carry his cargo. So therefore kung ikaw ang
owner sa cargo and you obtain a marine insurance policy, the implied warranty of
seaworthiness still applies to you. So meaning, dapat mangita jd ka ug vessel/carrier that is
seaworthy.
So if it is a cargo policy, and under the cargo policy it is "stepulated" that the cargo is to be
transhipped, duha ka shipment. Like for example from Cebu to Manila and then from Manila
to TawiTawi. Assuming these are two different vessels, under the cargo policy it is required to
comply with the implied warranties of seaworthiness that from Cebu to Manila it must be
seaworthy. As well as the voyage from Manila to TawiTawi the vessel must be seaworthy. It is
not enough that the vessel is seaworthy from Cebu to Manila, the vessel must also be
seaworthy from Manila to TawiTawi. Because this talks about transhippment, gibalhin ba. Dili
lang usa ka vessel ang mu carry. So it is required that each of these voyages, the vessel
must be seaworthy.
3. Voyage Policy - The vessel must be seaworthy at every portion of the voyage. So in a voyage
policy, different ang portion, it contemplates of different stages. One voyage in different stages.
Like Port A to Port B, Port B to Port C, port C to port D. The vessel must be seaworthy at the
commencement of voyage from port A to port B. Port B to port C. Port C to port D. Unlike
katong ordinary lang, wherein it contemplates only of one voyage, and you need to be
seaworthy only at the commencement of that voyage.
So if the policy covers several voyages, determined, lahilahi. The vessel must be seaworthy
at each of this voyages.
Do you understand? (silence) Okay, we'll see.
47 | P a g e
What if during the voyage the vessel becomes unseaworthy? What is the effect, the liability of the
insured?
No breach of warranty because it is only required at the commencement of the voyage.
Can you recover?
Yes
Sec. 118, But the rule is that if subsequently the vessel becomes unseaworthy, there is a duty on
the part of the insured to undertake necessary repairs without unreasonable delay.
Sec. 118. When the ship becomes unseaworthy during the voyage to which an insurance
relates, an unreasonable delay in repairing the defect exonerates the insurer on ship or
shipowner's interest from liability from any loss arising therefrom.
And if simbako you did not undertake the necessary repairs within reasonable time and a loss has
occured due to the defect which you did not repair, can the insured still recover?
No.
But even if there is defect and you did not repair it, if the loss occurred due to another
defect you can still recover.
So to exonerate the insurer the cause of the loss must be that defect which you did not
undertake to repair.
Example, at the commencement of the voyage seaworthy, but in the middle of the voyage
naay defect ang drain pipe. As a rule you must undertake necessary repairs but imo
gipasagdan hangtod na abtan mu ug storm and the vessel sank.
Is the insured entitled to recover?
Not anymore because of not repairing the defect. (note: even if there was repair, but there
was unreasonable delay in doing it, it is submitted that it will still exonerate the insurer)
So because of the defective drainpipe and wala nimo gi repair, diha ra mo sa lawod, ang
seawater ni sulod sa defective drainpipe and the vessel sank as a result. Is the insurer
liable? Noo,yeee, aw noooo! (laughter) Because the cause of the loss was the defective
drainpipe. But if the loss happened because of something else, nothing to do with the
defective drainpipe, then insurer still liable and you can still recover.
Asa man d i na mo cum in mam ang peril of the sea? In that case the proximate cause of the
loss was not peril of the ship. It was peril of the sea. Although there was a defective
drainpipe but it was not bec--Like in one case, the vessel broke it's shaft (kalouy ma boak ang shaft :D) during voyage,
and the ship owner did not undertake the necessary repairs, gipasagdan lang niya. Later
naay leak ni sprung sa vessel, and because of that, the vessel sank. WON the insurer liable?
Court: The insurer is still liable because the cause of the loss was not the broken shaft but
because of the leak.
48 | P a g e
Q: What if naay defect and gi repair nimo within reasonable time, but ni sink gihapon ang vessel
even after the repair, and it was because of the defect, insurer liable?
Yes. Because the only time ma exonerate siya is that there is unreasonable delay in
undertaking the necessary repairs.
Another implied warranty; That the vessel will not undertake improper deviation.
What do you mean by deviation?Kanus.a man mo deviate ang vessel?
Departure from the designated course or voyage. When you deviate from the agreed
voyage. Unreasonable delay in pursuing the voyage or you commence an entirely different
voyage.
Ex. You have a voyage from manila to mindoro, and you need to pass a certain straight, but
instead of passing that straight, you passed another route-a. Or unreasonable delay in
pursuing the voyage;ni hunong ka sa port for unreasonable length of time without reason or
just cause. That is already deviation. Or commencing an entirely different voyage.
What is the effect if there is deviation or the deviation is improper?
Any loss arising from improper deviation the insurer is not liable. So if na "shipwrick" ka
didto or naunsa wherein u made an improper deviation, the insurer is not liable.
When is deviation proper? (wherein insurer still liable)
1. When it caused by circumstances beyond the control of the owner of the ship.
Ex. On the way to your destination, you receive information nga naay mga pirates anang
lugara, so you make a deviation to avoid the pirates
2. When it is necessary to comply with a warranty
Ex. There is an express warranty that the vessel must havea radio operator or must have a
first engineer, and in the course of the voyage namatay na sila. Therefore you make a
deviation at a particular port to get a new radio operator or first engineer
3. When a deviation is necessary to avoid a peril
Ex. Like you receive an information that on the course of your voyage there is a storm, so
you make a deviation, this is very common
4. When deviation is made in good faith for purposes of saving human life or to save another
vessel in distress
Loss
Loss could either be total or partial. A loss that is not total is partial. (laughter) A total loss could
either be actual or constructive.
Actual loss - actual loss, damage beyond repair, total sinking, or other loss that would totally
deprive the owner competely
49 | P a g e
Constructive loss - wala pay total loss but the degree or extent of the damage is such that it
entitles the owner of the vessel to exercise right of abandonment. like if the actual damage is more
than 3/4 of the value (important)
Now if there is constructive loss, 2 options are available to the owner, he could exercise either, or:
1. Right of Abandonment - he relinquishes all right whatsoever to the vessel, and in that
case he can recover from the insurer as if there is actual total loss
2. Not abandon - but can only recover from the insurer partial loss, to the extent of the loss.
but whatever salvage remains of the vessel, i am entitled
kay kung mu abandon ko, im no longer entitled to salvage, it now goes to the insurer
Note, you can only exercise right of abandonment when there is constructive loss, and there
is constructive loss if the damage is more than 3/4 or more than 75%.
Measure of indemnity, Sec. 156, simply means that the valuation agreed in the policy is valid and
binding. Same as valued policy, right?
Sec. 156. A valuation in a policy of marine insurance in conclusive between the parties
thereto in the adjustment of either a partial or total loss, if the insured has some
interest at risk, and there is no fraud on his part; except that when a thing has been
hypothecated by bottomry or respondentia, before its insurance, and without the
knowledge of the person actually procuring the insurance, he may show the real value.
But a valuation fraudulent in fact, entitles the insurer to rescind the contract.
Sec. 157. A marine insurer is liable upon a partial loss, only for such proportion of the
amount insured by him as the loss bears to the value of the whole interest of the
insured in the property insured.
Sec. 158. Where profits are separately insured in a contract of marine insurance, the
insured is entitled to recover, in case of loss, a proportion of such profits equivalent to
the proportion which the value of the property lost bears to the value of the whole.
Sec. 159. In case of a valued policy of marine insurance on freightage or cargo, if a part
only of the subject is exposed to the risk, the evaluation applies only in proportion to
such part.
Sec. 157, co-insurance, we already understand what is co-insurance, right?

Sec. 158, 159, 156, actually talks about insurance on profits. Like for example you are the owner of
a cargo, you can insure the cargo and at the same time you can also insure the expected profits on
that cargo.
What is the basis of your insurable interest?
Expectancy founded on an existing right.
You can insure your cargo and profits on that at the same time.
Now if you insure both, if the cargo is lost there is a presumption that the profit is also lost. If
mawala ang cargo, automatic that you can also recover insurance on the profits.
50 | P a g e
What if partial lang ang loss sa imo cargo? Pila man ang insurance sa profits imo ma recover?
Same extent as that of the lost cargo. Like if 50% and na loss na cargo, so you can also
recover 50% on the insurance on lost profits.
So basically those are the important things on marine insurance. I willl not discuss anymore,
average, gen. average, you have that in transportation law.
In fire insurance, we have already discussed this. Fire insurance covers only hostile fire. Loss arising
from lightning, windstorm, tornado, etc. are covered provided there is a separate payment of
premium. As a rule, kung fire, fire lang gyud. Allied risk are covered provided it is specified in the
policy.
Co-insurance, we have already discussed this.
Now finally, last nalang (Class: Sigh)
Life insurance.
When is the insurer liable in case of death suicide, death in the hands of the law, or the insured is
killed by the beneficiary?
1. Suicide - Insurer liable? It depends. In life insurance policy, if the insured committed
suicide, thats under Sec. 180-A, a new provision, if the insured committed suicide after two
years from the effectivity of the policy or after its last reinstatement, the insurer is liable,
whether sane or insane. you like that? parang it encourages suicide, for me they should still
be not liable regardless ug kanus-a niya gi commit. But this is the law, parang
incontestability clause ba.
Last reinstatement, kanang ni expire nya imo gi revive balik.
Or if committed in a shorter period provided in the policy. So kung mi ingon ang policy,
pwede naka magpakamatay, insured can recover.
Or if the insured committed suicide, while insane. Regardless kung kanusa niya gi commit
basta it was committed in a state of insanity, the insurer is liable. Unless the policy expressly
stipulates whether sane or insane, not liable.
Take note: two years is the maximum and it cannot be extended. If the policy extended it to
3 years, that is null and void. Same as incontestability clause. k?
Sec. 180-A. The insurer in a life insurance contract shall be liable in case of suicides only
when it is committed after the policy has been in force for a period of two years from
the date of its issue or of its last reinstatement, unless the policy provides a shorter
period: Provided, however, That suicide committed in the state of insanity shall be
compensable regardless of the date of commission. (As amended by Batasang
Pambansa Blg. 874).
51 | P a g e
2. In the hands of the law - like lethat injection, or gas chamber, is the insurer liable?
generally yes, unless "stepulated".
3. Killing of the insured by the beneficiary - Insurer liable but it will not go to the
beneficiary but it will go to the nearest relative of the killed insured. (nyahahha, class
laughs) follow intestate succession
So our exam is next friday, 7.30-9.00 in the moot court, same coverage as that in pre finals, plus a
few things that i discussed. Same multiple choice. Some of you still explained even though the
instructions were very clear, it cost you time. Letter only.
52 | P a g e

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INSURANCE LAW DISCUSSION TRANSCRIPTIONS OF ATTY.

LAROBIS FINALS COMPILATION

August 14, 2010

But what is the penalty for the insurer? Is he subject to penalty?

INSURANCE LAW DISCUSSION TRANSCRIPTIONS OF ATTY. LAROBIS FINALS COMPILATION

You have the case of Tang vs CA

Issue: WON the insurer is liable?

It was the insured.

There are two views:

What is the purpose of this rider?

INSURANCE LAW DISCUSSION TRANSCRIPTIONS OF ATTY. LAROBIS FINALS COMPILATION

Must the party sign in the rider?

When countersignature needed:

Sec. 51. A policy of insurance must specify:

What are the informations contained in the policy? Sec. 51

What if there is a misspelling in the name does it affect?

Amount of the insurance

There are factors in fixing the premium

INSURANCE LAW DISCUSSION TRANSCRIPTIONS OF ATTY. LAROBIS FINALS COMPILATION

Previous medical history

Type of construction material used

Condition of the facility

Use of the building

Interest if not the absolute owner

III. Cover Notes (Section 52)

How come the formal policy cannot be issued?

It depends on what is written on the cover slip or cover note.

If silent it means that it offers an immediate protection.

INSURANCE LAW DISCUSSION TRANSCRIPTIONS OF ATTY. LAROBIS FINALS COMPILATION

We have this case of Bonifacio brothers vs Mora

Are they entitled to recover under the policy?

INSURANCE LAW DISCUSSION TRANSCRIPTIONS OF ATTY. LAROBIS FINALS COMPILATION

- Sec. 55 talks about an insurance obtained by a co-owner or a partner. Unless it is stated in

Sec. 57 weve already discussed this when we discuss section 20.

Sec. 58 again is just a reiteration of principle under section 20.

Section 59, Types of policy

VI. Open Policy (Section 60)

INSURANCE LAW DISCUSSION TRANSCRIPTIONS OF ATTY. LAROBIS FINALS COMPILATION

Commencing an action here means what? It is the filing of a case in court.

o Commencement of action includes filing of case with (provided it relates to insurance

INSURANCE LAW DISCUSSION TRANSCRIPTIONS OF ATTY. LAROBIS FINALS COMPILATION

When did the goods arrive or when was it unloaded?

INSURANCE LAW DISCUSSION TRANSCRIPTIONS OF ATTY. LAROBIS FINALS COMPILATION

INSURANCE LAW DISCUSSION TRANSCRIPTIONS OF ATTY. LAROBIS FINALS COMPILATION

Insurer, in exercising the right of subrogation is bound

Mayer and South

Mayer and Carrier: Based on the Contract of

South Sea liable!

Take Note: Could have actually refused

INSURANCE LAW DISCUSSION TRANSCRIPTIONS OF ATTY. LAROBIS FINALS COMPILATION

Filed a 3rd Party

3rd Party Complaint against carrier

Insurer cannot file a 3rd party complaint!

INSURANCE LAW DISCUSSION TRANSCRIPTIONS OF ATTY. LAROBIS FINALS COMPILATION

prior notice of cancellation

based on the occurrence of the following grounds

the notice of cancellation must be in writing

must state the grounds for cancellation

Relate this to Section 65.

What is the purpose of prior notice?

SC: notice of cancellation is not valid.

Or the contention of the insured that he did not received notice.

SC: it is the insureds contention that prevails.

XI. Renewal of Policy (Section 66)